CITATION: Nawi No 3 Pty Ltd & Ors v ING Management Ltd [2005] NSWADT 235 DIVISION: Retail Leases Division APPLICANTS Nawi No 3 Pty Ltd PARTIES: Britehurst Pty Ltd JEA Services Pty Ltd RESPONDENT ING Management Ltd FILE NUMBER: 055030 HEARING DATES: 28/07/2005 SUBMISSIONS CLOSED: 07/28/2005 DATE OF DECISION: 10/17/2005 BEFORE: Chesterman M - ADCJ (Deputy President); Fagg N - Non Judicial Member ; Griffiths G - Non Judicial Member APPLICATION: Claim for relief from payment of money - Damages - Unconscionability MATTER FOR DECISION: Costs LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 Lau v Westfield Ltd (Westfield Eastgardens) [2005] NSWADT 165 CASES CITED: Protogeros v Fouzas [2004] NSWADT 62 Sarip Investment Pty Ltd v Uno Uno Pty Ltd [2004] NSWADT 27 Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 World Best Holdings Ltd v Sarker [2004] NSWSC 1164 Yee Kwong Wah Pty Ltd v Hawach & Anor [2003] NSWADT 151 APPLICANT REPRESENTATION: J Atkinson, agent RESPONDENT M Yun, solicitor ORDERS: The Applicants are to pay the costs incurred by the Respondent in these proceedings in the Tribunal, as assessed or agreed on a party-party basis, up to and including the costs of the hearing of 20 May 2005 and including the costs reserved at the hearing of 9 March 2005. REASONS FOR DECISION Introduction 1 The issue to be determined in this case is whether the Respondent Lessor, ING Management, should obtain an order for costs against the Applicant Lessees following the withdrawal by the Applicants of their application for relief in this Tribunal. The Lessees are three companies: Nawi No 3 Pty Ltd, Britehurst Pty Ltd and JEA Services Pty Ltd. 2 It is common ground that the lease between the parties, which runs from 1 January 2001 to 31 December 2005, is governed by the Retail Leases Act 1994 ('the RL Act'). 3 The application filed in the Tribunal, as amended, included a claim of unconscionable conduct on the part of the Lessor. The Tribunal is therefore constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members in an advisory capacity only. The circumstances leading to the Applicants' withdrawal of their application 4 The relevant litigation between the parties to this case began with a Statement of Liquidated Claim filed by the Lessor on 10 November 2004 in the Local Court at Sydney, alleging that the Lessees owed them $24,267.23 plus interest for unpaid rent. (The Tribunal was advised by Mr Atkinson, representing the Lessees, that similar proceedings previously instigated by the Lessor had been dismissed, but no evidence was tendered to substantiate this.) 5 On 13 December 2004, the Lessees filed a Notice of Grounds of Defence in the Local Court. It included a claim that they were not liable for the rent because the leased premises were not fit for the permitted use, the Lessor had failed to make them fit for this use and the Lessor had refused to consent to a sub-lease. 6 On 3 March 2005, the Lessees filed in the Tribunal the present application, comprising a retail tenancy claim and an unconscionable conduct claim. It included these allegations regarding the state of the premises. The Lessees claimed damages on grounds of breach of contract and unconscionable conduct and asserted that the Lessees should not have to pay any rent allegedly due. They made a minor amendment to this application on 23 March 2005. 7 In letters dated 7 and 8 March 2005 to the Lessees' solicitors and the Tribunal respectively, the Lessor's solicitors contended that because the issues raised in the Lessees' application overlapped with those raised in the Local Court proceedings, the Tribunal, on being so notified, ceased to have jurisdiction by virtue of s 76(2) of the RL Act. The letters also asserted that the Lessor had good grounds for resisting any move by the Lessees to have the Local Court proceedings transferred to the Tribunal. In this context, they referred to the practical difficulties then experienced by the Tribunal in constituting itself lawfully for the hearing of unconscionable conduct claims, in consequence of the decision of the Supreme Court in World Best Holdings Ltd v Sarker [2004] NSWSC 1164. In the letter to the Lessees' solicitors, an application for indemnity costs was foreshadowed. 8 The relevant parts of s 76(2) are as follows: (2) If a retail tenancy claim or an unconscionable conduct claim has been lodged with the Tribunal under this Part and at the time it was lodged an issue arising under the claim was the subject of a dispute in civil proceedings pending before a court, the Tribunal, on becoming aware of those proceedings, ceases to have jurisdiction to hear or determine the issue, unless: (a) those proceedings, or the part of the proceedings relating to the issue, are or is transferred to the Tribunal by the court concerned, … 9 On 9 March 2005, the Tribunal directed that the Lessees' application to it be adjourned for further directions on 29 April 2005, with costs reserved. 