Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Nguyen v Perpetual Trustee Company Ltd; Perpetual Trustee Company Ltd v Nguyen [2015] NSWCATAP 264 Hearing dates: 19 August 2015 Date of orders: 09 December 2015 Decision date: 09 December 2015 Jurisdiction: Appeal Panel Before: A Britton, Principal Member K Rosser, Senior Member Decision: (1) The appeal in AP 15/39175 (Perpetual's Appeal) is allowed. (2) The appeal in AP 15/32040 (the Nguyens' appeal) is allowed in part. (3) Order 1 of the decision made by the Tribunal on 16 June 2015 is set aside. Either party may apply for the Appeal to be relisted to determine the amount payable by Anthony and Thi Nguyen in accordance with these Reasons, providing that application is filed within 14 days of the date of this decision. (4) Order 2 of the decision made by the Tribunal on 17 February 2015 is set aside. In substitution for that order, Anthony and Thi Nguyen are to pay Perpetual Trustee Company Ltd's cost of the proceedings before the Tribunal, as agreed or assessed. Catchwords: RETAIL LEASES — construction of lease agreement — whether the literal meaning of contractual words creates an absurdity — whether parties' intention is self-evident RETAIL LEASES — construction of lease agreement — commencement date of lease where lease agreement executed after its stated commencement date — application of ss 7, 8 of Retail Leases Act 1994 (NSW) COSTS — whether rule 38 of the Civil and Administrative Tribunal Rules 2014 is invalid — principles applying to the exercise of the discretion to award costs under rule 38 Legislation Cited: Administrative Decisions Tribunal Act 1997 (NSW) Civil and Administrative Tribunal Act 2013 (NSW) Civil and Administrative Tribunal Rules 2014 (NSW) Retail Leases Act 1994 (NSW) Cases Cited: Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 Currabubula and Paola v State Bank NSW. Currabubula v State Bank NSW [2000] NSWSC 232 Dykes and Wildie v Heatherway Pty Ltd (No 2) (RLD) [2007] NSWADTAP 46 Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 Helou & Ors v Bong Bong Pty Ltd & Anor [2006] NSWADT 128 Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113; [2014] NSWCA 184 Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 National Australia Bank v Clowes [2013] NSWCA 179 Newey v Westpac Banking Corporation [2014] NSWCA 319 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Prieston v Panyiotou [2015] NSWCATAP 71 36 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17,521; [2000] NSWCA 25 Category: Principal judgment Parties: Anthony and Thi Nguyen Appellants (AP 15/32040); Respondents (AP 15/39175) Perpetual Trustee Company Ltd Appellant (AP 15/39175); Respondent (AP 15/32040) Representation: Counsel: B Zipser Appellants AP 15/32040; Respondents (AP 15/39175 A Fernon Appellant AP 15/39175; Respondent AP 15/32040 Solicitors: Bui Lawyers (AP 15/32040) Respondents (AP 15/39175) HWL Ebsworth Appellant AP 15/39175; Respondent AP 15/32040 File Number(s): AP 15/32040; AP 15/39175 Decision under appeal Court or tribunal: NCAT Jurisdiction: Consumer and Commercial Date of Decision: 16 June 2015 Before: K Richards, Senior Member File Number(s): COM 14/19397 REASONS FOR DECISION Introduction 1. For a number of years until 2014, Anthony and Thi Nguyen (the Nguyens) ran an optometry business, known as City Specs, from Shop 25 (the Shop) in a large shopping centre in Liverpool NSW known as the Liverpool Plaza (the Plaza). The Nguyens leased the shop from Perpetual Trustee Company Ltd (Perpetual). 2. In 2014 a dispute arose between Perpetual and the Nguyens about the amount of outgoings payable under the lease agreement which was stated to commence on 31 December 2007 (the Lease Agreement). The Lease Agreement provided that the outgoings payable by the Nguyens was calculated on a percentage of Perpetual's total outgoings in relation to the Plaza (Total Outgoings). The Lease Agreement stated that the percentage of total outgoings payable by the Nguyens was 0.0152%. Perpetual contended that the correct percentage was in fact 1.52%. The Nguyens disagree. The difference between the two figures is dramatic. 3. In April 2014, Perpetual commenced proceedings in the Consumer and Commercial Division of the New South Wales Civil and Administrative Tribunal (NCAT) seeking to recover outgoings it claimed were owing under the Lease Agreement. Perpetual was successful and in a decision handed down on 17 February 2015 (the Original Decision), the Tribunal found that the Lease Agreement required the Nguyens to pay outgoings based on the higher of the disputed percentages, namely 1.52%. The Tribunal ordered the Nguyens to pay Perpetual the sum of $164,496. 4. On 16 June 2015, following an application made by Perpetual, the Tribunal handed down a further decision increasing the sum payable to Perpetual to $177,452 (the Amended Decision). In making that decision, the Tribunal accepted that it had erred by calculating the amount for claimed interest as at the date the proceedings were commenced and not, as required, the date the Original Decision was made. That decision was purportedly made under the "slip rule" (s 63(3) of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act)). 5. Unless otherwise stated, in these Reasons all references to the Tribunal's Reasons for Decision are a reference to the Reasons given for the Original Decision. 6. Both parties appeal against the Amended Decision. The principal issue raised at first instance and in the Nguyens' appeal concerns the proper construction of the Lease Agreement and the assessment of quantum payable by the Nguyens. The principal issue raised by Perpetual's appeal is the decision made by the Tribunal not to award costs. Grounds of appeal 1. The decision under appeal is an "internally reviewable decision" (ss 4, 32(4) of the NCAT Act). A party may appeal an internally reviewable decision on any question of law or with the leave of the Appeal Panel on any other ground (s 80(2)(b) of the NCAT Act). 2. In their amended notice of appeal the Nguyens rely on the following grounds: 1. That the Tribunal misconstrued the terms of the lease in finding that: (i) the proportion of rental outgoings payable by the Tenant was 1.5% of the total outgoings payable by Perpetuals, and not, as stated in the Lease Agreement, 0.0152%; and (ii) the outgoings payable under the Lease Agreement were payable from 31 December 2007. 