1. Under s53 of the Domestic Building Contracts Act 1995 ("DBC Act") the Tribunal may make any order it considers fair to resolve a domestic building dispute including an order for damages in the nature of interest. Section 53(3) of the DBC Act provides:

When awarding damages in the nature of interest, the Tribunal may base the amount awarded on the interest rate fixed from time to time under s2 of the Penalty Interest Rates Act 1983 or on any lesser rate it thinks appropriate.

1. The Owners made payment of the sum ordered, $19,193.97 on 10 August 2012. The Builder seeks interest on the sum ordered for the period December 2010, being the date the Builder says it completed works under the building contract, to the date the Owners made payment of the sum ordered. The Builder submits that the appropriate rate of interest is the rate prescribed in the building contract for outstanding payments, namely 12%. It submits that the interest is payable pursuant to the terms of the building contract or alternatively under s53 of the DBC Act.
2. The Owners say that the Builder is not entitled to interest pursuant to the building contract. The Builder did not raise the alleged entitlement in its pleadings or during the course of the hearing. The owners say that if it had been raised they would have defended the claim on the basis that the contractual clause amounted to a "penalty".
3. I am satisfied that, having not pleaded or presented in evidence any claim for interest as a contractual entitlement, the Builder is now excluded from making such claim. The Builder remains entitled, however, to seek an order for interest under s53 of the DBC Act.
4. As noted by Senior Member Lothian in Ashjam v Carroll [2007] VCAT 661, the fact that a party has been awarded a sum of money does not mean that that party has an automatic entitlement to damages in the nature of interest. The Tribunal must be satisfied that it is fair.
5. In this proceeding the builder sought payment of $114,737.16 as monies owed to it by the Owners pursuant to the building contract between them. The Owners defended the claim saying that:
   • - the Builder's payment claim included unjustified or excessive charges;
   • - the Builder failed to allow credit rebates for works done by the owners;
   • - the Builder must bear the cost of rectifying defective building works for which it is responsible.
6. In my substantive decision I found that the Builder had made some unjustified and excessive charges and had failed to credit the Owners for certain works they had carried out. I also found that some of the building works carried out by the builder were defective and I made allowance for the cost of rectification works. After making allowances for these matters, I found that the Builder was owed $19,193.97.
7. The sum ordered to be paid to the Builder is not a measure of damages flowing from a breach of contract, but rather an assessment of the Builder's entitlement under the building contract after allowing for the cost of rectifying defective works. I am satisfied that it is fair to award interest on the sum, as compensation for the reduced value of money over the passage of time and the loss of use the money, from the time when the builder completed its works under the contract to the date the owners made payment of the sum ordered. I am satisfied that the builder's works were completed by mid December 2010. I also consider it fair that the interest rate be that prescribed for the applicable period pursuant to s2 of the Penalty Interest Rates Act 1983. That rate is 10.5%.
8. Accordingly I will order the Owners to pay interest, at the rate of 10.5%, on the sum ordered from 15 December 2010 to 10 August 2012. I calculate that sum to be $3,337.18.

1. Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 ("the Act") provides that each party is to bear their own costs in the proceeding, however the Tribunal, may, if it is satisfied that it is fair to do so, order that a party pay all or a specified part of the costs of another party. The relevant provisions of s109 are:

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

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

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

(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. In Vero Insurance Ltd v The Gombac Group Pty Ltd [2007] VSC 117 at [20], Gillard J sets out the step by step approach to be taken by this Tribunal when considering an application for costs pursuant to s109 of the Act:
   • (i) The prima facie rule is that each party should bear their own costs of the proceeding;
   • (ii) The Tribunal should 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 s109(3).

