Without commenting on the remainder of the matters set forth in your letter, please advise as to whether your client is prepared to discuss the operation of the café in a constructive manner."
23 In their written submissions in support of their Notice of Motion, the respondents contend that should the Land and Environment Court exercise its discretion unfavourably towards the appellants and refuse relief, that would be a complete answer to the appellants' claim. They submitted that if that was the ultimate result, it would be unlikely that the appellants would be awarded costs of the proceedings. They submitted, therefore, that the question of costs should not be determined until the remitted proceedings have been determined.
24 The appellants oppose the making of the orders in the Notice of Motion. They submitted that they were successful in all matters determined on the appeal and that the result on the remitted hearing will not affect that result. They further submitted that it was necessary to determine the legal issues raised on the appeal before the question of relief could be determined. They also pointed out, should it be relevant, that all parties had urged the Court to determine the question of the relief that ought to be granted and that it was the Court that had decided that it was not appropriate to do so.
25 The appellants argued that, in any event, the "without prejudice" correspondence upon which the respondents may wish to rely, if they are successful in resisting any orders being made against them, is not relevant to the costs of the appeal, in circumstances where this Court did not entertain the question of the relief, if any, to which the appellants might be entitled.
26 The appellants also submitted that the alternative order (Order 3 of the Notice of Motion) should not be made in circumstances where both parties had requested the Court to deal with the question of relief and the Court had determined not to do so. This submission recognised that both parties had incurred some costs in the preparation of written submissions on the question of the appropriate orders for relief, but that no time had been spent in dealing with the issue during the actual hearing of the appeal.
27 In overall response to the orders sought in the Notice of Motion, the appellants submitted that the Court should not vary the orders it made at the time of giving judgment in the matter. The appellants' claim for costs of the appeal was included in the Notice of Appeal. The parties were advised at an early time during the course of the hearing of the appeal that the Court would not, at least at that stage, hear argument on the form of relief, if any, to which the appellants might be entitled.
28 The "without prejudice" correspondence upon which the respondents stated that they would intend to rely on for the purposes of costs is now before the Court, without any objection from the appellants. The correspondence from the respondents' solicitors did not state that it was "without prejudice except as to costs", which is the usual reservation made when a letter is intended to be relied upon for that purpose. Nor did either letter from the respondents (Annexure B or D) make any reference to costs. Nonetheless, the Court does not consider that the appellants would have been in any doubt that this was the use to which the respondents intended to put the letter, should they be successful on the question of discretion.
29 When a party asks the Court to exercise its discretion as to costs, all relevant circumstances are to be taken into account. Those circumstances include relevant correspondence between the parties relating to settlement of the matter or issues in the matter. That correspondence does not need to be in any set form or embrace any specific formulae. Accordingly, the fact that Annexures B and D were not marked "without prejudice except as to costs" does not deprive them of relevance. What is relevant is the content of the correspondence: see Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [7].
30 The settlement of proceedings is encouraged by the Court and the public policy underlying that encouragement is given effect in appropriate circumstances by making special costs orders where an offer of settlement is made which constitutes a genuine offer of compromise which is unreasonable for the other party to reject: see Computer Machinery Co Ltd v Drescher [1983] 3 All ER 153; [1983] 1 WLR 1379; Cutts v Head [1984] 1 All ER 597; [1984] 2 WLR 349; [1984] Ch 290 at 311; Leichhardt Municipal Council v Green [2004] NSWCA 341; South Eastern Sydney Area Health Service v King [2006] NSWCA 2; Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 339; and Elite Protective Personnel Pty Ltd v Salmon.
31 In this case, the respondents did not make an offer of settlement as such. Rather, they invited the appellants to enter into constructive discussions as to the operation of the café. It is apparent from the correspondence that they were prepared to discuss the appellants' amenity concerns and, depending upon those concerns, to see if they could be addressed in some way. The offer was made on two assumptions: first, that the appellants would not succeed in their legal challenge as to lawful use; or alternatively, even if that challenge was successful, the Court would not exercise its discretion to require the respondents to cease operation of the café on the premises.
32 The respondents' first assumption was wrong. The Court has found the use to be unlawful. The second assumption is yet to be tested in the remitted proceedings. The Court's determination that the use is unlawful is of relevance beyond these proceedings. Even if the Court refuses the injunctive relief the appellants seek, that relief will not be of benefit to later users of the premises. Accordingly, it cannot be said that, if the Court on the remitted hearing refuses the appellants' claim for injunctive relief, that will be a complete answer to the appellants' claim. It will be an answer as between the appellants and respondents.
33 There is another factor which is relevant to the Court's consideration of this issue. There is authority in this Court that pre-trial settlement offers do not necessarily continue to operate for the purposes of an appeal. Generally, if an offer is not renewed (either in the same or different terms) prior to the appeal, the Court will not make a special costs order in respect of the appeal: see Brymount Pty Limited t/a Watson Toyota v Cummins; Young Shire Council v Cummins (No 2) [2005] NSWCA 69; Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160; Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379; and Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194. However, as costs are within the discretion of the Court: Uniform Civil Procedure Act 2005, s 98; a pre-trial offer may be relevantly persuasive in the exercise of that discretion, depending upon all of the circumstances.
34 In this case no further 'offer' was made following the first instance determination in the Land and Environment Court. Nor was any offer made that addressed in any concrete way the possible outcome of the proceedings, should the Court determine the use to be unlawful. The appellants have succeeded on the legal issue as to unlawful use. The Court's judgment on that issue has determined the ongoing unlawfulness of that use even if the respondents succeed in resisting injunctive relief restraining use of the premises. The significance of that determination cannot, therefore, be subsumed into the question whether the appellants will be successful in obtaining injunctive relief. Accordingly, the Court is of the opinion that the appellants should have their costs of the appeal, subject to the question whether there should be any reservation as to the costs of the appeal that related to the question that was remitted.
35 Both parties approached the appeal on the basis that the Court should deal with the question of discretionary relief, if any, that ought to be granted, even if the appellants were successful on the legal issue. The Court indicated at an early stage of the hearing of the appeal that it would reserve the question whether to deal with that issue. Accordingly, it did not hear argument on it at the time. The Court subsequently determined in its judgment that the question whether the appellants should be granted injunctive relief should be remitted for determination at first instance.
36 The Court is not able to assess whether the costs incurred by the parties on that issue for the purposes of the appeal were substantial or not. However, it is likely that had the Court proceeded to determine the question of relief for itself and had the appellants been unsuccessful on that issue, then (subject to the appellants' Calderbank offer) it is likely that the respondents would have been awarded the costs of that question. Accordingly, it is appropriate to reserve those costs until it has been finally determined.