Diamondlite Pty Ltd v Swiss Concept Australia Pty Ltd

Set aside application

1. The basis upon which the tenant brought its set aside application was that Mr Okili (the director of the tenant) was not aware of the hearing until 11 June 2021. Purportedly, on 7 June 2021 Mr Okili's wife had received the folder from the Tribunal (which included the notification about the hearing date) but when Mr Okili returned from work and looked at the folder of documents, he did not read them or go through them. Instead, and despite Mr Okili having a solicitor, Mr Steve Kassem ("Mr Kassem") of Future Legal, he purportedly left them at a convenience store for Mr Soltan to collect when he was next in the Sydney CBD. However, Mr Soltan did not attend the CBD, and so did not receive them or review them prior to the hearing on 11 June 2021.

Tribunal's decision

1. There was no dispute between the parties about the principles to be applied on an application to set aside a decision made in the absence of a party, as contained in regulation 9(1)(b) of the Civil and Administrative Tribunal Regulation 2013 (NSW) and as set out in Hammond v Ozzy's Cheapest Cars Pty Ltd [2015] NSWCATAP 65 ("Hammond") at [63]-[65] and [75]-[81]. In particular, it was accepted that the preconditions for the exercise of the power were satisfied.
2. The Tribunal directed its attention to: 1. why the tenant was absent from the hearing and whether it had a reasonable opportunity to be heard or otherwise have its submissions considered in the proceedings; and 2. whether the tenant had an arguable defence or an arguable case that a different decision could have been reached.
3. In addressing those questions, the Tribunal was not satisfied with the tenant's explanation for its absence from the hearing and considered the tenant would need to have a stronger case in defence of the application for possession than might otherwise be required.
4. Turning to the merits of the tenant's defence, importantly, the Tribunal found that the tenant had not complied with cl 7(5) of the COVID Reg and that the landlord was not prohibited from taking prescribed action.
5. At the hearing, in closing, the tenant raised a further argument, that the Notice of Breach was invalid because it had been emailed to Mr Okili and not sent to the post office box specified in the lease ("the invalid service argument"). Accordingly, as the Breach Notice was invalidly served, the landlord had no right to terminate the lease. At the hearing, the tenant also raised but then withdrew a further argument, that the Breach Notice had not been signed by an authorised officer ("the signatory argument") and therefore was ineffective.
6. The Tribunal permitted the tenant to re-open its case on an assumption that the landlord did not object and gave the parties an opportunity to put on written submissions after the hearing in respect of the invalid service argument.
7. In written submissions filed after the hearing, the landlord expressly objected to leave being given to the tenant to reopen its case. The tenant, in its reply written submissions after the hearing, raised the signatory argument despite having withdrawn it at the hearing.
8. The Tribunal determined that it would not grant leave to the tenant to further expand its case to include the signatory argument and further found that the tenant had not (prior to its application to reopen the case) fairly raised or disclosed to the landlord the invalid service argument. In any event, the Tribunal determined that had the invalid service argument been properly raised, there should have been evidence specific to that issue addressed by the tenant. Instead, the only evidence before the Tribunal was a copy of the email attaching the Breach Notice to the tenant by the landlord's agent and the unchallenged evidence of Mr Huxley that the notice had been served. Mr Okili did not adduce evidence contradicting this evidence but merely asserted in his application to set aside that there was no notice and even if there was, the tenant paid the rental arrears in full under the notice. In this circumstance, the Tribunal inferred that the Breach Notice had been received by the tenant.
9. The Tribunal ultimately was not persuaded that the tenant had a good defence and consequently its application to set aside the June Orders was dismissed.

