Profilio v Coogee Bay Village Pty Ltd (No. 4)
[2011] NSWADT 64
•31 March 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 64 Hearing dates: On the papers Decision date: 31 March 2011 Before: M Chesterman, Deputy President
B Ward, Non-judicial Member (Advisory)Decision: 1. The Respondent is to pay to the Applicants the sum of $29,808 as interest up to the date of this decision on the amount of damages ($86,705) ordered to be paid to the Applicants in the Tribunal's decision dated 14 January 2011.
2. The Respondent is to pay 75% of the Applicants' costs of these proceedings, as agreed or assessed on a party-party basis.
Catchwords: Costs - interest - retail lease Legislation Cited: Administrative Decisions Tribunal Act 1997
Civil Procedure Act 2005
Retail Leases Act 1994
Uniform Civil Procedure Rules
Victorian Civil and Administrative Tribunal Act 1998 (Vic)Cases Cited: AT v Commissioner of Police [2010] NSWCA 131
B & L Linings Pty Ltd v Chief Commissioner of State Revenue (No 5) [2010] NSWADTAP 21
Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81
De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40
Calderbank v Calderbank [1976] Fam 93
Dennis Corporation Pty Ltd v Casey CC (Red Dot) [2008] VCAT 691
Department of Human Services v RA (No 2) [2010] NSWADTAP 37
Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322
Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164
Horwood v Memocorp Australia Pty Ltd (No 2) [2010] NSWADT 174
Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3
MT v AA (No 2) (EOD) [2010] NSWADTAP 38
Profilio v Coogee Bay Village Pty Ltd [2009] NSWADT 211
Profilio v Coogee Bay Village Pty Ltd (No 2) [2009] NSWADT 319
Profilio v Coogee Bay Village Pty Ltd (No 3) [2011] NSWADT 4
Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1
Salon Today Pty Ltd v M M I R Pty Ltd [2009] NSWADT 71
Simonek Pty Ltd v Moon [2008] NSWADT 128
Tsimbakos v BlackRock Investment Management (Australia) Ltd (No 2) [2010] NSWADT 260
Winky Pop Pty Ltd v Hobsons Bay CC [2008] VCAT 1512Texts Cited: Minter Ellison Lawyers, Retail Leases Handbook: an annotated reference, 2008 Category: Costs Parties: Joe Profilio (First Applicant)
Rozi Sajko (Second Applicant)
Coogee Bay Village Pty Ltd (Respondent)Representation: Joe Profilio (First Applicant - in person)
Joe Profilio (Second Applicant - agent)
Klonis & Co, Lawyers (Respondent)
File Number(s): 085127
REasons for decision
Introduction
This decision is concerned with businesses that were conducted at two adjacent retail shops, Shop 192 and Shop 194, in a retail shopping centre in Coogee Bay Road, Coogee. The relevant part of the centre was owned by the Respondent, Coogee Bay Village Pty Ltd ('CBV'). The Applicants, Mr Joe Profilio and Ms Rozi Sajko, were tenants of Shop 192 for a number of years under leases governed by the Retail Leases Act 1994 ('the RL Act').
The relief sought by the Applicants included an award of damages. One of the grounds on which they claimed to be entitled to damages was that CBV had engaged in unconscionable conduct. Accordingly, the Tribunal has been constituted in these proceedings in accordance with clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). It has been constituted by a Deputy President who is a member of the Retail Leases Division, assisted by an appropriately qualified member (Non-judicial Member Ward), acting in an advisory capacity only. Because no second advisory member has been available to assist at the hearings, the Tribunal has proceeded with only one such member. At the commencement of the first hearing, it drew the parties' attention to the fact that it was authorised to do so by sub-paragraph (4)(a) of clause 4 of Schedule 2, Part 3B.
In a decision delivered on 10 August 2009 ( Profilio v Coogee Bay Village Pty Ltd [2009] NSWADT 211 - hereafter 'the liability decision'), the Tribunal declared that CBV, by granting to a company called Backpacker World Travel Pty Ltd ('BWT') in December 2004 a lease of Shop 194, in which the permitted use included 'the provision of internet and email services', breached an obligation, set out in its broadly contemporaneous lease of Shop 192 to the Applicants, to ensure that they had exclusive use of Shop 192 (within the shopping centre owned by CBV) as an 'internet caf'. The provisions of the lease to the Applicants giving rise to this obligation will from now on be called 'the exclusivity provisions'.
Order 2 in this decision contained directions for the determination of a foreshadowed application by the Applicants for an interim costs order. On 31 August 2009, the Applicants filed such an application. In a decision delivered on 21 December 2009 ( Profilio v Coogee Bay Village Pty Ltd (No 2) [2009] NSWADT 319 - hereafter 'the interim costs decision'), the Tribunal dismissed it. The Tribunal indicated at [37], however, that at the conclusion of the proceedings the Applicants, or indeed CBV, might be able to satisfy the criteria for a costs order.
Since the grounds of relief sought by the Applicants included damages, the declaration granted in the liability decision did not bring the proceedings to an end. In this decision at [187], the Tribunal urged the parties to try to settle the outstanding question as to what damages (if any) were payable by CBV to the Applicants. It added: 'The difficulties associated with assessing economic loss in a case like this are well recognised and the prospect of another long and costly hearing is all too evident.'
The parties did not succeed, however, in settling this question. Accordingly, a second hearing, relating to the assessment of the damages to be paid to the Applicants, took place on 3, 4 and 5 November 2010. Pursuant to directions given by the Tribunal, the parties subsequently filed written submissions.
The Tribunal delivered its decision on the assessment of damages ('the damages decision') on 14 January 2011 ( Profilio v Coogee Bay Village Pty Ltd (No 3) [2011] NSWADT 4). Its orders were in the following terms:-
1. The Respondent is to pay to the Applicants damages in the sum of $86,705, exclusive of interest.
2. Any application by the Applicants for interest on this sum and/or costs to be paid by the Respondent must be filed and served, together with supporting submissions, within 21 days of the date of this decision.
3. Any submissions of the Respondent regarding interest and/or costs must be filed and served within a further 21 days.
4. If the Respondent's submissions include an application for costs to be paid by the Applicants, any submissions by the Applicants in reply to such application must be filed and served within a further 14 days.
5. Unless the Tribunal accedes to a request made by a party, with supporting reasons, for either or both of these matters to be dealt with at a hearing, they will be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.
The Applicants filed an application for interest and costs, with supporting submissions, on 4 February 2011. CBV filed an application for costs, together with submissions on interest and costs, on 25 February 2011. The present decision deals with these two questions.
In its submissions, CBV argued that instead of determining these questions 'on the papers', the Tribunal should conduct a further hearing. It put forward the following reasons: (a) the competing claims by the parties were complex and required explanation; (b) the amounts involved in them were substantial, and might exceed the amount of damages awarded to the Applicants; and (c) the parties' claims were quite likely to call for the presentation of oral evidence and cross-examination.
