Land and Environment Court of New South Wales CITATION : Mavis McKinnon v. Hallbridge Pty Ltd [1998] NSWLEC 85 APPLICANT Mavis McKinnon PARTIES : RESPONDENT Hallbridge Pty Ltd FILE NUMBER(S) : 30148 of 1997 CORAM: Sheahan J KEY ISSUES: :- LEGISLATION CITED: Encroachment of Buildings Act 1922 Land & Environment Court Act 1979 CASES CITED: Donald Campbell & Co Limited v Pollak [1972] AC 732.; Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited & Ors (1988) 81 ALR 397 DATES OF HEARING: 03/07/98 DATE OF JUDGMENT: 07/10/1998 APPLICANT Mr M Evans, Barrister Ms M Rodgers of Minter Ellison LEGAL REPRESENTATIVES: RESPONDENT Mr S Kerr, Barrister Mr S Suchard of Colin Biggers & Paisley JUDGMENT: The only outstanding matter to be resolved in this case is the question of costs. The substantive issues were resolved in my judgment of 12 June 1998, the thrust of which was as follows: * that the applicant was entitled to relief; * that she was entitled to compensation defined to include the value of the land upon which the encroachment was made ($562); * that within the meaning of s 4(1) of the Encroachment of Buildings Act 1922 ("the EB Act"), the "multiplier" should not be applied in the circumstances of the case, because there was no evidence upon which the Court could conclude that the encroachment was intentional, or the result of negligence, on the part of the respondent; * that the applicant should be reimbursed for expenses she incurred totalling $3,106; * that these two amounts totalling $3,668 should be paid within 28 days of judgment; and * that the respondent should also pay the expenses involved in attending to the legal rectification of the situation pursuant to s 3(2)(b) of the Act. In paragraph 6.5 of my judgment of 12 June 1998, I said: "I have some doubt that this is an appropriate case for me to order the respondent to pay the applicant's costs of these proceedings, but I will formally reserve the question". 2. THE RELEVANT PRINCIPLES "Costs are in the discretion of the Court", pursuant to s 69 of the Land & Environment Court Act 1979. That discretion is absolute and unfettered, but must be exercised judicially. Donald Campbell & Co Limited v Pollak [1972] AC 732. As these are Class 3 proceedings, they are governed by the Court's Practice Direction 10A, which provides that the Court will generally not make costs orders unless the circumstances are "exceptional". Section 14 of the EB Act is also relevant, and provides as follows: "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". The Court may make orders in respect of the whole or any part of the costs, but, for an order to be made for other than costs on a party/party basis, special circumstances must exist. Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited & Ors (1988) 81 ALR 397 ("Fountain").Woodward J said in Fountain: "I believe that it is appropriate to consider awarding `solicitor and client' or `indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion". A letter of offer, in which a party has offered to settle a case for as much as, or more than, that amount to which the opposing party ultimately establishes entitlement following the hearing, should be taken into account by the Court in determining whether to make a special costs order displacing any usual order that costs follow the event. The Court will have regard to all relevant circumstances, including the time at which the letter of offer was received. Messiter v Hutchinson (1987) 10 NSWLR 525 ("Messiter"). In Messiter the letter of offer said, inter alia: "Our client is concerned at the level of costs which might be incurred by the forthcoming hearing. For that reason and based upon the valuation reports which we have served upon you our client is prepared to offer your client the sum of $120,000 inclusive of interest (plus agreed or taxed costs) to settle the claim provided that amount is accepted prior to 4pm on Wednesday, 8 April 1987. Please seek your client's instructions. We also give you notice that our client intends to rely upon the making of this offer if and when the question of costs arises and intends to bring this letter to the attention of the arbitrator or the Court in those circumstances". Rogers J described that letter as being of a kind which in England has become known as a Calderbank letter taking its name from the comments of Cairns LJ in Calderbank v Calderbank [1975] 3 All ER 333.Rogers J observed (at 528): "... at least as a matter of principle, a Calderbank letter should be permitted to be taken into account by the Court in determining whether a special order displacing that which generally obtains of costs following the event should be made". Rogers J continued (at 529): "In considering what weight should be given to an offer, the Court will no doubt pay regard to all relevant circumstances including the reason why no payment in was made, the security of payment available to the plaintiff and the time at which the Calderbank letter was received by the plaintiff. So long as adequate consideration is given to the matters I have mentioned, it seems to me there is no reason why the Court should not foster all means whereby parties may properly attempt to dispose of their disputes prior to actual hearing ... . Delay in making an offer may, of course, entail consequences in the precise order made but should not automatically demand a complete disregard of the offer of settlement". An application for costs to be ordered on a basis higher than the normal party/party basis is well illustrated in Degman Pty Limited (in liq) v Wright (No.2) [1983] 2 NSWLR 354 ("Degman"). In ordering costs against a particular party in Degman, Holland J said: "It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant". The difference between the levels of order a Court may make is illustrated by his Honour's order in Degman that costs incurred on or before 31 January 1986 were to be paid on a party/party basis, and "those costs incurred after that date are to include all costs excepting so far as they are of an unreasonable amount or have been unreasonably incurred, so that, subject to the above exceptions, the second respondent will be completely indemnified by the applicant for his costs". 