Appellant v Respondent

1 In a proceeding between an owner and a builder, the builder asked the Victorian Civil and Administrative Tribunal to make orders striking out the owner's points of claim with costs, which it did.[1] The costs order required the owner to pay the builder's costs according to the Supreme Court scale.

2 Before making these orders, the Tribunal heard submissions from the parties on all issues except the selection of the appropriate scale. The Tribunal made that selection itself.

3 The owner, Jennifer Martin, appealed[2] to this Court, on a question of law, against the whole decision of the Tribunal. She obtained the necessary leave only in respect of the costs order. The appeal is therefore confined to that order and these are the grounds:[3]

1. The Tribunal ought to have ordered costs on the scale of the County Court or the Magistrates' Court.

2. The Tribunal erred in ordering the appellant to pay the respondent's costs on the Supreme Court scale without first hearing submissions by the appellant as to the appropriate scale.

3. The Tribunal failed to provide any or any adequate reasons for its order.

4 It is convenient for me to begin with ground three.

5 The Tribunal noted in its reasons that "general damages are claimed which seems to take this beyond County Court level." This suggests the Supreme Court scale was selected because it thought the owner had made a claim for general - in the sense of unlimited - damages, as was perfectly possible in cases in the Domestic Building List.[4] The transcript of a later directions hearing[5] in the case confirms this to be the reason for the selection.

6 The owner's application was on the form published by the Tribunal and her points of claim were attached. When the orders were made, the application and points of claim were in amended form, and, curiously, unsigned and undated. As it happens, nothing turns on these matters as the Tribunal and the parties were working from the same documents.

7 The points of claim were long, dense and read like a complicated pleading in a Supreme Court case. They twice specified a claim for "damages" without a money limit. In the summary at the end of the document, under the heading "GENERAL DAMAGES", a claim for "damages fixed by the Court" was made, again without a money limit. The orders specified on page three (but not, as we shall see, on page two) of the application were in the same terms. I therefore understand why the Tribunal thought, without being so informed, that the owner's claim was for damages in an unlimited amount. I say the Tribunal was not so informed because it did not call for or receive submissions on the value of the owner's claim.

8 The Tribunal was clearly mistaken about the value of that claim. Page two of the application form required the applicant to say whether the total amount claimed exceeded $100,000. The design of the form left something to be desired. In one line it said: "The total claimed does [does not] exceed $100,000". This invited something to be crossed out. But in the next line it went on the say: "Total claimed". This left something to be filled in, and seemed to treat the previous line as a question to be answered. The owner did not cross anything out in the first line. But with absolute clarity, she said this in the second: "Total claimed - Not exceeding $100,000".

9 I reject the submission of counsel for the builder that these parts of the form did not actually limit the owner's claim and related only to the amount of the Tribunal's application fee. The form spoke for itself by categorically requiring an applicant to specify the monetary limit of the claim. An applicant who observed this requirement - such as the owner - was entitled to proceed on the basis that the limit specified would thereafter govern the consideration of the claim unless, of course, it was amended.

10 I think the Tribunal overlooked the contents of the application and focused on the points of claim. If it had looked at the application, it would have appreciated the damages claimed by the owner were limited to $100,000. The significance of the Tribunal's mistake was that, at the time, the monetary limit of the jurisdiction of the County Court was $100,000; only the Supreme Court had an unlimited monetary jurisdiction.

11 Counsel for the builder tried to persuade me that the Tribunal had more than one reason for specifying the Supreme Court scale. The reasons he put forward related to the way the owner had conducted her case and the hopelessly deficient nature of her points of claim. He also made reference to s 78(1) of the Victorian Civil and Administrative Tribunal Act 1998 under which the strike-out order was made. Having made that order, s 78(2)(c) allowed the Tribunal to make an order for costs under s 109.

12 No doubt these were the reasons why the Tribunal decided, after considering the specified factors, it would be unfair for costs to lie where they fell and should be awarded against the owner. But once the Tribunal had decided, for these reasons alone, to order the owner to pay the builder's costs, I think it went on to decide, on a single mistaken basis, that the costs would be assessed on the Supreme Court scale.

13 As the Tribunal made the basis for selecting the Supreme Court scale quite clear, ground three of the appeal must be rejected. I will now deal with the remaining two grounds, beginning with the first.

SHOULD THE TRIBUNAL HAVE ORDERED COSTS ON A DIFFERENT SCALE?

