Lahanis v Livesay (Costs)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S ECI 2020 01011

IN THE MATTER of an application pursuant to s 84 of the Property Law Act 1958 for the modification of a restrictive covenant

AND

IN THE MATTER of an application for the modification of the restriction arising under the covenant in transfer of land registered no. 2245509 dated 5 August 1949 affecting the land at 22 Derrick Street, Lalor being lot 192 on plan of subdivision no. 20067 and being the land in folio of the Register volume 7684 folio 183.

BETWEEN

CON SOFOKLIS LAHANIS	Plaintiff
v
ROBYN LIVESAY & ORS (according to the attached Schedule)	Defendants

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JUDGE:	Derham AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	By written submissions finalising on 15 February 2021
DATE OF JUDGMENT:	19 February 2021
CASE MAY BE CITED AS:	Lahanis v Livesay & Ors (Costs)
MEDIUM NEUTRAL CITATION:	[2021] VSC 65

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COSTS – Application for modification of restrictive covenant – Application granted – Special factors relevant to costs in applications for the discharge or modification of restrictive covenants – Calderbank offer made by plaintiff – Applicable legal principles – Whether unreasonable of defendants to reject Calderbank offer – Whether the need that the Court exercise jurisdiction under s 84 of the Property Law Act 1958 affects the availability or utility of Calderbank offers – Re Withers [1970] VR 319; Wong v McConville & Ors (No. 2) [2014] VSC 282; Jiang v Monaygon Pty Ltd (Costs) [2017] VSC 655; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Thomopoulos v Faulks (No 2) [2006] VSC 286, Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398; and Charan v Nationwide News Pty Ltd [2019] VSCA 36, referred to.

COSTS – Certifying Counsel’s fees – Under what power does the Court certify Counsels’ fees – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.34(3); Civil Procedure Act 2010 (Vic), s 65C; Supreme Court Scale of Costs, item 19(4); Jenkins v GJ Coles & Co Limited, (1993) 1 VR 155; The Mayor Councillors and Citizens of the City of Warrnambool v Tabone, (Supreme Court of Victoria Appeal Division, Marks J, 25 August 1992); Foudoulis v O’Donnell (No 2) [2020] VSC 343; Lenehan v Powercor Australia Ltd [2020] VSC 82; Gurappaji v Phillips [2021] VSC 11 referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr W Rimmer	Aughtersons Solicitors
For the Defendants	Mr P Barton	Bevan-Rhys James

TABLE OF CONTENTS

Introduction and summary of conclusions................................................................................... 1

Applicable Law................................................................................................................................... 2

Costs in restrictive covenant applications................................................................................. 2
Calderbank offers.......................................................................................................................... 3

Plaintiff’s Submissions..................................................................................................................... 7

Defendants’ submissions............................................................................................................... 10

Plaintiff’s reply submission........................................................................................................... 12

Consideration.................................................................................................................................... 14

Certifying Counsel’s fees............................................................................................................... 22

Conclusion......................................................................................................................................... 24

HIS HONOUR:

Introduction and summary of conclusions

On 4 February 2021, I delivered judgment in this proceeding (Lahanis v Livesay & Ors [2021] VSC 29) granting the plaintiff’s application to modify a restrictive covenant burdening the land at 22 Derrick Street, Lalor, Victoria (Land), on the basis that the plaintiff had established that the proposed modification would not substantially injure the persons entitled to the benefit of the covenant. The plaintiff’s application was made pursuant to s 84(1)(c) of the Property Law Act 1958 (Vic) (PLA) to modify the covenant in a number of respects, but the only controversial aspect was in respect of the restriction that limited the erection of more than one dwelling house on the land.

After I stated my conclusions in the reasons for judgment,[1] I asked the plaintiff to submit draft orders which, subject to any further submissions, I expected to include that the defendants’ costs be paid by the plaintiff.[2]
[1][2021] VSC 29, [124].
[2][2021] VSC 29, {125].

In consequence, Counsel for the plaintiff and defendants agreed a timetable for written submissions, as it turned out the plaintiff had made a Calderbank offer on 30 July 2020 (without prejudice save as to costs) and so wished to submit that the usual principles applying to costs in restrictive covenant proceedings should be regarded as displaced after that date in favour of indemnity costs, or at least standard costs, on the grounds that it was unreasonable for the defendants not to have accepted that offer. I have added the text of the Calderbank letter at the end of these reasons.

There is no evidence of a direct response to the Calderbank letter by the defendants’ solicitor. However, on 3 September 2020 the defendants’ solicitor wrote to the plaintiff’s solicitor saying:

We refer to this matter in which we continue to act for the defendants. We confirm you act for Plaintiff, Lahanis.
We write this letter to clarify matters primarily for costs purposes.
Provided their costs on a standard basis are paid our clients do not oppose the covenant modifications deleting the need for consent and approval of The Peter Lalor Home Building Cooperative Society Limited and limiting the prohibition on digging of earth to other than for the residential use or development of the land.
Their opposition is limited to the modification of the single dwelling covenant.

Applicable Law
Costs in restrictive covenant applications

In Wong v McConville& Ors[3] I considered at some length the applicable principles in cases of this kind. I will not repeat all I said, but note the wide discretion conferred by s 24 of the Supreme Court Act 1986 (Vic) and the earlier cases that accord with the views I there expressed, in particular in Victoria Re Withers;[4] Re Markin,[5] Re Shelford Church of England Girls’ Grammar School[6] Re Ulman,[7] Stanhill Pty Ltd v Jackson;[8] Suhr v Michelmore,[9] and in New South Wales Walker v Bridgewood (No 2).[10]
[3][2014] VSC 282, [9] – [19] (Wong).
[4][1970] VR 319 (Re Withers).
[5][1966] VR 494.
[6]Unreported, 6 June 1967.
[7](1985) VConVR 54-178.
[8][2005] VSC 355 (Stanhill).
[9]Unreported, Pagone J, 3 June 2013 after judgment in Suhr v Michelmore [2013] VSC 284.
[10][2006] NSWSC 284, [9] [12].

I said in Wong v McConville& Ors that although costs are a matter of discretion and each case stands on its particular facts, the general rule that costs follow the event ordinarily do not apply in these applications because:[11]
[11]Wong [13] – [14].

(a) under the legislation the plaintiff must apply to the Court to modify or remove the restrictive covenant. Even where the owners of the land with the benefit of the covenant agree to the modification, for the registered title to be free of the restriction the owner of the burdened land must come to Court and the Court must be satisfied that the conditions for the exercise of the jurisdiction conferred by s 84 of the PLA are satisfied;

(b) the plaintiff seeks to change an existing burden over the servient tenement (the plaintiff’s land) which benefits the dominant tenement (the defendants’ lands). It therefore seeks to remove or modify an existing legal (in the sense of equitable) right available to the defendants;

(c) the plaintiff will usually obtain an advantage, often a great advantage commercially, by the modification or removal sought;[12]
[12]For example see the observations of Anderson J in Re Withers.

(d) although the owner of the burdened land has a statutory right to apply for the modification or removal of the covenant, he or she must give notice to those having the benefit (as determined by the Court) and those having the benefit (whether given notice or not) are entitled to object and to maintain the status quo and hold the plaintiff to the covenant which binds him or her;[13]

(e) the decision of the Court to modify or discharge a restrictive covenant involves the exercise of a discretion;[14] and

(f) accordingly, provided the defendants conduct the proceeding responsibly and do not make frivolous objections to the application, they should have their costs of the proceeding.

