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[2016] NSWCA 282
Court of Appeal (NSW)
2016-06-22
Basten JA, Gleeson JA
Original judgment source is linked above.
Introduction
Subsequent Proceedings before the Primary Judge
Conclusions of the Primary Judge
Substantive Proceedings in the Court of Appeal
Disposition of the Substantive Proceedings
Costs Proceedings
Disposition of the Costs Proceedings
Conclusion
Allegations of fraud 1 The allegations of fraud made by Mrs Young in the pleadings may be summarised as follows: (1) On 16 February 2004, a conclave of experts constituted by the L&E Court produced Exhibit A, which was tendered as containing a purported agreed solution by the experts to drainage problems experienced by Mrs Young. (2) The Original Proceedings were purportedly resolved on 19 February 2004 by Mrs Young's legal representatives on terms that Mr and Mrs King give an undertaking to lodge a development application for a retaining wall and undertake to do works nominated in Exhibit A. (3) On 8 March 2004, the L&E Court accepted a varied undertaking from Mr and Mrs King. (4) Exhibit A stated requirements that the drainage system for the retaining wall be isolated from the storm drainage, that the drainage system for the retaining wall be taken to the rear yard of the King property and that the existing 65mm pipe for the retaining wall be lowered to the wall footing zone at the lowest level. (5) Mr and Mrs King represented to the L&E Court that they had submitted a building certificate application to the Council in order to regularise the unapproved excavation that they had undertaken on the southern boundary of the King property and the massed footing constructed on the southern boundary, which depended upon the excavation, with a building certificate (the Intended Building Certificate Representation). (6) The Intended Building Certificate Representation was made on 16 February 2004, on behalf of Mr and Mrs King by their solicitor, Mr Griffith, by statement made by him to the L&E Court. (7) The Intended Building Certificate Representation was false (in that no building certificate application had been made to the Council), to the knowledge of Mr and Mrs King, and was made with the intention of deceiving the L&E Court and Mrs Young and causing the L&E Court to find the undertaking acceptable. (8) Mr and Mrs King subsequently represented to the L&E Court and to Mrs Young that they had adequate drainage arrangements on the King property, and in particular to support drainage that was required to drain to or discharge via the rear yard of the King property including, for the purpose of drainage to the rear, a legal viable discharge point in the rear yard of the King property (the Exhibit A Representation). (9) The Exhibit A Representation was made or is to be implied from the following: (a) February Hemmings, counsel for Mrs Young, stated to the L&E Court that the matter had become capable of settlement by reason of work done on February 13 February 2004. (b) Mr Griffiths stated to the L&E Court that a drainage line (the lower drain) had been run into a pit in the backyard and the L&E Court conveyed its understanding that the subsisting issue in the case was whether there was effective drainage to take away the water interrupted by Mr and Mrs King's works. (c) After Exhibit A was produced by the conclave, Mr Hemmings stated to the L&E Court in open court that works needed to be done, implicitly to achieve effective drainage, and that the lower drain drained into a pit in the backyard albeit with qualifications. (d) Exhibit A states or conveys: (i) that there exists an outlet to the street for water draining to the front of the King property for water generally, which is adequate and would be made better for the retaining wall water by separating the storm water from the sub-surface water, and (ii) that an outlet, meaning a discharge point, exists for drainage to the rear of the King property, being a pit near the car port at the back boundary of the King property (the pit), that the discharge arrangements to the rear of the King property are satisfactory, subject to the need for a surcharge of 20cm for the agricultural drain to outlet into the pit and that the is a legal and effective discharge point for drainage to the rear of the King property. (e) Mr Springett, an engineer retained by Mr and Mrs King, stated to the L&E Court: (a) that the Exhibit A works required that the retaining wall drain be lowered and then run across the yard to the existing pit for the lower level drain, and: (b) that the conclave agreed that the lower system could not be done by any better and the "system was fine". (f) Mr King's affidavit sworn in October 2003, which was read in support of the hearing in relation to costs on 17 February 2004, exhibited a plan expressly referred to in Exhibit A, which described the pit as an "absorption pit", thereby impliedly representing to the L&E Court that the pit was an absorption pit. (g) No steps were taken in the L&E Court by the legal representatives, or the experts in the course of giving their evidence, to correct, for the benefit of the L&E Court, the implied representation