Saddler v Wakim [2023] ACTMC 11

10. The Respondent's evidence is that the Applicant informed him that he could not enter into a lease for that term as his business was not doing well enough and because he might move to Melbourne. The Respondent says that he continued to lease the Premises to the Applicant on a monthly basis.
11. The Applicant's recollection is that the Disclosure Statement reflected the agreement that was reached between the parties as to the terms of a new lease, albeit that no formal lease was ever executed.
12. Having regard to the correspondence that subsequently passed between the parties, I find that the parties did not reach any agreement in March 2019 (or at any other time) to enter into a lease in accordance with the Disclosure Statement.
13. The Respondent increased the rent charged for the Premises from 15 April 2019 ($1,650 per month, as contemplated by the Disclosure Statement), April 2020 ($1,700, being an increase of approximately 3%), March 2021 ($1,768, being an increase of 4%) and March 2022 ($1,839, being an increase of approximately 4%). The increases imposed in March 2021 and March 2022 reflected neither the 2017 Lease rent review clause nor the rent review mechanism proposed by the Disclosure Statement.
14. In April 2022, the Respondent marketed the Premises for sale. The Applicant's evidence is that he was not advised of the proposed sale until August 2022, however this is inconsistent with the evidence. At Exhibit EW-2 to the Respondent's affidavit is an email that the Applicant sent to the Respondent on 5 May 2022 in which he expressed his interest in entering into a lease "with the new owner". This accords with the Respondent's recollection that one of the real estate agents he had engaged to sell the Premises obtained access to the Premises through the Applicant in order to carry out an inspection.
15. The Respondent received an offer to purchase the Premises on 27 May 2022, with the contract for sale eventually prepared in early August 2022. The purchaser required vacant possession.
16. By the end of August 2022, the Respondent conveyed the proposed buyer's position to the Applicant. The Respondent arranged for at least two real estate agents to ascertain whether alternative premises could be found for the Applicant. One of those real estate agents showed the Applicant at least one premises. Both real estate agents informed the Respondent that the Applicant did not seem very interested in moving.
17. The Applicant says that he was not able to identify any suitable alternative premises. That may well be true, however it is apparent that he was not particularly motivated to move. The impression that the Applicant gave the Respondent's real estate agents is reflected in the Applicant's evidence that he had invested significantly in the Premises during his occupation of it and that new premises would need to be fitted out, which would take at least six to eight weeks whilst the Applicant needed to be able to continue to generate income through his business.
18. On 19 September 2022, the Respondent emailed a "Notice to Vacate" to the Applicant (Notice to Vacate). The notice required vacant possession on or before 15 October 2022. Relevantly for present purposes, it referred to the Applicant as being a "Monthly Tenant in possession" and asserted that:

(a) Pursuant to your rental agreement (no lease) "Where the Tenant continues to occupy the Premises after the expiry of the Lease, then the Tenant does so as a monthly tenant". > > (b) "The monthly tenancy may be terminated by either party by giving at least one month's written notice to the other party to expire on any day of the month".

19. The assertion reflects clause 25 of the 2017 Lease, albeit that it does not quote from that clause precisely.
20. Also on 19 September 2022, the Applicant's solicitor, Mr Bede Webster, sent an email to the Respondent. The pertinent aspects of that email are that Mr Webster stated that:

(a) Termination of leases by lessors is regulated by Division 12.5 of the Leases (Commercial and Retail) Act 2001; > > (b) the Applicant would apply to the Magistrates Court if the issue of the termination of the lease could not be resolved between the parties; > > (c) the Applicant made a settlement offer, open until midday 23 September 2022, with the short timeframe for acceptance being explained on the basis that the Applicant had limited time within which to make an application contesting the lease termination. Mr Webster invited the Respondent to contact him if he required additional time to consider the offer. Mr Webster advised that the Applicant might rely on the offer "on the question of costs in any future litigation in this matter, including in support of an application for his costs to be paid by you in whole or in part on a solicitor and own client (or "full indemnity") basis"; and > > (d) the terms of the offer were, relevantly, that:

The Tenant offers to terminate the lease and vacate the premises referred to above on or before 20 March 2023 and if before that date then on not less than 14 days clear notice in writing.

1. The Applicant's position was that he required sufficient time to relocate his business, having regard to the need to obtain and fit-out premises, and the then upcoming Christmas period and unavailability of tradespersons during January.
2. On 21 September 2022, the Respondent refused the Applicant's settlement offer. He stated that the latest "eviction date" he could accept was 15 November 2022.
3. On 26 September 2022, the Respondent undertook a Google search for the business name 'Dream Cuisine'. His evidence is that his searches revealed that the Applicant's business address differed from the Premises and he was concerned that the Applicant's business might not be registered with ACT Health with respect to the Premises. The Respondent contacted ACT Health that day to raise his concern.
4. In circumstances where the Respondent had issued the Notice to Vacate, requiring vacant possession of the Premises by 15 October 2022, there would seem to be only two inferences reasonably open as to the reason why the Respondent made contact with ACT Health on 26 September 2022 (only two weeks prior to the identified vacation date):

(a) that he expected the Applicant to continue his occupation of the Premises (for whatever reason), and wished to ensure that all relevant regulatory requirements were being met in relation to the Applicant's use of the Premises into the future; or > > (b) that he wished to bolster his position with respect to his negotiations with the Applicant by identifying an alternative basis upon which he could effect the eviction of the Applicant from the Premises.

