1. Prior to the hearing on 26 September 2024, the parties filed submissions and affidavit material.

1. Mr Kerr's affidavit in support of his application for costs exhibited three offers dated respectively 19 May 2023, 15 May 2024, and 4 June 2024. The first offer was that Mr Kerr would pay Ms Pia $2,500 in full and final settlement of the dispute. The second offer, made almost exactly a year later, was that Mr Kerr would pay Ms Pia $11,200 in full and final settlement of the dispute. The third offer, made several days after the substantive hearing had started on 30 May 2024, was that Mr Kerr would pay $24,000 in full and final settlement of the dispute. At the hearing, only the third offer was relied on by Mr Kerr.

Discussion of Mr Kerr's offer to pay $24,000 in full and final settlement of the dispute

1. Reference to the Tribunal's Order dated 2 August 2024 confirms that the substantive hearing was conducted on 30 May and 5 June 2024. The offer of 4 June 2024 was made 5 days after the first day of the hearing and immediately before the second day of the hearing.
2. The offer was stated to be made:

without prejudice but may be tendered on the question of any costs in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 ('Calderbank') and subsequent Australian authorities and pursuant to section 112 of the Victorian Civil and Administrative Tribunal Act 1998 (the Act).

1. At the hearing, I drew the attention of Mr Kerr's barrister, Mr Hope, to the Court of Appeal decision of Velardo v Andonov[1] to the effect that an offer could not be both a Calderbank offer and an offer made under s 112 of Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act'). I referred to the Tribunal's recent decision in RP Flooring Services Pty Ltd v Gugler[2] in which this issue had been discussed. The relevant passage in RP Flooring Services is as follows:

The Court of Appeal remarked in Velardo v Andonov that a key feature of a Calderbank offer is that it is not an offer to which offer of compromise provisions - whether imposed by statute or rules of court - apply. Accordingly, as RP Flooring relies on the Offer as a Calderbank offer, it cannot also seek to benefit from the operation of s 112 in respect of the Offer.

1. Mr Hope was called upon to make an election as to whether the letter should be treated as a Calderbank offer or an offer made under s 112 of the VCAT Act. He responded by saying that he had prepared for the hearing on the basis that the offer would be treated as one under s 112. I accordingly had to assess whether the offer fell within s 112 of the VCAT Act.
2. Section 112 of the VCAT Act provides as follows:

Presumption of order for costs if settlement offer is rejected

(1) This section applies if -

(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.

1. The offer had been expressed to be open until the earlier of:
   • The time when the Tribunal makes its orders on the matters in dispute; or
   • 14 days from the date of sending, which meant that the offer would lapse at 11:00 am on Tuesday, 18th June 2024.
2. Mr Hope submitted that, because of the offer Ms Pia was not entitled to any costs up to 4 June 2024 but after 18 June 2024, Mr Kerr was entitled to his costs.
3. When Mr Hope was pressed as to why Ms Pia was not entitled to costs up to 4 June 2024, he submitted that that she had to rely on s 109 of the VCAT Act, and that section did not justify an award of costs being made in her favour.
4. The submission that Mr Kerr was entitled to his costs after 18 June 2024 embodied a concession that Mr Kerr's offer of 5 June 2024 was relevant only to his costs incurred from the date 14 days after the making of the offer. In practical terms, it could only potentially affect the costs of the hearing on 26 September 2024 itself. Mr Hope conceded this point.
5. Mr Marcou met the contention that Mr Kerr was entitled to his costs incurred after 19 June 2024 by submitting that the offer was not sufficient to enliven s 112 when interest and costs were taken into account.
6. Bearing in mind the wording of s 112(3) of the VCAT Act, Mr Marcou's submission boiled down to the proposition that, taking into account the total of:

(a) the order for damages of $13,000;

(b) interest incurred up to 4 June 2024; and

(c) the costs which would have been awarded to Ms Pia as at 4 June 2024;

the orders made by the Tribunal in the proceeding were more favourable to Ms Pia than the offer of $24,000. Accordingly, s 112(d) had not been enlivened so as to justify an award of costs being made to Mr Kerr.

1. At the hearing, I proceeded on the assumption that the relevant component of the award for damages in the nature of interest would be significantly less than $3,718.36, but would exceed $3,000. The transcript indicates that I accepted that the amount awarded inclusive of interest up to 4 June 2024 was "just over $16,000".
2. The justification of this approach was that Ms Pia had put forward a number of scenarios for the calculation of interest. The one adopted by the Tribunal was the one least favourable to her. It was the calculation of interest on the award of $13,000 for damages calculated between the date the last invoice incurred by Ms Pia was paid, namely 23 September 2021 and the date of the hearing, 23 September 2024. The calculation was $3,718.36. As interest has been calculated over a period of almost exactly 3 years, and as the date of 4 June 2024 is less than four months before the end date for the calculation of interest, the interest calculated between 23 September 2021 and 4 June 2024 can conservatively be calculated as $3,718.80 x 32 months/36 months, or just over $3,300.

