Better Homes Queensland Pty Limited v O'Reilly and Anor [2012] QCAT 424

CITATION: Better Homes Queensland Pty Limited v O’Reilly and Anor [2012] QCAT 424 PARTIES: Better Homes Queensland Pty Limited (Applicant/Appellant) v Scott O‟Reilly (First Respondent) Meilyn O‟Reilly (Second Respondent) APPLICATION NUMBER: BD384-08 MATTER TYPE: Building matters HEARING DATE: On the papers HEARD AT: Cairns DECISION OF: M Johnston, Member DELIVERED ON: 10 September 2012 DELIVERED AT: Cairns ORDERS MADE: a. Better Homes Queensland Pty Limited pay Scott O’Reilly and Meilyn O’Reilly’s costs of and incidental to the proceedings against Better Homes Queensland Pty Limited, including reserved costs, on a standard basis to be assessed on the District Court scale of costs. b. Scott O’Reilly and Meilyn O’Reilly shall deliver to Better Homes Queensland Pty Limited an itemised claim for costs referring to the relevant items contained in the District Court scale of costs. c. If within 28 days of that delivery, the parties have not agreed on an amount of costs, the costs shall be assessed by Hickey and Garrett, Legal Costs Assessors, Level 21, 141 Queens Street. Brisbane, 4000. d. Better Homes Queensland Pty Limited shall pay Scott O’Reilly and Meilyn O’Reilly’s costs (as agreed or assessed) -- 1 of 13 -- 2 within 28 days of such agreement or assessment. CATCHWORDS: Costs Queensland Building Services Authority Act 1991, s 77(1)(h) Queensland Civil and Administrative Tribunal Act 2009, ss 100, 102 Lyons v Dreamstarter Pty Ltd [2011] QCATA 142 Oshlack v Richmond River Council (1998) 193 CLR 72 Queensland Building Services Authority v Johnston [2011] QCATA 265 Velvet Glove Holdings Pty Ltd [2011] QCA 312 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 Background [1] The Applicant filed an application in the former Commercial and Consumer Tribunal (CCT) seeking relief arising out of a building dispute, pursuant to section 77(1) of the Queensland Building Services Authority Act 1991 (QBSA Act). A Consent Order was made that the parties were permitted legal representation in the proceedings. [2] The matter eventually proceeded to a hearing in Cairns on 4 and 5 March and 5 and 6 October 2010. [3] The Respondents seek their costs incurred in the proceedings, pursuant to section 102 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act). [4] The Respondents seek costs on an indemnity basis (on the District Court scale). [5] The Applicant opposes the Respondents' application for costs and submits that if costs are awarded that they be on the Magistrates Scale. Costs jurisdiction [6] It is material to the application for costs that the matter had been commenced in QCAT‟s predecessor the CCT and was, when QCAT -- 2 of 13 -- 3 commenced on 1 December 2009, a „pending proceeding‟ under s 245 of the QCAT Act. [7] The Appeal Tribunal has identified in the previous matter Queensland Building Services Authority v Johnston [2011] QCATA 265, that s 271 should not be read in a way which results in the application of the costs provisions of the CCT but, rather, to mean that while QCAT only has the power in pending proceedings which the CCT had (including the power to award costs), the question whether costs should be awarded must be determined by reference to the QCAT costs provisions. [8] Section 100 of the QCAT Act provides that “other than as provided under the QCAT Act or an enabling Act, each party to a proceeding must bear that party‟s own costs for the proceeding.” [9] The proceeding arises out of a building dispute. The Tribunal draws its jurisdiction to deal with building disputes from the Queensland Building Services Authority Act 1991 (“QBSA Act”). Section 77(1) (h) of the Act provides that the Tribunal may “award costs” in a proceeding arising out of a building dispute. [10] When considering an appeal with respect to how the Tribunal should deal with costs arising out of building disputes, former Deputy President Kingham, in Lyons v Dreamstarter Pty Ltd [2010] QCAT 447 (14 September 2010) said that pursuant to section 7 of the QCAT Act, section 77(1)(h) of the QBSA Act modifies section 100 of the QCAT Act, so that section 77(1)(h) is read as part of the QCAT Act. Section 77(1)(h) does not provide guidance or prescription about the occasions for or conditions of exercise of the power to award costs. [11] Her Honour went on to say that a jurisdiction given in general terms, such as the jurisdiction to award costs in s 77(1)(h) of the QBSA Act, “allows the Tribunal to make an order as to costs that is justified in the circumstances. It is a broad general discretion which must be exercised judicially, not upon irrelevant or extraneous considerations but upon facts connected with or leading up to the litigation.” [12] The QCAT cost provisions (Ch 2, Pt 6, Div 6) commence with s 100 which, on its