HUNTER DEVELOPMENT BROKERAGE PTY LTD v CESSNOCK CITY COUNCIL

Her Honour applied the "exceptional circumstances" test, but did not treat the legal issue as determinative, stating at p 370: "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 it is a factor to be taken into account in 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 it is a matter for the Court on the facts in each case to determine if exceptional circumstances exist which would justify an exercise of the Court's discretion to award costs." 38 In CSR Ltd v Fairfield City Council (2001) 117 LGERA 77, her Honour returned to the issue, following the judgment of this Court in Maurici. She said that the validity of the practice direction remained "an open question". Nevertheless she applied the same principles and reaffirmed the approach she had adopted in Outdoor Australia, that "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": at p 85. 39 Applying the principles articulated in Latoudis v Casey to the unfettered discretion granted by s 69(2), prior to the promulgation of the rule, the proper approach to questions of costs must have required that costs follow the event unless there were circumstances which justified a different rule. Whether the nature of the merits review jurisdiction provided such a justification need not be determined in this case, because the rule now governs. Nevertheless, the approach adopted by the primary judge that there was no substantive difference between the discretion conferred by the rule and that reflected in the practice direction (articulated at [12]) is doubtful. The test of "exceptional circumstances" provides a higher hurdle for departure from the general approach (that there be no order as to costs) than does the language of the rule. 40 In Gee, the Chief Judge did not speak of a determinative factor being a question of law, but rather "the question of capacity". The distinction was identified by counsel in argument in this Court as distinguishing questions of "power" from questions of law generally. In Gee, McClellan CJ sought to identify the distinction in the following terms at [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 consideration. 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 ceased to have the character of merits review and different considerations arise." 41 In early decisions applying the new rule, McClellan CJ, with little discussion as to possible variations in principle, ordered that costs follow the event where a question as to the power of the Court to approve an application was answered in the affirmative: see Shaynd v Ku-Ring-Gai Council (2005) 138 LGERA 395 at [21] and [22] and see Parkes v Byron Shire Council [2004] NSWLEC 722 at [11]-[15]. In Pancho Properties Pty Ltd v Wingecarribee Shire Council [2004] NSWLEC 620, Talbot J noted at [13] the remarks of Lloyd J in Broadwater Action Group Inc v Richmond Valley Council (No. 2) (2003) 129 LGERA 409 at [9], declining to adopt the approach outlined in Gee. Talbot J also noted that the relevant principle was now found in Part 16, r 4.2. However at [18] he stated: "On a proper construction of Part 16, Rule 4(2) it is only where the Court concludes that it would not be fair and reasonable to make a costs order that there be no order for the payment of costs in class 1 proceedings."

That statement, with respect, is not a proper construction of the rule, but reverses the general principle and the exception. 42 Since the commencement of the rule on 2 February 2004 the question of costs has been further considered by Preston CJ in Kinder Investments Pty Ltd v Sydney City Council (2005) 143 LGERA 237 at [50]-[57]. "50 There is a line of authority in this Court that in class 1 appeals, where the issues involve matters of merit, and not law, ordinarily no order for costs will be made: see the conspectus of the authorities in Gee v Port Stephens Council (2003) 131 LGERA 325 at [22]-[28], [40] and [56] and Statewide Developments Pty v Minister for Infrastructure and Planning (2005) 142 LGERA 154 (1 July 2005) at [4]. 51 Of course, there are circumstances in particular cases where, having regard to either the conduct of a party leading up to or during the litigation of the merit matters or the utter weakness of the merit matters raised, it may be fair and reasonable to make an order for costs … . 52 However, where an issue of law is raised as a central issue and the proceedings cease to have the character of merits review, it will be fair and reasonable for an order for the payment of costs to be made in relation to that question of law, the order being that costs follow the event … . 53 In this case, as I have stated in the substantive judgment, the only question in the class 1 appeal was a question of law, involving the construction of statutory provisions in the Act. 54 The question was a novel one, it not having been raised in the twenty-five years of the Court's existence. Hence, there was no authority to guide either party. The question is also one of importance. The resolution of the question may be of interest to a wider audience than just the parties. This factor tends to support there being no order for the payment of costs, notwithstanding the question was a question of law. … 57 I find the matter finely balanced. However, having regard to the fact that this was essentially private litigation involving an application by an applicant to modify a development consent by extending the lapsing period, and did not involve general public interest matters, I consider that the line of authority in this Court that the successful party on a question of law raised in class 1 proceedings should be compensated for the costs that it has incurred, should be followed."

