De Luca v Scuccimarra (No 2)

[2007] NSWADT 245

CITATION:	De Luca & Anor v Scuccimarra & Anor (No 2) [2007] NSWADT 245
DIVISION:	Retail Leases Division
PARTIES:	APPLICANTS Luigi De Luca Gavina De Luca RESPONDENTS Francesco Scuccimarra Rosa Scuccimarra
FILE NUMBER:	055162
HEARING DATES:	On the papers
SUBMISSIONS CLOSED:	25 September 2007
DATE OF DECISION:	10 October 2007
BEFORE:	Chesterman M - ADCJ (Deputy President); Fairweather R - (Advisory) Non Judicial Member ; Tyler T - (Advisory) Non Judicial Member
CATCHWORDS:	Claim for compensation for pre lease misrepresentations - Claim for declaration of rights, obligations and liabilities under a lease - Claim for the doing of work or provision of services - Damages - Interest - Unconscionability
MATTER FOR DECISION:	Costs
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Real Property Act 1900 Retail Leases Act 1994
CASES CITED:	Calderbank v Calderbank [1975] 3 All ER 333 Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 G & M Dawson Pty Ltd v Cripps & Ors [2004] NSWADTAP 38 G & M Dawson Pty Ltd v Cripps & Ors (No 2)(RLD) [2005] NSWADTAP 3 De Luca & Anor v Scuccimarra & Anor [2007] NSWADT 63 Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43
REPRESENTATION:	APPLICANTS J Restuccia, solicitor RESPONDENTS No appearance
ORDERS:	The Respondents are to pay the Applicants’ costs of and incidental to these proceedings, as agreed or assessed on a party-party basis.

Introduction

1 This judgment relates to the costs of proceedings previously determined in the Retail Leases Division of the Tribunal.

2 In these proceedings, the Applicant Lessees, Mr Luigi De Luca and Ms Gavina De Luca, raised a number of claims against the Respondent Lessors, Mr Francesco Scuccimarra and Ms Rosa Scuccimarra, arising out of the letting of retail premises (‘the premises’) at Suites B and C, 106 Norton Street, Leichhardt.

3 The parties agreed that the Retail Leases Act 1994 (‘the RL Act’) was applicable to each of three leases that the Respondents granted to the Applicants at different times.

4 The grounds put forward by the Applicants included an allegation of unconscionable conduct by the Respondents falling within s 62B of the RL Act. In a filed document headed Points of Defence, the Respondents alleged unconscionable conduct on the part of the Applicants. The Tribunal is accordingly constituted in these proceedings in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’). It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.

5 In a decision delivered on 22 March 2007 (De Luca & Anor v Scuccimarra & Anor [2007] NSWADT 63 – hereafter ‘the principal decision’), the Tribunal held that the Applicants were entitled to recover compensation from the Respondents for the loss, suffered in May 2005, of an opportunity to sell the business carried on at the premises to a prospective purchaser. The ground on which the Respondents were held liable to pay this compensation was that they had refused, in breach of s. 81(3) of the RL Act, to comply with a request by the Applicants to execute a retail shop lease in registrable form, so as to enable registration of the third of the three leases that the Respondents had granted to them (hereafter ‘the Lease’). This caused the prospective purchaser, to whom an assignment of the Lease had been contemplated, to withdraw from the transaction. The Lease, it should be added, had a commencement date of 31 December 2004.

6 In consequence of so deciding, the Tribunal ordered that the Respondents were jointly and severally liable to the Applicants in the amount of $60,645.17, comprising a principal sum of $52,146.50 and interest totalling $8,499.17.

7 In view of these rulings, the Tribunal concluded that it did not need to determine the claim by the Applicants that the continued refusal by the Respondents to execute registrable forms of lease constituted unconscionable conduct within s. 62B of the RL Act.

8 The Tribunal’s orders in the principal decision also included a declaration sought by the Applicants. This was to the effect that under the Lease, the monthly rent of $4,333.33 required to be paid by the Applicants to the Respondents was inclusive of Goods and Services Tax payable at the rate of 10%.

