(a) to the costs of the presence of Carmine Conte during the hearing and during today as if he were an independent solicitor acting as advocate; and

(b) to the costs of the presence of Tricia Conte during the first day of the hearing as a witness and during the second and third days of the hearing as if she were an independent instructing solicitor.**

1. On 10 July 2013 I made an order that the respondent pay the applicant's costs of the proceeding and specified how those costs were to be assessed. I did so after having considered lengthy submissions, both written and oral, made on that day by both parties. I gave oral reasons for the decision.
2. The applicant has requested written reasons for the decision. When I was made aware of the written request by the applicant dated 29 July 2013 I refused to give written reasons because that request was made outside the 14-day time limit prescribed by s 117(2) of the Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act'). Later, however, my attention was drawn to an earlier written request from the applicant dated 18 July 2013, made within time. So I am now giving written reasons which accord with, but elaborate upon, the oral reasons given on 10 July 2013.
3. In the proceeding the applicant, as landlord under a lease of commercial premises, claimed from the respondent, as tenant of those premises, compensation for the respondent's failure to have made good the premises after vacating them. The proceeding was successful, although the applicant was awarded a smaller amount than it had claimed. My written reasons for decision in the proceeding were given on 17 May 2013 and have been published as [2013] VCAT 786.
4. The Tribunal's power to award costs in a proceeding comes from s 109 of the VCAT Act. The general rule is that parties must bear their own costs: s 109(1). But the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding if it is satisfied that it is fair to do so: s 109(2), (3). When considering whether it is fair to do so, the Tribunal is to have regard to a number of things described in s 109(3). Of those things, the only ones that in the circumstances of this proceeding needed consideration were the nature and complexity of the proceeding (s 109(3)(d)) and 'any other matter other the Tribunal considers relevant'. (s 109(3)(e)).
5. The applicant's primary submission on costs depended upon a provision of the lease, clause 2.1.8. So far as is relevant, clause 2.1.8 provided that the tenant (the respondent) must:
   • 2.1.8 pay within 7 days of a request the landlord's reasonable expenses and legal costs in respect of -

(f) any breach of this lease by the tenant, or

(g) the exercise or attempted exercise by the landlord of any right or remedy against the tenant, ...

1. The primary submission was that clause 2.1.8 created a contractual right to recover the reasonable costs of this proceeding from the respondent and that I should make an order for costs that reflected the contractual right. The applicant asked me to fix those costs in a very large sum that it sought to justify in affidavit material filed in support of the costs application.
2. There is a good deal of authority in support of the proposition that the applicant put forward, that a contractual provision like clause 2.1.8 of the lease creates a cause of action for recovery of the costs of a legal proceeding and that that cause of action is independent of any right to ask the court or tribunal to exercise its discretion to award the costs of the proceeding. Ordinarily, the party claiming to have that contractual cause of action pursues it in a separate proceeding. An example is Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45. Sandtara was a landlord of premises and Abigroup was the tenant's guarantor. There were various Supreme Court proceedings between them. Various orders as to costs were made in those proceedings, mostly in favour of Sandtara, some in favour of Abigroup and some to the effect that there was no order as to costs. Then Sandtara brought separate proceedings in the District Court seeking to recover, on a solicitor-client basis, the costs and expenses incurred in the Supreme Court proceedings, relying upon a clause in the guarantee. It succeeded. The Court of Appeal dismissed an appeal, holding that the contractual right to claim costs stood independently of the court's exercise of discretion as to costs and was not inconsistent with what the court had decided when exercising the discretion.
3. The applicant has not brought a fresh proceeding to enforce the right it claims to have under clause 2.1.8 to recover the reasonable costs of this proceeding. It was asking me to award the costs of this proceeding in such a way that amounted to the enforcement of that right.
4. In my opinion, I had no power to do that. My function in determining in this proceeding the applicant's contractual rights under the lease ended once I gave my decision on 17 May 2013. My only remaining function, pursuant to s 109 of the VCAT Act, was to decide whether to make an award of costs once satisfied that it was fair to do so. I did not have the power to consider and determine what was in reality a new claim, a new cause of action, albeit one which sought the recovery of the costs of the proceeding under a contractual provision.
5. So I concluded that clause 2.1.8 could not and did not require me to make an order for costs in accordance with the clause, and could not and did not require me to exercise in any particular manner whatever discretion I had in the matter of costs.
6. That conclusion did not mean, however, that the existence of clause 2.1.8 was an irrelevant consideration. It was a matter that I was entitled to, and did, take into account on the issue of costs, although, for reasons I have given, it did not dominate.
7. In Chen & Anor v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229 Redlich JA, with whose reasons the other members of the Court of Appeal agreed, set out (at paras [7] and [8]) how an agreement to pay costs should affect the exercise of a court's discretion as to costs (footnotes omitted):

7. Though costs are always a matter in the court's discretion, costs awarded to a successful party are usually party and party costs in the absence of conduct warranting the making of a more onerous order or a contractual basis for enlarging the costs entitlement.

