1. The respondent submits that when the proceeding was first filed, the applicant sought a declaration that the subject lease was a lease of retail premises under the Retail Leases Act 2003 (Vic) ('the RLA Act'). This contention was contested, with the result that the Tribunal determined, by way of a preliminary question, that the RLA Act did not apply. The determination of that preliminary question was heard on 16 November 2020, with orders pronounced on 3 March 2021.
2. Consequently, the respondent submits that as the proceeding was prosecuted under the RLA Act until 3 March 2021, s 92 of that Act applied prior to that date. That provision provides, in part, that there is to be no order for costs in a retail tenancy dispute under that Act, unless a party has acted vexatiously or refused to participate in a mediation or other form of alternative dispute resolution. Therefore, the respondent submits that there should be no order for costs up to and including 3 March 2021.
3. In relation to the applicant's submission that the respondent failed to make early concessions or admissions, the respondent submits that there is no requirement under s 109 of the Act that a respondent in hostile litigation make admissions at an early stage. The respondent further submits that the applicant has failed to rebut the statutory presumption that each party bear their own costs in proceedings before the Tribunal. It points to the following factors in support of that contention.

(a) The respondent cannot be criticised for putting the applicant to its proof.

(b) It was only after Mr Leonard's report was filed that the respondent was in a position to make concessions or confine its defence to those parts of the claim that were capable of challenge.

(c) The respondent should not be criticised for making a concession once proof was satisfied.

(d) There was some confusion as to whether the payments were made by the applicant or alternatively, by a related entity. This was not fully explained until after discovery was complete in February 2021.

1. In response to the respondent's submissions, the applicant further submits, in reply:

(a) First, it was reasonably arguable that the subject lease was governed by the provisions of the RLA Act. In its written Submission in Reply it states that this was a position previously advanced by the respondent:

(i) When the Lease was renewed pursuant to the deed of renewal and variation dated 18 March 2010, the respondent provided the applicant with a signed disclosure statement under the provisions of the Retail Leases Act 2003 (Vic) ("RLA");

(ii) On 4 August 2015 the respondent, through its former solicitors Thomson Geer applied to the VSBC for mediation under the RLA in respect of a dispute over a rent review. In its application, the respondent stated: "The landlord has given the tenant notice of the dispute, the fact that the landlord considers the Retail Leases Act 2003 to apply and that the dispute should be the subject of a mediation before the VSBC.

(b) Second, there is no authority supporting the proposition that leases which are found not to be retail premises are to be subject to the prohibition in s 92 of the RLA.

(c) Third, the applicant learned the respondent had conceded the majority of the ESM claim by way of the respondent's written opening filed one day prior to the hearing. The applicant does not criticise the respondent for making the concession but rather, criticises the respondent for making the concession late.

(d) Fourth, there is no proper basis for the non-admission of several aspects of the ESM claim. Consequently, putting the applicant to prove all aspects of the ESM Claim was disingenuous and demonstrated a lack of good faith.

1. In the often cited passage of Gillard J in Vero Insurance Ltd v The Gombac Group Ltd [2007] VSC 117, his Honour stated:

[20] In approaching the question of any application for costs pursuant to s.109 in any proceeding in VCAT, the Tribunal should approach the question on a step by step basis as follows:

(i) The prima facie rule is that each party should bear their own costs of the proceeding.

(ii) 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.

(iii) 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.

1. In Fasham Johnson Pty Ltd v Ware,[1] the Tribunal stated:

[12] Costs are discretionary and it is in the nature of an exercise of discretion that its exercise one way or another cannot be compelled. And under s 109 success in a proceeding does not by itself justify an order for costs. Something further must be shown.

