The Craftsmen Restoration and Renovations Pty Ltd v Boland (No 2)
[2011] NSWCA 221
•01 August 2011
Court of Appeal
New South Wales
Case Title: The Craftsmen Restoration & Renovations Pty Ltd v Boland (No 2) Medium Neutral Citation: [2011] NSWCA 221 Hearing Date(s): On the papers Decision Date: 01 August 2011 Jurisdiction: Before: Allsop P at 1;
Basten JA at 1;
Sackville AJA at 1Decision: (1) The Court should vary the orders made on 8 June 2011 to read:
"(2) (d) order that the owners pay 25% of the builder's costs of the proceedings in the Common Law Division.
(5) Order the owners to pay the builder's costs of the proceedings in this Court, on the usual basis up to and including 11 May 2011 and thereafter on an indemnity basis."
(2) Grant the owners a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the costs payable by them to the builder in the Common Law Division and in respect of the builder's appeal to this Court.
(3) Direct that the Registrar enter the above orders forthwith.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: COSTS - appeal - costs before primary judge - exception to rule that costs follow the event - failure of both sides to recognise the limited nature of the appeal.
COSTS - costs of appeal following offers of compromise - claim for indemnity costs on appeal leading to remittal - reasonableness of the offers of compromise - not accepted - likely outcome on remittal in respect of parties' liability.
Legislation Cited: Consumer, Trader and Tenancy Tribunal Act 2001 (NSW), s 67
Cases Cited: The Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147
The Craftsmen Restoration & Renovations Pty Ltd v Boland [2009] NSWSC 82Texts Cited: Category: Procedural and other rulings Parties: The Craftsmen Restoration & Renovations Pty Ltd (Appellant)
Thomas Boland (First Respondent)
Caroline Boland (Second Respondent)
The Consumer, Trader and Tenancy Tribunal (Third Respondent)Representation - Counsel: Counsel:
J C Kelly SC/R V Zikmann (Appellant)
J T Svehla/J-J Loofs (First and Second Respondents)
Submitting appearance (Third Respondent)- Solicitors: Solicitors:
Gerald Aronstan (Appellant)
Snelgroves (First and Second Respondents)
I V Knight, Crown Solicitor (Third Respondent)File number(s): CA 2008/290214 Decision Under Appeal - Court / Tribunal: - Before: Howie J - Date of Decision: 01 July 2009 - Citation: The Craftsmen Restoration & Renovations v Thomas Boland; Thomas Boland v The Craftsmen Restoration & Renovations [2008] NSWSC 660 - Court File Number(s) SC 2006/030128 Publication Restriction:
Judgment
JUDGMENT of the COURT delivered by BASTEN JA : In 2003, the appellant had carried out residential building works for the respondents, being the owners of a property at Riverview. Disputes arose, resulting in protracted proceedings in the Consumer, Trader and Tenancy Tribunal (Home Building Division) ("the Tribunal") concerned the entitlement of the builder to a progress payment and the entitlement of the owners to recover the costs of rectification of defective work.
The Tribunal found in favour of the builder in respect of two amounts owing under the contract totalling a little over $33,000 plus interest. The Tribunal also found the builder liable to pay to the owners an amount slightly over $100,000. The two amounts were to be offset, although no final amount was identified, because of the need to calculate interest on the money owing to the builder. Nevertheless, the balance payable by the builder could not then have exceeded $65,000.
Both parties brought proceedings by way of appeal in the Common Law Division, which were heard by Howie J ("the primary judge"). His Honour found legal error on the part of the Tribunal, but instead of remitting the proceedings to the Tribunal, sought to resolve the outstanding issues. Again without calculation of interest payable under the contract, the owners improved their financial position, but by less than $20,000.
The builder brought proceedings by way of appeal to this Court, being largely successful in obtaining relief with respect to the orders made by the primary judge: The Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147 ("the principal judgment"). In the course of making final orders, the Court dealt in the following fashion with the costs of the parties:
(2) In respect of both appeals brought to the Common Law Division, set aside the orders of Howie J made on 2 March 2009 and in place thereof:
...
(d) order each party to bear its own costs of the proceedings in the Common Law Division.
...
(5) Order the owners to pay the builder's costs of the proceedings in this Court.
...
(7) Grant leave to the parties to seek a variation of orders (2)(d) and (5) ..."
Each party took advantage of the leave granted by order (7) to seek variation of the costs orders. The builder, asserting that it had been successful on the only question of law properly resolved by the primary judge, sought a variation of (2)(d) so as to require the owners to pay its costs before the primary judge. It also sought a variation of order (5) so as to obtain its costs in this Court "on an indemnity basis from 10 September 2009 (or, in the alternative, from 4 May 2011)". Each of the dates identified in the proposed variation was a date upon which the builder made an offer of compromise to the owners, which was not accepted.
