Dover v Lewkovitz (No 2) (RLD)

[2013] NSWADTAP 35

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:

Dover v Lewkovitz (No 2) (RLD) [2013] NSWADTAP 35

Hearing dates:

On the papers

Decision date:

24 July 2013

Jurisdiction:

Appeal Panel - Internal

Before:

M Chesterman, Deputy President

Decision:

1. The application by the Respondent for a costs order is dismissed.

2. The parties are to bear their own costs of this appeal.

Catchwords:

Retail lease - costs

Legislation Cited:

Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994

Cases Cited:

Adwell Holdings Pty Ltd v Ull Pty Ltd [2010] NSWADT 166
AT v Commissioner of Police [2010] NSWCA 131
Australian Securities & Investments Commission, Re Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey [2006] FCA 814
Davis v Sydney Harbour Foreshore Authority (RLD) [2010] NSWADTAP 43
Dover v Lewkovitz (RLD) [2013] NSWADTAP 22
Lewkovitz v Dover [2012] NSWADT 227
Meriton Properties Pty Ltd v DCM Leases-Five Pty Ltd (No 2) [2010] NSWADT 11
Solomon v Singh (No 3) [2006] NSWADT 120
Torchia v Swanton (RLD) [2012] NSWADTAP 5
Trendtex Trading Corporation v Credit Suisse [1982] AC 679
Valentino Franchise Pty Ltd (ACN 114 469 662) v Brookfield Multiplex WS Retail Landowner Pty Ltd (ACN 109 033 794) (No 2) (RLD) [2012] NSWADTAP 40

Category:

Costs

Parties:

Tom Dover (Appellant)
George Lewkovitz (Respondent)

Representation:

Counsel
L Doust (Respondent)
Klonis & Co (Appellant)
Norbert Lipton & Co (Respondent)

File Number(s):

129038

 Decision under appeal 

Citation:

Lewkovitz v Dover [2012] NSWADT 227

Date of Decision:

2012-11-05 00:00:00

Before:

Retail Leases Division

File Number(s):

115138, 115180

reasons for decision

Introduction

1. This decision by me, sitting alone, relates to an application by Dr George Lewkovitz for the costs of an appeal in which he was the successful Respondent. The Appellant was Mr Tom Dover.

1. Because this application was for the costs of appeal proceedings, it may be determined by a Deputy President sitting alone, pursuant to section 24A(2)(a) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act').

1. The appeal was brought against a decision of the Retail Leases Division of the Tribunal (Lewkovitz v Dover [2012] NSWADT 227) delivered on 5 November 2012. The Tribunal upheld in part a claim instituted against Mr Dover, in his capacity of one of the three lessees of retail shop premises, by Dr Lewkovitz, who alleged entitlement as an assignee of the lessor. It was not disputed that the lease in question ('the Lease') was governed by the Retail Leases Act 1994 ('the RL Act').

1. The lessor was a company called Tolicar Pty Ltd ('Tolicar'). Dr Lewkovitz contended that under a Deed of Assignment ('the Deed') which he and Tolicar had executed on 20 June 2011, Tolicar had assigned to him all the debts and causes of action to which it was entitled under the Lease.

1. In his Application, filed on 11 October 2011 (matter 115138), Dr Lewkovitz claimed from Mr Dover the sum of $168,232.12 plus interest, comprising (a) outstanding rent and outgoings payable by the lessees as at the date of termination of the Lease and (b) an amount in respect of the rent that would have been payable thereafter until the date of expiry of the Lease.

1. In replying to this Application, Mr Dover maintained (inter alia) that the Deed was ineffective to assign to Dr Lewkovitz any entitlement of Tolicar to bring proceedings against the lessees in order to enforce rights arising under the Lease.

1. The proceedings before the Tribunal also involved an Application by way of cross claim by Mr Dover (matter 115180). In this Application, filed on 12 December 2011, he sought (inter alia) a declaration, on grounds including unconscionable conduct and estoppel, to the effect that the amount that Dr Lewkovitz claimed to be payable as arrears of rent should be reduced by the sum of $28,445.22.

