Land and Environment Court of New South Wales CITATION : Wherry v Trustees of the Sisters of Charity of Australia [2001] NSWLEC 210 APPLICANT: Wherry PARTIES : RESPONDENT: Trustees of the Sisters of Charity of Australia FILE NUMBER(S) : 30302 of 1999 CORAM: Bignold J KEY ISSUES: Costs :- Respondent wholly successful in resisting Applicant's claims to compensation-Respondent obtaining by concession easement for support in respect of encroachment-Whether usual principle that costs follow the event should apply-Indemnity costs in respect of "Calderbank" letter. LEGISLATION CITED: Encroachment of Buildings Act 1922 Byron Shire Council v Vaughan (No 3) 2001 NSWLEC 102; Droga v Proprietors of Strata Plan 51722 (LEC Unreported 28 November 1997); Hardie v Cuthbert (1988) 65 LGRA 5; CASES CITED: Hofer v Howell (2001) 113 LGERA 391; Kostis v Devitt (1979) BPR 97020; Latoudis v Casey (1990) 170 CLR 534; MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (No 2) (1996) 70 FCR 236; Morris v Thomas (1991) 73 LGRA 164 DATES OF HEARING: 6 September 2001 DATE OF JUDGMENT: 09/11/2001 APPLICANT: Mr J M Ireland QC with Mr M J Steele, Barrister SOLICITORS Malcolm Johns and Co LEGAL REPRESENTATIVES: RESPONDENT: Mr J E Robson, Barrister SOLICITORS Cutler Hughes and Harris JUDGMENT: IN THE LAND AND Matter No. 30302 of 1999 ENVIRONMENT COURT OF Coram: Bignold J. NEW SOUTH WALES 11 September 2001 KEITH JAMES WHERRY Applicant v TRUSTEES OF THE SISTERS OF CHARITY OF AUSTRALIA Respondent (and Cross Applicant) JUDGMENT Bignold J: A. INTRODUCTION 1. By Notice of Motion filed 25 July 2001, the Applicant has restored the question of costs in these proceedings which were brought under the Encroachment of Buildings Act 1922, (the Act) that question having been reserved in my judgment delivered in the proceedings on 5 December 2000 (see [2000] NSWLEC 252, 111 LGERA 216) which made the following orders: 1. Applicant's application be dismissed. 2. Cross application be granted to the extent that an easement for support be created in respect of the encroachments upon No 80 Victoria Street, Potts Point subject to the Cross-Applicant paying the Cross Respondent's costs of preparing the easement documentation. 3. In other respects, the Cross Application be dismissed. 4. Question of costs be reserved 2. On the hearing concerning the question of costs, the Applicant has submitted that in the circumstances of the case, there should be no order as to costs (and each party be left to bear its own costs) and the Respondent, which was successful in the litigation, has claimed a costs order in its favour (including an order that some of those costs be paid on the indemnity basis). B. THE LITIGATION HISTORY 3. The litigation history, as revealed in my reasons for judgment delivered on 5 December 2000, includes the following: (i.) On 12 November 1999, the Applicant commenced the proceedings claiming the following relief in respect of an encroachment of 1.13 m2 on the rear boundary of a residential lot of 230 m2 that had been acquired by the Applicant from the Respondent by contract for sale entered into on 12 June 1998 and completed on 14 September 1998: I. the removal of the encroachment; II. compensation for the cost and inconvenience occasioned by the aforesaid interference with the Applicant's use and enjoyment of his property including:- 1. additional building costs incurred as a result of the delay in completion of the Applicant's planned garage with studio above; and 2. loss of rent from the proposed leasing of the studio; and 3. the cost of garaging his motor vehicles elsewhere; and III. costs. (ii.) On 16 December 1999, the Respondent responded to the Applicant's claims by cross-claiming relief under the Act in respect of that same encroachment. Additionally, it claimed relief under the Act for the removal of encroachments on its property from the Applicant's property. (iii.) When the matter came on for hearing on 10 July 2000, the issues for adjudication, according to the pleadings were as follows: (iv.) whether the encroachments on the Residential Property should be removed (as claimed by the Applicant) or whether they should be the subject of an easement (as claimed by the Cross-Applicant); (v.) whether the encroachments on the School Property should be removed (as claimed by the Cross-Applicant); (vi.) whether compensation should be payable to the Applicant; and (vii.) whether there should be a costs order in the proceedings in favour of the Applicant or in favour of the Cross-Applicant. (viii.) However, on the hearing of the proceedings, the relief claimed respectively in the application and the cross-application significantly changed. These changes occurred late in the litigation history and after the dispute had been unsuccessfully mediated. Most significantly, no longer did the Applicant claim an order for removal of the encroachments upon the Residential Property. Instead, the Applicant submitted that the encroachments, which now measured an aggregated area of 1.7 m2, by virtue of the discovery (vide Survey dated