24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd
[2015] VSCA 216
•20 AUGUST 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2015 0039
| 24 HOUR FITNESS PTY LTD | Applicant |
| v | |
| W & B INVESTMENT GROUP PTY LTD | Respondent |
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| JUDGES: | HANSEN, FERGUSON and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 5 AUGUST 2015 |
| DATE OF JUDGMENT: | 20 AUGUST 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 216 |
| JUDGMENT APPEALED FROM: | [2015] VCAT 596 (Judge Jenkins) |
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COSTS – Award of costs by Victorian Civil and Administrative Tribunal in retail tenancy dispute – Costs may only be ordered in limited circumstances, including where fair to do so because proceeding conducted in vexatious way and unnecessarily disadvantaged the other party to the proceeding – Relevant to take into account that claim bound to fail when determining whether vexatious conduct of proceeding – Retail Leases Act 2003 (Vic) s 92(2)(a)
PRACTICE AND PROCEDURE – Test for leave to appeal from order of Tribunal – Only in exceptional circumstances that leave to appeal from costs order granted – Tribunal in best position to determine who should bear costs and to what extent - Leave to appeal refused – Ikosidekas v Karkanis [2015] VSCA 121, Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148, Supreme Court Act 1986 (Vic) ss 14A-14D
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr C R Northrop | Goldsmiths Lawyers |
| For the Respondent | Mr J Searle | M + K Lawyers |
HANSEN JA
FERGUSON JA
MCLEISH:
Introduction
The applicant, 24 Hour Fitness Pty Ltd, leased retail premises in part of the building at 276 Russell Street, Melbourne from the respondent, W & B Investment Group Pty Ltd. In 2012, the applicant exercised its right of renewal under the lease but the respondent refused to acknowledge that the applicant was entitled to do so. The respondent alleged that the applicant was in breach of the lease. These issues were resolved in favour of the applicant by the Victorian Civil and Administrative Tribunal.[1] The applicant then sought damages for breach of the terms of the lease which gave it first right of refusal with respect to additional areas of the building at 276 Russell Street. The hearing as to whether there was a breach took place on 12 August 2013. The Tribunal found that the respondent had breached the lease and gave reasons for the decision on 22 August 2013.[2] A further hearing for the assessment of damages began on 2 March 2015 and concluded the following day. The Tribunal dismissed the claim for damages because the applicant did not conduct any business from the leased premises. Rather, Australian Institute of Fitness (Vic and Tas) Pty Ltd (‘AIF’), a related company, operated its business from there. Consequently, the Tribunal found that the applicant suffered no loss.[3] The respondent then made application for its costs of the proceeding so far as concerned the hearings on 12 August 2013 and 2 – 3 March 2015. It sought its costs on an indemnity basis. The Tribunal ordered that the applicant pay the respondent’s costs of the proceeding after 22 August 2013 to the extent that such costs relate to the preparation for the hearing of the application for damages and ordered that the costs be paid on a solicitor and client basis (‘Costs Order’).[4] The applicant seeks leave to appeal from the Costs Order.
[1]24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2012] VCAT 1560.
[2]24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd (Unreported, VCAT, Judge Jenkins, 22 August 2013).
[3]24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd (Unreported, VCAT, Judge Jenkins, 6 March 2015).
[4]VCAT order 17 April 2015; 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd[2015] VCAT 596 (‘Reasons’).
The test for leave to appeal
Relevantly, s 148(1)(a) of the Victorian Civil and Administrative Tribunal Act 1998 (‘VCAT Act’) provides that with leave from this Court a party may appeal on a question of law from an order of the Tribunal. In addition, ss 14A to 14D of the Supreme Court Act 1986 recently introduced a new regime for civil appeals to this Court. As was observed in Ikosidekas v Karkanis,[5] there is some uncertainty as to whether the new regime applies to leave applications where the appeal is from orders of the Tribunal. Essentially the issue is whether the test for leave is that the Tribunal decision is attended by sufficient doubt to justify the grant of leave to appeal[6] or rather that the appeal has a real prospect of success in the sense that it is not fanciful.[7] It is unnecessary to determine that issue in this case because on either test, we would not grant leave to appeal.
