Katakouzinos v Roufir Pty.Ltd. [1999] NSWSC 1045 | Case summary

1 HIS HONOUR: The plaintiffs own the property 112-116 Campbell Parade, Bondi Beach, folio identifier 2/5953, on which they wish to erect a five storey building. The defendant owns the property adjoining the plaintiffs' property to the south, namely 108 Campbell Parade Bondi Beach, folio identifier 3/5953, on which is erected a private hotel known as "The Biltmore". The plaintiffs say that in order to erect their building they need certain temporary easements over the defendant's property, and in these proceedings they seek an order under s.88K of the Conveyancing Act granting these easements. 2 I will commence with a brief history of the dealings between the parties. 3 Prior to December 1998 there was erected on the plaintiffs' property a four storey block of flats. This building extended to the southern boundary of the plaintiffs' property, that is the boundary adjacent to the defendant's property, for the first ten metres from the street frontage, and also for the last seven metres to the rear of the property, and to about one metre from that boundary for the next twelve metres after the first ten metres from the street. It seems that this building extended to the northern boundary for the whole of the length of that boundary. 4 The building on the defendant's land has its northern wall at a distance of about 1.115 metres from the plaintiffs' southern boundary. On the area between the defendant's building and the plaintiffs' southern boundary, there is a paved passage which is, amongst other things, a fire exit passage. There is evidence that between about 1995 and about the end of November 1998 there were substantial renovations effected to the defendant's building, including the installation of a sprinkler system and a new fire escape which leads to this passage. 5 In February 1998, the plaintiffs obtained a building approval for their proposed new building, and they subsequently entered into a building contract with Austruc Constructions Ltd for a price of $3.3 million. 6 On 17 November 1998, Austruc wrote a letter to George Verebes, the principal of the defendant, attaching a report concerning the demolition and construction phase of the plaintiffs' project, and showing the safety scaffolding which would be required, including scaffolding extending into the defendant's property. The letter went on to request permission to erect that scaffolding for four weeks for the demolition of the existing building, and for thirty weeks during the construction of the new building. 7 According to Mr Verebes, some time in November 1998 he conveyed to the plaintiffs' architect, Alex Smith, that he would agree to the scaffolding for the four weeks, but was not sure about the scaffolding for the building phase. 8 On 2 December 1998, there was a letter written by Simon Wakerman, an architect acting on behalf of the defendant, to Mr Smith, confirming the permission to erect the scaffolding on the basis of a payment of $500 per week for four weeks and $1,000 per week for any additional week, and other conditions set out in that letter. 9 On 3 December 1998, Mr Smith replied, in substance agreeing with those conditions. It appears that between about 4 December 1998 and 24 December 1998 this scaffolding was in place for the demolition. It may be that the demolition itself took a little longer, because in a letter dated 10 March 1999 Mr Fenwick, Austruc's construction manager, asserted that the demolition was completed on 15 January 1999. 10 On 8 January 1999, Mr Verebes wrote a letter to Bill Katakouzinos, the plaintiffs' son, complaining about the demolition of the security fire exit door to the passage and damage to the pathway along the passage, and other matters resulting from demolition work. On 6 March 1999, Mr Wakerman wrote to Mr Fenwick concerning excavation which had taken place on the plaintiffs' property, claiming that it had led to erosion from the defendant's property and damage to the path and an associated drain. The evidence makes it clear that Mr Verebes was not satisfied with the response made to these complaints on behalf of the plaintiffs. 11 On 14 April 1999, Mr Smith wrote to Mr Wakerman enclosing details of the proposed scaffolding for the construction phase. According to these proposals, the scaffolding would have no contact with the ground, but would, in effect, project from the first floor upwards and would project to a maximum of seven hundred millimetres into the defendant's property. 12 On 25 May 1999, Mr Wakerman wrote to Mr Fenwick complaining about cracks appearing in the facade of the Biltmore Hotel, and claiming that this was caused by the work on the plaintiffs' land. 13 It appears that in about early July 1999, there was a conversation between Mr Verebes and Bill Katakouzinos, where Mr Katakouzinos said words to the effect that the plaintiffs would soon be needing the air space rights for the scaffolding for the construction phase. It appears that Mr Verebes said words to the effect that he had not seen the April letter, to which I referred, but, in any event, he went on to say that he would not consider the grant of air space rights until the plaintiffs had addressed the problems which had been raised by letters such as those to which I have referred. 14 On 28 July 1999, the plaintiffs' solicitors wrote to the defendant requesting an agreement for the use of the scaffolding, offering $500 per week for such agreement and referring to s 88K of the Conveyancing Act. The letter advised that the builder wished to commence construction in about three weeks. 15 Mr Verebes replied by a letter of 12 August 1999, in which he advised, amongst other things, that access to air space would be granted only after the existing problems had been dealt with. In their reply of 13 August 1999. the plaintiffs' solicitors asked for a document setting out all the defendant's concerns, and Mr Verebes responded with a letter of 16 August 1999 summarising his complaints and seeking a written commitment that all the matters raised would be repaired. 