[13]Re Withers, 320.

[14]See Stanhill, [4].

I repeated the substance of these matters in Jiang v Monaygon Pty Ltd,[15] a decision to which the plaintiffs refer in the Calderbank letter.
[15][2017] 591, [5] – [7] (‘Jiang v Monaygon’).

Calderbank offers

In Wong I also set out the principles applicable to Calderbank offers as follows:[16]
[16][2014] VSC 282, [20] – [22].

In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[17] the Victorian Court of Appeal said, in relation to Calderbank offers, that the critical question was whether the rejection of the offer was unreasonable in the circumstances. Deciding whether conduct is unreasonable involves matters of judgment and impression. The Court in Hazeldene held that, when considering whether the rejection of a Calderbank offer was unreasonable, a court should ordinarily have regard at least to the following matters:[18]
[17](2005) 13 VR 435, 441–2 (‘Hazeldene’s Chicken Farm’).
[18]Settlement Group Pty Ltd v Purcell Partners (No 2) [2014 ]VSCA 68, [5].
(a)       the stage of the proceeding at which the offer was received;
(b)       the time allowed to the offeree to consider the offer;
(c)       the extent of the compromise offered;
(d)      the offeree’s prospects of success, assessed at the date of the offer;
(e)       the clarity with which the terms of the offer were expressed; and
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.

In Luxmore Pty Ltd v Hydedale Pty Ltd[19] Maxwell P and Kellam JA noted that what was said by the Court of Appeal in Hazeldene was meant to be of assistance to judges in approaching an application for costs consequent upon the service of a Calderbank letter. The Court of Appeal was not there engaging in a kind of judicial legislative process; they were simply giving a direction that these are the matters which the trial judge should ordinarily have regard to, in addition to such other matters as the judge might consider relevant.[20] They remarked that it would be wrong to regard the decision as having prescribed a list of matters which must be taken into account in every case, such that a party failing to get a special order for costs could complain on appeal if one of the matters mentioned by the Court had not been specifically adverted to. Like every question of costs, it is in the discretion of the trial judge and is to be decided according to the circumstances of the particular case.
[19](2008) 20 VR 481; [2008] VSCA 212, [11].
[20]Foster v Galea (No 2) [2008] VSC 331, [9].
There are some aspects of the matters mentioned in Hazeldene relevant to this application that deserve further elucidation, as follows:
(a)there is no presumption that where such an offer is rejected, the offeree should pay indemnity costs where it receives a less favourable result;[21]
[21]Hazeldene, [19]; Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351; Fletcher Insulation (Vic) Pty Ltd v Renold Australia Pty Ltd (No 2) [2006] VSC 293, [13]–[17], Byrne J.
(b)the onus always lies upon the offeror to demonstrate unreasonableness in the offeree;[22]
[22]Hazeldene, [19]; Foster v Galea (No 2) [2008] VSC 331, [9].
(c) the policy objectives underlying the principle in Calderbank v Calderbank include:[23]
[23]The policy objectives are more fully set out in Hazeldene at [21].
(i)that it is in the interests of the administration of justice that litigation should be compromised as soon as possible and so save both private and public costs.[24]
[24]Hazeldene, [21]; M.T. Associates Pty Ltd v Aqua-Max Pty Ltd [2000] VSC 163, [72].
(ii)to indemnify an offeror whose offer is later found to have been reasonable against the costs thereafter incurred. This is considered reasonable because from the time of rejection of the offer the real cause of the litigation is the offeree’s rejection of the offer;
(iii)to this end, a party in receipt of an offer of compromise should have some incentive to consider the offer seriously. That incentive is the prospect of a special order as to costs;[25]
[25]Fletcher Insulation (Vic) Pty Ltd v Renold Australia Pty Ltd (No 2) [2006] VSC 293, [13]-[17], Byrne J.
(iv)it is nevertheless important not to discourage potential litigants from bringing their disputes to the Court;[26]
[26]Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351, [60]; Hazeldene, [22].

(d) it is undesirable that Calderbank letters be burdened with technicality;[27]
(e) where the offer is made by a plaintiff, the requirement that the non-acceptance be unreasonable takes on a particular significance. A plaintiff may be supposed to be aware of the claim which it makes, including, even in a general way, its magnitude and its prospects of success. A defendant, however, faced with an offer of compromise may not have this awareness. If it appears that this lack of awareness is not due to its own default, it is difficult to conclude that its rejection of the offer was unreasonable;
(f)a decision to accept or refuse a Calderbank offer will ordinarily be based upon the offeree’s prediction as to the likely outcome of the trial. An erroneous prediction may not be an unreasonable if at the time the offeree was, for good reason, in possession of insufficient information to make an proper assessment or if the circumstances upon which it was based later changed;[28]
(g)it does not follow necessarily from an adverse outcome for the offeree that rejection of the offer was relevantly unreasonable. Reliance on the outcome to show that rejection of the offer was unreasonable is a hindsight analysis;[29]
(h)the offer must be one capable of acceptance, such that an offer that is subject to approval by a third party will not constitute a Calderbank offer, but rather an offer to negotiate;[30] and
(i)the reasonableness of an offer, and the assessment of the reasonableness or unreasonableness of a rejection of an offer, will generally be assisted if the maker gives reasons why the offeror should succeed and/or the offeree should fail to do better than the offer. As Sundberg and Emmett JJ said in Dukemaster Pty Ltd v Bluehive Pty Ltd,[31] “a Calderbank offer…is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is offered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail”.

[27]BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 441, [5].

[28]Premier Building & Consulting Pty Ltd v Spotless Group Ltd (No 13) [2007] VSC 516, [13], Byrne J.

[29]Rickard Constructions v Rickard Hails Moretti and Ors [2005] NSWSC 481, [17] per McDougall J.

[30]Apostolidis v Kalenik (No 2) [2011] VSCA 329, [61]–[64] (the offer was subject to approval by the Australian Taxation Office, in effect).

[31][2003] FCAFC 1, [8].

In addition to these matters, this case brings into sharp focus an aspect of the third factor identified in Hazeldene’s Chicken Farm, the extent of the compromise offered and its relationship to the question whether the rejection of the offer was unreasonable in the circumstances . The defendants’ Counsel has referred to a number of cases that address, in varying circumstances, the circumstance where an offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, so that it would not be unreasonable for the losing party to have rejected it.[32] These authorities, and the many others that are referred to in them, all turn on their own facts. However, they demonstrate that where an offer is characterised as a demand to capitulate, or as derisory or nominal then it may be found to be reasonably rejected.[33]
[32]Truenergy Pty Ltd v Dispute Resolution Panel (No 2) [2011] VSC 21; Pepe v Platypus Asset Management Pty Ltd (No 2) [2011] VSC 21; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398; Sandri v O’Driscoll & Anor (No 2) [2014] VSCA 109; VWA v O’Brien & Ors (Costs Ruling) [2017] VSC 68; Geron v Geron (No 2) [2018] VSC 710; United Petroleum Australia Pty Ltd v Herbert Smith Freehills (No 2) [2018] VSC 501; SJ Higgins Pty Ltd v Mike & Shan Pty Ltd (No 2) [2020] VCC 1503; Thomopoulos v Faulks (No 2) [2006] VSC 286; Laming v Jennings [2018] VSCA 335.
[33]For example see Berrigan Shire Council v Ballerini & Anor (No 2) [2006] VSCA 65, [17] (Callaway JA). Chernov JA [20] and Nettle JA [39] in effect agreed with the observations made by Callaway JA.

