Applicant v Respondent

2 In proceeding S CI 2016 4339 ('principal proceeding'), the applicant ('Timber') sought relief against the respondent ('Authority')[1] in the sum of $2.871 million plus interest for the market value of land compulsorily acquired by the Authority for the purposes of the East-West Link ('Land'). Timber was the registered proprietor of the Land.

3 In proceeding SCI 2017 3392 ('subsidiary proceeding'), the Authority sought relief against the first respondent ('Hardware') and the second respondent ('Joinery') in the form of a declaration that they were not entitled to any compensation arising from the acquisition and, if necessary, an order that they repay the amount of $2,871,000. Hardware and Joinery were occupiers of the Land at the date of acquisition and claimed to be entitled to compensation for the costs of relocating to new premises in the amount of $2,871,000 and to have received such compensation. Timber, Hardware and Joinery were related companies in the Provans Group.[2]

4 Timber was successful in the principal proceeding, obtaining judgment for the sum of $2.871 million plus interest. The subsidiary proceeding was dismissed.

5 In the principal proceeding, in addition to the amount of the judgment, the parties agree that the Authority will pay Timber penalty interest plus five percent pursuant to ss 51(4) and 55 of the Land Acquisition and Compensation Act 1986 ('LAC Act'), resulting in an award of interest in the amount of $1,517,136.41. The Authority also accepts that it is liable to pay Timber's costs of the principal proceeding.

6 However, there is a dispute between the parties as to the basis on which the Authority should pay Timber's costs of the principal proceeding. Timber made an offer to the Authority prior to the trial that it contends was made pursuant to the principle in Calderbank v Calderbank[3] and seeks its costs in this proceeding on an indemnity basis from the date of the Calderbank offer. The Court is now asked to determine the basis for the award of costs to Timber, having regard to the offer made by Timber to resolve the proceeding more than a year before the trial.

7 In the subsidiary proceeding, Joinery and Hardware also seek their costs on an indemnity basis. The Authority disputes that it should pay costs on an indemnity basis in this proceeding. Furthermore, it does not accept that it is liable to pay Joinery's costs at all, as it transpired that Joinery was not entitled to any compensation under the LAC Act.

8 On 17 March 2017, Timber made an offer to accept in full and final settlement of its claim the sum of $2,850,000 plus interest plus the costs of the proceeding on a standard basis ('Calderbank offer'). It did so on the basis that it would forego its claim to be paid the further sum of $21,000 and its claim for interest at the penalty interest rate plus five percent pursuant to ss 51(4) and 55 of the LAC Act.

9 Timber submits that had the Authority accepted the Calderbank offer in March 2017, it would have paid Timber the sum of $3,101,700.29, made up of $2,850,000 plus interest at the penalty interest rate from 16 May 2016 to 16 April 2017 in the amount of $251,700.29, plus the costs of the proceeding on the standard basis. Timber's success in obtaining relief in the amount of $4,388,136.41 plus costs therefore exceeds the sum that it offered to accept to settle the principal proceeding.

10 The LAC Act contains a provision governing the award of costs in proceedings brought under the LAC Act. Section 91(1) relevantly provides that the Court may award such costs as it thinks proper but must, if it 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.

11 Accordingly, among other things, the Court must take into consideration the extent to which the proceedings have arisen from or been affected by unreasonable conduct on the part of the Authority.

12 In circumstances where an offer is made pursuant to the principle in Calderbank v Calderbank,[4] in assessing whether costs should be ordered on a standard or an indemnity basis, the critical question is whether it was unreasonable in all of the circumstances for the offeree - in this case the Authority - not to accept the offer at the time the offer was made.[5] Among the factors to be considered in making such an assessment are:

(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; and

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.[6]

13 The rejection of a Calderbank offer may be relevant to s 91(1)(b)(i) of the LAC Act and the Court's consideration of the extent to which proceedings have arisen from, or been affected by, unreasonable conduct by a party.

14 I have reviewed the letter of offer dated 17 March 2017 from Timber's lawyers to the lawyers of the Authority which contains the Calderbank offer. In my view, the Calderbank offer offered a real compromise of the dispute, albeit not a large one; it was made at a point in time when the parties were aware of the scope of the dispute and the risks of pursuing the litigation; it provided an adequate amount of time for the Authority to consider the offer; it was expressed in clear terms; and it foreshadowed an application for indemnity costs in the event that the Authority rejected it.

15 It remains to assess whether the Authority's refusal of the Calderbank offer was unreasonable having regard to the Authority's prospects of success in the principal proceeding.

16 Timber submits that the Authority's prospects of successfully defending the claim, as at the date of the Calderbank offer, were low. This is disputed by the Authority. The Authority submits that the proceeding raised complex questions of entitlement to compensation such that while Timber was successful, the Authority acted reasonably in seeking to ventilate the issues before the Court. The Court's reasons for judgment traverse a number of provisions of the LAC Act and their length reflects the complexity of the intertwined issues in both proceedings.

17 It is true that the reasons for judgment deal with a number of complex legal questions, many of them arising from the relationship between the claimants and the legal consequences of the relationship under the LAC Act. The entitlement to compensation for the compulsory taking of land where related parties own the land and occupy the land respectively, particularly on the basis of uncommercial arrangements such as tenancies terminable at will, has given rise to conflicting authority in other jurisdictions. In this case, these issues were further complicated by the significant uplift in the value of the Land as a result of its prospective rezoning and the operation of s 41(2) of the LAC Act. It is clear from some of the correspondence between the parties in 2014 that the claimants' legal representatives were uncertain as to their entitlement to claim for the uplift in market value as well as relocation costs. For example, on 10 October 2014, Provans' lawyers wrote to the Authority in relation to the 'in use' value of the Land, warning that if this value was arrived at on the basis of the actual (peppercorn) rent paid rather than market rent, Provans (specifically, Hardware) might make a claim for profit rent. This appears to involve an acceptance that Timber could be compensated for the market value of the Land on an 'in use' basis if relocation costs were paid, as was contended for by the Authority.

