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[2009] VCAT 1532
procedural. The respondents were ordered to pay the applicant’s costs of the proceeding and counterclaim, including reserved costs, assessed if not agreed on a party/party basis under Scale D of the County...
Mardel had largely succeeded in its building dispute and had made an unaccepted offer to settle for $135,000. The Tribunal’s net award to Mardel was $187,870.90. The Senior Member found that the respondents’ case was untenable and that Mr Sinha’s false and evasive evidence had added to the time and expense of the hearing. The respondents were ordered to pay party/party costs up to and including the offer date, then indemnity costs. The Tribunal refused a further interest order because interest had already been dealt with in the substantive decision.
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Mardel Constructions Pty Ltd, a builder, brought a claim for a lock-up payment and other amounts arising from domestic building work. The respondents, Jogendra and Poonam Sinha, counterclaimed for alleged defective workmanship, the cost of completion by another builder, and substantial damages for delay. Their delay case included an asserted lost opportunity to sell properties during a real estate boom.
2 cited instruments linked from this judgment.
The substantive dispute had been decided before this costs hearing. In the principal decision, handed down on 19 May 2009, the Tribunal upheld the substantial majority of Mardel’s claims and struck out the counterclaim, apart from limited items allowed as credits, defect or incomplete-work costs, and liquidated damages. Mardel’s claim was assessed at $216,661.10. The respondents received deductions totalling $22,161.64 for the relevant credits and defect-related amounts, and $6,628.56 in liquidated damages. After those amounts were set off, the net amount awarded to Mardel was $187,870.90.
The costs decision concerns what costs order should follow that result. Mardel asked for indemnity costs, relying on an offer made under s 112 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic). On 16 September 2008, Mardel offered to settle the claim and counterclaim for $135,000 in full and final satisfaction. The respondents did not accept it. The substantive outcome was more favourable to Mardel than the offer, and Mardel sought indemnity costs from the date of the offer.
Mardel also sought an order for interest. The Senior Member refused that application, reasoning that interest had already been awarded in the principal decision and that he was functus officio in relation to it. The final costs order provided for costs assessed under Scale D on a party/party basis up to and including 16 September 2008, and indemnity costs thereafter. The order covered the proceeding and counterclaim, including reserved costs.
The decision is a VCAT costs ruling by Senior Member R. Walker, not a judgment from a court. Its reasoning has two linked strands: the treatment of the settlement offer and the respondents’ litigation conduct.
The Senior Member recited s 112, which applies where a written offer to settle is made, is not accepted within its open period, complies with the Act’s requirements, and the Tribunal’s orders are not more favourable to the offeree than the offer. Under s 112(2), as reproduced in the reasons, the offering party is entitled to an order for all costs incurred after the offer, unless the Tribunal orders otherwise. The decision notes that the Act’s language had produced differing views within the Tribunal about whether “all costs” meant full indemnity costs or costs assessed on another basis.
The Senior Member discussed several VCAT decisions reflecting those differences. In Borg v Metricon Homes Pty Ltd, the Tribunal had ordered indemnity costs after an offer, in circumstances described in this decision as involving a weak claim and a modest recovery. Geftine Pty Ltd v Dover Beach Pty Ltd was cited for the view that the words “all costs” in s 112 could mean full indemnity costs. Tsiavas v Transport Accident Commission was cited for another view: that “all” meant all reasonable costs.
The decision also returned to the approach in Paleka v Suvak. The Senior Member’s account of that approach is that party/party costs are usual, but another basis may be appropriate depending on the circumstances. The reasons distinguish ordinary bona fide litigation from conduct that is improper or particularly blameworthy and causes unnecessary expense. This is not stated as a hard and fast rule. The Tribunal considered the particular facts and its discretion, including the statutory power to “otherwise order”.
The Senior Member also considered Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No.651 Pty Ltd. He understood the Court of Appeal’s discussion of “reasonable legal costs and expenses” as supporting the view that s 112’s reference to costs incurred does not itself prescribe the basis on which costs must be assessed. The reasons expressly acknowledge that the meaning of s 112 remained unsettled in the absence of binding authority determining the point. The decision therefore does not claim to resolve the wider statutory interpretation debate. It resolves the costs application by applying the Tribunal’s discretion to the facts before it.
Those facts drove the result. The Senior Member relied on findings from the principal decision that Mr Sinha’s evidence was evasive and untruthful. The reasons identify examples: an attempt to mislead a bank about the contract price to obtain a larger loan, and alteration of a document relating to extras in a way that concealed the alteration. The Senior Member also found that Mr Sinha denied an agreement made at a conciliation despite correspondence showing that an agreement had been reached, and denied agreement to a change of window supplier despite evidence that he had agreed. Those disputes consumed hearing time.