2. That the Tribunal failed to afford them procedural fairness by not providing them an opportunity to make submissions on the issue of quantum of outgoings and interest payable by them. 1. In its notice of appeal, Perpetual asserted that the Tribunal's failure to provide it an opportunity to make submissions on the issue of costs constitutes a denial of procedural fairness. The other grounds included in Perpetual's notice of appeal were abandoned at the hearing, apparently on the basis that they had been addressed in the Amended Decision. 2. The parties agree that the Tribunal said they would be given an opportunity to be heard on the issues of quantum and costs, but failed to provide them with that opportunity and that this constitutes a denial of procedural fairness and raises a "question of law" within the meaning of s 80(2)(b) of the NCAT Act. Factual background 1. The following summary is taken from the Tribunal's Reasons. 2. In December 2007, the previous lease entered into between the parties expired (the previous lease). Under that agreement, the rent payable by the Nguyens included an amount for Perpetual's outgoings in respect of the Shop. 3. Towards the end of the period of the previous lease, the parties commenced negotiations for a new lease. On 13 September 2007, agents for Perpetual wrote to the Nguyens outlining the "agreed terms" of the new lease (the Lease Proposal). Among other things the Lease Proposal offered the new lease on condition that the Nguyens pay a proportion of Perpetual's outgoings in respect of the Plaza. 4. The Lease Proposal stated that outgoings would be payable in respect of the Shop in an amount of $170.47 per square metre per annum, and that this would equate to approximately $16,689 being payable by the Nguyens toward outgoings during the first year of the proposed lease. The Lease Proposal also stated that the amount of outgoings was calculated as 1.56% of total outgoings payable for the whole shopping complex. 5. On 12 November 2007, the Nguyens notified Perpetual's agent (the Agent) that they would accept the offer outline in the Lease Proposal, on the condition that Perpetual provided evidence in relation to its outgoing expenses. In reply, the Agent confirmed the rent payable and provided an estimate of the outgoings as being "approx $170.47 m2 per annum" and that this would be "approx $16,689.01 plus GST in Yr 1". In a facsimile sent on 3 January 2008, Mr Nguyen wrote back to the Agent accepting the lease in terms of the offer and requested the Agent to prepare the lease documents. 6. On 7 January 2008 the Agent sent a document called "Renewal of Lease" to Mr Nguyen confirming the terms of the new lease, relevantly: * the Shop had an approximate area of 97.9 square metres * the Nguyens would be entering into a lease for a term of five years to commence from 31 December 2007 * the commencing rent would be $56,292.50 per annum * outgoings would be a "percentage of total as described in the lease", and that the estimated rate of outgoings would be "approx $170.47/m2 per annum (approx $16,689.01 in year 1)". 1. That document was signed by Mr Nguyen on 24 January 2008 and returned to the Agent by facsimile transmission on the same day. 2. In early February 2008 Perpetual's solicitors forwarded to Mr Nguyen the Lease Agreement for signing and the Retail Lease Disclosure Statement (the Disclosure Statement). (Section 11 of the Retail Leases Act 1994 (NSW) requires a Perpetual to provide a tenant with a Disclosure Statement with the proposed lease, outlining various key items that enable the lease to be clearly understood by each party.) The Disclosure Statement relevantly stated: 1. The Nguyens are responsible for the proportion of the outgoings attributable to the net lettable area as determined by Perpetual 2. The "gross lettable area" was 6,452.61 m2. The lettable area of the Shop was 97.9 m2 3. the Nguyens' proportion of outgoings was 0.0152% 4. The outgoings for the entire Plaza was $3,869,132. 1. Later in 2008, both parties executed the Lease Agreement adopting those terms. The construction issue 1. The principal issue both at first instance and in this appeal concerns the proper construction of clause 5.2 and Item 7 in the Reference Schedule of the Lease Agreement. 2. Clause 5.2 of the Lease Agreement states in part: The lessee's contribution to the outgoings for each outgoings year at the commencing date is the amount set out in Item 7 of the Reference Schedule ("Lessee's capital proportion"), being in the proportion that the Gross Lettable Area of the Premises bears to the Gross Lettable Area of the Centre. The lessee acknowledges that the lessor will adjust the Lessee's proportion from time to time if the Gross Lettable Area of the Centre is adjusted for any reason ... (emphasis added) 1. Item 7 of the Reference Schedule annexed to the Lease Agreement states that the Nguyens' proportion of Perpetual's outgoings is "0.0152%". Under the Lease Agreement the Reference Schedule is to be read as part of that agreement. The Tribunal's decision 1. The Tribunal noted in its Reasons for Decision (the Reasons) (at [19]) that on the first day of the hearing, Mr Nguyen testified that when he received the Disclosure Statement and the Lease Agreement he thought the reference to the proportion payable for outgoings as being 0.0152% might have been a mistake by Perpetual. The Tribunal did not accept Mr Nguyen's subsequent denial of "any such suspicion" and found his evidence on this point to be unreliable ([18]–[22]). 2. The Tribunal held that the reference to the outgoings being "0.0152%" of Perpetual's total outgoings was a mistake and on a proper construction of the Lease Agreement should be read as "1.52%". 3. In reaching that conclusion, the Tribunal relied in particular on the decision of the Court of Appeal in National Australia Bank v Clowes [2013] NSWCA 179 (Clowes), and set out (at [28]) the following passage from that decision (at [34] per Leeming JA): In my opinion this is a clear case where the literal meaning of the contractual words is an absurdity, and it is self-evident what the objective intention is to be taken to have been. Where both those elements are present, as here, ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning. As this Court observed in Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521 at [21], the principle is premised upon absurdity, not ambiguity, and is available even where, as here, the language is unambiguous. 