The Owners Strata Plan 63094 v Council of the City of Sydney; The Owners Strata Plan 63094 v Meriton Apartments Pty Ltd & Anor

Supreme Court of NSW|2009-03-06|Before: Einstein J, Mr J, Hill J, McHugh J, Bergin J, McColl JA, Beazley JA, Santow JA, Bryson JA

CITATION : The Owners Strata Plan 63094 v Council of the City of Sydney; The Owners Strata Plan 63094 v Meriton Apartments Pty Ltd & Anor [2009] NSWSC 141

HEARING DATE(S) : 6/03/09 JURISDICTION : Technology & Construction List

LEGISLATION CITED : Environmental Planning and Assessment Act 1979 (NSW)

Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 AustraliaWide Airlines Ltd t/as Regional Express v Aspirion Pty Ltd [2006] NSWCA 365 Care v Canterbury City Council (2001) 115 LGERA 252 CASES CITED : Fordyce v Fordham [2006] NSWCA 274; 67 NSWLR 497 Foukkare v Angreb Pty Ltd [2006] NSWCA 335 Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Statewide Developments Pty Ltd v Minister for Infrastructure and Planning [2005] NSWLEC 353

The Owners Strata Plan 63094 (Plaintiff 55039/06; 55038/07) PARTIES : Council of the City of Sydney (Defendant 55039/06) Meriton Apartments Pty Ltd (First Defendant 55038/07) Darecase Pty Ltd (Second Defendant 55038/07)

Mr J Loxton (Plaintiff 55039/06; 55038/07) COUNSEL : Mr D Miller (Defendant 55039/06) Ms K Mihail (First Defendant 55038/07)

Colin Biggers & Paisley (Plaintiff 55039/06; 55038/07) SOLICITORS : McCulloch & Buggy (Defendant 55039/06) Daniel Grynberg, General Counsel, Meriton Apartments (First Defendants 55038/07)

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Friday 6 March 2009 ex tempore Revised 18 March 2009 55039/06 The Owners Strata Plan 63094 v Council of the City of Sydney

55038/07 The Owners Strata Plan 63094 v v Meriton Apartments Pty Ltd & Anor

1 There are before the court notices of motion in relation to two sets of proceedings before the court. The first set of proceedings is 55039 of 2006 in which the plaintiff is the Owners' Corporation of Strata Plan 63094 and the defendant is the Council of the City of Sydney. The second set of proceedings and the second motion involve proceedings 55038 of 2007 in which respect the plaintiff is the Owners' Corporation of the same Strata Plan and the defendant is Meriton Apartments Limited and Dare Case Pty Limited as second defendant, being the developer. 2 The plaintiff seeks in relation to each set of proceedings orders for its costs, it being common ground that the plaintiff is to discontinue both sets of proceedings. Rule 24.19 is a rule which falls for consideration. I accept that the following principles are germane in terms of the principled exercise of the court's discretion pursuant to rule 42.19:

(a) Where a plaintiff seeks to discontinue prior to any hearing on the merits, "the Court cannot try a hypothetical action between the parties" to determine the question of costs: ASC v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201 per Hill J; Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624 per McHugh J; Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 at [35] per Bergin J;

(b) It is necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce v Fordham [2006] NSWCA 274; 67 NSWLR 497 at [67] per McColl JA;

(c) A relevant consideration is whether the plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: ASC v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare v Angreb [2006] NSWCA 335 at [66] per Beazley JA); Metro Chatswood at [35];