that the pit is a legal and effective discharge point to support Mr and Mrs King's drainage requirements to the rear of the King property and that by necessary implication the pit was a pit in the nature of an absorption pit, nor were steps taken to bring to the attention of the L&E Court the fact that the pit was not an absorption pit. (h) There is no statement in Exhibit A and no statement was made to the L&E Court by any of the lawyers or engineers to the effect that: (i) there was in contemplation discharge for rear yard drainage to any point other than, or any point beyond, the pit; (ii) the pit was a stormwater pit; (iii) Mr and Mrs King did not or may not have a legal and effective discharge point for rear yard discharge, and (iv) the pit was not itself a legal and effective discharge point for the drainage to the rear yard of the King property. (10) By reason of the above matters, the following implied statements were conveyed to the L&E Court: (a) The pit was a legal and effective discharge point to support Mr and Mrs King's drainage requirements to the rear of the King property, and (b) By necessary implication, the pit was a pit in the nature of an absorption pit. (11) In giving the undertaking to do the works described in Exhibit A in the circumstances set out above, Mr and Mrs King adopted Exhibit A and the understanding conveyed to the L&E Court by Exhibit A and by the Exhibit A Representation. (12) Mr and Mrs King knew that the Exhibit A Representation had been made to the L&E Court and, in giving the undertaking, adopted the Exhibit A Representation. (13) The Exhibit Representation was false in that: (a) Mr and Mrs King did not have adequate drainage on the King property and had no legal or viable discharge point for the water that needed to be drained to the rear of the King property, and (b) The legal discharge point is Starkey Street because the pit is a stormwater pit designed to collect water and take it to a pipe which then delivers it to a legal discharge point being an approved stormwater outlet. (14) Mr and Mrs King knew at the time of giving the undertaking and making the Exhibit A Representation that they did not have adequate drainage on the King property and that they did not have a legal or viable discharge point for drainage to the rear of the King property and therefore knew that the Exhibit A Representation was false and they made the Exhibit A Representation with the intention to deceive Mrs Young and the L&E Court. (15) Mr and Mrs King gave the undertaking in the knowledge that the Exhibit A Representation was false and untrue and that the truth of the Exhibit A Representation was material to the preparedness of the L&E Court and Mrs Young to accept the undertaking to the L&E Court, and in the knowledge that the Exhibit A proposal could never be implemented and could never be the subject of a properly considered approval by the Council. (16) The conduct of Mr and Mrs King in offering the undertaking to the L&E Court on the foundation of Exhibit A amounted to bad faith and was motivated by the intention to deceive Mrs Young and the L&E Court. (17) In giving or causing the undertaking to be given to the Court, Mr and Mrs King represented to the L&E Court and to Mrs Young that: (a) The retaining wall drained to the street at the time of giving the undertaking (the Kerb Representation); (b) It was the intention of Mr and Mrs King to disconnect the 65mm pipe from the stormwater discharging to the street front and take it to a discharge point in the rear (the Disconnection Representation). (18) The Kerb Representation and the Disconnection Representation were made by Mr and Mrs King, or are to be implied, from the fact of the giving of the undertaking by Mr and Mrs King in the circumstances set out below: (i) Mr King's affidavit sworn October 2003 said nothing about the existence or discharge point of the retaining wall drainage. (ii) Exhibit A contains references to "isolate the drainage system for wall from storm drainage - take to outlet in rear yard" of the King property. (iii) Mr and Mrs King were in Court and were aware of the following matters. (iv) Mr Hemmings, counsel for Mrs Young, stated to the L&E Court that the retaining wall drainage discharges into the storm drainage to the street and Exhibit A would now require that the retaining wall drainage be changed so that it drains to the rear yard. (v) Mr and Mrs King's solicitor, Mr Griffiths, on their behalf represented to the L&E Court that the drainage for the retaining wall was approved by the Council and by implication was draining to the street as contemplated by the consent. (vi) Mrs Young's expert hydrologist, Dr Perrens, gave evidence on 16 February 2004 that the effect of the drainage of the retaining wall to the street was to cause water to surcharge into the Young property and it was introducing more water into the groundwater system and that accordingly it has been recommended to separate the two and discharge the retaining wall drain to the rear. (vii) Consent by the Council was given on the basis that the retaining wall that was the subject of the consent was to drain to the street. (viii) Mr