FLYER SERVICES PTY LTD and MARSHALL
[2014] WASAT 52
•9 MAY 2014
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
STREAM: COMMERCIAL & CIVIL
ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
CITATION: FLYER SERVICES PTY LTD and MARSHALL [2014] WASAT 52
MEMBER: MR T CAREY (MEMBER)
MR D MOORE (SENIOR SESSIONAL MEMBER)
HEARD: 10 FEBRUARY 2014
FINAL WRITTEN SUBMISSIONS FILED 27 FEBRUARY 2014
DELIVERED : 9 MAY 2014
FILE NO/S: CC 774 of 2013
BETWEEN: FLYER SERVICES PTY LTD
Applicant
AND
COLIN MARSHALL
MARY JEANETTE MARSHALL
COBALT NOMINEES PTY LTD
RUTH MARGARET BARRETT
GEORGE EDWARD BERNARD BARRETT
SANDRA MARJORY GATTI
WILLIAM KIMBERLEY ROUTLEDGE
PULLINGTON INVESTMENTS PTY LTD
GWENYTH BAILEY
DAVID VENTRESS WEDDERBURN
JOHN WESLEY BUTLER
NORA MAY McWHINNEY
JOHN WILLIAM CALDOW
RODD KENNETH BUDGE
CAROLYN JAN GUIDA
JACQUELYN KAYE BOYLE
Respondents
Catchwords:
Retail shop Determination of market rent Direct comparison and depth analysis methods Incentive payment affecting comparator
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 11, s 11(2), s 11(2)(a), s 11(2)(a)(ii), s 11(2)(a)(iii), s 15
Result:
Market rent determined to be $585,754.50 per annum exclusive of GST
Summary of Tribunal's decision:
The Tribunal was required to determine the rent payable under the applicant's lease with the respondent as a result of a market review as at 1 July 2012.
The Tribunal considered whether the statutory formulation of the standard to be applied in determining the market rent operated to the exclusion of the lease terms, and in particular in relation to a term concerning incentives. It found that the statutory formulation applied where the two are inconsistent.
The Tribunal considered the respondent's valuer's reliance upon a depth analysis, which attributes different rent values to different sections of the same premises. It decided against employing the same technique in favour of a direct comparison method, primarily because of the availability of a highly comparable tenancy.
In undertaking its comparison analysis, the Tribunal considered the most comparable premises on the basis of its passing rent discounted for the incentive received by the lessee. It further discounted the rent to account for a number of relative advantages of the comparative tenancy.
Two other tenancies, although not as directly comparable, provided support for the Tribunal's determination.
Category: B
Representation:
Counsel:
Applicant: M G Cobby
Respondents : Ms E Hensler
Solicitors:
Applicant: M 6:8 Legal
Respondents : Borello Legal
Case(s) referred to in decision(s):
Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676
Flyer Services Pty Ltd and Marshall [2013] WASAT 188
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
The applicant, Flyer Services Pty Ltd (tenant) leases commercial premises from Mr Marshall and his co‑respondents (landlord), which are sublet to a franchisee of the Dymocks book retailing chain. The premises are located in the Hay Street Mall in the Perth central business and retail district.
This application concerns the determination by the Tribunal of the 'Current Market Rent' at the 'CMR Review Date' of 1 July 2012 (both quoted expressions being defined terms in the lease between the parties). An issue arose at an earlier stage of the proceeding as to whether the lease obliged the landlord to initiate this market rent review (the landlord not having ever done so). On 20 November 2013, the Tribunal decided that the landlord was obliged to initiate such a review, and further, that the landlord was estopped from denying that there had been a rent review initiated ‑ see Flyer Services Pty Ltd and Marshall [2013] WASAT 188.
The parties' respective valuers having failed to agree on the market rent, the dispute was the subject of a hearing on 10 February 2014. By the time of the hearing, as disclosed by the experts' joint statement, some measure of agreement had been reached between them, going to market rents for a basement and first floor area of the leased premises. However, the substantial, retail part of the premises, being the ground floor, was not the subject of agreement.
At the hearing, the valuers were subject to the process of giving their evidence concurrently. The parties subsequently filed written submissions.
It is our task, based on the evidence and parties' submissions, to determine the rent payable as a result of the market rent review. It is necessary, in arriving at our determination, to consider and make findings on the following legal and factual issues:
1)the applicable standard for the market rent;
2)the appropriate method or methods to adopt for the purpose of our determination;
3)whether, in considering a comparator tenancy, a significant incentive payment described as such in the lease needs to be taken into account; and
4)in light of our findings regarding the preceding issues, and upon our analysis of all relevant comparison evidence, the appropriate rate at which the market rent as at the review date should be struck.
What is the standard for market rent to be applied?
It is common cause that the market rent review the subject of our consideration is governed by the following stipulation found in s 11(2) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CTA Act):
(2)If a retail shop lease provides for the review during the currency of the retail shop lease of the amount of rent payable under the retail shop lease having regard to the market rent of the retail shop concerned ‑
(a)that market rent shall, for that purpose, be taken to be the rent obtainable at the time of that review in a free and open market as if, all the relevant factors, matters or variables used in proper land valuation practice having been taken into account, that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease, and is not to take into account the value of ‑
(i)the goodwill of the business carried on in the retail shop; or
(ii)any stock, fixtures or fittings in the retail shop that are not the property of the landlord; or
(iii)any structural improvement, or alteration, of the retail shop carried out, or paid for, by the current tenant[.]
The parties differ as to whether, in addition to the standard for market rent derived from the above provision, regard may be had to any provisions of the lease which might be relevant.
The landlord contends that the lease itself contains enforceable provisions which might supplement the statutory considerations for determination of market rent. It does so particularly in order to avail itself of a provision of the lease (part of the definition of 'Current Market Rent' requiring that rent free periods, inducements or concessions by landlords be ignored), which, it argues, supports its valuer's disregard of an expressed incentive payment by the landlord of a comparator leased premises, Kathmandu.
Although neither party approached the issue in this way, it may be that the answer is to be ultimately obtained by reference to whether or not s 11(2)(a) of the CTA Act is to be regarded as an exhaustive definition of market rent. That is, does one work simply on the basis set out in the provision, to the exclusion of any possibly applicable provision in the lease? By 'provision in the lease', we are referring to provisions relating to the methodology of a rent review, or matters expressed to be included in or excluded from such a review, as opposed to the substantive terms of leasing set out in the lease which, by dent of s 11(2)(a) of the CTA Act itself, perform a central role in the valuation process.
The issue not having been ventilated in the manner described in the previous paragraph, we can confine ourselves to the question of whether the provision of the lease concerning inducements is consistent with the statute. This is because the conclusion we arrive at ‑ that the lease provision is inconsistent with the statute – means that no reliance can be placed upon it. Any provision of the lease which is contrary to or inconsistent with anything in the CTA Act, or with anything that by the CTA Act the lease is taken to provide, is void by reason of s 15 of the CTA Act.
