Zhang v Oakmont Properties Pty Ltd
[2023] VSC 248
•12 May 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2020 03907
| ZHANG & ANOR (according to the attached schedule) | Applicants |
| v | |
| OAKMONT PROPERTIES PTY LTD (ACN 106 786 010) & ANOR (according to the attached schedule) | Respondents |
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JUDGE: | Gorton J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 April 2023 |
DATE OF JUDGMENT: | 12 May 2023 |
CASE MAY BE CITED AS: | Zhang v Oakmont Properties Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 248 |
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COSTS – Whether VCAT can join a person as a party to a proceeding for the sole purpose of making a costs order against that person – Knight v FP Special Assets Ltd (1992) 174 CLR 178 – Victorian Civil and Administrative Tribunal Act 1998 (Vic) ss 60, 109.
APPEAL – Application for leave to appeal and appeal of VCAT decision – Whether error of law in Tribunal’s refusal of application to join non-party to the proceeding for the purpose of making a costs order against that person – Significance of existence of a counterclaim – Significance of the counterclaimants’ offer to ‘walk away’ from that counterclaim – Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr T Sedal | Luna & Xia Lawyers |
| For the Second Respondent | Litigant in person | Not applicable |
TABLE OF CONTENTS
A.. Introduction.................................................................................................................................. 1
B.. Can a person be added to a VCAT proceeding solely for the purpose of making a costs order against that person?..................................................................................................................... 3
C.. Was there an error of law in the finding that a non-party costs order should not be made?.......................................................................................................................................................... 8
C.1... The Senior Member’s conclusion...................................................................................... 8
C.2... The ‘walk away’ offer by the applicants and the Senior Member’s assessment of it 10
C.3... Was the Senior Member obliged to consider the ‘walk away’ offer when determining the application to join Mr Just and to make a costs order against him?.......................... 12
C.4... Did the Senior Member consider the ‘walk away’ offer when determining the application to join Mr Just and to make a costs order against him?.................................................... 14
C.5... Conclusion – the appeal should succeed....................................................................... 15
D.. What Order should now be made?......................................................................................... 15
E... Disposition.................................................................................................................................. 18
HIS HONOUR:
A. Introduction
This case concerns the circumstances in which an owner and director of an insolvent company may or should be ordered to pay the costs of a proceeding brought or defended by the company in the Victorian Civil and Administrative Tribunal (‘VCAT’, or ‘the Tribunal’).
Oakmont Properties Pty Ltd (‘Oakmont’), the first respondent, agreed with Duan Lan Zhang and Ling He, the applicants, to build two houses at properties owned by them in Balwyn. Problems arose. Oakmont ceased work and commenced a proceeding in the domestic building list in VCAT in which it sought, among other things, almost $900,000 as damages assessed on a quantum meruit basis. Some eight months later, the applicants filed a counterclaim in which they contended that Oakmont had repudiated the contracts. The applicants sought refunds of money paid and damages of almost $700,000 for delay, for amounts paid that they alleged did not have to be paid, for the amounts required to complete the builds, and for allegedly defective work. Well prior to trial, the applicants made a ‘walk away’ offer. Oakmont did not accept that offer. After some twenty days of hearing, and after hearing from several expert witnesses, a Senior Member of the Tribunal published detailed and careful reasons in which he found for the applicants. The Senior Member concluded that by ceasing work when it did Oakmont was in breach of, and had repudiated, the contracts.[1] The Senior Member indicated that he would dismiss Oakmont’s claim against the applicants. The Senior Member also concluded that the applicants were entitled to damages from Oakmont on their counterclaim in the sum of $172,177 plus interest.[2] Following further argument, he indicated that he would dismiss Oakmont’s claim and order Oakmont to pay $270,217 to the applicants.[3]
[1]Oakmont Properties Pty Ltd v Zhang [2019] VCAT 92, [279], [282].
[2]Ibid [340], [495].
[3]Oakmont Properties Pty Ltd v Zhang [2019] VCAT 431, [20].
Before the Tribunal, the applicants sought costs on the indemnity basis, alternatively on the indemnity basis from the date of settlement offers made by them, and also an order that Mr Just, the second respondent, be added to the proceeding and that he pay any unsatisfied costs liability of Oakmont.