The owners also sought a variation of order (5), so that there be no order for costs in this Court except in respect of their unsuccessful application to cross-appeal, addressed in orders (3) and (4), which they conceded.
Costs of proceedings before primary judge
In proposing that each party should bear their or its own costs of the proceedings before the primary judge, the principal judgment placed significant weight on the fact that those proceedings had been conducted on both sides in a manner which failed to recognised the limited nature of the appeal available from the Tribunal pursuant to s 67 of the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) ("the CTTT Act ") and the effective acquiescence of the parties in the attempts by the primary judge to resolve what was, in practical financial terms, a small claim.
Although the builder's appeal was dismissed and the owners' appeal succeeded in increasing the damages payable by the builder, in one respect the result was highly beneficial to the builder. In disposing of all the outstanding issues, the primary judge took it upon himself to complete the matters left outstanding by the orders of the Tribunal, and in particular the costs of the proceedings in the Tribunal. In his second judgment, he noted that the builder had made an offer in early December 2004 (which remained open until 17 December 2004) in an amount of $127,788.03, described as involving an allowance of $150,000 in respect of the owners' claim less the outstanding progress payment. That offer was in excess of the amount recovered from the Tribunal and in excess of the amount recoverable pursuant to the orders made by the primary judge on appeal: see The Craftsmen Restoration & Renovations Pty Ltd v Boland [2009] NSWSC 82 at [23]. Accordingly, his Honour concluded that "[t]he owners should pay the costs of the builder before the Tribunal from 17 December 2004 on an indemnity basis": at [29]. This was translated into order 3 in respect of the builder's appeal, which was formulated as follows:
"3. The defendants [the owners] are to pay the plaintiff's [builder's] cost of the proceedings before the Tribunal and on an indemnity basis from 17 December 2004."
Whether it made very much difference is unclear, but the form of the order appeared to give the builder all of its costs before the Tribunal, including those incurred before the offer of compromise. The practical effect of that result is unclear as the offer of compromise preceded the first day of the hearing by some eight months.
The result which obtained in this Court meant that the builder should have been successful with respect to the substantial point of law raised by it in respect of the decision of the Tribunal. There is, therefore, merit in the submission that it should receive its costs in the Court below.
So far as those costs were increased by the misguided attempt to have the trial judge resolve the factual disputes, the builder contends that each party was equally to blame. Since each party brought an appeal to the Common Law Division, there is also merit in that submission. However, the proposal that each party bear its own costs was not intended to penalise the builder and excuse the owners.
The hearings before the primary judge ran for four days. Although the hearing between the two judgments was described by his Honour as "a short hearing" (second judgment at [3]) it is clear that extensive written material was provided thereafter. While it is not possible in the circumstances to apportion costs with any degree of precision, it may reasonably be said that the costs of the appeals, if properly conducted, should have been disposed of within a day. The costs of the other three days should lie where they fall. The builder should be entitled to obtain 25% of his costs from the owners, assessed on the usual basis. No submission has been put to the contrary.
Costs in this Court: offers of compromise
It may well be that, had the matter been remitted to the Tribunal, as the orders of this Court now require, a similar order might have been made in respect of the costs of the Tribunal. The matter having been remitted to the Tribunal, if the dispute is not settled it will be a matter for the Tribunal to determine the appropriate order for costs of the proceedings before it, including any further proceedings. That question is not before this Court. Relevantly for present purposes, the indemnity costs order made by the primary judge placed the builder in a strong bargaining position in an attempt to compromise the proceedings thereafter. As appears from the offers of compromise which followed the judgment of the primary judge, and are now in evidence before this Court, the costs incurred in the Tribunal alone exceeded the outcome of the substantive dispute.
The total amount allegedly incurred in respect of the whole of the litigation to December 2009 was well in excess of $600,000 and thus many times the amount in dispute. The builder contended that the amount of the costs incurred demonstrated the importance for this Court to give proper encouragement to steps taken to resolve such disputes, by promoting the expectation that reasonable offers, if refused, may have costs consequences, although the Court may not have been in a position to resolve the dispute finally.
An affidavit prepared by the solicitor for the builder exhibited a bundle of correspondence, including 14 letters to the solicitors for the owners sent between 10 September 2009 and 4 May 2011, and nine replies in the same period. The temporal context involved the making of orders by the primary judge, initially on 7 March 2008 (which appears to have been treated as a material date for the original notice of appeal); the final orders, made on 2 March 2009; the amended notice of appeal filed on 26 March 2009 and the hearing of the appeal on 17 May 2011. (The extended negotiations also suggested a reason for the unusual delay between the commencement of the appeal in this Court and the hearing of the appeal: an initial hearing date appears to have been fixed for April 2010.)
