Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Kriletich v Dee Why Projects Pty Limited (No. 2) [2011] NSWADT 255 Hearing dates: 10 August 2011 Decision date: 08 November 2011 Jurisdiction: Retail Leases Division Before: S Higgins, Deputy President Decision: The respondent's application for costs is dismissed. Catchwords: Costs - unsuccessful retail tenancy and unconscionable conduct claim - whether it is fair to award costs to the successful party - indemnity costs Legislation Cited: Administrative Decisions Tribunal Act 1997 Privacy and Personal information Act 1998 Retail Leases Act 1994 Victorian Civil and Administrative Tribunal Act 1998 (Vic) Cases Cited: AT v Commissioner of Police, NSW [2010] NSWCA 131 Calderbank v Calderbank [1975] 2 All ER 333 De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40 Denis Corporation Pty Ltd v Casey CC (Red Dot) [208] VCAT 691 Kriletich v Dee Why Projects Pty Ltd [2011] NSWADT 109 Profilio v Coogee Bay Village Pty Ltd (No. 4) [2011] NSWADT 64 Category: Costs Parties: Nick Kriletich (Applicant) Dee Why Projects Pty Limited ACN 126 740 181 (Respondent) Representation: Counsel D H Mitchell (Respondent) B Gelonesi (Applicant) Mallesons Stephen Jaques Solicitors (Respondent) File Number(s): 105108 REasons for decision 1RETAIL LEASES ACT (S Higgins, Deputy President): On 19 May 2011, the applicant's retail tenancy and unconscionable conduct claim was dismissed: see Kriletich v Dee Why Projects Pty Ltd [2011] NSWADT 109 ( Kriletich ). In accordance with the orders that were made, the respondent has pressed its application for an order that the applicant pay its costs in regard to these proceedings. The respondent also seeks costs on an indemnity basis. 2The background to this application is that at all relevant times, the respondent was the owner and developer of the Dee Why Grand Plaza at 834 Pittwater Road, Dee Why (the Plaza). In June 2009, the applicant entered into an agreement with the respondent to lease shop 32A of Plaza. The agreed use of the premises was the 'sale of coffee, gelato juice, pre-packaged beverages, focaccias, and the provision of short order caf menu'. The applicant commenced trading from the premises on 29 July 2010. 3On 30 August 2010, the respondent sold the Plaza to Dee Why Grand Shopping Centre Pty Ltd (the new lessor). 4The dispute between the parties arose prior to the applicant commencing to trade from the premises. It centred on the respondent's alleged failure to provide a mechanical exhaust system for shop 32A. The applicant contended that he had entered the agreement to lease in reliance of a statement made in the respondent's ' Tenancy Fit-out Manual '. That statement the applicant contended was a representation that the respondent would provide a mechanical exhaust system to all food shops, including shop 32A. 5The Tribunal found that the statement of the respondent was a representation as alleged and that it was misleading or false: see Kriletich at [38]. However, the Tribunal found that as the representation was as to a future matter, the onus was on the applicant to prove that at the time the representation was made the respondent had no reasonable basis to make it: see Kriletich at [40] and [41]. The Tribunal found that the applicant failed to prove this aspect of his claim: see Kriletich at [44]. The Tribunal also found that the applicant failed to discharge his onus of proof in regard to the issue of reliance: see Kriletich at [49]. On the basis of these findings the Tribunal l also found that the applicant had failed to establish his unconscionable conduct claim: see Kriletich at [50] to [59]. Legal principles in regard to costs 6The Tribunal has jurisdiction to make cost orders in regard to a retail lease claim and an unconscionable conduct claim: see section 77A of the Retail Leases Act 1994 (RL Act) and section 88 of the Administrative Decisions Tribunal Act 1997 (ADT Act). 7Section 88 of the ADT Act provides as follows: 88 Costs (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. (2) The Tribunal may: (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on a basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. (3) However, the Tribunal may not award costs in relation to proceedings for an original decision unless the enactment under which the Tribunal has jurisdiction to make the decision provides for the awarding of costs. (4) In this section, "costs" includes: (a) costs of or incidental to proceedings in the Tribunal, and (b) the costs of or incidental to the proceedings giving rise to the application, as well as the costs of or incidental to the application. 8As can be seen from the terms of section 88 of the ADT Act it contains a general rule that each party to the proceedings is to bear its own costs of the proceedings and that an award of costs will only be made if the Tribunal is satisfied, having regard to the factors set out in subsection 88(1A), it is fair to make an award of costs: see AT v Commissioner of Police, NSW [2010] NSWCA 131, per Basten JA at [21] and [33]. In AT, at [21], Basten JA said the following in regard to the Tribunal's exercise of its discretion under subsection 88(1A): 21 .. [in] its term, s 88(1A) requires that the Tribunal (which includes for this purpose the Appeal Panel) be "satisfied" that the proposed award is "fair". That exercise involves, potentially, both findings of primary fact and the exercise of an evaluative judgment. ... 