face, indicates a plain intention that costs orders will not be an integral feature of QCAT‟s operations: „other than as provided under this Act or an Enabling Act, each party to a proceeding must bear the party‟s own costs for that proceeding‟. [13] However, under s 102 the Tribunal may make an order for costs „…if the Tribunal considers the interests of justice require it to make the order‟: s 102(1). Under s 102(3) in deciding whether to award costs the Tribunal may have regard to certain matters including: a. Whether a party in a proceedings is acting in a way that unnecessarily disadvantages the other party; -- 3 of 13 -- 4 b. The nature and complexity of the dispute; c. The relative strengths of the claims made by each party; d. The financial circumstances of the parties; e. Anything else the Tribunal considers relevant. [14] As the QCAT Appeal Tribunal has observed about these provisions, the question that will usually arise in each case in which costs are sought is whether the circumstances relevant to the discretion inherent in the phrase „the interests of justice‟ points so compellingly to a costs order that they overcome the strong contra-indication against costs orders contained in s 100: Ralacom Pty Ltd v Body Corporate for Paradise Island Apartments (No 2) [2010] QCAT 412 at para [29]. [15] The factors material to the discretion here include the long history of the matter; the number of matters actually in dispute; the range of experts involved; the need to interpret the statutory provisions; the length of the hearing and the resulting complexity of both the factual and legal issues. [16] In conjunction, these factors point strongly towards an exercise of the discretion in the Respondents‟ favour. In addition, as Keane JA observed in Tamawood Ltd & Anor v Paans [2005] QCA 111 at [30], the fact that each party was justified in engaging legal representatives may, in some circumstances, be itself a sufficient basis for concluding that the interests of justice warrant the exercise of discretion to award costs in favour of the successful party, at least in the absence of any countervailing consideration. [17] In Grasso & Anor v CMG Consulting Engineers Pty Ltd [2012] QCATA 32, the President said in connection with an application for costs by CMG Consulting Engineers Pty Ltd (CMG) about a building matter that: “Those reasons show that the factual issues including, in particular, the history of expert reports and evidence in this long building case had a degree of complexity….” [18] The President went on to say that: “Those factors are persuasive that the matter did have a degree of complexity and difficulty” and on that basis he awarded costs in that appeal application. [19] This case has many similarities with the above matter in terms of its complexity and duration. Applicant’s submissions [20] The outcome of the proceeding should be viewed in light of the party‟s relevant claims. The Applicant‟s claim was for the payment of works the subject of a variation to a domestic building contract, in the amount of -- 4 of 13 -- 5 $47,161.97. The Respondents‟ claim was for damages for allegedly defective building works in an amount sufficient to entirely set off the Applicant's claim, or to be assessed by the Tribunal. [21] The Respondents were unsuccessful in obtaining an award of damages for all of the most substantial items claimed by way of their counterclaim. This included decisions to decline claims about: incorrect ceiling height ($25,000 plus $291 per annum for increased air-conditioning costs); defective driveway ($11,937); and electric gate motor, security system and installation ($5,206.80). The Applicant contends in relation to the counterclaim that the Respondents have only been minimally successful, being awarded only $6,031.57 in the sum counterclaimed. The Applicant further contends that a number of the alleged defects, of which amounts were rewarded, such as the gyprock in the bedrooms, were not disputed by the Applicant, who in fact offered to submit to an order to rectify them. [22] In relation to the dismissal of the Applicant‟s claim it is submitted that the effect of failing in its claim is that it will remain unrewarded for substantial work it performed on the Respondents‟ property, at their request. Further, not only will the Applicant remain unrewarded, it is unable to recoup the $47,161.97 spent in performing the works, or its costs in proceeding to recover the amount. At the hearing of the matter, Mr Cavallaro gave evidence, which has not been contradicted, that he did indeed pay both his subcontractors and for the materials used. The Respondents have obtained a valuable addition to their property at no cost. [23] The Applicant submits that on the Respondents‟ success alone, it is not justified to award costs. It is submitted that this is