DHS & J Pty Ltd v Forwin International Investments Pty Ltd [2007] RSLT 3

[2007] RSLT 3 THE RETAIL SHOP LEASES ACT In the matter of Dispute No 2006/0043 DHS & J PTY LTD - Claimant - and - FORWIN INTERNATIONAL INVESTMENTS PTY LTD - Respondents Coram: A Forbes (CHAIR) N Judge D McBryde DECISION Given in Brisbane on Friday, 29 June 2007. -- 1 of 19 -- Decision 2 1. The Respondent lessor (“Forwin”) owns the T C Beirne Building (“the TCB”) in Fortitude Valley (“the Valley”), Brisbane. The Claimant tenant conducts the Oshin Japanese Restaurant Chinatown (“Oshin”) in the TCB. 2. By Notice of Dispute lodged on 25 May 2006 the Claimant seeks compensation for loss of profits, relying on sub-sections 43(1)(b) and (c) of the Retail Shop Leases Act 1994 (“the Act”). It is alleged that the Respondent’s extensive renovations to the TCB restricted the access of potential customers to Oshin, and caused significant disruption to its trading from July 2005 to May 2006. 3. In November 2006 the claim was amended to include other losses, allegedly due to renovations in the Chinatown Car Park (“the car park”), situated in a street behind the TCB. The Respondent is not the owner of the car park; it is the property of a company known as Grandwealth International Pty Ltd (“Grandwealth”). Work on the car park began in October or November 2004. 4. Hearing dates were appointed at several directions hearings, only to be vacated at the request of one party or the other 1 . The eventual hearing occupied three days, with each party represented by counsel. A question of costs had still to be determined, but on 25 May 2007, in order to avoid a lengthy delay necessitated by one member’s absence from Brisbane, we announced our decision on the substantive issues, with written reasons to follow. On the same day we heard submissions on the issue of costs. These are our reasons for the decision already announced, and for our decision on costs, as appears below. Issues at the Main Hearing 5. The Claimant sought compensation in the amount of $191,104, being alleged loss of gross profit from 1 November 2004 to 31 July 2006, and $49,878.80 by way of costs. The relevant period, according to the Claimant, commenced when the car park renovations began, and ended on completion of renovations to the TCB. The Claimant submits that compensation should reflect its notional sales in that period, based on its trading pattern in the first 43 days after began trading in the Oshin restaurant. 6. The Claimant further says that close commercial connections between the Respondent and Grandwealth, and the more or less contemporaneous refurbishment of the TCB and the car park, evidences a joint scheme to redevelop the Valley Chinatown precinct - a scheme in which the Respondent was a major participant. The Claimant does not seek to “lift the veil” between the Respondent company and Grandwealth. Instead, it contends that, in renovating the car park, Grandwealth acted as “a person … under the lessor’s authority” within the meaning of section 43 (1) of the Act. 1 Hearing dates vacated: 14-15 September 2006, 22-23 November 2006, 18-19 December 2006. n 18 December 2006the hearing was adjourned again to 8-10 May 2007. A further directions hearing was held on 23 January 2007. -- 2 of 19 -- Decision 3 7. The Respondent, for its part, admits that its renovation of the TCB substantially and adversely affected public access to Oshin’s premises, and accepts liability to pay “reasonable”, as distinct from “excessive”, compensation. However, it denies liability for any losses caused by work on the car park, and consequently denies liability for any compensation for the period 1 November 2004 to 30 June 2005. The Facts 8. The Claimant purchased the Oshin on 17 May 2004 for $155,000. The necessary funds were lent to the Claimant by its sole shareholder and manager of its business, Dong Hyun Lee, also known as Isaac Lee, (“Lee”). The Claimant took an assignment of the relevant lease, and subsequently exercised an option for a further term of 5 years, to 31 July 2009. Lee admits that, at the time of purchase, the Respondent informed him that a refurbishment of the TCB was pending. 9. Lee had no previous experience as a restaurateur, but prior to the purchase he spent between eight and ten weeks at Oshin, while his vendor “showed him the ropes”. Lee concedes that he had a great deal to learn, that learning was difficult, but says he is more experienced now, especially in the purchasing of food supplies. 10. Tsai-Feng Wang Tseng (“Tseng”) is a shareholder and managing director of the Respondent company. He is also a shareholder in Grandwealth, is one of its directors, and makes that company’s day-to-day decisions, with the assistance of one Richard Lee (not related to the manager of Oshin). 11. The Respondent purchased the TCB in 2003. Formerly a well-known department store, it was converted to office space, with small retail businesses on the ground floor, but by 2003 the ground floor area was practically vacant. The TCB has street frontages to Duncan Street and the Chinatown Mall at the rear, and to the busy Brunswick Street Mall on the other side. Oshin’s premises are on the ground floor, facing the Brunswick Street Mall. One of its walls adjoins an arcade entrance to the TCB. The TCB Renovation 12. Renovations began in June 2005 and continued until May or June 2006. The ground floor, the first floor and part of the second floor were involved. A major job was the removal of an escalator close to Oshin’s premises. This operation required the use of heavy machinery, including jackhammers and pneumatic drills. Lee says that he noticed an immediate ill-effect on Oshin’s turnover, and in July 2005 the Claimant’s solicitor notified the Respondent accordingly. 