Reported Decision : 151 LGERA 46 New South Wales Court of Appeal CITATION: HUNTER DEVELOPMENT BROKERAGE PTY LTD v CESSNOCK CITY COUNCIL [NO. 2] [2006] NSWCA 292 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 22 September 2006 JUDGMENT DATE: 1 November 2006 JUDGMENT OF: Santow JA at 1; Bryson JA at 2; Basten JA at 8 DECISION: (1) Leave to appeal granted; (2) Appeal dismissed with costs. CATCHWORDS: COSTS – Land and Environment Court Class 1 proceedings – Land and Environment Court Rules Part 16, Rule 4(2) – whether costs should follow the event in proceedings where questions of legal capacity arise – whether the decision of the primary judge inconsistent with an established approach of the Land and Environment Court – whether inconsistency constitutes error of law Anti-Discrimination Act 1977 (NSW), s 114 Environmental Planning and Assessment Act 1979 (NSW), s 95 Family Law Act 1975 (Cth), s 117 LEGISLATION CITED: Land and Environment Court Act 1979 (NSW), ss 17, 57, 69 Land and Environment Court Rules 1996, Part 16, r 4 Native Title Act 1993 (Cth), s 85A Uniform Civil Procedure Rules 2005 (NSW), r 42 Workplace Relations Act 1996 (Cth), s 824 Australian Postal Commission v Dao (No. 2) (1986) 6 NSWLR 497 Broadwater Action Group Inc v Richmond Valley Council (No. 2) (2003) 129 LGERA 409 CSR Ltd v Fairfield City Council (2001) 117 LGERA 77 Gee v Port Stephens Council (2003) 131 LGERA 325 Heidt v Chrysler Australia Ltd (1976) 26 FLR 257 House v The King (1936) 55 CLR 499 Hunter Development Brokerage Pty Ltd v Cessnock City Council [2004] NSWLEC 454 Hunter Development Brokerage Pty Ltd v Cessnock City Council [2005] NSWLEC 727 Hunter Development Brokerage Pty Ltd v Cessnock City Council (2005) 63 NSWLR 124 Kinder Investments Pty Ltd v Sydney City Council (2005) 143 LGERA 237 Knight v F P Special Assets Ltd (1992) 174 CLR 178 Latoudis v Casey (1990) 170 CLR 534 CASES CITED: Lowe v The Queen (1984) 154 CLR 606 Maurici v Chief Commissioner of State Revenue (2001) 51 NSWLR 673 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Norbis v Norbis (1986) 161 CLR 513 Oshlack v Richmond River Council (1998) 193 CLR 72 Outdoor Australia Pty Ltd v Auburn Council (1996) 89 LGERA 365 Pancho Properties Pty Ltd v Wingecarribee Shire Council [2004] NSWLEC 620 Parkes v Byron Shire Council [2004] NSWLEC 722 Penfold v Penfold (1980) 144 CLR 311 Raiti v Leichhardt Municipal Council (1991) 72 LGRA 333 Ruddock v Vadarlis [2001] FCA 1865; (2001) 188 ALR 143 Shaynd v Ku-Ring-Gai Council (2005) 138 LGERA 395 Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 Wong v The Queen (2001) 207 CLR 584 PARTIES: Hunter Development Brokerage Pty Ltd - Claimant Cessnock City Council - Opponent FILE NUMBER(S): CA 40998/05 COUNSEL: T.S. Hale SC/J. Kildea - Appellant J.A. Ayling SC/D. Jay - Respondent SOLICITORS: Thompson Norrie, Maitland - Appellant Malik Rees Lawyers, Cessnock - Respondent LOWER COURT JURISDICTION: Land & Environment Court LOWER COURT FILE NUMBER(S): LEC 11564/03 LOWER COURT JUDICIAL OFFICER: Bignold J LOWER COURT DATE OF DECISION: 17 August 2004 LOWER COURT MEDIUM NEUTRAL CITATION: Hunter Development Brokerage Pty Limited v Cessnock City Council [2004] NSWLEC 454 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40998/05 LEC 11564/03 SANTOW JA BRYSON JA BASTEN JA 1 November 2006 HUNTER DEVELOPMENT BROKERAGE PTY LTD v CESSNOCK CITY COUNCIL [No. 2] In 2005, Hunter Development Brokerage Pty Ltd succeeded on a question of law on its first appeal to the Court of Appeal from the Land and Environment Court (LEC). The proceedings fell within the "Class 1" jurisdiction of the LEC. Following the appeal, the matter was remitted to the LEC where orders were made by consent. However there remained a dispute as to whether an order for costs of the proceedings in the LEC should be made, Hunter Development having ultimately been successful on appeal. Bignold J declined to make an order as to costs and Hunter Development appeals from this decision. The issues for determination by the Court of Appeal were: (i) did the trial judge base his decision upon factors definitely extraneous to those for which the power was conferred; (ii) was the decision of the primary judge inconsistent with an established approach of the LEC, so as to constitute an error of law? Held in relation to (i): Per Bryson JA 1. Before the exercise of the discretion in s 69(2) Land and Environment Court Act 1979 (NSW) is addressed, the gateway in Part 16, Rule 4(2) of the Land and Environment Court Rules must be passed; it will often be the case that the two stages involve similar considerations, but their separation must be recognised. Before s 69(2) is addressed there must first be a finding in the terms of r 4(2) based upon the circumstances of the particular case, and this excludes generalised approaches: at [4]. Per Basten JA (Santow & Bryson JJA agreeing) 2. Section 69(2) of the LEC Act is an unconstrained conferral of power to award costs without direction or limitation except in so far as the subject matter, scope and purpose of the legislation indicate that a matter is definitely extraneous to any object of the legislation. The primary consideration is that the power is conferred to compensate the successful party against the expense to which the party has been put by reason of the legal proceedings: at [16]–[17]. Oshlack v Richmond River Council (1998) 193 CLR 72; Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492; Ruddock v Vadarlis [2001] FCA 1865; applied. 3. Part 16, Rule 4(2) provides as a general rule that there shall be no order as to costs, with a discretionary power to depart form that rule in particular circumstances, where the court considers that it is fair and reasonable: at [19]. Care must be taken to avoid broad discretionary powers being inflexibly confined by comments of the courts in previous cases: at [25]. Oshlack v Richmond River Council (1998) 193 CLR 72; Norbis v Norbis (1986) 161 CLR 513; Wong v The Queen (2001) 207 CLR 584, applied. 4. There were two lines of authorities in relation to costs in Class 1 proceedings: first, Gee v Port Stephens Council (2003) 131 LGERA 325 that the resolution of a question of legal capacity, as a general rule, result in costs following the events; secondly, Outdoor Australia Pty Ltd v Auburn Council (1996) 89 LGERA 365, which give that factor no determinative weight: at [33]–[42]. Maurici v Chief Commissioner of State Revenue (2001) 51 NSWLR 673; CSR Ltd v Fairfield City Council (2001) 117 LGERA 77; Shaynd v Ku-Ring-Gai Council (2005) 138 LGERA 395; Pancho Properties Pty Ltd v Wingecarribee Shire Council [2004] NSWLEC 620; Kinder Investments Pty Ltd v Sydney City Council (2005) 143 LGERA 237, considered. 5. The justification for the 'no costs' practice was that it encouraged challenge to decisions of consent authorities in Class 1 proceedings, without the applicant facing the threat of an adverse costs order as the price of failure. However the authorities do not explain why the fact that the consent authority may be acting beyond power removes the need to encourage the challenge without risks of costs: at [47]–[49]. Raiti v Leichhardt Municipal Council (1991) 72 LGRA 333; Gee v Port Stephens Council (2003) 131 LGERA 325, considered. 