The dispute between the parties involved a lessor seeking damages from a tenant and guarantor for abandonment of retail premises. The tenant asserted in its defence that it had accepted an offer from the lessor to be released from the lease and consequently the premises was mutually abandoned. Alternatively, the tenant had argued that if mutual abandonment was not accepted, then the lessor had failed to mitigate its loss by refusing an offer from an alternate tenant that would have left the lessor in the same position as if the lease had continued in full force and effect and consequently there would have been no loss.
The applicant is the lessor, Mr Mehmet Cihan, and the first respondent, City Tobacconist Pty Limited, is the tenant (City), in relation to premises at Bondi Beach (the Lease). The performance of City under the Lease was guaranteed by the second respondent, Mr Mohamed Gebara, who was a director of City.
On 16 December 2015, the Tribunal made the following orders:
'(1) that the first and second respondents jointly and severally pay the applicant the sum of $25,549.40 within 14 days of publication of the reasons;
(2) that the first and second respondents jointly and severally pay the applicant interest from 1 February 2014 at the rate of 15% per annum pursuant to clause 5.1.5 of the Lease totalling $5,775.80 and accruing at the daily rate of $10.09 from 25 August 2015 within 14 days of publication of the reasons;
(3) costs were reserved but if either party wished to make submissions on costs it could do so within 28 days of publication of these reasons.'
In relation to the dispute between the parties regarding abandonment and whether the Lease was surrendered the Tribunal made the following findings in its reasons for decision at paragraphs 36 and 37:
'36. On the facts as I have found, there was no offer made and no reasonable understanding of the conversation of 11 September 2011 contained in an offer to be accepted, nor even if the conversation between Mr Cihan (son of the applicant) and City's manager contained in an offer to accept the surrender of lease without compensation. Mr Cihan was not authorised to make such an offer nor be seen to have a sense of authority to make such an offer. No question of estoppel arises as, even if City correctly assumed that Mr Mehmet Cihan would mutually accept an abandonment of the lease, which it was not entitled to do, there is no evidence to indicate what detriment would flow to City from making that assumption. The only detriment that flows is a liability for damages which existed as a consequence of the abandonment of premises in any event. City did nothing to alter its course of conduct in vacating the premises.
37. In these circumstances, the abandonment of the premises by City on or about 1 March 2012 constituted a fundamental breach of the lease for which it is liable to Mr Mehmet Cihan in damages.'
The Tribunal then examined the obligation of the applicant as lessor to mitigate its loss consequent upon the fundamental breach of the Lease by the respondents. The applicant claimed the balance of the term of the Lease namely nine and one-half months. The Tribunal found that clause 12.6 of the Lease created a contractual obligation on the applicant to do every reasonable thing to mitigate its loss.
The Tribunal held at paragraph 55 the following:
'55. In the absence of evidence, the Tribunal must come to a view as to what damages Mr Mehmet Cihan is entitled to. It cannot be nil and it cannot be the whole 9½ months. As the Tribunal has found in previous decisions such as in Blandimo, Yan Gu and Perpetual v Gelato, about four months, subject to any evidence, is a reasonable time to locate a new tenant. Accordingly, I find four months' rent plus a proportional amount of outgoings as the loss suffered by Mr Mehmet Cihan for breach of the Lease by City.'
[2]
The offers
On 18 July 2015, some two months before the hearing the applicant made an open offer to receive $53,000.00 inclusive of costs. The offer was available for acceptance for 10 days. The offer was not accepted by the respondents.
The first respondent made an open offer on 19 August 2015 for payment of $45,000.00 over nine monthly instalments commencing on 1 October 2015. That offer was also inclusive of costs. The offer was open to be accepted up till 24 August 2015 the day before the hearing. That offer was not accepted.
As noted the amount that the Tribunal ordered for the respondents to pay the applicant together with interest is just over $30,000.00 as of the date of the decision on 16 December 2015. Ultimately one of the issues that the Tribunal may be called upon to review is whether the applicant achieved a result that was more favourable than that which was offered.
[3]
Relevant Law
Section 60 of the Civil and Administrative Tribunal Act 2013 (CATA) governs the question of costs. It provides as follows:
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.