13. By October 2005 Lee was complaining of damage to the Claimant’s trade caused by hoardings over glass walls of the TCB, closure of the arcade adjoining the -- 3 of 19 -- Decision 4 Oshin, and noise, dust, machinery vibration, and infestation of the TCB by rats – all due, in his opinion, to the Respondent’s renovation works. Lee says that Oshin’s business fell by 60% in the September 2005 quarter compared with the same period in 2004. 2 14. Correspondence between the parties continued for several months during the TCB renovations. Initially the Respondent proposed to increase Oshin’s floor area from 82 square metres to about 94 square metres, and to increase the Claimant’s rent from $69,000 to $79,000 per annum. The Claimant rejected that proposal, but later agreed that the floor area be reduced. The Respondent agreed to pay for a new shop front and some internal improvements for Oshin, and to pay the Claimant $1,000 for each day that Oshin was unable to trade because of work on the TCB. Oshin was closed for 10 days in December 2005 and the Respondent, pursuant to its undertaking, paid $11,000 (GST included) to the Claimant, although it was later determined that this compensation amount was GST free. 15. However, the Claimant sought further compensation, or appropriate rent relief, for other disruption of its trade. The Respondent refused to consider any further payment unless and until the Claimant produced all its financial records, including daily cash register tapes, to the Respondent’s accountant. Lee says that he then produced all the Claimant’s records, other than the daily tapes, which, so he said, were discarded as each roll was filled. The Claimant continued to pay the full rent required by the lease, until Oshin’s floor area was reduced in December 2005. 16. Lee says that, after meeting Tseng in February 2006, Tseng told him that the Respondent was prepared to pay the Claimant a maximum amount of $20,000 “without delay” in full and final discharge of all liability for compensation with respect to the TCB renovation. Tseng says he could not accept liability for a higher sum unless “real evidence” or the missing cash register tapes were produced. Lee declined the offer of $20,000, saying that he would take the matter to this Tribunal. In response, according to Lee, Tseng laughed in a threatening manner. However, Tseng categorically denies any threatening behaviour on his part, and says that he merely warned Lee of the high costs of litigation. 17. Tseng claims that the Respondent outlaid more than $60,000 on improvements to Oshin’s shop front and interior, of which the Claimant is now reaping the benefit. Tseng asserts that the TCB work had no significant impact on the Claimant’s business, apart from the 10 days in December 2005, mentioned above. 18. Lee says that Oshin’s daytime customers are mainly office workers from nearby commercial premises, including the car-park building, and weekend shoppers at the markets in the Brunswick Street Mall, with peak trading between 11.30 am and 3.30pm. Evening trade comes from residents of nearby apartments. 2 The report of Pilot Partners 30.8.06 at paragraph 5.4.6 confirms that the turnover decreased by 57.10% in the period referred to. -- 4 of 19 -- Decision 5 19. Lee claims that in the financial year 2005-2006 he invested about $112,000 of family savings in the Claimant’s business, as its turnover continued to decline. However, since improvements were made to the Claimant’s premises, business has returned to the levels achieved in 2004. 20. Richard Lee is Centre Manager of the TCB, and Tseng’s personal assistant and sometime interpreter. He states that tenants of the upper storeys of the TCB stayed there during the renovations, and that no heavy demolition work was done during normal Monday – Friday business hours. He doubts that Oshin’s business would have been affected by dust and vibration at these times. However, a report by the Respondent’s accountant, Jason Wong, which is in evidence, specifically refers to the dust seen in the Claimant’s restaurant during business hours. The Car Park Renovations 21. The car park is situated at 31 Duncan Street, opposite the rear entrance to the TCB. It comprises six levels of parking space, three levels of commercial offices, and retail tenancies at ground level. It contains the registered offices of Grandwealth and the Respondent. A pedestrian footbridge links upper storeys of the TCB and the car park. Grandwealth holds a perpetual easement over that bridge. 22. In October 2004, about eight months before work commenced on the TCB, there was extensive reconstruction work to the car park building, which continued for about one year, and during which several tenants vacated those premises. There are entrances to the car park from Duncan and Ann Streets. Periodically, during the reconstruction work, the Ann Street entrance was closed, and a public fountain in the Duncan Street Mall was cordoned off, no doubt to protect it from damage. 23. Lee says that when the Duncan Street entrance to the TCB was blocked, potential customers could only reach Oshin from the car park via a main street – a detour adding two minutes to their journey. And when an entrance to the car park was blocked, and (so Lee says) parking spaces were reduced, this was another factor inhibiting potential customers. Lee further says that intrusive machinery noise from the TCB adversely affected the Claimant’s lunchtime trade. 