VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP2262/2021	
CATCHWORDS	
RETAIL LEASES ACT 2003-COSTS–s 92(2)(a)–“conducted the proceeding”–the respondent landlord entered into a conditional lease agreement with a third party on the eve of the hearing of the applicant tenant’s adjourned application for relief against forfeiture, intended to be relied on by the respondent as the basis for submissions in opposition to the application–found to have sufficient nexus with the proceeding to be conduct by the respondent of the proceeding within the meaning of the section. 
Subsequent reliance by the landlord on a legal authority as the prime basis for resisting the application for relief against forfeiture, based on such conditional lease agreement, such authority being found to be readily distinguishable from the facts before the Tribunal–reliance on authority should have been seen as hopeless.
By the respondent’s refusal of an open offer by the tenant to be relieved from forfeiture, the respondent persisted in its opposition to the application for relief against forfeiture, which course should have been seen as hopeless.
Costs order made in favour of the applicant. 	

APPLICANT	Dion Lee Enterprises Pty Ltd (ACN: 163 035 685)	
RESPONDENT	Idalo Pty Ltd (ACN: 006 171 991)	
WHERE HELD	Melbourne	
BEFORE	A Kincaid, Member	
HEARING TYPE	Costs application on the papers.	
DATE OF HEARING	13 April 2022	
DATE OF ORDER	19 December 2022	
CITATION	Dion Lee Enterprises Pty Ltd v Idalo Pty Ltd (Building and Property) (Costs) [2022] VCAT 1458	

Order
1.	The respondent must pay to the applicant the applicant’s costs of the proceeding, including reserved costs, to be taxed by the Victorian Costs Court on the County Court Scale, on the standard basis. 

A Kincaid
Member			
Reasons
1	By an oral decision on 13 April 2022, I dismissed an injunction application brought by the applicant tenant, but granted its application for relief against forfeiture. 
2	My subsequent brief written findings and orders were as follows:
PRINCIPAL FINDINGS
1.	There is no serious issue to be tried as to whether the applicant was not in breach of the lease by failing to pay rent and outgoings by operation of reg 26(1) of the Commercial Tenancy Relief Scheme Regulations 2021 (Vic), given that there is no serious question as to the propositions that the applicant’s request for rent relief was not in accordance with reg 27(2), that the applicant did not comply with the requirements of reg 27(3), and that the request for rent relief therefore lapsed under reg 27(4). 
2.	The circumstances are not regarded as exceptional as to justify the refusal of the applicant’s claim to be relieved of forfeiture of the lease. 
3.	In particular, the usual course where, as a matter of discretion, a court or tribunal will generally decline to grant relief where a third party has acquired rights over the property without notice of the tenant’s claim did not apply here, upon a proper analysis of the rights acquired by the third party, including the fact that the third party’s rights are not vested in possession.
4.	The decision of Mir Holdings Pty Ltd v Marina Square Retail Pty Ltd [2020] NSWSC 1418, relied upon by the respondent, in which relief against forfeiture was refused, is distinguishable because: 
(a)	at the time of the application for relief in that case, the third party was already in possession of the premises and “evidently proceeding with a fit out of the premises” (the third party here is not in occupation);
(b)	the agreement for lease in that case had become unconditional, because the landlord had obtained vacant possession of the premises, with the consequence that the third party in that case had an unconditional entitlement to occupy the premises cf. clause 22.27 of the lease granted to the third party in this case by which, among another right granted to the respondent: 
(i)	the third party, at the date of this hearing, remained entitled to terminate the lease by written notice given after 10 April 2022 in the absence of written notice given by the respondent that the respondent would have vacant possession of the premises by 24 May 2022, in which case an express term deemed the lease to be void ab initio (clause 22.27.2); and 
(ii)	the lease would terminate in any event (in which case an express term of the lease deemed the lease to be void ab initio) if the respondent had not obtained vacant possession by 24 May 2022 (clause 27.27.3). 
5.	It is unnecessary to decide the question of whether the third party can, by reason of the objective facts and circumstances, be taken to have been aware of the applicant’s proceeding filed 22 December 2021 seeking injunctive relief alternatively relief against forfeiture, including:
(a)	the terms of the third party’s two offers to take a lease;
(b)	the terms of the lease to the third party; and
(c)	the refusal of the third party to provide documents to the applicant’s legal advisers upon their request, or to confirm to them that relevant officers of the third party would attend the Tribunal to give evidence this day. 
