Administrative Decisions Tribunal New South Wales Medium Neutral Citation: A & J Verdi Pty Ltd v Uckan (RLD) (No 2) [2011] NSWADTAP 6 Hearing dates: On the papers Decision date: 03 March 2011 Before: M Chesterman, Deputy President Decision: The Respondents' application for their costs of this appeal is dismissed. Catchwords: Costs - appeal proceedings Legislation Cited: Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 Cases Cited: A & J Verdi Pty Ltd v Uckan (RLD) [2010] NSWADTAP 83 Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 AT v Commissioner of Police [2010] NSWCA 131 Dykes and Wildie v Heatherway Pty Ltd (No 2) (RLD) [2007] NSWADTAP 46 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397 Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164 Meriton Properties Pty Ltd v DCM Leases-Five Pty Ltd (No 2) [2010] NSWADT 11 Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1 Smith trading as Flames Grill & Carvery v Trust Company of Australia Ltd [2008] NSWADT 10 Solomon v Singh (No 2) [2005] NSWADT 295 Solomon v Singh (No 3) [2006] NSWADT 120 Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223 Category: Costs Parties: A & J Verdi Pty Ltd (First Appellant) Alexander Verdi (Second Appellant) Julianne Verdi (Third Appellant) Metin Uckan (First Respondent) Cetin Uckan (Second Respondent) Representation: Counsel R Horsley (Appellants) Queen Street Chambers (Respondents) File Number(s): 109057 Decision under appeal Jurisdiction: 9108 Citation: Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223 Date of Decision: 2010-09-10 00:00:00 Before: K Rickards, Judicial Member File Number(s): 105013 REASONS FOR DECIsion Introduction 1This decision relates to the costs of an appeal which I heard on 30 November 2010 and determined in a reserved decision dated 17 December 2010 ( A & J Verdi Pty Ltd v Uckan (RLD) [2010] NSWADTAP 83 - hereafter 'the appeal judgment'). 2The decision under appeal ( Uckhan v A & J Verdi Pty Ltd [2010] NSWADT 223) was an interlocutory decision in proceedings that are still on foot. It resolved one of two preliminary questions that had been set down for a preliminary hearing. 3The order of the Tribunal challenged in the appeal was a declaration that the lessee under the lease with which these proceedings are concerned ('the Lease') was responsible for obtaining all necessary development approval for the use of the premises that was stipulated in the Lease. The Lease, it should be added, is governed by the Retail Leases Act 1994 ('the RL Act'). 4The lessors are the Respondents to the appeal, Metin Uckan and Cetin Uckan. The lessee named in the Lease was Renato Vasquez. By a Deed of Consent and Assignment of Lease dated 1 July 2005, Mr Vasquez assigned his interest under the Lease to the First Appellant, A & J Verdi Pty Ltd, with the consent of the Respondents. Pursuant to this Deed, the Second and Third Appellants are guarantors of the First Appellant's obligations as lessee. 5Because the decision under appeal was an interlocutory decision, leave to appeal was required under section 113(2A) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). In the course of the hearing, having heard argument on the matter and observed that the appeal 'had merit', I granted leave to appeal: see the appeal judgment at [24]. 6My decision on the appeal was, however, that it should be dismissed, for reasons set out at [50 - 64]. 7At [66 - 68], I dealt as follows with the question of the costs of the appeal:- 66 I turn finally to the question of costs. Under section 77A of the Retail Leases Act 1994, this falls to be determined under section 88 of the ADT Act. That section provides that unless it is 'fair' to award costs having regard to matters listed in subsection (1A), the parties should each pay their own costs. 67 I said earlier in this decision that in my opinion this appeal had merit. The issues raised in it have not been easy to resolve. In many appeals, that is sufficient to suggest that no costs order should be made. But there may be other factors of which I am unaware. 68 I accordingly direct as follows. There will be no order for the costs of this appeal unless a party files and serves an application for costs, with supporting submissions, within 15 working days. In such event, the opposing party or parties must file and serve submissions in response within a further 15 working days. The question of costs will then be determined 'on the papers', pursuant to section 76 of the ADT Act. 8On 10 January 2011, the Respondents filed and served an 'additional and amended' application for costs, replacing an earlier version filed on 6 January. On 1 February 2011, the Appellants filed submissions in reply. Legal principles regarding the costs of these appeal proceedings 9So far as is relevant here, section 88 of the ADT Act