Reported Decision : 120 LGERA 301 Land and Environment Court of New South Wales CITATION : Nati v Baulkham Hills Shire Council [2002] NSWLEC 71 APPLICANT Giulio Nati and Judy Nati PARTIES : RESPONDENT Baulkham Hills Shire Council FILE NUMBER(S) : 40113 of 2001 CORAM: Pain J KEY ISSUES: Costs :- Class 4 - proceedings discontinued by agreement - whether one of the parties had acted so unreasonably as to justify an award of costs LEGISLATION CITED: Protection of the Environment Operations Act 1997 s 91 Land and Environment Court Act 1979 s 69 Environment Protection Authority v Irongates [1997] NSWLEC 142; Jones v Dunkel (1959) 101 CLR 298; CASES CITED: Latoudis v Casey (1990) 170 CLR 534; Oshlack v The Richmond River Council (1998) 193 CLR 72 ; Prince v North Sydney Council (2001) 115 LGERA 65; Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622 DATES OF HEARING: 06/05/2002 DATE OF JUDGMENT: 06/07/2002 APPLICANT Ms V Culkoff (Barrister) SOLICITORS Russo & Partners LEGAL REPRESENTATIVES: RESPONDENT Ms J Kelly (Barrister) SOLICITORS Coleman & Greig JUDGMENT: IN THE LAND AND Matter No: 40113 of 2001 ENVIRONMENT COURT OF Coram: Pain J NEW SOUTH WALES Decision date: 7 June 2002 Guilio Nati and Judy Nati Applicants v Baulkham Hills Shire Council Respondent Judgment Introduction 1. The Applicants conduct a flower growing business. In order to keep stock at an appropriate temperature the Applicants have an oil burning heater, a Kroll Heater, on their premises. The Applicants commenced Class 4 proceedings seeking a declaration that a Clean Up Notice, issued by the Council and served on the Applicants on 4 April 2001 pursuant to s 91 of the Protection of the Environment Operations Act 1997 (PEO Act), requiring the Kroll Heater to be shut down, is invalid. An Order that the Council pay the Applicants' costs was also sought. 2. The Class 4 proceedings were dismissed by consent before the Registrar on 20 February 2002, subject to the question of costs being argued. The question of costs is now before the Court. Both parties are seeking costs. However, the Council also put forward alternative submissions: a) that each party pay their own costs, or b) that there should be an award of costs in favour of the Council from 18 February 2002 when it made clear it was prepared to discontinue proceedings and pay its own costs. 3. At the outset of the hearing the Applicants' counsel applied to have the Registrar's Order, that the proceedings be dismissed, overturned and a hearing date set so that the merits of the matter could be considered as well as the question of costs. The Applicants asserted that it had always been their position that if there was no agreement as to costs the Applicants would run the proceedings on their merits. The Applicants' version of the meaning of the proceedings "being dismissed subject to the question of costs" was disputed by the Council. As no further evidence was presented apart from submissions from the bar table in support of this application, this request was refused. Accordingly the matter proceeded to be argued on the basis that the proceedings had been dismissed subject only to a determination on costs. 4. A chronology of events surrounding the issuing of the Clean Up Notice and the subsequent dealings between the parties was provided to the Court by the Applicants. That chronology was not objected to by the Council subject to making some amendments. A shortened version omitting irrelevant matters is set out below, including those amendments requested by the Council. It provides a useful summary of the circumstances to which the Court's attention was drawn in argument. Chronology 1. On 4 April 2001 Council issued a Clean Up Notice to the Applicants directing the Applicants to "immediately cease using the oil fuelled water-heating unit". ("Kroll Heater"). 2. On 5 April 2001 Council issued an on-the-spot fine for use of the Kroll Heater. 3. On or about 7 April 2001 the Applicants made a verbal request to the Council to allow operation of the Kroll heater to enable testing. The Council requested they put the request in writing. 4. On 8 April 2001 the Applicants spoke with the Council advising that the Kroll Heater was EPA approved. 5. On 10 April 2001 the Applicants hand delivered EPA Certificates to Council. 6. On 21 April 2001 The Applicants made a written request for testing 7. On 26 April 2001 solicitors for the Applicants wrote to the Council indicating the Kroll Heater was critical to the ongoing and continuing production of flowers during winter and the Applicants were losing $20,000 - $30,000 p.w. 8. On 7 May a letter dated 4 May 2001 requesting testing was sent by the Applicants' solicitors to the Council. 9. On 8 May 2001 testing of the Kroll Heater by Stephenson Environmental Management Australia was refused by the Council as the adjoining owners had to be notified. 10. On 8 May 2001 the Applicants' solicitors wrote to Council confirming testing was to take place on 15 May 2001 and advising refusal to allow testing by the Council cost the Applicants approximately $6,000, not to mention associated costs with continuing loss of productivity and loss of plants. 11. On 10 May 2001 the Council issued Demolition Orders pursuant to s 121B of the Environmental Planning & Assessment Act, including in relation to the Kroll Heater. 12. On 15 May 2001 testing of the Kroll Heater was conducted by Stephenson. The Report demonstrated the Kroll Heater was fully in compliance. There is no evidence of when the report was delivered to the Council. 13. On 29 May 2001 the Applicants' solicitors forwarded a letter to the Council advising that unless the Clean Up Notice was withdrawn by 5 pm on 31 May 2001 the Applicants would have no alternative but to commence proceedings. 14. On 6 June 2001 the Applicants appealed against the Demolition Order of Council. 