[2005] NSWSC 1003
Shi v Abi-K Pty Ltd (2014) 87 NSWLR 568
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Catchwords
[2005] NSWSC 1003
Shi v Abi-K Pty Ltd (2014) 87 NSWLR 568
Judgment (2 paragraphs)
[1]
Judgment
These proceedings concern an application by the plaintiffs under s 88K of the Conveyancing Act 1919 (NSW) for the imposition of a stormwater drainage easement over the defendant's property in West Ryde. The proceedings were heard over two days in June 2017. The Court delivered its reasons for judgment on 27 July 2017 (see McGrath v Mestousis [2017] NSWSC 995). The Court concluded that an order for the imposition of the easement should be made, and that compensation in the amount of $60,000 should be paid to the defendant. Orders to that effect were made on 21 August 2017.
The question of costs remains outstanding. Directions were made for the provision of written submissions concerning costs. Such submissions have been provided by both the plaintiffs and the defendant. The parties have also filed affidavits concerning the issue of costs. In the absence of any contention that a further oral hearing is necessary, I consider that the question of costs can be appropriately determined on the papers. The affidavits may be taken to have been read, and taken into account to the extent that they are relevant to the matters raised in the submissions. I do not consider it necessary to resolve any of the factual conflicts which arise from the affidavits. Those conflicts could not be resolved without a further hearing, and in any event the matters in dispute are not of sufficient relevance to warrant the taking of that course.
Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that, subject to that or any other Act, costs are in the discretion of the court. In proceedings under s 88K of the Conveyancing Act, s 88K(5) operates. That sub-section provides that the costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary.
The plaintiffs in the present case seek an order to the contrary. In essence, they submit that they should only be ordered to pay some of the defendant's costs. They submit that a limitation (in particular a cap as envisaged by ss 98(4)(c) or 98(4)(d) of the Civil Procedure Act) should be imposed having regard to the manner in which the defendant conducted the litigation and also the defendant's failure to accept a Calderbank offer made to him on 18 May 2017. That offer provided for compensation to be paid in the sum of $62,000.
The plaintiffs contend that the defendant should only recover costs in an amount considered by the Court to be reasonable, or alternatively should be denied his costs of the hearing.
The defendant contends that there is no reason to depart from the usual position set forth in s 88K(5), and further seeks an order that the plaintiffs pay his costs from 15 April 2016 on an indemnity basis. That claim rests upon the plaintiffs' failure to accept a Calderbank offer made by the defendant on that date.
It is well established that an order to the contrary as envisaged by s 88K(5) may be made where the defendant has engaged in unreasonable conduct, including conduct that has made the proceedings more expensive (see 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 at 523; Mitchell v Boutagy [2001] NSWSC 1045 at [60]; Khattar v Wiese [2005] NSWSC 1014 at [77]).
In considering the reasonableness of the defendant's conduct, it is necessary to bear in mind that the conduct occurred in response to an application which, if successful, would result in the creation of an interest in the defendant's property. It has been held that s 88K bears a confiscatory nature (see, for example, Khattar v Wiese (supra) at [27]). Moreover, even though appropriate compensation is generally required to be paid, an application under s 88K is not analogous to a claim for damages (see Shi v Abi-K Pty Ltd (2014) 87 NSWLR 568; [2014] NSWCA 293 at [98]). Accordingly, it is inappropriate to employ that analogy to determine whether it was unreasonable for a defendant to a s 88K application to fail to accept a Calderbank offer (see Shi v Abi-K Pty Ltd (supra) at [97]-[98]).
In Shi v Abi-K Pty Ltd (supra) Basten JA (with whom Barrett and Ward JJA agreed) went on to state (at [98]):
The ordinary rule, that the applicant pay the costs of any proceeding, reflects the fact that an applicant for such an order has no right to the grant of an easement over the property of another. Further, the rule that the applicant pay the costs relates to proceedings which could only be brought after all reasonable attempts had been made (presumably by seeking agreement) but have been unsuccessful. The statutory scheme is not consistent with the proposition that an applicant can obtain a right to costs by offering more than the compensation ultimately ordered to be paid as a condition of the easement. The property owner is entitled to refuse to consent to the easement, thereby requiring the applicant to satisfy a court as to the various preconditions, including questions of the public interest, and that the grant of the easement is reasonably necessary in the sense provided by the section. Unless it has done more than reject reasonable offers of compensation, the property owner should not be put at risk of an adverse costs order in those circumstances.
