MITCHELSTOWN PTY LTD and SUMMERMIST PTY LTD

[2016] WASAT 131 (S)

JURISDICTION	:	STATE ADMINISTRATIVE TRIBUNAL
ACT	:	COMMERCIAL TENANCY (RETAIL SHOPS) AGREEMENTS ACT 1985 (WA)
CITATION	:	MITCHELSTOWN PTY LTD and SUMMERMIST PTY LTD [2016] WASAT 131 (S)
MEMBER	:	MR D MACLEAN (MEMBER)
HEARD	:	DETERMINED ON THE DOCUMENTS
DELIVERED	:	22 DECEMBER 2017
FILE NO/S	:	CC 158 of 2016

BETWEEN : MITCHELSTOWN PTY LTD

Applicant

AND

SUMMERMIST PTY LTD

Respondent

Catchwords:

Application for costs - Exercise of discretion - Compliant and non-compliant offers of settlement - Settlement less generous to applicant than previous offer

Legislation:

State Administrative Tribunal Act 2004 (WA), s 55, s 87(1), s 87(2)

State Administrative Tribunal Rules 2004 (WA), r 40, r 41, r 42

Result:

Application for costs refused

[2016] WASAT 131 (S)

Summary of Tribunal's decision:

The applicant referred a question to the Tribunal as to the rent payable under a lease. Following agreement between the parties as to the rent payable the respondent pursuant to s 87(2) of the State Administrative Tribunal Act 2004 (WA), (SAT Act), sought an order that the applicant pay part of its costs of the proceeding.

The Tribunal found that there was a genuine dispute between the parties and their rights were unclear. The Tribunal found that the starting point in s 87(1) of the SAT Act, namely the parties should bear their own costs, was the appropriate final point for this application.

The Tribunal found that this was not a matter in which the applicant conducted itself in a way as to unnecessarily prolong the hearing; and the respondent did not establish that the applicant had acted unreasonably or inappropriately in its conduct of the proceedings.

The application was refused.

Category: B

Representation:

Counsel:

Applicant	:	Mr P Fraser
Respondent	:	Mr J Skinner

Solicitors:

Applicant	:	Dwyer Durack Lawyers
Respondent	:	Borello Graham Lawyers

Case(s) referred to in decision(s):

Barnett and Barrier Reef Pools (WA) Pty Ltd [2016] WASAT 50
Mitchelstown Pty Ltd and Summermist Pty Ltd [2016] WASAT 131

Western Australian Planning Commission v Questdale Holdings Pty Ltd

[2016] WASCA 32

[2016] WASAT 131 (S)

REASONS FOR DECISION OF THE TRIBUNAL:

Introduction

1              On 9 February 2016, the applicant referred a question as to the rent

payable under a retail shop lease seeking a determination of the market rent as at 1 June 2015 in respect of premises leased by the applicant from the respondent.

1. On 10 February 2016, the applicant assigned its interest in the lease to a third party.

3              On 3 February 2017, the Tribunal made orders, following a

settlement reached by the parties, that the proceedings, but for the issue of costs, could settle on terms that included an agreement that the rent payable as a result of a review of market rent for the premises was an amount of $225,000 per annum together with an adjustment, by way of a payment to the applicant by the respondent, arising from the payments of rent made between 1 June 2015 to 9 February 2016. All amounts in these reasons are expressed exclusive of GST.

The respondent's submissions

1. The respondent contends that the issues in this application are:

1)  For the Tribunal to determine in the first instance whether 'in principle' any order that the applicant pay part of the respondent's costs of the proceedings:

a)	ought to be made; and
b)	from what date any such order should apply.

5              The Tribunal has determined that no order to pay any part of the

respondent's costs should be made. Accordingly, the issue of from what
date any costs order should apply is not considered by the Tribunal.

1. According to the respondent at paragraph 5:

   The principal issue to be determined by the Tribunal in relation to the

   present application … for costs … is whether [the applicant], by its

   conduct, unnecessarily prolonged the proceedings, or acted unreasonably or inappropriately in its conduct of the proceedings, thereby impairing the attainment of the Tribunal's statutory objectives to have the proceedings determined fairly and in accordance with the substantial merits of the matter, with as little formality and technicality as possible and in a way which minimises the costs of the parties.