15. On 21 June 2001 the Applicants filed the Class 4 proceedings seeking a declaration that the Clean Up Notice was invalid and seeking to set it aside. In addition the Applicants filed a Notice of Motion seeking expedition together with all evidence to be relied on in the proceedings (G Nati, A Moore Senior Planner, P Stephenson Biochemist) 16. On 6 July 2001 at 5 pm the Applicants were allowed to recommence operation of the Kroll Heater by the Council 17. On 16 July 2001 Summonses in the Local Court Parramatta were filed contesting the penalty infringement notices issued by the Council. 18. In October 2001 Summonses in the Local Court were dismissed. 19. On 20 March 2002, by consent, the two Class 1 Applications were dismissed with no order as to costs. The Class 4 proceedings were set down for hearing on the question of costs, on 6 May 2002. 5. Several affidavits were filed by the parties and both parties conducted cross-examination of some witnesses. The powers of the Court to award costs under s 69 of the Land and Environment Court Act are broad. Both the Applicants and Council agreed that for the hearing on costs it was not appropriate that the "merits" of the case be argued i.e. whether the orders sought in the Applicants' Class 4 application ought to be made. Rather, the parties argued the Court could determine whether their respective actions had been so unreasonable that the Court was justified in exercising its discretion to award costs in favour of one of the parties. The Parties' Submissions 6. To demonstrate the Council's unreasonable behaviour the Applicants drew the Court's attention to the circumstances leading up to the issuing of the Clean Up Notice; the alleged inadequate terms of the Notice; the provision by the Applicants of information suggesting that Kroll Heaters were EPA approved a few days after the issuing of the Clean Up Notice; and the Council's postponement of testing of the Kroll Heater, due to the need to notify neighbours, when the Council was on notice from 26 April 2001 of the financial losses being incurred by the Applicants. The Applicants argued the Council had issued the Clean Up Notice only on the basis of video material supplied by a neighbour with whom the Applicants had an acrimonious relationship. Council officers had not carried out their own observations, nor had they done any testing. Further, the Applicants submitted there was no evidence the smoke was not part of the Kroll heater's usual operation. The Applicants argued that there should have been opportunity provided to them to check for malfunctions before a Clean Up Notice requiring an immediate shutdown of the Kroll Heater was issued. 7. The Applicants also argued that it was the commencement of these proceedings which prompted action by the Council to allow the Kroll Heater to recommence operation. The Class 4 proceedings were commenced on 21 June 2001 together with a Notice of Motion seeking expedition. On 6 July 2001 the Council allowed the Applicants to recommence operation of the Kroll Heater. Apart from drawing inferences on the timing of the decision to allow the Kroll Heater to start up some two weeks after these Court proceedings were filed, the Applicants did not refer to other evidence to support this submission. 8. The Council denied it had acted unreasonably. The Council argued that an award of costs should be made in its favour because the Applicants had acted unreasonably. The Council submitted it was inappropriate for the Applicants to have brought the proceedings, as the matter would have been finalised if it had waited a further two weeks. 9. In relation to issuing the Clean Up Notice, the Council relied on video evidence, shown in Court, provided by the Applicants' neighbour to the Council. The video showed smoke in quite large quantities emerging from the flue of the Kroll Heater. It was not completely clear from the video for how long the smoke was emitted or on what days or at what time. There was some commentary on the video suggesting the film was taken over several days for varying periods of time. There was also oral evidence from a council officer, Mr Dennis, employed by the Council that other complaints were received and considered by the Council before the Clean Up Notice was issued. Further, the NSW EPA's "certificate" was in general terms and did not approve the use of the Kroll Heater at this particular site. The oral evidence of Mr Dennis was to the effect that there was maintenance work undertaken on the Kroll Heater in his presence after the Clean Up Notice was issued. It was put to Mr Dennis in cross-examination that the smoke was emitted as part of the normal start up operations of the Kroll heater, but he did not agree. 10. Mr Dennis stated in oral evidence that it was because the Applicants had brought the Kroll Heater into compliance, by the maintenance carried out, that he permitted the Applicants to start the heater. Mr Dennis stated that he did not allow the heater to be started until he was satisfied that the heater would operate appropriately. He denied in cross-examination that his decision was influenced by the commencement of court proceedings by the Applicants. 11. Further the Council argued (and Mr Dennis gave oral evidence to that effect) that there was no legal requirement to conduct testing before the issuing of a Clean Up Notice. It was clear that there was evidence of one or more pollution incidents and the Council was acting reasonably in the circumstances in issuing the Notice. 