Norsk Dor Pty Limited v Tuxfend Pty Limited

NCAT Appeal Panel|2020-06-04

REASONS FOR DECISION

This appeal arises from a Retail Leases Act 1994 (NSW) ('RL Act') dispute.
The retail lease premises are situated in the Sydney CBD and the business relevantly operated as a small bar and restaurant. The premises are located in a strata scheme comprising of Lots used for commercial purposes. A written lease was entered into by the parties dated 15 July 2015.
In this decision, any reference to 'the lessee' or 'the tenant' is a reference to the appellant. Any reference to 'the lessor' or 'the landlord' is a reference to the respondent.
The proceedings at first instance were hard fought, even in the context of retail lease disputes dealt with by the Tribunal, which often involve complex disputes equivalent to commercial litigation dealt with in the Commercial List of the Supreme Court of NSW.
The Tribunal hearing of the dispute at first instance occupied 4 days. Both parties filed and served extensive written submissions at the conclusion of the hearing. The written reasons of the Tribunal (Ullman SM) comprise 117 pages.
At first instance, there were two sets of proceedings. The lessor had sought orders relevantly including payment of outgoings involving "after hours air-conditioning charges"; removal of an air-conditioning unit installed by the lessee on common property of the strata scheme; and various declarations.
The lessee had sought orders which relevantly included a declaration or injunction that it not have to pay "after hours air-conditioning charges"; a declaration that the lessor had failed to provide a pre-lease disclosure statement in accordance with s 11 of the RL Act; and a declaration that the lessor had engaged in unconscionable conduct.

