Chan v Kostakis [2003] VCAT 951

2. First respondent's application under Section 75 of the Victorian Civil and Administrative Tribunal Act 1998 is otherwise dismissed.

3. The first respondent must pay the applicant's costs of this proceeding to be taxed in default of agreement in accordance with County Court Scale "C".

Ms C Harris of Counsel appeared for Jim Kostakis and Mr B Wertheim, Solicitor appeared for Tracey Hinsley

1. This proceeding was commenced by an application filed in the Tribunal on the 23rd January 2003. The application did not include points of claim and was brought against the first two Respondents in this proceeding, namely Mr. Jim Kostakis and Ms. Tracey Hinsley who are described as tenants.

2. The Applicants are Stephen Chan and Oi Lin Chan who are described as Landlords. The proceeding concerned premises at 161 Foster Street, Dandenong at which it appears an establishment known as the Net Restaurant has been conducted.

3. The application claimed $36,311.11 consisting of $28,702.74 rent arrears up to and including the 21st of January 2003. The application also sought an order that the tenants surrender possession of the premises at 161 Foster Street, Dandenong, inferentially to the applicants.

4. Subsequently, points of claim were filed which, though undated, were received at the Tribunal registry on 30 May 2003. By the time those points of claim were filed, Mr. Michael Farrah had been joined as third Respondent to the proceeding. Mr. Farrah's joinder was effected on his own application and upon the basis that he claimed an interest in the restaurant business and in some of the documents described himself as a tenant. It is common ground that Mr. Farrah did not sign the lease in question.

5. The relief sought in the points of claim was possession of the land that, is the restaurant premises; $43, 585.74 for arrears of rent to the date institution of the proceeding (and it will be seen that this is inconsistent with the original application if January 2003 is treated as the date of the proceeding), mesne profits at the rate of $2,000 per calendar month from the institution of the proceeding. Alternatively, all arrears of rent and the sum of $5,208.85 for outgoings together with interest and costs.

6. In Paragraph 8 of the points of claim, the Applicants assert "by institution of this proceeding, the Applicants exercise their right to re-enter the land". The proceeding was instituted on 23 January, so therefore, the Applicant's case is that the lease in question terminated on that date. Paragraph 9 states "accordingly the lease had been forfeited to the Applicants. The Applicants are entitled to immediate possession of the land".

7. The lease in question was for a time of one year and commenced on 4 October 1999. The two people signing the lease as tenants were the first two Respondents, Mr. Kostakis and Ms. Hinsley. Mr. Farrah has had an involvement in the business. According to an affidavit sworn by Mr. Kostakis, Mr. Farrah was involved in the business from its very commencement in late 1999 to early 2000, but Mr. Kostakis was shown as tenant rather than Mr. Farrah because of some financial difficulties which Mr. Farrah has suffered in the past. This of course is the account of events given by Mr. Kostakis. I have no affidavit material which would explain and characterise Mr. Farrah's involvement in matters from his stand point and according to his recollection of events.

8. I have before me today an application pursuant to Section 75 of the Victorian Civil and Administrative Tribunal Act 1998 by Mr. Kostakis asking that the entirety of the claim against him be dismissed. Through his Counsel Ms. Harris, he submits that in the circumstances the claim against him would be found to be legally misconceived and without substance. Before proceeding further, it necessary to say something as to Section 75. I will not trouble to read it in full. It empowers the Tribunal at any time in the proceeding to effect summary dismissal of all or any part of the proceeding on the ground that it is frivolous, vexatious, misconceived, lacking in substance or otherwise an abuse of process.

9. It is unnecessary to go in detail to the authorities upon this provision and similar provisions such as those to be found in order 23 of the Rules of the Supreme Court. The authorities are at one in stating that summary dismissal should be effected only in the clearest of cases and there should be no summary dismissal in circumstances where the outcome of a case might depend on findings of fact based upon contested evidence. Typically, a successful application for summary dismissal will proceed from the finding that even if all that is alleged against the Applicant for summary dismissal in the relevant pleadings is accepted, nevertheless, no entitlement to legal relief is made out. This is by no means the effective sole ground for application for summary dismissal; but it is the most typical.