Grounds of appeal 43 Hunter Development made a number of challenges to the trial judge's reasons for determination. One, which may be disposed of briefly, stated that the reference to the change effected by the decision of this Court to previous authority in the Land and Environment Court with respect to the operation of s 95(4) of the EP&A Act is overstated. However, accepting that to be the case, at least in relation to some statements in the judgment, it does not entirely remove the significance of this Court's decision in resolving an outstanding question of law of some importance, and might support an argument that it was reasonable for the Council to resist the applicant's legal arguments as to the issues in dispute. However, his Honour appears to have accepted that the question of costs was not to be determined by "the conduct of the unsuccessful party": at [37].

Failure to give proper consideration to a relevant factor 44 A second and more substantial matter of challenge was the failure to follow the established practice (assuming for present purposes that it is such) that costs should generally follow the event, even in Class 1 proceedings, where a question of legal capacity is raised. 45 The strength of that submission may be tested by considering whether legal error would have been demonstrated had the primary judge disregarded entirely the fact that the proceedings turned upon a question of legal capacity. For that argument to succeed it would be necessary to demonstrate that, in the language of administrative law principles, the nature of the issue which was determinative of the case was a mandatory consideration to be taken into account for the purposes of r 4(2). Unless the factor is one which the decision-maker "is bound to consider" it will not be an error of law to fail to take it into account: see Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39 (Mason J). There is no such express statement in r 4; it must therefore be implied from the subject matter, scope and purpose of the rule: ibid at p 40. 46 In considering the subject matter, scope and purpose of r 4, it is relevant to refer to the established practice of the Court, as reflected in the former practice as articulated by the Chief Judge in Gee, to identify the purpose said to justify that practice. However, it is also important to note the departures in the rule from the established practice. Thus, the rule departed from the 'exceptional circumstances' test found in the practice direction. Secondly, it omitted any reference to the 'costs follow the event' approach adopted in Gee in relation to cases turning on questions of legal capacity. 47 The justification articulated for the 'no costs' practice was that it encouraged challenge to decisions of consent authorities in Class 1 proceedings, without the applicant facing the threat of an adverse costs order as the price of failure: see, eg, Raiti v Leichhardt Municipal Council (1991) 72 LGRA 333 at 334 (Hemmings J). The same rationale was articulated by McClellan CJ in Gee, at [40]. His Honour adding: "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." 48 What is not explained in the authorities to which this Court was referred, is why that rationale disappears immediately a question of law as to legal capacity of the consent authority arises. In jurisprudential terms, it is no doubt true that an administrative decision-maker cannot finally determine the scope of its authority. That can only be determined by a court of competent jurisdiction exercising judicial power. Nevertheless, that is not a distinction which is likely to be a motivating factor for a ratepayer or landowner. If, however, it were seen as significant, then proceedings could be commenced in the Class 4 jurisdiction of the Court, where r 4 does not apply. 49 On one view, the original 'no costs' principle appears to have been a judicial gloss on the unfettered discretion conferred by the Parliament, prior to the introduction of the rule. Nevertheless, accepting the gloss as appropriate, the authorities do not explain why the fact that the consent authority may be acting beyond power removes the need to encourage challenge without risk of costs. Accordingly, on these materials, it is not possible to say that, by implication alone, the rule must be understood to require a 'costs follow the event' regime where questions of capacity arise. The failure of the rule to incorporate expressly this simple principle adds weight to the conclusion that no such confinement of the discretion was intended. 