Smith trading as Flames Grill & Carvery v Trust Company of Australia Ltd [2008] NSWADT 10 (7 January 2008)

Last Updated: 12 February 2008

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL

CITATION:
Smith trading as Flames Grill & Carvery v Trust Company of Australia Ltd [2008] NSWADT 10


DIVISION:
RETAIL LEASES DIVISION

PARTIES:
APPLICANT/CROSS RESPONDENT
Jennifer Smith trading as Flames Grill & Carvery

RESPONDENT/CROSS APPLICANT
Trust Company of Australia Ltd



FILE NUMBERS:
075061, 075046

HEARING DATES:
24/09/2007, 25/09/2007

SUBMISSIONS CLOSED:
25 September 2007



DATE OF DECISION:
7 January 2008

BEFORE:
Chesterman M - ADCJ (Deputy President)Griffiths G - Non Judicial Member Harrison B - Non Judicial Member





LEGISLATION CITED:
Administrative Decisions Tribunal Act 1997
Legal Profession Act 2004
Retail Leases Act 1994

CASES CITED:
Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45
Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557
Boreland v Docker (No 2) [2007] NSWCA 275
Carbure Pty Ltd v Brile Pty Ltd (No 2) [2002] VSC 313
Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31
Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81
Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182
Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164
Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444
Maher v Network Finance Ltd (1986) 4 NSWLR 694
Rail Corporation NSW v Leduva Pty Ltd [2005] NSWSC 138
Rose Holdings Pty Ltd v Chusap [2002] NSWADT 153 Solomon v Singh (No 2) [2005] NSWADT 295
Solomon v Singh (No 3) [2006] NSWADT 120
Sotiropoulos v Mattana Coiffure Pty Ltd (No 2) (RLD) [2004] NSWADTAP 43

TEXTS CITED:


APPLICATION:
Claim for declaration of rights, obligations and liabilities under a lease
Claim for payment of money
Damages
Claim for relief against forfeiture
Unconscionability
Costs

MATTER FOR DECISION:
Principal matter


REPRESENTATION:
In person
J Rattanatray, barrister


ORDERS:
1. Without prejudice to any further order or orders that may be made by the Tribunal following procedures outlined in paragraphs [115] to [117] of these reasons, the Applicant/Cross Respondent is to pay the sum of $31,367.81 to the Respondent/Cross Applicant
2. The Tribunal gives directions as set out in paragraphs [115] to [117] of these reasons.


Reasons for Decision:

REASONS FOR DECISION

Introduction

1 In these proceedings, the principal issue in dispute was whether the Respondent/Cross Applicant, a lessor by assignment to which arrears of rent were owed, was guilty of unconscionable conduct in terminating the lease and taking possession of the premises without having given a sufficient opportunity to the Applicant/Cross Respondent, one of the two assignees of the lease, to enter into negotiations with it regarding payment of the arrears.

2 A further issue arising was whether the landlord should have continued to treat the other assignee as a lessee despite being notified that the business partnership between the two assignees had come to an end.

3 Because the claims made in this case include an allegation of unconscionable conduct, the Tribunal is constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997 (‘the ADT Act’). It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified members acting in an advisory capacity only.

Relevant facts

4 The lessor-lessee relationship between Trust Co, Ms Smith and Mr Jovanov. The lease, as originally granted, was between parties who are not involved in these proceedings. It was governed by the Retail Leases Act 1994 (‘the RL Act’).

5 By registered lease dated 10 December 2002 (‘the Lease’), AMP Henderson Global Investors Ltd (‘AMP Henderson’) leased to Nick Kalambokas and Anna Kalambokas premises known as Shop 220, Shellharbour Square Shopping Centre, Blackbutt (‘the Premises’) for a period of five years commencing on 1 December 2002. The initial base rent was $73,000 per annum, payable by monthly instalments in advance. The Lease provided for annual increases in the base rent and for turnover rent calculated on a percentage of 8 percent. The permitted use under the Lease was the preparation and retail sale of food items within a number of categories listed in an annexure to the Lease.

6 By a written agreement dated 20 December 2002, Mr and Ms Kalambokas sold their business at the Premises (described as ‘hot foods and crepes take-away’) to Ms Jennifer Smith, who is the Applicant/Cross Respondent, and Mr Stefan Jovanov. The purchase price was shown in the agreement to be $285,000, but Ms Smith testified that a further $15,000 was paid over a period following completion of the purchase.

7 During January 2003, Mr Jovanov and Ms Smith took possession of the Premises and commencing trading as Flames Grill & Carvery (hereafter ‘Flames’).

8 On 21 October 2003, Trust Company of Australia Ltd (‘Trust Co’), which is the Respondent/Cross Applicant in these proceedings, purchased the property in which the Premises are situated from AMP Henderson. The shopping centre appears to have been renamed Stockland Shellharbour.

9 The documents received by Trust Co from AMP Henderson in the course of this transaction apparently did not include a bank guarantee in AMP Henderson’s favour covering the lessees’ obligations under the Lease.

10 During January 2004, an undated Deed of Consent to Assignment of Lease was executed by Trust Co, as ‘the Lessor’, Ms and Ms Kalambokas, as ‘the Lessee’, and Mr Jovanov and Ms Smith, as ‘the Assignee’.

11 The split between Ms Smith and Mr Jovanov. Disputes that had arisen between Mr Jovanov and Ms Smith were the subject of a mediation session at the Community Justice Centre, Wollongong, on 2 February 2004. On that day, they signed an agreement providing amongst other things that their ‘business relationship’ was ‘at an end’, that Mr Jovanov would be a ‘silent partner’ in Flames until 30 June 2004, that on that date Ms Smith would purchase his share in this business for $150,000 and that when this payment had been made Mr Jovanov would permit Ms Smith to remove his name from the entry registering their business name at the Department of Fair Trading.

