For the Respondent Mr Oliver instructed by Phillips Fox

[1] On 21 September 1998 Mr Reid filed an application pursuant to Section 59A of the Domestic Building Contracts Act 1995 seeking determination of a dispute concerning an insurance claim which he had made upon FAI General Insurance Company Limited under the terms of a policy issued by FAI pursuant to Section 135 of the Building Act 1993 and a Ministerial Order made pursuant to that section with respect to building work being carried out for Mr Reid at 107 Burrawang Rise, Eltham North. A substantial component of the claim made by Mr Reid was constituted by legal costs which he had incurred with respect to terminating the building contract and mounting his claim against the insurer. FAI contended, amongst other things, that no legal costs were recoverable under the terms of the policy because no legal proceedings had been commenced. The correctness of this argument was considered as a preliminary issue at a hearing before Deputy President Professor Cremean on 11 December 1998. In a written decision published 8 January 1999 he rejected FAI's contention and held that the policy did extend to legal costs of the sort for which Mr Reid claimed reimbursement. The matter then came on for hearing before me on 25 and 28 May to determine the quantum of those legal costs and certain other claims made pursuant to the insurance policy. At the conclusion of the hearing on 28 May, I determined the matter substantially in favour of the applicant and pronounced orders that FAI must pay Mr Reid the sum of $26,918.68 representing:

(a) $19,961.63 costs of completion and rectification;

(c) $1,437.50 representing the costs of expert reports.

I reserved leave to the parties to make submissions as to what interest, if any, was payable under the terms of the Insurance Contracts Act 1984 or otherwise and having received further written submissions ordered that FAI pay the applicant the sum of $1,187 interest pursuant to Section 57 of the Insurance Contracts Act 1984. I further ordered that the respondent pay the applicant's costs of the proceeding to be taxed in default of agreement in accordance with County Court Scale "C". My reasons as to the award of interest were given in writing subsequent to the hearing but dated as at 28 May. My reasons for all other orders were given immediately at the close of argument on 28 May 1999. At that time neither party requested my reasons in writing.

[2] By facsimile transmission dated 18 June 1999 the solicitors for FAI requested "a copy of the written reasons for the determination". Pursuant to Section 117(2) of the Victorian Civil and Administrative Tribunal Act 1998 this request should have been made within 14 days of 28 May. The reasons which I gave on 28 May were lengthy, extending over a period of approximately 45 minutes. I gave those reasons in the belief that they were being recorded by tape recording system which appeared to be in operation throughout the hearing. Regrettably it appears that that recording system malfunctioned so that no part of my reasons were in fact recorded. Believing that these reasons were being recorded, I made no note of what I said, either before or after delivering the reasons. The inconvenience and hardship occasioned by the request being made as long after the giving of the reasons as it now has been, is regrettable to say the least. For a variety of reasons it would seem desirable that a party seeking written reasons should indicate that wish immediately at the conclusion of the oral reasons. (This is a mandatory requirement in matters under the Small Claims Act 1973 see Clause 87 Schedule 1 Victorian Civil and Administrative Tribunal Act 1998). If there is any difficulty with transcription the need to reconstruct the oral reasons given will become known to the presiding member early, at a time when he is likely to have a reasonable recollection of what he said. Request on the day is perhaps a counsel of perfection, certainly it would be of assistance to the presiding member. In this case the respondent has not made its request within the time stipulated in the Victorian Civil and Administrative Tribunal Act. Since the request was made outside the time limit prescribed by Section 117(2) there would seem to be no request under that section (cf Section 148(4)). In the result it is simply impossible for me at this stage to reproduce or purport to reproduce the reasons which I gave on 28 May.

[3] Mr Reid entered into a contract for the construction of a two storey brick veneer house at 107 Burrawang Drive, Eltham North, on 19 August 1996. The builder was A. & L. Colossimo. The house was contracted to be completed by Christmas of 1996 though Mr Reid granted the builder an extension to mid-January. FAI General Insurance Limited issued Policy No. 1800100170 with respect to this contract on 3 September 1996. The policy was in the form stipulated by Ministerial Order on Insurance published pursuant to Section 135 of the Building Act 1993.

