Horwood v Memocorp Australia Pty Ltd (No 2)
[2010] NSWADT 174
•13 July 2010
CITATION: Horwood v Memocorp Australia Pty Ltd (No 2) [2010] NSWADT 174 DIVISION: Retail Leases Division PARTIES: APPLICANT/CROSS RESPONDENT
RESPONDENT/CROSS APPLICANT
Richard Frank Horwood
Memocorp Australia Pty LtdFILE NUMBER: 085212, 095064 HEARING DATES: On the papers SUBMISSIONS CLOSED: 27 May 2010
DATE OF DECISION:
13 July 2010BEFORE: Chesterman M - Deputy President; Fagg N - Non-Judicial Member ; Griffiths G - Non-Judicial Member CATCHWORDS: Costs – retail lease LEGISLATION CITED: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994CASES CITED: AT v Commissioner of Police [2010] NSWCA 131
Ermsdorf Holdings Pty Ltd v Yuyucuoglu [2004] NSWSC 681
Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164
Higgins v Statewide Developments Pty Ltd [2010] NSWSC 383
Horwood v Memocorp Australia Pty Ltd [2010] NSWADT 69
Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3
Law Society of New South Wales v Dimitriou (No 2) [2010] NSWADT 37
Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1REPRESENTATION: APPLICANT
RESPONDENT
A Fernon, barrister
M Sneddon, barristerORDERS: The Respondent/Cross Applicant is to pay 85% of the Applicant/Cross Respondent’s costs of these proceedings, as agreed or assessed
REASONS FOR DECISION
Introduction
1 This decision relates to the costs of proceedings that the Tribunal has heard and determined, involving the parties to a retail shop lease (‘the Lease’) and a further lease granted following the exercise of an option to renew (‘the Renewed Lease’), relating to premises in a retail shopping centre at Strathfield. The lessor in the proceedings is the Respondent/Cross Applicant, Memocorp Australia Pty Ltd (‘Memocorp’). The lessee is the Applicant/Cross Respondent, Mr Richard Horwood.
2 Each of these parties instituted proceedings under the Retail Leases Act 1994 (‘the RL Act’) against the other party. The substantive hearing of the case took place on 16, 17 and 18 December 2009. The Tribunal delivered its decision on 12 March 2010 (Horwood v Memocorp Australia Pty Ltd [2010] NSWADT 69 – hereafter ‘the principal decision’).
3 Because the proceedings filed by Mr Horwood against Memocorp included an unconscionable conduct claim, the Tribunal was constituted, and remains constituted, in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’). It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.
4 The outcome of the proceedings was that Mr Horwood was partially successful. In the principal decision, the Tribunal upheld a claim by him that renovations that had been conducted in the shopping centre by a building contractor engaged by Memocorp breached the lessor’s covenant for quiet enjoyment contained in the Lease. It ordered that Memocorp pay to Mr Horwood $46,000 as damages for the resulting loss of business. This was significantly less than the amount ($335,405) calculated by his expert witness in a report filed on 30 November 2009 and the amount ($277,345.00) that Mr Horwood claimed during the hearing. The Tribunal dismissed the unconscionable conduct claim that Mr Horwood had filed. It also dismissed the cross claim lodged by Memocorp, in which the chief component was a claim for damages representing unpaid rent, amounting to $191,045.07, payable under the Renewed Lease.
5 The Tribunal also made the following directions regarding costs:-
Any application for costs in these proceedings must be filed and served, with supporting submissions, within 28 days of the date of this decision. The opposing party or parties must file and serve submissions in reply within a further 28 days. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved ‘on the papers’, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.
6 On 8 April 2010, Mr Horwood filed an application for costs, with supporting submissions, that Mr Fernon, his counsel in the proceedings, had prepared. On 6 May 2010, Memocorp filed submissions in reply, prepared by its counsel, Mr Sneddon. These included a passage in which Memocorp sought an order that Mr Horwood should pay the expenses that it had incurred in complying with a summons to produce documents issued at Mr Horwood’s request on 18 August 2009. On 27 May 2010, Mr Horwood filed submissions in reply responding to this application by Memocorp for the costs of compliance with the summons.
