1. The applicants must pay the respondent's costs of and incidental to the proceeding to be taxed in default of agreement by the Costs Court on a standard basis on the scale of costs under r 1.07 of the Victorian Civil and Administrative Tribunal Rules 2018 (as in force).

1. On 23 October 2025, the Tribunal handed down final orders and reasons, dismissing the applicants' ('Owners') claim and allowing the respondent's ('Builder') counterclaim. The Owners were ordered to pay the Builder the sum of $12,924.30.
2. The Builder made two settlement offers dated 21 July 2022 ('First Offer') and 8 July 2025 ('Second Offer'). The Owners did not respond to either offer.
3. The Builder seeks its costs of the proceeding.
4. On 4 December 2025, the Builder filed an application for costs. This was followed by submissions dated 4 December 2025 in support of its costs application.
5. On 30 January 2026, the Owners filed submissions in reply.

1. Section 109(3) of the Victorian Administrative and Civil Tribunal Act 1998 (Vic) (the 'Act') provides:

(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;

(d) the nature and complexity of the proceeding;

(e) any other matter the Tribunal considers relevant.

1. The approach of the Tribunal to the question of costs was summarised by Gillard J in the case of Vero Insurance Ltd v The Gombac Group Pty Ltd [2007] VSC 117 at [20]:

(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. The prime requirement is that the costs order be fair, which has been said to require that the order be "just and appropriate in the circumstances".[1]

1. The Builder seeks its costs of the proceeding, including its costs on an indemnity basis.
2. For there to be an award of indemnity costs, special circumstances must exist. In Ugly Tribe Co Pty Ltd v Sikola & Ors,[2] when considering whether to award indemnity costs, Harper J identified the following circumstances warranting a special costs order, noting that the categories are not closed:

(a) the making of an allegation, known to be false, that the opposite party is guilty of fraud;

(b) the making of an irrelevant allegation of fraud;

(c) conduct which causes loss of time to the court and to other parties;

(d) the commencement or continuation of proceedings for an ulterior motive;

(e) conduct which amounts to a contempt of court;

(f) the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and

(g) the failure after the commencement of a trial, and without explanation, to discover documents, the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.

1. If I am satisfied that s 109(2) of the Act is enlivened, I must consider if there are special circumstances to determine whether the conduct of the Owners was such that a special costs order is appropriate.

1. The Builder relies on two settlement offers in support of its costs application.
2. Section 112 states:

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 subsection (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.

(a) with prejudice, meaning that any party may refer to the offer, or to any terms of the offer, at any time during the proceeding; or

(b) without prejudice, meaning that the Tribunal is not able to be told of the making of the offer until after it has made its orders in respect of the matters in dispute in the proceeding (other than orders in respect of costs).

(2) If an offer does not specify whether it is made with or without prejudice, it is to be treated as if it had been made without prejudice.

(4) If an offer provides for the payment of money, the offer must specify when that money is to be paid.

Provisions concerning the acceptance of settlement offers

(1) An offer must be open for acceptance until immediately before the Tribunal makes its orders on the matters in dispute, or until the expiry of a specified period after the offer is made, whichever is the shorter period.

(2) The minimum period that can be specified is 14 days.

(3) An offer cannot be withdrawn while it is open for acceptance without the permission of the Tribunal.

(4) In deciding whether to give permission, the Tribunal may examine the offer, even if it was made without prejudice.

(5) If the offer was made without prejudice, a member of the tribunal who examines it for the purposes of subsection (4) can take no further part in the proceeding after determining whether or not to give permission.

(6) A party can only accept an offer by giving the party who made it a signed notice of acceptance.

(7) A party may accept an offer even though it has made a counter-offer.

1. The Builder seeks orders for its costs of the proceeding, including costs on an indemnity basis.
2. In support of its application, the Builder filed and relies on affidavits of Emma Restall dated 22 November 2024 ('First Restall Affidavit') and 4 December 2025 ('Second Restall Affidavit').

