Bradley Scott Schembri Furniture Finishes Pty Ltd (ACN: 142 100 347)

Bradley Scott Schembri Furniture Finishes Pty Ltd v Owners Corporation No. PS334220X (Owners Corporations) (Costs) [2025] VCAT 898

1. Pursuant to section 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), the respondent must pay the applicant's costs of the proceeding on a standard basis up to 17 January 2025, and thereafter on an indemnity basis.
2. Pursuant to section 168(1)(c) of the Owners Corporations Act 2006 (Vic), the respondent is prohibiting from levying a contribution on the applicant in respect of any of the respondent's costs in the proceeding or in respect of the Judgement Amount, which include any amounts the applicant has already been levied and paid in respect of the in this proceeding.
3. The respondent must reimburse the applicant the sum of $4,733.29.

1 I heard the substantive claim in this proceeding on 26 and 27 February 2025. At the end of the hearing, due to insufficient time to hear closing submissions on the day, I set a timetable which allowed the parties to file and serve closing submissions by 14 March 2025.

1. On receiving the parties' closing submissions, I gave my decision in writing and made the following order on 4 April 2025:
   1. Pursuant to s 165(1) of the Owners Corporations Act 2006 and section 124 of the Victorian Civil and Administrative Tribunal Act 1998, the Tribunal orders and declares that the purported resolution made at the Second AGM is void and of no effect.
   2. The respondent must pay to the applicant the sum of $1669.09.
   3. The applicant has leave to make an application for a costs hearing no later than 23 May 2025.
   4. The principal registrar is directed to refer any application for a costs hearing to Senior Member Moraitis, to consider the further conduct of the application and the timetabling of procedural directions.
2. The applicant ('Mr Schembri') filed his application for costs on 15 May 2025.
3. By order dated 28 May 2025, the Tribunal ordered Mr Schembri to file and serve submissions in support of his application for costs by 25 June 2025 and ordered the respondent ('the OC') to file and serve submissions in reply by 23 July 2025.
4. I have read and considered the parties' submissions on costs, and I now provide my decision in writing.

MR SCHEMBRI'S APPLICATION AND SUBMISSIONS ON COSTS

1. Mr Schembri's application for costs dated 15 May 2025 is expressed as follows:

Seek an order that the Respondent pay the Applicants costs of and incidental to the proceedings in accordance with leave granted by an Order made on 4 April 2025 in the proceedings by Senior Member S. Moraitis including an order that the Applicant be reimbursed for the legal fees of the Respondent the Applicant has paid by way of Owners Corporation Fees relating to the proceeding.

1. In his submissions dated 27 June 2025[1] Mr Schembri sought the following orders:
   1. An order pursuant to section 109 of the Victorian Civil and Administrative Tribunal Act 1998 ("the VCAT Act") that the respondent pay the applicant's costs of the proceeding on a standard basis up to 17 January 2025, and thereafter on an indemnity basis;
   2. an order pursuant to s 168(1)(c) of the OC Act prohibiting the respondent from levying a contribution on the applicant in respect of any of the respondent's costs in the proceeding or in respect of the Judgement Amount, which include any amounts the applicant has already been levied and paid in respect of the in this proceeding; and
   3. consequently to order (2), an order that the respondent reimburse the applicant the amount of $4,733.29.
2. Mr Schembri relied on sections 109(3)(b), 109 (3)(c) and 109(3)(e) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (the 'VCAT Act'), which relevantly provide:

(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 -

(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.

(4) If the Tribunal considers that the representative of a party, rather than the party, is responsible for conduct described in subsection (3)(a) or (b), the Tribunal may order that the representative in his or her own capacity compensate another party for any costs incurred unnecessarily.

(5) Before making an order under subsection (4), the Tribunal must give the representative a reasonable opportunity to be heard.

(6) If the Tribunal makes an order for costs before the end of a proceeding, the Tribunal may require that the order be complied with before it continues with the proceeding.

(7) A power of the Tribunal under this section is exercisable by any member.

