1. Under s53 of the Domestic Building Contracts Act 1995 ("DBC Act") the Tribunal may make any orders it considers fair to resolve a domestic building dispute including an order for damages in the nature of interest. Section 53(3) of the DBC Act provides:

In awarding damages in the nature of interest, the Tribunal may base the amount awarded on the interest rate fixed from time to time under section 2 of the Penalty Interest Rates Act 1983 or on any lesser rate it thinks appropriate.

1. The builder seeks interest on the sum ordered from the date of commencement of the proceeding, 17 February 2011, to the date of judgement, 17 October 2012. The sum sought is $6,609.66 , calculated by applying an interest rate of 10.5% being the rate fixed under s2 of the Penalty Interest Rates Act 1983 for the claimed period.
2. The owners submit that interest should not be awarded in circumstances where, because of the unusual factual nature of the dealings between them and the builder, and because of the builder's very poor record keeping, it was not unreasonable on their part to refuse the builder's claim for payment. They say that that it was only upon the tribunal's determination in the proceeding that the builder's entitlement to payment and the quantum of such payment, which was found to be considerably less than the sum claimed, was established. They say that it would be unfair, in such circumstance, to award interest. The submission has merit.
3. The proceeding involved disputes between the owners and the builder about the nature of agreements for the carrying out of building works, the agreed price for such works and the sum of payments made by the owners. The owners claimed that the builder agreed to carry out works to "lockup stage" for a fixed price of $300,000 and that the builder subsequently further agreed to complete the post lock up stage works for an additional sum of $75,000. The builder agreed that there was an initial agreement for the lock up stage works and a subsequent agreement for the post lock up stage works, but claimed that the agreed price for the lockup stage works was $327,964 and the agreed price for the post lockup stage works was cost plus 10% builder's margin. Documentation evidencing the agreements was scant. As set out in my substantive decision, although I accepted the builder's version of the agreements reached, I also found that, because there was no signed building contract, the builder was unable to enforce a contract but could maintain a "quantum meruit" claim.
4. Assessing the builder's quantum meruit claim was not a straightforward task. The builder's record keeping was very poor. Mr Bellio, director of the builder, admitted as much when giving evidence. The task of locating documents to verify the builder's claims fell largely on the liquidator of the builder who brought the proceeding in the name of the builder. The difficulty of the task, and the liquidator's limited success in carrying it out, is demonstrated by my finding that a significant proportion of the builder's payment claims, approximately $77,000 worth, was either not justified or not satisfactorily verified.
5. As noted by Senior Member Lothian in Ashjam v Carroll[1], the fact that a party has been awarded a sum of money does not mean that that party has an automatic entitlement to damages in the nature of interest. The Tribunal must be satisfied that it is fair to award interest.
6. Although, as discussed below, I had reservations as to the reliability of the owners' evidence on some important issues, I am satisfied that because of the builder's very poor paperwork the owners had fair reason to challenge the builder's claim. The challenge was at least partly successful in that, although I found that the builder was entitled to payment, the sum of the payment was significantly less than the sum claimed. In these circumstances, I do not consider it fair to award interest.
7. Accordingly, the builder's application for interest is dismissed.

1. Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 ("the Act") provides that each party is to bear its own costs in the proceeding, however the Tribunal may, if it is satisfied that it is fair to do so, order that a party pay all or a specified part of the costs of another party. The relevant provisions of s109 are:

(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 subsection (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 conduct such as -

(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.

1. In Vero Insurance Ltd v The Gombac Group Pty Ltd[2] Gillard J sets out the step by step approach to be taken by this Tribunal when considering an application for costs pursuant to s109 of the Act:
   1. The prima facie rule is that each party should bear their own costs of the proceeding;
   2. The Tribunal should make an order awarding costs, being all or a specified part of costs, only if it is satisfied that it is fair to do so. That is a finding essential to making an order;
   3. In determining whether it is fair to do so, that is, to award costs, the Tribunal must have regard to the matters stated in s109(3).

