Land and Environment Court of New South Wales CITATION : Shellharbour City Council v Stewart [2007] NSWLEC 727 APPLICANT: Shellharbour City Council FIRST RESPONDENT: Helen Stewart PARTIES : SECOND RESPONDENT: Geoff Rose THIRD RESPONDENT: Leon Cicolini FILE NUMBER(S) : 41097 of 2006 CORAM: Biscoe J KEY ISSUES: Costs :- class 4 proceedings discontinued by applicant before trial without consent - whether power to order respondent to pay applicant's costs and, if so, whether such an order should be made - whether applicant should pay respondent's costs - whether applicant should pay respondent's costs on indemnity basis because it had engaged in unreasonable conduct or because of non-acceptance of settlement offer - whether Calderbank principles relevant where a party offers to settle on basis that other party surrender and pay costs. Land and Environment Court Act 1979, s 69(2) LEGISLATION CITED: Land and Environment Court Rules 1996, Pt 11 r 5, Pt 15 r 7 Local Government Act 1993, ss 664(1), 664(1A) Local Government Act 1993, s 664(1) Ballina Shire Council v Stubberfield (No 2) [2006] NSWLEC 538; Calderbank v Calderbank [1975] 3 WLR 586; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1; F & D Bonaccorso Pty Ltd v City of Canada Bay Council (No 3) [2007] NSWLEC 569; Fountain Selected Meats (Sales) v International Produce Merchants Ltd (1988) 81 ALR 397; Harrison v Schipp [2001] NSWCA 13; J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301; CASES CITED: Jones v Bradley (No 2) [2003] NSWCA 258; Kiama Council v Grant (2006) 143 LGERA 441; Latoudis v Casey (1990) 170 CLR 534; Maule v Liporoni (No 2) (2002) 122 LGERA 216; Mead v Watson as Liquidator for Hypec Electronics (2005) 23 ACLC 718; Morrison v Defence Maritime Service Pty Ltd and Ors [2007] NSWLEC 552; Oshlack v Richmond River Council (1998) 193 CLR 72; Rosniak v Government Insurance Office (1997) 41 NSWLR 608; Westpac Banking Corporation v Victor Warren Ollis [2007] NSWSC 1008 DATES OF HEARING: 15/10/2007 DATE OF JUDGMENT: 2 November 2007 APPLICANT: Mr K Connor SC SOLICITORS Maddocks FIRST RESPONDENT: N/A LEGAL REPRESENTATIVES: SECOND RESPONDENT: N/A THIRD RESPONDENT: N/A FORMER THIRD RESPONDENT: Mr G Bassett, barrister SOLICITORS Frankel Lawyers JUDGMENT: - 13 - THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES BISCOE J 2 November 2007 41097 of 2006 SHELLHARBOUR CITY COUNCIL v STEWART AND ORS. JUDGMENT 1 HIS HONOUR: These are cross costs applications. Mr Peter Moran was the third respondent in proceedings in class 4 of the Court's jurisdiction brought by Shellharbour City Council. Before trial, on 26 April 2007, the council filed and served a notice of discontinuance against him without his consent. 2 Mr Moran seeks the following costs orders against the council: (a) costs on an indemnity basis from 15 December 2006 up to and including 26 April 2007; (b) alternatively, costs up to and including 4 April 2007 and costs on an indemnity basis from 5 to 26 April 2007; and (c) costs of his motion for costs. 3 The council seeks the following costs orders against Mr Moran: (a) Mr Moran pay the council's costs of its claim against him; (b) alternatively, each party pay their own costs. Background 4 The proceedings concern council information, said to be confidential, leaked and posted to an internet website called "The Forum". Prior to commencing proceedings, the council had attempted to identify the source of, and stop, further leaks. Mr Moran was the moderator of The Forum until it closed on 19 October 2006. He is a bus driver and there is an unresolved issue as to whether he had the technical knowledge to remove posts on The Forum. It appears that The Forum was owned by a Mrs Hollis until August 2006. It appears, although not clearly that ownership was then transferred to Mr Moran. On 15 November 2006 Mr Moran posted on a new website called "The New Forum" (which was established on 25 October 2006) that he had been the moderator of The Forum. The circumstances are such that I infer the council probably became aware of that post on or shortly after that date. On 30 November 2006, Mr Moran wrote to the council notifying it that he had been the moderator of The Forum. 