Appeal Panel - Internal CITATION: Tate v Unanderra Heights Pty Limited (No2) (RLD) [2005] NSWADTAP 22 APPELLANTS PARTIES: Paula Tate and Derek Tate RESPONDENT Unanderra Heights Pty Limited FILE NUMBER: 049037 HEARING DATES: On the papers SUBMISSIONS CLOSED: 04/22/2005 DATE OF DECISION: 05/27/2005 Unanderra Heights Pty Limited v Tate, Unreported DECISION UNDER APPEAL: BEFORE: Chesterman M - ADCJ (Deputy President); Higgins S - Judicial Member; O'Neill A - Non Judicial Member CATCHWORDS: costs MATTER FOR DECISION: Costs FILE NUMBER UNDER APPEAL: 045008 DATE OF DECISION UNDER APPEAL: 07/12/2004 LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Calderbank v Calderbank [1975] 3 All ER 333 Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 CASES CITED: Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164 North Eastern Travelstops Pty Ltd v Bradley & Ors (No 2) (RLD) [2005] NSWADTAP 17 Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 Tate v Unanderra Heights Pty Ltd (RLD) [2005] NSWADTAP 5 APPELLANTS REPRESENTATION: C Doyle,solicitor RESPONDENT C Bavin, solicitor ORDERS: 1. The Respondents' application for the costs of the appeal is dismissed; 2. There will be no order for costs on this application. REASONS FOR DECISION Introduction 1 This is an application for costs by the successful respondent to an appeal. In the appeal, the Appellants, Paula and Derek Tate, unsuccessfully challenged a decision of the Tribunal holding them liable under a 'licence agreement' with the Respondent, Unanderra Heights Pty Ltd, to continue to make payments of a 'site fee' after they had moved out of the premises to which the agreement related. 2 These premises were owned by the Respondent and were situated at Belmont. The agreement conferred a right of occupation on the Appellants, who used them to conduct a hairdressing business. The Appellants vacated the premises on or about 20 October 2003, whereupon the Respondent asserted its claim for instalments of the weekly site fee of $350 for the period from 14 November 2003 until 23 June 2005. 3 In outline, the grounds of the Tribunal's ex tempore decision in the Respondent's favour were as follows: (a) the licence agreement conferred on the Appellants a right to occupy the premises for the purposes of a retail business for a period of one year, and therefore fell within the definition of a 'retail shop lease' in s 3 of the Retail Leases Act 1994 ('the RL Act'); (b) under s 16(1) of this Act, the minimum term of a 'retail shop lease' is five years, subject to certain exceptions; (c) since none of these exceptions applied in this case, the date of expiry of the lease between the parties was 31 March 2007; (d) there was no agreement between the parties for early termination; and (e) the Respondent was unlikely to be able to relet the premises for at least twelve months after 12 July 2004, the date of the Tribunal hearing. The Tribunal ordered the Appellants to pay to the Respondent the sum of $29,400, representing the amount of the site fee during the period claimed. 4 In a further ex tempore decision on 12 July 2004, the Tribunal, having heard argument on the matter, rejected an application by the Respondent for the costs of the proceedings. 5 In the appeal, the Appellants claimed that the Tribunal's decision contained five errors of law, any one of which provided a reason why the decision should be set aside. The Appellants also claimed that because one of them, Derek Tate, did not sign the licence agreement, the Tribunal should not have held him liable for rent found to have been due to the Respondent under the agreement. 6 In a reserved decision delivered on 24 February 2005 (Tate v Unanderra Heights Pty Ltd (RLD) [2005] NSWADTAP 5), we rejected each of these grounds of appeal and accordingly dismissed the appeal. 7 During the hearing, Mr Vincent of counsel, who appeared for the Respondent, informed us that it had sold the premises on 24 November 2004 and was therefore not entitled to any amount for the weekly rent or 'site fee' of $350 after that date. This meant that the Respondent's claim covered a period of 53.5 weeks only. On the footing that no additional amount representing GST should be included, since payment under the judgment would not be assessable to GST, Mr Vincent agreed that the amount of the Respondent's claim should be reduced to $350 x 53.5, i.e. $18,725. 8 In disposing of the appeal, we accordingly varied the order initially made by the Tribunal, by substituting $18,725 for $29,400 as the amount payable by the Appellants to the Respondent. 