1. The builder submits that it is relevant to consider that a successful party's costs may outweigh the sum awarded. I do not accept the submission. A litigant in this tribunal, represented by lawyers, should know from the outset that there is no guarantee of any cost order, regardless of the outcome of the litigation. To award costs simply because a "victory" becomes pyrrhic if not accompanied by a favourable costs order would, in my view, be to ignore the clear intention of s109(1) of the Act.
2. The builder submits that the nature and complexity of the proceeding is relevant. I accept that the proceeding involved factual and legal complexity, however I am not satisfied that it would be fair to depart from the prima facie rule as to costs for this reason alone, particularly in circumstances where, as noted above, the owners were partially successful in defending the claim brought against them.
3. I am satisfied that the conduct of parties prior to the commencement of a proceeding is, under s109(3)(e) of the Act, a matter I may consider in determining whether it is fair to depart from the prima facie rule that each party bear its own costs. Under s109(3)(a), the conduct of a party during the course of the proceeding is also a matter I may consider.
4. The builder says that the conduct of the owners warrants a costs order being made in the builder's favour. It says that the findings in my substantive decision, particularly my rejection of the owners' evidence as to the alleged agreements reached with the builder, necessarily leads to a conclusion that the owners fabricated evidence and sought to deceive the Tribunal.
5. The owners submit that their evidence ought be viewed in the context of the builder's failure to prepare a written building contract and the builder's failure to keep and provide to the owners adequate and organised paperwork to verify its claim. In such circumstances, submit the owners, there was little option but for the parties' recollections to be played out in the proceeding and determined by the Tribunal.
6. I do not accept that the owners' evidence as to the agreement reached with the builder on the price for the building works can be explained simply as a difference in recollections. There were contradictions in the evidence of Mr Dardha and Mrs Dardha on matters of importance, including the important evidence as to whether handwritten amendments to the builder's quotation, made by Mrs Dardha, were made by her in the presence of the builder's representative, Mr Bellio. Mr Dardha's evidence was that the amendments were made by Mrs Dardha in the presence of Mr Bellio in order to confirm the agreed works and price. Mrs Dardha was clear in her evidence that Mr Bellio was not present when she made the amendments. She says that she made the handwritten amendments to the quotation at the direction of her husband sometime after her husband had informed her that he had reached agreement with Mr Bellio. The contradictions in the evidence revealed, in my view, not a case of differing "recollections" but rather the unreliability of Mr Dardha's evidence.
7. A key issue in the hearing was whether, as claimed by the owners, the owners made a $50,000 cash payment to the builder. In finding that no such payment was made I rejected the owners' evidence as contradictory and unreliable.
8. I do not accept, and I cannot see how it might be put, that the conflicting evidence as to whether the owners made the alleged $50,000 cash payment to the builder can be explained as differing recollections. As set out in my substantive decision, the inconsistencies in the evidence of Mr Dardha, Mrs Dardha, their son Daniel and Mr Dardha's brother, Jim, as to the circumstances surrounding the alleged collection of cash by the owners (to make up the alleged $50,000 cash payment to the builder) cast a shadow over the evidence of each of them.
9. My finding that no $50,000 cash payment was made to the builder does necessarily lead me to conclude that the owners fabricated the story and attempted to deceive the tribunal. As noted by SM Walker in Avonwood Homes v Milodanovich[3]: "Parties should not be put to the expense of coming to the Tribunal to meet applications founded on false evidence that is known to be false by the persons giving it."
10. As noted above, I am satisfied that the owners had fair reason to challenge the builder's claim. However, I am also satisfied that in challenging the claim the owners made unjustified allegations and fabricated evidence ("the owners' unjustified allegations") which had the effect of making the proceeding more complex, longer and more expensive for the builder than it otherwise would have been. For this reason, I am satisfied that it is fair to depart from the prima facie costs rule and award costs to the builder in a sum representing the reasonable "extra" costs incurred by the builder because of the owners' unjustified allegations.
11. The builder submits that a significant proportion of work in preparation for the hearing and approximately 3 days (50%) of the hearing itself could be said to have been taken up in dealing with the owners' unjustified allegations. The hearing ran for 6 days. A significant portion of the hearing was spent on the owners' evidence as to the alleged $50,000 cash payment. In my view, the hearing would likely have run for only 4 days without the owners' unjustified allegations. It is difficult to determine with accuracy the portion of the builder's preparatory costs that would have been avoided without the owners' unjustified allegations. Having regard to the nature of the proceeding, the pleadings and the evidence at the hearing, and doing the best I can, I consider it fair that the owners bear 30% of the builder's reasonable costs of the proceeding.

