Trust Company of Australia Ltd (Stockland Property Management Ltd) v Skiwing Pty Ltd trading as Cafe Tiffany's (No 4) (RLD)

[2005] NSWADTAP 32

Appeal Panel - Internal

CITATION:	Trust Company of Australia Ltd (Stockland Property Management Ltd) v Skiwing Pty Ltd trading as Cafe Tiffany's (No 4) (RLD) [2005] NSWADTAP 32
PARTIES:	APPELLANT Trust Company of Australia Ltd (Stockland Property Management Ltd) RESPONDENT Skiwing Pty Ltd trading as Cafe Tiffany's
FILE NUMBER:	049033
HEARING DATES:	3/06/2005
SUBMISSIONS CLOSED:	06/03/2005
DATE OF DECISION:	06/23/2005
DECISION UNDER APPEAL:	Skiwing Pty Ltd trading as Cafe Tiffany's v Trust Company of Australia Ltd (No 4) [2004] NSWADT 162
BEFORE:	Chesterman M - ADCJ (Deputy President); Molloy GB - Judicial Member; Weule B - Non Judicial Member
CATCHWORDS:	reliance on a legal ruling held to be incorrect - reliance on behaviour unconnected with the conduct of the litigation - reliance on conduct with regard to settlement negotiations - reliance on factual findings which had no evidentiary support
MATTER FOR DECISION:	Prncipal matter
FILE NUMBER UNDER APPEAL:	049033
DATE OF DECISION UNDER APPEAL:	08/06/2004
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Alessa Pty Ltd v Total & Universal Pty Ltd [2002] NSWADTAP 16 Barsoum v Glebe Administration Board (No 2) [2002] NSWADT 174 Calderbank v Calderbank [1975] 3 All ER 333 G & M Dawson Pty Ltd v Cripps & Ors (No 3) (RLD) [2005] NSWADTAP 24 Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164 Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2) [2004] NSWADT 162 Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 3) [2004] NSWADT 94 Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 4) [2004] NSWADT 162 Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 Trust Company of Australia Ltd v Trust Company of Australia Ltd (Stockland Property Management Ltd) (RLD) [2005] NSWADTAP 9
REPRESENTATION:	APPELLANT M Allars, barrister RESPONDENT A I Tonking, barrister
ORDERS:	1. The appeal is allowed; 2. The Tribunal’s order that the Appellant pay costs of the Respondent is set aside.

Introduction

1 In these reasons, we set out our decision on an appeal against a costs order. The Appellant is Trust Co of Australia Ltd (Stockland Property Management Ltd) (hereafter ‘Stockland’) and the Respondent is Skiwing Pty Ltd trading as Café Tiffany’s (hereafter ‘Skiwing’).

2 The order was made by the Tribunal, constituted by Judicial Member Donald, in Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 4) [2004] NSWADT 162. In that decision, delivered on 6 August 2004, the Tribunal ordered that Stockland should pay a specified part of Skiwing’s costs in relation to three separate applications under the Retail Leases Act 1994 (hereafter ‘the RL Act’) that Skiwing, as lessee, had brought against Stockland, as lessor.

3 In an earlier decision (Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 3) [2004] NSWADT 94), the Tribunal had held that Skiwing was entitled to succeed in two of these three applications and had made awards of damages in its favour totalling $322,628.00 (subject to reduction in certain contingencies).

4 After the costs order now before us on appeal had been made, we heard an appeal brought by Stockland against the substantive decision of the Tribunal making these awards of damages. In a judgment dated 11 March 2005 (Trust Company of Australia Ltd v Trust Company of Australia Ltd (Stockland Property Management Ltd) (RLD) [2005] NSWADTAP 9), we allowed the appeal and set aside the damages awards in favour of Skiwing. We held also, however, that certain issues that Skiwing had raised in a Notice of Contention should be remitted to the Tribunal for reconsideration.

5 In a subsequent hearing, we directed that the Tribunal should take no further steps in these proceedings, except in relation to costs, until the disposition of appeals from our judgment that both of the parties had lodged in the Court of Appeal.