12 At some time during 2004 and the first half of 2005, Ms Smith fulfilled her promise under this agreement to pay $150,000 to Mr Jovanov.

13 Neither Ms Smith nor Ms Jovanov appear to have notified Trust Co of these developments until August 2005. On 9 August, Ms Smith sent to Trust Co a copy of a letter, headed ‘To Whom It May Concern’, alleging that Mr Jovanov, whom she described has her ‘ex-business partner’, had misused his authority as a ‘closed partner’ of the business to stop all cheques drawn on its bank account since 20 July 2005. The letter concluded as follows:

Please bear with me in this unusual act towards my Business. I will endeavour to pay all accounts at my earliest arrangement (sic). Thank you for your kind consideration.

14 There was further correspondence between representatives of Trust Co, Ms Smith and Mr Jovanov regarding this termination of the partnership between Ms Smith and Mr Jovanov. The relevant features of this correspondence are as follows.

15 On 4 October 2005, Verekers Lawyers (‘Verekers’), acting for Mr Jovanov, wrote to Raj Lawyers, who since some unspecified date have acted for Trust Co. The letter stated that Mr Jovanov, who had ‘by agreement’ been ‘out of’ Flames for many months, was prepared, if the Premises became vacant, to take over this business, pay the arrears of rent and expenses that he understood to be owing and enter into a new lease.

16 In a reply dated 7 October 2005, Raj Lawyers confirmed that Mr Jovanov was an assignee of the Lease, pointed out that he was liable for any outstanding arrears arising during its term until he sought approval to be removed as an assignee and advised that currently the ‘tenancy’ was ‘up to date with its charges’.

17 According to the file maintained by Verekers, on 22 December 2005 they wrote to Dibbs Barker Gosling, who were formerly the solicitors for Trust Co. The letter, which was not signed, advised that Mr Jovanov was no longer a proprietor of Flames and that he accordingly sought either a release from the Lease or an assignment of his interest under the Lease to Ms Smith.

18 Mr Glenn Atkins, the Centre Manager for Stockland Shellharbour, denied ever being notified of such a request. Annexed to his second affidavit was a copy of a letter dated 23 March 2006 from Dibbs Abbott Stillman (formerly known as Dibbs Barker Gosling) to Ms Kathryn Sultana, who was the Administration Manager of Stockland Shellharbour. In this letter, Dibbs Abbott Stillman stated that they had no record of receiving a letter such as had appeared on Verekers’ file and that their own file on this matter was closed around July 2005.

19 In a letter dated 3 February 2006 to Raj Lawyers, Verekers stated that Mr Jovanov had been requesting an assignment of the Lease ‘for some time now’ and that for some time he had not traded at Flames, which was being operated by ‘his former business partner’. Verekers claimed that he was therefore not liable for any arrears, referring to the provision of the RL Act (s. 41) under which a lessor’s consent to an assignment is deemed to have been granted if a response to such a request is not received within 42 days. They concluded by saying that Mr Jovanov was ‘prepared on a "Without Prejudice" basis to assist in relation to this matter provided he was given an opportunity to take possession of the Premises and resume trading’.

20 In a letter dated 14 February 2006, Hennikers Solicitors advised Centre Management, Stockland Shellharbour that they acted for Ms Smith, that Mr Jovanov ‘now’ required his name to be removed from the Lease and that Ms Smith would be ‘joined by two further partners’, namely her sister Ms Elizabeth Blanch and her brother-in-law Mr Malcolm Blanch. The letter stated that the Lease ‘needs to be changed’ to reflect these changes and asked for a photocopy of it to be provided in order that the necessary documents could be prepared.

21 Events leading to the termination of the Lease. On both 16 August and 26 August 2005, Mr Atkins sent on behalf of Trust Co a letter to Ms Smith requiring payment of $15,885.96, representing the instalments of rent due for July and August. A cheque for half this sum, delivered on 26 August, was dishonoured. Mr Atkins sent a further letter of demand for $15,885.96 on 30 August, followed by a notice of re-entry dated 5 September. He sent yet another letter of demand on 6 September, incorporating the rent due for the month of September and requiring payment of $23,838.94.

22 On 5 or 6 September, however, Ms Smith paid $15,865.96 towards the arrears of rent by two bank cheques. Trust Co consequently withdrew its notice of re-entry.

23 There followed four further letters of demand, dated 26 September, 7 October, 12 October and 9 November 2005 respectively. Each of them specified the current month’s instalment of $7,942.98 as due and owing. These arrears were fully paid up by various bank cheques, the last of which was dated 25 November 2005.

24 On 30 December 2005, Ms Smith paid $3,330.80 towards the rent for December by a bank cheque. An ordinary cheque for $5,000 dated the same day was dishonoured. She has made no further payments of rent.

25 In consequence, Raj Lawyers sent letters of demand on 25 January 2006 to her and to Mr Jovanov, requiring payment of arrears totalling $13,330.28. On 6 February 2006, Mr Atkins sent to her and Mr Jovanov a Notice to Remedy Breach under s. 129 of the Conveyancing Act 1919, dated 3 February 2006. This Notice specified as the relevant breach of covenant their failure to pay rent and other charges for the period ending 28 February 2006, in the sum of $21,660.56. It required that this breach be remedied on or before 17 February 2006, stating that if this did not occur Trust Co would be ‘entitled to re-enter or forfeit the Lease documents’.

26 In his affidavit, Mr Jovanov said that he received this Notice.

27 During November 2005, Ms Smith was ill and had to take a week off from work. Between mid-January and 23 February 2006 she was also away from the Premises. She was in a state of considerable distress for personal reasons and for much of this time she could not be contacted. Her brother, Mr Michael Wivell, maintained the business at Flames in her absence. It was not until Mr Wivell spoke to her by telephone on 17 February that she discovered that Trust Co was threatening to repossess the Premises.