6. It is not possible to say that, by implication alone, rule 4(2) must be understood to require a 'costs follow the event' regime where questions of capacity arise. The failure of the rule to incorporate expressly this principle adds weight to the conclusion that no such confinement of the discretion was intended: at [49] and [52]. 7. The 'costs follow the event' principle is based upon questions of perceived fairness as between the litigants. It depends entirely upon the outcome of the litigation, and not upon the reasonableness of the parties in litigating. Thus in relation to Rule 4, the preferable approach is to treat the power granted to the Court to depart from the general principle as one to be exercised in relation to particular cases, dependent upon the conduct of those proceedings: at [50]. 8. It was not established that his Honour's consideration of a decision as to legal capacity, determined in Class 1 proceedings, manifestly failed to accord it weight proportionate to its importance, so as to fall into legal error: at [54]–[55]. Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24; Oshlack v Richmond River Council (1998) 193 CLR 72; Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492, applied. Held in relation to (ii): Basten JA (Santow & Bryson JJA agreeing) 1. Accepting that, in a particular case, a major inconsistency in approach to the exercise of a discretion within a court may constitute error of law, one needs to look for the reason underlying the disparate approach. This was not a case of idiosyncratic variations. Rather the disparity arises from the difference of views in Gee and Outdoor Australia. Accepting that the distinction between issues of "merit review" and "legal capacity" is a relevant consideration, and may be a consideration of some importance, authorities which raise it to the level of requiring a particular result fetter the discretion unduly. Accordingly, it cannot be said that there is an error of law in failing to follow Gee: at [60]. Wong v The Queen (2001) 207 CLR 584; Lowe v The Queen (1984) 154 CLR 606; Oshlack v Richmond River Council (1998) 193 CLR 72, applied. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40998/05 LEC 11564/03 SANTOW JA BRYSON JA BASTEN JA 1 November 2006 HUNTER DEVELOPMENT BROKERAGE PTY LTD v CESSNOCK CITY COUNCIL [No. 2] Judgment 1 SANTOW JA: I agree with Basten JA. 2 BRYSON JA: I have read the judgment of Basten JA. I agree with what his Honour has said, but I wish to lend emphasis to some matters. 3 The practices of the Land and Environment Court as they were before Pt.16 r.4(2) was made, discussed in Gee v Port Stephens Council [2003] 131 LGERA 325, were not clear in their terms, were not clearly established by judicial opinion, and inappropriately limited the discretion conferred on the Court by s.69(2) of the Land and Environment Court Act. No appellate authority established guidelines for the exercise of that discretion, and because appellate power was limited to questions of law, it was not possible for such guidelines to be established by appellate authority. With r.4(2) there was a new beginning, and earlier practices, case law and the Practice Note have no influence on the application of r.4(2). 4 Before the exercise of the discretion in s.69(2) is addressed, the gateway in r.4(2) must be passed; it will often be the case that the two stages involve similar considerations, but their separation must be recognised. Before s.69(2) is addressed there must first be a finding in the terms of r.4(2) based, as r.4(2) says, upon the circumstances of the particular case, and this excludes generalised approaches. 5 The discretion conferred by s.69 is broad, the general outcome of its exercise will be that costs follow the event but there is no absolute rule that that will be the outcome. The facts and circumstances of a particular Class 1 proceeding may furnish a sound ground or a good reason for the exercise of the discretion in a different way. Generalised classifications into proceedings which involve matters of merit and not questions of law are not facts and circumstances of the particular case and are not sound grounds or good reasons. If a discretionary decision on costs has been reached for some reason relevant to the purpose for which the power in s.69(2) was conferred there is unlikely to be any room for appellate intervention on a question of law. 6 Although the judgment of Bignold J under appeal ranged rather widely in the matters which it considered, it concluded with a clear address to the issue raised by r.4(2) and to disposition of that issue on a ground relevant to it. It was a relevant consideration that the state of the law as understood in the Land and Environment Court at the time the matter first came before Bignold J favoured the position advanced by the Council. The importance to be accorded to this consideration was a matter for decision by Bignold J. In Class 1 proceedings which arise after the law was established differently on appeal, this will no longer have any claim for consideration. 7 The validity of r.4(2) was not questioned or discussed in the present appeal. 8 BASTEN JA: The dispute underlying this application concerned the refusal of the Cessnock City Council ("the Council") to issue a construction certificate to Hunter Development Brokerage Pty Ltd ("Hunter Development") in relation to a development consent for particular land. The Council contended that the consent had lapsed because relevant work had not been physically commenced on the land within five years from the date on which the consent operated, pursuant to s 95 of the Environmental Planning and Assessment Act 1979 (NSW) ("the EP&A Act"). 9 Hunter Development took proceedings in the Land and Environment Court in relation to the Council's failure to issue the certificate. This application fell within the "Class 1" jurisdiction of the Land and Environment Court, generically described as "environmental planning and protection appeals": Land and Environment Court Act 1979 (NSW) ("the LEC Act"), s 17. The issue for determination in those proceedings was whether certain survey works fell within the description contained in s 95(4) of the EP&A Act, so as to prevent the consent lapsing. Bignold J, in the Land and Environment Court, held that they did not: Hunter Development Brokerage Pty Ltd v Cessnock City Council [2004] NSWLEC 454. However, this Court reversed that decision: Hunter Development Brokerage Pty Ltd v Cessnock City Council (2005) 63 NSWLR 124. The issues raised on appeal (which included a companion case raising similar issues) were identified by Tobias JA (with whom Santow JA and Stein AJA agreed) at [70]: "Essentially, two issues of law or mixed fact and law arise out [of] the primary judge's decisions. The first is whether survey work is capable of falling within the description 'building, engineering or construction work'. A subset of this issue is whether the survey work carried out in each of the cases was in fact 'engineering or construction work' and whether that work had been 'physically commenced' on the relevant land. The second issue is whether there is any room in …s 95(4) for the concept of 'preparatory work' which, according to the primary judge, disqualifies that work, even if engineering or construction work, from constituting 'engineering or construction work relating to' the approved subdivision." 