VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP1331/2018	
CATCHWORDS	
COSTS – applicant’s claim for costs, interest and disbursements from first respondent – first respondent’s claim for costs from applicant – second respondent’s claim for costs from applicant - s 109 and s 112, 113 and 114 of the Victorian Civil and Administrative Act 1998 (Vic) -  ‘Calderbank’ offer – cost consequences of Calderbank offers.	

APPLICANT	Belinda Galea	
FIRST RESPONDENT	Silverline Homes PTY LTD (ACN: 125 742 547)	
SECOND RESPONDENT	Kamran Zand Basiri	
WHERE HELD	Melbourne	
BEFORE	H. Nash, Member	
HEARING TYPE	On the papers	
DATE OF HEARING	19 August 2021	
DATE OF ORDER	26 July 2023	
CITATION	Galea v Silverline Homes Pty Ltd (Building and Property) (Costs) [2023] VCAT 858	

Order

1.	The first respondent must pay the applicant interest in the sum of $1,211.43. 
2.	Pursuant to s 115B of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), the first respondent must pay the application fee and hearings fees incurred by the applicant in the sum of $5,934.60.
3.	Pursuant to s 109(2) and s 109(3) (c), (d) and (e) of the Victorian Civil and Administrative Tribunal Act 1998, being satisfied that it is fair to do so, the applicant must pay the first and second respondents’ costs of and incidental to the adjournment of the proceeding on 24 August 2020 and the subsequent amendments of the Points of Claim. In default of agreement, such costs are to be taxed by the Victorian Costs Court on the County Court scale on a standard basis.
4.	Pursuant to s 109(2) and s 109(3) (c), (d) and (e) of the Victorian Civil and Administrative Tribunal Act 1998, being satisfied that it is fair to do so, the first respondent must pay the applicants’ costs of the proceeding except for the costs of and incidental to the adjournment of the proceeding on 24 August 2020 and the subsequent amendment of the Points of Claim. In default of agreement, such costs are to be taxed by the Victorian Costs Court on the County Court scale on a standard basis. 
5.	Pursuant to s 109(2) and s 109(3) (c), (d) and (e) of the Victorian Civil and Administrative Tribunal Act 1998, being satisfied that it is fair to do so, the applicant must pay the second respondent’s costs of the proceeding up to 16 July 2021. In default of agreement, such costs are to be taxed by the Victorian Costs Court on the County Court scale on a standard basis. 
6.	Pursuant to s 109(2) and s 109(3) (c), (d) and (e) of the Victorian Civil and Administrative Tribunal Act 1998, being satisfied that it is fair to do so, the applicant must pay the second respondent’s costs of the proceeding from 16 July 2021. In default of agreement, such costs are to be taxed by the Victorian Costs Court on the County Court scale on an indemnity basis. 

H. Nash
Member			

Reasons
1	Having received judgment in their favour on 30 August 2022, the applicant (‘Owner’) has filed submissions and affidavits in support of her application that the first respondent pay to the applicant interest, costs and disbursements. The first respondent (‘Builder’) disputes the applicant’s claim.
2	The Owner commenced proceedings on 31 August 2018 seeking damages for defective building works against the Builder and breach of duty by the second respondent (‘the RBS’). The Owner was successful in establishing a significant number of the matters complained of were defective works but received a substantially reduced amount of damages than was claimed.  
3	The Owner seeks an order for interest for the loss of rent of $3,028.57 from September 2017 as she has not had the benefit of the use of those monies since the proceedings were commenced.  The Owner seeks an order for interest at the rate applicable under the Penalty Interest Rate Act 1983 (Vic).
4	In addition the Owner seeks reimbursement of the application fee and hearing fees paid in the total sum of $5,548.10. 
5	Finally, the Owner seeks an order that the Builder pay the costs of all parties thrown away by reason of the adjournment of the hearing listed for 24 August 2020. 
6	In addition, the Builder has sought an order that the applicant pay its costs and relies on ss 109 and 112, 113 and 114 in support of its claim for costs.
7	And finally, the second respondent (‘the RBS’) has also made application for an order that the applicant pay its costs and relies on ss 109, and 112, 113 and 114 as well as the principles set out in Calderbank v Calderbank (‘Calderbank’) in support of its application.
owner’s claim for interest 
Interest
8	Section 53 of the Domestic Building Contracts Act 1996 (Vic) (‘DBC Act’) provides in part:
(1)	The Tribunal may make any order it considers fair to resolve a domestic building dispute.
(2)	Without limiting this power, the Tribunal may …
(b)	…order the payment of a sum of money-
…
(ii)	by way of damages (including … damages in the nature of interest);
…
(3)	In awarding damages in the nature of interest, the Tribunal may base the amount awarded on the interest rate fixed from time to time under section 2 of the Penalty Interest Rates Act 1983 or on any lesser rate it thinks appropriate.
9	The Owner was successful in her claim with respect to the loss of rental income and it is reasonable that it should not be eroded by the passage of time. Section 97 of the VCAT Act requires the Tribunal to “act fairly and according to the substantial merits of the case …” and s 98(1)(c) entitles it to “inform itself on any matter as it sees fit”, subject, of course, to being bound by the rules of natural justice.  
