When VCAT can award costs against parties and settlement rejection consequences

Many litigants wrongly assume costs can not be awarded at VCAT…they can! But when and why?

The recent case of Senior v Berlyn (No 3) (Building and Property) (Costs) [2025] VCAT 409 (7 May 2025) considered both section 109 and 112 of the VCAT Act being the power of the Tribunal to award costs and non acceptance of settlement offers. It provides a good overview of key considerations.

For the many Applicants and Respondents who face VCAT proceedings this can be an extremely important legal issue and one that needs to be considered at the outset of VCAT proceedings.

VCAT’s approach to awarding costs

The approach of the Tribunal to this issue is summarised at paragraph 40 and reiterates the Gillard J decision in the case of Vero Insurance Ltd v Gombac Group Pty Ltd [2007] VSC 117 at [20], being:

“The prima facie rule is that each party should bear their own costs of the proceeding. 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. 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.”

Settlement rejection and costs consequences

Further, the tribunal also considered it’s power under section 112 to order costs where a settlement is not accepted. It stated that:

“An imprudent refusal of an offer of compromise is a matter to which a Court may have regard when considering whether to order indemnity costs. The critical question is whether the rejection of an offer was unreasonable in the circumstances.”

In Hazeldene’s case, Warren CJ, Maxwell P and Harper AJA discussed the circumstances that might lead a court to determine whether the rejection of an offer was unreasonable:

“The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. At the same time, a Court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard to at least the following matters:

(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree’s prospects of success, assessed at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.”

For more see paragraphs 40 onwards as a useful overview for practitioners.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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