16 The plaintiffs' solicitors responded to this by a letter of the same day seeking confirmation as to their understanding of the complaints, and also requesting advice as to what compensation the defendant thought appropriate for use of the air space. 17 On 18 August 1999, Mr Verebes wrote to the plaintiffs' solicitors indicating that he would supply a report concerning compensation "if and when appropriate" and seeking, amongst other things, $100,000 security in relation to his complaints about damage to his property. 18 Over the next week or so, many letters were exchanged between the plaintiffs' solicitors, on the one hand, and Mr Verebes and the defendant's solicitors, on the other hand, without any resolution. Among other things, Mr Verebes and his solicitors required the actual payment of $2,000 before the solicitors would give, and Mr Verebes would receive, any advice concerning s.88K. 19 In one letter dated 25 August Mr Verebes wrote: "I do not propose to take an extortionary attitude and will be satisfied with a reasonable weekly payment payable 30 weeks in advance together with simultaneous execution of agreements." However, in general terms it was conveyed that this would be considered only when the other problems had been dealt with to Mr Verebes' satisfaction. 20 Further letters were written by the plaintiffs' solicitors to Mr Verebes on 28 August and 31 August 1999, the latter enclosing a draft licence agreement with amendments that had been suggested by Mr Verebes. 21 It appears that on 31 August 1999. Mr Verebes telephoned Mr Bushby, the plaintiffs' solicitor, and said words to the effect that if the plaintiffs wanted the use of the defendant's air space before the other problems had been resolved, he would require payment of $5,000 a day. 22 These proceedings were commenced on 7 September 1999, and the substantial hearing took place on 5 October 1999. After that, there were written submissions, and oral submissions on 18 October. 23 The evidence discloses a lease of a restaurant on the defendant's property to Palzet Pty Ltd. That company had been notified of the proceedings, and the principal of that company has indicated that it did not wish to be involved. 24 There is also evidence that the defendant has leased the remainder of its property to Brampt Pty Ltd, by a lease commencing 4 October. However, as I understand, it is common ground between the parties that I can ignore that lease, and treat any question of affectation and compensation as if the defendant was the only party involved. 25 The issues that need to be considered are essentially those which arise from the terms of s.88K of the Conveyancing Act which as follows: The Court may make an order imposing an easement over land if the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement.

In my opinion: (1) the proposed easement must be reasonably necessary either for all reasonable uses or developments of the land, or else for some one or more proposed uses or developments which are (at least) reasonable as compared with the possible alternative uses and developments; and (2) in order that an easement be reasonably necessary for a use or development, that use or development with the easement must be (at least) substantially preferable to the use or development without the easement. 39 I adhere also to the view which I expressed in the same case that reasonable necessity must be considered at the time the proceedings are brought, so that even if there had been unreasonable conduct at some earlier stage by the plaintiffs, this would not necessarily mean there was not reasonable necessity at the time of the proceedings, although prior unreasonable conduct could go to the court's discretion. In any event, in this case I would not find it unreasonable for the plaintiffs not to have sought and obtained agreement prior to obtaining development or building approval. 40 A development of the general kind which the plaintiffs are undertaking is, in my opinion, a reasonable development, and there is no suggestion of any alternative use or development which would not require an easement, apart from the original building which has now been demolished, or a development of a similar type with the building set back 0.9 metres from the boundary. 41 In my opinion, the plaintiffs' proposal is substantially preferable to the latter alternative, substantially for the reasons put forward. The alternative would involve a significant loss in residential accommodation, significant delay and significant cost in re-design, and would render the development financially marginal. It would also create a gap of little practical use. 42 I do agree with the observations made by Young, J. in Hanny that s.88K does not mean that people can build to their boundary and then expect others to make land available. However, that consideration has much more weight in cases like Hanny itself, where what is sought is not a temporary easement during construction but an easement imposing a permanent burden on other land. In my opinion, reasonable necessity has to be assessed having regard to the burden which the easement would impose. In general terms, the greater the burden the stronger the case needed to justify a finding of reasonable necessity. 43 In this case, for reasons I will give, the easement sought would have a significant impact on the defendant, but the impact is temporary and, again for reasons I will give, can be compensated. On the whole, I think a case of reasonable necessity is made out. 44 I turn now to the question of public interest. 45 For the defendant a building surveyor, Mr Koloadin, gave evidence that the scaffolding erected over the defendant's property would increase fire risk. The flammability of shade cloth required to cover the scaffolding, and the susceptibility of that shade cloth to arson, would involve a risk of fire and also smoke damage to the defendant's building. According to Mr Koloadin, it would restrict access to the windows along that side of the defendant's building by fire services. 