28 Mr Wivell and Ms Smith made a number of attempts during February 2006 to persuade Trust Co not to terminate the Lease. In outline, they were as follows.

29 On or about 6 February, Mr Wivell rang Mr Duncan Myers, a paralegal in the office of Raj Lawyers. He advised Mr Myers of Ms Smith’s illness and absence from Flames and made an offer to pay the arrears of rent by weekly instalments of $4,000.

30 According to Mr Wivell, Mr Myers never provided him with a response to this offer. Mr Myers said however in cross-examination (a) that Mr Wivell had described himself as the ‘store manager’, (b) that when he (Mr Myers) outlined this offer to Mr Atkins, he was instructed that Trust Co would only deal with Ms Smith and (c) that he had rung Mr Wivell to pass this information on to him.

31 On or about 15 February, Mr Wivell asked Ms Sultana whether Trust Co would accept weekly instalments of rent. She replied that it would only do this if the arrears were paid by bank cheque. Mr Wivell said that he had no access to the bank accounts of Flames but that his offer to make a cash payment was rejected by Ms Sultana. Her evidence in cross-examination was however that Mr Wivell did not try to make any immediate payment in reduction of the arrears. She added that if he had done so she would have accepted it.

32 As already mentioned (see [20] above), a letter dated 14 February from Hennikers to Stockland Shellharbour included advice that in place of Mr Jovanov, Ms Smith was to be ‘joined’ by Ms and Mr Blanch as partners in Flames.

33 Ms Sultana testified that on or about 23 February, Ms Blanch approached her, saying that she had a cheque to cover the arrears due on the Lease but would not hand it over until arrangements for this change of ownership of Flames had been finalised. On 24 February, however, Ms Blanch left a message on Ms Sultana’s mobile phone to the effect that since Ms Smith would not accept the proposed business arrangement the cheque for the arrears would not be delivered. Neither Ms nor Mr Blanch was called as a witness.

34 On or about 23 February, Ms Rosa Stojcevska, a cleaner working at Stocklands Shellharbour, discussed with Ms Smith the possibility of her and her husband becoming involved in Flames. They told Ms Sultana that negotiations were proceeding. According to Ms Sultana, they did not offer any payment in reduction of the arrears. According to Ms Smith, Ms Sultana said that any decision by Trust Co relating to the participation of Ms Stojcevska and her husband in the business would have to be made by Mr Atkins.

35 Ms Stojcevska, who gave evidence, said that she and her husband did not proceed with this proposal when they realised that Ms Smith was offering to sell only a half-share in Flames, not the business as a whole, for a proposed price of $150,000. Furthermore, Ms Smith told them shortly afterwards that the Lease had been terminated.

36 On 23 or 24 February 2006, at the instigation of Mr Atkins, a Notice of Re-entry dated 23 February was sent to Ms Smith and Mr Jovanov indicating that the Lease had been terminated and the Premises had been repossessed. In a letter accompanying the Notice, it was stated that all items remaining in the Premises would be viewed as abandoned if arrangements for their collection had not been made by 5 p.m. on 2 March 2006.

37 In his affidavit, Mr Jovanov said that he received this Notice and accompanying letter.

38 Relevant events following the termination of the Lease. Within the month following the termination of the Lease, Ms Smith and Mr Wivell tried to persuade Trust Co to reverse its decision on this matter. Also, steps were taken by both Ms Smith and Mr Jovanov to remove goods owned by Flames from the Premises. For present purposes, it is sufficient to mention only the following aspects of these matters.

39 On 25 February 2006, Ms Smith was granted one hour’s access to the Premises in order to make arrangements for removal.

40 Ms Smith and Mr Wivell made a request for reversal of Trust Co’s decision to Mr Atkins and Ms Sultana at a meeting with them on 1 March. Ms Smith also referred to this request, and to a telephone conversation with Mr Myers, in an email that she sent to the two of them on 1 March. This request was not granted, but at the meeting Mr Atkins extended the time for removal of Ms Smith’s goods until 5 March.

41 In a letter to Raj Lawyers dated 2 March, Hennikers acknowledged on Ms Smith’s behalf that she had ‘been behind in her rent in the sum of approximately $21,660.56’, but claimed that when she attempted to pay this sum Trust Co had ‘refused to accept payment’. Hennikers also stated that Ms Smith was keen to resume possession and ‘see out the remainder of her lease’ and asked that since negotiations were continuing the items remaining in the shop should not be removed and should not be regarded as abandoned after 2 March.

42 On 2, 3 and 4 March, Mr Jovanov sought and was given access to the Premises. He removed some goods on 3 March. He claimed that these were items of little value, such as trays, utensils, a coffee machine and perishable foods. He said that he took these steps because he knew that Trust Co (a) still treated him as a lessee and (b) were authorised under the Lease to remove and dispose of any goods that were left in the Premises and hold liable for the cost of these operations.

43 Early in March, a friend of Ms Smith, Mr Chris Kistevski, made a proposal to her to purchase what she said was to be a half-share in Flames for $150,000. Mr Kistevski’s statement to this effect was admitted into evidence. He was not required for cross-examination.

44 There was a further meeting between Ms Smith, Mr Wivell, Mr Atkins and Ms Sultana on 9 March. Again, Ms Smith asked unsuccessfully to be allowed to return to the Premises and resume trading.

45 In a letter dated 16 March to Hennikers, Raj Lawyers confirmed that Trust Co would not reverse its decision to terminate the Lease and that Hennikers’ letter of 2 March contained an acknowledgment on Ms Smith’s behalf that she was liable for the amount claimed as arrears of rent. The letter also advised that the time for her to collect her goods ‘and otherwise make good’ the Premises had been extended to 20 March.

