Torchia v Swanton (RLD) - [2012] NSWADTAP 5

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation: Torchia v Swanton (RLD) [2012] NSWADTAP 5
Hearing dates: 30 November 2011
Decision date: 09 February 2012
Jurisdiction: Appeal Panel - Internal
Before: M Chesterman, Deputy President
Decision:
1. Order 2 in the Tribunal's decision of 2 August 2011 in these proceedings is affirmed.
2. There will be no order for the costs of this appeal unless a party files and serves an application for costs, with supporting submissions, within 21 days. In such event, the opposing party or parties must file and serve submissions in response within a further 21 working days. The question of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.

Catchwords: Retail lease - costs - meaning of 'no order as to costs' - failure to apply for costs at hearing - whether 'fair' to make costs order
Legislation Cited: Administrative Decisions Tribunal Act 1997
Retail Leases Act 1994
Cases Cited: AT v Commissioner of Police, NSW [2010] NSWCA 131
Attorney General v World Best Holdings Ltd (2005) 63 NSWLR 537
B & L Linings Pty Ltd & Anor v Chief Commissioner of State Revenue (No 4) (RD) [2008] NSWADTAP 14
Calderbank v Calderbank [1976] Fam 93
Campbelltown City Council v Vegan (2006) 67 NSWLR 372; [2006] NSWCA 284
Chronopoulos v Carossel Pty Ltd [2010] NSWADT 191
Chronopoulos v Carossel Pty Ltd (No 2) [2010] NSWADT 236
Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81
Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322
Grygiel v Baine (No 2) [2005] NSWCA 434
Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 4
Timbarra Protection Coalition Inc v Ross Mining Ltd & Ors [1999] NSWCA 335
Torchia v Swanton [2010] NSWADT 142
Torchia v Swanton, unreported, Administrative Decisions Tribunal, 5 October 2010
Torchia v Swanton (No 2) [2011] NSWADT 185
Vertzayias v King & Ors [2011] NSWCA 215
Wentworth v Wentworth [1999] NSWSC 638
Category: Principal judgment
Parties: Eugene Torchia and Lesley Astill-Torchia (Appellants)
Beverley Swanton and Alistair Swanton (Respondents)
Representation: Counsel
M McCall (Respondents)
S Spring (Agent - Appellants)
Stephen Tester & Associates (Respondents)

File Number(s): 119038
Decision under appeal

Citation:

Torchia v Swanton (No 2) [2011] NSWADT 185

Date of Decision:

2011-08-02 00:00:00

Before:

Retail Leases Division

File Number(s):

105054

decision

Introduction

(M CHESTERMAN (DEPUTY PRESIDENT)): This is an appeal against the second of two orders made in a decision of the Retail Leases Division, bringing to a conclusion proceedings brought by lessees under a lease governed by the Retail Leases Act 1994 ('the RL Act') against the lessors.

The orders made in this decision ( Torchia v Swanton (No 2) [2011] NSWADT 185) were as follows:-

1. I order the respondents to pay the sum of $92,650 to the applicants.

2. No order as to costs.

Because the order appealed against relates to costs, the determination of this appeal involves the exercise of an 'ancillary function', as defined in section 24A(1) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). The Appeal Panel is accordingly constituted by a Deputy President, sitting alone (see section 24A(2)(a)).

Factual outline

A brief summary of relevant events preceding the decision under appeal now follows. Except where otherwise indicated, these events were known to the Tribunal.

Towards the end of May 2007, the Applicants-Appellants, Mr Eugene Torchia and Ms Lesley Astill-Torchia (hereafter the Applicants), became the lessees by assignment of premises at Lennox Head owned by the Respondents, Ms Beverley Swanton and Dr Alistair Swanton. The lease was due to expire on 3 May 2010. A dispute on various matters, including signage and the conduct of renovations of the premises, then arose between the parties. On 17 March 2008, the Applicants applied to the Registrar of Retail Tenancy Disputes for mediation of this dispute under section 66 of the RL Act. This process concluded with the signing of a mediation agreement on 8 May 2008 ('the Mediation Agreement'). Notwithstanding this Agreement, however, the parties remained in conflict. Ultimately, the Applicants vacated the premises on or about 3 May 2010.

Litigation between the parties commenced in the Tribunal on 4 June 2009. On that day, the Applicants filed an Application for Original Decision claiming 'general compensation' amounting to $125,000 and compensation for certain specific items of economic loss. But at a directions hearing on 8 October 2009, they withdrew these proceedings. An application by the Respondents for their costs, assessed on an indemnity basis, was upheld by the Tribunal on 9 June 2010 ( Torchia v Swanton [2010] NSWADT 142).

On 13 April 2010, the Applicants filed a second Application for Original Decision ('the Application') in the Tribunal. In it, the principal complaint made against the Respondents was that they had refused, contrary to promises and representations that they had made, to grant a new lease of the premises, or even to enter in good faith into negotiations for a new lease.

In the Application, the Applicants alleged as follows: (a) during a discussion that they had with Ms Swanton on 24 May 2007, occurring before they agreed to take an assignment of the lease, she represented to them that on the expiry of this lease a new lease would be granted to them; (b) they relied on this representation in deciding to take over the lease and spend money on improving and refitting the premises; and (c) the Respondents' subsequent refusal to grant the Applicants' request for a new lease, which they communicated to the Applicants by a letter from their solicitors dated 26 November 2009, constituted (i) conduct contrary to Ms Swanton's representation on 24 May 2007, (ii) breach of a promise then made by her to grant a new lease and (iii) breach of clause 8 of the Mediation Agreement.

Clause 8 of the Mediation Agreement stated:-

Each party declares their intention to restore and maintain cordial relations and in this context to discuss in good faith and with fair consideration any request for a new lease.

The Application comprised both an unconscionable conduct claim and a number of retail tenancy claims. The Applicants claimed to be entitled to relief on the following grounds: (i) unconscionable conduct under section 62B of the RL Act; (ii) misleading or deceptive conduct under section 62D of this Act; (iii) breach of clause 8 of the Mediation Agreement; and (iv) estoppel.

The orders that the Applicants sought in the Application included an award of damages, a declaration that they had an interest in the land to which the lease had related and an order that a five-year lease of this land be granted to them at a current market rent.

Importantly for present purposes, the orders sought in the Application also included an order that the Respondents 'pay the cost of these proceedings on an indemnity basis'.

A further feature of the Application to be noted is that it was accompanied by a certificate of the Registrar of Retail Tenancy Disputes, dated 7 April 2010, stating that mediation under Part 8 of the RL Act had failed to resolve the parties' dispute and that the reason for this failure was that the Respondents had 'not accepted the Registrar's invitation to mediate'.

Throughout these proceedings, Mr Stephen Spring, of Australian Retail Lease Management, has acted as agent for the Applicants. Mr Michael McCall of counsel has appeared for the Respondents, pursuant to instructions from Ms Claire Newton, of Stephen Tester & Associates, solicitors.

In a letter dated 14 April 2010, Mr Spring conveyed to Ms Newton a 'without prejudice' offer by the Applicants. He stated that they would accept 'as an offer of compromise $125,000 for a full and final settlement on a no-fault, confidential basis for these proceedings'. The letter stated that this offer was open for acceptance 'up to commencement of the proceedings' and that if it was not accepted the letter would be relied upon in an application for indemnity costs. The letter also reaffirmed the Applicants' claim made in the Application that they were 'entitled to remain in the premises pursuant to' the representations made by Ms Swanton and asked Ms Newton to seek instructions that they be permitted to remain there until the proceedings were determined.

As might be expected, the making of this offer of settlement was not made known to the Tribunal.

A letter of reply from Ms Newton dated 21 April 2010 contained no response to the offer. In it, she advised that the Respondents required the Applicants to vacate the premises (as they in fact did) at the expiry of the lease.

During July and August 2010, the Tribunal conducted a hearing confined to the issue of liability.

On 5 October 2010, in an ex tempore decision which has not been reported ('the Tribunal's first decision'), the Tribunal held that the Applicants were entitled to recover damages from the Respondents on three grounds. These were: (a) unconscionable conduct, on account of the Respondents' 'bad faith' in refusing to discuss renewal of the lease; (b) failure to honour a contractual obligation, stemming from the conversation between the Applicants and Ms Swanton on 24 May 2007, to 'act in good faith regarding the grant of a new lease'; and (c) failure to comply with a contractual obligation imposed by clause 8 of the Mediation Agreement to 'discuss in good faith and with fair consideration any request for a new lease'.

The Tribunal's reasons included the following seven paragraphs, of which the last three were consecutive:-

As to that part of the conversation [on 24 May 2007] concerning the grant of a further lease at the expiration of the term then current, it is clear that the conversation stopped well short of one giving rise to a contractual obligation to grant a fresh lease...

My impression overall is that Mrs Swanton was a difficult and unreasonable lessor who, far from seeking to facilitate the conduct by the applicants of a profitable business, sought to do nothing but place obstacles in their way....

Nothing to my mind proffered by Mrs Swanton in her affidavit, operated to excuse her from the obligation to discuss in good faith and with fair consideration any request for a new lease. In my opinion, her total refusal was an act of bad faith within section 62B of the Act and constituted unconscionable conduct...

