Simo Popovac v Dominic Kennedy

Land and Environment Court (NSW)|2022-02-14|Before: Pepper J

The Kennedys Seek Their Costs in a Class 2 Tree Dispute

Simo Popovac filed a Class 2 Tree Dispute application on 13 July 2021 ("the application") seeking orders to prune trees and a hedge on the property of Dominic and Jessica Kennedy ("the Kennedys").
On 18 October 2021 the application was heard by Galwey AC. The application was dismissed (Popovac v Kennedy [2021] NSWLEC 1635).
The Kennedys filed a notice of motion on 8 November 2021, seeking the following orders as to costs: 1. The Applicant is to pay the First and Second Respondents' costs on an ordinary basis until 30 August 2021. 2. The Applicant is to pay the First and Second Respondents' costs on an indemnity basis from 31 August 2021.
For the reasons below, I have determined that the notice of motion should be dismissed because it would not be fair and reasonable to depart from the presumptive rule in r 3.7 of the Land and Environment Court Rules 2007 ("the LEC Rules") applicable to Class 2 proceedings that each party is to bear their own costs.

Costs in Class 2 Matters

While the statutory framework that governs the Court's power to make a costs order in Class 2 matters was discussed in detail in Marks v Perham (No 2) [2020] NSWLEC 84 (at [22]-[29]), it is nevertheless convenient to set out the statutory regime.
Section 98(1) of the Civil Procedure Act 2005 ("CPA") confers power on the Court to make a costs order subject to the LEC Rules: 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act - (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
Rule 3.7(2) of the LEC Rules sets out a presumptive rule with respect to costs in Class 2 of the Court's jurisdiction: 3.7 Costs in certain proceedings (2) The Court is not to make an order for the payment of costs unless the Court considers that the making of an order as to the whole or any part of the costs is fair and reasonable in the circumstances.
The LEC Rules further relevantly state the circumstances in which a Court may consider that it is fair and reasonable to depart from the presumptive rule contained in r 3.7(2): 3.7 Costs in certain proceedings (3) Circumstances in which the Court might consider the making of a cost order to be fair and reasonable include (without limitations) the following -- … (c) that a party has acted unreasonably in circumstances leading up to the commencement of the proceedings, (d) that a party has acted unreasonably in the conduct of the proceedings, (e) that a party has commenced or defended proceedings for an improper purpose, (f) that a party has commenced or continued a claim in the proceedings, or maintained a defence to the proceedings, where: (i) the claim or defence (as appropriate) did not have reasonable prospects of success, or (ii) to commence or continue the claim, or to maintain the defence, was otherwise unreasonable.
The Court's discretion is not confined to the considerations in r 3.7(3) of the LEC Rules and it may assess "all rational considerations" in making a costs order (Arden Anglican School v Hornsby Shire Council (2008) 158 LGERA 224; [2008] NSWLEC 103 at [9]).
The presumptive rule as to costs for Class 2 matters is founded upon the "no discouragement principle" (Port Stephens Council v Sansom (2007) 156 LGERA 125; [2007] NSWCA 299 at [22]-[27]). That principle establishes that a person should not be discouraged from making or defending an application because of the risk of an adverse costs order (Arden Anglican School at [10]).
In Perham (No 2) Robson J described the importance of the principle in relation to Class 2 matters in the following way (at [29]): 29 The no discouragement principle is particularly important in the context of applications made pursuant to the Trees Act, as such applications are designed to facilitate the just, quick and cheap resolution of tree disputes through an appropriate and easily accessible procedure.
Class 2 matters are intended to be an efficient and cost effective means of facilitating justice in tree disputes between neighbours. The statutory regime has been designed to enable parties to represent themselves (Fox v Ginsberg (No 3) [2011] NSWLEC 139 at [8]). Therefore, there must be considerations of "sufficient weight to overcome the presumptive rule" (Arden Anglican School at [9]). The Court will be slow to find that such circumstances exist.
In Perham (No 2) Robson J stated that the task that the Court undertakes in exercising its discretion to award costs under r 3.7(2) is informed by r 3.7(3) as follows (at [30]): 30 …first, to identify whether there is anything within the judgment of the Commissioner which indicates that an order for costs may be fair and reasonable; and second, to look to the conduct of the parties both before and during the hearing for any indication that such an order may be appropriate.
His Honour's approach to the question of costs in Class 2 proceedings has been followed and applied in the present application.