9 We also made provision for each party to apply for costs of the appeal, indicating that unless a hearing was requested, the matter of costs would be decided on the papers, pursuant to s 76 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). The Respondent by its solicitors filed an application for costs, with supporting submissions, on 24 March 2005. The Appellants by their solicitors filed submissions in response on 22 April 2005. Relevant principles regarding costs 10 If costs are to be awarded, the requirement of 'special circumstances warranting an award of costs' set out in s 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. 11 According to the case-law on s 88(1) in its application to proceedings under the RL Act (see eg 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, Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 and North Eastern Travelstops Pty Ltd v Bradley & Ors (No 2) (RLD) [2005] NSWADTAP 17), this requirement of 'special circumstances' applies both to decisions made by the Tribunal at first instance and to Appeal Panel decisions. 'Special circumstances' have been defined as 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. The 'special circumstances' must also 'warrant an award of costs'. They may include factors connected with the nature of Appeal Panel proceedings. 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. 12 Amongst the various types of situation that have been held to constitute 'special circumstances' in retail leases cases, two are relevant in the present case. 13 The first of these is where an unsuccessful appeal is found to have lacked any real prospect of success and therefore to have been unmeritorious. This includes, but is not limited to, cases where the appeal has suffered a 'threshold rejection' because no 'sufficiently arguable question of law' was disclosed. 14 The second is where (a) the successful party in the proceedings has made an offer of compromise of the dispute before the conclusion of the proceedings; (b) the unsuccessful party has unreasonably rejected the offer; and (c) the terms of the offer were more favourable to the unsuccessful party than the orders made by the Tribunal. The Tribunal has held this situation to constitute 'special circumstances warranting an award of costs' by way of analogy with costs rules in the Supreme and District Courts and the principles laid down in Calderbank v Calderbank [1975] 3 All ER 333. 15 The Respondent, relying on a passage in the Appeal Panel's judgment in Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 at [7 – 10], argued that 'special circumstances' existed in this case on the two separate grounds that we have just outlined. It claimed (a) that this was an appeal 'without merit', which had suffered a 'threshold rejection' and (b) that the Appellants had unreasonably rejected three offers of compromise put to them by the Respondent, each of which was more favourable to them than the order ultimately made against them. We will deal with these two grounds in turn. The merits of the appeal 16 The Respondent's submissions on this issue referred to only one of the five errors of law that according to the Appellants were to be found in the Tribunal's reasons. This related to the Tribunal's ruling that, in the particular circumstances of the case, the licence agreement of 1 April 2002 did not fall within an exception, arising from the terms of s 16(4) and s 80 of the RL Act, to the general rule that, by virtue of s 16(1) of this Act, the minimum term of a 'retail shop lease' is five years. 17 Had this been the only ground of appeal, we might well have upheld the Respondent's submission that the appeal did not identify any sufficiently arguable question of law and therefore lacked any real prospect of success. In our judgment (Tate v Unanderra Heights Pty Ltd (RLD) [2005] NSWADTAP 5 at [21 – 28]), we held that the interpretation of s 16(4) and s 80 urged on us by the Appellants was clearly contrary to the express terms of these provisions. 18 The Appellants claimed, however, that there were four other errors of law in the Tribunal's decision. In our judgment, one of these, at least, was sufficiently arguable to preclude any ruling on our part that the appeal as a whole was unmeritorious. 19 This ground of appeal concerned the Tribunal's conclusion that because the licence agreement conferred on the Appellants a right to occupy the premises at Belmont for a period of one year, it fell within the definition of a 'retail shop lease' in s 3 of the RL Act. As explained in our judgment at [6 – 20], the licence agreement also contained provisions which, in contrast to this conclusion, suggested that the parties' intention was to create a monthly tenancy only. If this had been the correct interpretation of the agreement, no retail shop lease would have arisen because tenancies of less than six months are excluded from the definition of a 'retail shop lease' by s 6(1)(a) of the Act. 20 In upholding the Tribunal's conclusion, we referred at [17 – 18] to ambiguities in the licence agreement and to the possibility that the parties misunderstood its legal effect. The issue of interpretation was, indeed, far from straightforward. The grounds of appeal did therefore include at least one 'sufficiently arguable question of law' which, if determined in the Appellants' favour, would have resulted in the appeal being allowed. 