Mercuri v TCM Building Group Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

JUDICIAL REVIEW AND APPEALS LIST

S CI 2017 03260

KRISTINE MERCURI	Applicant
v
TCM BUILDING GROUP PTY LTD (ACN 139 290 618)	Respondent

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JUDGE:	Daly AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	3 May 2018
DATE OF JUDGMENT:	18 October 2018
CASE MAY BE CITED AS:	Mercuri v TCM Building Group Pty Ltd
MEDIUM NEUTRAL CITATION:	[2018] VSC 604

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ADMINISTRATIVE LAW – Application for leave to appeal from VCAT decision with respect to interest and costs – Domestic building dispute – Builder issued VCAT proceeding to recover monies said to be owed by owner – Owner counterclaimed for cost of rectification of defects and for credits said to be owed – Consideration of principles relevant to the exercise of a discretion with respect to costs – Pong Property Development Pty Ltd v Strangio (2015) 23 VAR 128, referred to – Whether the Senior Member erred in law by ordering the owner to pay the builder’s costs – Whether the Senior Member had regard to an irrelevant consideration – Whether the Senior Member failed to have regard to the relative strengths of the parties’ claims when considering whether to make an order for costs – Frugtniet v Law Institute of Victoria [2012] VSCA 178, applied – Whether Tribunal erred in law by ordering owner to pay builder’s costs on indemnity basis – Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, referred to – Duggan v MGS Products Pty Ltd [2002] VCAT 1764, referred to – Metricon Homes Pty Ltd v Sawyer [2013] VSC 518, referred to – Whether the Senior Member erred in law by awarding damages in the nature of interest under s 53 of the Domestic Building Contracts Act 1995 (Vic) – Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3) [2003] VSC 244, referred to –Whether the Senior Member’s conduct gave rise to a reasonable apprehension of bias – Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, referred to – VCAT Act s 109, 112 and 119 – Supreme Court (General Civil Procedure) Rules 2015 – Leave to appeal granted in part – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R Andrew	Jeremy Johnson & Associates
For the Defendant	Mr M H Whitten QC with Mr G F Hellyer	Telford Story & Associates

TABLE OF CONTENTS

Background.................................................................................................................................... 1
The proceeding at VCAT............................................................................................................. 2
The Application for leave to appeal........................................................................................ 12
General observations.................................................................................................................. 15
Ground 1 – departing from the rule that there be no order as to costs............................... 17
Submissions........................................................................................................................ 17
Conclusion.......................................................................................................................... 21

Ground 2 – making an order for indemnity costs.................................................................. 29
Submissions........................................................................................................................ 29
Conclusion.......................................................................................................................... 33

Ground 3 – award of interest..................................................................................................... 38
Submissions........................................................................................................................ 38
Conclusion.......................................................................................................................... 40

Ground 4 – apprehended/actual bias..................................................................................... 43
Submissions........................................................................................................................ 43
Conclusion.......................................................................................................................... 46

Disposition................................................................................................................................... 49

HER HONOUR:

Background

This is an application for leave to appeal from a decision of Senior Member Walker (‘Senior Member’) of the Victorian Civil and Administrative Tribunal (‘VCAT’). The applicant is the owner of residential premises at 52-58 Park Place, South Yarra (‘owner’). The respondent is a company providing building and construction services (‘builder’). Pursuant to an Australian Building Industry Contract dated 24 June 2010 (‘contract’) the owner engaged the builder to partially demolish two existing houses and reconstruct them into a single house. The contract price was $1,425,370.00. The contract was administered by an architect who was responsible for assessing the builder’s payment claims and issuing payment certificates (‘architect’).

During construction the parties fell into dispute and the works fell behind schedule. The builder submitted twelve progress claims, each of which was assessed and certified by the architect and then paid by the owner.

On 30 March 2012 the architect certified for practical completion in accordance with the contract, but substantial defects remained to be rectified during the six month defects liability period under the contract.

On or about 30 May 2012 the builder issued payment claim 13 in the sum of $126,871.47. The architect did not certify any payment for claim 13, apparently owing to substantial defects in the works.

On 26 September 2012 the builder issued payment claim 13B in the sum of $169,227.96, which in effect revised payment claim 13. The architect did not certify any payment for this claim, owing to outstanding defects.

The defects liability period expired on 30 September 2012, but there remained substantial defects in the works.

On 14 December 2012 the builder issued payment claim 13C in the sum of $163,390.47. The architect did not certify any payment for claim 13C, due to the outstanding defects. The architect treated claim 13C as if it were the final claim for payment by the builder. Under the contract the final payment was not due unless all defects had been rectified.

On 21 January 2013 the builder purported to suspend work due to non-payment of claim 13C. However, the builder continued to attend to defects during 2013. On 1 February 2013 the builder purported to terminate the contract by accepting the owner’s alleged repudiation. The builder purported to withdraw its termination by a letter from its solicitors dated 27 March 2013. Rectification of defects continued throughout 2013, but the builder never completed rectification of all defects, and negotiations between the parties and their solicitors failed to resolve the outstanding disputes between them, including the builder’s claim for payment.

On 6 December 2013 the builder submitted its final claim in the sum of $310,998.16 (including interest of $22,674.17). The architect did not assess the final claim.

The proceeding at VCAT

On 29 January 2014, a proceeding was issued at VCAT by the builder to recover monies said to be owed to it by the owner (‘substantive proceeding’). The owner counterclaimed for the cost of rectification of defects, and for amounts she said she was entitled to receive credits from the builder against any amount payable to it. A hearing took place before the Senior Member over twelve sitting days between 17 November 2014 and 3 December 2014. The Senior Member delivered his reasons for decision on 1 July 2015 (‘2015 Reasons’).[1] The substantive proceeding and the 2015 reasons concerned five issues: whether the owner had repudiated the contract, the variations claimed by the builder, the credits claimed by the owner, the adjustment of the provisional sum and prime cost items, and the extent of and cost to remedy any defective works. The builder’s quantum meruit claim was disposed of on the basis that the Senior Member found that the contract was still on foot. Some of the Senior Member’s findings of relevance to the issues in the current application were as follows:
[1]TCM Building Group Pty Ltd v Mercuri (Building and Property) [2015] VCAT 983.

(a) the architect did ‘not seem to have approached the important role of administering the construction in accordance with the terms of the contract and with the required independence;’[2]
[2]2015 Reasons [21].

(b) by the terms of the contract the builder was entitled to receive one half of the retention monies upon achieving practical completion, however, the owner did not release that sum until almost three months later. She was not entitled to delay the release of one half of the retention monies on that account and her conduct was unsatisfactory;[3]
[3]Ibid [29].

(c) payment claim 13 was not a final claim but a progress claim;[4]
[4]Ibid [55].

(d) payment claim 13 was never assessed by the architect or paid, and the final claim has also not been paid;[5]
[5]Ibid [47].

(e) it was not for the architect to accept instructions from the owner, it was his duty to assess progress claims that were made by the builder in accordance with the contract and issue a certificate of assessment as to the amount the owner was required to pay;[6]
[6]Ibid [78].

(f) the owner was responsible for the independence of the architect in his role as assessor, and

insofar as she or her husband expressed an unwillingness or otherwise to pay that might be construed as an interference with that and so a breach of Clause A6 but the evidence about that is not very clear and falls short of establishing that the Owner prevented the assessment of the claim;[7]

(g) notwithstanding the above, the builder had not established that the owner had engaged in repudiatory conduct justifying the builder’s purported termination of the contract. Therefore, the contract remained on foot.[8]

[7]Ibid [90].

[8]Ibid [93].

Given the findings above, the builder’s quantum meruit claim fell away, and the Senior Member proceeded to deal with the parties’ claims in accordance with the terms of the contract, on an item by item basis. As well as dealing with variations, provisional sums and prime cost items, credits to the owner, and defects, the Senior Member also determined the owner’s application for liquidated damages, and the builder’s claim for an extension of time. He made the following orders consequent upon his statement at the conclusion of the 2015 reasons that he had difficulty reconciling the builder’s claims for variations, and that there was some uncertainty regarding what had actually been paid to the builder:

1.Direct that the parties file and serve draft orders that should be made consequent upon the attached reasons for decision and any further submissions related to the amount paid and the total variations allowed.
2.Upon consideration of the said drafts and submissions, final orders will be made.

On 17 February 2016 the Senior Member published final orders (‘2016 orders’) and reasons (‘2016 reasons’), after holding two further hearings in late 2015 and receiving extensive written submissions with respect to individual variations and defects.[9] This process resulted in some relatively modest adjustments to the amounts allowed for variations and defects. The effect of these orders was that the owner was ordered to pay the builder the sum of $206,081.95 (taking into account the owner’s counterclaim), and interest in the sum of $52,319.15. The question of costs was reserved. In the 2016 reasons the Senior Member stated:

In general, I was dissatisfied with the failure of the Respondent to pay the amounts that she owed to the Applicant. It appeared that she interfered with the role of the architect in regard to the assessment of Progress Claim 13 and also the Final Claim. The Applicant was also induced to carry out further work by promises of payment that never materialised. It has been deprived of the use of a substantial amount of money from the times when those amounts should have been paid until the date of this order. It was contemplated by the contract that, in the event of late payment, the aggrieved party should receive interest. For all these reasons I think that it is appropriate to award interest on the amount that I have found to be due, quite apart from the contractual entitlement.[10]

[9]TCM Building Group Pty Ltd v Mercuri (Building and Property) [2016] VCAT 205.

[10]Ibid [30].

The owner sought leave to appeal from the Trial Division of this Court from the 2016 orders. One of the numerous (51) grounds of appeal was that the Senior Member had made the determination above regarding the builder’s entitlement to interest without considering any submissions from the owner on this issue. The builder conceded this ground of appeal. The appeal was settled by the parties on a global basis prior to the hearing in accordance with orders I made by consent on 2 November 2016 (‘consent orders’), shortly before the application (which had been listed on an estimate of five days) was scheduled to be heard. The effect of the consent orders was that the sum which the owner was required to pay the builder was reduced from $206,081.95 to $130,000.00, and the question of interest was remitted to VCAT to be heard by the Senior Member. No reference was made in the consent orders to the question of the costs of the substantive proceeding.

