G J Stanbrook Pty Ltd trading as Gardner Homes v East (Costs Hearing) (Building and Property) [2015] VCAT 417

Having regard to section 109 of the Victorian Civil and Administrative Act 1998, and finding that it is fair to do so, the Second Applicant must pay the costs of the Respondent in the proceeding (including the Respondent's costs of and incidental to the Second Applicant's joinder application heard on 29 April 2014), including reserved costs, as follows:

(a) from the commencement of the proceeding to 28 April 2014 the Second Applicant is not liable to pay any of the costs of the Respondent;

(b) the Second Applicant must pay the costs of the Respondent from 29 April 2014 to 8 September 2014 to be agreed between the parties, failing which they are to be assessed by the Victorian Costs Court on the County Court Scale on a party and party basis; and

(c) the Second Applicant must pay the costs of the Respondent from 9 September 2014 to this day, to be agreed between the parties, failing which they are to be assessed by the Victorian Costs Court on an indemnity basis.

1. I heard this proceeding on 21 and 22 January 2015 and made my decision on 23 January 2015, dismissing the applicant's claim and giving reasons orally. On 5 February 2015, the second applicant sought written reasons, and so I published those reasons on 12 March 2015.
2. In summary, I found that the second applicant ("Mr Stanbrook"), as purported assignee of a debt allegedly owing by the respondent ("Ms East") to the first applicant, was not entitled to enforce the alleged debt against Ms East. This is because I found that clause 5 of the building contract between the first applicant and Ms East did not allow an assignment other than with the written consent of Ms East, which did not occur.
3. Ms East seeks costs from 3 October 2013 (when Mr Stanbrook took an assignment of the alleged debt from the first applicant), alternatively 20 April 2014 (when Mr Stanbrook consented to his being joined to the proceeding), alternatively from one or other of the dates of three written offers of settlement to Mr Stanbrook made by Ms East. She seeks her costs on an indemnity basis.

1. By a building contract dated 29 October 2010 between GJ Stanbrook Pty Ltd trading as GJ Gardner Homes (the "builder) and Ms East, the builder agreed to construct a dwelling for Ms East at Lot 190 Plover Way, Whittlesea for the contract price of $205,913.47 (the "contract").
2. Mr Stanbrook was then a director of the builder, and was the registered building practitioner engaged on the works.
3. Clause 5 of the contract provided:

Either party may assign their rights and duties under this Contract with the written consent of the other.

Purported assignment by builder of lock-up claim to EWH South Morang Pty Ltd

1. By progress claim dated 9 February 2012 EWH South Morang Pty Ltd invoiced Ms East for the "Lock Up" stage of the works, in the amount of $72,069.71.
2. By their letter dated 22 February 2012 to Mr Stanbrook and the builder, Ms East's solicitors stated:

In later correspondence and invoices, the company EWH South Morang Pty Ltd is referred to as the builder rather than [Mr Stanbrook] or [the builder]. To date we have not sighted any documents establishing that the contract has been assigned or otherwise transferred to EWH South Morang Pty Ltd.

Absent any evidence that an assignment of the contract has taken place pursuant to clause 5 of the contract, we will assume [Mr Stanbrook] or [the builder] is still the builder under the contract.

1. By letter in response dated 27 February 2012, Mr Emmerson, described as Operations Manager of "East West Homes (South Morang)", informed Ms East's solicitors that Mr Stanbrook is the registered building practitioner contracted to build [the] residence for [Ms East] and that:

there has been a transition period with moving the "building franchise" of GJ Gardner Builders to East West Homes.

Owner's solicitors object to purported assignment of building contract to EWH

1. By letter to Mr Emmerson dated 29 February 2012 in response, Ms East's solicitors wrote:

It is not clear to us who you say is the current builder under the building contract with our client. Can you please confirm and provide us with a copy of the building permit and home warranty insurance certificate showing the identity of the current builder.

We remind you that the initial claim for the lock-up payment was made by a company to [which] our client is not contracted. The company identified in the contract has not made a claim for the lock-up payment.

1. By Notice of Suspension of Works dated 5 March 2012 the builder purported to suspend the works on account of Ms East's alleged failure to pay the lock-up progress claim, and also claimed an extension of time under the provisions of the contract.
2. By letter dated 1 March 2012, in response to Ms East's solicitors' letters dated 22 and 29 February 2012, solicitors engaged by the builder wrote:

The builder is [the builder] and [Mr] Stanbrook is the registered building practitioner and a director of that company. The contract makes reference to an Australian company number. The reference to "Greg Stanbrook" as the builder is an error and the reference should be to "GJ Stanbrook Pty Ltd".

