New South Wales Supreme Court CITATION : Woodland v Manly Municipal Council [2003] NSWSC 524 HEARING DATE(S) : 20 June 2003 JUDGMENT DATE : 20 June 2003 JURISDICTION: Equity JUDGMENT OF : Hamilton J DECISION : Plaintiffs to pay defendant's costs including costs on the indemnity basis after a Calderbank letter. CATCHWORDS : PROCEDURE [576] - Costs - Departing from general rule - Conduct of parties - Demand, offer and consent - Offer in Calderbank letter - Relevant considerations - REAL PROPERTY [409] - Easements - Easements generally - Creation - By express agreement or under statute - Other matters - Application refused - Costs - Incidence of Conveyancing Act 1919 s 88K(5). LEGISLATION CITED : Conveyancing Act 1919 s 88K(5) Cummings v Lewis (1993) 113 ALR 285 Duvall v Godfrey Virtue & Co, WASC 4 September 1997 unreported Goodwin v Yee Holdings Pty Ltd (1997) 8 BPR 15,795 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 CASES CITED : Mitchell v Boutagy 118 LGERA 249 NMFM Property Pty Ltd v Citibank Pty Ltd (No 2) (2001) 109 FCR 77 Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129 Wilson v Forrester-Babcock (2000) 10 BPR 18,377 Woodland v Manly Municipal Council [2003] NSWSC 392 Peter Richard Woodland (P1) PARTIES : Barbara Woodland (P2) Manly Municipal Council (D) FILE NUMBER(S) : SC 5212/99 COUNSEL : N A Nicholls (Ps) J J Webster SC (D) SOLICITORS : P J Donnellan & Co (Ps) Abbott Tout (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 20 JUNE 2003 5212/99 PETER RICHARD WOODLAND and BARBARA WOODLAND v MANLY MUNICIPAL COUNCIL JUDGMENT 1 HIS HONOUR: The argument concerning the costs of this matter (Woodland v Manly Municipal Council [2003] NSWSC 392 - "my judgment") has proceeded before me this morning on the basis of oral submissions supplementing comprehensive written submissions lodged by both sides. I should say at once that the oral argument has been radically shortened by the fact that those submissions on both sides were clear and helpful. In particular, Mr Nicholls, of counsel for the plaintiffs, has given in his written submissions a succinct and useful summary of the law and survey of the modern authorities relating to costs generally and the particular aspects that are in contention in these proceedings. He has during the course of oral argument taken me particularly to three authorities mentioned in his submissions, namely, Duvall v Godfrey Virtue & Co, an unreported judgment of Malcolm CJ in the Supreme Court of Western Australia on 4 September 1997; Cummings v Lewis (1993) 113 ALR 285; and Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129. 2 Mr Nicholls acknowledges the special rule laid down as to costs of proceedings of this sort in s 88K(5) of the Conveyancing Act 1919 ("the CA"). That rule is in a sense a statutory embodiment of the general rule in the law of costs that a party who seeks an indulgence must usually pay the costs of the proceedings even if successful. As in the case of the general rule, the presumption stated in s 88K(5) is subject to a judicial discretion to make any other order as to costs where such order is indicated by the circumstances. Clearly, as submitted by Mr Nicholls, that discretion may be exercised in a plaintiff's favour where the conduct of the defendant has been unreasonable. 3 There has been some judicial comment on s 88K(5). In Mitchell v Boutagy 118 LGERA 249 Austin J said of s 88K(5) at [60]: "Section 88K(5) states that the costs of the proceedings are to be payable by the Applicant subject to any order of the Court to the contrary. That, it seems to me, reflects the legislative policy. The policy is that the Court should be empowered to require the Defendant to grant an easement to the Applicant against his or her will, but generally on the basis that the cost of obtaining the easement is to be borne by the Applicant. It would only be if there were circumstances of unreasonableness on the Defendant's part that the Court would exercise its discretion to make an order to the contrary under sub-section (5)." In Wilson v Forrester-Babcock (2000) 10 BPR 18,377 Young J said at [17]: "In these temporary scaffolding cases where there is nothing put as to the merits, but the Defendant merely relies on her proprietary rights, the Defendant runs great danger in having to pay at least some of the costs of the suit." Orders, the effect of which were to apportion costs, were made by Windeyer J in Goodwin v Yee Holdings Pty Ltd (1997) 8 BPR 15,795. 4 Mr Nicholls' argument has proceeded under two heads clearly set out in par 3 of his written submissions. Under the first of these heads he relies on the defendant Council's conduct prior to the commencement of the proceedings, in that it is said the Council mismanaged the plaintiffs' application for the grant of an easement and encouraged the plaintiffs to commence the proceedings. The second relates to the Council's conduct in the course of the proceedings which is alleged to have increased substantially the costs incurred in the proceedings. This second head refers largely to the manner in which the evidence as to the drainage issue relating to Ross Street developed during the course of the trial. 5 Probably the greatest and most cogent factor in the Council's conduct prior to proceedings which the plaintiffs rely on is the fact that a number of Council officers were in favour of the grant of an easement, despite which the Council ultimately refused to grant the easement and defended the proceedings. As to this, it must be said that it is a notorious fact that democratically elected Councils at times act contrary to the recommendations or advice of their officers. Furthermore, while such conduct may in some instances be unreasonable, there are many instances in which it is not at all unreasonable for a Council, as a democratically elected and the ultimate deciding body, to act in that way. In my view in this case there is nothing in the Council's conduct which could be said to be such as to cause a deviation from the usual rule as to costs. 