In my opinion, the practice of the Court in valuation cases should be that no order for costs be made unless exceptional or special circumstances are shown to exist. I agree with Talbot J in Tricas. Precisely what will constitute exceptional circumstances is to be assessed on a case by case basis (Berk v Woollahra Council (No 2) (1992) 78 LGERA 180 at 184). The conduct of a party, whether successful or unsuccessful, may justify a costs award being made; see for example Raiti v Leichhardt Municipal Council (1991) 72 LGRA 333. Clearly costs may be ordered to follow the event of a determination of a question of law."
34 Having reviewed all these authorities, in Maurici Lloyd J ultimately held that the relevant principles were established by decisions of Talbot and Stein JJ and were now settled in the terms of the practice direction. However, Handley JA came to the conclusion that:
"Paragraph 10A of the Practice Direction was not declaratory of the practice of the Court because the reported cases reflected a difference of views on the appropriateness of ordering costs in valuation appeals … Lloyd J considered that this difference had been "settled" by the Practice Direction, but such a document issued by head of jurisdiction is not an appropriate way of resolving differences of opinion on questions such as this. The question could have been resolved by a rule of Court."
35 His Honour went on to say:
"A major difficulty with the practice direction construed as applying to land tax appeals in class 3 is that it purports to impose a rigid fetter on the judicial discretion as to costs conferred by s 69(2). Appellate courts have held more than once that judges should not fetter judicial discretions with self-imposed rigid rules."
36 Handley JA considered the decision of the majority in Oshlack, which noted that s 69(2) was indistinguishable from corresponding provisions in the Supreme Court Act 1970 and earlier legislation in the United Kingdom. Gaudron and Gummow JJ referred to:
"The general proposition that it is inappropriate to read a provision conferring jurisdiction or granting powers to a court by making conditions or imposing limitations which are not found in the words used." (p 81)
37 Handley JA held that paragraph 10A of the Practice Direction, could not be given the effect which Lloyd J gave to it at first instance. As his Honour observed, Lloyd J treated paragraph 10A as applicable to the case before him and confined his attention to the question of exceptional circumstances. This was not an appropriate approach to the exercise of the direction.
38 The approach which Handley JA adopted in relation to paragraph 10A of the Practice Direction is the same approach which in my opinion must be adopted to paragraph 10. Appropriate amendment of the Practice Direction requires urgent consideration. In Maurici, the Court of Appeal remitted the notice of motion seeking costs to the Land and Environment Court, where it was reheard by Lloyd J: Maurici v Chief Commissioner of State Revenue (No 5) (2001) 119 LGERA 395. His Honour said:
"In approaching the resolution of this question I am prepared to ignore the Practice Direction, which has been effectively set aside by the Court of Appeal as being an impermissible fetter on the exercise of the judicial discretion as to costs conferred by s 69(2) of the Land and Environment Court Act. As noted above, that section relevantly provides that costs are in the discretion of the Court."
39 It is now apparent that the resolution of the question before me must have regard to the ordinary principles which should be applied to the making of a costs order in any proceedings in this Court.
40 As Else-Mitchell J and Hemmings J identified in Rio Pioneer Gravel and Raiti, there are reasons why in a Class 1 appeal, in the ordinary course, it is not appropriate to make an order for costs. Where the proceedings are confined to consideration of the merits of a particular application, about which minds may reasonably differ, there are sound reasons to suggest that the conventional approach to orders for costs should not be followed and no costs order should be made. By this approach it is possible to ensure that individuals who have had an application rejected or not considered by the local council or other consent authority have an opportunity to have that decision reviewed without the fear that if they fail they will be ordered to pay the council's costs. The essence of the proceedings is a merit review of a decision of the council or other body where the court is required to exercise the powers of the decision maker and determine the application for itself.
41 However, different considerations seem to me to arise when a council puts in issue whether the application may be lawfully approved. In these circumstances, the council is seeking to raise a question which will either be framed as a pure question of law or as a question of mixed fact and law. In the present case it was submitted, correctly, that a negative answer to the separate question would raise a complete bar to the grant of any development consent. In these circumstances although the applicant seeks a review of the merits of the proposal the proceedings will in respect of the preliminary question take on the character of conventional litigation in which questions of fact and law are determined.
