Land and Environment Court of New South Wales CITATION : Port Stephens Council v Tannous & Anor [2007] NSWLEC 450 APPLICANT Port Stephens Council PARTIES : FIRST RESPONDENT Charly Tannous SECOND RESPONDENT Josephine Tannous FILE NUMBER(S) : 40098 of 2006 CORAM: Jagot J KEY ISSUES: Costs :- civil enforcement - consent orders - no hearing on merits - each party ordered to pay its own costs LEGISLATION CITED: Environmental Planning and Assessment Act 1979 CASES CITED: Kiama Council v Grant (2006) 143 LGERA 441 DATES OF HEARING: 12 July 2007 EX TEMPORE JUDGMENT DATE : 12 July 2007 APPLICANT Mr J B Maston SOLICITORS Sparke Helmore LEGAL REPRESENTATIVES: FIRST & SECOND RESPONDENT Mr I J Hemmings SOLICITORS Sage Solicitors JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Jagot J 12 July 2007 40098 of 2006 PORT STEPHENS COUNCIL Applicant CHARLY TANNOUS First Respondent JOSEPHINE TANNOUS Second Respondent JUDGMENT Jagot J: 1 This is an application by the Port Stephens Council for costs in Class 4 proceedings against two respondents, Charly and Josephine Tannous, who are the owners of a property at 80 Government Road Nelson Bay, being Lots 1 and 2 in DP 1098535. 2 The Class 4 proceedings were resolved by consent orders made on 28 March 2007. I will have to return to the substantive provisions of those consent orders. 3 There is an agreed statement of facts which records that the Council granted a development consent for the erection of a dual occupancy development on the property on 5 March 2003. A construction certificate was granted on 5 June 2003. 4 In June 2004 the respondents lodged an application under s 96 of the Environmental Planning and Assessment Act 1979 (the "EPA Act") to modify the development consent by varying the roof line and external appearance of the building to incorporate two open rooftop terraces and toilet facilities on the uppermost level and delete the originally enclosed roof and certain aspects of the development. That application remained undetermined for many months in circumstances where it appears from the documents tendered in evidence that the application for modification may itself have been altered and supplemented on various occasions. Be that as it may, before the Council determined the modification application, construction of the rooftop terraces commenced. That is, construction commenced without the necessary development consent under the EPA Act and, accordingly, was in breach of the requirements of that Act. 5 The Council ultimately refused the modification application on 22 November 2005. About one month later on 23 December 2005 the respondents filed a Class 1 appeal to this Court against the refusal. The Class 1 proceedings were heard and determined by a Commissioner of the Court with orders being made on 10 January 2007. However, on 9 February 2006 the Council commenced these Class 4 proceedings. The question that now falls for resolution is whether or not there should be an order for costs in favour of the Council. 6 The relevant principles where civil enforcement proceedings such as these are resolved without a hearing on the merits were summarised in Kiama Council v Grant (2006) 143 LGERA 441. The principles are well known and it is sufficient if I refer to [80] of that decision where Preston J says a review of the cases discloses that: (a) where one party effectively surrenders to the other party by: (i) discontinuing without the consent of the other party; or (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 been fully tried …. 7 I should say that nobody in this matter suggests that one party was almost certain to have succeeded in the Class 4 proceedings. The Council puts that the consent orders effectively involved a surrender by the respondents to the Council and cannot be seen as any form of supervening event or settlement. The respondents claim that the consent orders should not be characterised as any form of surrender. Rather, the resolution of the Class 1 appeal was a supervening event. Further, the respondents submit that the commencement of the Class 4 proceedings was unreasonable in the circumstances so as to constitute disentitling conduct with the consequence that there should be no order as to costs. 8 The documentary evidence on the costs application is very extensive. I wish to record some of the more salient aspects of the circumstances which led to the Class 4 proceedings. In my view it is relevant that as early as September 2005 the respondents to the proceedings were meeting with the Council and at least one of the outcomes of the meetings was a recognition that through the process of the s 96 application the respondents would have an opportunity to address the Council's concerns. It was also recognised in this meeting that an approval under s 96 could be granted for works already completed. 