Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd

[2019] NSWSC 807

Supreme Court

New South Wales

Medium Neutral Citation:	Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807
Hearing dates:	21 June 2019
Date of orders:	01 July 2019
Decision date:	01 July 2019
Jurisdiction:	Equity
Before:	Ward CJ in EQ
Decision:	1. The plaintiff have leave pursuant to r 12.1 of the UCPR to discontinue these proceedings. 2.   The defendant is to pay the plaintiff’s costs of the proceedings up to and including 21 December 2018 on the ordinary basis. 3.   The defendant is to pay the plaintiff’s costs of the contested costs application, on the ordinary basis. 4.   Otherwise, there be no order as to the costs of the proceedings.
Catchwords:	EQUITY – Costs application – order departing from r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) – whether defendant’s conduct has been so unreasonable as to warrant such an order
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 56 Uniform Civil Procedure Rules 2005 (NSW), rr 12.1, 42.1, 42.19
Cases Cited:	Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Freelancer International Pty Ltd v Matthew O’Kane [2019] NSWSC 159 Goode v Angland [2017] NSWCA 311 In the matter of HCafe Chatswood Pty Ltd [2018] NSWSC 362 Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 Prospect County Council v Cross (1990) 21 NSWLR 601 Re Minister for Immigration & Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Renton v Kelly [2018] NSWSC 1377
Category:	Costs
Parties:	Murrumbidgee Irrigation Limited (Plaintiff) M & H Acar Pty Ltd (Defendant)
Representation:	Counsel: J Steele (Plaintiff) M Gunning (Defendant)   Solicitors: Thompson Cooper Lawyers Pty Ltd (Plaintiff) Noyce Salmon & D’Aquino (Defendant)
File Number(s):	2018/00388679
Publication restriction:	Nil

Judgment

1. HER HONOUR: Before me for hearing on 21 June 2019, was an application by the plaintiff (Murrumbidgee Irrigation Limited) for leave pursuant to r 12.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to discontinue these proceedings and for the defendant (M & H Acar Pty Ltd) to pay the plaintiff’s costs of the proceedings (on the ordinary basis up to and including 21 December 2018, as agreed or assessed, with each party to bear its own costs incurred after 21 December 2018) and of the present application.

2. In the substantive proceedings, the plaintiff (by its amended summons filed in Court on 21 December 2018), sought an order (both on a final and on an interlocutory basis) that the defendant, by itself, its servants, agents or contractors, be restrained from performing any excavation, landforming, civil or construction works (or operating, driving or standing any plant or vehicles) on certain property (Lot 632 in DP 1203546), to which I will refer simply as Lot 632, in respect of which land the plaintiff has the benefit of a registered easement (the easement), until the earlier of written permission of the plaintiff or further order of the Court.

3. The underlying dispute between the parties (as to whether the defendant was or would be in breach of the conditions of the easement by commencing or carrying out construction works on or adjacent to Lot 632) largely dissipated when, on 21 December 2018, the defendant proffered an undertaking in terms which substantially mirrored the order sought by the plaintiff in its amended summons (which undertaking was subsequently extended on 5 February 2019). Since then (as I will explain below), the substantive issue in dispute has gone away (with the defendant lodging an application for an amended development consent that makes clear that no works are to be undertaken on Lot 632).

Background

4. The plaintiff is an irrigation company. It is a member owned company and almost all of its issued capital is owned by its customers (of whom there are approximately 2,500) (see the affidavit sworn 17 December 2018 by Mr Michael Joe Turnell, employed in the position of legal advisor by the plaintiff, at [5]-[8]). The plaintiff owns over 5,000 kilometres of channels and pipelines in the Murrumbidgee Irrigation Area. At the time these proceedings were commenced, the area was experiencing severe drought conditions.

5. The proceedings concerned a particular pipeline in the plaintiff’s infrastructure. The pipeline in question (see [9]-[15] of Mr Turnell’s affidavit) is 900mm in diameter and lies under a long, thin block of land (i.e., Lot 632). The pipeline was constructed in about 1975. The pipeline supplies water to around 20 customers (see Mr Turnell’s affidavit at [34]-[35]) operating around 80 hectares of mainly horticultural properties south of Griffith. These properties have established vineyards or orchards that are maintained from year to year producing fruit, nuts and other products. Mr Turnell has deposed (see [35]), that the proprietors of those properties depend upon this particular pipeline to supply the water that is needed for production, as well as for maintaining the trees and vines.