Before any orders had been formally made, Oakmont applied to this Court for leave to appeal against the Senior Member’s decision.[4] The Senior Member delayed hearing the costs application until after this Court had determined the application for leave to appeal against his substantive decision.[5] This Court ordered Oakmont to give security for costs.[6] Oakmont failed to do so. The applicants then applied for orders that the Supreme Court proceeding be dismissed due to Oakmont’s failure to provide the security by the time ordered.[7] The applicants also sought orders that Mr Just be added to that proceeding and that he pay any unsatisfied costs liability of Oakmont. Clayton JR (as her Honour then was) concluded that the criteria set out in Knight v FP Special Assets Ltd[8] for the making of a ‘non-party costs order’ were met and made those orders.[9]
[4]The fact that the application for leave to appeal was made before any orders were formally made is surprising but, as events turned out, irrelevant to the issues that have now to be determined.
[5]Oakmont Properties Pty Ltd v Zhang [2019] VCAT 431, [7], [12]; Oakmont Properties Pty Ltd v Zhang [2020] VCAT 1008, [5]. The Senior Member was concerned not to be apprised of any without prejudice communications in relation to costs in case he had to re-assess damages.
[6]See Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 62.
[7]Ibid r 62.04.
[8](1992) 174 CLR 178.
[9]The Judicial Registrar’s reasons were set out in ‘other matters’ in a form of order authenticated on 4 March 2020 in proceeding S ECI 2019 00794. Although Mr Just was added as a party, it is convenient to refer to a costs order made against a person associated with a named party but not themselves making a claim in the proceeding as a ‘non-party costs order’.
After the Supreme Court proceeding had concluded, the Senior Member considered the application for costs of the VCAT proceeding and the application that Mr Just be added as a party and be ordered to pay any unsatisfied costs liability of Oakmont in that proceeding. He ordered that Oakmont pay the applicants’ costs of the proceeding on the standard basis.[10] The Senior Member dismissed the application that Mr Just be added and that he pay the costs in the event that Oakmont did not do so. The Senior Member concluded that:
(a) the legislative regime was such that it was not appropriate for VCAT to add a person as a party for the sole purpose of making a costs order against that person;[11] and
(b) in any event, the criteria that would apply were not met.[12]
[10]Oakmont Properties Pty Ltd v Zhang [2020] VCAT 1008.
[11]Ibid [100].
[12]Ibid [101].
The applicants have now applied to this Court under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (‘the VCAT Act’) for leave to appeal against the costs order made and the dismissal of the application relating to Mr Just.[13] As noted above, Oakmont is now in liquidation. The applicants did not pursue the application in so far as it sought leave to appeal against the order that Oakmont pay costs on the standard (and not on the indemnity) basis. The application for leave to appeal was heard, as is often the case, on the basis that any appeal if leave be granted would be heard with the application for leave. Any appeal is limited to an appeal on a question of law. Mr Just appeared in person. There was no appearance for Oakmont.
B.Can a person be added to a VCAT proceeding solely for the purpose of making a costs order against that person?
[13]The application in so far as it sought an increase in the costs ordered to be paid by Oakmont was not pursued because Oakmont was in liquidation.
The power to order a person to pay the costs of litigation is statutory.[14] The power to award costs given to most courts is broad enough to extend to persons who are not themselves parties but are ‘the effective litigant standing behind an actual party’.[15] For example, s 24 of the Supreme Court Act1986 gives this Court ‘full power to determine by whom and to what extent’ costs are to be paid. Although the discretion remains unfettered, a court’s power to order costs against a non-party ordinarily will only be exercised where:
[14]Burns Philp & Co Ltd v Bhagat [1993] 1 VR 203, 214 (Brooking J); Walton v McBride (1995) 36 NSWLR 440, 455-464 (Powell JA).
[15]Knight v FP Special Assets Ltd (1992) 174 CLR 178, 202 (Dawson J).
(a) The named party is insolvent or ‘a man of straw’;
(b) The non-party has played an active part in the conduct of the litigation and has an interest in the subject matter of the litigation; and
(c) The interests of justice require that the non-party pay the costs.[16]
[16]Ibid 193 (Mason CJ and Deane J).
The situation with VCAT is different. The power to order costs is contained in s 109 of the VCAT Act. That section only empowers the Tribunal to order costs against a party to a proceeding before it[17] and Mr Just was not a party to the proceeding. That is why the applicants sought first an order that Mr Just be added as a party to the proceeding, and then that the costs order be made against him. Section 60 of the VCAT Act empowers the Tribunal to order that a person be joined as a party to a proceeding if the Tribunal considers that the person ought to be bound by, or to have the benefit of, an order of the Tribunal, or the person’s interests are affected by the proceeding, or ‘for any other reason it is desirable that the person be joined as a party.’ The applicants contended, in summary, that the criteria for the making of a ‘non-party’ costs order were met and that it was in the interests of justice that Mr Just be made liable for costs, and accordingly that it was ‘desirable’ that he be joined as a party so that such an order could be made. They also submitted that Mr Just’s ‘interests’ were affected by the proceeding.