10 On 24 March 2005, the Local Court dismissed with costs a Notice of Motion previously filed by the Lessees, seeking an order under s 75 of the RL Act transferring the proceedings in the Court to the Tribunal. It ordered that the matter be listed for callover on 9 April 2005. The Court's reason for dismissing the Notice of Motion was that the New South Wales agent for the Lessees' solicitors, whose practice is in Queensland, had mistaken the time for the hearing and had failed to appear. 11 The relevant parts of s 75 are subsections (1) and (2): (1) If civil proceedings pending in a court involve a retail tenancy dispute, the court must on the application of any party to the proceedings transfer the proceedings (or so much of the proceedings as involve such a dispute) to the Tribunal to be dealt with as a claim under this Division, but only if the court is satisfied that: (a) the dispute is such as may effectively be dealt with as a claim under this Division and that it is appropriate that the dispute be dealt with by the Tribunal, and (b) the interests of justice do not require that the matter be dealt with by the court. (2) In determining whether or not it is appropriate that a matter be dealt with by the Tribunal, a court is to have regard to the general principle that retail tenancy disputes should be dealt with by the Tribunal rather than by a court. 12 At the callover in the Local Court on 9 April 2005, the Lessor indicated that it would be seeking a transfer of the proceedings to the District Court. 13 Following further directions hearings at the Tribunal on 29 April, 11 May and 18 May 2005, a motion by the Lessor for dismissal of the Lessees' application and for an award of costs on an indemnity basis was heard on 20 May 2005. One submission made by the Lessees was that the Lessor's choice of the Local Court to commence proceedings was an abuse of process since they had always intended to claim a larger amount and ultimately to have the claim heard in the District Court. 14 On 20 May 2005, the Tribunal ordered that the retail tenancy claim contained in the Lessees' application be dismissed on the ground that it dealt with issues covered by the Local Court proceedings. It adjourned the hearing regarding the unconscionable conduct claim to 8 June 2005 and reserved the question of costs. 15 On 26 May 2005, the Lessees sent a request to the Tribunal that their application be withdrawn, on the basis that negotiations to settle the dispute were continuing. 16 On 1 June 2005, the Lessees withdrew their application, noting that the dispute had not been settled. 17 On 22 July 2005, the Lessor obtained an order in the Local Court transferring the proceedings in that Court to the District Court. It had amended its Statement of Liquidated Claim and increased the amount claimed for unpaid rent to some $220,000, well above the upper limit of $60,000 applying to civil claims in the Local Court. 18 At the hearing with which the present judgment is concerned, the Lessees' application was formally dismissed. The Lessor maintained its application for indemnity costs. The Tribunal heard argument on this issue. Relevant principles regarding costs 19 In Tribunal proceedings instituted under the RL Act, costs do not follow the event. If they are to be awarded, s 77A of the RL Act stipulates that the requirement of 'special circumstances warranting an award of costs', set out in s 88(1) of the ADT Act, must be satisfied. 20 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 and Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43), 'special circumstances' are to be defined 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. 21 Amongst the various types of situation that have been held to constitute 'special circumstances' in retail leases cases, three are of particular relevance in the present case. 22 The first of these is where an unsuccessful claim or defence is found to have lacked any real prospect of success and therefore to have been unmeritorious. 23 The second is where a party has filed an application or sought to defend proceedings, thereby causing the opposing party to incur costs in preparing for litigation, then has withdrawn the application or the defence without any sufficient justification for so doing. In a number of decisions (see eg Yee Kwong Wah Pty Ltd v Hawach & Anor [2003] NSWADT 151, Sarip Investment Pty Ltd v Uno Uno Pty Ltd [2004] NSWADT 27 and Lau v Westfield Ltd (Westfield Eastgardens) [2005] NSWADT 165), this behaviour by a party has been held to constitute 'special circumstances warranting an award of costs'. 