Land and Environment Court of New South Wales CITATION : City of Sydney Council v Palladium Management Pty Limited and Ors [2006] NSWLEC 787 APPLICANT City of Sydney Council FIRST RESPONDENT Palladium Management Pty Limited PARTIES : SECOND RESPONDENT Chun Fei Chang THIRD RESPONDENT Chang Lung Chang FOURTH RESPONDENT City Apartments Realty Pty Ltd FILE NUMBER(S) : 40764 of 2006 CORAM: Preston CJ KEY ISSUES: Costs :- civil enforcement proceedings - discontinuance by applicant - applicant and respondents each acted reasonably - no order as to costs LEGISLATION CITED: Environmental Planning and Assessment Act 1979 s 121B CASES CITED: Kiama Council v Grant (2006) 143 LGERA 441; Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 DATES OF HEARING: 08/12/2006 EX TEMPORE JUDGMENT DATE : 12/08/2006 APPLICANT Mr S Kondilios (solicitor) LEGAL REPRESENTATIVES: SOLICITORS Maddocks Lawyers RESPONDENT Chun Fei Chang (in person) JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES PRESTON CJ 8 DECEMBER 2006 40764 OF 2006 COUNCIL OF THE CITY OF SYDNEY V PALLADIUM MANAGEMENT PTY LIMITED and ORS JUDGMENT 1 HIS HONOUR: The Council of the City of Sydney brought proceedings against the first respondent, Palladium Management Pty Limited, and the second to fourth respondents, Mr Chun Chang, Mr Chang Chang and City Apartments Realty Pty Limited, in order to restrain the carrying out of an apprehended breach of the Environmental Planning and Assessment Act 1979. The apprehended breach was that certain strata-title units in a residential flat building at 102 Miller Street, Pyrmont were being used as a real estate agency and building management office. 2 The situation has now been reached whereby the Council has discontinued the proceedings against the second to fourth respondents but has maintained the proceedings against the first respondent. Subsequent to the discontinuance, both the Council and the second to fourth respondents have each filed notices of motion seeking costs of the proceedings up to the point of discontinuance. Those notices of motion are before me today for determination. 3 In order to understand the resolution of these notices of motion, it is important to set out some short facts of the circumstances that led to the taking of the proceedings and ultimately the discontinuance. 4 The second and third respondents are brothers. They are the directors of the fourth respondent, City Apartments Realty Pty Limited. City Apartments Realty Pty Limited carried on a real estate business. However, around 10 October 2005, City Apartments Realty Pty Limited sold its real estate business to the first respondent, Palladium Management Pty Limited. Mr Thornton was and is a director of Palladium Management Pty Limited. 5 Prior to sale, City Apartments Realty Pty Limited conducted its business from the two units at 102 Miller Street, Pyrmont, these being unit 151 where there was a reception area, and unit 87 which was a residential unit, although it was used as a home office for the conduct of the real estate business. Unit 87 was owned by the two Chang brothers, the second and third respondents. 6 On 10 October 2005 when City Apartments Realty Pty Limited sold the real estate business to Palladium Management Pty Limited, the second and third respondents simultaneously leased unit 87 to Mr Thornton, the director of Palladium Management Pty Limited. This was to allow Mr Thornton to continue using unit 87 as a home office. 7 On 10 April 2006, the Council received a complaint from a member of the public that units 87 and 151 were being used as a real estate agency. 8 On 12 April 2006, the Council's building surveyor, Mr Bruce Ansted, carried out a site inspection of units 151 and 87. He noted that they were being used for a real estate agency business. 9 After Mr Ansted had reported to the relevant persons at the Council, the Council issued the second and third respondents with a penalty notice under the Environmental Planning and Assessment Act with respect to the unauthorised use of unit 87. As I have noted, the second and third respondents are the owners of unit 87. However, by this time they had leased unit 87 to Mr Thornton. Nevertheless, for the Council's purposes the second and third respondents would still have been shown as being the owners. 10 The Council on the same day also issued a notice of intention to issue an order under s 121B of the Environmental Planning and Assessment Act on the second and third respondents to cease using unit 87 as a building management office or real estate agency. 11 On 23 May 2006, the Council served a 121B order on the second and third respondents to cease using unit 87 as a building management office and real estate agency. 12 On 6 June 2006 the second and third respondents' solicitor, Mr Jemmeson, telephoned Mr Ansted at the Council in relation to the penalty infringement notice and the s 121B orders. There was some correspondence that followed with the Council in relation to a letter to the Council's infringement processing bureau. 