Section 11(2)(a) of the CTA Act contains the following elements:
•rent obtainable in a free and open market;
•'all relevant factors, matters or variables used in proper land valuation practice having been taken into account';
•retail shop vacant;
•retail shop to let on similar terms to those in the current lease;
•the value of the following excluded:
(i)goodwill of lessee's business;
(ii)stock, fixtures or fittings not the property of the lessor; and
(iii)structural improvements or alterations carried out or paid for by the current lessee.
With regard to the second element, we agree with the tenant's submission that, to the extent that an incentive payment in respect of a comparator tenancy constitutes a de facto rent reduction, it should, consistent with valuation principles and practice, be taken into account in determining market rent. Confirmation of this appears in ANZ Real Property Guidance Note 3 (Leasing Incentives) (Guidelines), proposed by the landlord as an indicator of proper land valuation practice.
Despite some uncertainties (to which we will return shortly) in the expression of 'relevant factors, matters and variables' which are said to apply to valuers in assessing rent for rent review purposes, the Guidelines make clear that the rent being reviewed will be subject to a discount by reason that all or some of an incentive is to be regarded as a de facto rent reduction. To the extent that the lease itself provides that any such incentive is to be ignored (as the landlord submits to be the case here), that provision is inconsistent with the second element of s 11(2)(a) of the CTA Act, and is therefore void.
The landlord relies on two matters which it submits should avoid this result. The first is that the five 'relevant factors, matters and variables' identified in the Guidelines include:
a)'the pertinent lease clause' as well as 'many other factors of which incentives granted on new leases are but one'; and
b)once the 'periodic equivalent' of the de facto rent reduction is deducted from the 'nominated or passing rent', the 'effective rent' is derived.
The latter factor is concluded by:
The effective rent may not necessarily represent market rent.
We understand the landlord to be saying that these parts of the Guidelines indicate, firstly, that the lease terms continue to have relevance, and, secondly, that an incentive, although impacting upon 'effective rent', may not necessarily affect 'market rent'.
The second matter upon which the landlord relies is a distinction drawn between 'rental value', which, it is said, requires consideration of 'collateral advantages operating between the lessor and lessee', such as incentives, and 'current market rent', in relation to which only a narrow class of incentives, such as free fit out of furniture and fittings the lessee might otherwise have to pay, require consideration.
We are unable to accept either of the two matters upon which the landlord relies.
As we have observed, the Guidelines reflect that, in 'assessing rent for a rent review', a valuer who concludes that an incentive payment is to be wholly or partly regarded as a de facto rent reduction is to apply a discount to the rent he is assessing. More specifically, 'a periodic equivalent should be deducted from the nominated or passing rent'. Whilst we acknowledge that in some circumstances there may be a difference between 'effective rent' and 'market rent', this would not be one of them. The allowance we think should be made for the Kathmandu incentive will result on both a lower effective rent and lower market rent. To the extent that any term of the lease would contradict such an outcome, it is to be ignored.
The distinction the landlord draws between 'market rental value' and 'current market rent' draws upon case law in which those expressions arose, sometimes within the one lease (see for example Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676). As pointed out in WD Duncan, Commercial Leases in Australia (6th ed, 2011) at paragraph 5.270, case law dealing with the interpretations of particular lease terms will be of limited utility in assisting with construing other leases. This is particularly so in a case such as the present, where consideration is required of the definition under s 11(2)(a) of the CTA Act.
We fail to see why an incentive of a landlord in respect of a comparator tenancy that satisfies the Guidelines would not impact upon the 'current market rent', being both the title and part of the definition of the concept under the written lease to be determined. We also fail to understand how, given the free fit out of fixtures and fittings that a lessee might otherwise have to pay, which the landlord accepts might be a suitable incentive for consideration in determining market rent, stands in a different category from a straight out incentive payment.
We will consider the further matters upon which the landlord relies to militate against the Kathmandu incentive impacting upon the market rent of the subject premises in a later section of these reasons.
Which of the methodologies employed by the respective valuers is to be preferred?
Both valuers, in considering the current market rent for the premises leased by the tenant, had regard, consistent with rent valuation principles and practice, to rental evidence of other leased premises in the same general vicinity.
Mr Vincent, the valuer engaged by the tenant, had regard to three such tenancies. Two of those (Kathmandu and Rosendorff Jewellers) are in the same Hay Street Mall as the subject premises, whereas the third (General Pants) is situated in the Murray Street Mall, and therefore further removed from it, although, as pointed out by Mr Vincent, it was previously leased and occupied by Angus and Robertson, 'a very similar book selling retail business to Dymocks'. Unlike the position with the subject premises and the other two comparators, Rosendorff's rent has been assessed on a gross rent basis, inclusive of outgoings, although evidence suggestive of the applicable outgoings has been produced.
The extent to which each of the comparator premises was considered to be comparable is reflected to some extent by the final adjustments applied to the comparators' rents, given particular differences (generally indicating a disadvantage) between the subject premises and the comparators. Those adjustments were:
Kathmandu20%
General Pants 25%
Rosendorff12.5%
Although not the comparative tenancy with the smallest discount, Mr Vincent is of the opinion that Kathmandu represents the best and most comparable rental evidence available. He advises that the rent for the ground floor should be struck at $1,101.83 per square metre, or $526,079.75, being 80% of Kathmundu's rent.
Mr Kish, for the landlord, also considered a 'basket' of rental evidence, comprising the same three tenancies as Mr Vincent, and two additional Hay Street Mall premises, Tony Barlow and Michael Hill Jewellers. His consideration, however, entailed the employment of 'depth analysis', whereby both the subject and comparator premises are broken into three sections, described as 'front/prime', 'secondary/middle' and 'rear', with the rent (calculated at rate per square metre) decreasing by 50% as one regresses from the front of the premises. Mr Kish selected 15 metre depths for each of the prime and middle sections. He also made special allowance for an area of the premises lying behind an adjoining premises encroaching into the front of the premises, described as 'secondary', to which a 25% discount was applied.
Considering all the comparator evidence, Mr Kish settled on a rate of $2,700 per square metre per annum for the prime area, being a rate 'towards the middle end' of the spread of the rates calculated for the prime sections of the comparator tenancies. Based on the chosen prime rate, he calculated the rent for the whole ground floor as $692,997.
In his report, Mr Kish rationalised his use of depth analysis on the basis that the method 'is commonly used as it objectively compares properties. It is objective because a common formula is used rather than relying on subjective opinions'. He further explained at the hearing that the method is used by the Valuer General's Office for land valuation that office undertakes for rating purposes. Mr Kish worked at the Valuer General's Office 29 years ago, but said that he confirmed with someone currently employed there that the method continues to be used.
