Lease ­ Commercial tenancy ­ Lessees ceasing to carry on business from premises ­ Lessor carrying out works on premises without lessees' consent ­ Whether breach of quiet enjoyment ­ Whether lessees in breach for parting with possession ­ Rent cheque not received by lessor ­ Whether entitled to terminate lease ­ Whether prior notice of re­entry required ­ Damage following termination

Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA)

Property Law Act 1969 (WA), s 81

1 The lessees and the lessor of shop premises in Busselton brought proceedings against each other concerning alleged breaches of the lease in late 2004 and May 2005. The lessees had ceased conducting their business from the premises in November 2004, but continued paying rent until May 2005. Although the lessees said that they had paid the May 2005 rent by post, the lessor did not receive the cheque and terminated the lease by re-entering the premises.

2 The Tribunal examined the events of December 2004 and concluded that, although the lessor undertook certain works on the premises without the lessee's consent, his conduct did not amount to a breach of the covenant for quiet enjoyment. However, the Tribunal also concluded that the lessees had not breached the lease at that time as alleged by the lessor because they had not parted with possession in the sense prescribed by the lease.

3 The failure to pay the May 2005 rent was found by the Tribunal to justify termination of the lease by the lessor. The Tribunal awarded damages to the lessor flowing from the termination.

4 Mr Terrance Germain owns a property located at 22 Prince Street Busselton. By a lease dated 4 June 1996, Mr Germain (the lessor) leased the building on that site to Mr Murray Graham Pearce and his wife, Ms Margaret Eva Pearce (the lessees). The original lease was limited to the internal spaces of the building situated on the land and did not include the area of the site outside of the building.

5 Pursuant to the lease, Mr and Mrs Pearce went into possession of the property and carried on a business of the sale of new and used furniture from the premises. The initial term of the lease was for 5 years with an option for a further 5 years commencing 1 February 2001. It is apparent that the lessees remained in possession after the expiry of the initial term. On 10 October 2003, Mr Germain and the Pearces executed a deed of extension and variation of lease. The relevant effect of that document was to extend the term of the lease until 31 January 2006 and to grant a further option of 5 years from 1 February 2006. In addition, the deed provided that, with effect from 1 February 2001, the leased premises included the whole of the land, rather than simply the internal spaces of the building as provided for in the 1996 lease.

6 The Pearces continued to operate their business until sometime in November 2004 when they ceased trading. Various events took place in November and December 2004 which each party contends amounted to breaches of the lease by the other party. The Pearces continued to pay rent through until May 2005. There is a dispute as to whether the May 2005 rent was paid, but there is no dispute that, on 18 May 2005, Mr Germain took possession of the premises on the basis that, he contends, the rent was unpaid.

7 Each of the parties commenced proceedings before the Tribunal under the Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA) (the CTA Act). In their proceedings, Mr and Mrs Pearce claim damages for breaches of the lease by the lessor in November and December 2004 and for unlawful termination in May 2005. The lessor, in his proceedings, claims monies payable under the lease by way of damages suffered by him as a result of the termination of the lease.

8 At the hearing, both Mr Pearce and Mr Germain gave evidence. The only other witness was Mrs Pearce, whose evidence dealt with a short point concerning her usual practice in posting rental cheques. I did not find the evidence of either Mr Germain or Mr Pearce particularly reliable. It is apparent that at the relevant time, and probably since, they each suffered from an inability to sensibly communicate with each other. Their relationship is obviously poor. Nothing in the events, in respect of which evidence was given, would seem to me to provide a rational reason for their failure to communicate. Whatever might be the reason for their poor relationship, their animosity has in all probability coloured their recollection of events. In determining the facts as to what occurred in the period between November 2004 and June 2005, I have not concluded that I should simply prefer the evidence on all matters by one witness in preference to the other, rather I have reached conclusions as to what occurred by reference to such documentary material as is available or alternatively as to my conclusions as to what I think likely to have occurred in light of the facts and circumstances otherwise established or not in dispute.

9 According to Mr Germain, he received a telephone call from Mr Pearce on 3 November 2004. Mr Pearce informed him that he had decided to close the shop in the leased premises and that he had already moved most of his stock from the premises and covered the windows with black plastic. He said that he asked Mr Pearce if it would be appropriate for him to come and inspect the premises which he then did. He went to the premises and found Mr Pearce taping black plastic to the windows. He undertook an inspection of the premises including the kitchen and toilet areas and noticed that the cupboard under the sink was in very bad condition with doors hanging off their hinges. He turned on a tap in the sink but was then unable to turn it off without difficulty. In his witness statement he said that he "enquired of Mr Pearce if he wished to relinquish the lease, given that he was moving out, to which he replied that he did". Mr Germain said that when he visited the shop on 3 November 2004 there was no furniture stock in the shop, but all he saw were some cardboard boxes, an oil heater, some shelving and a dustbin.

10 Mr Germain said that he asked Mr Pearce whether, given that he was vacating the premises, it would be an appropriate opportunity for Mr Germain to do some tidying up of the exterior by removing the old lawn and having the front paved, and also doing some plumbing repair work. He said that Mr Pearce agreed.

11 Mr Germain also said that, at the meeting on 3 November 2004, Mr Pearce informed him of the identity of a possible new tenant. He did not speak to Mr Pearce again until 19 November 2004 when he said that Mr Pearce suggested he employ Mr Trevor Thrusher, a local real estate agent, to find a new tenant.

12 According to Mr Germain, he spoke to Mr Pearce by telephone on 23 November 2004 and asked him for the security system code "so that I could carry out repairs to the kitchen, plumbing and the like", and Mr Pearce agreed to his entering the premises for that purpose.

13 Mr Germain said that he used the security code on several occasions to enter the premises for various purposes during December 2004.

14 Mr Pearce agreed that he telephoned Mr Germain in November 2004 to tell him that he would not be opening the store "because things were very slow", and that he would be looking for a buyer, and if he couldn't find one he proposed refurbishing the store and reopening in January. He said that conversation occurred on 19 November 2004. He said he invited Mr Germain to ring Mr Thrusher to see whether he might have someone interested in the business. He said he thereafter visited the site on a daily basis to remove furniture until one day he found Mr Germain and another man lifting paving slabs from the area in front of the shop. Mr Pearce agreed that he gave Mr Germain the security code for the premises but only for the express purpose of showing Mr Thrusher the premises and to enable Mr Thrusher to show prospective tenants through the premises.

15 It is common ground that Mr Germain engaged a contractor to supply and lay paving to the area of the premises between the road reserve and the building. He obtained a quotation for that work on 2 December 2004. The invoice for the work, presumably completed by that time, is dated 15 December 2004. It is also common ground that, before the work was done, Mr Germain, assisted by another man, removed the old paving, a sign erected in the forecourt of the building, the letterbox, a concrete strip under the roof overhang of the building and a lawn area. According to Mr Germain, he commenced this work on 6 December 2004. Photographs tendered at the hearing show that the new paving work was well under way on 13 December2004 and appears to be completed by 17 December 2004. Given the date of the invoice it is likely that it was completed on 15 December.

16 Mr Pearce said that, when he arrived at the premises on one occasion, he found Mr Germain and another man lifting the old paving bricks. He says that he told Mr Germain that he was not entitled to do that because they were Mr Pearce's bricks. He said that Mr Germain stopped what he was doing and left the premises.

17 On 13 December 2004, Mr Germain sent a letter by email to Mr Pearce. The letter read:

"Following our recent discussion, I understand that you wish to be released from your present lease for the premises located at 22 Prince Street Busselton as from the end of the December 2004, and that you will vacate the premises completely before December 31 2004, removing any debris, and thoroughly cleaning and vacuuming floors and shelving.

If you agree to the above would you please print this letter and sign at the bottom. Return it to me as soon as possible."

18 At about the same time, Mr Germain instructed his solicitors to prepare a deed of surrender. The solicitors wrote to the lessees on 16 December 2004, enclosing a proposed deed of surrender, which provided for the surrender to take effect on 31 December 2004. The letter stated, "if you wish to surrender your lease then the enclosed deed of surrender must be executed by you and Mrs Pearce where indicated."

19 According to Mr Pearce, he sent a letter dated 20 December 2004 to Mr Germain's solicitors. The letter complains about removal of the letterbox, but not the brick paving or the signage. The letter asserted that the lessees had not discontinued trading, "but are merely refurbishing the interior of the premises which requires us to empty the building of trading stock", and advised that they did not wish to surrender the lease. Mr Germain denied that that letter was ever sent, presumably on the basis that he did not see it. Whether or not the letter was sent is of no moment. That is because Mr Pearce's conduct in not responding to the email of 14 December and not executing the deed of surrender sent by Mr Germain's solicitors clearly shows that, at least by mid-December 2004, Mr Pearce did not propose to surrender the lease.