[5][2015] VSCA 121.
[6]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331.
[7]Supreme Court Act 1986 s 14C; Kennedy v Shire of Campaspe[2015] VSCA 47, [12].
The power to award costs
Section 109 of the VCAT Act empowers the Tribunal to make costs orders in certain circumstances. The Retail Leases Act 2003 overrides that provision so that, with one exception, each party in a retail tenancy dispute before the Tribunal is to bear its own costs in the proceeding.[8] The exception is specified in s 92(2) of the Retail Leases Act which, so far as relevant to the current case, reads:
… 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.
[8]Section 92.
Section 92(2)(a) was considered by Deputy President Bowman in State of Victoria v Bradto Pty Ltd and Timbrook Pty Ltd[9] (‘Bradto’). He observed that the provision requires the Tribunal to be satisfied that it is fair to order costs because a party conducted the proceeding in a vexatious way and that such conduct unnecessarily disadvantaged another party to the proceeding.[10] Deputy President Bowman referred to the distinction between a proceeding which is conducted in a vexatious manner and the bringing or nature of the proceeding being vexatious.[11] He held that a proceeding is conducted in a vexatious manner ‘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.’[12] This encapsulates the circumstances in which conduct may be classified as vexatious.
[9][2006] VCAT 1813.
[10]Ibid [66].
[11]Ibid [67].
[12]Ibid relying on Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197.
There is a question as to the proper construction of s 92(2) and as to whether there is a two or three step process. Taking sub-paragraph (a) as an example, on one view, the proper construction would see the Tribunal consider two matters: first, whether the party conducted the proceeding in a vexatious way and secondly, whether that unnecessarily disadvantaged the other party to the proceeding. On this construction, if those two matters were established then, for the purposes of s 92(2), fairness is also taken to be established without more. This two-step construction rests heavily on the use of the word ‘because’ in the section. The argument proceeds that if it was intended that fairness was an additional consideration to vexatious conduct and unnecessary disadvantage, then the provision would have read:
… 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
(a)the party conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding and that it is fair to do so; or
(b)the party refused to take part in or withdrew from mediation or other form of alternative dispute resolution under this Part and that it is fair to do so.
Even if both matters in (a) were established, the two-step construction would see the Tribunal retain a discretion as to whether to make a costs order because the section provides that the Tribunal ‘may’ make an order.
The alternative construction is that in addition to being satisfied as to the matters in either sub-paragraph (a) or (b), the Tribunal must give separate consideration to whether it is fair to order costs as part of the discretion bestowed on the Tribunal. The argument is that the words ‘it is fair to do so’ must have some work to do and the alternate construction ignores this principle of construction. That this is the preferred construction might be supported by taking paragraph (b) as an example: there may be many circumstances in which a party withdraws from mediation, yet it could not be said that it was fair to award costs simply because the party has abandoned the mediation. The withdrawal from mediation may be justified in the circumstances of the particular case.
It may be that whichever construction is preferred, the result will be the same in any given case because of the discretionary nature of the provision. Ultimately, it is not necessary for us to express a concluded view on this issue because the Tribunal in this case did consider it fair to award costs. We will return to this later in these reasons.
The making of special costs orders
Ordinarily, where costs are awarded they are awarded on a standard basis. However, in some circumstances, it is appropriate to make a special costs order. In Ugly Tribe Co Pty Ltd v Sikola,[13] (‘Ugly Tribe’) Harper J identified the following circumstances as warranting a special costs order, noting that the categories of circumstances are not closed:
[13][2001] VSC 189.
(a)the making of an allegation, known to be false, that the opposite party is guilty of fraud;
(b)the making of an irrelevant allegation of fraud;
(c)conduct which causes loss of time to the court and to other parties;
(d)the commencement or continuation of proceedings for an ulterior motive;
(e)conduct which amounts to a contempt of court;
(f)the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and
(g)the failure until after the commencement of the trial, and without explanation, to discover documents, the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.[14]
[14]Ibid [7]–[8].
