Bromley v Forrestry Commission

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1847 of 1996 James Edward Bromley & Ors v Forrestry Commission of New South Wales JUDGMENT 1 His Honour: This is the hearing of claims for compensation and damages in respect of two conditions contained in Crown Lease 1919/1. The Crown Lease is in respect of certain areas in the Barrington Tops mountain area in New South Wales. There were originally proceedings which were heard by Bergin J in 1999 when she made orders for determination of royalties which were due to the plaintffs as a result of forestry operations conducted on the land. Those royalties have been determined and the amounts due have been paid to the plaintiffs. 2 Her Honour also dismissed a claim for compensation based upon special condition (n) of the Crown Lease. There was an appeal to the Court of Appeal in respect of that part of Her Honour's judgment and the Court found that the plaintiff was entitled to compensation. The orders of the Court of Appeal included the following: -- 5. Declare that upon the proper construction of special condition (n) of the crown lease 1919/1 ("the lease") the appellants are and were entitled to be paid by the respondent compensation for any damage done to their interests in the lease holding by licensed timber operations to the amount of one-third of any royalty paid to the respondent on timber removed from the forest areas of the lease. 6. Order that the issue whether the appellants have suffered any damage to their interests in the lease holding by reason of the activities of licensed timber operations and, if so, the amount of any such damage be remitted to the equity division for hearing. 3 The Court of Appeal also gave leave to the appellants to amend their statement of claim to include a claim for damages for breach of special condition (k). A judge of the court has ordered that both these claims be determined by a Master of the court and I commenced the hearing when I was a Master of the Court. The background facts 4 The Crown lease which was issued in 1919 covered 4856 acres and was over portion 64 in the parish of Tomalla County of Hawes and land district of Scone. It was originally for 45 years but in 1940 was made a lease in perpetuity. The present plaintiffs purchased the land on 7 May 1976. The lease was subject to a number of conditions as to the payment of rent and otherwise. Obviously special conditions (k) and (n) are of importance. Other special conditions also require consideration and the relevant ones are as follows: -- ……………….. (b) That the lessee shall not nor will assign except by way of mortgage or release of mortgage or sublet the said land or any part thereof without the consent in writing of Our Minister for Lands being previously had and obtained: provided that if stock not owned by the said lessee are found depasturing on the said land the same shall constitute prima facie evidence of such subletting. ……………. (g) That no timber shall be cut or removed from the land for the purpose of sale, except subject to the provisions of the Forestry Act, 1916, and the Regulations thereunder at the time in force. (i) The Lessee may, however, take from the land leased to him such timber and other material for building and other purposes upon such land as may be required by him as tenant thereof provided such land is not comprised within a Timber Reserve or State Forest. (j) That all persons specially authorised in that respect shall without interference by the lessee have full right to enter upon the said land at any time within reasonable hours during the currency of these presents for the purpose of cutting or removing timber without interference by the lessee and the lessee shall provide convenient gateways or openings where required for this purpose or where directed by the Minister or any Officer authorised by the Minister in that behalf and shall, subject to the provisions of Section 31 of the Forestry Act, 1916, or any Act amending or replacing the same, allow permittees thereunder to enter upon and remain upon the said land and to exercise therein all the rights and privileges conferred by their respective permits.

(k) A proportion of the forest area not exceeding one-third shall be absolutely exempt from the operation of any timber licence in order to provide a land supply for the development of the holding. (l) No operations in connection with timber for products (other than by the lessee for his own use on the land leased or as provided by conditions), shall be allowed on the forest area, except with the concurrence of the Department of Lands under special licence, to be issued by an authorised Forest Officer. Provided that with the lessee's written consent such licence may also be issued to apply to timber or products on any part of the lease excepting that part of the forest area exempted for the sole use of the lessee. (m) The holder of a special licence to cut timber on the forest area or to remove products therefrom, shall be governed by the conditions and the limitations of the licence which will be framed by the Forestry Department to protect the lessee's interests in the land.

