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[2011] NSWLEC 143
Land and Environment Court (NSW)
2011-08-22
Sheahan J, Biscoe J
Original judgment source is linked above.
Introduction 1The substantive dispute in these encroachment proceedings was resolved by the making of consent orders at the commencement on 22 August 2011 of the first day of a scheduled two-day hearing. 2The parties remain in dispute about the question of costs. The applicant sought an order for costs in the original class 3 application and now seeks an order that his costs be paid by the respondent on a party-party basis as agreed or assessed. The respondent says that there should be no order as to costs in respect of the period up to and including 7 July 2011, and that the applicant should be ordered to pay the respondent's costs from and including 8 July 2011.
Background 3The encroachment occurs at the boundary between numbers 178 and 180 Nelson Street, Annandale. These are two of a set of four Victorian terraces of long standing, located within a conservation area. Mr Harrison and Mr Owen purchased their respective properties during or since 2002. 4The then owner(s) of No.180 made an application to Leichhardt Council for consent for a first-storey addition in 2002. A condition of the consent (D/2001/895), dated 17 April 2002, was that the building not encroach on No.178 (condition 27). 5Mr Harrison purchased No.178 on 23 July 2002, between the grant of the No.180 consent and the doing of the approved building work. He commenced Supreme Court proceedings in 2003 (matter 55039 of 2003) against the four previous owners of No.180 which was sold to Mr Owen on 5 June 2004. Mr Owen had purchased No.180 on notice of the encroachment, and, by contract, the vendors gave him an indemnity. He was joined in the Supreme Court proceedings prior to the end of 2004, as the fifth defendant. In his defence, filed 17 December 2004, Mr Owen relied on the indemnity. 6Some elements of those Supreme Court proceedings are apparently stayed, and some are due back before the Supreme Court in early September 2011. There are some copies of relevant court documents among the evidence, but it is now common ground that the encroachment as between Nos.178 and 180 is not covered by those proceedings.
The Encroachment Proceedings 7The class 3 application was filed on 4 March 2011 and relies upon an attached survey, which was prepared for Mr Harrison on 26 February 2004 by Michael Lockley & Associates. The prayer for substantive relief is made in the following terms: The removal by the Respondent of the encroachment depicted in 'A' pursuant to s 3(2)(c) of the Encroachment of Buildings Act 1922 within a period of time and on terms to be agreed between the parties or by Order of the Court. 8During the hearing on costs, the respondent tendered a further survey dated 28 May 2004, prepared for Mr Owen by John R Holt Surveyors Pty Ltd as he approached completion of his purchase of No.180. 9It is necessary to set out the history of the case management of the substantive proceedings. 10At the very first return of the summons, on 25 March 2011, the List Judge (Biscoe J) noted, in granting an adjournment for five weeks, rather than the six sought by the applicant, " the distinct possibility that the experts retained in the Supreme Court proceedings will be able to reach agreement as to necessary rectification works and if that occurs, that in turn will bring about the distinct possibility of these proceedings settling ". 11His Honour gave further directions on 29 April, pursuant to which the applicant was to serve his evidence by Friday 6 May 2011, and to allow access by the respondent's valuer within 14 days (by arrangement through the applicant's solicitor), and the respondent was to serve his evidence by Thursday 26 May 2011. The matter was to be listed for further case management on 27 May 2011. 12On 27 May 2011, Craig J stood the matter over by consent to 3 June 2011. On 3 June Craig J directed the applicant to notify the respondent within seven days of the terms and conditions upon which he sought removal of the encroachment, and to serve a current survey within seven days. His Honour stood the matter over again to 10 June 2011. 13On 10 June 2011, Craig J listed the matter for hearing on 22-23 August 2011, and gave the following directions:
The Extracurial dealings between the parties 20The dealings between the parties and their representatives, outside the formal court process, must also be examined, as the movement from the 8 July draft document to the 22 August agreed document is very material to both sides of the argument on costs. 21The applicant was originally represented by Massey Bailey solicitors, but Peter John Snelgrove (whose affidavits of 3 and 22 August 2011 have been read on costs) has been acting for Mr Harrison in both the Supreme Court proceedings and in the encroachment dispute since November 2010. Counsel for the applicant is Ms L M Byrne. At the hearing on costs she read two affidavits from Mr Snelgrove. 22The respondent appears to have been represented throughout by Redmond Hale Simpson ('Redmonds' - primarily Michael John Sommerville), briefing Mr R W Tregenza of counsel. At the hearing on costs, Mr Tregenza read some of an affidavit sworn by Mr Owen on 29 July 2011, and relied on some other documents. (Some were included in Exhibit ' E01 ' to that affidavit, and others were tendered before me as Exhibit 01 ). 