Dover Beach Pty Ltd & Anor v Geftine Pty Ltd [2008] VSCA 248

Court of Appeal (Vic)|2008-12-17|Before: ASHLEY and REDLICH JJA and COGHLAN AJA

Contract - Major domestic building contract - Whether contract 'void against builder' for breach of s 31(1)(l), Domestic Building Contracts Act 1995, or for breach of s 136(2) or s 176(2A), Building Act 1993 - Importance of building insurance - Scheme of Acts by which different consequences imposed for different breaches - Specified consequences of breach of each relevant provision a penalty - Held, contract not void by reason of breach of those provisions - Per curiam, builder would have been entitled to restitutionary relief if denied contractual relief.

Costs - Offer of settlement - Offer by building owner to settle with builder for specified amount, plus such costs as tribunal might allow in lieu of agreement by parties - Whether offer complied with requirements of s 112, Victorian Civil and Administrative Tribunal Act 1998 - Whether offer incomplete, ambiguous or uncertain - Whether tribunal erred in finding offer not ambiguous or uncertain - Held, offer complied with requirements of section.

1 This appeal, brought from an order made by the Victorian Civil and Administrative Tribunal ('the tribunal') constituted by a deputy president, challenges a finding made by the tribunal that a building contract entered into between a builder and an owner was 'void against the builder' by reason of provisions of the Domestic Building Contract Act 1995 ('the Act').[1] The principal question which arises is whether the builder's failure to take out domestic building work insurance rendered the contract void.[2] In consequence of the tribunal so holding, a counter claim raised by the builder, Dover Beach Pty Ltd ('Dover') in response to a claim by the owner, Geftine Pty Ltd ('Geftine') was in large part held not to be maintainable. By leave, Dover now challenges that conclusion.[3]

2 A second question arises in the appeal. The upshot of the proceeding was that Geftine recovered a modest amount against Dover.[4] It then transpired that, long before the tribunal resolved the matter, Geftine had made an offer of settlement. Geftine asserted that the tribunal's determination was much more favourable to it than the offer which it had made. It applied for, and the tribunal made, an award of costs in its favour. The award was made on an indemnity basis from the time when the offer to settle was communicated to Dover. A question arises whether the offer was an offer 'to settle the proceeding' within s 112(1)(a) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ('the VCAT Act').

3 At material times Geftine was the owner of land at 475 Balcombe Road, Beaumaris. Geftine was trustee of the Fraser Superannuation Trust. Geoffrey Fraser ('Fraser') was a director of, and shareholder in, Geftine.

4 In 2001, Fraser decided to renovate the existing single-storied commercial premises on the land and to build a dwelling above the existing premises. He and his partner apparently proposed to purchase and then live in the newly constructed dwelling.

5 An architect was engaged in late 2002 and thereafter prepared plans.

6 In early 2003 Combined Building Constructions Pty Ltd ('CBC') was engaged as building surveyor.

7 By a written building contract dated 28 July 2003, Geftine engaged Dover to undertake the necessary work. The contract price was $330,000. There were a number of prime cost items, and there was provision for variations. So $330,000 was not the last word as to the cost of the project.

8 CBC issued a building permit on 1 September 2003.

9 Construction work, it seems, had in fact commenced in August 2003. Such work continued to and beyond 23 February 2004 - at which time Fraser and his partner went into occupation of the dwelling.

10 In the period between August 2003 and February 2004 Dover made five progress payment claims. All were paid.

11 In late February 2004, Dover made a sixth progress payment claim. It was partly paid in mid March.

12 On 31 May, Dover made a seventh progress payment claim. By then, Fraser had sought legal advice, and had been told by his solicitor that the works were, at least in part, domestic building works. That characterisation was critical to the litigation which ultimately ensued.

13 Fraser, Tim Stone[5] ('Stone') and Geftine's solicitors met on 17 June 2004. Agreement was reached that Geftine pay Dover Beach $30,000 immediately, and a further $30,000 when an occupancy certificate issued.

14 On 18 June, $30,000 was paid in accordance with that agreement.

15 On 29 July, CBC issued an occupancy certificate. But Geftine did not pay the further $30,000 as had been agreed. Rather, by application dated 1 September 2004, it commenced a proceeding in the tribunal against Stone 'as director of Dover Beach Pty Ltd' and CBC.

16 At the time when the proceeding was initiated the works, which included variations,[6] were not quite complete. Geftine had paid Dover $294,394.95.

17 The bases of claim articulated at the outset need not be discussed. The points of claim were amended, and amended again. Additionally, Dover was added as a respondent, and CBC was eventually removed as a party. It is only necessary to notice that, as against Stone (in his capacity as director of Dover) Geftine alleged that work had been defectively performed, was incomplete, and that statutory warranty insurance had not (yet) been provided.

18 The nature and scope of Geftine's claim was finally articulated in second amended points of claim which were filed on 26 October 2005, that being the last day of an eleven day hearing. In essence, Geftine sought damages in the amount of $42,144 for works which it alleged had been defectively performed. It also claimed damages, - which it put at $24,000 - for diminution in value of the premises because Dover had not provided, and could not provide, domestic building works insurance.

19 Geftine advanced its claim, and resisted a counterclaim mounted by Dover, in part by relying upon Dover's alleged breach of provisions of the Act and the Building Act. The matter was put this way:

In breach of ... the DBC Act the purported building contract, being a major domestic building contract, pursuant to that Act, is in breach of that Act.

The First Respondent, being the builder pursuant to the purported building contract, was not appropriately registered and nor was its sole Director, the Third Respondent (s29 of the DBC Act);
The purported building contract does not include the Registration Number of the Third Respondent, being the sole director of the First Respondent which is a corporation (s31(1)(f);

The purported building contract does not set out the required insurance under the Building Act 1993 (s31(1)(1);

The purported building contract does not contain the requisite five day cooling off period notice (s31(1)(n));
The purported building contract does not contain a section defining key words and phrases used in the contract (s31(1)(o));
The purported building contract does not set out the warranties implied into the contract by ss8 and 20 of the DBC Act (s31(1)(q));
The purported building contract does not contain the checklist approved by the Director (s31(1)(r));
The purported building contract is of no effect because it has not been signed by the builder and the building owner (s 31 (2);
The purported building contract does not set out the days allowed for specified occurrences affecting the date the building works would be expected to be completed (s32)
The purported building contract provides for the payment of progress payments in a manner which contravenes s40;
The purported building contract requires the Applicant to contract out of the DBC Act by requiring it to effect its own insurances, including warranty insurance, of the building work in breach of s132 of that Act;

The purported building contract purports to oust the Tribunal from jurisdiction to deal with disputes.

In breach of ... the Building Act 1993 (Vic) the purported building contract breached that Act.

The First Respondent and/or the Third Respondent held out that they held the requisite insurances;
The First and Third Respondent did not have the warranty insurance required by s137B135 of that Act.

12. By reason of the matters aforesaid:

a. The purported building contract is void ab initio;

Alternatively, the purported building contract is voidable at the option of the Applicant and the Applicant hereby seeks to avoid that so called contract;

The First Respondent is not entitled to any payments claimed by it pursuant to the purported building contract.

