Civil and Administrative Tribunal New South Wales Medium Neutral Citation: McIntyre v DRW Constructions Pty Ltd; DRW Constructions Pty Ltd v McIntyre [2018] NSWCATCD 58 Hearing dates: On the papers Date of orders: 19 October 2018 Decision date: 19 October 2018 Jurisdiction: Consumer and Commercial Division Before: K Rosser, Principal Member Decision: (1) A hearing on costs is dispensed with in accordance with s 50(1) (c) of the Civil and Administrative Tribunal Act 2013. (2) The parties are to pay their own costs of proceedings HB 14/51956 and HB 16/15535. Catchwords: Costs – apportionment of costs – Calderbank letter – whether settlement offer unreasonably refused Legislation Cited: Civil and Administrative Tribunal Act 2013 Civil and Administrative Tribunal Rules 2014 Home Building Act 1989 Cases Cited: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 Gretton v Commonwealth of Australia [2007] NSWSC 149 Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 Hogan v Trustee of the Roman Catholic Church (No 2) [2006] NSWSC 74 James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 Macourt v Clark (No 2) [2012] NSWCA 411 Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 Ruddock v Vadarlis [2001] FCA 1865 Sydney Ferries v Morton (No 2) [2010] NSWCA 238 Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385 Texts Cited: Nil Category: Costs Parties: HB14/51965: Helen McIntyre and William McIntyre (Applicants) DRW Constructions Pty Ltd (First Respondent) David Workman (Second Respondent) HB16/15535: DRW Constructions Pty Ltd (Applicant) Helen McIntyre and William McIntyre (Respondents) Representation: Counsel: Mr Loewenstein ( Applicants in HB 14/51956 and Respondents in HB 16/15535) Mr Jordan ( Respondents in HB 14/51956 and Applicants in HB 16/15535) Solicitors: Aubrey Brown Lawyers ( Applicants in HB 14/51956 and Respondents in HB 16/15535) Elsworthy Solicitors (Respondents in HB 14/51956 and Applicants in HB 16/15535) File Number(s): HB 14/51956; HB 16/15535 Publication restriction: Nil Reasons for decision Introduction 1. These reasons for decision concern an application for costs made by the respondents (the Builder and Mr Workman) against the applicants (the Owners). The costs application was received by the Tribunal's Registry on 5 February 2018. 2. For the reasons set out below I have dispensed with a hearing on costs and have ordered that the parties pay their own costs of the proceedings. 3. I apologise to the parties for the delay in publishing this decision. Background 1. The background to both applications and my findings of fact are set out in the reasons for decision in respect of the substantive applications. 2. In their application, the Owners' sought damages from the Builder in respect of: 1. Defective and/or incomplete works (the Defects Claim); 2. Delay (the Delay Claim); and 3. Breach of contract giving rise to excessive costs being charged (the Costs Claim). 1. The Owners also sought damages from Mr Workman in respect of breach of the Australian Consumer Law (the ACL Claim). 2. The Owners sought damages against both the Builder and Mr Workman for loss of use of monies. This part of the Owners' application depended on the Costs Claim and ACL Claim. The Owners also sought an order for payment of costs. 3. The Owners argued the Costs Claim and the ACL Claim in the alternative and put forward alternative methods of calculating damages. 4. The Builder's claim was also argued in the alternative. The Builder conceded that its application was out of time and sought recovery by way of equitable set-off of the sum of $13,179.59 for five unpaid invoices relating to work performed between 2011 and 2013. In the alternative, the Builder sought payment of $6,306.51 (which the Builder claimed the Owners had admitted was due and payable) and $2,032.80 by way of quantum meruit. 5. As a result of a conclave of experts, the Defects Claim was reduced to $67,983.83. At the beginning of the hearing, eight items in the Scott Schedule remained in dispute. During the hearing the parties reached agreement on four of the disputed items, and the claim in respect of the remaining items in dispute was determined. The Owners were awarded damages in respect of agreed defects and damages in respect of one of disputed items. The Delay Claim was wholly successful. The Costs Claim and the ACL Claim (and therefore the claim for loss of use of monies) were wholly unsuccessful. 6. The Builder's application was dismissed because it was out of time. However, part of what was claimed by the Builder was set off against the Owners' damages award. 7. On 18 January 2018, I relevantly made the following orders: 1. DRW Constructions Pty Ltd is to pay Helen McIntyre and William McIntyre the sum of $31,255.73 immediately. 