Applicant v Respondent

1 On 20 August 2012, the Court awarded the respondent ('Murdesk') $21,043,148.86 plus interest in compensation for the compulsory acquisition of its land at 335-413 Cooper Street, Epping.[1] Up until that point in time, Murdesk had received an advance of compensation of $17,767,400 plus interest. Murdesk therefore succeeded in obtaining considerably more in compensation for the compulsory acquisition of its land as a result of the proceeding. However, the award of compensation was also significantly lower than the compensation that Murdesk sought in the proceeding.

2 Murdesk seeks an order that the applicant (the 'Secretary') pay its costs of the proceeding, including reserved costs, on an indemnity or solicitor/client basis.

3 The Secretary seeks its costs of the proceeding up to, and including, 8 September 2011 on a party/party basis, and thereafter on an indemnity or solicitor/client basis. Alternatively, the Secretary submits there should be no order as to costs for the period up to, and including, 8 September 2011.

4 The cross-applications for costs raise the following issues:

(a) the effect of a formal offer of compromise made by Murdesk under O 26 of the Supreme Court (General Civil Procedure) Rules 2005 (the 'Rules') early in the history of the proceeding;

(b) the effect of a Calderbank offer[2] made by the Secretary just days before the hearing of the proceeding (and more than five years after its commencement);

(c) the effect of conduct by Murdesk's director, Mr Mervyn Dickey, resulting, so the Secretary contends, in Murdesk making excessive claims and in delay in the provision of valuation evidence; and

(d) as a corollary to (c), the effect of any unduly depressed offer by the Secretary.

5 The award of costs in a land acquisition matter is governed by s 91 of the Land Acquisition and Compensation Act 1986 (Vic) (the 'LAC Act'). Section 91 relevantly provides:

(1) In any proceedings under this Part, the Tribunal or the Court (as the case requires) may award such costs as it thinks proper but in making an order for costs must, if the Tribunal or Court considers it appropriate to do so, take into consideration -

(a) the amount of compensation awarded by the Tribunal or Court as compared with the amount (if any) offered by the Authority; and

(b) the extent to which, in the opinion of the Tribunal or Court, the proceedings have arisen from, or been affected by -

(i) unreasonable conduct on the part of the claimant or the Authority; or

(ii) the failure of the claimant to give adequate particulars of the claim or supply supporting material when required to do so; or

(iii) an excessive claim by the claimant; or

(iv) an unduly depressed offer by the Authority; and

(c) any other matters which under this Act are to be taken into account in determining the allocation of costs.

6 In Love v Roads Corporation,[3] the Court of Appeal observed that the position of a claimant in proceedings under the LAC Act is not that of an ordinary litigant: the claimant, unlike the ordinary plaintiff, has no choice whether to make a claim. The starting point for the exercise of the Court's discretion as to costs is that the dispossessed owner should recover the costs of making the claim. To this extent, the discretion as to costs in compensation proceedings is 'tilted' in favour of the claimant.[4] The Court of Appeal approved the statement of Biscoe J in Taylor v Port Macquarie-Hastings Council,[5] that there must be a strong justification for awarding costs against an applicant where the effect of making that order would be to erode the benefit of the just compensation recovered as a consequence of the court's determination. It is only in special cases that the court will deprive the owner of the full benefit of the compensation which was determined as fair and just in the circumstances of the case.[6]

7 Of course, these considerations do not displace the requirement to give effect to the language of the statute and to exercise the discretion as to costs in accordance with that requirement.

8 The notice of acquisition of the land was gazetted on 28 October 2005. On 11 November 2005, the Secretary offered Murdesk $14,100,000 in compensation.[7]

9 On 10 February 2006, Murdesk forwarded to the Secretary a response to offer accepting Secretary's initial offer in part and setting out the matters in respect of which it claimed to be entitled to further compensation. Murdesk's total claim was for $36,759,396, including market value of $27,570,000 and solatium of $2,757,000. No certificate of valuation was provided in support of the claim for market value.

10 On 10 August 2006, the disputed claim was referred to the Court by the Secretary.

11 On 25 August 2006, Osborn J adjourned the proceeding until judgment in a related proceeding, Murdesk Investments Pty Ltd v Roads Corporation, was delivered.[8]

12 On 10 January 2007, Murdesk made an offer expressed to be made in accordance with O 26 of the Rules in the amount of $20,340,000 plus interest. The Secretary acknowledged receipt of the Murdesk's offer but did not communicate further with Murdesk about it.