Acting Commissioner Galwey's Decision

As stated above, Galwey AC refused the application. The Acting Commissioner commented by outlining the jurisdictional tests under Pt 2A of the Trees (Disputes Between Neighbours) Act 2006 ("the Trees Act") (at [2]).
Relevantly ss 14A and 14E of the Trees Act state: 14A Application of Part (1) This Part applies only to groups of 2 or more trees that: (a) are planted (whether in the ground or otherwise) so as to form a hedge, and (b) rise to a height of at least 2.5 metres (above existing ground level). … 14E Matters of which Court must be satisfied before making an order (1) The Court must not make an order under this Part unless it is satisfied: (a) that the applicant has made a reasonable effort to reach agreement with the owner of the land on which the trees are situated, and (b) if the requirement to give notice has not been waived, that the applicant has given notice of the application in accordance with section 14C. … (2) The Court must not make an order under this Part unless it is satisfied that: (a) the trees concerned: (i) are severely obstructing sunlight to a window of a dwelling situated on the applicant's land, or (ii) are severely obstructing a view from a dwelling situated on the applicant's land, and (b) the severity and nature of the obstruction is such that the applicant's interest in having the obstruction removed, remedied or restrained outweighs any other matters that suggest the undesirability of disturbing or interfering with the trees by making an order under this Part.
Relevantly, in regards to s 14E(1)(a) of the Trees Act Galwey AC found that (at [5]): 5 Mr Popovac wrote to the respondents asking for trees to be pruned. He attempted to arrange mediation with the respondents, unsuccessfully. I am satisfied that his efforts to reach agreement with the respondents were reasonable.
Galwey AC's finding that Popovac had made reasonable efforts to resolve the proceedings goes some (but not all of the) way to concluding that Popovac did not commence the proceedings unreasonably.
The Acting Commissioner noted that Popovac did not claim that T2 and T3 were impacting his views, rather it was T1 that was causing obstruction ([at [10]).
Pursuant to s 14A(1) of the Trees Act, Galwey AC was therefore required to determine if T1 formed part of a hedge with T3. Only if he was satisfied that T1 and T3 constituted a hedge was he then required to decide whether T1 severely obstructed a view from Popovac's dwelling (s 14E(2)(a) of the Trees Act).
Galwey AC provided the following reasons as to why, in his opinion, T1 did not form a hedge with T3 (at [15]-[16]): 15 I find that T1 is not part of a hedge. The landscape plan indicates it was planned and planted as a separate element to the hedge. In Johnson v Angus (2012) 190 LGERA 334; [2012] NSWLEC 192 at [28], Chief Justice Preston found that s 14A(1)(a) of the Trees Act limits the application of Pt 2A: not only must the trees form a hedge in the present, but the intent at the time of planting must be to form a hedge. The landscape plan suggests otherwise - tree T1 would be a separate landscape element. Furthermore, in the present, tree T1 does not appear as part of a hedge. Figure 2.2. of [Ms Howden's Report] shows T1's foliage is physically separate from the foliage of trees in T3. All trees in T3 are planted in a single straight line, while T1 is not part of that line. T1 is a different species and is taller than trees in T3. For these reasons, a person coming into the garden would be likely to identify trees in T3 as a hedge, but would be unlikely in my view to regard T1 as part of that hedge. The Mepstead survey reinforces this notion. The applicant's own sketch plan in Exhibit A also shows T1 as a separate element, not part of the T3 hedge. 16 T1 is not planted to form a hedge. As a result, Pt 2A of the Trees Act does not apply to T1. The hedge along the respondents' northern boundary is made up of trees in T3 only. By the applicant's own statements, trees in T3 do not obstruct a view, so orders cannot be made for those trees. It follows that the application must be refused.
Galwey AC alternatively considered whether T1 severely impacted Popovac's views. The Acting Commissioner held that the views were not severely obstructed (at [17]): 17 Had I found that T1 formed a hedge with trees in T3, I would have reason to assess the severity of any view obstruction it causes. I rely here on the range of terms used at [28] of Tenacity Consulting v Waringah (2004) 134 LGERA 23; [2004] NSWLEC 140: "negligible, minor, moderate, severe or devastating." While T1 obstructs a view of North Head from parts of the applicant's terrace (Plates 8 and 9 of Ms Mackenzie's report and Figure 8.4 of Ms Howden's report), and that part of the view might be regarded as iconic, the impact on the overall view might be mildly annoying, or 'minor', but is not severe. The view of North Head is readily available from most of the applicant's rear terrace, and is also available from other viewing points shown in the kitchen and dining room. The Court should consider the view in its entirety rather than slicing up the outlook: Haindl v Daisch [2011] NSWLEC 1145. From most viewing points, tree T1 obstructs a small part of the distant water view, as shown in Figures 3.2, 8.1 and 8.3 of Ms Howden's report and Plates 5 and 6 of Ms Mackenzie's report. The remaining view is expansive. The obstruction is not severe.
Accordingly, the proceedings were dismissed.
There is nothing on the face of Galwey AC's judgment that indicates that Popovac, either in commencing or conducting the proceedings, acted so unreasonable that an order for costs would be fair and reasonable. No transcript of the hearing was furnished to the Court. However, this is not the end of the matter.