20 The prayer for relief was generally to the same effect, although it raised several alternative bases for grant of relief.

21 Pausing for a moment, this much is clear: so far as the Building Act was mentioned at all, direct reference was confined to paragraph 10 of the second amended points of claim; whilst paragraph 9, which addressed breach of the Act, made indirect reference to the Building Act in particular (c) - a particular which simply paraphrased s 31(1)(l) of the Act.

22 Dover and Stone filed amended points of defence and counterclaim shortly before the trial commenced. They did not exactly fit the second amended points of claim, which were later filed, but their general tenor was clear enough.

23 I need not refer to the full detail of the matters alleged. It is enough to say that Dover -

• Denied breaches of the pertinent Acts, and so denied that the contract was void or voidable.

• Denied that works had been defectively performed.

• Alleged that if there had been any breaches of the legislation, the contract was nonetheless enforceable.

• Agreed that works were incomplete, giving reasons why that was excusable.

• Raised a counter claim, quantified at $82,939.43,[7] which for the most part was dependent upon the contract being enforceable, and upon what was said to be Geftine's repudiation of its obligations thereunder.

24 The counterclaim was advanced on two legal bases: as damages for breach of contract; and upon a quantum meruit.

25 The tribunal held that the building work had in very large part been well-performed. It found, however, that there were some defects which required remedy. It fixed the cost of rectification at $17,950.[8] Further, it allowed damages of $8,000 for the diminution in value of the dwelling by reason of its not being covered by domestic building works insurance. It also allowed interest of $4,000. In all, then, it held that Geftine should recover $29,950.

26 The tribunal dismissed Dover's counterclaim. It held that, by operation of the pertinent legislation, Dover had lost the right to claim any amount which might otherwise be proved to be owing as part of the 'base contract price'; likewise any claim for interest on whatever amount remained unpaid under the contract and any damages for delay. The contract, it held, was void against the builder.

27 Notwithstanding that conclusion, the tribunal held that it was able to make an award in Dover's favour in respect of claimed variations. It allowed variations in a total amount of $15,736.83. But it noted that considerably more than this had already been paid by Geftine in respect of variations. So Dover's potential entitlement melted away.

28 The consequence of all this was that on 4 October 2006 the tribunal ordered that Dover (and Stone) pay Geftine $29,950.

29 Then, on 20 October 2006, in consequence of further argument, the tribunal ordered that Dover (and Stone) pay Geftine's costs on a party/party basis until 23 December 2004, and thereafter on an indemnity basis. The costs orders were a consequence of conclusions reached by the tribunal concerning an offer of settlement made by Geftine on 23 December 2004. Later in these reasons, when addressing the second question raised by the appeal, it will be necessary to set out the terms of the letter of offer.

The Act and the Building Act. Matters not in dispute

30 The following matters were not at trial, or are not now, in dispute:

At pertinent times, Dover was registered as a 'building practitioner' - see ss 169-171 of the Building Act. It was so registered by application of s 176(4). But it was not registered as a 'domestic builder', a term defined by s 3 of the Building Act to mean a builder within the meaning of the Act. By s 3(1) of the Act, a 'builder' is defined, inter alia, to mean a person who carries out 'domestic building work' - work defined by reference to ss 5 and 6 of that Act.
So far as the contract related to the construction of the dwelling above the ground floor commercial premises, it was a 'major domestic building contract' as defined by s 3(1) of the Act_._
Dover contravened s 176(2A) of the Building Act by carrying out building work under the contract. That was because it was not registered as a domestic builder, and because the contract was a major domestic building contract.
By s 135(1) of the Building Act, the relevant Minister was empowered to require, by order, that building practitioners in specified classes be covered by insurance; and to specify the kind and amount of insurance cover. At the relevant time, the potential ambit of a Ministerial order, in the case of domestic building work, was specified by the Building Act, most particularly by s 137A.
There was a relevant Ministerial order, effective from 1 July 2003. It applied to the domestic building work the subject of the contract. It required Dover either to be insured when it entered into the contract, or else that the contract provide that no work be undertaken before a policy issued. It required that no money be paid under a contract before a policy issued, and it required the builder to deliver a copy of the policy to the owner within seven days of its issue.
Dover did not hold such a policy of insurance when the contract was entered into; and it did not obtain insurance before work began. It thereby contravened s 136(2) of the Building Act.
The contract did not comply with provisions of the Act. The majority of the sections which were breached[9] fix a penalty for contravention.
Particularly, the contract did not comply with a number of the requirements of s 31(1) of the Act_,_ which provides that a builder must not enter into a major domestic building contract unless, inter alia, the contract states or contains the matters respectively specified by paragraphs (f)(iii), (l), (n), (o) and (q) of that subsection.
Paragraphs (f)(iii) and (l) are of particular importance. They respectively require that the contract -

(f) states the registration number (as it appears on the registration certificate under the Building Act 1993) of -

. . .

(iii) in the case of a builder which is a corporation, the directors who are registered as builders under the Act;

. . .

(l) sets out details of the required insurance under the Building Act 1993 that applies to the work to be carried out under the contract (including any details required by the Director);

In the case of para (f)(iii), Dover provided a commercial registration number, which it followed by stating that 'should a Domestic Registration number be required, this will be by negotiation'. The tribunal concluded that Stone well-understood that the construction work in respect of the dwelling required him to hold registration as a domestic builder.

In the case of para (l), Dover set out no details of insurance. It could not do so. It held no such insurance. Indeed, the contract provided that Geftine should take out pertinent insurances.

The contract did comply with s 31(2), which provides that a major domestic building contract 'is of no effect' unless it is signed by the builder and the owner, or their representatives.

31 I noted earlier[10] that the tribunal held that the contract was 'void against the builder'. I should refer to the route by which the learned judge who constituted the tribunal arrived at that conclusion. His Honour -

• Noted Dover's breaches of the Building Act and the Act - most particularly its failure to obtain insurance cover.

• Rejected Geftine's submission that the 'contract [was] of no effect' - see s 31(2) of the Act - holding that the late-raised contention that the document had not been signed by the builder and the owner did not accord with the viva voce evidence.

By reference to a Second Reading speech, and to s 136 of the Building Act, discerned that 'Parliament regarded insurance as an integral part of the contract'; that the penalties for breach 'identif[ied] the seriousness with which Parliament considered this matter'; and that it was 'clear that the insurance provisions exist for the protection of the public'.
Noted that neither the Act nor the Building Act 'deal with the effect on the contract of a failure on the part of the builder to obtain and provide the statutory indemnity' - that is, the required insurance. In that connection, stated:
1. ... There is no provision in the various enactments relating to insurance which, in express terms, renders a contract entered into without such insurance void or unenforceable, the latter leaving the guilty party with remedies not open in the former circumstance ...
Concluded that neither s 132 (1)(a) or s 133 of the Act aided Dover. The latter section could not do so because insurance was not a requirement of the Act, but of the Building Act and the Ministerial order.
Particularly focused upon the opening words of s 31(1), and in that connection said this:
1. ..the introductory wording of s.31(1) namely that:-

'A builder must not enter into a major domestic building contract unless the contract - '

is one of such import that there is a significant argument for saying that a contract which does not contain the statutory terms, or at least offends against provisions which are there solely for the protection of owners and by extension the public generally, is void against the builder.

