1. Through its orders of 1 May 2013, the Tribunal determined the merits of the main proceedings. In particular, the Tribunal generally ordered that:
   • Kevin Williamson was entitled to compensation under s 283 of the former Melbourne and Metropolitan Board of Works Act 1958 (MMBW Act), assessed at $52,286.98.
   • Ali Holdings #1 Pty Ltd was entitled to compensation under s 283 of the MMBW Act, assessed at $38,136.60.
   • interest was payable on any unpaid amounts in accordance with Part 6 of the Land Acquisition and Compensation Act 1986 (LAC Act).
   • neither party was entitled to compensation under s 157 of the Water Act 1989 (Water Act).
2. As part of its orders on 1 May 2013, the Tribunal reserved costs. The applicants and respondent have subsequently each made application for costs against the other. This decision deals with the costs issues.
3. Through a staged interlocutory process, the parties have provided detailed written submissions and affidavit evidence in support of their respective costs application, and responding to the costs application against them.

1. Williamson seeks that Melbourne Water pay his costs for both proceedings on a standard basis. Alternatively, he seeks that Melbourne Water pay his costs in the MMBW claim (where he was partly successful) and that there be no order as to costs in the Water Act claim.
2. Ali Holdings seeks that Melbourne Water pay its costs for both proceedings on a standard basis until 7 September 2012, and thereafter on an indemnity basis having regard to an offer of compromise. Alternatively, it seeks that Melbourne Water pay its costs in the MMBW claim on a similar basis (where it was partly successful) and that there be no order as to costs in the Water Act claim.
3. Melbourne Water seeks that, in relation to the MMBW Act claims:
   • the applicants pay its costs (other than in relation to the component of the claim relating to 'injurious affection') on a standard basis; and
   • the applicants pay its costs in relation to the injurious affection claim on an indemnity basis. This is because that component of the claim was made late, necessitated a further hearing, and was ultimately unsuccessful.
4. Melbourne Water seeks that, in relation to the Water Act claims, the applicants pay its costs on an indemnity basis. It also specifically seeks that the applicants pay its costs of and incidental to the hearing on 1 to 5 October 2012.

1. The Tribunal's order and reasons in the main proceedings is the subject of an application by the applicants for leave to appeal to the Supreme Court. The parties have nonetheless consented to and requested the Tribunal to determine costs in the VCAT proceeding without awaiting the outcome of any appeal[1].
2. The parties have requested the Tribunal to determine costs 'on the papers' by reference to their extensive written submissions, affidavits and exhibits, and other materials. None of the parties sought a formal costs hearing.
3. The applications seek that the Tribunal determine only whether there should be an award of costs on the basis that, if the Tribunal ultimately decides to award costs, the quantum of costs would be determined (in the absence of agreement) by the Costs Court. Given the complexity and likely quantum of costs in these proceedings, this is a sensible approach.
4. The costs application has been determined jointly by both of the members that constituted the Tribunal in the main proceedings. However, to the extent there are any questions of law arising in the costs applications, they have been decided by Deputy President Dwyer alone.

1. It was common ground that the scale to be used for the assessment of any costs is the Supreme Court scale. Although the Tribunal perhaps more commonly uses the County Court scale, we agree that the use of the Supreme Court scale is appropriate in this case. The proceedings were of an adversarial 'court-like' nature prepared by both sides on a carefully pleaded basis, involving complex issues and the involvement of both senior and junior counsel. We note that, pursuant to the Supreme Court (Chapter 1 New Scale of Costs and Other Costs Amendments) Rules 2012, the approach to the award of costs under those Rules (i.e. on the basis of 'standard costs' and/or 'indemnity costs') applies irrespective of the commencement date of a proceeding. Both parties adopted this course in the orders they sought.

1. Melbourne Water sought that we specifically order that any costs awarded in their favour include the costs for two counsel. In their second costs submission, the applicants agreed that the proceedings warranted two counsel. Bearing in mind what we have just said about the adversarial and complex nature of the proceedings, we consider it appropriate to certify for two counsel.

1. Costs in the Tribunal are usually governed by s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (VCAT Act), the relevant parts of which provide:
   1. Power to award costs

(1) Subject to this Division, each party is to bear their own costs in the proceeding.

(2) At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding.

(3) The Tribunal may make an order under subsection (2) only if satisfied that it is fair to do so, having regard to -

(a) whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as -

(i) failing to comply with an order or direction of the Tribunal without reasonable excuse;

(ii) failing to comply with this Act, the regulations, the rules or an enabling enactment;

(iii) asking for an adjournment as a result of (i) or (ii);

(v) attempting to deceive another party or the Tribunal;

(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;

(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;

(e) any other matter the Tribunal considers relevant.

1. Any award of costs in the Water Act claims is subject to s 109 of the VCAT Act, and we have had regard to the relevant matters set out in that provision.
2. However, clause 46 of Schedule 1 of the VCAT Act provides that s 109 of the VCAT Act does not apply to a proceeding under the LAC Act. It had been common ground in the main proceedings that, by reference to s 237 of the MMBW Act, the LAC Act applied to the claim under the MMBW Act. It is also common ground, in both parties' costs submissions, that we have regard to s 91 of the LAC Act in considering costs in the MMBW Act claims.
3. The relevant part of s 91 of the LAC Act provides as follows:
   1. Costs

(1) In any proceedings under this Part, the Tribunal or the Court (as the case requires) may award such costs as it thinks proper but in making an order for costs must, if the Tribunal or Court considers it appropriate to do so, take into consideration -

(a) the amount of compensation awarded by the Tribunal or Court as compared with the amount (if any) offered by the Authority; and

(b) the extent to which, in the opinion of the Tribunal or Court, the proceedings have arisen from, or been affected by -

(i) unreasonable conduct on the part of the claimant or the Authority; or

(ii) the failure of the claimant to give adequate particulars of the claim or supply supporting material when required to do so; or

(iv) an unduly depressed offer by the Authority; and

(c) any other matters which under this Act are to be taken into account in determining the allocation of costs.