1. Relying on that principle (the Clowes Principle), and on the evidence concerning the negotiations of the contract to find the objective intentions of the parties, the Tribunal concluded (at [28]): [A] literal application of the figure of 0.0152% as set out in Item 7 of the Schedule to the lease in calculation of the lessees' proportion of outgoings, without consideration of what I consider to be the self-evident objective intention of the parties, creates an "absurdity", namely that the [Nguyens] were to pay outgoings for the premises in the meagre sum of $166.89 per annum indexed. 1. The Tribunal found (at [29]) that the "objective intention of the parties" in relation to the proportion of outgoings to be paid by the Nguyens was evident from "clause 5.2 of the Lease and the prior communications between the parties". 2. The Tribunal went on to state (at [31], [32]) that even if the figure "0.0152%" in Item 7 was "not ... an obvious mistake on the face of the instrument": [A] reasonable person in the position of each of the parties would have understood from the surrounding circumstances that an agreement had in fact been reached for the [Nguyens] to pay an amount for outgoings…equivalent to the 1.52% of the total outgoings payable for the shopping centre. 1. The Tribunal stated (at [31]) that this approach was consistent with that taken by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 (at [40]): … It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. The Nguyens' submissions 1. The Nguyens submit that the Tribunal misapplied the Clowes principle and point out that the authorities make plain that the Tribunal was required to be satisfied of two conditions before it could construe the words in the Lease Agreement otherwise as to their literal meaning: 1. That "the literal meaning of the contractual words is an absurdity" (the First Condition: Clowes at [34]; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113; [2014] NSWCA 184 (Mainteck) at [117]). 2. That it is self-evident what the objective intention of the parties is to be taken to have been (the Second Condition): Clowes at [34]–[35]; Mainteck at [117]. 1. The Nguyens submit that in construing the Lease Agreement as requiring them to pay to Perpetual, outgoings calculated as 1.52% of Perpetual's outgoings, the Tribunal erred in a number of respects. 2. First, they argue that the statement made by the Tribunal (at [28]): [L]iteral application of the figure of 0.0152% as set out in Item 7 ... without consideration of what I consider to be the self-evident objective intention of the parties, creates an absurdity… . reveals a fundamental error in the Tribunal's application of the Clowes principle. They argue that the fact that a word or term of a contract is inconsistent with the objective intentions of the parties does not, of itself, render that term "absurd" and therefore liable to reinterpretation. The Nguyens say that such a situation may give rise to an application for rectification of the contract but, that is irrelevant here. 1. Second, the Nguyens argue that the Tribunal's finding (at [28]) that the "literal application" of Item 7 results in absurdity is wrong. They say that mere unreasonableness or even capriciousness of result is insufficient, citing in support Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17,521; [2000] NSWCA 25 (Tanzone) at [22]; Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109; Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 (Jireh) at [60]. In any event, they argue the amount in question if the figure in Item 7 is applied, approximately $588, is not so low as to be absurd. They contend it does not follow because the amount of outgoings payable is small that the Lease Agreement was "uncommercial" or "unbusinesslike", pointing out that under the previous lease, they were not required to make any separate contribution towards Perpetual's outgoings. 2. Third, the Nguyens point out that the authorities have consistently made clear that the "the test of absurdity is not easily satisfied. The courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense": Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 (Miwa) at [17]; Clowes at [38]; Mainteck at [120]. The "principle requires a very strong level of conviction that a mistake has been made": Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426-427; Miwa at [18]; Clowes at [38]. 3. Fourth they argue, while a cause of the literal meaning of contractual words being an absurdity will invariably involve a mistake by at least one of the parties, it does not follow that every mistake results in the literal meaning of contractual words being an absurdity. They argue that the mere fact that one or both parties have made a mistake does not satisfy the First Condition of the Clowes Principle. 4. Fifth, the Nguyens argue that the Tribunal's reference to and reliance on "the self-evident objective intention of the parties", as a step towards its finding that that the literal meaning of the figure 0.0152% in Item 7 was absurd, involved a misapplication of the Clowes Principle. 5. In any event the Nguyens submit that the Tribunal was "selective" in its references to the "surrounding circumstances" and may well have overlooked other relevant evidence in drawing its conclusions. In particular, the Nguyens say that the Tribunal does not appear to have taken into account Perpetual's disclaimer in the negotiations that it was not bound by the contract until the lease was signed; that the negotiations were extended over months; and that the proportions of the shopping complex changed from time to time. 6. Sixth, the Nguyens submit that nowhere in the documentation created up to August 2008 does there appear any reference to a figure of 1.52%. They argue that none of the figures presented or which are available by inference equal 1.52%. It is therefore far from "self-evident" that the correct figure in Item 7 was actually 1.52% rather than 0.0152%. 