Relevant principles regarding costs

6 If costs are to be awarded in a case brought under the RL Act, the requirement of ‘special circumstances warranting an award of costs’ set out in s 88(1) of the Administrative Decisions Act 1997 (‘the ADT Act’) must be satisfied. Section 77A of the RL Act makes this provision applicable in retail tenancy proceedings conducted in the Tribunal.

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

8 In Gizah (No. 2), the Tribunal held that ‘special circumstances’ existed in that case where (a) the successful party in the proceedings had made an offer of compromise of the dispute before the conclusion of the proceedings; (b) the unsuccessful party had rejected the offer without good reason; and (c) the terms of the offer were more favourable to the unsuccessful party than the orders made by the Tribunal. It treated the situation as analogous with costs rules in the Supreme and District Courts and the principles laid down in Calderbank v Calderbank [1975] 3 All ER 333. This approach has been approved in a number of later cases: see eg Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27 at [14 – 16, 28] and Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2) [2004] NSWADT 162 at [16 – 37].

9 In G & M Dawson Pty Ltd v Cripps & Ors (No 3) (RLD) [2005] NSWADTAP 24, an Appeal Panel discussed the proposition that ‘special circumstances’ could be constituted by behaviour of a party not connected with the conduct of the litigation. At [22 – 29], it referred to a number of Tribunal decisions in which significant doubt was cast on this proposition. At [30 – 32], it said:-

30 A clearer rejection of the proposition … is to be found in a more recent decision regarding costs in RL Act proceedings. In Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43, the Appeal Panel dealt with a submission by a lessor that one of the grounds apparently relied on by the Tribunal in awarding costs against him at first instance was its finding that he had been guilty of ‘tardiness’ in remedying serious defects in the condition of the leased premises. The Appeal Panel observed as follows at [33]:-
Finally, we consider that, to the extent that the Tribunal’s reference to ‘tardiness’ on the part of [the lessor] indicates that it was prepared to treat behaviour unconnected with the conduct of the proceedings as relevant to determining ‘special circumstances’, it was in error.
31 As this brief quotation shows, the broad questions of principle and policy raised by this issue relating to the scope of ‘special circumstances’ were not discussed by the Panel in Sotiropoulos . There has not in fact been such a discussion in any retail leases decision of which we are aware.

32 Having given the issue our own careful consideration, we would share the disinclination, shown by the Tribunal in all the cases that we have cited, to assess the reasonableness and probity of the conduct of an unsuccessful party that has given rise to litigation, and to make a finding of ‘special circumstances warranting an award of costs’ on the basis of this conduct if it is found to have been unlawful, ‘grossly unreasonable’ or in some other way manifestly improper. In our opinion, it is the task of the substantive orders made in litigation in the Tribunal, not a costs order, to provide sufficient remedies in respect of such conduct to the aggrieved party.

10 At all material times, Stockland has been the owner and lessor of a number of retail shops within the Imperial Arcade, Sydney, and Skiwing has been one of the lessees. Skiwing has conducted a coffee shop business in the Arcade.

11 The two claims on which Skiwing succeeded at first instance were described in the Tribunal’s reasons as the ‘balcony claim’ and the ‘relocation or disturbance of trading claim’.

12 The gist of the former claim was that Stockland, in breach of an agreement reached with Skiwing, withdrew its support from endeavours by Skiwing to obtain permission from Sydney City Council to extend the coffee shop by erecting a balcony looking over the adjacent Pitt Street Mall. In consequence, Skiwing was denied an opportunity to enhance its trade.

13 The gist of the latter claim was that Stockland had damaged the profitability of Skiwing’s coffee shop by (a) impermissibly seeking to exploit its contractual and statutory rights to require Skiwing to relocate its business and (b) causing other nearby businesses to close, with the result that potential customers had less incentive to go into the vicinity of the coffee shop. According to Skiwing, Stockland engaged in this conduct as part of a deliberate policy, in which ultimately it was unsuccessful, to increase its own profits by attracting an ‘icon tenant’ to the Arcade.