24. This head of claim was not raised until several months after the Notice of Dispute was lodged. Cross-examined on this point, Lee said that he did not see a connection between work on the car park and the downturn in sales from about October 2004, until he read a report prepared for the Claimant by Gilbert Wright. We return to that report below. 25. Tseng concedes that signs bearing the Respondent’s name appear on the outside of the car park, on parking tickets issued there, and on the Respondent’s -- 5 of 19 -- Decision 6 letterhead. The Respondent manages the car park for Grandwealth. However, Tseng points out that Grandwealth and the Respondent are separate legal entities, and he states that their financial arrangements are separate, and that their business decisions are made independently. 26. Unchallenged evidence derived from searches of ASIC records shows that Grandwealth and the Respondent have: • registered addresses at the car park building; • the same directors, all members of the Tseng family; • the same company secretary; • Tseng as a director and shareholder. (He is managing director of the Respondent); • a majority of issued shares held by members of the Tseng family. 27. Tseng gave evidence through an interpreter. He identified himself as general manager of the Respondent and director of Grandwealth. In cross-examination he agreed that those companies are close associated and added, somewhat cryptically: "…. the Grandwealth manager tells me what to do - yes, I also run Grandwealth." He agreed that his name and signature appear on a development application for the TCB, and also on certain documents connected with the car park, and that he has authority to sign documents for Grandwealth. He agreed that: "… basically, I make all the decisions for both companies". 28. Tseng stated that occasional closures of the Ann Street entrance to the car park do not affect the numbers of casual users of the facility. 29. Richard Lee described himself as the “point of contact” for people wishing to speak to Tseng, and stated that he was an administrator for Grandwealth during work on the car park. He conceded that the Respondent had a lot to do with refurbishment of the car park. He acknowledged that the name “Forwin” appears on Brisbane City Council documents as the “contact person” for Grandwealth, but explained that this was a mistake by the Respondent’s accountant. According to this witness the Ann street entrance was closed on no more than about five occasions during work on the car park, and then only for a few hours at a time. The work did not seem to reduce the numbers of cars parking there.3 30. Raewyn Tseng, daughter of Tseng and a director of the Forwin and Grandwealth companies, is responsible for day to day operation of the car park. She produced a table and a graph, compiled from electronic records 4 , and purporting to show (in round figures) that the numbers of cars using the park ranged between: • 23,000 – 29,000 per month in 2003 • 23,700 – 27,900 per month in 2004 • 23,500 –27,500 per month in 2005 3 Affidavit of Richard Lee, affirmed 14.12.06, paragraph 10 4 Affidavit of Raewyn Tseng, sworn 14.12.06, Exhibit RWT 1. -- 6 of 19 -- Decision 7 • 21,400 – 24,600 per month in 2006 with an unexplained “spike” of 31,650 in July 2005. 31. Ms Tseng also produced spreadsheet summaries of daily exits from the car-park. She says that the Wickham Street entrance records more than twice the number registered at the Ann Street entrance. She corrected a misapprehension entertained by Mr Wright in the interpretation of those records (see below). She was not cross-examined about them. The expert witnesses 32. The Claimant relied on financial statements prepared by its accountant James Chai, reports by Gilbert Wright, business broker and analyst, and Anthony Krause of CKG Partners, Chartered Accountants. The Respondent relied on reports by Bradley Hellen of Pilot Parners Chartered Accountants. As directed, Messrs Wright, Krause and Hellen conferred before the hearing, but found little common ground. James Chai was not required for cross examination, and his raw figures were accepted by all concerned. 33. Each expert calculated compensation as a loss of net profits by selecting (1) a base period of trading unaffected by unusual or transitory events beyond the control of either party; (2) a relevant period of loss; (3) projecting notional sales over that period; (4) subtracting actual sales; (5) applying the gross profit margin (GPM) in the base period; and (6) crediting an amount for costs savings in period (2). They agreed on a GPM of 52.89 per cent. The Wright Report 34. Wright was the first to introduce the car park as an important factor in this case, declaring that car parking facilities are essential to retail sales success in the Valley precinct: “…the landlord commenced a scheme of major redevelopment and upgrading of the Chinatown/Duncan Street business precinct. This included: -- major works to the Chinatown car park … redevelopment of the T C Beirne arcade." 35. His calculations therefore span the period from November 2004 to July 2006. 