Charalambous v Yeung [2014] NSWCATAP 1 | Case summary

Introduction 1 This decision relates to the costs of proceedings that were heard during 2013 at first instance and on appeal in the Administrative Decisions Tribunal ('the ADT'). 2 In both sets of proceedings, the claims made by the Appellant, Neophytos Charalambous, against the Respondent, Eric Au Yeung, were unsuccessful. 3 On 1 May 2009, the Appellant granted to the Respondent a lease ('the Lease') relating to premises ('the Premises') on the ground floor of a building that he owned in Matraville. The Lease had a term of three years, with an option to renew for a further three years, and was governed by the Retail Leases Act 1994 ('the RL Act'). The monthly rent was $1,584.92. 4 In accordance with the terms of the Lease, the Respondent operated a laundromat in the Premises. Late in the evening of 5 July 2010, or in the early hours of the following morning, a fire broke out at the Premises. It caused extensive damage, rendering them unusable for a considerable period. The Respondent did not return to them in order to recommence his business. After repairing them, the Appellant granted a lease to a new tenant commencing on 16 May 2011. 5 In an Application for Original Decision filed in the ADT on 14 June 2012, the Applicant-Appellant claimed the amount of $62,688.24 from the Respondent for expenses allegedly incurred on account of the fire. The principal components of this amount were the cost of the repairs ($28,926.00) and the rent lost between 2 August 2010 and 15 May 2011 ($15,031.18). 6 The hearing at first instance before the Retail Leases Division of the ADT ('the RLD') took place on 5 and 6 February 2013. On 24 April, the RLD delivered its decision in favour of the Respondent (Charalambous v Yeung [2013] NSWADT 86 - 'the first instance decision'). In that decision, it stated (a) that no order for costs would be made unless a party filed and served submissions as to costs within 14 days and (b) if this occurred, the opposing party was to file and serve his submissions within a further 28 days, whereupon the matter would be determined 'on the papers' pursuant to section 76 of the now-repealed Administrative Decisions Tribunal Act 1997 ('the ADT Act'). 7 On 8 May, the Respondent filed an application, with supporting submissions, for an amount of $36,855.50 representing his costs of these proceedings at first instance. 8 On 21 May, the Appellant filed a Notice of Appeal. On the following day, he filed submissions replying to the Respondent's application for costs. In a letter dated 24 May, the Registrar of the ADT notified the parties that this question of costs would be determined by the Appeal Panel of the ADT. 9 The Panel heard argument on the appeal on 9 August 2013. In a decision delivered on 27 September 2013 (Charalambous v Yeung (RLD) [2013] NSWADTAP 44 - 'the appeal decision'), it dismissed the appeal. It also gave directions as to the filing of submissions regarding the costs of the hearings at first instance and on appeal. 10 On 24 October, pursuant to these directions, the Respondent filed an application, with supporting submissions, for a further amount of $44,405.60 representing his costs of the appeal. Save in one respect, noted below at [25], he did not supplement his submissions regarding the costs at first instance. 11 On 20 November, the Appellant filed submissions in reply. He did not supplement his submissions regarding the costs at first instance. 12 Because the proceedings to which the present decision relates are 'part heard proceedings' as defined in clause 6(1) of Schedule 1 of the Civil and Administrative Tribunal Act 2013, they are to be determined as if that Act had not been enacted (see clause 7(3)(b) of this Schedule). 13 Because the decision relates only to questions of costs, it may be determined by a Deputy President sitting alone, pursuant to section 24A(2) of the ADT Act. 14 At the relevant time, section 77A of the RL Act provided that costs in ADT proceedings brought under this Act could be awarded under section 88 of the ADT Act. Under this section, an Appeal Panel hearing an appeal from a decision at first instance had power to award costs in relation to both the proceedings that led to this decision and the appeal proceedings themselves. Relevant parts of section 88 are reproduced below. 15 Commencing at paragraph [8], the appeal decision contains outlines of legal aspects of the Appellant's claim, the grounds on which the RLD rejected this claim at first instance, the principal contentions advanced by the parties in the appeal and the Appeal Panel's reasons for dismissing the appeal. These passages in the appeal decision should be read in conjunction with the present decision. 16 It is sufficient here to draw attention to three aspects of the evidence adduced in, and the reasoning adopted by, both the RLD and the Appeal Panel. These are as follows: (a) a considerable quantity of conflicting expert evidence as to the cause of the fire in the Premises was put before the RLD; (b) the explanation for the fire ultimately accepted by the RLD (and not disputed by the Appeal Panel) was that sheets, towels and other items that had been stacked in piles after being dried in a drying machine had 'self-ignited'; and (c) the Appellant's claim failed principally because he did not establish that the Respondent, at the time of the fire, knew or ought to have known of the risk of 'self-ignition' occurring in these circumstances.