On 19 May 2017, the matter came back before the Senior Member. Prior to the hearing, the builder made an application for the costs of the substantive proceeding (‘2017 application’). The parties filed lengthy and detailed written submissions prior to the hearing. On 17 July 2017, the Senior Member published orders and reasons dealing with costs and interest (‘2017 reasons’).[11] The effect of the orders of 17 July 2017 was that the owner was required to pay the builder interest in the sum of $39,547.53, and the builder’s costs of the proceeding on the County Court scale up to 29 October 2014,[12] and thereafter on an indemnity basis. These orders are the subject of this application for leave to appeal.
[11]TCM Building Group Pty Ltd v Mercuri (Building and Property) [2017] VCAT 1057
[12]The original orders of the Senior Member made 17 July 2017 incorrectly stated the date as 29 August 2014 instead of 29 October 2014. This was corrected by an order of the Senior Member made on 23 February 2018.

In the 2017 application, the builder sought interest pursuant to s 53 of the Domestic Building Contracts Act 1995 (Vic) (‘DCBA’), the terms of the contract, and s 58 of the Supreme Court Act 1986 (Vic). The Senior Member declined to order interest pursuant to the contract, and declined to order interest pursuant to s 58 of the Supreme Court Act 1986 (Vic).

The Senior Member concluded that any power of VCAT to award interest is governed by the terms of s 53 of the DCBA,[13] which provides as follows:

53. Settlement of building disputes
(1)The Tribunal may make any order it considers fair to resolve a domestic building dispute …

[13]Ibid.

The builder submitted interest should be awarded in its favour, on the basis that the architect had failed to administer the contract in accordance with its terms. Under the contract, the owner was responsible for the architect. Further, the owner had failed to pay the retention monies into the retention account, and the owner had delayed, by three months, the release of the retention monies in order to pressure the builder into remedying the defects.

In response, the owner submitted that the following matters counted against an award of interest: the builder had failed to rectify defects which it had agreed to rectify, the builder’s lay witnesses argued against admitted defects during the proceeding, the builder sought credits in regard to matters previously allowed, the builder asserted that some items were outside the contractual scope of works despite documentation to the contrary, the builder agreed to settle for substantially less than awarded by the Senior Member, the builder made submissions as to interest despite an agreement that such submissions would be made after final orders had been made, and the builder changed its position concerning the treatment of prime cost and provisional sum items during the course of the hearing of the substantive proceeding.

The Senior Member accepted the submissions made on behalf of the builder, and concluded that the architect had not administered the contract according to its terms, and that he had acted at the behest of the owner. Consequently, the owner ‘should not be able to profit from her wrongful interference in the claims process by holding onto money that should have been paid earlier.’[14]
[14]Ibid [34].

The Senior Member concluded that the appropriate rate was that fixed under the Penalty Interest Rates Act 1983 (Vic) and that this rate should be applied to the whole of the sum of $130,000.00, but with a credit given to the owner for interest actually earned on the retention monies.

The parties were also in dispute as to the date from which interest should be calculated. The builder submitted that interest should be calculated from the due date for payment of the initial payment claim 13, being 22 June 2012: alternatively, interest should be calculated from the due date for payment of payment claim 13C, being 9 January 2013. The builder submitted that had payment claim 13 been assessed and paid in accordance with the terms of the contract, no further iterations of the claim would have been delivered. In response, the owner submitted that interest should only be awarded from the date of the commencement of the substantive proceeding, that is, 29 January 2014. Alternatively, the owner submitted that payment claim 13C was not a demand for payment, and that it was not until 6 December 2013 that the builder articulated its final claim and made a demand for payment. Consequently, interest should only apply from that date.

The Senior Member determined that as each iteration of payment claim 13 was intended to replace its predecessor, and since the final order was largely based on the amounts set out in payment claim 13C, the date from which interest ought to be calculated was 9 January 2013,[15] being the due date for payment for that payment claim. The owner was ordered to pay $39,547.53 in interest to the builder.
[15]Ibid [48].

The question of costs was also vigorously contested. The builder submitted that the owner should pay its costs of the proceeding on the Supreme Court scale up to 16 September 2014 on a standard basis, and thereafter on an indemnity basis. The owner submitted that each party should bear their own costs of the proceeding, and alternatively, that each party should bear their own costs up to various dates in 2014 (referable to the dates of various settlement offers made by the builder) and the owner pay the builder’s costs thereafter on a standard basis in accordance with the County Court scale.

In the 2017 reasons, the Senior Member referred to s 109 of the Victorian Civil and Administrative Tribunal 1998 (Vic) (‘Act’), as follows:

109 Power to award costs
(1)Subject to this Division, each party is to bear their own costs in the proceeding.

(2)At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding.
(3)The Tribunal may make an order under subsection (2) only if satisfied that it is fair to do so, having regard to—
(a)whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as—
(i)failing to comply with an order or direction of the Tribunal without reasonable excuse;
(ii)failing to comply with this Act, the regulations, the rules or an enabling enactment;
(iii)asking for an adjournment as a result of (i) or (ii);

(iv)      causing an adjournment;
(v)       attempting to deceive another party or the Tribunal;
(vi)      vexatiously conducting the proceeding;
(b)whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;
(c)the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;

(d) the nature and complexity of the proceeding;
(e)any other matter the Tribunal considers relevant.

(4)If the Tribunal considers that the representative of a party, rather than the party, is responsible for conduct described in subsection (3)(a) or (b), the Tribunal may order that the representative in his or her own capacity compensate another party for any costs incurred unnecessarily.
(5)Before making an order under subsection (4), the Tribunal must give the representative a reasonable opportunity to be heard.
(6)If the Tribunal makes an order for costs before the end of a proceeding, the Tribunal may require that the order be complied with before it continues with the proceeding.
(7)A power of the Tribunal under this section is exercisable by any member.

Also relevant to the question of costs of the substantive proceeding is s 112 of the Act, as follows:

112Presumption of order for costs if settlement offer is rejected
(1)This section applies if—
(a)a party to a proceeding (other than a proceeding for review of a decision) gives another party an offer in writing to settle the proceeding; and
(b)the other party does not accept the offer within the time the offer is open; and
(c)the offer complies with sections 113 and 114; and
(d)in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.

(2)If this section applies and unless the Tribunal orders otherwise, a party who made an offer referred to in subsection (1)(a) is entitled to an order that the party who did not accept the offer pay all costs incurred by the offering party after the offer was made.
(3)In determining whether its orders are or are not more favourable to a party than an offer, the Tribunal—
(a)must take into account any costs it would have ordered on the date the offer was made; and
(b)must disregard any interest or costs it ordered in respect of any period after the date the offer was received.

In her submissions before the Senior Member, the owner relied on Vero Insurance Ltd v The Gombac Group Pty Ltd (‘Vero Insurance’)[16] for the proposition that the prima facie position is that each party should bear its own costs, and this position should only be departed from where it is fair to do so, after considering the totality of all relevant matters under s 109(3).
[16](2007) 26 VAR 354.

In response, the builder described the proceeding as having all the hallmarks of a major piece of commercial litigation, with complex contractual issues and a very large amount of factual material. The builder submitted that the relative strengths of the parties’ claims and the builder’s substantial success in the proceeding favoured the making of an order for costs in favour of the builder. Further, the builder said that the owner had unreasonably prolonged the time taken to complete the proceeding by introducing new and unmeritorious claims late in the proceeding. The builder submitted that it had done everything reasonably possible to resolve and/or streamline the proceeding. Finally, the builder submitted that if the Senior Member did not make a costs order in its favour he would effectively deprive the builder of the benefits of the favourable outcome received by it in the substantive proceeding.

The owner submitted that the complexity of the proceeding affected both parties, and therefore was a neutral factor. The owner argued that both parties had some success in the proceeding, and submitted that the builder had chosen to institute proceedings rather than rectifying the defects in the works and then seeking payment of the outstanding amount. On one measure, the owner had more success than the builder. The owner disputed the builder’s claim that it had done everything reasonably possible to streamline the proceeding.

The builder also relied upon various offers of settlement made by it prior to the hearing of the substantive proceeding (see further below). Relying upon the decision of the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (‘Hazeldene’s),[17] the owner submitted that her rejection of the builder’s offers was not unreasonable. Among other things, the owner submitted that while the offers were made late in the proceeding, not all of the builder’s expert witness reports had been provided and reply witness statements had not been exchanged at the time of the last offer on 29 October 2014 (‘October 2014 offer’). Further, the complexity of the proceeding made it difficult for the owner to evaluate the offers. The reasonableness of the owner’s conduct must be assessed at the time the offer was made, not in hindsight. It was not unreasonable for the owner to expect that the evidence of her expert witness and the architect would be accepted, and the owner was not able to evaluate the offers until the builder’s claims had been finally quantified.
[17](2005) 13 VR 435 [25].

The Senior Member rejected the owner’s submissions, and characterised the success of the builder as ‘substantial’ and the success of the owner as ‘very slight indeed’.[18] However, the Senior Member did not agree with the builder’s contention that the owner had unreasonably prolonged the proceeding. The Senior Member concluded that it would be fair in the circumstances to order that the owner pay the builder’s costs of the proceeding.
[18]2017 Reasons [70].

The Senior Member found that the builder was also entitled to costs pursuant to s 112 of the Act. As noted above, the order made in the builder’s favour (in the consent orders) was reduced by agreement to $130,000.00 and an award of interest of $39,547.53 was made. An offer was made by the builder on 19 August 2014 to accept the sum of $150,000.00 plus party-party costs to be assessed on the County Court scale.[19] The Senior Member found that he would have made an order for costs on a party-party basis in favour of the builder on or after August 2014.[20] Having found that the builder was entitled to an order under both ss 109 and 112 for payment of its costs, the Senior Member then considered whether costs should be assessed on a more favourable basis than a party‑party basis.
[19]Ibid [77(d)].
[20]Ibid [82].

The Senior Member then considered the effect of the various offers of compromise that had been made by the builder to the owner. The Senior Member found that two of these offers did not comply with s 112 of the Act.[21] The Senior Member then considered, pursuant to s 112 of the Act, whether the outcome of the proceeding was ‘not more favourable’ to the owner than the offer.
[21]Ibid [78].

