CITATION: Galaxy Catering Pty Ltd v Trust Company of Australia Ltd (No 2) [2006] NSWADT 283 DIVISION: Retail Leases Division APPLICANT PARTIES: Galaxy Catering Pty Ltd RESPONDENT Trust Company of Australia Ltd FILE NUMBER: 065068 HEARING DATES: On the papers SUBMISSIONS CLOSED: 08/03/2006 DATE OF DECISION: 09/29/2006 BEFORE: O'Connor K - DCJ (President) CATCHWORDS: Claim for relief against forfeiture - Unconscionability MATTER FOR DECISION: Order for Relief against Forfeiture: Term as to Costs Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Conveyancing Act 1919 Legal Profession Act 1987 Retail Leases Act 1994 Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182 Langley v Foster (1909) 10 SR (NSW) 54 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee of NSW Ltd (1970) 2 BPR 9562 Tannous v Cipolla [2001] NSWSC 236 CASES CITED: Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837 Sabri v Selby [2004] NSWADT 252 Love v Gemma Nominees Pty Ltd (1983) ANZ ConvR 68 Castle Mall Fine Foods Pty Ltd v Queensland Investment Corporation [2003] NSWADT 207 Law Society of New South Wales v Gallagher [1999] NSWADT 8 APPLICANT In person REPRESENTATION: RESPONDENT D Hassan, solicitor, Raj Lawyers ORDERS: Further to term 3 of the order made 29 May 2006, the lessee is to pay $8,250 to the lessor in respect of its costs. REASONS FOR DECISION 1 On 29 May 2006 the Tribunal made the following orders in relation to an interim application for relief against forfeiture, brought by the applicant/lessee against the respondent/lessor under the Retail Leases Act 1994 (RLA): Application for Order for relief against forfeiture granted subject to the following conditions: 1. Rent. The applicant/lessee be permitted to re-enter on payment of one-half of the rent and other charges due for June 2006 ($4524), such payment to be made not later than 1 June 2006; with the balance of the monthly rent and other charges to be paid not later than 10 June 2006; the whole of the monthly rent for July to be payable on 1 July 2006; such payments to be made by cash or bank cheque; and subject to the following further conditions; 2. Steps to Terminate. The lessee be permitted to continue in possession so as to enable it to sell the business, until 31 July 2006 or for such further time as the lessor permits if the lessor is satisfied that a purchaser has been found who will be approved as an assignee of the lease; 3. Costs. That the lessee pay the costs of the lessor in respect of the proceedings in the Tribunal, the quantum to be determined in accordance with a determination of the Tribunal, such determination to be made, after consideration of submissions, not later than 31 July 2006. 2 This application was a preliminary application in respect of principal applications taking the form of a retail tenancy claim and unconscionable conduct claims, seeking various orders including orders for the payment of damages to the lessee by the lessor. 3 The principal proceedings were discontinued, with the making of the following orders by consent on 20 July 2006: Noting that the lessee failed to pay the rent due on 1 July 2006 and vacated the premises immediately, the Tribunal – Orders by consent: 1. Upon expiry of the notice to remedy breach in respect of payment of rent and failure by the lessee to remedy the breach within time (5.00pm 21 July 2006) the Tribunal declares that the lease has been forfeited and the lessor is entitled to re-enter into possession. 2. Noting that the premises have been left intact by the lessee with the approval of the lessor since the lessee vacated the premises on 1 July 2006, that the lessor notify the lessee if it wishes to have the existing fit-out removed, and to give the lessee 14 days from the date of service of the notice to make good the premises. Such notice to be in writing, and to be addressed to Mr Yacco [address stated]. The make good period may be extended with the approval of the lessor. 3. In proceedings 065068, the Applicant discontinues and withdraws the Application for Original Decision filed 2 May 2006, without prejudice to the lodgment of any further Application within the relevant limitation period or to any pending application by the respondent for costs. 4. These orders to the extent of any inconsistency vary the orders made 29 May 2006. 4 One matter remains to be addressed – the quantum of costs in respect of term 3 of the order made 29 May 2006. The dead-line set by term 3 was subsequently extended, and the urgency of the matter receded as the lessee gave up occupation voluntarily at the end of June when unable to pay the rent due for the month of July. 5 In line with directions, the respondent/lessor filed submissions going to the appropriate quantum of costs. The applicant/lessee did not file any submissions. The Tribunal was advised on 20 July 2006 that his solicitors at the earlier hearings were no longer acting for him. 6 In these reasons I will refer to the parties as the 'lessee' and the 'lessor'. 