Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Gelin v Sumner (No 2) (RLD) [2013] NSWADTAP 14 Hearing dates: On the papers Decision date: 28 March 2013 Jurisdiction: Appeal Panel - Internal Before: M Chesterman, Deputy President Decision: The parties are to bear their own costs of the proceedings in the Retail Leases Division and the proceedings before the Appeal Panel. Catchwords: Costs - retail lease - appellate and first instance proceedings Legislation Cited: Administrative Decisions Tribunal Act 1997 Conveyancing Act 1919 Corporations Act 2001 (Cth) Retail Leases Act 1994 Cases Cited: Adwell Holdings Pty Ltd v Ull Pty Ltd [2010] NSWADT 166 AT v Commissioner of Police [2010] NSWCA 131 Chand v Railcorp of NSW (No 2) [2011] NSWCA 80 Gelin v Sumner [2012] NSWADT 81 Gelin v Sumner (RLD) [2012] NSWADTAP 52 Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1 Trad v Jones (No 3) (EOD) [2013] NSWADTAP 13 Valentino Franchise Pty Ltd (ACN 114 469 662) v Brookfield Multiplex WS Retail Landowner Pty Ltd (ACN 109 033 794) (No 2) (RLD) [2012] NSWADTAP 40 Category: Costs Parties: Ben Ami Gelin (Appellant) Ian Ross Sumner (First Respondent) Louise Gay Sumner (Second Respondent) Representation: B Gelin (Appellant in person) Messenger & Messenger (Respondents) File Number(s): 129009 Decision under appeal Citation: Gelin v Sumner [2012] NSWADT 81 Date of Decision: 2012-05-02 00:00:00 Before: Retail Leases Division File Number(s): 115102 reasons for decision 1This decision concerns applications by the successful party for the costs relating to (a) proceedings in the Retail Leases Division and (b) an unsuccessful appeal instituted against the decision handed down by the Division. 2Because the only issue to be decided is that of costs, the Appeal Panel is constituted by a Deputy President sitting alone, pursuant to section 24A(2)(a) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). 3Section 77A of the Retail Leases Act 1994 provides that costs in Tribunal proceedings brought under this Act may be awarded under section 88 of the ADT Act. Relevant provisions of section 88 are reproduced below. 4Under section 88, an Appeal Panel hearing an appeal from a decision at first instance has power to award costs in relation to the proceedings that led to this decision. This was confirmed by a ruling of the Court of Appeal in Chand v Railcorp of NSW (No 2) [2011] NSWCA 80 at [25 - 28]. A dictum in a recent Appeal Panel decision (Trad v Jones (No 3) (EOD) [2013] NSWADTAP 13 at [2]) suggesting that this power may be lacking appears to be based on a misreading of the Court of Appeal's ruling. 5These proceedings were commenced on 29 July 2011 by the lessor under a retail shop lease ('the Lease'). He sought to recover amounts claimed to be owing to him since 2008 by the guarantors of the lessee's liabilities under the Lease. 6The lessor, Dr Ben Gelin, was the Applicant in the first instance proceedings and the Appellant in the appellate proceedings. During 2008, he was a practising solicitor, being the principal of a firm called Ben Gelin Solicitors. 7The lessee was a company called Ian and Louise Sumner Pty Ltd ('the company'). The guarantors, Ian Sumner and Louise Sumner, were directors and shareholders of the company, and were the Respondents both at first instance and on appeal. 8On 10 November 2011, the Respondents filed a cross claim seeking an award of damages against the Applicant on the ground of unconscionable conduct. But on 22 March 2012, approximately one month before the hearing of the original application and this cross claim was due to commence, they withdrew the cross claim. 9Both the Tribunal's decision at first instance (Gelin v Sumner [2012] NSWADT 81) and the decision of the Appeal Panel (Gelin v Sumner (RLD) [2012] NSWADTAP 52) were in favour of the Respondents. 10In the decision at first instance, directions were given for the filing of submissions relating to costs. Submissions were filed, but because a Notice of Appeal was also filed, the Tribunal did not make any determination on this matter. 11In the decision of the Appeal Panel, directions were given for the filing of (a) submissions relating to the costs of the appeal and (b) any additional submissions relating to the costs of the hearing at first instance. The parties filed submissions on the former topic, but did not add to their prior submissions on the latter. 12It was stated in both sets of directions that the matter of costs would be decided 'on the papers', pursuant to section 76 of the ADT Act, though the Appeal Panel indicated that it might determine that a hearing was required. 