Buchanan; Kapanke; Moyle v Sutherland Shire Council

30292 of 2005 APPLICANTS: Trudie Leonie Kathleen Moyle and Gregory John Moyle

RESPONDENT: Sutherland Shire Council

FILE NUMBER(S) : 30290; 30291; 30292 of 2005

KEY ISSUES: Compulsory Acquisition of Land :- settlement agreement - construction - alternatively whether applicant entitled to withdraw offer of compromise

Land Acquisition (Just Terms Compensation) Act 1991, ss 55(d), 59(a) and (b) LEGISLATION CITED: Land and Environment Court Rules 1996 Pt 13 r 27 Supreme Court Rules 1970 [as in force immediately prior to the commencement of the Supreme Court Rules (Amendment No 405) 2005 ] Pt 22 rr 1, 3(6) , Pt 52A r 22

Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349; CASES CITED: Halloran and Sealark Pty Ltd v Shoalhaven City Council [1999] NSWLEC 259; Roberts v Rodier [2006] NSWSC 1084

APPLICANTS: Mr J Webster SC SOLICITORS Burrell Solicitors LEGAL REPRESENTATIVES: RESPONDENT: Mr J Ayling SC SOLICITORS Home Wilkinson Lowry

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

JUDGMENT INTRODUCTION 1 HIS HONOUR: In these three related matters the applicants lodged objections with the Court against the amount of compensation offered by the respondent council for its compulsory acquisition of their lands under the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act). Now before the Court are competing motions for entry of judgment pursuant to a settlement agreement in each matter. The first issue is whether, on the proper construction of each settlement agreement, the applicant is entitled to recover legal and consultants costs which constitute loss attributable to disturbance under ss 55(d) and 59(a) and (b) of the Just Terms Act. If not, the applicants alternatively seek leave, which is opposed, to withdraw their offers of compromise notwithstanding their acceptance.

2 The relief sought is illustrated by the applicants' amended notice of motion in the Buchanan case: 1. Judgment be entered for the plaintiff in the sum of $207,368 and costs to be agreed or assessed, such costs to include all legal and consultant costs arising from or relating to the acquisition of the subject land by the respondent. 2. Alternatively leave be granted pursuant Pt 22 Rule 3(6) of the Supreme Court Rules to withdraw the Offers of Compromise made by the applicants in the letter from Burrell Solicitors dated 31st January 2007 and Offers of Compromise filed 31st January 2007.

3 The contentious words in paragraph 1 are "such costs to include all legal and consultant costs arising from or relating to the acquisition of the subject land by the respondent".

4 As regards the alternative claim, Pt 22 of the old Supreme Court Rules (immediately prior to the Supreme Court's adoption of the Uniform Civil Procedure Rules 2005) and Pt 52A to which Pt 22 refers, are at the present time incorporated by reference into the Land and Environment Court Rules 1996: Pt 13 r 27. The ground for leave to withdraw the offers of compromise is said to be the applicants' solicitor's mistaken belief (assuming the Court is against the applicants' construction) that when he made the offers of compromise they included legal and consultants costs which constitute losses attributable to disturbance under the Just Terms Act.

5 Thus, the distinction at the heart of the dispute is between legal and consultants costs under the Just Terms Act, on the one hand, and legal and consultants costs which are costs of the proceedings, on the other hand. The former do not form part of the legal costs of the proceedings: Halloran and Sealark Pty Ltd v Shoalhaven City Council [1999] NSWLEC 259.

6 Sections 55 and 59 of the Just Terms Act relevantly provide: 55 In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): … (d) any loss attributable to disturbance, …

59 In this Act: loss attributable to disturbance of land means any of the following: (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, (b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land, … 7 Parts 22 and 52A of the old Supreme Court Rules facilitate the early compromise of proceedings by allowing parties to make offers of settlement which can be taken into account in relation to costs. On acceptance of the offer, the applicant, unless the court otherwise orders, is entitled to its costs up to and including the day the offer was accepted: Pt 52A r 22(1). If the offer of compromise is not accepted, the applicant, unless the court otherwise orders, is entitled to indemnity costs from the day the offer was made if judgment is no less favourable than the offer: Pt 52A r 22(4). There is conflict with these provisions if an offer is made inclusive of costs: Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 at 351. There is also conflict if the offer of compromise provides for a particular sum for costs without assessment: Roberts v Rodier [2006] NSWSC 1084 (Campbell J) (a case concerning a Calderbank offer where similar principles have been adopted). The conflict is resolved by the following rules treating the offer as of no effect for any purpose under Pt 22 Div 1 r 1 or Pt 52A r 22: Part 22 Offer of Compromise

(a) this Division does not apply to an offer to compromise a party's entitlement, under the rules or an order, to costs, and (b) if an offer of compromise made under this Division contains a term which purports to negative or limit the operation of Part 52A rule 22 (1), that offer shall be of no effect for any purpose under this Division or Part 52A rule 22.