(3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following:
(a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings,
(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings,
(c) 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,
(d) the nature and complexity of the proceedings,
(e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance,
(f) whether a party has refused or failed to comply with the duty imposed by section 36(3),
(g) any other matter that the Tribunal considers relevant.
(4) If costs are to be awarded by the Tribunal, the Tribunal may:
(a) determine by whom and to what extent costs are to be paid, and
(b) order costs to be assessed on the basis set out in Division 11 of Part
3.2 of the Legal Profession Act 2004 or any other basis.
(5) In this section 'costs' includes:
(a) the costs of, or incidental to, proceedings in the Tribunal, and
(b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.
Section 36 of the CATA provides as follows:
36 Guiding Principle to be applied to Practice and Procedure
(1) A guiding principle for this Act and the procedural rules, in their application to proceedings in the Tribunal, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
(2) The Tribunal must seek to give effect to the guiding principle when it:
(a) exercises any power given to it by this Act or the procedural rules, or
(b) interprets any provision of this Act or the procedural rules.
(3) Each of the following persons is under a duty to cooperate with the Tribunal to give effect to the guiding principle and, for that purpose, to participate in the processes of the Tribunal and to comply with the directions or orders of the Tribunal:
(a) a party to the proceedings in the Tribunal,
(b) an Australian legal practitioner or other person who is representing a party in proceedings in the Tribunal.
(4) In addition, the practice and procedure of the Tribunal should be implemented so as to facilitate the resolution of the issues between the parties in such a way that the cost to the parties and the Tribunal is proportionate to the importance and complexity of the subject-matter of the proceedings.
(5) However, nothing in this section requires or permits the Tribunal to exercise any functions that are conferred or imposed on it under enabling legislation in a manner that is inconsistent with the objects of principles for which that legislation provides in relation to the exercise of those functions.
Finally, the Tribunal Rules under the Civil and Administrative Tribunal Rules 2014 at Rule 38 provides:
38 Costs in consumer and commercial division of 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 a dispute in the proceedings is more than $10,000.00 but not more than $30,000.00 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 $30,000.00.
[4]
The applicant's submissions
The applicant submitted that pursuant to s60 of CATA there are special circumstances warranting an order for costs because:
1. The respondents failed to comply with the timetable set.
2. The respondents failed to file any pleadings on facts and issues causing the applicant to waste resources and unnecessary costs in having to formally prove all the facts.
3. The first respondent's defence had no merit, was frivolous and vexatious.
To the extent that the first respondent relies on its offer of $45,000.00 payable over nine months the applicant says that a rejection of this offer should not automatically translate into a departure from the usual order as to costs even if the result obtained by the applicant is worse than the terms of the offer made (Calderbank v Calderbank (1975) 3 ALL E.R. 333).
The applicant then in its submissions discussed Calderbank offers and whether it is necessary to establish that it was reasonable for the applicant in all the circumstances to reject the offer made.
[5]
Submissions from the first respondent
The submission from Mr Soltan of the Leasing Doctor on behalf of the first respondent is basically that the applicant is disentitled to its costs because it rejected the offer based on the principles of Calderbank. The first respondent says that the offer made by it is more generous notwithstanding that payments are over nine months, than that which was in fact the result that the applicant obtained.
The second submission from the first respondent is that, as it was successful in the second aspect of the case regarding the obligation of the applicant to mitigate his loss, thereby reducing substantially the amount of damages awarded to the applicant compared to the amount claimed by the applicant, then it is entitled to its costs on that aspect. Mr Soltan submitted a copy of his Costs Agreement to establish the quantum of costs claimed.
