Alessa Pty Ltd v Total & Universal Pty Ltd

[2002] NSWADTAP 16

Appeal Panel

CITATION:	Alessa Pty Limited -v- Total & Universal Pty Limited (RLD) [2002] NSWADTAP 16
PARTIES:	APPELLANT Alessa Pty Limited RESPONDENT Total & Universal Pty Limited
FILE NUMBER:	019049
HEARING DATES:	27/11/2001
SUBMISSIONS CLOSED:	11/27/2001
DATE OF DECISION:	05/17/2002
DECISION UNDER APPEAL:	Alessa Pty Limited -v- Total & Universal Pty Limited [2001] NSWADT 150
BEFORE:	O'Connor K - DCJ (President); Hole M - Judicial Member; Weule B - Member
CATCHWORDS:	costs - relevant considerations
MATTER FOR DECISION:	Principal matter
FILE NUMBER UNDER APPEAL:	015080
DATE OF DECISION UNDER APPEAL:	09/18/2001
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Alessa Pty Ltd v Total and Universal Pty Limited [2001] NSWADT 150 (18 September 2001) House v The King (1936) 55 CLR 499 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129 Southlands v Sutherland Shire Council (1997) 95 LGERA 379, 393 (L & E Crt) Attorney General v Wentworth (1988) 14 NSWLR 481, 491
REPRESENTATION:	APPELLANT M Ashhurst, barrister RESPONDENT A Lo Surdo, barrister
ORDERS:	1. Appeal dismissed; 2. Appellant to pay the respondent's costs of the appeal.

1 This is an appeal from a decision of the Retail Leases Division of the Tribunal awarding costs against the appellant: Alessa Pty Ltd v Total and Universal Pty Limited [2001] NSWADT 150 (18 September 2001). For convenience, the parties are referred to as ‘Alessa’ and ‘TUPL’ respectively in this decision.

2 In its principal decision the Tribunal found that Alessa’s application for relief did not fall under the Retail Leases Act 1994 (RLA) and dismissed the application as the Tribunal was without jurisdiction. TUPL applied for costs.

Costs Rule
3 The basic rule as to costs in cases arising under the RLA is that each party must bear their own costs: see generally RLA, s 77A (‘The Tribunal may award costs under section 88 of the Administrative Decisions Tribunal Act 1997 in respect of proceedings commenced by an application made under this Part.’); and, in particular, s 88 of the Administrative Decisions Tribunal Act 1997 (the Tribunal Act) which provides, as material:

‘ 88. Costs
(1) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that there are special circumstances warranting an award of costs.’
4 The Tribunal awarded costs against Alessa on the basis that there were ‘special circumstances’ justifying departure from the usual rule that no awards of costs are to be made in proceedings under the RLA.

Background
5 Alessa’s original application was lodged at the Tribunal registry on 29 July 2001 by Mr Jim Mitchell, a representative of the company. Mr Mitchell had completed the application form. It gave as the grounds for the application ‘threat of eviction 23.8.01’ and ‘promise of written lease’. The order sought was expressed as ‘to remain in shop and to have lease established’. Mr Mitchell took this step without consulting his solicitor, Mr Ziade, following advice, it is said he received from an officer of the Retail Tenancy Unit (Mr Alan McDonald) to the effect that the company had reasonable prospects of success if it took action in the Tribunal under the RLA. This unit is the statutory mediation service to which retail tenancy disputes must normally be referred before any proceedings are commenced in the Tribunal and is headed by a Registrar: see Part 8, Div 2 (ss 64-69) of the RLA.

6 Alessa traded as ‘Fold N’Roll’. It had, through Mr Mitchell, been in negotiation with TUPL to occupy premises at 7 Darley Road, Leichhardt as part of an agreement it was seeking to reach for transfer of a building and plumbing supply business conducted there. Alessa had begun to occupy the premises in April 2001. At that stage it was not making any payments and no written, formal lease had been negotiated. That remained the position until 22 June 2001. On or about that date the business was purchased, and Alessa commenced to make payments to TUPL in respect of its occupation.

