Kuzmanovic v Owners SP 43576 and Peacock

[2011] NSWLEC 53

Land and Environment Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Kuzmanovic v Owners SP 43576 and Peacock [2011] NSWLEC 53
Hearing dates:	29 March 2011
Decision date:	01 April 2011
Jurisdiction:	Class 4
Before:	Biscoe J
Decision:	Second Respondent is to pay Applicant's costs of the proceedings after 11 March 2011.
Catchwords:	COSTS:- Class 4 proceedings to enforce Council cease use order discontinued - Respondent probably complied with order after proceedings commenced - no prior notice given to Respondent before proceedings commenced - Applicant before trial offers to discontinue with each party to pay own costs - offer rejected.
Legislation Cited:	Civil Procedure Act 2005 s 98 Environmental Planning and Assessment Act 1979 s 121B Uniform Civil Procedure Rules 2005 rr 42.19, 42.20, 42.13
Cases Cited:	Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Calardu Wurarawong (Homestarters) Pty Ltd v Wollongong City Council (No 2) [2010] NSWLEC 26 Council of the City of Sydney v Chapman [2007] NSWLEC 146 Dicose-Latec Finance P/L (1966) 84 WN (PT 1) (NSW) 557 Glaser v Poole (No 2) [2010] NSWLEC 232 Homemakers Supa Centre -Belrose Pty Ltd v Warringah Council (No 2) [2008] NSWLEC 126, 158 LGERA 90 Ho v Powell [2001] NSWCA 168, 51 NSWLR 572 Kiama Council v Grant [2006] NSWLEC 96, 143 LGERA 441 Oshlack-Richmond River Council [1998] HCA 11, 193 CLR 72 Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6, 186 CLR 622 Shellharbour City Council v Stewart [2008] NSWLEC 216 Vis Visitor Investment Services Pty Ltd v Hawkesbury City Council (No 2) [2010] NSWLEC 252, 178 LGERA 97
Category:	Costs
Parties:	Susan Kuzmanovic (Applicant) The Owners of Strata Plan 43576 (First Respondent) Allan Peacock (Second Respondent)
Representation:	Mr D T Miller (Applicant) N/A (First Respondent) Mr M C Fraser (Second Respondent) Teys Lawyers (Applicant) N/A (First Respondent) Hicksons Lawyers (Second Respondent)
File Number(s):	40009/11

Judgment

1. The applicant, Susan Kuzmanovic, has been granted leave, by consent, to discontinue these Class 4 civil enforcement proceedings as against the second respondent, Allan Peacock. The only remaining issue between them is costs.

Background

1. On 14 November 2008 the Council issued a s 121B order under the Environmental Planning and Assessment Act 1979 ( EPA Act ) requiring significant fire safety upgrades to the residential apartment building at 156 Ramsgate Avenue, North Bondi ( the fire safety order ) .

1. The applicant and her partner Mr Tamsett became aware of the fire safety order after the applicant purchased her apartment in the building in January 2009.

1. The building is comprised of only four apartments. The applicant and the second respondent own one each. Another person owns the remaining two apartments.

1. The second respondent additionally holds an exclusive entitlement (granted by way of a by-law passed in 1995) to occupy and use (on terms) the building's subfloor space (essentially for storage).

1. Between February and August 2009 Mr Tamsett corresponded with the Council regarding compliance with the fire safety order, including obtaining an extension of time .

1. In August 2009 the Council required a definitive programme of works before it would consider any further extension of time .

1. On behalf of the Owners Corporation, Mr Tamsett obtained expert advice about the works necessary to comply with the fire safety order. The advice also identified that the use of the subfloor area (by the second respondent) had the effect of elevating the classification of the building under the Building Code of Australia ( BCA ) from Type B to Type A. The Type A classification engaged more onerous fire safety requirements.

1. In November 2009 the Owners Corporation obtained quotes for the works required to comply with the fire safety order. The Owners Corporation did so on the basis of a Type B, not Type A classification of the building.

1. As at March 2010 the second respondent was using the subfloor area to store a large volume of materials, and had installed services into the subfloor area and penetrations through walls and ceiling of that space. The second respondent had exclusive access to the area.

1. In June 2010 the applicant requested the Council to inspect the subfloor area.

1. The Council was not able to obtain access and inspect the subfloor area until 29 October 2010. The inspection confirmed the continued use of the subfloor area by the second respondent.