7 The Tribunal in its decision granting relief against forfeiture noted that the usual principles applied at common law, and usually adopted in proceedings in the Tribunal, were that a tenant who has defaulted in the payment of rent and forfeited the lease should only be reinstated if the default is remedied by payment in full of the rent due, interest and costs: Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182 at [25]. 8 In this case the Tribunal granted relief against forfeiture after being satisfied that the rent default had been remedied, and, as the above order reflects, put in place an arrangement which gave the lessee security of occupation for a further two months, a period during which the lessee hoped to find a purchaser for the business (a restaurant). 9 The lessor sought its costs of the proceedings. The Tribunal acknowledged that such an order typically was a condition of relief against forfeiture. However, the Tribunal expressed concern about taking this approach in this case; and reserved its decision on the application. 10 The grant of relief against forfeiture involves the exercise of a discretion. 11 The relationship between the parties has been a litigious one. There were proceedings in the Tribunal in 2005 which resulted in the lessee being granted relief against forfeiture. The lessee again fell into difficulties in meeting the rent, and the lessor locked the lessee out on or about 28 April 2005 after giving notice. The lessee commenced proceedings in the Supreme Court. At para [3] of the previous decision the Tribunal noted: 'The applicant then chose to take Supreme Court proceedings applying for various orders. As the Tribunal understands the matter, this course of action resulted from advice given by a person describing herself as an 'independent advocate', Jenni Marshall. The relevant process was served on the respondent on Saturday 29 April 2006. The proceedings in the Supreme Court were withdrawn by the applicant on Wednesday 3 May 2006, on terms which included payment of the respondent's costs. The applicant has now received a statement of fees incurred from the respondent's solicitor, in the amount of (approximately) $18,000. The bill lists various activities, uses time-costing with a charge out rate that would appear to be about $400 per hour.' 12 After that the applicant engaged solicitors. They filed the application for the interim order on 3 May 2006 and the hearing took place on 5 May 2006. The Tribunal dismissed the application, as it did not consider it appropriate to have the rent default remedied by recourse to the security bond, as had been proposed. As the Tribunal noted at [13] of the last decision: 'By 18 May 2006, the applicant had brought the rent up to date to 31 May 2006. (The security bond remained intact.)' 13 There was a further application for relief against forfeiture, with the initial hearing on 18 May 2006 and the main hearing on 23 May 2006. The Tribunal delivered its decision on 29 May 2006, making the orders set out at the beginning of these reasons. The proceedings were vigorously pursued by the lessee, who was represented throughout, and vigorously opposed by the lessor, who was represented throughout. The lessor put on substantial written submissions, and detailed affidavit evidence, and produced senior personnel at hearing to give evidence and to be cross-examined. As noted in the earlier decision, the lessee company had two directors, Mr Yacco and his wife. Mr Yacco ran the business. 14 The lessee's solicitors tendered their bill of costs in respect of their proceedings in the Tribunal. The amount is approximately, $55,000, based again on an hourly rate of about $400. Lessor's Submissions 15 The submissions begin by referring to the history of the relationship between the parties, and the repetitiveness of the lessee's breaches in relation to payment of rent. The submissions then refer to equitable considerations. The lessee, it is submitted, should pay all costs incurred by the lessor, as the lessor was put to the cost of defending proceedings for relief against forfeiture by the lessee's misconduct. It would be inequitable, it is submitted, for the lessor to be left bearing costs because of the misconduct of the lessee. See, for example, Langley v Foster (1909) 10 SR (NSW) 54 at 62 per Simpson CJ in Eq: 'By coming into Equity to ask for relief against forfeiture … the plaintiff admits he has committed a breach of covenant, and asks the court to relieve him against forfeiture. Prima facie, one of the terms imposed should be the payment of all costs, for the plaintiff's own breach of covenant has given rise to the litigation.' 