Notice of Appeal

1. The tenant relies on five grounds of appeal set out in its Notice of Appeal as follows: "Ground 1: The Tribunal erred in law at [60]-[63] in failing to have regard to the leasing principles set out in the National Cabinet Mandatory Code of Conduct SME Commercial Leasing Principles During Covid-19 ("the Code") as mandated under Clause 9 of the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (NSW) ("the Regulation") in relation to the landlords' recovery of possession of the premises. Particulars: (a) The Tribunal erred in law in ruling at [62] that "I do not accept that the tenant can prevent prescribed action by demanding a further negotiation after a previous negotiation engaged in by the landlord in good faith has failed." (b) This Tribunal's interpretation of the Regulation is absurd in that it allows a landlord to take a prescribed action including locking out its tenant once negotiations fail, rendering both the Code and the Regulation without purpose. Ground 2: The Tribunal erred in law in ruling at [73]-[74] that "I am not persuaded that the fact that the landlord claimed in the notice of breach the full rent under the lease for the period January to March 2021 renders the notice invalid … The tenant remained liable for the rent specified in the lease." Particulars: (a) A notice of breach demanding a higher amount than what is legally owed is plainly an invalid notice. (b) The tenant, being an impacted lessee as found by the Tribunal, cannot be liable for the rent specified in the lease in full. Ground 3: The Tribunal erred in law in failing to determine a legal submission of substance at [85]-[89] and in failing to give adequate reasons for not accepting that: (i) the inclusion of the non-rental lockout fees in the notice of breach engages s 129 of the Conveyancing Act 1919 requiring the breach notice to be in a specific form of the Sixth Schedule of tis Act. (ii) the notice of termination of the lease was invalid because it was not signed in accordance with the lease. Ground 4: The Tribunal erred in law in ruling at [101] that "Where Mr Huxley gave evidence that the notice had been served, and Mr Okili did not give evidence directly contradicting that proposition, I am entitled to draw the inference from Mr Huxley's evidence that an email attaching the Breach Notice was received by the tenant." Particulars: (a) The Tribunal erred in law in not properly considering the principles of inference including whether the circumstances gave rise to a reasonable and definite inference that the Breach Notice was served. See AIN v Medical Council of New South Wales [2015] NSWCATAP 241 at [55]-[56]. (b) There was no evidence from Mr Huxley that the Breach Notice has bene served. Mr Huxley's evidence was that he "issued the Breach Notice", not served it. (c) An inference cannot be drawn in the absence of evidence. See Marshall v Prescott [2015] NSWCA 110 at [83]. Ground 5: The Tribunal erred in law in failing to properly consider the recent decision of the Supreme Court in Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 744 as to the application of the Code and the Regulation. Particulars: (a) The Tribunal did not consider Darzi at [125] that a landlord is perpetually barred from taking any prescribed if a landlord does not comply with its obligation to renegotiate the rent in good faith."
2. The relief the tenant seeks on appeal includes: 1. a declaration that the Respondent landlord was not entitled to the order for possession of the subject premises made on 11 June 2021; 2. a declaration that the Respondent landlord repudiated the lease with the Appellant tenant; 3. an order that the Respondent landlord is to pay damages to the Appellant tenant for repudiation of the lease being the value of the Appellant's business.

Reply to Appeal

1. In its Reply to Appeal of 8 October 2021, the landlord states that in relation to Grounds 1 to 5, leave to appeal is required under Schedule 4 clause 12(1) of the Civil and Administrative Tribunal Act (NSW) 2013 ("NCAT Act") and no proper basis for leave arises.
2. Further, no error of law arises from the Grounds respectively as follows (in summary): 1. Ground 1 - the Tribunal correctly interpreted the COVID Reg and applied it to the facts; 2. Ground 2 - there is no provision in the COVID Reg or the Code which reduces or removes the liability of the tenant for the amount of unpaid rent. Rather, the parties had not reached agreement. Further the Tribunal made findings that the parties had engaged in lengthy correspondence concerning the renegotiation of the rent throughout the pandemic and had undertaken a mediation. There was no evidence that any party failed to participate in good faith and consequently, the COVID Reg having been complied with, the landlord was entitled to issue the notice of breach in relation to unpaid rent; 3. Ground 3 - the submission that was raised by the appellant was raised without leave of the Tribunal and on that basis was rejected. In any event, the substance of the argument was considered and rejected; 4. Ground 4 - there was evidence supporting the finding that was made and no evidence to the contrary; 5. Ground 5 - Darzi is not relevant because in that case the landlord did not comply with its obligation to renegotiate rent in good faith. In the present case the Tribunal found the parties renegotiated rent in good faith.
3. The landlord also challenges the relief sought by the tenant as concerning the underlying matters in the original claim and not the decision in issue on this appeal (ie decision not to set aside the June Orders).
4. The landlord also made an application for its costs which was ultimately not pressed at the hearing.