36. Wright claims that the daily cashier reports of the car park show a reduction of approximately 400 casual parkers per week from November 2004. This, he argues, damaged trade in the area. He concludes that, in view of the fact that the Claimant made no significant changes in its business methods at this time, the downturn in its sales is, in part, attributable to the car park renovations. -- 7 of 19 -- Decision 8 37. Wright takes as his base period5 the time from 18 May 2004 (when the Claimant acquired the Oshin restaurant) to 30 June 2004, before renovations began in either building. He chooses those 43 days as a relatively stable period in food retailing, without any Chinese or other festival likely to affect normal trade. According to this witness the Claimant's financial records for that period show, in round figures, daily average takings of $918 6 . He assumes notional gross maintainable sales of $669,486 in the period November 2004 to July 2006, and deducts actual sales of $267,481. He applies a GPM of 52.89%, credits cost savings of $18,153, and the amount of $11,000 already paid by the Respondent, and arrives at a total net loss of $183,372 in his first report, and rising to $191,248 in his second report, after adjustment. The Pilot Partners Report 38. Bradley Hellen prepared three reports. He differs from Wright and Krause on major points. He rejects the claim of loss due to the car park works and identifies “a consistent and significant drop in sales …prior to the commencement of [those]… works”. He notes a decline in the Claimant’s GPM from 53% in the 2005 financial year to 30% in the 2006 year, and doubts that such a significant reduction was caused by the TCB renovations alone. Absent those works, he does not accept that the Claimant would have achieved, in the time those works took, sales equal to those in 2005. 39. Indeed, Hellen contends that the Claimant was insolvent in or before that period, on the basis that its continuation of trading depended on the financial support of Lee, while it made no provision for its owner’s remuneration, and had an assets deficit. His radical conclusion is that, as the Claimant was incurring losses before the TCB renovations began, it should have mitigated its losses by closing the business. 40. As an alternative to the radical conclusion, Hellen estimates that the Claimant’s losses really amount to no more than $18,070 during the TCB renovations. He bases this calculation on the last three months of the Claimant’s financial year 2005-2006, immediately prior to the start of those works. The CKG Partners Report 41. In response to Mr Hellen, Anthony Krause affirms the car park works as a cause of the Claimant’s business decline. On the basis of its first three months’ trading, Krause considers that it was reasonable to expect business to return to normal once the refurbishments around Oshin were completed. In his view the Claimant took every reasonable step to minimise losses. He challenges Hellen’s selection of the June 2005 quarter as the basis of notional sales. Krause reasons that this was the 5 Claimant’s sales that are assumed to have been made but for the occurrence of both building programs. 6 In his supplementary report of 19.2.07 Wright states that sales excluding GST averaged $1,025. -- 8 of 19 -- Decision 9 lowest trading period, affected, in his view, by building operations in the car park. Decreased sales meant that the Claimant lost the advantage of buying stock in bulk or at discount rates, and there was increased wastage. In Krause’s opinion those factors, as well as the Respondent’s own building operations, provide a true explanation of the steep reduction in the Claimant’s GPM. He adds that the improvement in turnover since July 2006, and restoration of the GPM to a level close to that in 2005 vindicate the Claimant’s decision to keep its business open. 42. Krause’s calculation of the Claimant’s losses is based on sales in the September 2004 quarter. It amounts to $179,130 in the financial years 2005-2006 and 2006- 2007. The Law 43. The Claimant, relying on sub-sections 43(1)(b) and (c) of the Act, must prove to the civil standard a substantial disruption of its business for which the Respondent is responsible. 44. The words “substantial” and “significant” should neither be overlooked nor minimised. FINDINGS Disruption by the Car Park Works? 45. This project commenced in October or November 2004 and was practically complete when the TCB renovations began. The distance from the Claimant’s restaurant through the arcade to the Duncan Street side of the TCB is 40 metres7 , and the car park is another 10-15 metres away. According to Lee he “often heard loud construction noise during trading hours throughout the construction period.” 8 But in cross-examination he admitted that he did not know why his sales were falling, and that he did not consider the car park a factor until Wright suggested that it was. 46. In our view the Claimant’s “car park theory” faltered as the oral evidence unfolded. As an alternative, counsel for the Claimant submitted that related disturbances in the Duncan Street precinct were partly to blame. At all events, he submits that there is some connection between the downturn in business and commencement of the car park works, 9 considering that trading records for May to October 2004 show an average turnover of $1,000 per day, and then a fall to $585 per day. 47. However, Hellen’s graphs (appendices A and B to his report of 14 March 2007), based on Chai’s unchallenged figures, show the trading pattern more precisely. 7 Affidavit Dong Hyun Lee, filed 13.11.06, paragraph 11. 8 Affidavit Dong Hyun Lee, filed 20.2.07, paragraph 7. 