Appellant v Respondent

1 On 11 March 2021 I published reasons in this appeal from the Victorian Civil and Administrative Tribunal (VCAT). The appellant succeeded and I will order that the decision be set aside and the matter remitted to VCAT. This ruling deals with the costs orders to be made regarding the appeal.

2 At mention on 19 April 2021 the parties made submissions as to the appropriate costs orders that should be made, there being no agreement between them.

3 An error of law had been conceded by the respondent in its written outline of submissions dated 9 October 2019. The respondent agreed that the order quantifying the costs payable by the appellant at VCAT (the November order) was one where the appellant was denied procedural fairness. It accepted that order should be set aside and the quantification of costs payable should be remitted for consideration according to law.

4 The parties remained in contention regarding the remaining grounds of appeal as they had been amended in June 2019; whether the respondent's summary judgment application under s 75 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act) was attended by error and whether any error impacted upon the decision to make a costs order adverse to the appellant in those circumstances. The plaintiff ultimately succeeded on these grounds.

5 The appellant seeks an order that the respondent pay his costs of the appeal. He seeks that the costs be paid on an indemnity basis from 30 November 2020 based upon an unreasonable refusal of two Calderbank offers.

6 The respondent submits that there should be a departure from the usual rule that costs follow the event so that the respondent pay only 50% of the appellant's appeal costs as agreed or assessed. The submission is made so that the parties "share the burden of the costs incurred fairly between the parties". In addition the respondent seeks an indemnity certificate under s 4 of the Appeals Cost Act 1998 (Vic) (Appeal Costs Act).

7 The Court has a wide discretion in relation to costs.[1] As a general rule, costs will follow the outcome and a successful litigant is entitled to recover the cost of obtaining the relief sought. A decision whether or not to grant an indemnity certificate under the Appeal Costs Act, is also discretionary.[2]

8 The costs order made by VCAT, which was subject to the concession of legal error quantified costs of the proceeding assessed at $22,808.08. By consent orders made on 6 February 2019 in this appeal the appellant had paid into his solicitors' trust account the sum of $22,808.08, pending the outcome of the proceeding. Having succeeded in the appeal the order provided for release of those funds to the appellant.

9 Both parties filed written submissions in respect of costs. That material detailed a substantial history of attempted resolution of the matter. What is clear is that both parties attempted a commercial compromise of the claim. Efforts essentially foundered on questions of costs. As well as the erroneous VCAT costs order, there had been a costs order made in the appeal on 12 June 2019 (the June costs order). That order required payment by the appellant of costs thrown away by reason of the amendments to the grounds of appeal and the failure to comply with timetabling costs orders.

10 The plaintiff has succeeded on the appeal. The usual practice is that he should have an order for costs in his favour. I will make such an order. The basis for the respondent's submission that I should reduce the amount of costs payable by the respondent by 50% is that the respondent successfully resisted what it considered to be a spurious claim at VCAT. It was further submitted that the "strident terms"[3] which were used by VCAT to decide in its favour should influence the reasonableness of the respondent continuing to a judicial determination of the appeal. It was further submitted that the appellant's conduct both at VCAT and in prosecuting this appeal warranted a reduction in costs because of various identified failings.

11 I do not accept the submissions. I will not make any reduction as to the quantum of the applicant's costs to share the cost burden for the following reasons.

12 First, the respondent having conceded an error of law on one ground meant that assessment of all offers in the appeal must have taken into account the fact that, at least on that ground, the appeal must succeed.

13 Second, this was not a merit review and questions of the conduct of the appellant at VCAT or the prospects of success at VCAT have little if any bearing on the identification of error of law or the determination of the legal questions. The outcome at VCAT is to be determined by any rehearing. The reasonableness of proceeding to determination is not measured by the merit or lack of merit in the VCAT appeal. In any event, in my view the respondents actions were driven largely by questions of recovery of its costs as detailed below. I observe from the correspondence that both parties seem to have lost much of the desire to further agitate matters. The merit of the applicant's claim remains undetermined and it would be inappropriate to act on submissions going essentially to the merit of that claim.

14 Third, to the extent that the appellant's conduct led to increased costs being incurred in this appeal that matter has been dealt with by the adverse costs order of 12 June 2019. That order remains in force in the respondent's favour.

15 Fourth, the fact that the respondent chose to expend legal costs and seek leave to appear at VCAT was a matter of choice for it. The cost burden on it that resulted is of no relevance in determining the costs of this appeal.

16 The next question is whether the appellant is entitled to costs on an indemnity basis from 30 November 2020. The appellant submits he is entitled to an order in those terms as the refusal of the offer was unreasonable.