1. The Builder made two written settlement offers to the Owners. The First offer dated 21 July 2022 was for the Owners to withdraw their claim and pay the Builder $10,000 on its counterclaim. The First offer was inclusive of costs, that is each party would bear their own costs. The Builder made a Second offer in July 2025 to compromise the entirety of the proceeding on the basis the parties 'walk-away' from the proceeding and bear their own costs.
2. The Builder states that, pursuant to s 112 of the Act, the offer must be in writing and must also be clear and certain in its term.[3] The offer does not need to take a particular form but does need to be open for acceptance for a period of at least 14 days.[4] The offer must specify a time limit for acceptance.[5] The Builder refers to the Tribunal's decision in Architectural Building,[6] where the Tribunal held the offer must settle the whole proceeding and there may be an offer to settle on the basis that the applicant withdraw his or her application with each party bearing their own costs,[7] alternatively may deal with the question of costs.[8]
3. The Builder contends that the First and Second offers satisfy the above criteria - that is, the offers were in writing, clear, set a valid period for acceptance and settle the whole proceeding whilst dealing with the questions of costs.
4. The Builder submits that the settlement offers complied with ss 113 and 114 of the Act and, importantly, the Tribunal's determination of the claims was not more favourable to the Owners than the offers made by the Builder.
5. The Builder states that the Tribunal is required to consider any costs that it would have ordered on the date the offer was made. The offer may be an 'all in' offer. The Builder refers to Metricon Homes Pty Ltd v Sawyer,[9] Garde J stated:

[21] One of the distinct advantages of an "all-in offer" is that the offeror party knows exactly how much will have to be paid to the other party to settle the case, if the offer is accepted. Likewise, the offeree party knows exactly how much will be received if the offer is accepted. While a party's own legal costs may have to be added to, or deducted from the settlement amount to determine the total amount to be expended or received, the amount to be added or deducted is capable of quantification by an enquiry of that party's own legal adviser, and is not dependent on the costs charged by the opposing party's legal adviser as assessed by the Costs Court. In this way, the use of "all-in" offers may simplify the settlement of proceedings, not least where there is a litigant in person who may not understand or may distrust the costs assessment and taxation process.

1. The Builder also refers to Wright v Bendigo Bulk Carpets Pty Ltd [2022] VCAT 728, where it was observed that the significance of s 112(3)(a) in the context of an 'all in' offer is that it provides a true comparison between the value of the offer (as a sum plus costs) and the amount of the Tribunal's award. An 'all in' offer also establishes the amount of the offer in practical terms.[10]
2. The Builder submits that its settlement offers were 'all in' offers and, if accepted, the Owners would have only had to pay $10,000 towards the Builder's counterclaim and, at best, each party would have 'walked away' and borne their own costs.
3. The Builder submits the true comparison of the award in this case is that the Owners were entirely unsuccessful. The parties have incurred costs and have done so to achieve an outcome that was not more favourable than either of the offers. The Builder further submits that, in the event the Tribunal were to make an order for costs at the time of the offers, the comparison is stark.
4. The Builder also submits that a costs order should be made payable from the expiration of the First offer made on 21 July 2022, being 5 August 2022 and should be on an indemnity basis.

1. The Builder submits that its arguments in support of the First and Second offers complying with s 112 of the Act enliven s 109(2) and displace the presumption that the parties bear their own costs under s 109(1).

1. Under s 109(3)(a), the Builder contends that the Owners' conduct unnecessarily disadvantaged it. The Owners' conduct is set out in the Restall Affidavits at [34], [36], [37] and [41]. The Builder claims that it was unnecessarily disadvantaged by the Owners in the proceeding, namely the commencement and continuation of the proceeding, consistent with the matters identified in Ugly Tribe, as follows:

(a) the Owners' conduct resulted in loss of time to the Tribunal and the Builder;

(b) the Owners commenced and continued the proceedings for an ulterior motive; and

(c) this behaviour was in wilful disregard of known facts or clearly established law.

1. The Builder submits the Owners continued with the proceeding despite deficiencies in their claim being identified by the Builder as early as 31 March 2022. The deficiencies identified at the time were not remedied by the Owners and tainted the entirety of the proceeding.

1. The Builder submits that under s 109(3)(b), the Owners unreasonably prolonged the proceeding.
2. The Builder notes the proceeding was originally listed for a 3 day final hearing on 23 November 2024. However, because of the changing nature of the evidence and the Owners' disclosure of material at the hearing, the listed hearing day had to be adjourned.
3. The Builder asserts that:

(a) From the commencement of the proceeding on 20 September 2020 to the final hearing, the Owners filed and served four versions of their Points of Claim.[11]

(b) In the same period, the Owners relied on 5 expert reports from Mr Rodriguez, engineer. Each report purported to add different and new defects and each report was inconsistent with previous ones.[12]

(c) The hearing listed for 23 November 2024 had been adjourned by reason of the late change in pleadings and a desire to rely on further expert evidence for issues which could and should have been investigated by the Owners' expert during the 4 years prior to the hearing.

1. The Builder submits that the proceeding was on foot for 5 years and was a direct result of the Owners' conduct and, therefore, unreasonably prolonged the proceeding.

