Capsanis v Omoso Holdings Pty Ltd

[2007] NSWADTAP 75

Appeal Panel - Internal

CITATION:	Capsanis v Omoso Holdings Pty Ltd [2007] NSWADTAP 75
PARTIES:	APPLICANT Peter John Capsanis RESPONDENT Omoso Holdings Pty Ltd
FILE NUMBER:	079039
HEARING DATES:	12 September 2007
SUBMISSIONS CLOSED:	12 September 2007
DATE OF DECISION:	21 December 2007
BEFORE:	O'Connor K - DCJ (President); Rickards K - Judicial Member; Griffiths G - Non Judicial Member
CATCHWORDS:	Retail leases - Appeal by lessor - Calculation by Tribunal of amount due to lessor on termination - Waiver of part rent - No error - Non-inclusion of lessor's costs of preparation of lease - No error - No opportunity given by Tribunal to lessor to apply for costs of proceedings - procedural fairness - No error - appeal dismissed
MATTER FOR DECISION:	Principal matter
FILE NUMBER UNDER APPEAL:	065120
DATE OF DECISION UNDER APPEAL:	06/13/2007
LEGISLATION CITED:	Retail Leases Act 1994 Administrative Decisions Tribunal Act 1997 Legal Profession Act 2004
REPRESENTATION:	In person L Byrne of counsel
ORDERS:	Appeal dismissed.

REASONS FOR DECISION


1 This is an appeal against an order by the Retail Leases Division of the Tribunal made under s 72 of the Retail Leases Act 1994 (the Act). In response to proceedings brought by the former lessee, Omoso Holdings Pty Ltd (the respondent), the Tribunal ordered the former lessor, John Peter Capsanis (the appellant), to pay to the respondent $2,580.58 by way of damages. There was no order as to costs.
2 On termination of a lease, the respondent had paid no rent, and had not paid an amount for the lessor’s legal costs which was the subject of an obligation under the lease. The appellant drew down the security bond, and applied it to these alleged defaults. In the proceedings before the Tribunal the respondent contested this action, its primary assertion being that there was no default as the lease had been vitiated. Accordingly, the respondent sought orders for the return of the money withheld and for its costs in taking action.
3 The Tribunal found that there was an enforceable lease. However, responding to a plea in the alternative, the Tribunal found that the appellant had waived rent for a two month period. It also found that the appellant had not pressed the claim for legal costs. Its order is for the amount equal to the rent due in the period of waiver.
4 The appellant, a practising solicitor, has listed eight points of appeal under the heading ‘errors of law’ in the notice of appeal, and there is an application for leave to be granted under s 113(2)(b) of the Administrative Decisions Tribunal Act 1997 (ADT Act) to extend to the merits, with six points in support.
Background


