Micrac Pty Ltd v Collins[2021] QCAT 23

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

REASONS FOR DECISION

1. [1]
   Micrac Pty Ltd (‘the Lessee’) lodged a Notice of Dispute with the chief executive under the Retail Shop Leases Act 1994 (Qld) (‘the RSL Act’) on 18 March 2020.^[1] The Notice of Dispute sought orders against Paul and Alicia Collins as Trustee and Flying Fast Investments Pty Ltd as Trustee (‘the Landlords’), including for declaratory orders in respect of the validity of the Lessee’s purported exercise of an option under the lease between them and certain Notices to remedy breach delivered by the Landlords.
2. [2]
   The chief executive nominated a mediator^[2] and the mediation was conducted by telephone on 24 June 2020.  The mediator granted leave to the parties to be legally represented at the mediation.^[3]
3. [3]
   On 24 June 2020 the mediator referred the dispute to the Tribunal as the parties could not reach a mediated solution to the dispute.^[4]
4. [4]
   The Lessee elected to accept the Landlords’ position that the option had not been validly exercised by letter dated 17 July 2020 (‘the Concession’). 
5. [5]
   Subsequent to referral, the Tribunal made directions on 31 August 2020 that the Landlords file and serve a Response by 2 October 2020 and the application was listed for a Compulsory Conference. 
6. [6]
   On 7 October 2020 the Tribunal received the Landlord’s Response dated 2 October 2020.
7. [7]
   By notice dated 7 October 2020 the Tribunal notified the parties that the Compulsory Conference was to be convened by telephone on 27 October 2020. 
8. [8]
   By Notice of withdrawal of application or referral dated 8 October 2020 (‘Notice of Withdrawal’) the Lessee gave notice to the Tribunal and to the Landlords that the Notice of dispute was withdrawn.^[5]  Leave of the Tribunal was not required.^[6] 
9. [9]
   The evidence is that the Landlords served a copy of the Response on the Lessee after receiving the Notice of Withdrawal.
10. [10]
    At the Compulsory Conference directions were made to facilitate an application by the Landlords for costs of the proceedings withdrawn to be determined on the papers.   The Tribunal may award costs at any stage of a proceeding or after the proceeding has ended.^[7]
11. [11]
    An Application for miscellaneous matters, submissions and evidence has been received from the parties as contemplated.  I now determine that application.
12. [12]
    The Landlords seek an order that the Lessee pay the Landlords’ costs fixed in the amount of $45,117.31 on an indemnity basis or alternatively the Landlords’ costs on a standard basis on the Supreme Court scale to be assessed. 
13. [13]
    The application relies not only upon the powers in the QCAT Act to award costs but also upon clause 6.3(c) of the lease which provides that the Lessee is to pay:

all costs or expenses incurred (including legal fees) in conjunction with breach by the lessee of this lease.

14. [14]
    Much of the submissions and evidence filed are directed to whether:

    1. (a)
       the Lessee was in breach of the lease or whether the Landlords waived or should be estopped from relying upon alleged breaches in the circumstances;
    2. (b)
       the Notice of dispute was bound to fail; and
    3. (c)
       the Notice of dispute ought not to have been lodged or proceeded with because an offer or offers should have been accepted. 
15. [15]
    The substantive dispute primarily, but not exclusively, arose from a purported exercise by the Lessee of an option under the lease on 31 December 2018 for a further five-year term commencing 1 April 2019.  The Lessee contends that the Landlords did not inform it that they disputed the validity of the exercise until the Landlords’ current lawyers’ letter dated 31 December 2019 sent by email on 5 January 2020 and contend that the Landlords’ previous lawyers had confirmed the validity by correspondence dated 1 October 2019.
16. [16]
    The Landlords have purported to claim their actual costs in respect of dealing with the Lessee in respect of the lease from in or about March 2019 until November 2020.   Costs claimed as charged by the Landlords’ previous lawyers are $5,817.46 and those charged by the Landlords’ current lawyers are $39,299.85.  A significant amount of the costs were incurred prior to the Notice of dispute being lodged with the chief executive and most were incurred prior to the referral to the Tribunal.
17. [17]
    The order sought, in so far as clause 6.3 of the lease is concerned, is in the nature of a claim for moneys alleged to be owing under the lease. 
18. [18]
    The evidence before me indicates that the Landlords’ lawyers’ costs claimed include those  not only for preparing a Response to the Notice of dispute but also a counter-application.^[8] The Response, as filed, was not also a Counter-application as no filing fee, as required, was paid and the Landlords made no claim.^[9]  The Response^[10] sought that the ‘Application be dismissed’ and sought that the Landlords’ costs of and incidental to ‘the Application be assessed, on an indemnity basis, or in the alternative, in accordance with the District Court Scale.’^[11]  The Response specifically refers to the Concession.
19. [19]
    I accept that if findings of breach had been made in the substantive proceeding that clause 6.3 of the lease is likely to be a factor to be considered.  I note, however, that in exercising the discretion whether or not to award indemnity costs, the Supreme Court has held that the fact that they were to be claimed based on a contractual entitlement ought to be notified to the other side, to essentially afford natural justice and procedural fairness.^[12] The Response does not include an express reference to a claim pursuant to the terms of the lease. 
20. [20]
    The QCAT Act provides, ‘[o]ther than as provided under this Act or an enabling Act, each party to a proceeding must bear the party’s own costs for the proceedings.’^[13] The starting point may be displaced, if the Tribunal considers it is in the interests of justice to do so.^[14]  There is no contention by the Landlords that the RSL Act, the relevant enabling Act, provides for the awarding of costs in these circumstances.
21. [21]
    The then President, Justice Wilson in Ralacom Pty Ltd v Body Corporate for Paradise Island Apartments (No 2)^[15] stated at [4]:

This presumption may, however, be displaced if the Tribunal considers it is in the interests of justice to order a party to pay all or part of the costs of another party: s 102(1). The phrase “in the interests of justice” is not defined in the Act but is to be construed according to its ordinary and plain meaning, which obviously confers a broad discretionary power on the decision-maker.

22. [22]
    The then Deputy President, Judge Kingham in Ascot v Nursing & Midwifery Board of Australia^[16] stated at [9]:

The public policy intent of the provisions in the QCAT Act is plain. The tribunal was established as a no costs jurisdiction. That may be departed from where the interests of justice require it. The considerations identified in s 102(3) are not grounds for awarding costs. They are factors that may be taken into account in determining whether, in a particular case, the interests of justice require the tribunal to make a costs order.

23. [23]
    The Landlords rely upon the principle in Tamawood Ltd & Anor v Paans.^[17] The costs provision under consideration in that case was quite different to section 100 of the QCAT Act.
24. [24]
    The then President, Justice Wilson in Ralacom Pty Ltd v Body Corporate for Paradise Island Apartments (No 2)^[18] considered the principle in Tamawood and stated at [26] – [27]:

Keane JA was of the view that where the complexity of the matter justified legal representation, it would not be in the interests of justice to bar the successful party from recovering costs that were reasonably necessary to achieve a satisfactory outcome.

That conclusion must, here, be considered in the light of the difference between s 70 of the CCT Act and s 100 of the QCAT Act. Section 70 speaks of a ‘main purpose’, but s 100 mandates that parties shall bear their own costs.

25. [25]
    Tamawood was decided under a different legislative framework in respect of a predecessor tribunal. Tamawood and Ralacom were decided in different circumstances to those currently before me.  Those disputes were determined on their merits.  
26. [26]
    The Appeal Tribunal in Barnett & Anor v Pirrone & Anor ^[19] considered the issue of costs on a withdrawal and concluded that the question is whether the party withdrawing the matter acted reasonably in commencing and maintaining the proceeding. 
27. [27]
    In Barnett the withdrawal was made at a very late stage of the proceeding and after repeated warnings at directions hearings that the Tribunal lacked jurisdiction in respect of part of the claim, which ultimately was the reason for withdrawal.  Costs on an indemnity basis were awarded from the date when it should have been clear that the application was misconceived, being a date approximately 18 months after commencement. 
28. [28]
    The Appeal Tribunal relied upon Booth v Helensvale Golf Club Ltd^[20] in which Mackenzie J set out relevant principles upon a withdrawal, which included whether the respondent acted reasonably in defending the proceeding and in some circumstances whether the respondent’s conduct prior to commencement may have precipitated the action.^[21] 
29. [29]
    I am not satisfied that the Lessee could be regarded as having acted unreasonably in lodging a Notice of dispute with the chief executive, which was subsequently referred to the Tribunal, given that the lease term expired on 31 March 2019 and the parties had not reached agreement as to matters in dispute between them almost a year later.   Importantly, in my view, the Lessee withdrew the proceedings at an early time after referral to the Tribunal.
30. [30]
    I also consider the factors referred to in section 102(3) of the QCAT Act, to the extent they are relevant, to determine if the interests of justice point to a costs award.  Those considerations are largely in the nature of what may be regarded as ‘entitling’ or ‘disentitling’ factors.
31. [31]
    If an order is made, the Tribunal should fix the costs if possible.^[22]

Whether a party acts in a way that unnecessarily disadvantages another party^[23]

