Annetts v Twin Loop Binding Pty Ltd

[2015] NSWSC 1605

Supreme Court

New South Wales

Medium Neutral Citation:	Annetts v Twin Loop Binding Pty Ltd [2015] NSWSC 1605
Hearing dates:	23 October 2015
Date of orders:	30 October 2015
Decision date:	30 October 2015
Jurisdiction:	Common Law
Before:	Fagan J
Decision:	(1) Leave is granted to the Plaintiffs to appeal from the decision of the Local Court with respect to costs of the statement of claim in that court. (2) The summons is otherwise dismissed. (3) The Plaintiffs are to pay the Defendant’s costs of the summons.
Catchwords:	CONTRACT – appeal from Local Court – construction and interpretation – whether Magistrate erred in construction of lease – scope of tenant’s obligation to make good – repair of premises – apportionment of costs payable   COSTS – whether Magistrate erred in determining costs – discretionary – application of 25% limit on costs awarded – Local Court of New South Wales Practice Note Civ 1 (2013), Pt G
Legislation Cited:	Local Court Act 2007 (NSW) Supreme Court Act 1970 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	House v The King [1936] HCA 40; (1936) 55 CLR 499 Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332
Texts Cited:	Local Court of New South Wales Practice Note Civ 1 (2013)
Category:	Principal judgment
Parties:	John Wayne Annetts (First Plaintiff) Irene Julie Annetts (Second Plaintiff) Twin Loop Binding Pty Ltd (Defendant)
Representation:	Counsel: MW Sneddon (Plaintiffs) VF Kerr (Defendant)   Solicitors: Fox & Staniland Lawyers (Plaintiffs) David Landa Stewart Lawyers (Defendant)
File Number(s):	2015/80712
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Local Court of New South Wales Jurisdiction: Civil Date of Decision: 17 February 2015 Before: Bradd LCM File Number(s): 2013/382414

Judgment

1. By summons filed 17 March 2015 the Plaintiffs appeal from a decision of Magistrate Bradd sitting in the Local Court at Sydney. The appeal concerns a cross-claim which the Plaintiffs litigated in the Local Court. They sought to recover from the Defendant, a former tenant, make-good costs incurred upon vacation of leased premises, in the total sum of $18,578.23. The Plaintiffs’ summons raises an issue of construction of the lease, for which their appeal lies to this Court as of right: s 39, Local Court Act 2007 (NSW). The Plaintiffs also seek to appeal a costs order made by the Magistrate, for which leave is required: s 39.

Facts

2. The subject property comprises a factory unit in Artarmon of 360m². Some partitioning was installed within the premises, in a configuration which was not made clear in the evidence before the Magistrate. An area was divided off from the main floor area, to serve as an office.

3. The lease was executed on 30 October 2010 by the Defendant as lessee and by the Plaintiffs’ predecessors in title as lessors. The term was three years from 1 July 2010 to 30 June 2013. The Plaintiffs completed their purchase of the property in about October 2010 and took title subject to the existing lease. There was no evidence before the Magistrate of any discussions or negotiations which may have taken place between the Defendant and the original landlord at the time of the lease being entered into. Nor was there evidence of any other circumstances surrounding the making of the lease. Ambiguities in the meaning of the lease terms must therefore be resolved without aid from the context of formation.

4. The Defendant held over after expiry of the lease until 7 October 2013. Upon vacating, the Defendant left in place the internal partitioning which has been referred to above. The evidence before the Magistrate did not disclose who had installed that partitioning. The Defendant did not repaint the premises at the time of vacating or at any time shortly beforehand and it has not caused or paid for painting to be carried out since October 2013.

5. Once the Plaintiffs had regained possession they caused the partitions and a suspended ceiling to be removed. They also had the walls patched and painted, the air conditioning unit remounted and repositioned (its steel mounting had rusted through) and ducting for the air conditioning repositioned. The air conditioning unit had a refrigerant leak which was repaired; the refrigerant was replenished. For the repair of the walls (where the partitions had been removed and perhaps in other locations) and for repainting the Plaintiffs paid $16,769.28. The invoices for these amounts were issued by Stallion Industries and by Tomson Trades, giving very brief descriptions of the work done. Air conditioning work was invoiced by J & K Mechanical and Electrical in the sum of $1,808.95.

