Grace & Anor v Thomas Street Café Pty Ltd & Ors

CATCHWORDS: COSTS - Uniform Civil Procedure Rules 2005 r 36.36 - application to set aside or vary a costs order - reopening of judgment or orders - COSTS - awarding or reserving costs of appeal where matter is to be remitted to trial judge - COSTS - calderbank offers - without prejudice correspondence - no specific form required - COSTS - calderbank offers - no specific offer made

Environmental Planning and Assessment Act 1979, ss s 81A, 101 LEGISLATION CITED: Uniform Civil Procedure Act 2005, s 98 Uniform Civil Procedure Rules 2005, Pt 36 r 36.16(1)

Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160 Brymount Pty Limited t/a Watson Toyota v Cummins; Young Shire Council v Cummins (No 2) [2005] NSWCA 69 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 De L v Director-General, Department of Community Services (NSW) (No 2) [1997] HCA 14; (1997) 190 CLR 207 Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 CASES CITED: Grace v Thomas Street Café Pty Ltd [2007] NSWCA 359 Leichhardt Municipal Council v Green [2004] NSWCA 341 Macquarie Radio Network Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 339 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379 Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 Venus Adult Shops Pty Limited v Fraserside Holdings Ltd (No 2) [2007] FCAFC 41

Peter Grace & Angela Pearman (Appellants) Thomas Street Café Pty Ltd (First Respondent) PARTIES: Catherine Patricia Kortt (Second Respondent) Primary Court Pty Limited (Third Respondent) North Sydney Council (Fourth Respondent)

CW McEwan SC; SA Duggan; M Staunton (Appellants) COUNSEL: J Doyle (First to Third Respondents) PW Larkin (Fourth Respondent)

Staunton Beattie (Appellants) SOLICITORS: Thompson Playford (First to Third Respondents) Maddocks (Fourth Respondent)

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT DATE OF DECISION: 4 October 2006

LOWER COURT MEDIUM NEUTRAL CITATION: Grace & Anor v Thomas Street Café Pty Limited & (3) Ors [2006] NSWLEC 547

• 15 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40627/06

SPIGELMAN CJ BEAZLEY JA McCLELLAN CJ at CL

24 April 2008 Peter Grace & Anor v Thomas Street Café Pty Ltd & Ors (No 2) Judgment 1 THE COURT: On 12 December 2007, the Court allowed the appeal in this matter, remitted the matter to the Land and Environment Court for determination of the relief, if any, that should be granted to the appellants on their application and ordered that the respondents pay the appellants' costs: see Grace & Anor v Thomas Street Café Pty Ltd & Ors [2007] NSWCA 359. 2 By Notice of Motion filed on 21 December 2007, the first, second and third respondents (the respondents) seek the following orders: "1. That Order 3 of this Court made on 12 December 2007 be stayed pending determination of this motion.

2. That Order 3 regarding costs made on 12 December 2007 be varied under Part 40 Rule 9 of the Supreme Court Rules 1970 (Rule 36.16 UCPR) to read: ' Costs of the Appeal are reserved until after the Land & Environment Court has determined the appropriate orders to be made on the Appellants' application .'

3. In the alternative to 2, an order that Order 3 regarding costs made on 12 December 2007 be varied under Part 40 Rule 9 of the Supreme Court Rules 1970 (Rule 36.16 UCPR) to read: 'The Respondents are to pay the costs of the appeal except as they relate to the issue of the Court's discretion which are to be reserved.'" 3 The respondents subsequently abandoned the relief sought in order 1. Although the respondents, in their Notice of Motion, seek relief in the alternative, it is apparent from their written submissions that their primary application is to have the question of the costs of the appeal reserved until the Land and Environment Court has made its determination as to the form of relief, if any, to be granted in the matter. 4 The Notice of Motion was supported by the affidavit of Amanda Patricia Kiely, the respondents' solicitor, sworn 20 December 2007, in which she states, inter alia, that to her knowledge, "judgment and final orders have not been entered in these proceedings". That evidence has not been contested. There was also annexed to the affidavit three letters, the first dated 29 November 2005 from the respondents' then solicitors to the appellants' solicitors (Annexure B); the second dated 21 December 2005 from the appellants' solicitors to the respondents' solicitors (Annexure C); and the third dated 28 December 2005 from the respondents' solicitors to the appellants' solicitors (Annexure D). The second of those letters, Annexure C, was marked 'WITHOUT PREJUDICE EXCEPT AS TO COSTS'. 5 The parties have filed written submissions in the matter and have agreed that the matter be determined by the Court in Chambers. 6 The matter was referred to the Court for determination on 27 March 2008. 7 The Court has already made a costs order in the matter. The Uniform Civil Procedure Rules 2005 (the UCPR), Pt 36 r 36.16(1) provides that "The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order." 8 The respondents recognised that the discretion conferred by Pt 36.16 is to be exercised sparingly, having regard to the public interest in the finality of litigation: see Venus Adult Shops Pty Limited v Fraserside Holdings Ltd (No 2) [2007] FCAFC 41. In De L v Director-General, Department of Community Services (NSW) (No 2) [1997] HCA 14; (1997) 190 CLR 207 at 215, the High Court, in the joint judgment of Toohey, Gaudron, McHugh, Gummow and Kirby JJ, explained the competing considerations involved in a court's determination whether to reopen its judgment or orders as follows: "The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded 'on a misapprehension as to the facts or the law', where 'there is some matter calling for review' or where 'the interests of justice so require'. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required 'without fault on his part', ie without the attribution of neglect or default to the party seeking reopening'. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case." (Citations omitted) 9 In De L, the Director-General sought a reopening of the costs order made by the Court in circumstances where it submitted that a specific regulation governed the making of the order and, in particular, provided it with an immunity from an order for costs. The Director-General had not referred to that regulation during the course of the proceedings. Subject to questions of utility, the Court favoured the reopening of its cost order to "safeguard against the risk of injustice that could flow from the unconsidered making of an order on its face apparently contrary to the requirements of [the regulation]". However, the Court rejected the Director-General's substantive argument on the meaning of the regulation and accordingly the application was refused. 10 There are no such technical considerations in this case. An order for costs was sought in the Notice of Appeal and the Court's attention was not directed to the existence of any "without prejudice" correspondence, either at the conclusion of the hearing, or at the time that judgment was delivered. The respondents pointed out, however, that oral argument in this matter finished well after the Court's usual finishing time. The import of the submission was that, at that point, matters were rushed, and the respondents overlooked making a submission as to what should happen in respect of costs, should the Court order that the matter be remitted for determination of the relief, if any, that ought to be granted. 11 There was, of course, another opportunity to raise the question of costs at the time judgment was handed down. The respondents acted reasonably promptly in filing the Notice of Motion following judgment being handed down. 12 Subject to determining whether the respondents have estimated a basis for a different order to that made by the Court at the time that judgment was handed down, the Court is prepared in all the circumstances to exercise its discretion under r 36.16 in this case.