[2016] WASAT 131 (S)

1. The Tribunal does not consider that the applicant:

1)	unnecessarily prolonged the proceedings, or
2)	acted unreasonably or inappropriately in its conduct of the proceedings; or
3)	impaired the attainment of the Tribunal's statutory objectives to have the proceedings determined fairly and in accordance with the substantial merits of the matter, with as little formality and technicality as possible in a way to minimise the costs of the parties.

1. The rent payable as at 1 June 2015 was $307,993. The applicant disputed the June rent.

9              Subsequently, the applicant appointed Mr John Martin as a valuer

and the respondent appointed Mr Marc Crowe as a valuer. Mr Martin prepared a valuation report assessing the June 2015 rent at between $174,625 and $194,850 per annum.

1. Mr Crowe and Mr Martin conferred. On 30 September 2015, Mr Martin sent Mr Crowe an email proposing that the June 2015 rent be agreed between $200,000 and $220,000 per annum.

11            The respondent contended that it was at all times willing to reach a

commercial settlement regarding an adjustment of rent paid during that
period.

12            The respondent referred to a valuation prepared by Mr Crowe,

assessing the June 2015 rent as $274,500 per annum in support of the
contention and offers it made to the applicant to resolve the proceeding.

1. The respondent described these as the first, second, third and fourth

   offers.

2. The applicant made one offer described as the applicant's first offer.

3. The offers were:

Offer	Rent	Adjustment	Costs	Date	Open to
st

1	offer	$264,880	$30,000	-	15 April	29 April
nd
2	offer	$253,025	$38,250	-	15 April	29 April

[2016] WASAT 131 (S)

rd

3 offer $220,000 $60,993 - 8 December 22 December

Applicant's $200,000 $75,232 $15,000 11 January -

st

1    offer

th

4 offer No $90,232 11 January

agreement June rent

was

$200,000. Matter to

be

withdrawn by consent.

16            The first offer was a rent of $264,880 per annum together with a

payment of $30,000 reflecting the adjustment. The proceedings were, if the offer were accepted, to be dismissed by way of a minute of consent orders.

1. The second offer rent assessed at $253,025 and a payment to the applicant of $38,250 reflecting the adjustment.

2. The first offer was made in compliance with r 40 and r 41 of the

   State Administrative Tribunal Rules 2004 (WA) (SAT Rules).

19            Rule 40 provides for a settlement offer to be made without prejudice

meaning that the Tribunal was not able to be told of the making of an offer until after it had made its decision in respect of the matters in dispute.

1. The offer was open for acceptance for a period of 14 days from the date of the letter.

21            By the same correspondence the applicant made the second offer.

This was not made in compliance with the SAT Rules and was open until
19 April 2016.

1. The respondent did not respond to either offer or make a

   counteroffer.

23            In its submissions, the applicant referred to the mediation conference

which took place on 29 April 2016. The Tribunal permitted a third party

[2016] WASAT 131 (S)

to attend, namely the third party who received the assignment of the lease.
The proceeding did not settle at the mediation conference.

24            The respondent was critical of the applicant's approach to, and its

conduct at mediation. However, evidence of anything said or done at mediation is not admissible at any later stage of the proceeding; s 55 State Administrative Tribunal Act 2004 (WA), (SAT Act), unless criteria set out in that provision, not met in this application, are established. The Tribunal places no weight on the respondent's contentions with regard to the mediation.

25            Following mediation, the respondent offered to meet with the parties'

respective valuers to discuss a resolution of the proceedings. The respondent's invitation was, according to paragraph 37 of the respondent's submissions, not accepted. Following an unsuccessful application by the third party to join the substantive proceedings, the respondent raised the possibility of the proceedings being relisted for mediation.

26            The application for joinder was determined by the Tribunal in the

decision of Mitchelstown Pty Ltd and Summermist Pty Ltd [2016] WASAT 131, (Mitchelstown). The applicant did not take a position in that application and the Tribunal does not consider that the application or the outcomes are relevant to the determination of this application for costs.

27            According to the respondent, the applicant declined the proposal to

relist the proceedings for mediation and instead, sought orders programming the proceedings for a final hearing. The applicant's email of 8 November 2016, attached to the respondent's submissions, demonstrates that the applicant did not consider a second formal mediation conference would be useful but remained open to consider any written settlement offer.

28            On 8 December 2016, the respondent made a third offer to resolve

the proceedings on the basis of a payment, which reflected an adjustment of the June 2015 rent to $220,000 together with a payment of $60,993, reflecting the adjustment. The third offer was made in accordance with r 40 and r 41 of the SAT Rules. It was open for acceptance until 22 December 2016.

