Nichols v Earth Spirit Home Pty Ltd
[2014] QCAT 575
•11 November 2014
| CITATION: | Nichols v Earth Spirit Home Pty Ltd [2014] QCAT 575 |
| PARTIES: | George Nichols (Applicant) |
| v | |
| Earth Spirit Home Pty Ltd (Respondent) |
| APPLICATION NUMBER: | BDL301-11 |
| MATTER TYPE: | Building matters |
| HEARING DATE: | On the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Member Gardiner |
| DELIVERED ON: | 11 November 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. George Nichols pay to Earth Spirit Home Pty Ltd costs on a standard basis, by reference to the District Court Scale, to be assessed, or agreed. |
| CATCHWORDS: | COSTS – WHERE claim for return of funds in Master Builders Association and counter claim for monies owing under an oral contract – WHERE matters of credit at issue – WHERE builder wholly successful – WHERE payment of monies owing ordered with interest and costs made in favour of the builder – WHERE on appeal the matter was remitted to determine again the issue of costs – WHETHER costs should be awarded on indemnity basis Queensland Building Services Authority Act 1991 s 77 Lyons v Dreamstarter Pty Ltd [2011] QCATA 142 |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act).
REASONS FOR DECISION
On 8 May 2013 this tribunal handed down a decision ordering George Nichols to pay Earth Spirit Home Pty Ltd a sum of money, interest and costs on a party and party basis.
The matter went on appeal and the appeal tribunal remitted the issue of costs back to this tribunal for reconsideration. Both parties have now filed submissions in relation to this issue. This is the re-consideration of the costs application.
Earth Spirit seeks its costs on an indemnity basis. The issue is whether standard or indemnity costs should apply.
The application for costs is determined for under s 77(2)(h) of the Queensland Building and Construction Commission Act 1991. The effect of this section, which modifies the general position under the QCAT Act, is to give the Tribunal a broad general power to award costs in cases caught by these enabling provisions[1]. This enabling Act allows that while the power must be exercised judicially[2], it is ‘in markedly different terms from s 100 of the QCAT Act’[3] which starts with each party bearing its own costs.
[1]Lyons v Dreamstarter Pty Ltd [2011] QCATA 142.
[2]Lyons v Dreamstarter Pty Ltd [2011] QCATA 142 at [33].
[3]Lyons v Dreamstarter Pty Ltd [2012] QCATA 071 at [10].
As His Honour the President of QCAT determined in the appeal decision of Lyons v Dreamstarter Pty Ltd[4] about s 77,
The discretion to award costs starts with the proposition that it is just and reasonable that a party who causes another to incur costs should reimburse the other party for them. Otherwise, the factors affecting the discretion will vary in each case.
[4]Lyons v Dreamstarter Pty Ltd [2012] QCATA 071 at [11].
I stated in my earlier reasons:
Mr Nichols had strong legal representation in these proceedings. He has been found to be a less than reliable witness on matters of credit.
Earth Spirit has been wholly successful with its application. Mr Blacklow has been held out of funds outstanding to the company for a considerable period and many subcontractors and suppliers were not prepared to work or supply Earth Spirit until the outstanding matters are settled.
I consider in the exercise of the discretion that costs be awarded in this matter against Mr Nichols.
Earth Spirit submitted to the appeal tribunal and to support this determination as follows:
I.An offer to settle was made by Earth Spirit prior to the institution of proceedings in a letter dated 22 August 2011. This is commonly called a “Calderbank offer”. This tribunal has previously accepted these offers may be relevant to the exercise of discretion to award costs.
II.Rule 86 of the QCAT Rules is also relevant. This rule applies if a party to a proceeding makes another party a written offer to settle the dispute the subject of the proceeding; and the other party does not accept the offer within the time the offer is open; and in the opinion of the tribunal, the decision of the tribunal in the proceeding is not more favourable to the other party than the offer. The tribunal may award the party who made the offer all reasonable costs incurred by that party in conducting the proceeding after the offer was made.
III.At the time of the offer, Mr Nichols was in a position to make an informed decision as to the consequences if the offer was not accepted, as he had legal representation from experienced lawyers, and there had been previous proceedings on the same issue.
In a monetary sense, the offer of 22 August 2011 was more favourable than the decision of the tribunal. The offer was conditional upon other parties in the Nichols group securing agreement from the lot owners releasing Earth Spirit from future claims but despite this condition, it remained a more favourable offer than the hearing decision.
Based on authorities cited, a determination as to whether a judgment overall was “not as favourable” to Mr Nichols than the offer does not exclude relief sought other than money claims.
