Westcourt Ltd and French and Anor - [2007] WASAT 220

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM: COMMERCIAL & CIVIL

ACT: BUILDERS' REGISTRATION ACT 1939 (WA)

CITATION: WESTCOURT LTD and FRENCH & ANOR [2007] WASAT 220

MEMBER: MR C RAYMOND (SENIOR MEMBER)
MR P McNAB (MEMBER)

HEARD: 17 APRIL 2007

DELIVERED : 30 AUGUST 2007

FILE NO/S: CC 1293 of 2006

BETWEEN: WESTCOURT LTD
Applicant
AND
GARY JAMES FRENCH
DONNA MARIE FRENCH
Respondents

Catchwords:

Building and construction - Building contracts - Application for review of a decision of the Building Disputes Tribunal (BDT) - Leave granted by the State Administrative Tribunal (SAT) - Costs - Leave confined to issue of Calderbank offers - BDT dismissed contractual claims against builder - Indemnity or alternatively party and party costs subsequently sought - BDT refused to award any costs - Whether Calderbank offers relevant to exercise of BDT's discretion to award costs - BDT holding that such offers were not relevant to exercise of discretion - Costs regime appeared to be modelled upon Victorian Civil and Administrative Tribunal's (VCAT) costs provisions - VCAT building decisions took into account Calderbank offers - Courts favouring similar approach especially where no offer to compromise provisions applicable - No mechanism for such offers in the BDT - SAT finding error in BDT's approach - Application for review dismissed - Correct and preferable decision not to award costs in the circumstances of the case

Legislation:

Builders' Registration Act 1939 (WA), s 38, s 38(3), s 38(4), s 41(2)
Home Building Contracts Act 1991 (WA)
Victorian Civil and Administrative Tribunal Act 1998 (Vic), s 109

Result:

The decision under review is affirmed
Application for review is dismissed

Category: B

Representation:

Counsel:

Applicant: Mr S Pentony
Respondents : Ms M in de Braekt

Solicitors:

Applicant: Hotchkin Hanley
Respondents : Megan in de Braekt

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

Applin v Stati [2005] WASC 145
Donaldson Homes v Vero Insurance (Domestic Building) [2006] VCAT 179
Gale v Federal Commissioner of Taxation (1960) 102 CLR 1
Garner v Rohanna Pty Ltd [1999] WASCA 178; [BC9906204]
Grigg v Honest Holdings Pty Ltd (Unreported; Building Disputes Tribunal; 3 November 2004)
Messiter v Hutchinson (1987) 10 NSWLR 525
Tangent Nominees Pty Ltd and Edwards & Anor [2006] WASC 45

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

The Tribunal here considered a narrow but important issue, namely whether formal offers to compromise (known as "Calderbank" offers, after a 1975 English case of that name) should be a factor in costs decisions in the Building Disputes Tribunal.
The effect of such without prejudice offers was that if the losing party eventually received less than the amount offered, then the winning party – the party who made the offer – could obtain, possibly, their full (that is, their indemnity) legal costs by later producing the offer to the court or tribunal. Generally speaking, courts and tribunals had embraced the idea of such offers as they had the effect of making litigation more efficient by encouraging parties to settle after a realistic assessment of their position.
The builder here made a Calderbank offer to the owner and was ultimately successful in the Building Disputes Tribunal. The builder subsequently sought to have the Building Disputes Tribunal have regard to that offer and to award it indemnity costs. The Building Disputes Tribunal declined to do so mainly because of its view of the statutory costs rules set out in its governing legislation.
The State Administrative Tribunal granted leave to review the costs decision of the Building Disputes Tribunal so far, and only so far, as this issue of Calderbank offers was raised in the Building Disputes Tribunal's costs decision.
The State Administrative Tribunal disagreed with the Building Disputes Tribunal's view of its costs legislation noting that the general law favoured such attempts at settlement (including such attempts in tribunals) and that the Victorian Civil and Administrative Tribunal (whose legislation seemed largely the model for the Building Disputes Tribunal's costs rules) regularly had regard to such offers in awarding costs in building disputes.
Nevertheless, the State Administrative Tribunal declined to set aside the Building Disputes Tribunal's decision on costs in the circumstances of the case.
The correct and preferable decision was, in effect, not to disturb the costs order of the Building Disputes Tribunal and thus the builder's application was dismissed.

