CITATION: Restuccia & Ors v Entasil Pty Ltd (No 2) [2008] NSWADT 313 DIVISION: Retail Leases Division APPLICANTS Elena Restuccia, Michelle Totaro and John Totaro PARTIES: RESPONDENT Entasil Pty Limited FILE NUMBER: 075080 HEARING DATES: On the papers SUBMISSIONS CLOSED: 3 November 2008 DATE OF DECISION: 25 November 2008 BEFORE: Chesterman M - Deputy President; Harrison B - Non-Judicial Member CATCHWORDS: Costs LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 Frank v Brown [2000] NSWSC 290 CASES CITED: Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164 Markson v Cutler [2007] NSWSC 1515 Rasko Holdings Pty Ltd v Peat & Ors [2008] NSWADT 43 Restuccia & Ors v Entasil Pty Ltd [2008] NSWADT 248 APPLICANT B Zipser, barrister REPRESENTATION: RESPONDENT D Mitchelmore, solicitor ORDERS: The Respondent's application for an award of costs is dismissed. 1 This decision deals with an application by the Respondent lessor for the costs of proceedings that were instigated against it by three co-lessees. The lease between these parties ('the Lease') was governed by the Retail Leases Act 1994. Following a two-day hearing, the Respondent was the successful party. 2 The principal issues arising in the proceedings were the following: (a) whether the evidence established that Ms Elena Restuccia, one of the three Applicant co-lessees, communicated their desire to exercise an option of renewal contained in the Lease in the course of a telephone conversation with an employee ('the agent') of the company that the Respondent had engaged to manage the premises; (b) whether the agent stated to Ms Restuccia that she had thereby done enough to exercise the option; and (c) if so, whether the agent had authority to bind the Respondent in so stating, with the consequence that the Respondent should be taken to have waived a requirement of written notice contained in the Lease and/or to be estopped from denying that the option had been validly exercised. 3 In the Notice of Application filed in the Tribunal, the Applicants sought declarations and accompanying orders confirming their entitlement to a lease as specified in the option to renew or, in the alternative, damages for unconscionable conduct and/or misleading or deceptive conduct on the part of the agent. 4 Because the Notice of Application included an unconscionable conduct claim, the Tribunal has been constituted in these proceedings in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). It has been constituted by a Deputy President who is a member of the Retail Leases Division, assisted by one appropriately qualified member (Non Judicial Member Harrison), acting in an advisory capacity only. Since no appropriately qualified member was available to participate as a second advisory member, the Tribunal's decision to hear the case with only one advisory member was authorised by sub-paragraph (a) of clause 4 of Schedule 2, Part 3B of the ADT Act. The Tribunal drew the parties' attention to this provision. 5 The decision of the Tribunal (Restuccia & Ors v Entasil Pty Ltd [2008] NSWADT 248 – hereafter 'the principal decision') was delivered on 2 September 2008. In addition to dismissing the Application, the Tribunal set out a timetable for the filing of applications and written submissions regarding costs and indicated that unless reasons were advanced for a hearing to be conducted, the question of costs would be resolved 'on the papers', pursuant to section 76 of the ADT Act. 6 On 30 September 2008, the Respondent filed an application for costs, together with supporting submissions. On 3 November 2008, the Applicants filed their submissions on costs. Neither party sought a hearing. Relevant principles regarding costs 7 If costs are to be awarded, the requirement of 'special circumstances warranting an award of costs' set out in section 88(1) of the ADT Act must be satisfied. Section 77A of the RL Act makes this provision applicable in retail tenancy proceedings conducted in the Tribunal. 8 'Special circumstances' have been defined in the case law (for example, in Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164 at [29]) as 'circumstances that are out of the ordinary, but without having to be extraordinary or exceptional'. It is not enough that the circumstances are 'special': they must also 'warrant' an order for costs. On account of the 'commerciality' of the Retail Leases Division, the interpretation of 'special circumstances' differs significantly from the interpretation that might be adopted in any other Division of the Tribunal. While various categories of 'special circumstances' have been identified in the case law, these categories are not closed. 9 In Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, the Court of Appeal held that the costs of proceedings in the Tribunal under the RL Act, both at first instance and on appeal, should be awarded against the lessors. At [60], Santow JA (with whom Mason P and Brownie AJA agreed) stated that the lessors 'so acted as by their conduct to give rise to special circumstances; that is circumstances that were clearly out of the ordinary and grossly unreasonable so far as the respondent tenant was concerned'. He pointed out that by virtue of this conduct, the tenant was 'forced to pursue this litigation'. He also said: 'While a finding of "serious unfairness" is not prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.' 10 One situation in which 'special circumstances' have been held to exist in cases under the RL Act is where the proceedings instigated, or the grounds of defence raised, by the party against whom a costs order is sought are found to have lacked any real prospect of success and therefore to have been unmeritorious. In such circumstances, the purpose of a costs order has been said to be that of preventing the gross abuse of the RL Act by frivolous, vexatious and misconceived proceedings. The grounds advanced by the Respondent 11 In his submissions on behalf of the Respondent, Mr Mitchelmore relied on the following matters as constituting 'special circumstances', either collectively or individually:- 1. The commercial nature of the Lease. 2. The Applicants 'lost every point' that they litigated. They failed in relation to the following: (a) their assertion that, in response to a request by Ms Restuccia for renewal of the Lease, the agent made a representation to her (hereafter 'the alleged representation') to the effect that she had done enough to exercise the option of renewal; and (b) their legal arguments regarding the authority of agents, estoppel, waiver and unconscionable conduct. 