costs
Legislation Cited: Civil and Administrative Tribunal Act 2013
Source
Original judgment source is linked above.
Catchwords
Construction of terms of lease agreementmistakeestoppelcosts
Legislation Cited: Civil and Administrative Tribunal Act 2013Administrative Decisions Tribunal Act 1997
Cases Cited: Hyde and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd [1990] 20 NSWLR 311National Australia Bank v Clowes [2013] NSWCA 179Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52Smith trading as Flames Grill and Carvery v Trust Company of Australia Ltd [2008] NSWADT 10Taylor v Dexta Corporation Ltd [2006] NSWCA 310
Judgment (3 paragraphs)
[1]
REASONS FOR DECISION
The applicant owns and operates a shopping complex at Liverpool NSW known as "Liverpool Plaza". From about 1997, the respondents operated an optometry retail business by the name of "City Specs" in Shop 25 at the complex, which they leased from the applicant.
There is no issue that Shop 25 (referred to below as "the premises") was at all relevant times a "retail shop" for the purposes of the Retail Leases Act 1994.
The respondents' previous lease of the premises from the applicant expired on 30 December 2007. The terms of the previous lease agreement required the respondents to pay to the applicant a gross rent which was inclusive of all outgoings.
During the final months of the previous lease, the parties entered into negotiations as to the terms of the new lease. The new lease was to commence on 31 December 2007 for an initial term of five years, with an option to renew.
A document setting out what was described as the agreed terms for the new lease was then prepared by the applicant's agents ("Savills") on 13 September 2007, and sent to the respondents. Amongst other things, this document stated that outgoings would be payable in respect of the premises in an amount of $170.47 per square metre per annum, and that this would equate to approximately $16,689.01 being payable by the respondents toward outgoings during the first year of the new lease. This document also stated that this amount of outgoings was calculated as 1.56% of total outgoings payable for the whole shopping complex.
A message was subsequently sent by the respondent Mr Nguyen to Savills on 12 November 2007 which stated as follows:
"Outgoings percentage: 1.56% ... response from lessee .. we accept the offer but with condition apply ... condition: we require evidence from lessor ie paperwork from lessor's accountant in relation to outgoing expense"
Savills then wrote to the respondents on 26 November 2007 confirming the rent payable as well as other terms of the new lease. This letter included a statement that the "outgoings estimated rate" would be "approx $170.47 m2 per annum" and that this would be "approx $16,689.01 plus GST in Yr1".
A copy of the above letter from Savills dated 26 November 2007 was later sent back by facsimile transmission by Mr Nguyen on 3 January 2008 bearing the following hand written endorsement:
"Attention Melinda.. I accept the offer please prepare the lease thank you... Anthony City Specs"
Savills then sent a message to the respondent Mr Nguyen on 7 January 2008 stating: "Please find attached Renewal of Lease as requested"; attached to this message was a further statement setting out the terms of the proposed lease and confirming that:
the premises had an approximate area of 97.9 square metres;
the respondents would be entering into a lease for a term of 5 years to commence from 31 December 2007;
the commencing rent would be $56,292.50 per annum;
outgoings would be "as described in the lease", would be a "percentage of total as described in the lease", and that the estimated rate of outgoings would be "approx $170.47/m2 per annum (approx $16,689.01 in year 1)".
The above document was signed by Mr Nguyen on 24 January 2008 and returned by facsimile transmission on that day.
The dispute which is the subject of these proceedings arises because, within the Reference Schedule to the Lease which was subsequently executed by the parties, the lessees' proportion of outgoings was stated to be "0.0152%".
The principal issue to be determined in these proceedings is whether, upon a proper construction of the lease agreement, the proportion of total outgoings payable by the respondents was 1.52%, or 0.0152%. A second issue to be determined is whether the applicant is nevertheless estopped from denying that the proportion of outgoings payable by the respondents is only 0.0152%.
The respondents had also been supplied with a written Retail Lease Disclosure Statement by the applicant's lawyers which provided an estimate of lessor outgoings in a total amount of $3,869,132 for the entire shopping complex. Section 2.7(b) of this document also stated that:
"the lessee shall be responsible for the proportion of Outgoings attributable to the Net Lettable Area as determined by the Lessor";
Section 2.7(e) of this document then stated that:
"The lessee's proportion of Outgoings is 0.0152%."
