CITATION: Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2) [2004] NSWADT 72 DIVISION: Retail Leases Division APPLICANT Irresistable Frocks Salon Pty Ltd PARTIES: FIRST RESPONDENT Sparbac Pty Ltd SECOND RESPONDENT Roche Group Pty Ltd FILE NUMBER: 035060, 035103 HEARING DATES: 23/03/2004 SUBMISSIONS CLOSED: 03/23/2004 DATE OF DECISION: 04/15/2004 BEFORE: Chesterman M - ADCJ (Deputy President); Fagg N - Member; Griffiths G - Member APPLICATION: Costs MATTER FOR DECISION: Costs LEGISLATION CITED : Retail Leases Act 1994 Victorian Civil and Administrative Tribunal Act 1998 Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150 Arkbay Investments Pty Ltd v Habib & Ozvic Enterprises Pty Ltd [2003] NSWADT 143 Barsoum v Glebe Administration Board (No. 2) [2002] NSWADT 174 Brooks Maher v Cheung [2001] NSWADT 18 Calderbank v Calderbank [1975] 3 All ER 333 CASES CITED: Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd [2003] NSWADT 241 Jones v Bradley (No. 2) [2003] NSWCA 258 Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No. 2) [1999] NSWCA 133 Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 Wood & Anor v Bergman (No. 2) [2003] NSWADT 175 APPLICANT R Titterton, barrister REPRESENTATION: FIRST RESPONDENT No appearance SECOND RESPONDENT R Angyal, barrister ORDERS: 1. The Applicant's application for costs against the First Respondent is dismissed.; 2. The Second Respondent is to pay the Applicant's costs on a party-party basis. Introduction 1 The initial Applicant in this matter was Irresistible Frocks Salon Pty Ltd ('Irresistible'). In an Application (file no. 035060) lodged on 13 June 2003, it sought an order that the First Respondent, Sparbac Pty Ltd ('Sparbac'), and/or the Second Respondent, Roche Group Pty Ltd ('Roche'), pay to it the sum of $20,085.25. This was an amount debited to its bank account under a guarantee ('the guarantee') given by it to Sparbac, as lessor, in its capacity as lessee under a retail shop lease ('the Lease') of premises at Shop 2, 20-26 Cross Street, Double Bay ('the premises'). The Lease fell within the provisions of the Retail Leases Act 1994 ('the RL Act'). 2 In its Application, Irresistible also sought interest and costs. 3 A cross application by Roche against Irresistible (file no. 035103) was filed on 9 September 2003, two days before the hearing. The principal relief that it claimed was an order that Irresistible pay to it the sum of $45,000 as damages for a breach of the Lease, or as damages for conversion of items of fitout that were the property of Roche. In the alternative, it sought a declaration that it was entitled to retain the sum of $20,085.25 pursuant to the guarantee and to apply it to the cost of reinstatement of the premises at the end of the current lease, refunding any balance to Irresistible, or that Irresistible breached the Lease by failing to provide an appropriate guarantee. Further in the alternative, it sought a declaration that Irresistible was liable to pay damages in the amount of the cost of such reinstatement. It also sought an order for costs. 4 On 10 November 2003, we delivered judgment (Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd [2003] NSWADT 241) upholding Irresistible's claim against both Sparbac (which had not filed an appearance or otherwise taken part in the proceedings) and Roche. Our orders were as follows:- 1. Each Respondent is to pay to the Applicant the sum of $21,818.63, comprising a principal sum of $20,085.25 and interest totalling $1,733.38. 2. The Second Respondent's cross application is dismissed. 3. In the absence of agreement on the matter, each party is to file written submissions on the matter of costs within 28 days of the date of these reasons. 5 Irresistible then filed a submission seeking costs against both Sparbac and Roche. Its claim against Roche was for indemnity costs. Roche filed a submission opposing Irresistible's claim. Sparbac continued to take no part in the proceedings. 6 Although we had initially believed that the matters of costs might have been appropriate for resolution 'on the papers', under s 76 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'), we determined, after reading the submissions and taking account of an objection to this procedure by Roche, that oral submissions should be made as well. A short hearing took place on 23 March 2004. Sparbac did not appear. Principles governing the award of costs 7 Generally speaking, costs in proceedings in this Tribunal are regulated by s 88 of the ADT Act. Subsection (1), which is the important provision for present purposes, is as follows: Costs 88 (1) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that there are special circumstances warranting an award of costs. 8 According to s 88(3), this power to award costs does not apply in proceedings for an original decision, such as the present proceedings, unless the enactment conferring jurisdiction provides for the awarding of costs. Section 77A of the RL Act, which is the enactment conferring jurisdiction, does so provide. 9 In Wood & Anor v Bergman (No. 2) [2003] NSWADT 175 at [9 – 13], the Tribunal discussed the application of s 88 to cases decided under the RL Act as follows:- 9 The normal common law principle governing costs in civil cases is that they 'follow the event'. But s 88 lays down a different principle, namely, that the Tribunal must be 'satisfied' that there are 'special circumstances warranting an award of costs'. 