Australia: Retail tenancy disputes in NSW - practice and procedure

In brief - Retail tenancy disputes in NSW generally dealt with by a specialised tribunal rather than a court

Proceedings relating to retail tenancy disputes in NSW are generally commenced in the Retail Leases Division of the Administrative Decisions Tribunal. Mediations of retail tenancy disputes are generally conducted by the Retail Tenancy Unit.

What is a retail tenancy dispute?

Section 63 of the Retail Leases Act (RLA) defines "retail tenancy dispute" as "any dispute concerning the liabilities or obligations (including any obligation to pay money) of a party or former party to a retail shop lease or former lease, being liabilities or obligations which arose under the lease or former lease or which arose in connection with the use or occupation of the retail shop to which the lease or former lease relates, and (without limiting the generality of the foregoing) includes a dispute about a security bond".

In coming to terms with that definition, it is necessary to have regard to the meaning of "retail shop" and "retail shop lease", both key factors in determining the existence or otherwise of a retail tenancy dispute.

How is a retail shop defined by section 3 of the Retail Leases Act?

A retail shop is defined by section 3 of the RLA as:

  • premises that are used or proposed to be used wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of the definition; or
  • premises which are used or proposed to be used for the carrying on of any business in a retail shopping centre whether or not a business prescribed for the purposes of the definition.

Prescribed businesses are to be found in Schedule 1 to the RLA.

What is a retail shop lease under the Retail Leases Act?

"Retail shop lease" is defined in section 3 of the RLA to mean any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop, whether or not the right is one of exclusive occupation, whether the agreement is express or implied or whether the agreement is oral, in writing, or partly oral and partly in writing.

This is a wide definition which could include a lease, sub-lease or possibly a licence.

Premises which do not fall within the operation of the Retail Leases Act

Certain types of premises are excluded from the operation of the RLA. They are:

  • shops with a lettable area of 1000 m˛ or more;
  • shops used wholly or predominantly for the carrying on of a business by the lessee on behalf of the lessor;
  • shops wherein the principal business carried on is the operation of a cinema, bowling alley or skating rink and the shop is operated by the person who operates the cinema, bowling alley or skating rink (although it is likely that in respect of any such business the lettable area would be 1000 m˛ or more); or
  • any premises in an office tower that forms part of a retail shopping centre.

The RLA also excludes leases with a term of 25 years or more (including any term for which the lease may be extended or renewed at the option of the lessee).

In summary, the threshold question in any retail tenancy dispute is whether the subject premises fall within the operation of the RLA and therefore within the scope of the definition of a retail tenancy dispute.

Administrative Decisions Tribunal (ADT) - Retail Leases Division

The ADT was established by statute - the Administrative Decisions Tribunal Act 1997 (ADT Act).

Section 3 of the ADT Act deals with the objects of the ADT Act. Those objects include:

  • ensuring that the ADT is accessible, its proceedings are efficient and effective and its decisions are fair; and
  • enabling proceedings before the ADT to be determined in an informal and expeditious manner.

ADT members will at all times have regard to these two objectives in the way they conduct proceedings in the ADT.

Composition of the Administrative Decisions Tribunal

Tribunal members consist of a President; Deputy Presidents; Judicial Members; and Non-Judicial Members.

A person is eligible to be appointed as President if they are a Judge of the District Court.

Deputy Presidents and Judicial Members must be either a person who holds or has held a judicial office in NSW or the Commonwealth or another state or territory or is an Australian lawyer of at least seven years standing.

A person is eligible to be appointed as a Non-Judicial Member if that person has special knowledge or skill in relation to any class of matters in respect of which the ADT has jurisdiction.

The division of the ADT which deals with retail tenancy disputes is the Retail Leases Division.

The composition of the Retail Leases Division is a divisional head (that position to be held by a Deputy President), Judicial Members and Non-Judicial Members.

Jurisdiction of the Retail Leases Division of the ADT

Proceedings relating to retail tenancy disputes are generally commenced in the Retail Leases Division of the ADT by an Application for Original Decision. An original decision is a decision of the ADT made in relation to a matter over which the ADT has jurisdiction under an enactment to act as the primary decision maker, such as the RLA.

There is a general principle embodied in section 75 of the RLA that retail tenancy disputes should be dealt with by the ADT rather than by a court.

