Campbell v Astill; Astill v Campbell [2004] NSWADT 277

CITATION: Campbell v Astill; Astill v Campbell [2004] NSWADT 277 DIVISION: Retail Leases Division APPLICANT/CROSS RESPONDENT: PARTIES: Elizabeth Campbell RESPONDENT/CROSS APPLICANT Berndette Astill FILE NUMBER: 045081 and 045091 HEARING DATES: 4/11/2004 SUBMISSIONS CLOSED: 11/17/2004 DATE OF DECISION: 12/02/2004

BEFORE: Donald BG - Judicial Member; Fairweather R - (Advisory) Non Judicial Member ; Harrison B - (Advisory) Non Judicial Member APPLICATION: Claim for relief against forfeiture - Claim for surrender of possession of premises - Unconscionability MATTER FOR DECISION: Principal matter LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Alessa Pty Limited -v- Total & Universal Pty Limited (RLD) [2002] NSWADTAP 16 CASES CITED: Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150 Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2)[2004] NSWADT 72 Skiwing Pty Ltd v Trust Co of Australia Ltd (No 4) [2004] NSWADT 162 APPLICANT/CROSS RESPONDENT REPRESENTATION: J V Gooley, barrister RESPONDENT/CROSS APPLICANT P J Grant, solicitor ORDERS: 1. Application 045091 dismissed; 2. In Application 045081, the Lessee to surrender possession of the premises Shop 4/22 Darley Road, Manly on or before 5 December 2004; 3. Lessee to pay the Lessor's costs as agreed or assessed

REASONS FOR DECISION Introduction 1 Mrs Elizabeth Campbell owns a shop in Manly which is leased to Mrs Bernadette Astill who runs a bookshop, 'Readability'. Mrs Campbell has given notice bringing the lease to an end. Mrs Astill says Mrs Campbell is not entitled to do that because she has acted unconscionably. 2 The Tribunal has determined that Mrs Campbell is entitled to terminate the lease and has not acted unconscionably. The Tribunal has also decided that Mrs Astill should pay Mrs Campbell's costs. The Applications 3 Application 045081 is by Mrs Campbell, the Lessor of Shop 4/22 Darley Road, Manly, for surrender of possession of the premises by the Lessee, Mrs Astill. 4 Mrs Astill cross-claims, Application 045091, that the conduct of Mrs Campbell has been unconscionable within s.62B of the Retail Leases Act 1994 and that she is entitled to remain in possession of the shop as a consequence of that unconscionable conduct. 5 Accordingly the Tribunal has been constituted in accordance with the rules governing unconscionable conduct claims: see Administrative Decisions Tribunal Act 1997, Schedule 2, Part 3B, cl 4. The Tribunal is made up of a presiding judicial member of the kind required by cl 1(3)(a) of Part 3B (a person with experience or qualifications equivalent to a retired Supreme or Federal Court judge), and non-judicial members sitting in advisory capacity one with the experience referred to in cl 1(3)(b) (experience as a lessor, or working on behalf of lessors, under retail shop leases) and the other with the experience referred to in cl 1(3)(c) (experience as a lessee, or working on behalf of lessees, under retail shop leases). 6 At the beginning of the hearing the Tribunal was informed that the Lessor, an elderly woman, was unable to attend that day for medical reasons and so could not be cross-examined on her evidence at that time. Therefore I reviewed the issues presented by the Applications to determine whether and how the matter could sensibly proceed without wasting costs and time, given that both parties were represented. 7 The issues fall into two areas, first the existence and terms of the lease between the parties and second, whether the conduct of the Lessor was unconscionable. The lawyer for the Lessee clarified that the basis for resisting the Lessor's claim for surrender of possession was only the existence of unconscionable conduct and not that, whatever form of lease existed, relevant notices to quit had not been otherwise validly served. He advised the Tribunal that the contention would be that a 6 months lease had arisen in 1996 with a 12 month option as a result of the conduct of the parties and that the Lessee was holding over as a monthly tenant under that lease. This was a different contention from the claim stated in Application 045081 which was that a 5 year lease operated from November 2003. 8 This was important because the original Lease of the premises, of which the current Lessee had taken a transfer in 1996, had commenced in 1993 prior to the commencement of the Retail Leases Act 1994. Accordingly to bring this dispute within the jurisdiction of the Tribunal, it would be necessary to establish a secondary lease commencing after 1994 as a result of dealings between the parties. If the Lease contended for was a five year lease from November 2003 then the claim to resist surrender would be on grounds other than the unconscionable conduct claim, and determining whether or not it existed would be an essential ingredient in disposing of the case. If, as now contended by the lawyer for the Lessee, the secondary lease had become a monthly holding over, there would only be a contest on its existence and terms if the Lessee established a case for the Lessor to answer on the unconscionable conduct claim. 