Factual Background And Decision Under Appeal

The Tribunal noted at [12] that the dispute between the parties: "…have their historical origins in events that occurred back in 2012, involve a large number of people and voluminous correspondence."
The Tribunal set out the evidence of the parties and witnesses in great detail and it is unnecessary to repeat the Tribunal's comprehensive account of the relevant events.
The salient facts are that in 2012 and 2013 there were negotiations involving the lessor; the owners corporation; and a corporate entity Laneway Enterprises Pty Ltd ('Laneway') in respect of Laneway operating a small wine bar from the premises. The premises were not fitted out for the purpose of a small wine bar and restaurant, having been used previously for other commercial purposes. Mr Best and Mr Knee were directors of Laneway.
In September 2013 written "Agreement for Lease" was entered into between the landlord and Laneway. The agreement identified that, subject to Laneway obtaining relevant owners corporation and local Council approvals and the landlord performing certain works if requested by Laneway for the purpose of allowing the premises to be used as a small wine bar, the parties would enter into a lease.
In November 2014, the appellant was incorporated. Laneway was originally a shareholder in the appellant, but those shares were subsequently transferred. Mr Best was at all relevant times the sole director of the appellant.
At the Annual General Meeting of the owners corporation on 3 December 2014, a special by-law was passed allowing the lessor (the Lot owner) to alter or modify common property so that the premises could be fitted out as a small bar. The minutes of the Annual General Meeting dealing with the special resolution state: "Please Note: -the amendment passed above requires the Owner to do the following: -Pay for after-hours air-conditioning use; …
By February 2015, the local Council had approved a Development Consent changing the use of the premises to a small bar. There was subsequent approval for use as a restaurant in addition to use as a small bar.
In May and June 2015 there was correspondence between Mr Best; his Solicitor; and the landlord's Solicitor regarding the tenant installing its own air-conditioning system in the premises and the tenant dealing with the strata manager and the owners corporation to obtain approval.
On 15 July 2015, the appellant and the respondent entered into a written lease. The lease was for 7 years, ending on 14 July 2022. The lease contained options to renew. Mr Knee and Mr Best were guarantors of the obligations of the lessee.
Under Cl. 5.1.2 of the lease, the lessor is responsible for payment of outgoings as set out in Item 14.
Item 14A identifies "share of outgoings" as "100% plus GST (Currently estimated for 2014/2015 year at $31,000 per annum plus GST or $2,583.34 plus GST per calendar month".
Item 14B of the leases defines "outgoings" as: "… (e) all levies and contributions of whatsoever nature determined and/or levied by the owners corporation with the exception of any contribution to a sinking fund or special levy in respect of the strata scheme of which the property forms part (if applicable)"
The lessor failed to provide the lessee with a disclosure statement as required in Section 11 of the RL Act prior to the execution of the written lease (para [152]-[160] of the decision). Rather, the lessor issued two "disclosure statements" on 7 May 2018 (each document dealing with different time periods).
The Tribunal found that the statements issued on 7 May 2018 contained the information required by s 11 of the RL Act (at [160]) but they had not been served in accordance with the provisions under s 11 of the RL Act.
Section 11 of the RL Act states: 11 Lessor's disclosure statement (1) At least 7 days before a retail shop lease is entered into, the lessor must give the lessee a disclosure statement for the lease (the lessor's disclosure statement) that complies with the following requirements - (a) the lessor's disclosure statement is to be in writing and is to be in or to the effect of Parts A and B of the form in Schedule 2 (the prescribed form), (b) the lessor's disclosure statement is to include Part B of the prescribed form for the purposes of Part B being completed by the lessee and provided to the lessor as the lessee's disclosure statement (under section 11A), (c) the lessor's disclosure statement must contain the information and be accompanied by the material that is required to complete or accompany Part A of the prescribed form (but only to the extent that is relevant to the lease concerned), (d) the form of the lessor's disclosure statement is not required to comply strictly with the prescribed form (including its layout) so long as it is substantially to the same effect as the prescribed form. Maximum penalty - 50 penalty units. Note. Because the lessor's disclosure statement need only include information relevant to the lease, if the retail shop is not in a retail shopping centre the disclosure statement need not include information that is relevant only to shops in retail shopping centres. (2) If a lessee was not given a disclosure statement as required by subsection (1) or if the disclosure statement that was given to the lessee was incomplete or contained information that at the time it was given was materially false or misleading, the lessee may terminate the lease by notice in writing to the lessor at any time within 6 months after the lease was entered into, unless subsection (3) prevents termination. (2A) If the lessee terminates the lease in accordance with this section, the lessee is entitled to recover compensation from the lessor for costs reasonably incurred by the lessee in connection with the lessee entering into the lease, including compensation for expenditure by the lessee in connection with the fit-out of the retail shop. (3) The lessee cannot terminate the lease under this section on the ground that the disclosure statement is incomplete or contains information that is materially false or misleading if - (a) the lessor has acted honestly and reasonably and ought reasonably to be excused for the failure concerned, and (b) the lessee is in substantially as good a position as the lessee would have been if the failure had not occurred. (4) If a lease is entered into by way of the renewal of a lease, a written statement (a lessor's disclosure update) that updates the provisions of an earlier disclosure statement given to the lessee is, in conjunction with that earlier disclosure statement, considered to be a disclosure statement given for the purposes of this section at the time the lessor's disclosure update is given. (5) The termination of a lease under this section does not affect any right, privilege, obligation, or liability acquired, accrued, or incurred under the lease in respect of any period before its termination. (6) A lessor's disclosure statement may be amended with the agreement in writing of the lessor and the lessee before or after the lease is entered into and any such amendment has effect from the date specified in the agreement (which can be a date before the agreement is made). Note. The Tribunal also has power to order the rectification of a lessor's disclosure statement. See section 72AB.
Although it is not discussed in the Tribunal decision, there were amendments to s 11 of the RL Act by reason of the Retail Leases Amendment (Review) Act 2017 (NSW). However, by reason of the savings and transitional provisions contained in Cl 39 (2) and (3) Sch 3 of the RL Act the current version of s 11 of the RL Act is applicable to the dispute. There is no issue in this appeal that the Tribunal considered the wrong version of s 11 of the RL Act.
The Retail Leases Amendment (Review) Act 2017 (NSW) also introduced s 12A of the RL Act, that provided in s 12A (1) that a lessee is not required to pay outgoings that are not disclosed in the disclosure statement under s 11 of the RL Act. However, by reason of Cl 39 (1) of Sch 3 of the RL Act, the provisions of s 12A of the RL Act do not apply to this dispute.
In August and September 2015, the lessee installed its own air-conditioning system in the premises.