10 The appeal to this Court was limited to a question of law: LEC Act, s 57(1). Following the appeal, the matter was remitted to the Land and Environment Court. There, orders were made by consent directing the issue of the construction certificate subject to agreed conditions. There remained, however, a dispute as to whether an order for costs should be made in the Land and Environment Court, Hunter Development having ultimately been successful in its appeal to that Court. Bignold J declined to make an order as to costs and it is that decision from which Hunter Development now seeks leave to appeal: see Hunter Development Brokerage Pty Ltd v Cessnock City Council [2005] NSWLEC 727. Issues for determination 11 The right of appeal to this Court is given, as noted above, by s 57 of the LEC Act, which relevantly provides: 57(1) A party to proceedings in Class 1, 2 or 3 of the Court's jurisdiction may appeal to the Supreme Court against an order or decision (including an interlocutory order or decision) of the Court on a question of law. However, leave is required from this Court where the appeal is from an order or decision as to costs: s 57(4)(f). 12 In the present case, the trial judge refused to make an order as to the costs of the proceedings in that Court. It was not disputed on the present application that that constituted a relevant "decision" for the purposes of s 57. Hunter Development also accepted that the decision was appropriately characterised as a discretionary decision of the kind to which the principles established in House v The King (1936) 55 CLR 499 at 505 apply. However, that constraint is of little relevance in the present case. House was concerned with a full appeal on law and fact: 55 CLR at 504. Although the matter was not debated in the present proceedings, the principles in House should not be understood as imposing any additional constraint on an appeal limited to a question of law; if there is a difference, the House test would appear to be less constraining. 13 The questions of law raised on this application were not identified with precision. However, they may broadly be formulated as follows: (1) did the trial judge base his decision upon factors definitely extraneous to those for which the power was conferred; (2) was the decision of the primary judge inconsistent with an established approach in the Land and Environment Court, so as to constitute an error of law? Relevant legal principles 14 The power to award costs in the Land and Environment Court is to be found in s 69(2) of the LEC Act, which provides: 69 … (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 … No other Act is relevant, but Part 16 of the Land and Environment Court Rules 1996 makes express provision in relation to certain categories of proceedings in Classes 1, 2 and 3 of the Court's jurisdiction, which include the present proceedings: r 4(1)(a). Rule 4(2) reads: (2) No order for the payment of costs will be made in proceedings to which this Rule applies unless the Court considers that the making of a costs order is, in the circumstances of the particular case, fair and reasonable. 15 The historical development of powers to award costs, both in equity and by statute, has been reviewed in a number of cases and need not be repeated: see, eg, Latoudis v Casey (1990) 170 CLR 534; Knight v F P Special Assets Ltd (1992) 174 CLR 178 and Oshlack v Richmond River Council (1998) 193 CLR 72. It is sufficient to note in the present case that the power is statutory and discretionary. 16 Statutory powers to award costs may be found in one of three forms. The first is an unconstrained conferral of power without direction or limitation. Absent the relevant rule, the power conferred by s 69(2) is such a power. As was explained by Gaudron and Gummow JJ in Oshlack, adapting the words of Dixon J in Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505, the power is "unconfined except in so far as 'the subject matter and the scope and purpose' of the legislation may enable an appellate court to pronounce the reasons given by the primary judge to be 'definitely extraneous to any objects the legislature could have had in view'": 193 CLR 72 at [22]. 17 As identified in Latoudis v Casey, the primary and generally the only relevant consideration is that the power is conferred "to compensate the successful party against the expense to which that party has been put by reason of the legal proceedings": Oshlack at [25]; see also Ruddock v Vadarlis [2001] FCA 1865; (2001) 188 ALR 143 at [12] (Black CJ and French J). 18 The second category of cases covers those which expressly identify the principle that the power to award costs is intended to permit the successful party to be compensated or indemnified for costs incurred in the litigation, by providing that "the court is to order that the costs follow the event unless it appears to the court that some other order should be made": Uniform Civil Procedure Rules 2005 (NSW), r 42.1. 19 The third category of cases encompasses those, like Part 16, r 4(2), which provide as a general rule that there shall be no order as to costs, with a discretionary power to depart from that rule in particular circumstances, including where the court considers that it is fair and reasonable. 20 No doubt there are a range of variations to be found within this basic structure. Thus, within the third category, the Workplace Relations Act 1996 (Cth) contains in s 824 a prohibition on ordering one party to pay another party's costs, unless the first party "instituted the proceeding vexatiously or without reasonable cause" or "by an unreasonable act or omission" caused the other party to incur costs in connection with the proceedings. The history of predecessors to that provision may be found in Heidt v Chrysler Australia Ltd (1976) 26 FLR 257 (Northrop J). Another variation may be found in s 85A of the Native Title Act 1993 (Cth). 21 Provisions closer in terms to Part 16, r 4 may be found, for example, in the Family Law Act 1975 (Cth) s 117, which, as enacted, read: 117(1) Subject to subsection (2) and section 118, each party to proceedings under this Act shall bear his own costs. (2) If the court is of opinion in a particular case that there are circumstances that justify it in doing so, the court may … make such orders as to costs … as the court thinks just. (A series of factors to be taken into account were specified in regulations. They are now contained in s 117(2A).) In relation to s 117, the High Court held in Penfold v Penfold (1980) 144 CLR 311 at 315: "It is an accurate description of s. 117(1) to say that it expresses a general rule, provided that it is firmly understood that the subsection is not paramount to s. 117(2). As sub-s. (1) is expressed to be subject to sub-s. (2) the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs. Sub-section (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs. Consequently, … we do not agree with the suggestion made in the judgment under appeal that an order can only be made under s. 117(2) in 'a clear case'." 