Land and Environment Court New South Wales Medium Neutral Citation: Mosman Municipal Council v Harvey and Fitzgerald [2012] NSWLEC [2012] NSWLEC 83 Hearing dates: 8 March 2011 Decision date: 24 April 2012 Jurisdiction: Class 4 Before: Sheahan J Decision: 1.The applicant Council's summons is dismissed. 2.All parties are to pay their own costs of the proceedings. 3.The applicant Council is to pay the costs of both respondents in respect of the hearing limited to costs on 8 March 2011. 4.Exhibit M1 may be returned. Catchwords: COSTS: Class 4 proceedings resolved extra-curially and lost utility - principles to apply - reasonableness of parties' conduct - costs of costs hearing Legislation Cited: Civil Procedure Act 2005 Environmental Planning & Assessment Act 1979 Local Government Act 1993 Uniform Civil Procedure Rules 2005 Environmental Planning & Assessment Regulation 2000 Mosman Local Environmental Plan Cases Cited: 1643 Pittwater Road Pty Ltd v Pittwater Council [2004] NSWLEC 685 Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 Brent v Levick [2009] NSWLEC 40 Byron Shire Council v MacAdam [2001] NSWLEC 233; (2001) 116 LGERA 418 Calardu Warrawong (Homestarters) Pty Limited v Wollongong City Council & Ors (No 2) [2010] NSWLEC 26 Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 Great Lakes Council v Wilkes [2010] NSWLEC 117 Highland v Labraga (No 3) [2006] NSWSC 871 Jan Yee Australia Pty Ltd v Woollahra Council & Anor [1997] NSWLEC 33 Kiama Council v Grant [2006] NSWLEC 96; (2006) 143 LGERA 441 Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 Lesnewski v Mosman Municipal Council [2005] NSWCA 99; (2005) 138 LGERA 207 Newcastle City Council v Wescombe [2008] NSWLEC 301 One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Pittwater Council v Bolitho [2007] NSWLEC 355 Ray Fitzpatrick Pty Ltd v Minister for Planning (No 5) [2008] NSWLEC 183 Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 J T Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547; [1969] 3 All ER 1122 Sydney City Council v Doltone House Wharf Pty Ltd [2006] NSWLEC 81 Thomson v Mosman Council [1999] NSWLEC 86 Williams v Coffs Harbour City Council [2007] NSWLEC 440; (2007) 155 LGERA 344 Category: Costs Parties: Mosman Municipal Council (Applicant) John Harvey (First Respondent) Paul Fitzgerald (Second Respondent) Representation: Mr R O'Gorman-Hughes (Applicant) Mr I Hemmings (First Respondent) Mr N Eastman (Second Respondent) HWL Ebsworth Lawyers (Applicant) Hones La Hood (First Respondent) Storey & Gough (Second Respondent) File Number(s): 40141 of 2010 Judgment Introduction 1This class 4 challenge was commenced by Council against a land owner (Harvey) and a private certifier (Fitzgerald) on 3 March 2010. Fitzgerald filed a submitting appearance on 16 June 2010. Like many such cases it has a long and rich history. 2The substantive dispute between the parties was ultimately resolved in an extra-curial way, but the Council has chosen not to discontinue the proceedings, nor to seek leave of the court to do so. The proceedings have now lost all utility, and when the matter came on for hearing on 8 March 2011, the Council sought no substantive relief, but pressed for costs from both respondents - a course Mr Eastman (counsel for Fitzgerald) described as both "most unusual" and "procedurally irregular", and probably designed to avoid an almost automatic costs order against it. 3Both respondents resist the Council's claim, but neither seeks costs from the other, nor from Council. Counsel for the respondents agree that the proceedings must be dismissed, once the question of costs has been resolved. 4In order to determine the question of costs, there is clear authority (Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin ("Lai Qin") [1997] HCA 6; (1997) 186 CLR 622 per McHugh J) that the court cannot conduct a hypothetical trial of the substantive questions raised in the proceedings. Because of the complexity of many of these matters and the large amount of communication that takes place between the parties as the trial approaches, it is often difficult for the court to draw the line between a hypothetical trial of the issues and otherwise gaining an impression of the reasonableness of the behaviour on all sides of the proceedings. 5There seems to be no controversy among counsel for the parties that Lai Qin remains good authority on such matters, despite the intervention since 1997 of the Uniform Civil Procedure regime. The absence of a hearing on the merits deprives the parties and the court of the normal factor determinative of costs. In dealing with the matter at hand in Lai Qin, McHugh J acknowledged that it was necessary for him to mention some of the facts of the matter. His Honour said (at 624-625): In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties (3). To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action (4). In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. ... Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. ... If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. 6At 626 his Honour formed an impression that the prosecutrix had an arguable case, but not "strong prospects of success". His Honour continued: If I had to make a prediction about the outcome of her application, I would think that it would probably have failed. However, as I have said it is not the function of a court on a costs application - in most cases at all events - to make a prediction as to the outcome of a hypothetical case. It is enough that an applicant has acted reasonably. (See also Bignold J's judgment in Jan Yee Australia Pty Ltd v Woollahra Council & Anor [1997] NSWLEC 33, and my judgment in Thomson v Mosman Council ("Thomson") [1999] NSWLEC 86). 7It is, therefore, appropriate that I first sketch, in some detail, the history leading to these present proceedings, and the way in which they have been conducted. I have had the advantage of substantial material annexed to various affidavits sworn by the solicitors for the Council and the first respondent, and by the first respondent himself, and can broadly assess the parties' evidence and arguments, without conducting a hypothetical trial: Great Lakes Council v Wilkes ("Wilkes") [2010] NSWLEC 117. Background to the Class 4 Proceedings 8On about 14 July 2006, the first respondent Harvey arranged for the lodgement of a development application ('DA') for "alterations and additions to the then existing dwelling" erected upon a property in the Balmoral area, known as 21A Redan Street, Mosman. 9Three separate objections were made to the DA by a neighbour who happened also to be a councillor and sometime Mayor of Mosman (Mr Strange of No.23 Redan Street). The objections included, amongst other matters, submissions that the DA was not in effect for "alterations and additions", but rather for "a new dwelling". It appears that there were no other written objections lodged by neighbours against the DA in its submitted form. 10On about 17 November 2006, a preliminary assessment by the Council indicated that it would not support proposed extensions to the southern side of the dwelling. These proposed extensions were located immediately to the east of Strange's property. Harvey says they were single storey in nature, and compliant with the height and setback requirements of the Mosman Local Environmental Plan. 11On 15 December 2006, he commenced class 1 proceedings against the Council, appealing against its deemed refusal to grant development consent ('DC'). 12In about January 2007, the Council assessing officer informed Harvey that Council took the view that the development was indeed for a new dwelling. Revised plans were requested. They were prepared and submitted to the Council for assessment on approximately 23 January 2007. 13In a further objection dated 20 February 2007, Strange stated, among other objections, that "it would be most unlikely that the 100 year old walls of doubtful load bearing capacity will be incorporated into the new building given the nature and value of the construction". 14There were negotiations with the Council in regard to its various contentions and Strange's objections, and, on 8 May 2007, Council issued DC for a new dwelling, new pool, garage, fences and landscape works (see tab 5 to Harvey affidavit of 22 February 2011, filed 24 February 2011). The consent included a s 94 contribution, which was subsequently withdrawn/deleted in a modified consent dated 25 June 2007 (Harvey affidavit, tab 6). It has never been suggested that the subject development was/is not permissible. 15Condition 1, attached to the consent, both as originally issued and as modified, required that "the development must be carried out in accordance with the following stamped approved plans and documentation, except where amended by later conditions of consent ...". (Plan No.A03 Rev C is included in the list, having been prepared by Sanctum Design Consultants and bearing the date 23 March 2007). After condition 1A there appears the following: Prior to the release of the construction certificate The following conditions must be satisfied prior to the release of the Construction Certificate. Conditions may require the submission of additional information with the Construction Certificate application. Applicants should also familiarise themselves with conditions in subsequent sections and provide plans in accordance with any design requirements contained therein. Construction Certificate Application Plans 2. Two copies of architectural and Structural Engineer's plans must be submitted with the Construction Certificate application. The structural engineering plans must be signed by a qualified practicing Structural Engineer with corporate membership of the Institute of Engineers Australia or who is eligible to become a corporate member and has appropriate experience and competence in the related field. The plans are to incorporate and note any changes from the approved development application plans as required by conditions of this consent. For applications involving alterations and additions, one set of plans should be coloured which indicate the extent of new works. ... Retaining Walls 5. If soil conditions require it, retaining walls or other approved methods necessary to prevent the movement of soil, together with associated stormwater drainage measures, shall be designed by a civil engineer or other appropriately qualified person. Details of any retaining walls shall accompany plans and specifications submitted with the Construction Certificate application. 