7 In its principal decision below, the Tribunal upheld TUPL’s submission that the relationship between the parties was not one governed by the RLA, and accordingly the Tribunal was without jurisdiction (ex tempore, unreported, 16 August 2001). The decision turned on the issue of whether the business conducted at the premises was that of a ‘retail shop’; whether the lettable area was within the area limit set by the RLA; whether the nature of the relationship between the parties fell within the broad definition of “lease” under the RLA. On all three issues the Tribunal ruled against the applicant. As to the “lease” question the Tribunal was satisfied that the parties had not reached a final agreement as to the occupation of the premises sufficient to amount to a lease.

8 The Tribunal stated that its provisional view on the costs question was that the dispute had raised reasonably arguable questions, and accordingly it was minded to the view that no special circumstances existed of a kind that might permit departure from the usual costs rule. It reserved its decision in respect of TUPL’s application for costs, and gave directions for written submissions.

9 In its written submissions lodged the next day, TUPL referred to a series of file notes made by Alessa’s solicitor, Mr Ziade, covering the period 6-18 June 2001 and a further file note of 17 July 2001. The file notes had been produced (without, it would seem, any claim for legal professional privilege) in response to a summons for production obtained by TUPL in connection with the main application. The file notes recorded consistent advice from Mr Ziade to Mr Mitchell that a claim under the RLA was not open to be made.

10 TUPL submitted that this material supported its claim that Alessa had brought the proceedings with an absence of good faith and contrary to legal advice, and asked the Tribunal to conclude that the proceedings were vexatious, frivolous or not commenced with due cause. TUPL asserted that the notes showed that ‘despite both the knowledge that the applicant had as to the existence or otherwise of a lease in June and July 2001 and the advice it had received that it did not have a claim under the RLA, it nevertheless commenced these proceedings.’ TUPL also advised that by letter dated 2 August 2001 it had offered to waive any legal costs in return for Alessa withdrawing the proceedings by 5 pm on 6 August 2001. The offer was not accepted. TUPL submitted that this Calderbank letter should be taken into account by the Tribunal.

11 Alessa’s solicitor, Mr Ziade, replied by way of an affidavit filed 3 September 2001. In those submissions he described the advice recorded in the file notes as ‘off the cuff’ advice. He did not provide any detailed response to the claim made by TUPL as to the file notes. He said that the settlement of the business purchase was effected on 22 June 2001, and then went on to record in detail: the call to him from Mr Mitchell in which Mr Mitchell advised that he had lodged an application in the Tribunal, and the comments made by Mr Mitchell as to why he had done that and what Mr Mitchell had said to him about the advice given to him by Mr McDonald of the Retail Tenancy Unit. Mr Ziade’s affidavit then gives an account of a conversation between Mr Ziade and Mr McDonald on 31 July 2001 in which Mr Ziade queried Mr McDonald on his interpretation of the RLA. Mr Ziade said: ‘I am informed by Jim Mitchell and believe that Alessa would not have instigated nor prosecuted its claim had it not been for the advice given by Mr McDonald.’ The affidavit was accompanied by written submissions prepared by Mr Walsh of counsel referring to the nature of the Tribunal’s costs discretion under s 88, and submitting that this was not a case of a vexatious application, as Mr Ziade’s (negative) opinions were given off the cuff, and the applicant had acted reasonably in commencing the application in reliance on the advice of Mr McDonald.

12 TUPL filed reply submissions on 10 September 2001. They challenged Mr Ziade’s characterisation of the advice recorded in the file notes as ‘off the cuff’. They challenged the submission that Alessa should be protected from the costs sanction because they had relied on the advice of Mr McDonald, and referred to High Court authority.

