Commercial tenancy issue - Applicants failed to establish jurisdiction - Respondent applied for costs - Principles for award of costs

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 27

State Administrative Tribunal Act 2004 (WA), s 47, s 87(2)

1 The applicants in this matter were previously unsuccessful in establishing that a lease between the applicants and the respondents fell within the provisions of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).

2 As a result the respondents made application for an award of costs against the applicants.

3 The parties filed written submissions in respect to the application for costs and the matter was determined upon the documents.

4 Following an examination of the documents filed by each party, the Tribunal concluded that there was no basis to exercise the discretion to award costs in favour of the respondents.

5 The application for costs was therefore dismissed.

6 This matter was the subject of a decision by this Tribunal on 1 August 2007. By that decision, the Tribunal dismissed the application. The matter had been the subject of a hearing to determine the preliminary issue as to whether the lease between the parties constituted a "retail shop" and a "retail shop lease" under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CTRSA Act). The Tribunal found that the premises did not fall within those definitions and dismissed the application. As a result of that decision, orders were made allowing either party to file submissions in respect to an application for costs. It was also ordered that upon the filing of those submissions, unless ordered otherwise, the matter would be determined upon the papers. The respondents have applied for costs and filed submissions in support of the application for costs on 15 August 2007. The applicants have filed answering submissions to the respondents' application for costs filed in this Tribunal on 30 August 2007. Both parties have filed various documentation which has been taken into account in determining this matter.

7 Some of the relevant considerations in dealing with costs in relation to commercial tenancy proceedings is set out in the decision of Bilek and Vata Investments Pty Ltd [2005] WASAT 153 (Bilek). In that case, it was stated as follows:

"The Tribunal's power to award costs is expressed in s 87 of the State Administrative Tribunal Act 2004 (WA) ('the SAT Act'), relevantly, as follows:

Unless otherwise specified in this Act, the enabling Act, or an order of the Tribunal under this section, parties bear their own costs in a proceeding of the Tribunal.Unless otherwise specified in the enabling Act, the Tribunal may make an order for the payment by a party of all or any of the costs of another party or of a person required to produce a document or other material on the application of the party under section 35.'

The effect of s 87(1) is that the starting point in a consideration of whether or not to award costs is that in the absence of any legislative direction each party bears its own costs.

The SAT Act contains no costs prescription relevant to the proceedings in question. Those proceedings were commenced under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) ('CTRSAA') which is the enabling Act for the purposes of s 87(1) above.

At no time has the CTRSAA made any provision in respect of costs. Prior to the coming into effect of the SAT Act and the State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA) on 1 January 2005 the jurisdiction conferred by the CTRSAA was exercised by the Commercial Tribunal under the Commercial Tribunal Act 1984 (WA). That Act was repealed by State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA) ('Conferral Act'). The Commercial Tribunal Act 1984 (WA) empowered the Commercial Tribunal (under s 17) to make such order for costs as it thought fit.

The intent reflected in s 87(1) appears to be that if the enabling Act provides for costs to be awarded then the presumption that each party should bear their own costs does not apply. That general intent which can be evinced from the section does not sit comfortably with the scheme under which the Commercial Tribunal exercised jurisdiction under the CTRSAA. Further, s 87(1) would not appear to remove the presumption if the enabling Act was amended so as to no longer specify otherwise in relation to costs. The effect of the repeal of the Commercial Tribunal Act 1984 (WA) is that there is no longer any specification in relation to costs as applying to proceedings under the CTRSAA.

It may well be that this is an unintended consequence. When one has regard to the Conferral Act and a sample of the various enabling Acts, it is apparent that the legislative [sic] has adopted a scheme under which any original or review jurisdiction has been transferred from whatever body previously exercised those functions to the State Administrative Tribunal, with as little consequential amendments as were necessary.

In any event, the discretion under s 87(2) is sufficiently broad to enable the Tribunal to take into account the practice which was followed in the exercise of the applicable jurisdiction prior to 1 January 2005. The practice of the Commercial Tribunal in relation to matters under the CTRSAA was that costs generally followed the event subject to the exercise of discretional factors.

As there is no specific cost provision applicable under either the SAT Act or the CTRSAA the starting point, when considering an application for costs, must be that each party should bear their own costs.

In considering whether there are reasons why that presumption should not apply each case must be examined on its merits."

