Paleka v Suvak [2000] VCAT 58

Order the Respondent to pay the Applicant's costs of the Application (including this Application for costs) such costs, if not agreed, to be taxed by the Registrar on Scale 'A' of the County Court Scale up to and including 13 September 1999, and thereafter to be taxed on a Solicitor / Client basis.

1. The Applicant applies for her costs of these proceedings following the handing down of my decision in her favour. She seeks her costs to be taxed on Scale 'A' of the County Court Scale up to 13 September 1999, being the date upon which an offer of compromise was served on the Respondent and thereafter, she seeks her costs on an indemnity basis. The Respondent argues that no order for costs be made.

2. Orders for costs in the Tribunal are regulated by Division 8 of Part 4 of Victorian Civil and Administrative Tribunal Act 1998. The main provision is to be found in s.109 which provides as follows:

(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 sub-section (2) only if satisfied that it is fair to do so, having regard to--

(a) whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as--

(i) failing to comply with an order or direction of the Tribunal without reasonable excuse;

(ii) failing to comply with this Act, the regulations, the rules or an enabling enactment;

(iii) asking for an adjournment as a result of (i) or (ii);

(v) attempting to deceive another party or the Tribunal;

(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;

(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;

(e) any other matter the Tribunal considers relevant."

3. Section 112 is also relevant. That provides

"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 sub-section (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;"

4. The application concerned the construction by the Respondent of a house for the Applicant in St Albans. The Respondent did not complete the construction of the house but nonetheless claimed the final payment of $10,516. The Applicant agreed that this would have been the balance payable under the contract if the house had been completed but contended that:

(b) it had been agreed that she would be entitled to a credit for having have the house painted herself;

(c) there were substantial damages due for late completion; and

(d) there were a number of defects to be attended to.

(a) the balance due under the contract of $10,516 which, as I have stated, the applicant acknowledged, subject to appropriate credits for the other matters;

(b) variations of $5,425.50. Some of these were acknowledged by the Applicant but most were found to be unreasonable. In particular, a claim for extra payment for the concrete slab and for a concrete pump were highly unreasonable. Ultimately, I allowed a total of $1,264 for additional items claimed;

(c) that the renderer had contracted directly with the Applicant and not with the Respondent. This claim failed and I find it difficult to understand how the director of the Respondent, Mr Suvak, could honestly have believed that it had any chance of success;

6. In the ultimate, the amounts found to be due to the Applicant under the contract were $12,555 and the amounts allowed to the Respondent totalled $11,780, of which $10,516 was the balance of the contract price which was not due but had to be allowed in order to finally resolve the respective claims of the parties. The end result of the case after a three day hearing, being an amount of $775 to be paid to the Applicant, is not suggestive of the extent to which she succeeded.

7. Generally, I found the Applicant to be a reliable witness but much of the evidence of the director of the Respondent was difficult to accept.

8. On 3 September 1998 the Applicant's solicitors sent a facsimile transmission to the Respondent offering to settle the matter on the basis that the Respondent would pay to her the sum of $2,300 and she would forego all other claims of payment and undertake liability for the rendering. This was the first offer. The reference earlier in the letter to the full amount quoted by the renderer which included the $3,100 that was then owing to him, makes it clear in my view that she was agreeing to pay him that sum. Therefore, the effect of the offer was, if the Respondent had accepted it, that she would have been $800 out of pocket. As a result of my decision, she has obtained a judgment for $775 which is $1,575 more advantageous to her than the offer.

9. The first offer was not accepted and so a second offer was made on 13 September 1999 to settle for the same sum. The letter containing this offer stated that it would remain open for acceptance for a period of 14 days. This latter inclusion was absent from the first offer.

10. The first offer did not comply with s. 113 of the Act, in that it did not specify when the money was to be paid. It also did not comply with s. 114 of the Act because it did not specify that it would be open for acceptance until immediately before the Tribunal made its order or until the expiry of a specified period, being not less than 14 days.

