Land and Environment Court of New South Wales CITATION : Turk v Hunt and Anor [2001] NSWLEC 27 APPLICANT Turk PARTIES : RESPONDENTS Hunt and Anor FILE NUMBER(S) : 30283 of 1999 CORAM: Pearlman J KEY ISSUES: Costs :- in class 3 - encroachment - no hearing on merits - offers of settlement LEGISLATION CITED: Encroachment of Buildings Act 1922 s 14 Land and Environment Court Act 1979 s 69 CASES CITED: Latoudis v Casey (1990) 170 CLR 534; Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 623 DATES OF HEARING: 30/11/2000; 05/02/2001 DATE OF JUDGMENT: 03/15/2001 APPLICANT Mr P W Larkin (Barrister) SOLICITORS Corrs Chambers Westgarth LEGAL REPRESENTATIVES: RESPONDENTS Mr I J Hemmings (Barrister) SOLCITORS Eakin McCaffery Cox JUDGMENT: IN THE LAND AND 30283 of 1999 ENVIRONMENT COURT Pearlman J OF NEW SOUTH WALES 15 March 2001 LOIS AGNES TURK Applicant v JOHN WILLIAM HUNT AND MARIA THERESE HUNT Respondents JUDGMENT Introduction 1. The only issue for the Court to determine in this matter is the question of costs. The parties have settled the substantive proceedings and orders have been made by consent, but the parties have been unable to agree on the question of costs. 2. Some background is necessary. The applicant brought class 3 proceedings in respect of an encroachment upon her property. In the course of redeveloping their property which adjoins that of the applicant, the respondents built a sandstone boulder retaining wall ("the boulder wall") on or close to the common boundary. Some time later, the respondents built a block wall ("the block wall") around and encasing the boulder wall, to improve the latter's appearance. The block wall was built upon the applicant's property, with the knowledge and apparent consent of the applicant, but nonetheless constituted an encroachment upon that property. There was another encroachment in the form of a landing extending across the respondents' property ("the landing") - but that encroachment was removed and is not a critical matter in the costs question. 3. The hearing of the class 3 proceedings commenced and ran for one day in November 2000. On that day, the applicant's case was opened, documentary evidence was tendered by both sides, and two witnesses were cross-examined. However, the hearing did not finish, and the proceedings were adjourned to 5 February 2001. 4. When the hearing resumed, counsel for the parties announced that an agreement had been reached between the parties except for the question of costs. Evidence was then furnished and submissions made in respect to that question alone. By consent, orders were then made which, in summary, provided for the payment of $15,000 by the respondents to the applicant by way of compensation, and the transfer by the applicant to the respondents of the land upon which the encroachment stood ("the encroaching land"). Judgment on the question of costs was reserved. 5. Initially, the relief which the applicant sought was the removal of the encroachment. Her class 3 application was subsequently amended so as to seek compensation and a transfer of the encroaching land to the respondents. The respondents defended the applicant's claim, asserting that she was not entitled to relief at all, upon the basis that, in a conversation which took place prior to construction between the applicant and the respondents' projector manager, Mr C Brown, the applicant had agreed to the encroachment. 6. No findings of fact have ever been made by the Court, but, for the purpose of the hearing on the question of costs, the parties tendered an agreed statement of facts which was as follows: 1. As a result of the communications between Mrs Turk and the respondents' representatives, it was, objectively, reasonably open to Mrs Turk to have understood that the width of the encroachment in respect of which she was being asked to consent was not wider than one course of blocks (approximately 275 mm). 2. There were reasonably available construction configurations by which the encroachment could have been limited to that extent, which were not chosen. 3. The boulder wall was constructed close to the property boundary, but entirely within the respondents' property. 7. The important aspects of those facts are these. The boulder wall was constructed entirely upon the respondents' property, and it is only the block wall which constituted the encroachment. The applicant did consent to an encroachment, but it was reasonable of her to have understood that it was to be considerably less in width than actually occurred. Furthermore, options were available to the respondent to ensure that the encroachment was kept within this width which were not followed. Costs in class 3 proceedings 8. Section 14 of the Encroachment of Buildings Act 1922 provides as follows: 14. In any application under this Act the court may make such order as to payment of costs charges and expenses as it may deem just in the circumstances and may take into consideration any offer of settlement made by either party. 9. That section, supported by s 69 of the Land and Environment Court Act 1979, confers upon the Court a wide and unfettered discretion in determining costs. However, general guideline principles have been set down by the High Court, specifically that costs are compensatory and not punitive in nature, so that they usually follow the event, that is, the successful party is usually entitled to an award of costs in his or her favour (Latoudis v Casey (1990) 170 CLR 534). 10. However, in this case, the proceedings were settled and did not proceed to a final hearing on the merits. Mr Larkin, appearing for the applicant, submitted that, although the hearing was not completed, it is nevertheless possible for the Court to conclude that the applicant was the successful party, having achieved the relief that she sought in her class 3 application. I disagree. Findings of fact were never made by the Court, and therefore the ultimate decision of the Court must remain purely speculative. The respondents conceded from the beginning of the proceedings that there was an encroachment brought about by the block wall, but there was an issue as to whether the boulder wall also encroached upon the applicant's land, and there were issues of the extent of the encroachment and the value of it for compensation purposes. The facts set out in the agreed statement of facts are not determinative of the final outcome of the proceedings. All they establish is that the applicant had an understanding of her consent which was reasonably open to her, and the respondent (who may or may not have been aware of the extent of the understanding) did not build the block wall to conform to that understanding. These facts do not determine the outcome of the proceedings such that it could be said that the applicant was the successful party. 