10	Once the Owner commenced proceedings the Builder was aware of the claim for loss of rent and that the Owner did not have the benefit of the use of that money. However, I do not accept that the Owner is entitled to payment of interest on that amount from September 2017.  I consider in this case it would be fair to award penalty interest to the Owner for the loss of rent for the period between issuing the proceedings on 31 August 2018 and the date of the decision on 30 August 2022. 
11	The period between filing the claim and 30 August 2022 is four years. The Penalty Interest Rate for that period is 10% interest. Interest on $3,028.57 is $1,211.43, which the Builder must pay the Owner.
General principles regarding costs
12	Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (‘the VCAT Act’) says in part:
s.109:
(1)	Subject to this Division, 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.
13	As emphasised by the Supreme Court in the matter of Vero Insurance Limited v Gombac Group [2007] VSC 117 at [20], the Tribunal should approach the question of entitlement to costs on a step-by-step basis:
(i)	The prima facie rule is that each party should bear their own costs of the proceeding.
(ii)	The Tribunal should make an order awarding costs being all or a specified part of costs, only if it is satisfied that it is fair to do so;  that is a finding essential to making an order.
(iii)	In determining whether it is fair to do so, that is, to award costs, the Tribunal must have regard to the matters stated in s.109(3).  The Tribunal must have regard to the specified matters in determining the question, and by reason of (e) the Tribunal may also take into account any other matter that it considers relevant to the question.
14	Turning to each claim in turn.
owner’s claim for disbursements against the builder
Disbursements under Sections 115B and 115C
15	Sections 115B and 115C of the VCAT Act provide for the reimbursement of the application fee and hearings fees where the applicant has been substantially successful in his/her or its claim.
16	The Owner argues that as she has been substantially successful in her claim for damages, she ought to be awarded costs to reimburse the costs incurred for the application fee and for nine days of hearing fees.
17	The Owner was awarded damages for 4 of the 5 items claimed, even though she was awarded less than 10 percent of the total amount of damages claimed. The damages claimed for the fifth item which was rejected by the Tribunal amounted to about 25 percent of the total damages claimed.
18	I accept that while the damages awarded to the Owner were substantially less than the damages claimed, she was substantially successful in establishing that 4 of the 5 items she claimed were defective and required rectification.
19	In that regard, I find that the Owner was substantially successful in her claim and order that the Builder pay the VCAT application fee in the sum of $778.90 and hearing fees of  $368.30 per day for days 1 -4 of the hearing and $735.50 per day for days 5 – 9 of the hearing; a total of $5,155.70 for hearing fees. The Builder is to pay to the Owner the application fee and hearings fees totalling $5,934.60.
owner’s and BUILDER’s claim for costs from each other
Costs thrown away by reason of the adjournment of the hearing listed to commence on 24 August 2020
20	On 24 August 2020, the hearing of the proceeding was adjourned on the application of both the Builder and the RBS. The basis for the application was that the Owner had served an updated and amended expert report from Mr Cross dated 3 August 2020 which raised new issues which the respondents had not had an opportunity to respond to or to obtain further expert evidence about.
21	The adjournment was granted but the costs of the adjournment were reserved by the Member. 
22	The Owner argues that the adjournment was caused by the Builder and the RBS making the application to adjourn and therefore they ought to pay the Owner’s costs thrown away by the adjournment.
23	However, Order 8 of the orders dated 24 August 2020 states 
If Amended Points of Claim are filed, the respondents may apply for costs thrown away by reason of the repleading. Such costs may include the cost of amending Points of Defence and the cost of obtaining further expert reports.
24	On 21 September 2020, Mr Cross provided yet another updated expert report and the Owner subsequently amended her Points of Claim to reflect the further matters arising from the 2 further expert reports provided by Mr Cross after the Points of Claim were filed and served.
25	It is clear from the orders made on 24 August 2020 that the adjournment was caused by the Owner serving an updated expert report from Mr Cross which raised new issues. Further order 8 specifically stated that if amended Points of Claim were filed by the Owner, the Builder and the RBS may apply for their costs thrown away. There was no reservation of the same right for the Owner.
26	I therefore dismiss the Owner’s claim for her costs thrown away by reason of the adjournment and find that the Owner must pay the costs of the Builder and the RBS thrown away by reason of the adjournment on 24 August 2020 and the subsequent amendments of the Points of Claim. Such costs are to be assessed on a standard basis under the County Court scale of costs.
Owner’s claim for Costs under section 109 of the VCAT Act
Section 109(3)(a) – Conducting the Proceeding in a manner which unnecessarily disadvantaged another party to the proceeding
27	The Owner argues that the assertion by the Builder that the works were not defective and relying upon bare denials in its defence constituted conduct which unnecessarily disadvantaged the Owner. In particular the absence of clear information from the Builder about the method and materials used in the construction are said to have unnecessarily disadvantaged the Owner.
28	The proceeding was listed for hearing commencing on 24 August 2020. At that time the Builder applied for an adjournment of the hearing on the grounds that the Owner’s expert report from Mr Cross contained new opinions. That application was granted.
29	However, the Owner says that the Builder misled the Tribunal in making that application as it was also aware that the day before the hearing was to commence further documents identifying the materials used in the cladding of the buildings had been identified which it had yet to produce to the Owner and may cause an amendment to its defence. This ‘new information’ was not disclosed to the Owner until July 2021.