42 In Nahum v North Sydney Municipal Council 1994 83 LGERA 200, Stein J considered the appropriate approach in circumstances where a council had raised a preliminary issue which was a question of law.
43 His Honour was asked to make an order for costs in favour of the council. Stein J drew attention to the fact that Mr Nahum had given evidence in which he indicated at the time when he lodged his appeal the ordinary approach of the Court in class 1 matters was that each party pay their own costs. He also drew attention also to the practice direction to which I have earlier referred. His Honour then said:
"However, the practice is subject to exceptions where special or exceptional circumstances are made out. This is referred to in the practice direction of the Court. No doubt with this in mind, the solicitors representing the council sought, and were diligent in their endeavours, to make Mr Nahum aware of the situation. Namely that there was to be a preliminary question of law regarding the permissibility of the development under the North Sydney Local Environmental Plan 1989. Council emphasised that this issue, restricted solely to the legal question, was to be heard by a judge on a preliminary basis. Furthermore, the council made it clear that it would be relying on the Mayoh decision. Finally, it was their view that the normal practice of the Court regarding costs in class 1 matters did not apply to the determination of preliminary questions of law. As a result if the council were successful it would be asking for its costs of arguing the preliminary issue."
44 His Honour finally concluded as follows:
"There have been a number of occasions when the Court has found that exceptional circumstances have existed justifying an order for costs in class 1 or class 2. The most obvious circumstance is where the conduct of one party is such that causes the other party to incur unnecessary costs. An illustration is where there is discontinuance at the last moment and costs have been wasted or thrown away. When an issue of law has been determined as a preliminary matter on the basis that it might determine the litigation, the parties are obviously saved trouble, time and expense. Similarly, with a referral of a question of law by an assessor under s 36(5) of the Land and Environment Court Act, or an appeal on an error of law by an assessor under s 56A. From my experience in the Court since 1985 it has been normal and I think generally accepted that the Court would see the circumstances as exceptional and requiring a departure from the general practice set out in the direction.
It may be that the practice, if I can refer to it in that fashion, is wrong. Indeed, Mr Green submits that it is because it is inconsistent with the policy of the Court with respect to litigants in classes 1 and 2.
In my opinion, although I have reservations about the role of costs in litigation generally, whatever its nature, I would nonetheless conclude that it is appropriate that if a legal issue is determined as a preliminary matter or on a reference, then it should be seen as an ordinary piece of litigation. This is subject to general discretionary considerations which do not appear to be relevant here,( apart from Mr Nahum's apparent misunderstanding of the nature of the litigation). Costs should follow the event of the determination just as it would in class 4 of the Court's jurisdiction.
In my opinion, there is a simple reason why this is so. There is a clear distinction between merit hearings which involve expert evidence and the corresponding discretionary assessment of issues arising from that evidence and pure issues of law such as one referred by the registrar in this case.
I have no doubt that the intent of the practice direction save in exceptional circumstances was that no order for costs should be made in class 1 and class 2. This was on the basis that it applied to merit hearings by assessors and judges where the issues are of discretionary planning nature determined on the particular merit assessment. The policy embodied in the practice direction was never intended to have application to the determination of pure questions of law."
45 In Cadonia Pty Ltd v Leichhardt Council (Bignold J, NSWLEC, 5 August 1994, unreported), Bignold J considered the decision in Nahum, saying:
"…I think the preferable basis for the decision in Nahum is that the determination of the preliminary question of law constituted exceptional circumstances within the meaning of the Court's Practice Direction. Again with respect, I would proffer a slightly variant formulation to the effect that a reference of a question of law in pending Class 1 or 2 proceedings may constitute exceptional circumstances within the Court's Practice Direction. This variant formulation provides the required flexibility inherent in the wide costs power conferred upon the Court by s69 of the Land and Environment Court Act 1979 and is consistent with the flexibility provided by the Court's Practice Direction."
