What happened

Bruce Phoenix City Pty Ltd brought proceedings in the Owners Corporations List at VCAT against Owners Corporation No.1 SP025904L, alleging loss arising from failures to maintain a shared heating and cooling system and some statutory complaints under the Owners Corporation Act 2006. The substantive application by Bruce Phoenix was dismissed on 19 January 2017 (Background, para 1). After that decision the owners corporation applied, on 16 February 2017, for an order that Bruce Phoenix pay its costs of the proceeding (Background, para 2). The costs application was heard 'in chambers' on submissions delivered on 16 February and 14 March 2017, and on 1 May 2017 Member J. Grainger dismissed the owners corporation's costs application, leaving the usual position that each party bears their own costs (Order; Conclusion).

Procedurally this is a post-judgment costs application under s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (VCAT Act). The Tribunal was required to determine whether it was fair to depart from the statutory starting point that each party bears their own costs, by reference to the considerations in s 109(3) (the conduct of the parties, unreasonable prolongation, relative strengths of the claims, complexity and any other relevant matter) (THE LAW ABOUT COSTS, paras 1-3).

Why the court decided this way

The Tribunal began with the statutory presumption: VCAT proceedings are ordinarily each-for-their-own on costs (THE LAW ABOUT COSTS, para 1). That presumption exists to preserve access to the Tribunal and to ensure parties are not deterred from bringing meritorious complaints by the spectre of adverse costs.

The owners corporation sought costs primarily on the basis that Bruce Phoenix's substantive claim lacked a tenable basis and was therefore an obvious candidate for a costs order under s 109(3)(c) (relative strengths of the claims). The owners corporation pointed to five specific deficiencies in Bruce Phoenix's case: (1) parts of the claim sought damages for a period before Bruce Phoenix was a lot occupier; (2) absence of evidence identifying the components and service relationship of the shared heating and cooling system; (3) limited evidentiary complaints (only two complaints relied upon); (4) alleged lack of factual support for a breach of s 5 OC Act; and (5) attempts to characterise criticisms as claims (Owners Corporation's Contentions). On the basis of those criticisms, the owners corporation argued the claim had no tenable basis in fact and law and that costs should follow (Owners Corporation's Contentions, s 109(3)(c) and (d)).

Member Grainger accepted that Bruce Phoenix's claim was weak and that the owners corporation had a strong defence. However the Tribunal emphasised several countervailing factors when assessing fairness:

key documents that supported the owners corporation's defence were only provided to Bruce Phoenix shortly before the hearing or, in some instances, by the interested party during the hearing; accordingly the Tribunal said it must consider the strength of the claim prospectively rather than simply retrospectively after the judgment (Is it fair..., para 2);
the Tribunal did not regard the factual and legal issues as particularly complex; the principal claims (failure to maintain the shared system and the statutory complaints) were straightforward to decide once the documents were before the Tribunal (Is it fair..., paras 3-5);
the Tribunal was not persuaded that Bruce Phoenix had pursued a hopeless or manifestly untenable claim 'to the bitter end' in the sense contemplated by authorities such as McCarthy; each case must be assessed on its own merits and the McCarthy dicta could not be mechanically applied to justify a costs order here (Is it fair..., para 1; concluding paragraph).

Taken together the Tribunal concluded it was not fair to depart from the usual practice and award costs to the owners corporation. The owners corporation's application was dismissed and each party was left to bear their own costs (Conclusion).

Before and after state of the law

Before this decision: the governing law was and remains s 109 of the VCAT Act. That statutory framework establishes a clear policy in favour of accessibility of VCAT and therefore a default rule that parties bear their own costs. Authorities from within the owners corporation list, most notably McCarthy (Senior Member Vassie), had emphasised that while the usual rule should be adhered to particularly in self-represented applicant cases, departures were justified where applicants pursued hopeless or manifestly weak claims.

After this decision: Member Grainger applied the same framework but stressed that departures should be fact-sensitive. The decision confirms these key doctrinal points:

s 109(1) is the default; s 109(2) and (3) permit judicial discretion to award costs where fairness justifies it;
a weak unsuccessful claim is not automatically a 'hopeless' claim attracting costs; the timing of documentary disclosure and whether the case was complex enough to require legal representation matter in the fairness assessment;
granting leave for representation does not itself create a presumption that costs should follow the successful party.

This decision therefore reinforces a cautious approach to awarding costs in the owners corporations jurisdiction and underscores that McCarthy's warning against frivolous claims is not a blanket sword to be deployed wherever a claimant ultimately loses.