11. The principles to guide the Court in the exercise of its discretion where there has not been a hearing on the merits were discussed by McHugh J in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 623. His Honour noted, at p 624, that the successful party in an action is usually entitled to his or her costs. However, if there has been no hearing on the merits, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order, and it is not appropriate for the court to embark on a hypothetical trial to determine the successful party. His Honour continued at p 625 as follows: If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. 12. It is appropriate, therefore, to consider whether there are matters of conduct of either party which would justify the making of an order for costs instead of the taking the usual course in these circumstances and making no order as to costs. Was the commencement of the proceedings unreasonable? 13. Mr Hemmings, for the respondents, submitted that it was unreasonable for the applicant to have commenced the proceedings because there was always a prospect of resolution of the dispute between the parties. A settlement was never achieved, he submitted, because, despite ample opportunities to do so, the applicant never complained to the respondents about the encroachment and the class 3 application came as a complete surprise to them. 14. I reject this submission for two reasons. Firstly, it is not unreasonable to commence proceedings even if there is some prospect of settlement. Unless settlement is actually achieved, it is not unreasonable for a party to feel obliged to commence proceedings to protect his or her position. Indeed, commencing proceedings often acts as an incentive towards reaching a settlement. Secondly, however, the submission does not accord with the facts. 15. The relevant facts are these: (1) The construction of the block wall was completed, according to the evidence of Mr Hunt, in June 1997, and that date is corroborated by the evidence of Mr Brown. (2) The applicant lived with the encroachment for about a year after it was constructed. It was not until June 1998 that the applicant engaged a surveyor to survey her property and the encroachment was technically revealed. (3) The applicant thereupon contacted the local council and complained about the encroachment. Mr Hunt said in his affidavit that he received a letter in July 1998 from solicitors acting for the applicant notifying him of the encroachment, but that he did not have a copy of that letter. However, attached to the applicant's class 3 application is a letter dated 25 June 1998 from Wyong Shire Council addressed to the applicant and stating, amongst other things, that the council had contacted the owners of the encroaching premises asking them to contact the council to discuss the matter. I infer that it is this letter from the council to which Mr Hunt was referring; (4) On 8 September 1998, the applicant's former solicitors wrote to the respondents, seeking removal of both encroachments, that is, the block wall (which they called "a retaining wall") and the landing; (5) Some conversations took place between the applicant and the respondents after that date. The precise content of those conversations, especially the conversation between Mrs Turk and Mr Hunt said to have taken place in September 1998, is in dispute, but it is clear, whatever version is accepted, that no mention was made of any consent to the encroachment. Indeed, so far as is indicated in the material in evidence, the first time such a consent was mentioned was in a letter from the respondents' solicitors to the applicant's solicitors dated 20 September 2000, in which the following statement was made: Our clients have instructed us that the wall the subject of these proceedings was constructed on your client's land with her foreknowledge and consent. (6) On 18 May 1999, the applicant's current solicitors wrote to the respondents again seeking removal of the encroachments, and stating that, if there was no response, action would be taken; (7) On 21 June 1999, the applicant's solicitors wrote again, threatening legal action. (8) On 8 October 1999, the class 3 application was filed. 16. Mr Hunt denies that he received the letters of 18 May 1999 and 21 June 1999, but copies have been tendered, and I accept that they were sent. No doubt the failure to receive them might have meant to the respondents that the commencement of proceedings was a surprise. But so far as concerns the conduct of the applicant in commencing the proceedings, it was entirely reasonable. It is true that she did not hurry, but over a period of time she took four important steps - she notified the council who notified the respondents, and she caused three letters to be sent to the respondents by her solicitors. This is not conduct which would justify an award of costs in favour of the respondents. Was the defence of the proceedings unreasonable? 17. Mr Larkin submitted that the proceedings should not have been defended to the extent that they were, or indeed at all. There was never any doubt that the block wall encroached on the applicant's property, and there was no basis for the respondents' claim, expressed in a letter from their solicitors to the applicant's solicitors dated 9 November 2000, that the applicant was entitled to no relief at all. 18. However, I accept that the respondents believed that the applicant had consented to the encroaching wall. This may not have been a determinative defence, but it was likely to have some bearing on whether or not they would be ordered to remove the encroachment, and the amount of compensation likely to be ordered to be paid. In these circumstances, it was not unreasonable for the respondents to defend the proceedings. The general conduct of the parties 19. Mr Hemmings submitted that delay on the part of the applicant justified a costs order in favour of the respondents. The block wall was completed in June 1997, the proceedings were not commenced until October 1999, and amendment of the prayers for relief was not made until September 2000. However, for each of the delays, there is a reasonable explanation. The applicant did not know the technical nature of the encroachment until it was surveyed in June 1998, and she immediately notified the council. She instructed her solicitors to write three letters claiming relief prior to commencing proceedings. And about the time the class 3 application was amended, the applicant had formed a desire to sell her property, as her affidavit sworn on 4 October 2000 describes. 