10 In Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164, at [29], the Tribunal defined 'special circumstances' as 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. 11 It is recognised that the Retail Leases Division is unique within the Tribunal, in that it alone deals with commercial disputes between parties who are engaged in trade and commerce for reward. In Gizah, at [22] and [33 – 34], the significance of this for costs orders was explained as follows. Whereas in the context of appeals from administrative decisions the requirement of 'special circumstances' might be interpreted so as not to discourage proceedings by a private individual on account of the risk of an adverse costs order, no such consideration should apply in the context of retail lease disputes. The 'commerciality' of the Retail Leases Division calls for an interpretation quite different from that which might be adopted in any other Division of the Tribunal. 12 These observations in Gizah were quoted with approval by an Appeal Panel of the Tribunal in the recent decision in Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 at [12-13, 28]. 13 The proposition, however, that 'special circumstances' should be interpreted differently within this Division, because it deals with relationships of a commercial character, does not imply that costs should simply follow the event. This was made clear in Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150 at [4]. 10 These observations of the Tribunal were quoted in Irresistible's written submission to us. Nothing in Roche's submissions appeared to raise any question about them. But Mr Angyal, counsel for Roche, pointed to two further considerations of importance. The first was that the 'special circumstances' must be such as to 'warrant' an award of costs. The second was that even if special circumstances of this nature are present, the word 'may' in s 88(1) indicates that the Tribunal still possesses a discretion to award or to refuse costs, which must be judicially exercised. The presence of this word, he submitted, negatives any suggestion that a successful party that has established 'special circumstances' has in any sense an 'entitlement' to costs. 11 The first of these propositions, for which authority may be found in Brooks Maher v Cheung [2001] NSWADT 18 at [14], is clearly correct. As to the second, we would say that the word 'may' simply reflects the broad principle, applying to courts as well as to tribunals having power to make costs orders, that the award of costs is always a discretionary matter. 12 Three grounds for finding 'special circumstances' were put forward in Irresistible's submissions for an award of costs against Roche. These were as follows: (a) the finding in our judgment that Roche engaged in unconscionable conduct, within the meaning of s 62B of the RL Act, in procuring Sparbac to invoke the terms of the guarantee without notice to Irresistible and paying to it the amount thereby obtained from Irresistible's bank account; (b) Roche's rejection of two offers of compromise made to it by Irresistible; and (c) various aspects of Roche's conduct of the litigation. We will deal with each of these separately. Our finding of unconscionable conduct on the part of Roche 13 We can deal with briefly with this ground. In our judgment in Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd [2003] NSWADT 241 at [73 – 79], we found that Roche's conduct in relation to the guarantee was indeed unconscionable within the meaning of s 62B. We held that its conduct contained three elements listed in different subparagraphs of s 62B(3): engaging in unfair tactics (subpara (d)), unreasonably failing to disclose to a lessee intended conduct that might be harmful to it (subpara (i)) and failing to act in good faith, (subpara (k)). But we also found that, on account of distinctly unclear provisions in the Lease, the question whether Roche did or did not have some entitlement to receive compensation from Irresistible, or to invoke the guarantee, was far from straightforward. The gist of our conclusions on this matter was that Roche may well have had grounds for making such claims, but it went about asserting its alleged rights in a manner that, in the terms of the statute, was 'unconscionable'. 14 We cannot discern 'special circumstances', within the meaning of s 88 of the ADT Act, merely from conclusions of this nature. To do so would seem to imply that in any case where a party to proceedings under the RL Act was held to have engaged in unconscionable conduct, 'special circumstances' would exist that would warrant, subject only to the discretion conferred by s 88, an award of costs against that party. This result would contradict the principle, stated above at [9], that there must be 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. 15 Mr Angyal submitted that a further reason why this line of argument would fail was that our conclusion on unconscionable conduct was erroneous. In the present context, this is not an appropriate argument to make. The offers of compromise 16 A number of recent cases provide authority for the proposition that 'special circumstances' under s 88 of the ADT Act may arise when (a) a party in a case under the RL Act has previously made an offer to the other party to settle the dispute on a less advantageous basis than the offering party ultimately obtains from the Tribunal's decision and (b) this offer has been rejected. The analogy is drawn with the judicial treatment of rejected offers of compromise that have been made under rules of court or, more appositely, by means of a Calderbank letter (the reference is to Calderbank v Calderbank [1975] 3 All ER 333). In both these situations, the rejection of the offer provides possible grounds for departure from the normal rule that costs follow the event (when the offering party is the loser in the case) or that costs are paid only on a party-party basis, not on an indemnity basis (when the offering party is the winner). 