2. Proceedings HB 14/51956 are otherwise dismissed. 3. Proceedings HB 16/15535 are dismissed. Evidence and submissions 1. In making a decision, I have considered the parties' written submissions on costs and the reasons for decision in the substantive applications. Builder's submissions 1. The Builder and Mr Workman seek an order that the Owners pay 90% of their costs on the ordinary basis until 23 May 2016 and thereafter on an indemnity basis. 2. In summary, the Builder and Mr Workman submit that: * The Owners failed on all but two issues at the hearing (item 15 of the Defects Claim and the Delay Claim). * The Owners obtained 6% of the amount they sought to recover in their points of claim. * In relation to the Owners' defects claim, the Builder accepted liability for $26,830.78 of defects. * The Owners were successful in respect of only one of the disputed defects items. * An apportionment of costs is reasonable because each of the parties enjoyed a measure of success; considerations of proportionality would make it unjust for there to be no apportionment of costs; the Owners' case was conducted in a "Rolls Royce" fashion; two of the Owners' claims failed in their entirety; the issues on which the Owners failed were the greater part of the Owners' claim both in monetary terms and by the time occupied in the proceedings; the issues were separable and distinct. * An order for payment of 90% of the Builder's costs is appropriate because the claims on which the Owners failed occupied approximately 90% of the proceedings and such an apportionment reflects the Builder's and Mr Workman's success in the proceedings. * On 23 May 2016, the builder offered to settle the Defects Claim for $30,000. This represented a genuine offer of compromise. The offer was open for a reasonable period and it was unreasonable of the Owners not to accept it. Owners' submissions 1. The Owners oppose the costs application. In summary, they submit that: * The Tribunal may decline to make any costs order as the apportioning of costs between the parties will have the same effect as the parties bearing their own costs. * The costs application was not lodged in accordance with the Tribunal's orders, so the Tribunal may decline to hear the application on that basis. * The factors that may lead the Tribunal to apportion costs as between the parties are evenly balanced. * While the Tribunal may apportion costs between different claims, it is not required to do so and apportioning costs on the basis of time taken in the proceedings is not appropriate given the Tribunal's procedures. * It is difficult to precisely determine the proportion of the case occupied by each claim. The Defects Claim involved lay and expert evidence from both parties and expert evidence from the Owners. The Owners' other claims involved both lay and expert evidence from both parties. The Builder's cross-application required a defence and lay evidence. Both applications required submissions. * The Builder and Mr Workman were responsible for delays and non-compliance prior to the hearing and have not made any contribution towards the cost of obtaining transcript. * If the Tribunal were going to apportion costs, the Builder and Mr Workman should pay the Owners 47% of their costs and the Owners should pay the Builder and Mr Workman 45% of their costs. Issues 1. The issues to be determined are: * Should an order be made dispensing with a hearing in accordance with s 50(1) (c) of the NCAT Act? * Was the costs application lodged in time? * What costs provisions apply? * Should an order for costs be made in favour of the builder on an apportionment basis? * If so, what proportion of costs should be awarded to the builder? * Should the Builder and Mr Workman be awarded costs on the basis of an offer made in a Calderbank letter? * If so, on what basis should any order for costs be made? Consideration Should an order be made dispensing with a hearing in accordance with s 50(1) (c) of the NCAT Act? 1. Section 50 of the NCAT Act relevantly provides: 50 When hearings are required (1) A hearing is required for proceedings in the Tribunal except: … (c) if the Tribunal makes an order under this section dispensing with a hearing, or … (2) The Tribunal may make an order dispensing with a hearing if it is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering any written submissions or any other documents or material lodged with or provided to the Tribunal. (3) The Tribunal may not make an order dispensing with a hearing unless the Tribunal has first: (a) afforded the parties an opportunity to make submissions about the proposed order, and (b) taken any such submissions into account. (4) The Tribunal may determine proceedings in which a hearing is not required based on the written submissions or any other documents or material that have been lodged with or provided to the Tribunal in accordance with the requirements of this Act, enabling legislation and the procedural rules. … 1. The parties were given an opportunity to make submissions concerning whether costs could be determined on the papers. 