6. Lot 632 is on the western boundary of land owned by the defendant (Lot A). The defendant acquired Lot 632 from the plaintiff. In his affidavit, Mr Turnell deposes (see [11]-[14]) to the circumstances in which the defendant purchased Lot 632 from the plaintiff. At the time of acquisition, an easement for water supply was registered on the title to Lot 632 burdening the whole of Lot 632 in favour of the defendant.

7. The terms of the easement are contained in a registered Memorandum and include a covenant to the effect that the defendant may not, without the written permission of the plaintiff and in accordance with such conditions as the plaintiff may reasonably impose, alter the surface level or the type of surface of the easement site; and must not do or allow anything that may interfere with, damage or destroy the Water Supply works (see cl 2.4).

8. The genesis of the dispute the subject of these proceedings was the proposal by the defendant to develop its land (to construct backpacker accommodation and residential apartments on the land), including both Lot A and Lot 632, in a way which would have altered the type of surface of the easement site (by constructing a concrete driveway and car parking areas, comprised of a 125 mm reinforced concrete slab on a 125 mm compacted gravel base course, over the top of the easement).

9. A development consent was obtained at some stage from Griffith City Council (the Council). The plaintiff was apparently not asked (nor required) to consent to the original development application and did not do so. One of the conditions of the development consent was that the plaintiff’s written approval for the proposal be obtained “prior to the issue of the Occupation Certificate”; thus, at the time of the events the subject of the present dispute there was no requirement under the development conditions for an extant consent before the commencement of work. (However, the plaintiff emphasises that its consent was in any event required because of the conditions of the easement (see T 4.48ff).)

10. From May 2018, the parties engaged in discussions concerning the proposed development. There is no dispute that the plaintiff indicated, at least at some stage during the discussions, that it would be prepared to consent to the development (as it was then proposed, i.e., involving concrete being laid over the site of the easement and for its use for car-parking), subject to certain conditions. In May 2018, for example, it indicated that it would be prepared to consent if the defendant agreed to replace the pipeline (which was leaking in at least two locations and may have been nearing the end of its useful life). (The plaintiff’s apparent willingness to contemplate an arrangement whereby an ageing pipeline would be replaced at someone else’s cost is understandable – and not here suggested to be unreasonable – but, in any event, the fact that the plaintiff was at one stage willing to contemplate consent to the original proposed development seems to me to be beside the point. Ultimately the relevant conduct relates to steps taken – or not taken – by the defendant at the time that the plaintiff made clear that it was not consenting to works that might affect its pipeline and had demanded that works on or adjacent to the easement cease.)

11. There were discussions between the parties as to the conditions upon which the plaintiff might grant consent. The plaintiff says that those discussions centred on the risk to the pipeline underneath the easement site. Whether those discussions should be so characterised is not necessary here to explore.

12. By 29 October 2018, the plaintiff appears to have been prepared (as one of two options then being considered) to leave the pipeline in place on the basis that the plaintiff would repair the pipeline and recoup the cost from the current or future owners, subject to the plaintiff considering an engineering report and the defendant’s agreement for no heavy vehicles to drive across the easement. The plaintiff also stated that the easement would have to be marked onsite by a temporary fence and that the defendant’s Construction Management Plan would need to be amended.

13. That this is the case is not disputed and emerges from a file note of that date prepared by Mr Matt Woodward, the plaintiff’s project officer, in which reference is made to discussions with the defendant and its architect (Mr Stephen Murray) regarding the supply pipeline (and, in relation to the temporary fence, from email dated 2 November 2018 from Mr Woodward to Mr Murray). In the file note, reference is made to discussion of two options: either that the pipe be replaced as part of the development or that there be “legal agreement” that the pipe be replaced and repaired as a direct consequence of the load placed on it and that the plaintiff would undertake the necessary works and recoup the costs from the land owner at the relevant time. The file note also makes reference to discussion as to the risk of using different equipment and damaging the pipeline.