9 It is not entirely clear whether the car-park works began in October or November 2004. -- 9 of 19 -- Decision 10 In fact monthly sales for 2004-2005 began to decline in August 2004, and that trend continued (with a brief respite in the Christmas season) for the rest of that financial year, viz 10: 2004 2005 July $22,122 January $14,316 August $33,896 February $16,740 September $29,958 March $17,696 October $26,827 April $11,053 November $22,232 May $15,720 December $16,782 June $14,262 Daily income averages display the same trend: July 2004 $995 October 2004 $951 August 2004 $1,063 November 2004 $873 September2004 $1,029 48. The Claimant’s case, in so far as it relates to the Grandwealth car park, essentially depends on the premise of a rough co-relation between trade decline and the renovations there. As noted above, the Wright theory is that the Claimant carried on business as its predecessor had done, making no changes, and that the only variable factor was the car park project. 49. But there is evidence of other factors at work. Lee had no previous experience in the restaurant business. He had worked as a guide for Korean tourists. He had what may be described as a crash course in the catering trade, he knew nothing of Oshin’s trading history, he prepared no business plan that was revealed in evidence and, as he candidly admitted, he was a much more capable restaurateur after almost three more years in the business. 50. We accept that Lee did try to reduce operating costs in the second year, by cutting wages and dispensing with one of the senior staff. But there were limits to the economies that could be made. As he said in answer to a question by a member of the Tribunal, concerning the extraordinary fall in GPM in that year: “I run a simple take-away. It means I have to have fresh food prepared … and have a full display cabinet every morning … the biggest factor is wasted food. Chicken, beef, raw fish cannot be kept.” 51. Lee told the Tribunal that his prices remained the same throughout the period of the TCB works. There is evidence, which we accept, that he overstocked his display cabinets, and that considerable food wastage resulted. In our view – and we so find – Lee’s relative inexperience led to inadequate management of purchases in relation to changing sales levels, contributing to losses in his early 10 These figures exclude GST. -- 10 of 19 -- Decision 11 years in the business. We reject Mr Wright’s proposition that, because the Claimant bought the business from a franchise operator, it could be successfully run by inexperienced persons in the circumstances of this case. 52. The building work in the car park, as we find, occurred at least 50 metres from the Claimant’s premises. Those premises are not situated in a quiet suburb or country town, but in a particularly busy, congested and noisy part of Brisbane. Any noise transmitted from the car park to the TCB had to pass through that environment, and through the brick walls of an old department store. Commercial tenants on the second and upper floors of the TCB found it tolerable to remain there during the car park refurbishment. The entrance from Duncan Street to the TCB arcade was not blocked until mid-2005, when the TCB works were in train. Until then, the potential customers’ access to the Claimant’s premises was not physically obstructed. 53. While the Claimant submitted that any reduction in casual parking places in Duncan Street affected its sales, it simultaneously, and more than a trifle inconsistently, asserted that most of its daytime customers come from nearby offices, and its evening customers from nearby apartments. We find it improbable that many such customers depend on the Duncan Street car park. The position may well be different for visitors to the weekend markets, but, on Lee’s own account, these are and were his most profitable trading days. 54. All in all, we are not satisfied that the Claimant has established its belated, and somewhat faintly pursued claim of losses caused by building work in the car park. Liability of the Respondent for actions of Grandwealth? 55. Much written and oral evidence was devoted to the question of the Respondent’s liability, if any, for the works in Grandwealth’s car park. As indicated in the immediately preceding section of these reasons, we reject this aspect of the claim. Accordingly, it is unnecessary for us to say anything here about “lifting the veil” or possible vicarious liability. We move to other matters. Loss due to refurbishment of the TCB. 56. The Respondent admits that its alterations to this building caused loss to the Claimant from about July 2005 to May 2006, and that according to section 43 of the Act it is liable to compensate the Claimant to the extent, if any, that it has not already done so. Quantum 57. We have found that that the Claimant, through Lee’s inexperience, failed in part to mitigate its loss by controlling stock wastage. However we have no hesitation in -- 11 of 19 -- Decision 12 rejecting Hellen’s suggestion that the proper course, by way of mitigation, was to close the business down, thus abandoning the moneys invested in it. 58. We reject the base period for notional sales chosen by Wright on the one hand, and by Hellen, on the other. In our view Wright’s selection is too brief a period for proper assessment of sales trends, and Hellen inappropriately focuses on a period of exceptionally low sales. 