Springett stated in his report that the retaining wall drainage discharged to the kerb. (ix) Mr Springett gave evidence that he had agreed to change the current system by isolating the already overloaded stormwater system and to take the water from the Young property and discharge it to the backyard of the King property, and that the consequence of the current system was, unless it was remedied, that it would cause water to back up behind the retaining wall on the Young property. (x) Mr Springett gave evidence that Exhibit A would require a 65mm drain to be taken across the backyard to the pit. (19) The Kerb Representation and the Disconnection Representation were false in that the retaining wall was already draining to the rear at the time of the giving of the undertaking by Mr and Mrs King. (20) Mr and Mrs King and/or Mr Springett and/or Mr Griffiths made the Kerb Representation and the Disconnection Representation well knowing that they were false and with the intention to deceive the L&E Court and Mrs Young and with the intention that each of the L&E Court and Mrs Young would accept that the undertaking and that the proceedings would be dismissed. (21) In reliance upon and induced by the representations referred to above, Mrs Young, or in the alternative, her legal representatives, accepted the undertaking to the L&E Court in settlement of the Original Proceedings and, in consequence thereof, consented to an order dismissing Original Proceedings. (22) In reliance upon and induced by the representations, the L&E Court accepted the undertaking from Mr and Mrs King and, in consequence thereof, made an order for the dismissal of the Original Proceedings.
Knowledge of Falsity of Exhibit A Representation 1 The particulars may be summarised as follows: (1) Mr and Mrs King had advice, prior to the works that they undertook in 2001, that would have alerted them to the need for a legal and effective discharge point and led them to submit a plan requiring drainage to stormwater. (2) They then lodged development application 1382 on the false basis that basement rooms existed. They knew that there were no approved rooms under the house and that, by their works in creating the basement rooms, they had altered the conditions of drainage requiring drainage to the rear in order to have access to stormwater outlet, which they did not have. (3) Mr and Mrs King knew that roof water would need to be drained to the rear of the King property as a consequence of the works and therefore needed access to a Council approved stormwater outlet to the rear and there was no such outlet, except at Starkey Street. (4) Mr and Mrs King installed a retaining wall at 1.2 metres below natural ground on the Young property which could not possibly drain to the street. However, they submitted plans to the Council on the basis that it would drain to the street. (5) The construction certificate plans lodged by Mr and Mrs King were calculated to provide for a retaining structure to support a false claim that the works carried out in 2001 involved no alteration of ground levels and therefore no interruption to surface water. (6) The construction certificate plans said that a dish drain would drain to a pit but no such statement was contained in plans that are the subject of the development application and they thereby evaded a duty on the part of the Council to verify the pit as a legal and effective discharge point. (7) Mr and Mrs King included a false statement in the plans for development application 1382 lodged on 31 October 2001 to the effect that the pit was an absorption pit, in circumstances where they knew that it was a closed or stormwater pit. (8) Mr and Mrs King installed a stormwater pit at the back of the house intended for drainage through the Young property when, by reason of its location, the pit could only have been a pit installed with the intention to drain the King property through the Young property, showing an intention to seek a discharge point in or through the Young property for the King property. (9) Mr and Mrs King lodged a building certificate application in November 2001 and obtained their building certificate in December 2001 for the slab of the then new basement rooms, without disclosing to the Council that roof water then drained to the rear, that drainage works had been removed and that the ground level on the southern boundary off the King property had been lowered by at least 90 cm. (10) They purported to rely on the building certificate in an affidavit to convey to the L&E Court that their works had been considered by the Council as warranting approval, in the knowledge that the non-disclosure meant that no such reliance could be placed on it. (11) Mr and Mrs King lodged a building certificate application on 31 December 2003, thereby acknowledging that the building certificate of December 2001 was "a transparent sham" so far as it conveyed consideration by the Council of their works. (12) Mr and Mrs King did not progress the building certificate application lodged on 31 December 2003 since the question of such a building certificate would have required the drainage to be considered by the Council including the