Supreme Court New South Wales Medium Neutral Citation: Cosco v Hutley [2019] NSWSC 114 Hearing dates: 14, 15 February 2019 Date of orders: 15 February 2019 Decision date: 15 February 2019 Jurisdiction: Equity Before: Kunc J Decision: No order as to costs Catchwords: COSTS — Party/Party — General rule that costs follow the event — Proceedings discontinued or dismissed — Settlement of all issues except costs Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Cosco v Hutley [2017] NSWSC 1343 Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia & Anor ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 Category: Costs Parties: Anthony John Cosco (First Plaintiff) Tania Cosco (Second Plaintiff) Vanessa Marian Hutley (First Defendant) Anthony Gerald Forward (Second Defendant) Representation: Counsel: S. Chrysanthou with N G Olson (Plaintiffs) J Morris SC with M Hamdam (Defendants) Solicitors: D'Arcy Sloman Peacock (Plaintiffs) Harris & Company (Defendants) File Number(s): 2017/230189 Publication restriction: No ex tempore Judgment (revised) 1. The plaintiffs and the defendants are neighbours in Balmain. The plaintiffs (represented by Ms S Chrysanthou of Counsel with Mr N G Olson of Counsel) sue the defendants (represented by Mr J Morris of Senior Counsel with Ms M Hamdam of Counsel) in an action for private nuisance said to arise from the defendants' security cameras allegedly looking into the plaintiffs' backyard and the defendants' kitchen exhaust venting into the plaintiffs' property. The outlet of that exhaust measures 20 centimetres x 20 centimetres (that is, smaller than the dimensions of this A4 page). 2. Most of the first day of the hearing was taken up with settlement discussions. The affidavits had been read and objections ruled on, but cross-examination had not commenced. Given the history of the disputes between them, of which I will say more below, the parties and their legal advisers are to be especially commended for having overcome that history to compromise these proceedings before the commencement of the second day of the hearing. The only matter upon which the parties were able unable to agree was the issue of costs, which was then argued before me and is the subject of these reasons. 3. The agreement between the parties is that the proceedings should be dismissed. The agreement includes an undertaking to the Court not to replace what I might refer to as the offending security camera (which had in fact been removed before the hearing commenced) and not to install any security camera which overlooks the plaintiffs' backyard. It also contains a protocol for the agreed repositioning of the defendants' kitchen exhaust at the expense of the plaintiffs. 4. The plaintiffs submit that because the proceedings are to be dismissed by consent without a hearing on the merits, the Court should apply the well-known decision of Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia & Anor ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 ("Lai Qin"), and otherwise order pursuant to Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") Pt 42 r 42.20 to the effect that there should be no order as to costs with the intention that each party pay their own costs. 5. The defendants rely on a Calderbank offer made on 17 October 2017 and expressed to expire on 30 October 2017 (the "Offer") in support of the submission that they should have their costs of the proceedings on the ordinary basis, and from that latter date on the indemnity basis (or otherwise on the ordinary basis). 6. I will first explain why I reject the defendants' application and begin by stating the obvious. Costs are in the discretion of the Court, although they generally follow the event. That approach is given particular expression in r 42.20 which has been held to be a relevant, but not determinative consideration when proceedings are dismissed with or without a hearing on the merits: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497. Rule r 42.20 includes: "42.20 DISMISSAL OF PROCEEDINGS ETC (1) If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed." 1. The Offer stated: "…We are instructed that our clients are prepared to resolve this matter on the following basis:- 1. Our clients will:- i. Relocate the exhaust vent to the roof of their property at XXX Street, Balmain NSW at your client's cost; and ii. Remove the inoperative surveillance camera mounted on the tree in our clients' backyard. 2. In return your clients will consent to the following orders being made:- i. Plaintiff to provide the Defendants access to their property at XXX Street Balmain for the purpose of repairing the wall following relocation of the vent and any consequential or related works; ii. Proceedings dismissed; and iii. Each party to pay their own costs of the proceedings. This offer is made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and is open for acceptance until 5:00pm on 30 October 2017. In our view this proposal is a far better outcome for your client than they can hope to achieve in the proceedings. Your clients' claim is extremely weak if not hopeless. The exhaust vent is not in breach of any building code or fire safety code. Its operation is an entirely normal and reasonable use in a built-up suburban area such as Balmain and is in no way a nuisance. Further, as advised in our letter dated 21 July 2017, the surveillance camera situated in the tree overlooking our clients' backyard is not operative and even if operative does not view any part of your clients' backyard. Any other surveillance cameras are not visible from your clients' property and does not capture any part of your clients' property. Indeed, the camera on the eave of the roof above the alcove referred to in paragraph 16 of the Statement of Claim was removed many months before the commencement of proceedings. As stated in our letter dated 21 July 2017, the surveillance cameras were installed by recommendation of the NSW Police because of Mr Cosco's ongoing threat to again damage our clients' property. Again, the operation of the surveillance cameras is entirely normal and reasonable and in no way a nuisance. In the event that this offer is rejected and your client does not obtain an outcome materially better than the above offer, our client will rely on this offer in support of an application for costs on an indemnity basis." 