Appellant/Cross-Respondent v Respondent/Cross-Appellant

1 On 27 February 2019, the Court granted leave to appeal and upheld the appellant's appeal from a decision of the Victorian Civil and Administrative Tribunal ('Tribunal') awarding nominal damages for breach of contract. The Court determined that, in lieu of the award of $100 damages, the appellant is entitled to $357,500 damages for breach of contract. When judgment was delivered on 27 February 2019, the parties were directed to file written submissions in respect of:

(i) The calculation of interest on the sum of $357,500; and

(ii) The costs of both the current proceeding and the proceeding in the Tribunal.

2 On 15 June 2018, the appellant paid the respondent the amount ordered to be paid by the Tribunal, being $211,844.20. The Court's judgment on 27 February 2019 proceeded on the basis that this amount would be set off against the sum of $357,500. However, as the appellant has already paid the respondent $211,844.20, no question of set-off arises.

3 The parties agree that interest on the judgment sum of $357,500 is $113,905.03. Thus, judgment shall be entered for the appellant in the sum of $471,405.03.

4 The appellant is entitled to an order that the respondent pay her costs of the application for leave to appeal and the appeal, including reserved costs, on a standard basis, to be taxed in default of agreement.

5 Pursuant to s 109(1) of the Victorian Civil and Administrative Tribunal Act 1998, each party to a proceeding in the Tribunal is to bear their own costs. However, the Tribunal has a discretion to award costs if it is satisfied that it is fair to do so, having regard to the matters set out in s 109(3). Those matters include the nature and complexity of the proceeding.

6 The Supreme Court of Victoria has power to award costs in respect of the proceeding in the Tribunal.[1] Having regard to the nature and complexity of the proceeding in the Tribunal, the appellant is entitled to an order that the respondent pay her costs of the proceeding in the Tribunal. The proceeding raised a novel question of law regarding the availability of loss of use damages for breach of contract. The litigation was hard-fought and the amounts in dispute were not insignificant. In these circumstances, it is inconceivable that the Tribunal would refrain from exercising the discretion to make a costs order.

7 In light of the Court's reasons, the only costs order which could properly be made is one in favour of the appellant. Shortly stated, the Senior Member accepted an erroneous submission advanced on behalf of the respondent that the appellant's claim for damages fell within the ambit of the Baltic Shipping principle. The substantial award of damages which is now to be made in the appellant's favour warrants a costs order in her favour.

8 Further, there is much to be said for the Court bringing the proceeding to finality by making a costs order. If the question of costs were remitted to the Tribunal, this would inevitably result in delay and further expense. In addition, there is a real question as to whether it would be in the interests of justice to remit the question of costs to the Senior Member.[2] Having regard to the significant errors of law which underpin the Senior Member's reasons, I would have determined, had it been necessary to do so, that it would not be in the interests of justice to remit the question of costs to the Senior Member.

9 Mr Tran submitted that, if a costs order is made in the appellant's favour in respect of the proceeding in the Tribunal, the quantum of any costs order should be reduced as a result of three matters:

First, the respondent should have its costs thrown away as a result of the applicant abandoning her claim for loss of profits connected with alleged leases of the property. That claim was only abandoned on the third day of the hearing. Costs were incurred in preparing for it, as the applicant had proposed to call witnesses in connection with it.

Second, the applicant's costs of her expert should be disallowed. The Tribunal could never have relied upon Mr Tomaino's expert report, because it proceeded as if the property was not fit out as a gallery: see Tribunal Reasons at [176]. Accoridngly [sic], it was inevitable that the appellant would go on to rely upon the respondent's expert.

Third, the Court should order that the respondent have its costs from 10am on Monday, 5 February 2018 until the conclusion of the hearing before the Tribunal on an indemnity (alternatively, standard) basis, based on the second offer made by the respondent to the applicant to pay her $372,585.04 in full and final settlement of the proceeding. The respondent submits it was unreasonable for her to refuse that offer.

(a) The offer was substantially more than she has now obtained. As a result of the Court's order, she is entitled to an award of $145,555.80 plus interest. The repayment of the judgment sum from the Tribunal is irrelevant for the purpose of this comparison, as that repayment simply constitutes restitution of what she paid over on account of the Tribunal's orders that she should now have returned to her. In terms of damages for the breach of contract, the sum is only $145,555.80 plus interest.

Her total claim, removing this repayment, is $259,560.83. She would have received more, over a year ago (and thus had the use of the money over a year earlier), had she accepted the offer. And to be clear, the respondent's offer effectively abandoned its claim to payment, and simply paid the appellant out on her counterclaim.

(b) While it was open for a short period (4.34pm on a Friday to 10am on the Monday), that does not in and of itself disqualify the Court from considering the offer. For example, Edelman J has observed that '[t]here may be circumstances in which it is a reasonable time period for an offer which is made at 5.00pm on a Sunday evening and left open only until noon the next day (of the trial)'. In the middle of a two-week trial when the parties are evidently working on the weekend, this is an adequate amount of time to consider what was a substantial offer. Moreover, the short period of the offer reflected the fact that the parties were due back in the Tribunal at 10am on the Monday. That is, the offer was open until the parties were required to return to the Tribunal.