In the 2017 reasons, the Senior Member stated that when considering whether to award costs at a higher rate than the standard basis under s 112, the critical matter was the reasonableness or otherwise of the owner’s rejection of the builder’s offers, stating: ‘in regard to the failure to accept any of these offers, that such failure was so unreasonable that I should award costs on an indemnity basis?’[22] The Senior Member referred to the decision of Duggan v MGS Products Pty Ltd (‘Duggan’),[23] where it was held that ‘all costs’ means indemnity costs. The Senior Member concluded that the rejection by the owner of the October 2014 offer to accept $80,000.00 plus party-party costs was reckless, and caused needless expense to both parties.[24] Consequently, he ordered the owner to pay the builder’s costs on the County Court scale on a standard basis up to and including 29 October 2014, and thereafter on an indemnity basis.[25] He rejected the builder’s submission that costs ought to be payable on the Supreme Court scale.
[22]Ibid [95].
[23][2001] VCAT 1764.
[24]Ibid [96].
[25]Ibid [97]. However, paragraph 2 of the orders of the Senior Member made on 17 July 2017 incorrectly stated the date as 29 August 2014 instead of 29 October 2014.

On 23 February 2018 the matter came back before the Senior Member, with the builder seeking orders pursuant to s 119 of the Act (‘slip rule’) to correct errors in the 2017 orders and reasons. The 23 February 2018 orders amended the date in the 2017 orders from ’29 August 2014’ to ‘29 October 2014’ and substituted the figure ‘$132,789’ in paragraph 60(b) of the 2017 reasons in place of ‘$232,789’.[26]
[26]TCM Building Group Pty Ltd v Mercuri (Building and Property) [2018] VCAT 305 (‘2018 reasons’).

The Application for leave to appeal

The owner relies on four grounds in its proposed notice of appeal, as follows:

1.In ordering the Appellant to pay the Respondent’s costs of the proceeding under s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (the Act) the Tribunal erred in law as follows:
(a)the Tribunal took into account an irrelevant consideration in relation to the relative strengths of the parties’ claim, namely that the Appellant’s claim for damages for defects had been revised up to $232,789. This was irrelevant because no such figure (or any sum near this figure) had been put forward by the Appellant for the defects;
(b)further, the Tribunal failed to comply with s 109(3) of the Act, because it failed to have regard to the relative strengths of the parties claims.

2.In ordering the Appellant to pay the Respondent’s costs of the proceeding on an indemnity basis under s 112 of the Act the Tribunal erred in law as follows:
(a)the decision was so unreasonable that no reasonable Tribunal could have arrived at the decision;
(b)in deciding that the Respondent’s offer of $80,000 plus costs was more favourable than the result in the case, the Tribunal misdirected itself by failing to consider that under s 109(1) of the Act each party is to bear their own costs, therefore the Respondent’s offer which included part-party costs could not be more favourable than the result;
(c)the Tribunal failed to assess what amount the costs would have been assessed at if the offer had been accepted, and therefore failed to assess whether the offer was more favourable, and failed therefore to properly exercise the discretion under s 112 of the Act.

3.In awarding damages in the nature of interest under s 53 of the Domestic Building Contracts Act 1995 the Tribunal erred in law as follows:
(a) the Tribunal denied the Appellant natural justice, because the discretion was founded on the finding that the Appellant had wrongfully interfered with the Architect acting as an independent certifier and had prevented the Architect from assessing the Respondents payment claim number 13C and issuing a payment certificate, and had profited thereby, when no such submission had been made by the Respondent on the hearing of the question of interest and the Appellant was therefore denied a reasonable opportunity to be heard;
(b) further, the Tribunal misdirected itself, and took into account an irrelevant consideration, because in its earlier findings on the substantive hearing, the Tribunal had found at [90] that the evidence fell short of supporting a finding that the Appellant had prevented the Architect from assessing the Respondent’s claim.

4. Further, the Tribunal’s conduct gives rise to a reasonable apprehension of bias.

The owner submitted that the appeal ought to be allowed, and the following orders be made in lieu of the orders made by the Senior Member:

(a) each party bear their own costs of the substantive proceeding;

(b) there be no order for interest payable upon the sum of $130,000.00; and

(c) the builder repay to the owner the sum of $39,547.53 paid by her in respect of interest.

The first error of law concerns the order that the owner pay the builder’s costs of the proceeding under s 109 of the Act. The owner says the Senior Member erred in law on two bases: taking into account an irrelevant consideration, being the figure of $232,789.00 for the owner’s claim for defects, and by failing to comply with s 109 of the Act, because he failed to have regard to the relative strength of the parties’ claims.

Secondly, the owner claims that in ordering the owner to pay the builder’s costs of the proceeding on an indemnity basis under s 112 of the Act, the Senior Member erred in law on three bases: the decision was so unreasonable that no reasonable tribunal could have arrived at the decision, the Senior Member misdirected himself on the application of s 109(1) of the Act, and the Senior Member failed to properly exercise his discretion under s 112 of the Act because he failed to assess what amount the costs would have been assessed at if the October 2014 offer had been accepted.

Thirdly, the owner claims that the Senior Member erred in awarding interest under s 53 of the DBCA, as the Senior Member’s decision to do so was based on his finding that the owner had wrongfully interfered with the architect, and had prevented the architect from assessing the builder’s payment claim number 13C and issuing a payment certificate, and had profited thereby, when no such submission had been made by the builder on the hearing of the question of interest. The owner was therefore denied a reasonable opportunity to be heard on this matter. Further, the Senior Member took into account an irrelevant consideration, because in his earlier findings in the substantive proceeding, the Senior Member had found that the evidence fell short of supporting a finding that the owner had prevented the architect from assessing the builder’s claim.

In relation to the fourth ground, the owner submitted that in the circumstances of the case, the conduct of the Senior Member gave rise to a reasonable apprehension of bias, in part because he had formed the view that the owner had engaged in wrongful conduct in interfering with the architect, and in part because he formed a view, on no proper basis, that the owner’s case lacked merit.

In response, the builder relied on Knight v State of Victoria and Wise[27] and Country Endeavours Pty Ltd v Casacir Pty Ltd[28] in support of the proposition that the burden of establishing a legal error in relation to an order for costs is a heavy one.
[27][2003] VSC 459.
[28][2013] VSC 22.

The builder noted that the Senior Member set out in some detail his reasons for making the orders that he did, and referred to the observations of several judges of this Court that in reviewing VCAT’s reasons for decision the Court should not take an ‘overly pernickety examination’ of VCAT’s reasons. The builder’s submissions with respect to each of the proposed grounds of appeal are summarised in further detail later in these reasons.

General observations

I preface my remarks on the individual proposed grounds of appeal with some general observations. First, each of the proposed grounds of appeal are framed in accordance with traditional grounds of judicial review: taking into account irrelevant considerations, Wednesbury unreasonableness, misconstruction of a relevant statute, denial of procedural fairness, and apprehended bias. These grounds also mirror the grounds upon which the exercise of a discretion can be impeached, as stated by the High Court in House v R.[29] However, notwithstanding the manner in which the proposed questions of law are framed and articulated, a reviewing court must be cautious to be satisfied that the reviewing party is not, in truth, seeking to review the merits of the decision-maker below. One must be doubly cautious when the decision or decisions to be reviewed involve the exercise of a discretion, and in particular, a discretion with respect to costs.
[29](1936) 55 CLR 499.

The owner concedes that she bears a considerable burden in challenging the exercise of a discretion, especially a discretion with respect to costs. However, it should be noted for present purposes how onerous this burden is, as illustrated by the following principles which can be drawn from the authorities referred to in the builder’s submissions:

(a) the relative weight to be given to relevant factors bearing on the exercise of a discretion does not raise a question of law unless the conclusion reached is not reasonably open;[30]
[30]Psychology Board of Australia v Mair [2010] VSC 628, [61].

(b) a clear error of law must be identified in the exercise by a tribunal of its statutory discretion;[31]
[31]Knight v State of Victoria and Wise [2003] VSC 459.

(c) in the absence of an error of principle, an appeal with respect to costs orders can only succeed if the VCAT has acted on a clearly erroneous view of the facts or the order is clearly unreasonable;[32]
[32]Country Endeavours Pty Ltd v Casacir Pty Ltd [2013] VSC 22, [34].

(d) significant deference should be given to a trial judge’s exercise of discretion with respect to costs, especially after a long trial;[33] and
[33]See Raptis v City of Melbourne [2017] VSC 488 [12], referring to Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115.

(e) in Pong Property Development Pty Ltd v Strangio,[34] Ashley J stated as follows:[35]

The Tribunal, as will now be evident, had conducted many hearings in this matter by 25 November 2004. Its accumulated knowledge of the matter before it, quite apart from its own expertise and experience in domestic building disputes, must be plainly acknowledged. Further again, what is being attacked is first the formation of an opinion by the Tribunal, and second the exercise by it of a discretion under s. 75(2) of the Act. In each of those connections one should be very reluctant indeed to conclude that a decision was so unreasonable as to be untenable. Still further, whilst the Tribunal was obliged to give reasons for its decision, it is to be remembered that they are the reasons of an administrative tribunal, not a court. It would be wrong to subject them to examination word by word as if with an intention of discerning errors.[36]

[34](2005) 23 VAR 128.

[35]Ibid, [57].

[36]Ibid, [57].

Counsel for the owner submitted that there is a practice at VCAT of awarding costs in domestic building disputes, which is contrary to the prima facie presumption in s 109 of the Act. It may be that this submission was made to bolster the owner’s application for leave: leave is more likely to be granted if the proposed questions of law concern matters of general importance, such that allowing errors to go uncorrected would have wider ramifications beyond the case before this court.

I have no material before me to reach a conclusion that there is in fact such a practice or presumption. If there was, it would be contrary to the statement of Ormiston JA in Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd & Anor[37] that there should be no presumption that costs ought to be paid in favour of claimants in domestic building disputes. The authors of Pizer’s Annotated VCAT Act (‘Pizer’)[38] referred to a number of decisions in VCAT which have followed this approach, but went on to say:[39]

Nevertheless, an award of costs is often made in proceedings involving domestic building disputes on the basis of the nature and complexity of the proceeding, and referred to a number of cases where costs orders were made in favour of a successful party in a claim concerning a domestic building dispute.

[37](2005) 13 VR 483.

[38]Pizer and Nekvapil, Annotated VCAT Act (6^th ed, Thompson Reuters, 2017)

[39]Ibid, VCAT 109, 260.

There is nothing in the 2017 reasons which suggest that the Senior Member considered the 2017 application with any presumption that costs ought to be awarded in favour of the successful party merely on the basis it was a domestic building dispute. Indeed, subject to dealing with the owner’s criticisms of the Senior Member’s analysis of the relevant factors under s 109 of the Act, the Senior Member’s approach to the task before him seems quite orthodox.

