Civil and Administrative Tribunal New South Wales Medium Neutral Citation: City Convenience Leasing Pty Ltd v Boo (No 2) [2014] NSWCATAP 55 Hearing dates: On the papers Decision date: 30 September 2014 Jurisdiction: Appeal Panel Before: M Chesterman, Principal Member Decision: 1. The Appellant is to pay the Respondents' costs of the proceedings at first instance as from 17 September 2013. 2. The Appellant is to pay the Respondents' costs of the appeal proceedings. 3. The amounts of these costs are to be agreed or assessed on a party/party basis. Catchwords: Retail lease - application for appointment of specialist retail valuer - decision that parties had already agreed on current market rent - costs at first instance and on appeal Legislation Cited: Administrative Decisions Tribunal Act 1997 Civil and Administrative Tribunal Act 2013 Retail Leases Act 1994 Cases Cited: Brymount Pty Ltd t/a Watson Toyota (CAN 003 200 459) v Cummins & Anor, Young Shire Council v Cummins & Anor [2005] NSWCA 69 Charalambous v Yeung (No 2) (RLD) [2014] NSWCATAP 1 City Convenience Leasing Pty Ltd v Boo [2013] NSWADT 268 City Convenience Leasing Pty Ltd v Boo [2014] NSWCATAP 12 Jonamill Pty Ltd v Alramon Pty Ltd (No 2) [2010] NSWADTAP 3 Jones v Bradley (No 2) [2003] NSWCA 258 Category: Principal judgment Parties: City Convenience Leasing Pty Ltd (Appellant) Akau Boo (First Respondent) Vinh Quang Tran (Second Respondent) Kim Chau Tran (Third Respondent) Representation: H Soltan, (Appellant's agent) Coleman & Greig Solicitors (Respondents) File Number(s): 135104, 139049 Decision under appeal Citation: City Convenience Leasing Pty Ltd v Boo [2013] NSWADT 268 Date of Decision: 2013-11-04 00:00:00 Before: Retail Leases Division File Number(s): 135104, 139049 reasons for decision Introduction 1This decision deals with the costs of proceedings, both at first instance and on appeal, in which the Applicant, a lessee under a lease governed by the Retail Leases Act 1994 ('the RL Act'), was unsuccessful at both levels. 2The decision under appeal ('the Tribunal's decision') was given in the Retail Leases Division of the Administrative Decisions Tribunal ('the Tribunal') on 26 November 2013. It is reported as City Convenience Leasing Pty Ltd v Boo [2013] NSWADT 268. 3In this decision, the Tribunal, pursuant to a motion filed by the Respondent lessors, dismissed an Application for Original Decision ('the Application') that the Applicant lessee, City Convenience Leasing Pty Ltd, had filed. The order sought in the Application was that the Tribunal should appoint a specialist retail valuer pursuant to section 19(1)(b) of the RL Act. 4The Tribunal reserved costs, but gave directions for the filing of submissions on this matter, indicating that it would be 'dealt with by the Tribunal on the papers'. 5On 6 December 2013, the Respondent lessors, who are Akau Boo, Vinh Quang Tran and Kim Chau Tran, filed an application for costs, with supporting submissions. 6On 9 December 2013, the Applicant filed a notice of appeal against the Tribunal's decision. On 30 December 2013, it filed submissions responding to the Respondents' application for costs. 7On 1 January 2014, the Tribunal was abolished and its functions were taken over by the Civil and Administrative Tribunal of New South Wales ('NCAT'). The appeal proceedings thereupon became 'unheard proceedings' as defined in clause 6(1) of Schedule 1 of the Civil and Administrative Tribunal Act 2013. Clauses 7(1) and 7(3)(b) of this Schedule stipulate that such proceedings are to be heard by NCAT but determined as if that Act had not been enacted. 8On 20 January 2014, the Appeal Panel, constituted by Principal Member Chesterman, heard and dismissed two applications by the Applicant, filed on 19 December 2013 and 16 January 2014. The nature of the interlocutory relief sought in them is outlined below. The Panel reserved the question of costs and gave directions for the filing of submissions before the hearing of the appeal itself. 9This hearing took place an Appeal Panel of NCAT on 17 March 2014. As the hearing at first instance, Mr Soltan appeared as agent for the Appellant and Mr Ireland of counsel for the Respondents. 10At the end of the hearing, the Panel reserved its decision. It indicated that this decision would include directions as to how the matter of costs at first instance and on appeal would be determined. 11In its decision delivered on 7 April 2014 (City Convenience Leasing Pty Ltd v Boo [2014] NSWCATAP 12 - 'the appeal decision'), the Appeal Panel dismissed the appeal. It also set out a timetable for the filing of submissions on the question of costs, adding that this question would be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act') unless the Appeal Panel decided that a hearing was required. 12On 2 May 2014, the Respondents filed an application, with supporting submissions, for the costs of the Tribunal hearing on 4 November 2013, the interlocutory hearing on 20 January 2014 and the appeal hearing on 17 March 2014. This document incorporated the arguments advanced in their submissions to the Tribunal dated 6 December 2013 and included details of the amounts of legal costs incurred by the Respondents. 