9At [33] Basten JA stated the following after citing the general principle set out in subsection 88(1) that each party should bear its own costs: 33 ... [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 Tribunal Act . (emphasis added) 10AT's appeal to the Court of Appeal, arose from an application AT had made to the Tribunal seeking review of conduct by the respondent that AT alleged to have been in breach of an information protection principle under the Privacy and Personal Information Act 1998 (NSW). These were proceedings in the Tribunal's review jurisdiction (see section 38 of the ADT Act) and the respondent was a State agency. As a State agency, the respondent was required to act as a model litigant and at [32], Basten JA said that this was a relevant factor to be taken into account for the purpose of making an order under section 88 of the ADT Act. 11The applicant in these proceedings brought his claim under the Tribunal's original jurisdiction (see section 37 of the ADT Act) and they are commercial in nature. The Tribunal has accepted that the general principles enunciated by Basten JA in AT equally apply to proceedings within the Tribunal's original jurisdiction: see Profilio v Coogee Bay Village Pty Ltd (No. 4) [2011] NSWADT 64 at [42]. Accordingly, it is accepted that the commercial nature of the proceeding may be a factor relevant to the circumstances in which fairness may be identified through the specific matters set out in subsection 88(1A) of the ADT Act. 12However, as pointed out by the Tribunal in Profilio this does not mean that where the case advanced by the unsuccessful party is weak, the successful party is entitled to an award of costs under subsection 88(1A), in particular paragraph 88(1A)(c). In this regard the Tribunal in Profilio , at [42] and [43], cited with approval two decisions of the Victorian Civil and Administrative Tribunal in regard to the equivalent provision of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (i.e. section 109). 13In the first of these decisions, Denis Corporation Pty Ltd v Casey CC (Red Dot) [208] VCAT 691, the Victorian Tribunal said at [14] to [19]: 14 The relative strength of the claims appear to refer to the strength of claims of one party compared to the strength of the claims of another. A difficult, doubtful or test case might be necessary to clarify the legal position of the parties. It is probably seldom that an order for costs would be made having regard to this consideration alone where there was a real issue to be tried and real justification for the claims made on either side. I take it that it is generally where there is a very weak case for one side, or none at all, that this consideration is likely to lead to an order for costs. I note that the wording says that the absence of a "tenable basis in law or fact" is a consideration included within the consideration of the relative strength of claims of the parties. 15 This certainly cannot mean that an unsuccessful party should be required to pay costs because, at the end of the case, that party's claim had been found to be untenable in fact or law to the extent that they were not upheld and were not successful. That would amount to "costs following the event". It would compromise the general rule created in s 109(1) [the Victorian equivalent to s 88(1) of the ADT Act]. 16 As I have said, I did not think that the consideration indicates an order for costs where there are strong cases on either side, or perhaps even the balanced cases on either side. 17 I am not minded to go so far as to say that a weak case will necessarily indicate an order for costs. The word "untenable" is stronger than "weak". The Macquarie Dictionary, 2 nd division, defines untenable as incapable of being held against attack, and capable of being maintained against argument, as an opinion, scheme etc. 18 The ethical rules of the Bar, as I recall them, indicate that a barrister has a duty to do his or her best by the client even if the client has a weak case. On the other hand, a different duty applies if the case is so weak as to be unarguable or "untenable". It extends to a case that is so weak that it should not be argued or so weak that it would be abuse to seek to maintain it. 19 I think "untenable" in the context of s 109(3)(c) needs something like so weak as to be unarguable, rather than being weak. 14At [49], in Profilio , the Tribunal also made reference to the possibility of a partial award of costs being justified where the case advanced by the successful party did not succeed on all grounds before it and a significant proportion of the parties' costs were incurred in the course of dealing with the ground or grounds that failed. In such circumstances, the Tribunal said that it may be said that the successful party was responsible for prolonging unreasonably the time taken to complete the proceedings within the meaning of paragraph 88(1)(A)(b) of the ADT Act. 15At [51] to [57], in Profilio , the Tribunal dealt with issue of a party having unreasonably rejected an offer to compromise the proceedings, which turns out to be more favourable to