In February 2016 Mr Best noticed that the air-conditioning was switching off at 6pm every evening. The Development Consent for the small bar operated by the lessee at the premises was that it could trade until 1.00 am. Mr Best emailed the building manager raising the issue that there was no "relay switch" that would allow the air-conditioning system in the building to operate from 6.00pm to 1.00 am, and that the system should be changed so that the lessee had air-conditioning to the premises for that period. This arose from the inability of the air-conditioning system installed by the lessee to operate effectively and the lessee needing to utilize the air-conditioning system of the strata building to achieve sufficient air-conditioning.
Between February 2016 and April 2016 there was a wealth of correspondence between the appellant the respondent, and legal representatives regarding the issue of "after hours air-conditioning".
In essence, the position of the lessor was that the air-conditioning system of the building could be changed to provide access to the service, but the lessee would be charged $22 per hour (which was subsequently reduced to an offer of $17 per hour) after 6.00 pm for use of the air-conditioning system. The position of the lessee was that it should not have to pay for the use of the air-conditioning system, for reasons that included that it was not using any significant amount of air-conditioning prior to 6.00 pm, unlike other occupants of the building.
On 21 April 2016, the lessee commenced trading from the premises.
On 22 April 2016 there was an exchange of emails between Mr Best and the strata manager, that are set out in paras [48]-[49] of the Tribunal's decision. In that exchange, Mr Best stated that he understood that the lessee was "required" to pay $17 per hour plus GST for access to air-conditioning in the building after 6.00 pm, and requested that the air-conditioning timing mechanism be changed to allow the lessee to use the building's air-conditioning system during the relevant trading hours. The timer was changed giving the lessee use of the building air-conditioning system.
On 2 August 2017, the agent for the lessor sent to the lessee an outgoings reconciliation for the 2016/2017 financial year. The outgoings reconciliation identified an "after hours air-conditioning charge" of $35,359.92. The lessee, through its Solicitor, objected to the lessee being required to pay "this or any other amount" for after-hours air-conditioning as an outgoing under the lease. The position of the lessor was that such an amount was a levy issued upon the lessor by the owners corporation pursuant to a special by-law that had been passed regarding alteration or modification of common property of the strata scheme so that the premises could be fitted out and operate as a small bar and restaurant.
In May 2018, the lessee installed a supplementary air-conditioning system in the premises, without the prior permission of the lessor or the owners corporation.
On 7 May 2018, the lessor (via its Solicitor) sent the lessee three "disclosure statements" for the period 15 July 2016 to 30 June 2016; and for the financial years ending 30 June 2017 and 30 June 2018. The lessor also sent an estimated statement of outgoings for the financial year ending 30 June 2019 which was in the form of a "disclosure statement" under Sch 2 of the RL Act.
In October 2018, litigation between the parties commenced in NCAT. By the time of the hearing in the Tribunal commencing on 18 March 2019, the amount in dispute in respect of "after-hours air-conditioning charges" was $95,269.80.
Pursuant to resolution between the parties of an application by the lessee for interim orders in the Tribunal, the lessee had agreed to pay ongoing monthly 'after-hours air-conditioning charges' until determination of the substantive proceedings on a 'without prejudice' basis.
As discussed previously, the position of the lessor was that 'after-hours air-conditioning charges' was an outgoing for which the lessee was liable to pay because that was the amount that the owners corporation had charged the lessor pursuant to a levy arising from a special by-law, and accordingly fell within Cl. 5.1.2 and Item 14B (e) of the lease.
The lessee sought a declaration and/or an injunctive order that it was not liable for payment of the 'after-hours air-conditioning charges' relevantly on the basis that (i) it was not an outgoing under the terms of the lease as there was no evidence the charge was properly or reasonably incurred; and (ii) the lessor had engaged in unconscionable conduct under s 62B of the RL Act by failing to disclose such charges prior to the execution of the lease and that air-conditioning was an essential service to allow the lessee's business to operate, placing the lessee in a position of vulnerability.
In the context of the cause of action of unconscionability, the lessee raised the lessor's failure to comply with s 11 of the RL Act and that the 'after-hours air-conditioning' charge was excessive and unreasonable because the lessee had installed a power board in the premises and the lessee was being 'double-charged' for electricity consumption.
The lessor sought an order that the 'after-hours air-conditioning' charges be paid on the basis that it was an outgoing under the lease and that there was no unconscionable conduct by the lessor.
The lessor also sought orders regarding the lessee removing the "supplementary air-conditioning system" that it had installed without consent and restoring the common property of the strata scheme. It is unnecessary to detail the Tribunal's findings on that issue (upon which the lessor was successful) because it is not salient to the appeal.
In respect of the dispute regarding the 'after-hours air-conditioning charges' the Tribunal relevantly found: 1. The charges were "outgoings" under the lease because they were a levy or contribution issued by the owners corporation upon the lessor. 2. Air-conditioning was a "essential service" under the lease. However, while the lease imposed an obligation on the lessor to maintain essential services, that did not extend to the lessor bearing responsibility for the cost of providing "after-hours air-conditioning" to the premises in circumstances where the responsibility for air conditioning of the building rested with the owners corporation. 3. The charges were properly and reasonably incurred by the lessor (which the Tribunal found was an implied term in Item 14B (e) of the lease) because they were imposed by the owners corporation upon the lessor; and the Tribunal was not satisfied the evidence established that there was any "double charging" for electricity by reason of the power board installed by the lessee. 4. In respect of s 11 of the RL Act, the lessor had failed to provide the requisite disclosure statement, but there was no utility in making a declaration that the lessor had failed to comply with s 11 of the RL Act, because the only remedy available to a lessee where a lessor had failed to comply with s 11 of the RL Act was termination of the lease within 6 months of the lease being entered into, and the lessee had not availed itself of that remedy. 5. There was no basis established for any order that the lessee not be liable for outgoings or that there be an adjustment of contribution to outgoings by reason of the operation of ss 22; 28; 28A or 29 of the RL Act. 6. Item 14B (e) of the lease and the conduct of the lessor in not disclosing "after-hours air-conditioning charges" prior to entering into the lease was not unconscionable; nor was its subsequent conduct unconscionable.
In respect of non-disclose of the "after-hours electricity charges" as an outgoing prior to the parties entering into the lease, the Tribunal stated at para [228]: "It is submitted on behalf of the lessee that item 14B (e) is also unconscionable. In my view that is an allegation without any foundation. What is described in that item are not charges imposed by the lessor. All the lessor is doing is passing on a levy imposed by the owners corporation for after-hours air-conditioning. I fail to see how that can be said to be unconscionable conduct on the part of the lessor. Furthermore, these charges were not something that was known prior to the parties entering into the lease so the allegations of non-disclosure must be rejected and consequently the allegations of unconscionable conduct in respect of non-disclosure must also fall away".
The Tribunal dismissed the lessee's proceedings; and in the lessor's proceedings made orders that relevantly included an order that the lessee pay damages for unpaid outgoings in respect of "after-hours air-conditioning charges", plus interests. The Tribunal made a costs order against the lessee.