In a context where the parties were already in a contractual relationship, the respondents for consideration, namely the resolution of their dispute at mediation, solemnly agreed to "discuss in good faith and with fair consideration any request for a new lease". They failed as I have found to comply with their obligation moreover belatedly in the context of these proceedings they proffered reasons for their failure which, as I also find, were unreasonable and spurious...

I also find, as indicated earlier, that the lack of good faith exhibited by the respondents was unconscionable within section 62B of the Act and that as such conduct was in connection with a retail shop lease the applicants are entitled to damages under section 62B(8). It is unnecessary to consider whether they may alternatively be entitled to damages under section 72.

In light of my findings and the basis upon which the case was argued it will be necessary for there to be a further hearing as to damages. Provisionally my view is that damages should be quantified... on the basis that the applicants lost the opportunity to have their request for a renewed lease discussed in good faith and with fair consideration. The Tribunal will be obliged to assess the applicants' prospects of success in negotiating a fresh lease having regard to those criteria.

I will list the matter for further directions before me at 9.30 a.m. on Tuesday 2 November 2010. I strongly recommend to the parties that before that date they attempt to resolve their outstanding differences in an endeavour to avoid further costs.

In a letter to Ms Newton dated 29 October 2010 (not disclosed to the Tribunal), Mr Spring observed that the offer conveyed in his letter of 14 April 2010 - which he described as an offer to accept $125,000 'in full and final settlement inclusive of costs' - had been refused. He asserted that the value, assessed over five years, of the business that the Applicants could have conducted in the premises if the lease had been renewed was within the range from $137,5000 to $192,000. He advised that their costs had increased significantly to a sum exceeding $45,000. The letter concluded with a further 'without prejudice' offer of settlement, open for acceptance until 1 November 2010, on payment of $225,000.

In a letter of reply dated 22 February 2011 (also not disclosed to the Tribunal), Ms Newton advised that an expert witness engaged by the Respondents had assessed the Applicants' loss at $15,909.00 and that in the forthcoming hearing relating to damages the Respondents would be submitting that the Applicants' lost opportunity to 'discuss in good faith and with fair consideration a request for a new lease' had a 'nil value'. Ms Newton's letter then conveyed a 'without prejudice' offer of settlement, open for acceptance until 5 March 2011, on payment of the sum of $30,000 inclusive of costs. It stated also that the Respondents reserved the right to 'bring this offer to the attention of the court ( sic ) on the question of costs if your client does not receive a more favourable result than our client's offer herein'.

In a Schedule of Damages filed by the Applicants shortly before the hearing on damages, the Applicants set out two methods of assessment of the compensation due to them. According to the first, which referred expressly to the range of figures supplied by Mr Hughes for the value of the business, the 'lost value of business and future cash flow from 2 years of a 3+3 lease which ought to have been given fair consideration' was $369,000. According to the second, the 'operating and capital losses flowing from becoming the assignees of the lease without future cash flow from further 3+3 lease' amounted to $146,000.

The Tribunal's hearing on damages took place on 5 and 6 May 2011. It concluded at about 4.30 p.m. on the second of these days.

The witnesses at the hearing included two accountants, Mr Hughes and Mr Dolman, called respectively as expert witnesses by the Applicants and the Respondents. As foreshadowed in the Applicants' Schedule of Damages, Mr Hughes assessed the potential value of the business that the Applicants could have conducted if a new five-year lease had been granted as within the range from $137,5000 to $192,000. Mr Dolman expressed the opinion, however, that leaving aside the plant and equipment, this business would have had no value.

At the hearing of the appeal, Mr Spring did not mention the matter of costs. At the end of an outline of submissions handed up on the second day of hearing, Mr McCall indicated that the Respondents reserved their submissions on costs 'pending the determination of the Tribunal on damages'.

The Tribunal's decision following this hearing ( Torchia v Swanton (No 2) [2011] NSWADT 185 - 'the Tribunal's second decision') was delivered on 2 August 2011. In paragraph [1], the Tribunal repeated the fifth and sixth of the seven paragraphs that are quoted above from its first decision. It then outlined some further evidence relating to the circumstances in which the grant of a new lease was refused and it summarised the opinions of the two expert witnesses. At [39 - 42] it indicated in the following terms that it preferred the approach adopted by Mr Hughes to that of Mr Dolman and gave its assessment of the damages payable by the Respondents:-

39 In my opinion the proposition contended for by the applicants that they lost both the opportunity to own a valuable business and the opportunity to receive income from it is fallacious. Their loss in my opinion is confined to a proportion of the value of the business as it would have been at 30 April 2010 had there also been in place a lease for a reasonable term. There was no evidence to the effect that thereafter they were unable to earn income by other means.

40 On the other hand I do not accept Mr Dolman's opinion that the valuation of the business was nil apart from the, no doubt negligible, value of plant and equipment. It seems to me that as a matter of common sense an entity which is capable of producing an income stream heading towards $100,000 pa has a significant value even if production of the income requires the personal exertions of its two partners....

41 In general terms I prefer the approach and valuation of Mr Hughes to that of Mr Dolman. I would accept as the value of the business at 30 April 2010 the bottom of the range suggested by Mr Hughes, namely $137,500.

42 As indicated earlier the applicants in my opinion in effect lost, as a result of the respondents' breach of their contractual obligations, a 70% chance to acquire an asset worth $137,500. I would assess their damages at $92,650.

The Tribunal's second decision concluded as follows:-

44 Pursuant to s 72 of the Retail Leases Act 1994, I make these orders:

1. I order the respondents to pay the sum of $92,650 to the applicants.

2. No order as to costs.

As stated at the outset, Order 2 is the order giving rise to this appeal.

Events since the Tribunal's second decision

On 3 August 2011, Mr Spring asked the Registry whether a challenge by the Applicants to Order 2 could be communicated via the Registry to the Tribunal member (Deputy President Patten) who had constituted the Tribunal. Two days later, the Registry advised him that any such challenge should be made by way of appeal.

At the conclusion of a meeting on 19 August 2011 between Ms Newton, Mr McCall and the Respondents, the Respondents instructed Ms Newton that they had made 'a commercial decision' not to appeal against Order 1 of the Tribunal's decision. They said to her that they were 'eager to have litigation with the appellants finalised once and for all'.

The Applicants filed a Notice of Appeal on 22 August 2011. The Notice indicated that the appeal was against Order 2 of the Tribunal's second decision, that it was made on a question of law and that the Applicants were not seeking leave to extend the appeal to the merits of the decision. It then defined the question of law arising from the decision as follows:-

That, in accordance with sections 77A of the Retail Leases Act and 3(b) ( sic ) and s88 of the Administrative Decisions Tribunal Act 1997, Order 2 in Torchia v Swanton No. 2 [2011] NSWADT 185 is, in all the circumstances unfair and should be replaced with the fair order of "No order as to costs; save that either party is at liberty to file and serve an Application for costs coupled by appropriate submissions, within 14 days, then the other party is to file and serve its reply within a further 14 days; and the Tribunal will make a decision on the papers as permitted by the Administrative Decisions Tribunal Act 1997, s.76, unless persuaded that there should be oral submissions" as set out in Annexure "C".

Annexure C to the Notice of Appeal contained lengthy submissions. They addressed the 'question of law' thus formulated (i.e., whether Order 2 of the Tribunal's second decision should be replaced by an order providing for the filing of submissions on costs and the delivery of a decision on this matter 'on the papers'). They also contained arguments in support of the proposition that the Respondents should be ordered to pay the Applicants' costs of the Tribunal proceedings on an indemnity basis. Included in these arguments was an indication that the Applicants' costs up to the date of the Tribunal's second decision amounted to $76,003.

On 30 August 2011, having just returned from a period of leave, Ms Newton saw for the first time a copy of the Notice of Appeal. On 2 September 2011, she met with Mr McCall and the Respondents. At that meeting, the Respondents instructed her that if they were required to pay this amount of $76,003 to the Applicants on account of costs, they would want to appeal against the two decisions given by the Tribunal. She then prepared draft grounds of appeal.

In a Notice of Reply to Appeal filed on 14 September 2011, the Respondents contested, on five separate grounds, the Applicants' claim that this question of costs should be reopened. In a sixth ground, they contended that there was 'no utility' in reopening this question because (a) there were no grounds on which the Tribunal would depart from the general rule in the Tribunal that each party pays its own costs, and (b) the costs order sought by the Applicants was 'excessive'.

On 23 September 2011, following registration of Order 1 of the Tribunal's second decision in the Local Court at Ballina under section 82 of the ADT Act, the Sheriff served a notice on the Respondents stating that a writ for levy of property had been issued against them. It stated also that if they paid a total sum of $95,586.06 to the Sheriff's office the writ would not be enforced.

On 10 October 2011, the Respondents paid this sum to the Sheriff's office.

At a directions hearing on 13 October 2011, it was agreed by the parties that at the hearing of the appeal the parties would address both the question whether the issue of costs should be reopened and the question whether, if this was done, any costs order should be made.

Written submissions were filed by both parties before the hearing. They included particulars of the costs incurred by both parties in the Tribunal proceedings.