Introduction

On 23 January 2007, a single Member of this Tribunal granted leave under s 41(2) of the Builders' Registration Act 1939 (WA) (BR Act) "in relation to so much of the application for leave to review the Building Disputes Tribunal decision in respect of costs [in the matter] of 26 July 2006 (No 16230) as would raise the issue of Calderbank offers, and the statutory restrictions on costs, particularly the reference to 'fair' appearing in s 38(4) of the [BR Act]".
These statutory provisions, so far as are relevant, are reproduced below.
In short, the builder (Westcourt Ltd), who is the applicant in these proceedings and the respondent in the proceedings below in the Building Disputes Tribunal (BDT), alleges that the BDT erred when it decided, on 26 July 2006, to dismiss a claim for costs against the respondent home owners in these proceedings, Mr and Mrs French.
It is to be noticed from the terms of the order granting leave set out above, that this Tribunal confined the grant of leave expressly to the issue of Calderbank offers and related issues. It was not intended to otherwise disturb the BDT's exercise of discretion in relation to costs in this matter, unless it be established that, having proper regard to the Calderbank offer, costs should be awarded to the builder: see Tangent Nominees Pty Ltd and Edwards& Anor [2006] WASC 45.
This is because there is, generally speaking, a wide discretion in relation to costs orders and in the ordinary case leave would be sparingly granted to review such exercises of discretion. This is so for the reason that the "consideration of both the extension of time to make the application for leave and the application for leave itself must start from the premise that, as a matter of policy, appeals as to costs only are to be discouraged" per Malcolm CJ in Garner v Rohanna Pty Ltd [1999] WASCA 178; [BC9906204] at [15].
Thus, the principal question before the Tribunal is whether Calderbank principles were applicable and, if so, when properly considered or applied the order under review should be varied. For present purposes, it is sufficient to define such principles generally in the following terms:
"A [Calderbank offer is a] written communication between legal representatives in which an offer of settlement is made, the terms of which, in the event that the matter proceeds to trial, are not to be disclosed to the [court or tribunal] except on the question of costs: Calderbank v Calderbank [1975] 3 All ER 333. Where an outcome is as favourable or more favourable to the author of a Calderbank letter than the offer itself, that author may tender the letter as evidence of the offer, in support of a submission that costs should be awarded in favour of the author.": Encyclopaedic Australian Legal Dictionary (LexisNexis Butterworths).

Background to the BDT's decision on costs

On 1 May 2006, the BDT dismissed the owners' claim against the builder for rental loss for 60 weeks (the "overrun claim") as out of time or now unavailable in law (see page 6 of the BDT's reasons of 1 May 2006). A second claim for the cost of certain vinyl floor covering unilaterally laid by the owners was also dismissed at the same time (see page 8 of the BDT's reasons).
On 23 January 2007, this Tribunal refused Mr and Mrs French leave to review those decisions principally on the basis that the BDT's reasons for decision were not attended with sufficient doubt to warrant the grant of leave.

The legislative framework

The original claims made by the owners appear to have been brought under the Home Building Contracts Act 1991 (WA). It is unnecessary to refer to any provisions of that Act, except to note that that Act gave the BDT substantive or additional jurisdiction in respect of their claims. However, it is common ground in this review that that legislation does not address the costs issue presently before the Tribunal. That issue is governed by the following provisions in s 38 of the BR Act (emphasis added):
"38. Powers of Disputes Tribunal
…
(3)Subject to subsection (4), the Disputes Tribunal may make such orders for costs as it thinks fit.
(4)In any proceedings costs are not to be awarded to any party to the proceedings for the services of any legal practitioner or other person representing or assisting in the representation of that party unless, in the opinion of the Disputes Tribunal, it is fair to do so, having regard to ‑
(a)whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as ‑
(i)failing to comply with an order or direction of the Disputes Tribunal without reasonable excuse;
(ii)failing to comply with this Act or the Home Building Contracts Act 1991;
(iii)asking for an adjournment as a result of subparagraph (i) and (ii);
(iv)causing an adjournment;
(v)attempting to deceive another party or the Disputes Tribunal; or
(vi)vexatiously conducting the proceeding;
(b)whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;
(c)the relative strengths of the claims made by each of the parties, including where a party has made a claim that has no tenable basis in fact or law;
(d)the nature and complexity of the proceedings; or
(e)any other matter the Disputes Tribunal considers relevant.
…"
In the BDT proceedings below the builder was legally represented and the owners were unrepresented at any material time.