Within the Disclosure Statement it was also stated that the "Gross Lettable Area" was 6,452.61 square metres and that the "Lettable Area of Shop" was 97.9 square metres.
[2]
Hearing and evidence
Hearing of these proceedings took place over the course of two days, some weeks apart.
A number of documents were tendered and admitted on behalf of the applicant, including the lease agreement, the Disclosure Statement, various communications between the respondents, Savills and the parties' lawyers, and affidavits of Gerard McSpadden dated 31 July 2014 and 28 October 2014. Objection was taken to some of the documentary evidence tendered on behalf of the applicant and is not relied upon for the purpose of this decision. Mr McSpadden also gave evidence and was cross examined.
The respondent Mr Anthony Nguyen gave evidence and was cross examined. His affidavit sworn 19 August 2014 was admitted into evidence, as were other documents as set out in the accompanying Index supplied by the respondents. The respondent Mrs Thi Nguyen also swore an affidavit dated 26 November 2014 which was admitted into evidence. In summary, this affidavit stated that Mrs Nguyen had signed the lease but could not remember doing so, and that she would have done so at her husband's request. Mrs Nguyen was not required for cross-examination.
Mr Nguyen's oral evidence was taken on both days of the hearing.
[3]
Decision
Having observed the respondent Mr Nguyen giving evidence and having also considered the content and nature of his written and oral evidence, I hold some real doubt as to the reliability of his evidence in relation to the relevant issues in these proceedings.
Mr Nguyen stated in evidence on the first day of hearing that when he saw reference within both the disclosure statement and the lease to the outgoings proportion payable by his wife and him under the new lease as being 0.0152%, he thought this may have been a mistake by the applicant. However, when returning to give evidence on the second day of hearing, Mr Nguyen changed his position and denied that he had formed any such suspicion.
When presented with this apparent inconsistency during cross examination, Mr Nguyen's response was to say that he had applied what he called a "testing theory" to this outgoings proportion figure, that he had then discussed this figure with his solicitor, that he told the solicitor that he thought this figure of "0.0152%" was correct, and that his solicitor had agreed.
Mr Nguyen did not really explain the apparent contradiction in his evidence which is outlined above in paragraph 19, nor exactly what his "testing theory" comprised. It was not suggested that this contradiction arose through language difficulties, nor did this appear to be the case based upon Mr Nguyen's apparent command of the English language both within his written communications and during the course of giving evidence. The solicitors consulted by Mr Nguyen at the time of entering into the subject lease were not the solicitors representing him in these proceedings; however, no evidence was sought to be introduced from those solicitors in relation to any records or conversations relating to this issue.
Having considered the above matters and all of the evidence in relation to this important component of the subject dispute, the Tribunal does not accept Mr Nguyen's assertion that the outgoings proportion figure as set out both within the Disclosure Statement and the Lease was a correct statement of the agreement which had in fact been reached between the parties.
Within the comprehensive submissions presented on behalf of the respondents, attention is drawn to the judgment of Kirby P in Hyde and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd [1990] 20 NSWLR 311 at 313-314, wherein His Honour stated that:
Between two such substantial businesses, there are sound reasons of principle and policy for determining their respective rights and duties, if at all possible, by reference to the written terms by which they expressed those rights and duties. No other approach is as likely to general acceptance in the commercial community.
.......
Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way.
It is important, therefore, to avoid any interpretation of the subject lease agreement between the appellant and the respondents which is commercially nonsensical or inconvenient.
The method for calculating outgoings payable by the respondents under the new lease was described within the lease agreement and the Disclosure Statement as involving creation of a multiplier figure which was calculated by dividing the area of the subject premises over the total lettable area of the shopping complex. Both the lettable area of the shopping complex and the area of the premises were also expressly stated; application of these figures results in a multiplier figure for calculation of outgoings payable in respect of the premises which is equivalent to the figure as first advised to the respondents of 1.56%, and as acknowledged by Mr Nguyen in his 12 November 2007 message sent to the lessor's agent and referred to in paragraph 6 above.