Scope and Nature of Appeals

Internal appeals may be made as of right on a question of law, and otherwise with leave (that is, the permission) of the Appeal Panel: s 80(2) Civil and Administrative Tribunal Act 2013 (NCAT Act).
Internal appeals involve consideration of whether there has been any error of law; or any error other than an error of law sufficient to grant leave to appeal under Sch 4 Cl 12 of the NCAT Act. They are not simply an opportunity for a dissatisfied or aggrieved party to re-argue the case they put at first instance: Ryan v BKB Motor Vehicle Repairs Pty Ltd [2017] NSWCATAP 39 at [10].
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: 1. Whether there has been a failure to provide proper reasons. 2. Whether the Tribunal identified the wrong issue or asked the wrong question. 3. Whether a wrong principle of law had been applied. 4. Whether there was a failure to afford procedural fairness. 5. Whether the Tribunal failed to take into account relevant (i.e., mandatory) considerations. 6. Whether the Tribunal took into account an irrelevant consideration. 7. Whether there was no evidence to support a finding of fact; and 8. Whether the decision is so unreasonable that no reasonable decision-maker would make it.
The circumstances in which the Appeal Panel may grant leave to appeal from decisions made in the Consumer and Commercial Division are limited to those set out in cl 12(1) of Schedule 4 of the NCAT Act. In such cases, the Appeal Panel must be satisfied that the appellant may have suffered a substantial miscarriage of justice on the basis that: 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).
In Collins v Urban [2014] NSWCATAP 17 (Collins v Urban), the Appeal Panel stated at [76] that a substantial miscarriage of justice for the purposes of cl 12(1) of Schedule 4 may have been suffered where: … there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance.
Even if an appellant from a decision of the Consumer and Commercial Division has satisfied the requirements of cl 12(1) of Schedule 4, the Appeal Panel must still consider whether it should exercise its discretion to grant leave to appeal under s 80(2)(b).
In Collins v Urban, the Appeal Panel stated at [84] that ordinarily it is appropriate to grant leave to appeal only in matters that involve: (a) issues of principle; (b) questions of public importance or matters of administration or policy which might have general application; or (c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal's decision and not merely peripheral, so that it would be unjust to allow the finding to stand; (d) a factual error that was unreasonably arrived at and clearly mistaken; or (e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed.

Time to Appeal

The appeal was filed on 26 March 2020 and is within the prescribed time period under cl 25 (4) (c) of the Civil and Administrative Tribunal Rules 2014 (NSW) ('the NCAT Rules') as the decision was published and received by the appellant on 2 March 2020.

Grounds of Appeal

Both parties had filed and served extensive written submissions, which we have considered. The parties also filed a Court Book containing all the documentary evidence and written submissions before the Tribunal.
There was some divergence between the asserted errors of law identified in the Grounds of Appeal comprising part of the document described as the Amended Notice of Appeal( which had focussed on non-compliance with s 11 of the RL Act) and the asserted errors of law in the appellant's written submissions.
Ms Obrart, for the appellant, in her oral submissions, identified the errors of law relied upon by the appellant by reference to those specified in the appellant's written submissions, rather than the Amended Notice of Appeal.
The respondent's written submissions had dealt with all of the apparent issues raised by the appellant.
Whilst it is unfortunate and unacceptable that clearly identified grounds of appeal were not set out by a legally represented appellant in a document entitled Grounds of Appeal or Amended Grounds of Appeal, the respondent raised no issue that such an absence created any disadvantage or procedural unfairness in the conduct of the appeal.
In particular, Ms Obrart stated that the errors of law contended for by the appellant were those identified in sub-paragraphs 73 (i) and (ii) of the appellant's written submissions. These were: 1. The Tribunal Member erred in law in finding that because the after-hours air-conditioning charges were not known prior to the lease there had not been non-disclosure. 2. The Tribunal Member erred in law in finding there had not been non -disclosure and thereby erred in finding that charging the after-hours charges could not be unconscionable.
In addition, Ms Obrart said that the appellant asserted two further errors of law which, as she described it, were "sub-articulations" of the matters identified at para [73] of the appellant's written submissions. These were that: 1. The Tribunal made an error of law in finding that there could be no unconscionable conduct by the lessor as it merely passed on after hours air-conditioning charges levied by the owner's corporation (see reasons at [228]). 2. The Tribunal made an error of law in relying on the lessor's subjective state of mind to determine whether there was unconscionable conduct by reason of non-disclosure (also part of the reasoning at [228]).
The only cause of action relied upon by the lessee in its appeal to justify its claims for relief was unconscionable conduct in breach of s 62B of the RL Act.
This was one of the causes of action relied upon by the lessee before the Tribunal (see [62] of the lessee's written submissions before the Tribunal at CB 4 pages 1763-1764). That submission is recorded by the Tribunal at [216] of the reasons as follows: "Purporting to charge for after-hours air conditioning in the context of the provision of the lease, the manner in which those charges were levied and the amount of those charges, Ms Obart submitted, amounted to unconscionable conduct within the meaning of Section 62B. The circumstances said to give rise to the unconscionable conduct include the non-disclosure of the after-hours air-conditioning charge, the lease requiring the provision of essential services and the essential nature of adequate air-conditioning in the premises and the lessee's business, the lessor's threats to turn off air-conditioning if the after-hours charge was not paid and the lessor being aware of the vulnerability of the lessee to such threats."
All of the errors of law ultimately relied on by the appellant focus on para [228] of the reasons.
However, the appellant in oral submissions also challenged the reasoning at [230]-[237] which , as we understood it, amounted to a submission that the Tribunal should have found that the after-hours charges were not properly and reasonably incurred, either because there was no evidence to the contrary or because the weight of evidence supported such a finding (and leave should be granted).

