How to resolve a building dispute out of court

What is this resource?

This resource provides some general information about how to resolve a building dispute before going to court.

If you’re involved in a dispute at the Victorian Civil and Administrative Tribunal (VCAT), you can attempt to settle your dispute by issuing a formal offer or a Calderbank offer to the other party. Formal offers and Calderbank offers are aimed at encouraging parties to settle their dispute by agreement before going to court.

Both types of offers can provide you with some financial protection if the other party fails to accept your offer without a valid reason. A party who drags out a proceeding by unreasonably rejecting a settlement offer can be financially penalised.

It’s up to you to decide if you want to make an offer and, if you do, what type of offer you make.

Formal settlement offers

If you are involved in a VCAT proceeding, you can make a formal settlement offer (also known as a section 112 offer) according to the Victorian Civil and Administrative Tribunal Act 1998 (VCAT Act) at any time before VCAT makes its orders on the matters in dispute. 

If you want to make a formal offer you must make sure the offer complies with the requirements of the VCAT Act.

Formal offers can be made ‘with prejudice’ or ‘without prejudice’.

If you make your settlement offer:

• ‘with prejudice’ – this means that any party to the proceeding can inform any Tribunal member who conducts a hearing in the case about the settlement offer.
• ‘without prejudice’ – this means that VCAT cannot be told about the offer until after VCAT has made its orders about the matters in dispute (other than orders in respect of costs).

Requirements applicable to formal settlement offers

If the other party accepts your formal offer

The other party must accept your offer by giving you a signed notice of acceptance. If the other party accepts your offer, you have to do what you said you would do in your offer.

If you don’t do what you said you would, the other party can ask VCAT to:

• make an order giving effect to the terms of the offer, or
• if you started the VCAT proceeding (i.e. you are the ‘Applicant’):
  • dismiss the proceeding, or
  • if the party that accepted your offer made a counterclaim before you made your offer, make an order awarding any or all of the things they requested in their counterclaim, or
• if the other party started the VCAT proceeding (i.e. you are the ‘Respondent’):
  • make an order awarding the other party any or all of the things they asked for in their VCAT application.

If the other party rejects your formal offer

Usually in VCAT proceedings each party has to pay their own legal costs. This means, if you hire a lawyer, you have to pay for that lawyer’s help.

However, if:

• you make an offer that complies with sections 112 to 115 of the VCAT Act; and
• the other party doesn’t accept the offer, and
• VCAT makes orders which are not less favourable to you than what you offered (i.e. you ‘beat’ your offer at hearing),

then VCAT can make the other party pay ‘all costs’ that you incurred after you made the offer.

Once VCAT has made a decision resolving the main dispute, the next step is for VCAT to decide whether it should make orders requiring one party to pay the other party’s legal costs of the proceeding. When VCAT is deciding whether to make a costs award, the parties can ask VCAT to consider any section 112 offers that have been made.

If you are self-representing, you will not incur your own legal costs. But, if the other party has a lawyer and serves an offer on you, which you do not accept, you might have to pay their legal fees if they get a more favourable outcome than their offer.

Calderbank offers

A Calderbank offer is another kind of settlement offer. It’s an offer made ‘without prejudice save as to costs’.

This means that the person who made the offer can tell VCAT about the offer after VCAT has made a decision on the disputed issues. When VCAT is deciding whether to make a costs award, the party who made the Calderbank offer can inform the Tribunal of the offer and ask the Tribunal to take the offer into account.

As with a formal offer (discussed above), if:

• you make a Calderbank offer; and
• the other party rejects the offer; and
• VCAT makes orders that are not less favourable to you than the offer,
• then VCAT can order that the other party pay your costs from the date of the offer.

Remember, VCAT always has a discretion about whether to award costs, and if so, how the costs will be awarded.

What is an ‘unreasonable rejection’?

Your offer should involve a ‘real and genuine’ element of compromise.

The extent of the compromise you set out in your offer is an important factor VCAT will look at to work out whether it was unreasonable for the other party to reject it.

If you say the other party should have accepted your offer, VCAT will look at things like:

• when you made your offer;
• how long the other party had to think about your offer;
• the extent of the compromise you offered;
• the other party’s chances of winning the case after you made your offer;
• how clear your offer was;
• the amount of your claim for legal costs at the time the offer was made; and
• whether your offer said you would ask VCAT to award you indemnity costs if the other party rejected it,

Drafting Calderbank offers

There aren’t any strict rules about the wording to use when drafting a Calderbank offer, but here are some tips to consider:

• State that your offer is made ‘without prejudice save as to costs’.
• Clearly set out what you will do and what the other party will do.
• Make sure the terms of your offer are clear – your offer should be immediately accepted by the other party without them needing to ask you questions about it.
• Include reasons why the offer should be accepted, and why it would be unreasonable for the other party to reject it.
• If your offer does not seem like much of a compromise (e.g. – if your claim is for $10,000, but you offer to accept $9,500), you need to be clear about what the compromise you are making is, and why it would be unreasonable for the other party not to accept it.
• Clearly state the claims, causes of action and counterclaims covered by the offer (e.g. if it relates to all the things in dispute in your proceeding, say this).
• The offer should be unconditional and a genuine attempt to settle the dispute.
• Your offer must be open for acceptance for a reasonable period of time. A ‘reasonable amount of time’ will depend on a number of factors, but it is generally recommended that an offer remain open for acceptance for at least 14 days.
• Your offer must state whether it includes or excludes legal costs in addition to your main offer. (e.g. — you offer to accept $9,500 and your offer is ‘inclusive of costs’ this means you will cover any legal costs you have incurred up until the date of your offer. If you want the other party to cover the legal costs you have incurred, then you should word your offer as ‘exclusive of costs’ and it should set out the costs incurred. For example, you offer to accept $9000, exclusive of costs, and the legal costs incurred are $500)
• Make sure you set out what will happen if the other party does not accept your offer (e.g. you will seek an order for indemnity costs).

Which type of offer should you make?

If you need flexibility, a Calderbank offer could be a good choice for you. For example, even though Calderbank offers are usually left open for at least 14 days (the minimum time a formal offer must be kept open), if time is critical, your Calderbank offer could be kept open for less time.

If a costs award is important to you, a formal offer could be a good choice for you. It is important to remember that there is not an automatic entitlement to legal costs order just because the other party rejects your offer. Both types of offers can lead to a costs award, but you might choose to use a formal offer under the VCAT Act, if you want a more certain outcome.