Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Wynne Avenue Property Pty Limited v MJHQ Pty Limited [2018] NSWCATAP 197 Hearing dates: 23 May 2018 Date of orders: 23 August 2018 Decision date: 23 August 2018 Jurisdiction: Appeal Panel Before: P Durack SC, Senior Member D Charles, Senior Member Decision: (1) Appeal allowed. (2) Set aside the order made by the Tribunal on 23 January 2018. (3) Within 14 days of the date of these orders, the parties are to provide to the Appeal Panel and to each other any further documents (including written submissions) on which that party intends to rely in the re-determination by the Appeal Panel of the costs of the proceedings at first instance and in the determination of the costs of this appeal. (4) Within a further 14 days the parties are to provide to each other and to the Appeal Panel any documents (including written submissions) in reply. (5) The parties' further documents must include submissions on the issue of whether or not an order should be made by the Appeal Panel dispensing with a hearing about these costs issues pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2015 (NSW). Catchwords: COSTS – retail lease applications for interim orders and final relief for lessee to secure continued occupation of premises in shopping centre - settled by consent orders at first directions hearing - costs orders made on the papers including indemnity costs - whether errors of law in Tribunal's findings of special circumstances and delinquency of lessor – order for re-determination of costs application by Appeal Panel Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW) Civil and Administrative Tribunal Rules 2014 (NSW) Retail Leases Act 1994 (NSW) Cases Cited: Craig v South Australia (1995) 184 CLR 163 Helou v Bong Bong Limited [2006] NSWADT 128 Hernady v Raccani [2016] NSWCATAP 67 Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 MSP Consulting and Building Constructions Pty Ltd v Karkoulas (No 2) [2016] NSWCATAP 183 Seltram Pty Ltd v Ghaleb [2005] NSWCA 208 Texts Cited: None Category: Principal judgment Parties: Wynne Avenue Property Pty Limited (Appellant) MJHQ Pty Limited (Respondent) Representation: Counsel: A F Fernon (appellant) Solicitors: Holding Redlich (appellant) The respondent was represented by Mr S Spring (Australian Retail Lease Management) File Number(s): AP 18/06819 Publication restriction: None Decision under appeal Court or tribunal: Civil and Administrative Tribunal NSW Jurisdiction: Consumer and Commercial Division Date of Decision: 23 January 2018 Before: G Meadows, Senior Member File Number(s): COM 17/32109, COM 17/32110 REASONS FOR DECISION Overview 1. This is an internal appeal under s 80(2) of the Civil and Administrative Tribunal Act 2013 (NSW) (the "NCAT Act") against a costs decision made in the Consumer and Commercial Division of the Tribunal on 23 January 2018. 2. The Tribunal ordered the appellant ("WAP") to pay the respondent's ("MJHQ") costs of and incidental to proceedings in the Tribunal's Retail Lease List (File Nos. COM 17/32109 and COM 17/32110) on an indemnity basis, such costs to be as agreed or as assessed. 3. For the reasons set out below, we have decided to allow the appeal, to set aside the Tribunal's order of 23 January 2017, and to re-determine the issue of the costs of the parties in the Tribunal proceedings at first instance. The Tribunal proceedings 1. The proceeding constituted by File No. COM 17/32109 (filed on 20 July 2017) was an application by MJHQ, as lessee of a discount variety department store, for an interim order to secure its continuing occupation of a retail shop ("Shop") within the Burwood Plaza ("Centre") in Burwood NSW. 2. The proceeding constituted by File No. 17/32110 was an application for final relief by MJHQ, also filed on 20 July 2017. The principal relief sought was to restrain WAP from acting upon a Notice of Termination served by it upon MJHQ on 30 June 2017. No monetary order was sought by MJHQ. 3. Prior to 20 July 2017, there had been correspondence between the parties commencing on 31 May 2017, which reflected their disagreements about the terms upon which MJHQ occupied the Shop within the Centre as WAP's lessee. 4. MJHQ contended, on the one hand, that its tenancy of the Shop arose out of a Licence Agreement bearing date 30 March 2015 with a commencement date of 6 March 2015, and was for a minimum 5 year term ending on 5 March 2020. It relied upon s 16 of the Retail Leases Act 1994 (NSW) (the "RL Act"), as then in force, and the absence of an exemption certificate under s 16. 5. On the other hand, WAP contended that MJHQ occupied the Shop under a monthly tenancy at will only. By its agent's letter of 30 June 2017, WAP served on MJHQ a Notice of Termination requiring MJHQ to vacate the Shop on or before 31 July 2017. 