Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd

Plaintiff's submissions

1. In essence, the plaintiff's claim for costs is based on three broad propositions. First, that the plaintiff had no choice but to commence proceedings given the defendant's conduct and has acted reasonably in so doing; second, and as a corollary to the first, that the defendant acted unreasonably in convening construction activities on or adjacent to the site without the plaintiff's consent to its development application; and, third, that it is clear that from the settlement reached with the defendant that the plaintiff was substantially successful.
2. As to the second of those propositions, the plaintiff submits that the defendant brought heavy equipment onto the site on 6 December 2018 when there was no agreement for it to do so; the defendant did not reply to the plaintiff's 6 December 2018 letter; neither the defendant nor its solicitor responded to the plaintiff's General Manager of Customer Services after she telephoned the director of the defendant on 7 December 2018; and the defendant brought heavy machinery onto the easement on 17 December 2018 in circumstances where it was critical that the plaintiff ensured that the pipe did not sustain structural damage (noting that there were horticulturalists relying upon that pipe to convey irrigation water to sustain their crops in drought conditions).
3. It is contended that it was unreasonable for the defendant to commence the works pursuant to its development consent on the site of the easement without the plaintiff's consent (having regard to the easement terms by reference to which the plaintiff was entitled to impose reasonable conditions during its construction of the development which was over its easement); that it was unreasonable for the defendant to commence construction without inquiring as to the plaintiff's requirements in circumstances where its own engineer's advice provided to the plaintiff was that care ought to be taken during construction and that there ought be compliance with the plaintiff requirements (and where it was "clear even to the defendant that there was a risk concerning this pipe and that steps needed to be put in place before construction activities commenced"); and that it was unreasonable for the defendant to say that no construction was taking place and then not to respond to the letter of 6 December 2018 nor to contact the plaintiff (as invited to by the letter) and then just to go onto the site and to commence construction activities.
4. The plaintiff says that, from its perspective, the defendant was proceeding with the development the subject of its development consent (not having been informed of the defendant's intention to seek an amendment to that development consent); and that the conduct of the defendant in merely notifying the Council and not contacting the plaintiff to inform it of its plans caused the plaintiff to commence proceedings.
5. It is submitted that the defendant's breach of its obligations under the easement prior to the commencement of the proceedings is manifest in the photographs taken on 17 December 2018 showing heavy machinery and altered surface on the easement and that it is not necessary for the Court to review large quantities of evidence to determine disputed questions of fact (Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (Nichols) at [8]).
6. The plaintiff submits that, by terms of the undertaking itself and by the change to the defendant's development consent, it is evident that the plaintiff has been substantially successful in these proceedings. The plaintiff argues that the terms of the easement are clear and that consent was required; that the defendant was aware that it had to comply with any reasonable conditions imposed by the plaintiff (which the plaintiff says include as to the use of heavy equipment over the easement in circumstances where there was a risk to the pipeline); that the defendant's engineer had said measures needed to be put in place to protect the pipe; and that the defendant's change of position (not to build on Lot 632) is akin to an admission (i.e., that in changing its plans and by fencing off the easement the defendant has in effect conceded that it is not entitled to proceed with the previous development without the plaintiff's consent and without compliance with the conditions that the plaintiff could reasonably impose with respect to protecting the pipeline) (see T 9.10ff).
7. The plaintiff argues that it is entitled to a favourable exercise of discretion under r 42.19 of the UCPR as it was forced to commence proceedings to protect its rights under the easement against the unreasonable conduct of the defendant (referring to Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 (Bitannia) at [76]). It is said that this is not a case where the plaintiff in any sense abandoned its claims (Bitannia at [71]); rather, that supervening events have overtaken the position at the commencement of the proceedings rendering further prosecution of them otiose (see In the matter of HCafe Chatswood Pty Ltd [2018] NSWSC 362 at [8]); that is, the defendant amended its development application with the effect that no building works will be undertaken over the easement.

