[2023] VCAT 718

1. By consent, paragraph 5 of the orders made 16 June 2023 is amended to read as follows:

"The controlled money account BSB 333 047 Account Number 555 175 656 (CMA) opened jointly on trust for the parties on 9 August 2018 by Enterprise Law is to be closed and the principal and all interest (accrued on the sum of $40,779.40) held in the CMA is to be paid to the Applicant in reduction of the judgment sum. The Tribunal directs Cobalt Law (which has incorporated Enterprise Law) to pay the said sum to the Applicant".

1. Order that the Respondent pay the Applicant's costs of the proceeding (including reserved costs) on the County Court Scale of costs on the standard basis up to and including 30 September 2022, and thereafter on an indemnity basis, to be assessed by the Costs Court in default of agreement.

1. On 16 June 2023, judgment was delivered in this matter, substantially in favour of the applicant Carlisle Homes Pty Ltd ("Carlisle"). Written submissions were invited on the question of costs.
2. Carlisle seeks two orders, as follows:
   1. "The controlled money account BSB 333 047 Account Number 555 175 656 (CMA) opened jointly on trust for the parties on 9 August 2018 by Enterprise Law is to be closed and the principal and all interest (accrued on the sum of $40,779.40) held in the CMA is to be paid to the Applicant in reduction of the judgment sum. The tribunal directs Cobalt Law (which has incorporated Enterprise Law) to pay the said sum to the Applicant".
   2. "The Respondent pay the Applicant's costs of the proceeding (including reserved costs) on the County Court Scale of costs on the standard basis up to and including 4 July 2022, and thereafter on an indemnity basis, to be assessed by the Costs Court in default of agreement".
3. The respondent, David-Jon Robert Dawn, consents to the making of the first order. An order will therefore be made in those terms.
4. Carlisle seeks an order that Mr Dawn pay its costs of the proceeding. Carlisle submits that it would be fair to do so because of the substantial success it had in the litigation and by reason of the litigation's complexity.
5. Further, Carlisle submits that, as a result of four offers of compromise made by it in the proceeding, exceptional circumstances exist that make it appropriate to order that indemnity costs be paid for part of the costs order, principally by reason of Mr Dawn having unreasonably refused to accept offers that were more favourable to him than the orders ultimately made by the Tribunal.
6. I have accepted Carlisle's submission that it would be fair to make a costs order in this proceeding and that, following the making of the fourth offer of compromise, those costs should be on an indemnity basis.

Whether a costs order in favour of Carlisle would be fair

1. The dispute between the parties had what, in retrospect, might be regarded as a minor gestation. In January 2019, when Mr Dawn received a "Notice of Completion" from Carlisle, he did not regard the works as complete or sufficiently free of defects. Over a period of 8 weeks, Mr Dawn and Carlisle worked together to resolve a large number of issues that Mr Dawn wished to have attended to before he released the final payment of $40,779.40 and took possession of the new dwelling.
2. On 22 March 2019, Mr Dawn attended a "handover meeting" with Carlisle. He was prepared to make the final payment and take possession. This was derailed when solicitors, who were holding the final payment "in trust", refused to accept Mr Dawn's signed copy of the funds release document because he had written on the document the words, "settled under protest".
3. When the "time for completion" of the building works later passed on 3 May 2019, further issues came into play as the alleged delays in "completion" or the "taking of possession" resulted in further losses.
4. Soon after the failed "handover meeting" on 22 March 2019, Mr Dawn had also reopened the issue of the dwelling's state of completeness. Mr Dawn made substantial further claims of incomplete and defective work in a letter dated 27 March 2019. He repeated these claims to the Domestic Building Disputes Resolution Victoria ("DBDRV") in May 2019. He also commissioned a report from a building consultant Mr Smith in April 2020.
5. After the proceeding commenced in about January 2020, the principal issue in the proceeding was whether Carlisle had "completed" the construction works to the level which required Mr Dawn to make the final payment and take possession of the property. The Tribunal decision was that "completion" had been achieved before the proceeding was issued in about January 2020.
6. The success of the parties on the subsidiary issues in the case, Carlisle's claim of $500.00 per week and Mr Dawn's counterclaim of $250.00 per week each for liquidated damages, was determined by the Tribunal's findings on the issues of "completion" and when Mr Dawn was obliged to make the final payment and take possession.
7. At the time the trial commenced on 18 October 2022, the delay costs claims of the parties were more significant as the dwelling had been sitting vacant for over three and a half years. At that time, Mr Dawn also indicated that he would not proceed with his counterclaim for $150,700.00 for the cost of rectifying incomplete work. Mr Dawn also sought to amend his pleadings to add a number of further defences.
8. Mr Dawn was unsuccessful with all the added defences. Additionally, he failed to establish that, after the end of November 2019, he was entitled to refuse to make the final payment or take possession of the property. Mr Dawn had a small success in the proceeding by establishing an entitlement to liquidated damages of $7,500.00, which sum was offset against the more substantial sums to which Carlisle was entitled, being the final payment and its own liquidated damages to secure and maintain the property.
9. The issues in contention in the proceeding (and particularly at trial), notwithstanding that the sums in dispute were relatively modest, raised complex factual and legal issues. These are matters which are contemplated by s109 and other provisions of the Victorian Civil and Administrative Tribunal Act 1998 ("VCAT Act") as justifying diverging from the general rule that the Tribunal is a "no costs" jurisdiction. In my view, it would be fair to make an order for costs in favour of Carlisle in the present proceeding.