17 The consequences of rejecting a Calderbank offer do not give rise to any presumption of a special costs order where a less favourable outcome occurs.[4] Rather the relevant question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rules as to costs....".[5] Amongst the relevant circumstances for consideration is that of an "imprudent refusal of an offer of compromise".[6]

18 The first Calderbank offer was dated 8 November 2019. It proposed payment of $22,808.80, which was "all inclusive" in discharge of all matters in connection with both the VCAT and the appeal proceeding. Upon payment of the settlement amount the appeal proceeding would then be dismissed with no order as to costs. The effect of this order was to meet the respondent's costs liability at VCAT in full, despite the respondent's concession that it had been made in error. It also meant the appellant would forego any costs associated with the appeal, despite the respondent's concession that he would succeed on at least one ground. Given the quantum of the underlying claim ($12,950), and the significant concessions by the appellant contained in the offer, this did in my view represent a sensible commercial settlement.

19 The emailed response from the respondent's solicitor late on 8 November 2019 indicated some preliminary thoughts. It concludes however:

In my view this case is an obvious one where a certificate under the Appeal Cost Act would be granted by the court. This would allow my client to recover some further costs over and above anything to be contributed by your client. I will be recommending to my client that any settlement incorporates the granting of a certificate under the Appeal Costs Act. Agreeing to this will impose no additional cost on your client.

20 The respondent proposed potential settlement that the appeal be allowed on the conceded ground with remittal to VCAT for quantification. Regarding costs it proposed:

1. In respect of the appeal costs, the June costs order be set aside, and there be an indemnity certificate granted for all costs incurred by the respondent on a standard basis in the expectation that the costs will be paid from the Appeal Cost Fund; and

2. In respect of the VCAT costs, the amount of $22,080.80 be paid in full and final settlement of the respondent's claim in VCAT.

21 The proposal made no allowance for the appellant's costs of the appeal at all notwithstanding its partial success. Nor did it make any concession in relation to its own costs either at VCAT or on appeal despite its recognition of legal error by the Tribunal.

22 On 26 October 2020 the appellant made the second Calderbank offer relied on. It proposed orders that the appeal succeed on the conceded costs ground and that the other grounds of appeal be withdrawn. The offer then dealt with the questions of costs, indicating acceptance of a compromise figure to be agreed for appeal costs, suggested in the order of $20,000 (a compromise of an estimated $50,000) and agreeing to a set off of the appellant's costs liability arising from the 12 June 2019 order, proposing a sum of $6,000. In respect of VCAT costs, they remained on foot to be quantified in the remittal. The appellant would consent to an application by the respondent for an indemnity certificate in respect of costs incurred in the appeal.

23 This offer amounted to success only on the conceded ground with a compromise position in respect of costs payable by the respondent. The appellant submits that the respondent would have been better off as the offer left intact the costs order at VCAT in its favour, remitting only the question of quantification. The remittal to VCAT now has no extant order for payment of costs of the first hearing at VCAT. The failure to accept the offer when it was made was in my view unreasonable.[7]

24 Both Calderbank offers were made on the basis that the respondent could apply for an indemnity certificate under the Appeal Costs Act.

25 What is clear from the respondent's submissions is that refusal of Calderbank offers and the advancement to hearing and determination was driven by the fact that the respondent was only prepared to enter into any resolution of the proceeding on the basis that all its legal costs were met, both at VCAT and in the appeal. The submission stated "The attempts at settlement by the respondent were all conditional on the granting of an indemnity certificate but without acceptance by the appellant. So progressing to a judicial determination was required".

26 Leaving aside for the moment whether or not the respondent itself might be indemnified for legal costs associated with the disposition of the appeal, it was in my view imprudent to refuse a Calderbank offer that otherwise represented a favourable outcome of the appeal and permitted the respondent to make an application for an indemnity certificate in respect of its costs liability stemming from the appeal. The appellant can do no more than acquiesce in the respondent seeking a favourable exercise of the Court's discretion to so grant such a certificate. Having conceded a ground of appeal, it was unlikely that the respondent could recover all its appeal costs, avoid paying any costs to the appellant, and retain the favourable VCAT costs order of $22,808. Yet this is the position it sought to achieve.

27 The circumstances in my view do warrant an order for costs paid on an indemnity basis from 30 November 2020 as sought.

28 The next issue is the application made by the respondent for an indemnity certificate under the Appeal Cost Act. Section 4 of the Act provides:

(1) If an appeal against a decision of a court in a civil proceeding -

(a) to the Trial Division of the Supreme Court; or

(b) to the Court of Appeal, including an appeal to the Court of Appeal from a decision of the Trial Division of the Supreme Court; or

(c) to the High Court of Australia from a decision of the Supreme Court -

succeeds, a respondent to that appeal may apply to the Supreme Court for, and the court may grant, an indemnity certificate in respect of costs.

(2) If an appeal to the County Court against a decision of a court in a civil proceeding succeeds, a respondent to that appeal may apply to the County Court for, and the court may grant, an indemnity certificate in respect of costs.