1. The Builder acknowledges that, while it was ultimately successful, it does not automatically mean the Owners' claims were so weak as to engage s 109(3)(c).[13]
2. The Builder refers to Attorney-General (Vic) v Wentworth,[14] where Roden J stated:

Proceedings are vexatious if they are instituted... If they are brought... if, irrespective of the motive of the litigant, they are obviously untenable or manifestly groundless as to be utterly hopeless.

1. The Builder contends that the Owners brought and maintained their claim for damages in circumstances where they knew or ought to have known that such a claim was unfounded in law or fact.
2. The Builder cites Re Fountain Selected Meats,[15] where Woodward J stated that it is appropriate to consider awarding indemnity costs where it appears that an action has been commenced or continued in circumstances where the applicant, properly advised should have known that there were no prospects of success. Woodward J further said that, in these circumstances, the action must be presumed to have been commenced or continued for an ulterior motive or there was some wilful disregard of the known facts or established law.[16]
3. The Builder submits that although the Owners claimed they are entitled to the cost of rebuilding the home or the cost of substantial rectification works, the Tribunal found that:

(a) there was no evidence of any consequential damage;

(b) the Owners have not proved that the Builder breached any of the statutory warranties in relation to the alleged defects and, accordingly, the Builder is not liable for the Owners' loss and damage.

1. The Tribunal found against the Owners and in favour of the Builder. The Builder contends that, by the Tribunal's reasons, there is substantive evidence to support the position that the Owners conducted the proceeding in a vexatious manner. Accordingly, there was unreasonable conduct, and the Builder was unnecessarily disadvantaged by the unreasonable conduct.
2. The Builder further submits the Owners were aware of the deficiencies and inconsistencies in their evidence and lacked reasonableness in the relief sought. Despite this, they commenced and continued with the proceeding, including causing an adjournment. This conduct resulted in wasted costs of both the Builder and the Tribunal.

1. The Builder submits that the proceeding was sufficiently complex to warrant legal representation for both parties.
2. The amounts claimed by the Owners were significant (i.e. the cost of demolishing and rebuilding the dwelling) and there was no alternative remedy except which required demolition and rebuilding. There was no remedy sought for rectification of defects to the extent they were alleged.
3. The Builder contends the issues to be determined were predominantly factual and each expert report produced included 'everchanging' allegations of defects and breaches. The experts then prepared a joint report.
4. Therefore, the Builder submits the nature and complexity of the proceeding support a conclusion that the Tribunal ought to depart from the statutory presumption.

1. The Owners contend that it is not fair to make a costs award in favour of the Builder because:

(a) As of 21 July 2022, when the Builder's First offer was made, the only expert report available was Mr Rodriguez' report dated 12 April 2022 which opined the only rectification method was to demolish and rebuild the house, so there was no objective basis for the Owners to give up on their claim;

(b) The First offer states, if the offer is not accepted, it will apply under s 75 of the Act to dismiss the Owners' claim, which the Builder did not do. The Owners presume that this was because the argument between the parties was always going to be determined on a delicate and difficult determination between competing expert opinions;

(c) The Builder's offers were not genuine offers to settle the claim but merely an offer for the Owners to withdraw their claim - in other words, give up when there was no objective basis to do so;

(d) The First and Second offers expressly refer to Calderbank principles but the Builder relies on s 112 of the Act to obtain a costs order. The Owners submit that the use of both Calderbank principles and s 112 has been condemned by the Court of Appeal in Velardo v Andonov, as referred to in Pia v Kerr (Building and Property) (Costs) [2025] VCAT 90 at [4], to the effect that if Calderbank is relied on in the offer, a party cannot rely on s 112 of the Act for a costs claim;

(e) The expert evidence was competitive between the parties and prior to the final decision and the Tribunal's interpretation of the expert evidence, it was impossible to say which side was likely to win; and

(f) The Builder conceded that it did not install the 2 m deep front footing edge and both experts conceded there were 2 bored piers not installed and the roof support was defective.