(n) The lessee shall be allowed compensation to the amount of one-third of any royalty paid to the Crown on timber removed from the forest area, to cover any damage done to his interests in the holding by licensed timber operations. ………… (o) The lessee shall from time to time burn off all fallen timber and debris on the forest area and shall prevent the spread of fire therefrom extending to and injuring the standing timber on adjacent land. 5 The area comprised within the crown lease is shown on exhibit B. Also shown on that exhibit are two forest areas that were known in the case as the eastern and the western forest area. The western forest area was gazetted with an area of 840 acres and the eastern with an area of 800 acres. Those appropriately licensed and permitted under the Forestry Act between 1986 and 2001 conducted forestry operations over most of the crown lease. It will be noticed that in special condition (n) there is a cap to the amount of compensation based upon the royalties paid to the Crown in respect of the forest areas. The amount of the royalties so paid to the Crown was $553,208 and, accordingly, any compensation payable under that special condition cannot exceed the figure of $184,403. 6 I turn to consider how the plaintiffs in general terms presented their claims for compensation and damages. Compensation under special condition (n). 7 The basis of this claim is that the land the subject of the Crown lease is no longer useful for grazing. The reasons why the land is said to be no longer useful for grazing are: --

(a) the presence on the ground of debris from the forestry operations, and

(b) damage to internal and boundary fences caused by logging. 8 The compensation is calculated in two alternative ways. The first method looks at the cost of removal of the debris resulting from the forestry operations from the logged areas of the Crown lease. The debris comprises the stumps remaining in the ground, branches and the crowns of the trees which are left behind after the main tree trunk is taken away by those engaged in the forestry operations. The plaintiff obtained a quote for the cost of removal of the debris which quotation showed a cost of $950 per hectare in which all debris is removed and an alternative quotation of $625 per hectare if the stumps were not removed and only the balance of the debris were removed. 9 The evidence demonstrated that part of the debris present on the ground at the moment has resulted from wind damage to the properties during violent storms in 1998. A witness for the defendant Mr Walshe estimated in cross-examination that the percentage of the debris remaining attributable to logging operations was about 70 percent. Applying these proportions to the area logged in the Crown Lease the cost of removal including the stumps was said to amount to $916,370 and without stumps $602,875. 10 The second method of calculating the compensation looks at the loss of the agistment value of the lease. It was submitted that the property was capable of carrying 100 head of cattle and that the agistment value was 50 cents per head per week. It was suggested that the property could not be agisted from about 1992 when Mr O'Hare, a neighbour, ceased to use it for agistment and that therefore the loss over the ten years was $26,000. Damages for breach of special condition (k). 11 There were four different alternatives put forward for the calculation of damages for breach of this special condition. As can be seen from the special condition it concerns the forest area to which I have earlier referred. Two of the alternatives dealt with the loss of the commercial value to the leaseholder of the timber and the other two relate to the cost of removal of debris. I will first set out the different claims and the figures said, by the plaintiff, to flow from the evidence before coming back to consider whether there has been any breach of the special condition. 12 The first claim is for the loss of the commercial value to the leaseholder of the timber removed from the exempt one-third of the forest areas. This claim was based upon some evidence which it is said suggests that there are now no stands of commercial timber left in the forest areas. The calculation of the claim was based upon the royalties that had been paid in respect of the forest areas, namely, $553,208. The submission was that one-third of this sum, namely, $184,403 was the loss to the leaseholder. 13 The second claim was for the loss of the commercial value to the lease holder of timber removed from the exempt one-third of the forest areas. The calculation was based purely upon the logged proportion of the forest areas, which exceeded the exempt one-third of the forest areas. The amount calculated was $22,812.08. 14 The third claim was for the cost of removal of debris from the exempt one-third of the forest areas. This calculation was based upon one-third of the actual area of the forest that was logged. The quantification including the removal of stumps came to $106,818.95 and without stumps $70,275.62. 15 The fourth claim was for the cost of removal of debris from those parts of the forest areas logged, which exceeded the exempt one-third of the forest areas. It was based upon the proportion of the forest areas, which were logged to the extent that they exceeded the exempt one-third of the forest areas. With the removal of stumps the claim was quantified at $13,213.55 and without stumps at $8,693.13. Liability for damage under special condition (n). 16 To succeed in this claim the plaintiffs must prove actual damage to their interests in the holding caused by licensed timber operations. This is made plain by the comments of the Court of Appeal at paragraphs 9 to 11 of the President's judgment which were in the following terms: -- 9 As indicated below, it is now common ground that the right conferred by condition (n) is an entitlement to "compensation ... to cover any damage" in the sense of a right to payment if and only if damage occurs that is of the nature described in the condition. 10 Compensation is for damage done to the lessee's interests in the Crown Lease by licensed timber operations. The licence and its statutory incidents define the nature and extent of activities that may give rise to a right of compensation. However, for the purpose of condition (n) these activities are not confined to the loss stemming directly from the removal of timber. Indeed, it is arguable that the mere abstraction of royalty- bearing timber falls outside the condition once it is understood that, from prior to the commencement of the Forestry Act 1916 , there has existed a regime of royalty sharing between the Crown and the holder of tenures such as a Crown lease, such royalties being calculated by reference to quantities of timber removed under licence. In these circumstances, it appears unlikely that the very act generating a right to a share of royalty could itself be a form of "damage" within condition (n). This point was not argued, so it is merely flagged as a possible view of the construction of condition (n). 11 With this possible qualification, the "damage" addressed by condition (n) is not confined to direct disturbance of the physical environment through licensed timber-getting operations. Indirect losses, such as interference with quiet enjoyment or with the exploitation of the farming capacity of the land, are undoubtedly included. 17 The plaintiffs apparently accept the construction put forward by the court in paragraph 10 and did not argue to the contrary. 18 The main contentions of the defendant were :--