The Tribunal’s reasons
The Tribunal had two issues to determine: first whether a costs order should be made; and secondly, the basis upon which the costs should be paid if such an order were to be made (that is, whether costs should be paid on an indemnity or some other basis).
The Tribunal referred to s 92(2) of the Retail Leases Act and observed that before the Tribunal can award costs in a retail tenancy dispute it must be satisfied that the applicant ‘conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding.’[15] The Tribunal referred to Bradto and also to Ugly Tribe and other authorities concerning special costs orders.
[15]Reasons [9].
The Tribunal then turned to consider each party’s submissions. The respondent argued that the applicant had conducted the proceedings in a vexatious manner in a variety of ways. The Tribunal methodically addressed in turn each of the respondent’s 14 criticisms of the applicant’s conduct.[16] As part of this process, the Tribunal considered the Points of Claim filed by the applicant which had been amended from time to time.[17] At the time of the trial, the relevant version was the Second Amended Second Points of Claim. Paragraph 8 of that document set out the allegation that the applicant had suffered loss. It read:
As a result of the breaches the applicant has suffered loss and damage.
[16]Ibid [21]-[57].
[17]Ibid [22]-[28].
PARTICULARS
The applicant would have taken a lease of both Shop 1 and the first floor. By taking possession of those areas the applicant would have been able to achieve a significant reduction in operating costs.
The costs which the applicant has not been able to obtain to 2012 are:
[A table of alleged costs was set out with the total costs claimed being $478,871.]
For each year after 2012 during which the premises are not leased to the applicant, the costs increase at no less than $115,000 pa.
These losses are continuing and full and further particulars will be provided prior to the hearing of this matter.
Before the Tribunal[18] and this Court, counsel for the applicant conceded that reference should have been made to the applicant’s associated company, AIF.
[18]Ibid [28].
The Tribunal also observed that the applicant had failed to provide up-to-date particulars before the trial as it had indicated in its Points of Claim that it would do.[19] The applicant contended that its expert’s report by Mr Michael McCann provided those particulars and made clear that the additional costs and loss of revenue were incurred by AIF. The Tribunal held that the applicant’s reliance on the report for the purpose of particulars was both unreasonable and inadequate.[20] The Tribunal also rejected as untenable the applicant’s contention that the report clearly and unequivocally stated that the business was operated by AIF and that this was confirmed by the respondent’s expert, Mr Russell Munday.[21] The Tribunal stated that it would return to these matters later in the Reasons and also to whether the reports provided an adequate explanation of the claim.[22] We refer to this in [35] – [38] below.
[19]Ibid [29].
[20]Ibid [30]-[31].
[21]Ibid [32]-[34].
[22]Ibid [31], [34], [38]-[40].
Next the Tribunal considered the respondent’s contention that the trial was conducted on the basis that the applicant operated the business at the leased premises. The Tribunal held that the applicant was entitled to ascertain its rights under the lease as to whether the respondent was in breach by failing to give it first right of refusal for additional space in the Russell Street building.[23] However, the Tribunal found that the applicant did not at any stage disclose to the Tribunal during the liability hearing that a related company conducted the business at the leased premises.[24]
[23]Ibid [37].
[24]Ibid [37].
The Tribunal then turned to consider whether the applicant had failed to disclose to the Tribunal that it did not conduct any business or have any interest in the business conducted at the leased premises when the issue was raised by the respondent before the Tribunal. It seems that this occurred during a directions hearing before the damages hearing took place. The applicant argued that before the damages hearing the respondent was already aware of the status quo. In respect of this matter, the Tribunal stated:
…it is unreasonable to impute constructive knowledge to the Respondent merely on the basis that it has raised a concern or queried the business operation of the Applicant at the Premises. The Respondent has, at all times, dealt with the Applicant as the tenant under the Lease. There has been no formal request of the Respondent to consent to a sub-tenancy arrangement which identified AIF; and there has been no formal advice from the Applicant to the Respondent that the Applicant did not in fact conduct business at the Premises or that a business was conducted by a related company on its behalf.[25]
[25]Ibid [43].