1. The Council officers also confirmed to Mr Tamsett that the fire safety order had been issued on the basis that there was no use of the subfloor area, and that they agreed the BCA classification of the building should be Type A.

1. On 12 November Council issued to the second respondent a notice of intention to give a cease use order relating to the subfloor area under s 121B of the EPA Act.

1. On 2 December 2010 the Council gave the cease use order to the second respondent. The order required him to remove all storage units, shelving and associated materials from the sub-floor storage area, and to cease using that area for the purpose of storage. Under the heading "circumstances" the Council stated that building works associated with the sub-floor storage area had been carried out without prior development consent, and made related remarks.

1. The cease use order needed to be complied with in order for the fire safety order works to be carried out. The fire order (the subject of the proceedings between the applicant and the first respondent) remains outstanding - some 29 months after it was issued.

1. The terms of the cease use order required compliance 28 days after service, ie. by 30 December 2010.

1. The Council advised the applicant that compliance with the cease use order was listed as outstanding as at 6 January 2011.

1. On 7 January 2011 the applicant filed the summons and supporting material in these proceedings. The applicant did not give prior notice to the second respondent.

1. On 10 January 2011 the applicant served the summons and supporting material on the second respondent. The summons sought against the second respondent (1) a declaration that the second respondent is in breach of the cease use order; (2)(a) an order that he cease the use of the sub-floor area for storage unless development consent is obtained; and (2)(b) an order that within 14 days he remove all storage units, shelving and materials, flooring, lighting and service lines stored in the sub-floor area. The summons also seeks relief against the owners of the strata plan, the first respondent, for breach of the fire order.

1. On the day the summons was served the second respondent left Australia and did not return until 28 February 2011.

1. On 25 January 2011 the second respondent retained solicitors.

1. On the return date of the summons, 31 January 2011, counsel for the second respondent told the Court that the cease use order had been complied with before the summons had been filed.

1. The Court directed that an inspection of the subfloor storeroom area take place on 7 February. The inspection on 7 February 2011 confirmed that the second respondent had by then removed stored materials from the subfloor area.

1. On 9 February 2011 the second respondent's solicitors wrote to the applicant's solicitors requesting dismissal of the proceedings against the second respondent with the applicant to pay the second respondent's costs of the proceedings.

1. On 11 February 2011 the applicant's solicitors wrote to the Council's solicitors asserting that further works were required to be undertaken by the second respondent in order to satisfy the Council that the subfloor area had ceased to be used for storage. The applicant also proposed that the Council carry out an inspection and amend the fire order.

1. On 11 February 2011 the second respondent's solicitors wrote to the applicant's solicitors stating they had received a copy of the last-mentioned letter and requested particulars of the alleged non-compliance.

1. On 14 February 2011 the applicant's solicitors wrote to the second respondent's solicitors, stating that after inspection of the subfloor area, prayers 1 and 2(a) of the summons had been resolved. They said that prayer 2(b) was still in issue because they had received expert advice which indicated that the second respondent continued to use the subfloor area in a manner that was relevant to the fire order.

1. On 21 February 2011 the second respondent's solicitors wrote to the applicant's solicitors stating that the cease use order made no mention of the requirement to remove "flooring, lighting and service lines stored in the subfloor area" and to that extent prayer 2(b) of the summons was inconsistent with the terms of the cease use order. I do not think this was a substantial point because the cease use order referred to "associated material", which is wide enough to capture the materials specified in prayer 2(b).

1. That letter also asserted that the proceedings were brought after the cease use order had been satisfied and were (thus) an abuse of process. The letter concluded by saying that the second respondent would seek to have the proceedings dismissed with an order for indemnity costs. It was noted that the applicant had not taken up the second respondent's offer of 9 February to dismiss the proceedings on the basis of the usual costs order.

1. On 23 February 2011 the second respondent's solicitors wrote to the applicant's solicitors to indicate that the applicant should be aware that neither the applicant nor anyone on the applicant's behalf would attend an inspection of the subfloor area by Council officers.

1. On 25 February 2011, the second respondent's solicitors wrote to the Council and stated that the cease use order had been complied with. The letter sought inspection by the Council.

1. On 28 February 2011, the second respondent's solicitors wrote to the applicant's solicitors stating, inter alia, that "since early January 2011" the applicant has complied with the cease use order.

