MARVELLE INVESTMENTS PTY LTD and ARGYLE HOLDINGS PTY LTD

[2010] WASAT 125

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

STREAM:   COMMERCIAL & CIVIL

ACT: COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)

CITATION:   MARVELLE INVESTMENTS PTY LTD and ARGYLE HOLDINGS PTY LTD [2010] WASAT 125

MEMBER:   MR C RAYMOND (SENIOR MEMBER)

MS J HAWKINS (MEMBER)
MR M ANDERSON (SENIOR SESSIONAL MEMBER)

HEARD:   7, 8 AND 9 DECEMBER 2009, 3, 4 AND 5 MARCH 2010 AND 9 APRIL 2010

DELIVERED          :   7 SEPTEMBER 2010

FILE NO/S:   CC 777 of 2009

BETWEEN:   MARVELLE INVESTMENTS PTY LTD

Applicant

AND

ARGYLE HOLDINGS PTY LTD
TEGRA PTY LTD
BANTOY PTY LTD
BIRKAI PTY LTD
YOUSSA PTY LTD
ROSEMAC PTY LTD
MICHELA FINI
Respondent

Catchwords:

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) ­ Jurisdictional issue whether Tribunal can make declarations and set aside Notice of Default ­ Determination of questions referred ­ Whether landlord can require 24 hour per day trading ­ Nature, scope and purpose of turnover audit ­ Whether tenant in breach of obligation to keep proper sales records ­ Whether tenant in breach for failure to reconstruct accounting records and to provide staffing records ­ Whether landlord failed to act reasonably and in good faith or unconscionably

Legislation:

Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 5, s 7(3), s 12C, s 15, s 15C, s 16, s 26(4)
Commercial Tenancy (Retail Shops) Agreements Amendment Act No 66 of 1998
Corporations Act 2001 (WA)
Property Law Act 1969 (WA), s 7, s 81, s 81(1), s 81(2)
State Administrative Tribunal Act 2004 (WA), s 26(1aa), s 90, s 91

Result:

The application was substantially successful

Category:    B

Representation:

Counsel:

Applicant:     Dr JT Shoombee and Ms M Chua

Respondent:     Mr RE Lindsay and Mr R McCallum

Solicitors:

Applicant:     Summerslegal

Respondent:     McCallum Donovan Sweeney

Case(s) referred to in decision(s):

Argyle Holding Pty Ltd v Marvelle Investments Pty Ltd [2008] WASC 7

Argyle Holdings Pty Ltd v Marvelle Investments Pty Ltd [2008] WASC 7 at [33] ­ [39]

Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) CLR 337

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181

Mavaromatidis & Anor v Dundon & Anor (1997) 18 WAR 298

Murphy and Fremantle Markets Pty Ltd [2009] WASAT 84

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Pearce & Anor and Germain [2006] WASAT 305

Pearce & Anor and Germain [2007] WASAT 291 (S)

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSW LR 234 CA

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436

Western Metal Resources v Murrin Murrin East Pty Ltd [1999] WASC 257

REASONS FOR DECISION OF THE TRIBUNAL: 

Summary of Tribunal's decision

1. The applicant, a tenant in a retail shopping centre, made application to the Tribunal under s 16 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) referring a number of questions for determination relevant to a Notice of Default issued by the respondent landlord, and seeking declarations concerning a number of issues raised, and an order setting aside the Notice of Default.

2. The Tribunal rejected submissions made on behalf of the respondent that the Tribunal did not have jurisdiction to make the declarations sought, nor to set aside the Notice of Default. The Tribunal held that the questions had been validly referred under s 16 of the Commercial Tenancy legislation and that, once vested with jurisdiction, the Tribunal had power under s 26(4) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) to allow any equitable claim or defence and give any equitable remedy in a manner before it that the Supreme Court might allow or give. The Tribunal therefore proceeded to address the merits of the issues raised by the application concerning the alleged breaches of the lease relied upon in the Notice of Default.

3. On a proper construction of the lease, the Tribunal determined that the respondent was not entitled to require the tenant to trade 24 hours each day except Christmas Day.

4. In relation to a dispute between the parties concerning the nature, scope and purpose of an audit conducted by the respondent to verify the turnover of the applicant in respect of the financial years 2003, 2004 and 2005, the Tribunal adopted the description of the nature and scope of the audit as determined in Argyle Holdings Pty Ltd v Marvelle Investments Pty Ltd (2008) WASC 7 at [33] ­ [39] inclusive. The essence of this is that the identification of the ascertainment of the true turnover as the purpose of the audit informs the conduct and nature of the audit to be performed; that all or any matters tending to ascertain, determine, corroborate, confirm, refute, supplant or reject the reported figures will be relevant and may be examined according to objective standards by a suitably qualified expert. The Tribunal further found that there was an obligation on the respondent's auditor to act in a timely manner. As the auditor had concluded that the applicant had placed restrictions on the conduct of the audit, such that the auditor was unable to form an opinion in respect of the correctness of the reported sales turnover, the auditor should have issued a final disclaimer opinion concluding the audit process. Consequently, the audit had to be regarded as completed.

5. The Tribunal after analysing the relevant evidence concluded that the applicant was not in default in failing to provide the respondent with the original electronic sales data and staffing records.  In the ordinary course of business, the electronic data had been backed up by being saved to a server and the original data deleted to free up the memory of the recording system.  The respondent had been provided with a copy of the copy data on the server, but an analysis of all of the accounting records showed that it was fanciful to conclude that any modification had occurred to the electronic data.  The staffing records requested did not form part of the accounting records of the applicant, because the staff were engaged by a service company which invoiced the applicant.  The applicant had furnished all its staffing records.

6. The Tribunal rejected the applicant's contentions that the respondent had not acted reasonably or in good faith, or that the respondent had acted unconscionably in declaring that the applicant had to trade 24 hours each day, except Christmas Day, and in requiring the applicant to take steps to reconstruct its accounting records, which the Tribunal also held the applicant was not obliged to do.  The Tribunal further rejected the applicant's contentions that the respondent had acted unconscionably by issuing and refusing to withdraw the Notice of Default.

7. The Tribunal then answered the questions referred to it, based on the findings made, but declined to make certain of the declarations sought on a number of grounds, including that the declaration was inappropriately framed and not strictly necessary in view of the way in which the question referred had been answered, or was not consistent with the Tribunal's findings.

8. The Tribunal declined to declare that the Notice of Default was unenforceable and to set it aside, because the Notice of Default had included a number of grounds which were resolved between the parties.  As there had been no admission that the other grounds were not justified, it was not appropriate to make such orders and, in any event, the answers to the questions referred provided an adequate relief.

9. Declarations were made to the effect that the respondent was not entitled to require the applicant to trade 24 hours each day except Christmas Day, and to the effect that the applicant was not obliged to provide any further information or material in respect of the turnover audits.

10. The parties were provided a limited time within which to make any application for costs, having regard to the principles set out in Pearce & Anor and Germain [2007] WASAT 291 (S).

Introduction

1. The applicant is referred to as the applicant, lessee or tenant, depending on context.  The companies and the individual, together cited as the respondent, are referred to as the respondent, the lessor or the landlord, also depending on context.

2. This case involves a dispute between the landlord and the tenant of retail shop premises within a shopping centre.  The lease provides for turnover rent and gives the landlord a right to carry out an audit if not satisfied with the turnover disclosed and certified by the tenant's accountants.

3. The relationship between the parties has been clouded by suspicion on the part of the landlord, fed by a reluctance, at least initially, on the part of the tenant to provide access to all its accounting records and, as perceived by the landlord, an uncooperative attitude.  The landlord was successful in obtaining a Supreme Court order defining the documents to which it was entitled.  The landlord remains suspicious that, in some manner, which it cannot specify, the tenant may have manipulated its turnover results in respect of the 2003, 2004 and 2005 financial years, and asserts that the tenant has failed to provide access to all relevant records and in particular to the original sales transaction records, staff hours and costs.

4. A further dispute has arisen concerning whether the landlord is entitled to compel the tenant to trade 24 hours a day on every day except Christmas Day.

5. A Notice of Default has been issued by the landlord relating to the alleged breach of the lease by the tenant in failing to trade on a 24 hour per day basis and in failing to keep and make available the necessary accounting and staffing records.  That has resulted in the tenant making application to the Tribunal for orders effectively declaring the Notice of Default invalid.  The Notice of Default referred to other alleged breaches but it is common cause that those breaches are resolved so that the Notice of Default may be read as referring only to the above alleged defaults.

6. There are some disputes of fact between the parties, but generally, any factual disputes are not material.  The real issues between the parties relate to the extent of their respective rights and obligations under the lease.  Consequently, the background facts and the factual evidence adduced on behalf of the parties referred to in the discussion of the particular issues for determination below forms the factual basis for the Tribunal's decision and constitutes the Tribunal's findings of fact, unless the context indicates otherwise.  That evidence is reflected in each of the witnesses' witness statements which were admitted as exhibits and in their oral evidence.  Where any dispute of fact is material, that is also addressed in the discussion on the issues.

7. Both parties prepared bundles of documents for the hearing.  Unfortunately, the status of the bundles was not agreed and there was some dispute concerning the inclusion of documents marked 'without prejudice' which arguably might not properly have been without prejudice, and other documents which were not so marked, but which arguably should have been.  Consequently, it was agreed that documents included in the bundles would be admitted into evidence upon any witness statement being admitted which made reference to the documents (T:36 ­ 37, 7.12.09).  The parties thereafter referred witnesses during cross­examination and re­examination to various documents in the respective bundles (not referred to in witness statements) and have therefore effectively acquiesced in those documents contained in the bundles referred to in oral evidence being before the Tribunal.

The issues for determination

1. It is necessary to determine whether the grounds relied upon for the issue of the Notice of Default are made out. In addition, the questions referred to the Tribunal pursuant to s 16 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (CTRSA Act) must all be answered.  The questions are generally referable to the issues raised in the Notice of Default.  The landlord has also raised as a jurisdictional issue whether the Tribunal has power to grant the relief sought by the tenant, essentially on the basis that power to grant aspects of the relief sought is reserved for the Supreme Court.

2. Resolution of the following broad category of issues will determine the relief to which the tenant may be entitled and provide the basis for the answers to the questions referred to the Tribunal.

   1)Whether the Tribunal has jurisdiction to grant the relief sought.

   2)Whether, on a proper construction of the lease, the landlord can require the tenant to trade 24 hours each day except Christmas Day.

   3)The nature, scope and purpose of the audit by the landlord of the tenant's gross receipts.

   4)Whether the tenant is in breach of its obligations to keep and make available all records necessary to audit the gross receipts:

   (a)by failing to provide the original sales transaction records for the years ending 30 June 2003, 30 June 2004 and 30 June 2005;

   (b)by failing to provide or allow access to any (or any correct) cost of goods sold, staff hours or cost information.