[17]Pham v Victims of Crime Assistance Tribunal (No 2) [2016] VSCA 135, [14] (Tate, Ferguson and McLeish JJA). The term ‘party’ is defined in s 59 of the Victorian Civil and Administrative Tribunal Act1998 (Vic).
VCAT has, on occasions, ordered costs in favour of a non-party who has been subpoenaed to produce documents,[18] but its power to make such orders has been persuasively questioned.[19] The applicants have not identified any decision of VCAT where a person has been added as a party for the sole purpose of obtaining a costs order against that person.
[18]See, eg, Campaul Investments Pty Ltd v Contractors Bonding Limited [2006] VCAT 177 (Aird DP).
[19]State of Victoria v Bradto Pty Ltd [2006] VCAT 685 (Judge Bowman).
It could be argued that the legislature deliberately chose not to give to VCAT the power to order costs against a non-party and so the power given to VCAT to add a party should be read down such that it is not open to VCAT to add a person as a party for the sole purpose of making a costs order against that person; to allow VCAT to do this would allow it to evade the limits on the power given to it by s 109 of the VCAT Act. This approach would be consistent, it may be argued, with the fact that VCAT is, unlike a court, primarily a ‘non-costs’ jurisdiction designed to promote access to justice generally. This is, in essence, how the Senior Member approached the issue.
I do not interpret the VCAT Act in this way. A party to a proceeding includes any person joined as a party to the proceeding by the Tribunal.[20] The power to join parties is expressed in very wide terms. The full wording of s 60 is as follows:
[20]Section 59 of the VCAT Act defines the ‘parties to a proceeding’ in the Tribunal’s original jurisdiction to be, in essence, the person who applies to the Tribunal or who requests or requires a matter to be referred to a Tribunal, in the case of an inquiry the person who is the subject other in inquiry, any person specified under the VCAT Act or an enabling enactment as a party, and any person joined as a party to the proceeding by the Tribunal.
60 Joinder of parties
(1) The Tribunal may order that a person be joined as a party to a proceeding if the Tribunal considers that—
(a) the person ought to be bound by, or have the benefit of, an order of the Tribunal in the proceeding; or
(b) the person's interests are affected by the proceeding; or
(c) for any other reason it is desirable that the person be joined as a party.
(2) The Tribunal may make an order under subsection (1) on its own initiative or on the application of any person.
(3) On the application of a person who is entitled under section 73(4) to be joined as a party the Tribunal must order that the person be joined as a party.
The inclusion of s 60(1)(c) indicates an intention that a person might be joined as a party even if that person does not meet the criteria set out in s 60(1)(a) or (b). That is, a person might be added as a party even if there is no need that they be ‘bound by, or have the benefit of an order of the Tribunal in the proceeding’ and if their interests are not affected by the proceeding. It follows that the power to join parties is not limited to persons against whom substantive relief is sought. Further, the phrase ‘for any other reason it is desirable’ could not be expressed in wider terms. It should not be read down so as to preclude VCAT from adding a party if VCAT considers it desirable to do so for the purpose of doing justice on the issue of costs. The wish to do justice on the issue of costs would fall within the phrase ‘for any other reason’. In my view, if VCAT is satisfied that it is (in all the circumstances) in the interests of justice to order that a person who is not a party to a proceeding pay the costs of that proceeding, then it is open to VCAT also to conclude that it is ‘desirable that the person be joined as a party’ so that a costs order may be made against that person. It follows that, in my view, VCAT is able to add a party for the sole purpose of enabling it then to make an order that they pay the costs of a proceeding.
Put another way, I do not consider that the limitation on VCAT’s power to order costs contained in s 109 of the VCAT Act is intended to limit by implication the power given by s 60 of the VCAT Act to add parties to a proceeding. The two can work harmoniously. Section 60 empowers VCAT to join a person as a party if it considers it desirable to do so, and s 109 then empowers it to order costs against that party.