1. On 1 March 2011 the applicant's solicitors wrote to the second respondent's solicitors and noted the second respondent's assertion that the cease use order had been complied with before the commencement of the proceedings. They requested copies of records from storage or removal companies, invoices, quotes or otherwise that record the dates on which the works to comply with the cease use order had been carried out; and asked that this request be treated as a notice to produce. It was noted that the cease use order of 2 December 2010 required compliance within 28 days of service, ie on or before 30 December 2010, but that the second respondent's solicitor's letter of 28 February 2011 said that the second respondent had complied "in early January 2011". A request was made for documentary confirmation of precisely when the second respondent claimed to have completed the works.

1. The letter concluded with an offer to discontinue the proceedings on terms that each party pay their own costs.

1. On 2 March 2011 the second respondent's solicitors wrote to the applicant's solicitors stating that the letter of 1 March 2011 would not be treated as a notice to produce. No documents were produced.

1. Only on 3 March 2011 did the Council confirm that it was satisfied about compliance with the cease use order. On that day a Council officer emailed the second respondent's solicitors that the cease use order was considered as being complied with and therefore the matter is considered complete. A copy was sent to the applicant's solicitors.

1. Later that day the second respondent's solicitors made an offer to the applicant's solicitors that the proceedings be dismissed and that the applicant pay the second respondent's costs on an indemnity basis.

1. On 4 March 2011 the applicant's solicitors wrote to the second respondent's solicitors rejecting that offer and counter-offered to discontinue on terms that each party bear its own costs.

1. On the same date the second respondent's solicitors replied rejecting that offer.

1. On 7 March 2011 the second respondent filed a notice of motion seeking summary dismissal of the proceedings against the second respondent and an order for costs on an indemnity basis.

1. On 14 March 2011 the applicant's solicitors wrote to the second respondent's solicitors querying why they would not treat the letter of 6 March as a notice to produce and stating that if the objection was as to form, a formal notice to produce would be issued promptly.

1. On 15 March 2011 the second respondent's solicitors replied by letter stating that as the applicant had admitted that there was no utility in proceeding against the second respondent, and therefore, the applicant's notice to produce had no utility. Consequently, they had no intention of incurring further costs producing documents.

1. On 16 March 2011 the applicant's solicitors indicated by letter, that they would now issue a notice to produce forthwith.

1. That day the applicant filed and served a notice to produce directed to the second respondent seeking production of documents recording the removal of materials from the subject premises between 2 December 2010 and 7 January 2011.

1. On 17 March 2011 the second respondent's solicitors wrote stating, inter alia, that the notice to produce would be complied with by the second respondent who would rely on this as a further circumstance supporting the second respondent's application for indemnity costs.

1. The notice to produce required the documents to be produced to the Court on 22 March 2011. However, there was no appearance by the second respondent on that date and the second respondent produced no documents to the Court. No explanation was provided for the second respondent's failure to appear, or comply.

Costs

1. At the hearing of the second respondent's notice of motion, I granted leave to the applicant to discontinue the proceedings against the second respondent. This was consented to by both parties. I then proceeded to hear the applicant and the second respondent on costs.

1. It is common ground that the second respondent had complied with the cease use order by 7 February 2011 when the applicant carried out an inspection, but confirmation from the Council that the second respondent had complied with the order was only issued on 3 March 2011. It is contested whether the second respondent had complied prior to the commencement of the proceedings.

1. As the cease use order has been complied with there was no utility in the applicant continuing with the proceedings other than as to costs.

Submissions

1. The applicant submits that:

(a)   the applicant should be awarded costs on the ordinary basis because:

(i)   after the proceedings commenced the second respondent capitulated by complying with the cease use order, thus removing the subject of the dispute;

(ii)   even if the second respondent complied before the proceedings commenced, the second respondent's conduct in failing to communicate that compliance to Council led the applicant to the reasonable belief that litigation was necessary to resolve the use of the subfloor area, a use which directly impacted on the fire order;

(b)   alternatively, there should be no order as to costs;

(c)   alternatively the applicant should be awarded costs from or shortly after 1 March 2011 because on that date she made an offer to discontinue on terms that each party pay its own costs

1. The applicant submits that (a) she acted reasonably in commencing the proceedings informed as she was by the Council of the outstanding status of compliance with the cease use order; (b) she acted reasonably in maintaining the action until it was demonstrated by an inspection on 7 February 2011 that compliance had occurred; (c) due to the second respondent's exclusive access to the storage area, the fact of compliance was a matter peculiarly within his knowledge and control. As at 6 January 2011 he had not informed Council of compliance, and compliance could not be independently checked because he had exclusive access to the subfloor area.

