1. In order to give context to what follows, it is convenient to note that the owners entered into a major domestic building contract with the builder for the purpose of constructing three two-storey units on a property they owned in Tamarind Crescent, Werribee. The contract price was $812,000.00 inclusive of GST.
2. An occupancy permit was issued by the relevant building surveyor on 9 September 2020. On the same day, the builder issued an invoice for the completion stage to the owners in the sum of $81,200.00.
3. The owners, having sent to the builder a report into each of the three units listing defects and works required for completion, declined to pay the completion stage invoice.
4. The stand-off between the owners and the builder about completion continued for months. While the contract was still on foot, unit 3 was broken into and vandals caused extensive damage ('the vandal damage').
5. The owners brought the contract to an end on 30 April 2021, asserting that the contract had been terminated under its terms, alternatively, at common law.
6. After the owners had taken possession of the units, they embarked on a program of defect rectification and completion. Mr Troise carried out some of the work, including painting, himself. He also managed some trades including a tiler who rectified tiled floors in two of the units. Ultimately, the owners engaged Icon Homes Pty Ltd ('Icon') to carry out some of the rectification and completion work.
7. It was only about 14 months after the termination of the contract that the owners considered that they were in a position to put the first of the units on the rental market. Unit 1 was first rented on 25 May 2022, unit 2 on 11 July 2022, and unit 3 on 20 September 2022.

1. The owners came to the Tribunal seeking damages from the builder. They sought damages for breaches of some of the warranties created by s 8 of the Domestic Building Contracts Act 1995 (Vic) ('DBC Act'), completion costs, rectification of vandal damage in unit 3, agreed (or liquidated) damages, and a credit in relation to two variations. They also sought a declaration that they had validly terminated the contract and sought general damages in respect of other losses, including losses arising out of the delay in leasing the three units, and the cost of re-establishing the site boundary by the owners' cadastral surveyor.
2. In Points of Claim dated September 2021 the owners set out claims for loss and damage of $649,644.09 as follows:

(a) Rectification of the Defects: $443,811.00.

(b) Rectification of the vandalism: $46,457.00.

(c) Re-establishment of the boundary: $1,360.00.

(d) Liquidated Damages: $43,821.43.

(e) Credits: $18,897.50.

(f) Loss of rent: $82,800.00.

(g) Other expenses (in the sum of $12,486.16):

Tony Croucher & Associates Invoice dated 0725 21 May: $1,540.00

Inspect Reports Invoice Troise-01 dated 21 September 2020: $2,367.75

Quick Report Invoice dated 21 September 2020: $2,475.00

Vandalism Report Invoice 1266 dated 22 July 2021: $1,155.00

Skills Report Invoice 1274 dated 24 August 2021: $2,994.53

Temporary Fencing (City Wide Invoice) dated 14 May 2021: $1,132.56

1. The builder issued a completion stage invoice on 9 September 2020. It contended that the completion stage invoice constituted the final claim under the contract and, because the owners did not closely follow the procedure for notifying defects within the time limited by the contract, the invoice had become due and payable. Alternatively, the builder contended that under special condition 6 of the contract, the final claim became payable within 14 days of the issue of the occupancy permit.
2. In the event, I found that the owners had lawfully terminated the contract.[1] I also found the owners were entitled to damages totalling $278,001.00.[2]
3. The respective awards made to the owners in the Reasons were as follows:
   • vandal damage: $40,200.00, at [112];
   • agreed damages: $57,536.00, at [128];
   • delay claim post termination: $nil, at [141];
   • further claims for consequential loss: $nil, [143]-[154];
   • foundation design credit: $11,500.00, at [162];
   • window change credit: $nil, at [167];
   • resurvey claim: $nil, at [176];
   • defects: $111,837.00, at [244];
   • completion items: $56,928.00, at [275].
4. As the owners had lawfully terminated the contract then, under the usual rule for the recovery of damages for breach of contract, they were found to be entitled to recover the costs of having the works rectified or completed by another contractor, although they had to allow to the builder a credit in respect of the unpaid balance of the contract sum.
5. The unpaid balance of the contract sum was $81,200.00. This was set off against the total damages to which the owners had been found to be entitled of $278,001.00, thereby reducing the owners' entitlement to damages to $196,801.00. I rounded this sum to $196,800.00 and awarded this sum to the owners.

1. In their application for interest, the owners made alternative claims. The primary claim was that the builder pay them interest in the amount of $64,270.03 from 28 September 2021 (the date they asserted the builder had initiated the proceeding) up to 2 January 2025 accruing at a rate of 10% per annum on $196,800.00, or $53.87 per day, in accordance with the Penalty Interest Rate Act 1983 (Vic) ('PIR Act'). The alternative claim was for interest in the amount of $28,843.60.
2. In the submissions they filed prior to the final hearing, the owners confirmed their primary claim was for $64,270.03 on the sum of $196,800.00. Their alternative submission, however, changed. The owners now sought interest on the total of what they termed 'deprived' damages, or damages relating to money that the owners have been denied the use of. The total amount of 'deprived' damages came to $184,751.00, and that figure, the owners submitted in the alternative, should attract interest from the date of the commencement of the proceeding. On this basis, the owners' calculation of damages in the nature of interest came to $60,335.12.

1. When they developed their submissions on interest, the owners submitted that it was uncontroversial that the Tribunal's power to award interest arose from s 53(2)(b)(ii) of the DBC Act. I agree.

