BGC RESIDENTIAL PTY LTD and GIBSON

[2009] WASAT 247

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

STREAM:   COMMERCIAL & CIVIL

ACT: BUILDERS' REGISTRATION ACT 1939 (WA)

CITATION:   BGC RESIDENTIAL PTY LTD and GIBSON [2009] WASAT 247

MEMBER:   MR T CAREY (MEMBER)

HEARD:   16 OCTOBER 2009 AND 26 OCTOBER 2009

DELIVERED          :   26 OCTOBER 2009

FILE NO/S:   CC 865 of 2009

BETWEEN:   BGC RESIDENTIAL PTY LTD

Applicant

AND

RODNEY GIBSON
ANITA GIBSON
Respondents

Catchwords:

Building disputes - Costs - Principles governing review of decisions on costs - Whether offers made and their rejection to be taken into account in building cases - Inconsistency of decisions on point between two tribunals in some hierarchy - Whether only Calderbank offers fall to be considered

Legislation:

Builders' Registration Act 1939 (WA), s 36, s 36(1), s 38(4), s 41, s 42
State Administrative Tribunal Rules 2004 (WA)
Victorian Civil and Administrative Tribunal Act 1988

Result:

Leave to review granted in respect of BDT's refusal to have regard to offers of settlement and their rejection in determining costs application
Application for review dismissed

Category:    B

Representation:

Counsel:

Applicant:     Mr AW Buchan

Respondents                 :     Self-represented

Solicitors:

Applicant:     Hotchkin Hanly

Respondents                 :     Self-represented

Case(s) referred to in decision(s):

Commodore Homes (WA) Pty Ltd and Deegan [2007] WASAT 45

Donaldson Homes v Vero Insurance (Domestic Building) [2006] VCAT 179

Garner v Rohanna Pty Ltd [1999] WASCA 178

Messiter v Hutchinson (1987) 10 NSWLR 525

Ogden v BGC Residential Pty Ltd, BDT 0.17169 (19 December 2007)

Seow and Pillinger [2008] WASAT 308

Tangent Nominees Pty Ltd and Edwards [2005] WASAT 119

Westcourt Ltd and French [2007] WASAT 220

REASONS FOR DECISION OF THE TRIBUNAL: 

Summary of Tribunal's decision

1. The applicant sought review of a decision by the Building Disputes Tribunal not to award the applicant its costs in circumstances where the applicant had made various proposals to the respondents before the determination of the matter which it said were more favourable to the respondents than the ultimate result.  The main issue raised in the proceedings in this Tribunal was whether, in considering an application for costs, the Building Disputes Tribunal is able to have regard to offers made and rejected, whether or not the offers were in the nature of a Calderbank offer.

<p>2</p>The Tribunal decided that, contrary to the conclusion of the Tribunal below, and consistent with one of its previous decisions, the Building Disputes Tribunal can and should have regard to offers and the response to them under the relevant provision of the Builders Registration Act 1939 (WA), on the proviso that the offer complied with the Calderbank principles.  It therefore granted the applicant leave to review to that extent.  However, on its review of the various proposals relied upon, it found there was only one complying Calderbank offer.  However, the fact that this offer was made the day before the hearing was found to be a sufficient basis to dismiss the application for review.

<p>3</p>The Tribunal gave its decision orally at the end of the hearing.  Its reasons, taken from the transcript and edited in minor respects to aid clarity, were as follows.

Introduction

1. This is an application for leave to review and the review, assuming leave is granted, of a decision of the Building Disputes Tribunal (BDT) of a decision made on 3 June 2009, whereby the applicant's application for an order that the respondent pay its legal costs of $4,495.70 was dismissed.

2. The applicant builder was the respondent in the relevant proceedings before the BDT.  The respondent owners had made a workmanship complaint to the BDT regarding the quality of the mortar joints in their home which the applicant constructed.  The amount of the claim was in the range $20,592 to $25,000, plus inspection and investigation costs.  The BDT's reasons for decision on the substantive claim is before the Tribunal as part of Exhibit 1.  For present purposes, it is sufficient for the following concise summary of those reasons to be given.