46 The defendant also relied on evidence that the damage to the path had already been caused, and partial obstruction of the path already prejudiced the fire safety of the defendant's building. 47 Mr Koloadin also gave evidence that the scaffolding would remove natural light from the windows and would severely reduce the availability of fresh air. 48 The defendant also relied on evidence to the effect that injury caused on the defendant's property by the plaintiffs' activities would not be covered by the defendant's insurance. 49 For the plaintiff, evidence was given by Mr Eadie, a person with some expertise in fire safety protection. His evidence was to the affect that the use of "Weathershade" shade cloth would make the risk involved with the flammability of the shade cloth insignificant. Furthermore, according to Mr Eadie, the scaffolding could in fact enhance access by fire services to windows on the defendant's property, because those windows could not safely be accessed by use of a ladder from the pathway. 50 The plaintiff also relied on evidence from Mr Fenwick that the scaffolding would be erected progressively over twelve weeks, going up one level approximately each three weeks; would be fully erected only four to five weeks; and would progressively come down over a period of three to four weeks. 51 Mr Aitken for the defendant submitted that I should prefer Mr Koloadin's evidence to that of Mr Eadie, and that having regard to the significant reduction in fire safety that the scaffolding would involve, and the substantial reduction in light and air to the defendant's building, I should be satisfied that the use of the land in accordance with the easement would be inconsistent with the public interest. 52 In my opinion, on the question of fire safety, the evidence of Mr Eadie should be preferred. He had carefully considered the question of flammability of the particular shade cloth proposed to be used, and I accept his evidence that the fire risk from that shade cloth would be insignificant. I also accept his evidence that at least access to windows by fire services would not be prejudiced. 53 The plaintiffs have offered to accept a number of conditions to ensure that fire safety would not be prejudiced, namely that "Weathershade" shade cloth be used; that the plaintiffs pay for weekly maintenance on the defendant's smoke alarm and sprinkler system during the term of the easement; that the plaintiffs install at their expense a one way self-locking door in the fence on the defendant's western boundary to provide additional egress from the defendant's building; and that the plaintiffs ensure that no scaffolding comes into contact with the defendant's building or attachments to it. 54 Interpreting that last condition as including shade cloth attached to the scaffolding, I consider that, subject to the acceptance of those conditions, the use of the land in accordance with the easement, whether that land is regarded as dominant or servient land, would not be inconsistent with the public interest in relation to matters of fire safety. 55 In relation to the reduction of light and air, in my opinion the rooms most affected would be those close to the scaffolding and without a front or rear window, but even in relation to those rooms the evidence does not show there would be any danger to health. When I come to discuss compensation I will find that some damage to the defendant's business would be involved but, in my opinion, that does not justify a finding of inconsistency with the public interest. 56 As I understand it, no submissions were made concerning insurance. In any event, I note that the plaintiffs are prepared to undertake to include the defendant in their insurance policy up to a limit of $10 million. 57 I come now to the question of compensation. 58 The manager of the Biltmore, Mr Millar, gave evidence concerning complaints and difficulties in renting rooms during December 1998, when the scaffolding was in place for the demolition. His evidence was to the effect that he was offering discounts, which appear to be between about ten to twenty percent of the rentals for relevant rooms, and that still people were cutting short their intended stay. There was other evidence to the effect that two or three people per day were checking out, and that Mr Verebes gave an instruction that thirty percent discounts could be offered. 59 Mr Verebes provided a calculation supporting a claim for about $150,000 for the work's thirty week period. In substance the calculation was on the basis that thirty of the hotel's rooms would be affected, the total rental value of these being $1,495 per day. Mr Verebes estimated that, as a result of the erection of scaffolding as proposed, fifteen percent of these rooms would not be used, giving a figure of $224. In addition, there would be early check-outs, giving a further figure of $150. Of the remainder, he estimated that sixty percent of the total would require a discount of about thirty percent, giving a further $269, these amounts totaling $643 per day, or about $4,500 per week. In addition, he estimated there would be additional loss on the premium rates which could otherwise be charged over the four days around New Year 2000, and on the increased rates which could otherwise be charged during the lead up to the Olympic Games after 30 June 2000. 60 Mr Verebes also gave evidence that he would expect the return from the hotel to increase by about ten percent a year, particularly following the renovation of the hotel; and he gave evidence that he would expect the detriment to the hotel's business to continue for some time after the scaffolding was removed, in that it would take some little time for the business to recover to its usual level. 