Mr Nichols could have complied with the condition as the tribunal reasons found he was the guiding hand and financier, informally controlling the arrangements and, the individual house contracts were not binding so the parties were not giving rights away. In relation to the offer, Earth Spirit further submits that the courts have recognised there are public policy considerations underpinning the making of indemnity cost orders[5] and where the offer may contain a term that could not be obtained by way of a court order[6].
[5]Leichardt Municipal Council v Green [2004] NSWCA 341 at [14].
[6]Commonwealth of Australia v Gretton [2008] NSWCA 117 at [94].
Earth Spirit seeks to distinguish Vieira v O’Shea (No 2)[7] on its circumstances saying that the interests of Mr Nichols and the lot owners were not opposed and that Mr Nichols could have obtained their signatures if he wished. The offer was not unreasonable or incapable of acceptance because of the inclusion of this term.
[7][2012] NSWCA 121.
Earth Spirit further submits that the indemnity costs order should be made in any event. Earth Spirit points to the circumstances identified in Colgate Palmolive v Cussons[8] listing those circumstances as:
i) That proceedings were commenced in wilful disregard of known facts clearly established before;
ii) The making of allegations that ought never to be made;
iii) Undue prolongation of a case by groundless contentions.
[8][1993] FCA 536.
Earth Spirit nominates the test commonly adopted in Queensland as being ‘whether there was something irresponsible about the conduct of the losing party which exposed its opponents to costs which should, in all fairness, be ordered on the indemnity basis.’[9]
[9]Todrell Pty Ltd v Finch and Ors [2007 QSC 386 at [4].
Earth Spirit submits that it had no option other than to defend the action commenced by Mr Nichols and that Mr Nichols knew clearly the claim had no merit in fact or law. His conduct was so unreasonable as to invoke the test.
Additionally, Earth Spirit says that the letter of offer squarely raised the issue of Mr Nichols’ credibility and the subsequent findings of credit against him support the proposition that he acted unreasonably[10].
[10]Blagojevch v Australian Industrial Relations Commission [2000] FCA 483.
In response, Mr Nichols submits:
i) The offer to settle was made prior to the institution of proceedings in circumstances where Mr Nichols had been successful in another matter between the parties;
ii) The offer was incapable of acceptance because of the condition concerning the other lot holders. The decision in Vieira v O’Shea (No 2) assumes the offer was capable of acceptance. Because the offer sought to bind third parties not parties to these proceedings, it was not binding in this matter.
iii) Mr Nichols was not in a position to bind third parties so the findings in Vieira v O’Shea (No 2) are applicable.
iv) There is no presumption that a party who rejects an offer should pay costs on an indemnity basis[11] and that it is simply a matter for consideration.
v) Hazeldene’s case sets out a “test of unreasonableness” suggesting that the following matters should be regarded:
(a)The stage of the proceeding the offer is made;
(b)The time allowed for consideration;
(c)The extent of the compromise offered;
(d)The offeree’s prospects of success, assessed on the date of the offer;
(e)The clarity of the terms of the offer;
(f)Whether the offer foreshadowed an application for indemnity costs if it was rejected.
[11]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at 440; Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2005] NSWCA 69.
Mr Nichols submits that after consideration of the additional “test of unreasonableness”, the offer was incapable of being accepted and it was not unreasonable for it to be rejected.
Discussion
All of these submissions from both parties are reasoned and arguable on the current case law. However, costs, particularly on an indemnity basis, remain a matter of discretion. Section 4 of the QCAT Act sets out an important object of this tribunal. It must be accessible, fair, just, economical, informal and quick to resolve matters between parties.
Having watched and listened to both parties in this matter, I am not satisfied that either party was wholly reasonable in their dealings or actions.
It is true that in the end, findings of credit were made against Mr Nichols. However, Mr Blacklow is an experienced builder. He entered this loose arrangement with Mr Nichols with his “eyes wide open” and verbally negotiated many complex variations in defiance of the current building arrangements in Queensland. In my view he does not come to this matter unblemished.
As stated by the learned appeal tribunal in this matter[12]
The applicant’s submissions refer just to invoices which were issued but to no broader surrounding circumstances. The learned Member considered the purpose of the contract and the intention and conduct of the parties. The learned Member also noted that the arrangement was in reality a license lending arrangement, designed to cut building costs. It was also suggested that the 5 documents were signed to achieve a tax minimisation objective.
[12]Nichols v Earth Spirit Homes Pty Ltd [2014] QCATA 260 at [107].
Both parties continued the building arrangements between them on a number of occasions as circumstances changed. This was not a “one-off” deal.