23On 29 September 2009, Mr Harrison wrote personally to Mr Owen, attaching a set of documents regarding his development application (2009/136) for works at No.178, the Lockley survey report re No.178 dated 26 February 2004, the Holt survey report re No.180 dated 28 May 2004, drawings, sketches and photographs, and a Statement of Environmental Effects related to his proposed alteration to No.178. The letter concludes: " Since the Development Application involves work relating to a party wall, Leichhardt Municipal Council requires your written consent as the neighbouring owner and joint owner of the party wall. The purpose of this letter is to seek your written consent to the attached Development Application ". 24On 2 October 2009, Redmonds wrote to Massey Bailey regarding that letter, saying: " As you can see, this letter makes no reference to you acting in this matter [the Supreme Court proceedings] and we would be pleased if you could let us know whether you are acting for Mr Harrison in this regard or at all, so that we may provide a response to the matters raised therein ". 25On 23 October 2009, Massey Bailey and Elizabeth Olsson SC (as Her Honour then was) wrote to Leichhardt Council, noting that the proposal set out in the DA for No.178 involved the removal of the upper floor encroachment of No.180 over No.178 and other relevant works. The objective of the proposal contained in the application was stated to be achievement of compliance with condition 27, and the letter asserted damage to the party wall by the encroachment. 26Harrison wrote to a Council officer on 27 October 2009, and Council replied to Mr Harrison on 13 November 2009, relating also to a meeting held on a pre-DA basis on 12 November. The Council had considered various expert reports, the surveys, and Mr Harrison's letter of 27 October. There had been a site inspection. The Council noted that the proposal involved: (i) Removal of a structure erected without development consent, being the extension to the party wall that encroaches onto No.178 at Nelson Street; and (ii) Repair of the of damaged masonry , Council noted and advised that no development consent was required to demolish a structure erected without the prior consent of the Council, namely the " extension to the party wall which encroaches onto No.178 .... Similarly, minor repairs to an existing brick wall do not require development consent ". 27Massey Bailey wrote to Redmonds on 26 November 2009, noting that Mr Owen had not consented to the encroachment DA, and enclosing a copy of the Council's letter of 13 November 2009. The letter continued: Given that the removal of the encroachment is a matter that is outside the scope of the Heads of Agreement and is a matter for our client we are instructed that our client intends to remove the encroachment in accordance with the details set out in the Encroachment DA served on your client on 29 September 2009 and in accordance with good building practice and as soon as possible on an urgent basis. 28The reference to " Heads of Agreement " would appear to relate to the outcome of an attempt to mediate the Supreme Court proceedings. Mr Ian Bailey SC appears to have been involved. Some agreement is included among the documentation in 'E01' to Owen's affidavit, but was not read on the question of costs. The outcome appears to remain a matter of continuing dispute. 29Redmonds replied to that Massey Bailey letter on 10 December 2009, noting that in about September 2008, Harrison had filed a Notice of Motion seeking leave to file a further amended summons in the Supreme Court matter, seeking specific relief against Owen in respect of the encroachment. Attention was drawn to various remarks made by McDougall J on 27 November 2008. The letter continued: The difficulty of course as you know now is your client's insistence on taking these matters into his own hands, indicating to us that parts of the wall will be removed on an urgent basis. ... As it appears that your client is frustrating all attempts by the relevant parties to complete and perform the scope of works, we consider it inappropriate and a clear abuse of process for your client to now threaten works to be performed to the property in respect of the encroachment. We require a written undertaking from your client that he will refrain from commencing any work in relation to the encroachment, until such time as there is some definite progress underway with respect to the matters raised in the Heads of Agreement. Once this has occurred, we will be able to liaise with you to hopefully reach a resolution on this issue. 30Massey Bailey wrote to Redmonds on 15 February 2010. By this stage the Supreme Court proceedings had been stayed. The letter pointed out that it was plain to all parties that real progress under the Heads of Agreement has not been made. The letter also points out that Owen has received advice from the Council which: ... confirms that outside wall of the upstairs bedroom of your client's property is built exclusively on and encroaching on our client's side of the party wall. Its removal and the removal of the bricks encroaching on our client's property would reduce the load on the party wall and in turn would assist in the overall rectification of No.178 and No.180. According to the LMC our client is entitled to remove those bricks and return them to your client. As the encroachment is outside the scope of the Agreement, our client is exploring how this can be achieved in accordance wit the LMC requirements and the BCA. 31The letter went on to note that Harrison had not taken any steps to remove the encroachment and that Owen's side had not replied concerning removal. It continued: The encroachment issue cannot be resolved unless its removal is incorporated into the rectification