Rawson v Studholme (No 2)

This a costs application in a proceeding in which I gave judgment on 14 December 2018 on an application for an easement pursuant to Section 88K of the Conveyancing Act 1919 (NSW). I will not repeat the historical background facts or the findings set out in my earlier judgment, except where necessary to explain my decision on costs.

On 30 January 2019, I made final orders for the grant of an easement and the payment of compensation to the defendant but was informed at the costs hearing that the defendant has not agreed to the implementation of those orders and has lodged a notice of appeal. The defendant has not even permitted the plaintiffs to carry out the work (which I ordered for her benefit) of cutting away and removing the concrete that abuts her land along part of the laneway.

I was critical of the defendant in my earlier judgment but I should make several preliminary points before going further:

In my earlier judgment I concluded that this was a case in which the discretion pursuant to Section 88K(5) to make ‘an order to the contrary’ had been enlivened. I received extensive submissions on costs at the earlier hearing but deferred making any particular costs order until the parties had had an opportunity to consider my reasons and to provide further submissions. My conclusion that the discretion to make ‘an order to the contrary’ had been enlivened was reached having regard to certain findings of fact. Those findings included that:

I also expressed the view in my earlier judgment that the defendant’s conduct in relation to various offers from the plaintiffs could be characterised as ‘horse-trading’, ‘gilding the lily’ and ‘seeking to take advantage of the situation to maximise the benefit to her, rather than behaving reasonably and fairly’: [35]. And I said that I shared some of the cynicism expressed by two of the plaintiffs who had written to the defendant describing her conduct that precipitated the commencement of this proceeding as ‘very opportunistic’: [34]-[35]

In addition, I found that the defendant’s evidence was not credible on important issues and that she frequently denied the obvious and asserted the improbable. Among other things, I did not believe her evidence that her architect had acted without her authority when he wrote a letter stating that the defendant did not wish to stop the access of her neighbours along the laneway or to inconvenience anyone. And I concluded that she had overstated the deleterious effects of dampness to her property and the extent to which they were attributable to the concrete surface of the laneway. Much of her evidence reflected poorly on her.

The defendant has changed solicitors. The role of her former solicitor was not examined but I said in my earlier judgment that ‘the efficient administration of justice in this court depends on “lawyers taking a sensibly realistic and critical view of the strength of their [client’s] case”: Ipp, Lawyers Duties to the Court, (1998) 114 LQR 63 at 99. I also said that ‘a solicitor, just as much as a barrister, is not a mere mouthpiece of the client’: [49]. And I added:

Mr McNally of senior counsel is no longer retained for the defendant. I have nothing but commendation for him in his role in ensuring that the hearing was confined to the real issues bona fide in dispute and that the defendant did not require the plaintiffs to prove reasonable necessity, public interest and the other issues required to be proved by Section 88K(1) and (2). He assisted the court to further the overriding purpose of civil litigation: Section 56(1) Civil Procedure Act, 2005.

The plaintiffs seek costs, including indemnity costs. They accepted that they must demonstrate that the defendant has done more than reject reasonable offers of compensation. They contended that the defendant failed to ‘litigate reasonably’. And they drew support by way of analogy from proceedings for the compulsory acquisition of land. A compulsory acquisition claim and a Section 88K easement claim both involve interference with proprietary rights and similar considerations are evident in the decisions relating to costs in those cases. The observations in two decisions of the Court of Appeal relating to compulsory acquisition illustrate the similarities.

In Tempe Recreation Reserve Trust v Sydney Water Corporation [2014] NSWCA 437 at [103]-[104], Leeming JA considered the intersection between the rules as to offers of compromise and the primary entitlement of a landowner to costs in a compulsory acquisition case:

In Tempe, the landowner had acted reasonably. In Dillon v Gosford City Council [2011] NSWCA 328, Basten JA (Macfarlan JA and Handley AJA agreeing) also emphasised the importance of the landowner acting reasonably:

In this case, counsel for the defendant submitted that the defendant acted reasonably. He drew attention at the costs hearing to the conclusion contained in an expert witness report that senior counsel at the earlier hearing had chosen not to rely on. The report expressed the opinion that ‘the proposed easement is not reasonably necessary for the effective use and development of the plaintiffs’ land’. He contended that this conclusion justified the defendant in rejecting the plaintiffs’ offers of compromise and demonstrated that her conduct was reasonable.