Key passages with plain-English translation

"In a proceeding at VCAT, the starting point is that each party bears their own costs. Section 109(1) ... sets this out." (THE LAW ABOUT COSTS, para 1)

Plain English: VCAT generally expects everyone to pay their own legal expenses so that people are not scared to use the Tribunal.

"VCAT may order a party to pay ... having regard to the following considerations set out in s 109(3) ..." (THE LAW ABOUT COSTS, para 3 and list)

Plain English: The law gives VCAT a list of factors to think about before making someone pay another party's costs, such as whether someone behaved badly, delayed the case, or brought an obviously weak claim.

"Whilst the owners corporation seeks to rely on the decision in McCarthy, each case is different and each case must be considered on its own merits." (Is it fair..., para 1)

Plain English: You cannot automatically apply an earlier case to every situation; the Tribunal must look at the facts here.

"I am not satisfied that the claim had no tenable basis in fact and law ... Nor am I satisfied that it is fair to order Bruce Phoenix to pay the owners corporation's costs based on the strength of its claim." (Is it fair..., para 2)

Plain English: Even though the applicant lost and had a weak case, the Tribunal did not find the claim completely hopeless and therefore it would be unfair to penalise them with costs.

"Taking all these matters into account, I am not persuaded it would be fair to depart from the usual practice ... and make an order for costs in this proceeding." (Conclusion)

Plain English: Balancing all considerations, the Tribunal decided to stick with the usual rule that each side pays their own way.

What fact patterns trigger this precedent

This decision is most directly relevant where:

an owners corporation defends a claim at VCAT successfully and then seeks costs on the basis the claim lacked merit; and
the applicant was self-represented and there is an argument that the claim was weak or should never have been pursued; and
there was late disclosure of key defence documents provided very near to, or during, the hearing; and
the legal and factual issues are not unusually complex.

Under these circumstances the Tribunal will carefully weigh s 109(3) factors and will not treat a weak unsuccessful claim as automatically 'hopeless' in the sense that must attract a costs order. The decision is most helpful to practitioners assessing whether to press for costs after a win in the Owners Corporations List: where the winner's case was not hampered by opponent misconduct, and where the opponent's case had some arguable basis or was prejudiced by late disclosure, costs orders are less likely.

How later courts have treated it

This decision is a VCAT Member decision in the Owners Corporations List and thus is persuasive within VCAT practice, particularly the Owners Corporations List. The reasoning follows established VCAT authorities (notably McCarthy) but emphasises fact sensitivity and prospective assessment of a claim's tenability where disclosure timings affected perceptions of merit. Subsequent VCAT members and practitioners citing this decision would likely treat it as an example of a careful, conservative exercise of the s 109 discretion, confirming that costs remain exceptional in this jurisdiction.

(As this deep dive is confined to the single judgment provided, do not rely on or assert how superior courts have ruled post-2017 in relation to this particular decision; practitioners should check later VCAT and court authorities for developments.)

Still-open questions

The effect of very late disclosure: Member Grainger noted the late provision of documents to the applicant was significant in the fairness assessment (Is it fair..., para 2). What precise threshold of lateness or prejudice will compel a costs order in favour of a respondent remains fact dependent and uncertain: future cases will need to articulate how materially late disclosure must be, and what remediation (short adjournment, re-opening evidence) will avert a costs order.
Quantifying 'hopeless' claims: McCarthy's language about 'hopeless, manifestly weak, irrational or quixotic' claims is influential but inherently qualitative. How tribunals will distinguish between an arguable weak case and a truly 'hopeless' case that justifies costs remains an area requiring calibration by future decisions.
Role of self-representation: This decision reiterates the policy bias towards accessibility and against punitive costs orders for self-represented litigants. However, where a self-represented litigant pursues repeated or strategically weak claims, the line at which costs may be awarded is not exhaustively delineated.
Interaction with Part 10 OC Act and statutory complaints: The owners corporation contended that statutory complaints lacked tenable basis (Owners Corporation's Contentions). The Tribunal found these claims received little hearing time and were not complex. The boundary between regulatory/statutory criticisms and actionable claims in the owners corporation context will continue to require careful attention in costs assessments.

Practical takeaways: litigants in the Owners Corporations List should expect costs orders only in clear cases of misconduct, unreasonable prolongation or truly untenable claims pursued unreasonably. Respondents should document prejudice from late disclosure and quantify reasons why a claimant's position was hopeless. Applicants should aim to secure and disclose core documents early to avoid the Tribunal assessing the claim harshly based on retrospective clarity.