12. The Applicants suggested that I should also draw an adverse inference from the fact that no specific evidence in affidavit form was provided by the Council of the additional complaints. Counsel for the Council argued that no such inference should be drawn. The affidavit material provided by the Council was made in response to the affidavits of the Applicants and was not designed to explore the merits of the case. 13. Counsel for both parties relied on the decision in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622 in which McHugh J notes that in certain cases: a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action…the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. (at 624, footnotes omitted) 14. Another passage of McHugh J to which the Court was also taken states: 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. (at 625) 15. The Applicants also relied on the decision of Pearlman J in Environment Protection Authority v Iron Gates [1997] NSWLEC 142 where her Honour held that even when there is no decision on the merits, the Court may award costs in certain situations where one party is successful in achieving outcomes as a result of litigation. That case concerned an interlocutory injunction which was granted. The Applicants argued the present case was analogous to Iron Gates regarding the Notice of Motion seeking expedition that the Applicants filed. I do not agree. The Applicants' Notice of Motion seeking expedition is not the same in legal terms as an interlocutory injunction application. In any event, that Notice of Motion was not heard. 16. Additional cases relied on by the Council were Latoudis v Casey (1990) 170 CLR 534 where the oft-quoted statement to the effect that costs are compensatory not punitive is made. Oshlack v The Richmond River Council (1998) 193 CLR 72 was also referred to, particularly the judgment of Kirby J, in relation to the broad discretion in awarding costs and the issues relevant to the exercise of that discretion by the Court. Findings 17. The circumstances to which I can have regard in relation to whether or not a party has been unreasonable seem to me to be somewhat limited. The primary focus must be the conduct of the litigation itself rather than a number of matters which dealt with "merits" considerations such as the terms and circumstances surrounding the issue of the Clean Up Notice. Class 4 proceedings were commenced on 21 June 2001. The Kroll Heater was able to be started from 5 pm on 6 July 2001, negating the need for further determination of the matters in issue. The court proceedings have not progressed to any significant degree. A key issue between the parties is the relationship between the timing of the commencement of the Class 4 proceedings by the Applicants and the Council's timing in allowing the Kroll heater to be switched on. I have conflicting submissions before me on this issue. The Applicants contend it was the commencement of proceedings which caused the Council to allow the Kroll Heater to be recommenced. There is no direct evidence that this was the case. The Council denies this and says that the Applicants should have waited a further two weeks to commence proceedings by which time the matters between the parties would have been settled. It is the oral evidence of Mr Dennis, unshaken in cross-examination, that the basis for the decision to allow the Kroll Heater to recommence was that he considered that it was then able to operate satisfactorily. 18. The Council is a regulatory authority entitled to respond to pollution incidents with the issue of a Clean Up Notice pursuant to s 91 of the PEO Act. Provided the Council is sure there is sufficient ground warranting action it is entitled to rely on observations by persons who are not employees of councils. While there is not complete evidence filed in relation to what the Council did rely on, I am not prepared to draw adverse conclusions as the Applicants urged on me in relation to the absence of that evidence (relying on Jones v Dunkel (1959) 101 CLR 298). In my opinion the Council could not be said to have acted unreasonably in the circumstances before me. 19. The Council argued that the Applicants acted unreasonably, by commencing proceedings when the matter would have been resolved if they had waited two weeks. In Prince v North Sydney Council (2001) 115 LGERA 65 Lloyd J was required to consider costs in relation to a Class 1 appeal against an order made under s 124 of the Local Government Act 1993 (the LG Act). The order related to measures the Applicant was required to undertake so as to control the flow of surface water across their land. Lloyd J stated in relation to the order under the LG Act: The Applicant was concerned about the continuing existence of the order; and the offer by the Council not to enforce it meant that the order was still in place [emphasis added] and would have been apparent to any person conducting a search of council's records for the existence of any such orders (at 72) I note that Prince was a Class 1 case, such that a different test for costs applies. However, it serves to emphasise the consequences of the continuing existence of a mandatory Order for the recipient of that Order. 20. The Applicants in this case were also understandably concerned about the continuing existence of the order due to the substantial sums of money they claim to have lost while the order remained in force, i.e. the difference of the two week period between the Applicants commencing the proceedings and the Council allowing the Kroll heater to recommence could have meant substantial monetary losses for the Applicants. In these circumstances the Applicants' behaviour could also not be regarded as unreasonable. 21. In all the circumstances I do not consider that one party has acted unreasonably so that it should be subject to an award of costs against it, nor was one party clearly "successful", as both parties argued. The primary focus for this costs application, namely the court proceedings, did not progress to a significant extent so that the "successful" party cannot be determined. For the same reasons, it is not appropriate to grant the orders sought in the Council's alternative submission - that it should be awarded costs from 18 February 2002 when it was prepared to discontinue proceedings and pay its own costs. In all the circumstances I think it is most appropriate that each party pay their own costs. Order The Court orders that: 1. Each party pay their own costs of these proceedings. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.