1. The Respondent must pay the Applicant's costs of the proceeding from 10 February 2011 on a solicitor and client basis to be agreed between the parties, failing which to be assessed by the Victorian Costs Court in accordance with the County Court Scale of Costs.
2. There be no order as to costs incurred by the parties prior to 10 February 2011.

1. On 29 November 2011 I ordered that the respondent pay the applicant $96,730.44. That amount represented a reconciliation of the amount awarded in respect of the applicant's claim ($148,212.69) against the amount awarded in respect of the respondent's counterclaim ($51,482.25).

1. Mr Livaditis, solicitor, appeared on behalf of the applicant. Ms Moorhouse Perks, solicitor, appeared on behalf of the respondent. Mr Livaditis sought an order that the applicant's costs up to 10 February 2011 be paid by the respondent on a party and party basis to be assessed in accordance with the County Court Scale of Costs and that after that date, be paid on an indemnity basis. In support of his claim for indemnity costs, the applicant relies on a settlement offer made to the respondent on 10 February 2011, pursuant to s112, s113 and s114 of the Victorian Civil and Administrative Tribunal Act 1998 ('the Act'). The terms of that offer were that the sum of $50,000 be paid by the respondent to the applicant in full and final settlement of his claim made against the respondent and in satisfaction of the respondent's claim against the applicant, inclusive of interest and costs. As I have already indicated, the net amount flowing to the applicant, having regard to the claim and the counterclaim is $96,730.44, which is significantly more favourable than the offer made.
2. Mr Livaditis submits that in those circumstances, s112 of the Act reverses the presumption against no order as to costs. He submits that the words of the section make it clear that Parliament intended the provision to operate so that costs are to be awarded on an indemnity basis. Section 112(2) of the Act states:

If this section applies and unless the Tribunal orders otherwise, a party who made an offer referred to in sub-section (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.

1. Mr Livaditis further submitted that costs prior to 10 February 2011 should be paid on a party and party basis.

SECTION 112 OF THE ACT

1. Mr Livaditis relied upon the decision of Judge Dove in Geftine Pty Ltd v Dover Beach Pty Ltd [2006] VCAT 2189 in support of his submission that the term "all costs" means costs on an indemnity basis. In Geftine, his Honour stated:

[25] Because the term "all costs" is not defined, debate has ensued about whether it would be interpreted as meaning solicitor/client costs or indemnity costs. In Duggan v MGS Products Pty Limited [2002] VCAT 1764, Deputy President Macnamara said that there were no words of qualification of "all costs" the term meant that the party was entitled to a full indemnity and that costs on a full indemnity basis should be awarded. I agree that the plain meaning of the words is such that an order for costs on a full indemnity basis should be given in the present case.