The practical effect of this is that if a party commences proceedings in a court and those proceedings involve a retail tenancy dispute, the court must on the application of any party to the proceedings transfer the proceedings to the Retail Leases Division of the ADT if the court is satisfied that:

  • The dispute is such as may effectively be dealt with as a claim under the relevant provisions of the RLA, that it is appropriate that the dispute be dealt with by the ADT and that the interests of justice do not require that the matter be dealt with by the court.
  • For the purpose of making a determination as to whether proceedings should be transferred to the Retail Leases Division of the ADT, proceedings are taken to involve a retail tenancy dispute if any issue in dispute in the proceedings involves a liability or obligation with which a retail tenancy dispute is concerned.
  • The general rule is that where a party is able to demonstrate that a retail tenancy dispute within the meaning of the RLA exists, a court will normally transfer proceedings to the Retail Leases Division of the ADT.
  • In respect of monetary claims, the jurisdictional limit of the ADT is currently $400,000. If a retail tenancy dispute involves a claim for an amount of greater than $400,000, then such dispute is to be dealt with by a court of appropriate jurisdiction and the general principle embodied in section 75 of the RLA will not have application.

ADT can act with as little formality as circumstances of case permit

The general procedure of the ADT is dealt with under section 73 of the ADT Act.

The most important points to note from this section are as follows:

  • The ADT may determine its own procedure, having regard to the confines of the ADT Act.
  • The ADT is not bound by the rules of evidence and may enquire into and inform itself on any matter in any such manner as it thinks fit, subject to the rules of natural justice. Regardless of this, from a practical point of view, the ADT generally observes the rules of evidence in the manner in which it conducts hearings.
  • The ADT is to act with as little formality as the circumstances of the case permit, according to equity, good conscience and the merits of the case without regard to technicalities or legal forms. From a practical point of view, however, the ADT applies some degree of formality in the manner in which it conducts its hearings, for example the order in which evidence is dealt with and the manner in which submissions are received.

Wide powers of the ADT to make orders

The powers of the ADT are wide and are set forth in section 72 of the RLA.

Under that section, the ADT is empowered to make orders as follows:

  • an order that a party pay money to a person specified in the order or refund any money paid by a specified person;
  • an order that a specified amount of money is not due or owing by a party to a specified person or that a party is not entitled to a refund of money paid to another party in the proceedings;
  • an order that a party perform a specified obligation, work or service, surrender possession of premises to another party, assign their rights under a lease to another party or do or perform or refrain from doing or performing any specified act, matter or thing;
  • an order granting a party relief against forfeiture;
  • an order declaring any provision of a lease to be void for being inconsistent with the Act;
  • an order declaring that a lessor is not entitled to withhold consent to an assignment of the rights of a lessee;
  • an order declaring the rights and liabilities of a party;
  • an order declaring that a party is or is not entitled to receive payment of the whole or part of a security bond;
  • orders of the type mentioned but in the nature of an interlocutory order which the ADT considers proper to be made in order to resolve or assist resolution of a dispute between the parties.

The ADT is also empowered to make such ancillary orders as it considers necessary for the purpose of enabling an order under section 72 of the RLA to have full effect, or to impose such conditions as it considers appropriate when making orders under section 72 of the RLA.

The ADT is also empowered to make interim orders pending final determination of a claim if it appears to the ADT desirable to do so.

Applications for Urgent Interim Orders

If a party seeks an interim order or orders from the ADT, that party is to commence proceedings by way of an Application for Urgent Interim Order. In order to be permitted by the ADT Registry to file an Application for Urgent Interim Order, a party must at the same time file an Application for Original Decision setting out the final relief which it seeks in the proceedings.

Applications for Urgent Interim Orders are dealt with expeditiously and are usually utilised in situations where there is an imminent threat by a landlord to re-enter and re-take possession of premises or there is other threatened conduct which may cause irreparable harm to a party.

Applications for Urgent Interim Orders will usually be dealt with by a Judicial Member on whom the wide powers under section 72 of the RLA will have been conferred.

In situations where parties apply to the ADT for Urgent Interim Orders, given the urgency it is more often than not the case that the parties will not have previously participated in a mediation. Accordingly, once interim orders have been put in place, it is common for the ADT to refer parties to mediation before orders are made for the final determination of the proceedings.

Mediation of retail tenancy disputes

Mediations are an integral part of resolution of retail tenancy disputes. (For more information please see our article Using mediation to resolve leasing and property disputes.)

Section 68 of the RLA effectively prescribes that a party may not commence proceedings in the ADT or in any court without having first attempted mediation, unless the ADT or court is satisfied that mediation is unlikely to resolve the dispute.