29            The applicant, by email sent 22 December 2016, advised that the

offer was not accepted. The applicant did not make a counterproposal to
the third offer.

[2016] WASAT 131 (S)

30            The respondent submitted that the Tribunal was bound to have regard

to the third offer as an offer made in compliance with the SAT Rules, the terms of which, it said, were more favourable to the applicant than the outcome of the proceedings.

31            On 11 January 2017, the applicant made an offer, described by the

respondent as the applicant's first offer, offering to resolve the
proceedings on the basis that included:

a)	consent orders that the June 2015 Rent be $200,000 per annum;
b)	a payment from the applicant to the respondent of $75,232, reflecting the adjustment; and
c)	an additional payment of $15,000 to the respondent for legal costs.

1. The respondent declined the applicant's first offer but made a fourth offer to resolve the proceedings on the basis:

a)	the respondent would pay the applicant $90,232, which was the total monetary amount sought by the applicant. The offer did not apportion between the adjustment and a contribution to the applicants legal costs;
b)	no agreement that the June 2015 Rent was $200,000 per annum; and
c)	a Minute of Consent Orders for the withdrawal of the proceedings.

33            The applicant declined the respondent's fourth offer by an email

dated 13 January 2017. The applicant disclosed that the reason it insisted upon the terms of the offer related to potential proceedings against it 'should it agree to settle these proceedings in a manner prejudicial to the interests of the [third party]'.

34            The applicant informed the respondent by that email that it had

received counsel's advice that settling 'other than by way of an agreed determination of market rent as at 1 June 2015, would involve considerable risk to the applicant in this regard'.

[2016] WASAT 131 (S)

35            Subsequently, on 13 January 2017, the respondent engaged another

expert, Mr Jason Fenner, to prepare a valuation report in relation to the
June 2015 rent.

36            The respondent proposed a variation of its fourth offer on

17 January 2017 by which it proposed a variation of its fourth offer on the
suggestion of senior counsel that:

[T]he parties also expressly agree to settle on the basis that it is agreed that (i) there is a continuing dispute about the appropriate market rent determination as at 1 June 2015, and (ii) neither party concedes that the global settlement amount is to be apportioned in any particular way towards either rent or costs. [senior counsel] commented that if this is expressly agreed, he cannot see that there would be any prejudice to [the third party] at all, as the question of the historically appropriate rental determination as at June 2015, if ever relevant and able to be pursued by [the third party], could still be litigated between [the third party] and the [applicant]'.

1. The respondent also recorded senior counsel's offer to speak further with the applicant's counsel if required.

38            The applicant replied by email dated 18 January 2017, recording the

applicant's position that the issue addressed in the respondent's email of 17 January 2017 had been considered. However, the applicant remained concerned as to the risk of proceedings against it by the third party and observed:

It seems to us that if you are right in the view expressed, then the form of the offer makes no difference and there is no reason that your client should not settle on the basis that we have previously suggested. Our previous offer remains open for acceptance at this time.

1. The applicant also invited the respondent to provide an indemnity to it should the matter be settled on the basis suggested by the applicant.

40            The respondent, by email dated 18 January 2017, recorded its

position that it did not agree that the market rent of the premises as at 1 June 2015 was $200,000 per annum and for that reason, considered that disposing of the proceedings on the basis of a minute of consent orders, resulting in an order by the Tribunal that the market rent was that amount, was inappropriate. The respondent recorded its position that providing an indemnity was not something it was prepared to contemplate but noted that the applicant had not disclosed any details of the threatened proceedings by the third party.

[2016] WASAT 131 (S)

41            Each party, not surprisingly, wished to document the final resolution

of the proceeding on a commercial basis from their perspective. Those perspectives differed and demonstrate that the resolution required more than simply an agreement as to a dollar amount being agreed and the differences in how a resolution might be described, made settlement difficult.

1. Mr Fenner prepared a valuation report and assessed the June 2015 rent as $253,000 per annum. On 1 February 2017, following conferral between them, Mr Fennel and Mr Martin filed a joint statement recording their agreement on the June 2015 rent as $225,000 per annum.

43            The agreed rent was $5,000 higher than the top of the range rent

proposed by the valuer engaged by the applicant, Mr Martin, by his email
dated 30 September 2015.