Senior counsel for the plaintiffs, who never had an opportunity to cross-examine the author of the report – and salivated at the prospect – drew attention to the facts explained in the report. They hardly seemed to support the conclusion expressed by the author. Together with the long history of use of the laneway and other matters, they explain why Mr McNally SC, who then appeared for the defendant, chose not to put reasonable necessity in issue at the earlier hearing.

Among other things, the report revealed that:

It is worth recapitulating some aspects of the plaintiffs’ offers and the responses from the defendant, which I summarised in my earlier judgment at [11]-[15].

At the very outset of the dispute, the plaintiffs’ solicitors sought agreement with the defendant. Their letter dated 19 May 2017 proposed, among other things, that (1) the parties jointly appoint a surveyor to survey the laneway and its position in relation to the boundaries of the adjoining properties (such costs to be paid by the plaintiffs); (2) a valuation report be commissioned to determine adequate compensation to the defendant for any loss or other disadvantage arising from imposition of the easement; and (3) an engineering report be commissioned to determine whether the laneway and any structure supporting the laneway or the concrete path has caused or will cause damage to the defendant’s property and if damage demonstrated, to provide remediation.

The plaintiffs also offered to consider installing bollards or speed attenuation devices or otherwise restricting the use of the laneway. In addition, they offered to pay all the legal costs with respect to drawing the appropriate documents and having them registered. This proposal, a year and a half before the hearing, was responsible, respectful and manifestly reasonable. The defendant did not respond, although I was informed that she had received legal advice in preparing her own letter of demand dated 4 May 2017. And, at least by 25 May, it is clear that her solicitors and the plaintiffs’ solicitors were in correspondence.

The parties agreed to hold a mediation. On 27 June 2017 a month before the proposed mediation, the plaintiffs wrote to the defendant. The letter was signed by each of the plaintiffs as well as by two spouses who are not plaintiffs. They offered to pay $46,000 to the defendant. This was double the value ($22,950) of the land constituting the area of the proposed easement based on the valuation that the plaintiffs had then obtained from a valuer, Mr Rowan. They also offered to pay the defendant’s legal costs to date, as well as the costs of double glazing, if in the following six months the defendant chose to install windows on her wall adjoining the laneway.

The letter added that ‘We would be prepared to discuss the above points and any other reasonable requirements’. The plaintiffs were not inflexible and were endeavouring to act reasonably to address the issues that the defendant had raised in her letter dated 4 May 2017. There was no response from the defendant or her solicitors. On 30 June 2017, Mrs Little and Mrs Wilson on behalf of the six lane users, wrote another letter, without success, to the defendant in an attempt to resolve the dispute.

Over the next fifteen months, the plaintiffs’ solicitors made two more formal offers to the defendant. The content of both offers deserves attention. Each offer went beyond a mere monetary amount. The letter dated 27 July 2017 followed immediately after the mediation on 26 July that failed. It stated that, if the defendant agrees to grant a right of carriageway to the plaintiffs over that part of her property currently the subject of the informal access way:

The plaintiffs’ offer of $300,000 was an attempt to reach a commercial resolution having regard to their desire for finality. They were desperate to resolve the dispute. The amount of $300,000 was not based on any valuation. It was deliberately generous. An extrapolation of the $300,000 offer for the area of the proposed easement represented a hypothetical freehold value of the defendant’s land at approximately $8,183,398. This was in the circumstances where the valuation experts had agreed that the freehold value of the defendant’s land was $2,375,000.

The defendant did not accept the 27 July offer. Her solicitors replied on 16 August 2017 stating that, at that stage, the defendant was ‘unable to assess whether the offer was reasonable’. The defendant’s rejection of the sum of $300,000 was not based on any expert opinion. She did not herself engage a valuer (Mr Eccelston) until 26 March 2018.

More than a year later, and approximately a month before the hearing, the plaintiffs issued their final offer of compromise. The letter from the plaintiffs’ solicitors dated 14 October 2018 followed a joint report by the parties’ expert valuers dated 11 October. In that report, the two experts agreed on an amount of $76,500 for the freehold value of the land that constituted the area of the proposed easement.

The letter stated:

The letter drew attention to the fact that the plaintiffs’ written submissions were to be served by 19 October 2018 and that the plaintiffs hoped to avoid those costs being incurred. The offer was open until 5.00pm on Monday 22 October 2018. The defendant’s counter offer on 19 October 2018 sought $250,000 and certain rectification work which was referred to by the engineers as ‘Option1’, as well as the installation of bollards and signage. There was further correspondence but no agreement. On 25 October, the defendant’s solicitors advised that the only matters in dispute were the conditions, including the amount of compensation, to be imposed on the grant of the easement.