The Act itself expresses the intent to protect home owners by its various provisions. The Minister's second reading speech underlines that intent. As I have said, the implication of significant force is that Parliament intended non-compliance with s.31 would render such a contract void.
In the present case, it seems to me that the statutory requirement of insurance imposes an obligation which is central to the agreement between the parties.

48 In my view, the legislative intention was that an agreement for domestic building works, where the builder has not taken out insurance of the kind required by statute, is void against the builder.

32 Thus, the tribunal resolved the matter by focusing upon s 31 of the Act, and upon Dover being in fact uninsured for domestic building work. It appears that in doing so the tribunal treated sub-section (1)(l) as addressing want of insurance, not simply failure to state details of insurance.

Why Geftine's claim and Dover's claim for variations were held to be maintainable

33 The tribunal's conclusion that the contract was 'void against the builder' led on to conclusions that -

(1) By resort to the power conferred by s 53(1) of the Act, Geftine's claim remained maintainable.

(2) Because, as against Dover, the contract was void, Dover could not recover for its work on a quantum meruit.[11]

(3) But, by resort to s 53(1), Dover could maintain a claim for variations.

34 The tribunal's reasoning which supported those three conclusions was as follows:

In the result, it seems to me that the contract is illegal as performed. I note that s.136 of the Building Act does not prohibit the entry into a contract without insurance, but prohibits the builder carrying out the works without the requisite insurance cover. The illegality was known only to the respondents; the applicant had no knowledge of the illegality.
In any event, s.53 of the Act gives the Tribunal express power to make orders in favour of the applicant. In consequence, the applicant is entitled to pursue its claims against the builder. Further, the claim for damages for loss by reason of the respondents' failure to have insurance is not an action brought in contract, but separately for breach of the statutory obligation.
At common law, the respondents, as the contract is void against them as the guilty parties, would have no rights to enforce, and their counterclaims would fail.
... In terms of the base contract price, the respondents have lost the right to claim any sum which might otherwise be proved to be outstanding by comparison with payments made by the applicant.
However, it seems to me that s.53 of the Act serves to modify the common law rules relating to the effect of a contract that is declared void. The overriding power given by s.53(1) provides the Tribunal with the power to make orders in favour of the respondents if it considers it fair to do so.

35 The question of law framed for the Court's consideration is expressed this way:

Whether there was any statutory basis for the finding of the Tribunal that it was the legislative intention that an agreement for domestic building works, where the builder has not taken out insurance of a kind required by statute, is void against the builder.

36 The question is not, I think, quite apt. It implies that an appeal under s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act') can provide a vehicle for the wholesale agitation of issues not raised by the claim as formulated and determined, and that reliance by a successful party upon statutory provisions which neither it nor the tribunal called in aid below is permissible. But it must be remembered that in this case, as should ordinarily be the situation, the tribunal decided the matter on the basis of a claim as advanced and as resisted.

37 In Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd[12] I said something about the permissible scope of an appeal under s148(1).[13] It follows from what I there said that I do have some doubt as to the availability of the Notice of Contention procedure - at least where a party seeks to rely upon a statutory provision not relied upon below.

38 In this case, a Notice of Contention was filed on behalf of Geftine. It sought that the tribunal's decision be affirmed 'on the grounds relied upon by the tribunal and also' upon the following ground:

The agreement for domestic building work was void and/or unenforceable against the first appellant on the grounds relied on by the Tribunal and by reason of the fact that the second appellant was not registered as a domestic builder as required by section 176 (2A) of the Building Act 1993.

39 That section, it will now be appreciated, was not relied upon in the Second Amended Points of Claim, filed on the last day of a lengthy trial.

40 As it happens, I am of opinion that the additional ground relied upon by the Notice of Contention should not affect the result of the appeal. So I need not decide whether it could have been legitimately raised. The resolution of the general question awaits another day.

41 That takes me back to identification of the principal issue raised by the appeal. Despite the question which I set out in [35] being arguably too broad, I consider that it captures the gist of the key issue.

42 As I shall explain, resolution of the principal question raised by this appeal is at heart a question of statutory interpretation. I have already described the formulation of Geftine's claim, the way in which the tribunal dealt with the matter, and the Notice of Contention. In this Court, the parties mainly focused attention upon provisions of the Act. But reference was also made to provisions of the Building Act. It is therefore desirable to say something about the relationship between the two Acts, particularly with respect to the registration of builders and the obligation to insure.

43 The House Contracts Guarantee Act 1987, which repealed the earlier Division 1A of Part XLIX of the Local Government Act 1958, established a scheme which included the following features:

1 A so called 'approved guarantor' was empowered to approve builders to perform domestic building work.

2 It was made an offence for an unapproved person to carry out such work.

3 A guarantee required by the Act attached to domestic building work.

4 The guarantee was provided by the approved guarantor - the Housing Guarantee Fund Ltd.

5 The guarantee was to the benefit of the owner. It also 'went with the premises' for a specified period.

6 The guarantee was subject to a threshold and was quite limited in its maximum amount - $40,000.

7 Subject to that Act, the guarantor guaranteed, inter alia, the liability of a builder to an owner. But the builder remained liable to the owner beyond the maximum amount guaranteed.

44 The Building Act 1993 provided for the registration of persons as building practitioners. It also provided[14] that the relevant Minister might by order require building practitioners in specified classes to be covered by different kinds of insurance; and it made it an offence[15] for a building practitioner to carry out work in that capacity except if covered by insurance which was required by any such Order. Again, the Building Act provided that if a practitioner's insurance cover ceased, the Building Practitioners Board must suspend the practitioner's registration.

45 Meanwhile, the House Contracts Guarantee Act continued to have operation within its own field. It had its own provisions for approval of builders to perform domestic building work, and its guarantee scheme was akin to the provision of insurance.

46 Then came the Domestic Building Contracts and Tribunal Act 1995 - now the Act. In substance, it brought an end to the regime established by the Housing Contracts Guarantee Act.[16]

47 In his Second Reading Speech[17] the Minister summarised the features of the Bill this way:

The reforms contained in this bill constitute a comprehensive and integrated package comprising: firstly, a domestic building disputes tribunal, providing a means by which builder and consumer disputes can be expeditiously and inexpensively handled at any stage of the building process or after; secondly, registration under the HGF scheme will be replaced by an extension of the Building Act 1993 to cover domestic builders; thirdly, the insurance cover for building owners will be privatised; and finally, domestic building contracts will be required to contain certain minimum terms and conditions and statutory warranties.

48 I note the following features of the 1995 Act - as I shall call it to distinguish it from the Act in its present form - as relevant to the present appeal.

49 First the requirement for registration of builders in respect of domestic building work was migrated into the Building Act. That can be seen by reference, inter alia, to the amended definition of 'building practitioner' in s 3 of the Building Act and by reference to ss 169(2)(e)(ii) and 176(2A)[18] of that Act.