20 Mr Germain said that on 21 December 2004, he attempted to enter the premises but his attempt to disarm the security system failed. He telephoned Mr Pearce who told him that his permission to enter the premises was withdrawn.

21 On 23 December 2004, Mr Germain's solicitor sent a notice of default alleging a breach of the lease by parting with possession of the premises without the lessor's consent. The letter threatened that the lessor would exercise all remedies available to him in the event that the breach was not remedied.

22 On 4 January 2005, Mr and Mrs Pearce wrote to the lessor's solicitor, Mr May. That letter denied that the lessees had parted with possession and referred to a discussion with Mr Germain on 19 November 2004 concerning the possibility of assignment of the lease and to "our refurbishments of the premises by agreement".

23 The solicitor replied on 14 January 2005. The letter refers to the client having "a record of the conversation which you [had] on 19 November, in which he records you as saying that you intended to vacate the premises, that you had removed the bulk of your stock and that you would be closing the shop." The letter noted the tenants' intention to remain in occupation of the premises, and noted that a rent review as of 31 January 2005 was due and suggested a rate of $180 per square metre plus GST as the appropriate rental.

24 The Pearces rejected the proposed new rent, and accordingly a valuer was appointed to undertake an assessment of the market rent for the premises in accordance with the requirements of the lease and the CTA Act. The valuer was Mr T Dale. In accordance with his instructions, Mr Dale assessed the market rent at $90 per square metre, or $41,262 per annum which he rounded to $41 000 per annum. That valuation was dated 3 March 2005.

25 Mr Germain was not content with that valuation and on 20 April 2005, his solicitors wrote to Mr and Mrs Pearce saying that "Mr Germain does not accept the valuation undertaken by Mr Dale and he will shortly be corresponding with Mr Dale in relation to that matter". Subsequent correspondence ensued between Mr Dale and Mr Germain, and not surprisingly, Mr Dale did not revise his valuation.

26 It follows that the proper rent as from 1 February 2005 was $41 000 per annum, or $3412 per calendar month. That compares with the rent which was payable prior to the review of $3367.21 per calendar month or $40 406 per annum.

27 Mr and Mrs Pearce assert that their right to quiet enjoyment was breached by:

(i) the removal and replacement of brick paving;

(ii) the removal of the letterbox;

(iii) the removal of signs; and

(iv) the re-entry of the premises and removal of the cupboard and sink.

28 As a consequence of those alleged breaches, the tenants assert that they were unable to move back into the premises and recommence their business because of the concern Mr Germain might interfere again with their business and property. They also assert that, by reason of these breaches of the covenant of quiet enjoyment, the obligation of the tenants under the lease, including rental obligations, were suspended, or further that they were, in effect, evicted in December 2004 so that they thereafter had no liability for rent or further that the breaches of the lease were so significant that the lease was "frustrated".

Findings in relation to events of November 2004 to January 2005

29 I do not accept that the initial phone call from Mr Pearce to Mr Germain was made, as Mr Germain contends, on 3 November 2004. By his own admission, his recollection of some events was unclear, and he had difficulty recalling the sequence of events. In his solicitors' letter of 14 January 2005 to Mr and Mrs Pearce, the solicitors refer to a record of a conversation on 19 November concerning an intention to vacate the premises and remove stock. That is consistent with the date on which Mr Pearce says he telephoned Mr Germain to tell him of his intention of closing the shop.

30 I am satisfied that Mr Pearce did not tell Mr Germain that he proposed to surrender the lease. It is clear that Mr Pearce told Mr Germain that he intended to close the shop, that he intended trying to find someone to take over the lease, and that he invited Mr Germain to engage a real estate agent to endeavour to find a new tenant. He suggested that a Mr Jamie Bartlett might wish to take over the premises. I am satisfied that Mr Pearce's intention at that time, that he communicated to Mr Germain, was that if the lease could not be assigned, he would re-open the business.

31 It may be that Mr Germain misunderstood the position. At some stage Mr Pearce himself put a "for lease" sign on the premises. It is apparent, and I find, that his preferred position was not to resume business from the premises, but rather to assign his lease, hopefully for some consideration. In my view, Mr Germain either misunderstood Mr Pearce's intentions, or alternatively saw an opportunity to obtain a surrender when he wrote his email letter of 13 December 2004, and instructed Mr May to write his letter of 16 December 2004.

32 There is no suggestion that either party considered that the lease was not in place and enforceable during December 2004.

33 Mr Germain said that he undertook the works which occurred on the premises with Mr Pearce's consent. I do not accept that evidence. Rather, I find that Mr Germain decided to undertake the improvements to the property of his own accord. He was no doubt influenced by the belief that, his tenants having ceased trading from the premises, an opportunity presented itself to do works which would improve the general presentation of the premises. It was common ground that there was a confrontation when Mr Pearce first came to the premises while bricks were being lifted. It is common ground that Mr Germain left the premises immediately, although he returned later to continue the works. That is inconsistent with the evidence that the work was discussed beforehand and agreed to by Mr Pearce. I accept that Mr Pearce gave Mr Germain the security system password in order to enable Mr Germain to bring a real estate agent or prospective tenant to the premises, rather than for the purpose of coming and going in order to undertake the proposed work.

34 It follows that the brick paving, and removing fixtures and fittings from the premises, occurred while the lease was current, and without the consent of the lessee. The issue for the Tribunal is whether that conduct breached the covenant of quiet enjoyment under the lease.

Did Mr Germain breach the covenant of quiet enjoyment?

35 Clause 10.1 of the lease contains a covenant by the lessor to permit the lessee to peaceably hold and enjoy the leased premises during the term without any interruption by the lessor or any person claiming under the lessor. In the unreported decision of Toscana (WA) Pty Ltd v Pidd (Unreported, WASC; BC 990080B; 19 February 1999), Murray J identified the character of conduct which is capable of amounting to a breach of the covenant of quiet enjoyment. His Honour said, referring to the debate which had taken place before the Full Court as to the correctness of the decision in Orr v Smith [1919] NZLR 818;

"In my opinion, the case is really only an authority concerned with the well-accepted general proposition that the question whether there has been sufficient interference by the lessor with the lessee's use and enjoyment of the demised premises to constitute a breach of the covenant is a question of fact and for the interference to be sufficient to establish a breach, it must be more than a mere trespass or nuisance. It must be something which is more than temporary, but has a degree of permanence about it so that it may be said that in such a case as this the lessee has been effectively excluded from enjoyment of the demised premises for which he contracted when he made the agreement to lease. What occurs must be something in the nature of a derogation from the grant made by the lessor in giving the lease, although of course, the lessor may derogate from the grant without breaching the covenant for quiet enjoyment: Markham v Paget [1908] 1 Ch 697."

36 In this case, Mr Pearce was not conducting his business during December 2004 by reason of his decision to close it, and seek to assign the lease, or possibly reopen the business at some time in the future. It was clear that, at least by late December, he did not intend to accept Mr Germain's proposal to terminate the lease by agreement. The actions of Mr Germain in carrying out various works on the premises during the time that Mr Pearce was not utilising them for the conduct of his business had no practical effect on Mr Pearce, other than perhaps effecting mail deliveries to the premises by reason of the removal of the letterbox, although no detailed evidence of problems in that regard was adduced. It was a problem that could easily be, and was, remedied by redirection of mail to Mr Pearce's other business premises nearby or the erection of a new mailbox.

37 Mr Pearce changed the security code for the premises some time before Mr Germain went there on 21 December 2004. From that point on, Mr Germain could not enter the premises without setting off the alarm. There is no evidence that he attempted to do so. By that date it was clear that Mr Pearce intended to retain control and possession of the premises, and he did so. I do not accept Mr Pearce's evidence that he was effectively unable to resume conduct of his business from the premises for fear on ongoing intrusions by Mr Germain. He simply chose to leave the premises empty.

38 In my view, Mr Germain's conduct during December 2004 was not of the character of conduct identified by Murray J as amounting to a breach of the covenant of quiet enjoyment. It may have been that Mr Germain acted under a misapprehension that Mr Pearce was likely to accept a termination of the lease by agreement, but that does not characterise the conduct as repudiatory and it certainly does not amount to a frustration of the lease as asserted by Mr Pearce.

39 The events occurring in November and December 2004 did not constitute any breach of the covenant of quiet enjoyment by Mr Germain, and Mr Pearce is not entitled to any remedy in relation to those events.

40 As mentioned above, on 23 December 2004, the lessor issued a notice of default against Mr and Mrs Pearce. The notice was based upon an alleged breach of cl 8.1 of the lease which contained a covenant by the lessee not to "assign, transfer, sublet, mortgage, charge, part with possession of or re-lease premises without the lessor's consent." The notice required remedy of the breach within 14 days, failing which it expressed an intention of the lessor to exercise all of the remedies available to him, including re-entering the premises and terminating the lease.