1. We agree that any award of costs in the MMBW Act claims is subject to s 91 of the LAC Act, and we have had regard to the relevant matters set out in that provision
2. Ultimately, provided regard is had to relevant factors, an award of costs is discretionary under both provisions.

1. The costs applications here are made more complex by a number of issues, including:
   • there were two different types of applications, one by each applicant under the former MMBW Act, and one by each applicant under the Water Act. Despite this, the proceedings were heard and determined together, with many overlapping issues and evidence.
   • as indicated above, the two different types of applications are subject to different costs provisions. Costs in the MMBW Act claims are subject to s 91 of the LAC Act, whereas costs in the Water Act claims are subject to s 109 of the VCAT Act.
   • there are potential costs issues stemming from both the outcome in the proceedings (where the applicants were partly successful in the MMBW Act claims, and unsuccessful in the Water Act claims), and the conduct of the parties in the proceedings. Different parts of the respective costs applications relate to different parts of the proceedings. Although the applicants were partly successful in the MMBW Act claims, the claims changed during the proceedings, including a belated but ultimately unsuccessful claim for 'injurious affection' within the MMBW Act claim.
   • offers of compromise (or Calderbank offers) were made in the course of the proceeding, but on a basis that is not easily comparable to the way in which the Tribunal determined the proceedings.
2. It is perhaps fair to reflect that, in our view, none of the parties hold the entire 'high moral ground' in this matter - either on the facts and circumstances that underscored the proceeding, or in the way in which the proceedings unfolded. That will be self-evident from our decision in the main proceeding. For this reason, we could have simply ordered that each party bear its own costs in all proceedings. Tempting though that may be, we do not see it as the proper course to follow. The different proceedings, outcomes, conduct, and costs provisions, warrant separate consideration here. Although of more relevance to the parties than the Tribunal, we are also conscious that the overall costs are in the many tens of thousands (and more likely hundreds of thousands) of dollars. The parties have a lot at stake.
3. It will be self evident from the above that we do not agree with the applicants' initial premise that, in substance, there was only one claim from each applicant, and that we should not differentiate between the MMBW Act claims and the Water Act claims for costs purposes. As we have said, there were different outcomes and there are different costs provisions. Moreover, as we have now become aware through the costs submissions, even the applicants were making separate offers of compromise as between the MMBW Act claims and the Water Act claims in the lead up to the hearing. They were treating the claims separately even at a time when Melbourne Water was making 'all in' offers across both claims.
4. Having said that, the interrelationship of the various proceedings remains a relevant factor. Although we comment below on some specific matters that arise from the costs submissions from the parties, the consideration of costs also requires a holistic balancing of all relevant factors in the ultimate exercise of discretion.

MMBW Act claim - should costs generally 'follow the event'?

1. As indicated, s 109 of the VCAT Act does not apply to the MMBW Act claims, and s 91 of the LAC Act instead applies in relation to costs. Importantly, s 91 of the LAC Act does not contain the 'prima facie rule'[2] that each party should bear its own costs, that is evident in s 109(1) of the VCAT Act.
2. The applicants relied upon the comments of the Supreme Court in Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd (No. 2)[3], where it was stated that the position of a claimant in proceedings under the LAC Act is not that of an ordinary litigant. The claimant, unlike an ordinary plaintiff, has no choice whether to make a claim. The starting point for the exercise of the court's discretion as to costs is that the dispossessed owner should recover the costs of making the claim and, to that extent, the discretion as to costs in compensation proceedings is 'tilted' in favour of a claimant.
3. Similar sentiments have been expressed in Challenger Property Asset Management Pty Ltd v Stonnington City Council (No. 2)[4], Coastal Estates Pty Ltd v Shire of Bass[5], and Roads Corporation v Love[6], all citing with approval a passage from the decision in Minister for the Environment v Florence[7] that had differentiated the principles for costs in compulsory acquisition matters from other matters.
4. Given the overlapping jurisdiction of the Supreme Court and this Tribunal in LAC Act matters, and given s 91 of the LAC Act expressly applies to both the Tribunal and Court, these comments are applicable here. It might be said that the philosophy of maintaining access to justice at a Tribunal level, without undue fear of costs, may still be a relevant consideration in determining whether it is fair or appropriate to award costs in a compensation matter at the Tribunal (as opposed to the Court) where there LAC Act applies. However, even if that be the case, it is not the firm starting point in the same way that it is for other types of matters at VCAT where the general rule in s 109 applies. Ordinarily, based on the principles above, we would consider the starting point is that, where the LAC Act applies, a successful claimant at the Tribunal is entitled to recover costs.
5. Here, both applicants have been partially successful in their respective MMBW claims. Although not completely dispossessed as owners, the applicants here were involuntarily subjected to the creation of a statutory easement across their land. They were awarded compensation in circumstances where, by statute, they were entitled to receive it, and where Melbourne Water had disputed their claim. We consider that the starting point, other factors aside, is that the applicants here are entitled to their standard costs in the MMBW Act claims.

Does the applicants' conduct in the MMBW Act claims warrant a different costs order?