46 In a letter dated 16 March to Verekers, Raj Lawyers denied that Trust Co had ever received a request for an assignment of the Lease for or on behalf of Mr Jovanov and stated that Trust Co continued to hold him liable for his obligations under the Lease. The letter also advised that the time for him to collect his goods ‘and otherwise make good’ the Premises had been extended to 20 March.

47 Between 18 and 20 March, Ms Smith was given access to the Premises.

48 In a letter dated 23 March to Raj Lawyers, Hennikers stated that on attending the Premises on 20 March, Ms Smith found that her stock, business documents and business equipment, valued at about $25,000, had been removed and that the Premises were ‘completely empty’. Hennikers also claimed that Verekers had advised them of a visit to the Premises by Mr Jovanov on the weekend of 11-12 March, during which he had removed items valued at about $5,000. They added that they were currently negotiating with Verekers for the return of these items.

The Tribunal proceedings

49 On 31 March 2006, Ms Smith instituted proceedings in the Tribunal. Her attempts to obtain an interim order restoring possession of the Premises to her were unsuccessful. She initially sought relief against forfeiture, reinstatement of the Lease, return of the goods that Mr Jovanov had removed from the Premises on or before 18 March 2006 and damages for unconscionable conduct.

50 When the case ultimately came on for hearing on 24 and 25 September 2007, Ms Smith, who represented herself, indicated that she now only pressed her claim for damages. She maintained that these should be assessed at $400,000, representing (a) the value of lost goods and (b) the amount of the profits that Flames would have earned but for the termination of the Lease.

51 Ms Smith contended that two aspects of Trust Co’s behaviour amounted to unconscionable conduct. First, they had evicted her from the Premises and refused to permit her to return to them even though she had made a number of genuine offers to repay the arrears and resume trading. Secondly, they had permitted Mr Jovanov to enter the Premises during March 2006 and remove goods belonging to her, despite having been notified some months earlier that he was no longer her business partner and that his interest in the Lease had been transferred to her.

52 On 7 May 2007, Trust Co lodged a cross claim against Ms Smith and a claim against Mr Jovanov. It alleged joint and several liability on their part for unpaid rent, ‘make good and other necessary expenses’ and costs, pursuant to the Lease.

53 On the first day of the hearing, the Tribunal received advice from Mr Rattanatray, who appeared for Trust Co, and from Mr Jovanov that Trust Co’s claim against Mr Jovanov had been settled. Confidential terms of settlement were handed up. The only feature of these terms to be disclosed in open court was that Mr Jovanov had agreed to pay $35,000 to Trust Co. Mr Rattanatray indicated that Trust Co had appropriated this payment in partial discharge of Mr Jovanov’s liability for costs under the Lease.

54 In consequence of this advice, the Tribunal ordered that Trust Co’s claim against Mr Jovanov should be dismissed by consent, with no order as to costs.

55 Mr Rattantray put forward the following figures for the various components of Trsut Co’s claim against Ms Smith:-

(a) Rent up to 28 February 2006 $21,660.58

(b) Damages for lost rent, 28 February to 4 July 2006 $29,582.23

(c) ‘Make good’ costs $15,125.00

(d) Legal costs (up to the commencement of the hearing) $123,217.68

56 He indicated that Trust Co’s claim for costs extended to the costs of the hearing and that Trust Co also claimed interest under the Lease or the RL Act.

Discussion and conclusions

57 Ms Smith’s unconscionable conduct claim. In support of this claim, Ms Smith put forward two lines of argument.

58 First, she argued that Trust Co had acted without conscience, morality or sympathy in refusing to discuss her proposals for bringing other interested parties into the business carried out at Flames, or indeed to accept any payments offered in partial discharge of the arrears of rent. She asserted that neither Mr Atkins nor Ms Sultana had made any attempt to contact her about her financial problems or to assist her in overcoming them.

59 Secondly, Ms Smith argued that Trust Co, having been informed of the dissolution of her partnership with Mr Jovanov and of her acrimonious disputes with him, should have ceased to treat him as a lessee and therefore should have denied him access to the Premises in the period after the termination of the Lease. Because they chose instead to let him into the Premises, they put him in a position where he could and did remove goods that belonged to her.

60 In submitting that this behaviour by Trust Co amounted to unconscionable conduct as defined in the RL Act, Ms Smith relied on the reference to ‘unfair tactics’ in s. 62(B)(3)(d). This provision states that in determining whether a lessor has engaged in unconscionable conduct, the Tribunal may have regard, amongst other things, to whether ‘any unfair tactics were used against the lessee... by the lessor or a person acting on behalf of the lessor in relation to the lease’.

61 Ms Smith also cited Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182 as an example of a Tribunal decision in which a lessee had been restored to possession of the leased premises following eviction for rent default.

62 In relation to one factual question mentioned in these submissions, the evidence is not wholly clear. This is whether after serving the Notice to Remedy Breach on 3 February 2006, Trust Co refused to accept any part payment of the arrears of rent tendered on behalf of Ms Smith. The testimonies of Mr Wivell and Ms Sultana were in conflict on this question (see [31] above).

63 It appears to the Tribunal that Ms Sultana’s response to Mr Wivell’s proposal to pay weekly instalments may well have conveyed the impression, expressly or by implication, that Trust Co was not at this stage interested in receiving even a cash payment in reduction of the arrears. But this was in a context where Ms Smith was not in Shellharbour and Mr Wivell had given Ms Sultana to understand that since his role was akin to that of a shop manager he had no access to the bank accounts of Flames. The Tribunal finds that there was no absolute refusal by Trust Co to accept part payments in any circumstances.