10. Conversely, the authorities state that an application for summary dismissal will not fail merely because argument and reference to legal principle and factual material even to a very elaborate extent and degree are necessary to demonstrate that ultimately the claim cannot succeed.

11. Accordingly, it is not only the most obvious and patent of defective cases that may be summarily dismissed but those which can be demonstrated as such by relatively elaborate analysis. Ms. Harris on behalf of Mr. Kostakis submits in the circumstances before me that such has been demonstrated. Factually, Mr.Kostakis swears as I have said that he became involved with this restaurant and this tenancy as it were as an accommodation party. That is, lent his name to the lease and was for some degree a fifth wheel in the operation. He says that in April 2000 as a result of family bereavement and other difficulties, he effectively retired from involvement in the restaurant and he has not been involved since.

12. Mr. Wertheim, who appears today on behalf of the second and third Respondents, has informed me his instructions are materially different from this. He says that if the matter goes to trial his clients will provide evidence indicating the continuing involvement by Mr. Kostakis with the premises and the business until mid 2002. None of this of course has gone beyond assertion across the bar table. It is not deposed to.

13. Ms. Harris says that Mr. Kostakis' account which I have summarised briefly stands as affidavit material uncontradicted. It shows that in the period during which the arrears of rental must have been claimed, there has been a material change in the nature of the tenant. Mr. Kostakis, she says was no longer tenant, Mr. Farrah was and therefore the claim against Mr. Kostakis must be misconceived and doomed to failure.

14. It will be recalled that the lease which forms the basis for the claim against Mr. Kostakis was a term of one year only and commenced as long ago as the 4th of October 1999. How, one may ask can a claim of this magnitude being made as at this date? The answers so far as the Applicants concerned was to be found in Clause 10 of the lease. It provides in fairly typical form that if a tenant remains in possession without objection by the landlord after the end of the term -

10.1.1 the tenant, without any need for written notice of any kind, is a monthly tenant on the conditions in this lease, modified so as to apply to a monthly tenancy;

10.1.2 either party may end the tenancy by giving one month's written notice

10.1.3 the monthly rent starts at one twelfth of the annual rent which the tenant was paying immediately before the term ended unless a different rent is agreed;

10.1.4 the landlord may increase the monthly rent by giving the tenant one month's written notice.

10.2.2 [which is relied upon by Ms. Harris says] this lease continues until a new tenant takes possession of the premises unless the landlord

b) notifies the tenant in writing that a breach by the tenant is being treated as a repudiation of the lease, or

15. It is the Applicants' case as testified by their pleadings that this lease persisted presumably under the over-holding provision Clause 10 which I have just made reference until the 23rd January this year. Hence, Mr. Kostakis's liability as tenant by virtue inter alia of privity of contract with the Applicants remained unimpaired.

16. What then are we to make of the contentions made by Mr. Kostakis in his affidavit and forming the basis for Ms. Harris' submissions that he was not in possession. In itself, this provides no defence to a claim for arrears of rent. In a typical case of assignment where all parties agreed that the assignor tenant is departing and is to have nothing further to do with the possessory elements of the tenancy, if after assignment rental falls into arrear, the landlord is at liberty despite all the formalities associated with the assignment and the departure of the assignor to look to the assigning and therefore former tenant to make good arrears of rent. So it seems to me that Mr. Kostakis' affidavit even if standing uncontradicted and therefore in a state where it must be accepted as true does not, merely by demonstrating that Mr. Kostakis had, as it were, folded his tent and departed, demonstrate that he could not be liable under the lease.