The Issues in Dispute

The Kennedys submitted that Popovac should pay costs (on an ordinary basis until 30 August 2021) principally for two reasons: 1. first, Popovac brought the proceedings for an improper purpose (see r 3.7(3)(e)), namely, to preserve his future views from obstruction and to assure potential purchasers of his property that the views would be protected; and 2. second, Popovac acted unreasonably by commencing and continuing a claim that had no reasonable prospects of success.
The Kennedys further argued that Popovac should pay costs on an indemnity basis from 31 August 2021 because of the Calderbank letter.
Popovac submitted that he had brought the proceedings for a proper purpose, although he acknowledged that bringing proceedings to prevent the future obstruction of his views was a misapprehension of the law.
He further submitted that he had not acted so unreasonably that costs ought to be awarded against him because: 1. he had attempted to resolve the proceedings and arrange mediation, as noted by Galwey AC in his judgment (at [5]); 2. he was entitled to rely on the legal and expert arborist advice that he had received that had indicated either expressly or by inference that he had reasonable prospects of success; and 3. he was entitled not to accept the settlement offer because it did not resolve his concerns regarding the height of the trees, and moreover, because mere non-acceptance of an offer is not in and of itself unreasonable for the purpose of r 3.7 of the LEC Rules.

Popovac Did Not Act Unreasonably in Commencing and Continuing his Claim

While Popovac's application to prevent the future obstruction of his views in relation to T2 and T3 was misconceived, it did not, in my view, amount to an improper purpose. The bringing of proceedings based upon a misapprehension of the law does not, without more, mean that the losing party has been vindictive, vexatious, or motivated to bring the proceedings for an impermissible collateral, or some other, improper purpose.
The Kennedys further contended that Popovac had acted unreasonably because his claim that T1 formed part of a hedge that severely obstructed his views had no prospect of success. Accordingly, his application failed at a threshold level and this was sufficient for an award of costs in their favour.
It must be recalled, however, that Popovac sought independent legal advice and engaged an expert to provide advice and give evidence in the proceedings (albeit after he filed the application). In the application Popovac did not claim that T1 and T3 formed a hedge. It was Popovac's expert, upon whom he relied at the hearing, who had opined that the trees constituted a hedge (at [4.2.1] of the Howden Report).
It may also be presumed that Popovac was not told by his legal representative, a solicitor with considerable experience in the Court's jurisdiction, that his application had no or very limited prospects of success (an inference which is consistent with the content of the 30 August 2021 email).
As the Court observed in Pattinson (No 2) (at [45]): 45 For lay people to rely and act upon the advice of their own…expert does not, without more, constitute unreasonable behaviour in the commencement or maintenance of their claim.
The mere fact that Popovac's expert evidence was not accepted with respect to the trees, especially T1, and that the Court did not accept his claim that they (T1 in particular) severely obstructed his views, does not make it fair and reasonable for him to pay the Kennedys's costs.
As Preston J said in McLaren v Lewis (No 2) (2011) 183 LGERA 344; [2011] NSWLEC 176 (at [23]-[24]), "having brought the application, Mrs McLaren was entitled to have it heard by the Court…the fact that Mrs McLaren was ultimately unsuccessful in her application under the Trees Act is not sufficient in itself" to justify awarding costs.