5 The premises the subject of the lease is the ground and first floor of a terrace house at 178 Liverpool Street, Darlinghurst. At some stage in its history the ground floor was converted into shop-style premises. It has an old style shop front appearance. There are full length windows framed in timber angled to meet a central doorway entrance. The first floor has an enclosed balcony and a residential lay-out. Apart from the shop entrance, there is also a side entrance that accessed the shop and the upstairs area.
6 The appellant has owned the property as to a half share since 1985, and acquired full ownership around 2004. According to the appellant, the premises had been used in the recent past as a shop and natural therapies centre upstairs and downstairs, though the upstairs was residential in lay-out. He had used the shop for his legal practice, and when the residential part did not have a tenant he had also used it in that way.
7 The respondent company is a family company. Its sole director is Mr Pappadimitriou (Mr P). In June 2004 Mr P was looking for a property in the inner city where his daughter could carry on business as a beautician. The estate agent, Commercial City Property, Potts Point, had advertised the property. One of the respondent’s claims is that the respondent was induced to enter into lease a false or misleading representation. The content of the representation was an issue. The Tribunal found that the property had been described as a ‘commercial property’ or a ‘commercial terrace’.
8 The appellant agreed to lease the premises, and there is a memorandum containing the heads of agreement. It states: ‘The lease is to commence on signing of the lease subject to council approval’. It also has a clause: ‘Legal costs: Paid for by the lessee, capped at $750 plus stamp duty, registration fees & reasonable disbursements’. A deposit of one month’s rent was given to the agent, and a bank guarantee was also given covering 3 months’ rent, $7,075.58. (The respondent recovered the one month’s rent from the agent after the lease broke down, but that occurred, the appellant says, without his authority.)
9 The appellant’s evidence is that in the period July to September 2004 he raised with Mr P the importance of getting Council approval to the proposed use before entering into the lease. In a letter dated 14 September 2004 the respondent’s solicitor asked for the lease to be made conditional upon Council’s consent issuing within 6-8 weeks. There was no written reply from the appellant. At about the same time the respondent was in the process of finalising an application to the Council. Mr P’s other daughter, an architect (Stacey P), prepared plans which showed the way the ground floor and the first storey of the building was to be used for the beauty salon and naturopathy business. The application sought a ‘Change of use to new beauty salon/day spa. No external works. New internal plasterboard partitioning.’ As to the existing use of the site it said: ‘Ground floor retail, first floor residential’.
10 The application had yet to be submitted, when the parties proceeded on 8 October 2004 to execute a formal Lease for premises described as ‘shop and unit 1’ at 178 Liverpool Street. The permitted use under the Lease was ‘beauty salon and/or naturopathy centre’. The term was five years with an option to renew for five years. The rent was fixed, initially, at $33,580, made up of equal monthly instalments of $1,408.33 for the first six months, followed by equal monthly instalments of $2,816.66 for the remaining six months. In line with the earlier agreement, the security deposit was fixed at the equivalent of three months’ rent (cl 21.8).
11 As to planning consent, the Lease provided:

‘Part 23 – Lease Conditional on Planning Consent


23.1 The parties agree that this lease is subject to and conditional upon the lessee obtaining planning approval in accordance with the Development Application lodged with the City of Sydney (‘planning consent’).


23.2 Where planning consent is not granted, the lessee shall be at liberty to terminate the lease by giving the lessor one (1) months’ [sic] notice in writing to this effect.


23.3 During the period from the commencement of this lease to the date of expiry of the lessee’s notice in accordance with clause 23.2, the lessee shall be obliged to pay the agreed monthly rental.’



12 As to legal costs, the Lease provided relevantly:
‘13.7 The Lessee shall pay the Lessor’s legal costs … of and incidental to the preparation, completion, stamping and registration of the Lease … .’


13 The appellant met the respondent on 9 October 2004 and gave him a set of keys. Mr P and his daughters and others attended the premises. Among other things, they made measurements, assessed what work might need to be done, and took photographs. The planning application was lodged on 11 October 2004. The Council wrote to the respondent on 19 October 2004 informing it that the development application proposed a change in the use of the whole building to a non-residential use, and referring to the area’s Zone 2(b), residential (medium density) status.
14 The Council said that the proposal failed to meet the objectives of the residential zone. The Council advised the respondent to withdraw the application, and to consider making a revised submission. The letter advised that if it was not withdrawn the planning application would be determined in its current form. Mr P returned the keys to the agent on 19 October 2004. In evidence is an assessment prepared by council officers. It explains the history of the building. Briefly, in 1970 approval had been given for the use of the ground floor as a clothing showroom and associated office, maintaining the first floor as residential. The note states that the building continued to have an existing commercial use at ground floor level. It noted that the upper floor had a history of residential use, and a previous application to convert its use to commercial had been refused.
15 The appellant said that he sought to advise and assist Mr P to put on an application which would meet council’s concerns, and undertook some research into the history of uses at the site.
16 The respondent’s solicitor wrote to the appellant, following a conversation with the appellant, on 27 October 2004. The letter referred to the Council reply, and stated:
‘I further note that you are prepared to allow a rent-free period of four weeks whilst our client’s proposed usage of the premises is clarified with the council. Given that the lease commenced on 9 October, the period of four weeks has only another 12 days to elapse and it is unlikely that the submissions proposed to be brought to the council and council’s response to those submissions will be received in the remaining time.


My client is therefore not happy to agree to a rent-free period of four weeks. It insists that rent should commence on the day Council gives its approval to the DA, failing this the lease should be terminated by mutual agreement without penalty to my client.