At the hearing on 30 November 2011, I admitted affidavits sworn respectively by Mr Spring and Ms Newton. This fresh evidence included copies of the letters in which the offers of settlement outlined above were conveyed and material relating to the events occurring since the delivery of the Tribunal's second decision.

Relevant provisions

Section 72 of the RL Act, to which the Tribunal referred when making its two Orders in its second decision, describes the types of orders that the Tribunal may make in proceedings for retail tenancy claims. They include orders for the payment of money, including damages; orders for the surrender of possession of premises; rectification; and relief against forfeiture. They do not include orders for the payment of costs.

Section 77A is the provision of the RL Act dealing with the costs of Tribunal proceedings brought under the Act. It empowers the Tribunal to award costs under section 88 of the ADT Act.

So far as relevant to this appeal, section 88 states:-

88 Costs

(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...

(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.

(2) The Tribunal may:

(a) determine by whom and to what extent costs are to be paid, and

(b) order costs to be assessed on a basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis.

Section 3(b) of the ADT Act (to which reference was made in the Notice of Appeal) states:-

3 Objects of Act

The objects of this Act are as follows:...

(b) to ensure that the Tribunal is accessible, its proceedings are efficient and effective and its decisions are fair,...

In the ADT Act, subsections (1), (2) and (3) of section 113 and sections 114 and 115 govern the conduct of appeals. They are as follows:-

113 Right to appeal against appealable decisions of the Tribunal

(1) A party to proceedings in which an appealable decision of the Tribunal is made may appeal to the Tribunal constituted by an Appeal Panel.

(2) An appeal under this Part:

(a) may be made on any question of law, and

(b) with the leave of the Appeal Panel, may extend to a review of the merits of the appealable decision.

(3) An appeal under this Part must be made:

(a) within 28 days after the Tribunal gives the party oral reasons or written reasons for the appealable decision (whichever is the later), or

(b) within such further time as the Appeal Panel may allow.

114 Appeals on questions of law

(1) If an appeal under this Part is restricted to questions of law, the Appeal Panel is to determine the appeal and may make such orders as it thinks appropriate in light of its decision.

(2) The orders that may be made by the Appeal Panel on any such appeal include, but are not limited to, any of the following:

(a) an order affirming or setting aside the decision of the Tribunal (as originally constituted),

(b) an order remitting the whole or any part of the case to be heard and decided again by the Tribunal (as originally or similarly constituted), either with or without the hearing of further evidence, in accordance with the directions of the Appeal Panel,

(c) an order made in substitution for an order made by the Tribunal.

115 Appeals on the merits

(1) If an appeal under this Part extends to a review of the merits of an appealable decision, the Appeal Panel is to decide what the correct and preferable decision is having regard to the material then before it, including the following:

(a) any relevant factual material,

(b) any applicable written or unwritten law.

(2) The Appeal Panel may exercise all the functions that are conferred or imposed by or under any relevant enactment or this Act on the Tribunal at first instance to make the appealable decision concerned.

(3) In determining any such appeal, the Appeal Panel may decide:

(a) to affirm the decision, or

(b) to vary the decision, or

(c) to set aside the decision and make a decision in substitution for the decision it set aside.

Finally, clauses 7, 9 and 11 of the Tribunal's Guideline on Costs (Practice Note Number 22, issued on 1 October 2009 - hereafter 'the Costs Guideline') should be quoted:-

7. Non Lawyer Professional Agents

The ADT Act allows a person to be represented by an agent or an Australian legal practitioner. The Tribunal has ruled that an order for costs extends to the costs charged by a professional agent who is not a legal practitioner.

9. Application for costs

Parties should tell the Tribunal and the other party that they will be applying for a costs order as soon as they become aware of circumstances which justify an order for costs. If the matter goes to hearing and the application for costs is pursued, the person applying for costs should file and serve a precise statement of the amount of costs actually sought and its components.

Parties are encouraged to advise the Tribunal at the conclusion of the hearing if they wish to make an application for costs. Any such application should be made at the time, even if that application is based on an assumption as to the outcome of the proceedings. The Tribunal will determine the application in the reasons for decision.

Parties are not encouraged to apply for costs after receiving the reasons for decision. Such an application leads to unnecessary delays in the finalisation of the matter. If such an application is made, it should set out the reasons that an application for costs was not made at the conclusion of the hearing. The Tribunal may list the application for an oral hearing or determine the application 'on the papers' that is, without a hearing (see s 76 of the ADT Act).

11. Unaccepted Settlement Offers that Exceed Final Orders

This issue has usually arisen in the Retail Leases Division of the Tribunal. The Tribunal ruled under the previous version of s 88 that this may justify an order for costs in favour of the party who made the offer.

The meaning of the order under appeal

In the parties' submissions, two competing meanings for the order under appeal (Order 2 of the Tribunal's second decision) were advanced. One was that the matter of costs was left open for subsequent determination. The other was that costs must lie where they fell: that is, the parties were ordered to bear their own costs.

In arguing that the first of these meanings was correct, Mr Spring relied strongly on the absence of any accompanying reasons. He claimed that if the Tribunal had intended to rule out the possibility of a costs order being made in favour of the successful Applicants, it would have made this clear and would have explained why it considered that this outcome to be appropriate. He suggested that the Tribunal might well have anticipated that the Applicants would in due course apply for costs, in which event it would have given directions for the filing of submissions and the approach to be adopted in determining the matter.

In support of the second meaning, Mr McCall relied on a passage in the judgment of Giles JA (with whom McFarlan and Whealy JJA agreed) in Vertzayias v King & Ors [2011] NSWCA 215. His Honour was discussing the effect of an order (Order 6) in the terms 'no order as to costs' in circumstances where 'Permanent', a party to the proceedings, was entitled under a loan agreement to debit enforcement costs to the loan account. At [110 - 113], he said:-

110... There is the prior question, whether the trial judge had correctly held that the original order 6 to which the Messrs King and Permanent agreed in the unrectified deed and terms of settlement precluded Permanent from debiting its costs of the proceedings as part of enforcement expenses. Under notices of contention, Permanent and Charles contended that her Honour was incorrect in so holding. That contention should be upheld, with the result that the costs amount is part of Charles' damages.

111 Order 6 was an order that the Court made no order as to costs. It was not an order obliging Permanent to pay its own costs, or an order that it could not pass its costs on to Paul and Charles as part of enforcement expenses. It meant that the Court did not dictate that one party should pay costs to the other, but that left in force any contractual dictate, and Permanent was free to pass the costs on if the terms of the Permanent loan and mortgage entitled it to debit the costs to the loan account.

112 Oshlack v Richmond River Council (1998) 193 CLR 72, on which Charles relied, is not to the contrary. Gaudron and Gummow JJ referred at [91] to "no order as to costs" leaving the costs to lie where they fell, but that did not exclude that where the costs fell was governed by an existing contractual regime. The same may be said of the explanation of "no order as to costs" by Santow J in Wentworth v Wentworth [1999] NSWSC 638 at [29] -

"That clearly means that a judicial decision has been made that there should be no costs ordered to either side and that necessarily means that costs are to lie where they fall; see Re Hodgkinson [1895] 2 Ch 190 followed by Taylor J in Trikas v Rheem (Australia) Pty Limited [1964] 81 WN 504 at 506 and more recently Oshlack v Richmond River Council [1998] 193 CLR 72 at 91 per Gaudron and Gummow JJ describing the effect of such an order in those terms."

113 In Trikas v Rheem (Aust) Pty Ltd (1964) 81 WN (Pt 1) 504 it was submitted that "no order as to costs" was as if the court had said nothing, so that the plaintiff could recover the costs under a later general order for costs. The submission was rejected, and it was said that the order meant that the plaintiff was not entitled to recover the costs. That there could not be recovery of costs pursuant to a court order does not deny recovery pursuant to an agreement such as that in the Permanent loan and mortgage.

According to this statement of principle, Mr McCall submitted, the 'default position' established by section 88(1) of the ADT Act would apply in the present case. The effect of Order 2 of the Tribunal's second decision was, to use the terminology of this subsection, that 'each party' to the proceedings must 'bear the party's own costs in the proceedings'.

In my opinion, Mr McCall's submissions on this matter must prevail. The authority on which he relied is compelling. Furthermore, the Tribunal stated in its second decision at [44] that both Order 1 and Order 2 were made 'pursuant to s 72 of the Retail Leases Act 1994'. If the intention underlying Order 2 was to leave unresolved the question of costs, in the anticipation that either or both of the parties might apply for costs subsequently, it is unlikely, in my opinion, that the Tribunal would have expressly based the order on a provision of the RL Act listing the types of remedial order that it was empowered to make following a decision as to liability.

As noted above, section 77A is in fact the provision of the RL Act authorising costs orders, and the damages that the Tribunal awarded, being for unconscionable conduct, were properly attributable to section 72AA, not to section 72. But this does not undermine the consideration that I have just identified.

I should add that this determination renders it unnecessary for me to rule on a further submission made by Mr McCall. This was that if, as Mr Spring maintained, Order 2 amounted to no more than a statement that the question of costs should remain open for future decision, the Tribunal was not yet 'functus'. It would follow, Mr McCall claimed, that the present appeal was premature and it should be dismissed on that ground.