ORDERS
1.	For the reasons given orally:
(a)	the application by the applicant for injunctive relief is dismissed. 
(b)	the application by the applicant for relief against forfeiture of the premises at 1052 High Street, Armadale is granted, and the applicant is restored to possession of the premises pursuant to the lease commencing 1 May 2021 (as extended) and ending on 30 April 2026.
2.	Costs reserved, with a decision to be made on the papers. 
3	The applicant has subsequently made an application for the costs of the proceeding, including the costs of the hearing before me. 
The Tribunal’s costs jurisdiction
4	Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 empowers the Tribunal to make costs orders in certain circumstances.
5	Section 92 of the Retail Leases Act 2003 (the “RLA”) overrides that provision in the case of a retail lease dispute, such as this dispute.  It provides:
(1)		Despite anything to the contrary in Division 8 of Part 4 of [the Act], each party to a proceeding before the Tribunal under [Part 10 of the RLA] is to bear its own costs of the proceeding. 
(2)		However, at any time the Tribunal may make an order that a party shall 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 the mediation or other form of alternative dispute resolution under this Part (emphasis added).
6	It follows then, that if I am to order costs against the respondent, I must be satisfied that it is fair to do so, because I find that either one of the criteria in sub-paragraphs (a) or (b) of sub-section 92 applies. 
7	The applicant relies on s 92(2)(a) of the RLA as the basis for its costs application.
Conducting the Proceeding in a Vexatious Way
Persisting in a case that was bound to fail
8	Whether a party has conducted a proceeding in a vexatious way was considered by Vice President Judge Jenkins (as she then was) in 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd.  Her Honour concluded:
[77]		By reason of the factual circumstances described above and the findings made following the damages hearing, I am satisfied that the Applicant:
(a)		commenced an action for damages, following the finding that the Respondent was in breach of the lease, in circumstances where the Applicant, properly advised, should have known it had no chance of success;
(b)		persisted in what should, on proper consideration, be seen to have been a hopeless case;
(c)		engaged in conduct which caused a loss of time to the Tribunal and the Respondent;
(d)		commenced a proceeding in wilful disregard of known facts or clearly established law; and
(e)		made allegations as to losses which it claimed to have incurred, which ought never to have been made. 
[78]		In consequence, I am satisfied that the Applicant has conducted the proceeding in a vexatious way that has unnecessarily disadvantaged the Respondent. Accordingly, I am satisfied that the Respondent is entitled to an award of costs subsequent to the liability hearing, to the extent that such costs relate to the preparation for and hearing of the application for damages (emphasis added).
9	In 24 Hour Fitness, in an unsuccessful application for leave to appeal against the decision of Judge Jenkins, the Court of Appeal referred to these paragraphs with evident approval.
10	On appeal, the applicant submitted that for the purposes of section 92 of the RLA, it is the conduct of the party in the proceeding that is material, not a consideration of the strength of its claims as had been taken into account at first instance. The Court of Appeal rejected the submission, in the following terms:
[28]	The applicant’s criticism does not take into account the Tribunal’s detailed analysis of the 14 matters upon which the respondent relied as constituting vexatious conduct. As can be seen from what we have set out above, the Tribunal carefully considered each of those matters and made findings in respect of them. It is obvious that the Tribunal relied upon those findings in reaching the conclusion that the case was an appropriate one in which to order costs. True it is that the Tribunal also considered the hopelessness of the applicant’s claim, but there is no error in that. The strength of the applicant’s claim for damages was a relevant factor to take into account.
[29]	It would be artificial to attempt to evaluate the manner in which the proceeding was conducted by a party without having regard to the strength of that party’s case. In the present circumstances, it was relevant [for the purpose of determining whether the applicant conducted the proceeding in a vexatious way] that the applicant pursued the damages claim, in circumstances that it was bound to fail.
11	In deciding whether a proceeding is conducted in a vexatious way within the meaning of section 92(2)(a) of the RLA, a relevant consideration, therefore, is where the proceeding is maintained in circumstances that it is obviously untenable or manifestly groundless as to be utterly hopeless or, in the words of the Court of Appeal, “bound to fail”.
Conducting a proceeding in a manner unfairly burdensome
12	There is another way in which a party may be found to have conducted a proceeding in a vexatious way.
13	In State of Victoria v Bradto Pty Ltd his Honour Judge Bowman stated that a proceeding is conducted in a vexatious way:
…if it is conducted in a way productive of serious and unjustified trouble or harassment, or if there is conduct which is seriously and unfairly burdensome, prejudicial or damaging”.