2. I am satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the parties' written submissions. 3. An order under s 50(1)(c) of the NCAT Act has accordingly been made. Was the costs application lodged in time? 1. The orders made in respect of the substantive applications included an order that any application for costs was to be made in writing to the Tribunal (with a copy sent to the other party) within 14 days of the date of publication of the reasons for decision. 2. As noted by the Owners in their submissions, any costs application should have been lodged by 5 February 2018. 3. The costs application was emailed to the Tribunal Registry on 2 February 2018 and apparently posted on the same date. The posted version was stamped as having been received by the Tribunal on 5 February 2018. I am satisfied that the costs application was made within time. 4. Even if that were not the case, I am not satisfied that the Owners were prejudiced by any delay in lodging the application, as they were fully able to respond to it. In such circumstances, even if the application was lodged late, I would extend time under s 41 of the Civil and Administrative Tribunal Act (the NCAT Act) What costs provisions apply? 1. The general rule in relation to costs in the Tribunal is that unless special circumstances are established, the parties pay their own costs: s 60(1) of the NCAT Act. 2. However, cl 38 of the Civil and Administrative Tribunal Rules 2014 (the Rules) modifies the application of s 60 in proceedings before the Consumer and Commercial Division of the Tribunal. Clause 38(2)(a) provides that in proceedings where the amount claimed or in dispute is more than $30,000, the Tribunal may award costs in the absence of special circumstances. 3. In this case, the amount claimed by the Owners was more than $30,000. Clause 38 of the NCAT Rules therefore applies. 4. Clause 38 gives the Tribunal a wide discretion to make an order for costs. It does not specify the factors the Tribunal must take into account in exercising the discretion, although the discretion to make such an order must be exercised judicially: see, for example, Ruddock v Vadarlis [2001] FCA 1865 at [9]. 5. In BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186 the Appeal Panel, having set aside a costs order made in the Consumer and Commercial Division, decided to re-exercise the costs discretion. Clause 38 was the applicable costs provision in that case. At [67] the Appeal Panel noted the following principles relevant to the exercise of the discretion: (1) the starting point is that a successful party should be entitled to an order for costs in his favour; (2) an award of costs is by way of an indemnity and not as punishment; (3) there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party; (4) the factors to be considered are not to be confined as to do so would constrain the general discretion; (5) the relative success of the parties on different issues and the time taken to determine them may be relevant; (6) the nature of the proceedings is relevant; (7) the proper exercise of the discretion requires a decision maker to do justice between the parties and to exercise the discretion having regard to relevant considerations and in a manner which is not arbitrary and capricious. Should an order for costs be made in favour of the Builder and Mr Workman on an apportionment basis? 1. The Owners have not applied for costs. 2. The Builder and Mr Workman submit that they should be awarded costs and that apportionment is appropriate because neither party can say that they were the successful party, because the issues on which the Owners failed were the greater part of the Owners' claims both in monetary terms and by the time occupied by those claims in the proceedings and because the claims were severable and distinct. 3. It is not in dispute that the Tribunal has the power to apportion costs. The general approach is to order costs in favour of the successful party based on the outcome of the proceedings as a whole, without differentiating between particular issues on which the party may not have succeeded. However, a different costs order can be made if the losing party succeeds on significant issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]–[36]; Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [10]–[12]; 4. A court will generally only apportion costs where the successful party was unsuccessful in respect of an issue that was clearly dominant or separable: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6]; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]. 