The reasons underlying the order under appeal

The Tribunal did not state its reasons for making the order under appeal. As I pointed out during the hearing of the appeal, failure by a court or tribunal to furnish adequate reasons for a decision has consistently been held to amount to an error of law: see for example Campbelltown City Council v Vegan (2006) 67 NSWLR 372 at 399; [2006] NSWCA 284 at [130].

While not disputing this proposition, Mr McCall argued that not every error of law in a decision under appeal warrants appellate intervention. This is clearly correct.

He pointed out also that the Applicants had not relied on this error by the Tribunal in the Notice of Appeal or in their appeal submissions. This does not, however, preclude me from taking it into consideration in determining the appeal, since there was ample opportunity at the hearing for both parties to put arguments to me about its implications.

Mr McCall's principal submission was that I should infer that the reason prompting the Tribunal to make no order as to costs was the Applicants' failure, at both of the Tribunal hearings, to state that they sought a costs order in their favour. In maintaining that this was a thoroughly legitimate reason for the Tribunal to order that no costs be paid, he relied on authorities that I shall outline shortly.

Mr Spring argued that this inference should not be drawn because in the Application the Applicants had stated expressly that they claimed payment of their costs on an indemnity basis and they had done nothing subsequently to suggest that they abandoned this claim. He referred also to the Respondents' statement, in their outline of submissions handed up to the Tribunal, that they reserved their submissions on costs 'pending the determination of the Tribunal on damages'.

I have come to the conclusion that there is little benefit to be gained in seeking to determine through some process of inference what were the reasons underlying the Tribunal's order. They may have been, as Mr McCall submitted, that it believed a formal application to be a pre-requisite to the making of a costs order in favour of a party and that neither the Applicants nor indeed the Respondents made any sufficient application. Alternatively, the Tribunal may have treated the Applicants' claim for costs as sufficiently made, but determined, in the light of the factors listed in section 88(1A) of the ADT Act, that it would not be 'fair' to make any such order and that therefore the provision in section 88(1) for the parties to bear their own costs should govern the matter.

My view instead is that the Tribunal's error in not giving reasons calls for appellate intervention along the following lines. I should investigate the correctness of each of these two possible sets of reasons for the Tribunal's decision that there should be 'no order as to costs', treating them, in effect, as alternative hypotheses as to the basis of this decision. The outcome of this investigation should furnish the grounds for my disposal of the appeal.

The significance of the Applicants' failure to apply for costs at the Tribunal hearing

The first 'hypothesis' as to the basis of the Tribunal's decision is, in effect, that the Applicants did not make a sufficient application for costs. Their claim for costs made in the Application was insufficient, because they were also bound to renew this claim during the hearings conducted by the Tribunal. They failed to do so.

The Respondents' submissions. In arguing that the Applicants' failure to seek costs at any stage of the Tribunal hearings did for these reasons provide justification for the Tribunal to order that no costs were payable, Mr McCall placed significant emphasis on the following statements in clause 9 of the Costs Guideline (quoted above at [46]):-

Parties should tell the Tribunal and the other party that they will be applying for a costs order as soon as they become aware of circumstances which justify an order for costs....

Parties are encouraged to advise the Tribunal at the conclusion of the hearing if they wish to make an application for costs. Any such application should be made at the time, even if that application is based on an assumption as to the outcome of the proceedings...

Parties are not encouraged to apply for costs after receiving the reasons for decision...

Mr McCall emphasised that in oral submissions made near the end of the last day of the second hearing, Mr Spring had not made any mention of the question of costs, even though he could easily have made an application for them, as required by the Costs Guideline.

With reference to a submission by Mr Spring that in the Retail Leases Division, at least, applications for costs were regularly permitted after the substantive decision had been delivered, Mr McCall pointed out that in the case on which Mr Spring relied, Chronopoulos v Carossel Pty Ltd (No 2) [2010] NSWADT 236, an application for costs, with detailed submissions, had in fact been presented to the Tribunal at the substantive hearing. This, he said, was made clear at paragraph [60] of the substantive decision ( Chronopoulos v Carossel Pty Ltd [2010] NSWADT 191).

With reference to Mr Spring's reliance on the inclusion of a claim for costs in the Application, Mr McCall argued that in court or tribunal proceedings it was 'common practice' for orders to be sought in the originating process, but not to be pursued. There were, he said, other examples of this in the present proceedings. He described also as 'common practice' the Respondents' statement in their outline of submissions that they reserved their position on costs, but maintained that this could not 'make up for' the Applicants' failure to apply for costs.

A further matter of relevance, according to Mr McCall, was that Mr Spring, though not a legal practitioner, had significant expertise in retail lease matters and had successfully represented the Applicants in establishing that the Respondents were liable to them. This was not, he said, a case where the relevant party was unrepresented. The Tribunal was entitled to expect that if costs were to be sought, Mr Spring would make an application for them in accordance with the Costs Guideline.

Mr McCall relied also on Ms Newton's evidence that one of the factors inducing the Respondents to make a 'commercial decision' not to appeal against the Tribunal's decisions on liability and damages was their belief that the Applicants had not sought, and would not be seeking, a costs order. He pointed out the time for the Respondents to lodge an appeal against the second decision expired on 30 August 2010, which was before they became aware of the Applicants' decision to appeal on the question of costs. It would therefore be prejudicial to the Respondents, he argued, to permit the Applicants now to reopen the question of costs

In the course of his submissions on this matter, Mr McCall drew my attention to three decisions of the Court of Appeal.

First, he cited Timbarra Protection Coalition Inc v Ross Mining Ltd & Ors [1999] NSWCA 335, describing it as a case in which the Court of Appeal was critical of the failure of a party to give notice of an application for costs while the hearing was on foot. In this case, the Court dismissed with brief reasons an application by a party to vary costs orders that it had made on the disposal of the appeal. In its judgment at [3], it said:-

The question of costs was well and truly before this Court at the hearing. Submissions should have been made at that time. The nub of the argument now advanced is that the evidence which we held to have been wrongly rejected was in fact inadmissible on grounds additional to those relied upon by Talbot J at the first respondent's urging. But the new grounds were not advanced before Talbot J. Nor was the possibility of raising them flagged in a notice of contention. Despite making submissions that the appellant should not be awarded costs if successful, the respondent did not rely upon the proposition that it now seeks to raise for the first time. The evidence was not included in the appeal papers. The first respondent's approach to the appellate litigation bears some similarities to that addressed and disapproved very recently in Amalgamated Television Services Pty Ltd v Marsden [1999] NSWCA 313.

The second decision, Grygiel v Baine (No 2) [2005] NSWCA 434, also involved an application by a party (the Claimant) for variation of a costs order previously made. Mr McCall relied on the following passage in the judgment of Basten JA (with whom Mason P and Bryson JA agreed) at [11 - 13]:-

11 It may be inferred... that the Claimant, through his senior counsel, did not address the Court on costs. That he did not address on material not before the Court is hardly surprising. Failure to address on costs is commonplace and, with two qualifications which will be addressed below, may properly be taken by the Court as an indication that no special or unusual orders are required. The usual order with respect to costs is that they should follow the event, the Court thus being left to judge the precise terms of an appropriate order in the circumstances which eventuate in the judgment.

12 The first and major qualification to this principle arises where an offer of compromise or settlement has been made which properly should not be disclosed to the Court prior to judgment. Although the substance of the offer should not be disclosed, there is usually no difficulty in indicating, at least in this Court, that some form of offer has been made and that, accordingly, questions of costs may need to be reserved so that relevant material can be put to the Court, depending on the outcome and in the event that the parties cannot agree on the appropriate result. Secondly, there are complex cases which involve interconnected issues and possibly multiple parties... Inadvertence on the part of the legal representatives will generally not be a sufficient basis for permitting further submissions, even in writing, and certainly not a basis for a further hearing, as appears to have been proposed in the present case.

13 The expeditious despatch of the business of the Court depends to a significant extent on the Court being able to rely upon practitioners appearing before it to ensure that its attention is drawn to matters relevant to the determination of the proceedings. If any unexpressed inference is sought to be drawn from the statement that the Court did not "invite" submissions on a particular topic, that inference must be rejected.

With reference specifically to paragraph [11], Mr McCall pointed out that in Tribunal proceedings in which the question of costs is governed by section 88 of the ADT Act, the 'usual' order is that prescribed by section 88(1), namely, that the parties should bear their own costs.

The third decision, AT v Commissioner of Police, NSW [2010] NSWCA 131 involved an appeal from an Appeal Panel of this Tribunal. The only aspect of it mentioned by Mr McCall was an observation by Basten JA (at [24]) to the effect that the fact that no order for costs had been sought or made in the Appeal Panel proceedings might be of critical importance if a question of law was claimed to arise in respect of the costs, but that no such claim was being made.

For all these reasons, Mr McCall contended, the Tribunal in the present case had been entitled to rule that the Applicants had not in fact applied for costs. For this reason, the appropriate order for the Tribunal to make was the 'usual' order, namely, an order under section 88(1) that the parties should bear their own costs.

The Applicants' submissions. The overall argument put by Mr Spring was that neither the Costs Guideline nor the case law cited by Mr McCall dictated that the Applicants' failure to apply for costs at the Tribunal hearings should have the effect of debarring them from seeking a costs order following determination of their substantive claims.

