Applicant v Respondent

2 The costs of the appeal and the costs of the VCAT proceeding now fall to be determined.

3 The applicant, Habib Ajaimi ('the landlord'), is the proprietor of 348 Glenhuntly Road, Elsternwick ('the property'). Since 27 June 2012, he has leased the ground floor of the property ('the premises') to Giswick Pty Ltd ('the tenant'). The tenant operates a newsagency from the premises.

4 There are defects in the property. From time to time, they have caused water and sewage to ingress into the premises. These ingress events disrupted the tenant's newsagency business and damaged stock.

5 On 18 March 2019, the tenant brought proceedings in VCAT alleging breaches by the landlord of the lease agreement, of statutory terms in the Retail Leases Act 2003 (Vic) ('the RLA'), and of the Australian Consumer Law ('the ACL').

The findings of tribunal and the findings on appeal - liability

6 The Senior Member found that, in failing to remedy the defects or in failing to disclose their existence to the tenant at the time of its entry into the lease, the landlord had breached:

(a) a covenant and/or a statutory term providing for the tenant's quiet enjoyment of the premises (collectively, 'the Quiet Enjoyment Term');

(b) a covenant and/or a statutory term requiring the landlord to maintain the premises (collectively, 'the Maintenance Term');

(c) a statutory term prohibiting interference by the landlord with the tenant's lease ('the s 54 Term'); and

(d) s 18 of the ACL.

(a) there was no breach of the Maintenance Term; and

(b) there was no breach of s 18 of the ACL.

I otherwise did not disturb Her Honour's findings on liability.

The findings of tribunal and the findings on appeal - quantum

8 Her Honour awarded damages to the tenant of $399,405.68, comprising:

(a) $290,732.97 in abatement of rent and outgoings, namely:

(i) $262,543.88 in abatement of rent for loss of use of 54.23% of the whole premises since 15 August 2012;

(ii) $28,188.99 in abatement of outgoings for loss of use of 54.23% of the whole premises since 15 August 2012;

(b) $90,209.82 in loss of profits for the business:

(i) $32,190 for loss of profit on sales of Cards, Wraps and Magazines;

(ii) $21,490.08 (incl. interest) for loss of expected commission from an opportunity to introduce a Western Union money transfer service;

(iii) $19,424.36 for loss of expected payments from an opportunity to introduce a Hubbed parcel delivery service (being $8,220.72 (incl. interest) for lost parcel income and $11,203.64 (incl. interest) for loss of profit on consequential sales);

(iv) $17,105.38 for loss of expected payments from an opportunity to introduce a Parcel Connect parcel delivery service (being $2,874.75 (incl. interest) for lost parcel income and $14,230.63 (incl. interest) for loss of profit on consequential sales);

and

(c) $18,705.99 in direct losses, namely:

(i) $9,314.14 for loss of stock;

(ii) $2,212.50 for loss of wages;

(iii) $759.35 for cleaning costs;

(iv) $1,920 for fixture replacement;

(v) $4,500 for loss of management time.

9 By contrast, the effect of my determination of the appeal was to reduce the damages awarded to $207,650 comprising:

(a) $105,154.19 in abatement of rent and outgoings, namely:

(i) $90,845 in abatement of rent for loss of use of 21.57% of the non-retail area of the premises since 1 October 2013;

(ii) $5,310 in abatement of rent for loss of use of the retail area of the premises for 48 days on which the retail area was ingress affected;

(iii) $8,999.19 in abatement of outgoings for loss of use of 21.57% of the premises since 1 October 2013;

(b) $90,209.74 in loss of profits and opportunities for the business:

(i) $32,190 for loss of profit on sales of Cards, Wraps and Magazines;

(ii) $21,490.08 (incl. interest) for loss of expected commission from opportunity to introduce a Western Union money transfer service;

(iii) $19,424.36 for loss of expected payments from opportunity to introduce a Hubbed parcel delivery service (being $8,220.72 (incl. interest) for lost parcel income and $11,203.64 (incl. interest) for loss of profit on consequential sales);

(iv) $17,105.38 for loss of expected payments from opportunity to introduce a Parcel Connect parcel delivery service (being $2,874.75 (incl. interest) for lost parcel income and $14,230.63 (incl. interest) for loss of profit on consequential sales);

