VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP436/2018	
CATCHWORDS	
Domestic Building dispute – application for an order for costs - Victorian Civil and Administrative Tribunal Act 1998 –s.112– offers of compromise - s.109 – whether fair to order costs – relevant considerations – manner of assessment – whether conduct of Builder vexatious – claim manifestly hopeless and without any merit – no legitimate reason for bringing proceedings – indemnity costs awarded	

BUILDER	Hummel Homes Pty Ltd (ACN 152 788 746)	
OWNER
JOINED PARTY	Tracey Mitchell 
Luke Carlson Trading as LJC Walls and Ceilings	
WHERE HELD	Melbourne	
BEFORE	Senior Member R. Walker	
HEARING TYPE	Application for Costs	
DATE OF HEARING	25 May 2020	
DATE OF ORDER AND REASONS	19 June 2020	
CITATION	Hummel Homes Pty Ltd v Mitchell (Building and Property) (Costs) [2020] VCAT 659	

Order
Order the Applicant to pay the Respondent’s costs of this proceeding and also the Respondent’s counterclaim, including reserved costs and the costs of this application for costs, such costs if not agreed to be assessed by the Victorian Costs Court on an indemnity basis in accordance with the County Court Scale.

R. Walker
Senior Member			

APPEARANCES:		
For Builder
For Owner
For Joined Party	Ms M. McAuley, Solicitor
Mr R.A. Harris of Counsel
No appearance	
Reasons
Background
1	In this proceeding, the Applicant (“the Builder”) sought to recover the sum of $95,104.00 from the Respondent (“the Owner”) as damages for wrongful repudiation of a domestic building contract entered into for the renovation of the Owner’s home.
2	The Owner counterclaimed, seeking damages for defective workmanship and the cost of rectifying defective work and completing the renovation.
3	A major issue in the case was the defective plastering work, allegedly carried out by the Joined Party. However, due to late filing and service of the joinder application and the late order for joinder, that was made just before the time fixed for the hearing, the Builder’s claim against the Joined Party was excised from the principal proceeding and has since proceeded separately. The claim and counterclaim proceeded at the hearing only between the Builder the Owner.
4	After a split seven-day hearing in May and August last year, I dismissed the Builder’s claim and ordered the Builder to pay to the Owner the sum of $246,367.19. Costs were reserved.
5	The Owner now seeks an order for her costs.
Costs Hearing
6	Pursuant to directions given by the Tribunal, and after some delay on the part of the Builder, written submissions concerning the costs application were filed and served and the matter came before me for hearing on 10 June 2020. Ms M. McAuley, Solicitor, appeared on behalf of the Builder and Mr R.A. Harris of Counsel appeared on behalf of the Owner. After hearing submissions, I informed the parties that I would provide a written decision.
Power to award costs
7	The general power to award costs is conferred by s.109 of the Victorian Civil and Administrative Tribunal Act 1998 (“the Act”) and there is a special regime established by s.112 of the Act in regard to certain offers of compromise.
8	The application was brought primarily under the latter section, s.112, which provides as follows:
“Presumption of order for costs if settlement offer is rejected
(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.”
9	In the present case, a number of offers of compromise were made on behalf of the Owner. Each offer was an “all in” offer, meaning that, in order to assess whether the offer was more favourable to the Builder than the order made in the proceeding, I must take into account any costs that I would have ordered on the date the offer was made.
10	The offers made were as follows:
(a)	On 17 December 2018, the Owner offered to accept the sum of $270,000.00 in full settlement of the claim and counterclaim, including costs and interest. The amount was said to include $25,000 with respect to costs.
(b)	On 18 April 2019 the Owner offered to accept $295,000.00 in full settlement of the claim and counterclaim including interest and costs. The letter of offer said that, within that sum, $50,000.00 had been allowed for costs.
(c)	On 26 April 2019, the Owner offered to accept from the Builder the sum of $235,000.00, including interest and costs, in full and final settlement. The letter of offer said that, within that sum, an amount of $50,000.00 had been allowed for costs.
11	Each of these offers was stated to be made pursuant to sections 112 to 115 of the Act and was open for acceptance for 14 days. 
12	Mr Harris submitted that the first of these offers was more favourable to the Builder than the order made in the proceeding because, if the sum of $25,000.00 is deducted for the Owner’s costs, the net amount the Owner was willing to receive with respect to her claim was $245,000.00, being less than the amount awarded. To accept that submission I would have to make a finding that, if I had made an order for payment of costs on 17 December 2018, those costs would have been assessed at no less than $25,000.00.