that party than the terms of the orders subsequently made by the Tribunal. In this regard the Tribunal cited the decision in De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40, where the Tribunal, at [64] said: The underlying proposition is that the unreasonable rejection by the losing party of an offer to bring the proceedings to an end without further costs being incurred should always be brought into consideration when determining a costs application. However, the specific principles that was stated and applied by the Court in Calderbank should not be applied mechanically to applications made to the Tribunal under section 88 of the ADT Act. They should operate by analogy only. The reason for this is simple. The line of authority stemming from Calderbank governs cost awards in jurisdiction where, prima facie, costs 'follow the event'. Under section 88, the starting point is that the parties pay their own costs, and the Tribunal should only make a costs order where it is 'fair' to do so. The parties' submissions on costs 16The Respondent's submissions: the respondent relied on paragraphs 88(1A)(a)(i), (b), (c), (d) and (e) of the ADT Act. The respondent's costs were itemised as totalling $102,986.35 plus $12,081.06 (this latter amount being for costs incurred in respect of this application). Included in the overall costs were the costs incurred by the respondent in regard to the applicant's unsuccessful interlocutory application to join the new lessor, as a party to these proceedings. That application was heard and determined on 15 March 2011. The respondent made an application for costs on this occasion and I made an order for costs after hearing short arguments form the parties. 17The respondent contended that the applicant had unreasonably prolonged the time taken to complete the proceedings and this had unnecessarily disadvantaged. In this regard the respondent pointed to the fact that the applicant had breached orders of the Tribunal in regard to the filing and serving of evidence, in particular the applicant's failure to file and serve evidence on damages. It was noted that on the first day of the hearing the applicant amended his application further and sought a separate hearing on liability, which was oppose by the respondent. 18The respondent also contended that the applicant's claim was complex in that he made serious allegations of unconscionable conduct, misleading or deceptive conduct and various other claims against the respondent. Given the complexity of the applicant's claim, it was argued that it was nevertheless very weak and in this regard the respondent pointed to the findings of the Tribunal that the applicant had failed to establish his claim in all respects, including reliance. Accordingly, the respondent contended that there was a 'substantial disparity' between the strengths of the applicant's case and that of the respondent. This disparity being in favour of the respondent as the applicant's case was very weak. 19The main argument relied on by the respondent in support of its application for costs (including indemnity costs) was the applicant's unreasonable rejection of multiple 'genuine' and 'generous' offers of compromise it had made. Copies of the relevant documents were attached to the written submissions of the respondent. 20The respondent's initial offer was made in a letter dated 22 July 2010 (the initial offer). The terms of the offer were that the respondent would pay to the applicant a 'further capital contribution of $35,000', subject to the applicant executing a Deed of Release. The letter stated that the Deed of Release would include, but not limited to, releases by the applicant from matters arising from or relating to these proceedings, a licence for storage space and a licence for use of a seating area immediately outside the premises. The letter also stated that upon the execution of the Deed of Release, the proceedings were to be finalised on the basis of a verdict and judgment for the respondent with each party to bare their own costs. This initial offer was said to be made in accordance with the principles outlined in Calderbank v Calderbank [1975] 2 All ER 333 and was open until 4.00 pm the following day. 21The respondent made a second offer on 13 August 2010. This offer is evidenced in a one-page heads of agreement that was emailed to the applicant and his solicitor on this date. The agreement was in accordance with the terms of the initial offer, however the amount that was to be paid to the applicant was increased to $50,000. 22On 25 August 2010, the respondent forwarded, by email, to the applicant's solicitor, a further heads of agreement for execution by the applicant. This heads of agreement contained the same essential terms as the earlier heads of agreement. There were some additions to these terms in this heads of agreement. The applicant executed this heads of agreement on the same date. 23On 18 November 2010, the respondent forwarded a further written offer of settlement. The terms of the offer were similar to that contained in the earlier heads of agreement. On this occasion the letter of offer from the respondent had attached to it a letter of offer from the new lessor and settlement documents prepared by the new lessor. It would appear that the terms of the settlement documents were discussed at a meeting the previous day between the respondent, the new lessor and the applicant. The Settlement Deed prepared by the new lessor, was an agreement between the respondent, the new lessor and the applicant. The remaining settlement documents were a Storage Licence and a Seating Licence, the parties to which were the new lessor and the applicant. The respondent's offer was stated to be open until 4pm on 24 November 2010, which was 1 day earlier than the offer made by the new lessor. 