On what principal is interest to be calculated?

1. The first enquiry is to identify the principal sum upon which interest is to be calculated. In respect of this issue, the owners' submission was simple. They said:

Damages in the nature of interest are awarded, when it is fair to do so, in order to compensate an innocent party for damage suffered because that party has been deprived of the use of the money.

1. The owners relied on the following passage in Senior Member Walker's decision in Ewin v Siemerin,[3]('Ewin') at [75]:

In essence, damages are awarded in order to compensate a party, wholly or partly, for loss and damage suffered by that party as a result of the offending party's breach of the contract. Damages in the nature of interest are awarded, where it is fair to do so, in order to compensate the innocent party for damage

1. The owners went on to note that Senior Member Walker applied that compensatory principle by allowing damages in the nature of interest on sums already expended by the owner, but by not awarding interest on the money required to demolish and complete the house, because that money had not been spent, and accordingly the owner had not been deprived of its use.[4]
2. At the costs hearing, the owners also cited Senior Member Walker's decision in Khan v Kimitsis trading as Quest Building.[5] I note that Senior Member Walker, at [41], stated:

Interest is awarded to compensate the aggrieved party for having been deprived of the amount awarded from the date that it should have been paid until the date of judgement.

1. The compensatory nature of an award for interest was emphasised by the Senior Member in the following paragraph of his determination in which he noted that as the owner had not expended the cost of fixing the defects and completing the house, he was not out of pocket for those sums. This approach was entirely consistent with the approach adopted by the Senior Member Walker in Ewin.
2. The owners, at the hearing, focused on the statement that interest would run on any sum from the date on which it should have been paid. They pointed to agreed or liquidated damages, which crystallised by operation of the contract even while the contract was on foot. However, they did not put forward a calculation of interest for consideration.
3. The builder does not rely on Ewin, but does not dispute the underlying principle illustrated by that decision. This is apparent because the builder expressly relies on the decision of Senior Member Kirton (as Her Honour then was) in Douglas v Kelso[6] ('Douglas') where the Senior Member held that interest was to be allowed on amounts in respect of which the applicant was out of pocket, but not in relation to other amounts which had not yet been paid.[7]
4. Given that the owners embrace the view expressed by Senior Member Walker in Ewin that damages in the nature of interest are intended to compensate the innocent party for loss of use of money, it is hard to understand how they justify their primary submission, which is that interest should be allowed on the net amount awarded to them - $196,800.00 - from the date of the initiation of the proceeding on 28 September 2021 to the date of the determination on 2 January 2025, at 10% per annum, which they calculate to be $64,270.03.
5. The approach of awarding interest to a successful plaintiff on the judgement sum calculated from the date of institution of the proceeding until the date of judgement is often taken in the Courts. However, in the Courts, different legislation applies.
6. As noted, the Tribunal's power to award interest arises under s 53 the DBC Act, which relevantly provides:

(1) VCAT may make any order it considers fair to resolve a domestic building dispute.

(2) Without limiting this power, VCAT may do one or more of the following -

(a) [Not applicable]

(b) order the payment of a sum of money -

(i) found to be owing by one party to another party;

(ii) by way of damages (including exemplary damages and damages in the nature of interest);

(iii) by way of restitution;

1. The permissive nature of the language employed in s 53 of the VCAT Act is to be contrasted with the language of s 60(1) of the Supreme Court Act 1986 (Vic) ('SC Act'), which relevantly provides:

The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.

1. Sections 60(2) and 60(3) of the SC Act go on to specify circumstances in which interest must not be awarded, but those provisions do not negate the obligation of the Court under s 60(1) to award interest "unless good cause is shown".
2. In Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (No. 2)[8] ('LU Simon'), Judge Woodward (as Justice Woodward then was), sitting as a Vice President of the Tribunal, acknowledged the mandatory nature of the obligation of the Court in s 60 of the SC Act, and highlighted that the discretion of the Tribunal to award interest was limited to situations where the award would be 'fair'.
3. Because of the requirement arising from s 53 of the DBC Act to award interest only where it is fair to do so, I am not disposed to make a global award of interest calculated on the net award to the owners from the date of institution of the proceeding until the date of the determination, unless the facts of the case justify this course.
4. One complexity in this proceeding is, as the owners point out, that the net sum awarded to the builder was calculated by crediting to the builder the unpaid balance of the contract sum of $81,200.00. The credit was achieved by setting off that sum against the total award of damages made to the owners of $278,001.00. Because of this, the owners submitted that 'it is somewhat difficult to "enter the mind of the Tribunal" to ascertain whether paid or unpaid items of damage have been set off'.
5. I do not accept this submission. The builder's counterclaim was for payment of its final payment claim of $81,200.00. The counterclaim failed because it was held that the builder was not entitled to payment of that claim because the work was not complete.[9] For this reason, it is logical to notionally allocate the balance of the contract sum which has been credited to the builder in the first instance to the completion of the work which remained to be funded by the owners.
6. The cost of completing the works has been assessed at $56,928.00.[10] If that sum is notionally allocated to completion works, $24,272.00 is left to be notionally allocated to all the other claims in respect of which damages have been awarded.

