Wood and Anor v Bergman (No. 2) [2003] NSWADT 175

CITATION: Wood and Anor v Bergman (No. 2) [2003] NSWADT 175 DIVISION: Retail Leases Division APPLICANTS PARTIES: Anthony Peter Wood Maree Leanne Wilson FILE NUMBER: 025084 HEARING DATES: 18 March 2003 SUBMISSIONS CLOSED: 06/24/2003 DATE OF DECISION: 07/23/2003

BEFORE: Chesterman M - ADCJ (Deputy President) APPLICATION: Costs MATTER FOR DECISION: Costs LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Wood & Wilson v Bergman [2003] NSWADT 82 Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 CASES CITED: Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150 Barsoum v Glebe Administration Board (No. 2) [2002] NSWADT 174 APPLICANT REPRESENTATION: B Heydon, solicitor RESPONDENT M Baker, solicitor ORDERS: Respondent's application for costs dismissed

Introduction 1 In this matter, the applicant Lessees, Mr Anthony Peter Wood and Ms Leanne Maree Wilson ('the Lessees'), applied for relief by way of damages under the Retail Leases Act 1994 ('the Act') in relation to a lease of premises at 16 Granuille Road, Bangalow that had been granted to them by Ms Angelique Bergman ('the Lessor'). 2 The lease was signed on or shortly before 30 June 2000. It included a statement that the permitted use of the premises leased was as follows: 'PETROL STATION and Shop for the sale of grocery items and automotive parts and accessories'. 3 On 18 March 2003, a preliminary hearing ('the jurisdiction hearing') took place at Byron Bay before me to determine whether the Tribunal had jurisdiction to grant relief. The Lessees claimed that this lease was a retail shop lease within the definition in s 3 of the Act and that the Tribunal accordingly had jurisdiction to grant the relief sought. The Lessor claimed that the Tribunal had no jurisdiction because the lease fell outside this definition. 4 On 23 April 2003, I gave judgment in favour of the Lessor (Wood & Wilson v Bergman [2003] NSWADT 82). I declared that the lease was not a retail shop lease within the Act and that the Tribunal had no jurisdiction to grant the relief sought. I accordingly dismissed the Lessees' application. 5 The Lessor then applied for an order that the Lessees pay her costs. She sought a further hearing to determine this issue. The Tribunal directed, however, that her application should be determined on the basis of written submissions. 6 The Lessor's submission was filed on 4 June 2003. The covering letter contained a statement that she would not be making any further request for a hearing. The Lessees' submission was filed on 18 June 2003. The relevant law 7 Generally speaking, costs in proceedings in this Tribunal are regulated by s 88 of the Administrative Decisions Tribunal Act 1997 (hereafter 's 88'). Subsection (1), which is the important provision for present purposes, is as follows: Costs (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 Under 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 Act, which is the enactment conferring jurisdiction, does so provide. 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]. 14 In Alessa, it was said also, at [5-6], that where an application to the Tribunal lacked any conceivable merit in fact or law, this could constitute 'special circumstances' justifying a costs order under s 88 in favour of the successful respondent. It would be a situation where refusal to grant such an order would be 'seriously unfair'. In such a case, the purpose of the costs order would be to prevent the 'gross abuse' of the Retail Leases Act by frivolous, vexatious and misconceived proceedings. 15 In his written submission, Mr M Baker, solicitor for the Lessor, referred to Gizah and to Alessa, along with other Tribunal decisions which are to similar effect. Mr B Heydon, solicitor for the Lessees, referred in his submission to s 88 and the requirement of 'special circumstances', but did not address the question of how this requirement should be interpreted. 16 In framing his argument that, on the facts of this case, there were 'special circumstances' within s 88 justifying an award of costs to the successful Lessor, Mr Baker set out four principal contentions. I will summarise each of these in turn, outlining also the arguments in reply put by Mr Heydon. Seeking a five year statutory lease contrary to the parties' intentions 17 The first ground put forward by Mr Baker was that by applying to the Tribunal the Lessees had endeavoured to obtain a ruling that their lease, by virtue of the overriding effect of s 16 of the Act, was for five years. Yet their intention, and that of the Lessor, had always been that the lease should be for one year only. 18 That this was the parties' intention was, he pointed out, confirmed in the Tribunal's judgment: see Wood & Wilson v Bergman [2003] NSWADT 82 at [28], [34]. It was apparent also from two further facts. First, the Lessees had vacated the premises after 18 months (during the last six months they were tenants pursuant to a holding over provision). They moved out because the business that they had carried on there, in accordance with the permitted use, had not been successful. Secondly, they had been unwilling to take a further option for three years which was offered to them. 19 Mr Baker submitted that for these reasons the Lessees' attempt to invoke the jurisdiction of the Tribunal should be held to be in bad faith. They were trying to obtain a benefit – that is, the five-year term stipulated by the Act – which was at odds with the parties' intentions and to which they had no real entitlement. By so doing, they were seeking to avoid paying outstanding rent and outgoings to the Lessor. 20 In response, Mr Heydon submitted that while the reasons why the Lessees in instituting proceedings included the fact that certain outgoings were claimed by the Lessor, there were other reasons as well. These included the fact that the Lessor had sold for $75,000 the business which the Lessees had carried on at the premises and, contrary to prior representations that had been made to them, had excluded them from participation in the sale and from any share of the proceeds. 