The specific considerations on which Mr Spring relied were as follows.

First, the Applicants signalled from the outset, and the Respondents (who had legal representation) well understood, that if the Applicants succeeded they would apply for costs, to be assessed on an indemnity basis. The Applicants' intentions in this regard were stated in the Application filed on 13 April 2010 and restated in the two letters (dated 14 April 2010 and 29 October 2010 respectively) in which they conveyed offers of settlement.

Secondly, clause 9 of the Costs Guideline did not state expressly that if a party did not apply for costs at a hearing dealing with substantive issues it could not do so subsequently. It was not a Rule, but a 'guideline', which used only the language of 'encouragement'. It went no further than to provide a mechanism whereby the Tribunal might endeavour to have arguments on costs presented at the substantive hearing, in order to avoid the expense associated with a further hearing or with a subsequent decision 'on the papers'.

Thirdly, the Tribunal, or at least the Retail Leases Division, had developed the practice of providing for an application for costs, accompanied by written submissions, to be filed after its decision on substantive issues had been handed down. Mr Spring relied here on the opening paragraphs of the Tribunal's decision in Chronopoulos v Carossel Pty Ltd (No 2) [2010] NSWADT 236, which are as follows:-

1 In Chronopoulos v. Carossel Pty Limited [2010] NSWADT 191 I determined that the claim by the Applicant in or to the effect that the Respondent was estopped by convention from claiming that the Applicant had no right or title or entitlement to occupy a part of the shopping centre described as the "Loading Dock area" should be dismissed.

2 I also vacated certain interim consent orders and then I made the following order:

"No order as to costs; save that should either party file and serve an Application for costs coupled by appropriate submissions, within 14 days, then the other party is to file and serve its reply within a further 14 days; and the Tribunal will make a decision on the papers as permitted by the Administrative Decisions Tribunal Act 1997, s.76, unless persuaded that there should be oral submissions".

This is now a fairly usual type of order that is made in this Division of this Tribunal, save that occasionally there are variations to the time limits.

Fourthly, cases, such as Grygiel v Baine (No 2) [2005] NSWCA 434, that spelled out the consequences of failure to apply for costs at a substantive hearing in a court were not applicable to the present circumstances. The reasons for this included the following: (a) the Tribunal, being more 'flexible' than a court in matters of procedure, had developed its own separate and distinct approach to the question of costs; (b) the Tribunal's starting point in determining costs under section 88 of the ADT Act differed fundamentally from that of a court, in which the presumption was that costs should 'follow the event'; and (c) the Applicants in the present case were conducting an appeal, not applying (as was the situation in Timbarra and in Grygiel ) for a court or tribunal to reopen its own previous decision regarding costs.

Fifthly, there was no merit in the argument that the Respondents would be prejudiced if this appeal were allowed because their 'commercial decision' not to file their own appeal was based on the assumption that the Applicants would not seek costs. It could not be taken for granted that the Respondents would be permitted to appeal out of time, or that any appeal by them would be successful.

Sixth and finally, the time of day at which the Tribunal's hearing on damages came to an end was 4.30 p.m. It would be particularly unfair in such circumstances to rule that the omission by the Applicants' representative to mention the matter of costs should have the effect of depriving them of any opportunity to apply for a costs order.

My conclusions. In my judgment, the arguments made by Mr Spring are to be preferred. The Applicants' failure to apply for costs at the hearings on liability and on damages should not be held to have debarred them from seeking a costs order following determination of their claims. They were entitled to assume that after the second decision had been handed down they would have an opportunity to apply for their costs, in accordance with the claim for costs that they made in the Application. If the Tribunal had had any doubt on whether the Applicants wished to press this claim, the procedure for resolving this doubt was readily available to it.

In broad terms, I agree with Mr Spring's submissions relating to clause 9 of the Costs Guideline. This clause does not state, expressly or by implication, that if a party wishes to obtain a costs order it is obliged to make an appropriate application, including the grounds on which it relies, during the substantive hearing and that if it fails to do so it may not thereafter seek costs. It provides only that a party 'should', or is 'encouraged to', take such steps at the hearing, rather than after the hearing.

Clause 9 provides also that a party who makes such an application during the hearing 'should' file and serve 'a precise statement of the amount of costs actually sought and its components'. In addition, it contains the statement that an application for costs made after the hearing 'leads to unnecessary delays in the finalisation of the matter'.

These two components confirm, in my judgment, that the aim of clause 9 is to ensure that, when the circumstances permit , the Tribunal will be put into possession, by the end of the substantive hearing, of all that it needs in order to determine both the substantive matters and the question of liability for costs and the quantum of any costs order. This comparatively swift and inexpensive approach to determining costs is often practicable in the Tribunal: for example, in relatively small-scale proceedings in the General Division, in which the applicant seeks review of a decision by an administrator.

However, the use of the language of 'encouragement' in clause 9, rather than that of obligation, clearly conveys an acknowledgment by the Tribunal that the circumstances of a case do not always permit the use of this approach. Tribunal proceedings, including those conducted in the Retail Leases Division, are often of such length and complexity that it would be quite unreasonable to expect that a party, before the substantive hearing had concluded, should file and serve all its evidence and its submissions relating not only to the matter of liability for costs, but also to quantum.

Furthermore, clause 11 of the Costs Guideline makes express reference to a situation - of which the present case provides an example - in which a party applying for costs would not be permitted to furnish to the Tribunal all the material relating to its application before the substantive hearing had come to an end. Clause 11 draws attention to the fact that in cases within the Retail Leases Division the rejection of an offer of settlement may give grounds for a costs order in favour of the party making the offer. But as Basten JA pointed out in Grygiel v Baine (No 2) [2005] NSWCA 434 at [12] (see above at [71]), evidence of any such offer may not be conveyed to a court or tribunal until after it has delivered its decision on the substantive issues in the case.

Although the Costs Guideline has been operative in the Tribunal since 1 October 2009, the approach to determining costs described in Chronopoulos v Carossel Pty Ltd (No 2) [2010] NSWADT 236 (see above at [79]) has been maintained in a number of cases decided subsequently in the Retail Leases Division. In the decisions on substantive matters, the orders made have been followed by directions for the filing of any applications for costs and of submissions on this matter, and for the matter to be determined 'on the papers'.

I recognise that, as Mr McCall pointed out, the applicant for costs in Chronopoulos did in fact notify the Tribunal before the end of the substantive hearing that it sought a costs order. But as far as I am aware, in the other cases to which I am referring, the giving of such notice at this time has not been treated by the Tribunal as a pre-requisite to making a later application for costs in accordance with directions issued in the substantive decision.

In broad terms, I agree also with Mr Spring's submission that cases such as Grygiel v Baine (No 2) and Timbarra Protection Coalition Inc v Ross Mining Ltd & Ors [1999] NSWCA 335, in which the consequences of failure to apply to a court for a costs order are spelt out, should not be treated as applicable to the Tribunal. This is mainly on account of two factors: (a) the features of the Costs Guideline and the Tribunal's practices that I have just outlined; and (b) the very significant differences between the principle of 'costs follow the event' and the approach to costs determinations required by subsections (1) and (1A) of section 88 of the ADT Act.

I am not persuaded by Mr McCall's argument based on the evidence that the Respondents, having made a 'commercial decision' not to lodge any appeal in this matter, did not discover that the Applicants had appealed until the period of 28 days allowed for appeals by section 113(3)(a) of the ADT Act had expired. Mr McCall's claim that it would therefore be prejudicial to the Respondents to permit the Applicants to reopen the question of costs is based on the Respondents' assumption that because the Applicants did not apply for costs at the hearing on damages they were not concerned to seek any order for costs. But for reasons that I have just outlined, an assumption along these lines was dubious, to say the least.

Furthermore, if the Respondents, having learned of the Applicants' appeal, had decided to proceed after all with their own appeal, they would have been well placed to seek leave to appeal out of time under section 113(3)(b). Since the day on which their solicitor, Ms Newton, first saw the Notice of Appeal (30 August 2011) was also the day on which the 28-day period for appeals expired, any appeal filed by them need only have exceeded the time-limit by a few days. The sequence of events described by her would have provided an adequate explanation for the lateness of their appeal.

My reasons relating to this aspect of the appeal can therefore be summed up as follows. The Applicants, in the Application, notified the Respondents and the Tribunal that the claims made by them included a claim for their costs of the proceedings. During the course of the proceedings, they gave further notification of this claim to the Respondents. Having regard to current practices in the Retail Leases Division and to the use of qualified terms such as 'encouraged' in the Costs Guideline, the failure of their representative during the substantive hearings to remind the Tribunal and the Respondents of their claim for costs was not enough of itself to justify the conclusion that they had abandoned it. They were entitled to assume that after the second decision had been handed down they would have an opportunity to bring it before the Tribunal, together with relevant evidence (notably relating to the offers of settlement that they had made) and supporting submissions.

Because some of the phrases employed in the Costs Guideline might seem to rule out any such assumption, I consider that its terms could usefully be reviewed.

It follows that if and to the extent that Order 2 in the Tribunal's second decision is founded on a conclusion by the Tribunal that the Applicants did not make a sufficient application for costs, the Order cannot be supported. The consequences of this ruling are explored below.