5. I consider that the latter is the more likely of these possibilities. I do not consider that the Respondent expected that the Applicant would continue his occupation of the Premises and I do not consider that the Respondent was otherwise concerned that the Applicant was compliant with ACT health legislation.
6. On 4 October 2022, the Applicant attempted to commence these proceedings by filing an originating application, however there was a defect in the document. That was remedied by the Applicant and his originating application was accepted for filing on 20 October 2022.
7. On 7 October 2022, the Respondent sent an email to the Applicant, asking him to provide a copy of the public liability insurance policy that the Respondent asserted the Applicant was required to hold, seemingly pursuant to the terms of the 2017 Lease. Given the short period of time between when this request was made and the date the Respondent had given the Applicant to vacate the Premises (8 days), it appears that this was also a tactical decision on the Respondent's part, in furtherance of the Respondent's objective of forcing the Applicant to vacate the Premises. This inference is also supported by the fact that the ultimate resolution that the parties reached for the matter involved the Applicant remaining in occupation of the Premises for a few months without there being any requirement for the Applicant to provide proof of insurance.
8. Nevertheless, I am not satisfied that that was the only reason for the request to be made. There are other reasons why a landlord would want to ensure that its premises are adequately insured, even towards the end of a lease. Indeed, the last of the settlement offers made by the Respondent (in late December 2022) included a requirement for the Applicant to provide insurance even though the offer contemplated the Applicant being in possession of the Premises for only a few additional months. Further, it is noteworthy that the Respondent did not seek to take any action in relation to the Applicant's failure to accede to the Respondent's October request until some time later, in early December 2022.
9. On 13 October 2022, Mr Webster sent an email to the Respondent, giving informal service of the court application that had been lodged in the court on 4 October 2022.
10. On 20 October 2022, the Defendant filed a further originating application, which was accepted for filing.
11. On or about 31 October 2022, ACT Health inspected the Premises and gave the Applicant a list of works to be undertaken by 28 November 2022, including the installation of a grease trap.
12. On 7 November 2022, the proposed buyer of the Premises withdrew his offer.
13. On 9 November 2022, the Applicant offered to vacate the Premises by the end of the year if the Respondent paid the Applicant $10,000 in compensation. The Respondent did not accept that offer.
14. On 11 November 2022, Mr Webster sought the Respondent's consent for the Applicant to undertake the works required by ACT Health. Mr Webster noted that "once the work is done and entirely paid for by my client, issues of estoppel and / or compensation may arise if the lease is terminated".
15. On 18 November 2022, the Respondent refused to provide consent for the identified works.
16. On 21 November 2022, Mr Webster sought clarification as to the basis for the Respondent's refusal of consent. Mr Webster referred the Respondent to section 22 of the Leases (Commercial and Retail) Act 2001, asserting that in the absence of an answer to his query, "it would reasonably appear that you are withholding consent for a collateral purpose, namely to prevent my client from continuing his lease of the premises, which is a potential breach of section 22. Such refusal may also be contrary to common law principles regarding a landlord's refusal to provide consent - refer in the matter of Idoport Pty Ltd (in liq)(recs apptd); National Australia Bank Limited (& Ors) v John Sheadan (& Ors) [2012] NSWSC 58".
17. The Respondent responded on the same day, stating "There is no lease, never been a lease and I have issued notice to vacate". The Respondent explains in his evidence that what he meant by that was that the lease (presumably the 2017 Lease) had expired and was a monthly lease. The Respondent additionally asserts in his evidence that he could not consent because the consent of the owners corporation would be required for the installation of a grease trap.
18. On 28 November 2022, the Respondent was contacted by ICON Water. ICON Water stated that: "The tenant [presumably referring to the tenant at the Premises] needs to install a grease trap. I want to send you a trade waste application form to allow the tenant to install a grease trap". The Respondent advised ICON Water that he was not interested in signing the application form as he did not see the point, the tenant needed the consent of the owners corporation, and the Respondent had issued a notice to vacate.
19. On 2 December 2022, ICON Water sent an email to the Applicant, advising that:

The owner of 3/196 Gladstone Street has contacted Icon Water and will not sign a Liquid Trade Waste Application for his property. Due to this fact, you are to cease discharging to sewer from this site immediately.

1. The Applicant ceased his operations on 2 December 2022.
2. On 5 December 2022, Mr Evelyn wrote to Mr Webster raising certain facts which Mr Evelyn asserted undermined the Applicant's application to the court. The letter concluded by saying:

Noting the significant cost that will follow should your client proceed with this aspect of his claim (particularly given that it must be determined by the Supreme Court), we invite your client to consider withdrawing or amending his application.

Our client reserves the right to produce this letter to the Court on the subject of costs.

1. Also on 5 December 2022, the Respondent issued a "Notice of Breach of Lease" (Breach Notice) to the Applicant. The Breach Notice asserted that the Applicant had not complied with the terms of the Lease (presumably the 2017 Lease) with respect to the production of a bank guarantee and the holding of relevant insurance. The Breach Notice required that the breaches be remedied within 14 days.
2. On 6 December 2022, Mr Webster responded to the Breach Notice to raise questions as to what the terms of the legal arrangement between the Applicant and the Respondent were and what the legal basis for the Respondent's actions were, and querying how the arrangement could be governed by the 2017 Lease (including how that agreement could govern the relationship between the parties when it was not registered and the Respondent was not a party to it) and, if the Disclosure Statement governed the relationship, why the Applicant was not entitled to the benefit of the term of the lease provided for by that document.
3. Also on 6 December 2022, Mr Evelyn wrote to Mr Webster to confirm the Respondent's position that the parties' relationship was governed by the 2017 Lease. The letter also asserted that, whether the relationship was governed by the 2017 Lease or the Disclosure Statement, the Applicant was required to provide security and relevant insurance policies. The letter advised that, in the absence of the Applicant's acceptance of the position expressed in the letter, the Respondent would treat the failure as being repudiatory of the lease for the Premises.
4. On 8 December 2022, Mr Evelyn wrote to Mr Webster to make a settlement offer. It provided that the Applicant agree that the Respondent's notice of termination of the lease be confirmed, with the lease terminated with effect from 15 January 2023 and there be no order as to costs.
5. On 9 December 2022, Mr Webster wrote to Mr Evelyn, rejecting the settlement as requiring a "capitulation" on the part of the Applicant and as being put without the Respondent adequately explaining its position.
6. Also on 9 December 2022, Mr Webster wrote to Mr Evelyn, asserting that the email from ICON Water of 2 December 2022 demonstrated that the Respondent had:

... clearly evinced an intention to block my client from being able to comply with the rectification order.

This is deliberate action to prevent my client from generating revenue. Not only is it conduct contrary to the provisions of the Leases Act, it is also conduct that is plainly intended to undermine the authority of the court. The terms of the lease are a matter before the court. It is improper of your client to take action that effectively renders the court action otiose.

This correspondence will be put before the court when appropriate. My client reserves the right to seek compensation for loss of income and other damages as a result of your client's conduct and further reserves the right to seek a special costs order in the proceeding including that your client pay my client's costs on a solicitor and own client basis.