41 Mr Pearce's reply of 4 January 2005 made it clear that he denied that he had parted with possession of the premises. That denial was supported by the facts. Notwithstanding that Mr Pearce had ceased operating his business from the premises, he had obviously changed the security code, and thereby retained control of the premises. In his letter, he referred to his meeting with Mr Germain on 19 November 2004 and a discussion concerning the possibility of assignment of the lease or refurbishment of the premises for his ongoing use. It is clear, from his ongoing payment of rent, that Mr Pearce intended to retain possession of the premises, albeit that he was not operating the business from them. His conduct did not constitute "parting with possession" for the purposes of cl 8.1 of the lease.

42 It can be noted that there was no obligation on his part under the lease to continuously conduct the business from the leased premises. Clause 6.1 of the lease prevented the lessee using the premises other than in connection with the sale of new and used furniture, or as a pawnbroker, but the lease contains no positive covenant to carry on those businesses throughout the term.

43 In my view, there was no breach of the lease by Mr Pearce when he ceased to conduct his business from the premises. I accept that he ceased business in order either to assign the lease, or ultimately reoccupy the premises. The notice of 23 December 2004 was of no effect.

44 As previously mentioned, the lessees continued to pay rent through the early months of 2005, notwithstanding that they were not conducting the business from the premises. During that period a number of letters were exchanged between Mr Pearce and the lessor's solicitors. During January 2005, Mr Pearce wrote letters to Mr May complaining about the removal of signage and the letterbox, and the other work done by Mr Pearce in December. During February there was correspondence relating to the rent review. In March, Mr Pearce wrote making demands for reinstatement of the signs and letterbox, and payment for brick paving removed from the property.

45 On 15 March 2005, Mr Pearce wrote to Mr Germain's solicitors acknowledging receipt of the rental valuation which had by then been obtained. The letter referred to some disparaging remarks about the premises made by the valuer, and repeated the demands made in the letter of 25 January 2005. It also made a claim for the cost of erection of signs that had been removed. The letter concluded:

"The relationship between your client and ourselves has soured to a point where it is no longer workable, and we find your client's actions have completely destroyed our business of 11 years. We hope you can instruct your client rectify [sic] all of the defaults urgently or negotiate a [sic] early termination of the lease.

If we have not received your satisfactory reply within 14 days we intend exercising all or any of the remedies available to us which include (but not limited to) non-payment of the rents and outgoings."

46 The deteriorating relationship was again demonstrated when Mr Pearce paid the April 2005 rent, apparently on 1 April 2005 and a note at the foot of the invoice accompanying the payment written by Mr Pearce read:

"And we thought you didn't want to play anymore.

"Bring it on. For five years plus ten months to go."

47 In accordance with the usual practice, Mr Germain sent a tax invoice for the May 2005 rent to Mr Pearce. That document is dated 28 April 2005. According to Mr Pearce, in accordance with his usual practice, he wrote the cheque for the May rent on 1 May 2005, placed it in an envelope and handed it to either his wife Margaret or his daughter Natasha with instructions to post it on or about the date of the cheque.

48 Mrs Margaret Pearce gave evidence that her husband wrote cheques for rent and gave them to her and then she or her daughter Natasha would place the cheques in the mail. She said that if she were given a cheque to mail, she or her daughter "would have mailed it". She had no independent recollection of receiving or posting the cheque for the May 2005 rent.

49 Mr Germain denied ever having received the May 2005 rental cheque. It was on the basis of the non-receipt of that rent that he terminated the lease by re-entering the premises pursuant to cl 11.1 of the lease.

50 The book of cheque stubs for Mr Pearce's account at the relevant time was produced at the hearing. The stub for cheque 1307 is dated 1 May 2005 and shows the payee as "T + G BSN rent" and the cheque amount of $3703.93, which was the amount of the invoice for the May rent. The stub for the previous cheque, number 1306, bears the date 2 May 2005, while the stub for the following cheque, number 1308, bears the date 1 May 2005. The next cheque, 1309, bears the date 4 May 2005. Cheques 1307 and 1308 are written in blue ink while all other cheque stubs in the book, apart from the last, are written in black ink. Cheques 1307 and 1308 appear to be out of temporal sequence with cheque 1306. That apparent discrepancy was not raised during the hearing, and was not explored with Mr Pearce when he gave evidence. Cheque 1308 was debited to Mr Pearce's bank account on 3 May 2005, the same day as cheque 1306. Cheque 1307 was never debited to the account and was stopped by Mr Peace apparently in January 2006.

51 Mr Germain said that he never received the cheque for the May 2005 rent. Accordingly, he said that he terminated the lease by re-entry, triggering the alarm system as he did so. He eventually disarmed the alarm system by removing the reserve battery. He then proceeded to complete the replacement of the sink by engaging a plumber.

52 On 26 May 2005, Mr May wrote to Mr and Mrs Pearce advising them that Mr Germain had paid his half of the valuer's fees, but that Mr May was aware that the Pearces had not paid their half. The letter called upon them to pay $550 directly to the valuer without delay on the basis that "the account has been outstanding for some time."

53 On 27 May 2005, Mr Pearce wrote to Mr Germain's solicitor. The letter discussed payment of the valuer's fee and invited Mr May to forward a tax invoice for the amount of the fee. The letter concludes:

"As of today's date the rental cheque for May has not been cleared which is most unusual. Could you please advise us of the cheque's whereabouts".

54 According to Mr Pearce, when he wrote that letter he was unaware of the re-entry by Mr Germain on 18 May 2005.

55 On 30 May 2005, Mr May responded advising that he was instructed that the rent from May had not been received by his clients, and that re-entry and termination of the lease had occurred. The letter reserved the lessor's rights to damages including lost rent.

56 On 1 June 2005, Mr Pearce wrote to Mr Germian enclosing a cheque for the June rent, notwithstanding that he had not received, as usual, a tax invoice for that rent. The letter further advised that Mr Pearce intended to take up the option to renew the lease for a further five years from 1 February 2006. It again called upon Mr Germain to remedy the alleged breaches of the lease.

57 Mr May responded to that facsimile on Mr Germain's behalf on 7 June 2005. The letter suggested that Mr May's letter of 30 May and Mr Pearce's letter of 1 June had crossed, and again confirmed termination of the lease.

58 On 26 July 2005, Mr Germain's solicitor wrote to Mr and Mrs Pearce advising that Mr Germain intended banking the cheque forwarded on I June 2005 and "applying the proceeds in reduction of the damages payable to him by virtue of your breach of the lease which damages include (but are not limited to) the loss of rent pending the reletting of the premises."

59 That letter was followed by a letter dated 1 August 2005 itemising damages to the date of that letter quantified at a total of $18,331.39. On 23 October 2005, Mr and Mrs Pearce wrote to Mr Germain purporting to accept his repudiation of the lease and asserting various breaches of it and foreshadowing the present claim by Mr and Mrs Pearce for compensation and damages for the alleged breaches.

60 The critical factual issue is whether or not the rent was paid in May 2005. I accept Mr Germain's evidence that he did not receive the cheque in May 2005 or at all. It is not necessary that I determine whether Mr Pearce in fact withheld the rent for May, as counsel for Mr Germain contended, or whether the cheque somehow went astray at some time after it was written, but on balance it seems more likely to be the latter.

61 Mr Pearce's facsimile of 27 May 2005 is consistent with his belief that the cheque had been sent. I think it unlikely that he would have concocted his enquiry about the cheque's whereabouts if he had withheld the payment.

62 There is, however, no basis in the evidence to reject Mr Germain's evidence that he did not receive the cheque. There is nothing in the sequence of events which would serve as a motive for him to terminate the lease on the pretence of having not received a rental payment. He had accepted the rental payments since January notwithstanding that Mr and Mrs Pearce were not conducting business from the premises. He rendered an invoice for the May payment in the usual way. He confirmed on oath that he did not receive the cheque, and was unshaken in his evidence on the point during cross-examination. There is no basis on which I should conclude that that evidence was false. On the other hand, there is no direct evidence that the cheque was actually posted. Rather the evidence is only that the cheque was written by Mr Pearce and that the usual practice was for cheques to be given to Mrs Pearce who then either posted them herself or had their daughter post them. There is no evidence as to postage of this particular cheque.

63 Clause 2.1 of the lease requires rent to be paid monthly in advance "at such place or places as the lessor may from time to time direct in writing." Mr Germain said he never gave a direction to Mr Pearce to pay the rent by post. Mr Pearce acknowledges that initially he paid the rent by bank transfer, but at some stage during the currency of the lease, changed to paying the rent by post. There is no evidence that the particular place or manner of payment was ever directed by the lessor.