   5)Whether the landlord was obliged to act reasonably and in good faith in exercising any right to declare trading hours and in requiring the tenant to re­enter and re­categorise costs of goods sold, and if so, whether the landlord acted unconscionably in failing to do so.

   6)Whether the landlord acted unconscionably by issuing and refusing to withdraw the Notice of Default.

Jurisdiction

1. It is convenient to deal firstly with the jurisdictional issue raised by the landlord.

2. The landlord submits that the Tribunal does not have power to declare invalid and set aside a statutory notice issued under s 81(1) of the Property Law Act 1969 (WA) (PL Act). That section prescribes that a right of re­entry or forfeiture in respect of a lease is not enforceable, by action or otherwise, unless and until the lessor serves a notice specifying the particular breach complained of and requiring the lessee to remedy the breach (where the breach is capable of remedy). If the lessee then fails, within a reasonable time after service of the notice to remedy the breach, the right of re­entry or forfeiture may be enforced. The Supreme Court is granted a statutory power under s 81 of the PL Act, quite distinct from its powers in equity, to grant or refuse relief against forfeiture on application by the lessee to the court. It has previously been held in Mavaromatidis & Anor v Dundon & Anor (1997) 18 WAR 298 that the Commercial Tribunal, which, prior to the establishment of the State Administrative Tribunal, exercised jurisdiction under the CTRSA Act, did not have power to grant such relief. The landlord acknowledges that the CTRSA Act has recently been amended so that s 26(4) thereof now enables the Tribunal to allow any equitable claim or defence, and give any equitable remedy, in a manner before it that the Supreme Court may allow or give. However, the landlord submits that the Notice of Default is statute­based and not equity­based and that there is nothing within the provisions of the CTRSA Act (referring specifically to s 16) which permits the particular orders sought. Reference is made by the landlord to the decision of Pearce & Anor and Germain [2006] WASAT 305 in which Supplementary Deputy President Viol held that the Tribunal did not have inherent power to grant equitable relief and that relief in relation to interim injunctions and a declaration under s 90 and s 91 of the State Administrative Tribunal Act 2004 (WA) (SAT Act) were the only expressly granted modes of equitable relief. That decision, however, preceded the amendment to the CTRSA Act granting equitable powers to the Tribunal. The landlord also submits that, as the Tribunal's power to terminate a lease are limited under s 26(1aa) of the CTRSA Act that supports its contention that there is no power to declare invalid a Notice of Default under s 81 of the PL Act, or to hold it invalid.

3. The landlord's submissions are not accepted. The tenant has not brought an application seeking relief against forfeiture. Questions have been validly referred to the Tribunal under s 16 of the CTRSA Act and the Tribunal is entitled to determine those questions, and once it is seized with jurisdiction to do so, the clear effect of the amendment effected by the introduction of s 26(4) of the CTRSA Act is to enable the Tribunal to give any equitable remedy. Prior to the amendment, it may well be that the Tribunal could have done no more than to determine the questions referred, the practical effect of which in any event would have been to determine finally the issues raised, and the order of the Tribunal would have been in the nature of a declaratory order. Consequently, even prior to the amendment, adverse answers to the questions referred would have resulted in the Notice of Default being unenforceable.

4. The orders sought by the applicant are set out at para 108 of its closing submissions. They are in a slightly different form to the orders as expressed in the application, but it was accepted that they are, in substance, the same. The matter was argued on that basis without any objection by the landlord. No formal application was made to amend the application but, in the circumstances, it will be treated as having been amended. The orders sought include declarations, all of which are consistent with the issues raised by the questions referred to the Tribunal. The effect of s 91 of the SAT Act is that a properly constituted tribunal may make an order in the nature of a declaration where there is power to do so under the enabling Act, otherwise the power to make a declaration is restricted to a judicial member. Under the CTRSA Act prior to the amendment inserting s 26(4), members of the Tribunal, other than judicial members, answered the questions referred, which resulted in the making of orders in the nature of a declaration. The power to do so is now made plain by s 26(4) of the CTRSA Act and there is no reason why, if consistent with the declarations made, a notice of default may not be set aside. The objection to jurisdiction is therefore rejected.

5. We accordingly turn to address the merits of the application.

Background

1. The tenant leases premises owned by the landlord comprising Shop G15 on the ground floor of the Bayview Shopping Centre (Centre), Claremont, from which it runs a business known as 'Fresh Provisions'.  It is common cause that the leased premises is a retail shop to which the CTRA Act applies.

2. The permitted use of the leased premises set out in the Second Schedule of the lease is 'Fresh Food, Gourmet Deli and Supermarket or such other use as may be permitted by the Lessor'.

3. From the commencement of the lease, in November 1995, to 28 July 2008, the tenant traded 24 hours each day seven days per week excluding Christmas Day.

4. The rent payable by the tenant is either a fixed amount or a proportion of the turnover of the business conducted by the tenant. The relevant clauses of the lease will be set out later in these reasons but, in essence, rent based on turnover is only to be payable to the extent that 3% of turnover exceeds the base rent as adjusted annually upon the application of a formula based on the consumer price index.  At the commencement of the lease, that would occur only if the tenant's turnover exceeded $3 million per annum. The tenant is required to provide an auditor's certificate to the landlord on a yearly basis certifying the tenant's stated turnover.  Since the commencement of the lease in November 1995, the turnover or reported 'gross receipts' as stated in the tenant's auditor's certificates, from AS Turner & Associates, have only ever exceeded $3 million per annum on one occasion.

5. This has caused the landlord to harbour doubts as to the accuracy of the tenant's reported turnover and appoint its own auditor, Mr Clark of HLB Mann Judd, to audit the tenant's turnover, which the lease permits it to do.

1. It is against this background that the first dispute between the parties arose which caused the landlord to take action in the Supreme Court against the tenant in the matter of Argyle Holding Pty Ltd v Marvelle Investments Pty Ltd [2008] WASC 7 (Argyle). As stated by Heenan J at [11] of Argyle, those proceedings were commenced to determine, in effect, the nature and extent of information and records which should be provided to the landlord's auditor to enable him to carry out the audit of the tenant's turnover.  In Argyle, the tenant argued that any audit being for a limited purpose must be restricted to ascertaining the turnover of the envisaged business.  Consequently that a general audit transcending the permitted purpose of tax returns, financial statements, the notes or working papers of its auditors and the electronic data files from its point of sale system known as 'Retail Touch' (Retail Touch) were outside the scope of the obligations imposed by the lease.  Heenan J, however, disagreed and ordered on 11 December 2007 that those documents be provided by the tenant.

2. At [34] of the reasons for decision in Argyle, Heenan J made plain that:

   [T]he identification of the ascertainment of the true turnover as the purpose of the audit therefore informs the conduct and the nature of the audit to be performed.  All or any matters tending to ascertain, determine, corroborate, confirm, refute, supplant or reject the reported figures will be relevant and, as the auditor must be an accountant, that is[,] an accountant qualified as required by section 3(1) of the [CTRSA] Act, objective professional qualifications, independence and expertise are brought to the performance of the task.  This in turn means that the quest for records or other materials necessary for the performance of the audit will be undertaken according to objective standards by a suitably qualified expert.

   The tacit assumption is that this accountant will have the experience and judgment to decide what avenues of inquiry, or access to which records, are necessary for the conduct of the particular audit.  This is not to suggest or imply that the actions of the auditor are beyond scrutiny because, in any particular case[,] there might perhaps be reason for a court to determine, as is being sought in this case, whether particular actions or lines of inquiry by the accountant who is appointed to conduct the audit are permissible.

3. Following the determination of the Supreme Court proceedings, a further dispute developed between the parties in mid 2008.  The dispute concerned the originality of electronic data files from Retail Touch and a request for information relating to anomalies in the tenant's gross profit margins for particular product lines for the financial years ending June 2003 ­ 2005 over six departments.

4. The tenant advised Mr Clark that the anomalous gross profit percentages were likely due to misallocation of invoices between departments.  In respect to the Retail Touch data files, the tenant maintained that what had been provided was a copy of the original source data from Retail Touch.

5. By letter dated 6 August 2008, Mr Clark required the tenant to:

   a)reconstruct the cost of goods sold for two departments, Cold Foods & Meat;

   b)provide invoices from a related service company which employed the staff engaged at the business; and

   c)allow a review of the original source electronic data files and the making of a 'blanket copy' of all information contained on the server on which the sales data is kept.

6. The tenant responded to that request (ABOD16 ­ letter dated 25 August 2008) by advising Mr Clark, in brief, that:

   a)it would not reconstruct the cost of goods sold as to do so would require creating documents that did not exist and would be onerous; however, if Mr Clark could identify from the invoices provided any invoices with which he had issues, it would provide an explanation;

   b)the Supreme Court Order did not encompass 'all information on the server' be provided and requested clarification of what was meant by a 'blanket copy', but a representative of the audit firm was welcome to be present to witness the making of additional copies of the data; and

   c)paper invoices for payment of wages did not exist but the staff costs could be reviewed by reference to the electronic invoices, to which access had already been given via the MYOB general ledger.

7. Meanwhile, on 28 July 2008, the tenant stopped trading 24 hours each day seven days per week.  The landlord later insisted that the tenant recommence trading 24 hours each day seven days per week and claimed it had power under the lease to require that the tenant to do so (ABOD19 ­ letter dated 24 October 2008).

8. The audit then stalled and Mr Clark wrote to the landlord on 10 December 2008 (ABOD29).  Attached to that letter were reports he had received from the supervising auditor he had assisting him, Ms Livia Lucchese, dated May 2008.  Also attached was a report from Mr Weed of HLB Mann Judd who provided advice in respect to information technology issues.  In this letter, Mr Clark advised in brief that he:

   a)was unable to obtain a satisfactory explanation from the tenant as to anomalous gross profit percentages;

   b)had been unable to conclude that the copies of the electronic data files were not modified before being supplied by the tenant;

   c)was unable to undertake an analytical review procedure comparing sale levels with employee numbers due to the tenant not being able or willing to provide records from its source company on the level of staff numbers.

9. Mr Clark concluded that, as he was unable to undertake appropriate audit procedures, he was unable to form an opinion in respect of the correctness of the reported sales of the tenant for the 2003, 2004 and 2005 financial years.

10. Sometime later, on 7 May 2009, the landlord served the tenant with a Notice of Default (Default Notice).  The Default Notice refers to a number of alleged breaches which are no longer relied upon.

11. The alleged breaches that are the subject of this dispute are expressed as follows in the Default Notice:

    •The Lessee has breached the Lessor's Declaration made pursuant to clause 2.11(b)(i) of the Lease by failing to trade 24 hours per day every day except Christmas Day.