1. I have analysed each of Carlisle's four offers of compromise in accordance with the principles outlined by the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, [2005] VSCA 298, and having regard to the comments by Nettle JA at paragraph [92] in Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd (2005) 13 VR 483, [2005] VSCA 165.
2. Each offer was in an appropriate form, was mostly clear and provided sufficient time for Mr Dawn to respond. Each offer was made a substantial time after the proceeding was commenced in VCAT. The third and fourth offers noted that, if the offers were not accepted and the respondent fared no better from the Tribunal's decision, an application would be made for indemnity costs.
3. Each of the four offers of compromise would have provided a more financially beneficial result to Mr Dawn than the Tribunal's decision, and the extent of the difference became more obvious as time passed and as the third and fourth offers were more generous than the earlier offers.
4. As is apparent from the Tribunal's decision, from the time when Mr Dawn responded to Carlisle's claim that the works were complete, Carlisle made concerted and genuine efforts to address each of Mr Dawn's complaints of incomplete and defective work. To a degree, this positive response by Carlisle masked the issue of whether Carlisle had reached an appropriate state of completeness until the objective findings of the DBDRV report (of relatively minor remaining defects) were addressed by Carlisle by the end of November 2019.
5. In a similar way, Carlisle sought to compromise the proceeding by making a series of without prejudice offers (save as to costs). The fourth offer, immediately before the trial was to commence, reflected a substantial increase in the net benefit to Mr Dawn, as could subsequently be measured against the Tribunal's decision. Mr Dawn's failure to respond positively to any of these offers appears to reflect a similar approach to that which he had taken following the failure of the "handover meeting" on 22 March 2019.
6. Following Carlisle's fourth offer of compromise, the trial commenced. Mr Dawn indicated that he would not pursue his counterclaim for $150,700.00 as the cost of rectifying incomplete and defective work (a decision made apparently as a result of receiving a further expert opinion), and he sought to introduce a number of further defences drafted by his counsel.
7. However, notwithstanding these matters, the discretion I exercise must only be used in exceptional circumstances. I am troubled by a provision included in each of the first three of Carlisle's offers of compromise, in the following form:

"Our claim and your client's Counterclaim are withdrawn with no right of reinstatement.

For the avoidance of doubt, Carlisle Homes is not required to rectify any alleged defect the subject of your client's Counterclaim or any other defect that your client knows, or ought to know about at the time of the acceptance of the offer".

1. I consider that, in fact, an element of doubt may have been introduced by the second paragraph. Certainly, the formulation in the fourth offer of compromise removes any confusion by using the word "dismissed" rather than "withdrawn" and by not including the further "explanatory" paragraph. The formulation in the fourth offer was as follows:

"The Applicant and the Respondent consent to orders in the proceeding (including the counterclaim) be dismissed with no orders as to costs".

1. For these reasons, I consider that Mr Dawn unreasonably refused to accept Carlisle's fourth offer of compromise attached to its email dated 30 September 2022 and that thereafter Mr Dawn should be responsible for the payment of Carlisle's costs on an indemnity basis.

1. In the circumstances, the following orders are appropriate:
   1. By consent, paragraph 5 of the orders made 16 June 2023 is amended to read as follows:

"The controlled money account BSB 333 047 Account Number 555 175 656 (CMA) opened jointly on trust for the parties on 9 August 2018 by Enterprise Law is to be closed and the principal and all interest (accrued on the sum of $40,779.40) held in the CMA is to be paid to the Applicant in reduction of the judgment sum. The Tribunal directs Cobalt Law (which has incorporated Enterprise Law) to pay the said sum to the Applicant".

1. Order that the Respondent pay the Applicant's costs of the proceeding (including reserved costs) on the County Court Scale of costs on the standard basis up to and including 30 September 2022, and thereafter on an indemnity basis, to be assessed by the Costs Court in default of agreement.