(a) An analysis of the evidence does not show that the land could not be used for grazing as a result of the forestry operations.

(b) Upon its proper construction Special Condition (n) only gives a right to compensation in respect of damage in the forest areas not to logging in the holding generally.

(c) The plaintiffs' obligations to burn and clear the land under special condition (o) prevent any causal connection with the logging operations.

(d) Limitation Act defence. 19 I turn to the question of whether any damage was caused to the plaintiffs' interests in the holding. As I have mentioned earlier it was suggested this occurred because of two factual matters. The first was the presence of debris left on the ground as a result of the logging operations. On the plaintiffs' part evidence was given on this aspect by Mr Bromley and Mr O'Hare. In paragraph 11 of his affidavit Mr Bromley suggested that the residue remaining on the ground together with the part of the trunk still left in the ground made mustering stock dangerous and the lease unsuitable for any form of agricultural or pastoral use. Mr O'Hare also addressed this point in paragraph 6 of his affidavit stating that mustering was almost impossible because cattle in the areas where there was debris on the ground could not be reached by horseback for fear of injury to the horse. 20 Evidence to the contrary was given by Mr Walshe in his cross examination. For many years Mr Walshe was a practising stock and station agent in the area and had also owned various pastoral holdings on which there was a timber resource which had been harvested during grazing activities. He thus had expertise in running livestock on a similar property and the effects of timber getting operations on such a property. He gave evidence that the debris on the ground would not be an impediment to mustering stock as any stockman in that country would be using dogs who would do the work. Mr Yates who was the forestry officer at the time of commencement of the logging operations gave evidence that the heavily timbered sections of the Bromley lease were not particularly suitable for agricultural or pastoral use prior to logging. This was because pasture was virtually non-existent in the areas which were ultimately logged due to the heavy understorey and ground cover. He produced a series of photographs taken of the property in 2001 and in respect of one area he had available some photographs taken pre-logging in 1992. A comparison of the photographs certainly indicate that the difficulties in mustering would be more substantial prior to logging than afterwards. 21 In assessing this evidence it is necessary to have regard to a number of matters. It is apparent that Mr Bromley is not a grazier. He described himself as a company director and gave his experience as having been involved in the timber industry between 1944 until 1999. His involvement was the operation of saw mills and obtaining timber in connection with that business. He has only visited the lease twice. Once was prior to its purchase by him in 1976 and once in 1991. In these circumstances it seems to me that he really has no basis for the views which he has expressed. 22 In respect of Mr O'Hare it should be noted that he was not cross examined. The reasons are set out in a judgment which I gave on the admissibility of his evidence, such judgment being given on 13 June 2002. In that judgment I referred to the endeavours by Mr O'Hare to avoid coming to Sydney in response to attempts to serve a subpoenae and concluded that he was trying to avoid having to come to Sydney to be cross examined on his affidavit. In these circumstances I think that very little weight can be attached to his evidence which is not tested by cross examination. In contrast Mr Walshe was cross examined at some length and I was impressed by his qualifications and the way in which he gave his evidence. Clearly he is a person who was a knowledgeable stockman. I propose to accept the evidence of Mr Walshe in preference to the evidence of Mr O'Hare and Mr Bromley. I am satisfied that the actual debris resulting from the logging operations has not inhibited the use of the property for grazing purposes. 23 The second matter which was said to cause the damage to the plaintiffs' interests in the holding was said to be the damage to fences which have prevented the property from being used for grazing. 24 Certainly Mr O'Hare gave evidence in his affidavit that the damage caused to fences as a result of the grazing no longer made the property a viable proposition. Mr O'Hare, as I have pointed out, was a next door neighbour to Mr Bromley and for some years up until 1992 he paid agistment of $1,000 a year and also paid the Rural Pastures Protection Board rates. He ceased that arrangement in 1992 after the logging started. There were a number of fences to which reference was made. The only internal fence was a dog net fence which I have referred to earlier which ran from the boundary with Tomalla Station up to the boundary with Sweetman. As I have mentioned it runs along the top of the ridge and it was a natural barrier to stop cattle getting into the steep timbered country on the western end of the lease. The other important fence was the fence boundary between the subject land and the Sweetman property where that property adjoined on the north of the subject lease. 