1. Mr Schembri further relied on section 168(1)(c) of the Owners Corporations Act 2006 (Vic), which provides:

(1) If VCAT makes an order under section 165 relating to the payment of money by the owners corporation, it may by order -

(a) direct that any money (including expenses and costs) payable must be paid from contributions levied in relation to the lots and in the proportions specified in the order; and

(b) direct the owners corporation to levy contributions in accordance with the order; and

(c) prohibit the owners corporation from levying a contribution from another party to the dispute.

(2) If VCAT makes an order under section 165 relating to the payment of money by a manager, it may by order prohibit the manager from seeking or enforcing an indemnity from the owners corporation or any other party.

1. Mr Schembri's submissions can be summarised as follows:
   1. Section 109(3)(b) - reliance on falsely recorded minutes.

Mr Schembri submitted that, in the OC's original defence, the OC alleged that it had 'unanimously passed a special resolution at the Second AGM'. This contention required Mr Schembri to make an application to amend his Points of Claim at the hearing on 15 July 2024. It was subsequently agreed by all parties that Mr Schembri did not vote for any special resolution and the OC's contention that a unanimous special resolution was passed was subsequently withdrawn in the OC's amended Points of Defence.

Mr Schembri submits that, had it not been for the OC's allegation that a unanimous resolution was passed at the Second AGM, the hearing on 15 July 2024 would have proceeded without any need to amend the pleadings and adjourn the original hearing.[2]

1. Section 109(3)(c) - an admitted breach of the benefit principle.

Given the admission that the benefit principle had not been applied at either the First AGM or the Second AGM, the OC was forced to rely on the argument that the works benefitted all lots equally.

Regarding most of the items of work (the exception being the line marking) the Tribunal found that one or more of the lot owners benefitted more than the applicant. Mr Schembri submitted that, in regard to the gates and the concreting, it was quite obvious that these works were of more benefit to other lot owners, not the applicant. While Mr Schembri did maintain that he obtained no benefit from the works, he was only required to prove that there was substantially more benefit to one or more units and that those units should pay more.[3]

1. Section 109(3)(e) - failure to accept the extremely generous Calderbank.

Mr Schembri submitted that, '[w]hile it is accepted that the rejection of a Calderbank offer does not automatically entitle a successful party at VCAT to an award of costs, such rejection is a matter that can enliven the right to costs under s 109(3)(e)'.[4]

It was submitted that the critical question that must be determined is whether the rejection of the offer was reasonable in the circumstances.[5] Mr Schembri maintained that the Tribunal should take into consideration:

(i) The stage of proceeding the offer was made.

(ii) The extent of the compromise offered.

(iii) The offeree's prospects of success, assessed as at the date of the offer.

(iv) The clarity with which the terms of the offer were expressed.

(v) Whether the offer foreshadowed an application for indemnity costs.[6]

1. Mr Schembri submitted that the OC's rejection of the Calderbank offer was unreasonable for the following reasons:
   1. The offer was made at an appropriate stage in the proceeding, after amended pleadings were made. The parties were well aware of each other's case and the majority of costs had not yet been incurred.[7]
   2. The compromise offered by Mr Schembri in the Calderbank was 'akin to a complete capitulation' of Mr Schembri's claim. While the monetary amount in this proceeding was small, Mr Schembri's offer allowed the OC to keep every cent that the OC had improperly levied against Mr Schembri, including levies for the OC's legal costs which had also been levied against Mr Schembri.[8]

1. The OC's submissions in reply dated 23 July 2025 were prepared by Dr Noel Hart, who is the chairman of the OC and was a witness for the OC at the hearing. Dr Hart is a retired scientist, not a lawyer, and, considering the submissions he filed on behalf of the OC, appears to misunderstand the Tribunal's order dated 4 April 2025, which gave Mr Schembri, not the OC, leave to make an application for costs.
2. In the submissions dated 23 July 2025, the OC maintained the following:

The Respondent seeks that the orders (a - c) sought by the Applicant, be rejected on the grounds that fraud has been committed based on the evidence provided herein, and that the Applicant reimburse the Respondent for the amount of $34,739.76, less any invoiced amount already paid by the Applicant, for unnecessarily taking the Respondent to VCAT.[9]