14 Sections 109 and 111, together with s 78(2)(c), of the Act establishes a scheme within which questions of costs in the Tribunal are to be considered.[6]

15 The starting point is that each party to a proceeding must bear their own costs.[7] This position applies unless the Tribunal makes a costs order. Such an order can only be made if, after having regard to a number of specified factors, the Tribunal is satisfied it is fair to do so.[8] When so satisfied, it can order a party to pay all or part of another party's costs.[9] The Tribunal can fix the amount of those costs itself or order the costs to be assessed or settled by the principal registrar.[10] As we have seen, in cases where the Tribunal strikes a proceeding out, it may make an order for costs.[11]

16 The President of the Tribunal has said the costs discretion of the Tribunal is broad and "enables the Tribunal to do its best to provide a just outcome, subject to the basic principle that each party will usually bear their own costs."[12]

17 The jurisdiction of the Tribunal is administrative and far more disparate than that of a court; therefore the orders encompassed by its costs discretion might differ from, and are not restricted to, those commonly made by courts.[13] Still, the orders courts can make fall into useful and known categories. The costs discretion, when it may be exercised, is amply wide enough to encompass, in appropriate cases, all of the orders in those categories, including orders reserving costs, making the costs of one or all of the parties their costs in the proceeding, requiring a party to pay another party's costs, requiring costs to be paid on a party-party, solicitor-client or indemnity basis and specifying an appropriate scale on which costs should be assessed.

18 In the present case, the Tribunal had undoubted discretionary power to order the owner to pay the builder's costs. In doing so, it took into account the hopeless nature of the owner's case as pleaded and the unsatisfactory nature of that case as conducted. The Tribunal's approach in this regard is beyond criticism, indeed entirely appropriate.

19 The Tribunal also had undoubted discretionary power to specify the scale of a court for the assessment of the costs. In my view, the issues in this appeal do not concern the existence of that power but whether it was properly exercised. In this context, let me examine the terms of the costs order more closely.

20 This is the costs order in full:

"I order the Applicant to pay the costs of the Respondent of and incidental to the hearing of this day. In default of agreement by 19 May 2006, I direct that the assessment of such costs shall be referred to the principal registrar under s111 of the Victorian Civil and Administrative Tribunal Act 1998 who shall assess the same according to Supreme Court Scale unless otherwise directed or agreed between the parties."

21 I accept the obligation to read this order fairly but I still find the closing words unclear and cannot discern what they mean. Counsel for the builder submitted they allowed the owner to return to the Tribunal for a direction that another scale might be applied. That is one way the words may be read. They may equally be read as meaning the parties together could direct the registrar on that issue and others. A third reading is that the power to otherwise direct rested with the principal registrar. There are difficulties with each of these possibilities and I cannot resolve them. What is certain about the order is that it required the owner, in default of agreement, to pay costs on the Supreme Court scale. The owner was entitled to treat the order as final on this basis and appeal accordingly. Before doing so, she was not obliged to go to the Tribunal or the principal registrar to find out what the closing words might have meant.

22 Returning to the terms of the order, the assumption in the order (unstated as it often is in a costs order) is that the costs would be on a party-party and not a solicitor-client or indemnity basis. The correct approach is that, if it is fair for the Tribunal to award costs, they should be on a party-party basis unless a specific reason exists for giving a greater right to costs.[14] The Tribunal followed this approach which, again, was entirely appropriate. In a later order made after a further hearing, the Tribunal ordered costs against the owner on an indemnity basis, giving specific reasons for doing so,[15] which serves to highlight the party-party basis of the present order. Interestingly, this later order was made on the basis of the County Court scale, a matter which will attract our later attention.

23 The part of the order that requires detailed examination is the specification of the Supreme Court scale. It is here that the legal problem arises.

24 Counsel for the builder submitted that, assuming the Tribunal misunderstood the nature of the owner's case, if the exercise of the discretion could be justified on other grounds, the appeal must fail.[16] He submitted the selection of the Supreme Court scale could be justified by reference to the hopeless nature and unsatisfactory conduct of that case.

25 The approach to an appeal of this nature has often been considered by the courts.[17] I take this to be the proper approach:[18]

"The principles which govern an appeal against an order as to costs are clear. They proceed from the recognition that a trial judge has considerable latitude and individuality of choice in the formulation of orders for the payment of costs of the proceeding. In order for a party successfully to impugn an order as to costs, he or she must demonstrate that the judge erred in principle or took into account considerations which were irrelevant or left out of account considerations which were relevant or gave improper weight to some factors at the expense of others or too little weight to some factors relative to others or otherwise that the order was just so obviously unreasonable that the judge's discretion must have miscarried. A court of appeal must keep a tight rein on interference with costs orders, and consequently, it has been said, it is extraordinarily difficult to show that a court of first instance has erred in its power to award costs."

