Supreme Court New South Wales Medium Neutral Citation: Dimitrios Michos & Another v Council of the City of Botany Bay (No. 3) [2012] NSWSC 1465 Hearing dates: 20 June 2012 Decision date: 09 July 2012 Jurisdiction: Equity Division Before: Slattery J Decision: Defendant to pay the plaintiffs' costs on an indemnity basis from 25 July 2011. Catchwords: PROCEDURE - costs - indemnity costs - whether the defendant's conduct of the proceedings was so unreasonable that the defendant should pay the plaintiff's costs of the proceedings on an indemnity basis - whether the defendant should pay the plaintiff's costs after 27 June 2011 as a result of the defendant's non-acceptance of the plaintiffs' offer of compromise dated 27 June 2011. Cases Cited: Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 Degman Pty Ltd (in Liq) v Wright (No. 2) [1983] 2 NSWLR 354 Dimitrios Michos & Another v Council of the City of Botany Bay [2012] NSWSC 625 Dimitrios Michos & Another v Council of the City of Botany Bay (No 2) [2012] NSWSC 1464 Harrison v Schipp [2001] NSWCA 13 Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2), [2005] VSCA 298 Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2001] NSWCA 344 NMFM Property Pty Ltd v Citibank (No 1); [2011] 109 FCR 77 Re Wilcox; Ex Parte Venture Industries Pty Ltd (No 2) 1996 72 FCR 151 Vieira v O'Shea (No 2) [2012] NSWCA 121 Category: Costs Parties: First Plaintiff:- Dimitrios Michos Second Plaintiff:- Rene Michos Defendant:- Council of the City of Botany Bay Representation: Counsel: Plaintiffs:- Ian E Davidson SC; Andrew Connolly Defendant:- Paul S Jones Solicitors: Plaintiffs:- Francis Farmakidis - JSM Lawyers Defendant:- Gary Weetman - McCulloch & Buggy File Number(s): 2009/290790 Publication restriction: No Ex TEMPORE Judgment 1This is my third judgment in these proceedings. My principal judgment given on 8 June 2012, Dimitrios Michos & Another v Council of the City of Botany Bay [2012] NSWSC 625, granted a mandatory injunction requiring the defendant to remove fig tree roots from the plaintiffs' property and to prevent further penetration of those fig tree roots into the plaintiffs' property. 2My second judgment on 20 June 2012 dealt with the formal orders to be made: Dimitrios Michos & Another v Council of the City of Botany Bay (No 2) [2012] NSWSC 1464. All relief was granted that day excluding issues of indemnity costs. An order was made that the defendant pay the plaintiffs' costs of the proceedings. But I reserved for further consideration the question of whether the whole or part of those costs should be paid on an indemnity basis. This third judgment is solely concerned with issues as to whether the plaintiffs' costs should be paid on an indemnity basis. 3The plaintiffs put two arguments. Firstly, they say the defendant's conduct was so plainly unreasonable that there should be an order for indemnity costs in respect of the whole of the proceeding leading up to the hearing and the hearing. 4Secondly, the plaintiffs say that they should have an order for indemnity costs after the date of the offer of compromise, 27 June 2011, which was served on the defendant, and which was not accepted and that the result achieved by the plaintiff was more favourable than that unaccepted offer. 5Other alternative arguments are also put. Namely, that the indemnity costs might be awarded on a general discretionary basis under Civil Procedure Act 2005, s 98 because of the offer of compromise even if it does not comply with the rules. Indemnity Costs due to Defendant's Conduct 6As to the first basis, the legal test is clear. A party may have indemnity costs in connection with the actual litigation, if the other party is guilty of plainly unreasonable conduct. Even unconscionable conduct, breaches of fiduciary duty, fraud and other deplorable conduct established in litigation will ordinarily lead to an order for costs on the usual basis and something more must be established for a special order for indemnity costs: Harrison v Schipp [2001] NSWCA 13 at [136] per Giles JA. 7The starting point to any consideration of an application for indemnity costs is: that in the ordinary case costs will follow the event; and that the court will order the unsuccessful party to pay the costs of the successful party on a party/party basis which will fall short of a complete indemnity: Re Wilcox; Ex Parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152-153. The conduct of a party relevant to the issue of indemnity costs is the conduct of a party as a litigant, but the knowledge the party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as a litigant: NMFM Property Pty Ltd v Citibank (No 1); (2001) 109 FCR 77 at 92 [56]). Conduct of an unsuccessful party as litigant may justify an indemnity costs order against that party, for example, where the unsuccessful party's money and the court's time would be wasted on totally frivolous and thoroughly unjustified defences or the maintenance of the proceedings was an abuse of process: Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359. Where an unsuccessful party prolongs the trial by deliberately false defences and allegations of fact, an indemnity costs order may be appropriate: Degman Pty Ltd (in Liq) v Wright (No. 2) [1983] 2 NSWLR 354. 