Metricon Homes Pty Ltd v Sawyer [2013] VSC 518

1 This appeal involves the settlement offer procedures of the Victorian Civil and Administrative Tribunal ('the Tribunal') under the provisions of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ('the VCAT Act').[1] Following an "all-in" settlement offer, a lower award plus costs was achieved. Was there an obligation on the Tribunal to determine the quantum of costs that it would have ordered at the offer date, so as to compare like with like? Was the "all-in" offer ineffectual? The settlement offer procedures of the Tribunal stand to be considered in a tribunal where prima facie no costs are awarded,[2] alternative dispute resolution is encouraged, and parties are advised to take advantage of opportunities to resolve their disputes. One consideration is that an "all-in" offer is simpler and easier to understand than a "costs-plus" offer in jurisdictions where there are many litigants in person.

2 Metricon Homes Pty Ltd (ACN 005 108 752) ('the builder') appeals against an order by the Tribunal that it pay the respondent owners ('the owners') the costs of a domestic building claim brought by the owners for defective work in relation to a dwelling house constructed by the builder at Langwarrin.[3]

3 In February 2011, proceedings were commenced in the Tribunal by the owners claiming compensation from the builder for defective work. On 1 July 2011, the builder made an all-in offer to the owners of $80,000 in full and final settlement of the proceeding ('the first offer'). On 22 July 2011, an offer of $90,000 "all-in" was made by the builder to the owners ('the second offer').[4]

4 The offers were made without prejudice. It was not disputed that the offers were in accordance with the settlement offer provisions of the VCAT Act. Both offers were expressed to be Calderbank offers.[5] No issue was taken as to the form of the offers either as settlement offers or as Calderbank offers.

5 Following a four day hearing in the Domestic Building List in June 2012, the Tribunal awarded the owners $65,436.96.[6] This was much less than the second offer except that the second offer was made on an "all-in" basis. I will disregard the first offer for all practical purposes because it was agreed before me that the award of the Tribunal of $65,436.96 plus costs would exceed this offer.

6 The issue in these proceedings is what (if anything) the Tribunal should have done in order to determine whether the award of $65,436.96 plus party-party costs was more favourable to the owner than the second offer of $90,000. How should the Tribunal have responded to the builder's application that the owners produce the relevant accounts for legal and expert fees?

7 The Tribunal held that the second offer might have run close and might have exceeded the award plus costs, but could not positively find that it did. It did not require the owners to produce any accounts. It ordered the builder to pay the owners the costs of the proceeding on a party-party basis in accordance with the County Court scale.

8 The Tribunal has wide power to make orders as to costs under s 109 of the VCAT Act. This section provides:

(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;

(d) the nature and complexity of the proceeding;

(e) any other matter the Tribunal considers relevant.

...

9 The power of the Tribunal to order costs under s 109 was reviewed in detail by Gillard J in Vero Insurance Ltd v The Gombac Group Pty Ltd.[7]

10 Sections 112 - 114 of the VCAT Act provide:[8]

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 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.

...

(3) A party may serve more than one offer.

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

1. 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.

...

11 In Velardo v Andonov,[9] Ashley JA described s 112(2) as creating a prima facie entitlement to payment of all costs in favour of a successful offeror. Ordinarily, costs would be assessed in such a case on a party-party basis, although the Tribunal is empowered to allow costs on a more favourable basis.

12 Section 111 is also relevant to this appeal. It provides:

If the Tribunal makes an order for costs, the Tribunal -

(a) may fix the amount of costs itself; or

(b) may order that costs be assessed, settled, taxed or reviewed by the Costs Court.

13 This provision gives the Tribunal two alternatives when making an order for costs. It can fix the amount of costs itself; or it can order that the costs be assessed, settled, taxed or reviewed by the Costs Court. It is only if the amount of costs is small or certain that the Tribunal will ordinarily determine the costs itself. Where costs orders are made in other circumstances, the Tribunal's practice is to order that they be assessed by the Costs Court.

14 Sections 17D and 17J of the Supreme Court Act 1986 (Vic) also relate to the Tribunal. They provide:

(a) ...

(b) has jurisdiction to hear and determine the assessment, settling, taxation or review of costs in proceedings in -

...

if, by or under any Act, the Rules or the Rules of those courts or VCAT, costs are to be assessed, settled, taxed or reviewed by the Costs Court;

(c) has jurisdiction to hear and determine the assessment, settling, taxation or review of costs in proceedings in -

...

if, by any order of ... VCAT, costs are to be assessed, settled, taxed or reviewed by the Costs Court;

(d) has jurisdiction to hear and determine the assessment, settling, taxation or review of costs in proceedings in ... VCAT, ... in which -

(i) there is an entitlement to costs by or under any Act, the Rules of ... VCAT or arising from an order of ... VCAT; and

(ii) the amount of those costs has not been fixed ... by VCAT;

(2) The Costs Court has such powers of the Court as are necessary to enable it to exercise its jurisdiction.

(3) The Costs Court must exercise its jurisdiction with as little formality and technicality, and with as much expedition, as the requirements of this Act, the Rules and the proper consideration of the matters before the Court permit.

(4) Subject to this Act and the Rules, the Costs Court may regulate its own procedure.