Having carefully considered the claims made by the parties in these most recent submissions, the Tribunal is not persuaded that a third hearing is necessary or desirable. The specific issues remaining for resolution do not, in its opinion, depend to any material extent on the presentation of more oral evidence. A hearing devoted to these issues would prolong even further the time taken to bring these proceedings to an end and would cause yet more costs to be incurred.
It is relevant in this connection that CBV has also filed a Notice of Appeal. Paragraph 10 of the Tribunal's Guideline on Costs, dated 1 October 2010, contains the following statement: 'If an appeal is lodged while the Divisional Tribunal still has before it an application for costs, normally the Divisional Tribunal will decide the costs application so that finality is achieved at that level.' In view of this statement, it is preferable that the Tribunal should proceed without undue delay to determine the outstanding matters of interest and costs. Its determinations may then, if either party so desires, be open to review in the appeal proceedings.
In this decision, the topics of interest and costs will be discussed in that order. For reasons explained below, there are links, in the present proceedings, between these two seemingly disparate topics.
Interest
Section 72A of the RL Act confers on the Tribunal a power to order the payment of interest in proceedings brought under the Act. So far as relevant here, the section states:-
72A Power of Tribunal to award interest
(1) When the Tribunal orders on a retail tenancy claim or an unconscionable conduct claim that a person pay money to another person, the Tribunal may order that there is to be included, in the amount ordered to be paid, interest at a specified rate on the whole or any part of that amount for the whole or any part of the period between when the cause of action arose and when the order takes effect.
(2) ...
(3) The rate of interest specified by the Tribunal under this section must not exceed the rate at which interest is payable on a judgment debt of the District Court.
(4) This section does not:
(a) authorise the giving of interest on interest,...
(5) On a claim for the payment of money, the Tribunal may not order the payment of interest under subsection (1) in respect of the period after the date on which an appropriate settlement sum (or the first appropriate settlement sum) has been offered unless the special circumstances of the case warrant the making of such an order.
(6) For the purposes of subsection (5), appropriate settlement sum is a sum offered by a party in settlement of a claim for the payment of money where the amount ordered to be paid (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent. Subsection (5) does not prevent an award of interest for the period before the settlement offer is made.
The opening sentence of the annotations to this section in the Retail Leases Handbook: an annotated reference (2008), published by Minter Ellison Lawyers, states: 'The Tribunal almost invariably exercises its discretion to award interest on judgments for unpaid amounts...' A list of about twenty examples in the case law is then provided.
In their submissions, which were prepared by Mr Profilio, the Applicants submitted that interest on the principal sum of $86,705 awarded to them in the damages decision should also be awarded, covering the period from 10 May 2005 to 5 November 2010. The first of the dates is the day on which the Applicants first complained to CBV that its breach of the exclusivity provisions was causing them to suffer economic loss (see the damages decision at [90]). The second date is the final day of the hearing on damages.
The Applicants also submitted that none of CBV's offers of settlement made to them since the proceedings commenced was an 'appropriate offer of settlement' as defined in section 72A(6). Relevant aspects of the offers of settlement made by CBV are outlined below.
According to the Applicants' submissions, the amount of interest that should be awarded to them is $44,616.85. In calculating this amount, they took as the appropriate rate the Reserve Bank of Australia's cash rate plus 4%, calculated as simple interest 'in six months periods'. They indicated in their submissions that this rate is prescribed in r 36.7 of the Uniform Civil Procedure Rules for the purpose of section 101 of the Civil Procedure Act 2005. This section is headed 'Interest after judgment'.
CBV's submissions, prepared by its solicitor, Ms Kathy Klonis, did not challenge the proposition that the Tribunal should make an award of interest. But they disputed three aspects of the Applicants' calculation of the amount due.
First, Ms Klonis claimed that the rate of interest should not be the maximum rate chargeable on a judgment debt in the District Court, because this rate approximated the return payable on a successful business. Such a rate was inappropriate, she maintained, because, as was found by the Tribunal, the Applicants' business in the premises leased from CBV was performing poorly even before it experienced competition from the premises next door, to the extent that even if this competition had not arisen they would not have exercised an option in the lease to renew it for a further five years after its expiry on 31 October 2009 (see the damages decision at [86 - 96, 138 - 144]). The correct rate to apply, according to CBV, was the Reserve Bank of Australia's cash rate.
Secondly, Ms Klonis argued that because the economic loss suffered by the Applicants accrued over a period of about 4.5 years (from 10 May 2005, or thereabouts, to 31 October 2009), the Applicants were not entitled to interest on all of the principal sum awarded ($86,705) during this period. She pointed out further that (a) the loss suffered was, on average, assessed at only $19,248 per year during this period (see the damages decision at [173]) and (b) during the latter part of this period, the loss inflicted was more serious than it had been, because of the involvement of an enterprise called Global Gossip in the competing business in Shop 194 (see e.g. the damages decision at [26 - 28]).
The third argument made by Ms Klonis in disputing the Applicants' calculations was that on a number of occasions, dating back as far as 15 June 2009, CBV had made offers to settle the proceedings by paying an 'appropriate settlement sum' within the definition in section 73(6) of the RL Act, but the Applicants had either rejected or ignored each of these offers. She maintained that under section 73(5) no interest should be held payable following the communication of the first of these offers.
Ms Klonis's submissions were accompanied by a table showing how in CBV's view the interest should be calculated. According to this table, the total amount awarded should be either $19,154.31 (treating 5 November 2010 as the closing date) or $10,177.86 (treating 15 June 2009, the date of the earliest offer of an 'appropriate settlement sum', as the closing date).
In the Tribunal's opinion, the first of these contentions by Ms Klonis should be rejected. In a small number of cases, the Tribunal has awarded interest at a rate less than that prescribed in section 72A(3): see for example Simonek Pty Ltd v Moon [2008] NSWADT 128 at [22], where the bank overdraft rate was chosen instead. But in the overwhelming majority of decisions where interest has been awarded, the rate chosen has been the rate at which interest was payable over the relevant period on a judgment debt of the District Court, as permitted by section 72A(3). The reasons advanced by Ms Klonis for applying a reduced rate are not persuasive.
The Tribunal agrees with Ms Klonis that during the period where the losses of profits caused to the Applicants by CBV's breach of the exclusivity provisions were accruing, interest should not be awarded on all of the principal sum awarded. In accordance with standard practice, it is appropriate to calculate the figure that would arise if this were in fact the approach adopted, then to divide this figure by two.