26 To address the submission of counsel for the builder it is necessary to determine whether the considerations he pointed to could be relevant to the exercise of the Tribunal's discretion to select the Supreme Court scale. I will approach this question in a general way first.

27 The Tribunal's costs discretion is broad in scope.[19] It is subject to the express statutory requirements of ss 109(1)-(3), 111 (and 78(2)(c)). The considerations relevant to the exercise of the discretion may be discerned from the subject matter, scope and purpose of these provisions,[20] interpreted in the context of the Act as a whole.[21] The discretion must be exercised judicially,[22] which means the Tribunal must act fairly, impartially and by reference to relevant considerations and not arbitrarily, capriciously or by reference to irrelevant considerations and not in a manner that frustrates the legislative intent.

28 The broad scope of the costs discretion, and the disparate nature the Tribunal's jurisdiction, makes it undesirable to try to prescribe in advance what considerations may be relevant in an individual case, even if this were practicable, which it isn't. The discretion must be exercised on a case by case basis, having regard to considerations that are individually relevant.[23]

29 I can put to one side cases which, by their nature, may bring public interest[24] considerations into play when deciding whether to make a costs order. The present case was not such a one. The selection of the Supreme Court scale could not be justified in the public interest. The case involved a private building dispute between an individual owner and builder and was more akin to civil litigation in a court.

30 In ordinary civil litigation in a court, the costs discretion must usually be exercised by reference to considerations connected with or arising out of the individual case, including its nature, its lead up, its conduct and its outcome, which matters must be formally proved to or definitely observable by the judge.[25] While a costs order might usually be made against an unsuccessful party in favour of the successful party,[26] case-connected considerations - and only such considerations - might justify a different course.[27] In most cases, to make other than the usual order as to costs by reference to considerations not so connected would be an improper exercise of the discretion.[28]

31 The Tribunal is a creature of statute and, on questions of costs, it commences from a different starting point. Usually parties must bear their own costs, which no doubt reflects the general object of the Act. That object, as identified by the President, is to promote access to justice generally and to minimise the overall level of costs in tribunal proceedings as far as practicable.[29]

32 The considerations relevant to the exercise of the Tribunal's costs discretion are specified in s 109(3) (see also s 78(2)(c)). As we have seen, it must be satisfied it is fair to make a costs order having regard to a number of specified matters. With one exception to which I will come, the matters specified are all case-connected - the conduct of the proceeding, unreasonable delay, making untenable claims, the nature and complexity of the proceeding (and the fact the Tribunal has struck the proceeding out).

33 The exception is a catch-all consideration - any other matter the Tribunal considers relevant. I would not wish to say anything that might restrict the circumstances in which such other matters may arise. This has been left to the Tribunal to determine on a case by case basis. But I cannot see what other matters may be relevant to the selection of the scale in the present case.

34 I must deal with one other issue before returning to the problem at hand. The purpose of a costs order is usually to compensate the party whose costs must be paid for the expenses incurred by reason of the litigation or proceeding, not to punish the party who must pay those costs for conduct giving rise to the order.[30] Consistently with the compensatory purpose of costs orders, the courts, and no doubt the Tribunal, can make orders that give the standard or a higher degree of compensation.[31] These are, at present and in ascending scale: party-party, solicitor-client and indemnity costs.[32] Different kinds of considerations govern the making of such orders and it not necessary to examine them here. But the considerations are all case-connected and the purpose of each order must be to compensate one party, not to punish another.

35 The statutory provisions and legal principles I have just described apply to the selection of the appropriate scale in an order for costs. In summary, under both ss 109(3) and 78(2)(c) of the Act and the general principles, the Tribunal's costs discretion must be exercised so as to select the appropriate scale by reference to considerations connected with the case and to compensate one party, not punish another.

36 I think there were no reasons connected with the case before the Tribunal for specifying the Supreme Court scale. We have seen an order for costs is compensatory, not punitive. Counsel for the builder submitted the selection of the Supreme Court scale would have given greater compensation to the builder for the costs it incurred. But there was and is nothing in the case to suggest the builder should get the particular kind or degree of greater compensation which the selection of that scale would confer. For example, it was not suggested the subject matter of the proceeding was inherently Supreme Court in nature.