1. Although the outcome of the proceeding was that the Owners were ordered to pay $19,193.97 to the Builder, the Owners submit that, by reason of an offer they made to settle the dispute prior to the commencement of the proceeding, it is fair that the Builder pay their costs of the proceeding. It is not submitted that the offer is an offer attracting the provisions of s112 of the Act. Rather, it is submitted that the offer is a relevant matter for the Tribunal to consider under s109(3)(e) of the Act.
2. The offer was made in a lengthy letter dated 14 December 2010 from the Owners' then lawyers to the Builder's lawyers. The background to the offer is that on 9 November 2010, at which time the works to be carried out by the builder under the building contract were almost completed, the parties met on site in an attempt to clarify and resolve issues in dispute. The Owners say that at this meeting the parties discussed various credit claims of the Owners and various alleged defective building works. By the 14 December 2010 letter, the Owners offered to resolve the matter, essentially on the following terms:
   • - that the Builder grant the Owners' credit claims as discussed at the site meeting;
   • - that in respect of defective works discussed at the meeting, the Builder provide further credits to the Owners in lieu of rectifying the defects;
   • - that the Owners would require no further works to be done;
   • - that the Owners would release the Builder from the Builder's obligations under Clauses 17 and 19 in the building contract (those clauses relate to defects raised by the Owners at a final site inspection and within a 3 month liability period);
   • - that the Owners would accept the Builder's final payment claim in the sum of $22,331.40, such sum arrived at after making allowance, as estimated by the owners' expert, for the abovementioned credit allowances;
   • - it was acknowledged that if the Builder had already attended to rectification of some defects, a further allowance for such works would be granted to the Builder, subject to the Owners' expert verifying that the rectification works had been satisfactorily carried out;
   • - the Owners agreed to pay the net final payment claim, $22,231.40 or such further adjusted sum in the event the Builder had attended to rectification of any defective works, within 3 days of the parties signing a Deed of Settlement and Release and the Builder providing to the Owners a Certificate of Occupancy and various trades compliance certificates.
3. The Owners say that, having regard to the sum they were ultimately ordered to pay and bearing in mind the fact that the offer was made before this proceeding commenced, it is open to the Tribunal to find that the Builder ought to have accepted the offer. The Owners say that, by not accepting the offer, the Builder has unreasonably caused the Owners to incur the costs of the proceeding.
4. For a number of reasons, I do not accept the Owners' submission.
5. Acceptance of the offer required first that the parties sign a Deed of Settlement and Release. I do not accept, as the Owners suggest, that the preparation and execution of a Deed of Settlement and Release would have been a relatively straightforward task. Bearing in mind the large number of items in dispute at the time, I think it very likely that the parties would have found it difficult to reach agreement as to the precise terms of the Settlement Deed.
6. The net final payment to be made to the Builder pursuant to the offer was subject to the Builder's provision to the Owners of a Certificate of Occupancy. At the time the offer was made, there were a number of outstanding works, for which the Owners were responsible, that were holding up the issue of the Certificate of Occupancy. It was not until the owners completed works for which they were responsible that the Certificate of Occupancy was issued on 22 August 2011. Prior to that date, the Builder had commenced the proceeding in this tribunal seeking, amongst other things, an order that the Owners complete the outstanding works required for the issue of the Certificate of Occupancy.
7. It is not difficult to envisage the disagreements and difficulties the parties would have encountered in drafting a Deed of Settlement in circumstances where payment to the Builder was dependent upon it providing the Certificate of Occupancy, but the Certificate of Occupancy could not be obtained until the Owners completed various works. Further, as became apparent during the hearing, the scope of works the owners were to complete was a matter of dispute.
8. Further, there is insufficient evidence to find that the parties were in agreement as to the credit claims and defective works referred to in the offer.
9. For the above reasons, I am not satisfied that the offer embraced all the matters in dispute between the parties or that they would have reached agreement on the terms of a Deed of Settlement and Release. Accordingly, I am not satisfied that the making of the offer by the applicant constitutes sufficient reason to depart from the prima facie rule that each party bear its own costs.