Relevant terms of the lease

6. The lease incorporated the Law Society of NSW Standard Terms as Annexure B. The Standard Terms were varied and added to by twenty subclauses of variations set out on Annexure A. By one of the variations the following clause was added to the Standard Terms:

“CLAUSE 18 MAKE GOOD PROVISION

Notwithstanding any other provision in this Agreement, the parties agree that on termination of this lease and vacation of the premises by the Lessee, the Lessee shall only be required to clean the premises and shall not be required to remove or adjust the internal partitioning.” (Emphasis added).

7. The Defendant contends that this clause has the effect of negating and cancelling certain other obligations of the tenant, provided for in more specific terms in Annexure B, which would otherwise apply at termination. The Defendant argues that, by force of Clause 18, his only positive obligation at the end of the lease was “to clean the premises”. Before the Magistrate only $575 was claimed by the Plaintiffs for cleaning and on the appeal even this small amount was abandoned.

8. The Plaintiffs assert that specific obligations set out in Annexure B should not be regarded as having been overruled by Clause 18 and that the words “shall only be required to clean” should be read down.

9. As Clause 18 was introduced into the lease in conjunction with 19 other adjustments to the Standard Terms in Annexure B, the nature of the other 19 adjustments has a bearing upon what the parties must have intended by the inclusion of Clause 18.

10. Relevantly, the first of the specific amendments on Annexure A which needs to be considered is the insertion of Clause 6.3.4. The introductory words of Clause 6.3 are “The tenant must not”, followed by a list of prohibitions. By Annexure A the original wording of subclause 6.3.4 was displaced and the following inserted (here quoted to the extent relevant):

“6.3.4 install any water, gas or electrical fixtures… nor mark, paint or drill or in any way deface any walls, ceiling, partitions, floors, woodwork or other part of the property or make any other alterations or additions in or to the property or any part thereof without the prior written consent of the landlord.”

11. The second relevant amendment effected by Annexure A was the addition of subclause 7.3.4. The context of this addition is the immediately preceding clause, Clause 7.2 of Annexure B, which is as follows (so far as relevant):

“The tenant must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition but the tenant does not have to -

7.2.1 …

7.2.2 …

7.2.3 …repair fair wear and tear.”

12. The opening words of Clause 7.3 are “The tenant must also –”, followed by four subclauses of which 7.3.3 (part of the printed Standard Terms) and 7.3.4 (inserted by Schedule A) are relevant:

“7.3.3 decorate the inside of the property in the last 3 months of the lease period (however it ends) – ‘decorate’ here means restoring the surfaces of the property in a style and to a standard of finish originally used e.g. by repainting.

7.3.4 bear the whole of the cost of operation and maintenance of the air conditioning unit and will have it regularly serviced and maintained in proper operating condition. The tenant will arrange an agreement for the service of the unit (in the name of the landlord) and will pay all amounts payable under the agreement.”

13. Clause 12.4.4 provides:

“12.4.4 anything that the tenant must do by the end of the lease must be done by the end of the monthly tenancy.”

14. Clause 7.5 provides:

“7.5 If the tenant fails to do any work that the tenant must do the landlord can give the tenant a notice in writing stating what the tenant has failed to do. After the notice is given the tenant must -

7.5.1 do the work immediately if there is an emergency; and

7.5.2 do the work promptly and diligently in any other case.

If the tenant does not do the work, the landlord can do it and the tenant must reimburse the landlord for the cost of the work.”

15. The third relevant amendment introduced by Annexure A was one which shortened the wording of subclause 12.3.2 (adding the words “of the tenant” and deleting the words enclosed in square brackets in the quotation below). The amendments also added subclause 12.3.3. The amended Clause 12.3 reads as follows:

“12.3 When this lease ends, unless the tenant becomes a tenant of the property under a new lease the tenant must -

12.3.1 return the property to the landlord in the state and condition that this lease requires the tenant to keep it in; and

12.3.2 have removed any goods of the tenant [and anything that the tenant fixed to the property and have made good any damage caused by the removal];

12.3.3 leave anything that the tenant fixed to the property unless the landlord requires its removal then the tenant must remove and dispose of it and make good any damage caused by the disposal.”