14. On 1 November 2018, the defendant submitted to the plaintiff an engineering report (prepared by its engineer, Xeros Piccolo) and a Construction Management Plan (the plan) which stated that vehicles associated with the on-site works would not be parked on the easement area where practicable. On 2 November 2018, the plaintiff asked for additional details from the engineer so that the plaintiff could consider the proposal. The plaintiff’s engineer (Mr Mapeza) also assessed the pipeline and considered it to be at high risk of damage during construction. (The plaintiff’s engineer, Mr Mapeza, who has 22 years’ infrastructure experience, has deposed in these proceedings to his concern that undertaking construction works and bringing heavy machinery onto the easement might damage the pipe (see his affidavit affirmed 20 December 2018 at [9]-[14]).)

15. At some time in late 2018, the plaintiff became aware (see [27] of Mr Turnell’s affidavit), inter alia from one of its customers, that construction equipment had been sent to the defendant’s property.

16. On 6 December 2018, the plaintiff wrote to the defendant, notifying the defendant that it was aware that the defendant had contracted heavy machinery and altered the surface level of the land; advising that those actions had the potential to cause significant damage to the pipeline; and demanding that all works cease and for the defendant to contact the plaintiff (see CB 101).

17. On 7 December 2018, the plaintiff’s General Manager of Customer Services, Ms Sharon Hansen, spoke with the director of the defendant (Mr Jimmy Acar) by telephone. Her contemporaneous record of that conversation, recorded in an internal email to a Mr Brett Jones, refers to advice by Mr Acar that he had not started work and that he would forward the 6 December 2018 letter to his solicitor. The plaintiff heard nothing further from the defendant in response to the plaintiff’s demand for the cessation of “all works” prior to the commencement of the proceedings.

18. Mr Acar’s evidence on the present application is to the effect that, over the period of time in which the parties were discussing the options in relation to the pipeline, he had liaised with officers of the plaintiff, including Mr Woodward, and that on many occasions during that period his calls were not returned or the plaintiff’s officer said words to the effect “I will have a person contact you” or “we will get back to you” and did not do so or did not return his calls (see his affidavit affirmed 14 May 2019 at [5]). The defendant pointed to communications where there was an apology for delay in responding on the part of the plaintiff.

19. Unbeknownst to the plaintiff (until the service of evidence by the defendant in these proceedings – see the affidavit sworn 21 December 2018 by Mr Murray at [26]), on 12 December 2018 the defendant’s architect sent an amended Construction Management Plan (the amended plan) to the Council. Relevantly, the amended plan moved the proposed car parking area from Lot 632 to Lot A and left Lot 632 vacant. (The plaintiff points to this and argues that it was unreasonable for the defendant not to communicate any change of plans or intention to the plaintiff.)

20. Photographs were taken by Mr Turnell on 17 December 2018 of the easement site. Acknowledging the caution to be shown when drawing conclusions from photographic evidence of this kind (see the decision of the Court of Appeal in Goode v Angland [2017] NSWCA 311), it is at least apparent from those photographs that there is heavy machinery on or adjacent to the easement and there is a mound of dirt in that vicinity (which the plaintiff argues – but the defendant, as I understand it, disputes – shows that the surface level of the easement had been altered) (see Mr Turnell’s affidavit [37]-[38]).

21. On 18 December 2018, the plaintiff commenced these proceedings, seeking urgent interlocutory relief (the original summons being filed on 18 December 2018 with leave for short service). An amended summons was then filed in Court on 21 December 2018, when the matter came before Kunc J in the duty list. On that occasion, the defendant was represented by Counsel who proffered an undertaking by the defendant that his Honour noted in the orders made on that day. The plaintiff emphasises that the undertaking is substantially in the same terms as the order sought by means of the amended summons, save that the weight was agreed to be vehicles over the weight of 2 tonne, as opposed to any plant or vehicles. That undertaking was subsequently extended by consent until the defendant’s amendment to its development application (see below) was approved.