16On 29 November 2007, on Harvey's behalf, 'Fitzgerald Building Certifiers' (actually Fitzgerald Building Certifiers Pty Ltd, but herein 'FBC') was appointed as the principal certifying authority ('PCA') for the new dwelling and other works encompassed by the consent. The second respondent Fitzgerald is the principal of that company. 17On 10 December 2007, Fitzgerald issued construction certificate ('CC') 2007/1078 (tab 8). That certificate was forwarded on about 11 December 2007 to the Council. It included architectural plans and engineering details for the structural elements of the works such as retaining walls, and slabs and drainage. Work did not commence until January 2009, and Harvey deposes (par 16) that he was not contacted by the Council, in relation to any concerns or issues regarding the CC dated 10 December 2007, until April 2009. Negotiations during 2009 18On or about 10 January 2009, Harvey received a document on Council letterhead, dated 8 January 2009, and addressed to him at 54 The Grove, Mosman, purporting to be a Notice of Intention to Serve an Order in respect of 21A Redan Street. It referred to the premises as "abandoned", and "not being maintained in a healthy and safe condition", and so a possible harbourage for vermin - there were apparent concerns about overgrown vegetation and disused household items on the property. Council required removal of "putrid"(?) water from a disused pool in the rear yard, removal of all overgrown vegetation located in the front, side and rear yard, and maintenance of the vacant premises in a safe and healthy condition. On or about 11 February 2009, Harvey received two other documents purporting to be orders from the Council (see tabs 9, 10 and 11). 19Harvey sent two letters to the Council dated 17 February 2009, stating that site works were underway for the approved construction works (tabs 12 and 13). He received no response from the Council to those letters, nor was any further action taken by Council regarding the notices or orders it had served (tabs 9, 10 and 11). 20He deposes (par 22) that, in about April 2009, he received a telephone call from the certifier reporting contact from Council regarding the demolition works. At the time, Harvey was reassessing the pace of the project in view of the then current financial conditions. Around the same time Harvey also had a call from someone else (Mathew Bodley) from FBC (followed up by a letter from Bodley to Harvey dated 6 April 2009 - tab 14 - to which Harvey responded in detail on 16 April 2009 - tab 15). 21Fitzgerald was in contact with Harvey again by telephone, and then by letter dated 18 May 2009 (tab 16). He told Harvey that from his inspection there appeared to be work completed which was not consistent with the DC. The letter was in the form of a Notice of Intention to Serve an Order and Harvey responded in detail on 25 May 2009 (tab 17), commenting: "I am not aware of any works that have been conducted on-site which 'are not consistent with Development Consent No.8.2006.249.1'". He went on to explain, and repeated his assertion that there had been no breaches. Some measures had been carried out for safety reasons, and he did "not propose to remove any of the safety measures we have implemented on-site". He contended "that there were no grounds for an Order re non-compliance to be issued". Harvey deposes (par 21) that he received no response from the PCA, and that no further action was taken by either the PCA or the Council regarding that exchange. 22There were further exchanges with the PCA during October (pars 30-41 and tabs 18-25). Some concerned excavation in the north-eastern corner of the site, which resulted in a Notice of Intention to Serve an Order issuing on 8 October 2009 (tab 21). The demolisher responded to that notice. Many of these approaches from the PCA were stated by its representatives to have been sourced from complaints by Mr Strange in No.23. Certainly on 21 October 2009, Fitzgerald spoke to Harvey about concerns at Council level regarding "variations between the development consent and CC. In particular, why has the sandstone basement been demolished?" 23On 23 October 2009, Harvey's consultant structural engineer provided a report to Fitzgerald (tab 24), giving engineering reasons for the variations between the basement plan in architectural plan A03 and the structural plans in the approved CC. Put shortly, the walls and footings were constructed approximately 60 plus years before, "did not meet the requirements of the Australian standard", and were, therefore, not suitable to support the new dwelling "without substantial underpinning". The consultant had opted for the "better solution" which was "to provide new foundation walls that were constructed off a suitable ... reinforced concrete slab that is supported off in-situ rock" (tab 24, p1). The letter also addressed stormwater issues. 24On 21 October 2009, Council Inspector Briggs attended the property and spoke to Harvey's builder, his brother David. On 23 October 2009, Harvey sent a copy of the engineer's report to the Council. Briggs attended the property again on 10 November and apparently suggested to David Harvey that a stop work order would be issued "tomorrow". No such stop work order was ever issued (par 44). 25On 29 October 2009, the PCA issued a further Notice of Intention to Serve an Order (tab 27), and Harvey had his solicitor, Hones LaHood partner Jason Hones ('Hones'), respond on 25 November 2009 (tab 28). Hones's letter of 25 November is 8 pages long and had 7 pages of attachments. On 26 November 2009, Hones wrote in similar terms to the Council (tab 29). On 30 November, FBC wrote to Hones advising that their response to him had been forwarded to the Council "who will decide whether an order should be issued" (tab 30). 26On 9 December 2009, the solicitor for the Council, HWL Ebsworth partner Jane Hewitt ('Hewitt'), wrote to Hones (Annexure 'A' to Hewitt's affidavit of 22 March 2010 - 'Hewitt No 1') saying: We are instructed that work otherwise than in accordance with Development Consent number 8.2006.249.1 and Construction Certificate number 2007/1078 has been carried out by your client at the abovementioned premises. As such your client is in breach of the terms of the Environment (sic) Planning & Assessment Act 1979 ('EP&A Act). We are instructed that work is being carried out otherwise than in accordance with the Development Consent including but not necessarily limited to: The subfloor area to be retained by the Development Consent has been demolished and in its place an entire new floor level of the dwelling has been constructed, this work includes foundations for a lift that has not been approved. Further substantial excavation works have been carried out, and building work has been carried out within these areas out side of the footprint of the approved dwelling. Further, the Construction Certificate is clearly inconsistent with the Development Consent. We note that your client relies on the Construction Certificate as permitting it to carry out the alleged unauthorised works. To this we say that the Construction Certificate capable of being declared void and should not be relied on by your client. Works are being carried out otherwise than in accordance with the purported Construction Certificate in that further extensive excavation works have been carried out. 27Hewitt gave notice that, unless she received a written undertaking from Harvey that work would immediately cease until he obtained DC "for the unauthorised works and/or otherwise regularised the unauthorised works", the court would be approached "for urgent interlocutory orders, to the effect that your client be restrained form (sic) carrying out further work until the requisite development consent is obtained. In addition the Council will seek orders that the Construction Certificate is void and of no effect". 28On the same day, Hewitt wrote to FBC (Annexure 'B') saying: We have been instructed that work has been carried out on the above premises otherwise than in accordance with the Development Consent. In fact works have been carried out which amount to an entire habitable floor of the building in the sub-floor area being constructed which has not been approved. In addition as you are aware all elements of the existing dwelling have been demolished and removed otherwise than in accordance with the Development Consent. There are also increased areas of excavation. We hereby give you notice that we are instructed to approach the Land and Environment Court for urgent interlocutory orders to the effect that the applicants cease the construction of the building until they obtain Development Consent for the work. In addition the Construction Certificate No. 2007/1078 issued by you is not consistent with the Development Consent and the Council will seek orders as to its validity. You may be joined as a party to these proceedings. We will write to the applicant's solicitors advising them of the above. Please advise of your position regarding the above. 