16 The lessor submits that the objective should be to restore the lessor to the financial position that it was in prior to the misconduct by the lessee. In support of this approach to the exercise of the discretion, the submissions refer to the decision of Hope J in Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee of NSW Ltd (1970) 2 BPR 9562 at 9572. Other decisions said to reflect the same thinking cited by the lessor include: Tannous v Cipolla [2001] NSWSC 236 at [24] per Barrett J; Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837 at [30] per White J; and in this Tribunal, Sabri v Selby [2004] NSWADT 252 at [61] per Higgins JM. 17 The lessor's submission is therefore that the lessee should pay all costs. The submissions note that on 12 July 2006 a bill of costs was served on the lessee in the sum of $55,102.85. The submissions continue – 'If the Tribunal sees fit to make such an order, the Respondent does not insist upon the payment of interest in relation to the arrears or costs. If however, the Tribunal does not see fit to make such an order, the Respondent seeks interest in relation to the arrears and costs and reserves the right to make submissions in relation to such interest.' 18 The submissions note the comment made by the Tribunal in the previous decision: '41 The order which follows allows the applicant immediate re-entry into possession. 42 The statutory power being exercised by the Tribunal belongs to a regime where costs of proceedings in the Tribunal are subject to the rule that they should only be awarded if the Tribunal is satisfied that there are 'special circumstances' justifying an award of costs: s 88(1), Administrative Decisions Tribunal Act 1997, read in conjunction with Retail Leases Act, s 77A.' 19 This comment was perhaps a little elliptical. The lessor has interpreted it as expressing the view that the Tribunal regards itself as bound by the 'special circumstances' discretion in dealing with the question of the lessor's costs when granting an application for relief against forfeiture. As I see it, the discretion in relation to costs when dealing with an application for relief against forfeiture is at large. The statutory power to grant relief against forfeiture flows from s 72(1)(d) of the Act. It is not conditioned in any way. The point I was seeking to make in the second part of the passage in para [42] is, simply, that the way in which the discretion as to the conditions that might be attached to the grant of relief against forfeiture may have regard to the kind of regime (viewed overall) that the Government and the Parliament was trying to establish for the resolution of this class of disputes, when it passed the RLA and vested jurisdiction in this Tribunal. 20 As I see it, it was seeking to establish a relatively low cost forum, with accessible procedures, for the resolution of disputes. It was concerned about the imbalance that can exist between lessees and lessors, and many of the provisions in the RLA go to redressing that situation. The provision as to costs reflects this kind of thinking. I do not see it as a provision which as a matter of law limits the exercise of discretion in connection with repayment of costs where relief against forfeiture is granted. I agree with the lessor's submissions that the Tribunal is not confined by s 88(3). In light of this conclusion, it is not necessary to address the lessor's submissions, in the alternative, relying on s 131 of the Conveyancing Act 1919. 21 The lessor further submits that equity recognises that any agreement reached between the parties should be observed and contractual rights respected, referring to Love v Gemma Nominees Pty Ltd (1983) ANZ ConvR 68 at 69-70 per Burt CJ. The submissions then refer to clause 17.2 of the lease which provides that the lessee is liable for and indemnifies the lessor against any liability, loss, claim, damages, costs and expenses arising from various events, including termination of the lease because of the lessee's default. It notes further that clause 17.3 defines the costs and expenses referred to in cl 17.2 as including legal fees, costs and disbursements 'on the higher of a full indemnity basis and a solicitor and own client basis, whether incurred by or awarded against the lessor'. 22 As the lease gives this right, the lessor submits that there would be 'no utility' in the Tribunal awarding anything other than the lessor's costs on the higher of a full indemnity basis and a solicitor and own client basis. 23 The submissions also refer to clause 25 of the lease, defining the terms of the guarantee given by the guarantor, Mr Yacco, required for entry into the lease by the lessor. This clause is to the same effect as clause 17 in relation to any costs. 