Popovac Was Not Unreasonable to Not Accept the Settlement Offer

Rule 3.7(3)(d) provides that a Court can consider making a costs order where a party has acted unreasonably in the conduct of the proceedings. This includes where a party has acted unreasonably by not accepting a settlement offer (Twynham Investments Pty Ltd v Goulburn Mulwaree Council (No 2) [2021] NSWLEC 50 at [66] and see also Pattinson (No 2) at [47]).
In Twyham Investments Moore J assessed whether rejection of a letter of offer was unreasonable conduct for the purposes of r 3.7(3) by reference to four considerations (at [92]): 92 (1) The extent and reasonableness of the financial compromise embodied in the offer; (2) The information context in which the offer was made; (3) The period of time allowed to the Council within which to consider and respond to the offer; and (4) The extent of the Company's success measured against the revised second offer.
The offer to reduce T1's height by 30 cm was a compromise but not, in my opinion, one of sufficient moment. The expert evidence, including photographs in the Mackenzie Report and the Howden Report, show that T1 had grown significantly above the fence and that a reduction of its height by only 30 cm did not represent a real compromise to Popovac, or at the very least, did not represent a compromise that Popovac unreasonably rejected.
In respect of the second factor, I note that the Kennedys set out in detail the deficiencies in Popovac's case in their letter of offer; deficiencies that ultimately proved correct in the hearing before Galwey AC. But again, it must be emphasised that in rejecting the offer, Popovac did so in reliance upon legal and expert advice. Without more this did not render the rejection unreasonable in all the circumstances.
In relation to the third factor, Popovac had 14 days to accept the offer. This was adequate time to consider the letter and obtain advice (which Popovac did) prior to rejecting it. I am satisfied the settlement offer was open for a sufficiently reasonable period of time.
Finally, while the Kennedys were wholly successful in the principal proceedings, it should be noted that Popovac conceded during the proceedings that T2 and T3 would not cause any measurable view impacts. The concession came late, but it was nevertheless made.
In conclusion, I find that it was not unreasonable for Popovac to reject the letter of offer. Popovac's primary concern in bringing the proceedings related to the perceived obstruction of his view by T1, the proposed settlement did not represent a meaningful compromise in this regard. Put another way, the rejection of the offer of settlement was not so unreasonable that the presumptive costs rule in r 3.7 ought to be displaced.
To the extent that both parties took the Court to decisions where an award of costs in Class 2 tree matters was either made (the Kennedys relied upon Lister v Fraser [2018] NSWLEC 25 and O'Connor v Kerr (No 2) [2015] NSWLEC 1542) or not, it is an almost trite observation that each case turns on its own facts.
I therefore dismiss the Kennedys's application for ordinary costs up to 30 August 2021.

Costs on an Indemnity Basis

The 16 August 2021 letter sent by the Kennedys was stated to be a Calderbank offer.
The Kennedys submitted that if the Court finds the Calderbank offer was a "genuine offer of compromise" that was "unreasonable for the offeree not to accept" (Commonwealth of Australia v Gretton [2008] NSWCA 117 at [4]), the Court ought to impose costs on an indemnity basis from the date that the offer expired.
Popovac asserted that the common law rule in Calderbank does not apply in Class 2 proceedings because it is displaced by the operation of r 3.7(2) and (3) of the LEC Rules.
This gives rise to two questions: 1. first, do Calderbank offers apply in Class 2 proceedings?; and 2. second, if they do, was it unreasonable of Popovac to reject the letter of offer?

Calderbank Offers are Displaced by the Statutory Framework in Class 2 Proceedings