Defendant's submissions

1. The defendant points to r 42.19 of the UCPR which provides that a plaintiff who discontinues under r 12.1 of the UCPR must pay the defendant's costs, unless the defendant consents or the Court orders otherwise and the defendant notes that the plaintiff bears the onus of being relieved of the obligation to pay the defendant's costs.
2. The defendant says that there is a predisposition that the discontinuing party is characterised as the unsuccessful party and, unless there is good reason for departing from this ordinary course, the plaintiff should pay the defendant's costs (citing Bitannia at [53]-[63] and [69]-[81]).
3. The defendant argues that the plaintiff should not be awarded its costs of the proceedings up until 21 December 2018 for the following reasons.
4. First, that contrary to the plaintiff's submissions, the question whether the plaintiff acted reasonably in commencing proceedings could not be determined until a final hearing (which is precluded by the proposed discontinuance; see Bittania at [57]); and the settlement reached with the defendant did not resolve or result in a determination of the interlocutory application, or in any orders (it being submitted by the defendant that the Court simply noted an undertaking, made on a without admissions basis, to continue until 5 February 2019).
5. Second, that there was no hearing of any interlocutory or final relief on the merits, and therefore no event to enliven r 42.1 of the UCPR (see Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 at [11]). Accordingly, the defendant invokes the general rule that the Court will make no order as to costs (Re Minister for Immigration & Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622 at 625; [1997] HCA 6 (Lai Qin)).
6. Third, that the defendant did not act unreasonably so as to justify a departure from the ordinary approach to interlocutory costs up until 21 December 2018.
7. It is submitted by the defendant that the Court should not now be called upon to embark upon a de facto hearing of the merits of the plaintiff's claim, or the reasonableness of the position taken by the parties prior to 21 December 2018, given the discontinuance of the substantive proceedings (submitting that the plaintiff has not at any stage in these proceedings articulated a claim for substantive or final relief). It is said that there has always been a dispute as to whether any terms or covenants in the easement were breached by the defendant; and that such a dispute will not now be resolved by a final hearing.
8. The defendant attaches some significance to the meeting of late October 2018. It argues that the plaintiff's real complaint leading up to the issue of the summons in these proceedings was not clear, pointing to the fact that the plaintiff was fully aware (as early as 20 December 2017) of the defendant's plans to have a car park, driveway, tree planting and two rainwater tanks on the easement site (referring to an email dated 20 December 2017 to the plaintiff from Xeros Piccolo enclosing the architectural drawings which show plans for a car park directly over the pipeline); and that at the meeting in late October 2018, where it is accepted two options for the pipeline were discussed, both options being discussed contemplated a car park over Lot 632. The defendant points to the email correspondence following that meeting in which reference is made to a "letter" and "further information" being prepared by the defendant's engineers (Xeros Piccolo) (presumably, the report) (the defendant noting that there were two versions of the report of Xeros Piccolo). The defendant emphasises that this correspondence still is in the context of the plaintiff considering a proposal for the car park to be located over Lot 632 (but with conditions) (see for example the email dated 30 October 2018 from Mr Woodward) and that the parties were engaging in constructive discussions about the options in this regard.
9. Pausing here, insofar as there seemed to be a suggestion in the submissions that the communications up to 6 November 2018 indicate that the plaintiff's objection to the commencement of works was for financial considerations, there was no explicit submission made to that effect. However, the defendant does attach importance to the correspondence and communications before that date, given that the summons was issued only about a month and a half later. At T 21.20, the submission is made that the letter of 15 April 2019, in which reference is made to the discontinuance of the proceedings, reveals the truth; namely, that "the reason the plaintiff went to Court in the first place is because it was unhappy, ultimately, with the car park over [Lot] 632 even though it appears up until that point it was prepared to consider it" and that (at T 21.22) "[i]t has got less to do with other matters that the plaintiff has sought to place into its evidence ‑ that is, the heavy machinery, issues of access which were addressed by the Xeros Piccolo report with the expansion joints").
10. It is submitted that the question whether the conduct of the defendant invited or caused the litigation cannot be resolved without the Court having to review considerable evidence (including expert evidence) and to resolve disputed questions of fact, and that it is recognised that this should not be a task that the Court is called upon here to determine (see Nichols, to which I refer below).
11. The defendant further submits that it could not reasonably be incumbent upon it, in the circumstances outlined above where the plaintiff was proposing to discontinue the proceedings, for it to prepare evidence on its own behalf going to address, for example, the plaintiff's engineer's evidence as to the strength of the pipeline or other issues concerning the extent to which the pipeline might or might not be damaged by reason of heavy objects or structures being placed upon Lot 632. It is submitted that, in a costs argument, it cannot reasonably be expected for it be upon the defendant to lead evidence and, effectively, conduct satellite litigation in order to disprove the fundamental basis of claims such as those here made as to the unreasonableness of its conduct.