37 If it was appropriate to give the builder greater than standard compensation for its costs, this could have been done by awarding costs on a solicitor-client or indemnity basis, provided of course circumstances connected with the case, especially the owner's conduct of it, justified such an order. This is the method employed by the Tribunal when it made the later costs order. It did not use the Supreme Court scale to give greater compensation, for it abandoned that scale in favour of a County Court scale. Rather, it made the order on an indemnity basis, for reasons that it stated.

38 In this particular case, the only consideration connected with the case for specifically selecting any scale was the nature of the case. Of this, the maximum value of the owner's claim was a sufficient rough and ready guide. If that value was within the then money jurisdiction of the County Court, the Tribunal could and should have selected the scale of that Court. To select the Supreme Court scale was to punish the owner, not compensate the builder, and was not and is not open.

39 The Tribunal selected the scale of the Supreme Court only because it thought the value of the owner's claim was unlimited. In the circumstances this was an understandable mistake. But nothing else in the nature of the case permitted the selection of that scale. In selecting the wrong scale, the Tribunal made a clear error of fact about a matter of fundamental significance in the exercise of its discretion. The error lead the Tribunal to take into account the incorrect and therefore irrelevant consideration that the owner's claim was for general damages, unlimited in value, and ignore the correct and relevant consideration that the claim was capped at $100,000. The Tribunal thereby exercised its discretion improperly and in error of law. Ground one of the appeal must, for these reasons, be upheld, but only in respect of the specification of the Supreme Court scale.

40 Let me now consider ground two.

DID THE TRIBUNAL BREACH THE RULES OF NATURAL JUSTICE?

41 The hearing before the Tribunal on the strike-out application of the builder took an unusual course when it came to the question of costs. Counsel for the builder submitted the builder should get its costs if the owner's points of claim were struck out. At first, counsel for the owner replied that the costs of each party should be their costs in the cause. Then he changed his position and said the parties should be allowed to make further submissions in writing on the question of costs after the strike-out application was determined. Counsel for the builder replied that the Tribunal should not allow further submissions.

42 In the result the Tribunal did not allow further submissions on the question of costs. It made the costs order - specifying the Supreme Court scale - which I have already set out. The Tribunal can be taken to have rejected the final submission of counsel for the owner.

43 Section 97 of the Act requires the Tribunal to "act fairly and according to the substantial merits of the case in all proceedings" and s 98(1)(a) states the Tribunal "is bound by the rules of natural justice." The Tribunal is bound to observe the rules of natural justice in relation to issues of costs.

44 Whether the Tribunal should give the parties an opportunity to be heard on an issue of costs will depend on the circumstances and what the Tribunal has in contemplation. If no party has applied for a costs order and the Tribunal does not intend to make one, there will be no need to hear the parties on that issue. The parties will proceed on the correct assumption that each party will bear their own costs. If a party has applied for a costs order, and everything that could be said on that subject was covered in the submissions made at the primary hearing, the Tribunal may not be obliged to hear the parties further before making or refusing to make such an order. If the Tribunal is contemplating making a costs order not sought at the primary hearing, it will have to disclose this to the parties and give them the opportunity to make submissions. It may be that, during the course of the Tribunal's consideration of an issue of costs, something comes up adverse to a party and not covered by their existing submissions. Again, it will be necessary to disclose this to the parties and allow further submissions. If there is any doubt about what course should be followed, the Tribunal should give the parties the benefit of that doubt and call for submissions before making the order.

45 In relation to natural justice, concern arises in the present case only by reason of the selection of the Supreme Court scale. If the Tribunal had intended to select the County Court scale, it could have made the costs order in favour of the builder without giving the owner the opportunity to make further submissions. There could have been nothing further for counsel for the owner to say on that question. But once the Tribunal intended to select the Supreme Court scale, this was a new and adverse matter which should have been disclosed to the parties, with an invitation to make further submissions. To make the costs order without doing so was a breach of the rules of natural justice, to the extent that the Supreme Court scale was specified. For this additional reason, and to that extent. the Tribunal thereby exercised its discretion improperly and in error of law.

46 Of course the Tribunal did not give the parties a further opportunity to be heard because of its entirely inadvertent mistake about the value of the owner's claim.

47 Ground two of the appeal must therefore also be upheld but, again, only in respect of the specification of the Supreme Court scale.

48 The Victorian Civil and Administrative Tribunal made a costs order against a losing party requiring costs to the paid on the Supreme Court scale. The Tribunal specified that scale because, inadvertently, it thought the party had made a claim for general damages, unlimited in amount. In fact the party's claim was capped at $100,000, which kept it within the then money jurisdiction of the County Court. The party appealed against the order on grounds of error of law.