supported by the comments made by Keane JA in Tamawood Ltd & Anor v Paans [2005] QCA 111 at [24], where he states (referring to sections 70 and 71 of the former Act ), “the language of the provisions of the Act to which I have referred are sufficiently clear to negate the proposition that success in the preceding is sufficient to establish a prima facie entitlement to the beneficial exercise of discretion, conferred by s71(1) of the Act”. [24] The Applicant contends that the interests of justice of the case do not warrant the exercise of the Tribunal‟s discretionary jurisdiction to award costs as: the Respondent was only minimally successful; and the decision results in the Applicant being substantially out-of-pocket work which was requested by the Respondents. [25] The Applicant contends that there was no conduct by either party prior to proceeding which would enliven the discretion to award costs. Both parties made their respective positions clear and both inevitably attempted and failed to resolve the dispute, prior to the commencement of these proceedings. [26] The Applicant concedes that the Application raised recently complex issues of law, fact and statutory interpretation. As such, it was not unreasonable for either party to obtain legal representation. Section 71(5) -- 5 of 13 -- 6 of the former Act however, makes it abundantly clear that this, of itself, is not justification to enliven the discretion to order costs. [27] The Applicant contends that the Application was both reasonable and arguable, albeit unsuccessful. Ultimately its claim turned upon the discretionary considerations under section 84(2) of the Domestic Building Contracts Act 2000. It was contended that the Member held that the Applicant had not demonstrated that unreasonable hardship would be suffered by the Applicant, if the variation to the contract was not approved by the Tribunal. Whilst unsuccessful it was not disputed that it was out of pocket by at the very least by $47,000, being costs for materials and its subcontractors. It is submitted by the Applicant that it had a good claim which ultimately failed on discretionary considerations. [28] The Applicant contends that the Respondents‟ claims on the other hand are largely not accepted practically by the Tribunal. Only the more minor defects claimed by the Respondents were accepted to require rectification. Further, the Respondents claimed to be entitled to have a new driveway constructed and a new second floor built, which clearly not accepted by Tribunal. In that sense, the bulk of the Respondents‟ claims were rejected. Again, this discretionary consideration weighs against an award of the Respondents‟ costs. Respondents’ submissions [29] The Respondents submit that this Tribunal has power to award costs pursuant to section 70 and 71 of the CCT Act and section 201 of the QCAT Act, in the interests of justice. [30] The Respondents contend that the outcome of the proceedings clearly favoured them and that the Applicant's case completely failed. The Respondents submit that the outcome was predictable. [31] The Respondents contend that they exhausted all reasonable steps to resolve this dispute and have listed the steps undertaken. This has included making a settlement offers. [32] The Respondents contend that due to the Applicant's failure to prepare its case by ensuring an obvious pre-requisite to recovery – the building approval. The Applicant was given a further chance to obtain the building approval in compliance with the law. This caused the Respondents significant delay and expense due to be extended period of the adjournment. [33] The Respondents contend that the hearing was dominated by the complexities of a builder seeking the tribunal's indulgence to recover a non-compliant variation pursuant to the requirements of the Domestic Building Contracts Act 2000. -- 6 of 13 -- 7 [34] The Respondents submit that the Tribunal's decision reveals the true relative strength of the claims. The Respondents‟ case was stronger than the Applicant's case and defeated the Applicant‟s claim. [35] The Respondents contend that the Applicant had breached its obligations in relation to variations of the building contract, building contractors obligations pursuant to the requirements of the Domestic Building Contracts Act 2000 as well as the QBSA Act. [36] The Respondents also seek to rely upon the consequences of the decision being more favourable than an offer which has been made by the Respondents. The Respondents refer to an offer of 23 July 2009 in which the Respondents offered to settle on the basis the Applicant paid the Respondents‟ costs and the claim and counter claim be dismissed. [37] It is submitted that the decision of the Tribunal on the matters in dispute is not more favourable to the other party than the offer. [38] The Respondents