The Tribunal also considered the affidavits sworn by the applicant’s director, Mr Hornsey, which the respondent contended expressly or impliedly stated that the applicant conducted the business. The applicant argued that Mr Hornsey is not a lawyer and had not been given an opportunity to respond. The Tribunal found this response unsatisfactory and noted that there had been no explanation as to how Mr Hornsey, if properly advised when swearing his affidavit in his capacity as director, could have failed to disclose that the business was in fact not being conducted by the applicant.[26]
[26]Ibid [48].
The Tribunal next found the applicant’s evidence to be unsatisfactory and at best tenuous in respect of the claim for loss based on an alleged need to lease alternative premises in Wheelers Hill due to the respondent’s breach of the Russell Street lease. In particular, the Tribunal noted that there had been no effort to explain how the applicant purported to rely upon the Wheelers Hill lease when it was not a party to that lease.[27] Not only was the applicant not a party to that lease, but neither was AIF.
[27]Ibid [51].
The respondent contended that the outlines of evidence for Mr Hornsey and another witness for the applicant, Mr Corley, were at best vague and impliedly dishonest. The Tribunal held that the outlines were vague.[28]
[28]Ibid [52].
The Tribunal also held that the applicant had failed to disclose the true position of the applicant in the opening to the quantum trial.[29]
[29]Ibid [53].
The last matter that the respondent relied upon as constituting vexatious conduct of the proceeding was in respect of the overall manner in which the applicant had conducted its case. It contended that the proceeding may be described as a campaign of concealment constituting commercial fraud. The Tribunal recorded that in particular, the respondent had pointed to the applicant consistently filing documents and affidavits and having given evidence expressly or impliedly which was to the effect that it operated the business. In this regard, the respondent contended that the applicant’s conduct was clearly unfairly burdensome, prejudicial and dishonest with the applicant having brought and protracted the proceeding when its claim was obviously untenable or manifestly groundless as to be utterly hopeless.[30] The Tribunal did not address these allegations immediately after they were set out in its Reasons. However, in a later passage in the Reasons, the Tribunal repeated some of the findings that it had made when it had earlier dismissed the applicant’s claim for damages. Those findings included that up until the damages hearing and apart from the McCann report, the applicant had foreshadowed its claim on the basis that it conducted the business at the leased premises.[31]
[30]Ibid [54].
[31]Ibid [72a].
Having considered the respondent’s 14 criticisms of the applicant’s conduct said to constitute vexatious conduct, the Tribunal then set out the respective contentions by the parties in respect of the application that costs be paid on an indemnity basis.[32] The Tribunal took the view that the applicant’s claim could properly be described as ‘obviously untenable or manifestly groundless as to be utterly hopeless.’[33]
[32]Ibid [56]-[62].
[33]Ibid [57a].
The Tribunal then returned to the issue of whether the respondent was entitled to an award of costs and stated:
[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 for damages 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.[34]
[34]Ibid [77]-[78].
Next the Tribunal considered the basis for awarding costs and said:
The Applicant has conducted its application for damages in a manner which can be properly described, in the words of Ashley J, as ‘unmeritorious, deliberate, high-handed or otherwise improper’. It failed to disclose material information about the basis upon which it sought to claim the losses of an associated company. At the same time, in its Amended Points of Claim and supporting affidavits, it claimed the alleged losses as its own. In my view, this is an appropriate case in which to award damages on a solicitor and client basis, applying the County Court Scale.[35]
[35]Ibid [79].
Proposed grounds of appeal
There are four proposed grounds of appeal:
(a)the Tribunal’s reasons for decision were inadequate;
(b)the Tribunal erred in law by finding the applicant had ‘conducted the proceeding in a vexatious way’ within the meaning of s 92 of the Retail Leases Act;
(c)the Tribunal failed to consider whether any vexatious conduct had ‘unnecessarily disadvantaged’ the respondent within the meaning of s 92 of the Retail Leases Act;
(d)the Tribunal failed to consider whether it was fair to exercise its discretion to order costs as required by s 92 of the Retail Leases Act.
We will now deal with each of the proposed grounds of appeal.