This aspect of the law relating to Calderbank offers, is particularly relevant in ‘all or nothing’ cases where there is a single issue, such as in this case, whether a single dwelling house restriction in a covenant is sought to be modified to permit two dwelling houses. In Thomopoulos v Faulks (No 2),[34] the plaintiff claimed an easement ‘of‑way’ over a laneway. There was no additional or alternative claim made for a lesser right, and, as Cavanough J noted, it would probably not have been open to the Court to have granted any different or lesser right than the right claimed in the proceeding.[35] His Honour noted in that case that:

It seems to me that this is a case in which very little was offered by way of compromise and whilst that may have been, in a sense, inevitable, I think in the end that this factor tends in favour of the plaintiff. It may just be that in certain kinds of cases (such as the present) there is little or no room for relevant compromise and so the ordinary party-party rule may be very difficult to displace by the sending of a Calderbank letter.[36]
[34][2006] VSC 286.
[35][2006] VSC 286, [15].
[36]Ibid, [18].

Plaintiff’s Submissions

The plaintiff applies for a costs order that the plaintiff pay the defendants’ costs of the proceeding on a standard basis up to and including 30 July 2020 (which reading the plaintiff’s written submission as a whole, is an error; and should have referred to the date of expiry of the offer, 13 August 2020) and that the defendants pay the plaintiff’s costs of the proceeding on an indemnity basis, or any other basis that appears to the Court to be just, from 30 July 2020 (13 August 2020).

The plaintiff accepts the statement of principles, set out above, in relation to costs in applications under s 84 of the PLA. But he submits that these principles should be regarded as displaced after 30 July 2020 in favour of indemnity costs, or at least standard costs, on the grounds that it was unreasonable for the defendants not to have accepted that offer. As a consequence, the plaintiff submits, the real cause of the litigation from that date became the defendants’ refusal to accept the offer and not the defendants’ legitimate action in defence of the covenant, which is the usual foundation for an entitlement to costs against an otherwise wholly successful plaintiff.

The plaintiff submitted that at the time of the Calderbank letter the expert evidence of the parties had been filed, as had the lay evidence in support and against the applications. Indeed the Easton Report had been filed on 6 March 2020, the Buckmaster Report on 26 June 2020 and the defendants’ affidavits on either 25 or 26 June 2020.

It is of some significance that the original proposal referred to in the Easton Report, and in the plaintiff’s affidavit filed on 30 April 2020, was for a two storey dwelling house at the rear of the Land as well as at the front. On 14 July 2020, the plaintiff filed an affidavit which varied this proposal to a single storey dwelling at the rear of the Land and a two storey dwelling at the front.

Thus, the plaintiff contended, the defendants had all the information and assistance from lawyers and experts required to assist them in making an assessment of the merits of the plaintiff’s offer and their prospects of succeeding at trial if they did not accept that offer. The offer remained open for 14 days from the date of the offer. That gave the defendants ample time to obtain legal advice and any further assistance they may have required from Mr Buckmaster to assess the matters arising from the evidence put to them in the offer.

In the offer, the plaintiff offered to pay the defendants’ costs of the proceeding up to the date of on which it was accepted and any further costs they may incur in connection with consenting to orders being made to give effect to the terms offered, if the defendants informed the Court that they withdrew their objection to the application.

The plaintiff submitted that even though the offer involved the defendants effectively capitulating in the proceeding, the question whether or not it was unreasonable for the defendants not to accept it on the basis that it amounted to a demand to capitulate must depend on the circumstances. The real issue is whether the offer is a genuine offer to settle the proceeding or merely intended to trigger costs sanctions against the defendant.[37]
[37]Charan v Nationwide News Pty Ltd [2019] VSCA 36, [225]-[230].

Having regard to the reasoning in the decision in Charan v Nationwide News Pty Ltd[38] it was submitted that:
[38]Ibid.

(a) the two primary questions for consideration are:

(i) whether, in truth, the plaintiff’s Calderbank offer to settle the proceeding was a genuine one; and

(ii) if so, whether the defendants’ failure to accept it was unreasonable in the circumstances that applied as at 30 July 2020;

(b) in the context of a restrictive covenant application where the plaintiff had already voluntarily modified his proposal to the most modest it could be without himself capitulating, and was offering to pay the defendants’ costs on the basis to which they were undeniably entitled, the offer was in truth the only one which in all the circumstances the plaintiff could make to settle the matter and, given the evidence and its support for the plaintiff’s explanation of why the offer ought to have been accepted, it was one which the defendants ought reasonably to have accepted.

The plaintiff submitted that the reasoning in paragraphs 1 to 4 in the Calderbank offer is substantially consistent with the Court’s reasons for judgment. The offer does not merely assert that the plaintiff is sure to win, but seeks to persuade the defendants by a detailed examination of the respective experts’ evidence and the relevant legal tests that it was very likely the ground in s 84(1)(c) for modifying the covenant would be made out and the application succeed.

The consistency between the reasons given by the plaintiff on 30 July 2020 as to why the offer should be accepted and the Court’s reasons for judgment show that the plaintiff is not attempting to rely on the outcome of the proceeding in a mere hindsight analysis to support its cost application. Rather, this is a case where the offer was genuinely put and which, properly advised and on a fair and reasonable analysis of the evidence as it was at 30 July 2020, the defendants ought to have appreciated that the defendants had no real prospects of success. The offer was clear. It was not an invitation to enter into negotiations.

The offer does not expressly refer to indemnity costs but refers unequivocally to the principles in a number of cases, including Calderbank and Hazeldene’s Chicken Farm, which support an entitlement to indemnity costs if such offers are not accepted.

The plaintiff warned the defendants that an application for costs from the date of the offer would be made on the basis of the principles in those cases, if the offer was rejected. In the context of the underlying purpose of Calderbank offers set out in those cases, the court should have regard to that warning as a basis at least for awarding the plaintiff costs on a standard basis from 30 July 2020.

Defendants’ submissions

The defendants submitted that the plaintiff’s Calderbank offer did not offer a real element of compromise. The letter itself acknowledged the court would ‘likely’ exercise its discretion as to costs by ordering the plaintiff to pay the defendants’ costs in this case under the principles set out in Jiang v Monaygon, except to the extent those costs were occasioned by the defendants’ unreasonable or vexatious opposition to the application. At the stage of the case at which the offer was made, the term ‘likely’ was an understatement – the plaintiff’s written submissions acknowledges that this was an offer to pay costs on a basis to which the defendants were undeniably entitled. The costs offer was that the plaintiff pay the defendants’ costs up to at the latest 13 August (plus the costs of consenting to orders). The remark in paragraph 5 of the letter (see the text of the Calderbank letter below) about ‘unreasonable or vexatious opposition’ was not related to the period up to that date. Accordingly the letter was offering no compromise on costs.