13On 2 June 2014, the Applicant filed submissions in response. These included a copy of its submissions to the Tribunal dated 30 December 2013. 14Since the matter in issue in this decision is the costs of proceedings that were initiated in the Tribunal, the Appeal Panel may be constituted by a member of NCAT who was formerly a Deputy President of the Tribunal, sitting alone: see Administrative Decisions Tribunal Act 1997 ('the ADT Act'), section 24A(1)(a) and (2)(a). 15The Panel's decision is that for the reasons set out below the Appellant should pay the Respondents' costs of the proceedings at first instance and on appeal, as assessed or agreed on a party/party basis, as from 18 September 2013. Outline of facts 16The somewhat unusual facts of this case were outlined in the Tribunal's decision at [2 - 14] and in the appeal decision at [11 - 33]. What follows is an abbreviated account that will suffice for present purposes. 17On 24 August 2006, the Respondents granted to the Applicant a lease ('the Lease') relating to convenience store premises ('the Premises') on the ground floor of 19-21 Hunter Street, Sydney. The initial term of the Lease was seven years commencing on 18 August 2006 and expiring on 17 August 2013. It contained an option to renew for a further term of seven years. It is common ground that the Lease was a retail shop lease governed by the RL Act. 18The Lease fixed an initial rent of $285,000 per year exclusive of GST, payable in monthly instalments of $23,750 plus GST. It also provided for rent review to take the form of a 5% annual increase on '18/08/2007 and each anniversary of that date - other than 18/08/2012'. With respect to 18/08/2012, it stated that the method of rent review was to be 'current market rent'. It further provided that if the option to renew were exercised, the rent during the first year of the renewed term would be the amount of rent payable in the final year of the initial period of lease increased by 5%. 19The Lease also contained a definition of 'current market rent' and a specified procedure for determining the amount of this rent. This procedure was not, however, implemented at any stage. 20During the year ending on 17 August 2012, the sixth anniversary of the commencement of the Lease, accounts prepared by the Respondents' managing agents showed that the monthly rent being charged to the Applicant was $30,311.68 plus GST. During September and October 2012, the Applicant was in arrears. In consequence, an agreement for the payment of rent and arrears by the Applicant ('the Payment Plan Agreement' or 'the Agreement') was concluded between the managing agents for the parties. 21The Agreement included a statement that the monthly rent due from the Applicant was $31,827.27 plus GST. This represented a 5% increase on the previous figure of $30,311.68 plus GST. It also contained a tabulated summary of monthly payments to be made by the Applicant, ranging from $40,000 (in October 2012) to $63,200.45 (in February 2013). 22On 15 April 2013, the Applicant's managing agent sent to the Respondents a notice stating that the Applicant 'irrevocably exercises' the option to renew the Lease. By this time, the Applicant had paid off all the earlier arrears. 23The Applicant did not, however, execute the option lease document subsequently sent to its solicitors by the Respondents' solicitors. This document provided that the monthly rent (exclusive of GST) during the first year of the renewed lease should be a figure calculated by increasing $31,827.27 by 5%. 24The Application instituting the proceedings in the Tribunal was filed on 16 August 2013, one day before the date of expiry of the initial term of the Lease. The Tribunal's decision 25As already stated, this Application was for the appointment, pursuant to section 19(1)(b) of the RL Act, of a specialist retail valuer to determine the 'current market rent' under the Lease. 26The primary question to be determined by the Tribunal was whether the Respondents could validly object to such an appointment on the grounds that (a) the Payment Plan Agreement incorporated an agreement between the parties as to the amount of the 'current market rent' and (b) the procedure for appointment of a valuer established by section 19(1)(b) was for this reason not available to either of them. 27The principal argument advanced by the Applicant in opposition to the Respondents' objection was to the following effect. Even if the Agreement concluded between the parties' managing agents was binding on the parties (which was denied at times), the monthly rent stipulated in it had not been agreed upon as the current market rent. The Agreement made no mention of current market rent and there was no evidence from the managing agents suggesting that this matter had been raised in their negotiations. It followed that the amount of such rent, which would be payable during the final year of the initial term of the Lease and would constitute the starting-point for fixing the amounts of rent payable during the seven-year period of the renewed term, had still to be determined. In the absence of agreement on this matter, or on the identity of a specialist retail valuer who would be engaged to carry out this task, the Tribunal was obliged under section 19(1)(b) to hear and determine the Applicant's application for the appointment of a valuer. 