1. However, it appears that decisions of this Tribunal are not all consistent the approach taken in Geftin. This factor was highlighted by Senior Member Walker in Mardel Constructions Pty Ltd v Sinha [2009] VCAT 1532, wherein he carefully reviewed a number of decisions going to this issue. He stated:
   1. There is a divergence of opinion within the Tribunal as to how this section is to be applied. Mr Andrew referred me to a number of recent decisions of this tribunal namely, Borg v Metricon Homes Pty Ltd [2009] VCAT 507, Geftine Pty Ltd v Dover Beach Pty Ltd [2006] VCAT 2189 and Gower v Vero Insurance Limited and Anor [2005] VCAT 1447.
   2. In Borg the Tribunal awarded indemnity costs after observing that, where a party chooses not to make an offer under s112 of the Act, orders for costs should be on a party/party basis unless there are exceptional circumstances. In that case an offer under s112 was made, which had a claim that was "weak, legally and factually" and was ordered to pay costs on an indemnity basis where the amount recovered was very modest and the trial had occupied 3 days.
   3. In Geftine Pty Ltd v Dover Beach Pty Ltd the Tribunal awarded indemnity costs, considering that the term "or costs" in s112 was full indemnity costs.
   4. Gower was not a s112 case but one where the Tribunal awarded indemnity costs in circumstances where the Respondents had conducted their case using witnesses who gave untruthful evidence and that if it had been properly advised it would have settled the matter before the hearing.
   5. Another view adopted in the Tribunal is that the word "all" in s112 means "all reasonable costs" (see Tsiavas v Transport Accident Commission [2002] VCAT 1496).
2. In Mardel Constructions, Senior Member Walker highlighted that s112 of the Act expressly preserved the Tribunal's discretion as to costs even if the amount awarded to the offering party was more favourable than the offer made. I agree with that proposition.
3. In Paleka v Suvak [2000] VCAT 58, Senior Member Walker stated in regard to s112(2) that:
   1. I think the conclusion to be drawn from all of the authorities cited and the various quotes to be found in the judgements is that costs, where they are awarded, are normally ordered to be taxed on a party-party basis but that they may be awarded on some other basis in an appropriate case. It is in the unfettered discretion of the Tribunal to determine which basis should be adopted. In the exercise of this discretion the Tribunal will take into account the purpose for which provisions such as s. 112 are enacted but more importantly, it will have regard to the circumstances of the particular case. It is well recognised that party-party costs are usually considerably less than the costs that the successful party has actually spent in prosecuting or defending the application. Even solicitor / client costs, although more generous, fall short of a complete indemnity. Indemnity costs purport to provide a full indemnity but may (according to the terms of the order) not include costs that are unreasonably incurred.
   2. Generally, party-party costs should be awarded. Access to Courts and Tribunals is a fundamental right enjoyed by everyone and persons bona fide pursuing that right and not acting improperly should not generally face orders more onerous than party-party costs if they are unsuccessful. Solicitor / client costs are ordered when the party against whom the order for costs has been made has somehow acted improperly in the conduct of the litigation so as to cause the other party unnecessary expense. Indemnity costs are ordered where the party's conduct is particularly blameworthy. That is, the circumstances justify a harsher order than even solicitor / client costs.
   3. I think the foregoing represents the general thrust of the various authorities referred to but it is not intended to express any hard and fast rule. In each case it is for the Tribunal in its unfettered discretion to decide what order is appropriate in the circumstances of that particular case.
4. Again, I agree with what Senior Member Walker has helpfully set out in his reasons. It seems to me that the words "all costs" do not necessarily mean indemnity costs, given the discretion expressly afforded to the Tribunal under that provision.
5. Accordingly, I reject the submission made by Mr Livaditis that s112(2) of the Act compels the Tribunal to award costs on an indemnity basis because such an interpretation of the provision would fetter the Tribunal's discretion. Similarly, if the provision meant costs on an indemnity basis, it could have said that. It did not. Therefore, I am of the opinion that all costs simply means the costs of the proceeding, however, it is still up to the Tribunal to determine how those costs are to be assessed. That approach seems to be consistent with what was said by the Victorian Court of Appeal in Velardo v Andonov [2010] VSCA 38 at paragraph [47], where Ashley JA stated:

The offer foreshadowed an application for solicitor and own client costs. Such an order is the frequent, but by no means the inevitable, concomitant of a successful Calderbank offer. Section 112(2) creates, on the other hand, a prime facie entitlement to payment of "all costs" in favour of the successful offeror. Ordinarily, it appears, costs would be assessed in such a case on a party and party basis - although the Tribunal would be empowered to allow costs on a more favourable basis.