1. Section 91(1) (b) of the LAC Act allows us to take into consideration, if appropriate, the extent to which the proceedings have arisen from, or have been affected by, unreasonable conduct on the part of the applicants, the failure by the applicants to properly particularise their claim, or the making of an excessive claim. In this discussion, we are considering conduct other than through offers of compromise in the course of the proceeding - a matter we consider separately later in these reasons.
2. Melbourne Water raised a number of issues in relation to the applicants' conduct that it contended should lead to a different costs order. These included a number of matters we commented upon in our decision in the main proceeding to demonstrate that the claims had changed substantially since they were commenced, both in terms of the allegations made, the legal and valuation basis for the claims, and the quantum claimed[8]. Some initially pleaded claims were not proceeded with at the hearing, some evidence was not relied upon despite witness statements having been filed, and the quantum of the claims changed regularly. An interlocutory challenge seeking further particulars of Melbourne Water's defence was also refused, although this was primarily in respect of the Water Act claims.
3. Melbourne Water specifically contends that the amounts claimed were excessive. It is perhaps worth noting that:
   • in the Williamson MMBW Act claim, the original notice of claim was for $170,941. It was pleaded at $202,940 when the VCAT proceeding was commenced in February 2011, and at $1,283,327 in November 2011, but reduced to $132,960 on 7 September 2012. We ultimately awarded $52,286.98.
   • in the Ali Holdings MMBW Act claim, the original notice of claim was for $158,098. It was pleaded at $186,104 when the VCAT proceeding was commenced in February 2011, at $356,714 in November 2012, but reduced to $81,934 on 7 September 2012. We ultimately awarded $38,136.60.

There were several other intermediate variations on these claims (but also, as will be seen, other offers of compromise). There were also other contemporaneous changes in the Water Act claims.

1. We agree with the applicants that a claim is not excessive merely because the Tribunal awards a lesser sum. In Murdesk (No.2) above, the court had adopted comments in an earlier decision[9] to the effect that the word 'excessive' in s 91 of the LAC Act has a pejorative connotation in the sense that the sum claimed exceeds the sum awarded to a degree which is unreasonable or worthy of criticism. What is relevant is not only the extent of the difference between the two sums, but also the reason for this difference. Here, we do not see the applicants' claims as being unreasonable or worthy of criticism in this latter sense - particularly by the time of the hearing. We accept the applicants' submissions that the sums claimed at various times reflected the professional opinions of experienced valuers retained by the applicants at those times, and the reason for the difference here is the different approach taken by the expert valuers. We agree with the applicants that the applicants were justified in having the Tribunal determine the preferred valuation approach. Although we found largely against the applicants' valuation approach in two key areas, we consider that there was a legitimate issue to be tried.
2. A further reason for the significant difference in the amounts claimed at various times stems from the Melbourne Water proposal, in March 2012, to construct a temporary bund on VicRoads land just north of the Ali Holdings land, to better direct excess water flows from the two major pipes into the McGregor waterway and away from much of the balance of the Ali Holdings land and the Williamson land. As we noted in our decision in the main proceedings, the claimants had based their initial claims and evidence upon an assumption that this bund would not be built, but later acknowledged that the bund would be built, with the claim amended accordingly. As we also noted, at the resumed hearing in March 2013, Melbourne Water indicated that, given the high cost of the temporary bund, it would instead seek an easement over the VicRoads land and construct more permanent works on that land by January 2015. The significant reduction in the applicants' respective claims from 2011 to 2012 reflects, at least in part, the potential benefits of the bund or commensurate ameliorating works. We do not agree with implication in Melbourne Water's cost submissions that the bund issue did not make any difference to the Water Act claims, or the claims more generally.
3. Despite this, at the hearing, and in our decision, we were somewhat critical of the applicants' conduct in its ever-changing claims - even during the hearing. We described it as unsatisfactory. We nonetheless noted[10], at least as at the end of the October 2012 hearings (i.e. as at 5 October 2012):

[18] Here, we consider that the changes to the claims during the October hearings (albeit late and sometimes confusing) were largely in the nature of re-calibrating, re-calculating, or re-characterising the existing claims. The overall quantum of the claims has substantially reduced since they were first commenced, rather than being increased. Although we agree that Melbourne Water has been somewhat disadvantaged by the claimant's conduct, these claims have been outstanding for some time. The claims are for compensation by affected parties arising from the actions of a statutory authority on their land and raise complex issues, where a procedural approach beneficial to the claimants should ordinarily be preferred. In our view, there is value in having the claims properly characterised and dealt with as a mater of justice for those affected parties. Melbourne Water is a body well able to deal with the amended claims, provided appropriate procedural fairness is accorded to it. [footnotes omitted]