As we have indicated, Mr Kish's comparative analysis focussed upon the rates of the prime sections of the comparator tenancies. Mr Kish did not give any substantive reason for selecting 15 metres as the depths for the prime and secondary sections of all the premises, which is to be contrasted with a 10 metre depth employed by the Valuer General's Office, and 6.1 metres by the United Kingdom's Royal Institute of Chartered Surveyors. According to Mr Kish, the depths selected are inconsequential, provided the same depths are allocated across all premises.
Mr Kish conceded that in none of the five tenancies used in his report as comparators had the depth analysis been used to determine its rent. In fact, apart from the Valuer General's Office and previous valuations he has undertaken, Mr Kish was unable to identify any other valuations or valuers using the method.
In our view, no good reason has been demonstrated to use other than the direct comparison method employed by Mr Vincent in order to strike the market rent for the subject premises. As Mr Kish himself observed, ample comparative rental evidence is available. Despite Mr Kish's expressed view to the contrary, the delineation of the prime sections in a depth analysis may well have an impact on the outcome. To take an obvious example, which applied to two of Mr Kish's comparators (Tony Barlow and Michael Hill), the variation will be greatest where the number of sections differs between the subject and any comparator premises. We would prefer the accepted subjectivity of certain adjustments, which valuers using the direct comparison method are often called upon to make, to the prospect of the result being skewed by an essentially random choice of section depths for the purposes of a depth analysis.
Appropriate treatment of incentive in the case of the Kathmandu tenancy
In the alternative to the landlord's arguments that the lease terms required that the apparent 'incentive' payment to the lessee of the Kathmandu premises be ignored, the landlord advances two further grounds for reaching the same result.
The first additional ground is that, unlike the Kathmandu lease, the lease of the subject premises contains no incentive. It was submitted that in order to comply with the fourth of the s 11(2)(a) of the CTA Act elements ‑ that the premises be for letting on similar terms to those in the current lease ‑ the Kathmandu premises rental position should be considered without reference to the incentive for which its lease provides.
In our view, the reference in the legislation to 'similar terms' invokes such matters as tenure, permitted use, restrictions and the like. Given that the nature of the inquiry is to ascertain the market rent, the provision in a comparator's lease for rent itself will not be one of the terms which should bear a similarity to the lease under consideration before it qualifies for comparison. The same applies for any term which effectively increases or decreases the rent provided for directly by the lease, such as an incentive, to the extent that it constitutes a de facto rent reduction.
Assuming that the whole of the apparent incentive in this case does constitute such a reduction, consistent with the valuation principles we have discussed, a diminution of market rent of the subject premises is warranted. The incentive is not to be ignored simply on the basis that the comparator lease provision for the incentive is not replicated in the subject lease.
We turn to the second additional ground upon which the landlord relies to avoid any reference to the incentive in the Kathmandu lease, concerning the circumstances in which the incentive was paid.
As disclosed in Exhibit 2 at 219, the Kathmandu lease contains the following provision:
6.3Leasing Incentive
(a)The Lessor agrees to pay the Lessee a leasing incentive of $350,000.00 plus GST ('Leasing Incentive') within thirty (30) days of the latest date of the following events:
(i)the Lessee has duly executed this Lease;
(ii)the Lessee has opened for trade from the Premises;
(iii)the Lessee has paid the Deposit at or prior to the Commencement Date and all other monies due under this Lease;
(iv)the Lessee has provided the Bank Guarantee in accordance with this Lease; and
(v)the Lessee has provided the Lessor a tax invoice for the Leasing incentive amount.
The landlord sought to rely upon evidence at the hearing tending to portray the 'incentive payment' as being, in fact, for such matters as tidying up, levelling and removal of asbestos.
As pointed out on behalf of the tenant, Mr Kish, in his report, accepted that the incentive of $350,000 'further reduces the rental to $1377.30 per square metre per annum net', but nevertheless excluded the incentive from consideration, based on the lease definition of 'Current Market Rent'. However, at the hearing, both Mr Kish and Mr Vincent (the valuer engaged by the tenant) gave evidence of conversations (including by email) they held separately with the leasing agent for the Kathmandu premises which, according to the landlord's submission, supported a conclusion that the $350,000 was for capital improvement rather that an incentive.
Mr Tsgalis, the leasing agent spoken to, was not called as a witness, and the sources of his information as conveyed to the agents in the present matter have not been investigated. Viewed together, the records of the relevant conversations (Exhibit 7, the email exchange between Mr Kish and Mr Tsgalis in the days immediately preceding the hearing, and Exhibit 8, Mr Vincent's note of his telephone discussion with Mr Tsgalis in September 2012) are far from definitive on the critical question of whether the incentive payment was, or was not, a de facto rent reduction. The suggestion that reimbursement of the cost of levelling works and removal of asbestos was the true reason for the incentive payment does not sit well with the normal expectation that such works, particularly where undertaken prior to commencement of a lease as in this case, would be at the lessor's cost. Mr Kish was unable to say, and we do not know, if any of the amounts referred to (for example, $250,000 for levelling and $150,000 to $160,000 for asbestos removal) were paid for by the lessee, as it must have been if a payment under the lease described as 'incentive payment' was to be made to the lessee.
We note that no mention of the $350,000 as a payment for capital to defray all or part of the cost improvement was made through the entire course of this proceeding, including at the valuers' joint conferral, prior to the hearing. The quality of the evidence now being relied upon is insufficient for us to do other than give effect to the clear words of the Kathmandu lease that the amount was an incentive payment.
Our consideration and determination of the market rent
Although we will refer to two other comparator premises, we have, in the main, limited ourselves in our determination to a comparison between the tenant's premises with Kathmandu, as the most closely comparable premises by some distance. The common features between the two include:
•They occupy almost identical positions in the Hay Street Mall. Whilst Mr Kish suggested the possibility of some disparity based upon the two premises being situated on either side the mall, we are not persuaded that any rental consequence would be more than marginal;
•The tenant's premises is 477.6m² and Kathmandu is 465m², thereby offering a high level of comparability based on size. It is essentially the virtual convergence of the two premises' sizes that renders any depth analysis unnecessary; and
•The respective review dates of February 2012, in the case of Kathmandu, and July 2012 for the tenant's premises, offer good comparison with a reduced scope for market change when compared with other premises.
Both valuers reported an analysed rent for Kathmandu of $1,377.30 per square metre after allowance is made for the incentive. This is our starting point. We further agree with Mr Vincent that an adjustment is required to take account of Kathmandu's superiority.
A sharp division arose in the valuers' opinions regarding frontage. Mr Kish regarded the subject premises as having a frontage of 7.4 metres, having allowed for a truncation to the adjoining premises to the west. Mr Vincent considered 6.35 metres as the relevant 'effective' frontage, after allowing, in addition to the truncation, for two returns or columns on either side of the aluminium folding door, and one of two glass doors immediately in front of a set of stairs. The Kathmandu premises has an agreed frontage of 9.29 metres.