9 The question of a secondary lease was a more complicated question as to which detailed evidence would be required from both parties before any determination. On the other hand, the evidence of the Lessee of unconscionability was within a relatively precise and agreed compass and the Lessor's lawyer made no objection to the evidence in the affidavit of the Lessee nor sought to cross-examine her. In those circumstances it was agreed between the parties and the Tribunal that the existence of the lease and the jurisdiction of the Tribunal would be conceded for the purposes of determining whether there was a case for the Lessor to answer on the unconscionability question. Findings of Fact 10 The accepted evidence of the Lessee on the issue of unconscionable conduct, as contained in her Affidavit of 10 September 2004, Exhibit A, which I have taken at its highest, was as follows. 11 The Lessee had been a tenant carrying on business in the shop since April 1996, first in association with another and then on her own account. By May 2000, at which time (even on the Lessee's case) she was a monthly tenant, rent was $1,690 per month after agreed rent reviews in February 1998 and February 2000. 12 In September 2003 following an inspection of the shop, the managing agents gave 60 days written notice that the rent would increase to $2,064 per month, an increase of $94 pw or 22%. (My calculation of the difference is $86pw but I agree on the 22%). 13 Two months later by letter of 12 November 2003, the Lessee expressed her shock at the amount of the rent increase, counter-offering an increase of $70 per week on the basis that she "would be prepared to stay and sign a three-year Lease with a three-year option". 14 The Managing Agent immediately replied on 17 November 2003: "It has been decided that the increase will stand… Should you choose to stay on, Mrs Campbell is not prepared to enter into a new Lease Agreement for any term…Should you choose to leave we are prepared to waive the normal notice period." 15 The Lessee commenced paying the new rent but as a result of personal commitments to a hospitalised family member, she did not respond to the last letter until Easter 2004 in a telephone conversation again raising the possibility of a formal Lease and also asking about the status of certain alleged bond money. She says the agent said:- "I don't think there is any problem in having a Lease drawn up but you have to pay the full cost…" 16 On 31 March 2004 the Agent replied that he had no record of any bond (which would later be clarified in the Lessee's favour) but there was no reference in that letter to a Lease and no immediate communication from the Lessee seeking a new lease. 17 Then on or around 4 May 2004 the solicitors for the Lessor served a formal notice to quit of that date requiring vacant possession on or before 30 June 2004, effectively two months notice. 18 On 8 May 2004 the Lessee responded:- "… I could maintain that I am entitled to protection under the Retail Leases Act 1994 and that in these circumstances could have assumed six months notice of the owner's intention to end the Lease." 19 She proposed a compromise that she vacate the premises by 23 September 2004 and went on and referred to her long-standing business record, the importance of the bookshop locally, referring to previous discussions with the Managing Agent about formalising a Lease and expressing concern that she was never allowed to make an offer to buy the premises. 20 She stated "I appreciate the right of the owner to her premises…" but contended that the notice was 'abrupt', the period 'unreasonable' and the conduct 'hardly reasonable, fair and ethical business behaviour!" 21 She also sent a letter of 10 May 2004 direct to the Lessor expressing her 'disappointment and disillusionment.' 22 On 18 May 2004 the solicitors for the Lessor responded to the 8 May letter. They first asserted that as the original Lease commenced:- "…prior to the enactment of the Retail Leases Act 1994 … we do not see that that legislation will entitle you to any period of notice longer than the contractual right in the Lease." 23 They informed her that the Lessor had found an alternative tenant willing to pay a substantially higher rent and had entered into an agreement with that party. "As you have been paying rent monthly our client was obliged at the most to give you one month's notice. Since the Lease expired, our client has been reciprocally exposed to termination by you on similar notice. As you are aware, the period of notice actually given was almost two months. …However, owing to the agreement entered into with the new tenant, our client is not at liberty agree to your request to extend your tenancy until 23 September. Without prejudice and having regard to the arrangements you have made to take a holiday, our client is willing to extend the expiry of the Notice to Quit to 31 July 2004 provided we receive, by 26 May, your written undertaking to vacate by that date, otherwise you are required to vacate by 30 June." 24 They also confirmed that the bond money would be refunded. 25 Following other correspondence the solicitors then on 28 May 2004 wrote:- "At this point the Notice to Quit is extended until 31 July 2004. If when that date is approaching you contact us and can show progress towards vacating the premises but that you need a little more time our client may consider some deferral of action, but in any event not beyond 31 August at the very latest." 26 On 25 May the Lessee wrote to the Lessor's solicitors:- "I note your assertion regarding the dates of the original Lease we took over and the enactment of the Retail Leases Act 1994. In my contention that is irrelevant. A purpose of the Act is to include all Leases except those specifically excluded or for less than the six months." 