25 Mr Yates gave evidence that the Bromley lease was poorly fenced prior to logging commencement particularly in respect of the boundary with the Sweetman leases. He also gave evidence that the internal wire netting dog fence was damaged prior to logging commencement. It is clear that Mr Yates had inspected the fencing prior to commencement of logging as he was the author of a harvesting plan for the property. His plan particularly notes the position of the dog fence and also the Sweetman fence. On his plan which was prepared in 1986 the Sweetman fence is shown as old fencing. 26 In cross examination Mr Walshe was taken to the question of fencing and his view was that the fence on the northern boundary at the time he inspected it in 2001 was almost impossible to find and it had been on the ground for years. He thought probably thirty years. His cross examination also demonstrated there was a reason for the dog fence not being maintained and being fully secure at the time it was inspected by Mr Yates prior to logging. This was because the fence, as its name suggests, was put in to keep out wild dogs from the grazing area. Some time prior to the events in question the use of such fencing declined because 1,080 baits were used to kill dingos. In that respect maintaining the fence became unnecessary. 27 It seems to me that substantially the fences were not in good repair on the property prior to the logging commencing. From a practical point of view, as was pointed out by Mr Walshe in his cross examination, probably the fencing was not that important because the cattle prior to logging would not have gone into the hilly timbered country for two reasons. One was that there was not sufficient feed there and the second was that the country was very steep. It seems more likely to me that even though the fences were in disrepair the property was still being used for grazing by Mr O'Hare but that in practical terms the cattle were mostly on the reserved area which is beside the Manning River on the flats which were not subject to logging operations. 28 The actual claim put forward was that the logging had caused damage to the fences at various places on the lease. No details of precisely where this damage occurred was given in evidence by Mr O'Hare and as he was not cross examined this area could not be explored with him. Evidence was given by Mr Yates and by Mr Walshe that from their inspections they could see no damage to fencing caused by the logging operations. There was damage to fencing caused by trees being blown down in the wind storm in 1998. That damage however clearly was not due to logging because the type of tree fall is quite different. In the circumstances I am not satisfied that there was damage to the fencing caused by the logging operations. 29 In the result I am not satisfied that the logging operations have caused any damage to the leaseholders' interest in the way put forward by the plaintiffs. I note that a valuer for the plaintiff who commented that the presence of the fallen timber made it less attractive could not quantify in money terms the effect this would have on the value of the holding. 30 Although it is not necessary to do so it is probably appropriate for me to at least refer to another conflict in the evidence which touches on the evidence of Mr O'Hare and Mr Walshe. This is the carrying capacity of the subject lease. At the time Mr O'Hare started using it the carrying capacity of the lease for rating purposes by the Rural Lands Protection Board was reduced to 98 head of cattle. Mr O'Hare also gave evidence that throughout much of the period during which he leased the Bromley lease it was carrying "up to" 100 head of cattle and he disagreed with Mr Walshe's assessment of the carrying capacity being 30 head. 31 One of the purposes of Mr Walshe's evidence was to establish the carrying capacity at 30 head of dry cattle. This would put the value for agistment purposes at 50 cents per head per week a total of $15 per week. Notwithstanding the fact that the property was inspected in 2001 by Mr Walshe and I am concerned with events prior to that date, his experience and the basis for his conclusions, namely, the unsuitability of the pre-logged area for grazing seem to me to have some force. In addition Mr Yates' evidence of the state of the lease prior to logging supports Mr Walshe's views. Given the absence of Mr O'Hare for cross examination and the inability of his evidence to be tested I prefer the evidence of Mr Walshe on this aspect. 32 Although on the conclusion I have reached it does not arise, I will refer to the construction argument that the only relevant damage is that which occurred in the forest areas. The question is whether when using the word, "holding", reference is to the forest area or the whole of the area of the Crown Lease. 33 The document is a mix of standard conditions down to (j) and extra conditions inserted (k) to (u) to cover the existence of the forest areas. Matters which tend to indicate that "holding" is the whole lease area are as follows:-

The word is related to the grant of the whole lease. The devise is "to hold the said lands".

