Shoji Investments Pty Ltd (formerly Forty Fifth Vilmar Pty Ltd)

1. Pursuant to s.119(1) of the Victorian Civil and Administrative Tribunal Act 1998 and on the Application of the First Respondent, the Tribunal's order including the reasons for decision, dated 9 August 2004 are amended as follows:

(a) on page 32 of the Reasons for Decision, the figure $39,914.50 shall be substituted for the figure $37,580.50;

(b) on the same page the figure $361,960.20 shall be substituted for the figure $359,626.20;

(c) on the same page the figure $29,972.80 shall be substituted for the figure $27,638.80 in the two places in which that figure appears; and

(d) in the order on page 1, the figure $29,972.80 shall be substituted for the figure $27,638.80.

2. Order the Applicant to pay the Respondents' costs of this proceeding to be assessed if not agreed by the Registrar in accordance with Scale C of the County Court Scale, save for one-half of the hearing fee, counsel's fees and solicitor's fees incurred with respect to 11 May 2004 and also the cost of the second inspection and report of Mr Logan, which costs shall be omitted from any such assessment.

3. Order the Respondents to pay the costs of the Applicant with respect to the further inspection of the subject premises by Mr Martin on or about 10 April 2004 and of his attendance at the hearing on 11 April 2004.

4. Order that the two sums so agreed or assessed be set off and that the net balance be paid to the Respondents.

1. The Tribunal's decision in this matter was handed down on 9 August 2004. Both parties now apply for orders for costs.

2. The principal proceeding concerned the construction by the Applicant of a block of three flats for the First Respondent. The Applicant claimed what he said was the balance of the contract price, including an amount for variations, totalling over $50,000.00. The First Respondent claimed damages for defective and incomplete work.

3. After a twelve day hearing the application was dismissed against all Respondents and an order was made in favour of the First Respondent that the Applicant pay to it the sum of $27,638.80.

4. Counsel for the First Respondent, Mr Appudurai, pointed out a mistake in the Reasons for Decision and order in that, in adding up the amounts I had allowed for the various items of defective and incomplete work, a figure of $2,334.00 that I had allowed with respect to defective brick work has been mistakenly omitted. Having checked the figures in the decision I am satisfied that that is the case and it is therefore necessary to make an amending order pursuant to s.119(1) of the Victorian Civil and Administrative Tribunal Act 1998 as follows:

(a) on page 32 of the Reasons for Decision, the figure $39,914.50 shall be substituted for the figure $37,580.50;

(b) on the same page the figure $361,960.20 shall be substituted for the figure $359,626.20;

(c) on the same page the figure $29,972.80 shall be substituted for the figure $27,638.80 in the two places in which that figure appears; and

(d) in the order on page 1, the figure $29,972.80 shall be substituted for the figure $27,638.80.

5. The awarding the costs in proceedings before the Tribunal is governed by s.109 of the Act. That is in the following terms (where relevant):

(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 sub-section (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

(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);

(v) attempting to deceive another party or the Tribunal;

(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;

(e) any other matter the Tribunal considers relevant.

6. Mr Appudurai referred me to the Tribunal's decision in Sweetvale Pty Ltd -v- Minister of Planning [2004] VCAT 2000, where the learned President said (at paragraph 17 of the Judgement):

"Section 109 of the VCAT Act gives the Tribunal a broad discretion in relation to costs. The existence of such a discretion enables the Tribunal to do its best to provide a just outcome, subject to the basic principle that each party will usually bear its own costs. There is much to be said for the existence of such a broad discretion. But, equally, it is important that the obligation to pay costs be predicable; as this promotes certainty. A proper balance is likely to be promoted if decisions as to costs are only made after serious and close consideration of the statutory provision; and then according to principles and practices that develop in relation to particular provisions, cases or lists."

7. His Honour then sets out a number of relevant instances where the nature and complexity of a proceeding will make it fair to make an order for costs, such as the number of issues, the complexity of the issues, the amount involved and so forth. He was there, I think, referring to the sorts of matters contemplated by sub-section (3) of s.109.

8. Mr Appudurai submitted, I think correctly, that his clients have been largely successful in the proceeding inasmuch as it was determined that the Second and Third Respondents were not the contracting parties and there was a substantial balance in favour of the First Respondent. Although the proceeding was commenced by the Applicant claiming over $50,000.00, the amount awarded (corrected as above) of $29,972.80 to the First Respondent was found to be the balance in its favour after taking into account all variations and monies properly payable to the Applicant under the contract.