22 Another similar provision was contained in the Anti-Discrimination Act 1977 (NSW), s 114, at a time when hearings under that Act occurred in the Equal Opportunity Tribunal. In Australian Postal Commission v Dao (No. 2) (1986) 6 NSWLR 497 this Court (Kirby P, Samuels and McHugh JJA agreeing) declined to make an order for costs in favour of the successful Commission, in relation to the proceedings in the Tribunal. In part that was because the Commission succeeded on a constitutional argument it had not raised before the Tribunal: p 505C. In addition, the Court took into account the fact that the Commission could have bypassed the Tribunal and simply sought an order in the nature of prohibition from this Court. 23 Limited assistance may be obtained from decisions in relation to other statutory regimes, for three reasons. First, differences in emphasis may flow from differences in language. Thus, both the Family Law Act and the Anti-Discrimination Act made the general rule subject to the discretionary power to award costs. That is not the language of Part 16, r 4(2). 24 Secondly, the reason for constraining a discretionary power in a particular way will need to be assessed in the specific statutory context and by reference to the possible reasons for departing from the specified general rule. 25 Thirdly, care must be taken to avoid broad discretionary powers being inflexibly confined by comments of the Court in previous cases, or by comments in appellate courts. Whilst explanations as to the exercise of the power may provide guidance in future cases, the caution reflected in the observations of Brennan J in Norbis v Norbis (1986) 161 CLR 513 at 537, quoted in Oshlack at [35], are pertinent: "It is one thing to say that principles may be expressed to guide the exercise of a discretion; it is another thing to say that the principles may harden into legal rules which would confine the discretion more narrowly than the Parliament intended. The width of a statutory discretion is determined by the statute; it cannot be narrowed by a legal rule devised by the court to control its exercise". 26 The concept of guidelines to regulate the exercise of discretion was revisited by the High Court in the context of criminal sentencing in Wong v The Queen (2001) 207 CLR 584. The majority, who upheld the appeals against sentence, were critical of the form of the "guideline judgment" given by the Court of Criminal Appeal. A number of factors were identified as matters of concern: at [45] in the joint judgment of Gaudron, Gummow and Hayne JJ, the following passage appears: "Most importantly, because the process was directed to the articulation of proposed results rather than the articulation of the principles which should inform the judge who is called on to perform the task of sentencing an individual offender, the table of outcomes and the court's reasons give little or no guidance about what may make a particular case 'typical' or 'exceptional'." 27 Wong was a case concerned with the boundaries between permissible and impermissible control of discretion, an issue to which it will be necessary to return below. The point for present purposes is that comments made in a particular case will provide some, but limited, assistance in determining how a particular discretion should be exercised. Reasons given by trial judge 28 In Wong, in discussing criminal sentencing, Kirby J noted the emphasis in recent decisions of the High Court "requiring greater disclosure by sentencing judges of the way in which they actually arrive at the sentence imposed": at [102]. By contrast, in Penfold v Penfold, dealing with costs, the joint judgment stated at p 315-316: "Judges very frequently make orders for costs without giving reasons or making findings, even when costs are in issue. The absence of reasons or findings does not in itself indicate that a judge has erroneously exercised his discretion to award costs, though it will place an appellate court in the position of examining the circumstances and of determining for itself whether the circumstances show that the discretion was erroneously exercised … . Accordingly, in the absence of some positive legislative indication we should not attribute to Parliament the requirement that a judge must make particular findings in relation to an order for costs." 29 In a case where costs are in contention, a modern approach to the administration of justice may require more than was suggested in Penfold v Penfold. In any event, the primary judge in the present case gave reasons for his refusal to exercise the power to award costs, thereby properly exposing for review his approach to the questions before him, on the limited grounds available. First, he noted that Part 16, r 4(2) came into effect on 2 February 2004, a date after the commencement of the proceedings, and approximately 10 weeks before the hearing. His Honour further noted, at [10]: "This rule replaced the then prevailing practice of the Court in planning and building appeals which had been reflected in par 10 of the Court's 1993 Practice Direction … and was to the effect that … the ordinary costs consequence would be that no order for costs would be made, save for exceptional circumstances, and that practice had prevailed in the Court from the beginning of its life." His Honour then continued at [11]: "The making of the new rule, Part 16, Rule 4, although changing the verbal formulation of the relevant discretion (and relevantly being a rule qualifying the costs power conferred upon the Court by the Court Act , s 69—vide subsection(2)) essentially perpetuates as the prevailing norm that no order for costs in such proceedings will be made unless the Court considers the making of a costs order 'in the particular case, fair and reasonable'." 30 His Honour noted that the case had turned to a significant extent on a question as to the capacity of the Council to grant the certificate and treated that as a relevant, but not necessarily determinative, factor. His Honour also took into account the following considerations: (a) the outcome of the case, as determined in this Court, was to be seen as arising either in a previously unsettled area of law – at [31] – or in an area where a contrary view had prevailed "for something like 20 years" – at [33]; (b) Hunter Development had, in any event, to establish that it had done work of a kind within the five years from the operation of the consent, so as to prevent it lapsing – at [36]; (c) the question of law determined in the proceedings was one "of considerable importance to the administration of an essential provision of the" EP&A Act – at [40]; and (d) the circumstances in which the proceedings were commenced and maintained in the Court's Class 1 jurisdiction – at [23]-[28]. 