50 Second, the guarantee regime, making use of a single approved guarantor, ended. Thereafter the insurance obligation was imposed by Ministerial Order made under s 135 of the Building Act. So much can be seen by reference, inter alia, to ss 137A to 137E of that Act. See also s 136 of the Building Act as it stood after substitution by the 1995 Act; and the amendment to the definition of 'insurer' in s (1) of the Building Act which was effected by the 1995 Act.

51 Third, there were imported into the 1995 Act a number of the consumer protection features of the Housing Contracts Guarantee Act; and those features were expanded.

(c) to require builders carrying out domestic building work to be covered by insurance in relation to that work.[19]

(c) to enable building owners to have access to insurance funds if domestic building work under a major domestic building contract is incomplete or defective.[20]

53 It was perfectly explicable that the particular purpose and object should be stated; because it was by the 1995 Act that the obligation of builders carrying out domestic building work to register under the Building Act was brought into the latter Act; and it was by the 1995 Act that the regime established by s 135 of the Building Act and Ministerial Order was made applicable to domestic building contracts. Again, it was by s 142 of the 1995 Act that ss 137A-137E were inserted into the Building Act, ss 137A, 137D and 137E specifying the potential scope of required insurance.

54 With the passage of time, however, the 1995 Act evolved into the present form of the Act. Part 7 of the 1995 Act, which amended the Building Act, was repealed in 2000. So there is now no provision in the Act which addresses the requirement that a builder be insured for domestic building work. All that remains in the Act with respect to insurance is Sub-Division 2 of Division 2 of Part 5 of the Act, which specifies the jurisdiction of the tribunal to deal with insurance disputes.

55 Nonetheless, the purpose and the object to which I referred above remain as before. They are something of a historical anomaly - which is not to say that the provision of insurance in respect of domestic building contracts was not, and is not, a matter of very considerable importance.[21]

56 Fifth, ss 132 and 133 of the Act, to which I will later refer, remain today in the form in which they were enacted in 1995. Then, in terms, they applied to provisions inserted into the Building Act. Now, however, references to 'this Act' in those sections have, on their face, operation only in respect of provisions in the Act in its present form. Nonetheless, as I will later explain, I consider that those sections remain of some importance when seeking to understand the scheme of the relevant legislation.

Relevant principles of statutory interpretation

57 The question whether a contract made in breach of statute results in the same being illegal and void, and whether such a breach also denies restitutionary relief, has been examined by many authorities. So also has the question of the consequences of performance of a contract in breach of statute, despite the contract itself not being prohibited. I should refer to some of the relevant authorities to establish principle, and to show its application in particular instances.

58 In Yango Pastoral Company Pty Ltd & Ors v First Chicago Australia Limited & Ors,[22] Gibbs ACJ said this:

The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes. 'The determining factor is the true effect and meaning of the statute' (St. John Shipping Corporation v. Joseph Rank Ltd. 'One must have regard to the language used and to the scope and purpose of the statute' (Archbolds (Freightage) Ltd. v. S. Spanglett Ltd.). One consideration that has been regarded as important in a great many cases, of which Cope v. Rowlands is a notable example, is whether the object of the statute--or one of its objects--is the protection of the public. An antithesis is commonly suggested between an intention to protect the public and an intention simply to secure the revenue, and it is said that when the former intention appears the contract must be taken to be prohibited, whereas if the intention is only to protect the revenue the statute will not be construed as imposing a prohibition on contracts. The question whether the statute was passed for the protection of the public is one test of whether it was intended to vitiate a contract made in breach of its provisions, but I am with respect in full agreement with the views expressed in St. John Shipping Corporation v. Joseph Rank Ltd. and Shaw v. Groom, that it is not the only test. It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute. As Devlin J. said in St. John Shipping Corporation v. Joseph Rank Ltd.: 'The fundamental question is whether the statute means to prohibit the contract. The statute is to be construed in the ordinary way: one must have regard to all relevant considerations and no single consideration, however important, is conclusive.' [23]

There have been many cases in which a statute which imposes a penalty on an unlicensed or unqualified person for acting in a particular capacity has been held to prohibit by implication all contracts express or implied made by such a person to act in that capacity. In those cases the unsuccessful plaintiff did the very thing which the statute forbade him to do unless he was authorized, ...[24]

59 In the same case, Mason J (with whom Aickin J agreed) said this:

The principle that a contract the making of which is expressly or impliedly prohibited by statute is illegal and void is one of long standing but it has always been recognized that the principle is necessarily subject to any contrary intention manifested by the statute. It is perhaps more accurate to say that the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction and that the principle to which I have referred does no more than enunciate the ordinary rule which will be applied when the statute itself is silent upon the question. Primarily, then, it is a matter of construing the statute and in construing the statute the court will have regard not only to its language, which may or may not touch upon the question, but also to the scope and purpose of the statute from which inferences may be drawn as to the legislative intention regarding the extent and the effect of the prohibition which the statute contains.[25]

Where, as here, a statute imposes a penalty for contravention of an express prohibition against carrying on a business without a licence or an authority and the business is carried on by entry into contracts, the question is whether the statute intends merely to penalize the person who contravenes the prohibition or whether it intends to go further and prohibit contracts the making of which constitute the carrying on of the business. In deciding this question the court will take into account the scope and purpose of the statute and the consequences of the suggested implication with a view to ascertaining whether it would conduce to, or frustrate, the object of the statute.

In In re Mahmoud and Ispahani, Scrutton L.J. referred to Bloxsome v. Williams in which the defendant, who was a horse-dealer, was prohibited by statute from trading on a Sunday, and pointed out that there was nothing illegal in another person making a contract with a horse-dealer on a Sunday except that if he knew that the person with whom he was dealing was a horse-dealer he might be aiding and abetting him to break the law. Atkin L.J. said: 'One may find that the statute imposes a penalty upon an individual, and yet does not prohibit the contract if it is made with a party who is innocent of the offence which is created by the statute.'[26]

60 I next mention Fitzgerald v FJ Leonhardt Pty Ltd[27]. Kirby J collected many authorities when setting out principles to be applied when determining the questions which arose in that case, viz:

Whether the Act, properly construed, expressly or impliedly rendered those parts of the contract, as formed or performed, illegal such that they were void and therefore unenforceable: ('The construction point').
Whether, even if the Act did not render the contract, as formed or performed, illegal and therefore void, any principle of public policy would stand in the way of the attempted enforcement of the contract:[28]