5. In Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385, Campbell JA (with Macfarlan JA and Young JA agreeing) held at [107] that an issue or group of issues is "clearly dominant" when it is clearly dominant in the proceedings as a whole. In that case, the approach by counsel to analysing the percentage of costs between the parties - counting the proportion of paragraphs and pages devoted to each factual topic - was held at [84] to be "a highly artificial way of proceeding" which gave "a false air of mathematical precision". 6. In relation to separable issues, a successful party's entitlement to the whole of the costs of the proceedings should not be discounted to allow for another party's success in a separate issue that played a very minor part in the proceedings as a whole: Macourt v Clark (No 2) [2012] NSWCA 411 at [7]. Further, in Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 at [14], the Court of Appeal held that the severability of one issue on which the successful party failed is not, without more, sufficient to warrant departure from the general approach. The exercise of discretion will often depend upon matters of impression and evaluation: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [11]. 7. Where costs are apportioned, the nature and extent of the apportionment is discretionary. Mathematical precision is illusory: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272. 8. Finally, where each party has had substantial success, a court of tribunal may make no order as to costs: Hogan v Trustee of the Roman Catholic Church (No 2) [2006] NSWSC 74 at [40]. 9. It is not in dispute that the proceedings involved separable issues. I have considered whether the issues in respect of which the builder and/or Mr Workman were successful were dominant in the proceedings. 10. The dollar amount of a particular claim does not determine its dominance in the proceedings. Rather, regard must be had to all of the work involved in prosecuting and defending the parties' various claims, including but not limited to the time taken up at the hearing. 11. In this case, the Defects Claim involved both expert and lay evidence from both parties, the conduct of an expert conclave and the making of submissions. This was also true of the breach of the Costs Claim and ACL Claim. These claims all took up significant time at the hearing. The Delay Claim involved lay evidence from both parties and what was presented by the Owners as expert evidence. While it took up little time at the hearing, it was the subject of detailed submissions. The Builder's claim involved lay evidence from the parties and was also the subject of submissions. It also took up relatively little time at the hearing. 12. The lay evidence consisted of four affidavits from Mrs McIntyre, three affidavits from Mr McIntyre and two affidavits from Mr Workman. Much of the lay evidence went to the Costs Claim and the ACL Claim. In addition, the evidence of two experts (Mr Sturgess for the Owners and Mr Sadlier for the Builder and Mr Workman) related solely to the Costs and ACL claims. Much of the first day of the hearing was taken up with the evidence of the Owners and the third day of the hearing was taken up with the evidence of Mr Sturgess and Mr Sadlier. I conclude from this that the unsuccessful Costs and ACL Claims involved significant time and effort in the preparation of evidence and a significant part of the hearing. 13. However, as noted above, the Owners were wholly successful in the Delay Claim, which although it did not involve extensive evidence or occupy much time at the hearing, was fully contested by the Builder. 14. The Owners can also be considered successful in relation to the Defects Claim. In making this finding, I reject the submission made by the Builder that the Owners were only partially successful in this claim. The fact that the Builder conceded a number of items that the Builder's expert accepted were defective in his report or at the conclave and the fact that the Owners were only successful in relation to one of the items that remained in contest does not mean that Defects Claim was only partially successful. The Defects Claim also involved two expert reports (from Mr Waddell for the Owners and Mr Shepherd for the Builder), a conclave and the taking of concurrent evidence from the experts on the second day of the hearing. 15. In addition, the Owners were successful in their defence of the Builder's application, which was dismissed because it was lodged out of time. The fact that the damages awarded to the Owners were discounted to take into account outstanding payments found to be owing to the Builder does not make the Owners less successful in defending the Builder's application. This is because any monies owing to the Builder had to be accounted for in the assessment of damages, regardless of whether the Builder had lodged an application. 