June 2000 by Paul Hoffman) of a further encroachment comprising the existence of a pad footing (0.56 m2 in area) at the base of the structural column comprising the identified encroachment, should be sanctioned by the grant of an appropriate easement but that he should be entitled to receive compensation in the sum of $46,000 made up as follows: (i) minimum compensation under the Act for the grant of the conceded easement; $11,340 (ii) additional costs caused by delay in constructing approved garage/studio of rear of Residential Property $24,000 (iii) additional costs incurred by virtue of continuing existence of encroachments requiring a different construction method for footings for the garage/studio; $1,700 (iii) loss of rental revenue caused by delay in constructing the garage/studio; $7,800 (iv) cost of garaging Applicant's car at other premises by virtue of non-availability of the garage on the Residential Property $1,200 Total Compensation claimed $46,000 (v.) In relation to these amended claims belatedly asserted by the Applicant, the Respondent's case was that no compensation should be payable in respect of the conceded easement in the circumstances of the case (except possibly for minimum compensation under the Act of $3,740) and that in respect of the other heads of the Applicant's compensation claim, the Court should reject the claims out of hand. However, in the event of the Court not accepting this principal submission, the Respondent submitted that it should be afforded the opportunity of leading evidence in rebuttal of the claims to compensation based upon added construction costs likely to be incurred in respect of the approved garage/studio by virtue of the continuing existence of the encroachments. This was because the Applicant's evidence in support of these claims had only been served one week prior to the hearing (being well outside the timetable fixed by the Court's directions). (vi.) At the hearing, the Respondent did not advance any case in support of its separate cross-claim for the removal of encroachments emanating from the Applicant's land. (vii.) In my judgment delivered on 5 December 2000, for the reasons set forth at par 38 to 80 (inclusive), I dismissed all of the Applicant's claims for compensation (including his claim for "minimum compensation" in terms of the Act in respect of the easement for support in respect of the encroachment, the grant of which had not been in contest, having been conceded by the Applicant at the outset of the hearing), in the exercise of the discretion conferred upon the Court by s 3(2) and (3) of the Act. (viii.) The reasons for so exercising the statutory discretion against the Applicant, including my decision not to award minimum compensation, also called up what I had said earlier in the judgment at par 28 to 37 concerning the circumstances of the Applicant's purchase of the property from the Respondent, including the express disclosure of the encroachment contained in Special Condition 31 of the Contract for Sale and the express waiver by the purchaser of any entitlements to make objection, requisition or claim for compensation in respect of the disclosed encroachment. Those passages included the following conclusion expressed in par 34: In my judgment, it would be self-evidently unconscionable for the Applicant to claim relief under the Act in the circumstances of this case, where, according to my earlier analysis, his entitlement thereunder wholly depends upon his purchase of the Residential Property in 1998 pursuant to a Contract for Sale which fully disclosed the existence of the encroachment and in terms of which he expressly waived his rights as purchaser to raise objections or requisitions or to claim compensation or to rescind the contract. 4. In the result (except for its abandonment of its claim to relief under the Act in respect of parts of the Applicant's building encroaching upon the School property), the Respondent was totally successful in the proceedings in resisting all of the Applicant's several claims to compensation (following the abandonment, at the commencement of the hearing, of the Applicant's claim to relief by way of order for the removal of the encroachment) and the Respondent was also totally successful in resisting the Applicant's claim to "minimum compensation" in respect of the grant of an easement for support in respect of the encroachment, which easement the Applicant, at the outset of the hearing, conceded should be granted. C. THE APPLICANT'S CASE THAT THERE SHOULD BE NO ORDER FOR COSTS 5. In advancing this submission, the Applicant focuses attention upon the following factors that each emerge from the litigation— (a.) the significance of the applicant abandoning his claim for an order for removal of the encroachments of the School Property upon the Residential Property; (b.) the significance of the respondents abandoning their claim for an order removing encroachments of the Residential Property on to the School Property; (c.) the significance of the Court's decision to order an easement in favour of the respondents over part of the Residential Property; (d.) the significance of the discretionary decision of the Court not to award any compensation as the quid pro quo for the easement; (e.) the significance of an offer of settlement made by the respondents just prior to the hearing. 