28The Tribunal rejected this argument. It held that in the Agreement, the parties had agreed not only that the 'actual amount of rent' to be paid during the final year of the initial term of the Lease was $31,827.27 per month plus GST, but also that this was 'effectively' the 'agreed current market rent'. 29In reaching this conclusion, the Tribunal relied in part on three separate lines of reasoning. It described the conclusion as (i) 'part of the inferred intention in the agreement'; (ii) a term that would be 'appropriate to be implied in the payment plan agreement'; and (iii) arising from, or confirmed by, a 'supplementary agreement' between the parties. 30The Tribunal then set out four additional rulings, responding in each of them to arguments that Mr Soltan had advanced. These rulings were as follows. 31First, the Applicant's managing agent had both actual and ostensible authority from the Applicant to enter into an agreement concerning market rent. 32Secondly, such an agreement was not contrary to the provisions of section 19(1) of the RL Act, which by virtue of section 7 overrode any contrary stipulation in the Lease. Equally, it did not 'negate the Applicant's right' to apply for the appointment of a specialist retail valuer to determine the current market rent. The reason for this was that section 19(1)(b) expressly contemplated that the parties might agree 'as to what the actual amount of that rent is to be'. 33Thirdly, the Agreement was binding on the parties even though it was their intention to have its terms restated in a form which would be fuller and/or more precise. 34Fourthly, it was irrelevant that the parties did not implement at any stage the procedure stipulated in the Lease for determining the current market rent. 35As an additional ground for dismissing the Application, the Tribunal accepted an argument of the Respondents based on the principles of estoppel. It held that the Applicant was estopped from disputing that there was an agreement of $31,827.27 per month as both the rate of rent for the 2012-2013 lease year and the relevant current market rent. 36The Tribunal rejected two further propositions advanced by the Respondents. The first was that section 19 of the RL Act did not apply at all to the retrospective determination of rent that had been paid under a lease, but only to the prospective determination of rent yet to be paid. The second was that this section could not apply to the circumstances of the case because the Applicant had not complied with the time periods for the determination of rent for any future option lease set out in section 32. 37The Tribunal then held that for the foregoing reasons it should uphold the Respondents' objection to the Application and dismiss the Applicant's claim for the appointment of a specialist retail valuer. The interlocutory hearing before the Appeal Panel 38At this hearing on 20 January 2014, the Appeal Panel, constituted by Principal Member Chesterman, heard two applications by the Applicant for interlocutory relief. The orders sought were: (i) a stay of the Tribunal's directions relating to the costs of the hearing before it; (ii) a declaration that 'the rent payable by the Applicant after 18 August 2012 is the rent payable by the Applicant to 17 August 2012 pending determination of this appeal'; (iii) an order restraining the Respondents from taking steps to bring about the removal of a 'proposed caveat' to be lodged by the Applicant on the title to the Premises; and (iv) 'any other order protecting the Applicant's interest of the option under [the Lease] as well as rent overpaid to the Registered Proprietor from the pending determination of market rent as at 18 August 2012'. The Respondents opposed the making of all these orders. 39The Panel declined to make the first order sought, staying the Tribunal's directions regarding costs. But it observed that since the Appeal Panel was a constituent part of the Tribunal, the statement in those directions that the matter of costs would be 'dealt with by the Tribunal on the papers' left it open for the Panel to determine the costs at first instance (as it is doing in the present decision). 