9 In addition, the Tribunal, having found that the Respondents had agreed to carry out certain repairs to the floor of the premises but had carried out these repairs unsatisfactorily, ordered that the relevant repairs be effected by one or more appropriately qualified tradespeople within a specified period.

10 The Tribunal decided, however, that two other claims made by the Applicants should be rejected. These were (a) a claim for damages for loss of profits sustained when they closed their business for two days in order to permit the Respondents to carry out these repairs and (b) a claim that the Respondents should reimburse them for expenses incurred when they refurbished the bathroom of the premises following a failure by the Respondents to adhere to a promise to perform this task. The principal reason for rejecting these two claims was that the Applicants did not adduce satisfactory evidence of the economic loss allegedly suffered by them.

11 It should be added that shortly before the hearing commenced on 6 November 2006, the Respondents agreed that the Lease should take the form of a registrable lease, commencing on 31 December 2004 and having a term of five years. In consequence, the Applicants abandoned their claim for other forms of relief that they had initially sought from the Tribunal.

12 A further order made by the Tribunal in the principal decision (Order 5) was in the following terms:-

Any application for the costs of these proceedings must be filed and served, with supporting submissions, within 28 days of the date of this decision. The opposing party must file and serve submissions in reply within a further 28 days. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved ‘on the papers’.

13 On 18 April 2007, the Applicants’ solicitors, Pelosi & Associates, filed an application, with supporting submissions, for an order for costs in their favour. On the same day, they served a copy of these documents on Ronald S Czinner & Co, who had acted for the Respondents in the proceedings.

14 No submissions in reply were forthcoming during the stipulated period of 28 days. Following an inquiry from Pelosi & Associates on 9 July 2007 as to how the matter was progressing, the Registry obtained advice to the effect that Mr Dixon, of Hassett Dixon Solicitors, was at this stage acting for the Respondents. The Registry faxed a copy of the Applicants’ application and submissions on costs to Mr Dixon and notified him that any submissions by the Respondents on the matter of costs must be filed and served by 7 August 2007.

15 In a subsequent conversation with the Registry, however, Mr Dixon advised that he had not received instructions from the Respondents to act for them in relation to the costs of these proceedings. Accordingly, on 17 September 2007, the Registry sent a copy of the Applicants’ application and submissions on costs to the First Respondent at his home address. The accompanying letter stated that any response to this application must be filed and served by 25 September 2007 and that after that date the Tribunal would determine the application ‘on the papers’.

16 The Respondents did not reply to this letter within the time stipulated or, indeed, within a further period of nine days. Accordingly, the Tribunal has proceeded to determine the issue of costs without the benefit of submissions from them.

17 These are the circumstances which, regrettably, have delayed the Tribunal’s decision on costs for a significant period of time.

Relevant principles regarding costs

18 If costs are to be awarded, the requirement of ‘special circumstances warranting an award of costs’ set out in s. 88(1) of the ADT Act must be satisfied. Section 77A of the RL Act makes this provision applicable in retail lease proceedings conducted in the Tribunal.

19 According to the case-law on s. 88(1) in its application to proceedings under the RL Act (see eg Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164, Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 and Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43), the following general principles govern awards of costs. ‘Special circumstances’ are ‘circumstances that are out of the ordinary, but without having to be extraordinary or exceptional’. It is not enough that the circumstances are ‘special’: they must also ‘warrant’ an order for costs. On account of the ‘commerciality’ of the Retail Leases Division, the interpretation of ‘special circumstances’ differs significantly from the interpretation that might be adopted in any other Division of the Tribunal. A finding of ‘serious unfairness’ or ‘grossly unreasonable conduct’ on the part of the party resisting an order for costs is not a prerequisite to determining that there are ‘special circumstances’. But it is a highly relevant consideration.

20 The various types of situation that have been held to constitute ‘special circumstances’ in retail lease proceedings include one of particular relevance in this case. This is where (a) the successful party in the proceedings has made an offer of compromise of the dispute before the conclusion of the proceedings; (b) the unsuccessful party has unreasonably rejected the offer; and (c) the terms of the offer were more favourable to the unsuccessful party than the orders made by the Tribunal. The Tribunal has held this situation to constitute ‘special circumstances warranting an award of costs’ by way of analogy with costs rules in the Supreme and District Courts and the principles laid down in Calderbank v Calderbank [1975] 3 All ER 333.