We prefer Mr Vincent's opinion on the frontage issue, as we consider that the returns or columns impacting the effective frontage of the tenant's premises amount to a retailing disadvantage when compared with Kathmandu's uninterrupted frontage.
We note the contention of the landlord that, at least to some extent, access to potential customers has been restricted by the tenant choosing to keep the glass doors closed. However, as has been mentioned, Mr Vincent includes one of the two doors in his assessment of the frontage, but excludes the other due to its proximity to the stairs. In our view, to do so is consistent with usual valuation practice.
The Kathmandu premises are perfectly rectangular, with no 'masking' of the internal dimensions from the front. The tenant's premises, on the other hand, have a relatively narrow front area, caused mainly by adjoining premises encroaching into the front of the premises, the tenancy broadening out towards the rear. This is another aspect tending to reduce the appeal of those premises for potential future lessees.
We are also satisfied that Kathmandu is superior to the tenant's premises by reason of its improved condition resulting from improvements by the landlord prior to occupation by the lessee. Although it is true that s 11(2) of the CTA Act provides that a market rent valuation be based on the retail shop being vacant, that does not necessarily invoke the concept of a 'bare shell'. As the tenant points out, the references in s 11(2)(a)(ii) and (iii) to fixtures and fittings not the property of the landlord, and structural improvements or alterations carried out by the tenant, contemplates that the retail shop may be assumed to exhibit such fixtures, fittings, improvements and alterations of the landlord. We have rejected the landlord's suggestion that the Kathmandu incentive was for what might normally be regarded as landlord's works ‑ tidying up and levelling the premises and removal of asbestos. We have further observed that those works were complete at the commencement of the lease, and consequently, that the premises would have presented in a better condition, and readier for the lessee's fit out, than before.
By contrast, the applicant's premises were described in Mr Vincent's report to be 'aged and generally in need of a lessor renovation at this time', to which no counter‑veiling description was offered by the landlord.
In addition, whereas the lessee of the Kathmandu lease is responsible for air conditioning running costs, the tenant is responsible for any necessary repairs or replacement of the existing air conditioning system, which, we are told, is of considerable age.
By reason of the accumulation of relative advantages enjoyed by the Kathmandu lessee in comparison with the tenant, we consider that the concession of Mr Kish at the hearing that a discount of 2 or 3% to the Kathmandu rental might apply is inadequate. The Kathmandu premises were of significantly more appeal to a tenant for the reasons alluded to above. The rental relativities between the two premises should reflect this.
Given the discounted (for the incentive) Kathmandu rental of $1,377.30 per square metre, we have determined the rental of the tenant's premises at the review date to be $1,200.00 per square metre. This represents a further discount of approximately 13%. In light of all the various points of relative disadvantage exhibited by the tenant's premises, we consider this discount to be entirely reasonable.
We have considered our determination of the market rent of the subject premises in the context of two other comparator premises referred to by the valuers – General Pants and Rosendorff Jewellers.
General Pants occupies a prime position in the Murray Street Mall, some distance from the subject premises and Kathmandu. It has a similar area to both, with uninterrupted 10.5 metre frontage and regular shape. Both valuers agree that the General Pants ground floor rental has been analysed at $1,485.31 per square metre net as at 1 July 2012. Given its relative advantages, we consider the General Pants evidence to be consistent with our determination.
Rosendorff Jewellers was the subject of a determination of the Tribunal of market rent as at 1 February 2012. The reasons for that determination are in evidence before us. The determination in that case translated to a gross ground floor rental of $1,700.00 per square metre. Based on inquiries conducted by Mr Kish, it appears that, subsequent to the necessary deduction for outgoings, the net per square metre figure is $1,419.
In his oral evidence, Mr Vincent said that he considered that the 12.5% discount he had assessed when comparing the subject premises with Rosendorff was conservative, given that Rosendorff is in a superior location (Mr Kish disputed this), smaller and has a larger frontage. Mr Kish indicated that although he agreed that some differential should apply in favour of Rosendorff, 12.5% was excessive.
Bearing in mind that the Rosendorff premises are not the most comparable, and given, in particular, the factors of size and frontage tending to increase its market rent, we believe that our determination of a figure for the subject premises some 13.5% less than Rosendorff is within reasonable limits.
We are further satisfied (both valuers agreeing) that general market conditions as at 1 July 2012 were not favourable to retailing, as evidenced by the extended vacancy of the Kathmandu premises prior to its leasing on the incentive provided. We specifically reject the notion relied upon by Mr Kish that no landlord in the Hay Street Mall precinct where the tenant's premises are located would ever accept any reduction in rent regardless of the economic conditions or the rentals of other comparable tenancies. Such self-fulfilling prophesies play no part in the assessment of market rental under the CTA Act. As illustrated by the facts of this case, passing rental can exceed market rental where, for example, non-market rent review mechanisms in a lease operate to inflate actual rent contrary to prevailing market conditions.
Conclusion
The parties, through the deliberations of their respective valuers, agreed upon a gross rental for the basement and upper level areas of the tenant's premises of $125 per square metre, or $62,512.50 per annum. After deducting outgoings, the per annum figure reduces to $12,802.50.
Our determination of a net rent for the ground floor of $1,200 per square metre on the basis of an area of 477.46m² computes to a ground floor net rental of $572,952 per annum. After adding the net rental for the basement and upper level, the final figure comes to $585,754.50 per annum, which is exclusive of GST.
Order
The Tribunal will issue an order in the following terms:
1.The net Current Market Rent of the premises situated at 705-707 Hay Street Mall Perth as at 1 July 2012 is $585,754.50 per annum exclusive of GST.
I certify that this and the preceding [61] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
MR T CAREY, MEMBER
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
CITATION: FLYER SERVICES PTY LTD and MARSHALL [2014] WASAT 52 (S)
MEMBER: MR T CAREY (MEMBER)
HEARD: DETERMINED ON THE DOCUMENTS
DELIVERED : 9 MAY 2014
FILE NO/S: CC 774 of 2013
BETWEEN: FLYER SERVICES PTY LTD
Applicant
AND
COLIN MARSHALL
MARY JEANETTE MARSHALL
COBALT NOMINEES PTY LTD
RUTH MARGARET BARRETT
GEORGE EDWARD BERNARD BARRETT
SANDRA MARJORY GATTI
WILLIAM KIMBERLEY ROUTLEDGE
PULLINGTON INVESTMENTS PTY LTD
GWENYTH BAILEY
DAVID VENTRESS WEDDERBURN
JOHN WESLEY BUTLER
NORA MAY McWHINNEY
JOHN WILLIAM CALDOW
RODD KENNETH BUDGE
CAROLYN JAN GUIDA
JACQUELYN KAYE BOYLE
Respondents
Catchwords:
Retail shop Application for costs Whether appropriate case for exercise of discretion To award costs
Legislation:
Commercial Tenancy (Retail Shops) Agreement Act 1985 (WA), s 11(3), s 11(5), s 16
Legal Practitioners (State Administrative Tribunal) Report and Determination 2012
Legal Practitioners (Supreme Court) (Contentious Business) Report and Determination 2012
State Administrative Tribunal Act 2004 (WA), s 87(1), s 87(2)
State Administrative Tribunal Rules 2004 (WA), s 40, s 41, s 42
Supreme Court Rules 1971 (WA), o 24A
Result:
Application for costs granted in part
Summary of Tribunal's decision:
The applicant sought an order for costs upon the conclusion of the Tribunal's determination of the rent payable as a result of a market review. It did so based on the strength of its case, the complexity of the issues, the importance of the outcome, and aspects of the respondents' conduct, including their refusal of settlement offers.