1. Bearing this calculation of interest in mind, the question of the efficacy of Mr Kerr's offer in so far as it applied to his entitlement to costs after 18 June 2024 in practical terms turns on the issues of whether Ms Pia would have been entitled to costs as at 4 June 2024 and whether those costs would have been sufficient to bridge the gap between the primary award of damages $13,000 plus interest calculated at 4 June 2024 (assumed at the hearing to be just over $3,000) and the offer of $24,000. The gap was assumed to be less than $8,000 but greater than $7,500.
2. The relevance of this calculation arose from a decision of Garde J in Supreme Court in Metricon Homes Pty Ltd v Sawyer[3] to which I referred at the hearing. This decision is authority for the proposition that in order to test the efficacy of an "all in" or costs inclusive settlement offer made under s 112 of the VCAT Act, the appropriate approach (if costs are the deciding factor) is to assess whether at the time the offer was made an order for costs would have been made in favour of the successful party by the Tribunal and, if so, then to assess the costs which would have been awarded at that time.
3. Mr Marcou indicated that Ms Pia's cost up to 4 June 2024 easily exceeded $8,000. He indicated that counsel's fees alone for the proceeding exceeded $16,000.
4. The only steps to be taken after 4 June 2004 were the second day of the substantive hearing, and the costs hearing. Mr Kerr was hardly in a position to dispute Ms Pia's costs up to and including 4 June 2024 would have exceeded $8,000, having regard to the fact that his letter of offer of 4 June 2024 estimated his own cost of the of the proceeding would "be in the range of $30,000-$50,000, depending on which stage of the litigation process the matter concludes."
5. The only issue remaining to be resolved before the efficacy of Mr Kerr's offer could be finally assessed was whether Ms Pia would have been entitled to an award of costs if the litigation had concluded on 4 June 2024. This segues into the remaining issue regarding costs which is whether, under s 109 of the VCAT Act, Ms Pia was entitled to an order for her costs of the proceeding.

1. Ms Pia did not rely on any offer. Rather, she sought costs under s 109 of the VCAT Act. Section 109 relevantly provides:

Power to award costs

(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);

(iv) causing an adjournment;

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

(vi) vexatiously conducting the proceeding;

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

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

(d) the nature and complexity of the proceeding;

(e) any other matter the Tribunal considers relevant.