24It was the respondent's contention that these offers evidenced the respondent's 'genuine effort to settle the proceedings' and as each offer clearly stated that the respondent would rely on them for the purpose of costs (including indemnity costs), in the circumstances it is 'fair' that an order for costs be made in favour of the respondent. That is, the applicant had unreasonably rejected the respondent's offer, who was then required to 'to incur significant costs to obtain an inevitable victory.' 25The Applicant's submissions : the applicant contended that there was no basis to depart from the general rule as set out in section 88 of the ADT Act. He argued that the offer, made on 25 August 2010 and accepted by the applicant, did not proceed because the agreed licences for storage space and seating outside the premises became subject to the approval of the new lessor. In oral submissions, the applicant's solicitor said that he, nor his client, had been aware of the proposed sale of the premises at the time this heads of agreement was signed. He went on to say that the applicant did not take any further steps under the terms of the heads of agreement until he could be satisfied that all the matters that had been agreed to with the respondent would be given affect to and delivered. 26The applicant's solicitor said that the offer that was made on 18 November 2010, did not accord with the heads of agreement that had been executed by the applicant in August. That is, the terms of settlement as set out in the documents provided by the solicitor of the new lessor were not in accordance with this agreement. Accordingly, the applicant argued that it was not through any conduct on his behalf that the accepted offer did not proceed. The failure of this offer was due to the conduct of the respondent and the new lessor. 27In regard to the weakness of the applicant's case, the applicant noted that the Tribunal had indeed found that the representation contained in the respondent's Tenancy Fit-Out Manual was misleading. Consideration 28In my view these proceedings have not been unnecessarily protracted through the conduct of the applicant. While there may be questions as to the manner in which the applicant's claim was prepared, in my view it cannot be said that the applicant's conduct in these proceedings was such that the proceedings were unnecessarily drawn out causing the respondent to incur costs that it should not have incurred. 29On the evidence before the Tribunal a genuine dispute did arise between the parties in early May 2010: see Kriletich at [25]. The dispute centred on there being no provision of gas, or access to the manual exhaust ducting to the premises leased by the applicant. The respondent identified these issues in the final stages of completing its development and making arrangements with lessees (including the applicant) in regard to their respective shop fit outs. The issue of no gas was subsequently rectified. However, the respondent informed the applicant that it was unable to rectify the issue in regard to the connection of the premises to the exhaust system of the Plaza. As a consequence the applicant commenced these proceedings against the respondent on 16 July 2010. This was prior to the applicant having commenced trading. 30These proceedings were heard on 11 April 2011 and while there were a number of directions hearings, I note that the application was stood over a number of times by consent for the purpose of ongoing settlement negotiations. On 3 March 2011, consent orders were made which included an order that the applicant pay the respondent's costs of the day as agreed or assessed. In my view the respondent's contention that the Tribunal take into account, in this application for costs, conduct by the applicant for which a cost order has already been made is not appropriate. In some circumstances this might be appropriate but in my view it is not appropriate, in this application, as it cannot be said that throughout these proceedings, the applicant otherwise failed to comply with orders of the Tribunal in such a way that the respondent was required to incur unnecessary costs. 31The fact that the hearing of the applicant's claim proceeded on the issue of liability alone, is in my view not a reason for making an award of costs in favour of the respondent in these proceedings. Liability was clearly a threshold issue in this application and I cannot see how the respondent was disadvantaged. By consent, the applicant's application had been set down for hearing on the day in question and the respondent had strenuously opposed any adjournment of that date. I am not critical of the respondent, but find it difficult to understand how it can contend that the application being heard on this agreed date had disadvantaged it. Had the Tribunal found in favour of the applicant in relation to liability, there may have been a legitimate claim for costs in regard to any subsequent hearing on the issue of damages due to the applicant's failure to file and serve his evidence in accordance with the orders that had been made prior to the hearing on liability. 