Ms Klonis's third contention was supported by evidence that in a letter dated 25 September 2009 she conveyed an offer by CBV to settle the dispute by paying to the Applicants the sum of $150,000 'inclusive of costs'. This sum significantly exceeded the total of the principal sum awarded ($86,705) and the interest accruing up to the date of the offer ($18,018 - see the calculations set out below). The total of these two amounts is $104,723.
In the Tribunal's opinion, however, this is not enough to make the offered amount of $150,000 an 'appropriate settlement sum'. This is because the offer was expressed to cover not just the principal sum due to the Applicants on account of damages and the interest to date on that sum, but also such amount as they might have been held entitled to recover on account of costs.
For reasons set out below, the Tribunal in this decision makes an award of costs to the Applicants, by virtue of which an amount that may be estimated at about $68,310 will be payable. All of the relevant costs were incurred before the date of the offer. It follows that the net value of the offer to the Applicants should be deemed to be of the order of $81,690 ($150,000 less $68,310). Even when enlarged by 10%, as provided for in section 72A(6), the net value of the offer falls well short of the amount due as principal and interest, as at the date of the offer, under the Tribunal's orders.
If the Tribunal is wrong in concluding that the offered amount of $150,000 was not an 'appropriate settlement sum', it considers that because the offer was inclusive of costs, this is a situation where it should make a finding of 'special circumstances' under section 72A(5) and should rule that interest should continue to accrue after the making of the offer.
According to the Tribunal's understanding of the relevant legislation, the rates at which interest has been payable from time to time on judgment debts of the District Court are those set out in Schedule 5 of the Uniform Civil Procedure Rules . The relevant period is from 10 May 2005 to 31 March 2011, the date of this decision. During this period the rates were 9% until 31 December 2006, then 10 % until 5 March 2009, then 9% until 31 December 2010, and thereafter 10.75%. Between 10 May 2005 and 31 October 2009, the amount of interest calculated at these rates must be divided by two, for the reason given above at [24].
Applying these principles, the amount of interest to be awarded is $29,808, calculated as follows:-
10 May 2005 to 31 December 2006 (9%) $12,813
1January 2007 to 5 March 2009 (10%) $18,861
6 March 2009 to 31 October 2009 (9%) $5,131
TOTAL to 31 October 2009 $36,805
HALF OF THIS AMOUNT $18,402
1 November 2009 to 31 December 2010 (9%) $9,108
1 January 2011 to 31 March 2011 (10.75%) $2,298
TOTAL $29,808
If, contrary to the conclusions of the Tribunal, the sum offered by CBV on 25 September 2009 was 'an appropriate settlement sum' and interest should cease to accrue as from that date, the amount of interest to be awarded would be significantly smaller. The calculation would be as follows:-
10 May 2005 to 31 December 2006 (9%) $12,813
1January 2007 to 5 March 2009 (10%) $18,861
6 March 2009 to 25 September 2009 (9%) $4,361
TOTAL to 25 September 2009 $36,035
HALF OF THIS AMOUNT $18,018
Costs: the legal principles
By virtue of section 77A of the RL Act, the costs of Tribunal proceedings under this Act are governed by section 88 of the ADT Act. So far as is relevant here, section 88 states:-
(1) Each party to proceedings before the Tribunal is to bear the party's own costs in the proceedings, except as provided by this section.
(1A) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that it is fair to do so having regard to the following:
(a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings by conduct such as:
(i) failing to comply with an order or direction of the Tribunal without reasonable excuse, or
(ii) failing to comply with this Act, the regulations, the rules of the Tribunal or any relevant provision of the enactment under which the Tribunal has jurisdiction in relation to the proceedings, or
(iii) asking for an adjournment as a result of a failure referred to in subparagraph (i) or (ii), or
(iv) causing an adjournment, or
(v) attempting to deceive another party or the Tribunal, or
(vi) vexatiously conducting the proceedings.
(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings,
(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law,
(d) the nature and complexity of the proceedings,
(e) any other matter that the Tribunal considers relevant.
The current version of section 88, in which the criterion of 'fairness' stated in subsection (1A) has replaced a rule that in the absence of 'special circumstances' no costs might be awarded, became operative on 1 January 2009.
Subparagraph (d) of subsection (1A) of section 88 requires the Tribunal to take account of the 'nature' of the relevant proceedings. In cases applying the earlier criterion of 'special circumstances' (see for example Gizah Pty Ltd v AXA Trustees Ltd (No 2) [2001] NSWADT 164), it was consistently held that because of the 'commerciality' of proceedings in the Retail Leases Division the interpretation of the phrase 'special circumstances' should differ significantly from the interpretation that might be adopted in any other Division of the Tribunal.
In Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, the Court of Appeal held that the costs of proceedings in the Tribunal under the RL Act, both at first instance and on appeal, should be awarded against the lessors. At [60], Santow JA said: 'While a finding of "serious unfairness" is not a prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.'
Because the criterion is now one of 'fairness', as contrasted with the notion of 'serious unfairness' mentioned by Santow J, there are good grounds for believing that costs orders should be more readily obtainable. In Salon Today Pty Ltd v M M I R Pty Ltd [2009] NSWADT 71 (a case brought under the RL Act), the Tribunal advanced this proposition. At [72], it stated:-
What the Parliament has done, in its 1 January 2009 amendments, is recognise that there is a need for this Tribunal to be more flexible and widen the scope of a litigant's entitlement to costs. This is a concept generally that is now accepted in this Division, and certainly touched upon by the Court of Appeal in Cripps , and the result of this re-assessment by the Parliament is a different test, a test of fairness, having regard to a number of parameters/factors.
In Rucom Pty Ltd and Anor v Multiplex & Ors [2010] NSWADT 1 (another case brought under the RL Act), the Tribunal, after referring to the Gizah and Salon Today decisions, said (at [37]):-
So, it is plain to me that, not only is this Division a commercial division dealing with commercial issues between lessors and lessees in a retail lease environment, but, in addition, proceedings should only be commenced in this Tribunal after very careful consideration of the merits of the case:... After all, commencing proceedings without such consideration inevitably results in considerable expense being incurred by the other party and one might not unreasonably ask: "why should the other party have to bear those expenses when the proceedings should not have been commenced in the first place?"
Furthermore, in a Court of Appeal case emanating from the General Division of the Tribunal, AT v Commissioner of Police [2010] NSWCA 131, Basten JA, delivering the judgment of the Court, referred at [33] to 'the force of the general principle' in section 88(1) that 'each party should bear its own costs in the Tribunal, a principle applicable at both first instance and before the Appeal Panel'. He then said:-
Although an order varying the general rule may be made "only if" the relevant criterion is satisfied in a particular way, there is a relatively low hurdle for an applicant seeking an order. The criterion of "fairness" will take into account the compensatory purpose of an award of costs, which will generally favour the successful party. The circumstances in which fairness may be identified are indicated by the specific attributes listed in sub-s (1A), but subject to the generality of paragraph (e), read in its context. Other considerations will no doubt include the nature of the jurisdiction of the Tribunal which is invoked and the objects identified in s 3(b)-(g) of the [ADT Act]. (emphasis added)
For the purposes of the present decision, case law relating specifically to two matters arising under subsection (1A) of section 88 should be considered. These matters are the interpretation of paragraph (c) of this subsection and the significance of evidence that the successful party has rejected a favourable offer of compromise put forward by the unsuccessful party.