14 In the course of ruling in Skiwing’s favour on both of these claims, the Tribunal recorded the following findings (Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 3) [2004] NSWADT 94 at [93 – 98]):-

93 In summary, Stockland set about a commercial course to reposition its Arcade, intending to sustain a high vacancy rate for a substantial period while it found the right icon tenant for its new market position and to use the icon tenant to attract the new tenant mix.

94 Central to this plan to attract such a major tenant, Stockland sought to use relocation rights under the Lease and the Act in what I find to be a demonstrably invalid manner. It considered that the rights of its established and generally complying tenant, Skiwing, among others, were not such as to prevent this course of action or to require any compensation. It maintained this right to relocate in legal disputation over a five month period.

95 These relocation notices seriously disrupted Skiwing in the operation of its business, diverted management effort from running the business, constituted a breach of the agreement under which it was applying for consent to develop the balcony proposal, and caused it to engage in what for it was major legal disputation.

96 The high vacancy rate associated with the process and its unwinding lasted for most of a two year period.

97 Though since withdrawn, the notices and the dispute over them have left the parties bitterly at odds such that the likelihood of them now being able to operate co-operatively as landlord and tenant is remote if not impossible.

98 Stockland has chosen not to accord to Skiwing concessions granted to other tenants who have complained of the impact of the high vacancy rates, among other matters. …

15 Subsequently, in its judgment on costs (Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 4) [2004] NSWADT 162), the Tribunal reviewed the principles governing costs orders under s 88 of the ADT Act, paying particular attention to the meaning of the phrase ‘special circumstances’. At [7], it stated, apparently by way of summary, that ‘the circumstances must be seriously beyond the usual or ordinary pursuit of a party’s legal position so that it would be seriously unfair for a party not to receive some or all of its costs’.

16 The Tribunal then held at [12] that while each party had accused the other of unnecessarily protracting the proceedings and/or pressing untenable claims, neither ‘the conduct of the case’ nor ‘the respective successes and failures in interlocutory proceedings or pressing issues’ had given rise to ‘special circumstances’.

17 It stated, however, at [14] that in its view there were ‘clear factors… which constitute “special circumstances”’. It proceeded then to quote in full the six paragraphs from its earlier judgment that we have reproduced in this judgment at [14].

18 The Tribunal went on to explain, at [15 – 17], its further reasons for making a order for the payment of part of Skiwing’s costs:-

15 From the very outset of that process Skiwing offered to negotiate a settlement and remained willing to do so. While that may have involved substantial payments to it by Stockland, it is in my opinion certain that any such negotiated settlement could well have even been less than the total legal costs in this matter and if pursued early would also have been substantially less than the damages amount awarded. A commercial negotiation would have cleared the way for Stockland to implement in a constructive way its plans for the management of the Imperial Arcade without trampling on a tenant. Stockland elected not to engage in any settlement negotiations.

16 In addition, with the balcony claim, Stockland peremptorily terminated its agreement for Skiwing to pursue its application for reasons unrelated to the subject matter of that agreement. It was in my view a manifestly unreasonable breach of an agreement, compliance with which would not have exposed Stockland to any cost and which may have very significantly benefited its tenant.

17 In my opinion, those aspects of this matter takes Stockland’s pursuit of its alleged rights out of the ordinary and constitutes circumstances seriously beyond the usual or ordinary pursuit of a claim so that it would be seriously unfair for Skiwing not to recover some of those essential costs which had to be incurred to establish and quantify the claims on which it was successful.

19 At [18], the Tribunal outlined the terms of the costs order:-

Accordingly I consider Skiwing is entitled to the actual costs of its expert witnesses reports and their attendance at the hearing as those reports were essential for the Tribunal to resolve the matters on which Skiwing was successful. I refer to Mr Edmonds and Mr Coggiola. I also consider Skiwing is entitled to part of its barrister’s fees as these too were essential to clarifying its claims and assisting the Tribunal shorten and manage the case. In all the circumstances, that proportion should be half the fees actually billed by its barrister to Skiwing; that reduction makes due allowance for the issues on which Skiwing did not succeed as well as reflecting the requirement to confine any costs award to reflect only the special circumstances.

