Posted on September 18, 2014 by 2

Costs in s88K easement proceedings – will the burdened party ever pay?

As land owners across the metropolitan area seek to redevelop land for higher density living, Councils are increasingly imposing requirements on development consents that easements, often for stormwater drainage purposes, be acquired over adjoining properties. Not surprisingly, requests to grant easements over property are often opposed by the owner of the land to be burdened resulting in applications to the Court seeking an order creating the easement pursuant to s88K of the Conveyancing Act 1919.

The recent Court of Appeal decision in Shi v ABI–K Pty Ltd [2014] NSWCA 293 reinforces the position that a Court is unlikely to make a costs order against the owner of the burdened land in such proceedings.

Decision at first instance

ABI-K Pty Ltd (ABI-K) had been granted development approval contingent upon obtaining a 1 metre wide drainage easement over Mr Shi’s property. The trial judge granted the easement, ordering ABI-K to pay $21,500 in compensation. However, the trial judge ordered that Mr Shi pay costs of the s88K proceedings pursuant to s88K(5) which provides:

The costs of the proceedings are payable by the applicant [i.e. the party seeking the easement], subject to any order of the Court to the contrary. 

The trial judge found that Mr Shi had rejected a number of “commercially sensible offers of compromise” which had been put to him both before and after the proceedings commenced, including:

• an offer of $40,000,  together with an assurance from ABI-K that it would bear all of the costs associated with obtaining and giving effect to the easement;
• a ‘Calderbank’ offer of $30,000 shortly after proceedings were commenced.

The trial judge rejected as “unreasonable” Mr Shi’s counter-offers to agree to the imposition of the easement for a sum of $250,000 plus costs, or to purchase ABI-K’s property, or have ABI-K purchase his property at an agreed price.

In making the costs order against Mr Shi,  the trial judge accepted ABI-K’s submission that the Court’s discretion under s88K(5)  can be exercised by “parity of reasoning” with the way the Court would approach costs against the background of the general rule that “costs follow the event but a Calderbank offer has been made”.

Consequently, because Mr Shi had rejected ABI-K’s reasonable offers and had not achieved a better result at the trial, the trial judge held that he was liable for the costs of the proceedings.

Appeal

Mr Shi challenged the trial judge’s orders on three grounds, one of which was a challenge to the costs order made against him.

Overturning the costs order, the Court held that a property owner must do more than merely reject reasonable offers of compensation before the Court will make a costs order against them under s88K(5).

The Court found that the trial judge should not have accepted the analogy drawn with the general rule that costs follow the event, because s88K proceedings are not a claim for damages but rather a claim for an interest in property, for which appropriate compensation was required to be paid.

At [98] Basten JA stated:

‘The ordinary rule [under s88K(5)], that the applicant pay the costs of any proceeding, reflects the fact that an applicant for such an order has no right to the grant of an easement over the property of another… The statutory scheme is not consistent with the proposition that an applicant can obtain a right to costs by offering more than the compensation ultimately ordered to be paid as a condition of the easement… Unless it has done more than reject reasonable offers of compensation, the property owner should not be put at risk of an adverse costs order in those circumstances…’

It follows that the usual tools available to litigants to limit their exposure to costs may not be effective in s88K proceedings.

In what circumstances will the Court award costs against the Respondent?

The Court’s ruling is consistent with previous decisions on s88K(5) which have held that a Respondent’s ‘entitlement’ to costs under s88K(5) can only be lost by ‘unreasonable’ conduct, in the sense of unreasonably bringing about legal costs, or increased legal costs (see Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445 at 254;  117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 at 523-524). Unfortunately the decision does not shed any light on what this disentitling conduct might be, other than to confirm that it is not enough to reject reasonable commercial offers, seemingly no matter how favourable.