40With regard to the three remaining order sought in the applications, the Panel held that while the appeal by the Applicant was not without merit, the Applicant, on which the onus lay, had failed to adduce the evidence required to establish that the 'balance of convenience' favoured the granting relief such as was envisaged in them. It pointed out that the declaration sought in the first of these orders would leave the Applicant in substantial arrears of rent if the appeal failed and that no security for the payment of these arrears was being offered. It observed also that there was no evidence to show that any sale of the Premises which the proposed caveat sought to prevent would necessarily undermine the ability of the Applicant, if it succeeded in the appeal, to recover any rent overpaid. It added that the Respondent's freedom to deal with the Premises would be substantially impaired if it was ordered not to take any steps to challenge any such caveat. The appeal decision 41In its substantive decision, the Appeal Panel upheld the Tribunal's decision, but on grounds that differed in part from those favoured by the Tribunal. 42After a lengthy discussion, the Panel indicated that it was inclined to agree with the Tribunal's decision that the express terms of the Payment Plan Agreement manifested a shared intention of the parties that the rent stipulated in it was to be regarded as the current market rent. But it added the following important qualification at [116]:- 116 The foregoing conclusions on this quite difficult question of interpretation are put forward only as more likely to be correct than the opposing position advanced by Mr Soltan - i.e. that because the Payment Plan Agreement made no reference to current market rent, the parties to it agreed only that the rent stipulated in it should be paid 'on account' until the current market rent, being the rent properly payable, had been agreed upon or determined by a valuer. We do not present these conclusions as the final basis on which we have decided this appeal because, for reasons explained below, we are clearly satisfied as to the correctness of a further ground on which the Tribunal found in favour of the Respondents. 43Earlier (at [111]), it had made the following observation in support of the view that it had formed on this question:- 111 In our opinion, one important and indeed obvious aspect of the situation existing during the period when the Payment Plan Agreement was proposed by the Respondents' agent and accepted by the Applicant's agent was not sufficiently emphasised in the Tribunal's decision or the parties' submissions. It is that this Agreement does not stand alone. It does not make legal or commercial sense unless it is read in conjunction with the Lease. 44The Appeal Panel rejected a submission by Mr Soltan that the Tribunal erred in relying on the concept of 'inferred intention' in ruling that the rent stipulated in the Agreement was intended to be recognised as the current market rent. 45On the other hand, Mr Soltan's challenge to the Tribunal's finding that a term of this nature would be 'appropriate to be implied' in the Agreement was upheld by the Panel. It agreed with him that two of the established criteria for determining whether an implied term existed in a contract had not been satisfied. These were that the term must be 'necessary to give business efficacy' to the contract and that it must not contradict an express term of the contract. The Panel pointed out that the provisions of the Lease stipulating how the current market rent should be determined (see [19] above) were, on the face of it at least, in conflict with the suggested implied term. 46As indicated earlier, the Tribunal's decision included a ruling that a 'supplementary agreement' had arisen between the parties and that its effect was to introduce, or confirm the existence of, a term that the rent stipulated in the Agreement was intended to be recognised as the current market rent. 47The Appeal Panel rejected Mr Soltan's arguments contesting this ruling. It added the following observations at [145 - 146]:- 145... If there were any doubt as to whether a supplementary agreement of this nature had arisen by the time the option was exercised, the act of exercising it 'irrevocably' eliminated this doubt. Like the Payment Plan Agreement, the letter exercising the option was only intelligible if read in conjunction with the Lease. In particular, the rental amount initially due under the new lease, to which the Applicant conveyed its concurrence by exercising the option, was only ascertainable through consulting the terms of the Lease. The argument that the Applicant could claim not to be bound by this term of the new lease because [its agent], at the time of exercising the option, was not aware of the terms of the original Lease is simply not maintainable... 146 The outcome of our consideration of this issue is that, subject to the arguments (outlined below) relating to the rules of natural justice, this appeal must be dismissed. Our earlier opinion that, under the express terms of the Payment Plan Agreement properly construed, the rent stated for the final year of the Lease might well have been agreed to be the current market rent was deliberately not put forward as a firm conclusion. But we are satisfied that the subsequent conduct of the parties, including particularly the Applicant's 'irrevocable' exercise of the option to renew, constituted a supplementary agreement confirming this proposition. 