EWH South Morang Pty Ltd ("EWH") is plainly not the builder. It is however a new business entity that arises from the amalgamation of the building businesses conducted by [the builder] and [EWH]. EWH is not of course a party to the building contract and in any event a contract cannot be "assigned" to it. There has been no novation of the building contract. However, a party may assign one or more rights under the contract, such as a right to be paid. Please treat this letter as notice that [the builder] hereby assigns to EWH its right to receive payment under the contract.

1. By letter dated 19 March 2012, Ms East's solicitors responded:

...You claim that [the builder] has assigned its right to be paid under the contract to EWH South Morang Pty Ltd. Absent our client's consent this purported assignment and notice thereof is of no effect.

"Either party may assign their rights and duties under the Contract with the written consent of the other".

As a consequence, GJ Stanbrook Pty Ltd, the builder under the contract has not yet submitted its claim for lock up stage payment.

1. The correspondence to which I have referred makes it plain that Ms East never accepted the purported assignment of the benefit of the lockup progress claim to another party, in this case EWH (South Morang) Pty Ltd. There was also no evidence that Ms East consented to that arrangement.

1. On 7 February 2013 the builder started a proceeding in the Tribunal seeking payment of the lock-up claim. On 19 March 2013, Points of Claim were filed. On 19 June 2013, Ms East filed a Defence and Counterclaim.

1. In June 2013 the builder was placed under external administration and, on 29 August 2013, placed into liquidation.

Purported Assignment by Liquidator to Mr Stanbrook of the Builder's Right to Receive Lock-up payment

1. By undated Deed of Assignment (which, it is conceded, was entered into on 3 October 2013) the liquidator of the builder purported to assign to Mr Stanbrook the debt of $72,069.71 allegedly owed by Ms East in respect of the lock-up claim.
2. No other claims that the builder may have had against Ms East were the subject of the purported assignment.

Ms East denies the entitlement of Mr Stanbrook to take an assignment without her consent

1. Pursuant to orders on 29 April 2014, Mr Stanbrook, as the alleged assignee of the benefit of the purported lock-up claim, was joined as an applicant at his request.
2. The application by Mr Stanbrook for his joinder as second applicant was filed by Mr Stavris, Barrister, who then held a direct brief from Mr Stanbrook. Following joinder, Amended Points of Claim (based on proposed Points of Claim dated 24 January 2014), signed by Mr Stavris, were filed by Mr Stanbrook on 10 June 2014.
3. By Amended Defence and Counterclaim dated 10 July 2014 Ms East denied liability in respect of the lock-up claim. She also pleaded by way of defence that, having regard to the contents of clause 5 of the contract, and the fact that she had not consented to the purported assignment, no assignment had taken place. This was consistent with the correspondence sent by Ms East's solicitors to Mr Stanbrook, the builder and the builder's solicitors during the period prior to and including 19 March 2012
4. By Further Amended Points of Claim dated 23 October 2014 Mr Stanbrook appeared to make a claim on a quantum meruit. By Further Amended Defence dated 5 November 2014 and Second Further Amended Defence dated 11 December 2014 Ms East again denied that an assignment had taken place for lack of her granting consent.
5. Ms East's pleadings, consistent with her solicitors' prior correspondence, demonstrate that the validity of the purported assignment of the benefit of any payment of the lock-up progress claim to Mr Stanbrook, like the earlier purported assignment by the builder to EWH, was at all times put in issue by Ms East.
6. There was no evidence that Ms East ever consented in writing to the purported assignment.
7. By directions made 29 September 2014 this matter was set down for hearing on Tuesday 21 January 2015.

1. Sections 109(1), (2) and (3) of the Victorian Civil and Administrative Tribunal Act 1998 (the "Act") provide as follows:

(1) Subject to this Division, each party is to bear their own costs in the proceeding.

(2) At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding.

(3) The Tribunal may make an order under sub-section (2) only if satisfied that it is fair to do so, having regard to-

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

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

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

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

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

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

(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;

(e) any other matter the Tribunal considers relevant.