The letter otherwise offered capitulation, as acknowledged in the plaintiff’s Submissions (above at [17]). The reasoning in paragraph 5 of the letter is, with respect, confused. To paraphrase, that paragraph says in substance ‘although we realise that our client is going to be likely to pay your costs to date anyway, he is making a concession by offering this payment and your refusal to accept it will be so unreasonable that you will have to pay his future costs’.

Although each case turns on its own facts, the authorities referred to (see [9] above) support the conclusion that the plaintiff in this case offered no real element of compromise.

Turning to the defendants’ prospects of success, assessed as at the date of the offer on 30 July 2020, having regard to the onus resting on the plaintiff to establish a negative, and the sequence of events leading up to the time of the Calderbank offer (as to which see the timetable set out below at [35]), the defendants were running a responsible case to put their views before the court supported by expert evidence in a case as to which court was exercising a discretion. The plaintiff was seeking to amend the covenant to permit two dwellings, not to permit only two dwellings substantially in accordance with the plans exhibited to his affidavit dated 14 July 2020. The defendants never disputed the other amendments to the covenant, and confirmed this by the letter dated 3 September 2020 (referred to above at [4]]).

The plaintiffs submissions incorrectly identify the date of the offer (30 July 2020) and not the date of its expiry (13 August 2020) as the relevant date to ‘divide’ the costs between those payable by the plaintiff and those payable by the defendants.

The proposition advanced by the plaintiff that ‘the offer was in truth the only one which in all the circumstances the plaintiff could make to settle the matter’, as referred to above at [18(b)], ignores the fact that the application continued to be for modification of the covenant to permit two dwelling houses, not just two dwellings substantially in accordance with the plans exhibited to the plaintiff’s affidavit dated 14 July 2020, and the question is not whether the plaintiff was capitulating. In paragraph [18] of Thomopoulos v Faulks (No 2),[39] (quoted above at [10]), Cavanough J observed that if it is in a sense inevitable that very little is offered by way of compromise this factor tends in favour of the offeree.
[39][2006] VSC 286.

If a person in the position of the defendants running a responsible case can by the mechanism of a Calderbank offer be ordered to pay a plaintiff’s costs, and ‘bear the bitter burden of his own costs when all he has been doing is seeking to maintain the continuance of a privilege which by law is his’[40] it will stifle opposition to plaintiffs who ‘will usually obtain an advantage, often a great advantage commercially, by the modification or removal sought’.[41] In Secretary, Department of Transport v Provan’s Timber Pty Ltd [No 2],[42] a case concerned with the compensation for the compulsory acquisition of land, the court quoted from the judgment of Wilcox J in Banno v Commonwealth,[43] a quote submitted to be apposite to this case, as follows:

This is not ordinary litigation. The relationship between the parties giving rise to the litigation did not arise out of their mutual desire; it arose because of a unilateral decision of the Commonwealth to acquire the applicants’ land in order to satisfy a perceived public need. The acquisition left the applicants in the position of either accepting the Commonwealth’s assessment of the proper compensation or of having the Court rule on its adequacy. Perhaps people in that position should be allowed access to the Court, to present an arguable and well-organised case, without being deterred by the prospect of being ordered to pay the Commonwealth’s costs if their case proves unpersuasive. I distinguish the situation of resumees who pursue a vexatious, dishonest or grossly exaggerated claim or present their case in such a way as to impose unnecessary burdens on the Commonwealth or the Court.[44]

[40]Re Withers [1970] VR 319 at 320 per Anderson J.

[41]Wong v McConville & Ors (No. 2) [2014] VSC 282 at 13(c).

[42][2020] VSCA 258 at [41].

[43](1993] 45 FCR 32 at 51.

[44](1993) 45 FCR 32, 51.

Last, the defendants submitted that if their submission was accepted and the defendants’ costs of the proceeding were ordered to be paid entirely by the plaintiff, the defendants may ask me to certify counsel’s fees, at least, as was done by Mukhtar AsJ in Foudoulis v O’Donnell (No. 2).[45]
[45][2020] VSC 343 at [100].

Plaintiff’s reply submission

In a short reply submission, the plaintiff emphasised the submissions referred to above at [17] – [18], commented that the defendants had not dealt with the decision of the Court of Appeal in Charan v Nationwide Nes Pty Ltd[46] or responded to the plaintiff’s submissions that it should be applied in this case.
[46][2019] VSCA 36, [225] – [230].

The plaintiff further submitted that:

(a) the real thrust of the plaintiff’s submissions on costs is that it cannot be the case that defendants with proprietary rights to defend are entitled, no matter what the circumstances may be or what the costs may be, to fight on to the bitter end and force a plaintiff to trial, after a point arrives in the proceeding where it is clear, or ought to be clear to the defendants properly advised, that the plaintiff must inevitably succeed;

(b) it is true that defendants are entitled to their costs in the usual course of a proceeding such as this one. Their defence of proprietary rights is reasonable and their costs in doing so are costs reasonably and necessarily incurred by the plaintiff in order to obtain the benefit of the court’s exercise of power under s 84 of the Property Law Act 1958. However, a plaintiff who has modified his proposal to the most modest possible without himself capitulating in the proceeding, and who has demonstrated in his Calderbank offer why that modified proposal must inevitably succeed at trial, should no longer be regarded as reasonably and necessarily incurring the defendants’ costs after the date of the offer. Nor can the defendants be acting reasonably by forcing the plaintiff to trial. It is noted that the defendants do not take issue with the substance of the case put to the defendants explaining why the plaintiff must inevitably succeed – a case which was largely accepted by the Court; and

(c) what more could this plaintiff have done in the circumstances of this case to persuade the defendants to withdraw their opposition?

In relation to the certification of the defendants’ Counsels fees, the plaintiff does not object to an amount being certified for Mr Barton’s fees within the range specified under the current Supreme Court Scale of Costs,[47] namely up to $6,040 as a daily appearance fee and an hourly rate of up to $604 for other work. The plaintiff does oppose fees in excess of that amount. It is accepted that the matter warranted counsel of Mr Barton’s seniority and experience and that the Court ought fairly affirm that it was thus greatly assisted. However, it is submitted that the defendants must show more than this to be entitled to counsel’s fees at a rate above scale. There must be special grounds shown. It is not sufficient to show that the case was difficult complex or ‘heavy’.[48] The case involved complex questions of evidence and a high degree of skill and competence in the area of restrictive covenant law. But it did not involve any additional special factor, within the language of Rule 63.34(3), arising out of that complexity.
[47]Supreme Court (General Civil Procedure) Rules 2015 (Rules), Rule 63.34, and Schedule A for work done on or after January 2020.
[48]Rule 63.34(3); Gurappaji v Phillips [2021] VSC 11, [15]-[19] (Moore J); Lenehan v Powercor Australia Ltd [2020] VSC 82, [74]-[75] (Nichols J).

The plaintiff relied on Foudoulis v O’Donnell (No 2).[49] It does not appear that Mukhtar AsJ was referred to r 63.34 or the authorities to which the plaintiff has referred above ([33] footnote 48).
[49][2020] VSC 343.