11. The second offer overcame these defects but the Respondent nonetheless argues that it fails to comply with the Act in the following respects:

(a) it does not settle all of the matters raised in the proceedings;

(b) it makes no provision for the payment or settlement of the Applicant's costs;

(c) it is less favourable than the Tribunal's determination.

12. The matters said to be left unsettled in the second offer are the reduction to the contract price for the cost of painting, the question who was responsible for the outstanding bill to the renderer of $3,100, the claim for liquidated damages, claims for a number of defects and costs. I do not accept this submission. The opening words of paragraph two of the second offer are:

"Our client is prepared to settle this matter, and any counter claim or related claim that your client may wish to bring."

13. She "...foregoes all other claims made by her in the proceedings..." and provides in the third paragraph that the Respondent "...foregoes his claim for any further payment under the contract but otherwise remains liable under the contract to provide all documents required including guarantees, certificates of occupancy plans, specifications and manufacturers warranty and instruction manuals".

14. In my view, these words are wide enough to encompass all of the Applicant's claim as well as the Respondent's foreshadowed counterclaim which was subsequently filed and served (on 7 October 1999). It is also implicit in the second offer that it is made inclusive of costs and that the Applicant is assuming responsibility for all of the rendering.

15. As to the absence of any specific reference to costs, s.112 (3)(a) requires that the Tribunal, in determining whether its order is or is not more favourable to a party than an offer must take into account any costs that it would have ordered on the date the offer was made. Reliance was placed by Mr Riegler on the case of Tramountana Armadora SA -v.- Atlantic Shipping Co SA [1978] 2 All ER 870 where the Arbitrator was unable to determine whether a settlement offer made by a respondent was more favourable than the verdict because he was unable to assess what the applicant's costs would have been at the time of the offer. However s.112 (3)(a) does not impose any requirement upon an offerer to specifically deal with costs in the offer. It simply means that the tribunal must have regard to the question of costs in deciding whether or not the offer was more favourable than the result obtained at the hearing and the case cited is not inconsistent with that proposition. It was not a term of either offer that the Respondent pay the Applicant's costs and by foregoing all claims in the proceeding it would not have been open to her to seek costs if the offer had been accepted. Whatever those costs were is irrelevant because they were to be foregone. The matter now having been determined in her favour, she is able to seek an order for costs. The determination must therefore have been more favourable to her than the offer in this respect.

16. I also do not accept the Respondent's submission that the settlement offers are not more favourable in terms of amount than the order that I made. The basis of this submission was the claim that the Respondent would still have been liable to the renderer for the sum of $3,100. As I have said, it is explicit in the first offer and implicit in the second that the Applicant would take responsibility for this.

17. For all of these reasons, I think that the second offer is an offer to which s.112 applies and the consequences set out in that section therefore follow. Unless I order otherwise, the Applicant is entitled to an order that the Respondent pay all of the costs she incurred after the offer was made.

"Unless the Tribunal orders otherwise" - s. 112

18. The words "unless the Tribunal orders otherwise" are similar those appearing in Order 26.08 (3) of the Rules of Civil Procedure relating to offers of compromise, except that in the rule, the words are "unless the Court otherwise orders". The learned authors of Williams "Civil Procedure Victoria" state as to these words (in paragraph 26.08.30):

"Rule 26.08 (2) and (3) state the orders for costs to which the party who has served an offer of compromise is entitled in the events described. However the rule also gives the Court a discretion to order otherwise, that is, to refrain from penalising the other party in costs. In the case of payment into Court, the penalty was imposed "unless for special cause" the Court otherwise ordered (0.22 r.6). Rule 26.08 does not contain the words "special cause". It is submitted that the change in language is of no significance, and that the discretion not to apply the costs penalty will be exercised as under the former O.22.