3. The BDT found the particulars of the respondents' complaint to be limited to inadequacy of mortar used on the joints and the unsatisfactory outcome of the brick cleaning process, possibly by reason of the overly high acid concentration in an acid wash.  It dismissed an aspect of the complaint concerning structural inadequacy resulting from the state of the mortar.

4. Based on the lack of any relevant opinion evidence to support it, the BDT did find, based on a report by a chemist produced by the respondents and also the report of the Builders' Registration Board's inspector, that the mortar was friable, though not so much as to require that it be removed and re­pointed, which it attributed to the applicant's failure to correctly or adequately compress the mortar joints.  Based on its own specialist knowledge, the BDT awarded the applicant $2,000, representing the reasonable cost of the sealing the mortar, which it regarded as being necessary to rectify the applicant's omission.

5. The next relevant event was the applicant's application for costs in consequence of the decision to which I have just referred. The applicant relied primarily on the course of negotiations between the parties both before and after the filing of the complaint on 25 September 2007. The applicant asked the BDT to conclude that by reason of the failure of the respondent to engage in reasonable discussion regarding settlement, accept the applicant's reasonable proposal, and adduce any reasonable case, or any case at all, supporting their claim, the BDT ought to exercise its discretion under s 38(4) of the Builders' Registration Act 1939 (WA) (BR Act) in favour of the applicant's costs application.

6. It relied in particular upon a decision of this Tribunal in Westcourt Ltd and French [2007] WASAT 220 (Westcourt) as authority that the refusal of settlement offers is material to the question of whether an award of costs would be fair for the purposes of s 38(4) of the BR Act.

The BDT's reasons for decision

1. The BDT declined to follow Westcourt.  It noted that in its own earlier decision of Ogden v BGC Residential Pty Ltd, BDT 0.17169 (19 December 2007) it had adopted the same course and set out its reasons for doing so in that case, namely, that in its view, as a matter of construction, s 38(4) of the BR Act does not authorise the BDT to take into account the rejection of an offer of settlement. Further, it stated that Westcourt had been wrongly decided because it relied upon a decision of another jurisdiction dealing with a materially dissimilar decision.  Despite Westcourt, it arrived at the same conclusion on the construction point as in its previous decision.

2. The BDT went on to deal with the issue of the respondents' alleged lack of any evidentiary basis for their complaint and found that the respondents did rely on opinion evidence to bring their complaint, considered that the fact that they were unsuccessful is not sufficient to justify a costs order, and laid some blame at the feet of the applicant for its failure to provide an expert's report in response to the structural claim at an early point in the dispute for the dispute proceeding in the way it did.

Grounds for review

1. The applicant's grounds for leave, and ultimately for a review of the costs decision, were stated in the application.  Those grounds are:

   1.The BDT erred in law in:

   (a)finding that section 38(4) of the Builders' Registration Act 1939 (WA) does not authorise the BDT to take into account, when determining an application for costs, the fact that an offer of settlement was made by one party and rejected by the other; and

   (b)declining to follow the decision of Westcourt v French [2007] WASAT 220.

   2.The BDT erred in fact and in law in determining that it was reasonable for the Respondents to prosecute their complaint of structural defects on the basis that the Respondents relied on the opinions of two building expert witnesses in circumstances where:

   (a)the BDT found in its Reasons for Decision dated 27 August 2008 [at 4] that 'no relevant opinion evidence was produced by the complainants [Respondents] to support the allegation that the external leaf was not structurally sound.  This aspect of the complaint item is dismissed';

   (b)the Respondents called one building expert witness, not two, and that building expert witness did not give any evidence regarding the Respondents' complaint of a structural defect;

   (c)building expert witnesses are not qualified to provide opinions regarding structural defects of the nature subject of the Respondents' complaint; and

   (d)the Respondents did not call any engineering expert witness to establish the structural defects alleged.