24 The third, which is closely linked to the second, is where a party, without good cause, causes proceedings with respect to the same subject matter to be carried on both in this Tribunal and in another competent forum, then brings the Tribunal proceedings to an end. The case of Protogeros v Fouzas [2004] NSWADT 62 provides an illustration. 25 In this case, the lessees under a retail shop lease obtained an order of the District Court that proceedings previously commenced in the Court by the lessor should be transferred to the Tribunal. Subsequently, they requested that a hearing set down in the Tribunal should be vacated in order that they themselves could commence fresh District Court proceedings. They took this step because a cause of action that they wished to press in the District Court did not fall within the Tribunal's jurisdiction. The lessor had however drawn this to their attention during the hearing of their application for the transfer of the first District Court proceedings. 26 In its judgment, the Tribunal pointed out at [52] that 'if the matter had not been transferred from the District Court, the need to conduct the proceedings over two separate forums' would not have arisen. Ruling that the requirement of 'special circumstances' had been satisfied, it awarded to the lessor his costs in relation to the vacated Tribunal hearing and an earlier directions hearing. Submissions to the Tribunal 27 The Tribunal was advised by Mr Atkinson, representing the Lessees, that because their solicitors' agent had failed to appear at the Local Court hearing on 24 March 2005, they had believed that a second motion to transfer the Court proceedings to the Tribunal would encounter difficulties. He indicated also that a factor inducing their decision during May 2005 to withdraw their unconscionable conduct claim was their belief that it might not be heard by the Tribunal because it had not come to the Tribunal by way of transfer from the Local Court. 28 Mr Atkinson submitted that the Lessor's decision to commence proceedings in the Local Court was inappropriate because, as their recent application to this Court showed, it was always their intention to sue for an amount well above the Court's limit of $60,000. He stated that for their part the Lessees always believed that the Tribunal was the appropriate forum for resolution of the dispute, particularly as it involved a claim, maintained by them in good faith, that the Lessor had engaged in unconscionable conduct. 29 When asked by the Tribunal why in fact the Lessor had chosen to commence proceedings in the Local Court rather than the Tribunal, Ms Yun, appearing for the Lessor, answered that she did not have instructions on that issue. She thought, however, that the explanation might be that costs were thought to be more easily obtainable. In awarding costs to a successful party, the Court, unlike the Tribunal, is not restrained by a requirement of 'special circumstances'. 30 In essence, Ms Yun's argument was that the Lessees' application to the Tribunal was unjustified since the dispute between the parties, including any claim of unconscionable conduct, could have been satisfactorily resolved in the Local Court. Unnecessary costs had been incurred by the Lessor on account of the Lessees' conduct in (a) applying to the Tribunal despite the terms of s 76(2) of the RL Act, then (b) failing, through a mistake of their legal representatives, to prosecute effectively their notice of motion under s 75 to have the Local Court proceedings transferred to the Tribunal, then (c) withdrawing their Tribunal application. The Lessees had been notified at the outset that the Lessor would apply for indemnity costs, but nonetheless pursued this course of action. The Tribunal's decision 31 In its decision of 20 May 2005, the Tribunal accepted the Lessor's argument, initially conveyed to the Lessees' solicitors by a letter dated 7 March 2005 from the Lessor's solicitors, that on account of s 76(2) of the RL Act, it had no jurisdiction to deal with the retail tenancy claim that formed part of the Lessees' application to it. 32 This was a ruling that the Lessees could easily have anticipated. For s 76(2) to operate, it is not necessary that the application to the Tribunal and the pre-existing proceedings in a civil court should cover precisely the same ground. It is triggered when 'an issue (emphasis added) arising under the claim was the subject of a dispute in civil proceedings pending before a court'. It is clear from reading the relevant documents that at least one issue arising in the Lessees' application to the Tribunal was already the subject of the dispute in the Local Court, as defined by the Lessor's Statement of Liquidated Claim and the Lessees' Notice of Grounds of Defence. 