3. THE ORDERS NOW SOUGHT 3.1 The respondent seeks an order that the applicant pay the respondent's costs on a party/party basis until 20 March 1998, and on a solicitor/client basis after that date. The respondent contends that the applicant originally claimed $30,000, and that the proceedings, and a caveat the applicant had put on the respondent's title, had had the effect of deterring at least one potential buyer of the respondent's property. The respondent alleges that the facts disclose that the applicant had an "ulterior motive" (Fountain) in bringing these proceedings, and in leaving the caveat on the title when the judgment of the Court was for a much lesser amount, and does not create a caveatable interest. The respondent therefore contends: * that the circumstances are "exceptional", * that the respondent must be entitled to orders for costs, and * that, if the Court does not make the precise orders it seeks, the Court should order that the applicant pay the respondent's costs on a party/party basis from 24 March 1998 onwards. 3.2 The applicant makes two alternative submissions in respect of costs. Her preferred position is that the Court should make no order for costs at all, on the basis that there is no "exceptional circumstance" upon which the respondent could rely.Alternatively, as the only circumstance of the case which could be described as "exceptional" is the fact that the applicant had no way of resolving her long-standing dispute with the respondent other than to bring and prosecute the proceedings, the applicant contends that if costs are to be ordered at all, the respondent should be ordered to pay the applicant's costs at least until 23 March 1998. If, on a basis such as the situation in Messiter, the applicant is to be ordered to pay any costs of the respondent, it should be only those incurred after that date, and then only on a party/party basis. 4. THE CHRONOLOGY OF RELEVANT EVENTS The dispute between the parties arose on or about 22 July 1988 when the applicant alleged and the respondent denied that an encroachment had occurred. On 24 August 1988 the respondent sent the applicant a 1971 survey upon which it relied. On 9 December 1988 a further survey confirmed no encroachment. On 21 September 1989 surveyors acting on behalf of the applicant sought resolution by the Land Titles Office ("LTO") of the boundary between the properties owned by the parties, and the correct position of the boundary was determined and registered on 10 October 1990. The respondent concedes that the LTO determination proves that the 1971 and the 1988 surveys on which it had relied were wrong. The respondent wrote on 12 June 1990 seeking creation of an easement, and there were unsuccessful attempts to negotiate a solution to the dispute.The applicant instructed her current solicitors (Minter Ellison - "Minters") on or about 13 February 1995. She gave instructions on 6 November 1997 for the commencement of these proceedings. Hallbridge's property was at that time advertised for auction on 22 November 1997. Minters wrote to Hallbridge on 7 and 11 November 1997 exploring the prospect of settlement without resort to proceedings and/or lodgment of a caveat. Hallbridge denied liability on 11 November 1997, on the basis of the survey evidence which predated the LTO determination, and then instructed solicitors (Colin Biggers & Paisley - "Biggers") on or about 17 November 1997. These proceedings were commenced on 20 November 1997, on which date Minters wrote to Biggers informing them that the proceedings had been commenced and the caveat lodged. That letter of 20 November 1997 concludes: "Once again, we confirm that our client is prepared to attempt to resolve this matter with your client to avoid the unnecessary expense and inconvenience to both parties if the matter proceeds to hearing". A letter from Biggers of the same date said: "There can be no doubt that our client did not intend to encroach on your client's property or that our client was negligent in allowing building work to be carried out on it's (sic) property to encroach onto your client's property". The letter noted that the value of the land encroached was approximately $240, and went on to offer to pay the applicant an amount of $500, together with reasonable costs in relation to the registration of the easement.On 29 January 1998 the Registrar of the Court fixed the hearing for 8-9 April 1998. On 20 March 1998, Biggers wrote to Minters (Exhibit A), in response to a letter dated 24 February 1998 which is not in evidence. The basic thrust of the Biggers letter was an offer