The first ground advanced: ‘grossly unreasonable’ conduct that was ‘out of the ordinary’

21 The written submissions filed by Pelosi & Associates, solicitors for the Applicants, were accompanied by a letter signed on behalf of this firm by Mr Restuccia. The Tribunal infers that Mr Restuccia prepared the submissions.

22 The first ground put forward was that the Respondents’ refusal to execute a lease of the premises in registrable form amounted to conduct that was both ‘grossly unreasonable’ and ‘out of the ordinary’, with the consequence that there were indeed ‘special circumstances warranting an award of costs’ within the meaning of s. 88(1) of the ADT Act.

23 Mr Restuccia based this argument on both the facts and decision on costs in a Court of Appeal case, Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81. In the principal decision in the present proceedings, at [77 – 78], the Tribunal gave the following outline of the substantive issues involved in this case:-

77… Here the owners of land who had bought it from a mortgagee exercising its power of sale failed, in breach of contractual obligations, to register a lease that the mortgagee had granted by way of renewal to a pre-existing lessee. The owners also refused, in breach of s. 39 of the RL Act, to give consent to an assignment of the lease that the lessee wished to make to a purchaser of its business. In consequence, the purchaser rescinded the contract of sale. The sale price exceeded by a significant sum ($102,000) the amount for which the lessee was able to sell the business about ten months later (a mere $28,000). The reason for the sale price being substantially lower after a relatively short period of time was that the market value of the equipment included in the sale fell very sharply during this period.

78. Upholding a decision of an Appeal Panel of this Tribunal (G & M Dawson Pty Ltd v Cripps & Ors [2004] NSWADTAP 38), the Court of Appeal held that the lessee was entitled to recover from the owners an award of damages that included this amount of $102,000….

24 According to Mr Restuccia, there were close parallels between the behaviour of the unsuccessful party in Cripps v G & M Dawson Pty Ltd and the Respondents’ behaviour in this case. In both cases, there was an unreasonable refusal by the owner of retail shop premises to take the steps required to enable the lessee to register the lease, with the consequence that the lessee was deprived of an opportunity to effect a sale of the business carried on the premises, coupled with an assignment of the lease to the purchaser.

25 The Appeal Panel, in a subsequent decision on costs (G & M Dawson Pty Ltd v Cripps & Ors (No 2)(RLD) [2005] NSWADTAP 3), held that this conduct by the owners of the land did not constitute ‘special circumstances warranting an award of costs’. But the Court of Appeal overruled this decision.

26 In a passage to which Mr Restuccia referred in his submissions (Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 at [58]), Santow JA (with whom Mason P and Brownie A-JA expressed their agreement) pointed out that ‘the commencement of the proceedings was prompted by the need to ensure that the lessor recognised both the existence of the lease and the obligation to consent to its assignment’. Mr Restuccia argued that in the present case the Applicants had similarly been forced to institute the proceedings in order to ensure that the Respondent lessors recognised both the five-year duration of the Lease and the obligation to execute it in registrable form.

27 Mr Restuccia placed particular reliance on the following passage in Santow JA’s judgment (at [60]):-

In my view it suffices that the conduct of Cripps and Jones, in relying upon their status as the registered proprietors of the freehold and the doctrine of indefeasibility of title to wrongly deny registration and consequently assignment of the lease, so acted as by their conduct to give rise to special circumstances; that is, circumstances that were clearly out of the ordinary and grossly unreasonable so far as the respondent tenant was concerned. On the one hand, the Tribunal correctly concluded that the respondent, through no fault of its own, has been placed in the situation where it has been forced to pursue this litigation. Yet it still failed to find special circumstances. With respect, I consider that the Tribunal was in error in failing to conclude that special circumstances here applied. For this purpose, it suffices that the circumstances are out of the ordinary. They do not have to be extraordinary or exceptional. While a finding of “ serious unfairness ” is not prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.

28 Amongst the further matters to which Mr Restuccia drew the Tribunal’s attention was its finding in the principal judgment in this case (see [24] and [52]) that the First Respondent, when asked to sign a draft lease which was in registrable form, replied to the following effect:-

You don’t need a lease prepared by your solicitor. I will do the right thing by you. You can trust me. You will be treated like family.