17J Costs in proceedings in another court or VCAT

(1) An order of the Costs Court as to costs made in the exercise of its jurisdiction under section 17D(1)(b), (c) or (d) -

(a) is taken to be an order of ... VCAT; and

(b) may be enforced accordingly.

(2) In the exercise of its jurisdiction under section 17D(1)(b), (c) or (d), the Costs Court may assess, settle, tax or review costs in accordance with -

(a) the Rules; or

(b) the Rules, including any scales of costs, of the court in which the proceeding to which the costs relate originated or of VCAT, as the case requires.[10]

15 Orders of the Costs Court as they relate to VCAT are taken to be orders of VCAT and may be enforced accordingly. They are enforced as if they were Tribunal orders by the process set out in ss 121 and 122 of the VCAT Act.

16 In the past, courts have viewed all-in offers with a level of ambivalence as to their utility as settlement offers. In Velardo v Andonov, Ashley JA said:[11]

There was another distinct contrast between the remedy sought by the respondent and the situation under the Act. The respondent offered an "all in" amount. But under s 112(3)(a) the tribunal, in considering whether its orders are more favourable to the offeree than the offer, "must take into account any costs it would have ordered on the date the offer was made". It is well understandable that an offeror, as it did here, would seek to avoid the uncertainty of such a speculative exercise.

17 As to this passage, the Tribunal observed:[12]

It does not appear that the Tribunal has yet had to consider what the Court of Appeal meant by this passage but I do not understand it to be a determination by the Court that an offer under s112 cannot be for an "all in" amount. Such offers are so common in litigation that it would have serious consequences if they could not be made within the scheme set out in the Act.

18 The Tribunal then said as to "all-in" offers:[13]

In determining what effect an offer that was not accepted has, the Tribunal must first determine what order for costs (if any) it would have made in favour of the offeree at the date upon which the offer was made. If it decides that it would have made such an order for costs it must then be able to quantify those costs in order to determine whether the offer was more favourable to the offeree than the outcome of the case. That raises difficulties of proof for the offeror but the Court of Appeal has not said that, as a consequence, the offer cannot be made on an "all in" basis. It simply recognises that each of the parties, in making and rejecting the offer takes the risk as to whether or not the Tribunal will later find that it would have made an offer for costs and in what amount.

Offers made on an "all in" basis are well understood by parties and are commonly used. The offeree knows that if the offer is accepted then he has to pay his own costs and the offeror has the certainty that if the offer is accepted he will not have to pay some indeterminate amount of costs in the future. On the other hand, if the offer is rejected the offeror runs the risk that the offer might not be enough if the Tribunal should subsequently find that it would have made an order for costs in favour of the offeree and that those costs are more than the offeror had imagined.

The offeror also will face the practical difficulty that it faces in this case of ultimately demonstrating that the outcome of the case was not more favourable to the offeree than the offer that he made. That difficulty arises because he will have no direct knowledge of what the costs of the offeree were at the date the offer was made. However I am not persuaded that an "all in" offer cannot be made within the framework of the Act.

19 In M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3), Gillard J said:[14]

Any offer made in litigation should be carefully considered and a party and his solicitor ignores or rejects the offer at his peril.

...

In my opinion, it is open for a party to deliver a Calderbank letter in which the offer is made on an all inclusive basis. The mere fact that it required the offeree to determine the likely value of the claim and the likely cost to date does not alter the fact that an all inclusive offer has been made. During my experience in the law, spread over some 35 years, many cases are settled on an "all in" basis. There is little difficulty in making an assessment of the likely amount of the claim and costs.

20 Gillard J highlighted the importance of "all-in" offers, and considered that there was little difficulty in making the assessment of the likely amount of claim and costs.

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.

22 Subsequent to the Tribunal's decision, r 26.02(4) was inserted into the Supreme Court (General Civil Procedure) Rules 2005 (Vic) ('the Supreme Court Rules') to provide for the making of "all-in" offers of compromises in proceedings in the Supreme Court of Victoria.[15] Rule 26.02(4) now provides:

(a) that the offer is inclusive of costs; or

(b) that costs are to be paid or received, as the case may be, in addition to the offer.

23 Rule 26.08(3) applies if there is a failure to accept an offer of compromise:[16]

Where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim to which the offer relates not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders -

(a) the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, taxed on the ordinarily applicable basis; and

(b) the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim thereafter taxed on the ordinarily applicable basis.

24 The recent change is the first occasion that express provision for "all-in offers" has been made in Order 26.

(1) The Tribunal failed to have regard, or proper regard, to subsection 112(3) of the Victorian Civil and Administrative Tribunal Act 1998, in that the Tribunal failed to take into account any costs it would have ordered on the date that the [builder's] offer was made.

(2) The Tribunal failed to have regard, or proper regard, to subsection 112(3) of the Victorian Civil and Administrative Tribunal Act 1998, in that the Tribunal failed to make any assessment of what costs it would have ordered on the date that the [builder's] offer was made.

(3) The Tribunal erred in law in finding that the [builder] had the onus of proving what costs the Tribunal would have ordered on the date the [builder's] offer was made.