Unconscionable conduct

Section 62B of the RL Act states as follows: 62B Unconscionable conduct in retail shop lease transactions (1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable. (2) A lessee must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable. (3) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to - (a) the relative strengths of the bargaining positions of the lessor and the lessee, and (b) whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and (c) whether the lessee was able to understand any documents relating to the lease, and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and (e) the amount for which, and the circumstances under which, the lessee could have acquired an identical or equivalent lease from a person other than the lessor, and (f) the extent to which the lessor's conduct towards the lessee was consistent with the lessor's conduct in similar transactions between the lessor and other like lessees, and (g) the requirements of any applicable industry code, and (h) the requirements of any other industry code, if the lessee acted on the reasonable belief that the lessor would comply with that code, and (i) the extent to which the lessor unreasonably failed to disclose to the lessee - (i) any intended conduct of the lessor that might affect the interests of the lessee, and (ii) any risks to the lessee arising from the lessor's intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and (j) the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee, and (k) the extent to which the lessor and the lessee acted in good faith. (4) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessee has contravened subsection (2) in connection with a retail shop lease, the Tribunal may have regard to - (a) the relative strengths of the bargaining positions of the lessee and the lessor, and (b) whether, as a result of conduct engaged in by the lessee, the lessor was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessee, and (c) whether the lessor was able to understand any documents relating to the lease, and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessor or a person acting on behalf of the lessor by the lessee or a person acting on behalf of the lessee in relation to the lease, and (e) the amount for which, and the circumstances under which, the lessor could have granted an identical or equivalent lease to a person other than the lessee, and (f) the extent to which the lessee's conduct towards the lessor was consistent with the lessee's conduct in similar transactions between the lessee and other like lessors, and (g) the requirements of any applicable industry code, and (h) the requirements of any other industry code, if the lessor acted on the reasonable belief that the lessee would comply with that code, and (i) the extent to which the lessee unreasonably failed to disclose to the lessor - (i) any intended conduct of the lessee that might affect the interests of the lessor, and (ii) any risks to the lessor arising from the lessee's intended conduct (being risks that the lessee should have foreseen would not be apparent to the lessor), and (j) the extent to which the lessee was willing to negotiate the terms and conditions of any lease with the lessor, and (k) the extent to which the lessee and the lessor acted in good faith. (5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person institutes legal proceedings in relation to that lease or refers to arbitration a dispute or claim in relation to that lease. (6) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person fails to renew the lease or issue a new lease. (7) For the purpose of determining whether a lessor has contravened subsection (1) or whether a lessee has contravened subsection (2) - (a) the Tribunal must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and (b) the Tribunal may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement. (8) A lessor or lessee, or former lessor or lessee, who suffers loss or damage by reason of unconscionable conduct of another person that is in contravention of this section may recover the amount of the loss or damage by lodging a claim against the other person under section 71A. (9) If the matter of such loss or damage arises in connection with a matter the subject of proceedings in the Tribunal, the Tribunal may proceed to decide it, and in so doing may award such sum as it thinks fit. (10) In this section - lessee or former lessee includes a person who is a guarantor or covenantor under a lease or former lease.
The applicable legal principles of unconscionability in a statutory context have recently been considered by the High Court in Australian Securities and Investment Commission v Kobelt [2019] HCA 18; (2019) 368 ALR 1 (in respect of s 12CB of the Australian Securities and Investment Commission Act 2001 (C'th) ('Kobelt') and the Appeal Panel of the Tribunal in Forbes v Wan [2020] NSWCATAP 129 (in respect of s 21 of the Australian Consumer Law 2010 (NSW) ('Forbes').
The principles can be relevantly summarised as follows: 1. Determination of unconscionability involves a multi-factorial evaluative judgment as to whether conduct contravenes the statutory norm of conscience. Mere unfairness is insufficient. (Kobelt, per Kiefel CJ and Bell J at [47]; Keane J at [120]; Nettle and Gordon JJ at [234]). 2. There must be some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights (Kobelt per Gaegler J at [88]). 3. The values that inform the standard of conscience include certainty in commercial transactions; the absence of trickery and sharp practice; fairness in dealing with customers; the faithful performance of bargains and promises freely made and the protection of persons at a special disadvantage from being victimised or exploited (Kobelt per Kiefel CJ and Bell J at [14]); 4. For there to be unconscionable conduct it is essential that one party is at special disadvantage or position of vulnerability to the other party, and the other party unconscientiously takes advantage of that special disadvantage or vulnerability (Kobelt per Kiefel CJ and Bell J at [15]; Gaegler J at [111]; Keane J at [118]; Nettle and Gordon JJ at [147]); 5. It is not possible to conclusively define what factors constitute a special disadvantage or vulnerability, but they must sufficiently affect the weaker party's ability to protect its own interests and extend beyond mere inequality of bargaining power (Kobelt per Nettle and Gordon JJ at [147]); 6. The taking advantage of the special disadvantage or vulnerability requires conduct of such a degree that it can be characterised as victimisation, exploitation, predatory, or conduct so outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience (Kobelt per Kiefel CJ and Bell J at [14]; Gaegler J at [92]; Keane J at [118]). 7. Conduct which is merely outside the norms of acceptable commercial behaviour is insufficient, without the further elements of unconscionable conduct (Forbes at [60])
Kobelt is a challenging decision to distil because the High Court divided 4-3 on whether the relevant conduct was unconscionable, and the various judgments focus upon different aspects of the principles of statutory unconscionability under s 12CB of the ASIC Act 2001 ('C'th').
Kobelt has recently been considered by the Federal Court in Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (No 2) [2020] FCA 802 (in the context of ss 21 and 22 of the ACL). Colvin J stated at [28]-[30]: The members of the Court who were in the minority in finding that the conduct of Mr Kobelt was unconscionable (Nettle, Gordon and Edelman JJ), did not favour an interpretation of the standard that required a high degree of moral disapprobation. Kiefel CJ, Bell and Keane JJ emphasised the need for victimisation, exploitation, or a predatory state of mind. Kiefel CJ and Bell J referred, with apparent approval, to the view of the Full Court of this Court that moral obloquy had a role to play but was not a substitute for the statutory words: at [60]. Keane J found that the statute 'imports the "high level of moral obloquy" associated with the victimisation of the vulnerable': at [118]. Gageler J recanted the use of the term moral obloquy for the reason that it 'has the potential to be misleading to the extent that it might be taken to suggest a requirement for conscious wrongdoing': at [91]. However, as noted above, his Honour expressed the view that for conduct to be unconscionable it must be so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. Therefore, the majority view supports the adoption of a standard that requires exploitation of disadvantage by a party in a stronger position by conduct that is well outside the bounds of what is generally seen to be moral, right, or acceptable commercial behaviour. It is not every instance where a person in a stronger commercial position gains an advantage by reason of that position over a person in a weaker or disadvantaged position that is unconscionable. It is not enough that the dealing might be described as unfair or unreasonable. Rather, unconscionable conduct involves dealing with those who are vulnerable in a manner that exploits that vulnerability by engaging in conduct that may be plainly or obviously criticised when viewed through the lens of an understanding of proper commercial behaviour according to prevailing norms and standards. In making the evaluation as to whether conduct is unconscionable, there must be regard to the non‑exhaustive and non‑prescriptive list in s 22 of the ACL, although the presence of one or more of those matters will not be determinative. However, the statutory list is to be considered for the purpose of determining whether the conduct was unconscionable. The nature of the list is such that it describes aspects that may be present in many types of commercial dealings. Ultimately, the statutory prescription is against engaging in unconscionable conduct not against conduct which takes places in circumstances of the kind described in the list.