1. Mr Webster wrote a second email on 9 December 2022, asserting that the Respondent had initiated contact with ICON Water, asking "What possible basis did your client have for that contact?" and stating "What he has done is ensure that my client cannot possibly comply with the works required, and he has done so simply to suit his own purposes when the matter is already before the court".
2. I note that, while ICON Water's email of 2 December 2022 refers to the Respondent contacting ICON Water, it appears from an email that ICON Water sent to the Applicant on 28 November 2022, which noted that ICON Water had conducted a liquid trade waste compliance inspection on that date and provided an application form for the Applicant to complete, that ICON Water initiated the communication to both the Applicant (by email) and the Respondent (by phone) on that date. I note that ICON Water's email to the Applicant of 2 December 2022 copies ACT Health. I infer that it was ACT Health which contacted ICON Water in relation to the rectification works it had required the Applicant to undertake.
3. On 9 December 2022, Mr Evelyn responded to Mr Webster's email of the same date, noting that the Respondent "does not agree with your characterisation of events" and stating that:

Our client's withholding of consent should come as no surprise to your client. It is perfectly reasonable to withhold consent to substantial alterations being made to the premises and to the common areas of the building (including services) by the tenant in circumstances where:

1. The tenant has not, following request of the Lessor, produced any evidence of the currency of any insurances for the premises;

2. The tenant has not provided any security under the lease;

3. The grease trap would need to be installed on common property, and consent of the owners corporation has not been obtained (nor, to our knowledge, sought);

4. The lessor has issued a notice of termination of the lease;

5. The lessor is marketing the property for sale.

1. In a further email of 9 December 2022, Mr Eveyln confirmed that it was the Respondent's position that the relationship between the Applicant and the Respondent was governed by the 2017 Lease "to the extent that they apply to a holding over".
2. Also on 9 December 2022, Mr Webster posed a number of questions to Mr Evelyn intended to highlight Mr Webster's view that the parties' relationship was not governed by the 2017 Lease, including asking a number of questions seeking clarification with respect to various statements that been made by the Respondent between 9 April 2019 and 10 February 2022.
3. On 13 December 2022, Mr Webster sent an email to Mr Evelyn, raising certain issues with respect to the Respondent's Notice of Intention to Respond, and making an offer of compromise, purportedly under the Court Procedures Rules 2006, stating: "Notwithstanding section 154 of the Leases Act, my client reserves the right to ask the court to make an order about costs and to rely on this offer, previous offers, and evidence of your client's conduct in support of an application that your client pay my client's costs as provided for in Part 2.10 of the Court Procedures Rules or otherwise".
4. The terms of the offer stated:

i. This offer is for the whole of the claim in matter CL 17/2022.

ii. This offer is made in accordance with Part 2.10 of the Court Procedures Rules 2006.

iii. This offer is open for acceptance for 28 days.

iv. This is an open offer and is not made without prejudice.

v. The proposed orders for the disposal of the claim are as follows:

1. The lease for the premises known as 3/196 Gladstone Street Fyshwick (the Premises) is to end on 20 March 2023 (the Termination Date).

2. Notwithstanding order 1, the Tenant may terminate the lease for the Premises on 14 days' notice in writing to the Landlord at any time prior to the Termination Date.

3. The Tenant must vacate the Premises on or before the Termination Date and return the Premises to the Landlord.

4. The Landlord must not interfere with the Tenant's right of quiet enjoyment of the Premises nor unreasonably restrict the Tenant's use of or access to the Premises prior to the Termination Date or the date on which the Tenant terminates the lease pursuant to order (2) above if different to the Termination Date.

5. The obligations of the Tenant under the lease will cease on the Termination Date or the earlier termination of the lease pursuant to order (2), without prejudice to any accrued obligations on the part of the Landlord and the Tenant at that time.

6. The Tenant's application is otherwise dismissed.

1. On 13 December 2022, Mr Evelyn wrote to Mr Webster in relation to queries Mr Webster had raised with respect to the Respondent's jurisdictional challenge, responding to the assertions Mr Webster had made with respect to the Respondent's engagement with ACT Health and raising issues with respect to apparent vagueness in the Applicant's offer of compromise.
2. On 20 December 2022, Mr Evelyn sent Mr Webster an email which contained a proposed deed of settlement and release, based on the Applicant's offer with some amendments considered desirable by the Respondent. One of those was to agree that there be no order as to costs, "in the interests of finality".
3. On 21 December 2022, Mr Webster provided Mr Evelyn with certain clarifications Mr Evelyn had sought in relation to the terms of the Applicant's offer. On the basis of those clarifications, the Respondent accepted the Applicant's offer on the same date, without admissions.
4. As Mr Webster noted in his email of 13 December 2022, the terms of the offer of compromise were consistent with the offer of settlement made by the Applicant in September 2022. The Respondent's evidence is that he accepted the offer when it was made in December because, by December, he had lost the sale of the Premises that was proposed when the September 2022 offer was made and he did not consider that he would be able to find another buyer who would be willing to settle on any sale before March 2023.
5. On 21 December 2022, Mr Webster wrote to Mr Evelyn to seek the Respondent's position in relation to costs. Mr Webster's position was that:

With respect to costs, I advise that I have not provided my client with an invoice yet, but my WIP is sitting at 10.5 hours. I have attached an offer of compromise dated 19 September 2022 which your client has not materially bettered. Whilst I am aware of section 154 of the Leases Act, nevertheless the conduct of your client, including issuing a notice to vacate without previously issuing a breach notice, his interference in my client's business so as to force my client to leave the premises before the matter had been determined by the court, and the failure to accept the attached offer of compromise all strongly point towards an order being made on my client's application.

My client's costs [total] $6767.00. My client proposes to settle the costs for a total of $5500, inclusive of GST ... If your client does not agree then the orders will make arrangements for issue [sic] of costs to be addressed ...

1. Mr Evelyn responded on 22 December 2022, to advise that:

If you wish to include an order with the form of consent orders to be filed with the Court to the effect that the matter be listed so that the parties may be heard as to costs, we will agree to its inclusion. However, we put you on notice that if you do seek an order for costs, it will be opposed, and our client will also seek an order for your client to pay our client's costs.