8The plaintiffs puts their argument for indemnity costs for the whole of the proceedings on several bases. They say that there were many prelitigation warnings of the defendant's liability. These are contained in the correspondence to which I have referred in the principal judgment between paragraphs [12] and [52] and also in the annexures to the affidavit of Francis Farmakidis of 14 June 2012 on this application, being the final demands made in August 2009 before the commencement of proceedings. 9Proceedings were commenced on 9 October 2009. There were several warning letters just prior to that commencement. Those letters contain complaints of on-going problems of tree root penetration over many years. They requested the admission of liability for nuisance in order to limit the scope of the dispute and to save costs. 10The plaintiffs' correspondence certainly suggested a reasonable approach to managing this nuisance case. But that does not mean that the defendant's failure to go along with it was automatically unreasonable. Because the defendant's potential liability was in nuisance, even if tree root penetration was proved, there still remained an issue as to the extent of the unreasonable interference with the plaintiffs' use of the land. And even if the requested admission of liability for nuisance had been forthcoming, that would still have meant an extensive contest on the facts about the detail of the damages actually caused to each part of the property. On the extent of the damage the plaintiffs' claim ended up being more extensive than they ultimately made out. The plaintiff failed, for example, in part of its claims in respect of the fences, in respect of the verandah and the stairway area and did not get all of its damages in respect of the lawn. 11It was not unreasonable in my view for the defendant to test at hearing the plaintiffs' claims as to the actual effects of root penetration on their land use and the extent of structural damage to the house and the fence. It is true that the defendant's attitude expressed in correspondence was fairly tough minded and unlikely to be welcome to the plaintiffs, who had waited as the correspondence shows, for some years for action from the council. The defendant's conduct at hearing and shortly before was not unreasonable and of a character which would warrant indemnity costs. 12The defendant says also that the plaintiff refused to supply basic particulars and orders for particulars needed to be obtained. But that would not in my view be a reason not to award indemnity costs if they were otherwise available. That mater seems to me to be in the ordinary course of litigation. 13The plaintiff says too that the defendant put it to proof on every issue and admitted nothing. Certainly the defendant's correspondence may have given that impression. But for the reasons already explained, in my view, the defendant was entitled to explore the extent of the plaintiffs' claim and to test it. The defendant, in testing it, did call an arborist, an engineer and building evidence. It was not as though the defendant simply sat on its hands and refused to engage other than by saying "no". The professional experts on both sides were of good quality in this case, both the ones employed by the defendant and by the plaintiffs. And quantum was clearly in issue. 14I do not accept the plaintiffs' contention that the allegation against the Michos family that they were involved in poisoning one of the trees on Vernon Avenue might be a basis to award indemnity costs against the defendant. That suggestion was faintly made by the defendant at hearing but was not pursued for very long. It did not affect the overall conduct of the proceedings at hearing in my view. Nor does the non-pecuniary nature of the relief change my view. Occasionally there are gaps in the recovery of costs by a successful plaintiff who obtains an injunction. 15Further, the plaintiffs criticised the defendant's conduct at mediation. But not enough is or can be known about what happened in the mediation to draw any reliable inferences about what occurred there. Generally in my view the hearing of the case was conducted with efficiency on both sides and this is not a case in my view where a general indemnity costs order should be made against the defendant on the grounds of its conduct of the proceedings. Indemnity Costs based on the Offer of Compromise 16The alternative claim the plaintiff makes is based upon the Offer of Compromise claimed to be served pursuant to Uniform Civil Procedure Rules (UCPR), r 20.26. The Offer of Compromise served on 27 June 2011 is annexed to the affidavit of Francis Farmakidis of 14 June 2012. It followed a strong 12 May 2010 plaintiffs' letter of complaint about the defendant's progress of the proceedings. 17The plaintiffs claim the Offer of Compromise complies with UCPR, r 20.26 and that the plaintiff has done better than that offer and should receive indemnity costs. The Offer of Compromise provided:- "1. The Plaintiffs offer to compromise all of their claims in these proceedings on the following terms: (a) the Defendant pay the Plaintiffs the sum of $90,000 plus costs as agreed or assessed; (b) the parties consent to the making of the following order by the Court, namely that the Defendant be restrained from allowing the roots from any of the 3 fig trees growing in the verge between the Plaintiffs' land and Florence Avenue or Vernon Avenue, Eastlakes, to encroach onto the Plaintiffs' land as to cause a nuisance. 