13	Some guidance as to the process to be followed in forming an opinion as to the amount of costs that would have been awarded is found in the judgment of Garde J in Metricon Homes Pty Ltd v Sawyer [2013] VSC 518. In that case, his Honour said (at para 36):
“36 Given its significance, it is important that the opinion [as to the costs that would have been awarded] be properly formed and be soundly based on the evidence. The opinion must be formed in a manner which is procedurally fair, it must not take into account irrelevant considerations, fail to take into account relevant considerations, or be so unreasonable that no reasonable decision maker could arrive at that view.” 
14	He continued (at paras 43 to 45 – citations omitted):
“43 The Tribunal was required in the present case to form an opinion as to whether or not the orders made by the Tribunal in the proceeding were, or were not more favourable to the Owners than the second offer. The Tribunal was also required to take into account any costs it would have ordered as at the date at the second offer. In my view, adherence to these legislative directions required the Tribunal to ensure that steps were taken as sought by the Builder to inform the Tribunal as to the facts germane to the opinion the Tribunal was called on to form. 
44 A number of steps were available, and were sought or discussed, to assist the Tribunal in coming to an opinion as to whether the amount awarded plus party-party costs as at the date of the second offer was or was not more favourable to the Owners than the second offer of $90,000 “all-in”.
45 Those steps included:
(a) under s 80 of the VCAT Act, the Tribunal could have ordered that the invoices or accounts provided by the Owners’ legal advisers and experts be produced;
(b) under s 80 of the VCAT Act, the Tribunal could have ordered the Owners to bring in a draft bill of their costs and disbursements up to the date of the second offer; or
(c) under s 111(b) of the VCAT Act, the Tribunal could have ordered that the Owners’ costs be assessed by the Costs Court up to the date of the second offer and adjourned its decision as to the balance of the costs until those costs had been assessed.”
15	In the present case I was not invited to take any of the steps suggested by the learned judge and I have no evidence upon which I can make a finding as to the costs I would have awarded. It is clear from the passages cited that, in order to form such an opinion, I would need some evidence as to what the costs were and no such evidence is before me.
16	There may be cases where the difference between the amount of an all-inclusive offer and the amount of the award is so small that it might be possible to infer that the costs incurred to that date that would have been ordered must, as a matter of common sense, have exceeded the difference but I think that would only apply in the most obvious of cases. It does not apply to either of the first two offers that were made.
17	The third offer was clearly more favourable to the Builder than the outcome of the proceeding and so, unless I should “otherwise order”, the Owner is entitled to an order that the Builder pay all costs that she incurred after the offer was made, being 26 April 2019. I see no reason in the present case to “otherwise order” and no submission was made to that effect.
18	Mr Harris conceded, sensibly, that the words “all costs” in s.112(2) do not necessarily mean that the costs are to be assessed on an indemnity basis. 
19	I shall deal with how costs are to be assessed below.
Section 109
20	The Owner also seeks an order for her costs that she incurred before 26 April 2019 pursuant to s. 109 of the Act. That section, where relevant, provides as follows:
	“Power to award costs
	(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.”
21	The proper approach to be taken in regard to an application for costs under s.109, is as set out in the following passage from the judgment of Gillard J in Vero Insurance Ltd v The Gombac Group Pty Ltd [2007] VSC 117. In that case, the learned judge said (at para 20):
“20. In approaching the question of any application for costs pursuant to s.109 in any proceeding in VCAT, the Tribunal should approach the question on a step by step basis, as follows –
(i) The prima facie rule is that each party should bear their own costs of the proceeding.
(ii) The Tribunal may 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 paragraph (e) the Tribunal may also take into account any other matter that it considers relevant to the question.”
22	I also note that, in that case, the learned judge added (at para 22):
“22. Whilst it is appropriate for the Tribunal to consider each of the specified matters in s.109(3) and express a view as to the weight that should be attached to the particular matters relied upon, in the end it is important that the Tribunal consider all the matters together and determine whether it is fair to make an order for costs. When dealt with in isolation, each of the matters may lead to the conclusion that it is not fair to make an order for costs, but when taken together, the Tribunal may be satisfied that it is fair to do so. It is the totality of all relevant matters under s.109(3) that must be considered in the context of the prima facie rule.”
