Kiel v Buttelig

Background

1. The plaintiff owns property in Bondi and the defendants are the owners of property next door to the plaintiff's.
2. The defendants commenced renovations and building work which resulted in an allegation of damage being caused to the plaintiff's property.
3. In particular the defendants' renovations involved the addition of another storey above the ground floor. The plaintiff's and defendants' properties share a common wall. Part of the common wall is double brick and part of it is single brick. The defendants' extension at that part of the common wall which is double brick is not the cause of any substantive issue in dispute between the parties. The substance of the dispute is that the upper story extension extends beyond the double brick wall and where it does so it is built on top of the single brick wall. At that point it encroaches on the plaintiff's property by the width of about a brick.
4. At that point the extension is also non-compliant with the building/ development consent that was granted by the local council.
5. There have been numerous proceedings seeking, amongst other things, compliance with the council's development consent, access to the plaintiff's property to remove the wall and rebuild it, mediation, the appointment of experts to examine the wall and ascertain what damage if any has been suffered by the plaintiff, etc. The proceedings brought by the plaintiff in this jurisdiction were, in summary, for compensation for the damage the plaintiff suffered, for the costs involved in relation to the removal and rebuild of the wall, and the rectification of other damage she says the defendants' building work has caused.
6. There was a settlement of some sort proposed at least in relation to the building work required to rectify the encroachment, however it was not finalised and so did not provide a solution that settled these proceedings. The terms of that settlement and the lack of resolution of the proceedings are, the plaintiff says, relevant to the issue of costs in this matter

Plaintiff's Submissions

1. The plaintiff says that rule 42.19, despite it terms, does not fetter the court's general discretion to make costs orders by operation of section 98 of the Act.
2. The defendants say that this rule does create a presumption of a sort that the plaintiff is liable for costs in circumstances proceedings are discontinued but does provide a default position. However the case of Fordyce v Fordham [2006] NSWCA 274 makes it clear that there is no such presumption that has the effect of fettering the general discretion provided by section 98. The plaintiff referred the court to paragraphs 78, 79 and 47 of that decision, and said on the basis of that decision and the plaintiff's misconduct the general rule should be departed from and each party should bear their own costs. (See also Johnson v Clancy [2010] NSWSC 1301.)
3. The plaintiff submits that the history and conduct of the defendants in the various proceedings between the parties is relevant to a determination of costs. A summary of the various proceedings is set out below.

The Defendant's Submissions

1. The defendants submit that the court should look at these proceedings to determine costs and not be distracted by the conduct of other proceedings in other jurisdictions. Of particular relevance is that these proceedings were discontinued by the plaintiff only after firstly, a joint expert agreed to by both parties provided a report that was not entirely favourable to the plaintiff, and secondly an application by the plaintiff seeking leave to rely on its own expert and have the hearing date vacated was rejected. That application was made on 30 June 2015 and dealt with by the court on 20 July 2015. It resulted in the hearing date of 25 August 2015 being confirmed.