14	The Court of Appeal in 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd agreed that his Honour’s description in Bradto “encapsulates the circumstances in which conduct [in the sense described by Judge Bowman] may be classified as vexatious”.
The course of this proceeding 
15	The applicant’s application for an interlocutory injunction alternatively relief against forfeiture was filed in the Tribunal on 22 December 2021. 
16	On 23 December 2021, the parties entered into consent orders, upon the respondent’s undertaking to return the keys of the premises to the applicant, and not to seek re-entry in reliance on its notice of breach dated 15 September 2021. Order 4 stated as follows:
The injunction application is adjourned for further hearing before any Member on 9 February 2022…
17	On 1 February 2022, the respondent offered to lease the premises to a third party for a period of 5 years from 11 August 2022. Clause 25 of the offer stated:
This offer is conditional on:
•	The [respondent] procuring vacant possession of the premises and the termination or surrender of any existing lease;
•	…
18	The application was not heard on 25 March 2022. Consent orders were made on 9 February 2022 as follows:
…
3.	The application for an interlocutory injunction is adjourned for further hearing before any Member on 25 March 2022.
[the balance of the orders largely related to the exchange of further affidavit material].
19	Due to Member unavailability, the hearing fixed for 25 March 2022 was adjourned by order in Chambers dated 23 March 2022 to 4 April 2022.
20	On 3 April 2022, the respondent entered into a conditional lease (the “conditional lease”) with the same third party to which the respondent had earlier made the above offer to lease, with a commencement date being the later of the occurrence of certain events set out in clause 22.17.3 of the conditional lease.
21	The conditional lease contained the following provisions:
22.27	Condition Precedent-vacant possession
22.27.1	The landlord may, by giving written notice to the tenant at any time on or before 10 April 2022, terminate this lease if the landlord in its reasonable opinion considers that it will not have vacant possession of the premises by 24 May 2022. Upon the giving of such notice this lease is deemed void ab initio.
22.27.2	The tenant may after 10 April 2022 and at any time before the landlord gives the tenant written notice that it will have vacant possession of the premises by 24 May 2022, terminate this lease by giving written notice to the landlord. Upon the giving of such notice by the tenant this lease is deemed void ab initio.
22.27.3	if the landlord has not obtained vacant possession of the premises by 24 May 2022, this lease will terminate and is deemed to be void ab initio.
22.28	Condition precedent-Tenant’s termination right
The tenant may, by giving written notice to the landlord at any time or before 1 June 2022, terminate this lease. If the tenant terminates this lease under this additional provision 22.28, each party is released from all obligations and liabilities under this lease.
22	The applicant’s application was heard on 4 April 2022 by Member Nash, but was subsequently vacated by the learned Member. Her orders that day set out the circumstance:
OTHER MATTERS
1.	At the conclusion of the hearing, counsel for the respondent informed the Tribunal that he had been conducting the hearing on the basis that the hearing was only to determine the application for injunctive relief, not the application for relief against forfeiture.
2.	Due to the apparent misunderstanding as to the matters being determined by the Tribunal at the hearing and to ensure fairness as between the parties, the Tribunal considers it appropriate to relist both of the applications for a hearing de novo.
ORDERS
1.	The applicant’s applications for both injunctive relief and for relief against forfeiture are listed for hearing…on 13 April 2022…
23	By letter dated 5 April 2022 to the respondent’s solicitors, the applicant’s solicitors attempted to compromise the proceeding in the following terms:
…
5.	We note that the respondent’s Counsel, at the conclusion of the Hearing, explained to the Tribunal that he had conducted the Hearing in the belief that relief against forfeiture was sought by the applicant in support of the injunction, and he was not aware that it would be granted immediately if the application for the injunction was unsuccessful.
6.	In our opinion, it is clear that such an approach would have left the parties in limbo with no party having a clear entitlement to possession of the premises and it would completely undermine the concept of relief against forfeiture. [Member Nash] also noted that your client’s conduct in entering into the lease the day before the Hearing (if allowed to proceed) would effectively allow any landlord to circumvent an application for relief against forfeiture, something that she was not prepared to condone.