64 Taking this finding into account, the Tribunal concludes that Trust Co’s disinclination during February 2006 to allow Ms Smith to try to rescue the situation by bringing new partners into the business and its firm insistence on payment of the arrears then owing fell well short of attracting the labels ‘unfair tactics’ or ‘highly unethical’ conduct of the kind that can be characterised as ‘unconscionable’ under s. 62B of the RL Act. The term ‘highly unethical’ was employed by Spigelman CJ in the only Court of Appeal case (Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557: see at p 583) to have discussed this statutory concept of unconscionable conduct. The Chief Justice also said that conduct is not unconscionable within the meaning of the RL Act unless it involves ‘a high degree of moral obloquy’.

65 The Tribunal would add only that, even allowing for the fact (on which Mr Rattantray placed significant emphasis) that during 2005 the record of Flames in making timely rent payments was distinctly unsatisfactory, Trust Co could well have done more to assist Ms Smith to overcome her financial problems. Although Mr Atkins referred in his evidence to a policy within Trust Co of ‘sitting down with’ tenants who had difficulty in making their rent payments in order to devise some solutions, this policy does not seem to have been followed in the present case. Ms Smith put obstacles in the way of this approach by being absent at a highly crucial period. But she did not render it impossible.

66 This observation does not detract from the Tribunal’s conclusion that Trust Co’s conduct fell well short of being unconscionable within the meaning of the RL Act.

67 So far as Ms Smith’s second line of argument is concerned, the Tribunal agrees with two propositions advanced in response to it by Mr Rattantray.

68 The first of these was that the steps taken by or on behalf of Ms Smith and Mr Jovanov to effect an assignment of his interest under the Lease to her were clearly insufficient in this regard, even if it is assumed in their favour that the letter dated 22 December 2005 from Verekers to Dibbs Barker Gosling was actually sent. There was no compliance on their part with the requirement in s. 41(a) of the RL Act that information regarding Ms Smith’s financial standing and business experience be provided to Trust Co. Such information was potentially valuable to Trust Co since it had not been the party that initially granted the Lease to Ms Smith and Mr Jovanov. It follows that the provision for ‘deemed consent’ by Trust Co in s. 41(d) was not applicable.

69 Mr Rattanatray’s second proposition was that since Mr Jovanov did not comply with the requirement in s. 41A of the RL Act to give an assignor’s disclosure statement to Trust Co and to Ms Smith, he remained liable under that section to pay to Trust Co any amounts that would be payable to it by Ms Smith in her capacity as proposed assignee.

70 It follows from this reasoning that at the time of termination of the Lease Trust Co had good grounds for continuing to treat Mr Jovanov as a lessee, or at least as a person against the lessee’s obligations could be enforced. They were accordingly justified in granting him access to the Premises when he, taking a similar view of his situation vis-à-vis Trust Co, asked to be admitted to them. If, as Ms Smith alleged, he removed from them goods which belonged to her, she might well be entitled to claim remedies, such as conversion or trespass to goods, against him. But there is no basis on which she could assert liability against Trust Co, let alone that it could be found on this score to have engaged in unconscionable conduct.

71 For these reasons, Ms Smith’s unconscionable conduct claim must be dismissed.

72 Trust Co’s claims for rent, damages for lost rent and make good costs. In an affidavit sworn on 24 September 2007 (the first day of the hearing), Mr Atkins deposed that the amounts set out below in relation to the various heads of Trust Co’s claim were due and owing.

73 As Mr Rattanatray pointed out, Hennikers, in their letter dated 2 March 2006 to Raj Lawyers, acknowledged on Ms Smith’s behalf that she owed the amount then claimed ($21,660.58) for arrears of rent.

74 There was no opposition on Ms Smith’s part to Mr Atkins’ evidence that the Premises had been relet as from 4 July 2006 and that the damages for lost rent between 24 February 2006 (the date of termination of the Lease) and 3 July 2006 should be assessed at $29,582.23.

75 There was also no opposition to Mr Atkins’ assertion that the costs and other necessary expenses incurred by Trust Co in making good the Premises amounted to $15,125.00.

76 Trust Co’s claim for legal costs. This claim cannot be disposed of so easily. It extended to the costs of the Tribunal proceedings as well as to legal costs incurred by Trust Co before the proceedings began. It was based on clauses 3.7 and 10.3 of the Lease, and on s. 88(1) of the ADT Act.

77 Clause 3.7 of the Lease, which was headed ‘Stamp duties and costs’, commenced: ‘The Lessee must pay stamp duties and legal costs.’ Clause 3.7a contained a definition of stamp duties. Clause 3.7b provided:

Costs include the Lessor’s reasonable legal and other costs, charges and expenses incidental to –

- the lease

- an application for consent, even if consent is not given

- an assignment, subletting or dealing with the lease, even if the dealing does not proceed

- a surrender or termination of the lease other than at the expiry date.

78 Clause 10.3 was headed ‘Damages’. It stated:

If the lease is terminated by the Lessor, the Lessee indemnifies the Lessor against any liability or loss arising and any cost incurred (whether before or after termination), in connection with:

- the Lessee’s breach of the lease, or

- the termination of the lease,

including the Lessor’s loss of the benefit of the Lessee performing its obligations under the lease from the date of termination until the expiry date.

The Lessor must take reasonable steps to mitigate its loss if the lease is terminated.

79 Section 88(1) of the ADT Act applies to Tribunal proceedings instituted under the RL Act by virtue of s. 77A of the latter Act. Section 77A states: ‘The Tribunal may award costs under section 88 of the Administrative Decisions Tribunal Act 1997 in respect of proceedings commenced by an application made under this Part.’ So far as presently relevant, s. 88 states:

(1) 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 there are special circumstances warranting an award of costs....

(3) However, the Tribunal may not award costs in relation to proceedings for an original decision unless the enactment under which the Tribunal has jurisdiction to make the decision provides for the awarding of costs.

80 An important feature of s. 88(1) is that it displaces the rule, familiar in litigation in this country, that prima facie the successful party in proceedings is entitled to recover its costs of and incidental to the proceedings from the unsuccessful party (i.e., the rule that ‘costs follow the event’). The subsection requires instead that a party seeking a costs order should show that there are ‘special circumstances warranting an award of costs’. If this is not done, no costs order will be made.