1. We also noted in our decision that the changing circumstances were not all one way. For example, as noted above, Melbourne Water changed its position in relation to a proposed bund. Moreover, as we indicated in our decision, the threshold issues taken by Melbourne Water lacked merit. We expressed surprised that Melbourne Water sought at the hearing to avoid the payment of any compensation under the MMBW Act claims on an alleged legal technicality, given the way in which it had initially processed the claims, and the open offers then made.
2. Although the applicants' conduct in the proceeding up to the October hearings perhaps overly complicated the MMBW Act claims, the claims were nonetheless always going to involve a level of complexity. In a messy compensation claim where there are also important issues of legal and valuation principle, there will inevitably be changes to a claim 'in the running' as various information, expert evidence or legal advice becomes available, different options are canvassed, and discussions with the acquiring authority evolve through which strengths and weaknesses in the claim become more readily apparent.
3. In Murdesk (No. 2) above, the Court cautioned that there must be a strong justification for awarding costs against an applicant where the effect of making that order would be to erode the benefit of the just compensation recovered as a consequence of the court's determination. It is only in special cases that a court will deprive the owner of the full benefit of the compensation that is determined as fair and just in the circumstances of the case[11]. We consider this principle to be equally applicable in proceedings at VCAT where the LAC Act applies.
4. Bearing this in mind, we do not see the applicants' conduct in the proceeding up to the October 2012 hearings as being sufficiently unreasonable to warrant a departure from the premise that each applicant is entitled to its standard costs in the MMBW Act claims.
5. We certainly do not agree with Melbourne Water that the applicants' conduct to that point in time was so unreasonable as to reverse the position on costs with the applicants having to pay Melbourne Water's costs on a standard basis for that period. Melbourne Water's contention that the applicants' claims were excessive rings a little hollow when the position Melbourne Water formally adopted at the hearing was that the applicants were not entitled to any compensation at all.
6. The position changed somewhat on the last day of the October 2012 hearings. The applicants' counsel belatedly contended that the Water Act claims could alternatively be characterised as claims for 'injurious affection' as part of the MMBW Act claims. As noted in our decision in the main proceeding, this ultimately necessitated the further hearing on 25 March 2013, where Melbourne Water recalled three witnesses.
7. As we also noted, the proceedings were of a complex court-like nature prepared by both sides on a carefully pleaded basis. The MMBW Act claims were the subject of particulars, amended particulars, and even 'further' or 'second further' amended particulars filed by both applicants shortly before the October 2012 hearings, none of which had included any component of claim based on injurious affection. The applicants were represented by competent and experienced lawyers, including senior counsel, and the claim for injurious affection was based primarily on case authority of long-standing that the applicants legal advisors ought to have been aware of. We nonetheless allowed the late change to the claim, despite this being vigorously opposed by Melbourne Water. However, we noted that this involved the exercise of discretion, where relevant factors included the nature, substance and timing of the change; the respective implications for the parties in terms of potential prejudice, costs and delay; procedural fairness; and relevant case management matters[12]. Although our discretion favoured the applicants, our reference to 'costs' clearly contemplated that a disadvantaged party may be capable of being compensated through an award of, or adjustment to, costs. We did not attempt to deal with the potential costs implications at that time.
8. We have now reflected on that issue in the context of the costs submissions made to us. In our view, it is not a simple matter of contending, as Melbourne Water appears to do, that the applicants raised an additional late ground and caused an extra hearing day, and that the applicants should pay Melbourne Water's costs of that on an indemnity basis. In the ordinary case, costs should not operate as a penalty but to fairly compensate the disadvantaged party for any additional costs necessarily incurred that would not have otherwise been incurred. In this regard, we note that:
   • although the injurious affection claims were ultimately unsuccessful, they were a component of the broader MMBW Act claims, rather than a separate claim. The applicants were partly successful in their overall MMBW Act claims, with some components allowed and others not. If the injurious affection claims had been included as part of the initial claim, the fact that this component was unsuccessful (in similar fashion to the severance component being unsuccessful) would not necessarily have affected the starting point of a general entitlement to costs. It is the late raising of the issue that is primarily relevant to costs, rather than the outcome for this component.
   • the applicants contended that the late claims for injurious affection were made as an alternative characterisation of the claim to bolster the applicants' prospects of success if the Water Act claims were unsuccessful on a legal or threshold basis. The applicants suggested it was an alternative 'legal hook' rather than a supplementary claim. They argued that the underlying valuation methodology and quantum of compensation would be the same in either case. This was largely (but not entirely) the case and, given this, the inter-relationship of the Water Act claims is relevant.
   • the applicants had been content for the Tribunal to consider the injurious affection claim 'on the papers'. It was the Tribunal that ultimately required the extra hearing day, for reasons we set out in our decision in the main proceedings. We considered it appropriate for the injurious affection claim to be properly ventilated as a means of dealing with all of the underlying and longstanding dispute between the parties.
   • if the applicants had raised the injurious affection claims sooner, Melbourne Water would still have needed to deal with them, and this would still have involved the preparation of submissions, and may well have necessitated the additional hearing time in any event.
9. In our view, the conduct of the applicants in the late raising of the injurious claim was nonetheless unreasonable. They could have raised the matter sooner. However, in considering what is a fair and appropriate consequence of this, we do not think the conduct to be so unreasonable as to reverse the award of costs on this issue. We think, subject to two important qualifications below, that the fair and appropriate outcome is that the applicants should not be entitled to recover their costs incurred in the late raising of this issue, but that those costs should not be awarded in favour of Melbourne Water. Essentially, subject to the two qualifications, this means that each party should bear its own costs for the period after the October 2012 hearings in relation to the injurious affection claims.
10. The two qualifications relate to certain additional costs necessarily incurred by Melbourne Water stemming from the late raising of the injurious affection claims that they would otherwise not have had to incur.
11. First, there was the need for a further directions hearing on 30 November 2012, following the initial receipt of written submissions on the injurious affection claim. That directions hearing would not have been required but for the late raising of the injurious affection claims. At that directions hearing, we included within our orders the following:
    1. Costs are reserved. Without limiting the general reservation of costs, the costs application made by the respondent at the directions hearing is adjourned for further consideration at a later time, and will be considered by the Tribunal separately from other reserved costs or any other costs applications that may be made by the parties within these proceedings.

In now separately considering that matter, we consider that Melbourne Water is entitled to its costs of preparation and attendance at that directions hearing, including counsel's fees.

1. Secondly, although an additional hearing day may have been required in any event (noting that the further hearing on 25 March 2013 also dealt with other issues such as Melbourne Water's changed position on the bund, and clarification of other aspects of the claims), Melbourne Water was forced to recall three witnesses at the further hearing. This would not have been necessary had those witnesses had the opportunity to consider the injurious affection claims in their earlier evidence. We consider that Melbourne Water is entitled to recover the costs of the preparation and attendance at the further hearing of those three witnesses, and the legal costs incurred directly in that process.