The general procedure set out in the RLA for mediation of retail tenancy disputes is as follows:

  • The function of dealing with retail tenancy mediations rests with the Registrar of Retail Tenancy Disputes, who has the function of making arrangements to facilitate the resolution of retail tenancy disputes by mediation.
  • The Registrar also has the power to intervene in any proceedings brought before the ADT or in any court concerning a retail tenancy dispute, thereby becoming a party to the proceedings.
  • In order to commence proceedings in the Retail Leases Division of the ADT by way of an Application for Original Decision, one is required to attach a certificate issued by the Registrar in which the Registrar certifies that mediation has failed to resolve the dispute.
  • There is the option where one has not obtained a certificate of failed mediation to provide reasons as to why mediation is unlikely to resolve the dispute.
  • The Registry of the ADT will not accept for filing an Application for Original Decision without one of these two options having been completed in the Application.

Mediation of retail tenancy disputes by the Retail Tenancy Unit (RTU)

The state government has set up a body called the Retail Tenancy Unit to administer mediations. The RTU does so quickly, cheaply and effectively and has at its disposal a panel of talented mediators. Mediations are conducted at a set fee for a period of five hours with the option to continue and pay for further time on an hourly basis if the parties consider it warranted to do so.

Mediations can be instigated by filling out a relatively simple application form which sets out the details of the parties, the details of the premises and the nature of the dispute. Mediations can usually be arranged within a period of three to six weeks from the date of lodgement of an Application for Mediation.

Whilst retail tenancy mediations are generally dealt with by the RTU, this is not an absolute requirement of the RLA. Section 67 of the RLA defines mediation as being not limited to formal mediation procedures and includes preliminary assistance in dispute resolution, such as the giving of advice designed to ensure that the parties are fully aware of their rights and obligations and that there is a full and open communication between the parties concerning the dispute or some other appropriate form of alternative dispute resolution. Under section 67 of the RLA, any reference in the RLA to a mediator is said to include a reference to a person who provides assistance or alternative dispute resolution of the nature I have just referred to.

Regardless of statutory requirements, retail tenancy disputes are ideally suited for the mediation process, as there is often an ongoing relationship between the parties who, regardless of any dispute between them, continue to have a business relationship. Obviously, in such a situation, it is preferable that the parties resolve the matter through the mediation process as early as possible, rather than through a protracted adversarial process.

Types of claims dealt with by the Retail Leases Division of the ADT

The types of claims dealt with by the Retail Leases Division fall into two categories, retail tenancy claims and unconscionable conduct claims, or can be a combination of both.

A retail tenancy claim is defined in section 70 of the RLA to mean a claim in connection with a liability or obligation with which a retail tenancy dispute is concerned and includes claims for payment of money, for relief from payment of a specified sum of money, for the doing of specified work or provision of specified services, for the surrender of possession of specified premises, for assignment of rights under a lease or for a declaration that a lessor is not entitled to withhold consent to an assignment, for relief against forfeiture, regarding rectification of a lease, regarding the invalidity of a lease for inconsistency with the RLA, claims for compensation and claims for declarations of rights, obligations and liabilities of parties under a lease as well as claims relating to security bonds or applications for appointment of a specialist retail valuer.

Under section 70 of the RLA, an unconscionable conduct claim is defined to mean a claim for relief under section 62B of the RLA.

The powers of the ADT relating to unconscionable conduct claims are dealt with in section 72AA of the RLA. The ADT is empowered to make orders as follows in respect of unconscionable conduct claims:

  • an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person; or
  • an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings.

The ADT is empowered to make ancillary orders as it sees fit for the purposes of enabling an order under section 72AA to have effect and may impose such conditions as it considers appropriate when making such an order.

Composition of ADT for hearings of unconscionable conduct claims

Under the ADT Act, for hearings of unconscionable conduct claims the ADT is required to be composed of a Deputy President as the presiding member and two Non-Judicial or lay members, one of whom has experience as a lessor or working on behalf of lessors in relation to retail shop leases and one of whom has experience as a lessee or working on behalf of lessees in relation to retail shop leases.

The lay members act in an advisory capacity only and the ultimate decision is made by the presiding member. This is to be contrasted with retail tenancy claims, where a Judicial Member sitting alone may deal with such claims.