that, if McKinnon discontinued the proceedings and removed the caveat, Hallbridge would pay her $4,000, but she would be required to consent to the registration of an easement for the encroachment, in respect of which Hallbridge would "make payment of the reasonable legal costs incurred in the preparation of the easement and any Land Titles Office fees payable ...". The offer was rejected by letter dated 23 March 1998, and a counter offer of $9,000 was made, with Hallbridge to pay all costs in association with the registration of the easement, all in exchange for a discontinuation of the proceedings and removal of the caveat. On the same day Biggers rejected that offer and renewed the suggestion that Hallbridge would make a payment of $4,000. The letter continued: "We propose to commence preparation for the hearing in the next few days and if the matter is to be settled will be pleased to hear from you as soon as possible". On 6 April 1998, the applicant offered to accept $4,500, representing land value, plus $1,500, being half the costs of the plan of redefinition and Land Titles Office fees, with the proceedings to be discontinued on the basis of no order as to costs, removal of the caveat, and consent to the registration of an easement provided all costs involved therein be met by Hallbridge. On 7 April 1998, Biggers rejected the offer. The hearing took place on 8 April 1998.Judgment was delivered on 12 June 1988. On 30 June 1998 Minters wrote to Biggers, in respect of the respondent's application to the Court for an order for costs, and suggested that the question of costs be settled on the basis that: "1. The Defendant pay the Plaintiff's costs as assessed or agreed up until and including 23 March 1998; 2. The Plaintiff to pay the Defendant's costs after 24 March 1998 as assessed or as agreed between the parties." (see Exhibit 1). (The Court notes that none of the evidence discloses a claim at any stage of $30,000, as was asserted in argument). 5. CONCLUSION I do not accept the submission that the applicant had no recourse in the circumstances of the dispute between herself and the respondent, other than to commence these proceedings. However, I can find no evidence of any "ulterior motive" (Fountain) on her part in instituting proceedings, the basic object of which was to obtain monetary compensation for the encroachment on her land. On the other hand, in 1990, at an early opportunity, the respondent had conceded the encroachment, and advanced a non-monetary solution to the parties' dispute. When negotiations subsequently reopened, it endeavoured again to settle the dispute. The applicant is a person of apparently modest means - the evidence at the trial established that some of the expenses included in her claim had remained unpaid for some years. I can only surmise that she was eventually prompted into bringing these proceedings by the possibility of a new owner obtaining, at no cost, the full benefit of Hallbridge's small encroachment on her land, and I find nothing for which to criticise her in that. The applicant felt very aggrieved by her dealings with Hallbridge and thought she was entitled to more than $500 compensation. She had valuation advice, and presumably also legal advice, that she may do better than that at the trial. The offer of $500 was made on 20 November 1997, without knowledge that these proceedings had been commenced, and it was not increased until 20 March 1998 - almost two months after the setting down of the matter for trial, and less than 3 weeks before the hearing commenced. I am satisfied, however, that Biggers' letter of 23 March 1998 was in the nature of a Calderbank letter. In the end analysis, the applicant recovered a verdict for less than the amount which was offered to her on 20 March 1998, and again in the Calderbank-type letter, in which specific reference was made to the question of the costs involved in a hearing. On balance, I have come to the view that the circumstances of this case are "exceptional" (Practice Direction 10A), and I "deem [it] just in the circumstances" (s 14 of the EB Act) that the Court make appropriate orders for costs. As I have found nothing for which to criticise the applicant in respect of her bringing the proceedings, I have decided that she should recover her costs on a party/party basis for the period up to and including 23 March 1998. However, the respondent is equally entitled to an order for the costs it incurred after the date of its Calderbank letter. As the applicant's monetary result from these proceedings fell only slightly short of the final offer she rejected, I see no reason to exercise the Court's discretion to order that the respondent's costs which she will have to pay should be assessed on higher than a party/party basis (Messiter cf Degman). 6. ORDERS Accordingly, the orders of the Court, in respect of costs, will be as follows: 1. The respondent is ordered to pay the applicant's costs up to and including 23 March 1998, on a party/party basis, as agreed, or as assessed according to law. 2. The applicant is ordered to pay the respondent's costs of and after 24 March 1998, on a party/party basis, as agreed, or as assessed according to law. 3. Each party is ordered to pay its own costs in respect of the hearing on the question of costs. 4. 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. 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.