22. Although the plaintiff says that, after consenting to the injunctive relief on 21 December 2018, the defendant “inadvertently breached” the undertaking (and then erected a temporary fence to restrict vehicular access over the easement site), no issue is here taken as to any such alleged breach (other than as a circumstance that is said by the plaintiff to make the plaintiff’s conduct reasonable). There is no need here to explore that issue.

23. I note that the defendant, in its submissions on the present application, emphasises that there is a distinction between works on Lot A and works on Lot 632 (T 17.49) and says that there is no evidence that the defendant started any work on Lot 632 (T 18.7) and that it is inappropriate here to explore this factual issue (or, in Counsel for the defendant’s words, to “go off on a tangent” – see T 15.42ff). Nevertheless, the defendant points in this regard to evidence from Mr Murray, the defendant’s architect (at [16]-[25]) to the effect that: he attended the development site on 20 December 2018 (after, I note, the photographs were taken on 17 December 2018 and after the commencement of the proceedings on 18 December 2018) and did not see any heavy vehicles or machines on the easement site; there was no excavated dirt on the easement site; he was not aware of any land forming, civil or construction work performed on the easement site or of any excavation taking place; no structures have been placed on the easement site; the original surface level of the easement site has not been altered; the developers have not done anything to restrict access to the easement site by the plaintiff; there was no work currently being done on Lot A; and that he had been advised by the builder that there would be no “further works” on Lot A before 14 January 2019. I return in due course to the complaint by the defendant that the present application involves a factual dispute over what things were, or were not, on the easement site at the time of commencement of the proceedings and the extent to which there has been any interference or breach of cl 2.4 of the easement terms.

24. Returning to the chronology of events, on 7 February 2019, the defendant submitted to the Council an application to modify its development application contemplating a reduced scope of works, including no development on the easement site. It is common ground that the amended plan does not include any structures on Lot 632. The defendant has agreed that the easement site will be fenced off whilst the building work continues.

25. By letter dated 15 April 2019, the plaintiff’s solicitors advised the defendant’s solicitors that, assuming the proposed modification to the defendant’s development application was approved by the Council, their view was that the proceedings could be finalised on the basis that they be discontinued. However, they sought consent to an order for the plaintiff’s costs. The dispute as to the costs consequences of the discontinuance of the proceedings has led to the present application.

Plaintiff’s submissions

26. In essence, the plaintiff’s claim for costs is based on three broad propositions. First, that the plaintiff had no choice but to commence proceedings given the defendant’s conduct and has acted reasonably in so doing; second, and as a corollary to the first, that the defendant acted unreasonably in convening construction activities on or adjacent to the site without the plaintiff’s consent to its development application; and, third, that it is clear that from the settlement reached with the defendant that the plaintiff was substantially successful.

27. As to the second of those propositions, the plaintiff submits that the defendant brought heavy equipment onto the site on 6 December 2018 when there was no agreement for it to do so; the defendant did not reply to the plaintiff’s 6 December 2018 letter; neither the defendant nor its solicitor responded to the plaintiff’s General Manager of Customer Services after she telephoned the director of the defendant on 7 December 2018; and the defendant brought heavy machinery onto the easement on 17 December 2018 in circumstances where it was critical that the plaintiff ensured that the pipe did not sustain structural damage (noting that there were horticulturalists relying upon that pipe to convey irrigation water to sustain their crops in drought conditions).

28. It is contended that it was unreasonable for the defendant to commence the works pursuant to its development consent on the site of the easement without the plaintiff’s consent (having regard to the easement terms by reference to which the plaintiff was entitled to impose reasonable conditions during its construction of the development which was over its easement); that it was unreasonable for the defendant to commence construction without inquiring as to the plaintiff’s requirements in circumstances where its own engineer’s advice provided to the plaintiff was that care ought to be taken during construction and that there ought be compliance with the plaintiff requirements (and where it was “clear even to the defendant that there was a risk concerning this pipe and that steps needed to be put in place before construction activities commenced”); and that it was unreasonable for the defendant to say that no construction was taking place and then not to respond to the letter of 6 December 2018 nor to contact the plaintiff (as invited to by the letter) and then just to go onto the site and to commence construction activities.