The Tribunal rejected all but one of the applicant's grounds. It agreed that the respondents should pay the applicant's costs in relation to a preliminary hearing concerning the validity of the rent review, which the respondents instigated before the original final hearing date, and in relation to which they were unsuccessful.
The Tribunal went on to fix the costs based on the limited scope of the costs award.
Category: B
Representation:
Counsel:
Applicant: M G Cobby
Respondents : Ms E Hensler
Solicitors:
Applicant: M 6:8 Legal
Respondents : Borello Legal
Case(s) referred to in decision(s):
Ampezzo Pty Ltd and Franken [2009] WASAT 109 (S)
Beba Enterprises and Elle Pty Ltd [2013] WASAT 120
Flyer Services Pty Ltd and Marshal [2014] WASAT 52
Flyer services Pty Ltd and Marshall [2013] WASAT 188
Gill & Ors and Wildnight Pty Ltd [2008] WASAT 135
J&P Metals Pty Ltd and Shire of Dardanup [2006] WASAT 282 (S)
Law and Town of Vincent [2006] WASAT 263(S)
Marvelle Investments Pty Ltd and Argyle Holdings Pty Ltd [2010] WASAT 125 (S)
Mc Kay V Commissioner of Main Roads (7) [2011] WASC 223 (S)
Medical Board of Australia and Costley [2013] WASAT 2
Myers v Pioneer Concrete (Vic) Pty Ltd [1997] ANZ ConvR 331
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
On 9 May 2014, the Tribunal delivered its determination under s 11(5) of The Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (CTRSA Act) of a question regarding the rent payable for a retail shop leased by Flyer Services Pty Ltd (tenant) from Mr Marshall and his co-respondents (landlord) arising from a rent review: see Flyer Services Pty Ltd and Marshall [2014] WASAT 52 (substantive decision).
On 29 May 2014, the tenant filed an 'interim application' seeking its costs of the proceeding on five separate grounds. The grounds were supplemented in an outline of submissions filed on 18 June 2014. The costs sought to be awarded are in the vicinity of $85,000, based on a claim for some portion of the costs being awarded on an indemnity costs basis, or approximately $73,000, if no indemnity costs are granted.
The landlord, in its submissions filed on 1 July 2014, expressed its opposition to the tenant's costs application, and to the amounts claimed, assuming a cost order is made.
The tenant filed submissions in reply to the landlord's submissions on 7 July 2014.
In this decision, in accordance with the order of the Tribunal on 3 June 2014, I will determine the costs application on the basis of the documents filed by the parties, and, in the event of any award of costs, fix the amount of those costs.
Merits of costs application
The tenant relies explicitly on the following five factors as giving rise to its claimed entitlement to a costs order:
1)Its case was strong. It succeeded in each issue for determination.
2)The proceeding involved technical issues and complex legal arguments, differentiating it from most rental determination cases in the Tribunal.
3)The importance of the proceeding to the tenant, given that the outcome would continue to operate for the remaining three years of the lease.
4)The landlord's conduct, which resulted in an increased costs exposure for the tenant.
5)The landlord's refusal of three offers which should have been accepted by it to resolve the matter.
There is now a number of published decisions of The Tribunal dealing with the circumstances in which costs orders might be made under s 87(2) of the State Administrative Tribunal Act 2004 (WA) (SAT Act) despite the presumption arising from s 87(1) of the SAT Act that parties bear their own costs: see for example Pearce & Anor and Germain [2007] WASAT 291 (S) (Pearce), Gill & Ors and Wildnight Pty Ltd [2008] WASAT 135, J&P Metals Pty Ltd and Shire of Dardanup [2006] WASAT 282 (S), Medical Board of Australia and Costley [2013] WASAT 2 and Marvelle Investments Pty Ltd and Argyle Holdings Pty Ltd [2010] WASAT 125 (S).
In the commercial tenancy context, the following excerpt from Pearce, a decision of (the then) Deputy President, Judge Chaney (as he then was) is particularly apposite (Pearce at [24]) :
In my view, the approach that should be taken to costs in proceedings under the CTRSA Act should reflect …. that decisions on costs might serve to promote certainty and responsibility in parties to their contractual responsibilities. That does not mean that there is a presumption that costs will follow the event. Rather, where it is necessary for a party to a retail shop lease to take proceedings in the Tribunal to vindicate its clear contractual entitlements, and to incur costs in doing so, it will 'often not be unreasonable for an award of costs to be made'. The position is the same where costs are incurred in defending an obviously unmeritorious claim. Where, however, there is a genuine dispute between the parties to a lease, their respective rights are unclear and one or both seek determination of their rights in the Tribunal, the starting point remains that each party should expect to pay their own costs[.]
As a general rule, I would have thought that where, as here, parties to a retail shop lease invoke the rent review process set out in s 11(3) of the CTRSA Act by each party appointing its own licensed valuer, the parties' respective valuers fail to reach agreement on the rent payable as a result of the review, and the dispute is referred to the Tribunal under s 11(5) of the CTRSA Act, that the dispute would be reasonably regarded as a genuine dispute between the parties, the respective rights of whom are unclear.
I am disinclined to the view that a party who ultimately can be regarded as the unsuccessful party (the lack of success being measured on the basis of the outcome more closely aligning itself with the opposing party's valuation) ought thereby be penalised by a costs order against it. A party is generally entitled to rely upon advice received from an expert it engages when the advice is within the expert's area of expertise. Even where, as here, the unsuccessful party's valuer has been found to adopt a wrong method (in this case, the zoning method), that would, on its own, be an insufficient basis to overturn the no costs presumption.
In this matter, the tenant was critical of the landlord's choice of Mr Kish as its valuer, based on a perceived conflict of interest arising from Mr Kish's directorship of Messrs Burgess Rawson, the landlord's managing agent. All I need say in relation to the claim of conflict of interest is that the Tribunal did not consider Mr Kish to be so compromised as to exclude his evidence, but rather, decided the dispute based upon its critical analysis of the evidence of both valuers.