(4) The Tribunal's finding that the [builder] had not discharged the onus of proving that the order made by the Tribunal on 13 August 2012 was not more favourable to the [owners] than the [builder's] offer was not open to Tribunal on the evidence before it. The Tribunal should have found on the evidence before it and in the absence of any evidence from the [owners] to the contrary that:

(a) the [owners'] costs were less than the difference between the amount ordered by the Tribunal ($65,436.96) and the [builder's] offer ($90,000.00); and

(b) the order made by the Tribunal on 13 August 2012 was not more favourable to the [owners] than the offer made by the [builder] on 22 July 2011.

(5) The Tribunal failed to accord procedural fairness to the [builder] in that the Tribunal failed to order that the [owners] produce their accounts for their legal costs up to the date of the offer.

(6) The Tribunal, when it found that it could not take into account the [builder's] offer made on 22 July 2011 unless a finding could be made that it equalled or exceeded the amount awarded, acted on a wrong principle.

(7) The Tribunal failed to take into account a relevant consideration, namely the offer made by the [builder] to pay the [owners] $90,000.00 made on 22 July 2011.

The applications made by the builder to the Tribunal

26 The Tribunal determined that in the absence of the builder's settlement offers it would have ordered the builder to pay the owners' costs of the proceeding, including any reserved costs on a party-party basis on the County Court Scale.[17] The builder sought costs of the proceedings subsequent to the second offer.

27 The Tribunal identified the need to quantify the costs that would have been awarded and then compare the second offer with the award together with the costs that would have been ordered. The difference between the award and the second offer was $24,563.04.[18]

28 Prior to the hearing, the builder sought to quantify the owners' costs as at the date of the second offer:

(a) the builder's solicitors wrote to the owners' solicitors seeking details of the owners' costs incurred up to the date of the second offer. However, the owners' solicitors refused to provide copies of the invoices rendered by them to the owners on the ground of solicitor-client privilege;[19]

(b) in an application to the Tribunal, the builder sought an order that the owners produce accounts received by them from their solicitors for services rendered up to the date of the second offer; and

(c) the builder filed an affidavit from a costs consultant, Ms Melanie Jane Crowe. Her opinion was that the likely professional costs of the owners as at the date of the second offer was $19,187.40 including a quantity surveyor's report. She concluded that the owners' costs were over $5,000 less than the $24,563.04 difference between the award and the amount of the second offer.

29 The owners' counsel submitted that Ms Crowe's affidavit was dependent on a number of assumptions, and omitted various expert reports. No answering affidavit was filed by the owners in answer to her affidavit.

30 During the hearing, the Tribunal also raised with counsel the option of directing that the owners' costs as at the date of the second offer be assessed by the Costs Court, adjourning the builder's application for costs subsequent to the second offer until this was done.

The Tribunal's decision as to the builder's applications

31 As to the builder's application for details of the costs incurred by the owners, and discovery of the relevant invoices, the Tribunal considered that it was not known what accounts had been rendered. If as was likely, they extended beyond the date of the relevant offers, the Tribunal would not be able to determine, in the absence of a taxation of costs, what proportion of the amounts sought in the accounts related to the period up to the date of the settlement offer. The Tribunal declined to order discovery.[20] Nor did it order that the owners' costs be assessed by the Costs Court as at the date of the second offer.

32 As to the costs consultant's assessments, the Tribunal held that they were based on a number of assumptions. The Tribunal was quite unable to say whether those assumptions were justified. The Tribunal could say that the second offer would possibly have run close and might have exceeded the award plus costs, but could not positively find that it did.[21]

Grounds 1, 2 and 5 - Did the Tribunal act correctly?

33 Ms Kirton of counsel for the owners submitted in supporting the Tribunal's decision:

(a) The Tribunal was not satisfied that the accounts would have assisted its determination. It was not known what accounts were rendered, and it seemed likely that the accounts that had been rendered extended beyond the dates of the relevant offers. In the absence of a taxation of costs, the Tribunal was not able to determine what proportion of the amounts sought in the accounts related to the period up to the date of the settlement offer.

(b) The owners were not required to provide accounts, or put on material to demonstrate the actual level of costs incurred by them.

(c) The Tribunal did attempt to make an assessment of costs, but it found that it could not make the assessment as it did not have evidence on which it could rely.

(d) The assessment, made by the builder's costs consultant was based on assumptions, and the Tribunal was unable to say whether those assumptions were justified.

(e) The costs consultant's affidavit was not accurate and should not be relied on as it did not make allowance for expert reports obtained before the offers were made, conferences and memoranda from counsel, items of costs incurred by the owners' solicitors, and other attendances.

(f) Any uncertainty about the position was the responsibility of the builder in having made an "all-in" offer rather than an offer plus costs. Whilst it was legitimate to make an "all-in" offer, the builder did so at its peril. It could have avoided the practical difficulties which arose.

(g) The owners might not co-operate or prepare a bill of costs limited to the date of the second offer for assessment under s 112(2).

34 Section 112(1)(d) provides for the Tribunal to form an opinion as to whether the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer. This involves a comparison between the advantage or benefit gained by the party in whose favour the orders are made by the Tribunal and the advantage or benefit that the same party would have gained by acceptance of the offer.

35 The opinion thus formed by the Tribunal is described in s 112(2) as establishing an entitlement in favour of the offeror party to an order that the party who did not accept the offer pay all costs incurred by the offeror party after the offer was made. This is subject to any order otherwise by the Tribunal.

