CITATION: Mirvac Funds Ltd v Frost (No 2) [2010] NSWADT 41 This decision has been amended. Please see the end of the decision for a list of the amendments. DIVISION: Retail Leases Division APPLICANT Mirvac Funds Limited BNY Trust Company of Australia Limited PARTIES: RESPONDENT Mitchell Frost INTERVENOR Registrar of Retail Tenancy Disputes FILE NUMBER: 085157, 085175 HEARING DATES: On the papers SUBMISSIONS CLOSED: 11 August 2009 DATE OF DECISION: 11 February 2010 BEFORE: Higgins S - Judicial Member CATCHWORDS: Retail lease, standing to bring claim, claim for payment of money, mitigation, costs Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Retail Leases Act 1994 Victorian Civil and Administrative Tribunal Act 1998 (Vic) Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 Dennis Corporation Pty Ltd v Casey CC (Red Dot) [2008] VCAT 691 CASES CITED: Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164 Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 Mirvac Funds Limited and anor v Frost [2009] NSWADT 94 Young v Lamb (No 2) [2001] NSWSC 1041and Winky Pop Pty Ltd v Hobsons Bay CC [2008] VCAT 1512 APPLICANT A Horvath, barrister REPRESENTATION: RESPONDENT In person INTERVENOR B Carlsund, Registrar 1.Mr Frost to pay BNY Trust Company an amount of $26,656.09 plus GST and interest, at the applicable rate at the relevant time at which in from 15 September 2008 to 4 May 2009 ORDERS: 2.BNY Trust Company's application for costs is refused 3.The application(s) in so far as they have been brought by Mirvac Funds Limited is dismissed. REASONS FOR DECISION 1 This is an application(s) by the applicants seeking payment of rent and other charges allegedly owed to it by the respondent, Mr Frost, pursuant to a lease in respect to Shop 3 of the Moonee Beach Shopping Centre. In the absence of an appearance by Mr Frost and at the request of the applicants, the Tribunal dealt with the application(s) on the papers. On 4 May 2009, the Tribunal published its decision on the basis of the material before it: see Mirvac Funds Limited and anor v Frost [2009] NSWADT 94. While there are two file numbers there is in fact only one application (see [7] of the Tribunal's earlier decision). 2 In its reason for decision the Tribunal identified two matters of concern arising from the evidence before it. One was the standing of the applicants to bring these proceedings and the other related to the issue of mitigation. Orders were made for the parties to file and serve additional evidence in regard to these two matters and the applications were listed for further hearing on 19 June 2009. By consent this hearing date was subsequently adjourned to 24 June 2009. 3 On 18 May 2009, the applicants filed 5 sworn affidavits and an outline of submissions to which an unsworn statement was attached. 4 On 3 June 2009, the Registrar of Retail Tenancy Disputes (the RTD Registrar) filed a Noticed of Intervention pursuant to section 65(2) of the Retail Leases Act 1994 ('the RL Act'). The RTD Registrar subsequently filed a Notice of Motion seeking to have the matter re-listed for hearing at Coffs Harbour. Attached to the Notice of Motion was an affidavit of Mr Frost sworn on 17 June 2009. Mr Frost had also filed a copy of this affidavit with the Tribunal. 5 At the adjourned hearing on 24 June 2009, by consent of all parties (Mr Frost appeared by telephone), further orders were made for the parties and the RTD Registrar to file further material on the issue of mitigation and costs. The application of the RTD Registrar to have the applications re listed was refused as the Tribunal found there was no basis on which to re-open those matters on which it had made findings of fact in its earlier decision. The parties also agreed that the Tribunal was to determine the outstanding matters in issue on the papers. 6 These are the Tribunal's reasons for decision in regard to these outstanding matters. Standing to bring the application(s) 7 In her sworn but undated affidavit, Deborah Grimley, as Centre Manager of the Moonee Beach Shopping Centre, said that the Centre was owned by BNY Trust Company of Australia Limited ('BNY Trust Company') and managed by Mirvac Real Estate Services. In support of her evidence she attached a copy of a LEAP Title Search for Lot 2 in DP 1063045 dated 11 May 2009. The Lot and DP number on the Title Search are the same as that contained in the lease the subject of this application(s) and the Title Search identified the owner of the land as BNY Trust Company. Also attached to Ms Grimley's affidavit is a copy of (a) a Transfer certificate of the land from Moonee Beach Properties Pty Limited to JP Morgan Trust Australia Limited some time in 2007, and (b) a Change of Name certificate of JP Morgan Trust Australia Limited to BNY Trust Company in May 2008. 8 It is noted that the Title Search annexed to the affidavit of Ms Grimley identifies the subject lease at item 16 of the Second Schedule. 