30	It is said that the disadvantage caused to the Owner by this conduct was the Owner having a shorter period of time within which to consider the relevant materials
31	The Owner argues that this conduct was a breach of the Builder’s discovery obligations and therefore also constituted conduct in breach of the Tribunal’s orders without reasonable excuse. 
32	Further, the filing of a defence which constituted a bare denial and a failure to disclose all documents in its possession in a timely manner is said to be conduct which falls within s 109(3)(a)(ii) – non-compliance with the VCAT Act or relevant legislation.
33	In addition, with respect to this subsection of the VCAT Act, the Owner argues that the Builder engaged in conduct that was intended to deceive another party or the Tribunal.  It is said the Builder did this by instructing its expert incorrectly as to the materials used in the construction of the townhouses the subject of the dispute and that the Builder had no reasonable for basis for giving those instructions. Therefore, the Builder had attempted to deceive the Tribunal and the Owner.
34	Finally, the Owner argues that the Builder’s conduct with respect to discovery was conduct which was vexatious.
Section 109(3)(b) – Prolonging Unreasonably the Time Taken to Complete the Proceeding
35	As submitted by the Owner, the relevant time referred to in this subsection is the time between commencement of the proceeding and final hearing, not matters which occurred before the proceedings were commenced. As noted above, the proceedings took four years from commencement to conclusion.  
36	It must be noted that some of the delays arose by reason of the constraints of the Tribunal, due to the COVID pandemic and the limited member resources available to hear a nine day case.
Section 109(3)(c) – The Relative Strengths of the Claims made by each of the Parties
37	The Owner argues that despite not being successful in all aspects of her claim, that she was substantially successful and therefore ought to be entitled to a costs order in her favour.
Section 109(3)(d) – The Nature and Complexity of the Proceeding
38	The proceedings were lengthy and complicated, they involved a nine day hearing and a decision which ran for more than 30 pages. 
39	They were complex in nature and involved expert evidence on behalf of both the Owner and the Builder.
Conclusion
40	The proceedings were complex, involved extensive expert evidence from 4 experts and the hearing ran for 9 days. The quantum claimed by the applicant was $823,188.23. All of these elements, on their face, indicate that a successful Owner ought to be awarded payment of costs by the Builder in the proceeding. 
41	On the other hand, the Owner, while successful was only awarded damages of $61,455.57 when the quantum claimed was $823,188.23, less than 10 percent of the claim made. Further, much of the hearing time was unnecessarily prolonged by Mr Cross, on behalf of the Owner, on more than one occasion producing evidence late, he sought to update his opinions and his report during the proceeding, inappropriately made contact with the Owner’s legal representative while being in the middle of being cross examined and during cross examination was often evasive or failed to provide a simple direct answer to the questions asked. 
42	Mr Cross also provided the Owner with the estimated costing for the items he said needed to be rectified as well as the methodology for rectification.  It was his evidence that the applicant relied on to identify the alleged defects, the alleged method and quantum to rectify the defects and who continued to expand and increase those items throughout the proceeding, including at the hearing. If anything, it was Mr Cross’s changing and updating his evidence that prolonged the time taken for the proceeding to be completed.
43	Further, the complexity of the case and the fact that the Owner was successful in establishing liability for 4 of the 5 items claimed, warrants an award of costs to the Owner.
44	I therefore allow the Owner’s application for her costs to be paid by the Builder.
45	With respect to the Owner’s costs up to 10 August 2020 to be paid by the Builder, those costs shall be assessed on the standard basis under the County Court Scale. 
46	Whether the Builder ought to pay the Owner’s costs for the period after 10 August 2020 depends on my findings with respect to the Offer made on 10 August 2020.
Builder’s Claim for costs under section 109 VCAT Act up to 10 August 2020
47	Conversely to the Owner, the Builder argues that it is entitled to have the Owner pay its costs pursuant to s 109 of the VCAT Act. 
48	The Builder argues that it was the Owner that unreasonably prolonged the time taken to complete the proceeding. As the Owner was only successful in obtaining an award of damages that was less than 10% of the total damages claimed, the Builder argues that had the Owner pursued a more realistic claim, a substantially shorter hearing length would have been achieved. Further, had the Owner’s expert not sought to argue unnecessarily about the proper construction of the BCA the hearing length would have necessarily been shortened.
49	The Builder also relies on the disparity between the damages awarded to the Owner and the damages claimed as evidence of the overreach of the Owner’s position. The items which the Owner was awarded damages for were the items which were substantially agreed between all three experts, the scope for rectification that was accepted was that proposed by the experts for the Builder and RBS and the costing of those rectification works that was accepted by the Tribunal was that of the experts of the Builder and the RBS.
50	Further, the proceeding was complex and ran for 9 days, although the hearing time should have been reduced but for the position adopted by the Owner’s expert.
51	For these reasons the Builder says that it should either be awarded its costs or that there should be no order for costs as between itself and the Owner.
52	I agree that the arguments promulgated by the Builder militate against an award of costs to the Owner. However, as accepted by the Builder, it was found liable for defective works for which it was ordered to pay to the Owner damages. While the quantum of damages maybe significantly less than the amount claimed by the Owner, the Builder was found liable to pay damages and for those reasons it is not fair to order the Owner pay the Builder’s costs up to and including 10 August 2020.