36 Given its significance, it is important that the opinion be properly formed and be soundly based on the evidence. The opinion must be formed in a manner which is procedurally fair, it must not take into account irrelevant considerations, fail to take into account relevant considerations, or be so unreasonable that no reasonable decision maker could arrive at that view.[22]

37 Section 112(3)(a) directs that the Tribunal must take into account any costs it would have ordered on the date the offer was made. Section 112(3)(b) directs that the Tribunal must disregard any interest on costs it ordered in respect of any period after the date the offer was received.

38 It is significant that s 112(3)(a) refers to any costs it would have ordered, and not any costs order it would have made. The provision is directed to the amount of costs that the Tribunal would have ordered rather than the costs order that the Tribunal would have made.

39 Counsel for the builder submitted that s 112(3) required the Tribunal in the case of an "all-in" offer to do more than merely identify the costs order that it would have made. Rather, he submitted the Tribunal was required to determine the costs that it actually would have ordered. As he put it, if the reverse proposition were true, then s 112(3)(a) would have little work to do.

40 Section 35(a) of the Interpretation of Legislation Act 1984 (Vic) provides that in the interpretation of an Act 'a construction that would promote the purpose or object underlying the Act ... shall be preferred to a construction that would not promote that purpose or object'.

41 The purposive approach to interpretation has been described as the prevailing approach to statutory construction. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of the provision as a whole.[23]

42 The purpose or object of the settlement offer provisions of the VCAT Act is to facilitate the resolution of disputes in VCAT. The purpose or object underlying both ss 112(1)(d) and (3) is to permit the Tribunal to form an opinion as to whether the amount awarded is or is not more favourable to the offeree than the settlement offer. It is logical in the case of an "all-in" offer to construe s 112(3)(a) as requiring the Tribunal to direct the steps necessary to ensure that like is compared with like, rather than apples with oranges. This may entail, and in the present case does entail, adoption of a process to quantify the party-party costs that would have been ordered in favour of the owners as at the date of the second offer. Likewise s 112(3)(b) requires any interest and costs actually ordered in respect of any period after the date the offer was received be disregarded.

43 The Tribunal was required in the present case to form an opinion as to whether or not the orders made by the Tribunal in the proceeding were, or were not more favourable to the owners than the second offer.[24] The Tribunal was also required to take into account any costs it would have ordered as at the date at the second offer.[25] In my view, adherence to these legislative directions required the Tribunal to ensure that steps were taken as sought by the builder to inform the Tribunal as to the facts germane to the opinion the Tribunal was called on to form.[26]

44 A number of steps were available, and were sought or discussed, to assist the Tribunal in coming to an opinion as to whether the amount awarded plus party-party costs as at the date of the second offer was or was not more favourable to the owners than the second offer of $90,000 "all-in".

(a) under s 80 of the VCAT Act, the Tribunal could have ordered that the invoices or accounts provided by the owners' legal advisers and experts be produced;

(b) under s 80 of the VCAT Act, the Tribunal could have ordered the owners to bring in a draft bill of their costs and disbursements up to the date of the second offer; or

(c) under s 111(b) of the VCAT Act, the Tribunal could have ordered that the owners' costs be assessed by the Costs Court up to the date of the second offer and adjourned its decision as to the balance of the costs until those costs had been assessed.

46 It was open to the parties to seek directions from the Tribunal for steps to be taken to ensure that facts relevant to the opinion to be formed were before the Tribunal. If there was still doubt after the invoices or accounts were produced or a draft bill prepared, it was open to order that the amount of costs be determined by the Costs Court up to the date of the second offer so giving authoritative resolution to the opinion the Tribunal was required to form.

47 I am of the opinion that directions along these lines should have been given, as the builder sought, had the Tribunal fully addressed the task it was required to undertake for the following reasons:

(a) The accounts rendered by the owners' solicitors and by the expert witnesses could simply and readily have been made available, as urged by the builder. Whilst not necessarily decisive, provision of these accounts would certainly have assisted the Tribunal, and the costs consultant to come to an informed opinion. The accounts could have been produced quickly and inexpensively.

(b) Any issue of privilege associated with the accounts could have been overcome by redaction, or by resolution of the claim for privilege.

(c) If necessary, the Tribunal should have directed the owners to bring in a draft bill of costs showing their costs as at the date of the second offer. Preparation of a draft bill of costs would have assisted the Tribunal in forming an opinion as to whether the second offer was more or less favourable than the orders intended to be made by the Tribunal.

(d) Without directions such as these, the inability of the builder to satisfy s 112(1)(d) was close to a self-fulfilling prophesy. Whilst the owners say that this is the fault of the builder because it elected to make an "all-in" offer, it must also be recognised that "all-in" offers are extremely common and in widespread use in the Tribunal. They are ordinarily simple and clear in their formulation reflecting the net outlay that the party putting the offer proposes, or requires to settle the case.

(e) If the settlement offer machinery within the VCAT Act is to be effective, offers including "all-in" offers should be encouraged and should lead to a practical result.

(f) The Costs Court is a specialist and expert court dedicated to the task of carrying out the assessment of legal costs.[27] Its processes were available to assist the Tribunal.