29Hones replied to Hewitt on 11 December 2009 (Annexure 'C') in the following terms: For the reasons including, but not limited to, those raised in our letters to both Council (26 November 2009) and our clients principal certifying authority (25 November 2009), our client denies the works that have been carried out at his above property are in breach of his development consent and or that the construction certificate is void (or capable of being declared void). Notwithstanding this, and so as to allay Council's concerns, our client is prepared, without prejudice and or admission, to: (a)Lodge a building certificate with the Council to regularise the works that have been constructed upon the land (in fact we note Mr James Lovell has already been briefed to prepared (sic) such an application); and (b)Give an undertaking upon the terms in the attached draft undertaking. We also enclose a copy of survey reports prepared by our client's surveyor [M. J. Palmer & Associates Pty Ltd dated 2 December 2009 - in Annexure 'C']. Whilst those documents speak for themselves they nevertheless establish that the relevant floor levels are as approved and that the ground floor level, when constructed, will match that approved. 30Negotiations then ensued regarding the appropriate wording of a written undertaking to be given by Harvey. 31On 14 December 2009, Fitzgerald wrote back to Hewitt (Annexure 'D'): Fitzgerald Building Certifiers have carried out inspections at the subject property as required as a Principle (sic) Certifying Authority in response to complaints received by adjoining property owners. The inspections revealed that significant non compliance with the development consent have occurred including additional excavation, complete demolition of the existing structure and construction of foundations for a lift. At no time prior to the complaint had the client Mr John Harvey requested critical stage inspections and as such it was not until acting on the complaint that the issue of non compliance with the development consent was revealed. Fitzgerald Building Certifiers has taken action against the aforementioned issues of non compliances by issuing Mr Harvey with two Notices of Intention to serve an Order, one being for non compliance and the other a stop work order. Under section 109L of the Environmental Planning and Assessment Act, 1979 this is the full extent of the powers of a Principle (sic) Certifying Authority. Undertaking given December 2009 32Agreement was reached on 16 December 2009 regarding the form of undertaking Harvey should give (but see [36] below). It was executed by Harvey on 16 December 2009 and, in its final form, is in the following terms (Harvey, tab 31): The Land: 21A Redan Street, Mosman New South Wales I, JOHN HARVEY of 54 The Grove, Balmoral, New South Wales, without prejudice and or admission, hereby undertake to Mosman Council (the 'Council'), to do, or refrain from doing, or directing to be done, the following things:- 1.Cease forthwith and until 18 January 2010, the carrying out of works upon the Land under or pursuant to Construction Certificate 2007/1078 (the 'CC') and or Development Consent 8.2006.249.1 (the 'Consent') excluding the following works: (a)Backfilling to the basement to the finished ground level or underside of the ground floor slab as applicable with crushed sandstone currently located on the Land; (b)Completion of the ground floor formwork, including laying of steel and in floor plumbing and electrical works, but excluding the pouring of concrete to the ground floor slab; (c)Stormwater drainage works; (d)Landscape works (including retaining walls for landscaping and preparatory site levelling for soft landscaping); and or (e) Construction of the swimming pool. 2.Lodge within 7 days, an application for a building certificate with the Council relating to the basement works as constructed upon the Land. 3.This undertaking shall lapse on 18 January 2010 unless extended by agreement between John Harvey and the Council. 4.I acknowledge that the Council asserts the works excluded in paragraphs 1(a) to (e) have not been authorised by any lawful consent or approval and that it may commence legal proceedings seeking orders requiring the demolition, removal or rectification of those works. This acknowledgement is given without any acceptance on my part that the carrying out of all, or any part of, such works would be, or is, unlawful. 5.Notwithstanding Clause 3 in this undertaking I agree that: (a)In the event that the ground floor slab is to be poured prior to 21 January 2010, I will notify, or cause to be notified, the Council and its solicitors by facsimile transmission and email of that pending occurrence by no later than 3.00pm on 15 January 2010; (b)In the event that the ground floor concrete slab is to be poured after 21 January 2010, I will notify, or cause to be notified, the Council and its solicitors by facsimile transmission and email by no later than 3 business days prior to that occurrence; and (c)The notice requirements in 5(a) and 5(b) above cease to have any force or effect upon the granting or issuance of a building certificate for the basement works referred to in paragraph 2 above. 33On 17 December 2009, Hones wrote to Hewitt advising that he held the executed undertaking, and adding the following comments (Hewitt, Annexure 'H'): For the reasons previously given our client does not admit or accept the assertions raised by Council concerning the lawfulness (or otherwise) of the works carried out or the lawfulness (or otherwise) of the construction certificate for those works. Council's assurance In our previous letter of 16 December 2009 we requested the following assurances from Council. (a)That it (Council) will not seek to set aside the construction certificate whilst ever the undertaking remains on foot; and (b)In so far as the building certificate application is concerned, that the Council deal with that application both efficiently and expeditiously. Your letter of 16 December 2009 did not address those assurances. Prior to providing Council with the undertaking our client requires Council's written assurance of the above matters. 34Hewitt replied on 17 December 2009 (Annexure 'I') giving the assurances on Council's behalf, "provided that your client does not breach the undertaking and/or serve notice regarding the pouring of the slab". 35On 21 December 2009, Hones wrote to Hewitt (Annexure 'K'): We note the assurances given by Council. For the reasons previously given our client does not admit or accept the assertions raised by Council concerning the lawfulness (or otherwise) of the works carried out or of the lawfulness (or otherwise) of the construction certificate for those works. Notwithstanding the above our client now gives the undertakings requested by Council, which we enclose. 36Hewitt sought confirmation (Annexure 'L') that Harvey would give three days notice to Council prior to pouring concrete on or after 18 January 2009 (sic - 2010). Such a provision was not included in the undertaking provided. A corrected undertaking was forwarded later that day (Annexure 'M' - quoted in [32] above). Building Certificate applied for 37On 21 December 2009, Harvey lodged his first building certificate application ('BCA 1') for the basement works as constructed (Harvey tab 32, and Hones Annexure 'A'). 38On 20 January 2010, Hones gave notice to Hewitt that Harvey intended to pour the ground floor concrete slab on 27 January 2010 (Hewitt Annexure 'N'). 39On 25 January 2010, Hewitt wrote to Hones (Annexure 'O' - emphasis added): The Council maintains that the Construction Certificate issued by Paul Fitzgerald is clearly inconsistent with the development consent issued by Council by Notice of Determination dated 8 May 2007. The nature and extent of the differences between the development consent plans and the CC plans, both individually and cumulatively, ought to make it apparent to your client that there is a clear and significant inconsistency between the plans. The Council is currently taking advice with a view to commencing Class 4 proceedings challenging the validity of the CC shortly. If the Council is successful in its challenge, and the Court finds that there is no valid CC, then s.80(12) of the EP&A Act has no operative effect. The Council is concerned about several issues which arise, including the significant increase in floor space that has resulted. The Council has refused your client's application for a building certificate and that refusal sets out the engineering issues which concern the Council. The documents which purport to be structural certificates dated 5 November 2009 and 15 December 2009 are so vague as to be totally inadequate, making no reference to specific plans, no details of when during construction inspection took place and no description of the site instructions issued during construction. Further the impacts on sub-soil drainage resulting from the significant extra excavation have not been examined. We note your advice that your client intends to commence pouring a ground floor slab on 27 January 2010, apparently in accordance with the CC drawings approved by Paul Fitzgerald, which the Council maintains are inconsistent with the development consent. The Council will not seek an interlocutory injunction to restrain this work. Any alteration to the status quo by this construction is not irreparable, nor will there be any irreparable harm to the environment. The Council recognises that it may also be open to your client to lodge a s.96 modification application to seek to modify the development. However, in the absence of a building certificate or approved s.96 modification, your client continues to construct a development which is inconsistent with the development consent. We put your client on notice that any further construction is at his own risk in light of the proceedings foreshadowed by the Council and the uncertainty of the result of any modification application your client may make. 40Although reference is made in that letter to refusal to give a building certificate ('BC'), it is made clear by Hewitt in her second affidavit, dated 16 December 2010 ('Hewitt No 2'), that the Council's refusal of the BCA did not formally occur until on or about 5 February 2010 (see [42] below). 