I do not consider that any of the tenant's first three nominated factors overrides the conclusion I have reached, on the above reasoning, that that part of the proceeding concerned with the Tribunal's determination of market rent should not be the subject of a costs order.
The tenant then relies upon the landlord's conduct in the proceeding, which it claimed to have increased the tenant's costs, by reference to the following two examples:
•the preliminary issue raised shortly before the first scheduled hearing date, which was decided against the landlord’s position; and
•arguments of the landlord in the substantive hearing which were 'technical, convoluted and unmeritorious', including reliance on the depth analysis valuation method and a strained and complex construction of the lease.
I have already discounted the landlord's valuer's methodology as a factor justifying a costs order. Nor am I persuaded that the matter was unduly prolonged by any arguments at the final hearing concerning the construction of the lease, noting that the main issue of construction concerned the incentive associated with the Kathmandu lease, in relation to which, as the Tribunal found, the provisions of the CTRSA Act prevailed over the provisions of the lease when in conflict.
However, for the reasons which follow, I consider that the landlord ought to bear the tenant's costs associated with a preliminary issue or matter which was, at its behest, heard and determined before the final hearing.
The factual circumstances which led to the Tribunal dealing with the matter raised by the landlord, which amounted to a challenge to the legality of the application, and the jurisdiction of the Tribunal to hear it, based upon an assertion that no valid rent review had been undertaken, are set out in Flyer Services Pty Ltd and Marshall [2013] WASAT 188 (preliminary decision) at [1][6], which I incorporate into these reasons. In fact, the preliminary decision was concerned explicitly with two questions arising under the lease, which the tenant was permitted to add to its application. In the event, the Tribunal found both that the landlord was obliged to instigate a rent review in respect of each market review date, and that the landlord was estopped from denying that a rent review for the relevant date had been commenced. The result was that the hearing concerned with the determination of the market rent then proceeded.
I accept, as submitted by the landlord, that merely finding against a party on an issue is insufficient to invoke the power to award costs in respect of that issue. However, in my view, there are sufficient indicators that the additional cost to the tenant occasioned by the landlord's unsuccessful attempt to prevent the substantive hearing from proceeding was reasonably to be regarded as being at the landlord's risk. Those indicators are:
a)The landlord's challenge was raised very late in the proceeding, some two weeks prior to the original hearing date for the substantive matter, when it might be expected that the tenant's legal representatives would have commenced their hearing preparation.
b)The landlord's challenge was precipitated by the Tribunal's decision in Beba Enterprises and Elle Pty Ltd [2013] WASAT 120 (see the landlord's solicitors' letter dated 22 August 2012 to the Tribunal), when the lease concerned in that matter contained terms different in significant respects from the parties' lease.
c)Although not using any words expressing particular lack of merit to describe the landlord's arguments in the preliminary decision such as 'untenable', 'frivolous', or 'vexatious', I did in the preliminary decision make a number of observations and findings which reflected poorly on the quality of the landlord's challenge. They included:
•(at [14]) the landlord's submissions fail to pay proper regard to the ordinary meaning of, in particular, the critical clause of the lease;
•(at [19] [20] ) the landlord's attempt to distinguish Myers v Pioneer Concrete (Vic) Pty Ltd [1997] ANZ ConvR 331, a case seemingly on all fours with the present case, based on the use of 'shall' in preference to 'will' was fulsomely rejected;
•further arguments advanced by the landlord were emphatically rejected at [32] - [42];
•(at [43]) the landlord's submissions relying upon the CTRSA Act said to favour the landlord's construction of the lease were described as 'tenuous'; and
•in accepting the tenant's estoppel case, I found that to allow the departure from the assumption adopted by the parties that acceptance of the landlord's submissions would have entailed would be unconscionable (at [86]).
I now turn to the final reason advanced by the tenant to justify a costs order, concerning a number of offers of settlement rejected by the landlord.
The tenant relies upon three offers, the details of which are:
First Offer
In the tenant's legal counsel's email to Mr McCormick of Burgess Rawson, dated 7 June 2013 and marked 'without prejudice save as to costs', the following proposal was put:
1)Net rental set at $600,000 from 1 July 2012; and
2)The landlord to waive the tenant's refurbishments works set out in clause 14.3.
The email stipulated that the offer would remain open for seven days.
Second Offer
In the tenant's solicitors' letter to Mr McCormick, dated 18 July 2013 and marked 'without prejudice save as to costs', the following offer was put:
1)Net market rental as at 1 July 2012 be fixed at $580,000 exclusive of GST;
2)Interest to accrue on the difference between the rent paid since 1 July 2012 and the agreed rent at 12%; and
3)The landlord to release the tenant from any obligations to repaint and redecorate during the current lease term.
The letter stated that the offer was open for 21 days.
Third offer
In the tenant's solicitors’ letter to the landlord's solicitors, dated 4 February 2014 and marked 'without prejudice save as to costs', the following offer was made:
1)The base rent for 1 July 2012 be fixed at $600,000 exclusive of GST; and
2)Certain conditions were placed on repayment of rent overpaid by reason of the agreed figure.
The letter stipulated the offer to be open until 4.30pm on 6 February 2014.
The State Administrative Tribunal Rules 2004 (WA) (SAT Rules) contain a number of provisions regarding settlement offers, the acceptance of offers and the possibility of an order for costs if an offer is rejected. I reproduce below r 40, 41 and 42 of the SAT Rules to the necessary extent:
40.Settlement offers
(1)An offer to settle a proceeding that is before the Tribunal may be made
(a)with prejudice, meaning that any party may refer to the offer, or to any terms of the offer, at any time during the proceeding; or
(b)without prejudice, meaning that the Tribunal is not able to be told of the making of the offer until after it has made its decision in respect of the matters in dispute in the proceeding (other than in relation to the making of orders in respect of costs).
(2)If an offer does not specify whether it is made with or without prejudice, it is to be treated as if it had been made without prejudice.
(3)A party may make more than one offer[.]
41. Acceptance of settlement offers
(1)An offer may be open for acceptance for any period. However, an offer must be open for acceptance until the commencement of the hearing or until the expiry of a specified period after the offer is made, whichever is the shorter period.
(2)The minimum period that can be specified is 14 days.
(3)An offer cannot be withdrawn while it is open for acceptance without the permission of the Tribunal[.]
42.Order for costs if settlement offer is rejected
(1)This rule applies if
(a)a party to a proceeding (other than a proceeding in the Tribunal's review jurisdiction) gives another party to the proceeding an offer in writing to settle the proceeding; and
(b)the other party does not accept the offer within the time the offer is open; and
(c)the offer complies with rules 40 and 41; and
(d)in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.
(2)If this rule applies, the Tribunal is to, in determining the costs that may be awarded, take into account that the party did not accept an offer more favourable than the Tribunal's order.