61 There is in evidence before me daily summary sheets showing amounts paid, and the rooms and number of days in respect of which those amounts were paid, for the month of December in 1997 and 1998; and also a schedule prepared by the plaintiffs on the basis of similar summary sheets, showing comparisons between November 1997 and November 1998, December 1997 and December 1998, January 1998 and January 1999, and February 1998 and February 1999. As I understand it, it is accepted that these comparison summaries are accurate as regards the takings, though not accurate in relation to the room occupancy, because it seems they did not take into account the number of days for which various payments were made. 62 There is also in evidence some tables prepared by the defendant purporting to show trends over various months. There was evidence given by Mr Verebes which I take to mean that the defendant did have a book from which the vacancies of particular rooms on particular days could be established; but that book was not produced by the defendant, although in my opinion its production was required by a notice to produce served on the defendant. 63 For the plaintiff, evidence was led by a valuer to the effect that the easements were worth $500 per week; but that appeared to be based purely on the arrangement previously made between the parties. It was submitted on behalf of the plaintiff that I should accept $500 per week as an appropriate figure for compensation. It was submitted that I should reject Mr Verebes' evidence, because of his evasiveness in the witness box and the failure to produce records. 64 The plaintiffs submitted that at best one could find the possibility of a loss of around $150 per day, and that, treating the matter as a chance of such loss, as discussed in Sellars v Adelaide Petroleum (1994) 179 CLR 353, this also confirmed $500 per week as appropriate compensation. 65 For the defendant, it was submitted that the onus was on the plaintiffs to establish what was appropriate compensation. It was submitted that I should accept Mr Verebes' evidence, in that the case had been brought on urgently at the insistence of the plaintiffs, so the lack of production of adequate accounting evidence and other materials was not to be criticised. I was referred to Wengarin Pty Ltd v Byron Shire Council (1999) NSWSC 485. It was submitted that it was appropriate to include in the compensation some element of the plaintiffs' profit from having an easement. 66 In my opinion, the onus does lie on the plaintiffs to show that the defendant can be adequately compensated. In my opinion, this means that there is an onus on the plaintiffs to show, first, what loss or other disadvantage the defendant will suffer, and secondly, that this loss or disadvantage can be adequately compensated. However, in deciding whether this onus has been discharged, it is appropriate to take into account that the relevant facts are essentially within the knowledge of the defendant. 67 In my opinion, Mr Verebes was evasive in the witness box, and even taking into account the urgency of the hearing, the explanation for not producing the primary records which apparently existed of vacancies occurring during the previous period of the scaffolding, was unsatisfactory. Having regard to this, and having regard to the self-interest involved in his evidence, and also having regard to the lack of any clearly stated basis for the estimate made by Mr Verebes, other than his experience in the hotel business, I find myself unable to give very much weight to those estimates. On the other hand, it seems to me that the evidence of the plaintiffs' valuer, based as it was on what had happened in relation to the demolition phase, is of no help. 68 The table prepared by the plaintiffs shows that the rent received in November 1998 was on average $322 less per day than in 1997; the rent received in December 1998 was on average $406 less than the rent received in December 1997; that received in January 1999 was on average $162 per day less than in January 1998; and that received in February 1999 was on average $434 a day less than in February 1998. 69 The evidence is that renovations were completed at about the end of November 1998, and it is possible that those renovations could account for the decreased rents in November 1998. It is possible that the $406 per day reduction in December 1998 was substantially contributed to by the existence of the scaffolding. The decline in January 1999 could be due to the fact that the demolition was not fully completely until some time in January, and also to the lagging effect or delay in recovery referred to by Mr Verebes. 70 The decline in February 1999 is less easy to understand. It may be again due to the business not recovering, although one would have thought that this effect would be less pronounced in February 1999 than in January 1999. The declines recorded by those figures may in fact be insufficient to fully reflect whatever factors were impacting on the business at that time. Although the figures and graphs produced do not support Mr Verebes' estimate that ten per increase in business per year would be reasonable, it would in my opinion be reasonable, especially having regard to the renovations, to expect that, other things being equal, the takings would increase from year to year, and in particular increase as a result of the renovations. Even if one takes only five percent as an expected improvement between December 1997 and December 1998, that would involve an expected increase of $137 per day for that period, which would make the full decline in December 1998 an amount of something like $543. 