41Nonetheless, Hones responded to the letter on 4 February 2010 (Hewitt No 2 Annexure 'D') saying: Your letter indicates that our client's building certificate application has been refused. This appears to be primarily upon the basis of insufficient/inadequate information, particularly in respect of engineering matters. It is somewhat disappointing that Council took such an approach in circumstances where the application had been prepared with extraordinary speed and haste. We would have thought it would have been more appropriate, and better use of Council resources and rate payers funds, for a request for further information to be supplied rather than outright refusal of the application. Had such a request been made our client would have addressed Councils concerns immediately in the interests of co operating with Council. In any event our client intends to make a further application and to this end has immediately requested further details from his engineer addressing Council's concerns and which will be submitted in addition to the material contained in the refused application. ... our client is entitled to rely upon the Construction Certificate ('CC') and must carry out the building works in accordance with it. Having obtained the CC it would be unlawful for our client not to build in accordance with it. Your comments that the differences between the CC and the consent are obvious is both self serving and rejected. If the differences were so obvious, this then begs the question of why did Council not act for over 2 years. If, as your letter indicates, Council intends to commence to Class 4 proceedings our client reserves the right to tender this letter, and others, on the question of costs and discretion. 42The formal refusal of BCA 1 is contained in a letter from Mosman Council to Harvey's consultant, dated 5 February 2010 (Hewitt No 2 Annexure 'E', and Harvey tab 33). The reasons given in that letter for that refusal (refer EP&A Act s 149D) were as follows: 1.The submitted floor plans show room/areas where there (sic) use is unknown, therefore Building Code of Australia (BCA) compliance in terms of light, ventilation, waterproofing cannot be confirmed. 2.Waterproofing methods of the as-built walls below ground level are unknown. 3.Termite protection methods of the basement slab are unknown. 4.Engineering ramifications of the change to floor plans including the inclusion of a lift are unknown. No engineering details have been sited. 5.The effect of sub-soil drainage due to an increase in excavation and change to floor plans is unknown. 6.Neighbour consultation has not been undertaken and concerns pertaining to siting, scale, bulk and use of rooms has not been determined. Concern has been raised with Council from one adjoining neighbour. Hones deposed that no one, including the BCA author Lovell (see [29] above), received any request from the Council for additional information re BCA 1, nor was any amendment made to the application. 43On 11 February 2010, Hones wrote to FBC (Hones, Annexure 'B') expressing concern with the contents of FBC's letter to Hewitt dated 14 December 2009 ([31] above), especially the second paragraph: In your letter you assert that your inspections revealed significant non compliance with the development consent having occurred including additional excavation, complete demolition of the existing structure and construction of foundations for a lift. Our client has addressed those matters in prior correspondence with you. However, for the sake of clarity and to avoid any doubt, it is relevant to note that your inspections occurred after you issued a construction certificate. That construction certificate approved categorically: (a)a portion (if not all) of the excavation that has been carried out; (b)complete demolition of the foundations for the then existing building; and (c)construction of foundations for a lift. In the circumstances, it is simply incorrect to assert there is non compliance with the consent in circumstances where, as you know, the granting of a construction certificate for works is included and incorporated by reference into a development consent. We are concerned, as is our client and rightly so in our view, that you have made an admission in relation to matters that are simply not correct and which may in future prejudice our client's ability to rely upon the construction certificate. 44Hones went on to invite FBC to retract the admissions, and took issue with the next paragraph of the FBC letter, which he said was "simply not correct": Our client has invited you to attend the property for the purpose of inspection of the excavation and laying of steel and pouring of concrete together with laying of block work. If necessary, affidavit evidence can be adducted on this point. 45The letter goes on to affirm Harvey's reliance upon his previous correspondence with FBC and correspondence issued by Hones in relation to any orders issued by FBC in respect of purported non-compliance. Harvey relies upon the certification of the CC, and the plans in relation to it, and a claim against FBC's professional indemnity insurance is foreshadowed, in the event it is found that the CC was issued invalidly. 46Hones deposes (par 6) that he received no response to that letter. 47Harvey deposes (par 52) that his planning consultant advised Council by letter dated 19 February 2010 that a new (second) building certificate application ('BCA 2') addressing Council's concerns would be lodged in "approximately two weeks" (tab 34, and Hones Annexure 'C'). 48These class 4 proceedings were, as already noted, commenced on 3 March 2010. The class 4 proceedings are commenced 49The summons initiating these proceedings was filed in this court ('the LEC'), on 3 March 2010. Council, acting on legal advice, decided not to seek "an urgent interlocutory injunction" (Hewitt No 2 par 12), but sought the following relief: 1.A declaration that Construction Certificate No. 2007/1078 dated 10 December 2007 issued by Fitzgerald Building Certifiers, Paul Fitzgerald is void and of no effect. 2.An order that the First Respondent by himself, his servants, agents and assigns be restrained from carrying out work on the premises known as 21A Redan Street, Mosman ('Premises') otherwise than in accordance with Development Consent No. 8.2006.2491 unless and until development consent has been obtained for such work. 3.An order that the First Respondent fill in and block up, those rooms in the footing areas in the basement floor of the premises and the excavated area in the north eastern corner of the premises shown hatched in the plans annexed hereto and marked 'A'. 4.Costs. 5.Such further orders as the Court thinks fit. 50Hewitt served Hones with the class 4 application in a letter dated 5 March 2010 (Hewitt No 2 Annexure 'F'), drawing attention to the fact that the Council had "not sought an order for demolition of the unauthorised works" because it acknowledged that its prayers would achieve an outcome "similar to the approved position at significantly less cost". 51In her affidavit No 2, Hewitt says (par 4), on behalf of the Council: 4. Principally the proceedings related to: (a) The fact that work on the premises had been carried out otherwise than in accordance with the Development Consent, in that work which amounted to an entire habitable floor of the building in the subfloor area was constructed which had not been approved. (b)Elements of the existing dwelling had been demolished and removed otherwise than in accordance with the Development Consent. (c) There were also increased areas of excavation. (d)The Construction Certificate issued by the second respondent was not consistent with the Development Consent. 52On 15 March 2010, Hones filed an appearance on behalf of Harvey, and, on 17 March 2010, Storey & Gough filed an appearance on behalf of Fitzgerald. 53Hewitt No 1 was sworn on 22 March 2010, and filed on 25 March 2010. 54The applicant Council filed its Points of Claim ('POC') on 30 March 2010. POC 8 asserted that the CC purportedly issued by the second respondent was inconsistent with the DC. Particulars were provided. POC 9 asserted that by reason of that inconsistency the CC was void and of no effect. 55On 1 April 2010, Hones requested particulars (Hewitt No 2 Annexure 'N'), and, on 20 April 2010, Hewitt provided particulars in a letter (Annexure 'O'), which was stated to enclose "plans prepared by Council relating to the extensive further excavation and demolition of subfloor walls that was carried out by your client purportedly authorised by the Private Certifier". 56The plans attached to the letter were marked up in colour, and additional copies of the two more relevant of them were tendered before me by the Council as Exhibit M1, for the purpose of helping the court understand the "significant differences" between the basement plan approved as part of the DC and the basement plan approved as part of the CC. Hewitt contended that the plans showed the extent of demolition and further excavation beyond that envisaged by the CC, creating an area available to be calculated for additional floorspace, and she attached a three-page schedule of asserted differences allegedly making the CC inconsistent with the DC. 57The DC plan in Exhibit M1 shows the apparent intention to retain the basement walls, with the basement area remaining divided into six spaces. There was a door in the sixth space connecting to a garden and bin store area and the DC plan shows that door being moved. Also depicted on that plan are the replacement of stairs with concrete stairs within a new masonry stairwell. The configuration of those six spaces is entirely different, as is the design of the stairwell area which now incorporates a lift-well and shows stairs in a different position. One of the six spaces is also divided into two, with one of those new spaces becoming a bathroom. Doors are pictured enabling access to all of the sub-floor areas as rooms. The door to the garden and bin store is not shown and the garage is a metre wider. What was shown as a plant room is no longer such, and one of its walls appears to be broken to open into the garage area. 58On 22 April 2010, the Council filed affidavits dated 21 April from Council officers Angelo Falato and Glen Briggs. 