CITATION: Beyond Furniture (Aust) Pty Ltd v Virk (No 2) [2008] NSWADT 225 DIVISION: Retail Leases Division APPLICANT Beyond Furniture (Aust) Pty Ltd PARTIES: RESPONDENT Harjeet Singh Virk FILE NUMBER: 065196 HEARING DATES: On the papers SUBMISSIONS CLOSED: 18 April 2008 DATE OF DECISION: 14 August 2008 BEFORE: Montgomery S - Judicial Member MATTER FOR DECISION: Costs LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Beyond Furniture (Australia) Pty Limited v Virk [2008] NSWADT 76 Kindful (Australia) Pty Limited v Country Villa Holdings Pty Limited [2006] NSWADT 224 CASES CITED: Kindful (Australia) Pty Limited v. Country Villa Holdings Pty Limited (No 2) [2006] NSWADT 357 Peat v Burcul and anor [2008] NSWADT 47 Risorto & Ors v Hanjoena Pty Ltd [2004] NSWADT 171 Sarker v World Best Holdings Limited (No.5) [2008] NSWADT 179 APPLICANT S Spring, agent REPRESENTATION: RESPONDENT B Cara, solicitor ORDERS: The Applicant is to pay the Respondent's costs of and incidental to the application, including the Respondent's costs of and incidental to the application for Urgent Interim Orders filed by the Applicant on 15 December 2006 Failing agreement as to the amount of those costs, they are to be assessed on a basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004. REASONS FOR DECISION 1 The substantive application in these proceedings concerned a claim for loss and damage from the Respondent due to water leaks at a showroom at 375 Pacific Highway, Crows Nest ("the Premises"). The application was predicated upon the provisions of sections 34 and 36 of the Retail Leases Act 1994 ("the Act") and relied upon complaints that water was leaking into the Premises whenever there was substantial rain ("the leaks"). The Applicant contended that the leaks impacted upon its business causing it loss and damage. 2 I dismissed the substantive application and the reasons for my decision are recorded as Beyond Furniture (Australia) Pty Limited v Virk [2008] NSWADT 76. The Respondent has sought an order that the Applicant pay his costs of and incidental to the application. The Applicant seeks an order that each party pay its own costs. The general principles to be applied 3 The Tribunal has power to award costs pursuant to the provisions of section 88(1) of the Administrative Decisions Tribunal Act 1997 ("the ADT Act"). 4 The general principles to be applied in relation to an application for costs were recently set out in the decision in Sarker v World Best Holdings Limited (No.5) [2008] NSWADT 179 where it stated: "28 If costs are to be awarded, the requirement of 'special circumstances warranting an award of costs' set out in section 88(1) of the ADT Act must be satisfied. Section 77A of the RL Act makes this provision applicable in retail tenancy proceedings conducted in the Tribunal. 29 For present purposes, the relevant parts of section 88 are subsections (1) and (2), which state: (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. (2) The Tribunal may: (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. 30 The case-law on section 88(1) in its application to proceedings under the RL Act includes one Court of Appeal decision ( Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81) and a considerable number of Tribunal decisions, both at first instance and in appellate proceedings (see for example Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150, Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164, Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31, Wood & Anor v Bergman (No 2) [2003] NSWADT 175 and Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43). 31 'Special circumstances' are defined in the case law as 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. It is not enough that the circumstances are 'special': they must also 'warrant' an order for costs. On account of the 'commerciality' of the Retail Leases Division, the interpretation of 'special circumstances' differs significantly from the interpretation that might be adopted in any other Division of the Tribunal. While various categories of 'special circumstances' have been identified in the case law, these categories are not closed. 32 In Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, the Court of Appeal held that the costs of proceedings in the Tribunal under the RL Act, both at first instance and on appeal, should be awarded against the lessors. At [60], Santow JA (with whom Mason P and Brownie AJA agreed) stated that the lessors 'so acted as by their conduct to give rise to special circumstances; that is, circumstances that were clearly out of the ordinary and grossly unreasonable so far as the respondent tenant was concerned'. He pointed out that by virtue of this conduct, the tenant was 'forced to pursue this litigation'. He also said: 'While a finding of "serious unfairness" is not prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.' 33 Amongst the various types of situation that have been held to constitute 'special circumstances' in retail leases cases, one is where the proceedings instigated, or the grounds of defence raised, by the party against whom a costs order is sought are found to have lacked any real prospect of success and therefore to have been unmeritorious. In such circumstances, the purpose of a costs order has been said to be that of preventing the 'gross abuse' of the RL Act by frivolous, vexatious or misconceived proceedings." Submissions on behalf of the Respondent 5 Mr Cara contends that the Tribunal should be satisfied of the existence of special circumstances warranting an award of costs. This contention was founded on the conclusions in regard to the substantive application. He points to the findings that that the Applicant's claim could not be sustained as the disruption to the Applicant's business was not attributable to causes within the Respondent's control and that the Applicant had done nothing more than make bare assertion as to its losses. In dismissing the application I followed the approach taken by Judicial Member Molloy in Kindful (Australia) Pty Limited v Country Villa Holdings Pty Limited [2006] NSWADT 224 ("Kindful"). 