(g) The Tribunal's decision leads to a paradoxical result. The Tribunal is unable to determine whether the order made by the Tribunal is not more favourable to the owners than the second offer. It has ordered the builder to pay the owners' costs of the proceeding to be assessed by the Costs Court in accordance with the County Court scale. The process of assessment of the owners' bill of costs by the Costs Court as ordered by the Tribunal will disclose the answer to the very question that the Tribunal was unable to decide. In other words, the taxation process will disclose whether the Tribunal got it right, or got it wrong when it made the orders that it did. This points to the benefit of using the expert capacity of the Costs Court earlier rather than later.

48 Under s 97 of the VCAT Act, the Tribunal must act 'fairly' and in accordance with 'the substantial merits' of the case in all proceedings. If it is to act in accordance with the 'substantial merits' of the case, it must facilitate the production of documents and the calling of evidence when sought by a party that will contribute towards the resolution of the substantial merits of the individual case. It is bound by the rules of natural justice,[28] and it must give 'a proper consideration of the matters before it'.[29] In Gombac Group Pty Ltd v Vero Insurance Ltd, Osborn J observed:[30]

It is a fundamental duty of a tribunal to address the question of a particular fact in issue in proceedings before it by reference to the whole of the evidence relevant to that issue and not some part of that evidence alone. It must not deny itself 'the full benefit of the evidentiary impact of the combined weight of all the intermediary facts.' Where a case turns on circumstantial evidence it will be open to the Tribunal to use some facts as tending to support conclusions with respect to other facts although they may not in themselves be directly probative of the matter in issue. In a civil case the Tribunal must ultimately conclude whether relevant inferences are more probable than not on the basis of all the circumstantial evidence before it.

49 In Martin v Fasham Johnson Pty Ltd, Bell J said:[31]

The Tribunal's costs discretion is broad in scope. It is subject to the express statutory requirements of ss 109(1)-(3), 111 (and 78(2)(c)). The considerations relevant to the exercise of the discretion may be discerned from the subject matter, scope and purpose of these provisions, interpreted in the context of the Act as a whole. The discretion must be exercised judicially, which means the Tribunal must act fairly, impartially and by reference to relevant considerations and not arbitrarily, capriciously or by reference to irrelevant considerations and not in a manner that frustrates the legislative intent.

...

The Tribunal is a creature of statute and, on questions of costs, it commences from a different starting point. Usually parties must bear their own costs, which no doubt reflects the general object of the Act. That object, as identified by the President, is to promote access to justice generally and to minimise the overall level of costs in tribunal proceedings as far as practicable.

50 In Prasad v Minister for Immigration and Ethnic Affairs, Wilcox J observed:[32]

A power is exercised in an improper manner if, upon the material before the decision-maker, it is a decision to which no reasonable person could come. Equally, it is exercised in an improper manner if the decision-maker makes his decision - which perhaps in itself, reasonably reflects the material before him - in a manner so devoid of any plausible justification that no reasonable person could have taken this course, for example by unreasonably failing to ascertain relevant facts which he knew to be readily available to him. The circumstances under which a decision will be invalid for failure to inquire are, I think, strictly limited. It is no part of the duty of the decision-maker to make the applicant's case for him. It is not enough that the court find that the sounder course would have been to make inquiries. But, in a case where it is obvious that material is readily available which is centrally relevant to the decision to be made, it seems to me that to proceed to a decision without making any attempt to obtain that information may properly be described as an exercise of the decision-making power in a manner so unreasonable that no reasonable person would have so exercised it.

51 Counsel for the builder drew attention to the judgment of the Court of Appeal in Palmer Tube Mills (Aust) Pty Ltd v Semi:[33]

For everyone is entitled to a fair trial at which the litigant's case can be put properly before the judge ... This applies as much to the trial of an issue as to the trial of an action. Every court must ensure that trials before it are conducted in accordance with the principles of natural justice, and these principles require the giving of a reasonable opportunity to dispute your opponent's case and to present your own ...

52 In response to the submissions of counsel for the owners,[34] I make the following points:

(a) Whilst the Tribunal could not be certain as to the extent of the assistance that it would have derived from the discovery of the accounts, this was not a reason for not directing them to be produced, as the builder sought. The accounts contained centrally relevant information, and afforded assistance to the Tribunal in forming the opinion it was required to form under s 112(1)(d) of the VCAT Act. There was good reason to have them produced and to ensure that the information contained in them was taken into account. The failure to do so was unreasonable, and was a failure to take into account material facts and relevant information.[35]

(b) An order for the production of the accounts would have been binding on the owners. The accounts were readily available and there was no reason why the owners could not have been required to produce the accounts.

(c) The Tribunal found it difficult to make an assessment of costs. However, if it had made directions such as those sought by the builder, the difficulty would have been disappeared, or been reduced. The making of orders for production of the accounts, for the preparation of a draft bill of costs, or for the assessment of costs up to the date of the second offer by the Costs Court would have incurred little additional cost, or would have incurred cost that would have been incurred anyway having regard to the order for assessment of costs by the Costs Court ultimately made by the Tribunal.

(d) Like all experts' reports, the evidence of the costs consultant was based on a chain of reasoning and on assumptions. The chain of reasoning and the conclusion would have been strengthened if additional information had been provided. Any assumption that was unjustified, or inaccurate could have been removed, or adjusted by the costs consultant. The assumptions in the costs consultant's affidavit pointed to the need for more accurate information.