1. The Builder submits that it is fair that I depart from the prima facie rule and order that the Owners pay its costs for the following reasons:
   • - Prior to the commencement of the proceeding, the Owners had taken possession of the home without authorisation from the builder, the Certificate of Occupancy had not been issued by reason of the Owners failure to complete outstanding works and, until the Certificate of Occupancy issued, the Builder was unable to claim the final payment due to it under the building contract. The Builder says that, in these circumstances, it had little option but to commence the proceeding.
   • - It says that if it does not obtain a costs order in its favour, the proceeding will have been "entirely futile" as the fruits of litigation, the payment order in favour of the Builder, will be outweighed by the cost of the litigation.
   • - The nature of the proceeding, both factual and legal, was complex.
   • - The Builder says that in circumstances where it has succeeded in obtaining an order for payment, albeit for a lesser sum than the sum claimed, its claim ought be seen as significantly stronger than the claim of the Owners.
   • - On about 9 November 2011, early in the life of the proceeding, the Owners entered a conditional costs agreement with their lawyers whereby their obligation to pay their own legal costs, other than certain disbursements, was conditional upon them obtaining a successful outcome in the proceeding. Under the agreement, a successful outcome meant a costs order in favour of the owners and recovery of the costs ordered. The Builder says that, because of the conditional costs agreement, the Owners faced a lesser risk on costs than the Builder and, under s109(3)(e) of the Act, this is a relevant matter for consideration.
2. In my view, the conditional costs agreement has no relevance. That the owners struck a deal as to costs with their lawyers has no bearing, in my view, as to whether it is fair to depart from the prima facie costs rule and order costs in favour of the Builder.
3. The fact that the Builder's costs of the litigation outweigh the fruits of the litigation is, in my view, of little relevance. A litigant in this Tribunal, represented by lawyers, should know from the outset that there is no guarantee of any costs order, regardless of the outcome of the litigation. To award costs simply because a "victory" becomes pyrrhic if not accompanied by a favourable costs order would, in my view, be to ignore the clear intention of s109(1) of the Act.
4. I do not accept that the Builder's claims in the proceeding were significantly stronger than the Owners' claims. Although the Owners were ordered to make payment to the Builder, the sum of the payment is significantly less than the sum claimed by the Builder. The Owners partially, and to a significant degree, successfully defended the claims brought against them and it cannot be said that the Owners made claims that had no tenable basis in fact or in law.
5. The Builder says that the conduct of the Owners left him no option but to issue proceedings. I consider that, pursuant to s 109(3)(e) of the Act, I may consider the conduct of the parties prior to the commencement of the proceeding as relevant to my consideration as to whether it is fair to depart from the prima facie costs rule.
6. I accept that the Builder found itself in the difficult position of being unable to achieve "completion" of the building contract until the Owners met their obligation to complete works required for the issuing of the Certificate of Occupancy. However, I consider the difficulty the Builder found itself in had as much to do with its own conduct as the conduct of the Owners.
7. Prior to commencing the proceeding, the Builder had notified the Owners of its final payment claim in a sum of around $133,000 (subsequently reduced to $114,737). In my substantive decision I found that many of the Builder's claims for variation works were unjustified or excessive. I found that the builder had legitimate claims totalling only $45,831.16 before making further allowances in favour of the owners for works they carried out and for the cost of rectifying defects in the works carried out by the builder.
8. As set out in my substantive decision, I also rejected a number of the Owners' "credit" claims for works they carried out which they say fell within the builder's responsibility under the building contract. I did not accept the Owners' interpretation of the building contract because I found it was not reconcilable with the clear intention of the parties when entering the contract.
9. In my view, the conduct of both the Builder and the Owners caused the dispute which led to the litigation and I am not satisfied in this case that I should depart from the prima rule as to costs by reason only of the Owners conduct.
10. Finally, I turn to the nature and complexity of the proceeding which, pursuant to s109(3)(d) of the Act, I should have regard to when considering whether it is fair to depart from the prima facie costs rule.
11. The proceeding involved matters of factual and legal complexity. The Owners do not dispute this. As noted above, I consider the conduct of both parties caused the dispute. In my view, the complexity of the proceeding reflects the combative approach of both parties more than any inherently difficult factual or legal matters. For this reason, I am not satisfied that it would be fair to depart from the prima facie costs rule and award the Builder costs.

1. For the above reasons, I will order that the Owners pay the Builder interest in the sum of $3,337.18 and I will make no order as to costs.