26. The plaintiff says that, from its perspective, the defendant was proceeding with the development the subject of its development consent (not having been informed of the defendant’s intention to seek an amendment to that development consent); and that the conduct of the defendant in merely notifying the Council and not contacting the plaintiff to inform it of its plans caused the plaintiff to commence proceedings.

27. It is submitted that the defendant’s breach of its obligations under the easement prior to the commencement of the proceedings is manifest in the photographs taken on 17 December 2018 showing heavy machinery and altered surface on the easement and that it is not necessary for the Court to review large quantities of evidence to determine disputed questions of fact (Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (Nichols) at [8]).

28. The plaintiff submits that, by terms of the undertaking itself and by the change to the defendant’s development consent, it is evident that the plaintiff has been substantially successful in these proceedings. The plaintiff argues that the terms of the easement are clear and that consent was required; that the defendant was aware that it had to comply with any reasonable conditions imposed by the plaintiff (which the plaintiff says include as to the use of heavy equipment over the easement in circumstances where there was a risk to the pipeline); that the defendant’s engineer had said measures needed to be put in place to protect the pipe; and that the defendant’s change of position (not to build on Lot 632) is akin to an admission (i.e., that in changing its plans and by fencing off the easement the defendant has in effect conceded that it is not entitled to proceed with the previous development without the plaintiff’s consent and without compliance with the conditions that the plaintiff could reasonably impose with respect to protecting the pipeline) (see T 9.10ff).

29. The plaintiff argues that it is entitled to a favourable exercise of discretion under r 42.19 of the UCPR as it was forced to commence proceedings to protect its rights under the easement against the unreasonable conduct of the defendant (referring to Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 (Bitannia) at [76]). It is said that this is not a case where the plaintiff in any sense abandoned its claims (Bitannia at [71]); rather, that supervening events have overtaken the position at the commencement of the proceedings rendering further prosecution of them otiose (see In the matter of HCafe Chatswood Pty Ltd [2018] NSWSC 362 at [8]); that is, the defendant amended its development application with the effect that no building works will be undertaken over the easement.

Defendant’s submissions

33. The defendant points to r 42.19 of the UCPR which provides that a plaintiff who discontinues under r 12.1 of the UCPR must pay the defendant’s costs, unless the defendant consents or the Court orders otherwise and the defendant notes that the plaintiff bears the onus of being relieved of the obligation to pay the defendant’s costs.

34. The defendant says that there is a predisposition that the discontinuing party is characterised as the unsuccessful party and, unless there is good reason for departing from this ordinary course, the plaintiff should pay the defendant’s costs (citing Bitannia at [53]-[63] and [69]-[81]).

35. The defendant argues that the plaintiff should not be awarded its costs of the proceedings up until 21 December 2018 for the following reasons.

36. First, that contrary to the plaintiff’s submissions, the question whether the plaintiff acted reasonably in commencing proceedings could not be determined until a final hearing (which is precluded by the proposed discontinuance; see Bittania at [57]); and the settlement reached with the defendant did not resolve or result in a determination of the interlocutory application, or in any orders (it being submitted by the defendant that the Court simply noted an undertaking, made on a without admissions basis, to continue until 5 February 2019).

37. Second, that there was no hearing of any interlocutory or final relief on the merits, and therefore no event to enliven r 42.1 of the UCPR (see Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 at [11]). Accordingly, the defendant invokes the general rule that the Court will make no order as to costs (Re Minister for Immigration & Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622 at 625; [1997] HCA 6 (Lai Qin)).

38. Third, that the defendant did not act unreasonably so as to justify a departure from the ordinary approach to interlocutory costs up until 21 December 2018.

39. It is submitted by the defendant that the Court should not now be called upon to embark upon a de facto hearing of the merits of the plaintiff’s claim, or the reasonableness of the position taken by the parties prior to 21 December 2018, given the discontinuance of the substantive proceedings (submitting that the plaintiff has not at any stage in these proceedings articulated a claim for substantive or final relief). It is said that there has always been a dispute as to whether any terms or covenants in the easement were breached by the defendant; and that such a dispute will not now be resolved by a final hearing.