7. Seventh, Mr Nguyen was aware when the lease was executed in 2007 that the figure in Item 7 was 0.0152%. It was submitted that even if Mr Nguyen understood this to be a mistake, the mistake was unilateral only and that therefore it is unclear whether the Clowes principle applies at all. 8. Finally, the Nguyens submit that the Tribunal's conclusion, that even if the figure of 0.0152% was not an obvious mistake on the face of the instrument it was a mistake that could be corrected by the Tribunal, was wrong in three respects. 9. The Nguyens argue that, in reaching this conclusion, the Tribunal advanced three propositions: 1. That a reasonable person in the position of each party would have understood from the surrounding circumstances that an agreement had been reached that the Nguyens would pay 1.52% of the total outgoings for the complex; 2. That in determining the Nguyens' contractual obligations in respect of payment of outgoings, a reasonable person in the position of each party would consider the text of the lease, the disclosure statement, the surrounding circumstances known to the parties, including the conversations and documents created during the period of negotiations and the formula set out in Clause 5.2 of the Lease Agreement; and 3. That this approach clearly shows that the multiplier of 0.0152% was a mistake and a commercial nonsense. 1. The Nguyens maintain that each of these propositions is incorrect. Firstly, they say that the only "surrounding circumstances" of relevance are those that existed at time the Lease Agreement was executed and came into effect. Those "surrounding circumstances" included the written communications between about September 2007 and 24 January 2008. There was no formal agreement at that time and even if there was an agreement, there was no term that the Nguyens would pay outgoings equivalent to 1.52% of the total outgoings for the centre. They also say that there were continuing oral negotiations in March 2008 with both parties seeking to better their contractual positions. And they point to the Disclosure Statement as part of the "surrounding circumstances" which they say should have been given weight by the Tribunal. The final point made for the Nguyens in respect of the first proposition is that the "surrounding circumstances" that the Tribunal should have taken into account, but did not, is that the Lease Agreement itself incorporated the figure of 0.0152%. The Nguyens therefore argue that the reasonable person's interpretation of the contractual term in relation to outgoings would be that the parties had agreed on that figure. 2. In respect of the second proposition, the Nguyens say that there is no ambiguity in Item 7 and that therefore there is no room for the Clowes principle to be applied, or for "surrounding circumstances" to be examined to clarify an ambiguity. In any event, even if the "surrounding circumstances" are taken into account, it is argued by the Nguyens that they include oral negotiations that could have led to the figure of 0.0152% being applied to the calculation of net outgoings. 3. Concerning the third proposition, the Nguyens say that there are at least two problems with the Tribunal's conclusion. First, the relevance of the Tribunal's finding that the figure of 0.0152% was a mistake is unclear because Perpetual has not sought rectification or relief in respect of Item 7. They say that beyond the Clowes principle the concept of mistake has no part to play in the proper construction of a contract. They say that "mistake" only has a role to play if the mistaken party seeks rectification or relief in respect of the mistake. A further complication raised by the Nguyens is that any mistake may have been unilateral rather than common. The Nguyens also dispute the Tribunal's finding that the requirement to pay outgoings of only 0.0152% is a commercial nonsense was not available because this is to evaluate the adequacy of consideration. Consideration 1. In our view, the Nguyens' argument in relation to the construction issue must fail. Ockham's Razor can and should be applied. Notwithstanding the arguments advanced for the Nguyens, it is self-evident that clause 5.2 of the Lease Agreement and Item 7 of the Reference Schedule are inconsistent and cannot stand together and the literal meaning of the disputed figure "0.0152%" in Item 7 creates an absurdity. 2. The fundamental term of the Lease Agreement which governs the interpretation of the multiplier figure to be applied in calculating the Nguyens' contribution toward Perpetual's Outgoings is that stated in clause 5.2. That clause required the Nguyens to contribute a proportion of the gross outgoings payable by Perpetual for the whole complex "in the proportion that the Gross Lettable Area of the Premises [Shop 25] bears to the Gross Lettable Area of the Centre". The sum payable by the Nguyens was then to be calculated in accordance with this formula – a simple arithmetical exercise. 3. There is no evidence of any agreement to vary clause 5.2 of the Lease Agreement. Both parties engaged in protracted negotiations before each executed a counterpart copy of the Lease Agreement. But for the fact that the Retail Leases Act requires a Disclosure Statement, there was no necessity for the parties to enunciate the multiplier figure explicitly because the formula was certainly clear and unambiguous and the figure was therefore readily capable of being ascertained. 4. If the actual gross lettable area of Shop 25 was 1.5171% of the gross lettable area of the Plaza, the Nguyens had agreed to pay a contribution based on that figure (which in the event was rounded up to 1.52%). In the course of preparing the documents, however, a mistake must have been made because the area of the shop was not 0.0152% of the gross lettable area of the Complex but 100 times greater than that. A rudimentary check of the figures against the figure inserted in the documents would have revealed this. It would also have been obvious, and on the finding of facts by the Tribunal at first instance, was obvious to the Nguyens because they had been notified during the negotiations that the working figure for calculation of the outgoings was about $170 per square metre. Yet, if the multiplier of 0.0152% was applied they would pay less than $170 in their annual contribution to outgoings. Anyone could have seen that Shop 25 was larger than one square metre. 