13 On 15 July 2006, the Council received an email from a resident of the building at 102 Miller Street, Pyrmont advising that the fourth respondent, City Apartments Realty Pty Limited, was advertising units for sale or lease, referring to themselves as agent and providing unit 151 as a contact point. 14 On 17 July 2006, the Council's solicitors wrote to the second, third and fourth respondents asking them to show cause why the Council should not commence class 4 proceedings in this Court seeking orders restraining the second, third and fourth respondents from using units 151 and 87 as a real estate agency business. 15 On 21 July 2006, the Council's building surveyor, Mr Ansted, met with Mr Thornton of Palladium Management Pty Limited and Mr Chang, the second respondent. They inspected together unit 151 and unit 87. Mr Thornton stated that he was using both of those units. Unit 151 was used as a front reception and unit 87, Mr Thornton said, was used in conjunction with the business as a home office. The question was asked at the site visit whether City Apartments Realty used the office. Mr Ansted records that it was claimed that City Apartments Realty do not operate from 102 Miller Street at all. 16 On 27 July 2006, the second and fourth respondents' solicitor, Mr Jemmeson, wrote to Mr Ansted referring to the site visit on 21 July 2006 and stating "as stated on Friday to you, City Apartments Realty Pty Limited no longer trades. The company has not traded since approximately 10 April 2006, and no longer has any employees. The Office of Fair Trading has been informed of this." Mr Jemmeson then attached a copy of a letter which had been sent to the current tenant of the property, Mr David Thornton. That letter to Mr Thornton stated that Mr Thornton is letting the premises pursuant to a residential tenancies agreement and any commercial use is in breach of that agreement. Mr Thornton was requested to immediately cease and desist any commercial activity from the premises. The letter then dealt with the potentiality to lodge a development application for a change of zoning of the property. 17 On 3 August 2006, the Council gave instructions to the Council's solicitors to commence class 4 proceedings. In giving those instructions the Council forwarded hard copies of searches of the internet carried out by the Council which showed, for a period between 17 July 2006 and 27 July 2006 that City Apartments Realty was advertising properties for rent. The agent details given were City Apartments Realty and the address was unit 151/102 Miller Street. As I will note below later in this chronology, this was in fact an error in that the agent's details in the internet advertising domain had not been changed from City Apartments Realty to Palladium Management Realty. 18 On 14 August 2006, the Council commenced class 4 proceedings in this Court against each of the respondents. The first directions hearing was held on 14 September 2006. On that occasion, the Council advised the second respondent that the adjournment would allow the Council to investigate the internet advertising by the fourth respondent. 19 On 26 September 2006, the Council's building surveyor, Mr Ansted, again inspected the building at 102 Miller Street, Pyrmont. Mr Ansted noted that unit 87 was no longer being used for the real estate agency business. Mr Ansted advised the Council's solicitors of that fact on 28 September 2006. 20 The following day there was a second directions hearing. The matter was adjourned to 20 October 2006. 21 On 11 October 2006, the Council's solicitors advised the second respondent by telephone that internet advertising referring to the fourth respondent was ongoing. 22 On 17 October 2006, the second respondent advised the Council's solicitors by email that the internet advertising showing the fourth respondent as agent was an error which had been rectified. 23 On 18 October 2006, the Council's solicitors received instructions to discontinue against the second, third and fourth respondents save as to costs. 24 Subsequently there were further directions and the filing of the notices of motion for costs. Ultimately the notice of discontinuance by the Council was filed against the second, third and fourth respondents on 2 November 2006. 25 The above chronology shows that there were a number of facts known to the Council which indicated, prior to commencing the proceedings, that the second to fourth respondents were no longer operating the real estate business from units 87 and 151. However, against these facts was the internet advertising under the name of the fourth respondent. In these circumstances, it was reasonable for the Council to commence the proceedings including against the second to fourth respondents. However, once the true facts became known, there was no justification for continuing the proceedings. This ultimately is what of course occurred. 