Spadaccini v Grice [2012] NTSC 41

Spadaccini v Grice [2012] NTSC 41

[1] The question of costs assumes great importance in this litigation. The quantum of each party's costs far exceeds the amount of the consent judgment of $110,000 recovered by the plaintiff. That judgment was obtained before any evidence had been called at trial. The parties' combined costs are said to be in the region of $900,000. By consent, the question of costs has been reserved for the determination of the trial judge. The plaintiffs argue that they were successful in the proceeding and seek costs orders against the defendant. The defendant argues that the plaintiffs should not be seen as the successful party, and that the plaintiffs should be denied their costs because they pursued an exaggerated claim and failed to comply with the letter and spirit of Practice Direction 6 of 2009.[1] On that basis, the defendant seeks costs orders against the plaintiffs.

[2] The plaintiffs and the defendant own adjoining properties on East Point Road, Darwin, in a very desirable residential location with views over Fannie Bay and out to sea.

[3] The plaintiffs are the owners of 108 East Point Road ("108").

[4] The defendant is the owner of 110 East Point Road ("110").

[5] The defendant has owned and lived at 110 for many years. She and her husband John Grice (now deceased) purchased the land and built a house there at some time prior to April 1987.[2] The defendant and her husband later built a dividing wall of concrete block construction between 110 and 108. The Building Controller issued written approval for the construction of that wall in August 1987, but the wall was not built for some years after the grant of that approval, at some time after 13 June 1990.[3] The exact date of construction of the wall is not clear.

[6] Although the dividing wall was built in a reasonably straight line, it was not built on the title boundary between the two Lots and strayed into 108 to the extent of 790 (possibly 740) millimetres at the maximum point of encroachment, with the encroachment reducing to nil about halfway along the boundary line between the two properties.

[7] The plaintiffs purchased 108 in or about June 2003. They had dreams of building a beautiful and impressive residence, and arranged for a survey of their land in July 2004. The survey revealed the encroachment of the dividing wall onto the plaintiffs' land. Mr Spadaccini informed the defendant of the encroachment and provided her with a copy of the plaintiffs' survey. He told the defendant that the encroachment represented a problem for any re-development the plaintiffs might undertake and suggested that they try to resolve the problem. After a number of reminder conversations with the defendant, he was referred to the defendant's son, who the defendant said was looking after her affairs. Several meetings and telephone discussions between Mr Spadaccini and the defendant's son over a period of many months were inconclusive and, according to Mr Spadaccini, the defendant's son indicated his strong disagreement with demolition of the wall.

[8] The plaintiffs wished to utilise the whole of 108 for the construction of their dream residence, and hence wanted the wall to be removed. They set about trying to negotiate the removal of the wall.

[9] In September 2005, solicitors instructed by the plaintiffs wrote to the defendant to formally request that the defendant remove the wall. The plaintiffs proposed that once the wall had been demolished and removed, they would contribute equally with the defendant to the construction of a new dividing fence.

[10] The defendant had received independent confirmation of the encroachment and its extent in or about mid-2005, as a result of the boundary survey carried out by her surveyors, Earl James and Associates. She also received legal advice, in early October 2005, that the wall constituted an encroachment on the neighbouring land.

[11] On 11 October 2005, the defendant's solicitor replied to the plaintiffs' solicitor suggesting that the most appropriate method of resolving the encroachment problem would be for the defendant to buy part of 108 in order to legitimise the encroachment. The plaintiffs did not agree.

[12] On 20 December 2005, the plaintiffs once more wrote to the defendant and proposed that they would, at their own cost, demolish and remove the wall and then pay for the cost of erecting a chain mesh fence to the height of the existing wall along the correct boundary.

[13] This apparently reasonable proposal was rejected by the defendant on 20 February 2006 as "totally unacceptable". The defendant made a further offer of monetary compensation to be paid in consideration for the transfer of sufficient land to legitimise the encroachment.

[14] Mr Spadaccini asserts[4] that in or about late April or May 2006, the defendant told Mr Spadaccini that she was happy for the wall to be removed on condition that the plaintiffs paid for the removal. She told Mr Spadaccini that she was going to move her plants to enable the wall to be demolished. Mr Spadaccini alleges that he said to her, "That's great Jan. Thank you. I will demolish the wall and pay for it. I will build the new wall being a party wall on the boundary. I will joint the wall and paint it whatever colour you like."

[15] Mr Spadaccini alleges that, over the next few years, the plaintiffs proceeded with the design and construction planning for their new house. He says that he discussed the wall on a number of occasions during that time with the defendant. At no time did she say anything to him to suggest that she had changed her mind in relation to the removal of the wall.

[16] However, on 21 July 2010 the defendant raised a written objection to the plaintiffs' Protection Work Notice.[5] In her letter of that date, she expressed a number of concerns relating to the construction of the plaintiffs' new home, including how much noise would be generated, how long construction would take, and some safety issues. Relevant to the dividing wall, she wrote:-

No agreement or arrangement has been met with regard to the realignment of the existing fence onto the boundary. There are numerous issues relating to this matter that need to be clearly addressed/resolved and, should an agreement be met, must be adhered to by your client. .....

I have no knowledge what is intended to replace my existing fence and I will not be agreeable until I have a clear specification and legal agreement/commitment in place. I have been advised that your client will pay for the reinstatement of the wall, however, I will not be agreeable to anything less than what exists. .....

... this is a complicated matter and needs a fair amount of discussion prior to any agreement to touch my wall. I have been forced in the past by your client to engage legal advice and note that my rights are reserved until such time that I can be clearly advised by you or your client that my concerns will be met with a suitable outcome.

I am still at odds to understand what impact the small alignment issue has on your client as the majority of the issue is at the other end of the property, where the existing flats remain. Your clients proposed construction has no real bearing on the wall and we have offered to generously pay for the land in question and the cost of realignment of the boundary. This offer still stands and would drastically reduce my concerns about safety and quiet enjoyment."

[17] The last paragraph extracted above suggests that the defendant had not abandoned her hope of negotiating the purchase of sufficient land to legitimise the encroachment.

[18] On 13 August 2010, the plaintiffs' engineer, Neil Clarke, wrote to the defendant relevantly as follows:

The issue that needs to be resolved, before a Permit to Build for the proposed residence at 108 East Point Road can be issued, is that of the boundary fence between 108 and 110 East Point Road.

The existing 1600-1800 high masonry boundary fence has been surveyed and is partly built into 108 East Point Road by 740mm at Georges Crescent end and varying back to zero encroachment at East Point Road.

It is the preference of our Client, M & R Spadaccini, to see this fence demolished and realigned on the property boundary for the following reasons:

• the fence is substantially over the boundary at Georges Crescent end.
• the fence is only constructed for 90 wide unreinforced blockwork and may fail in Cyclonic winds.
• the fence is "unauthorised" as it does not have a Permit to Occupy.
• the fence has unknown footing sizes and we are concerned it may not be strong enough to resist the construction vibrations associated with digging out the proposed Basement with a rock breaker.

It is for these reasons our Client wishes to have the fence demolished and rebuilt on the boundary.

It is proposed this fence will be 1800 high, constructed from reinforced 200 blockwork on concrete strip footings. The fence will have a paint finish.

Our Client has accepted that all costs associated with demolishing the existing fence and rebuilding it as described above will be at their expense including reinstating any affected concrete paths on your side of the boundary. They only ask that you be responsible for removing the Shade roof at the fernery and for relocating the PWC Meter Box at Georges Crescent.

[19] There was a practical logic in the plaintiffs' engineer's letter. The statement was correct that the dividing fence was unauthorised and that it did not have a Permit to Occupy. The plaintiffs' offer to pay all the costs of demolition of the existing dividing wall and of building the proposed new wall was very reasonable. The defendant should have accepted the proposal. However, she did not. She replied to Mr Clarke by letter dated 29 August 2010 and, although she appeared to accept most aspects of the plaintiffs' offer in relation to the dividing fence, she raised the issue of the location of the power meter, stating that her survey "suggests that it is 100 mm inside our property." She also asked, not unreasonably, that the new fence be located fully on the plaintiffs' property, to avoid any issue with the power pole and to ensure that all certification and planning was the responsibility of the plaintiffs rather than the joint responsibility of two sets of adjoining owners. The plaintiffs agreed to this: their engineer sent a clarifying letter confirming that they would construct the new blockwork fence and its footing entirely on their property. Unfortunately, and I say this with the benefit of hindsight, the defendant insisted that the parties' agreement in relation to the dividing wall be the subject of a legal document:

"Should the above be agreeable to your client, then I insist that we have a document drafted with legal obligations outlined clearly for both parties - in particular addressing the fence replacement, timing (specific to the fence's replacement) and cost agreements as outlined in your letter. ..... ".