17 The Tribunal decisions under the RL Act transpose, in effect, the principles applied by courts when offers in Calderbank letters are rejected by an offeree who subsequently fares less well in the court's decision, to the different, though analogous, context of determining whether there are 'special circumstances' within s 88. These decisions include Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 and Barsoum v Glebe Administration Board (No. 2) [2002] NSWADT 174. 18 While relying on these decisions, in which 'special circumstances' were found through this reasoning and awards of costs were made, Mr Titterton accepted the proposition that 'the existence of an offer of compromise' is, as his written submission expressed it, 'but one factor which the Tribunal should take into account in its determination'. 19 This accords broadly with a statement in Mr Angyal's written submission that 'bettering an offer contained in a Calderbank letter creates no entitlement to a special costs order, unless the party who did not accept the offer acted in a plainly unreasonable manner'. Mr Angyal cited Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No. 2) [1999] NSWCA 133 at [21]. This approach, rejecting the notion of any prima facie entitlement to a special costs order, was recently reaffirmed by the Court of Appeal in Jones v Bradley (No. 2) [2003] NSWCA 258 at [6 – 9]. 20 We turn now to the relevant evidence on this matter. Irresistible's solicitors communicated two offers of compromise to Roche's solicitors, neither of which was accepted. Each of them contained the statements that it was sent without prejudice except as to costs and that if the offer was not accepted the letter would or might be produced at an appropriate time on the matter of costs. 21 The first of these letters, in particular, requires careful consideration. It was sent by fax on Friday, 31 January 2003. There was no evidence as to the time when it was faxed. It referred to a statement made by Roche (not its solicitors) in a letter of 9 January 2003 to Irresistible's solicitors, indicating that Roche claimed a right to retain only an amount of $5,000 out of the sum of $20,085.25 being demanded by Irresistible. It requested that Roche pay the 'undisputed' balance of $15,085.25 by close of business on the following Tuesday, 4 February. It stated that if this was done, Irresistible would not pursue its claim for the interest that had accrued on the withheld amount since the preceding November. 22 The next two paragraphs were as follows:- As to the disputed balance of $5,000.00, without accepting liability for the make good costs alleged by your client, and in order to avoid increasing costs and inconvenience associated with legal proceedings, we are instructed to offer, in full and final settlement of all disputes between our clients, that your client retain $2,500.00 and return the balance $2,500.00 to our client together with the undisputed amount of $15,085.25. In the event that your client does not accept the offer set out in the preceding paragraph, we see no reason for your client to retain the undisputed amount of $15,085.25, which in our view should be returned to our client on an unconditional basis. 23 Roche's solicitors faxed a reply to Irresistible's solicitors on 4 February 2003. It referred to 'your fax of 31 January 2003', then set out what was, in effect, a counter-offer. This was (a) that Roche should retain $5,000 to cover of the cost of anticipated reinstatement works in the premises, (b) that it should release the balance of the amount claimed less the sum of $236.80 on account of outgoings detailed in an attached invoice, (c) that Roche would bear any cost of reinstatement and any legal costs, to the extent that they exceeded the retained $5,000 and (d) that if the reinstatement did not take place, Roche would refund the balance of $5,000 less legal costs incurred to date. The letter then stated that if Irresistible did not agree to this proposal, Roche would withhold the entire amount of the guarantee to cover the anticipated reinstatement costs of $5,000 plus all legal fees and expenses associated with defending the matter. 24 After asserting that the matter should be resolved, if necessary, in the Consumer, Trader & Tenancy Tribunal and disputing Irresistible's claim to interest, this letter from Roche's solicitors concluded with the following paragraph:- We also object to the unrealistic time frames being imposed by you in previous correspondence, given your offices are in Melbourne and our client is based in Sydney. Our client is making every endeavour to resolve the dispute amicably and without incurring legal fees and we are doing all things reasonable to obtain instructions and respond as soon as practicable. A little assistance would be appreciated in the circumstances. 25 This letter had the effect of rejecting Irresistible's offer to settle the matter on receipt of a total amount of $17,585.25. As indicated above, our award in Irresistible's favour was for the sum of $21,818.63, comprising a principal sum of $20,085.25 and interest totalling $1,733.38. 