The builder's submission about the relevance of the allowance for inflation on the award for interest

1. The builder submitted that interest should be calculated taking into account an allowance for inflation already made in the calculation of damages. The allowance referred to had been made to Mr Osborne's assessment of future rectification of defects in the three units of $90,533.49.[11] The allowance for inflation was 3%, which resulted in an adjustment for inflation of $2,716.00. When this sum was added to the base, the inflation adjusted figure became $93,249.49.[12] As interest is not being awarded on this $93,249.49, the builder's submission falls away.

Finding as to the principal sum upon which interest is to be awarded

1. The 'non completion work' claims total $221,073.00. This figure is comprised of the following:
   • vandal damage $40,200.00
   • defects $111,837.00
   • credit in relation to foundation design of $11,500.00
   • agreed damages $57,536.00.
2. It is necessary to address these awards in turn

1. In respect of the vandal damage, the owners have expended money to carry out rectification work. It is appropriate that interest should run on the amount spent, namely $40,200.00.

1. Unrectified defects have been assessed at $93,250.00.[13] The owners have expended a total of only $18,587.00 to carry out rectification work, as follows:[14]
   • rectification of plumbing work in units 1 and 2 by Icon: $5,577.00;
   • rectification of the balcony and the damage caused by leaking from the balcony: $11,440.00;
   • replacement of carpet $250.00;
   • retiling in units 1 & 2: $1,320.00;
2. I find that interest should run on the $18,587.00 that has been expended by the owners, but not on the balance of the $93,250.00. That balance has been awarded in respect of the cost of rectifying, in the future, other defects in the three units.

1. In respect of the credit in relation to foundation design of $11,500.00[15] and the agreed damages of $57,536,[16] the owners have been kept out of money to which they were entitled to be paid. The total of these two awards is $69,036.00.
2. Ordinarily I would award interest on the whole of this sum. However, I consider that it is not appropriate that interest should run on the whole amount in circumstances where the balance of the contract sum of $81,200.00 has been credited to the builder, but has not entirely been notionally allocated to completion works. As noted, $24,272.00 remains unallocated. I find that it is appropriate that interest should be allowed on the difference between $69,036.00 and $24,272.00, i.e. $44,764.00.
3. In summary. I find that interest should run on a total of $40,200.00 (the sum spent on rectifying vandal damage), $18,587.00 (the sum spent on rectifying defects) and $44,764.00. The total sum on which interest is to run is accordingly $103,551.00.

1. Having dealt with the issue of the principal upon which interest is to be calculated, it is necessary to turn to the question of the interest rate to be applied.
2. Relevantly, s 53(3) empowers the Tribunal when awarding damages in the nature of interest to base the amount awarded on the interest rate fixed from time to time under s 2 of the PIR Act or on any lesser rate it thinks appropriate. In its submissions, the builder makes no suggestion that an interest rate other than that applicable under the PIR Act should be applied. The owners submit that in these circumstances the Tribunal should apply that rate, which the parties accept is 10% per annum.
3. I do not automatically accept the owners' submission on this point. In LU Simon, Woodward J went on, at [12], to observe that evidence clearly has a role to play in considering an order for interest under both s 60 of the SC Act and s 53 the DBC Act. He remarked:

This is particularly so in the case of the latter, where the discretion is unqualified, except by the requirement that the order be "fair". In my judgment, the Tribunal will usually be assisted both on the question of whether an award of interest is "fair" and the appropriate rate to be applied, by some evidence of how the applicant has covered its expenses pending an award of damages in its favour.

1. In LU Simon, Woodward J, after discussing some authorities dealing with the question as to whether, at least in Victoria, there is a predisposition in favour of awarding interest at the rate fixed under the PIR Act, determined, at [43], to adopt a compensatory approach and not apply the PIR Act rate.
2. It is clear from ANZ bank records put into evidence that in early 2022 the owners were funding rectification work performed by Icon and other contractors such as Macedon Fencing, MPM Tiling, Global Locksmiths and Binswest from an ANZ offset account. It is quite possible that the rate of interest being charged by ANZ Bank on that account was well under 10% per annum. However, no evidence was given by the owners about this, and that is a reason not to depart from presumption that an interest rate of 10% should be applied. Another reason is that, although the interest rate charged by ANZ Bank may well be under 10%, the interest would in effect be compounding as it would be capitalised progressively.
3. For all these reasons, I find that the appropriate interest rate to be applied is 10%, being the applicable rate under the PIR Act.
4. The owners submit that interest should be calculated from the date of institution of the proceeding and should run until the date of the award. The builder did not put a contrary submission, and I accept the owners' contention.
5. According to the Tribunal's file, the filing fee was paid on 28 September 2021. I will treat this as the date of institution of the proceeding.
6. This determination will be published shortly after 28 September 2025. It is convenient to deem this date to be the date of the award to render less complex the calculation of interest.

1. Interest on $103,551.00 at 10% per annum for 4 years is calculated to be $41,420.40. I will round this down to $41,420.00 and award that sum to the owners as damages in the nature of interest.
2. The total amount of damages to which the owners are entitled is, accordingly, ($196,800.00+$41,420.00=) $238,220.00.