[20] Although the plaintiff offered to pay for the drafting of the document, her refusal to simply accept the offer made by the plaintiffs' engineer led to a breakdown of the near-achieved resolution. The plaintiffs' offer was an offer by adjoining owners whose legal rights had been, and continued to be, adversely affected by the encroaching wall, and who could have insisted that the defendant remove the encroachment at her cost (or, in default, could have removed it themselves and claimed the costs of doing so). Instead, the adjoining owners were offering to pay the costs of removal and for the construction of a new wall on the correct boundary. Seemingly unaware of the defendant's true position, the defendant's son gave instructions to the defendant's solicitors in which he acknowledged that the plaintiffs were prepared to pay all costs to remove and replace the block wall, but nonetheless wrote: "I wish to legally document these and get him to sign his life away as in our experience, they have not kept their word."

[21] The defendant's solicitors[6] subsequently drafted and forwarded a document described "Dividing Fence Deed". It was some 9 - 10 pages in length, depending on whether the "Contents" page was counted. Given the generous concessions on the part of the plaintiffs contained in their written offer, the Deed was very inappropriate. The encroachment was not admitted in the recitals. One recital read: "The Block Fence lies between the Land and the Adjoining Land but does not lie on the true boundary between the Land and the Adjoining Land." Another recital read: "Spadaccini wishes to construct the New Fence on the Adjoining Land, proximate to the boundary between the Land and the Adjoining Land." The true reason for the Deed was thus obscured or not made clear in simple terms. The Deed also sought to impose a number of burdens on the plaintiffs, as though they were in default in some way, or supplicant tenants seeking permission for works to be carried out to leased premises: "Spadaccini will prepare and deliver to the Landlord (sic) any proposed plans and specifications for the Works at least 60 days prior to the intended commencement date of the Works." There is no prize for guessing which precedent document was being utilised by the defendant's then solicitors, but it was not an appropriate precedent in the circumstances; it was not the conciliatory precedent deed which parties who have caused a legal wrong would use in recording their agreement with an injured party who was still motivated to be reasonable. The Deed went on to provide that, after the plaintiffs had provided proposed plans and specifications for the works, the defendant would notify the plaintiffs "of any matters which it (sic) considers constitute, or may constitute, a defect, fault or omission in the Works." The Deed then required the plaintiffs to "promptly amend the proposed plans and specifications for the Works to take account of the defects, faults, omissions or modifications notified by Grice", or to object and then submit to dispute resolution under the terms of the Deed (I will not even attempt to summarise those dispute resolution provisions). The Deed even provided that the defendant's review of the proposed plans and specifications would not relieve the plaintiffs of responsibility for any defect, fault or omission in the Works.

[22] These were very unusual provisions given that the wall was being constructed entirely on the plaintiffs' land, and entirely at their expense. Even more unusual was the obligation sought to be imposed on the plaintiffs later in the Deed to rectify any omission, fault or defect in the Works in respect of which the defendant gave them notice. Moreover, the defendant (who with her husband had built a dividing wall which was not on the property boundary, as approved, and which encroached on the plaintiffs' land; which was "unauthorised" in that it had no final certificate or permit; and which was constructed of unreinforced block work and may have been at risk of failing in Cyclonic winds) sought to impose on the plaintiffs under the Deed the obligations to ensure that the new wall to be built entirely on the plaintiffs' side of the boundary was built according to the building approvals obtained; and in a proper and workmanlike manner by properly qualified and experienced contractors; and further that the plaintiffs achieve completion of the new wall within 60 days from commencement!

[23] Not only was the defendant 'looking the gift horse in the mouth'; she was reserving the right to kick it in the teeth. The defendant's insistence that the plaintiffs submit to a legal document, taken in conjunction with the provisions of the Deed as drafted, suggests arrogance. I refer to the impression likely to have been created; this is not an assessment of the defendant personally. The drafting of the Deed was such that it would almost inevitably annoy, irritate and even offend the plaintiffs. The drafting showed a lack of insight and common sense. The drafting was without apparent appreciation for the need to maintain and not jeopardise the very favourable outcome achieved by the defendant as a result of the plaintiffs' willingness to sensibly compromise the dividing fence dispute.

[24] Mrs Spadaccini would later describe the Deed, in a telephone conversation with the defendant's son, as "one-sided". She expressed concern also that the defendant had not taken Mr and Mrs Spadaccini at their word. Mr Spadaccini says,[7] with some justification, that he and his wife had never agreed to a resolution of the dispute with the defendant on the basis that the demolition of the dividing wall and the construction of any proposed replacement wall would first have to be approved by the defendant. He further deposed that he would have been "mad to accede to any such request where the defendant is likely to utilise that clause to further forestall and delay matters."

[25] In my assessment the Deed was an inappropriate document for all the reasons stated. It caused or contributed to the breakdown of the compromise almost achieved following the near-acceptance by the defendant of the offer made in the plaintiffs' engineer's letter of 13 August 2010. The plaintiffs would make a further settlement offer, but that offer would not be as generous.

[26] The Deed led to further correspondence between solicitors for the parties. On 24 November 2010 the plaintiffs' solicitors requested a copy of the Occupancy Permit for the existing dividing fence, and other documents. There was no such permit, as the plaintiffs probably realised. Their engineer had already identified that the wall had no "Permit to Occupy". It is therefore unclear why the request was made. The defendant's solicitors replied, refusing to provide the requested documents, but not disclosing or conceding the fact that such documents did not exist. They wrote:

"We have been instructed by our client that the documents requested by you are neither directly relevant to the issues referred to in the Deed or the spirit of the longstanding negotiations which have been entered into between our clients with respect to the dividing fence."

[27] The plaintiffs appeared to play some games of their own. Through their solicitors, they renewed their request for the non-existent documents on 26 November 2010, and subsequently their solicitor wrote by letter dated 13 December 2010:

"I refer to our correspondence in November and note with great disappointment, that despite the time that has lapsed, we have not received the requested documents from your client nor have we had even the courtesy of a response to our letter dated 26 November 2010.

Our request for the production of the documents was neither onerous nor unreasonable, and the subsequent failure to respond in any way leads us to conclude that your clients are not acting in good faith. Consequently our clients have instructed us to inform you that all offers to settle the issue pertaining to the dividing wall are withdrawn. There will be no further negotiations in respect of the draft Deed."

[28] By 13 January 2011, the plaintiffs' attitude had clearly hardened. On that date their solicitors wrote a long letter to the defendant's solicitors, threatening court proceedings for, inter alia, damages for delayed building commencement (the letter referred to increased construction costs) as a result of the encroachment being maintained by the defendant. The letter read in part:

"Please note our clients' plans to commence the development are well advanced. As such we seek your confirmation within seven (7) days that your client will remove the encroachment together with a time table as to when this will occur.

Given the encroachment is an unlawful structure built by your client the cost of removing it should be borne entirely by your client, together with the cost of reinstatement of that part of our clients' property effected (sic) by your client's construction of the encroachment."

[29] By her solicitors' letter dated 19 January 2011, the defendant proposed in response alternative options A and B.[8] Option A was that the plaintiffs arrange for the dividing wall to be removed and then for a similar block wall to be constructed on the correct boundary, at the plaintiffs' expense (but in respect of which the defendant would reimburse $5,000, said to be the amount which the plaintiffs considered reasonable for the removal of the block wall). Option B was a reiteration of the defendant's offer to purchase sufficient land to legitimise the encroachment.

[30] The plaintiffs did not accept either option. By letter dated 21 January 2011, the plaintiffs' solicitor notified the defendant's solicitors that both options were rejected and made an offer in what was said to be a final attempt to resolve the dispute:

"Our client offers to settle this dispute on the following basis:

1. Your client removes the shade sail/structure and PWC meter box and relocates those items onto her land, at her own expense immediately.
2. On satisfactory completion of the foregoing our client will immediately proceed to remove the block wall.
3. Your client to then pay our client the sum of $3,000.00, which is the cost that has been quoted by our clients' contractor to remove the wall, upon receipt of tax invoice. Open for acceptance until close of business on Tuesday, 25 January 2011."

[31] The plaintiffs' offer to settle was less generous than that previously made in that they were now asking the defendant to pay $3,000 for the wall's removal (previously they had offered to bear that cost themselves) and, by implication, they were leaving the issue of payment for any replacement dividing wall to be determined under s 6 Fences Act (previously they had offered to bear that entire cost, without seeking contribution). Nonetheless, it was still a reasonable offer in that the plaintiffs were asking the defendant to pay only $3,000 for the wall's removal (it actually cost the defendant $12,000 a few months later) and the offer was expressed to be in settlement of "the dispute", which included the foreshadowed claim for damages for delayed building commencement referred to in the plaintiffs' solicitor's letter of 13 January 2011.

