CITATION: Hondroyiannis and anor v Adwell Holdings Pty Ltd (No 2) [2008] NSWADT 92 DIVISION: Retail Leases Division APPLICANTS Dimitrios Hondroyiannis and Eugenia Hondroyiannis PARTIES: RESPONDENT Adwell Holdings Pty Ltd FILE NUMBER: 065137 HEARING DATES: On the papers SUBMISSIONS CLOSED: 11 December 2007 DATE OF DECISION: 20 March 2008 BEFORE: Chesterman M - ADCJ (Deputy President); Fairweather R - (Advisory) Non Judicial Member ; Harrison B - (Advisory) Non Judicial Member CATCHWORDS: Costs MATTER FOR DECISION: Costs Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Conveyancing Act 1919 Retail Leases Act 1994 Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 CASES CITED: Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 Hondroyiannis & Anor v Adwell Holdings Pty Ltd [2007] NSWADT 252 Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 APPLICANTS R Quickenden, barrister REPRESENTATION: RESPONDENT B Sharpe, barrister ORDERS: The Respondent is to pay the Applicants' costs of and incidental to these proceedings, as agreed or as assessed on a party-party basis. REASONS FOR DECISION Introduction 1 This judgment deals with an application by the successful Applicants in proceedings relating to a lease governed by the Retail Leases Act 1994 ('the RL Act') for their costs to be paid by the Respondent. 2 The lease related to premises ('the Premises') in the West Gosford Shopping Centre ('the Centre'). The Respondent, Adwell Holdings Pty Ltd, was the owner of the Centre. It granted the Lease to the Applicants, Mr Dimitrios Hondroyiannis and Mrs Eugenia Hondroyiannis, in March 2003. The Lease was stipulated to commence on 1 March 2003 and terminate on 29 February 2008, with an option to renew for a further five years. The Applicants carried on the business of retailing fruit and vegetables at the Premises. The dispute between the parties 3 On 21 August 2006, having previously served on the Applicants a notice under section 129 of the Conveyancing Act 1919 specifying alleged breaches by them of various covenants in the Lease, the Respondent served on them a notice purporting to terminate the Lease and requiring them to vacate the Premises on or before 31 August 2006. The breaches alleged by the Respondent arose out of the Applicants' conduct in two respects. 4 First, their practices of unloading and loading fruit and vegetables to be sold in their business involved parking for significant periods a large truck and (at different times) a small van in parking spaces on a road directly adjacent to, and on the eastern side of, the Premises and carrying their produce across the pavement on a forklift. The Respondent maintained that these activities infringed covenants in the Lease prohibiting the Applicants from causing any nuisance, disturbance or obstruction in the Centre, parking any vehicle in the parking areas provided for members of the public, or handling produce other than as directed by the Respondent. It also relied on an assertion by Mr Stephen Whalan, whom at all material times it employed as the manager of the Centre, that before the Lease commenced the Applicants orally agreed that, if their business expanded to a significant degree (which in fact occurred), they would rent off-site storage premises from the Respondent. 5 Secondly, the Applicants sold a proportion of their fruit and vegetables to restaurants, hotels and a nursing home in the vicinity. They also repainted a sign outside the Premises on which the word 'wholesale' appeared. The Respondent maintained that these activities involved breaches of covenants (a) to adhere to the permitted use in the Lease (which was stated to be 'fruit and vegetable retail') and (b) not to display any sign or notice without the Respondent's consent. 6 The Applicants commenced the present proceedings on 29 August 2006. In their Application, they sought (a) orders restraining the Respondent from acting on its notice of termination and from interfering with their possession of the Premises and their 'customary unloading procedures'; (b) declarations that the notice of termination was unlawful and in breach of the lessor's covenant for quiet enjoyment, and that the Respondent had engaged in unconscionable conduct, under section 62B(1) of the RL Act, and in misleading or deceptive conduct; (c) an award of $100,000 as 'compensation'; and (d) an order for costs. 7 The principal bases on which the Applicants sought to refute the Respondents' claims that they had breached the terms of the Lease were as follows. 8 With respect to the claims based on their unloading and loading practices, they relied on (a) a special condition in the Lease which implicitly gave them permission to use a loading zone for these purposes on the western side of the Premises, (b) a subsequent letter from the Respondent, dated 3 June 2004, suggesting that they should transfer these operations to the eastern side and (c) the fact that for a significant period after they did this the Respondent raised no objection to their unloading and loading produce on the eastern side. They also denied Mr Whalan's allegation that before the Lease commenced they had agreed to rent off-site storage premises from the Respondent if their business expanded significantly. 9 With respect to the claims based on the nature of their business and their signage, the Applicants argued that their sales to restaurants, hotels and a nursing home were in fact retail sales and that when retaining the word 'wholesale' in the course of repainting their sign, they were abiding by a provision in the Lease prohibiting alteration to their signage without the Respondent's consent. 10 In submissions filed after the hearing, Mr Quickenden, counsel for the Applicants, substituted for the claim of misleading or deceptive conduct a claim that during the negotiations for the Lease the Respondent made a false and misleading statement or representation under section 10 of the RL Act. The Tribunal's decision 11 Because the claims made by the Applicants included an allegation of unconscionable conduct on the part of the Respondent, the Tribunal is 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 is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only. 12 In its decision, delivered on 18 October 2007 (Hondroyiannis & Anor v Adwell Holdings Pty Ltd [2007] NSWADT 252), the Tribunal upheld some, but not all, of the Applicants' claims. On the principal question in dispute – namely whether the Respondent was entitled to terminate the Lease on account of breaches of covenant committed by the Applicants – the Tribunal accepted the contentions of the Applicants outlined above at [8]. But it rejected the Applicants' unconscionable conduct claim, their claim that the Respondent had made a pre-lease misrepresentation and their claim for compensation. 