40. The defendant attaches some significance to the meeting of late October 2018. It argues that the plaintiff’s real complaint leading up to the issue of the summons in these proceedings was not clear, pointing to the fact that the plaintiff was fully aware (as early as 20 December 2017) of the defendant’s plans to have a car park, driveway, tree planting and two rainwater tanks on the easement site (referring to an email dated 20 December 2017 to the plaintiff from Xeros Piccolo enclosing the architectural drawings which show plans for a car park directly over the pipeline); and that at the meeting in late October 2018, where it is accepted two options for the pipeline were discussed, both options being discussed contemplated a car park over Lot 632. The defendant points to the email correspondence following that meeting in which reference is made to a “letter” and “further information” being prepared by the defendant’s engineers (Xeros Piccolo) (presumably, the report) (the defendant noting that there were two versions of the report of Xeros Piccolo). The defendant emphasises that this correspondence still is in the context of the plaintiff considering a proposal for the car park to be located over Lot 632 (but with conditions) (see for example the email dated 30 October 2018 from Mr Woodward) and that the parties were engaging in constructive discussions about the options in this regard.

41. Pausing here, insofar as there seemed to be a suggestion in the submissions that the communications up to 6 November 2018 indicate that the plaintiff’s objection to the commencement of works was for financial considerations, there was no explicit submission made to that effect. However, the defendant does attach importance to the correspondence and communications before that date, given that the summons was issued only about a month and a half later. At T 21.20, the submission is made that the letter of 15 April 2019, in which reference is made to the discontinuance of the proceedings, reveals the truth; namely, that “the reason the plaintiff went to Court in the first place is because it was unhappy, ultimately, with the car park over [Lot] 632 even though it appears up until that point it was prepared to consider it” and that (at T 21.22) “[i]t has got less to do with other matters that the plaintiff has sought to place into its evidence ‑ that is, the heavy machinery, issues of access which were addressed by the Xeros Piccolo report with the expansion joints”).

42. It is submitted that the question whether the conduct of the defendant invited or caused the litigation cannot be resolved without the Court having to review considerable evidence (including expert evidence) and to resolve disputed questions of fact, and that it is recognised that this should not be a task that the Court is called upon here to determine (see Nichols, to which I refer below).

43. The defendant further submits that it could not reasonably be incumbent upon it, in the circumstances outlined above where the plaintiff was proposing to discontinue the proceedings, for it to prepare evidence on its own behalf going to address, for example, the plaintiff’s engineer’s evidence as to the strength of the pipeline or other issues concerning the extent to which the pipeline might or might not be damaged by reason of heavy objects or structures being placed upon Lot 632. It is submitted that, in a costs argument, it cannot reasonably be expected for it be upon the defendant to lead evidence and, effectively, conduct satellite litigation in order to disprove the fundamental basis of claims such as those here made as to the unreasonableness of its conduct.

Determination

44. I had cause recently to consider an application for costs in circumstances where a plaintiff was seeking the discontinuance of proceedings (see Freelancer International Pty Ltd v Matthew O’Kane [2019] NSWSC 159 (Freelancer)) and a similar argument was made as to the exercise of the discretion in relation to costs under r 42.19 of the UCPR. Here, as there, it was not disputed that the costs discretion is subject to the requirement in s 56 of the Civil Procedure Act 2005 (NSW) that, in exercising this power, the Court must give effect to the overriding purpose of the facilitation of the just, quick and cheap resolution of the real issues in dispute in the proceedings.

45. The principles in relation to costs applications where matters have not proceeded to a contested hearing on the merits are well known. Ordinarily in those circumstances, for there to be a costs order in favour of one party it is necessary to show that the other party’s conduct has been so unreasonable as to warrant such an order (applying the principles in Lai Qin). I considered in Freelancer, and remain of the view, that it is difficult to see why the same kind of considerations would not be relevant when deciding whether to depart from the “starting position” in r 42.19 of the UCPR.

