CITATION: Kindful (Australia) Pty Limited v. Country Villa Holdings Pty Limited (No 2) [2006] NSWADT 357 DIVISION: Retail Leases Division FIRST APPLICANT & SECOND RESPONDENT Kindful (Australia) Pty Limited PARTIES: FIRST RESPONDENT & SECOND APPLICANT Country Villa Holdings Pty Limited THIRD RESPONDENT Cam Chuen Chu FILE NUMBER: 055066, 055104 HEARING DATES: 03/11/06 SUBMISSIONS CLOSED: 11/03/2006 DATE OF DECISION: 12/20/2006 BEFORE: Molloy GB - Judicial Member CATCHWORDS: Costs - Liability of Guarantor MATTER FOR DECISION: Principal matter LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Ashenhurst v Optima Property Developments Pty Ltd [2006] NSWADT 143 Cripps v. G & M Dawson Pty Ltd [2006] NSWCA 81 CASES CITED: Gizah Pty Ltd v. AXA Trustees Limited (2)[2001] NSWADT 164 Prasad v. Fairfield City Council [2002] NSWADTAP 2 Solomon v. Singh (No 3)[2006] NSWADT 120 Trust Company of Australia Limited v. Craig and Ors [2005] NSWADT 65 FIRST APPLICANT No appearance SECOND APPLICANT A. Fernon, Barrister REPRESENTATION: FIRST RESPONDENT A. Fernon, Barrister SECOND RESPONDENT No appearance THIRD RESPONDENT No appearance ORDERS: 1. The First Applicant/Second Respondent/Lessee and the Third Respondent/Guarantor pay the costs of the First Respondent/Second Applicant/Lessor in both proceedings numbered 055066 and 055104, such costs to include the costs of the First Respondent/Second Applicant as Defendant in Supreme Court, Equity Division, Statement of Claim Number 2665 of 2005 from and including 28 April 2005; 2. The Third Respondent/Guarantor pay to the First Respondent/Second Applicant/Lessor $400,000. REASONS FOR DECISION 1 Following upon my decision 1 August 2006 (Kindful (Australia) Pty Limited v. Country Villa Holdings Pty Limited [2006] NSWADT 224), the First Respondent /Second Applicant sought further relief, namely: i. The Guarantor Cam Chuen Chu (Third Respondent) pay to the Second Applicant $400,000 ii. The First Applicant and the Third Respondent pay the costs of the First Respondent/Second Applicant. Background 2 The First Respondent/Second Applicant ("the Lessor") was the lessor of strata premises being "Part Folio Identifier 100/1036194 being Shop E 653 George Street, Haymarket" ("the premises") which by lease dated 20 December 2002 it leased the First Applicant/Second Respondent ("the Lessee") for a term of 5 years commencing 15 November 2002, terminating 14 November 2007, with a five year option for renewal. The lease was duly stamped and registered 9705239 ("the Lease"). 3 The Lessee entered into occupation of the premises and for a number of years paid rent. However, during the period of its occupancy it encountered a number of problems and ultimately the Lessee vacated the premises on or about 1 June 2005. 4 The Lessee brought proceedings in this Tribunal seeking an award of damages, asserting that the Lessor was in breach of its covenant for quiet enjoyment to the extent that the Lessee was entitled to repudiate the lease contract and entitling it to abandon the premises. The Lessee also asserted a substantial breach or breaches of Retail Leases Act 1994 Section 34. The Lessor, by (effectively) cross application, denied that there was any breach by it of any covenant, or of section 34, and that the abandonment of the premises by the Lessee was such that the Lessor was entitled itself to damages as against the Lessee. The Lessor claimed $449,343.29. 5 Those proceedings were heard and determined by me on 1 August 2006. I dismissed the Lessee's application and I ordered the Lessee2. The Third Respondent/ Guarantor pay to the First Respondent/ Second Applicant/Lessor $400,000. to pay the Lessor $400,00.00. That left a number of other matters that required to be dealt with, including dealing with an interlocutory order made by the Supreme Court in which the Applicant provided "the usual undertaking as to damages." Subsequent Attendances 6 The Lessee has appealed my decision but, as I understand it, the appeal has not thus far been prosecuted. 7 The proceedings came back before me for further directions on 24 August 2006. On that occasion I discharged Orders 1 and 2 made 28 April 2005 by the Supreme Court in Matter number 2665 of 2005. I then made the following further Directions: 1. The issue on whether the Third Respondent ("the Guarantor") should pay the Lessor the judgment moneys be set down for hearing Friday 3 November 2006 at 10 am. 2. The question of the jurisdiction of this Tribunal to deal with the Undertaking as to Damages given to the Supreme Court on 28 and 29 April 2005 be deferred to 3 November 2006, with liberty to apply. 