9 On the basis of this material I am satisfied that BNY Trust Company is the owner of the premises and lessor of the subject lease and is the person who has standing to bring these proceedings: see section 71 of the Act. 10 Mirvac Funds Limited initially commenced proceedings against Mr Frost in the Local Court (see at [5] in the earlier decision of the Tribunal). It was not until after the proceedings had been transferred to the Tribunal that the solicitor acting for Mirvac Funds Limited, Mr S B Adams, filed an amended application adding BNY Trust Company of Australia Limited as a party. 11 It is apparent that Mirvac Funds Limited at no time had standing to bring proceedings against Mr Frost and why it was not removed as applicant is difficult to understand. Nor is it apparent from the material, what role, if any, Mirvac Funds Limited had in regard to the subject lease. As this has not been raised as an issue I have not considered it any further. I have assumed that Mirvac Real Estate Services and Mirvac Assets Management are all part of Mirvac Funds Limited. Mitigation 12 As mentioned at [2] and [3] of the Tribunal's earlier decision the subject lease commenced on 21 December 2005. It was a 7 year lease, but was terminated on about 3 May 2008, after Mr Frost had vacated the premises and the agent for the lessor resumed possession thereof. According to the affidavit of Ms Grimley, filed on 11 February 2009 (Exhibit A5), at [2] Mirvac Real Estate Services is the appointed agent of BNY Trust Company. 13 Clause 29.3(b) of the lease provided that the 'Lessor must take reasonable steps to mitigate its loss' (emphasis added and see at [29] of the Tribunal's earlier decision where the relevant portions of this clause are set out). What is reasonable is a question of fact to be determined having regard to the relevant circumstances of each case. 14 What is at issue is whether BNY Trust Company, through its agent, took reasonable steps to mitigate the following loss and costs it incurred as a result of Mr Frost's breach of the lease: (a) loss of rent – with the amount claimed being $53,798.71: see at [33] to [35] of the Tribunal's earlier decision; (b) loss of outgoings – with the amount claimed being $5,637.02: see at [36] and [37] of the Tribunal's earlier decision (c) make good costs – with the amount claimed being $2,899.09: see at [43] to [46] of the Tribunal's 15 The make good costs were all incurred almost immediately after Mr Frost vacated the leased premises. They do not appear to be disputed as having been reasonably incurred. What is disputed is the amount of rent and outgoings that have been claimed. In his affidavit Mr Frost said the following: '6. I am aware that when the sale went through from Moonee Beach Properties to Mirvac, an amount of $4.8m was to be held in a trust account as a guarantee of any shortfall in rents for a period of two years from the date of the sale of the complex which was about March 2007. Because Mirvac had the protection of the rental guarantee, I believe that Mirvac has not tried very hard to rent out all the empty shops.' 16 No evidence was put before the Tribunal of a guarantee as asserted by Mr Frost. 17 he BNY Trust Company's claim in respect for rent and outgoings is broken up as follows (see Exhibit A5 at [5]) - Outstanding rent as at 1 May 2008 $16,033.57 - Rent that would have been payable between $37,765.17 1 June 2008 and 1 February 2009 - Outstanding outgoings as at 1 May 2008 $1,940.32 - Outgoings that would have been payable $3,696.70 Between 1 June 2008 and 1 February 2008 18 Goods and Service Tax (GST) have also been claimed in regard to the above amounts. In addition to this BNY Trust Company has claimed interest from 1 March 2008. 19 Mr Frost has not questioned the monthly rent and outgoings amounts set out in the affidavit of Ms Grimley that is Exhibit A5. Accordingly the Tribunal accepts these amounts as being the correct amounts of rent and outgoings that were payable under the terms of the lease. 20 In my opinion, BNY Trust Company is entitled to be awarded that which was outstanding in rent and outgoings as at the time Mr Frost abandoned Shop 3. These amounts (i.e. $17,973.89), incurred at the time the lease was on foot, were amounts that Mr Frost was contractually bound to pay under the terms of the lease. 21 The question is whether BNY Trust Company, through its agent Mirvac, took reasonable steps to mitigate its further loss as a result of the lease having been repudiated by Mr Frost and then terminated by Mirvac on behalf of BNY Trust Company. 22 In support of its contention that it did take reasonable steps to mitigate its loss of rental and outgoings after the termination of the lease, the following sworn and unsworn affidavits were filed on behalf of BNY Trust Company: (a) sworn affidavit of Richard Peachey, Regional Leasing Manager NSW of Mirvac Asset Management; (b) sworn affidavit of Deborah Grimley, Centre Manager of the Moonee Beach Shopping Centre; (c) sworn affidavit of Des Thomas, State Retail Leasing Manager for Mirvac Asset Management in Queensland; and (d) unsworn affidavit of Moses Comertpay, Retail Leasing Executive of Mirvac Asset Management. 