Clause 5.2 of the Lease provided that:
"The lessee's contribution to the outgoings for each outgoings year at the commencing date is the amount set out in Item 7 of the Reference Schedule ("Lessee's capital proportion"), being in the proportion that the Gross Lettable Area of the Premises bears to the Gross Lettable Area of the Centre. The lessee acknowledges that the lessor will adjust the Lessee's proportion from time to time if the Gross Lettable Area of the Centre is adjusted for any reason ..."
The respondents submit that the applicant's construction of clause 5.2 of the 2007 lease creates significant commercial inconvenience and uncertainty and is commercially unrealistic; however, this submission is not supported by the evidence and is not accepted.
To adopt the language of Leeming JA in National Australia Bank v Clowes [2013] NSWCA 179 at (34), literal application of the figure of 0.0152% as set out within item 7 of Schedule to the lease in calculation of the lessees' proportion of outgoings payable, without consideration of what I consider to be the self-evident objective intention of the parties, creates an "absurdity"; namely that the respondents were to pay outgoings for the premises in the meagre amount of $166.89 per annum as indexed. The relevant portion of Leeming JA's judgment in the above proceedings is as follows:
(34) In my view, the Bank's submission should be accepted because of the Bank's first point. In my opinion this is a clear case where the literal meaning of the contractual words is an absurdity, and it is self-evident what the objective intention is to be taken to have been. Where both those elements are present, as here, ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning. As this Court observed in Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521 at [21], the principle is premised upon absurdity, not ambiguity, and is available even where, as here, the language is unambiguous.
The objective intention of the parties is evident from the terms of the lease, in particular clause 5.2, as well as from the prior communications between them.
It is also clear that insertion of the figure "0.152%" was a mistake. The circumstances in which it is appropriate to correct an error or mistake on the face of an instrument were also discussed by Leeming JA in National Australia Bank v Clowes (supra):
The applicable principles are conveniently found in Noon v Bondi Beach Astra Retirement Village Pty Ltd [2010] NSWCA 202 at [46], where Giles JA said, with the agreement of Macfarlan JA:
"The process of construction may bring a marked divergence from the text. In Wilson v Wilson [1854] EngR 513; (1854) 5 HL Cas 40 'John' was read as 'Mary' in a will. In Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 'inconsistent' was read as 'consistent' in a contract for sale. As a recent illustration in McHugh Holdings Pty Ltd v Newtown Colonial Hotels Pty Ltd [2008] NSWSC 542; (2008) 73 NSWLR 53 'lessor' was read as 'lessee' in a lease. This is often because a mistake is obvious on the face of the instrument and in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 Lord Hoffmann, with whom Lords Hope, Rodger and Walker and Baroness Hale relevantly agreed, accepted that there must be a clear mistake on the face of the instrument and it must be clear what correction ought to be made in order to cure the mistake. But in Fitzgerald v Masters at 437 it was explained 'the rejection of repugnant words, the transposition of words and the supplying of omitted words' is a consequence of 'the rule that the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction'. Ascertaining the intention of the parties, of course, is in accordance with the principles of contract construction abovementioned."
(36) In the same case, Young JA referred at [179] to Brereton J's decision in Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd [2009] NSWSC 1486; (2009) 14 BPR 27,213 in which the word "shorter" was read as "longer".
(37) This principle is distinct from rectification in equity. As Lord St Leonards said in Wilson v Wilson [1854] EngR 513; (1854) 5 HL Cas 40 at 66-67; [1854] EngR 5110 ER 811 at 822:3;
"Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes - without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty."
Even if insertion of "0.0152%" into the lease was not seen to be an obvious mistake on the face of the instrument, a reasonable person in the position of each of the parties would have understood from the surrounding circumstances that an agreement had in fact been reached for the respondent lessees to pay an amount for outgoings in relation to the premises which was equivalent to 1.52% of the total outgoings payable for the shopping complex; this approach to construction is also set out within the unanimous judgment of the High Court in Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52:
(40) This Court, in Pacific Carriers Ltd v BNP Paribas[6], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction[7].