46 Talbot J subsequently considered both Nahum and Cadonia in Teller Properties Pty Ltd v Randwick Council (1994) 84 LGERA 369 and concluded:
"Whether or not costs orders have been based on an express understanding that determination of a preliminary question of law is, in itself, an exceptional circumstance, is not readily apparent to me. Although the observations by Stein J and Bignold J appear to reflect this possibility, I would prefer to approach the question on a more conventional basis untrammelled by the effect of the Practice Direction.
…
Such a dispute is not confined to the mere exercise of discretion based on merit. It is a determination of the legal rights between the parties. There is no reason, in my opinion, why, in those circumstances, the question of costs should not be decided by the exercise of the Court's discretion in the normal way. This, I suggest, explains the reason why Stein J had little difficulty with principle."
47 With respect, I agree with the approach of Stein J and Talbot J. I add only that I can see no relevant distinction between a preliminary question framed as a pure question of law and a preliminary question such as whether or not the site has existing use rights which may raise questions of both fact and law. The latter type of case is plainly an ordinary piece of litigation which attracts, in my opinion, the same consequences in relation to costs as a pure question of law.
48 There are some decisions of this Court which may not reflect the approach adopted by Stein J. In Outdoor Australia Pty Ltd v Auburn Council (1996) 89 LGERA 365, Pearlman CJ considered the approach to be taken to an application for an order for costs in relation to a preliminary question of law. Her Honour considered the authorities to which she was referred and said this:
"I recognise (as was pointed out in Nahum, Cadonia and Teller ) that there is a distinction between determinations of merit issues on discretionary planning grounds, and determinations of questions of pure law, which in effect declare the legal rights of the parties. But that distinction was not the foundation for the practice direction; rather the practice direction was made to encourage dissatisfied parties to seek review of planning and building decisions by councils without risk of costs if unsuccessful. It is true that, in this Court, questions of law arising in class 1 and 2 are not determined by assessors of the Court but by judges. Questions of law in those proceedings may be identified by the parties at the first call-over( Land and Environment Court Rules 1980 NSW Pt 13, Div 7, r 14), upon which they are referred to a judge for determination or they may arise during the course of proceedings and be referred for determination by a judge of the Court on the parties' motion or the assessor's motion ( Land and Environment Court Act s 36(5). But the fact that judges of this Court decide legal questions and assessors are confined to decisions on the merits of the case does not of itself it seems to me call for a distinction in the awarding of costs. That is because this is one Court and the class 1 or 2 proceedings in which questions of law arise are one set of proceedings.
Furthermore, the determination of a pure question of law may or may not be determinative of the issues between the parties. Often the determination of a legal question settles one aspect of a case (as in the instant case) and the proceedings return to an assessor for determination on the merits in the light of the decided legal issue. Just as often, I think, questions of law in class 1 and 2 proceedings are mixed questions of law and fact, (a matter adverted to by Talbot J in Teller Properties at 372).
Another consideration which militates against the adoption of a principle that costs normally follow the event in respect to the determination of preliminary questions of law is that such a practice may unfairly disadvantage some parties. An applicant who appeals to the Court in belief (derived from the practice direction) that he or she will not be required to pay the respondent's costs may inadvertently find him or herself subject to an adverse costs order as a result of a question of law raised by the respondent which is decided in the respondent's favour even if the applicant is ultimately successful on the appeal. Likewise a respondent council whose decision is vindicated after a merits hearing may nonetheless be subject to an adverse costs order as a result of a hearing on a preliminary point of law.
In Teller Properties, Talbot J pointed out that the alternative to the referral to a judge for determination of a question of law in class 1 or 2 proceedings is for either party to commence class 4 proceedings, where, conventionally, the practice is that costs normally follow the event. Talbot J was concerned that parties should not be forced to commence class 4 proceedings solely to achieve a result with costs. With respect, I do not share this concern because I think that as a matter of practicality a party will not hasten to commence class 4 proceedings where that party is at risk as to costs when, by raising the question of law in class 1 or 2 proceedings that party might not suffer an adverse costs consequence. In Gemstead Pty Ltd v Gosford City Council (1993) 78 LGERA 395 at 399, Cripps JA speculated as to why class 4 proceedings had been commenced in that case where the question of law for determination could have been referred to a judge in the class 1 proceedings. His Honour criticised the respondent council for not raising the question of law at the outset of the class 1 proceedings.