The tenant's materials

1. Despite orders being made on 13 October 2021 for the tenant to lodge with the Tribunal all the evidence it wished to rely on in the appeal (including evidence that was not before the Tribunal below and on which it would seek leave to rely), as well as submissions and a sound recording or transcript of the hearing, nothing was lodged by the tenant.

The landlord's materials

1. The landlord filed written submissions and provided to the Tribunal the statutory declarations of Mr Huxley dated 2 June 2021 and 24 July 2021.
2. We also had before us a copy of the tenant's original application to set aside the Tribunal's decision dated 14 June 2021 with an accompanying letter from its solicitor, Mr Kassem.

Scope and nature of internal appeals

1. An appeal to the Appeal Panel does not simply provide a losing party in the Tribunal below with the opportunity to run their case again: Ryan v BKB Motor Vehicle Repairs Pty Ltd [2017] NSWCATAP 39 at [10]. To succeed in an appeal, the appellant must demonstrate either an error on a question of law, which, except in an appeal from an interlocutory decision, may be argued as of right; or that permission (that is, "leave") to appeal should be granted to bring the appeal: NCAT Act. Having regard to the principles in Hammond at [23]-[40], it was correctly accepted by both parties that the decision the subject of this appeal is an ancillary decision within the meaning of s 4 of the NCAT Act and not an interlocutory decision.
2. In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 the Appeal Panel set out at [13] a non-exclusive list of questions of law which relevantly includes whether the Tribunal applied a wrong principle of law, and whether the Tribunal failure to afford procedural fairness.
3. A failure to afford procedural fairness may arise in circumstances where the Tribunal fails to provide adequate reasons for its decision: NSW Land and Housing Corporation v Orr [2019] 100 NSWLR 578; [2019] NSWCA 231 (Orr). Bell P at [66] and [71] (Ward JA at [109] agreeing) held: "[66] In the context of appellate review of the adequacy of reasons, the function of an appellate court is to determine not the optimal level of detail required in reasons for a decision but rather the minimum acceptable standard: Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33 at [48] (Resource Pacific). The standard is not one of perfection: Bisley Investment Corporation v Australian Broadcasting Tribunal (1982) 40 ALR 233 at 255 (Bisley)." "[71] That having been said, even in the less formal setting of a tribunal which has significant powers the exercise of which is capable of affecting the lives of citizens in profound ways, there are certain minimum characteristics that a Tribunal's reasons must possess. These are really supplied, in relation to the Tribunal, by s 62(3) of the CAT Act which, as noted at [52] above, requires there to be set out in reasons (when requested by a party): (a) the findings on material questions of fact, referring to the evidence or other material on which those findings were based, (b) the Tribunal's understanding of the applicable law, and (c) the reasoning processes that lead the Tribunal to the conclusions it made."
4. A material failure by the Tribunal to respond to a "substantial, clearly articulated argument relying upon established facts" may be characterised either as a failure to afford natural justice or as a constructive failure to exercise jurisdiction: Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; (2003) 77 ALJR 1088 at [24]-[25] (Gummow and Callinan JJ; Hayne J agreeing at [95]); DVE18 v Minister for Home Affairs (2020) 276 FCR 401; [2020] FCAFC 83 at [34]. These principles were applied by the Appeal Panel in Goncalves v Bora Developments Pty Ltd [2021] NSWCATAP 231 at [9(2)].
5. Clause 12 of Sch 4 of the NCAT Act provides that, in an appeal from a decision of the Consumer and Commercial Division of the Tribunal, an Appeal Panel may grant leave to appeal only if satisfied that the appellant may have suffered a substantial miscarriage of justice because: 1. the decision of the Tribunal under appeal was not fair and equitable; or 2. the decision of the Tribunal under appeal was against the weight of evidence; or 3. significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).
6. The principles governing an application for leave to appeal under the NCAT Act are well-established and are repeated in many decisions of the Appeal Panel, often quoting Collins v Urban [2014] NSWCATAP 17. They are the same principles applied by the courts. It is enough as a summary to refer to the Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206, where the Court said at [28] (citations omitted): "Only if the decision is attended with sufficient doubt to warrant its reconsideration on appeal will leave be granted. Ordinarily, it is only appropriate to grant leave where there is an issue of principle, a question of general public importance, or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable. It is well established that it is not sufficient merely to show that the trial judge was arguably wrong."
7. Even if an appellant establishes that they may have suffered a substantial miscarriage of justice in the sense explained above, the Appeal Panel retains a discretion whether to grant leave under s 80(2) of the Act. An appellant must demonstrate something more than that the Tribunal was arguably wrong: Pholi v Wearne [2014] NSWCATAP 78 at [32].

