Murar v Usagi Ya Pty Ltd (RLD)

[2005] NSWADTAP 26

Appeal Panel - Internal

CITATION:	Murar v Usagi Ya Pty Ltd (RLD) [2005] NSWADTAP 26
PARTIES:	APPELLANT Eva Murar RESPONDENT Usagi Ya Pty Ltd
FILE NUMBER:	059019
HEARING DATES:	6 June 2005
SUBMISSIONS CLOSED:	06/06/2005
DATE OF DECISION:	06/10/2005
DECISION UNDER APPEAL:	Usagi Ya Pty Ltd v Murar [2005] NSWADT 36
BEFORE:	Chesterman M - ADCJ (Deputy President); Molloy GB - Judicial Member; Weule B - Non Judicial Member
CATCHWORDS:	costs
MATTER FOR DECISION:	costs
FILE NUMBER UNDER APPEAL:	045025
DATE OF DECISION UNDER APPEAL:	02/23/2005
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150 Calderbank v Calderbank [1975] 3 All ER 333 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 Murtagh & anor v Taylor (EOD) [2005] NSWADTAP 18 Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 Usagi Ya Pty Ltd v Murar [2005] NSWADT 36 Wood & Anor v Bergman (No 2) [2003] NSWADT 175
REPRESENTATION:	A S Monzo, barrister J Hyde, barrister
ORDERS:	1. The appeal is allowed; 2. Order No. 2 in the decision of the Tribunal dated 23 February 2005 is set aside; 3. In lieu of this Order, the Appellant is to pay the Respondent's costs, as agreed or assessed, that are referable to the Appellant's pursuit of the claim for loss and damage set out in paragraphs 8 - 10 of her cross claim; 4. Unless an application with supporting submissions is filed in the Tribunal within 28 days, there will be no order on the costs of the appeal. If any such application is filed, the opposing party's submissions must be filed within a further 28 days. In the absence of any request for a hearing, the matter will be determined 'on the papers', under s 76 of the Administrative Decisions Tribunal Act 1997

REASONS FOR DECISION

Introduction

1 This is an appeal against a costs order made by the Tribunal in proceedings under the Retail Leases Act 1994 between a Lessor, Ms Eva Murar, and a Lessee, Usagi Ya Pty Ltd (‘Usagi Ya’). The Tribunal was constituted by Mr B Donald, Judicial Member.

2 In its decision in the proceedings, delivered on 23 February 2005 (Usagi Ya Pty Ltd v Murar [2005] NSWADT 36), the Tribunal held that Ms Murar was liable to pay the sum of $18,343.63 to Usagi Ya, representing a substantial proportion of a security deposit that Usagi Ya had paid to Ms Murar when it became the lessee by assignment. In addition the Tribunal ordered Ms Murar to pay Usagi Ya’s costs of the proceedings, as agreed or assessed.

3 In essence, there are two grounds on which Ms Murar has appealed against this costs order. These are (a) that since the Tribunal made the order without giving the parties an opportunity to make submissions to it on costs, it breached the requirement imposed on it by s 73(4)(c) of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’) to ‘ensure that the parties have the fullest opportunity practicable to be heard or otherwise have their submissions considered in the proceedings’; and (b) that the order was not justified, since the requirement of ‘special circumstances warranting an award of costs’ in s 88(1) of this Act had not been satisfied.

Procedural issues

4 With regard to the first of these grounds, the Tribunal, in its judgment at [44], explained the circumstances in which it made the costs order: -

The parties did not make submissions on costs however I think it is appropriate for me to address this issue without putting the parties to the further cost of making written submissions; the principles are well established and, subject to them, it is a matter within the discretion of the Tribunal having regard to all the circumstances of the case.
5 Mr Hyde, counsel for Usagi Ya, appeared to concede that the Tribunal, through adopting this approach, erred in law through infringing s 73(4)(c) of the ADT Act. We have no doubt that this is the case. Appeal Panels have ruled to this effect more than once: see, for example, Murtagh & anor v Taylor (EOD) [2005] NSWADTAP 18 at [57 – 59]. Adherence to the principles of natural justice, which underlie the terms of s 73(4)(c), is also required by s 73(2).