(i) $9,314.14 for loss of stock;

(ii) $2,212.50 for loss of wages;

(iii) $759.35 for cleaning costs;

10 In the result, I reduced the award of damages against the landlord by some 48%. I differed from Her Honour in finding that:

(a) rent and outgoings should be calculated from at earliest 1 October 2013, being the first date on which loss of use of the non-retail area was provable;

(b) the loss of value of the premises should be calculated by determining the unusable proportion of the premises over the relevant period, rather than by determining the current market value of the rental for non-usable areas (in fact areas that could not be used in accordance with their highest and best use) as a proportion of actual rent paid;

(c) accordingly 21.57%, rather than 54.23%, of non-retail area of the premises was unusable owing to the ingresses;

(d) the retail area was unusable only on specific days when an ingress event had occurred, rather than generally unusable to 54.23%;

(e) no loss was proven in respect of management time; and

(f) no loss was proven in respect of the fixture replacement.

11 Costs are in the discretion of the Court,[2] to be exercised judicially in the particular circumstances of the case.[3] The discretion is guided, but not confined, by fixed principles.[4] The general rule is that costs follow the event: a successful party in litigation is entitled to an award of costs in its favour.[5] The general rule is assumed to apply even where the successful party has not succeeded on all heads of claim.[6]

12 The general rule may be ousted in certain circumstances. Where the successful party has failed on a number of issues, the Court may determine that costs follow the 'event' of each separate issue or cause of action.[7] John Dixon J helpfully summarised the position in Smith v Gould:[8]

The successful party may be deprived of costs in myriad ways relating to the manner of conduct of the proceeding, including by contesting many issues on which it failed, by requiring the losing party to contest issues abandoned during trial, by taking unnecessarily technical points, by inappropriately prolonging the litigation, by pressing a substantially exaggerated claim, by causing the real issues to be obscured or unnecessary evidence to be led, or by facilitating the loss of the opportunity to expeditiously dispose of the case. In some cases, an examination of the conduct of significant separate issues in the proceeding, by reference to success on the issue event, may inform the proper exercise of the discretion.

13 To depart from the general rule, the successful litigant need not have behaved unreasonably or inappropriately. As Middleton J stated in BHP Billiton Iron Ore Pty Ltd v National Competition Council (No 2):[9]

It seems appropriate when considering separate and distinct issues or inquiries, where there is no element of unreasonableness or inappropriate behaviour on behalf of the successful litigant, to consider appropriate case management principles, the relative merits or strengths of the lost issue or inquiry, whether the length of the proceedings had been greatly increased by the lost issue or inquiry on which the successful party failed, and whether the issue or inquiry on which the successful party failed otherwise was of sufficient significance in proportion to the whole case to warrant a special order to deprive that party of the costs of that issue.

Section 65C of the Civil Procedure Act 2010 (Vic) ('the CPA') supports the notion that regard may be had to case management principles when awarding costs. That section allows for costs orders to be made in furtherance of the overarching purpose enshrined in s 7 of the CPA: facilitating just, efficient, timely and cost-effective resolution of civil proceedings.

14 Of course, a judicial exercise of the discretion requires that there be circumstances properly justifying such a special order.[10]

15 Consistent with the parties' diametrically opposed approaches to the proceeding, both at first instance and on appeal, each proposed vastly different cost outcomes for the appeal.

16 The landlord submitted that costs should follow the event and that accordingly the tenant should pay the landlord's costs of the appeal on the standard basis.

17 The tenant submitted that, by reason of the landlord's failure to accept the tenant's offers of compromise and the landlord's varied success in his ground of appeal, the Court should order that the landlord pay the tenant's costs of the appeal on the standard basis; or alternatively the landlord pay 80% of the tenant's costs of the appeal on the standard basis and the tenant pay 20% of the landlord's costs of the appeal on the standard basis.

18 In my view, it would be inappropriate to make the usual order as to costs in the instant case.

19 Despite achieving a significant reduction in the award of damages, the appeal was very much a mixed success for the landlord. The ground on which the landlord was successful, being the methodology used to establish the quantum of abatement, resulted in a substantial reduction in the amount of damages awarded. However, success on that ground required the consideration of very little material. My conclusions as to the proper methodology for calculating rent abatement were based on Her Honour's reasons; the two expert reports then in evidence; and largely undisputed evidence that the business was able to operate notwithstanding the ingresses, albeit in a suboptimal manner and with more restricted offerings. That analysis was narrow and could have been the subject of a significantly shorter and more concentrated hearing.