22 (1) Upon the acceptance of an offer of compromise in accordance with Part 22 rule 3(5), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted. (2) If a notice of offer contains a term which purports to negative or limit the operation of subrule (1), that offer shall be of no effect for any purpose under Part 22 or this rule. 8 An accepted offer of compromise which falls outside Parts 22 or 52A may nevertheless be contractually effective, and may be taken into account in relation to costs if it constitutes a Calderbank offer.

THE SETTLEMENT AGREEMENTS 9 In each matter a document entitled "Offer of Compromise (LEC Part 13 and SCR Part 22)" was dated and filed on 31 January 2007. They were in identical form except as to the amount. The Buchanan offer of compromise, for example, was in the following terms: The Applicants offer to compromise the Respondent's offer by accepting a total compensation payment of $207,368 exclusive of costs.

This offer is made in accordance with Part 13 of the Land and Environment Court Rules and Part 22 Division 1 of the Supreme Court Rules 1970.

This offer is open to be accepted until 1st March 2007. 10 The offers of compromise were enclosed with a letter dated 31 January 2007 from the applicants' solicitor to the respondent's solicitor which stated in part: We enclose Offers of Compromise in these matters dated 31st January 2007. In summary, each of our clients will accept as fair and reasonable compensation, the following amounts:

27 The Crescent Kapanke $100,000 31 The Crescent Moyle $180,000 35 The Crescent Buchanan $207,368

We are instructed that our clients will settle the matter on the basis of payment to them of the above amounts plus costs being all legal and consultants costs excluding the costs specifically relating to hypothetical development scheme Option 3, such costs to be agreed or assessed including solicitor's costs on any assessment. (emphasis added) 11 This exclusion of "costs specifically relating to hypothetical development scheme Option 3" was the subject of discussion on 6 February 2007 between the applicants' solicitor, Mr John Burrell, and the respondent's solicitor, Mr Jeffery Reilly, to the following effect: Burrell: Regarding paragraph 2 of our letter of 31 January 2007 where we say that we are seeking the amounts specified plus all legal and consultant costs except those relating to Scheme 3, there is a concern that this may technically invalidate the Offers of Compromise. Do you have a problem with this?

Reilly: As far as I am concerned, the qualification about costs does not invalidate the formal Offers of Compromise.

Burrell: To be clear on it, we agree not to pursue the costs relating to Scheme 3 but want all other legal and consultant costs. (emphasis added) 12 The apparent reason for the concern expressed in this conversation was that by excluding the costs specifically relating to hypothetical scheme Option 3, the offer of compromise might be of no effect for any purpose under Pt 22 Div 1 or Pt 52A: see the rules set out at [7] above. 13 On 19 February 2007, the respondent's solicitor wrote a without prejudice letter to the applicants' solicitor. They queried whether there was any flexibility in relation to the offers of compromise and sought a further exclusion of costs relating to "proposed scheme 2". 14 On 20 February 2007, the applicants' solicitor replied in a letter which was without prejudice save as to costs, as follows: We refer to your letter of 19th February 2007 and assure you that our clients' wish to settle the matter if possible before incurring any further costs. However, the real issue is the bottom line overall including costs .

We are instructed to negotiate a comprehensive settlement that includes both compensation for the land acquired and costs incurred. Whilst there may be some room to move on our side in relation to the amount of compensation, this is largely irrelevant if they do not also substantially recover their costs. At the end of the day, our clients wish to improve their net position and not go backwards financially.

We enclose for your assistance an updated Record of Expenses and Liabilities Incurred by our clients totalling $178,836.28. If we assume that they recover on a party party basis 80% of solicitors' costs and 100% of disbursements, the amount recoverable would be $158,138.32. This equates to $52,701.11 for each case.

We therefore invite Council to offer to settle these matters on a comprehensive basis including costs, at or around the following amounts:

Kapanke $152,701 Moyle $232,701 Buchanan $260,069

We have enclosed a second spreadsheet which shows that if Council accepted our clients' current offers of compromise of 31st January 2007 and agreed to pay costs of $52,701.11 per case as requested, our clients would receive the following additional amount net over the amount offered by Council on 31st January 2005:

Kapanke $9,253.51 Moyle $24,607.02 Buchanan $36,975.02

You would have to agree, this is not a lot of money for the effort involved. However, without re-canvassing the issues, our clients had no choice but to incur their expenses to date because Council has maintained throughout that the land acquired had no residential development potential.