1. The second respondent submits that the applicant should pay indemnity costs on three grounds:

(a)   The applicant failed to establish factually that the second respondent breached the cease use order. The information provided by Council on 6 January was inadequate. The applicant should not have commenced the proceedings without inspecting the premises or obtaining information from the Council that the order had not been complied with and Council was not going to enforce it.

(b)   The applicant failed to give prior notice of the proposed proceedings to the second respondent. This failure denied the second respondent the opportunity to avoid costs.

(c)   The applicant failed to end the proceedings at two points in time when (or shortly after when) indemnity costs might otherwise commence:

(i)   on 9 February 2011 when the second respondent made an open offer to settle on the basis that the proceedings be dismissed and the applicant pay the second respondent's costs on the ordinary basis.

(ii)   on 15 February 2011. On 14 February the applicant admitted that prayers 1 and 2(a) in the summons were resolved but not prayer 2(b) which was a claim that did not accord with the terms of the cease use order. The applicant pointed out in the letter of 15 February that the Council had advised the cease use order had been complied with. In that letter the opportunity was afforded for dismissal of the proceedings on the basis of an ordinary costs order.

Relevant Costs principles

1. In proceedings in Class 4 of the Court's jurisdiction, subject to the rules of Court and to the Civil Procedure Act 2005 ( CPA ) and any other Act, the Court may order that costs be awarded on the "ordinary basis" or "the indemnity basis": s 98(1) CPA Act .

1. The rules provide that upon discontinuance or dismissal of proceedings, the starting point is that costs are payable by the applicant, unless the Court "orders otherwise": Uniform Civil Procedure Rules 2005 ( UCPR ) 42.19 and 42.20. There must be some positive ground or good reason for departing from the ordinary course: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54]. A good reason is where a respondent's conduct led an applicant to the reasonable belief that litigation was necessary: Bitannia at [65].

1. Before the above statutory regime commenced, it was said that where proceedings are compromised, the usual outcome is that there is no order for costs: Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6, 186 CLR 622. McHugh J said at 624-625 (citations omitted).

"A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even

when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.

...

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.

...

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

1. In Kiama Council v Grant [2006] NSWLEC 96, 143 LGERA 441 at [80] Preston CJ held:

The principles that emerge from these cases are that in a civil enforcement or judicial review case where there has been no hearing on the merits:

(a) where one party effectively surrenders to the other party by:

(i) discontinuing without the consent of the other party; or

(ii) giving undertakings to the Court or submitting to the Court making orders against the party substantially in the terms or to the effect claimed by the other party;

the proper exercise of the costs discretion will ordinarily be to make the usual order as to costs, unless there is disentitling conduct on the part of the other party; and

(b) where some supervening event or settlement so removes or modifies the subject of the dispute that no issue remains except that of costs, the proper exercise of the costs discretion will ordinarily be to make no order as to costs unless:

(i) one of the parties has acted so unreasonably that the other party should obtain the costs of the action; or

(ii) even if both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried so that the party should obtain the costs of the action.

1. Failure to give notice before action may disentitle a successful applicant, who would otherwise be entitled to an order for costs, from being awarded costs: Council of the City of Sydney v Chapman [2007] NSWLEC 146 at [11] - [14] (Jagot J). The purpose of a notice before action is to inform respondents of the intention of a party to commence legal proceedings thereby giving the respondents an opportunity to take steps to avoid the need for that action and the associated costs: Calardu Wurarawong (Homestarters) Pty Ltd v Wollongong City Council (No 2) [2010] NSWLEC 26 at [32] - [39] (Sheahan J); Homemakers Supa Centre -Belrose Pty Ltd v Warringah Council (No 2) [2008] NSWLEC 126, 158 LGERA 90 at [15] (Pain J).

1. Indemnity costs may be awarded if there is some relevant delinquency on the part of a party. Cases in which courts have made orders for indemnity costs in analogous circumstances are not determinative but may be useful as a guide: Oshlack-Richmond River Council [1998] HCA 11, 193 CLR 72 at [44]; Shellharbour City Council v Stewart [2008] NSWLEC 216 at [8] (Biscoe J); Glaser v Poole (No 2) [2010] NSWLEC 232 at [28] (Pain J); Vis Visitor Investment Services Pty Ltd v Hawkesbury City Council (No 2) [2010] NSWLEC 252, 178 LGERA 97 at [14] - [18].