Paragraph (c) of Section 88(1A). It is clear that a successful party cannot claim costs under paragraph (c) simply by pointing to the fact that it succeeded. Equally, it is clear that the scope of the paragraph is not confined merely to proceedings where the case advanced by the unsuccessful party had 'no tenable basis in fact or law'. What the paragraph requires is that the Tribunal, in determining whether it is 'fair' to award costs to the successful party, should assess 'the relative strengths' of the claims made by each of the parties.
In two decisions, the Victorian Civil and Administrative Tribunal has discussed a paragraph in the same terms as section 88(1A)(c). It forms part of section 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic). Section 109 is in fact replicated in section 88 of the ADT Act.
In the first of these decisions, Dennis Corporation Pty Ltd v Casey CC (Red Dot) [2008] VCAT 691, the Victorian Tribunal said at [14 - 19]:-
14 The relative strengths of the claims appear to refer to the strength of claims of one party compared to the strength of the claims of another. A difficult, doubtful or test case might be necessary to clarify the legal position of the parties. It is probably seldom that an order for costs would be made having regard to this consideration alone where there was a real issue to be tried and real justification for the claims made on either side. I take it that it is generally where there is a very weak case for one side, or none at all, that this consideration is likely to lead to an order for costs. I note that the wording says that the absence of a "tenable basis in law or fact" is a consideration included within the consideration of the relative strengths of the claims of the parties.
15 This certainly cannot mean that an unsuccessful party should be required to pay costs because, at the end of the case, that party's claims have been found to be untenable in fact or law to the extent that they were not upheld and were not successful. That would amount to "costs following the event". It would compromise the general rule created in s 109(1).
16 As I have said, I do not think that the consideration indicates an order for costs where there are strong cases on either side, or perhaps evenly balanced cases on either side.
17 I am not minded to go so far as to say that a weak case will necessarily indicate an order for costs. The word "untenable" is stronger than "weak". The Macquarie Dictionary, second revision, defines untenable as incapable of being held against attack, incapable of being maintained against argument, as an opinion, scheme etc.
18 The ethical rules of the Bar, as I recall them, indicates that a barrister has a duty to do his or her best by the client even if the client has a weak case. On the other hand, a different duty applies if the case is so weak as to be unarguable or "untenable". It extends to a case that is so weak that it should not be argued or so weak that it would be an abuse to seek to maintain it.
19 I think "untenable" in the context of s 109(3)(c) means something like so weak as to be unarguable, rather than merely weak.
In the second of these decisions, Winky Pop Pty Ltd v Hobsons Bay CC [2008] VCAT 1512, the Tribunal said at [7]:-
7 Although the applicant was ultimately unsuccessful in its application, I do not believe that its case was so weak as to be untenable in fact or law. I endorse the comments of Senior Member Byard in Dennis in relation to this issue. I agree with the applicant that, although I indicated in my reasons that the applicant's case in relation to its access to material was "disingenuous" to a panel process that it well understood, I certainly did not consider the applicant's case to be completely unarguable, unreasonable or untenable in a manner that would clearly justify an award of costs having regard to the relative strengths of the arguments put by each party. This was simply a case where both parties raised and carefully articulated a number of matters of fact and law before the Tribunal, and the applicant was ultimately unsuccessful in persuading the Tribunal to support its view.
In Jonamill Pty Ltd v Alramon Pty Ltd (No 2) (RLD) [2010] NSWADTAP 3 at [41 - 44], an Appeal Panel of this Tribunal made the following observations about these two decisions of the Victorian Tribunal:-
41 As we view the matter, an important question of principle on which our decision on this application depends is the degree of weight that we should attribute to the two decisions...
42 For two reasons, we believe that we should not treat these decisions as controlling the interpretation of section 88(1A)(c), for the purposes of these proceedings, to such an extent that this subparagraph should only be considered applicable if Jonamill's case in the appeal could properly be characterised as 'unarguable, unreasonable or untenable'.
43 The first reason is that to apply the subparagraph in this way is to ignore that part of its wording that refers to 'the relative strengths of the claims made by each of the parties'. The subparagraph refers to 'a claim that has no tenable basis in fact or law' only by way of exemplifying cases in which there is a very great disparity between these 'relative strengths'.
44 Secondly, to take this approach would involve ignoring the authorities (cited above at [26 - 30]) establishing that under section 88 in its previous form costs were more readily awarded when either (a) the case arose in the Retail Leases Division or (b) costs were being sought against an unsuccessful appellant. The present proceedings fall into both these categories.
At [47], the Appeal Panel reached the following conclusion:-
Having regard to both the substantial disparity between the relative strengths of the parties' claims and 'the nature of the proceedings' (i.e., that it is an unsuccessful appeal from a decision in the Retail Leases Division), as is required of us by section 88(1A)(c) and (d), it is in all the circumstances 'fair' that the unsuccessful Appellant should pay the Respondent's costs.
In subsequent decisions, this passage in Jonamill v Alramon has been cited and the question whether there was a 'substantial disparity' between the relative strengths of the parties' cases has been treated as determining whether costs should be awarded under section 88(1A)(c): see for example B & L Linings Pty Ltd v Chief Commissioner of State Revenue (No 5) [2010] NSWADTAP 21 at [123 - 124] (an Appeal Panel decision within proceedings emanating from the Revenue Division); Horwood v Memocorp Australia Pty Ltd (No 2) [2010] NSWADT 174 at [30] (proceedings in the Retail Leases Division).
In two recent Appeal Panel decisions, given in proceedings emanating from the Community Services Division and the Equal Opportunity Division respectively, it has however been held that section 88(1A)(c) will not be engaged unless the losing party's case is found to have displayed 'a high level of relative weakness': see Department of Human Services v RA (No 2) [2010] NSWADTAP 37 at [5]; MT v AA (No 2) (EOD) [2010] NSWADTAP 38 at [6].
In the Tribunal's opinion, the phrase 'substantial disparity' is more appropriate for proceedings within the Retail Leases Division because, as indicated above at [34] and [37], the commercial nature of proceedings within this Division justify a greater readiness to award costs than in proceedings within other Divisions of the Tribunal.