1. A number of emails then passed between Mr Evelyn and Mr Webster regarding the basis upon which a costs order might be made and the way in which the issue of costs should be resolved. On 12 January 2023, Mr Evelyn confirmed the Respondent's position as being:

My client is content that there be no order as to costs, notwithstanding that my client has good grounds for an order as to costs. This is on the basis that orders have been agreed for your client to vacate the premises. My client's desire for finality outweighs my client's desire to recoup his own costs. However, my client's desire for finality is not so strong that my client is prepared to entertain paying your client's costs.

Given that your client is determined to agitate a dispute about costs, my client will be required to respond to it. Finality appears to be off the table. As my client will be required to the time [sic] and expense of engaging with the dispute, there is no reason for my client not to seek an order for costs at the same time that your client seeks his own order.

1. The parties subsequently filed consent orders on 25 January 2023, as set out in paragraph 8․ above.

1. The parties filed written submissions and made oral submissions at the hearing of the applications on 14 April 2023.

1. The Applicant's written submissions may be summarised as follows:

(a) The Respondent's notice of termination (of 19 September 2022) was invalid. The Applicant says that whether the 2017 Lease was operable, or the lease was otherwise on a month-to-month basis, the giving of less than a month's notice (notice served on 19 September and required vacation by 15 October 2022) meant the notice was invalid. > > (b) The Applicant attempted to resolve the matter in a practical commercial manner by serving the Respondent with an offer of compromise on the same day that the notice of termination was served by the Respondent (19 September 2022). The offer was only open for a short period, but invited the Respondent to seek further time to respond. In any event, the offer was rejected by the Respondent on 21 September 2022. The Applicant's offer of compromise made on 13 December 2022, and accepted by the Respondent on 21 December 2022, was essentially in the same terms as his initial offer. The Applicant submits that costs incurred after that time were unnecessary and notes that the Applicant put the Respondent on notice that it would seek costs if the offer was refused. > > (c) The Respondent's conduct, once proceedings were commenced, was harsh, unreasonable and oppressive, forcing the Applicant to end the lease before the dispute could be decided by the Court and undermining the authority of the Court, including because there was no basis for the exercise of the Court's discretion in s123(1) to confirm the termination of the lease. The Applicant submits, in particular, that the Respondent contrived a breach of the lease by demanding that the Applicant take out a new insurance policy and pay a further security sum. While the Respondent was relying on the terms of the 2017 Lease, the Applicant says that this lease had expired in March 2019 (and the Respondent was not a party to it in any event) and, further, that the Respondent denied there being a lease at all when responding to the Applicant's request for consent to undertake the works identified by ACT Health. The Applicant says that the parties' relationship was governed by an agreement entered into between the parties in March 2019 by the Respondent delivering a disclosure statement to the Applicant reflecting the terms of the agreement, or by a continuous occupation lease under s10 of the Leases Act. > > (d) The Respondent acted unconscionably by making a complaint about the Applicant's use of the Premises to ACT Health after proceedings were commenced, and: > > > (i) refusing consent for the Applicant to undertake the work necessary to respond to ACT Health's list of works to be completed; and > > > > (ii) pre-emptively advising ICON Water that it would not sign a Liquid Trade Waste Application.

(a) there was no formal assignment of the 2017 Lease on the sale of the Premises to the Respondent and the 2017 Lease was not registered. Accordingly, it did not govern the parties' relationship and the Respondent was not entitled to exercise any rights under it; > > (b) if a provision of a lease touches and concerns the land, it runs with the land (and so will regulate the arrangement between a purchaser landlord and an existing tenant, without assignment of the lease), but in this case that would only support a demand for insurance, not security. Further, if the parties' relationship was governed by the default terms in the schedule to the Leases (Commercial and Retail) Regulation 2002 (ACT), there was no requirement for insurance or security; > > (c) even if the 2017 Lease was operative, less than a month's notice was given and therefore proper notice was not given in the Notice to Vacate; > > (d) the Notice to Vacate was not based on any identified breach of any lease; > > (e) there was a lack of clarity from the Respondent as to what the terms of the legal arrangement between them were. The Applicant points to: > > > (i) the Respondent's email of 21 November 2022 to Mr Webster, asserting "There is no lease, never been a lease"; and > > > > (ii) Mr Evelyn's email to Mr Webster of 9 December 2022, asserting that the Respondent had made clear on several occasions that the operative lease was the 2017 Lease, to the extent that they apply to a holding over; > > (f) it is possible that the Disclosure Statement governed the parties relationship even though the rent review notices sent by the Respondent were not entirely consistent with the Disclosure Statement, as evidenced by the fact that: > > > (i) the Disclosure Statement was provided by the Respondent after the 2017 Lease expired; and > > > > (ii) the tax invoice issued by the Respondent on 9 April 2022, and covering email to same, reflected the terms of the Disclosure Statement; > > (g) alternatively, the parties' relationship may have been governed by a continuous occupation lease. If the 2017 Lease had continued on a holding over basis, that would have resulted in a new lease of less than 6 months coming into existence, which would have become a continuous occupation lease after six months. After that time, it could only be terminated in accordance with s122 of the Leases Act; > > (h) by way of further alternative, if there was no lease between the parties, there was an agreement for lease; > > (i) the Applicant accepts that the Respondent was entitled to terminate the parties' arrangement but, the Applicant having contested the termination pursuant to s122 of the Leases Act, s123 of the Leases Act required the court to confirm the termination of the lease; > > (j) in response to the Notice to Vacate, on 19 September 2022, the Applicant gave notice as to the dispute, the applicable law and the limitations on the Respondent as to the recovery the Premises, and made a reasonable settlement offer. The Applicant says that the Respondent should have accepted the Applicant's September 2022 settlement offer with eagerness, given that the court was not going to be able to deal with the matter before the date that the Applicant was proposing to vacate the Premises and, in any event, the court would not have exercised the discretion to confirm the purported termination given that the Notice to Vacate was invalid. The Applicant submits that the offer was a genuine offer of compromise and notes that the Respondent ended up agreeing to terms of settlement which were essentially in the same terms in December 2022; > > (k) the Respondent had had a great deal of time since being served with the application without approaching the matter in a reasonable way. The Applicant says that the Respondent took some time to file his notice of intention to respond (from 20 October 2022 when the originating application was formally served, to 8 December 2022) and, in any event, he only filed a conditional notice. The Applicant says that the matters now raised by Respondent as saying there was a complete answer to the application could have been dealt with in response at the time. The Applicant says that, in any case, it is difficult to understand why the Magistrates Court did not have jurisdiction in relation to matters raised by originating application and notes that the jurisdictional issue was not pursued by the Respondent; > > (l) the Respondent's conduct contravened s22 of the Leases Act. While the Applicant accepts that the Respondent was entitled to raise issues with ACT Health, it should then have consented to the works which ACT Health identified as needing to be undertaken. The Applicant submits that the Respondent's refusal was unreasonable, as was its conduct in relation to ICON Water; > > (m) the above matters provide cogent reasons to depart from the usual rule that parties to proceedings brought under the Leases Act are to bear their own costs; and > > (n) costs are to be determined in the court's discretion, not by reference to the Court Procedures Rules 2006 (ACT) (Rules).