1. The owners primary claim for costs is put on two bases. The first is that s 109 of the VCAT Act is enlivened. Section 109 relevantly 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 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. At the outset it is appropriate to make mention of the well-known decision of Gillard J in Vero Insurance Ltd v Gombac Group Pty Ltd [17] ('Vero'). Gillard in an often quoted passage highlighted that the general rule in s 109(1) of the VCAT Act that 'each party is to be their own costs of the proceeding' applies unless the Tribunal is satisfied that it would be fair to award costs.[18] Gillard J then went on to acknowledge that in determining whether it is fair to do so, the Tribunal must have regard to the matters stated in s 109(3). Of relevance to this determination is that Gillard J said:
   1. Whilst it is appropriate for the Tribunal to consider each of the specified matters in s.109(3) and express a view as to the weight that should be attached to the particular matters relied upon, in the end it is important that the Tribunal consider all the matters together and determine whether it is fair to make an order for costs. When dealt with in isolation, each of the matters may lead to the conclusion that it is not fair to make an order for costs, but when taken together, the Tribunal may be satisfied that it is fair to do so. It is the totality of all relevant matters under s.109(3) that must be considered in the context of the prima facie rule.109 of the VCAT Act.
2. In my view, the behaviour of the claimant for costs may be relevant too. That is to say, the claimant's conduct of the proceeding, when assessed against the criteria established by s 109(3), may justify a finding by the Tribunal that it is not fair to award costs, or that it is fair to reduce an award of costs which might otherwise have been made.

THE OWNERS' SUBMISSIONS AS TO WHY S 109 HAS BEEN ENLIVENED

1. The owners submit, firstly, that s 109(3)(c) has been engaged because the owners' case was relatively strong when compared to that of the builder.
2. In support of this submission, they contend that assessing the relative strengths of each party's claims involves more than merely conducting a numerical analysis of the amount awarded by the Tribunal on each of the owners' claims. In this way, the owners seek to avoid an assessment of their entitlement to costs based on the fact that in numerical terms they recovered an award of $196,800.00, exclusive of interest, against an initial claim of $649,644.00, exclusive of interest.
3. I accept the owners' submission, but note that the submission works both ways.
4. The fact that the owners recovered only about 30% of the claim they took to the hearing does not demonstrate of itself that they had a weak claim. On the other hand, the fact that the owners achieved a substantial award of $196,800.00 exclusive of interest also does not mean, of itself, that the builder necessarily had an untenable defence. It is necessary to look at each of the claims pressed by the owners at the hearing separately in order to assess the weakness of the respective defences raised by the builder.
5. The owners highlight that they won a substantial award - $40,200.00[19] - in respect of the cost of rectifying vandal damage. The owners, correctly, link their success in the vandal damage claim to their success on the issue of which party lawfully terminated the contract. The owners say that their case on termination was always much stronger than that of the builder.
6. I do not accept that the owners' case regarding termination was so strong that it of itself enlivens s 109(3)(c). The termination issue turned on the question of whether the conditional occupancy permit issued was effective and on factual arguments about the state the works had reached at the time of termination. Given that the issues had to be teased out and determined, this was not a lopsided issue of the type which ordinarily invokes the operation of s 109(3) (c).
7. The owners acknowledge that their success on the completion costs claim was also linked to their success on the termination issue. For the reasons just articulated in relation to the vandal damage claim, I find that s 109(3)(c) is not enlivened in respect of the completion costs claim either.
8. Another major claim in which the owners were successful was the claim for damages for rectification of defects. Some of the claims for defects were strong, but overall the owners' claims for defects were marred by the expert evidence of their primary expert Mr Schmiedel, whose evidence was ultimately discarded by the owners themselves. Because the evidence of the owners' primary witness on defects was flawed, it was very reasonable for the builder to robustly contest the claims. For this reason, I find that s 109(3)(c) is not enlivened in respect of the defects claims.
9. Finally, I turn to the owners' contention that their claim in respect of agreed or liquidated damages was inherently strong. I accept this submission. I acknowledge that there were disputes as to when the work commenced and when the work came to an end, but these issues were minor in the overall context of this claim. However, a key fact is that the award to the owners in respect of agreed damages was limited to $57,536.00. This figure represented less than 10% of the total amount of damages being claimed by the owners at the outset of the hearing. I consider that even if I was disposed to accept that s 109(3)(c) was engaged with respect to the agreed damages claim, it would not be fair to award to the owners all the costs of the entire proceeding. At most, the owners' strong claim in relation to agreed damages might justify an award of costs in respect of that claim only. But even then, the success in respect of the agreed damages claim has to be viewed in the overall context of the owners' conduct of the litigation. This follows from Gillard J's observation in Vero that 'It is the totality of all relevant matters under s.109(3) that must be considered in the context of the prima facie rule.'[20]
10. This leads us to the owners' next submission.

THE OWNERS' SUBMISSIONS REGARDING THE ENGAGEMENT OF S 109(3)(D).

1. The owners refer to the following passage drawn from the decision of Senior Member Walker in Hyndman v Hurtob Homes Pty Ltd [21] :

Proceedings concerning domestic building disputes are normally costly to conduct. Experts' reports are usually required which are expensive. The discovery process of even a modest building dispute is usually arduous and costly involving a large number of documents on both sides. Witness statements are usually ordered and they are most commonly drawn or settled by counsel. There are generally many factual issues involved as well as legal issues, often requiring complex legal argument. The hearing will usually occupy several days. For these reasons, the "nature and complexity of the proceeding" is commonly regarded as warranting an order for costs in favour of a successful party.