59. We have assessed the Claimant’s losses in the financial year 2005-2006, as it is proximate to the period of disturbance by the TCB refurbishment. We use the trading results of the 2004-2005 financial year to calculate the notional gross loss of profit in the following year. We discount the cost of notional sales by applying the same respective proportions of the components as in the 2004-2005 financial year. In our opinion the reduction in rent should not be reflected in our assessment, as the change in operating costs is not due to the operating conditions but is a separate lease adjustment. In the circumstances we do not consider that a CPI increment should apply. 60. We find that the Respondent liable to pay to the Claimant the sum of forty thousand seven hundred and two dollars [$40,702] as reasonable compensation. Our calculations are set out in the attached schedule. There is an appropriate adjustment for the amount of $11,000 already paid. COSTS 61. The Claimant and the Respondent each seek orders for costs. The Tribunal has the benefit of comprehensive and detailed submissions by counsel for each party. 62. The Claimant says that the Respondent has unnecessarily increased the Claimant’s costs by giving late notice of applications to adjourn directions hearings, by failing to attend mediation, by non-observance of procedural requirements and by resisting attempts to settle the dispute. The Respondent’s failure formally to admit liability in a timely manner, according to the Claimant, was “frivolous or vexatious.” The Claimant submits that it is entitled to recover whole or part of those costs pursuant to section 91(3) (a) and (b) of the Act. 63. The Respondent seeks an order for costs on two grounds: (a) Under section 91(3)(a): On the basis that the Claimant’s pursuit of “the car park claim” (which we have dismissed) was “frivolous or vexatious”; and (b) Under Section 91A: On the basis that the Respondent’s costs incurred after the 4 May 2007, when the Respondent offered the Claimant in writing (and the Claimant rejected) the sum of $45,000 in full settlement of the dispute, that offer being more favourable to the Claimant than the decision of the -- 12 of 19 -- Decision 13 Tribunal in this dispute. The Law 64. The general rule (section 91(2)) is that parties to proceedings in this Tribunal bear their own costs, but in the special circumstances described in sections 91(3) and 91A the Tribunal has a discretion to award “an order for costs” (s 91(3) or “the reasonable costs incurred by the [applicant] for the hearing after [the written offer] was served (s 91A(2). FINDINGS ON COSTS 65. We set out below the substance of each submission, and our decision in relation thereto. The Claimant’s applications 66. (a) Section 91(3)(b)(i): Failure to attend mediation: A mediation conference was scheduled for 21 June 2006. On 20 June, the solicitor for the Respondent notified the Claimant’s solicitor that he had no instructions to participate in the mediation, but would attend to seek an adjournment of same. The mediation was adjourned by consent, and took place one week later. No agreement was reached. The Claimant says agreement was impossible because the Respondent then, for the first time, sought detailed financial information that the Claimant was unable to provide at short notice. The Claimant seeks costs of $616 on this account. Finding 67. We find that the Respondent did attend a mediation conference, after it was adjourned on the papers for one week, by consent. The fact that the adjourned conference was unsuccessful does not warrant an order for costs. 68. (a) Section 91(3)(b)(ii) and (iii): (A) Seeking an adjournment of the hearing without giving reasonable notice; (B) contravening a procedural requirement A three-day hearing was set down for 18 December 2006 and following days. Two previous hearing dates has been vacated because one or other party was not ready to proceed. 11 On 1 November 2006 the Claimant received the report of Mr Wright, (see above) which raised the car park renovations as a possible 11 See footnote [1] -- 13 of 19 -- Decision 14 ground for compensation. A copy of that report was delivered to the Respondent on 10 November 2006, and the Claimant amended its Notice of Dispute to add the car park works as a new ground of claim. On 18 December 2006 the matter was adjourned by consent, and it was ordered that the Respondent deliver to the Claimant, by 18 January 2007, detailed records relating to the car park, including daily records of usage of same. The Respondent was unable to supply all such records by that date, but provided the Claimant with what the Respondent says were sufficient records to enable the Claimant’s analysis to commence, and undertook to provide the remaining records at an early date. A directions hearing was held at the Claimant’s request on 23 January 2007, when the previous orders were amended. 69. On this account the Claimant seeks costs of $7,700, saying that those costs were thrown away by adjournment of the hearing on 18 December 2006, and by the Respondent’s failure to comply fully with the procedural orders made on that day. Finding 70. This is a remarkable application, considering that it was the Claimant’s substantial amendment of the Notice of Dispute that led to the adjournment on 18 December 2006, an adjournment to which the Claimant consented. The claim for costs under section 91(3)(b)(ii) is untenable, and accordingly is dismissed. 71. As to the provision of further particulars, the orders made on 18 December 2006 required the Respondent to provide a very large volume of material, some of it recorded on an electronic device which had malfunctioned. The Respondent honoured its undertaking to provide the balance of the material well before the new hearing date in May 2007. The Claimant has not satisfied us that it suffered any significant prejudice by the delay in delivery of the balance of the car park records. 