The proportionately liability regime under Part IVAA of the Wrongs Act 1958 (Vic) (WrongsAct) is commonly utilised in domestic building disputes commenced in the Victorian Civil and Administrative Tribunal (VCAT).  Such disputes often result in complex proceedings involving multiple parties seeking various forms of relief.  Once judgement is handed down, the cost applications which may follow can be just as complex given that a respondent is forced to join concurrent wrongdoers to the proceeding before apportionment can be considered under the Wrongs Act[1].  

In this article, we examine the likely allocation of costs arising out of four common scenarios in VCAT proceedings where apportionment of liability is sought under the Wrongs Act.

Underlying context 

There are three fundamental issues which will have a bearing on the allocation of costs in a proceeding involving apportionment of liability, namely:

  • the ability of an applicant to choose whether to pursue a claim against a joined party;
  • VCAT’s default position on the question of costs, namely that each party bears its own costs of the proceeding; and
  • whether the joined party participates in a proceeding where it has been joined solely for apportionment of liability purposes.

In respect of the first point, it is important to note that when a respondent successfully joins a party for the purposes of apportionment, the applicant has the choice as to whether to pursue a claim against the joined party directly.  Unless the applicant pursues a claim, it will not be able to recover the portion of liability that is attributed to the joined party.  This point was recently emphasised by Vice President Jenkins J in Adams v Clark Homes Pty Ltd (Building and Property) [2015] VCAT 1658 as follows: [2]

An applicant may, but will not necessarily make, a claim against a joined party. Consequences will flow from such decision. If a court or tribunal apportions responsibility amongst concurrent wrongdoers and the applicant has only made a claim against say, one respondent, then judgment will be entered against that respondent only. The Part IVAA scheme does not contemplate that judgment will be entered in favour of the applicant against all parties found to be concurrent wrongdoers…

In respect of the second point, it is important to note that unlike Victorian Courts where the general rule is that costs follow the event, VCAT’s default position is that each party bears its own costs of the proceeding.  Section 109 of theVCAT Act 1998 (VCAT Act), which sets out VCAT’s power to award costs, was helpfully summarised by Gillard J inVero Insurance Ltd v The Gombac Group Pty Ltd [2007] VSC 117 as follows:[3]

In approaching the question of any application for costs pursuant to s.109 [of the Victorian Civil and Administrative Tribunal Act 1998 (VCAT ACT)] in any proceeding in VCAT, the Tribunal should approach the question on a step by step basis, as follows –

  1. The prima facie rule is that each party should bear their own costs of the proceeding.
  2. 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.
  3. 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.

In respect of the third point, to the extent that a party joined for the purposes of apportionment of liability is not the subject of a claim for compensation by the applicant, it is not uncommon to see that party elect not to play an active role the proceeding.  The joined party may elect not to participate at all or seek, at an early stage, an order from VCAT that it be excused from participation. This has the potential to limit or even avoid costs from being incurred.

Varying scenarios

Generally speaking, there are four different scenarios where an application for costs will be made in proceedings where apportionment of liability has been sought.  These are:

  • No apportionment - the respondent joins a party for apportionment and the applicant elects not to pursue a claim;
  • No apportionment - the respondent joins a party for apportionment and the applicant elects to pursue a claim;
  • Apportionment - the respondent joins a party for apportionment and the applicant elects not to pursue a claim;
  • Apportionment - the respondent joins a party for apportionment and the applicant elects to pursue a claim.

- No apportionment  / No claim by the applicant

The recent decision in Watson v Richwall Pty Ltd (Building and Property) [2015] VCAT 1191 provides guidance in respect of the first scenario.  The matter concerned a claim by the applicant owner against the respondent builder for defective work in the construction of a residential home.

In an attempt at limiting its exposure, the respondent builder was successful in joining the structural engineer as a party to the proceeding.  Notably however, the applicant owner did not elect to pursue a claim against the engineer opting to maintain her claim for compensation solely against the respondent builder.  Shortly after its joinder, the engineer obtained an order from VCAT excusing it from further participation other than in respect of discovery.

The matter proceeded to hearing where, unbeknown to the engineer, the respondent builder did not press for the apportionment of liability as against the engineer notwithstanding the engineer having remained a party to the proceeding.  Ultimately, the respondent builder was found liable to the applicant owner and no liability was apportioned to the joined party. To this, the presiding VCAT member, Senior Member Walker, observed that the respondent builder’s own evidence did not substantiate its pleaded allegations against the engineer.

In a subsequent costs application, which was not the subject of written reasons, Senior Member Walker ordered the unsuccessful respondent builder to not only pay the costs of the applicant owner but also the costs of the engineer in circumstances where, taking into account the operation of section 109 of the VCAT Act, ‘it was fair to do so’.

- No apportionment / claim by applicant

The decision in Hyndman v Hurtob Homes Pty Ltd (Domestic Building) [2014] VCAT 380 provides guidance in relation to the second scenario.  The matter concerned a claim for damages by the applicant owners against the respondent builder for defective and incomplete work in the construction of units, including defects related to rendering of the internal floor tiling. The respondent builder joined, amongst others, Unitex, the supplier of the materials used in the cladding and rendering for the purposes of apportionment of liability.  In response, the applicant owners claimed that, if the claims that they made were apportionable, which they denied, they were entitled to recovery from Unitex of damages equivalent to its liability for the loss. 