6 In applying these principles to applications for costs, it is essential, in the Retail Leases Division at least, that the parties to proceedings are given an opportunity to bring forward supporting evidence and arguments after the Tribunal has delivered its decision on the substantive issues in dispute. An important reason is that such evidence may include material that cannot be tendered to the Tribunal until it has determined these issues. Under s 88(1) of the ADT Act (the application of which is discussed below), one of the ways in which a party may establish ‘special circumstances warranting an award of costs’ is to show that the opposing party unreasonably rejected an offer to settle the proceedings on terms that were more favourable to it than the order or orders made by the Tribunal. Evidence to this effect cannot be tendered, and it cannot be determined whether these conditions are fulfilled, until the Tribunal has delivered its decision on the substantive issues.

7 In the circumstances of the present case, we have power under the ADT Act to reach our own conclusion regarding the costs order, as opposed to remitting the matter for determination by the Tribunal. In formal terms, this might involve granting leave under s 113(2)(b) of the ADT Act for this appeal to extend to the merits, as was done in Murtagh v Taylor at [60]. Whether or not this is so, the express powers conferred on Appeal Panels by ss 114 and 115 of this Act are sufficiently broad to support this approach. If leave is required, we grant it.

8 There are two provisos attending this course of action: first, that we must be careful not to usurp the function of the Tribunal at first instance in making primary findings of fact; and secondly, that all the evidentiary material that the parties wish us to consider must be accessible to us. At the hearing of the appeal, we were assured that the latter requirement was satisfied.

9 Mr Hyde’s submissions on this question of how we should proceed were (a) that despite the defect in procedure accompanying the Tribunal’s costs order, we should uphold this order as one that was open to the Tribunal on the evidence, but (b) that, if we are not prepared to uphold it, we should remit the matter for determination by the Tribunal, rather than determining it ourselves.

10 Mr Monzo, counsel for Ms Murar, argued (a) that on account of the defect in procedure we should set aside the Tribunal’s order, and (b) that having considered all the relevant evidence and arguments we should make our own independent determination regarding costs, rather than remitting the matter to the Tribunal.

11 In our opinion, the procedural approach advocated by Mr Monzo is correct. The Tribunal’s order should be set aside, on the ground that it was reached without a proper opportunity to make submissions or tender further evidence being given to the parties. Because we are ourselves in a position, following the hearing of the appeal, to consider all the evidence and arguments relating to costs that the parties wish to put before us, we should not subject them to further expense by remitting the matter. While we should pay due regard to the Tribunal’s ruling on costs and the reasons supporting it, we should make our own independent decision, as opposed to determining solely whether the Tribunal’s ruling was reasonably open to it in the light of the evidence.

Relevant principles regarding costs

12 As we have said, if costs are to be awarded, the requirement of ‘special circumstances warranting an award of costs’ set out in s 88(1) of the ADT Act must be satisfied. Section 77A of the Retail Leases Act 1994 (‘the RL Act’) makes this provision applicable in retail tenancy proceedings conducted in the Tribunal.

13 According to the case-law on s 88(1) in its application to proceedings under the RL Act (see eg Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164, and Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43), ‘special circumstances’ are to be defined as ‘circumstances that are out of the ordinary, but without having to be extraordinary or exceptional’. It is not enough that the circumstances are ‘special’: they must also ‘warrant’ an order for costs. On account of the ‘commerciality’ of the Retail Leases Division, the interpretation of ‘special circumstances’ differs significantly from the interpretation that might be adopted in any other Division of the Tribunal.

14 The following two paragraphs from Wood & Anor v Bergman (No 2) [2003] NSWADT 175 at [13 – 14] are of particular relevance in the present case: -

13 The proposition, however, that ‘special circumstances’ should be interpreted differently within this Division, because it deals with relationships of a commercial character, does not imply that costs should simply follow the event. This was made clear in Alessa Pty Ltd v Total & Universal Pty Ltd [2001] NSWADT 150 at [4].