7 Although the directions regarding costs in the principal decision did not envisage the filing of any submissions in reply by Mr Horwood, the Tribunal, in preparing the present decision, has taken account of these submissions. The filing of them was appropriate in the circumstances and was not the subject of any objection by Memocorp.
Legal principles regarding the costs of these proceedings
8 By virtue of section 77A of the RL Act, awards of costs in Tribunal proceedings under this Act are governed by section 88 of the ADT Act. So far as is relevant here, section 88 provides:-
(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:…(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.
(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,
(e) any other matter that the Tribunal considers relevant.(d) the nature and complexity of the proceedings,
9 In a recent decision of the Court of Appeal, AT v Commissioner of Police [2010] NSWCA 131, Basten JA, delivering the judgment of the Court, referred at [33] to ‘the force of the general principle that each party should bear its own costs in the Tribunal, a principle applicable at both first instance and before the Appeal Panel’. He then said:-
Although an order varying the general rule may be made “only if” the relevant criterion is satisfied in a particular way, there is a relatively low hurdle for an applicant seeking an order. The criterion of “fairness” will take into account the compensatory purpose of an award of costs, which will generally favour the successful party. The circumstances in which fairness may be identified are indicated by the specific attributes listed in sub-s (1A), but subject to the generality of paragraph (e), read in its context. Other considerations will no doubt include the nature of the jurisdiction of the Tribunal which is invoked and the objects identified in s 3(b)-(g) of the [ADT Act].
10 The current version of section 88, in which the criterion of ‘fairness’ stated in subsection (1A) has replaced a rule that in the absence of ‘special circumstances’ no costs were to be awarded, became operative on 1 January 2009.
11 Subparagraph (d) of subsection (1A) of section 88 requires the Tribunal to take account of the ‘nature’ of the relevant proceedings. In cases applying the earlier criterion of ‘special circumstances’ (see for example Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164), it was consistently held that because of the ‘commerciality’ of proceedings in the Retail Leases Division the interpretation of the phrase ‘special circumstances’ should differ significantly from the interpretation that might be adopted in any other Division of the Tribunal.
12 In Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 at [28], the Appeal Panel quoted with apparent approval the following passage in Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1 (a decision on the costs of proceedings under the RL Act) at [37]:-
So, it is plain to me that, not only is this Division a commercial division dealing with commercial issues between lessors and lessees in a retail lease environment, but, in addition, proceedings should only be commenced in this Tribunal after very careful consideration of the merits of the case:… After all, commencing proceedings without such consideration inevitably results in considerable expense being incurred by the other party and one might not unreasonably ask: “why should the other party have to bear those expenses when the proceedings should not have been commenced in the first place?”
Mr Horwood’s principal submissions
13 The arguments advanced by Mr Fernon in support of Mr Horwood’s application for costs were based specifically on paragraphs (c), (d) and (e) of section 88(1A). They focused mainly on the matters raised by Memocorp in seeking to resist Mr Horwood’s claim that by virtue of the covenant for quiet enjoyment in the Lease it was liable to compensate him for loss of business caused by the renovations.
14 Mr Fernon pointed out that Memocorp sought without success to establish the following propositions before the Tribunal: (a) that after the renovations had been in progress for about three months (until the end of 2007), they ceased to disrupt Mr Horwood’s business to any material extent; (b) that a clause in the Lease (clause 15.2) permitting Memocorp to carry out alterations to the shopping centre precluded him from claiming damages for any such disruption; and (c) that a document (‘the Works Deed’) signed by him shortly before the renovations commenced had the same effect.
15 In the principal decision, the Tribunal rejected these propositions, following discussion, at [55 – 71], [126 – 135], [136 – 142] respectively.
16 Mr Fernon argued that each of these propositions was not merely rejected by the Tribunal, but was wholly untenable. As to the first (a proposition of fact), he drew attention to evidence deriving from Memocorp’s own internal emails and memoranda, to the effect that disruption of Mr Horwood’s business and the business of neighbouring tenants continued at least during the first three months of 2008. He argued that the second proposition (a proposition of law) was not supported by any authority at all and was directly contrary to three cases that he cited at the hearing. With reference to the third proposition (which related to the meaning of the Works Deed), he relied particularly on the following matters: (a) that a clause in this Deed releasing Memocorp from liability for any claim arising out of the renovations was shown in the executed version to have been deleted, with the deletion initialled by both parties; and (b) that an internal email within Memocorp, written during the negotiations preceding execution of the Deed, indicated that Mr Horwood was reserving his right to claim damages for loss of business.