53	I therefore dismiss the Builder’s claim for costs against the Owner up to and including 10 August 2020.
Builder’s Claim for costs after 10 August 2020 because of the Offer of Settlement made
54	On 10 August 2020, the Builder and RBS jointly served an offer of settlement on the Owner. That offer was not accepted by the Owner. The Builder argues that the Owner did not ultimately receive a more favourable outcome from the Tribunal and therefore, under s 112 of the Act it is entitled to have its costs paid after that date.
55	As set out below, the RBS also makes a similar claim.
56	The offer was sent by email and attached a document which was set out with the Proceeding header and described as “Offer to Settle” as described as being “on behalf of the First and Second Respondents”. The body of the document stated
TO THE APPLICANT:
1.	The First and Second Respondent’s reject the Applicant’s offer to settle contained in her letter dated 5 August 2020.
2.	This is an Offer to Settle made in accordance with section 112 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).
3.	The First and Second Respondents offer to settle VCAT Proceeding No. BP1331/2018 (VCAT Proceeding) on the following terms (Offer to Settle):
a.	The First and Second Respondents way the Applicant $100,000 (Settlement Sum) inclusive of costs and interest in full and final settlement of the Applicant’s claims and allegations against the First and Second Respondents in the VCAT Proceeding;
b.	The Settlement Sum is to be paid within 30 days of the Applicant’s acceptance of the Offer to Settle;
c.	The Applicant indemnify the First and Second Respondents against any third party claims for contribution and/or apportionment arising from the facts or circumstances giving rise o the Proceeding, whether pursuant to the Wrongs Act 1958 (Vic) or otherwise, brought by any parties against the First and Second Respondents;
d.	The offer is open to be accepted until 4.00pm 24 August 2020;
e.	If this offer is not accepted and the Applicant obtains an outcome no less favourable at Hearing, the First and Second Respondents will apply for costs to be paid by the Applicant on an indemnity basis, from the date of this offer, in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and Cuffs v Head [1984] Ch 290 and as adopted in the Supreme Court of Victoria, Court of Appeal in Hazeldene’s Chicken Farm Pty Limited v Victorian WorkCover Authority No 2 (2005) VR 435 and by the Supreme Court of Victoria in Mutual Community Limited v Lorden Holdings Pty Ltd & Ors (Unreported, Victorian Supreme Court 28 April 1993).
(the Offer).
Was the Offer made in accordance with section 112 of the VCAT Act?
57	Section 112 of the Act states as follows
(1)	This section applies if—
(a)	a party to a proceeding (other than a proceeding for review of a decision) gives another party an offer in writing to settle the proceeding; and
(b)	the other party does not accept the offer within the time the offer is open; and
	(c)	the offer complies with sections 113 and 114; and
(d)	in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.
(2)	If this section applies and unless the Tribunal orders otherwise, a party who made an offer referred to in subsection (1)(a) is entitled to an order that the party who did not accept the offer pay all costs incurred by the offering party after the offer was made.
(3)	In determining whether its orders are or are not more favourable to a party than an offer, the Tribunal—
(a)	must take into account any costs it would have ordered on the date the offer was made; and
(b)	must disregard any interest or costs it ordered in respect of any period after the date the offer was received
58	Section 113 of the VCAT Act states 
	(1)	An offer may be made—
(a)	with prejudice, meaning that any party may refer to the offer, or to any terms of the offer, at any time during the proceeding; or
(b)	without prejudice, meaning that the Tribunal is not able to be told of the making of the offer until after it has made its orders in respect of the matters in dispute in the proceeding (other than orders in respect of costs).
(2)	If an offer does not specify whether it is made with or without prejudice, it is to be treated as if it had been made without prejudice.
	(3)	A party may serve more than one offer.
(4)	If an offer provides for the payment of money, the offer must specify when that money is to be paid.
59	And s 114 states
(1)	An offer must be open for acceptance until immediately before the Tribunal makes its orders on the matters in dispute, or until the expiry of a specified period after the offer is made, whichever is the shorter period.
	(2)	The minimum period that can be specified is 14 days.
(3)	An offer cannot be withdrawn while it is open for acceptance without the permission of the Tribunal.
(4)	In deciding whether to give permission, the Tribunal may examine the offer, even if it was made without prejudice.
(5)	If the offer was made without prejudice, a member of the tribunal who examines it for the purposes of subsection (4) can take no further part in the proceeding after determining whether or not to give permission.
(6)	A party can only accept an offer by giving the party who made it a signed notice of acceptance.
(7)	A party may accept an offer even though it has made a counter-offer.
60	The offer made was for the Builder and RBS to jointly pay to the Owner the sum of $100,000 inclusive of costs and interest.
61	The offer was in writing, specified that the settlement sum was to be paid within 30 days after acceptance of the offer and was open for acceptance until 4.00pm 24 August 2020. The offer was sent by email to the Owner’s solicitor on 10 August 2020 at 8.45pm.