Ground 1 – departing from the rule that there be no order as to costs
Submissions

This ground concerns the determination of the Senior Member pursuant to s 109 of the Act that it was fair that the owner pay the builder’s costs of the proceeding. This ground has two limbs: first, that the Senior Member took into account an irrelevant consideration, in that the 2017 reasons referred to the owner’s claim for defects having been revised up to $232,789.00; and secondly, the Senior Member failed to have regard to the relative strengths of the parties’ claims, as required by s 109(3)(c) of the Act.

In support of her submissions regarding this ground the owner:

(a) referred to an error in the 2017 reasons, where the Senior Member stated that the owner’s claims for defects were said to have been revised up to $232,789.00, when this figure was never put forward by the owner;

(b) challenged the Senior Member’s conclusion that the ‘success of the [builder] was substantial whereas the success of the [owner] was very slight indeed’;

(c) contended that the Senior Member had used the financial result as the sole measure of the relative strengths of the parties’ cases; and

(d) contended that there was no analysis by the Senior Member of strength of the arguments advanced by the owner regarding such matters as the proper construction of the contract terms, the variations, and the builder’s various iterations of its claim.

The owner acknowledged VCAT’s amendment of ‘$232,789’ to ‘$132,789’ in its 23 February 2018 orders, but maintained its objection to this amendment because the Senior Member said during the course of the hearing that he could not remember where he got the figure from or how it came to be in the 2017 reasons. The owner remains unconvinced that the error was a pure typographical error. The owner contended that the incorrect figure may have tainted the Senior Member’s consideration of the result the owner had achieved in the substantive proceeding.

The owner asserted that the net financial effect of the Senior Member’s award of costs and interest in favour of the builder was worth substantially more than the $130,000.00 ultimately awarded as damages in favour of the builder. The owner submitted that VCAT has fallen into a habit of ordering costs in domestic building disputes and that it has become somewhat of a rule of practice. This rule of practice is in conflict with the primary position under s 109 of the Act that each party is to bear their own costs.

The owner submitted that the decision of Gillard J in Vero Insurance[40] requires a step-by-step approach to the question of whether costs ought be awarded under s 109 of the Act. The owner submitted that while the Senior Member referred to Vero Insurance[41] in the 2017 reasons, he did not take into account the relative strengths of the claims made by the parties as required by s 109(c). The owner submitted that this was not a clear cut case on either side, as the builder kept changing its claim and reconciliations throughout the proceeding. The relative strength of the parties’ positions was finely balanced.
[40](2007) 26 VAR 354.
[41]Ibid.

The owner relied on Frugtniet v Law Institute of Victoria Ltd (‘Frugtniet’)[42] to support her submission that s 109(3)(d) refers to both the nature and the complexity of a proceeding, and consequently, in order to engage this provision it was necessary for the Senior Member to be satisfied that both the nature and complexity of the proceeding was such as to warrant making a costs order.
[42][2012] VSCA 178.

In response, the builder submitted that VCAT’s power to award costs has been variously described as ‘broad’, ‘sweeping’, ‘very wide indeed’, and ‘cast in the widest possible terms’.

The builder relied on the statement of the authors of Pizer’s[43] that the touchstone of the power to order costs is fairness, not whether any one or more of the grounds in s 109(3) has been made out. In S & R Property Developments Pty Ltd v Moonee Valley CC,[44] Senior Member Byard stated as follows:

The sub-section [s109(3) of the VCAT Act] then goes onto list considerations in paragraphs (a) to (e) which are or may be relevant to the Tribunal’s consideration of whether it is fair, in the circumstances of a particular case, to make an order for costs. The touchstone is fairness. The (a) to (e) considerations are a checklist and aid to determining what is fair in particular circumstances. It is not a matter of satisfying any one or more of (a) to (e). Those considerations are to lead to the ultimate question of fairness. I note, by the way, that (e) involves “any other matter the Tribunal considers relevant”.

[43]Pizer and Nekvapil, Annotated VCAT Act (6^th ed, Thompson Reuters, 2017) [109.140].

[44][2001] VCAT 541.

The builder submitted that in deciding it was fair in the circumstances to order the owner to pay the builder’s costs of the substantive proceeding, the Senior Member did have regard to the nature and complexity of the proceeding and the relative strength of the parties’ claims. Further, the owner’s submissions in support of this application for leave to appeal acknowledge that the proceeding was complex.

The builder submitted that it would have been open to the Senior Member to take into account the following additional reasons which would have supported the discretion to award costs in favour of the builder:

(a) the builder had to commence proceedings to obtain payment, and the concerted attempts which the builder made to settle the proceeding;

(b) it is apparent from the offers of settlement served on behalf of both parties that the rules of engagement were that the successful party in the substantive proceeding would be entitled to an order for costs; and

(c) not making an order for costs in favour of the builder may well have denied the successful party the fruits of a favourable decision.

In relation to the incorrect figure of $232,789.00 in the 2017 reasons, the builder submitted that the owner’s reliance upon the error in the 2017 reasons was opportunistic, and invited the Court to read the entirety of the reasons delivered by the Senior Member on 28 February 2018 (‘2018 reasons’). Further, it was evident that there was no reference in the Senior Member’s calculations to the erroneous figure of $232,789.00, so it must have been a typographical error.

The builder submitted that the outcome of the proceeding, being the payment of money (plus interest), is an appropriate measure of the relative strength of the parties’ claims for the purposes of s 109(3)(d), noting that the majority of both parties’ submissions to the Senior Member on costs were made on this basis. As no alternative basis for assessing the strengths and weaknesses of the parties was suggested by the owner in the 2017 application, the builder submitted that to do so now was to raise a point not advanced before the Senior Member. It is apparent from the 2017 reasons that the Senior Member assessed the relative strength of the parties’ claims.

Conclusion

The starting point when determining whether costs should be ordered under s 109 of the Act is the step‑by‑step approach outlined in the decision of Gillard J in Vero Insurance,[45] 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.
(iii)In determining whether it is fair to do so, that is, to award costs, the Tribunal must have regard to the matters stated in s 109(3). The Tribunal must have regard to the specified matters in determining the question, and by reason of paragraph (e) the Tribunal may also take into account any other matter that it considers relevant to the question.

[45](2007) 26 VAR 354.

I accept that if the Senior Member had in fact taken into account an incorrect figure when evaluating the outcome of the proceeding then that would amount to him having taken into account an irrelevant consideration.[46] However, I am not satisfied that he did so. Rather, the better view is that the reference to $232,789.00, rather than $132,789.00, was a typographical error. This view is supported by the following matters:

(a) the contents of the 2018 reasons; and

(b) those parts of the 2017 reasons showing the calculations made by the Senior Member, which suggest that the calculation was more likely than not to have been based upon a claim of $132,789.00 for defects, not $232,789.00.

[46]See for example, the decision of J Forrest J (upheld on appeal) in Karabinis v Bendrups & Ors [2017] VSC 648, [62].

In relation to the first matter, the transcript of the hearing on 23 February 2018 shows that the builder’s application for a correction order was the subject of full argument by counsel for the parties. The Senior Member stood the matter down briefly to review the submissions provided by the builder prior to the 2017 application in order to refresh his memory. While at one stage during the course of the hearing the Senior Member stated ‘I can’t remember for the life of me where I got that figure from, but I must have got it from somewhere’,[47] this was at an early stage of the hearing, before he stood the matter down to review the submissions. During the course of his oral ruling, the Senior Member stated as follows:[48]

I think it is quite clear from the context that what I am purporting to do there is set out the figures referred to in [the builder’s] submissions, and that figure was $132,789 not $232,789.
Although I cannot specifically remember, turning my mind to putting in and intending to put in, a figure of $232,789, or not intending to put in a figure of $232,789, it is quite clear from what I say there, that the figure I intended to put in, was $132,789.

[47]T4, 23-25.

[48]T27, 4-12.

The Senior Member also provided written reasons for his decision to make the correction order. The Senior Member referred to paragraph 60 of the reasons, which contained the offending figure, stating as follows:[49]

It is clearly apparent from the wording of this paragraph that its purpose was to set out the factors relied upon by Mr Hellyer which he said indicated the relevant strengths of the parties’ claims. The figures were taken from Mr Hellyer’s submission except for the figure of $232,789, which, in his submission, is $132,789, not $232,789. The latter figure was never mentioned by Mr Hellyer.
Mr Andrews submitted that I could not be satisfied that the figure was a mistake able to be corrected under s 119 because I could not be expected to remember why I put that figure in the reasons and not $132,890. I could therefore not be satisfied that it was a mistake falling within one of the descriptions to be found in subsection 119(1).
Quite obviously, if I inserted that figure deliberately into the paragraph it would not have been a mistake but the mere fact that I cannot recall how that figure came to be in the paragraph does not mean that it was not a mistake.
In order for the section to apply I must first make a finding that a mistake of the relevant character has been made. To do that I may draw on my own recollection but I can also have regard to the surrounding circumstances and context in which the alleged mistake was made.
The figure of $232,789 does not appear anywhere in the material. It was not derived from any evidence. It is not a figure upon which I based any conclusions and I did not refer to it anywhere else in the extensive reasons that formed part of the decision. The figure purports to be one provided by Mr Hellyer in his submission and yet Mr Hellyer did not provide such a figure. The figure that he provided was $132,789. There is no doubt in my mind that the figure is a typographical error and that what was intended to be inserted was the figure that Mr Hellyer referred to namely, $132,789.

[49]2017 reasons, [10]-[14].

Clearly the decision and reasons of the Senior Member must carry great weight. Further, I can infer from the Senior Member‘s extensive involvement with this proceeding over a number of years that it would not have been difficult for him to refresh his memory about what was before him in the 2017 application, and reach the conclusion that the reference to $232,789.00 in the 2017 reasons was an error.

Further, the conclusion that the mistake was a mere typographical error, rather than a figure used in the Senior Member’s calculations, is bolstered by the result of the calculations concerning the owner’s counterclaim. In paragraph 60(d) of the 2017 reasons, the Senior Member stated as follows:

the total allowed on the counterclaim with respect to defects and credits was $52,482.75, being less than a quarter of the amount claimed by the owner.

An award of $52,482.75 upon a claim of $132,789.00[50] represents 23.9 per cent of the sum claimed in the counterclaim, while an award of $52,482.85 upon a claim of $232,789.00 represents 16.4 per cent of the claim. While both sums are ‘less than a quarter’ of the claim, common sense suggests that one is more likely to refer to a figure of 23.9 per cent as being less than a quarter than a considerably lower percentage.
[50]The figure of $132,789.00 is referred to at paragraph 55 of the builder’s submissions in the 2017 application.