17 Mr Fernon summed up his argument on these aspects of the proceedings by saying that Memocorp, ‘by its weak defences and ongoing denial of [Mr Horwood’s] justifiable claims for compensation’, required Mr Horwood to incur substantial legal costs in commencing and prosecuting his case.
18 Mr Fernon’s submissions on the remaining aspects of the proceedings were to the following effect:-
1. Although Mr Horwood did not recover all the damages that he claimed, the evidence that was led on his behalf and tested in cross-examination was largely necessary to support the damages that were awarded. The amounts of costs and time expended by seeking the larger amount of damages were relatively insignificant.
2. Memocorp’s cross claim for unpaid rent under the Renewed Lease was always bound to fail because (a) it depended on Mr Horwood being obliged to pay a much larger rent, based on what Memocorp alleged to be the current market rent, and (b) Memocorp never took the steps required to substitute any such increased rent for the rent that had been payable under the Lease. Yet Memocorp maintained this claim and Mr Horwood was obliged to defend it.
3. The mode of defence that Mr Horwood ultimately adopted was to make an unconscionable conduct claim. Although this claim was dismissed, Memocorp’s conduct had provided good grounds for making it. In particular, it had refused to grant rent abatement to Mr Horwood during 2008 on account of the renovations, even though it was contractually entitled, and indeed tried, to obtain reimbursement for this form of expenditure from its building contractor (see the principal decision at [68 – 70] and [158]). Furthermore, at [154] the Tribunal said that Memocorp’s behaviour towards Mr Horwood was ‘very unsympathetic’… (having regard particularly to the difficulties that he had sustained and to his good record as a long-term tenant)’ and that it displayed ‘an unhelpful reluctance to seeking to reach a compromise with him on disputed questions’. A comparable situation arose in Law Society of New South Wales v Dimitriou (No 2) [2010] NSWADT 37. In this case, the Law Society’s disciplinary application against a legal practitioner failed, but the Society was not required to pay costs under section 88 of the ADT Act because conduct of the practitioner had been largely responsible for the application being made.
19 Mr Fernon referred also to a ruling by the Appeal Panel in Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 at [47], to the effect that because a ‘substantial disparity’ existed between the strengths of the parties’ cases in that appeal, costs should be awarded to the successful party under paragraph (c) of section 88(1A). Mr Fernon maintained that since this phrase was not to be found in any part of section 88, the existence of a ‘substantial disparity’ was not something that Mr Horwood had to establish in order to obtain an award of costs pursuant to this paragraph. What mattered, he said, was that there should be a sufficient disparity to satisfy the criterion of ‘fairness’. But in any event, he submitted, there was in fact a ‘substantial disparity’ between the relative strengths of the parties’ cases in these proceedings, giving grounds for a costs order in Mr Horwood’s favour under paragraph (c).
20 Finally, Mr Fernon submitted that if the Tribunal decided that Mr Horwood should not recover his costs relating to his unconscionable conduct claim, an appropriate order would be that Memocorp should pay an amount within the range of 80% to 85% of his costs of the proceedings as a whole.
Memocorp’s submissions on costs
21 The matter chiefly emphasised by Mr Sneddon in his submissions on behalf of Memocorp was the substantial disparity between the amount of damages claimed by Mr Horwood during the hearing ($277,345.00) and the amount that he actually recovered ($46,000). Mr Sneddon pointed out that Mr Horwood did not at any stage offer to accept a lesser amount by way of compromise. In consequence, a significant proportion of the time and cost expended by Memocorp in preparing for and conducting the hearing had to be devoted to responding to Mr Horwood’s lay and expert evidence on damages. Much of this evidence was held to be irrelevant: see the principal decision at [165 – 166].