Ground 1-The Tribunal's Finding That Because After Hours Air-Conditioning Charges Were Not Known to the Parties Prior to the Lease It Could Not Be Found That There Had Been Non-Disclosure of Them By the Lessor

During oral submissions, Counsel for the appellant referred to the Tribunal's reasons at para [159] that the "only remedy available to a lessee where a lessor fails to comply with section 11 is to terminate the lease within six months after it was entered into" (which is a reference to s 12 of the RL Act) and that such a finding was in error.
However, reasons need to be considered in their full context (O'Brien v Repatriation Commission [1984] FCA 95; (1984) 1 FCR 472). It is clear from the Tribunal's decision that the Tribunal considered whether the lessor's failure to disclose "after-hours air conditioning charges" prior to the execution of the lease (whether in the context of the failure to issue a disclosure statement in the prescribed form under s 11 of the RL Act, or otherwise) was unconscionable conduct. Paragraph [159] of the Tribunal's decision was a reference to why the Tribunal declined to make a declaration that the lessor had failed to comply with s 11 of the RL Act, not a finding that the failure to issue a disclosure statement was irrelevant to whether the conduct of the lessor was unconscionable under s 62B of the RL Act.
It was accepted by the appellant's Counsel during the hearing of the appeal that the relevant cause of action being relied upon by the appellant in the context of the failure to issue a disclosure statement in accordance with s 11 of the RL Act; failure to issue a formal demand for payment until 2 August 2017; and the purported "unreasonableness" of the charges, was unconscionability.
The appellant's submission that the Tribunal's decisionconstitutes a finding that the "after-hours air-conditioning charges" could not be disclosed because they were not known to the parties prior to entering into the lease and so the conduct of the lessor was not unconscionable is not a fair and complete reading of the totality of the reasons in their context.
We accept that there is a difficulty in the way in which the reasoning is expressed at para [228] in respect of the phrase "those charges were not something that was known". If the charges were not known prior to the lease that it must follow that they were not disclosed. There is also a tension between the way in which the reasoning is expressed at [228] and the finding at [157] that there had been a failure to comply with s 11 of the RL Act.
It seems that at [228], the Tribunal was using the expression "non-disclosure" to mean the failure to disclose information which was in fact known at the time. This resolves the apparent difficulty.
It is clear that the lessor could not know the amount of "after-hours air-conditioning charges" prior to execution of the lease. At its highest, any knowledge of the lessor would be that it was possible the owners corporation may impose a levy on the lessor for "after-hours air-conditioning charges" , and that such a levy may be passed on to the lessee as an outgoing under the terms of the lease.
Despite the way the reasoning is expressed at para [228], the question is whether the failure to disclose "after hours air-conditioning charges" ,the amount of which was not known by the lessor prior to the lease, can be taken into account in assessing whether the lessor's conduct was unconscionable.
We agree with the appellant that the non-disclosure does not itself need to be deliberate or intentional for it to form part of the matrix of facts which might be considered to characterise the lessor's overall conduct as unconscionable.
However, we also agree with the respondent that there would need to be more than innocent non-disclosure (in the sense that the amount of the charges was not known at the time) for there to be unconscionable conduct.
In our view, the key to properly understanding the findings at para [228] is that the lessor was passing on a levy imposed by the owners corporation, not charges imposed by the lessor. The appellant conceded that the owners corporation had a right to levy the lessor for use of after-hours air-conditioning, and that the charges that were imposed on the lessor were charges of the owners corporation. The lessor could not know the actual amount of such charges until they were levied. The lessee did not argue before the Tribunal that the levies were a sham or arose by reason of collusion between the owners corporation and the Lot owner.
Although Ms Obrart made oral submissions that implied that there was something untoward in regards to the manner in which the charges were imposed, she conceded that it had not been put to witnesses at the hearing that levy notices issued by the owners corporation upon the lessor were a sham or imposed as a result of collusion to take advantage of the lessee.
Further, despite a 4-day hearing duration, the lessee did not seek to cross examine the chairman of the strata committee of the owners corporation, Mr Spanos, on his affidavit evidence.
Although it is not clearly articulated in the reasons of the Tribunal, it is clear on the evidence before the Tribunal that the appellant was not in a position of special disadvantage or vulnerability in regards to any non-disclosure of "after-hours air-conditioning charges".
The parties, and the associated entity of the lessee Laneway, had engaged in extensive and lengthy negotiations regarding the premises being fitted-out and legally capable of operation as a small bar and restaurant prior to signing the lease. The lessee (or its directors) had the benefit of legal advice. The lessee was, even in the absence of a disclosure statement under s 11 of the RL Act, able to seek identification or particularisation from the lessor as to whether "outgoings" under Item 14B (e) of the lease may include "after-hours air-conditioning charges" prior to execution of the lease. The lessee was also capable of making its own enquires and searches with the owners corporation in regards to the special by-law that had been passed, and the relevant notation that the Lot owner (i.e. the lessor) would be levied charges in respect of "after-hours air-conditioning use".
Additionally, even if the lessee was able to establish special disadvantage or vulnerability, the non-disclosure of "after-hours air-conditioning charges" in all the circumstances of the dispute cannot be characterised as conduct that is well outside the bounds of what is generally seen to be moral, right or acceptable commercial behaviour.
We not satisfied that any error of law has been established in regard to the Tribunal's findings at para [228] of the decision.