72. The Respondent, on the other hand, submits that the directions hearing on 23 January 2007 unnecessary. We agree. The Claimant’s application for costs under section 91(3)(b)(iii) is dismissed. 73. (c) Section 91(3)(a): The retail tenancy dispute is frivolous or vexatious Section 91(3)(a) enables an order to be made against a party who, in the opinion of the Tribunal, has pursued a “frivolous or vexatious” dispute. The purpose of this provision, according to the Memorandum which accompanied the 1999 amendments to the Act, is “to allow the Tribunal to order costs … where [the] intention is clearly to prolong or impede access to justice rather than genuine resolution of a dispute”. 74. In principle, no doubt, the description “frivolous or vexatious” is as capable of applying to a defence as to a claim, and the Claimant says that it applies to the present defence. 75. In the literature relating to costs the terms “frivolous” and “vexatious” are often -- 14 of 19 -- Decision 15 used interchangeably, as in s 91. The courts have not found it necessary or desirable to define either of them as terms of legal art.12 In ordinary parlance they denote a claim that lacks bona fides, or is unworthy of serious consideration, or is designed to harass or waste time or money, 13 with no reasonable prospects of success. 76. The proper approach to an application for costs in tribunals where costs do not follow the event is considered by McMurdo P and Atkinson J in Mudie v Gainriver Pty Ltd (No 2)14 from which these broad propositions may be drawn: (a) It is not necessary that there be special or exceptional circumstances before an order may be made; (b) “Vexatious” means productive of serious, unjustified trouble and harassment; and (c) A question whether particular proceedings are vexatious depends on the circumstances of the case, including public policy considerations and the interests of justice. 15 Presumably, however, proposition (a) does not mean that specific limitations in particular statutes may be disregarded. Inferentially, the reference to public policy includes proper economy in the use of judicial resources. 77. Counsel for the Claimant referred us to the decision of the Court in Tamawood Ltd v Paans. 16 However, that decision relates to legislation that confers a wider discretion as to costs than this Tribunal possesses. 17 The tribunal in Tamawood was authorised to consider, inter alia, conduct of parties “before and during the proceedings”. 18 78. Here the Claimant contends that the Respondent “opposed the Claimant’s right to compensation at every step”19 by insisting on production of all the Claimant’s primary records, namely cash register tapes, by failing to admit liability until shortly before the hearing, and by failing to make a reasonable settlement offer. 79. We accept that there was a degree of intransigence in the Respondent’s insistence on seeing the cash register tapes, despite advice from the Claimant’s solicitor that they no longer existed. (There is no suggestion that this information was false.) We also accept that, while the Respondent did not make a formal admission of liability until shortly before the hearing, the correspondence exhibited to affidavit Ms Salisbury’s affidavit 20 shows that the Respondent made an informal admission much earlier. Indeed, several offers were made to the Claimant in that period, only to be rejected outright, or met by counter offers. 80. In our view it would be drawing a long bow to conclude that a Respondent who 12 The Atlantic Star [1974] AC 436 at 464-468. 13 Cairns: Australian Civil Procedure 4 th ed 1996 246. 14 [2002] QCA 546 at [31]-[37]. 15 See also Oceanic Sun Line Special Shipping Company Inc v Fay (1997-1998) 165 CLR 197 per Deane J at 247. 16 Tamawood Ltd & Anor v Paans [2005] QCA 111. 17 Commercial and Consumer Tribunal Act 2003 (Qld), section 71. 18 Ibid s 71(4)(b). 19 Transcript of submissions on costs at 7. 20 Filed 24 May 2007. -- 15 of 19 -- Decision 16 made several offers of settlement – including an offer in excess of the amount that we have awarded - was wantonly, pertinaciously or irresponsibly defending this claim. While we feel bound to express our grave concern at the volume of paper, and consequent costs that these parties have accrued, in a Tribunal designed to act as quickly, and as informally as possible, 21 we are quite unable to characterise the Respondent’s defence of the amended claim as either frivolous or vexatious: “[T]he inherent jurisdiction of this court to protect its process from abuse by … summarily disposing of an action as frivolous and vexatious … will never be exercised unless the plaintiff's claim is so obviously untenable that it cannot possibly succeed.” 22 81. The Claimant’s application under section 91(3)(a) is dismissed. The Respondent’s Applications for Costs 82. (a) The car park claim: frivolous or vexatious? As noted above, this claim was apparently inspired by a suggestion in Mr Wright’s report of 1 November 2006. The Claimant took up that suggestion by amending its Notice of Dispute. Obviously the addition of that issue required the Respondent to embark on inquiries, and to present evidence that would have been unnecessary and irrelevant if that amendment had not been made. But a claim is not frivolous or vexatious merely because it increases the preparations that an opponent must make; nor is it frivolous or vexatious simply because it is ultimately unsuccessful, as the subject claim has been in this case. Before an award under section 91(3)(a) could be justified, we would have to take the long, additional step of finding that the car park claim, ab initio, was “so untenable that it [could] not possibly succeed”.23 A power to stigmatise claims as frivolous is not to be so used that litigants are prevented or discouraged from “submit[ting] real and genuine controversies to the adjudication of the courts”. 