(e) "All-in" offers are very common and are permissible under the provisions of the VCAT Act dealing with settlement offers. They are now expressly permitted under r 26.02(4) of the Supreme Court Rules. Section 112(1)(d) directs the Tribunal to determine whether the orders made in the proceeding are, or are not, more favourable than an "all-in" offer to the other party.

(f) It is very unlikely that the owners would decline to bring in a bill of costs for costs ordered in their favour. In the unlikely event that they were to refuse to do so, the Tribunal has ample power to exercise its discretion as to the costs of the proceeding subsequent to the date of the second offer adversely to them.

53 I have come to the conclusion that grounds 1 and 2 should be upheld as the Tribunal misdirected itself as to its functions and duties having regard to s 112(1)(d) and (3). The Tribunal was required under s 112(3) to take into account any costs it would have ordered on the date at the second offer. It was required under s 112(1)(d) to form an opinion on the substantial merits of the case as to whether the orders made by the Tribunal in the proceeding were, or were not, more favourable to the other party than the offer. The Tribunal dismissed applications from the builder that would have provided information and assisted it to form an opinion. The accounts for legal costs and expert fees were centrally relevant, and readily available. It failed to take into account relevant information and documents that could have been produced, and may have affected its decision and the ultimate result.

54 Ground 5 should also be upheld. Given the builder's application, it was necessary if the Tribunal was to act fairly and determine the substantial merits of the matter for the Tribunal to have ordered the production of the accounts relating to legal costs and disbursements including expert costs up to the date of the second offer, as the builder sought. By rejecting the builder's application to do so, the builder was denied a proper opportunity to put its case as to costs, with the result that its costs consultant had to proceed on the basis of incomplete information. Relevant information and material was not provided to the Tribunal or taken into account. The Tribunal's capacity to form an opinion as to the adequacy of the second offer was severely restricted. The errors made by the Tribunal were errors on a question of law which arose in the course of a proceeding before the Tribunal.

Grounds 3, 4, 6 and 7 - Onus of proof - Failing to take the second offer into account

55 Mr Oliver of counsel who appeared for the builder contended that the Tribunal erred in finding that the builder had the onus of proving the amount of the costs the Tribunal would have ordered when the second offer was made. He also contended that the Tribunal should have found on the evidence of the costs consultant that the order made by the Tribunal was not more favourable than the second offer.

56 In support of his submission, he referred to the failure of the owners to file any evidence as to the actual quantum of the costs that the owners had incurred. Their costs were peculiarly within their own knowledge. It was not appropriate to place any onus on the builder to prove the quantum of the costs the Tribunal would have ordered.

57 He placed reliance on Blatch v Archer where Lord Mansfield said:[36]

It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted. But I think it would have been very improper to have called the son; for in fact it is an action against his father the bailiff, though nominally against the sheriff.

It may be very difficult for a plaintiff to be able to prove the existence of a warrant, which is in the custody of the officer, and necessary to be so, as his own justification. Therefore very slight evidence is sufficient to shew that there was a warrant, and here the bailiff's name is indorsed on the writ; which is the usual method.

58 He made reference to G v H,[38] where Brennan and McHugh JJ, referring to the judgment of Mason CJ, Deane and Dawson JJ in Weissensteiner v The Queen,[39] said:

But, when a court is deciding whether a party on whom rests the burden of proving an issue on the balance of probabilities has discharged that burden, regard must be had to that party's ability to adduce evidence relevant to the issue and any failure on the part of the other party to adduce available evidence in response. As Mason C.J., Deane and Dawson JJ. explained in Weissensteiner v The Queen:

"it has never really been doubted that when a party to litigation fails to accept an opportunity to place before the court evidence of facts within his or her knowledge which, if they exist at all, would explain or contradict the evidence against that party, the court may more readily accept that evidence. It is not just because uncontradicted evidence is easier or safer to accept than contradicted evidence. That is almost a truism. It is because doubts about the reliability of witnesses or about the inferences to be drawn from the evidence may be more readily discounted in the absence of contradictory evidence from a party who might be expected to give or call it."

In order that justice be done so far as the nature of the subject permits, the burden of proof of paternity in proceedings for the maintenance of a child born to an unmarried mother must be discharged when the party on whom it rests adduces the evidence available to her or him and that evidence tilts the balance of probability in favour of the paternity alleged and the putative father, having the sole capacity to provide conclusive evidence by submitting to a parentage testing order, fails or refuses to do so.

59 He referred to the 'very slight' evidence argument analysed by Heydon J in Strong v Woolworths Ltd:[40]

One difficulty in the appellant's "very slight" evidence argument is that the words of Jordan CJ in De Gioia v Darling Island Stevedoring & Lighterage Co Ltd and Dixon CJ in Hampton Court Ltd v Crooks turn on circumstances where some of the facts essential to the plaintiff's case are peculiarly within the defendant's knowledge. In the proceedings leading to this appeal, duty and breach were not seriously in issue. At all times the first respondent's case on these issues faced grave difficulties. Causation, however, was in issue, despite the trial judge's failure to deal with it. But what facts relevant to causation were peculiarly within the first respondent's knowledge in circumstances where its difficulty on breach was that a system was called for, and it had no system? What light could have been cast on the probable time when the chip fell by factual material which might have been collected if a system had been in place which was not in place? Had a system been in place, it might have generated material tending to show that it was a defective system. But that would have gone only to breach in relation to a defective system, not causation in relation to a non-existent system. For the same reason, Lord Mansfield CJ's celebrated words in Blatch v Archer do not apply: if the appellant had little power to produce evidence on causation, the first respondent had equally little power to contradict it. Doctrines of the type appealed to by the appellant apply where there are matters of which a plaintiff is ignorant, but of which a defendant actually does have knowledge. They do not apply where the defendant lacks knowledge as much as the plaintiff does, even if the defendant might have had more knowledge had it not been in breach of a duty of care. Further, there is force in the first respondent's argument that the appellant's appeal to Blatch v Archer was unsupported by any factual analysis of how it applies in the circumstances of this appeal.