It would derogate from the procedural benefit that Cripps JA was espousing if (as Bignold J pointed out in Cadonia (at 6) parties became reluctant to raise questions of law genuinely in dispute in class 1 or 2 proceedings for fear of being put at risk in costs. The advantage of raising a question of law at the outset of class 1 or 2 proceedings is, of course, that costs may be saved. Such a practice should be encouraged, not discouraged (see in particular the comments of Handley JA in Helman v Byron Shire Council (1995) 87 LGRA 349 at 360."
49 Her Honour then concluded:
"For all these reasons I have concluded that the raising of a preliminary question of law in class 1 or 2 proceedings has the consequence only that is a factor to be taken into account considering whether there are exceptional circumstances. In my opinion, the Court should not be seen to be adopting a practice that costs will normally follow the event in respect of the determination of preliminary questions of law in class 1 or 2 proceedings, nor should the raising of a pure question of law of itself invariably be regarded as constituting exceptional circumstances. Rather, the practice direction should apply to class 1 and 2 proceedings without qualification, and is a matter for the Court on the facts on each case to determine if exceptional circumstances exist which would justify an exercise of the Court's discretion to award costs."
50 Her Honour then proceeded to consider whether in that case there were exceptional circumstances and concluded that exceptional circumstances had not been shown and as a consequence made no order for costs.
51 Having regard to the remarks of Handley JA in Maurici it is doubtful whether the approach which her Honour took in Outdoor Australia, which of course was determined before Maurici, remains appropriate.
52 In Gibson, Talbot J considered the effects of Maurici. He said:
"Freed of the constraint of para10 of the Practice Direction, the Court is obliged to rely on the formulation of guideline principles established by judicial adjudication (see Latoudis v Casey at p541). It is clear that the Court of Appeal had regard to this aspect of the judgment (see Handley JA at para 47 and para 48 in Maurici).
At the time Stein J made his observations in Nahum he was a judge who had enjoyed a long association with the Court. The same can be said about the experience of Bignold J at the time he delivered judgment in Cadonia. No challenge to the identification of the "normal order" referred to by Stein J at p203 in Nahum has been drawn to my attention. I propose to follow Stein J in this case and hold that, in the circumstances, the applicant is entitled to an order for its costs in respect of the preliminary issue."
53 In CSR Limited v Fairfield City Council [2001] NSWLEC 221, Pearlman CJ was again required to consider an application for an order for costs when a preliminary point of law had been raised. On this occasion, her Honour was required to consider the matter having regard to the remarks of the Court of Appeal in Maurici. Her Honour said this:
"Paragraph 10 of the Court's direction in 1993 provides that the practice of the Court is that no order for costs is made in planning and building appeals unless the circumstances are exceptional. Whilst the validity of par 10 remains an open question following the decision of the Court of Appeal in relation to para 10A of the practice direction. (see Maurici v Chief Commissioner of State Revenue [2001] NSWCA 78), I take the view that paragraph 10 remains the practice of this Court and exceptional circumstances need to be established. I also take the view the raising of a preliminary question of law in class 1 proceedings has the consequence only that it is a factor to be taken into account in considering whether there are exceptional circumstances. I am aware that this view is contrary to that taken by Talbot J in Gibson v Mosman Municipal Council [2001] NSWLEC 201 but for the reasons which I set out in Outdoor Australia Pty Limited v Auburn Council (1996) 89 LGECA 365 I would not wish to depart from it."