The party upon whom the offer of compromise was served carries a heavy burden; the presumption as to liability for costs which arises under the rule is not easily displaced. Thus for example, in the case of judgement for damages for bodily injury, the closeness of the judgement amount to the amount in the offer of compromise will not normally be regarded as justifying a departure from the rule. Nor will the complexity of the matters which the Plaintiff must weigh in deciding whether or not to accept the offer. (Polyzos - v. - Newton [1965] VicRp 88; [1965] VR 681; Broadhurst - v. - Millman [1975] VicRp 18; [1975] VR 181; Berry - v. - Coghill [1982] VicRp 97; [1982] VR 955; Jurowski - v - Sallis (1984) 36 SASR 261), or the fact the Plaintiff and his advisers might reasonably have expected to have recovered more than the amount of the Defendant's offer: Williams - v. - Thomson [1991] VicRp 29; [1991] 1 VR 355 at 361. A Plaintiff who decides to reject an offer of compromise must be assumed to have taken into account the several contingencies arising in the case and the risks to be run if the case is to proceed. In going ahead with the case the Plaintiff must be taken to have accepted that he will run those risks and he must abide the consequences whatever they might be. See Page - v. - Incorporated Nominal Defendant [1981] VicRp 19; [1981] VR 170 at 173-4 per Murphy J."

19. The approach taken in this Tribunal as to costs is not the same as would be taken in a court. In a court, costs usually follow the event, while in this Tribunal, the starting point is that parties bear their own costs. Notwithstanding these differences, I think that sections 112 to 114 were enacted with the same object as Order 26.08 and that similar considerations should apply in considering whether the Tribunal should exercise its discretion in declining to make the order for costs contemplated by the section. The onus is on the Respondent to show that the Order should not be made in the particular circumstances of the case. I can see nothing in the circumstances in this case to justify declining to order costs as contemplated by the section.

20. Considerable argument was directed as to the manner in which costs should be assessed. The Applicant seeks party / party costs up to the service of the second offer and indemnity costs thereafter.

21. As a general rule, costs are awarded on a party - party basis (Colgate Palmolive Co. - v - Cussens Pty Ltd [1993] FCA 536; (1993) 118 ALR 248 at p.254; see also Williams Supreme Court Practice para 63.02.170 and the cases there referred to, where the learned authors state:

"Party and Party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. Any change to a rule that indemnity costs should be the norm would require the intervention of the legislature or the rule-maker. See Huntsman Chemical Co Australia Ltd - v - International Pools Australia Ltd (1995) 36 NSW LR 242 at 248; Rosniak - v - Government Insurance Office (1997) 41 NSW LR 608 at p.616."

"Essentially, however, the exercise of the discretion to award costs over and above the ordinary is exceptional, being reserved for cases where the losing party has engaged in unmeritorious, or deliberate high minded or other improper conduct such as to warrant the court showing its disapproval and at the same time preventing the successful party being left out of pocket."

23. A number of cases are cited in Williams in support of this proposition and reference is also made to the case of Fountain Selected Meats (Pty Ltd ) - v.- International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 where Woodward J said (at p.401):

"I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action had been commenced or continued in circumstances where the Applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. When they occur, the court will need to consider how it should exercise its unfettered discretion."

24. Reference was made by counsel to a number of cases. In Australian Country Homes Pty Ltd - v.- Vasiliou (VCAT Domestic Building List 5 May 1999,) the learned member considered that the words "all costs" appearing in s.112 (2) mean costs of a solicitor-client basis, although the reasoning for adopting that basis of taxation in that case is not stated or discussed. In the case of Lifeline Properties - v. - Housing Guarantee Fund Ltd and anor (Domestic Building Tribunal 10 September 1996), the Presiding Member, Dr Cremean had to apply s. 93 of the Domestic Building Tribunal Act 1995 which permitted orders to be made for the payment of costs in certain circumstances but did not specify the basis upon which such costs should be assessed, other than by referring to the Magistrate's Court and County Court Scales. The word "costs" was undefined and it was held that the section permitted the making of an order for indemnity costs. Such an order was made in that case with respect to costs that the Respondent had caused the successful party to incur by taking "a hopeless point".