1. Unreasonable failure to accept a settlement offer may affect the Court's costs discretion even if it does not constitute an offer of compromise under the regime in the Uniform Civil Procedure Rules 2005 rr 20.26 and 42.13 TA \l " Uniform Civil Procedure Rules 2005 20.26 and 42.13" \s "Uniform Civil Procedure Rules 2005 20.26 and 42.13" \c 4 . In Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 TA \l " Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12" \s "Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12" \c 1 at [18] Allsopp P (Beazley and Campbell JJA agreeing) held:

It is unnecessary and undesirable to restate, in any detail, the principles and public policy underlying Calderbank offers. Parties to litigation are expected to act reasonably in the running, and the resolution by compromise, of litigation. Stubborness, intransigence and unrealistic and unreasonable expectations and demands can lead to unnecessary and unreasonable demands on scarce public resources. Just as parties are obliged to exhibit co-operation and openness in the conduct of litigation (see the principal judgment at [160]-[170] and Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206 at [421]) they are obliged not to act unreasonably in the consideration and dealing with settlement offers.

Conclusion

1. In my opinion, the evidence is sufficient to establish that the second respondent had probably not complied with the cease use order of 2 December 2010 before the proceedings were commenced on 7 January 2011. My reasons for this conclusion are as follows:

(a)   on 6 January 2011 the applicant's solicitor inquired of the Council and was informed that the status of the cease use order was that it was outstanding. The solicitor was informed that there was no correspondence, or anything else on their records about compliance;

(b)   there is no evidence from the second respondent as to when the work was carried out to comply with the cease use order. Furthermore the second respondent provided no explanation for the absence of that evidence. I infer that his evidence would not have assisted his case: Dicose-Latec Finance P/L (1966) 84 WN (PT 1) (NSW) 557 at 582 (Street J); Ho v Powell [2001] NSWCA 168, 51 NSWLR 572 at [16] (Hodgson JA);

(c)   The second respondent made no attempt to communicate to the applicant or the applicant's solicitors that the cease use order had been complied with until 31 January, on the return of the summons;

(d)   the inspection on 7 February 2011 established that the cease use order had been complied with by that date.

(e)   later the second respondent's solicitors, on instructions, wrote to the applicant's solicitors stating that the work was carried out in "early January". That is not inconsistent with the work being carried out after 6 January, when the Council advised the applicant that it was outstanding, and after the proceedings were commenced on 7 January.

(f)   It is not essential to my conclusion but I note that there was no response by the second respondent to the 16 March 2011 notice to produce documents relating to when the work was carried out and no explanation for the non-response. During the hearing before me the applicant called orally for the documents and the response was that there were no such documents. It is submitted for the applicant that that is consistent with the work having been carried out by the applicant personally. That is conceivable but in the absence of any evidence from the applicant and having regard to the whole of the evidence, it tends to weigh against the second respondent;

1. My conclusion that the second respondent probably capitulated after the proceedings commenced by complying with the cease use order supports an order that the second respondent pay the applicant's costs.

1. However, in my opinion, it was unreasonable for the applicant to commence these proceedings without giving prior notice to the second respondent of an intention to do so. The second respondent therefore was not given an opportunity to take steps to avoid the need for the proceedings and the associated costs. That consideration supports the conclusion that there should be no order for costs.

1. However, on 4 March 2011 the applicant made an open offer to settle on the basis of discontinuance and that each party bear its own costs. The second respondent did not accept the offer. The second respondent has not done better. If the second respondent had accepted the offer within a reasonable time after the offer was made, say seven days, further costs would have been avoided. In all the circumstances, including my finding at [61] above, I consider that it was unreasonable not to have accepted the offer. I conclude that the second respondent should pay the applicant's costs after seven days from the date of the offer, that is after 11 March 2011, and that otherwise there should be no order for costs.

Orders

1. The orders of the Court are as follows:

1. The second respondent is to pay the applicant's costs of the proceedings after 11 March 2011.

2. The exhibits may be returned.

Amendments

07 March 2012 - omission of jurisdiction field

Amended paragraphs: cover page

Decision last updated: 07 March 2012