13 Relevantly for present purposes, the Tribunal noted at [67] that, although the Respondent had on occasions instructed the Applicants to unload and load their produce in a loading zone at the southern end of the Centre, Mr Whalan admitted in cross-examination that for practical reasons this zone was unsuitable for these operations. 14 In addition, the Tribunal, in discussing the unconscionable conduct claim, referred at [69] to evidence, adduced by the Applicants and not challenged by the Respondent, to the effect that in mid-2006 the local council had rejected an application by the Applicants for the creation of a loading zone near the eastern entrance to the Premises. The reason for this rejection was opposition to the application conveyed by Mr Whalan to the council. 15 At [100 – 102], the Tribunal stated in the following terms one of the two separate reasons why it concluded that the unconscionable conduct claim should be dismissed: 100 As both Mr Quickenden and Mr Sharpe [counsel for the Respondent] pointed out … a finding of unconscionable conduct against a lessor under section 62B(1) can only be made if the conduct can be described as 'highly unethical' and involves 'a high degree of moral obloquy' ( Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583). 101 In the Tribunal's opinion, the only instance of conduct identified by Mr Quickenden that might answer this description is Mr Whalan's opposition to the Applicants' application to the Council for a loading zone on the eastern side of the Premises. But the evidence on this matter failed to rule out the possibility that Mr Whalan acted bona fide, albeit unreasonably. He expressed concern for the safety of pedestrians, which as he saw it would remain in jeopardy irrespective of whether the Applicants' unloaded their produce from a designated parking space or from a loading zone. His opposition to the creation of a loading zone was arguably consistent with this belief. 102 The Tribunal considers that Mr Whalan's continued refusal to try to cater for the Applicants' legitimate need for proper unloading and loading facilities (save on the basis that they rented off-site storage premises and used a procedure that the Tribunal considers to be impractical) fell not far short of the form of unethical conduct that section 62B contemplates. But its conclusion is that the Applicants' claim of unconscionable conduct is not made out. 16 The orders made by the Tribunal included the following: 1. Declare that the Lease between the parties dated 3 March 2003 was not validly determined by the Respondent's purported Notice of Determination dated 21 August 2006. 2. Declare that during the period of currency of this Lease (including any period covered by the exercise of an option to renew) the Applicants are entitled under the Lease to load and unload stock for the purpose of the business carried on in the leased premises at a site adjacent to the rear door of the premises (on the eastern side), so long as their mode of doing so remains substantially the same as at present. 3. Order that during this period the Respondent is not to interfere directly or indirectly with the loading and unloading of stock by the Applicants at this location, so long as their mode of doing so remains substantially the same as at present. 4. Order that during his period the Respondent is not to oppose any application by the Applicants to the Gosford City Council for a loading zone to facilitate the conduct of these loading and unloading operations according to the mode currently utilised. Relevant principles regarding costs 17 As indicated earlier, this decision is concerned with an application by the Applicants for the costs of these proceedings. The parties have filed written submissions. Since they have not sought a hearing, the application is being determined 'on the papers', pursuant to section 76 of the ADT Act. 18 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. 19 According to the case-law on section 88(1) in its application to proceedings under the RL Act (see eg Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, 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. While a finding of 'serious unfairness' on the part of the party resisting an order for costs is not a prerequisite to determining that there are 'special circumstances', it is a highly relevant consideration. 20 The various types of situation that have been held to constitute 'special circumstances' in retail leases cases include cases 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. They also include cases whether the conduct of this party gave rise, to quote from the judgment of Santow JA in Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 (a case under the RL Act), to circumstances that were 'clearly out of the ordinary and grossly unreasonable' so far as the opposing party was concerned, with the consequence that the opposing party was compelled to take proceedings to vindicate its rights (see his Honour's judgment at [60]). 21 In addition, paragraph 2 of the Tribunal's Practice Note on Costs (Practice Note 12, October 2006) contains the following provisions of relevance: 2. The following are some examples of special circumstances that may justify a costs order … . whether a party has conducted the proceeding in a way that disadvantaged another party to the proceeding by conduct such as - … (v) attempting to deceive another party or the Tribunal; … 22 the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law; … The parties' submissions 23 In his submissions on behalf of the Applicants, Mr Quickenden argued that the Respondent's conduct was 'grossly unreasonable or seriously unfair' on account of (a) the matters outlined in paragraph [102] of the Tribunal's judgment (quoted above at [15]); (b) the Respondent's instruction to the Applicants to use the admittedly impractical loading zone at the southern end of the Centre (see above at [13]); and (c) the opposition expressed by Mr Whalan to the creation of a loading zone on the eastern side of the Premises (see the Tribunal's judgment at [69] and [101], referred to above at [14] and [15]). 