In the light of these principles, the plaintiffs place primary reliance upon the manner in which the defendant resisted the claim. They submit that this conduct, viewed together with the defendant's failure to accept their Calderbank offer, provides a proper basis for the Court to make an order to the contrary under s 88K(5).
The plaintiffs make numerous criticisms of the defence to their claim. They refer to the defendant's evidence that his costs are in the order of $350,000, and submit that this is disproportionate to the matters at issue and shows that the defendant has been prepared to defend the claim "at all costs", contrary to the overriding purpose referred to in s 56 of the Civil Procedure Act. The plaintiffs submitted that the defendant was prepared to take "any and every point" in opposing the easement.
The plaintiffs also criticised particular aspects of the defence, including the following:
1. a change in attitude, between February and June 2015, in relation to acceptance of the opinions contained in the December 2014 report of the Court appointed expert (Mr Kenny);
2. the continued and ultimately unsuccessful opposition to the alternative construction methodology put forward by Mr Kenny in June 2015, even though that methodology dealt with the defendant's concerns about underboring and fracking;
3. the attempts to "re-agitate" the issue of the appropriate route for stormwater drainage, in circumstances where that issue had been dealt with by the Court appointed expert and no leave was sought (under Uniform Civil Procedure Rules r 31.52) to adduce evidence from another expert in that field; and
4. the assertion of an exaggerated claim that considerable loss and inconvenience would be suffered if the easement was imposed, due to a need to move out of the property whilst construction works were carried out.
In relation to the Calderbank offer made in May 2017, the plaintiffs submitted that the state of the evidence at that time was such that it was unreasonable of the defendant to reject it. In this regard, the plaintiffs referred, amongst other matters, to Mr Kenny's report of October 2016 in which he stated that the construction methodology proposed by the plaintiffs' expert (Mr Healey) "can provide an acceptable outcome".
The defendant submitted that it was reasonable for the proceedings to be defended. It was put, in essence, that the defendant, acting on the advice of a structural engineer (Mr Baxendale), raised legitimate concerns about the effect the easement may have on his property, including damage that may be sustained as a consequence of the laying of the stormwater drainage pipe in the proposed easement area. It was pointed out that the concerns raised about underboring and fracking prompted changes to the proposed construction methodology (as reflected in Mr Kenny's further reports of June 2015 and October 2015), and that these changes themselves added to the cost of the proceedings. The defendant further noted that until May 2017 there was some uncertainty (reflected in Mr Kenny's report of October 2016) about whether the plaintiffs would obtain approval for their development. Finally, the defendant submitted that regard should be had to a Calderbank offer he made in April 2016 in which he offered to allow the easement on certain terms.
That the defendant has apparently incurred costs in the order of $350,000 in relation to this case gives rise to considerable disquiet. As I noted in the principal judgment (at [81]), the defendant appeared implacably opposed to the easement. He has clearly defended the case strenuously, and in so doing has made extensive use of the services of Mr Baxendale. This has no doubt contributed in large measure to the total amount of costs incurred. However, I am unable to conclude that the large quantum of costs itself demonstrates unreasonable conduct on the part of the defendant, or is so disproportionate to the matters at issue that it establishes that the defendant has conducted his defence in a manner contrary to the overriding purpose referred to in s 56 of the Civil Procedure Act. In assessing the reasonableness of the defendant's conduct, it is necessary to focus more particularly upon what the defendant actually did in the conduct of his defence.
In that regard, there is much to be said in support of the defendant's submission that he raised legitimate concerns about how the stormwater pipe could be safely installed without causing undue damage or risk of damage to the structures on the land and the services beneath. It should not be overlooked that the opinion contained in Mr Kenny's initial report of December 2014 (upon which the plaintiffs' case was largely based) that an easement over the defendant's property was the most reasonable option, was based in part on there being no impact on the existing improvements or services resulting from the installation of the stormwater pipe. Mr Kenny also made various recommendations in that report, including as to the preparation of a comprehensive construction methodology, and engineering certification that there would be no adverse impact on improvements and services.