1. The Tribunal held that Mr Dover was liable, for the reasons advanced by Dr Lewkovitz, for outstanding rent and outgoings as at the date of termination of the Lease and for an amount in respect of the rent that would have been payable thereafter until the date of expiry of the Lease. It ordered him to pay to Dr Lewkovitz a total of $118,215.21, comprising a principal sum of $109,967.74 and interest amounting to $8,247.57. Its subsequent orders made it clear that these amounts were calculated on the basis that Mr Dover's claim for reduction of any award on account of arrears of rent had succeeded.

1. The Tribunal noted, at paragraph [92] of its decision, that the parties had agreed to have the question of costs determined in the same decision as the substantive issues, but that neither of them had placed before it 'any developed position or submissions as to costs'. It went on to order (at [93]) that in each of the Applications before it, the parties were to pay their own costs.

1. Following a hearing on 4 March 2013, the Appeal Panel, in a decision delivered on 17 May 2013 (Dover v Lewkovitz (RLD) [2013] NSWADTAP 22), dismissed Mr Dover's appeal. The Panel also gave directions for the filing and serving of submissions relating to the costs of the appeal.

1. Dr Lewkovitz subsequently applied for the costs of the appeal. He filed supporting submissions, prepared by Ms Doust of counsel. Opposing submissions were prepared and filed on behalf of Mr Dover by Ms Klonis, of Klonis & Co, solicitors.

Relevant aspects of the Appeal Panel's decision

1. In its reasons at [8], the Appeal Panel observed that two issues had arisen for determination in the appeal.

1. The validity of the assignment to Dr Lewkovitz. The first and most important issue in the appeal was whether the Tribunal was correct in ruling that the Deed, in so far as it purported to assign to Dr Lewkovitz any entitlement of Tolicar to bring proceedings under the Lease against the lessees, was valid and effective to an extent sufficient to entitle Dr Lewkovitz to seek the relief claimed in his Application.

1. As the Tribunal had done, the Appeal Panel considered the following two specific questions in the course of dealing with this issue. First, should the claim that Tolicar had against Mr Dover and his co-lessees, in so far as it related to instalments of rent that became payable under the Lease after it had been terminated, be characterised as a debt or as a 'bare right of action' for damages? Secondly, if the latter characterisation was the correct one, did Dr Lewkowitz have, at the time of execution of the Deed, a sufficient interest in the enforcement of this 'bare right of action' against the lessees to render valid the assignment of it to him under the Deed?

1. Resolution of the latter question, with which the decisions of both the Tribunal and the Appeal Panel were principally concerned, depended on whether Dr Lewkovitz's interest at that time in the enforcement of Tolicar's right of action satisfied a criterion formulated variously in the House of Lords case of Trendtex Trading Corporation v Credit Suisse [1982] AC 679 as 'a genuine commercial interest' or 'a genuine and substantial interest'. These formulations, suggested by Lord Roskill and Lord Wilberforce respectively, have been quoted with approval in a number of later Australian decisions.

1. The question whether Dr Lewkovitz's interest satisfied this criterion (having regard to the manner of its use in Australian cases) depended in large measure on the precise nature of his rights and expectations as one of two 'Principal Beneficiaries' under a discretionary trust called the Solomon Lewkovitz Discretionary Trust ('the Trust'). Consideration had also to be given to two further matters: (a) the complex patterns of shareholdings whereby (to quote from a passage in Dr Lewkovitz's affidavit extracted in the Tribunal's decision at [45]) the 'ultimate holding company' of Tolicar was the trustee of the Trust; and (b) the significance of his assertion in that affidavit that since the establishment of the Trust all of the net income earned by Tolicar had been distributed via an intervening company and the trustee of the Trust to himself and his sister (who was the other Principal Beneficiary) in equal shares.