31 His Honour then stated: "41. The applicant received an order for costs, unexceptionally in the Court of Appeal where costs do follow the event. But here they do not, and although the principle that costs compensate the successful party and not to punish the unsuccessful party is fundamental to an understanding of the operation of the ordinary costs power, nonetheless, the Court's costs power circumscribed [conferred?] by s 69 is materially moderated and circumscribed by the relevant Rule of Court which requires the making of a costs order in these types of proceedings exceptionally (in relation to the normative order that there be no order for costs) only where in the particular case the Court considers it fair and reasonable so to do. 42. In the exercise of that discretion I am satisfied that the Applicant has not demonstrated that the facts of this particular case render it 'fair and reasonable' that an order for costs should be made in its favour and the normative rule that costs in planning appeals not ordered, should in my view, be applied." Authority in Land and Environment Court 32 Of central importance to the present dispute is the effect of a line of authority in the Land and Environment Court concerning the exercise of the unfettered discretion under s 69(2), as it operated prior to the introduction of Part 16, r 4(2). These cases will be referred to below. 33 In Latoudis v Casey (1990) 170 CLR 534, the High Court held that where a court exercising criminal jurisdiction in relation to summary offences was invested with a power to award costs, unconfined as to the circumstances of its exercise, it is inappropriate for the court generally to make no order as to costs, where a defendant has been successful, unless some special case for such an order is made out. That, it was held, was because the general purpose of awarding costs is compensatory and, so long as the successful party has incurred costs, it is generally fair and reasonable that he or she should recover those costs in the exercise of a discretionary power. In Penfold v Penfold, where each party was required to bear its own costs unless the Court was satisfied that there were circumstances justifying making an order as to costs, the High Court dismissed the proposition that such an order could only be made in "a clear case": p 315. 34 Prior to the introduction of the rule, one line of authority in the Land and Environment Court held that where proceedings in Class 1, 2 or 3 turned upon a question of legal capacity, rather than what has been described as "merits review", exceptional circumstances were established and costs should generally follow the event. Thus, in Gee v Port Stephens Council (2003) 131 LGERA 325, speaking before the introduction of the rule, McClellan CJ stated at [60]: "As I have indicated, in my opinion in circumstances where a council choses to put in issue the capacity for approval either by raising a preliminary question of law or as here a preliminary question involving matters of both fact and law, the usual approach to costs in Class 1 appeals is inappropriate. By raising the question of capacity to grant an approval the Council raises matters appropriate for ordinary litigation, and seeks to avoid consideration of the merits of the application. In such a case, in my opinion, the usual order should be that costs follow the event." 35 Applying the principles discussed in Latoudis and Penfold, the practice of the Land and Environment Court, dating back to 1980, in ordering costs in Class 1 proceedings only where special circumstances had been established, was untenable. In Maurici v Chief Commissioner of State Revenue (2001) 51 NSWLR 673 at [44], Handley JA stated (Beazley and Giles JJA agreeing): "A major difficulty with the Practice Direction, construed as applying to land tax appeals in Class 3, is that it purports to impose a rigid fetter on the judicial discretion as to costs conferred by s 69(2). Appellate courts have held more than once that judges should not fetter judicial discretions with self-imposed rigid rules." The application of the practice direction (there being no rule in force at the relevant time) led to the exercise of discretion being set aside: at [52]. It must follow that case law in the Land and Environment Court which reflected the operation of the practice direction should be treated with great caution. 36 It would seem that the conclusion in Gee was correct, but not for the reasons stated. Thus, in the exercise of an unfettered discretion, costs should usually follow the event. What required justification was that there be no order as to costs in cases in Class 1 proceedings "where the issues in dispute are confined to merit consideration". However, in that case, his Honour considered that, generally, "it is appropriate that there be no order as to costs": at [56]. 37 In Gee, the Chief Judge also noted a line of authority to different effect epitomised by the judgment of Pearlman CJ in Outdoor Australia Pty Ltd v Auburn Council (1996) 89 LGERA 365. There, at p 369, her Honour noted: "I recognise … that there is a distinction between determinations of merit issues on discretionary planning grounds, and determinations of questions of pure law, which in effect declare the legal rights of the parties. But that distinction was not the foundation for the practice direction; rather, the practice direction was made to encourage dissatisfied parties to seek review of planning and building decisions by councils without risk of costs if unsuccessful. It is true that, in this Court, questions of law arising in class 1 and 2 are not determined by assessors of the Court, but by judges. … But the fact that judges of this Court decide legal questions and assessors are confined to decisions on the merits of the case does not of itself, it seems to me, call for a distinction in the awarding of costs. That is because this is one Court, and the class 1 or 2 proceedings in which a question of law arises are one set of proceedings." Her Honour applied the "exceptional circumstances" test, but did not treat the legal issue as determinative, stating at p 370: "For all these reasons I have concluded that the raising of a preliminary question of law in class 1 or 2 proceedings has the consequence only that it is a factor to be taken into account in considering whether there are exceptional circumstances. In my opinion, the Court should not be seen to be adopting a practice that costs will normally follow the event in respect of the determination of preliminary questions of law in class 1 or 2 proceedings nor should the raising of a pure question of law of itself invariably be regarded as constituting exceptional circumstances. Rather, the practice direction should apply to class 1 and 2 proceedings without qualification, and it is a matter for the Court on the facts in each case to determine if exceptional circumstances exist which would justify an exercise of the Court's discretion to award costs." 38 In CSR Ltd v Fairfield City Council (2001) 117 LGERA 77, her Honour returned to the issue, following the judgment of this Court in Maurici. She said that the validity of the practice direction remained "an open question". Nevertheless she applied the same principles and reaffirmed the approach she had adopted in Outdoor Australia, that "the raising of a preliminary question of law in class 1 proceedings has the consequence only that it is a factor to be taken into account in considering whether there are exceptional circumstances": at p 85. 