[4] The project struck trouble early. The builder removed 43 truckloads of soil from the site in an incorrect and misconceived site cut. Nevertheless, by January 1997 the house was close to lock-up stage. The bricklayer had walked off the site prior to Christmas 1996. It seems that the builder had "cash flow problems". To enable building to progress, Mr Reid made representations to the builder's bank and purchased materials to be used on the site. This led to the house being close to completion; but part of the structure gave way and it ultimately had to be pulled down. Eventually the builder walked off the site.

[5] In July 1997 Mr Reid contacted Mr Ray Martin a claims manager with FAI. Mr Martin suggested that Mr Reid obtain as much work from the builder as he could. He said that the insurer would not become involved until the building contract was terminated. Mr Reid says that Mr Martin suggested that he (Reid) might require the assistance of a solicitor to achieve the result. Mr Reid at that time had no solicitor acting for him. These conversations took place before the final structural collapse which occurred in August or September. Mr Reid had retained some $12,000 of the contract price.

[6] On 2 July 1997 Mr Reid received a report from a structural engineer Mr Long as to how the then existing problems could be rectified. This report was received before the verandah over the house had collapsed. Mr Reid received an invoice on 9 July 1997 in the sum of $237.50. In the same period he received and paid two other invoices to the same structural engineer for advice as to works to rectify various problems including problems with the mortar mix. The invoices were in the sum of $500 and $150 which Mr Reid paid. In or about August of 1997 Mr Reid retained Messrs Dunhill Madden Butler to act. By letter dated 18 October 1997 written by Dunhill Madden Butler on Mr Reid's behalf, the building contract was terminated.

[7] The first claim which Mr Reid made under the policy was lodged by a letter written on his behalf by his solicitors dated 25 November 1997. This led to the attendance on 17 December 1997 of Mr Bob Lorich, a building consultant appointed by FAI. Mr Reid discussed the scope of the inspection with Mr Lorich and concluded that Mr Lorich was investigating only those matters which were raised in the November letter to FAI written by his solicitors. Mr Lorich was not, he concluded, seeking to assess any other defects in the work.

[8] Consequently, Mr Reid appointed another building consultancy "BSS" to carry out an inspection on his behalf, which report was to be forwarded to Mr Lorich when complete.

[9] There were a series of misunderstandings as to how much Mr Reid had been paid pursuant to the contract. This confusion arose to some degree out of the fact that he had made purchases of materials direct to alleviate the builder's cash flow difficulties. Ultimately, after having obtained a number of quotations a further amended claim was lodged on Mr Reid's behalf by his solicitors on 21 July 1998.

[10] On 25 August 1998 FAI advised Mr Reid's solicitors that it accepted liability in the sum of $17,912.63 but denied liability for legal costs and experts' fees.

[11] This figure was ultimately increased by some $2,049 by reason of changes of costing. This increase in the cost of rectification was first claimed by Mr Reid in amended points of claim filed in the Tribunal on 24 March 1999.

[12] FAI conceded liability for the sum of $19,961.63. What remained in dispute was the quantum of the legal costs, claims for experts' fees and a claim for some $750 in storage costs, representing the costs of storing Mr Reid's furniture for the period during which he was delayed taking possession of his house after the date when it should have been available to him for occupation, namely January 1997. A further claim for travelling expenses was abandoned in the course of the hearing.

[13] The principal issue at stake between the parties at the hearing before me was the fixation of the quantum of legal costs recoverable. Professor Cremean had already determined that some costs were recoverable despite the fact that they did not represent costs incurred in legal proceedings.

[14] The policy issued by FAI constitutes an indemnity in favour of Mr Reid "against all losses and damage during the Period of Insurance which result from any Prescribed Cause". "Prescribed Cause" is defined to mean inter alia:

"1. Domestic Building Work which is defective which expression includes:

(a) Breach of any warranties implied under Section 8 of the DBCT Act in respect of work carried out under a Major Domestic Building Contract such warranties being that the Builder warrants that:

(i) The work will be carried out in a proper and workmanlike manner in accordance with the plans and specifications set out in the contract;

(ii) All materials to be supplied by the Builder for use in the work will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;

(iii) The work will be carried out in accordance with and will comply with, all laws and legal requirements including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made thereunder;