Determination

1. I had cause recently to consider an application for costs in circumstances where a plaintiff was seeking the discontinuance of proceedings (see Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159 (Freelancer)) and a similar argument was made as to the exercise of the discretion in relation to costs under r 42.19 of the UCPR. Here, as there, it was not disputed that the costs discretion is subject to the requirement in s 56 of the Civil Procedure Act 2005 (NSW) that, in exercising this power, the Court must give effect to the overriding purpose of the facilitation of the just, quick and cheap resolution of the real issues in dispute in the proceedings.
2. The principles in relation to costs applications where matters have not proceeded to a contested hearing on the merits are well known. Ordinarily in those circumstances, for there to be a costs order in favour of one party it is necessary to show that the other party's conduct has been so unreasonable as to warrant such an order (applying the principles in Lai Qin). I considered in Freelancer, and remain of the view, that it is difficult to see why the same kind of considerations would not be relevant when deciding whether to depart from the "starting position" in r 42.19 of the UCPR.
3. Reliance was placed by the defendant in the present case on what was said by each of Payne JA (Meagher JA agreeing) and Basten JA in Nichols as to the appropriate considerations in cases where there has been no hearing on the merits; and their Honours' observations bear repeating. Payne JA (at [30]) said that: If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
4. Basten JA, at [8]-[9], said: Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. [my emphasis] Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses.
5. The defendant in the present case emphasises the admonition italicised in the passage extracted above. The defendant says, in effect, that such an exercise (of reviewing the evidence and resolving on a tentative basis disputed questions of fact) would here be necessary and should not be embarked upon. I accept, as Payne JA in the above passage made clear, that if both parties to a proceeding which has been disposed of (by settlement or otherwise) without a hearing on the merits have acted reasonably in commencing and defending the proceedings, and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings; and I do not disagree with the proposition that the court should not embark upon an exercise of examining large swathes of evidence in order to determine the reasonableness or otherwise of the parties' conduct of the proceedings and the need to take into account both parties' conduct. What I do not accept is the defendant's submission that to determine the present application would require an approach of the kind the Court of Appeal has clearly deprecated.
6. The question, for present purposes, as I framed it in Renton v Kelly [2018] NSWSC 1377 at [36], is as to whether the conduct of the defendant was "so unreasonable", having regard to the evidence before me as to the defendant's conduct both before and after the commencement of the proceedings, as to warrant the making of a costs order against the defendant.
7. There are a number of facts that are not in dispute and that I consider relevant to and determinative of this issue (those being facts that do not in my opinion require any review or examination of "large swathes of evidence", for the very reason that they are not in dispute).
8. First, there is no dispute as to the easement terms; nor as to the fact that the defendant was initially proposing to carry out development works on land including Lot 632 and that the parties had engaged in discussions with a view to reaching accommodation as to the proposal that the development involve a concrete structure over the surface of the easement site and the use of it as a car park.
9. Second, there is no dispute that, as at the time of commencement of the proceedings, there was no final agreement between the parties as to the conditions on which the plaintiff would be prepared to consent to works on Lot 632 of the kind that had been proposed.
10. Third, there is no dispute that demand was made by the plaintiff (by letter dated 6 December 2018) for the defendant to cease "all works immediately on the Land [i.e., Lot 632]" in relation to the proposed development and that there was no response by the defendant at that time beyond a statement to the effect that work had not started (something that the photographs later taken on 17 December 2018 suggested that, at least by then, was not the case) and that the letter would be referred to the solicitor.
11. I interpose here to note that the defendant placed reliance in oral submissions on a decision of Bryson J, as his Honour then was, in Prospect County Council v Cross (1990) 21 NSWLR 601 at 606; 609), as to general principles relating to easements and what is meant by the concept of substantial interference with an easement. It is not necessary here to set out those principles. The defendant accepts that, where there is a registered easement, rather than an easement at common law, the issue ultimately turns on what the terms of the easement require in any particular case. Further, as I understand it, the plaintiff does not dispute that the servient owner (here, the defendant) owns the fee simple and has all the rights that an owner has, except those which are inconsistent with the rights given by the easement under cll 2.2 to 2.4.
12. I accept that it would be inappropriate (on a costs application of the present kind) to explore the factual issue (assuming it would have been disputed) as to whether the works proposed to be carried out would have been in breach of the registered easement (or, if that be the relevant test, and the plaintiff does not accept that it is, would have amounted to a substantial interference with the use by the plaintiff of the rights under the easement); or, indeed, as to whether any works had in fact been carried out on or affecting Lot 632 at all.