The Tribunal's decision to make the order under appeal without calling for further evidence or submissions

The ground that I formulated above (at [60]) as a second 'hypothesis' as to the basis of the order under appeal was that the Tribunal determined, in the light of the factors listed in section 88(1A) of the ADT Act, that it would not be 'fair' to make any order for the Respondents to pay the Appellants' costs and that therefore the provision in section 88(1) for the parties to bear their own costs should govern the matter.

According to this 'hypothesis', the Tribunal made a decision as to the merits of the Applicants' claim for costs. It did so without receiving evidence or submissions on the matter from either of the parties.

Mr Spring advanced the proposition, near the commencement of his written submissions, that a failure in these circumstances to give the parties an adequate opportunity to present their case constituted a denial of procedural fairness and, for that reason, an error of law. It followed, he said, that the resulting order should be set aside.

As I understood Mr McCall's submissions, he did not oppose a proposition in these terms. His primary argument, as described above, was that the Tribunal correctly held that the Applicants had not made a sufficient application for costs, not that it was appropriate for the Tribunal to determine any such application - if properly made - without giving the parties an opportunity to make submissions with regard to it.

The proposition advanced by Mr Spring is clearly correct. In the present case, the importance of providing an opportunity for the parties to submit relevant material is highlighted by the fact that this material included evidence about offers of settlement that could not have been tendered until the substantive issues in the case had been determined.

Accordingly, under the 'hypothesis' that I am now considering, the order under appeal cannot be supported, because it was made in circumstances involving a denial of procedural fairness.

The question of leave to extend to the merits

I have concluded that, according to each of the two alternative 'hypotheses' as to the basis of the Tribunal's order leaving the parties to bear their own costs, that order cannot be supported, for reasons involving an error of law in each case.

At the hearing of the appeal, by virtue of directions given before the hearing of the appeal, and with the consent of the parties, I admitted evidence and heard submissions on a further question, to be determined as part of the appeal proceedings if I concluded that the Tribunal's order was vulnerable to challenge. The question, put simply, is as to the merits of the Applicants' claim for their costs of the Tribunal proceedings.

The occasion has arisen for this question to be determined. Consideration of the evidence and submissions relating to it involves granting leave for the appeal to extend to the merits, even though no formal application for leave under section 113(2)(b) was made in the Notice of Appeal or during the hearing of the appeal. In the circumstances, this procedural step is entirely appropriate.

Having granted leave, my task, as defined in section 115 of the ADT Act, is to 'decide what the correct and preferable decision is' on the Applicants' claim for the costs of the Tribunal proceedings, having regard to the material before me.

The merits of the Applicants' claim for a costs order

From Mr Spring's submissions, three reasons can be distilled for upholding the Applicants' claim that would be 'fair' to award costs to them under section 88(1A) of the ADT Act. These are as follows: (1) the strength of the Applicants' successful case for damages was much greater than that of the case put forward in defence by the Respondents; (2) the Respondents' conduct in relation to the renewal of the lease had been held to be unconscionable under the RL Act - which meant that it was 'highly unethical' - and their conduct in other respects had unreasonably obstructed the Appellants' attempts to settle the dispute between the parties; and (3) the Respondents had unreasonably failed to accept an offer of settlement of this dispute - namely, the offer conveyed on 14 April 2011 - which turned out to be more advantageous to them than the award of damages made by the Tribunal.

It is convenient to discuss these matters separately. But before doing so, I should make it clear that in dealing with each of them I have taken account of a number of general principles relating to costs in the Retail Leases Division, as set out by me at paragraphs [32] to [38] of a recent decision ( Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 4) on which Mr Spring placed significant emphasis.

The relative strengths of the parties' cases

Mr Spring explicitly linked this aspect of the Applicants' claim for costs to paragraph (c) of section 88(1A) of the ADT Act (the text of which is set out above at [43]). This paragraph requires the Tribunal to take account of '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'.

He relied on a suggestion in the Profilio decision at paragraph [48], to the effect that in proceedings in the Retail Leases Division, which have a 'commercial' quality not found within other Divisions of the Tribunal, paragraph (c) should be held applicable if there is a 'substantial disparity' between the relative strength of the parties' cases.

Mr Spring maintained that in fact the case advanced by the Respondents in these proceedings had 'no tenable basis in fact or in law'. He claimed that all of the factual allegations made by them had been disbelieved and that all their grounds of defence had failed.

He relied also on the following findings of the Tribunal in its first decision: (a) Mrs Swanton's 'total refusal to discuss a new lease' was 'an act of bad faith within section 62B of the [RL] Act and constituted unconscionable conduct'; (b) this conduct 'involved a high level of moral obloquy, to use the words of Spigelman CJ in Attorney General v World Best Holdings Ltd (2005) 63 NSWLR 537 at paragraph 121'; and (c) the Respondents' alleged reasons for failing to comply with the obligation imposed by clause 8 of the Mediation Agreement were 'unreasonable and spurious'.

In the Tribunal's second decision, Mr Spring relied on the Tribunal's comment, made in the course of rejecting (at [40]) Mr Dolman's valuation of the Applicants' business as nil, that 'as a matter of common sense' an entity capable of producing an annual income stream heading towards $100,000 per annum has 'a significant value'.

I agree, however, with the main contention put by Mr McCall in response to these submissions. This was that the Applicants were not in fact wholly successful. The claims that they advanced both on liability and on damages included significant components that the Tribunal did not accept.

In the Application (as indicated above at [8]), the matters alleged by the Applicants included the following: (a) during the discussion between them and Ms Swanton on 24 May 2007, she represented to them that on the expiry of the current lease a new lease would be granted to them; (b) they relied on this representation in deciding to take over the lease and spend money on improving and refitting the premises; and (c) the Respondents' subsequent refusal to grant the Applicants' request for a new lease, constituted (i) conduct contrary to Ms Swanton's representation on 24 May 2007 and (ii) breach of a promise then made by her to grant a new lease.

As indicated above at [10], the grounds on which they claimed relief were unconscionable conduct, misleading or deceptive conduct, breach of clause 8 of the Mediation Agreement and estoppel. The remedies that they claimed (as indicated above at [11]) included a declaration that they had an interest in the land to which the lease related and an order that a five-year lease of this land be granted to them at a current market rent.

In its first decision, however, the Tribunal stated (in the passage quoted above at [20]):-

As to that part of the conversation [on 24 May 2007] concerning the grant of a further lease at the expiration of the term then current, it is clear that the conversation stopped well short of one giving rise to a contractual obligation to grant a fresh lease...

By virtue of this finding, the Applicants did not obtain any relief at all based on their claim that the Respondents had promised to grant them a new lease. They did not obtain the declaration that they sought, nor the order for a grant of a five-year lease. It may be noted in this context that Mr Spring's letter to Ms Newton dated 14 April 2010 (described above at [16]) repeated their claim of entitlement to a new lease. In addition, their claim for damages for economic loss sustained by virtue of reliance on Ms Swanton's alleged representation (in May 2007) that a new lease would be forthcoming was not upheld. This seems to indicate that the Tribunal rejected their arguments based on the doctrine of estoppel and their claim that the Respondents had engaged in misleading or deceptive conduct

The only relief that the Tribunal granted to the Applicants was an award of compensation for the loss of the opportunity to obtain a new lease that had been afforded to them under clause 8 of the Mediation Agreement. The contractual promise made to them under this clause, and held by the Tribunal to have been breached through conduct that it found to be unconscionable, was not that the Applicants would actually obtain a new lease. It was instead a promise by the Respondents to 'discuss in good faith and with fair consideration any request for a new lease'.

As Mr McCall pointed out in his submissions before me, the Applicants appeared, both before and during the hearing on damages, to believe that their compensation should reflect either the value of the prospective new lease or the amount lost by them through reliance on Ms Swanton's alleged representation, not merely the value of the opportunity to obtain a lease that clause 8 had conferred on them. The Applicants based their case relating to quantum on this assumption. It may be added that Mr Spring's letter of 29 October 2010 to Ms Newton appeared also to be based on this assumption.

As can be seen, however, from the passage in the Tribunal's second decision quoted above at [27], the approach taken by the Tribunal was to adopt the amount given by Mr Hughes 'at the bottom of his range' as 'the value of the business as it would have been at 30 April 2010 had there also been in place a lease for a reasonable term', then to discount this amount ($137,500) by the significant proportion of 30% because of its finding that only an 'opportunity' had been denied to the Applicants. At [42], the Tribunal said:-

As indicated earlier the applicants in my opinion in effect lost, as a result of the respondents' breach of their contractual obligations, a 70% chance to acquire an asset worth $137,500. I would assess their damages at $92,650.

If the Applicants had been wholly successful, as Mr Spring maintained, they would have obtained either a new lease or a sum substantially exceeding $92,650.

Accordingly, since the Respondents successfully contested significant components of the Applicants' case, both on liability and on damages, it cannot be said that there was a 'substantial disparity' between the relative strengths of the parties' cases. As Mr McCall argued, the Respondents did not act unreasonably in choosing to defend the proceedings.

For these reasons, the Applicants' claim for the costs of the Tribunal proceedings must fail in so far as it is based on paragraph (c) of section 88(1A) of the ADT Act.