50 The 'costs follow the event' principle is based upon questions of perceived fairness as between litigants. It depends entirely upon the outcome of the litigation, and not upon the reasonableness of the parties in litigating. Questions of reasonableness can be taken into account through special costs rules based on formal and informal offers of compromise in the course of the proceedings. These rules, taken together, accept that the likelihood of an adverse costs order is a deterrent to litigation and an encouragement to settlement. By way of contrast, the introduction of a 'no costs' regime is likely to reflect a policy of encouraging the use of particular tribunals or courts for dispute resolution. Thus, the choice of one or other of these regimes as the standard approach will reflect the adoption of one or other policy to particular forms of litigation. Where a 'no costs' rule applies in relation to a class of litigation broadly defined, it would be surprising if the rule-maker, without any direct indication of such a purpose, intended the Court to decide which cases within that class should be subject to the rule encouraging litigation and which should not. As appears from the examples of no costs rules referred to above, where exceptions are identified by reference to particular circumstances, the circumstances refer to the conduct of the parties in commencing or maintaining the particular litigation. Thus, in relation to r 4, the preferable approach is to treat the power granted to the Court to depart from the general principle as one to be exercised in relation to a particular case, dependent upon the conduct of those proceedings. The rule itself does not distinguish categories of Class 1 proceedings: rather it provides a general approach subject to the Court otherwise ordering "in the circumstances of the particular case". This language provides an indication that a general alternative approach was not intended to be adopted for particular categories of cases within Class 1, 2 or 3. 51 Under the approach espoused in Gee, the fact that an applicant commenced proceedings in Class 1 and did not raise the legal issue itself, would appear not to be relevant to determining whether it was fair and reasonable to order it to pay the costs of proceedings in which it was ultimately unsuccessful. Thus, in the present case, discussion as to whether "the applicant ought to have propounded the issue in separate class 4 proceedings" if it wished to obtain an order for its costs if successful, yet run the risk of paying costs, if unsuccessful were arguably irrelevant considerations: Judgment below at [25]. On this point his Honour concluded at [27]: "In my opinion it is relevant that the Applicant did deliberately propound the issue and keep it confined to the class 1 proceedings and in that context (particularly from the point of view of costs) it is not really relevant to say, as has been put on behalf of the Applicant that 'if we had instituted the class 4 proceedings and we had won, as we ultimately won in the Court of Appeal, we would have got our costs anyway'." 52 These considerations cast doubt on whether r 4 was intended to require the Court, in dealing with Class 1 proceedings, to consider the nature of the issue which was ultimately determinative. However, supposing that it did, it is not possible to infer with any degree of conviction that the rule also mandated (by implication) that the legal question should be given determinative weight as if, in such cases, the rule provided that costs should generally follow the event. 53 The only other way of discerning legal error in the approach adopted by the trial judge was to say that although he treated the nature of the proceedings as a relevant consideration, he failed to give it appropriate weight. As noted by Mason J in Peko-Wallsend, in relation to an administrative decision, "it is generally for the decision-maker and not the court to determine the appropriate weight to be given to the matters which are required to be taken into account in exercising the statutory power": at p 41. His Honour continued: "I say 'generally' because both principle and authority indicate that in some circumstances a court may set aside an administrative decision which has failed to give adequate weight to a relevant factor of great importance, or has given excessive weight to a relevant factor of no great importance. The preferred ground on which this is done, however, is not the failure to take into account relevant considerations or the taking into account of irrelevant considerations, but that the decision is 'manifestly unreasonable'." 54 Care must be taken in translating this approach from judicial review of administrative action, but Mason J expressly identified the similarity in Peko-Wallsend at p 42: "But guidance may be found in the close analogy between judicial review of administrative action and appellate review of a judicial discretion. In the context of the latter, it has been held that an appellate court may review a discretionary judgment that has failed to give proper weight to a particular matter, but it will be slow to do so because a mere preference for a different result will not suffice … ."

A similar approach may be identified in the willingness of Gaudron and Gummow JJ in Oshlack to apply to a similar curial discretion the principles derived from Water Conservation and Irrigation Commission v Browning : see [16] above. However, even on that approach, what needs to be established is a statutory implication that his Honour's consideration of a decision as to legal capacity, determined in Class 1 proceedings, manifestly failed to accord it weight proportionate to its importance. For reasons already given, that conclusion cannot be drawn. 55 Absent such a conclusion, it cannot be said that his Honour fell into legal error in addressing the nature of the proceedings in the way that he did. For the purposes of this challenge, the fact that other judges might have reached a different result is beside the point.