48Mr Soltan's submission 'relating to the rules of natural justice' was that at the Tribunal hearing the Applicant had not been put on notice that the Tribunal might rely on the concepts of 'inferred intention', 'implied term' or 'supplementary agreement'. The Appeal Panel held that in view of the importance that it attached to the third of these concepts, it was important to ascertain whether the Applicant had indeed been (a) notified that this concept might be given consideration by the Tribunal's and (b) given an opportunity to address it. Having perused the parties' submissions to the Tribunal and the transcript of the Tribunal hearing, it held that these conditions had been satisfied. 49The Appeal Panel did not agree with the Tribunal's ruling that the Applicant was estopped from denying that the rent stated in the Payment Plan Agreement was the current market rent. It held (at [149]) that the prerequisites for an estoppel in the circumstances of this case would include findings as to the 'subjective knowledge and intentions of the officers and agents of the parties' and that the evidence in this regard failed to establish any relevant 'assumption', 'inducement' or acquiescence' on their part. 50At the commencement of the appeal hearing, the Appeal Panel rejected an application made by Mr Soltan for leave to adduce further evidence. In its decision, it also rejected two contentions by him that have not yet been mentioned. They were as follows: (a) by virtue of section 7 of the RL Act, section 19(1) overrode any 'agreement or arrangement' between the parties to a lease as to how current market rent should be determined; and (b) the Payment Plan Agreement was not binding on the parties. It did not regard either of these contentions as having significant merit. The Respondents' costs application 51As already stated, the Respondents' application was for their costs of the Tribunal hearing on 4 November 2013, the interlocutory hearing on 20 January 2014 and the appeal hearing on 17 March 2014. They correctly based this application on section 88(1A) of the ADT Act (this being applicable by virtue of section 77C of the RL Act). This subsection follows the pronouncement in section 88(1) that 'Each party to proceedings before the Tribunal is to bear the party's own costs in the proceedings, except as provided by this section'. 52The Respondents relied on the following provisions within subsection (1A):- 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... (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... (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. Section 88(1A)(a)(ii): failure to comply with the RL Act 53The Respondents' only submission based on paragraph (a)(ii) of section 88(1A) was that the Applicant's filing of an application for the appointment of a specialist retail valuer constituted a 'failure... to comply with the relevant provision of the enactment on which they had brought the Application'. 54This submission must be rejected. It cannot be said that when a party has filed an application seeking the exercise of the Tribunal's jurisdiction under the RL Act, but an objection to that jurisdiction has been upheld, the party has in any meaningful sense 'failed to comply with' this Act. Section 88(1A)(c) and (d): the relative strengths of the parties' cases and the nature and complexity of the proceedings 55With regard to paragraph (c) of section 88(1A), the Respondents submitted as follows: (i) they had been successful before the Tribunal on all but one of four separate 'propounded reasons' that they had advanced for upholding their objection; (ii) the Applicant's application to the Appeal Panel for four orders by way of interlocutory relief had been wholly unsuccessful; and (iii) in the appeal decision, the Applicant's 'wide range of arguments' based on contract law, estoppel, the rules of natural justice and the provisions of the RL Act, together with its application to adduce further evidence, had been rejected, with the result that the appeal failed. 56In making these submissions, the Respondents referred by implication to paragraph (d). They maintained that the proceedings were both substantial and complex. 57On behalf of the Applicant, Mr Soltan put forward a number of opposing arguments. So far as the Tribunal hearing and the substantive appeal proceedings are concerned, it is not necessary to give details of these arguments, because the broad proposition underlying them is correct. 58Even though a number of Mr Soltan's subsidiary submissions at both hearings were not of significant merit, his principal submissions called for careful examination and could not be easily put to one side. This is readily apparent from the foregoing outline of the Tribunal's decision and the appeal decision. 