13In the submissions that I am now considering, the Respondents have applied for an order that the Applicant pay their costs of the proceedings both at first instance and on appeal and that these costs be assessed on an indemnity basis or, in the alternative, on a party/party basis. The position taken by the Applicant is that there should be no order as to costs in either proceeding. Relevant principles relating to costs 14So far as relevant to this appeal, section 88 states:- 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) ... (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. 15The following passage in the Appeal Panel's decision in Valentino Franchise Pty Ltd (ACN 114 469 662) v Brookfield Multiplex WS Retail Landowner Pty Ltd (ACN 109 033 794) (No 2) (RLD) [2012] NSWADTAP 40 at [18] summarises a number of principles relating to the interpretation of section 88(1A) that received emphasis in the Respondents' submissions:- (1) The criterion established in this subsection is a 'relatively low hurdle for an applicant seeking an order', since 'the criterion of "fairness" will take into account the compensatory purpose of an award of costs, which will generally favour the successful party': AT v Commissioner of Police [2010] NSWCA 131 at [33]. (2) When proceedings in the Tribunal are commercial in nature, involving two parties who are acting in trade and commerce, one significant effect of the amendment to section 88 introducing the notion of 'fairness' (this took effect on 1 January 2009) is to 'broaden the basis upon which costs might be awarded': Adwell Holdings Pty Ltd v Ull Pty Ltd [2010] NSWADT 166 at [22]. (3) When a 'substantial disparity' is found to have existed between the 'relative strengths' of the parties' cases, the fact that the proceedings constitute an unsuccessful appeal from a decision of the Retail Leases Division reinforces any claim brought by the respondent for the costs of the appeal: Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 at [47 - 49], applying paragraphs (c) and (d) of section 88(1A). 16The following frequently-cited passage in Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1 at [37] was quoted in the Respondents' submissions:- 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, and in addition, proceedings should only be commenced in this Tribunal after very careful consideration of the merits of the case: see Trust Company of Australia Ltd v. Craig [2005] NSWADT 65 at [44]. 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?" 17The Applicant did not refer in his submissions to any authorities interpreting section 88. 18Although not mentioned by either party, a principle that has been established in the case law under section 88 is that the unreasonable rejection by an unsuccessful party of an offer of settlement on terms more favourable than the order or orders made in the proceedings is to be treated as a relevant consideration under paragraph (e) of section 88(1A). The parties' contentions 19It is not necessary for me to recapitulate all of the findings made, or the grounds of the decision reached, by the Tribunal at first instance or the Appeal Panel. These matters will be outlined only to the extent necessary to explain the parties' submissions on costs and my determinations on this matter. 20In the ensuing discussion, I will identify paragraphs in the decision at first instance with the letter 'T' and paragraphs in the decision on appeal with the letter 'A'. 21The primary argument made by the Respondents with regard to both of their applications for costs was that the Applicant's case was distinctly lacking in merit - indeed that it had 'no tenable basis in fact or in law' - and that accordingly it was 'fair' that costs should be awarded to them under paragraph (c) of section 88(1A). They relied also on the authorities, outlined above, indicating that the Tribunal should be more willing to award costs in proceedings under the RL Act than in other proceedings, due to their nature and their commercial complexity. 22With reference specifically to the costs of the first instance proceedings, they argued that the factual finding of prime importance, stated in the Tribunal's decision at [T24], related to a matter of which the Applicant clearly was or should have been aware. This was the finding that the date on which he changed the locks on the leased premises was 4 July 2008, not (as he had alleged) a later date. They pointed out also that a second finding of importance - namely, that the company had not abandoned the premises before that date - was recorded with the accompanying observation (at [T27]) that the Applicant's 'very weak submission' on the matter was 'not accepted'. 