49 Under the Victorian Civil and Administrative Tribunal Act 1998 and the general law, in a case such as the present, costs orders, if made at all, must compensate one party, not punish another, and the costs discretion must be exercised by reference to considerations connected with the case.

50 There were no case-connected considerations for selecting the Supreme Court scale. To select that scale was, in the circumstances, punitive and not a proper exercise of the Tribunal's costs discretion. Making the order therefore involved, to that extent, an error of law.

51 The Tribunal also denied the losing party natural justice by making the order without giving her an opportunity to make submissions on the issue of the appropriate scale, but this was simply a consequence of the same inadvertent mistake.

52 For these reasons the appeal will be upheld. The order of the Tribunal dated 21 April 2006 will be set aside in so far as it specifies that the costs shall be assessed on the Supreme Court scale. The proceeding will be remitted to the Tribunal to be decided again according to law in that respect. There is no reason for the Tribunal to be differently constituted when it does so and I decline to make an order otherwise.

53 I will hear the parties on the question of the costs of the appeal.

[1] Martin v Fasham Johnson Pty Ltd [2006] VCAT 680.

[2] Under s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998.

[3] As specified in the notice of appeal dated 15 June 2006.

[4] There was no money limit on the jurisdiction of the Tribunal in cases brought under this List.

[5] Conducted on 31 May 2006.

[6] Other sections of the Act also deal with costs but it is unnecessary to consider these in this case: see eg ss 74(2)(b), 75(2) and 130(2)(c).

[7] Section 109(1).

[8] Section 109(3).

[9] Section 109(2).

[10] Section 111(1).

[11] Section 78(2)(c).

[12] Sweetvale Investments Pty Ltd and JGL Investments Pty Ltd v Minister for Planning [2004] VCAT 2000, [17].

[13] Transport Accident Commission v O'Reilly [1998] VSCA 106; [1999] 2 VR 436, [15]-[16], [47].

[14] Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd [2005] VSCA 165, [33], [91], [113].

[15] On 26 October 2006: Martin v Fasham Johnson Pty Ltd No 2 [2006] VCAT 2195.

[16] Transport Accident Commission v O'Reilly [1998] VSCA 106; [1999] 2 VR 436, [46].

[17] See House v R [1936] HCA 40; (1936) 55 CLR 499, 504-5; Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513, 518-519; Australian Coal and Shale Employees Federation v Commonwealth [1953] HCA 25; (1953) 94 CLR 621, 627; Russo v Russo [1953] VicLawRp 12; [1953] VLR 57, 65 Puddy v Borg [1973] VicRp 61; [1973] VR 626, 628.

[18] Daulizio v Trust Company of Australia [2005] VSCA 215, [6]. The footnotes have been omitted.

[19] On costs discretions in courts and tribunals generally, see Enid Campbell and Matthew Groves, "Award of costs in administrative proceedings" (2004) 11 Australian Journal of Administrative Law 121.

[20] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 81, 84, 121.

[21] CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408.

[22] See generally Donald Campbell & Co v Pollack [1927] AC 732, 811-812; Puddy v Borg [1973] VicRp 61; [1973] VR 626, 628; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 81; Victoria v Horvath (No 2) [2003] VSCA 24, [6]; Daulizio v Trust Company of Australia [2005] VSCA 215, [6]; Board of Examiners v XY [2006] VSCA 190, [13]; Wilmoth Field Warne (a firm) v Equuscorp Pty Ltd [2007] VSCA 28 [12].

[23] Russo v Russo [1957] VR 57, 62; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 81; Daulizio v Trust Company of Australia [2005] VSCA 215, [6].

[24] See Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 and the discussion in Board of Examiners v XY [2006] VSCA 190, [13]-[16].

[25] Donald Campbell & Co v Pollack [1927] AC 732, 811-812; Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 567-569; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 121; Wilmoth Field Warne (a firm) v Equuscorp Pty Ltd [2007] VSCA 28 [12]-[13].

[26] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 567-568.

[27] Ibid, 557, 567-569.

[28] Wilmoth Field Warne (a firm) v Equuscorp Pty Ltd [2007] VSCA 28, [12]-[13].

[29] Stonnington City Council v Blue Emporium Pty Ltd [2004] VCAT 1441, [13].

[30] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 543, 656-567; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 89, 121. I say usually because there may be circumstances, unnecessary to consider in the present case, where the compensation principle cannot be treated as absolute: see ibid 121, [134].

[31] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 89.

[32] Ibid.