1. In its decision at [79 - 90], the Appeal Panel concluded, as the Tribunal had done, that chiefly on account of these considerations Dr Lewkovitz did, at the time of the Deed, have an interest in the enforcement of Tolicar's claim against the lessees that would satisfy the criterion stemming from Trendtex.

1. It followed from this conclusion that, irrespective of whether Tolicar's claim against the lessees for an amount in respect of rent that became payable under the Lease after it had been terminated was to be characterised as a debt or as a 'bare' cause of action for damages, the assignment of it to Dr Lewkovitz was to be regarded as valid. Accordingly, this question of the characterisation of Tolicar's claim did not need to be answered.

1. In obiter dicta at [83 - 84], the Tribunal did in fact answer it, in Dr Lewkovitz's favour. It expressed the opinion that Tolicar's claim for this amount, which was based on a specific clause in the Lease describing it as a claim for 'liquidated damages', was in the nature of a debt and therefore did not fall within the principles stated in Trendtex.

1. The Appeal Panel, however, stated at [91 - 92] that it had doubts about this view of the matter. It also indicated that the question did not have to be resolved in order to determine the appeal.

1. The date of termination of the Lease. The second issue arising in the appeal was whether the Tribunal was correct in rejecting Mr Dover's claim that the Lease was terminated on 23 July 2009, the date of a Notice of Termination that was served on the lessees, and in ruling instead that it came to an end when the lessees, in vacating the premises on 22 September 2009, breached and repudiated the Lease and this repudiation was accepted in a letter dated 25 September 2009 from the agents to Mr Dover's solicitors.

1. This was another question did not need to be answered, in view of the Appeal Panel's decision that the assignment of Tolicar's claim to Dr Lewkovitz was wholly valid even if in part it was to be characterised as a 'bare right of action'.

1. The Appeal Panel did, however, express an opinion about it. Again, its opinion differed from that of the Tribunal. At [94 - 96], it stated its preference for Mr Dover's contention that the Lease had come to an end on 23 July 2009, the date of the Notice of Termination.

Relevant principles relating to costs

1. Section 77A of the RL Act provides that the Tribunal has power, in proceedings brought under this Act, to award costs under section 88 of the ADT Act.

1. So far as relevant to this appeal, section 88 states:-

88 Costs

(1) Each party to proceedings before the Tribunal is to bear the party's own costs in the proceedings, except as provided by this section.

(1A) 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 it is fair to do so having regard to the following:...

(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law,

(d) the nature and complexity of the proceedings,

(e) any other matter that the Tribunal considers relevant.

1. The following passage in the Appeal Panel's decision in Valentino Franchise Pty Ltd (ACN 114 469 662) v Brookfield Multiplex WS Retail Landowner Pty Ltd (ACN 109 033 794) (No 2) (RLD) [2012] NSWADTAP 40 at [18] summarises two principles relating to the interpretation of section 88(1A) that are relevant to this application for costs:-

(1) The criterion established in this subsection is a 'relatively low hurdle for an applicant seeking an order', since 'the criterion of "fairness" will take into account the compensatory purpose of an award of costs, which will generally favour the successful party': AT v Commissioner of Police [2010] NSWCA 131 at [33].

(2) When proceedings in the Tribunal are commercial in nature, involving two parties who are acting in trade and commerce, one significant effect of the amendment to section 88 introducing the notion of 'fairness' (this took effect on 1 January 2009) is to 'broaden the basis upon which costs might be awarded': Adwell Holdings Pty Ltd v Ull Pty Ltd [2010] NSWADT 166 at [22].

1. In Davis v Sydney Harbour Foreshore Authority (RLD) [2010] NSWADTAP 43, the Appeal Panel said at [93]:-

93 Under section 77A of the RLA and section 88(1) of the ADT Act, the general rule is that each party pays its own costs. But the Tribunal may award costs if, taking into account matters listed in section 88(1A), it is satisfied that it is 'fair' to do so. Under subparagraph (c) of section 88(1A), a factor to be taken into account in determining whether it is 'fair' to award costs is 'the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law'. In recent Appeal Panel decisions under section 88, it has been said more than once that costs should generally be awarded against an appellant if the appeal had no reasonable prospects of success.