6. Before the commencement of the proceedings in the Tribunal, neither WAP nor its solicitors, elucidated upon the facts, matters and circumstances to support the contention that MJHQ occupied the Shop under a monthly tenancy at will only, or otherwise sought to explain the legal basis for requiring MJHQ to vacate the Shop by 31 July 2017, even though they were pressed to do so in follow-up correspondence from MJHQ on 3, 10 and 13 July 2017. This follow-up correspondence foreshadowed MJHQ's application to the Tribunal for restraining orders and declarations and indemnity costs, in the event that WAP did not withdraw its Notice of Termination. 7. On 20 July 2017, the Tribunal made orders, in chambers, permitting MJHQ to remain in occupation of the Shop pending determination of the application (File No. COM 17/32109) for interim orders. Such application for interim orders was adjourned for hearing on 9 August 2017. The application for final orders (File No. COM 17/32110) was also listed for a directions hearing on that date. 8. On 9 August 2017, both sets of proceedings were determined by consent. The consent orders provided for relief on a final basis and secured MJHQ's continuing occupation of the Shop. The orders made on 9 August 2017 also provided for the issue of costs to be dealt with on the papers. Directions were made for the parties to provide to the Tribunal and to each other their written submissions to support any costs application (by 23 August 2017), submissions in reply (by 6 September 2017) and submissions in reply to the reply submissions (by 13 September 2017). 9. On 17 August 2017, MJHQ made an application for costs on the indemnity basis, supported by written submissions ("MJHQ's First Submissions"). 10. On 6 September 2017, WAP provided its submissions in reply in respect of MJHQ's costs' application. 11. On 13 September 2017, MJHQ provided further written submissions ("MJHQ's Second Submissions"). The Tribunal's decision in the proceedings at first instance 1. The Tribunal's Reasons for Decision at [35] noted, correctly, that Rule 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) (the "NCAT Rules") did not apply, because no monetary order was sought or awarded in the proceedings. It is common ground between the parties that pursuant to s 60(2) of the NCAT Act, the Tribunal had to be satisfied that there were "special circumstances" warranting an award of costs. 2. Section 60(3) of the NCAT Act sets out a non-exhaustive list of factors the Tribunal may have regard to in determining whether there are "special circumstances". They are: 1. whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, 2. whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, 3. 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, 4. the nature and complexity of the proceedings, 5. whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, 6. whether a party has refused or failed to comply with the duty imposed by section 36 (3), 7. any other matter that the Tribunal considers relevant. 1. Agreeing with MJHQ's First Submissions, the Tribunal concluded (at [43] of its Reasons for Decision) that "special circumstances" did exist warranting an order for costs in MJHQ's favour. In essence, the Tribunal's reasons for ordering WAP to pay the costs of the proceedings were that WAP had capitulated in agreeing to the orders made on 9 August 2017 and also because WAP had not convinced the Tribunal that it had a defence that was "likely to succeed" (see [44]). 2. It is apparent that the Tribunal focussed on factors (c) and (e) in s 60(3) of the NCAT Act in forming its opinion as to the existence of "special circumstances": (see [45] of the Reasons for Decision). The Tribunal made findings (at [46]) that the factors in (a), (b) and (f) of s 60(3) of the NCAT Act were not engaged. 3. The Tribunal also ordered WAP to pay MJHQ's costs of the proceedings on an indemnity basis, as it was satisfied that there was delinquency on the part of WAP as outlined in MJHQ's Second Submissions. Such delinquency related to an alleged ulterior motive in WAP issuing a demolition notice after 9 August 2017: see [56] of the Reasons for Decision. Grounds of Appeal and submissions 1. The Notice of Appeal was lodged on 8 February 2018 which is within the 28 day time period specified in Rule 25(4) of the NCAT Rules. 