26 The principles to be applied in civil enforcement proceedings in class 4 of the Court's jurisdiction where there is discontinuance have been the subject of a number of cases. These cases and the principles that could be deduced from those cases were summarised by me in the decision of Kiama Council v Grant (2006) 143 LGERA 441. In paragraph 80 of that judgment I said this: "[80] The principles that emerge from these cases are that in a civil enforcement or judicial review case where there has been no hearing on the merits: (a) where one party effectively surrenders to the other party by: (i) discontinuing without the consent of the other party; (ii) giving undertakings to the Court or submitting to the Court making orders against the party substantially in the terms or to the effect claimed by the other party, the proper exercise of the costs discretion will ordinarily be to make the usual order as to costs, unless there is disentitling conduct on the part of the other party, and (b) where some supervening event or settlement so removes or modifies the subject of the dispute that no issue remains except that of costs, the proper exercise of the costs discretion will ordinarily be to make no order as to costs unless, (i) one of the parties has acted so unreasonably that the other party should obtain the costs of the action, or (ii) even if both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried so that the party should obtain the costs of the action." 27 One of the leading cases is the High Court decision in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622. In that case, McHugh J stated that where there has been no hearing on the merits, a court is necessarily deprived of the fact that usually determines whether or how it will make a costs order. His Honour went on to say that: "If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continues to be reasonable until the litigation was settled or as further prosecution became futile, the proper exercise of the costs discretion will usually mean that the courts will make no order as to the costs of the proceedings": at 625. 28 As I have noted above, by reason of the internet advertising using the name of the fourth respondent, it was reasonable for the Council to include the second to fourth respondents as parties to the proceedings. Equally, by reason of the facts that have now become clear, that advertising was in error. The true facts were that the fourth respondent was not conducting the business of real estate agents at the relevant time but rather it was the first respondent, Palladium Management Pty Limited, that was conducting that business. Accordingly, the conduct of both the council on the one part and the second to fourth respondents on the other part, can be characterised as being reasonable. 29 The Council has not, of course, obtained any orders against the second to fourth respondents, so it cannot be said that the Council has been effective in achieving the relief that it sought by reason of the bringing of the proceedings. The use which was sought to be restrained had as a matter of fact already ceased by the second to fourth respondents before the bringing of the proceedings. The problem in this case, as I have noted, was that that fact was disguised by the internet advertising. 30 In all of the circumstances, the Council's conduct in commencing the proceedings was reasonable but equally it acted reasonably in discontinuing the proceedings once the error in relation to the internet advertising had been brought to its attention and rectified by the second to fourth respondents. Equally, as I have said, the second to fourth respondents acted reasonably in defending the proceedings. It was unfortunate that the internet advertising event had occurred. If it had not then perhaps the proceedings would not have needed to have been brought. Nevertheless, once the second to fourth respondents were on notice to that, they rectified it and otherwise acted reasonably in the conduct of the proceedings. 31 For these reasons, I consider that the proper order is that each party should pay their own costs of the proceedings. This means that both of the Council's and the second to fourth respondents' motions for costs should be dismissed. The result of each of the parties' notices of motion being dismissed means that there also should be no order as to costs in relation to the respective motions for costs. 32 For these reasons I make the following orders. 1. The applicant and the second, third and fourth respondents should pay their own costs of the substantive proceedings. 2. The applicant and the second, third and fourth respondents should pay their own costs of the Council's notice of motion dated 26 October 2006 and the second, third and fourth respondents' notice of motion dated 4 December 2006. 3. The exhibits may be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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