   3.The BDT erred in law in relying on a finding that had the Applicant engaged an engineer to provide a report in response to the structural complaint at an early point in the dispute, the matter may well have resolved or may have been limited, when the onus is on the Respondents to produce the evidence to support their complaint.

Leave to review applicable principles

1. The applicable principles are set out in the decision of Senior Member Raymond in Tangent Nominees Pty Ltd and Edwards [2005] WASAT 119 at [35] ­ [44]. Extrapolating those principles for the purposes of this matter, the applicant must show that the costs decision is wrong or attended by doubt and that there would be a substantial injustice to the applicant if the decision remained undisturbed or, alternatively, that a significant question of law arises for this Tribunal to determine.

Consideration

1. In relation to appeals or applications for review in relation to decisions on costs, I said the following in Seow and Pillinger [2008] WASAT 308 at [17]:

   It is generally appreciated, at least in the traditional litigation context, that a decision by a court at first instance on costs will not be disturbed in the absence of the court being found to have acted in excess of jurisdiction or applied an incorrect principle.  It has been said that appellate courts will be very reluctant to interfere with decisions of primary judges relating to matters of practice and procedure, such as issues of costs: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at [177]. The rationale for such a tight rein was stated in Re Will of Gilbert (dec'd) 46 SR (NSW) 318 per Jordan CJ at [322] in terms that 'the result would be disastrous to the proper administration of justice' because '[t]he disposal of cases could be delayed interminably, and costs heaped up indefinitely if a litigant with a long purse or a litigious disposition could, at will ... transfer all exercise of discretion in interlocutory application [sic] from a judge in chambers to a Court of Appeal'. This very practical consequence of a ready availability of review of costs decisions resonates with particular clarity in the context of reviews by the Tribunal of decisions of the BDT.

2. See also Garner v Rohanna Pty Ltd [1999] WASCA 178 at [15]. In my judgment, none of the errors alleged in Ground 2, even if correctly identified as errors, indicates that the BDT acted in excess of jurisdiction, nor by the application of an incorrect principle.

3. Ground 2 also seeks to deconstruct the BDT's reasons so as to attack the constituent parts and, in so doing, ignores the other factors upon which the BDT relied; for example, the encouragement which the BR Act provides parties to represent themselves without necessarily having to endure the threat of an adverse costs order in the event that they got something wrong.

4. Similarly, the finding, the subject of Ground 3, to the extent that it focuses on the conduct of the applicant, fits within the range of relevant matters that could be taken into account under s 38(4) of the BR Act and so should not be disturbed. I tend to agree with the applicant that it casts an improper burden on the applicant to disprove the structural claim, but, again, this was not the only ground upon which it relies in exercising its discretion to dismiss the costs claim.

5. Leave will not be granted to enable the costs decision to be reviewed on Grounds 2 or 3.

6. This leaves Ground 1, raising the ability of the BDT, in considering whether to make a costs order under s 38(4) of the BR Act, to take into account the offers made by the applicant and their rejection by the respondents. If this ground is upheld, it will be this Tribunal's task to determine whether the order under review should be varied.

7. The BDT's costs decision, once again, raises a question regarding inconsistency of decision­making between adjudicators within a hierarchical system. That hierarchy was established with the enactment by Parliament by s 41 of the BR Act of a right of review with leave to this Tribunal, whose decisions are then subject to an appeal on a question of law to the Supreme Court.

8. In addition, there is provision (s 42 of the BR Act) for the BDT to state a case on a question of law to this Tribunal.  Although the adjudicators here are not courts, so that strict principles of precedents do not apply, the object of consistency of decision­making which underlines the precedent concept is just as desirable in the BDT context.  This was explained by Senior Member Raymond in Commodore Homes (WA) Pty Ltd and Deegan [2007] WASAT 45 at [23] (Commodore Homes), culminating in the following:

   … Even if the BDT considers that a decision of this Tribunal is wrong, it should follow the decision. However, when doing so the Disputes Tribunal may express its doubt, or even a more strongly held dissenting view, together with the reasons for that view.  In that circumstance, it lies with the losing party to decide whether to proceed to a review before this Tribunal to persuade the Tribunal to change its view, or if need be, ultimately to appeal to the Supreme Court. In that way, the integrity of the decision-making process can be maintained.