1. A Calderbank offer may affect the exercise of the court's discretion as to costs where: 1. The final judgment is no more favourable than the offer; 2. There has been a real element of compromise; 3. Rejection of the Calderbank offer was unreasonable; and 4. The offer makes clear that rejection will be used in support of an application for a special costs order. 1. Correctly, no point was taken by the plaintiffs about the second and fourth of these elements. While the plaintiffs submitted that the negotiated outcome of these proceedings was more favourable than what would have occurred had the offer been accepted (because the settlement included an undertaking not to install any more intrusive cameras), the debate between the parties really focused on the unreasonableness or otherwise of the non-acceptance by the plaintiffs of the Offer. 2. The essence of the defendants' submissions was that the non-acceptance of the Offer was unreasonable because the parties understood that relocating the vent would only cost around $4,000 as opposed to the tens of thousands of dollars each stood to risk in legal fees if the matter went on. For the plaintiffs to decline to accept an offer which involved them paying a few thousand dollars was vastly disproportionate to the costs that would thereafter be spent by both sides (and hence, it was submitted, unreasonable). 3. The plaintiffs submitted that the Offer was too vague to be capable of reasonable acceptance given its silence on precisely to where the vent would be relocated in the roof (in terms of how close to the boundary of the two properties) and what the cost would be. It was not unreasonable to decline an offer which involved assuming an unlimited obligation as to the cost of the works to move the vent. Furthermore, the Offer did not contain any undertaking or promise not to repeat the conduct alleged in relation to the security cameras. 4. Finally, it was said that, in circumstances I will next set out, there was soon to be a mediation which held out the hope of settling other aspects of the disputes between the parties. 5. In response to this last submission, the defendants submitted that reliance on the impending mediation was not reasonable because combining the disputes would only muddy the waters. The Offer represented, the defendants submitted, a "clean" resolution of an important part of the disputes between the parties. 6. Reasonableness of conduct must be determined in a specific factual context. To resolve this application, I find the facts to be as set out in the following paragraphs. 7. The plaintiffs purchased their property in September 2013 with the intention of knocking down the existing dwelling and building a new home. In May 2015 they obtained approval for that redevelopment. Construction of their home commenced in about July 2015 and the plaintiffs moved in from April 2017. 8. It is clear from the evidence that from the very outset of the plaintiffs' attempts to obtain approval for their development, a state of real and escalating conflict with the defendants ensued. By the date of the Offer, that conflict had given rise to at least: 1. Mutual apprehended personal violence orders being taken out by the parties against each other; 2. Between 2015 and 2016, some 17 complaints to the Police made by one side about the conduct of the other; and 3. Not including these proceedings, ten sets of civil proceedings commenced by one side against the other in the New South Wales Local Court, the Land and Environment Court, the District Court and, of particular relevance for what follows, defamation proceedings by one of the plaintiffs against one of the defendants commenced in this Court in November 2016. 1. On 10 July 2017 the solicitors for the plaintiffs wrote to the defendants' solicitors enclosing a draft statement of claim making the allegations which became the subject of these proceedings. That letter made what, with the benefit of hindsight, might be seen as reasonably sensible proposals as to how the question of the kitchen vent and the surveillance cameras might be resolved. That letter included: "It is clear from the prolonged and very unfortunate history between our respective clients that they do not like each other. However, if they are to co-exist as neighbours, it is clear to us that there has to be at least a willingness to compromise, to engage in the process of reasonable give and take and, to that end, to bring an open mind to how disputes between them might be amicably resolved without the need to continue to fight each other in court. In the event of litigation, the court will almost certainly require the parties to attend a mediation and, in view of that that, we see no reason why the mediation should not take place prior to the onset of any further litigation. To that end, our clients would prefer to engage, jointly with your clients, a reputable private mediator." 1. On 21 July 2017 there was a response to the plaintiffs' solicitor's letter which contained a counter-proposal inviting the settlement of disputes relating to the cameras, the vent and other matters. 2. No agreement having been reached, these proceedings were commenced by a statement of claim filed on 28 July 2017. 3. On 15 September 2017 the defamation proceedings to which I referred in paragraph [16(3)] above came before McCallum J, as her Honour then was, in the Defamation List. The issue before her Honour was whether there should be an order requiring the parties to attend a mediation. Her Honour decided that should occur and her reasons were (Cosco v Hutley [2017] NSWSC 1343): "1. HER HONOUR: These are proceedings for defamation between two individuals arising out of a long-standing dispute, which has escalated over time to be quite acrimonious, concerning the plaintiff's construction of a house. 