32. [32]
    I am not satisfied that the Lessee acted in a way which unnecessarily disadvantaged the Landlords in the proceedings.  This is not a factor in favour of an award of costs.
33. [33]
    This factor refers to disadvantage to the person in their capacity as a party to the tribunal proceeding, rather than disadvantage generally.^[24]
34. [34]
    The proceedings were withdrawn at quite an early stage after referral.
35. [35]
    The Lessee’s failure to clarify its intention with regards to the proceedings more promptly potentially resulted in the Landlords incurring costs, which might otherwise have been avoided. 
36. [36]
    The delay in seeking to withdraw the proceedings once the Concession had been communicated is not explained.  As stated earlier in these reasons, the substantive dispute, primarily but not exclusively, arose in relation to the purported exercise of the option.  It is possible that the Lessee was considering whether it would continue with the proceedings on an amended basis.  The delay was less than three months and could not be regarded as extensive or undue.
37. [37]
    The evidence before me is that the Landlords and their lawyer were aware of the Concession of 17 July 2020 on that date or shortly thereafter.^[25] 
38. [38]
    The Concession was made prior to the parties receiving the Tribunal’s initial directions.
39. [39]
    Despite the fact that the Lessee’s and the Landlords’ lawyers were in regular communication there is no indication in the material before me that any discussions were held about the Lessee’s intentions as to the proceedings before the Notice of withdrawal was served on 8 October 2020. 
40. [40]
    It seems likely that the Landlords’ failure to seek clarification as to the Lessee’s intentions prior to expending resources to prepare a Response was seen as a strategic move while the Landlords were ensuring the Lessee’s delivering up of possession of the premises went smoothly and while they were considering whether to file a counter-application.^[26] 
41. [41]
    Review of the itemised accounts for legal costs in evidence before me reveals that amounts claimed include time in respect of all issues relating to the lease, including discussing the make good provisions following the Concession.  I am not satisfied that many of the costs claimed could be regarded as costs of the proceeding and recoverable as such. 

The nature and complexity of the dispute^[27]

42. [42]
    I accept that this is a factor in favour of an award of costs, but it is not determinative.^[28]
43. [43]
    The Landlords contend and I accept that the nature and complexity warranted the involvement of legal representation. 
44. [44]
    The Landlords point to leave being granted by the mediator.
45. [45]
    The Tribunal has previously considered that granting of leave to be represented is a factor to be considered in exercising the discretion to award costs but it is well settled in the Tribunal that it is not determinative of whether costs will be awarded and that parties engage lawyers knowing that the starting position is that each party is to bear their own costs. 
46. [46]
    No application for leave for the parties to be legally represented in the Tribunal proceedings, as distinct from for the purposes of the mediation, was made nor was any direction made granting leave.  This is not a factor in favour of an award of costs.
47. [47]
    Even in building disputes where the enabling Act confers a broader discretion to award costs the Tribunal has, in certain cases, limited the award of costs to the period after leave was granted.^[29]

The relative strengths of the claims^[30]

48. [48]
    I am not satisfied that this is a factor in favour of an award of costs.
49. [49]
    The Landlords contend that the withdrawal substantiates their contention that the Lessee was bound to fail if the matter was determined.  As the primary dispute has been withdrawn there are no findings as to facts or law in respect of the substantive dispute and as to whether the Lessee breached the lease entitling the Landlords to a claim under clause 6.3(c) of the lease or whether such breaches were waived or the Landlords should not be otherwise entitled to rely upon such breaches. 
50. [50]
    The Appeal Tribunal in Barnett confirmed that ‘the issue of prospects of success is not central’ where the proceeding was withdrawn.^[31] When deciding costs, the tribunal is not obliged to decide what the outcome of a dispute would have been if it had been finally determined in the proceedings.^[32]
51. [51]
    I accept that although the Tribunal is not to try a hypothetical action between the parties, it may order costs if one of the parties has acted so unreasonably as to justify it e.g. where it is patent that there were no prospects of success.^[33]  As referred to earlier in these reasons, I am not satisfied that the Lessee could be regarded as having acted unreasonably in lodging a Notice of dispute with the chief executive, which was subsequently referred to the Tribunal.

The financial circumstances of the parties^[34]

52. [52]
    I am not satisfied that this is a factor in favour of an award of costs.
53. [53]
    Whilst there is evidence of the not insignificant legal costs incurred by the Landlords in dealing with the Lessee and evidence that the Landlords are super fund trustees, which apply the rent from the premises to fund, at least in part, their beneficiaries’ retirement, there is no specific evidence of  financial hardship caused to the Landlords.  There is also some evidence that the Lessee incurred not insignificant legal costs and has suffered financial loss through no longer being in a position to operate or sell their business as a going concern at the premises.

Anything else the Tribunal considers relevant^[35]

54. [54]
    A relevant factor is often whether a settlement offer was made, and that the decision of the Tribunal is not more favourable to the other party than the offer.^[36]
55. [55]
    The Landlords point to offers to settle, in particular, to offers to enter into a new lease.  Clearly there is no decision of the Tribunal with which to compare the offer.  I accept that a refusal of a reasonable offer to settle (even an offer outside Rule 86) might make it in the interests of justice to make an order for costs under section 102(1).
56. [56]
    Whilst the dispute primarily related to the exercise of the option for another term there were other matters in dispute between the parties.  The material before me shows an acrimonious relationship between the parties and their current legal representatives.  In all the circumstances, I am not satisfied that the offers made are necessarily a factor in favour of an award of costs.

Summary

57. [57]
    On balance, I consider that it is not in the interests of justice for an award of costs to be made.  Each party should bear their own costs of the proceedings.