(c) The offer was made at a stage in the litigation where the parties were well able to assess the reasonableness of the amount offered. In particular, given the expert evidence that had been filed, the appellant could not have obtained the full amount she sought, because her expert valued the property on a false footing. That expert report was referred to in the offer itself.

(d) The appellant's conduct in response to the offer is significant. She did not ask for more time, or anything of the kind. She rejected it out of hand on 5 February 2018, without any suggestion that more time was needed. The respondent's solicitors then responded to that rejection on 6 February 2018.

(e) The appellant also contends that the offer should be disregarded because 'it is insufficiently certain'. But even if it were too uncertain to constitute a binding contract, that would not be determinative. That the terms of the settlement deed might be unclear is relevant to a consideration of reasonableness, but does not shortcircuit that enquiry.[3] It may be accepted that, unlike the Court of Appeal decision in Sim Development Pty Ltd v Cai [2018] VSCA 201, the respondent's offer here did not stipulate the subject matters of the proposed deed. But that is not determinative, especially where no enquiry was made by the appellant about the point. Her solicitor's letter of 5 February 2018 rejecting the offer did not express any doubt about what the offer meant.

(f) The offer foreshadowed that an application for indemnity costs would be made.

(g) The offer constituted a real, and indeed substantial, element of compromise. The respondent (i) effectively abandoned its claim, and (ii) even then offered an amount approximating lost rental value on Mr Sutherland's expert evidence (approx. $390,000).

The respondent submits that it should have its costs from 10am on the Monday, 5 February 2018 on an indemnity basis alternatively on a standard basis.[4]

10 As to the first matter, the appellant's entitlement to costs should not be reduced by reason of her abandonment of a claim for loss of profits. Many issues fell for determination in the course of the proceeding. The fact that the appellant abandoned one claim, at a relatively early stage in the proceeding, should not result in adverse costs consequences. I consider the proceeding in the Tribunal to be of a type where costs should follow the event, with a global costs order being made in the appellant's favour. For the same reason, I reject the respondent's contention that the costs of the appellant's expert should be disallowed. The fact that a court or tribunal rejects the evidence of an expert witness does not necessarily disqualify a party from recovering the witness's costs. The costs incurred by the appellant in respect of Mr Tomaino's report were costs legitimately incurred by the appellant, notwithstanding the Senior Member's rejection of the premise upon which the report had been prepared.

11 As to the third matter, I do not accept that the appellant's failure to accept the respondent's Calderbank offer of 2 February 2018 entitles the respondent to a special costs order. The offer was stated to be 'subject to an appropriate deed of settlement of release being formally agreed.' Rejection of a Calderbank offer will result in a special costs order if the rejection was unreasonable.[5] Having regard to the conditional nature of the offer, it was not unreasonable for the appellant to have rejected it. This conclusion is reinforced by the fact that the offer was only open between 4.34 pm on Friday 2 February 2018 and 10.00 am on Monday 5 February 2018. This very short period of time precluded the appellant from considering any deed of settlement and release agreement referred to in the offer. No such documents had been prepared at the time the offer was made. In effect, the appellant was asked to accept an offer of settlement without knowing what terms would have been proposed in the deed of settlement/release agreement. The respondent's offer did not stipulate the subject matter of the proposed deed.[6] The appellant's rejection of the Calderbank offer does not entitle the respondent to a special costs order.

12 On 18 December 2014, the respondent commenced a proceeding in the County Court claiming payment of $218,791.52, plus interest, plus costs. The County Court proceeding remained on foot throughout 2015. On 20 April 2016, a consent order was made staying the County Court proceeding pursuant to s 57(2) of the Domestic Building Contracts Act 1995. Pursuant to a consent order of Burchell JR, the costs of the County Court proceeding were reserved for determination by the Tribunal. The appellant submits that it is appropriate for these costs to be determined in the present proceeding. I do not accept this submission. Section 148(7) of the Victorian Civil and Administrative Tribunal Act 1998 does not confer power upon the Supreme Court to make an order in respect of the County Court proceeding. If the appellant wishes to pursue the costs of the County Court proceeding, this will need to be done by way of an application filed in the County Court.

1. The appellant's application for leave to appeal is granted and the appeal upheld.
2. The respondent's cross application for leave to appeal is dismissed.
3. The respondent is to pay the appellant $471,405.03, inclusive of interest of $113,905.03.
4. The respondent is to pay the appellant's costs of the applications for leave to appeal, cross-appeal and the appeal, including reserved costs, on a standard basis to be taxed in default of agreement.
5. The respondent is to pay the appellant's costs in proceeding No. BP877/2016, including reserved costs, on a standard basis in accordance with r 1.13 of the County Court Civil Procedure Rules 2018 and Appendix A of the Supreme Court (General Civil Procedure) Rules 2015.

[1] Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148(7); Champion v Rohrt [2016] VSCA 215.

[2] See Murphy v Victoria [2014] VSCA 238; (2014) 45 VR 119, 152 [108]-[109] (the Court).

[3] See Sim Development Pty Ltd v Cai [sic] [2018] VSCA 201 at [75]- [80] (Kyrou, McLeish and Niall JJA).

[4] Respondent, 'Submissions on Costs and Interest', 6 March 2019, [11]-[14] (emphasis in original) (citations omitted).

[5] Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, 440 [19], 441 [23] (the Court).

[6] Cf Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2018] VSCA 201.