1. In their submissions, the OC relied on various sub-sections of 109 of the VCAT Act to claim their own costs on the basis that:
   1. the applicant failed to comply with the Tribunal order dated 16 July 2024 by failing to serve Amended Points of Claim on 15 August 2024, filing them instead on 26 September 2024, - section 109(3)(a)(i);[10]
   2. the applicant failed to follow the Complaints procedure for dispute resolution set out in section 152 of the OC Act - section 109(3)(a)(ii);[11]
   3. the applicant caused an adjournment on 16 July 2024, where the presiding member on that day identified fraud involved in the claim and that such an allegation cannot be raised casually but must be 'squarely particularised' - section 109(3)(a)(iv);[12]
   4. the applicant made many false claims and misleading statements in an attempt to deceive the Tribunal - section 109(3)(a)(v);[13]
   5. the applicant vexatiously conducted the proceeding- section 109(3)(a)(vi);[14]
   6. the applicant unreasonably prolonged the proceeding - section 109(3)(b);[15]
   7. the applicant made misleading and fraudulent claims, which formed the basis of his claim, and therefore any assessment of the relative strengths of the applicant's claim should be rejected on the grounds of such misleading claims - section 109(3)(c);[16] and
   8. the applicant's Calderbank offer 'failed to address the costs incurred by the owners' corporation as a whole', failed to address the applicant's responsibility 'to further contribute to any legal costs incurred by the OC' and was 'wholly inadequate and was therefore rejected' - section 109(3)(e).[17]
2. Based on the above submissions, the OC concluded that:

The Respondent hereby makes an application for costs, seeking reimbursement from the Applicant for $34,739.76, less any invoiced amount already paid by the Applicant, for legal fees that have been unnecessarily been brought against the Owners Corporation, by failing to follow the Complaints procedure for Dispute resolution set out in s152 of the Owners Corporation Act 2006, and in the grievance procedure set out in the s7 of Schedule 2 - Model rules for an owners corporation on the Owners Corporation Regulations 2018 S.R. No. 154/2018.[18]

1. On 17 July 2025, one week before the OC's costs submissions were due, the Tribunal received Notice of Solicitor Ceasing to Act from the solicitors who represented the OC at the hearing. This goes some way to explaining why Dr Hart and not the OC's solicitors filed the submissions on behalf of the OC and why the submissions were based on the misconception that the OC was given leave to make a costs application.
2. The Tribunal's order dated 4 April 2025 does not give the OC leave to make an application for costs. The OC's submissions dated 23 July 2025 are based on a misconception that they have an entitlement to apply for costs in this proceeding. I reject the OC's submissions insofar as they prosecute a claim for costs. However, I have taken them into consideration to the extent that they serve as the OC's reply to Mr Schembri's application for costs.
3. That said, there are many instances in the submissions where the OC seeks to reagitate matters that were canvassed at the hearing. The most obvious are the OC's statements regarding 'false claims and misleading statements' made by Mr Schembri in the hearing or in documents filed in the proceeding 'in an attempt to deceive the Tribunal'. At paragraph 2 of its submissions, the OC submits that the Tribunal reject the orders sought by Mr Schembri 'on the grounds that fraud has been committed based on the evidence provided herein'.[19]
4. I consider this to be an admission by the OC that many of the OC's 'submissions' on costs are in fact statements in the form of unsworn evidence seeking to establish that Mr Schembri mislead and deceived the Tribunal in the evidence he gave at the hearing or in documents he filed in the proceeding.
5. The OC cannot use Mr Schembri's application for costs to reagitate matters of evidence that have been heard and determined. The findings of the Tribunal and the orders made on 4 April 2025 stand, and any attempt to reopen matters of evidence are rejected. If the OC is not satisfied with the determination, they have the right to appeal the decision in the proper course, not to use Mr Schembri's costs application to reopen matters of evidence that have been determined.

Section 109(3)(b) - whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding.