23 In his submissions, the RTD Register commented on the contents of these sworn affidavits and the unsworn affidavit. The comments were mainly in the form of questions. Some inconsistencies were also pointed out. In her submissions, on behalf of BNY Trust Company, Ms Horvath contended that the RTD Registrar's questions were of no assistance to the Tribunal as they did not and could not submit that BNY Trust Company's conduct was unreasonable. I assume that this submission is made on the basis that the RTD Registrar is not the respondent lessee in these proceedings. In my opinion, the RTD Registrar's submissions as intervenor does no more that question the evidence filed on behalf of BNY Trust Company so as to establish that it acted reasonably, in accordance with its obligations under clause 29.3(b) of the lease. This is an appropriate role for the intervenor to take and hence it is to this extent that the mitigation evidence filed on behalf of BNY Trust Company is challenged. 24 Even if no regard is had to the submissions of the RTD Registrar's submissions, in my opinion, the mitigation evidence filed on behalf of BNY Trust Company fails to show that it, through its agents, acted reasonably to mitigate its loss of rent and outgoings as a result of Mr Frost's abandonment of the lease of Shop 3. By terminating the lease, BNY Trust Company was under an express obligation to take reasonable steps to mitigate its loss. This would include taking reasonable steps to re-let the shop, at a realistic rent, to a suitable tenant as soon as practicable: see Young v Lamb (No 2) [2001] NSWSC 1041 at [29]. 25 In her affidavit Ms Grimley states that advertisements were placed in the Coffs Coasts Advocate newspaper one month after Mr Frost vacated the premises, namely on Saturday 7 and Monday 9 June 2008. A copy of each advertisement was annexed to her affidavit. Each advertisement stated 'Opportunity For Family Hairdresser at Moonee Beach Shopping Centre' and provides the telephone contact details of Ms Grimley and Mr Comertpay. No information was provided as to the distribution of the newspaper or under what section of the newspaper the advertisement was placed. It is noted that the advertisement in the Saturday newspaper was placed next to an advertisement for the sale of Health Care Equipment. 26 The advertisements, in my opinion, do not advertise Shop 3 as being for lease. They merely advertised for a particular type of business to trade from the Centre generally. That BNY Trust Company, through its agent Mirvac, wanted a hairdresser to trade from the Centre does not address its duty to mitigate its loss of rent and outgoings after the lease for Shop 3 had terminated. As I have mentioned its obligation to mitigate involved taking reasonable steps to re-let the Shop to another suitable tenant. On the evidence, there were no restrictions as to the use of Shop 3 generally. It was open for use by any suitable tenant, and not restricted to a hairdresser. Its use was only limited under the terms of the lease with Mr Frost and once that lease was terminated there was no such limitation. 27 It was Ms Grimley's evidence that she received 2 telephone enquires as a result of the advertisements. In regard to one of these she completed a pro-forma Mirvac 'Leasing Enquiry Form' and forwarded it to Mirvac Asset Management office in Sydney, as they were responsible for all leasing at the Centre. The form is dated 9 July 2008 and does not include any reference to letting Shop 3. It is difficult to accept that this was a response to an advertisement that was in a newspaper some 4 weeks earlier or that it was an enquiry about letting Shop 3. 28 Attached to Ms Grimley's affidavit were 2 further pro-forma Mirvac Leasing Enquiry Forms, dated 12 May and 19 June 2008, which she also forwarded to Mirvac Asset Management. Both forms identify the person making the enquiry as being hairdressers but again no reference was made to the letting of Shop 3 at the Centre. 29 Ms Grimley also said that two signs were placed within the Shop 3 stating 'Hairdresser Wanted'. She said they were placed there in about May 2008 and were removed in December 2008. Although these were placed within the Shop, in my opinion for the reasons already stated the signs were inadequate for the purpose of re-letting Shop 3 to a suitable tenant. 30 Ms Grimley also asserted that between June and October 2008 she canvassed local retailers. This canvassing was along the same lines as the advertisements in that the Centre had 'an opportunity' and was 'looking for a family hairdresser.' She asserted that she did this on a monthly basis, yet no contemporaneous supporting documentation was provided. 