1. In Torchia v Swanton (RLD) [2012] NSWADTAP 5, the Appeal Panel said at [142]:-

142... It has been held on a number of occasions that the unreasonable rejection by an unsuccessful party of an offer of settlement that has proved more favourable to that party than the Tribunal's order(s) provides grounds for a costs order under subsection (1A) of section 88 of the ADT Act. Because there is no express mention of this situation in the subsection, it must be taken to fall within paragraph (e) ('any other matter that the Tribunal considers relevant').

1. Finally, in a passage to which Ms Doust referred in Meriton Properties Pty Ltd v DCM Leases-Five Pty Ltd (No 2) [2010] NSWADT 11 at [37], the Tribunal rejected the proposition that a party to a retail shop lease could rely on a term in the lease to recover costs that it had incurred in Tribunal proceedings under the RL Act between itself and another party to the lease. The Tribunal said:-

37... If contractual entitlements to costs in retail shop leases were permitted to operate according to their terms in relation to costs incurred in Tribunal proceedings under the RL Act, this would contravene the policy underlying Parliament's decision to subject those proceedings to the costs regime established by section 88.

The grounds of Dr Lewkovitz's application for costs

1. In Ms Doust's submissions, four grounds were argued. She submitted that they should be considered in conjunction with each other, since 'no single consideration by itself needs to render it fair [i.e., under section 88(1A)] that the order be made'. I will discuss each of these four grounds separately before assessing their overall significance.

1. The commercial nature of the proceedings. Ms Doust argued that since these proceedings were 'wholly commercial nature in nature', the 'policy considerations' underlying the departure, in section 88, from the 'ordinary approach to costs', did not apply to them. She identified these policy considerations as 'the intention to avoid discouraging litigants from the pursuit of such public law rights' as frequently constitute the subject matter of Tribunal proceedings.

1. Ms Klonis pointed out, however, that the legislature did not establish a different costs regime for the Retail Leases Division, in which the proceedings are always 'commercial in nature'. Accordingly, the requirements of section 88(1A) had still to be satisfied if any award of costs was to be made in proceedings under the RL Act.

1. Ms Klonis's proposition is undoubtedly correct. But it is well established that the commercial nature of proceedings under the RL Act is a factor that should be taken into account under section 88(1A)(e) and that it makes costs orders more readily obtainable in such proceedings than in proceedings brought in other Divisions of the Tribunal.

1. The nature of Mr Dover's grounds of defence. The two propositions advanced here by Ms Doust were as follows. First, in the appeal, Mr Dover did not deny that the lessees had defaulted under the Lease, that he would therefore 'normally ' be liable for damages, or that 'a cause of action' existed against him. He relied solely on a claim that the assignment of this cause of action was not valid. Secondly, 'he sought to rely on an earlier act on the part of the Respondent to establish that the lease was terminated, with proper basis, at a time earlier' than he contended. This argument, she said, 'had no effect on the overall quantum of the claim', but was merely intended to 'give [to] a larger portion of the overall claim the character of damages, rather than a debt'.

1. Ms Klonis's response was as follows: (a) Mr Dover had 'always accepted that there was a default'; (b) the question in dispute was 'the consequences of the actions taken by the parties in relation to that default'; (c) on that question, the Tribunal came to a different conclusion to that of the Appeal Panel; and (d) on the specific question whether the claim against Mr Dover for an amount representing rent after termination of the Lease was a debt or a claim for damages, the Appeal Panel found in favour of Mr Dover.