Do any offers of compromise (or 'Calderbank offers') in the MMBW Act claims warrant a different costs order or a 'special costs' order?

1. Several offers of compromise were made between the parties in the course of the proceedings. These are detailed in an Annexure to Melbourne Water's costs submissions, with relevant offers forming exhibits to the affidavit of Penelope Alice Creswell dated 27 June 2013. Some of the offers were expressed to be made as formal 'Calderbank offers' where it was indicated that, if the offer was not accepted, it would later be produced on the question of costs. Some were expressed to be offers of compromise for the purpose of ss 112-114 of the VCAT Act. Apart from this, Melbourne Water also contends that the rejection of a reasonable offer by a claimant constitutes 'unreasonable conduct' that is relevant to a costs award by reference to s 91 of the LAC Act.
2. The relevance and application of offers of compromise and Calderbank offers has been considered to varying degrees in some of the cases already cited in these reasons[13]. In Roads Corporation v Love[14], the court drew on earlier authority[15] and considered that relevant factors in determining whether special costs should be awarded as a result of an offer of compromise included:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree's rejecting it.

1. Offers of compromise were also recently considered in Metricon Homes Pty Ltd v Sawyer[16]. In that case, the court emphasised the need to ensure that there was appropriate evidence to form an opinion whether an offer of compromise was more or less favourable at the time the offer was made when compared to the ultimate order of the Tribunal. In particular, care is required where a comparison is to be made between an 'all-in' offer inclusive of costs or other amounts (with those costs or other amounts needing to be assessed at the time of the offer), and a subsequent order that is exclusive of costs or other amounts.
2. As a result of the comments in Metricon, the applicants filed a further affidavit of Donald Craig MacDougall dated 4 October 2013. This purported to set out the costs and disbursements incurred as at the time of particular 'all in' offers made by Melbourne Water in these proceedings, with an estimate of party-party costs based on a 'rule-of-thumb' of two-thirds of actual costs. Through a letter dated 8 October 2013, Melbourne Water disputed the relevance and weight that should attach to this material, but expressly did not object to the Tribunal having regard to it. A further affidavit of Mr MacDougall dated 9 October 2013 was filed in part response to the issues raised in that letter - in particular, amending the costs estimates as at the date of an offer on 17 September 2012 rather than the date of its expiry.
3. We will deal with the Melbourne Water offers first.
4. On 16 May 2011, Melbourne Water made an offer (expressed as a Calderbank offer) to settle Williamson's MMBW Act claim on an 'all in' basis for $80,000. It will be recalled that we awarded Williamson $52,286.98 exclusive of costs and interest. We do not have sufficient information to form an opinion whether that offer was more or less favourable (as a matter of simple mathematics) to our award at the time the offer was made, as Mr MacDougall's affidavit material does not deal with what Williamson's costs were at that time (i.e. whether more or less than the difference between these two figures). Had it become necessary to do so, we would have called for more information to satisfy the comments in Metricon.
5. We consider, however, that the rejection of this offer does not justify a special costs award from the date of this offer, and Melbourne Water's costs submission on this issue fails at a more threshold level such that we do not have to decide the issue solely on a comparable dollar basis. Put another way, what we are saying is that, even if the offer was marginally more favourable to Williamson on a simple comparable dollar basis, we consider that it was still reasonable at the time for Williamson to reject that offer given other factors then in play.
6. In its MMBW Act claim, Williamson had foreshadowed the Water Act claim, and such a claim was indeed filed on 16 May 2011 - leading to some uncertainty as to the ambit of Melbourne Water's 'all in' offer. Moreover, as we have noted, Melbourne Water did not propose a temporary bund until March 2012, to better direct excess water flows away from much of the balance of the Williamson land. Although we were never called upon to determine the issue in the main proceedings, we agree with the applicants that, without the bund or commensurate ameliorating works, Williamson's prospects of success in his claims (and the possible quantum of claim) was arguably much higher in May 2011 than after the bund was proposed. Given the then stage in the proceedings and these factors, including the expert advice then available to him, we consider Williamson's rejection of the offer was not unreasonable. We do not consider the rejection of this offer warrants a special costs order in favour of Melbourne Water, even if Williamson's costs and interest as at 16 May 2011 were less than the difference between that offer and our ultimate award.
7. Melbourne Water's offer to Williamson of $50,000 plus some costs, made on 29 August 2012, was less than the sum awarded and purported to exclude some costs that might otherwise have been considered reasonable.
8. On 17 September 2012, Melbourne Water made offers (expressed as Calderbank offers) to settle the MMBW Act claim and Water Act claim for each applicant on an 'all in' basis for $180,000 for Williamson and $85,000 for Ali Holdings. On 28 September 2012, Melbourne Water increased its 'all in' offers (again expressed as Calderbank offers) to $240,000 for Williamson and $100,000 for Ali Holdings. It will be recalled that the hearing commenced on 1 October 2012, so these offers were relatively contemporaneous with the filing of final evidence and preparation for hearing. Indeed the increased offer was made on the Friday afternoon before the hearing scheduled to start the following Monday.
9. The MacDougall affidavit of 9 October 2013 estimates costs as at 17 September 2012. The legal costs are based on a 'two-thirds' allowance for party-party costs as a proportion of actual costs then incurred. If accepted at face value, the combined legal costs, counsel's fees and disbursements as at that date were $177,581 for Williamson and $88,589 for Ali Holdings. On this basis, taking into account those costs and our award, the offer on 17 September 2012 was less favourable to both Williamson and Ali Holdings, assessed at that time as a matter of simple mathematics, than our ultimate award exclusive of costs. We say "if accepted at face value" because, although the offer appears to be less favourable than our award, we agree with Melbourne Water that, if the matter was to be determined on this basis alone, we may have considered it appropriate to seek more detailed evidence as to costs in order to satisfy the comments in Metricon.