The defendant is also correct to point out that the concerns he raised led to changes in the proposed construction methodology. The refining of the methodology was a somewhat lengthy process which was not made any easier by the uncertainty surrounding the precise locations of the existing services beneath the defendant's property. That uncertainty remained even after Mr Kenny conducted his investigations in April 2016 (pursuant to consent orders made in March 2016). The final construction method proposed by the plaintiffs did not emerge until August 2016, and it was not until October 2016 that Mr Kenny expressed the opinion that this method "can provide an acceptable outcome". I do not accept that the defendant's conduct up to that time could be said to be unreasonable.
Neither do I think that the defendant's opposition to the easement thereafter was unreasonable. It may be accepted that the plaintiffs had a strong case. However, the defendant had served evidence from Mr Baxendale which raised matters of concern in relation to risks involved in the proposed construction, and raised an issue as to whether there was sufficient space in part of the proposed easement area to accommodate the stormwater pipe as well as the existing services. Whilst those issues were ultimately resolved unfavourably to the defendant, I do not regard the matters raised as being so weak that it was unreasonable to pursue them, bearing in mind the nature of the proceedings. In addition, even in the absence of evidence other than Mr Kenny's concerning the most reasonable route for stormwater drainage, the defendant was entitled to test Mr Kenny's opinions in cross-examination, as envisaged by Uniform Civil Procedure Rules r 31.51.
I have not overlooked that on 11 May 2017 the plaintiffs obtained an approval for their proposed development, thereby further strengthening their case, and that on 18 May 2017 the plaintiffs made a Calderbank offer which provided for payment of compensation at a figure slightly higher than that ultimately assessed by the Court.
The Calderbank offer was made at a time when almost all of the evidence had been served, and the defendant was thus able to give it due consideration having regard to the prospects of successfully resisting the imposition of the easement. However, the offer did not provide for the plaintiffs to pay the defendant's costs up to the date of the offer. Instead, a lump sum amount of $100,000 was offered. In circumstances where the proceedings had been on foot for over three years and a great deal of expert evidence had been served by the defendant, his recoverable costs (on the ordinary basis) may have been well in excess of $100,000 by that time. Given that an order for costs is usually made in favour of a defendant to a s 88K application, and noting that the offer did not suggest that this would not occur in the present case, I do not think that the failure of the defendant to accept the offer could be considered unreasonable in the circumstances.
I have also considered the plaintiffs' criticisms of particular aspects of the defence, including those referred to above (at [12]). The defendant's response to Mr Kenny's report of December 2014 may have changed after he retained his solicitors and obtained the services of Mr Baxendale, but I see nothing unreasonable in that. As I have stated, the defendant raised legitimate concerns, and Mr Kenny's opinions were partly based on there being no adverse impact on existing improvements or services. I have further accepted that the concerns raised led to changes to the proposed construction methodology in the period from about June 2015 to August 2016, and that the remaining issues the defendant pursued were not so weak as to lead to the conclusion that the defendant thereby acted unreasonably.
Moreover, whilst the defendant did not seek leave to adduce expert evidence to contradict Mr Kenny's evidence about the appropriate route for stormwater drainage, it remained open to challenge Mr Kenny's evidence in cross-examination. I note, however, that the defendant sought to adduce evidence on that matter through Mr Baxendale, but much if not all of that evidence was rejected. I do not think that the defendant should receive his costs in relation to that evidence. That would at least include the costs relating to Mr Baxendale's affidavit of 27 April 2016 and some of his affidavit of 12 May 2017 (that is, paragraphs 18 and 19(d)).
The defendant's claim that considerable loss and inconvenience would be suffered if the easement was granted, due to a need to move out, was not accepted by the Court. The defendant contended that there would be a need to relocate during construction due to a disruption to his services. In my view that claim was tenuous at best. The basis of the claim was fundamentally undermined by the evidence given by Mr Kourani (who was called in the defendant's case). This aspect of the case for compensation was in my view so untenable that it was unreasonable of the defendant to pursue it. I do not think that the defendant should receive his costs of this aspect of his case. That would at least include the costs relating to the affidavit of the defendant's wife sworn on 12 May 2017.