Tribunal Ruling
13 In light of the material drawn to attention by TUPL (the file notes are set out at [12] of the decision), the Tribunal changed its provisional view, and ruled that an award of costs should be made against Alessa. The Tribunal’s conclusions are found in para [19] of its reasons:

‘In my opinion, bearing in mind the further evidence placed before the Tribunal, including the uncontroverted evidence as to the legal advice given to the Applicant by its lawyer, I am persuaded that in the circumstances of this case it would be seriously unfair to the Respondent not to recover costs. In my opinion there was such a weakness in the merits of the case, a weakness recognised by the Applicant’s legal adviser from the outset, as to bring it close to a claim without real merit in the sense referred to in cases dealing with vexatious actions. It is a case which in my opinion satisfies the test that I have stated above for an award of costs.’
14 The test stated by the Tribunal to which this passage refers is set out at para [6]. The Tribunal said that for the usual rule to be varied:
‘… the circumstances must be seriously beyond the usual or ordinary pursuit of a claim so that it would be seriously unfair to a party to proceedings before the Tribunal not to be awarded some or all of its costs where it has been successful.’
Grounds of Appeal
15 In the notice of appeal filed 11 October 2001, Alessa gave four grounds of appeal:
‘1. The Judicial Member erred at law in rejecting from his consideration of whether the applicants had vexatiously commenced these proceedings the information that the applicants had received from [Mr McDonald].

2. When deciding whether the applicants had commenced these proceedings vexatiously the Judicial Member should have taken into account the information received by the applicants from [Mr McDonald] about the prospects of these proceedings.

3. The Judicial Member should have held that for these proceedings to have commenced vexatiously the applicants must have commenced the proceedings knowing that they had no or little prospects of success.

4. The Judicial Member erred at law by failing to find the information provided the applicants by [Mr McDonald], that the proceedings had good prospects of success, meant that the applicants had not commenced these proceedings vexatiously.’

Grounds 1 and 2 (Exclusion of Affidavit Material and Relevance)
16 Ground 1 seeks to challenge the Tribunal’s ruling on the basis that it should not have excluded evidence in the solicitor’s affidavit of the conversations said to have occurred between a principal of Alessa, Mr Mitchell, and Mr McDonald as reported to him by Mr Mitchell. Ground 2 is that the evidence was relevant.

17 The RLA provides:

‘ 69. Statements made during mediation not admissible
Any statement or admission made in the course of the mediation of a retail tenancy dispute or other dispute or matter referred to in section 65 (1) (a1) pursuant to arrangements made by the Registrar under this Part [Registrar, RTU] is not admissible at a hearing of a claim under Division 3 or in any other legal proceeding.’
18 ‘Mediation’ is a broad concept within the scheme of the RLA:
‘ 67. The nature of mediation
Mediation is not limited to formal mediation procedures and extends to encompass preliminary assistance in dispute resolution, such as the giving of advice designed to ensure that the parties are fully aware of their rights and obligations and that there is full and open communication between the parties concerning the dispute.’
19 As noted earlier, Mr Ziade’s affidavit referred to what Mr Mitchell had said to him about Mr McDonald’s advice; and the conversation Mr Ziade had the next day with Mr McDonald.

20 As to this material the Tribunal said:

‘15. … The affidavit refers to certain advice said to have been given to the applicant by the mediator within the Retail Tenancy Unit.

16. As to this the proper practice of the Tribunal must be that the Tribunal must not have regard to what is said in any mediation session or by the Retail Tenancy Unit. I am of the view that this should also apply in the case of costs questions and accordingly I reject the availability of that evidence in this regard. In any event, even it were later to be held that it was proper to consider this evidence, the Retail Tenancy Unit is clearly not in a position to be giving legal advice and where, as the affidavit reveals, the applicant’s own lawyer expressed real doubt to his client about that advice, an applicant cannot rely on the Unit’s advice.

17. Furthermore, the applicant says that the opinion formed by its lawyer was ‘off the cuff.’ There was nothing in the file notes to suggest that the opinion was other than an ordinary opinion formed by a qualified legal adviser and repeated throughout the file notes. If despite my comments above, regard may be had to the lawyer’s affidavit concerning advice provided during the mediation attempt by the Retail Tenancy Unit, the lawyer’s affidavit makes clear that he continued in his opinion that the Retail Leases Act probably did not apply in spite of suggestions to the contrary, and so advised his client.’