The use of the word, "holding" in (k) logically applies to the whole lease.

The general right to authorise logging operations in (j) is not restricted to the forest areas. See also condition (g).

Special condition (l) contemplates logging throughout the lease. 34 Matters which tend to indicate a more restrictive operation are as follows:-

A number of the conditions seem to contemplate operations only in the forest areas. See (n) and (o).

The capping provision in (n). 35 Overall when considering these matters it seems to me that the proper construction is that "holding" is a reference to the whole lease. That this is so is appropriate (although not relevant to construction) given that a large part of the lease has been logged. The calculations, if they were to be applied, should use the whole area logged on the lease. 36 Although on the conclusions I have reached it also does not arise, I think I should deal with the matters concerned with special condition (o). In considering that condition one also has to note special condition (j) which provides for the lessee to allow the logging operations. Special condition (o) imposes an obligation on the lessee to burn off fallen timber and debris on the forest area. Of course, the clause only applies to the forest area and does not apply to the whole of the lease. Certainly it would be an answer to any claim based on the forest area. 37 I turn to the Limitation Act defence. The summons in this matter was filed on 15 April 1996. There does not appear to be any evidence as to precisely when the logging was done on various sections of the lease. Logging commenced in 1986 to 1987 and continued until 2000. In the absence of any evidence identifying the particular part it is impossible to determine the extent of this defence. Liability for damages under special condition (k). 38 It is to be remembered that this claim arose from an amendment which was allowed by the Court of Appeal in its judgment. The claim is contained in paragraphs 7A to 7D of the third further amended statement of claim. The breach alleged is removal of timber from that portion of the forest area which was exempt from such operation. The calculation of the damage is based upon the value to the lease holder of the royalty interests in the timber. 39 The breach which has been pleaded depends upon the condition giving an entitlement in respect of one-third of the forest area. On its face this is not so in two respects. The words of the condition start "A proportion of the forest area not exceeding one-third". There is absolutely no evidence before me of any determination of what is the proportion. On a plain reading of the words one-third is the upper limit of the exempt area. Exemption applies to a particular proportion which is not determined in the condition. The evidence before me demonstrates that there were areas within the forest area that were not logged. See, for example, the plan Exhibit 2. In these circumstances there would appear to be no evidence of any breach. 40 It is also apparent from the condition that the exempt proportion is for a particular purpose. That purpose is to "provide a land supply for the development of the holding". These words cannot comprehend an entitlement to the commercial value to the leaseholder of the timber standing in the area. The purpose fairly obviously is to provide a supply of timber for things that might be needed in the development of the holding. Examples that spring to mind are fencing, yards and perhaps buildings. The terms of special condition (i) also support this construction. That special condition is confined to the leased area excepting therefrom any timber reserve or state forest. There was reference in the evidence to the fact that the areas which were not logged in the forest areas are on steep areas. There is absolutely no evidence that is directed to whether that timber cannot be used for the purposes of development of the holding. 41 The factual circumstances in respect of this holding also support a conclusion that there has been no damage having regard to the purpose of the reservation. The plaintiffs have never themselves used the land for grazing and their only connection with the land is through their father who has for many years carried out logging operations in the Barrington Tops area and in the Hunter Valley. The only use appears to be the unauthorised leasing of the land to a neighbour for the purposes of agistment of the neighbour's cattle. There appear to be no improvements on the land by way of yards or buildings. The evidence showed only one internal fence which was a dog fence erected along the top of a mountain ridge to prevent wild dogs accessing the balance of property. One would have thought if the breach were alleged to have been the lack of timber for the development of the holding that some evidence of such proposed development and the loss occasioned by the absence of the timber would have been provided. 42 In the circumstances it seems clear to me that there has been no breach of the terms of special condition (k). 43 The defendant obtained leave to reopen its case after the conclusion of argument. I gave reasons which refer to the problem which caused the application. These problems are the fault of the defendant in its answers to interrogatories and affidavit material. Subject to hearing submissions, the defendant should pay the plaintiffs' costs caused by this error. 44 The orders I make are as follows:- I dismiss the plaintiffs' claim for compensation under condition (n) of Crown Lease 1919/1 and damages under condition (k) of Crown Lease 1919/1. 45 I will hear argument as to costs.

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