Court finds Council not entitled to costs following discontinuance of Class 1 appeal

A recent decision of the NSW Land and Environment Court (Court) has confirmed that a Respondent Council is not entitled to costs simply because an Applicant has discontinued its Class 1 appeal, in the absence of any evidence of unreasonable conduct by the Applicant.

In Xia v Hornsby Shire Council [2020] NSWLEC 73, the Applicant commenced Class 1 proceedings in relation to a development application lodged with Hornsby Shire Council (Council). However, when the Applicant sought to discontinue the proceedings following an unsuccessful conciliation conference, the Council advised that they would not consent to the discontinuance unless the Applicant agreed to pay the Council’s costs of the proceedings.

In dismissing Council’s application for costs, Moore J held that there was no proper basis upon which the Court could conclude that it was “fair and reasonable” to make any costs order in favour of the Council.

Was it “fair and reasonable” to award a costs order in the circumstances?

The main threshold test that needs to be satisfied when determining a costs order is whether it is “fair and reasonable” in the circumstances for the Court to award costs.

What is “fair and reasonable” is to be considered in light of r 3.7 of the Land and Environment Court Rules 2007 (LEC Rules) which outlines the circumstances which might give rise to the making of a costs order, including for example:

• where a party has acted unreasonably in the conduct of the proceedings;
• where a party has commenced proceedings for an improper purpose; or
• where a party has commenced or continued a claim in the proceedings that did not have reasonable prospects of success.

In this case, the Council relied on submissions founded upon r 42.19 of the Uniform Civil Procedure Rules 2005 (UCPR) which states that where proceedings are discontinued by a plaintiff, the plaintiff must pay the costs of the defendant incurred in respect of those proceedings (as at the date of the filing of the discontinuance). However, the Applicant argued and the Court agreed that this power is expressly excluded from being exercised in the Class 1 jurisdiction as a consequence of the operation of Sch 1 to the UCPR.

The Council’s argument was further positioned around inviting the Court to examine whether or not the Applicant’s case would have had merit had it gone to trial. Again, the Court held this to be an inappropriate course of conduct on the basis of the High Court’s ruling in Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin which confirms that the Court cannot try a hypothetical action because to do so would burden the parties with the costs of a litigation action, which by their settlement they have avoided.^[1]

The Court also noted that the costs of the proceedings that had been incurred to date (including costs in relation to attendance at a section 34 conciliation conference) were costs that would have arisen in “an ordinary, plain vanilla and unexceptional Class 1 appeal.”^[2] Further, any costs that Council had expended, for example, in preparing for a potential future Notice of Motion to amend, were not costs that could be recovered because there was no obligation on Council to undertake that work prior to such a motion being filed.

Further, there was no evidence at all to demonstrate any unreasonable conduct (of the kind referred to in r 3.7 of the LEC rules) by the Applicant or the Applicant’s solicitor. In particular, the Court found that the fact that the Applicant elected to discontinue the proceedings, rather than seeking to amend its application following the unsuccessful conciliation conference, was not unreasonable.

For these reasons, the Court ultimately found that there was no “fair and reasonable” foundation upon which to make any costs order in favour of the Council.

Could the Applicant be awarded costs?

In costs proceedings, the customary position is that costs follow the event, meaning that the successful party in either pursuing or defending a costs application should have their costs of that application paid by the unsuccessful party.^[3] 

In this case, the Court was not convinced that there was any reason why this general rule should be displaced, particularly given that the Council’s costs application was “entirely lacking in merit”.^[4]

The Court also placed reliance on the fact that the Applicant had written a letter to the Council explaining why there was no proper foundation for this costs application and invited it to withdraw the application.

Given this, the Court found it reasonable to require the Council to pay some of the Applicant’s costs, including on an indemnity basis for those costs incurred from the date of the letter discussed above.

Lessons learned

This case confirms the proposition that a Respondent Council is not simply entitled to costs because an Applicant has discontinued its Class 1 appeal, in the absence of any evidence of unreasonable conduct by the Applicant.

It serves as a prominent reference in circumstances where parties seek to file a notice of discontinuance and a Respondent Council objects on the basis that they are entitled to recover some or all of their costs in the proceedings.

The judgment can be accessed in full here.

Authors: Breellen Warry, Georgia Appleby & Shenaye Ralphs

^[1] (1997) 186 CLR 622.
^[2] Moore J at [9].
^[3] Moore J at [16].
^[4] Moore J at [16].

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