18 It is also the case that the proceeding involved disputed factual matters revolving around the existence of any understanding between the parties arising from the lengthy discussions that preceded the 'Initial Offer' made under s 31 of the LAC Act and ongoing uncertainty about the nature of the interests of the different members in the Provans Group, which uncertainty the Authority sought to overcome by making the Initial Offer in a single document expressed (in part) to be made to 'the companies', being the Group as a whole.

19 Ultimately, however, the proceeding was decided on a relatively simple basis, which was that the Initial Offer had to be construed consistently with s 31 of the LAC Act, which required the Authority to make an offer to each claimant of whose entitlement to compensation it was aware and to set out the amount or amounts of compensation payable to the claimant that the Authority assessed as fair and reasonable (having regard to the different factors for compensation listed in s 41(1)), based on the information then available to the Authority and on the assumption that the claimant held the interest in respect of which the offer was made. The requirements of the legislation governing the making of the Initial Offer effectively dictated the outcome of the proceedings.

20 In the circumstances, I consider that the Authority's refusal of the Calderbank offer was unreasonable, as the relevant legislative provisions are relatively clear on their face and the acceptance of the Calderbank offer would have avoided the need for a trial.

21 The Authority has advanced a number of reasons why, even if its refusal of the Calderbank offer was unreasonable, it should not have to pay Timber's costs on an indemnity basis. It submits that the Calderbank offer was expressed, having regard to Timber's pleaded case, to be in relation to the $12.2 million offered to Timber by the Authority pursuant to s 36 of the LAC Act. However, this offer was conditional and the Court did not determine in its reasons for judgment that the Authority was bound under s 36 of the LAC Act to pay compensation to Timber. The Court did not accept the assertion of a binding 'agreement' which was a fundamental feature of Timber's pleaded case.

22 I reject this submission. The Calderbank offer simply refers to Timber's claim that it ought to be paid 'the outstanding balance of compensation for the market value (agreed at $12.2 million)' of its interest. The Calderbank offer was made on 17 March 2017. On that day, the valuers for Timber and the valuers for the Authority met and conferred and reached agreement that the market value of the Land as at the acquisition date was $12.2 million based on its highest and best use for residential development. That is the agreement to which the Calderbank offer refers.

23 The Authority submits that there are a number of further 'countervailing considerations' that outweigh the unreasonableness, if any, of the Authority's rejection of the Calderbank offer. They are, in summary:

(a) the Court's rejection of the claimants' market value evidence;

(b) the claimants' objections to the admissibility of the Authority's evidence;

(c) the claimants' submissions regarding the Authority's failure to call certain persons to give evidence; and

(d) the fact that the claimants made a number of unsuccessful interlocutory applications.

24 In my view, none of these matters assists the Authority. Although the parts of the claimants' market value evidence advocating the assessment of the Land based on its 'enterprise value' were 'confusing' and 'unnecessary' in the circumstances, it was open to the claimants to adduce this evidence in an attempt to answer, in particular, the Authority's submissions on inconsistency and 'double dipping'. The claimants' objections to evidence and their submissions regarding the Authority's failure to call authorised decision-makers did not occupy much time in the proceeding and formed part, in any event, of the usual 'thrust and parry' in litigation. Both sides made interlocutory applications in the proceeding, which were dealt with on their merits. The proceedings were of a kind that demanded fairly intense management at the interlocutory stage.

25 Accordingly, having regard the foregoing, I am satisfied that the Authority should pay Timber's costs on the standard basis until 7 April 2017, being the date on which the period for acceptance of the Calderbank offer expired, and on an indemnity basis thereafter.

26 The threshold issue in relation to the costs of the subsidiary proceeding is whether the Authority should have to pay Joinery's costs of this proceeding. Joinery was made a party to the proceeding because it had purported to accept the offer for relocation costs in the Initial Offer, having been identified as having an interest in the Land as an occupier.

27 In fact, Joinery was in no position to accept an offer for relocation costs because it had not incurred any relocation expenses. As was recorded in the reasons for judgment, at trial it was not asserted that Joinery had any entitlement to compensation. This could have been made clear at the interlocutory hearing on 11 August 2017, when the Authority sought to join Hardware and Joinery to the principal proceeding, or in any event, well prior to the trial.

28 In the circumstances, Joinery will not be awarded its costs of the subsidiary proceeding.

29 However, I have concluded that Hardware should have its costs of the subsidiary proceeding on an indemnity basis. Although the Calderbank offer was made in the principal proceeding and before the initiation of the subsidiary proceeding, the issues in the two proceedings were inextricably intertwined. Hardware was a recipient of the Initial Offer. Hardware's entitlement to compensation for relocation costs lay at the heart of the Authority's response to Timber's claim in the principal proceeding. The Authority commenced the subsidiary proceeding in order to ensure that Hardware (and Joinery) were, effectively, included in the disputed claim referred to the Court by Timber. Had the Authority accepted the Calderbank offer, the subsidiary proceeding would have been unnecessary.

[1] The Authority was originally the Linking Melbourne Authority. At the time of the trial, it was the Secretary to the Department of Economic Development, Jobs, Transport and Resources as the successor to the Linking Melbourne Authority. It is now the Secretary to the Department of Transport.

[2] I shall refer to Timber, Hardware and Joinery collectively as the 'claimants', the 'Provans Group' or as 'Provans' depending on the context.

[3] [1975] 3 All ER 333.

[5] Hazeldenes Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, 441 [23].