The reasoning of the BDT on costs

As has been mentioned, the review is confined to Calderbank issues. Thus, the BDT's rejection of the builder's arguments of "unreasonable delay" on the owners' part (s 38(4)(b) of the BR Act); and that the owners' claim had "no tenable basis in fact or law" (s 38(4)(c)) or that the "nature and complexity" of the proceedings justified an award of costs in their favour (s 38(4)(d)) are all matters not directly in issue here. They still, nevertheless, might provide context for the making of any costs order; this is a matter that we will return to below, if necessary.
The Calderbank offer is said to arise in the following circumstances.
The substantive hearing in the BDT took place on 21 March 2006. On 13 March 2006, certain affidavits of evidence were sent to the owners. Simultaneously with the delivery of this proposed evidence the builder, through its solicitors, made a without prejudice offer, amongst other things, to pay to the owners $907.88 in full satisfaction of the matters to be dealt with by the BDT.
On or about 15 March 2006, the owners rejected that offer in a considered written response. The owners particularly complained about what they perceived to be a "tenor of menace" in the letter and its alleged lateness of delivery.
As we have seen, on 1 May 2006, the owner's claims were wholly dismissed.
The terms of the without prejudice offer included the following statements:
"This offer is open for acceptance until the close of business on Thursday 15 March 2005 [sic, 2006].
Should fail [sic] to accept [this offer], and the matter goes to hearing as scheduled on 21 March 2006, and you do not obtain an order that our client pay you any more than what has been offered herein, our client instructs us to advise you that it will make an application for an order that you pay its legal costs associated with the hearing, on a full indemnity basis, and in that regard, reserves its right to refer the BDT to the terms of this correspondence as support for any such application."
A general definition of a Calderbank offer is set out above. The learned authors of Civil Procedure: Commentary and Materials (Stephen Colbran et al, 2nd ed LexisNexis Butterworths, 2002) offer the following relevant comment (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."
Messiter v Hutchinson(1987) 10 NSWLR 525 dealt with a special order for costs following a decision of a court-appointed arbitrator. Rogers J said (at 529, emphasis added):
"So long as adequate consideration is given to the matters I have mentioned [that is, the existence of any mechanism for offers of compromise and the circumstances of any offer], it seems to me there is no reason why the Court should not foster all means whereby parties may properly attempt to dispose of their disputes prior to actual hearing, either in Court or by a referee or arbitrator. So long as it may fairly be done, the Court should do nothing which would dissuade or discourage a party from making bona fide offers of settlement, no matter how late. Delay in making an offer may, of course, entail consequences in the precise order made but should not automatically demand a complete disregard of the offer of settlement."
The BDT is one of the jurisdictions which "lack offer of compromise procedures". It operates in a context "where these procedures are not available". Thus, it would seem that, in principle, in a jurisdiction where costs may be awarded but offers of compromise procedures are not available (such as in the BDT), the existence of any Calderbank offer should be a matter capable of being taken into account in the exercise of a discretion as to costs.
The Tribunal's own researches – conveyed to the parties during the hearing – suggest that s 38 of the BR Act (as inserted by Act No 76 of 2000) was based upon the general costs provision in the then recently enacted legislation (from 1998) establishing the Victorian Civil and Administrative Tribunal: see s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act), reproduced below.
Apart from the different starting point in each regime on costs (the VCAT Act starting point is that each party should bear their own costs), it is legislation otherwise "in pari materia or, in other words, analogous to one another" (Applin v Stati [2005] WASC 145 at [35] (Jenkins J)). Thus, we are reminded of what Fullagar J said in Gale v Federal Commissioner of Taxation(1960) 102 CLR 1, at 12: "[N]ice distinctions ought not be drawn between different forms of words in statutes in pari materia". We need not, perhaps, go so far as Fullagar J appears to suggest in order to draw assistance from any relevant VCAT decisions in construing the intent or operation of s 38 of the BR Act.
So far as is material, s 109 of the VCAT Act provides as follows:
"109 Power to award costs
(1)Subject to this Division ['Costs'], each party is to bear their own costs in the proceeding.
(2)At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding.
(3)The Tribunal may make an order under subsection (2) only if satisfied that it is fair to do so, having regard to -
(a)whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as -
(i)failing to comply with an order or direction of the Tribunal without reasonable excuse;
(ii)failing to comply with this Act, the regulations, the rules or an enabling enactment;
(iii)asking for an adjournment as a result of (i) or (ii);
(iv)causing an adjournment;
(v)attempting to deceive another party or the Tribunal;
(vi)vexatiously conducting the proceeding;
(b)whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;
(c)the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;