6 Mr Cara argues that the Applicant was at all times represented by Mr Spring, an agent who has specialist experienced in the field of retail leasing, who regularly appears in the Tribunal and who has a detailed knowledge of the provisions and procedures contained in both the Act and the ADT Act. Mr Cara points to correspondence between the parties prior to the commencement of the proceedings which would have made it abundantly clear that the Respondent had done all in his power to rectify the problems and that he was powerless to do anything further by virtue of the fact that the Premises are strata premises and are therefore governed by the provisions of the Strata Schemes Management Act 1996. 7 Mr Cara submits that the correspondence also demonstrates that it was obvious to the Applicant that the Respondent was having difficulties in forcing the owner's corporation to rectify the leaks. 8 Mr Spring was clearly aware of the decision in Kindful and sought to distinguish it. Mr Cara submits that, having regard to all the correspondence that passed between the parties, the Applicant could not suggest that the Respondent had any control over leaks that were emanating through the Common Property. He argues that in such circumstances, the commencement and maintenance of the proceedings by the Applicant were misconceived and frivolous. He relies on the Tribunals decision in Brooks Maher v Cheung [2001] NSWADT 18 as support for this submission. In Brooks Maher v Cheung the Tribunal stated at paragraph [14]: "14 We are satisfied that the plain meaning of "special circumstances" is circumstances which are out of the ordinary, without having to be extraordinary or exceptional. But "special circumstances" alone are not sufficient. Under s 88(1), the special circumstances must "warrant an award of costs." The circumstances which would or would not "warrant an award of costs" cannot be exhaustively listed. However where one party causes another party to incur costs because of unreasonable delays, or by making misconceived, frivolous, vexatious or insubstantial procedural or substantive applications, an award of costs may be warranted." 9 Mr Cara refers to my findings at paragraph 55 of the decision in the substantive matter that the Applicant failed to adduce any competent evidence to support a claim pursuant to section 36(1)(b). He submits that the failure by the Applicant to adduce competent evidence illustrates that the bringing of the claim in circumstances where it was advised and represented by a experienced specialist was misconceived, frivolous and indeed, vexatious. 10 It is the Respondent's submission that the Applicant knew at the time that it filed its Application that it did not have the evidence to support its contention of loss and damage and it elected to proceed with its claim without adducing the evidence it knew it should have produced. In the Respondent's submission it is out of the ordinary for the Applicant to have proceeded with its application in those circumstances. The Respondent contends it had to incur significant legal costs to fend off the Applicant's misconceived and frivolous application. 11 The Respondent also contends that the Applicant unreasonably dealt with the Respondent by its unilateral decision that it would only pay half rent from August 2006. This resulted in the Respondent's threat to lock the Applicant out of the Premises and an application for Urgent Interim Orders on 15 December 2006. (Mr Cara referred to that application as matter No. 065195 however it appears from the Tribunal file that the application for Urgent Interim Orders was in fact brought in these proceedings). On 20 December 2006 Judicial Member Fox made orders staying the threatened lockout action but he did so on the basis that the Applicant pay the Respondent's outstanding rent of $37,927.17 and to continue to pay rent for January 2007 and February 2007 and that the Applicant pay the sum of $69,800 to be held on behalf of both the Applicant and Respondent until further order of the Tribunal. Orders were subsequently made releasing the sum of $69,800 to the Respondent. 12 The Respondent submits that the Tribunal should make an order for costs in these proceedings and also an order for costs of and incidental to the application for Urgent Interim Orders. Submissions on behalf of the Applicant 13 The Applicant submits that the ordinary rule of the Tribunal is that costs do not follow the event but rather that costs are only awarded in 'special circumstances'. It says that the mere failure of the Applicant's case does not mean that costs should be ordered against the Applicant. 14 The Applicant submits that there are no special circumstances warranting an order that the Applicant pays the Respondent's costs. The Applicant says that it complied with all directions of the Tribunal and did not cause the Respondent to incur extra costs and that it made every attempt to avoid litigation through negotiation and mediation, thereby attempting to limit costs. The Applicant says that it had an arguable case that was materially different to Kindful and that those differences needed to be ventilated before the Tribunal. It says that there were no other remedies available to the Applicant in any other jurisdiction and that there was an opportunity for the Tribunal to find in its favour. 