13 On 16 May 2008, Murdesk served Particulars of Claim seeking compensation in the amount of $36,595,343, including $33 million for market value and $3.3 million for solatium. Again, no certificate or other material supporting the claim for market value was provided.

14 On 5 September 2008, the Secretary made a further formal offer of $17,767,400 plus interest, including $17,370,000 for market value and $347,400 for solatium.

15 On 8 September 2011, eleven days before the trial of the proceeding, the Secretary made a Calderbank offer of $22.3 million, costs on a party/party basis, and interest.

16 On 13 September 2011, Murdesk filed and served Amended Particulars of Claim in which it claimed $33 million for market value, $3.3 million for solatium and approximately $22 million for special value and/or disturbance.

(a) Having regard to formal offers and claims, the parties were a long way apart from the commencement of the proceeding in 2006 until it was heard in 2011. The Secretary's highest offer was $17,767,400; Murdesk's lowest claim was $36,595,343;

(b) However, Murdesk made an offer of compromise that was lower than the award only six months after the commencement of the proceeding; and

(c) The Secretary made a Calderbank offer that was higher than the award in the days leading up to the trial.

(a) It was successful in the proceeding, in that it was awarded more than the highest formal offer (and advance) from the Secretary of $17,767,400;

(b) It made an offer to settle the proceeding that was lower than the final award as early as January 2007. The offer should be treated as a Calderbank offer, and the Secretary's rejection of the offer found to be unreasonable. Murdesk should therefore have its costs of the proceeding on an indemnity or solicitor/client basis;

(c) Murdesk reasonably refused the Secretary's Calderbank offer made in September 2011, principally because the question of market value was inherently uncertain and it had three valuations that were much higher than the amount of the Secretary's offer; and

(d) Murdesk ultimately obtained an award that was higher than the Secretary's highest formal offer.

19 Accordingly, Murdesk submits that it is entitled to its costs of the proceeding on an indemnity or solicitor/client basis.

(a) Murdesk's offer of compromise was not a valid offer for the purposes of the LAC Act. It should not be treated as a Calderbank offer, but if it is to be so treated, then the Secretary acted reasonably in rejecting the offer. The only basis upon which the Secretary could assess the value of the land and the reasonableness of Murdesk's offer at the time it was made was by reference to its own valuations provided by the Valuer-General. Murdesk had made a claim for market value that was approximately double the Valuer-General's valuation but had provided no valuation material to support its claim;

(b) Murdesk's conduct from the commencement of the proceeding until shortly before trial warrants an order for costs against Murdesk. The matters justifying such an order are Murdesk's excessive claims for compensation and the delay in providing material in support of its claims, in large part as a function of Murdesk's unreasonable conduct in securing its expert valuation evidence; and

(c) Murdesk's rejection of the Secretary's Calderbank offer was unreasonable. The offer was considerably higher than the amount that the Secretary had offered up to that point in time based on the Valuer-General's valuations. Murdesk should have known that the process by which its valuers had arrived at their valuations was flawed, that this would be exposed in Court and that there was therefore a real chance that the Court would not accept its valuation evidence or would prefer that of the Secretary.

21 Accordingly, the Secretary submits that it should be awarded its costs on a party/party basis up until the service of its Calderbank offer, or alternatively that costs should lie where they fall up until that date. Thereafter, it says that it should be awarded its costs on an indemnity or solicitor/client basis.

22 It is convenient to consider the issues as they arise chronologically.

23 As at the commencement of 2007, Murdesk claimed $27,570,000 for the market value of the land, and additional amounts of more than $6 million. On 10 January 2007, it made an offer of compromise in accordance with O 26 of the Rules in the amount of $20,340,000 plus interest.

25 It was common ground that Murdesk's offer of compromise could not operate as such under the LAC Act. In Coastal Estates Pty Ltd v Shire of Bass,[9] Gobbo J held that O 26 of the Rules could not operate 'along with, or so as to override' s 91 of the LAC Act, because O 26 was inconsistent with s 91.[10] The recent decision of the Court of Appeal in Love did nothing to change this. It remains the case that there is no place for an offer of compromise made under O 26 of the Rules in the compensation arrangements under the LAC Act.

26 However, Murdesk contends that its offer should be treated simply as a 'without prejudice' offer that may be considered by the Court on the question of costs.