5 On 16 November 2006 the council commenced these proceedings against others. On 14 December 2006 the council wrote to Mr Moran notifying him that he was to be joined to the proceedings. Unlike other respondents, no pre-litigation letter was written to him requiring information to be provided failing which proceedings would be commenced. On 15 December 2006 the council filed a notice of motion to join Mr Moran to the proceedings. On the return date, 22 December 2006, the motion was stood over to 9 February 2007. On 9 February 2007 he consented to joinder and the council filed an Amended Application which sought the following relief against him: (a) a declaration that he had breached s 664(1) and (1A) of the Local Government Act 1993 and disclosed confidential council information; (b) an injunction to prevent him as an internet discussion forum moderator from making disclosures of such information; (c) an order that he file and serve an affidavit disclosing information concerning his knowledge relating to the council information and its publication on an internet website; (d) an order for delivering of confidential documents; (e) an order that he pay the applicant's costs. 6 Section 664(1) of the Local Government Act 1993 prohibits a person from disclosing "information obtained in connection with the administration or execution" of the Act unless the disclosure falls within one of the exceptions. An infringement incurs a maximum civil penalty of 50 penalty units. 7 On 4 April 2007 the council obtained a statutory declaration from a Mr Holstein, which appeared to provide a substantial amount of information concerning disclosure of the council information. On 19 April 2007 Mr Moran filed an affidavit which he had sworn, and apparently served, on 28 March. On 26 April 2007 the council filed a notice of discontinuance of its claim against Mr Moran. 8 Earlier, Mr Moran had unsuccessfully offered to settle the proceedings. On 30 March 2007 Mr Moran's solicitors faxed a written without prejudice offer except as to costs to the council that the council withdraw its action against Mr Moran and pay his costs as assessed or agreed. The council's solicitors replied on 5 April 2007 requesting that the offer remain until 10 April 2007. On 5 April 2007 Mr Moran's solicitors replied agreeing to the request. On 17 April 2007 Mr Moran's solicitors wrote to the council's solicitors stating, inter alia, that in the event that the council declines Mr Moran's "offer of settlement of costs in the sum of $16,500 by no later than 20 April 2007 at 5pm that we are instructed to make application for our client's costs on an indemnity basis…". As stated earlier, the council filed and served a notice of discontinuance against Mr Moran on 26 April 2007. 9 At the later trial which proceeded against others, the council's General Manager indicated in evidence that legal action was commenced against Mr Moran and other former respondents in an attempt to continue to seek the source of the leaks. The Court's power to award costs 10 Section 69(2) of the Land and Environment Court Act 1979 (LEC Act) provides: (2) Subject to the rules and subject to any other Act: (a) costs are in the discretion of the Court, (b) the Court may determine by whom and to what extent costs are to be paid, and (c) the Court may order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on an indemnity basis. 11 Part 11 of the Land and Environment Court Rules 1996 (LEC Rules) concerns "withdrawal and discontinuance". Part 11 r 5(1) and (2) state: 5 Costs (1) If a party to any proceedings discontinues them in whole or in part, the Court may, on the application of another party, order the discontinuing party to pay the costs of any party against whom the discontinued claim was brought and who does not consent to the discontinuance. (2) The costs payable to a party under any order made under this rule are to be the costs of the party occasioned by the discontinued claim and reasonably incurred before service on the party of notice of the discontinuance. 12 Part 15 rule 7 of the LEC Rules states: 7 Order for costs alone The Court may order the respondent to pay the costs of the proceedings where a respondent satisfies or causes to be satisfied the claim of the applicant after the proceedings have been commenced. Submissions 13 Mr Moran submits that: (a) where Class 4 proceedings are discontinued with no hearing on the merits in circumstances such as these where the council has effectively surrendered to him, the proper exercise of the Court's discretion is to award costs to him when there was no disentitling conduct on his part: Kiama Council v Grant (2006) 143 LGERA 441 at [43] - [80], Oshlack v Richmond River Council (1998) 193 CLR 72 at [77] – [98], Latoudis v Casey (1990) 170 CLR 534. (b) Mr Moran was " successful " in the litigation. There was an issue as to whether he had disclosed confidential information and whether he had the technical capacity to prevent users from posting to the alleged infringing website. There was a legal question whether a net forum moderator ought to be held liable for the infringement of others. The council did not have the confidence to continue to pursue these points. (c) the council engaged in disentitling or