(3)In determining whether its orders are or are not more favourable to a party than an offer, the Tribunal
(a)must take into account any costs it would have ordered on the date the offer was made; and
(b)must disregard any costs it ordered in respect of any period after the date the offer was received.
In the tenant's costs submissions, when, relying upon Ampezzo Pty Ltd and Franken [2009] WASAT 109 (S) (Ampezzo), reference is made to a list of factors considered to be relevant in determining whether a 'Calderbank' offer can be afforded similar status to an offer compliant with the rules, the factor that I regard as the most critical - that the order made by the Court or Tribunal is not more favourable to the other party than the offer - is not mentioned. In Ampezzo, this precondition was met in relation to both offers under consideration: Ampezzo at [36].
The requirement that the offer be at least as favourable as the order is to be contrasted with the different question, relevant in the context of indemnity costs orders, of whether a rejection of an offer was reasonable. As Beech J said in connection with the Calderbank offer with which he was concerned in Mc Kay v Commissioner of Main Roads (No 7) [2011] WASC 223 (S) (Mc Kay) at [127]:
The character of what animates the exercise of the exceptional power to award indemnity costs explains why the courts require a finding of unreasonable rejection before indemnity costs are available based on a Calderbank offer. Those considerations do not apply to using a Calderbank offer to order party-party costs. I do not think the breadth of the costs discretion should be or is constrained by a requirement of finding unreasonable rejection as a prerequisite to a party-party costs order based on a Calderbank offer.
The effect of the order made by the Tribunal was to fix the net market rent of the premises as at 1 July 2012 at $585,754.50 per annum exclusive of GST.
Notwithstanding the importance placed by the tenant on the second offer, including proposing that costs be awarded on an indemnity basis from the date that the second offer lapsed, that offer does not fulfil the precondition to which I have referred. An offer to fix the rent at $580, 000 is not more favourable to a landlord than an order fixing the rent at $585,000. Further, the offer included a release of the tenant's refurbishment obligation under the landlord, to the further disadvantage of the landlord.
To argue, as the tenant does, that the offer was 'not much less than' the decision amount is not to the point, and seems to rely upon a reasonableness argument, rather than whether the offer fulfils the most critical requirement for the making of an adverse costs order, whether based on the SAT Rules or Calderbank principles.
The first offer, which is not compliant with the SAT rules (the period for acceptance being less than the required 14 days), but might nonetheless be considered in accordance with the Calderbank principles, is tainted by the fact that it is not limited to fixing the rent at $600,000 (which I am prepared to assume is exclusive of GST). It contained as well a requirement of a waiver of the tenant's refurbishment obligation. The landlord sought to demonstrate that this might amount to an impost upon it of almost $74,000, based on a painting quotation provided with its costs submissions.
The tenant advanced a number of reasons why the landlord's reliance on the painting quotation was misplaced and the Tribunal should not afford it any weight. However, it is for the tenant to persuade me that the first offer, if accepted, would have been more favourable to the landlord than the Tribunal's decision. The proposed new rent figure is some $14,000 per annum higher than the Tribunal's determination, which would have enured for three years. However, the tenant produced no evidence going to the diminished value to the landlord represented by the proposed waiver of the refurbishment obligation. In these circumstances, I cannot be satisfied that the first offer was more favourable to the landlord than the Tribunal's offer.
This leaves the third offer upon which the tenant relies.
The third offer was made on 4 February 2012, six days before the substantive hearing, and was open for acceptance for just two days. The third offer was clearly not an offer to which r 42 applies. In order for it to be so, it would have needed to have been open for acceptance until the commencement of the hearing, by reason of r 41(1) of the SAT Rules. I therefore need to consider whether a costs order consequential upon the landlord's rejection of the third offer based on Calderbank principles is warranted. I do so in the absence of either party making submissions on that matter specific to the third offer.
In contrast with the first and second offers, I am satisfied that the third offer does meet the critical requirement under r 42 that the final order not be more favourable to the landlord than the offer. The amount of the proposed rent was some $14,000 per annum higher than the Tribunal's determination. The further condition of the third offer, relating to interest on the rent overpaid in light of the proposed agreed rent, and the time of its payment, would not have represented any detriment to the landlord which, on my reading of the lease and the provisions of the Act relating to reimbursement of overpaid rent in the scenario being considered, it would have otherwise been exposed to.
The judgment of Beech J in Mc Kay at [135] [150] contains an interesting discussion regarding offers made shortly before trial and, generally, open for a short period. The NSW authorities to which his Honour refers need to be read with caution, as the analogous rule to r 42 of the SAT Rules (and o 24A of the Supreme Court Rules1971 (WA)) themselves provide that in the 28 days leading to trial, an offer must be open for a 'reasonable period', and the cases are concerned with whether the periods allowed were reasonable.
Beech J summarised the cases considered by him as follows (at [150]):
(a)in some cases, offers open for less than a week have been sufficient, or described as borderline;
(b)an offer open for less than a day was 'borderline';
(c)in other cases, offers made in the week before trial have been given little weight; and
(d)each case depends on its own circumstances.
In the context of a formal regime in the Tribunal requiring that, in order for the rule to be invoked, the offer remain open until the commencement of the hearing, I consider that an offer made six days before the hearing and left open for two days only is not one the rejection of which should alter the usual position that each party bear its own costs.
Quantification of costs allowed
I have found the tenant to be entitled to an order for its costs, limited to those costs incurred by reason of the landlord's raising, some two weeks before the original substantive hearing date, a preliminary issue based upon its assertion that a market review had never been validly commenced.
The tenant produced a schedule of costs in relation to the entirety of the proceeding (tenant's schedule). Items 4, 5, 6 and 7 relate to the period during which the preliminary issue was raised and determined. Those items are reproduced below:
| No | Date | Description | Scale Item | Amount $ |
| 4 | 27/08/2013 | Preliminary Issue in relation to the landlord's obligation to initiate a rent review SP – 7.7 hours @ $374 per hour Clerk – 11 hours @ $132 per hour Counsel, Mr Gary Cobby: 10.42 hours @ $297 per hour 0.5 days @ $2,970 per day | 22 by analogy | 8,911.54 |
| 5 | 05/09/2013 | Statement of Issues Facts and Contentions SP – 1.5 hours @ $374 per hour | 1 (c) by analogy | 1,980.66 |
| 6 | 04/09/2013 | Amended Application SP – 1.5 hours @ $374 per hour Clerk – 3.7 hours @ $132 per hour Counsel, Mr Gary Cobby – 0.58 hours @ $297 per hour | 1 (a) by analogy | 1,221.66 |
| 7 | 18/09/2013 | Directions Hearing, including preparation SP – 1.7 hours @ $374 per hour | 24 | 635.80 |
Each of the amounts claimed in respect of the above items is claimed on an indemnity basis. As already discussed, the reason for this is linked to the rejection by the landlord of the second offer. As I have declined to have regard to that rejection in relation to the tenant's entitlement to costs, it cannot form the basis of a claim, in respect of the preliminary issue period, for indemnity costs, rather than party and party costs. For reasons that follow, this has made no difference to the amounts I have decided to allow in fixing the tenant's costs.