31 Mr Comperty, Mr Peachey and Mr Thomas were all engaged by Mirvac Asset Management during the relevant time. Mr Compert and Mr Peachey appear to have worked from the Sydney office. Mr Thomas worked from the Queensland office and took over responsibility for leasing at the Centre in November 2008. He said that after he became responsible for leasing that there was a change of approach in the type of tenant that would be sought for the Centre. The change was from the 'local "mum and dad" type operator' to national operators. This approach, while not new as the Centre already had large national operators as tenants, appears to have been more successful in securing tenant for the Centre. 32 Attached to the affidavits of Mr Peachy and Mr Comperty is a brochure entitled 'Moonee Beach – A Mirvac Shopping Centre.' It is a brochure promoting the Centre as a whole and Mirvac is described as a 'leading integrated real estate group' with '35 years of experience in the property industry' and with 'unmatched reputation'. 33 Mr Peachy and Mr Comperty said they distributed the brochure to local retailers. They also asserted that they made 'cold calls' to hairdressers in the region in an endeavour to attract a hairdressing business to the Centre. Again no contemporaneous document was provided to support these assertions. 34 For the reasons I have stated, in my opinion distribution of the brochure and the cold calling were not steps to re-let Shop 3, let alone reasonable steps for this purpose. They were steps in the general promotion of the Centre, which included seeking to attract a hairdressing business to operate from the Centre. The latter may have suited Mirvac's desired mix of businesses for the Centre. However, to say that they were steps to re-let Shop 3 so as to mitigate the loss BNY Trust Company would suffer as a result of Mr Frost abandoning Shop 3, in my opinion goes too far. 35 Accordingly, I do not accept the evidence tendered on behalf of BNY Trust Company demonstrates that BNY Trust Company took reasonable steps to mitigate its loss after the lease was terminated. This does not mean that BNY Trust Company is not entitled to any damages in regard to the loss of rent and outgoings after the termination of the lease. On the basis of the evidence, even if BNY Trust Company had advertised Shop 3 for lease regularly and widely after Mr Frost had abandoned the premises and a tenant was found almost immediately that tenant would not have moved into possession immediately. That is there would have been a delay of a couple of months (i.e. 2 months). Accordingly, BNY Trust Company would be entitled to damages, for the amount of lost rent and outgoings it would have been paid by Mr Frost under the lease. This amount is $8,268.76 and $413.44. 36 Accordingly, based on my findings it is appropriate that the Tribunal order Mr Frost to pay BNY Trust Company an amount of $26,656.09 plus GST (i.e. $17,973.89 plus $8,682.20). 37 As I have mentioned interest has been claimed from 1 March 2008. The Tribunal's power to award interest is found in section 72A of the RL Act. The power is discretionary. Having regard to the circumstances of this application, in my opinion interest should only accrue from the date BNY Trust Company was joined as a party to these proceedings (i.e. 15 September 2008) and it should cease as at 4 May 2009 being the date the Tribunal published its earlier decision. The reason why the matter was not finalised as at that time was entirely due to BNY Trust Company having failed to place before the Tribunal all the relevant material in support of its application. Interest is to be paid at the rate that was payable during the relevant time on a judgment debt of the District Court. Costs 38 BNY Trust Company has sought orders that Mr Frost pay its costs in regard to these proceedings as follows: - costs incurred by BNY Trust Company between 7 August 2008 and 4 March 2009, as agreed or assessed; and - costs incurred from and after 5 March 2009, on an indemnity basis or alternatively, as agreed or assessed 39 The basis on which costs were sought on an indemnity basis was a letter of offer of compromise, dated 24 February 2009, sent by Mr Bart Adams, solicitor, to Mr Frost. The letter of offer is attached to the affidavit of Sidney Barton Adams, sworn on 18 May 2009. The letter of offer was for an amount of '$60,000.00 in full and final satisfaction of all monies due and owing.' Also attached to that affidavit was an earlier offer of compromise for the sum of $75,000.00. 40 The Tribunal's power to award costs in these proceedings arises by virtue of the provisions section 77A of the RL Act and section 88 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). 41 While these proceedings were commenced in the Tribunal on 13 August 2008, the applicable provision in regard to the relevant factors the Tribunal is to have regard to in awarding costs are those set out in section 88 of the ADT Act as it has applied since 1 January 2009. So far as is relevant that 88 provides as follows: (1) Each party to proceedings before the Tribunal is to bear the party's own costs in the proceedings, except as provided by this section. (1A) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that it is fair to do so having regard to the following:… (c) 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, .... (e) any other matter that the Tribunal considers relevant. 