Introduction – construction law dispute, Calderbank offers, and costs orders

White Knight Lawyers utilises Calderbank offers and successfully obtains costs orders on behalf of its homeowner applicant client (Owner) on both an indemnity basis and ordinary basis in proceedings before the New South Wales Civil and Administrative Appeals Tribunal (NCAT). The construction law dispute was before the Consumer and Commercial Division of NCAT after being remitted by the NCAT Appeal Panel.

In 2021, White Knight Lawyers successfully prosecuted the Owner’s claim against the respondent Builder. You can find our summary of that judgment here. NCAT awarded the Owner the amount of $180,144.00, being the whole of the Owner’s substantive claim against the Builder. That decision can be found here, Tanios v Baserite Constructions Pty Ltd (No 1) [2021] NSWCATCD 85 (Tanios (No 1)).

On 25 November 2021, NCAT delivered its subsequent costs decision in Tanios v Baserite Constructions Pty Ltd (No 2) [2021] NSWCATCD (Tanios (No 2)). NCAT ordered the respondent Builder to pay to the Owner costs as agreed or assessed on both an indemnity basis and ordinary basis. These costs orders related to both the successful remitted proceedings and the earlier appeal panel proceedings. To that end, it is worth noting that the costs order in the earlier appeal panel proceedings were as follows:

“Costs of the appeal, as to who is to pay the costs of the appeal, to abide the outcome on the further primary hearing but to be on the ordinary basis as agreed or assessed.”

Baserite Constructions Pty Ltd v Tanios [2020] NSWCATAP 77, Order four (4)

Background

On 10 August 2021, NCAT found that the Owner was wholly successful in respect of both the Owner’s claim and the Builder’s crossclaim. NCAT ordered the Builder to pay damages to the Owner for the Builder’s breach of the Work Agreement. Further, NCAT dismissed the Builder’s crossclaim.

The main issues in Tanios (No 2) were as follows:

• Whether costs should be awarded.
• If costs should be awarded, whether the costs awarded should be assessed on an ordinary or indemnity basis.

Principles

General NCAT costs principles

The starting point for determining costs in NCAT is that parties to proceedings are to pay their own costs.[1] NCAT may award costs if NCAT is satisfied that there are “special circumstances warranting an award of costs.”[2] However, NCAT may also award costs in the absence of special circumstances. To do so, the amount claimed or in dispute in the proceedings must be more than $30,000.00 and the proceedings must be in the Consumer and Commercial Division of NCAT.[3]

Proceedings before NCAT’s Appeal Panel are subject to the same costs rules which apply at first instance. Accordingly, if NCAT may award costs in the absence of special circumstances in the first instance proceedings, NCAT may similarly award costs in an appeal.[4]

Purpose of costs

The purpose of a costs order is to compensate or indemnify a successful party against the costs and expenses to which it has been put. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.

Nature of costs orders

NCAT may order costs on either an ordinary basis or an indemnity basis.[5] On the ordinary basis, a party is entitled to recover a fair and reasonable amount for the legal costs and disbursements that were reasonably incurred in the conduct of the proceedings. Costs on the indemnity basis means that all costs are allowed other than those that appear to have been unreasonably incurred.

Awarding costs on an indemnity basis

NCAT exercises its discretion to award indemnity costs in limited circumstances and subject to careful reasoning. An order for indemnity costs may be made where a successful party makes an offer of compromise during proceedings. The offer must be less favourable than the result ultimately achieved by the successful party as against the party whom the indemnity costs order is sought.

Calderbank offers

An offer of compromise may be in the form of a ‘Calderbank’ letter marked as ‘Without prejudice save as to costs’, although form does not necessarily dictate substance in that regard. NCAT will consider the following principles when determining whether to make an indemnity costs order for a party relying on a Calderbank letter:

• There must be a real and genuine element of compromise.
• The refusal by the unsuccessful party must be unreasonable.
• The reasonableness in rejecting an offer must be considered at the time the offer is made, not with the benefit of hindsight.
• Relevant factors in relation to whether the rejection was reasonable. Those include the stage of the proceedings at which the offer was received, the time allowed to consider the offer, the extent of compromise offered, the offeree’s prospects of success (assessed at the date of the offer), the clarity with which the terms of the offer were expressed, and whether the offer foreshadowed an application for indemnity costs in the event of rejection.

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[1] Civil and Administrative Tribunal Act 2013 (NSW) s 60(1)

[2] Ibid s 60(2)

[3] Civil and Administrative Tribunal Rules 2014 (NSW) r 38(2)

[4] Ibid r 38A

[5] Civil and Administrative Tribunal Act 2013 (NSW) s 60(4)

Determination

Background

Firstly, NCAT found that:

• it was not necessary for special circumstances to exist for the Tribunal to award costs in the proceeding, as the amount in dispute exceeded $30,000.00 and the proceedings were before the Consumer and Commercial Division of NCAT;
• the successful Owner did not engage in disentitling conduct that would prevent NCAT from awarding costs; and
• the Owner is entitled to an order for costs in each of the proceedings on the ordinary basis.

Further, in determining whether costs on the indemnity basis should be ordered, NCAT considered the Owner’s two (2) Calderbank Letters to the Builder.

First Calderbank Letter

In the First Calderbank Letter to the Builder, the Owner offered the Builder full and final settlement of all claims and liabilities. In addition, the offer was made well in advance of the hearing. However, the nature and extent of the matters in dispute had not, at the time, been fully articulated in evidence, pleadings, and submissions. Further, the offer was made prior to the Builder’s cross-application. For those reasons, NCAT did not find that it was unreasonable for the Builder to reject the First Calderbank Letter.

Second Calderbank Letter

As regards the Second Calderbank Letter, NCAT found that:

• at the time of the Second Calderbank Letter, the respective positions of the Owner and Builder, including the material evidence and pertinent facts, were well understood by the Builder;
• the Builder knew at that time that there were significant difficulties in its cross-application and in resisting the Owner’s claim;
• the offer was a genuine attempt to settle the proceedings; and
• the offer was open for a reasonable period for acceptance.

For those reasons, NCAT was satisfied that the Builder’s refusal to accept the settlement offer contained in the Second Calderbank Letter was unreasonable. Therefore, the Owner’s legal costs following the Second Calderbank Letter should be assessed on the indemnity basis.

Takeaways and lessons

• In NCAT, costs can be awarded in the absence of special circumstances if the amount in dispute is greater than $30,000.00 and the proceedings are before the Consumer and Commercial Division.
• Offers of compromise are an integral component of litigation that encourages settlement to facilitate a just, quick, and cheap resolution to the issues in the proceedings and the dispute.
• Offers of compromise enable parties to preserve costs on the indemnity basis.
• For Calderbank offer letters to be effective, it is imperative that they are drafted in accordance with the relevant common law principles.
• A party that receives an offer of compromise needs to carefully consider their position and the contents of the offer in order to minimise the risks of adverse costs on the indemnity basis.