1. In my opinion, the matters raised by Ms Doust are not relevant to my decision as to whether it would be 'fair' under section 88(1A) to make a costs order against Mr Dover. They do not fall within the scope of paragraphs (a) to (d) of this subsection and should not be held to fall under paragraph (e). In the appeal, though not at first instance, Mr Dover acknowledged that there had been a default under the Lease. He sought to reduce his liability for this default by arguing (i) that the assignment under the Deed was invalid in so far as it related to any 'bare right of action' for damages vested in Tolicar and (ii) that the amount of the claim that constituted such a right of action was larger than the Tribunal had determined because the Lease was terminated earlier. The specific nature of these grounds of partial defence does not, of itself, amount to a factor suggesting that it would be 'fair' to award costs against him.

1. The lessees' liability under the Lease to pay costs. In common with many other retail shop leases, clause 9 of the Lease imposed an obligation on the lessees to pay certain costs incurred by Tolicar. These were defined as 'all costs charges and expenses (including solicitors' costs and architects' fees) incurred by the Lessor in respect of any act, neglect or default or breach by the Lessee of any of the covenants obligations or provisions contained in this Lease...'

1. Ms Doust did not dispute the principle, stated in a case to which she referred (Meriton Properties Pty Ltd v DCM Leases-Five Pty Ltd (No 2)), that the contractual liability imposed by this clause did not embrace costs of Tribunal proceedings under the RL Act, which remained to be determined by the Tribunal under section 88 of the ADT Act. Her submission was instead that 'the parties' intentions, as demonstrated by the terms of the lease' were 'a matter of considerable significance' for the purposes of a decision under subsection (1A) of section 88, and must be taken into account by the Tribunal pursuant to paragraph (e) of that subsection.

1. Relying on the passage that I have quoted above from Meriton (see [29]), Ms Klonis maintained that this submission by Ms Doust amounted to an attempt 'to oust the jurisdiction' of the Tribunal under section 88. She also appeared to concede, however, that the presence of clause 9 in the Lease 'may be a relevant consideration'.

1. In my opinion, Ms Doust's submission on this matter should not be accepted, despite the concession apparently made by Ms Klonis. To take account of clause 9 as a 'relevant matter' under paragraph (e) of section 88(1A) would not be in line with the principles and policies underlying the Tribunal's decision in Meriton.

1. That decision was in fact based on some earlier authorities, to which the Tribunal referred at [36]. They included Solomon v Singh (No 3) [2006] NSWADT 120, in which the Tribunal, at [28], made the pertinent observation that clauses resembling clause 9, imposing an obligation on the lessee to pay costs incurred by the lessor in connection with any 'default' by the lessee, were 'quite ordinary and common' in retail shop leases.

1. My conclusion on this question derives support from this observation. In my judgment, the fact that a retail shop lease containing such a clause is signed by both parties should not, in my view, be regarded as recording some form of 'common intention' that the scales should be weighted in the lessor's favour when the Tribunal is making a decision about costs. In so doing, it is administering a statutory regime that operates independently of any agreement about costs contained in the lease.

1. An offer by Dr Lewkovitz not to press for his costs of the appeal. In a letter dated 11 December 2012 addressed to Ms Klonis and to Mr Stomo (who was Mr Dover's counsel in the hearings at first instance and on appeal), Dr Lewkovitz's solicitors (Norbert Lipton & Co) asserted that Mr Dover's appeal was 'totally without merit, seeking to canvass issues of fact that were carefully considered and decided' by the Tribunal. The letter also stated: 'We have been instructed to invite your client to discontinue his appeal here and now, in which event our client will not seek his costs to date.' This 'invitation' was not accepted by Mr Dover.

1. Ms Doust argued that Mr Dover's decision to ignore the warning in this letter that his case was 'without merit' and to decline the offer not to press for costs was a factor to be taken into account in determining whether a costs order would be fair. Her submissions on this point included the following sentence: 'Whilst it is not submitted that the Appellant's arguments should be regarded as "untenable", the nature of the Appellant's task made it one where it was unlikely to succeed.'