10. Similarly, the MacDougall affidavit of 4 October 2013 had estimated costs as at 28 September 2012. Again, if accepted at face value, the combined legal costs on a party-party basis, counsel's fees and disbursements as at that date were $244,525 for Williamson and $150,792 for Ali Holdings. On this basis, taking into account those costs and our award, the offer on 28 September 2012 was also less favourable to both Williamson and Ali Holdings. Our same qualifications apply to this preliminary view.
11. Again, however, we do not consider that the rejection of these offers by Williamson and Ali Holdings at the relevant time would justify a special costs award in favour of Melbourne Water from that time even if the offer to either Williamson or Ali Holdings was marginally favourable to them (i.e. contrary to the MacDougall affidavit). We do not consider this matter falls for determination solely on a comparable dollar basis, as we believe Melbourne Water's submission on this issue again fails at a more threshold level.
12. Our main reason for adopting this view is that Melbourne Water's offers on 17 September and 28 September 2012 were conditional upon the applicants entering into a release and indemnity. Although a request for a release and indemnity may not be unusual in an offer of compromise, we agree with the applicants here that the request for the release and indemnity were expressed in uncertain terms, and sought a legal benefit to Melbourne Water potentially broader than subject matter of proceedings. This benefit would be difficult to 'value' in determining whether the offer was more or less favourable than our ultimate award. On one reading, Melbourne Water was seeking a release and indemnity that may have prevented the applicants from bringing any further or future Water Act claim even for direct damage arising from some future flood event. This matter was further complicated by the offers being 'all in' offers to settle both the MMBW and Water Act claims, where there was perhaps still some continuing uncertainty about the timing or benefits of the then proposed bund. For these reasons, we do not agree with Melbourne Water that it would have obtained an effective release in the proceedings through the doctrine of res judicata, such that the release and indemnity it sought were reasonable, and unreasonably rejected.
13. We note that the offers on 28 September 2012 were made at 4:59pm on a Friday and only open until 6pm. It clearly was not open for sufficient time to be a relevant offer of compromise for the purpose of ss 112-114 of the VCAT Act. It was perhaps still a Calderbank offer, and we do not necessarily criticise the limited time for which the offers were open having regard to the pending hearing the next working day. However, we consider that the offers open for such a short time made it difficult for the applicants' solicitors to get instructions and to form anything other than a very speculative view on costs. This was made more difficult with two separate applicants each with two separate proceedings, and with two counsel in the final stages of preparation for the hearing.
14. Accordingly, we consider the applicants did not act unreasonably in rejecting these offers, and it is thus unnecessary to undertake a more detailed assessment of costs to satisfy the comments in Metricon (and which may well confirm the offers to be less favourable on that basis also). Having regard to all the factors we outlined earlier, including those derived from cases such as Roads Corporation v Love and Hazeldene, and those in ss 112-114 of the VCAT Act, we do not consider Melbourne Water is entitled to any special costs arising from its offers of compromise. Although some factors, in isolation, might be considered to give rise to a presumption in favour of special costs, we consider that this is a rebuttable presumption (in that it applies even under s 112 "unless the Tribunal orders otherwise"), and is rebutted here in particular through the matters we have discussed.
15. We turn now to the offers of compromise by Williamson and Ali Holdings.
16. Although Williamson had made some offers of compromise, none were at a level that is relevant to the current costs applications.
17. Ali Holdings had also made some offers of compromise, with all but one being for amounts well above what we ultimately awarded. Relevantly, Ali Holdings did offer to settle its MMBW Act claim on 7 September 2012 for $17,000 plus its party-party costs. Given this was not an 'all in' offer, the comments in Metricon do not directly apply. The offer was expressed to be made under ss 112-114 of the VCAT Act and was open for 14 days. It will be recalled that we ultimately awarded $38,136.60. Prima facie, this offer was more favourable to Melbourne Water than our award.
18. We nonetheless consider that it was not unreasonable for Melbourne Water to reject this offer. As the Penny Creswell affidavit of 27 June 2013 and its exhibits evidence, on 7 September 2012 Ali Holdings had made separate offers of compromise in the MMBW Act and Water Act claims, and a joint offer across both matters. Ali Holdings was still seeking $81,000 in the Water Act claim as at that date or $98,000 for its collective claims (both of which it was clearly reasonable to have rejected). The offer in the MMBW Act claim and the collective offer were couched in slightly different terms, and there was no certainty that a settlement of the MMBW Act claim alone would have alleviated much in the way of costs in the overall proceeding, given the overlapping nature of the claims.
19. Even if we had been minded to award costs arising from this offer of compromise, this may only have applied for the period 7 September 2012 until 5 October 2012, given our comments earlier on the applicants' conduct and the change in circumstances (and costs) after 5 October 2012. For this limited period of time, albeit including the first hearing, we have already awarded Ali Holdings its costs on a standard basis. In the overall circumstances of this case, we consider that to be sufficiently fair and reasonable, without making provision for additional special or indemnity costs arising from the offer.

Costs in the Water Act claims

Water Act claim - should costs generally 'follow the event'?