1. I accept what was said by the Tribunal in Fasham Johnson. The mere fact that a party succeeds in a proceeding does not, of itself, mean that costs will follow the event.
2. The ESM Claim initially comprised 171 items, particularised in Annexure to the applicant's Points of Claim. The total claim amounted to $119,446.37. As indicated above, given the uncertainty as to the application of the Limitation of Actions Act 1958, only line items numbered 55 to 171 were considered. The amount claimed for those line items was $78,107.46. Ultimately, $49,972.89 was ordered in favour of the applicant. In other words, approximately 64 percent of what was claimed was found proven.
3. A large component of the ESM Claim related to invoices levied by Otis Elevator Company. The applicant was unable to adduce specific evidence identifying what component of those invoices related to maintaining ESMs, compared to general maintenance of the elevator system. Ultimately, the applicant conceded that only 20 to 25 percent of the aggregate expenses were likely to be related to maintaining the ESMs. This concession was made during the course of the hearing.
4. I accept that there are aspects of the ESM Claim that could have been conceded early in the proceeding. However, there are other aspects which clearly could not. In my view, it was not unreasonable for the respondent to require the applicant to prove all aspects of the ESM Claim. The fact that some aspects could have been conceded did not, in my view, materially add time or increase the costs of litigation.
5. Having regard to the factors set out in s 109(3) of the Act, and noting those factors highlighted by the applicant, I am not persuaded that it would be fair to order costs against the respondent, insofar as the claim related to reimbursement of expenses associated with maintaining the ESMs. In that regard, I do not accept that a party should be ordered to pay the costs of another party, merely because it belatedly conceded critical aspects of the claim made against it. Rather, parties should be encouraged to concede aspects of a claim, even if a concession is made late in the proceeding. In this case, the concession made by the respondent, albeit late, still significantly reduced the hearing time.
6. Therefore, I will make no order that the respondent pay the applicant's costs of and associated with prosecuting the ESM Claim.

(a) that on 16 December 2020, the applicant and the respondent entered into an agreement for rent relief ('the Agreement'), within the meaning of that phrase as stated in reg 10(6) of the COVID Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 ('the Regulations');

(b) the Agreement provided, inter alia, that 30 percent of the rent payable over the nine months from April to December 2020 was deferred and payable in six monthly instalments commencing on 1 January 2021;

(c) by reason of the Agreement deferring the payment of rent over a nine-month period, the term of the subject lease between the parties is extended by nine months, pursuant to reg 13 of the Regulations.

1. As reflected in the extract of my orders dated 13 May 2022, the claim for an extension of the lease term was premised on the respondent having given the applicant rent relief, in the form of a deferral of rent and pursuant to reg 13 of the COVID Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 ('the Regulations'). Regulation 13 expressly provides that a lease term is to be extended for a period equivalent to the period for which rent is deferred (unless the parties otherwise agree).
2. In opposing the Lease Extension Claim, the respondent raised three defences:

(a) First, it contended that the evidence did not establish that the applicant was an SME.

(b) Second, even if the Regulations were invoked, any agreement to rent relief was subject to documentation and not binding until recorded in an executed deed, which the respondent argued did not occur.

(c) Third, all of the agreed rent relief was in the form of a waiver, with no deferral of rent contemplated. Therefore, reg 13 of the regulations did not apply.

1. Ultimately, I found that there was sufficient evidence establishing that the applicant was an SME. Principally, there was evidence in the form of correspondence from the applicant's accountants to that effect.
2. I also found that the agreement for rent relief reflected a concluded agreement that was not conditional upon the parties executing a deed. I made that finding partly because I found that the documents produced during the course of the proceeding were consistent with that proposition.
3. In relation to the third aspect of the respondent's defence, the respondent sought to categorise the obligation to repay arrears of rent, amortised over future dates, as repayment of a debt. Again, I did not accept that proposition. I considered that this proposition was inconsistent with some of the documentation produced during the course of the proceeding and further, was no different to the action of deferring rent, notwithstanding that it was categorised differently.

1. The applicant submits that its costs in prosecuting the Lease Extension Claim should be paid by the respondent on a standard basis up until 7 March 2022. After that date, it submits that all of its costs should be paid pursuant to s 112 of the Act (see below).

