Mason P in [ Rosniak v Government Insurance Office 41 NSWLR 608] at 616:
Later cases have emphasised that the discretion to depart from the usual "party and party" basis for costs is not confined to the situation of what Gummow J described as the "ethically or morally delinquent party" (Botany Municipal Council v Secretary, Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412 at 415): see Baltic Shipping Co v Dillon, "Mikhail Lermontov" [ 1991] 22 NSWLR 1 at 34; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234. Nevertheless the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. Any shift to a general or common rule that indemnity costs should be the order of the day is a matter for the legislature or the rule-maker: Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd [1995] 36 NSWLR 242 at 248.
29 I concluded in Stubberfield No 2 at [23] that indemnity cost orders are not lightly made.
30 The cases relied on by the Glasers in submissions (par 14 of submissions) were as follows:
(a) Cases commenced or continued where there is no chance of success ( Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 at [4]; Westfield Management Limited & Ors v Direct Factory Outlets Homebush Pty Ltd (No 4) at [35]);
(b) Where proceedings amount to an abuse of process ( Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362);
(c) Where the proceedings are commenced other than in good faith or for an ulterior or collateral purpose ( Packer v Meagher [1984] 3 NSWLR 486 at 500);
(d) Behaviour which causes unnecessary anxiety, trouble or expense ( FAI General Insurance Co Ltd v Burns [1996] NSWCA 177; (1996) 9 ANZ Ins Cas 61-384));
(e) Unreasonable conduct, not necessarily amounting to vexatious conduct ( Rosniak v Government Insurance Office (1997) 41 NSWLR 608);
(f) Proceedings commenced or continued in wilful disregard of known facts ( Colgate Palmolive Co v Cussons Pty Limited (1993) 118 ALR 248).
31 Each case must depend on its own facts and the categories of cases where indemnity costs can be awarded are not closed, as reflected in the authorities referred to above where reference is made to unreasonable conduct (per Mason J in Rosniak) or that the interests of justice demand it (per Re Wilcox). A lengthy chronology was helpfully provided and is included above which identifies the relevant actions taken by the respective parties. It is not necessary that I refer to this in detail to resolve the issues between the parties. Considering the abovenamed authorities in relation to the Class 3 proceedings, cases commenced or continued where there is no chance of success can give rise to an indemnity cost orders (par 30(a)). In Hornibrook the Court of Appeal was considering circumstances unlike this matter. Whether the Class 3 proceedings were commenced with no chance of success is not self evident in the sense that the EB Act provides for applications of the kind made by Mrs Poole. As identified by Mrs Poole's counsel, s4(1) provides for compensation to be tripled where an encroachment is found by the Court to be deliberate. Her counsel submitted the proceedings were necessary in order to have any chance of success in the Class 1 appeal against the demolition notice. This must be correct as it is highly unlikely the Court would allow encroaching structures to remain in the absence of consent from the owners whose land is encroached upon in an appeal against a council demolition order (assuming that the Court was otherwise minded to uphold such an appeal). The Class 3 proceedings cannot be described as an abuse of process (par 30(b)). Whether the commencement of the Class 3 proceedings was reasonable in the circumstances I will consider further below.
32 As submitted by Mrs Poole's counsel, the authority relied on for the principle that behaviour causing unnecessary anxiety, trouble and expense justifies an award of indemnity costs, FAI General (at par 30(d) above) is not authority for that proposition. This was clarified by the Glasers' counsel to be a reliance on Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401 where Woodward J held that there can be an ulterior purpose if proceedings are doomed to fail. For the reasons stated in par 31 above, I do not consider there can be a finding of an ulterior purpose in relation to the Class 3 proceedings. I am unclear on the facts before me how par 30(f) (above) applies as there does not appear to be any wilful disregard of known facts in commencing the Class 3 proceedings on Mrs Poole's part.
33 In relation to the Class 4 proceedings, while the Glasers' counsel refers to Mrs Poole's defence as being unreasonable and having no prospects of success, the defence filed admits the relevant breaches. The matters raised are directed to the exercise of the Court's discretion, being claims of minimal encroachment on the Glasers' property, negligible environmental impact, delay in commencing proceedings so that the work was completed, seeking mediation and that offers of compensation have been rejected. Most of those matters are relevant to the exercise of the Court's discretion and were referred to in Glaser No 1.
34 In support of the Class 4 application the Glasers relied on affidavits of Mr Glaser and Mr McGeady, the structural engineer who certified the Pooles' house extensions. In reply they relied on further affidavits of Mr Glaser, Mrs Glaser, Mr Smith (a town planner), Mr McGeady, a report of Mr Wotton valuer, a report of Mr Wright structural engineer, and an affidavit of Mr Cooney, architect, who had worked for the Pooles on the house extensions. Mr Jack Kampel, Mr Glaser's father in law, also swore an affidavit because he was the architect of the Glasers' house and attested to its impact. Mrs Poole is criticised for not seeking to rebut this evidence. There was no requirement on Mrs Poole to respond to the large number of affidavits, including of several experts, filed in reply by the Glasers. As submitted by her counsel, an award of indemnity costs would essentially be requiring parties to dispute all matters another party chooses to place before a court in order to avoid such costs orders.
35 Criticism is also made of Mrs Poole's counsel's submissions in relation to the finalisation of final orders after judgment was delivered. While a further expert report was served this was not relied on before me. To the extent costs were thrown away as a result, these are payable on a party/party basis. There was nothing untoward in the orders sought by Mrs Poole as part of the process of finalising orders on 27 August 2010 to justify an indemnity costs order.
36 There is no particular aspect of the conduct of the proceedings in Class 3 or Class 4 once commenced which suggests that an award of indemnity costs ought be made.
37 The question remains of whether Mr Poole's behaviour in building the unauthorised encroaching structure and Mrs Poole's action in commencing the Class 3 proceedings to attempt to overcome a hurdle to success in the Class 1 appeal, causing the Glasers to be joined in proceedings through no fault of their own, was so unreasonable so as to justify an award of costs on an indemnity basis. I held in Glaser No 1 that Mr Poole acted mistakenly and carelessly but not deliberately and contumaciously. He was very careless given the matters he failed to have regard to before the work was done, particularly in failing to remember that he was told by his architect that development consent would be required, not paying attention to a survey of property boundaries and not ensuring that building work was conducted within Mrs Poole's property boundary, as identified in par [69] of Glaser No 1 above at par 4. The impact on the Glasers' amenity, and potentially their safety, was substantial, as also identified in Glaser No 1. The level of carelessness exhibited by Mr Poole does suggest that the justice of the circumstances justifies an award of costs on an indemnity basis to the Glasers in the Class 3 proceedings.
38 Mr Poole's careless behaviour must also be considered in relation to the Class 4 proceedings. The Glasers chose to commence the Class 4 proceedings, as they were entitled to do. I agree with the submission of Mrs Poole's counsel that this is a neutral consideration as the matters in issue could also have been dealt with in the Class 1 appeal against the Council's demolition notice. I do not consider an award of indemnity costs is justified in the interests of justice in these circumstances.
39 As neither party has been completely successful in its arguments on whether indemnity costs ought be paid, the appropriate costs order for the hearing on indemnity costs is that each party pay its own costs.
Orders
40 The Court makes the following orders:
1. In matter no 30948 of 2009, the Applicant Mrs Poole must pay the Respondents Mr and Mrs Glasers' costs on an indemnity basis.
2. In matter no 40276 of 2010, the Respondent Mrs Poole must pay the Applicants Mr and Mrs Glasers' costs on a party/party basis.
3. Each party must pay its own costs of the hearing on indemnity costs.