1. The Respondent's written submissions may be summarised as follows:

(a) the Applicant voluntarily chose to depart from the protection of section 154 of the Leases Act by making an offer under Part 2.10 of the Rules, in circumstances where the Applicant stated that it would rely on the offer made under Part 2.10 for the purposes of obtaining a costs order against the Respondent. The Respondent says that the Applicant cannot now say that Part 2.10 has no part to play; > > (b) the substantive court application was not founded on genuine grievances. The Respondent notes that the Applicant sought an order compelling the Respondent to enter into a 'formal lease' with the Applicant in accordance with the terms of an 'informal lease' said to have come into existence in April 2019, based on the Disclosure Statement. The Respondent submits, however, that correspondence between the parties demonstrates that the Applicant never considered itself bound by the terms identified in the Disclosure Statement and the Applicant's position at all times prior to the Notice to Vacate being issued was that it was seeking alternative premises; and > > (c) the Applicant's offer represented a complete capitulation in respect of the only aspect of the Application which attracted any attention between the parties, being the alleged informal lease.

2. The Respondent's oral submissions were as follows.

(a) As to the proposition that the Notice to Vacate was invalid (and, therefore, that the Respondent's case was doomed to fail), the Respondent submits that: > > > (i) it is not relevant to ask who would have succeeded, given that parties resolved the matter by consent; > > > > (ii) in any case, many arguments could have been raised in the proceedings had the matter proceeded; > > > > (iii) the Notice to Vacate did not need to identify a breach because the Respondent was terminating the lease by the giving of notice; > > > > (iv) the Leases Act does not require a tenant to have breached a lease in order for a court to exercise its discretion to confirm the termination of a lease. The Respondent had terminated a month-to-month lease and, accordingly, ss 122 and 123 are not relevant to the termination of the lease; > > > > (v) section 123 of the Leases Act has no application to a lease operating in a holding over period, as that would result in a perpetual right in a tenant to renew a lease; > > > > (vi) it is clear that the Applicant had not accepted the terms set out in the Disclosure Statement, as evidenced by the Applicant's email of 5 May 2022, which expressed the Applicant's desire to enter into a lease at that time; > > > > (vii) the reference in the Notice to Vacate to terms taken from the 2017 Lease shows that the Respondent's position was that that lease governed the parties' relationship; > > > > (viii) the originating application filed by the Applicant was not genuine, as the Applicant was aware that there was not a fixed term lease. The Respondent's evidence identifies that an offer to enter into a fixed term lease was offered to the Applicant in March 2019, and a disclosure statement was given to him in that regard, but the Applicant was not in a position to enter into any agreement at that time; > > > > (ix) the Applicant's attempt to have an informal lease registered was the basis for the Respondent's position that the jurisdiction of the Magistrates Court might be in issue; > > > > (x) the fact that the rent review notices were not consistent with the 2017 Lease or the Disclosure Statement means that they do not assist to understand which document governed the parties' relationship; and > > > > (xi) the objection raised in the originating application to the validity of the Notice to Vacate was based on the identification of the operative lease, not on any technical defect as to the period of notice given. > > (b) With respect to the Applicant's submission that the Respondent did not ultimately achieve a better outcome than the offer expressed in the Applicant's settlement offer of September 2022, the Respondent says that: > > > (i) the September 2022 offer was only open for acceptance for a short period; > > > > (ii) the Respondent had not been able to obtain legal advice before responding to the offer; > > > > (iii) the Applicant had sought, through the originating application, a fixed term lease, but that was not what had been offered; and > > > > (iv) even though the terms of the offers made in September 2022 and December 2022 were similar, the lay of the land was different at each of those times. In September 2022, the Respondent had secured a buyer for the Premises who wanted vacant possession, but that sale had fallen through by December 2022. > > (c) As to the alleged breach of s22 of the Leases Act, the Respondent says that: > > > (i) the Respondent did not act capriciously; > > > > (ii) with respect to the refusal of consent, the mere fact that a landlord has a collateral purpose does not make refusal of consent unreasonable and, in this case, the Respondent has provided reasons for its refusal. In particular, the fact that he had issued the Notice to Vacate provided a valid reason to refuse consent. In these circumstances, the Respondent says that it is noteworthy that the Applicant had said that he would rely on any consent by way of estoppel, or as part of a compensation claim, if the lease was terminated. The Respondent notes that he wished to sell the Premises to a painter, who did not need the grease trap the Applicant sought consent to install; > > > > (iii) it is not unreasonable to refuse consent for works where a tenant has not provided any evidence of insurance; > > > > (iv) both the 2017 Lease and the Disclosure Statement provided that insurance and security needed to be provided by the tenant. This is relevant to the disingenuousness of the Applicant's originating application; > > > > (v) ICON Water initially contacted the Respondent and the Respondent provided valid reasons to refuse consent; and > > > > (vi) contacting ACT Health was not strategic. > > (d) In terms of the application of the Court Procedure Rules 2006, the Respondent submits that: > > > (i) the Leases Act applies in priority to the Court Procedures Rules 2006; > > > > (ii) the intention of s154 of the Leases Act is to enable tenants to bring proceedings without the risk of a costs order; > > > > (iii) the Applicant departed from the usual rule by putting the Respondent at risk of a costs order in the offers that were made (both in the common law offer and the offer purportedly made as an offer of compromise under the Court Procedures Rules 2006). Given the voluntary departure of the Applicant from the usual position pursuant to s154 of the Leases Act, the Respondent should also be entitled to seek costs; and > > > > (iv) the outcome obtained by the Applicant (being the continued possession of the Premises for a few months and the dismissal of the application) was very limited, in comparison to what was sought (a five year lease with a five year option).