62	The Owner argues that the offer was not open for acceptance for a minimum period of 14 days and therefore the offer did not comply with s 114(2). Rule 4.32 relevantly provides 
(1)	Unless the contrary intention expressly appears, any period of time fixed by the Act or these Rules in relation to a proceeding or in any order in a proceeding shall be calculated in accordance with this rule.
(2)	Where a time of one day or longer is to begin on, or be calculated from, a day or event, the day or the date of the event shall be excluded.
(3)	Where a time of one day or longer is to end on, or be calculated to, a day or event, the day or date of the event shall be included.
63	As a consequence of this rule, calculating the minimum 14 day period for acceptance of an offer made under s 112 must commence on the day after the offer is served. The Owner argues that as the email serving the Offer was sent outside of business hours, it should be considered served the following day, 11 August 2020. If that argument is accepted then the counting of a minimum of 14 days commences on 12 August as day 1 and 24 August 2020 is day 13. Alternatively, if the Offer was served on 10 August 2020, then counting commences with 11 August 2020 as day 1 and 24 August 2020 is day 14.
64	On either calculation, the Offer does not expire at the end of the minimum 14 day period. It expires on the 13th or 14th day. 
65	Accordingly I find that the Offer did not comply with s 112 of the VCAT Act. 
Calderbank 
66	Alternatively, the Builder and RBS argue that the Offer, if it does not comply with s 112, constitutes an offer made in accordance with the principles of Calderbank and that the rejection of the Offer by the Owner was an unreasonable refusal of an offer to settle.
67	In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2), the Court of Appeal, after considering the authorities, summarised the approach to be taken as: 
23 	In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable.
24 	Of course, deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson, C.J. said recently, "unreasonableness is a protean concept". But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.” 
Factors relevant to assessing reasonableness
25 	The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.  It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) 	the stage of the proceeding at which the offer was received;
(b) 	the time allowed to the offeree to consider the offer;
(c)	the extent of the compromise offered;
(d) 	the offeree’s prospects of success, assessed as at the date of the offer;
(e) 	the clarity with which the terms of the offer were expressed;
(f) 	whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.
68	The Offer was made by the Builder and RBS to the Owner 2 weeks before the scheduled commencement of the 8 day hearing and shortly after the Owner had received the updated expert report from Mr Cross (which caused the adjournment of the proceeding). The Owner also made her own offer to settle the proceeding on 5 August 2020 for the sum of $170,000 plus her legal costs on the standard basis on the County Court scale.
69	The Offer was clear and foreshadowed that the Builder and RBS would seek an order that the Owner pay their costs if she did not receive an outcome better than the Offer. 
70	The question for consideration was whether it was unreasonable for the Owner to reject the Offer in all the circumstances.
71	As the Offer was made in close proximity to what should have been the commencement of the hearing, the Owner was in a position to assess the merits of the Offer while taking into account her costs and the likelihood of success for success. This was particularly so when the Offer was open for acceptance until 4.00pm on 24 August 2020 which was after the hearing had been adjourned and the Owner may face a claim for costs from the Builder and RBS as a consequence of the adjournment.  
72	The Owner has not filed any material with the Tribunal to indicate the extent of compromise that the Owner may have been required to make had she accepted the Offer. There is no evidence as to the Owner’s costs at that time. The Builder hypothesises that the costs of the Owner at that stage may have been approximately $45,000. If this is correct then the Offer would be about 50% of the offer made by the Owner.
73	The new expert report dated 3 August 2020 did not set out Mr Cross’s costing of the rectification works he opined were necessary.  In this regard it would have been difficult for the Owner to assess the extent of compromise required by her if she accepted the Offer. However, that is a matter for the Owner not the Builder or RBS. 
74	The onus is on the Builder to show that it was unreasonable of the Owner to reject the Offer at that stage of the proceeding. As noted above, the Builder hypothesises that the costs of the Owner at that stage may have been approximately $45,000. Ultimately, as she was awarded $61,455.57, accepting the Offer would not have resulted in her having to compromise significantly in resolving the dispute. But the Offer did reflect a compromise of a further reduction of her claim by 50%. At that time the Owner’s offer had already offered to compromise her claim against both respondents by about half of what she was seeking as damages. 
75	The Offer was made by both the Builder and the RBS jointly. The assessment of the prospects of success must then be done as against the respondents jointly. 
76	The Builder had filed a Points of Defence which simply denied all the Owner’s claims and did not assert a reason for the denials nor an alternative method or quantum for any of the rectification works allegedly required. The Owner says this created difficulties in assessing the prospects of success as it was unclear on what basis the Builder was disputing the Owner’s claims. The Owner says it was not until the Builder filed its amended Points of Defence and expert reports in June 2021 that it became clear what the extent of the dispute between the Owner and Builder was.
77	I accept the Owner’s argument that the reliance of the Builder on a Points of Defence that was a bare denial of the Owner’s claims made it difficult to assess the reasonableness of the Offer at the time that it was made. 
78	I therefore find that the failure by the Owner to accept the Offer was not unreasonable and the Builder cannot rely on the principles of Calderbank in its claim for costs against the Owner.
79	The Builder is therefore liable to pay the costs of the Owner from 10 August 2020 except for the costs of and incidental to the adjournment of the hearing on 24 August 2020. Those costs are for the Owner to bear herself.