fact of the 65 mm drain draining to the rear, where there was no legal or effective discharge point, contrary to the terms of the consent. (13) Mr and Mrs King omitted to disclose in their evidence in the Original Proceedings how the retaining wall was draining or that they were draining the retaining wall to the rear. They caused the Original Proceedings to be conducted on the basis that they were draining to the front where they claimed there was a Council approved stormwater outlet to the street, which to their knowledge was not correct. (14) Mr and Mrs King allowed or acquiesced in a false representation to the L&E Court to support acceptance of the undertaking that a relevant building certificate would be issued when they did not intend to drain the retaining wall. (15) They failed or omitted to undertake any work to install the drainage that was approved by the construction certificate until the commencement of the Original Proceedings. (16) Further, they failed or omitted to disclose to Mrs Young that they had installed drainage on 28 April 2003 for the retaining wall, contrary to what was approved under consent 1382, on which, to the knowledge of Mr and Mrs King, Mrs Young had placed reliance. 2 The particulars then contain extensive assertions of conduct after the making of the Original Orders. It is difficult to see how the alleged conduct engaged in after the making of the alleged false representations could be evidence of knowledge of the falsity of the representations.
Lack of drainage from the outset 1 Mrs Young contended that the predicament faced by the parties arose out of the manifest inability of Mr and Mrs King to drain the King property, asserted to be the consequence of substantial alterations effected by them and by a previous owner or previous owners. She repeated the allegations made in the statement of claim filed in the Judicial Review Proceedings and the further amended grounds of application filed in the Original Proceedings. 2 In those pleadings, Mrs Young made allegations that may be summarised as follows: (1) In 1958, the Young property and the King property were created by a subdivision containing some 20 to 30 lots, with arrangements made at the time for drainage. (2) Mr and Mrs King purchased the King property in 1999. (3) Prior to 1999, one or more of the previous owners of the King property undertook unlawful works that compromised the drainage on the King property as it had been approved. The works included the construction of a carport in the northeast corner, excavation under the house, construction of a slab under the house and construction of a closed pit at the rear yard. (4) Beginning in or about July 2001, Mr and Mrs King undertook works on the King property and the Young property for the purpose of creating basement rooms under the southern side of the dwelling house, where consent given in 1963 mandated a 1.5 metre subfloor space (the subfloor space). (5) For the purpose of creating basement rooms in the subfloor space, Mr and Mrs King excavated 50cm in order to lower the walls of the subfloor space, extended the walls of the subfloor space 50cm below the level of the base of those walls, poured a new slab at the new level of the base of the subfloor space walls. In total that created a floor that was 2.4 metres below the approved floor level. (6) Beginning in July 2001, Mr and Mrs King undertook a variety of works on the King property and on the Young property for the purpose of making the basement rooms viable. 3 Mrs Young contended in her submissions that, although the roof water from the King property drained to Calca Crescent, the Young property and the King property drain to the rear and in particular to the northeast. Accordingly, the Young property is upstream of the King property and the King property was in the natural flow path of the water, in circumstances where surface and subsurface water generally followed the same path. Accordingly, construction on the Young property and the King property required natural water flows to be managed and the drainage system for the subdivision in 1958 was designed for that purpose when the subdivision was effected. 4 Mrs Young contended that the drainage system that took water around the dwelling on the King property consisted of a drain that took the water to the northeast corner where it re-joined the natural drainage system towards Bates Creek. She said that the drainage system was compromised by the construction of a carport in the rear corner of the Young property, which was not approved by Council and was unlawful. 5 Mrs Young then asserted that Mr and Mrs King knew at the time that they purchased the King property that the basement rooms were entirely unlawful because the footings of the dwelling were higher than the slab of the basement rooms. She also asserted that Mr and Mrs King knew that, as a consequence of their works, they needed to drain any basement rooms to a stormwater outlet that needed to be to the rear of the King property. She asserted that, until Mr and Mrs King carried out works in 2001, roof water from their dwelling drained to Calca Crescent. 