Veljanovski v Tortorella Pty Ltd; Tortorella Pty Ltd v Veljanovski

The cost application

1. The sublessee requests a gross sum order that the sublessor pay it $8,119.93 inclusive of GST. The tax invoice from the sublessee's solicitor reveals that this is the total amount of legal fees payable by the sublessee, including party party and party client fees, thus the application is for indemnity costs.
2. The sublessee made the cost application pursuant to s.60 of the Civil and Administrative Tribunal Act 2013.
3. The sublessor submits each party should pay their own costs. The sublessor made submissions about discretionary considerations, and about the success of each party, but did not address whether special circumstances exist. The sublessor was silent about whether the Tribunal should be considering the cost decision on the basis of s.60 or Rule 38.
4. The questions for the Tribunal are therefore: 1. Whether special circumstances exist such as to warrant an award of costs in the sublessee's favour? 2. Whether indemnity costs are warranted? 3. Whether the sublessee is entitled to a gross sum order?

Summary of relevant principles

1. The general rule in relation to costs in the Tribunal is that unless special circumstances are established, the parties pay their own costs: s 60(1) and s 60 (2) of the NCAT Act.
2. Section 60(3) provides: (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following: (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36 (3), (g) any other matter that the Tribunal considers relevant.
3. "Special circumstances" are circumstances that are out of the ordinary. They do not have to be extraordinary or exceptional: Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120 at [11], citing Santow JA in Cripps v G & M Mawson [2006] NSWCA 84 at [60].
4. The expression "no tenable basis in fact or law" relates to the common law tests developed and applied in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. For a claim to have no tenable basis in fact or law it must be so obviously untenable that it cannot possibly succeed: General Steel at 130. "Manifestly groundless" or "clearly untenable" are equivalent expressions.
5. The following from Zucker v Burbank Montague Pty Ltd [2018] NSWCATAP 135 from [49] to [52] explains the phrase "lacking in substance": In The Owners Corporation of Strata Plan 4521 v Zouk & Anor [2007] NSWCA 23I (Zouk), Ipp JA considered the meaning of the phrase "lacking in substance" in the context of s 192 of the 1996 SSM Act. The proceedings in the Court of Appeal concerned the Consumer, Trader and Tenancy Tribunal's power to make an order for costs following the dismissal of an appeal against adjudicator's orders. Section 192 provided: The Tribunal may not make any order for the payment of costs except as specifically authorised by this Act or in relation to an order dismissing an application or appeal because: (a) the application or appeal is frivolous, vexatious, misconceived or lacking in substance, or (b) a decision in favour of the applicant or appellant is not within the jurisdiction of the Tribunal. Ipp JA stated, at [45]: …. It would be inappropriate, given the extraordinary powers triggered by a finding that an application is lacking in substance, to attribute to the phrase a meaning other than "not reasonably arguable". That is, a meaning not dissimilar to "frivolous, vexatious, misconceived", the words which precede the phrase. As was the case in Zouk, when determining the substantive application, the Tribunal in this case did not find that the application was lacking in substance. However, Ipp JA stated that the Tribunal could make an order for costs under s 192 even though it had not expressly stated that the appeal was dismissed for this reason. Ipp JA stated, at [38]: 38 In determining whether to make an order for the payment of costs, the Tribunal must consider (and make a finding) whether the appeal was frivolous, vexatious, misconceived or lacking in substance, or whether a decision in favour of the appellant was not within its jurisdiction. On general principle, that finding cannot be inconsistent with the reasons given by the Tribunal for the dismissal of the appeal. The law would not tolerate inconsistent findings by the same tribunal relating to the same subject matter in dispute. We are satisfied that the same reasoning applies in determining a costs application under s 60 of the NCAT Act: that is, special circumstances may be established because a claim is lacking in substance, even if such a finding was not expressly made in determining the substantive application. However, such a finding cannot be inconsistent with the reasons given for dismissing the application
6. The following passage sets out the circumstances which justify a gross sum costs order, from Zucker at [69] to [71]: In Hamod v State of New South Wales (No 13) [2009] NSWSC 756 (5 August 2009), Harrison J cited Einstein J's summary of the relevant principles in Idoport Pty Limited v Donald Robert Argus [2007] NSWSC 23, at [9]: [9] For present purposes it seems convenient to commence with a recitation of the principles which inform the exercise of the discretion: i. the purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum NL v Johnson (1995) 57 FCR 119, Von Doussa J page 265: [following Purchase J in Leary v Leary [1987] 1 All ER 261 who described the purpose of the rule allowing the fixing of a gross sum as 'the avoidance of expense, delay and aggravation involved in protracted litigation arising out of taxation' (All ER page 265)]; ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at [16]; iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738, per Giles JA at para [22]; [following (Wentworth v Wentworth (CA, 21 February 1996, unreported, per Clarke JA) and adopted in Sony Entertainment v Smith (2005) 215 ALR 788; [2005] FCA 228; BC200500963 at para [199]; iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at para [22]; v. the gross sum 'can only be fixed broadly having regard to the information before the Court': Beach Petroleum at 124; [In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum 'only if I apply a much broader brush than would be applied on taxation, but that ... is what the rule contemplates'.] vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No.2) (1995) 57 FCR 119 at 120'; vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No 2) (1995) 57 FCR 119, put the matter as follows, at paras [16]: 'On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary 'fail safe' discount on the cost estimates submitted to the Court: Leary v Leary at 265.' ... These principles were referred to by the NSW Court of Appeal in Bechara trading as Bechara and Company v Bates [2016] NSWCA 294, which stated, at [12] to [14]: 12. The power to award a lump-sum should only be exercised when the Court considers that it can do so fairly between the parties and where an appropriate sum can be determined from the available materials: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at 742-723 [21]-[22]; Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123. 13. The power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Hamod v New South Wales [2011] NSWCA 375 at [818] per Beazley JA (Giles and Whealy JJA agreeing). 14. A "broad brush" approach is appropriate. To require the same or similar level of detail as in a formal costs assessment would defeat the purpose of the lump sum order: Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1; [1999] FCA 673 at 5 [16]; Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 at [7]. 15. The courts have typically applied a discount in assessing costs on a gross sum basis: Hamod v New South Wales at [814]. As noted by an Appeal Panel in Bonita v Shen [2016] NSWCATAP 159 at [80], [T]here is no general obligation upon the Tribunal to obtain evidence of costs for the purpose of making a ruling as to which party should pay costs and what order should be made. Such an obligation would only arise in circumstances where the Tribunal proposed to fix the amount of costs and/or make a money order for the amount. (Emphasis added)
7. The following from Paraskevopoulos v Bajic (No. 2) [2018] NSWCATCD 40 at [17] - [19], [21] and [26] - [28] is relevant to the question of indemnity costs: As the Appeal Panel has observed, the Tribunal's discretion to award indemnity costs is exercised in limited circumstances and it must be the subject of careful reasoning: see Mendonca v Tonna [2017] NSWCATAP 176 at [59] - [60], [62] - [64] and the cases cited therein by the Appeal Panel. When costs follow the event, as I have decided they should in the three proceedings, then usually they are awarded on the ordinary basis. In Oshlack at [44], Gaudron and Gummow JJ stated that before the Court can order indemnity costs, it is necessary to find what their Honours described as: "some relevant delinquency on the part of the unsuccessful party". As McHugh J explained in the same case at [67], the indemnity costs order is made not to punish the unsuccessful party but because "[a]s between the parties, fairness dictates that the unsuccessful party" should bear those additional costs. Where Indemnity costs are ordered based upon a "relevant delinquency" it is normally a case of misleading a court or tribunal, or bringing proceedings for collateral or ulterior purposes and not for the purposes of having a court or tribunal adjudicate on the issues to which they give rise, or if, irrespective of the motive of the litigant, they are so obviously untenable or manifestly groundless as to be utterly hopeless: Wentworth v Rogers [1999] NSWCA 403; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; Cultus Petroleum v OMV Australia [1999] NSWSC 435. … However, a further basis (other than as stated above) on which an order for costs on the indemnity basis may be made is where during the course of proceedings an offer of compromise was made which was no worse than the result ultimately achieved by the party against whom the indemnity costs order is sought. … The general function of a letter containing a Calderbank offer is to promote settlement of disputes, in addition to its more particular application in claims for indemnity costs: Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481, [12]. I find that the amount ($86,431.52) ultimately awarded by the Tribunal in the proceedings constituted by File Nos. HB 17/21112 & HB 17/40804 was considerably higher than the settlement sums, $25,000.00 and $65,000.00, respectively, contemplated by the January Calderbank offer in the proceedings constituted by File Nos. HB 17/21112 and 17/40804, and the February Calderbank offer, and further that the settlement sums represented significant compromises on the home owners' part. Nevertheless, the making of a Calderbank offer does not automatically result in a favourable costs order, even if the ultimate judgement of the Tribunal is more favourable to the party making the offer than the terms of the offer. The party making a Calderbank offer still carries the onus of satisfying the Tribunal that it should exercise the discretion as to costs in that party's favour: Jones v Bradley (No 2) [2003] NSWCA 258, [5]; Old v McInnes and Hodgkinson [2011] NSWCA 410, [22]. Furthermore, in determining whether to make an indemnity costs order pursuant to a Calderbank offer, the Tribunal is to have regard to the relevant principles identified in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Miwa Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344, and Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816. Such principles are: (i) There must be a real and genuine element of compromise; (ii) The refusal must be unreasonable; (iii) The reasonableness in rejecting an offer must be considered at the time the offer is made, not with the benefit of hindsight; (iv) Relevant factors in relation to whether the rejection was reasonable include the stage of the proceedings at which the offer was received, the time allowed to consider the offer, the extent of compromise offered, the offeree's prospects of success (assessed at the date of the offer), the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event of rejection.

Whether special circumstances exist?