Unconscionable and allegedly obstructive conduct by the Respondents

Mr Spring did not expressly link this aspect of the Applicants' claim for costs to any paragraph(s) within section 88(1A). But the matters that he raised could be said to fall under paragraphs (d) and/or (e).

A major plank of his argument was the following proposition based on the passage in the judgment of Spigelman CJ in Attorney General v World Best Holdings Ltd (2005) 63 NSWLR 537 at [121] to which the Tribunal referred. Since a finding of unconscionable conduct against a party in proceedings under section 62B of the RL Act implies that the conduct in question was 'highly unethical' and involved a 'high degree of moral obloquy', it must inevitably be 'fair' under section 88(1A) that costs be awarded against the party. It would not matter, Mr Spring maintained, that the Tribunal might have hesitated significantly before concluding that the conduct was sufficiently improper to attract these labels. The degree of 'unfairness' associated with conduct found to be unconscionable was serious enough to require, without more, that a costs order be made.

Mr Spring did not cite any authority bearing directly on this proposition. But the Court of Appeal's decision in Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, to which he referred in his written submissions, contains a passage which would appear to support it. This passage relates to proceedings originally commenced in the Retail Leases Division and to an earlier version of section 88 of the ADT Act, under which the test to be satisfied if costs were to be awarded was that there should be 'special circumstances warranting an award of costs'. At [60], Santow JA, with whom Mason P and Brownie AJA concurred, said:-

In my view it suffices that the conduct of [the lessors]... so acted as by their conduct to give rise to special circumstances; that is, circumstances that were clearly out of the ordinary and grossly unreasonable so far as the respondent tenant was concerned. On the one hand, the Tribunal correctly concluded that the respondent, through no fault of its own, has been placed in the situation where it has been forced to pursue this litigation. Yet it still failed to find special circumstances. With respect, I consider that the Tribunal was in error in failing to conclude that special circumstances here applied. For this purpose, it suffices that the circumstances are out of the ordinary. They do not have to be extraordinary or exceptional. While a finding of " serious unfairness " is not prerequisite to determining that there are special circumstances, it is nonetheless a highly relevant consideration.

Mr Spring relied also on four particular aspects of the Respondents' conduct. First, the particular ground on which the Tribunal found this conduct to be unconscionable was that it exhibited 'bad faith' and was accompanied by alleged justifications that were 'unreasonable and spurious'. Secondly, they had acted 'obstructively' in refusing to attend mediation following the filing of the Application in this matter and in not making any relevant concessions during the proceedings. Thirdly, their behaviour in not acceding to the Applicants' request to be permitted to remain in the premises while the proceedings were on foot was 'difficult and unreasonable'. Fourthly, by disclosing that their decisions regarding the proceedings were purely 'commercial', they showed that they never had any genuine desire to reduce the scope of the proceedings as far as possible through measures such as mediation.

With reference to the Respondents' refusal to attend mediation, Mr Spring cited the following observation by the Appeal Panel in O'Neill v Henry (RLD) [2010] NSWADTAP 40 at [69]: 'We are inclined to the view... that failure to engage in mediation... may be a factor relevant to costs in appropriate circumstances.' In a later decision in the same proceedings, not cited by Mr Spring - O'Neill v Henry (No 2) (Costs) (RLD) [2010] NSWADTAP 54 - the Panel had more to say on this matter. It held as follows, at [7 - 11]:-

7 While the respondent may have seen it otherwise, the respondent entered into a retail shop lease with the appellant. The retail leases legislation has, as its primary method of dispute resolution, a State operated mediation service headed by the Registrar, Retail Tenancy Disputes, with the fees payable by the parties to the mediator set at a modest rate as compared to general market rates for mediation of commercial disputes. A dispute can only proceed in the Tribunal if the Registrar has certified that mediation has failed to resolve the matter or if the Tribunal is 'otherwise satisfied that mediation ... is unlikely to resolve the dispute or matter' (RL Act, s 68(1)). One of the grounds for issuing a certificate is that a party has refused to take part in or has withdrawn from mediation (s 68(2)).

8 This was, in our opinion, a case with a narrow compass that was eminently suited to resolution by mediation. The respondent acted peremptorily in locking out the appellant. He failed to give the respondent an opportunity to re-enter and collect those items of his that remained on the premises. He did not respond to reasonable attempts to resolve the matter, including not engaging in mediation. He left the appellant with the choice of abandoning what the appellant saw as his just claim, or proceeding in the Tribunal. In our view, the submissions on these points are well founded. Moreover, it is close to an abuse of process for the respondent to do what occurred here, and first show his hand on the occasion of the hearing. This conduct denies to applicants the opportunity to have prior notice of the case that might be made against them, and perhaps consider settlement.

9 Section 88 of the ADT Act sets out several considerations that may be taken into account in deciding whether it is 'fair' to override the ordinary rule that each party bear its own costs and make a costs order. They give emphasis to the importance of fair conduct of litigation. The ADT Act provisions do not focus so much on the events that precede the commencement of litigation. The Court of Appeal in Cripps gave weight to those events. We agree with the appellant's submissions that the pre-litigation events are relevant to this case. The respondent behaved in a way that ignored the central place of mediation in the resolution of retail lease disputes, and in effect forced the appellant to litigate.

10 In this case the appellant was a lessee taking on his first business lease. The respondent, on the other hand was a well-established business operator. There was, as is often the case, an imbalance in commercial experience.

11 In our view, it is fair in the circumstances of this case to make an award of costs in favour of the appellant covering the proceedings before the Tribunal and the Appeal Panel.

Mr McCall's main submissions in response were as follows: (a) while the conduct of a respondent who defended an unconscionable conduct claim might have been so obviously indefensible that a costs order under section 88(1A) was clearly warranted, this was not the case in these proceedings; and (b) if the legislature had intended that costs should always be awarded against a respondent who had unsuccessfully defended an unconscionable conduct claim, it would have stated this expressly in the RL Act (for example, in section 77A).

In my opinion, these reasons advanced by Mr McCall are sufficient to dispose of the proposition that because conduct cannot be held to be unconscionable unless it involves a high level of 'unfairness' it must always be 'fair', within the meaning of section 88(1A), to award costs against a respondent whose conduct has been held unconscionable.

In so ruling, I recognise that the Court of Appeal in Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 appeared to regard conduct found to be 'clearly out of the ordinary and grossly unreasonable' and to be 'seriously unfair' as a sufficient ground for a costs order. But the broad criterion within section 88 that was then applicable - namely, 'special circumstances warranting an award of costs' - did not require the Tribunal to take account of the conduct of the parties during the Tribunal proceedings - as do paragraphs (a) and (b) of the now-applicable section 88(1A) - or of the 'relative strengths' of the parties claims (as paragraph (c) does). It was a much more open-ended criterion.

I am not aware of any decision, either within the Tribunal or on appeal from it - in which a finding of unconscionable conduct under the RL Act against a party has been held, expressly or by implication, to be sufficient, without more, to warrant an award of costs against that party under section 88 of the ADT Act. This did not occur in Cripps v G & M Dawson Pty Ltd because there was no unconscionable conduct claim in that case.

In O'Neill v Henry (RLD) [2010] NSWADTAP 40, the Appeal Panel, differing from the Tribunal at first instance, concluded at [68] that the relevant conduct of the respondent lessor was unconscionable. But as the extract just quoted from O'Neill v Henry (No 2) (Costs) (RLD) [2010] NSWADTAP 54 demonstrates, its subsequent decision to award costs to the applicant lessee was not based on this conclusion, but on a number of other features of the respondent's conduct, both before and during the Tribunal proceedings.

One of these features was the respondent's refusal, on which the Panel made a number of critical comments, to engage in mediation. I have given careful consideration to Mr Spring's argument that this was also a feature of the conduct of the Respondents in the period prior to the filing of the Application. But in contrast to the facts in O'Neill v Henry , the disputes between the parties in the present case had commenced nearly three years before the Application was filed. They had been the subject of an earlier mediation (during 2008) that ultimately proved unsuccessful, and they had prompted the Applicants (during 2010) to file, then to withdraw, an earlier application in the Tribunal (see [6] above). Unlike O'Neill v Henry , this was not, I think, 'a case...that was eminently suited to resolution by mediation' (to quote from the Appeal Panel's decision in O'Neill v Henry (No 2) (Costs) (RLD) [2010] NSWADTAP 54 at [8]).

The Appeal Panel based its costs decision on its view that, to quote again from paragraph [8], the respondent lessor's conduct 'left the appellant with the choice of abandoning what the appellant saw as his just claim, or proceeding in the Tribunal'. Up to a point, the same could be said of the Respondents' conduct in the present proceedings. But as I pointed out earlier, the Applicants in this case sought relief of a very significant nature - namely, the grant of a new lease - that they failed to obtain. Their view of the scope of their 'just claim' was not shared by the Tribunal.

I do not attach weight to Mr Spring's assertion that the Respondents failed to make any relevant concessions during the proceedings because he did not explain the nature and significance of the concessions in question.

As to his reliance on the Respondents' refusal to allow the Applicants to remain in the premises while the proceedings were on foot, my opinion is that because the Respondents ultimately succeeded in rebutting the Applicants' claim to be entitled to a new lease, this refusal was not 'difficult' or 'unreasonable'.