COVID relief

1. Of relevance to this appeal is clause 7 of the COVID Reg which was relied on by the tenant in defence of the June Orders. Clause 7 provides as follows: 7 Obligation to renegotiate rent and other terms of impacted leases before prescribed action (1) A lessor must not take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting of any of the following unless the lessor has complied with any obligations imposed on the lessor by this clause and clause 8 - (a) a failure to pay rent, (b) a failure to pay outgoings, (c) the business operating under the lease not being open for business during the hours specified in the lease. Note. See leasing principles No. 1, 11 and 14 in the National Code of Conduct. (2) A party to an impacted lease may request the other parties to renegotiate the rent payable under, and other terms of, the impacted lease. (3) A party to the impacted lease may make a second or subsequent request under subclause (2), but, unless the parties otherwise agree, an impacted lessee may make a second or subsequent request only if the request - (a) is made during the prescribed period, and (b) does not relate to rent or outgoings for a period for which the rent or outgoings have already been reduced, waived or deferred following a renegotiation under this clause. (4) A party to an impacted lease must, if requested under this clause - (a) renegotiate in good faith the rent payable under, and other terms of, the impacted lease, and (b) commence renegotiations within - (i) 14 days of receiving the request, or (ii) another period agreed to by the parties. (5) An impacted lessee must give the lessor the following in respect of the impacted lease - (a) a statement to the effect that the lessee is an impacted lessee, (b) evidence that the lessee is an impacted lessee. (6) The parties are to renegotiate the rent payable under, and other terms of, the impacted lease having regard to - (a) the economic impacts of the COVID-19 pandemic, and (b) the leasing principles set out in the National Code of Conduct. Note. See leasing principles No. 3-5, 7-10 and 12 in the National Code of Conduct. In particular, leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees' reductions in turnover. (7) If the impacted lessee does not comply with subclauses (4)-(6), the lessor is taken to have complied with this clause. (8) Nothing in this clause prevents a lessor and impacted lessee agreeing to the parties taking action in relation to the impacted lease, including the lessor taking prescribed action or the parties agreeing to terminate the impacted lease. (9) To avoid doubt, a renegotiation commenced but not concluded before the expiry of the prescribed period may be continued and concluded after that expiry.
2. The definitions of "prescribed action" and "impacted lessee' are also relevant to this dispute. Clauses 3 and 4 of the COVID Reg contain those definitions as follows: 3 Definitions (1) In this Regulation - prescribed action means taking action under the provisions of a commercial lease or seeking orders or issuing proceedings in a court or tribunal for any of the following - (a) eviction of the lessee from premises or land the subject of the commercial lease, (b) exercising a right of re-entry to premises or land the subject of the commercial lease, (c) recovery of the premises or land, (d) distraint of goods, (e) forfeiture, (f) damages, (g) requiring a payment of interest on, or a fee or charge related to, unpaid rent otherwise payable by a lessee, (h) recovery of the whole or part of a security bond under the commercial lease, (i) performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease, (j) possession, (k) termination of the commercial lease, (l) any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State. … 4 Meaning of "impacted lessee" (1) A lessee is an impacted lessee if - (a) the lessee qualifies for the jobkeeper scheme under sections 7, 8, 8A and 8B of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth, and (b) the following turnover in the 2018-2019 financial year was less than $5 million - (i) if the lessee is a franchisee - the turnover of the business conducted at the premises or land concerned, (ii) if the lessee is a corporation that is a member of a group - the turnover of the group, (iii) in any other case - the turnover of the business conducted by the lessee. Note 1. See amendments made to the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth by the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 8) 2020 of the Commonwealth. Note 2. For a lessee who was an impacted lessee during the period from 24 April to 31 December 2020 but does not meet the definition of impacted lessee under this clause - see clause 14. (2) From the commencement of this Regulation until 4 January 2021, a lessee is not, despite subclause (1), an impacted lessee unless the lessee would also be an impacted lessee after 4 January 2021. Note. The eligibility test for the jobkeeper scheme will change on 4 January 2021. Subclause (2) ensures the new eligibility requirements will apply from the commencement of this Regulation. (3) In this clause - group of corporations means corporations that are related bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth. turnover of a business includes any turnover derived from internet sales of goods or services.