(iv) The work will be carried out with reasonable care and skill and will be completed by the date (or within the period) specified by the contract;

(v) If the work consists of the erection or construction of a home, or is work intended to renovate, alter, expand, improve or repair a home to a stage suitable for occupation, the home will be suitable for occupation at the time the work is completed;

(vi) If the contract states the particular purpose for which the work is required, or the results which the building owner wishes, the work to achieve, so as to show that the building owner relies on the builder's skill and judgement, then the work and any material used in carrying out the work will be reasonably fit for that purpose or will be of such a nature and quality that they might reasonably be expected to achieve that result;

(b) A failure to maintain a standard or quality of building work specified in the contract;

2. Non-completion of the domestic building work due to the:

(d) Builder becoming insolvent under administration;

(e) Builder becoming an externally administered corporation;

(f) Cancellation or suspension of the builder's registration as a building practitioner under the Building Act 1993; or

(g) Early termination of the major domestic building contract by the building owner as a result of the builder's wrongful failure or refusal to complete the Building work

4. Alternative accommodation, removal and/or storage costs reasonably and necessarily incurred as a result of any event under Item 2 above;

[15] Under the heading "Limit of Indemnity" the following sub-paragraphs occur:

"(d) The aggregate liability of the insurer pursuant to the terms of this Policy shall not withstanding any other provision to contrary not exceed one hundred thousand dollars ($100,000) (or when the policy relates to more than one Home one hundred thousand dollars ($100,000) per Home) plus reasonable legal costs and expenses associated with the successful enforcement of a claim against the Insurer.

(e) The insurer shall bear no liability for the legal costs of the claims which are not directly or indirectly related to the enforcement of the policy."

[16] In accordance with an order made by Professor Cremean on 17 March 1999, Mr Reid furnished further particulars of his legal costs to 9 September 1998 in the sum of $6,361.55. The particulars appeared to be transcribed from Mr Reid's solicitors' time recording ledger. The first item is recorded at 8 August 1997 and the last item on 9 September 1998. On 30 September 1997 professional fees according to the time ledger in the sum of $2,424 were rendered in the sum of $1,500. On 29 June 1998 fees in the sum of $3,604 were rendered at $2,500 and a bill for the period 23 June 1998 to 9 June 1998 covering total recorded fees of $2,450 were reduced to $2,361.55 as rendered.

[17] Mrs Horsfall, a costs consultant who gave evidence on behalf of FAI, said that she had perused the files kept by Dunhill Madden Butler and that they contained a legal costs agreement which upon the face of it appeared to her to be enforceable. The items recorded and the particulars appear to suggest that as a principal or partner, Mr Beazley's time is charged at $300 an hour and that his assistant employee is charged at the rate of $140.

[18] FAI relied upon the evidence of its costs consultant, Mrs Horsfall. She said the proper approach was to apply the Magistrates' Court scale for claims between $20,000 and $40,000. Given that this assessment of costs was not "between party and party" she said she applied an 80 percent loading to the item for "instructions for brief". She excluded all items prior to the 16th of September on the view that these matters did not relate to the enforcement of the policy, rather they related to dealings between Mr Reid and the builder. In Mrs Horsfall's view the use of the word "reasonable" in the insurance policy imported the sort of limitations which were applied in taxations between party and party and as between solicitor and client. Whilst she conceded that as between solicitor and client the rates provided for in the costs agreement and at which Dunhill Madden Buttler's services were charged, "related to the market" nevertheless in her view, the words in the policy were not apt to bestow upon the insurer a complete indemnity for his costs.

[19] Mr Oliver who appeared on behalf of FAI submitted that the word "reasonable" meant "reasonable in all the circumstances". He referred to a decision of the High Court of Australia Opera House Investment Pty Ltd v Devon Building Pty Ltd [1936] HCA 14; (1936) 55 CLR 110. Further, in his submission the expression "reasonable legal costs" in contentious matters, generally meant costs on a solicitor client basis and not on a full indemnity basis. He referred to Rule 63.30 of the Rules of Civil Procedure, Minister of Works and Development v Cromwell Farm Machinery Limited [1986] 2 NZLR 29, 36; Re National Safety Council of Australia (Victorian Division) (No.2) [1992] VicRp 34; [1992] 1 VR 485, 510, 517. The fact that the word "reasonable" is included in a section of the policy headed "Limited Indemnity" also in Mr Oliver's submission supported the view that it was to be regarded as negating any suggestion that costs were to be on a full indemnity basis.