The Senior Member further found that the respondents’ case was untenable and that it must have been known to be untenable. In his view, the case was not simply an unsuccessful attempt to have a bona fide dispute heard. It had caused Mardel unnecessary and unjustified expense. He therefore ordered indemnity costs from the date of the offer. For the earlier period, he ordered party/party costs under Scale D.
The decision describes uncertainty, rather than a settled and comprehensive rule, about the costs consequences of s 112. Before this ruling, VCAT decisions had taken different approaches to the phrase “all costs” in s 112(2). Some had treated it as permitting indemnity costs; another view treated it as requiring all reasonable costs without necessarily determining the assessment basis. The Senior Member also noted that costs are ordinarily assessed on a party/party basis and that indemnity costs are exceptional.
The decision did not purport to settle that interpretive disagreement. It expressly said the issue would remain in doubt until binding authority determined what s 112 meant. It also considered that the practical difference between the competing interpretations might be less significant because the Tribunal could “otherwise order” after considering the circumstances.
The decision’s practical contribution is therefore fact-specific. It applied the offer and costs discretion in a case where the Tribunal had found false evidence, an untenable case, and unnecessary expense. It ordered indemnity costs from the date of the offer, not from the beginning of the proceeding. The period before and including the offer date remained subject to party/party assessment under Scale D. The ruling should not be read as saying every rejected s 112 offer results in indemnity costs. The reasons expressly discuss ordinary party/party costs as the usual position and make the enhanced order in light of the conduct found in this case.
On interest, the decision records that the Tribunal had already awarded interest in the principal decision under the power identified as s 53(2)(b)(ii) of the Domestic Building Contracts Act 1995 (Vic). The later application was refused on the basis that the Senior Member considered himself functus officio. The reasons add that interest might not accrue on the amount ordered until the Tribunal’s order was filed with the appropriate court, after which statutory interest accrued. That observation does not alter the costs result.
The Senior Member described the respondents’ case as “both untenable and based upon false evidence”. In context, this was not an abstract criticism. It followed the principal decision’s credibility findings and the costs hearing’s consideration of how those matters affected the duration and expense of the proceeding. In plain English, the Tribunal considered the respondents’ conduct materially different from merely losing a genuine dispute.
The decision says the proceeding was “considerably lengthened” by Mr Sinha’s evidence, particularly his denial of the agreed change of window supplier. The Senior Member also noted the dispute over the conciliation agreement. In practical terms, the Tribunal linked the conduct it had identified to additional hearing time, which supported a more severe costs assessment.
The reasons state that the respondents “ought to have accepted the offer”. That statement explains the Senior Member’s view of the offer in light of the eventual award and the respondents’ conduct. It should be read as part of the Tribunal’s reasoning on this particular costs application, rather than as a general rule requiring acceptance of settlement offers.
The operative distinction in the order is the date 16 September 2008. Costs up to and including that date were to be assessed on a party/party basis under Scale D. Costs “thereafter” were to be assessed on an indemnity basis. In plain English, the enhanced costs basis applied after the offer date, while the earlier period retained the ordinary assessment basis specified in the order.
On interest, the Senior Member said he considered himself “functus officio”. In plain English, he considered that he had already exercised the relevant decision-making function by dealing with interest in the substantive decision, and could not make the additional order sought at the later costs hearing.
The decision is most relevant where a VCAT party seeks indemnity costs after making an offer under s 112 and the ultimate order is more favourable to the offering party than the offer. The specific circumstances the Senior Member relied on here included an unaccepted offer, a substantially better monetary result for the offeror, findings that the opposing case was untenable, and findings of false or evasive evidence.
The reasoning also gives particular weight to a demonstrated connection between conduct and expense. The Senior Member found that disputed positions about the conciliation agreement and window supplier consumed hearing time, and that Mr Sinha’s manner of giving evidence extended cross-examination by at least a day. That combination of credibility findings and increased hearing burden was important to the costs decision.
The decision is less directly informative where the opposing case was genuinely arguable, the evidence was honestly given, or the case did not cause additional expense through the conduct identified here. It does not establish that rejection of a settlement offer alone always justifies indemnity costs. Nor does it resolve every possible construction of s 112. Its own reasoning leaves the broader statutory question open, pending binding authority.