Accordingly, this limb of the proposed ground of appeal lacks the necessary factual foundation to support a conclusion that the Senior Member took into account an irrelevant consideration, and leave to appeal ought not to be granted.

In any event, this was not the only analysis of the financial outcome of the proceeding considered or undertaken by the Senior Member. He referred to the submissions of counsel for the owner to the effect that both parties had had some success in the substantive proceeding, and stated as follows:

Mr Reid said that if one were to look at the differences between the maximum sought in the points of claim and the maximum sought in the counterclaim and rejoinder and compare these figures with the amount of the award it appears that the Owner has had more success than the Builder. I do not accept his analysis. If, apart from her own claim, she was admitting the Builder’s claim, she should have paid it or at least paid the difference. If she was not admitting the Builder’s claim then, from a positive position of $170,979.51 that she asserted, the Owner has moved to a negative of $130,000, a difference of over $300,979.51 whereas from a positive of $288,320.00 the Builder has moved to a positive of $130,000, a difference of $158,320.00. Moreover, by the time of the hearing the claim was reduced to a difference of $111,868.72.

Accordingly, it is apparent from the 2017 reasons that the Senior Member considered the alternative scenarios proposed by the parties as a framework for analysing the financial outcome of the proceeding, and formed the view, based upon both of these analyses, the builder had achieved a substantially more favourable result than the owner, even after taking into account the reduced payment to the builder in the consent orders.

In relation to the second limb of ground 1, I agree that the decision of the Court of Appeal in Frugtniet[51] stands for the proposition that a VCAT member must have regard to the relative strengths of the parties’ claims when considering whether to make an order for costs under s 109 of the Act. The question is whether the Senior Member did so.
[51][2012] VSCA 178.

Where a decision‑maker is required to have regard to a mandatory relevant consideration, such as the relative strengths of the claims made by each of the parties, the authorities show that the relevant decision‑maker must have undertaken an active intellectual engagement with the relevant issue.[52] In determining whether the decision‑maker has fulfilled that requirement, the obvious starting point is the reasons.
[52]Bat Advocacy NSW Inc v Minister for Environment Protection, Heritage and the Arts [2011] FCAFC 59, [44].

Counsel for the owner contended that the Senior Member confined himself to evaluating the financial value of the claims made by the parties against the actual outcome, rather than evaluating the relative strengths and weaknesses of the parties on the individual issues before the Senior Member, such as the quantum meruit claim, the claim for variations, the claim for defects, and so on. There are several difficulties with this submission. First, it is apparent from the 2017 reasons and the written submissions made by the parties to the Senior Member that the Senior Member was urged by both parties to evaluate the strengths of the claims based largely upon financial considerations.

Secondly, while s 109(3) of the Act prescribes what factors, if applicable, must be taken into account when deciding whether it is fair to make an award for costs, it does not prescribe, and this Court has not made any attempt to prescribe, how those factors are to be evaluated. After all, each case turns on its own facts and circumstances. What seems to be contended for by the owner is that the Senior Member should have undertaken an exercise occasionally undertaken by this Court, where it is considered appropriate to order that costs be apportioned on an ‘issue’ basis, rather than simply follow the event.[53] I do not consider it appropriate to impose upon VCAT members restrictive guidelines as to how they should evaluate the relative strengths and weaknesses of parties’ claims, and in what level of detail they should do so.
[53]See GT Corporation Ltd v Amare Safety Pty Ltd [2008] VSC 296.

Thirdly, I do not accept the contention of the owner, that, as a matter of fact, the Senior Member limited his analysis of the relative strengths of the parties’ cases to financial matters alone. It is correct that the financial outcome of the substantive proceeding was the major focus of the Senior Member’s analysis, understandably, given the focus of the parties’ submissions. However, in the 2017 reasons, the Senior Member referred to and rejected the owner’s submission that the failure of the builder’s alternative quantum meruit claim should be taken into account on the question of costs, stating that ‘not much time was taken up with the alternative quantum meruit claim which was hardly pursued at all’.

Fourthly, while in this proceeding the owner relied upon the failure of the builder’s quantum meruit claim as an example of an issue where the strength of the builder’s claim was poor, the owner’s submissions to the effect that the Senior Member had erred in failing to assess the strengths and weaknesses of the parties’ claims do not otherwise go beyond mere assertions that the positions of the parties on the remaining issues were ‘finely balanced’. This is an application for leave to appeal. In order for leave to be granted, the applicant must show that the Senior Member’s decision is attended by sufficient doubt to justify the grant of leave. Put another way, the purported error of law should have at least arguably materially affected the outcome of the Senior Member’s finding that it was fair to make an award of costs in favour of the builder. There was nothing before me to give colour to the owner’s assertion that the parties’ positions in the substantive proceeding were ‘finely balanced’.

In its written submissions prepared prior to the 2017 reasons, the builder stated as follows, when describing what was before the Senior Member in the substantive proceeding:

(a)some 18 items of disputed variations (on which the applicant was almost entirely successful);
(b)some 15 items of pc/ps adjustments. Although the applicant did amend this head of claim during the course of the proceeding, the applicant was wholly successful on this head of claim as claimed in final submissions on 20 Marsh 2015;
(c)some 63 items of alleged defects;
(d)some 36 items of alleged credits;
(e)the respondent’s claim for liquidated damages in the sum of $31,000 (which involved questions of delay and entitlement to extensions of time) (on which the respondent failed entirely).

While the above extract from the submissions was relied upon in support of the builder’s submission that the nature and complexity of the proceeding warranted an order for costs in favour of the builder, rather than in support of its submissions that it had been largely successful in the proceeding, it is noteworthy that the owner submitted in response:

the [owner] agrees with [75]-[79] of the [builder’s] submissions … (keeping in mind that any concept of success must be contemplated in the light of the [consent orders].

That is, the owner does not seem to seriously cavil with the builder’s submissions with respect to the builder’s success in relation to the issues in the substantive proceeding. No observations were made regarding the number of defects and credits the builder was found to be liable for (and I have not found it necessary to count them myself), but the relatively modest recovery for the defects and credits claimed in the owner’s counterclaim probably fairly reflects the strength of the counterclaim. Accordingly, even if there was an argument that the Senior Member erred in failing to consider the relative strength of the parties’ positions on an ‘issue’ basis, there is nothing of any substance before me which could demonstrate that there may well have been a different result had he done so.

Fifthly, once again noting that the Senior Member was exercising a very broad discretion, some deference needs to be given to the Senior Member’s experience, both in general terms, and with respect to this particular proceeding. The Senior Member heard the substantive proceeding over twelve days in late 2014, and reviewed hundreds of pages of detailed written submissions. The 2015 reasons run for 73 pages. Further hearings were held on 28 October 2015 and 10 December 2015, with further extensive written submissions filed on 21 December 2015, where it appears that the owner was seeking to relitigate many of the issues in the substantive proceeding. He made further orders on 17 February 2016. The Senior Member also had the benefit of very detailed written submissions for the purpose of the 2017 application. He was uniquely placed to have a thorough understanding of the respective strengths and weaknesses of the parties’ positions.

Finally, the relative strength of the parties’ claims was only one of the factors taken into account by the Senior Member when making his determination under s 109 of the Act. In the 2017 reasons, the Senior Member referred to the following statement of Gillard J in Vero Insurance:[54]

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 which should be attached to the particular matters relied upon, in the end it is important that the Tribunal consider all of 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 a 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.[55]

[54][2007] VSC 117.

[55]Ibid, [22].

Under the heading ‘The nature and complexity of the proceeding’, the Senior Member gave a brief summary concerning the time taken to hear the substantive proceeding and the volume of transcript and submissions produced, and stated as follows:[56]

This was a case that could not have been adequately conducted without each of the parties spending a great deal of money on legal representation and expert witnesses.
I am satisfied that the nature and complexity of this proceeding would normally support an application for an order for costs in favour of the successful party.

[56]2017 Reasons, [58]-[59].

This finding was not the subject of any application for leave to appeal.

Further, the Senior Member considered but rejected a submission advanced by the builder that an award of costs ought to be made against the owner because she prolonged the proceeding by bringing in late claims and claims for credits. It is apparent from the reasons that the Senior Member was cognisant of what was required to be taken into account when making a determination under s 109 of the Act.

Accordingly, while I would grant leave to appeal on the second limb of ground 1, this ground of appeal fails. First, I am satisfied that the error in the 2017 reasons was a mere typographical error, and had no bearing on the analysis undertaken by the Senior Member. Secondly, it was open to the Senior Member to base his assessment of the strengths and weaknesses of the parties’ positions largely on the basis of the financial outcome of the proceeding. Further, I am not persuaded that, even if the Senior Member had taken a different, ‘issues’ based approach, the outcome would have been any different.

Ground 2 – making an order for indemnity costs
Submissions

This ground concerns the determination by the Senior Member to award costs in favour of the builder on an indemnity basis pursuant to s 112 of the Act based upon what the Senior Member found to be the owner’s unreasonable rejection of the October 2014 offer, where the builder offered to accept the sum of $80,000.00, plus party‑party costs, to resolve the matter. Again, this ground has a number of limbs:

(a) the decision was so unreasonable that no reasonable tribunal could have arrived at the decision;

(b) in deciding that the October 2014 offer was more favourable than the result, the Senior Member misdirected himself by failing to consider the prima facie rule that each party is to bear their own costs; and

(c) the Senior Member failed to assess what amount the costs would have been assessed at had the offer been accepted, and therefore failed to assess whether the offer was more favourable to the owner than the outcome of the substantive proceeding.

Under s 112 of the Act, there is a presumption that an order for costs will be made in favour of a party which has made an offer to settle the proceeding, and the offeree achieves a final outcome which is less favourable to the terms of the offer of settlement. Relying on Velardo v Andonov (‘Velardo’),[57] the owner submitted that the usual order under s 112 is party-party costs, and that indemnity costs are payable only in exceptional circumstances. The owner submitted that the Senior Member erroneously proceeded on the basis that because it had already determined to order costs on a party-party basis under s 109, the only relevant question was whether to order more costs under s 112.
[57](2010) 24 VR 240.

The owner submitted that the following finding was so unreasonable that no reasonable tribunal member could have arrived at it:

it seems clear to me that, properly advised, the Owner should have known that she had no chance of bettering the Builder’s offer to accept $80,000.00 plus party-party costs. By rejecting that offer and continuing the proceeding she acted recklessly and caused needless expense to herself and the Builder. It is not fair in the circumstances that the Builder should suffer from her conduct.[58]

[58]2017 reasons

The owner repeated the submissions advanced by her before the Senior Member to the effect that it was not unreasonable to reject the October 2014 offer at the time it was made, because the nature of the proceeding was very complex, and required substantial hearing time and evidence. At the time of the October 2014 offer no evidence had been presented or tested at trial, and the owner reasonably relied upon her expert advice when rejecting the October 2014 offer.

