Supreme Court New South Wales Medium Neutral Citation: Twelve Walker Street Pty Ltd v Lee (No 2) [2018] NSWSC 273 Hearing dates: On the papers Date of orders: 06 March 2018 Decision date: 06 March 2018 Jurisdiction: Equity Before: Darke J Decision: Application to vary cost order refused Catchwords: COSTS – application for imposition of an easement – ordinary rule that applicant pays costs of proceedings – whether departure from ordinary rule warranted due to defendants' failure on a threshold question and their conduct of defence Legislation Cited: Conveyancing Act 1919 (NSW), s 88K Uniform Civil Procedure Rules 2005 (NSW), r 36.16 Cases Cited: McGrath v Mestousis (No 2) [2018] NSWSC 32 Twelve Walker Street Pty Ltd v Lee [2017] NSWSC 1807 Category: Costs Parties: Twelve Walker Street Pty Ltd (First Plaintiff) Owners Corporation – Strata Plan No 37320 (Second Plaintiff) John Kwong Lee (First Defendant) Yuen Yee Lai (Second Defendant) Representation: Counsel: Mr M Ashhurst SC with Mr G Farland (Plaintiffs) Mr A J McInerney SC with Mr G P Gee (Defendants) Solicitors: Dentons Australia (Plaintiffs) Burrell Solicitors (Defendants) File Number(s): 2017/186035 Publication restriction: None Judgment 1. These proceedings concerned an application by the plaintiffs for orders pursuant to s 88K of the Conveyancing Act 1919 (NSW) imposing an easement for rock anchors over the defendants' land in Rhodes. On 20 December 2017 the Court made orders to that effect, and further ordered that the plaintiffs pay the defendants' costs of the proceedings (see Twelve Walker Street Pty Ltd v Lee [2017] NSWSC 1807 at [125]). 2. On 22 December 2017 the plaintiffs, relying upon Uniform Civil Procedure Rules 2005 (NSW) r 36.16(3A), filed a Notice of Motion seeking to vary the costs order. The plaintiffs thereby sought an order that the defendants pay the plaintiffs' costs of the proceedings. By an Amended Notice of Motion dated 2 February 2018, the plaintiffs advanced two further orders as alternatives, namely, an order that each party bear its own costs of the proceedings, and an order that the plaintiffs pay 50% of the defendants' costs of the proceedings. 3. The parties have provided written submissions on costs in accordance with directions made by the Court. As no party has suggested a further oral hearing is necessary, the Court will deal with the question of costs on the papers. 4. The plaintiffs accept that the starting point is s 88K(5) of the Conveyancing Act which provides that the costs of proceedings under the section are payable by the applicant, subject to any order of the Court to the contrary. The plaintiffs submitted that an order to the contrary should be made, essentially for the following three reasons: 1. the defendants failed on a threshold question, being whether what was sought by the plaintiffs was in truth an easement for the purposes of s 88K of the Conveyancing Act; 2. the defendants failed to comply with various procedural directions made by the Court, resulting in delays to conclaves of experts and prejudice to the plaintiffs' case; and 3. the defendants sought to rely upon evidence that was unnecessary and "obstructive". 1. Both parties apparently accepted that the relevant principles were adequately summarised in McGrath v Mestousis (No 2) [2018] NSWSC 32 at [7]-[9] as follows: It is well established that an order to the contrary as envisaged by s 88K(5) may be made where the defendant has engaged in unreasonable conduct, including conduct that has made the proceedings more expensive (see 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 at 523; Mitchell v Boutagy [2001] NSWSC 1045 at [60]; Khattar v Wiese [2005] NSWSC 1014 at [77]). In considering the reasonableness of the defendant's conduct, it is necessary to bear in mind that the conduct occurred in response to an application which, if successful, would result in the creation of an interest in the defendant's property. It has been held that s 88K bears a confiscatory nature (see, for example, Khattar v Wiese (supra) at [27]). Moreover, even though appropriate compensation is generally required to be paid, an application under s 88K is not analogous to a claim for damages (see Shi v Abi-K Pty Ltd (2014) 87 NSWLR 568; [2014] NSWCA 293 at [98]). Accordingly, it is inappropriate to employ that analogy to determine whether it was unreasonable for a defendant to a s 88K application to fail to accept a Calderbank offer (see Shi v Abi-K Pty Ltd (supra) at [97]-[98]). In Shi v Abi-K Pty Ltd (supra) Basten JA (with whom Barrett and Ward JJA agreed) went on to state (at [98]): The ordinary rule, that the applicant pay the costs of any proceeding, reflects the fact that an applicant for such an order has no right to the grant of an easement over the property of another. Further, the rule that the applicant pay the costs relates to proceedings which could only be brought after all reasonable attempts had been made (presumably by seeking agreement) but have been unsuccessful. The statutory scheme is not consistent with the proposition that an applicant can obtain a right to costs by offering more than the compensation ultimately ordered to be paid as a condition of the easement. The property owner is entitled to refuse to consent to the easement, thereby requiring the applicant to satisfy a court as to the various preconditions, including questions of the public interest, and that the grant of the easement is reasonably necessary in the sense provided by the section. Unless it has done more than reject reasonable offers of compensation, the property owner should not be put at risk of an adverse costs order in those circumstances. 