20 The Tribunal’s concluding observation, at [19], was that ‘it would be seriously unfair for Skiwing to bear all its costs without reimbursement of those items’.

Stockland’s appeal against the costs order

21 The written and oral submissions advanced by Stockland alleged six errors of law in the Tribunal’s reasons. We will consider them in turn

22 Incorrect test. Ms Allars, counsel for Stockland, submitted that the Tribunal, relying on the Appeal Panel’s judgment in Alessa Pty Ltd v Total & Universal Pty Ltd [2002] NSWADTAP 16 at [31], had erred in adopting a test of ‘serious unfairness’ (for example, in the proposition in para [7] of its judgment that we have quoted above at [15]). She argued that in Randi Wiks Pty Ltd v Pokana Pty Ltd [2003] NSWADTAP 27, a subsequent Appeal Panel had rejected a test based on ‘fairness’, saying at [39 – 40] that the distinction between ‘fairness’ and ‘special circumstances’ is ‘crucial’.

23 The response by Mr Tonking, counsel for Skiwing, was that the Tribunal was putting forward ‘serious unfairness’ as no more than a ‘gloss’ on the primary requirement of ‘special circumstances warranting an award of costs’. The Tribunal was not treating ‘serious unfairness’ as the sole criterion. This was not, he said, an approach about which Stockland could complain, since it placed a ‘higher hurdle’ in front of Skiwing than was in fact required by the accepted test.

24 We agree, broadly speaking, with this response. As the Appeal Panel pointed out in Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43 at [8], a finding of ‘serious unfairness’ is not a prerequisite to determining that there are ‘special circumstances’. In so far as the Tribunal suggested this, we consider that it misstated the law. But it is clear from the earlier paragraphs of its judgment, in which it focused specifically on the concept of ‘special circumstances’, that it did not treat ‘serious unfairness’ as the sole criterion. It may therefore, as Mr Tonking argued, have required Skiwing to satisfy a stricter test than was actually necessary to support an award of costs. This would not be an error justifying our intervention on Stockland’s behalf.

25 Reliance on factual findings which had no evidentiary support. This line of argument by Ms Allars focused on the Tribunal’s apparent reliance, in its costs judgment, on findings in its substantive judgment (at [93 – 98]) that we have reproduced above (at [14]).

26 She emphasised that the finding in para [93] that Stockland had intended to sustain a high vacancy rate in the Arcade for a substantial period had been held by us in the appeal to have lacked any probative evidence, and therefore to have constituted an error of law. As Mr Tonking conceded, this was indeed our conclusion (Trust Company of Australia Ltd v Trust Company of Australia Ltd (Stockland Property Management Ltd) (RLD) [2005] NSWADTAP 9 at [235]).

27 Ms Allars also argued that we had treated as errors of law the Tribunal’s findings (at [95]) that Stockland’s relocation notices had ‘seriously disrupted Skiwing in the operation of its business’ and ‘diverted management effort from running the business’. This is not correct. Our conclusion, in our judgment at [232], was not that these consequences did not flow from Stockland’s conduct but that Skiwing could not claim damages for any such consequences.

28 In response to this line of argument, Mr Tonking submitted that Stockland could not establish valid grounds of appeal against a costs order merely by challenging findings of fact on which the order was based. If this were permitted, he said, there would be no end to litigation on factual matters.

29 In our judgment, however, Ms Allars’ submission goes further than this. The Tribunal’s finding that Stockland intended to sustain a high vacancy rate in the Arcade for a substantial period was held on appeal not merely to be incorrect on the evidence, but to lack any evidentiary basis and therefore to be vitiated by an error of law. This appealable error in the substantive judgment must, we think, be held to have generated an appealable error in the costs judgment.

