Australia: Retail lease disputes: Rethinking Mediation before proceedings?
Retail lease update

The recent Supreme Court decision in Fordham Laboratories Pty Ltd v Sor and Anor¹ (Fordham's Case) gives cause to rethink the 'default' approach of mediation of disputes under the Retail Leases Act 1994 (NSW) (the Act).

Mediation and the Administrative Decisions Tribunal

Much of the procedure for determining retail lease disputes in NSW is governed by the Act, being intended to address a perceived imbalance of economic power between landlord and retail tenant and to ensure that there is no improper exercise of such power by landlords. It is therefore unsurprising that the Act contains specific provisions concerning mediation and the referral of retail tenancy disputes to a specialist Tribunal, namely the retail Leases Division of the Administrative Decisions Tribunal (Tribunal).

Section 68 of the Act provides that 'a retail tenancy' dispute may not be the subject of proceedings before any court unless and until the Registrar has certified that mediation has failed or the court is satisfied that mediation is unlikely to resolve the dispute. Further, the Tribunal is designated as the appropriate forum to hear retail tenancy disputes and the Act expressly notes the general principle that a court should transfer any dispute to the Tribunal where appropriate.

The Tribunal and until now, the courts, are rarely swayed by applications grounded on argument that mediation is unlikely to resolve the dispute. Submissions that a dispute should be litigated have rarely failed to postpone enforcement. As a result, a practice has developed that almost all retail tenancy disputes be mediated before enforcement action through the Tribunal or the courts, other than where urgent injunction relief is sought. The resulting cost, inconvenience and delay is often material.

Fordham's Case has reviewed the Act's requirements in respect of mediation and a court's discretion to hear disputes that have not been mediated. It provides grounds for a rethink of the standard practice in the right circumstances.

Fordham's Case

In 2007, a dispute arose concerning a tenant's failure to pay outgoings allegedly due under the lease. The matter proceeded to mediation in accordance with the Act and was mediated by the registrar of retail tenancy disputes. The mediation was unsuccessful and a certificate of failed mediation issued.

Fordham commenced proceedings by statement of claim for unpaid outgoings, the costs of making good and securing the premises (after a notice to quit had been served on the respondents), and interest. The respondents' defence pleaded that, under section 68 of the Act, Fordham was barred from commencing the proceedings in respect of the issues which had not been subject of mediation.

At first instance, the Local Court agreed with the respondents' argument in strong terms: "[The applicant] sought to bypass the requirement to mediate before commencing proceedings in the Local Court. [The applicant] has commenced proceedings in the Local Court before complying with the requirements of s. 68 of the Retail Leases Act. The statement of claim is an abuse of the process of the court, consequently the pleadings are struck out."

Fordham appealed the Local Court's decision to the Supreme Court in respect of the statutory construction of section 68 of the Act. The court (Price J) agreed with Young CJ (as he then was) in Oriental Carpet Department Store Pty Ltd v Supacenta Pty Ltd² and Studdert J in Ticehurst v Cross³ In these cases, their Honours held/observed that mediation was not a mandatory pre-condition for commencing retail tenancy proceedings, particularly if it could be demonstrated that mediation is unlikely to resolve the matters in dispute.

The Court in Fordham's case allowed the appeal and remitted the proceedings to the Local Court. Justice Price said: "The requirement to mediate is not a condition precedent to the commencement of proceedings, but the court may not proceed to hear and determine the dispute unless satisfied that mediation under Pt 8 [of the Act] is unlikely to resolve the dispute."

A Rethink on Mediations

Fordham's Case establishes that parties who wish to commence court proceedings for retail tenancy disputes are entitled to do so regardless of whether they have complied with the Act's mediation requirement. Once proceedings have been commenced, it is for the court to decide whether the plaintiff should be allowed to prosecute the proceedings, the proceedings be remitted to the Tribunal for mediation, or both.

In determining the mediation issue, the key question is whether mediation is unlikely to resolve the dispute.

The decision in Fordham's Case opens the way to more robust enforcement. Commencing proceedings without having attempted mediation is not abuse of process and may well be the best way to get the message across in the right case. It may also open the way to leaner enforcement action.

Footnotes

¹ [2011] NSWSC 706

² [2003] NSWSC 783

³ [2005] NSWSC 574

For more information, please contact:

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.