The costs at first instance 22 The Respondent's submissions. The most significant argument made by the Respondent in seeking an order that the Appellant pay his costs of the proceedings at first instance was that the Appellant had unreasonably rejected two offers of settlement made by him during the period between the instigation of these proceedings by the Appellant (on 14 June 2012) and the commencement of the hearing at first instance (on 5 February 2013). 23 The circumstances surrounding the first of these offers were described in the Respondent's submissions as follows:- In or around July 2012, the Respondent served an offer to pay the Applicant the sum of $31,000 as full and final settlement of the claim. The offer represented 70% of the Applicant's claim (excluding costs and disbursements). The Applicant rejected the Respondent's offer. 24 No documentary or other evidence of the making or rejection of this offer was adduced in the first instance proceedings or the appeal. 25 In the Respondent's submissions as to the costs at first instance, the circumstances surrounding the second offer were described as follows:- On 31 January 2013, the Respondent served an offer to pay the Applicant's claim in the sum of $40,000 as full and final settlement. The offer was made pursuant to the principles of Calderbank v Calderbank. The offer represented approximately 91% of the Applicant's claim (excluding costs and disbursements). The Applicant rejected the Respondent's offer on 1 February 2013. 26 It was not until 24 October 2013, when the Respondent filed his submissions as to the costs of the appeal, that any evidence regarding this second offer was adduced. Annexed to those submissions was a copy of a letter dated 31 January 2013 from the Respondent's solicitors (Turks Legal) to the Appellant's solicitors (Bicknell & Monteith). It was headed by a notation indicating that it was sent by email and by the statement 'Without prejudice save as to costs'. Omitting formal parts, it said:- We are instructed on behalf of the Respondent to offer to resolve your client's claim in the sum of $40,000.00 inclusive of costs and disbursements. This offer is made pursuant to the principles in Calderbank v Calderbank. We bring to your attention that should your client obtain an amount equal to or less than the figure contained herein, this letter may be tendered in an application in relation to the question of costs. This offer is open for acceptance until 4.00 pm on 4 February 2013. 27 In making this argument, the Respondent referred to paragraph (e) of section 88(1A) of the ADT Act. He argued, citing the decision of the ADT in De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40, that the Appellant should pay his costs on an indemnity basis. In the alternative, he relied on Tsimbakos v BlackRock Investment Management (Australia) Ltd (No 2) [2010] NSWADT 260 as showing that the Appellant should at least pay his party/party costs. 28 In addition, the Respondent submitted that it would be 'fair' to award costs to him because he had been compelled to obtain expert reports from two consultants on the likely cause on the fire. This was necessary to enable him to respond effectively to two expert reports on this matter that the Appellant had served on him along with the application initiating the proceedings. For this reason, the case against him could be characterised as complex and was expensive to defend. In making this submission, the Respondent relied on paragraph (d) of section 88(1A). 29 The Appellant's submissions. The Appellant did not dispute the Respondent's evidence as to the making of the second offer of compromise on 31 January 2013 or his allegation that the Appellant rejected his offer on 1 February 2013. 30 In seeking to rebut the Respondent's claims that the Appellant's rejection of each of his offers of compromise was 'unreasonable' and that a costs order was therefore warranted, the Appellant made the following four points. 31 First, the Respondent had not 'tendered his letters' (i.e., the letters containing the offers). 32 Secondly, the offers were 'bare numbers on a page'. They did not set out any reasons why the Appellant should accept them. Since in addition the Respondent did not file any pleadings before the hearing, it was 'hard to see' why rejection of the offers could be held 'unreasonable'. 33 Thirdly, the Respondent in his submissions misdescribed the value of the Appellant's claim. Since the total sum claimed was $62,688.24, the amount of the first offer ($31,000) was not 70% of the claim, as the Respondent maintained, but only 44%. The amount of the second offer ($40,000) was not 91% of the claim, but only 65%. The Respondent's higher percentages were calculated on the basis that certain components of the claim - for example, pre-litigation legal costs that were recoverable under the lease - could be excluded. 34 Fourthly, the authorities on which the Respondent relied - De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40 and Tsimbakos v BlackRock Investment Management (Australia) Ltd (No 2) [2010] NSWADT 260 - provided no support for his argument, for the following reasons. 