    •The Lessee has breached its obligations pursuant to clause 2.01(b)(ii) to keep and make available all records which relate to the ability of the Lessee to calculate its Gross Receipts by failing to make available to the Lessor or its accountants the original sales transactions records for the year ended 30 June 2003, 2004 and 2005.

    •The Lessee has breached its obligation to allow the Lessor or its accountants to audit the daily records of the Gross Receipts and any books of account of the Lessee relating thereto pursuant to clause 2.01(b)(iv) in respect of the financial years ended 30 June 2003, 2004 and 2005 by not providing access to any (or any correct) cost of goods sold, or staff hours or cost information, in relation to the period.

12. Following receipt of the Default Notice, the tenant applied to this Tribunal to answer a range of questions referable to the Default Notice.  Those questions were amended by leave granted by this Tribunal on 3 March 2010 (Exhibit 14).  The questions are set out and answered at the conclusion of these reasons but, as stated, they raise the issues for determination identified above, which are now addressed in turn below.

13. For the purposes of determining the issues, regard was had to the evidence of the following witnesses.

14. The applicant tenant relied on the witness statements and oral evidence of the following witnesses of fact:

    •Mr Shawn Offer ­ Director ­ witness statements dated 24 November 2009 (Exhibit 2), December 2009 (Exhibit 3) and 26 February 2010 (Exhibit 13).

    •Mr Vasilios Gotsis ­ Director ­ witness statement dated 26 November 2009 (Exhibit 18).

    •Mr Evvyn Gordon ­ Employee ­ witness statement dated 26 November 2009 (Exhibit 17).

    •Mr Vincent Alan Borgogno ­ witness statement dated 26 November 2009 (Exhibit 16).

15. The tenant called as its expert witness Mr Jeffrey William Vibert, a chartered accountant ­ witness statement (Exhibit 9).

16. The respondent landlord relied upon the following witnesses of fact:

    •Mr Wayne McKenzie Clark, a chartered accountant ­ witness statement dated 26 November 2009 (Exhibit 4) and affidavit dated 26 February 2010 (Exhibit 12);

    •Mrs Timothy Mack ­ witness statement dated 26 November 2009 ­ Exhibit 19.  An affidavit verifying a list of documents sworn 15 February 2010, and the corresponding bundle of documents was also admitted into evidence ( Exhibit 20);

    •Mr David Mack ­ witness statement dated 26 November 2009 (Exhibit 24);

    •Mr Barry Jones ­ witness statement dated 30 November 2009 (Exhibit 32);

    •Mr Christopher Weed, an information technology manager - witness statement dated 7 December 2009 (Exhibit 6); and

    •Mrs Maxine Ivy Rogers ­ witness statement dated 26 November 2009 (Exhibit 23).

17. The evidence of Mr Clark and Mr Weed was also relied upon as expert evidence insofar as they gave opinion evidence within their respective areas of expertise.  The landlord also called as an expert Mr Trevor Michael Gorey, a Fellow of the Institute of Chartered Accountants ­ witness statement dated 26 November 2009 (Exhibit 10).

18. In order to address the expert accounting issues which arise in the case, Mr Vibert, Mr Gorey and Mr Clark gave concurrent oral evidence in accordance with the Tribunal's usual practice.

24 hour trading

1. The following terms of the lease are relevant:

Clause 2.11 ­ Restriction on use of leased premises

(a)Not without first obtaining the written consent of the Lessor to carry on or permit or suffer to be carried on upon the leased premises any activity business trade occupation or calling other than that specified in the Second Schedule and to carry on and conduct such business upon the leased premises during all permitted business hours and in a proper and businesslike manner.

(b)The Lessee shall carry on and conduct upon the leased premises the business specified in the Second Schedule hereto with due diligence and in a proper efficient and businesslike manner strictly in accordance with all statutory requirements and in particular (but without limiting the generality of the foregoing) the Lessee shall:

(i)keep the leased premises open for business during the times (in this Lease called 'Minimum Trading Hours') set out in the Second Schedule (if any) and during the regular customary days and hours of such type of business in the area in which the Building is located and also during any additional periods declared by the Lessor as trading hours.  The Lessee may keep the leased premises open for business at such other time as may be legally permissible provided that the Building is then open for business;

(ii)…

(iii)keep the display windows and signs (if any) in the leased premises well lighted daily during all business hours or such longer hours as may be prescribed by the Lessor PROVIDED THAT if the leased premises shall have display windows which are visible from the car park or exterior of the Building the Lessee shall keep the leased premises well lighted until 10.00 p.m. each night of the week; Saturday[,] Sunday and Public Holidays included;

(iv)…

(v)…

Clause 5.02 ­ Control of the Land

The Lessor reserves unto itself the right to use the outer faces of all external walls and roofs within the land for such purposes as it may think fit and the right to control and regulate the use of the land.  Without limiting the generality of the foregoing the Lessor as the case may be may at any time and from time to time:-

(a)Construct maintain and operate lighting facilities

(b)Police the Land and provide for:-

(i)the proper use safety care and cleanliness thereof

(ii)the preservation of good order therein

(iii)the comfort of persons lawfully able to use the same

(iv)the location and storage of garbage on the Land pending its removal

(v)the policing and regulating of traffic and the parking of motor vehicle on the land and in particular (but without limiting the generality of the foregoing) restricting the use thereof by Lessees and their employees and agents

(c)Change the area level location and arrangements of loading areas and other facilities or construct multideck parking facilities

(d)Close all or any portion of the land to such extent as may in the opinion of the Lessor be legally sufficient to prevent a deduction thereof or the accrual of any rights to any person or the public therein

(e)Close temporarily all or any portion of the parking areas or facilities for the purpose of repairs or like purposes

(f)Close the land and prevent and prohibit any person (including (but without limiting the generality of the foregoing) the Lessee) from entering or remaining thereon at all times during which the land or any part thereof is required to be closed by operation of law

(g)Close lock off or otherwise control the land from time to time and take all such actions as the Lessor deems necessary for any of the purposes aforesaid and in particular (but without limiting the generality of the foregoing) prohibit the use of the parking areas and malls in the land prior to the hour of 8.00 a.m. or such earlier hour as the Lessor from time to time determines to prevent unauthorised persons and persons not intending to conduct business with or become customers of any of the occupants of the land from using the parking areas of the land for any private or other purposes

(h)Permit any person or organisation to hold any function or exhibition or display any merchandise or organise any parade in the land at such times and upon such terms and conditions as the Lessor may in its absolute discretion think fit

(i)Provide and install a public address system throughout the land and play relay or broadcast recorded music or public announcements or advertisements thereon

(j)Notwithstanding anything else contained in this clause to the contrary the Lessee shall have the right to trade 24 hours per day and must be able to gain access to the leased premises from outside of the Centre and [the] Lessee shall have the right to use all external carparking outside normal trading hours for the Centre.

THE SECOND SCHEDULE

…

PERMITTED USE  Fresh food, gourmet deli and supermarket or such other (CLAUSE 2.11)  use as may be permitted by the Lessor in its absolute   discretion.

MINIMUM TRADING HOURS     Between 9.00 am to 5.30 pm Monday Tuesday

(CLAUSE 2.11)  Wednesday and Friday and between 9.00 am to 9.00 pm

Thursday and between 9.00 am and 5.30 pm Saturday         other than when any such day shall be a gazetted Public  Holiday.

…

1. The landlord submits firstly that, on a proper construction of the lease, the landlord has the right to direct the trading hours during which the tenant must operate the business. It is common cause that s 12C of the CTRSA Act, which prohibits a landlord imposing trading hours upon a tenant, does not apply, because the lease was entered into prior to that section being inserted by the Commercial Tenancy (Retail Shops) Agreements Amendment Act No 66 of 1998.

2. The landlord's submission is accepted that the lease is to be interpreted by ascertaining the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181 at 188.

3. The initial agreement for lease and lease was negotiated between Mr Gotsis, a director of the tenant, and Mr David Mack, a director of Argyle Holdings Pty Ltd and Tegra Pty Ltd, being two of the tenant companies.  It is common cause that the terms of the lease were based upon the landlord's standard lease agreement used for the Centre.  At para 17 of Mr David Mack's witness statement, he describes aspects of the negotiation process.  He refers to Mr Gotsis regularly referring to notes from his solicitor and to dozens of amendments being made to the standard lease proposed by the tenant.  At para 8 of Mr David Mack's statement, he expressly states that he did not propose a special condition in the lease explicitly requiring the applicant to trade 24 hours each day:

   as our standard lease usually employed at the time included a provision that enabled the lessor to declare what the lessee's trading hours were to be.  This was the case with the [a]pplicant's lease.  This right is contained in cl 2.11(b)(i) of the [a]pplicant's lease.

4. There were discussions between Mr Gotsis and Mr David Mack in which Mr Gotsis made reference to the intention that the same business model would be used at the Claremont store as the tenant was then using at another store operated by it in Mount Lawley, being a 24 hour per day operation.  However, Mr Gotsis' evidence was that there was never any commitment that the tenant would trade 24 hours each day for the whole duration of the lease term.  Obviously, that subjective statement of intention cannot affect the construction of the lease, but he continued to state that:

   This is reflected by the fact that the lease agreement does not contain any express stipulation in that regard.  In fact I relied on the information in the [S]econd [S]chedule to provide me with flexibility in the event that 24 hours was unsuccessful commercially.  (Paragraph 14 of his witness statement.)

5. The landlord also relies on an agreement reached between the parties in terms of which the landlord would effect alterations to the Centre to provide an extra entry so that there would always be access to the tenant's shop, even when the rest of the Centre was closed.  The parties placed a different emphasis on the purpose of these alterations which Mr David Mack testified had cost approximately $490,000.  Mr Gotsis described the purpose of this alteration as being one to facilitate after hours trading by tenancies in the Centre and to renew and to rejuvenate the Centre by creating a second entrance on the north­east side next to the service dock area, allowing a new mall to be created and providing a frontage onto this mall (para 7 of Mr Gotsis' witness statement).

6. It is not possible to determine this factual dispute.  Mr Gotsis gave his evidence clearly and in a forthright manner.  Mr David Mack was a careful and precise witness, although he displayed a less than objective view of his dealings with the tenant's representatives.  Nevertheless, that is not a basis on which to reject his evidence.  Ultimately there is insufficient evidence to enable a positive finding to be made one way or the other on this issue.

7. The alterations were discussed as part of the negotiations with the tenant.  While it may well be that other tenants and the landlord were to benefit by the proposed alterations, the alterations were necessary to enable the tenant to trade on a 24 hour basis, because, otherwise, there would have been no entry to the leased premises when the rest of the Centre was closed.  It is not possible to put the matter any higher than that in favour of the landlord.