39 Applying the principles articulated in Latoudis v Casey to the unfettered discretion granted by s 69(2), prior to the promulgation of the rule, the proper approach to questions of costs must have required that costs follow the event unless there were circumstances which justified a different rule. Whether the nature of the merits review jurisdiction provided such a justification need not be determined in this case, because the rule now governs. Nevertheless, the approach adopted by the primary judge that there was no substantive difference between the discretion conferred by the rule and that reflected in the practice direction (articulated at [12]) is doubtful. The test of "exceptional circumstances" provides a higher hurdle for departure from the general approach (that there be no order as to costs) than does the language of the rule. 40 In Gee, the Chief Judge did not speak of a determinative factor being a question of law, but rather "the question of capacity". The distinction was identified by counsel in argument in this Court as distinguishing questions of "power" from questions of law generally. In Gee, McClellan CJ sought to identify the distinction in the following terms at [56]: "I have already indicated there will be many cases in Class 1 and 2 where it is appropriate that there be no order as to costs. In my opinion this is likely to be the case where the issues in dispute are confined to merit consideration. However, a different approach may be required where a preliminary question is raised. If it happens that determination of the preliminary question will assist the commissioner who hears the merits of the matter by defining the content or limits on his or her discretion it is likely that no order for costs should be made. For example, the interpretation of provision of a local environmental plan containing height or floor space controls may be a circumstance where no order should be made. There will be others. However where the preliminary point raised is said to preclude consent at all, the proceedings ceased to have the character of merits review and different considerations arise." 41 In early decisions applying the new rule, McClellan CJ, with little discussion as to possible variations in principle, ordered that costs follow the event where a question as to the power of the Court to approve an application was answered in the affirmative: see Shaynd v Ku-Ring-Gai Council (2005) 138 LGERA 395 at [21] and [22] and see Parkes v Byron Shire Council [2004] NSWLEC 722 at [11]-[15]. In Pancho Properties Pty Ltd v Wingecarribee Shire Council [2004] NSWLEC 620, Talbot J noted at [13] the remarks of Lloyd J in Broadwater Action Group Inc v Richmond Valley Council (No. 2) (2003) 129 LGERA 409 at [9], declining to adopt the approach outlined in Gee. Talbot J also noted that the relevant principle was now found in Part 16, r 4.2. However at [18] he stated: "On a proper construction of Part 16, Rule 4(2) it is only where the Court concludes that it would not be fair and reasonable to make a costs order that there be no order for the payment of costs in class 1 proceedings." That statement, with respect, is not a proper construction of the rule, but reverses the general principle and the exception. 42 Since the commencement of the rule on 2 February 2004 the question of costs has been further considered by Preston CJ in Kinder Investments Pty Ltd v Sydney City Council (2005) 143 LGERA 237 at [50]-[57]. "50 There is a line of authority in this Court that in class 1 appeals, where the issues involve matters of merit, and not law, ordinarily no order for costs will be made: see the conspectus of the authorities in Gee v Port Stephens Council (2003) 131 LGERA 325 at [22]-[28], [40] and [56] and Statewide Developments Pty v Minister for Infrastructure and Planning (2005) 142 LGERA 154 (1 July 2005) at [4]. 51 Of course, there are circumstances in particular cases where, having regard to either the conduct of a party leading up to or during the litigation of the merit matters or the utter weakness of the merit matters raised, it may be fair and reasonable to make an order for costs … . 52 However, where an issue of law is raised as a central issue and the proceedings cease to have the character of merits review, it will be fair and reasonable for an order for the payment of costs to be made in relation to that question of law, the order being that costs follow the event … . 53 In this case, as I have stated in the substantive judgment, the only question in the class 1 appeal was a question of law, involving the construction of statutory provisions in the Act. 54 The question was a novel one, it not having been raised in the twenty-five years of the Court's existence. Hence, there was no authority to guide either party. The question is also one of importance. The resolution of the question may be of interest to a wider audience than just the parties. This factor tends to support there being no order for the payment of costs, notwithstanding the question was a question of law. … 57 I find the matter finely balanced. However, having regard to the fact that this was essentially private litigation involving an application by an applicant to modify a development consent by extending the lapsing period, and did not involve general public interest matters, I consider that the line of authority in this Court that the successful party on a question of law raised in class 1 proceedings should be compensated for the costs that it has incurred, should be followed." Grounds of appeal 43 Hunter Development made a number of challenges to the trial judge's reasons for determination. One, which may be disposed of briefly, stated that the reference to the change effected by the decision of this Court to previous authority in the Land and Environment Court with respect to the operation of s 95(4) of the EP&A Act is overstated. However, accepting that to be the case, at least in relation to some statements in the judgment, it does not entirely remove the significance of this Court's decision in resolving an outstanding question of law of some importance, and might support an argument that it was reasonable for the Council to resist the applicant's legal arguments as to the issues in dispute. However, his Honour appears to have accepted that the question of costs was not to be determined by "the conduct of the unsuccessful party": at [37]. Failure to give proper consideration to a relevant factor 44 A second and more substantial matter of challenge was the failure to follow the established practice (assuming for present purposes that it is such) that costs should generally follow the event, even in Class 1 proceedings, where a question of legal capacity is raised. 45 The strength of that submission may be tested by considering whether legal error would have been demonstrated had the primary judge disregarded entirely the fact that the proceedings turned upon a question of legal capacity. For that argument to succeed it would be necessary to demonstrate that, in the language of administrative law principles, the nature of the issue which was determinative of the case was a mandatory consideration to be taken into account for the purposes of r 4(2). Unless the factor is one which the decision-maker "is bound to consider" it will not be an error of law to fail to take it into account: see Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39 (Mason J). There is no such express statement in r 4; it must therefore be implied from the subject matter, scope and purpose of the rule: ibid at p 40. 