29 In the Tribunal’s opinion, these aspects of the Respondents’ conduct, resembling as they do the features of the owners’ conduct in Cripps v G & M Dawson Pty Ltd on which the Court of Appeal based its ruling on costs, do indeed provide grounds for a finding of ‘special circumstances warranting an award of costs’.

30 This conclusion is justified by the following considerations. In direct defiance of their obligations under s. 81 of the RL Act, the Respondents refused to grant the Lease in registrable form, thereby depriving the Applicants of a valuable opportunity to sell their business and assign the Lease. Moreover, the Respondents did not abide by the First Respondent’s assurance to the Applicants that they did not need a registrable lease because he would ‘do the right thing’ by them and that they would be ‘treated like family’. This conduct on the Respondents’ part was both ‘out of the ordinary’ and ‘grossly unreasonable’. In the face of such conduct, the Applicants had no choice but to seek appropriate remedies in the Tribunal.

The second ground advanced: unreasonable rejection of favourable offers to settle these proceedings

31 The offers made by the Applicants. The date on which these proceedings were instituted is 16 November 2005.

32 Copies of correspondence annexed to Mr Restuccia’s submissions showed that during the preceding month the Applicants tried on three occasions to persuade the Respondents to supply a lease in registrable form, in order to avoid being compelled to institute proceedings. It cannot be said, however, that these were offers to settle the dispute between the parties by way of compromise.

33 Also annexed to Mr Restuccia’s submissions were copies of later correspondence in which the Applicants’ solicitors conveyed four separate offers of settlement of the proceedings to the Respondents’ solicitors, each of which attracted either a letter of rejection or no response at all. For present purposes, the relevant features of this correspondence are as follows.

34 First, in a letter dated 19 May 2006, responding to an indication from the Respondent’s solicitors at the time, Penhall & Co, that the Respondents were prepared to grant a five-year lease in registrable form, Pelosi & Associates conveyed an offer by the Applicants to settle the proceedings if the Respondents agreed (a) to offer a new five-year lease and (b) to pay $45,000 as compensation for the loss of the opportunity to sell their business.

35 On 26 May 2006, Penhall & Co replied, advising that the Respondents were not prepared to pay any such compensation or to offer a new lease. The letter stated that the Respondents’ earlier offer of a lease document envisaged a five-year lease commencing on 31 December 2004. It noted that the parties were still in dispute as to liability for GST. It also suggested that the Applicants should discontinue the proceedings, with each party paying their own costs.

36 Secondly, in a letter dated 14 July 2006, Pelosi & Associates conveyed to Penhall & Co an offer to settle if the Respondents provided a new five-year lease in registrable form and paid $38,000 as compensation together with the costs of preparing theis lease.

37 Mr Restuccia indicated in his submissions that there was no response to this offer. On 18 September 2006, however, Ronald S Czinner & Co (who had succeeded Penhall & Co as solicitors for the Respondents) sent to Penhall & Co a five-year lease in registrable form commencing on 31 December 2004.

38 Thirdly, in a letter dated 6 October 2006 to Ronald S Czinner & Co, Pelosi & Associates conveyed an offer by the Applicants to settle the proceedings on the following terms:-

(a) that either
(i) the Respondents grant to the Applicants a lease of the premises for five years, or

(ii) the Applicants sign a registrable lease, commencing on 31 December 2004 and expiring on 30 December 2009, as previously submitted by the Respondents, provided also that the Respondents agree to grant a five-year lease to a third party who might acquire the Applicants’ business from them; and

(b) that the parties pay their own costs.

39 In a letter of reply dated 16 October 2006, Ronald S Czinner & Co conveyed a rejection of this offer, adding that the Respondents were not prepared to extend the term of the lease that they had already offered in registrable form or to grant a new lease to the Applicants or to any prospective purchaser.

40 Fourth and finally, in a letter faxed on 30 October 2006 to Ronald S Czinner & Co, Pelosi & Associates enclosed what they described as ‘proposed consent orders’ to be made by the Tribunal, to the effect that by consent and without admission of liability the proceedings should be dismissed and the parties to pay their own costs.