(d)the nature and complexity of the proceeding;
(e)any other matter the Tribunal considers relevant.
…"
In that jurisdiction, such costs orders, taking into account Calderbank offers, are not, it appears, unusual. Thus, in Donaldson Homes v Vero Insurance (Domestic Building) [2006] VCAT 179 Deputy President Aird said, at [29]:
"The builder has referred me to the offers of settlement made by it during the course of the proceeding. The builder concedes that although these offers purport to have been made pursuant to s 112 of the [VCAT Act, which deals with offers to settle] that they cannot be regarded as offers under the Act following the decision in Kaldawi v Housing Guarantee Fund Limited [2004] VCAT 2024. In Kaldawi it was held that settlement offers pursuant to s 112 of the Act cannot be made where the proceeding relates to a review of the decision pursuant to s 61 of the Domestic Building Contracts Act 1995. However it may be that they can be regarded as Calderbank offers which I accept may be considered in determining whether the tribunal should exercise its discretion under s 109(2) of the Act (H.F.K. Cement Rendering v Mina [2005] VCAT 551)."
In contrast, the BDT's reasoning on similar issues was to consider the Calderbank offer apparently in a very limited way (and then so under s 38(4)(e), that is, as "any other matter the [BDT] consider[ed] as relevant"). The BDT said (emphasis added, except where indicated):
"The meaning of 'other matters' must be considered to enable the Tribunal to assess whether the matter raised under [s 38(4)(e)] can be classified as 'relevant'. Deputy Chairperson Owen‑Conway's analysis of the subsection [in Grigg v Honest Holdings Pty Ltd (Unreported, Building Disputes Tribunal, 3 November 2004)] concludes that 'the matters that fall within s 38(4)(e) are any facts, matters or circumstances that tend to prove one or another party (regardless of whether they failed or succeeded in the prosecution or defence of the complaint) needed the assistance of a legal practitioner to assist them with a matter or representing them before the Tribunal' [original emphasis].
Counsel for the respondent [builder] submitted that the delivery of a Calderbank offer to the complainants [the owners] is a matter that is relevant under s 38(4)(e). The offer was made eight days before the hearing and clearly set out to the complainants the consequences of non acceptance, by warning that a costs application would be brought if their case was not successful. It was accompanied by witness statements. One day before the hearing a document detailing the legal aspects of the respondent's case was sent to the complainants. Counsel's submission was that this offer, and the accompanying, and following documentation gave notice to the owners of the futility of their claim, which was vindicated by the [BDT's] decision, and is a relevant matter that ought be factored into an assessment as to whether a claim for costs is fair.
That a Calderbank offer is to be of any consequence in the Building Disputes Tribunal is problematic, given that a costs award is discretionary, with the discretion to be exercised on the basis of the criteria set out in the legislation. The Calderbank offer is clearly relevant to the history of the proceedings, but it is not, in the opinion of the Tribunal, a matter relevant to the fairness of an award of costs to the party who issued the offer within the context of s 38(4)(e) in this jurisdiction.
A matter that the Tribunal does consider as relevant is that the contract overrun part of the complaint, which was the main focus of the claim in terms of preparation and argument, was a matter arising directly from the respondent's actions. The Tribunal found that a second contract entered into between the parties, 'took over' from the first (which the complainants had used as the basis for calculating time for the overrun complaint), thus extinguishing the first contract, along with its completion of works time frame. However the second contract was entered into only because of a failure on the part of the respondent to comply with Council requirements, requiring a revision to the building plans. The builder had the complainants sign a new contract for the revised building work. This new second contract did not reserve the complainants' rights under the first contract.
Given the non compliance with [local government] requirements, the complainants really had no choice other than to sign the second contract. Both contracts are 'standard form contracts', and it would not be expected that the complainants would have an understanding of the legal implications of the second contract at the time of signing to be in the bargaining position to alter its terms to preserve their legal rights under the first contract. A cost [sic] award would mean that the Tribunal thinks it fair that the builder be awarded costs to engage the services of a legal practitioner to argue a claim which only arose because of the way it resolved the problem it had created by not being able to legally fulfil its obligations under the first contract.
In the opinion of the Disputes Tribunal [original emphasis], after having had regard to the matters in s 38(4)(b) (c) and (d), it is not fair that costs be awarded to the respondent.
The Calderbank offer is not a matter that is relevant to the formation of an opinion that an award of costs is fair.
The respondent's standard form contracts, the circumstances giving rise to the two contracts being signed, and the bargaining position of the complainants is a matter that the Tribunal considers relevant to a consideration of the fairness of awarding costs."