14 In Alessa, it was said also, at [5-6], that where an application to the Tribunal lacked any conceivable merit in fact or law, this could constitute ‘special circumstances’ justifying a costs order under s 88 in favour of the successful respondent. It would be a situation where refusal to grant such an order would be ‘seriously unfair’. In such a case, the purpose of the costs order would be to prevent the ‘gross abuse’ of the Retail Leases Act by frivolous, vexatious and misconceived proceedings.

15 In Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164, the Tribunal held that ‘special circumstances’ existed in that case where (a) the successful party in the proceedings had made an offer of compromise of the dispute before the conclusion of the proceedings; (b) the unsuccessful party had rejected the offer without good reason; and (c) the terms of the offer were more favourable to the unsuccessful party than the orders made by the Tribunal. It treated the situation as analogous with costs rules in the Supreme and District Courts and the principles laid down in Calderbank v Calderbank [1975] 3 All ER 333. This approach was approved by an Appeal Panel in Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 at [14 – 16, 28].

The Tribunal’s decision on the substantive issues in the proceedings

16 The lease in this case commenced on 1 July 1999 for a term of three years. Usagi Ya became the lessee under an assignment dated 28 February 2001. It remained in possession until 21 August 2003, holding over after the expiry of the lease on 30 June 2002.

17 In June 2001, the interior of the premises was destroyed by fire. By November 2001, it had been fully restored and painted, with new vinyl covering on the floor.

18 On 20 July 2002, the insurer of the premises issued District Court proceedings in Ms Murar’s name against Usagi Ya. The statement of claim alleged that the fire was caused by the defendant’s breach of the terms of the lease, and claimed $107,315.10 plus interest as compensation for the ‘loss and damage’ that the plaintiff had sustained ‘as a consequence of the Fire’. It further alleged that the fire was caused by the defendant’s negligence and that the plaintiff sustained loss and damage ‘as a consequence of that negligence’. The particulars of damage supplied under each of these formulations of her claim comprised three items: ‘cost of repairs to the property’, ‘loss of rental’ and ‘fees’.

19 These proceedings were settled on 15 August 2003 by a consent judgment entered against Usagi Ya in the sum of $96,000 inclusive of costs.

20 Usagi Ya instituted the present proceedings in the Tribunal on 12 March 2004. Ms Murar filed a defence and a cross claim. In its decision (Usagi Ya Pty Ltd v Murar [2005] NSWADT 36) at [6], the Tribunal outlined the issues raised as follows: -

The Lessee asked for its security deposit back together with an amount of alleged excess outgoings paid by it, but the Lessor now claims the right to retain the security deposit and to recover further damages for breach of the Lease because of:
Unrecovered losses from the fire

Unpaid outgoings due by the Lessee under the Lease

Cost of removing outdoor roofing and relocating a sink both installed in breach of the Lease

Cost of erecting a roof beam required as a result of breach of the Lease

Cost of replacing damaged vinyl flooring.

21 Ms Murar’s claim for the ‘unrecovered losses from the fire’ was pleaded in paragraphs 8 – 10 of her cross claim as an action for breach of the contract contained in the lease. Under the heading ‘particulars’, two items were entered: ‘rental losses not otherwise covered by insurance claim’ and ‘reinstatement of premises over and above insurance claim’. She claimed $5,801 under the former head and $16,806 under the latter, making a total of $22,607.

22 In a ruling given on the first day of a two-day hearing and in its judgment at [8 – 17], the Tribunal rejected her claim for this amount. Its grounds for so doing were that her action against Usagi Ya in respect of the fire had been concluded by the consent judgment in the District Court and that by virtue of the principles of res judicata or issue estoppel she had no entitlement to any further compensation. The Tribunal held that these principles applied to bar any further action by her, even though the proceedings in the District Court had been instituted by her insurer, exercising its rights of subrogation.