[32] The defendant quibbled over the request for $3,000 for the wall's removal, and her solicitors asked for a copy of supporting documents. This was an odd request in the circumstances: the defendant herself had already made an offer to the plaintiffs under which she would reimburse $5,000 for the removal of the block wall. As mentioned, she would shortly pay $12,000 for the removal of the block wall.

[33] By letter dated 25 January 2011, the defendant's solicitors rejected the plaintiffs' offer set out in the letter of 21 January 2011:

"We advise that our client has instructed us to reject the offer contained therein. Our client has instructed us to convey its disappointment that your clients have reneged from the earlier negotiations undertaken on its behalf by Irwins Consulting."

[34] The objective evidence shows that the defendant refused several attempts by the plaintiffs to settle the matter reasonably. The "see you in court" notation written on the defendant's discovered copy of the plaintiffs' letter dated 13 January 2011[9] says a great deal about the defendant's understanding (or lack of understanding) of her legal position and demonstrates her general negative response to the plaintiffs' objectively reasonable approaches. The "see you in court" notation was in apparent response to the following paragraph:-

"Please note that our client's plans to commence the development are well advanced. As such we seek your confirmation within seven (7) days that your client will remove the encroachment together with a timetable as to when this will occur."

[35] The last straw was the defendant's rejection on 25 January 2011 of the reasonable (and arguably still generous) settlement proposal made by the plaintiffs in an attempt to resolve the disputes between the parties before proceedings were commenced.

[36] On 18 February 2011 the defendant's solicitors proposed a mediation, and on 2 March once more proposed a mediation. The plaintiffs did not respond. However, I assess that litigation was by then inevitable, absent some clear indication from the defendant that she had re-considered her position. In my judgment, the defendant's proposal to mediate at that time, without anything further, does not significantly affect the issue of costs.

Practice Direction No 6 of 2009 - Trial Civil Procedure Reforms

[37] I will refer to the Practice Direction simply as "PD6", as it is commonly known. As mentioned in par [1], the defendant relies on PD6 to support her argument that the plaintiffs should be denied any costs, and further that the plaintiffs should pay the defendant's costs.

[38] The explanatory document in relation to PD6 referred to civil justice reforms in the United Kingdom, the Australian Capital Territory, New South Wales and in the Federal Court of Australia, and described the reason for the reforms being the undue length and expense of traditional civil litigation, with delays and inefficiencies imposing substantial avoidable costs and other pressures on litigants.

[39] In 2008, a committee was formed, comprising two judges of this Court and representatives of the Northern Territory Bar Association and the Law Society of the Northern Territory, to consider and make recommendations on civil procedure reform.

[40] The committee subsequently recommended the introduction of a number of measures towards the reform of civil procedure in the Northern Territory Supreme Court. The recommendations included a recommendation that all parties should be under a general obligation to disclose the nature of their respective cases and to attempt to settle the dispute between them prior to the commencement of litigation; a recommendation that litigation once commenced should be the subject of active and effective judicial case management to ensure that the real issues in dispute between the parties are identified and that those issues are resolved promptly, economically and in proportion to the nature of the dispute; a recommendation that the parties and their legal representatives should be under a duty to assist the court in managing cases to achieve this end; a recommendation that the role of offers made "without prejudice save as to costs" should be enhanced "to encourage parties to make and accept reasonable offers of settlement, including offers made prior to the commencement of court proceedings"; and a recommendation that greater weight be given to a party's conduct in the recommended respects, both during and before the commencement of litigation, in the court's consideration of the award of costs and interest.

[41] The stated purpose of the reforms was to maximise the prospect of settling a dispute without incurring the costs of court proceedings. In the event that resort to court proceedings was necessary, the reforms were intended to ensure that each party had a sufficient understanding of its own case and the case against it to accurately assess its prospects of success, the likely time and cost involved in taking the matter to trial, and to make a reasonably accurate assessment of the most appropriate settlement offer to make, "without prejudice save as to costs".

[42] The explanatory document then read as follows:

"Further, by active case management with the support of better informed parties under a duty to assist the court, the committee and the judges believe that the costs of and the delays in litigation will be significantly reduced.

The court is expressly empowered to take into account a party's compliance with these reforms in the conduct of litigation when awarding costs and interest."[10]

[43] The Practice Direction was expressly made applicable to all civil proceedings commenced by writ or by originating motion where the court has ordered that the proceedings continue as if by writ in accordance with SCR 4.07.

[44] Consistent with the stated purpose of the reforms, PD6 requires that parties to a dispute "should follow a reasonable procedure, suitable to their particular circumstances, which is intended to avoid litigation." PD6 provides substantial detail as to the required pre-commencement procedure, but I briefly summarise the first two steps in the procedure as follows: (1) the plaintiff should send a letter to the defendant with details of the claim, supported by copies of the essential documents on which the plaintiff relies and any documents (except privileged documents) which might significantly impair the plaintiff's case; (2) the defendant should acknowledge the plaintiff's claim letter promptly, and then provide a full written response, as appropriate, accepting the claim in whole or in part and making proposals for settlement; or stating that the claim is not accepted. The defendant must be precise about what parts, if any, are accepted and what parts are rejected and provide detailed reasons (including supporting documents) for non-acceptance.[11] PD6 requires pre-commencement discovery of documents by both sides.[12]

[45] PD6 specifies that the required pre-commencement procedure should also normally include "the parties conducting in good faith genuine and reasonable negotiations with a view to settling the claim economically and without court proceedings."[13] PD6 is specific as to the need for the parties to consider alternative dispute resolution:-

"The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation, and if so, endeavour to agree which form to adopt. Both the plaintiff and defendant may be required by the Court to provide evidence that alternative means of resolving their dispute were considered. The Courts take the view that litigation should be a last resort, and that claims should not be issued prematurely when a settlement is still actively being explored. Parties are warned that if this paragraph is not followed then the Court may have regard to such conduct when determining costs."[14]

[46] PD6 provides sanctions for non-compliance with the prescribed procedure for pre-action conduct if, in the opinion of the Court, "non-compliance ... has led to the commencement of proceedings which might otherwise not have needed to be commenced, or has led to delay or costs being incurred in the proceedings that might otherwise not have been incurred".[15]

[47] Some of the sanctions relate to the award of pre-judgment interest under s 84 Supreme Court Act: the court may deprive a successful plaintiff of interest, or award interest at a lower rate; or in the case of a defendant at fault, the court may order interest at a higher rate.[16] In the present case, it is not necessary to consider any of the sanctions which affect the award of pre-judgment interest because the consent judgment already incorporates whatever pre-judgment interest the parties have agreed. However, the sanctions in relation to the court's costs discretion under SCR 63.03 are relevant: PD6 provides that the court may order the party at fault to pay the other party's costs (or part thereof), including on the indemnity basis. Of course, the court has an existing discretion independently of PD6 to deny a party, for appropriate reasons, some or all of the costs which that party has incurred and to which that party might otherwise be entitled.

[48] I return to the facts in this case. After their attempts at settlement had proved fruitless, the plaintiffs commenced the present proceeding by originating motion filed on 8 March 2011. The plaintiffs sought, inter alia, a declaration that the boundary wall was an encroachment on the plaintiffs' property, and a mandatory injunction (or an order to similar effect under s 6(1)(c) Encroachment of Buildings Act) for the removal of the wall. Orders by consent for the removal of the wall and footings at the defendant's cost were made on 20 April 2011, clearing the way for the plaintiffs to commence construction of their new home. The plaintiffs' primary objective was thus achieved within six weeks of commencement of this proceeding, even though ultimate liability for the cost of removal of the wall and footings was reserved to the trial on liability. Although the defendant did not legally concede, for practical purposes she did concede her liability for the cost of removal of the wall.

[49] PD6 did not apply to the proceeding at the time of commencement, and did not apply until 20 April 2011, when Mildren J made an order by consent that the proceeding continue as if it had been commenced by writ.[17]

[50] In relation to the issues effectively disposed of by the consent orders made on 20 April 2011, it is difficult to conceive that the defendant was not fully aware of the plaintiffs' intention to commence a proceeding against her, at least insofar as the proceeding sought a declaration that the boundary wall, shade structure attached to the wall and a power and water meter box all encroached on the plaintiffs' property and/or constituted a continuing trespass on the plaintiffs' property, and consequent orders for the removal of such encroachments.

[51] The defendant should pay the plaintiffs' legal costs (including disbursements) of and incidental to this proceeding from 13 August 2010 up to and including 20 April 2011, including the costs incurred in the plaintiffs' attempts to settle the dispute between the parties from 13 August 2010. The costs should be on the standard basis. The plaintiffs were entitled to bring the proceeding to seek declaratory relief and consequential orders. Their purpose was rapidly achieved, in the practical sense, by the making of consent orders on 20 April 2011 requiring the defendant at her own expense to remove the wall and footings. On general principles the defendant should pay the plaintiffs' costs incurred to that point. The plaintiffs had succeeded in obtaining the relief to which they were entitled. PD6 does not raise relevant considerations because it did not apply. Moreover, notwithstanding the matters referred to by me in par [27] and par [36], there was no aspect of the plaintiffs' pre-commencement dealings with the defendant which in my view disentitles the plaintiffs from obtaining the costs order which I believe should be made in their favour. The defendant unreasonably refused to accept settlement offers made by the plaintiffs which I consider were reasonable. The award of costs is not punitive, but is simply intended to compensate the plaintiffs for their legal costs incurred.