6. In elaboration of factor (a), the Applicant relied upon the evidence he had given at the trial concerning his understanding and belief that the Respondent had a "Master Plan" for the School property which entailed the eventual removal of the encroachment. It was only after he had received an affidavit filed and served on behalf of the Respondent 10 days before the hearing that he had become aware that there was no present intention by the Respondent to remove the encroachment. This understanding was confirmed by the receipt on 6 July 2000 (ie a few days before the trial date) of an unsworn affidavit of Sister Cuncliffe. 7. According to the affidavit of the Applicant's Solicitor, Mr Johns, "it was only when this information was received that instructions were sought and obtained from the Applicant to withdraw the claim for demolition of the building at the hearing on 10 July 2000" (par 5). 8. According to the transcript of the hearing, the Applicant's Counsel, Mr Steele, in his opening address stated: STEELE: The removal of the encroachment, as your Honour understands, is a matter that arose because originally when the proceedings were commenced there were representations made by the owners of the encroaching land that it would be not just possible to remove the encroachment but that was something that they planned to do in any event. That, on the evidence, is not in fact the case. The evidence as it appears, and we don't propose to challenge this part of the evidence, is that there have been no plans and are no plans for the removal of the encroachment. In those circumstances my instructions are that we don't press for the removal of the encroachment but I wanted your Honour to understand why it was there in the first place. 9. On the basis of this evidence, Senior Counsel for the Applicant made the following submission: Having been informed belatedly on behalf of the respondents that the demolition of the building was not intended after all, the applicant did not press his application for the removal of the encroachment. In the circumstances, the conduct of the applicant, both in commencing the proceedings and in maintaining his claim for removal of the encroachment prior to the hearing, was it is submitted reasonable. 10. This submission and the evidence relied upon for it must, I think, be evaluated in the light of the following findings expressed at par 67 to par 70 (incl) of my earlier judgment: In the present case, I find that the Applicant has not demonstrated that his alleged loss or damage (as detailed in his compensation claim) was incurred through the encroachment . Rather, I find that the Applicant's evidence demonstrates that until the Respondent notified him on 21 May 1999 that it was willing to remove the encroachment in preference to the sale or lease of the additional area of the School Property that the Applicant had been seeking from the Respondent, the delay in implementing the approved garage/studio project had been caused by the Applicant's decision to await the outcome of his negotiations with the Respondent because he preferred to have a larger area of land to build a more generously proportioned garage/studio. This was the true cause of his delay, and necessarily so, because a more generously proportioned development would obviously require a further approval from the Council. Following this advice from the Respondent only a few months were to pass before the Applicant advised the Respondent (on 9 September 1999) of his decision to seek relief under the Act for an order for removal of the encroachment. This advice was ultimately met by advice from the Respondent's Solicitors (letter dated 8 October 1999) of the Respondent's desire to obtain an easement and enquiring as to appropriate compensation which in turn led to the Applicant's rejection of the Respondent's request and advice that he had instructed Counsel to settle an application under the Act seeking the removal of the encroachment. 11. When regard is had to these findings, I am unable to accept Senior Counsel's submission. I am not satisfied that the Applicant's abandonment of his claim to an order for the removal of the encroachment can be explained either solely or substantially on the basis of what the Applicant learned from the contents of affidavits served on behalf of the Respondent in the week or so preceding the trial date. 12. Whereas I accept that factually the Applicant's claim for an order for removal of the encroachment may have been stronger if it had been established that the Respondent already intended (in the School's Master Plan) to eventually remove the encroachment, the claim to that mandatory relief under the Act, in no way arose out of, or depended upon, the existence of that fact. Accordingly, the absence of the fact (or presumed fact) does not impact upon the availability under the Act of the relief to a mandatory order for removal of the encroachment (although arguably, the presence of the presumed fact may have been a relevant discretionary consideration in terms of s 3(3)(e)). 