Consideration

Having regard to the factors identified by the Court of Appeal in Hazeldene’s Chicken Farm, it is first necessary to give a short account of the stage of the proceeding at which the Calderbank offer was made:

(a) the proceeding was commenced by Originating Motion on 27 February 2020. The first Court order, for notification to be given to beneficiaries of the Covenant, was made on 11 March 2020;

(b) the proceeding came back to Court on 13 May 2020, and the defendants appeared as objectors to the modification sought to the single dwelling restriction (which at that time was for two dwellings, both of two storeys) and indicated that they wished to be made defendants, which was ordered. However, it was noted in the order made that day that there was an earlier application made in respect of 33 Derrick Street, Lalor, in which some of the defendants were also interested as objectors, which had been adjourned to enable a mediation. Orders were made for the defendants to file their appearances, for an amended Originating Motion and for affidavits to be filed. The directions hearing was then adjourned (to 4 June 2020) to enable mediation of that related proceeding to be conducted;

(c) on 24 May 2020, the defendants filed separate appearances in person, that is they had no legal representation on the record;

(d) on 27 May 2020 further orders were made extending the times for the defendants to file their affidavits and the proceeding was ordered to be mediated. The next directions hearing was fixed to be held on 15 July 2020 (later adjourned to 29 July because of delays in organising the mediation). It was noted in the order that the defendants had indicated that they have now obtained legal representation;

(e) on 26 June 2020, a Notice of Appointment of the defendants’ solicitor was filed together with Mr Buckmaster’s affidavit and Report and the defendants affidavits;

(f) on 15 July 2020, the plaintiff filed a further affidavit proposing a change of the proposed development of the Land so that the rear dwelling house would be a single storey house;

(g) on 29 July 2020 orders were made for the trial of the proceeding. It was noted that Mr Buckmaster, may wish to add to his evidence or opinion and the Court and the plaintiff considered that this may conveniently be the subject of short supplementary evidence-in-chief at the trial; and

(h) on 30 July 2020, the Calderbank letter was sent by email to the defendants’ solicitor (and presumably received that day or the next).

At the date of the offer, all the material relevant to the trial was before the Court. The trial was estimated to occupy at most two days and was fixed to commence on 15 September 2020 to be conducted by audio-visual link. The trial was ordered (made on 29 July 2020) to be by affidavit with a right for the parties to cross-examine any deponent whose affidavit was relied upon by the party. Each deponent of an affidavit filed by a party was ordered to be available to be cross-examined at the trial unless the other party gave notice not less than 7 days before the trial that the deponent was not required for cross-examination. The only unknown factor was the content of any further expert evidence to be given by Mr Buckmaster. Written opening statements were required to be filed before the trial, the plaintiff by 8 September and the defendants by 14 September 2020.

The Calderbank offer was therefore well timed, as all the evidence was available to the defendants, save for some supplementary evidence from Mr Buckmaster of which it should be presumed the defendants’ advisors were aware.

There is no issue in this case regarding the time allowed to the defendants to consider the offer. Having regard to the stage reached in the proceeding 14 days ought to have been sufficient time for the defendants to obtain advice. There is no evidence of any request for further time arising out of the difficulty of obtaining instructions from three couples, who after-all live in easy walking distance of each other.

Another element that is relevant in the present circumstances is the defendants’ prospects of success, assessed at the date of the offer, and without the benefit of hindsight. There is no suggestion that the defendants’ opposition to the modification sought was unreasonable or vexatious. The plaintiff acknowledges this to be the case. I agree with the defendants’ submission that they were, at the time of the offer, running a responsible case. They have and had a registered proprietary equitable interest in the enforcement of the single dwelling restriction in the Covenant. They were entitled to put their views before the Court, supported by their expert’s evidence. That expert evidence supported their opposition to the modification of the single dwelling restriction. The defendants had an objectively reasonable basis to oppose the modification of the single dwelling restriction in the Covenant. That they have lost does not deny the reasonable basis they had at the relevant time.

The application was of a kind where two views were open as to whether the defendants would suffer substantial injury by the modification sought, whether that modification was simply to allow two dwellings or to limit the second dwelling to a single storey. Although it is true that the plaintiff’s application was to modify the covenant to permit two dwellings, simpliciter, and was not formerly to permit only two dwellings substantially in accordance with the plans exhibited to the plaintiff’s second affidavit,[50] nevertheless it remained within the Court’s discretion to limit the second dwelling to a single storey, as the plans put before the Court proposed.
[50]Filed on 14 July 2020.

Another matter that is relevant to the approach taken by the defendants to the Calderbank offer is the need, in any event, for the plaintiff, as the owner of the burdened land, to come to Court and, independently of any consent from the defendants, satisfy the Court of the conditions for the exercise of the jurisdiction. There are other beneficiaries of the Covenant who are not parties to the proceeding. It is not right to assume that because other beneficiaries do not object and appear to oppose the modifications that their interests should be ignored. Even where some of the owners of the land with the benefit of the covenant agree to the modification, for the registered title to be free of the restriction the plaintiff must come to Court and satisfy it that the conditions for the exercise of the jurisdiction conferred by s 84 of the PLA are established.

It is clear that the defendants never disputed the other modifications sought to the Covenant. None of the evidence filed by the defendants canvassed any opposition to the proposal to discharge the requirement for the consent and approval of The Peter Lalor Home Building Co-operative Society Limited for any buildings to be erected on the land, nor the modification of the quarrying restriction. This position was confirmed by the defendants’ solicitors letter dated 3 September 2020, quoted above (at[4]).

As to the clarity with which the terms of the offer were expressed, on a fair reading of the Calderbank letter, I agree with the plaintiff’s submission that the basis put for the plaintiff’s prospects of success is broadly similar to the reasons I have given for my view that the beneficiaries of the Covenant will not suffer substantial injury in relation to their enjoyment of their properties.

There is an issue, however, whether the offer foreshadowed an application for indemnity costs in the event of the defendants rejecting it. That may be inferred from the references to the authorities, such as Hazeldene’s Chicken Farm, but it is not expressly said. Nevertheless, I venture to conclude that having regard to the experience of Counsel for the defendants, they would have been in no doubt as to the intent that the plaintiff would seek indemnity costs should the offer not be accepted. In the end, however, this aspect of the offer is not important to my decision because of the view I take of the extent of the ‘compromise’ involved in the offer.

It is in relation to the extent of the compromise offered that the defendants focus their argument, and in my view it is a good argument in the circumstances of this case. I agree that the plaintiff’s Calderbank offer did not offer a real element of compromise. There was no reason to suppose at the time the offer was made that the Court would not follow the established law as to the defendants’ costs under the principles set out above (see [5]-[7] above).There is no reason to suppose that the defendants’ opposition to the application was unreasonable or vexatious (as to which see below). As the defendants’ submitted, at the stage of the case at which the offer was made, the plaintiff’s use of the word ‘likely’, in relation to the plaintiff paying the defendants’ costs, was an understatement. It was a virtual certainty. So that the offer to pay costs up to the date of acceptance of the offer, and for the costs of the order, amounted to offering what the defendants rightly expected in any event. Accordingly the letter was offering no real compromise on costs.

It seems to me that the observations of Cavanough J in Thomopoulos v Faulks (No 2),[51] are apt to this case. There was very little (perhaps nothing) in the Calderbank letter offered by way of compromise. This is a case of the kind to which his Honour referred, where there is little or no room for relevant compromise and so the ordinary costs rule (which in this case is rather different from the usual rule) may be very difficult to displace by the sending of a Calderbank letter.[52] Even though this result may have been inevitable, it is a factor, and a very important factor, that favours the defendants.
[51][2006] VSC 286.
[52]Ibid, [18].