Judgment (43 paragraphs)

[1]

Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L (Costs) (Owners Corporations) [2017] VCAT 592 (1 May 2017)

[2]

Application for an order that the applicant pay the respondent's costs - s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic)

[3]

Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L (Costs) (Owners Corporations) [2017] VCAT 592

[4]

On 19 January 2017, I dismissed the application made by Bruce Phoenix City Pty Ltd (Bruce Phoenix) against the respondent, Owners Corporation No.1 SP025904L (the owners corporation). I also ordered that any application for an order that Bruce Phoenix pay the costs incurred by the owners corporation or Andy Choi (Mr Choi), one of the owners of the retail premises lease by Bruce Phoenix who was joined as an interested party, was to be filed with the Tribunal and served on the applicant by 16 February 2017.
The owners corporation made an application for such an order on 16 February 2017.

[5]

In a proceeding at VCAT, the starting point is that each party bears their own costs. Section 109(1) of the Victorian Civil and Administrative Act 1998 (VCAT Act) sets this out. The reason for this is to ensure that VCAT is as accessible as possible, costs to parties are minimised and parties are not dissuaded from bringing claims or protecting their rights by a risk that costs will be awarded against them if they lose.
There are, however, exceptions to this rule, which are also set out in s 109 of the VCAT Act.
Specifically, s 109(2) provides that VCAT may order a party to pay all or part of the costs of another party if it is satisfied that it is fair to do so having regard to the following considerations set out in s 109(3):

[6]

(a) whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as -

[7]

(i) failing to comply with an order or direction of the Tribunal without reasonable excuse;

[8]

(ii) failing to comply with this Act, the regulations, the rules or an enabling enactment;

[9]

(iii) asking for an adjournment as a result of (i) or (ii);

[10]

(v) attempting to deceive another party or the Tribunal;

[11]

(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;

[12]

(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;

[13]

(e) any other matter the Tribunal considers relevant.

[14]

In McCarthy v Dandenong Region Body Corporate Services (Aust) Pty Ltd (McCarthy) Senior Member Vassie said this in the context of an owners corporation dispute[1]:

[15]

The general rule [that each party should bear their own costs] should be adhered to in most cases, particularly when ... self-represented applicants have lost an owners corporation dispute. Parliament has decided to confer upon VCAT the jurisdiction to hear and determine owners corporation disputes. The provisions of the VCAT Act encourage self-representation. Most individual lot owners who want to ventilate a grievance at VCAT will be self-represented. It is important that would-be applicants in the jurisdiction are not deterred from airing genuine grievances, and making genuine claims, by the fear that VCAT will award costs against them if they lose.

[16]

On the other hand, the right to air a grievance and make a claim needs to be exercised responsibly. It would be unfair to respondents for the Tribunal to permit applicants to think that they can, with impunity, make and pursue to the bitter end any claim that they have a mind to make, no matter how hopeless, manifestly weak, irrational or quixotic such a claim might be. I am not suggesting that any of those adjectives applies to Mr and Mrs McCarthy's claims in this case. I have said, however, that in my opinion their making and pursuit of a claim for damages of a magnitude of $103,000.00, on such a flimsy basis as became evident, was irresponsible.

[17]

The owners corporation contended that following the decision in this proceeding and having regards to the considerations set out in s 109(3) of the VCAT Act and the commentary from Senior Member Vassie in McCarthy, it is fair for VCAT to award costs in favour of the owners corporation. The owners corporation specifically contended that it is fair to order Bruce Phoenix to pay its costs taking into account the strength of its claim and the nature and complexity of the proceeding for the reasons set out below.

[18]

Section 109(3)(c) - the strength of the claim

[19]

The owners corporation contended that Bruce Phoenix's claim had no tenable basis in fact and law for five reasons. Firstly, Bruce Phoenix claimed damages for a time before it was the lot occupier under a lease with the landlords.[2] On the first morning of the hearing, Juliana Vo, a director of Bruce Phoenix who represented it in this proceeding, acknowledged that it could not maintain that claim only after the lease documentation was presented by the owners corporation, not Bruce Phoenix. The owners corporation contends that Bruce Phoenix should have never pursued this portion of the claim knowing that it was not the lot occupier until 2 April 2012.
Secondly, a large portion of Bruce Phoenix's claim centred around the question of maintenance of the heating and cooling system that was shared by many of the lots affected by the owners corporation (the shared heating and cooling system). Bruce Phoenix did not bring any evidence to VCAT to establish:

[20]

(a) what the shared heating and cooling system was, in particular, what parts it was constituted by and how it was made up;

[21]

(b) what part/s of the shared heating and cooling system serviced Bruce Phoenix's lot;

[22]

[23]

(d) what part/s of the shared heating and cooling system caused or contributed to Bruce Phoenix's alleged loss and damage.[3]

[24]

The absence of this evidence was fatal to Bruce Phoenix's case. It left Bruce Phoenix in a position where it could not prove what part of the shared heating and cooling system were in need of repair and had failed to be maintained by the owners corporation, such that it caused loss and damage. The owners corporation contended, as a result, the claim for such damages had no tenable basis in fact and was always doomed to fail and that this is compounded by the fact that, on request for documentation from the Mr Choi, the evidence showed that an inspection had occurred of the free standing air conditioning unit in the kitchen that exclusively served Bruce Phoenix's lot (the exclusive air conditioning unit) and that the conclusion reached was that the unit had rusted out due to a likely failure to maintain that unit.
Thirdly, the owners corporation contended that the supporting evidence for the loss and damage claimed by Bruce Phoenix was non-existent. Bruce Phoenix relied only on two complaints - one in July 2011 and the other in April 2012. One of these complaints was before Bruce Phoenix was the lot occupier and therefore irrelevant. The second complaint referred to issues with the exclusive air conditioning unit and not the shared heating and cooling system.[4] The owners corporation contended that one complaint in April 2012 was clearly an untenable basis to claim damages of approximately $34,000.00 in this proceeding.
Fourthly, the owners corporation contended that the allegations as to the owners corporation's failure to act with due care and diligence in disconnecting Bruce Phoenix from the shared heating and cooling system lacked a proper evidentiary basis for establishing any breach of s 5 of the Owners Corporation Act 2006 (the OC Act). In fact, VCAT found that there was no evidence of a failure to take due care and diligence on the part of the owners corporation and this defeated Bruce Phoenix's claim in both fact and law.[5]
Finally, the owners corporation contended that Bruce Phoenix sought to make criticisms, more than claims, in the proceeding about conduct of the owners corporation insofar as the owners corporation failed to provide a maintenance plan for the shared heating and cooling system and failed to comply with Part 10 of the OC Act. Neither of these complaints had a tenable basis in either law or fact - s 36 of the OC Act creates no cause of action and Part 10 was not enlivened by Bruce Phoenix for the owners corporation to respond to in accordance with the OC Act.

[25]

Section 109(3)(d) - nature and complexity of the proceeding

[26]

The owners corporation contended that the allegations framed against it in this proceeding were serious and complex enough for it to require legal representation to defend the claims. It also contended that it is relevant for VCAT to take into consideration that it had to 'untangle' the factual questions in the proceeding, most significantly, the factual matters concerning the shared heating and cooling system (that is, what was it was, how it was constituted and how it serviced Bruce Phoenix's lot), the issues with the shared heating and cooling system and the correspondence between the parties. The owners corporation contended that it effectively had to take over carriage of matters insofar as it was required to fill in the 'evidentiary lacunae' which was necessary to defeat Bruce Phoenix's claim against it. This is reflected in VCAT's decision in that almost every, if not all of the owners corporation's contentions in respect of the evidence and the law were accepted by it.
The owners corporation contended that as a result, the nature and complexity of the proceeding required the owners corporation to be represented and that representation in this proceeding expedited a fair, just and efficient outcome for both parties.

[27]

Section 109(3)(e) - any other relevant matters

[28]

The owners corporation also relied on Senior Member Vassie's commentary in McCarthy set out in paragraph 6 above and contended that Bruce Phoenix's claim in this proceeding 'lacked an exercise of responsibility'. The owners corporation specifically relied on Senior Member Vassie's comment that "[i]t would be unfair to respondents for the Tribunal to permit applicants to think that they can, with impunity, make and pursue to the bitter end any claim that they have a mind to make, no matter how hopeless, manifestly weak, irrational or quixotic such a claim might be."
The owners corporation contended that in light of these comments, it is relevant to consider that if Bruce Phoenix's claim had been issued in a Court or other jurisdiction where costs follow the event, there would be no question that Bruce Phoenix would be required to pay the owners corporation's costs.
The owners corporation contended that for these reasons, it is fair for VCAT to order that Bruce Phoenix pay the owners corporation's costs of the proceeding on a standard basis on the County Court Scale, such costs to be assessed in default of agreement.