9. Many issues were run during the hearing for which the Applicant succeeded, notably in the claims for variations, most of which the First Respondent strongly contested. A considerable amount of hearing time was taken up in regard to the dispute as to the stairs which I found in the Applicant's favour. The degree of the Applicant's success should not be ignored in dealing with this application but nonetheless, it is true to say that the First Respondent was substantially successful.

10. Mr Noble referred me to the Tribunal's decision in Fasham Johnson Pty Ltd -v- Ware [2004] VCAT 1708. In that case, Senior Member Cremean had ordered on the claim that the Respondents pay the Applicant the sum of $83,138.18 and on the counterclaim ordered that the Applicant pay the Respondents the sum of $24,815.00. Both sides sought costs but the Tribunal refused to order costs in favour of either party. In examining the decision it seems that the learned Senior Member found that neither party had wholly succeeded or failed, that although the Applicant had succeeded on the central issue it was on a rather technical ground, that the Applicant only conceded at a late stage that there were defects in the work, that each party's costs may be similar in amount, that the relations between the parties "soured long ago" and they had been hostile to one another throughout the entirety of the proceedings. The grounds upon which the Applicant succeeded were said to be of a technical kind in that it arose from defective contractual notices delivered by the Respondents.

11. The costs decision in Fasham Johnson illustrates some of the many matters the Tribunal might take into consideration in deciding whether or not to depart from the starting point that parties bear their own costs in a proceeding before the Tribunal. However there is little similarity between the facts of that case and this. There is nothing technical about the First Respondent's success here. The amounts recovered were with respect to defective and incomplete work. Similarly, the amounts credited to the Applicant in the calculation of the final balance were with respect to monies properly due under the contract.

12. The claim was dismissed because I set off the amount found to be due to the Applicant against the much more substantial sum found to be due to the First Respondent. However, for the purpose of determining whether to make an order for costs I do not believe that it should necessarily make any difference whether separate awards are made or one net sum. The sorts of considerations contemplated by sub-section (3) relate to the substance of the dispute, not the form of the ultimate order. Further, in the offers and counter offers that passed between the parties before and during the proceeding, the two claims were treated together and dealt with in the one offer by both sides in each of the offers that were made. In the circumstances of this case I do not think that, for the purpose of this application, I should notionally divide the two amounts to which the respective parties were found to be entitled. Ultimately, the Respondents were entitled to say that the domestic building work carried out by the Applicant was worth less than the amount they had paid and so in reality the Applicant should not recover anything.

13. I think an order for costs is justified because the case was a long and complex one, required consideration of a large amount of evidence and the parties had to engage expert witnesses at substantial expense. The purpose of the Domestic Building Contracts Act is to afford protection to persons who contract with registered builders for the carrying out of domestic building work. Such persons are given recourse to the Tribunal in the event of a breach of the statutory warranties set out in the Act. In most cases, if no order for costs is made the cost of the litigation will be such that the amount awarded is outweighed by the amount of costs incurred in conducting the proceedings. If that were to occur as a matter of common practice then parties might be dissuaded from enforcing their rights under the Act and consequently not receive the benefits that the legislation intended they would receive and the purpose of the legislation would be frustrated.

14. I do not differentiate between the Respondents. There should be only one order for costs in favour of all three. They were sued in the alternative in case it should be found that the actual contracting parties were Mr and Mrs Shin personally rather than their company, the First Respondent, but I think only one set of costs has been incurred. In determining what costs should be ordered there are a number of matters to be considered.

15. Mr Appudurai referred me to five offers that were made to settle the proceeding, the first two by the First Respondent and the last three by the Applicant. The First Respondent's first offer was by a letter dated 19 August 2002 and purported to be made pursuant to s.112 of the Act. In essence, the terms of the offer were that an independent expert would be appointed by the Tribunal to propose a scope of works for rectification and completion, the cost of such expert would be shared equally between the parties and the Applicant would carry out such rectification and completion works as the expert should direct within sixty days of receipt of the scope of works. Paragraph 8 of the Offer provides:

"That the Applicant is to ensure that all necessary and statutorily required policies of insurance are properly in place so as to cover both the works and the site which is the subject of the proceedings including the rectification and completion works as aforesaid."