22 Mr Sneddon argued that in such circumstances the Tribunal should view the damages awarded (which were less than 20% of the amount claimed) as little better than ‘nominal’ and should treat Memocorp, not Mr Horwood, as the true ‘victor’ in the litigation. It should therefore apply the prima facie rule, stated in section 88(1) of the ADT Act, that the parties bear their own costs. In the alternative, if the Tribunal concluded that some costs should be awarded, they should not exceed 20% of the costs incurred by Mr Horwood.
23 In support of this part of his argument, Mr Sneddon referred to some English authority, which need not be discussed here, and to passages in two Supreme Court judgments.
24 In the first of the Supreme Court cases, Ermsdorf Holdings Pty Ltd v Yuyucuoglu [2004] NSWSC 681, Master Harrison said at [17]:-
In Anglo-Cyprian Trade Agencies Ltd v Paphros Wine Industries Ltd [1951] 1 All ER 873 Devlin J went on to say, immediately after the quote reproduced above, that in applying the rule, it is necessary to decide whether the plaintiff has really been successful and that a plaintiff who recovers nominal damages ought necessarily be regarded as a “successful plaintiff” but that it is necessary to examine the facts of each particular case. An award of nominal damages ought not today be regarded as a “peg on which to hang costs”…
25 In the second of these cases, Higgins v Statewide Developments Pty Ltd [2010] NSWSC 383, Barrett J said at [8 – 11]:-
8 The defendant also points to the fact that the issues on which the plaintiff was unsuccessful took up much more time and effort than the narrow issue on which he succeeded. The factual aspects of that issue were minimal. The defendant, relying on Hughes v Western Australia Cricket Association (Inc) (1986) ATPR 40-748, therefore argues that it is reasonable that the plaintiff bear the expense of litigating the portion on which he has failed and, going further, that he should pay the defendant’s costs referable to that portion.
9 I am satisfied that, in the way described by Hamilton J in Madden v McConnell [2001] NSWSC 1051, this is a case in which the successful plaintiff should have a costs order on the footing that costs follow the event but that he should have only part of the sum that would otherwise be awarded. The issue on which the plaintiff was successful involved very little evidence. The significant bulk of the hearing was spent on aspects on which the plaintiff failed.
11 I therefore order that the defendant pay one-sixth of the plaintiff’s costs as agreed or assessed on the ordinary basis, there being otherwise no order as to costs so that the costs should, as to the balance, rest where they fall.10 I accept the submission that, had the case been confined to the s 55(2A) aspect, the hearing would have occupied half a day rather than three days. It is, I think, fair to extend that apportionment to the case as a whole.
26 As mentioned above, Mr Sneddon’s submissions also included an application by Memocorp for an order that Mr Horwood should pay the costs that it incurred in complying with a summons to produce documents issued at Mr Horwood’s request on 18 August 2009. A number of objections raised by Memocorp to this summons were rejected by Judicial Member Fox at a hearing on 1 October 2009, following argument by counsel for both parties. In an invoice prepared by Memocorp’s solicitor, these costs were claimed to amount to $6,400 plus GST.
27 The grounds on which Mr Sneddon maintained that Mr Horwood should pay these costs were (a) that the summons sought production of a ‘vast quantity’ of documents that had already been produced pursuant to orders for mutual discovery in late 2008; (b) in dismissing the objections to the summons, Judicial Member Fox had stated that there should be ‘a caveat as to costs’ if the documents produced were ‘irrelevant to the hearing’; and (c) the Tribunal, as stated above at [21], regarded much of Mr Horwood’s evidence on damages as irrelevant.
Mr Horwood’s submissions in reply
28 In responding to Memocorp’s application for costs incurred in complying with the summons issued on 18 August 2009, the principal contentions advanced by Mr Fernon were as follows:
(a) The documents sought in four of the six paragraphs of the schedule to the summons related to Memocorp’s cross application for damages reflecting the amount of rent due but not paid under the Renewed Lease. At the time when mutual discovery was ordered, this cross application had not been filed in the Tribunal.
(b) Production of the documents sought in the remaining two paragraphs of the schedule had been required in the orders for discovery. But Memocorp had neither produced them nor advanced a reason (for example, confidentiality) for not producing them. It was therefore legitimate for Mr Horwood to seek to have them produced under a later summons.