(d) Rule 42.19 provides for the "normal cost outcome" or the "ordinary course" where a party seeks to discontinue proceedings prior to any hearing on the merits. There must be "some sound positive ground or good reason for departing from the ordinary course": Fordyce v Fordham at [2] per Santow JA; AustraliaWide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54] per Bryson JA. 3 The parties have outlined the history of the proceedings in the affidavits furnished by the plaintiff and by the council. The nature of the proceedings appears to have been that they were commenced by the plaintiff to assert and reserve its rights to enforce and ensure that those responsible for particular defects which had surfaced and for what was said to be the negligent certification of the building as complying with the fire safety codes, took responsibility for rectification of the defects. The intent of the plaintiff was that this was to be done at little or no cost to the plaintiff. In the fullness of time, as things have eventuated, the work has been carried out by Meriton and will be approved by the council so that the plaintiff contends that its purpose has been achieved. 4 The plaintiff was not incorporated until after the building work was completed and the compliance certificates issued and it follows that it therefore had no knowledge of the facts and circumstances giving rise to the particular defects and the issue of the certificates. The plaintiff's contention is that all such knowledge lay with the defendants in the two proceedings. The plaintiff contends that it was entitled to demand what it characterises as the defaulting parties to repair the work and to satisfy it that the building now complies with the fire safety codes. The plaintiff has submitted that the conduct of the proceedings was frustrated and prolonged by council's alleged tidiness in preparing and serving what ended up being a notice under s 121B of the Environmental Planning and Assessment Act which was finally issued on 3 July 2008 after what the plaintiff contends to have been extended delay. 5 The plaintiff contends that the particular notice to which I have referred was crucial for the carrying out of the rectification work and set out the basis for determining the scope of works and granted approval for the work to be done and put into place the process for certifying that the building now complies with the fire safety codes. The plaintiff has contended that it could not be certain and sure that the work, which had been ongoing during much of the proceedings, would comply and the breaches giving rise to the proceedings would resolve. 6 The plaintiff contends that had the council notice been served in a timely manner it would have been open for the parties to resolve the dispute by the early entry of a deed setting out the legal framework and the arrangements for carrying out and certifying the need in substitution for maintaining these proceedings. Instead the plaintiff contends the work was done under the auspices of the court at greater cost to the plaintiff. 7 Each set of defendants opposes any order that they pay the plaintiff's cost of the proceedings and as I have understood it each set of defendants contends to the contrary that their costs should be paid by the plaintiff - I am sorry, and the council contends that the plaintiff should pay its cost to the proceedings. The Meriton defendants contend that the appropriate order in respect of Meriton is that each party pay their own costs. 8 Dealing firstly with the position concerning the council, it negates the proposition that the plaintiffs acted reasonably. It contends that it, that is to say the council, acted reasonably. The council contends that the proceedings were in fact futile as is said to be borne out by events subsequent to the commencement of the proceedings. As the council has submitted, the evidence suggests that the proceedings were commenced on 31 May 2006 but not actually served until on or about 8 December 2006, that is served on the council. 9 As the council has submitted, the essential complaint against it was that it had failed to adequately inspect the building prior to the issue of a final occupation certificate in relation to the building. In fact the defendant filed its list response on 8 June 2007 and in para C15(c) of the list response, the defendant denied that it was obliged or able to inspect and therefore that the essentially concealed fire safety construction defect that at all times lay at the heart of the plaintiff's complaints for the purpose of issuing any final occupation certificate to the building. It denied any obligation to eventually supervise the builder's works. It was following the proceedings being served that the plaintiffs commenced the separate proceedings against Meriton Constructions. Very shortly after the Meriton proceedings commenced, the Meriton Group agreed to carry out the rectification work. 10 In relation to the commencement of the proceedings against Meriton, the plaintiff has contended that a letter from the city prosecutor Mark Kelly to Catherine Crawford, which is before the court, gave the plaintiff good cause to commence the proceedings against Meriton. That letter includes the following:

"You had advised me that members of the Owners' Corporation had enquired whether council could take a similar approach to the rectification works at The Summit. In The Summit, and two other buildings at the same time, it was resolved that Meriton would perform rectification works and would pay for independent certification by Michael Wynn Jones and Associates, however council has no legal right of action against Meriton and in subsequent buildings in which fire safety defects have come to attention, Meriton have refused to do any more rectification works".

"For buildings which have an occupation certificate but are defective in fire safety, council's only legal recourse is to issue a fire order against the current owners of the building. The owners would need their own legal advice on any issue of obtaining compensation from the original builder or developer". 11 As the court file indicates, and all parties at the bar table have conceded, there were lengthy periods of time when all that happened in relation to the litigation were appearances before the court as the respective parties, slowly but surely as events transpired, managed to work their way into a successful resolution to the problems. Apparently there were no substantive steps taken in the conduct of the proceedings from the Meriton joinder and to use the council's term, "the plaintiff essentially parked the present proceedings against the council from that point in time". 12 The council has contended that the purpose desired by the plaintiffs was achieved solely through the Meriton proceedings. The proposition which has come forward from the council is that the plaintiffs were not justified in commencing the proceedings against the defendant and that it cannot be said that this has become obvious only with the benefit of hindsight. The council's proposition is that no measures were taken by the plaintiffs to determine whether it was reasonably necessary to commence the proceedings against the council. The proposition is that there is no evidence of any communications with Meriton before either these proceedings or Meriton proceedings were commenced. Either the proceedings against the council or the Meriton proceedings were commenced. 13 The council contends that had the issue of defects been raised with Meriton, prior to the commencement of the proceedings, Meriton may well have, and it could reasonably be presumed, would have taken the same approach that it took shortly after the proceedings were commenced against it, ie agreeing without prejudice to its liability to carry out the rectification work. 14 The council's submissions in relation to it having acted reasonably, were that it did act reasonably in denying that it was obliged or able to inspect concealed fire safety works for the purpose of issuing any final occupation certificate. The council's proposition is that it is hardly surprising that the plaintiffs then looked to Meriton to rectify the defects in the building and took no further substantive steps to prosecute the proceedings against the council. The council contends that the plaintiff's only real complaint in relation to the defendant's conduct of the proceedings, is that the defendant is said to have delayed serving the notice under item 6 of s 121B of the EPA Act. 15 The council has contended that its conduct in issuing the notice and order under s 121B constitutes essentially an irrelevant consideration but that in any event it undertook those statutory functions with both care and reasonable haste. The council has contended that the notice and order were issued pursuant to the defendant's statutory functions under the Act and were issued entirely independently of the proceedings. 16 As the council has contended, the proceedings did not seek any relief relating to the issue of any notice or order under s 121B. The council's proposition is that it is not therefore a relevant consideration going to whether or not a defendant acted reasonably in defending the proceedings that it ultimately issued the notice. Further, the council contends that in any event there is no factual basis to the plaintiff's contention because the council asserts that it acted in a timely manner in the issue of the notice and order under s 121B. 17 As the council has indicated in its submissions, the evidence bears out that the issue of such a notice was first raised with the defendant by a letter dated 5 November 2007. A notice of intention to give an order was then issued by the council on or about 28 December 2007. Prior to the issue of the notice, the defendant considered the plaintiff's draft programme for implementation of rectification works and inspected the building. 18 In the circumstances, it does seem to me that the issue of the notice did take place in a reasonably timely fashion. It is important to recognise in that regard that there is the potential for a s 121B order to expose the recipient to significant civil and criminal consequences and to cause undue hardship. (Care v Canterbury City Council (2001) 115 LGERA 252 at [25] per McEwen AJ; Statewide Developments Pty Ltd v Minister for Infrastructure and Planning [2005] NSWLEC 353 at [26] per Lloyd J) 19 In those circumstances, it was obviously incumbent upon a public authority in the position of the council to consider carefully the issue of a s 121B order and any reports and representations made by the plaintiffs in relation to it. In all of the circumstances, notwithstanding the periods of time which elapsed before the 121B order finally emanated, it does seem to me that the defendant cannot be said to have acted more than reasonably and in a timely fashion in ultimately issuing the order under s 121B that it did. 20 After the issue of the notice of intention on or about 28 December 2007, the defendant, whilst still finalising the terms of the final s 121B order, gave permission for Meriton to commence rectification works on or about 15 April 2008. It seems that it was largely due to actions by the plaintiffs that resulted in the defendant's approval not being given earlier than 15 April 2008, which actions included:

The plaintiffs seeking an extension of time within which to respond to the notice of intention;

The plaintiff submitting their consultant's report to the defendant for consideration on or about 5 February 2008 and 12 February 2008;

The plaintiff seeking meetings with the defendant in relation to the terms of the order, which meetings occurred on 19 March and 9 April 2008. 21 Cases such as this one in which the moving party here, the plaintiff, seeks to discontinue but seeks its costs against the defendants, are required to be determined on a principled basis. Obviously there must be some sound positive ground or good reason for departing from the ordinary course where a party commencing proceedings seeks to discontinue. That party will have to commonly, but not always, pay the costs of those who had been joined in the proceedings. The templates against which the respective parties have addressed the court concerning the commencement of these proceedings seems again and again and again to revolve around the question of the suggested delay in the serving of this 121B notice. 22 Whilst the court can certainly accept and understand that the Owners' Corporation would have been justified in pursuing all avenues open to it in relation to the remediation of the building work problems, the onset of the litigation and in particular in due course the serving of the respective pleadings on both parties does in relation to both sets of proceedings seem to have been the catalyst for the later ability of the parties to work through via Meriton's determining not to contest the litigation but to deal with it commercially. All of that does seem to have ultimately meant a huge saving to all parties from the costs of contested litigation. 23 It is not possible for the court at this stage and in relation to these motions to determine whether or not the council acted reasonably in denying that it was obliged or able to inspect concealed fire safety works for the purpose of issuing any final occupation certificate. It is important to note that the council's technology and construction list response included in para 15 the response that the council denied that it was obliged or able to inspect concealed fire safety works for the purpose of issuing any final occupation certificate and the general denials. 24 At the end of the day, the principled exercise of the court's discretion in this rather unusual set of contested motions is to order that the Meriton companies pay two-thirds of the plaintiff's costs incurred in relation to the Meriton litigation. The reasoning in that regard is simple; Meriton determined to approach the matter commercially and ultimately no doubt, in carrying out the work, avoided the further litigation. That is not to say that the court is not justified in inferring that Meriton took the view that if the litigation had been pursued, it had a very real prospect of being found liable for the defects. Simply because a party elects to treat with the group which sues it and to eschew being involved further in the litigious process, does not necessarily, it seems to me at all, mean that that party was sued without proper cause. 25 To my mind, the position with respect to the council is quite different. I am persuaded by the matters to which I have earlier referred that the council's conduct cannot be regarded as unreasonable in the circumstances. The unusual feature of the whole of the exercise is the s 121B under the EPA Act notice issued but, as I have indicated, nothing in the pleadings involved that particular issue. 26 The principled exercise of the court's discretion in respect of the council is that there should be no order for costs against the council or in its favour. Insofar as the plaintiff is concerned, it has therefore succeeded against the Meriton parties in part, failed against the council in whole and the costs orders should be reduced to writing.

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(2001) 115 LGERA 252

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