30 Reliance on a legal ruling that we held to be incorrect. Ms Allars made a similar submission regarding a further ruling by the Tribunal, referred to in para [95] of its substantive judgment. This was that the relocation notices issued by Stockland ‘constituted a breach of the agreement under which [Skiwing] was applying for consent to develop the balcony proposal’. This ruling, she claimed, could no longer stand in the light of our conclusion, at para [139] of our judgment, that the Tribunal erred in law in holding that such an agreement came into existence. The same applied, she said, to the Tribunal’s statements, in its costs judgment at [16], that Stockland had ‘peremptorily terminated its agreement’ with Skiwing relating to the balcony proposal and that this was ‘a manifestly unreasonable breach of an agreement’.

31 We agree with this line of argument. The Tribunal’s conclusion that Stockland had committed a ‘manifestly unreasonable breach’ of an agreement relating to the proposed balcony was based on a ruling which we found on appeal to have been erroneous in law. This was the ruling that the prior dealings between the parties had given rise to a binding contract requiring Stockland to support the balcony proposal. Again, an appealable error in the substantive judgment must, we think, be held to have generated an appealable error in the costs judgment.

32 Reliance on behaviour by Stockland unconnected with the conduct of the litigation. In the course of the hearing of the present appeal, we referred counsel to the Appeal Panel’s decision in G & M Dawson Pty Ltd v Cripps & Ors (No 3) (RLD) [2005] NSWADTAP 24, which had been delivered only one day earlier, and to the Panel’s reluctance in that case (described at [9] above) to accept the proposition that ‘special circumstances’ may be constituted by behaviour of a party not connected with the conduct of the litigation.

33 Ms Allars submitted that the Panel’s observations in that case provided a further reason why the Tribunal, in making the costs order, should not have relied on the findings in its substantive judgment at [93 – 98] (see [14] above]), or on its ruling that Stockland had committed a ‘manifestly unreasonable breach’ of an agreement relating to the proposed balcony (see the costs judgment at [16]).

34 She referred also to the Tribunal’s ruling in Irresistible Frocks Salon Pty Ltd v Sparbac Pty Ltd and Roche Group Pty Ltd (No 2) [2004] NSWADT 162 at [13 – 14] that a finding of unconscionable conduct by a lessor within the meaning of s 62B of the RL Act did not of itself indicate that there were ‘special circumstances’. The reason advanced by the Tribunal was that if this were so, any party succeeding in an unconscionable conduct claim could argue that it had satisfied the requirements of s 88 of the ADT Act and was therefore entitled to costs. This would contradict the principle (see [7] above) that ‘special circumstances’ refer to circumstances that are ‘out of the ordinary’.

35 Mr Tonking submitted first that the Panel in Dawson v Cripps deliberately refrained from saying that the behaviour of a party unconnected with the conduct of the relevant litigation could not constitute ‘special circumstances’. He emphasised the need to maintain a flexible approach in interpreting this phrase. Secondly, he argued that in the costs judgment at [17], the Tribunal’s use of the phrase ‘beyond the usual or ordinary pursuit of a claim’ showed that it was in fact taking account only of behaviour by Stockland that was connected with the conduct of the litigation.

36 We can deal briefly with the second of these submissions. In our view, the context in which the Tribunal used this phrase indicates clearly that it was concerned with conduct by Stockland that preceded by a significant period any ‘pursuit’ of a ‘claim’ through the processes of litigation.

37 As to the first submission, we agree with Mr Tonking that the Panel in Dawson v Cripps did not firmly rule out the possibility that the behaviour of a party unconnected with the conduct of the litigation might constitute ‘special circumstances’. But in our view the factors relied on by the Tribunal in the present case demonstrate all too well the difficulties of allowing such behaviour to be taken into consideration.

38 To illustrate this point, the Tribunal described the behaviour of Stockland in relation to the balcony proposal as having been ‘manifestly unreasonable’. It relied on this assessment in determining that ‘special circumstances’ existed. Even if this behaviour did, as it believed, constitute the breach of a contract with Skiwing, its approach is highly problematic. It calls upon the Tribunal to determine, when making costs decisions under s 88, what level of ‘unreasonableness’ attending the breach of a contract will justify treating the breach as constituting, or contributing to, ‘special circumstances’. It seems to us that the highly subjective value judgments involved in this exercise are distinctly inappropriate for such determinations.