61 His Honour set out the relevant principles this way:

The first task of a court is to ascertain the meaning and application of the law which is said to give rise to the illegality affecting the contract. The law in question may be a rule of the common law but nowadays it is much more likely to be a provision of legislation. The substantial growth of legislative provisions affecting all aspects of the society in which contracts are made presents a legal environment quite different from that in which the doctrine of illegality was originally expressed. Courts, in this area, are faced with a dilemma. They do not wish to deprive a person of property rights, eg under a contract, least of all at the behest of another person who was also involved in a breach of the applicable law. On the other hand, they do not wish to 'condone or assist a breach of statute, nor must they help to frustrate the operation of a statute'. That is why the first function of the court, where a breach of a legislative provision is alleged, is to examine the legislation so as to derive from it a conclusion as to whether a relevant breach is established and, if so, what consequences flow either from the express provisions of the legislation or from implications that may be imputed to the legislators. Little, if any, assistance will be derived for the ultimate task of a court from examination of the terms of other statutes or judicial classifications of them or by reference to their meaning as found.[29]
Occasionally, the legislation in question will expressly provide for the consequence of illegality upon contracts made or performed in breach of its terms. In such a case the entire contract may, depending on the terms of the statute, be void and its performance unlawful as contrary to the express will of Parliament. The duty of a court in such a case is clear. No question of the good faith of the parties or their knowledge or intention is involved. Public policy is not, as such, raised, unless it be the general public policy that the courts should uphold the law of the land. What is presented is a pure question of the interpretation and enforcement of the legislation. This is a familiar task performed by courts with the usual tools of statutory construction.
Ordinarily, legislation does not expressly deal with the consequences of conduct in breach of its terms upon a contract which has been fulfilled in some way in breach of a provision of the law. In such a case, where the law in question is (as it typically is) a statutory provision, it is necessary to ask whether the legislation impliedly prohibits such conduct and renders it illegal. Some judges have suggested that courts today are less willing than in the past to derive an implication of illegality from a legislative provision where Parliament has held back from expressly enacting it. Certainly, there are plenty of judicial dicta to suggest that courts will be slow to imply, where the applicable legislation is silent, a prohibition which interferes with the rights and remedies given to parties by the ordinary law of contract. This reluctance probably grows out of a recognition of the multitude of legislative provisions, important and unimportant, which may nowadays indirectly impinge upon the contractual relations of parties and, if enforced with full rigour, cause harsh and unwarranted deprivation of rights. In part, this reluctance may be no more than a species of the general rule of statutory construction that legislation will not be interpreted to deprive parties of basic rights at common law without a clear expression of the legislative will to do so. Some academic commentators have discerned in earlier cases a 'misplaced judicial zeal' in deriving from the sparse language of legislation a purpose to strike at private contractual arrangements. They criticise the reliance on fictions of 'legislative intention' where the legislation in question makes no express provision with respect to contracts. They suggest that implied illegality of contracts should be abandoned, obliging Parliament (if that be its purpose) to make express provision in that regard. But this approach would be contrary to long-established doctrine and to the commonplace that legislation, typically expressed in brief language, may contain implications which are to be derived from its express terms. The duty of courts remains, where legislation is involved, to give meaning to the imputed purpose of Parliament as found in the words used. It would be artificial to expel implications from the task of legislative construction where they remain an established feature of the interpretation and application of legislation generally.
One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the formation or performance of which involves some breach of the law, is the conclusion which will often be derived from the express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the deprivation of their property (contractual) rights. In a given case, such lost rights might be enormous, supplementing in a wholly arbitrary way, the defined penalties for which the legislature has expressly provided.
A distinction may be drawn between cases where there is nothing illegal in the formation of the contract or necessarily illegal in its performance and those cases where (as here) the performance has in fact involved a breach of the law. The case of a contract which, although lawful according to its own terms, may be performed in a manner which the statute prohibits, was one of the four categories suggested by Gibbs A-CJ in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd to illustrate the ways in which the enforceability of a contract may be affected by a statutory provision rendering particular conduct unlawful. The distinction of illegality in performance was also recognised in the opinions of Mason J and Jacobs J in the same case. It is a distinction well established in legal doctrine. In such a case, it is not the contract as formed which is illegal. But the performance of the contract may be illegal if it is clear that the law in question prescribes that the contract must be performed in one way and one way only and that requirement has been breached. To ascertain whether such a breach has occurred it has been said that the illegality must affect the very core or essence of the contract. The fact that a statute was passed for the protection of the public is one test of whether it was intended to avoid a contract formed, or to be performed, in breach of its provisions. However, that is not the only test because the effect of the legislation is to be derived from its language in the ordinary way.[30]

62 I next refer to Pavey & Matthews Pty Ltd v Paul.[31] That case dealt with the consequences of a building contract being rendered unenforceable by legislation. Chernov JA described the gist of the decision this way in Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd:[32]

The relevance of the case, for present purposes, lies in the court's recognition that recovery can be had on a restitutionary basis even where the contract in question is rendered unenforceable by legislation. In that case, a builder claimed money as on a quantum meruit in respect of work done under a building contract that had been rendered unenforceable by legislation. The majority recognised that, notwithstanding the legislative provision, the builder could recover fair and reasonable compensation for its work, not under the contract, but on the basis of restitution or unjust enrichment arising from the owner's acceptance of the benefits accruing to it from the builder's performance of the unenforceable contract. Deane, J. observed that, although the legislation rendered the obligation to pay unenforceable, on its proper construction, it did not manifest the intention to deny the builder payment for the work done in the performance of a contract.

63 In Ovidio, Chernov JA referred, by footnote, to Marshall v Marshall.[33] There it was held that, on its proper construction, the pertinent legislation disentitled a builder to any monetary compensation for the work carried out by it under the contract that was struck down by the legislation - the consequence being that the owner was entitled to recoup moneys paid under the mistaken belief that the builder had been entitled to them.

64 Marshall is just one illustration of the importance of focusing upon the language of the pertinent statutory provision. Sutton v Zullo Enterprises Pty Ltd,[34] relied upon by Geftine in this Court, is another such instance.

65 In Sutton, the relevant statutory provisions were these:

(1) A person must not carry out, or undertake to carry out, building work unless that person holds a contractor's licence of the appropriate class under this Act.

...

(3) A person who carries out building work in contravention of this section is not entitled to any monetary or other consideration for doing so.

...

(7) A person who contravenes this section commits an offence.

66 The issue which arose in the Queensland Court of Appeal was described this way by Pincus JA:

[12] The question in this case is whether a builder may recover a fair price for work done by him in contravention of s. 42(1) of the Queensland Building Services Authority Act 1991 ('the 1991 Act'). Under that subsection the builder (the respondent) was prohibited from carrying out the work in question for lack of the appropriate licence and prohibited from undertaking to carry it out. Under s. 42(3) of the Act he was 'not entitled to any monetary or other consideration' for carrying out the work. But in reliance on the decision of the High Court in Pavey & Matthews Proprietary Limited v. Paul [1987] HCA 5; (1987) 162 C.L.R. 221, it has been ordered in the District Court that the builder have leave to deliver a plaint suing for the price of the work as a quantum meruit claim; that order is attacked in this appeal.[35]

67 The answer to that limited question was considerably affected by s 42(3).[36] The builder was doomed to failure except if 'any monetary or other consideration' was effectively confined to consideration due under contract. The history of the legislation was against s 42(3) being read narrowly.

68 But context is decisive. So, for example, it was decided in Upjay Pty Ltd v MJK Pty Ltd,[37] notwithstanding statutory preclusion against an unregistered person being entitled to a commission or other consideration for services, and notwithstanding that the statute gave a right of recovery of commission paid to a person not entitled, that an unregistered agent was entitled to recover reasonable remuneration for his services; whilst a contrary conclusion was reached in Equuscorp Pty Ltd v Wilmoth Field Warne (a firm)[38] in a claim by a solicitor for recompense for legal work performed.