My client received advice from you and your agent that the zoning for this particular business would allow his daughter to operate a beauty salon/naturopathy business. This representation was incorrect and may have been negligently given as this advice induced my client into entering into a lease prior to receiving formal DA approval from the council. My client was advised that the whole of the premises could be used for commercial purposes. Instead, it appears the zone does not permit such a use.’



17 In evidence the appellant denied that he had granted a four week rent free period. On the same day, 27 October 2004, the appellant wrote an angrily expressed and rather long letter to the Council protesting over its assessment. Among other things, he said the content of the Council’s letter was incompetent in terms of explaining the effect of Zone 2(b), and what could be allowed of a commercial character consistently with such a zoning.
18 The respondent’s solicitors wrote to the appellant again on 8 November 2004 noting that the appellant had not responded to its letter of 27 October. The 8 November letter also said: ‘I note you agreed not to apply the advance payment [the one month’s rent paid to the agent] towards rent for October.’
19 There was a further letter from the respondent’s solicitor to the appellant dated 16 November 2004 said to follow on from a telephone conversation with the appellant. It referred to discussions between Stacey P and the appellant, and said that Stacey P was waiting on the appellant to provide historical information. The last sentence of the letter said:
‘In the meantime, I note you have agreed that my client will not be under any obligation to pay rent until midnight 8 December 2004.’


20 In a note to his agent dated 6 December 2004 the appellant expressed frustration over the failure of the respondent to lodge a revised application of a kind which directly addressed Council concerns.
21 A determination issued on 21 January 2005 refusing the proposed development. The respondent’s solicitor wrote on 7 February indicating that his client no longer wished to proceed with the lease, and noted that in December the respondent had requested the return of the one month’s advance rent and the bank guarantee. It noted that the agent had returned the cheque for the one month’s rent. There was no written response to any of these communications from the appellant.
22 On 17 May 2005 the appellant sent a hand-written document expressed as ‘Without Prejudice’ and bearing a heading ‘Tax Invoice’ claiming rent for the period 8 October to 21 February.
23 On 23 May 2005 the appellant drew down the whole of the bank guarantee, $7,075.58 on the basis that the respondent owed him $6,267.85 representing half the annual rent of $33,800 for the period of 135 days between 9 October 2004 and 21 February 2005; plus $750 for legal costs. The organisation, the Lease Police, responded on behalf of the respondent denying this claim.
Tribunal Proceedings


24 With the assistance of the Lease Police, the respondent initiated proceedings in the Tribunal claiming recovery of the security deposit plus ‘legal costs and administration fees caused by the unreasonableness of the lessor’, total $12,500. As finally formulated (see Tribunal reasons [49]), the orders sought were a refund of the security bond, $2,200 for counsel’s fees, and $1,980 for the fees of the tenancy advocacy service. The respondent was represented at hearing by Mr Byrne of counsel, and the appellant appeared for himself. They also appeared at the appeal hearing.
25 The hearing took one day. The parties did not have time to make closing oral submissions. The Tribunal allowed time for the making of written submissions. The respondent, as applicant, filed 11 pages of submissions. The appellant filed 13 pages of submissions in reply, and the applicant a page in further reply.
26 In its reasons the Tribunal rejected the respondent’s submission that no binding lease had been entered into and its alternative submission that the lease had been validly rescinded ab initio because of the failure to obtain planning consent.
27 The Tribunal summarised at [65] its reasons for finding that a binding lease came into existence at para [61]. The argument that the agreement was rendered void ab initio was based on an alleged misrepresentation inducing entry into the lease (i.e. the way the premises were advertised). The Tribunal found that the term ‘commercial premises’ or ‘commercial terrace’ had been used, not ‘retail premises’. It held that this was a material misrepresentation at the time that it was made around June 2004, given the premises zoning as Zone 2(b) – residential (medium density). However, because of what occurred in the dealings between the parties subsequently, it was not satisfied that the representation was an operative one at the time the respondent entered into the lease.
28 As to the rent, the Tribunal accepted the respondent’s argument, based primarily on the solicitor’s letter dated 16 November 2004, that the appellant had agreed to waive that rent. The Tribunal found that there had been a waiver of rent until 8 December 2004.
29 It will be recalled that the appellant in his own communications to the respondent had treated the last day of the period as 21 February 2005. At hearing the case was put, and accepted by the Tribunal, that in terms of cl 23, the expiry date was a month after the notice, therefore 7 March 2005. The result was that the Tribunal allowed the appellant three months rent at the rate applicable to the first six months of the lease, $1,408.33, for a total of $4,425.
30 This was $2,850.58 less than he had drawn down, leading to an order in favour of the respondent for that amount. As to the amount claimed for legal costs, as previously noted, the Tribunal concluded that this claim had not been pressed, and accordingly did not allow for it.
The Appeal