The ruling may also be relevant where a party seeks a further interest order after the Tribunal has already ruled on interest in the substantive decision. Here, the refusal rested on the Senior Member’s view that he was functus officio. The decision does not discuss other procedural routes or circumstances in which a further interest question might arise.
The supplied judgment contains no later treatment of Mardel Constructions Pty Ltd v Sinha. It is therefore not possible, from this source alone, to say whether later courts or tribunals followed, distinguished, approved, or questioned this decision.
The decision itself discusses earlier authorities, including Borg, Geftine, Gower, Tsiavas, Paleka, and Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No.651 Pty Ltd. Those citations are part of the Senior Member’s explanation of existing approaches, not evidence of how later decision-makers treated Mardel. The reasons state that the meaning of s 112 remained in doubt until binding authority determined it. Nothing in the supplied text establishes whether that uncertainty was later resolved.
The principal open question identified by the decision is the meaning of “all costs” in s 112(2). The Senior Member outlined competing interpretations: that it referred to indemnity costs, that it covered all reasonable costs, or that it identified costs incurred after the offer without prescribing the basis of assessment. He considered the issue unresolved absent binding authority. The supplied text does not provide that later authority or show how the statutory interpretation developed.
A related question is how the statutory presumption interacts with the Tribunal’s discretion to “otherwise order”. The decision regarded the distinction between the competing interpretations as potentially less significant because the Tribunal retained discretion to determine the appropriate costs order in the particular circumstances. It does not set out a comprehensive test for how that discretion should be exercised in every case.
The decision also leaves open how much weight should be given to each factor in a different proceeding: the degree by which the eventual outcome exceeds the offer, the quality of the rejected case, the nature of any false evidence, and the extent to which conduct lengthens or increases the cost of the hearing. The ruling demonstrates that these matters were considered together here, but it does not quantify their relative importance.
Finally, the reasons do not examine in detail the procedural basis for a further interest order after a substantive decision, beyond the Senior Member’s conclusion that he was functus officio. The comments about filing the Tribunal’s order and subsequent statutory interest are limited to the circumstances described in the decision.
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"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
(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."
"I think the conclusion to be drawn from all of the authorities cited and the various quotes to be found in the judgements is that costs, where they are awarded, are normally ordered to be taxed on a party-basis but that they may be awarded on some other basis in an appropriate case. It is in the unfettered discretion of the Tribunal to determine which basis should be adopted. In the exercise of this discretion the Tribunal will take into account the purpose for which provisions such as s112 are enacted but more importantly, it will have regard to the circumstances of the particular case. It is well recognised that party-party costs are usually considerably less than the costs that the successful party has actually spent in prosecuting or defending the application. Even solicitor/client costs, although more generous, fall short of a complete indemnity. Indemnity costs purport to provide a full indemnity but may (according to the terms of the order) not include costs that are unreasonably incurred.
Generally, party/party costs should be awarded. Access to courts and tribunals is a fundamental right enjoyed by everyone in persons bona fide in pursuing that right and not acting improperly should not generally face orders more onerous than party/party costs if they are unsuccessful. Solicitor/client costs are ordered when the party in ....... when the order for costs is being made has somewhat acted improperly in the conduct of the litigation so as to cause the other party unnecessary expenses. Indemnity costs are ordered when the party's conduct is particularly blameworthy. That is, the circumstances, justify a harsh order that ........ solicitor/client costs.
I think the foregoing represents the general thrust of the various authorities referred to but it is not intended to express any hard and fast rule. In each case it is for the Tribunal in its unfettered discretion to decide what order is appropriate in the circumstances that fit that particular case".
"I also agree with their Honours that where an order for costs is made in favour of the successful party in domestic building list proceedings, the costs should ordinarily be assessed on a party/party basis. If and to the extent that Reid v FAI suggests otherwise, I agree with all Ormiston JA and that it is wrong and should not be followed.
Of course there may be occasions where it is appropriate to award costs in favour of a successful claim in domestic building list proceedings on an indemnity basis. But those occasions will be exceptional and, broadly speaking, circumscribed by the same criteria as govern the award of indemnity costs pursuant to Rule 63.28(c) of the Supreme Court (General Civil Procedures) Rules 1996".
I think the comments of the Court of Appeal indicate that in interpreting s112, the term "or costs" refers to the costs incurred, not the manner in which they are to be assessed on a taxation.
Mardel Constructions Pty Ltd
Sinha
The respondents were ordered to pay the applicant’s costs of the proceeding and counterclaim, including reserved costs, assessed if not agreed on a party/party basis under Scale D of the County Court Rules up to and including 16 September 2008, and thereafter on an indemnity basis; the application for interest was refused.