Ground 2-The Tribunal's Finding That Because There Had Not Been Non-Disclosure The Charging of the After-Hours Air-Conditioning Charges Therefore Could Not Be Unconscionable

This ground of appeal is a more nuanced version of Ground 1. We have addressed this issue when dealing with Ground 1.

Ground 3- The Tribunal Made An Error Of Law In Finding That There Could Be No Unconscionable Conduct By The Lessor As It Merely Passed On After Hours Air-Conditioning Charges Levied By The Owner's Corporation

It is incorrect to characterise the Tribunal's finding at para [228] as a finding that the passing on from the lessor to the lessee a levy imposed by the owners corporation could never be unconscionable conduct. Rather, it is a finding that in all the relevant circumstances of the matter, the passing on of the charges levied by the owners corporation upon the lessor onto to the lessee was not unconscionable conduct.
The evidence before the Tribunal clearly supported such a finding. As discussed previously, there was no evidence the charges were a sham or the result of collusion; and Item 14B (e) of the written lease clearly provided that such levies or charges imposed by the owners corporation were an outgoing. There clearly was no unconscionable conduct in demanding payment pursuant to the terms of the lease and no error of law has been established in this regard.

Ground 4- The Tribunal Made An Error Of Law In Relying On The Lessor's Subjective State Of Mind To Determine Whether There Was Unconscionable Conduct By Reason Of Non-Disclosure.

There is nothing in para [228] of the reasons to indicate the Tribunal applied a test of unconscionability from the perspective of the subjective state of mind of the director of the lessor, rather than assessing the evidence and determining objectively whether the conduct of the lessor in failing to disclose the "after-hours air-conditioning charges" was unconscionable.
As discussed previously, the fact that the lessor did not have actual knowledge of the amount of the charges (because they were the subject of a levy imposed on the lessor in the future by the owners corporation after use of the building air-conditioning system after 6.00 pm on weekdays and during weekends by the lessee) was a relevant fact to consider in the matrix of relevant facts in assessing whether the lessor engaged in unconscionable conduct. There was no error of law in the Tribunal doing so, nor does the reasoning in para [228] indicate that the Tribunal applied the wrong legal test of unconscionability.

Ground 5-After-Hours Air-Conditioning Charges Not Properly and Reasonably Incurred