The owner submitted that the Senior Member’s finding that the owner should have known that the builder was entitled to party-party costs at the time the offer was made was unfounded, because the rule under s 109(1) is that each party bears its own costs. Further, the owner’s conclusion that no adverse costs order would be made would have been bolstered by the terms of the October 2014 offer, because a payment to the builder of $80,00.000 was so low in comparison to what the builder sought in the substantive proceeding.

The owner submitted that the October 2014 offer, which included party-party costs, could not be more favourable than the ultimate result, because the sum of $130,000.00 ultimately ordered by consent did not include party-party costs. The Senior Member failed to assess what amount the costs would have been assessed if the offer had been accepted, contrary to what is required by the decision of Garde J in Metricon Homes Pty Ltd v Sawyer (‘Metricon Homes’).[59]
[59][2013] VSC 518.

In response, the builder submitted that the owner’s second proposed ground of appeal was baseless. The builder said that each of each of the offers of settlement which were served on behalf of the builder and considered by the Senior Member, along with the offer contained in a letter dated 4 September 2014, which was determined by the Senior Member to not have been capable of resolving the proceeding, evidenced the builder’s concerted and conscientious attempts to avoid the time, trouble and expense of continuing the litigation. The builder submitted that the 2016 orders and the consent orders were not more favourable to the owner than the terms of the offer made on 19 August 2014, and the subsequent three offers dated 16 September 2014, 21 October 2014 and 29 October 2014 (the latter being the October 2014 offer ultimately relied upon by the Senior Member).

The builder relied on Duggan[60] for the proposition that ‘all costs’ means on a full indemnity basis. Further, making an order for indemnity costs is consistent with the policy rationale for making special orders for costs where offers of compromise are rejected, being:

(1)To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its ‘bottom line’ will be revealed to the court;
(2)To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
(3)To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.[61]

[60][2002] VCAT 1764.

[61]Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721, 724 cited with approval in Hazeldene’s (2005) 13 VR 435 [21].

The builder noted that in Velardo,[62] the Court of Appeal stated as follows: ‘the Tribunal would be empowered to allow costs on a more favourable basis’.[63]
[62]24 VR 240.
[63]Ibid, 249.

The builder submitted that it would have been open to the Senior Member to make an order for indemnity costs on the basis that the ‘rules of engagement’ with respect to the offers exchanged between the parties were that if a party achieved a better outcome than the terms of its offer, that party would seek an order for costs prior to the date of the offer and for indemnity costs subsequent to the date of the offer.

The builder noted that s 112(3) of the Act required the Senior Member to take into account any costs it would have ordered on the date the offer was made. In the 2017 reasons, the Senior Member stated as follows:[64]

The outcome of the case was, by agreement, $130,000 to be paid to the Builder. This amount takes into account the Owner’s counterclaim. I must also take into account any costs that I would have ordered on the date the offer was made. Having regard to the stage the interlocutory steps in the litigation had reached by August 2014, I am satisfied for the reasons given above that I would have made an order for costs on a party-party basis in favour of the Builder at or after that time and so it is only the amount offered that is relevant.

[64]2017 Reasons, [82].

The builder submitted that the owner’s submission to the effect that the owner could not have anticipated that a costs order might be made as at the time of the October 2014 offer was directly contradicted by the submissions and evidence before the Senior Member in the 2017 application. In his affidavit sworn on 10 April 2017, the owner’s solicitors deposed as to the quantum of the costs incurred by the owner up to the date of the October 2014 affidavit. This affidavit was referred to in the owner’s written submissions for the 2017 application, where the owner submitted as follows:[65]

The [owner] did not know what the [builder’s] costs would be and upon receipt of each offer she sought advices from her solicitor as to the quantification of the cost aspect of the offer. Assuming the [builder’s] legal costs would be in the same range as the [owner’s] the [owner] estimated the party legal costs as at the date of each offer to be:
a.        $23,380.10 at 16 September 2014;
b.        $28,859.99 at 21 October 2014; and
c.        $31,772.87 at 29 October 2014.

[65]Submissions filed 11 April 2017, [60].

The owner’s submissions in the 2017 application went on to compare the quantum of each offer (including costs) with the expected outcome (from the owner’s perspective) of the proceeding, concluding as follows (in relation to the October 2014 offer):[66]

Excluding any consideration of costs, the offer represented a compromise on the claim. However, when the likely cost component of the offer is included in the assessment, the assessed outcome was favourable to the [owner]. Therefore, the [owner] perceived that the [October 2014 offer] did not represent a compromise of the claim.

[66]Ibid, [61].

The builder also submitted that the owner’s subjective belief as to what costs orders might have been made at the time of the October 2014 offer, or the reasonableness of the October 2014 offer, was not relevant to the determination of whether it was in fact unreasonable of the owner to reject the October 2014 offer.

The builder distinguished the current case from the decision of this Court in Metricon Homes[67] on the basis that that case concerned an ‘all in’ offer whereas the October 2014 offer was in the conventional form of an offer to accept a monetary sum plus payment of party/party costs. Further, as the Senior Member found that it would have awarded costs at the date of the making of the October 2014 offer, no useful purpose would be served by an assessment of the quantum of those costs.
[67][2013] VSC 518.

Conclusion

The proposition that the Senior Member’s decision to exercise his discretion to award indemnity costs in favour of the builder consequent upon her refusal to accept the October 2014 offer was so unreasonable that no reasonable tribunal member would have exercised their discretion in such a way is, with respect, bold. However, I will deal with each of the submissions made by the owner in that regard.

First, I disagree with the owner’s submission that the Senior Member misdirected himself on the basis that he had formed the view that, once costs were payable under s 109 of the Act, the only question was whether, pursuant to s 112 of the Act, he ought automatically award costs on a higher basis. A fair reading of the reasons shows that he did not do so. Section 112 of the Act not only supplements s 109 of the Act, it provides an alternative avenue by which a party to a proceeding at VCAT can obtain an order for costs against an unsuccessful party. One might expect there to be many instances where a successful party does not qualify for a costs order under s 109 (say, for example, where the proceeding is short and/or straightforward). However, in such a case, a party which makes an offer to settle a proceeding which is not bettered at trial has the benefit of s 112 of the Act, which confers a presumption that a favourable costs order would be made if the offeree fails to achieve a better result at trial.

In the current case, the Senior Member found that he would make an award for costs in favour of the builder under both s 109 and s 112 of the Act. However, that finding does not, of itself, lead to a conclusion that the Senior Member mistakenly believed that any such finding inevitably led to a result that costs would be awarded on a higher basis under s 112 of the Act. He simply observed that the builder would have been entitled to costs under each provision. He did go on to consider the question of whether costs ought to be awarded on a higher basis. It was necessary for him to do so, as the builder had applied for costs to be awarded on a higher basis. No error of law arises here, especially once it is accepted that VCAT is empowered to award costs on a higher basis.[68]
[68]Velardo v Antonov [2010] VSCA 38, [47].

As for the submission that the Senior Member, in determining whether the October 2014 offer was more favourable than the result, misdirected himself by failing to consider the prima facie rule under s 109, this submission is not borne out by the 2017 reasons. The Senior Member stated expressly that, given the stage the proceeding had reached at August 2014, he would have made an order for costs in favour of the builder on a party‑party basis.[69]
[69]2017 reasons, [82].

I also agree with the submissions of the builder that the subjective belief of the owner (about which, incidentally, there is little or no evidence) at the time of the making of the October 2014 offer is largely irrelevant to the question of whether it was unreasonable of the owner to reject the October 2014 offer. It was said that the owner was entitled to reach the view, based upon the reports of her experts, that the October 2014 offer did not represent a genuine compromise on the part of the builder. Further, given that the VCAT is a no‑costs jurisdiction, the owner was entitled to assume that no order for costs would be made in favour of the builder, and the October 2014 offer included a term that the owner pay the builder party-party costs.

The submission that it was reasonable to reject the offer because the owner believed her evidence supported her position, and the parties’ evidence could only be properly tested at trial, ignores the intent of provisions such as s 112 of the Act, and the principles enunciated in Hazeldene’s,[70] and applied in courts and tribunals on a routine basis. Any offer to settle a proceeding prior to trial, or even prior to judgment, or any evaluation of any offer, is made, or takes place in circumstances where the evidence and submissions of those parties is untested. That is, settlement negotiations take place in an environment where there is imperfect information. However, the law requires that, where a party is considering a settlement offer, that party must undertake a sober and realistic assessment of the risks of proceeding to trial, and there are consequences if that assessment is unduly erroneous or dismissive.
[70](2005) 13 VR 435.

In the current case, by the time of the October 2014 offer, while the evidence remained untested, there was a considerable amount of evidence in the form of expert reports and the like available to the parties. The matter had been set down for a twelve day hearing, so even in a no‑costs environment, the owner’s costs going forward were likely to be considerable, possibly greater than her best case position after a trial. The builder had made a succession of settlement offers, each more favourable to the owner than the previous offer. Setting aside the question of interest and costs for the moment, the terms of the October 2014 offer represented a significant discount of the amount awarded in the substantive proceeding (being just under forty per cent of the amount awarded to the builder in the 2016 orders), and also a discount upon the amount payable to the builder pursuant to the consent orders (being just over sixty per cent of the amount payable to the builder). Objectively speaking, the terms of the October 2014 offer represented a genuine compromise on the part of the builder. Of course, once interest is taken into account, the amount of the compromise was even greater.

Turning now to the cost component of the offer, the submission that it was reasonable for the owner to evaluate the October 2014 offer in the belief that she would not be liable to pay any costs is also a bold submission, even setting aside the question of the relevance of her subjective belief. First, the evidence of Mr Johnson is that he did consider the question of what costs may have been payable to the builder on the occasions that the owner received offers of settlement (each of which were made on the basis that the builder’s party‑party costs were payable by the owner). Secondly, the submissions on behalf of the owner in this proceeding referred (in critical terms) to there being a practice at VCAT in awarding costs in domestic building disputes. If there is such a practice, no doubt the owner’s solicitor, who is an experienced specialist in this field, would have been aware of that practice. For the owner to evaluate the October 2014 offer without taking into account at least the risk that she might be ordered to pay the builder’s costs at trial would be patently unreasonable.