works under the Agreement. The scope of the rectification works under the Agreement is not yet known. Mr Bailey has determined to not consider or take into account the encroachment as part of any rectification works under the Agreement. It is clear that there will not be any definite progress under the Agreement in the near future and that its goals cannot be achieved. ... Our client will not provide the undertaking as drafted and sought by your client in your letter. The undertaking sought is unreasonable given the fact that the rectification works are as yet still unknown, the encroachment issue is not to be taken into account as part of those works and further investigative works are yet to take place. What is now plain is that the objectives of the Agreement cannot be achieved either by the method proposed by Mr Bailey or without consideration of the encroachment. Whilst your client continues to deny the encroachment it is clear that the resolution of this matter cannot be achieved under the Agreement and it is necessary to approach the Court for orders. 32On 18 February 2010, Redmonds wrote to Massey Bailey, referring to the proposed amended summons in the Supreme Court proceedings, especially a paragraph thereof in which Mr Harrison sought orders under the Encroachment of Buildings Act . The letter said that Mr Owen was seriously considering consenting to the orders sought, but wished to ascertain his financial exposure before deciding. Massey Bailey were asked to advise whether Harrison would allow a valuer appointed by Owen to inspect the premises to give an opinion as to s 4 of the Encroachment of Buildings Act (which deals with matters of compensation). There was no reply by Harrison or his solicitors, and, on 20 May, Redmonds wrote a follow-up letter seeking a response. 33These proceedings were commenced on 4 March 2011, and Redmonds filed their appearance on 11 March 2011. On that same day, Snelgrove wrote to Redmonds suggesting that the Land and Environment Court proceedings not proceed further when they came on for first directions on 25 March 2011, until the expert evidence was " on " in the Supreme Court. By letter dated 15 March 2011, Mr Sommerville agreed to the adjournment, and accepted the offer that Snelgroves would mention the matter on behalf of both parties. 34On 29 April 2011, Byrne emailed Snelgrove advising what occurred at the directions hearing before Biscoe J that morning. Owen's side wanted access for a valuer, and were talking about an easement, not removal of the wall. " Mr Tregenza did not want to take a direction that they serve any evidence in the event that they may want to apply for a stay of these proceedings pending the determination of the proceedings in the Supreme Court. His Honour understood that but said any such concern was met by the liberty to apply to bringing the matter back. He was keen to move the matter forward, unlike the Supreme Court proceedings ... ". 35During May Snelgrove wrote to Redmonds serving various expert reports, at least some of which had also been served in the Supreme Court proceedings, and on 1 June Redmonds served on Snelgrove a valuation report. 36On 27 May 2011, Byrne emailed Snelgrove to report on the directions hearing before Craig J that morning. The matter was stood over to Friday 3 June 2011 as the respondent's evidence was not ready to file. She notes in the email that Craig J " was satisfied we had complied with the directions and I explained that we had only served but not filed our reports because there was some prospect of resolving the matter. He mentioned the possibility of transfer and I briefly explained that the Supreme Court proceedings were not anywhere close to a hearing of the substantive matter and we wanted to take some practical steps towards getting the house fixed up - hence this application in the LEC. Mr Tregenza stated they had thought about it but were not going to make any such application ". 37Redmonds wrote at some length to Snelgroves on 12 July 2011, in response to the document handed up to Pepper J. Mr Sommerville noted in the second paragraph of the letter ('E01', p18): " It came as a surprise to Mr Tregenza and us that Mr Harrison's legal representative submitted to Her Honour that the draft Orders did not satisfy the entirety of the relief sought in the Application (save for costs and the terms and conditions upon which the first floor wall was to be removed); that additional relief being the removal of an alleged encroachment of the first floor party brick wall ". 38Mr Sommerville pointed out that there was no reference to the ground floor party wall in the class 3 application, and that the annexed Lockley survey made clear that the encroachment complained of was the first floor wall. He then noted that the June 2011 Lockley survey report had already been served in the proceedings, and that it also identified only an encroachment by the " additional first floor adjoining wall ". Mr Owen had set out to meet a case in relation to the first floor wall only, and no amendment of the class 3 application had been sought. 39Repair of the ground floor party wall remained the subject of some dispute following a mediation, and Mr Sommerville submitted that Mr Harrison would have to bring proceedings in the Supreme Court, under s 10 of the Encroachment of Buildings Act , to remove any alleged encroachment of the party wall and that any amendment to include the ground floor party wall in the Land and Environment Court proceedings would be an abuse of process. 