17. Clause 10 as I have said has the potential if its requirements are made out and continue to be made out to extend the lease and therefore the liability of Mr. Kostakis. At the very least, it arguably has that effect and that in itself would be sufficient to turn aside for Section 75 purposes, the effect of the present attack. Even if that were not so, it is not clear to me that Mr. Kostakis' affidavit necessarily demonstrates that he ceased to be in possession at least until the 23rd of January this year. In Forgeard v Shanahan (1994) 35 NSW LR 206, the New South Wales Court of Appeal considered some difficult questions as to entitlements between co-owners.

18. For the purposes of this analysis. the majority of the Court (Kirby P, Mahoney and Meagher JJA) supported the views of Meagher JA who said at page 221:

1. Since both joint tenants and tenants in common have joint possession of the land in which they have their estate, it was a settled rule of law that the possession of any one of them was the possession of the other of them so, ( for example), to prevent the statutes of limitations from affecting them.

19. This principle might have the effect that as long as Ms. Hinsley remains in possession, Mr. Kostakis needs to be regarded as remaining in possession. Her possession being his. Both signed the lease and on the face of it, thereby, became joined tenants of the leasehold estate. Since it seems though as business parties presumably in equity they held as tenants in common.

20. The principle which I quoted from Forgeard's case as His Honour explained applies alike to tenants in common as to joint tenants.

21. Accordingly, in so far as it is suggested that the case against Mr. Kostakis must fail based upon evidence of his departure from possession, the arguments do not make good that contention. At the very least it is arguable that despite these matters, Mr. Kostakis may remain liable and that is sufficient conformably with the principles that I indicated earlier that govern Section 75 applications to lead to the conclusion that the application must fail on this ground.

22. The other matter to which I was referred appears as an exhibit to the affidavit of Mr. Kostakis. It is a letter dated the 13th March 2003 addressed to Mr. Kostakis' solicitors and marked for the attention of the solicitor managing this proceeding, namely Mr. Bart Potenza. It is written in the matter of "161 Foster Street, Dandenong", over the signature of K W Dowman, Director, and states:

"We write to confirm that during this company's appointment as Managing Agent for the above property we were required to change the locks at the premises on 2 occasions due to breaches of the lease namely on the 6th July 2001 and 11th December 2001."

23. I have no affidavit material from any other party as to these matters and Ms. Harris says that as to the events of those two dates, her client was not in physical possession and she was unable to elucidate matters according to instructions which she has. She submits, however, that either one or the other or both at those lock-outs was effective to terminate the lease and therefore to terminate her client's liability. She took me to other correspondence which suggested that on a date after that date, the rental had been brought into credit so therefore her clients could not have been responsible for arrears.

24. Mr. Hawas and Mr. Wertheim both submitted that it would be wrong to give affect to the letter which I have just quoted by way of a firm finding that the lease of 4th October 1999 had come to end on either of those dates. Mr. Hawas for instance noted that there are many applications in this Tribunal in which a tenant has been subjected to a lock-out and demonstrates to the Tribunal that there is a serious issue to be tried as to whether the lock-out was or was not legal or effective at law to terminate the lease.

25. If a finding is ultimately made that the lock-out was not authorised by the lease, that the lease was not terminated it was therefore trespassory and would not have the effect of terminating the lease. One might add that if relief against forfeiture had followed with regard to either of those lock-outs again, the original lease would have been re-instated. Precisely what happened remains cloaked in mystery. Moreover, as Mr. Wertheim and Mr. Hawas have pointed out, since Mr. Dowman has neither sworn an affidavit or made himself available as a witness to give viva voce evidence, this letter is hearsay and inadmissible.

