1.1 The Respondents hereby make a Settlement Offer in respect of the claim made against them and the Counterclaim by them against the Application ("the proceedings") to settle the matters in dispute between the Respondents and the Applicant.

1.2 The Respondents will accept from the Applicant the sum of $70,000 ("the settlement sum") inclusive of the Respondent's party/party costs; and ("the settlement proposal").

1.3 Upon acceptance of the settlement proposal, payment of the settlement sum is to be made to the Respondents on or before a period of 14 days after the receipt by John V Hayes, the Solicitors for the Respondents, of the signed notice of acceptance referred to in Section 114(6) of the Victorian Civil and Administrative Tribunal Act 1998.

1.4 This settlement offer is made in accordance with Part 4 Division 8 of the Victorian Civil and Administrative Tribunal Act 1998 and is open to be accepted for a period f 14 days after the date of service.

(a) a party to a proceeding (other than a proceeding for review of a decision) gives another party an offer in writing to settle the proceeding; and

(b) the other party does not accept the offer within the time the offer is open; and

(c) the offer complies with sections 113 and 114; and

(d) in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.

(2) If this section applies and unless the Tribunal orders otherwise, a party who made an offer referred to in sub-section (1)(a) is entitled to an order that the party who did not accept the offer pay all costs incurred by the offering party after the offer was made.

(3) In determining whether its orders are or are not more favourable to a

(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. (emphasis added)

1. The owners rely on an affidavit of their solicitor, Anthony Zita dated 15 November 2010 in which he states that, as at the date of the settlement offer, the owners' costs were:

And, since the date of the settlement offer their costs are:

1. Party/party costs $14,600.00
2. Counsel's fees $33,500.00

On my calculations, the owners' total costs on a party/party basis, plus counsel's and expert's fees are $93,427.10 ($26,796.10 plus $66,631).

1. However, it is not simply a matter of what the owners' costs were as at the date of the settlement offer. Under s112(3) the tribunal is required to 'take into account any costs it would have ordered on the date the offer was made'. In considering this I must have regard to s109 of the VCAT Act which provides that each party must bear their own costs of a proceeding, unless the tribunal is minded to exercise its discretion under s109(2), and make an order for costs having regard to the factors set out in s109(3). Most importantly, the tribunal must be satisfied it is fair to exercise its discretion, and in doing so must have regard to the parties' conduct of the proceeding.[1]
2. Section 109(3) provides:

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

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

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

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

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

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

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

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

(e) any other matter the Tribunal considers relevant.

1. The approach to be taken by the tribunal in considering whether to exercise its discretion under s109(2) was considered by Gillard J in Vero Insurance Ltd v The Gombac Group Pty Ltd [2007] VSC 117 where he said at [20]:

The Tribunal should approach the question [of costs] on a step by step basis, as follows -

(i) The prima facie rule is that each party should bear their own costs of the proceeding.

(ii) The Tribunal may make an order awarding costs, being all or a specified part of costs, only if it is satisfied that it is fair to do so. That is a finding essential to making an order. (emphasis added)