21 Mr Heydon also contended that bad faith could not be alleged against a party to a lease solely because, having agreed to terms of the lease which were contrary to the Act, he or she relied on the Act in order to claim a benefit provided by it. Had the Lessees proved the lease to be governed by it, they could have shown that the Lessor had breached important provisions which were designed to protect tenants and to allow them to sell business operations which were the subject of a lease. The Lessor's argument on this issue would, he submitted, 'amount to nothing more than saying the Act should not be allowed to operate to the benefit of those who (sic) the Act is designed to protect'. 22 He further submitted that any allegation that the Lessees acted in bad faith in pursuing their claim could not be determined by the Tribunal without a proper hearing. No such imputation had been put to Mr Wood, one of the Lessees, during cross-examination at the jurisdiction hearing. Ms Wilson, the other Lessee, did not give evidence. The amendments to the Lessees' claim 23 The second argument put by Mr Baker was based on the fact that, in the course of the jurisdiction hearing, the Lessees sought to amend significantly their earlier claims as to (a) the scope of the leased property and (b) the remedies to which they were entitled. 24 The agreement for lease described the property leased simply as "16 Granuille Road, Bangalow". The Lessor was the registered proprietor of the whole of this property. 25 On 16 May and 19 June 2002 the Lessees' solicitors, Hertzberg Heydon, claimed in letters to Mr Baker that the lease covered the whole property. This was denied by Mr Baker, in letters dated 11 June and 4 July 2002. The application to the Tribunal, in which this assertion of the Lessees was repeated, was filed on 9 July 2002. 26 However, in the statements filed before the jurisdiction hearing by Mr J Stearn, who was the Lessor's husband and managed all aspects of the lease on her behalf, and by Mr Wood, the lease was said to cover only four areas within the property. 27 Mr Stearn and Mr Wood concurred in stating that the lease covered only (a) one of the three shops on the property ("Shop 1"), (b) an adjacent external area between Shop 1 and Granuille Road, (c) a driveway to one side of Shop 1 and (d) a parking area beside this shared driveway. It did not, according to their statements, include two other shops on the property. These were a mechanical repairs workshop and a tyre shop. 28 At the jurisdiction hearing, counsel for the Lessees indicated that henceforth they wished to frame their case on the footing that only these four areas within the property had been included in the lease. 29 In their application to the Tribunal, the Lessees alleged that the Lessor had breached the terms of the lease by charging additional rent and interfering with their right of possession. They also alleged that the Lessor had engaged in unconscionable conduct in charging additional rent and in repossessing part of the premises, thereby obtaining financial benefit. 30 In the course of the hearing, however, counsel for the Lessees indicated that if the matter proceeded further they would seek leave to amend their application so as to claim only that 'the Lessor engaged in unconscionable conduct by repossessing the Lease premises and obtaining financial benefit'. 31 Counsel for the Lessor stated that he would oppose any such amendment to the Lessees' application. He accepted, however, that the issue of jurisdiction should be determined on the footing that the lease related only to the four areas within the property that I have described. 32 In his submission on costs, Mr Baker contended that these changes to the Lessees' claim were made solely in order to strengthen their argument that the lease fell within the definition of a retail shop lease in s 3 of the Act. The only reason why they abandoned their initial assertion that the lease included a mechanical repairs workshop and a tyre shop was that they realised that its acceptance by the Tribunal would weaken their argument that the lease was a retail shop lease. 33 This followed, Mr Baker maintained, because under s 3 the issue to be determined was whether the purpose of the use of the premises pursuant to the lease was 'wholly or predominantly' for one or more of the businesses listed in Schedule 1. Neither a mechanical repairs workshop or a tyre shop is a class of business listed in the Schedule. 34 On these grounds, Mr Baker submitted, the Lessees should be found to have persisted with an assertion (that is, that the lease included the two workshop and the tyre shop) which they well knew to be untrue, until they realised that it was to their disadvantage. By then abandoning both this assertion and most of the forms of relief that they had initially sought, they had changed fundamentally the nature of their claim against the Lessor. 35 Their allegations, he said, had in fact been 'frivolous', 'vexatious', 'fraudulent', 'misconceived' and made 'with complete disregard for the truth'. They were 'insupportable with no merit in fact or law' and they 'contributed to the dispute'. They were only abandoned when they became 'untenable or unarguable'. The Lessees had acted 'in bad faith, with the ulterior purpose of obtaining a financial benefit to which [they] were not entitled and an additional ulterior purpose of denying the Lessor the rent and outgoings to which he (sic) was entitled'. 36 In response, Mr Heydon submitted again that such matters were not put to Mr Wood in cross-examination and could not be determined by the Tribunal without a further hearing. 