Victorian Education Foundation Ltd v Brislugan Pty Ltd (Retail Tenancies) [2009] VCAT 317

1. The proceeding is dismissed.
2. No order as to costs.

1. Victorian Education Foundation Ltd is lessor in a retail lease relationship with Brislugan Pty Ltd.
2. In accordance with the terms of the Retail Leases Act 2003 the Victorian Small Business Commissioner who is a joined party in this proceeding appointed Mr Warren F. Young to fix the rental payable under the relevant lease. Victorian Education Foundation Ltd was dissatisfied with the manner in which Mr Young proposed to fix the rental. In particular it objected to Mr Young's proposal to factor in the trading results of Brislugan Pty Ltd. It seems that Victorian Education Foundation's first move was to seek a direction on the point from the Small Business Commissioner. The Commissioner in my respectful opinion, quite rightly, said that his role was exhausted when he nominated an expert to value and that he had no power or authority to supervise or direct the manner in which the valuation was to be carried out.
3. Victorian Education Foundation then commenced the present proceeding joining Brislugan and Mr Young as respondents and seeking injunctive relief to restrain Mr Young from carrying out his rental fixation assessment in the manner which it seems he proposed to do.
4. When the matter came on for hearing before me upon an application for interim or interlocutory injunctive relief on 12 November 2008 at the suggestion of Brislugan Pty Ltd, the Small Business Commissioner was joined as a party. Because Mr Young did not propose pending the Tribunal's determination to make his rental assessment directions were given to the filing of witness statements and related materials and the matter was fixed for hearing today on a one day basis. It appeared at that stage that the proceeding would, if you will, be a high profile test case in the retail tenancies jurisdiction and it was proposed that the doyen of the jurisdiction and the author of the standard work on the statue and its predecessors, Dr Croft, would hold the leading brief for the Commissioner.
5. According to material filed by the solicitor for Victorian Education Foundation Ltd, when his client received the material both filed on behalf of Brislugan Pty Ltd and perhaps more significantly on behalf of the Small Business Commissioner, the principal of Victorian Education Foundation following consultation with the company's legal advisers elected in effect to bail out Mr Hay who holds the brief for Victorian Education Foundation transmitted immediate e-mails once the decision had been made to the other counsel involved. Ultimately the counsel representing the Small Business Commissioner agreed to consent on behalf of his client to orders that the proceeding be dismissed with no order as to costs.
6. Counsel for Brislugan, Mr McKenzie demured however. He responded to Mr Hay by e-mail in the following terms:

I have passed on the substance of your note and the client witness and solicitors are all now aware of the outcome.

I does strike me our client has been put to considerable expense with the preparation and witness report and the like.

If the matter had gone to SBC for a mediation and a consideration of the issues the level of expense may have been considerably less.

I expect instructions to seek costs, or at least a contribution to costs.

I am aware of the impact of section 92 and the Bowman decision in the St Kilda triangle case ... as will Sam Hopper ... [Mr Hopper holds the brief today for the Small Business Commissioner].

Perhaps you could let me know if you are able to make any proposal. I will seek a figure from my instructor.

1. It seems that no concession was offered by Mr Hay so the matter was listed before me today with Mr Hay on behalf of the applicant and Mr Hopper on behalf of the Commissioner agreed as to the form of orders which should be made and Mr McKenzie on behalf of Brislugan seeking an order for costs.
2. At an earlier stage today Brislugan was also seeking certain orders or quasi orders as to the appropriate conduct of the rental fixation procedure. I indicated first, that in my view, there was difficulty in granting Brislugan any form of relief or even quasi order given that the proceeding was instituted by Victorian Education Foundation and there was no counterclaim or cross-claim by Brislugan. Secondly I observed that a dismissal simpliciter would create a res judicata. In light of those comments no application was pressed for any sort of order or quasi order as to the substance of the matter in favour of Brislugan but Mr McKenzie seeks an order that Brislugan's costs be met by Victorian Education Foundation. The parties are agreed that the proceeding will be dismissed and I consider the costs application against that background.
3. Mr McKenzie made a number of points, first he said that his client was, if you will, the meat in the sandwich. The substance of the dispute he said was between Victorian Education Foundation and Mr Young. It was unfair in those circumstances for his client to be dragged into the Tribunal proceeding, required to incur costs and then be left lamenting when Victorian Education Foundation thought better of pressing on in its claim. Secondly, he was critical of the manner in which the matter was brought on in the Tribunal. The orthodox means of seeking to resolve retail lease disputes is to have them referred first to the Small Business Commissioner so that a mediation or other form of alternative dispute resolution may be instituted under the auspices of the Commissioner. Only once that procedure has been exhausted in one way or another does the matter come to the Tribunal subject to a certificate from the Commissioner. Here, an exception to that general rule was invoked because injunctive relief was sought. That being the case said Mr McKenzie, unnecessary legal costs had been incurred in circumstances where the matter could have been resolved by mediation.
4. Next, he said in a general sense it was vexatious on the part of Victorian Education Foundation to have everyone in the starters gate, under starters orders having done all that was necessary to bring this matter to a final hearing including obtaining expert reports, preparing witness statements and the like and then call the whole thing off. This was unfair, it was offensive to good conscience to leave his client unprovided for in those circumstances.
5. Mr Hopper on behalf of the Commissioner, in the circumstances elected to make no submissions on the costs application and given that the costs application was not directed to his client, Mr Hopper's refusal in the circumstances was appropriate and justified.
6. Mr Hay on behalf of Victorian Education Foundation opposed the making of any order. He said that the matter was governed by Section 92 of the Retail Leases Act and that in the circumstances no costs order could be made unless it was demonstrated that his client had conducted the proceeding in a vexatious manner. The only element of vexation relied upon he said was that upon mature consideration of the material urged against it, Victorian Education Foundation had elected not to go on.
7. Mr Hay said that had Victorian Education Foundation gone on and lost the case it could not have been said that it had acted vexatiously. Accordingly as a matter of logic to take a course of action that prevented the incurring of further costs as Victorian Education Foundation had done, could not be regarded as vexatious.
8. I observed during Mr Hay's submission on this point that it would be undesirable to adopt a practice on costs applications in retail lease matters which will have the effect of encouraging an applicant who had heart in his case to simply press on, on the basis that losing as seemed likely, he might or might not be subject to a costs order but throwing in his hands before trial he would certainly be subject to a costs order. This I observe might operate as an incentive to people to press on with cases in which they had heart in rather than acknowledging reality at the earliest available point.
9. In reply Mr McKenzie said that it would be possible to adjudicate this matter in a manner and with supportive reasons granting his client's costs application but giving appropriate warning against any party contemplating adopting the hypothetical tactics that I described in my discussion with Mr Hay.
10. I turn therefore to the various matters urged by Mr McKenzie. First, whilst I acknowledge that Brislugan is an unwilling participant in this proceeding, viewed as a Tribunal proceeding it was an essential party. The Tribunal has jurisdiction to deal with disputes between landlord and tenant it does not have jurisdiction to deal with disputes between landlords and valuers so I do not think that Victorian Education Foundation can be faulted for having joined Brislugan as it was legally compelled to do so.
11. Next, I turn to the question as to whether this matter might more appropriately have been dealt with by mediation arranged by the Small Business Commissioner. I infer that this argument was put in support of potentially two analyses. First, it is necessary to consider the terms of Section 92 of the Retail Leases Act which says:

(1) Despite anything to the contrary in Division 8 of Part 4 of the Victorian Civil and Administrative Tribunal Act 1998, each party to a proceeding before the Tribunal under this Part is to bear its own costs in the proceeding.

(2) However, at any time the Tribunal may make an order that a party pay all or a specified part of the costs of another party in the proceeding but only if the Tribunal is satisfied that it is fair to do so because -

(a) the party conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding; or

(b) the party refused to take part in or withdrew from mediation or other form of alternative dispute resolution under this Part.

(3) In this section, costs includes fees, charges and disbursements.

1. The argument about the mediation convened by the Small Business Commissioner that might have occurred but did not in fact occur was I infer, intended to invoke both limbs of Section 92(2) of the Retail Leases Act. First, the suggestion was that in proceeding in the way it did, the Victorian Education Foundation conducted the proceeding vexatiously and secondly it was I suggested that proceeding in the way it did, constituted a refusal to take part in or a withdrawal from mediation.
2. I deal with the reliance placed on the second limb of sub-section (2) first and reject it. In adopting a procedure that is specifically authorised by the act, namely to seek injunctive relief is not in my view refusing to take part in mediation nor is it tantamount to that. Further, it is I think in a general sense an appropriate manner to respond to the problem the Victorian Education Foundation perceived itself faced with, that is to move initially to obtain injunctive relief to halt the process which it claimed might inflict injustice upon it.
3. Turning then to the first limb of Section 92(2), it does not seem to me that preceding as Victorian Education Foundation did, in itself amounted to vexatiously conducting the proceeding. I observe more generally that it remained open even once the matter reached the Tribunal to refer the matter to a Tribunal mediation. A Tribunal mediator will in substance would have been governed by the same protocols as a Small Business Commissioner mediation. The Tribunal's panel is substantially the same as the Commissioner's panel. It would have been open to Brislugan when the matter came before me in November last year to press for a mediation. According to my recollection it did not do so, hence I am inclined to regard the entire matter of Small Business Commissioner mediations as being beside the point.
4. I turn then to the third of the matters relied upon by Mr McKenzie, the complaint that what has happened now leaves his client all dressed up with nowhere to go having spent a fortune on new clothes. I am very sympathetic to that argument. The question is however whether what has occurred amounts to vexatious conduct. Certainly it is clear that merely bringing a proceeding which is unsuccessful is not in itself vexatious. Section 92 was intended to operate as a very stern restriction on the Tribunal's discretion to award costs. Its effect and intent is to make the award of costs as between party and party the exception rather than the rule. Should a party therefore be any worse off in acknowledging either weaknesses in its own case or strengths in the opposing case and crying off before final hearing. In my view as a matter of policy, it would be a most unfortunate message to give to litigants that it was better to blast on than to face reality. I think that what Victorian Education Foundation did in determining not to go on with this proceeding was in itself not vexatious but a responsible step. The only respect in which it could be suggested that Victorian Education Foundation acted vexatiously would be to say that the entire proceeding was vexatious, that it was vexatious even to make the claim or make the claim and press it on for some time. In my view nothing has been put to me that will enable me to make so strong a finding.
5. It follows therefore that despite my feeling strong sympathy for Brislugan's situation, the proper course is to dismiss the costs application.