13. Rather, the relevant question, to my mind, is whether it was so unreasonable (to warrant a costs order despite there having been no hearing on the merits) for the defendant - having been apprised of the plaintiff's concerns as to potential damage to the pipeline and having been the subject of a demand to cease work, with the threat of injunctive relief to restrain a perceived breach of the easement having been squarely raised by the reference to the taking of "any action necessary" to protect the plaintiff's position - not to have responded to the plaintiff after 6/7 December 2018 either to allay the plaintiff's concerns as to what was or was not being undertaken on or adjacent to Lot 632 or to indicate after the demand was received an intention to seek, or willingness to consider seeking, Council approval for the modification or amendment of the development application in order to move the car park away from Lot 632.
14. In other words, as I see it, the issue is not whether it was unreasonable for the defendant to commence the works in advance of consent from the plaintiff (not least because that would require a determination as to whether any works were in fact being undertaken on Lot 632 - as opposed to adjacent to it; and/or whether any works or activity on Lot 632 that may have taken place at that time were in breach of the easement). I accept that to embark upon a determination of those issues would infringe the principles articulated above.
15. However, I do consider that it was unreasonable for the defendant not to respond to the plaintiff's demand that it cease work (after it had said that the matter would be referred to the lawyers) and, thus, to leave the plaintiff with the perception that the defendant had commenced works that had the potential to damage the pipeline (whether or not, as I understand the defendant's position to be, that any such perception was misconceived).
16. There was, in my opinion, a reasonable basis for concern on the part of the plaintiff (having regard to its engineer's report and to the reports of the defendant's own engineers) as to potential damage to the pipeline. The plaintiff's willingness to contemplate conditions to address that concern (but at the same time to permit development works on Lot 632) does not gainsay this. Had the defendant communicated its position to the plaintiff that it would be prepared to modify the development consent to leave Lot 632 vacant (or proffered an undertaking in terms similar to those ultimately proffered and accepted by the plaintiff), prior to 18 December 2018, it is safe to assume that the need for the urgent interlocutory application (and hence the commencement of these proceedings) on 18 December 2018 would have been avoided. So, too, would the costs of those proceedings been avoided.
17. I have ultimately concluded that that conduct on the part of the defendant was so unreasonable (in the Lai Qin sense) as to warrant a costs order in the plaintiff's favour. I consider the position of the plaintiff (and the significance of the pipeline to its members) made it reasonable for the plaintiff to commence proceedings seeking urgent relief when it was faced with what it perceived to be a threat to the pipeline and no satisfactory response to its demand for work to cease. Whether it was suffering under a misapprehension to that effect is not to the point. It was in the defendant's hands to allay those concerns and it did not do so until after the proceedings had been commenced.
18. The fact that the plaintiff may not itself have been prompt or responsive to calls from the defendant in the course of the earlier discussions is similarly not to the point. It must have been clear from the terms of the 6 December 2018 letter (apparently followed up by a conversation the next day) that the plaintiff was seriously concerned as to the commencement of any works on or adjacent to the easement site, by reason of the potential for damage to the pipeline.
19. I do not consider that the fact that the defendant was earlier prepared to consider a financial basis (involving replacement of the pipeline at the plaintiff or another owner's cost) to resolve the question of consent to the development warrants a different conclusion. The fact is that, when faced with the demand of 6 December 2018, the defendant left the plaintiff with the impression that works either were about to commence or had already commenced and it was not unreasonable for the plaintiff to fear that, unless restrained, the defendant would carry out works that had the real potential to damage the pipeline. I accept that, after the proceedings were instituted, there was nothing in the defendant's conduct of the proceedings that was unreasonable. Rather, the unreasonableness lay in the defendant's conduct prior to commencement of the proceedings. As noted earlier, the conclusion I have reached is not based on any finding (tentative or otherwise) as to disputed facts as to the question of breach of the easement; and hence does not call into play the concerns as to satellite litigation (though I am by no means encouraging costs applications of the present kind).
20. I will, therefore, make the orders as to costs of the proceedings to the effect of those sought by the plaintiff. Costs of the motion will then follow the event.

Orders

1. For the above reasons, I make the following orders, which will finally dispose of the proceedings: 1. The plaintiff have leave pursuant to r 12.1 of the UCPR to discontinue these proceedings. 2. The defendant is to pay the plaintiff's costs of the proceedings up to and including 21 December 2018 on the ordinary basis. 3. The defendant is to pay the plaintiff's costs of the contested costs application, on the ordinary basis. 4. Otherwise, there be no order as to the costs of the proceedings.

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