40On 3 August 2011, Snelgrove wrote Redmonds in reply to the letter of 12 July 2011, disagreeing with some conclusions expressed in that letter in relation to Mr Harrison's application, and affirming that Harrison's position was as set out in the document(s) of 29 June 2011. The letter (in Exhibit 01 ) continued: Our client does not seek the removal of the ground floor party wall but seeks the repair of consequential damage to the original ground floor party wall caused by the encroachment. Our client's position remains unchanged and he requires the removal of that part of the wall that does encroach and for abundant clarity that your client repair the consequential damage that the encroachment has caused to the original ground floor party wall. In addition, for abundant clarity we enclose the Orders that our client would agree to. Accordingly, we do not accept that our client needs to make any application to amend. 41The attachment to that letter sets out the applicant's " proposed consent orders " in the following terms (also in Exhibit 01 ):
Consideration 42The principles to be applied to this case are clearly articulated in Pain J's judgment in Perpetual Trustees Victoria Ltd v Suncorp-Metway Ltd (" Perpetual Trustees") [2010] NSWLEC 12. 43Neither party demurred from those principles, and they may be briefly summarised - in the exercise of the court's " wide discretion ", the provisions of the Civil Procedure Act 2005 (notably s 98) and the Uniform Civil Procedure Rules 2005 (notably r 42.1) apply. Rule 3.7 of the Land and Environment Court Rules 2007 does not. While the traditional approach indicates that costs " follow the event ", the provisions of the Encroachment of Buildings Act (notably s 14) require a " just " decision on costs, which may take into consideration any offers of settlement. 44Neither party is seeking costs on a basis other than " party-party ", so the indemnity costs principles drawn from the authorities are not relevant. The reasonableness or otherwise of the parties' behaviour in articulating and negotiating their dispute, in bringing and defending the proceedings, and in the settlement of them, has to be assessed to see if one can identify success, capitulation, any " supervening event " which renders pointless any continuation of the proceedings, or any " disentitling conduct ". In Perpetual Trustees , Pain J found (in par [23]), that, " While I consider this litigation was unnecessary and could and should have been resolved before proceedings commenced the Applicant was successful in having orders made partially in its favour ", the first respondent should have an order in its favour, not on an indemnity basis, but including the costs of the motion for costs. 45Against that legal background, and the factual and procedural history I have summarised, counsel for each party made comprehensive submissions.
Mrs Byrne's submissions 46Ms Byrne submits that Mr Harrison had been wholly successful in the proceedings, because he achieved the order that he sought in the application, namely one for the removal of the encroachment. He sought that order in preference to an order for compensation or a conveyance, and certainly, as a better alternative than the making of no order. All these options appear in s 3 of the Encroachment of Buildings Act . In consenting to the removal of the encroachment structure, the respondent effectively " surrendered ", in the sense envisaged by Burchett J in ONE.TEL Ltd v Deputy Commissioner of Taxation [2001] FCA 270; (2001) 101 FCR 548. As there is no " disentitling conduct " on the part of the applicant, the respondent should be ordered to pay the applicant's costs. 47In further support of an order in the applicant's favour, Ms Byrne also submitted (par 14) that the following factors were relevant: (i) Owen purchased on notice of the encroachment (via the Holt survey), and so at his own risk. He obtained an indemnity from the vendors (cl 38 of the contract for sale). Any costs ordered against Mr Owen should be met by the vendors under insurance arrangements. (ii) Harrison sought Owen's consent, and cooperation with the Council, with a view to removing the encroachment, but Ms Byrne infers from the Redmonds letter of 10 December 2009 that Owen threatened Harrison with an injunction. On no occasion in correspondence prior to the commencement of proceedings did Owen admit, consent or agree to the removal of the encroachment. The first indication of any consent to such removal was advanced by his counsel at court on 8 July. (iii) The Supreme Court proceedings were on foot when the sale took place and, in his defence to those proceedings ('E01', p42), Owen denied the existence of the encroachment. (iv) Even after these proceedings were commenced, Owen " persisted with seeking a different kind of order, namely a conveyance ". For this reason he obtained a valuation. The applicant was, therefore, required to go to the expense of putting on all its evidence including material additional to what had already been filed in the Supreme Court. The applicant is therefore entitled to be compensated for his costs and disbursements in the Land and Environment Court. 48As the applicant has not been guilty of any disentitling conduct, and the respondent capitulated only at the very end of the day, Ms Byrne submits that Harrison should recover his costs on a party-party basis, as agreed or assessed. 49I must say at once that I give little weight to the arguments advanced ([47] above) in respect of the possible entitlement to indemnity in (i) above, the alleged inference to be drawn from the December 2009 letter ((ii) above), or any denial made seven years ago in other proceedings ((iii) above).