20 In addition to and independently of the landlord's success on the abatement issue, the landlord contested effectively every finding made by the Senior Member on liability and on quantum, raising some 39 grounds of appeal.[11] Of those grounds, the majority related to claims which were unsuccessful.[12] This undiscriminating approach on appeal was an extension of the manner in which the landlord conducted his defence at trial.

21 Though I upheld the appeal on the breach of the Maintenance Term and the breach of the ACL, both of those claims can be seen as alternative means of establishing the compensation for loss and damage flowing from the ingress events. As Her Honour's findings of breach of the Quiet Enjoyment Term and the s 54 Term were not disturbed, my findings on liability have had no effect of themselves on the quantum of the award. Moreover, there was clear evidence of the ingress events and of their ultimate origin in the actions of landlord.

22 In appealing each ground of liability, the landlord required the Court to undertake a review and analysis of both the lease agreements and the conduct of the landlord alleged to comprise the misrepresentation, in circumstances where the liability of the landlord for loss and damage flowing from the ingresses was unlikely to be and was not disturbed on appeal.

23 Independently of the matters relevant to the abatement issue, the landlord contested numerous and trivial heads of damage. Of these discrete complaints only the grounds of appeal against the claim for fixture replacement costs (reducing the quantum by $1920), against the claim for management time (reducing the quantum by $4500), and for the limitation of the claim to after 3 December 2012 (potentially reducing the quantum by $7609.46 or $3040.70[13]), were ultimately made out. Further, the limitation period claim was ultimately overtaken by my findings on the proper methodology for the assessment of loss. Argument on these heads of damage took up time on appeal, and resulted in the need to review large amounts of documentary evidence as well as the transcript of the examination of witnesses at trial. The amount of the evidence adduced and the extensive submissions on these heads were disproportionate to the sums involved. Moreover, in comparison with an award of the damages of some $400,000, these amounts were minimal. Had these grounds been brought alone, I would not have granted leave to appeal.

24 Of the grounds that failed, the largest were for the claims for lost profits from missed sales of Cards, Wrap, and Magazines, as well as for lost commissions and consequential sales from the Western Union, Hubbed, and Parcel Connect services. These varied from $17,105.38 to $32,190. These grounds all failed in circumstances where the tenant had adduced manifestly reasonable evidence, viz. sales data from a similar business operated by the tenant in a neighbouring suburb, and applied it to the operations of the business in question at a heavy discount. I note that the landlord's suggestion that, in order to prove its lost profits the tenant should have provided expert evidence on demographics, betrays a misunderstanding of the commercial context of the dispute and what amounts to appropriate and proportionate evidence to prove loss in such a context. As I noted in my judgment, it is difficult to conceive of more relevant evidence than actual sales from a near-identical business conducted by the same operator in a neighbouring suburb.

25 Others, such as the claims for lost profits on stock sold, were unreasonable in circumstances where there was direct evidence of the destruction of stock as a result of the ingress events. Simply put, the landlord's breaches resulted in the destruction of the tenant's trading stock. References to the inability to award damages for loss of 'gross sales revenue', while perhaps appropriate when assessing estimations of revenue over a period of time, had no relevance in circumstances where stock was destroyed on the trading floor and where a reasonable market value had been ascribed to it in the form of its price.

26 In my view, the approach of the landlord hindered the efficient conduct of the appeal and caused the tenant to incur unnecessary costs. The tenant should be entitled to recoup its costs for the issues on which it succeeded. It should not be required to indemnify the landlord for costs incurred by the landlord in bringing unreasonable grounds of appeal.

27 Courts are wary to make a precise apportionment where a litigant has achieved a mixed success. Apportionment by a 'scoreboard' can be inappropriate in many circumstances,[14] and the circumstances can call for an evaluative[15] or impressionistic[16] approach. J Forrest J of this Court has stated:[17]

... there is no "meter" or hard and fast rule by which to determine this issue. It is necessarily impressionistic, judgmental and, to an extent, intuitive.