27 Murdesk points out that although the Secretary officially did no more than acknowledge receipt of Murdesk's offer of compromise, the offer prompted an internal response from the Secretary, in that its lawyers contacted various government agencies for the purpose of convening a conference to discuss the offer. Murdesk submits that its offer of compromise was therefore treated by the Secretary as an offer that it could accept. The offer, stripped of the automatic entitlement to costs conferred by the operation of r 26.08, was a Calderbank offer.

28 In Trustee for the Salvation Army (New South Wales) Property Trust v Becker (No 2),[11] the New South Wales Court of Appeal considered an offer that did not comply with the court rules for offers of compromise. The court held that the offer was not invalid, but merely that it did not take effect under the rules. It said:

Calderbank offers are simply offers that do not comply with the relevant rules of court relating to the making of offers of compromise. Whether an offer, intended to be an offer under the Uniform Civil Procedure Rules but which is ineffective because it does not comply with those rules operates as a Calderbank offer, depends upon the intention of the offeror as revealed by the terms of the offer. The offer may disclose an intention that it should take effect only if it complies with the Uniform Civil Procedure Rules. On the other hand it may disclose a general intent to make an offer, irrespective of whether it takes effect under the Uniform Civil Procedure Rules or not. [12]

29 In that case, the offer of compromise provided that if it was ineffective under the Uniform Civil Procedure Rules, it was to be treated as a Calderbank offer. According to the court, the offer reflected 'an overriding intent' that, irrespective of its application under the relevant rules that might apply to it, it should take effect as a Calderbank offer.[13] However, in Taylor, Biscoe J held that an offer of compromise purporting to be made under the rules of court, but which fell outside the rules, could operate as a Calderbank offer only if it clearly indicated an intention to operate as such in the event that it did not fall within the rules.[14] His Honour there rejected the Calderbank claim for indemnity costs on the basis that the offer purported to be an offer under the Supreme Court Rules and did not indicate clearly, or at all, an intention to operate as a Calderbank offer if it did not fall within the rules.[15]

30 The Secretary submits that had Murdesk's offer of compromise been accompanied by a letter stating that it was an offer made under the Rules but that if it did not take effect under the Rules it would still be relied upon on the question of costs, then the Murdesk's offer could now be taken into account on the question of costs. However, Murdesk's offer of compromise was only expressed to be an offer made under the Rules. It could not, therefore, function as a Calderbank offer.

31 In my view, the Secretary's submission takes the point too far. In order to discern the offeror's intent, it is not necessary for an offer of compromise to be accompanied by a letter expressing the intention that the offer operate as a Calderbank offer if it is incapable of operating under the Rules. In the absence of an express statement of intention in a covering letter, the intention of the offeror may be discerned by reference to the form and content of the offer itself to ascertain whether it is capable of operating as an offer more generally, and whether it was intended to be made 'without prejudice save as to costs' and to be adduced in evidence on the question of costs if not accepted.

32 In this case, Murdesk's offer of compromise is in short form. Under a court heading, and headed 'Offer of Compromise', it states simply:

TAKE NOTICE that the Respondent (Claimant) offers to compromise this proceeding and the Claimant's claim for compensation by the payment of the sum of $20,340,000.00 plus interest in accordance with the provisions of Section 53(1) of the Land Acquisition and Compensation Act 1986. This sum is inclusive of all advances of compensation previously paid to the Claimant pursuant to the provisions of Section 51 of the Land Acquisition and Compensation Act 1986.

THIS OFFER is served in accordance with Part 2 of Order 26 of the Supreme Court Rules and remains open to be accepted until 4 pm on 25 January 2007.

33 Murdesk's offer of compromise contains no indication that it will be adduced in evidence on the question of costs and that those costs will be sought on an indemnity basis. Moreover, it says nothing about the payment of costs already incurred by the parties and apparently depends on the operation of r 26.03(7) of the Rules to deal with the question of costs up to the date of the offer. The recipient of the offer, assessing its effect without the benefit of the Rules, would be left in the dark about the treatment of costs incurred up to the date of the offer and, indeed, as to whether it was proposed to be used on the question of costs if it could not take effect under the Rules.