9 When the Council retained solicitors there commenced a flurry of correspondence about the occupation of the property. The Council's solicitors sought an undertaking that the respondents would not use or permit the use of the unauthorised rooftop terrace and toilet facilities unless it had obtained an occupation certificate, failing which the Council would commence Class 4 proceedings. The respondents replied to that demand for an undertaking within 24 hours, indicating that they would have a locksmith install locks on the doors and stating that they understood this would satisfy the Council's request. On the same day, 12 January 2006, the Council's solicitors informed the respondents that, in fact, they had now been instructed to require an undertaking that the respondents would not use or permit the use of any part of the property until they had obtained an occupation certificate, and again threatened Class 4 proceedings unless such an undertaking was given. Again, within 24 hours, the respondents replied. They first noted, as is the case, that the Council's solicitors now sought a different undertaking from that which they had originally sought. They observed that the Council was, in fact, inspecting the property on 16 January and thought that it would be appropriate to await the outcome of that inspection. They nevertheless confirmed that the properties would not be occupied and would remain unoccupied until an occupation certificate was issued. 10 A few days later, on 18 January 2006, the Council's solicitors advised that this confirmation was not sufficient and enforceable and proposed a form of undertaking that would satisfy the Council's solicitors again relating to not using or permitting the use of any part of the building. On the same day, Mr Tannous, one of the respondents, called the solicitor for the Council providing information about an application for an interim, not a final, occupation certificate. When asked whether he was prepared to give the undertaking in the form proposed, Mr Tannous said he was and would communicate that intention by letter. On 19 January 2006 a follow-up phone call occurred in which Mr Tannous informed the Council's solicitor that the undertaking should have been sent to the Council's solicitors' office and if not would be resent. It seems that the undertaking was received on or about 19 January 2006. 11 By 25 January 2006 the solicitor for the respondents informed the Council that the work of locking the terrace so that access was not available had been completed. They undertook to hold the key and not provide it to any occupants of the premises so that the rooftop area could only be accessed for the purposes of inspection or to prepare expert reports in respect of the current proceedings in the Land and Environment Court. Those current proceedings as at 25 January 2006, of course, were the Class 1 proceedings against the Council's refusal of the s 96 application, being the proceedings commenced on 23 December 2005. 12 On 3 February 2006, according to the affidavit of Mr Paul Jayne, the solicitor with the carriage of these Class 4 proceedings for the Council, an officer of the Council instructed the solicitors to commence Class 4 proceedings. The affidavit does not disclose the specific object of the Council with respect to those instructions at that time, having regard to the fact that the Class 1 proceedings had already been commenced. 13 The Class 4 application filed on 9 February 2006 sought orders for demolition and removal of the rooftop terraces and associated structures erected without development consent, an order that the building be brought into compliance with the development consent and an order restraining the respondents from using or permitting the use of that part of the building on the property. Of course that part of the building on the property was under lock and key and had been the subject of the earlier undertaking between the parties. 14 Although the proceedings had been commenced on 9 February 2006 in these terms, they were not immediately served. Instead on 10 February 2006 the solicitors for the Council wrote to the respondents' solicitors in relation to a dispute that had arisen between the Council and the respondents about the issue of a subdivision certificate for the dual occupancy development. On that day the Council advised that it had reconsidered its position and would proceed to process the subdivision application in due course. 15 It was not until 22 February 2006 that the Council's solicitors notified the respondents' solicitors that they had been instructed to commence the Class 4 proceedings in relation to "the unauthorised construction of the rooftop terrace at the property" and asked whether those solicitors would be willing to accept service. On 9 March 2006 the Council's solicitors sought another undertaking from the respondents that they would not enter into any agreement to sell or transfer the property or carry out any building work otherwise than in accordance with the development consent until such time as the proceedings, that is the Class 4 proceedings, had been finally heard and determined by the Court. By this time, of course, the Class 4 proceedings had been commenced and served on the respondents. That undertaking was not given and on the following day, according to the Court's file in the Class 4 application, the Class 4 proceedings came before a Judge of this Court at which time a note was placed on the file as follows, "Related proceedings 11595 of 2005 (HD 18-19 May 2006) to be determined first and may resolve these proceedings". 16 Thereafter it is apparent that the Class 4 proceedings were adjourned, in effect, to enable the Class 1 application to be determined. The Class 1 application was determined on 10 January 2007 in which the appeal was upheld subject to conditions. One of those conditions required the rooftop terraces to be deleted and the area shown as such on the plans to be installed with a curved roof to match the profile of the existing roof surrounding the terraces. The effect of the decision in the Class 1 proceedings was that in order to render the use of the structure lawful, the structure would need to be modified further, not by demolishing the unauthorised works but by what the Commissioner described as the "relatively easy task of extending the roof over them" (at 46). It was on this basis that the appeal was upheld with the Commissioner being satisfied that what he described as the critical flaw in the modification proposal, namely the proposed rooftop terraces, would be roofed over to make them unusable with the consequence that there would be a satisfactory planning outcome. 