3. I noted that the Lessor seeks an order that the Lessee and Guarantor pay its costs. 4. I directed that issue stand adjourned for hearing 3 November 2006 at 10 am and I further directed the Lessor to file and serve on or before 22 September 2006 particulars of the "special circumstances" asserted that in its submission would warrant the making of an order for costs in its favour and that the Lessee and the Guarantor to file and serve any submissions in reply no later than 20 October 2006. 8 The matter came back for further directions on 12 October 2006 at the instance of the Lessor because by that stage the solicitors for the Lessee and Guarantor had ceased to act. In all the circumstances I declined to bring forward the hearing simply because Mr Raphael of Counsel had in fact appeared on the previous occasion (24 August 2006) and there was a chance that the parties whom he represented may have either appeared in person or through new lawyers on 3 November 2006. 9 It is important to observe that when Mr Raphael of Counsel appeared on 24 August 2006 he appeared as a matter of courtesy to the Tribunal, informing the Tribunal he was not entirely sure whether he remained instructed because the Guarantor (who was also the sole director of the Lessee) had travelled to Hong Kong and it was not clear whether his instructions had been continued. 10 The position rather resolved itself because it was not until 29 September 2006 that the solicitors for the Lessee and Guarantor formally ceased to act. It was this event that, no doubt, brought on the re-listing on 12 October 2006. However, in all the circumstances, it seemed to me that the Directions that I had made 24 August 2006 would have, in the ordinary course of barrister/solicitor client relations, been passed on to the Lessee and Guarantor such that it was appropriate to retain 3 November 2006 as the date for hearing. 11 When the matter came on for hearing on that day there was no appearance by or on behalf of the Lessee and Guarantor and the matter proceeded ex parte on the issues that were argued. 12 I should pause to observe that no issue was raised at that hearing with regard to the Undertaking as to Damages given to the Supreme Court and the only issues were the liability (if any) of the Guarantor and costs. Jurisdiction 13 The question is: does the Tribunal have jurisdiction to make orders that are binding upon a guarantor? There seems to be little (if any) law on this subject. The jurisdiction of the Tribunal in this Division is to be found in its enabling Act, the Retail Leases Act 1994. In Section 3 the definition of "party" means "the lessor or the lessee under a retail shop lease." A "retail shop lease" or "lease" means "any agreement under which a person grants or agrees to grant to another person a right of occupation of premises for the purpose of the use of the premises as a retail shop…….." One might be forgiven for thinking that a guarantor is not thereby the subject of the jurisdiction of this Tribunal. 14 However, one then turns to Part 8 which is titled "Dispute Resolution". Section 63 is the interpretation section which provides (relevantly) that in this Part "party or former party to a retail shop lease or former retail shop lease includes a person who is a guarantor or covenantor under a lease or former lease". Section 63 then goes on to interpret the words "retail tenancy dispute" as "any dispute concerning the liabilities or obligations (including any obligation to pay money) of a party or former party to retail shop lease or former lease, being liabilities or obligations which arose under the lease or former lease or which arose in connection with the use or occupation of the retail shop to which the lease or former lease relates, and (without limiting the generality of the foregoing) includes a dispute about a security bond." 15 This Tribunal is a Tribunal "authorised by law….. to decide or resolve any issue that is in dispute between parties……" within the terms of Section 63. 16 Nextly, Division 3 of Part 8 provides for the determination of claims by this Tribunal. Section 70 defines a "retail tenancy claim" which includes, for the purpose of this decision, "a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned, being …….. (i) a claim for payment of money (whether or not stated to be by way or debt, damages, restitution or refund) …… . 17 Section 72 gives this Tribunal power to make orders (relevantly) "that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person….". 