Land and Environment Court of New South Wales CITATION : Perpetual Trustees Victoria Limited v Suncorp-Metway Limited [2010] NSWLEC 12 APPLICANT Perpetual Trustees Victoria Limited PARTIES : FIRST RESPONDENT Suncorp-Metway Limited SECOND RESPONDENT Amer El-Nachar FILE NUMBER(S) : 30263 of 2009 CORAM: Pain J KEY ISSUES: COSTS :- whether applicant successful in application under Encroachment of Buildings Act 1922 - relationship between Uniform Civil Procedure Rules and Encroachment of Buildings Act on issue of costs - whether offers of settlement relevant to award of costs - whether to award indemnity costs Civil Procedure Act 2005 s 98 LEGISLATION CITED: Encroachment of Buildings Act 1922 s 14, 15 Uniform Civil Procedure Rules 2005 r 42.1 Hofer v Howell Developments Pty Ltd [No 2] [2001] NSWLEC 42 CASES CITED: Perpetual Trustees Victoria Ltd v Suncorp-Metway Ltd & Anor [2009] NSWLEC 1326 Perpetual Trustees Victoria Ltd v Suncorp Metway Ltd and Amer El Nachar (No 2) [2009] NSWLEC 1416 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 DATES OF HEARING: 2 February 2010 EX TEMPORE JUDGMENT DATE : 2 February 2010 APPLICANT Mr S Berveling SOLICITORS LEGAL REPRESENTATIVES: Hicksons FIRST RESPONDENT Mr P James (Solicitor) SOLICITORS James Legal Pty Ltd JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Pain J 2 February 2010 30263 of 2009 Perpetual Trustees Victoria Limited v Suncorp-Metway Limited and Amer El Nachar EX TEMPORE JUDGMENT 1 Her Honour: The Applicant and First Respondent are each mortgagees in possession of two adjoining properties at 29 Angus Avenue Auburn. The First Respondent's land is Lot 1 DP 211112, known as the house lot because a residential house is located on it. It occupies an area of 486.9 m2. The Applicant's lot is Lot 1 DP 215837, known as the driveway lot as it is a smaller, narrower lot on which the driveway for the house lot is located and the means of getting access to the rear of the house lot. It occupies an area of 101.2 m2. 2 The Applicant commenced proceedings on 27 April 2009 seeking certain orders under the Encroachment of Buildings Act 1922 (the EB Act) for the removal of encroachments, a laundry shed, carport and eaves and guttering on the driveway lot from the house lot. The Second Respondent has never appeared in the proceedings. In her first judgment Perpetual Trustees Victoria Ltd v Suncorp-Metway Ltd & Anor [2009] NSWLEC 1326, Commissioner Pearson determined that she should only make orders for the removal of the encroaching laundry shed and carport with the terms of the orders to be finalised by the parties. The final orders made by the Commissioner on 30 December 2009 followed a second judgment Perpetual Trustees Victoria Ltd v Suncorp Metway Ltd and Amer El Nachar (No 2) [2009] NSWLEC 1416, after the parties were unable to agree on the appropriate arrangements for the removal of the laundry shed and carport and the sharing of the costs of doing so. The final orders provided for arrangements for obtaining quotations from builders, provision of access to a builder for the removal of the encroachments and the sharing equally of the costs of doing so. 3 In the competing Notices of Motion dated 24 December 2009 and 15 December 2009 respectively before me in these proceedings, the Applicant and First Respondent seek costs on an indemnity basis from each other. 4 The parties relied on the following affidavits: i. Affidavit of Peter Richard James 14 December 2009 ii. Affidavit of Scott William Stierli 23 December 2009 iii. Affidavit of Thomas Mathew Reid 12 January 2010 iv. Affidavit of Thomas Mathew Reid 19 January 2010 5 The affidavits of Mr James and Mr Stierli identify steps taken in the proceedings and these have been agreed as follows: DATE EVENT August 2008 -Onwards Communications between parties' solicitors regarding settlement of dispute on the basis of sale of respective lots and apportionment of proceeds of sale. 27 April 2009 Application Class 3 29 May 2009 Directions hearing before Sheahan J. 10 July 2009 Amended Application Class 3 10 July 2009 Proceedings listed for directions before Acting Registrar Gray. Matter listed for Section 34 Conference on 20 July 2009. 20 July 2009 Section 34 conciliation conference 27 July 2009 Call-Over before Acting Registrar Gray – Directions made for filing of evidence and valuations following Section 34 Conference. 3 September 2009 Applicant served the valuation and on which it relied. 3 September 2009 Applicant served the estimate of the cost of removing the encroachments and making good the property on which it relied. 