5. Although the words in Clause 5.2 are unambiguous and the figure in Item 7 is also literally unambiguous, they cannot stand together but are meant to, and therefore as found by the Tribunal the use of the figure "0.0152%" in Item 7 creates an absurdity. 6. Leeming JA held in Clowes (at [33]–[34] that "words should be construed so as to avoid making commercial nonsense". Leeming JA went on to add (at [34]) that "where the literal meaning of the contractual words is an absurdity, and it is self-evident what the objective intention is taken to have been … ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning". The Tribunal was bound by that principle. In our view in appropriate cases, this principle must also apply to numbers. 7. The absurdity that required displacement in this case is found in the equation: 97.9 ÷ 6452.61 = 0.0152% That equation is a mathematical nonsense and if applied to clause 5.2 of the Lease Agreement would be a commercial nonsense. The only reason the absurdity would not have been self-evident on the face of the Lease Agreement was that the numbers (and therefore the mental arithmetic involved) were more complex than, for example, 2÷ 4 = 0.005% which is easily seen to be a mistake. 1. The finding made (at [28]) that the literal meaning of the figure of 0.0152% creates an "absurdity" was one plainly open to the Tribunal. The fact that in the same passage the Tribunal also referred to "the self-evident objective intention of the parties" does not indicate as the Nguyens contend that the Tribunal in effect conflated the First and Second Conditions of the Clowes principle. In any event the objective intention of the parties is relevant to the question of whether the literal meaning of the figure 0.0152% created an absurd meaning. 2. The Nguyens' submissions that the Tribunal was "selective" in the evidence it had regard to in identifying the objective intention of the parties – namely that the parties had agreed that the Nguyens would contribute 1.52% towards total outgoings — is in effect an attack on a finding of fact. That the Tribunal disposed of this issue, without referring to all of the evidence on which it relied (see [29] of the Reasons) including that which the Nguyens contends support a contrary finding, does not establish that critical evidence was ignored. 3. The Nguyens contend that that the Tribunal's finding (at [30]) that "insertion of the figure 0.0152% was a mistake" demonstrates that the Tribunal determined Perpetual's application by reference to the doctrine of unilateral mistake and not by the application of the Clowes principle. They point out in its pleadings Perpetual sought neither (i) to rectify Item 7 of the Lease Agreement, or (ii) relief from, or in respect of, a mistake in Item 7. Instead, Perpetual's case was one brought on the basis of "the proper construction of the Lease". 4. Whether a mistake occurred is not only relevant to rectification in equity but to the identification of the absurdity. As the Nguyens acknowledge, a cause of the literal meaning of contractual words being an absurdity invariably involves a mistake by at least one of the parties: Newey v Westpac Banking Corporation [2014] NSWCA 319 (Newey) at [90] and [124]; Jireh at [63]. In Jireh the Court of Appeal explained (at [55]): [S]o far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted. (emphasis added) 1. The Reasons make clear that the Tribunal addressed the First Condition of the Clowes principle and found it to be satisfied (see Reasons at [28]). While not considered in any great detail, the reference in the Reasons to the analysis by Leeming JA in Clowes to the difference between the principles of contract construction and rectification and mistake in equity, bolsters the conclusion that the principal basis on which the Tribunal arrived at its decision was by the application of the Clowes principle (see Reasons at [30]). 2. The Tribunal's construction of the Lease Agreement does not disclose an error of law. The quantum issue 1. The Nguyens contend that even if the Tribunal's construction of the Lease Agreement is accepted, the Tribunal nonetheless erred in calculating the amount owed by them on account of outgoings by: 1. Including in the $118,578 found payable for outgoings, outgoings for the period 31 December 2007 to 7 August 2008. 2. Failing to deduct from the amount awarded for outgoings, the bank guarantee, which Perpetual called in shortly after they vacated the Shop. 1. Perpetual concedes that the Tribunal erred by not deducting the bank guarantee from the amount payable by the Nguyens for outgoings but disputes the second contention they raised. What is the period outgoings are payable under the lease Agreement? 1. The Nguyens contend that the Tribunal erred by calculating the date outgoings were payable from 31 December 2007 and not 7 August 2008, the date the Lease Agreement was signed by both parties. Perpetual disagrees. 2. The Nguyens contend that neither party was bound by the Lease Agreement until it was signed by both parties, and, as required by clause 28 of the Lease Agreement, they gave Perpetual a bank guarantee. They submit that prior to that date they were bound by the term of the previous lease and the amount payable for outgoings was governed by that agreement. 3. While the Nguyens acknowledge that the Lease Agreement stated it was to commence on 31 December 2007 they argue this was not determinative of the rights and obligations of the parties for these reasons: 1. The Proposal Document, which it will be recalled was signed by Mr Nguyen in February 2008 stated: Subject to Perpetual's approval 1. … 2. The Tenant acknowledges that the Landlord is not bound by this proposal and that there will be no agreement for lease, grant of lease ... until transaction documentation satisfactory to the Landlord has been validly executed by all parties, any Bank Guarantee ... has been delivered ... (emphasis added) 1. As noted above, the Lease Agreement was not signed by both parties until 7 August 2008. 2. They did not provide Perpetual with a bank guarantee as required by clause 28 of the Lease Agreement until 7 August 2008. 