24 The submissions then refer to case-law in the Tribunal where an indemnity costs award has been made in retail leasing matters, even applying the special circumstances test: for example, Castle Mall Fine Foods Pty Ltd v Queensland Investment Corporation [2003] NSWADT 207. The submissions set out a number of items of conduct in the proceedings by the lessee which justify the making of an indemnity award: the calling of the Acting Registrar of the Retail Tenancy Unit at the proceedings on 5 May 2006 without notice to the lessor; the further attendance and participation of the Acting Registrar at the directions hearing held on 10 May 2006; late service of affidavit of Mr Yacco at hearing on 5 May 2006; the lack of success of the lessee at the hearing on 5 May 2006; the conduct of the lessee at the directions hearing on 10 May 2006 where it attempted to revive its application for relief; the attempts made by the lessee between 5 and 10 May 2006 via the bond-holder (the Department of State and Regional Development) to have the bond released towards payment of rent, despite the Tribunal's disapproval of that course; the making of 'unconscionable conduct' claims against the lessor in its originating process in the Tribunal; various aspects of the lessee's conduct in the period prior to the rent default that gave rise to the notice which, it is said, were deceptive and unfair to the lessor; the repetitive nature of the lessee's rent defaults; and various aspects of the evidence given by Mr Yacco during the proceedings as to his financial situation which, it is said, were evasive and misleading. 25 Finally, the submissions seek party/party costs as an alternative to full indemnity costs. The submissions refer to ss 364, 365 and 366 of the Legal Profession Act 2004, and the detailed consideration given to the equivalent provisions in the predecessor legislation, the Legal Profession Act 1987, in Law Society of New South Wales v Gallagher [1999] NSWADT 8, a legal profession discipline case, by Molloy JM. 26 The submissions seek the following orders: 1. That the Applicant pay the Respondent's costs of proceedings in the Tribunal in proceedings number 065068 on an indemnity basis in the sum of $55,102.85; 2. That in the alternative to indemnity costs in 1, party/party costs in an amount be fixed by the Tribunal; 3. Costs of and incidental to preparing for and attending this hearing including but not limited to costs for: (a) preparing a Bill of Costs (b) Written Submissions (c) Attending the hearing; on an indemnity basis or in the alternative on a party/party basis or in an amount to be fixed by the Tribunal 4. Interest; 5. Liberty to apply. 27 In an additional submission made 3 August 2006, the lessor's solicitors amplified its submissions relating to Mr Yacco's personal liability as guarantor under the lease. It sought to meet any criticism that there had been no formal demand triggering the rights of the lessor under the clause. The lessor's solicitors enclosed a formal demand for payment of the bill of costs for $55,102.85 sent that day. 28 The lessor applied for an order for costs to be made personally against Mr Yacco, not merely against the lessee. Otherwise, it is said that the lessor will need to make an application seeking an order relying on the guarantee and indemnity clause, which would result in wasted costs. This submission is to similar effect to ones made in the principal submissions lodged 14 July 2006. The lessor submits that it is open to the Tribunal to proceed to make such an order against Mr Yacco personally, and there is no procedural unfairness involved as Mr Yacco has had an opportunity to make submissions in reply, and has failed to do so. Assessment 29 This matter falls to be addressed by reference to the discretion to grant relief against forfeiture, one aspect of which is the protection of the lessor against costs incurred as a result of action taken by the defaulting lessee to obtain relief. It does not, for the reasons given above, fall to be addressed by reference to the special provisions as to the award costs given to the Tribunal by s 88(3) of the Administrative Decisions Tribunal Act 1997 (ADT Act), read in conjunction with the RLA, s 77A. 30 Nonetheless, as I have also indicated above, the thinking which informs the special provisions as to costs in the ADT Act and the RLA can be taken into account in approaching the question of the extent of any compensation in respect of costs provided to a lessor where a lessee is granted relief against forfeiture. 31 The lessee was paying a rent of approximately $9,000 per month. Mr Yacco entered into occupation in late April 2004, and the lessee commenced paying rent as from 1 July 2004. Mr Yacco had difficulty paying the rent on time from an early date, and he was permitted to pay weekly or fortnightly in arrears. He got into deeper difficulty, leading to the steps taken by the lessor to terminate the lease in April 2005. The default was remedied. The same situation repeated itself in April 2006, giving rise to these proceedings. Throughout, the lessee has fought to stay in possession, at least so that he might be able to sell the business as a going concern, and use the proceeds to meet any debt to the lessor. The Tribunal's orders of 29 May 2006 repaired the financial situation entirely for the lessor so far as rent due was concerned. The lessee has now quit the premises with no rent due to the lessor. 32 In my view, it would be quite oppressive now to visit on the lessee the equivalent of 6 months' rent by way of legal costs. 