unreasonable conduct, because: (i) it commenced proceedings on minimal notice on a claim that involved a civil penalty without first giving the same options as were given to other parties to avoid proceedings; (ii) during informal discovery the council refused to grant access to documents not prepared in contemplation of litigation, being the internet log files of the alleged offending site; (iii) the proceedings against Mr Moran were a fishing expedition. The council's general manager acknowledged in evidence at the trial that the legal action was commenced in an attempt to "continue to seek the source of the leaks"; (iv) the council proceeded against Mr Moran despite his duty to members of The Forum to ensure that their communications were not unreasonably subjected to litigation or disclosure of information; (v) as a bus driver, Mr Moran is a party with limited means, as the council should have known, and was unreasonably coerced by a party with much greater means to enforce their will, which constitutes an abuse of court process; (d) alternatively indemnity costs should be awarded because the council behaved unreasonably in not accepting Mr Moran's offer of compromise in his letters of 30 March and 17 April 2007: Ballina Shire Council v Stubberfield (No 2) [2006] NSWLEC 538 at [21] – [22]. 14 The council submits that there is no basis for Mr Moran to be awarded costs on an indemnity basis: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 per Woodward J at 401; J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301, per French J at 303; Maule v Liporoni (No 2) (2002) 122 LGERA 216 per Lloyd J. The council submits that the orders it seeks should be made and that the costs orders Mr Moran seeks should not be made, having regard to the following considerations: (a) the proceedings are in the public interest. It is of fundamental importance that a council is able to operate without information of a confidential nature being leaked from confidential sessions; (b) prior to proceedings being instituted on 16 November 2006 the council took what steps it could extra-curially to attempt to identify the source of the leaked information and to prevent further leaks; (c) at the time that an application for leave to join Mr Moran was made (15 December 2006), and at the time that Mr Moran agreed to be joined (9 February 2007), the council had no reliable information as to the source of the leaks; (d) the proceedings against Mr Moran and others (against whom the council has also discontinued) were in large measure in the way of preliminary discovery. There was a supervening event, namely the statutory declaration of Mr Holstein in April 2007 (plus, perhaps, Mr Moran's affidavit in April 2007), that modified or removed the subject of the dispute in that regard. Consequently, there should at least be no order as to costs: Kiama Council v Grant (above) at [80]. (e) Mr Moran was the moderator of The Forum internet site (which operated from December 2005 to 19 October 2006) and he had the power to remove posts; (f) Mr Moran did not remove posts of confidential information (namely, general manager's letter and the mayor's memorandum on 29 March 2006; extracts from Draft DLG report in late May and June 2006; the general manager's wage figures on 15 June 2006; yellow papers for the previous term of the council (1999-2003) during September and October 2006); (g) when Mrs Hollis wished to close down The Forum in August 2006 because of the content of some posts, Mr Moran opposed this course and sought to have ownership of The Forum transferred to him. Mrs Hollis believes that ownership of The Forum was transferred to Mr Moran; (h) Mrs Hollis, and not Mr Moran, closed down The Forum on 19 October 2006 at the instigation of the council; (i) The New Forum internet website was established on 25 October 2006, six days after Mrs Hollis closed down The Forum; (j) Mr Moran did not disclose to the council that he had been the moderator of The Forum until he wrote to the council on 30 November 2006, which was after The Forum closed down. He had earlier posted that information on The New Forum website on 15 November 2006; (k) Mr Moran made inappropriate posts on The Forum and The New Forum concerning council officers; (l) Mr Moran threatened on 12 February 2007 to post on The New Forum documents discovered in the proceedings (subject to the proviso "which can be posted"). Decision 15 In Kiama Council v Grant (2006) 143 LGERA 441 at [80] Preston CJ held: 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; 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 had been fully tried so that the party should obtain the costs of the action. 