provides:- (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: (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings by conduct such as: (i) failing to comply with an order or direction of the Tribunal without reasonable excuse, or (ii) failing to comply with this Act, the regulations, the rules of the Tribunal or any relevant provision of the enactment under which the Tribunal has jurisdiction in relation to the proceedings, or (iii) asking for an adjournment as a result of a failure referred to in subparagraph (i) or (ii), or (iv) causing an adjournment, or (v) attempting to deceive another party or the Tribunal, or (vi) vexatiously conducting the proceedings. (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (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, (d) the nature and complexity of the proceedings, (e) any other matter that the Tribunal considers relevant. 10In a recent decision of the Court of Appeal, AT v Commissioner of Police [2010] NSWCA 131, Basten JA, delivering the judgment of the Court, referred at [33] to 'the force of the general principle that each party should bear its own costs in the Tribunal, a principle applicable at both first instance and before the Appeal Panel'. He then said:- Although an order varying the general rule may be made "only if" the relevant criterion is satisfied in a particular way, there is a relatively low hurdle for an applicant seeking an order. The criterion of "fairness" will take into account the compensatory purpose of an award of costs, which will generally favour the successful party. The circumstances in which fairness may be identified are indicated by the specific attributes listed in sub-s (1A), but subject to the generality of paragraph (e), read in its context. Other considerations will no doubt include the nature of the jurisdiction of the Tribunal which is invoked and the objects identified in s 3(b)-(g) of the [ADT Act]. 11The 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. Subparagraph (d) of subsection (1A) of section 88 requires the Tribunal to take account of the 'nature' of the relevant proceedings. In cases applying the earlier criterion of 'special circumstances' (see for example Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164), it was 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. 12In Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1, a recent Tribunal decision on the costs of proceedings under the RL Act, the Tribunal 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?" 13A further relevant aspect of the 'nature' of these proceedings is that they are appeal proceedings. In Dykes and Wildie v Heatherway Pty Ltd (No 2) (RLD) [2007] NSWADTAP 46, another decision applying the former criterion of 'special circumstances', the Appeal Panel said at [23]: 'It is now accepted, we consider, that the making of an appeal without any reasonable prospect of success can provide a "special circumstance" sufficient to attract an adverse costs order.' At [29], it gave the following explanation of the reasons underlying this proposition:- Weak appeals should, we think, be discouraged. In the retail leases jurisdiction, particularly, the underlying circumstances (the 'factual matrix') are often complex. Often many points of law are raised. Trial level decisions are often long and detailed. An appeal will often involve the need to revisit all, or many, of the factual or legal elements of the underlying decision. The potential impact on the resources of the respondent is obvious. The parties' submissions 14The additional and amended submissions filed by the Respondents included an argument that the Appellants were contractually liable to pay their costs under clause 3.02 of the Lease. This clause states:- The tenant shall pay to the landlord all costs and expenses including solicitor's costs in relation to any termination of the lease and any litigation commenced by or against the tenant arising directly or indirectly from the tenant's occupation of the demised premises. 15Referring by implication to section 88(1A) of the ADT Act, the Respondents also argued as follows in paragraphs 12 and 13 of their submissions:- 12 It is fair that the respondents pay the [appellants'] costs of the appeal. While the Tribunal has found some merit in the sense of an issue requiring careful consideration, the appeal was without merit and [was] dismissed... The issue for appeal was solely related to the respondents' contentions and had no wider or public issues or benefit. The usual rule that costs generally follow the event is recognition of the fairness of such an order and the unfairness of a party having to incur substantial costs at the behest of a party. 13 The Respondents have been put to significant expense and legal costs in bringing the application and then defending the appeal application. On both occasions the Respondent was successful. 