21 For these reasons, we reject the Respondent's submission that 'special circumstances' within the meaning of s 88(1) of the ADT Act existed because the appeal lacked any real prospect of success and suffered a 'threshold rejection' by us. Rejection of offers of compromise 22 The Respondent relied on three offers to settle the dispute that its solicitors conveyed to the Appellants' solicitors. In each case, there was no response by the Appellants indicating willingness to accept the offer. 23 The offer of 21 October 2003. The first offer was contained in a letter to which we referred in our judgment. We did this in the course of upholding (at [39 – 46]) the Tribunal's decision that there was no agreement between the parties for early termination of the five-year lease that had arisen between them. 24 The Respondent's solicitors sent this letter to the Appellants' solicitors on 21 October 2003, being the day after the Appellants had moved out of the premises. It contained a statement that the Respondent would accept the termination by Ms Tate (one of the Appellants) of the lease one month after receipt of a written notice of termination so long as 'her obligations under the lease' were fulfilled. It listed these as being (a) giving one month's notice; (b) paying all arrears of rent, outgoings and 'other monies' (these were quantified at $1,794.03); (c) making good the premises to their original condition and (d) paying all legal and management costs incurred by the Respondent in finalising this protracted matter'. 25 In a letter of 14 November 2003 to the Appellants' solicitors setting out the terms of the second offer, the amounts claimed for 'make good costs', management costs and legal costs, were specified. They totalled $5,500. 26 It may be noted that, in contrast to the two later offers, the first offer was not expressed to be by way of 'compromise'. We do not think, however, that much turns on this. 27 The terms of this offer, requiring payment of a total of $7,294.03 to the Respondent, were more favourable to the Appellants than the order ultimately made against them in these proceedings, namely, that they should pay the sum of $18,725. 28 As was pointed out, however, in the Appellants' submissions on costs, none of the parties appeared at this stage to realise that the licence agreement had given rise to a lease of five years. Indeed, the letter of 21 October 2003 described Ms Tate at one point as 'a monthly holding over tenant'. The parties' misapprehension was understandable since, as we have just indicated, the true construction of the licence agreement was difficult to determine and at this stage the Appellants had only just vacated the premises. According to the Appellants' view of the matter, there was accordingly no legitimate ground on which the Respondent could hold them liable for 'all legal and management costs' (the amount of which had not yet been communicated to them). 29 In these circumstances, it was not, in our view, unreasonable for the Appellants to reject the offer to resolve the dispute, given that it required them to pay, in addition to all amounts believed to be owing under the licence agreement and the costs incurred in making good the premises, an indeterminate amount by way of 'legal and management costs'. 30 On these grounds, we do not accept the Respondent's submission that the Appellants' rejection of the offer of 21 October 2003 constitutes 'special circumstances warranting an award of costs'. 31 The offer of 14 November 2003. In a letter bearing this date to the Appellants' solicitors, the Respondent's solicitors conveyed an offer which was expressed to be 'in the interests of reaching a commercially acceptable resolution'. It indicated that the Respondent would accept a payment of $18,460 'in full and final satisfaction' of the Appellants 'obligations under the lease'. This sum comprised an amount of $12,960, representing 12 months' rent, and the amount of $5,500 already mentioned for 'make good costs', legal costs and management costs. It specified a time-limit of 14 days for acceptance of the offer. 