The tenant's submissions

1. As noted above, the tenant did not file submissions on this appeal nor did it put before the Tribunal any materials it wished to rely on from the proceedings below including the sound recording or transcript.
2. While the question to be addressed in this appeal was whether the Tribunal erred in refusing to set aside the June Orders, much of the oral submissions by the tenant were directed at challenging the June Orders, in particular that the landlord was entitled to re-enter the Premises. However, this was not an appeal from the June Orders and the tenant made no challenge in its Notice of Appeal to the findings made in the Decision and so is confined to demonstrating errors of law.

The landlord's submissions

1. The landlord's position is straightforward and is set out in its Reply to Appeal which we have summarised above. It says the Tribunal correctly dismissed the set aside application.

Ground 1

1. We consider this ground of appeal amounts to nothing more than a challenge to the finding reached by the Tribunal that the landlord had complied with cl 7 and was therefore not prohibited from taking prescribed action. This was correct.
2. It is clear from the reasons that the Tribunal expressly referred to and had regard to the Code and the COVID Reg in reaching its conclusions.
3. In making a request for renegotiation cl 7(5) required the tenant to provide a statement that it was an impacted lessee and provide evidence. The request was made orally and the required evidence was not provided to the landlord to demonstrate that the tenant was an impacted lessee. As the tenant had not complied with cl 7(5), the landlord was taken by cl 7(7) to have complied with cl 7 and was therefore not prohibited from taking prescribed action. There was no error by the Tribunal.

Ground 2

1. We reject this ground of appeal. There is no provision in the COVID Reg that prevents the issue of a notice for the full amount of outstanding rent where attempts to renegotiate rent have failed and the landlord has otherwise complied with cl 7.
2. As the Tribunal found that the landlord was not prohibited from taking prescribed action and as there had not been a successful renegotiation of the rent, the landlord was entitled to issue a notice for the amount of unpaid rent.
3. Further, in our view, the Tribunal correctly distinguished Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 744 ("Darzi"). The payment by the tenant of $5,000 for the first quarter of 2021 was less than 10% of what was due under the terms of the lease and was insufficient to reflect an amount consistent with the Code. This was to be contrasted to the position in Darzi where payment was attempted to be made in an amount consistent with the Code.