Should a different costs order be made? 13 A brief recapitulation of the nature of the proceedings will assist to put the respondents' application in context. The appellants had brought proceedings in the Land and Environment Court against the respondents, alleging that the use of certain premises in North Sydney as a café was unlawful, as there were no existing use rights authorising such use. The Land and Environment Court dismissed the application. On appeal to this Court, it was held that the premises did not have existing use rights as a café. 14 There were other issues argued on the appeal relating to a development consent granted by North Sydney Council under s 81A of the Environmental Planning and Assessment Act 1979 and whether the development consent could be challenged due to the expiry of the time period specified by s 101 of the Environmental Planning and Assessment Act. Both of those issues were effectively determined in favour of the appellants. 15 The determination of the existing use issue did not determine the question of the ultimate relief to which the appellants might be entitled. In their initiating process, the appellants had sought an order restraining the respondents from using the premises for the purposes of a café. The making of such an order is discretionary and in this case there is likely to be a number of factual considerations relevant to the exercise of the discretion, including that the respondents had used the premises as a café for a very lengthy period without steps being taken to restrain them from doing so, and at times at least, with the apparent support of the appellant. 16 As Beazley JA pointed out at [139] of the judgment on the appeal, the range of relief that a court might grant having regard to all the circumstances is wide, ranging from refusing relief altogether, to granting the relief sought, or granting the relief sought subject to conditions. The trial judge had not made any findings on the factual issues that were advanced by the parties relating to the question of relief and it was not appropriate for this Court to enter into that process. For that reason, the matter was remitted to the Land and Environment Court to determine the relief that should be granted. 17 The respondents have now advanced two reasons as to why the Court's costs order should be varied. First, they submitted that the appellants had not, in any real sense, succeeded on the appeal, as they had not obtained any substantive relief. They pointed out that in their written submissions in reply on the appeal, the appellants had contended that this Court should determine the question of the final relief that ought to be granted and that it should not be remitted for determination by the Land and Environment Court. They had failed in that contention and the question of relief in the proceedings remains to be determined. 18 Secondly, the respondents indicated that they wish to rely on "without prejudice correspondence relating to the relief the Court would grant if the use [of the premises] was found to be unlawful". It was submitted that this correspondence could not be adduced until the question of final relief was resolved. Pursuant to an enquiry made by the Court to the respondents as to whether the "without prejudice correspondence" referred to in this submission was made before the hearing at first instance before Lloyd J, or was correspondence entered into after that hearing, the respondents' solicitors advised that the "without prejudice correspondence" to which this submission was directed was that to which is referred above, namely, Annexures B, C and D to Ms Kiely's affidavit. That correspondence preceded the hearing at first instance. It will be convenient to refer to this as the "without prejudice" correspondence." 19 That correspondence was to the following effect. In the first letter (Annexure B), the respondents asserted that the use of the café was lawful pursuant to the development consent granted in 1999. The respondents drew the appellants' attention to the fact that the appellants had supported the use of the café in the past in correspondence to North Sydney Council, and had not taken any steps to restrain the use over the 12 year period that they had owned their nearby home. The letter also stated that significant work had been carried out on the premises with the appellants' knowledge. The respondents stated their position that it was unlikely that the Court would exercise its discretion to grant the relief sought even if a breach of the Act was established, which they considered to be unlikely. They requested that the parties "engage in discussions to resolve matters without a hearing". No specific offer was made except that it was apparent that the intent of the invitation was that the use of the premises as a café continue. 20 In their response (Annexure C) the appellants stated: "Like your client our client would like to avoid the need for and cost of litigation. To this end we are instructed that our client would be prepared to resolve the proceedings on the basis of the following consent orders …"