2. I am informed that each of the parties has an apprehended personal violence order against the other and that they are in dispute in other proceedings in addition to these including nuisance proceedings in this Court and proceedings regarding the development. 3. The parties have proposed directions today which are by consent save for a proposal by the plaintiff that the proceedings be referred to mediation. The defendant opposes mediation on the basis that she instructs her legal representatives she would be afraid to be in the same space as the plaintiff. 4. The proceedings cry out for resolution by mediation if that can be achieved. Each party, it would seem to me, has much to lose if the proceedings go beyond the stage that they are presently at. I am mindful of the importance of paying due regard not only to the suggestion of actual risk but to the defendant's mental health if she apprehends risk in the event that she is required to participate in a mediation with the plaintiff. In my respectful opinion, however, that concern can adequately be met by the suggestions proposed on both sides of the bar table as to the manner in which the mediation might proceed. 5. In particular, both counsel, who are experienced and able in this field of the law, agree that a mediation could proceed on the basis that each barrister would open his or her client's position in the absence of that client but for the benefit of the opposing party. If the mediation proceeds in that way, each party will have the benefit of hearing opposing counsel open but neither will be required to sit with the other in the mediation room with the mediator at any point in time. 6. I am satisfied that the mediation could appropriately proceed in that way. On that basis, I am satisfied that the concerns of the defendant should be able to be met and that the greater benefit to be obtained by referring the proceedings compulsorily to mediation is what should be pursued. 7. For those reasons I make the orders sought." 1. The Offer was made on 17 October 2017. 2. On 18 October 2017 these proceedings came before me in the Duty List on the plaintiffs' application that a mediation of these proceedings should occur at the same time as the mediation which McCallum J had ordered. The terms of her Honour's judgment were drawn to my attention. The Court's file does not contain a transcript of what was said to me on that day but I made the following orders over the defendants' objection: "The Court: 1. Refers the proceedings to mediation by a mediator to be appointed by agreement between the parties on the following terms: (1) the mediator is to be the same mediator who has or will be appointed to mediate Common Law Division proceedings 2016/332100 (the "Common Law Proceedings") (2) these proceedings be mediated within the mediation of the Common Law Proceedings and at the same time as the mediation of the Common Law Proceedings; (3) these proceedings are to be mediated by 3 November 2017 or such later date as may be ordered by the Court in relation to the Common Law Proceedings. 2. Each party is ordered to attend the mediation of these proceedings." 1. The Offer expired in accordance with its terms at 5pm on 30 October 2017. 2. By email sent on 31 October 2017 at 11.57pm, the solicitor for the plaintiffs responded: "We refer to your without prejudice letter dated 17 October 2017 [the Offer]. As this matter is now also being mediated on 20 November 2017, along with the defamation matter, we believe it would be more appropriate to discuss the contents of your clients' offer at the upcoming mediation." 1. The Court accepts the plaintiffs' submissions as to why their non-acceptance of the Offer was not unreasonable. In my view, even if one were to remove from the picture the evident bad blood between the parties and look at the terms of the Offer in a relatively clinical commercial way, I accept the submission that some of its terms are not sufficiently clear on important points. That means that it was not unreasonable to have failed to accept the Offer. 2. Having regard to the nature of the dispute between the parties, the failure to specify where in the defendants' roof the relocated exhaust would be vented seems to me to be a matter of some importance. Of even greater importance is the Offer's silence as to the quantum of the costs of the relocation for which the plaintiffs would be liable. I do not regard it as unreasonable for a party not to accept an offer which, if accepted, would impose an unlimited liability for the cost of the building works. 3. As I have said, the view I have expressed in the preceding paragraphs does not take into account the undoubted bad blood between the parties. However, I consider that I am also entitled to take into account, as one of the facts going to the reasonableness of the plaintiffs' conduct in relation to the Offer, the history that had already transpired between the parties that I have summarised in paragraph [16] above. To do so only fortifies me in the conclusion I have reached. In circumstances of such deep animosity, lack of clarity about the matters to which I have drawn attention assumes an even greater importance because it negatives the suggestion that might be made in other cases that some reservoir of goodwill between the parties could be expected to be the source of resolving any practical difficulties about working out what was to occur if the Offer had been accepted. 