(c) In any event, the assessment of the costs prepared by Memocorp’s solicitor was inappropriate, because no attempt was made to justify either the large amount of time taken to photocopy the documents or the hourly rate charged.
The Tribunal’s conclusions
29 In assessing these competing submissions, it is useful at the outset to summarise in broad terms the outcome of each of the various components of these proceedings, noting specifically the comparative strength of the different claims and defences advanced.
30 Mr Horwood’s claim that Memocorp should be held liable in damages for breach of the covenant of quiet enjoyment contained in the Lease was successful. The evidence relied on and the submissions made by Memocorp with a view to rebutting this claim did not, in the Tribunal’s opinion, carry much weight. There was, on this issue, a substantial disparity between the relative strengths of the parties’ cases.
31 On the other hand, the amount of damages ordered to be paid to Mr Horwood was less than 20% of the amount that he claimed. The lay and expert evidence that he adduced on this matter included a good deal of material that was not helpful. The Tribunal, however, does not view the damages awarded as merely ‘nominal’, nor would it regard Memocorp as the ‘victor’ in the litigation. Also, it attaches little importance to the fact that Mr Horwood did not communicate to Memocorp an offer to accept a reduced sum by way of compromise. It was always open to Memocorp to make its own offer of a reduced sum to settle the dispute.
32 Memocorp’s cross application for a substantial award of damages ($191,045.07) representing unpaid rent under the Renewed Lease was unsuccessful. The reasons why it failed – namely that on a proper interpretation of the lease the rent due from Mr Horwood was the same as under the Lease and the amount of rent that had been and would be received by Memocorp following his abandonment of the premises therefore exceeded what he would have had to pay if he had remained in possession – were readily discernible from the date (15 October 2009) on which Memocorp re-let the premises for three years at an increased rent. Memocorp’s case on this application, while initially arguable, became a weak one before the hearing commenced.
33 Mr Horwood’s unconscionable conduct claim failed, though in the principal decision the Tribunal expressed concern about certain aspects of Memocorp’s behaviour. It considers that the substantive component of the claim had some merit, principally for the reasons stated in the principal decision at [154] and [158]. Initially Mr Horwood sought ‘damages to be assessed’ as his remedy under this claim. At this stage, Memocorp had not filed its cross claim for unpaid rent. At the start of the hearing, Mr Horwood amended his unconscionable conduct claim, with the Tribunal’s leave, so that effectively it operated as a ground of defence to the cross claim. Taking into account the size of the cross claim, the Tribunal does not think that it was unreasonable for Mr Horwood to press this ground of defence.
34 A review of the Tribunal’s notes taken during the three days of hearing discloses that the question on which it considers Mr Horwood’s case to have been least meritorious – namely, the quantification of the damages due to him for breach of the covenant of quiet enjoyment – occupied about one fifth of the Tribunal’s time. In addition, both parties tendered quite lengthy reports prepared by their respective experts. A further proportion of the hearing time – between one fifth and one quarter – was devoted to the evidence relating to Mr Horwood’s unsuccessful claim of unconscionable conduct.
35 Memocorp’s claim to recover the costs of complying with the summons issued on 18 August 2009 is not sustainable for the reasons put forward by Mr Fernon. An additional reason is that the evidence available does not show that the documents sought, or any significant proportion of them, constituted evidence, whether on damages or any other matter, that the Tribunal found to be irrelevant.
36 In these circumstances, the Tribunal is satisfied that it is ‘fair’ to make an award of costs to Mr Horwood under section 88(1A) of the ADT Act. It takes into account particularly ‘the relative strengths of the claims made by each of the parties’ as required by paragraph (c) of subsection (1A) and ‘the nature… of the proceedings’ (viz, that they are proceedings of a commercial nature, instituted under the RL Act) as required by paragraph (d).
37 In view, however, of the weaknesses in certain aspects of Mr Horwood’s case – notably with regard to assessment of damages – the Tribunal’s conclusion is that the award of costs in his favour should be limited to 85% of his costs of and incidental to the proceedings.
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