In determining the contractual obligation of the respondents in relation to payment of outgoings, a reasonable person in the position of the parties would consider not only the text of the lease and the disclosure statement but also the surrounding circumstances known to the parties which would include the conversations and documents created at the time that the terms of the lease were negotiated, and also include application of the formulae set out within clause 5.2 of the lease agreement to the overall outgoings payable in respect of the shopping complex. This approach also clearly shows that the outgoings calculation multiplier of "0.0152%" as printed in the lease is a mistake and, to quote from the decision of Kirby P in Hide and Skin (supra), that it constitutes a "commercial nonsense".
In coming to the above conclusion, I am also mindful of the Court of Appeal decisions in Taylor v Dexta Corporation Ltd [2006] NSWCA 310 and Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114] cited on behalf of the respondents, which are to the effect that commercial contracts must be construed or interpreted so as to be given a "sensible commercial operation" or to be "commercially sensible and in accord with commercial reality"; however, application of these principles, in my respectful view, leads an opposite conclusion to that for which the respondents contend.
In relation to the alternative contention made on behalf of the respondents that the applicant is estopped from relying upon any figure for calculation of outgoings other than "0.0152%", there is of course no evidence from Mrs Nguyen as to reliance upon this figure and, as outlined previously within this decision, I do not accept the contention of Mr Nguyen that he relied upon any outgoings calculation other than "1.52%" in entering into the subject lease agreement. The claim of the respondents based upon estoppel must therefore fail.
The respondents occupied the premises pursuant to the terms of the lease from 31 December 2007 to 25 October 2013. They should pay the sum of $118,578.03 to the applicant in respect of outgoings payable under the terms of the subject lease.
There is also a claim made by the applicant for legal costs of $1,090.21 but the basis for this claim and its manner of calculation are unclear. It is inappropriate in my view to award legal costs pursuant to the terms of a retail lease in such circumstances. The correct approach to this component of the claim was outlined by Deputy President Chesterman in Smith trading as Flames Grill and Carvery v Trust Company of Australia Ltd [2008] NSWADT 10:
98 In Solomon v Singh (No 3) [2006] NSWADT 120, the lessor in Solomon 2 applied for costs under s. 88. It is apparent from the judgment that the invitation given in Solomon 2 for re-arguing the question addressed in the Tribunal's declaration was not taken up. At [28], the Tribunal, constituted again by Judicial Member Molloy, rejected the lessor's contention that the existence of clause 27.2 of the lease amounted in itself to 'special circumstances' warranting an award under s.88. The Tribunal suggested that in fact clauses of this nature, far from being 'special', were 'quite ordinary and common'.
99 Two noteworthy features of these three Tribunal decisions are that they did not refer either (a) to Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45, where the 'independence' of contractual rights to recover litigation costs from curial determinations on costs was emphasised, or (b) to s. 7 of the RL Act, which directly raises the possibility that contractual rights of this nature might, in the present context, be void to the extent of inconsistency with statutory provisions governing curial determinations. In the discussion in Solomon 2, however, the existence of s. 7 did appear to have been implicitly taken into account.
100 In the present case, the Tribunal's conclusion on this matter, reached as in Solomon 2 without the benefit of full argument, is in line with the conclusion in that case. In the Tribunal's opinion, to permit contractual provisions such as clause 10.3 of the Lease in the present case to operate according to their terms in relation to costs incurred in Tribunal proceedings under the RL Act be to contravene the policy evidently underlying Parliament's decision to subject these proceedings to the costs regime established by s. 88 of the ADT Act. This policy is one of letting the costs of such proceedings lie where they fall except where 'special circumstances warranting an award of costs' are shown to have existed. By virtue of s. 7 of the RL Act, the statutory policy must prevail and both clause 3.7b (if it applies at all to the costs of these proceedings) and clause 10.3 are void to the extent of any inconsistency.
101 In reaching this conclusion, the Tribunal rejects Mr Rattanatray's submission (see [84] above) based on the existence of the phrase 'subject to... any other law' in s. 88(1). There is in its opinion no reason why a contractual provision such as clause 10.3 should be treated as having the status of a 'law'.
102 It follows from this conclusion that, again in line with Solomon 2, Trust Co's claim to be indemnified for its legal costs under clause 10.3 of the Lease must be rejected in so far it extends to the costs of these proceedings. But it is sustainable so far as costs incurred otherwise are concerned. Although in an affidavit sworn on 24 September 2007, Mr Atkins purported to give evidence as to the amounts of costs for which Trust Co had been invoiced by Raj Lawyers in this matter, this evidence did not distinguish between litigation costs and other costs. Furthermore, any legal costs incurred otherwise than in the Tribunal proceedings must, as already stated, be costs 'properly incurred'. The Tribunal takes this to mean that, unless the amount of them can be agreed, they must be assessed in conformity with the Legal Profession Act 2004.