59In his Points of Defence ('POD') filed 11 May 2010, Harvey denied both the inconsistency (POD 8), and the assertion of invalidity (POD 9). He also pleaded (in POD 12): Further or alternatively to the matters pleaded above, even if the Court finds that the CC is inconsistent with the Development Consent and declares it is invalid or otherwise finds a breach of the Environmental Planning & Assessment Act and Environmental Planning & Assessment Regulation, the First Respondent says that the Court, in the exercise of its discretion, would decline to grant the relief sought in the Summons. 60In May 2010 and thereabouts, there were also serious arguments about produced material, and a subpoena issued to Council's General Manager. 61In his letter of 13 May to Hewitt (Hones, Annexure 'I', but see also his par 13), Hones formally repeated Harvey's assertion that the Council's proceedings had been brought in bad faith, saying: On material currently at hand it appears that rather than pursuing this matter for a proper purpose Council is rather acting at the behest of its former Councillor, Mr Strange. For example, Council demanded our client's principle (sic) certifying authority issue an order requiring our client complete the demolition of his dwelling quicker than what was being undertaken at that time. Clearly, Council had no authority to make that demand. This is but one example of Council's bad faith. Our client is entitled to pursue, as a matter of discretion, a defence based on bad faith and accordingly any documents which fall within the ambit of the subpoena are relevant in that regard. 62On 16 June 2010, Storey & Gough filed a submitting appearance, save as to costs, on Fitzgerald's behalf. 63Despite directions given on and after 26 March 2010, neither respondent filed any affidavits in the substantive proceedings (by the due date 28 May 2010). Extra-curial events after the proceedings were commenced 64During March 2010, Harvey expressed his concerns, by letter to, and in a telephone conversation with, the Mayor (pars 54 and 55, and tab 35). A second BCA 65On or about 29 April 2010, Harvey lodged BCA 2 with the Council (Hones, Annexure 'D', and [47] above). 66On or about 10 May 2010, Hewitt and Hones discussed the lodgement of a DA on behalf of Harvey, seeking permission to use the basement area ('the basement DA'). Their discussion also embraced BCA 2 as a further part of the possible settlement of the matter (Hewitt No 2, par 20). At some stage during June, Hones told Harvey that Hewitt had informed him that following a discussion with Council, she had been instructed that Council "will not approve the new building certificate application whilst these Class 4 proceedings are continuing" (Harvey, pars 57-58). 67On 21 June 2010, Harvey filed a class 1 appeal with this court against the deemed refusal of BCA 2 (Harvey, par 59, and Hewitt No 2, par 23) - proceedings No.10476 of 2010. A DA and DC for use of the basement 68On or about 29 June 2010, Harvey caused the basement DA to be lodged (8.2010.196.1) with the Council (Harvey, par 60, Hones par 17, and Hewitt No 2, par 24), and, on or about 18 August 2010, he filed a further class 1 appeal with this court, this one appealing against its deemed refusal (Harvey, par 61 and Hewitt, par 26) - proceedings 10654 of 2010. 69On 6 September 2010, Harvey wrote again to the Mayor (Harvey, tab 36), explaining his stand, and noting that, if the Council recommendation of "approval with conditions" were adopted, it would bring to an end the LEC litigation. 70On 7 September 2010, the Council considered its officers' report, and granted DC to the basement DA subject to conditions. The officers' report (Harvey tab 37, and Hewitt No 2 Annexure 'AA') was adopted unanimously by the Council. 71The Executive Summary of the Council officers' report (p2) is as follows: The application seeks consent for use of the constructed basement of a dwelling house for residential purposes. The application has arisen as a consequence of demolition and new construction carried out in circumstances where the demolition exceeded that approved and new construction replaced and expanded upon that approved under DA 8.2006.249.1 which was for a new dwelling house which retained existing sub-floor walls and ground levels. The application is the subject of a Deemed Refusal Appeal to the NSW Land and Environment Court and is listed for callover on 16 September 2010. Council has separately commenced Class 4 (Civil Enforcement) proceedings against the owner and certifier seeking a declaration from the Court that the Construction Certificate issued by the Certifier is null and void, that DA 8.2006.249.1 be complied with and that the various store rooms, rainwater tank room and adjacent sub-floor, bath room and rumpus room be filled in and blocked up. The hearing of this matter has been adjourned until 9 September 2010 pending the determination of the current application. Council's concern with the basement works was raised with the Certifier and owner in October 2009. The construction has continued since that time such that the works are now reaching the preparatory stage for the uppermost level roof slab of the dwelling. Notwithstanding that it has been open to the applicant to modify the consent pursuant to Section 96 of the Environmental Planning and Assessment Act 1979, the applicant has chosen the less usual approach of seeking consent for use instead. Resolution of this application will regularise the work and assist in bringing to a conclusion the civil enforcement proceedings brought by Council. 72In s 7.0 (p12) of the report "Options available to Council", the Council officers said: If the application for use of the basement structure (constructed without/or contrary to the consent) for residential purposes is reasonable, then it may be approved. In so doing, and if accepted by the applicant, the development will be regularised, the Class 1 (Merits Review) proceedings brought by the applicant in respect to this matter may be discontinued, the Class 1 (Merits Review) proceedings in relation to the refused building certificate may be negotiated and the Class 4 (Civil Enforcement) proceedings brought by Council may also be negotiated to a conclusion. If the application for use of the existing basement structure (constructed without/or contrary to the consent) for residential purposes is unreasonable, then it may be refused and in refusing the application the Class 1 (Merits Review) proceedings brought by the applicant in relation to this application and the refused building certificate will continue as will the Class 4 (Civil Enforcement) proceedings. Advice received by Council indicates that there is a reasonable prospect of having the Construction Certificate, the subject of Class 4 proceedings, declared invalid. Arising from such a declaration, the Court then has a wide discretion in terms of the remedy it might give and it is unlikely in the context of there being no environmental harm or adverse amenity impacts that the Court would look to a remedy which involves demolition or in-filling of the basement area. Notwithstanding that the basement has been constructed without/or contrary to the consent, the absence of environmental harm and the poor likelihood of having the work removed or rendered unusable leads to a conclusion that it should be approved. Consequently a determination that regularises the work is recommended. 73The officers' report concluded (section 8.0, p12) that the assessment had been carried out in accordance with the Act, the LEP, the DCP and other relevant policies, but then said: Council has sought to regularise the development since October 2009. The current application lodged on 29 June 2010 represents the first merits submission by the applicant in respect to the basement works and also provides information previously lacking from the refused building certificate application. For reasons best known to the owner, applicant and certifier it has necessitated Council's commencement of civil enforcement proceedings to bring a development application forward for consideration by Council. This assessment finds that the application does not result in environmental harm or adverse amenity impacts. In such circumstances there is no benefit served by its refusal. It is therefore recommended that the application be approved subject to conditions and discontinuance of the Class 1 appeal. 74The DC dated 10 September 2010 (Hewitt No 2 Annexure 'Z') contains the following conditions: 1.The use of the basement and the areas contained therein shall accord with the designation of room use as contained in Plan Number A03, Revision B, dated 23 November 2009 and prepared by Sanctum Design Consultants Pty Ltd. Any change of use within the basement level shall be the subject of a new development application for use. 2.To ensure the additional floor area contained within the basement does result in the development achieving BASIX compliance, a revised certificate shall be provided to Council prior to the issue of an Occupation Certificate for the development. 