18 Mr Chu is a party to the proceedings (as guarantor of the obligations of the Lessee) such that in my opinion this Tribunal has jurisdiction in relation to retail tenancy claims instituted (by Section 71) against a guarantor. Liability of Guarantor 19 Cam Chuen Chu is the Second Respondent in the proceedings (055104) instituted by the Lessor. In those proceedings the Lessor sought an award of damages against the Lessee and Mr Chu as Guarantor. In this Judgment because of the appellations given in the title to the parties the Guarantor is the Third Respondent. 20 The hearing in the previous matter and the subject of my decision 1 August 2006 (which occupied 8 hearing days) was directed to the claims asserted by the Lessee and Lessor and the liability of the Lessee. There was no argument raised in relation to the Guarantor. Because there was no argument it seemed to me that the issue of the liability (if any) of Mr Chu should be the subject of a separate hearing. This is so notwithstanding my observation at [113] of my decision 1 August 2006 to the effect that Mr Chu had "provided an unlimited personal guarantee" because, so it seemed to me, there may be arguments available to Mr Chu as Guarantor which had not been agitated at the first hearing. Mr Raphael of counsel, when he appeared 24 August 2006, made some reference to the possibility of arguments being raised that might relieve the Guarantor. 21 The Mr Chu signed the lease for the premises. He signed it under the seal of the corporation (the Lessee). He is the sole director of that corporation. He conducted a restaurant over a number of years from the premises and I found [113] that he knew what he was doing and understood the documents that he signed. 22 The Lessor, in its Application filed 4 August 2005, claimed judgment against the Mr Chu as Guarantor pursuant to the terms of the lease. The terms of the guarantee were not traversed (but rather admitted) and there was no argument that Mr Chu executed the lease as "guarantor" of the obligations of the Lessee as guarantor with unlimited liability. 23 I find that the Guarantor Mr Cam Chuen Chu has properly executed an unlimited guarantee in respect of the obligations of the Lessee and, having regard to the terms of my decision 1 August 2006, Mr Chu as guarantor is equally responsible and liable for the obligations of the Lessee such that there will be an order that the Guarantor pay to the Lessor the sum $400,000.00. Costs 24 The Lessor seeks an order that the Lessee and Guarantor pay its costs of the proceedings. It submitted that there were "special circumstances warranting an award for costs" within the terms of Administrative Decisions Tribunal Act 1997, Section 88 (1), as follows: i. The Lessee commenced proceedings in the Supreme Court which required the Lessor to incur costs in that jurisdiction, it being a jurisdiction where, normally, costs follow the event. The fact that the proceedings were transferred to this Tribunal should not deprive the Lessor as defendant of its entitlement to receive costs associated with that part of the proceedings which were subject to that costs regime. ii. The proceedings as commenced in the Supreme Court and as transferred to this Tribunal were always completely untenable and should have been recognised as such from (and presumably before) their commencement. In particular: a. The premises were subject to strata title, were part of a building that was the subject of strata title and the Lessee and the Guarantor and their legal advisers were always aware of that title. b. As a consequence they must have been aware also of the consequences of the premises being subject to strata title, namely that the Lessor had no control over the various matters that were the subject of the hearing, in particular the air conditioning, access, gas supply and the glass roof. iii. The interruption to the gas supply was solely because of a legal obligation to install appropriate safety equipment that shut the system down in certain circumstances. This was a matter that was apparent to the Lessee and the Guarantor from the time it was installed and should not have been the subject of complaint in this Tribunal. iv. The Lessee claimed damages when it had no primary records from which to prove damages. v. The above 4 identified matters "took a considerable amount of time in the hearing. Substantial time was taken in opening, evidence and submissions." vi. The Lessee effectively withdrew its case on all these matters on the last day of the hearing when it effectively abandoned the whole basis on which the case had been conducted and then proceeded to argue a misrepresentation case "that was neither pleaded