A determination that in such circumstances a successful party may be entitled to an award of costs pursuant to section 88(1A)(c) does not preclude the possibility that the award should cover only part of the costs. A partial award may be justified when, for instance, the case advanced by the successful party did not succeed on all the grounds put forward and a significant proportion of the parties' costs were incurred in the course of dealing with the ground or grounds that failed. It may in this situation be said that the successful party was 'responsible for prolonging unreasonably the time taken to complete the proceedings' within the meaning of paragraph (b) of section 88(1A).
Although no reference was made to paragraph (b), the Tribunal reasoned along these lines when deciding in Horwood v Memocorp Australia Pty Ltd (No 2) [2010] NSWADT 174 that while the successful applicant should have a costs order pursuant to section 88(1A)(c), the order should be limited to 85% of his costs (see the decision at [31 - 37]).
Rejection of a favourable offer of compromise . It is well recognised in Tribunal decisions applying section 88(1A) to proceedings within the Retail Leases Division that if a party unreasonably rejects an offer to compromise the proceedings that turns out to be more favourable to that party than the terms of the order or orders that the Tribunal subsequently makes, the opposing party may rely on this rejection when costs are being determined under section 88 of the ADT Act. It is a matter that the Tribunal may treat as relevant under paragraph (e) of section 88(1A).
The principles on which these decisions are based stem from a well-known family law case decided in England, Calderbank v Calderbank [1976] Fam 93. In numerous court cases decided subsequently in England and Australia, the approach taken in Calderbank has been followed, albeit with modifications. But in De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd [2011] NSWADT 40 at [64], the Tribunal pointed out that when awarding costs under section 88 of the ADT Act, it does not simply follow the precedents established by these court cases. The Tribunal said:-
The underlying proposition is that the unreasonable rejection by the losing party of an offer to bring the proceedings to an end without further costs being incurred should always be brought into consideration when determining a costs application. However, the specific principles that were stated and applied by the court in Calderbank should not be applied mechanically to applications made to the Tribunal under section 88 of the ADT Act. They should operate by analogy only. The reason for this is simple. The line of authority stemming from Calderbank governs costs awards in jurisdictions where, prima facie, costs 'follow the event'. Under section 88, the starting point is that the parties pay their own costs, and the Tribunal should only make a costs order when it is 'fair' to do so.
It has been held in recent decisions in the Retail Leases Division that if the party unreasonably rejecting the offer was the unsuccessful party, the rejection may provide grounds for a costs order against that party where otherwise it might not be considered to be 'fair' to make such an order: see e.g. Tsimbakos v BlackRock Investment Management (Australia) Ltd (No 2) [2010] NSWADT 260. Alternatively, if the Tribunal has determined that on other grounds it would be 'fair' to make a costs order, evidence of the unreasonable rejection may provide grounds for ordering that the costs incurred by the successful party following the making of the offer should be paid on an indemnity basis: see e.g. De Costi Seafoods (Franchises) Pty Ltd v Broadway Shopping Centre Sydney Pty Ltd .
In the present case, the offer of relevance, mentioned above at [25], was made by CBV, the unsuccessful party, and was rejected by the successful Applicants. Under Rule 42.15 of the Uniform Civil Procedure Rules , if a court finds that such an offer was more favourable to the successful party than the order or judgment made by the court, the successful party's entitlement to costs ceases on the date of the offer and the unsuccessful party is entitled to costs thereafter on an indemnity basis. The court is however empowered to order otherwise. The costs principles stated in Rule 42 are broadly in accordance with the principles developed from the Calderbank decision.
As far as the Tribunal as presently constituted is aware, the Tribunal does not appear in any decision under the RL Act to have treated the unreasonable rejection of an offer made by the unsuccessful party as a ground for making a costs order (limited to the period following the making of the offer) in favour of that party. But since the Tribunal's general discretion to determine what is 'fair' under section 88(1A) is very broad, such an order is open to it, and might well be appropriate in a particular case.
As indicated above at [26], the offer of settlement made by CBV was stated to be 'inclusive of costs'. In court decisions applying the principles derived from Calderbank , it was held for a time that offers so framed did not fall within these principles, because (a) the recipients of them would find it unduly difficult to assess what might be left over for them after they had paid their costs and (b) the court itself might not be in a position to assess whether the offer was more favourable to the recipient than its own order or judgment. For these reasons, offers that were 'inclusive of costs' were said to be insufficiently precise to be taken into consideration.
In Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322, however, the Court of Appeal held that there was no general rule precluding the consideration of evidence that an offer in this form had been made and been rejected. At [143 - 144], Basten JA said:-
143... If a party in receipt of an offer wishes to know how far the sum offered will go in meeting its costs up to that time, all it has to do is ask its lawyers. In an age where lawyers are required to provide advance estimates of their fees and in circumstances where commercial services are billed on a monthly basis, it is unrealistic to suggest that the recipient of an inclusive offer will be confused or otherwise unable to assess the financial risk of proceeding with litigation. In any event, the offeree is likely to be liable for legal fees exceeding the costs recoverable from the other party. Most litigants, in considering offers, will want to know from their own lawyers, how much they will receive in the hand...
144 The suggestion that a Calderbank letter which is expressed to be inclusive of costs is "insufficiently precise to qualify as a Calderbank offer" requires to be addressed in particular circumstances. A defendant who fears that even if successful it will be unable to recover costs awarded against the plaintiff, may wish to make an offer in full and final settlement, without further disputation over costs. It may wish to place pressure on the plaintiff to consider the offer favourably by reserving an entitlement to use the offer in relation to costs if the matter proceeds to trial. There is no reason based on policy or principle which would preclude a defendant relying on such an offer only when it is said to be exclusive of costs. Such an inclusive offer will not cause the plaintiff embarrassment: its value will be that amount remaining to him or her after deducting costs already incurred, which the plaintiff's lawyer should be readily able to quantify... [I]f the judgment is below the offer there may be uncertainty because the offer included an unquantified element for costs incurred up to the time when it lapsed or was rejected. No doubt the figure for costs incurred to that time by the plaintiff could be resolved by some form of assessment, but if the calculation of the damages component is not clearly seen to provide a figure above the judgment, then the interests of justice will usually not be served by incurring further expense in assessing the costs element of an offer and the plaintiff would be entitled to his or her costs:...
Subject to what has already been said about the important differences between costs orders made by courts applying the general principle that 'costs follow the event' and costs order made by the Tribunal under section 88 of the ADT Act, this explanation of the approach to be taken to offers of compromise that are 'inclusive of costs' is relevant in the present case.
The parties' submissions on costs
The Applicants' submissions. Mr Profilio submitted that it would be 'fair' for the Tribunal to award to the Applicants their total legal costs, including the costs paid to their expert witnesses. He referred to detailed invoices for costs and disbursements that the Applicants had received from their legal representatives and from their expert witnesses. Copies of these invoices formed part of the application for an interim costs order that the Applicants filed on 31 August 2009. They showed the total amount of the costs and disbursements incurred by the Applicants to date to be $136,241.71.