34 Having regard to its form, it seems unlikely that Murdesk's offer of compromise was intended to operate as a Calderbank offer if it could not operate under the Rules. In making an offer of compromise under the Rules and expressing the offer the way that it did, Murdesk was badly advised. It was established law at the time that the regime in O 26 could play no part in compensation claims made under the LAC Act. However, the offer demonstrated Murdesk's willingness to compromise and to settle the proceeding without the need for lengthy and expensive legal proceedings. Although it could not stand on its own, Murdesk's offer could be construed as an invitation to the Secretary to negotiate a settlement. To that limited extent, Murdesk's offer may be taken into account in the exercise of the Court's discretion as to costs. For the reasons that follow, however, that is not of any great assistance to Murdesk.

35 In my view, even if Murdesk's offer of compromise is treated as a Calderbank offer, it was not unreasonable for the Secretary to reject it, having regard to the factors identified in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[16] namely:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.[17]

36 In this case, the time allowed to the Secretary to consider the offer was reasonable. Furthermore, the offer constituted a significant compromise by Murdesk, having regard to its claim for compensation of more than $36 million. However, there are difficulties with the remaining Hazeldene factors.

37 For the reasons already given, as the offer was expressed by reference to the operation of the Rules (which were inapplicable) and made no reference to a future application for indemnity costs or, indeed, to any resolution of the question of the costs already incurred by the parties, its clarity was compromised.

38 However, it is principally having regard to the stage of the proceeding at which the offer was made and the Secretary's ability to assess its prospects of success at that time that the reasonableness of the Secretary's response is to be assessed. Murdesk made its offer early in the proceeding. The offer was made before the exchange of any valuation material and, indeed, before the provision of any certificate of valuation to support Murdesk's then claim for $27,570,000 for the market value of the land. As a result, at the time of the offer, the Secretary had before it no more than an unsubstantiated claim, despite the requirement in s 35(f) of the LAC Act that a claimant disputing the valuation to which the Authority had regard in making its offer must provide with its notice of claim 'a copy of the certificate of valuation of a person who holds the qualifications or experience specified under s 13DA(2) of the Valuation of Land Act 1960 upon which the claim is based'.

39 By contrast, by the time it received Murdesk's offer, the Secretary had obtained the following valuations or indications of value through the Valuer-General's office:

(a) On 26 September 2005, Mr Leslie Brown provided a preliminary estimate of the compensation for market value of the subject land of between $15,200,000 to $17,900,000;[18]

(b) In November 2005, Mr Christopher Torr assessed the market value of the land at $12,400,000;[19]

(c) On 4 November 2005, Mr Brown assessed the market value of the land at $18,000,000.[20]

(d) On 9 November 2005, Mr Torr assessed the market value of the land at $14,100,000.[21]

40 Accordingly, as at the date of Murdesk's offer, the Secretary's own valuations ranged between $14,100,000 and $18,000,000 and it had received nothing from Murdesk to support a higher market value for the land.

41 Thus, while Murdesk's offer represented a significant compromise in view of its claim for market value at that point in time, the Secretary had no basis on which to assess the offer or its prospects of success in the proceeding. So far as the Secretary was concerned, Murdesk's claim was an ambit claim. It had no basis upon which to justify making a significant additional payment for the land.

42 In this context, the Secretary drew the Court's attention to the Government Land Monitor Policy and the requirement that the Government Land Monitor approve any offer of compensation greater than $250,000. Where the market value of the land is greater than half a million dollars, it is mandatory for the government instrumentality (in this case, the Secretary) to obtain two valuations: one from the Valuer-General and a second from a valuer who is a member of the Valuer-General's Panel. In this case, Mr Torr was the delegate of the Valuer-General, and Mr Brown was the check valuer. The Policy provides that land must not be purchased for an amount above the Valuer-General's valuation unless authorised by the Valuer-General and approved by the Government Land Monitor.[22]

43 I am satisfied that the Secretary could not reasonably accept Murdesk's offer in the absence of any valuation material supporting a value that was higher than the valuations it had obtained through the Valuer-General's office. The Secretary was not in a position to accept Murdesk's offer without material justifying the use of tax-payer funds on a compromise that was more than $2 million higher than the highest valuation available to the Secretary through the Valuer-General's office.

44 Even without the requirements of the Policy, it was not unreasonable for the Secretary to reject the offer, given the absence of any valuation material from Murdesk.

45 Murdesk's offer of compromise does not entitle it to an award of costs on a special basis.

46 I turn now to the submission that Murdesk's conduct justifies an order that Murdesk pay the Secretary's costs or, alternatively, disentitles it to its own costs.