Magistrate’s decision on the tenant’s obligations to make good

16. At [5], [6] and [7], the Magistrate set out most of the above clauses. Clause 18 was quoted at [7] and this was followed immediately by these conclusions:

“[8] As a consequence of Twin Loop Binding Pty Ltd terminating the lease on 7/10/2013 it is only required to clean the premises.

[9] Mr and Mrs Annetts claim for carpet removal and rubbish removal repainting and repairing. They also claim for cleaning but do not particularise the cost of cleaning.

[10] The claim for painting relates to a quotation dated 11/11/2013 which is after the termination date of the lease.

[11] The clause relating to decorating [ie, Clause 7.3.3] does not apply after the lease has been terminated, due to Clause 18.

[12] Mr and Mrs Annetts are not entitled to claim for carpet removal, rubbish removal, repainting, and repairing. Since the claim for cleaning is not particularised the amount claimed for cleaning is [not] known.”

17. On the basis of the above conclusions his Honour dismissed the cross claim and ordered that the cross claimants (the Plaintiffs) pay the costs of the cross defendant (the Defendant).

Grounds 1 to 6 – erroneous construction of Clause 18

18. I respectfully disagree with the learned Magistrate’s conclusions on the construction and application of Clause 18. The clause is only concerned with the obligations of the lessee “on termination of this lease and vacation of the premises by the lessee”. Clause 18 leaves intact the operation of other clauses which impose maintenance obligations upon the tenant, to be observed and performed during the term of the lease – in particular, obligations with respect to maintaining and reinstating painted surfaces of the premises and with respect to keeping the air conditioning in running order.

19. Clause 18 does not, on the ordinary and natural meaning of its words, cancel or repeal any of the specific provisions which require the tenant to undertake maintenance during the term and which hold the tenant liable to compensate the landlord for any failures to do so. No such effect can be attributed to Clause 18 by implication or by an expansive interpretation, given that the clause was introduced into the lease upon a schedule in which other modifications made at the same time are in the nature of additions to the tenant’s maintenance obligations during the lease term – for example, introduced Clauses 6.3.4 and 7.3.4.

20. Clause 18 has nothing to say about the tenant’s obligation under Clause 7.3.3 which stipulates work required to be undertaken by the tenant “in the last three months of the lease period (however it ends)”. Having regard to Clause 12.4.4, the work described in Clause 7.3.3 was, in events which occurred, required to be undertaken during the period 8 July to 7 October 2013. That is, before the date to which Clause 18 relates, being the date of “termination of this lease and vacation of the premises by the lessee”.

21. Clause 7.3.3 itself contains uncertainties, even upon the basis that it remains fully operational and is not cut down by Clause 18. It does not state expressly in as many words that the tenant is required to repaint the entire building within the three month period. The obligation of “restoring the surfaces of the property in a style and to a standard of finish originally used” could be achieved, if the paintwork was generally sound, merely by filling any holes or blemishes which may have been made to the surface and retouching the paintwork in those areas. The Plaintiffs contend that the clause required a complete repainting of the walls, even if the existing paintwork was sound. I reject that construction.

22. In support of their claim for repainting of the premises, the Plaintiffs also relied upon Clause 12.3.1, in combination with Clause 7.2. They argued that during the term of the lease the tenant was required to maintain the painted surfaces of the premises, subject only to allowance for fair wear and tear. It was submitted that Clause 12.3 therefore required that, upon termination of the lease, if the tenant had not up to that point maintained the painted surfaces to the requisite standard then it was required to bring them up to that standard by repainting (or to pay the landlord the cost of doing so).

23. I do not consider that Clause 18 cuts down the operation of Clauses 7.2 and 12.3.1. Clause 7.2 is concerned with maintenance of the premises during the term and it requires that the tenant “promptly do repairs needed to keep” the property “in its condition at the commencement date”, subject only to allowance for fair wear and tear. If during the term the tenant defaulted on this obligation and, for example, allowed the condition of painted surfaces to deteriorate beyond fair wear and tear, it would be in breach of Clause 7.2 should it fail to reinstate the painted surfaces “promptly”. This would give rise to a liability of the tenant to the landlord for the cost of making good. That liability would arise in respect of an obligation which accrued during the term of the lease, not “on termination of this lease and vacation of the premises by the lessee” and therefore not governed by Clause 18.