1. The Owners contend there is no basis for the Builder to assert the Owners delayed the proceeding. They acknowledge there were slight delays due to late provision of expert reports.
2. The Owners further submit there is no basis to argue that the Owners conducted the proceeding in a vexatious manner, considering their expert was firm and inflexible in his approach to the defects.
3. They also submit there is no basis to argue that the Owners' case was unfounded in law or in fact, or that it was hopeless. The Owners say that the Tribunal had to make the difficult decision as to which expert opinion it preferred and the extent of the rectification works compared to the risk of building decay, to which the Owners' expert repeatedly reported on for the need for major defects rectification.
4. The Owners contend that there is no basis to argue that Owners only pursued a demolition and rebuild case, as:

(a) the underpinning cheap fix is detailed in the quote of Rodine dated 10 October 2024, which provides that it is based on the detail supplied by Mr Rodriguez from Structural Melbourne and the details of the works to be done clearly reflects an internal slab underpinning in various ways; and

(b) the Second Further Amended Points of claim dated 23 December 2024 includes a 'cheap fix' as an alternative to complete demolition, being underpinning extras and fixing the narrow internal beams and adding the downhill large edge beam.

1. The Owners finally submit there is no basis for an indemnity costs order as it was always impossible to predict the outcome of this case, which was based on competing expert opinions, the Builder's offers were ineffective on the issue of costs and the Builder's refusal to rectify obvious and conceded building defects.

1. Having considered the Builder's and Owners' submissions, I am satisfied the Builder should be awarded its costs of the proceeding.
2. In reaching this decision, I have considered each of the factors and elements under s 109 and s 112 of the Act, including the following reasons:

(a) the Owners wholly failed to prove their claims against the Builder on the balance of probabilities and did not contest the Builder's counterclaim of $12,924.30, being the balance owing under the building contract;

(b) the Owners pursued a claim for demolishing and rebuilding their dwelling in circumstances where such a claim had no basis in fact or in law. The alternative relief sought in the form of underpinning the roof was added very late in the proceeding. The Tribunal found the Owners' expert's evidence was not soundly based and was deficient in numerous respects. The Owners failed to prove that the Builder breached the statutory warranties in respect of each alleged building defect, save for one or two missing bored piers. However, there was no quantum evidence led about the bored piers, which had no structural consequences; and

(c) There were four versions of the Owners' Points of Claim and five expert reports which contained revised or new claims, opinions and evidence. This conduct unnecessarily delayed the proceeding. For example, the late claim in relation to the defective roof structure caused significant delay to the proceeding and caused the Builder to have to obtain further expert opinion. These are matters which I consider are relevant under s 109(3)(a).

1. With respect to the Owners claiming that the Builder cannot rely on both Calderbank principles and s 112 of the Act, I find that the First and Second offers were intended to be offers under ss 113 and 114 of the Act. The offers complied with ss 112 - 114 of the Act. The Builder did not refer to the offers as Calderbank offers in its costs submissions.
2. I find that the First and Second offers satisfied the elements of s 112(1) of the Act and the Tribunal's determination of the claims was not more favourable to the Owners than the offers made by the Builder.
3. I am not satisfied that the Builder's costs should be awarded on an indemnity basis. For there to be a special order to award costs on an indemnity basis, special circumstances must exist.[17] In this instance, I find no special circumstances exist for costs to be paid on an indemnity basis. The Owners' conduct was not of sufficient seriousness or lacking in genuine intent as to satisfy the factors in Ugly Tribe. Although I have found the Owners caused delay to and prolonged the proceeding in certain respects, their conduct was not such as to warrant a special order for indemnity costs.
4. Accordingly, I am satisfied that costs are to be awarded to the Builder on a standard basis.

1. In the circumstances and for the above reasons, I am satisfied that it is fair to depart from the position that each party bears their own costs under s 109(1) of the Act.
2. The Owners are to pay the Builder its costs of and incidental to the proceeding on a standard basis in accordance with the County Court Scale.
3. I will make orders accordingly.

[1] Filippou Management Pty Ltd v MREEF Project Company No II Pty Ltd [2010] VCAT 1261 at [20].

[2] (2001) VSC 189 at [7] ('Ugly Tribe') (citations omitted).

[3] Dover v Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248 at [118].

[4] Maiden v Simmons [2011] VCAT 1828 at [8].

[5] Velardo v Andonov [2010] VSCA 38 at [43]- [44].

[6] Project Management v Monty Manufacturing Ptd Ltd [2014] VCAT 57 at [38]- [39].

[7] Transport Accident Commission v Coyle [2001] VSCA 236.

[8] Dover v Beach Pty Ltd v Geftine Pty Ltd [2008] VSCA 248.

[9] [2013] VSC 518.

[10] Wright v Bendigo Bulk Carpets Pty Ltd (Costs) (Building and Property) [2022] VCAT 728.

[11] The Second Restall Affidavit, [20]-[22].

[13] Kafataris v Bookmakers & Bookmakers' Clerks Registration Committee [2008] VCAT 577 at [23].

[14] [1988] NSWCA 8; (1988) 14 NSWLR 481.

[15] (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401.