Further, there is nothing inherently improper in the idea that a person might be made a party to a proceeding so that a costs order might be made against them. The relationship between making an order against a person and adding them as a party was considered by Dawson J in Knight v FP Special Assets Ltd.[21] His Honour discussed the arguments that had previously been made, in the context of court proceedings, that costs should not be ordered against a person if they were not a party and he emphasised the artificiality of that approach. His Honour observed that if costs ought to be paid by a non-party, it would be artificial not to order them on the basis that they were a non-party, because:
If that were all, then it would be possible simply to join the person as a party for the purpose of obtaining an order for costs against him.[22]
[21](1992) 174 CLR 178.
[22]Ibid 198-199.
Dawson J also observed that a non-party against whom costs were to be awarded must be ‘brought before the court’ and that in many cases ‘the convenient method of bringing him before the court would be to make him a party’.[23]
[23]Ibid 203.
It follows from my conclusion that a person might be joined as a party for the sole purpose of making a costs order against them that there is no reason why they may not be joined after the substantive hearing but before the costs orders are pronounced. Of course, they would, ordinarily, have to be given proper notice of the application and time to respond to it. I note that this was not an issue in this case, as the applicants had given Mr Just prior notice of their intention to make the application.
For the above reasons, I conclude that the Senior Member erred in law to the extent that he dismissed the application that Mr Just be joined as a party and that a costs order be made against him on the grounds he had no power to make that order or that there was a legal principle that operated at VCAT that a person ought not to be joined to a proceeding solely for the purpose of making a costs order against them.
I note that the High Court in Jeffery & Katauskas v SST Consulting Pty Ltd[24] decided that the Supreme Court of New South Wales was not able to make a non-party costs order against a litigation funder who funded an impecunious plaintiff in circumstances where the costs incurred exceeded the sum that had been provided as security for those costs. But that case appears to have proceeded on the basis that the Knight v FP Special Assets Ltd criteria were not met and turned on whether the litigation funder had engaged in an abuse of process. [25] Nobody applied to have the litigation funder added as a party.
C.Was there an error of law in the finding that a non-party costs order should not be made?
[24](2009) 239 CLR 75.
[25]Ibid 119 [95], 119-120 [97], 121-122 [102] (Heydon J), 94-95 [30]-[33] (French CJ, Gummow, Hayne and Crennan JJ). See also the summary of the respondent’s argument at 82-83.
C.1 The Senior Member’s conclusion
The Senior Member referred to the principles that govern the making of non-party costs orders set out in Knight v FP Special Assets Ltd[26] and in particular the observations of Mason CJ and Deane J that:
For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.[27]
[26](1992) 174 CLR 178.
[27]Ibid 192-3. This statement of principle was accepted by a majority of the High Court in Jeffery & Katauskas v SST Consulting (2009) 239 CLR 75, 94 [31] (French CJ, Gummow, Hayne and Crennan JJ) and by the Court of Appeal in Ipex ITG Pty Ltd v Melbourne Water Corporation [2012] VSCA 169, [1] (Redlich JA), [73] (Mandie JA), [76] (Beach AJA).
The Senior Member concluded that the first three requirements were met, that is, that Oakmont was insolvent or a man of straw, that Mr Just had played an active part in the conduct of the litigation, and that Mr Just had in interest in the litigation.[28] The Senior Member, however, was not satisfied that ‘the interests of justice’ required that an order for costs be made against Mr Just.[29] After stating that the situation with the application for leave to appeal that had been determined by Clayton JR was different, and that there was nothing unusual with a corporate builder with a sole director litigating in the Tribunal, the Senior Member said:
[108]As discussed above in these reasons, I do not consider the proceeding was brought or conducted by Oakmont vexatiously or for an ulterior purpose. I consider Mr Just had a genuine belief in the validity of the claims brought by Oakmont. On behalf of Oakmont, he engaged experienced lawyers who presented arguable propositions on contentious issues. I do not consider that the proceeding was pursued recklessly by Oakmont. And it is important to remember that, quite apart from prosecuting its claim against the respondents, Oakmont was defending a substantial counterclaim brought by the respondents, and in the end the sum of damages awarded to the respondents was significantly less than the sum of damages they claimed.
[109]In these circumstances, I am not satisfied that the interests of justice require an order for costs, in respect of the VCAT proceeding, as against Mr Just.
[28]Oakmont Properties Pty Ltd v Zhang [2020] VCAT 1008, [102].
[29]Ibid [103].