[52] As I mentioned in par [49], the orders made on 20 April 2011 included an order that the proceeding continue as if commenced by writ pursuant to SCR 4.07. That order triggered the application of PD6, which required in the circumstances that the parties endeavour to comply with the spirit of Part 2 of PD6 "as soon as reasonably possible".[18]

[53] It must be assumed, from the consent judgment, that as at 20 April 2011, the plaintiffs had an entitlement (denied by the defendant) to an amount of $110,000 by way of damages or compensation. To the extent that interest was a component of the judgment amount, that interest accrued from the time the cause of action arose and continued to accrue over the period of 11 months, from commencement of proceedings on 8 March 2011 to the date of judgment on 8 February 2012. Therefore, by quasi-logical deduction, the plaintiffs' entitlement was closer to $100,000 at the time proceedings were commenced. I will refer to the amount of approximately $100,000 which notionally increased to $110,000, as the plaintiffs' "true entitlement".

[54] Notwithstanding the plaintiffs' true entitlement, the plaintiffs at all times claimed amounts considerably in excess thereof. As mentioned in par [28], the plaintiffs' solicitors indicated in their letter of 13 January 2011 a claim in damages for increased construction costs as a result of delayed building commencement. There was no indication as to quantum at that stage. In his affidavit sworn 7 March 2011,[19] Mr Spadaccini broadly identified three heads of damage: (1) loss of rental income from the three residential units at the rear of 108, with frontage to George Crescent; (2) increased cost of construction of the plaintiffs' new home, both in labour and materials; and (3) general damages for the plaintiffs' delayed enjoyment of their new home. Mr Spadaccini deposed to the belief that the plaintiffs' losses were "likely to exceed $1,000,000.00 by a significant factor".

[55] Mr Spadaccini would later depose to his belief that the plaintiffs' damages were in the vicinity of $1.6 million. In his affidavit sworn 15 December 2011, referring to the "total cost increase over the life of the build", he deposed that he had calculated the estimated total cost increase as at 6 December 2011 to be $1,649,346.78 inclusive of GST.

[56] It is clear that the plaintiffs pursued a damages claim which was significantly greater, ten to sixteen times greater, than their true entitlement. That gross over-estimation has not been explained. Moreover, in pursuing their claim, the plaintiffs did not comply with PD6, which applied to the litigation after 20 April 2011. They did not provide concise details of their claim and copies of the documents essential to enable the defendant to understand and investigate the claim. Moreover, the plaintiffs did not properly engage in or follow a reasonable procedure in order to avoid litigation. Rather, they avoided mediation and otherwise procrastinated in relation to alternative dispute resolution.

[57] On 21 April 2011 the defendant's solicitors spoke with the plaintiffs' solicitor to propose a mediation, to take place on Wednesday 27 April. A follow up e-mail was sent that day stating: "...our client is keen to make an attempt to resolve this matter via mediation", and a reminder e-mail was sent on 25 April. The plaintiffs' solicitor responded with an appropriate apology on 26 April indicating that the plaintiffs remained "amenable to mediation" but that they were not ready to proceed with a mediation the next day and they did not feel "comfortable" with the mediator nominated by the defendant's solicitors. The defendant's solicitors replied on 27 April to notify the defendant's availability to mediate on May 4, 5, 10, 11, 12, 16, 17, 18 and 19. They also put forward the names of three other mediators, indicating that the defendant was open to consider any suggestions which the plaintiff might make as to a mediator. The plaintiffs' solicitors replied on 28 April to say that the plaintiffs were of the view "that it is futile for a mediation to proceed while the issue of costs is yet to be resolved by his Honour", a reference to the costs of the summons on originating motion which were still to be determined. The plaintiffs' imposition of that condition on their preparedness to mediate their claim in April 2011 should be seen as non-compliance by them with the spirit of Part 2 of PD6. In my view, the resolution of the plaintiffs' costs had nothing to do with the utility or futility of any proposed mediation. If those costs were really a significant issue, they could have been included in the issues for mediation.

[58] On 5 May 2011, Master Luppino made an order that the parties convene a mediation to attempt to settle their dispute before 4 August 2011. On 17 June, notwithstanding the Master's order for mediation, the plaintiffs' solicitor wrote to inform the defendant's solicitors that the plaintiffs were agreeable to engaging in an alternative dispute resolution process but preferred to have a settlement conference with the Master, after pleadings had closed. On 14 July 2011, the defendant's solicitors wrote to the plaintiffs' solicitor, inter alia, as follows:

Would you please tell us who your client's preferred mediator is and the dates that your clients are available to mediate as a matter of urgency. It is important that we receive this information urgently so that we can contact the mediator and ask when he or she is available to convene the mediation.

Of course, a date that is suitable to all parties may well go beyond 4 August 2011. If that is the case, then we will seek our client's instructions to consent to orders to extend the date that mediation is to occur.

[59] On 18 July 2011 the defendant's solicitors wrote to the plaintiffs' solicitor proposing the name of a very experienced mediator and asking if the plaintiffs had an alternative preference. The defendant's solicitors indicated in their e-mail communication sent 20 July that the defendant would agree to the date for mediation being moved back to accommodate some upcoming procedural steps, but stated with emphasis that the defendant wished to mediate as soon as possible before further significant costs were incurred in preparation for trial. A quite extraordinary e-mail in reply was sent the same day by the plaintiffs' solicitors which, relevant to the proposed mediation, read as follows:

... At this stage we are at a loss as to how a mediation could proceed in the absence of any definitive evidence as to the quantum of our clients' claims. Our clients are understandably somewhat suspicious as to the motivation behind the agitation for an urgent mediation, in the circumstances.....

.... That is not to say our clients are not favourably predisposed to the potential for mediation, at the appropriate juncture.

[60] The response demonstrated a cavalier approach to compliance by the plaintiffs with the order for mediation made by the Master on 5 May. Further, given the plaintiffs' obligations under PD6, the response suggests either nil awareness of PD6 or an obstructive approach to compliance. There was no sound reason why a mediation could not have proceeded, even in the absence of "definitive evidence" as to the quantum of the plaintiffs' claim. Mr Spadaccini had already deposed to his belief that the plaintiffs' damages would exceed $1,000,000. There must have been some basis for that belief. It was unmeritorious for the plaintiffs in July 2011 to indefinitely delay mediation because they had not quantified their own claimed losses. I acknowledge that the plaintiffs' damages may have been difficult to assess as at July 2011 because the actual building costs had not been incurred for a substantial portion of the plaintiffs' construction project and so the starting point for assessing damages - the difference between pre-construction quotes and estimates and the actual costs as the project progressed - had not then crystallised. Nonetheless, trial dates were foreshadowed for the civil sittings in November and December 2011, and so it was unlikely that the plaintiffs' damages, or any significant part of the plaintiffs' damages, would have been assessed at trial on the basis of actual expenses incurred. The plaintiffs' damages claim would have to have been based substantially on estimates of future loss.

[61] Moreover, the plaintiffs' solicitor had said in late April 2011 that, subject to the defendant agreeing to pay the plaintiffs' costs on the indemnity basis, there would be no impediment to mediate on all other issues, and the plaintiffs had even declared their availability to mediate on (most of) the days proposed by the defendant's solicitors.[20]

[62] I therefore conclude that the plaintiffs' unwillingness to mediate their claim in July or early August 2011 was a further (or ongoing) non-compliance by them with the spirit of Part 2 of PD6.

[63] In an affidavit sworn 10 February 2012, Mrs Spadaccini sought to explain why she and her husband did not engage in any procedure for alternative dispute resolution. She deposes that, after the hearing before Mildren J. on 20 April 2011, senior counsel for the defendant, Mr Wyvill SC, who (she asserts) had displayed aggression during the court hearing, moved very quickly towards her, causing her to be concerned. Mr Wyvill introduced himself and held out his hand, but Mrs Spadaccini did not shake hands with him because she was shocked by his approach. Mr Wyvill then said words to the following effect, which caused further shock to Mrs Spadaccini:

"This is crazy, you are going to be neighbours. We should sit down and settle this matter as the lawyers are the only persons making money out of this case".