32 Evidently, this offer was more advantageous to the Appellants than our order in the appeal that they should pay the sum of $18,725. But the difference between the two amounts is only $265. If the Respondent's sale of the premises last year had occurred a mere seven days earlier – that is, on 17 November instead of 24 November – our order would have been for the payment of $18,360. This would have been more, not less, favourable to the Appellants than the terms of the offer. 33 In any event, it was not unreasonable, in our opinion, for the Appellants to reject this second offer. Although the letter containing it did not make the claim, ultimately pursued successfully in the Tribunal, that the licence agreement created a five-year lease, it clearly indicated that in the Respondent's opinion the Appellants were subject to a lease of longer duration than a monthly tenancy. But at this stage, only some three weeks after they had vacated the premises, the Appellants were in no position to assess how long it might take the Respondent to relet or sell the premises, in conformity with its duty to mitigate its damage. As far as they knew, they might, after accepting the offer, have paid the settlement amount including one year's rent only to find that, one month or perhaps only one week later, the Respondent had found a purchaser or a new tenant. By contrast, if an offer along these lines had been made to them after it had become apparent that the Respondent was experiencing difficulty in selling or reletting the premises, it might well have been unreasonable for them to reject it. 34 Having regard to this finding, and to the fact that the offer of 14 November 2003 was only slightly more favourable to the Appellants than the terms of our order, we conclude again that the Appellants' rejection of the offer did not constitute 'special circumstances warranting an award of costs'. 35 The offer of 18 October 2004. The Respondent's third and final offer of settlement was made on 18 October 2004, between delivery of the Tribunal's judgment at first instance and the hearing of the appeal. In a letter of that date to the Appellants' solicitors, the Respondent's solicitors conveyed an offer to accept a payment of '$18,200 plus costs in full and final settlement of this matter'. 36 Although the figure of $18,200 is about $500 below the amount ordered in our judgment, this offer required a further sum on account of costs. This of itself rules out any finding that it was more favourable to the Appellants than the amount in our order. It may well have been less favourable even than the award of $29,400 made by the Tribunal at first instance on 12 July 2004, since the Tribunal on the same day dismissed an application for costs. 37 In our judgment, this provides sufficient grounds for holding again that the Appellants' rejection of the offer did not constitute 'special circumstances warranting an award of costs'. 38 The Appellants pointed out that the Respondent conveyed this third offer at a time when it must have known, but did not advise the Appellants, that the sale of the premises would be concluded about five weeks later and that the best possible result that it could obtain on the appeal would be an order within the region of $18,725. This aspect of the matter further supports our ruling that the Appellants' rejection of this offer should not be held to provide grounds for a costs order against them under s 88(1). Conclusion 39 We note finally the Appellants' observation in their submission that if they had not appealed, they would have been obliged by the Tribunal's order at first instance to pay an amount significantly larger than what proved to be the actual loss of rent suffered by the Respondent as a result of their premature termination of the lease. 40 At first sight this might seem to demonstrate that the Appellants were, in some sense, 'justified' in appealing and therefore to reinforce their claim that despite their lack of success in the appeal they should not have to pay costs. But in our opinion, this is not correct. In determining whether any of the settlement offers were more favourable to the Appellants than the order made in the proceedings, we have taken into account, as clearly we must, the fact that, at the invitation of counsel for the Respondent, we reduced the amount of the judgment in its favour. But the fact that the Respondent succeeded in mitigating its damage by selling the premises in the period between the delivery of the judgment at first instance and the hearing of the appeal does not of itself demonstrate that the first instance judgment was 'wrong' in any sense or provide 'justification' in any other way for the Appellants' decision to challenge the judgment on appeal. 41 For the foregoing reasons, we dismiss the Respondent's application for the costs of the appeal. 42 There will be no order for costs on this application. 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.