59The primary question raised in these decisions was whether the Payment Plan Agreement, either considered in isolation or in conjunction with a 'supplementary agreement', manifested an intention by the parties that the rent stipulated in the Agreement should be the current market rent. This question was a difficult one. 60Moreover, while both the Tribunal and the Appeal Panel reached the conclusion that such an intention was present, they did so by distinctly different routes. The Panel disagreed with the Tribunal on two questions of significance - whether there was an implied term incorporating this intention and whether an estoppel arose - and expressed only tentative approval of the Tribunal's ruling that this intention was discernible in the express terms of the Agreement. 61For these reasons, it cannot be said that in the substantive proceedings, either at first instance or on appeal, there was 'a substantial disparity between the relative strengths of the parties' claims'. This criterion for determining whether the operation of paragraph (c) of section 88(1A) is 'triggered' is stated in Jonamill Pty Ltd v Alramon Pty Ltd (No 2) [2010] NSWADTAP 3 at [47 - 49] and has been applied in later cases. Like the present decision, Jonamill was an Appeal Panel decision relating to proceedings instituted under the RL Act. 62On the other hand, the Applicant's applications for interlocutory relief were not soundly based, for the following reasons. 63In so far as the first of these applications sought a direction from the Appeal Panel that the Panel, not the Tribunal, should determine the costs at first instance, it invoked an unnecessarily costly procedure. The Applicant could instead have written to the Registrar requesting that the Panel make such a direction. The Panel, after obtaining submissions from the Respondents, would then have decided this matter in chambers. 64With regard to the remaining three orders sought in the two applications, the failure of the Applicant, which bore the onus of proof, to adduce any evidence to establish the matters outlined above at [40] provides a sufficient basis for ruling that its case was a weak one. 65For these reasons, the Respondents have shown that so far as concerns the Applicant's applications heard and determined by the Appeal Panel on 20 January 2014, there was 'a substantial disparity between the relative strengths of the parties' claims'. Pursuant to paragraph (c) of section 88(1A) of the ADT Act, this provides grounds for ruling that it would be 'fair' to order that the Applicant pay the Respondents' costs of this hearing. Section 88(1A)(e): rejection of a Calderbank offer 66The Respondents' submissions. The final matter on which the Respondents based their application for costs was the Applicant's rejection of an offer made by them to settle the dispute between the parties. They advanced this argument in their submissions, filed on 6 December 2013, relating to the costs of the Tribunal hearing, and they repeated it in their submissions relating to the costs of both hearings. 67It is well recognised (see e.g. Charalambous v Yeung (No 2) (RLD) [2014] NSWCATAP 1 at [21) that the unreasonable rejection by an unsuccessful party of an offer of settlement on terms more favourable than the order or orders ultimately made in the proceedings may be treated as a relevant consideration under paragraph (e) of section 88(1A) and may provide the basis for a costs order. 68The offer by the Respondents was made by their solicitors, Coleman Greig, in an email message sent to Mr Soltan at 3.27 p.m. on Tuesday 17 September 2013. The message commenced by rejecting on the Respondents' behalf an offer that Mr Soltan had conveyed in an email sent at 2.03 p.m. on the previous Friday (13 September). It continued as follows:- I am instructed to propose a, without admissions, counter offer that the rent increase at the option of the lease as from 18 August 2013 be reduced from 5% to 2.5%. This offer is open for acceptance until 4.00pm 18 September 2013. This settlement offer is made in a genuine attempt to resolve the issues between the parties and before substantial costs are incurred. This offer is made on the basis of the principles set out in Calderbank v Calderbank. I reserve the right to refer to this email on any issue of costs which may arise in any Court/Tribunal proceedings and to claim costs on an indemnity basis from the date of this email, should your client fail to achieve an outcome in the proceedings which is no more favourable than the terms of this offer. 69The Applicant did not respond to this offer before it lapsed at 4.00 p.m. on 18 September 2013. 70In their submissions relating to the costs of both hearings, the Respondents argued that since a directions hearing at the Tribunal had been scheduled for the next day, 19 September 2013, the 'amount to be achieved by the Application' was at that stage 'under active consideration' by the Applicant. It followed, they maintained, that the Applicant's rejection of the offer was unreasonable and that 'an appropriate costs order' should therefore be made in the Respondents' favour. 