[20] Mr Oliver submitted that the assessment made by Mrs Horsfall in accordance with the Magistrates' Court Scale was an appropriate one, particularly having regard to the fact that if the matter had been litigated in the court system, the Magistrates' Court would have been the appropriate venue. He observed that the insurer had not contested liability on the claims and had ultimately accepted liability for the rectification costs.

[21] Mr Arnold who appeared on behalf of Mr Reid, submitted that the insurance policy should be read in a plain commonsense manner and should be construed on the basis that its intention is to bestow a benefit on building owners. The intention of the policy is to indemnify and therefore the provision as to legal costs should be regarded as granting them to the insured on an indemnity basis. He referred to Sutton Insurance Law in Australia (2nd Ed.) at Paragraph 9.67-9.69 and at Clause 15.77.

[22] It may readily be conceded that the expression "reasonable" where used in the policy means reasonable in all the circumstances. In Ministry of Works and Development v Cromwell Farm Machinery Limited [1986] 2 NZLR 29 (an authority relied upon by Mr Oliver) the New Zealand Court of Appeal (Cooke P. McMullin and Casey JJ) considered the appropriate measure of costs to be given to a land owner seeking compensation and costs under the Public Works Act 1989 in relation to a compulsory acquisition of its property. Section 60 of the statute provided for full compensation and Section 90 provided for the payment to the expropriated party of "reasonable costs". The Court concluded that the legal costs recoverable while not providing a full indemnity to the claimant of a solicitor client basis should provide a more generous approach than party party costs in ordinary civil litigation. It may be thought that the mode of assessment adopted by Mrs Horsfall. Interestingly the Court remarked

"We do not think that the use of the word "reasonable" qualifying costs in S.90 adds much to the argument. It does no more than emphasise that any costs awarded must be subject to the test of reasonableness, that is an objective appraisal, which might be assumed to be the case under S.64."

[1986] 2 NZLR 29, 36

[23] This sort of approach and the one favoured by Mrs Horsfall and Mr Oliver's submission, seem to create a paradox. Where a policy is intended to cover the costs of rectification of a building, it is not to be supposed that some sort of margin is to be "taxed off" the actual cost of the building work. The assumption is that a full indemnity for the actual cost will be provided. I accept that the approach adopted in the Cromwell Farm Machinery case is reflective of the general approach to the fixation of costs between parties to litigation. The present problem is different. The costs are not incurred in litigation at all and what is more, they are costs insured against in a policy of indemnity insurance. In Sutton Insurance Law in Australia (2nd Ed. 1991) at Paragraph 15.77, the learned author states under the heading "Contracts of Indemnity":

"If the policy is not a valued policy under which the agreed value is to be paid in the event of loss, it will normally evidence a contract of indemnity, and the figure for which the subject matter is insured will represent the maximum amount to which the insurer will be liable. The statement of the amount which the insurer promises to pay merely fixes the maximum amount which in any event he may have to pay, and the only obligation is to indemnify the assured, up to this figure, against actual loss for the accepted risk. The assured is entitled to be fully indemnified but never more than fully indemnified; he cannot make a profit at the risk of the insurer."

[24] In my view there is a line of authority which shows that in appropriate circumstances "reasonable legal costs" equates with the rates at which those services must be purchased in the ordinary market.

[25] In New South Wales Crime Commissioner v Fleming (1991) 24 NSWLR 116, the New South Wales Court of Appeal, Gleeson CJ, Kirby P and Hope A-JA, considered the operation of the Drug Trafficking (Civil Proceedings Act) 1990 which provided for the making of orders restraining the disposition of property by certain persons subject to provision being made for meeting a person's reasonable legal expenses (Section 17). At first instance Mathews J had made provision for what she conceived to be the reasonable legal costs of a person whose property was subject to a restraining order in accordance with a costs agreement which the person had entered into providing for rates of $200 per hour for a solicitor, $3,000 for senior counsel and $1,200 for junior counsel together with necessary disbursements. The Court set aside Her Honour's order concluding that provision for the payment of costs in such general terms was not reasonable and could lead to serious abuse. Gleeson CJ said:

"An agreement between the solicitor and client as to costs which the solicitor will be entitled to charge will be relevant if there is a dispute as to the reasonableness as to the legal expenses in question, and it will not be conclusive. The Court will be required to consider what is reasonable, not only from the point of view of the client, but also having regard to the public interest, bearing in mind the possibility that an order for confiscation or forfeiture may be made.