1. They argue that in a case such as this where the parties sign a contract after the date it was stated to come into effect, it is a question of construction as to whether the rights and obligations commence from the date of execution of the contract, or are backdated to the date the contract is stated to come into effect. In support of the proposition that liability to pay outgoings at the rate specified by the Lease Agreement (and indeed all of the rights and obligations under the Lease Agreement) did not backdate to 31 December 2007, but instead commence on 7 August 2008, the Nguyens argue: First, the Lease Agreement did not expressly state that the parties' rights and obligations under that agreement would backdate to 31 December 2007. Second, if that were the case, both parties would face risks and difficulties. For example, if between 31 December 2007 and 7 August 2008 the Nguyens did not comply with one of the terms of the Lease Agreement, upon its execution they would be in immediate breach of the agreement by reason of their non-compliance and it would be open to Perpetual to seek to terminate the lease and claim damages. Equally, if Perpetual failed to comply with one of the terms of the Agreement during that period, it would be exposed to a claim for damages. 1. Perpetual disagrees. It contends that to give business efficacy and full effect to the Lease Agreement, the rights and obligations of the parties must arise from the date the term of the Lease commences, notwithstanding it was only later executed by the parties. 2. Further Perpetual contends that by the combined operation of ss 7 and 8 of the Retail Leases Act, the Lease Agreement is deemed to have been entered into on 31 December 2007. Sections 7 and 8 state: 7 This Act overrides leases This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision would be void if it were in the lease. 8 When the lease is entered into (1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first). (2) However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease. Note: Therefore, if the lessee starts to pay rent as lessee or enters into possession as lessee, the lease is considered to have been entered into even if neither party has executed the lease at that time. Money paid in advance (purportedly as rent) as a deposit to secure premises for a proposed lease does not constitute rent paid as lessee under the lease. 1. Citing Helou & Ors v Bong Bong Pty Ltd & Anor [2006] NSWADT 128 at [82], Perpetual submits that prior to 31 December 2007 "there was a consensus as to the terms" of the Lease Agreement and therefore, by the operation of s 8 of the Retail Leases Act, the Nguyens (notionally) entered into possession of the Shop as lessees under the Lease Agreement on that date. 2. The Nguyens contends that s 8(2) of the Retail Leases Act bolsters their contention that the parties were not bound by the terms of the Lease Agreement, at least until the Lease Agreement was executed. They point out because of an oversight on the part of Perpetual's agent they did not commence paying the rental rate agreed to apply under the Lease Agreement until March 2009. They submit that as a consequence, s 8(2) applies and the lease is considered to have been entered into when the Lease Agreement was executed in August 2008. Consideration 1. The commencement date under the Lease Agreement was stated to be 31 December 2007. The Lease Agreement is silent on whether the rights and obligations of the parties in the event it was not executed by that date. We think the reasonable businessperson would have understood the provision of the Lease Agreement relating to its commencement to mean what it says, that is, its commencement date was 31 December 2007. The provision is unambiguous and therefore in our opinion recourse cannot be had to surrounding circumstances to contradict its plain meaning. 2. The Nguyens' argument about the effect of the disclaimer in the Proposal Document cannot be accepted. The disclaimer cannot be interpreted to contradict the plain language of the Lease Agreement in circumstances where ultimately the Agreement was executed and the bank guarantee delivered. 3. In our view s 8 of the Retail Lease Act is irrelevant to the issue to be determined. Section 8 is concerned with when a lease is entered into, whereas the issue here is the date the lease is to commence. The date a lease is "entered into" will not necessarily correspond with the date the rights and obligations of the parties under the agreement commence. 4. But even if we are mistaken about the application of s 8 of the Retail Lease Act, we would arrive at the same conclusion. In Helou & Ors v Bong Bong Pty Ltd & Anor [2006] NSWADT 128 one of the predecessor Tribunals to NCAT, after a careful examination of the authorities, set out (at [82]) the following propositions regarding the operation of s 8(1): [F]irst, a person who is already in possession of retail shop premises pursuant to a pre-existing tenancy not covered by the Act may be said notionally to 'enter into possession... as lessee under the lease' without vacating and re-entering the premises, once an agreement for a new lease falling within the Act is concluded. Secondly, the commencement of a lease by virtue of entry into possession or payment of rent by the lessee may occur under s 8(1) even though no formal deed or agreement of lease is ever executed, so long as the parties have reached 'consensus' as to the terms of the lease. Thirdly, in order to reach this 'consensus', so as to give rise to the requisite 'lease relationship', it is not necessary that the parties reach agreement on all the terms of the right of occupation. This is an implicit consequence of the broad definition of 'lease' in s 3, embracing 'any agreement', express or implied, and whether oral, in writing, or partly oral or partly in writing, 'under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purposes of the use of the premises as a retail shop'. 