39 There may be cases in which the conduct of a party in, for example, infringing the terms of a contract, is so obviously outrageous and ‘unreasonable’ that its attempts to justify what it has done in defending proceedings brought on account of the breach are clearly unmeritorious. In such event, as was pointed out in Dawson v Cripps (see the judgment at [47]), ‘special circumstances’ may be held to have arisen because the party in question has sought to defend the proceedings brought against it by means of arguments that are untenable in fact and in law. The present case, however, is not in this category.

40 Our conclusion in relation to this ground of appeal is that the Tribunal erred in law through failing to take due account of the principle that, in making costs decisions under s 88 of the ADT Act it should, at the very least, be cautious about basing a decision, in whole or in part, on behaviour of a party unconnected with the conduct of the litigation. This principle, we should add, was well recognised in the case law before the recent decision in Dawson v Cripps.

41 Reliance on aspects of Stockland’s conduct with regard to settlement negotiations. The fifth and sixth errors of law alleged by Ms Allars arose, in her submission, from the Tribunal’s treatment of settlement negotiations in para [15] of its costs judgment. She contended that the Tribunal erred (a) in applying an incorrect test in assessing the significance of such negotiations in determining ‘special circumstances’ and (b) in failing to give it an opportunity to tender evidence that was relevant to the issue of costs.

42 Before discussing these alleged errors, it is useful to summarise the evidence regarding settlement negotiations that was available to us. This indicated that the following three offers of settlement, none of which was accepted, were made by letters between the parties or their solicitors:-

1. An offer on 31 October 2001 by Skiwing to surrender the remaining term of its lease if it was ‘substantially compensated’ by Stockland.

2. An offer on 3 December 2003 by Stockland to settle Skiwing’s claims by paying it $25,000 inclusive of costs and interest. The letter making the offer described it as ‘non-negotiable’ and said that if it was rejected Stockland would ‘vigorously defend’ the proceedings and would seek indemnity costs from Skiwing.

3. An offer on 10 February 2004 by Skiwing to accept $400,000 in satisfaction of its claims. In the letter making this offer, Skiwing stated that the offer of 3 December 2003 was ‘not acceptable’.

43 There was no evidence before the Tribunal regarding the second of these offers.

44 In relation to the first alleged error, Ms Allars maintained that the Tribunal ignored established principles, which are summarised above at [8], for determining when a party’s rejection of an offer of settlement constitutes ‘special circumstances’ under s 88. Instead, it relied on findings that (a) Skiwing remained willing throughout to try to negotiate a settlement; (b) Stockland chose not to negotiate; (c) it was ‘certain’ that any negotiated settlement, even if it involved ‘substantial payments’ by Stockland, ‘could well have even been less than the total legal costs’ and ‘if pursued early would also have been substantially less than the damages amount awarded’ (d) if the matter had settled, Stockland could have implemented its plans for the management of the Imperial Arcade ‘without trampling on a tenant’.

45 Ms Allars pointed out also that if the Tribunal had applied to Skiwing’s offers of 31 October 2001 and 10 February 2004 the first test required by the established principles governing this matter – namely, whether the offer was more favourable to the rejecting party than the order made in the proceedings – it would have held that this test was not satisfied in each case. This was because the former offer did not specify any amount of ‘substantial compensation’ and the latter offer called for payment of a distinctly larger sum ($400,000) than the amount that the Tribunal ultimately awarded to Skiwing ($322,628.00, subject to reduction in certain contingencies).

46 In response, Mr Tonking submitted that the Tribunal did not base its decision solely on Stockland’s rejection of Skiwing’s second offer, but on Stockland’s behaviour generally. He argued that a party’s conduct in relation to negotiations might constitute ‘special circumstances’ even though what we have described as the ‘established principles’ – involving the unreasonable rejection of an offer which proved more favourable to the offeree than the ultimate outcome – were not satisfied. In support of this proposition, he cited the Tribunal’s judgment in Barsoum v Glebe Administration Board (No 2) [2002] NSWADT 174 at [17] and [40].