1. It is apparent from the terms of section 109(1) of the Act that the general rule is that costs do not follow the event, and that each party is to bear their own costs in a proceeding. By section 109(2) of the Act, the Tribunal is empowered to depart from the general rule, but it is not bound to do so, and may only exercise that discretion if it is satisfied that it is fair to do so, having regard to the matters set out in section 109(3).
2. In Vero Insurance Ltd v Gombac Group Pty Ltd,[1] Gillard J set out the steps to be taken when considering an application for costs under section 109 of the Act:

In approaching the question of any application to costs pursuant to section 109 in any proceeding in VCAT, the Tribunal should approach the question on a step by step basis, as follows-

(i) The prima facie rule is that each party should bear their own costs of the proceeding.

(ii) The Tribunal may make an order awarding costs, being all or a specified part of costs, only if it is satisfied that it is fair to do so. That is a finding essential to making an order.

(iii) In determining whether it is fair to do so, that is, to award costs, the Tribunal must have regard to the matters stated in s 109(3). The Tribunal must have regard to the specified matters in determining the question, and by reason of paragraph (e) the Tribunal may also take into account any other matter that it considers relevant to the question.

1. I do not consider that it is fair that Mr Stanbrook should be ordered to pay the costs of Ms East prior to his joinder to the proceeding on 29 April 2014. Prior to that date, Mr Stanbrook was not a party to the proceeding.

COSTS IN THE PROCEEDING FOR PERIOD AFTER 29 APRIL 2014

1. I am satisfied that it is fair to order that Mr Stanbrook pay Ms East's costs in the proceeding from 29 April 2014.
2. I have reached this conclusion having regard to section 109(3)(c) of the Act. I consider that a plain reading of clause 5 of the contract made it clear that the debt could not be assigned. Therefore, the claim was unmeritorious.
3. Further, Ms East made plain to Mr Stanbrook, prior to the issue of the proceeding, and prior to his joinder, that the purported assignment was of no effect because she had not given her consent, as required by clause 5.[2] Mr Stanbrook sought his joinder to the proceeding nevertheless. Ms East's assessment was entirely vindicated by my orders following the hearing. I consider this aspect to be a relevant matter within the meaning of section 109(3)(e) of the Act, when exercising my discretion with regard to costs.

IS MS EAST ENTITLED TO AN ENHANCED COSTS ORDER?

1. On 9 September 2014 Ms East's solicitors served Mr Stavris with a written offer, marked "without prejudice save as to costs" (the "first offer") which stated, in part:

...[6] ...In our view, [Mr Stanbrook] cannot challenge the termination of the contract, as he, in his individual capacity, was not a party to the contract and therefore lacks standing to do so in this, or any, proceeding.

...[8] ...in our view, the Tribunal lacks the jurisdiction to adjudicate on matters relating to the contract by reason of [Mr Stanbrook's] lack of standing.

...[10] Further, the failure by you and [Mr Stanbrook] to address what we say is a fatal flaw in your pleadings, has caused, and is continuing to cause, [Ms East] loss and damage.

[11] As suggested to you over a month ago, we propose that proceedings simply be struck out, by consent, with no orders as to costs.

...[13] If [Mr Stanbrook] continues with the proceeding, or attempts to challenge the termination of the contract, and is unsuccessful, [Ms East] will be seeking her costs on an indemnity basis (emphasis added).

1. Mr Stavris responded by email dated 15 September 2014. He said that he was not instructed to act for Mr Stanbrook, but that he had passed the first offer on to Mr Stanbrook. Mr Stanbrook does not dispute that he received the first offer in this manner.
2. The first offer was not accepted by Mr Stanbrook.
3. On 7 October 2014 Mr Blunt sent another letter to Mr Stanbrook marked "without prejudice save as to costs" (the "second offer") stating, among other things:

(a)(sic) ...you do not have any entitlement to any progress payment in respect of the lock-up stage (even if the debt was validly assigned by the liquidator to you-which is expressly denied) because the dwelling did not satisfy the definition of "lock-up stage" as defined in the contract or at law....

(3) Defending your proceeding has been financially devastating for [Ms East]. In addition, her house remains in a state of disrepair by reason of the company's breach of contract, s 8 of the Domestic Building Contracts Act 1995 and/or its duty of care owed to our client.

(4) It is also apparent that despite having, at various stages of the proceeding, legal representation you have failed to grasp the concept of [the first applicant (in liquidation)] as a corporate entity, and you as an individual.

(5) Based on the above, we consider that your claim against [Ms East] will fail. If you continue with the proceeding and are unsuccessful we will seek an order from the Tribunal that you pay our client her legal costs at least on a party/party basis. We estimate that [Ms East's] costs for defending the proceeding will be between $35,000 and $55,000.