81 Mr Rattanatray submitted that clause 10.3 of the Lease, being the provision on which Trust Co chiefly relied, created a broad and clearly expressed contractual right of indemnity, entitling Trust Co to recover its costs incurred in these proceedings assessed on an indemnity basis. It operated when, as was the case here, the Lease had been terminated. By contrast, he said, clause 3.7 could not be interpreted as an indemnity clause, so any litigation costs awarded pursuant to its provisions would be party-party costs only.

82 Mr Rattanatray contended that, despite the enactment of s. 77A of the RL Act and s. 88(1) of the ADT Act, these two clauses should be interpreted and applied according to their terms. He maintained that this was the correct approach to adopt even though Trust Co might in consequence receive damages covering its costs in these proceedings in circumstances where a lesser amount, or possibly no amount at all, would be awarded under s. 88(1).

83 The Tribunal suggested to Mr Rattanatray that this submission might not take sufficient account of s. 7 of the RL Act. This section provides as follows:-

7 This Act overrides leases

This Act operates despite the provisions of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision would be void if it were in the lease.

84 Mr Rattanatray’s response was to draw the Tribunal’s attention to the fact that according to the express terms of s. 88(1) its power to award costs was ‘subject to... any other law’. In response to a further question, he advised that he was not aware of any authority on the general issue of whether a contractual entitlement to costs in a lease governed by the RL Act could, in effect, override the limitations on costs orders imposed by s. 88(1).

85 In her submissions, Ms Smith did not deal specifically with Trust Co’s claim to recover its costs.

86 In the Tribunal’s opinion, it is clear law that a contractual provision which, on its proper interpretation, obliges one party to pay to another party the costs incurred by that other party in legal proceedings operates independently of any award of costs that a court or tribunal has made or might make with respect to those proceedings. Such a provision may entitle the party claiming under it to recover a larger sum than he or she has obtained, or would obtain, under an order of the court or tribunal. It may, for instance, entitle this party to recover indemnity costs even though the court or tribunal has ordered, or might in the future order, that only party-party costs are to be paid, or indeed that the parties should pay their own costs. Even if the clause is an indemnity clause, however, the costs recovered under it are limited to costs ‘properly incurred’ in the proceedings.

87 These principles were stated and applied by the Court of Appeal in Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45. The Court upheld a decision of the District Court to the effect that a lessor under a commercial lease (not, it should be noted, a retail lease governed by the RL Act) could rely on an indemnity clause in the lease to recover from the lessee the costs, assessed on a solicitor-client basis, that it had incurred in protracted proceedings in the Supreme Court, subject to the deduction of costs already paid by the lessee pursuant to orders made by that Court.

88 In his judgment, Stein JA stated, at [8], that neither the existence of a power in the court to order costs nor the making of an order for costs extinguished or overrode a contractual right to costs. At [12], he said:-

The authorities discussed earlier make it clear that [the lessor’s] contractual right of indemnity for all costs remains independently of the court’s orders. By seeking costs in the Supreme Court, the [lessor] did not lose or surrender its contractual rights.

89 This principle that contractual rights to costs of litigation operate independently of the rights of litigants to invoke the powers of the relevant court or tribunal to make a costs order has been applied in a number of other cases decided in the Court of Appeal or the Supreme Court: see for example, Maher v Network Finance Ltd (1986) 4 NSWLR 694; Rail Corporation NSW v Leduva Pty Ltd [2005] NSWSC 138; Boreland v Docker (No 2) [2007] NSWCA 275. In the last of these cases, as in Abigroup v Sandtara, it was a lessor of commercial premises who sought to recover costs under a clause in the lease.

90 The Tribunal is inclined to the view that clause 3.7b of the Lease does not extend to costs of litigation, even though it is expressed to include legal costs that are ‘incidental to...a termination of the lease other than at the expiry date’. The context in which the clause appears, coupled with its references to other situations such as the granting or assignment of the lease, suggests that its scope is confined to situations where any legal costs incurred are referable to the preparation of formal documents and to the accompanying negotiations and correspondence.

91 On the other hand, the Tribunal considers that the terms of clause 10.3 are apt to cover the legal costs incurred by Trust Co, the lessor under the Lease, in the present proceedings. The condition set out in the opening words – that the lessor should have terminated the lease – has been satisfied. The costs incurred by Trust Co in suing to recover rent, damages for lost rent and make good costs due to it from Ms Smith are all costs ‘incurred... in connection with... the Lessee’s breach of the lease’. Trust Co’s costs incurred in defending the proceedings instituted by her are costs ‘incurred... in connection with... the termination of the lease’. It will be recalled (see [49 – 50] above]) that in her application, Ms Smith initially sought relief against forfeiture, reinstatement of the Lease and return of the goods that Mr Jovanov had removed from the Premises, in addition to damages for unconscionable conduct. The link between each of these forms of claimed redress and the termination of the lease is manifest.

92 In the Tribunal’s opinion, moreover, clause 10.3 is drafted so as to entitle Trust Co to claim indemnity costs, not merely party-party costs. This follows from the phrase ‘the Lessee indemnifies the Lessor against...’. In two cases relating to clauses in leases entitling the lessor to recover litigation costs from the lessee – namely, Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444 at [19] and Carbure Pty Ltd v Brile Pty Ltd (No 2) [2002] VSC 313 at [14] – it was held that such clauses could not provide a basis for recovering indemnity costs unless this was ‘plainly and unambiguously’ provided. In the Tribunal’s opinion, that is the case with clause 10.3.

