Section 24 of the Supreme Court Act 1986 (Vic) specifies that costs are in the discretion of the Court:
Costs to be in the discretion of Court
(1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.  …
This discretion in relation to costs is absolute and unfettered to ensure substantial justice is achieved between the parties:
3 … the court has an absolute and unfettered discretion in relation to costs, and may, in appropriate circumstances, examine the realities of the litigation and attempt to achieve on the matter of costs substantial justice as between the parties.
Despite this discretion, there is a settled practice that costs follow the event, and a successful litigant should receive their costs absent disqualifying conduct:
Although costs are in the discretion of the Court, there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs. It is not, however, a legal rule devised to control the exercise of the discretion.
This discretion is modified in certain applications pursuant to section 84 of the Property Law Act 1958 (Vic) to the effect that:
… unless the objections taken are frivolous, an objector should not have to bear the 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.
The principle set out in Re Withers is consistent with other decisions of the Court, such as that by Gillard J in Re Markin, Lush J in Re Shelford Church of England Girls’ Grammar School andMcGarvie J in Re Ulman. In my opinion, it is a sound principle.
However, his Honour sounded a note of caution that objector defendants should not see the reimbursement of costs as an entitlement:
It is also relevant that the defendants conducted the proceeding responsibly. If a defendant, resisting an application to modify a covenant, acts irresponsibly then it would not be entitled to costs in relation to that irresponsible conduct; indeed, it might be in a position where it would have to pay the plaintiff’s costs.
I would add, on the question of costs, that a plaintiff seeking a declaration that restrictive covenants do not affect his property is expected to pay his own costs. He is also expected to pay the costs of any defendants who enter an appearance down to the point in the proceedings at which they have had a full opportunity of considering the matter and deciding whether or not to oppose the application. Any defendant who then decides to continue, and appears unsuccessfully before the judge, does so at his own risk as to his own costs at that stage. Such defendant would not, however, be ordered to pay the plaintiff’s costs.
The Victorian Law Reform Commission adopted a somewhat similar recommendation in its report on Easements and Covenants:
45. In an application under section 84 of the Property Law Act 1958 (Vic), the court or VCAT should apply the following principles to the award of costs:
a. Where the application is unsuccessful, the applicant should normally pay the costs of any respondent entitled to the benefit of the easement or restriction.
b. Where the application is successful, the applicant should normally pay the costs of the respondent incurred prior to the point in time at which, in the opinion of the court or of VCAT, the respondent has had a full opportunity to assess the merits of the application. The respondent should normally bear his or her own costs incurred after that point, but not the costs of the successful applicant.
By reason of the above, a well-advised plaintiff should look for opportunities to make Calderbank offers and/or Offers of Compromise to improve their position in the future when it comes to discussing the issue of costs.
Similarly, in Lahanis v Livesay & Ors (Costs)  VSC 65 Derham AsJ found that in an application to modify a single dwelling covenant to allow two dwellings, there was insufficient difference between the offer to compromise and capitulation:
51 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.
52 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.
That said, Calderbanks have been successfully applied by defendants in Michelmore v Suhr, and Manderson v Smith. In the latter case, Efthim AsJ held that an offer of compromise should have been accepted and directed the Plaintiff to pay indemnity costs:
21 In my view, indemnity costs should be awarded to the defendants from the date of the first offer of compromise. The plaintiff commenced the proceedings knowing that he had a fence on his own property encroached the boundary line by a much greater distance than the defendants’ fence and knowing that all other residents had fences. He should also have known that the defendants’ fence was at best only six centimetres over the boundary line.
22 The first offer of compromise should have been accepted and, in my view, it was unreasonable that it was not. The defendants have come to the Court with clean hands, they obtained a permit from the local council to erect the fence. It is clear from the evidence of Ms Smith that the defendants were concerned about the native flora. They were put to a great deal of expense in defending this claim which they should never have had to do.
As a matter of practicality, however, while most cost disputes are resolved by negotiation, Calderbanks and offers of compromise can still have an outsized impact on this process, simply because of their potential impact should they be upheld by the Court.
Moreover, objectors’ costs are typically low until after the second return of the application, meaning a plaintiff can commence a section 84 application with a fair degree of confidence about how much the process will cost.
It is not until the number and extent of defendants becomes known that the implications of a Re Withers’ costs ruling starts to emerge.
None of this is to say that a defendant can take an order for costs for granted:
- an order for costs was made against the defendants in Rouditser & Rouditser v Schreuder & Schreuder S ECI 2018 01166 after the defendants were found by Derham AsJ to have been responsible for the trial being adjourned;
- an order for costs was made against the defendants in Livingstone v Kelleher & Pomponio S ECI 2020 0460 after Matthews AsJ found the first defendant had put the court and the parties to unwarranted expense in necessitating an additional directions hearing; and
- an order for costs was made against the defendants in Sijercic & Sijercic v Brotchie & Bennett in S ECI 2021 03620 after Matthews AsJ concluded the defendant had not made sufficient effort to cooperate in the settling of pre-trial directions.
These examples of costs orders against defendants should not dissuade beneficiaries from acting in good faith to protect their property rights and from subsequently seeking reimbursement for the reasonable costs in doing so, but defendants must remember that they too, are bound by the following overarching obligations in the Civil Procedure Act 2010:
A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.
A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless—
(a) it is not in the interests of justice to do so; or
If a person to whom the overarching obligations apply cannot resolve a dispute wholly by agreement, the person must use reasonable endeavours to—
(a) resolve by agreement any issues in dispute which can be resolved in that way; and
(b) narrow the scope of the remaining issues in dispute—
(c) it is not in the interests of justice to do so; or
(d) the dispute is of such a nature that only judicial determination is appropriate.
A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—
(a) the complexity or importance of the issues in dispute; and
(b) the amount in dispute.
For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to—
(a) act promptly; and
(b) minimise delay.
 Supreme Court Act 1986 (Vic) s 24.
 Manderson v Wright (Costs)  VSC 177,  (John Dixon J).
 BCA Asset Management Group Pty Ltd v Sand Solutions (Vic) Pty Ltd  VSC 177, .
 Re Withers  VR 319.
 Stanhill Pty Ltd v Jackson  VSC 169.
 Ibid, .
  1 WLR 375
  VSC 282
  VSC 284
 Unreported, S ECI 2020 03378, 24 August 2021
  VR 319