1. The owners submit that this passage applies to this proceeding, for the following reasons. It involved pleadings, the engagement of experts, the preparation of witness statements, and the engagement of counsel for a substantial period. The hearing covered seven days. The issues before the Tribunal were complex, involving interpretation of the contract, termination of the contract and the assessment of damages.
2. I accept the owners' submission that this proceeding was sufficiently complex to enliven s 109(3)(d).
3. However, because of Gillard J's insistence in Vero that it is important 'that the Tribunal consider all the matters identified in s 109(3) together when determining whether it is fair to make an order for costs',[22] it is necessary to consider whether the owners' conduct of the proceeding, viewed globally, mitigates against an award of costs, or an award of some of the owners' costs, being made.
4. The builder pressed this point, and cited not just Vero but a number of other cases decided by the Tribunal in support of it. The builder's primary contention was that no costs should be awarded at all to the owners.
5. The builder articulated a fall back position, which is that if costs were to be awarded to the owners, the builder should also be awarded costs in respect of at least two days preparation and two days of the hearing, to be set off against the owners' entitlement to costs.
6. The builder relied, in particular, on the fact that the owners called an expert, Mr Schmiedel, who was clearly not going to be accepted by the Tribunal, and they highlight that the owners made the forensic decision to abandon the evidence of that expert during the course of the hearing.
7. I set out some matters to give context to the builder's submissions.

1. Prior to the hearing, the owners were pressing their claim for damages supported by the evidence of Mr Salvatore Mammone and two cost experts, Mr Schmiedel and Mr Tom O'Dowd. Mr Mammone is an architect and building consultant who had carried out pre-handover inspections of the three units. The owners relied on Mr Mammone's three reports to underpin their argument that the contract works had not been completed at the time the builder contended that completion had been reached.
2. Mr Mammone had not costed the rectification of the completion works he opined were necessary. The owners relied on the evidence of Mr Schmiedel, who had been instructed to prepare a series of reports costing the rectification of both defects and completion works.
3. The owners also relied on the evidence of Mr Tom O'Dowd in respect of the costing of a credit they sought in relation to a variation relating to a change in the design of the foundations.
4. The importance the owners placed on Mr Schmiedel's evidence can be appreciated from the updated particulars of loss and damage they filed on the second day of the hearing. This document indicated that the owners sought the cost of rectifying defective works identified by Mr Mammone broken down into two categories. The most important of these categories related to defects identified by Mr Mammone which had not been rectified by the time of the hearing. This claim came to $443,812.00.
5. The other, much smaller, category related to defects which had been rectified by the owners after the termination of the contract. The sum claimed was $29,171.31. This sum was derived, in part, from sums paid to Icon in respect of an invoice of 23 February 2022. In addition, sums paid to T & A Carpets, and MPM Tiling were claimed.

1. The final hearing began before me on Monday 23 September 2024. It continued on 24 September, 25 September and up to lunchtime on 26 September. The hearing resumed on Monday 30 September and continued on 1 October and 2 October 2024. It concluded late on 2 October 2024, after the parties made oral submissions. The respondent was directed to file and serve submissions concerning some alleged double allowances for damages. I reserved my decision.
2. Although the hearing was completed within the allocated seven days, it did not follow closely the course suggested by the documents contained in the Tribunal Book.
3. When owners' counsel, Mr Phillpott, opened he sought and received leave to tender a third witness statement from Mrs Troise which exhibited 69 documents. As the hearing progressed, it became clear that the key new documents were documents relating to the involvement of Icon in the rectification and completion of units 1 and 2, and in the rectification of the vandal damage to unit 3.
4. The significance of the new evidence from Icon became apparent during the early days of the hearing, as it became clear that the owners were, in the alternative to Mr Schmiedel's evidence, going to rely on the actual cost of rectifying a number of defects in units 1 and 2 and the vandal damage to unit 3 established by Icon's quotations and invoices. This represented a pivot in the manner in which they were presenting their case.

1. One very unusual feature of the case was the attitude that the applicants took to the issue of whether there should be a view of the site. Mr Phillpott, on behalf of the owners, suggested that a view would be of no assistance to the Tribunal on the basis that many of the defects had been rectified. It was the builder who insisted that a view would be useful.
2. As I noted in the Reasons, '[u]pon visiting the site, it became glaringly obvious why the owners were keen for me not to see the three units. This was because of the relatively good state of the brickwork.' [23]
3. The parties' respective evidence about the cost of rectification of the brickwork was discussed by me in the Reasons as follows, at [17]:

...Rectification of the external brickwork over the three units-which had at the date of the inspection not been performed- had been costed by the owners' expert, Mr Schmiedel, at $49,200.00. The brickwork was the largest single category of defect. It was also the defect in respect of which the views of the respective experts were most divergent. In this connection, I note that Mr Schmiedel had assessed the cost of labour to rectify the brickwork in unit 1 at $10,400.00, based on an assessment of 160 hours at $65 per hour. The allowance for replacement of bricks and materials such as sand, cement and lime, inclusive of delivery, was $6,000.00. The total for unit 1 accordingly was $16,400.00. In contrast, the builder's expert, Mr Osborne, had assessed the cost of rectifying the brickwork in unit 1 at $2,637.50.[24]

Mr Schmiedel had, curiously, also assessed the cost to rectify the brickwork in unit 2 at $16,400.00. Mr Osborne's assessment was $85 in total. Mr Schmiedel's assessment of the cost to rectify the brickwork in unit 3 was also $10,400.00. Mr Osborne's assessment for this unit was $3,051.25. It was clear from Mr Schmiedel's costings that he was contemplating the wholesale replacement of thousands of bricks. It was also clear from viewing the brickwork at the site that the brickwork was largely satisfactory, although, there were some blemishes. In these circumstances, it was obvious that Mr Osborne's respective assessments for the three units, which had been based on identification of specific defects in individual bricks and perpends, were much more accurate than Mr Schmiedel's global assessments.[25]