1. The Tribunal accepts that the sublessee sought the mediation through the Registrar Retail Tenancy Unit to achieve "this dispute to be resolved by having the bond returned to me in full by the Landlord": Application for Mediation form to the Small Business Commissioner attached to the sublessee's Tribunal application, pager 8 of 9. The Tribunal accepts that, at the time of the mediation, the rent paid in advance, namely $17,636.67 was considered to be the bond. This is clear from the evidence and submissions in the substantive applications, as well as the Application for Mediation form. In the part of the form entitled "What is the dispute about? What issues would you like to raise at mediation?" the sublessee did describe the $8,500 of work he did at the request of the sublessor, which the Tribunal agreed the sublessor was not entitled to have performed by the sublessee (but the Tribunal nonetheless declined to order that the sublessor repay the sublessee for those improvements voluntarily done upon the request of the sublessor), but this was raised as "some key points of concern" not as a claim that, at that time, the sublessee wanted the sublessor to repay. The mediation was clearly for the return of the sublessee's bond, or rent paid in advance in the amount of $17,636.67.
2. This offer made through the Small Business Commissioner was rejected by the sublessor, as the sublessor refused to even attend the mediation, let alone repay the rent/ bond.
3. The Tribunal finds that the offer made through the mediation application is the same as the ultimate outcome of the two Tribunal proceedings, determined 6 months after the certificate issued by the Registrar that the mediation offer had been rejected. It is relevant that the sublessor acknowledged that he must repay the two months rent in advance but claimed he was owed far more than this from the sublessee and on that basis, felt justified in keeping the bond/rent to offset what he considered, wrongly, he was owed.
4. The Tribunal accepts the sublessee's submission that, had the mediation taken place and the sublessor agreed to repay its bond/advance rent, it would not have commenced the Tribunal proceedings. However there is no guarantee the sublessor would have agreed during mediation to repay the bond, as he had refused to do so between the sublessee vacating the premises and the mediation date. In these circumstances it is difficult to conclude that the sublessor was responsible for prolonging unreasonably the time taken to complete the proceedings. Certainly nothing that occurred after the Tribunal proceedings were commenced supports this finding.
5. The Tribunal agrees with the sublessee's submissions that the sublessor's claim lacked substance and, on the limited, weak evidence relied upon to support his claim, had no tenable basis in fact or law. The sublessor's claim could not possibly succeed on the evidence and submissions put forward in support of it.
6. The Tribunal does not accept that the two cross claims involved complex questions of fact or law.
7. The rejection of the offer for mediation, which the sublessee sought to obtain the return of his bond only, and the "manifestly groundless" or "clearly untenable" sublessor claim are sufficient to find special circumstances that warrant an award of costs in the sublessee's favour. This is particularly so given the relative strength of the two competing claims; the sublessee's claim was largely successful, the return of his bond/ advance rent, and the claim to be repaid for the restoration he unnecessarily did at the direction of the sublessor was not groundless or hopeless, but was ultimately unsuccessful because of the application of certain legal principles.
8. These factors combine to make the circumstances out of the ordinary and the sublessee should be entitled to have its legal costs paid by the sublessor.

Whether the sublessee is entitled to indemnity costs

1. Neither party used the phrase indemnity costs but that is what is being sought by the sublessee.
2. The Tribunal does not find that the sublessor mislead the Tribunal, or brought proceedings for collateral or ulterior purposes. The Tribunal did find that, on the limited, weak evidence relied upon by the sublessor, his claim was so obviously untenable or manifestly groundless as to be utterly hopeless. However on this basis alone the Tribunal would not award indemnity costs, especially in circumstances whereby a party relied on this finding to justify a finding of special circumstances where the starting point is each party pay their own costs.
3. The further basis on which an order for costs on the indemnity basis may be made does not apply, as an offer of compromise was not made during the course of proceedings which was no worse than the result ultimately achieved by the party against whom the indemnity costs order is sought. The mediation came before the proceedings were commenced and the offer made in the mediation process was not a Calderbank offer.
4. The Tribunal finds no basis upon which to order the sublessor pay the sublessee's legal costs on an indemnity basis and declines to do so.

Whether the Tribunal should make a gross sum order

1. These proceedings were commenced and concluded without undue delay or difficulty. There is no evidence that a gross sum order is required to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation. If the parties cannot agree on a figure, the sublessee will have to submit his two page tax invoice to the assessor who will then determine the amount the sublessor has to pay it.
2. The tax invoice has not been spilt into party- party and party- client costs so the gross sum assessment would be similar to that involved in a traditional taxation or assessment of costs. The Tribunal is unwilling to undertake that process.
3. While the parties were given the opportunity to make submissions the sublessor did not make any submissions about the request for a gross sum order, other than submitting GST is not allowable and questioning the reasonableness of the disbursements claimed. In the circumstances the Tribunal does not consider it can award a lump sum amount fairly between the parties. There is no evidence, or submissions, about how much the Tribunal should discount the total costs so that they are on the ordinary basis.
4. In all these circumstances the Tribunal declines to exercise its discretion to make a gross sum order and instead orders that the sublessor pay the sublessee's legal costs on an ordinary basis as agreed or assessed. This order covers the costs of both proceedings, heard and determined together.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 March 2022