24 Indeed, it is a power to be used very sparingly. 25 It would not be appropriate to use it in this case. 83. The Respondents application under section 91(3)(a) is dismissed. 84. (b) Section 91A Section 91A provides, so far as is now material, as follows: 21 Retail Shop Leases Act 1994 ss 4(b), 72(1)(b) 22 Cf Burton v Shire of Bairnsdale (1908) 7 CLR 76 at 92, per O’Connor J; approved Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at [13]. 23 Burton v Shire of Bairnsdale (1908) 7 CLR 76 at 92, per O’Connor J. 24 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at [13] per Dixon J. 25 Lawrance v Norreys (1899) 15 App Cas 210 at 219. -- 16 of 19 -- Decision 17 (1) This section applies if – (a) a party … serves another party to the dispute with a written offer to settle the issues in dispute …;and (b) the other party does not accept the offer while the offer is open; and (c) in the opinion of the tribunal … the decision of the tribunal … is not more favourable to the other party than the offer. (2) The tribunal may award the party who made the offer the reasonable costs incurred by the party for the hearing after the offer is served. 85. The offer need not be in any particular form, provided that it is in writing. No criteria or guidelines for the assessment of costs in such cases are prescribed. The discretion to award costs, and to fix the quantum of costs, if any, is wide. In our view the Tribunal, in determining what is “reasonable”, may properly consider, inter alia, any apparent inflation of a party’s preparations for trial, the difference between the amount offered and the amount actually recovered, and the relative financial resources of the parties, so far as that can be ascertained from evidence before the Tribunal. 86. On 4 May 2007 the Respondent made a written offer to settle this dispute by paying to the Claimant an amount of $45,000.26 The Claimant’s solicitor immediately responded with a counter-offer, namely, to accept $45,000 with the addition of a rent-free period of 6 months from 1 June 2007.27 The Claimant’s counsel concedes that the current rent is $4987.28 per month. At that rate a suspension of rent for 6 months would be worth approximately $30,000 to the Claimant. That being so, the Claimant’s counter-offer required the Respondent to pay $75,000, or thereabouts, to settle this dispute. 87. The Respondent’s offer was made on Friday 4 May 2007 and was expressed to remain open until 5pm that day. The hearing commenced on Tuesday 8 May 2007. The Respondent’s penultimate offer was for $30,000 made in December 2006 before the proceedings were aborted on 18 December 2006. After this date the Claimant’s pursuit of the “car park issue” put both parties to considerable expense in preparing material on that aspect of the case. 88. While it cannot be said that the offer was made too late for the Claimant to consider it28 – the Claimant had time to make a counter offer - the fact is that 6 months elapsed before the Respondent increased its offer, almost on the eve of the hearing. 89. The Tribunal has awarded the Claimant only $40,702, which is manifestly less favourable to the Claimant than the offer of $45,000. However, we note the lateness of the Respondent’s final offer and the disparity in the financial circumstances of the parties. 26 Letter Deacons to McKelvey & Hu, 4.5.07, exhibited to affidavit Rory Salisbury filed 24.5.07. 27 Letter McKelvey & Hu to Deacons, 4.507, exhibited to affidavit Rory Salisbury filed 24.5.07. 28 Pollard v Baulderstone Hornibrook Engineering Pty Ltd & Anor (No 2) [2007] NSWSC 486. -- 17 of 19 -- Decision 18 90. Nevertheless, we will allow the Respondent’s application under section 91A. There will be an order that the Claimant pay the Respondent’s costs in the amount of five thousand dollars ($5,000). ORDER That the Respondent pay to the Claimant the sum of $40,702, less the amount of $5,000 awarded to the Respondent by way of costs herein, (namely the net amount of $35,702) within 30 days of service upon it of this order. A F FORBES Chairman -- 18 of 19 -- Decision 19 SCHEDULE Assessment of Loss of Profits for the period 1st July 2005 to 30th June 2006 Notional Sales $245,891 (1) Actual Sales $106,661 (2) Loss of Sales $139,230 Loss of Gross Profit @ 52.89% $ 73,638 (3) Cost Savings Wages & Superannuation $20,722 Kitchen supplies $ 1,214 $ 21,936 (4) Loss of Profits $ 51,702 Less Compensation Paid $ 11,000 (5) Additional Loss $40,702 (1) Based on actual sales 1 July 2004 to 30th June 2005 (2) Based on reported sales 1 July 2005 to 30 th June 2006 (excludes $11,000 compensation included in financial statements) (3) Gross profit margin is in accordance with the 2004/05 financial year (4) Cost savings for wages, superannuation and kitchen supplies has been based upon the variation in actual costs for the 2004/05 to 2005/06. (5) Paid to DHS & J Pty Ltd for closure of business from 11th December 2005 to 21st December 2005. -- 19 of 19 --