23 The Tribunal dealt as follows with the other issues raised in the proceedings. It held that Usagi Ya had overpaid outgoings to the extent of $1,923.44 and that this amount should be brought to account in its favour. It dismissed Ms Murar’s claim of $3,159.56 for the cost of removing the roof, along with certain rubbish, and relocating the sink. It held that the cost of installing the beam, claimed by Ms Murar to be $1,718.20, should be shared between the parties, and that she should be reimbursed $500 for the cost of removing some bricks. It dismissed her claim for $1,718.20 for the cost of replacing of the vinyl flooring, observing that she had not called an available witness – namely, her Managing Agent – who had knowledge of the circumstances and could have assisted in assessing the competing evidence.

24 At [43], the Tribunal set out as follows its calculation of the amount due to be paid by Ms Murar to Usagi Ya: -

The Lessee has conceded that an amount of rent and other sums were unpaid so agrees with the deduction of $2,688.46 from the security deposit. Accordingly the accounting as between the parties, applying my decision should be:

ITEM	$	$
Security Deposit	20,467.75
Less:
unpaid rent and other	2,688.46
Cost of beam 50%	859.10
Cost of brick removal	500.00
Deduction sub-total:	4,047.56
Plus:
Overpaid outgoings	1,923.44
Net adjustment-deduct	2,124.12
Refund due to Lessee	18,343.63

The Tribunal’s decision on costs

25 At [45], the Tribunal referred briefly to s 88 of the ADT Act and to the distinction between the requirement of ‘special circumstances’ stipulated in this section and the principle of ‘costs follow the event’.

26 At [46 – 49], it explained as follows its decision that Ms Murar should pay Usagi Ya’s costs: -

46 In this case the Lessee has been successful on all issues save for some relatively small adjustments, particularly in relation to the installation of the roof beam.

47 By far the major claim was for the unrecovered fire loss which had already been litigated between the parties. In order to save costs I made an initial ruling dismissing that claim which avoided the need to take evidence. However my decision to take that course indicated that I judged that claim as clearly without merit. Had that claim not been pursued, there must have been a far greater chance that the dispute for effectively half the sum claimed by the Lessor could have been settled by negotiation.

48 The other claims (excluding the vinyl flooring claim which could only have been raised after termination), had not been raised with the Lessee during the term of the Lease even though they dated from the time of the restoration of the building some two years before. The Lessor declined to call the witness most likely to have its best evidence on the flooring claim.

49 All of those factors in my view constitute special circumstances taking this case out of the ordinary. In my opinion the Lessee in these circumstances should be entitled to recover its costs as agreed or assessed.

The claims relating to the fire in the premises

27 In submitting that this costs order was inappropriate and that no order for costs should be made in relation to the proceedings before the Tribunal, Mr Monzo focused chiefly on the Tribunal’s treatment of Ms Murar’s claim for unrecovered losses from the fire. His argument was that the Tribunal erred, not in rejecting this claim, but in treating it as ‘clearly without merit’.

28 In support of this argument, Mr Monzo referred us to authorities for the proposition that, in determining what issues may not be relitigated by the parties to a judgment by virtue of the principles of res judicata and issue estoppel, it is essential to study the judgment closely, in order to determine precisely what it decided. This investigation, he submitted, was particularly important in the case of a consent judgment. But the Tribunal did not conduct such an investigation. In fact, it rejected the tender, on Ms Murar’s behalf, of the District Court consent judgment, along with some correspondence between the solicitors for the parties during the period when the settlement was negotiated. It relied only on the statement of claim, which it admitted into evidence, when determining what issues between the parties were concluded by the judgment.

29 The conclusion that Mr Monzo asked us to draw from this line of reasoning was this. Had the Tribunal admitted and given due consideration to the consent judgment and the tendered material relating to it, it would have realised, in the light of relevant authorities, that Ms Murar’s assertion that she was not barred by the judgment from making a claim in the Tribunal for additional losses from the fire was not without merit.