nor was any evidence led in respect of it." vii. The role of the Lessor and its manager was conceded as being "without fault" yet although "the case was opened on the basis that (the Lessor) should have done more to ensure the various interruptions in trade did not occur……. at no stage did the Lessee seek to elucidate a case of what (the Lessor) should have done …… (but rather) it accepted that (the lessor and its manager) did all that (they) could ….. (such that this argument) was completely contrary to the manner in which the case had been opened and then fought by (the Lessor)." viii. There is "serious unfairness to (the Lessor) in being subjected to proceedings without basis and with knowledge of that lack of basis resting with the Applicant prior to the commencement of the proceedings." Furthermore, that lack of basis is clear from the judgment of the Tribunal in circumstances where there "was little if any dispute about the evidence. That evidence clearly and easily resulted in the proceedings being dismissed." The Law 25 I do not propose to review, yet again, the law pertaining to the award of costs in this Division of this Tribunal. It has been the subject of numerous decisions such that, in my opinion, the law is now tolerably plain. At this point I will simply refer to these decisions: Gizah Pty Ltd v. AXA Trustees Limited (No 2)[2001] NSWADT 164; Prasad v. Fairfield City Council [2002] NSWADTAP 2 at [38]; Ashenhurst v. Optima Property Developments Pty Ltd [2006]NSWADT 143; Trust Company of Australia Limited v. Craig and Ors [2005]NSWADT 65; Cripps v. G & M Dawson Pty Ltd [2006]NSWCA 81; Solomon v. Singh (No 3)[2006] NSWADT 120; ADT Practice Note 12 (11/05/2005). Analysis 26 The starting point is the decision of this Tribunal 1 August 2006 ([2006] NSWADT 224). There is no need to trawl through that Judgment but there are a number of important aspects that are relevant to the issue of costs. 27 Firstly, the Lessee commenced its proceedings in the Supreme Court on 28 April 2005 (Judgment at [10]). Those proceedings were commenced by Statement of Claim and the terms of that document I set out at [11]. The proceedings were transferred to the Tribunal on 29 April 2005 but the pleadings as enunciated in the Statement of Claim formed pleaded basis of the Lessee's case in the Tribunal. 28 Next, the conduct of the case ranged, at the instance of the Lessee, within and without the Statement of Claim. I made some reference to this at [96], [104], [105], [109], [110], [111], [115], [120], [123] and [126]. However, in my view the Lessor was not prejudiced. All the material had in fact been filed, there was no need to file any additional material to meet the variations in the arguments advanced on behalf of the Lessee and it would not be unfair to say that the substance of the various arguments advanced, although straying outside the formal pleadings, were canvassed in the correspondence such that it is difficult to assert (in my opinion) that the Lessor was somehow prejudiced in the way the case was conducted or in what steps it had to take in order to meet the various assertions as submissions made. I touched upon this briefly at [9] and [17]. In my view, the case was not unduly prolonged but there is little doubt in my mind that the Lessee and, more importantly, its lawyers, were called upon at fairly short notice to meet arguments that were raised at the bar table but not pleaded. However, the evidence was the same and no additional evidence was led such that the additional submissions arose out of the initial evidence. 29 In my opinion that is not "a special circumstance" but is rather an incident of litigation. Having said that, and although in itself in the peculiar circumstances of this case it may not amount to a "special circumstance", it is a factor to bring into consideration in looking at the totality of the case as conducted. After all, one particular factor may not in itself be a "special circumstance" but taken in conjunction with other factors the totality may well amount to a "special circumstance". 