The plaintiff may be right in the submission that, in the context of a restrictive covenant application where:

(a) the plaintiff had already voluntarily modified his proposal to the most modest it could be without himself capitulating (that is, a single storey dwelling house at the rear); and

(b) the plaintiff was offering to pay the defendants’ costs on the basis to which they were ‘undeniably entitled’,

that the offer was in truth the only one which in all the circumstances the plaintiff could make to settle the matter. That merely demonstrates the efficacy of Justice Cavanough’s proposition in Thomopoulos v Faulks (No 2)[53] that this is a case of the kind where there is little or no room for relevant compromise.

[53][2006] VSC 286.

In relation to the plaintiffs reliance on Charan v Nationwide News Pty Ltd[54] at the particular paragraphs identified, I observe that the Court of Appeal (Beach, Niall and Ashley JJ) were, in the referenced paragraphs, identifying the reasoning of the trial judge in his treatment of the Calderbank offers that had been made in that case. To expose the point, their Honours said:[55]
[54][2019] VSCA 36, [225]-[230].
[55]Beginning with the paragraph before that identified by the plaintiff in his submissions.

224At CR [16], his Honour said that two questions required consideration. First, had the defendant made a settlement offer as defined. Second, had the plaintiff unreasonably failed to accept that offer. If those matters were established in the defendant’s favour, then the defendant would be entitled to an order for indemnity costs unless the plaintiff was able to satisfy the Court that the interests of justice required otherwise.
225At CR [17]-[18], his Honour discussed ‘offers to capitulate’. In the course of that discussion, his Honour referred to Commissioner of State Revenue v Challenger Listed Investments Ltd [No 2],[56] where this Court stated that:
[56][2011] VSCA 398 [11].
There is authority to the effect where the offer does not involve a genuine compromise but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it.

226This was the first of a number of occasions on which, in the Costs Reasons, his Honour adverted to whether an offer could be considered ‘genuine’.
227His Honour’s reasons next revealed the link which he perceived between the genuineness of an offer and its reasonableness. Referring to offers to capitulate, his Honour said this:
These decisions do not mean that an offer to capitulate or to walk away will necessarily fail because of its terms. Rather, the reasonableness of the offer turns on the circumstances which surround it, and particularly whether it was truly designed to settle what may be a hopeless case.[57]
[57]Costs Reasons [18].

228Then his Honour referred to two passages in the judgment of the New South Wales Court of Appeal in Leichhardt Municipal Council v Green[58] as follows:
[58][2004] NSWCA 341.
It is clear that an offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise.[59]
[59]Ibid [23].

And then:
Accepting that such an offer as was made is capable of being a genuine offer of compromise, the next step is to consider whether the particular offer in the circumstances represented a genuine attempt to reach a negotiated settlement, rather than merely to trigger any costs sanctions.[60]
[60]Ibid [39].

229The point being made by his Honour was evidently that some offers are not truly offers of compromise at all. They are not ‘genuine’, in that their purpose is really to trigger costs sanctions, rather than to reach a negotiated settlement. For that reason, they could not be reasonable. There, it may readily be said that failure to accept the offer is not unreasonable. [emphasis added]
230His Honour framed two primary questions for consideration:
(a)whether any of the offers made by Nationwide were, in truth, genuine offers of settlement; and
(b)if so, was Mr Charan’s refusal of the offer, in the circumstances that applied at that time of the offer, unreasonable.

It is necessary to read on, as the Court went on to make clear the view they took of the approach to a ‘genuine’ offer taken by the trial judge:

233At CR [24]-[29], his Honour came to the conclusion that another five of the offers made by the defendant were not genuine offers to settle the case. It necessarily followed, as we apprehend his Honour’s reasoning, that the plaintiff’s failure to accept those offers was not unreasonable. …[emphasis added]

The characterisation of an offer as ‘genuine’ by the trial judge in Charan (in that their purpose is really to trigger costs sanctions, rather than to reach a negotiated settlement), in the context of that case, went beyond an offer that failed to involve a real element of compromise. It embraced the time allowed for acceptance, the content of the offer, the nature and extent of the material known to the offeree and the particular sequence of offers made by the defendant in that case. But the Court of Appeal made clear that in the final analysis the characterisation was directed to whether the offeree’s failure to accept the offer was not unreasonable.

In this case, the factors that make up a so called ‘genuine offer’ have been separately considered, including whether the offer involved a real element of compromise. These matters include the timing of the offer, content and terms of the offer, its clarity, the explanation given for it, what was known or not known to the offeree at that time and the offerees’ prospects of success. What is left for consideration in order to determine whether the offer was a ‘genuine compromise’, in the sense of a real compromise, is whether it had an element of compromise or whether in truth it required the defendants to capitulate. In my view, it essentially required the defendants to capitulate.

In conclusion, it is in my view incorrect to say, as the plaintiff submitted, that the real cause of the litigation from the time of the expiry of the Calderbank offer was the defendants’ refusal to accept the offer and not the defendants’ legitimate action in defence of the Covenant. The defendants were entitled to put their views before the court and justified in opposing the application, so that the costs incurred by them ‘were a necessarily incident to such an application’. In my view, it is only right and proper that the plaintiff should pay all the defendants’ costs incurred by reason of the application on the standard basis.

Certifying Counsel’s fees

In relation to the certification of the defendants’ Counsels fees, I am presently unclear whether Counsel seeks that the Court ‘allow’ an increase in his fees pursuant to r 63.34(3) of the Rules or whether he seeks the fixing of a gross sum (pursuant to r 63.07(2)(c)) or the awarding of costs ‘in a specified amount’ pursuant to s 65C of the Civil Procedure Act 2010 (Vic)(CPA) or an order for the purpose of item 19(4) of the Supreme Court Scale of Costs.[61] What Mukhtar AsJ did in Foudoulis, as I read the reasons, was to fix the costs in total under r 63.07(2)(c) or s 65C of the CPA.
[61]Appendix A to the Supreme Court (General Civil Procedure) Rules 2015.

In Foudoulis, Mukhtar AsJ said of the certification request:

The reference to ‘certification’ of counsel’s fees is not, by description at least, a step or a judicial act specifically referred to in the Rules of Court or elsewhere. The practice of certifying is, as I understand it, the means by which a judicial officer usually on request at the end of a proceeding recognises and orders that for the purposes of an eventual taxation, counsel’s fees in excess of scale are to be allowed to the extent as ordered. The Costs Court too has the discretion to allow fees in excess of Scale[62] but it may be thought that the trial judge is in a good position to see if fees in excess of Scale are justified.[63]

[62]See ‘Counsels Fees’ in item 19(4) of the Supreme Court Scale of Costs.

[63]Foudoulis v O’Donnell (No 2) [2020] VSC 343, [92].

The origin of certifying for Counsel’s fees is partly an historical overhang from former Rules, where costs rules did not allow for barristers to be briefed to appear (e.g. in chambers applications), and in the County Court, where no fees were allowed for Senior Counsel without a certificate from the Trial Judge that the case warranted Senior Counsel. That at least may explain the use of the word ‘certify’. I agree with the observations of Mukhtar AsJ that there is no sanction in the Rules for ‘certification’ as such. But there is clear authority in item 19(4) of the Supreme Court Scale of Costs for an order for Counsel’s fees in excess of the scale (and by certifying the Court may be construed as ordering), as that item provides for Counsel’s Fees generally and concludes:

(4)Where costs are taxed pursuant to an order of the Supreme Court, Counsel's fees in excess of scale are not to be allowed unless the Supreme Court otherwise orders, but in any other case the Costs Court has discretion to allow fees in excess of scale.