The BDT's statement, above, that "[t]he Calderbank offer is not a matter that is relevant to the formation of an opinion that an award of costs is fair" must be read in the context of its earlier view that such an offer "is clearly relevant to the history of the proceedings, but it is not … a matter relevant to the fairness of an award of costs … within the context of s 38(4)(e)" of the BR Act.
By reason of the authorities and the discussion set out above (even allowing for the different starting point as to costs between VCAT and the BDT), the existence of a Calderbank offer is in our view material to both the history of the proceedings and to the formation of an opinion as to whether an award of costs would be, amongst other things, "fair" within the context of s 38(3) and s 38(4) of the BR Act. Fairness, in our view, would not exclude the "foster[ing of] all means whereby parties may properly attempt to dispose of their disputes prior to actual hearing": Messiter v Hutchinson (1987) 10 NSWLR 525 at 529.
In our view, to arrive at what might be "fair" would ordinarily include consideration of any matter relevant to the award of costs which would be made in proceedings before any court, tribunal or arbitrator, that is, generally recognised costs principles. All of these factors, together with any other specific considerations considered to be relevant would have to be weighed against the obvious legislative intent that costs should not be ordered as a matter of course. Costs here do not follow the result as a matter of course.
It follows that we consider that Grigg v Honest Holdings Pty Ltd (Unreported; Building Disputes Tribunal; 3 November 2004) was wrongly decided insofar as it held that s 38(4)(e) is to be restricted to a consideration of matters which might justify the use of legal representation.
In arriving at the correct and preferable decision we must have regard to all of the factors considered by the BDT to be relevant to the exercise of its discretion in relation to costs (which are not the subject of review in these proceedings) and weigh those factors with the Calderbank offer made.
In addition, factors such as the lack of legal representation of the owners (and the informality of the BDT encouraging self-representation); the offer's arrival only some eight days before the hearing; the very short period that the offer was left open (suggesting a very short time to incur the additional, and unexpected, cost of obtaining professional advice) all suggest that it was not unreasonable of the owners to reject the offer in this case.
So far as indemnity costs are in issue, we note that the learned authors of Seaman's Civil Procedure Western Australia Vol 1 LexisNexis Butterworths, Australia, suggest that "some delinquency in the conduct of the proceedings in the face of the Calderbank letter would generally have to be shown before an indemnity costs order would be made": par [24A.10.2]. To the extent that this approach is applicable here, there is nothing in the record to suggest any such delinquency.
The correct and preferable decision, in our view, was that reached by the BDT even though not all of the steps in the BDT's reasoning process were, with respect, sound. Their costs order should not be disturbed.
Accordingly, there will be an order dismissing the application for review.

Order

For these reasons the Tribunal orders that:
1.The application for review is dismissed.
2.The decision under review is affirmed.

I certify that this and the preceding [41] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
MR C RAYMOND, SENIOR MEMBER