17 After the Class 1 appeal was resolved, indeed on the same day, the respondents' solicitors sent an email to the Council's solicitors noting that, as the Class 1 appeal had been upheld and the related Class 4 matter adjourned to 9 February, she assumed that the Council would now withdraw those proceedings and asked whether the Council would let her know what was going to happen. Quite properly it was recognised that the resolution of the Class 1 appeal did not necessarily mean that there was no remaining utility in the Class 4 application and the parties commenced an unfortunately lengthy series of negotiations culminating in the consent orders. 18 The substance of the consent orders required the respondents to bring the building into conformity with the Commissioner's decision in the Class 1 appeal and to take the necessary steps to do so, namely lodgement of a construction certificate application to achieve that result. In addition, the respondents undertook to the Court not to sell or transfer any part of the property until those works were completed and nor to use or permit the use of the rooftop terrace and associated structures. Of course the second of those undertakings is consistent with the position that the respondents had adopted from the outset when requested by the Council whereas the first is an undertaking that had been requested by the Council but had not been provided. 19 The applicant says that these circumstances warrant the following conclusions: (1) The Council reasonably commenced the proceedings in circumstances where there were unauthorised works. (2) It was the respondents who had carried out unreasonable and unlawful actions by erecting the works other than in accordance with the development consent when the Class 4 application was filed. (3) The Council's decision to settle the proceedings on negotiated terms was reasonable and a genuine attempt to accommodate the respective interests of the parties. As such the Council effectively achieved the outcome which it had sought at the outset of the proceedings. (4) The decision of Commissioner Bly cannot be seen as a supervening event because it effectively vindicated the Council's refusal of the rooftop terraces requiring them to be roofed over and did not permit the use of those rooftop terraces. (5) Finally, the council's decision as to whether and when the proceedings should be commenced where there had been unlawful works such as in the present case involved a balance between the public interest in upholding development consents and the EPA Act, the nature and extent of the breaches, the interests of adjoining and nearby owners, the sufficiency of other remedies and the absence of any offer at any time by the respondents to remove the unlawful works, either conditionally or unconditionally. 20 For those reasons, the Council says that it should obtain an order for costs in its favour. 21 The respondents' position is that the entire Class 4 proceedings were unnecessary and inappropriate. They say that there was a live issue in the Class 4 proceedings which could have been relevant to discretion about an alleged verbal approval of the works by a Council officer but, be that as it may, there was never an issue in the proceedings that the works had any form of development consent as set out in the EPA Act. When one reviews the circumstances of the correspondence before the Class 4 proceedings commenced the respondents submit that it is clear that on each occasion when the Council required some undertaking or action to be given or taken the respondents complied. Although the s 96 application was a lengthy process, before the commencement of the Class 4 proceedings it was a common position that the s 96 application provided a means to resolve the issues between the Council and the respondents. The Class 1 proceedings were on foot and did have the capacity to resolve the issues between the parties. Notwithstanding the history where the respondents had meaningfully replied to all of the Council's requests, the Class 4 proceedings were commenced effectively without any notice on 9 February 2006. The respondents say the proceedings should not have been commenced in those circumstances without some form of notice to them consistent with the Council's previous conduct and the basis of the lodgement of the s 96 application as indicated at a meeting on 26 September 2005 (namely, as a process by which the applicant could, "address Council's concerns"). 22 In any event, the respondents say that it is clear from the Class 4 applications in their various forms that the Council did not achieve what it set out to do and the respondents did not surrender. Instead, as should be inferred from its conduct and some later correspondence to which I will refer, the respondents' position was always that it would comply with whatever decision the Land and Environment Court made in the Class 1 appeal. The Class 4 application as originally filed by the Council simply sought demolition and removal of the unlawful works as well as orders preventing access (where the respondents had already confirmed and given the access undertaking as sought). Even after the Commissioner's decision the further amended Class 4 application filed and served by the Council still sought an order for demolition or removal of the unauthorised works or further and alternatively an order that they bring the building into compliance with the Commissioner's decision. 