Paragraphs [232]-[237] of the Tribunal's reasons deal with this issue. The lessee argued that the "after-hours air-conditioning charges" were not properly or reasonably incurred (which the Tribunal had found was an implied term under Item 14 (e) of the lease) because audited reports of the building included electricity costs which showed no increase in air-conditioning costs after the commencement of the lease despite the lessee having installed its own electricity power board and being separately charged for electricity consumed.
The Tribunal stated at para [233] that the lessee's evidence in regard to that issue came from Mr Best (the director of the lessee) who stated that the lessee had installed a power board form the premises and electricity consumed through this power board was billed directly and paid for by the lessee. Mr Best asserted that this was in addition to the electricity the lessee paid to the owners corporation based on the area of the leased premises and provided invoices for electricity charged. Mr Best also relied upon the electricity costs recorded in the owner's corporation's financial statements following installation of the lessee's power board.
At paragraphs [234]-[237], the Tribunal set out the relevant evidence of the chairperson of the strata committee of the owners corporation, Mr Spanos. As discussed previously, Mr Spanos was not cross examined on his affidavit evidence. Mr Spanos stated that the lessee's power board was a sub-board that "piggy-backs" off the main power board of the strata building.
Mr Spanos stated that the air-conditioning system in the strata building is not capable of being calibrated so that it only air-conditions one floor and operates throughout the building between 8 am to 6 pm each day. Additionally, the air-conditioning was operating a further 7 hours after 6 pm each weekday and on Saturdays to "meet the air-conditioning needs of the lessee". Mr Spanos stated that the use after 6pm on weekdays of air-conditioning accounted for 41.18% of the daily hours of operation of the air-conditioning system in the strata building and was a major expense to the owners corporation.
At paragraph [237], the Tribunal found: "Weighing up this evidence I am not comfortably satisfied that there is or will be any duplication in electricity payments made by the lessee for air-conditioning payments made by the lessee for air-conditioning. I am not persuaded that Mr Best is appropriately qualified to opine as to what electricity is or is not being consumed by the owners corporation or what impact the power board installed by the lessee might have on the consumption of electricity by the owners corporation. My decision may have been different if the lessee had adduced independent evidence to support what was being asserted by Mr Best. It also chose not to cross-examine Mr Spanos, the Chairman of the owners corporation, whose evidence contradicts that of Mr Best. Faced with this evidentiary conflict, I am comfortably satisfied that the after-hours air-conditioning charges that are being levied for electricity to the lessor and passed on as outgoings are properly and reasonably incurred."
In respect of whether the "after-hours air-conditioning charges" had been properly and reasonably incurred, there was evidence of Mr Spanos as to how the charges were incurred. That evidence was not challenged. Clearly, the finding of the Tribunal that the "after-hours air-conditioning charges" were properly and reasonably incurred was a finding based on evidence, and no error of law has been established.
At its highest, the oral submission of the appellant that the Tribunal's finding at para [237] contains an error is a submission that the finding was against the weight of evidence and so the appellant may have suffered a substantial miscarriage of justice under Sch 4 Cl 12 (1) (b) of the NCAT Act. This is a ground that requires leave to appeal.
A decision under appeal can be said to be against the weight of evidence if the evidence in its totality preponderates so strongly against the conclusion found by the Tribunal at first instance that it can be said that the conclusion was not one that a reasonable Tribunal Member could reach: Calin v The Greater Union Organisation Pty Ltd [1991] HCA 23; (1991) 173 CLR 33 at 41-42; Mainteck Services Pty Limited v Stein Heurtey SA [2013] NSWSC 266 at [153].
We are not satisfied that the Tribunal's findings at para [237] is against the weight of evidence. The Tribunal clearly and carefully weighed the evidence of Mr Best and Mr Spanos. There is nothing unusual or unorthodox in the manner in which the Tribunal considered the evidence and made its factual findings. We are not satisfied that the Tribunal's findings at para [237] are against the weight of evidence, particularly when Mr Spanos was not cross examined.
No error has been established under Sch 4 cl 12 (1) of the NCAT Act, and we would not grant leave to appeal under the principle set out in Collins v Urban at para [84] in any event.

Conclusion

No error of law has been established. Additionally, although it was not clear to us whether or not the appellant was relying upon an error to which leave to appeal is required under Sch 4 cl 12 of the NCAT Act, we have considered this issue for the sake of completeness, and leave to appeal under Sch 4 cl 12 is refused.

Costs of the Appeal

The amount in dispute both in the proceedings in the Tribunal and on appeal exceeds $30,000. By reason of r 38A of the NCAT Rules, r 38 of the NCAT Rules applies to the appeal, and an order for costs can be made without "special circumstances" being established under s 60 (2) of the NCAT Act.
The respondent is the successful party in the appeal, and there appears no reason why the appellant should not be ordered to pay the respondent's costs of the appeal proceedings. We order the appellant pay the respondent's costs. This is subject to any application that may be made within 14 days by either party for a different costs order.
If either party makes an application for a different costs order within 14 days of this decision, we will make further directions and orders for the disposition of such an application. If no such application is made, the costs order will remain unchanged.

ORDERS

The following orders are made: 1. Leave to appeal is refused. 2. The appeal is dismissed. 3. Norsk Dor Pty Limited is to pay Tuxfend Pty Limited the costs of the proceedings in Matter AP 20/14266 as agreed or assessed on the basis set out in the legal costs legislation (as defined in s 3A of the Legal Profession Uniform Law Application Act 2014 (NSW)). 4. If either party seeks to vary the costs order set out in order 3 above, the party is to write to the Tribunal and the other party by 14 days from the date of this decision to set out the alternative order(s) sought, and the Appeal Panel will make further directions and orders as appropriate. 5. The stay order of the Appeal Panel made on 9 April 2020 which stayed money orders of the Tribunal is lifted immediately.

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: 03 September 2020

(C'th) Civil and Administrative Tribunal Act 2013(NSW)

Retail Leases Amendment (Review) Act 2017(NSW)

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