Council of The City of Botany Bay v Michos [2013] NSWCA 244 | Case summary

Court of Appeal (NSW)|2013-07-24|Before: Barrett JA, Gleeson JA, Slattery J

Judgment 1BARRETT JA: My reasons for joining in the making of the orders of 24 July 2013 correspond with those given by Gleeson JA. 2GLEESON JA: On 24 July 2013, the Court heard an application for leave to appeal by the defendant below and an application for leave to cross-appeal by the plaintiffs below. Both applications related to a decision of Slattery J to award the plaintiffs costs of the proceedings on an indemnity basis from 25 July 2011. See Michos & Anor v Council of the City of Botany Bay (No 3) [2012] NSWSC 1465. 3At the conclusion of oral argument, the Court ordered that both applications be dismissed, that there is no order for costs in relation to the application for leave to cross-appeal and that the applicant otherwise pay the respondents' costs in this Court. An application by the respondents that the applicant pay the respondents' costs in this Court on an indemnity basis was refused. The reasons for those orders were reserved. My reasons for joining in those orders now follow.

Proceedings below 4The proceedings concerned a claim by the plaintiffs (Mr and Mrs Michos) against the defendant Council that three fig trees, growing on the defendant Council's land adjacent to the Michos' residential property, constituted a nuisance to the Michos' property. The Michos' sought mandatory injunctive relief to put in a root barrier and also damages. 5The claim by the Michos' was successful. In the principal judgment given by Slattery J on 8 June 2012, his Honour granted a mandatory injunction requiring the defendant Council to remove fig tree roots from the plaintiffs' property and to prevent further penetration of those fig tree roots into the plaintiffs' property: see [2012] NSWSC 625. His Honour also assessed damages of $124,352 for physical loss and for claimed loss of amenity. 6In a second judgment given on 20 June 2012, Slattery J dealt with the formal orders to be made by the Court including an order that the defendant pay the plaintiffs' costs of the proceedings, but reserved for further consideration the issue of indemnity costs: see [2012] NSWSC 1464. 7In a third judgment given on 9 July 2012, Slattery J considered the question of whether the whole or part of the plaintiffs' costs should be paid by the defendant on an indemnity basis: see [2012] NSWSC 1465. A number of arguments were advanced by the plaintiffs, of which only two were dealt with by his Honour. 8The first argument was that 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, including the hearing. His Honour found (at [15]) that the circumstances did not warrant a general indemnity costs order against the defendant on the grounds of its conduct of the proceedings. 9The second argument was based on an offer of compromise purportedly served pursuant to r 20.26 Uniform Civil Procedure Rules 2005 (UCPR). His Honour noted the terms of the offer of comprise (at [17]) as follows: "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 three 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." 10 His Honour held (at [22]) that the offer of comprise complied with UCPR, r 20.26 because the plain effect of the document was consistent with the operation of that rule, referring to Vieira v O'Shea (No 2) [2012] NSWCA 121 at [7]. The view expressed in Vieira v O'Shea was 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 rules, will not take the offer outside the rules, unless the reference operates inconsistently with the relevant costs rule. 11Having held that the offer of comprise complied with the rules, his Honour did not consider it necessary to address the question whether the offer might work in the alternative as a Calderbank offer. Nor did he deal with the plaintiffs' alternative argument that indemnity costs might be awarded on a general discretionary basis under s 98 Civil Procedure Act 2005, because of the offer of comprise, even if it did not comply with the rules. 12The primary judge found (at [25]-[29]) that it was unreasonable of the defendant Council to refuse to accept the offer of compromise, and that the appropriate time from which to award indemnity costs was 28 days after 27 June 2011. An order was made that the defendant pay the plaintiffs' costs on an indemnity basis from 25 July 2011.