8. Counsel for the tenant tendered a statement of agreed facts addressing clauses in the lease which were identical to those in other leases used in the Centre, and reflecting also that other leases did not contain a clause equivalent to cl 5.02(j) or anything of similar effect (Exhibit 15).  Counsel for the landlord, in turn, tendered leases in respect of other particular premises with a view to supporting the respondent's argument that the equivalent clause to cl 2.11(a) was differently worded (Exhibits 25, 26, 28 and 30).

1. The Tribunal is, of course, not bound by the rules of evidence.  Nevertheless, there are certain basic rules which need to be observed such as the parol evidence rule in relation to the use of extrinsic evidence to construe documents.  Extrinsic evidence could not be used by the Tribunal to arrive at the meaning of a contract if a court would exclude that evidence and as a result come to a different interpretation.  It is, of course, permissible to have evidence identifying the surrounding circumstances known to both parties and to establish the purpose and object of the transaction: Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) CLR 337 at 350; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 ­ 462.

2. There is nothing to suggest that the tenant was actually aware of the terms of any other leases.  Mr Gotsis knew only that the document presented to him was represented to be a standard lease.  We therefore decline to have regard to Exhibits 15, 25, 26, 28 and 30.  Accordingly, in construing the lease, it can be assumed that, unless the evidence establishes, or it is otherwise patently obvious that the lease was altered to meet the specific needs of the parties, all the other terms are standard to the other leases entered into during or about this period.

3. The landlord's submission is that cl 2.11(a) requires that the business be carried on 'during all permitted business hours' and this supports the landlord's construction of cl 2.11(b)(i) to the effect that the landlord can declare any additional periods as trading hours.  The agreement for lease had a specific provision that the lease was subject to the local authority and Ministry of Fair Trading granting approval for 24 hour trading, and it is common cause that these approvals were obtained so that 24 hour trading was permitted.

4. In our view, cl 2.11(a) does not have the effect for which the landlord contends.  Reading cl 2.11 as a whole, the purpose of cl 2.11(a) is directed primarily towards ensuring that the tenant carries on no business other than that described as the permitted use in the Second Schedule.

5. Clause 2.11(b) on the other hand is primarily directed to controlling the manner in which the business must be operated.  Although there is reference in cl 2.11(a) to permitted business hours and in a proper and businesslike manner, those are general statements and the specific obligations are set out in cl 2.11(b).  Clause 2.11(b)(i) is directed specifically at regulating the minimum hours during which the tenant must trade and may be required to trade additional hours.

6. There is no suggestion that cl 2.11(a) and specifically the reference to conducting the business during all permitted business hours was incorporated as a result of a specific agreement to vary the standard lease.

7. Accordingly, if there is a right to require the tenant to trade 24 hours each day, that must be found within cl 2.11(b)(i).  That clause sets out a progressive set of increasing trading times.  The first stage is the minimum trading hours as described in the Second Schedule.  They can be taken to be the trading hours which all shops were required to open, as there is no suggestion that this clause was specifically amended during negotiations.  Further, the clause provides that the lessee is required to carry on business during the regular customary days and hours of such type of business in the area in which the building is located.  In the case of the tenant, that would mean the customary days and hours during which a fresh food, gourmet deli and supermarket are operated within the locality.  The third stage is then any additional periods declared by the lessor as trading hours.  It is upon this power to declare that the landlord relies.  There is then a fourth stage in that the lessee may keep the leased premises open for businesses at such other times as may be legally permissible, provided that the building is then open for business.

8. The tenant submits that any declaration of additional trading hours must be construed as meaning an additional period applicable to all tenants.  That submission is accepted for the following reasons.

9. In context, the progressive trading periods are increasing in terms of trading hours.  The fourth stage commences to operate at such other times beyond the minimum trading hours, the regular customary days and hours of the type of business in the area in which the building is located, and during any additional periods declared by the lessor as trading hours.  It therefore contemplates that the fourth stage will be at times over and above those that may be declared by the lessor.  Yet, that additional trading period must be at a time when the building is open for business.  The clause is a standard clause and would therefore operate to regulate other businesses which may not normally be open for as long as others, such as this tenant's business.  The reference to the building being open for business was relevant prior to the alterations carried out to create a second entry and new mall area.  When there was only one entrance, the building would have to have been open because of some other lessee operating its business at the time.  In addition, the use of the word 'declare' does connote an application beyond the particular lessee.  The Macquarie Dictionary (4th ed, 2005) gives as the meaning of 'declare':

   Declare 1 to make known, especially in explicit or formal terms. 2 To announce officially; proclaim …

10. In turn, 'proclaim' is defined to mean:

    Proclaim 1 to announce or declare publicly or officiously …

11. If it were intended that the lessor's decision were to apply only to a particular lessee, it would have been more apposite to use language such as 'any additional periods during which the lessor requires the lessee to conduct trade' or words to like effect.

12. It is remarkable that if cl 2.11(b)(i) was intended to empower the landlord to require the tenant to trade 24 hours each day, the current convoluted mechanism referring to minimum hours, with various increments, was maintained.  It would have been such an easy matter to simply provide that the tenant is to trade 24 hours each day, seven days per week, except for Christmas Day, unless the landlord consented to any period of reduced trading.

13. In any event, the right to declare additional trading hours must be read as permitting an increase but for a period less than 24 hours each day because, otherwise, the fourth stage would have no effect at all. It would then become a matter of extreme difficulty to determine the confines of the operation of the third stage. This difficulty supports the Tribunal's construction above. But even if the fourth stage is read as enabling the third stage to apply to 24 hour trading, that could not be declared because it is common cause that some lessees in the Centre entered into leases post the insertion of s 12C of the CTRSA Act, which would prevent all tenants being compelled to trade during any specific period.

14. Both parties made reference to cl 5.02(j).  The tenant submits that this express statement of the tenant's right to trade 24 hours each day effectively overrides the fourth stage.  The landlord contends that the existence of the clause removes the utility of the lessor being only able to direct or declare the applicant to trade additional hours if others in the Centre were also directed to do so.  In our view, both submissions misconstrue cl 5.02(j).

15. Under the fourth stage of cl 2.11(b)(i), the tenant was able to trade 24 hours each day, as it held all necessary approvals to do so.  Also, the building must be open for the tenant to trade.  The evidence is that there are electronic doors at the entrance to the new mall which must be open to gain access to the leased premises (T:105, 4.3.10 ­ Exhibit 27).  There is no need for cl 5.02(j) to override this provision, as the clauses are capable of operating together.  The purpose of cl 5.02 read as a whole is to reserve for the lessor that control of the Centre necessary to allow for its proper management and, in order to do so, the lessor has the right to close off various areas of the Centre.  In that context, all that cl 5.02(j) does is to make clear that, notwithstanding the various reservations in favour of the landlord, the tenant shall have the right to trade 24 hours each day and must be able to gain access to the leased premises from outside of the Centre, and to use all external car parking outside normal trading hours for the Centre.  Further, contrary to the landlord's submissions, the clause does not impact on the utility of the power to declare additional trading hours, because cl 5.02(j) recognises the right to trade 24 hours each day but does not impose an obligation to do so.

16. It follows that the tenant was at no time in breach of the lease as a result of the reduction in trading hours and the failure to comply with the direction of the landlord to increase hours to 24 hours each day, seven days per week, excluding Christmas Day.

17. The nature, scope and purpose of the audit and whether sufficient records were kept and made available

18. The following provisions of the lease are relevant.

Clause 2.01 ­ Rent

(a)The Lessee shall yield and pay for the leased premises a commencing rent ('the Commencing Rent') being the greater of the Percentage Rent and the Fixed Rent.  The Commencing Rent shall be payable by equal monthly instalments in advance (except the first and last payments which if necessary will be proportionate ones) with the first of such instalments to be paid on or before the commencement date and then on the first day of each month after that.  The minimum amount of the instalments shall be equal to the Fixed Rent less any adjustment for overpayment of Percentage Rent for the previous months.  If the Percentage Rent in any month is greater than Fixed Rent, then the Lessee shall in addition to the Fixed Rent, pay the difference between the Fixed Rent and the Percentage Rent to the Lessor.  All rent payable under this Lease shall be paid without deduction to the Lessor at its address stated in this Lease or at such other address as may be notified in writing to the Lessee.  At the option of the Lessor to be exercised by notice in writing the Lessee shall pay the fixed rent by irrevocable banker's order.

If the calculation carried out in sub­clause (a) of Clause 2.01 for any Lease year produces a result that:-

(i)No Percentage Rent was payable for that Lease year but Percentage Rental has been paid in accordance with a calculation made during that Lease Year;

(ii)The Percentage Rent payable under the calculation carried out for the whole Lease [Y]ear is less than the Percentage Rent paid during that Lease Year,

THEN such overpayment of Percentage Rent shall be credited by the Lessor against the next payment or payments of rental owing under the provisions of this Lease PROVIDED ALWAYS that there shall be no credit against rental in the manner aforesaid in respect of overpayments of percentage rent made in respect of calculations made with respect to sub[­]clause (b)(i) of Clause 2.01.

(b)…

(i)…

(ii)For the purpose of ascertaining the amount (if any) payable as Percentage Rent, the Lessee shall prepare and keep at the registered office of the Lessee (or at such other place as the Lessor may from time to time authorise in writing) all records which relate to the ability of the Lessee to calculate its Gross Receipts PROVIDED THAT the Lessee shall make the records available in Perth during normal business hours as soon as is reasonably possible after a request.

(iii)The Lessee shall cause to be recorded at the time of each sale or transaction comprising the Gross Receipts a record in such form as the Lessor may reasonably require of such sale or transaction.  The Lessor or its agent or any auditor selected by the Lessor may at any time upon reasonable notice to the Lessee examine such records.

(iv)Within fourteen [(14)] days after the end of each month after the commencement of the Lease the Lessee shall give to the Lessor a statement certified by the Lessee as to the Gross Receipts during the previous month together with any amount of Percentage Rent due for that month together with a cumulative total of Gross Receipts for that part of the Lease Year then expired.  Within forty­two (42) days of the expiration of each Lease Year or the date upon which the Lessee ceases to be in possession of the leased premises, the Lessee shall give to the Lessor a statement accompanied by an audit report from the Lessee's Accountant (being for the purposes of this clause a firm of independent accountants who are either chartered accountants or certified practising accountants) in respect of the Gross Receipts during the preceding Lease Year or portion thereof, and such report shall certify as to the accuracy of the receipts.  The Lessor or its accountants shall have the right to audit the daily records of the Gross Receipts and any books of account of the Lessee relating thereto.  If the Lessor's audit discloses that the Gross Receipts exceed those reported by the Lessee by more than [2] percent, the Lessee shall forthwith pay the cost of the Lessor's audit.