[29]

Ms Vo contended on behalf of Bruce Phoenix that the usual rule that each party bear their own costs should prevail. Ms Vo relied on the comments of Bell J in Martin v Fasham Johnson Pty Ltd, [6] who said:

[30]

Usually parties must bear their own costs, which no doubt reflects the general object of the Act. That object, as identified by the President [of the Tribunal], is to promote access to justice generally and to minimise the overall level of costs in tribunal proceedings as far as practicable.[7]

[31]

Ms Vo also contended that it would be unfair to award costs against Bruce Phoenix because its claim was unsuccessful, in circumstances where Bruce Phoenix was self represented and the owners corporation was legally represented. Lastly, Ms Vo contended that it would be unfair to award costs against Bruce Phoenix in circumstances where the owners corporation took seven months to respond to Ms Vo's complaints about the shared heating and cooling system and refused to participate in dispute resolution or grievance processes, which forced Bruce Phoenix to apply to VCAT to resolve the dispute.

[32]

IS IT FAIR TO ORDER BRUCE PHOENIX PAY THE OWNERS CORPORATIONS COSTS?

[33]

Whilst the owners corporation seeks to rely on the decision in McCarthy, each case is different and each case must be considered on its own merits.[8]
In relation to the strength of Bruce Phoenix's claim, the claim was a weak claim from the outset and ultimately unsuccessful. Conversely, the owners corporation had a strong defence. However, many of the key documents that supported the owners corporation's defence were only provided to Ms Vo shortly before the hearing started and a couple of documents on which I relied in making my decision were only provided to Ms Vo and the Tribunal by Mr Choi during the hearing. On balance, and considering the strength of Bruce Phoenix's claim prospectively rather than retrospectively, that is, after the decision,[9] I am not satisfied that the claim had no tenable basis in fact and law. Nor am I satisfied that it is fair to order Bruce Phoenix to pay the owners corporation's costs based on the strength of its claim.
In relation to the nature of the proceeding, Bruce Phoenix's most significant claim was that it had suffered significant financial losses ($47,649.44) as a result of the owners corporation's failure to maintain the shared heating and cooling system that serviced Bruce Phoenix's lot. This claim was decided on its facts. Bruce Phoenix also made a few smaller claims against the owners corporation in relation to alleged breaches of various sections of the OC Act. Very little hearing time was spent on these claims. A dispute of this nature is a typical dispute between a lot owner and an owners corporation. Further, whilst the proceeding was made in the Tribunal's original decision, costs are not routinely ordered in these types of owners corporations disputes.[10]
In relation to the complexity of the proceeding, I disagree with the owners corporation's contention that the claim made against it was factually or legally complex and that 'the nature and complexity of the proceeding required the owners corporation to be represented'. Whilst the amount claimed was not insignificant and Bruce Phoenix made a number of factual and legal claims that lacked merit, the legal and factual issues were straightforward.
Specifically, the claim in relation to the alleged failure to maintain the shared heating and cooling system was reasonable straightforward, as was the owners corporation's defence. Similarly, none of the other smaller claims in relation to alleged breaches of the OC Act were complex. Whilst I agree that it was necessary for the Tribunal to 'untangle' the facts in this proceeding, this was not a difficult exercise once all of the relevant documents had been provided to the Tribunal by the parties, nor was the relevant law difficult to apply.

[34]

Taking all these matters into account, I am not persuaded it would be fair to depart from the usual practice in the owners corporation's list that each party is to bear their own costs and make an order for costs in this proceeding.
For these reasons, I order that the owners corporation's application for an order that Bruce Phoenix pay its costs is dismissed.

[35]

[1] [2009] VCAT 1898 at [67]-[68].

[36]

[2] Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L (Owners Corporations) [2017] VCAT 103 at [7]- [10].

[37]

[3] Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L (Owners Corporations) [2017] VCAT 103 at [18] to [20].

[38]

[4] Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L (Owners Corporations) [2017] VCAT 103 at [48] to [51].

[39]

[5] Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L (Owners Corporations) [2017] VCAT 103 at [66] to [68].

[40]

[6] [2007] VSC 54.

[41]

[8] Styles v Murray Meats Pty Ltd [2005] VCAT 2142 at [15].

[42]

[9] Sixty-Fifth Eternity Pty Ltd v Boroondara CC [2010] VCAT 310 at [7].

[43]

[10] Sweetvale Pty Ltd v Minister for Planning [2004] VCAT 2000.

Bruce Phoenix City Pty Ltd v Owners Corporation No. 1 SP025904L

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