Application for leave to appeal 13When the application for leave to appeal was originally filed, the applicant contended that leave should be granted because the proposed appeal raised a question of public importance. This question was in regards to resolution of an apparent difference of opinion between two judgments of this Court, Vieira v O'Shea (No 2) and Old v McInness & Hodgkinson [2011] NSWCA 410, as to whether the addition of the words "plus costs as agreed or assessed" in an offer of compromise, had the consequence that the offer did not comply with r 20.26 UCPR. 14The application for leave to appeal was originally fixed for hearing on 20 June 2013. On 18 June 2013, the hearing date was vacated by Barrett JA. At that time, the issue of the proper construction of r 20.26 UCPR was the subject of a reserved decision of a five-member bench of this Court in another appeal. The decision in that appeal was subsequently given on 25 June 2013: see Whitney v Dream Developments Pty Ltd [2013] NSWCA 188. 15On the hearing of the application for leave, the applicant acknowledged that the issue of public importance had now been resolved by this Court's decision in Whitney v Dream Developments. Nevertheless, it submitted that leave to appeal should still be granted, because an injustice would occur absent the correction of the costs order by this Court. It was also submitted that the proposed appeal involved an issue of public importance as to the proper construction of r 40.14 UCPR, notwithstanding that r 20.26(2) and r 42.13A have been amended with effect from 7 June 2013. 16The respondents noted that the applicant did not challenge the respondents' entitlement to an order for costs on the ordinary basis for the entirety of the proceedings below. Consequently, the amount at stake on the proposed appeal would be relatively small, being the difference between the ordinary costs for the period from 25 July 2011 to the end of the trial and the indemnity costs for that period. The respondents contended that this amount was in the order of $51,000. 17The respondents submitted that the costs decision below, although containing incorrect reasoning as to the proper construction of r 20.26 UCPR having regard to Whitney v Dream Developments, was supportable on another basis, namely s 98 of the Civil Procedure Act, and was not properly characterised as an incorrect decision.

Application for leave to cross-appeal 18The respondents' application for leave to cross-appeal was said to be based on new information that came into the possession of the respondents in November 2012, when the defendant Council applied to the primary judge to vary the mandatory injunction because of practical difficulties with implementing a tree root barrier. In its place, an order was made by Slattery J for the removal of the three trees, having regard to what was perceived to be the danger to the Michos' and the public if the tree root barrier was established. This was because additional expert evidence obtained by the Council in the course of investigating compliance with the Court's orders made on 20 June 2012 had revealed a health and satisfy risk existed if the Court's orders were executed in their original form. That is, the establishment of the tree root barrier was likely to lead to the fig trees dying and eventually falling over: [2012] NSWCA 1469. 19As a consequence of the variation of the Court's orders on 27 November 2012, the three fig trees have now been removed by the Council. Notwithstanding this ultimate outcome, the Council pursued its application for leave to challenge the indemnity costs order made below. The Michos' responded by seeking leave to cross-appeal to also challenge the indemnity costs order, because it did not relate to the whole of the proceedings, or for a period commencing earlier than 25 July 2012. 20For the reasons which follow, this litigation must be brought to an end. The orders pronounced by the Court have this effect.

Amount in issue 21There was no direct evidence from the applicant as to the amount of costs in issue, that is, the difference between a costs order on the ordinary basis and that ordered on the indemnity basis from 25 July 2012. The respondents had contended in their response filed 5 November 2012 to the applicant's summons seeking leave to appeal, that the costs consultant engaged by the respondents had calculated the difference as approximately $51,000. This contention did not invoke any response by the applicant. 22Belatedly at the hearing of the application for leave to appeal, the applicant sought to tender a copy of the bill of costs dated 19 November 2012 served by the respondents on or about that date for an amount of $594,421.55. The respondents objected to the tender of this late material of which no notice had been given. 23The applicant submitted that as a "rule of thumb", the difference between indemnity costs and costs on an ordinary basis was 30 per cent. No attempt was made by the applicant to identify what in fact was the amount of costs claimed by the respondents in respect of the period from 25 July 2012. 24Ultimately the applicant did not press the tender of the bill of costs, and the parties were in agreement from the Bar table, that the Court should proceed upon the basis that the difference between the respondents' solicitors' costs on an indemnity basis and an ordinary basis from 25 July 2012 was $50,706.70 and that disbursements including experts' fees totalled $220,348.95. 25The applicant contended that the 30 per cent "rule of thumb" discount also should be applied to the disbursements, such that the indemnity costs element of respondents' experts' fees was approximately $66,000. According to the applicant, when added to the solicitor profit costs of $50,706.70, this meant that the amount in issue was approximately $116,000. 26It may be observed that there was no evidence before the Court which suggested that the experts' fees or other disbursements in this case were unreasonable and would not have been recovered in full as a disbursement on an ordinary basis. Further, there was no evidence that suggested that a 30 per cent "rule of thumb" discount is generally applied to experts' fees or other disbursements upon assessment of costs, or that such a discount should be applied in the present case. It is appropriate to proceed on the basis that the amount in issue is approximately $51,000.