16In other paragraphs of their submissions - specifically, paragraphs 2 to 9 - the Respondents addressed the question of the costs of the interlocutory hearing at first instance. This question remains to be determined, but not by me in the present decision. 17In seeking to rebut the Respondents' argument based on clause 3.02 of the Lease, the Appellants advanced two propositions. The first was that any claim brought under this clause had 'nothing to do with an application for a costs order incidental upon the determination of the appeal', but would instead have to be 'the subject of a substantive application at first instance'. Secondly, they maintained, citing three Tribunal decisions, that such a claim was inconsistent with sections 7 and 77A of the RL Act and with section 88 of the ADT Act. 18The Appellants' reply to the Respondents' argument based on section 88(1A) of the ADT Act was that none of the matters enumerated in paragraphs (a) to (d) of this subsection was 'present or even alleged' by the Respondents. According to the Appellants, the claim by the Respondents that the appeal was 'without merit' meant no more than that it was unsuccessful, since in the appeal judgment it had been said that the appeal did have merit. No aspect of the Appellants' conduct was alleged that took the matter 'outside the run of ordinary matters'. Indeed, the costs application should, in the Appellants' submission, be held to be 'hopeless' and presumed to have been made 'for some ulterior motive, or because of some wilful disregard for the known facts or the clearly established law' (the Appellants here quoted from the judgment of the Federal Court of Australia in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397 at 400-401). Discussion and conclusions 19I will deal first with the Respondents' contention that the Appellants are obliged by clause 3.02 of the Lease to pay their costs of the appeal. 20In the third of the three decisions that the Appellants cited in this context, Meriton Properties Pty Ltd v DCM Leases-Five Pty Ltd (No 2) [2010] NSWADT 11 at [35 - 38], I dealt as follows with a comparable argument advanced by a lessor founded on a similar clause in a retail shop lease:- 35 An important question raised by [counsel for the lessor's] fourth submission is as follows. Given (a) that section 88 of the ADT Act (rendered applicable by section 77A of the RL Act) restricts the entitlement of a successful party in proceedings under the RL Act to recover its costs and (b) that under section 7 the provisions of the RL Act override those of any lease governed by the Act, can the lessor can rely on a contractual right conferred by the lease to recover its costs? 36 In the Tribunal's decision in Smith trading as Flames Grill & Carvery v Trust Company of Australia Ltd [2008] NSWADT 10, a case in which I was the Presiding Member, this question was answered in the negative. The relevant paragraphs of the decision are as follows:- 86 In the Tribunal's opinion, it is clear law that a contractual provision which, on its proper interpretation, obliges one party to pay to another party the costs incurred by that other party in legal proceedings operates independently of any award of costs that a court or tribunal has made or might make with respect to those proceedings. Such a provision may entitle the party claiming under it to recover a larger sum than he or she has obtained, or would obtain, under an order of the court or tribunal. It may, for instance, entitle this party to recover indemnity costs even though the court or tribunal has ordered, or might in the future order, that only party-party costs are to be paid, or indeed that the parties should pay their own costs. Even if the clause is an indemnity clause, however, the costs recovered under it are limited to costs 'properly incurred' in the proceedings. 87 These principles were stated and applied by the Court of Appeal in Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45. The Court upheld a decision of the District Court to the effect that a lessor under a commercial lease (not, it should be noted, a retail lease governed by the RL Act) could rely on an indemnity clause in the lease to recover from the lessee the costs, assessed on a solicitor-client basis, that it had incurred in protracted proceedings in the Supreme Court, subject to the deduction of costs already paid by the lessee pursuant to orders made by that Court. 88 In his judgment, Stein JA stated, at [8], that neither the existence of a power in the court to order costs nor the making of an order for costs extinguished or overrode a contractual right to costs. At [12], he said:- The authorities discussed earlier make it clear that [the lessor's] contractual right of indemnity for all costs remains independently of the court's orders. By seeking costs in the Supreme Court, the [lessor] did not lose or surrender its contractual rights. 