8 Although there may have been a practice in the Commercial Tribunal for costs to follow the event, it has been made clear in Bilek that the starting point should be that both parties bear their own costs unless factors exist to warrant the exercise of discretion given to the Tribunal under s 87(2) of the State Administrative Tribunal Act 2004 (WA) (SAT Act).

9 The principles to be applied in exercising this discretion in respect to costs was also discussed by Justice Barker in the matter of Summerville and Department of Education and Training & Ors [2006] WASAT 368(S) (Summerville), delivered 5 April 2007. In that decision, Justice Barker stated as follows:

"The position in relation to costs in the Tribunal is now reasonably well understood. The starting out position is that the Tribunal provides a 'no cost' jurisdiction. That understanding derives from s 87(1) of the SAT Act. However, the Tribunal has a broad discretion to award costs in appropriate cases: s 87(2).

...

Nonetheless, in my view, proceedings that should not have been maintained against a party because there really was no case to answer, is a fact that may be taken into account by this Tribunal in deciding whether to award costs against the unsuccessful party who maintained that case.

It has also been held that it may be appropriate to award costs against a party who pursues a claim which is clearly untenable or which no reasonable person would have believed could be successful: ... costs have also been awarded against an unsuccessful party who subjected the successful party to 'rigorous and sometimes embarrassing cross-examination': ...

... Additionally, a party who has acted with malice in pursuing or defending proceedings may well have costs awarded against them. The fact that a party believes that he or she acted appropriately and had an arguable case may be insufficient to prevent the costs order being made: ..."

10 In the matter of Bilek, the Tribunal considered a relevant factor in not awarding costs in an application under the CTRSA Act was that the lease was one at the lower end of the commercial spectrum, commanding a rental of only some $1000 per month plus outgoings. The Tribunal also considered that the respondent in Bilek did not present as a sophisticated operator and that the award of costs in proceedings involving less affluent sectors of the public might effectively deny access to the justice system.

11 Further, in the decision of Lai & Anor and Costa [2006] WASAT 117(S), the Tribunal held "... great care should be taken in exercising power to award costs to ensure that accessibility to the [Tribunal] is not affected".

12 Like the matter of Bilek, the lease, in this matter, was at the lower end of the commercial spectrum with the rent due per month being $1400 and outgoings, $648 per month. Similarly, the applicants were not sophisticated operators; they were a husband and wife running three businesses from stand alone premises which did not form part of a large shopping centre or commercial precinct. On the basis of the gross receipts of the three businesses it could not be said they involved a significant commercial enterprise. Further, only a portion of the gross receipts related to a business involved in the retail sale of goods.

13 The respondents submit that a factor that allows exercising the discretion to be weighed in their favour is a separate agreement by the parties, as to costs. The respondents rely on an indemnity clause in the Agreement to lease. The indemnity clause to which the respondents refer is at par 4(c) of the Agreement to lease which reads:

"The lessee indemnifies the lessor against any claims whatsoever, for any loss or damage or injury to persons, including any costs, claims or losses resulting from this contract."

14 The respondents point to the decision of Wenpac Pty Ltd v Allied Western Australian Finance Limited & Ors (Unreported, SCWA, 22 December 1993) to submit that where such a clause exists, costs should be awarded and on an indemnity basis. In that case, the starting point for that Court was that costs are awarded to a successful litigant. Unlike that Court, the starting point for this Tribunal, is that it provides a "no cost" jurisdiction. Further, any such agreement as to costs between the parties has the effect of circumventing a discretion imposed on the Tribunal under the SAT Act. In the matter of Firestar Enterprises Pty Ltd and Town of Vincent [2007] WASAT 100, a condition imposed by the respondent in respect to development approval that the applicant in that case pay the respondent costs in respect to proceedings before this Tribunal was found to be misconceived and invalid. The Tribunal considered that such a condition would have the effect of circumventing the Tribunal's discretion as to costs. The Tribunal does not accept therefore that the existence of the indemnity clause in the Agreement to lease justify an award of costs to the respondents, especially in circumstances where the indemnity clause was part of a pro forma document which was signed at a time when they were not legally represented.