7.	While our office cannot reconcile this position we are also at a loss as to what further evidence or legal propositions your client would seek to rely upon the adjourned hearing next week as the facts surrounding the application ostensibly cannot change. Re-entry took place, rental arrears were paid immediately, and the applicant was forced to file [its] application as the respondent would not avail [it] back into the premises.
8.	Our client has provided instructions to write to the alleged incoming tenant… to place them on notice with respect to the applicant’s claim for relief and we have done so today (copy enclosed).
9.	[The applicant] has also put [the third party] on notice of our client’s intention to procure documentary and verbal evidence from representatives of [the third party], despite the fact that Member Nash considered [the applicant] had done enough to extinguish the alleged third-party rights. As Member Nash gleaned, your client’s lease with [the third party] contemplated [the applicant’s] tenancy, if not expressly then implicitly, and your client could have negotiated the lease at any time but chose to enter into a conditional lease the day before Hearing.
10.	[The applicant] has instructed our office to make one last effort to resolve the proceedings without further intervention of the Tribunal and does so on the following basis, without prejudice to its legal rights and entitlement;
(a)	the parties agree [by] consent that relief against forfeiture is granted forthwith;
(b)	[the applicant] will waive any profits lost due to non-trading between 17 December 2021 and 26 December 2021;
(c)	[the applicant] will waive any reputational damages;
(d)	[the applicant] will waive any rent relief arising from the Covid-19 Code;
(e)	each party will bear its own costs; [and]
(f)	the VCAT proceeding [is] otherwise discontinued.
11.	[The applicant] makes this offer on an open basis in the full knowledge it has a clear entitlement to relief against forfeiture. In fact, Member Nash was prepared to grant said relief yesterday. It is [the Applicant’s] submission that any other Member will reach the same conclusion as Member Nash. [The respondent’s] conduct in continuing to defend the claim borders on vexatious and our client will pursue an order for its costs if the above offer is not accepted.
12.	this offer is open for acceptance until 5 pm 8 April 2022.
…
24	By their response dated 11 April 2022, the solicitors for the respondent wrote:
…
3.	Section 87 (1) of the [RLA] provides that a retail tenancy dispute may only be the subject of proceedings before the Tribunal if the Small Business Commission (SBC) has certified in writing that mediation or another appropriate form of alternative dispute resolution under Part 10 of the RLA has failed, or is unlikely, to resolve the dispute. Section 87 (2) of the RLA provides that section 87 does not apply to proceedings for an order in the nature of an injunction.
4.	We refer you to the observations of Deputy President Lulham in Wells v Hodges Property Pty Ltd [2016] VCAT 1524 (at [47] and [48]:
“… [the complaints]… Are a “retail tenancy dispute” within the meaning of the RLA. [The complaints] have not been the subject of alternative dispute resolution and the Small Business Commission has not issued a certificate.
It follows that [the complaints]… may not be the subject of Tribunal proceedings.
…this brings [the complainant’s] proceeding… to an end.”
5.	Your client’s complaint about entitlement for rent relief against forfeiture should have been referred to the Small Business Commission for alternative dispute resolution before it was the subject of the Proceeding.
6.	In the circumstances, your client’s proceeding for relief against forfeiture must not be the subject of proceedings before the Tribunal, as it is not a proceeding for an order in the nature of an injunction. That being so, your client’s proceeding for relief against forfeiture must be brought to an end.
…
25	When the applicant’s applications for injunctive relief alternatively for relief against forfeiture came on for hearing before me, the jurisdictional objection claimed by this letter was not pressed. I do not consider that the claimed objection had any merit; there is a respectable basis for contending that an application for relief against forfeiture is “in the nature of” an injunction within the meaning of s 87(2) of the RLA. If not, I consider that there are other reasonable constructions of s 87(2) of the RLA that would avoid the need for a tenant to issue two separate proceedings–one for an injunction and one for relief against forfeiture, the latter of which requires as a precondition to the Tribunal’s jurisdiction, a certificate from the Small Business Commission pursuant to s 87(1) of the RLA that mediation or another appropriate form of alternative dispute resolution has failed, or is unlikely, to resolve it. 
26	In the event, as my orders demonstrate, there was no basis to resist the making of an order granting relief against forfeiture. It was common ground that the applicant had made good its defaults under the lease.
27	The respondent relied on Mir Holdings Pty Ltd v Marina Square Retail Pty Ltd, as the basis for contending that relief against forfeiture could still not go because of the intervention of the third party’s interest in the premises.  