1. Appling the above principles it is necessary to first identify when the parties reached "consensus" as to the terms of the new lease. It will be recalled that in early November 2007, the Nguyens notified Perpetual's agent that they would accept the offer detailed in the Lease Proposal on condition that Perpetual provided evidence in relation to its outgoing expenses. On 26 November 2007 the agent provided that information. While it was not until 3 January 2008 that Mr Nguyen replied to the Agent's letter of 26 November 2007, we find that by late November 2007 (possibly earlier) a consensus had been reached about the key terms of the new lease. It follows that the Nguyens (notionally) entered into possession of the Shop as lessees under the Lease Agreement on 31 December 2007, and, by the operation of s 8(1) of the Retail Leases Act, the lease is considered to have been entered into on that day. 2. Sub-sections (1) and (2) of s 8 operate together. Their combined purpose and effect is to ensure that neither party is disadvantaged by delays in either the execution of the lease or in occupying the premises. If a lessee takes possession of, or begins to pay rent in respect of the premises, but the execution of the lease is delayed, the lease is deemed to have commenced at the time of occupation of the premises or payment of rent: s 8(1). If, on the other hand, the lease is executed before the premises are occupied or rent is paid in respect of the premises, the lease commences from the date of execution of the lease: s 8(2). 3. In this case, applying Helou, our view is that, by remaining in possession upon the expiration of the previous lease, the Nguyens notionally took possession of the premises under the new lease, the terms of which had been negotiated and largely settled by the end of December 2007. Our view is bolstered by the fact that the new lease, although not executed until August 2008, was expressed to have commenced on 31 December 2007. Section 8(2) therefore cannot be applied as the Nguyens argue. 4. It follows from that analysis that the Tribunal did not err in construing the Lease Agreement as requiring outgoings under that agreement to be payable from 31 December 2007. Costs of the proceedings below 1. As noted, it is agreed that the failure of the Tribunal failure to afford the parties an opportunity to make submissions on the issue of costs constitutes a denial of procedural fairness and raises a question of law. As both parties made detailed submissions on this issue we decided to exercise the power conferred by s 81(1)(e) of the NCAT Act to reconsider this part of the case. Is rule 38 invalid? 1. Perpetual seeks an award for costs for the proceedings below. They contend that the relevant provision is rule 38 of the Civil and Administrative Tribunal Rules 2014 (the Tribunal Rules); the Nguyens on the other hand contend that rule 38 is inconsistent with s 60 of the NCAT Act and is therefore invalid. 2. Section 60 of the NCAT Act states: 60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (emphasis added) … 1. Rule 38 of the Tribunal Rules states: 38 Costs in Consumer and Commercial Division of the Tribunal (1) This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal. (2) Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if: (a) the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10(2) of Schedule 4 to the Act in relation to the proceedings, or (b) the amount claimed or in dispute in the proceedings is more than $30,000. (emphasis added) 1. Rule 38 was made under s 25 of the NCAT Act: 25 Tribunal rules may provide for practice and procedure (1) The Rule Committee may make rules of the Tribunal (referred to in this Act as the "Tribunal rules"), not inconsistent with this Act or enabling legislation, for or with respect to the following: (a) the practice and procedure to be followed in proceedings in the Tribunal, (b) any matter that is, by this Act or any other legislation, required or permitted to be prescribed by the Tribunal rules. Note : A number of provisions of this Act provide for matters to be prescribed by the procedural rules. The term "procedural rules" is defined in section 4(1) to include the Tribunal rules. Procedural rules that make provision as referred to in section 4(4) are not inconsistent with this Act. See section 4(5). (2) Without limiting subsection(1)(a), the Tribunal rules may make provision for or with respect to any of the matters specified in Schedule 7. 1. Sections 4(4) and 4(5) of the NCAT Act state: (4) Any provisions of this Act that are expressed to be subject to the procedural rules have effect subject to any exceptions, limitations or other restrictions specified by the procedural rules. (5) Subject to section 17(3), procedural rules that make provision as referred to in subsection (4) are not inconsistent with this Act. Note : Section 17(3) provides that the provisions of a Division Schedule for a Division of the Tribunal prevail to the extent of any inconsistency between those provisions and any other provisions of this Act or the provisions of the procedural rules. See also item 23 of Schedule 7. Also, the procedural rules cannot be inconsistent with enabling legislation. See sections 25(1) and 90(2)(a). 1. There is no issue that the Tribunal Rules may make provision for costs (s 25(2) and cl 20 of Schedule 7 to the Act). The issue in dispute is whether s 60 trumps rule 38. 2. Section 60 of the NCAT Act instructs the Tribunal to award costs "only if it is satisfied that there are special circumstances warranting an award of costs" (emphasis added). As the Nguyens point out this provision is inconsistent with rule 38(2), which opens with the words "Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award …". 3. Were it not for s 35 of the NCAT Act, we would agree with the Nguyens' argument. Contained in Part 4 of the NCAT Act, which is headed "Practice and Procedure", s 35 states: 35 Application of Part Each of the provisions of this Part is subject to enabling legislation and the procedural rules. 1. In s 4(1) of the NCAT Act, the expression "procedural rules" is defined as including "the Tribunal rules" and "Tribunal rules" is defined as meaning "the rules of the Tribunal made by the Rule Committee". The Civil and Administrative Tribunal Rules 2014, which contain rule 38, were made by the Rule Committee of the Tribunal. 2. As s 60 is contained in Part 4 of the NCAT Act, by the operation of s 35 it is subject to rule 38. The pre-condition to the exercise of the power to award costs under rule 38 is satisfied — namely the subject proceedings were allocated to the Consumer and Commercial Division of NCAT and the amount in dispute exceeds $30,000 (rules 38(1), 38(2)(b)). It follows that in deciding whether to award costs rule 38 applies. Should an award for costs be made? 1. Perpetual submits that the Nguyens should be required to pay its costs of the proceedings below for these reasons: 1. The Nguyens were unsuccessful in opposing its claim 2. In cross-examination Mr Nguyen acknowledged that he knew of the "obvious mistake" in the Lease Agreement and in making that admission, effectively conceded that he had no basis to oppose Perpetual's claim 3. The Nguyens' rejection of the offer made to settle the proceedings shortly prior to the commencement of the proceedings was unreasonable. 