Strictly speaking, certification of Counsel’s fees should not apply to the process of allowing fees within the meaning of r 63.34(3) of the Rules, because that relates to an increase not exceeding 30% of the ‘the legal practitioner’s charges allowed on the taxation of costs’. It is in the process of the taxation that the actual fees are assessed in the increased percentage the Court ‘allows’ as permitted by the Rule. Perhaps that Rule and the Gross Sum rule may be combined to arrive at the fixing of fees at a higher rate (more than otherwise would be allowed as reasonable) or to cover work that otherwise may be considered unreasonable for Counsel to perform. In other words, r 63.34(3) may act as a guide to the fixing of costs to be paid in respect of Counsels fees or as a part of a gross sum. This seems to be what has happened recently in Gurappaji v Phillips,[64] although the ‘guide’ did not lead to any higher fees for Counsel.
[64][2021] VSC 11.

In Gurappaji v Phillips,[65] Moore J considered the application of r 63.34(3), and followed the decisions of Hayne J in Jenkins v GJ Coles & Co Limited,[66] the Full Court in The Mayor Councillors and Citizens of the City of Warrnambool v Tabone[67] and more recently of Nicholls J in Lenehan v Powercor Australia Ltd.[68] In the result he found no ‘special grounds arising out of the nature and importance or the difficulty or urgency of the case’, as required by the rule. But guided by that consideration he actually fixed the costs to be paid.[69] In Foudoulis, Mukhtar AsJ did a similar exercise, although he did not expressly rely on r 63.34(3), but by implication found special grounds.[70]
[65][2021] VSC 11.
[66](1993) 1 VR 155.
[67](Supreme Court of Victoria Appeal Division, Marks J, 25 August 1992) 10.
[68][2020] VSC 82, [74]-[75].
[69][2021] VSC 11, [19]-[20].
[70][2020] VSC 343, ]97]-[100]. He did earlier refer to r 63.34(3) at [58].

I note that the plaintiff does not object to an amount being certified for Mr Barton’s fees within the range specified under the current Supreme Court Scale of Costs,[71] namely up to $6,040 as a daily appearance fee and an hourly rate of up to $604 for other work. But the plaintiff does oppose fees in excess of that amount.
[71]Supreme Court (General Civil Procedure) Rules 2015 (Rules), Rule 63.34, and Schedule A for work done on or after January 2020.

The plaintiff accepts that the matter warranted counsel of Mr Barton’s seniority and experience. The question raised by the plaintiff is whether the defendants must show more than this to be entitled to counsel’s fees at a rate above scale, and whether special grounds must be shown. The plaintiff points to the proposition that it is not sufficient to show that the case was difficult, complex or ‘heavy’,[72] and contends the matter did not involve any additional special factor, within the language of the r 63.34(3), arising out of ‘complex questions of evidence’ in the area of restrictive covenant law. What grounds might warrant ‘certification’ of a higher fee than that prescribed in the Scale of Costs, pursuant to Item 19(4) of that Scale, remains to be explained.
[72]Rule 63.34(3); Gurappaji v Phillips [2021] VSC 11, [15]-[19] (Moore J); Lenehan v Powercor Australia Ltd [2020] VSC 82, [74]-[75] (Nichols J).

The answer at present is that I cannot address this question without knowing precisely what Mr Barton seeks the Court to do. I will, however, say two things. First, I am reluctant to fix the costs of the proceeding as Mukhtar AsJ did in Foudoulis. Second, I am inclined to think that the scale of costs provides a sufficient rate of remuneration on a daily and hourly basis, but I am open to persuasion that an order should be made in accordance with item 19(4) of the Supreme Court Scale of Costs at a higher rate. The question also remains whether Counsel did more of the basic work, that is whether the fees went beyond what would ordinarily be considered ‘reasonably incurred’ by Counsel,[73] as was the case in Foudoulis.
[73]See r 63.30 of the Rules.

Conclusion

For the reasons set out above, I am firmly of the view that the defendants’ failure to accept the plaintiff’s offer was not unreasonable in the circumstances that applied between 30 July and 13 August 2020. Accordingly, I propose to make the usual order that the plaintiff pay the defendants’ costs of the proceeding on the standard basis. Whether I ‘certify’ for their Counsel’s fees, depends on further submissions and what they are and how they are made up. I suggest that Counsel for both parties confer as to precisely what is sought and the legal basis for it and, if there is a dispute, seek to have the matter relisted.

Calderbank Offer
The Calderbank offer was contained in a letter from the plaintiff’s solicitors to the defendants’ solicitors dated 30 July 2020. The text of the Calderbank offer is as follows:
We refer to the above matter and advise that the Plaintiff offers to resolve this matter on the following basis:
That the Defendants inform the Court that they withdraw their objection to the Plaintiff’s Application and the Plaintiff pay the Defendants’ costs on a standard basis up to and including the date on which the offer is accepted, including the costs of consenting to orders being made to give effect to these terms.

This offer is made in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333, subsequently applied in the Supreme Court of Victoria by Byrne J in Mutual Community Ltd v Lorden Holdings Pty Ltd & Ors unreported decision, Byrne J, 28 April 1993 and Hazeldene’s Chicken Farm Pty Ltd v Victoria WorkCover Authority (No 2) (2005) 13 VR 435. It remains open to be accepted by you for fourteen days from the date of this correspondence.
This offer may, at the discretion of the Court, have implications in relation to the question of whether the Court should exercise any discretion it might have under the principles in Jiang v Monaygon Pty Ltd (Costs) [2017] VSC 655 to order that the Plaintiff pay the Defendants’ legal costs and those of the Plaintiff incurred from the date of this offer.
The offer is made on the basis that it is a reasonable one to make in the context of this proceeding and that it would be unreasonable for your clients not to accept it:
1.The matter of which the plaintiff bears the onus of persuading the Court is that the plaintiff’s proposed modification to permit two dwellings will not substantially injure the persons currently entitled to the benefit of the unmodified single dwelling restriction.

2.The Plaintiff has filed an expert report (Easton Report) prepared by Mr Robert Easton. Having regard to that report the following facts and conclusions emerge:
(a)A large number of lots in the neighbourhood, coloured yellow on the plan in Figure 25 on p 33 of the Easton Report, do not have the burden of a similar covenant as they were first transferred in bulk by the original developer, Peter Lalor Home Building Co-Operative Society Ltd, to the Director of War Service Homes on 3 August 1949.
(b)The effect or this was that the benefits actually or intended to be conferred by the single dwelling restriction in the covenant affecting 22 Derrick Street, Lalor (subject land) when the covenant was granted on 5 August 1949 was substantially compromised. Those initial benefits would have been the ones Riordan J referred to in Oostemeyer v Powell [2016] VSC 491, [53]:
(i)to ensure for its beneficiaries a reasonable density of population giving a reasonably quiet residential atmosphere, attractive in that it would provide a tranquil, quiet existence;
(ii)to prevent the erection on the subject land of more than one dwelling house, and thereby to preserve the area in question as an area of spacious homes and gardens; and
(iii)the maintenance of reduced population numbers in the area.