93 None of the cases mentioned so far, however, involved provisions akin to ss. 7 and 77A of the RL Act and s. 88(1) of the RL Act. In the present proceedings, the existence of s. 7 requires the Tribunal to determine whether clauses 7.3b (if it is indeed applicable to the costs of these proceedings) and 10.3 of the Lease are ‘inconsistent with’ the provision in s. 77A that the Tribunal may award costs in proceedings under the Act so long as the requirement of ‘special circumstances’ in s. 88(1) of the ADT Act is satisfied. If this is the case, the principle (stated in the heading to s. 7) that ‘this Act overrides leases’ is brought into play and the two clauses are void to the extent of the inconsistency.

94 So far as the Tribunal as presently constituted is aware, three Tribunal decisions, each relating to a lease governed by the RL Act, have addressed this issue.

95 In Rose Holdings Pty Ltd v Chusap [2002] NSWADT 153, the lessor sought costs under a clause in the lease while conceding that there existed no ‘special circumstances’ that would warrant an order under s. 88(1). The Tribunal, while indicating that a ‘contract liability’ claim might well have been arguable, determined in the exercise of its discretion under s. 88(1) that no costs should be awarded. The discussion (at [41 – 44]) was relatively brief.

96 In Solomon v Singh (No 2) [2005] NSWADT 295 (‘Solomon 2’), clause 27.2 of the lease, which was being enforced against a guarantor of the lessee’s obligations, stated:-

The Guarantor is liable for and indemnifies the Landlord against all liability or loss arising from and cost incurred in connection with a breach or non-compliance by the Tenant of any of the Tenant’s obligations in this or in any extension or renewal of this lease.

97 At [75], the Tribunal, constituted by Judicial Member Molloy, held that this clause was sufficiently clear in its terms to establish contractual liability against the guarantor for costs incurred in the proceedings, together with other costs arising from the lessee’s default. But at [78], it expressed the opinion, having referred to s. 77A of the RL Act and s. 88 of the ADT Act, that ‘the law does not permit this Tribunal to make an order for costs of proceedings before it even if the lease contract creates an indemnity in favour of a lessor, in the face of Section 88’. At [79 – 80], it indicated that costs predating the commencement of proceedings within the Tribunal might be caught by clause 27.2 and would therefore be recoverable if properly proved. It noted that the effect of s. 77A and s.88 had not been addressed in submissions made to it. Its orders included a declaration that, unless the matter were re-listed for further argument, the lessor could not recover legal costs relating to the proceedings in the absence of an application and an order pursuant to s. 88.

98 In Solomon v Singh (No 3) [2006] NSWADT 120, the lessor in Solomon 2 applied for costs under s. 88. It is apparent from the judgment that the invitation given in Solomon 2 for re-arguing the question addressed in the Tribunal’s declaration was not taken up. At [28], the Tribunal, constituted again by Judicial Member Molloy, rejected the lessor’s contention that the existence of clause 27.2 of the lease amounted in itself to ‘special circumstances’ warranting an award under s.88. The Tribunal suggested that in fact clauses of this nature, far from being ‘special’, were ‘quite ordinary and common’.

99 Two noteworthy features of these three Tribunal decisions are that they did not refer either (a) to Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45, where the ‘independence’ of contractual rights to recover litigation costs from curial determinations on costs was emphasised, or (b) to s. 7 of the RL Act, which directly raises the possibility that contractual rights of this nature might, in the present context, be void to the extent of inconsistency with statutory provisions governing curial determinations. In the discussion in Solomon 2, however, the existence of s. 7 did appear to have been implicitly taken into account.

100 In the present case, the Tribunal’s conclusion on this matter, reached as in Solomon 2 without the benefit of full argument, is in line with the conclusion in that case. In the Tribunal’s opinion, to permit contractual provisions such as clause 10.3 of the Lease in the present case to operate according to their terms in relation to costs incurred in Tribunal proceedings under the RL Act would be to contravene the policy evidently underlying Parliament’s decision to subject these proceedings to the costs regime established by s. 88 of the ADT Act. This policy is one of letting the costs of such proceedings lie where they fall except where ‘special circumstances warranting an award of costs’ are shown to have existed. By virtue of s. 7 of the RL Act, the statutory policy must prevail and both clause 3.7b (if it applies at all to the costs of these proceedings) and clause 10.3 are void to the extent of any inconsistency.

101 In reaching this conclusion, the Tribunal rejects Mr Rattanatray’s submission (see [84] above) based on the existence of the phrase ‘subject to... any other law’ in s. 88(1). There is in its opinion no reason why a contractual provision such as clause 10.3 should be treated as having the status of a ‘law’.

102 It follows from this conclusion that, again in line with Solomon 2, Trust Co’s claim to be indemnified for its legal costs under clause 10.3 of the Lease must be rejected in so far it extends to the costs of these proceedings. But it is sustainable so far as costs incurred otherwise are concerned. Although in an affidavit sworn on 24 September 2007, Mr Atkins purported to give evidence as to the amounts of costs for which Trust Co had been invoiced by Raj Lawyers in this matter, this evidence did not distinguish between litigation costs and other costs. Furthermore, any legal costs incurred otherwise than in the Tribunal proceedings must, as already stated, be costs ‘properly incurred’. The Tribunal takes this to mean that, unless the amount of them can be agreed, they must be assessed in conformity with the Legal Profession Act 2004.

103 As stated earlier, Trust Co claimed costs in the alternative under s 88(1) of the ADT Act. According to the authorities governing this provision in its application to proceedings under the RL Act (see eg Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81, Gizah Pty Ltd v AXA Trustees Ltd (No. 2) [2001] NSWADT 164, Citadin Pty Ltd (No 2) v Eddie Azzi Australia Pty Ltd & General Pants Pty Ltd (RLD) [2001] NSWADTAP 31 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. While a finding of ‘serious unfairness’ or ‘grossly unreasonable conduct’ on the part of the party resisting an order for costs is not a prerequisite to determining that there are ‘special circumstances’, it is a highly relevant consideration.