60 Finally, he referred to the recent judgment of Heydon J in ASIC v Hellicar.[41] The significant considerations in determining whether limited material is an appropriate basis on which to reach a reasoned decision are the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so.

(a) there was some evidence able to be adduced by the builder as to the likely costs of the owners in the VCAT proceeding having regard to what was known to both parties as having taken place in the proceeding, and that the costs consultant had done her best;

(b) to the extent that there was more evidence, or that there was evidence available to contradict the costs consultant's evidence, it was peculiarly within the province of the owners;

(c) the owners chose, quite deliberately, not to put it on but simply to make the submission from the Bar table as to why the evidence should be discounted or ignored;

(d) there was no rational basis for rejecting the costs consultant's evidence because it was simply based on a submission without evidence and that the slight evidence rule was in play in this case; and

(e) if the costs consultant's evidence was to be discounted in the way that the Tribunal ultimately did, then the builder should have had the opportunity of adducing further evidence by way of the production of invoices, because otherwise the builder was in an impossible situation.

(a) the owners were able to demonstrate to the Tribunal that there was a sufficient level of doubt as to the instructions given to the costs consultant to render her opinion unreliable;

(b) the Tribunal was unable to say whether the costs consultant's assumptions were justified;

(c) the Tribunal could not form any concluded view as to the likely quantum of the costs that would have been awarded at the date of either offer; and

(d) the owners did not need affidavit material to succeed.

63 She sought to distinguish the authorities on the basis that the evidential onus shifted to the owners only if there was strength in the builder's case and evidence. She submitted that the costs consultant's affidavit was not of sufficient strength to shift the evidential onus to the owners. She contended that the Tribunal weighed up the evidence before it, and did not feel any actual persuasion as to the existence of any particular amount of costs.

64 In the present case, if the builder was to assert the benefit of its settlement offers, it was for it to demonstrate that s 112 of the VCAT Act was engaged. This required satisfying the Tribunal that each of the conditions listed in s 112(1)(a) to (d) was satisfied. It was for the builder to show that the Tribunal should have been of the opinion that the orders made by the Tribunal in the proceeding were not more favourable to the owners than the offer.[42]

65 The Tribunal was correct when it held that it was for the builder to demonstrate that the conditions required for s 112 had been satisfied. As the Tribunal said, it was for the builder to show that, after taking into account any order for costs that would have been made, the outcome of the case was not more favourable to the offeree than the offer.[43]

66 The real problem lay in a different quarter. Information as to the amount of the owners' legal costs and disbursements as at the date of the second offer lay with the owners. The builder had knowledge of the steps taken and documents filed in the proceeding, but it had little or no knowledge of the costs that the owners had actually incurred, or of the work done on their behalf to bring their claim. It was not a case where knowledge was slight or documents did not exist. They did exist but they were with the owners. While it was not for the owners to assist the builder's case, nevertheless it was for the Tribunal to ensure, as the builder sought, that procedures and processes were put in train by which the true situation could be known, and the interests of justice attained.

67 Grounds 6 and 7 are grounds of appeal arising out of the order of the Tribunal that the builder pay the owners' costs of the proceeding assuming that the other arguments were unsuccessful. If the second offer is disregarded, or regarded as uncertain or unclear, it was open to the Tribunal to conclude that the builder should pay the costs of the proceedings. The Tribunal had a wide discretion,[44] and it has not been shown in this respect that it acted on a wrong or incorrect principle. It did not fail to take the second offer into account.

69 For the reasons that I have given the appeal will be allowed. The orders of the Tribunal will be set aside, and the matter remitted to the Tribunal constituted by the Senior Member who made the original order for orders for the production by the owners of the accounts for legal costs and disbursements rendered by their solicitors and experts relating to the period up to and including the date of the second offer subject to any proper claim for legal professional privilege. If doubt still persists, the Tribunal should consider whether it should direct the owners to bring in a bill of their costs on a party-party basis up to the date of the second offer, and whether it should order under s 111(b) of the VCAT Act that the costs of the owners be assessed by the Costs Court on the County Court scale up to the date of the second offer. The application for costs after this date can be adjourned until this is done.

70 After this is done, the Tribunal will be in a good position to form an opinion as to whether the orders made by the Tribunal in the proceeding are not more favourable to the other party then the second offer. The Tribunal will also be well placed to consider the exercise of its discretion having regard to the character of the second offer as a Calderbank offer.

[1] Victorian Civil and Administrative Tribunal Act 1998 (Vic) ss 112-115.

[2] Ibid, s 109(1).

[3] Sawyer v Metricon Homes Pty Ltd [2012] VCAT 1971 (Senior Member Walker) ('Reasons').