If the audit reveals that the Percentage Rent paid by the Lessee is incorrect then adjustment shall be made between the parties within fourteen (14) days of the incorrectness being notified to the party required to make a payment or refund as the case may require.

…

1. The effect of s 7(3) read with s 15 of the CTRSA Act is that, contrary to the provisions of cl 2.01(b)(iv), if the landlord conducts a turnover audit and the audit discloses that the correct turnover exceeds that reported by the tenant by more than 5%, the tenant is obliged to pay the landlord's cost of the audit.

2. The nature and scope of the audit was specifically addressed by his Honour Justice Heenan in the Argyle decision at [33] ­ [39], which reasoning and conclusions we respectfully adopt. The purpose of the audit as disclosed in that discussion is quite clearly to ascertain the true turnover of the business, and it is that purpose which informs the conduct and nature of the audit to be performed. There can be no dispute about this between the parties. The real question raised by the issue relates to the process followed by the landlord's accountants subsequent to the Supreme Court proceedings. In order to address that issue, it is necessary to understand what records were retained by the tenant and made available to the landlord. That is also central to the landlord's complaint that, for auditing purposes, it was important for the landlord to know that the records provided were the originals, or if the originals no longer existed, that the records could be verified as an authentic copy of the original source data. It is common cause that the electronic record of sales was a copy taken from an earlier copy of the records and that there is no original electronic data available.

3. Mr Shawn Offer, a director of the tenant, gave evidence concerning the tenant's accounting system.  Between 2001 and 2007, the tenant utilised a system known as Retail Touch as its point of sale system.  This system was installed on:

   (a)four IBM cash terminals, each with its own database file and computer processor;

   (b)Magellan scanner/scales;

   (c)IBM cash register drawers;

   (d)IBM thermal printers; and

   (e)a back office computer used to interrogate records, update pricing and administer the database.

4. All items for sale in Fresh Provisions were bar coded.  When a sale was made at a cash register or terminal, the information would be sent to all other cash registers and to the back office computer.  Accordingly, every sale that was made in Fresh Provisions was recorded onto Retail Touch.

5. Mr Offer also explained that the general ledger accounting system used by the tenant at that time was the well­known MYOB system (MYOB).  MYOB not only recorded purchases, trade creditors, trade suppliers and other expenses, but also sales.  A diagram depicting the trail of the tenant's gross receipts was provided, (Exhibit 2 ­ Attachment 6).  Daily reports of sales information from Retail Touch were reconciled to daily takings and entered manually into MYOB (T:94, 7.12.09).  The daily reports printed from Retail Touch were generated for a 24 hour period prior to 5.59.59 am.

6. The majority of sales were paid via electronic funds transfer at point of sale (EFTPOS) or credit card transactions.  These transactions were electronically processed via third party banking directly with the tenant's bank.

7. In respect to the daily cash takings, these were posted to a two key safe provided by Chubb Security Services (Chubb).  The tenant did not have both keys at any time.  Further, none of the tenant's staff members handled the collection of cash takings once deposited into the safe.  Chubb collected the cash twice a week and swapped the cash for a cheque which was then banked by the tenant.

8. Mr Offer advised that this process did not include coins.  Purchases made with coins were banked locally by the tenant on a daily basis.  All EFTPOS and credit transactions were processed directly with the tenant's bank.  Administrative staff would reconcile manually the end of day reports with all money and other media received.  Administration staff did not have access to check­outs, as all check­outs were secured when not in use.  The paperwork which had to be completed at the end of each day (samples of which are attached to Mr Offer's witness statement as SEO7) provided a control measure against the possibility of theft and to ensure that all figures can be reconciled to accounting and bank statements.  These end of day reports provide a manual copy of the day's takings on most pages and are linked to various ways of calculating sales.  This is explained in Mr Offer's witness statement at para 76 ­ para 81.  Consequently, Mr Offer concludes that the systems in place ensure that there is a proper account kept of the tenant's gross receipts.  Further, the information is entered into the MYOB system.

9. Mr Clark, the landlord's auditor, recounts in his witness statement (Exhibit 4) a history of the access provided to the tenant's accounting records, both prior to and subsequent to the Supreme Court action.  He describes the accounting system referred to above.  He acknowledges that the daily reports produced an analysis of gross sales, GST and net sales and that the total of these reports were recorded in the general (MYOB) ledger.  He had access to the hard copy of the daily reports from the outset.  He then recounts the events which led up to the Supreme Court application and they reflect a less than fully cooperative attitude on the part of the tenant.  They also reflect a very narrow view taken by the tenant of the documents to which the landlord was entitled to audit the turnover.  It is not necessary to set out that history in any detail, because the impasse was resolved by the Supreme Court declaring that the landlord and its auditor, HLB Mann Judd, were entitled to inspect for the purposes of audit of the turnover of the business:

   a)computer-generated inquiry reports from the Retail Touch system;

   b)the tax returns of the tenant;

   c)the financial statements of the tenant; and

   d)all notes and working papers so far as they exist belonging to the tenant and its accountants containing information pertaining to the business;

   all in respect of the relevant financial years ending 30 June 2003, 2004 and 2005.  The Supreme Court also declared that an electronic copy of the data filed for the Retail Touch point of sale system for these periods be made available and that the landlord's auditors might make a copy, or digital copy, of the data file and remove that copy or digital copy from the defendant's premises.

10. After the decision had been handed down, Mr Clark and Mr Timothy Mack, representing the landlord, conferred with a view to agreeing what steps were to be taken to complete the audit.  It is the course which was then agreed which resulted in the tenant calling into question whether the procedure followed by Mr Clark fell within the scope of the intended audit.

1. A not inconsiderable time and effort was taken by the tenant and its witnesses during the hearing to demonstrate that the course followed by Mr Clark could not be justified by him by relying, as he attempted to do in his evidence, on an auditing standard known as AUS 904 Engagements to Perform Agreed-upon Procedures (Exhibit 11).

2. Initially, Mr Clark endeavoured to explain some of the steps taken by him as part of an analytical procedure in order to form an overall review of the accuracy or reliability of the accounting records (T:73, 8.12.09).  Mr Clark was cross-examined on the procedures contemplated by what then appeared to be the applicable auditing standard (auditing standard ASA 520 Analytical Procedures – Exhibit 5).  He did not appear to quarrel with the applicability of that standard.  However, when later being cross-examined on the degree of objectivity required in carrying out an independent audit role, Mr Clark disclosed that it was acceptable for a client to have input where the audit conducted was what he referred to as an 'agreed to procedures audit' (T:81, 8.12.09).  In the circumstances in which Mr Clark's independence was clearly being put in issue and in which the respondent had not included in its bundle of documents any documents bearing upon a procedure having been agreed between the landlord and its auditor, orders were made for discovery of documents relating to the formation of that engagement and any variation of it.  That further documentation is contained within Exhibit 20.

3. The further discovered documentation and the evidence of Mr Clark and Mr Timothy Mack discloses that Mr Timothy Mack played a significant role in monitoring the conduct of the audit, making suggestions, and at times, even drafting correspondence for Mr Clark.  This notwithstanding, after considering all the evidence, we consider that Mr Clark was conscious of maintaining his independence, and we accept his statement in evidence that, while he accepted input from Mr Timothy Mack, he would not have taken any step if he considered it not to be professionally justified.

4. Ultimately, the controversy which developed about the applicability of the Australian Standards is, in our view, sterile.  In Mr Vibert's statement and annexed report (Exhibit 9), he stated that, whilst there is no specific auditing standard dealing with turnover audits, there are a number of general auditing standards issued by the Australian Auditing Standards Board which cover the principles of an auditor's responsibilities when carrying out an 'audit of a financial report'.  In this context, he stated that a financial report would include a component of a financial report such as a turnover figure being reported under the lease.  He also stated that the Australian Auditing Standards have force of law for all engagements under the Corporations Act 2001 (Cth) and have mandatory application for all other audit engagements.

5. As pointed out by Justice Heenan in Argyle at [34], the performance of the audit will be undertaken according to objective standards by a suitably qualified expert. Those objective standards will be informed by the Australian Standards as published by the Australian Auditing Standards Board.

6. However, the purpose of the audit under the lease is clear, and that is to arrive at the correct turnover.  The landlord had available to it the annual turnover certificates provided by the tenant.  It had access to the daily records recording the turnover.  It is evident from the nature of accounting records sought in the Supreme Court proceedings that the landlord sought a wide range of records which would enable it to test the accuracy of the information which was available to it prior to the Supreme Court proceedings being initiated.  The auditing standard ASA 520 permits analytical procedure to reach an overall review of the financial report (cl 11(c)).  Technically, an agreed upon procedure under AUS 904 is not an audit (Exhibit 11 cl .09).  The landlord's expert witness, Mr Gorey, under cross-examination accepted on balance that the procedure under the lease is not an agreed upon procedure covered by AUS 904 but some other form of actual audit (T:87, 9.12.09).

7. There is, in our view, nothing sinister in the course followed by Mr Clark in endeavouring to agree with his client on what procedures could be followed after the Supreme Court order had been obtained, because, clearly, the effect was to test or corroborate the turnover disclosed by the records already provided.  Either the procedure to be followed would corroborate the disclosed turnover or contradict it.  In the latter event, the auditor would be bound to use professional judgment to assess whether the true turnover could be calculated, or report that it was not possible to complete the audit.  This latter course is effectively what occurred and that left the landlord with the option of either accepting the disclosed turnover or asserting, as it has done, that the tenant has not kept proper records or has, in other ways, breached its obligation under the lease, leading either to a commercial resolution or possible termination and re-entry ­ but for the proceedings commenced in the Tribunal by the tenant.

8. It is artificial to look at the agreed upon procedure in isolation and to conclude that, as it is not an audit capable of giving up an adjusted turnover, therefore the procedure followed by Mr Clark was beyond that permitted by the lease.  The agreed upon procedure was obviously aimed at corroboration but was only agreed effectively mid-way through the audit.

9. The above conclusion does not determine whether or not Mr Clark went beyond the scope of the audit in relation to some of the steps actually taken by him.  Nor have we addressed as a consideration of the nature, scope and purpose of the audit, an issue of the time within which an audit should be completed.  This was dealt with by the parties under this issue in para 95 to para 97 of the tenant's written submissions and in the draft proposed answers to the questions referred (Annexure 2 thereto, answer 2(v) and answer 2(vi)) and the landlord's written submissions at para 52.  It is convenient to revert to this issue after consideration of the conduct by Mr Clark which the tenant contends went beyond the scope of the audit, relating to access to sales transaction records and staffing records.