2. A judgment in respect of costs is an ancillary decision within the meaning of s 4 of the NCAT Act. 3. A right of appeal against an ancillary decision exists in respect of ancillary decisions as of right on a question of law and with leave on any other grounds: s 80(2)(b) of the NCAT Act. 4. WAP contended that there were various errors of law in the Tribunal's Decision of 23 January 2018. The specific grounds stated in the Notice of Appeal were that the Tribunal erred in law because: 1. It shifted the onus to WAP to satisfy the Tribunal that WAP's defence was likely to succeed (Ground of Appeal 1); 2. It asked itself an irrelevant question, i.e. whether any potential defence of WAP was likely to succeed (Ground of Appeal 2); 3. It gave no reasons for deciding it was not satisfied that any potential defence of WAP was likely to succeed (Ground of Appeal 3); 4. It failed to find no "special circumstances" existed, when the settlement of litigation at a very early stage and conceding the relief sought (if not the underlying substantive cause) is not so uncommon as to constitute "special circumstances" (Ground of Appeal 4); 5. It took into account an irrelevant consideration, i.e. the demolition notice which post-dated the proceedings, in determining that indemnity costs should be paid (Ground of Appeal 5); 6. It found a relevant delinquency which entitled MJHQ to indemnity costs, without providing adequate reasons for doing so (Ground of Appeal 6); and 7. It relied upon MJHQ's Second Submissions to find MJHQ was entitled to indemnity costs, in circumstances where the Tribunal had directed 'in reply' submissions only, MJHQ's Second Submissions introduced new material, and WAP had not provided submissions in response to such new material (Ground of Appeal 7). 1. WAP supplemented its Grounds of Appeal with further written and oral submissions at the hearing of the appeal. WAP submitted that had the proceedings at first instance not resolved by way of agreement between the parties on 9 August 2017, it would have been entitled to raise and articulate before the Tribunal an arguable defence which, even if unsuccessful after a contested hearing, would not have required it to pay the costs of the other party in the absence of "special circumstances" within the meaning of s 60 of the NCAT Act. WAP argued that by choosing to settle the proceedings at the first directions hearing on 9 August 2017 it had acted reasonably, commercially and in good faith (as had MJHQ) without resort to costly and time consuming litigation and that this was consistent with the parties' obligations to co-operate with the Tribunal in giving effect to the Tribunal's guiding principle of the just, quick and cheap resolution of the real issues in the proceedings: s 36(3) of the NCAT Act. 2. In WAP's submission, its arguable defence to the proceedings at first instance arose from the allegation that MJHQ had made "unilateral and unauthorised" amendments to the document of 30 March 2015, including deleting key commercial terms as to the 5% monthly marketing levy, the increased bank guarantee requirement, the requirement for directors' guarantees and a requirement to undertake a new fit out, which meant that there was no consensus between the parties as to the terms on which MJHQ occupied the Shop. 3. Specifically, before the Tribunal at first instance, WAP had written submissions on costs dated 6 September 2017 (see paragraphs [18] and [19]) which referred to these propositions: 1. under s 8 of the RL Act, there must be consensus as to all the fundamental commercial terms for a statutory lease to apply: Helou v Bong Bong Limited [2006] NSWADT 128 at [82]; 2. in those circumstances, it was open to WAP to argue that there was no licence agreement in terms of the document of 30 March 2015. 1. The existence of a licence agreement in terms of the document of 30 March 2015 was fundamental to MJHQ's case for final orders in the proceeding in File No. COM 17/32110. 2. On that basis, WAP had submitted it could terminate MJHQ's occupation of the Shop on one month's notice because MJHQ only ever occupied the Shop as a monthly tenant at will. 3. MJHQ's submissions on the appeal included that there was no error of law or miscarriage of justice in the costs order made on 23 January 2018. The Tribunal had considered WAP's submissions on costs dated 6 September 2017 and had given adequate reasons to support the conclusions that there were "special circumstances", within s 60 of the NCAT Act, warranting a costs order against WAP, and for costs on the indemnity basis because of WAP's "delinquency" in issuing a demolition notice after 9 August 2017. 