1. A critical point in the hearing was reached on the fifth day when Mr Schmiedel was in the witness box. After what Mr Phillpott conceded was 'a gold standard cross examination' by Mr Cafari of Mr Schmiedel, Mr Schmiedel's credibility as an expert witness was destroyed. Amongst other things, Mr Cafari demonstrated that Mr Schmiedel had provided an unsupportable assessment of the cost of rectifying the brickwork and had grossly exaggerated the cost of some other items.
2. As a result of this cross-examination, Mr Phillpott capitulated and on behalf of the owners abandoned Mr Schmiedel's costings. In respect of defects and vandal damaged work that had been rectified by Icon, it was indicated that the owners would seek to recover damages in respect of rectification based on the Icon documents. In respect of defects which had been identified by Mr Mammone and been conceded as existing by the builder's expert Mr Osborne, they would adopt Mr Osborne's costings. In this way, the pivot in the manner in which the case was being presented, which had become apparent at the opening, became a complete volte-face.
3. This change in the owners' case ultimately simplified my task in writing the determination. However, as it came so late in the hearing, it did not shorten the hearing, except after the sixth day.

1. The owners' response to the builder's criticisms of the manner in which they ran their case is to be found in their submissions concerning the engagement of s 109(3)(e).
2. The owners contended that their conduct of the hearing should not be held against them because they say that their change of position facilitated the completion of the hearing within seven days. They submitted that without their concession regarding Mr Schmiedel's evidence, the hearing would have been adjourned part heard.
3. I reject this submission for two reasons. The first is that the concession came after Mr Schmiedel had given evidence and been cross-examined, and did not save time in that phase of the hearing.
4. The second reason is that the concession regarding Mr Schmiedel's evidence is not to be viewed in isolation. The owners' decision at the start of the hearing to introduce almost 70 new documents including invoices from Icon, through the vehicle of a third witness statement from Mrs Troise, added greatly to the time taken to complete the hearing.
5. In summary, I consider that the owners' submissions concerning s 109(3)(e) do not advance their claim for costs.

1. As I have found that s 109(3)(d) has been engaged, I also find that the jurisdiction of the Tribunal to award costs is, potentially, enlivened. However, I consider that the owners' conduct of the proceeding would make it unfair to award to them the whole of their costs, even on the standard basis. The question then arises: to what extent should any award of costs be reduced?
2. I think that the following matters are relevant to this issue:

(a) The reality is that a substantial case worth about $280,000.00 was inflated by the owners into an enormous case worth just under $650,000.00. This of itself meant that the case was never going to settle before the hearing.

(b) The upper level of the claim was never going to be made out on the owners' evidence. The owners' primary witness as to quantum, Mr Schmiedel, had prepared a report that the owners and their advisers should have recognised long before the hearing was going to be discredited. Amongst other issues, Mr Schmiedel's findings regarding the brickwork were obviously untenable.

(c) This flaw in the owners' case gave the builder a substantial reason to run the hearing until, at least, the completion of cross examination of Mr Schmiedel.

(d) The manner in which the owners sought to prove their loss changed at the opening of the hearing, as they pivoted from relying on the expert testimony of Mr Schmiedel regarding the cost to rectify those defects which had been rectified to relying in part on the actual cost of rectification as established by invoices issued by Icon. The builder was caught by surprise. The builder could not have taken the new Icon invoices into account in assessing the strength of its case before the hearing started.

(e) Once the hearing got underway, it was very likely to run its course unless Mr Schmiedel's evidence was discarded at an early point, and this did not occur.

(f) I accept the builder's submission that because of the owners' insistence on relying on the evidence of Mr Schmiedel, it was necessary for the builder's barrister, prior to the hearing, to have spent substantial time preparing to cross-examine Mr Schmiedel. Substantial time was also wasted at the hearing while Mr Schmiedel was cross-examined, before his evidence was abandoned. The wasted costs of the builder ought to be taken into account.

(g) The introduction of almost 70 new documents into evidence through Mrs Troise, including what proved to be critical invoices rendered by Icon, delayed the completion of the hearing. The documents should have been discovered well before the hearing. The builder had to assess them 'on the run'. Mrs Troise was in the witness box for longer than she otherwise might have been as she had to give evidence and be cross examined about the documents and about proof of payment of the invoices. This also should be taken into account.

(h) Once the weakness of Mr Schmiedel's evidence was acknowledged by the owners, they attempted to settle the proceeding by making an offer to accept $200,000.00, inclusive of costs, during the course of the hearing. The builder did not accept that offer, but put a counter offer that was close. The counter offer was also rejected, and the hearing continued. The process of making and considering offers, of course, took time, and I consider this delay lies at the feet of the owners.

(i) This episode leads me to conclude that, had the owners put forward a reasonably costed case at the outset, the proceeding could very likely have been settled before the start of the hearing.

1. In all the circumstances of the proceeding, I find that it is fair to make an order for costs under s 109(3), but the order is to be subject to limitations. I will order that the builder pay to the owners one third of their costs of the proceeding on the standard basis on the Tribunal's default scale of costs applicable as at the conclusion of the hearing, subject to the following further specific deductions being made. These deductions are:

(i) the drafting of Mrs Troise's third witness statement; and

(ii) the discovery of the documents referred to in that witness statement.