2. This Offer of Compromise shall remain open for a period of 28 days." 18The issues on this matter the defendant raises are: (1) this was not an Offer of Compromise complying with UCPR, r 20.26; (2) in the alternative, it did not qualify as a Calderbank letter; and (3) it was not unreasonable of the defendant to refuse to accept the Offer of Compromise. So the defendant argues an indemnity costs order should not be made against it. 19One of the fundamentals of compliance with UCPR, r 20.26 is that the plaintiffs must obtain a result better than the offer of compromise. The plaintiffs did obtain a result better than the Offer of Compromise here. The damages awarded were $124,352, compared with the $90,000 in the offer. On any view, the passage of time of about 12 months from the expiry of the Offer of Compromise would not account for the difference between those two amounts. In my view the plaintiff has bettered the money component of the Offer of Compromise. Also the injunction obtained at trial was more extensive than that offer in the Offer of Compromise. 20Also it does contain a genuine compromise when it is compared with the full amount of the plaintiffs' claim then being made. That claim included, among other things, the affidavit of Salvatore Di Bartoli of 25 February 2011 which identified and estimated building costs and the notified claim for loss of amenity that significantly exceeded the offered amount of $90,000. 21So the first question becomes did the Offer of Compromise comply with UCPR, r 20.26. The second question is, if it did, was it unreasonable of the defendant not to accept it. 22In my view the Offer of Compromise does comply with UCPR, r 20.26, because the plain effect of the document is consistent with the operation of UCPR, r 20.26. So much is clear from Vieira v O'Shea (No 2) [2012] NSWCA 121 at [7] which explains that, although an offer does not declare itself to be "exclusive of costs", a mere reference to costs in an offer otherwise complying with the part will not take the offer outside the rules, unless the reference operates inconsistently with the relevant costs rule. In my view, construed in a commonsense way, this offer does not operate inconsistently with UCPR, r 20.26 and is therefore compliant. It is not therefore necessary to answer the question of whether the offer of compromise might work in the alternative in the Calderbank letter. 23The final question is: was it unreasonable of the defendant not to accept the offer of compromise? In my view it was unreasonable of the defendant not to accept the offer. It should have been accepted and indemnity costs will be awarded from 28 days after the date of that offer. 24The applicable principles are clear. The court must consider the factors relevant to determining whether the rejection of offer was unreasonable on a wide basis including those matters set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2), [2005] VSCA 298 and Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2001] NSWCA 344. Those relevant factors include: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it. 25There are many reasons why the Offer of Compromise should have been accepted in this case and it was unreasonable of the defendant to have rejected it. There had been lengthy correspondence between the parties over 10 years, in which the plaintiffs had pointed out the detail of their problems to the defendant. This correspondence is fully detailed in my principal judgment between paragraphs [12] and [52]. The defendant had plenty of opportunity before June 2011 to investigate the problems the plaintiffs' had brought to attention. 26Next there was in the history of contact between these parties a number of implicit concessions of tree root penetration by the defendant identified in my principal judgment. All of these matters indicate a degree of knowledge on the part of the defendant of the existence of a genuine problem and a long standing opportunity to investigate the plaintiffs' claims over a very long period of time. It behoved the defendant in my view when this offer of compromise was served after such a long time, to take a considered decision to act upon it. 27Moreover, enough of the quantum and technical evidence had been served on the defendant in my view for it to take a fair and considered view of the offer. There had been arborist's reports served on the defendant in 2008 as the history in the principal judgment shows. The Di Bartoli report of 25 February 2011 had also been served by then. The defendant criticised the February 2011 Di Bartoli report as not having set out a detailed description of the amounts of money the plaintiffs' claimed. But in my view the Di Bartoli report is broken up in a way that was quite close to the final evidence given in the proceedings, although it was expanded later. 28True it was that the engineering and arborist's reports were served after the expiry of the offer. But in my view, looking at the matter in terms of what was served and what technical evidence was available to the defendant, there was enough for the defendant to act on the offer and it should have done so. 29For those reasons therefore I will award the plaintiff indemnity costs in these proceedings from a date 28 days after 27 June 2011. I order the defendant to pay the plaintiffs' costs on an indemnity basis from 25 July 2011. ********** 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: 30 November 2012