Ground 3

1. This ground of appeal is misplaced and we reject it.
2. The Tribunal was not obliged to consider the legal submission in support of arguments raised after the hearing and without permission. At the hearing, the Tribunal had only given permission to the tenant to file written submissions in reply. The tenant used the opportunity of reply submissions to attempt to expand its case. To allow the new arguments at that stage, which had not been fairly raised earlier and consequently amounted to an ambush, would have created a prejudice to the landlord.
3. We consider the Tribunal adequately set out its reasons for refusing leave to the tenant to raise additional arguments (including the signatory argument which had been withdrawn by the tenant at the hearing) at [85]-[88] and [96]-[100].
4. The Tribunal's refusal of leave was a discretionary decision made subject to the guiding principles in s 36(1) and s 36 (2)(a) of the NCAT Act. This means the tenant needed to demonstrate errors of law within the meaning of House v The King (1936) 55 CLR 499; [1936] HCA 40 such as whether the Tribunal asked itself the wrong question, took irrelevant considerations into account, or that there were mandatory considerations in its decision that it failed to engage with. The tenant has not raised any of these types of errors and we do not perceive any. It follows that there was no error of law by reason of a failure to afford procedural fairness or a constructive failure to exercise jurisdiction in failing to determine a legal submission of substance and by reason of a failure to afford procedural fairness in failing to give adequate reasons.

Ground 4

1. We reject this ground of appeal for the following reasons: 1. the tenant raised in closing submissions before the Tribunal (for the first time) that the Breach Notice was not validly served as it had not been posted. While the Tribunal permitted the tenant to re-open its case to raise this additional ground, there was no further evidence adduced on this point by the tenant in support of its argument; 2. the Tribunal was therefore entitled to accept the evidence of Mr Huxley in his statutory declaration of 2 June 2021 as sufficient proof of service of the Breach Notice. However, if the tenant was so entitled to raise the issue that the Breach Notice had not been served, then the evidence of Mr Huxley in his statutory declaration of 24 July 2021 at [2]-[5] demonstrates that he sent the Breach Notice to the same email address to which he usually sent email correspondence to the tenant. We agree with the Senior Member in his reasons at [105]-[111], that there was sufficient proof of service; 3. further Mr Okili had every opportunity to address in evidence the issue of the receipt of the Breach Notice but did not. Rather, Mr Okili's stated that the "lessee paid rental arrears from 1 April 2020 in full under notice" which rather tends against a suggestion that no Breach Notice was received. As the Tribunal correctly found, this was not an "unequivocal assertion that no notice purporting to be a breach notice had been received."
2. The Tribunal's use of inference was not misplaced in these circumstances. We find no error in the Tribunal drawing the inference that the tenant received the Breach Notice.

Ground 5

1. This ground does not raise a question of law. To the extent that the ground is that the Tribunal did not apply the principle in Darzi at [125], for the reasons we have already set out at [51], we disagree. The Tribunal correctly distinguished Darzi from the present case.

Conclusion

1. We have found no error of law arising in this appeal
2. The tenant therefore needs leave to appeal. To the extent that the appeal raises errors other than errors of law, we do not consider that a grant of leave is warranted as we are not satisfied that the appellant may have suffered a substantial miscarriage of justice on any basis specified in Sch 4 cl 12 of the NCAT Act, and that any ground involves an issue of principle, a question of public importance, an injustice which is reasonably clear or that the Tribunal has gone about its fact finding process in such an unorthodox manner that it is likely to have produced an unfair result.

Orders

1. Our orders are as follows: 1. The appeal is dismissed; 2. Leave to appeal is refused.

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: 28 March 2022