(i) the preparation of Mr Schmiedel's expert reports;

(ii) the time the owners' solicitors spent in retaining and briefing Mr Schmiedel; and

(iii) the time that the owners' counsel spent in reading Mr Schmiedel's reports and conferring with him.

1. However, it is necessary to consider three offers which were relied on by the owners. It is possible that they may alter the position about costs because they warrant an award of costs being made to the owners which is more generous than the award I have just articulated.
2. Evidence of the offers is given in an affidavit sworn by Daniel Oldham, the owners' solicitor.

1. The first offer was an offer to accept $300,000.00 inclusive of costs in full and final settlement of the proceeding. The offer was dated 9 September 2024 and accordingly was made a fortnight before the start of the hearing. It was expressed to be open for 14 days, and thus expired on 24 September 2024, the second day of the hearing.
2. The owners contend that the first offer was framed in a manner consistent with s 113 and s 114 of the VCAT Act and accordingly qualifies as an offer under s 112. This was not disputed by the builder and I accept that it is an offer made under s 112. Accordingly, the owners' fallback position, which is that if the offer is not a valid offer made under s 112, then it is a valid offer made under the principles contained in Calderbank v Calderbank ('Calderbank')[26] can be set aside.
3. Section 112 relevantly provides:

(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. By reason of s 112(1)(d), for the owners' offer to enliven s 112, the Tribunal must form an opinion that the orders made by the Tribunal in the proceeding are not more favourable to the builder than the offer.
2. Put another way, in order to demonstrate that the builder should have accepted the offer, the owners must show that the orders made by the Tribunal put the builder in a worse position than if the builder had accepted the offer.

1. Under s 112(3)(a), in determining whether its orders are or are not more favourable to a party than an offer, the Tribunal must disregard any interest or costs it ordered in respect of any period after the date the offer was received.
2. As the offer was made on 9 September 2024, it can be seen that just under over one year of interest is to be excluded from consideration when assessing the offer. Interest calculated on $103,551.00 for 1 year at 10% is $10,355.10. This equates with $28.37 per day. I will proceed on the basis that interest for the period 9 September 2024 - 28 September 2025, rounded to $10,900.00, is to be excluded from consideration.
3. In assessing the efficacy of the offer, it is to be borne in mind that the owners are to receive an award inclusive of interest of $238,220.00. If interest of $10,900.00 is excluded from consideration, the total award of damages inclusive of interest to be brought into the assessment is $227,300.00 (rounded down).
4. This is $72,700.00 short of the offer of $300,000.00.

1. The offer was made all in, that is to say, inclusive of costs. In order for the offer to be effective for the purposes of s 112, the Tribunal must find that the value of the orders it makes in favour of the owners (excluding interest that accrued after the offer was made) - $227,300.00 plus any costs ordered - are not more favourable to the builder than the offer.
2. If costs incurred prior to the making of the offer are to be taken into account, the owners will have to demonstrate that on the date the offer was made, namely 9 September 2024, the Tribunal would have made an award of costs in their favour.
3. I consider that this issue must be resolved in the owners' favour, as I have found that the nature and complexity of the proceeding is such that s 109(3)(d) is engaged. Accordingly, had the proceeding been resolved on 9 September 2024, the owners would have got an award of at least some of their costs.
4. However, the owners face a separate, significant problem. This is that they will need to establish that the order for costs they would have received would have been such that the total of the order made (excluding interest after the offer) of $227,300.00 and the costs would have exceed the offer of $300,000.00. As noted, that gap is $72,700.00.
5. I note that in Metricon Homes Pty Ltd v Saw_y_er[27] Garde J suggested, at [45(b)], that in order to establish the efficacy of an 'all in' or costs inclusive offer made under s 112, an appropriate course would be for the party claiming costs to put into evidence a draft bill of their costs and disbursements.
6. This did not occur, although I note that Mr Oldham endeavoured to fill the gap in the owners' submission in the affidavit he swore in support of the application for costs. Relevantly, he deposed, at [30], that as at the date of the offer the owners had incurred legal costs of approximately $95,000.00 and experts' reports of approximately $10,000.00.
7. An issue with the figure for legal costs is that it is not broken down and I cannot be sure that the hourly rates charged for the solicitors and the hourly, half daily or daily fees charged by barristers involved in the case fell within the relevant ranges allowed under the Tribunal's default scale of costs applicable in September 2024.
8. Another important point is that if the whole of the $95,000.00 is to be recovered the owners would need an order for indemnity costs. The order they are to receive is for standard costs.
9. It is sometimes submitted to the Tribunal that an award of costs on the standard basis is worth two thirds of an order for indemnity costs. I make no finding about that, but highlight the point that there is a real question as to whether the owners would, as at 9 September 2024, have recovered $95,000.00 for their legal costs.
10. Another issue is that the sum of about $10,000.00 paid for experts' reports will have included a substantial sum paid to Mr Schmiedel. On any view, any fees paid to Mr Schmiedel in this case would not be recoverable.
11. For these reasons, even if I proceed on the basis that an order for the costs would have been made in September 2024 in favour of the owners, I could not be satisfied the costs, if allowed, would have exceeded $72,700.00.
12. I accordingly cannot be satisfied that, using the language of s 112(1)(d), that the orders that would have been made in the proceeding are not more favourable to the builder than the terms of the offer. It follows that I find that s 112 is not engaged.