23In their submissions on the costs of the appeal, the Respondents drew attention to the Appeal Panel's comments that the Applicant's arguments regarding the Tribunal's finding as to the date when the locks were changed were 'unconvincing' (see [A54]) and that his challenge to this finding 'manifestly fails' (see [A55]). 24In both sets of submissions, the Respondents outlined other important rulings of the Tribunal and the Appeal Panel that were adverse to the Applicant. But they did not put forward any reasons for concluding that his case on any of these matters, either at first instance or on appeal, was particularly weak or unmeritorious. 25With reference specifically to the costs of the appeal, the Respondents made two further arguments. One was that, by virtue of authorities outlined above, an Appeal Panel should be more inclined, other things being equal, than the Tribunal at first instance to make a costs order against an unsuccessful party. The other was that in a letter sent to the Applicant on 2 July 2012 (this was during the period between the lodgement of the Notice of Appeal by the Applicant and the hearing of the appeal), the Respondents' solicitors conveyed an offer by them to pay their own costs of the appeal if the appeal was withdrawn within 14 days. The letter also contained statements to the effect that the appeal was without merit and that if the offer was not accepted within 14 days the Respondents, if successful, would apply for indemnity costs. 26In his submissions relating to the costs at first instance, the Applicant argued that his claim had 'at the very least arguable bases both in fact in law'. He maintained, as he did subsequently at the hearing of the appeal, that the Tribunal had failed to consider both the relevant provisions of the lease and the legal and commercial consequences of the company's being placed in liquidation. For these and other reasons, he argued, the Tribunal's decision would be set aside on appeal and his claim would be upheld. 27The Applicant argued also that the Respondents' conduct in filing, then subsequently withdrawing, their cross claim (see [8] above) should 'draw the Tribunal's attention' to subparagraphs (a)(i), (ii), (iii), (iv) and (vi) and paragraph (b) of section 88(1A). He described this conduct on their part as 'most clearly frivolous and vexatious in the extreme', adding that it 'caused delays, extra costs, pain and much stress'. 28In his submissions relating to the costs of the appeal, the Applicant sought to rebut the Respondents' claim that the appeal had no reasonable prospects of success. He submitted that, to the extent that the Appeal Panel's decision was based on a finding that the Lease was determined by surrender, this was not an argument that the Respondents had advanced at any stage of the proceedings. He pointed out also that the Panel had rejected as irrelevant a contention of the Respondents based on section 40C of the Corporations Act 2001 (Cth). 29With reference to the letter claimed by the Respondents to have been sent to the Applicant by their solicitors on 2 July 2012, the Applicant maintained (a) that he never received it and (b) that its assertion that the Tribunal's decision had been based 'on an appropriate application of legal principle' was incorrect because the Appeal Panel had held otherwise. Discussion and conclusions 30The relative merits of the parties' cases. The principal ground on which the Respondents based their applications for the costs of the two hearings in this case was that the Applicant's claim had 'no tenable basis in fact or in law' and that paragraph (c) of section 88(1A) of the ADT Act was therefore applicable. 31For the following reasons, I agree with the Respondents that, so far as questions of fact are concerned, the Applicant's case was weak. 32Two important factual findings in the Respondents' favour constituted the foundation for their success in these proceedings. One was that the date on which the Applicant changed the locks of the premises, thereby evicting the company, was 4 July 2008, not (as the Applicant alleged) a later date. The other was that the company did not abandon the premises before 4 July 2008. 33On the first of these matters, the Tribunal, after summarising relevant evidence at T19 and T21, declared at T24 that it was 'comfortably satisfied' that the locks were changed on 4 July 2008. The Appeal Panel, having referred at A28 to two further items of evidence supporting this finding, stated at [A53 - A54] that the Applicant's challenge to it was 'unconvincing' and 'manifestly fails'. 