There then followed proposed orders in the form of a Declaration of unlawful use; a restraining order, conditionally suspended for a maximum period of six months; and conditions for the continued operation of the premises for a maximum period of six months. 21 The letter concluded that the appellants would rely on the letter "on the issue of discretion [that is, the making of discretionary orders for the continued operation of the premises] and costs". 22 In their reply (Annexure D) the respondents advised that at the time of their purchase of the café, their investigations had indicated that the use as a café was lawful. They stated that: "… our clients cannot agree to any offer from your client that compels them to close the café. Also they do not believe in the circumstances that a Court would order them to cease all operation.

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.

Other issues 37 As the matter is before the Court, the appellants have taken the opportunity to seek clarification of the following matters:

1. The intended extent of the costs order made by the Court of Appeal on 12 December 2007; and

2. The making of an order formally setting aside the orders made by the Land and Environment Court on 4 October 2006 which dismissed the appellants' Class 4 Application and ordered the appellants to pay the respondents' costs of the Land and Environment Court Proceedings. 38 The Notice of Appeal sought an order that the respondents pay the appellants' costs of the appeal and in the Court below. The order made by the Court was: "The respondents are to pay the appellants' costs." 39 The appellants submitted that if it was intended that the costs order was directed only to the appeal proceedings, then the appropriate order should be: "The respondents are to pay the appellants' costs of these proceedings. The costs of the Land & Environment Court proceedings are reserved to the Trial Judge." 40 The appellants contend for a different order if the Court intended that the costs order was to extend to the costs of the hearing at first instance. 41 The effect of the Court's determination on the appeal was to set aside the trial judge's rejection of the appellants' claim of unlawful use. This meant that the appellants should have succeeded on that issue at trial and, therefore, should have had their costs of trial, at least of that issue. The intent of the Court's order was to give effect to the appellants' success at trial. However, as there may be a question as to whether the appellants should have all of their costs at first instance, depending upon the outcome of the remitted question, it is preferable that those costs should abide the outcome of those proceedings. The existence of the "without prejudice" correspondence reinforces the Court's view that the latter is the preferable approach at this stage. 42 The appellants also submitted that the Court should have formally set aside the orders of the trial judge. Those orders were: "1. The application is dismissed. 2. The applicants must pay the respondents' costs. 3. The exhibits may be returned." 43 The respondents submit that no variation of the order is required, as it was apparent that the effect of the Court's orders allowing the appeal and remitting the matter, was to vacate all orders made by the trial judge, including the costs of the original hearing. 44 An order setting aside the orders made by the trial judge should be made. The respondents' submissions do not seek an order that is different in substance. Rather, the effect of their submission is that the form of the orders now sought is unnecessary. We are not satisfied that this is correct and both as a matter of form and substance, an order should be made setting aside the orders of the trial judge. That order will have the effect of setting aside the costs order at first instance and as already indicated, we propose to deal with that order in the new orders. It will also be necessary to make an order relating to costs at first instance, as no order as to those costs was made. These matters may be attended to under the "slip rule": UCPR, r 36.17. 45 Finally, although the parties did not raise this matter in their submissions presently under consideration, the Court considers that it should make a Declaration as to the unlawful use of the premises. The appellants had sought that order in their Notice of Appeal and the matter was overlooked at the time that judgment was handed down. So that there is no confusion as to the orders that are made, we will vacate the orders made by the Court on 12 December 2007 and remake the orders on the appeal in the following form:

1. Orders made by the Court on 12 December 2007 in this matter are vacated and the following orders made in their place;

Set aside the orders made by the judge at first instance;

Declare that the premises located at 2 Thomas Street, McMahons Point New South Wales do not enjoy the benefit of existing use rights with the meaning of s 106 of the Environmental Planning and Assessment Act 1979 for the purposes of a restaurant or café;

The matter is remitted to the Land and Environment Court for determination of the orders that should be made on the appellants' application for injunctive or other relief;

The respondents (including North Sydney Council) are to pay the appellants' costs of the appeal except in respect of such costs as were incurred in the preparation of the issue as to the relief by way of injunction or otherwise, if any, to which the appellants may be entitled. The costs of that issue are to be reserved pending its final determination, either by the Land and Environment Court or upon appeal from any such determination;

The costs of the hearing at first instance before Lloyd J are to be in the determination of the trial judge on the remitted hearing;

The parties are to pay their own costs of this Notice of Motion;

The first, second and third respondents are to have a certificate under the Suitors' Fund Act 1951, if so entitled. **********

21/05/2008 - Order 9 added - Paragraph(s) Coversheet and [45]

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