64 I was referred by the parties to different commentaries and cases cited in them concerning whether or not delivery to Australia Post of a cheque in payment of rent constitutes payment under a lease. Mr Pearce's counsel referred to Halsbury's Laws of Australia at [245-3100] which asserts that where a particular method of payment is authorised, any intermediary body facilitating the delivery of payment is the agent of the lessor with the result that the date of receipt of the payment is the date of receipt by the agent. Authority for that proposition is cited as Beavers v Mason (1978) 37 P&CR 452 and Pennington v Crossley (1897) 77 LT 43; 13 TLR 513.

65 Mr Germain's counsel referred to a passage in the text Commercial Leases in Australia, WD Duncan, 4th Edition at 101 which asserts that it is the duty of the lessee to seek out the lessor and tender rent to it. He also referred to D and J Fowler v French (1914) SALR 254, Happy Century Pty Ltd v Nezville Pty Ltd (2000) V Conv R 58-546 and Rogowski v Bedelis (2001) V Conv R 58-562 as authority for the proposition that, in the absence of a direction to pay rent by post, the risk of non-delivery rests with the lessee.

66 It is not necessary for me to resolve those apparently conflicting authorities, because I am not satisfied that the evidence supports a finding that the May rent cheque was in fact posted. It follows that it was not paid as required by cl 2.1 of the lease.

67 Clause 11.1 of the lease permitted the lessor to re-enter the premises, thereby terminating the lease, in a number of circumstances. One of those circumstances was if the rent remained unpaid for seven days after it became due "whether or not any formal or legal demand shall have been made therefore".

68 I accept Mr Germain's evidence that he re-entered the premises on 18 May 2005, some 18 days after the payment of the May rent was due. He thereby terminated the lease.

69 Mr and Mrs Pearce argue that, whilst no "formal or legal demand" was required before re-entry, cl 11.1 did not displace the requirement at common law for a demand to be made. It is argued that there is an implication arising from the provision that "there must be a demand though not of a formal or legal nature." In my view, no such implication arises. The type of demand contemplated by the common law rule is clearly a formal demand. It is that demand which is expressly excluded by the provisions of cl 11.1(a) of the lease. The requirement found in s 81 of the Property Law Act 1969 (WA) for notice of default prior to re-entry does not apply in relation to a breach of the obligation to pay rent - see s 81(9).

70 Accordingly, the re-entry by Mr Germain was effective to terminate the lease on the basis of the breach of the covenant to pay rent, where, as here, that breach continued in excess of seven days.

71 The lessees raised a number of arguments as to why they contend that the termination was ineffective. The first of those was based on affirmation of the lease. The affirmation is said to be constituted by Mr Germain's solicitor's letter of 26 May 2005 demanding payment of one half of the valuer's fees. Counsel correctly observed that no mention was made in that letter of any re-entry, and that the evidence is that, at that time, Mr and Mrs Pearce were unaware of the re-entry.

72 In my view, the letter of 26 May 2005 does not amount to an affirmation of the contract. The obligation to pay the valuer was a pre-existing obligation under the lease prior to its determination. The entitlement to demand payment was not dependent upon the continuing existence of the lease.

73 The second submission in relation to the efficacy of the termination was based upon the failure to make demand. That argument is dealt with above, and provides no basis for a conclusion that the termination was ineffective.

74 The lessees also submit that, by reason of the lessor's breach of the covenant of quiet enjoyment, their obligations under the lease, including the obligation to pay rent, were suspended, and that there was no default because there was no obligation to pay rent as of May 2005. That submission is based on the proposition that there was a breach of the covenant for quiet enjoyment, a submission which I have rejected earlier in these reasons. Even if there were a breach of the covenant of quiet enjoyment for a limited period during December, that would not give rise to the consequence that there was an ongoing suspension of the lessees' obligation to pay rent. Counsel for the lessee cited as authority for the proposition that rent was suspended, Halsbury's Laws of Australia at 245-3085. That paragraph expresses the well-accepted proposition that a lessee generally continues to be liable for rent for so long as the lessee continues to have an interest in the demised premises and the contract for the lease has not been frustrated.

75 The lessee contends that breaches by the lessor during December 2004 were so significant as to cause the lease to be frustrated. Given my findings in relation to the events of December 2004, that submission is unsustainable. Similarly, a submission that "the lessees were evicted in December 2004 and were never reinstated and are not liable for rent which occurred after that time" is unsustainable given those findings.

76 An argument that the lessor was estopped from re-entry in May 2005 was abandoned at the conclusion of the hearing and requires no further consideration.

77 Finally, by a somewhat ingenious argument, the lessees sought to rely upon the introduction of provisions relating to unconscionable conduct into the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) which came into effect on 11 May 2007, and expressly apply only to conduct after that date. It was argued that the lessor had acted unconscionably since the letter of May 2007 by continuing to pursue claims and defences in these proceedings, given certain aspects of Mr Germain's conduct in late 2004 and 2005. That argument can be shortly disposed of. To the extent that the lessor enjoyed claims or defences in accordance with the law applicable to his conduct at the time it occurred, the continued reliance on those claims or defences is not unconscionable. The argument has no merit.

78 As a result of the lessee's breach of the covenant to pay rent, and the termination of the lease, the lessor is entitled to damages. The claim made is for the sum of $47,840.03, the lessor's costs of these proceedings on an indemnity basis, and interest on the amount of the damages. An order is also sought for the payment of all outgoings payable under the lease up until and including 30 November 2005. The claim for damages was itemised as follows:

Cost of removal of front lawn - damaged by constantly driving of truck on and off said lawn.

Cost of removal of concrete area in front of showroom windows - cracked and damaged by vehicle movement.

Cost of removing old paving bricks, damaged by parked vehicle, trucks and cars dripping oil and fluids, and cracking of paving bricks - 2 men for 8 hours

Cost of replacing kitchen cupboard - 2 men for 1 hour

Cost of repainting toilets - 2 men for 1 full day (8 hours)

Cost of replacing toilet pan, seat, cistern etc. damaged by use of toilet as storage room. 1 man for 3 hours

Cost of removing from showroom, old tables, cupboards, playground equipment, old damaged heaters, 2 old damaged oil filled radiators, metal shelf parts, paint tins, old fire extinguishers, metal railing supports, paint trays and dried up rollers, [sic] - old damaged Table Tennis Table, old metal desk, qty. of old receipt books, old corner cupboard, 2 old garden hoses, old extension cable, qty. of metal shelves and baskets[,] old kitchen cupboard. 2 trips to tip 1.5 hrs each trip, plus loading

Cost of removing old sign, removing letter box from sign for replacement to shop front 2 men for 1 hour

Cost of removing metal post in front of garden - 2 men for 2 hours

Cost of repairs to water meter - due to interference - fitting of, and later removal of standpipe and tap

Cost of removing black plastic sheeting from windows and removing plastic tape from window frames and windows

Removing old painted and plastic signs from windows with scrapers - 2 men for 2 hours

Cost of Agent's fees for negotiating Lease to new tenant

Cost of vacuuming total floor area - 1 man for 4 hours

4 times in last 6 months June to November 2005 - removal of debris and vandals waste from front garden of premises - food containers, straws, newspapers, beer bottles, and general paper waste, i.e. ATM dockets from Bank next door - 1 hour each visit and trip to rubbish trip [sic] half hour - Total 4.5 hours @ $25

Total 25 trips to Busselton (10 Klms) for this purpose

Cost of removing 18 large hooks from the overhang of front window, drilled into underside by tenant to hold heavy clear plastic sheets and bunting. Repairing waste pipe from hand basin, repairing leaky tap at rear of premises 2 men for 3 hours

Loss of rent May 2005 to Nov 2005 @ $3,703.93 pcm less June

79 The lessor gave no evidence at all concerning the items of claim, other than by including a number of receipts and invoices in the bundles of documents tendered at the hearing. No attempt was made in evidence or in submissions to relate the items claimed to the bundles of documents. Various labour costs are included in the itemisation, but there was no explanation given as to the necessity for the hours claimed, nor the relationship between the hours claimed and particular alleged breaches of the lease. The burden in establishing the damage lay with the lessor, and in respect of many of the items, that burden has not been discharged.

80 In relation to items 1 to 18, it would appear that most of the work done related to Mr Germain's activities in December 2004. I have found that that work was undertaken at Mr Germain's initiative. A large proportion of the costs of those items relates to the replacement of paving at the front of the premises. There was no evidence to support a conclusion that that work was necessary by reason of any breach of the lessee's covenants under the lease. It may be that some of the items relate to work done following termination of the lease in May 2005, but even if that is so, I am unable to relate it to any breach by the lessee of the lease. I would not allow items 1 to 18 for those reasons.