34On the second matter, the Tribunal, having outlined the relevant evidence at [T26 - 27], concluded that the Applicant's submission that the premises had been abandoned was 'very weak'. The Appeal Panel, at [A61 - A63], saw no reason to disturb this conclusion. 35A third factual question in contention was whether, as the Applicant alleged in a letter dated 3 July 2008 to the liquidator of the company, the company, as at this date, was in breach of 'essential terms' of the Lease. The Tribunal held at T17 that there was 'no evidence... of any subsisting breach as at 3 July 2008'. 36At A13, A19 and A20, however, the Appeal Panel outlined evidence, not mentioned in the Tribunal's decision, that lent some support to the Applicant's claim. As indicated at [A57], this evidence suggested that the company may have been in breach of terms requiring it to keep the premises open for business at 'usual' times and to keep them clean. 37The Appeal Panel did not state whether or not this additional evidence cast significant doubt on the Tribunal's finding. The reason for this is that it held, at [A59 - A60], that even if the company had breached one or more of these 'essential terms', the Applicant's failure to serve a notice under section 129 of the Conveyancing Act 1919 on the company precluded him from relying on any such breach as a ground for terminating the Lease. 38Although I have characterised as 'weak' the Applicant's case on questions of fact, I have a distinctly different opinion of his case in so far as questions of law were involved. On the particular legal issue that I have just mentioned - i.e., whether a lessor may terminate a lease on the ground of contravention of one or more 'essential terms' (other than the obligation to pay rent) without serving a notice under section 129 and allowing a reasonable period for the contravention(s) to be remedied - the position, adverse to the Applicant, is reasonably clear. But on two other legal questions that were of primary importance in this case, the arguments in the Applicant's favour required careful consideration. 39The first of these questions was as follows: on what legal ground or grounds was the Lease terminated? 40The Tribunal, at T31, rejected the Applicant's claims (made in the alternative) that (a) the company abandoned the premises on or before 4 July 2008, and (b) the liquidator disclaimed it on that date. It referred (at [T30] and [T33]) to two provisions of the Corporations Act that it treated as relevant. At [T36 - T37], it held that the Applicant repudiated the Lease by changing the locks and repossessing the premises and the company elected to accept the repudiation and treat the Lease as repudiated. 41The Appeal Panel held, however, in a relatively lengthy discussion at [64 - 91], that even after abandonment and termination for breach had been put to one side, three modes of termination required consideration: disclaimer by the liquidator on behalf of the company; surrender by the liquidator, coupled with acceptance by the Applicant; and repudiation by the Applicant, coupled with acceptance of this repudiation by the liquidator. 42In discussing disclaimer, the Panel considered it necessary to refer to provisions of the Corporations Act, relating to the formalities of disclaimer, that the Tribunal had not mentioned. In deciding that the conduct of the liquidator after the Applicant repudiated the Lease was sufficient to constitute acceptance of the repudiation, it analysed passages in relevant cases that, once again, the Tribunal had not mentioned. It expressly stated, at [A80], that it 'had some concerns' about this question. 43The other legal question of primary importance was whether, having regard to the mode of termination of the Lease, the Respondent guarantors remained liable for the company's future obligations under it, notably the obligation to pay rent. 44The Tribunal implicitly held (at T37) that this followed more or less automatically from its ruling that the Lease was terminated by repudiation coupled with acceptance. 45The Appeal Panel agreed with the Applicant, however, that it was necessary to take due account of clause 13.5 of the Lease (see [A50]). It further held that, although ultimately this clause proved not to govern the situation, consideration had to be given to cases dealing with the impact on the liabilities of guarantors of (a) repudiation by the lessor, coupled with acceptance by the lessee and (b) surrender by agreement. Once again, careful analysis was required. 