(6) However, in order to avoid any further ongoing delay in resolving your claim against [Ms East] and the unnecessary costs of both parties proceeding to a hearing of the proceeding, we are instructed that our client offers to pay you, in full and final settlement of the proceeding, the total sum of $10,000 ("the offer").

(7) This offer is conditional upon you agreeing to and signing the Terms of Settlement enclosed with this letter.

(8) This offer of settlement ids made in accordance with the principles of Calderbank v Calderbank [1975] 23 All ER and is open for acceptance until 5.00pm on 21 October 2014, at which time it will be withdrawn.

(9) By reason of the matters raised above, our client views her offer of settlement as reasonable and it should be accepted (emphasis added).

1. The second offer was also not accepted by Mr Stanbrook.
2. Section 112 of the Act allows a party to make a written offer to settle a proceeding, provided it complies with sections 113 and 114 of the Act. The consequences of an offeree not accepting a complying offer are also set out in section 112(2) of the Act.[3] These costs provisions do not, however, constitute a code.[4] It follows that a party to a proceeding may make another type of offer to settle the proceeding, that does not meet the description of an offer in sections 113 and 114 of the Act.[5] An unreasonable rejection by an offeree of what is known as a Calderbank offer may be considered as a relevant matter within the meaning of section 109(3)(e) of the Act, when deciding whether it is fair to order costs in a proceeding.
3. A Calderbank offer is where the offeror states in the offer that, although it is made "without prejudice", the offeror reserved its right to produce it to the Tribunal on the question of costs. The first offer and the second offer each met this description.
4. An imprudent refusal of an offer of compromise is a matter to which a Court may have regard when considering whether to order indemnity costs.[6] The critical question is whether the rejection of an offer was unreasonable in the circumstances.[7] In Hazeldene's case_,_ Warren CJ, Maxwell P and Harper AJA discussed the circumstances that might lead a court to determine whether the rejection of an offer was unreasonable:

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. At the same time, a Court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard to at least the following matters:

the stage of the proceeding at which the offer was received;

the time allowed to the offeree to consider the offer;

the offeree's prospects of success, assessed at the date of the offer;

the clarity with which the terms of the offer were expressed

whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it[8].

1. In my view, it was unreasonable for Mr Stanbrook not to have accepted the offer dated 9 September 2014. It was sent to Mr Stanbrook about 5 months after he consented to being joined to the proceeding, and after Ms East had again made plain by her Amended Defence and Counterclaim dated 10 July 2014 that, given the fact that she had not consented to the purported assignment, no assignment had taken place. The offer that the proceeding should be struck out, with no orders as to costs, was in my view a reasonable offer, given also Mr Stanbrook's lack of prospects of success, viewed objectively, as at the date of the offer.
2. It might be said against the form of the first offer that it failed to set out, with reasonable specificity, the basis for Ms East's contention that Mr Stanbrook should accept the offer, such as by stating the reasons that his case as a purported assignee was hopeless, or because he had no reasonable prospects of doing better in the proceeding than was being offered in advance. In my view, the weakness of Mr Stanbrook's position was adequately stated in the correspondence to which I have referred, and in the Amended Defence and Counterclaim[9]
3. If, contrary to my finding, it was not unreasonable for Mr Stanbrook not to have accepted the first offer, then it was unreasonable for him not to have accepted the second offer. The second offer provided a cogent summary of the financial devastation incurred by Ms East in defending an unmeritorious proceeding, yet she was still prepared to offer $10,000 to Mr Stanbrook in order to avoid further delay and the incurring of unnecessary costs.
4. I find that Mr Stanbrook failed in the proceeding to do better than what was offered to him by both the first offer dated 9 September 2014 (a mutual withdrawal of claims) or the second offer dated 7 October 2014.
5. I find that in these circumstances that Ms East is entitled to be paid her costs in the proceeding from 9 September 2014 on an indemnity basis.
6. An award of costs on an indemnity basis is usually made only in exceptional circumstances. I am also satisfied that Mr Stanbrook's refusals to accept either of the offers demonstrate that Mr Stanbrook persisted in what should have been seen, on proper consideration, to have been a hopeless case.[10] I consider that this should attract an enhanced costs award in favour of Ms East.

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

(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; ...