26 In these circumstances, we must consider whether, in all the circumstances, Roche's rejection of this offer was 'unreasonable'. If it was 'unreasonable', there would be a basis for a finding of 'special circumstances' and for the exercise of our discretion under s 88 of the ADT Act to award costs. 27 We have given careful consideration to the argument, raised by Mr Angyal, that rejection of the offer was not unreasonable because Roche was given little time in which to consider it. It was faxed to Roche's solicitors some time on Friday 31 January 2003 and acceptance was required only two business days later, that is, by the close of business the following Tuesday. 28 In a number of Tribunal cases – for example, Barsoum v Glebe Administration Board (No. 2) [2002] NSWADT 174 at [42] – it has been made clear that in this situation adequate time must be given for the recipient of an offer to give it proper consideration. In Arkbay Investments Pty Ltd v Habib & Ozvic Enterprises Pty Ltd [2003] NSWADT 143, the Tribunal noted at [86] and [94] that under ss 112 – 114 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), a party who obtains an order more favourable than the terms of a rejected offer that it previously made is presumptively entitled to costs, but that the offer must be open for a minimum period of 14 days. In the case before the Tribunal, the period given was only seven days. The Tribunal said, however, at [94]:- This difference does not, in my view, stand in the way of the offer in issue being considered. There is no suggestion of an oppressively short period. 29 In Jones v Bradley (No. 2) [2003] NSWCA 258, a recent Court of Appeal case dealing with the analogous situation of a party relying on a Calderbank letter to obtain a special costs order in District Court proceedings, a defendant's offer of compromise was expressed to be open for less than one-half of a working day (from 2.13 p.m. on a Friday until 10.15 a.m. on the following Monday). The plaintiff, in arguing that her rejection of the offer was reasonable, drew attention to the requirement in the District Court rules that formal offers of compromise must be expressed to be open for at least 28 days. The Court of Appeal stated at [13], however, that where Calderbank offers were concerned, the court's discretion was 'not constrained by these Rules'. It found, at [16], that when the offer was made, the plaintiff had the value of her case 'under active consideration'. This was evident particularly from the following factors: (a) the hearing in the District Court had commenced; (b) four days earlier, the defendant had made an offer of compromise; and (c) the following day, she had herself made an offer of compromise. The Court of Appeal concluded, at [16] that it was unreasonable for her to have rejected the defendant's second offer, despite its having been open for such a short period. It awarded party-party costs against her, as the amount of damages that she recovered (following a reduction on the appeal) was less than the amount offered. 30 In the present case, proceedings were not instigated until more than four months after Irresistible made its offer on 31 January 2003. But the correspondence between the parties or their representatives, both before and after the offer, showed that Roche at this time was actively considering the case, including what it believed to be acceptable terms of settlement. Although the period specified for acceptance was short, the reply transmitted by Roche's solicitors on 4 February – which was within this period – included a detailed counter-offer. Although this reply also included a complaint that Irresistible's solicitors had imposed 'unrealistic time frames', it did not indicate that Roche had had insufficient time to consider Irresistible's offer and it did not request further time for consideration of the offer. 31 Taking these matters into account, we have concluded that while the shortness of the time stipulated for acceptance is undoubtedly a matter that we must bear in mind, it was not so unreasonably or 'oppressively' short that, on this ground alone, the making and rejection of the offer, coupled with the terms of order against Roche, could not be held to constitute 'special circumstances' within s 88 of the ADT Act. 32 Having considered other aspects of the issue of reasonableness, we have come to the conclusion that it was, in all the circumstances, unreasonable for Roche to have rejected the offer. In its letter of 9 January 2003, it had indicated to Irresistible's solicitors that from a practical point of view the amount in dispute between the parties was only $5000. It confirmed this in its counter-offer of 4 February. The offer made to it was that if it added half of this sum to the amount which, on its own showing, it was bound to pay to Irresistible, the matter would be resolved. It was obvious at the time that this extra amount – the relatively small sum of $2,500 – would be far less than the costs occasioned to each party by litigating the dispute in the Tribunal. Yet Roche was not prepared to accept this invitation to bring matters to a close. Instead, it made a counter-offer which strongly suggested that it was not interested in genuinely compromising on the small amount in dispute. 