1. Ms Pia's evidence concerning costs was contained in her affidavit dated 20 September 2024. One of the matters she complained about was vexatious and harassing conduct of the proceeding by Mr Kerr. She deposed to being contacted by her expert witness, Mr Clinton Jones, who informed her that he had been called by a woman who made a number of specific allegations about her conduct. I will not repeat the allegations as they are distasteful and at the hearing I ultimately found that they did not create a basis for a special order regarding costs to be made.
2. Mr Hope said that the allegations made by Ms Pia took her application for costs nowhere as they were concerned with a course of conduct limited to a very short period of time. He referred to Neerup v Owners Corporation RP009465[4] where the Tribunal[5] had referred to the well-established principle that s 109(3)(a)(vi) is concerned with the manner in which the proceeding is conducted, and not whether the proceeding itself was vexatious.
3. In considering this limb of Ms Pia's application for costs, I referred to the decision of Bowman J sitting as a vice president of the Tribunal in State of Victoria v Bradto Pty Ltd,[6] where His Honour had held, at [12], that a proceeding is conducted in a vexatious manner 'if it is conducted in a way productive of serious and unjustified trouble or harassment, or if there is conduct which is seriously and unfairly burdensome, prejudicial or damaging.' I noted that the Court of Appeal in 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd,[7] at [4], confirmed that this statement "encapsulates the circumstances in which conduct may be classified as vexatious".
4. I observed that if this test was applied, it was hard to see that if the conduct complained of by Ms Pia was made out, it would be hard to characterise it other than conduct that was seriously and unfairly burdensome, prejudicial or damaging.
5. However, that was not decisive of the issue of whether Mr Kerr had conducted the proceeding vexatiously, as the allegations were disputed by Mr Kerr and his partner in their respective affidavits, although I note that at the time of the hearing both these affidavits were unsworn. Mr Marcou made a submission on behalf of Ms Pia to the effect that the fact that Mr Kerr and his partner were contesting the allegations came as a surprise. The affidavits had not been sworn and tendered prior to the hearing, and if Ms Pia had known there was going to be a contest about her evidence regarding Mr Kerr's conduct she would have called witnesses. I consider that Mr Marcou's complaint is justified, but at the hearing the situation remained that a very serious allegation was being levelled against Mr Kerr which was supported only by hearsay evidence. In the circumstances, I was not prepared to make a finding of vexatious conduct on the part of Mr Kerr.
6. I then turned to other aspects of Mr Kerr's conduct of the proceeding which drew criticism from Ms Pia.
7. Reference was made to Ms Pia's allegation in her affidavit that Mr Kerr had deceived the Tribunal in order to obtain an extended timetable for the proceeding. I was not persuaded by the evidence that Mr Kerr has actively deceived the Tribunal as to his intention to obtain an expert's report. Accordingly, this particular matter was not a basis to make a finding of vexatious conduct. However, it is clear that Mr Kerr did prevaricate about whether to engage an expert to inspect the property and this did delay the proceeding.
8. Mr Marcou made some complaints about the conduct of the proceeding which I think were fairly made. Firstly, Mr Kerr had actively disputed that he had performed the bathroom works. Ms Pia was required at the hearing to demonstrate this fact, using photographs of what the bathroom had looked like at the time that Mr Kerr purchased the property and what it looked like when he sold the property.
9. Mr Kerr, also without justification, disputed that the warranties implied into the contract of sale of the property by s 137C the Building Act 1993 applied. It was only conceded on the second day of the hearing that they did apply. This case was one where liability was not really in issue. The only contest was about quantification of damages. For these reasons, I considered that Mr Kerr had conducted the proceeding in a manner that was unnecessarily burdensome because it unnecessarily prolonged the hearing. This conduct justified an order for costs being made under s 109(3)(b).
10. This conduct was also relevant to s 109(3)(c), which puts into issue the relative strengths of the claims made by the parties. Mr Kerr's refusal to acknowledge, without any basis, that the work he had performed on the bathroom was governed by the warranties created by s137C, brings s 109(3)(c) into operation.
11. Mr Marcou also relied on s 109(3)(d), which is concerned with the nature and complexity of the proceeding. I also accepted that, in circumstances where Ms Pia had to mount a case which involved interpretation of technical building reports and where she had to engage in independent building expert, she was justified in engaging lawyers. I found that s 109(3)(d) was also enlivened.
12. Elements of the conduct of Mr Kerr which exposed him to an order for costs, including prolonging the hearing by not making relevant concessions and continuing to contest liability when only quantification of damages should have been in issue, was apparent on the first day of the hearing. It follows that had the issue arisen on 4 June 2024, when Mr Kerr's third offer was made, the Tribunal would have had a basis to make an order for costs against Mr Kerr.
13. The remaining issue is whether Ms Pia's costs as at 4 June 2024 would have would have exceeded $8,000. I discussed this issue above, at [17]-[18]. At the hearing I was satisfied that Ms Pia's costs at that date would easily have exceeded $8,000.
14. It follows that the orders ultimately made by the Tribunal, which are for damages of $13,000, damages in the nature of interest of over $3,000 (calculated even at 4 June 2024) and costs assessed as at 4 June 2024 which comfortably exceed $8,000, are more favourable to Ms Pia than Mr Kerr's offer on 4 June 2024 to pay to Ms Pia $24,000 inclusive of costs. It follows that I must accept Mr Marcou's submission that Mr Kerr's offer did not enliven s 112(1)(d) of the VCAT Act, because in order for that provision to become operational, the orders made by the Tribunal must be not more favourable to the party receiving the offer than the offer.
15. This finding disposes of Mr Kerr's argument that he was entitled costs after the date 14 days after the expiration of the offer. He is not entitled to any order for costs.
16. I now deal with a final submission by Mr Hope in an endeavour to avoid an order for costs being made against Mr Kerr. Mr Hope highlighted that Ms Pia had ultimately received a much lower award than she had pursued. In particular, she had not recovered any of the substantial medical expenses she had claimed on the basis that they had been due to medical conditions caused by mould which developed in the premises as a result of the leaks in the bathroom. I consider that Mr Hope was justified in making this observation as a matter of fact, but I did not consider that was relevant to the award of costs. The medical expenses were not claimable in the Tribunal as they related to personal injury. They did not fall within the jurisdiction of the Tribunal in relation to a domestic building dispute such as this. However, Ms Pia had been successful in her claim under s137C of the Building Act 1983, and taking into account the operation of s 109(3)(b),(c) and (d), it remained fair that Ms Pia receive an order for her costs.
17. On this basis I made the order for costs set out above.