16. I conclude that the issues on which the Owners were successful were also dominant in the proceedings. Overall, I am not satisfied that the Builder's and Mr Workman's success in defending the Costs Claim and ACL Claim justifies an order for costs in favour of the Builder and Mr Workman, even though they occupied a significant part of the proceedings. This is particularly so in circumstances where the Owners have not made a costs application. Should the Builder and Mr Workman be awarded costs on the basis of an offer made in a Calderbank letter? 1. The Builder and Mr Workman rely on a Calderbank letter sent to the Owners on 23 May 2016 in support of a claim for indemnity costs. I have also considered it as a basis for claiming costs generally. 2. The Calderbank letter was sent after the conclave but before the finalisation of the joint report. The offer sets out an analysis of the Owners' claims and a breakdown of the Builder's offer. That offer was, in summary: 1. The Builder to pay the Owners $30,000, 2. The Builder to pay its own costs; and 3. Both applications to be dismissed. 1. An examination of the Calderbank letter indicates that the offer was calculated on the basis of the Defects Claim, less an amount referable to the Builder's cross-application, plus a sum described as an "ex gratia payment". The letter states that given that the Owners "repudiated the Contract", they were "not entitled to damages for defective works" and explains why the Builder considered that the Owners' other claims would be unsuccessful. The offer was open for 14 days from the date of the letter. 2. In Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344, Basten JA identified two questions relevant to a Calderbank offer. They are: * Whether there was a genuine offer of compromise, and * Whether it was unreasonable for the offeree not to accept it. 1. The determination of whether or not the rejection of an offer was reasonable is an evaluative judgment requiring a consideration of the facts and circumstances specific to the case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [19]. Further, reasonableness is not to be determined with hindsight. The strength or otherwise of the applicants' claim should be considered as at the time of the offer: Gretton v Commonwealth of Australia [2007] NSWSC 149. 2. Given that the offer was for payment of $30,000 and the Owners were ultimately awarded more than $30,000, it is arguable that the Calderbank letter is irrelevant to the issue of costs because the Tribunal's decision was more favourable to the Owners than was the offer. However, even assuming that the Calderbank letter is relevant to the issue of costs generally and also assuming that it was a genuine offer of compromise, I am not satisfied that it was unreasonable for the Owners not to accept it. 3. First, the offer did not take into account the Delay Claim, which the Builder incorrectly claimed was destined to fail. Second, on the evidence that the Owners provided, including the expert evidence provided by Mr Waddell in relation to the Defects Claim and Mr Sturgess in relation to the Costs and ACL Claims, it was reasonable for the Owners to take the view that they had a case to prosecute against the Builder and/or Mr Workman. Third, the assertion in the Calderbank letter that the Owners had repudiated the contract and were therefore not entitled to damages for defects cannot be sustained. The Defects Claim did not turn on issues of termination or repudiation. It concerned alleged breaches of statutory warranties in s 18B of the HB Act, which was a cause of action open to the Owners regardless of how the contract came to an end. 4. It is no doubt the case that the Owners would have saved considerable costs had they accepted the Builder's offer and not proceeded to a hearing. However, whether or not it is unreasonable to refuse a settlement offer cannot be assessed with the benefit of hindsight. 5. Overall, I am not satisfied that the offer made in the Calderbank letter justifies an order for costs in favour of the builder. Conclusion 1. In my view, both parties had a substantial degree of success in the proceedings. The proceedings therefore had a mixed result. I am satisfied that the proper exercise of the costs discretion in this case is for each party to pay their own costs. Orders 1. A hearing on costs is dispensed with in accordance with s 50(1)(c) of the Civil and Administrative Tribunal Act 2013. 2. The parties are to pay their own costs of proceedings HB 14/51956 and HB 16/15535. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 December 2018