1. Where costs are awarded, it is usual for a court or tribunal to identify one of three alternate bases of assessment of the sum of costs:
   1. Party and party basis. The ordinary level which generally includes all costs necessarily and properly incurred;
   2. Solicitor and client basis. A higher level which generally includes all costs reasonably incurred and of reasonable amount;
   3. Indemnity basis. The highest level which generally includes all costs incurred save insofar they are of an unreasonable amount or have been unreasonably incurred.
2. The builder submits that costs should be awarded on an indemnity basis.
3. In Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd and Anor[4] Nettle J said that where an order for costs is made in a proceeding in the Domestic Building List they will ordinarily be assessed on a party-party basis. He added that there may be occasions when it is appropriate to award costs on an indemnity basis, but those occasions will be exceptional.
4. In Taylor v Trentwood Homes Pty Ltd[5], I stated:

"In my view an order for indemnity costs should only be made in exceptional or extreme cases such as where the conduct of a party is vexatious or particularly obstructive or a party's case is hopeless or fanciful and with no real prospect of success or where a claim is brought for an ulterior purpose".

1. As noted above, I consider the owners had fair reason to challenge the builder's claim and, for this reason, I do not think an order for costs on an indemnity basis is warranted. However, because the builder's "extra" costs include costs incurred in dealing with the owners fabricated allegation as to the $50,000 cash payment, I think the costs should be assessed on a level higher than a party-party basis. I think it fair that the costs be assessed as those reasonably incurred, that is, on a solicitor and client basis.
2. Having regard to the nature of the proceeding and the sum awarded to the builder, I think it also fair that the costs to be assessed on County Court Scale.
3. Accordingly, I will order the owners to pay 30% of the builder's costs of the proceeding, including any reserved costs, such costs if not agreed to be assessed on County Court Scale on a solicitor-client basis.