4. MJHQ's representative submitted that "special circumstances" arose from the way WAP had conducted itself prior to the commencement of the proceedings. In his written and oral submissions on the appeal, MJHQ's representative argued forcefully that WAP had "sat on its hands", and that WAP had made no genuine attempt prior to the commencement of the proceedings to put MJHQ on notice of its reasoning as to why s 16 of the RL Act, as then in force, did not apply in the particular circumstances, or to articulate the legal basis for its statements in correspondence that MJHQ's occupation of the Shop was a monthly tenancy at will, terminable on one month's notice. In essence, MJHQ argued that WAP had declined to answer correspondence or to meet with MJHQ to discuss or mediate the dispute; WAP had provided no evidence it had an arguable case and in consequence MJHQ had no choice but to incur the significant expense of bringing the proceedings to the Tribunal by the applications lodged on 20 July 2017. Consideration – Grounds of Appeal 1, 2, 3 & 4 1. We are satisfied that the Tribunal made errors of law in the finding of "special circumstances" within the meaning of s 60 of the NCAT Act. 2. Whilst the terms of s 60(3)(c) and (e) of the NCAT Act are more obviously directed to claims made in the proceedings themselves, we are prepared to accept that the tenability or unreasonableness of a position taken by a litigant before litigation commences, which provokes the commencement of proceedings, is capable of being a special circumstance for the purposes of s 60(2) of the NCAT Act. 3. However, in its Reasons for Decision (at [44]) the Tribunal found that WAP's "submissions do not persuade me that their (sic) defence was likely to succeed". There are four problems with this conclusion and the related conclusions at [45] and [46] referred to below. First, there was no onus on WAP to satisfy the Tribunal that its defence was "likely to succeed". In fact, the onus was on MJHQ to satisfy the Tribunal that there were "special circumstances" warranting a costs order in its favour: MSP Consulting and Building Constructions Pty Ltd v Karkoulas (No 2) [2016] NSWCATAP 183 at [32]. 4. A shifting of the onus is an error of law: Seltram Pty Ltd v Ghaleb [2005] NSWCA 208 at [3], [111]. 5. Secondly, even in reversing the onus, the Tribunal asked itself the wrong question or had regard to an irrelevant consideration. This also is an error of law: Craig v South Australia (1995) 184 CLR 163 at 179; Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at [82]; 351. 6. The language of s 60(3)(c) of the NCAT Act was whether the claim or defence had "no tenable basis in fact or law"; not whether WAP's potential defence was "likely to succeed". Whether a defence is "likely to succeed" is a much higher threshold to cross than "no tenable basis in fact or law". In our view, by itself, mounting a defence which is not likely to succeed would not be sufficient to warrant a conclusion that there were special circumstances within the meaning of s 60(2). 7. Thirdly, the Tribunal made an express finding that s 60(3)(e) applied because MJHQ's case was "relatively much stronger than (WAP's) defence to the point that (WAP's) case was lacking in substance". Even if s 60(3)(e) was applicable, which is, at least, doubtful, the Tribunal erred because it gave no reasons for deciding that WAP's defence was unlikely to succeed and "accordingly … lacking in substance" (at [45]). The Tribunal did not say why WAP's written submissions on costs dated 6 September 2017 (see, particularly, paragraphs [18] and [19]) were not correct or could not be accepted. The Tribunal did not assess the relative strengths of the parties' respective cases or determine whether there was a substantial disparity between them. The Tribunal did not address adequately, or at all, the merits of WAP's position, which was to argue, based on Helou's case, that in the particular circumstances there was no consensus as to the terms of a retail lease, a pre-condition in MJHQ's case for substantive relief which was founded upon a statutory conclusion that imposed a retail tenancy for a term of five years. 8. Although lengthy or elaborate reasons were not required, it was not adequate for the Tribunal to state, simply: "the respondent's submissions do not persuade me that their (sic) defence was likely to succeed": Reasons for Decision at [44]. 9. Fourthly, while the Tribunal made reference to the guiding principle in s 36 of the NCAT Act (Reasons for Decision at [46]), it does not seem to have given proper effect to it; namely, the consideration against imposing costs when a matter is resolved, even by "capitulation", at the first directions hearing in the Tribunal. We are satisfied that the Tribunal erred in law in not giving any or any proper consideration to the fact that the costs order it imposed in the circumstances was a disincentive generally to the early resolution of proceedings. Consideration – Grounds of Appeal 5 & 6 1. In determining that indemnity costs should be paid, the Tribunal considered WAP's conduct in issuing a demolition notice to MJHQ after 9 August 2017; i.e. when the proceedings in File Nos. COM 17/3219 and COM 17/32110 had been finalised by consent orders. As the demolition notice was not in issue in those proceedings, we are of the view that it was an irrelevant consideration for the Tribunal in determining whether or not indemnity costs were ordered. In fact, the validity of the demolition notice was contested by MJHQ in other proceedings in the Tribunal which were heard on 16 May 2018. We find that the Tribunal erred in law by taking into account an irrelevant consideration: Craig v South Australia (1995) 184 CLR 163 at 179; Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at [82]; 351. 