Submissions
23	Ms McAuley pointed out that s.109 (1) of the Act prescribes that parties are to bear their own costs. She said that the primary test for the awarding of costs is whether the conduct of one party causes an unnecessary disadvantage to the other. She said that, in the present case, the proceeding was brought by the Builder to recover amounts that it claimed were owed under the contract and in doing so, was simply exercising its rights under the contract. She referred to various types of vexatious conduct that might be committed by one party or the other as being grounds upon which orders for costs might be made and suggested that none of those applied. She did not direct her submission to the particular considerations set out in s.109(3).
24	She said that the Builder’s claim was meritorious and that, if the Owner had believed otherwise, she might have brought an application under s.75 of the Act to have it struck out but she did not do so.
25	Mr Harris submitted that the following factors referred to in s.109(3)(a) were relevant in the present case and indicate that an order for costs is appropriate.
Failing to comply with an order or direction of the Tribunal without reasonable excuse
26	Throughout the interlocutory stages, there were numerous failures to comply with directions and successive extensions of time that were granted to the Builder. The failures to comply relied upon were as follows:
(a)	Failing to file expert reports by 26 June 2018, 14 November 2018, 28 February 2019, 27 March 2019 or 18 April 2019. 
(b)	Failing to file a joinder application by 5 December 2018, 31 January 2019 or 28 February 2019, and failing to file the amended application by 27 March 2019 and then by 9 April 2019. 
(c)	Failing to file a list of documents by 28 November 2018, 31 January 2019 or 28 February 2019. 
(d)	Failing to file Points of Defence to the Counterclaim by 27 March 2019. 
(e)	Failing to file witness statements by 29 March 2019 or 3 May 2019. The witness statement was not filed or served until the first day of the hearing. As a result, the afternoon of that day was lost to allow Mr Harris time to read it.
(f)	Failing to file its Amended Points of Claim until the morning of the hearing. 
(g)	Failing to file and serve its final submissions within time.
27	M Harris said that the failures of the Builder to comply were so extensive that the Tribunal directed the Owner to produce the Tribunal Book because of concerns that the Builder would not do so. That order was made on 2 April 2019. Although the order does not say why that unusual course was taken, concerns are expressed in a note at the end of the order about defaults by the Builder in regard to the joinder application.
28	The excuses sometimes offered at the time for these defaults were minor health issues of the Builder’s solicitor and, on one occasion, of counsel. I am not satisfied that these provide a reasonable excuse for what seems to have been a continuous pattern of non-compliance. The timetables set were not onerous.  The defaults resulted in directions hearings that required attendances and for affidavits to be prepared by the Owner’s solicitor. It is likely that the cost to the Owner of conducting this proceeding in the interlocutory stages was substantially increased by the Builder’s repeated failures to comply with directions.
29	It would be fair within the meaning of s.109(2) to make an order for any costs incurred as a result of the Builder’s defaults.
Whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding
30	Mr Harris said that the defaults referred to unreasonably prolonged the proceeding. 
31	I think that they did prolong the proceeding in the interlocutory stages, but the prolongation of the hearing itself was more to do with the health problems claimed to be suffered by Mr Hummel. Although I have some concerns about these claims, I cannot say that he did not have health problems.
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
32	Quite obviously, in every case, the Tribunal will have considered the case of the successful party to have been stronger than that of an unsuccessful party against whom the order for costs is sought. This part of the section is concerned with a situation where there is a substantial disparity between the strengths of the two claims (see Beasley v Department of Education and Training [2006] VCAT 2044, the Tribunal (at para.20).
33	The extent of this disparity must be considered, along with any other factors, to determine whether it is fair in all the circumstances that an order for costs be made. The greater the disparity the more significant this factor is.
34	Mr Harris submitted that the relative strengths fell heavily in favour of the Owner. He said that the Builder’s attempt to justify “what was clearly a shoddy job”, particularly in regard to the plastering, required the Owner to call Mr Mackie, her expert, Mr Lombardi, the replacement Builder and Mr Powell, the plasterer who had to rectify much of the bad workmanship.
35	I accept that there was a very substantial disparity indeed in the strengths of the respective cases. I found that the Builder’s claims were quite without merit. Mr Hummel’s claim that fixing stage had been reached was clearly not maintainable and the Builder had no basis whatsoever for suspending work when it was not paid. It was quite obvious that the plastering was very bad indeed and yet the Builder refused to rectify it. The claim in the Points of Claim that the Builder was entitled to be paid $95,104.00, which changed in Mr Hummel’s witness statement to $109,347.01, was without any merit whatsoever.