13. Accordingly, I find that the Applicant's abandonment of his claim for an order for the removal of the encroachment was essentially a forensic decision taken by himself at the commencement of the trial rather than by a forced response, dictated by the service of the Respondent's affidavit evidence. The belated abandonment at the trial of the Applicant's claim to principal relief obviously involved the waste of costs by the Respondent which had prepared its case to include resisting that particular claim to relief. 14. In elaboration of factor (b), Senior Counsel for the Applicant submitted that the Respondent (unlike the Applicant's abandonment of his principal claim to relief at the commencement of the trial) had not so readily abandoned its claim, which merely withered at the trial by not ultimately being pressed. 15. I think that the Respondent's cross-application in respect of encroachments upon its land emanating from the Applicant's land was very much a minor piece in the overall stakes involved in this litigation. However, by not being pressed, any costs order that may be made in favour of the Respondent, as the successful litigant, should exclude any costs incurred in connection with that discrete cross claim. 16. In elaboration of factor (c), Senior Counsel for the Applicant submitted that the grant to the Respondent of the easement for support in respect of the encroachment should be seen as "an indulgence" which in an ordinary judicial context generally is regarded as justifying an order that the person obtaining the indulgence pay the general costs in the proceedings of all parties thereto. Reference was made to my earlier decision in Morris v Thomas (1991) 73 LGRA 164 where I had said at 170: In my judgment the applicant should pay the respondent's costs of this litigation. Each party has been partly successful in his respective claims. The applicant's misconduct disentitles him to any costs order. Moreover the applicant in bringing his claim essentially is seeking an indulgence from the Court and should pay the other party's costs: cf Kostis v Devitt (1979) BPR 97020. 17. My reference to Kostis v Devitt was more particularly to the following passage at p 9237 in the judgment of Powell J (as he then was): While accepting that Mr and Mrs Kostis should be liable for any conveyancing costs involved in giving effect to any Order, Mr James submitted that they should not be made liable for the general costs of their application; rather, he submitted, each party should bear its own costs. It seems to me, however, that the principle consistently applied by this court is that where a party seeks an indulgence, he should, in the absence of special circumstances (which, in my view, do not exist here) bear the general costs of any necessary application. Although not spelt out by His Honour, the view of Roper J in Re Marsh, supra, appears to have been the same, for His Honour not only ordered the applicant to pay the respondent's costs of the application and his reasonable conveyancing costs, but made the grant of the easement ordered conditional upon those costs having first been paid. As will appear later, however, I propose, for the reasons upon which I will then elaborate, to adopt a different course as to costs. 18. That passage must, I think, to be understood in the light of the fact that in that case his Honour was determining a contested claim to relief in respect of an encroachment, in respect of which his Honour had earlier said at 9235: While, if there had been no disputes between the parties, one might possibly have refrained from making an Order upon the ground that it was or might be unnecessary — indeed, it may well be that, in that situation, no application would have been made — it seems to me that, as disputes have arisen, it is desirable that an Order now be made to regularise the position. 19. That situation is far removed from the present case where, as I have earlier noted, the Applicant conceded at the outset of the trial that an appropriate easement for support should be granted to the Respondent and where, in consequence of that concession (and the related abandonment of the claim to an order for removal of the encroachment), the whole of the trial was devoted to the consideration of the Applicant's several claims to compensation in respect of all of which the Applicant's case wholly failed. 