69 Upon the question whether the contract in the present case was rendered void by want of compliance with s 31(1) of the Act, I do not ignore the fact that in Sutton McPherson JA[39] observed that -

... it would be surprising if, having prohibited the making of such a contract, the legislature had not also intended that it should be unenforceable. This conclusion is not founded on the circumstance that, by s. 42(7), a person contravening s. 42 commits an offence, although it provides additional support for such a legislative intention. Even if it were not an offence for an unlicensed person to 'undertake' to do building work, the result would in my opinion probably be the same. When Parliament prohibits the very process of formation of a contract, it scarcely lies with the courts to ignore that prohibition and enforce the contract despite the express legislative embargo on its being made at all. At least that is so where the party seeking to enforce it is the person who contravened the prohibition, which is so here.[40]

But whether, and if so, how, that statement might be transposed from one piece of legislation to another is a question to be determined by examining the legislation pertinent to the particular case.

The principal question should be resolved in the appellant's favour.

70 In my opinion, the tribunal erred in holding that the contract was 'void against the builder'. I consider that Dover was entitled to remedy under the contract. It that conclusion was wrong, I consider in any event that Dover was entitled to restitutionary relief.

Section 31(1) did not render the contract void against the builder

71 As I have explained, the tribunal resolved the matter against Dover in reliance upon s 31(1) of the Act, and in that context the fact that Dover was relevantly uninsured. It held that the contract was void against the builder.

72 It is not clear what the tribunal meant by its conclusion that the contract was void against the builder. It is true that s 31(1) precluded the builder entering into a contract if the contract did not have a certain content. So it could be said that in entering into such a contract the builder was at fault. But if the contract was thereby rendered not only illegal but void, there is a difficulty in saying that it was void only against the builder. It may be that tribunal developed the concept of the contract being void against Dover in order to protect Geftine, as an innocent party, in two ways - first by reasoning that in those circumstances Geftine could rely upon s 53(1) in pursuit of its claim; and second, by reasoning (though I think it was incorrect) that so to characterise the content would shut the prospect of a claim by Dover on a quantum meruit. But neither of the supposed benefits provided a legal justification for the anterior conclusion. Indeed, if the scope of s 53(1) was as broad as the tribunal held it was,[41] the continued existence of the contract would not seem to have been necessary for pursuit of Geftine's claim.

73 I turn to s 31(1) of the Act. For the following reasons, I cannot accept that its effect was to render the contract void because the builder was in fact relevantly uninsured.

74 First, in all, s 31(1) is concerned with the provision of information. It is not, in terms, concerned with the fact of a builder's registration, or the fact of insurance. Those topics are dealt with by the Building Act.

75 Second, paragraphs (a)-(s) set out very many requirements as to contractual content. They range across a broad spectrum. Whilst none of them may be unimportant, and some might be thought more important than others, the subsection provides for a common consequence of breach - that the builder is subject to a penalty. The subsection, on its face, defines the consequence of breach.

76 Third, a conclusion that the opening words of the subsection (which are silent as to consequence) together with the importance of insurance, mean that a contract is void if there is no insurance would give a differential operation to those words unless every non-compliance with s 31(1) was to be treated as rendering the contract void - and neither party suggested in this Court that this should be so.

77 Fourth, and to expand upon what I have already said, s 31(1)(l) is not a requirement that there be insurance; rather, it is a requirement that details of required insurance be set out in the contract. The requirement for insurance is imposed by the Building Act and the Ministerial Order. Geftine's argument seems to mean that s 31(1)(l) should be read so as to render a contract void if a builder breached the Building Act and the Order by being uninsured. If it was so read, then unless it could also be construed to address a situation in which a contract failed to set out details of insurance held by a builder, it would create a situation in which is the reverse of the apparent import of s 31(1)(l).

78 Fifth, exactly the same issue arises in respect of s 31(1)(f). It is concerned with a builder's failure to state its registration number; not with the fact of registration.

79 Sixth, and developing the circumstance that the specified consequence of a breach of s 31(1) is a penalty, the Act provides different consequences for many different breaches. It appears to systematically address the consequences of breach.

80 So, for example, breach of any of ss 11(1), 12(2), 13(1) and (2), 15(2), 16(1), 21(1), 22, 23, 25, 26(1), 29, 30(1) and (6), 31(1), 32(1) and (2), 33(2), 40(3), 43(2) and (3) and 46(4) constitutes an offence against the Act; and a penalty is specified. Section 125 provides for the giving of infringement notices.[42] Section 128 deals with continuing offences, s 130 with offences by partners. Section 131 imposes a time limit for bringing a proceeding for an offence against the Act.

81 By contrast, s 11(5) provides that if a builder infringes against s 11(1) - by demanding or receiving an excessive deposit before work begins - a court, penalty aside, may order repayment of all or part of the amount paid.

82 Again by way of example, s 13(3) provides that a builder in breach of s 13(1) or (2) - which restrict entry into cost plus contracts - cannot enforce the contract against the owner; but may be awarded the cost of work performed plus a reasonable profit if the tribunal considers that this would not be unfair to the owner.

83 Further by way of example, s 14 provides that a term in a contract which requires arbitration is void; and see to like effect, though subject to exception, s15(3).

84 Now I should refer to s 22. Like s 31(1), it prohibits entry into a contract unless the contract, or another document in some cases, sets out certain information. Again like s 31(1), the consequence of non-compliance is a penalty. If breach of any requirement of s 31(1) had the consequence attributed by the judge, why should not breach of s 22 not have a like consequence? But in the face of provisions in the Act which specify consequences other than penalty, why should provisions which specify a penalty for breach be read to produce some other consequence?

85 I should mention only a few other examples of sections in the Act which provide for consequences other than a penalty. One is contained in s 31 itself. By s 31(2), unless a contract is signed by builder and owner it is of no effect. Then, by s 33(3), breach of a requirement that a builder not enter into a contract - again the language of s 31(1) - unless a certain warning is given in the contract document has an impact upon the amount that the builder can recover. That is a consequence separate from the penalty which attends breach.

86 Finally I should mention s 132(1), by which, subject to expression of contrary intention, certain terms are rendered void; and s 133, by which -

A failure by a builder to comply with any requirement in this Act in relation to a domestic building contract does not make the contract illegal void or unenforceable, unless the contrary intention appears in this Act.

87 Seventh, it is notable that the maximum penalty imposed by s 31(1) is by no means the highest maximum penalty set by the Act. It is only half the number of penalty units fixed by the Act for breach of other provisions. That contraindicates it being sensible to read the subsection, sub silentio, as rendering a contract void for breach of a requirement to state a particular matter.

88 Eighth, I have already referred to the purpose specified by s 1(c) of the Act, and the object specified by s 4(c). I have explained their genesis, and why they represent a historical anomaly. They do, however, remain in the Act; and their presence underlines, in a way, the importance which the legislature has attached to the provision of insurance. But those circumstances, in my opinion, do not permit s 31(1) - most particularly paragraph (l) - to be construed in a way which is supported neither by the provision read discretely, nor by the sub-section read in the context of the Act as a whole.