The owner submitted that the Senior Member erred in failing to take into account the amount of costs that would have been ordered at the time of the October 2014 offer, contrary to the decision of Garde J in Metricon Homes.[71] This point can be dealt with quite promptly. Metricon Homes[72] was concerned with the question of how one is meant to evaluate the overall financial impact of an ‘all‑in’ offer. His Honour found that, in those circumstances, the terms of s 112 of the Act required a tribunal member to make an informed inquiry concerning what costs would have been payable to the offeree at the date the offer was made, which may require the tribunal member to compel the offeree to disclose information concerning their legal costs. Here, the offer was not made on an ‘all‑in’ basis, but on a ‘plus costs’ basis. The Senior Member said he would have awarded party‑party costs in favour of the builder from August 2014. Accordingly, the costs referred to in the October 2014 offer and the costs referred to by the Senior Member were the same costs. As submitted by the builder, there would have been no logical reason why any quantification exercise would be required. To the extent that it is relevant, given that there are some material differences between the terms of s 112 of the Act, and the terms of O 26 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’), it is not my understanding that when an offer is made under O 26 of the Rules on a ‘plus costs’ basis, that this Court is required to quantify the costs payable at the time of making an offer incurred by a party making an offer when assessing whether the recipient of an offer had received a better or worse outcome at trial.
[71][2013] VSC 518.
[72]Ibid.

Accordingly, there has been no error on the part of the Senior Member in making an award for costs in favour of the builder pursuant to s 112 of the Act, and making an award for costs on an indemnity basis after October 2014. Indeed, the Senior Member’s decision in that regard is consistent with established principle. It certainly could not be said that the Senior Member’s exercise of his discretion under s 112 of the Act was so unreasonable that no reasonable tribunal member could have reached that decision, or could have reached the conclusion that it was unreasonable of the owner to reject the October 2014 offer.

I would grant leave to appeal on this ground, given that the proper construction and application of s 112 of the Act is a question of law, and the Senior Member’s decision had an adverse impact upon the owner. However, I would dismiss the appeal.

Ground 3 – award of interest
Submissions

The owner submitted that the only reason relied upon by the Senior Member to support an award of interest in favour of the builder was simply wrong. The owner submitted that there was a contradiction between the Senior Member’s findings in the 2017 reasons,[73] and the Senior Member’s findings in the 2015 reasons. In the 2017 reasons, the Senior Member stated as follows:

The task the architect had to perform was the assessment of a progress claim, not a final claim. Under the terms of the Contract, it was not for the architect to accept instructions from the Owner or her husband about whether or not she would “release funds” and it was not for the Owner or her husband to give any such instructions.
The appropriate course was for the Owner to allow the architect to assess Progress Claim 13C and issue a certificate for the amount properly allowable. The Owner should then have paid the amount of the certificate to the Builder. She should not be able to profit from her wrongful interference in the claims assessment process by holding onto money that should have been paid earlier.[74]

[73]2017 reasons, [33]-[34].

[74]Ibid.

The owner contrasted the above finding with the following statement in the 2015 reasons:

By Clause A6.3 she was responsible to ensure the independence of the architect in his role as assessor and, insofar as she or her husband expressed an unwillingness or otherwise to pay that might be construed as an interference with that and so a breach of Clause A6 but the evidence about that is not very clear and falls short of establishing that the Owner prevented the assessment of the claim.[75]

[75]2015 Reasons [90] (emphasis added).

In departing from his original finding that the evidence fell short of establishing that the owner prevented the assessment of the claim, and making a finding of ‘wrongful interference’ on the part of the owner, the owner submitted that the Senior Member took into account a wrong fact, which was an irrelevant consideration, such that the Senior Member’s decision to award interest in favour of the builder amounted to an error of law. Further, as the builder had not raised this submission in respect of its claim for interest and costs, the owner said that it was not on notice to respond to such a proposition during the course of the 2017 application, and was denied natural justice in respect of that issue.

Finally, the owner submitted that the builder was not entitled to any payment until the architect issued a certificate. No certificate was issued by the architect, therefore there was no obligation on the part of the owner to make a payment until the Senior Member made the 2016 orders, or, possibly, only after the making of the consent orders.

The builder submitted that it was clear that the Senior Member decided it was fair to order interest in favour of the builder because the builder had been deprived of the funds the Senior Member had determined was owing to it.

The builder referred to a letter from the owner’s solicitor to the builder’s solicitors dated 19 October 2015, in which the owner’s solicitors accepted that the builder was entitled to interest on any outstanding amount payable to it, and the owner’s submissions to the Senior Member in the course of the 2017 application on the issue of the appropriate rate and period of interest. These matters were said to amount to an acknowledgement by the owner that it was open to the Senior Member to exercise his discretion to award interest in favour of the builder.

The builder submitted that there was no inconsistency between the 2015 reasons and the 2017 reasons as, in the latter, the Senior Member did not find that the owner had prevented the architect from assessing the builder’s payment claim 13C and/or issuing a payment certificate, but merely found that the owner should not be able to profit from her wrongful interference in the claims assessment process by holding onto money that should have been paid earlier.

The builder submitted that the Senior Member relied on a number of matters when deciding to award interest, and that his finding in relation to the owner’s wrongful interference was but one of those matters. The builder submitted that the principal reason for the Senior Member’s decision to award interest was to compensate the builder for being out of the funds ultimately determined to be payable by the owner to the builder.

The builder also submitted that it would have been open to the Senior Member to take into account the main objectives of an award of interest,[76] being to deter judgment debtors from delaying proceedings and thereby having the use of the money for a longer period of time than they were entitled, and to encourage parties to make realistic assessments of their liability in a proceeding and to take bona fide steps to compromise the claim.
[76]Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No. 3) [2003] VSC 244 [61].

The builder referred to its submissions in the 2017 application to the effect that the ‘[owner] sought to direct and/or influence the architect in relation to the performance of the architect’s obligations pursuant to the contract including the assessment of payment claims’. The builder also pointed out that in the 2016 reasons,[77] the Senior Member referred to his dissatisfaction with the owner’s failure to pay the amounts she owed to the builder, and his statement that it ‘appeared that she interfered with the role of the architect in regard to the assessment of Progress Claim 13 and also the Final Claim’. Consequently, the owner was on notice for some period of time that her conduct may be a relevant consideration that the Senior Member might take into account in deciding whether or not to exercise his discretion to award interest, and there was no denial of procedural fairness to the owner.
[77]TCM Building Group Pty Ltd v Mercuri (Building and Property) [2016] VCAT 205 [30].

Conclusion

I would not grant leave to appeal on this proposed ground of appeal. First, there is no material inconsistency in the findings made in the 2015 reasons and the 2017 reasons regarding the conduct of the owner. Secondly, the owner was well and truly on notice that the builder was relying upon the conduct of the owner in support of its claim for interest, and that this would be a live issue in the 2017 application. Thirdly, I agree that the owner’s conduct was but one consideration in the Senior Member’s decision. In the 2017 reasons, the Senior Member stated as follows:[78]

During the hearing, both parties raised matters concerning which they were ultimately unsuccessful but the end result was that the Builder was found to be owed a great deal of money which the Owner should have been paid.

[78]2017 reasons, [27].

In relation to the first matter, in the substantive proceeding, the owner’s conduct (in saying that she would not release any funds until the defects had been rectified and incomplete works done) was relied upon by the builder to support its contention that the owner’s conduct amounted to repudiatory conduct on the part of the owner, entitling the builder to terminate the contract. The Senior Member rejected this submission, on the basis that, notwithstanding what the owner wanted to do or not do, it was the responsibility of the architect to assess the builder’s claims, and thus the failure of the architect to fulfil his obligations under the contract could not be sheeted home to the owner. The Senior Member was thus considering quite a different issue in the substantive proceeding to the issue he considered in the 2017 application.

In the 2017 application, the Senior Member was required to consider whether it was fair to award interest to the builder under s 53 of the DBCA. This process brings into consideration a wider range of factors than which might be relevant to the question of whether the owner has repudiated the contract. Accordingly, while any ‘instructions’ by the owner to the architect did not alter the architect’s obligations under the contract to assess the builder’s claims, and thus had no legal consequence, those instructions, which the Senior Member found had encouraged the architect to breach his obligations under the contract to assess and certify the builder’s claims, could well be relevant to the broader question of ‘fairness’.

Secondly, the submission that the owner had been denied natural justice by reason of the Senior Member taking into account her conduct in telling the architect that no funds would be released before the rectification of defects is without merit. Prior to the hearing of the 2017 application, both parties filed extremely detailed and comprehensive submissions with respect to interest and costs. The builder’s submissions[79] referred to a number of findings made by the Senior Member concerning the issue of the architect’s failure to comply with his obligations under the contract, the delay of the owner in releasing part of the retention fund to the builder, and the email from the architect to the builder dated 8 October 2012, where the architect stated as follows:

I spoke to Vince [the owner’s husband] this morning and he mentioned that they will not release any funds until all defects and incomplete works are done.

[79]At [20].

The owner filed extensive written submissions (running to fifteen close typed pages in length) on the question of interest alone. These submissions advanced a number of reasons why interest ought not be payable by the owner, and in the alternative from what date interest ought to be payable, but did not address the ‘conduct’ issues raised by the builder in its submissions at all. A transcript of the hearing of the 2017 application is not in evidence, so that I do not know what prominence this issue had in oral argument, but the owner was well and truly on notice that her conduct in telling the architect that no further funds would be forthcoming would be an issue in the 2017 application.

Finally, I accept that the Senior Member’s view of the owner’s conduct was not the sole reason for this decision that interest ought to be paid to the builder. As noted above, a relevant factor was the fact that the builder had been held out of its money. Reading the 2017 reasons sensibly and as a whole, it is apparent that the Senior Member was aware of and had regard to the established principles governing the award of interest. He referred to the following statement of Gillard J in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3):[80]

There are three main objectives of the award of interest. First, as compensation to the judgment creditor for being out of the funds from the date of commencement of the proceeding until judgment; secondly, to deter judgment debtors from delaying proceedings and thereby having the use of the money for a long period; and finally, to encourage defendants to make realistic assessments of their liability in a case and to take bona-fide steps to compromise the claim.

[80][2003] VSC 244.

The Senior Member referred to this statement in the context of the builder’s submission that interest was payable under s 58 of the Supreme Court Act 1986 (Vic), which he rejected, but stated as follows:

Nevertheless, the observations made in the authorities concerning interest under the Supreme Court Act provide useful guidance when considering an application for interest under s 53 [of the DCBA].