104 A number of categories of ‘special circumstances’ have been recognised in retail leases cases. One of them is where the proceedings instigated, or the grounds of defence raised, by the party against whom a costs order is sought are found to have lacked any real prospect of success and therefore to have been unmeritorious.

105 The Tribunal, in dealing with the substantive aspects of these proceedings, made findings to the effect that (a) the evidence adduced by Ms Smith in support of her unconscionable conduct claim fell well short of what was required to establish unconscionable conduct under the RL Act (see [64] and [70] above) and (b) she offered no real defence to Trust Co’s claims for rent, damages for lost rent and make good costs. In considering the matter of costs, it is significant also that (i) it was Ms Smith, not Trust Co, who first instituted proceedings and (ii) she initially made claims – i.e., for relief against forfeiture, reinstatement of the Lease and return of the goods that Mr Jovanov had removed from the Premises – that she later abandoned.

106 Overall, it must be said that the various components of the case advanced by Ms Smith in these proceedings were unmeritorious. The only significant matter on which Trust Co has failed is in its claim to recover its costs of these proceedings under either or both of the two clauses in the Lease.

107 The Tribunal is accordingly of the provisional opinion that there are ‘special circumstances warranting an award of costs’ in Trust Co’s favour, to be assessed on a party-party basis. Some costs already ordered to be paid by her would be excluded from any such assessment. But since Ms Smith made no submission on this matter, and since also there are other matters on which further submissions are being invited from Trust Co, the Tribunal will not make a final decision on it until she has had a further opportunity to address it.

108 Trust Co’s claim for interest. In his affidavit sworn on 24 September 2007, Mr Atkins deposed that the interest accruing on the various amounts owed by Ms Smith, which Trust Co claimed ‘pursuant to clause 3.9 of the Lease and/ or s. 72(1)(a) of the Retail Leases Act 1994’, amounted to $11.098.31. He also asserted that as at 4 May 2007, the date when Trust Co’s claim was filed, the amount owing for interest was $10,622.29, and in an annexure referred to in another clause of the affidavit, that the interest accruing since 4 May 2007 amounted to $2,475.62. Clause 3.9 is a relatively detailed clause entitling Trust Co to interest on ‘any overdue amount’.

109 An obvious problem with this evidence is that the three sets of figures do not reconcile with each other. It provides an inadequate basis for awarding interest.

110 The amount paid by Mr Jovanov under the settlement of his dispute with Trust Co. Mr Rattanatray submitted that Trust Co, as a creditor, was entitled to appropriate the payment of $35,000 made by Mr Jovanov under the deed of settlement to whichever component of its claim against him it chose. This was the position because the debtor, Mr Jovanov, had made no appropriation of his payment at all.

111 Mr Rattatantray advised the Tribunal that the appropriation in fact made by Trust Co was to its claim for indemnity costs against Mr Jovanov under clause 10.3 of the Lease. He argued that Trust Co could make such an appropriation even if the Tribunal, in resolving Trust Co’s claim against Ms Smith, decided (as it has in fact done) that Trust Co could not rely on this clause to claim the costs of Tribunal proceedings.

112 The Tribunal is not, at this stage, persuaded of the validity of this argument. In its opinion, Trust Co is evidently entitled to appropriate some or all of the $35,000 towards any costs (for example, the costs of preparing the deed of settlement) that are legitimately chargeable to Mr Jovanov but not to Ms Smith. But it should not be permitted to make an appropriation towards any item of costs that it has claimed against both Ms Smith and Mr Jovanov, asserting liability on identical grounds, where in the Tribunal’s judgment Ms Smith, and therefore also Mr Jovanov, cannot legally be held liable to pay those costs.

113 On this matter, as with others already identified, the Tribunal invites further submissions from the parties.

The Tribunal’s orders

114 The conclusions so far provide the basis for an order by the Tribunal that Ms Smith should pay to Trust Co the total of the arrears of rent ($21,660.58), the damages claimed for lost rent ($29,582.23) and the ‘make good’ costs ($15,125.00), less the amount of $35,000 paid by her co-tenant, Mr Jovanov, in settlement of Trust Co’s claim against him. The net figure is $31,367.81.

115 For reasons already explained, Trust Co will be given an opportunity to file further evidence and submissions in support of three additional claims brought by it. These are (a) for indemnity against legal costs, except for the costs of these Tribunal proceedings, incurred by it by virtue of the termination of the Lease and/or Ms Smith’s breach of the Lease; (b) for interest payable under the Lease or the RL Act; and (c) for an entitlement on Trust Co’s part to appropriate some or all of the payment of $35,000 made to it by Mr Jovanov towards costs for which he, but not Ms Smith, is liable, thereby reducing the extent to which his payment diminishes her liability to Trust Co.

116 In addition, Ms Smith will be given an opportunity to file evidence and submissions (a) in response to any evidence and submissions filed on these matters by Trust Co, and (b) on the question of whether or not she should pay Trust Co’s costs of these proceedings under s. 88 of the ADT Act. In this connection, the Tribunal would add that, since Trust Co could have dealt fully at the substantive hearing with the matters identified in the preceding paragraph, but did not do so, any costs order made in its favour under s. 88 will not include its costs of filing and serving the material outlined in that paragraph.

117 The Tribunal accordingly directs as follows:-

1. Within 35 days of the date of this decision, the Respondent/Cross Applicant is to file and serve any evidence and submissions as outlined in paragraph [115] of these reasons.

2. Within a further 28 days, the Applicant/Cross Respondent is to file and serve any evidence and submissions as outlined in paragraph [116] of these reasons.

3. Unless the Tribunal decided that a further hearing is necessary, the remaining questions in this case will be determined ‘on the papers’, under s. 76 of the ADT Act.