16 Mr Moran submits that principle (a) above applies so that the council should pay his costs. The council submits that, if Mr Moran is not ordered to pay the council's costs, principle (b) applies so there should be no order as to costs. 17 Having discontinued its claim against Mr Moran entirely including as to costs, it is difficult to see how there is now power to order him to pay the council's costs. Where proceedings are discontinued, Part 11 r 5(1) of the LEC Rules provide that the Court may order the discontinuing party to pay the costs of any party against whom the discontinued claim was brought who does not consent to the discontinuance – not vice versa. Assuming, however, that there is power to order Mr Moran to pay the council's costs, I can see no basis upon which, in the exercise of my discretion, I should do so. 18 In my opinion, the council effectively surrendered to Mr Moran by discontinuing. The council claimed declaratory and injunctive relief as well as disclosure of information and costs. If the council's purpose in large measure was to obtain disclosure of information, as it now contends, then Mr Moran's target status was, to that extent, as a repository of information. Yet the relief the council sought went far beyond that. Even if the council had limited the relief sought to disclosure of information by way of preliminary discovery, and assuming (as the council submits) that the Court has power to grant such free-standing relief, I do not see why a respondent in such a position, innocent of any proved wrongdoing, should not have his costs when the proceedings are discontinued. None of the matters referred to in the council's submissions, in my view, constitutes disentitling conduct such that Mr Moran should be deprived of costs. It has not been established, and by discontinuing the proceedings the council abandoned the contention, that Mr Moran acted unlawfully in relation to the posting of alleged confidential information. 19 Allegedly "inappropriate" posts by Mr Moran on a website, in my view, do not constitute relevantly disentitling conduct. In relation to one such post on The New Forum website on 12 February 2007, I would add that I do not accept that it was "inappropriate" in any meaningful sense. That post read as follows: "Information will soon be available under the discovery process. That is we will soon know for sure what information relating to this case is in the possession of SCC. Anything so discovered which can be posted here will be. In the meantime, roll on March 2". The words that I have emphasised are consistent with an intention to post only if it was lawful to do so. 20 Accordingly, in my opinion, the council should pay Mr Moran's costs. Indemnity Costs 21 Mr Moran seeks indemnity costs against the council on the bases that the council behaved unreasonably. Alternatively he seeks indemnity costs from 5 to 26 April 2007 on the basis that it was unreasonable for council not to accept his settlement offer letters of 30 March and 17 April. 22 Authorities concerning indemnity costs because of unreasonable conduct were reviewed by me in F & D Bonaccorso Pty Ltd v City of Canada Bay Council (No 3) [2007] NSWLEC 569 at [12] – [14]. There has to be sufficient special or unusual circumstance in the case justifying such an award: Harrison v Schipp [2001] NSWCA 13 at [139]. The impugned conduct must be connected with the litigation itself or, in particular, to the way the litigation is conducted; ethical or moral delinquency in the antecedent facts which have given rise to the litigation are insufficient: Mead v Watson as Liquidator for Hypec Electronics (2005) 23 ACLC 718, [2005] NSWCA 133 at [8] – [10]. The Court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation: Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615, Ballina Shire Council v Stubberfield (No 2) [2006] NSWLEC 538 at [21] – [22] (Pain J). In Westpac Banking Corporation v Victor Warren Ollis [2007] NSWSC 1008 at [6] – [11] Einstein J held: 6 The guiding principle in relation to whether an order for indemnity costs should be made, is whether the circumstances of the case involve some relevant delinquency on the part of the unsuccessful party or parties: Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 [44] per Gaudron and Gummow JJ. 7 Cases in which courts have made orders for indemnity costs in analogous circumstances are not determinative, but may be a useful guide. In Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358C and following, Holland J held that an order for indemnity costs was appropriate where an unsuccessful party had prolonged a trial, by deliberately false defences and allegations of fact. 8 In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401, Woodward J held that an order for indemnity costs may be appropriate where a party pursues litigation in wilful disregard of the known facts or the clearly established law. So held French J in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301. These decisions were referred to with approval by Sheppard J in his often-cited judgment in Colgate Palmolive Co v Cussons Pty Ltd [1993] 46 FCR 225 at 233. 