16. The potential impact of paragraph 8 of the Offer is not altogether clear. I found that there was at all material times domestic building insurance with respect to the work, even though no certificates of insurance had been provided to the First Respondent. Nevertheless, the First Respondent contended both before and at the hearing that there was no domestic building insurance and so how the proceeding could have been settled by this offer is not clear. It seems to me that a hearing would have been required in order to settle the question of insurance, even if the offer had been accepted.

17. Further, the offer makes no allowance for the substantial sums that I found to be due to the Applicant. It simply provides for the Applicant's claim to be withdrawn. If the independent expert had assessed the scope of works in accordance with how the case was ultimately decided, it seems to me that, apart from the substantial costs incurred after the offer was made, the Applicant would have been worse off by accepting this offer then he was by ultimately running the case.

18. The Respondents' next offer was made on 23 April 2003. That was simply that both claim and counterclaim by dismissed with no order as to costs. On its own, that would have been substantially more valuable to the Applicant than the ultimate result of the case. However the offer was qualified by the following paragraph:

"This offer is made on the condition that the parties to the related proceedings numbered D488/2002 (in respect to which the Applicant to proceedings numbered D833/2000 is deemed the Respondent) reach agreement in respect the settlement those proceedings within fourteen days of the acceptance of the offer herein (or such further extended period as may be agreed)" (sic.)

19. I was informed by Mr Appudurai that this paragraph relates to the proceedings taken by the First Respondent against the Housing Guarantee Fund in order to establish its entitlement to indemnity under the relevant policy of domestic building insurance. He said that settlement was achieved with the Fund shortly afterwards.

20. I think I need to assess the offer at the moment that it was made. At that time, no such settlement had been entered into and so it was not known whether or not the condition would be fulfilled.

21. To be valid as an offer under s.112, the offer must also comply with the requirements of ss.113 and 114. They are as follows:

(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 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.

(4) If an offer provides for the payment of money, the offer must specify when that money is to be paid.

114. Provisions concerning the acceptance of settlement offers

(1) An offer must be open for acceptance until immediately before the Tribunal makes it 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 sub-section (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."

The scheme of the Act is that an offer pursuant to s.112 must be "to settle the proceedings". An offer to settle only on the condition that a certain requirement is fulfilled is not in my view an offer to settle the proceedings. It is an offer to settle that will only become effective if something should happen in the future. Further, if the condition attaches to the offer, rather than to any agreement arising from its acceptance, then it would not seem that it was "open for acceptance" within the meaning of s.114(1). Finally, I would have to determine for the purposes of s.112(1)(d) whether or not the orders that I ultimately made were more favourable to the Applicant than the terms of the offer. I think the scheme of the Act is that the offer must be able to be evaluated and assessed at the time it is made not at some later time looking back at the offer with the benefit of hindsight. At the time the offer was made the Applicant did not and could not know whether the proceedings would be settled or not and so he could not be certain that the acceptance of the offer would settle the proceedings. For all these reasons, I do not think that the offer satisfies s.112 of the Act. The question then becomes whether I should nonetheless take it into account as a Calderbank or Cutts v Head offer.

23. Mr Appudurai referred me to the decision of M T Associates Pty Ltd -v- Aqua-Max Pty Ltd (No. 3) [2000] VSC 163 where Gillard J. said (at paragraph 74 of the decision):

"In my opinion any form of offer assuming it can be adduced into evidence should be considered by the Court on the question of costs and overly technical reasons given by the other party in not seriously considering an offer should be rejected.

The fact is that in litigation experienced Counsel and litigation solicitors have a very good idea during the course of a trial as to what their clients should receive or be expected to pay. It is not difficult in most cases to make an assessment of the risks involved and what is a fair compromise to the client. A Court will always give reasonable time to the parties to consider settlement. If a proposal is put forward the litigant and his advisor receiving the proposal ignores that proposal at his peril. Some proposals will involve discussions and negotiations between the parties. But any litigant and his advisor who takes the view that the proposal or offer can be ignored on some technical ground does so at their own risk."