The Tribunal erred in law by finding the applicant had ‘conducted the proceeding in a vexatious way’ within the meaning of s 92 of the Retail Leases Act (Ground 2).
Essentially, the applicant contends that there is a difference between instituting a proceeding that is vexatious, or making a claim that fails, and the conduct of a proceeding which is vexatious. The applicant argued that there is no basis to suggest that the commencement of the proceeding was vexatious, and that its entitlement to damages flowed from the finding that the respondent had breached the lease. It submitted that the Tribunal focussed more on what were perceived to be the prospects of success than on the actual conduct of the proceeding, yet it is the conduct of the party in the proceeding that is material, not consideration of the strength of its claims.
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,[36] 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.
[36]See [12]-[21] above.
It would be artificial to attempt to evaluate the manner in which the proceeding was conducted by a party without having any regard to the strength of that party’s case. In the present circumstances, it was relevant that the applicant pursued the damages claim, in circumstances where it was bound to fail. The applicant’s argument that its case was not hopeless must be rejected. Although it relied upon two English authorities,[37] as the Tribunal found,[38] both cases were clearly distinguishable. Cottrill v Steyning and Littlehampton Building Society[39] concerned damages to be awarded to an individual plaintiff where he had been given an option to purchase a property and the vendors had wrongly sold the property to another person. The court held that the vendors knew that the plaintiff intended to develop the properties and consequently held that his loss was to be assessed by reference to the contemplated profits.[40] The vendors did not know that the plaintiff intended to develop the properties through a corporate structure, but this was not a barrier to the plaintiff’s claim for damages, albeit that it may make the quantum of damages more difficult to ascertain.[41] That case is clearly distinguishable from the present one. The claim there was a claim by an individual for his loss in respect of the profit that he was prevented from making. Here, the evidence did not establish that there was any relevant connection between AIF and the applicant that would establish loss on the part of the applicant. The evidence went no higher than the existence of common shareholdings and directorships. No evidence was given, for example, as to any conversation or other communication regarding the manner in which the applicant and AIF would, or did, approach the running of the business.
[37]DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852; Cottrill v Steyning & Littlehampton Building Society [1966] 2 All ER 295.
[38]24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd (Unreported, VCAT, Judge Jenkins, 6 March 2015)[28] – [32].
[39][1966] 2 All ER 295.
[40]Ibid 298.
[41]Ibid.
The second case relied upon by the applicant before the Tribunal, DHN Food Distributors Ltd v Tower Hamlets London Borough Council,[42] concerned a claim for compensation following the compulsory acquisition of a property. The evidence established that three companies operated one business enterprise with one company owning the property, another owning the vehicles and the holding company operating the business using the land and vehicles. The court held that in those circumstances, the three companies should be treated as one. In the present case, again the evidence did not establish that the applicant, AIF and their holding company operated as one. Moreover, some doubt has been cast on the DHN decision[43] and there must be a question as to whether it is good authority in Australia. It is not necessary to consider that further in the present case.
[42][1976] 1 WLR 852.
[43]Woolfson v Strathclyde Regional Council [1978] SLT 159.
In short, the evidence in this case did not establish a proper basis that would permit the corporate veil to be pierced. Consequently, the applicant’s case was bound to fail. The Tribunal made no error in this regard.
The applicant also contended that the Tribunal applied reasoning relevant to the exercise of a court’s discretion to order costs on an indemnity basis rather than the relevant principles under s 92 of the Retail Leases Act for determining whether it was fair to award costs. Again, this criticism lacks foundation. Some of the circumstances relevant to whether costs should be awarded other than on a standard basis will overlap with the circumstances relevant to determining whether a proceeding has been conducted vexatiously and has unnecessarily disadvantaged the other party. The Tribunal was not in error to consider such factors in respect of both issues.
To the extent that this ground alleges that the Tribunal applied the wrong test, even if the matters it took into account were relevant, the argument should be rejected. The Tribunal referred to the statutory test more than once in its reasons. It set out the passage from the reasons of Deputy President Bowman in Bradto where the distinction was explained between the conduct of a proceeding in a vexatious way and the bringing, or nature, of a proceeding being vexatious. This proposed ground of appeal should be rejected.