In large regard, this matter turned on findings of credit between two men. They were unable to resolve it themselves and looked to QCAT to do it for them. They are both experienced businessmen. They knew the pitfalls of litigation particularly on the basis of findings of credit. They were both advised by experienced legal practitioners.
A decision was made by this tribunal and one party was preferred over the other in the evidence presented. Costs followed this event.
The usual consequence of a costs order is that “standard” costs are ordered. These are costs calculated with reference to a Scale of Costs relevant to the jurisdiction being exercised.
“Standard costs” are referrable to “party and party” costs. These are costs that apply between parties. The practical effect is that the costs represent an “average” costing for a case of that type but do not relate directly to the work undertaken by one party’s solicitor.
“Indemnity costs” are referable to “solicitor and own client costs”. These are costs which include every charge by the solicitor to their own client.
In practice, the difference between standard and indemnity costs can be quite significant. Depending on the circumstance, and the steps taken, the difference is commonly said to be up to one third.
The tribunal will only order indemnity costs where the behaviour of one party has been so unreasonable or outrageous, or egregious, that it is unfair that the successful party should have to sustain any costs at all. The only way that a result can be achieved that a party sustains no costs is if indemnity costs are ordered in their favour.
It follows that the tribunal first has to be satisfied that on party has acted unreasonably or wrongly in comparison to the other party.
In considering the exercise of discretion to award indemnity costs, the tribunal will therefore look at the conduct of both parties, in order to assess whether there is such an imbalance of reasonableness that the unusual step of ordering indent costs rather than standard costs should be adopted.
Mr Nichols’ conduct
Mr Nichols is an experienced and sophisticated business person. He has engaged in complex litigation in order to protect his own interests and to deflect financial liability from himself. He is quite entitled to take those steps.
I have found that Mr Nichols was not to be accepted on the basis of credit. That is a risk that any litigant takes. There is no finding that Mr Nichols has engaged in fraud or perjury, rather the situation is that where his evidence conflicted with that of Mr Blacklow, I have preferred the evidence of Mr Blacklow.
I therefore do not consider that the mere fact that I have found against Mr Nichols on credit is a basis, in itself to found an indemnity costs order.
Mr Nichols did not accept the settlement offer that was made. However at the time the offer was made the offer had the added condition of attempting to bind third parties outside the argument. I recognise that potentially Mr Nichols could have procured the consent of the lot holders but I am not satisfied that, in the circumstances that existed within the family at the time, he necessarily would have. Further the offer was made before proceedings were commenced and encompassed more than the funds at issue between the men.
I am not satisfied on Earth Spirit’s nominated “irresponsible conduct of the losing party” test, that Mr Nichols conduct was alone, so irresponsible as to incur costs on an indemnity basis.
I therefore do not consider a clear case is made out that an offer was made which was capable of acceptance and which is readily comparable to the order of the tribunal.
I am not satisfied that either Mr Nichols’ conduct was wholly unreasonable or that a sufficiently clear and unequivocal offer was made which can readily be compared to the decision of the tribunal.
Mr Blacklow’s conduct
I have found in favour of Earth Spirit and have preferred the evidence of Mr Blacklow. However, as I have noted, Mr Blacklow does not emerge from the proceedings as being a totally “innocent party”.
Mr Blacklow is also a sophisticated business person. He knowingly entered into some unusual, and potentially risky arrangements, dealing with Mr Nichols and the associated parties, as an equal. In doing so, he has assumed the commercial risks, which includes the risk of litigation.
In deciding the appropriate type of costs order the tribunal will exercise its discretion having regard to the fairness of the matter which is demonstrated by the reasonableness and comparative conduct of the parties.
I do not consider that either party has conducted the litigation in an outrageous or unreasonable way, or that one party has been unreasonable in comparison to the other, or that a clear offer has been made which invokes rule 86.
The consequence therefore is that I do not consider this is a matter where the award of indemnity costs is appropriate, but that the usual award as to costs should be made which is on a standard basis.
It is not contested that the District Court Scale should apply and that it is usual in the tribunal in building and construction cases of this magnitude.
In the exercise of my discretion, in the absence of a clear and unequivocal offer capable of acceptance, taking into account the submissions of both parties, applying the tests set out in the case law and taking into account the conduct of the parties in entering into the arrangements between them and their industry experience, I am satisfied that costs should not be awarded on an indemnity basis and that the previous orders should stand.
Final Orders
George Nichols pay to Earth Spirit Home Pty Ltd costs on a standard basis, by reference to the District Court Scale, to be assessed, or agreed.
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