28	In Mir Holdings, the plaintiff tenants each held a registered lease of respective retail premises at a shopping centre, which they operated as restaurants. The defendant landlord entered into agreements for lease in respect of each of the premises with third parties, prior to its serving a notice of re-entry on each tenant. Upon serving notice of re-entry, vacant possession of each of the premises was obtained within the meaning of the agreements for lease, at which time the agreements for lease became unconditional. Keys were subsequently handed to each of the third parties. At the time the application for relief against forfeiture came on for hearing, the third parties were found to be in possession of the premises, and were evidently proceeding with a fit-out of them. With the third parties having, what appeared to the Judge, an unconditional entitlement to occupy the premises, he was not prepared to grant relief without hearing from the third parties. There was no evidence that the third parties knew anything about the purported termination of the leases. These factors alone, the learned Judge found, was a reason to decline the plaintiff’s application. Further, the Judge indicated that the plaintiffs’ claims was in any event problematic, because its defaults under the lease were persistent and significant, as a result of which the Judge would have hesitated to grant the relief sought.
29	It was contended on behalf of the respondent, relying on Mir Holdings, that the respondent having entered into the conditional lease on 3 April 2022 with the third party, there was no serious issue to be tried as to whether the applicant was entitled to relief against forfeiture, and the application for relief must therefore fail. 
30	I did not accept that Mir Holdings was analogous to the circumstance before me, such as defeat the applicant’s claim for relief against forfeiture. I briefly expressed the reasons why in my Findings, reproduced above. 
31	It could have been confidently anticipated by the respondent, in my view, that the applicant’s application for injunctive relief was likely to fail for the reasons set out in paragraph (1) of my Principal Findings, in which case the applicant’s ongoing right to possession would depend on its alternative claim expressly made in the proceeding for relief against forfeiture.  I consider that the respondent’s seeking to rely on Mir Holdings as the basis for opposing the application for relief against forfeiture, as distinguishable the circumstances were in that case, was hopeless. I am of the view that the respondent should have accepted the applicant’s offer to settle, contained in its solicitor’s letter dated 5 April 2022.  The respondent did not do better in the result than what had been offered by the applicant. I have concluded that the respondent thereby conducted the proceeding in a vexatious way within the meaning of s 92(2)(a) of the RLA. Further, it unnecessarily disadvantaged the applicant within the meaning of s 92(2)(a) of the RLA, because it was forced to make its application for relief against forfeiture after its written offer to resolve the proceeding on that very basis that relief be granted fell on deaf ears.  
32	Further, the respondent, with full knowledge of the applicant’s application, entered into the conditional lease with the third party on the eve of the hearing of the applicant’s application for relief against forfeiture before Member Nash on 4 April 2022. The respondent subsequently sought to rely on the conditional lease as the prime basis for opposing the application, which I found was erroneous. I find that the respondent engaged in this conduct, being the entry into the conditional lease, for the express purpose of attempting to defeat the application for relief against forfeiture. I also find that the conduct therefore had a sufficient nexus with the proceeding for it to be conduct of the proceeding that was unfairly burdensome, prejudicial and/or damaging to the interest of the applicant so as to amount to conducting the proceeding in a vexatious way within the meaning ascribed to that expression by Judge Bowman in Bradto.  I find that this conduct also unnecessarily disadvantaged the applicant within the meaning of s 92(2)(a) of the RLA because, again, the applicant was required at the hearing before me to meet the respondent’s submissions with respect to the respondent’s entry into the conditional lease
33	I am satisfied that that the respondent’s conduct is such as to attract an adverse costs order in favour of the applicant pursuant to s 92(2)(a) of the RLA.
34	There is no basis, in my view, for the reserved costs order made by Member Nash on 4 April 2022 attracting any different consideration. It is the overwhelming practice of the Courts, and of this Tribunal, to consider any claim for relief against forfeiture (whether on an interlocutory or, much more commonly, final basis) where a claim for injunctive relief fails. Clear notice was given to the respondent by its original filing that there was an alternative claim made by the applicant for relief against forfeiture. It should have been anticipated by the respondent’s legal representatives prior to the hearing before Member Nash. The consequence of the vacating of the hearing by Member Nash caused the applicant unjustified trouble within the meaning of Bradto, as it was required to repeat its submissions before me at a subsequent hearing.
35	I do not see the circumstances of the respondent’s conduct to be so exceptional or extreme as to warrant the awarding of costs on an indemnity basis. 

A Kincaid
Member