31 The appellant contested the Tribunal’s findings as to waiver, its exclusion from its final calculations of the legal costs amount, and the Tribunal’s failure to make an order for costs in his favour. There is no cross appeal.
Waiver


32 The primary evidence as to waiver is the last sentence of the respondent’s solicitor’s letter dated 16 November 2004.
33 The appellant objects to the contents of this letter being relied upon by the Tribunal as Ms Pappas, the solicitor, did not give any evidence. The appellant goes one step further with this argument, and submits that because Ms Pappas did not give evidence, an inference can be drawn that her evidence would not have assisted the respondent.
34 In our view Ms Pappas’ letter was plain and simple in its terms. It dealt with a matter (rent reduction) which we think is highly likely to have arisen in the circumstances of this case. It was written at a point when there was real doubt as to whether a Council approval would be forthcoming.
35 At hearing under cross-examination, the appellant acknowledged that there had been discussions of rent relief, but claimed that the discussion was subject to the qualification that the lessee effectively prosecute the development application. In the appellant’s opinion that had not occurred, and accordingly no relief had been granted. The cross-examination of the appellant on this point is to be found at pp 57-58 and 64-65 of the transcript. The appellant’s answers were less than clear. He gave a vague and confusing account of what he said was his understanding with Ms Pappas. Moreover, we note that the appellant, an experienced solicitor who on this occasion was acting for himself, could have taken the opportunity at the time of the discussions to place a letter on record rejecting the last sentence of the letter of 16 November 2004. He did not do so.
36 We are satisfied from a review of the transcript of the Tribunal proceedings, in particular the appellant’s replies to questions put to him by Mr Byrne, that it was open to the Tribunal to find that the appellant had granted relief from rent.
37 This is not the kind of case where it would be fair to draw the inference suggested by the appellant. It was a small case, in terms of the amount at stake, and the principals did give evidence. Relevant documentation including solicitors’ correspondence was filed. The Tribunal proceeded on the best evidence available. The Tribunal is intended to be an forum for resolution of disputes that proceeds in a practical and expeditious way. See generally s 73 of the ADT Act and the objects clause, s 3.
38 As he had in his submissions to the Tribunal, the appellant argued that there was no consideration for any purported waiver, and therefore it was not binding on him. Clearly where a contracting party agrees to a reduction in the agreed price it might be said that that party receives no consideration if consideration is measured in money terms. Were the appellant’s view to prevail then many seriously-made commercial bargains of this kind would not be binding.
39 This case is not the place for a detailed discussion of the law surrounding variation to contracts of the kind that has arisen in this case. It is enough to meet the appellant’s argument to cite the standard text, Carter and Harland, Contract Law in Australia (2002):

‘[392] The concept of ‘waiver’ of a right is broad enough to embrace not only the giving up of one right in favour of another but also conduct which makes it unfair, inequitable or unconscionable for the promisee to insist on the right.’


40 Temporary rent deductions are not an unusual feature of commercial lease arrangements. Lessors will often have a commercial interest in retaining tenants for the long term, and it may well be prudent to give rent relief rather than lose a tenant.
41 The present instance may be seen as an example of waiver by estoppel, i.e. ‘a temporary suspension of contractual rights’ (Carter and Harland [393]). Estoppel is ‘independent of consideration’ (ibid).
42 In our view the critical question is whether there was reliance. The Tribunal was satisfied in that regard; and we see no reason to disturb that finding.