89 Ninth, whether or not s 31(1)(l) could be read to embrace want of insurance (as revealed, it might be said, by failure to state relevant details) I think that s 133 would not assist Geftine. The section states that a builder's non-compliance with a statutory requirement does not have any of the specified consequences unless the contrary intention appears. Such a contrary intention should not be discerned in the case of a breach of s 31(1)(l), where the specified consequence is a penalty. That may be contrasted with specification of consequences of the kind mentioned in s 133 in respect of other breaches.[43]

The Building Act

• By its second amended points of claim, Geftine relied upon breach by Dover of s 135 of the Building Act. The consequence was said to be that the contract was void ab initio, or alternatively was voidable at Geftine's option, and that Dover was not entitled to any payments claimed by it pursuant to the contract.[44]

• There was a relevant Ministerial Order, made under authority conferred by s 135(1) of the Building Act.

• Dover breached s 136(2) of the Building Act by not holding a pertinent insurance policy when the contract was entered into; and by not obtaining insurance before work began.

91 According to Geftine's submission, a contract in respect of which there is no insurance is rendered void; and the builder cannot recover for work done on a restitutionary basis. For the reasons which follow, I disagree.

92 First, the consequence of breach, in terms, is that the builder is liable to a penalty. That was the described consequence of breach of s 136 of the Building Act as originally enacted. It was the consequence which was restated when the insurance requirement with respect to domestic building contracts was migrated into the Building Act in 1995.

93 Second, what is now s 136(2) of the Building Act was inserted into that Act by Part 7 of the 1995 Act. The latter Act, as I have pointed out, introduced an apparently comprehensive regime which attached different consequences to different non-compliance with its provisions.. The new s 136(2) inserted into the Building Act attached a consequence of penalty for breach. It thus stood in contrast to the different consequences prescribed, for instance, by ss 11(5), 13(3), 14, 31(2), 33(3) and 132(1) of the 1995 Act - all of which provisions are extant today.

94 Third, the reference in s 133 of the 1995 Act to 'any requirement in this Act' would seem to have applied to the requirement specified by s 140 of that Act, by which s 136(2) was inserted into the Building Act. If that be so, then until Part 7 of the 1995 Act was repealed - as being no longer necessary - s 136(2) must have been understood in light of s 133 of the 1995 Act (which is s 133 of the Act). I cannot discern any 'contrary intention'. Rather, despite the purpose specified by s 1(c) and the object specified by s 4(c) of the 1995 Act - each emphasising the importance of there being insurance - the legislature chose to specify a penalty for breach of the obligation to insure.

95 Fourth, it is the fact that s 133 of the Act, in terms, no longer applies to s 136(2) of the Building Act. But I consider that in determining the intended consequence of the latter provision it is not irrelevant that its genesis lay in an Act to which s 133 applied. I would not infer that the repeal of Part 7 of the 1995 Act - because it was no longer necessary - revealed an intent that s 136(2) was thereafter to have a different consequence.

96 Fifth, the Building Act has its own developed regime which specifies different consequences for different aspects of non-compliance with its provisions. Often the described consequence is a penalty. But that is by no means always the case. See, for instance, ss 137B(3), 172(3), 174(1),174A(4) and 179(2). The existence of such a regime contraindicates an intention, I think, to attach a consequence that a contract is void for a particular breach in respect of which a penalty is the specified consequence.

97 Sixth, it might be thought that the apparent importance to the Building Act, and thus to domestic building contracts, of the existence of insurance would have led to legislation which prescribed something more than a penalty for a builder's want of insurance. But, as I have attempted to show, the structure of the Act and the Building Act is opposed to a conclusion that the legislation has produced any further consequence; and it is not for the Court to legislate by judicial decision.

98 I mentioned earlier the respondent's notice of contention. Geftine thereby sought to rely upon s 176(2A) of the Building Act to support a conclusion that the contract was 'void and/or unenforceable'.

(2A) A builder must not carry out domestic building work under a major

domestic building contract unless the builder is registered under this Part in

the appropriate class of domestic builder.

Penalty: 100 penalty units.

100 I reject Geftine's contention that the subsection has the consequences contended for. Almost all of the reasons which I gave in respect of the argument reliant upon s 136(2) of the Building Act apply equally in respect of s 176(2A), which was also introduced into the Building Act by the 1995 Act. I add, though it is not decisive, that there was no replica of either s 1(c) or s 4(c) of the 1995 Act with respect to registration; and that the penalty imposed for breach of s 176(2A) is relatively small.

101 I have said several times that if I was wrong in concluding that the contact was not void, then I was of opinion that the builder would not have been disentitled to restitutionary relief. I should shortly say why that is so. It all depends upon the language of the legislation. To my mind, none of the provisions which Geftine called in aid could be read to deny a disentitlement to any remedy for work done. The provisions may be sharply contrasted with the provisions considered by the Queensland Court of Appeal in Sutton v Zullo Enterprises Pty Ltd[45] and by this Court in Equuscorp Pty Ltd v Wilmoth Field Warne (a firm).[46] In each of those cases the legislature's intent to deny a breaching party any remedy was made crystal clear.

102 Dover, on the view I take, was entitled to rely upon the contract in pursuit of its counter claim. This means that the tribunal's order in favour of Geftine, made on 4 October 1996, should be set aside. It remains to be determined where the net balance will lie.

103 Counsel for Dover asked this Court to resolve the question of his client's contractual entitlement in the event that the main issue on the appeal was resolved in his client's favour. In my opinion, the Court should not do so. Rather, the question should be remitted for reconsideration by the tribunal - probably, but not inevitably, only upon the material hitherto adduced. I say 'not inevitably' because the tribunal might be persuaded by one or other party to receive further evidence in respect of the counterclaim.

104 It follows from the circumstance that Dover presently has an unresolved contractual entitlement that the entirety of the tribunal's costs order made on 30 October 2006 should be set aside. Until it is determined what amount is contractually payable to Dover, and the amount of any interest payable thereon, it is unknown whether Geftine's 'offer of settlement' would be relevant by reason of the amount offered. It is also speculative what costs order generally might be made if Dover's entitlement proved to exceed that of Geftine.

105 In the circumstances which I have described, it is not presently a live issue whether the offer of settlement was efficacious. It may never become a live issue. But in case it does, I should say something about the merits of the argument in that connection.

106 The costs orders made by the tribunal were as follows:

That [Dover] pay [Geftine's] costs, to be taxed on County Court Scale 'C', on a party and party basis, from the commencement of the proceeding to the 23rd December 2004.
That [Dover] pay [Geftine's] costs, to be taxed on County Court Scale 'C', on an indemnity basis, from the 23rd of December 2004 onwards.
With certificates for counsel based on the fees payable pursuant to County Court Scale 'C' with such refreshers as the taxing officer allows and the reasonable costs of the preparation of the Tribunal book.

107 The tribunal did not rely upon the offer of settlement, and thus upon s 112 of the VCAT Act, with respect to paragraph 1 of its order.[47] Rather, that order was made by application of the general power with respect to costs conferred by s 109.