47 Section 91 of the LAC Act invites the Court to have regard to the extent to which, in the Court's opinion, the proceedings have arisen from or been affected by unreasonable conduct on the part of the claimant or the Authority, the failure of the claimant to give adequate particulars of the claim or supply supporting material when required to do so, an excessive claim by the claimant or an unduly depressed offer by the Authority.

48 The Secretary submits that unreasonable conduct by Murdesk's director, Mr Mervyn Dickey, caused Murdesk to make excessive claims and led to significant delays in the preparation and provision of valuation material by and on behalf of Murdesk. According to the Secretary, Mr Dickey's unreasonable conduct continued up until September 2011 and warrants an order for costs against Murdesk or, alternatively, that no costs be awarded in favour of Murdesk in relation to that period.

49 The Court found that Mr Dickey, throughout the relevant period, engaged in a course of dealing with Murdesk's expert valuers, Mr Mark Holland and Mr Mark Murray, that ultimately deprived both Murdesk and the Court of the benefit of their expert opinions. Mr Dickey communicated extensively with the expert valuers over a period of years to ensure that they produced valuations that coincided with Mr Dickey's own views about the value of the land. He actively engaged them in a process of 'arguing up' the value of the land, not just by providing them with information that he considered useful, but by proposing valuation methodologies and strategies, and by encouraging them to see themselves as part of the Murdesk 'team'. That conduct, as the Secretary submits, would have been in breach of his obligations under the Civil Procedure Act 2010 (Vic) had it been in force at the time.

50 In my view, Mr Dickey's interference had a significant effect on the levels of value advanced by Murdesk's expert valuers and resulted in Murdesk making claims for market value that were well outside the range of prices being achieved for industrial/employment land across the northern and western regions at the time. In putting forward values of $30 million plus for the land at the relevant date, Murdesk's valuers had to justify a significant departure from the range of values established for in globo industrial land in the northern region as at that date.

51 By contrast, the range of value of between $15 and $18 million arrived at by the Secretary's valuers was consistent with prevailing values.

52 Until mid 2011, when Murdesk's valuation experts finalised their reports, Murdesk did not have any basis, other than the views of Mr Dickey, for claiming market value of $33 million. From February 2006 onwards, the amount claimed by Murdesk for market value was significantly higher than prices achieved for comparable land as at the relevant date. Importantly, it was also higher than the valuations and indications of value that Murdesk itself obtained in 2005 and early 2006. The Court heard evidence that Mr Peter Dickinson valued the land on Murdesk's behalf for security purposes in March 2005 at $16.5 million, that Mr Holland wrote to Murdesk's lawyers in January 2006 stating that a value 'in excess of $40 per sqm may be sustainable' and that Mr John Wallace (another valuation expert) produced a certificate of valuation for the land in February 2006 for $22 million. Murdesk also had the benefit of the expressions of interest in the neighbouring 'Haberfield' land, which were well below $40 per sqm for the non-residential component of that land. From this position close to the relevant date, Mr Dickey worked over the next five years to secure valuations for the land of $55 to $60 per sqm.

53 Mr Dickey's conduct was, in my view, improper, and damaging both to Murdesk's case and to the expeditious and efficient conduct of the proceeding. Although Murdesk's counsel launched a vigorous defence of Mr Dickey's conduct in reply, and submitted that it amounted to no more than drawing to the valuers' attention matters that might cause them to alter their reports for good reason, I do not accept that Mr Dickey's conduct was acceptable or proper. I consider that it had a detrimental effect on the course of the proceeding.

54 Murdesk submits that it was entitled to make a claim for compensation in the sum it saw fit. It was an experienced property developer, was entitled to express its view as to the land's value and its claim was ultimately supported by the valuations of three valuers. The claim was not so unreasonably large that it ought not to have been made and the Court ought not to conclude that its claim was excessive simply because of the valuation evidence that was available to Murdesk at the time of the first offer. Murdesk submits that having regard to the Secretary's initial offer, $14,100,000 and the award given by the Court of just over $21 million, Murdesk was justified in 'pressing on' to trial.

55 In my view, neither Mr Murray nor Mr Holland would have supported the very high market value claims without the significant involvement of Mr Dickey. While it was legitimate for Mr Dickey to factor his own views about the value of the land into Murdesk's claim, those views should not have prevailed over more measured assessments of the value of the land, and Mr Dickey should not have sought to actively drive up the valuations of persons charged to provide independent expert advice to the Court on the market value of the land. Insofar as there was a 'drawn out stand off' between the parties, as Murdesk submits, it was largely the fault of Mr Dickey. While Murdesk was justified in pressing on beyond the Secretary's initial offer of $14,100,000, and beyond the offer of $17,767,400, its claim for $33,000,000 for market value was entirely unfounded up until July 2011, and remained highly questionable thereafter because of the way in which the valuers approached their task.