27 In early June 2004 the Lessee put a notice in the window of her premises indicating that her shop Readability had to close and she began selling stock at reduced prices. On 9 June 2004 an article appeared in the Manly Daily Newspaper drawing public attention to the closure of the shop. 28 On 23 June the Lessee wrote personally to the Lessor contending that there was community opposition to her proposed lease of the shop to the neighbouring Pizza business and to the fact that the issue of the cessation of the business had become a major public issue which was supported by the Mayor and would be raised in the Council. She stated that "Residents upstairs have called in to express their concern and anger." She then asked for a discussion of options prior to her departing overseas. 29 On 30 June the Lessee wrote to the solicitor for the Lessor including the following statement: "Following the enormous surge of public support for the continuation of the bookshop and the remarkably strong preference of very many loyal customers for its present location, I have sought legal advice on my rights. As a result I have decided to seek a declaration that the Retail Leases Act is applicable and that I am entitled to the enjoyment of a five-year lease commencing November 2003, the date of the substantial rent increase." 30 The Lessee then sought mediation of the dispute with the Retail Tenancy Unit. On 6 July 2004 the solicitors for the Lessor responded to the developments, maintaining their opinion that the Retail Leases Act did not apply and stating: "Out client … sees no point in the trouble, expense or further delay of a mediation conducted by the Retail Tenancy Unit. Our client intends to institute proceedings for an order for possession of the premises as soon as practicable. … it is requested your client reconsider her position and proceed to vacate by no later than 31 August 2004 as previously indicated." 31 The Lessor did not attend at the mediation and having obtained a certificate from the Retail Tenancy Unit dated 6 July 2004 that the mediation had "failed", her solicitor filed an application to the Tribunal on 12 July 2004 for possession. (Such a certificate is a normal pre-requisite to a matter proceeding before this Tribunal.) 32 On 24 July 2004 an article appeared in the Manly Daily entitled "Another side to bookshop story" generally putting the Lessor's side of the story but referring to the fact that 2,000 signatures had been collected for a petition to Manly Mayor, Peter McDonald, who was reported to have 'expressed his support for keeping the store open.' 33 The Lessee in submissions to this Tribunal drew particular attention to the following two paragraphs from the story: "Mrs Campbell, a widow, said the rental from the shop was her only source of income, that Mrs Astill had been paying below-market rental since she moved in and had consistently declined to sign a Lease. Mrs Campbell said her letting agent had advised her that Mrs Astill would pay monthly rather than enter a Lease." 34 On 16 August 2004 the Lessee filed her cross-claim through her solicitor. 35 As noted, when the matter came on for hearing on 4 November 2004, the lawyer for the Lessee conceded to the Tribunal that whatever Lease was on foot, by 2004 it had become a monthly tenancy such that the only basis for the invalidity of the Notice to Quit was the unconscionable conduct alleged by the Lessor and that if that conduct were not found to be unconscionable, there would be no proper basis for resisting the order for possession. 36 I think that concession was sensibly made having regard to the evidence of two prior rent increases. This would make it very difficult to contend that the November 2003 increase constituted of itself the basis for the commencement of a new lease attracting the benefit of a five year term under the Act. Unconscionable Conduct 37 Accordingly my first task is to assess the above evidence against the contentions that it constitutes unconscionable conduct within s.62B(3) of the Retail Leases Act 1994. In that regard the lawyer for the Lessee took us very carefully through his written submission and related it to the evidence. 38 Section 62B prohibits "conduct that is, in all the circumstances, unconscionable." Conduct within this general category is serious conduct of an unconscientious nature going beyond the usual or ordinary conduct of parties in the context of a commercial retail lease. 39 Section s.62B(3) sets out a number of examples of unconscionable conduct but does not limit the generality of the expression. I will first consider those particular paragraphs which are contended to apply before turning to the more general question as to whether, generally speaking, the conduct of the Lessor in this case was "unconscionable". Section 62B(3)(d) 40 The Lessee first contends that the conduct of September 2003 in raising the rent to $2,064 per month while at the same time declining to enter into a three-year lease with a three-year option "was tantamount to economic duress and was an unfair tactic within the meaning of s.62B(3)(d)…". 41 To begin with, in my opinion and having regard to the advice of my colleague members, a 22% rent rise following three and a half years of no rent increases at a time of boom in the Sydney property market could not possibly be argued to be "economic duress". The proposed new rent for retail premises in this location could hardly be regarded as out of step with general market rates. Nor is it unfair or undue pressure to propose this increase in this manner giving 60 days notice to a tenant honestly believed to be on a monthly tenancy. 