1. The starting point for consideration of the applications is s154 of the Leases Act. It provides:

The parties in a proceeding under this Act must bear their own costs unless the Magistrates Court or Supreme Court makes an order about costs.

1. A number of decisions of this court, and the Supreme Court, have considered the operation of s154 of the Leases Act. The most instructive of these is Tuggeranong Town Centre Pty Limited v Brenda Hungerford Pty Limited (No 3) [2017] ACTSC 301, in which Refshauge J set out a comprehensive discussion of the approach to be taken by courts in applying s154 of the Leases Act. His Honour said, at [152] to [159], [166], [170] to [175] and [210]:

[152] I have indicated above (at [27]-[29]) that, although literally expressed in a way consistent with the ordinary unfettered discretion that this Court has under r 1721 of the Court Procedures Rules, the section should be construed as requiring the Court to give primacy to the consideration that each party should pay its or their own costs unless the Court considers that some other order is appropriate.

[153] The Leases Act gives no direct considerations or principles on which the Court should act. Clearly, one important consideration would be the interests of justice and the power should be exercised judicially, including only after giving the parties an opportunity to be heard.

[154] In the circumstances, it seems to me that I should construe the provision in the light of the evident policy that parties, especially tenants, with genuine grievances and an arguable evidentiary and legal basis for them, should not be deterred from asserting their rights because of the risks of an adverse costs order ...

[155] The only superior court decision that has addressed this issue in relation to the Leases Act is Liangis Investments Pty Ltd v Ipex ITG Pty Ltd [2005] ACTCA 28. In that case, the Court of Appeal, after referring to s 154 of the Leases Act said at [5]:

Whilst the discretion implicit in this provision is not constrained by any requirement that special or exceptional circumstances be demonstrated, there must be some identifiable factor or factors sufficient to justify a departure from the normal rule.

[156] The Court of Appeal at [7] went on to hold ... that apparent unreasonable behaviour of the parties asserted by each of them in failing to "embrace overtures of settlement from the other" was insufficient to depart from the "normal rule", namely that there be no order as to costs.

[157] As well as Kingsley's Chicken (No 2), the Magistrates Court has given some consideration to the section. In Arthur McWitton Pty Ltd v Perpetual Trustee Co Ltd Magistrate Burns had to apply the section.

[158] Though giving no detailed consideration to its legislative history or any analogous authorities, his Honour said (at [4]):

Section 154 of the Leases Act provides the usual rule concerning costs in applications under that Act. The usual rule is that each party pay their own costs. The Court has a discretion to depart from the usual rule where the circumstances of the particular case make it just to do so. The Court's reasons for departing from the usual rule do not need to identify special or exceptional circumstances, but the Court must be satisfied that there are cogent reasons to depart from the usual rule.

[159] His Honour accepted (at [6]), that the fact that a party was successful in the litigation was not in itself a good reason from departing from the "the usual rule". His Honour considered (at [8]) that, in that case, the applicants' case was "utterly misconceived from the outset" as was its original claim for damages. In addition, the dilatoriness in preparation and prosecution of the proceedings, and the complexity of the financial and legal issues combined to justify a departure and his Honour made an order for costs.

[166] Nevertheless, the complexity of proceedings seems to me to be a relevant factor to consider in applying s 154 of the Leases Act. It should, however, not be elevated to a rule or principle that all such proceedings fall into such a category, but merely to be a relevant consideration when considering application of the section.

[170] Again, an analysis of the issues in the proceedings and the success of each party in relation to these seems to me to be a relevant consideration, but not one that should be approached in a purely mathematical way. Nor will it be, in itself, determinative. After all, a successful party can often only gain an award of damages at all by taking proceedings.

[171] The nature of the issues is also relevant. While not expressed in the section, I see no reason why the prosecution of a claim or defence that is frivolous or vexatious should not attract an adverse costs order.

[172] The Court should also be astute to ensure that the luxury of the prima facie no costs jurisdiction is not abused for the ordinary obligations of the courts under s 5A of the Court Procedures Act in which the parties are required to assist the courts still apply and should be reflected in the need to encourage compliance. Thus, the conduct of the parties in the proceedings is also relevant. A party who unreasonably delays or lengthens the proceeding or conducts their or its case with lack of diligence or incompetently may be ordered to pay the costs occasioned by such conduct or, indeed, of the whole proceedings.

[173] These considerations are not exhaustive of the matters that need to be considered by a court when considering whether there should be an order for costs.

[174] It is also important to state clearly that merely success in a party's claim nor its failure will be sufficient of itself to justify an order for costs in favour of our adverse to that party. To apply that rule would clearly undermine the intent and operation of s 154 of the Leases Act as I have found it to be.

[175] Similarly, it should be clear that the overriding consideration should be the interests of justice and fairness to the parties which should be the ultimate touchstone for any order, whether that be that there be no order as to costs or that there be an order that a party bear the costs of another party.

[210] ... While the rationale for s 154 of the Leases Act is expressed as the likely economic disadvantage of tenants in comparison to landlords, it does not, in my view, justify a differential approach to costs based on whether the successful party is the landlord or the tenant and I do not see that stated or implied in any of the extrinsic material on which I relied in construing the section.

1. I note that one of the Respondent's submissions was that, given the voluntary departure of the Applicant from the usual position pursuant to s154 of the Leases Act, the Respondent should also be entitled to seek costs. The Respondent relied on the decision of Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd (No 4) [2020] ACTSC 131.
2. At [184] of that decision, Penfold J stated that:

However, neither party submitted that each party should bear its own costs, and each party sought an order for the other party to pay some or all of its costs. I have treated the parties' approach as a concession by each of them (with which I agree) that this was a case in which it was open to the Court to depart from the default position stated in s 154 by making an order about costs for the purposes of that section.