56 In 15 Lorimer Street Pty Ltd v Secretary to the Department of Infrastructure,[23] Byrne J held that the word 'excessive' in s 91(1)(a)(iii) of the LAC Act has a pejorative connotation in the sense that the sum claimed exceeds the sum awarded to a degree which is unreasonable or worthy of criticism. This is not only a function of the difference between the two sums, but also the reason for this difference.[24] In my view, Murdesk's claims for market value were excessive in the sense that they were unreasonable and worthy of criticism. Its claim for special value and/or disturbance, which was both ill conceived and unsupported by any evidence, was also excessive.

57 Furthermore, I have no doubt that Mr Dickey's resolve to obtain valuations that supported his views about the value of the land delayed the provision of the valuation material and the trial of the proceeding. The proceeding could not move forward until Murdesk filed its valuation evidence. While the proceeding was put 'on hold' pending the determination of Murdesk's claim against the Roads Corporation and many extensions of time for the provision of Murdesk's valuation reports were ordered by consent, Murdesk's valuation material was not finalised and provided to the Secretary until July 2011. Having regard to the matters that emerged at trial about Mr Dickey's involvement in the preparation of the expert valuation reports, there is now an explanation for the delay and it is not an acceptable one.

58 Nonetheless, it remains the case that Murdesk was required to pursue its claim for a market value in excess of $17,767,400 in Court and that it incurred costs in obtaining a variety of expert evidence that was both necessary and unexceptional, including expert evidence from a town planner, surveyors, engineers (in respect of sewerage and fill, as well as plans and costings for hypothetical subdivisional analyses that were used by all of the valuers) and ecologists. It also incurred the costs of the remaining valuation evidence given by Mr Wallace. In my view, Murdesk should have those costs and its general costs of preparing for trial, including the costs of the two discovery applications that made by Murdesk in December 2008 and October 2010.[25]

59 I have reached this conclusion despite the fact that the delay was costly for the Secretary, both potentially and in fact, as the LAC requires the payment of interest by the Authority at penalty interest rates. I consider that the just result is for Murdesk to be awarded those costs, but only on a party/party basis.

60 However, I have concluded that Murdesk should not have its costs of the valuations provided by Mr Holland and Mr Murray, or its costs associated with retaining and instructing them.[26] The evidence in question was of limited, if any, use to the Court, and was the product of a process that should be roundly discouraged.

61 These costs can be excluded from the award of costs in favour of Murdesk in a taxation. However, it may be expedient to simply discount the costs to which Murdesk is entitled, rather than to put the parties to the task of 'carving out' specific costs from a more general costs order. I will hear from the parties on this question and on the question of any appropriate discount.

62 On 8 September 2011, the Secretary made a Calderbank offer for the sum of $22,300,000 plus interest and costs on a party/party basis. Murdesk refused the offer.

63 There is no dispute that the Secretary's offer was a valid Calderbank offer. However, there is a dispute as to whether Murdesk's refusal of the Calderbank offer was unreasonable. The Secretary submits that the refusal constituted unreasonable conduct within the meaning of s 91(1)(b)(i) of the LAC Act and that it should have its costs on a indemnity or solicitor/client basis from the date of the Calderbank offer.

64 Again, the Court must have regard to the matters in referred to in Hazeldene: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success, assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.

65 A number of these matters are straightforward. The Secretary's Calderbank offer seems to me to be expressed with clarity and to satisfy the requirements of a Calderbank offer in foreshadowing an application for an indemnity costs in the event that Murdesk rejects the offer. Although the Calderbank offer was expressed to be open only until 16 September 2011 (a period of 8 days), in the circumstances the time allowed was reasonable. By the time the Calderbank offer was made, Murdesk had received the valuation and other evidence to be relied upon by the Secretary at trial, and it had fully prepared the evidence that it would rely upon. It was represented by senior and junior counsel and competent instructing solicitors and had all the information and advice that it would reasonably need to assess the respective positions of the parties and the merits of the offer.