42 It is noteworthy that the Lessee did not respond to the rent increase notice for nearly two months herself, this delay not being explained on the basis of health issues within her family. 43 Nor do I think it is 'undue influence or pressure… or …unfair tactics' to decline to grant a new Lease to a tenant because they happen to be carrying on a business which the community may value. It is a matter for a Lessor to determine its commercial imperatives in relation to premises subject only to its legal obligations to a tenant under the law. Section 62B(3)(j) 44 The refusal to enter into a new Lease was also said to constitute unconscionable conduct under s.62B(3)(j) in that the Lessor was not "willing to negotiate the terms and conditions of any Lease with the Lessee". I do not think this paragraph requires a Lessor to enter into a new Lease in circumstances where she does not wish to. I do not think that the refusal to enter into a new lease for a further three plus three terms in the circumstances in which the Lessor was examining her options in relation to the premises was an unwillingness to negotiate the terms and conditions of her Lease. 45 The Lessee further argues that the refusal by the Lessor to engage in mediation is conduct within s.62B(3)(j). 46 It is quite clear under the terms of the Retail Leases Act 1994 and the procedures of the Retail Tenancy Unit that mediation is a voluntary process and while parties can be referred to the Unit for the purpose of endeavouring to resolve matters by mediation, they cannot be forced to do so. In this case the Lessor had legal advice that the solicitors did not consider, given the specific nature of the dispute, that mediation would be likely to be of any benefit. In those circumstances I cannot agree that declining to participate in a mediation is within the scope of unconscionability either generally or in terms of paragraph (j). Section 62B(3)(f),(i) 47 The Lessee next contends that failure of the Lessor to disclose her discussions with the next door pizza shop for expansion of its business if a new lease were to be available, was also unconscionable conduct within first s.62B(3)(f)and second s.62B(3)(i). 48 As to paragraph (f), I do not think this applies to the facts here. It is not an example of conduct not 'consistent with the lessor's conduct in similar transactions between the lessor and other like lessees…' The proposed new tenant had not yet become a lessee of Mrs Campbell. 49 As to paragraph (i), any interest that the Lessor was considering granting to the proposed new tenant was subject to her resolving her rights in relation to the existing occupant, whether that future relationship be one of sale or leasing of the shop. In our opinion there was no basis for an assertion that 'the lessor unreasonably failed to disclose to the lessee…any intended conduct of the lessor that might affect the interests of the lessee.' I do not think that the unconscionability rules require a lessor to keep a tenant informed of other alternative commercial arrangements to which it may put the premises in the event that it is lawfully entitled to do so. Section 62B(3)(c) 50 The next claim for unconscionability is that the Lessor's solicitors in their letter of 18 May 2004, by giving advice to the Retail Leases Act 1994 did not apply, were on behalf of the Lessor engaging in conduct that was unconscionable because the Lessee, in terms of s.62B(3)(c), was not 'able to understand any documents relating to the Lease.' 51 As the evidence demonstrates, it was the Lessee who first asserted rights under the Act. In my opinion there is no basis for arguing that a solicitor directly responding to an assertion by an opposing party that the relationship is governed by legislation, is in any way taking advantage of the lack of knowledge of that person. It is simply the solicitor considering the allegation made against its client and responding according to his opinion. There is nothing preventing the Lessee taking legal advice to test whether her original assertion of the application of the Act was correct or not in light of the particular reasons given by the solicitor on the other side. I do not see that there is any basis for complaint in relation to that conduct. Section 62B(3)(k) 52 The next claim is that the Lessor Mrs Campbell has failed to act in good faith because of certain statements which appeared in the Manly Daily Newspaper article, those being the two specifically quoted above in the evidence. It is said because those statements are not necessarily correct, in that the Lessee had from time to time raised the question of signing a new Lease rather than continuing as a monthly tenant, this was evidence of bad faith on the part of the Lessor. 53 The context of the newspaper report was a very substantial local campaign that appears to have been mounted against the closure of the bookshop, including the petition of 2,000 people, the intervention of the Mayor and the suggestion that the Council would become involved. In my view, for a Lessor to accede to a request for a journalist to put her side of the story is hardly bad faith even if in some particular respects her comments are not absolutely accurate. The general tenor of her response was by no means unrestrained. 