[64] Mrs Spadaccini says that she interpreted Mr Wyvill's statement as "a threat that unless we settled now, only the lawyers would make any money out of these proceedings". I am not sure why the alleged statement was seen by her as a threat. It seems to be a common sense proposition, although perhaps put rather bluntly. The plaintiffs' own lawyers were no doubt providing similar common sense advice, and if they were not they should have been. However, although the statement attributed to Mr Wyvill may have been correct as a matter of common sense legal practicalities, it is possible that the direct communication with the opposing parties (if it occurred), following what was undoubtedly a forceful presentation of the defendant's case by senior counsel in court a short time before, was misinterpreted. If the facts alleged by Mrs Spadaccini are correct or substantially correct (and I refrain from making any findings), then this was perhaps one of those moments when learned senior counsel failed to exercise the self-restraint and judgment which the situation required. According to Mrs Spadaccini, the plaintiffs' solicitor came over and stepped in, thus ending the interaction she described between Mr Wyvill and the plaintiffs. Mrs Spadaccini was already stressed by the court proceedings and concerns for her dream home, and she viewed the approach by Mr Wyvill as an attempt to intimidate and threaten her and her husband. She felt ill and, once outside the court, she broke down crying.

[65] Mrs Spadacccini deposes that, because of the incident she described, she was "extremely reluctant to engage in any process that Mr Wyvill SC thereafter suggested or which was suggested by the solicitors for the defendant." She also deposes that she instructed the plaintiffs' solicitor not to engage in settlement negotiations until the plaintiffs knew precisely where they stood on the question of damages and only if counsel's advice was to engage in settlement negotiations.

[66] I accept for present purposes that something happened on 20 April 2011 which distressed Mrs Spadaccini, either during the court hearing or after the court hearing. However, I am unable on the evidence to make findings as to what actually occurred. There was no contemporaneous or subsequent complaint made by the plaintiffs' solicitor as to conduct which, if it occurred as alleged, may have been an inappropriate direct communication with his clients. Moreover, the allegations of Mrs Spadaccini are not supported by any evidence of Mr Spadaccini, or of the plaintiffs' solicitor, Mr De Silva, who is alleged to have intervened and then witnessed Mrs Spadaccini's distress.

[67] I do not accept that any incident at court on 20 April 2011 led to extreme reluctance on the part of Mrs Spadaccini to engage in processes for dispute resolution, or that she instructed her solicitor accordingly. There is no evidence from the plaintiffs' solicitor as to receipt of such instructions. Moreover, the reason advanced by Mrs Spadaccini is not supported by the contemporaneous written communications sent by the plaintiffs' solicitor. On 26 April 2011, six days after the alleged incident, the plaintiffs' solicitor sent an e-mail to the defendant's solicitors in which he wrote: "My clients remain amenable to mediation which as you may recall is something we put into our proposed draft orders". The plaintiffs' solicitor asked for alternative available dates to 27 April. On 28 April, eight days after the alleged incident, the plaintiffs' solicitor wrote to the defendant's solicitors as follows: "If your client were prepared to consent to orders that she pay our clients' costs to date on an indemnity basis, we can see no impediment to a mediation of all other issues." Payment of costs was the only obstacle raised. Extreme reluctance was not mentioned. On 17 June 2011, the plaintiffs' solicitors wrote that the plaintiffs were "agreeable to engaging in an alternative dispute resolution process". No mention was made in any communication as to reluctance on the part of the plaintiffs to engage in settlement negotiations because of anything which may have happened at court on 20 April. So, for example, the plaintiffs' solicitor did not write to indicate the plaintiffs' agreement in principle to participate in mediation, but seek to make such participation subject to Mr Wyvill SC, the alleged bête noire, not being involved.

[68] The plaintiffs have not provided an acceptable explanation to justify their failure to engage in mediation as a reasonable procedure under PD6 to resolve their disputed claim. I am confirmed in my view that the plaintiffs' failure to engage in mediation in July or early August 2011 (as in April 2011) was a non-compliance by them with the spirit of Part 2 of PD6.

[69] The probable effect of the plaintiffs' failure to provide a timely quantification and breakdown of their damages claim, and the consequent postponement of the mediation, was that the parties continued to incur the substantial costs of the ongoing litigation.

[70] At a directions hearing which took place on 21 July 2011, I decided that the parties should not be required to mediate on or before 4 August, and I made an order varying the Master's order of 5 May so as to delete mediation as a court-ordered obligation. I adjourned further consideration to 26 August 2011 for directions on expert evidence and a timetable for mediation. I indicated my view that the mediation should still take place, at a time sufficiently in advance of the trial to enable substantial costs savings if mediation were successful.[21] I directed that the trial should not be listed in November or December 2011. I requested an indication of the range of damages likely to be the subject of discussion at mediation and was informed by counsel for the plaintiffs that the range of special damages was between $200,000 and $1,000,000. Counsel for the plaintiffs did not have instructions as to whether the plaintiffs accepted the nomination of mediator made by the defendant's solicitors.

[71] The matter came before me for a further directions hearing on 26 August 2011. Relevant to the basis of assessment of the plaintiffs' damages discussed by me in par [60], it was indicated by Mr Roper of counsel for the plaintiffs that his clients' damages claim would be based on the actual costs differential to the date of trial and estimated costs differential ("best estimates") for the future.

[72] The draft consent orders filed in court on 26 August did not refer to mediation. Mr Wyvill SC, senior counsel for the defendant, informed me at the start of the hearing that Mr Roper would explain why mediation was not referred to. When Mr Roper did not provide the explanation within the time frame which Mr Wyvill considered reasonable, Mr Wyvill provided the explanation himself, as follows:

"Your Honour, there is only one reason why these proceedings are continuing and that is because of a (inaudible) exaggerated claim for damages which is completely, on any examination of facts, unsustainable. It has been run for one reason only and that is out of spite by the plaintiffs to harass this old widow. That is what we will be saying at trial.

This is a classic case where mediation should be undertaken. Not just because of the nature of this exaggerated claim, but also because of the fact these people are neighbours. They are living beside each other. It is just ridiculous that this litigation is continuing. We offer now - we have offered for months to mediate, unconditionally, this dispute."

[73] I interrupt my summary of proceedings on 26 August to say that the words Mr Wyvill used were not likely to encourage an opposing party to participate in mediation. They were not words calculated to create or induce a spirit of reconciliation, and would normally be expected to create hostility or aggravate existing hostility. Lay persons who are not familiar with the robust ways of barristers might justifiably think that any attempt or further attempt at mediation would be utterly pointless. A litigant might even think that to agree to mediation after being insulted and reviled in this way would be an admission or acceptance of the accusation of spite or vindictiveness. Notwithstanding my view, however, I note that neither Mr Spadaccini nor Mrs Spadaccini (who had been so distressed by events during and after the court hearing on 20 April) has complained about or sought to tender evidence as to any adverse reaction to the statements which Mr Wyvill SC made in court on 26 August 2011.

[74] Mr Wyvill SC emphasised the defendant's willingness to mediate the "neighbourhood dispute" (as he described it) at any time. He said that the defendant had sufficient information about the plaintiffs' claim to be able to participate in a mediation, and that there was no need for any further expert reports (he referred to a quantity surveyor's report) to be served. The following exchange then took place:

Mr WYVILL: .... The fundamentals about mediation in my experience are these: that you cannot successfully mediate without commitment from both parties to the mediation. There isn't a commitment from the plaintiffs to a mediation. There is no point mediating. The best thing to do is to get on with the case.

HIS HONOUR: Is that why the orders that you have signed off on don't refer to mediation?

MR WYVILL: That's right. That's exactly right, your Honour, because it takes two to mediate. One party cannot compel another part to mediate. That starts the whole thing on the wrong basis. There has to be a commitment on both sides to the process.

HIS HONOUR: Even if the court directs the parties to mediate, Mr Wyvill?

MR WYVILL: Well it is, in my respectful submission, that's a very controversial power to exercise. Most courts in the United Kingdom don't exercise it because of the reasons I have given, because it has been shown to make parties go through the motions. They should go to mediation, not because they are being compelled to do it but because they have some commitment to an institution. ....

[75] Counsel for the plaintiffs then addressed the court:

MR ROPER: I am grateful to my friend, your Honour. I think he has made it very clear why mediation is actually, and I was hoping this wasn't going to be the case, but might be impossible in this matter. There appears to be - there is a dispute about everything he has put to you, but to the extent that the defendants take the view that this is little more than a fictional plan motivated by spite, well there is no potential at all for an amicable resolution of it.

We say that there is a demonstrated history of evidence of the plaintiffs being more than reasonable in their attempts to settle it and actually bending over backwards and the defendant at each and every occasion taken an unreasonable stance. We were hoping that perhaps the parties would recognise that a mediation or a negotiated settlement would require both parties to shelve the emotive aspects of it and concentrate on the financial, but that clearly isn't going to be the case. So let's just get it on for a hearing.