1. The applicant submits that it was patently obvious that the applicant was an SME entity based upon documentation exchanged between the parties and confirmed in a letter from the applicant's accountants dated 12 May 2020. It submits that it was put to additional expense in having to prove this fact during the course of the hearing.
2. The applicant further submits that the respondent's denial of the agreement for rent relief and specifically, that the parties agreed that rent (in arrears) was to be deferred, was disingenuous, especially when one considers the exchange of correspondence between the parties. It contends that this is a relevant factor to take into consideration as it reflects the relative strength of the applicant's claim vis-à-vis the untenable grounds raised in the respondent's defence.
3. Further, the applicant says that on 18 May 2021, it made a written offer to the respondent that it would accept a lease extension of six months rather than nine months ('the First Offer'). The applicant submits that the First Offer is further factor in favour of the Tribunal ordering the respondent to pay the applicant's costs relating to the Lease Extension Claim.

1. The applicant submits that on 7 March 2022, it served on the respondent a letter of offer to settle the Lease Extension Claim ('the Second Offer'). The Offer stated that the applicant was prepared to resolve the Lease Extension Claim on the basis that the respondent granted an eight month extension of the lease and make an admission with respect to those matters identified in the Offer. The Offer was also inclusive of costs. The applicant submits that the Offer complies with s 112 of the Act.
2. Section 112 of the Act states:
   1. Presumption of order for costs if settlement offer is rejected

(a) a party to a proceeding (other than a proceeding for review of a decision) gives another party an offer in writing to settle the proceeding; and

(b) the other party does not accept the offer within the time the offer is open; and

(c) the offer complies with sections 113 and 114; and

(d) in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.

(2) If this section applies and unless the Tribunal orders otherwise, a party who made an offer referred to in sub-section (1)(a) is entitled to an order that the party who did not accept the offer pay all costs incurred by the offering party after the offer was made.

(3) In determining whether its orders are or are not more favourable to a party than an offer, the Tribunal-

(a) must take into account any costs it would have ordered on the date the offer was made; and

(b) must disregard any interest or costs it ordered in respect of any period after the date the offer was received.

(4) If offer provides for the payment of money, the offer must specify when the money is to be paid.

1. Consequently, the applicant submits that it is entitled to all of its costs being paid by the respondent from the day the offer was served.

1. The respondent submits that it was entitled to put the applicant to its proof on its status as an SME. Further, it submits that the mere fact that the applicant succeeded in proving the Lease Extension Claim, of itself, is not grounds to displace the usual rule that each party bear its own costs.
2. In relation to the First Offer, the respondent submits that the First Offer should not displace the no-cost rule. In its Reply Submissions, the respondent states:

... By offering to accept a 6-month extension of the lease instead of a 9-month extension, the applicant was not offering a genuine compromise but was seeking close to complete capitalisation on the extension of lease in circumstances where the respondent maintained, on good arguable grounds, that no extension had been agreed to. In any event, if the Tribunal finds that there is a sufficient element of compromise in that offer, it is not sufficient to render the respondent's refusal to accept that offer so unreasonable as to displace the no-costs rule.

1. The respondent submits that the Second Offer does not purport to be an offer under s 112 of the Act. Specifically, the respondent points to s 114 of the Act, which requires that an offer under s 112 must remain open for a minimum period of 14 days. The respondent submits that the offer was open for just over one business day. Therefore, it was not a compliant offer and at best, could only be categorised as a Calderbank offer.
2. The respondent further submits that in the present case, the Second Offer is not sufficient to displace the no-cost rule in s 109 of the Act because:

(a) it does not offer to resolve the ESM claim,

(b) it was made just before trial, with very little time to accept; and it was not unreasonable to reject the offer.

1. The applicant submits that even if the Second Offer was categorised as a Calderbank offer, it still provided the respondent opportunity to confine the issues in dispute and save both on preparation and hearing time. Further, the Second Offer was made once the respondent was already in possession of all of the applicant's evidence and written submissions and therefore, presumably, fully appraised of the strength of the applicant's claim.