24. On the construction which I favour of Clause 7.3.3 on the one hand and Clause 7.2 in conjunction with Clause 12.3.1 on the other hand, the tenant’s obligations remained binding notwithstanding Clause 18. With respect to painted surfaces the tenant’s responsibility was the same whichever of these clauses should be invoked. Namely, an obligation to cover the cost of maintaining the paintwork surfaces by rectifying any damage or deterioration which might exceed fair wear and tear, reinstating the surfaces to their condition as at the commencement of the lease, including patching and retouching or repainting entirely – whichever would achieve the reinstatement with due allowance for fair wear and tear.

25. The Plaintiffs’ claim for air conditioning work invokes Clause 7.3.4. That claim was dismissed by the Magistrate on the basis that, like the claim for repainting, it exceeded the requirement under Clause 18 that the tenant should “clean the premises”. However in my opinion Clause 18, being concerned with the tenant’s obligations on termination, does not affect the operation of Clause 7.3.4. The requirement under that clause to “bear the whole cost of the operation and maintenance of the air conditioning unit” and to “have it regularly serviced and maintained in proper operating condition” was an ongoing obligation of the tenant during the term, not something that arose only upon termination and which could therefore be overridden by Clause 18. I consider that if there was a breach of Clause 7.3.4, albeit that this might be discovered only upon termination of the lease, the tenant would be liable in damages for the breach. The damages could be quantified as the cost of the landlord making good the tenant’s default with respect to maintaining the air conditioning unit in “proper operating condition”.

26. For the reasons given above I uphold Grounds 2(b), (c) and (d), 3, 4 and 5 of the Plaintiffs’ summons. In various ways those grounds assert that the learned Magistrate erred in his construction of Clause 18 and in failing to hold that other clauses of the lease operated to impose relevant obligations on the Defendant, notwithstanding Clause 18. I have concluded that the other clauses of specific obligation, being 7.2, 7.3.3, 7.3.4 and 12.3.1, rendered the Defendant liable for any cost of making good the painted surfaces of the building and of bringing the maintenance of the air conditioning equipment up to operating condition so far as such work should have been done prior to the termination of the lease.

27. Ground 1 of the summons asserts that the learned Magistrate failed to give adequate reasons for his construction of Clause 18. This ground need not be separately determined in circumstances where I have concluded that his Honour’s construction was erroneous.

Grounds 7 and 8 – failing to make findings about the state of repair of the premises

28. Given the way in which his Honour construed Clause 18, he did not find it necessary to examine the Plaintiffs’ evidence about what expenses they had incurred and for precisely what work. Pursuant to s 41(1)(c), Local Court Act it would be open to me, having come to a different view of the tenants’ obligations, to remit the matter to the Local Court for determination in accordance with these reasons. That would require the Magistrate to go over the Plaintiffs’ evidence and determine what part, if any, of the Plaintiffs’ expenditure was attributable to the cost of making good the Defendant’s failures to fulfil lease obligations.

29. However all of the evidence which was before the Magistrate on this subject is also before me. The appeal is by way of rehearing and I may therefore make any finding or assessment which ought to have been made in the Local Court: s 75A(5), (6) and (10), Supreme Court Act 1970 (NSW); Uniform Civil Procedure Rules 2005 (NSW), r 50.16(1), (2) and (6). I can review the evidence in order to determine whether it is sufficient to establish on the balance of probabilities that any particular sum (and if so what sum) has been established by the Plaintiffs as payable to them, in accordance with the tenants’ obligations properly construed.

30. As for the painting work, it is described in the Stallion Industries invoice as follows (with emphasis added):

“Prepare, repair, touch up and apply painting system in selected colours to selected existing internal services and touch up the remedial works where the existing partitions have been removed of the abovementioned project as per quotation number 2013-389 dated on 11 March 2013: 13,850.”