24. This passage is commonly quoted and it underlines the importance of settlement offers and the need to give them serious consideration. However, I do not believe that the difficulties with this offer are "overly technical". Certainly I should take it into account but I agree with Mr Noble that a basic problem with the offer lay in the fact that the condition attached to it was entirely outside the control of the Applicant. It was for the First Respondent to determine whether the other proceedings would settle or not. Further, although I do not suggest that a Calderbank offer can never be subject to conditions I have some sympathy with a party not accepting an offer in these terms. It was not an offer, the acceptance of which would have necessarily resolved the proceeding. At the highest, it would have resulted in an agreement that the proceeding would be settled but, if the condition were not fulfilled, it would no longer be settled. Even then, there are uncertainties. What was to happen to this proceeding between the time of the acceptance and the resolution of the proceedings between the Respondents and the insurer? If that latter proceeding were not resolved, when, if ever, could any contract resulting from the acceptance of this offer be regarded as no longer subject to the condition? What the Respondents ought to have done is repeat the offer without the condition once the proceeding with the insurer had settled. The problem would then have disappeared. The proceeding with the insurer was settled shortly afterwards but can I assume that this would have occurred if the Insurer was aware that this proceeding had been settled upon these terms.?

25. The Applicant made three offers of compromise. The first, on 8 May 2003 was that the First Respondent should pay $27,000.00 inclusive of costs to the Applicant within twenty-eight days of acceptance. The second, on 5 February 2004, was that the Respondents should pay to the Applicant $10,000.00 inclusive of costs. Both of these offers were in settlement of both claim and counterclaim and clearly, the result of the hearing was considerably more favourable to the First Respondent than either offer. The final offer was made late in the afternoon of 5 February 2004 and was that both claim and counterclaim be dismissed with each party to bear their own costs. Again, this was less favourable to the First Respondent than the outcome of the case. None of these offers assists me.

26. Apart from the failure of the Applicant to accept the Respondents' last offer, there are other matters I should take into account in considering the amount of costs to order:

(a)

As stated above, much of the case was taken up in evidence and argument about issues upon which the Applicant succeeded.

(b)

During the course of running I gave leave to the Respondents to file a further report from an expert, Mr Logan in regard to the flooring at the premises. This necessitated a further inspection by the Applicant's expert, Mr Martin and for Mr Martin to be recalled. I think that it is appropriate that the First Respondent bear the costs of the further report from Mr Logan, Mr Martin's further inspection and the cost of Mr Martin's attendance on 11 May 2004. I think the Applicant should also be entitled to the cost of the hearing for the time Mr Martin gave his evidence on the second occasion. The time wasted in this regard amounted altogether to about a quarter of the day and I think compensation for that is best affected by limiting the costs to be awarded to the Respondents with respect to the hearing on 11 May 2004 to one-half of that day only. That would give the same outcome as allowing a quarter of a day's costs to the Applicant and three quarters of the same day's costs to the Respondents.

(c)

Mr Noble sought an order for costs from December 2000 until August 2002 on the basis that, he said, the Respondents prolonged the conduct of the proceeding unreasonably by continually disputing the existence of domestic building insurance. I was given a large amount of correspondence to read. Having perused this I am not persuaded that I should make any special order for costs for this period. The concern that the Respondents had about domestic building insurance was genuine and was largely of the Applicant's making. He did not provide them with the certificates of insurance that they ought to have received. It will be for the Registrar to determine whether correspondence relating to the existence or otherwise of the domestic building insurance is properly to be allowed as costs of this proceeding.

27. I am satisfied that in the circumstances of this case I should make an order for costs in favour of the Respondents and I think the appropriate course is to make an award of costs in favour of the Respondents on Scale C of the County Court Scale. This is because, in the circumstances of this case, the considerations I have referred to which have been put both for and against a higher basis for assessment such as Solicitor and Client costs are fairly evenly balanced.

1. Order the Applicant to pay the Respondents' costs of this proceeding to be assessed if not agreed by the Registrar in accordance with Scale C of the County Court Scale save for one-half of the hearing fees, counsel's fees and solicitor's fees incurred with respect to 11 May 2004 and also the cost of the second inspection and report of Mr Logan, which costs shall be omitted from any such assessment.

2. Order the Respondents' to pay the costs of the Applicant with respect to the further inspection of the subject premises by Mr Martin on or about 10 April 2004 and of his attendance at the hearing on 11 April 2004.

3. The sums assessed pursuant to paragraphs 1 and 2 shall be set off.