44            Following the agreement between Mr Fenner and Mr Martin on

2 February 2017, the parties signed and filed minute of proposed orders
including orders that:

a) the rent payable as a result of market rent for the premises

… is an amount of $225,000 per annum; and

b) the respondent is to pay the applicant the amount of $57,754.

45            The respondent submits that the outcome of the proceedings was that

the rent was agreed at an amount higher than the respondent's third offer. This is so. The third offer proposed the June rent be $220,000 and an adjustment payment of $60,993 to the applicant.

1. The respondent at paragraph 55 of its submissions also submitted that the proceedings are settled on a basis that was:

   [S]ubstantially higher than the amount proposed by [the applicant] as part

   of [the applicant's] First Offer … [and] substantially higher than the

   amount proposed by [the respondent] as part of [the respondent's] Fourth
   Offer[.]

47            The applicant's first offer was that rent be $200,000 per annum and a

payment calculated for the period on that rent together with a contribution
to legal costs.

48            The respondent's fourth offer was one in which there was no

agreement that the June 2015 rent was $200,000 per annum but with a

[2016] WASAT 131 (S)

more generous monetary payment to the applicant without stipulating how that amount might be apportioned between the adjustment and any contribution to the applicant's legal costs.

1. The outcome, reached at settlement was an agreed rent that was higher than the amount offered or proposed by the applicant's first offer.

2. It is also apparent that the rent settled upon, was higher than the amount proposed by the respondent's fourth offer.

51            Consequently, the adjustment was less than the amount sought by the

applicant as part of the applicant's first offer and the amount offered by
the respondent as part of its third and fourth offers.

52            It is also clear that the rent agreed at settlement, reflected a

substantial discount to the respondent's opening position as reflected in the first offer, a better result than offered in the respondent's second offer and a substantially better outcome than the start point, that is, the June rent of $307,993 when the applicant referred the question to the Tribunal for determination.

53            The power to order costs is discretionary and to be exercised

judicially. The applicant provided the Martin report before the referral of the question. The Martin report provided a range of rents. The ultimate result demonstrates that the range in the Martin report was reliable. The proceeding, significantly, was resolved in circumstances where there was an early, pre - referral, proposal very close to the amount that the matter ultimately settled for, in respect of a limited time period of a lease that had been assigned, and where there was a perception on the part of the applicant that it may face further proceedings by a third party. Clearly, the negotiation was a difficult one, and the Tribunal considers that it was not unreasonable that the applicant stuck to its guns, so far as the amount it was prepared to negotiate a settlement for, in circumstances where the applicant had provided an early reasonable range, by way of the Martin report. How it negotiated that was a matter for the applicant.

54            Further, the outcome of the proceedings, although recorded in an

order made by the Tribunal, resulted from the agreement of the parties following an agreement by the valuers engaged for the proceeding. This was not a determination made by the Tribunal after a contested hearing, but an agreement between the parties. The joint conferral between the valuers on 1 February 2017 might also have been significant since it may have provided a rational basis, as opposed to mere horse trading, for each party to reconsider their positions with regard to the quantum of the rent.

[2016] WASAT 131 (S)

55            Numerically, the amount paid to the respondent as the apportionment

and the agreed outcome of the June 2015 rent, was lower than the respondent's third and fourth offers and the applicant's first offer. It does not follow that this establishes that the consent orders made by the Tribunal in this proceeding, are not more favourable to the applicant than the offer, or to put it more plainly, the fact that the applicant negotiated a settlement by which it was to receive a lesser adjustment on the basis of a higher rent, then it might have received, had it accepted the respondent's third or fourth offers, does not establish that it settled for a worse result or that it should be exposed to an order for costs.

56            The reference to not more favourable is particularly relevant in so far as the third offer goes, since this was an offer made in accordance with r 41 and r 42, and the Tribunal is bound to have regard to it.

57            The applicant advanced a basis for not accepting the third and the

fourth offer. The Tribunal, as was the respondent, was not in a position to assess the grounds advanced by the applicant, but it is with respect a matter for the applicant to determine. Its decision did not impair the attainment of the Tribunal's statutory objectives. The applicant, armed as it was with the Martin valuation report, this valuation report being disclosed to the respondent, was also not obliged to accept either the first or the second offers. It was sensible to invite a further offer and the applicant cannot reasonably be criticised for wishing to program the matter for hearing.