Ultimately, the matter proceeded to hearing where relevantly there was no apportionment as against Unitex. 

Following the hearing, an application for costs was made by various parties, including Unitex, which sought an order that the party that joined it to the proceeding, being the respondent builder, pay its costs.  In assessing Unitex’s application for costs, the presiding VCAT member, Senior Member Walker, observed the following[4]:

There was no real evidence lead by either the Builder or the Second Owner[5] to substantiate any claim against Unitex. Since the Builder had sought to have Unitex released from the proceeding earlier and since this could have occurred without any cost, it must follow that the costs that it now seeks arise because the Owners would not agree to release it.

I cannot find that it was wholly the fault of the Second Owner. I am concerned that it was not suggested that the Builder offered to amend its defence by abandoning its claim for apportionment but I think that if that [had] been raised at the time it could have been dealt with.

Unitex expressed a willingness before the hearing to make no claim for costs if it should be released from the proceeding. Although the Builder wanted it out of the proceedings, there was no application to amend the Points of Defence.

Unitex was joined on the Builder’s application and so any order for costs would generally be made against the Builder. However, by refusing to agree to let Unitex out of the proceeding the Second Owner must share responsibility for the resulting costs.

On the basis of the above, Senior Member Walker held that the costs of Unitex be paid equally by the applicant owner and the respondent builder.

- Apportionment / No claim by the applicant

There is no reported decision which considers this scenario.  Based on the general principles discussed throughout this article, there appear to be three possible outcomes.  Subject to overcoming the default position on costs as set out in section 109 of the VCAT Act:

  1. a respondent may be entitled to an award of costs against a joined party for its costs associated with running the defence of apportionment in circumstances where it succeeded with its allegations as against the joined party and thereby limited its liability; or
  2. a joined party may be entitled to an award of costs against a respondent to the extent that it incurred costs by participating in the proceeding in circumstances where the apportionment of liability is in effect a defence put forward on behalf of a respondent for its benefit, as distinct to a claim. 

Alternatively, given the default position on costs, VCAT may prefer to make no order as to costs in circumstances where both the respondent’s and joined party’s position are, on our view, of equal force. 

- Apportionment / Claim by the applicant

The recent decision in Renaissance Parquet Pty Ltd v Manshtein [2015] VCAT 546 provides guidance in relation to the fourth scenario.  The matter concerned a claim by the applicant owner of a residential home against the respondent supplier of defective parquetry floor, who in turn joined Mr Androsov, the party who laid down the flooring, as the second respondent to the proceeding for the purposes of apportionment. The applicant owner pursued claims against both respondents and it was common ground that the claim was apportionable within the meaning of Part IVAA of the Wrongs Act.

The Tribunal found that the liability of each of the respondents should be limited to 50% of the loss and damage claimed by the applicant owner.

In considering the question of costs, the presiding member A Kincaid found that it was fair to exercise his discretion under section 109 of the VCAT Act. Ultimately, the Tribunal ordered that the first respondent pay the applicant owner’s costs up to the date of joinder, and that the first and second respondents pay the applicant owner’s costs ‘in the same proportions as [the Tribunal has] apportioned their responsibilities’,[6] being 50% each.

The above decision should be contrasted with the decision in Guston v Lawley [2008] VSC 97. This matter concerned an appeal from VCAT, where among other things, the appellants challenged the costs orders made by the Tribunal. These orders ‘were intended to make each of the unsuccessful respondents liable to pay the separate costs of the owners’ claims against it.’[7] However as the owners’ costs could not be allocated in such a way, presumably due to the difficulties in separating its costs between the different claims, the Tribunal ordered that ‘each of the unsuccessful respondents should bear an equal share of these allocated costs to the owners’. [8]

While the appellants argued that the owners’ costs should be distributed in the same proportions as the liability of those parties, the Court disagreed. The Court held that ‘[i]t was not put that the provisions of Part IVAA require this to be done; it was said that, in the exercise of its discretion, the Tribunal should be mindful of and have regard to this philosophy’.[9] The Court upheld the Tribunal’s costs orders, stating that the Tribunal correctly exercised its discretion in being mindful of the proportionate liability scheme but ultimately allocating costs in terms of the time occupied in dealing with the difference claims and their outcomes.

Concluding observations 

While each costs application should be assessed on its own merits given that the default position on costs in VCAT is that each party bears its own costs, the following are some general observations as to how VCAT may deal with costs in so far as they relate to parties joined for the purposes of apportionment:

  • A respondent will generally be liable for the costs of a party joined to a proceeding for apportionment of liability if there is no apportionment and no claim for compensation by the applicant, such as the case in Watson.
  • Although a respondent is likely to remain primarily liable for costs of a party joined to a proceeding for apportionment of liability if there is no apportionment, the applicant may also have an exposure if it contributed to the joined party’s costs, such as the case in Hyndman.
  • Where an applicant is successful against both a respondent and a joined party, the respondent will generally be liable for the applicant’s costs up until the date of joinder, and then costs will be shared between the respondent and joined party hereafter, such as the case in Renaissance Parquet. When awarding costs against unsuccessful respondents, liability for costs need not be in proportion to their apportioned liability under Part IVAA of the Wrongs Act, such as the case in Guston.