1. I now turn to reimbursement of fees.
2. The Tribunal's records indicated that Ms Pia had paid fees totalling $1,666.60, comprising:
   • an application fee of $487.30;
   • a hearing fee on the first day of $389.60;
   • a hearing fee on the second day of $389.60;
   • a costs hearing fee of $410;
3. The most relevant section of the VCAT Act is s 115B. This provides:

Orders as to reimbursement or payment of fees

(1) At any time, the Tribunal may make any of the following orders -

(a) an order that a party to a proceeding reimburse another party the whole or any part of any fee paid by that other party in the proceeding, within a specified time;

(b) an order as to which party must pay the whole or any part of a fee in future in the proceeding;

(c) an order that a party to a proceeding pay, on behalf of another party, the whole or any part of any fee that may be required to be paid in the future by that other party in the proceeding;

(d) an order that a party to a proceeding reimburse another party the whole or any part of any fee that may be paid in the future by that other party in the proceeding, within a specified time after the fee is paid.

(2) Subsection (1)(b) does not apply if this Act, the rules, the regulations or an enabling enactment requires the fee to be paid by a particular party.

(3) In making an order under this section, other than in a proceeding to which section 115C or 115CA applies, the Tribunal must have regard to -

(a) the nature of, and issues involved in, the proceeding; and

(b) the conduct of the parties (whether occurring before or during the proceeding), including whether a party has caused unreasonable delay in the proceeding or has failed to comply with an order or direction of the Tribunal without reasonable excuse; and

(c) the result of the proceeding, if it has been reached.

(4) If the Tribunal makes an order under this section before the end of a proceeding, the Tribunal may require that the order be complied with before it continues with the proceeding.

1. Sub-section 115B of the VCAT Act made it necessary to make a determination as to whether 115C of the VCAT Act applied. Section 115C provides:

Presumption of order for reimbursement of fees to successful party in certain proceedings

(1) This section applies to the following proceedings -

(a) a proceeding relating to a small claim within the meaning of Part 2AB of Schedule 1;

(b) a proceeding under the Domestic Building Contracts Act 1995 ;

(c) a proceeding under the Owners Corporations Act 2006 , other than a proceeding on an application for review under section 191 of that Act;

(d) a proceeding under section 114, 120 or 149A of the Planning and Environment Act 1987 ;

(e) a proceeding of a kind prescribed by the regulations for the purposes of this section.

(2) Subject to subsection (3), a party who has substantially succeeded against another party in a proceeding to which this section applies is entitled to an order under section 115B that the other party reimburse the successful party the whole of any fees paid by the successful party in the proceeding.

(3) Subsection (2) does not apply if the Tribunal orders otherwise, having regard to -

(a) the nature of, and issues involved in, the proceeding; and

(b) the conduct of the parties (whether occurring before or during the proceeding), including whether the successful party has caused unreasonable delay in the proceeding or has failed to comply with an order or direction of the Tribunal without reasonable excuse.

(4) In this section -

"successful party", in relation to a proceeding, means a party who has substantially succeeded against another party in the proceeding.

1. The question of whether s 115C of the VCAT Act was engaged turned on whether the proceeding was one brought under the Domestic Building Contracts Act 1985 ('DBC Act'). Earlier in the hearing, in connection with Ms Pia's claim for interest, I had ruled that the proceeding was a proceeding under the DBC Act. This was a claim made under s 137C of the Building Act 1993. As such it fell within the definition of a domestic building dispute contained within s 54 of the DBC Act. This point had been established by the decision of the Tribunal (constituted by Senior Member Walker) in Bestawaros v Sorace[8] which had been followed in Douglas v Kelso[9] (a decision of Senior Member Kirton, as Her Honour then was).
2. Once I had determined that s 115C of the VCAT Act applied, it was necessary to determine whether, for the purposes of subsection 115C(2), whether Ms Pia had "substantially succeeded" against Mr Kerr in the proceeding. That matter was conceded by Mr Hope, appropriately in my view.
3. Because it was conceded that Ms Pia had been substantially successful in the proceeding, there was a presumption arising under subsection 115C(2) that she was entitled to costs. It was not suggested on behalf Mr Kerr that subsection 115C(3) operated to displace that presumption.
4. For these reasons, I made the order for reimbursement of fees set out above.

[1] [2010] VSCA 38, [47(1)].

[2] RP Flooring Services Pty Ltd v Gugler (Building and Property) (Costs) [2024] VCAT 745.

[3] [2013] VSC 518. Reference to the judgment indicates that [42] and (53] are particularly relevant.

[4] (Owners Corporations) (Costs) [2024] VCAT 260, [22].

[5] Constituted by Senior Member Johnson.

[6] [2006] VCAT 1813.

[7] [2015] VSCA 216.

[8] [2016] VCAT 1005, [16]-[20].

[9] [2018] VCAT 680.