3 September 2009 First Respondent served history of the site and encroachments 10 September 2009 Parties served evidence in reply to evidence filed 3 September 2009. September 2009 Communications between parties' solicitors regarding settling the dispute on the basis of the sale of the driveway lot, and later the house lot. 14 September 2009 Hearing before Commissioner Pearson 6 October 2009 Judgment November 2009 Parties' written submissions regarding the apportionment of costs in relation to the removal of the encroachments and the method of removal. 15 December 2009 Judgment 2 – regarding the apportionment of costs in relation to the removal of the encroachments and the method of removal. 30 December 2009 Final Orders made. 6 The affidavits also attach a large number of settlement offers (about 13) made by the parties, commencing with a letter from the First Respondent's then solicitor dated 13 August 2008 up to a letter from the Applicant's solicitor dated 11 September 2009. The parties usefully agreed a summary of the settlement offers which was handed up in Court. Relevant costs provisions 7 The parties in their arguments referred to the following relevant provisions of the EB Act: 14 Costs 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. 15 Rules and practice (1) Rules of Court may be made for the practice and procedure of the Court in applications under this Act. (2) The practice and procedure of the Court shall, except so far as they are inconsistent with this Act or any rules of Court, apply to applications under this Act. 8 The parties also referred to s 98 of the Civil Procedure Act 2005 (the CP Act): 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. … 9 The parties further referred to r 42.1 of the Uniform Civil Procedure Rules 2005 (the UCPR): 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 10 Rule 3.7(2) of the Land and Environment Court Rules 2007 does not apply as r 3.7(c) does not refer to applications in Class 3 proceedings made under the EB Act. Applicant's submission 11 The Applicant is entitled as the owner of property to seek the removal of encroachments on that property. The Applicant argues that it was the successful party and should have its costs paid. It sought orders that the encroachments on the driveway lot be removed and the Commissioner made orders requiring removal of the laundry and shed. 12 The correct approach to costs under the EB Act is to apply s 98 of the CP Act and the relevant rules, being r 42.1 of the UCPR. Section 14 of the EB Act is not the primary provision which should apply in light of s 15(2). Offers of settlement can be taken into account as a relevant factor but no more than in any other costs application. In this case as the offers of settlement dealt largely with offers to jointly sell the two properties and negotiations about the split of sale proceeds, the offers did not deal with the subject matter of these proceedings, which is the removal of encroachments. They are therefore irrelevant. 13 That the most likely purchaser of the driveway lot is the owner of the house lot does not alter the application of r 42.1 on the basis that costs follow the event. First Respondent's submissions 14 The purpose of removing the encroachments was to enable a sale of both properties. If the First Respondent's first offer of settlement had been accepted in August 2008 there would have been no need for these proceedings. The likely purchaser of the driveway lot is the owner of the house lot. An offer to buy the driveway lot was also rejected by the Applicant. 15 The Applicant has acted recklessly in commencing proceedings without a valuation of the driveway lot. The Commissioner identifies in her first judgment at [39] that the value of the driveway lot is between $20,000 and $30,000. The Applicant's costs of these proceedings are very likely to exceed the value of the driveway lot. 16 The Applicant was not successful as it did not get an order that the eaves and guttering be removed as the Commissioner held that their removal would cost a substantial amount and their impact was minimal (par 40 first judgment). As the parties are to share equally the cost of the removal of the laundry shed and carport the Applicant cannot claim to be successful. 