Due to the requirement as to constitution of the ADT for hearings of unconscionable conduct claims, it is common in matters where an unconscionable conduct claim has been made or where a combined claim, including an unconscionable conduct claim has been made, for the ADT to conduct a preliminary hearing as to whether a claim for unconscionable conduct should be permitted to be pursued and proceed to final hearing.

Often, the ADT will require the party pursuing the claim to provide particulars or evidence as to the claim for unconscionable conduct in order to make such a determination. The principal reason for this is to avoid a situation where a three member tribunal is constituted for a hearing only to discover during the course of the hearing that the unconscionable conduct claim is without merit.

Appeals from first instance decisions of the Administrative Decisions Tribunal

Appeals from decisions of the ADT are dealt with by what are known as internal appeals to the Appeal Panel of the ADT.

The Appeal Panel constitutes three members, one of whom is a President or Deputy President, one who is a Judicial Member and one Non-Judicial Member.

Under section 113 of the ADT Act, an appeal may be made on any question of law or, with the leave of the Appeal Panel, may extend to a review of the merits of the decision under appeal.

Applications for leave to extend the appeal to a review of the merits are dealt with by way of a preliminary hearing. Having dealt with an appeal from a decision of the ADT, the Appeal Panel may affirm the decision, vary the decision or set aside the decision and make a decision in substitution.

The Appeal Panel may also make an order remitting the whole or any part of a case to be heard and decided again by the ADT.

Appeals are commenced by filing a Notice of Appeal within 28 days after the ADT gives reasons for its decision. The Notice of Appeal must identify the questions of law which are the subject of the appeal. If a party seeks leave to appeal against the merits of a decision, the Notice of Appeal is required to identify those parts of the decision about which such appeal is lodged, set out the reasons why the Appeal Panel should give leave for the appeal to extend to the merits and set out the orders sought from the Appeal Panel.

Costs of proceedings in the Retail Leases Division of the ADT

The default position in the Retail Leases Division of the ADT is that each party is to bear its own costs of proceedings, except as provided by section 88 of the ADT Act.

The ADT has the power to award costs if it is satisfied that it is "fair to do so" having regard to certain matters as follows:

  • Whether a party has conducted proceedings in a way that unnecessarily disadvantaged another party by conduct such as failing to comply with an order or a direction of the ADT without reasonable excuse, failing to comply with the requirements of the ADT Act or rules of the Tribunal, causing an adjournment, attempting to deceive another party or vexatiously conducting the proceedings.
  • Where a party is responsible for unreasonably prolonging the time taken to complete proceedings.
  • The relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, the nature or complexity of the proceedings or any other matter the Tribunal considers relevant.

The ADT will also have regard to Calderbank offers and may award costs where it considers that it was unreasonable for a party not to accept such an offer.

ADT's power to award costs in certain circumstances

There are many decisions which have been handed down by the ADT in relation to whether to award costs under section 88 of the ADT Act. Some of the central principles which have arisen from those decisions are as follows:

  • The Retail Leases Division is a commercial division dealing with commercial issues between lessors and lessees in a retail lease environment and proceedings should only be commenced in the ADT after careful consideration of the merits of the case. Commencing proceedings without such consideration inevitably results in considerable expense being incurred by the other party and it is therefore valid to ask the question as to why that party should have to bear those expenses when the proceedings should not have been commenced in the first place.
  • Whilst an order varying the general rule as to each party bearing its own costs may be made only if a relevant criterion or relevant criteria are satisfied, there is a relatively low hurdle for an applicant seeking an order.

Examples of where costs orders have been made are as follows:

  • Where on the application of a party, a hearing is vacated shortly prior to the date on which the hearing was due to commence.
  • Where a party during the course of a hearing indicated that it did not intend to pursue one of its principal claims.
  • Where proceedings are of a commercial nature and complex raising a number of issues and that party fails on every issue in the proceedings.

Enforcement of monetary orders

As I have mentioned, the Tribunal has wide powers to make orders for the payment of monies by one party to another.

Whilst these are in the nature of orders, they do not operate as enforceable judgments.

In the event the ADT makes an order for payment of a specified sum of money by one party, it is necessary for a certificate to be obtained from the ADT pursuant to section 82 of the ADT Act. Such certificate can then be filed in the registry of a court having appropriate jurisdiction to give judgment for a debt of the same amount as the amount stated in the certificate. That judgment can then be enforced in the usual ways available for enforcement of judgments by courts of competent jurisdiction.

This article is based on a webinar presented through the Television Education Network in August 2013.

Martin Deutsch
Commercial litigation
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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