6 Mrs Young asserted that, in August 2001, she complained to the Council concerning the unlawful works and Mr and Mrs King subsequently lodged development application 1382 on 27 September 2001. Mrs Young contended that the development application was incompetent because it proposed development on the Young property, being a retaining wall that straddled the boundary between the Young property and the King property. Therefore, the development application could not proceed without Mrs Young's consent. 7 Mrs Young also contended that the development application was based on the false premise that the basement rooms had previously existed and were approved. She contended that false statements were made in the plans lodged with the development application that there was an absorption pit in the rear yard of the King property near the carport. 8 Mrs Young asserted that Mr and Mrs King prepared plans dated 31 October 2001 that were intended to be part of a roadmap for an "independent" expert who would make "a package of findings as to what was previously in place". The independent expert would find that the drainage was reliant upon a system that imposed an outlet burden on the Young property contrary to "the prior system … and common sense". Mrs Young alleged that, once bound by such an expert determination, she would have been obliged to do whatever the expert said or be sued for breach of contract. 9 Mrs Young said that the evidence did not clearly disclose how the independent expert was to make the "perverse" findings to justify imposing the drainage obligation on the Young property. She asserted, however, that Mr and Mrs King had a fixed and firm intention not to construct drainage on the basis that the King property was responsible for draining the upstream properties, including the Young property, to a viable discharge point. She asserted that that intention had "manifestly informed their conduct" for a period of 13 years.
The Kings' 31 October scheme, 10 Mrs Young asserted that the scheme evidenced by the plans of 31 October 2001 involved a package of three elements as follows: * Lodgement of the amended plans of 31 October 2001; * "Orchestrating an agreement" with Mrs Young, "and consequent issue estoppel" under the Dividing Fences Act 1991 (NSW) as to the natural ground level; and * Obtaining a building certificate from the Council on which an "independent" expert could rely to infer that the basement rooms had existed with previously approved drainage. 11 Mrs Young submitted that the process was intended "to vindicate" a retaining wall on the boundary by requiring development application in respect of the Young property to complement DA 1382 and thus create a competent development application for a retaining wall on the boundary and "to vindicate a discovery" that the outlet obligation for drainage from the King property and likely the Young property, lay on the Young property. 12 Mrs Young then asserted that, between 27 December 2001 and 7 January 2002, Mr and Mrs King constructed a "mass (retaining wall) footing" on the boundary between the Young property and the King property, encroaching on the Young property. She asserted that the mass footing was constructed to be ready for the "independent expert" to draw upon it for critical inferences when he made his report. 13 Mrs Young asserted that Mr King wrote to the Council declaring that he was entitled to "pen back" water onto the Young property and alleged that roof water from the Young property was a problem and was washing onto the King property. She asserted that that was "a nonsense and could be demonstrated to be so". She also asserted that Mr and Mrs King claimed that there were rubble drains on the boundary of the Young property "dumping roof water" into the King property. 14 Mrs Young asserted that the claim that there were illegal rubble drains was made so that it would lead to the "discovery" that there in fact had been chimney drains along the boundary. She asserted that Mr King intended to support a claim that he had constructed the mass footing at the level at which he had found the rubble drains in order to pen back water from the rubble drains. She said that the real purpose of Mr and Mrs King in constructing the mass footing was to create a false marker for the antecedent level of what they sought to have characterised as chimney drains designed to arrest and drain water before it reached the boundary with the King property. 15 Mrs Young then asserted that, on 24 January 2002, Mr and Mrs King lodged a plan in connection with the development application, which described the retaining wall as being to replace tin sheets. She asserted that the result was that the development application spoke of the retaining wall that was to retain a previously existing difference in levels, despite the fact that the 31 October 2001 plans showed that the previous land levels were the same on both sides. Mrs Young asserted that the intention of Mr and Mrs King was to have a retaining wall on the Young property without disclosing that intention to her and to mislead her about that matter. She asserted that a construction certificate issued to Mr and Mrs King was issued in breach of the law.