6 In this, as in other aspects of the matter, one must, of course, always bear in mind that this is not a case where the defendant took an ultimate stance and lost. The defendant here took an ultimate stance and won. In my view Mr Nicholls' submissions in this regard did not give sufficient weight to that fact and, although he fully acknowledged the provisions of s 88K(5), did not give sufficient weight to the principle laid down in that provision. 7 As to the aspect of conduct concerning the drainage issue after the commencement of the proceedings, I have already commented in my judgment at [29], that the evidence in the case was something of a moveable feast and that one of the aspects in which it was a movable feast was the evidence as to drainage. It can probably be fairly said that the defendant played the part of leader in moving the feast. However, the focus of evidence in litigation changes in many cases because of the development of issues and themes during the course of the litigation. What the Council did relating to the development of the case in relation to the drainage issue cannot be regarded in my view as being misconduct or conduct of an unreasonableness which would lead to a change in the onus of costs of the proceedings under the ordinary rules or within the meaning of the authorities that have been cited to me. One observation that ought be made in this regard is that, although it did not play as large a part in the debates that took place before the commencement of the proceedings as it did in the playing out of the proceedings, the drainage issue was out in the open before the proceedings commenced. 8 The result of these conclusions on my part is that I should not exercise my discretion under s 88K(5) and the successful defendant should have its general costs of the proceedings. 9 That is not an end of the matter, although my conclusion that that is a correct way to view the matter does have an impact on the further application that must be dealt with. That is an application by the defendant that, because of a Calderbank offer made by it, it should have the whole or some part of its costs of the proceedings on the indemnity basis. 10 The defendant relied on the first instance in a letter of 21 December 2001 offering to negotiate a solution through the grant of an easement. Insofar as the plaintiffs did not accept that offer (and, indeed, some negotiation did follow the letter) I do not regard the plaintiffs' conduct as in any way unreasonable by reference to that letter. The letter on which in my view the defendant's case is strongest on the Calderbank principle is a letter written by the defendant's solicitors to the plaintiffs' solicitors on 16 May 2002. That letter stated that the offer it makes is made in accordance with Calderbank principles and it is a complete offer capable of acceptance. That letter referred to s 88K(5) and required the payment of costs to date. In return it offered the grant of an easement so sought by the plaintiffs in satisfaction of their application for one. 11 The plaintiffs criticise the apparent inconsistency of the Council in offering to permit drainage to Ross Street on a without prejudice basis, whilst continuing to argue in Court that there was a drainage problem in that street. In the circumstances of this case as it eventuated that is perhaps not as inconsistent as it seems on the bare statement of it. The result on drainage was, in a sense, as indicated in my judgment at [29], that the parties fought each other to something like a standstill on this issue. I found in that paragraph that none of the evidence on either side concerning this matter had been very clear or satisfactory. It did seem on the evidence of both sides that a gravity drainage system could be constructed which would be close to having the result that there would be no increase in the flooding problem in Ross Street, although that evidence did indicate that there could be an additional flooding problem as a result of rain events of more than one in 20 year frequency and I was left with an uneasiness on the evidence as presented that there could be further overflowing into the properties on the south side of Ross Street more frequently than that. As I have said, in my view that is not terribly far from there being a fight to a standstill on that issue, although I was certainly left with an uneasiness that there could be some increase in the problem in Ross Street. Taking that and all other matters into account (including, importantly, the availability of a feasible alternative) the judgment proceeded on the basis that reasonable requirement within the meaning of s 88K(1) had not been demonstrated. 12 The offer would have provided, from the plaintiffs' viewpoint, a far better result than they achieved in the proceedings. In essence it offered them everything they wanted except as to costs. They proceeded in refusing it on the basis that they should not be obliged to pay the costs, or certainly the whole of the costs of the proceedings. Again, just as the application failed, that proved to be an erroneous view on their part. I know to say that views the matter in hindsight. But discounting the situation for the benefits of hindsight, it is my view that it was not reasonable for them in the circumstances to refuse that offer and to prolong the litigation. In saying that I take the view that a reversal of the costs position does not in any way flow automatically from the making of a Calderbank offer and that the Court must assess the situation as to the reasonableness of the offer and the unreasonableness of the refusal in each case: see per Lindgren J in MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 at 239; NMFM Property Pty Ltd v Citibank Pty Ltd (No 2) (2001) 109 FCR 77 at [82]. 13 As I say, I have come to the conclusion that in the circumstances of this case as they prevailed in May 2002 it was not reasonable for the offer to be refused and the plaintiffs must pay the defendant's costs on an indemnity basis from that time. The orders of the Court as to costs will therefore that be the plaintiffs pay the defendant's costs of the proceedings up to and including 16 May 2002 and pay the defendant's costs on the indemnity basis from and after 17 May 2002 ********** Last Modified: 07/14/2003 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.