3.To ensure the use accords with the consent and the Building Code of Australia, a design verification statement shall be provided from an accredited certifier who is independent of the principle (sic) certifier (PCA) confirming that the areas nominated on the plans as: Pool plant store; A/C plant; Store; Plant store; Garage store; Parking store; Garage store; Underground rainwater storage tanks; and Garage have been so constructed or exclude features so as to render them unsuitable for habitable use. In each instance, the statement is to provide details identifying what features prevent use for habitable purposes. The statement is to be provided to Council prior to the installation of the garage door, windows, internal doors and grills which will complete the enclosure of the enclosure (sic) of the basement area. 75On 29 September 2010 (Annexure 'BB'), Hewitt raised another "inconsistency" in the plans, concerning landscaping, and Hones replied on 30 September 2010 (Annexure 'DD'). The second BCA is approved 76On 29 September 2010, Council issued BC No 4.2010.38.1 (Annexure 'CC'), which certified as follows: (a)there is no matter discernible by the exercise of reasonable care and skill that would entitle the council, under the Environmental Planning and Assessment Act 1979 or the Local Government Act 1993: (i)to order the building to be demolished, altered, added to or rebuilt, or (ii)to take proceedings for an order or injunction requiring the building to be demolished, altered, added to or rebuilt, or (iii)to take proceedings in relation to any encroachment by the building onto land vested in or under the control of the council, or (b)there is such a matter but, in the circumstances, the council does not propose to make any such order or take any such proceedings. 77By 5 October 2010, all three class 1 proceedings filed by Harvey had been discontinued (see Annexure 'EE'), and Storey & Gough were invited to become active in the matter again because the question of costs needed to be resolved. 78Harvey deposes (par 64) to a conversation with Hones, on or about 22 October 2010, in which Hewitt indicated to Hones that she was considering amending the summons in these proceedings to seek a declaration that the CC was inconsistent with the DC, "so that she can claim costs from you and the PCA". Hones recommended to Harvey the filing of a Notice of Motion to have the proceedings dismissed, other than the question of costs, and that motion was filed on 26 October 2010. Settlement and costs 79On 13 April 2010, Hones wrote to Hewitt on a "without prejudice save as to costs basis" setting out a detailed settlement proposal (Hewitt No 2 Annexure 'M'). Hones wrote: As you know our client has maintained for some time now that he has a valid and subsisting construction certificate that is not inconsistent with the development consent granted by the Council particularly considering the fact that the Council granted development consent for a new dwelling which is precisely what is being, and has been, constructed on our client's property. Having now considered your client's Points of Claim, our client remains confident that his primary argument regarding the validity of the construction certificate, and his obligations in relation to it, will be substantiated by the Court. Even if that primary position is not correct, our client intends to submit that the relevant test in relation to determining whether or not the construction certificate has been validly granted is a subjective test, and that subjectively speaking, the PCA was reasonably satisfied at the time of the grant of the construction certificate that all the works comprised in the construction certificate were not inconsistent with the development consent granted by the Council. The letter went on to raise ten considerations which Hones suggested would be put to the court on the question of discretion in the event Council was successful in these proceedings. He proposed that the proceedings be discontinued on the basis that each party pay its own costs. He concluded, "to avoid any doubt", that the offer was put on the basis of the so-called Calderbank principles. 80The court can find among the materials before it no specific response to that letter of 13 April, and Council appears to have concentrated on preparation of the various proceedings. The letter is annexed to Hewitt's first affidavit without comment. 81I dealt with the matter, as List Judge, on 22 October 2010, and I noted on the court file that I was told that settlement negotiations were underway. After that mention, the solicitors for the three parties met over coffee to discuss possible resolution of the costs issue. Hewitt made it clear that the Council wanted "some of its costs paid". She foreshadowed an amendment to the summons. Hones made it clear to the others present, that if any application for costs was made it would be defended by Harvey, and he would seek a contribution from Fitzgerald. Hones deposes (in par 20) that he suggested "we should all just walk away". When he reported the conversation to Harvey, he received instructions to file the Notice of Motion seeking to have the Council's proceedings dismissed, and he did so ([78]) above). 82Hewitt wrote to Hones on 27 October 2010 (Annexure 'HH'), saying (par 39 of Hewitt No 2): You have now filed a Notice of Motion returnable on 2 November 2010 which is prior to the date that the class 4 proceedings are listed for mention. With respect, you appear to be promoting unnecessary litigation and increasing the costs of the proceedings given that your offer to the Council in relation to costs was open until 29 October 2010. 83On 28 October 2010, Hones wrote to Hewitt again (Hones par 22 and Annexure 'K'). The letter is stated to be in reply to Hewitt's letter of 27 October 2010. Hones maintained that amendment to the CC on the landscaping issue was not really necessary, but Harvey had agreed to that course. Hones wanted the dismissal or other finalisation of the proceedings to be resolved immediately and if costs could not be agreed, a subsequent application could be made. He indicated that any costs application by the Council would be resisted on grounds including "disentitling conduct on the Council's part in inviting the litigation and/or pursuing it for an ulterior purpose". 84Ultimately, on 29 October 2010 (Annexure 'KK'), after the strike-out NOM was filed, Hewitt wrote to Hones (emphasis mine): We are instructed that the Council will not press for substantive orders in the Class 4 proceedings following the grant of a development application for use of the basement and the approval of the building certificate application but will press its order for costs against the respondents. In our view there is no need for a separate notice of motion on behalf of the Council as there is a prayer for costs in the Class 4 application. 85On 29 October 2010, Hones wrote to Hewitt (Hewitt No 2 Annexure 'LL', and Hones par 22 and Annexure 'L'): We have now received confirmation that our clients (sic) modified construction certificate, incorporating the amended landscape plan, has been approved. In view of this fact, there can be no valid subsisting reason why Council ought not consent to the dismissal of the proceedings with a direction for any application for costs to be made within such time as the Council considers necessary. We invite you to confirm Council consents to our proposed course - such consent would, of course, obviate the incursion (sic) of further unnecessary legal costs. 86Hewitt submits (in her affidavit No 2, at par 47) that Council's stand that the CC be declared void for inconsistency was a position backed by the certifier. By considering and determining the DA and the second BCA (par 48): The Council was able to determine whether the unauthorised work firstly complied with the terms of the Building Code of Australia thus ensuring public safety and safety to the occupiers of the building and the merits of the Application for use of the area. The Development Application for use was granted subject to conditions, which were accepted by the applicant. 87On 4 November 2010, (Hones par 24 and Annexure 'M'), Hones wrote to Storey & Gough as solicitors for Fitzgerald in this matter. (Apparently other solicitors had been retained by Fitzgerald in respect of Harvey's potential professional indemnity claim against him). Hones commented: "As you would also appreciate, any award of costs against our client in these proceedings is intricately linked with the damages he would seek against your client". He proposed a round-table meeting involving all parties and FBC's other lawyers. He indicated that Harvey may seek, in addition to defending an application for costs, an order for costs against either or both of the Council and FBC. Alternatively, Harvey may seek an indemnity from FBC concerning costs: ... on the basis that your client effectively brought the litigation upon the parties. The basis for this proposition is that: (a)in our client's engagement letter to your client, our client identified various departures from the approved plans, in particular: (i)the lift - relevantly the lift was noted as an item your client asserted was inconsistent with the consent in your client's notice of intention to serve an order (the 'NISO'); (ii)the external windows and doors, which elements the Council asserted gave rise to an inconsistency between the consent and the CC; (iii)the fact that the dwelling was for a new house, as opposed to alterations and additions - a new dwelling connoting all new elements as opposed to retaining pre-existing elements. (b)The engineering plans showed all new footings and slabs; (c)The grounds upon which your client purported to issue the NISO were matters he knew, or ought to have known (other than the issue of over excavation which is factually wrong), existed at the time he issued the CC (i.e. your client knew or ought to have know (sic) that the works were for a new dwelling and included a lift); and (d)Your client in his letter to HWL admitted the CC was inconsistent with the consent. The fact that your client may have filed a submitting appearance is not to the point - the fact is, it is reasonably arguable that your client's actions (or inaction as the case may be) brought this litigation and he ought to pay the costs for it. 88When the Council decided not to seek any amendment to its pleadings, the need for Harvey's motion evaporated, and it was not pressed by Hones at the directions hearing on 5 November 2010 before Pepper J. By consent, it was dismissed. The parties were granted leave to approach the Registrar for a hearing date for what was left of the proceedings, and, later that day, 8 March 2011 was fixed. The contest on costs 89As noted above ([2]), the Council submits that it should have an order for costs against both respondents, but neither respondent sought costs from the other, nor from Council. In outlining the respective submissions of the three parties, I will not repeat, in detail, the extensive facts recounted above. The Principles 90Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 makes absolutely clear that orders for costs are designed to "compensate" for costs reasonably incurred, and not to "punish" the other party. Even though costs will often "follow the event", each case turns on its own facts. 