1. Before turning to the particular matters advanced by the plaintiffs, it should be noted that it is not suggested that the defendants rejected any reasonable offers of compensation. In fact, as pointed out by the defendants, it seems that the plaintiffs never offered more than $192,000 in compensation, whereas the Court ultimately concluded that compensation in the sum of $267,000 was appropriate (see the earlier judgment at [115]). 2. It is true that the defendants failed on the question whether what was sought by the plaintiffs was in truth an easement for the purposes of s 88K of the Conveyancing Act (see the earlier judgment at [49]-[66]). Further, it is not inaccurate to describe the question as a threshold one. Had it been answered favourably to the defendants no further questions concerning the operation of s 88K would have arisen. However, I do not accept that the plaintiffs should have their costs on that matter because it went not to the merits, but to the competence, of the proceedings. In my view, the question is properly to be regarded as one to be answered as part of the plaintiffs' application under the section. I do not think that this question should be treated as a special case, even though such a question does not commonly arise in cases under s 88K. Moreover, the defendants did not in my opinion act unreasonably in raising the question, and in any event it was essentially a legal question which should not have significantly contributed to the incurring of costs. 3. The evidence adduced in support of the plaintiffs' application establishes that the defendants failed to comply with certain directions made by the Court for the service of evidence, in particular the orders made on 6 October 2017. On that occasion the matter was set down for hearing to commence on 9 November 2017, and if necessary continue on 11 and 12 December 2017. 4. The orders made on 6 October 2017 required the defendants to serve all their evidence (apart from valuation and town planning evidence) by 25 October 2017, and their valuation and town planning evidence by 1 November 2017. Conclaves of experts were to occur by 1 November 2017 and 6 November 2017. 5. The defendants served some lay evidence on 2 November 2017, and expert evidence on 3 November 2017 and 6 November 2017. Some further evidence was served on 8 November 2017 and on 9 November 2017 during the first day of the hearing. 6. The late service of evidence caused the conclaves to be delayed. They were not able to take place prior to the commencement of the hearing as had been intended. The first day of the hearing was thus confined to the adducing of lay evidence. Further directions were required to be made (on 15 November 2017) to facilitate the adducing of expert evidence when the hearing resumed in December 2017. 7. I am prepared to accept that delays in the service of the defendants' evidence, particularly their expert evidence, are likely to have caused some disruption to the plaintiffs' preparation for hearing, and some additional costs (including in connection with the need for further directions to be made). It is difficult, however, to identify costs of significant magnitude brought about by, or wasted as a result of, those delays. The delays did not lead to any adjournment of the hearing. Little (if any) hearing time was lost. The case was concluded within the first two days allocated to it. It is not suggested that the case could have been dealt with in only one day had the defendants not been late in the service of their evidence. 8. Whilst it is regrettable that the Court's directions were not complied with in a timely manner, the defendants' defaults must be viewed in the context in which they occurred. This context includes the Court allocating relatively early hearing dates (at the urging of the plaintiffs) in light of the nature of the case. The defendants managed to serve a considerable amount of evidence (largely expert in nature) within a fairly short period. I am not prepared to conclude that the delays in the service of evidence were the result of, or themselves amounted to, unreasonable conduct on the part of the defendants. Neither do I think that the delays in the service of evidence brought about any prejudice to the plaintiffs' case. 9. I am also not satisfied that the defendants sought to rely upon evidence that was unnecessary or "obstructive". The defendants, who were responding to an application for the imposition of an interest over their land, were entitled to test the plaintiffs' case. Even though some of the defendants' evidence (including its expert evidence going to the issue of reasonable necessity) did not prevail over the plaintiffs' evidence, and some of the defendants' evidence (including as to potential developments of their property) lacked clarity or was less than firm, I would not characterise the evidence as unnecessary, let alone obstructive. Rather, the evidence was insufficient for the defendants' purposes. Again, I do not regard the defendants' conduct as unreasonable. 10. The matters advanced by the plaintiffs, even when viewed together, do not in my view warrant the making of an order to the contrary of the usual position identified in s 88K(5) of the Conveyancing Act. In my opinion, the appropriate order for costs is that the plaintiffs pay the defendants' costs of the proceedings. It is not necessary to deal with the defendants' contention that the plaintiffs themselves acted unreasonably in certain respects. 11. It follows that the plaintiffs' application to vary the costs order made on 20 December 2017 will be dismissed with costs. ********** 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: 06 March 2018