Summary of Proceedings between the Parties

1. A history of these proceedings, directions hearings and the notice of motion dealt with on 20 July is as follows:

• In 2009 Waverley Council gave development consent to the defendants to undertake major renovations of their property.
• Between 2010 and 2011 the defendants carried out the building work.
• In March 2012 the encroachment was discovered as was the fact that the work was not in accordance with the development consent.
• The defendants eventually sought access to the plaintiff's land to rectify that.
• On 28 March 2012 an order was sought from Waverley Local Court for an "access to neighbouring land" order, under the Access to Neighbouring Land Act 2000.
• On 12 May 2012 the council issued an order requiring the defendants to comply with the development consent.
• On 18 June 2012 the defendants appealed the local council's requirement to comply with the development consent. This appeal was to be heard at the Land and Environment Court. These proceedings were discontinued by the defendants a few months after they were instituted. This was because, as I understand it, the Council accepted that the defendants would use their best endeavours to negotiate with their neighbour to seek access to the plaintiff's land and remove the encroachment, or to seek appropriate relief in the Land and Environment Court (i.e the creation of an easement).
• Later in 2012 the defendants commenced Part 3 proceedings in the Land and Environment Court, which I am told sought a variation of the development consent and in effect sought to retain the encroachment.
• On 7 February 2013 the defendants discontinued those proceedings in the Land and Environment Court on the basis that the defendants agreed to remove the encroachment from the plaintiff's land.
• The application seeking access to the neighbour's (plaintiff's) land was still on foot, and in those proceedings the defendants relied on an affidavit of a builder specifying what work needed to be done to remove the encroachment. This entailed the removal of the encroaching wall and the construction of a new wall wholly within the boundary of the defendants' property.
• On 1 May 2013 the defendants sought to amend the application seeking to remove the encroachment to include access to the plaintiff's property and to make good the common wall.
• On 7 May 2013 the parties reached an agreement about how to progress the necessary building work to remove the encroachments and entered into a settlement agreement (the terms of which were relied upon by the plaintiff in this application).
• Consent orders made at Waverley Local Court in relation to the access to neighbouring land proceedings incorporated the settlement agreement. In effect, the parties agreed that the defendant could access the plaintiff's land on conditions; and the defendants were to provide detailed plans and specifications.
• The parties could never agree on those details and specifications. The parties blame each other; the plaintiff says that the specifications were never produced, and the defendants say that access to the land was denied.
• Between May 2013 and December 2013 no work was done to progress the settlement in accordance with the agreement.
• The plaintiff then commenced these proceedings in December 2013 seeking damages and compliance with the development consent to rectify and remove the encroachment.
• When no response and no defence was filed default judgment was applied for in February 2014 and entered on 18 February 2014.
• On 20 March 2014 the defendants filed a motion to set aside the default judgment and relied on an affidavit of the second defendant annexing a draft defence. The draft defence denied any encroachment. The defendants were successful in having the default judgment set aside.
• The defence filed maintained that there was not encroachment, notwithstanding: - the Waverley Council proceedings in which the defendant sought access to the plaintiff's property to rectify the encroachment, and - the Land and Environment Court proceedings, which resulted in a withdrawal on the defendants' (the applicants in those proceedings) undertaking to use its best endeavours to obtain consent from the plaintiff to enter the property and a suggestion that it would consider applying for another remedy such as seeking an easement in respect of the encroachment. All of these steps were entirely inconsistent with the defendants maintaining that there was no encroachment in defence of the plaintiff's claim in these proceedings in the General Division of the civil jurisdiction of the Local Court.
• The plaintiff maintains that this was an outrageous position for the defendants to adopt in light of all the circumstances of the litigation between the parties.
• The plaintiff also relies on the numerous steps taken by the plaintiff before discontinuance, including offers of compromise and the defendant's rejection of those on the basis of an assertion that there was no actual encroachment, despite the necessary concession that it would appear should have been made, that there was in fact an encroachment.
• In July 2014 these proceedings were adjourned for four months for the matter to be mediated. Mediation resulted in a settlement agreement being reached. The settlement included the removal of the encroachment (which up until that point in these proceedings had not been admitted).
• A number of actions were to be undertaken, such as obtaining another survey and a builder to do the work, and submitting plans of the proposed work. When the matter came back for further mention the agreement had not been implemented and was adjourned again to enable the settlement to proceed hopefully to a resolution of the proceedings.
• The plaintiff says she heard nothing from the defendants until 8 December 2014. On that date the plaintiff received a letter from the defendant's solicitor. It provided a plan in accordance with clause 4 of the settlement agreement and advised that the scope of work to be undertaken would be provided to the plaintiff (as was agreed in the settlement). However, this was never provided by the defendants.
• The matter came back before the court for further mention in December and the plaintiff submits that it appears the defendants decided not to comply with the settlement agreement. Nevertheless on the basis of submissions made by both parties to the court the proceedings were adjourned again to effect the settlement that had been agreed upon.
• In March 2015 the matter came before me and as it had still not been resolved it was listed for hearing in August. Directions were made in relation to the service of evidence.
• The orders and directions made in March included an order granting leave to rely on expert evidence and in particular that a single expert be appointed. That expert's report would be served on both parties by 1 May 2015. The joint report was not provided until some time after the due date.
• Prior to the usual review to assess the parties' readiness for hearing, two notices of motion were required to be determined by the court. The first was filed by the plaintiff seeking the rejection of the expert's report and seeking leave to obtain further expert evidence and the vacation of the date. The second was a motion filed by the defence seeking the plaintiff to contribute to half of the cost of the expert who had provided the joint report.
• As previously stated the plaintiff was unsuccessful in her notice and the defendants were successful in theirs.
• In summary I am told the report opined that although there was an encroachment, it was minimal and there was little merit in rectifying it; the damage occasioned was not extensive; and the other damage alleged by the plaintiff was not made out.
• The plaintiff submits that its decision to discontinue was based on Waverley Council indicating it would bring proceedings for non- compliance with the development consent and that those proceedings would provide for an appropriate resolution of the dispute between the parties. The plaintiff notified the defendants of her intentions on July 24 2015.
• The defendants submits that the decision to discontinue was on the basis of the very real disadvantage the plaintiff was in as a result of the opinion expressed by the joint expert in his report and the confirmation of the hearing date. The defendants' position, as I understand it, is that the plaintiff's expectation that the Council will prosecute for non-compliance with the Development Consent and that this will provide a more appropriate outcome for the plaintiff, does not displace the inference that the plaintiff has abandoned her case or capitulated to the defendant such that she should not be relieved of her obligations to pay the costs of the defendants.