9. Put simply, parties to building disputes must be able to have confidence in the system of adjudication in relation to the outcome of particular issues, rather than being faced with ongoing inconsistent outcomes, which would virtually guarantee the action which the applicant has taken in this matter.

10. In my consideration of Ground 1, I am faced with the situation faced by Senior Member Raymond in Commodore Homes of the BDT deciding an issue in a manner contrary to one or more decisions of this Tribunal on the same issue.  In Commodore Homes, it was decided, in the interests of consistency, that the Tribunal should follow its previous decisions unless satisfied that they were wrong.  The senior member was not persuaded by the reasoning of the decision under review that the earlier decisions were wrong and, in fact, arrived at the view that they were correctly decided.  The reason given by the BDT for declining to follow Westcourt in this matter was that:

    … because in forming his conclusion, the learned senior member relied upon a decision based upon a materially dissimilar statute in another jurisdiction.

11. When one considers the 'materially dissimilar statute in another jurisdiction', it is not clear whether the BDT was referring to the arbitration the subject of the New South Wales decision of Messiter v Hutchinson (1987) 10 NSWLR 525 referred to in Westcourt at [25], or the Victorian decision of Donaldson Homes v Vero Insurance (Domestic Building) [2006] VCAT 179 in the context of the Victorian Civil and Administrative Tribunal Act 1988 (VCAT Act), which is dealt with at [30].

12. If the latter, as I think was the intended reference, in my view, the assertion that the decision concerns a materially dissimilar statute is plainly wrong.  The BR Act and the VCAT Act provisions regarding costs are clearly very similar.  I need do no more than refer to and rely upon the reasoning found in Westcourt at [27] ­ [29]. I am, therefore, not persuaded that the relevant part of Westcourt was wrongly decided and, for the reasons I have given, am required to follow it.

13. The consequence is that the BDT was in error in deciding that s 38(4) of the BR Act does not, as a matter of construction, permit it to have regard to offers of settlement and their rejection. The effect of not disturbing the BDT's decision would be to allow a decision determined on the basis of a legal conclusion at odds with a previous ruling of this Tribunal on the same issue to remain, which, for the reasons I have alluded to, is entirely unsatisfactory. There will be the grant of leave limited to this issue.

14. There were three offers relied upon by the applicant before the BDT.  They were, first, an offer said to have been contained in a letter dated 2 August 2007, and, specifically, the questions contained in that letter of the respondent:

    Do you have a solution that we can consider?  For example, would you accept a Midland pastel coat finish to be applied to the brickwork?

15. The second offer was an offer contained in a letter dated 27 November 2007, in which the applicant offered to settle the respondents' complaint on the basis that the applicant pay the respondent the sum of $3,000.  The third offer was contained in a letter, dated 13 March 2008, from the applicant's solicitors to the respondents, in which the applicant offered to settle the matter on the basis that it would re­point the mortar with mortar as close as practicable to the original colour in certain areas, reseal the mortar to all brickwork, and pay the respondent $100 towards out­of­pocket expenses.

16. It is important at this point to say something about the kinds of offers or negotiations between the parties which the BDT is permitted to have regard to for the relevant purpose.  Westcourt itself concerned a Calderbank offer.  Indeed, in Westcourt at [13], whether the Calderbank principles were applied was expressed to form part of the 'principal decision before the Tribunal'.  The decision referred to the definition of a Calderbank offer in the Encyclopaedic Australian Legal Dictionary (LexisNexis Butterworths) and, at 24, to the following comment from S Colbran et al, Civil Procedure: Commentary and Materials, (2nd ed LexisNexis Butterworths, 2002) at 16.3.25:

    The importance of Calderbank offers in Australia is limited.  The 'offer of compromise' rules which operate in most Australian jurisdictions mean that resort to Calderbank is normally unnecessary … However, Messiter v Hutchinson [(1987) 10 NSWLR 525] demonstrates that there is still a limited role for such offers, especially in jurisdictions which lack offer of compromise procedures, or in contexts where these procedures are not available.

