Denning Real Estate Pty Ltd v XR Property Developments Pty Ltd

THE COURT: These are our reasons for ordering, following the hearing on 13 October 2016, that the summons seeking leave to appeal be dismissed with costs.

The subject matter of this application for leave to appeal is costs. For that reason, leave is required: Supreme Court Act 1970 (NSW), s 101(2)(c). The amount of those costs is not disclosed by the evidence, although the Court was told that it was common ground that they exceeded $100,000.

The parties to the proceedings are the owners of abutting blocks of land in Alexandria in inner Sydney. The plaintiff was undertaking a large scale redevelopment of its land; the defendant’s land, according to the primary judge, was “due for redevelopment” but the defendant had not commenced the redevelopment process.

A statement of claim was filed on 4 September 2015. The matter was readied for hearing quickly (the plaintiff claimed that the defendant’s encroachment hindered the redevelopment of the plaintiff’s land). The primary judge conducted a trial over three days, one of which was a site view, in November 2015 and delivered a first judgment on 18 December 2015: XR Property Developments Pty Ltd v Denning Real Estate Pty Ltd [2015] NSWSC 1937. There was a further hearing on 29 April 2016, and a second judgment delivered on 5 May 2016: XR Property Developments Pty Ltd v Denning Real Estate Pty Ltd [2016] NSWSC 556.

The primary judge ordered that each party should bear its own costs of the view, and of the proceedings after 18 December 2015, but that the defendant should otherwise pay the plaintiff’s costs up to and including 18 December 2015. The only orders from which the applicant seeks leave to appeal are those concerning costs.

The plaintiff succeeded in establishing an encroachment. The encroachment was not so great as that for which it had originally contended. Ultimately, it granted a licence for a period of some 14 months, for a fee of $3,250, and rescheduled the building works planned for the relevant portion of the site. It also obtained damages for disturbance in the amount of $500. It had sought an injunction requiring the encroachment’s removal, and damages for trespass or nuisance in the amount of $60,000. The primary judge dismissed that aspect of the plaintiff’s case, on the basis that when the encroaching structures were built, the land was in common ownership.

The defendant had cross-claimed. It sought an order compulsorily acquiring the land on which there was an encroachment, and an injunction preventing the demolition of any support to its land.

The primary judge addressed costs at some length at [8]-[12] of the second judgment, in the following terms:

The draft notice of appeal identifies three ways in which it is said that the exercise of the discretion as to costs miscarried. It is said that the primary judge (a) erroneously concluded that the defendant’s correspondence “did not actually deal with the problem of the encroachment”, (b) erroneously found that the plaintiff was “virtually forced” to take this litigation, when it could have avoided the litigation by requesting the defendant to remove the encroaching purlins within 14 months, and (c) drew an inappropriate analogy, or misapplied that analogy, when considering cases about the removal of a negative covenant.

The applicant invites this Court, in the event that error is found, to re-exercise the discretion by making a costs order of 90% of the costs up to 18 December 2015 in its favour, or alternatively that there be no order as to costs.

If this were an appeal as of right, Denning Real Estate would fail unless it could show error answering the description of House v The King (1935) 55 CLR 499. However, Denning Real Estate also requires leave. In order to obtain leave, the words of Campbell JA, with whom Young and Meagher JJA agreed, have regularly been applied:

Many of the cases applying those principles are collected in this Court’s judgment in Gibson v Drumm [2016] NSWCA 206 at [19]. There are many others. In its written submissions, the respondent relied on this statement of principle.

Mr Ashhurst SC, who appeared in this Court and at first instance, submitted orally that there was no separate requirement to obtain leave. He submitted that once the requisite House v King error was made out, then a party seeking leave to appeal from a judgment confined to costs would invariably be granted leave to appeal. In support, he relied on what had been said in Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276. That was an appeal from a decision to order costs against a non-party. At [157], McColl JA, with whom Sackville AJA and Adamson J agreed, said:

However, at [5], her Honour had made it clear that no submissions had been addressed to the question of leave, and that leave had been sought out of an abundance of caution. Her Honour said that it was not necessary to resolve the question whether s 101(2)(c) applied, because “for the reasons that follow, I am of the view that, if required, leave to appeal should be granted”. Ultimately the appeal was allowed.

It is quite plain that Yu v Cao is not authority for any proposition concerning the principles on which leave is to be granted. The point was not argued. The reasons expressly record that the point was not argued. There is no mention in the judgment of the familiar propositions governing the grant of leave, let alone any statement in terms that, for some reason, a different approach applied. The passage on which reliance is placed is expressed to turn on what was required in order for the appeal, not the application for leave to appeal, to be allowed.