89 This principle that contractual rights to costs of litigation operate independently of the rights of litigants to invoke the powers of the relevant court or tribunal to make a costs order has been applied in a number of other cases decided in the Court of Appeal or the Supreme Court:... 93 None of the cases mentioned so far, however, involved provisions akin to ss. 7 and 77A of the RL Act and s. 88(1) of the RL Act. In the present proceedings, the existence of s. 7 requires the Tribunal to determine whether clauses 7.3b (if it is indeed applicable to the costs of these proceedings) and 10.3 of the Lease are 'inconsistent with' the provision in s. 77A that the Tribunal may award costs in proceedings under the Act so long as the requirement of 'special circumstances' in s. 88(1) of the ADT Act is satisfied. If this is the case, the principle (stated in the heading to s. 7) that 'this Act overrides leases' is brought into play and the two clauses are void to the extent of the inconsistency. 94 So far as the Tribunal as presently constituted is aware, three Tribunal decisions, each relating to a lease governed by the RL Act, have addressed this issue. 95 In Rose Holdings Pty Ltd v Chusap [2002] NSWADT 153, the lessor sought costs under a clause in the lease while conceding that there existed no 'special circumstances' that would warrant an order under s. 88(1). The Tribunal, while indicating that a 'contract liability' claim might well have been arguable, determined in the exercise of its discretion under s. 88(1) that no costs should be awarded. The discussion (at [41 - 44]) was relatively brief. 96 In Solomon v Singh (No 2) [2005] NSWADT 295 (' Solomon 2 '), clause 27.2 of the lease, which was being enforced against a guarantor of the lessee's obligations, stated:- The Guarantor is liable for and indemnifies the Landlord against all liability or loss arising from and cost incurred in connection with a breach or non-compliance by the Tenant of any of the Tenant's obligations in this or in any extension or renewal of this lease. 97 At [75], the Tribunal, constituted by Judicial Member Molloy, held that this clause was sufficiently clear in its terms to establish contractual liability against the guarantor for costs incurred in the proceedings, together with other costs arising from the lessee's default. But at [78], it expressed the opinion, having referred to s. 77A of the RL Act and s. 88 of the ADT Act, that 'the law does not permit this Tribunal to make an order for costs of proceedings before it even if the lease contract creates an indemnity in favour of a lessor, in the face of Section 88'. At [79 - 80], it indicated that costs predating the commencement of proceedings within the Tribunal might be caught by clause 27.2 and would therefore be recoverable if properly proved. It noted that the effect of s. 77A and s.88 had not been addressed in submissions made to it. Its orders included a declaration that, unless the matter were re-listed for further argument, the lessor could not recover legal costs relating to the proceedings in the absence of an application and an order pursuant to s. 88. 98 In Solomon v Singh (No 3) [2006] NSWADT 120, the lessor in Solomon 2 applied for costs under s. 88. It is apparent from the judgment that the invitation given in Solomon 2 for re-arguing the question addressed in the Tribunal's declaration was not taken up. At [28], the Tribunal, constituted again by Judicial Member Molloy, rejected the lessor's contention that the existence of clause 27.2 of the lease amounted in itself to 'special circumstances' warranting an award under s.88. The Tribunal suggested that in fact clauses of this nature, far from being 'special', were 'quite ordinary and common'. 99 Two noteworthy features of these three Tribunal decisions are that they did not refer either (a) to Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45, where the 'independence' of contractual rights to recover litigation costs from curial determinations on costs was emphasised, or (b) to s. 7 of the RL Act, which directly raises the possibility that contractual rights of this nature might, in the present context, be void to the extent of inconsistency with statutory provisions governing curial determinations. In the discussion in Solomon 2 , however, the existence of s. 7 did appear to have been implicitly taken into account. 