The fact that the applicants were prosecuting a counterclaim was, as the last sentence of paragraph 108 reveals, ‘important’ to the Senior Member’s conclusion that the interests of justice did not require a non-party costs order. This, with respect, makes good sense. One idea behind the making of a non-party costs order is that it may be unfair for a party to be sued by an entity that will be entitled to costs if the proceeding succeeds but will be unable to pay costs if the proceeding fails. The same considerations do not apply if the claimant for costs has not been sued but was itself responsible for the bringing of legal proceedings against the entity unable to meet any costs liability. Just as security for costs cannot be obtained against a defendant to a proceeding,[30] a non-party costs order would not ordinarily be made against a director of a losing defendant company. Similarly, if the making of a non-party costs order is seen as justifiable by analogy with a director incurring liability for a debt incurred by an insolvent company,[31] it is much easier to associate the director with a liability to pay the legal costs incurred by another party if the director has been responsible for the commencement or prosecution of an unsuccessful proceeding against that party than it is where the director has only been responsible for the defending of a proceeding brought by that party.
[30]See Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 62, which allows security for costs to be ordered on the application of a defendant against a plaintiff.
[31]Cf Ipex ITG Pty Ltd v Melbourne Water Corporation (No 6) [2009] VSC 571, [67] (Byrne J), quoted in Ipex ITG Pty Ltd v Melbourne Water Corporation (No 6) [2012] VSCA 169, [67].
Although the Senior Member referred to the fact that the applicants had brought a counterclaim, he did not, at this point in his reasons, have any regard to the ‘walk away’ offer that the applicants made on 1 June 2017. The applicants contend that the Senior Member erred in law by failing to have regard to that offer when determining the application that Mr Just be joined as a party. The Senior Member had, however, considered the offer when he was considering the application for costs against Oakmont. It is necessary, therefore, to consider this offer and how the Senior Member dealt with it and whether there was an error of law.
C.2The ‘walk away’ offer by the applicants and the Senior Member’s assessment of it
As noted above, s 109 of the VCAT Act provides that each party is to bear their own costs unless the Tribunal orders otherwise. Section 109(3) provides that the Tribunal may make an order for costs ‘only if [it is] satisfied that it is fair to do so’ having regard to ‘whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party’,[32] ‘whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding’,[33] ‘the relative strengths of the claims made by each of the parties’,[34] ‘the nature and complexity of the proceeding’,[35] and ‘any other matter that the Tribunal considers relevant’.[36] The Senior Member, relying essentially on the nature and complexity of the proceeding, was satisfied that it was ‘fair to depart from the prima facie rule and order that Oakmont pay [the applicants’] costs of the proceeding.’[37] This conclusion was unsurprising and not unusual in proceedings litigated in VCAT’s domestic building list.
[32]Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 109(3)(a).
[33]Ibid s 109(3)(b).
[34]Ibid s 109(3)(c).
[35]Ibid s 109(3)(d).
[36]Ibid s 109(3)(e).
[37]Oakmont Properties Pty Ltd v Zhang [2020] VCAT 1008, [31].
The applicants relied on their ‘walk away’ offer in support of an application that costs be paid on an indemnity basis as from 1 June 2017. The offer was made at a time after the counterclaim had been filed. The offer provided as follows:
OFFER OF SETTLEMENT
1. This is an offer of settlement by the [the applicants] to [Oakmont].
2. [The applicants] offer to settle the proceeding with [Oakmont] on the following terms:
(a) [Oakmont] and [the applicants] “walk away” and bear their own costs;
(b) in consideration of the parties entering into these terms of settlement and subject to their performance, the parties mutually release and discharge each other from all further claims, demands, suits and costs of whatsoever nature, however arising out of or connected with the subject matter of the proceedings, save that this release does not apply to a breach other than a breach that was known, or ought reasonably to have been known, to the [applicants] to exist at the time this offer was made; and
(c) [Oakmont and the applicants] agree and consent to the following orders being made by the Tribunal:
I) The proceeding be struck out; and
II) No order as to costs.
3. This offer of settlement is open for 14 days from the date upon which it is served, after which this offer of settlement lapses.
4. If this offer is not accepted and the orders made by the Tribunal in the proceeding are not more favourable to [Oakmont] than this offer, [the applicants] will seek an order pursuant to sections 112, 113 and 114 of the Victorian Civil and Administrative Tribunals Act 1998 and/or in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 33 … that [Oakmont] pay all costs incurred by [the applicants] after this offer was made, on an indemnity basis or such other basis as the Tribunal deems fit.