17 The approach to costs is as generally outlined by the Applicant's counsel, except that the offers of settlement are relevant and material to the consideration of costs. The Court has wide discretion to determine costs under s 98 of the CP Act. The principles identified in Hofer v Howell Developments Pty Ltd [No 2] [2001] NSWLEC 42 still apply. The First Respondent should get an award of costs and the circumstances justify an award on an indemnity basis. Finding 18 The parties largely agreed that the appropriate approach to costs in this matter was that the CP Act and UCPR rules apply and that settlement offers are a relevant factor as referred to in s 14 of the EB Act. They disagreed on whether the Applicant could be said to be successful in its application for the purposes of r 42.1 of the UCPR and whether the numerous offers of settlement summarised in the document handed up to the Court were relevant to the question of costs. 19 There does not appear to be any decision since the adoption of the CP Act and the UCPR rules by this Court which has considered the awarding of costs in relation to an application under the EB Act. I have wide discretion to determine costs under s 98(1) of the CP Act. The presumption in r 42.1 that costs follow the event is expressly subject to the court exercising its discretion to make some other order. Section 15(2) of the EB Act provides that the rules of Court will apply unless inconsistent with that Act. The matters identified in s 14 of the EB Act, being those the court considers just in the circumstances and offers of settlement, are matters which the Court can consider in its wide discretion to determine costs matters under s 98 and r 42.1. Such an approach is generally in accordance with the approach of Lloyd J in Hofer v Howell at [14]-[15]. 20 In relation to whether the Applicant was successful for the purposes of r 42.1, while the Commissioner did make orders for the removal of some of the encroachments it must share equally in the costs of doing so according to the orders made by the Court. It did not succeed in getting an order for the removal of eaves and gutters. It did not get all the orders for removal of encroachments that it sought. 21 It is relevant to consider whether litigation of any kind is necessary at all in weighing up whether a party is entitled to costs. The circumstances that both the Applicant and First Respondent found themselves in suggest that the settlement proposals put on numerous occasions by the First Respondent provided the sensible solution for both parties had an agreement been reached. The proposals were initially for a joint sale of the two properties but agreement could not be reached on how the proceeds of sale should be split. As recognised in the Commissioner's first judgment, the most likely purchaser of the driveway lot is the owner of the house lot. I agree with the First Respondent that the practical approach to solve the difficult problem both mortgagees found themselves in was the joint sale of both properties, given that their use is interdependent. Incurring costs in pursuit of this application given the relatively modest value of the driveway lot, as also recognised in the Commissioner's judgment is also a relevant circumstance. 22 I consider I should exercise the broad discretion that I have under s 98 and r 42.1 not to award costs in the Applicant's favour. One possible order is that each party pay its own costs. The First Respondent seeks an indemnity costs order in its favour. 23 In order to have an award of indemnity costs there must be additional exceptional or unusual circumstances which suggest that such an award ought be made, party and party costs being the normal costs order. Mason P in Rosniak v Government Insurance Office (1997) 41 NSWLR 608 referred to the court requiring evidence of unreasonable conduct, not necessarily amounting to vexatious conduct. While I consider this litigation was unnecessary and could and should have been resolved before proceedings commenced the Applicant was successful in having orders made partially in its favour and as it submitted there is an avenue provided in the EB Act for applications of this nature. In light of these circumstances I will not make an order that the First Respondent's costs be paid on an indemnity basis. I consider the First Respondent should otherwise have an order for costs in its favour. 24 The parties also sought their respective costs of their motions for costs. As the First Respondent has been largely successful in its application for its costs the Applicant should pay the First Respondent's costs of the motion. The Applicant's Notice of Motion is unsuccessful. Order 25 The orders of the Court are: 1. The Applicant to pay the First Respondent's costs of the proceedings, including the First Respondent's Notice of Motion as agreed or assessed. 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