15 The respondents also argue that costs should be awarded in this case because the applicants in their own application had sought costs. The applicants submit they did not claim costs in their original application nor was there any claim for costs made in any of the parties' outlines of issues, facts and contentions filed for the purposes of determination of the preliminary issue. However, even if costs had been sought by the applicant in any written application before the Tribunal, it does not entitle the opposing party, as of right, to an award of costs. If the respondents' submission were accepted, it would again circumvent the Tribunal's discretion.

16 The respondents also rely on the decision of Quah & Anor and AMP Life Limited [2005] WASAT 169 (Quah) to suggest that when this matter failed to resolve at mediation, the applicants must have appreciated that they would have a hard fought dispute on their hands. The facts in the Quah decision were similar to some extent to this matter, given that in both cases, the tenants were in a holding over position and the hearing was for the purposes of determining a preliminary issue. This matter, however, can be distinguished, as the rent for the premises was significantly at the lower end of the scale being a yearly rental initially of $16 800, as opposed to the yearly rental in Quah being $165 000 with the proposed increase rise to $292 956. On an examination of the decision in Quah, it appears that the Tribunal was influenced in awarding costs against the tenants in that matter, primarily due to the extent business operations of the applicant and the location of the leased premises. In Quah, the Tribunal considered that the costs awarded was appropriate as the applicant's were conducting a significant business in one of Perth's prime shopping centres. In this matter, the applicants were renting stand alone premises for an insignificant rental and were not running a significant commercial venture.

17 A further argument put by the respondents is that costs should necessarily follow the event where a party is unsuccessful on a jurisdictional issue. The respondents submit that where the Tribunal has held that it does not have jurisdiction in a dispute, this constitutes a special exception to the award of costs and costs should be awarded. Such a submission cannot be accepted. It is not unusual in matters under the CTRSA Act determined in the Tribunal, to deal with preliminary jurisdictional questions, as to whether the CTRSA Act applies. There is no provision either under the CTRSA Act or the SAT Act to suggest that costs must necessarily be awarded against an unsuccessful party where a finding is made that the Tribunal has no jurisdiction. Although s 27 of the CTRSA Act, highlights that other jurisdictions may be available to a party in such matters, it does not specify that should a party not establish jurisdiction under the CTRSA Act, that costs are to be awarded against them.

18 In addition, the respondents contend that the discretion to award costs applies in circumstances where an action is found to be vexatious, misconceived, lacking in substance or an abuse of process. I accept there have been cases in this Tribunal where costs have been awarded where the Tribunal has considered the application by a party was vexatious, misconceived or lacking in substance. Such a finding, however, has not been made in this case.

19 This case required an examination of the characterisation of use of the lease premises. This necessarily involved an examination of the various businesses run from the premises by the applicants and the use to which each part of the premises was put by each business. Ultimately, the Tribunal found that only one of the businesses conducted from the premises by the applicants was involved in the sale of goods by retail. It was left, therefore, to consider on a comparative basis of physical use to which the premises were put by each of the three businesses; whether the definition of "retail shop" under the CTRSA Act was fulfilled. Ultimately, the Tribunal considered that it could not be satisfied upon the evidence of physical use provided by the applicant that that definition had been met. Accordingly, the applicants failed on an evidentiary basis in bringing themselves within the jurisdiction of the CTRSA Act. Despite that finding, the Tribunal did not make any order that the proceedings were unjustified as defined under s 47 of the SAT Act. This was not a case where the Tribunal found that the applicants claim was untenable or which no reasonable person would have believed could be successful, as discussed in the matter of Summerville.

20 Although it is unfortunate that the respondents appear to have incurred significant legal costs in defending this matter, there were alternative solutions available to each party to reduce legal costs. As stated in the matter of J & P Metals Pty Ltd and Shire of Dandanup [2006] WASAT 282(S):

"In the unusual event that an order for costs is made by the Tribunal, the Tribunal's obligation to minimise the costs to parties will be reflected in the costs assessed by the Tribunal as recoverable. That approach reflects an expectation that representatives of parties before the Tribunal will approach a proceedings in a way that minimises costs to their clients. If clients choose to approach proceedings before the Tribunal in a way which substantially increases costs for them, it will be a rare case where that increase in costs will be recoverable through a favourable costs order."

21 For the reasons expressed, the Tribunal is not satisfied that circumstances exist to warrant an award of costs in this matter. Accordingly, the application for costs is dismissed.

22 For these reasons, the Tribunal makes the following order:

I certify that this and the preceding [22] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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