The tenant's written submissions on costs explain that the claims in the tenant's schedule were formulated 'using the SAT scale as a guide, and the Supreme Court scale as an additional guide'. The 'SAT scale' is the Legal Practitioners (State Administrative Tribunal) Report and Determination 2012, ('SAT scale') and the 'Supreme Court scale' is the Legal Practitioners (Supreme Court) (Contentious Business) Report and Determination 2012. The reliance on the Supreme Court scale in respect of the four identified items appears to be limited to their characterisation. The actual, financial, claims made are calculated by reference to time spent by those working on the matter at rates reflecting the maximum allowable rates under the SAT scale.
I have no difficulty in allowing the maximum allowable rates for each category of practitioner under the SAT scale as claimed by the tenant, having regard to the following matters:
•the circumstances of the raising of the preliminary issue by the landlord, some two months after commencement of the proceeding (which followed a period when the dispute was with the Small Business Commissioner) and two weeks prior to the original substantive hearing date;
•the serious consequence for the tenant, were the landlord’s challenge to succeed, that the Tribunal’s determination of the market rent would not proceed;
•the requirement, to facilitate the landlord’s challenge, that the tenant amend its application by adding two questions for referral to the Tribunal; and
•the number and nature of the issues required to be considered and argued at the hearing, reflected in the Tribunal's reasons for decision going to 27 pages.
Further, in all the circumstances, including the lack of response by the landlord to the tenant's claimed times spent by a senior practitioner, clerk and counsel, I am, with two reservations, prepared to fashion the costs order based upon the times stipulated in the tenant's schedule.
The first reservation concerns item 5 (Statement of Issues Facts and Contentions), for which allowance is sought for a senior practitioner of 1.5 hours and counsel for 4.78 hours.
At the directions hearing on 27 August 2013, when the original final hearing date was vacated, the tenant was directed to file and serve 'an amended application and outline of submissions addressing questions referred to the Tribunal under s 16 of the [CTRSA Act]'.
On 5 September 2013, the tenant filed a 'Statement of Issues, Facts and Contentions'. This contains submissions addressing the s 16 questions, but also deals with the substantive question of the appropriate amount of the market rent for the premises at the relevant time. Given the limited scope of the costs order, it is necessary for me to estimate the relative proportion of the document dealing with the preliminary issue, and allocate the appropriate portion of the total amount claimed for this item.
Going on the contents of the Statement of Issues Facts and Contentions, roughly equal work was involved on the preliminary issue/referred questions and the substantive rent determination. I am prepared to allow $1,000 of the $1,988.66 claimed in respect of item 5.
My second reservation relates to item 6 (amended application), which claims $1221.66 based upon 1.5 hours for a senior practitioner, 3.7 hours for a clerk and 0.50 hours for counsel.
On 4 September 2013, in compliance with the direction made on 27 August 2013, the tenant filed an amended minute of proposed orders. When compared with the original of minute of proposed orders which accompanied the original application document, the amended minute contained a referral of two questions to the Tribunal, a plea, in the event of particular answers to those questions, for two alternative orders, and the introduction of the orders sought in the original minute of the scenario in which those orders were now to be sought.
These amendments do not, in my view, justify the time claimed to have been spent on their formulation. I am prepared to allow 0.5 hour for a senior practitioner and counsel's full claim of 0.58 hours. Adding the relevant amounts together, an amount of $359.26 is arrived at.
Given the objective of the costs order to recompense the tenant for its additional legal costs arising from the landlord’s unsuccessful challenge to the validity of the rent review process, it is appropriate that I make another allowance for the undoubted consequence of the initial substantive hearing date being vacated that some preparation for the original final hearing date was wasted. I note that this concerns item 3 in the tenant's schedule, preparing of case for hearing, in respect of which five hours of a senior practitioner's time is claimed. Although the final claim for preparation (item 10) includes a seemingly generous claimed times for the senior practitioner of 44 hours and clerk of 40.7 hours, I am prepared to assume that the intercession of the hearing and determination of the preliminary issue meant that a substantial proportion of the five hours' preparation prior to 8 August 2013 was wasted, in the sense that it needed replication some months later after the preliminary issue was dealt with. I estimate that three of the five hours were so wasted, which I will add to the costs for which the landlord is responsible.
The only other item in the tenant's schedule capable of falling within the scope of the costs to be awarded to the tenant is item 15, costs application including quantification.
Unlike the other items I have allowed, this item merely refers to an amount, $7000, without referring to time spent by whom. The analogous item in the Supreme Court scale said to be relevant is item 10(a), which is ‘Proceedings in Chambers’ for which a maximum of $10,560 is payable, based upon two days preparation and one day’s hearing by counsel.
In Law and Town of Vincent [2006] WASAT 263(S), Member Parry (as he then was) said at [24]:
… [A]s the Tribunal said in J & P Metals Pty Ltd and Shire of Dardanup at [38], it expects 'that representatives of parties before the Tribunal will approach a proceedings in a way that minimises costs to their clients'. This expectation extends, perhaps even more strongly, to the assessment of costs. The Tribunal is a generally no costs jurisdiction. Its objectives include to 'minimise the costs to the parties': SAT Act s 9(b). Where, exceptionally, an order for costs is made, the Tribunal expects the parties and their representatives to take a sensible, pragmatic and broadbrush approach to the reasonable assessment of costs, such as the approach set out above.
A claim for $7000 in connection with this costs application is, by any measure, excessive, particularly so having regard to the above sentiment. Further, given its amount, the landlord and the Tribunal are entitled to expect a more informative statement of the reasons for the claimed amount than a mere reference to an item in the Supreme Court scale which is general in form and not especially apposite.
I accept that it was necessary for the tenant, through its lawyers, to draft the costs application and provide the tenant’s schedule and submissions supporting its claims. It is entitled to be reimbursed the reasonable cost of those endeavours to the extent that they relate to the limited scope of the costs order. I will allow the equivalent of three hours at the senior practitioners’ rate, in the amount of $1,122.
In summary, the amounts which I have found to have been incurred by the tenant for reimbursement by the landlord by way of an order for costs are:
Item 3
Preparation of case for hearing thrown away
$1,122.00
Item 4
Preliminary issue
$8,911.54
Item 5
Statement of issue facts and contentions
$1,980.66
Item 6
Amended application
$359.36
Item 7
Directions hearing
$635.50
Item 15
Costs application
$1,122.00
Total
$13,150.60
Order
The Tribunal shall issue an order in the following terms
1.The respondents shall pay the applicant a contribution to its costs fixed at $13,150.60 payable within 14 days of the date of this order.
I certify that this and the preceding [60] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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MR T CAREY, MEMBER
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