25. Reference was also made by Counsel to a number of Federal Court decisions, including Coshott - v.- Learoyd (Federal Court of Australia 23 March 1999 per Wilcox J. - unreported), but it should be borne in mind in reading these cases that the equivalent Federal Court rule specifically provides for indemnity costs to be awarded. The learned judge in that case considered the effect of a "Calderbank" offer and said (after referring to a number of authorities) at p.17 of the judgement:

"As Black itself demonstrates, it does not follow that non acceptance of a "Calderbank" offer (or even an Order 23 offer) must lead to an order for indemnity costs; the Court must still consider the whole of the circumstances. However, whether or not it is correct to talk about a "prima face" presumption, non acceptance of an Order 23 offer should at least be regarded as providing to the offeror a good start in the task of persuading the court to award more than party / party cost."

26. On the following page, the learned judge sounded a note of warning about orders for indemnity costs where he said (at page 18 of the judgement):

"However one of the difficulties about an order for indemnity costs is its open ended nature. Because the underlying concept is one of indemnity, the order allows recovery even of costs that have been unreasonably incurred or incurred in an unreasonable amount. The court will rarely know whether such costs have been incurred. So the court risks making an order that is unreasonable in effect. This is not a proper case to take even as a response to unreasonable behaviour on the other side."

His Honour went on to point that such an Order could exempt costs reasonably incurred.

27. Reference was also made to the case of EMI Records Ltd - v. - Ian Cameron Wallace Ltd and anor (1982) 2 ALL ER 980 where the different bases upon which costs could be taxed was discussed. His Lordship said that there were five such bases, namely:

He went on to say that there were other orders that could be made in special circumstances, apart from the five that he mentions. After an exhaustive review of the authorities his Lordship rejected a submission that the particular court rules precluded the making of an order for costs on a solicitor / client or indemnity basis and considered on p.991 of the report the meaning of an order for indemnity costs.

28. Reference was also made by counsel to Rouse - v. - Sheppard [2] and ors (1994) 35 NSW LR 277 where an Order for Indemnity Cost was made in favour of plaintiffs who had been put to expense in proving their case by the unreasonable conduct of the defendants. In discussing the principles behind such an order, Badgery - Parker J. said (at p.279):

"The tendency of the Court has been to avoid unduly widening the cases in which indemnity costs would be awarded. In Colgate-Palmolive Pty Ltd - v - Cussens [1993] FCA 536; (1993) 46 FCR 225 at 223-224, Sheppard J. reviewed the relevant common law principles:

'4. In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis, whether here or in England.' "

His Honour referred to a number of authorities as to the sorts of circumstances that are considered relevant.

29. 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-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 s. 112 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.

30. Generally, party-party costs should be awarded. Access to Courts and Tribunals is a fundamental right enjoyed by everyone and persons bona fide 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 against whom the order for costs has been made has somehow acted improperly in the conduct of the litigation so as to cause the other party unnecessary expense. Indemnity costs are ordered where the party's conduct is particularly blameworthy. That is, the circumstances justify a harsher order than even solicitor / client costs.

31. 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 of that particular case.

32. In the present case I found that much of the evidence of the Director of the Respondent was not credible. Indeed in some respects I found it difficult to accept that he could have had an honest belief in what he said.

33. Further, some of the items that he sought in his counter claim, being the concrete pump and the extra for the slab, were not seriously arguable and were sensibly abandoned in final submissions. The lack of strength of his counterclaim can be seen when one considers that virtually the only items that he succeeded in were those that the Applicant was prepared to concede or did not dispute. This was largely a case of the Respondent refusing to comply with its obligations under the contract without having any arguable basis for such refusal in fact or law. Finally, I think there has to be some consequence if an offer under s. 112 is not exceeded at the hearing.

34. For all these reasons, I think it is appropriate to award something more than party / party costs. However, it must also be borne in mind that the Applicant's claim for liquidated damages was substantially overstated. Of the $6,000 that she claimed, only $4,500 was awarded, so it cannot be said that the Applicant should not have been put to the expense of bringing this application because there was no real dispute for the Tribunal to resolve.

35. In these circumstances I think that in applying the words "all costs incurred" in s. 112 (3) to the circumstances of this case, it is appropriate to order solicitor / client costs rather than indemnity costs from the date of the second offer. Costs incurred before that date will be assessed on a party / party basis, as sought by the Applicant.

I certify that this and the preceding 13 pages are a true copy of the decision of Mr Rohan Walker, Senior Member.