Consistency in decision-making 56 The second substantial challenge raised by Hunter Development is that there was legal error demonstrated in failing to follow the established principles expounded by McClellan CJ in Gee v Port Stephens Council (in relation to the practice of the Court prior to r 4) and applied by his Honour in Shaynd and Parkes, pursuant to r 4. This argument is not that the rule mandates that a case determined by reference to legal capacity should generally result in costs following the event, but that legal error is demonstrated by a failure to follow established authority in relation to the operation of the discretion. In a sense, this argument invites the conclusion that, so long as the guidelines formulated by the Court do not constitute an illegitimate fetter on the exercise of discretion, the need for consistency in approach requires that they be followed, to avoid legal error. 57 In Wong v The Queen, dealing with a sentencing "guideline judgment" Gleeson CJ (albeit in dissent as to the outcome) stated at [6]: "One of the legitimate objectives of such guidance is to reduce the incidence of unnecessary and inappropriate inconsistency. All discretionary decision-making carries with it the probability of some degree of inconsistency. But there are limits beyond which such inconsistency itself constitutes a form of injustice. The outcome of discretionary decision-making can never be uniform, but it ought to depend as little as possible upon the identity of the judge who happens to hear the case. Like cases should be treated in like manner. The administration of criminal justice works as a system; not merely as a multiplicity of unconnected single instances. It should be systematically fair, and that involves, amongst other things, reasonably consistency." 58 To similar effect, Kirby J, at [89], noted that Mason J in Lowe v The Queen (1984) 154 CLR 606 at 610 had explained that consistency in criminal punishment is "a fundamental element in any rational and fair system of criminal justice". Inconsistency "is calculated to lead to an erosion of public confidence in the integrity of the administration of justice" and is "regarded as a badge of unfairness and unequal treatment under the law". As Kirby J noted, the comments in Lowe related to disparity between the sentences imposed on co-offenders; he continued, however, saying "the principle is one of general application". 59 To similar effect, albeit in dissent, in Oshlack v Richmond River Council, McHugh J at [65] stated: "Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise. As Mason CJ said in Latoudis (170 CLR at 541): 'it does not follow that any attempt to formulate a principle or a guideline according to which the discretion should be exercised would constitute a fetter upon the discretion not intended by the legislature. Indeed, a refusal to formulate a principle or guideline can only lead to exercises of discretion which are seen to be inconsistent, a result which would not have been contemplated by the legislature with any degree of equanimity'." 60 Accepting that, in a particular case, a major inconsistency in approach to the exercise of a discretion within a court may constitute error of law, that principle does not assist Hunter Development in the present case. One needs to look for the reason underlying the disparate approaches. This was not a case of idiosyncratic variation, reflective of individual predilections. Rather, the disparity arises from the view on the part of those who espouse the principles in Gee that the resolution of a question of legal capacity must, as a general rule, result in costs following the event, whereas those who espouse the principles articulated in Outdoor Australia, give that factor no such determinative weight. Rule 4 does not itself distinguish between Class 1 applications which may be decided on "merit review" issues and those which are ultimately determined on questions of legal capacity. Accepting that the distinction is a relevant consideration, and may be a consideration of some importance, authorities which raise it to the level of requiring a particular result fetter the discretion unduly. Accordingly, it cannot be said that there is an error of law in failing to follow those authorities. To the contrary, it is difficult to derive from the principle underlying the rule a policy which would identify questions of legal capacity as definitively different from other legal questions which might be determined by a judge rather than by a commissioner, or to separate cases which turn entirely on the facts from those which may involve mixed questions of fact and law. Each of these classifications may be relevant: the subject matter, scope and purpose of the rule do not require that any be treated as definitive of whether an order that costs follow the event should be made.

Conclusions 61 The issues raised by the application for leave to appeal are of some importance and identify differences of approach in the Land and Environment Court. These factors justify a grant of leave to appeal to this Court. However, no error of law has been identified in the reasons of the trial judge with respect to his refusal to exercise the discretionary power to order the payment of costs, pursuant to Part 16, rule 4(2). Accordingly, leave to appeal should be granted, but the appeal should be dismissed with costs. **********

03/11/2006 - Both solicitors shown as acting for Appellant one amended to read Respondent - Paragraph(s) coversheet

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