(b)At least for the two properties at 31 and 35 Derrick Street (the properties of the first, second, fifth and sixth defendants), this is demonstrated in the redevelopment that has been able to occur in their immediate vicinity and further to their east. For example:[74]
[74]There are two paragraphs (b) in the offer.
(i)directly opposite, at 26 Derrick Street, where two dwellings are now permitted. While they have not yet been constructed, a plan of subdivision has been registered which shows a rear lot accessed by a side driveway behind a front lot. It is a reasonable inference that this will facilitate a development of two houses, similar to the plaintiff’s proposed development on the subject land.
(ii)43 Derrick Street, where two dwellings have recently been constructed;
(iii)63 Derrick Street, where two dwellings were constructed in about 1998; and
(iv)68 French Street and 66 French Street, with three dwellings having been constructed at 68 French Street in 2012 and two dwellings at 66 French Street in 2008.

(c)For those two properties, therefore, the future spaciousness and reasonably quiet residential atmosphere of the neighbourhood cannot be maintained with any surety by reason of the absence of an effective network of covenants caused by the collapse of the private war services home scheme promoted by the Peter Lalor Home Building Co-Operative Society Ltd and the transfer of the remaining land initially intended to be part of that scheme to the public sector. The Court’s grant of the application would not make a substantial difference to the future restriction of development to the detriment of the benefits conferred by the covenant on those two properties.
(d)In addition, there has already been some redevelopment of lots with the benefit and burden of the covenants to the west of French Street. Most notably, a dual occupancy development at 27 Derrick Street in 1992 diagonally opposite the property at 1 Chowne Street, similar in its configuration to the development proposed for the subject land. Further to the west, at 11 - 13 Derrick Street, there have been four dwellings constructed on two lots on the original plan of subdivision which were consolidated and resubdivided in 1974 following a modification of the covenant by the Supreme Court.
(e)The defendants’ expert, Mr Matthew Buckmaster, in his expert report (Buckmaster report) refers to the loss of character and sense of place [space]. He includes a photograph at p 9 which shows the side of Derrick Street opposite the subject land looking east. It is noted that this is the area without the benefit of covenants, as outlined above. Further the plaintiff by his further affidavit sworn on 14 July, 2020 has modified his proposed development such that it is now one double storey dwelling at the front and a single storey dwelling at the rear. His proposal is now very modest as a redevelopment of the land inconsistently with the current wording of the covenant. In addition to the considerations set out above, the proposal will result in very little, if any, change to the character or sense of place [space] to the extent those benefits are protected by the covenant. The covenant does not protect beneficiaries from the replacement of the original war service homes in the eastern end of Derrick Street with much larger and imposing double storey houses. The area is currently undergoing redevelopment, it being some 70 years since the area was developed with the war service homes. The plaintiff’s proposed dwelling at the front of his block will not look or feel any different from the street than other single house blocks.
(f)The matter of additional neighbours and residential noise is also taken up in the Buckmaster report. This is a matter that could be relevant only to Mr and Mrs Nakhoul, whose backyard area backs onto the side of the subject land. The number of residents and the amount of noise from the front dwelling on the subject land will not be any different to what would be the case with any double storey house. The additional three bedroom single storey unit at the rear of the subject land will contribute one more modest household behind 1 Chowne Street. An examination of the photographs in Mrs Nakhoul’s affidavit sworn on 25 June 2020 of their property facing west shows that there are substantial mature trees and shrubbery on their side of the fence. The plaintiff’s modified proposal shows that there will also be landscaping on his side of that fence. This greenery will shield the property at 1 Chowne Street from most noise and other adverse consequences of a small additional household living in a single storey dwelling beside the backyard areas of 1 Chowne Street.
(g)The impact of the additional single storey dwelling at the rear of the subject land will be minimal. The whole development will have no greater visual bulk or impact on the sense of space for residents of 1 Chowne Street or any other adjoining or more remote residents than a double storey dwelling at the front with a double garage at the back.
(h)The increase in traffic is another matter taken up in the Buckmaster report and in a number of the defendants’ affidavits. Whatever traffic problems there are in Derrick Street have occurred even with the covenants in the western part of Derrick Street remaining as they currently are. The modification of the covenant to permit one additional household is unlikely to cause a substantial increase in the amount of traffic in the area.
(i)The question of the loss of privacy is also subject to the same considerations expressed above. The covenant does not expressly protect privacy, so to the extent this is a benefit conferred by the covenant it is incidental only. The proposed additional dwelling at the rear could only affect the privacy of residents at 1 Chowne Street and other adjoining lots. As stated above, the landscaping arrangements already in place and those proposed by the plaintiff in addition will well and truly shield other properties from any potential loss of privacy. Questions of overlooking and set-backs from boundaries are planning matters for the council when the plaintiff applies for a planning permit for his proposed development.

3.The above considerations are only addressed to the proposed modification to the single dwelling covenant. The defendants have not joined issue with the other modifications for which the plaintiff has applied. The removal of the requirement to obtain the approval of the Peter Lalor Home Building Co-Operative Society Ltd can have no adverse impact, given that company no longer exists. Nor can the change to permit excavation work for the purposes of residential development, given this is a residential area.
4.While the ultimate decision to approve the modification is a matter for the Court in its discretion, the above considerations viewed objectively make it highly likely that the Court will be satisfied that the ground for exercising the discretion set out in s 84(1)(c) of the Property Law Act 1958 exists in this case. It has been held that the Court’s residual discretion to refuse the application notwithstanding a finding that the ground for its exercise has arisen requires there to be something identified within the protection afforded by the covenants that moves the Court to exercise the discretion. (Jiang v Monaygon Pty Ltd [2017] 591, [78] (Derham AsJ). The same considerations referred to above are therefore also relevant to that discretion, making it inevitable in this case that, if the court is satisfied that the proposed modification will not substantially injure the defendants or any other person with the benefit of the covenant, the application would be granted.
5.This offer includes an offer to pay the defendants’ costs up to the date of acceptance, including any cost occasioned by consenting to court orders to give effect to it. This is a concession, although recognising the reality that the Court would likely exercise its discretion as to costs by ordering the plaintiff to pay the defendants’ costs in this case under the principles of Jaing v Monaygon Pty Ltd (Costs), except to the extent those costs were occasioned by the defendants’ unreasonable or vexatious opposition to the application. It will be the plaintiff’s position at trial, however, if the defendants do not accept this offer that its refusal was so unreasonable that the defendants should not be entitled to their costs from the date specified above for its acceptance and indeed should be ordered to pay the plaintiff’s costs from that date occasioned by the defendants’ further opposition.

SCHEDULE OF PARTIES

S ECI 2020 01011
BETWEEN:
CON SOFOKLIS LAHANIS	Plaintiff
- v -
ROBYN LIVESAY	First Defendant
STEVEN LIVESAY	Second Defendant
FADI NAKHOUL	Third Defendant
SELMA NAKHOUL	Fourth Defendant
STEPHEN SCHEMBRI	Fifth Defendant
PATRICIA BOYD	Sixth Defendant

[2021] VSC 65

19 February 2021