WHAT IF I HAD FOUND THAT S 112 HAD BEEN ENGAGED?

1. Even if I am wrong in this finding, and s 112 has been enlivened, the position of the owners would not be improved, in my view, because of the extraordinary circumstances of this case.
2. It is to be remembered that all that s 112 does, if it is engaged, is to reverse the presumption as to whether costs are to be awarded. The presumption under s 109(1) is that each party is to bear its own costs. If s 112 is engaged, then under s 112(2), 'unless the Tribunal orders otherwise', the party who made the successful offer 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. Thus, the Tribunal retains a discretion regarding whether to award costs.
3. The factors identified at [101] above in the relation to whether an award of costs under s 109(3)(d) should be moderated, despite the substantial nature and complexity of the case, are equally relevant, in my view, to the question of whether costs should be awarded under s 112(2).
4. If I had found that s 112 had been engaged, I would have made the same award of costs as I have articulated under s 109(3).

1. The second offer was dated 20 September 2024. It was not made as an offer under s 112, but as a Calderbank offer. It was an offer by the owners to accept $250,000.00 'all in' in settlement of the proceeding.
2. The Court of Appeal in Victoria in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No. 2)[28] confirmed that Calderbank offers may be considered in litigation in Victoria. The Court held that the guiding principle in determining whether a Calderbank offer is effective in triggering an entitlement in the offeror to a special order for costs is 'whether the rejection of the offer was unreasonable in the circumstances'.[29]
3. Reference to the offer - which is exhibited to Mr Oldham's affidavit -indicates that although it was made on 20 September 2024 it is expressed to expire at 9:00am on 23 September 2024, that is to say just before the start of the hearing.
4. In my view, it was clearly not unreasonable for the builder not to accept the offer, given that it was made only three days before the start of the hearing and given that the builder only had three days to consider it.

1. During the hearing, the owners made a third offer to settle the proceeding. This was to accept $200,000.00 inclusive of costs in full and final settlement. The offer was made on 26 September 2024. The offer was not accepted.
2. In my view it was not unreasonable for the builder to reject the offer as it was made during the running of the hearing. Accordingly, the offer was necessarily open for a very limited time. It would have been very difficult for the builder to give the offer the consideration it required in the heat of the moment.

1. I find that none of the offers made by the owners triggers a liability in the builder to pay any of the owners' costs.
2. I will make an order for costs under s 109 as I consider that it is fair to do so on the basis that I have found that s 109(3)(d) has been engaged. However, the order for costs is subject to the limitations articulated in [102] above.

1. The owners did not make written submissions for reimbursement of fees in their application for costs, but they made oral submissions regarding fees at the costs hearing.
2. Reimbursement of fees in a domestic building case is governed by s 115B and s 115C of the VCAT Act. Section 115B(1) gives the Tribunal jurisdiction to make 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.
3. In a case under the DBC Act such as this, the operation of s 115B is governed by s 115C, which provides in s 115C(2) that:

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.

1. Section 115C (3) provides that s 115C(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.

1. Accordingly, the Tribunal retains a discretion regarding the amount of fees to be reimbursed to the substantially successful party.
2. At the costs hearing, the owners contended that they had been substantially successful and were entitled to an order for reimbursement of all the fees they had paid.
3. The builder submitted that as the owners had recovered only about 30% of their initial claim, they had not been substantially successful. They relied on Ferdinands v 3D Homes Pty Ltd[30] in which Senior Member Lothian had held that a party who had recovered only 6% of their claim had not been substantially successful.
4. On this issue, I think the owners have the stronger argument. Although in percentage terms the owners have not been substantially successful, they have received a significant award in monetary terms of $238,220.00 inclusive of interest. Because there is a presumption that the successful party will receive their fees, I am prepared to allow the owners some fees.
5. However, I exercise the discretion arising under s 115C(3)(b), and decline to make an order that the owners recover all the fees they have paid. I take into account the matters identified at [101] which I regard as applicable to the exercise of that discretion. In particular, I note that if the owners had not pressed an untenable claim valued at more than three times the amount they ultimately recovered, the hearing would have been significantly shorter, and quite likely would have been avoided completely. For this reason, I will order that the builder reimburse to the owners the filing fee they paid when they initiated the proceeding - which covered the first day of the hearing - and the hearing fees paid by the owners for the second, third and fourth days of the hearing.
6. I acknowledge that this treatment of fees is more generous to the owners than the award in relation to costs. This arises from the fact that the starting positions are different. Under s 115C of the VCAT Act there is a presumption that fees will be reimbursed to a substantially successful party, whereas the starting presumption under s 109 is that each party will bear their own costs.

[3] (Building and Property) [2021] VCAT 1080.

[5] [2009] VCAT 912.

[6] (Building and Property) [2018] VCAT 680, [16]-[18].

[8] (Building and Property) [2019] VCAT 468, at [8].

[17] [2007] VSC 117.

[20] [2007] VSC 117, [22].

[21] [2014] VCAT 1126, [15].

[22] [2007] VSC 117, [22].

1. [26] (1985) 3 All ER 333.

[27] [2013] VSC 518.

[28] [2005] VSCA 298.

[29] [2005] VSCA 298, [23].

[30] (Building and Property) [2014] VCAT 1274, at [54].