32In regard to the relative strengths of the claims made by each party, it is evident from the decision of the Tribunal that the applicant's claim was not strong. However, it cannot be said that it was unarguable in so far as it related to a misrepresentation claim. Nor am I persuaded that the applicant's claim was complex. As I have indicated, the applicant's claim was primarily based on alleged misrepresentation made in the respondent's Tenancy Fit-out Manual, which had prepared in accordance with its obligations under the RL Act: see Kriletich at [34] and [37]. In support of his claim the applicant relied on his own evidence as set out in his affidavit. In support of its claim the respondent relied on the affidavit of Ms E Gabauer, the respondent's retail design manager and tenancy co-ordinator. Her evidence was comprehensive but not complex. Her evidence was essentially in accordance with the documents retained by the respondent in regard to the applicant's lease and Ms Gabauer's dealings with the applicant in regard to the fit-out of his leased premises. This must have been material that was readily available to the respondent as the dispute between the parties was relatively recent. 33In my view the respondent's application for costs centres on the issue of whether the applicant had unreasonably refused to accept the offers made by the respondent. As I have indicted, the fact that the successful party has made an offer of compromise (commonly stated to be a Calderbank offer) will not on its own give rise to an automatic cost order under subsection 88(1A) of the ADT Act. The Tribunal is still required to be satisfied that it is fair to make an award of costs have regard to all the circumstances, including the Calderbank offer, in the context of the matters prescribed in paragraphs 88(1A)(a) to (4). 34In regard to the respondent's initial offer, I am not at all persuaded that it was unreasonable for the applicant to have refused to accept this offer. It was an offer made on the first return date of the application and it was only open for 24 hours. This was hardly sufficient time for the applicant to consider the offer that was made. It is also evident from the material filed that the applicant continued to discuss settlement with the respondent and as a result the applicant accepted that which was contained in the respondent's head of agreement dated 25 August 2011. That agreement was subject to the applicant executing a deed of release in terms of the heads of agreement. There is no evidence to indicate that the respondent presented to the applicant a document of this nature. 35Yet 5 days after the applicant had executed the heads of agreement, the respondent had sold the Plaza to the new lessor. The respondent did not question the assertion of the applicant's solicitor that at the time the applicant executed the heads of agreement, he nor his solicitor had any knowledge of their being a change of ownership. 36As a result of this change on ownership, resolution of the applicant's dispute involved the agreement of the new lessor. In the circumstances, it is difficult to see how it can be said that the applicant unreasonably rejected the offer of the respondent that was made on 25 August 2010. He had in fact agreed to the offer as contained in the heads of agreement. 37The question is whether the applicant's rejection of the final offer, made on 18 November 2010, was unreasonable. This offer was open for 6 days and was based on the terms on which the new lessor was prepared to settle for. In its letter of offer, the respondent did not specify in which respect it contended that the applicant's claim could not succeed. However, it did contain the following remark; In the event that your client chooses not to accept this generous offer, then our instructions are to cease negotiating and our client intends to make use of the additional $50,000 capital contribution to fund robust and vigorous defence of your client's unmeritorious claim. 38I note that at the time of this offer, the respondent had not filed and served its evidence. It was not filed and served for another 3 months, on 15 February 2011. This evidence, as I have already mentioned was primarily the affidavit of Ms E Gabauer. There is no evidence of a further offer having been made after this evidence was filed. 39While I accept that the applicant's claim was weak, for the reasons set out above, I am not satisfied, having regard to the matters referred to in subsection 88(1A) of the ADT Act, that the circumstances of this application, are such that it is fair to make an award of costs in favour of the respondent. Accordingly, the general rule, as set out in subsection 88(1) of the ADT Act, applies. 40For the reasons set out above, I make an order that the respondent's application for costs 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: 08 November 2011