108 The offer of settlement, made on 23 December 2004, was as follows:

This is an Offer of Compromise served in accordance with Part 4, Division 8 of the Victorian Civil and Administrative Tribunal Act 1998.
The Applicant offers to compromise its claims against the First and Third Respondents and the First and Third Respondents' counterclaim on the terms that follow.
The Applicant pay to the First and Third Respondents the sum of $25,000 ('the settlement sum').
The Applicant shall pay to the First and Third Respondents such costs, if any, as may be agreed between these parties or, in default of agreement, as may be fixed by the Tribunal ('the costs').
The costs, if any, shall be paid to the First and Third Respondents within 14 days of being agreed or fixed, as the case may be.
The Applicant shall pay the settlement sum to the lawyer for the First and Third Respondents within 28 days of the Respondents' acceptance of this Offer of Compromise.
Subject to the First and Third Respondents accepting the offer set out in paragraphs 1 to 6 hereof, the Applicant offers to settle its claims against the Second Respondent on the basis that the Applicant withdraws or discontinues its claims against the Second Respondent, and thereupon the Second Respondent shall pay all its own costs of and incidental to these proceedings.
This Offer of Compromise is made without prejudice.
This Offer of Compromise is open for acceptance for a period of 21 days after the day on which it is served.
This offer is made without prejudice to the right of the Applicant to submit to the Tribunal that the Respondents are not entitled to any costs in this matter.

The first and third respondents were Stone and Dover.

109 The offer was evidently made with s112 of the VCAT Act in mind. This is what the section says:

112. Presumption of order for costs if settlement offer is rejected

(1) This section applies if -

(a) a party to a proceeding (other than a proceeding for review of a decision) gives another party an offer in writing to settle the proceeding; and

(b) the other party does not accept the offer within the time the offer is open; and

(c) the offer complies with sections 113 and 114; and

(d) in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.

(2) 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.

(3) In determining whether its orders are or are not more favourable to a party than an offer, the Tribunal -

(a) must take into account any costs it would have ordered on the date the offer was made; and

(b) must disregard any interest or costs it ordered in respect of any period after the date the offer was received.

Resolution by the tribunal

110 It was contended for Dover before the tribunal that the offer was defective, and so that it could not sustain an exercise of power under s 112. The tribunal noted that Dover had raised two objections to the efficacy of the offer. Only the first of them is now in point. It was this: that the offer was uncertain and ambiguous because of what it said about costs in paragraphs numbered 4 and 10.

111 The tribunal held that the offer was not ambiguous or uncertain. It concluded that the problem was the language of s 112, which - unlike Rule 26.03(7) of Chapter 1 of the Rules - specifies no costs consequences in the event of acceptance of an offer. Geftine, it said, had 'applied its mind to giving clarity to its offer'. It had done so by including paragraphs 4 and 10. The offer had been 'as clear and precise as the section allowed'.

112 By its notice of appeal Dover challenges the order for costs on the following bases:

(1) The Tribunal should have found that, for the purpose of constituting an offer to settle the proceedings in accordance with the provisions of s.112 of the Victorian Civil and Administrative Tribunal Act, 1998 the respondent's offer of settlement was required to contain an offer to settle the question of costs of the proceeding.

(2) The Tribunal should have found that the respondent's offer of settlement was not an offer to settle the proceedings in accordance with the provisions of s.112(1) of the Victorian Civil and Administrative Tribunal Act 1998 because -

(a) the offer of settlement in relation to the question of costs was vague and uncertain;

(b) the offer proposed that in default of agreement as to what, if any, costs would be payable the question of costs be heard and determined by the Tribunal;

(c) the offer was made without prejudice to the right of the respondent to submit to the Tribunal such hearing that the appellants were not entitled to any costs of the proceeding;

(d) the offer of settlement was not an offer to settle the question of costs.

113 In substance, the challenge addresses paragraphs 3 and 4 of the costs order; for, as I have said, the tribunal only relied upon the offer in respect of the order for indemnity costs from the time when the offer was made. It may be that Geftine will in due course obtain a fresh order for its costs on the claim generally, not founded upon s 112, but rather upon s 109. Whether it will do so is a matter for the tribunal.

114 In the event, the question which may arise is whether it would be open to the tribunal to make a new order, relying upon s 112, for 'all costs incurred by' Geftine after the date on which the offer was made.

• Contended that the offer was defective because, to be an effective offer of settlement, an offer must address the entirety of a proceeding, including costs. A proceeding is not settled, it was submitted., if part of it must continue to hearing.

• Argued that the offer was uncertain. It could not be properly be weighed up or assessed.[48]

• Submitted that it was particularly important that an offer strictly comply with s 112, because an offer under that section could lead to displacement of the ordinary rule as to costs set out in s 109(1).

• Submitted that the fault was not in s 112, but in the offer which was made.

• Argued that s 112(3) supported the proposition that an offer must address costs in such a way as will enable the offeree to understand the monetary consequences of its acceptance or rejection.

116 The essence of Geftine's response was that the offer was certain in content and compatible with the costs regime set up by the VCAT Act. It had offered $25.000 to settle the proceeding. Costs had been left within the exercise of the tribunal's statutory discretion - both under s 109 and also under s 112(2). Further, it had been held lawful to make an offer that each side pay its own costs.[49] That emphasised the flexibility of the offer of settlement procedure available under s 112.

117 I have made it clear that resolution of the costs question is not part of the ratio decidendi of this appeal. But I have also said why the question should be answered in a considered way. Against that background, it is my opinion that the offer complied with the requirements of s 112.

118 There is no doubting that for an offer of compromise to be efficacious it must be clear and certain in its terms.

119 It is not, however, the case that as a matter of general principle an offer must remove matters of controversy concerning costs in order to be efficacious. Under the Rules of this Court, costs are left for determination by the Court;[50] and the outcome can never be certain because the prima facie position can be displaced by the Court 'otherwise order[ing]'.

120 Next, emphasising the distinction between the subject-matter of an offer of compromise and costs, 'all in' offers cannot be made under the Court's offer of compromise procedure - although such offers are permissible in the form of Calderbank offers.[51]

121 Thus, under the Rules, it cannot be said that in order to be efficacious an offer must address both claim and costs - the latter so as to provide for a particular outcome. No party, confronted by an offer of compromise, can know with certainty whether it will recover costs, the basis upon which it will do so, still less the true impact of a costs order in respect of costs actually incurred. A party accepting an offer is confronted by a degree of uncertainty.

122 In my opinion, the offer which was made in the present case created no relevant uncertainty. It addressed, as it should have done, Dover's counterclaim; and in doing so it made a definite proposition. There is nothing in Transport Accident Commission v Coyle[52] which tends to a contrary conclusion. The context in which, in that case, an offer by the Commission that each side pay its own costs was considered by this Court was remote from the issue now under consideration.

123 Then, concerning costs, the offer created no greater or lesser degree of uncertainty than that which arises under the Rules, and which is unexceptional. All that Geftine did, with respect to costs, was to tell Dover that by its offer the costs regime set up by the VCAT Act was to operate (in the absence of agreement between the parties as to costs) according to its tenor.

124 It might be said that paragraphs 4 and 10 of the offer were unnecessary surplusage. But, according to principle, they did not make the offer uncertain or incomplete; and in my opinion the offer did not lack efficacy because it effectively encapsulated, as to costs, the statutory regime.

125 I should say something about two practical consequences of the form of the offer. Each of them is the necessary corollary of Geftine's argument.

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