[4] Each offer was inclusive of interest and costs. Interest was not awarded by the Tribunal.

[5] Calderbank v Calderbank [1975] 3 All ER 333.

[6] Sawyer v Metricon Homes Pty Ltd [2012] VCAT 1205 (Senior Member Walker).

[7] [2007] VSC 117.

[9] [2010] VSCA 38; (2010) 24 VR 240, 249 [47(2)] (Ashley JA, with whom Mandie JA and Habersberger AJA agreed).

[10] Rule 1.07 of the Victorian Civil and Administrative Tribunal Rules 2008 (Vic) provides unless the Tribunal otherwise orders, the applicable scale of costs for VCAT orders is the County Court scale. Rule 1.07 was introduced by the Victorian Civil and Administrative Tribunal (Amendment No. 6) Rules 2013 (Vic) and commenced on 1 July 2013.

[11] [2010] VSCA 38; (2010) 24 VR 240, 249 [47(3)] (Ashley JA, with whom Mandie JA and Habersberger AJA agreed). This appears to be a reference to the uncertainty of an offer plus costs with the Tribunal yet to determine the basis on which the costs were to be assessed or the court scale to be applied to the assessment.

[14] [2000] VSC 163 [67] and [126].

[15] Rule 6 of the Supreme Court (Chapter I Offers of Compromise Amendments) Rules 2013 (Vic) substituted r 26.02 into the Supreme Court Rules and commenced on 1 September 2013.

[16] Rule 10 of the Supreme Court (Chapter I Offers of Compromise Amendments) Rules 2013 (Vic) substituted r 26.08(3)(a) and (b) into the Supreme Court Rules and commenced on 1 September 2013.

[21] Ibid, [33] (underlining in original).

[22] Craig v State of South Australia [1995] HCA 58; (1995) 184 CLR 163, 179-80 (Brennan, Deane, Toohey, Gaudron and McHugh JJ); Anisminic Ltd v Foreign Compensation Commission [1968] UKHL 6; [1969] 2 AC 147, 171.

[23] Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, 389 [69] (McHugh, Gummow, Kirby and Hayne JJ); Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404, 423 (McHugh JA); DPP v Leys [2012] VSCA 304; (2012) 296 ALR 96, 108-11 [45]-[52] (Redlich and Tate JJA and T Forrest AJA); Dale v The Queen [2012] VSCA 324; (2012) 272 FLR 275, 288-92 [59]-[74] (Weinberg, Harper and Whelan JJA).

[24] Section 112(1)(d) of the VCAT Act.

[25] Section 112(3)(a) of the VCAT Act.

[26] In Wickerleaf Pty Ltd v Burdon [2010] VCAT 1900, the Tribunal constituted by Deputy President Aird considered what should be done in the domestic building jurisdiction of the Tribunal where a settlement offer made by owners was exceeded by the damages awarded by the Tribunal to be paid by the builder. The Tribunal relied on an affidavit sworn by the owners' solicitor as to the costs incurred by the owners as at the date of the settlement offer.

[27] See Courts Legislation Amendment (Costs Court and Other Matters) Act 2008 (Vic).

[30] [2005] VSC 442 [20] (footnotes omitted).

[31] [2007] VSC 54 [27] and [31] (footnotes omitted).

[32] [1985] FCA 47; (1985) 6 FCR 155, 169-70. See also Wecker v Secretary, Department of Education Science and Training [2008] FCAFC 108; (2008) 168 FCR 272, 297-8 [107]-[110] (Greenwood J, with whom French and Weinberg JJ agreed).

[33] [1998] 4 VR 439, 452 (Brooking, Tadgell and Buchanan JJA) (citations omitted).

[34] See [33] above.

[35] Visa International Service Association v Reserve Bank of Australia [2003] FCA 977; (2003) 131 FCR 300, 430-1 [623]-[627] (Tamberlin J); Tickner v Bropho [1993] FCA 208; (1993) 40 FCR 183, 197-9 (Black CJ); Luu v Renevier [1989] FCA 518; (1989) 91 ALR 39, 50 (Davies, Wilcox and Pincus JJ).

[36] [1774] EngR 2; (1774) 1 Cowp 63, 65.

[38] [1994] HCA 48; (1994) 181 CLR 387, 391-2 (citation omitted).

[39] [1993] HCA 65; (1993) 178 CLR 217, 227.

[40] [2012] HCA 5; (2012) 246 CLR 182, 208 [65] (citations omitted).

[41] [2012] HCA 17; (2012) 86 ALJR 522, 570-3 [250]-[258]. See also Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572, 576 [14]-[15] (Hodgson JA, with whom Beazley JA agreed); Shalhoub v Buchanan [2004] NSWSC 99 [71] (Campbell J) which was followed in ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 93 [440].

[42] Vines v Djordjevitch [1955] HCA 19; (1955) 91 CLR 512; Darling Island Stevedoring & Lighterage Co Ltd v Jacobsen [1945] HCA 22; (1945) 70 CLR 635; Chugg v Pacific Dunlop Ltd [1990] HCA 41; (1990) 170 CLR 249.

[44] Transport Accident Commission v O'Reilly [1998] VSCA 106; [1999] 2 VR 436, 457 [46] (Ormiston JA); Martin v Fasham Johnson Pty Ltd [2007] VSC 354 [40] (Habersberger J).