Mr Profilio submitted that the Tribunal should award costs in this amount to the Applicants. In the alternative, he submitted that an award of $68,120.85, representing 50% of this amount, would be 'fair'.
The reason why the present costs application by the Applicants seeks the same amount ($136,241.71) as they sought in the interim costs application is that following the fourth day of the six-day hearing on liability, they discharged their legal representatives. During the rest of this hearing and in all subsequent stages of the proceedings, Mr Profilio represented himself and appeared as agent for the Second Applicant, Ms Sajko.
In his submissions on the current application, Mr Profilio relied primarily on paragraph (c) of section 88(1A) of the ADT Act. He claimed that the Tribunal had held the Applicants' case to be stronger than that of CBV in 'the liability part of the case' and had held their evidence on damages to be 'more reliable and useful' than that of CBV. In this context, he relied on Salon Today Pty Ltd v M M I R Pty Ltd [2009] NSWADT 71.
Mr Profilio referred also to alleged 'wasting of time' by CBV and to the fact that it had presented 'very little evidence' from '28 boxes of source documents'. He was referring here to a substantial number of financial source documents that the Applicants had produced for the purposes of the hearing on damages.
CBV's submissions. The submissions filed by Ms Klonis on costs sought in the first instance to rebut these arguments. She pointed out that in establishing liability against CBV the Applicants had succeeded on only one out of six grounds advanced by them. They had established that in permitting BWT to provide 'internet and email services', CBV had breached the exclusivity provisions. But for reasons explained in the liability decision at [165 - 183], the Applicants had failed on the following five grounds: (1) conduct derogating from the grant made to the Applicants by the lease of Shop 192; (2) pre-lease misrepresentations falling within section 10 of the RL Act; (3) unconscionable conduct under section 62B; (4) misleading or deceptive conduct under section 62D; and (5) failure to comply with the requirements of section 11 relating to the contents of lessors' disclosure statements.
In response to Mr Profilio's submission based on the provision of '28 boxes of source documents' to CBV, Ms Klonis argued (a) that CBV was entitled to examine any documents relevant to its case; (b) that it was not possible to determine the relevance of produced documents without first examining them; and (c) that in any event the reports prepared by CBV's expert witness for the hearing on damages contained a large amount of information derived from these documents.
For these reasons, Ms Klonis argued that the Applicants' application for costs should be rejected.
In a further section of her submissions, she contended that a costs order should in fact be made against the Applicants. She sought to justify this contention by referring to five aspects of the proceedings.
The first of these was that CBV was obliged to defend the five grounds of liability that, as just mentioned, the Applicants had failed to sustain.
Secondly, Ms Klonis filed, along with her submissions, copies of some correspondence between the parties regarding offers to settle the proceedings. Referring to this correspondence, she made the following points: (a) following a direction given by the Tribunal in the liability decision (see [5] above), CBV made a number of offers to the Applicants to settle the proceedings; (b) the only counter offer by the Applicants was for a sum not far short of the upper limit of the Tribunal's jurisdiction under the RL Act (i.e., $400,000); (c) what Ms Klonis called a 'final' offer by CBV - being the aforementioned offer made on 25 September 2009 - was in the amount of $150,000, which was 'considerably higher than the amount awarded'; and (d) the Applicants 'refused to even reply' to CBV's communications on this matter.
Thirdly, Ms Klonis maintained that the Applicants 'amended their claims in circumstances where they were aware of the facts giving rise to their eventual causes of action prior to their initial application'.
Fourthly, she said that they 'substantially altered their financial claims', compelling CBV to obtain a further forensic accountant's report.
Finally, she said that they 'refused to provide the basic financial source data to substantiate their claims', compelling CBV to seek an order from the Tribunal requiring them to do this.
Discussion
In this section, consideration is given both to the Applicants' application for their costs of the proceedings and to CBV's cross application for part of its costs.
It is convenient to indicate here that in the interim costs decision the Tribunal rejected submissions by Mr Profilio, based on paragraphs (a)(i), (a)(vi) and (b) of section 88(1A), that CBV should be ordered to pay costs on the grounds that it had failed without reasonable excuse to comply with Tribunal directions, it had conducted the proceedings vexatiously and it had unreasonably prolonged the proceedings. There is no reason to reconsider these submissions here.
The Applicants' claim based on section 88(1A)(c). In the interim costs decision, the Tribunal also held that at that stage of the proceedings the Applicants' application for costs based on paragraph (c) of section 88(1A) was premature. It stated at [34]:-
The Applicants cannot establish that it would be 'fair' to award costs to them solely by pointing to the fact that their case on the issue of liability was held by the Tribunal to be stronger than the Respondent's case. If on the important question of damages - which is still to be determined - the Tribunal were to conclude that the relevant conduct of the Respondent caused no loss, or merely an inconsequential loss, to the Applicants, the 'fair' decision on costs might well be that the Applicants should pay at least a proportion of the Respondent's costs. Alternatively, the Tribunal might revert to what may be called the statutory starting-point on costs set out in section 88(1) - namely that the parties should bear their own costs.
In the damages decision, the Tribunal awarded a significant sum - $86,705 plus interest - to the Applicants. The Applicants' case for an award of costs under paragraph (c) must be reconsidered in the light of this outcome.
As Ms Klonis argued, the Applicants succeeded on only one of the six grounds that they advanced, namely that CBV's inclusion of a clause in its lease of Shop 194 permitting BWT to provide 'internet and email services' constituted a breach of the exclusivity provisions contained in CBV's lease of Shop 192 to the Applicants. But their success on this ground, which was their primary ground, was sufficient to entitle them to recover a significant sum by way of damages.
Furthermore, if it could be said that CBV's case on this ground had 'no tenable basis in fact or law', or that there was a 'substantial disparity' between the strength of its case on this ground and the strength of the Applicant's case, that would, in the Tribunal's opinion, be sufficient to engage paragraph (c) of section 88(1A), even though the other five grounds advanced by the Applicants were unsuccessful. The relief sought by the Applicants under these five grounds was the same as they sought under the ground on which they succeeded.
The Applicants' case stemming from the exclusivity provisions contained in the Lease of Shop 192 was based, in essence, on the conflict between these provisions and a term (clause 4.1) of the lease of Shop 194 granted by CBV to BWT.
For present purposes, the relevant parts of the exclusivity provisions were as follows:-
4.1 The Lessee shall not use the Premises otherwise than for the purposes of an Internet Caf and related services and activities to the Lessees customers...
4.3 The Lessor acknowledges that the Lessee shall have exclusive use of the Premises as an Internet Caf relating only to the land owned by the Lessor and known as Lot 17 in Strata Plan 22899 attached hereto and marked as Annexure B.