31. The quotation of the given number was not tendered. This global description of work includes remedial works made necessary by the removal of the partitions (the words in bold). Those remedial works are not the responsibility of the Defendant, because Clause 12.3.3 and Clause 18 of the lease. As the contractor’s description of the works does not provide a breakup of the total sum of $13,850 between that which is clearly not the tenant’s responsibility and that which is or might be, there is no basis upon which I could apportion this invoice amount so as to identify on the balance of probabilities an amount payable by the Defendant.

31. Even with respect to the first part of the Stallion Industries description of painting contract works, there was no evidence given before the Magistrate to establish that the preparation, repair, touching up and painting was required by reason of some deterioration in the painted surfaces which exceeded fair wear and tear, so as to fall to the tenant’s responsibility in accordance with Clauses 7.2, 7.3.3 and 7.5.

32. The evidence includes an affidavit of the First Plaintiff, Mr J.W. Annetts, which describes the requirement for these works in the following terms:

“[34] Shortly after the [Defendant] vacated the property my wife and I attended at the property for an inspection. …I then walked into the warehouse and saw loose cables hanging out of the conduit on the walls and noticed that some lights were not working. I also noticed that there were marks on some of the walls in the factory. … And I saw that there was a hole in the wall on the right hand side of the office. … I saw that the paint on the walls of the office and factory was faded and it appeared that the premises had not been painted since my wife and I purchased the property in 2010. We saw that the three phase power points at the property had been removed from the walls and that the wires were left hanging fully exposed where the power points had previously been located.

[42] After the [defendant] left the property my wife and I arranged for a company named Stallion Industries to attend at the property to carry out painting works. These works include painting of the internal surfaces and touching up the remedial works where the existing partitions were removed and painting of the floor with an epoxy system.”

34. Mr Annetts annexed to this affidavit the invoice from Stallion Industries which has been quoted from above. The Second Plaintiff, Mrs Julie Irene Annetts, deposed in identical terms in paragraphs 30 and 38 of her affidavit.

35. Mr Annetts produced copies of photographs of the state of the property at the time of his inspection. These show some drill holes in the walls where it appeared that wall plugs for screwing fittings (such as power points) to the wall had been at some time inserted and later removed.

36. Both Mr and Mrs Annetts were cross-examined. Neither their oral evidence nor any part of their affidavits shed any light upon when the fittings had been removed from the walls so as to leave the unfilled holes. In particular the evidence did not show whether those fittings had been on the walls at the time when the property was first leased to the Defendant. Nor did the evidence clarify whether the “marks on some of the walls in the factory” had been made during the term of the lease or how significant they were, what area they covered or what amount of paint or other treatment might be required to make them good. There was no evidence to elaborate the degree of fading of the paint colour, which it might be expected would be relatively slight over three years on internal walls. There was no evidence to establish the depth of colour at the commencement of lease. Thus the affidavits provided no evidence to support an apportionment of the Stallion Industries invoice into costs for which the Defendant was liable and cost for which it was not.

37. So far as the evidence in cross-examination was directed to this subject, it tended to suggest that the painting work was predominantly in the nature of making good the damage which had been done by the Plaintiffs’ removal of the internal partitions – an aspect of painting work for which the Defendant was not liable by force of Clauses 12.3.3 and 18. At T9 on 15 December 2015 Mrs Annetts gave this evidence:

“Q. That paintwork involved touching up the areas which had been damaged by the removal of the partitions?

A. Yes.

Q. It included painting that work?

A. Yes.

…

Q. The painting contract works are the works you’ve just described to me a moment ago which involve repairing the damage that was done to the internal parts of the building where the partitions were removed?

A. Yes.”

38. Mr Annetts was cross-examined very briefly as follows:

“Q. You’ve been present in court while your wife gave evidence in answer to my questions this morning?

A. Yes I was, yeah.

Q. Was there anything that your wife said about the work that you and your wife organised to be carried out after Twin Loop vacated the premises that you disagree with?