The Tribunal failed to consider whether any vexatious conduct had ‘unnecessarily disadvantaged’ the respondent within the meaning of s 92 of the Retail Leases Act (Ground 3).
The applicant submitted that the Tribunal did not address the ‘unnecessarily disadvantage’ aspect of s 92(2)(a), having only referred to it in paragraph [78] of the Tribunal’s reasons as set out above.[44] It contended that as a matter of construction, the unnecessary disadvantage must involve more than having to participate in a proceeding at the Tribunal, even where the proceeding fails. It submitted that the Tribunal failed to give sufficient consideration to the reference in Mr McCann’s expert report, and other documents, to the existence of its related company, AIF, that operated the business.
[44]See [23] above.
The Tribunal addressed the effect of Mr McCann’s report by first noting that he had indicated that he had not audited or tested any of the documents provided to him and did not express any opinion as to their accuracy or reliability.[45] The Tribunal set out paragraph 1.7 from his report which was in the following terms:
1.7I have been engaged to provide an opinion as to whether the Applicant has suffered loss and damage as a consequence of the respondent failing to offer the premises, Shop 1 and First Floor of 276 Russell Street Melbourne. In particular I also note that while the tenant was 24 Hour Fitness Pty Ltd, the business operated from the premises was that of a related entity, Australian Institute of Fitness (Vic and Tas) Pty Ltd. Furthermore, I have been asked to express an opinion on losses individually for Shop 1 and First Floor, as well as loss and damage carried forward.
[45]Ibid [65].
The Tribunal observed that Mr McCann did not otherwise deal with the relationship between the applicant and AIF although it did note that there were some other fleeting references to AIF in appendices to the report.[46] The Tribunal stated that on its face the report provided no information about any business relationship between the applicant and AIF.[47] The Tribunal addressed the applicant’s contention as follows:
[46]Ibid [66]-[68].
[47]Ibid [69].
The Applicant has relied upon the McCann report as clearly disclosing the position of AIF. In my view, this contention is untenable for the following reasons:
a.Mr McCann was not giving a legal opinion as to the business structure of the Applicant and its associated companies or as to any business relationship between the Applicant and AIF or any other associated company;
b.The letter of instruction to Mr McCann, while asking him ‘to undertake an assessment of the loss and damage suffered by the tenant and its associated companies ...’ goes on to refer, in a number of paragraphs, to losses sustained by ‘our client’;
c.The letter of instruction implicitly treats the Applicant and any associated company which may be involved in a business at the Premises, as one business operation; again, Mr McCann was not asked to opine upon this structure or such relationship;
d.Mr McCann was not instructed as to what, if any, contractual relationship of agency or sub-tenancy existed between the Applicant and AIF;
e.Mr McCann appears to have relied upon the instructions of the Applicant as to its involvement in the lease of Wheelers Hill, without having regard to the legal entities which in fact were the parties to the lease; and
f.Mr McCann purports to assess losses of AIF on the basis that, according to its accounts, it was operating the business at the Premises; the report does not and could not make any finding as to whether those losses could be legally imputed to the Applicant.[48]
[48]Ibid [75].
The Tribunal also held that the applicant could not rely upon any statements made in Mr Munday’s report because those statements simply reflected the findings made by Mr McCann. Three examples from Mr Munday’s report are sufficient to illustrate the point:
4.10 The Applicant's associated entity, Australian Institute of Fitness (Vic & Tas) Pty Ltd, operates a personal training and fitness courses. 276 Russell Street is one of 6 campuses operated in Victoria by the company.
…
5.6 Accordingly, the claim appears to suggest that with Australian Institute of Fitness (Vic & Tas) PtyLtd failing to get access to Shop 1 and the 1st floor at 276 Russell Street, Melbourne, it obtained alternative premises in Wheelers Hill.
…
7.9 Given the reported profit of $38,008, the great uncertainty with the GFC, the non growth in Melbourne campus enrolments, the capacity to service significantly more students within existing facilities at Russell Street, the management of Australian Institute of Fitness (Vic & Tas) Pty Ltd may well have considered the additional leasing costs at Melbourne were unaffordable and have preferred to grow the business in outer suburban Melbourne at a much lower annual lease.