47 We agree with this last submission by Mr Tonking, though we think that the passages that he cited from Barsoum provide only limited support for it. The categories of ‘special circumstances’ should not be regarded as having been rigidly defined by the cases that have so far been decided.

48 In our opinion, however, the Tribunal erred in applying principles which, as far as we can discern them, permitted speculation to an excessive degree as to what would have happened if Stockland had been more willing to seek a settlement than appeared to be the case. Even if it were true that Stockland was more to blame than Skiwing for the failure to achieve a settlement (this being a matter that we discuss further below), the fact remains that (a) the only specific settlement amount suggested by Skiwing was not in fact less – let alone ‘substantially less’ – than the amount of the Tribunal’s award and (b) one can only guess at whether further negotiations would have been successful at all, let alone at whether the agreed settlement figure would have been above or below this amount.

49 The element of speculation in the Tribunal’s findings is in fact revealed by some hesitation in its language in para [15]: it described itself as ‘certain’ of something that it then defined as no more than a possibility, viz, that a negotiated settlement ‘could well have even been less than the total legal costs’ in the matter.

50 The second error alleged in this context by Ms Allars was that the Tribunal failed to give to the parties an opportunity to file evidence relating specifically to costs, with the consequence that, as mentioned above, it was unaware of the offer of settlement made by Stockland on 3 December 2003. This induced it to reach the conclusion, in para [15] of its costs judgment, that Stockland ‘elected not to engage in any settlement negotiations’.

51 Mr Tonking’s argument here was that any such error did not materially impair the Tribunal’s conclusion as to the divergent attitudes displayed to settlement by the two parties. Stockland’s insistence, he said, that its offer was ‘non-negotiable’, coupled with its threats to defend the claims ‘vigorously’ and to seek indemnity costs, showed clearly that, unlike Skiwing, it was not serious interested in settlement.

52 We note that in its substantive judgment (Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia Ltd (No 3) [2004] NSWADT 94) at [175], the Tribunal gave leave for the parties to file submissions on costs. Its decision on costs was given on the basis of the written submissions only, without any hearing being conducted.

53 In our judgment, it cannot be said that Stockland was in any way precluded by this procedure from annexing to its submission on costs a copy of the letter containing the offer of 3 December 2003. We therefore do not uphold this specific ground of appeal put forward by Ms Allars. We note, however, that the Tribunal’s finding that Stockland ‘elected not to engage in any settlement negotiations’ is at variance with the facts as revealed to us. As we see it, Stockland was not clearly more to blame than Skiwing for the parties’ failure to achieve a settlement.

54 Our conclusions regarding the costs order. In our opinion, the Tribunal’s costs order, made under s 88 of the ADT Act, must be set aside on account of four errors of law that we have discerned in the reasons on which it is based.

55 These errors of law may be summarised as follows: (a) relying on a factual finding that we set aside, in our judgment in the substantive appeal, on the ground that it had no evidentiary basis (the finding being that Stockland intended to sustain a high vacancy rate in the Arcade for a substantial period of time); (b) relying on a legal ruling that we also set aside in that judgment (the ruling being that Stockland had breached an agreement with Skiwing relating to the proposed balcony); (c) failing to take due account of the principle that, in making costs decisions under s 88, the Tribunal should, at the very least, be cautious about basing a decision, in whole or in part, on behaviour of a party unconnected with the conduct of the litigation; and (d) applying principles which permitted speculation to an excessive degree as to what would have happened if one of the parties had been more willing to achieve a settlement than appeared to be the case.

56 We do not, however, make a final order that there should be no costs order at all relating to the proceedings at first instance. This is because those proceedings have not been finalised. As we have said, appeals by both parties have been lodged in the Court of Appeal and, as our orders in the substantive appeal required, there remains the prospect of further proceedings in the Tribunal by way of remitter.