Finally, I do not see how the Respondents' characterisation of their own decisions regarding the proceedings as purely 'commercial' could be relevant in the present context.

For these reasons, I am not persuaded that the foregoing aspects of the Respondents' conduct provide grounds for holding that it would be 'fair' to make a costs order against them.

The Applicants' offer of settlement

The offer on which the Applicants based their claim for costs was made in Mr Spring's letter of 14 April 2010. It was expressed to be an offer to accept $125,000 'for a full and final settlement on a no-fault, confidential basis'. In his letter of 29 October 2010 noting that this offer had been refused, he described it as an offer to accept this sum 'for a full and final settlement inclusive of costs'.

In his submissions in the appeal, Mr Spring argued that this offer by the Applicants to accept $125,000 was 'reasonable and favourable' because it required payment by the Respondents of a smaller amount than 'the combined final orders and costs' and that their rejection of it was 'unfathomable'. He based this argument on the fact that the total of the damages awarded ($92,650) and the costs that the Applicants had incurred ($76,803) came to $169,453.

Mr Spring relied on well-established authority, which Mr McCall did not dispute, to the effect that principles stemming from the English case of Calderbank v Calderbank [1976] Fam 93 play a role in the determination of costs applications in the Retail Leases Division. It has been held on a number of occasions that the unreasonable rejection by an unsuccessful party of an offer of settlement that has proved more favourable to that party than the Tribunal's order(s) provides grounds for a costs order under subsection (1A) of section 88 of the ADT Act. Because there is no express mention of this situation in the subsection, it must be taken to fall within paragraph (e) ('any other matter that the Tribunal considers relevant').

Mr Spring relied also on a passage (at [51 - 58] in my decision in Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 4, in which I discussed, among other things, the application of these principles in cases where the offer that was made and rejected was an offer 'inclusive of costs'. As I pointed out, the judgment of Basten JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [143 - 144] made it clear that although it is often difficult for the recipient of such an offer, and indeed for a court or tribunal, to determine whether or not the offer is more favourable to the recipient than the orders made by the court or tribunal, it may still, in appropriate circumstances, provide grounds for a costs order.

Mr McCall's principal argument in opposition to these submissions was that it was not unreasonable for the Respondents to reject the offer because at the time when they received it they were unable to assess whether it was favourable to them. He put forward two reasons for this: (a) the basis on which any costs awarded to cover fees paid by the Applicants to Mr Spring, who was not a legal practitioner, would be assessed had not been the subject of any decision by the Tribunal; and (b) at the time of the offer, no reliable expert evidence relating to the financial loss allegedly caused to the Applicants by the Respondents' decision not to grant them a new lease had been served.

In my opinion, there are a number of reasons why the making and rejection of this offer of settlement do not constitute grounds for awarding costs to the Applicants.

It is clear first of all that because the amount of the offer ($125,000) substantially exceeded the amount of damages awarded ($92,650), the offer can only be held to have been more favourable to the Respondents than the Tribunal's award of damages if the fact that the offer was (subsequently) described as 'inclusive of costs' can be taken into account in the Applicants' favour.

I am not convinced, however, that it can be. The starting-point with regard to costs under section 88(1) of the ADT Act is that the parties bear their own costs. Costs do not presumptively 'follow the event', as they do in court proceedings. For this reason, it is (I believe) not open for a successful party in Tribunal proceedings to say to an unsuccessful party who has rejected an offer of settlement: 'Although my offer required you to pay me more than the amount ordered against you by way of damages, what matters is that it required you to pay less than the aggregate of the damages award and my costs: therefore - and for no other reason - your rejection was unreasonable and I should have an order against you for my costs'. It seems to me that in this line of argument, the actual order that the successful party is seeking - i.e., that the unsuccessful party should pay costs - is being put forward as a component of the grounds for making the order.

I am not aware of any Tribunal decision in which the correctness of this view has been determined, or indeed discussed. The issue did not arise in the Profilio decision. Entirely different questions were before the Tribunal in that case because the offer of a settlement amount 'inclusive of costs' was made by the party that the Tribunal held at first instance to be unsuccessful and to be liable in damages.

If this reason for rejecting the Applicants' claim for costs based on their offer of settlement is incorrect, there are at least three other reasons justifying its rejection.

One, to which Basten JA adverted in Elite Protective Personnel Pty Ltd v Salmon is that, in contrast to an applicant/plaintiff seeking damages to whom an offer 'inclusive of costs' is made, a respondent/defendant will have no means of estimating the amount of current or future costs to which it might be held liable if it refused the offer. It cannot do this because the relevant costs are not its own costs (about which it can consult its lawyers) but the costs of the other side.

The second reason is that, as Mr McCall pointed out, there has been no decision determining the mode of assessment of the costs payable when a party's representative is an agent who, like Mr Spring, acts for reward but is not a legal practitioner. It has been held (in B & L Linings Pty Ltd & Anor v Chief Commissioner of State Revenue (No 4) (RD) [2008] NSWADTAP 14) that a costs order under section 88 may include an amount in respect of the fees charged by an agent of this nature. But there has been no decision as to how that amount should be assessed if there is a dispute as to the proper figure.

Thirdly, the letter of 14 April 2010 containing the Applicants' offer to accept $125,000 did not state that it was an offer 'inclusive of costs'. Equally, it did not state that the offer was exclusive of costs. It was only in Mr Spring's subsequent letter, dated 29 October 2010, in which the much higher settlement figure of $225,000 was proposed, that the Respondents were advised expressly that the earlier offer was inclusive of costs.

For these reasons, I reject the Applicants' argument that costs should be awarded to them on account of their offer of settlement conveyed on 14 April 2010.

The orders to be made

My conclusion, following this lengthy reasoning, is that the Applicants are not entitled to any of their costs of the Tribunal proceedings. This is the same conclusion, reached by a different route, as the Tribunal reached.

In accordance with the terminology in section 115(3) of the ADT Act, which is applicable because this appeal has extended to the merits, the order under appeal must therefore be affirmed.

At the hearing of this appeal, both parties indicated that, if successful, they would seek their costs of the appeal.

Although the Applicants have not succeeded in obtaining an order differing from the order that they challenged, the grounds that they raised were both meritorious and difficult to determine. In many appeals, that is sufficient to suggest that no costs order should be made. But there may be other relevant factors of which I am unaware.

I accordingly direct as follows. There will be no order for the costs of this appeal unless a party files and serves an application for costs, with supporting submissions, within 21 days. In such event, the opposing party or parties must file and serve submissions in response within a further 21 working days. The question of costs will then be determined 'on the papers', pursuant to section 76 of the ADT Act.

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Decision last updated: 09 February 2012

Medium Neutral Citation:	Torchia v Swanton (RLD) [2012] NSWADTAP 5
Hearing dates:	30 November 2011
Decision date:	09 February 2012
Jurisdiction:	Appeal Panel - Internal
Before:	M Chesterman, Deputy President
Decision:	1. Order 2 in the Tribunal's decision of 2 August 2011 in these proceedings is affirmed. 2. There will be no order for the costs of this appeal unless a party files and serves an application for costs, with supporting submissions, within 21 days. In such event, the opposing party or parties must file and serve submissions in response within a further 21 working days. The question of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997.
Catchwords:	Retail lease - costs - meaning of 'no order as to costs' - failure to apply for costs at hearing - whether 'fair' to make costs order
Legislation Cited:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
Cases Cited:	AT v Commissioner of Police, NSW [2010] NSWCA 131 Attorney General v World Best Holdings Ltd (2005) 63 NSWLR 537 B & L Linings Pty Ltd & Anor v Chief Commissioner of State Revenue (No 4) (RD) [2008] NSWADTAP 14 Calderbank v Calderbank [1976] Fam 93 Campbelltown City Council v Vegan (2006) 67 NSWLR 372; [2006] NSWCA 284 Chronopoulos v Carossel Pty Ltd [2010] NSWADT 191 Chronopoulos v Carossel Pty Ltd (No 2) [2010] NSWADT 236 Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 Grygiel v Baine (No 2) [2005] NSWCA 434 Profilio v Coogee Bay Village Pty Ltd (No 4) [2011] NSWADT 4 Timbarra Protection Coalition Inc v Ross Mining Ltd & Ors [1999] NSWCA 335 Torchia v Swanton [2010] NSWADT 142 Torchia v Swanton, unreported, Administrative Decisions Tribunal, 5 October 2010 Torchia v Swanton (No 2) [2011] NSWADT 185 Vertzayias v King & Ors [2011] NSWCA 215 Wentworth v Wentworth [1999] NSWSC 638
Category:	Principal judgment
Parties:	Eugene Torchia and Lesley Astill-Torchia (Appellants) Beverley Swanton and Alistair Swanton (Respondents)
Representation:	Counsel M McCall (Respondents) S Spring (Agent - Appellants) Stephen Tester & Associates (Respondents)
File Number(s):	119038
Decision under appeal	Citation: Torchia v Swanton (No 2) [2011] NSWADT 185 Date of Decision: 2011-08-02 00:00:00 Before: Retail Leases Division File Number(s): 105054