41 In a letter of reply dated 31 October 2006, Ronald S Czinner & Co conveyed a rejection of this offer, indicating that the Respondents required an order for costs against the Applicants to be incorporated in any consent orders.

42 Six days later, on 6 November 2006, the hearing of this matter commenced.

43 Discussion and conclusions. Mr Restuccia argued in his written submissions that on each of these four occasions, the Applicants offered to settle the proceedings on terms that were more favourable to the Respondents than the orders ultimately made by the Tribunal, and that the Respondent’s rejection of the proposed terms was unreasonable. Accordingly, the case fell within a well-recognised category of ‘special circumstances’.

44 Mr Restuccia acknowledged that in one specific respect the first three offers proposed putting the Applicants in a more advantageous position than they achieved as a result of the principal judgment. Each of these offers envisaged the grant of a five-year lease to the Applicants commencing on a date in 2006, whereas the Tribunal’s orders do not extend the Lease, which was granted in registrable form shortly before the hearing commenced (see [11] above), beyond its stipulated date of termination on 30 December 2009.

45 Mr Restuccia argued however that when one took into account the Tribunal’s order for payment of $60,645.17 (comprising a principal sum of $52,146.50 and interest totalling $8,499.17) by the Respondents to the Applicants, it became apparent that the terms of each of these three offers were more favourable to the Respondents than the Tribunal’s orders.

46 With regard to the fourth offer and the manner of its rejection, Mr Restuccia submitted that because the Respondents’ solicitors had sent to Pelosi & Associates a registrable five-year lease about four weeks earlier, the terms of the offer were substantially more favourable to them than the Tribunal’s orders. Furthermore, their rejection of these terms, on the purported ground that they could legitimately require the Applicants to pay their costs, was clearly unreasonable.

47 In the Tribunal’s opinion, the third offer of settlement, despite contemplating a lease lasting longer than that now held by the Applicants, was more favourable to the Respondents than the Tribunal’s orders since it did not require them to pay any compensation for the Applicants’ loss of an opportunity to sell their business. On the other hand, since the first two offers both envisaged a longer lease and required compensation to be paid, in amounts ($45,000 and $38,000 respectively) not far short of the principal sum ordered by the Tribunal ($52,146.50), this conclusion does not apply to them.

48 The Tribunal finds also that the Respondents’ rejection of the third offer was in all the circumstances unreasonable.

49 In addition, the Tribunal finds no difficulty in concluding (a) that the fourth offer, made on the footing that the lease to the Applicants should terminate on the date on which the Respondents now insisted (i.e., 30 December 2009) and requiring no payment of compensation, was substantially more favourable to the Respondents than the Tribunal’s orders; and (b) that the Respondents’ rejection of this offer, accompanied by a highly dubious claim that their costs should be paid by the Applicants, was unreasonable.

50 The circumstances in which the third and the fourth offers of settlement were made and rejected were accordingly ‘special circumstances warranting an award of costs’ within the meaning of s. 88(1) of the ADT Act.

The Tribunal’s decision on costs

51 By virtue of the reasoning just set out, the Respondents’ rejection of the third offer would warrant an order that they pay the Applicants’ costs as from 9 October 2006 (which may be taken to be the date on which the offer was received). Their rejection of the fourth offer (which was sent by fax) would warrant an order for costs as from its date, 30 October 2006.

52 The Tribunal’s acceptance of the first ground on which the Applicants claimed that ‘special circumstances’ existed (see [29] above) provides an entirely adequate basis, however, for an order that the Respondents should pay all the costs incurred by the Applicants in these proceedings.

53 This decision is appropriate even though on some issues the Tribunal rejected claims made by the Applicants (see [10] above). These issues were of minor significance compared with the issues on which they succeeded.

54 It is also not significant in this context that the Tribunal did not determine the Applicants’ unconscionable conduct claim. The reason, as indicated above at [7], is that because they succeeded on their primary claim for damages a determination was not necessary.

55 For the foregoing reasons, the Tribunal’s order is that the Respondents are to pay the Applicants’ costs of and incidental to these proceedings, as agreed or assessed on a party-party basis.