1. As I have indicated above, the position taken by the respondent in relation to the Lease Extension Claim is at odds with several documents exchanged between the parties prior to this proceeding being filed. Specifically, the fact that the respondent had, during the course of the dispute between the parties, also offered rent relief is inconsistent with the position taken by it during the course of the hearing; namely, that the applicant was not an SME entity. Further, the respondent's failure to expressly require the parties to execute a deed, as a precondition to any concluded agreement, is also inconsistent with the position adopted during the course of the litigation. It is also inconsistent with some of the language used by the respondent in corresponding with the applicant, such as: 'good to have the deal done ...".
2. In my view, the grounds raised in defending the Lease Extension Claim were not particularly strong and I consider this to be a factor to take into consideration under s 109(3)(c) of the Act.
3. Further, I also consider that the First Offer is another factor to take into consideration. Clearly, had that offer been accepted by the respondent, the issues in dispute could have been narrowed considerably.
4. I accept the respondent's submission that the Second Offer is not a compliant offer, for the purposes of 112 of the Act. That Second Offer is, in substance, a Calderbank offer. Nevertheless, it is still relevant in determining this application for costs.[2]
5. In Peet v Richmond, Hollingworth J stated:

[170] However, an imprudent refusal of an offer of compromise may be sufficient to justify an award of costs on a special basis. The question must be whether the particular facts and circumstances of the case, as they tested at the time the offer was refused, justify an award other than on a party-party basis.[3]

1. In my opinion, the inconsistency between documents produced in the proceeding and the position adopted in the defence to the Lease Extension Claim; and the fact that the claim could have been resolved almost 12 months prior to the hearing of this proceeding or at the latest, shortly before the hearing are factors which favour an order for costs.
2. I am satisfied having regard to s 109(3) of the Act that is fair in the circumstances to exercise the Tribunal's discretion under s 109(2) and order that the applicant's costs associated with prosecuting the Lease Extension claim should be paid by the respondent. However, I am not persuaded that that a special costs order should be made. The costs should either be agreed between the parties or failing agreement, assessed on a standard basis in accordance with the County Court Scale of Costs. I will make orders to that effect.

1. The applicant seeks an order that the respondent pay interest by way of damages on the amount awarded in its favour. It relies upon s 184(2)(b)(ii) of the Australian Consumer Law and Fair Trading Act 2012 (Vic) ('the ACL Act'). That provision states, in part:

184 Settlement of consumer and trader disputes or small claims

(1) VCAT may hear and determine a consumer and trader dispute.

(2) VCAT may do one or more of the following in relation to a consumer and trader dispute -

(ii) by way of damages (including exemplary damages and damages in the nature of interest);

(4) In awarding damages in the nature of interest, may base the amount awarded on the interest rate fixed from time to time under section 2 of the Penalty Interest Rates Act 1983 or on a lesser rate it thinks appropriate

1. It is well settled that a commercial lease dispute, such as what is currently before the Tribunal, falls within the definition of a consumer and trader dispute.[4]
2. The applicant has calculated interest at the rate determined by s 2 of the Penalty Interest Rates Act 1983 from the date of each item of expenditure found to be proven under the ESM Claim, in the amount of $18,977.91; or alternatively, from the date the proceeding was issued on 19 May 2020 in the amount of $10,246.22.
3. The respondent submits there should be no order for interest. Alternatively, it argues that if interest is to be ordered then it should be calculated from the date the proceedings were issued and be fixed at a lower rate than the rate fixed by the Penalty Interest Rates Act 1983. In that regard, the respondent contends that the appropriate rate of interest should be commensurate with the amount of interest payable on fixed term deposits by the Commonwealth Bank of Australia, which it says is 2 percent as at 10 June 2022.
4. The respondent raises several grounds in support of its contention that no interest should be ordered. Specifically:

(a) It was open for the applicant to resort to a self-help remedy and deduct the expenses associated with maintaining ESM's from rent, pursuant to s 251(2)(b) of the Building Act 1993. That provision allows a tenant to set off ESM expenses against rent.