Mr Munday also referred to financial statements of AIF that he had reviewed in preparing his reports.
Contrary to the applicant’s submission, it is clear that the Tribunal gave careful consideration to the McCann report and, in our view, properly rejected the applicant’s argument that the report disclosed the position of AIF. So far as the role of AIF was concerned, Mr Munday’s report did not add anything to what had been said by Mr McCann. We can see no error in the Tribunal’s reasoning.
The applicant submitted that the Tribunal had not taken into account that although orders were made directing the respondent to file and serve written questions for the applicant’s experts, the respondent did not avail itself of this opportunity to clarify the position of AIF. The applicant’s submissions in this regard are an attempt to shift to the respondent the onus the applicant bore to make its case clear. There is no justification for that. It was for the applicant to make its case clear both to the respondent and to the Tribunal.
The applicant also pointed to all the financial and accounting records provided to the respondent that showed that the business was being conducted by AIF. The applicant argued that the respondent was aware of the separation between the two companies and had the opportunity of raising that matter well before the commencement of the hearing on quantum. Again, this is an unjustifiable attempt to cast the burden on the respondent. Further, even if the fact of AIF operating the business was, or should have been, known to the respondent that is not the end of the matter. For it is the relationship between the applicant and AIF that holds the key to whether the respondent’s breach of the lease caused the applicant to suffer any loss. That there was no relationship (other than that they were related companies with common directors and shareholders) was not apparent until the first day of the damages trial when the applicant’s director gave sworn evidence that the business was conducted by AIF and that the applicant did not run the business.[49] The evidence that Mr Hornsey gave was as follows:
focusing on Australian Institute of Fitness Vic and Tas, does that carry on a business of - a training business of some kind?---Yes, it does.
And can you just describe to Her Honour what that business is?---It's a - an RTO - registered training organisation that trains vocational qualifications under ASPA, which the Australian Qualifications something of Australia and we deliver national training package qualifications to students who want to become personal trainers in the fitness industry.
And is that done under the brand name, Australian Institute of Fitness?---Yes it is.
And is AIF a franchisee of some kind in relation to that business, the licensee?---Yes, yes it is.
Thank you, and 24 Hour Fitness, can you just tell Her Honour - that company is the company that is - that has the lease of the premises in Russell Street. Is that correct?---That is correct.
And does that carry on a business for itself or is the business all run through AIF?---The business is all run through AIF.
[49]T 51.23-52.13 2 March 2015.
The applicant submitted that this evidence was in the same terms as those used by Mr McCann in his report and that there was nothing new or surprising in the evidence that Mr Hornsey gave. However, when one considers that the question that Mr Hornsey was asked covered not only through whom the business was run but also whether the applicant carried on a business for itself, Mr Hornsey’s evidence goes beyond what had been known before. The applicant did not seek to argue that it did carry on a business either on its own or in partnership with AIF or with AIF as its agent, and the evidence did not establish any of these things.
It follows that the Tribunal was not in error in its findings regarding the manner in which the applicant conducted its case. It was well open to it to find as it did, that the conduct of the proceeding had unnecessarily disadvantaged the respondent.
The Tribunal failed to consider whether it was fair to exercise its discretion to order costs as required by s 92 of the Retail Leases Act (Ground 4).
The applicant submitted that the proper construction of s 92(2)(a) required the Tribunal to give separate consideration to whether it was fair to award costs even if the elements in paragraph (a) of s 92(2) were satisfied. We have set out above the alternate argument for a different construction of the provision.[50] As we said, it is not necessary to resolve which is the better construction because the Tribunal did take overall fairness into account.
[50]See [5] above.