1. Ms Klonis submitted in response that because the sentence just quoted contained an acknowledgment that Mr Dover's case was not 'untenable', it was 'difficult to see what force' Ms Doust's submission had on the matter of costs. She claimed that Mr Dover's argument in the appeal 'had merit', adding that the Appeal Panel acknowledged this by relying on the Federal Court's judgment in Australian Securities & Investments Commission, Re Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey [2006] FCA 814 as 'comfort' for its own decision. The Panel did in fact quote lengthy extracts from this judgment (at [88]).

1. Again, my opinion on this question is in line with Ms Klonis's argument. Ms Doust did not expressly invoke the principle, to which I referred above at [28], that the unreasonable rejection by an unsuccessful party of a favourable offer of settlement may be a matter falling within paragraph (e) of section 88(1A) and may provides grounds for a costs order. Her submission was correct in this regard, because the letter on which she relied did not convey a genuine offer of compromise such as would attract this principle. The dispatch of this letter does not, therefore, provide any support to Dr Lewkovitz's claim for a costs order.

Further contentions advanced by Mr Dover

1. Three further contentions contained in Ms Klonis's submissions were to the following effect.

1. First, the fact that Mr Dover had a 'valid grievance' was confirmed by the divergences between the Tribunal's and the Appeal Panel's rulings on two significant questions. The nature of these divergences is outlined above at [19 - 20] and [23].

1. Secondly, Mr Dover conducted the appeal hearing 'expeditiously'. He 'narrowed the issues down' to the points that he wished to argue and 'did not introduce extraneous material'.

1. Thirdly, the arguments put on his behalf 'had merit'. It could not be said (to quote from paragraph (c) of section 88(1A)) that they had 'no tenable basis in fact or law'. On the 'central issue' - the efficacy of the assignment that the Deed purported to make - the propositions advanced by both sides were 'legally arguable propositions of law which required a determination'. On another issue, the date of termination of the Lease, the Appeal Panel endorsed the stance taken by Mr Dover.

My conclusions

1. In my opinion, Dr Lewkovitz's application for costs should be dismissed and the parties should bear their own costs of the appeal, in accordance with section 88(1) of the ADT Act. My reasons are as follows.

1. In the above discussion of the four grounds argued by Ms Doust, I indicated that the first of them (the 'commercial nature' of these proceedings) was indeed a factor in favour of costs being awarded, but that I did not accept any of the remaining three.

1. Ms Doust acknowledged in her submissions relating to the fourth of these grounds that Mr Dover's arguments could not be regarded as 'untenable'. This is a term used in paragraph (c) of section 88(1A). Furthermore, she did not contend that there was such a disparity between 'the relative strengths of the claims made by each of the parties' (to quote again from this paragraph) as would indicate or suggest that the paragraph was applicable. These aspects of her submissions accord with my own opinion.

1. As Ms Klonis submitted, Mr Dover's arguments on the issues arising in the appeal had merit and, as I have pointed out, were successful in persuading the Appeal Panel to differ from the Tribunal on two particular questions. Although he failed on the 'central issue', this issue called for the interpretation and application of complex and distinctly uncertain legal principles relating to the assignment of causes of action and to the nature of a beneficiary's interest under a 'non-exhaustive' discretionary trust.

1. At [27], I quoted the following statement in Davis v Sydney Harbour Foreshore Authority (RLD) [2010] NSWADTAP 43 at [93]: 'In recent Appeal Panel decisions under section 88, it has been said more than once that costs should generally be awarded against an appellant if the appeal had no reasonable prospects of success.' I do not view the present appeal as one that had 'no reasonable prospects of success'.

1. Associated with this dictum in Davis is a broader principle, accepted by the Tribunal in a number of decisions, that other things being equal, it should be more inclined to award costs against an unsuccessful appellant than against an unsuccessful applicant at first instance. I still consider, however, that the present appeal had sufficient merit to provide reasonable justification for its being brought.

1. My order, for the foregoing reasons, is that Respondent's application for costs should be dismissed and the parties should bear their own costs of the appeal.

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Decision last updated: 24 July 2013