91Costs in class 4 proceedings are determined under s 98 of the Civil Procedure Act 2005, and r 42.1 of the Uniform Civil Procedure Rules 2005, unless discontinued, in which case r 42.19 applies a presumption that the discontinuing party will pay the respondent's costs. 92As I have already noted ([3]-[5]), Lai Qin says that the court must not conduct a hypothetical trial in order to determine the burden of costs when a case resolves without a full hearing. 93In Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12, Allsop P said (at [5]): Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible. 94In One.Tel Ltd v Commissioner of Taxation ("One.Tel") [2000] FCA 270; (2000) 101 FCR 548, Burchett J said (at [6]): In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. 95In Australiawide Airlines Ltd v Aspirion Pty Ltd ("Australiawide") [2006] NSWCA 365, Bryson JA said (at [46]) that "costs discretions are truly discretionary and are not closely confined by appellate authority". 96I surveyed much appellate and first-instance authority in Ray Fitzpatrick Pty Ltd v Minister for Planning (No 5) [2008] NSWLEC 183 (at [31]ff), including One.Tel and Australiawide, and observed (at [39]) that: Bryson JA also observed that the law had moved away from "the prescriptive view taken in an earlier age". Each case is determined on its own facts and merits. There is no absolute rule or irrefutable presumption. What may be seen as a "usual" position is not an "invariable" position. The now prevailing "rule" is that "costs follow the event" unless, in its discretion, the court concludes that it should "otherwise order". The "event" has been defined as "the practical result of a particular claim", and the costs discretion must always be exercised judicially, to achieve an outcome which is "just" in all the circumstances. The conduct of the litigation by and on behalf of all parties must be examined to find "entitling" or "disentitling" conduct. The "reasonableness" of their behaviour at each stage must be assessed, in order to decide if costs are to be ordered, and, if so, whether on a party-party or indemnity basis. There is no absolute rule that, in the absence of "disentitling" conduct, a party seen as "successful" in the proceedings will necessarily be compensated for its costs by the unsuccessful party ... (I cited, at that point, Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, and Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497). 97In Kiama Council v Grant [2006] NSWLEC 96; (2006) 143 LGERA 441, Preston J endeavoured to draw together the relevant guiding principles, and said (at [80]): 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. Council's submissions 98There is a serious dispute among the parties as to whether the situation in the present matter is a case of "surrender" or " a supervening event". On "surrender", the Council says that the proceedings required that no work be done otherwise than in accordance with the consent, or a new consent for such work. The first respondent then sought to regularise the work and the use. The use was limited by the consent. Council claims, therefore, that the first respondent effectively surrendered and that the case is very similar to Byron Shire Council v MacAdam ("MacAdam") [2001] NSWLEC 233; (2001) 116 LGERA 418. 99The Council says that it should recover its costs because it was simply not possible for either respondent to deny the inconsistency between the respective DC and CC plans, as approved. Bringing the proceedings to invalidate the CC and stop the work was "the only reasonable way the council could deal with" the situation (Tp31, LL13-15). Council submits that, when it foreshadowed the proceedings, Harvey responded by simply asserting that his development was carried out in accordance with the 2007 CC, and, therefore, also in accordance with the 2007 DC, pursuant to s 80(12) of the EP&A Act, which provides: Effect of issuing construction certificateIf a consent authority or an accredited certifier issues a construction certificate, the construction certificate and any approved plans and specifications issued with respect to that construction certificate, together with any variations to the construction certificate or plans and specifications that are effected in accordance with this Act or the regulations, are taken to form part of the relevant development consent (other than for the purposes of section 96). 100In December 2009, Harvey provided an undertaking, and lodged BCA 1. 101In February 2010, Council refused BCA 1, and then, in March, commenced these class 4 proceedings. 102In April 2010, Harvey lodged BCA 2, and, after the certifier lodged his submitting appearance in the proceedings on 16 June 2010, Harvey lodged a DA in respect of the use of the basement area on 29 June 2010. 103In September 2010, Council granted DC for the basement use, and the BCA in respect of the basement works. That second DC was subject to a specific condition limiting the use of the basement rooms. 104The Council submits that this scenario represents an effective "surrender" by Harvey, Fitzgerald having already "surrendered" by filing a submitting appearance, and that, in the absence of disentitling conduct on its part, it should recover its costs from both. 105Were the scenario to amount to removal of the subject matter of the dispute by a "supervening event", the party almost certain to have succeeded at trial (despite undetermined arguments on "discretion") would recover its costs, unless found to have acted unreasonably. 106The Council submits that, as the 2007 DC and the 2007 CC were "markedly different" in respect of the basement plans, at a time when the EP&A Regulation 2000 cl 145(1) required, in objective (rather than, as formerly, subjective) terms (see [118] below), that the two sets of plans and specifications be "not inconsistent", Council could expect a declaration from the court that the CC was invalid, an assertion the certifier did not dispute in the case. Mr O'Gorman-Hughes, counsel for the Council, says (Tp31, LL22-24) that the inconsistency was "blindingly obvious", and that Harvey "thumbed his nose" at it. 107The failure of Harvey to admit that inconsistency at any time, including his failure to do so in his POD, and the issuing of the CC by Fitzgerald, were all "unreasonable" conduct, and Fitzgerald cannot escape a costs order by filing a submitting appearance, when his error "is the cause of the litigation": Cutcliffe v Lithgow City Council ("Cutcliffe") (2006) 147 LGERA 330, at [50]. 108Council relies upon the differences between the plans which it describes as follows (subs par 16): (a)The 2007 Consent shows a plant room, garage, stairs and storage cupboard. The remaining areas are shown as 'existing sub-floor'. (b)The 2007 Construction Certificate plans show six additional rooms (including a bathroom), a lift, and stairs in a different location to accommodate the proposed lift. (Exhibit M1 makes clear that both the DC and the CC plans were prepared by the same consultants, but not by Fitzgerald). 109Council's delay in taking action cannot be held against it, as the public body responsible to ensure that the EP&A Act is followed, because the key player during the relevant period of delay (2007-2009) was the private certifier. The Council had only a limited role while the PCA was involved. The PCA had a duty to inform, but the Council had no duty to check or otherwise administer the plans. 110Although Harvey's applications were lodged "without prejudice", the use of that term does not mean that Harvey's conduct cannot be a "surrender". The Council's duty is always to deal with applications which comply with the regulations (Tp30, especially LL12-23). 111Council says that it had no reasonable options other than commencing the proceedings, once there was reason to suspect, or apprehend, that a breach of the Act was commencing, occurring, or imminent. 112In his oral submissions, Mr O'Gorman-Hughes acknowledged that probable success in the proceedings had to be viewed against the strength or otherwise of any argument Mr Hemmings may have raised at trial, on behalf of Harvey, on discretion. He also asserted, in respect of Fitzgerald (Tp33, LL30-34): By filing a submitting appearance, in my submission, the certifier can be in no stronger position in arguing that the ultimate outcome that it would have been had it filed points of defence which made various admissions as to the invalidity of the construction certificate. 113The submissions made on behalf of both Harvey and Fitzgerald are summarised in the next two sections of this judgment, and Mr O'Gorman-Hughes made some brief submissions in reply to them, continuing his assertion that the Council simply had to commence the proceedings, in all the circumstances, to stop unauthorised development. Harvey's submissions 114The first respondent, Harvey, does not seek any order for costs, and submits there should be no order for costs at all (Tp37, LL28-30). 