The Tribunal set out s 92(2)(a) in full in its reasons.[51] The Tribunal addressed in detail the various submissions of the parties, the issue of whether the proceeding had been conducted in a vexatious way and whether that unnecessarily disadvantaged the respondent. The Tribunal exercised its discretion to award costs on a solicitor/client rather than standard basis. It would not have done so if it was of the view that it was not fair for the applicant to bear the costs. The applicant has not identified any matter that in the exercise of its discretion the Tribunal wrongly took into account, nor any matter that the Tribunal omitted to take into account. Indeed, in view of the Tribunal’s findings, it would be surprising if the Tribunal had not awarded the respondent its costs.
[51]Ibid [8].
The Tribunal’s reasons for decision are inadequate (Ground 1).
It is trite law that the Tribunal must provide adequate reasons for its decisions.
The applicant contends that the Tribunal did not make an express statement as to which of the 14 complaints made by the respondent about the applicant’s conduct had informed the Tribunal’s finding that it had engaged in vexatious conduct. It gave as an example the complaint that it had failed to disclose that the applicant did not conduct any business from the leased premises and says that this fact would have been apparent from reading the experts’ reports and the proffered financial documents. The Tribunal dealt with those matters and they have been addressed above. Nothing turns on the applicant’s complaint that the Tribunal did not refer to the financial documents, as well as the expert reports. Those documents revealed nothing that was not in the reports. It is clear from the Tribunal’s reasons that it did not accept that the respondent (or for that matter the Tribunal) would have been aware of the lack of nexus between AIF and the applicant so far as the damages claim was concerned.
The applicant submitted that the reasons of the Tribunal had also failed to acknowledge the seriousness of some allegations made by the respondent. It gave as an example the following paragraph from the Reasons:
the Applicant, in its outline of the evidence for Mr Hornsey and Mr Corley, was, at best, vague and impliedly dishonest. I agree that the outline of evidence was, at best, vague.[52]
[52]Ibid [52].
The applicant submitted that the Tribunal should not have entertained a submission or made findings about this as neither individual was cross examined or given an opportunity to respond. However, the Tribunal did not make a finding of dishonesty. It found the outline to be vague. That is a matter of interpretation of the outline and we do not see how cross examination would have assisted. The issue was relevant to the application for costs against the applicant with no application for costs directed to either Mr Hornsey or Mr Corley. The relevant party to be heard was the applicant and it took up that opportunity.
Another of the applicant’s criticisms of the Reasons addressed paragraph [77c][53]. That paragraph referred to the loss of time to the Tribunal and the Respondent. This paragraph of the Reasons must be read in the context of the Reasons as a whole. In this case, the applicant chose to run its claim for damages when it was bound to fail. It is not necessary to spell out in any more detail that running that case caused loss of time.
[53]See [23] above.
Similarly, there is no merit in the applicant’s criticism that the Reasons do not elaborate on why any vexatious conduct of the proceeding caused unnecessary disadvantage or why the Tribunal thought it fair to order costs. Both conclusions follow from the Tribunal’s findings as a whole.
The Tribunal has an obligation to disclose its path of reasoning. Among other reasons, it is essential that losing parties know why they have lost. However, that does not mean that it is necessary for the Tribunal to set out matters which are so obvious as to go without saying when the reasoning is considered as a whole. Here, the reasoning of the Tribunal set out and dealt with the relevant principles and each party’s respective submissions, and came to conclusions supported by the reasoning which preceded them.
Conclusion
The appeal had a real prospect of success (in the sense that it was not fanciful) and there was sufficient doubt about the Costs Order such as might support the grant of leave. Nevertheless, this is an appeal from a costs order and it is only in exceptional cases that leave to appeal will be granted from that type of order. The Tribunal in this case was best placed to determine who should bear the costs and to what extent.[54] With that in mind, we would refuse leave to appeal.[55] Had we granted leave, we would have dismissed the appeal for the reasons that we have given.
[54]Hercules v Magistrates’ Court of Victoria [2008] VSCA 1, [15]; Velissaris v Fitzgerald [2008] VSCA 152, [8].
[55]Under s 148 of the VCAT Act whether leave is to be granted depends ultimately upon the justice of the case: Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 [8]. Under s 14C of the Supreme Court Act the Court retains a residual discretion as to whether to grant leave even if the appeal has a real prospect of success: Kennedy v Shire of Campaspe[2015] VSCA 47, [14].
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