100 In the present case, the Tribunal's conclusion on this matter, reached as in Solomon 2 without the benefit of full argument, is in line with the conclusion in that case. In the Tribunal's opinion, to permit contractual provisions such as clause 10.3 of the Lease in the present case to operate according to their terms in relation to costs incurred in Tribunal proceedings under the RL Act would be to contravene the policy evidently underlying Parliament's decision to subject these proceedings to the costs regime established by s. 88 of the ADT Act. This policy is one of letting the costs of such proceedings lie where they fall except where 'special circumstances warranting an award of costs' are shown to have existed. By virtue of s. 7 of the RL Act, the statutory policy must prevail and both clause 3.7b (if it applies at all to the costs of these proceedings) and clause 10.3 are void to the extent of any inconsistency. 37 In the present case, this same question of principle must again be determined without the benefit of full argument. An important difference between this case and Smith is that, as mentioned earlier, the requirement of 'special circumstances' in section 88 has been replaced by a criterion of 'fairness'. The question whether the existence of a contractual entitlement to costs constitutes 'special circumstances' (see paragraph [98] of the foregoing passage quoted from Smith ) is therefore no longer relevant. But in my opinion, the adoption of a new criterion in section 88 does not disturb the ruling of primary importance in this passage. If contractual entitlements to costs in retail shop leases were permitted to operate according to their terms in relation to costs incurred in Tribunal proceedings under the RL Act, this would contravene the policy underlying Parliament's decision to subject those proceedings to the costs regime established by section 88. 38 For these reasons, I do not accept [counsel for the lessor's] contention that I should order that Meriton is contractually entitled to recover its costs from Mr Plant. I am also not persuaded by his alternative contention that I should exercise my discretion regarding costs in accordance with this entitlement. Entitlements of this nature are commonly conferred on lessors under retail shop leases. It appears to me that to accede to this contention would be to undermine the legislative policy outlined in the preceding paragraph of this judgment. 21In Plant v Meriton Properties Pty Ltd (No 2) (Costs) (RLD) [2010] NSWADTAP 20, an Appeal Panel of the Tribunal dismissed an appeal against this decision. At [11 - 14], it endorsed the approach taken in the passage just quoted. As far as I am aware, this question has not been subsequently addressed in the case law. 22For these reasons, the Respondents' claim that they are entitled to their costs of the appeal under clause 3.02 of the Lease must be rejected. 23The authorities cited above at paragraphs [10] to [13] undoubtedly indicate that when the successful respondent to an appeal brought against a decision of the Retail Leases Division seeks costs under the new criterion of 'fairness', the 'hurdle' that it must surmount is, to use the metaphor employed by Basten JA in AT v Commissioner of Police [2010] NSWCA 131, a 'low' one. 24But a 'hurdle' exists, nonetheless. It is not sufficient for the respondent in this situation merely to point to the fact that the appeal failed. If that were sufficient, the principle being applied would be that costs should 'follow the event' and the terms of section 88(1) would be bypassed. 25The Appellants' submission on this point was that the Respondents' case based on section 88(1A) went no further than this. This argument was, in essence, that because the appeal failed, it must have been 'without merit' and was therefore 'a claim that has no tenable basis in fact or law' within the meaning of paragraph (c) of section 88(1A). 26Having indicated in the appeal judgment that the appeal, though unsuccessful, 'had merit', I have little hesitation now in accepting the Appellants' contention on this matter. That contention receives support from the Respondents' reference, in paragraph 12 of their submissions, to 'the usual rule that costs generally follow the event'. 27The only other matter raised by the Respondents in their arguments based on subsection (1A) of section 88 was that 'the issue for appeal was solely related to the respondents' contentions and had no wider or public issues or benefit'. But this is not a matter to which the subsection draws attention, either expressly or by implication. 28I do not accept the Appellants' submission that the Respondents' application for the costs of the present appeal should be presumed to have been made 'for some ulterior motive, or because of some wilful disregard for the known facts or the clearly established law', But my conclusion regarding this application is that, for the reasons explained above, it must be dismissed. ********** 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. Decision last updated: 06 June 2011