A. No, I think everything that she said was pretty correct.”

39. A second component of the painting work, in the amount of $2,919.28, was the sum of four invoices from Tomson Trades. The descriptions on those invoices are, with one exception, limited to the terms “hourly labour” and “materials”. This gives absolutely no guide to whether the work was referrable to the limited responsibilities of the tenant or to making good paintwork damaged by the removal of partitions or by other events which were not within the tenant’s responsibility. One of the Tomson invoices refers to “drop ceiling materials”. This appears to be partly explained by the terms of another invoice from Vic Osypenko (for which no claim is made) identifying the following work performed:

“Remove walls and partitioning in factory unit. … Remove suspending (sic) ceiling, air-conditioning ducting and old light fittings.”

40. This suggests a degree of modification of the interior of the premises which likely would have given rise to the need for some repainting. The repainting called for in that connection would not be to the tenant’s account under Clauses 7.2, 7.3.3, 7.5 and 12.3.1. Nothing in the affidavits or cross examination of the Plaintiff would permit any discrimination of the Tomson Trades invoices into amounts for which the Defendant was liable and amounts for which it was not.

41. With respect to the Plaintiff’s claim for air conditioning work, the invoice from J & K Mechanical and Electrical lists nine separate items of work done. It then provides a global number of hours worked and dollars charged without segregating the individual cost of the respective items. This creates a difficulty because only four of the ten items appear to be concerned with what might be regarded as maintenance aspects of the air conditioning system. Namely, those items which related to the identification of a refrigerant leak, the replenishment of the refrigerant and the pressure testing of the system. Other items of work are concerned with relocation of the “outdoor unit” and relocation of pipework cabling and ducting and removing old ducting. These latter items appear to be in the nature of modification to the system rather than maintenance.

42. The affidavits and cross examination of the Plaintiffs do not include any evidence which would enable findings to be made, on the balance of probabilities, as to which parts of this air conditioning work fell within the tenant’s obligations under Clause 7.3.4 and which parts did not. Nor would the evidence permit a finding on the balance of probabilities as to what portion of the air conditioning contractor’s total charges could be treated as within the tenant’s responsibility.

43. Applying the clauses of the lease in accordance with the construction which I have attributed to them in these reasons, I am unable to find on the balance of probabilities that any certain sum is payable by the Defendant to the Plaintiffs.

44. The Magistrate gave judgment for the Cross Defendant (the Defendant in the present proceedings). Because of the deficiency of evidence about the nature of the work commissioned by the Plaintiffs after termination and about the dissection of the cost thereof, the same result follows pursuant to the construction of the lease which I have found to be the correct one. Accordingly there is no occasion to vary the terms of his Honour’s judgment (under s 41(1)(a)) or to set it aside (under s 41(1)(b)). The appeal must be dismissed so far as it concerns the judgment on the Plaintiffs’ cross claim.

Grounds 9 and 10 – costs of the Defendant’s claim

45. The Local Court proceedings were initiated by the Defendant (the tenant) by filing a statement of claim for damages for breach of an agreement for lease. This pleaded that during late 2012 and early 2013 the parties had negotiated for a new lease to replace the existing one, to commence on 1 July 2013. The statement of claim alleged that the Plaintiffs (defendants in the Local Court) had repudiated this agreement for lease and thereby caused loss and damage to the Defendant because it had to find alternative premises and relocate its business. The amount of damages sought was $17,016.74.

46. This claim was abandoned by the Defendant on the day it was listed for hearing, 15 December 2014. By that date the Plaintiffs (defendants to the statement of claim in the Local Court) had prepared affidavits annexing extensive correspondence which had been exchanged in the course of the negotiations. Their affidavits identified those documents and included depositions as to the terms of oral conversations which were part of the process of negotiating the new lease.

47. On 17 February 2015 when the Magistrate was asked by the Plaintiffs to award in their favour costs of the statement of claim which had been abandoned, it was accepted on behalf of the Defendant that costs should follow the event. However it was submitted the amount of costs should be limited to 25% of the amount which had been claimed. That would equate to costs of $4,254. This submission was supported by reference to Local Court of New South Wales Practice Note Civ 1 Pt G. Relevantly the Practice Note provided as follows with respect to a claim in the General Division of the Local Court for less than $20,000 (such as the Defendant’s claim against the Plaintiffs):

“Unless the Court otherwise orders the following orders are taken to have been made when the defence is filed in the proceedings:

…

If the Defendant is successful and the claim is for an amount between $10,000 and $20,000, then the maximum costs that can be awarded to the Defendant is 25% of the amount claimed by the Plaintiff.