54 In any event I do observe that it is of little assistance, in determining whether the real commercial effect of her behaviour is unconscionable, to have regard to newspaper stories about the situation or what a party is reported by a journalist to have said. Conclusion 55 In all of these circumstances I am clearly satisfied that whether in terms of the specific paragraphs of s.62B(3) or within the general meaning of the concept of "unconscionable conduct", there is nothing in the behaviour of the Lessor, even taking the evidence of the Lessee at its highest, that can be categorised as unconscionable. On the contrary, I consider that the Lessor has at all times acted reasonably in accordance with her legal advice and her solicitor's assessment of her ordinary rights as an owner of premises. At all times she was willing to provide more than reasonable notice of her actions and to extend relevant periods of time for compliance out of fairness to the tenant. 56 The Lessee's response to that approach was strenuous and concerted, seeking to bring moral pressure on the Lessor in a commercial situation. Contrary to the case for the Lessee, I do not think her own conduct was fair and reasonable, accepting her evidence as uncontroverted. 57 In those circumstances, I find there is no case for the Lessor to answer on unconscionable conduct. Accordingly I have dismissed the Lessee's application. 58 Because of the above noted concession by the lawyer for the Lessee that, only by us finding unconscionable conduct would there be a proper basis for resisting an order for possession, I have granted the Lessor's application for an order of surrender of possession. 59 Having advised the parties of this opinion at the hearing, indicating I would provide these more detailed reasons, I discussed with the parties what would be a reasonable time before which the order for possession should be operative. It was agreed that surrender by 5 December 2004 would be acceptable between the parties. Costs 60 The question of costs was stood over for written submissions. The Lessor seeks costs and both parties have made written submissions which we have considered. Costs may only be awarded in the discretion of the Tribunal in "special circumstances". 61 There are various statements of the principles governing this discretion of the Tribunal to award costs in retail leases matters, the most recent being the Appeal Panel's decision in Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2)[2004] NSWADT 72, in particular pars 7-12. The key statement is par 9:- 9 In Wood & Anor v Bergman (No. 2)[2004] 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]. 62 The principle from Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150, which the Panel includes among relevant statements, was:- '... the circumstances must be seriously beyond the usual or ordinary pursuit of a claim so that it would be seriously unfair to a party to proceedings before the Tribunal not to be awarded some or all of its costs where it has been successful.' 63 That principle had been in turn accepted for the purposes of reviewing and upholding the first instance decision by the Appeal Panel in Alessa Pty Limited -v- Total & Universal Pty Limited (RLD) [2002] NSWADTAP 16 (see par 31). 64 These statements were summarised in Skiwing Pty Ltd v Trust Co of Australia Ltd (No 4) [2004] NSWADT 162 7 So in summary, the commercial nature of the Retail Leases Act jurisdiction requires a different approach from other ADT Divisions ie the Tribunal would be expected to find costs orders more appropriate although without a 'costs follow the event' approach. The circumstances must be out of the ordinary, but without having to be extraordinary or exceptional. The circumstances must be seriously beyond the usual or ordinary pursuit of a party's legal position so that it would be seriously unfair for a party not to receive some or all its costs. 8 The decision is a discretionary decision having regard to the particular facts of the case. 65 Factors taken into account in exercising this discretion include any offers to settle the case and how arguable the case was, an unarguable case tending towards a costs order. Both these factors are relied on by the Lessor in this case in seeking a costs order. 66 In my opinion this is a case in which the successful party should get costs. 67 I have concluded that the conduct of the Lessee, even taking her evidence at its highest, was unreasonable. 68 A settlement offer made by the Lessor on 15 September 2004 and marked 'Without prejudice save as to costs' offered a settlement substantially more favourable to the Lessee than the orders made by the Tribunal dismissing the claim and ordering possession. 69 I think the case for the Lessee was very weak and that in important respects was virtually unarguable as to the basis on which, on the Lessee's uncontroverted evidence, the examples of unconscionable conduct within s. 62 B were said to apply. 70 The claim as to the nature of the lease as specified in the application, and for which the lessor will have had to prepare, namely a 5 year lease from November 2003, was abandoned at the hearing as noted above, par 4. 71 For these reasons I consider the Lessor is entitled to her costs as agreed or assessed. Order 1. Application 045091 dismissed. 2. In Application 045081, the Lessee to surrender possession of the premises Shop 4/22 Darley Road, Manly on or before 5 December 2004. 3. Lessee to pay the Lessor's costs as agreed or assessed.