1. In its original defence, the OC pleaded that a special resolution to strike the special one-off levy of $16,000.00 for the works had been unanimously passed at the Second AGM.
2. The statement was subsequently withdrawn by the OC when the amended Defence was filed, and it was subsequently agreed by all parties that a unanimous resolution was not passed and the minutes incorrectly recorded that it had.
3. The use of the word 'falsely' in Mr Schembri's statement 'falsely recorded minutes' connotes some deliberate act of falsification of the recorded minutes. Insufficient evidence was adduced regarding how the minutes recorded a unanimous resolution in circumstances where a unanimous resolution was not passed. I therefore could not comfortably conclude that the minutes were in any way deliberately falsified. Rather, it is more likely than not that human error paid some part in the recording of the minutes and that they were simply incorrectly recorded by the OC.
4. Nonetheless, the OC instructed their solicitors to prepare their defence on the basis of a resolution that was never passed unanimously. The OC relied on minutes that were not accurate, and the incorrectly recorded minutes did form the basis of the OC's original defence.
5. I accept Mr Schembri's submission that 'it was largely due to the allegation that the special resolution was unanimously passed at the Second AGM that the applicant conceded that it needed to amend its claim'[20] at the original hearing in July 2024. I am therefore satisfied that the OC's original defence required Mr Schembri to seek an amendment to his Points of Claim and the adjournment of the original hearing in July 2024.
6. For this reason, I find that the OC was responsible for causing the subsequent amendments to the pleadings and the adjournment of the original hearing, and, accordingly, I am satisfied that the OC did conduct the hearing in a manner that unnecessarily disadvantaged or unreasonably prolonged the proceeding.

Section 109(3)(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.

1. The OC admitted that the benefit principle had not been applied at either the First AGM or the Second AGM. This admission was sufficient for all parties to conclude that the OC fell into legal error.
2. Given this admission and given the inevitable conclusion, the OC had no choice but to rely on the argument that the works benefitted all lots equally.
3. I am satisfied that the OC's admission did in fact dictate the nature of the proceeding, which essentially became an assessment of the relative benefit of the works to each lot.
4. However, both parties took absolute positions regarding how each lot benefitted from the works. Mr Schembri relied on the argument that his lot received no benefit whatsoever from the works and he should receive a refund of the $4,000.00 levy paid. The OC argued that each lot benefitted equally and should therefore pay equally.
5. The reality was somewhere in between, and the Tribunal ordered the OC to refund Mr Schembri $1,669.09 of the $4,000.00 sought.
6. In the circumstances, I find that both parties' claims had a tenable basis in fact and law, and that the parties were entitled to test the evidence and have the relative benefit of the works to each lot assessed.
7. I do not accept Mr Schembri's submission that, in regard to the gates and the concreting, it was 'quite obvious'[21] that these works were of more benefit to other lot owners, not the applicant. I am not persuaded by this submission and find that the benefit of the works to each lot only became obvious after hearing two days of detailed evidence.
8. Accordingly, I am not satisfied that section 109(3)(c) has been made out in this proceeding.

Section 109(3)(e) -any other matter the Tribunal considers relevant.

1. I find that the OC's rejection of the offer contained in Mr Schembri's Calderbank letter dated 15 January 2025 (the 'Calderbank offer') to be highly persuasive in determining Mr Schembri's application for costs.
2. Mr Schembri's Calderbank offer can be summarised as follows:
   1. That the OC undertakes not to recover any fees, charges and other amounts relating to the works (including any future electrification of the gates), save that the OC retains the $4,000.00 already paid by Mr Schembri for the works.
   2. That the OC undertakes not to recover any legal and other fees incurred by the OC in this proceeding, save that the OC may retain the $4,733.20 already paid by Mr Schembri in respect of these costs.
   3. The proceeding be dismissed with no order as to costs.
3. The Calderbank offer then proceeded to elucidate in very clear terms why the OC would be unreasonable to reject the offer, including, but not limited to:
   1. The OC's concession that it failed to turn its collective mind to the benefit principle and therefore fell into legal error.
   2. The OC's admission in its Amended Points of Defence that the Minutes relied upon by the OC regarding the alleged unanimous resolution at the AGM were incorrect and known to the OC to be incorrect.
   3. That the proceedings were necessitated by the OC's legal error and its misplaced reliance on Minutes that were incorrect and known the OC to be incorrect.
4. The Calderbank offer concluded that:

In summary, rejection of the Offer would be unreasonable because:

• 14.1 Our client ought not be required to pay for any works, but is, in the Offer, offering to pay an equal share of those costs already incurred;
• 14.2 Our client ought not be required to pay for the legal costs of your client, but is, in the Offer, offering to contribute substantially to them; and
• 14.3 The undertaking required of your client in the Offer seeks in effect an undertaking to do that which your client has said it will do in any event.[22]

1. Mr Schembri offered that the OC retain the $4,000.00 raised by the works levy. The Calderbank offer assessed that this levy was raised in circumstances where the OC did not turn its collective mind to the benefit principle and therefore fell into legal error, and it appropriately assessed that the OC's admission that it failed to apply the benefit principle would give the Tribunal no choice but to conclude that the OC fell into legal error and declare the purported resolution void and of no effect.
2. Similarly, Mr Schembri offered that the OC retain the levy of $4,733.20 raised for the OC's legal fees incurred in this proceeding. In the Calderbank letter, Mr Schembri's legal representatives considered in some detail a wide range of issues relevant to the levying of the OC's costs in defending this proceeding and concluded that:

In the above said circumstances, it is appropriate that your client be prohibited from recovering any legal costs from our client that the Tribunal may order your client to pay if this offer is not accepted, in accordance with s168(1)(c) of the Owners Corporations Act 2006.[23]

1. Overall, I find that the Calderbank offer was based on a balanced and reasonable assessment of the totality of factors which were relevant in this proceeding, and I find that the OC did not act reasonably in rejecting the offer.
2. I am satisfied that, in rejecting the offer, the OC did not properly assess the consequences of:
   1. its failure to turn its mind to the benefit principle at the First and Second AGMs,
   2. its reliance on the incorrectly recorded minutes of the Second AGM; and
   3. the inevitability of the Tribunal declaring that the purported resolution made at the Second AGM to be void and of no effect.
3. Any honest and reasonable assessment of the undisputed facts would have concluded that these failures of the OC would have made the findings that the OC fell into legal error inevitable. I consider that this highlights the reasonableness of Mr Schembri's offer and the unreasonableness of the OC's rejection.
4. Furthermore, I find that the extent of the offer was significant. I accept Mr Schembri's submission that the offer made in the Calderbank letter was 'akin to a complete capitulation' of his claim. I agree with the assessment of the offer made by Mr Schembri's legal representatives as 'extremely generous'[24] and I accept Mr Schembri's submission that the Calderbank offer did allow the OC 'to keep every cent that the OC had improperly levied' against Mr Schembri, 'including levies for the OC's legal costs which had also been levied against [him]'.[25]
5. Overall, I find that extent of Mr Schembri's Calderbank offer to be highly persuasive in determining Mr Schembri's entitlement to the costs sought.

1. Having considered the manner in which the parties conducted the proceeding and the OC's rejection of Mr Schembri's very generous settlement offer, I find on balance that it is fair in the circumstances to make a costs order against the OC in the terms sought by Mr Schembri.
2. In considering why is it is appropriate to make the orders sought under section 168(1)(c) of the OC Act, including the order seeking reimbursement of the sum of $4,733.29 already paid by Mr Schembri, I take into account that the legal costs incurred by the OC to defend this proceeding were essentially incurred for the benefit of the three Hart lots, which comprise every other lot in this OC. Mr Schembri should not be required to pay any part of the OC's legal costs when the Hart lots were the ultimate beneficiaries of the costs incurred to run the OC's defence.
3. Accordingly, I make the following orders:
   1. Pursuant to section 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), the respondent must pay the applicant's costs of the proceeding on a standard basis up to 17 January 2025, and thereafter on an indemnity basis.
   2. Pursuant to section 168(1)(c) of the Owners Corporations Act 2006 (Vic), the respondent is prohibiting from levying a contribution on the applicant in respect of any of the respondent's costs in the proceeding or in respect of the Judgement Amount, which include any amounts the applicant has already been levied and paid in respect of the in this proceeding.
   3. The respondent must reimburse the applicant the sum of $4,733.29.

[1] Applicant's submissions dated 27 June 2025 at para [2].

[9] Respondent's submissions dated 23 July 2025 at para [2].

[20] Applicant's submissions dated 27 June 225 at para [11].

[22] Applicant's Letter of Compromise dated 15 January 2025 at para [14].

[25] Applicant's submissions dated 27 June 2025 at para [31].