30 However, the most important point agitated by the Lessors was this: the premises the subject of the lease were strata premises. They were known to be strata premises. Being strata premises the ownership of the walls, the floors and the ceiling (in the circumstances of this case) were owned by the owners corporation - see Judgment [83] – [94]. The lease commenced 15 November 2002. The conduct of the Lessee and Guarantor clearly demonstrated that they knew that the premises were strata title and they knew that the maintenance and repair of the common property were the obligations of the owner's corporation and (in this case) the hotel (see in particular [91], [112]-[113]). It was a critical finding that the premises were the subject of strata title (Judgment [7] – [8]). It is elementary to the concept of strata title that the owner of the strata title does not own the external walls, the floor nor the ceiling. It is also elementary that the owner of the strata title does not own common property (in this case the air-conditioning and the gas supply) – see Judgment [94] – [95]. Consequently, it must follow as night follows day that once there is a finding that the premises are the subject of strata title then problems that arise in respect of the building in which the premises are situate are problems that must be addressed by the owners corporation and, in this particular case the hotel. As I stated in respect to the glass roof at [93] "…the glass ceiling formed part of the common property, the maintenance and repair thereof being in the owners corporation and in turn in the hotel. Putting it in another and less contentious way, its maintenance and repair was not within the jurisdiction of the (Lessor) but rather in the jurisdiction of another." 31 It must follow as a matter of law that the various complaints made by the Lessee against the Lessor were unfounded in so far as the Lessor had no authority to rectify the problems. Once it is established [92] that "the ownership of the floor, external walls, external ceilings and common services rests not in the (lessee) but rather in the owners corporation" then there was simply no case against the Lessor but rather the case (if any) was against the owners corporation and/or the hotel. 32 There was a further difficulty in that the evidence demonstrated clearly that the Lessor "did its best to rectify the problems… did its best to ensure that the hotel acted promptly in dealing with the problems and it was ultimately conceded by counsel for the (Lessee) that the (Lessor) and its manager had done their best" [51]. See also [143]. 33 In my Judgment 1 August 2006 I made these observations: a. At [113] "…once it is established that the lease is of premises subject to a strata scheme then it is important to observe that no case was mounted on the pleadings nor asserted on the evidence, nor could it be, that the (Lessee) was not aware of the role of the (Lessor), the (Lessor's) manager, the hotel and the hotel's manager in dealing with various problems that arose during the course of the (Lessee's) occupation of the premises. It is plain from the documentation and all of the evidence that whatever happened from time to time, although (correctly) the (Lessee) complained to the (Lessor's) manager, the (Lessee) was aware that the… manager could not, as a matter of jurisdiction and law, take steps itself to rectify the problems but rather had to refer the rectification request on to the hotel. Indeed, no complaint about that "chain of command" or power was made at all by the (Lessee), either in the documentary evidence or in oral evidence." b. Then, at [114] "…the incidents were not caused by the (Lessor). The evidence is clear. It is also clear that whenever the (Lessee) complained to the (Lessor's) manager the manager … did his absolute level best to sort the matter out as quickly as possible. In oral submissions made on the last day of the hearing I think counsel for the (Lessee) conceded that (the manager) did his best to resolve the problems. The problems were not caused by the (Lessor) nor the (Lessor's) manager but rather were problems that arose as a result of the conduct of other persons or were repairs/maintenance to common property and common services. The (Lessor) had no control at all over those aspects – all it could do was refer the problems on to the hotel and push for rectification. This is what the (Lessor) did". 34 The only caveat that I placed upon the duties of a lessor in these unfortunate circumstances can be found at [118] when I said: " It may (and I express no concluded view on this) that where a lessor does not act with promptitude to correct a problem which is not within its capacity or correct, the lessor may well be in breach of Section 34 (Retail Leases Act). There is no need to explore that further simply because the evidence in this demonstrates adequately, and it was so conceded by counsel for the (Lessee) that the (Lessor) as acted with promptitude and did its best to rectify the problems as and when they arose." 