36	There was also a late claim for a quantum meruit and then no evidence was given to prove the value of the work.
37	I think the large disparity in the strengths of the two parties’ cases weighs heavily in favour of an order for costs.
The nature and complexity of the proceeding;
38	Mr Harris conceded, correctly, that there should be no presumption that costs will be awarded in domestic building disputes brought in the Tribunal. 
However, he said that costs were commonly awarded because of the nature and complexity of such cases.
39	Mr Harris conceded, correctly, that the issues in the case were not legally complex, but referred to the fact that the case took 7 days over two periods in May and August 2019, that there were a number of witnesses and many documents. He also referred to the applications and directions in the interlocutory stages.
40	The facts of the case were complex, requiring expert evidence about a great many issues. I think that it would have been difficult for an unrepresented person to address them. 
41	It would have been impossible for the Owner to defend the Builder’s claims without engaging a building expert and calling the replacement Builder and the plasterer. The cost of engaging and paying such persons would have been considerable.
42	I think the nature and complexity of this case weighs in favour of an order for costs.
How costs should be assessed
43	For the reasons given, I have found that there should be an order for costs in favour of the Owner pursuant the power conferred by s.109(2) and also, pursuant to s.112, in regard to costs incurred after 26 April 2019.
44	Costs are generally assessed on the standard basis unless the Tribunal considers that, in the circumstances of the case, they should be assessed on some other basis. (see: Velardo v. Andanov [2010] VSCA 38; Paleka v. Suvak [2000] VCAT 58; Pacific Indemnity Underwriting v Maclaw No 651 Pty Ltd & anor [2005] VSCA 165; Mardel Constructions Pty Ltd v Sinha [2009] VCAT 1523). 
45	Mr Harris seeks costs on a full indemnity basis. In support of his application, he referred me to a number of authorities.
46	In Fountain Selected Meats (Pty Ltd ) - v.- International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, Woodward J said (at p.401):
"I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action had been commenced or continued in circumstances where the Builder, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.
47	In Colgate-Palmolive v Cussons (1993) 46 FCR 225, Sheppard J said (at para. 24:
“24. It seems to me that the following principles or guidelines can be distilled out of the authorities to which I have referred:-
……………………………………………………………………
4. In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes (39 Ch D at 141) said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require." Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v. Preston ((1982) 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at 6) similar views in Ragata.
5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v. Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v. Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v. Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v. Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”
48	Reference was also made to Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw [2005] VSCA 165 at paras. 89 92.
49	Although acknowledging that the Tribunal should only award indemnity costs in exceptional cases, Mr Harris said that this was such an exceptional case because:
(a)	the Builder continually flouted orders made by the Tribunal;
(b)	the Builder’s case was hopeless and without merit, particularly in regard to the plastering and for suspending works for no reason;
(c)	the Builder sought, very late, to introduce new claims that had not been agitated before, being a baseless claim for quantum meruit, which was not subsequently sought to be proven, the claim that the rectification work resulted in betterment for the Owner and a claim for an extension of time of 441 days, which was first raised at the start of the hearing. Only 13 days extension were allowed in the final decision.
Conclusion
50	I think that this is one of those exceptional cases in which indemnity costs should be awarded. The extent of default on the part of the Builder in complying with directions by the Tribunal in the interlocutory stages of this proceeding was extraordinary. The additional costs caused to the Owner by reason of those defaults must have been substantial. 
51	More significantly, the Builder’s claims had no tenable basis in fact or law and the Owner should not have been put to the expense of contesting them. No experienced builder could have genuinely believed that the Builder was entitled to receive the fixing stage payment or suspend work when it was not paid. Yet the Builder issued this proceeding to recover money which Mr Hummel must have known it was not entitled to receive. 
52	The Builder, properly advised, should have known that it had no chance of success. To paraphrase what Woodward J said in Fountain Selected Meats, in such a case the proceeding must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Whether it was to dissuade the Owner from pursuing a counterclaim to recover the very large losses that she had suffered by reason of the Builder’s conduct or something else is not material. The proceeding should not have been brought.
Order
53	There will be an order that the Builder pay the Owner’s costs of this proceeding, including reserved costs and the costs of this application for 

costs, such costs if not agreed to be assessed by the Victorian Costs Court on an indemnity basis in accordance with the County Court Scale.

R. Walker
Senior Member