Right of appeal 27An appeal from a judgment or order as to costs only, which are in the discretion of the Court, is only available by leave of the Court of Appeal: s 101(2)(c) Supreme Court Act 1970. Leave is also required where the amount in issue is below the threshold amount of $100,000: see s 101(2)(r).

Principles relevant to leave applications 28The principles governing cases such these are collected by Basten JA (Tobias AJA agreeing) in Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[39]. An applicant for leave must demonstrate something more than the trial judge was arguably wrong in the conclusion arrived at. Ordinarily it is appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general importance or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable. See also Lee v New South Wales Crime Commission [2012] NSWCA 276 at [12] per Bathurst CJ (Macfarlan and Barrett JJA agreeing). 29The need for restraint in granting applications for leave to appeal where the amount in issue is below the threshold of $100,000 has been emphasised by this Court on earlier occasions: see Daily Examiner Pty Ltd v Mundine [2011] NSWCA 126 at [4]-[5] per Macfarlan JA (Basten JA agreeing); Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69. 30In Be Financial, Basten JA at [37] referred to a number of considerations underlying the idea that injustice may be measured on a scale. These included: "37. ... Secondly, injustice involves a balancing exercise. The delay and cost of further litigation will constitute a form of injustice to the successful party below, whatever the outcome of the appellate process. Thirdly, the entitlement of the parties to justice is not unconditional, but is dependent upon the resources of the court made available by the government and the appropriate allocation of resources by the parties, which may depend upon their individual assessments of the importance of the issues in dispute. The parties may well make disparate assessments in a particular case. 38. The last point is reflected in the terms of s 60 of the Civil Procedure Act: '60 Proportionality of costs In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute.' 39. This direction has an important operation in respect of leave applications involving amounts below the statutory threshold. Where, as in the present case, the costs of the trial are disproportionate to the amount in dispute, the incurring of additional costs, for a potentially uncertain return, will be a factor weighing heavily against a grant of leave. Particularly is that so where there is a real prospect that, if successful, an appeal will not resolve the matter but will require a new trial." 31The considerations mentioned above that injustice involves a balancing exercise and the entitlement of parties to justice is not unconditional and must have regard to a number of factors, including the proportionality of the costs involved to the amount in dispute, are very relevant to the present applications for leave.

Applications refused 32The application for leave to appeal was refused in the present case for the following reasons: (a) Although the reasons of the primary judge contain incorrect reasoning on the construction of r 20.26 UCPR (prior to its recent amendment) the decision was arguably supportable on another basis, namely an exercise of the Court's discretion to order costs on an indemnity basis under s 98(1)(c) of the Civil Procedure Act. This alternative ground for ordering indemnity costs was referred to by the primary judge at [5], but was not determined because of his Honour's view that the offer of compromise complied with the rules. The reasons given by the primary judge (at [25]-[28]) as to why it was unreasonable for the defendant Council to have rejected the offer of compromise provide an arguable basis for the primary judge to have exercised the discretion under s 98(1)(c) Civil Procedure Act to arrive at the same costs order. For this reason, it cannot be concluded that the indemnity costs order involves a clear injustice. (b) To the extent that the primary judge erred in his construction of r 20.26 UCPR, the proper construction of the rule is not in doubt following the decision of this Court in Whitney v Dream Developments. (c) The case involved no issue warranting determination by this Court in any broader interest than that of the parties. In particular, r 20.26 and r 41.13A UCPR have since been amended as from 7 June 2013. The present case does not raise any issue of principle or question of general importance. (d) The amount in issue, approximately $51,000, is considerably below the threshold beyond which an appeal as of right is available. When viewed in the wider circumstances of the litigation below it did not warrant a grant of leave. Those circumstances include the fact (as to which there was no dispute) that the successful plaintiffs have had their costs of the trial assessed at $595,000. While these costs have not yet been assessed, there can be no doubt that the costs generated by these proceedings are disproportionate to the issues involved, even allowing for the complexities introduced by the claim for injunctive relief. The incurring of additional costs of an appeal to challenge the defendant's liability for a small portion of the plaintiffs' costs is unwarranted.