71The Applicant's submissions. The Applicant's response to this argument was contained in its submissions on the costs at first instance. It did not mention the matter in its later submissions dealing with the costs of both hearings. It maintained that for two reasons the Respondents' offer made on 17 September 2013 was 'not a Calderbank v Calderbank offer' and could not be invoked as a basis for a costs order in their favour. 72The first reason advanced was that the time given to the Applicant to consider the offer was only 24 hours. This period was insufficient to allow the Applicant's 'professional agent' to advise it as to the legal consequences of the offer or to obtain relevant legal advice. 73Secondly, the Applicant argued that the offer did not 'deal with the Application that was before the Tribunal', with 'the rent [that] may have been overpaid or underpaid for the year ending 17 August 2013', or with 'the costs of the application'. Instead, it dealt only with the option lease. 74A further matter raised in the Applicant's submissions was the Respondents' rejection of an offer of settlement made to them on a date (13 February 2014) between the delivery of the Tribunal's decision and the commencement of the appeal hearing. The terms of the offer were that if the Respondents consented to the appointment of a specialist retail valuer, the Applicant would not require the payment of any rent overpaid to them between 18 August 2012 and 23 January 2014 (on which date they had sold the Premises to a third party). 75Authorities cited. In support of their submissions, the Respondents relied on a Court of Appeal case, Jones v Bradley (No 2) [2003] NSWCA 258 and on the Appeal Panel's decision in Charalambous v Yeung (No 2). 76In Jones v Bradley (No 2), a Calderbank offer on which the Court of Appeal held that a costs order in the appellant's favour should be based was made by fax at 2.13 p.m. on Friday 26 October 2001, with acceptance required by 10.15 a.m. on Monday 29 October. The respondent argued that since this offer was only open 'for less than one-half a working day', she had not been given a reasonable time to consider it. The offer had been made, however, in response to an offer of settlement that the respondent had conveyed on the preceding Tuesday, 23 October. It was significant also that the hearing of the dispute between the parties had already commenced in the District Court. 77The Court of Appeal held (at 16]) that '[i]n light of the ultimate verdict on the appeal and the history of the matter leading to the appellant's offer of 26 October, including the counter offer made by the respondent on 23 October which demonstrated that she had the verdict under active consideration, it was unreasonable for the respondent to reject the appellant's Calderbank offer of 26 October'. 78In Charalambous v Yeung (No 2), the Appeal Panel based a costs order, covering the costs of both the hearing at first instance in the Retail Leases Division and the appeal hearing, on the appellant's rejection of a Calderbank offer made five days before the commencement of the earlier hearing. The offer was made on a Thursday, with acceptance required by 4 p.m. on the following Monday. The Appeal Panel observed at [50] that it could 'reasonably be inferred that at the time when it had to be considered the Appellant and his legal representatives had completed their preparation for the hearing or were focusing their attention wholly or predominantly on the task of preparation'. Relying on the principles stated in Jones v Bradley (No 2), it dismissed (at [56]) the appellant's contention that 'the time allowed for consideration of this offer was so short as to preclude a ruling that rejection of the offer was unreasonable'. 79The Applicant relied on the following passage in the judgment of Beazley JA in Brymount Pty Ltd t/a Watson Toyota (CAN 003 200 459) v Cummins & Anor, Young Shire Council v Cummins & Anor [2005] NSWCA 69 at [14]:- 14 In SMEC Testing Services Pty Limited [[2000] NSWCA 323], Giles JA considered that the following factors were relevant to determining whether costs should be awarded on an indemnity basis where a Calderbank offer had been made: (a) Whether the rejection of the compromise offer was reasonable in the circumstances: Giles JA at [37] held that, while the rationale of Calderbank offers was to promote settlement of disputes, "an offeree can reasonably fail to accept an offer without suffering in cost". (b) The time frame in which the offeree had to consider the offer. This factor is relevant as it usually accords with a party's legal advisers being given sufficient time to weigh up the prospects of a case and the potential value of any damages sought, as against the likely costs should the claim fail. (c) Whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer, and whether indemnity costs would be pursued if the offer was rejected. 