46My conclusions on the Respondents' claim for costs in so far as it was based on section 88(1A)(c) of the ADT Act are as follows. The Applicant's case on the important factual questions in the proceedings was a weak one. But even though these questions were resolved against him, the legal issues that then arose for determination were not straightforward and the arguments available to him were substantial ones, requiring careful consideration. Accordingly, there was no 'substantial disparity' between the 'relative strengths' of the parties' cases. 47Although these conclusions take significant account of considerations that featured only in the Appeal Panel's reasoning, they are pertinent, in my opinion, to both of the costs applications before me. In a case, like the present, where an Appeal Panel is ruling on the costs of both the first instance proceedings and the proceedings on appeal, it should apply in both contexts its assessment of the 'relative strengths' of the parties' cases. It should do so irrespective of whether the Tribunal at first instance arrived at a different assessment, or would or might have done so if it had considered the question of costs. 48In the discussion that follows, I will deal separately with the costs of each of these two proceedings. 49The costs at first instance. The Respondents' claim for these costs was essentially based on the matters that I have just outlined. They did not seek to invoke any specific provision within section 88(1A) other than paragraph (c). 50I do not accept the Applicant's argument (see [27] above) that the Respondents' conduct in filing, then subsequently withdrawing, their cross claim was 'most clearly frivolous and vexatious'. But this conduct may and should be taken into account (under paragraph (e) of section 88(1A)), in deciding whether it would be 'fair' to make an order for costs in their favour. To a limited extent, it increased the time, and potentially the amount of costs, expended by the Applicant in preparing for the hearing. 51For the foregoing reasons, the Respondents have not demonstrated that it would be 'fair' under subsection (1A) of section 88 of the ADT Act, for an award relating to the costs of the proceedings at first instance to be made in their favour. The statutory presumption in subsection (1) should apply: namely, that the parties bear their own costs. 52The costs of the appeal. Due weight should be given to the Respondent's contention that an Appeal Panel should be more inclined, other things being equal, than the Tribunal at first instance to make a costs order against an unsuccessful party. This is a well-recognised principle in decisions under section 88. 53In this case, however, a significant countervailing factor is that, as the Appeal Panel pointed out more than once (see [A11], [A19], [A20], [A22], [A28], [A30] and [A50]) evidentiary matters of actual or potential relevance (notably a number of clauses of the Lease) were not mentioned by the Tribunal. In addition, the Tribunal appeared to take account of provisions of the Corporations Act that did not bear on companies, like the lessee company in this case, that had gone into liquidation (see [A101]). 54The offer of settlement contained in the letter of 2 July 2012 from the Respondents' solicitors to the Applicant (see [25] above) did not qualify as a Calderbank offer on which a costs order might be based. It did not offer more favourable terms to the Applicant than the order, dismissing the appeal, that the Appeal Panel ultimately made. Rejection of such an offer (if it was in fact received) was not unreasonable. 55Once again, therefore, it would not in my opinion be 'fair' to award costs to the Respondents. This was not an appeal that had no reasonable prospect of success and should therefore not have been brought. This conclusion is based on three matters in particular. 56First, the Applicant was entitled to draw the Appeal Panel's attention to items of evidence that the Tribunal did not mention. This is a factor in his favour even though some of these items did not, in fact, assist his case. 57Secondly, although the Appeal Panel reached the same conclusion as the Tribunal, it adopted a very different route in so doing. 58Thirdly, as I have indicated more than once in this decision, the legal questions that the Appeal Panel was required to resolve were not straightforward. In relation to two of them in particular, the arguments available to the Applicant were substantial ones, requiring careful consideration. 59For the foregoing reasons, the statutory presumption in section 88(1) of the ADT Act should apply: namely, that the parties bear their own costs. ********** 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: 28 March 2013