In brief

The case of Nadilo v Eagleton [2021] NSWCA 232 (Nadilo) concerned a successful appeal to the New South Wales Court of Appeal (Court of Appeal) against a decision of the New South Wales Land and Environment Court (Land and Environment Court) in its Class 4 jurisdiction in respect of costs. 

The substantive dispute concerned the Respondents' air-conditioning units and a water heat pump within the residential holiday suburb of Wangi Wangi in New South Wales. The issues were the following:

  1. Whether the units breached the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 (NSW) (Codes SEPP) and section 4.2 of the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act) in that the air-conditioning units and water heat pump required a development consent. 

  2. Whether the operation of the air-conditioning units and water heat pump caused offensive noise and breached the Protection of the Environment Operations (Noise Control) Regulation 2017 (NSW) (Noise Control Regulations). 

Before the final hearing, the parties resolved the dispute after the Respondents replaced the water pump with a silent system, and took other measures to address the noise of the air conditioners. The parties then agreed to consent orders which included that the proceedings be dismissed. The Applicant made an application for costs. 

The Land and Environment Court dismissed the application for costs. 

The Applicant appealed to the Court of Appeal. The Court of Appeal allowed the appeal and ordered the Respondents to pay the Applicant's costs of the proceedings in the Land and Environment Court and the Court of Appeal. 

Whilst this case is an example of what may be considered a trivial issue, the Court of Appeal's decision has important implications on the law of costs in the civil enforcement jurisdiction of the Land and Environment Court, irrespective of the scale of development or works in dispute. 

Legal framework 

Part 4 of the EP&A Act sets out the framework by which development is assessed in New South Wales. In essence, development requires consent unless an environmental planning instrument specifies that the particular type of development does not require consent (known as exempt development). Most categories of exempt development are set out in the Codes SEPP. The Codes SEPP also specifies the associated development standards for the particular type of exempt development.

Clause 2.5 of the Codes SEPP identifies air-conditioning units as exempt development. Clause 2.6 of the Codes SEPP sets out the applicable development standards, including, for example, minimum setbacks from lot boundaries (at clause 2.6(1)(b)), minimum setbacks to bedrooms of adjoining residences (at clause 2.6(1)(b1)), and noise level limitations during on and off-peak times of operation (at clause 2.6(1)(f1)).

Clause 45(a) and clause 53(1)(a) of the Noise Control Regulations restrict the use of air conditioners and heat pumps on residential premises to certain times of the day, where they emit a noise which can be heard within any room in any other residential premises (excluding a garage, storage area, bathroom, laundry, toilet or pantry). A breach of these clauses gives rise to an offence, and a liability to a maximum penalty of 50 penalty units for an individual and 100 penalty units for a corporation. 

Courts are to have regard to the responsibility of each party for the incurring of costs in exercising its discretion to award costs 

The Court of Appeal held that, rather than establishing a presumption, rule 42.20 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) reflects the default position that if proceedings are dismissed, the plaintiff "has lost" and must pay the defendant's costs, as "costs follow the event" (at [7]). 

In Nadilo, the proceedings did not run to hearing and as a consequence no party "lost". However, the Court of Appeal found that the Applicant had achieved extra-curial success by agreeing to consent orders (see [7]), which would render any further proceedings pointless. The Court of Appeal found that since the Respondents had effectively "capitulated" or "surrendered" by making the air-conditioning and water heat pump noise-compliant without any element of compromise, the Applicant did not need to show that the Respondents had acted "unreasonably" before the surrender to justify a costs order (see [9] and [12]).

The Court of Appeal held at [12] that it was not necessary to demonstrate "unreasonableness" on the part of the Respondents to obtain an "otherwise" order for costs in circumstances where the Respondents had capitulated. The Court of Appeal held that, even if there was a requirement to demonstrate unreasonableness, this would have been satisfied by the Respondents' persistence in defending their case, which caused the Applicant to incur more costs. 

In making a costs order, the relevant inquiry is whether an applicant has achieved the substance of their intended outcomes, rather than one of form. There is no need to undertake a close comparison of the outcomes under each alleged breach, if the remedy sought is substantially the same.  

The Court of Appeal found that because the Applicant had achieved the outcomes sought in bringing the proceedings, it was plainly unjust for the Land and Environment Court not to have awarded costs in exercising its discretion under rule 42.20(1) of the UCPR. 

As the Applicant would have inevitably succeeded in relation to the Codes SEPP breach, thereby entitling the Applicant to the substantive relief sought, it did not matter that a breach of the Noise Control Regulation had not been made out. On that basis, the Court of Appeal found that the Land and Environment Court had erred by not making a costs order simply because a breach of the Noise Control Regulation had not been made out (see [11], [68] to [70], and [91]).

Nadilo tested in the Land and Environment Court 

Nadilo has been considered in the Land and Environment Court in the case of Jodie Dianne Ansted v Northern Beaches Council [2021] NSWLEC 136 (Ansted).The Applicant in that case was unsuccessful in obtaining a costs order because the Court distinguished the facts of that case from Nadilo

The Land and Environment Court found at [32] in Ansted that the consent orders were a "…clear compromise of not only the proceedings but the underlying dispute between the parties.". The Land and Environment Court was unable to find that the Applicants would have inevitably succeeded, because it was not open to the Land and Environment Court to conduct a hypothetical trial to assess the Applicants' prospects of success (at [30]). 

The Land and Environment Court also found at [36] that the Second and Third Respondents did not act unreasonably in defending the proceedings until such time as the consent orders were entered into. The Land and Environment Court dismissed the costs application and ordered the Applicants to pay the Second and Third Respondents' costs of the motion. 

Insights 

Nadilo and Ansted serve as an important reminder for parties in Class 4 proceedings and development disputes that may eventuate into civil enforcement litigation that there are potential cost consequences of defending and settling Class 4 proceedings for all scales of dispute, from air conditioner compliance through to more significant alleged breaches of the applicable planning legislation. 

When considering whether to defend against or settle these types of proceedings, respondents ought to carefully consider the cost consequences against the strength of the applicant's case. Surrendering or capitulating mid-way through proceedings (whereby the applicant practically obtains the substance of the relief initially sought) may well lead to an order for the payment of costs.  

Nadilo also serves as a timely reminder for landowners and tenants to consider noise-compliance of externally fitted plants, such as air conditioners, pool pumps, and the like, in the hope of avoiding litigation with their neighbours.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2022.

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