46 In considering the subject matter, scope and purpose of r 4, it is relevant to refer to the established practice of the Court, as reflected in the former practice as articulated by the Chief Judge in Gee, to identify the purpose said to justify that practice. However, it is also important to note the departures in the rule from the established practice. Thus, the rule departed from the 'exceptional circumstances' test found in the practice direction. Secondly, it omitted any reference to the 'costs follow the event' approach adopted in Gee in relation to cases turning on questions of legal capacity. 47 The justification articulated for the 'no costs' practice was that it encouraged challenge to decisions of consent authorities in Class 1 proceedings, without the applicant facing the threat of an adverse costs order as the price of failure: see, eg, Raiti v Leichhardt Municipal Council (1991) 72 LGRA 333 at 334 (Hemmings J). The same rationale was articulated by McClellan CJ in Gee, at [40]. His Honour adding: "The essence of the proceedings is a merit review of a decision of the Council or other body where the Court is required to exercise the powers of the decision maker and determine the application for itself." 48 What is not explained in the authorities to which this Court was referred, is why that rationale disappears immediately a question of law as to legal capacity of the consent authority arises. In jurisprudential terms, it is no doubt true that an administrative decision-maker cannot finally determine the scope of its authority. That can only be determined by a court of competent jurisdiction exercising judicial power. Nevertheless, that is not a distinction which is likely to be a motivating factor for a ratepayer or landowner. If, however, it were seen as significant, then proceedings could be commenced in the Class 4 jurisdiction of the Court, where r 4 does not apply. 49 On one view, the original 'no costs' principle appears to have been a judicial gloss on the unfettered discretion conferred by the Parliament, prior to the introduction of the rule. Nevertheless, accepting the gloss as appropriate, the authorities do not explain why the fact that the consent authority may be acting beyond power removes the need to encourage challenge without risk of costs. Accordingly, on these materials, it is not possible to say that, by implication alone, the rule must be understood to require a 'costs follow the event' regime where questions of capacity arise. The failure of the rule to incorporate expressly this simple principle adds weight to the conclusion that no such confinement of the discretion was intended. 50 The 'costs follow the event' principle is based upon questions of perceived fairness as between litigants. It depends entirely upon the outcome of the litigation, and not upon the reasonableness of the parties in litigating. Questions of reasonableness can be taken into account through special costs rules based on formal and informal offers of compromise in the course of the proceedings. These rules, taken together, accept that the likelihood of an adverse costs order is a deterrent to litigation and an encouragement to settlement. By way of contrast, the introduction of a 'no costs' regime is likely to reflect a policy of encouraging the use of particular tribunals or courts for dispute resolution. Thus, the choice of one or other of these regimes as the standard approach will reflect the adoption of one or other policy to particular forms of litigation. Where a 'no costs' rule applies in relation to a class of litigation broadly defined, it would be surprising if the rule-maker, without any direct indication of such a purpose, intended the Court to decide which cases within that class should be subject to the rule encouraging litigation and which should not. As appears from the examples of no costs rules referred to above, where exceptions are identified by reference to particular circumstances, the circumstances refer to the conduct of the parties in commencing or maintaining the particular litigation. Thus, in relation to r 4, the preferable approach is to treat the power granted to the Court to depart from the general principle as one to be exercised in relation to a particular case, dependent upon the conduct of those proceedings. The rule itself does not distinguish categories of Class 1 proceedings: rather it provides a general approach subject to the Court otherwise ordering "in the circumstances of the particular case". This language provides an indication that a general alternative approach was not intended to be adopted for particular categories of cases within Class 1, 2 or 3. 51 Under the approach espoused in Gee, the fact that an applicant commenced proceedings in Class 1 and did not raise the legal issue itself, would appear not to be relevant to determining whether it was fair and reasonable to order it to pay the costs of proceedings in which it was ultimately unsuccessful. Thus, in the present case, discussion as to whether "the applicant ought to have propounded the issue in separate class 4 proceedings" if it wished to obtain an order for its costs if successful, yet run the risk of paying costs, if unsuccessful were arguably irrelevant considerations: Judgment below at [25]. On this point his Honour concluded at [27]: "In my opinion it is relevant that the Applicant did deliberately propound the issue and keep it confined to the class 1 proceedings and in that context (particularly from the point of view of costs) it is not really relevant to say, as has been put on behalf of the Applicant that 'if we had instituted the class 4 proceedings and we had won, as we ultimately won in the Court of Appeal, we would have got our costs anyway'." 52 These considerations cast doubt on whether r 4 was intended to require the Court, in dealing with Class 1 proceedings, to consider the nature of the issue which was ultimately determinative. However, supposing that it did, it is not possible to infer with any degree of conviction that the rule also mandated (by implication) that the legal question should be given determinative weight as if, in such cases, the rule provided that costs should generally follow the event. 53 The only other way of discerning legal error in the approach adopted by the trial judge was to say that although he treated the nature of the proceedings as a relevant consideration, he failed to give it appropriate weight. As noted by Mason J in Peko-Wallsend, in relation to an administrative decision, "it is generally for the decision-maker and not the court to determine the appropriate weight to be given to the matters which are required to be taken into account in exercising the statutory power": at p 41. His Honour continued: "I say 'generally' because both principle and authority indicate that in some circumstances a court may set aside an administrative decision which has failed to give adequate weight to a relevant factor of great importance, or has given excessive weight to a relevant factor of no great importance. The preferred ground on which this is done, however, is not the failure to take into account relevant considerations or the taking into account of irrelevant considerations, but that the decision is 'manifestly unreasonable'." 