33 The first day of hearing, on 5 May 2006, fell the way of the lessor. The orders sought by the lessee were denied. By 18 May 2006, the lessee had remedied the only breach of any importance, the rent default. The lessor cited other possible breaches, but in the Tribunal's view (see the reasons on the last occasion) the breaches were not proven except, arguably, in one instance, which was merely technical and of no material consequence to the lessor. These submissions were unconstructive, and did not assist resolution of the dispute. 34 Importantly, there was never any suggestion in the case that the lessee had done other than keep the premises in good condition. Certainly, the photographs shown to the Tribunal depicted a restaurant that was spacious and presented very attractively, with nice tables, tablecloths and the like. 35 The law, as the lessor's solicitors no doubt appreciated, is very reluctant to deny to a commercial tenant re-entry to the premises if the default is merely a rent default and it is rectified. 36 It was open to the lessor to resist the lessee's bid to return after the lessee had put it back in funds on 18 May 2006, but it should not, I think, be substantially compensated for its costs in doing so. There was, by this time, regrettably a very acrimonious relationship between the parties. This matter cried out at all stages for sensible negotiation and a commercial resolution. The conduct of Mr Yacco was less than ideal; but so too, in my view, was the conduct of the lessor. 37 The ultimate orders were less advantageous to the lessee than the normal order for relief against forfeiture. Their substance was not opposed by the lessee. Mr Yacco accepted that he was not in a position to go on much longer as tenant, but he was given a final opportunity by the orders to stay trading in the hope of finding a replacement tenant. 38 The orders had the benefit for the lessor that it had a secure date for the lessee's departure. The lessee, of course, remained exposed to any liabilities under the lease until its expiry while the premises remained vacant, or if any replacement tenant came in at a lower rent. The lessee also remained exposed to the make good costs. In addition the lessee is exposed to the (consent) costs order made by the Supreme Court after his misconceived proceedings there in late April/early May 2006 (the costs being claimed by the lessor are approximately $18,000). 39 While it is for a party to litigation to chose how to conduct their case, in my view this case did not require the degree of paperwork that the lessor generated by way of lengthy submissions and detailed affidavit material. The situation was a simple one. By the time the matter got back to the Tribunal on 18 May 2006, the lessor's primary economic interest (payment in full of all rent due to the end of May) had been satisfied. Understandably, the lessor (given the history) was worried what the future might bring by way of further failure to pay rent. A worse result for the lessor would have been the making of an unqualified order in favour of the lessee which would have meant that if and when the lessee failed again to pay rent on time, proceedings would have to be recommenced against the lessee. The Tribunal's order protected the lessor against that possibility; and the lessee departed without leaving any rent debt behind. 40 The directions hearing on 10 May 2006, the hearing on 18 May 2006 (afternoon), 23 May 2006 (morning and part of afternoon) and 29 May 2006 (about an hour) represented, in my view, an unduly protracted way of having to deal with a case of this kind. Both parties contributed to this situation. 41 In my view, an order for costs in a small proportion only, essentially to compensate the lessor in defending the proceedings on 5 May 2006, should be made, with only small further provision for the lessor's further costs associated with the proceedings on 18, 23 and 29 May 2006. 42 My conclusion is that the lessee should pay 15% of $55,000 towards the lessor's costs, i.e. $8,250. This order concludes the matter, including the various claims made by the lessor in relation to interest and in relation to the matters where the lessor seeks to reserve its position. Liberty to apply is not granted. 43 I am not satisfied that I have any jurisdiction in these proceedings to embark on the course proposed by the lessor of making orders founded on the terms of the lease to make an indemnity costs order against Mr Yacco personally in respect of the amount of costs claimed. The purpose of this decision is simply to finalise term 3 of the order made 29 May 2006. Otherwise, the effect of the consent order made 20 July 2006 is to deprive the Tribunal of any jurisdiction in relation to these proceedings. 44 Accordingly, the quantum to be paid by the lessee in relation to the lessor's costs under term 3 of the order made 29 May 2006 is fixed at $8,250. Order Further to term 3 of the order made 29 May 2006, the lessee is to pay $8,250 to the lessor in respect of its costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.