[6]
Recent decisions
In a recent decision by the Appeal Panel in Gaynor v Burns [2015] NSWCATA P150 after reciting section 60 of the CATA, the Appeal Panel at paragraphs 16-19 considered 'special circumstances' as it appears in s60(2). At paragraph 19 the Appeal Panel stated as follows:
19 In Cripps v G & M Dawson [2006] NSWCA 81 Santow JA considered the words 'special circumstances' as they appeared in s88(1) of the Administrative Decisions Tribunal Act 1997 (NSW) (repealed). That provision enabled the Tribunal to award costs in relation to proceedings before it only if it was satisfied there were 'special circumstances warranting an award of costs'. Santow JA sets out the Tribunal's statement of relevant principle at [18-19] of its reasons and concluded that the Tribunal had erred in its application of those principles in failing to find 'special circumstances' explaining at 60
60 it is not necessary to determine whether in the circumstances the appellant committed equitable fraud. In my view it sufficies that the conduct of Cripps and Jones in relying upon their status as the registered proprietors of the freehold and the doctrine of indefeasibility of title to wrongly deny registration and consequently assignment of the lease, so acted as by their conduct to give rise to special circumstances; that is, circumstances that were clearly out of the ordinary and grossly unreasonable so far as the respondent tenant was concerned. On the one hand, the Tribunal correctly concluded that the respondent, through no fault of its own, has been placed in the situation where it has been forced to pursue this litigation. Yet it still failed to find special circumstances. With respect, I consider that the Tribunal was in error in failing to conclude that special circumstances here applied. For this reason, it suffices that the circumstances are out of the ordinary. They do not have to be extraordinary or exceptional. While a finding of 'serious unfairness' is not a prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.
In the circumstances, the Appeal Panel in Gaynor ordered that the appellant pay the costs of the respondent incidental to that appeal.
[7]
Resolution of the issue of cost by the Tribunal
The applicant has submitted that the first respondent should pay his costs relying on sections 60(3)(a) and 60(3)(c) of CATA stating that there are special circumstances in that the defences raised by the first respondent were totally misconceived and had no merit. The defences raised by the first respondent lacked factual and legal substance and protracted the litigation unnecessarily.
Further, it is the Tribunal's view that in this case special circumstances do apply, even if Rule 38(3) did not apply given the quantum of the award to the applicant, in that the applicant has been put to the expense of obtaining legal representation to prosecute its claim against the respondents who put forward defences that lacked factual and legal substance as noted by the Tribunal in paragraph 4 of these Reasons.
As suggested by Santow JA in Cripps followed by the Appeal Panel in Gaynor, for special circumstances to apply it suffices that the circumstances are just out of the ordinary. They do not have to be extraordinary or exceptional. Consequently, the Tribunal accepts that out of the ordinary is found in the circumstances of this case where a party, such as the applicant is put to the expense of proving its a claim against defences that are flawed in fact and law and ultimately dismissed.
Further, the Tribunal views that the rejection by the applicant of the first respondent's offer in circumstances where the applicant thought that it was entitled to substantially more damages than is generally the usual case for landlords to receive 3 to 4 months' rent on vacation of leased premises, does not of itself mean that the first respondent is entitled to claim and be awarded its costs. However, the Tribunal believes that, because the first respondent was able to demonstrate that the damages awarded to the applicant were in accordance with recent decisions of the Tribunal on the responsibility of a landlord to mitigate, then the first respondent should not be liable for the total costs of the applicant.
Accordingly, the Tribunal orders that the first respondent pay 50% of the applicant's costs. As noted at paragraph 68 in Gaynor the Appeal Panel stated as follows
68. While we accept we could make an order for a specific sum to be paid within a specified time period, there is simply no evidence before us to enable us to make an informed assessment of a proper quantum of costs to be paid. Rather, we propose to provide the parties an opportunity to reach agreement on costs within 20 days of publication of these reasons, failing which costs may be assessed under the Legal Profession Uniform Law Application Act 2000 (NSW) Part 4.3 Div 7 as provided in s60(4) of the CATA. The costs shall be payable 14 days after assessment or agreement.
[8]
Orders
1. The first respondent shall pay 50% of the costs of the applicant of and incidental to the proceedings including the submissions on costs as agreed and failing agreement within 28 days of the date of this order as assessed under Part 4.3, Div 7 of the Legal Profession Uniform Law Application Act 2014 (NSW).
2. The costs agreed or assessed under order (1) of these orders shall be payable within 14 days of agreement or assessment.
D Bluth
Senior Member
Civil and Administrative Tribunal of NSW
8 April 2016
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: 01 June 2016
Parties
Applicant/Plaintiff:
Cihan
Respondent/Defendant:
City Tabaconist Pty Ltd & Gebara
Legislation Cited (3)
Administrative Decisions Tribunal Act 1997(NSW)
Legal Profession Uniform Law Application Act 2000(NSW)