1. Although Melbourne Water submits that the Water Act claims were unsuccessful, our actual order was that the applicants had established a lawful basis for a claim under s 157 of the Water Act 1989, but had failed to establish any compensable loss or damage under that Act. It is perhaps debateable whether the applicants were wholly unsuccessful, but we would have considered their failure to establish any quantum of damage to be highly relevant if an award of costs was to 'follow the event'.
2. However, s 109 of the VCAT Act applies to the Water Act claim. As we have indicated, s 109(1) of the VCAT Act, unlike s 91 of the LAC Act, contains the prima facie principle that each party should bear its own costs.
3. We do not therefore accept Melbourne Water's starting point that costs should generally follow the event in a Water Act claim. Indeed, Melbourne Water's position that costs should not follow the event in the MMBW Act claims, but should follow the event in the Water Act claims, is inconsistent with the legislative starting points under the LAC Act and VCAT Act, where something closer to the reverse applies.
4. That said, we acknowledge the reference by Melbourne Water to cases such as Cappellin v Brondolino[17]. Whilst s 109 does not contemplate that the Tribunal should routinely award costs in a particular type of case, certain types of cases may more commonly attract an award of costs. This is because they more commonly involve proceedings of an adversarial 'court-like' nature prepared by both sides on a carefully pleaded basis, involving complex issues and the involvement of both senior and junior counsel. It is fair to reflect that building and drainage cases commonly (but certainly not always) have these characteristics. They may therefore more commonly trigger the exercise of discretion to depart from the general principle in s 109(1) of the VCAT Act and to apply the relevant factors set out in s 109(3).

Do the factors in s 109(3) of the VCAT Act, in relation to the Water Act claims in these proceedings, warrant a different costs order?

1. The factors in s 109(3) of the VCAT Act apply only if the Tribunal is satisfied, having regard to those factors, that it is 'fair' to award costs. We have set out the factors in s 109(3) earlier in these reasons.
2. Interesting, in its written submissions on costs[18], Melbourne Water relies on the factors in s 109(3)(a) and (b) - alleging the applicants' conduct causing disadvantage, and unreasonably prolonging the proceedings - as supporting an award of costs. Melbourne Water does not directly refer to s 109(3)(d), relating specifically to the nature and complexity of the proceeding, and which more directly raises the issues canvassed in Cappellin above.
3. In support of its submission under s 109(3)(a) and (b), Melbourne Water relies primarily upon the applicant's conduct in its changing claims, and in the late raising of the claim for 'injurious affection'[19].
4. As we have earlier indicated, although the applicants' conduct in the proceeding up to the October hearings perhaps overly complicated matters, the various claims were always going to involve a level of complexity, with changes 'in the running' as various information, expert evidence or legal advice became available. We did not see the applicants' conduct prior to 5 October 2012 as being sufficiently unreasonable in the MMBW Act claims nor, for similar reasons, do we see it as being sufficiently unreasonable in the Water Act claims to warrant an award of costs in Melbourne Water's favour.
5. Insofar as the late raising of the injurious affection claim is concerned, that conduct by the applicants arose in relation to the MMBW Act claims (and not the Water Act claims), and we have already varied our costs award in the MMBW Act claims to reflect that conduct. Although there is some overlap in the proceedings, that conduct was not relevant to the Water Act claims, which were essentially completed by the end of the hearings on 5 October 2012, and Melbourne Water cannot justify conduct in the MMBW Act proceedings as providing a primary basis for an award of costs in the Water Act proceedings. Indeed, Melbourne Water had itself emphasised in its costs submissions that the claims were not in substance one claim, and the claims and costs should be considered separately[20].
6. It will be self-evident from our earlier comments that we do not agree with Melbourne Water that the applicants' claims under the Water Act were wholly untenable in fact and law. The claims were ultimately decided as a matter of valuation principle, where the applicants' position was at least arguable, albeit not successful. We agree, at least in part, with the applicants that the Water Act claims had been commenced partly as an alternative to the MMBW Act claims and relied on overlapping evidence. We also note again that the changing circumstances were not all one way. Melbourne Water changed its position in relation to a proposed bund, which was directly relevant to the Water Act claims, and also took technical threshold issues that we found lacked merit.
7. Having regard to the specific examples of conduct in s 109(3)(a) that might lead to an award of costs, we note that Melbourne Water does not allege that the applicants failed to comply with any orders of the Tribunal without reasonable excuse, failed to comply with the VCAT Act or enabling enactments, or attempted to deceive Melbourne Water or VCAT, or conduct the proceeding vexatiously. As we have indicated, the adjournment of the hearing to a further hearing day arose in the MMBW Act claims rather than the Water Act claims.
8. Melbourne Water also relied, as an example, on what it alleges was an unnecessary and unsuccessful request by the applicants' for further particulars of Melbourne Water's amended defence. That request necessitated a directions hearing on 10 August 2012, where the request was refused.
9. The request had related to the reverse onus of proof that applied to Melbourne Water under s 157(2) of the Water Act - a matter still then in contention. That provision provided that if water had flowed from the Melbourne Water's works onto any land, it must be presumed that the flow occurred as a result of intentional or negligent conduct on the part of Melbourne Water unless it proved otherwise on the balance of probabilities. Although the Tribunal did not require further particulars, it ordered that the amended statements of evidence scheduled to be filed by Melbourne Water should identify any evidence it specifically adduced to discharge its onus, and allowed for a reply. The directions hearing thus dealt with the procedural issue via another mechanism and, following the filing of Melbourne Water's evidence, the applicants properly did not pursue the matter further. In our view, this was simply a case of an interlocutory issue being dealt with in the course of a complex hearing, and not so unusual to justify a costs award.
10. Although of much less weight than the factors we have discussed in the context of the Water Act claims, we have acknowledged some interrelationship between the MMBW Act and Water Act claims. We do not accept that we should award the applicants their costs in the Water Act claims, simply on the basis that they have been successful and awarded some costs in their MMBW Act claims. However, we remain conscious of the principle that there should be a strong justification in making a costs order that would erode the benefit of just compensation awarded. Equally, therefore, we think this bolsters the view that costs should not follow the event in the Water Act claims in these proceedings where the effect would be to unduly erode the benefit of the compensation awarded in the related MMBW Act claims.
11. For all of these reasons, we do not consider the applicants' conduct of itself, having regard to the factors in s 109(3), warrants a departure from the general principle that each party bear its own costs. Indeed, we think it 'fair' in the overall circumstances of this case that each party bear its own costs in the Water Act claims.