24 Mr Quickenden argued also that the Tribunal's conclusions demonstrated that the Respondent's notice purporting to terminate the lease had no basis in fact or law. Accordingly, he said, the Applicants' case was significantly more meritorious than that of the Respondent. 25 He pointed out also that the Tribunal believed the Applicants' evidence, not that of Mr Whalan, regarding the pre-lease discussions. Accordingly, he contended, the Respondent's conduct involved an attempt to deceive the Tribunal. 26 A further argument raised by Mr Quickenden was to the effect that in the course of correspondence between the parties' solicitors in January and February 2006, the Respondent unreasonably rejected an offer by the Applicants to settle the proceedings. 27 On behalf of the Respondent, Mr Sharpe argued first that the Applicants had been only partially successful in the proceedings. Their unconscionable conduct claim, their claim of a pre-lease misrepresentation (substituted for an abandoned claim of misleading or deceptive conduct) and their claim for 'compensation' had all been rejected. 28 He relied also on the Tribunal's finding, in its decision at [101], that the evidence regarding Mr Whalan's opposition to the Applicants' application for a loading zone 'failed to rule out the possibility that Mr Whalan acted bona fide, albeit unreasonably' and may have been motivated by concern for the safety of pedestrians. 29 As to the submission that Mr Whalan, in his evidence about pre-lease discussions, attempted to deceive the Tribunal, Mr Sharpe pointed out that the Tribunal made no finding that there was an attempt at deception. 30 With regard to the claim that the Respondent unreasonably rejected an offer to settle the proceedings, he submitted (a) that the correspondence relied on actually preceded the commencement of proceedings and (b) that it did not relate to all the claims advanced by the Applicants in the proceedings. The Tribunal's conclusions 31 The Tribunal considers that the Applicants' application for costs should be upheld, on grounds that reflect, in general terms, the principal contentions put forward by Mr Quickenden. It finds that the requirement of 'special circumstances warranting an award of costs' is satisfied by virtue of the following features of the case. 32 The Respondent, in the Lease and its letter dated 3 June 2004, permitted the Applicants to unload and load produce from the parking area on the eastern side of the Premises. It therefore had no contractual entitlement to require them to desist from doing so and no valid grounds for serving a notice upon them purporting to terminate the Lease. 33 Furthermore, as found by the Tribunal in its decision at [101], Mr Whalan acted 'unreasonably' in opposing their application to the council for a loading zone to be created. Although his conduct in these matters was not 'unconscionable' within the meaning of section 62B of the RL Act, it 'fell not far short of the form of unethical conduct that section 62B contemplates', for the reasons set out at [101] and [102]. As stated at [102], it constituted 'a continued refusal to try to cater for the Applicants' legitimate need for proper unloading and loading facilities (save on the basis that they rented off-site storage premises and used a procedure that the Tribunal considers to be impractical)'. For the purposes of the present application, the Tribunal considers that this behaviour should be characterised as 'grossly unreasonable'. 34 This conduct on the part of the Respondent and its Centre manager gave rise to circumstances that were undoubtedly 'out of the ordinary'. It left the Applicants with no choice but to seek redress by filing an application in the Tribunal. In maintaining its opposition to this application, compelling the matter to go to trial, the Respondent persisted with a case that, in its most important component, was lacking in merit. 35 For these reasons, the Tribunal sees this case as governed directly by the principles stated by Santow JA in Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 at [60] and quoted above at [20]. 36 The Tribunal bases its finding of 'special circumstances' and its upholding (in the exercise of its discretion) of the Applicants' application for costs on the matters just outlined. In line with submissions made by Mr Sharpe, it does not find that the Respondent attempted to deceive the Tribunal or that there was any evidence of an unreasonable rejection of an offer to settle the proceedings. 37 The Tribunal has taken account of the fact that the Applicants did not succeed in some of the claims made by it. But most of the evidence given in support of these claims – notably the unconscionable conduct claim – was relevant to a significant finding that the Tribunal has just made, namely, that the conduct of the Respondent's Centre manager was 'grossly unreasonable'. 38 There can be no doubt also that the principal issue on which the Applicants did succeed was one of prime importance to them. At the time when they commenced proceedings, it involved their assertion of a right to remain in occupation of premises in which they had built up their business for more than three years and where they might reasonably hope to remain (if they exercised their option of renewal under the Lease) for a further period of more than six years. 39 Mr Quickenden submitted that the appropriate order to be made in favour of the Applicants was an order for indemnity costs. But the Tribunal sees no reason why this exceptional form of costs order is justified. Order The Tribunal orders that the Respondent is to pay the Applicants' costs of and incidental to these proceedings, as agreed or as assessed on a party-party basis. 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.