35 In De Costi, the following factors were significant in inducing the ADT to find that the respondent's offer of compromise had been unreasonably rejected and to order the applicant to pay the respondent's costs on an indemnity basis: (a) one week before the hearing, the respondent had sent a letter to the applicant listing the reasons why the application would fail; (b) after lunch on the first hearing day, the applicant withdrew its claim; (c) the Tribunal observed that in any event it faced 'formidable obstacles'; (d) the claim was substantial; and (e) the applicant had delayed in 'abandoning its difficult position'. None of these factors were to be found in the present case. 36 In Tsimbakos, there were 'four other factors bearing on the case', rendering it unreasonable for the applicant to insist on the relief that it claimed. The Tribunal in fact observed that the respondent's offers were 'deficient' because they made no attempt to persuade the applicant of their reasonableness. 37 In reply to the Respondent's contentions based on the nature and complexity of the proceedings, the Applicant pointed out first that the Respondent's instructions to one of his two expert witnesses to investigate the cause of the fire were conveyed almost immediately after the fire occurred. Accordingly, the Respondent's assertion that he was compelled to obtain expert reports because the Applicant had served expert reports on him along with the application initiating the proceedings was 'baseless'. 38 Discussion and conclusions. In my judgment, the only ground on which the Respondent's claim for his costs at first instance might succeed is that the Applicant's rejection of his second offer of compromise, made on 31 January 2013, was unreasonable. The evidence relating to the first offer, made 'in or around July 2012', is insufficient to provide the basis for a costs order. The mere fact that the Respondent was compelled to obtain expert evidence as to the probable cause of the fire does not justify a costs order in his favour, particularly since he engaged one of his experts before the Appellant commenced proceedings against him. 39 The making of the second offer is, however, sufficiently substantiated by the tender, along with the Respondent's submissions filed on 24 October 2013, of a copy of his solicitors' letter to the Appellant's solicitors dated 31 January 2013 (see [26] above). The proposed compromise was, in my opinion, a genuine one. I accept the Appellant's contention that the amount offered ($40,000) was not 91% of the total amount of $62,688.24 claimed by him (as the Respondent asserted), but only 65% (see [33] above). But this is nonetheless a substantial proportion of the claim. If the Appellant had accepted this offer, the outcome of the litigation that he instigated would have been distinctly more favourable to him than the outcome that actually occurred - i.e., the dismissal of his claim. 40 The Appellant's argument that having regard to all the circumstances his rejection of the second offer was not unreasonable does, however, require careful consideration. 41 The first of the four matters that he relied on was that the Respondent had not tendered any evidence relating to either of the two offers. The Respondent did, however, cure this defect, so far as the second offer was concerned. In his submissions filed on 20 November 2013, the Appellant could have contested the Respondent's tender of the letter of 31 January 2013, but did not do so. He was also in a position to dispute, but did not dispute, the Respondent's allegation that on 1 February 2013 he rejected the offer. 42 Secondly, the Appellant pointed to the Respondent's failures (a) to state in either letter of offer any reasons why the offer should be accepted and (b) to file any pleadings before the hearing at first instance stating his grounds of defence. 43 I agree with the Appellant that in one of the decisions on which he relied, Tsimbakos v BlackRock Investment Management (Australia) Ltd (No 2) [2010] NSWADT 260, the ADT suggested at [35] that a ground on which the rejection of an offer of compromise might be held to be reasonable was that the offer did not make any effort to persuade the offeree of its reasonableness. But when a letter of offer, as in this case, is sent by one solicitor to another and the letter states that it may be tendered on the matter of costs, the solicitor receiving it must be taken to understand that the reasonableness of any rejection of the offer by the offeree may be a factor to be assessed in any later decision as to costs. 44 Furthermore, it is irrelevant that the Respondent did not file any pleadings setting his grounds of defence because, at the time when the second offer was made - being only five days before the commencement of the hearing at first instance - he had filed all the evidence, both lay and expert, on which he intended to rely. The Appellant was well placed to discern the grounds on which his claim was contested. 