have listed 14 matters in their submissions which they contend should allow the Tribunal award indemnity costs. Conclusions [39] The starting point in relation costs under the CCT Act is section 70 which provides for the parties to pay their own costs unless “one side can show good reason, in terms of the interests of justice in the particular circumstances of the case, why there should be a positive exercise of discretion and that party‟s favour” Tamawood Ltd and (section 257). [40] The mere fact that the party is legally represented will not justify the award of the costs (see section 71(5) CCT Act). [41] In dealing with the exercise of discretion to award costs in the interests of justice, QCAT should have regard to the matters in section 71 of the CCT Act namely: (a) the outcome of the proceedings; (b) the conduct of parties to the proceeding before and during the proceedings; (c) the nature and complexity of the proceeding; (d) the relative strengths of the claims made by each of the parties to the proceedings; (d) the relative strengths of the claims made by each of the parties to the proceeding; (e) any contravention of an Act by a party to the proceedings; (f) for a proceeding to which a State Agency is a party, whether the other party to the proceedings was afforded natural justice by the State Agency; and (g) anything else the Tribunal considers relevant. Success in the proceeding [42] Whilst the Tribunal accepts the Applicant‟s submissions that in the context of the counter claim the Respondents were minimally successful however unfortunately the Application was dismissed. On this basis the Respondents were clearly successful. -- 7 of 13 -- 8 [43] Whilst it is clear that success in a proceeding is not in itself a ground for the award of costs in favour of the Respondents, it is a factor that weighs in favour of the Respondents. Conduct of the parties [44] The failure of the Applicant to comply with the provisions of the Domestic Building Contracts Act 2000 in relation to the variation was the main reason for the dispute between the parties. While the Applicant is correct to say that the Tribunal exercised its discretion against the Applicant that only occurred after the Tribunal made a ruling that the variation was not valid. [45] The Tribunal accepts the Respondents‟ contention that the Applicant should have had the deck and swimming pool approved by the Council before it was entitled to issue issuing proceedings against the Respondents. [46] The Tribunal accepts the contentions of the Respondents that the Applicant had relied on witnesses who had not provided statements as required by the Tribunal. [47] The Tribunal accepts the contentions of the Respondents that much of the 4 days of hearing were taken hearing the evidence of the Applicant‟s witnesses. [48] The Respondents made several offers to settle the matter and the Applicant failed to objectively to consider these failures and determined to continue the litigation. The Tribunal comments on the effect of the offer of 23 July 2009 below. Nature and complexity [49] The parties effectively agreed that the complexity of the issues and the amount of money involved justified engaging legal representation which was approved by the CCT. Strengths of the claims [50] Whilst the Tribunal accepts the Applicant‟s submissions that the Tribunal did exercise the discretion under section 84 against the Applicant the case which the Respondents mounted regarding non-compliance was successful. This is a factor in favour of a costs order in favour of the Respondents. Other matters [51] The Tribunal accepted the submission of the Applicant's that whilst unsuccessful it was not disputed that it was out of pocket by the very least will be $47,000, being cost of materials and its subcontractors. It is submitted by the Applicant that it had a good claim which ultimately failed on discretionary considerations. There was no dispute about the work -- 8 of 13 -- 9 having been undertaken or the standard of the work undertaken. This is clearly a significant cost that has been incurred by the Applicant as a result of the Tribunal making a discretionary decision. The real failing was about the validity of the variation but none the less it has clearly benefited the Respondents. The result is that the Applicant has been penalised for poor paperwork. This is a matter that touches the interests of justice. This is a significant factor in favour of no costs being awarded. [52] The cases in these disputes require that if a successful party is to be deprived of their costs or indeed ordered to pay the costs of an unsuccessful party there must be very good reasons why it is just to do so. [53] McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [69] explained the position as follows: “….subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour… The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant....The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party, the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation… The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of discretion…. The court mat properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose if increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute… These are few, if any exceptions to the usual order as to costs outside the area of disentitling conduct.” [54] The Tribunal would like to make it very clear that it is not awarding costs because the Respondents won the case. There are several factors that the Tribunal has accepted both in favour of awarding costs and against ordering costs before the Tribunal decided to place this matter within the interests of justice contra-indication against costs orders. The most significant factor was the offer of settlement that had been made. Offer 23 July 2009 [55] Having regard to the primary decision of the Tribunal the Respondents rightly contend that the offer that was made was better than the final decision of the Tribunal for the Applicant. [56] The Respondents contend that they are entitled to their reasonable costs of the proceedings from 23 July 2009 under section 142 of the CCT Act. [57] Section 142(1) of the CCT Act states that it applies: (a) a party to a proceedings serves another party to proceeding with a written offer to settle matters in dispute with parties; (b) the other party does not accept -- 9 of 13 -- 10 the offer within the time period open ; and (c) the offer complies with this division; and (d) in the opinion of the tribunal, the decision of the tribunal on the matters in dispute is not more favourable to the other party than the offer. [58] If section 142(1) applies the Tribunal must award a party made the offer all reasonable costs incurred by that party in conducting the proceeding after the offer was made (s 142(2)). [59] The Tribunal is satisfied that the offer made of 23 July 2009 complied with section 138 as it was in writing and served on the other party to which the offer related. [60] The offer to settle was not accepted by the Applicant. [61] The Tribunal is satisfied that the decision of the Tribunal was more favourable to the other party (Applicant) than the offer. If so, the Tribunal is required to award the Respondents all reasonable costs incurred in conducting the after the offer was made, that is 23 July 2009. See Peat v Payne [2006] QCCTB 127. [62] The Respondents seeks indemnity costs and refer to the decision of Fenwick v Queensland Building Services Authority [2011] QCAT 262 where Barry Cotterell refers to QCAT cases in which reasonable costs are discussed. In Malay Industries Pty Ltd [2010] QCAT 310 Member Christensen decided that reasonable costs meant indemnity costs should be rewarded to the respondent who won. However, a contrary view was expressed in relation to section 142 by Member Stilgoe in Leo v Paulsen [2010] QCAT 122. [63] While noting the differing views, the Tribunal accepts the view that the expression “all reasonable costs” in section 142 in the CCT Act is capable of referring to indemnity costs. [64] The Tribunal accepts that costs should be awarded as a consequence of the provisions of the CCT Act. However what costs should be awarded in this case. Indemnity Costs or Standard Costs [65] The Court of Appeal decision Velvet Glove Holdings Pty Ltd [2011] QCA 312 is a decision that in part relates to circumstances in which indemnity costs can be awarded. The dispute before the Trial judge that is relevant to this matter was whether costs should be awarded to be assessed on a standard basis or an indemnity basis when a Calderbank offer had been made. The Court of Appeal noted at paragraph 104: Before the learned trial judge it was common ground that Velvet Glove, having failed in the claim litigated, should be ordered to pay MIM’s costs of and incidental to the proceeding, including reserved costs, but excluding the costs concerning the Reimbursable Expenses claim pleaded in the amended statement of claim. The area of dispute was whether the costs should be -- 10 of 13 -- 11 ordered to be assessed on a standard or indemnity basis. Velvet Glove, with leave granted on 1 July 2011, appealed her Honour’s decision that MIM’s costs be assessed on an indemnity basis. [66] The learned trial judge referred to the established principles applicable to the consideration of an indemnity costs order on the basis of a refusal of a Calderbank offer, including those set out in Colgate Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 and Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298. Her Honour noted that it is well accepted that a party who unreasonably refuses to accept a Calderbank offer, on terms more