4. It is a sad fact that when parties have reached the point that there is absolutely no trust between them, it becomes necessary to ensure that every T is crossed and every I is dotted in the terms of any agreement between them. If proof of this is required, I regard it as notable that subsequent offers that were in evidence before me did become specific as to the cost and new location of relocated exhaust vent. 5. Furthermore, it was also not unreasonable for the plaintiffs to fasten upon the opportunity presented by the mediation in the hope that it could settle everything outstanding between the parties. If the disputes were arm's length commercial matters there may have been some force in the defendants' submission about not confusing the issues at a mediation. However, in a dispute between neighbours both they and their lawyers are, in my view, more than justified in placing a premium on trying to resolve everything if that could be done. After all, these parties were going to have to continue living next door to each other. 6. In that regard, I interpret the plaintiffs' solicitor's email of 31 October 2017 (see paragraph [24] above) not as a rejection of the Offer (which was unnecessary because it had not been accepted in accordance with its terms), but rather as an explanation as to why the Offer had not been accepted and an invitation to consider the terms of the Offer at the forthcoming mediation. That approach, in my respectful opinion, was far from unreasonable in the circumstances as I have found them to be at that time. 7. Finally, I also accept the submission that given the history between the parties as it stood as at October 2017, the absence of any undertaking in the Offer not to reposition or reinstall other cameras means that the result of the agreement between the parties that has in fact been reached is a better result for the plaintiffs than they would have achieved if they had accepted the Offer. 8. I turn then to the plaintiffs' application that there should be no order as to costs. This relies on the oft-cited passage from the judgment of McHugh J in Lai Qin (emphasis added; citations omitted): "6. In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. 7. 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. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial 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. 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. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. 8. 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. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. 9. 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." 1. That passage invites attention to the issue of whether both parties had acted reasonably in commencing and defending the proceedings and as to the reasonableness of their subsequent conduct of the proceedings. 2. An innocent bystander to these proceedings might succumb to the temptation to conclude that rather than the parties being reasonable in what they have done, there was an equal degree of unreasonableness on both sides, especially in the case of parties living in circumstances of considerable privilege in one of the most desirable suburbs in Sydney. That innocent bystander might think twice about the reasonableness of people, who I am sure in their ordinary lives are intelligent, educated, reasonable and civil, allowing a dispute between neighbours to escalate out of all proportion compared to what they were arguing about. 3. However, the Court is not in the position of that innocent bystander. The Court must consider the question of reasonableness from a legal point of view. I accept that the circumstances identified by McHugh J in paragraph [9] of Lai Qin exist in the present case. There was, as I have recorded above, pre-action correspondence between the parties in an endeavour to settle the dispute, and thereafter there were offers which clearly evidence a recognition on the part of the parties, their lawyers, or all of them, that things were getting out of hand (including costs) and that resolution of the dispute needed to be explored. While in the events which happened an agreement could not be reached until the end of the first day of the hearing, I am satisfied that nobody acted unreasonably in the sense that would warrant a departure from the approach set out in paragraph [9] of Lai Qin. 4. I do not propose to speculate upon the likely outcome had the matter gone to trial because that would be to do exactly what McHugh J says the Court should not do. However, insofar as the reasonableness of the parties' conduct of the proceedings is concerned, it cannot be said that the legal position of either side was hopeless. 5. As I said in paragraph [2] above, the parties and their legal advisers are to be congratulated for having overcome such an unhappy history to have reached what is plainly a sensible settlement of the issues in dispute between them in this litigation. The parties' conduct of the proceedings being reasonable in the requisite legal sense, the Court is well satisfied that the justice of the case requires that there be no order as to costs. Orders 1. The orders of the Court are: 1. Proceedings dismissed; 2. Note the undertaking of the defendants to the Court by their Senior Counsel in terms of paragraph 2 of the document entitled "Orders" which I have initialled, dated today and direct to be kept with the papers; 3. Note that the Court has determined that there is to be no order as to costs; 4. If no application for leave to appeal from the Court's decision as to costs is filed on or before 1 March 2019, then the amount of $160,000 paid into Court by the plaintiffs as security for the defendants' costs of these proceedings is to be thereafter paid out forthwith to the plaintiffs; 5. If an application for leave to appeal from the Court's decision as to costs is filed on or before 1 March 2019, then the amount referred to in order 4 is to remain in Court pending the agreement of the parties or further order of this Court or the Court of Appeal. ********** 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: 18 February 2019