I do not intend to suggest that a judge or a taxing officer is at liberty to give effect to an individual opinion, formed by reference to some personal standard of social justice, that fees charged by solicitors or barristers are generally "too high".

A primary factor affecting the reasonableness of the legal expenses for which provision is sought will be the market for legal services in which the client as a consumer, is obliged to seek such services_. Underlying the policy of S.7 and S.17 is a recognition that justice requires the persons accused of criminal offences, or confronted with the threat of forfeiture of their own property, should not be unfairly deprived of the means of defending themselves, and it would be inconsistent with that recognition to adopt an approach to the question of reasonableness of legal expenses which had the practical consequence of depriving persons of the opportunity of obtaining proper legal representation."_

(1991) 24 NSWLR 116, 124 (my emphasis)

"The Legal Aid Commission scale, and the amounts which an "average" barrister or solicitor accepts as daily fees, will not be a sufficient basis to determine "the reasonable legal expenses" of a person under the Act. Average fees are set by market and other considerations. They are not specific to the limited purposes for which provision may be made under S.10(5)(b) for "reasonable legal expenses" of particular cases. In the normal case, evidence should therefore be placed before the judge, in some detail, concerning the anticipated duration of the proceedings, the issues that may be raised, the steps taken to retain Counsel, the costs likely to be incurred by the solicitor and the opinion of the solicitor as to whether, in the circumstances of the particular case, such charges represent "reasonable legal expenses". The opinion of an experienced but independent solicitor who has reviewed the foregoing and any other relevant considerations, to the like effect will assist the judge in determining at least those items of "reasonable legal expenses" for which exempting provision should be made, prospectively, in the restraining order."

(1991) 24 NSWLR 116, 143-4

The appeal was allowed and the matter was remitted to the Criminal Division of the Supreme Court "for the provision of any additional orders that may be appropriate for the "reasonable legal expenses" of the respondents ...". The matter then came before Studdert J. who gave an unreported judgment on 21 December 1992. He considered the sort of detailed evidence which Kirby P. had suggested was necessary in the circumstances. He made mention of a number of hourly rates for various classes of business and continued:

"As a general observation I had reservations in making provision for costs to be determined by reference to hourly rates. Such a method has obvious shortcomings, to which both the Chief Justice and the President referred in relation to these very matters in their remarks ...

However, the evidence before me does not permit me to fix appropriate provision other than by reference to hourly rates and that approach has the merit of simplicity at least, it recognises the submissions of Counsel for both parties but also accords with the method of charging new practice as emerges from the evidence before me. Its implementation and control will mean that on taxation it will be for the taxing officer to determine whether the time spent in providing any particular service was reasonably necessary and thus whether the particular charge related for this service is recoverable, aided no doubt by appropriate submissions by the parties."

His Honour therefore made a series of detailed directions as to costing by reference to hourly rates.

[26] In Director of Public Prosecutions v George Petropolous Lander J. of the Supreme Court of South Australia considered similar issues in connection with the South Australian Criminal Assets Confiscation Act 1996. He referred with approval to the remarks and approach adopted by the New South Wales Court of Appeal in Fleming's case. He concluded:

"It seems to me that costs of a "reasonable basis" for work done in a committal in the Magistrates' Court would ordinarily be assessed by having regard to costs charged in the market place by those who appear in the Magistrates' Court in committal proceedings and although the scale of costs in the Magistrates' Court has also been designed for actions commenced in the civil jurisdiction of that Court, by general reference to the scale of costs in that Court. The scale cannot be used for the purpose of consideration of the appropriate costs in criminal proceedings in that Court without modification but it is a guide albeit imprecise, to the level of costs in the Magistrates' Court across jurisdictions."