17. It will be noted that there is no provision in the BR Act fitting the description 'Offer of Compromise Procedures'; cf the State Administrative Tribunal Rules 2004 (WA) at 40 ­ 42. At the hearing before me, the issues arose as to whether any of the three offers relied upon was in fact a Calderbank offer and whether that was determinative as to whether the rejection of the offer was relevant to the costs question.

18. It was with this in mind that the matter was adjourned to today, and the applicant was directed to file and serve written submissions on whether, to the extent that negotiations between the parties are relevant to costs, any offer relied upon must be a Calderbank offer.  The applicant filed and served supplementary submissions, dated 19 October 2009, in compliance with the direction.

19. As the applicant's supplementary submissions quite properly point out, negotiations properly characterised as without prejudice are inadmissible on questions on costs and only Calderbank offers can be used in that context.  The submissions also concede that the offer of 27 November 2007, being the only offer specifically dealt with in the submission, was not a Calderbank offer, as there was no reservation of the ability to refer to the letter on the question of costs. They went on, however, to contend that the same offer could nevertheless be taken into account on the following bases: first, the wide terms of s 36(1) of the BR Act, which was said to permit the BDT to consider what would otherwise be a privileged communication, and, second, by referring to the response of the respondent to the 27 November 2007 letter. Their letter of 1 December 2007 was an open letter and the requirements of the applicant by the respondent set out in the letter were not privileged.

1. In my view, neither of these grounds can be upheld. Although s 36 of the BR Act clothes the BDT with the ability to conduct itself without the formality of courts, to be concerned with the substantive merits, and to inform itself as it thinks fit, without being bound by the rules of evidence, that is not to say that it can reach decisions contrary to the law.

2. The exclusion of privileged communications, and the exception to that principle in the case of Calderbank offers, is part of the substantive law, not a rule of evidence.  There is nothing in the Westcourt decision, nor the cases upon which it relies, which suggests that the BDT has any ability to have regard to rejected offers not in compliance with the Calderbank principles.

3. As for the second basis relied upon by the applicant, given the inability of the applicant to rely upon its letter of offer, it is unable to obtain the same result by relying on the respondents' reply; that is, whether one has regard to the specific response to the offer or their 'requirements' representing their position at that time.  The submission that the response is an open letter is also rejected.  Privilege attaches to the substance of communications, regardless of whether the author has attached the tag, 'without prejudice', or something similar to the letter.

4. The first offer, so-called, is the letter of 2 August 2007, but that letter merely states the applicant's assumption that the respondents are not concerned about structural issues and inquires whether they have a solution to consider and gives an example.  On no view is this an offer, much less a Calderbank offer.

5. The third offer is the applicant's solicitor's letter dated 13 March 2008.  This offer is without doubt a Calderbank offer, and appears to be more favourable than the result ultimately obtained.  However, the offer was made the day before the hearing and, no doubt for this reason, was only open until 12 noon the day after it was made.  On any view, the parties were then at the barricades, making settlement extremely unlikely.  I note that the timing of an offer made eight days before the hearing, on the facts in Westcourt, was found to be a relevant factor in dismissing the application in that case.

6. The point which I wish to emphasise is that although I consider the BDT to have been in error in disavowing an ability to ever having regard to antecedent negotiations between the parties, designed (at least by one party) to reach a settlement, such negotiations are generally privileged communications.  It is only those negotiations the subject of the Calderbank conditions which can be referred to under the general law on questions of costs, and the same limitation applies in the BDT context.

Order

1. For the above reasons, the order of the Tribunal is as follows:

   1.Leave is granted to review the decision of the Building Disputes Tribunal made on 3 June 2009 on costs limited to its finding that s 38(4) of the Builders' Registration Act 1939 does not, as a matter of construction, permit it to have regard to offers of settlement and their rejection.

   2.The application for review is dismissed.

   3.The decision under review is affirmed.

I certify that this and the preceding [39] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

MR T CAREY, MEMBER