37 He argued also that the abandonment of part of a case at a hearing was not unusual and certainly did not, without more, amount to 'special circumstances' under s 88. It could not provide the basis for a costs application in these proceedings (though it might well do so in other circumstances) because the only hearing conducted had dealt with the narrow issue of jurisdiction. There was accordingly 'no disadvantage recognisable by costs arising from the amendment of the claim'. 38 Mr Heydon contended also that it was illogical for Mr Baker to criticise the Lessees for abandoning an assertion (regarding the scope of the lease) which in Mr Baker's own submission was untrue. This amounted to saying that the Lessees, by 'agreeing with the Lessor to a greater degree than before', were 'continuing the committal of a fraud'. 39 Mr Heydon argued finally that, if Mr Baker's submission were to be interpreted as asserting that the Lessees' claim, as finally formulated, was vexatious and unmeritorious, this was clearly incorrect. Their assertion that the lease was a retail shop lease within the Act had received support from the evidence. Lack of relief for the Lessor in these proceedings 40 Mr Baker's third line of argument was that the Lessor's demand for payment of outstanding rent and outgoings had still not been met. It had prompted the Lessees to apply to the Tribunal, but the Tribunal's decision that it lacked jurisdiction prevented the Lessor from pursuing this demand in the present proceedings. The Lessor, therefore, 'had been put to considerable expense and inconvenience of a full hearing on the jurisdictional point and had been vindicated', but 'is no closer to recovering the money owed to [her] by the Lessees'. 41 Mr Heydon's submission did not specifically respond to this contention. Prior offers of settlement by the Lessor 42 Fourth and finally, Mr Baker relied on letters from his firm to that of Mr Heydon showing that in September 2002 and again in November of that year, the Lessor offered to settle the dispute. The basis of the offer in each case was that she would pursue no further her claim for unpaid rent and outgoings if the Lessees would pay a sum less than the amount that she claimed. No response was received from the Lessees or their solicitors. 43 In response to this submission, Mr Heydon said that it ignored the claim being made by the Lessees that the Lessor should pay to them the whole, or at least a fair proportion, of the amount of $75,000 which she allegedly received on the sale of their business. It was for this reason that the letters proposing terms of settlement were ignored. Conclusions 44 In my judgment, the Lessor has not established that there are 'special circumstances' under s 88 that might warrant a costs order in her favour. 45 In reaching this conclusion, I accept in general terms the arguments advanced by Mr Heydon for the Lessees. But I will add some observations of my own. 46 If one puts to one side the contentions based on (a) the fact that the Lessees tried to use the Act to obtain a five-year term for their lease when they had agreed on a one-year term only and (b) the amendments made to their claim at the jurisdiction hearing, there is simply no basis for saying that their claim, as amended, was unmeritorious. The question whether the Tribunal had jurisdiction to determine the Lessee's application was quite finely balanced. In order to resolve it, I had to carry out a detailed assessment of the merits of competing arguments. 47 I agree with the proposition, put by Mr Heydon, that lessees do not act in bad faith merely because they seek to benefit from a protection conferred by the Act which is not in accordance with the terms of the lease to which they have agreed. If such conduct were to be deemed in bad faith, those provisions of the Act (such as s 16) which appear substantially designed to protect lessees would be of little value. 48 The merits of the Lessees' claim to participate in, and to share in the proceeds of, the sale of their business were not in issue at the jurisdiction hearing. For this reason, I cannot accept Mr Baker's argument that their only motive in applying to the Tribunal must have been to avoid paying the unpaid rent and outgoings claimed by the Lessor. I might add that the merits of this claim by the Lessor were also not in issue at the jurisdiction hearing. 49 As Mr Heydon pointed out, Mr Wood was not cross-examined at this hearing in relation to any of the claims of bad faith and fraud made against him and his fellow-Lessee, Ms Wilson, in Mr Baker's submission. Ms Wilson herself did not give evidence. If I were to grant this application for costs on grounds of bad faith or fraud on their part, I would be sustaining allegations of a very serious nature against them without their having had any opportunity to be heard in their defence. 50 I accept Mr Heydon's arguments (a) that the amendment of a claim during a hearing does not, of itself, constitute 'special circumstances' under s 88 and (b) that, in any event, no extra costs to either party were occasioned by the amendments made or foreshadowed. 51 The argument that costs should be awarded because the Lessor, having defended the application on jurisdictional grounds, can now not use the Tribunal to recover unpaid rent and outgoings is clearly flawed. It is sufficient merely to point out that her claim for rent and outgoings has not been found to be soundly based. 52 The final argument by Mr Baker was founded on the Lessees' rejection of two offers of compromise. There are authorities on s 88 to the effect that such rejection may constitute 'special circumstances' – see for example the Gizah case, and also Barsoum v Glebe Administration Board (No. 2) [2002] NSWADT 174. But it is not enough simply to submit, as Mr Baker did, that an offer of compromise was made by the party seeking the costs order and rejected by the opposing party. 53 For the foregoing reasons, the Lessor's application for costs in this matter must be dismissed.