54 Care must be taken in translating this approach from judicial review of administrative action, but Mason J expressly identified the similarity in Peko-Wallsend at p 42: "But guidance may be found in the close analogy between judicial review of administrative action and appellate review of a judicial discretion. In the context of the latter, it has been held that an appellate court may review a discretionary judgment that has failed to give proper weight to a particular matter, but it will be slow to do so because a mere preference for a different result will not suffice … ." A similar approach may be identified in the willingness of Gaudron and Gummow JJ in Oshlack to apply to a similar curial discretion the principles derived from Water Conservation and Irrigation Commission v Browning : see [16] above. However, even on that approach, what needs to be established is a statutory implication that his Honour's consideration of a decision as to legal capacity, determined in Class 1 proceedings, manifestly failed to accord it weight proportionate to its importance. For reasons already given, that conclusion cannot be drawn. 55 Absent such a conclusion, it cannot be said that his Honour fell into legal error in addressing the nature of the proceedings in the way that he did. For the purposes of this challenge, the fact that other judges might have reached a different result is beside the point. Consistency in decision-making 56 The second substantial challenge raised by Hunter Development is that there was legal error demonstrated in failing to follow the established principles expounded by McClellan CJ in Gee v Port Stephens Council (in relation to the practice of the Court prior to r 4) and applied by his Honour in Shaynd and Parkes, pursuant to r 4. This argument is not that the rule mandates that a case determined by reference to legal capacity should generally result in costs following the event, but that legal error is demonstrated by a failure to follow established authority in relation to the operation of the discretion. In a sense, this argument invites the conclusion that, so long as the guidelines formulated by the Court do not constitute an illegitimate fetter on the exercise of discretion, the need for consistency in approach requires that they be followed, to avoid legal error. 57 In Wong v The Queen, dealing with a sentencing "guideline judgment" Gleeson CJ (albeit in dissent as to the outcome) stated at [6]: "One of the legitimate objectives of such guidance is to reduce the incidence of unnecessary and inappropriate inconsistency. All discretionary decision-making carries with it the probability of some degree of inconsistency. But there are limits beyond which such inconsistency itself constitutes a form of injustice. The outcome of discretionary decision-making can never be uniform, but it ought to depend as little as possible upon the identity of the judge who happens to hear the case. Like cases should be treated in like manner. The administration of criminal justice works as a system; not merely as a multiplicity of unconnected single instances. It should be systematically fair, and that involves, amongst other things, reasonably consistency." 58 To similar effect, Kirby J, at [89], noted that Mason J in Lowe v The Queen (1984) 154 CLR 606 at 610 had explained that consistency in criminal punishment is "a fundamental element in any rational and fair system of criminal justice". Inconsistency "is calculated to lead to an erosion of public confidence in the integrity of the administration of justice" and is "regarded as a badge of unfairness and unequal treatment under the law". As Kirby J noted, the comments in Lowe related to disparity between the sentences imposed on co-offenders; he continued, however, saying "the principle is one of general application". 59 To similar effect, albeit in dissent, in Oshlack v Richmond River Council, McHugh J at [65] stated: "Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise. As Mason CJ said in Latoudis (170 CLR at 541): 'it does not follow that any attempt to formulate a principle or a guideline according to which the discretion should be exercised would constitute a fetter upon the discretion not intended by the legislature. Indeed, a refusal to formulate a principle or guideline can only lead to exercises of discretion which are seen to be inconsistent, a result which would not have been contemplated by the legislature with any degree of equanimity'." 60 Accepting that, in a particular case, a major inconsistency in approach to the exercise of a discretion within a court may constitute error of law, that principle does not assist Hunter Development in the present case. One needs to look for the reason underlying the disparate approaches. This was not a case of idiosyncratic variation, reflective of individual predilections. Rather, the disparity arises from the view on the part of those who espouse the principles in Gee that the resolution of a question of legal capacity must, as a general rule, result in costs following the event, whereas those who espouse the principles articulated in Outdoor Australia, give that factor no such determinative weight. Rule 4 does not itself distinguish between Class 1 applications which may be decided on "merit review" issues and those which are ultimately determined on questions of legal capacity. Accepting that the distinction is a relevant consideration, and may be a consideration of some importance, authorities which raise it to the level of requiring a particular result fetter the discretion unduly. Accordingly, it cannot be said that there is an error of law in failing to follow those authorities. To the contrary, it is difficult to derive from the principle underlying the rule a policy which would identify questions of legal capacity as definitively different from other legal questions which might be determined by a judge rather than by a commissioner, or to separate cases which turn entirely on the facts from those which may involve mixed questions of fact and law. Each of these classifications may be relevant: the subject matter, scope and purpose of the rule do not require that any be treated as definitive of whether an order that costs follow the event should be made. Conclusions 61 The issues raised by the application for leave to appeal are of some importance and identify differences of approach in the Land and Environment Court. These factors justify a grant of leave to appeal to this Court. However, no error of law has been identified in the reasons of the trial judge with respect to his refusal to exercise the discretionary power to order the payment of costs, pursuant to Part 16, rule 4(2). Accordingly, leave to appeal should be granted, but the appeal should be dismissed with costs. ********** 03/11/2006 - Both solicitors shown as acting for Appellant one amended to read Respondent - Paragraph(s) coversheet 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.