Access to sales transactions records

1. It was not until approximately 11 April 2008 that Mr Clark and Mr Timothy Mack, representing the landlord, finalised the terms of the agreed procedure to be carried out by Mr Clark in completing the turnover audit.  The documentation reflecting the process of reaching that agreement is set out in the further discovered documents (Exhibit 20 tab 12).  The first draft of the agreed procedures was prepared by Mr Clark.  Following a meeting with Mr Timothy Mack on 11 April 2008, Mr Clark provided a further draft which was the basis upon which his further work was conducted.  The further draft introduced a number of requirements in relation to analysis of payroll records and the number of employees 'on the floor' as determined by the landlord, compared to the number of employees as per the payroll records.  This requirement is relevant to issue 4(b) concerning the alleged failure to provide information relating to staff hours to which further reference will be made below.

2. On 23 April 2008, Ms Lydia Lucchese, an audit manager, and Mr Christopher Weed, an information technology manager, both employed by HLB Mann Judd, attended at the premises of Fresh Provisions and commenced the completion of the audit process in accordance with the procedures agreed with the landlord.  In May 2008, Ms Lucchese published a report headed 'Examination of turnover of Fresh Provisions ­ summary of findings' (ABOD 29).  Ms Lucchese's report is attached to a letter dated 10 December 2008 addressed by Mr Clark to Mr David Mack, a director of Argyle Holdings Pty Ltd, one of the landlord companies.  Mr David Mack had given the initial instructions to Mr Clark on behalf of Tegra Pty Ltd, another one of the landlord companies.  Together with Ms Lucchese's report, as a further attachment to the letter dated 10 December 2008 is also a report from Mr Weed by way of a memorandum addressed to Ms Lucchese dated 28 April 2008.

3. Amongst other things, Ms Lucchese reported:

   1)All tax returns, financial statements, MYOB reports and reports from 'Retail Touch' agreed to what was reported on the turnover certificates, there were no discrepancies noted.

   2)Gross profit margins as a whole appear to be consistent over three years and in line with benchmarks for similar industries.  GP (gross profit) margins on a product­by­product basis returned some unusual results, with some areas having gross losses which changed over a three year period and did not remain consistent.  Some product lines had a gross loss (2003: six lines, 2004: three lines and 2005: three lines).  One product line had a gross loss of 94%.

   3)Closing stock for one product line was higher than the opening stock plus purchases for the year giving an overall negative cost of sales, that is, a profit in stock.

   4)Payroll procedures were unable to be performed as per the work program (the agreed procedures) as the information was not made available, as all employees are paid out of another entity.  However, management fees for payroll were, on average, $550,000 per year.

   5)The interrogation of the database from 'Retail Touch' did not give any additional information and reports extracted from this copy were in line with all other reports sighted and information obtained.  The copy of the database appeared to be a copy of a copy of the original database, that is, not the source data, and was modified before being supplied.

4. Mr Weed's report related to his analysis of the Access database (MDB) files provided by the tenant.  The two files concerned were identified as 'FP Claremont Nov 2001 – June 2004.  MDB' and FP Claremont July 04 – June 05. MDB' which had been copied onto a DVD provided by Mr Offer.

5. Mr Weed reported that it did not appear to him that the files on the DVD were created from copying the source Retail Touch databases from the Fresh Provisions server to the DVD.  He reported that each file contained details including created dates and modified dates.  He reported that his testing showed that, while the created date of a file will be the date the DVD is created, the modified date will be the last date the file was updated.  He stated that, if the MDB file was created by copying the source MDB file to a DVD, the modified date and the created date would be different, whereas, in the case of both MDB files provided by Mr Offer, the created date and modified dates were exactly the same.  He concluded from this that the MDB files provided were not source files from Retail Touch.

6. Mr Weed's report, as confirmed in the evidence of Mr Clark and Mr Timothy Mack, established that there was a risk that the original Retail Touch data records had been modified or manipulated, although it was stressed that no manipulation could be proved.  It is evident that, from this point, the procedures followed began to take a direction which was not necessary to complete the audit and ultimately went beyond the proper scope of the audit for the reasons which follow.

7. The decision on the part of the landlord to conduct a turnover audit was implicitly based on a suspicion about the veracity of the turnover disclosed and certified by the tenant's accountants.  The less than fully cooperative attitude exhibited by the tenant, and in particular the narrow and incorrect view taken about the type of records to which the landlord was entitled to access in order to carry out the audit, the opposition to the proceedings in the Supreme Court coupled with Mr Weed's report identifying a risk of manipulation of the database, together with the gross profit anomalies identified by Ms Lucchese in respect of particular products, was certainly enough to justify a healthy level of suspicion on the part of the landlord.  However, in our view, that suspicion became so elevated that it clouded proper judgment.  That suspicion virtually exuded from Mr Timothy Mack and in particular from Mr David Mack while giving evidence.  An example in the latter case was Mr David Mack's cross-examination relating to a complaint made about security issues at the premises which Mr David Mack swept to one side as 'tripe' (T:36, 5.3.10).  It appears to us also that this atmosphere permeated with suspicion subconsciously influenced Mr Clark's judgment and the steps which he took.  Mr Clark readily conceded that he commenced the audit with a higher than ordinary level of professional scepticism as a result of initial discussions with Mr David Mack (T:13, 8.12.09).  He was clearly influenced by input from Mr Timothy Mack to amend his proposal defining the agreed-upon procedure to take into account the staffing levels, a requirement which no-one pressed at hearing of being of any particular utility as a means of corroboration of the accounting records.  Ultimately, however, it is an appreciation of the accounting records which have been retained and made available which leads us to conclude that Mr Clark erred in the processes followed by him.        

8. As at May 2008, the landlord's auditors had access to and had examined the tenant's tax returns, financial statements, MYOB printouts of profit and loss, the MYOB general ledger, Retail Touch printouts of sales by day and by year, plus all banking slips, Chubb cash collection slips and daily register reports (handwritten) as reflected in Ms Lucchese's report of the site visit conducted on 23 April 2008 (Annexure WMC7) to Mr Clark's witness statement (Exhibit 4).  In Ms Lucchese's May 2008 report, she records her findings that all tax returns, financial statements, MYOB reports and reports from Retail Touch agreed to what was reported in the tenant's turnover certificates.

9. Mr Weed had noted in his report the scope for the Access database to have been modified because the copy provided was a copy of a copy rather than of the original.  Mr Weed made no allegation that the database had actually been manipulated.

10. The tenant's expert witness, Mr Vibert, explained that all the Retail Touch and other similar systems did was to interrogate the database to pull out particular relevant information.  He likened the Microsoft database to a library containing a million books and which would know on which shelf each book sits, but a system, such as Retail Touch, would be required to find a particular cookery book by a particular author (T:21, 9.12.09).  Further, with regard to the possibility of manipulation, Mr Vibert testified that it would be a very dangerous thing to make any changes to the Access database, because it would potentially destroy the integrity of the entire database and would potentially cause imbalances throughout the database (T:23, 9.12.09).  There was no evidence suggesting that Mr Weed had in any way interrogated any of the other tables in order to identify any such inconsistency.  Mr Weed, in his evidence, conceded that he had only accessed the sales table of the database, but no particular attention was paid to any of the other tables (T:106, 8.12.09).  Further, under cross-examination, it was put to him that, if the electronic sales records had been altered, there would be an inconsistency between that record and any other data retrieved.  Mr Weed's response was:

    Remember[,] my statement has only been that I can't conclude that these are the original database files.

11. Mr Vibert testified that, from time to time, in the conduct of an audit, the audit team would be required to conduct an interrogation of the various databases on which information was recorded.  This could be done by opening the database directly, or using a variety of audit interrogation tools used to analyse data that might be residing in databases of all kinds (T:21, 9.12.09).  Further, that his office used a software program called IDEA.  He explained that this could be used to pull out a series of reports of sales 'sliced and diced' in all kinds of ways to provide totals, reports by month, day or week, and which would permit a variety of means by which to analyse the original electronic data.  This would be done to ensure that the electronic data was consistent to the reports used in the particular accounting system.  Thus, to ensure that there was consistency between the electronic records and paper records, he would start with the electronic database or his original analysis and then carry that through to a comparison with the manual records (T:111, 9.12.09).

12. None of the above steps were conducted by either Mr Weed or Mr Clark.  Ms Lucchese carried out some unspecified interrogation of Retail Touch and reported that the reports extracted were in line with all other reports and information obtained.

13. It must be said that, on the evidence presented to the Tribunal, the possibility of manipulation of the electronic data is fanciful.  To be sure of avoiding detection, any change to the electronic data, created at the point of sale, would have had to have occurred before any of the manual daily records were created from it.  There is no suggestion about how this could be done, particularly in the context of a business operating 24 hours each day and in circumstances where all credit and EFTPOS transactions were directly linked to the tenant's bank.

14. Finally, on this particular aspect of the matter, we accept Mr Offer's explanation as to why the database showed that the respective files were both created and modified on the same date.  Mr Weed had identified that the database covering the period July 2004 ­ 2005 had been created and modified on 3 July 2005.  The file containing the database records for the period November 2001 - June 2004 had been created and modified on 20 March 2006.  It was not until a site visit on 1 December 2008 that Mr Weed asked Mr Offer to explain why the database files had the same created and modified dates.  Mr Offer explained that the Retail Touch system had a limited memory and that would slow the operation of the database to the point that it became unworkable to produce any reports.  The Retail Touch system did not require daily backup as would be prudent with many computerised accounting systems because there were four cash registers or workstations, each of which recorded all transactions and was linked to a server.  As each transaction was recorded, a mini-text is created and sent to the server.  The other workstations 'look at' the server audit file every two to five seconds for any new files and then add that information to its own recording system.  The result is that every register was a record of all transactions (T:118 - 119, 7.12.09).

15. When the operation of the system became too slow, the original source data of the fifth workstation or back office would be manually copied as a back up copy to the server, and the source data on the back office PC would be 'initialised' or reset, taking all transaction information out, thereby enabling new sales data to be recorded.  At that point, the data as recorded on the server becomes the only record of the business, although of course all the manual and printed reports created during the ordinary course of operation were retained and form a basis of checking the accuracy of the electronic data.  Mr Weed accepted this explanation (statement Exhibit 6 para 17) as a possible explanation of why the created and modified dates are the same.  He, of course, still expressed the view that he could not conclude that the database files were not manually modified, but we have found that conclusion is not warranted for the reasons given above.