Mr Tregenza's submissions 50Mr Tregenza relies on the principles set out by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 to argue for at least a " no order for costs " outcome (see 625), and for a review by the court of the reasonableness of the parties in conducting the proceedings. 51The respondent did not construct the encroachment and, prior to these proceedings, both parties were already involved in Supreme Court proceedings concerning the relevant wall. 52Neither the respondent's compensation/easement proposition of 18 February 2010, nor the follow-up letter of 20 May 2010, brought any response from the applicant, and yet, on 4 March 2011, without prior notice or demand, the applicant commenced these proceedings. 53Although there was conflicting evidence regarding the presence of the encroachment as a cause of ongoing damage to the applicant's house, the applicant did not specify the terms and conditions upon which the relief should be granted until well after Craig J ordered him to do so by 10 June 2011. 54He complied only on 29 June 2011, and included a draft order that pre-existing damage from the construction of the offending wall should be repaired, relief which the respondent submits lies outside the Encroachment of Buildings Act , outside the ancillary power in s 16(1)(A) of the Land and Environment Court Act 1979, and beyond the prayer for relief in the class 3 application. 55By then the case had been set down for hearing, and it became a matter for the respondent to advance a settlement proposal in response. Such a response was made on 8 July 2011. It included removal of the encroachment on the first floor level, but not any remedial action regarding the ground floor level. 56At the directions hearing on 8 July Mr Snelgrove indicated that the respondent's proposal was not acceptable to the applicant because it did not cover the ground floor wall. This position was challenged by the respondent in the letter of 12 July 2011, and it was not until 3 August 2011 that the applicant backed off its demand for the removal of the ground floor encroachment (if one exists). In this respect, the respondent claims that ambiguity was caused by the inference in that letter that damages for the original wall were still being sought, whereas the enclosed draft terms did not appear to go that far. 57Ms Byrne complains that the draft terms were clear, and no ambiguity was raised by the respondent within a reasonable time after 3 August. However, the matter was then resolved on consent terms, which the respondent submits are substantially identical to the order he proposed on 8 July 2011. 58Mr Tregenza submits the respondent has in all respects behaved reasonably. 59He sought from early 2010 to resolve this issue, he determined it was more appropriate to remove the wall despite conflicting expert evidence, and he submitted appropriate orders to the court when the matter was before Pepper J on 8 July. 60He further submits that it was reasonable for the respondent to resist removal of the alleged ground floor encroachment at all stages, and to oppose any terms and conditions which are outside the scope of the Act and/or cover matters for which he was not directly responsible. 61On the other hand, the respondent contends that the applicant has been unreasonable because he commenced proceedings without making any demand, and continued them on the basis that he pressed for relief which he had not claimed or which was not available to him.
Finding 62In the end analysis there is absolutely no evidence before this court that the applicant made any real effort at all to resolve this encroachment dispute with the respondent without the need to resort to these separate proceedings. 63True it is that such proceedings were available to him, and true it also is that there is no legal requirement to give prior notice of intention to file them. However, despite the ongoing conflict between the neighbours in the Supreme Court, the respondent had advanced a separate proposition capable of leading to a resolution of this particular dispute at least 12 months before filing, and there was no attempt made to embark upon any negotiations. 64The applicant certainly acted reasonably in deciding, even at the very door of the court, not to press his claim in respect of the ground floor wall, as it would, according to Mr Tregenza, have led to a serious and costly contest at the hearing.
Conclusion 65In all these circumstances I have concluded that the " just " result is for the court to order that each party pay its own costs of the whole of the proceedings, including the hearing on costs. 66Exhibits 01 and H1 may be returned to the parties. 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: 23 August 2011
Harrison
Owen