In relation to the applicant's claim for interest, it is considered appropriate to make allowance for the fact that no claim was apparently made by the applicant for payment of outgoings by the respondents until approximately 18 August 2009, which was approximately 18 months after the date of commencement of the term of the lease. In the circumstances, no interest should be awarded for this period. The rounded off amount payable in respect of outgoings as at 18 August 2009 was $8,637.00 which is 0.072838 of the total amount repayable for outgoings. Application of this multiplier figure to the total amount claimed of $49,525.00 for interest results in an amount of $3,607.00 to be deducted and results in an amount of $45,918.00 which is ordered to be paid in respect of interest in accordance with the terms of the lease.
The applicant seeks an order for costs in its favour. Within the written submissions of the respondents' counsel, an opportunity was sought to make further written submissions on costs in the event that the application was dismissed. Of course, that has not occurred.
Section 60 of the Civil and Administrative Tribunal Act 2013 sets out the approach which the Tribunal must take in relation to deciding whether to award costs;
60 Costs
(1) Each party to proceedings in the Tribunal is to pay the party's own costs.
(2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs.
(3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following:
(a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings,
(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings,
(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law,
(d) the nature and complexity of the proceedings,
(e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance,
(f) whether a party has refused or failed to comply with the duty imposed by section 36 (3),
(g) any other matter that the Tribunal considers relevant.
(4) If costs are to be awarded by the Tribunal, the Tribunal may:
(a) determine by whom and to what extent costs are to be paid, and
(b) order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis.
(5) In this section:
"costs" includes:
(a) the costs of, or incidental to, proceedings in the Tribunal, and
(b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.
The above provision resuscitates the previous legislative requirement set out under section 88(1) of the Administrative Decisions Tribunal Act 1997 that "special circumstances warranting an award of costs" had to be identified in order to base an order for costs.
The correct approach to application of section 60 can be obtained from the decision of Chesterman DP in Smith (supra) at paragraphs 103 and 104, when considering the former section 88(1) of the ADT Act:
(103) As stated earlier, Trust Co claimed costs in the alternative under s 88(1) of the ADT Act. According to the authorities governing this provision in its application to proceedings under the RL Act (see eg Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164, Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 and Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43), 'special circumstances' are to be defined as 'circumstances that are out of theordinary, but without having to be extraordinary or exceptional'. It is not enough that the circumstances are 'special': they must also 'warrant' an order for costs. On account of the 'commerciality' of the Retail Leases Division, the interpretation of 'special circumstances' differs significantly from the interpretation that might be adopted in any other Division of the Tribunal. While a finding of 'serious unfairness' or 'grossly unreasonable conduct' on the part of the party resisting an order for costs is not a prerequisite to determining that there are 'special circumstances', it is a highly relevant consideration.
(104) A number of categories of 'special circumstances' have been recognised in retail leases cases. One of them is where the proceedings instigated, or the grounds of defence raised, by the party against whom a costs order is sought are found to have lacked any real prospect of success and therefore to have been unmeritorious.
Having regard to the factors set out within section 60, I have been unable to identify special circumstances warranting departure from the statutory presumption that each party bears its own costs of the proceedings. Notwithstanding my findings as to the reliability of the evidence given by Mr Nguyen, I do not consider this to be of itself a "special circumstance" which would justify a costs order. Notwithstanding my findings in favour of the applicant, I also do not find any component of the respondents' case which was unarguable or lacked any real prospect of success, nor do I consider that any of the other factors listed within section 60 are present.
The respondents are ordered to pay the sum of $164,496.03 to the applicant, comprising $118,578.03 in respect of unpaid outgoings together with the sum of $45,918.00 in respect of interest. The parties are to bear their own costs of the proceedings.
Kim Rickards
General Member
Civil and Administrative Tribunal of New South Wales
17 February 2015
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
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Decision last updated: 29 April 2015