On 14 December, I ordered that the defendant be paid compensation in the amount of $45,000 and that certain ancillary works, that were less extensive than those constituted by option 1, be required as a condition of the grant of the easement. The sum of $45,000 is slightly less than the amount offered by the plaintiffs in their letter dated 27 June 2017.

I am satisfied that the defendant has done more than reject reasonable offers of compensation and that she has not litigated reasonably. The plaintiffs’ offers in May, June and July 2017 (before significant expenditure had been incurred) and in October 2018, were reasonable. The offer of $300,000 in July 2017 was exceedingly generous. The other three offers were soundly based and rational. The final offer reflected the precise amount ($76,500) that the parties’ valuers had agreed for the freehold value of the land constituted by the area of the proposed easement.

All of the plaintiffs’ offers were a genuine attempt to resolve the proceedings and address the concerns of the defendant. I am afraid that the defendant’s responses, and the letters from her former solicitor, were not. I have already made findings about the defendant’s conduct, which I have summarised in [3]-[6] above. She was, among other things, opportunistic and unreasonable, apparently believing – no doubt on advice from her former solicitor – that she had no responsibility for the plaintiffs’ costs and would ultimately receive her own costs from them. The situation was exacerbated, and the costs substantially increased, because the defendant and her former solicitor conducted the litigation and the negotiations as if they were oblivious to the reality of the long history of use of the laneway and the demonstrable reasonable necessity of access for the plaintiffs, or most of them.

In Owners Strata Plan 13636 v Ryan [2006] NSWSC 342, Rein AJ (as he then was) sounded a warning to parties over whose land an easement is sought:

The defendant’s conduct in generating the dispute that led to the litigation, and her conduct of the litigation, deserves to be criticised. Reasonable parties, well advised, would never have come to this. The defendant has done far more than reject reasonable offers of compensation. She has not litigated reasonably. That is why I concluded that this is an appropriate case for making an ‘order contrary’ within the meaning of Section 88K(5).

In my view, the unique facts of this case justify a departure from the usual presumption in these cases. The defendant should be deprived of her prima facie entitlement to have her costs paid by the plaintiffs. She should also, in the circumstances of this case, pay the plaintiffs costs. It was always necessary that there be a court order to create the easement, but given the long history and the reasonableness of the plaintiffs’ position, contentious litigation should not have been necessary.

I have also concluded that the plaintiffs should have the benefit of an indemnity costs order from 15 October 2018. The plaintiffs’ final offer of compromise conformed with the requirements of Uniform Civil Procedure Rules 2005 Pt 20 Rule 20.26. The failure to accept the offer entitles the plaintiffs to indemnity costs under UCPR Pt 42 Rule 42.14 unless the Court orders otherwise.

Each of Section 88K(5) and UCPR Pt 42 Rule 42.14 provides a discretion to the Court to make an ‘order to the contrary’ or an ‘order otherwise’ having regard to the particular facts and circumstances. The discretionary considerations that justify an ‘order to the contrary’ for the purpose of Section 88K(5) are also relevant to the exercise of my discretion not to ‘order otherwise’ pursuant to UCPR Pt 42 Rule 41.14. Given the history of repeated and reasonable offers, there is every reason why the plaintiffs should be accorded the prima facie entitlement to indemnity costs that follows from the defendant’s failure to accept their final offer.

Finally, I should conclude by stating that a decision on costs is a discretionary decision. It depends to a large extent on the individual judge’s findings of fact, his subjective assessment of the conduct of the parties and the evidence of the witnesses. In this case, the plaintiffs are entire blameless. They have been put to enormous inconvenience and expense when it should never have come to this. And the defendant precipitated the litigation in the first place by behaving in a peremptory and unreasonable manner. Given the long history of use of the laneway by the plaintiffs and their predecessors in title, and her own architect’s assurances to the council, the defendant’s behaviour in May 2017 was neither reasonable nor rational – unless she was merely attempting to engineer the situation to her own advantage. Her behaviour and her responses to the various subsequent offers from the plaintiffs suggest that she erroneously believed, or was advised, that she would receive her costs from the plaintiffs no matter how badly she behaved.

As a result of my orders, the defendant will be liable for substantial costs. No submissions were put to me however, and no facts were adverted to, that suggest that she will suffer undue hardship. The defendant has unfortunately brought this situation on herself. It is a consequence of her own unreasonable behaviour.

I order the defendant to pay the plaintiffs’ costs of the proceedings, including indemnity costs from 15 October 2018.