HIS HONOUR: So you would join with Mr Wyvill in effect agreeing that I shouldn't require mediation in this matter?

MR ROPER: I hadn't - I was still hopeful that there would be a potential to mediate this, but having heard what my learned friend said about how the defendants view the merits of the claim, I think it is an absolutely pointless exercise.

[76] Mr Wyvill SC, possibly realising that his earlier remarks may have sunk the good ship Mediation, then sought to distinguish his 'open position' from his 'mediation position':

MR WYVILL: My learned friend shouldn't draw that. I mean, the position that we take or take at trial is not the position we would take necessarily at a mediation. People move at mediation. So it is just silly to take that position about mediation, with respect.

HIS HONOUR: But it seems to me, Mr Wyvill, you are saying I shouldn't delay proceedings to mediate given the circumstances and Mr Roper is saying the same thing, so -

MR WYVILL: It is very common ground but for different reasons, it appears, your Honour, yes.

HIS HONOUR: I think the expression is 'in heated agreement'...

HIS HONOUR: That there should be no mediation and so as a result I - without inquiring into it further I probably, and with some regret, will not insist that you continue down that path and Mr Roper, you are urging that I simply make directions that will bring the matter on for trial, is that right? ..."

[77] Both parties thus sought to blame the other for the mediation not taking place at that time. It may have been appropriate for me to call for evidence from the parties as to their attitude to mediation and their willingness (or otherwise) to participate in the process of mediation, but no application was made to me and, given the context, I did not consider that I should force a mediation on parties whose representatives at that stage asked the court not to order mediation albeit each giving different reasons and each attributing fault to the other party.

[78] I made an order on 26 August 2011 that the parties provide discovery by filing and serving their Lists of Documents on or before 30 September 2011, with inspection then to take place within seven days. I set the matter down for trial to commence on 6 February 2012. I directed that evidence in chief be by way of affidavit, and ordered the plaintiffs to provide all affidavit material relied on by 31 October 2011.

[79] The parties then pressed on with trial preparation. Relevant to assessment of the plaintiffs' damages, the defendant's solicitors wrote to the plaintiffs' solicitor on 10 November 2011 asking for documents, inter alia, in the following categories: all requests for tenders and quotes sought since July 2010, and related communications; an itemised list of all payments made by the plaintiffs to the project manager and anyone else engaged on the site to perform works; and all building programs and revised building programs for the works. The plaintiffs' solicitors acknowledged that request in a letter dated 15 November 2011, stating that they too had become aware of relevant documents which had not been discovered. Mr Spadaccini eventually swore a very lengthy affidavit on 15 December 2011, with hundreds of pages of annexures, including his construction diary with daily entries, attendance records for workers, quotes and invoices for the various trades, and summary schedules prepared by him. However, it appears from the correspondence put in evidence that the plaintiffs had still not given adequate discovery by 1 February 2012.[22] In particular, they had not discovered previous building programs (if indeed there were any) for the construction of their home, previous and existing budgets for the construction of their home, records of payment (including bank statements) and documents summarising payments made in relation to the construction of their home. These were potentially serious defaults on the part of the plaintiffs. Although they ultimately decided to prove their case for damages for delay in construction by the evidence of a quantity surveyor as to upward trends in the cost of materials and labour in the specific trades engaged in the home building industry,[23] documents disclosing the plaintiffs' actual expenditure relative to previous quotations and estimates, at least to the time of trial, were important to enable the defendant to properly deal with the facts and assumptions built into the evidence of the plaintiffs' quantity surveyor. Further, the defendant was not obliged to answer the plaintiffs' case by expert evidence alone but was entitled to examine the plaintiffs' claims invoice by invoice, payment by payment, for each trade, and compare same with pre-construction quotations and estimates in order to test the plaintiffs' case as to cost increases over the life of the build.

[80] On 7 October 2011, against the background of mediation offers declined and inadequate discovery given to her, the defendant paid $52,500 into court under SCR 26.12. Significantly, also on 7 October, the defendant's solicitors wrote to the plaintiffs' solicitor and made a settlement proposal, expressed to be "without prejudice save as to costs". The defendant confirmed that if the plaintiff accepted the sum of $52,500 it would result in a settlement of the defendant's counterclaim, including costs. The defendant also offered to pay the plaintiffs' costs of the proceeding (including the costs of defending the counterclaim) on the indemnity basis. The letter concluded:-

Please note that this offer is intended to be consistent with and to supplement the terms of the offer by way of payment in under r.26.12. If your clients are uncertain as to its terms, please advise and we shall clarify.

This offer of compromise is also made as a Calderbank offer and also under part 6 of PD6 of 2009. If your clients refuse this offer and then fail at trial to better this offer, our client will be seeking her costs on an indemnity basis.

Finally, we note that, in spite of repeated promises, your clients have yet to provide a properly formulated case on damages or any expert reports in support thereof. We respectfully draw your attention to para.26 of PD6 of 2009 which says:

The parties' attention is drawn to their duty to disclose the nature of their case under Part 2 above and to the importance of compliance with this duty to ensure that the other party has a sufficient understanding of the case against it to make a considered judgment about whether or not to accept, or to make, an Offer of Compromise.

Plainly your clients have not disclosed their case on damages sufficiently "to ensure that the other party has a sufficient understanding of the case against it to make a considered judgment about whether or not... to make, an Offer of Compromise'

Our client's rights in this respect are fully reserved.

We look forward to hearing from you. Please note that this offer remains open for acceptance until 4pm, Monday 24 October.

[81] There are self-serving assertions contained in the letter, for example, the assertion, express or implied, that the defendant did not have a sufficient understanding of the case against her to make a considered judgment about whether or not to make an offer of compromise. If that were true, how could she have made the assessment that she should pay $52,500 (and not some other amount) into court? Mr Wyvill SC had informed the court on 26 August 2011 that the plaintiffs' claim was "completely unsustainable", so it would appear that the defendant had re-assessed the plaintiffs' claim and had come to believe by 7 October that $52,500 (at least) was sustainable. Mr Wyvill SC had informed the court on 26 August 2011 that the defendant had sufficient information about the plaintiffs' claim to be able to participate in a mediation, without the need for any expert reports. If she had sufficient at that stage to be able to mediate, then it is likely that she had sufficient to make an offer of compromise six weeks later.

[82] Notwithstanding those self-serving assertions, I conclude from the defendant's Calderbank offer of 7 October 2011, taken with her payment into court, that the defendant was making a genuine and realistic attempt to settle the litigation. I infer that she had at last come to accept that the plaintiffs' claim had some merit. She offered only half (or thereabouts) of the plaintiffs' true entitlement, and she was therefore some $50,000 short of the mark, but I remind myself that the plaintiffs were at that stage aiming at an amount which was $1.5 million over the mark. The defendant also acted reasonably in allowing the plaintiffs more than two weeks to consider and accept her offer.

[83] There is no doubt in my mind that, given the amount of the consent judgment, the plaintiffs would ultimately have been better off if they had accepted the defendant's payment in, and her related offer to pay indemnity costs, made on 7 October 2011. The plaintiffs would have ceased to incur legal costs and disbursements on or about 24 October, if not before, and would have had all their costs of the litigation paid on the indemnity basis. They would not have faced the rapid acceleration and accumulation of costs and disbursements in the intensive pre-trial preparation period. True the defendant had offered only half (or thereabouts) of the plaintiffs' true entitlement, and the plaintiffs stood to gain $50,000 (or thereabouts) by continuing with the litigation, but that additional $50,000 would have rapidly disappeared into the 'black hole' differential between solicitor-client and party-party costs, even if such party-party costs were taxed on the indemnity basis.

[84] Under SCR 26.26, in exercising its discretion as to costs, the Court may take into account the fact that a party has paid money into court and the amount of the money paid into court.[24] The Court must take into account the amount which a party recovers in respect of a claim in a proceeding as against the party paying money into court in respect of that claim.[25] Unlike the provision in SCR 26.08(3), there is no clear direction in SCR 26.26 as to what should normally occur "unless the court otherwise orders". In my view, SCR 26.26 does not in this case, of itself, justify an award of costs in favour of the defendant in respect of any period after 24 October. Further, the defendant's solicitors' letter made clear that the defendant would be seeking costs (on an indemnity basis) only if the plaintiffs refused the defendant's offer and then failed to better it at trial. Nonetheless, I regard the defendant's Calderbank offer, and the absence of any appropriate settlement-motivated response on the part of the plaintiffs for several months afterwards,[26] as significant in my consideration of the costs of this litigation in the period after 24 October 2011.