81 Item 19 relates to the cost of agents fees for negotiating a lease for a new tenant. Mr Germain's position was that he would not have renewed the lease in February 2006 had the lessee sought to exercise the option. He would thus have incurred agents fees in negotiating a lease with a new tenant following its termination at that time. The fact that that expense was incurred a little earlier than would otherwise have been the case should not result in the lessee paying those fees. I would not allow item 19. I would not allow items 22, 24 and 25 for the same reasons.

82 With respect to items 20, 21 and 23, there was no explanation given in evidence as to the circumstances of the work referred to, or as to the necessity for the quotations and work orders referred to in item 23. Mr Germain did not even go so far as to saying that he had done the work referred to, or engaged someone else to do the work, or undertaken the trips enumerated in the schedule. In relation to item 23, it would appear that some of the work referred to resulted from the activities of Mr Germain in December 2004, such as removal of the kitchen cupboard. There should be no recovery for those items. The same applies to item 30.

83 Items 26, 27, 28, 29, 31 and 32 relate to outgoings. Clause 3.1 of the lease required the lessee to pay 80% of shire rates, 80% of drainage rates, 20% of water rates, 50% of sewerage rates and 80% of land tax within seven days of a notice from the lessor requiring payment. The clause provided that if the business ceased to be carried on as a "pet shop" the proportion of water rates payable by the lessee should be increased to 50%. That is a peculiar provision, given that "pet shop" is not a permitted use under the lease.

84 To the extent that the lessor was required to pay those percentages of those rates in relation to the leased premises after termination, he should be entitled to recover those payments by way of damages suffered by reason of the breach of lease and its termination. It is apparent, however, that the premises were re-let by the end of November 2005. The new lease was not produced in evidence at the hearing. The only evidence as to the terms of the new lease was that, according to Mr Germain, the rental was 19.6% higher per square metre than the figure determined by Mr Dale in his valuation. In the absence of any evidence on the point, it is reasonable to infer that the new tenant would have been liable for outgoings from the time of commencement of a lease. The extent to which the new tenant's obligations to pay for outgoings overlapped with the Pearces' obligations under their lease, if at all, is impossible to ascertain. The lack of identification of the particular periods to which the various outgoings are said to relate makes the Tribunal's task even more difficult.

85 In relation to item 26, the papers contain a reminder notice from the Water Corporation, apparently for the premises, dated 7 July 2005 which shows an amount due for annual service charges from 1 July 2005 to 30 June 2006 in the sum of $1099.25. A reminder notice dated 22 August 2005 shows an amount due of $555.75, the amount claimed in item 26. That appears to be a first instalment in relation to a total balance due of $1114.05, which presumably is the amount of the 31 July account increased by reason of accumulated interest.

86 The papers contain another statement from the Water Corporation relating to "sewer volume charges" dated 19 August 2005, showing a total due of $559.10, comprising an opening balance of $555.75 plus $3.35 in "new charges". The new charges are presumably what is referred to as the late fee in item 32 of the schedule.

87 Doing the best I can with the unsatisfactory evidence in relation to this item, I am prepared to compensate the lessor on the basis that for the period July to November 2005, Mr and Mrs Pearce should be liable for 50% of the Water Corporation charges pro-rated for that period. Five-twelfths of the total charges amount to approximately $460, and accordingly I would award damages in relation to this item in the sum of $230.

88 I would disallow the claim in item 32 for the late fee in the absence of any evidence as to why the lessor chose to delay payment and on the basis that the late payment represents a failure to mitigate loss.

89 With respect to item 28, the only document in the seven bundles tendered in evidence that relates to shire rates is an invoice dated 13 October 2004 relating to the financial year ending 30 June 2005. The figures in that invoice bear no relationship to the figure contained in item 28. In the absence of any verification of that amount, any evidence whatsoever as to its payment, any evidence as to whether the amount claimed represents 100% or 80% of the rates, and the uncertainty in relating to the impact of the new lease, I disallow item 28. It follows that I would also disallow item 27.

90 In relation to item 29, being a claim for water rates in the sum of $214.85, there is an invoice amongst the papers dated 26 October 2005 in that amount. The premises to which the invoice relate is obscured in the copy provided in the papers. The period to which the "rates charge" (which comprises about 80% of the total amount) relates is not evident. In any event, only 50% of that amount would be recoverable. In view of all of the uncertainties in relation to that account, I am not satisfied that the lessee should be liable for the amount claimed or any proportion of it.

91 Item 31 claims that an amount of $243.35 in relation to "Busselton Water for period to July 2005". An account for that amount is included in the papers. Again the premises to which it relates are obscured on the photocopy provided. The account is dated 27 June 2005 and payment was required by 25 July 2005. The period to which the account relates is unclear, although it refers to the next scheduled meter reading on 1 October 2005. If any amount were allowed, it would only be 50%, but in the circumstances I am similarly not satisfied that any amount should be awarded to the lessor in respect of this account.

92 Item 33 relates to legal fees. No evidence was adduced to support that claim. Clause 9.2 of the lease contains a covenant by the lessee to pay all expenses, including solicitor's fees, incurred by reason of any default by the lessee. However, in the absence of any evidence concerning the fees claimed, or any ability to ascertain whether or not they are properly related to the default, the lessor has failed to establish an entitlement to the items claimed.

93 Item 34 claims a loss of rent from May 2005 to November 2005 at the rate of $3703.93 per month. That was the rental, inclusive of GST, payable prior to the rent review. The claim makes no allowance for the June rent which was paid and accepted a reduction of damages by the lessor. It makes no allowance for the fact that for the last two months of the original term of the lease, that is December 2005 and January 2006, the lessor received an increased rental, apparently to the extent of 119.6% of the rental assessed by the valuer.

94 The lease provides, in cl 11.2, that in the event of termination of the lease for non-payment of rent, the lessor is entitled:

"to recover as damages from the lessee the difference between the amount of the lease monies for such part of the term of this lease as had not expired at the date of such termination, and the amount of lease monies it may reasonably be anticipated the lessor will receive for such period from another or other tenants...".

95 Applying that formula, which represents a reasonable assessment of damages following termination, the lessor was entitled to rent from May to November at the rate assessed by the valuer. That rate was $3412 plus GST. For seven months the total amount payable would be $26,272.40. From that must be deducted the sum of $3703.93 paid for the June rent, leaving a balance of $22,568.47. From that must be deducted the increased rent received by the lessor for December and January. The monthly rent assessed by the valuer ($3412) increased by 19.6% provides a monthly rental figure of $4080.75. That is an increase over the valuer's figure of $668 per month, resulting in a deduction for the two months of $1336. The total loss of rent recoverable by the lessor inclusive of GST, amounts to $21,232.47.

96 Allowing the sum of $230 in relation to item 26, the total amount payable by way of damages to the lessor is $21,462.47.

97 Clause 18.6 of the lease provides that interest on amounts payable under the lease at the rate of 2% greater than the Australian and New Zealand Banking Group Limited reference rate from time to time is to be paid. Given that the damages for loss of rent arise under cl 11.2 of the lease, the amount payable by the lessee is within the expression "other monies payable by the lessee to the lessor" under the lease. Accordingly, the amount payable by the lessee should bear interest at the rate prescribed in the lease.

98 The other aspect of the lessor's claim is a claim for costs. That aspect of the claim was not subject to any submissions at the hearing, and if the lessor proposes to pursue that aspect of his claim, I will hear submissions from both parties on the issue.

100 For the forgoing reasons, the claims by the lessees in CC 3592 of 2005 should be dismissed. In matter CC 3714 of 2005, there will be orders that:

1. The respondents pay to the applicant the sum of $21,462.47 together with interest thereon at the rate of 2% more than the ANZ Banking Group Limited reference rate from time to time from 1 December 2005 to the date of payment.
2. There is liberty to apply in relation to costs.

I certify that this and the preceding [100] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

ACT : COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)

CITATION : PEARCE & ANOR and GERMAIN [2007] WASAT 291 (S)

Costs ­ Commercial tenancy ­ Principles to be applied ­ Relevance of provision in lease requiring payment of costs by lessees ­ Whether unjust not to order unsuccessful lessees to pay costs ­ Whether lessees' conduct of proceedings warrants order for costs

Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA)

Commercial Tribunal Act 1984 (WA), s 17

Equal Opportunity Act 1984 (WA)

Guardianship and Administration Act 1990 (WA), s 16

Land Administration Act 1997 (WA)

Legal Practitioners (Magistrates Court)(Civil Jurisdiction) Determination 2006 (WA)

Property Law Act 1969 (WA), s 81(9)

State Administrative Tribunal Act 2004 (WA), s 9, s 88, s 89

State Administrative Tribunal Rules 2004 (WA), r 42, r 43

Strata Titles Act 1985 (WA), s 81(7), s 103H(8)

Victorian Civil and Administrative Tribunal Act 1988 (Vic), s 109(3)

1 The lessor of premises in Prince Street, Busselton succeeded in part of his claim against the lessees after a hearing by the Tribunal in August 2007. He sought payment of his costs by the lessees on a full indemnity basis.