Calderbank offers are creatures of the common law. The principles enunciated in Calderbank are to the effect that if served the offer may be tendered in an application for costs in circumstances where if the offer is not accepted, and the offer proposes a more favourable outcome than achieved, costs may be assessed on an indemnity basis from the date of the offer. There must be a basis for concluding that the failure to accept the offer was unreasonable in all the circumstances (Hutley v Cosco (No 2) [2021] NSWCA 335 at [11]).
The rejection of the offer does not automatically result in an award of indemnity costs, rather, as opined by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]): 37 …the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs…
The Court's discretion to award costs is governed by the CPA and the LEC Rules, which displace the common law as a matter of construction. In Blackmore Design Group v Manly Council (2014) 205 LGERA 76; [2014] NSWLEC 164 Biscoe J observed that (at [36]): 36 Calderbank offers are a creation of the common law developed in the context of civil litigation where costs ordinarily follow the event. That is a very different costs regime from that which applies to this Court's merits review, public law jurisdiction under r 3.7 of the Land and Environment Court Rules.
In that case, his Honour declined to order indemnity costs where such an offer had been served. His Honour held that the mere non-acceptance of a Calderbank offer is not, of itself, unreasonable conduct that warrants the departure from the presumptive rule in r 3.7(2) (Blackmore Design Group at [38]). Similarly, Moore J in Twynham Investments stated that r 3.7 of the LEC Rules creates a "distinctly different first-step costs' regime" (at [62]) and that the Court's task is to consider whether a settlement offer was unreasonably rejected under the LEC Rules (at [61]-[66]).
Both Biscoe and Moore JJ were deciding Class 1 applications. However, because r 3.7 of the LEC Rules apply to both Class 1 and 2 applications, Biscoe and Moore JJ's findings are apposite and applicable to this application. In any event, in Kerr (No 2) Registrar Gray reached the same conclusion in a carefully reasoned judgment (at [34]).
In this context, it should be recalled that the Trees Act is intended to "facilitate the just, quick and cheap resolution of tree disputes" (Perham (No 2) at [29]). The "no discouragement principle" is a corollary of this statutory purpose that serves to limit litigation costs in these matters. It is for this reason that Pain J noted in Ginsberg (No 3) (at [13]): 13 I make… no assumption in tree dispute matters that legal representation is essential and…I am emphasising that in matters of this type legal representation is not the norm and will not automatically be compensated.
Although there is nothing express in r 3.7 that abrogates the power of the Court under s 98(1) of the CPA to order indemnity costs, the principles that underlie r 3.7 of the LEC Rules mean that the Court should tread cautiously in any exercise of its discretion to award costs on this basis (Carey v Pattinson (No 2) [2020] NSWLEC 177 at [8]). There would have to be compelling "matters out of the usual course of a merits proceeding" (Brett Hodgson v The Hills Shire Council (No 2) [2021] NSWLEC 133 at [7]) for it to be fair and reasonable to award indemnity costs.
In summary, in Class 2 proceedings cost applications are not determined upon the basis of Calderbank offers, rather the Court's task is to consider whether it is fair and reasonable in the circumstances to depart from the usual rule that parties bear their own costs (r 3.7(2) and (3)). Plainly enough, the service and subsequent rejection of such a letter is, however, a factor that the Court must take into account in determining whether or not an award of costs is fair and reasonable under r 3.7.
Notwithstanding that the offer contained in the letter would have, had it been accepted by Popovac, resulted in a better outcome for him in respect of the hedge and trees, for the reasons given above, I am not satisfied that Popovac was unreasonable to reject the letter of offer. To reiterate, Popovac commenced proceedings to address alleged obstruction of his views by T1 and the settlement terms did not wholly resolve this concern. To the extent that Popovac relied upon the erroneous advice of his expert and possibly his legal adviser (assuming that the advice was consistent with the email dated 30 August 2021), he was entitled to do so, or at the very least, it was not unreasonable for him to do so.
For completeness, it should be observed that in the email dated 30 August 2021, Popovac correctly identified the reason why the Court would not award indemnity costs. This reinforces the conclusion that it was not unreasonable for him to reject the offer. At least insofar as the question of costs are concerned, the Kennedys have enjoyed less, and not more, success in the proceedings.
I therefore reject the Kennedys's application for indemnity costs.

Costs of the Application

The motion seeking costs also falls within Class 2 of the Court's jurisdiction, and therefore, r 3.7(2) applies (Zhang v Davidson (No 2) [2020] NSWLEC 89 at [70]).
There is no evidence before me that would justify a departure from the presumptive rule in r 3.7(2). Therefore, each party is to bear their own costs of the notice of motion.

Orders

The notice of motion is dismissed.
The exhibits are to be returned after the publication of this decision on CaseLaw.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 February 2022

(2008) 158 LGERA 224

(2011) 183 LGERA 344

(2007) 156 LGERA 125

(2012) 190 LGERA 334

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