9 The many authorities to which references may be made include the authorities referred to with approval by Giles JA (with whom Handley and Fitzgerald JJA agreed) in Harrison v Schipp [2001] NSWCA 13 at [139]. 10 In Jeans v Bruce [2004] NSWSC 758, after referring to Degmam , the Court held at [38] that it was appropriate to order indemnity costs against the defendants, having regard to the gravity of the allegations made and the lack of reliable evidence adduced to support them. 11 In Commonwealth Bank of Australia v Saleh [2007] NSWSC 990 at [5]–[6], the Court made orders for indemnity costs against defendants who had maintained defences which, on the Court's findings, they must have known were false. 23 In my view, there is nothing in the council's conduct referred to in Mr Moran's submissions which is sufficient to arouse the discretion to award indemnity costs on the basis of these principles. In particular, I am not satisfied that the short notice before commencing litigation is significant where, as the timing of subsequent events suggest, it seems unlikely that a longer period of notice would have avoided the litigation. I would not categorise the claim for disclosure of information as an unreasonable "fishing expedition" given that Mr Moran, as the former monitor of The Forum, might reasonably be expected to have been in possession of significant relevant information. The alleged duty of Mr Moran to members of The Forum has not been established and, in any event, does not establish that it was unreasonable to proceed against him. The fact that, as a bus driver, he may have limited means (even if that is established) does not mean that the proceedings were an abuse of process. The discovery dispute referred to in Mr Moran's submissions is not weighty in this context. 24 Mr Moran's alternative submission is that the council should pay indemnity costs from 5 April 2007, which is the date on which the council replied to his settlement offer of 30 March 2007 (see [8] above). Ultimately the submission was based on the proposition that his letters of 30 March and 17 April 2007 were "Calderbank" offers. No authority was cited. Calderbank offers are a recognised means of making offers of settlement in circumstances where the offeror ultimately seeks a costs advantage if the offer is unreasonably rejected: Calderbank v Calderbank [1975] 3 WLR 586. Calderbank principles were briefly reviewed by me in Morrison v Defence Maritime Service Pty Ltd and Ors [2007] NSWLEC 552 at [32]. The unreasonable or imprudent rejection or non-acceptance of a Calderbank offer may warrant a costs order different from the usual order if the offeree does not achieve a better result, subject to consideration of all the circumstances: Jones v Bradley (No 2) [2003] NSWCA 258 at [5] – [9]; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [7] – [9]. Mr Moran's first settlement offer of 30 March 2007 was not an offer of compromise but an offer that the council surrender. So too with his second settlement offer of 17 April 2007, the difference being only that the costs were quantified. No authority was cited which would indicate that Calderbank principles apply in a case such as this where the offer is simply that the other party surrender and pay costs. If it be relevant that the second settlement offer of 17 April quantified the amount of costs, it is not clear that the council will not achieve a better result on assessment and, in any case, it was entitled to a reasonable time thereafter to decide whether to accept. Nine days later it discontinued the proceedings. Assuming that Calderbank principles are a relevant consideration, I do not consider that, in the circumstances, council should be ordered to pay indemnity costs. 25 For these reasons, I do not accept Mr Moran's indemnity costs submissions. Costs of the costs notices of motion 26 Overall Mr Moran has been successful on each party's costs notice of motion although he has not succeeded on the indemnity costs aspect. The council therefore should be ordered to pay his costs of the proceedings, which will include the costs of each party's notice of motion for costs. Orders 27 The Court orders that the applicant pay the costs of the proceedings of the former third respondent, Peter Moran. 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.