42 Prior to 1 January 2009, section 88 of the ADT Act provided that the Tribunal could award costs where it was satisfied that 'special circumstances' warranted and award of costs. The current version of section 88, in which the criterion of 'fairness' stated in subsection (1A) has replaced a rule that in the absence of 'special circumstances' no costs might be awarded, became operative on 1 January 2009. 43 In applying the earlier criterion of 'special circumstances' (see Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 at [24], which cites Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164 as an example), the Tribunal consistently held that because of the 'commerciality' of proceedings in the Retail Leases Division the interpretation of the phrase 'special circumstances' should differ significantly from the interpretation that might be adopted in any other Division of the Tribunal. 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 said: 'While a finding of "serious unfairness" is not a prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.' 44 In Jonamill Pty Ltd at [77] the Appeal Panel went on to say that: 'Because the criterion is now one of 'fairness', as contrasted with the notion of 'serious unfairness' mentioned by Santow J, there are good grounds for believing that costs orders should be more readily obtainable. In Salon Today Pty Ltd v M M I R Pty Ltd [2009] NSWADT 71 (a case within the Retail Leases Division), the Tribunal advanced this proposition. At [72], it stated:- What the Parliament has done, in its 1 January 2009 amendments, is recognise that there is a need for this Tribunal to be more flexible and widen the scope of a litigant's entitlement to costs. This is a concept generally that is now accepted in this Division, and certainly touched upon by the Court of Appeal in Cripps , and the result of this re-assessment by the Parliament is a different test, a test of fairness, having regard to a number of parameters/factors. In Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1, a very recent decision in proceedings under the RL Act, the Tribunal, after referring to the Gizah and Salon Today decisions, said (at [37]):- "So, it is plain to me that, not only is this Division a commercial division dealing with commercial issues between lessors and lessees in a retail lease environment, but, in addition, proceedings should only be commenced in this Tribunal after very careful consideration of the merits of the case:… After all, commencing proceedings without such consideration inevitably results in considerable expense being incurred by the other party and one might not unreasonably ask: "why should the other party have to bear those expenses when the proceedings should not have been commenced in the first place?" 45 At [31] – [33] the Appeal Panel referred to two decisions of the Victorian Civil and Administrative Tribunal ('VCAT'), Dennis Corporation Pty Ltd v Casey CC (Red Dot) [2008] VCAT 691 and Winky Pop Pty Ltd v Hobsons Bay CC [2008] VCAT 1512, which considered the application of a similar cost provision in the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (i.e. section 109). As pointed out in these decisions an award for costs should not be made merely because the case put forward by the losing party was weak. 46 Each application must of course be considered in the context of the circumstances relevant to that application. In these proceedings, Mr Frost did not put forward a counter claim. Nor did he in a real sense defend the claim that was made against him. It was on all accounts a straight forward claim that was made more complex and costly by reason of the proceedings having been commenced in the name of a person other than the lessor of the lease the subject of these proceedings. Furthermore, evidence filed by Mirvac on behalf of BNY Trust Company was far from complete. In my opinion, in these circumstances, it would not be fair to make an order under section 88 of the ADT Act that Mr Frost pay BNY Trust Company's costs for these proceedings. 47 Accordingly, it is unnecessary for me to deal with the application for indemnity costs other than to note that the Tribunal's findings on damages is an amount that does not exceed the compromise amount. In such circumstances a claim for indemnity costs would not arise. Orders 48 Mr Frost to pay BNY Trust Company an amount of $26,656.09 plus GST and interest, at the applicable rate at the relevant time at which in from 15 September 2008 to 4 May 2009. 49 BNY Trust Company's application for costs is refused. 50 The application(s) in so far as they have been brought by Mirvac Funds Limited is dismissed. 22/02/2010 - Amendment to Applicant/Respondent representation - Paragraph(s) Coversheet 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.