54 Her Honour then turned to consider whether the raising of the preliminary question of law in the proceedings before her was an exceptional circumstance. She said:
" I turn, then, to consider whether the raising of the preliminary question of law in these proceedings is an exceptional circumstance. The question here, of course, went to the whole basis for the class 1 appeal, and whether that appeal was incompetent. It raised an issue which was fundamental to the proceedings themselves, not simply to the issue of whether or not to grant consent to CSR's application on its merits . It was raised by the council very early in the proceedings, indeed, two weeks after the first callover, and it called the whole proceedings into question. In my opinion, those matters constitute exceptional circumstances, and it follows that the respondents are entitled to an order for costs in their favour." [emphasis added]
55 In Nazero Construction Pty Ltd v North Sydney Council (No 2) (2002) NSWLEC 194 Lloyd J adopted a similar approach to Pearlman CJ. However, his Honour relied upon the Practice Direction in making his decision. It would appear that his Honour was not referred to the decision of the Court of Appeal in Maurici and does not advert to it in his decision.
56 I have already indicated there will be many cases in class 1 and 2 where it is appropriate that there be no order as to costs. In my opinion this is likely to be the case where the issues in dispute are confined to merit considerations. However, a different approach may be required where a preliminary question is raised. If it happens that determination of the preliminary question will assist the commissioner who hears the merits of the matter by defining the content or limits on his or her discretion it is likely that no order for costs should be made. For example, the interpretation of provision of a local environmental plan containing height or floor space controls may be a circumstance where no order should be made. There will be others. However where the preliminary point raised is said to preclude consent at all, the proceedings cease to have the character of merits review and different considerations arise.
57 In the present case, the question of existing use rights was raised by the council. If that preliminary question had been determined in the council's favour, the matter would have come to an end and the applicant would not have been able to pursue a review of the merits of his application.
58 The council chose to put existing use rights in issue in circumstances where for many years it had raised no suggestion of an illegal use and furthermore had represented that the use on the site was lawfully commenced and had continued, at least up until the year 2001. By raising the issue, the council has imposed considerable cost burdens upon the applicant. In the events that transpired, the council came to the realisation that it could not sustain the position it had taken and accordingly consented to appropriate relief confirming that existing use rights existed on this site.
59 It is submitted by the council that there are a number of reasons why an order for costs should not be made or in the alternative only an order for part of the costs should be made. It is submitted that the council was justified in the public interest in raising the matter in order to ensure that the determination of the merits of the application was not founded upon a false premise. It is further submitted that the council should not suffer because it was unable to locate the 1968 building approval until shortly before the hearing, which, once located, had the consequence that a substantial part of the council's case fell away. It is further submitted that the council should receive the benefit of the fact that it made a concession during the course of the hearing rather than pursuing the matter to a conclusion which would have imposed additional costs upon the applicant and of course additional burdens on the Court.
60 I do not accept any of these submissions. As I have indicated, in my opinion in circumstances where a council chooses to put in issue the capacity for approval either by raising a preliminary question of law or as here a preliminary question involving matters of both fact and law, the usual approach to costs in class 1 appeals is inappropriate. By raising the question of capacity to grant an approval the council raises matters appropriate for ordinary litigation, and seeks to avoid consideration of the merits of the application. In such a case, in my opinion, the usual order should be that costs follow the event.
61 With respect to the late stage at which the 1968 approval was found, that of course was a matter entirely within the control of the council. It may be that the council's records have not been effectively maintained and as a consequence there were difficulties in locating appropriate documents but the applicant should not be required to bear the burden of the costs created by that fact. If the applicant had been the owner of the land and carried on the enterprise in 1968, a different approach may have been appropriate. However, the owner in this case is the successor in title and is entitled to expect that the council would have conducted an effective search of its records before it put existing use rights in issue.
62 With respect to the concession made by the council during the course of the proceedings, it is correct that after the relevant facts had been tendered and there was an opportunity for a mature appreciation of their consequences the council conceded. However the court is entitled to expect that this course should be taken by a council once the true situation is appreciated so that any further costs and delay can be avoided. In my opinion the concession does not justify any modification of the appropriate order for costs.
63 Accordingly, I am satisfied that it is appropriate for the Court to order the respondent to pay the applicant's costs of the preliminary question and I so order.