The relevance, for present purposes, of our decision in the substantive appeal

57 We have reserved until now our consideration of a submission of some general significance made by Mr Tonking. He argued before us that, in determining Stockland’s appeal against the Tribunal’s costs judgment, we should take no account at all of the conclusions that we reached in the appeal against the substantive judgment. He formulated this argument as follows in his written submission:-

Put another way, on any appeal, the Appeal Panel is confined to a consideration of whether special circumstances existed at the time of the original costs decision. Those special circumstances do not cease to exist by reason of any subsequent events.

58 In Mr Tonking’s submission, this aspect of costs decisions under s 88 of the ADT Act differentiates them from decisions in costs regimes where ‘costs follow the event’. He was not able to cite any authority bearing upon the proposition that he advanced.

59 Ms Allars’ principal response to this argument was to emphasise that it was only in relation to two of Stockland’s grounds of appeal against the costs order – those relating to the Tribunal’s finding that Stockland intended to sustain a high vacancy rate in the Arcade for a substantial period of time and to its ruling that Stockland had breached an agreement with Skiwing relating to the proposed balcony – that our decision on the substantive appeal played a significant role, and that in each of these instances we held that there had been an error of law. It was not just that we differed from the factual findings of the Tribunal.

60 At first sight, the terms of s 113(1) and (2) of the ADT Act might seem to support Mr Tonking’s argument. These 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.

61 Since a decision on costs clearly falls within the definition in s 112, it could be argued that if such a decision is legally correct in the light of the rulings made in the substantive decision to which it relates, the fact that one or more of those rulings is overruled on appeal cannot provide grounds for appeal against the costs order under s 113(2)(a). This is because the costs order must still be regarded as free from error of law. The most that can be argued by way of challenge to it is that its factual substratum has been undermined. But it is clearly recognised in Tribunal decisions under s 113 that if no error of law is shown in an appeal, leave to extend the appeal to the merits should not be granted under s 113(2(b).

62 We do not need to determine this issue finally because, as Ms Allars argued, two of the four grounds on which the Tribunal’s costs order must be set aside involve errors of law in the interpretation of s 88. We would have discerned these errors and held the costs order to be unsustainable even if we had dismissed the substantive appeal.

63 Our opinion however is that Mr Tonking’s argument is not well founded. In circumstances where (i) on account of an error of law a substantive decision has been overturned in an appeal under s 113(2)(a) and (ii) a costs decision relating to the proceedings leading to the substantive decision at first instance is then challenged on appeal, it should be open to the Tribunal to determine whether any of the errors of law discerned in the former decision can be said to ‘infect’ the latter decision also. If they do, the appeal against the costs decision should be taken to be based, for the purposes of s 113(2)(a), on these same errors of law.

64 We may illustrate this approach by referring to the two issues in relation to which (i) we overturned a ruling by the Tribunal and (ii) we held its costs decision to be vulnerable to challenge. We held that the Tribunal erred in law both in finding, in the absence of an evidentiary basis, that Stockland intended to sustain a high vacancy rate in the Arcade for a substantial period of time and in ruling that Stockland had breached an agreement with Skiwing relating to the proposed balcony. In so far as Stockland’s appeal against the subsequent costs order has relied on these specific determinations, it must, we think, be regarded as an appeal on ‘a question of law’ within the meaning of s 113(2)(a).

65 In the outcome, this submission by Mr Tonking does not affect our decision that the Tribunal’s costs order must be set aside.

Stockland’s application for a costs order

66 Ms Allars argued that, in view of our decision in the substantive appeal, we should not stop at overturning the costs decision. We should go further, she asserted, and make a costs order against Skiwing. She indicated that, although the record is not entirely clear on this point, Stockland had applied for costs to the Tribunal at first instance.

67 In our judgment, this application for costs should not be upheld. Without pronouncing on its merits, we point out that, as we have already indicated, the claims between the parties have not been finalised in the Tribunal. Following disposition of the appeals lodged in the Court of Appeal, there remains the prospect of further proceedings in the Tribunal by way of remitter.