[85] The parties did ultimately participate in a mediation, but the mediation took place at a very late stage, on 28 January 2012, just over a week before the first day of the trial. The litigation was not settled at mediation. However, on 1 February 2012, the defendant made a further Calderbank offer to the plaintiffs, that there be judgment in favour of the plaintiffs in the sum of $110,000 inclusive of interest; that the counterclaim be dismissed; and that all costs issues be determined by the court.[27] The offer was expressed to be open until 10.00 am on 6 February 2012, the time and date of commencement of the trial. The plaintiffs rejected that offer by their solicitor's letter dated 2 February, and counter-offered, but the plaintiffs ultimately agreed on 7 February 2012 to settle on the terms offered by the defendant, or substantially on the terms offered, in the letter of 1 February 2012. The parties then filed documents for the consent judgment entered on 8 February 2012.

[86] Although the parties' stress in relation to impending trial commencement and their concerns as to the uncertainty of litigation were no doubt factors which helped bring this litigation (apart from costs issues) to a resolution, I am of the opinion that neither the plaintiffs nor the defendant were so unreasonable that an experienced mediator could not have brought them to a satisfactory agreement to resolve their dispute at a much earlier time. If mediation had taken place in the period April to July 2011, the litigation would probably have settled, possibly but not necessarily for a figure in the range for which the consent judgment was entered. At least the window to a possible settlement would have been opened. For the purposes of Part 2 of PD6, par 13, I am of the opinion that the plaintiffs' non-compliance with Part 2 of PD6 in the period April to July 2011, indeed up to 26 August 2011, led to costs being incurred which might otherwise not have been incurred.

[87] Notwithstanding my assessment that a mediation would probably have resolved this unfortunate dispute at a much earlier time, I have difficulty in determining the extent, if any, to which the plaintiffs should be penalised for their failure to comply with PD6 (or more correctly the defendant indemnified for the plaintiffs' failure comply with PD6), given that both parties consented to orders made on 26 August 2011 whereby orders previously made for the parties to attend mediation were set aside. There was significant hedging and qualification by both counsel at the time the orders were made but nonetheless the parties consented to orders which had the effect that the previously ordered mediation would not take place. Both parties also agreed that the matter be listed for trial in five months time.

[88] Also, notwithstanding my criticisms of the plaintiffs' conduct in terms of their pursuing a grossly excessive claim and their avoiding and procrastinating, I remind myself of two matters: (1) that the plaintiffs were throughout entitled to an amount of some $100,000, and (2) that there would have been no proceedings if the defendant had accepted the plaintiffs' pre-commencement offer. I explained the significance of that offer in par [31] above. If the defendant had accepted that offer, the plaintiffs' claim for compensation and damages would have been compromised as well as the claim for declaratory and injunctive relief for the removal of the encroaching dividing wall. A just costs order must reflect the defendant's unreasonable refusal to accept the plaintiffs' pre-commencement settlement proposals. However, there came a point in time when the plaintiffs' default under PD6, and the effects of such default, overwhelmed the effect of any pre-commencement unreasonableness on the part of the defendant. I identify that point in time as 24 October 2011. The plaintiffs' earlier non-compliance with PD6 had been egregious. By 24 October the plaintiffs' failure to properly quantify their damages claim and apparent unwillingness to mediate that claim were clearly counterproductive to the parties reaching the settlement which I believe they should by then have been able to reach.

[89] The opposing parties' contentions in relation to the issue of costs after 20 April 2011 are not easily resolved, because the principles conflict and there is a tension in the relevant costs considerations. A number of options present themselves to me in exercising my costs discretion in respect of the period from 20 April 2011 to 24 October 2011. The options are not necessarily mutually exclusive, and permit 'give and take' orders in varying degrees. In brief, I could deny the plaintiffs some or all of the costs which they incurred in pursuing their claim. I could also order the plaintiffs to pay the defendant's costs (or part thereof).

[90] I propose to order that the defendant pay 70 per cent of the plaintiffs' costs and disbursements incurred in the period 21 April 2011 to 24 October 2011. I have determined that there was some necessity for the plaintiffs to litigate, at least at the outset, and I consider that some steps in the litigation were then necessary to advance the plaintiffs' case to the stage where it could be adequately assessed before proceeding to trial preparation and the trial itself. So long as the plaintiffs' claim was denied in full, pleadings and particulars needed to be exchanged, so that issues could be determined and grounds of defence identified. After close of pleadings, the process of mutual discovery and inspection should have been completed by 30 September, perhaps by mid-October, and certainly by 24 October 2011. The plaintiffs committed significant defaults under PD6 during the period April to July, but the effects were not immediate and not fully apparent in terms of very significant costs being unnecessarily incurred, until a later time. I have denied the plaintiffs 30 per cent of their costs in respect of the period 21 April to 24 October to reflect some effect of the plaintiffs' non-compliance with PD6 leading to costs being incurred which might otherwise not have been incurred. There is necessarily some imprecision and speculation in this assessment, because detailed evidence was not put before me by the parties. In particular, I cannot identify those particular items of legal work or disbursements which would otherwise not have been incurred. However, I maintain my view that an experienced mediator could have brought the parties to a satisfactory agreement to resolve their dispute at a much earlier time than February 2012, if the plaintiffs had complied with PD6.

[91] I considered denying the plaintiffs their costs altogether in respect of the period 21 April to 24 October, but, in addition to matters (1) and (2) referred to in par [88], I was concerned that the defendant contributed to the ongoing litigation by maintaining the various grounds of defence pleaded by her in her Defence dated 7 July, including reliance on the "Fong Lim Agreement" ground of defence pleaded in par 6 and par 13.2 of the Defence. The defendant alleged that in mid-1987, prior to the construction of the wall (and it must have 3 years or more before construction, on an objective chronology), her late husband had reached an oral agreement with Alex Fong Lim, a predecessor in title to the plaintiffs, whereby Mr Fong Lim "agreed to move the boundary" and whereby, in effect, the defendant and her late husband would be permitted to build the dividing wall in such a way that it encroached onto the adjoining property. The defendant further alleged that, after the plaintiffs became registered as the proprietors of 108, "there was no encroachment by the defendant on or over the Property unless and until the plaintiffs demonstrated unequivocally to the defendant that they would not be bound by the Fong Lim Agreement or did not consent to the Wall remaining on the Property ...". However, the defendant did not allege that the plaintiffs knew of the Fong Lim Agreement at any time before the litigation commenced.

[92] In my assessment, the Fong Lim Agreement ground of defence as pleaded and particularised was inconsistent with reliable and objective documentary evidence to which I was referred on the first day of the trial. It was also inconsistent with the defendant's admission in par 2 of the Defence that building approval had been sought for the construction of a block fence wholly within the boundaries of 110. That admission was consistent with the application and plan lodged and approved. However, the essence of the Fong Lim Agreement as pleaded was that the defendant and her husband were given permission to build a wall which, physically at least, encroached on 108. The defendant would later seek to withdraw the admission in par 2 of the Defence, because it was clear that the relevant dividing wall was not only not "wholly within the boundaries" of the defendant's property, but that it encroached onto the plaintiffs' property. In summary, there were technical deficiencies in the pleading of the Fong Lim Agreement ground of defence, as well as insufficient evidence to sustain it. The defendant argues on the hearing of the parties' costs applications that I have made no finding about that agreement, and therefore it stands as an issue not determined by trial. That may be correct. However, I consider that I should treat all grounds of defence as abandoned in that they have not stood in the way of the plaintiffs' true entitlement as reflected in the consent judgment. In my assessment, the matters pleaded by the defendant helped to maintain the adversarial nature of proceedings in which liability (as well as quantum) was contested, contributing to ongoing costs on both sides. The defendant did not even admit that she was liable for the cost of removal of the wall and footings, since her consent to the order made on 20 April reserved her rights.

[93] On the basis of these considerations, I have decided that the plaintiffs should have an order in their favour for a substantial part of their costs incurred in the period 21 April to 24 October.

[94] I turn to a consideration of costs for the period from 24 October 2011, to the date of trial. Many of the relevant matters for consideration are the same as those which applied to my consideration of costs in the period 20 April to 24 October. Some matters become more relevant and some less so. Significantly, however, it was in the period after 24 October 2011 that the effect of the plaintiffs' earlier non-compliance with Part 2 of PD6 in the period April to August 2011 manifested more fully as the parties incurred costs which not only might not otherwise have been incurred but which arguably would not have been incurred if the plaintiffs had complied with Part 2 of PD6. Once more I cannot identify and itemise all such costs. However, I propose to give effect to PD6 by depriving the plaintiffs of all costs incurred after 24 October 2011 and by making an order that the plaintiffs pay 50 per cent of the defendant's costs and disbursements incurred on and from 25 October 2011 up to and including 2 February 2012.