23 The consent orders, as I have said, reflect the need to bring the building into compliance with the Commissioner's decision, contain a machinery provision (namely the lodgement of a construction certificate) to achieve that result, as well as the two undertakings. In my view, consideration of the detailed history of the proceedings and all of the events apparent from the communications before the proceedings commenced supports the respondents' submission that these proceedings were commenced without any effective notice. It seems to me to be obvious that the very many communications about the building before the proceedings were commenced related to occupation of the building and a concern about a lack of capacity for the building to be occupied in circumstances where there were unauthorised building works. However, it is also clear that whenever the Council wrote to the respondents about those issues, the respondents promptly replied and, in effect, gave the Council what it had requested by way of undertakings. More importantly, relating to those issues, the Council itself accepted on 24 January 2006 that notwithstanding all of its earlier correspondence, an occupation certificate was not required for the building at all as occupation would be regulated by the terms of the development consent - with the consequence that an interim occupation certificate would be granted, albeit on the basis that the rooftop area would be locked and not used, being a matter to which the respondents had already agreed. In my view, this whole sequence of correspondence seems to have been based on what was ultimately admitted to be a misconception by the Council, namely about the occupation certificate. Although it is clear the Council was aware of the unauthorised structures on the premises, it is obvious that all its correspondence up to 24 January 2006 related to occupation and use. 24 The Class 4 proceedings were then commenced seeking demolition of the unauthorised structures but no notice was given to the respondents about the commencement of the proceedings or suggesting that there should be an undertaking that the respondents would, in effect, abide by the outcome of the Class 1 proceedings. I infer from the whole sequence of correspondence that there would have been a real prospect of the respondents having given such an undertaking had one been sought. I say this because on the very first mention in the Class 4 proceedings both parties were represented by legal counsel and presumably asked the Court to note on the file that there were related Class 1 proceedings and that they may resolve the Class 4 proceedings. 25 Although it has been said in submissions that the Council's reason for commencing the Class 4 proceedings was a concern about sale of the property, no order was ever sought in terms of sale. The undertaking about sale sought on 9 March 2006 (the day before the mention in the Class 4 proceedings) seems never to have been pressed. It is not clear to me why I would draw an inference that the Council was keeping a close eye on the property and would have moved some form of interlocutory relief if there were any suggestion of sale. That seems to me to involve speculation in circumstances where it was clear that the respondents had not replied to the request for the undertaking about sale yet the proceedings remained on foot for the best part of a year before the consent orders were ultimately entered into. 26 There will be some proceedings where notice before action is not required. It is impossible to identify each circumstance in which notice would not serve any useful purpose, but these proceedings are not in that category. I think notice should have been given of the terms of the orders that the Council was proposing to seek in these Class 4 proceedings and if so there was a reasonable prospect that the proceedings could have been avoided. 27 In any event, I think there is a real question as to the true character of the consent orders. There cannot be any doubt that the Council's original object was to achieve demolition of the unauthorised works. It commenced the proceedings to achieve that object in circumstances where the Class 1 proceedings were on foot and where the only steps that could be taken in the Class 4 proceedings, having regard to the fact that the works were already completed and the terms of s 124(3) of the EPA Act, was adjournment of the Class 4 proceedings (as indeed occurred). 28 In effect, leaving aside the two undertakings to which I will return, what the Council achieved by the Class 4 proceedings seems to have been nothing more than what the respondents were always willing to do, namely to complete the development in accordance with the modified consent in whatever form that consent eventually was granted. Although this was at first expressly set out in the letter from the respondents' solicitors of 20 February 2007, it seems to me to be obvious from all of the circumstances including the common position of the parties before the Court in the Class 4 proceedings on 10 March 2006 that the vehicle for resolution of the unauthorised works was the Class 1 appeal. While the Class 4 proceedings could then form a mechanism to craft an order to ensure that this result was achieved, that was what the respondents had always intended. 