That observation, read together with the Senior Member’s finding to the effect that the builder was owed money that the owner had not paid, indicates that the Senior Member gave consideration to a broader range of factors than simply the owner’s conduct, however characterised. Put another way, it can be discerned from the 2017 reasons that the Senior Member would more likely than not have made an award of interest absent any issue arising from the owner’s conduct.

I would not grant leave to appeal on this proposed ground of appeal, on the basis that no real or significant argument has been put that the Senior Member erred in law in a manner which materially affected his decision.

Ground 4 – apprehended/actual bias
Submissions

Counsel for the owner submitted that his client was sorely aggrieved by her treatment by the Senior Member. The owner relied on the decision of the High Court in Ebner v Official Trustee in Bankruptcy (‘Ebner’)[81] as authority for the proposition that the relevant test in relation to apprehended bias is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring, or might not have brought, an impartial mind to the resolution of the question the judge is, or was, required to decide. In Ebner[82] the majority referred to a two-step test, as follows:

First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits.[83]

[81](2000) 205 CLR 337, 344 [6].

[82]Ibid, [6].

[83]Ibid [8].

The test proceeds by reference to the material objective facts, and is one of real possibility not probability.[84]
[84]Ibid [7].

The owner submitted that VCAT’s findings against the owner raise a real possibility that the Senior Member was not able to bring an impartial mind to the question of costs and interest. In particular, the Senior Member had (wrongly) formed the view that the owner had engaged in some kind of wrongful conduct, and found, on no proper basis, that the owner’s case lacked merit to the extent that she should be subjected to an order for costs, contrary to the general rule. The Senior Member also made the correction order in circumstances where he said he could not remember whether he had taken the higher figure into account. The owner submitted that the reasons are infused with negative findings and pejorative comments about the owner, including:

(a) ruling against the owner by finding payment claim 13C was not a final claim and going so far as to say ‘it would be obvious to anyone that it’s not a final claim’;[85]
[85]2015 reasons, [73].

(b) strident criticisms of the owner for wrongfully withholding payment that she should have known was payable;

(c) an accusation that the owner recklessly caused the parties to incur the expense of a hearing;

(d) a pejorative comment at the end of the 2018 reasons[86] to the effect that the owner was wasting the time of this Court by bringing an application for leave to appeal against the 2017 orders. In her written submission in reply, the owner submitted as follows:
[86]TCM Building Group Pty Ltd v Mercuri (Building and Property) [2018] VCAT 305.

Further, on 23 February 2018, notwithstanding that the matter was the subject of this proceeding, the Tribunal member entertained the Defendant’s application under the slip rule, against the objection of the Plaintiff. Despite admitting that he could not remember whether he had taken the higher figure into account or not, the Tribunal member acceded to the Defendant’s application and made an order ‘correcting’ the Reasons. In written reasons provided after the hearing, the Tribunal member added to the oral reasons provided on the day, with words which suggested that the Plaintiff was wasting the time of the Supreme Court. There was no proper basis for the tribunal to have made such a comment on the Plaintiff’s application, which further supports a finding of a reasonable apprehension of bias; and

(e) in contrast, in circumstances where the builder had failed to attend to defects and to properly set out its claim in a comprehensible way, the 2015 reasons and the 2017 reasons made little if any criticism of the builder.

The builder submitted that there is no basis for the owner’s submission that the conduct of the Senior Member gave rise to a reasonable apprehension of bias. Furthermore the owner’s submissions did not address the two-step test in Ebner,[87] that is, there was no articulation of the logical connection between the conduct complained of and the possibility that the Senior Member did not decide the 2017 application on its merits.
[87](2000) 205 CLR 337, 345 [8].

The builder contended that the owner’s submissions are essentially that the Senior Member made adverse findings against her. This of itself does not give rise to a reasonable apprehension of bias. Further, the builder submitted that the Senior Member found for the owner in certain respects in both the substantive proceeding and in the 2017 application, and the Senior Member at no point stated that the owner’s case lacked merit.

Finally, the builder noted that the owner had had ample opportunity to raise the issue of apprehension of bias, including during the course of the 2017 application, and at the time of the owner’s earlier application for leave to appeal to this Court, and that by not raising this issue earlier, the owner had waived her right to do so.

Conclusion

The owner relies upon the following matters said to give rise to a reasonable apprehension of bias on the part of the Senior Member:

(a) the Senior Member had formed the view that the owner had engaged in wrongful conduct in interfering with the architect;

(b) the Senior Member had formed the view on no proper basis that the owner’s case lacked merit to the extent that, contrary to the general rule, she should be subjected to an order for costs; and

(c) the reasons are replete with negative and pejorative comments about the owner, including statements that she had profited from her wrongdoing, and was responsible for all of the costs that had been incurred in the proceeding.

In relation to (a) above, it is apparent from the 2015 reasons, the 2016 reasons, and the 2017 reasons that the Senior Member held a rather dim view of the conduct of the owner and the architect with respect to the assessment of the various iterations of payment claim 13. The evidence before the Senior Member to the effect that the owner’s husband had said that, notwithstanding the owner’s obligations under the contract, the owner was not going to pay the builder until the outstanding defects had been rectified, was uncontradicted. As noted in the section of these reasons dealing with the Senior Member’s decision to award interest in favour of the builder, the Senior Member found that this conduct did not rise so far as to amount to repudiatory conduct on the part of the owner, but, in the 2017 application, found that conduct, among other things, warranted an award of interest in favour of the builder, because the owner’s conduct was tantamount to instructing the architect to not assess the builder’s claim.

I agree with the submissions of the builder that simply making an adverse finding cannot, of itself, give rise to a reasonable apprehension of bias. As stated by the Court of Appeal in AJH Lawyers Pty Ltd v Careri:[88]

the apprehension in question is apprehension that the judge will not decide the case impartially, not merely an apprehension that he or she ‘will decide the case adversely to one party’.

[88](2011) 34 VR 236.

In relation to (b) above, given that I have found that it was open to the Senior Member to make an adverse costs order against the owner, it could not be said that in doing so, the Senior Member had formed the view that the owner should pay costs on ‘no proper basis’. I have held that it was open to the Senior Member to award costs in favour of the builder on a higher basis, because it was open to him to find that she had unreasonably rejected the October 2014 offer.

In relation to (c) above, the submission to the effect that the Senior Member’s reasons are peppered with adverse and derogatory comments about the owner is not borne out by a careful reading of the three sets of reasons. In the 2015 reasons (which ran for 73 pages) there was some criticism of the architect to the effect that he had not approached his role in administering the contract with the required independence.[89] There was some criticism of the owner for failing to pay monies into the retention account,[90] but nothing turned on that, or upon his finding that the owner’s conduct in not releasing the part of the retention monies owing to the builder was unsatisfactory.[91] The Senior Member’s statement that ‘I find it impossible to believe that they really thought that Progress Claim B was the final claim’,[92] the Senior Member was referring to the architect and its representative, who was described as experienced in administering building contracts, not the owner. The remainder of the 2015 reasons concerned the assessment of individual claims. With respect to the builder’s application for an extension of time, the Senior Member found that the delay was wholly occasioned by the architect to respond to the builder’s many requests, but that it was unclear whether the fault was that of the architect or the owner.[93] He did say that the owner took a great deal of time to make up her mind about many matters,[94] but one would expect such an observation to be made in many domestic building disputes.
[89]Reasons, [21].
[90]Ibid, [28].
[91]Ibid, [28]-[29].
[92]Ibid, [73].
[93]Ibid, [542].
[94]Ibid.

In the 2016 reasons, when considering the question of interest, the Senior Member made the findings extracted at paragraph 12 above. Those findings were repeated, in more concise terms, in the 2017 reasons. In the 2017 application, the owner did not suggest that the Senior Member’s statements in the 2015 and 2016 reasons gave rise to a reasonable apprehension of bias.

In the 2017 reasons, the Senior Member did say that the owner had acted recklessly and caused needless expense to herself and the builder. This observation was made in the context of him having made a finding that the owner had unreasonably refused to accept the October 2014 offer. This could have perhaps been expressed in more temperate terms, but there is not a great gap between conduct which is ‘unreasonable’ and conduct which is ‘reckless’. It was well and truly open for the Senior Member to make the finding he did with respect to costs, and there is no evidence that during the course of the 2017 application he had expressed himself in such a way as to give rise to an apprehension that he was predisposed to make an order adverse to the owner.[95]
[95]2017 reasons, [96].

In relation to the statement made by the Senior Member in the 2018 reasons, I accept that the owner takes exception to the Senior Member making the correction order. However, once again, making a decision contrary to the submissions of the owner does not give rise to an apprehension of bias. Further, there must be some doubt as to whether conduct engaged in after the decision sought to be impugned is made can be used to draw an inference as to the Senior Member’s state of mind at an earlier time (or, perhaps more accurately, what a lay observer might reasonably have perceived to be the Senior Member’s state of mind at that time). However, having reviewed the 2018 reasons, delivered after the making of the correction order, I do not consider that, read in context, the Senior Member’s statement about ‘wasting the time of the Supreme Court of Victoria’ could be read as saying, by bringing this application for leave to appeal, the owner is wasting the time of this Court. The Senior Member, under the heading, ‘The Supreme Court appeal’, stated as follows:

Mr Andrews submitted that I ought not to make the correction because the matter is on appeal to the Supreme Court of Victoria and the presence of this figure in the reasons forms part of the grounds of appeal.
I do not think that that is a reason not to make the correction. One of the functions of this section is to avoid parties having to go to the expense of an appeal in order to put right a simple error of the description referred to. It is the intention of Parliament that mistakes of this nature should be corrected under the section, not by wasting the time of the Supreme Court of Victoria.
If this mistake had been pointed out to me at the time of the decision was made I would have corrected it immediately. Consequently I will make the correction.

I read the above as no more than expressing the Senior Member’s view that simple errors should be corrected by the judicial officer that made the error, in accordance with the principles underlying the slip rule, rather than putting the parties to the expense of bringing and prosecuting an appeal.

I would not give leave to appeal on this proposed ground of appeal, on the basis that there is no real or significant argument to be put that any reasonable apprehension of bias on the part of the Senior Member denied the owner procedural fairness.

Disposition

Accordingly, I would grant leave to appeal on the second limb of ground 1 and ground 2 of the proposed notice of appeal, but will dismiss the appeal.

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[2018] VSC 604

18 October 2018