RBS’s claim for costs against the owner
80	The RBS has also made a claim for its costs to be paid by the Owner. The Owner’s claim against the RBS was dismissed and the RBS seeks an order for its costs:
i	on the standard basis pursuant to s 109 of the VCAT Act up to 10 August 2020 when the Offer was made.
ii	After 10 August 2020 it seeks an order for costs on an indemnity basis; or alternatively,
iii	After 16 July 2021 when it made a further Calderbank Offer.
81	The principles to be taken into account when considering an application for costs under s 109 of the VCAT Act are set out above. The RBS relies on three of the grounds in s 109(3) in support of its application that the Owner pay its costs of the proceeding.
Section 109(3)(d) – The Nature and Complexity of the Proceeding
82	As noted above with respect to the Owner’s application for costs, the proceeding was complex, involved 4 experts and the hearing ran for 9 days.  
83	I accept that the complexity of the proceeding was such as to support a finding that the successful party ought to have its costs paid by the losing party.
Section 109(3)(c) – The Relative Strengths of the Claims made by each of the Parties
84	The claim by the Owner against the RBS was unsuccessful in all respects. The Owner had claimed against the RBS that it was required to undertake more work in the building permit process that was required statutorily including more inspections than the mandatory inspections and undertaking invasive or destructive testing to confirm the installation of materials accorded with the plans. These claims were without merit or legal basis and were dismissed.
85	The relative strengths of each of the parties’ positions is evidenced by the complete dismissal of all the claims made by the Owner as against the RBS. While there may have been deficiencies in the conduct of the RBS, these were not the matters agitated in the proceeding; it was the alleged additional and onerous obligations that were without legal basis and were relied upon by the Owner.
86	Again, this factor indicates it would be fair for the RBS to have its costs paid by the Owner.
Section 109(3)(b) – Prolonging Unreasonably the Time Taken to Complete the Proceeding
87	The third matter relied on by the RBS in support of its claim is that the conduct of the Owner disadvantaged the RBS. In this regard the RBS relies on the adjournment of the hearing of the proceeding on 24 August 2020. In addition the RBS relies on the conduct of the hearing itself and the role of the Mr Cross the Owner’s expert who adopted a position of advocate rather than independent expert when giving evidence during the hearing.
88	The adjournment of the proceeding in August 2020 as a consequence of the further expert report from Mr Cross prepared 3 weeks prior to the hearing is addressed above and I have found the Owner liable for the costs of the Builder and the RBS thrown away by reason of the adjournment.
89	Therefore, the disadvantage caused by that conduct has been accounted for as between the parties. I do however accept that the production of an updated expert report which included further and new allegations resulted in a delay in the resolution of the proceedings which disadvantages all parties involved.
Conclusion 
90	In light of the above matters relied on by the RBS, I find that the Owner must pay the RBS’s costs of the proceeding on a standard basis.
91	In addition, the RBS seeks an order that the Owner pay its costs on an indemnity basis either in reliance on:
i	the Offer and s 112 of the VCAT Act, 
ii	the Offer is a Calderbank offer which the Owner unreasonably rejected; or 
iii	the Further Offer made on 16 July 2021 was a Calderbank offer that the Owner unreasonably rejected.
Was the Offer made in accordance with section 112 of the VCAT Act?
92	I have set out above my findings with respect to the Offer and its compliance with s 112 of the VCAT Act.
93	I therefore dismiss this aspect of the RBS’s claim for its costs to be paid on an indemnity basis by the Owner.
Was the Offer a Calderbank offer the Owner unreasonably rejected?
94	Again, I have set above my findings regarding the Offer as a Calderbank offer and whether the Owner unreasonably rejected the Offer. Those findings and reasons apply equally to the RBS.
95	I therefore dismiss this aspect of the RBS’s claim for costs for its costs to be paid on an indemnity basis by the Owner.
Further Calderbank Offer dated 16 July 2021
96	On 16 July 2021, the RBA made a further stand alone Calderbank offer to the Owner to compromise the claim made by the Owner against the RBS. It was a detailed offer which set out as follows (‘the RBS Offer’):
We refer to our letter dated 18 March 2021, your letter dated 8 December 2020, and other previous correspondence in the above matter.
1. 	Background
1.1 	By letter dated 5 August 2020, your client issued an offer of compromise to our client, Kamran Zand Basiri (“KZB”), and the other respondent in the proceeding, Silverline Homes Pty Ltd (“Silverline”) pursuant to ss 113 and 114 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (the ‘Act’), requesting our client and Silverline pay your client the sum of $170,000.00 plus costs on a standard basis on the county court scale in full and final settlement of the claim – the matter of proportion to be decided between our client and Silverline.
1.2 	The evidentiary basis for the offer of compromise relied on the expert reports of Mr George Cross of Bayside Building Consultants dated 26 May 2018 and 3 August 2020. The materials relied upon by Mr Cross in preparation of the report dated 26 May 2018 included:
(a) 	Copy of the Title for the property;
(b) 	Building Permit of KZB Building Surveying Services Pty Ltd dated 4 September 2015;
(c) 	Occupancy Permit of KZB Building Surveying Services Pty Ltd dated 10 November 2016;
(d) 	Architectural and structural plans by Lasting Solutions Drawings A1 – A13 and S0 – S7.