45 For these reasons, I do not attach significant weight to the second of the four matters on which the Appellant relied. 46 I have already dealt with the third matter, which was that the Respondent overstated the proportion of the Appellant's claim represented by his offer of $40,000. 47 The fourth matter relied on by the Appellant was that each of the two cases cited by the Respondent - De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40 and Tsimbakos v BlackRock Investment Management (Australia) Ltd (No 2) [2010] NSWADT 260 - was distinguishable from the present case. I agree with this proposition. But there are a number of other ADT decisions in which the rejection of an offer of compromise has been treated as a sufficient basis for awarding costs under section 88 of the ADT Act. One of these is described in the ensuing paragraphs of these reasons. 48 Two further considerations to which the Appellant did not advert in his submissions need to be taken into account in deciding whether or not his rejection of the second offer of compromise was unreasonable. 49 The first is whether the time allowed for acceptance of the offer was unduly short. The letter containing the offer was sent to the Appellant's solicitors by email on Thursday, 31 January 2013. It stated that the offer was open for acceptance until 4.00 pm on the following Monday, 4 February. Assuming in the Appellant's favour that the time of sending the letter was late on 31 January, the period of time left for considering the merits of the offer comprised two weekend days, one full working day and a substantial proportion of a second working day. 50 An important factor to be taken into account in this context was that, as I mentioned earlier, the offer was made only five days before the commencement of the hearing on 5 February. It can reasonably be inferred that at the time when it had to be considered the Appellant and his legal representatives had completed their preparation for the hearing or were focusing their attention wholly or predominantly on the task of preparation. 51 In determining whether the time allowed for acceptance of the offer was unduly short, I have been greatly assisted by the decision of the ADT, based on remarkably similar facts, in Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2) [2004] NSWADT 72. That case dealt also with an application for costs, made under section 88 of the ADT Act in proceedings under the RL Act, in which the primary ground argued was that the unsuccessful party (Roche, the lessor) had unreasonably rejected an offer of compromise made by the successful lessee (Irresistible). As it happened, the offer was made on exactly the same day of the relevant year (2003) as the second offer in these proceedings - i.e., Friday 31 January - and acceptance was also required on or before the following Tuesday, 4 February. 52 In dealing with the question whether the time allowed for acceptance was unduly short, the Tribunal stated as follows (at [27 - 31):- 53 In these circumstances, we must consider whether, in all the circumstances, Roche's rejection of this offer was 'unreasonable'. If it was 'unreasonable', there would be a basis for a finding of 'special circumstances' and for the exercise of our discretion under s 88 of the ADT Act to award costs. 54 We have given careful consideration to the argument, raised by [counsel for Roche], that rejection of the offer was not unreasonable because Roche was given little time in which to consider it. It was faxed to Roche's solicitors some time on Friday 31 January 2003 and acceptance was required only two business days later, that is, by the close of business the following Tuesday. 55 In a number of Tribunal cases - for example, Barsoum v Glebe Administration Board (No. 2) [2002] NSWADT 174 at [42] - it has been made clear that in this situation adequate time must be given for the recipient of an offer to give it proper consideration. In Arkbay Investments Pty Ltd v Habib & Ozvic Enterprises Pty Ltd [2003] NSWADT 143, the Tribunal noted at [86] and [94] that under ss 112 - 114 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), a party who obtains an order more favourable than the terms of a rejected offer that it previously made is presumptively entitled to costs, but that the offer must be open for a minimum period of 14 days. In the case before the Tribunal, the period given was only seven days. The Tribunal said, however, at [94]:- This difference does not, in my view, stand in the way of the offer in issue being considered. There is no suggestion of an oppressively short period. 