71 I think that, having regard to the onus that lies on the plaintiffs, it is reasonable to start from this figure of $543 a day, and then to discount it substantially, something like fifty percent, on the basis that some of this decline was probably due to the demolition itself, or the fact that there was a building site next door, rather than just the existence of the encroaching scaffolding, and also because the February figures suggest the possibility of other unexplained causes, and also because for, the construction phase, the scaffolding would not be to the full height over the whole period. 72 There is the consideration that December is, on the evidence, one of the best months for the defendant's business; but it seems to me that this, to some extent, cuts both ways in that the stronger the demand, the less likely it is that there will be vacancies or a need for a discount, whereas in the other months it could be said that a percentage loss would involve a lesser loss. It is also appropriate to take into account that, but for other factors, the passage of a further year might be expected to involve an improvement in the defendant's business, perhaps of the order of five percent. 73 Taking all these matters into account, taking into account the fact that the onus is on the plaintiffs, but also taking into account that the defendant has not provided material which it could have provided, in my opinion the loss or other disadvantage that would arise from the imposition of the easement is essentially a loss or disadvantage to the business which can reasonably be quantified at $300 per day or $2,100 per week. In my opinion, that loss would continue from the time the easement is imposed to five weeks after the scaffolding has been completely removed. In my opinion, no additional loss or damage would be caused by the other easement contemplated by the plaintiffs' application. 74 The next question is whether all reasonable attempts have been made to obtain the easement. 75 For the plaintiffs, it was submitted that early notice had been given in November 1998. The scaffolding had been re-designed to lessen the impact on the defendant and notice of this given in April 1999. There was extensive correspondence seeking agreement between July and early September 1999. Compensation had been offered consistent with the previous compensation. The defendant had been requested to put a figure claiming compensation and had failed to do so. 76 For the defendant, it was submitted that the plaintiffs had acted in a high-handed and belligerent way, and that the defendant had acted reasonably in requiring the other problems caused by the plaintiffs' activities to be dealt with before the defendant considered the grant of the easement, particularly in circumstances where the plaintiffs never responded properly to the defendant's complaints. 77 In my opinion, although some of the defendant's complaints concerning trespass were justified, the substance of the impasse that occurred was that the defendant was requiring the plaintiffs to accede to all its demands, without adjudication of their justification, before the defendant would address the question of the grant of an easement or licence. I do not think the plaintiffs' unwillingness to accede to the defendant's demands without adjudication of their merit was unreasonable, and in those circumstances I am satisfied that the plaintiffs have made all reasonable attempts to obtain the easement. 78 Finally, there is the question of whether the easement should be granted and, if so, on what conditions. It was submitted for the defendant that it should be refused because of the plaintiffs' conduct, and that if it were granted it should be on the strictest conditions concerning fire safety, security, reinstatement of the existing damage, and on these conditions the defendant would seek to be heard further. 79 The plaintiffs have submitted conditions to which they are willing to be subjected if the court grants the easement, as set out at the conclusion of their written submissions. In my opinion, those conditions are reasonable. 80 There should in addition be a condition concerning the defendant's complaints about damage from the plaintiffs' activities. As I understand it, some security has already been provided by the plaintiffs against their liability for such damage. In my opinion, there should be a condition of the easement that the plaintiffs undertake to pay to the defendant the amount which appropriately reflects any damage to the defendant's property caused by the demolition and construction work on the plaintiffs' property, such amount to be determined in a manner agreed between the parties or, in default, as directed by the court, and that the plaintiffs pay such amount within a very short period of that determination. 81 In my opinion, the other condition should be substantially as proposed by the plaintiffs, but in addition there should be compensation at the rate of $300 per day from the grant of the easement to five weeks after the scaffolding is finally removed. 82 On the question of costs, I will express a tentative view. I adhere to what I said in 117 York Street that the defendant in such cases is not automatically entitled to indemnity costs. 83 In this case, the defendant has conducted very vigorous adversary litigation and has displayed some unreasonableness in its conduct in dealing with the records of the hotel. My tentative view is that this is not sufficient to disentitle the defendant to the costs to which it is prima facie entitled under s.88K. The defendant has in fact had some success on the amount of compensation, and there is some merit in the defendant's submission that it had problems in presenting its case at an urgent hearing granted for the benefit of the plaintiffs. My tentative view is that the plaintiffs should be ordered to pay the defendant's costs of the proceedings. 84 I direct the plaintiffs to serve draft short minutes on the defendant by 5pm today, and stand the matter over to 2 o'clock on Thursday, 21 October with a view to making the orders then. ***********

Katakouzinos v Roufir Pty.Ltd.

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