1.3 	The report by Mr Greg du Chateau dated 8 February 2019 assessed Mr Cross’ report in light of the following KZB Building Permit documentation:
(a) 	Architectural Drawings prepared by Lasting Solutions dated February 2014;
(b) 	Structural Drawings prepared by lasting Solutions dated February 2014;
(c) 	Computations prepared by Lasting Solutions;
(d) 	Geotechnical report prepared by Civil and Soil dated 13 March 2014;
(e) 	Certificate of Compliance (R1507) prepared by Beattie dated 17 July 2015;
(f) 	Drainage Systems Design prepared by Lasting Solutions dated June 2014;
(g) 	Property information from CGD;
(h) 	Planning Permit Drawings prepared by Designworks dated 4 January 2013;
(i) 	Certificate of Title, Plan of Subdivision and title of particulars for the units;
(j) 	Domestic builders Warranty Insurance Certificate issued by VMIA dated 26 August 2015;
(k) 	Legal Point of Discharge from CGD.
1.4 	Contrary to Mr Cross’ report, Mr du Chateau’s report found that:
(a) 	the Building Permit was correctly issued;
(b) 	there is sufficient detail in the Building Permit documentation to construct the building and ensure compliance with the BCA;
(c) 	an acceptable level of detail was specified regarding the external cladding, separating wall and LOXO fire rated wall system to ensure compliance with the BCA;
(d) 	the frame and final inspections were appropriately undertaken; and
(e) 	the Occupancy Permit was correctly issued.
1.5 	We considered Mr du Chateau’s reports have a stronger evidentiary basis and accordingly on 10 August 2020 our client and Silverline refused your client’s offer and issued a counteroffer pursuant to sections 113 and 114 of the Act to reflect this position.
1.6 	The counteroffer was made out in the amount of $100,000 inclusive of costs and interest in full and final settlement of your client’s claims against our client and Silverline in this proceeding. The offer was open for your acceptance until 4.00PM on 24 August 2020, which has since lapsed.
2. 	Developments
2.1 	Since the counteroffer your client has produced a supplementary expert report by Mr George Cross of Bayside Building Services dated 20 September 2020 following a further inspection on 7 September 2020. Following Mr Cross’ third attendance at the subject site, the expert witnesses for our client and Silverline attended for further inspection. As a result of the further inspection, the experts, Mr Greg du Chateau, Mr Ray Martin and Mr Trevor Jeffery agree that in respect to units 2 and 3:
(a) 	the Unitex external cladding required under the Building Permit was not used or installed;
(b) 	the Loxo fire rated external cladding required under the Building Permit was not used or installed; and
(c) 	the Boral Partiwall system required under the Building Permit was not used or installed.
2.2 	To be clear, what was required by our client to be installed under the Building Permit was not installed by Silverline. In the circumstances, even if the Tribunal were to accept your client’s contention that there was no satisfactory performance solution for the Unitex, Loxo or Boral systems (it is our view that the Tribunal will not find fault with our client in this regard) those systems were not installed. It follows that there can be no loss that flows to your client as a result of these systems being approved by our client under the Building Permit.
2.3 	Further, it is clear from Mr du Chateau’s report that both the frame and final inspections were undertaken properly and that it would not be reasonable for a building surveyor to undertake non mandatory inspections in respect to the units, nor undertake destructive testing during the mandatory inspections.
2.4 	The report of Mr Ray Martin dated 26 March 2021 following an inspection on 22 March 2021 responds to the reports by Mr Cross with various alternative opinions as to the defect status and recommended remediations to the trafficable roof balcony deck, the external wall cladding, the separating wall between units 2 and 3, and the upper external wall.
2.5 	Notably, Mr Cross’ reports referred to the 2009 version of the AS 4654.2 standards, whereas the correct version of those standards, which was referred to in Mr Martin’s reports, is the 2012 version. We therefore consider Mr Martin’s report to be more generally reliable than Mr Cross’. Mr Cross’ recommendations as to the floor framing on the balcony deck (discussed at paragraph D1.2 of Mr Martin’s report) are particularly affected by the error, which are not necessary according to the proper standards applying to this construction work.
2.6 	Additionally, the Supplementary Report of Mr Greg du Chateau, dated 23 June 2021 reinforces the conclusions reached by Mr Martin providing further detail on the recommendations in relation to the external wall cladding, the separating wall between units 2 and 3, and the Loxo fire rated system. Mr du Chateau’s report concluded:
(a) 	the walls that were required under the Building Permit to be constructed with the Loxo fire rated system do not require a FRL and that subject to the confirmation of the material and composition of the product as installed, the installed system will comply with the BCA;
(b) 	the separating wall between units 2 and 3 was constructed using a CSR Gyprock fire rated wall system and will comply with Clause 3.7.1.8 of the BCA provided the construction is in accordance with CSR Gyprock’s specifications; and
(c) 	the external upper storey walls of the building do not require a FRL. Provided the intersection with the fire rated dividing wall (the “T”-junction) complies with CSR Gyprock’s specifications the walls will comply with the BCA.