16. As a result, the original sales transaction records no longer existed by the time the turnover audits for the years in question commenced.  Mr Offer made the point in his statement that the tenant had given the landlord access to all the copies of the database files which existed.  Further, that if the landlord had advised that it wanted the point of sale data recorded in any other way, consideration would have been given to that by the tenant.  Of course, under cl 2.01(b)(iii) of the lease, the tenant was obliged to maintain a point of sale recording system 'in such form as the lessor may reasonably require', but the landlord never made any stipulation for any different form of recording system.  It should be noted that the database for the period July 2004 ­ 2005 was created on 3 July 2005 and modified on the same date, all in the ordinary course, and at the end of the financial year, consistent with the above explanation.  The database for the period November 2001 – June 2004 is shown to have been created and modified on 20 March 2006 because that was the date on which the database was copied in response to a request from Mr Clark.  The database was copied off the server onto another computer, because that allowed reports to be generated at a faster rate.  The file was then copied back onto the server (T:106, 7.12.09).

1. The applicant's reference to a preliminary bill of costs appears to be consistent with the Tribunal's intention. However, at para 11 of the applicant's outline of submissions and following, detailed submissions are made in relation to the quantum of costs expressed to be claimed by the applicant. The respondent, in turn, has addressed the quantum of costs at [24] and in the following paragraphs of its opposing submissions. The respondent did, however, go on also to make submissions concerning why costs, if awarded, should be taxed by the Tribunal. Those submissions may be consistent with the approach which the Tribunal indicated it intended to take, and it may therefore be unsafe to assume that the respondent might not wish to make further submissions, in the event that it is determined that costs should be awarded to the applicant. The Tribunal will therefore proceed as originally intended.

Application of the legal principles relevant to an award of costs

1. The Tribunal's approach to costs, particularly with reference to commercial tenancy matters, is as formulated in Pearce. Both parties have relied upon the following passage at [24] in that decision.

   In my view, the approach that should be taken to costs in proceedings under the CTRSA Act should reflect the approach explained by Barker J in Summerville.  That is consistent with the reliance by the Tribunal in Bilek on the proposition drawn from Australia's Country Homes, 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, unless there are circumstances of the type identified in Chew.

2. The applicant in its written submissions in support of the costs application endeavours to bring the case, or particular aspects of it, within some of the clearly recognised circumstances identified in Pearce when costs may be awarded.  Each of the heads under which the applicant has based its case for the award of costs is addressed in turn.

Conduct of the respondent and its auditor generally

1. The applicant submits that the conduct of the respondent and its auditors leading up to and during the proceedings was unreasonable and inappropriate.  Reliance is placed upon the Tribunal's criticism of the manner in which the respondent's auditor allowed his elevated level of suspicion to cloud his proper judgment.

2. Notwithstanding that the Tribunal found that the applicant's auditor had committed an error of judgment, it found that the respondent had not acted unreasonably or other than in good faith.  Further, the Tribunal found that:

   [t]he less than fully cooperative attitude exhibited by the tenant, and in particular the narrow and incorrect view taken about the type of records to which the landlord was entitled to access in order to carry out the audit, the opposition to the proceedings in the Supreme Court coupled with Mr Weed's report identifying a risk of manipulation of the database, together with the gross profit anomalies identified by Ms Lucchese in respect of particular products, were certainly enough to justify a healthy level of suspicion on the part of the landlord.

3. It is not accepted that the conduct of the respondent or of its auditor generally provides a proper basis upon which to award costs in favour of the applicant.

Respondent's conduct in respect of the interim application and cross­application for transfer of proceedings

1. The circumstances of the application by the applicant for interim relief and the cross­application by the respondent for the transfer of the proceedings has been examined and full account taken of the detailed written submissions made by the applicant.

2. The view of the Tribunal is that both parties acted appropriately in the protection of their respective interests.  There is nothing particularly untoward about the conduct of the respondent.  It is clear that the respondent was not prepared to give an undertaking not to re­enter the leased premises unless there were proceedings on foot which would ensure that the dispute between the parties could be resolved.  The respondent was entitled to adopt the position that it was more appropriate for the matter to be dealt with by the Supreme Court.

3. It is noted that the respondent submits that any application for costs in respect of the above interlocutory proceedings should have been made before Member Hawkins at the relevant time and that as the application for an interim injunction was dismissed, no costs should be awarded.

4. There is no particular practice or procedure prescribed under the SAT Act or the enabling Act, in this case the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), which prescribes the procedure to be followed by the Tribunal dealing in particular with the time at which any cost order might be made in relation to interim orders. Consequently, pursuant to s 32(5) of the SAT Act, the Tribunal may determine the procedure to be followed in a particular case.

5. It is desirable that any application for costs of interlocutory proceedings be dealt with at the time of determination of those proceedings.  However, the Tribunal is known to be generally a cost­free jurisdiction and costs are not always at the forefront of parties' minds during the early stages of proceedings.  It is desirable, therefore, to maintain flexibility and that is best done by being able to entertain an application for costs at any stage in the proceedings.

6. The costs of the application for injunction and the cross­application for transfer of the proceedings should be dealt with as costs in the cause of the proceedings which will follow the Tribunal's decision whether or not to award costs.

Respondent's conduct in respect of the trading hours issue

1. The applicant relies upon an offer to settle made by letter dated 19 January 2009. The settlement offer is marked without prejudice, save as to costs in the traditional Calderbank form, but does not comply with the requirements of r 41 of the State Administrative Tribunal Rules 2004 (Rules). That requirement is that an offer be open for a specified period and that the period be for a minimum of 14 days. If an offer complies with r 40 and r 41 of the Rules, then r 42(2) compels the Tribunal, in determining the costs that may be awarded, to take into account that a party did not accept an offer more favourable than the Tribunal's order. The effect of non­compliance with the Rules is that the Tribunal is not obliged to have regard to the offer of settlement and its non­acceptance on the above basis. However, it is nevertheless in the public interest that offers of settlement that do not comply with the Rules be given careful consideration, so that settlement of disputes is encouraged: see Ampezzo Pty Ltd and Franken [2009] WASAT 109 (S) (Ampezzo) at [37]. In Ampezzo at [38] and [39], the Tribunal referred to the criteria relevant to the consideration of Calderbank offers under the practice of the Supreme Court of Western Australia and added the need, within the practice of the Tribunal, to have regard to the nature of the particular jurisdiction being exercised and the cost rules normally applied by the Tribunal to the particular type of case. Consequently, it is necessary to have regard to all of the following:

   a)the stage of the proceedings in which the offer was received;

   b)the time allowed for the offeree to consider the offer;

   c)the extent of the compromise offered;

   d)the offeree's prospects of success, assessed at the date of the offer;

   e)the clarity with which the terms of the offer was expressed;

   f)whether the offer foreshadowed an application for costs in the event of the offeree rejecting it; and

   g)the nature of the particular jurisdiction being exercised and the cost rules normally applied by the Tribunal to the particular type of case.

2. On an application of the factors referred to in a) and c) above, the non­acceptance of the offer of settlement dated 19 January 2009 was not unreasonable and should not form a basis for the award of costs.

3. No particular proceedings were foreshadowed as at 19 January 2009.  It was not until 7 May 2009 that the respondent issued the notice of default and the applicant then took the initiative of commencing proceedings in the Tribunal.  As reflected in the letter of 19 January 2009, there were other matters in issue, apart from the 24 hour trading dispute, which the offer did not address in any way.  The offer followed an exchange of correspondence in which the respondent had put forward a proposal that the lease be varied to provide for an initial review of the rental to a market rent and thereafter for increases based on the consumer price index.  A settlement on that basis would have resolved all of the accounting and record keeping issues relevant to a rent based on turnover.  The offer of 19 January 2009 did no more than propose an increased percentage rate based on turnover which, therefore, did not address any of these underlying issues.  In any event, if it had been understood that proceedings were to be commenced in the Tribunal, the offer was made at far too early a stage for the respondent to be able to identify any potential risk of liability for costs in the proceedings.

Other bases on which costs may be awarded

1. The applicant put forward the above bases for the award of costs relying on the principles expressed in Pearce as summarised in Gill & Ors and Wildnight Pty Ltd [2008] WASAT 135 at [20]. The applicant has also emphasised that it was substantially successful in the action and was vindicated in respect of the breaches alleged in the notice of default; and further, that the respondent preferred to have the proceedings transferred to the Supreme Court where costs would follow the event. Without more, these grounds would not be sufficient to justify an award of costs.

2. The respondent has opposed an award of costs, referring to decisions such as Summerville and Department of Education and Training & Ors [2006] WASAT 368 (Summerville), Vasilou v Australia's Country Homes Pty Ltd [1999] VSC 462, and Chew and Director General of the Department of Education and Training [2006] WASAT 248 (Chew), emphasising factors which have influenced the grant of an order for costs.  Those circumstances have been conduct which has disadvantaged the other party, use of deception, unreasonably prolonging a matter, contumelious conduct, protracted failure to comply with procedural requirements, acting unreasonably or inappropriately or capriciously, or in a manner which constitutes an abuse of process.

3. It appears that both parties have read the Pearce decision too restrictively. The above passage at [24] commences with an endorsement of the approach explained by Barker J in Summerville.  At [22] of Pearce, specific reference is made to the observation by Barker J in Summerville that s 87 of the SAT Act does not identify factors to be taken into account by the Tribunal in exercising its jurisdiction under s 87(2), and that it is not appropriate for the Tribunal to attempt finally to delineate the particular circumstances in which the discretion to award costs will be exercised.

4. In Pearce, the approach in Summerville was seen at [24] as being consistent with the proposition that decisions on costs might serve to promote certainty and responsibility in parties to their contractual responsibilities. But the Tribunal held that this did not necessarily mean that costs will follow the event. What then follows is a broad illustration of the approach which should be taken. Even where a party is forced to commence proceedings to vindicate its clear contractual entitlements, it is not stated that costs will follow the event but that it will 'often not be unreasonable for an award of costs to be made'. The passage which then follows in Pearce should be read in that light.  Although each party should expect to pay their own costs in circumstances where there is a genuine dispute between the parties to a lease, that does not exclude the possibility of an award of costs.  There need not be an expectation that each party will pay their own costs in the circumstances identified in Chew, namely where a party has conducted itself unreasonably or inappropriately.  But even absent those circumstances, it is only the starting point that each party should expect to pay their own costs.  This conveys that there may be circumstances in which the justice of the case supports moving away from that initial position.

5. This case, on any consideration, was complex and far from the ordinary commercial tenancy case run before the Tribunal.  It required that the Tribunal have a proper understanding of the applicant's accounting and computer systems.  The hearing of evidence took six hearing days and closing submissions a further full day, notwithstanding that both parties had filed comprehensive written submissions.  The respondent sought, unsuccessfully, to have the matter transferred to the Supreme Court where costs are usually paid by an unsuccessful party.  As between solicitor and client, the applicant has recorded legal costs, disbursements and expert witness fees of just less than $283,000 and claims some $213,000 on a party and party basis.  The dispute was of great importance to the applicant because had the applicant not been successful, it could have resulted in the forfeiture of a lease which, with the exercise of options to extend, could be for a total term of 30 years, expiring in November 2025.

