1. The respondent insurer, Housing Guarantee Fund, applied for an order that the applicant owners, Mr and Mrs Kaldawi, be required to pay its legal costs of this proceeding on the grounds that the following factors relevant to Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 ("the Act") were made out:-

(a) the applicant owners' case was weak, the respondent insurer's case was must stronger;

(b) the matters of law to be assessed were complex;

(c) the nature of the hearing was that it was a preliminary application, the decision in relation to which substantially settled all of the matters in dispute between the owner, the insurer and the builder;

(d) the subject matter and the nature of the dispute was commercial and it was not an administrative review; and,

(e) most importantly, the Fund had served an offer to settle under Section 112 of the Act and the Tribunal decision was not more favourable to the applicant then the offer to settle.

2. The owners resisted the Fund's application for costs on that basis that:-

(b) this application was for the review of a decision of a government agency;

(c) the Fund as a government agency should be a model litigant and should not take advantage of strong legal arguments;

(d) as this application is a review of an administrative decision costs are not appropriate; and,

(e) as this proceeding is a review of an administrative decision settlement offers under Section 112 are not allowed.

3. The respondent's offer to settle of 20 January 2004 contained the following substantive points:

(1) The applicants withdraw their claim in these proceedings as against the respondent.

(2) The applicants pay to the respondent the amount of $6,500 being for the respondent's costs in this matter.

Under their compromise of this proceeding the parties agreed to have the matter struck out; they disagreed as to whether or not the applicants should pay the respondent's costs and they left that question up to the Tribunal, this determination being the adjudication of that issue.

4. Therefore, by definition I do not see how the respondent can say its offer is more favourable than the compromise between the parties. I say this on the basis that we are not comparing apples with apples, as costs are not dealt with in the settlement between the parties therefore the offer would only be more favourable if I came to the conclusion that it is appropriate to give the respondent the costs it seeks. Therefore, the terms of the settlement offer do not relate directly to the Tribunal's Orders made by consent as part of the compromise package. Therefore, I do not consider that the respondents have established that the Orders made by consent are less favourable to the applicants than the terms of the offer as costs were not dealt with by the expressed terms of the compromise and, thereby, the consequent orders of the Tribunal; and, the offer should not be taken into account when considering whether an order for costs is applicable.

5. I consider that there is also a question as to whether offers to settle under Section 112 of the Act can be taken into account where the application is for a review of an insurer's decision. Under the Domestic Building Contracts Act 1995 Section 61(1) "Any person whose interests are affected by a decision of an insurer...may apply to the Tribunal for a review of that decision".

6. The creation of the Tribunal, its powers and control of its procedure are set out in the Victorian Civil and Administrative Tribunal Act 1998; this Act uses the words at the commencement of Section 112(1)(a) "A party to a proceeding (other than a proceeding for review of a decision)" to delimit the category of proceeding to which a settlement offer under Section 112 is allowed. Section 42 of the Act defines the review jurisdiction as the jurisdiction conferred "by or under an enabling Act to review a decision made by a decision-maker." I can see no reason why the words "for review of a decision" in Section 112 of the Act would have a different meaning from "for a review of the decision" in Section 61 of the Domestic Building Contracts Act 1995, other than the former is general and the latter is particular. Also, I consider that an insurer under the provisions of the Domestic Building Contracts Act 1995 is a "decision-maker" under the Act. Therefore, I consider that the respondent is prohibited by the Act from making an offer under Section 112 of the Act in respect of this application.

7. Dealing with the balance of the Fund's submissions, I acknowledge that in the relative strengths of the cases the Fund's case was stronger; however, I do not consider that the applicants' case was so weak as to be untenable. I acknowledge that the preliminary point for adjudication was complex in law; however, that being said, I consider the complexity arose in large part from the need for the Fund to establish with certainty what form of applications for indemnity under the HIH rescue package at Part 6 of the House Contracts Guarantee Act 1987 were valid. As such, I consider the complexity works against the Fund in that it is apparent that the Fund is using this proceeding to get that assessment i.e. a test case, whether intentionally or whether fortuitously.

8. The respondent submitted that the nature of this preliminary adjudication was that of a commercial dispute and not an administrative review. It follows from my reasoning in relation to the respondent's offer to settle under Section 112 of the Act that I do not accept the respondent's submission. I consider that an application under Section 61 of the Domestic Building Contracts Act 1995 to seek a review of an insurer's decision is a form of administrative review. I have previously found that costs in administrative reviews are less likely to be awarded than where the matter is an inter-parties commercial dispute: Australia Country Homes v Vasiliou, (unreported, 5 May 1999). One of the leading authorities in support of such a proposition is Transport Accident Commission v O'Reilly and Oths [1998] VSCA 106, where in the leading judgement Tadgell JA observed at paragraph 18:

"Because the AAT is or was not a court, the practice of courts over the years in exercising their powers to award costs is of doubtful relevance, cf. Walton v McBride (1995) 36 NSWLR 440 at 470 per Cole JA. In such a case it is by no means obvious that in the ordinary run of proceedings it would be just and reasonable that the Commission (the Transport Accident Commission) should be reimbursed for the costs it incurs in the management or administration of the scheme. It may be said with equal justification that a person making a claim pursuant to the statutory scheme, and reasonably and in good faith pressing it, albeit unsuccessfully, within the limits provided by the constituting statute, should not on that account necessarily be out of pocket. In those circumstances it might be reasonable to regard the Transport Accident Commission as having incurred administrative costs in the management of the scheme rather than as a "successful party" to whom costs should be paid by the applicant."

9. Tadgell JA further observed at paragraph 19 of the O'Reilly decision that:

"The Commission comes before the AAT upon a review of the decision, made under s.47(7)(b) it, not in any real sense as a reluctant party but essentially as a function over whose decision, made in the ordinary course of the administration of a statutory scheme, is in that capacity subject to a routine review."

10. I consider these words are applicable to reviews of the decisions of the respondent but given these differences in size, purpose, outcomes and statutory function between the Commission and the Fund I consider the Tadgell J. words have less emphasis where decisions of the Fund were involved as opposed to decisions of the Commission: see Hiou v HGF and Nastoulis (unreported, 6 July 1999). There is a difference between this proceeding and that in Hiou (supra), in that case the applicant was the builder, whereas in the present proceeding the applicant was the owner; and, my analysis in Hiou was based on the applicant as builder; where the applicant is the owner I consider the observations in O'Reilly (supra) have more application.

11. However, not a lot turns on the Hiou decision. In this case I consider the most significant factors are that this is an administrative review and the preliminary issue was a test case for the insurer to establish some sort of benchmark as to what was a valid claim under the HIH rescue package; therefore, I do not see why the owners should pay to establish this point and I cannot see sufficient reasons to allow me to exercise my discretion to change the normal rule as to costs in the Tribunal, i.e. that each party bear their own.

12. Accordingly, I will order that there be no order as to costs including any reserved costs.