8. An agreement to pay costs will be construed as an agreement to pay costs on a party and party basis, unless it is plain from its terms that costs are to be paid on a 'special basis'. Where the terms plainly and unambiguously provide for costs to be assessed on some special basis, the court will take such a provision into account but it is not bound to give effect to any extra-curial contract as to costs. An agreement to pay costs on a 'special' basis is only a factor informing the exercise of the court's discretion, but not requiring the exercise of that discretion in a particular way. Generally however, where the parties have unmistakeably agreed to the making of a special costs order, such a term will be given effect to unless there is some other discretionary consideration that militates against the making of such an order.

1. In the Chen case Redlich JA referred, with apparent approval, to a decision of Balmford J, Carbure Pty Ltd v Brile Pty Ltd & Ors (No 2) [2002] VSC 313, in a case which bore some resemblance to the present proceeding. There was an application for costs, by a landlord against a tenant, in reliance upon a clause in a lease which was in similar terms to clause 2.1.8. After noting (in para [17]) that the Court of Appeal in Ensebella v Players On Down Under Pty Ltd [2000] VSCA 73 had found that two promises in a lease to pay 'costs, charges and expenses' without any qualifying adjective imported an obligation to pay party-party costs only, her Honour went on to say:

It does not seem to me that it is appropriate to decide that the addition of the adjective "reasonable" requires the tenant to pay more of the landlord's expenses than would have been the case without that addition, which would be the effect of an order for solicitor-client rather than party-party costs. One might have thought that the converse would apply. It cannot be said that clause 2.1.10 of the lease "plainly and unambiguously" requires the costs to be paid on any other than a party-party basis. Accordingly there will be an order that the landlord's costs of the counterclaim be paid on that basis.

The quoted phrase 'plainly and unambiguously' derived from a Federal Court case in 1999 to which Counsel had referred. It was echoed in the passage from the judgment of Redlich JA which I have cited above.

1. For the same reasons that Balmford J expressed, I concluded that, if costs should be awarded at all, they should be costs assessable on a party-party basis.
2. It was fair, in my view, to depart from the general rule that s 109(1) of the VCAT Act expressed and to order the respondent to pay the costs of the proceeding, for several reasons. First, the nature of the proceeding was one of a commercial dispute concerning commercial premises. Secondly, there was a degree of complexity in the proceeding: I had to decide questions of construction of various provisions in the lease, and other legal issues. Thirdly, the very presence of clause 2.1.8 in the lease, which the parties had executed, demonstrated that the respondent ought reasonably to have expected that there would be an award of costs in any legal proceedings brought in respect of a breach of the lease.
3. In my oral reasons for decision I observed that the Court of Appeal in the Chen case had distinguished Abigroup Ltd v Sandtara Pty Ltd (see paragraph 7 above) on the footing that the guarantee in that case had expressed an indemnity for 'all costs and expenses', and thus had reflected an intention that costs were to be on a solicitor-client basis. The word 'all' did not appear in clause 2.1.8 of the lease in the present proceeding.
4. As was apparent form my earlier reasons for decision given on 17 May 2013, Carmine Conte, a solicitor, represented the applicant during the hearing of the proceeding and Tricia Conte, another solicitor, was the applicant's witness. They happened to be beneficiaries of a trading trust of which the applicant was the trustee. That relationship was a reason for my having reduced substantially a claim which had been made under clause 2.1.8 for expenses (not legal costs). I did not want my remarks about those matters in my earlier reasons for decision to be the source of any view that the Costs Court might take about what should be awarded for Mr Conte's work as an advocate or Ms Conte's work as a solicitor instructing him. So I made special directions, in the order for costs that I made on 10 July 2013, about the presence of each of them during the hearing.
5. By providing, as I did in the order, that the costs were to be assessed on the County Court scale, I was reflecting the default position which now exists pursuant to rule 1.07 of the VCAT Act Rules. At all events I considered that an order for County Court costs, rather than Magistrates' Court costs, was warranted.