66 The Calderbank offer also represented a significant compromise by the Secretary, in that it was more than $4 million higher than the Secretary's highest valuation. With interest, it represented an additional payment to Murdesk of more than $6 million.

67 Murdesk contends that the Calderbank offer was made too late. By the time the Calderbank offer was made, so Murdesk contends, it had expended a considerable amount of money on planning, engineering, valuation, survey and ecological evidence, and had committed itself to a hearing by retaining witnesses. It would not have been adequately covered by an award of party/party costs as provided for in the Calderbank offer. Moreover, Murdesk submits that by the time the Calderbank offer was made, a point had been reached at which neither party could say with any confidence whether or not, let alone to what extent, an award made by the Court after hearing all the evidence would exceed the amount offered.

68 I reject the submission that it was not unreasonable for Murdesk to refuse the Calderbank offer because of its late timing. The Calderbank offer could only usefully be made once the parties had exchanged valuation evidence. This did not occur until July 2011, largely due to Mr Dickey's determination to secure expert reports that confirmed his view about the value of the land. Although Murdesk suggests that the Calderbank offer was made without regard to its expert evidence, I do not accept that this was the case. The level at which the offer was pitched reflects consideration of the relative merits of the parties' positions on the market value of the land.

69 Furthermore, Murdesk's claim for special value was only foreshadowed by the filing of Mr Dickey's affidavit on 16 August 2011 and it was necessary to obtain leave from the Court to pursue that claim. That did not occur until just before the commencement of the trial.

70 I also reject the submission that at the time the Calderbank offer was made, neither party could say with any confidence what the outcome of the proceeding would be. While the outcome may have been attended by uncertainty, Murdesk must have appreciated the risk it was taking with the approach it had adopted. Murdesk knew that its claim for market value was well above the values achieved for comparable greenfield land in the northern and western regions and far higher than the valuations and estimations that it had received at around the time of the acquisition. Hence, it was at pains to establish the market value of the land by reference to sales in other industrial regions, sales that occurred after the relevant date and sales of infill as opposed to greenfield land. This approach was much riskier than the approach taken by the Secretary, in that it required the Court to accept that the land was so superior to surrounding land that it ought to be given a much higher value. Moreover, the lengthy dealings between Mr Dickey and Murdesk's expert valuers to 'argue up' the value of the land should have signalled to Murdesk that its claim for market value would be a difficult one to substantiate.

71 I accept the Secretary's submission that as at 8 September 2011, Mr Dickey should have appreciated that Murdesk's claim for market value was based on questionable assumptions and difficult propositions. Furthermore, Mr Dickey knew that the files of Messrs Holland and Murray had been subpoenaed and that they would reveal the exchanges between the valuers and Mr Dickey and/or Mr Dickey's advisers. It would have been apparent that the independence and reliability of those key valuation witnesses would be tested at trial and that their evidence might be found wanting.

72 In my view, it would also have been apparent to Murdesk that the special value/disturbance loss claim was a speculative claim with limited, if any, prospect of success. The claim had only been put forward late in the life of the proceeding and many years after the compulsory acquisition of the land. Murdesk's counsel struggled to articulate the claim to the Court, and there was no concrete evidence of any consequential loss. There was also an obvious risk that the Court would only allow a modest sum for solatium where Murdesk's intention, in the absence of the compulsory acquisition, was to develop and sell the land as industrial lots.

73 The fact that the Calderbank offer does not explain the problems with Murdesk's case and absence of reply affidavits from the Secretary's valuers responding to Murdesk's valuation evidence does not change my view that Murdesk must have appreciated the risk that it was taking in proceeding to trial.

74 Putting the above matters together, Murdesk's refusal to accept the Calderbank offer was unreasonable in the context of the case as it stood at the date of the offer. Had Murdesk accepted the Calderbank offer, the proceeding would not have gone to trial and the parties would have been spared the expense of a lengthy trial.

75 As Byrne J said in Foster v Galea (No 2):[27]

Where a party makes a Calderbank offer which is reasonable in all the circumstances, especially in comparison to the offeree's prospects of success or where the offeree's prospects of success were not good, the Court has displayed a readiness to make a special order. As I observed in the Lorden Holdings case, the policy of the court is to encourage litigating parties to undertake genuine settlement negotiations and, for the purpose, to face up to serious offers of settlement.[28]

76 In my view, the Calderbank offer was eminently reasonable in all of the circumstances and it was unreasonable for Murdesk not to accept it. Murdesk's conduct in rejecting the offer and pressing on with its excessive claims was unreasonable conduct for the purposes of s 91(1)(b) of the LAC Act. Notwithstanding that it will erode some of the benefit of the just compensation awarded to Murdesk by the Court, it is proper that a special costs order be made.