30 Mr Hyde did not dispute that the Tribunal had rejected the tender of this material, though he pointed out that the Tribunal had been advised of the terms of the consent judgment. He raised no objection to some of the material in question being admitted into evidence in the appeal.

31 The admitted material comprised the consent judgment and some prior correspondence between the parties’ solicitors. This indicated that during negotiations Usagi Ya had wished the settlement to embrace ‘all existing claims and existing rights to claim’ that Ms Murar might have against it ‘for claims caused by or arising out of the facts and circumstances’ alleged in the statement of claim. The response of Ms Murar’s solicitors, however, had been that a clause in these terms was not acceptable to her insurer, which would only consent to a judgment relating to ‘those damages claims outlined in the statement of claim’. The consent judgment itself simply recited that without admission of liability, there should be judgment for Ms Murar against Usagi Ya for $96,000 inclusive of costs.

32 Mr Monzo pointed out that Usagi Ya had not sought the return of its security deposit in the District Court proceedings. If it had done this, Ms Murar would have responded by asserting her right to retain some or all of it as recompense for the losses that were not covered in the statement of claim. She did not in fact assert this right until Usagi Ya, having vacated the premises shortly after the consent judgment, instituted Tribunal proceedings more than six months later to recover the deposit.

33 Mr Monzo also cited to us a passage in the judgment of Deane, Toohey and Gaudron JJ in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510-511. In this passage, their Honours state that parties to a judgment must accept the consequences of res judicata if they fail to set it aside and also fail, in a second action, to raise any issue as to the circumstances in which that judgment was obtained. Mr Monzo relied on this for the proposition that res judicata did not prohibit a party from raising in subsequent proceedings one or more issues relating to the circumstances in which the prior judgment was obtained.

34 In our judgment, contrary to a submission made by Mr Hyde, the Tribunal may have erred in rejecting the tender of the consent judgment and accompanying material.

35 We accept, however, Mr Hyde’s argument that, even when this material is taken into consideration, there is clearly no reason to question the Tribunal’s conclusion that Ms Murar was barred by the District Court consent judgment from asserting in the Tribunal a claim to further losses sustained by reason of the fire. This is the case even though the Court proceedings were conducted by her insurer, whereas she sues in her own name in the Tribunal.

36 Ms Murar alleged in the Tribunal that the fire was caused by conduct of Usagi Ya in breach of the terms of the lease. We agree with Mr Hyde, and with the Tribunal, that this is indistinguishable from the breach of contract claim contained in the District Court proceedings. In the Tribunal, the particulars that she provided for the loss and damage that she sustained were as follows: ‘rental losses not otherwise covered by insurance claim’ and ‘reinstatement of premises over and above insurance claim’. These types of damage are, in our judgment, the same for all practical purposes as two of the three items in the particulars relied on in the District Court proceedings: viz, ‘cost of repairs to the property’, ‘loss of rental’. As indicated above at [18], those three items were expressly said in the statement of claim to constitute the particulars of the ‘loss and damage’ that Ms Murar sustained ‘as a consequence of the fire’ and ‘as a consequence of that negligence’ [i.e. negligence on the part of Usagi Ya].

37 In this connection, Mr Monzo conceded that he could not cite any authority drawing a distinction between ‘repair’ and ‘reinstatement’.

38 Mr Hyde submitted to us that paragraph [14] of the Tribunal’s judgment demonstrated simply and effectively that Ms Murar’s claim to be entitled to recover additional losses was clearly without merit. This paragraph is as follows:

A good way of testing this is to ask what the District Court would have said if the day after this consent judgment was filed, the Lessor had filed a new claim on identical grounds but limited to the amount of alleged loss said to be unrecovered from the insurance company. I have no doubt the claim would have been struck out.
39 We agree. We do not think that the additional material that we admitted into evidence changes the position in any way. The dictum from the Chamberlain case goes no further than to confirm that in some situations the circumstances in which a judgment was obtained may give grounds for resisting the operation of the doctrine of res judicata . It contains nothing to indicate that in the present case this doctrine should not apply and, indeed, it emphasises that there is only a limited range of exceptional cases where the doctrine does not apply.