favourable than the court‟s subsequent order, may be ordered to pay indemnity costs. Her Honour had regard to the factors that are relevant to assessing reasonableness set out in Hazeldene’s Chicken Farm Pty Ltd in concluding that Velvet Glove’s rejection of the Calderbank offer was unreasonable such that it was appropriate that indemnity costs be ordered. [67] The Court of Appeal overturned that decision in paragraph 106: I am unable to discern the element of unreasonableness displayed by Velvet Glove in refusing to accept the Calderbank offer. It was made at a time when both claims brought by Velvet Glove were unresolved and in circumstances where MIM, in resisting a summary determination of Velvet Glove’s claim, pointing to asserted that the issues disputed were of a complex nature. Nor would I characterise the construction of the contract advanced on behalf of Velvet Glove is one that was so lacking in merit as to be an arguable, such that its conduct in rejecting the Calderbank offer should be viewed as unreasonable, and the learned trial judge did not so characterise Velvet Glove’s case. In those circumstances, I consider that the discretion to order indemnity costs miscarried. I would order that the costs order of the learned trial judge be varied so that MIM’s costs are to be paid on a standard, rather than an indemnity basis. [68] The Tribunal is satisfied that this decision is applicable to offers of settlement whether Calderbank or as under the provisions of the CCT Act as in this case. [69] The Tribunal is not satisfied that the Respondents have established that the necessary elements of unreasonableness contemplated in the cases referred to above have been established by Applicant in refusing to accept an offer. This means that an award of indemnity costs is not appropriate. [70] The Tribunal also is of the view that the interests of justice require that it take into account the substantial detriment that Applicant has experienced and resultant benefit to the Respondents by the primary decision of the Tribunal. This also in the interests of justice to be taken in deciding to make an order to only award costs on a standard basis. [71] Given the outcome of the decisions and the reasons for that decisions the Tribunal cannot find any special circumstances which would justify a different order to an order that Better Homes Queensland Pty Limited pay the Respondents their costs of the application on a standard basis. -- 11 of 13 -- 12 [72] In relation to the most appropriate scale the Tribunal accepts the Respondents‟ contentions that the most appropriate scale in the circumstances is the District Court scale. This is consistent with the level of complexity and the preparation for the hearing and the nature of the hearing itself. It is considered by the Tribunal to appropriate in the circumstances of this case. Findings [73] The Tribunal finds that: a. the matter was complex and arguable points were raised on both sides; b. both sides were granted legal representation which occurred both at the hearing in Cairns and throughout the preparation of the matter; c. on the basis of the Respondents‟ submissions there is no suggestion as to their financial circumstances, if they are denied their costs in this matter that this will significantly impair their ability to rectify their house; d. at the end of the hearing the Applicant failed and the Respondents were partially successful with their claim which shows that they had a relatively stronger case than Better Homes Queensland Pty Limited; e. the Applicant has suffered a significant detriment as a consequence of not being paid for a significant amount of work undertaken for the Respondents; f. the Respondents made an offer of settlement on 23 July 2009 under the provisions of the CCT Act which was better than the result obtained by the Applicant; g. the District Court scale of costs is appropriate under the circumstances. Orders [74] The Tribunal orders that: a. Better Homes Queensland Pty Limited pay Scott O‟Reilly and Meilyn O‟Reilly‟s costs of and incidental to the proceedings against Better Homes Queensland Pty Limited, including reserved costs, on a standard basis to be assessed on the District Court scale of costs. b. Scott O‟Reilly and Meilyn O‟Reilly shall deliver to Better Homes Queensland Pty Limited an itemised claim for costs referring to the relevant items contained in the District Court scale of costs. -- 12 of 13 -- 13 c. If within 28 days of that delivery, the parties have not agreed on an amount of costs, the costs shall be assessed by Hickey and Garrett, Legal Costs Assessors, Level 21, 141 Queens Street. Brisbane, 4000. d. Better Homes Queensland Pty Limited shall pay Scott O‟Reilly and Meilyn O‟Reilly‟s costs (as agreed or assessed) within 28 days of such agreement or assessment. -- 13 of 13 --