[95] I have considered whether I should order the plaintiffs to pay 100 per cent of the defendant's costs and disbursements incurred in the period on and from 1.23 pm on 2 February 2012 to entry of judgment on 8 February 2012. I referred in par [84] above to the Calderbank offer made by the defendant's solicitors in their letter to the plaintiffs' solicitor dated 1 February 2012, after the mediation held on 28 January 2012 had failed to achieve a settlement of the parties' claims. The amount of the offer was $110,000 and was otherwise in the same terms as the consent judgement entered on 8 February 2012. The evidence discloses that the Calderbank offer was rejected by the plaintiffs by their solicitor's letter dated 2 February 2012, e-mailed at 1.23 pm that day. Given that the defendant's Calderbank offer was open from the time of its communication on 1 February 2012 to 10.00 am on 6 February 2012, the intended first day of trial, I would normally have allowed the plaintiffs until 6 February 2012 to consider the offer before being at risk of an adverse costs order. However, the defendant's Calderbank offer made 1 February 2012 followed shortly after the mediation, and less than a week before the trial was to commence. By then the plaintiffs and their lawyers must have had a clear idea as to the plaintiffs' prospects of success and likely quantum. If they did not, they should have. The plaintiffs should have been in a position to deal with the defendant's Calderbank offer very promptly (unlike the situation, for example, where a first offer by the opposing party arrives unexpectedly at an early stage in the litigation). Indeed the plaintiffs did respond very promptly to the defendant's Calderbank offer. They rejected it.

[96] As mentioned in par [40], PD6 encourages an enhanced role for offers made "without prejudice save as to costs" and Part 6 of PD6, par 25, provides: "In the ordinary case, the Court is likely to require the party who declined but then failed to better the Offer of Compromise to pay the other party's costs from the date the Offer of Compromise could reasonably have been accepted on an indemnity basis. ...". Although there is nothing "ordinary" about the present case, I consider that it is fair to require the plaintiffs to pay 100 per cent of the defendant's costs from 1.23 pm on 2 February 2012, that is, from the time when I consider that the offer of compromise could reasonably have been accepted, up to and including 5 February 2012.

[97] PD6 suggests that costs are likely to be ordered on the indemnity basis, but in the present case, consistent with my decision not to award indemnity costs against the defendant for her refusal to accept reasonable offers of compromise prior to commencement of litigation, I have decided that my award of costs in favour of the defendant should also be on the standard basis.

[98] I have ordered costs to 5 February 2012 only, because the proceedings in court on 6 February were largely concerned with the defendant's defaults in the pleading of the Fong Lim Agreement ground of defence and attempts by the defendant's legal representatives to raise matters in defence which had not been pleaded and which in my view should have been. Specifically, the defendant contended that that part of the wall which encroached onto the plaintiffs' side of the boundary was a fixture on the plaintiffs' land. Because it vested in the plaintiffs, there could be no trespass at common law. The plaintiffs could have demolished that part of the wall which was on their side of the boundary at any time. This contention was contrary to a concession (or at least an indication) made at an earlier directions hearing by the defendant's junior counsel. It did not sit easily with the defendant's pre-commencement concerns to maintain and protect her wall. It assumed that the defendant would not have objected to or obstructed the demolition. Moreover, the contention was not pleaded. The contention had all the hallmarks of an ambush. SCR 13.07(1) requires that a party pleading to a statement of claim must plead specifically a fact or matter which the party alleges makes the claim of the opposite party not maintainable or which, if not pleaded specifically, might take the opposite party by surprise. Mr Wyvill SC asserted that the defendant's contention was a question of law, a "pure question of law", arising from the undisputed facts on the pleadings, and that there was no requirement for it to be pleaded, even though (if correct as a matter of law) it would have been a complete answer to the plaintiffs' trespass case. Mr Wyvill said:-

"MR WYVILL: .... So it is clearly in issue as a question of law and it doesn't need to be pleaded; it's a pure question of law, of title, whether the circumstances of the fact as disclosed, all of which - in fact, they plead that they bought the land in 2003 which is a fact that's admitted. So all the facts in relation to this matter there are not disputed and so, your Honour, we say this is a point that's entirely open to us on the pleadings of the case. It's a pure question of law that your Honour's already identified.

HIS HONOUR: But it really, if you're correct in that, that puts the plaintiffs out of court doesn't it? It adversely affects their case.

HIS HONOUR: Yes. Well isn't it a matter then that has to be pleaded to alert them to that?

MR WYVILL: Well, no, your Honour, because you would have thought that they - what we say is this, that any proper investigation of their case ought to involve inquiry into that.

[99] Mr Wyvill SC shortly afterwards conceded that the plaintiffs would have been taken by surprise.[28] This was a proper concession, not only in relation to the opposing parties' likely surprise over the suggested "pure law" contention, but also because it acknowledged the significant number of factual matters likely to be raised by that contention.

[100] I do not propose to further analyse the issues argued or raised on what was to have been the first day of the trial, but what happened could be compared with some aspects of trench warfare: organised and disciplined to a degree, but with considerable confusion and obfuscation: the parties trudging and stumbling through thick mud, enveloped by murky fog - much of it created by the defendant's pleadings and legal arguments.

[101] In relation to the costs of 6 February 2012 and subsequent days in court, including the hearing of the parties' arguments in relation to costs, and the preparation of written submissions for the costs arguments, I have decided that the plaintiffs and the defendant should each bear their own costs.

[102] In summary, the orders I propose to make in relation to costs are as follows:

1. The defendant pay 100 per cent of the plaintiffs' legal costs and disbursements of and incidental to this proceeding from 13 August 2010 up to and including 20 April 2011, including the costs incurred by the plaintiffs in attempting to settle the dispute between the parties from 13 August 2010.

2. The defendant pay 70 per cent of the plaintiffs' legal costs and disbursements incurred in the period 21 April 2011 to 24 October 2011 inclusive.

3. The plaintiffs pay 50 per cent of the defendant's legal costs and disbursements incurred in the period 25 October 2011 to 2 February 2012 inclusive.

4. The plaintiffs pay 100 per cent of the defendant's legal costs and disbursements incurred in the period on and from 1.23 pm on 2 February 2012 to 5 February 2012 inclusive.

5. The plaintiffs and the defendant otherwise each bear their own legal costs (including the costs of the hearing and written submissions in relation to costs) and disbursements.

[103] Before I make final orders, I wish to ensure that none of the costs orders I propose to make conflicts with costs provisions which automatically apply under the Supreme Court Rules (for example, under SCR 63.11(7), as a result of amendment of pleadings), or with costs orders made by any other judge or the Master.

[104] I invite the parties to bring in a draft of the final orders in relation to costs if orders can be made as I propose, or if the parties are in agreement as to any variations. Otherwise, I grant leave for the parties to address me on the necessary changes required to ensure that my costs orders do not conflict with applicable provisions or orders.

[105] In my proposed costs orders, all costs are on the standard basis. The reference to "disbursements" includes the fees of junior and senior counsel.

[1] Northern Territory Supreme Court Practice Direction No 6 of 2009 - Trial Civil Procedure Reforms.

[2] The defendant says that the construction of house was completed in around August 1986 - see her affidavit sworn 1 December 2011, par 5.

[4] Affidavit of Michele Spadaccini sworn 15 December 2011, par 76.

[5] The Protection Work Notice was given under the Building Act 1993 (NT) to the defendant as owner of the adjoining property. It referred to the proposed realignment of the existing fence onto the boundary. Under s 79 of the Act, the defendant was required to respond to the notice within 14 days by: agreeing to the proposed protection work, disagreeing to the proposed protection work or requesting more information.

[6] I should say "then solicitors" in fairness to the solicitors who now represent the defendant and whose firm name appears on the Court record.

[7] Affidavit of Michele Spadaccini sworn 15 December 2011, par 99.

[8] Affidavit of Michele Spadaccini sworn 15 December 2011, annexure "MS41".

[9] Annexure "DDS25" to the Affidavit of David De Silva sworn 10 February 2012.

[10] Explanatory Document for Practice Direction No. 6 of 2009, paragraphs 7 and 8.

[12] Part 2 of PD6, paragraphs 6.2, 6.5, 10.2, 10.3 and 10.5.

[17] See Part 1, par 1 of PD6 as to its application.

[19] Affidavit of Michele Spadaccini sworn 7 March 2011, par 70.

[20] Letter De Silva Hebron to Minter Ellison 28 April 2011 , annexure SHC11-28 to affidavit of Sophia Hopkins Cleveland sworn 17 May 2011.

[21] Transcript 21/7/2011 p. 34.1; 37.5.

[22] See the letter annexed and marked "SHC 7" to the affidavit of Sophia Hopkins Cleveland affirmed 10 February 2012.

[23] This was only confirmed on 4 February 2012.

[26] It was not until 30 January 2012 that the plaintiffs' solicitor made a relevant Calderbank offer: that there be judgment for the plaintiffs against the defendant for $300,000.00, plus costs to be taxed on the standard basis.

[27] An additional part of the offer, practically meaningless as far as I can determine, was that "the correct boundary of the property is agreed to be as set out in (the plaintiffs') title to the land".