The Intended Building Certificate Representation 16 Mrs Young asserted that the case for Mr and Mrs King was conducted by Mr Griffiths, in Mr King's presence, on the basis that a building certificate application was expected to be issued promptly so as to make tenable the development application for a retaining wall on the boundary pursuant to the undertaking. In fact, she asserted, the building certificate application given to McClellan CJ, which had been lodged by Mr and Mrs King on 30 December 2003, could never have been progressed in good faith because the application sought a certificate for a footing at 0.8 metres whereas the mass footing was at 1.2 metres. Accordingly, she asserted, there was no question of any building certificate being issued for the footing that the L&E Court was invited to understand was the retaining wall footing and which the L&E Court found was a retaining wall footing. 17 Mrs Young asserted that the purpose of the Intended Building Certificate Representation was to displace inquiry as to why Mr and Mrs King had not lodged a building certificate application for the works that they had done prior to applying for consent. The reason for displacing inquiry was that the failure to progress a building certificate application resulted from Mr and Mrs King's intention to place a retaining wall and drain on Mrs Young's land. Therefore, she said, they did not want a building certificate on the basis that the retaining wall and drain were entirely on the King property. Thus, Mrs Young asserted, the Intended Building Certificate Representation was fundamental to misleading the L&E Court and Mrs Young by putting them off inquiry as to Mr and Mrs King's intention to place the retaining wall and drain on the Young property and to orchestrate an expert determination to vindicate such an arrangement.
The Kerb Representation and Disconnection Representation 18 Mrs Young asserted that Mr and Mrs King, upon examination, could not drain the 65 mm drain for the retaining wall to the street, because the levels did not permit it. Mrs Young said that Mr and Mrs King provided for drainage to the street because there was a Council approved stormwater outlet that could be verified without inspection or inquiry and they did not want the Council to have a duty to perform inspection or inquiry so far as concerns verification or critical assessment of any question of a legal and effective outlet to the rear, because there was none. 19 Mrs Young asserted that Mr and Mrs King had taken great care not to disclose that the 65 mm drain drained to the rear, contrary to the terms of the consent that had been given. She asserted that Mr and Mrs King did not have a legal discharge point to the rear of the King property and did not want scrutiny of that matter. She submitted that Mr and Mrs King intended to reveal the fact that the 65 mm drain already drained to the rear "at the last minute" to secure a settlement on the basis that each party pay their own costs and the delay in revealing the matter was to preclude proper inquiry by Mrs Young as to how the 65 mm drain could drain to the rear and as to whether it drained to a legal discharge point. 20 Mrs Young contended that the undertaking was necessarily a sham because Mr and Mrs King were already draining the retaining wall to the rear and that, given that serious water table problems had been observed on the Young property, after the 65 mm pipe was installed by Mr and Mrs King in April 2003, the pretence by Mr and Mrs King, that they would disconnect from the front, meant that, to their knowledge, and contrary to the understanding of the L&E Court and Mrs Young, no solution at all would be put in place for the observed problems. That, Mrs Young contended, together with the other misrepresentations, amounted to fraud on the L&E Court and on her, which led to the making and obtaining of the Original Orders.
Endnotes
Young
King
Solicitors in Matter Nos. 2016/76373 and 2016/76351: LC Muriniti & Associates (Applicant/Appellant) Terence Stern, Solicitor & Attorney (First and Second Respondents) Colin Biggers & Paisley (Third and Fourth Respondents) Moray & Agnew (Fifth Respondent) Kennedys (Australasia) Pty Ltd (Sixth and Seventh Respondents) Norton Rose Fulbright Australia (Eighth Respondent) File Number(s): 2015/229797; 2015/229805; 2016/76373; 2016/76351 Decision under appeal Court or tribunal: Land and Environment Court of New South Wales Citation: [2015] NSWLEC 111; [2016] NSWLEC 4 Date of Decision: 9 July 2015; 19 February 2016 Before: Sheahan J File Number(s): 2014/40449; 2003/40417
[2015] HCASL 73
(1938) 60 CLR 336
(2011) 244 CLR 427
(1916) 22 CLR 437
(1997) 188 CLR 595
(1986) 161 CLR 342
[2011] HCA 48
[1938] HCA 34