The provisions of s 109 are subject to ss 112 to 114 of the VCAT Act. Section 112 of the VCAT Act provides that if a party serves an offer to settle the proceeding that complies with ss 113 and 114 of that Act, and the Tribunal is of the opinion that the orders ultimately made are not more favourable to the other party than the offer, then, unless the Tribunal otherwise orders, the party who did not accept the offer shall ‘pay all costs incurred by the offering party after the offer was made’. The only formal requirement in s 113 of the VCAT Act is that ‘if an offer provides for the payment of money, the offer must specify when that money is to be paid’. That requirement did not apply. The only relevant formal requirement in s 114 of the VCAT Act is that the offer be open for a minimum of 14 days. That requirement was met. The applicants submitted, among other things, that costs should be ordered on the indemnity basis from the date of the walk away offer because the objective underlying s 112 of the VCAT Act is to encourage settlement of disputes. In response to this submission, the Senior Member said:
[43]I reject this submission in respect of the “walk away” offer of 1 June 2017 because, as discussed above, I have found that the offer does not attract the operation of section 112 of the Act.
This was a reference to an earlier paragraph where the Senior Member expressed concerns about the inclusion of the words ‘walk away’ in the offer. He said:
[39]The phrase “walk away” is often used by lawyers in settlement negotiations and is widely understood by lawyers to mean that the parties each cease to prosecute their claims in the proceeding, with each bearing their own legal costs. In my view, the use of the phrase is unhelpful in written offers of settlement which are intended to be raised on the operation of section 112 of the Act. Despite the common usage of the phrase in settlement negotiations, it is not a legal term and its meaning, what was intended and what was understood by it, is not unambiguously clear and certain. For this reason, I am not satisfied that the “walk away” offer of 1 June 2017 attracts the operation of section 112 of the Act. It is, however, a matter I may consider when assessing costs generally under section 109 of the Act.
The Senior Member then stated:
[49]Nor am I persuaded that Oakmont’s rejection of the “walk away” offer of settlement of 1 June 2017 was so unreasonable that an award of costs, under section 109 of the Act, on an indemnity basis is warranted in respect of [the applicants’] costs incurred after the date of the offer.
…
[52]As such, I am not persuaded that this is an exceptional or extreme case warranting an aware of costs on an indemnity basis. I consider the appropriate level of costs is the standard basis pursuant to the County Court scale.
As noted above, because Oakmont is now in liquidation, the applicants are not pursuing an application for leave to appeal on the grounds that the costs ordered against it should have been on the indemnity basis.
C.3Was the Senior Member obliged to consider the ‘walk away’ offer when determining the application to join Mr Just and to make a costs order against him?
As noted above, when dismissing the application to join Mr Just and to make a costs order against him, the Senior Member relied, among other things, on the fact that the proceeding included a counterclaim that the applicants had made against Oakmont. He considered, rightly in my view for the reasons set out in para 21 above, that factor to be important.
However, because the fact that the applicants had made a counterclaim was a relevant consideration when determining what the interests of justice required, then so too was the fact that they had offered to ‘walk away’ from that counterclaim. The fact that the provisions of the VCAT Act that deal with costs refer to formal offers of settlement confirms, in my view, that those offers have to be considered when the discretion as to costs is being exercised, including when deciding who should be made responsible for those costs.[38] As from the date of the failure by Oakmont, controlled by Mr Just, to accept the ‘walk away’ offer made by the applicants, it can sensibly be said that Oakmont, controlled by Mr Just, was in a very real sense responsible for the fact that the proceeding including the counterclaim continued to be litigated. Oakmont could not thereafter be treated as a company that was forced to defend a claim made against it.
[38]Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24.
This matter fell for consideration, too, in circumstances where:
(a) The legal proceeding was initiated by Oakmont. Its doing so, it may be inferred, in the circumstances of this case, made the bringing of the counterclaim by the applicants close to inevitable (and I note that it would have been proper for the applicants to make the same allegations in a set-off defence);
(b) Oakmont did not make any offer to the applicants that involved it paying money to them on their counterclaim. Indeed, on the evidence put before the Senior Member, Oakmont had insisted that any settlement involve the applicants paying money to it;
(c) Oakmont’s claim failed completely; and
(d) The applicants’ counterclaim succeeded, albeit for a lesser sum than that claimed.
In these circumstances, I consider that the Senior Member was obliged to consider the fact that the applicants had offered to walk away from their counterclaim when he was evaluating whether it was in the interests of justice that a costs order be made against Mr Just.
C.4Did the Senior Member consider the ‘walk away’ offer when determining the application to join Mr Just and to make a costs order against him?