28 In circumstances of mixed success where I otherwise would have been minded to order costs against each party in various proportions, and where the making of a taxable costs order might lead to further disputes between the parties, the better course and one which would do substantive justice between the parties is to let the parties' costs of the appeal lie as they fall. Any entitlement that the landlord may have had to standard costs on its successful appeal was defeated by its approach on appeal or is otherwise set-off by costs that would have been payable to the tenant on the grounds that failed.

29 Having set aside Her Honour's costs orders in the original trial, I propose now to exercise the power under r 63.03 of the Supreme Court (General Civil Procedure) Rules to determine the VCAT costs. That rule provides:

Where proceedings in another court or before a tribunal are remitted or transferred to or removed into the Court or an appeal to the Court is brought from another court or a tribunal, and the Court makes an order as to the costs of proceedings in that court or before that tribunal, the Court may -

(a) specify the amount of the costs to be allowed;

...

30 In my view it would cause unnecessary delays to remit the matter to VCAT for further determination. All of the evidence that a VCAT member might consider is already before me. Moreover, both the landlord and the tenant submitted that the issue of the VCAT costs should be determined in this court.

31 Section 92 of the RLA, which applies to the trial below, provides that each party in a retail lease dispute before VCAT shall bear its own costs. The Act gives the Tribunal the ability to make a costs order only where a party conducted the proceeding in a vexatious way that unnecessarily disadvantaged another party to the proceeding, or where a party refused to participate in mediation or alternative dispute resolution. As Deputy President MacNamara has stated, the effect of s 92 is that:[18]

... the only occasions in which awards of costs between party and party may be made are where a party refuses to participate in alternative dispute resolution processes, withdraws from them or conducts a proceeding in a vexatious manner.

This is much more constrained than the usual power to award costs conferred on VCAT under s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).[19] Making a costs order under the exception in s 92(2) has been described as a 'rare thing'.[20]

32 As noted in my previous judgment, it was the Senior Member's view that the manner in which the landlord conducted this proceeding was vexatious. I set those orders aside and stated that the manner in which the landlord defended his claim was not vexatious, and nor was his failure to accept offers of compromise. I commended the landlord's somewhat belated decision to admit the events of ingress on the first day of trial, but noted that, in my preliminary view, it might have constituted grounds for costs orders against the landlord on a lesser basis.

33 The tenant now urges that I arrive at the same conclusion as the Senior Member and order that the landlord pay 65% of the costs of the tenant at VCAT. It relies, broadly, on the same matters that were put to Her Honour at trial.

34 The landlord submits that, in accordance with s 92 of the RLA, the Court should make no order for the payment of costs in the VCAT proceeding; or alternatively order that the landlord pay the tenant's costs incurred between 3 August 2020 and 25 August 2020, thrown away by reason of the matters disputed in the landlord's notice of dispute dated 3 August 2020, on the standard basis.

35 To establish that proceedings have been conducted vexatiously within the meaning of s 92 is a high bar. In Country Endeavours Pty Ltd v Casacir Pty Ltd, Emerton J made comments[21] since interpreted by later courts as authority that 'vexatious' involves an element of ulterior purpose.[22] In 24 Hour Fitness Pty Ltd v W&B Investment Group Pty Ltd, Hansen, Ferguson and McLeish JJA considered the authorities dealing with the word 'vexatious' and endorsed Deputy President Bowman's formulation in State of Victoria v Bradto Pty Ltd that a proceeding is conducted in a vexatious manner if:[23]

it is conducted in a way productive of serious and unjustified trouble or harassment, or if there is conduct which is seriously and unfairly burdensome, prejudicial or damaging.

36 Again, though unhelpful and frankly regrettable, the landlord's approach to the trial could not sensibly be described as productive of serious or unjustified trouble or harassment to the tenant; nor seriously and unfairly burdensome; and particularly not prejudicial or damaging. When the gravity of these descriptors is kept in mind, I do not consider that they can be applied to the landlord's conduct at trial.

37 The landlord's conduct in not admitting the ingresses until the first day of the trial was regrettable. It was a stubborn and unhelpful stance to take, and certainly not cooperative. However, in my view it falls short of conduct imputing to him an ulterior motive in his conduct of the defence of these proceedings, or conduct which has prejudiced or damaged or otherwise unfairly affected the tenant's position. This is all the more so where evidence of the ingresses was to reasonably form part of the tenant's case in any event, required as it was to prove that the ingresses amounted to a breach and were causative of loss.