15 The Applicant refers to the discussion on the meaning of the expression 'special circumstances' in the decisions in Risorto & Ors v Hanjoena Pty Ltd [2004] NSWADT 171 and Peat v Burcul and anor [2008] NSWADT 47. In Peat v Burcul and anor the Tribunal stated: "28 ... The principles which are applicable to an award of costs in the Tribunal have been considered in a number of cases, most helpfully in Stefopoulos v Manikas (No. 3 ) [2004] NSWADT 172 commencing at paragraph 28. 29 In Charteris v General Manager, Leichhardt Municipal Council [2001] NSWADTAP 12 at [90] the Appeal Panel said: "The power to award costs is circumscribed. In keeping with the position found in many modern statutory tribunals, the usual rule is that costs are not to be awarded. This is a measure that has at least two objectives - one, to remove an impediment to the exercise of important rights that the Tribunal has been established to see protected where appropriate; two, to discourage the use of lawyers. In these ways the goals of affordable, accessible justice are seen as being supported. But circumstances can arise in proceedings where a party should be given some compensation by way of a costs order. The `special circumstances' power allows the Tribunal to take that action. In Gizah Pty Ltd v AXA Trustees Ltd No 2 [2001] NSWADT 164, Judicial Member Molloy said (at paragraph 29): "I am of the opinion that in order to satisfy the test of "special circumstances" one must find circumstances that are out of the ordinary, but without having to be extraordinary or exceptional, and those special circumstances would warrant an award of costs." 30 The Appeal Panel's view has been cited with approval in subsequent decisions of the Tribunal. With particular respect to the Retail Leases Division, it has been said that the Division is unique within the Tribunal in that it alone deals with commercial disputes between parties who are engaged in trade and commerce: Wood and Anor v Bergman (No.2) [2003] NSWADT 175. At paragraph [11] - [13] the Deputy President said: "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." "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 [2001] NSWADT 150 at [4]. 31 The question for determination is whether there are circumstances, which are seriously beyond the usual or ordinary pursuit of a claim so that it would be seriously unfair to a party not to be awarded some or all of its costs where it has been successful. Ultimately, the question is one of fact. 16 The Applicant submits that there are three central situations which would under certain situations amount to 'special circumstances': (a) proceedings are instigated by a party that have no tenable basis in fact or law and lack any real prospect of success or are frivolous, vexatious and misconceived; (b) a party instigated proceedings, encouraging the opposing party to incur costs in preparing a counter argument, only to withdraw from the proceedings at some later time; (c) the case proceeds through the Tribunal in such a way as to disadvantage the other party. The Applicant submits that none of those situations apply in this matter. 17 The Applicant accepts that Kindful settled the question of liability when the lease was under a strata title, but it says that this matter concerned a question that was unresolved by Kindful. It says that each of the issues raised in this matter had to be heard before the matter could be resolved. It says that the fact that the Tribunal eventually found against the Applicant's claim does not give rise to special circumstances and there are no special circumstances for the Tribunal to consider. 18 The Applicant submits that the Respondent conceded that a failure to act with promptitude might give rise to a claim under section 34 of the Act. That liability rests on the subjective assessment of what is a 'reasonably practical' amount of time in which a lessor should act. It says that the determination that issue and the finding that the Respondent's delay was not unreasonable are different from the issues Kindful. 19 The Applicant submits that its argument supported a reasonable cause of action that was reasonably arguable and that the decision has clarified new areas of law. It says that whilst it was ultimately unsuccessful, its conduct did not give rise to special circumstances for a costs order to be given against it. It submits that to award costs when the Applicant sought to distinguish Kindful, in circumstances where Kindful had not answered questions that needed answering, would simply establish the rule of the ordinary Courts that costs follow the event. 20 The Applicant says that there is no Calderbank letter or equivalent before the Tribunal. It says that at no time prior to the litigation did the Respondent ever say that due to Kindful, the Respondent had no case to answer and the case was doomed to fail. Nor was it ever suggested that the Applicant should have an adequate remedy in another jurisdiction. The Applicant says that it had no choice but to litigate in this Tribunal and that to award costs against it would be seriously unfair. Discussion and conclusions 21 The law in relation to the award of costs in the Retail Leases Division of the Tribunal has been the subject of numerous decisions. The general principles are as set out most recently in the decision in Sarker v World Best Holdings Limited (No.5) and referred to above. 