The owners have taken no issue with the bundle of correspondence relied upon by the builder. It is appropriate, first, to have regard to the letter of 10 September 2009, setting out the first offer made by the builder following the final orders of the primary judge. That offer involved a payment by the builder to the owners of an amount of $72,000, in round figures, with each party to bear their or its own costs of the appeals before the primary judge and in this Court, but allowing for the costs orders in favour of the builder in respect of the Tribunal proceedings to remain in force.
So far as the financial orders were concerned, the proposed settlement was probably a reasonable estimate of the outcome before Howie J, the amount of interest on the progress payment and the retention sum being an uncertain quantity. Because there was not then (and never was, relevantly for present purposes) any cross-appeal which would increase the amount payable to the owners, payment of this amount would have been a significant concession. It was, however, offset by the proposal that the builder not pay costs of the proceedings before the primary judge. According to a letter from the solicitors for the owners, dated 22 December 2009, the owners had incurred costs of approximately $110,000 in respect of the proceedings before the primary judge. They would no doubt have recovered a substantially smaller amount by way of party and party costs, although their expectation in that regard was not identified.
The parties are now in the same position they were in before the Tribunal, except that the owners did not validly terminate the contract. Whether they repudiated the contract or not is a separate question to be determined by the Tribunal; nevertheless, it is difficult to conclude that they have any reasonable expectation of being better off as a result of a further hearing of the Tribunal. They did not assert they would be. Accordingly, the offer of a balance payable in favour of the owners in an amount of $72,000 appears likely to be in excess of any amount to be payable pursuant to final orders of the Tribunal.
To the extent that the orders in respect of costs before the primary judge have been set aside, the offer of compromise has at least been achieved. So far as costs in this Court were concerned, the offer by the builder that each party should pay its own costs, has been bettered by success in this Court, giving the builder a prima facie entitlement to its costs in this Court, subject to the further consideration given to this issue below.
The order as to the costs before the Tribunal has been set aside, as a consequence of the builder's success in this Court. Whether it will get an order in precisely the terms enunciated by the primary judge if the matter returns to the Tribunal, is uncertain, but no argument was put by the owners that there was not a reasonable expectation of paying costs on an indemnity basis from 17 December 2004. No submissions were made as to the principles likely to be applied by the Tribunal in determining the question of costs of proceedings before it, and nothing said by this Court should be seen as foreclosing the Tribunal's discretion to make an appropriate order. The current exercise is limited to making an assessment of the reasonableness of the offers of compromise, on the basis of the material before this Court and the submissions made to it.
On 2 November 2009, the owners rejected the offer as not involving "a genuine compromise". No counter-offer was made. By letter dated 3 November 2009, the solicitors for the builder responded inviting a counter-offer and indicating a willingness to negotiate. The owners responded on 20 November seeking a "breakdown" of the estimate given by the builder of the costs of the Tribunal proceedings, which had been "in the order of $260,000.00".
On 9 February 2010, a further offer was made by the builder (which is not relied upon for present purposes). That offer involved a change of heart in relation to the retention sum of $12,000, as a result of which the net amount payable in respect of the financial liability of the builder was $60,000, instead of $72,000. However, the builder offered to pay $20,000 in respect of the owners' costs before the primary judge and offered to accept $182,000 for its costs in the Tribunal. The result, it noted, would be a payment by the owners of $90,000. That offer was rejected on 2 March 2010.
By letter dated 25 March 2010 the owners made a counter-offer which involved maintaining all the orders of the primary judge and setting off the orders against the builder for costs in the Supreme Court against the builder's entitlement to indemnity costs in the Tribunal. In addition, the builder was required to pay the owners the sum of $55,000. The appeal was to be dismissed with no order as to costs. On 31 March, the builder responded, rejecting the owners' offer and providing a further offer requiring a net payment to it of $80,000 plus the retention sum. That offer was rejected by letter dated 9 April 2010.
Following the vacation of the hearing dates in April 2010, there was no further correspondence until 4 May 2011. The offer of 4 May 2011 by the builder increased the amount payable to the owners in respect of their judgment to $97,500. That figure was, the letter noted, the owners' own calculation of the value of their judgment as at 2 November 2009. (The effect of interest since that date was not explored.) Payment of the amount of damages ($85,000), excluding the release of the retention sum, was to be stayed pending agreement or assessment of the Tribunal costs, against which the payment was to be offset. The offer no longer sought agreement as to the amount of those costs. However, as the owners' own estimate of their costs of the Tribunal proceedings was in the order of $140,000 there can have been little doubt that a balance was payable to the builder. There was no response to that letter.