46. Reliance was placed by the defendant in the present case on what was said by each of Payne JA (Meagher JA agreeing) and Basten JA in Nichols as to the appropriate considerations in cases where there has been no hearing on the merits; and their Honours’ observations bear repeating. Payne JA (at [30]) said that:

If both parties to a proceeding which has been settled without a hearing on the merits 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.

47. Basten JA, at [8]-[9], said:

Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. [my emphasis]

Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party’s case without permitting the other party an opportunity to challenge the opposing party’s witnesses.

48. The defendant in the present case emphasises the admonition italicised in the passage extracted above. The defendant says, in effect, that such an exercise (of reviewing the evidence and resolving on a tentative basis disputed questions of fact) would here be necessary and should not be embarked upon. I accept, as Payne JA in the above passage made clear, that if both parties to a proceeding which has been disposed of (by settlement or otherwise) without a hearing on the merits 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; and I do not disagree with the proposition that the court should not embark upon an exercise of examining large swathes of evidence in order to determine the reasonableness or otherwise of the parties’ conduct of the proceedings and the need to take into account both parties’ conduct. What I do not accept is the defendant’s submission that to determine the present application would require an approach of the kind the Court of Appeal has clearly deprecated.

49. The question, for present purposes, as I framed it in Renton v Kelly [2018] NSWSC 1377 at [36], is as to whether the conduct of the defendant was “so unreasonable”, having regard to the evidence before me as to the defendant’s conduct both before and after the commencement of the proceedings, as to warrant the making of a costs order against the defendant.

50. There are a number of facts that are not in dispute and that I consider relevant to and determinative of this issue (those being facts that do not in my opinion require any review or examination of “large swathes of evidence”, for the very reason that they are not in dispute).

51. First, there is no dispute as to the easement terms; nor as to the fact that the defendant was initially proposing to carry out development works on land including Lot 632 and that the parties had engaged in discussions with a view to reaching accommodation as to the proposal that the development involve a concrete structure over the surface of the easement site and the use of it as a car park.

52. Second, there is no dispute that, as at the time of commencement of the proceedings, there was no final agreement between the parties as to the conditions on which the plaintiff would be prepared to consent to works on Lot 632 of the kind that had been proposed.

53. Third, there is no dispute that demand was made by the plaintiff (by letter dated 6 December 2018) for the defendant to cease “all works immediately on the Land [i.e., Lot 632]” in relation to the proposed development and that there was no response by the defendant at that time beyond a statement to the effect that work had not started (something that the photographs later taken on 17 December 2018 suggested that, at least by then, was not the case) and that the letter would be referred to the solicitor.

54. I interpose here to note that the defendant placed reliance in oral submissions on a decision of Bryson J, as his Honour then was, in Prospect County Council v Cross (1990) 21 NSWLR 601 at 606; 609), as to general principles relating to easements and what is meant by the concept of substantial interference with an easement. It is not necessary here to set out those principles. The defendant accepts that, where there is a registered easement, rather than an easement at common law, the issue ultimately turns on what the terms of the easement require in any particular case. Further, as I understand it, the plaintiff does not dispute that the servient owner (here, the defendant) owns the fee simple and has all the rights that an owner has, except those which are inconsistent with the rights given by the easement under cll 2.2 to 2.4.

55. I accept that it would be inappropriate (on a costs application of the present kind) to explore the factual issue (assuming it would have been disputed) as to whether the works proposed to be carried out would have been in breach of the registered easement (or, if that be the relevant test, and the plaintiff does not accept that it is, would have amounted to a substantial interference with the use by the plaintiff of the rights under the easement); or, indeed, as to whether any works had in fact been carried out on or affecting Lot 632 at all.

56. Rather, the relevant question, to my mind, is whether it was so unreasonable (to warrant a costs order despite there having been no hearing on the merits) for the defendant – having been apprised of the plaintiff’s concerns as to potential damage to the pipeline and having been the subject of a demand to cease work, with the threat of injunctive relief to restrain a perceived breach of the easement having been squarely raised by the reference to the taking of “any action necessary” to protect the plaintiff’s position – not to have responded to the plaintiff after 6/7 December 2018 either to allay the plaintiff’s concerns as to what was or was not being undertaken on or adjacent to Lot 632 or to indicate after the demand was received an intention to seek, or willingness to consider seeking, Council approval for the modification or amendment of the development application in order to move the car park away from Lot 632.

