Understanding the Non-Recoverability of Mediation Costs in Strata Disputes – A Key Appeal Decision Analysis – The Owners – Strata Plan No 21563 v Rutherford  NSWCATAP 326
This recent NCAT Appeal Panel decision addresses an appeal about the recoverability of legal costs incurred during pre-litigation mediation under the Strata Schemes Management Act 2015 (NSW) (“SSMA”). The appellant, an owners corporation, contested the Tribunal’s decision to award damages to a lot owner, the respondent, which included legal costs related to mediation organised by NSW Fair Trading.
The respondent faced water penetration issues in her unit and notified the owners corporation. After several resolution attempts, including mediation, she initiated proceedings in the Tribunal, claiming damages for losses due to the owners corporation’s negligence in maintaining common property. This claim encompassed legal costs related to the mediation.
The Tribunal granted damages to the respondent, covering legal costs from the pre-litigation mediation. The owners corporation appealed, contending that these costs were non-recoverable as per clause 60 of the Strata Schemes Management Regulation 2016 (NSW), which mandates that mediation parties must cover their own costs.
The appeal centered on whether including mediation-related legal costs in the damages constituted a legal error by the Tribunal. The appellant maintained that these costs, prohibited by the regulation, should not be compensated as damages under the SSMA.
The Appeal Panel’s decision scrutinised if mediation costs could be classified as “costs of, and incidental to, proceedings” in the Tribunal. It explored the legal principles that differentiate between damages eligible for recovery and incidental legal costs.
The Appeal Panel determined that the Tribunal mistakenly awarded legal costs related to mediation as damages. It concluded these costs were “costs of, and incidental to, proceedings,” thereby making them non-recoverable as damages due to the Strata Schemes Management Regulation 2016 (NSW).
The Appeal Panel’s Decision
The Appeal Panel upheld the appeal, amending the damages awarded to the respondent by removing the mediation-associated legal costs. It also overturned the Tribunal’s cost decision and returned the first instance proceedings’ cost issue to the Tribunal for reassessment.
This decision underscores the legal distinction between damages recoverable and legal costs in strata disputes and mediation contexts. It clarifies that costs explicitly linked to mediation cannot be reclaimed as damages in subsequent Tribunal proceedings.
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