21 It will be seen that s 69 renders inadmissible the evidence to which it refers in any ‘claim’ under the RLA or in ‘any other legal proceeding’. Our view is that costs applications made subsequent to the resolution of the claim are covered, if not by the expression ‘claim’, then by the expression ‘any other legal proceeding’. The next question then is what is the evidence that is rendered inadmissible. Because of the extended definition given by s 67 to the usual meaning of mediation (the conventional meaning limiting it to the ‘mediation session’ is the one that applies to this Tribunal’s mediation processes, see Tribunal Act, s 100) there is a basis for the Tribunal’s conclusion that the opinions given by Mr McDonald are excluded.

22 However, Mr McDonald’s opinions did not concern any concessions or admissions of a kind that might be made within a mediation session, and were not material in any way to the Tribunal’s determination of issues of jurisdiction or liability. There is no obvious public policy purpose served by sealing from any scrutiny advice of the kind said to have been given by Mr McDonald in this case. It would be preferable that communications that occur outside the mediation session are not sealed in the way which s 69 may seek to achieve.

23 We note that the affidavit material is not clear as to precisely when and in what circumstances these communications occurred. Caution should be shown in making any findings of fact in such a situation which may have the effect of depriving a party of the right to have relevant evidence considered.

24 However in our view it is not necessary to resolve the question of whether ss 67 and 69 were properly interpreted by the Tribunal.

25 The Tribunal took the precaution of indicating what is view would be if it was at liberty to take into account the communications said to have passed between Mr Mitchell and Mr McDonald. It indicated that it would still have reached the same conclusion. In these circumstances, applying the principles in House v The King (1936) 55 CLR 499, we are not satisfied that any error that may have occurred in not formally receiving the evidence was a material one.

26 Grounds 1 and 2 are rejected on that basis.

Ground 3: Test for Vexatiousness
27 This ground relates to whether the Tribunal erred in law in its interpretation of ‘vexatious’. That such a test was applied by the Tribunal is an underlying assumption of all of the grounds of appeal.

28 It is clear, we consider, that the Tribunal did not go so far in its observations in para [19] as to apply the strict test for vexatiousness. While TUPL did argue in its submissions that the claim was vexatious - and those submissions were referred to by the Tribunal in its decision - the Tribunal did not decide the question by reference to the technical meaning of ‘vexatious’ as formulated in the leading cases such as General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129.

29 Mr Ashhurst for Alessa argued that the Tribunal had at least adopted the approach that the conduct be ‘near-vexatious’ in the sense that it must be shown that Alessa embarked on the action simply to cause trouble; and that Alessa had no honest or genuine belief in the soundness of the claim. Mr Ashhurst referred to Southlands v Sutherland Shire Council (1997) 95 LGERA 379, 393 (L & E Crt). This type of vexatiousness is sometimes referred to as ‘subjective’ vexatiousness. It is also possible for there to be ‘objective’ vexatiousness, i.e. that irrespective of the motive and understanding of the litigant the case is so obviously untenable or manifestly groundless as to be utterly hopeless: see Roden J in Attorney General v Wentworth (1988) 14 NSWLR 481, 491.

30 Para [6] of its reasons, as further explained in para [7], set out the test used by the Tribunal. The test represents in our view a reasonable formulation of the nature of the discretionary exercise involved in deciding what might be ‘special circumstances’ for the purpose of an adverse costs award.

31 In our view it is clear that ‘special circumstances’ could be provided by a case such as the present where an applicant has retained a practitioner to advise at all prior stages, has gone ahead and commenced proceedings without obtaining any advice from the solicitor as to whether it involved a reasonably arguable claim, then has persisted with the claim with the solicitor reinvolved but still sceptical as to the jurisdictional question and then lost on the issue of jurisdiction. It was reasonably open to the Tribunal to conclude that the conduct of Alessa was ‘seriously unfair’ to TUPL, thereby giving rise to a ‘special circumstance’ for the purpose of s 88.