…

A party may file and serve a notice of motion and supporting affidavit seeking to vary the maximum costs order at any time up until two weeks prior to the first review date.”

48. The Practice Note continues with a detailed provision regarding the contents of the Notice of Motion and supporting affidavit and the prescribed manner of proceeding on such an application, to remove the cap on costs.

49. In this case the Plaintiffs (as defendants in the Local Court) had not made any application on Notice of Motion, prior to the first review date, to remove the cap on costs. When the Plaintiffs sought their costs of the abandoned statement of claim the Magistrate recognised that he had a discretion, notwithstanding the Practice Note, to allow more than the 25% cap. But he declined to exercise his discretion in the Plaintiffs’ favour. His reasons were as follows (transcript of 17 February 2015 at pp 3-4):

“Because the claim is less than $20,000 the practice note applies and that means that the Defendant in the matter should have if it wanted the Practice Note not to apply to seek a hearing in relation to it. The point of that is that the parties can have certainty as to the nature of the costs order that they might face and can then make decisions based on the order. So in the Statement of Claim because it was $17,000, Twin Loop Binding Pty Ltd knew that without the Defendants seeking that the Practice Note could not apply prior to the hearing if they lost they could expect to suffer costs of at (sic) 25% of that amount and it is not a fair procedure to (sic) after the hearing to seek to have the Practice Note varied and I do not intend to do that.”

50. This being a discretionary decision and the Magistrate having recognised it as such and determined the matter in full knowledge that he could depart from the effect of the Practice Note, the Court would only intervene upon a ground of the nature explained in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505. The learned Magistrate’s reasons do not identify any “extraneous or irrelevant matters” that he allowed to affect his decision. It was submitted on behalf of the Plaintiffs in this Court that he had failed to take into account that the Defendant’s claim on its Local Court statement of claim was “hopeless”. I do not see why the Magistrate was required to enquire into whether that was so or not or to take into account the result of his inquiry. Submissions made to the learned Magistrate, as recorded in the transcript immediately preceding his judgment, did not include any assertion that the claim was hopeless. Whether it was or was not really had no bearing upon whether the successful party should be held to the cap which was promulgated in a Practice Note of which every litigant in the civil jurisdiction of the Local Court should be aware.

51. The Plaintiffs in this Court also contended that his Honour should have taken into account that the statement of claim alleged misappropriation of funds. This had reference to the circumstance that a call had been made upon a lessee’s bank guarantee in support of the lease obligations. It is also said that the statement of claim raised complex issues. I do not see why either of these matters was required to be taken into account by the Magistrate in exercising his discretion. His failure to do so in my opinion did not vitiate the discretionary decision by error of law.

52. The last point which the Plaintiffs asserted the Magistrate should have taken into account but did not was that the statement of claim was abandoned very late. I do not accept that the Magistrate failed to take this into account. He was perfectly well aware of it. It was the sole reason why the question of a costs order against the Defendant and in favour of the Plaintiffs was being considered at all.

53. Nor can it be said that the learned Magistrate’s decision was “unreasonable or plainly unjust”. In the formulation of Hayne, Kiefel and Bell JJ in Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332 at [76], the learned Magistrate’s decision did not “lack an evident and intelligible justification”.

54. The Magistrate gave primary weight to the circumstance that the Plaintiffs had not sought to have the cap lifted in a timely fashion, as envisaged by the Practice Note, and thereby had allowed the Defendant to press on with its statement of claim in the legitimate expectation that its risk as to costs was limited to 25% of the sum at issue. No appellable error in the Magistrate’s exercise of discretion on that basis has been demonstrated.

Orders

55. For the above reasons the orders of the Court are:

1. Leave is granted to the Plaintiffs to appeal from the decision of the Local Court with respect to costs of the statement of claim in that court.

2. The summons is otherwise dismissed.

3. The Plaintiffs are to pay the Defendant’s costs of the summons.

**********

Decision last updated: 30 October 2015