His Honour's adoption of the Magistrates' Court scale, at least as a guide, must be seen in light of the remarks of Kirby P. in Fleming's case where His Honour remarked "in criminal cases, Counsel may often be willing to accept lesser fees than in civil" (1991) 24 NSWLR 116, 140. Lander J. adopted the Magistrates' Court scale as a guide in the matter before him, as I read his reasons, on the basis that it represented the rates that were payable "in the market".

[27] In the present case Mrs Horsfall conceded that the rates charged by Dunhill Madden Butler were market rates. Their Honours in Fleming's case explained the many abuses and inequities which hourly charging rates may lead to. Neither Mr Oliver, FAI's Counsel or its expert witness Mrs Horsfall, has identified any particular abuses of that sort in the itemisation of time costing relied upon by Mr Reid. The evidence before me did not descend to an analysis item by item of how each block of time came to be employed. I should say however that no obviously inappropriate uses or charges for time were evident to me on the face of what was claimed. I should also note that in each of the three bills rendered the amount yielded by the time costing formula was moderated somewhat. In my view this policy should be regarded as giving an indemnity and a full indemnity for the legal costs. Costs are not to be regarded as other than "reasonable" merely because they represent what the market rates are. Indeed it is that very congruence with the market which makes those fees reasonable. I reach this conclusion with the greater confidence in the knowledge that the form of policy relied upon here is issued pursuant to statute as a consumer protection measure.

[28] Nevertheless, I accept Mrs Horsfall's view that costs before 16 September 1997 are not to be regarded as having been incurred in enforcement of the policy, rather they were incurred for the purpose of dealings with the builder. I exclude all items before that date and fix the legal costs recoverable under the terms of the policy in the sum of $5,519.55.

[29] Mrs Horsfall said that these costs were not properly to be characterised as part of the legal costs. They were not in her view incurred for the necessary purpose. Nevertheless, according to Mr Reid, the several reports were obtained for the purpose of identifying the items and the work required to bring the house to contract standard and in conformity with the warranties provided for in the Domestic Building Contracts Act. Put another way, they were incurred as a result of the builder's breaches of contract and non-completion of his contract and were therefore to be regarded as part of the "losses and damage" incurred as a result of one or more Prescribed Cause (as that expression is defined in the policy). FAI is liable to Mr Reid for the payment of those sums.

[30] It may be that if the broad definition of the indemnity stood alone, the storage expenses would be regarded as covered by the policy. As it is however, storage expenses are specifically referred to in the definition of "prescribed cause" and they are covered by the policy only if they are "necessarily incurred as a result of any event under Item 2 above". I have set out all relevant parts of the definition earlier in my reasons and I will not repeat the text of Item 2, suffice to say that it refers to a set of events, namely termination of the contract, insolvency of the builder and so forth which according to Mr Reid supervened only after he had gained access to the property and therefore subsequent to the period for which the expenses were incurred. The express inclusion of reference to storage expenses in the limited circumstances just described implicitly excludes them from coverage in the wider words of the indemnity. This is an instance of the operation of the Latin maxim "expressio unius est exclusio alterius".

[31] The general provision of Section 109(1) of the Victorian Civil and Administrative Tribunal Act 1998 is that the costs lie where they fall. Sub-sections (2) and (3) of that provision however, permit a departure from that rule in light of a wide number of circumstances including inter alia "the nature and complexity of the proceeding" Section 109(3)(d) and "any other matter the Tribunal considers relevant" Section 109(3)(e). In the present case Mr Reid makes a claim under a policy of insurance issued as a measure of consumer protection. If he does not receive an indemnity for the costs with which he incurs in mounting this claim he will receive less than the Statute and the Ministerial Order supposed that he should. Moreover, in the present instance the insurer has failed to pay the rectification costs for Mr Reid's house for the purpose of exacting from him a release for the claim for legal costs and other expenses which I have substantially upheld. For reasons which I gave in Salerno v Crimes Compensation Tribunal (1995) 8 VAR 272, 283 with respect to the General Division of the old Administrative Appeals Tribunal and Malthall Pty Ltd v Bevendale Pty Ltd (No. 2) (1998) V ConvR 58-528 the correct scale to apply in these circumstances is the County Court Scale and having regard to the sum of money claimed, the costs should be fixed by reference to Scale "C".