20. The proceedings were listed for callover eight times before they were set down for hearing. Mr Hemmings submitted that the delay in setting the proceedings down for hearing was principally caused by the applicant's delay in obtaining valuation evidence, and that delay should justify an award of costs in favour of the respondents. I do not accept that submission. The Court's records show that the proceedings were stood over by consent of the parties on seven of those occasions, and the correspondence which has been tendered does not establish that the delay was unjustified in the circumstances. 21. Overall, the applicant did not act with expedition, but any delay was explicable and not unreasonable in the circumstances. The offers of settlement 22. Having regard to the findings I have made above, it would follow, pursuant to Minister for Immigration; Ex parte Lai Qin, that the Court should make no order as to costs. However, s 14 of the Encroachment of Buildings Act confers a discretion upon the Court to take into account any offers of settlement which have been made. Several such offers were made. 23. The respondents made the following relevant offers: 4 January 2000: payment of $7000 to the applicant and a transfer of the encroaching land to the respondents, each party to bear their own costs; 19 October 2000: option A: payment of $10,000 to the applicant and a transfer of the encroaching land to the respondents, each party to bear their own costs: or option B: removal of the encroaching wall at the respondents' cost, and each party to bear their own costs; 16 November 2000: payment of $15,000 to the applicant and a transfer of the encroaching land to the respondents, each party to bear their own costs. 24. The applicant made two relevant offers. On 30 August 2000, she offered to settle on the basis that she receive $25,000 for a grant of an easement over the encroaching land, and each side to bear their own costs. On 16 November 2000, the applicant offered to settle upon payment to her of $18,000, a transfer of the encroaching land to the respondents, and payment of the applicant's costs by the respondents. 25. None of these offers had resulted in an accepted compromise when the proceedings came on for hearing on 30 November 2000. However, before the next hearing of the proceedings (on 5 February 2001), the applicant had agreed to accept $15,000 and to transfer the encroaching land to the respondents, but she did not agree to any costs order, and settlement was effected upon the basis that the question of costs would be left to the Court for determination. 26. If the Court was to proceed as I have earlier indicated, namely, to make no order as to costs, then the respondents' offer of 16 November 2000 would reflect the ultimate outcome of the proceedings. Mr Hemmings submitted that the Court should make an award of costs in favour of the respondents in respect of the proceedings after that date (although he also said the two earlier offers of the respondents should be taken into account in this manner, and costs should be awarded to the respondents after the date of the first offer). He submitted that this would follow because all three offers of the respondents were in the nature of Calderbank offers, and thus should shift the liability for costs upon the applicant. 27. Mr Larkin conceded that the Court should take into account all the offers that had been made, both by the respondents and the applicant. Nevertheless, the offers made by the respondents should not be regarded as determinative, because none of them took into account the substantial costs that were being incurred, and none of them were offers which the applicant should have accepted. 28. I have given anxious consideration to the respondents' offer of 16 November 2000, because, as I have said, it would reflect the ultimate outcome if I was to make no order as to costs. But I have no way of knowing if the offer of payment of $15,000 as compensation for the transfer of the encroaching land is one which the applicant ought to have accepted on that date and as a consequence ought to be responsible for costs from that date. The fact is that there was never a full hearing on the merits, and the Court has made no determination of the relief to which the applicant might have been entitled. There is no doubt that the applicant considered that she was entitled to more compensation - she offered to accept $25,000 initially and then $18,000. The offer ultimately accepted was therefore a compromise on the applicant's part, and it cannot be said with any certainty that it does reflect her entitlement. 29. Section 14 of the Encroachment of Building Act speaks of an order for costs which the Court deems "just in the circumstances". Having regard to all of the matters I have set out above, it seems to me that what is just is for the Court to make no order as to costs. 30. I am conscious that, in making no order as to costs, I will place a serious financial burden on both parties. That is regrettable, but, for the reasons I have set out, it is the just result. But I must say that it is also regrettable that the parties were able to reach agreement on the substantive issues and yet could not agree on costs. It is unfortunate that this involved a full day's hearing and the necessity for the Court to determine the question. Be that as it may, the Court has now dealt with the question of costs as the parties required. 31. In accordance with the foregoing, I make no order as to costs. The exhibits may be returned. 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