The Senior Member did not refer to the 1 June 2017 offer when giving his reasons for dismissing the application that Mr Just be joined and that a costs order be made against him.
It could be argued that it may be inferred from the fact that the Senior Member did refer to the 1 June 2017 offer when he considered whether he should order costs at all or if so on what basis that he must also have had regard to the 1 June 2017 offer when he was determining the application in so far as it concerned Mr Just. That is supported by the final sentence in para [39] of the Tribunal’s reasons, set out in para 26 above, that the offer may be relied on ‘when assessing costs generally under s 109 of the Act’. However, I do not read the reasons that way. Rather, the failure to refer back to the offer when considering whether to make a costs order against Mr Just, including when considering in para [108] of the reasons (set out in para 20 above) the implications that flow from the fact that a counterclaim was made, compels the conclusion that the Senior Member did not have regard to the 1 June 2017 offer when he was deciding whether Mr Just should be made liable for costs.
It could also be argued that the Senior Member had regard to the 1 June 2017 offer but gave it no weight because of his conclusion expressed in para [39] of his reasons, set out in para 26 above, that the use of the words ‘walk away’ was ‘not unambiguously clear and certain’. I do not read his reasons that way. Rather, I consider that that conclusion was limited to a determination of whether s 112 of the VCAT Act was engaged. Section 112, where it is engaged, requires a party to pay ‘all costs incurred by the offering party’ and the applicants were relying on that in support of their application for indemnity costs.
C.5 Conclusion – the appeal should succeed
In my view, the failure by the Senior Member to have regard to the fact that Oakmont, controlled by Mr Just, had rejected the applicants’ offer to walk away from the proceeding including their counterclaim when he was considering the application to join Mr Just and to make him liable for costs, which consideration was influenced by the fact a counterclaim had been made, meant that he erred in law in determining that application.
Further, if the Senior Member disregarded the 1 June 2017 offer when considering the application that Mr Just pay costs because he formed the view that the offer was not sufficiently clear then I consider that approach was not reasonably open and was itself an error of law. As the Senior Member observed, the words ‘walk away’ are well understood in the legal profession. Further, neither Oakmont nor Mr Just had submitted that the 1 June 2017 offer was unclear or that they had not understood it. But even more fundamentally, if the offer is read as a whole, there is no ambiguity because the proposed settlement included that consent orders be made that the proceeding be dismissed with no orders as to costs. In my view, the only conclusion open was that the 1 June 2017 offer was sufficiently clear for it to be a relevant factor when it came to exercising the discretion as to costs.
D. What Order should now be made?
Having found error sufficient to set aside the Senior Member’s dismissal of the application to join Mr Just and to make a costs order against him, I am able to determine the application for myself.[39] I consider it appropriate that I do so rather than remit the matter to the Senior Member or, as the applicants sought in the event that I was not prepared to make the decision myself, remit the matter to a differently constituted Tribunal.
[39]Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148(7)(b). See Fidge v Medical Board of Australia [2023] VSC 217, [28]-[30].
In determining the application, I will have regard to the Senior Member’s conclusions that:
(a) it was fair to depart from the prima facie rule and to order that Oakmont pay the applicants’ costs of the proceeding;[40]
(b) the first three limbs of the criteria identified in Knight v FP Special Assets Ltd[41] were met, that is, that Oakmont was impecunious, that Mr Just played an active part in the conduct of the litigation, controlled Oakmont and was its ‘driving force in the litigation’, and that Mr Just had a financial interest in the outcome of the litigation;[42] and
(c) the proceeding was not brought or conducted by Oakmont vexatiously, recklessly or for an ulterior purpose, Mr Just had a genuine belief in the validity of the claims brought by Oakmont, Mr Just engaged experienced lawyers who presented arguable propositions on contentious issues, Oakmont was defending a substantial counterclaim brought by the respondents, and the sum of damages awarded to the applicants was significantly less than the sum of damages they claimed.[43]
[40]Oakmont Properties Pty Ltd v Zhang [2020] VCAT 1008, [31].
[41](1992) 174 CLR 178.
[42]Oakmont Properties Pty Ltd v Zhang [2020] VCAT 1008, [102(ii)].
[43]Ibid [108].