20. In the light of these litigation issues and outcomes, it is not, in my respectful opinion, appropriate to resolve the disputed question of costs on the basis that the Respondent, ought be seen as benefiting from an indulgence and consequently ought to pay the costs (or even its own costs) in circumstances where the matter only came to Court because the Applicant had commenced proceedings claiming inter alia a mandatory order for removal of the encroachment which claim to principal relief was abandoned at the trial which thereupon was exclusively devoted to consideration of the Applicant's several claims to compensation, in the light of his concession that it would be appropriate to grant an easement in favour of the Respondent in respect of the encroachment. 21. The very belated abandonment by the Applicant of his principal claim to relief with the consequent radical revision of the litigation, including the course of the trial (wholly devoted to the determination of the Applicant's several claims to compensation—all of which wholly failed) rather suggests that the litigation was in truth unnecessarily commenced and continued. This conclusion brings to mind what Young J said of the expected operation of the Act in the following passage from Hardie v Cuthbert (1988) 65 LGRA 5 at 6/7: The Act has not been before the courts for consideration on very many occasions. This, it would appear, in fact fulfils what the legislature intended because the ministers when introducing the Act made it clear that the government thought that 99 per cent of cases would be settled because neighbours would know that the court had an overriding duty to do what was fair, people would accept themselves what was fair and not try and blackmail their neighbours. Those half a dozen or so cases which have come before the courts have, almost without exception, shown that the court is construing this legislation in a purposive and beneficial way. 22. In elaboration of factor (d), Senior Counsel for the Applicant submitted that the fact the Court awarded no compensation in respect of the conceded easement was "a neutral factor" on the question of costs, except that it would in such circumstances "be unusual for the applicant to suffer a penalty as to costs". 23. The reasons why, in the exercise of my statutory discretion, I awarded the Applicant no compensation are contained in my earlier judgment to which reference is again made. 24. Essentially, I found that the relevant circumstances of the case (including most particularly the Applicant's conduct from the time he entered into the contract to purchase the property from the Respondent) justified the decision not to award compensation (including "minimum compensation"). 25. My decision not to award compensation does not, in my respectful judgment, impact upon the separate decision now required in respect of the exercise of discretion on costs, in circumstances where it is established that an order for costs in compensatory and not punitive: see Latoudis v Casey (1990) 170 CLR 534 at 543, 563 and 567. 26. Consideration of factor (e) (the "Calderbank" letter) I think can be conveniently postponed until I consider the Respondent's application for costs on an indemnity basis. 27. Having regard to my detailed consideration of each of the factors relied upon by the Applicant, I am of the opinion that the Applicant has not substantiated his case that there should be no order as to costs (with each party being left to bear his own costs). D. THE RESPONDENT'S APPLICATION FOR COSTS 28. Notwithstanding the reference in Morris v Thomas (the first reported decision of this Court following the vesting in it of jurisdiction under the Act) to Kostis v Devitt and to the notion adopted therein that relief granted under the Act is in the nature of "an indulgence", subsequent decisions in this Court have not perpetuated that notion and the position has now been reached where the Court has held that the costs discretion conferred by the Act should normally be exercised by reference to the conventional principle that ordinarily costs should follow the event: see Hofer v Howell (2001) 113 LGERA 391 where Lloyd J rejected a submission that he should not follow my earlier unreported 1997 decision in Droga v Proprietors of Strata Plan 51722 (LEC Unreported 28 November 1997) upholding the application to proceedings under the Act, of the general or usual costs rule of costs following the event. His Honour, in rejecting the submission said at 395/396: I accept that proceedings under the Encroachment of Buildings Act are out of the ordinary in that they may extend beyond the vindication of existing entitlements and give the court a broad discretion to create new and sometimes valuable rights where this is demanded by justice and the circumstances of the case. It remains appropriate, however, to make orders for costs on a compensatory basis, since prima facie the successful party has been required to litigate to obtain what the Court has found to be the appropriate outcome. 29. More recently, Lloyd J has re-affirmed the proposition that general principles relating to costs orders should apply to proceedings brought under the Act: see Byron Shire Council v Vaughan (No 3) 2001 NSWLEC 102. 