2.7 	The Further Report of Mr Ray Martin, dated 2 July 2021 details a scope of works and costing for the recommended remediations to the balconies and plumbing, the T-Junctions of the wall separating units 2 and 3 at the interfaces with the external walls on the upper storey, and the cladding in accordance with the assessments in Mr Du Chateau’s report, dated 23 June 2021.
2.8 	Two alternative options are proposed for the cladding remediation works. The first option is a make-good works to the existing cladding system in accordance with the manufacturer’s technical recommendations if the manufacturer can be identified by the builder. The second option entails the removal of the existing cladding and replacement with the Unitex system that was specified in the Building Permit.
2.9 	The summary of cost estimates is detailed at page 7 of the Further Report of Mr Ray Martin, dated 2 July 2021. Overall, if the first method for remediating the cladding is used, the estimated total for the recommended remediation works and preliminaries is $45,045.00. Alternatively, if the second method for cladding remediation is chosen, the total amounts to $64,824.00. In our view these costings are entirely reasonable and are likely to be accepted by the Tribunal over the costs outlined by Mr Cross which call for extensive and unnecessary works, not contemplated by the Building Permit or the Building Contract.
2.10 	Accordingly, the further evidence supports $85,000.00 as being a reasonable, appropriate all-inclusive settlement amount.
3. 	Calderbank Offer
3.1 	In light of the above and in the interests of finalising the matter to avoid the considerable legal costs of attending the Tribunal, and with a denial of liability, our client makes an offer of settlement to your client in the terms expressed in sub-paragraph 3.2.
3.2 	Within 28 days of execution of an acceptable Deed, our client to pay $85,000.00 all-inclusive to your client in full and final settlement of all claims by Belinda Galea against our client in connection with the alleged defects to units 2 and 3.
3.3 	In the event that the offer contained in this letter is not accepted, and our client obtains a more favourable outcome than the above settlement offer, we reserve our client’s right to tender this letter to the Tribunal in support of an application that your client pays our client’s costs from the date of this letter on an indemnity basis.
3.4 	The offer set out in this letter is made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and Cutts v Head [1984] Ch 290 and as adopted by the Supreme Court of Victoria, Court Appeal in Hazeldene’s Chicken Farm Pty Limited v Victorian WorkCover Authority No.2 (2005) VR 435 and by the Supreme Court of Victoria in Mutual Community Limited v Lorden Holdings Pty Ltd & Ors (Unreported, Victorian Supreme Court, 28 April 1993).
3.5 	The offer expressed in sub-paragraph 3.2 will remain open for acceptance until 4:00pm on Friday, 23 July 2021. If the offer has not been accepted by then, it will lapse without any further action. 
97	The RBS Offer sets out in detail the evidentiary and legal summary of the proceeding on which it relies in making the offer which it considers to be a reasonable compromise of the Owner’s claim.
98	The RBS Offer was made 10 days before the commencement of the hearing and at a time when expert reports on behalf of all parties had been filed. In particular the expert reports relied on by the RBS had been filed and served in February, March and June 2021 giving the Owner ample time to review and consider the contents of those reports.
99	The RBS Offer sets out what, in its opinion, given the expert evidence of Mr Martin, the likely damages payable to the Owner would be and that those damages were payable by the Builder, not the RBS.
100	The clarity of those arguments and the terms on which the RBS Offer is made is in clear and simple terms and makes it apparent that the RBS would be seeking an order that the Owner pay its costs on an indemnity basis if the RBS Offer was not accepted and the Owner was not ultimately awarded damages in an amount greater than the RBS Offer.
101	The RBS argues that the expert evidence of Mr du Chateau, as an independent building surveyor with extensive industry experience and expertise was completely contradictory to that of Mr Cross, who did not have the same industry experience. Those expert reports ought to have given the Owner some doubt about the likelihood of her being successful against the RBS and that a compromise of those claims may be a reasonable outcome.
102	The Owner was not awarded damages payable by the RBS. Therefore, the RBS Offer was a reasonable compromise of the proceeding in the light of all the evidence available to the Owner at the time the RBS Offer was made. 
103	I find that it was not reasonable for the Owner to reject the RBS Offer. Accordingly, the RBS is entitled to have its costs paid on an indemnity basis from 16 July 2021.
summary of conclusions
104	In summary, I find that:
i	The Builder must pay the Owner interest in the sum of $1,211.43.
ii	The Builder must pay the application fee and hearings fees incurred by the Owner in the sum of $$5,934.60.
iii	The Owner must pay the costs of the Builder and the RBS thrown away by reason of the adjournment on 24 August 2020 and the subsequent amendments of the Points of Claim on a standard basis on the County Court scale of costs.
iv	The Builder must pay the Owner’s costs of the proceeding except for the Owner’s costs of and incidental to the adjournment on 24 August 2020. Those costs shall be assessed on the standard basis on the County Court Scale. 
v	I dismiss the Builder’s claim for costs against the Owner up to and including 10 August 2020.
vi	I dismiss the Builder’s claim for costs as a consequence of the failure of the Owner to accept the Offer.
vii	The Owner must pay the RBS’s costs of the proceeding up to 16 July 2021 on a standard basis; and
viii	I find that it was not reasonable for the Owner to reject the RBS’s Offer. Therefore, the Owner must pay the RBS’s costs of the proceeding after 16 July 2021 on an indemnity basis. 

H. Nash
Member