26. Of course the Tribunal by virtue of Section 98 of the Victorian Civil and Administrative Act may inform itself in such manner as it sees fit. It may receive and consider hearsay material. It is however, bound expressly by the rules of Natural Justice and on so important a point, it would be my view be contrary to the rules of Natural Justice to allow this letter to be the basis of a crucial finding without opposing parties having the opportunity to cross- examine the maker of the statement or to clarify the situation. It seems to me therefore, that whether this letter is taken at face value or not and whether the inferences of fact and law as Ms. Harris submits, should be drawn from it matters would be illuminated by the hearing of full evidence at trial and also by reference to discovery which had not yet been completed. Therefore, it appears to me that there is no proper basis for the ground of any relief under Section 75 based upon this letter. There are however, aspects of the claim now mounted which so fas as Mr. Kostakis is concerned must on any view fail. The pleading as I have already noted is that the lease of 4th October 1999 was terminated by the commencement of this proceeding. If this is right, then no rent accruing after or allegedly assuming after the 23rd January 2003 can be the liability of Mr. Kostakis.

27. Mr. Kostakis it is conceded by Mr. Wertheim disappeared from the premises quite some time ago, long before January 2003. Mr. Hawas on behalf of the Applicant could not distinctly make such a concession. On the other hand he was unable to deny Mr. Kostakis' disappearances and in the circumstances I believe that I should treat Mr. Kostakis as having departed no later than 23rd January 2003. If that is correct then there can be no proper basis for claiming any possession against him once the lease was terminated and the piece of joint property which could make Ms. Hinsley, as it were his agent, for the purposes of possession also ceased to exist.

28. Therefore, he cannot be responsible either for mesne profits. In my view therefore, the grounds have been made out pursuant to Section 75 to demonstrate that the claim with regard to these matters against Mr. Kostakis for a period after 23rd January this year is misconceived and should be dismissed. Aside from these matters, I believe this application should otherwise be dismissed.

29. I have given my reasons for dismissing all but a relatively small part of the application under Section 75 of the Victorian Civil and Administrative Tribunal Act 1998 made by the first Respondent to this proceeding.

30. As a consequence I have heard applications for costs on behalf of the Applicants and also on behalf of the solicitor for the third Respondent. Mr. Hawas, who appears for the Applicants, says that his clients have been substantially successful and this strike-out application was broached for the first time on 6th June 2003 remained uncompleted and was finally made today. He says and I do not understand it to be denied that I reserved the costs of the initial broaching of that application until I gave my determination today. He says his clients have had substantial victory and as such should obtain costs.

31. Ms. Harris submits that the matter was by no means all one way and there should be no costs order made.

32. Mr. Wertheim has made a costs application. Ms. Harris opposes this on the basis that no relief today was sought against the clients of Mr. Wertheim. Accordingly, whilst Mr. Wertheimer's attendance may well have been prudent and proper and recoverable as to costs between solicitor and client she submits it should not be the subject of new order as between party and party.

33. This proceeding is brought under the Retail Tenancies Reform Act 1998 and or the Fair Trading Act 1999. It was commenced before the 1st May this year and so costs in it are governed by Section 109 of the Victorian Civil and Administrative Tribunal Act 1998. The far more restrained regime as to the award of costs between parties as laid down in the Retail Leases Act 2003 did not apply.

34. I have taken the view in Retail Tenancies List that matters such as this are in the nature of commercial litigation. Hence, having regard to that nature of the proceeding and the inherent complexity of landlord and tenant matters particularly of the overlay of the special provisions relative to retail tenancies it is proper to depart from the presumption against the award of costs contained in Section 109(1) at least as between party and party.

35. In my view, the proper course therefore is in a proceeding such as this generally costs should follow the event. In my view, today's event was substantially a victory for the Applicants. The Applicants should have their costs accordingly. True it is that certain aspects of the claim against Mr. Kostakis were ordered dismissed but they are by far the less significant. So far as the costs paid on behalf of Ms. Hinsley and Mr. Farrah are concerned, I accept Ms. Harris' submission. It was prudent and reasonable for their solicitor to be here, however, I do not believe in circumstances where no relief was being sought against either of these parties that it would be proper to cast the costs of Mr. Wertheim's attendance upon Ms. Harris's client.