1. I note that the decision of Penfold J is not to the effect that a party (or parties) can voluntarily depart from the operation of the usual rule established by s154 of the Leases Act, nor that one party's attempt to do so means that the usual rule will then not apply to the court's determination of either party's claim for costs. In every case, it will be a question for the court to determine, whether it is satisfied that there are cogent reasons to depart from the usual rule established by s154 of the Leases Act and it is therefore appropriate to make some other order.
2. In summary, the principles which apply in considering an application for costs pursuant to s154 of the Leases Act are:

(a) the court is to give primacy to the consideration that each party should pay its or their own costs unless the Court considers that some other order is appropriate - that is, the usual rule is that each party pay their own costs; > > (b) it is not necessary to show that special or exceptional circumstances exist, but there must exist some factor or factors sufficient to justify a departure from the normal rule. To put it another way, there must be cogent reasons to depart from the usual rule; > > (c) the fact that a party is successful in the litigation is not, in itself, a good reason to depart from the usual rule; > > (d) a party, or parties, cannot choose to depart from the usual rule; and > > (e) the considerations that are relevant to whether it is appropriate to make some other order include: > > > (i) the interests of justice and fairness to the parties, which are the overriding considerations; > > > > (ii) the policy that parties, especially tenants, with genuine grievances and an arguable evidentiary and legal basis for them, should not be deterred from asserting their rights because of the risks of an adverse costs order (noting that this policy does not justify a differential approach to costs based on whether the successful party is the landlord or the tenant); > > > > (iii) whether a party's case (either a claim or a defence) is misconceived, frivolous or vexatious; > > > > (iv) the conduct of the parties to the proceedings, including whether a party has delayed the progression of proceedings, conducted their case with a lack of diligence or competence, or has abused the prima facie no costs jurisdiction; > > > > (v) the complexity of the factual and legal issues raised by the proceedings; and > > > > (vi) the success of each party in relation to each of the issues raised by the proceedings.

1. In this case, there are no cogent reasons to depart from the usual rule that the parties bear their own costs.
2. This is a matter where a dispute arose on 19 September 2022, proceedings were formally commenced on 20 October 2022, and the parties resolved the dispute on 21 December 2022 (subject to the resolution of the issue of costs). That is, the dispute was resolved within approximately 3 months of it arising and within approximately two of months of proceedings being commenced.
3. While the matter may have involved some legal complexity, the matter had not progressed to a point where the parties had engaged in that complexity to any significant extent. Ultimately, the matter resolved with both parties compromising their respective positions. The Respondent ended up agreeing to delay the date for the Applicant to vacate the Premises by several months and the Applicant agreed to his proceedings being dismissed, including giving up his request for orders requiring the parties to enter into a longer term lease.
4. The proceedings were, unsurprisingly, not very well advanced by the time the parties reached agreement. No applications had been made, no production of documents had been given and no evidence had been filed. By the time that the parties reached their agreement, a modest sum had been incurred by the Applicant ($6,767) and it is likely that only a modest sum had been incurred by the Respondent as well.
5. In those circumstances, I do not consider that the interests of justice, and fairness to the parties, supports a departure from the usual rule established by s154 of the Leases Act that each party bear their costs.
6. Nevertheless, I have set out below my consideration of the various arguments advanced by the parties.

Arguments with respect to the prospects of each party's case

1. The Respondent's primary position with respect to the substantive application was that the holding over provisions of the 2017 Lease governed the parties' relationship. The Respondent considered that it was entitled to terminate the agreement that it had in place with the Applicant with respect to the Premises on the giving of notice, without demonstrating any breach of the applicable lease. The Respondent contended that the position taken by the Applicant was unmeritorious.
2. The Applicant's primary position was that the Disclosure Statement contained the terms of the parties' agreement. An alternative position that it developed was that it occupied the Premises pursuant to a continuous occupation lease. The Applicant considered that it was entitled to challenge the termination, on the basis that the agreement which the Respondent purported to terminate (the 2017 Lease) was not the agreement which governed the parties' relationship but that, rather, the terms set out in the Disclosure Statement applied. The Applicant sought an order that the parties execute a formal lease "in accordance with their informal agreement as reflected in the disclosure statement".
3. I note that the Applicant also submitted that:

(a) The Notice to Vacate was otherwise invalid, for various reasons, including because the Respondent had failed to provide sufficient notice, even if the 2017 Lease did apply, and as a result of there being no breach notice preceding the Notice to Vacate; and > > (b) there was a lack of clarity from the Respondent as to what the terms of the legal arrangement between the parties were, and arguments could be made in support of a number of alternatives as to the nature of that relationship.

4. The difference in the parties' positions reflected an uncertainty as to the basis upon which the Applicant had remained in possession of the Premises once they were sold to the Respondent in 2018. Given that the parties ultimately agreed to resolve the substantive proceedings by agreeing consent orders without resolving this issue, and the parties did not attempt to present fully developed arguments in relation to this issue at the hearing of the costs applications, it is undesirable to seek to determine the issue now. I note that neither party suggested that I should seek to do so.
5. It is apparent that each party would have faced difficulties in making out their respective cases, given that:

(a) the Respondent was not privy to the 2017 Lease and there was no assignment of the 2017 Lease to the Respondent by registration of a transfer of the lease; > > (b) even if the 2017 Lease had governed the parties' legal relationship, the period given in the Notice to Vacate did not reflect the period required to be given under the holding over provisions of the 2017 Lease (in this respect, I do not consider that the Applicant was limited, in pursuing his substantive application, to the grounds advanced in his originating application); > > (c) while the Respondent put a proposal to the Applicant in 2019 with respect to entering into a new lease, as reflected in the Disclosure Statement, that proposal was not accepted by the Applicant; and > > (d) neither party consistently referred to, or acted in accordance with, either the 2017 Lease or the Disclosure Statement following the sale of the Premises to the Respondent.

6. The legal arguments raised by the parties highlight the uncertainty that the parties would have faced as to their prospects of succeeding in the substantive proceedings and underline the pragmatism that the parties showed in negotiating a consent resolution of the matter.

1. The reasonableness of the parties' conduct was raised principally by the Applicant with respect to:

(a) the Respondent's conduct of the proceedings, including his refusal of the Applicant's settlement offer and his failure to progress the matter expeditiously; and > > (b) the Respondent's conduct outside the court proceedings, including his demand for insurance and security, his engagement with ACT Health and his engagement with ICON Water.

2. I have considered the Applicant's complaint with respect to the Respondent purporting to terminate the 2017 Lease prior to issuing a breach notice, and the Respondent's complaint that the Applicant's originating application was not founded on genuine grievances, in my consideration of the parties' arguments with respect to the prospects of each other's case.