1. As it was required to do, the builder obtained a policy of warranty insurance which, subject to certain conditions and exclusions, provides indemnity to the owners for, amongst other things, loss or damage resulting from defective building work performed by the builder and/or non completion of the building work.
2. On 8 July 2011 the owners lodged an insurance claim with the insurer seeking indemnity in respect of various alleged defective and/or incomplete building works. After inspecting the works, the insurer provided to the owners its decision on the insurance claim whereby it "accepted" four items of defective work and "denied" forty four items of alleged defective and/or incomplete work. The owners sought a review of that decision in the related proceeding.
3. Having determined that, after making allowance for incomplete and/or defective building works, the owners owed the builder $37,777.44, I found that the insurer had no obligation to indemnify the owners because the owners had suffered no loss or damage attracting indemnity under the insurance policy.
4. The insurer submits that "the insurer defended the appeal on the basis that the insuring clause did not respond to the claim as the reasonable cost of rectifying the defects and completing the works did not exceed the monies owed by the owners to the builder and, as such, the owners had not suffered an indemnifiable loss under the policy".
5. If that was the basis of the insurer's defence, it was not made clear in its Points of Defence dated 25 November 2011. In its Points of Defence, the insurer refers to its claim decision wherein the four items were "accepted" and says that "any loss suffered by the applicants in relation to the admitted defects is limited to the reasonable cost to rectify those defects". It otherwise generally denies an obligation to indemnify the owners.
6. There is nothing in the insurer's decision on the insurance claim or in its Points of Defence to suggest that the insurer made any assessment of the owners' liability to the builder that might limit or affect the owners' indemnity entitlement. The insurer simply assessed the various items of alleged defective and incomplete works as claimed by the owners and "accepted" four of those items and "denied" the rest.
7. Although the insurer had legal representation throughout the 6 days of the hearing, its participation was limited. It called evidence from Mr Simpson who provided expert opinion evidence as to the various alleged items of defective and/or incomplete works. Otherwise, the insurer was little more than an interested observer during the course of the hearing. This is not a criticism of the insurer. It is a reflection of the fact that the extent of the insurer's liability to the owners, if any, was dependent on the outcome of the claims as between the builder and the owners.
8. The fact that I found that the insurer had no obligation to indemnify the owners does not, of itself, entitle the insurer to a cost order in its favour. I must be satisfied, having regard to the matters in s109(3) of the Act, that it is fair to depart from the prima facie rule that the parties bear their own costs.
9. The insurer submits that the relative strengths of the claims, or the weakness of the claim advanced by the owners, was borne out by the result. The owners claimed an entitlement to substantial indemnity from the insurer and the claim wholly failed.
10. I think it relevant, however, to also consider the allowance I made, when determining the sum payable by the owners to the builder, for the cost to rectify defects in the builder's work. I allowed a sum of $42,600 for rectification of defects, a significant proportion of which were "denied" by the insurer in its decision on the insurance claim. Viewed in this context, the owners' claim in the proceeding as against the insurer does not appear particularly weak. The relative "strength" of the insurer's claim emerged only upon my finding as to the claim between the builder and the owners, a matter which the insurer had not addressed in its decision on the insurance claim. For this reason, I am not satisfied that the relative "strengths" of the claims is sufficient reason to depart from the prima facie costs rule.
11. The insurer submits that I should consider awarding costs to it because of the nature and complexity of the proceeding. I do not accept the submission. As noted above, and as confirmed in the insurer's submissions, the outcome of the proceeding as between the insurer and the owners was dependent upon the outcome of the proceeding as between the owners and the builder. Viewed in isolation, the proceeding as between the insurer and the owners was not complex and I am not satisfied that it would be fair in this case to depart from the prima facie rule on costs by reason of the complexity of the related proceeding.
12. The insurer says that to not award costs would be tantamount to denying the insurer the benefits of a favourable decision. As noted above, I do not accept that costs should be awarded simply because a "victory" becomes pyrrhic if it not accompanied by a favourable cost order. To do so would be to ignore the clear intention of s109(1) of the Act.
13. The insurer says that the owners must have known, as at 9 March 2012, that they owed money to the builder and that, armed with such knowledge, they ought to have known that their claim against the insurer would fail. The relevance of 9 March 2012 is that it is the date of a letter from the builder's (liquidator's) lawyers to the owners' lawyers wherein the builder's lawyers provide a brief reconciliation of the builder's payment claims and the payments received from the owners and reach the conclusion that the owners are indebted to the builder in the sum of $161,698.58. The insurer submits that the conduct of the owners in persisting with its proceeding against the insurer after 9 March 2012 is conduct that warrants a departure from the prima facie costs rule. I do not accept the submission.
14. It is apparent from my substantive decision that the reconciliation presented in the 9 March 2012 letter did not stand up at the hearing. I ordered the owners to pay the builder a sum significantly less than the sum identified in the letter and, as noted above, I consider the owners had fair reason to challenge the builder's claim. In my view, the 9 March 2012 letter simply states the builder's claim at that time and did not arm the owners with knowledge that their claim against the insurer must fail.
15. Finally, the insurer submits that I should consider a costs order in its favour because of the owners' conduct - the owners' unjustified allegations. I am satisfied that it is fair that the insurer also be compensated for the reasonable "extra" costs it incurred because of the owners' unjustified allegations, however I consider such extra costs are limited to the reasonable cost of legal representation at 2 days of the hearing.
16. There is nothing in the insurer's decision on the insurance claim, its Points of Defence and the evidence it lead at the hearing to suggest that a significant amount of preparatory work, if any at all, was devoted to dealing with the owners' unjustified allegations. As noted above, its participation in the hearing was limited and for much of the time it was an interested observer. For these reasons, I consider it fair that the owners pay only the reasonable "extra" cost of the hearing incurred by the insurer by reason of the owners' unjustified allegations. As noted above, I consider the hearing would have run for 2 days less without the owners' unjustified allegations and, accordingly, I will allow a sum for the reasonable cost of 2 days legal representation at the hearing. The insurer was represented at the hearing by its solicitor, Mr Jayatilake. Having regard to the County Court Scale of Costs, I am satisfied that it is fair to allow a sum of $3,200.
17. Accordingly, I will order the owners to pay insurer costs fixed at $3,200.

1. For the reasons above, I will order that:
   1. The builder's application for interest is dismissed.
   2. The owners must pay 30% of the builder's costs of the proceeding, including reserved costs, the sum of such costs if not agreed to be assessed by the Victorian Costs Court on a solicitor/client basis pursuant to the County Court Scale.
   3. The owners must pay the insurer costs fixed at $3,200.

[1] [2007] VCAT 661

[2] [2007] VSC 117 at [20]

[3] [2005] VCAT 2205

[4] [2005] VSCA 165

[5] [2012] VCAT 1125 at [9]