38 Nor was the plaintiff's use of a notice to admit of any consequence. Notices to admit are not part of normal VCAT procedure; moreover, any cost consequences that might flow from the use of a notice to admit would in any event be subject to the restriction in s 92.

39 As I noted in my judgment, though the landlord's approach to litigation in taking numerous trivial points clouded the merits of its case and was productive of costs, perhaps going as far as to amount to an important costs consideration in a normal proceeding (indeed, I came to such a conclusion above with reference to the costs of the appeal), it is unlikely without more for it to be vexatious for a party to, however unfortunately, give an overbroad contest to a plaintiff's claims. I cannot equate forensic choices to bad faith on the part of the landlord.

40 The same can be said of the landlord's failure to accept the offer of compromise. Ultimately, that offer has turned out to be roughly equal to the value of the award of damages following the appeal; the landlord is to pay a little more, but not much more, than the offer of compromise. While this might be grounds in a standard proceeding for the award of costs under r 26, I cannot find that the failure to compromise is vexatious. As I stated in my first judgment in this matter, it is doubtful in the extreme whether a mere failure to accept an offer of compromise could amount to vexatious conduct. A preference to resolve a dispute litigiously is not, without more, unreasonable or productive of unfair burden.

41 I am not satisfied that the discretion in s 92(2)(b) is enlivened. Section 92(1) applies and it is proper that both parties bear their own costs of the VCAT proceeding.

I propose to make no orders as to the costs of the appeal. In addition, each party shall bear its own costs of the VCAT proceeding.

[1] Ajaimi v Giswick Pty Ltd [2022] VSC 131.

[2] Supreme Court Act 1986 (Vic), s 24.

[3] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 557 (Dawson J).

[4] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 86 [35] (Gaudron and Gummow JJ); Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, 519 (Mason and Deane JJ).

[5] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 97 [67] (McHugh J).

[6] Chen v Chan [2009] VSCA 233.

[7] O'Sullivan v Morton [1911] ArgusLawRp 38; [1911] VLR 249, 261 (Hodges J); Thiess v TCN Channel Pty Ltd (No 5) [1994] 1 Qd R 156, 208 (McPherson SPJ, Moynihan and Byrne JJ).

[8] Smith v Gould [2012] VSC 542, [11].

[9] BHP Billiton Iron Ore Pty Ltd v National Competition Council (No 2) [2007] FCA 557, [23].

[10] Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129, 152-4 (Kaye JA).

[11] In turn divisible, on the tenant's submission, into some 99 sub-grounds.

[12] The grounds of appeal frequently overlap, and the use of sub-grounds often rolls-up into a single ground issues on which the landlord failed and issues on which the landlord succeeded. Accordingly, it would be artificial and unhelpful to quantify the exact proportion of successful grounds.

[13] Of the annual rent for the 2012-13 period of $56,127.30, a quarter would be $14,031.83. Using the original rate of 54.23% applied by the Senior Member, the quarterly rent would be $7609.46. Using the updated rate on appeal of 21.67%, this amount would be $3040.70.

[14] Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 671. See also Mond v Berger [2004] VSC 150, [54] (Dodds-Streeton J).

[15] Australian Trade Commission v Disktravel [2000] FCA 62, [5] (French, Kiefel and Mansfield JJ).

[16] HP Mercantile Pty Ltd v Dierickx (No 2) [2012] NWSSC 1430, [32] (White J).

[17] Rosselli v Rosselli (No 2) [2007] VSC 438.

[18] Barbcraft Pty Ltd v Geobel Pty Ltd [2004] VCAT 747, [5].

[20] Wang v Yan (No 2) [2006] VCAT 236, [14] (Macnamara DP).

[21] [2013] VSC 22 at [49]: "In my view, there was evidence upon which the Tribunal could find that the enforcement proceeding was brought for an ulterior purpose and was vexatious".

[22] See, eg, Miller v Pickeriti Investments Pty Ltd [2020] VCAT 671; Mackie v Volkswagen Group Australia Pty Ltd [2019] VCAT 1363.

[23] [2015] VSCA 216, [4]; citing [2006] VCAT 1813, [67].