(b) Rather than resorting to the self-help remedy, the applicant allowed ESM expenses to accrue over a number of years.

(c) There is no automatic right or entitlement to interest.

(d) Interest in the nature of damages connotes a Hungerfords type claim. Therefore, it is incumbent upon the applicant to prove loss and to mitigate damages.

(e) In Caldwell v Chueng,[5] the Tribunal ordered interest at a lesser rate.

1. In reply to the respondent's submissions, the applicant submits that there are several decisions of the Tribunal where interest has been awarded pursuant to the rate fixed by s 2 of the Penalty Interest Rates Act 1983, contrary to the Tribunal's determination in Caldwell v Cheung. Further, the applicant says that it has been out of pocket for considerable time and has not had the use of monies expended in the maintenance of the ESM's.
2. The applicant further submits that the rate fixed under s 2 of the Penalty Interest Rates Act 1983 at the time when Caldwell was determined was 11 percent. The amount awarded, adopting the fixed term deposit rate, was 7.5 percent, being a difference of only 3.5 percent. However, if the current fixed term deposit rate was applied, there would be a difference of 8 percent, which would be manifestly unfair.
3. Finally, the applicant submits that under clause 2.1.10 and Item 14 of the lease between the parties, the nominated interest rate on overdue monies was to be the penalty interest rate as fixed from time to time.

1. The Tribunal has discretion to order interest, be it pursuant to the Penalty Interest Rates Act 1983 or on some other basis. However, one cannot assume that interest will be ordered as a right. A number of factors will be considered by the Tribunal in the exercise of its discretion. For example, in Asham v Carroll[6] the Tribunal refused to order interest because there was no provision for the payment of interest in the contract between the parties. In Bellcon Developments Pty Ltd (in liquidation) v Dardha[7] the Tribunal refused to order interest because the owners had fair reason to challenge the builder's claim and that challenge was partly successful.
2. In my view, it is appropriate and fair to order interest on the judgment sum at the rate fixed under s 2 of the Penalty Interest Rates Act 1983. In that respect, I accept the applicant's submission that the applicant has been out of pocket for a considerable period of time. I do not accept that recourse to the self-help remedy of setting off those expenses against rent was a feasible option, given the disputation between the parties and the fact that the respondent had not conceded liability or the quantum of the ESMs prior to this proceeding being filed.
3. Although not determinative, I consider the fact that the lease contemplated interest on late payments to be fixed at the rate under the Penalty Interest Rates Act to be a further factor favouring interest being calculated according to that rate. In my view, this factor indicates that the parties turned their minds to what should happen if payments under the lease were not made on time. Although the clause in the lease relates to the situation where the applicant tenant is late in making a payment, I consider that the incorporation of that clause within the lease reinforces the proposition that it would be fair to apply the same principal to the reverse situation.
4. However, I do not accept that interest should be calculated from the date each item of expenditure. Although not binding on the Tribunal, s 60(1) of the Supreme Court Act 1986 is a relevant factor to consider. It provides:

60. Interest in proceedings for debt or damages

(1) The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interests Rate Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.

1. I see no reason why the Tribunal would depart from the practice applicable to the Supreme Court and order damages in the nature of interest from a date that precedes the commencement of the proceeding. Accordingly, interest will be calculated from 19 May 2020. As indicated above, the applicant has calculated interest in the sum of $10,246.22. The respondent does not contest that calculation. I will order interest of that amount.

[1] [2004] VCAT 1708.

[2] Hazeldene's Chicken Farm Pty Ltd Victorian WorkCover Authority (No 2) [2005] VSCA 298; Velardo v Andonov [2009] VSCA 38.

[3] [2009] VSC 585, [170].

[4] Zeus & Ra Pty Ltd v Nicolaou [2003] VSCA 11; (2003) 6 VR 606 (which related to fair trading dispute under the Fair Trading Act 1999)

[5] (Domestic Building ) [2008] VCAT 1794.

[6] [2007] VCAT 661.

[7] [2013] VCAT 641 at [3-10].