33 Since Roche has ultimately been found liable to Irresistible for a principal sum exceeding the settlement figure offered (we leave out of account here the further amount awarded as interest), and we have held its rejection of the offer to have been unreasonable, we conclude that there are 'special circumstances warranting an award of costs' within the meaning of s 88 of the ADT Act and that we should exercise our discretion in favour of making such an award. 34 We have considered whether the award should be for indemnity costs (as often occurs in cases of Calderbank offers) or party-party costs. In the letter of 31 January, Irresistible's solicitors stated that the letter might in appropriate circumstances be produced on the matter of costs, but did not specify indemnity costs. With this in mind, we consider that the award should be of party-party costs only. 35 In view of our decision on this first offer of compromise by Irresistible, we need not discuss at length its second offer. This was made on 8 September 2003, three days before the hearing in the Tribunal. It proposed settlement of the dispute if Roche paid a total amount of $24,111.58, comprising the principal sum claimed ($20,185.25) together with $1,426.33 for interest and $2,500 for costs. This is not in our view a genuine compromise and it required payment of a larger amount than we awarded. It could not therefore be a basis for an award of costs. 36 This letter of 8 September 2003 contained a rejection of an offer by Roche, made through its solicitors a few days earlier, to settle the dispute by paying $20,185.25, the principal sum claimed, but without any additional amount for interest or costs. 37 Having drawn attention to this, Mr Angyal made a submission that Irresistible's second offer in some sense cancelled out the first one. We agree that Irresistible's rejection of Roche's offer is a relevant matter, but we do not think that it provides grounds for refusing costs which, for reasons given, we have held to be appropriate. The important consideration is that, had Roche accepted the first offer, the occasion for a subsequent offer would not have arisen. Roche's conduct of the litigation 38 Four matters were raised against Roche under this heading. Our view in relation to each of them is that, seen in isolation, it provides no grounds for a costs order. We will briefly give our reasons. 39 The first matter was that Roche filed its evidence two weeks after the date stipulated in the Tribunal's directions. Regrettably, lateness of this sort is far from being a special or unusual circumstance. 40 Secondly, two days before the hearing, Roche filed a cross-claim which, in Mr Titterton's submission, was unmeritorious. This cross-claim was, however, little more than an assertion that, if the arguments already raised by it in defence to Irresistible's claim were successful, it would be entitled to various remedies. No significant new issues were raised and no prejudice to Irresistible resulted. 41 Thirdly, various arguments made at the hearing by Roche were, in Mr Titterton's submission, without merit. This again is far from being a special or unusual circumstance. What matters, as Mr Angyal argued, is that the principal issues in dispute, which took up most of the time at the hearing, were matters of substance and required careful consideration. 42 Fourth and finally, Roche sought to file a supplementary written submission after the hearing, even though the Tribunal had indicated that submissions were closed. The supplementary submission was rejected. But the attempt to file it caused no prejudice and did not delay conclusion of the proceedings. 43 Even considered in combination, these four matters do not, in our view, constitute 'special circumstances' within s 88 of the Act. Irresistible's claim for costs against Sparbac 44 Irresistible sought a costs order against Sparbac. It claimed that Sparbac's failure to appear was cogent evidence of its having no arguable defence to Irresistible's claim. But we do not think that this necessarily follows. There are a number of other reasons why a respondent to proceedings who has been served with initiating process may not file an appearance. Furthermore, it cannot be said that the phenomenon of a party failing to appear is so 'out of the ordinary' that it might constitute 'special circumstances'. 45 Yet another consideration of significance is that, if we were to accept Irresistible's argument, we would be conveying the message that any party that chose not to appear in Tribunal proceedings within this Division, and thereby suffered a default judgment to be entered against it, would in the ordinary course be liable to pay the costs of the applicant. In a jurisdiction in which the prima facie presumption is that costs orders should not be made, it would be unfortunate if respondents who were otherwise inclined not to appear were induced to file an appearance and offer some sort of defence to the claim solely to avoid a costs order. 46 A further matter of importance in this case is that we have no evidence of service of Irresistible's submissions regarding costs on Sparbac. Unless such evidence were produced to us, we could not make the order sought in any event. 47 For these reasons, we dismiss Irresistible's application for a costs order against Sparbac. The orders to be made 48 For the reasons set out above at [16 – 37], Roche is to pay Irresistible's costs on a party-party basis. 49 For the reasons set out above at [44 – 47], Irresistible's application for costs against Sparbac is dismissed. 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