1. As I have indicated, I am of the opinion that the Tribunal's discretion to award costs remains unfettered even in circumstances where an offer made is more favourable than the ultimate orders of the Tribunal. Consistent with the comments made by the Court of Appeal, I am of the opinion that the starting point in considering on what basis costs should be awarded is that costs are awarded on a party and party basis. However, there will be circumstances where it is appropriate for an enhanced costs order to be made. In Newlands v Ratcliffe Building Group and Ors [2010] VCAT 1115, Senior Member Lothian made reference to the Supreme Court of Victoria decision in Scholl Nicholson Pty Ltd v Chapman (No 2) [2001] VSC 462 in which Balmford J summarised the circumstances in which the Supreme Court could make an offer for indemnity costs. One of those circumstances was where a party refused to accept an offer of compromise. In Scholl Nicholson Pty Ltd, the argument was raised that an enhanced costs order should be made where s112(2) applies because otherwise the offering party would not be rewarded for making such an offer and there would be less motivation for doing so. In answering that submission, Senior Member Lothian stated:
   1. Mr Pumpa submitted that if there is no cost consequence of making an offer to which s112 applies, the offering party is not rewarded for making such an offer and there is less motivation for doing so. There is logic in what he says. By starting with the assumption that a party making a successful s112 offer will get costs, a party who successfully offers to pay, or successfully offers anything up to receiving a modest payment, is likely to get a costs advantage that they would not otherwise receive at VCAT. In contrast, a party who, like the Builder, is involved in a fairly large and complex proceeding and who obtains an order for a substantial sum, probably does not receive any more than it would obtain under s109, unless it obtains an order for costs beyond party-party. The only advantage to such a party is a greater degree of certainty that costs will follow the event.
   2. Notwithstanding, I follow the decision in Verlado. Apart from anything else, it has the advantage of simplicity. The Owners must pay the Builder's costs on a party-party basis after the offer to which s112 of the VCAT Act responds.
2. I agree with the reasons given by Senior Member Lothian in Scholl Nicholson Pty Ltd. The principal advantage in making an offer under the Act which is found to be more favourable than the determination of the Tribunal is that it affords the offeror an improved prospect of recovering costs. However, it does not guarantee that outcome, nor does it necessarily mean that an enhanced costs order will be made. Much will depend on the circumstances before the Tribunal in each particular case.
3. In my view, the circumstances of the present case warrant an enhanced costs order being made against the respondent. In particular, I am of the opinion that the rejection of the offer was imprudent having regard to the nature of the claim and counterclaim. In particular, I note that the applicant's claim comprises a claim for $120,000 being the cost of unpaid progress claims or alternatively that amount on a quantum meruit basis. No evidence was adduced to dispute that the value of the works was not commensurate with the amount claimed by the applicant, save and except that the respondent contended that that amount should be discounted by the cost of delay and the cost to make good defects in the works. In addition, much of the counterclaim was premised on a claim for the cost of completing the works, however no legal basis was pleaded to the effect that the contract had been repudiated by the applicant. In other words, it was unclear from the points of counterclaim as to what grounds were being relied upon to pursue a claim for the cost of completing the works. Indeed, such a claim was not pursued during the course of the hearing and final submissions made by the respondent contended that the parties had mutually abandoned the contract, a finding which was accepted by the Tribunal. Moreover, the amount claimed in respect of defective work was only $8,091.
4. Further, the quantum of the respondent's counterclaim was, by and large, taken into account in the offer made by the applicant, save for claim for delay damages accruing after the contract had come to an end. In my view, such a claim was doomed to fail, given that the contract was ended by mutual abandonment. In those circumstances, the offer of $50,000 was still less than the difference between the uncontested value of the works unpaid ($120,000) and the amount awarded in respect of the respondent's counterclaim ($63,773.62). Therefore, I am of the opinion that the respondent acted imprudently in failing to accept the offer when made. In my view, the rejection of the offer, in itself, constitutes conduct which justifies an enhanced order being made as from the date of the settlement offer.
5. In my view it is appropriate to order that the costs of the applicant after the date of the settlement offer be paid on a solicitor and client basis in accordance with the County Court Scale of Costs. I do not accept that it is appropriate to order those costs on an indemnity basis as I consider that such an order should be reserved for the most extreme cases. For example, where a party is shown to have acted vexatiously or there are other special or unusual features in the case to justify the Tribunal exercising its discretion in that way. I do not consider that the present case falls within that category of case as there were legal arguments raised by the respondent in answer to the applicant's claim which were arguable and required consideration of facts and law in order to determine the same.
6. As to the applicant's claim for its costs incurred prior to the making of the offer of settlement, Mr Livaditis was unable to point to any factor under s109(3) of the Act that would justify the making of such an order, despite being invited to do so. Accordingly, and in accordance with the evident purpose of the Act, no order for costs is to be made for the costs incurred prior to 10 February 2011.
7. Accordingly, I will order that the applicant's costs after 10 February 2011 be paid by the respondent on a solicitor and client basis, to be agreed between the parties, failing which to be assessed in accordance with the County Court Scale of Costs.