40 By virtue of this reasoning, we consider that Ms Murar’s claim to recover additional losses sustained in consequence of the fire was, to use the Tribunal’s phrase, ‘clearly without merit’.

Other aspects of Usagi Ya’s claim for costs

41 The Tribunal held, at [47], that if Ms Murar’s claim in the Tribunal for additional damages on account of the fire had not been pursued, ‘there must have been a far greater chance that the dispute for effectively half the sum claimed by [her] could have been settled by negotiation’.

42 This consideration was one of the factors underpinning the costs order that the Tribunal made. The others, outlined at [46] and [48], were (a) that Usagi Ya ‘has been successful on all issues save for some relatively small adjustments’; (b) that all of Ms Murar’s claims, except for the fire damage claim and for the vinyl flooring claim (which could only have been raised after termination of the lease), ‘had not been raised with the Lessee during the term of the Lease even though they dated from the time of the restoration of the building some two years before’; and (c) that ‘the Lessor declined to call the witness most likely to have its (sic) best evidence on the flooring claim’.

43 After taking careful account of these matters, we are unable to agree with the Tribunal that there were ‘special circumstances warranting an award’ to Usagi Ya of all of its costs in the proceedings. Our reasons are as follows.

44 We accept a submission by Mr Monzo that there was no evidence before the Tribunal to support its conclusion that, if the fire claim had not been pursued, there would have been a ‘far greater chance that the dispute could have been settled by negotiation’. As the Tribunal itself pointed out, what would have remained for resolution was still a claim for ‘effectively half the sum’ that had initially been included in the cross claim. In fact, the Tribunal made its ruling that Ms Murar could not succeed on the fire damage claim at an early stage of the hearing, but there was no evidence of any subsequent attempt by either side to settle. While we make due allowance for Mr Hyde’s argument that this was a very late stage for settlement negotiations, the fact remains that the Tribunal’s ruling did not prompt either side to undertake them.

45 As we have pointed out at [15] above, the unreasonable rejection of an offer of compromise may give grounds for an award of costs under s 88. But the defining features of this recognised category of ‘special circumstances’ are very different from a somewhat speculative finding, not supported by specific evidence, that persistence by a party in one unmeritorious component of a multi-faceted claim significantly reduced the chances of settling the whole claim.

46 As has been pointed out many times in cases under s 88, ‘special circumstances warranting an award of costs’ against a party do not arise merely because that party has been wholly or substantially unsuccessful. Except with regard to the fire damage claim and the vinyl flooring claim, the issues on which Ms Murar failed were ones on which the Tribunal, having heard lay and expert evidence on both sides, found the case put by Usagi Yar to be the stronger.

47 Finally, we see no reason why the fact that a lessor delayed more than two years before raising an issue with a lessee is relevant to the issue of ‘special circumstances’, particularly when the lessor-lessee relationship remained in existence during all but seven months of that period.

48 We cannot discern any other ground on which ‘special circumstances’ might be said to have arisen.

Our orders

49 We accept Mr Hyde’s submission that the fire damage claim was a substantial component of Ms Murar’s case. Although it appears to have occupied less than two hours of hearing time, it undoubtedly called for a good deal of preparation on the part of Usagi Ya’s legal representatives. In our judgment, the fact that it was clearly unmeritorious should be reflected in determining costs issues between the parties.

50 Our orders therefore are that the Tribunal’s decision on costs should be set aside and that, in lieu, Ms Murar is to pay Usagi Ya’s costs, as agreed or assessed, that are referable to her pursuit of the fire damage claim – i.e., the claim for loss and damage set out in paragraphs 8 – 10 of her cross claim.

51 Unless an application with supporting submissions is filed in the Tribunal within 28 days, there will be no order on the costs of the appeal. If any such application is filed, the opposing party’s submissions must be filed within a further 28 days. In the absence of any request for a hearing, the matter will be determined ‘on the papers’.