4.4 Notwithstanding clause 4.3 the Lessee acknowledges and accepts that the Lessee and or its heirs, successors or assigns of the Lessors Land known as Shop 194 Coogee Bay Road, Coogee allows access to the Internet for the Lessees customers, however, the primary use of the land is a Licensed Travel agent.
Clause 4.1 of the lease of Shop 194 stated:-
The Lessee shall not use the Premises otherwise than for the purposes of a Travel Agency and associated administration office and the sale of travel goods and associated services and as a use of a retail shop and for the provision of internet and email services.
The key components of the Applicants' argument, which the Tribunal endorsed in the liability decision at [144 - 150] and [158 - 164], were the following five propositions: (1) the term 'internet caf', as used in the Lease of Shop 192 to the Applicants, embraced any business that granted access to the internet within premises run as a commercial concern, making such access available to members of the public on the basis that it was paid for; (2) in contravention of clause 4.3 of this Lease, CBV, by including the phrase 'provision of internet and email services' in clause 4.1 of the lease of Shop 194, permitted BWT to carry on a business that would answer this description of an 'internet caf'; (3) BWT in fact operated such a business, alongside its business as a travel agent; (4) through so doing and through advertising this business, it caused the Applicants to lose profits amounting to more than a merely nominal figure; and (5) the qualification to clause 4.3 of the Applicants' Lease contained in clause 4.4 did not impair this reasoning because it referred only to the granting by BWT of internet access to its 'customers', meaning thereby not the public at large, but only those persons who had become customers of its 'primary' business as a licensed travel agent by purchasing travel products and/or services.
For the purpose of determining the 'relative strengths' of the parties' cases on this matter, the Tribunal makes the following comments on each of these five propositions.
With regard to the subject matter of Proposition (1), CBV sought through the evidence of two expert witnesses to persuade the Tribunal to define 'internet caf' in a manner that would exclude the business carried on by BWT. But the Tribunal had 'no hesitation' (see the liability decision at [138]) in preferring the evidence on this matter given by Mr Arnold, who was the expert witness called by the Applicants. In Mr Arnold's opinion, the definition in Proposition (1) identified the key features of an internet cafe and the broad parameters of this concept, within the demographic and temporal contexts of relevance to this case. The Tribunal also agreed with the Applicants' argument that such a definition was 'entirely consistent with the meaning envisaged' in clause 4.1 of their Lease (see [148] and [159]).
Proposition (2), it may be said, is self-evident. The broad phrase 'provision of internet and email services' clearly embraces the business of an internet caf as defined in Proposition (1).
With regard to Proposition (3), the Tribunal rejected CBV's submission (at [151]) that because BWT's 'primary' business in Shop 194 was identified in clause 4.4 of the Lease to the Applicants as a travel agency, it could not be said to have also been carrying on the business of an internet caf. In so doing, the Tribunal drew attention to evidence both from Mr Arnold and from Mr Corrigan, one of the two expert witness called by CBV, to the effect that multiple businesses may be and frequently are carried on in the same premises. The relevant paragraphs in the liability decision are [149] and [158].
The Tribunal's readiness to accept Proposition (4) is exemplified by its statement in paragraph [81] of the damages decision that 'it would be wholly counter-intuitive to find that the advertising and maintenance of publicly available internet services in the premises next door to Shop 192 had no material impact on the revenue generated by [the Applicants' business] in this Shop'. As the damages decision shows, assessing the quantum of the damage suffered by the Applicants was not a straightforward task. But the Tribunal was not attracted at all to the proposition that no damage, or purely nominal damage, was sustained.
The Tribunal's acceptance of Proposition (5) called for close consideration of the terms of clause 4.4 of the Lease to the Applicants. Its conclusion, stated in the liability decision at [160], was that their 'acknowledgment' and 'acceptance' through this clause that BWT ' allows access to the Internet' for its ' customers ' (emphasis added) could not be interpreted as an 'acknowledgment' and 'acceptance' that BWT provided email and internet services to any member of the public entering Shop 194. The Tribunal referred to the use of language conveying this message more clearly ('subject to the right of travel agent to permit internet use to its customers') in a Disclosure Statement given by CBV to the Applicants before they executed the Lease. It rejected an argument by CBV that to the knowledge of the Applicants BWT, at the time when the Lease was executed, was already offering access to the internet to the public at large, and that clause 4.4 should be interpreted with this in mind (see [154 -156] and [161]).
As these observations indicate, the Tribunal had little difficulty in accepting the correctness of Propositions (1) to (4). Its attitude to Proposition 5 was (and remains) that on a close consideration of the language of clause 4.4, the correctness of this Proposition was also evident. If the intent of this clause had been, as CBV argued, to exempt the concurrent lease of Shop 194 from the scope of clause 4.3, this could have been easily achieved through the use of simple, unambiguous language.
It is worth noting finally in this context that the Tribunal, in paragraph [164] of the liability decision, observed that 'it is difficult to understand why what it has held to be a conflict between clause 4.3 of the 2004 Lease (as qualified by clause 4.4) and clause 4.1 of the BWT Lease was permitted to arise'. It characterised as 'a mystery' the fact that, at the very least, the likelihood that these clauses might be held to contradict each other was obvious.
Having thus revisited key aspects of the reasoning whereby the Tribunal determined these proceedings in favour of the Applicants, the Tribunal now rules that, so far as these aspects are concerned, there was a 'substantial disparity' between the relative strengths of their case and that of CBV. While taking full account of the importance of the presumption stated in subsection (1) of section 88 of the ADT Act - namely, that the parties should pay their own costs - the Tribunal concludes further that the disparity is sufficient to provide the basis for an award of party-party costs to the Applicants, based on paragraph (c) of subsection (1A).
It does not follow, however, that it would be 'fair' to order CBV to pay the whole of the Applicants' costs. The further matters raised by Ms Klonis in her submissions must still be considered.
The Applicants' amendments of their claims and their refusal to provide documents. The last three of these matters, outlined above at [70 - 72], can be disposed of relatively briefly. If properly particularised and substantiated by evidence, the assertions made in Ms Klonis's submissions might have provided the basis for a partial costs order in CBV's favour, under paragraph (a) and/or paragraph (b) of section 88(1A). But no particulars were supplied and the Tribunal was not directed to any relevant parts of the evidence that has been admitted in these proceedings. An examination of the Registry file did not bring to light any relevant material. The Tribunal accordingly rejects this part of Ms Klonis's argument.
It is convenient to state at this point that the Tribunal also rejects a comparable submission by Mr Profilio (see [63] above), to the effect that CBV had presented 'very little evidence' from the '28 boxes of source documents' that it had required to be produced by the Applicants. It endorses the arguments made by Ms Klonis on this matter (see [65] above).
The two remaining matters raised by Ms Klonis (see [64] and [68 - 69]) have more substance and require careful consideration.