77 Murdesk should pay the Secretary's costs of the proceeding on a solicitor/client basis from 8 September 2011.

78 During the course of the trial, the Secretary made an application to have Murdesk's expert valuation evidence ruled inadmissible. The Court ruled on 22 November 2011 not to exclude the evidence and reserved the costs of the Secretary's application.[29] The Court noted that the application was a substantial one to which Murdesk was required to respond at relatively short notice and that the hearing of the application ran for almost a day and a half.

79 Although the Secretary did not succeed in having the evidence excluded, the submissions made by the Secretary about admissibility of the evidence of Messrs Holland and Murray went to the weight that the Court could give to that evidence. Those submissions were very important in the assessment of the valuation evidence and for the determination of market value. They were highly relevant to the disposition of the proceeding as a whole.

80 In my view, these reserved costs should be treated in the same way as the other costs of the trial. In accordance with the Court's determination in respect of the Secretary's Calderbank offer, Murdesk should pay the Secretary's costs of its application on a solicitor/client basis.

81 The Court will make orders to the following effect:

1. The Secretary pay Murdesk's costs of the proceeding up to and including 7 November 2011 on a party/party basis, discounted or reduced in respect of the costs of the evidence of Messrs Holland and Murray.

2. Murdesk pay the Secretary's costs of the proceeding from 8 September 2011, including reserved costs, on a solicitor/client basis.

82 I will hear from the parties as to how to deal with the exclusion of the costs related to the evidence of Mr Holland and Mr Murray.

[1] Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd [2012] VSC 319.

[2] An offer made pursuant to the requirements set out in Calderbank v Calderbank (1975) 3 All ER 333.

[3] [2011] VSCA 434 ('Love').

[4] Ibid [173]. In Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2010] NSWLEC 27, [34], Biscoe J referred to other decisions of that court that had recognised that the discretion to award costs in compensation cases tilted the discretion to award costs in favour of the dispossessed owner: Nasser v Roads and Traffic Authority (NSW) [2006] NSWLEC 562; (2006) 149 LGERA 289, [32]; Simpson v Bagnall [2008] NSWLEC 79, [10].

[5] [2010] NSWLEC 153; (2010) 175 LGERA 189 ('Taylor').

[6] Ibid 200, [21(d)]. See Love v Roads Corporation [2011] VSCA 434, [172].

[7] This offer was served with a certificate of valuation signed by the Valuer-General, but was not accompanied by the valuation on which the certificate was based.

[8] [2007] VSC 175; (2007) 155 LGERA 13. Judgment was delivered on 29 May 2007.

[9] [1994] VicRp 13; [1994] 1 VR 210.

[11] [2007] NSWCA 194.

[12] Ibid [27] [Citations omitted].

[14] Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 153; (2010) 175 LGERA 189, 207 [39].

[16] [2005] VSCA 298; (2005) 13 VR 435 ('Hazeldene').

[18] Affidavit of Leslie Brown sworn 21 April 2011, Exhibit LJB-3 (Report dated 26 September 2005).

[19] Affidavit of Christopher Torr sworn 5 May 2011, Exhibit CET-2 (Report dated November 2005).

[20] Affidavit of Leslie Brown sworn 21 April 2011, Exhibit LJB-4 (Report dated 4 November 2005).

[21] Affidavit of Christopher Torr sworn 5 May 2011, Exhibit CET-3 (Report dated 9 November 2005).

[22] Mr Domenico Cristiano, on behalf of the Secretary deposes in his affidavit affirmed on 1 November 2012, that although this part of the Policy refers only to purchases, his experience has been that a similar practice has been applied to compulsory acquisition and that offers of compensation have not been made in an amount exceeding the Valuer-General's valuation.

[23] (Unreported, Supreme Court of Victoria, Byrne J, 24 April 2008).

[25] Although Murdesk was only partially successful in that application and the documents obtained on discovery did not shed light on the issues before the Court, the discovery application formed part of the preparation for trial and was not so exceptional or misconceived as to warrant its removal from the general order as to costs.

[26] This would include the costs of preparing Mr Holland's 'super lot' subdivision plan and costings.

[27] [2008] VSC 331.

[29] Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd [2011] VSC 581.