58            That fact that the question was resolved by the parties informally,

demonstrates an outcome that did not impair the Tribunal's statutory objectives. The fact that it settled very close to a range proposed prior to the institution of the substantive application, demonstrates that the proceedings were determined fairly. The best demonstration of this is that the parties resolved the matter.

Applicant's submissions

59            The applicant submits that prior to the commencement of the

proceedings, Mr Martin suggested to Mr Crowe that the market rent should be assessed at between $200,000 and $220,000 and further, that Mr Crowe did not respond.

1. The applicant also submitted that the respondent did not approach the figure of $220,000 until 8 December 2016.

[2016] WASAT 131 (S)

1. The orders made by the Tribunal on 3 February 2017 fixed the market rent at $225,000.

62            The applicant's position was that it was put to the cost and expense of

these proceedings, because of the failure of the respondent's valuer to respond to Mr Martin's suggested rent and in order for the respondent to receive a $5,000 increase in the annual market rent proposed by Mr Martin.

1. The applicant contended that it was neither fair nor reasonable to order that the respondent receive any costs.

Authorities and analysis

64            The Tribunal considers that the starting point is that which was stated

by the Court of Appeal at [51], in Western Australian Planning Commission v Questdale Holdings Pty Ltd [2016] WASCA 32 , (Questdale) citations omitted; namely:

Section 87(2) is to be construed in the context that the legal rationale for an order for costs is not to punish the person against whom the order is made, but to compensate or reimburse the person in whose favour it is made. That rationale is evident in s 87(3) of the SAT Act. Accordingly, even in a statutory context where the presumptive position is that no costs will be ordered, generally speaking, the question is whether, in the particular circumstances of the case, it is fair and reasonable that a party should be reimbursed for the costs it incurred. The onus is on the party seeking an order in its favour.

65            The Tribunal considers that the first observation is relevant, namely

an order for costs is compensatory and they are not to be imposed by way
of a penalty.

66            In Questdale, Martin CJ, in the context of a different jurisdiction, namely the Tribunal's jurisdiction to award costs with respect to the determination of compensation for the resumption of land, said at [10]:

[I]t cannot be concluded from the mere fact that the compensation determined by the Tribunal is less than that offered by the resuming authority that the land owner 'has maintained an unjustified proceeding and so should have to pay the respondent its costs for the trouble and expense of defending the claim'[.]

67            The Tribunal respectfully considers these comments apposite to the

current application. Plainly, commercial imperatives informed each of the parties in the manner of how the settlement might be reached and recorded. They were different imperatives but that does not mean one

[2016] WASAT 131 (S)

was preferable to the other. The merits could not be determined by regard
only to the price paid or accepted to achieve the settlement.

68            In Barnett and Barrier Reef Pools (WA) Pty Ltd [2016] WASAT 50, a decision of the Tribunal, relied on by the parties in this application, the Tribunal considered an application for costs under a different enabling Act and at [14] considered the principles that applied to the resolution of a costs dispute. The Tribunal has regard, without setting out, to those principles in the determination of this matter.

69            The Tribunal is satisfied that the offers were genuine and made with

a reasonable opportunity for the applicant to consider them. The Tribunal is also satisfied, that is, so far as the respondent's third and fourth offers go, the applicant might have been in a marginally better position had it accepted the third offer, which was made according to the SAT Rules and which was open until 22 December 2016 and the fourth offer which was made on 11 January 2017.

70            The Tribunal is not satisfied that the applicant, by not accepting the

third or the fourth offer, impaired the attainment of the Tribunal's statutory objectives to have the proceedings determined fairly, and in accordance with the substantial merits of the matter, with as little formality and technicality as possible and in a way which minimises the costs of the parties. The Tribunal considers that the matter was complex, the dispute was genuine and the fact that the matter was resolved by agreement, for a sum very close to a range proposed by the applicant's valuer, prior to the institution of these proceedings, counts against the respondent's application. The Tribunal finds that the respondent has not only failed to discharge the onus it carries to establish that the applicant's conduct was such as to justify an order for costs, but rather, the Tribunal is satisfied that an order for costs is not justified.

Conclusion

1. For the above reasons, the application that the applicant pay the respondent's costs should be dismissed.

[2016] WASAT 131 (S)

Orders

1.        The application for an order that the applicant pay the respondent's costs is dismissed.

I certify that this and the preceding [71] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

MR D MACLEAN, MEMBER