2 The Tribunal examined the principles which apply in relation to the costs of proceedings under the Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA). In doing so, the Tribunal disagreed with aspects of the approach taken to applications for costs under that Act in some earlier decisions of the Tribunal.

3 The Tribunal considered the significance and effect of a clause, in the lease the subject of the dispute, which required payment by a lessee of costs and expenses of the lessor resulting from a default under the lease. In the particular circumstances of this case, the Tribunal considered that the existence of that clause was a relevant factor to be taken into account in exercising a discretion in relation to costs. The Tribunal also considered claims that the lessees had acted unreasonably or inappropriately in the conduct of the proceedings, but considered that the lessees' conduct did not provide a basis for an order for costs being made against the lessees.

4 Having regard to the provisions in the lease, the Tribunal made an order that the lessees pay so much of the lessor's costs as related to the lessees' breach of the lease.

5 By reasons for decision published on 6 November 2007, the Tribunal determined cross-applications by each of the lessees and lessor of retail premises located at 22 Prince Street, Busselton. The lessees, Mr and Mrs Pearce, had claimed damages for certain alleged breaches of the lease. Those claims were unsuccessful. The lessor, Mr Germain, was partially successful in his claim for payment of various amounts of money on the basis of a breach of the lease by the lessees. The Tribunal's reasons are published as Pearce & Anor and Germain [2007] WASAT 291.

6 Following delivery of the Tribunal's decision, Mr Germain applied for orders that Mr and Mrs Pearce pay his costs of the proceedings on an indemnity basis. The orders sought by Mr Germain were as follows:

"1. [Mr and Mrs Germain] are to pay the applicant's costs of the proceedings numbered CC 3592 of 2005 and CC 3714 of 2005 including the reserved costs;

1. The costs payable by [Mr and Mrs Pearce] to [Mr Germain] are all of [Mr Germain's] costs except insofar as they are an unreasonable amount or have been unreasonably incurred; and
2. In the event that such costs are not agreed:

(a) Within 30 days after the making of this order [Mr Germain] is to file and serve a bill of costs; and

(b) The matter thereafter be set down before a member of the Tribunal for assessment of the amount of costs so payable by [Mr and Mrs Pearce] to [Mr Germain] using (by analogy) the Supreme Court costs scale."

7 Mr Germain seeks costs on the basis that he contends that it would, by reason of the terms of the lease agreement, be "unjust" if he did not recover his costs of the proceedings, and on the basis that Mr and Mrs Pearce's conduct of the proceedings involved the pursuit of unmeritorious claims and was, in all circumstances, such as to justify an order for costs being made against them.

8 As the Tribunal has reaffirmed on numerous occasions, the starting point in relation to costs in the Tribunal is that the Tribunal provides a "no costs jurisdiction" - see s 87(1) of the State Administrative Tribunal Act 2004 (WA) (SAT Act). Notwithstanding that general position, s 87(2) of the SAT Act confers on the Tribunal a broad jurisdiction to award costs in appropriate cases.

9 There have been a number of decisions of the Tribunal concerning the approach to the award of costs in proceedings under the Commercial Tenancies (Retail Shops) Agreements Act 1985 (WA) (CTRSA Act). In Bilek and Vata Investments Pty Ltd [2005] WASAT 153, the Tribunal noted that, prior to the existence of the State Administrative Tribunal, jurisdiction under the CTRSA Act was exercised by the Commercial Tribunal pursuant to the Commercial Tribunal Act 1984 (WA) (CT Act). Section 17 of the CT Act empowered the Commercial Tribunal to make such order for costs as it thought fit. The CT Act was repealed by the State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA) with the result that this Tribunal is invested with the jurisdiction previously exercised by the Commercial Tribunal.

10 The Tribunal considered that a factor in favour of an award of costs in the case before it was that it was the general practice in the Commercial Tribunal for costs to follow the event subject to relevant discretionary considerations. It also considered that the fact that the dispute concerned "a commercial venture" was a relevant factor. The Tribunal also had regard to those two factors in Quah and AMP Life Limited [2005] WASAT 169. The outcome differed in each of those cases on the basis that the parties in Quah were, by comparison with those in Bilek, commercially sophisticated and on the basis that Quah involved a dispute in relation to leases for a significant rental in one of Perth's prime shopping centres. The factors identified in Bilek were also considered, and implicitly accepted, in Blunt & Anor and Pal & Anor [2007] WASAT 264 by Member Hawkins. In my view, both of the factors identified in Bilek as favouring a costs order require critical analysis.

11 Having considered the statutory regime which applied to commercial leases prior to 1 January 2005, and the general practice in relation to costs before the Commercial Tribunal, the Tribunal in Bilek concluded that "the discretion under s 87(2) is sufficiently broad to enable the Tribunal to take into account the practice which was followed in the exercise of the applicable jurisdiction prior to 1 January 2005." It also observed that the repeal of the CT Act, with the result that there is no longer any specification in relation to costs applying to proceedings under the CRTSA Act, "may well be ... an unintended consequence". With respect, I would reach a different conclusion.

12 The Tribunal correctly noted that the general legislative scheme effected by the State Administrative Tribunal (Conferral of Jurisdiction) Amendment and Repeal Act 2004 (WA) was to transfer jurisdiction to the State Administrative Tribunal from various other bodies "with as little consequential amendments as were necessary". While that was the general approach taken by the legislation, a clear legislative objective in the statutory scheme was to repose jurisdiction in a new Tribunal governed by the provisions of the SAT Act. In particular, the object was to repose jurisdiction in a Tribunal with the objectives specified in s 9 of the SAT Act, with practices and procedures governed by the SAT Act, including the approach to costs prescribed by s 87, s 88 and s 89. Section 87 of the SAT Act is expressed to be subject to the provisions of an enabling Act. Some enabling Acts have retained provisions in relation to costs - for example, see Guardianship and Administration Act 1990 (WA) s 16; Strata Titles Act 1985 (WA) s 81(7) and s 103H(8). While I acknowledge that the jurisdiction of the Commercial Tribunal was not limited to applications under the CTRSA Act, I do not consider that there is any reason to conclude that the change in provisions relating to costs of proceedings under that Act was not fully intended as part of the establishment of the State Administrative Tribunal.

13 I note that the proceedings in Quah were initially commenced in the Commercial Tribunal but transferred to the State Administrative Tribunal under the transitional provisions. In those circumstances, I accept that the practices in relation to an award of costs before the former Tribunal might be a relevant consideration in relation to the question of costs of the proceedings ultimately completed in this Tribunal. I do not otherwise consider, however, that the general practice in relation to costs in proceedings before the Commercial Tribunal is now a relevant factor in relation to the exercise of discretion under s 87(2) of the SAT Act.

14 The proposition that the commercial nature of the dispute is a relevant factor was explained by the Tribunal in Bilek in the following way at [14]:

"There is something to be said for the approach that decisions on costs in commercial disputes should be made to promote certainty and responsibility in parties to their contractual obligations; Vasiliou v Australia's Country Homes Pty Ltd (1999) VSC 462. Consequently a successful party might reasonably expect that a costs award would be made in its favour."

15 Vasiliou v Australia's Country Homes Pty Ltd (1999) VSC 462 is a decision of the Supreme Court of Victoria in which leave to appeal against a decision of the Victorian Civil and Administrative Tribunal was refused on the basis that the appeal was out of time and lacked merit. The question of costs was not mentioned in the Supreme Court decision. The Tribunal's reference was no doubt intended to be a reference to the first instance decision by VCAT in Australia's Country Homes Pty Ltd v Vasiliou (unreported) VCAT, Young M, 5 May 1999. That decision is mentioned in Pizer's Annotated VCAT Act, 2nd ed, at [4039.1] as having considered s 109(3)(e) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic). Section 109(3) of that Act deals with the factors of which VCAT is required to be satisfied before making a costs order. Section 109(3)(e) specifies that the Tribunal must have regard to "any other matter that the Tribunal considers relevant". According to Pizer, the Australia's Country Homes case considered that the costs power should be exercised "to assist and strengthen proper commercial relationships in domestic building contracts and to minimise litigation". The commentary continues:

"Thus, although emphasizing that there is no rigid presumption on costs in the Tribunal, the VCAT found that it should make its decision on costs in inter partes commercial disputes, particularly domestic building disputes, so as to promote certainty and responsibility in parties to their contractual obligations to each other. As a result, the VCAT held that a substantially successful party in the domestic building list is entitled to a reasonable expectation that a costs award will be made in its favour".