Unsuccessful grounds of relief advanced by the Applicants. One of these matters was that the Applicants had failed to make good five of the six grounds of liability that they had put forward. The nature of these five grounds is outlined above at [64].
In order to determine three of these five grounds - pre-lease misrepresentations, unconscionable conduct and misleading or deceptive conduct - the Tribunal had to assess a considerable quantity of evidence relating to events occurring before the granting of the two leases, in or about December 2004, with which this case is primarily concerned. The content of this evidence is outlined in the liability decision at [7 - 44]. The brief reasons why the Tribunal rejected these three grounds appear at [168 - 180].
Taking into account the contents of an unofficial transcript of the first four days of the six-day hearing on liability, the Tribunal estimates that somewhere between one quarter and one third of the hearing was devoted to evidence and argument relating specifically to these three unsuccessful grounds advanced by the Applicants.
The remaining two unsuccessful grounds were that CBV had engaged in conduct derogating from their grant of the lease of Shop 192 to the Applicants and that it had failed to comply with the requirements of section 11 relating to the contents of lessors' disclosure statements. Their inclusion within the Applicants' case did not, however, cause the proceedings to be protracted to any significant extent.
It may be added here that the Tribunal, having perused the unofficial transcript, has taken account of the fact that a great deal of time was devoted to hearing objections by counsel on each side to the qualifications of the expert or experts called by the opposing side and to cross-examination of those experts. The Tribunal considers that during this phase the time taken to complete the proceedings was unreasonably prolonged, within the meaning of this concept in section 88(1A)(b). But no costs implications arise, because both parties bore the responsibility for this, in broadly equal measure.
The Tribunal's conclusion regarding this component of Ms Klonis's submissions is that it justifies the making of a partial award of costs only. The Tribunal considers that the amount of party-party costs awarded to the Applicants pursuant to paragraph (c) of section 88(1A) should be subject to a deduction of 25%.
CBV's offer of compromise. The only relevant offer of compromise made by CBV was the aforementioned offer made on 25 September 2009. This was an offer of $150,000, 'inclusive of costs'. CBV repeated the offer on 4 November 2009. It was both preceded and followed by offers of lesser amounts, also 'inclusive of costs'. Although Ms Klonis claimed in her submissions that the Applicants 'refused to even reply' to CBV's communications on this matter, copies of correspondence attached to these submissions show that Mr Profilio sent email responses to her on 4 and 9 November 2009, and that in the latter response he stated that neither this offer nor any of the others made by CBV covered the Applicants' total legal costs and disbursements including expert reports.
In applying the principles regarding offers and compromises summarised above at [51 - 58], a question of primary importance is whether this offer of $150,000 inclusive of costs represented a more favourable outcome for the Applicants than the outcome that they have achieved in the Tribunal.
The principal amount of damages that the Tribunal has awarded to the Applicants is $86,705. As at 25 September 2009, the amount of interest due to them, calculated at the rates that the Tribunal has held applicable, was $18,018. The total of these two amounts, $104,723, falls well short of the offered sum of $150,000. The shortfall is $45,277. Had the offer been exclusive of costs, the outcome that they have achieved in the Tribunal would therefore have been substantially less favourable than they would have achieved by accepting the offer, and CBV would be well placed to argue that their rejection of the offer should have significant costs implications.
The offer was, however, 'inclusive of costs'. According to the dicta of Basten JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 (see [57] above), this meant that it could still qualify as a Calderbank offer so long as the Applicants were in a position to ascertain the amount of the costs and disbursements they had incurred so far. In fact, the Applicants had already ascertained that that amount was $136,241.71, and had communicated this information to CBV.
At that stage, the Applicants could not have assumed that, so long as their damages were assessed as more than purely nominal, they were entitled to a costs order solely because their case on liability had been upheld. Unlike litigants in a comparable situation in court proceedings, who could rely on the principle that 'costs follow the event', any claim by them for costs was subject to the requirement of proving 'fairness' under section 88(1A).
By virtue of reasoning set out earlier in this decision, however, the Applicants have in fact succeeded in establishing 'fairness' and have been held entitled, subject to the current investigation of the implications of CBV's offer of compromise, to be paid 75% of their party-party costs. As explained earlier, all those costs were incurred before CBV made its offer to settle for $150,000 inclusive of costs.
If for present purposes one treats party-party costs as normally approximating two-thirds of solicitor-client costs, an estimate of the total costs incurred by the Applicants at the time of the offer, when assessed on a party-party basis, would be a sum in the vicinity of $91,161.14 (two-thirds of $136,741.71). Because the Tribunal's decision is that only 75% of these costs should be paid by CBV, the estimated amount recoverable by them on account of costs becomes $68,310.86.
The outcome of this inevitably rough-and-ready calculation is that when allowance is made for the conclusion regarding costs that the Tribunal has reached earlier in this decision, the offer of $150,000 made by CBV to the Applicants on 25 September 2009 appears, as matters transpired, to have been less favourable to them than the combined effect of the orders of the Tribunal. This is the case even if those orders are adjusted to take account of the fact that the offer was made some 18 months ago.
The relevant figures are as follows. In the damages decision, the Tribunal assessed the damages due to them at $86,705. Earlier in this decision, it assessed the interest payable up to 25 September 2009 at $18,018. According to the calculations just made, the amount recoverable by them by virtue of the Tribunal's conclusion regarding costs is in the vicinity of $68,310. All of those costs were incurred before 25 September 2009.
The total of these three amounts is $173,033, about $23,000 more than the amount offered. It follows that a key requirement of the principles stemming originally from Calderbank - namely that the offer of compromise relied upon should be more favourable to the recipient than the outcome of the Tribunal's order or orders in the proceedings - has not been satisfied.
If the amount offered had actually been marginally more favourable to the Applicants than the outcome of the Tribunal's orders, the Tribunal might have been disinclined, on account of the uncertainties of the situation, to conclude that their rejection of the offer was unreasonable. The dicta quoted at [57] above from Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322, notably the final two sentences of paragraph [144], provide support for this view. But it is not necessary to consider this situation further.
For the foregoing reasons, the Tribunal rejects the submission made by Ms Klonis on behalf of CBV, to the effect that as from 25 September 2009 the Applicants should be ordered to pay CBV's costs. It also holds that the Applicants' rejection of the offer of compromise made by CBV on 25 September 2009 should have no impact on their entitlement to costs.
The Tribunal's orders
The Tribunal orders that the Respondent is to pay to the Applicants the sum of $29,808 as interest up to the date of this decision on the amount of damages ($86,705) ordered to be paid to the Applicants in its decision dated 14 January 2011.
The Tribunal further orders that the Respondent is to pay 75% of the Applicants' costs of these proceedings, as agreed or assessed on a party-party basis.
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Decision last updated: 31 March 2011
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