22 There are a number of important aspects of the decision in regard to the substantive application that are relevant to the issue of costs. However, the most important point agitated by the Respondent was that which was the subject of the Kindful decision. It was not in dispute that that the Premises were strata premises. That being the case, the owner's corporation owned the common property - the floors, walls and the ceiling. The Respondent does not own the common property and problems that arise in respect of the common property are problems that must be addressed by the owner's corporation. The maintenance and repair of the common property were the obligations of the owner's corporation. 23 The Respondent did not cause the leaks. As was the case in Kindful, the problems arose as a result of the conduct of other persons or were related to repairs or maintenance to common property and common services. It is clear from the Kindful decision that the Respondent had no authority to rectify the leaks. All he could do was refer the problems to the owner's corporation and push for rectification. This is what the he did. 24 It is equally clear from the correspondence between the parties that the Applicant was aware of this situation. The Applicant was aware that the Respondent could not rectify the leaks himself but rather had to rely on the owner's corporation to do so. 25 The evidence demonstrated clearly that the Respondent did his best to try to get the owner's corporation to rectify the leaks. Whenever the Applicant complained to the Respondent or the Respondent's manager, they took steps to bring it to the attention of the owner's corporation's managing agent. 26 In Kindful the Tribunal suggested that a lessor may well be in breach of section 34 of the Act if it does not act with promptitude to correct a problem which is not within its capacity to correct. In this matter I was satisfied that the evidence demonstrated that the Respondent acted with promptitude and did his best to rectify the problems as and when they arose. 27 In my view, the circumstances of this matter are comparable to those in Kindful. As Judicial Member Molloy observed Kindful (Australia) Pty Limited v. Country Villa Holdings Pty Limited (No 2) [2006] NSWADT 357 ("Kindful (No 2") at paragraph [35], "a careful analysis of the legal situation would have clearly demonstrated that there was no arguable case against the Respondent in relation to the water problems". The disruption to the Applicant's business was not the fault of the Respondent. Nor was it a result of any actions taken by the Respondent or the Respondent's manager. There was no overt action by the Respondent that caused or contributed to the unfortunate situation and neither was there a breach of the Act nor a breach of the covenant for quiet enjoyment. 28 In Kindful (No 2) at paragraph [37] - [38] Judicial Member Molloy summarised the situation in the following manner: "37 In other words, and putting it more bluntly, there was simply no case against the Respondent. There was no case against the Respondent's manager. There may well have been a case [against] other persons/entities but that is not my job to determine. The plain fact is that there was no case against the Respondent. To mount a case where there is in fact no case is a "special circumstance warranting an order for costs". 38 It is also important to observe that from the very beginning of this case and on the very first day of hearing counsel for the Respondent made it plain that in his very clear submission there was in fact no case against his client because the premises were under strata title and because there was nothing that his client had done or suffered to be done which was in breach of the Retail Leases Act or in breach of the lease contract. The argument was fairly put from day one." 29 Those views are equally applicable to the circumstances of this matter. In my opinion, the application was unmeritorious. There are special circumstances i.e. 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. Those circumstances produced a situation where it would be 'seriously unfair' not to award costs. They therefore warrant an award of costs in favour of the Respondent. The application for Urgent Interim Orders 30 The Respondent has also sought an order for costs of and incidental to the application for Urgent Interim Orders filed by the Applicant on 15 December 2006. While it is apparent that the Tribunal granted the interim relief on stringent conditions, it can be implied that the Tribunal must have formed the view that the Applicant had an arguable case. However, it must be noted that the Tribunal's orders required the Applicant to pay, on the same day that the interim orders were made, an amount of $107,727.17. This comprised a payment of $37,927.17 to the Respondent and the sum of $69,800 to be held on behalf of both the Applicant and Respondent. The Tribunal subsequently ordered that the sum of $69,800 be released to Respondent. 31 The Respondent contended that the application for Urgent Interim Orders was without merit and that the conduct of the Applicant in respect of that application caused the Respondent to incurs costs unreasonably. 32 I agree with the Respondent in this regard. It is my view that the Applicant should pay the Respondent's costs of and incidental to the application for Urgent Interim Orders filed by the Applicant on 15 December 2006. Orders The Applicant is to pay the Respondent's costs of and incidental to the application, including the Respondent's costs of and incidental to the application for Urgent Interim Orders filed by the Applicant on 15 December 2006. Failing agreement as to the amount of those costs, they are to be assessed on a basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004. 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