30 In Jones v Bradley (No. 2) [2003] NSWCA 258, a recent Court of Appeal case dealing with the analogous situation of a party relying on a Calderbank letter to obtain a special costs order in District Court proceedings, a defendant's offer of compromise was expressed to be open for less than one-half of a working day (from 2.13 p.m. on a Friday until 10.15 a.m. on the following Monday). The plaintiff, in arguing that her rejection of the offer was reasonable, drew attention to the requirement in the District Court rules that formal offers of compromise must be expressed to be open for at least 28 days. The Court of Appeal stated at [13], however, that where Calderbank offers were concerned, the court's discretion was 'not constrained by these Rules'. It found, at [16], that when the offer was made, the plaintiff had the value of her case 'under active consideration'. This was evident particularly from the following factors: (a) the hearing in the District Court had commenced; (b) four days earlier, the defendant had made an offer of compromise; and (c) the following day, she had herself made an offer of compromise. The Court of Appeal concluded, at [16] that it was unreasonable for her to have rejected the defendant's second offer, despite its having been open for such a short period. It awarded party-party costs against her, as the amount of damages that she recovered (following a reduction on the appeal) was less than the amount offered. 31 In the present case, proceedings were not instigated until more than four months after Irresistible made its offer on 31 January 2003. But the correspondence between the parties or their representatives, both before and after the offer, showed that Roche at this time was actively considering the case, including what it believed to be acceptable terms of settlement. Although the period specified for acceptance was short, the reply transmitted by Roche's solicitors on 4 February - which was within this period - included a detailed counter-offer. Although this reply also included a complaint that Irresistible's solicitors had imposed 'unrealistic time frames', it did not indicate that Roche had had insufficient time to consider Irresistible's offer and it did not request further time for consideration of the offer. 32 Taking these matters into account, we have concluded that while the shortness of the time stipulated for acceptance is undoubtedly a matter that we must bear in mind, it was not so unreasonably or 'oppressively' short that, on this ground alone, the making and rejection of the offer, coupled with the terms of order against Roche, could not be held to constitute 'special circumstances' within s 88 of the ADT Act. 56 As was the situation in the important Court of Appeal decision discussed in this passage, Jones v Bradley (No 2) [2003] NSWCA 258, the Appellant in the present proceedings must be taken to have had his case 'under active consideration' when he received the second offer of compromise. Accordingly, I do not believe that the time allowed for consideration of this offer was so short as to preclude a ruling that rejection of the offer was unreasonable. 57 As the ADT mentioned in this passage at [27], the criterion for an award of costs under section 88 of the ADT Act, as it then stood, was that there should be 'special circumstances warranting an award of costs'. As indicated above at [18], the substitution (as from 1 January 2009) of 'fairness' for 'special circumstances' as the overriding criterion had the overall effect of broadening the basis upon which costs might be awarded. 58 The final matter requiring discussion is whether the Respondent's claim for costs is weakened by the fact that the sum of $40,000 offered on 31 January 2013 was expressed to be 'inclusive of costs'. 59 If the principle governing awards of costs in ADT proceedings under the RL Act was that costs should 'follow the event', the Appellant could argue that the Respondent's offer was not as attractive as it might seem at first sight. This is because if, after rejecting it, the Appellant's claim for damages was wholly successful he would, as a matter of course, be entitled to his costs in addition to damages. But since under section 88 an award of costs to the successful party is not at all 'automatic', an argument along these lines is not open to the Appellant and, indeed, was not put on his behalf. For this reason, and by virtue of considerations summarised in the ADT's decision in Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 64 at [56 - 68], I do not believe that this aspect of the Respondent's second offer of compromise stands in the way of his being awarded costs by virtue of the making and rejection of this offer. 60 My conclusions are these: (a) the Respondent's offer of settlement, made on 31 January 2013 and involving payment of $40,000 'inclusive of costs' to the Appellant, was a genuine offer of compromise; (b) the Appellant's rejection of this offer on 1 February 2013 was unreasonable; and (c) the terms of this offer were considerably more favourable to the Appellant than the outcome of these proceedings. 61 For these reasons, it is 'fair' that the Respondent should pay the Appellant's costs of the proceedings before the RLD as from 31 January 2013, the date of communication of this offer. Because there is no evident 'delinquency' or other aspect of the Appellant's conduct warranting an award of indemnity costs, these costs must be assessed on a party-party basis.

Charalambous v Yeung

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