29 An indemnity certificate entitles a respondent to a successful appeal to seek from the Appeal Costs Board amounts pursuant to s 5 of the Act:

(1) Subject to subsection (2), a respondent granted an indemnity certificate under section 4 is entitled to be paid by the Board, on an application made to it by the respondent in the approved form -

(a) an amount equal to the appellant's costs (if any) -

(i) of the appeal in respect of which the indemnity certificate was granted; and

...

that the respondent has been ordered to pay and has actually paid; and

(b) an amount equal to the respondent's own costs -

(i) of the appeal in respect of which the indemnity certificate was granted

...

that have not been ordered to be paid by any other party, as assessed by the Board on a standard basis, or as agreed to by the Board and the respondent; and

....

30 The policy that underlies s 4, and its predecessor s 13(1) of the Appeal Costs Act 1964 (Vic), is "that an error of law occurring in a court may ordinarily be attributed to a fault of the administration of justice rather than of the parties, so that the costs of having the error rectified ought ordinarily not to be borne by the unsuccessful respondent to the appeal but to be paid from a public fund established for that purpose".[8]

31 In Eureka Funds Management Ltd v Freehills Services (No 2), Cavanough AJA, speaking for the Court, said:[9]

1. The grant of a certificate will usually lead to the expenditure of public money. In my view it is not enough that a case merely falls within one of the descriptions in s 4. The Court needs to be satisfied that it is appropriate in all the circumstances that a certificate should be granted. It is a discretion to grant, not a discretion to refuse, a certificate. On the other hand, a relatively generous approach to the exercise of the discretion is supported by the remarks of the then Attorney-General in her second reading speech for the 1998 bill for the Act, as follows:

The bill repeals the current Appeal Costs Act 1964 and replaces it with a new, simpler and clearer act. In so doing, the bill implements the government's justice policy objective of reforming the justice system so that it is accessible and efficient.

The Appeal Costs Act originated as a form of compulsory insurance. It was based on the premise that, although the majority of legal disputes can be resolved in one substantive hearing, in a small proportion of cases it is necessary for an appeal or a re-hearing. For example, a party may have to appeal to the Court of Appeal or the High Court because there are conflicting authorities or the area of law in question is new. Equally, in a small number of cases it is necessary to have a re-hearing because the original hearing was aborted or discontinued: for example, because the jury had to be discharged. The act was designed to apply only to those cases where the appeal or re-hearing was necessary. It does not apply if an appeal is brought simply because the party who lost at the first hearing was dissatisfied with the decision.

...

The principal objective of this bill is to address these inconsistencies and anachronisms to ensure that the underlying policies of the appeal costs scheme are properly reflected in the legislation.

The basis for granting an indemnity certificate has been made simpler and more consistent under the bill. The bill provides that the decision to grant or effuse a certificate following a successful appeal is in the discretion of the court.

For example, a party may have succeeded in atrial by deliberately misleading the trial judge. The losing party may then have to appeal against the judgment. The appellate court may allow the appeal and order the respondent to pay the appellant's costs. In these circumstances the court may refuse to grant an indemnity certificate to the respondent, on the ground that if the respondent had not misled the judge in the court below, it would not have been necessary to have the appeal.

32 Discretionary factors which might mitigate against a grant include whether the need for an appeal was generated by inappropriate conduct of the respondent.[10]

33 Neither party raised any factors which might prevent exercising my discretion to grant an indemnity certificate to the respondent. The conceded error was one made by the Tribunal and was in no way contributed to by the actions of the respondent.

34 As I have said in my reasons the respondent was entitled to make an application under s 75 at the conclusion of Mr Kukulka's evidence. The distinction between a summary determination on the higher standard of evidence most favourable to Mr Kukulka and a determination on the merits at the conclusion of evidence (where a respondent has chosen not to lead any evidence) was not drawn clearly to the Tribunal's attention. However, the distinction is one drawn out by the reasoning in Weber v Deakin University,[11] to which the Tribunal member was referred by the parties and to which the Tribunal made reference in its reasons.

35 Although the lack of clarity about the nature of the application and the assistance provided to the Tribunal as to the test to be applied were perhaps not as helpful as they could have been, I am not satisfied that the circumstances are such that the respondent's conduct in making the application was inappropriate so as to disentitle it from the grant of a certificate. I will grant a certificate pursuant to s 4 of the Appeal Costs Act.

[1] Supreme Court Act 1986 (Vic) s 24; Supreme Court (General Civil Procedure) Rules 2015 I(Vic) r 63.02.

[2] Appeal Costs Act 1998 (Vic) s 37(1).

[3] A term used by the respondent to characterise the reasons.

[4] Hazeldene Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) 13 VR 435.

[5] Aljade and MKIC v OCBC [2004] VSC 351.

[6] Included in the list of circumstances by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 801.

[7] The rationale for moving a costs liability payable by the appellant under the June costs order to in effect costs payable from public funds was not explained.

[8] Pickford v Incorporated Nominal Defendant [1981] VicRp 58; [1981] VR 583 [6].

[9] Eureka Funds Management Limited & Anor v Freehills Services Pty Ltd (No 2) [2008] VSCA 177 [7].

[10] See Towie v Medical Practitioners Board of Victoria [2008] VSCA 157.

[11] [2018] VSCA 53.