115Mr Hemmings, counsel for Harvey, argues that the extra-curial means of resolving the dispute at the heart of these proceedings were agreed upon months before the class 4 proceedings were commenced, when the undertaking was given in agreed terms. Harvey then willingly pursued applications for a BC, and for a DC to use the basement area. 116When the DC and CC are compared, each as a whole, the project having been revised to be a new building rather than "alterations and additions", there are some differences, but no inconsistency, and there were no adverse impacts from the works in the under floor area. Those works were done pursuant to the CC, and were, therefore, lawful at the time - a CC is valid until declared otherwise, and there is still no suggestion that this one is/was invalid. 117When confronted by the problem with the Council, Harvey chose to regularise the challenged works by pursuing the "use DA" option, rather than seeking a s 96 modification of his consent, on the basis of advice he received about the dangers of the latter: 1643 Pittwater Road Pty Ltd v Pittwater Council [2004] NSWLEC 685. 118Harvey submits that the proceedings should have been neither commenced nor maintained. Mr Hemmings points out that had this matter gone to hearing, this would have been the first case to test the change made in Regulation 145 following the Court of Appeal's decision in Lesnewski v Mosman Municipal Council [2005] NSWCA 99; (2005) 138 LGERA 207, in which (at [89]) Tobias JA held that the old subjective test in Regulation 145 meant that it was "clear that whether or not the plans the subject of the construction certificate were in fact 'not inconsistent' with the plans the subject of the consent was not a jurisdictional fact which reg 145(1)(a) required the court to determine for itself". It would have been Harvey's submission that the court should uphold the validity of the CC, and, if that argument failed, he should have been confident of the ultimate exercise in his favour of the court's discretion, on the basis of Pittwater Council v Bolitho [2007] NSWLEC 355. Accordingly, each party should pay its own costs. 119In terms of the parties' conduct, Mr Hemmings submits that the Council behaved unreasonably. It commenced proceedings while an extra-curial solution was being pursued (see Lai Qin at 624). Rather than request further information when considering BCA 1, Council simply refused it. (The BC regime was, in Harvey's submission, the appropriate course to satisfy Council's concerns, justified or misconceived, rather than commencing class 4 proceedings). Faced with that refusal, Harvey lodged BCA 2, but Council declined to deal with it, and he was forced to lodge an appeal. Council relented and granted the BC, so that appeal also did not need to be pressed. As a safeguard, Harvey also sought consent to use the basement as he intended. Again, Council did not deal with the application, and a class 1 appeal was necessary. Before it was dealt with, the DA was approved. These proceedings were unnecessary, and should not have been commenced. 120If there has been a "surrender" at all, it is in the Council's abandonment of the substantive relief sought in the summons. The "supervening event", if there were one, was the completion of a course of action agreed upon, and embarked upon, before the proceedings were commenced. Fitzgerald's submissions 121Mr Eastman's submissions on behalf of Fitzgerald are that there should be no order for costs against him. Costs normally follow the event, and in this case there is either no event, or the event is either the inevitable dismissal of the action, or its effective abandonment, the dispute having been resolved extra-curially. 122Generally no order for costs is made against a defendant who, although named as a proper party, genuinely took no part in the proceedings, filed a submitting appearance, took (in this case) no action to revoke or amend the CC, and issued no order regarding it. Mr Eastman cited four decisions of the Supreme Court as authority for that statement of cost principle. See e.g. Highland v Labraga (No 3) [2006] NSWSC 871. See also Cutcliffe, where Biscoe J dealt with relevant considerations where a DC (c.f. a CC) was challenged, and a submitting appearance was lodged just prior to the hearing. 123Mr Eastman submits that the circumstances in this case resemble those in Sydney City Council v Doltone House Wharf Pty Ltd ("Doltone") [2006] NSWLEC 81, rather than MacAdam. 124Of the three prayers for substantive relief, only the first, seeking a declaration that the CC was void and of no effect, directly involved Fitzgerald. The other two sought orders against only Harvey. The claim against the CC was the subject of POC 8 and 9, and Harvey joined issue with those POC in his POD. Accordingly, the appropriate role for Fitzgerald was to then file a submitting appearance, rather than duplicate Harvey's defence, and he did so. No admissions were made by Fitzgerald, or on his behalf; the Council's position was not conceded by either respondent; and there has been no determination of the question of the CC's validity, or the reasonableness of its issue, a question which is at least "arguable", rather than one to which the answer is "blindingly obvious". 125Lai Qin precludes a hypothetical consideration of the merits. No interlocutory relief was sought, and the Council may indeed have failed at that stage. The ultimate DC was to confirm/ratify use of the rooms, not to build them, and the works done under the CC received the benefit of a BC. Fitzgerald at no stage acted unreasonably. There has been no surrender by either respondent, and, even if both had surrendered, Council would still have to convince the court to make the declaration: Williams v Coffs Harbour City Council [2007] NSWLEC 440; (2007) 155 LGERA 344. 126Council has not even requested the court to grant leave to discontinue, which would bring the costs question within the purview of UCPR 42.19, so the court should now dismiss the proceedings and, as that "event" does not favour the Council, it should not get an order for costs. Consideration 127In my view the authorities clearly indicate that the submissions of both respondents should be accepted, and those of the Council rejected. In fact, on reviewing those authorities, I cannot find one which would suggest that a costs order should be made in favour of the Council in all the circumstances of this case. 128I agree with Mr Eastman that the most comparable case is Doltone, and not MacAdam. The case also has some similarities to some earlier decisions of mine, notably Brent v Levick [2009] NSWLEC 40, which also involved a certifier, and Wilkes ([7]) above), in which I also followed Doltone. See also J T Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547; [1969] 3 All ER 1122. 129In Doltone, the Council sought a declaration that the subject premises were being used as a function centre, and place of public entertainment ('PPE') without the requisite approvals. The respondents contended that the uses were covered by a broadly framed consent, but they made a DA on a "without prejudice" basis (as did Mr Wilkes in his matter) to cover the use actually occurring. Ultimately, the DA was approved, and the class 4 proceedings were discontinued. The PPE matter (in class 2) was resolved by consent orders. Council sought its costs of the class 4 proceedings, and one respondent sought its costs of the class 2 matter. Different tests applied to applications for costs in the two classes. Cowdroy J made no order for costs in either matter. In the class 4 matter, his Honour did not accept that the Council was the "successful party" simply because the company sought the extra approvals. He concluded that both sides had acted reasonably. 130Likewise here, Council was entitled to express concern about the development and the CC. Although entitled to rely on his DC, and his long-unchallenged CC, it was reasonable for Harvey to take the precaution of obtaining a DC for the basement use and a BCA for the building work done. It was reasonable conduct on Council's part to grant those two applications. 131Class 4 proceedings were definitely an available option for the Council, but, having embarked on an extra-curial solution to the problem, they were not necessarily the best or most appropriate option in all the circumstances. They appear to have been threatened only prior to the giving of Harvey's undertaking, and they were, after long inaction, in some respects, "precipitate": Wilkes, Calardu Warrawong (Homestarters) Pty Limited v Wollongong City Council & Ors (No 2) [2010] NSWLEC 26, and Newcastle City Council v Wescombe [2008] NSWLEC 301. 132Unlike the applicant in Thomson, the Council had better alternatives at the relevant time. 133To seek costs from the respondents in all the circumstances is, however, not reasonable conduct in my view, but it has been met by a reasonable approach on the part of the respondents, who simply resisted any costs orders in Council's favour, and sought none in their own. 134Harvey's approach has been not only reasonable: it has been commendably restrained. He was compelled to commence three Class 1 appeals to get Council to attend to the very problem it raised with him, and he was quite unfairly put to the costs involved in defending these Class 4 proceedings. 135The appropriate decision for the court is to now dismiss the substantive proceedings, with no order as to their costs, but to order the Council to pay the costs of both respondents in respect of the costs hearing. Conclusion 136The orders of the court will, therefore, be: 1.The applicant Council's summons is dismissed. 2.All parties are to pay their own costs of the proceedings. 3.The applicant Council is to pay the costs of both respondents in respect of the hearing limited to costs on 8 March 2011. 4.Exhibit M1 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. Decision last updated: 03 May 2012