1. In other words, it is in a party's interest to make an offer of compromise pursuant to the provisions of the Act. This is because, if the final orders obtained by the offeree in the proceeding are not more favourable than the offer, and unless the tribunal orders otherwise, the offeror becomes prima facie entitled to an order for the costs incurred by the offeror after such an offer was made. This avoids the need for the party claiming costs to persuade the Tribunal, in the exercise its discretion, of the application of one of the required factors described in section 109(3) of the Act. Rather, the offeree must persuade the Tribunal that it was not unreasonable for the offeree to reject the offer.
2. On 12 December 2014 the solicitors for Ms East sent an email to the Mr Stanbrook at his nominated email address, enclosing a letter addressed to him together with a without prejudice settlement offer alleged to have been made pursuant to Part 4 Division 8 of the Act (the "third offer"). It stated, among other things:

...[2] [Ms East] offers to pay to the [Mr Stanbrook] in full and final settlement of the [Mr Stanbrook's] claims against [Ms East] $10,000 inclusive of interest and costs ("the settlement sum")

...[5] This Settlement Offer is made in accordance with Sections 112, 113 and 114 of Part 4, Division 8 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) and is open to be accepted until 4.00pm on the 13 day of January 2015

1. The third offer was not accepted by Mr Stanbrook.
2. The section 112 offer dated 12 December 2014 was expressed to be an offer made in accordance with sections 112 to 114 of the Act. It stated that the Respondent offered to pay the Applicant $10,000 inclusive of costs and interest in order to settle the proceeding, such payment to be made within 30 days of acceptance.
3. It is common ground that the section 112 offer complied with the Act.
4. Mr Stanbrook failed to do better in the proceeding than what was offered by the third offer.
5. Although section 112 uses the expression "all costs", the Court of Appeal in Velardo v Andono[11] has considered the meaning of that expression as follows:

The offer foreshadowed an application for solicitor and own client costs. Such an order is the frequent, but no means the inevitable, concomitant of a successful Calderbank offer. Section 112(2) creates ... a prima facie entitlement to payments of "all costs" in favour of a successful offeror. Ordinarily, it appears, costs would be assessed in such a case on a party and party basis-although the Tribunal would be empowered to allow costs on a more favourable basis.[12]

1. I do not regard the decision of Velardo as limiting the Tribunal's discretion to make an enhanced costs order, in circumstances where an offer made pursuant to section 112 of the Act is less favourable than the determination of the Tribunal. Each case must, however, be assessed according to its own facts, informed by the relevant case law. In Peet v Richmond (No.2[13]), Hollingworth J stated:

[121] As a matter of principle, if one party has drawn the futility of the case to the attention of the losing litigant, and the losing litigant has wilfully ignored that, those may be circumstances supporting a special costs order. But it does not follow that a special costs order can only be made if the successful party has drawn the futility to the other side's attention.

1. Later in her Honour's judgment, she expressed the following:

[170] However, an imprudent refusal of an offer of compromise may be sufficient to justify an award of costs on a special basis. The question must always be whether the particular facts and circumstances of the case, as they existed at the time the offer was refused.

1. I have found in the exercise of my discretion that it was unreasonable for Mr Stanbrook, in all the circumstances, not to have accepted the first offer and the second offer, and that costs on an indemnity basis should be paid from the date of the first offer.
2. One of the circumstances which may be taken into account when considering whether costs should be ordered on a more favourable basis, where there has been a rejection of an offer made under section 112, is whether it has been unreasonably refused. Given the contents of the correspondence from the solicitors for Ms East and the Amended Points of Claim, and the first and second offers, I consider that the rejection by Mr Stanbrook of the third offer can also be viewed as unreasonable.
3. Taking this further factor into consideration, I find that it is fair, in this particular case, that an enhanced costs order should be made from the date of the first offer, being 9 September 2014.
4. I make the orders attached.

[1] [2007] VSC 117

[2] See Ms East's solicitors' letter to the builder dated 19 March 2012.

[4] See Alali v Mina [2005] VCAT 55 at [8].

[5] See Velardo v Andonov [2010] VSCA 38 at [39]

[6] See Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298 at [17]- [20] and cases referred to therein.

[9] Whether there is a need to descend into specificity as to why the offer should be accepted must depend upon a consideration of all the circumstances existing at the time of the offer: see Aljade v MKIC v OCBC [2004] VSC 351 per Redlich J at [87], adopted in Hazeldene's at [26]-[29].

[10] See Milankovic v Binyan Ltd [2010] VCAT 538 at [26].

[11] [2010] VSCA 38

[13] [2009] VSC 585.