It is tolerably plain that in its decision in Yu v Cao the Court addressed an important question concerning the approach to making costs orders against non-parties, and chose to do so (entirely appropriately, the point not having been argued) without determining whether s 101(2)(c) applied to a third party costs order. It is, with respect, quite plain that Yu v Cao does not support Mr Ashhurst’s submission.

Mr Ashhurst’s submission is also wrong in point of principle. As was pointed out during submissions, if his submission were correct, the effect is to deny to s 101(2)(c) any qualifying effect upon the right of appeal conferred by s 101(1), something which collides with the basal principle that “a court construing a statutory provision must strive to give meaning to every word of the provision”: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [71].

More fundamentally, the submission conflates two distinct legal concepts. Review of a discretionary decision in accordance with the principles in House v The King reflects the measure of restraint that an appellate court must accord to the judicial exercise of discretionary power. That measure of restraint applies to a wide range of powers (including the power to impose sentence, which was the exercise of power in House v The King itself). On the other hand, the requirement to obtain leave is imposed by the Legislature, and qualifies the statutory right of a party to appeal, for a range of reasons reflecting an important public policy consideration, namely, that not every adverse determination of a court entitles a party as of right to an appeal by way of rehearing.

Accordingly, we reject the submission that House v The King error is sufficient. We apply the orthodox test for the grant of leave.

It is clear that there is no issue of principle in this application for leave, nor is there any question of general public importance. The applicant says that it was mostly successful, and that there is considerable injustice in its having to bear not only its own costs but also most of the costs of the plaintiff. We do not accept that characterisation of the position. It is not demonstrated that there is a reasonably clear injustice in a plaintiff who did not by any means have complete success, but who nevertheless obtained relief based on its fundamental claim that its neighbour was encroaching on its land, and obtained pecuniary relief on that basis, receiving a large proportion of its costs. The plaintiff was asserting an encroachment by the defendant in March 2015, which was ultimately formalised in its statement of claim filed six months later. The defence did not admit there was any encroachment. It was not until the defendant’s written submissions were served (they were dated 17 November 2015), that it formally acknowledged that there was any encroachment on to the plaintiff’s property.

There was, undoubtedly, a variety of approaches which could have been applied in exercising the costs discretion, following the plaintiff’s partial success. Indeed, the alternatives contained in the draft notice of appeal confirm as much. This simply goes to demonstrate the difficulty faced by the applicant in demonstrating that there should be a grant of leave to appeal and a further hearing to make good its contention that there is House v The King error.

What has been said above is sufficient to require the application for leave to be dismissed. However, we would add the following.

Even if there were a grant of leave, it is far from clear that House v The King error is made out. The applicant pointed to what it said were two errors of material fact in the second and third sentences of [9] of the reasons of the primary judge, reproduce above. There is no such error. As to the error said to exist in the second sentence, there was, as noted above, no acceptance by the defendant of its encroachment until shortly before the hearing, notwithstanding that it had been squarely pointed out many months earlier. As to the error said to exist in the third sentence, the applicant said that because, by the afternoon of the last day of the trial, it had offered a licence for a period of 14 months, it was wrong for the primary judge to find that it was necessary for the plaintiff to commence proceedings. But that ignores the fact that for some ten weeks even after proceedings were commenced, the applicant did not accept that there was any encroachment; why in those circumstances should it be inferred that the applicant would have been more accommodating had litigation not been commenced? In any event, the point the primary judge was making was simply that the plaintiff was not required to countenance the continued encroachment on to its land and had to institute proceedings to assert its entitlement.

The third House v The King error was said to be the reliance by analogy on principles relating to removal of restrictive covenants. On a fair reading of the reasons, the primary judge appears to have been doing little more than saying that there was a significant difference between (a) the case where parties required some time and expense to investigate the position, and (b) the case where the parties enter into adverse litigation. It was plain that this was a case where there was adverse litigation. Rather than making an order that costs followed the event of the plaintiff’s success as to the encroachment, and acknowledging that it was “difficult for me to draw the line”, and observing that the primary judge was applying an analogy, his Honour made a lesser order.

There is, however, force in the applicant’s submission that to the extent there is an analogy, it is a somewhat strained one, which is reflected by the fact that the order actually made differs from the type of order which would be made in a restrictive covenant case. Nonetheless, it may be doubted that the highly qualified reliance by the primary judge on an analogous approach to the exercise of the discretion as to costs amounts to an error of principle. As previously noted, it falls short of involving an issue of principle warranting the consideration of this Court.

For those reasons, the Court dismissed the summons seeking leave to appeal filed on 5 August 2016. It was not suggested that there was any reason for costs in this Court not to follow the event.