Do any offers of compromise (or 'Calderbank offers') in the Water Act claims warrant a different costs order or a 'special costs' order?

1. We have already dealt with the 'all in' offers of compromise made by the various parties that related to the combined proceedings. Just as none of these offers, in our view, justifies an award of special costs in the MMBW Act claims, and for similar reasons, we consider that none of the combined 'all in' offers justify an award of costs in the Water Act claims.
2. Although there were a couple of offers of compromise made solely in relation to the Water Act claims, none were brought to our attention that were manifestly favourable and/or unreasonably rejected. Indeed, given we assessed the quantum of the Water Act claims at zero, all monetary offers plus costs made by the applicants were clearly unfavourable to Melbourne Water. For example, Ali Holdings offer to settle the Water Act claim for $81,000 plus costs on 7 September 2012 was clearly unfavourable to Melbourne Water and reasonably rejected.
3. On 29 August 2012, Melbourne Water made an offer to settle the Water Act claims for $15,000 for Williamson, and $5,000 for Ali Holdings, plus some costs. The offers were expressed to be made both as Calderbank offers and by reference to s 112 of the VCAT Act. Given we awarded zero compensation, these offers were prima facie more favourable to Williamson and Ali Holdings than the ultimate outcome for either.
4. However, having regard to the then state of the proceedings and considering the factors discussed earlier, derived from cases such as Roads Corporation v Love and Hazeldene and those in ss 112-114 of the VCAT Act, we do not consider that the applicants acted unreasonably in rejecting those offers. Again, importantly, the offers were conditional on the applicants entering into a release and indemnity of uncertain ambit, and where there was perhaps still some continuing uncertainty about the timing or benefits of the then proposed bund to address future water flows across the Williamson and Ali Holdings land. Secondly, the offers were made contemporaneously with separate offers in the MMBW Act claims that were not clearly favourable to the applicants, such that acceptance of the Water Act offers alone would not necessarily alleviate costs or resolve the overall dispute between the parties. Thirdly, although Melbourne Water offered to pay the party-party costs of the applicants, this was conditional on there being deducted from this some of Melbourne Water's costs that it considered had been 'thrown way' through amended pleadings and reliance on Mr Brown's evidence. This made it difficult for the applicants to assess costs. Indeed, through the following sentence in the offer: "Should a net amount be owed by Melbourne Water, it will make payment within 30 days ...", the applicants might reasonably have concluded that Melbourne Water contemplated that there may be no net costs payable. Moreover, despite the offer of some costs, the offers were also conditional on the applicants consenting to an order of the Tribunal dismissing their claims with no order as to costs.
5. In the overall circumstances of this case, we consider it to be fair and reasonable that each party bear its own costs in relation to the Water Act claims, without making provision for any special or indemnity costs arising from any offers of compromise.

1. As we indicated at the start of these reasons, the award of costs is ultimately discretionary. This has been a complex set of proceedings that has raised complex costs issues. Ultimately, we consider that the costs orders we have made are fair, and fairly reflect the nature and outcome of the proceedings both individually and collectively, and with a consideration of relevant costs factors and principles.

[1] Letter from respondent's solicitors dated 7 October 2013, counter-signed by the applicants' solicitors.

[2] Vero Insurance Ltd v Gombac Group Pty Ltd [2007] VSC 117 at [20] per Gillard J.

[3] [2012] VSC 586 at [6] per Emerton J., following the Court of Appeal in Love v Roads Corporation [2011] VSCA 434, particularly at [173]

[4] [2012] VSC 67 at [20] per Croft J.

[5] [1994] VicRp 13; [1994] 1 VR 210 per Gobbo J.

[6] [2010] VSC 154 at [13]- [14] per Osborn J.

[7] (1979) 45 LGRA 127 at [149]-[150] per Wells J.

[8] [2013] VCAT 673, particularly at [13]-[14]

[9] 15 Lorimer Street Pty Ltd v Secretary to the Department of Infrastructure (No. 2) (unreported, Supreme Court of Victoria, Byrne J, 24 April 2008) referred to in Murdesk (No. 2) at [56].

[10] [2013] VCAT 673 at [18]

[11] Murdesk (No. 2), op cit, at [6] per Emerton J., again following the Court of Appeal in Love v Roads Corporation, where the Court of Appeal was, in turn, approving a statement in Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 153; (2010) 175 LGERA 189 per Biscoe J.

[12] [2013] VCAT 673 at [17]

[13] For example, Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd (No. 2) [2012] VSC 586, Challenger Property Asset Management Pty Ltd v Stonnington City Council (No. 2) [2012] VSC 67, and Roads Corporation v Love [2010] VSC 154 .

[14] [2010] VSC 154, particularly at [53] per Osborn J.

[15] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298

[16] [2013] VSC 518 per Garde J. (Judgement delivered 27 September 2013)

[17] [2011] VCAT 2163, particularly at [9]-[10] per Walker SM, after referring to the oft-quoted comments in Vero Insurance Ltd v Gombac Group [2007] VSC 117 at [19]- [20] per Gillard J.

[18] Melbourne Water initial submissions on costs dated 5 July 2013 at [30]

[19] Melbourne Water initial submissions on costs dated 5 July 2013 at [31], referring for support to its earlier submissions in paragraphs [12]-[28] which included paragraphs [16]-[24] relating to the late injurious affection claim.

[20] Melbourne Water supplementary submissions on costs dated 23 August 2013 at [3]-[4]