Ground 4: Omission of Critical Finding
32 This ground was formulated as follows: ‘Judicial Member erred at law by failing to find the information provided the applicants by [Mr McDonald], that the proceedings had good prospects of success, meant that the applicants had not commenced these proceedings vexatiously.’ This in our view is a reworking of the same objections as were raised on grounds 1, 2 and 3, and is rejected for the reasons given in relation to those grounds.

Procedural Fairness
33 The issue that has most concerned us at hearing was not referred to in the notice of appeal but was raised by Mr Ashhurst in his oral submissions. It related to the procedure that was followed by the Tribunal in determining the costs question.

34 In a situation (as here) where the conventional rule (costs follow the event) does not apply and there is an application for costs, it is common practice to invite the parties to make written submissions and to reserve a decision on the application. The presiding member followed that course.

35 The difficulty that has arisen on this occasion is that in those submissions the costs applicant, TUPL, referred to factual material (solicitor’s file notes) that was before the Tribunal at the time of hearing (in the general sense of material that had been produced in answer to a summons) but was not relevant to the issues then determined; and consequently had not been the subject of any substantive consideration, let alone evidence-in-chief or cross-examination.

36 In effect, new evidence was introduced by TUPL. The Tribunal made findings of fact in relation to that material without reconvening. A procedural fairness issue clearly arises.

37 The Tribunal’s consideration of a costs application would ordinarily be confined to such matters as the way the case had been conducted, and the arguability or otherwise of the claims that were unsuccessful. The Tribunal would not normally be invited to consider the private advice given to the unsuccessful party. It might, on the other hand, be asked to consider a hitherto undisclosed Calderbank letter.

38 As to the issue of the arguability of the claim, Mr Ashhurst for Alessa contended that the Tribunal had been wrong in giving any weight to the file notes made prior to 22 June 2001. He said this was because the arguable claim only arose as and from 22 June 2001. As to the one file note that post-dated 22 June 2001 he submitted that its meaning was inconclusive. TUPL disputed this analysis of the significance of the file notes both before and after 22 June 2001.

39 The new evidence placed before the Tribunal by TUPL in its submissions of 17 August 2001 was not addressed in any detail in Mr Ziade’s reply of 3 September 2001. Instead the reply seeks to introduce other new evidence that was seen to be of benefit to Alessa’s position, in that it explained why it had commenced and persisted with the proceedings.

40 The Tribunal proceeded to make its findings of fact in relation to the evidence on which TUPL relied (the file notes) on the basis that it was ‘uncontroverted’. It did not give Mr Ziade the opportunity to explain more fully what he meant by the file notes.

41 Had the Tribunal reconvened to consider the new evidence, it may be that an explanation would have been given that went to the significance of the distinction to be drawn between the pre- and post-22 June situation.

42 Nonetheless, after some reflection, we are not satisfied that the procedure adopted by the Tribunal amounted to a denial of procedural fairness to Alessa.

43 TUPL’s case as to costs was known to Alessa once it received the submissions on 17 August 2001. Mr Ziade could have sought leave from the Tribunal to give oral evidence. He did not. Nor in his reply of 3 September 2001 did he seek to challenge the interpretation given to the file notes by TUPL. He sought instead to diminish the significance of their contents by describing them as ‘off the cuff’. In these circumstances the Tribunal was entitled to conclude that the evidence was ‘uncontroverted’. Most significantly in our view, Mr Ziade did not put any submissions at that point to the effect that circumstances had changed fundamentally as from 22 June 2001 in relation to the arguability of bringing proceedings under the RLA.

44 Had the Tribunal been alerted to such an argument, then it would in our view have been incumbent on it to test the new evidence upon which TUPL relied before reaching any findings of fact in connection with the exercise of the costs discretion. Alessa was not denied a reasonable opportunity to put forward that argument.

45 Accordingly the procedure followed by the Tribunal was not unfair.

ORDERS

1. Appeal dismissed.

2. Appellant to pay the respondent’s costs of the appeal.