The applicants submitted, as I understood it, that the ‘interests of justice’ was not a fourth and additional requirement but that the satisfaction of the first three criteria establish, save for exceptional cases, that the interest of justice require that a non-party costs order be made. I do not accept this argument. The ultimate question must always be whether the interests of justice require the order to be made. That is the real test. The first three criteria enliven the possibility, and are themselves relevant on the point, but do not compel a conclusion that it does. If the applicants’ argument were correct, then the same result would always follow in VCAT and in a court, and the person deciding would not be able to have regard to countervailing policy considerations, such as that VCAT is intended to be an accessible and low cost, or no legal cost, jurisdiction. The Senior Member was, with respect, correct to go on to consider, notwithstanding the satisfaction of the first three criteria, whether the interests of justice required that the non-party costs order be made.
In my judgement, it is in the interests of justice that Mr Just be ordered to pay the applicants’ costs as from the expiration of their 1 June 2017 offer to ‘walk away’ from the proceeding. That offer was a good one. It involved the applicants giving up a counterclaim that, the Senior Member found, was a good counterclaim and the applicants’ bearing their own costs of Oakmont’s claim that, the Senior Member found, was not a good claim. The offer reflected the applicants’ desire to bring the litigation to an end. As from the rejection of the offer, it was Mr Just’s decision, as the controller of Oakmont, that caused the litigation to continue. Mr Just made his decision to continue the litigation knowing that he would benefit personally if Oakmont succeeded and that Oakmont would likely not be able to meet any damages or costs ordered against it if it failed.[44] The applicants, as natural persons, found themselves in a position from which they could not reasonably escape where they were personally exposed in litigation pursued by a limited liability company without the assets necessary to meet any costs orders that might be made against it if it failed, as it ultimately did, in the litigation. It is just that Mr Just be ordered to pay the applicants’ costs as from that time.
[44]Oakmont had produced financial information that showed that in the 2016 financial year it had made a loss of $360,501 and that at the end of that year its liabilities exceeded its assets by $832,018, and that by the end of the 2017 financial year it had lost a further $177,928 and its liabilities exceeded its assets by $1,009,946.
I am not persuaded that Mr Just should pay the applicants’ costs prior to the expiration of the 1 June 2017 offer. Up until that time, the applicants were pursuing a counterclaim from which they had not offered to walk away. As noted by the Senior Member, the existence of the counterclaim is a significant factor. It is easy to see an individual who causes a company to commence a proceeding as being responsible for the incurring of legal costs by the other party and, if the individual stands personally to gain from the proceeding and the company will be unable to meet any adverse costs order, why justice might require that that individual pay those legal costs in the event that the claim fails. If that other party then counterclaims and seeks its own substantive relief, it is more difficult to see the individual who stands to gain from the principal claim as being responsible for the incurring of the other side’s legal costs. There may be cases where it is just that the individual pay the other side’s costs even if there is a counterclaim, and, as the applicants pointed out, there was a counterclaim in Knight v FP Special Assets Ltd.[45]However, in this case there was a breakdown in an ongoing business relationship, there was room for argument about who was in the right and who was in the wrong, and one party sued and the other party counterclaimed. The counterclaim was for a substantial sum of money. I am not prepared to assume that the counterclaim would never have been made in the event that the principal claim was not first made. It would be artificial, in my view, to treat Mr Just as being responsible for the incurring of the applicants’ legal costs in so far as they were incurred prior to the 1 June 2017 offer to walk away. Up until that time, both sides may be seen as being responsible for the fact that the litigation was continuing with its associated legal costs.
[45](1992) 174 CLR 178.
The 1 June 2017 offer was open for acceptance for 14 days. In light of the above reasoning, I propose to make an order to the effect that Mr Just be added to the VCAT proceeding and that he pay the applicants’ costs of the proceeding, if they are not paid by Oakmont, as from 15 June 2017. There may be some cases where a counterclaim is sufficiently disconnected from the principal claim to make it appropriate further to limit the costs to be paid by, for example, excluding non-common costs of the counterclaim. This is not such a case.
E. Disposition
I will grant leave to appeal, allow the appeal, set aside paragraph 3 of the Orders made by VCAT in proceeding no. BP873 of 2016, and in lieu thereof order that Mr Just be joined as a party to the proceeding and that if Oakmont does not pay the applicants’ costs that he pay those costs in so far as they were incurred on or after 15 June 2017.
It is not necessary to decide the applicants’ other grounds of appeal.
I will hear the parties on the question of the costs of this proceeding.
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SCHEDULE OF PARTIES
S ECI 2020 03907
| DUAN LAN ZHANG | First Applicant |
| LING HE | Second Applicant |
| -and- | |
| OAKMONT PROPERTIES PTY LTD (ACN 106 786 010) | First Respondent |
| STEPHEN ANDREW JUST | Second Respondent |
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