3. It was common ground between the parties that the Lease required written notice for the exercise of the option and that the Applicants never served a written notice. 4. The Applicants filed no evidence suggesting that the Respondent had conferred authority on the agent to make the alleged representation. Furthermore, they received before the hearing copies of affidavits sworn by the agent and by a director of the Respondent, in which each of these witnesses stated that no such authority had been conferred. It was therefore obvious to the Applicants before the hearing that their case had no reasonable prospects of success even if they succeeded in proving that the agent had made the alleged representation. 5. The Applicants, by instituting and prosecuting the proceedings, had forced the Respondent to defend them. 6. The defence of the proceedings was 'expensive', since it involved both significant preparation for and legal representation during the two days of the hearing. 7. It would be 'seriously unfair' if the Respondent were left with the costs of defending proceedings which (a) were of a commercial nature, (b) lacked merit and (c) should have been seen by the Applicants to lack merit. 12 Mr Mitchelmore relied on the following passage in the Tribunal's judgment in Rasko Holdings Pty Ltd v Peat & Ors [2008] NSWADT 43 at [31]:- The question for determination is whether there are circumstances, which are seriously beyond the usual or ordinary pursuit of a claim so that it would be seriously unfair to a party not to be awarded some of all of its costs where it has been successful. Ultimately, the question is one of fact. The Tribunal's conclusions 13 Having carefully considered these submissions, together with the opposing submissions prepared by Mr Zipser, the Tribunal has concluded that the Respondent's application for costs must be dismissed. 14 A crucial component of the argument put on the Respondent's behalf was its claim that the Applicants' case had no reasonable prospects of success and accordingly lacked merit. 15 As a reading of the principal decision shows, the Tribunal's conclusion, adverse to the Applicants, as to whether the alleged representation was made by the agent to Ms Restuccia was sufficient to defeat their claim. This conclusion was not, however, based on any finding to the effect that the Applicants' evidence on this question, comprising principally the testimony of Ms Restuccia, was manifestly inadequate. Instead, the Tribunal stated that its task was 'to reach a conclusion on a factual matter by making a difficult choice between the conflicting testimonies of two witnesses' (see Restuccia & Ors v Entasil Pty Ltd [2008] NSWADT 248 at [66]). 16 The Tribunal's conclusion that the Applicants' case failed on this issue ultimately stemmed from the principle that it was an issue on which they bore the onus of proof. At [67], the Tribunal formulated this conclusion as follows:- They [the Applicants] have not established that, on the balance of probabilities, an exchange between Ms Restuccia and Mr Youssef [the agent] such as is described above at [30] occurred during a telephone conversation on 21 February 2007 or at any other time. 17 On this 'strongly contested issue of fact' (a phrase used in the principal decision at [68]), the Applicants' case accordingly could not be said to have lacked merit. It is indeed noteworthy that Mr Mitchelmore's submissions relating specifically to this issue went no further than to say that it was one of the points on which the Applicants 'lost'. 18 According to Mr Mitchelmore's submissions, the main reason why the Applicants' case obviously had no reasonable prospects of success was that the evidence filed and served before the hearing showed unequivocally that the Respondent at no stage conferred on the agent any authority to make the alleged representation regarding renewal of the Lease. 19 This evidence was, however, relevant only in ruling out the possibility that the agent had express authority to make such a representation. As Mr Zipser contended, it was at least possible under principles of agency law that the agent had usual or ostensible authority. Whether he did in fact have such authority was not a question to be resolved simply by considering the evidence from the agent and the Respondent's director to which Mr Mitchelmore referred. 20 In the principal decision at [73], the Tribunal said that this question was 'primarily a question of law'. It added: 'As well as being potentially crucial to the outcome of the case, this question is not straightforward and is of some significance in retail tenancy law.' 21 At [75 – 87], the Tribunal reviewed the terms of a written agency agreement made between the Respondent and the agent's employer. It also considered a number of relevant cases, including the Supreme Court decisions in Frank v Brown [2000] NSWSC 290 and Markson v Cutler [2007] NSWSC 1515. 22 As Mr Zipser pointed out in his submissions on costs, if the Tribunal had then applied the law as stated in the former case (on which the Applicants relied), it might well have come to the conclusion that the usual authority of a person in the agent's position would extend to making the alleged representation. The Tribunal held, however, that it should follow the latter case, being the principal case on which the Respondent relied. 23 For these reasons, although the Tribunal ultimately resolved this matter in the Respondent's favour (at [88]), it did not consider the Appellants' stance on the matter to be unreasonable or unmeritorious. 24 The Tribunal accordingly rejects Mr Mitchelmore's contention that the proceedings instituted by the Applicants had no reasonable prospects of success. This ruling deprives the Respondent of the only ground on which it could claim that denial of a costs order would be 'seriously unfair' to it. 25 The other matters raised in Mr Mitchelmore's submissions were, in essence, as follows: (a) the commercial nature of the Lease; (b) a claim that the Applicants 'lost every point'; (c) the Applicants' concessions that the Lease required written notice of exercise of the option and that no written notice was given; and (d) the fact that defending the proceedings was 'expensive'. 26 The Tribunal accepts Mr Zipser's submission that these matters, whether considered individually or collectively, do not constitute 'special circumstances'. It also agrees with his observation that, in the light of an opinion expressed in the principal decision at [93], it cannot be said that the Applicants 'lost every point'. 27 For the foregoing reasons, the Respondent's application for an award of costs must be dismissed. 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