16 It is clearly that decision which influenced the Tribunal in Bilek.

17 For my part, I do not consider that, to the extent that it suggests a presumption that a "successful" party in commercial disputes in the Tribunal will obtain a costs award, the approach suggested in Australia's Country Homes should apply generally to the exercise of discretion under s 87(2) of the SAT Act. Nor do I consider it helpful to examine at which end of the commercial spectrum the particular dispute falls or the relative levels of sophistication of the parties. That is not to say that the subject matter and surrounding circumstances of the dispute are irrelevant to the discretion. It seems to me, however, that there is no reason in principle that there should necessarily be a greater likelihood of costs orders being made in proceedings between substantial financial entities than in proceedings between parties of limited means. I accept, as the Tribunal suggested in Bilek and Quah, that an approach that promotes accessibility to the Tribunal is desirable. In my view, as a general proposition, that objective is fostered by the usual "no costs" position in the Tribunal and adherence to the Tribunal's objectives found in s 9 of the SAT Act.

18 Proceedings under the CTRSA Act fall within the Tribunal's original jurisdiction. The Tribunal has discussed the proper approach to costs in other areas of its original jurisdiction. In Clifford and Shire of Busselton [2007] WASAT 89 (S) and Western Australian Planning Commission and Shim [2007] WASAT 262 (S) costs orders were made in relation to proceedings for compensation for compulsory acquisition of land under the Land Administration Act 1997 (WA). In Summerville and Department of Education and Training & Ors [2006] WASAT 368 (S) costs were awarded in relation to an unsuccessful claim under the Equal Opportunity Act 1984 (WA) (EO Act).

19 In Clifford, the President of the Tribunal said at [54] - [56]:

"Ordinarily, where a citizen feels obliged to commence a proceeding in the Tribunal for compensation under the LA Act they are dissatisfied with and have rejected an offer of compensation made by a resuming authority. If they succeed in their claim in the Tribunal, it would seem fair and reasonable that the Tribunal should ordinarily exercise its discretion under s 87(2) and award the applicant the costs of those proceedings. This is because, putting it simply, ordinarily if the applicant succeeds, it will have been demonstrated to the Tribunal that the applicant was not offered fair compensation by the resuming authority and was obliged to commence and maintain the proceedings in order to gain justice. It would seem unreasonable for an applicant to have to fight to gain fair compensation only to have to deduct from the compensation the costs incurred in obtaining the award.

Of course what should be recognised as "success" in every case requires some further consideration. If the applicant does not succeed in obtaining a compensation award following a hearing that betters the original compensation offer made by the resuming authority, it can hardly be said that the applicant was successful in the proceedings. Indeed it could be said in such a case that the applicant has maintained an unjustified proceeding and so should have to pay the respondent its costs for the trouble and expense of defending the claim.

Either way it really is a question of fairness: on the one hand, in the case of a successful applicant it is fair that they should ordinarily receive their costs when they are put to the trouble and expense of proving that their claim is right, over the reticence of the resuming authority to recognise the rightness of the claim; on the other hand, it is fair that an applicant who does not establish that a resuming authority's offer was not right, should have to pay the resuming authority's costs given the trouble and expense to which they have put the resuming authority."

20 It might be thought that the observation that "it is fair that [a party] should ordinarily receive their costs when they are put to the trouble and expense of proving that their claim is right" is applicable to any proceedings in the Tribunal's original jurisdiction where compensation or other relief is claimed on the basis of an alleged infringement of a legal right.

21 There are however two aspects of compulsory acquisition cases which do not commonly apply to other areas of the Tribunal's original jurisdiction. One is that compensation cases are brought because of the unilateral exercise of the coercive power of the State to deprive someone of their property (or at least the ultimate threat of the exercise of that power). The second is that the process leading to the institution of proceedings before the Tribunal inevitably involves the making of offers and counter-offers which are clearly relevant to the exercise of discretion under s 87(2) - see s 87(2) of SAT Act and r 42 and r 43 of the State Administrative Tribunal Rules 2004 (WA).

22 In Summerville, Barker J observed that s 87 does not identify factors to be taken into account by the Tribunal in exercising its jurisdiction under s 87(2), and it is not appropriate for the Tribunal to attempt finally to delineate the particular circumstances in which the discretion to award costs will be exercised. Costs orders have most commonly be made in the Tribunal in circumstances of the type identified by Deputy President Judge Eckert in Chew and Director-General of the Department of Education and Training [2006] WASAT 248 at [85], being circumstances where a party has conducted itself unreasonably or inappropriately, particularly where that conduct gives rise to unnecessary costs being incurred by the other party.

23 In the context of the EO Act, Barker J said in Summerville at [35] - [37]:

"One can understand that in circumstances where a sexual harassment complaint is totally without foundation and the application is dismissed on that basis - where credibility is at the heart of the matter - that may well be a proper ground upon which a tribunal decides to award costs. After all, the EO Act, and other Acts like it, is not intended to provide a mechanism for the maintenance of baseless accusations against innocent persons. Given the often lengthy nature of hearings that arise in such circumstances, and the need often felt by responding parties to obtain legal representation to vindicate their reputations, it will often not be unreasonable for an award of costs to be made. In doing so, a tribunal would be acting to ensure that such proceedings do not undermine the integrity of proceedings under an Act, the matter of great concern identified by Murphy J in Penfold v Penfold.

In relation to the question of an incredible or implausible case that has no foundation in fact, or a case that is adjudged as being so weak that it should not have been maintained, the relative weakness of the unsuccessful party's case has also resulted in the award of costs against that party: see Gonsalves v MAS National Apprenticeship Services [2007] VCAT 64, in which the applicant's sexual harassment claims were described at [15] as based on a "flimsy premise". See also Styles v Murray Meats Pty Ltd [2005] VCAT 2142 at [21]. These latter Victorian cases, however, it should be noted, were decided by reference to s 109(3) of the Victorian Act which requires the Victorian tribunal to consider "the relative strengths of the parties' cases".

Nonetheless, in my view, proceedings that should not have been maintained against a party because there really was no case to answer, is a fact that may be taken into account by this Tribunal in deciding whether to award costs against the unsuccessful party who maintained that case."

24 In my view, the approach that should be taken to costs in proceedings under the CTRSA Act should reflect the approach explained by Barker J in Summerville. That is consistent with the reliance by the Tribunal in Bilek on the proposition drawn from Australia's Country Homes, that decisions on costs might serve to promote certainty and responsibility in parties to their contractual responsibilities. That does not mean that there is a presumption that costs will follow the event. Rather, where it is necessary for a party to a retail shop lease to take proceedings in the Tribunal to vindicate its clear contractual entitlements, and to incur costs in doing so, it will "often not be unreasonable for an award of costs to be made". The position is the same where costs are incurred in defending an obviously unmeritorious claim. Where, however, there is a genuine dispute between the parties to a lease, their respective rights are unclear and one or both seek determination of their rights in the Tribunal, the starting point remains that each party should expect to pay their own costs, unless there are circumstances of the type identified in Chew.

25 In submitting that it would be unjust not to award costs in favour of the applicant, Mr Germain relies on cl 9.2 of the lease which provides:

"the lessee shall pay all costs, charges and expenses (including but without limiting the generality of the foregoing solicitors, architects, surveyors and valuer's costs and fees) incurred by the lessor by reason of any default of the lessee hereunder and of and for the purposes of and incidental to the compliance by the lessor with the provisions of section 81 of the Property Law Act 1969."

26 Mr Germain submits that the lease having been drawn by the lessees' solicitors, Mr and Mrs Pearce must be taken to have known of the existence and effect of cl 9.2.

27 Mr Germain also argues that Mr and Mrs Pearce's conduct of the proceedings justifies the making of a costs order. The conduct identified is:

• the fact that Mr and Mrs Pearce commenced the proceedings with their claim which was ultimately unsuccessful,
• at the time of commencement of proceedings, Mr and Mrs Pearce knew of the provisions of cl 9.2 of the lease,
• the Pearces were represented by solicitors throughout the proceedings,
• an offer was made on 1 August 2005 by Mr Germain claiming damages of $18,331.39 but the Pearces made no attempt to resolve the matter following that offer,
• the Pearces' claim for relief against forfeiture was found (by ruling on a preliminary issue) to be beyond the jurisdiction of the Tribunal,
• the Pearces pursued a claim for estoppel which was abandoned in the written submissions filed after the hearing,
• the Pearces maintained a claim that formal notice of breach by non-payment of rent was required which Mr Germain claims was unreasonable given the provisions of s 81(9) of the Property Law Act 1969 (WA),
• the Pearces made a claim for unconscionable conduct notwithstanding that the amendments to the CTRSA Act giving the Tribunal jurisdiction to deal with unconscionable conduct in relation to retail shop leases only came into effect on 11 May 2007.