I am also of the view that the plaintiffs ought not be ordered to pay any costs of the defendant thrown away as a result of the vacation of the hearing dates in November 2016. That circumstance arose without fault on the part of the plaintiffs. It arose because Mr Kenny indicated that he was no longer available to attend the hearing.
Apart from the matters identified in [22]-[24] above, I do not think that it would be appropriate to depart from the ordinary rule encapsulated within s 88K(5) of the Conveyancing Act. Further, I do not think that the defendant's conduct in relation to the litigation warrants the imposition of any other limitation upon the costs he may recover, such as a cap as envisaged by ss 98(4)(c) and 98(4)(d) of the Civil Procedure Act. In that regard, it seems to me that despite the disquiet that is engendered by the figure of $350,000 nominated by the defendant as the total amount of his costs, the Court is not in a position to make properly informed decisions about whether the costs are grossly excessive (see Sherborne Estate (No 2): Vanvalen v Neaves (2005) 65 NSWLR 268; [2005] NSWSC 1003 at [42]). This appears to be accepted by the plaintiffs, who invite the Court to allow them to seek production from the defendant of a detailed reconciliation of his costs, and leave to adduce evidence establishing how, when and in what circumstances the costs were incurred.
I do not propose to allow such a course, which would almost certainly result in the parties becoming embroiled in another round of costly and protracted litigation (see Sherborne Estate (No 2) Vanvalen v Neaves (supra) at [43]-[44]). In my opinion, any questions concerning the reasonableness of any costs claimed by the defendant are best left to the usual cost assessment process.
I do not see any good reason to order indemnity costs in favour of the defendant from 15 April 2016 due to the failure of the plaintiffs to accept his Calderbank offer. The defendant's submissions do not explain why it was unreasonable for the plaintiffs to accept the offer. In my opinion, that failure was not shown to be unreasonable in circumstances where the offer provided, amongst other things, that no works could commence in the easement area until the defendant's engineer gave his approval, and the plaintiffs delivered to the defendant an unconditional bank guarantee in an amount up to $200,000 which would be held for six years.
The defendant also submitted that an amount of $7,150 (being the cost of certain electrical work said to be required as a result of the investigations carried out by Mr Kenny at the property in April 2016) should be included in the costs payable by the plaintiffs "because of the compensatory nature of the legislative policy behind Section 88K of the Act". I do not accept that submission. Compensation is payable under s 88K in relation to losses or disadvantages that arise from imposition of the easement. Insofar as s 88K(5) is considered to be compensatory in nature, it is confined to costs of the proceedings. I do not think that the cost of the electrical work should be regarded as costs of the proceedings for the purposes of s 88K(5). The sub-section is directed to legal costs and disbursements incurred as part of the conduct of the proceedings. The $7,150 is not a cost of that nature. It is a cost that reflects a loss, albeit one incurred in connection with the proceedings. In any event, given that the loss is not one caused by the plaintiffs, I do not think it would be appropriate to order them to pay the $7,150.
The Court will therefore order, as between the plaintiffs and the defendant, that the plaintiffs pay the defendant's costs of the proceedings on the ordinary basis save for:
1. the defendant's costs (if any) thrown away by reason of the vacation of the hearing dates in November 2016;
2. the defendant's costs in relation to the adducing of evidence from Mr Baxendale on the issue of the appropriate route for stormwater drainage; and
3. the defendant's costs in relation to the case for compensation for loss and inconvenience arising from a need for the defendant and his family to move out of his property.
Finally, I note that the defendant's submissions contain the suggestion that the defendant may seek to recover certain amounts from Mr Kenny, the Court appointed expert. These are the defendant's costs said to have been thrown away by reason of the vacation of the hearing dates in November 2016, and the $7,150 cost for electrical work, referred to earlier. The basis for such recovery is not clear at present. I would observe, however, that it would be difficult to justify an order for costs thrown away where neither party had sought to require Mr Kenny's attendance at the November 2016 hearing. It is also doubtful whether the $7,150 could be the subject of an order for costs, as opposed to a claim for damages. In any case, any application for a costs order against Mr Kenny, who is not a party to the proceedings, would of course need to be made by way of a Notice of Motion. That has not yet occurred, and might never occur, and there is no need to say anything further about it.
[2]
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Decision last updated: 31 January 2018