33 There is evident merit in the Lessor's submission that it should not have to bear any costs occasioned by the failure of the Lessees' representative to appear at the Local Court hearing of their motion for transfer of the Court proceedings to the Tribunal. Having regard to the policy expressed in s 75(2), that motion might well have been successful, even allowing for the fact that at that time (as mentioned above at [7]) the Tribunal was experiencing practical difficulties (subsequently overcome) in constituting itself lawfully for the hearing of unconscionable conduct claims. 34 By the same token, the Lessees might have succeeded in persuading the Tribunal that the unconscionable conduct claim in their application– which under s 76(2) is to be treated as separate and distinct from the retail tenancy claim – did not, on a close examination, raise an issue already raised in the Local Court proceedings and could therefore be heard by the Tribunal. But as a result of their decision on 1 June 2005 to withdraw their application wholly, this issue did not fall for determination. 35 In the outcome, the Lessees have maintained an argument that is clearly without merit: that is, in asserting despite s 76(2) that the Tribunal had jurisdiction over their retail tenancy claim. They have failed to take a step – prosecuting effectively their notice of motion in the Local Court for a transfer – that might have resulted in the Tribunal acquiring jurisdiction over the whole of their application and brought an end to the situation where the dispute between the parties was proceeding in two forums. Furthermore, after causing the Lessor to incur costs, they have withdrawn a line of argument, relating to their unconscionable conduct claim, that had some prospect of success. 36 In view of the authorities outlined above at [20 – 24], it is clear that these aspects of the case constitute 'special circumstances' within the meaning of s 88 of the ADT Act. 37 In determining whether these are circumstances 'warranting an award of costs', one matter merits careful consideration. It is the conduct of the Lessor in choosing to commence proceedings in the Local Court despite (a) the statement in s 75(2) of the RL Act that 'retail tenancy disputes should be dealt with by the Tribunal rather than by a court' and (b) its alleged intention from the outset, ultimately achieved, to increase the amount claimed beyond the limits allowed in the Local Court and have the proceedings transferred to the District Court. Ms Yun's suggestion that its choice of the Local Court might be attributable to the differences between the principles binding the Tribunal in awarding costs and those applied by the courts does nothing to diminish the strength of the suggestion, raised by the Lessees, that an abuse of process might be involved. 38 The Tribunal is not, however, in a position to make a finding regarding this suggestion, which is one with serious implications. No tangible evidence was tendered in support of it. The reasons underlying the transfer of the proceedings from the Local Court to the District Court and the reasons why the Lessor sued initially in the Local Court are not before the Tribunal. If unnecessary costs were incurred by this change of venue, that is a matter for the two courts concerned, not for the Tribunal. Only if a second application under s 75 of the RL Act for transfer of the case to the Tribunal was made and had a successful outcome would costs issues arising out the initial choice of the Local Court for the proceedings fall for determination by the Tribunal. 39 The Tribunal has some sympathy for the situation of the Lessees, who have not always had the benefit of legal assistance and whose path through these difficult issues of jurisdiction has not always been well negotiated. But it is bound to rule, in the light of well-settled principles guiding the interpretation of s 88 of the ADT Act, that the Lessor has established that there are 'special circumstances warranting an award of costs' up to the time when the Lessees withdrew their application. 40 This decision of the Tribunal that the Lessor should succeed in its application for costs has not been a straightforward one. The Lessor accordingly cannot claim that on account of 'special circumstances' it should be awarded the costs of this application. 41 In view of the matters discussed in the preceding paragraphs, the Tribunal is not prepared to award costs on an indemnity basis, as claimed by the Lessor. The award will be of costs assessed on a party-party basis. The Tribunal's order 42 The Applicants are to pay the costs incurred by the Respondent in these proceedings in the Tribunal, as assessed or agreed on a party-party basis, up to and including the costs of the hearing of 20 May 2005 and including the costs reserved at the hearing of 9 March 2005. 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. 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