Exclusion from the Calculation of the Lessor’s Legal Costs


43 The next matter of concern was the Tribunal’s decision not to take into account $750 allowed under the terms of the lease in respect of the lessor’s legal costs. The Tribunal said:

‘81 Although in his tax invoice Mr Capsanis also claimed entitlement to $750 on account of legal costs associated with the lease, he did not press this claim before the Tribunal. It will therefore be left out of account.’


44 As previously noted, the Tribunal in its decision disallowed the period 9 October 2004 to 8 December 2005, but then extended the period of rent default to 8 March 2005, as against the appellant’s original calculation treating 21 February 2005 as the final date. The result, therefore was that the appellant got by way of rent an extra 15 days’ worth, i.e. approximately an extra $695. He obtained a windfall of a sort as against his original deduction.
45 We have examined the transcript and the closing written submissions. The appellant came to meet the respondent’s application. The appellant did not at any stage expressly say that he was not pressing his right to make this deduction against the bond. The Tribunal, it would seem, has assumed from the silence that surrounded this aspect of the matter at hearing that the point was not being pressed.
46 The respondent argued in its submissions on appeal that the Tribunal’s order should not be adjusted on the basis that there was no bill provided by the appellant in usual and required form. Had the Tribunal turned its mind to the issue of the recoverability of the legal costs, it would, in our view, have had to conclude that they were not, as yet, recoverable. There is no evidence of any bill being created. See further, Legal Profession Act 2004 , esp. ss 331, 332. Had the Tribunal allowed this item, it would, in effect, have allowed recovery other than in accordance with the requirements of that Act.
47 The Tribunal’s order should not be amended.
Costs of the Proceedings before the Tribunal


48 The Tribunal said:

‘83 Both of the two grounds in Omoso’s application for costs were predicated upon it being held by the Tribunal that Mr Capsanis had no contractual or other right to draw down upon the bank guarantee. The Tribunal has however held otherwise. Moreover it is open to question whether, even if Omoso had succeeded wholly in its claim, its arguments on costs would have been sufficient to persuade the Tribunal that there were ‘special circumstances warranting an award of costs’ (see s. 77A of the Act and s. 88 of the Administrative Decisions Tribunal Act 1997 ). The Tribunal accordingly rejects both grounds.


84 Although in the manner just outlined Omoso raised the issue of costs, Mr Capsanis made no application for costs in the event of his being wholly or partly successful.


85 For the foregoing reasons, and because the amount at stake in this case was small (so small, indeed, that it is particularly regrettable that the parties did not manage to settle their dispute), the Tribunal makes no order as to costs.’



49 The appellant objects to not being given the opportunity to raise the question of his costs of the proceedings. He accepts that he made no application in the course of the proceedings, but submits that as a partially successful respondent party to proceedings he should have been given the opportunity to raise costs by way of supplementary submissions once the result was known. His complaint was that he was denied procedural fairness by not being given such an opportunity.
50 In the normal course any relevant application should be agitated in the main body of the proceedings. For the Tribunal to dispose finally of all matters in issue in its final decision, and to assume from the absence of a foreshadowed costs application in the course of the proceedings, that there is no subject of this kind to address does not, in our view, give rise to a procedural fairness issue.
51 In any event, if we had come to the opposite conclusion and were of the view such an opportunity should have been furnished, we would have given leave for the appellant’s appeal to be extended to the merits on this point, and dismissed it.
52 In our view, the underlying application brought by the respondent was well justified. A lease had fallen over when the respondent could not get a development approval. Often leases made subject to development approval do not carry any of the risks as to rent and other costs that are found in this lease. The appellant procured a good bargain in the circumstances.
53 The submissions made by the appellant smack of a ‘costs follow the event’ approach to the question of costs in proceedings in the Retail Leases Division, and pay no attention to the substantial body of case-law that has now developed in the Tribunal around how the ‘special circumstances’ discretion might be exercised. This is not a case where special circumstances arose sufficient to justify overriding the usual rule in retail leases proceedings that each side bear its own costs.
Order

Appeal dismissed.


I HEREBY CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF THE ADMINISTRATIVE DECISIONS TRIBUNAL.


REGISTRAR/ASSOCIATE