80Discussion and conclusions. A costs order under section 88(1A) may only be based on the rejection of an offer of compromise if the following conditions are satisfied: (a) the terms offered constitute a genuine compromise of the dispute between the parties; (b) they are more favourable to the offeree than the outcome of the proceedings; and (c) having regard to all the circumstances, the offeree's rejection of the offer was unreasonable. 81The Respondents' offer of 17 September 2013 had the effect of halving the amount of the rent increase that took effect on the exercise of the option. It envisaged an increase of 2.5% instead of the contractual rate of 5%. According to their case, which the Tribunal and the Appeal Panel ultimately upheld, the monthly rent payable during the final year of the initial term, constituting also the current market rent, was $31,827.27 plus GST, which amounts to $35,010. When the contractual rate of 5% is applied to this figure, the amount of the increase during the first year of the renewed lease is $1750.50. 82Acceptance of the Respondents' offer would have reduced this amount by $875.25 per month, which translates to $10,503 per annum. This reduction would have affected the amount payable as rent not only during the first year of the renewed term, but also during the each of the remaining six years. This follows from the fact that under the Lease an annual increase of 5% takes place throughout the renewed term. Accordingly, the offer conveyed by the Respondents, when compared to the amount of rent being sought by them during the seven years of the renewed term, involved a long-term benefit to the Applicant amounting to more than $70,000. 83This analysis shows that the first two of the three conditions outlined above were satisfied. The Respondents' offer made on 17 September 2013 was both (a) a genuine compromise of the dispute and (b) distinctly more favourable to the Applicant than the outcome of the proceedings. 84As to the third condition - that having regard to all the circumstances, the rejection was unreasonable - the chief matter to be investigated is whether sufficient time was afforded to the Applicant to give due consideration to the offer. 85The Applicant maintained that the period of time allowed - little more than 24 hours - was insufficient. But the evidence that it tendered to the Tribunal included a copy, annexed to a witness statement signed by Mr Soltan, of the offer of settlement (referred to above at [68]) that the Applicant had made on 13 September 2013. The email message in which this offer was conveyed by Mr Soltan to Greig Coleman included the following passages:- We have carefully reviewed the correspondences, the lease document, the applicable statute and case law related to the issue, and can confirm that your clients' claim that our client is estopped from asserting that market rent as at 18 August 2012 has not been agreed upon, has no basis in fact or law and there is 'substantial disparity' between your clients' claim and ours. The six elements needed to establish estoppel are simply not there... We are of the opinion that your objection is vexatious and substantially lacks merits... 86The focus of the first of these extracts from Mr Soltan's email is on the specific question of estoppel. But the two extracts, considered in conjunction with the fact that in this email the Applicant made its own offer of settlement, indicate that at the time when it received the Respondents' counter-offer it was giving 'active consideration' to the case that it would advance in the forthcoming proceedings. A further factor supporting this conclusion is that the matter was set down for directions two days later. It follows that the period of time afforded to the Applicant to consider the offer was not unduly short. 87For these reasons, the Applicant's rejection of the Respondents' offer of compromise was, in all the circumstances, unreasonable. 88The offer of settlement made by the Applicant on 13 February 2014 does not assist its case because its terms were less favourable to the Respondents than the outcome of the proceedings. 89The Respondents have accordingly succeeded in showing that the Applicant's rejection of their offer of compromise provides a proper basis for a finding that it would be 'fair', within the meaning of section 88(1A) of the ADT Act, to order the Applicant to pay their costs as from 17 September 2013, the date when the offer was conveyed. 90The Appeal Panel's conclusion is that such an order should be made. The costs should be paid on a party/party basis, in an amount to be agreed or assessed. Given the scale of the costs involved, the Panel will not determine a fixed sum, even though it is empowered to do this in appropriate circumstances. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 30 September 2014