35 Hard cases make bad law. The problems that confronted this Lessee were problems not of its causation nor of the causation of the Lessor, nor the Lessor's manager. A careful analysis of the legal situation would have clearly demonstrated that there was no arguable case against the Lessor in relation to the water problems, the damage to the ceiling, the air-conditioning nor in relation to the interruption to the gas supply (the latter of which I referred to at [95] as being "a safety requirement imposed by law for occupational health and safety reasons"). 36 The only other argument related to access. The Lessee submitted that access to its restaurant was disrupted, hindered and impeded. It was. But, again, it was not the fault nor as a result of any actions taken by the Lessor nor the Lessor's manager – see Judgment [24] – [34]. And, again, although the facts were clear, and not contested, there was no overt action by the Lessor that caused or contributed to the unfortunate situation and neither was there a breach of Retail Leases Act Section 34, neither was there a breach of the covenant for quiet enjoyment for the reasons that I set out in my Judgment. 37 In other words, and putting it more bluntly, there was simply no case against the Lessor. There was no case against the Lessor's manager. There may well have been a case other persons/entities but that is not my job to determine. The plain fact is that there was no case against the Lessor. 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 Lessor 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. 39 It was also submitted that the commencement of the proceedings in the Supreme Court itself was a "special circumstance". The proceedings appear to have been, on the very next day, transferred to this Tribunal. There may have been some costs incurred by the Defendant/Lessor in relation to those proceedings and the incurring of those costs would, in my view, be "special circumstances" simply because in the Supreme Court costs would normally follow the event such that where the proceedings are incorrectly commenced in that Court it would be more than likely that a defendant would have otherwise been entitled to a costs order. There is no need to make any final determination on that point (although I think it has merit) because in my opinion the whole of these proceedings had no merit in that the proceedings from their inception were completely untenable and doomed from the outset to fail and should have been recognised as such. There was simply no case that could have been mounted as a matter of law against the Lessor. There may have been a case against other persons/entities but not against the Lessor. 40 Finally, the fact that the Applicant "claimed damages when it had no primary records from which to prove damages (see Judgment at [147] – [152]), is not, in my opinion, a "special circumstance" but simply an incident of litigation which may have resulted in the Lessee not succeeding on that point (if otherwise entitled). 41 In my opinion, for the reasons set out above, there are special circumstances warranting an award of costs in favour of the Lessee. In all the circumstances in my opinion that award of costs should be made from the commencement of the litigation in the Supreme Court. And, it must follow from the earlier portion of this decision relating to the liability of the guarantor, the award of costs should be made against both the Lessee and the Guarantor. 42 If I am correct in my analysis in my Judgment 1 August 2006 then it demonstrates yet again the absolute importance for a party seeking to commence litigation to conduct a rigorous analysis of the facts and the law before filing process. I recognise that clients often want to commence litigation, believing their "rights" have somehow been offended or infringed, but at the very least their facts should on a prima facie basis support a cause or causes of action reasonably arguable. In this issue there was, in my opinion, no case that was reasonably arguable, even on the evidence of the Lessee, simply because the Lessor was not the correct Respondent to the litigation. Orders 1. The First Applicant/Second Respondent/Lessee and the Third Respondent/Guarantor pay the costs of the First Respondent/Second Applicant/Lessor in both proceedings numbered 055066 and 055104, such costs to include the costs of the First Respondent/Second Applicant as Defendant in Supreme Court, Equity Division, Statement of Claim Number 2665 of 2005 from and including 28 April 2005. 2. The Third Respondent/ Guarantor pay to the First Respondent/ Second Applicant/Lessor $400,000. 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.