6. The dispute between the parties was a genuine one, their respective rights were unclear and it was appropriate to seek the determination of those rights before the Tribunal. The starting point consistent with s 87(1) of the SAT Act is that the parties should bear their own costs. However, given the factors referred to in the preceding paragraph and that the applicant is on any basis the successful party and has thereby avoided the risk of the notice of default being enforced, it would result in an injustice if an award of costs were not to be made, unless any other specific basis of opposition raised by the respondent in opposition to the award is made good.

7. In coming to this conclusion, we are mindful of, and have taken into account, the Tribunal's stringent approach to costs as outlined in J & P Metals Pty Ltd and Shire of Dardanup [2006] WASAT 282 (S) (J & P Metals).  As a result of that, and the level of costs which have been set in the Legal Practitioners (State Administrative Tribunal) Determination 2008 (2008 Determination), the costs recoverable in a case such as this will be very significantly lower than the solicitor and client costs incurred.  As explained further below when discussing the manner in which the quantum of costs must be determined, the 2008 Determination is a guide to the maximum rates which might be allowed on a party and party basis.  Those rates will usually be well below the solicitor and client rates agreed under a costs agreement.

8. It will be a rare case, which we consider this to be, which will justify an award of costs having regard to the above factors.  The disparity between solicitor and client costs and the costs recoverable in the Tribunal will always operate as a disincentive for parties to allocate unnecessary resources and time to litigate in a manner which is inconsistent with the simplified and expeditious procedures which should be the paradigm in the Tribunal.

Other bases of opposition to the award of costs

1. The respondent contends that a considerable amount of time and effort was spent in the applicant endeavouring to demonstrate that Mr Clark should not have relied upon Audit Standard AUS904. It is true that some time was spent on this exercise but, at most, the applicant is only partly accountable. As appears at [86] of the substantive decision, Mr Clark endeavoured to explain some of the steps taken by him as part of an analytical procedure possibly justified under AS 520 analytical procedures. It was only later under cross­examination that Mr Clark disclosed that there had been what he referred to as an 'agreed to procedures audit'. It was reasonable for the applicant to examine very closely the degree of objectivity applied by Mr Clark. The various accounting standards had, in any event, to be considered in determining the scope of the audit and the extent to which it was justified to require the applicant to reconstruct its records to address the gross profit anomalies on some product lines (substantive decision at [89]).

2. It is noted that the applicant at para 9.2 of its written submissions has suggested, in the alternative, that if the Tribunal is not minded to include the applicant's costs relating to the time spent in pursuing the issue of good faith and unconscionable conduct, then an overall reduction of 10% of the costs of getting up and trial attendance is submitted to be appropriate on the basis that the factual issues and legal arguments did not form a significant part of the work undertaken.  The applicant's primary argument is that it was not unreasonable to raise this aspect of the case and therefore that the applicant should be entitled to the costs of doing so.  Reliance is placed on Head and Zimmermann Investments Pty Ltd [2009] WASAT 61 (S) at [12]. However, the Tribunal was there addressing why costs would not be awarded in relation to a particular issue. The case does not stand as authority for the proposition that costs should be allowed in respect of a claim on which a party fails.

3. There was inevitably some time spent in preparation and the drafting of the applicant's statement of issues, facts and contentions in relation to the good faith and unconscionable conduct issue, although little additional time was spent on the issue during the hearing because, to a large extent, the same evidence was in any event necessary to deal with other substantive issues.  Also, some costs would have been spent on the issue in written and oral closing submissions.

4. We consider that any time spent in relation to the accounting standards issue and the good faith and unconscionable conduct issue is extremely difficult to measure.  The most practicable way to approach this is to assess the total costs to which the applicant is entitled and then make a deduction equivalent to 5% of all fees, counsel's fees and witness fees.  That is fairer than simply a deduction against costs of trial and getting up, because some time would have been spent on these issues at the other stages, to which we have referred, by the legal representatives and expert witnesses.  It is unlikely that other disbursements were increased because of these issues, other than minimally, and they will accordingly not be reduced on this basis.

5. The respondent submits that significant time was also spent in arguing issues relating to the applicant's purported right to exercise an option to acquire the lessor's plant and equipment and that no costs should be awarded in relation to the time and cost spent in relation to that matter.  This submission is not accepted.  The Tribunal was informed that the issue was resolved at the commencement of the hearing and no time was spent on the issue.  To the extent that time was spent on the issue in preparing the matter for hearing and in the preparation of statements of issues, facts and contentions, the matter having been resolved, that cost should form part of the costs in the cause.

1. Finally, the respondent contends that costs should not be awarded because of an offer to settle which was made by the respondent after the third day of the hearing.  The offer was made in a letter dated 15 January 2010 which is marked without prejudice, save as to costs, and is therefore in a standard Calderbank form.  It is, however, an offer which does not comply with the Rules, already referred to above, because it provided only three business days within which to respond.  The respondent offered to withdraw its default notice and to cease the audit for the period 2001 through to 2006, which would not be re­instigated.  It was the audit for the 2003, 2004 and 2005 financial years which was the subject of these proceedings.  The respondent offered for the action to be discontinued, with each party paying their own costs, but left for further agreement the issue relating to trading hours.  It was proposed that, if the parties could not reach agreement, then either party might seek a declaration from the Tribunal in relation to the interpretation of the lease provisions.

2. The applicant responded by email dated 22 January 2010 rejecting the offer and emphasising that there was no point in withdrawing the proceedings and then possibly having to commence fresh proceedings to resolve the 24 hour trading issue.  Having regard to the criteria referred to in Ampezzo, as discussed above, it was not, in our view, unreasonable for the applicant to reject the offer.  It would not have resolved the important issue concerning 24 hour trading.  Given the breakdown in the relationship between the parties and the high level of suspicion which the respondent's representatives had concerning the applicant's accounting records, it is unlikely that a settlement of the 24 hour trading issue could have been negotiated.  A previous attempt at mediation ordered by the Tribunal was unsuccessful.  Without a determination from the Tribunal, the same issues were likely to arise in relation to the audit of subsequent years and the parties could have found themselves back in the same position.

3. For the above reasons, we conclude that costs should be awarded to the applicant, but those costs, including counsel and expert witness fees but not other disbursements, should be reduced by 5% to allow for the limited and difficult to measure time spent on the issues identified above in relation to which the applicant was unsuccessful.

The determination of the quantum of costs

1. It is necessary to address some additional issues raised to clarify the basis upon which the quantum of costs will be determined.

2. The respondent submits that the Tribunal must apply the 2008 Determination and that regard cannot be had to any other scale.  The applicant has prepared the preliminary bill of costs by reference to the Supreme Court Scale of Costs 2008 set out in the table to the Legal Practitioners' (Supreme Court) (Contentious Business) Determination 2008 (Supreme Court Determination).  The Supreme Court Determination came into effect on 1 July 2008 (Western Australia, Government Gazette 26 June 2008, at 2949 ­ 57) and continued in operation until 1 July 2010 (Western Australia, Government Gazette 29 June 2010, at 3044 ­ 50).  In addition, on grounds of complexity and the amount of work done, the applicant contends that special orders should be made uplifting the scale.

3. As stated under Pt 3 reg 5 of the 2008 Determination, the 2008 Determination does not provide a scale of fees in respect of party and party costs.  It sets a maximum allowable hourly rate and, in the case of counsel, a daily rate, as between solicitor and client.  Accordingly, the 2008 Determination is no more than a guide to the Tribunal of the maximum which might be allowed on a party and party basis for an hourly or daily rate, as the case may be.  Consequently, the comments made by the Tribunal in J & P Metals at [9] remain apposite, subject to recognition of the effect of the 2008 Determination which was not then in operation. It commenced on 1 March 2009 (Western Australia, Government Gazette 27 February 2009, at 511) and remained in force until its replacement by the Legal Practitioners' (State Administrative Tribunal) Report and Determination 2010 (Western Australia, Government Gazette 21 September 2010, at 4804) on 1 October 2010, and it therefore applies to the whole of the proceedings.  The proceedings commenced on 28 May 2009 and the final hearing was on 9 April 2010.

4. In these circumstances, having regard to the complexity and importance of the matter to the parties, it is appropriate to use the Supreme Court Determination as an additional guide.  However, as the task of the Tribunal will be to determine the amount of work which was reasonable and necessary, and to then apply an hourly or daily rate guided by the 2008 Determination, it is not necessary for any special orders to be made in relation to costs.

5. The respondent submits that if costs are awarded, then the costs should be taxed. It is assumed that by reference to taxation, the respondent means an assessment of costs pursuant to r 43 of the Rules, which contemplates a hearing at which an assessment of costs will be completed. The procedure usually followed provides the parties an opportunity to make submissions and enables the Tribunal to assess the costs claimed and determine the amount in a relatively robust fashion. This is considered to be in the overall interests of the parties and consistent with the Tribunal's objectives under s 9 of the SAT Act, relevantly, to act with as little formality and technicality as is practicable and to minimise the cost to the parties. Before seeking to have the Tribunal assess the costs, the parties should endeavour to agree quantum in light of the observations in these reasons.

6. It may be, in this case, that the parties have overlooked the intention of the Tribunal as explained in the substantive decision, and have made all the submissions which they intended to make in relation to the quantum of costs.  In the circumstances, if quantum is not agreed, the applicant will be provided with an opportunity to provide a final bill of costs, if that is intended, and both parties will be provided with an opportunity to make further submissions in relation to the quantum of costs, should they wish to do so.  If the applicant does not file and serve a final bill of costs and if neither party files and serves any further submissions, the costs will be assessed on the material currently before the Tribunal.

Orders

1. For the above reasons, the Tribunal will issue orders as follows:

   1.The respondent is to pay 95% of the applicant's costs including counsel's fees and expert witness fees plus the full amount of all other disbursements which may be allowed in respect of the proceedings, to be assessed as provided below, if not agreed.

   2.The applicant must, on or before 9 December 2010 notify the Tribunal by letter if it wishes to have its costs assessed, and if so, pay the fees for assessment provided for in reg 9 of the State Administrative Tribunal Regulations 2004 (WA) and file and serve:

   a)any final bill of costs;

   b)any further written submissions in relation to the quantum of costs claimed;

   on which the applicant wishes to rely.

   3.The respondent must, on or before 23 December 2010 file and serve any further written submissions on which the respondent wishes to rely opposing the quantum of costs claimed.

   4.Subject to further order of the Tribunal, the costs issue shall be finalised on the documents.

I certify that this and the preceding [51] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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JUSTICE J A CHANEY, PRESIDENT