28 The Pearces contend that they should not be ordered to pay any of Mr Germain's costs. They note that they were successful on a number of issues, and in particular they note that Mr Germain succeeded in only two of the 34 different items of damages claimed, and the Tribunal did not find Mr Germain's evidence reliable. In the circumstances, the Pearces contend that each party should bear its own costs.

29 A claim for costs on the basis of cl 9.2 of the lease has always been maintained by Mr Germain. The claim was clearly enunciated in his Statement of Issues, Facts and Contentions, and the particularised claim for damages included an item for "legal fees incurred to date" in the sum of $3,685.50. I disallowed that claim (at [92] of my substantive reasons) on the basis that there was no evidence concerning the fees claimed, and I was unable to ascertain whether or not the amount claimed was properly related to the default of the lessees which I had found to have occurred. Had it been possible to relate the legal fees to the failure by Mr and Mrs Pearce to make the May 2005 rent payment, those fees would have been recoverable under cl 9.2, and would have formed part of the damages awarded to Mr Germain.

30 Mr Germain submitted that costs should be awarded on an indemnity basis. He submitted that the unreported decision in Wenpac Pty Ltd v Allied Western Australian Finance Limited (SCWA, Library No 940051, delivered 1 February 1994) is authority for the proposition that where a clause such as cl 9.2 of the lease exists, costs of proceedings in relation to the lease should be awarded on an indemnity basis. I do not accept that submission. The decision in Wenpac concerned a clause in a deed of assignment which required an assignee of a lease of certain goods to "indemnify and keep indemnified the assignor" and a bank "against any claim or liability whatsoever in relation" to the lease or the goods the subject of the lease. The court considered the nature of a contract of indemnity and considered whether the various claims that were made were claims in respect of the lease or the goods the subject of the lease. It is not accurate to describe cl 9.2 as an indemnity of the type considered in Wenpac. The decision turned wholly on the nature and breadth of the clause under consideration. It is of little assistance in consideration of the exercise of discretion under s 87(2) of the SAT Act.

31 In Blunt & Anor and Pal & Anor [2007] WASAT 194, the Tribunal considered that an agreement as to the payment of costs between the parties "has the effect of circumventing a discretion imposed on the Tribunal under the SAT Act". The Tribunal drew support for that proposition from the decision in Firestar Enterprises Pty Ltd and Town of Vincent [2007] WASAT 100 where, in granting a planning approval, a local government imposed a condition that the applicant for approval pay the local government's costs for earlier proceedings in the Tribunal concerning the same property. The Tribunal concluded that that condition was not imposed for a proper planning purpose, and was invalid. There would have been no basis upon which the Tribunal would have ordered the payment of costs by the applicant in the earlier proceedings, and it was in that context that the Tribunal concluded that the ulterior purpose in imposing the condition was to circumvent the Tribunal's jurisdiction.

32 That is a somewhat different position from here, where parties to a lease have agreed to a provision in the nature of cl 9.2. Nevertheless, if the clause catches the costs of proceedings in the Tribunal, it would, on Mr Germain's argument, effectively remove the Tribunal's discretion.

33 Clause 9.2 is not, however, specifically directed to proceedings before the Tribunal. There may be a whole range of costs which might be incurred by a lessor following a default by a lessee which do not involve any proceedings before the Tribunal. For example, there may be costs of remedying a failure to keep premises in good repair, costs of issuing notice of default, costs of failure by the tenant to comply with statutory notices or obligations, and so on. The lessor has the right to recover those costs as a contractual entitlement as part of its substantive relief.

34 Costs of proceedings in the Tribunal are regulated by s 87 of the SAT Act. Subject to the SAT Act, an enabling Act, or an order under s 87(2), the statute determines that parties bear their own costs. Clause 9.2 does not displace the operation of s 87. The existence of the clause does not circumscribe or fetter the Tribunal's discretion under s 87(2). Where, as in this case, the lessor has maintained a contractual entitlement to payment of the costs, and that claim has been disallowed, the lessor should not be entitled to reagitate that claim as a factor for consideration in the exercise of the Tribunal's discretion under s 87(2).

35 Even if I were wrong in that approach, it would not follow that Mr Germain should recover all of the costs of the proceedings. The contractual entitlement is to the recovery of fees and costs "incurred by the lessor by reason of any default by the lessee". In these proceedings, the lessees' complaints of default extended beyond the non-payment of the May 2005 rent. Claims were made in relation to alleged defaults in failing to keep the premises in good repair and condition, failing to maintain the premises, making alterations without consent, damaging the leased premises, and directing unauthorised signage. None of those defaults were established. The proceedings also involved the issues raised by the lessees in their unsuccessful claim. Clause 9.2 of the lease does not give the lessor any entitlement to costs of defending proceedings brought by the lessees. The issue as to non-payment of the May 2005 rent occupied a relatively small part of the proceedings.

36 Several of the complaints made by Mr Germain about the conduct of the proceedings by the Pearces relate to questions of law unsuccessfully argued by the Pearces. Several of those related to the question of the extent of the Tribunal's jurisdiction to grant relief of an equitable nature. Complaint is also made of what was said to be unreasonable submissions in relation to notice requirements and unconscionable conduct.

37 The question of the Tribunal's jurisdiction to grant relief against forfeiture was the subject of a preliminary hearing before the Hon R Viol, Supplementary Deputy President of the Tribunal - see Pearce and Anor and Germain [2006] WASAT 305. An order was made that the costs of the preliminary issue were reserved.

38 In my view, the attempt to seek relief against forfeiture was not unreasonable or inappropriate. The extent of the Tribunal's jurisdiction under the CTRSA Act was, at that time, attended by some uncertainty, and it was reasonable for the lessees to pursue their argument.

39 While the claim for estoppel was abandoned only after the evidence did not support the claim as formulated in the Pearces' contentions, it did not involve any substantial time at the hearing nor significant additional preparation for Mr Germain's representative. Similarly, the claim in relation to notice requirements occupied little time at hearing and little, if any, additional analysis of the law beyond that which inevitably required consideration in the proceedings. The claim for unconscionable conduct, which is briefly dealt with at [77] of my substantive reasons, occupied little time at hearing, and is unlikely to have involved Mr Germain in any additional expenditure.

40 Both parties pursued arguments and claims which were unsuccessful. They did so in the context of a relationship which, I observed at [8] of my substantive reasons, appears to have completely broken down. Much of the hearing focused on events in late 2004. It is probably accurate to say that neither party was "successful" in relation to their various claims flowing from those events. I would not conclude that either party's conduct was, in relation to the matters on which they were unsuccessful, any more or less reasonable than the conduct of the other. I am not inclined to make an order for costs on the basis of inappropriate or unreasonable conduct on the part of the Pearces.

41 The lessor also seeks to rely on an offer made on 1 August 2005 claiming damages of $18,331.39, being less than the amount ultimately recovered in the proceedings. Normally, the making of an offer to settle matters on terms less favourable than those ultimately achieved at a hearing, would constitute a significant factor in favour of an order for costs. It is necessary, however, to have regard to the terms of the letter of 1 August 2005. That letter simply advises that "as of the date of this letter" "the damages which my client intends claiming against you ... [are] $18,331.39". A breakdown then follows. The letter concludes by stating:

1. Clearance of your cheque dated 1 June 2005 referred to in my letter of 26 July;
2. All additional legal expenses which my client continues to incur all of which will be claimed against you once the full extent of the damage is known after a new tenant is found for the premises."

43 The letter is not an offer to accept the sum specified in full and final satisfaction of the claim. It is simply advice as to the amount of damages at that point. The letter was written less than three months after the default, when the rental under the lease was still continuing. In my view, the letter does not constitute an offer to accept something less favourable than what was ultimately recovered. Properly construed, it is not an offer at all. It is not a factor which favours an order for costs in favour of the lessor.

44 With respect to the unsuccessful claims by the Pearces, I would not be inclined to award costs. The Tribunal found that, contrary to his assertion, Mr Germain entered the premises and carried out works without the consent of the lessees in December 2004. That entry provided the basis of the lessees' claim. The conduct of the lessor, whilst unauthorised, was found by the Tribunal not to constitute a breach of the covenant of quiet enjoyment. It cannot be said, however, that the bringing of the claim was unreasonable, even though it was unsuccessful. The respective rights of the parties in relation to the subject matter of the Pearces' claim were not clear. Their relationship had broken down. It was reasonable that they sought determination by the Tribunal of their competing claims. The fact that Mr Germain succeeded in relation to a claim for a subsequent breach of the lease does not make unreasonable the conduct of the lessees in pursuing their claim in relation to the events in late 2004.

45 For the above reasons, the application that Mr and Mrs Pearce pay Mr Germain's costs should be dismissed.

46 The application for an order that Mr and Mrs Pearce do pay Mr Germain's costs is dismissed.

I certify that this and the preceding [46] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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