Respondent's conduct relevant to the proceedings

1. In relation to the Applicant's submission that the Respondent took an unreasonable period of time, subsequent to being served with the substantive application, before approaching the matter in a reasonable way, I am not satisfied that any of the steps taken by the Respondent were unreasonable. Nor am I satisfied that the Respondent unreasonably delayed the progression of the matter. It may well be the case that the Respondent could have acted more quickly however, as I have noted above, the matter resolved within two months of proceedings being commenced, which is not a long period of time.
2. In relation to the Applicant's settlement offer, the Applicant made an offer to settle the parties' dispute on the basis that the Applicant be permitted to remain in occupation of the Premises until March 2023. While the offer was a reasonable one, the Respondent's refusal of it was not unreasonable.
3. When the offer was first made in September 2022, it was unattractive to the Respondent as he was seeking to sell the Premises and the buyer who was then interested in the Premises wanted vacant possession. It is to be kept in mind that the Applicant had known since May 2022 that the Respondent wished to sell the Premises and knew, at the time he made his offer, that the Respondent required vacant possession for the sale to progress.
4. When a similar settlement offer was made in December 2022, the Respondent's position had materially changed, as he no longer had an interested buyer for the Premises. It was in that context that he decided to accept the settlement offer. This was only around three months after the initial offer had been made and the substantive proceedings had only been on foot for approximately two months. The parties' costs were not significant.
5. Further, while the settlement terms that were ultimately agreed were similar to the settlement terms the Applicant had offered the Respondent in September 2022, they did not reflect the orders that the Applicant had sought in the substantive proceedings. Relevantly, in exchange for the Respondent permitting the Applicant to remain in possession of the Premises until March 2023, the originating application was dismissed without the court granting the substantive relief sought by the Applicant (being the setting aside of the Notice to Vacate and orders requiring the parties to enter into a lease reflecting the terms of the Disclosure Statement).
6. For completeness, I also note that the Respondent raised certain arguments as to the extent to which the Applicant compromised his position in the agreement reached by the parties. While it was certainly a substantial compromise of the Applicant's position, it also required the Respondent to compromise its position.
7. In the circumstances, it was, as I have found, a pragmatic decision on both parties' part to resolve the matter and it would not be appropriate to make a costs order by reference to a determination as to which party compromised more. Approaching costs orders on that basis might discourage parties from seeking to resolve proceedings, which would not be in the interests of justice.

Respondent's conduct outside of the court proceedings

1. As to the Respondent's conduct outside of the court proceedings, I am not satisfied that the Respondent acted unreasonably (or in a harsh or oppressive manner).
2. I find, as I have indicated above, that the Respondent acted strategically in demanding that the Applicant produce evidence that he held appropriate insurance. However, as I have also found, I am not satisfied that whatever strategic advantage the Respondent was seeking to obtain was the only reason why the request was made.
3. Further, while the Applicant asserts that the Respondent had no right to request the relevant insurance and security, (given the Applicant's view that the parties' rights were not governed by the 2017 Lease, pursuant to which the demands were made), it is apparent that the Respondent considered that he did have rights under the 2017 Lease. To the extent that he didn't (and didn't have a right under any other agreement), the Applicant was not required to comply with the demand and the Breach Notice would not have been of any effect.
4. I further find, as I have also indicated above, that the Respondent acted strategically in making contact with ACT Health but, as the Applicant concedes, the Respondent was entitled to make the enquiry that he did. What the Applicant complains about is the Respondent's refusal to provide consent to the works which ACT Health required be undertaken and pre-emptively advising ICON Water that he would not sign the relevant works application. In this respect, I do not consider that the Respondent acted unreasonably in refusing consent to the works. As the Respondent advised Mr Webster, he had issued a Notice to Vacate. In those circumstances, and in circumstances where Mr Webster had indicated that if the work was undertaken and paid for by the Applicant, 'issues of estoppel and / or compensation may arise if the lease is terminated', the position taken by the Respondent was a reasonable one for him to take. Further, as indicated above, I have found that the Respondent did not initiate contact with ICON Water.

Applicant's voluntary departure from the usual costs rule

1. Finally, I note the Respondent's argument that the Applicant voluntarily chose to depart from the protection of s154 of the Leases Act. I have noted above my view that this is not a course that is open to a party. Whether it is appropriate to depart from the usual rule established by s154 is a question that the court must determine.

1. For the above reasons, I find that it is not appropriate to depart from the usual rule established by s154 of the Leases Act that each party bear their own costs.
2. It is my view that a costs order was, at the time the parties reached agreement, unlikely to be made. In that context, I note that the Respondent urged the Applicant in December 2022 to resolve the matter on the basis that there be no order as to costs, but that the Applicant did not agree to that proposal.
3. In those circumstances, I considered whether the Applicant should pay the Respondent's costs of the costs applications. However, I determined that that was not appropriate as:

(a) it is apparent that the Applicant genuinely considered that the Respondent had acted unreasonably in seeking (as the Applicant understood it) to undermine the Applicant's use of the Premises through the Respondent's engagement with ACT Health and ICON Water; > > (b) at least in relation to the Respondent's engagement with ICON Water, I have had the benefit of being able to consider additional material to that which was available to the Applicant in assessing the Respondent's conduct; > > (c) the position expressed by the Respondent to the Applicant, in arguing that the parties should agree that there be no order as to costs, was premised on the Respondent's desire for finality, not on any view (or, at least, not on any expressed view) that this was not a case where it was appropriate for the court to depart from the usual rule established by s154 of the Leases Act; > > (d) in the end, the Respondent filed his own costs application, with the attendant cost to himself and the Applicant of progressing and responding to that application, and with the time and resources of the court that were occupied in deciding it; and > > (e) the Respondent himself has had limited success in his application, having not succeeded in demonstrating that the court should depart from the usual rule provided for by s154 of the Leases Act and, therefore, not succeeded in obtaining a costs order for himself (on either his preferred solicitor and client basis, or on an alternative party and party basis).

(a) The Applicant's application in proceeding is dismissed, with no order as to costs. > > (b) The Respondent's application in proceeding is, with respect to proposed order 3, granted. > > (c) The remaining orders sought by the Respondent are refused. > > (d) I order that there be no order as to costs with respect to the Respondent's application.

I certify that the preceding one hundred and twelve [112] numbered paragraphs are a true copy of the Reasons for Decision of his Honour Magistrate Temby.