2. The Tribunal further determined (Reasons for Decision at [55]) that issuing the demolition notice was sufficient "delinquency" on WAP's part as to justify an order for costs on the indemnity basis. The Tribunal did not elaborate upon its reasons for that finding by reference to relevant legal principles: s 62(3) of the NCAT Act. 3. As was pointed out by the appellant's counsel during his oral submissions at the appeal hearing, it appeared to follow from the consent orders of 9 August 2017 which accepted the Licence Agreement of 30 March 2015 as a valid and effective document and as constituting a retail lease for the purposes of the RL Act, as then in force, that there was a term in the parties' agreement which provided for termination of the retail lease on 30 days' notice in the event that the lessor wanted to demolish, substantially repair, renovate or reconstruct the Centre or a part of the Centre containing the Shop premises. By the demolition notice, WAP sought to exercise that right under clause 33 of the Licence Agreement. 4. In failing to provide adequate reasons to explain the relevant delinquency to support an indemnity costs order, we find that the Tribunal erred in law: Hernady v Raccani [2016] NSWCATAP 67 at [37], [43], [44], and [52] – [54]. Consideration: Ground of Appeal 7 1. This ground raised an issue of procedural fairness. MJHQ's submissions about delinquency and ulterior purpose only appeared in MJHQ's Second Submissions. These Submissions were directed by the Tribunal on 9 August 2017 to be 'in reply' only; but in fact they raised new material because the demolition notice post-dated the time for MJHQ's First Submissions. In our opinion, it would have been, at least, desirable for the Tribunal to have made a direction giving WAP an opportunity to respond to this new argument, thereby altering the existing directions. However, it is not necessary for us to decide whether there was an absence of procedural fairness, in light of our earlier finding based upon other grounds of appeal that the Tribunal erred in law by ordering indemnity costs. Conclusion and Orders 1. As we have found errors of law in the Tribunal's decision, the order of 23 January 2018 must be set aside. 2. If we found error of law, both parties invited the Appeal Panel to re-determine the application for costs. We agree that in dealing with MJHQ's application for costs justly, quickly and cheaply (i.e. consistently with the guiding principle in s 36) it is the sensible course for the Appeal Panel to re-determine the matter, rather than to remit it to the Tribunal's Consumer and Commercial Division. 3. However, MJHQ did not concede at the hearing of the appeal on 23 May 2018 that we had all the written material it would wish to rely upon in a re-determination. In fact, since the hearing of the appeal, MJHQ's representative has invited consideration of further written material in its letter of 24 May 2018. By its letter of 31 May 2018, WAP objected to the Appeal Panel admitting this new material. It has not been considered for the purposes of this Decision. However, we have made further directions in respect of written material to be received in our re-determination of the application for costs and also in respect of our determination of the costs of this appeal. 4. For the above reasons, the orders of the Appeal Panel are: 1. Appeal allowed. 2. Set aside the order made by the Tribunal on 23 January 2018. 3. Within 14 days of the date of these orders, the parties are to provide to the Appeal Panel and to each other any further documents (including written submissions) on which that party intends to rely in the re-determination by the Appeal Panel of the costs of the proceedings at first instance and in the determination of the costs of this appeal. 4. Within a further 14 days the parties are to provide to each other and to the Appeal Panel any documents (including written submissions) in reply. 5. The parties' further documents must include submissions on the issue of whether or not an order should be made by the Appeal Panel dispensing with a hearing about these costs issues pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2015 (NSW). ********** 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: 23 August 2018