1. The Nguyens contend that the first of the grounds advanced by Perpetual would only be determinative if there was a presumption that "costs follow the event" in the class of matters caught by rule 38. They contend the starting point under rule 38 is that each party must bear its own costs. 2. In relation to the second ground, the Nguyens contend that Mr Nguyen's belief about whether there was a mistake is irrelevant because Perpetual's claim was based on the contention that the figure of 0.0152% was "absurd". 3. With respect to the third ground, the Nguyens dispute they "unreasonably rejected" Perpetual's offer to settle the proceedings by paying Perpetual $100,000 inclusive of costs and interest. They contend that that offer was only slightly less than the amount the Tribunal found payable, calculated at the time the offer was made (February 2014), namely $119,461. They contend that once reduced by the amount of the bank guarantee, $11,000 (which Perpetual concedes should have occurred), it cannot be said Perpetual's compromise was significant. 4. Perpetual contends that the effect of rule 38 is that ordinarily costs should follow the event. Further, it points out that even where the Tribunal was required to be satisfied that "special circumstances" exist before awarding costs, in retail lease matters it was generally accepted that having no reasonable prospects of success was sufficient to attract an adverse costs order, citing in support, Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 (Jonamill) at [29]–[30], Dykes and Wildie v Heatherway Pty Ltd (No 2) (RLD) [2007] NSWADTAP 46, at [23]. 5. The Nguyens disagree with the proposition that the starting point under rule 38 is that costs should follow the event, citing in support Prieston v Panyiotou [2015] NSWCATAP 71 36 (Prieston) at [38]. Commenting on s 88 of the Administrative Decisions Tribunal Act 1997 (NSW) the Appeal Panel in Prieston said at [37] that to adopt the position that costs follow the event would be "antithetical to the statutory intention evidenced by s 88 of the ADT Act". Consideration 1. Care must always be taken in applying principles developed in relation to different statutory provisions. The statutory provisions considered in Jonamill and Prieston are materially different to rule 38 and in our opinion provide little assistance to the principles that apply to the exercise of the discretion conferred by that rule. In our view, rule 38 operates not only to displace the requirement that special circumstances must exist before the power to award costs can be exercised but also the proposition contained in s 60(1) that each party is to pay the party's own costs. That construction is consistent with the opening words of rule 38, which refers to s 60 and not s 60(1): "Despite s 60 of the Act, the Tribunal may award costs… ". 2. Rule 38 gives the Tribunal (or the Appeal Panel when making a decision in substitution for the decision under appeal), a discretion to award costs. While unfettered that discretion must be exercised judicially. 3. While the discretion to award costs under rule 38 is unfettered, in our view costs should generally "follow the event", recognising however that factors may exist that militate against the successful party recovering all of its costs: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [134]. Fairness dictates that the unsuccessful party typically bears the liability for costs unless it is demonstrated that some other order is appropriate: Currabubula and Paola v State Bank NSW. Currabubula v State Bank NSW [2000] NSWSC 232. We find no reason to depart from the "usual rule" in this case. 4. Even if we are wrong about the operation of rule 38 and it does not displace the general proposition that each party is to pay the party's own costs, we would arrive at the same conclusion for these reasons. First, a reasonable offer was made by Perpetual to settle its claim, and, second Mr Nguyen's actions in defending the claim, in circumstances where he was aware its genesis was an oversight by Perpetual. The fact that Perpetual's case was not "pleaded" on the basis of "mistake" does not render the latter irrelevant to the exercise of the discretion to award costs. Taken in combination with Perpetual's success in the proceedings, leads us to the conclusion that it would be appropriate to award costs, even if the starting point in the exercise of that discretion was that each party should bear their own costs. Disposition of the Appeal 1. The parties agree that even if the Nguyens' appeal was successful, Order 1 of the Amended Decision must be set aside because the Tribunal failed to make allowance for the bank guarantee provided by the Nguyens and to readjust the interest payable. At the hearing of the Appeal the parties indicated that they were confident agreement could be reached on the calculation of the amount payable once the decision on the construction and quantum issues had been made. We therefore decided to give the parties the opportunity to reach agreement and in the absence of agreement to apply to the Appeal Panel for the matter to be relisted for determination of the amount payable. Orders 1. The appeal in AP 15/39175 (Perpetual's Appeal) is allowed. 2. The appeal in AP 15/32040 (the Nguyens' appeal) is allowed in part 3. Order 1 of the decision made by the Tribunal on 16 June 2015 is set aside. Either party may apply for the Appeal to be relisted to determine the amount payable by Anthony and Thi Nguyen in accordance with these Reasons, providing that application is filed within 14 days of the date of this decision. 4. Order 2 of the decision made by the Tribunal on 17 February 2015 is set aside. In substitution for that order, Anthony and Thi Nguyen are to pay Perpetual Trustee Company Ltd's cost of the proceedings before the Tribunal, as agreed or assessed. ******** 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: 09 December 2015