Determination

1. Exceptions to the ordinary rule in relation to costs focus on the conduct of the successful party which may disentitle it from the beneficial exercise of the discretion. In Oshlack v Richmond River Council [1998] HCA 11 one such consideration was whether there had been any misconduct by the party who would usually receive the benefit of a costs order. His Honour Justice McHugh said at [69] that "misconduct" means misconduct relating to the litigation or the circumstances leading up to the litigation; such conduct allows the court to properly depart from the usual costs order when the "successful party by its lax conduct effectively invites the litigation." His Honour went on to say at [70] that there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct.
2. Johnson v Clancy [2010] NSWSC 1301 is a case directly on point. His Honour Justice Hallen listed the principles relevant in any determination of which party should bear the burden of a cost order where proceedings have been discontinued before a final hearing. In summary they are:

• Costs are discretionary and there is no absolute rule other than the discretion must be exercised judicially.
• The purpose of costs is to compensate not to punish.
• Rule 42.19 does not give rise to a presumption that costs will be ordered against the plaintiff but does create a "starting point" unless displaced by a discretionary decision.
• The burden is on the party seeking to show that the cost order should be other than that indicated by the rule to demonstrate some proper justification, sound positive ground or good reason for departing from the ordinary position. Instances of such have been where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff's control, where the plaintiff has achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant.
• Where the proceedings are discontinued prior to any hearing on the merits the court cannot try a hypothetical action between the parties to determine the appropriate cost order. At the time of discontinuance it will be impracticable to assess the eventual prospects of success in the action.
• It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order. A relevant consideration is whether the plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them. All relevant circumstances and not just the fact of discontinuance should be considered; the reasons for the discontinuance can bear heavily on the exercise of the discretion as to cost.
• It may be appropriate on occasion to consider the conduct of the defendant prior to the commencement of proceedings where such conduct may have precipitated the litigation (see Foukkare v Angreb Pty Ltd [2006] NSWCA 335).
• The court should consider the distinction between cases where after litigating for some time one party surrenders to the other, and those cases where some supervening event or settlement so removes or modifies the subject of the dispute that although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the first circumstance there would be no reason to depart from the rule. The second scenario creates difficulties in discerning the clear reason why one party rather than the other should bear the costs (see Foukkare).
• Where the proceedings are discontinued after interlocutory relief has been granted, the court may take into account the fact that the interlocutory relief has been granted
• The subjective motivation of the plaintiff in discontinuing will generally be immaterial; the discretion should be exercised on the basis of the objective circumstances established on the evidence.

1. If the only relevant conduct was that of the defendants' denial of any encroachment, in circumstances when it had been apparently conceded in each of the other jurisdictions in which proceedings had been commenced, then such conduct could be considered misconduct that would disentitle the defendants from the usual cost order. However, the claim brought by the plaintiff was not limited to that and can be summarised as seeking damages for:

• The encroachment on the common boundary,
• Damage done in relation to the defective building work including water penetration,
• Incorrect installation of roof flashing,
• Cracking of the ceiling and walls,
• Damage from mould growth and cement residue,
• Damage to external parts of the property,
• The inadequacy of the loading on the common wall, and
• Inadequate fire compliance and further items of damage, certification and compliance that the plaintiff said was emerging and outstanding.

1. The plaintiff claimed monetary damages to rectify all the defects and damage, including removal of the encroachment. The plaintiff also requested an order that the defendants restore the structural integrity of the common wall and associated structure to a standard which existed prior to the building work commencing, or in the alternative that the defendants be required to rectify the substantial damage caused to the common wall and to the premises.
2. Firstly, there is no remedy available in this court that would result in an order requiring the defendants to restore the structural integrity of the common wall or to require the defendant's to rectify the damage allegedly caused to the common wall. Accordingly that part of the claim appears to be misconceived.
3. I note in passing that this court has no jurisdiction in relation to title to land other than where the question of title is merely incidental (which it would appear to be here).
4. Furthermore a substantial part of the claim was in relation to building defects that were not admitted by the defendants and apparently not supported by the joint expert's report.
5. That report was considered by this court when it heard the plaintiff's notice of motion seeking to vacate the hearing date and allow the plaintiff to obtain another expert report. The plaintiff was unsuccessful in its interlocutory motion and therefore, the inference is that they would also have been unsuccessful in relation to the part of the claim to which the expert's report was relevant. It could not be said the defendant had acted unreasonably in defending that part of the claim.
6. The intervening event of the failure of the plaintiff's interlocutory step did not "so remove or modify the subject of the dispute" that no issue remained except the issue of costs.
7. Additionally the plaintiff's suggestion that the local council's proposed prosecution is a more appropriate way to determine the dispute is entirely subjective. It may be more appropriate to the plaintiff only if it is in fact undertaken by the Council and then if the Council is successful, but otherwise this expectation of the plaintiff's would seem to be immaterial to the success or otherwise of these proceedings.
8. It would appear that the decision of the plaintiff to discontinue the proceedings prevented a final determination of the claim for damages at least in relation to defective building work and the consequent damages claimed for such things as water penetration and the cracking to walls and ceilings. The single expert report may also have resulted in a finding that any damages recoverable in respect of the encroachment was minimal, even though the defendants appear to be the party in the wrong, initially at least, in regard to the alleged encroachment.
9. In these circumstances it would not be appropriate to depart from the rule that the plaintiff should pay the defendants' costs that have not already been the subject of any costs orders in the amount as agreed or assessed. I order that the defendants' costs be paid by the plaintiff as agreed or assessed. Exceptional circumstances have not been established to warrant an order on an indemnity basis. Magistrate J Keogh 17 September 2015

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