1. I am satisfied that had an application for costs been made by the owners as at the date of the settlement offer, it would have been appropriate to exercise the tribunal's discretion and make an order for costs in their favour. Sections 109(3)(c) and (d) are clearly relevant, particularly having regard to the following observations in my earlier Reasons:
   1. The builder has demonstrated a total disregard for its contractual and statutory obligations. Section 8 of the DBCA sets out the implied warranties applying to every domestic building contract. Despite Mr Cave's protestations to the contrary the builder has breached a number of the s8 warranties. The works have not been constructed in a proper and workmanlike manner and do not accord with the approved plans and specifications, they do not comply with all laws and legal requirements and they have not been carried out with all reasonable care and skill.[2]
   2. These breaches include: the non-compliance of the footing system with the approved design prepared by Mr Brown; the failure to achieve the ceiling heights specified on the plans; the failure to construct a staircase that is 900mm wide; the failure to follow the Job Specific Notes and the Site Preparation Notes on page 1 of 5 of the approved engineering drawings; the failure to achieve the required sub-floor clearance of 450mm; the failure to install site drainage; and the failure to excavate so that there is a fall away from the new works on all sides.
   3. Additionally, under the terms of the contract the builder was required to carry out the works in a 'first class manner'. This term is not defined. I was not referred to any authorities, nor could I find any as a result of my own research. It seems to me that it was a clear promise to the owners that the works would be carried out in a better than average manner. That they can expect a quality job for the price they are paying. Clearly this promise has also been breached.
   4. The builder's failure to communicate and discuss the implications and possible alternatives when difficulties were encountered on site is inexcusable. There are numerous instances where the builder seems to have adopted the attitude that the owners should accept whatever they get irrespective of whether it accords with the approved plans and specifications.
2. Whilst these observations primarily relate to the builder's conduct during the course of the works, Mr Cave who was the principal witness for the builder, refused to accept responsibility on behalf of the builder for these serious omissions. The owners had no alternative but file a counterclaim in response to the builder's claim for payment of the balance of the contract sum.
3. Further, the technical issues in this proceeding were complex as is apparent from the expert reports relied on by the builder.
4. Accordingly, I am satisfied that the builder should pay the owners' costs of the proceeding up to and including 16 March 2010 on a party/party basis. I consider that County Court Scale 'D' is the appropriate scale. In the absence of counsel's fee slips, the expert's invoices and an indication of the scale of costs noted by Mr Zita in calculating the owners' costs I cannot be satisfied that the amounts set out in Mr Zita's affidavit are a reliable assessment of the owners' costs as at the date of the settlement offer. Therefore I will order that in the absence of agreement these costs be assessed by the Victorian Costs Court on County Court Scale 'D'.
5. However, I decline to certify for counsel. In my view, where an order is made for party/party costs counsel's fees should only be certified in those circumstances where the tribunal is satisfied something more than scale is appropriate. Each application for counsel's fees to be certified must be considered in the context of the particular matter, as to certify for counsel's fees is to effectively order solicitor/client costs even if to that limited extent. I am not persuaded that had a costs order been made as at the date of the settlement offer I would have been satisfied that it would have been appropriate to certify for counsel.

The owners' costs since the date of the settlement offer

1. The owners claim their costs from the date of the settlement offer on a solicitor/client basis, although curiously the costs set out in Mr Zita's affidavit purport to be the party/party costs they have incurred since that date.
2. It is first necessary to consider whether the orders made by the tribunal are more favourable to the owners than their settlement offer. To recap, their settlement offer was to accept $70,000 inclusive of costs. Mr Zita has set out what he says were the owners' costs as at the date of the offer which on my calculations are $26,796.10. On the face of it, it would therefore seem that the tribunal's order that the builder pay the owners $62,612.48 is more favourable than their offer of settlement. However, the tribunal has an unfettered discretion under s112 (2). There is a presumption of costs in favour of the party who makes a compliant order which is not accepted unless the tribunal orders otherwise.
3. In considering whether I should exercise the tribunal's discretion, and order the builder to pay any or all of the owners' costs since the date of the settlement offer, it is relevant to reflect on the amount allowed to the owners on their claim: $75,849, in the context of their overall claim. As I noted in my earlier Reasons the quantum of the owners' claim is unclear.
4. When the settlement offer was made on 18 March 2010 the owners' claim as set out in their Points of Counterclaim dated 14 July 2009 was:

(a) estimated cost to complete and rectify the works $125,763; [by reference to a report prepared by their expert, George Cross, dated 12 June 2009]

Although the builder had received the witness statements filed on behalf of the owners within the time within which the offer was open for acceptance, they did not contain any further particulars about the quantum of the owners' claim. In her witness statement Ms Boccabella states the owners had been advised the cost of completion and rectification was $125,763, and that quotations were being obtained for the cost of alternative accommodation and removal costs.

1. In the Respondents' Opening Submissions filed on 12 April 2010, the first day of the hearing, the cost of completion and rectification was again stated to be $125,763. On my calculations the owners' total claim at that time was $163,803.
2. The owners' claims as set out in their Particulars of Loss and Damage filed on 3 August 2010, the first day of the resumed hearing, was $219,546 which included rectification and completion costs of $153,296. It also included an additional claim, unquantified as at 3 August, to upgrade the existing building to conform with current requirements. This claim had not been pleaded and was subsequently quantified on 4 August at $31,417 - a total claim of $250,963.
3. I repeat the observations I made in my earlier Reasons before concluding the quantum of the owners' claim seemed to be $271,948:
   1. Mr Cross has prepared a number of expert reports, and cost estimates. His first report is difficult to follow although he subsequently provided summary supplementary reports during the hearing. Initially he did not prepare estimates for the cost of rectification of each individual item of alleged defective works. This made it difficult to compare his estimates with those prepared by Mr Lees for the builder. During the course of the hearing, further cost estimates were prepared by Mr Cross which increased the amount claimed for rectification works from $125,763.00 (report dated 12 June 2009) to $153,296 (report dated 19 April 2010) to $163,308 (new costings dated 8 August 2010 to which Mr Cross said at the hearing $2,500 was to be added for drawings, engineering, layouts etc) then finally to $174,281 (experts' joint report dated 11 August 2010). These estimates all excluded the cost of upgrading the footings for the existing house.
4. By the time of the closing submissions, the owners claim had increased to $271,948. Included in this amount was a claim for $50,000 for compensation for loss of amenity, distress and inconvenience for breaches of contract and negligence in respect of the following defects:

(iii) Low first storey window sills ($172 has been allowed for the installation of a stop)

The owners also claimed $86,884 as the cost to rectify those items: a total claim of $136,884. In addition, they claimed an amount to be determined by the tribunal for the reduction in size of the laundry. I found $20,000 to be appropriate compensation for these items.

This is an unfortunate situation for the owners where they have been seriously let down by a builder reluctant to comply with its contractual and statutory obligations, but where the quantum and extent of many of their claims are simply unsustainable. [emphasis added]

1. I reject any suggestion on behalf of the builder that it was unable to properly assess the offer. Whilst it is true that the owners' claims have been ever changing, as at the date of the settlement offer, the builder had Mr Cross's first expert report dated 12 June 2009 which clearly identified a number of the items which I have found to be defective. These were defects for which the builder continued to deny liability throughout the hearing.
2. When balanced with the builder's attitude and failure to accept responsibility for its failure to carry out the works in accordance with its contractual obligations, and statutory duties, and for the reasons I have determined, it is appropriate to exercise the tribunal's discretion under s109(2) and order costs in favour of the owners for the period up to 18 March 2010. I am also satisfied that it is appropriate to exercise the tribunal's discretion and order the builder to pay the owners' costs of the proceedings from the date of the settlement offer.
3. In circumstances where the owners' claims were ever changing, and considerable hearing time was consumed with hearing expert evidence about expensive or unsustainable scopes of work, I am not persuaded it is appropriate that these costs be on a solicitor/client basis. Further, I am not satisfied it is fair that the builder pay all of the fees rendered by Mr Cross for preparation of his ever changing reports or for all of his attendances during the hearing when much time was spent considering his recommendations about scopes of works which I found to be excessive or unwarranted. That is a matter between the owners and Mr Cross.
4. The responsibility for the ever changing quantum and extent of the owners' claims appears directly attributable to the numerous revisions carried out by Mr Cross to his recommended scope of rectification works which, in each instance, resulted in the quantum of the owners' claim being increased. My concerns with Mr Cross's reports have been discussed in my earlier Reasons and it is not necessary to repeat them here.
5. As SM Walker said in Paleka v Suvak [2000] VCAT 58 at [30]:

Generally, party-party costs should be awarded. Access to Courts and Tribunals is a fundamental right enjoyed by everyone and persons bona fide pursuing that right and not acting improperly should not generally face orders more onerous than party-party costs if they are unsuccessful. Solicitor / client costs are ordered when the party against whom the order for costs has been made has somehow acted improperly in the conduct of the litigation so as to cause the other party unnecessary expense. Indemnity costs are ordered where the party's conduct is particularly blameworthy. That is, the circumstances justify a harsher order than even solicitor / client costs.

I think the foregoing represents the general thrust of the various authorities referred to but it is not intended to express any hard and fast rule. In each case it is for the Tribunal in its unfettered discretion to decide what order is appropriate in the circumstances of that particular case.

1. I am also mindful of the recent comments by Ashley JA in Velardo & Anor v Andonov [2010] VSCA 38 at [47(i)]:

The offer foreshadowed an application for solicitor and own client costs. Such an order is the frequent, but by no means the inevitable, concomitant of a successful Calderbank offer. Section 112(2) creates, on the other hand, a prima facie entitlement to payment of 'all costs' in favour of a successful offeror. Ordinarily, it appears, costs would be assessed in such a case on a party and party basis - although the Tribunal would be empowered to allow costs on a more favourable basis. [emphasis added]

1. Accordingly, I will order that the builder pay the owners' costs of the proceeding including reserved costs. In default of agreement, such costs are to be assessed by the Victorian Costs Court on County Court Scale 'D'. Because I do not have the benefit of the Mr Cross's invoices, I consider it appropriate to allow 50% of his fees from the date of the settlement offer.

1. The owners claim interest on the judgment sum. As they have not carried out any rectification or completion works, I am not satisfied they have suffered any loss or damage which would entitle them to any order for interest and this claim is refused.

[1] Vero Insurance Ltd v The Gombac Group Pty Ltd [2007] VSC 117 at [20]