The position of the parties as revealed by the correspondence is frankly puzzling. At no stage did the builder seek to suggest that there was not a significant balance due and payable by it to the owners on account of damages under the contract, after allowing for its entitlement to progress payment number 8 plus interest. Whether it will in fact be able to improve its position on remittal to the Tribunal is by no means clear: what is entirely clear is that the financial outcome of the proceedings will turn on the ultimately orders as to costs. No doubt a major achievement for the builder in this Court has been to set aside the costs orders made by the primary judge in respect of the proceedings before him. On the other hand, the risk to the builder was that, if the orders made by the primary judge were set aside, it would lose the immediate benefit of its indemnity costs order in respect of proceedings in the Tribunal. That has happened.
On the other side, from March 2009 until May 2011, the owners made no attempt to challenge the indemnity costs order against them with respect to the Tribunal proceedings. Nor did they, in relation to the offers of compromise, take any realistic position in respect of their liability under that order. While they disputed the amount of the builder's claim of $260,000, they asserted that their clients had spent almost $140,000 in the Tribunal. On the basis that their clients had to bear those costs and, say, an equivalent payment to the builder, their clients faced a deficit which the judgment in their favour, together with the costs orders of the primary judge, would not erase. Their approach to the offers of compromise failed, at least in this respect, to acknowledge the best possible outcome for them in this Court.
In passing, it may be doubted whether compromise will usually be achieved by lengthy argumentative correspondence between solicitors. That is not to say that the tone of the correspondence was in any sense inappropriate: it is merely that offers are likely to be made and accepted only when each party makes its own clear-headed assessment of its financial position, accepting the vicissitudes of litigation. If the owners made a rational assessment of their financial bottom line, it does not appear from the correspondence.
Costs order in this Court: conclusions
The owners' submissions that each party should bear their own costs of the proceedings in this Court should be rejected. Their attempt to assess the "commercial outcome" for the builder is not a helpful exercise. No persuasive argument has been presented as to why the builder, successful in overturning the judgment below, should not obtain an order for costs.
The commercial outcome is, however, relevant to the builder's claim for indemnity costs. The final offer made by the builder in effect conceded that the owners would keep the benefit of their judgment as to damages and would not have to bear any costs of the proceedings in the Common Law Division, although they would lose the benefit of the orders then on foot. The offer also required that the builder retain the benefit of the indemnity costs order in respect of the Tribunal proceedings.
Although the final judgment in the Tribunal is unknown, it is reasonable to assume that it will be less than the amount of $97,500 proposed in the builder's final letter. In respect of the costs in the Court below, although not by the original order proposed by this Court, the builder has now bettered its offer. Finally, it is by no means clear that the builder has lost the benefit of the indemnity costs order, in the sense that, although the order made by the primary judge has been set aside, the same issues will arise for determination before the Tribunal and, accordingly, it is possible that the builder will retain the benefit of an order in similar terms.
The offer also proposed that each party bear their or its own costs in this Court. That offer has been bettered by an order in favour of the builder.
Given the potential outcomes of the appeal so far as the owners were concerned, the failure to accept that offer was unreasonable. Accordingly, the builder should have its costs in this Court from 11 May 2011 (the date on which the offer closed) on an indemnity basis.
The offer made on 10 September 2009, was similarly structured, but was less generous in two respects. First, the judgment in the amount of $60,000 may prove to be above that which will result in the Tribunal, but cannot presently be so assessed. Secondly, the offer for each party to pay their or its own costs of the appeal to this Court would then have been of relatively little significance.
Further, although the builder's solicitor pressed for responses to that offer and subsequent variations, there was no significant improvement until 4 May 2011. Indeed, at one stage the offer with respect to the retention amount appeared to be reversed. Without assessing the reasonableness of the owners' responses, it has not been demonstrated that the first offer was one which has been bettered to any significant extent, nor that it was unreasonable to reject it at that stage.
Orders
(1) The Court should vary the orders made on 8 June 2011 to read:
"(2) (d) order that the owners pay 25% of the builder's costs of the proceedings in the Common Law Division.
(5) Order the owners to pay the builder's costs of the proceedings in this Court, on the usual basis up to and including 11 May 2011 and thereafter on an indemnity basis."
(2) Grant the owners a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the costs payable by them to the builder in the Common Law Division and in respect of the builder's appeal to this Court.
(3) Direct that the Registrar enter the above orders forthwith.
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