29 The Commissioner did not require demolition of the unauthorised works even though it was discovered during the course of the Class 1 proceedings that the breaches of the development consent did not just include building the unauthorised terraces but the overall height of various parts of the building exceeded that which had been approved. Nevertheless, the Commissioner weighed up the merits and decided that the best result was one whereby there was not demolition but rather the terraces were roofed over and made unusable. The consent orders then reflect what I infer was always the respondents' position, namely that it would abide by the outcome of the merit appeal in the Land and Environment Court. 30 It is true that two additional undertakings were given. As to the second of them, it seems to me that it was nothing more than a formal confirmation of what was always the position of the respondents. The Council accepted the undertakings that the respondents had initially given to precisely the same effect even though they were only as between the parties. In terms of sale, as I have said, there seems to be nothing between 9 March 2006 and the final consent orders relating to this issue. In the circumstances I am not prepared to infer that the Council's real object in the whole of the Class 4 proceedings was to make sure the buildings were not sold. Indeed, if this had been the Council's real object as submitted, there were other ways to achieve it. An order under s 121B of the EPA Act would have run with the land. And, as Mr Hemmings has submitted, the existence of such an order would have been disclosed to any purchaser of the property. In other words, there were multiple ways to address sale if in fact that were the Council's real concern and it is not apparent from Mr Jayne's affidavit that this was the Council's real concern. 31 There has been no hearing with respect to the substance of the Class 4 proceedings. The proceedings should not have been commenced in the way they were. The Class 1 appeal, as the parties expressly contemplated on 10 March 2006 when they came before the Court in the Class 4 proceedings, has acted as a supervening event, radically altering the substance of the dispute so that the only possible resolution of the dispute was as reflected in orders 1 and 2 of the consent orders. For those reasons, I am satisfied that there should be no order as to costs in these proceedings. 32 There is one other matter I wish to mention. I have said that there is a vast amount of documents that have been submitted in evidence on the costs application. In addition, there is a lengthy affidavit from Mr Jayne, written submissions from the applicant, two sets of written submissions from the respondents and the parties are represented by experienced counsel and have in Court their instructing solicitors. However, what is apparent is that one of the reasons the consent orders took such a long time to negotiate was because of a dispute about costs. The respondents made an offer to settle the costs dispute in the amount of $5,000. This figure needs to be looked at in the context where, in terms of the Class 4 proceedings and costs that relate properly to those proceedings, there was a Class 4 application filed, there were no points of claim, no affidavits, there was a mention or a series of mentions before the Court but the only consequence of those mentions (at least before the Class 1 proceedings was determined) was simply to adjourn the proceedings. In fact, a vast amount of work seems to have been done after the Class 1 proceedings were resolved in circumstances where it was obvious that the form of consent orders ultimately resolved, leaving aside the undertakings, was unavoidable. Yet the Council estimated its costs at $15,000 at one point in the proceedings and then indicated that it would be prepared to accept $10,000. That is, the entire amount in dispute between the parties at one point was $5,000 (as the respondents had offered to pay $5,000). For whatever reason the Council ultimately informed the respondents that its costs of the Class 4 proceedings were $25,000. Again, this is in circumstances where there were no points of claim, no affidavits prepared and on the very first mention the parties informed the Court that the whole matter may well be resolved by the Class 1 appeal. 33 I think it is obviously extremely unfortunate that the parties have had to come here today for basically a half a day's hearing on a costs issue where at one point they were $5,000 apart and where a realistic assessment of recoverable costs could well have avoided this whole costs application. It seems to be to be obvious that the parties have probably expended far more on the costs dispute than the amount that at least at one point was in issue. What has occurred today is disproportionate to a real appreciation of the issues in dispute in this matter. 34 In any event, I order each party to pay its own costs of the Class 4 proceedings. [Counsel addressed on costs of the costs hearing] 35 Order 2 will be the applicant is to pay the respondent's costs with respect to the applicant's application for costs as agreed or assessed. **************************** 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.