30. Applying what I think can be regarded as the now settled costs principle, it follows from my earlier analysis of the history of the litigation (including the outcome as determined by my earlier judgment) that the Respondent, having been wholly successful, should receive a costs order in its favour, subject however to the exclusion of costs incurred in connection with its discrete cross-claim to relief under the Act in respect of the Applicant's encroachment upon its land. 31. In addition to its claim for costs on a party and party basis, the Respondent seeks an order for costs on the indemnity basis in consequence of the Applicant's non-acceptance of the Respondent's offer contained in its Solicitor's "Calderbank" letter dated 3 July 2000 (received by facsimile transmission on that day by the Applicant's Solicitor). That offer, which was expressed to be a "counter offer" was in the following terms: However, we have been instructed to make the following counter – offer (without any admission of liability): 1. The Applicant grant the Respondent permanent easements in respect of the encroachments identified in the surveys of Dunlop and Thorpe dated 7 May 1998 and B.A Homann & Associates dated 8 June 2000; 2. The Respondent to grant the Applicant permanent easements in respect of the encroachments identified in the survey of Dunlop and Thorpe dated 7 May 1998 and BA Homann & Associates dated 8 June 2000; 3. The Respondent pay to the Applicant the sum of $3,700.00, in return for the grant of the permanent easements referred to in paragraph 1 above. 4. Each party to bear their own costs; 5. Acceptance of this offer to constitute a full and final settlement of the proceedings. 6. Subject to payment being made in accordance with paragraph 3 above, the Applicant to release the Respondent and the Respondent to release the Applicant (and their servants and agents) from all suits, actions claims and demands which the Applicant or the Respondent now have, or at any later time may have against one another arising out of or related in any way either directly or indirectly to the matters which are the subject of the Applicant's and Respondents claims. This offer is to remain open until the day prior to the hearing of this matter, being 9 July 2000. If it is not accepted by that time, it will be taken to have been rejected. If it is rejected, we reserve the right to tender a copy of this letter to the court on 10 July 2000 on the question of costs. 32. Given the timing of the Respondent's "Calderbank" letter and the fact that it was expressed to be open for acceptance for one week up to the day preceding the trial date, the only aspect of the costs incurred by the Respondent in the litigation which could conceivably benefit from an order for costs on the indemnity basis are the costs of the one day hearing on 10 July 2000. Accordingly, the scope for operation of an indemnity costs order is obviously extremely limited and barely meaningful. 33. Notwithstanding this limited potential application, the Applicant submits that an examination of the terms of the "Calderbank" letter (and in particular the broad content of the mutual releases formulated in par 6) means that it cannot be reasonably concluded that the Applicant's position in terms of the offer was materially better than his position resulting from the Court's judgment delivered on 5 December 2000. 34. The decided cases (which are conveniently collected in Lloyd J's judgment in Hofer v Howell and in the earlier judgment of Lindgren J in the Federal Court in MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (No 2) (1996) 70 FCR 236) establish that "the mere making of an offer by a Calderbank letter and its non-acceptance followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer will not automatically lead to the making of an order for payment of costs on an indemnity basis": MGICA (1992) at 239. 35. I note that Part 22 of the Supreme Court Rules which has been applied to class 4 proceedings in this Court and to class 3 proceedings involving claims for compensation following compulsory acquisition (see Land and Environment Court Rules Pt 6 r 6(2) and Pt 13 r 27) has not been applied to proceedings under the Act. 36. In my opinion, particularly given the belatedness of the "Calderbank" offer, being open for acceptance in the week immediately preceding the hearing, in litigation that had been afoot since November 1999, combined with the fact that by the time the offer was received, the Applicant had incurred legal costs of some $41,000 (see par 6 of Mr John's affidavit), the Respondent has not established that the Applicant's non-acceptance of the offer was unreasonable in the relevant sense. 37. Accordingly, there is no warrant for awarding costs on the indemnity basis. E. CONCLUSIONS AND ORDERS 38. For all the foregoing reasons, I make the following orders— The Applicant shall pay the Respondent's costs of the proceedings (except for costs incurred in connection with the Respondent's cross-claim for the removal of the Applicant's encroachment upon the Respondent's land) on a party and party basis in the sum agreed, or failing agreement, as assessed. 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