1. The Respondent is seeking its costs, on a solicitor client basis, of and incidental to the hearing on 27 January 2005 of their application for a declaration that the Respondent is deemed to have accepted liability to indemnify the Applicants' under the Building Owners' Home Warranty Insurance Policy. The application was dismissed on 4 February 2005. Mr Collier, solicitor, appeared on behalf of the Respondent, and Mr Greenham, solicitor, on behalf of the Applicant.

2. Mr Collier submitted that I should depart from the usual provisions of s109(1) that each party bear its own costs, and exercise my discretion in favour of the Respondent having regard to the provisions of s109(3)(c) and (d):

The Tribunal may make an order under sub-section (2) only if satisfied that it is fair to do so, having regard to -

(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;

The relative strengths of the claims

3. It was submitted on behalf of the Respondent that the application did not have any 'tenable basis in fact or law' and therefore had no hope of succeeding. In this regard I was referred to what was described as the three bases of the Applicants' application:

(i) that the letter of 20 May 2004 did not constitute a decision, and

(ii) that if the letter of 20 May 2004 did constitute a decision the First Respondent was estopped from relying on it, and

(iii) that the correspondence from the Applicants to the Respondent subsequent to the letter of 20 May 2004 constituted claims of themselves which the insurer was required to determine within the 90 day period.

4. I found the submissions in relation to each of the bases on which the application was made were unsustainable. In relation to the letter of 20 May 2004 I found 'It is clear ... that the owners understood the letter of 20 May 2004 to constitute a decision' (paragraph 22). In bringing the application the Applicants sought to argue a position which I found was contrary to their understanding of the situation as indicated by their own correspondence.

5. In relation to the question of estoppel. It was conceded by Counsel for the Respondent at the hearing on 27 January 2005 that an estoppel was not made out in its Points of Defence and this defence was withdrawn. Consistent with my ultimate findings, he submitted that the Applicants' allegations of estoppel were similarly not made out but this was contested on behalf of the Applicants and the ground maintained and argued. This submission was consistent with my ultimate findings.

6. It should also have been clear to the Applicants that their contention that the letters to the insurer subsequent to the letter of 20 May 2004 were, of themselves, new claims was unsustainable in light of my earlier decision in Tamburro v Home Owners Warranty [1999] VCAT 38.

The nature and complexity of the proceeding

7. It is irrelevant in considering the nature and complexity of the application that the contract price was in excess of $1 million or that the maximum limit under the insurance policy is $100,000 plus reasonable enforcement costs. However, as is apparent from the Reasons of 4 February 2004, there were a number of complex legal and factual issues considered and determined. Further, careful consideration of Mr Greenham's submissions on behalf of the Applicants, in opposition to this application for costs, only serves to confirm the complexity of the issues before me in determining the preliminary question.

8. The mere fact that the Applicants failed in their application does not of itself give rise to any entitlement to an order for costs, and certainly not to an order for solicitor/client costs. As noted above, Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 is quite clear - each party should pay their own costs unless the Tribunal is satisfied it should exercise its discretion to make an order for costs having regard to the provisions of s109(3). However, having regard to the complexity of the issues to be determined I am satisfied this is a clear instance where it is appropriate for me to exercise my discretion under s109(2) and make an order for costs in favour of the Respondent having regard to s109(3)(c) and (d).

Should the order be for solicitor/client or party/party costs?

9. The Respondent seeks an order for costs on a solicitor/client basis. I was referred to the decision of Justice Sheppard in Colgate Palmolive Pty Ltd v Cussons Ltd 46 FCR at 225 and in particular at p 233 where his Honour stated as follows :

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. The tests have been variously put.

Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed of warranting a departure from the usual rule. But as French J said in Tetijo, 'the categories in which the discretion may be exercised are not closed'. Davies J expressed similar views in Ragata.

10. In Lewis v Threadwell [2004] VCAT 750 (19 April 2004) an application for costs on an indemnity basis was declined although the Applicant's claim in that case was wholly unsuccessful. After considering Justice Sheppard's comments in Colgate Palmolive Senior Member Davis said at paragraph 14, and these observations are particularly relevant here.

I pause here to say that this Tribunal is different from the courts. In courts the normal rule as to costs are the costs follow the event. In Tribunals the normal rule is set out in paragraph 109(1) that subject to the division each party is to bear their own costs in the proceedings. I note that in courts indemnity costs are rarely made and I note that they are made on the grounds which Shepard J referred to in the Palmolive case. I note the submissions made by Mr Aghion that once the bar of s109 is passed, it should be the same considerations as the Court make. In my view, the intention of the legislature is clear that the test of whether indemnity costs should be awarded should be far stricter than those of that in courts. But there is a discretion.

11. The question of whether to order indemnity costs was also considered by Deputy President Macnamara in Barbcraft Pty Ltd v Geobel Pty Ltd [2004] VCAT 747 (29 March 2004) at paragraph 31 where he said:

In my view, however, Section 109 continues to be relevant for this reason. It shows that the Tribunal is in intended to be a no costs jurisdiction most of the time. Implicitly therefore, it indicates that even where costs are allowed that it should be a low costs jurisdiction rather than a high costs jurisdiction. Therefore, even if, contrary to the view that I have already expressed this would have been a proper matter for the award of indemnity costs in Court, it is not an appropriate one in the Tribunal. Awards of indemnity costs are the exception rather than the rule in Court, though I accept such orders are becoming increasingly common now in comparison with the situation 20 or 25 years ago. Nevertheless, they are the exception rather than the rule and the existence of Section 109(1) shows that such orders are rarer birds still in the Tribunal.

12. It was submitted by Mr Collier that in considering whether to make an order for solicitor/client costs I should have regard to the conduct of the Applicants in seeking to have this application determined as a preliminary issue which was opposed by the Respondent. I reject this submission - had the application been successful significant time and costs would have been saved, both for the parties and the Tribunal.

13. Although I determined that the Respondent had acted in good faith in contrast to the conduct of the Applicants this was in relation to, what I will loosely call, the processing of the claim, and not in relation to the conduct of the proceeding. The conduct of the parties in the period leading up to the commencement of this proceeding is not, in my view, relevant in determining the question of costs.

14. Considering the submissions on behalf of the parties, and previous decisions of the Tribunal referred to above, I am not satisfied that an order for solicitor/client costs is warranted or appropriate and will therefore order the Applicants to pay the Respondent's costs to be taxed in default of agreement on County Court Scale 'D'- the parties' representatives having agreed this was the appropriate scale.