Application for leave to cross-appeal 33The application for leave to cross-appeal was refused in the present case for the following reasons: (a) It was not suggested that the primary judge's decision not to order indemnity costs in respect of the whole proceedings, but only from 25 July 2012, was affected by an erroneous view of the law or the facts, the failure to take relevant considerations into account or by taking irrelevant considerations into account, or that the result was plainly unreasonable or unjust. (b) The application for leave relied upon new evidence which had become available since the primary judge's costs decision, but no sufficient basis was demonstrated why the further evidence should be admitted on appeal, particularly having regard to the nature of the proceedings, and the general public interest in the finality of litigation: see Doherty v Liverpool District Hospital (1991) 22 NSWLR 284 at 296; Radnedge v GIO (NSW) (1987) 9 NSWLR 235 at 251-252. The further evidence referred to by the respondents did not falsify any of the factual assumptions basic to the proceedings. It simply reflected that additional expert evidence obtained by the applicant Council in the course of investigating compliance with the Court's orders made on 20 June 2012, revealed a health and safety risk existed to persons such as the respondents and others living in the immediate vicinity of the three fig trees in Eastlakes, if the Court's orders were executed in their original form. (c) The expense of a factual reassessment (or even a new hearing) concerning an application for indemnity costs from an earlier date than 25 July 2012, was not warranted by the amount in issue.

Indemnity costs in respect of leave application 34The respondents sought an order for indemnity costs in relation to the applicant Council's application for leave to appeal. The respondents relied upon a letter, dated 12 June 2013 from their solicitors to the solicitors for the applicant Council, which was said to be in the form of a Calderbank offer to settle the matter on the following basis: "1. The applicant/appellant discontinues its application for leave to appeal. 2. The respondents/cross-applicants discontinue their application for leave to cross-appeal. 3. Each party pays their own costs of all proceedings before the Court of Appeal." 35The offer was expressed to be open for seven days from the date of the letter. At the time the letter was sent, the appeal was fixed for hearing on 20 June 2013. 36The stated rationale of the respondents' offer was that the recent amendment to r 20.26 UCPR meant that there was no longer any public interest in the proper construction of the rule in its previous form. 37The respondents' Calderbank offer proposed a sensible "walk away" compromise of litigation. The proceedings had already taken up considerable time, of both the parties and the Court, and given rise to costs which were disproportionate to the amount in issue. Common sense suggested that it should have been accepted. Unfortunately it was not. The respondents obtained a better outcome on the issue of costs in this Court. Nevertheless, the respondents' application for indemnity costs in respect of the application for leave to appeal was refused in the present case because: (a) The applicant's conduct was not sufficiently "relevantly delinquent" to justify an order for costs to be assessed on an indemnity basis: see Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 89 [44]. (b) At the time of receipt of the Calderbank offer, the hearing date in relation to the applications for leave to appeal and leave to cross-appeal, had not yet been vacated and this Court had not yet given its decision in Whitney v Dream Developments. To this extent, the question of general importance raised by the application for leave to appeal was still alive, and it was not plainly unreasonable for the applicant to pursue the leave application. 38SACKVILLE AJA: I agree with Gleeson JA.

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: 31 July 2013

Council of The City of Botany Bay v Michos

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