57. In other words, as I see it, the issue is not whether it was unreasonable for the defendant to commence the works in advance of consent from the plaintiff (not least because that would require a determination as to whether any works were in fact being undertaken on Lot 632 – as opposed to adjacent to it; and/or whether any works or activity on Lot 632 that may have taken place at that time were in breach of the easement). I accept that to embark upon a determination of those issues would infringe the principles articulated above.

58. However, I do consider that it was unreasonable for the defendant not to respond to the plaintiff’s demand that it cease work (after it had said that the matter would be referred to the lawyers) and, thus, to leave the plaintiff with the perception that the defendant had commenced works that had the potential to damage the pipeline (whether or not, as I understand the defendant’s position to be, that any such perception was misconceived).

59. There was, in my opinion, a reasonable basis for concern on the part of the plaintiff (having regard to its engineer’s report and to the reports of the defendant’s own engineers) as to potential damage to the pipeline. The plaintiff’s willingness to contemplate conditions to address that concern (but at the same time to permit development works on Lot 632) does not gainsay this. Had the defendant communicated its position to the plaintiff that it would be prepared to modify the development consent to leave Lot 632 vacant (or proffered an undertaking in terms similar to those ultimately proffered and accepted by the plaintiff), prior to 18 December 2018, it is safe to assume that the need for the urgent interlocutory application (and hence the commencement of these proceedings) on 18 December 2018 would have been avoided. So, too, would the costs of those proceedings been avoided.

60. I have ultimately concluded that that conduct on the part of the defendant was so unreasonable (in the Lai Qin sense) as to warrant a costs order in the plaintiff’s favour. I consider the position of the plaintiff (and the significance of the pipeline to its members) made it reasonable for the plaintiff to commence proceedings seeking urgent relief when it was faced with what it perceived to be a threat to the pipeline and no satisfactory response to its demand for work to cease. Whether it was suffering under a misapprehension to that effect is not to the point. It was in the defendant’s hands to allay those concerns and it did not do so until after the proceedings had been commenced.

48. The fact that the plaintiff may not itself have been prompt or responsive to calls from the defendant in the course of the earlier discussions is similarly not to the point. It must have been clear from the terms of the 6 December 2018 letter (apparently followed up by a conversation the next day) that the plaintiff was seriously concerned as to the commencement of any works on or adjacent to the easement site, by reason of the potential for damage to the pipeline.

49. I do not consider that the fact that the defendant was earlier prepared to consider a financial basis (involving replacement of the pipeline at the plaintiff or another owner’s cost) to resolve the question of consent to the development warrants a different conclusion. The fact is that, when faced with the demand of 6 December 2018, the defendant left the plaintiff with the impression that works either were about to commence or had already commenced and it was not unreasonable for the plaintiff to fear that, unless restrained, the defendant would carry out works that had the real potential to damage the pipeline. I accept that, after the proceedings were instituted, there was nothing in the defendant’s conduct of the proceedings that was unreasonable. Rather, the unreasonableness lay in the defendant’s conduct prior to commencement of the proceedings. As noted earlier, the conclusion I have reached is not based on any finding (tentative or otherwise) as to disputed facts as to the question of breach of the easement; and hence does not call into play the concerns as to satellite litigation (though I am by no means encouraging costs applications of the present kind).

50. I will, therefore, make the orders as to costs of the proceedings to the effect of those sought by the plaintiff. Costs of the motion will then follow the event.

Orders

64. For the above reasons, I make the following orders, which will finally dispose of the proceedings:

1. The plaintiff have leave pursuant to r 12.1 of the UCPR to discontinue these proceedings.

2. The defendant is to pay the plaintiff’s costs of the proceedings up to and including 21 December 2018 on the ordinary basis.

3. The defendant is to pay the plaintiff’s costs of the contested costs application, on the ordinary basis.

4. Otherwise, there be no order as to the costs of the proceedings.

**********

Decision last updated: 01 July 2019