Finally, in relation to Scheme 2, the 16 Lot freehold subdivision, we say that it was reasonable and necessary to consider such a scheme because, amongst other things, it more or less reflects the proposal put to our clients by developer Watkins (referred to in recent affidavit sworn 1st February 2007) which entailed the acquisition of adjoining properties to the south with a new road coming off what is now the fire trail and so the costs associated with Scheme 2 can be justified. In any event, the cost of preparing Scheme 2 is largely academic if the costs incurred by our clients are substantially discounted in any final settlement and in this regard, we have already suggested a 20% discount on solicitors' fees. (emphasis added) 15 The enclosed "Record of Expenses and Liabilities Incurred" itemised amounts going back to 2003. These proceedings were commenced in 2005. 16 The respondent's solicitor accepted the offers of compromise by letter dated 22 February 2007, which relevantly stated: We refer to the above matters, and to your letter of 20 February 2007.

We are instructed to accept your offers of compromise in each matter, that is:

with each amount representing full and final settlement of your clients' claims in relation to the compulsory acquisition of their land, and with costs in each matter to be paid by Council as agreed or assessed .

In that regard, we note in particular the extraordinary figure claimed for your costs in these matters . In order to give a comparison, Council's total solicitors' costs to date, in all three proceedings, are $34,930.16.

It seems to us that whether your clients improve their net position is entirely a matter for you. Unless you are prepared to substantially reduce your costs claim, we can inform you now that the matters should proceed to assessment. … (emphasis added) POST SETTLEMENT CORRESPONDENCE 17 There followed letters dated 21 March 2007, from the applicants' solicitor to the respondent's solicitor and the latter's reply of 29 March 2007, which addressed the dispute now before the Court. The discussion continued in the final letter in evidence dated 16 April 2007 from the applicants' solicitor to the respondent's solicitor which in part stated: As previously advised, the amounts nominated in the Offers of Compromise made by our clients represent more or less the mean of the last valuations prepared for both sides. It is our understanding that these valuations prepared for both sides did not include any allowances for disturbance costs . Accordingly, it is reasonable and appropriate that our clients recover these so called disturbance costs in addition to the legal costs of the proceedings and this is the reason why our offer to you to settle the matter was deliberately qualified to include all legal and consulting costs arising from or relating to the acquisition of the subject land by the Respondent .

As to the quantum of these so called disturbance costs which are in dispute, on our reckoning these costs total $11,997 for the three matters, as set out in the enclosed without prejudice schedule .

We further advise that our letter to you of 20 February 2007 disclosed all of these costs except a Burrell Solicitors invoice S2191_2 dated 29 October 2002 for $1,335.00 which was omitted by mistake.

Of the $12,000 odd dollars in contention, $2,500 relates to a valuation opinion obtained by our clients from Kevin Gothard which was provided to Steven Halias, valuer, who undertook the valuation for compensation prepared by the Valuer-General. Enclosed is a copy of Council's letter to our firm dated 21 October 2002 in which our client was invited to obtain this valuation at Council's expense. In our view, it is indefensible for Council now to deny any liability for this expense.

We urge your client to settle the matter that is currently in dispute and avoid the cost of the Motions from both sides from being fully ventilated on 19th April 2007. We invite your client to make a reasonable financial offer to settle this remaining issue. (emphasis added) 18 The items in the enclosed schedule substantially comprised legal and valuation costs accrued prior to commencement of these proceedings, which had also been included in the schedule to the 20 February 2007 letter (with one exception). Senior counsel for the applicants acknowledged before me that the amount in issue in these proceedings is limited to the sum of $11,997 referred to in the letter and itemised in the enclosed schedule.

BELIEF OF THE APPLICANTS' SOLICITOR 19 The applicants' solicitor Mr John Burrell, gave the following unchallenged evidence, which I accept, concerning a joint statement by valuers and (relevantly to the alternative claim) as to his belief when he made the offers of compromise. 2. On 17 August 2006, I received a Joint Statement by Valuers prepared by Kevin Gothard acting on behalf of my clients and Alan Steege acting on behalf of the Respondent Council. The Statement does not address entitlement if any, to disturbance under s55(d) of the Land Acquisitions (Just Compensation)Act 1991. 3. On 30 October 2006 I received a valuation report prepared for the Applicants by Cameron Hubbard of MVS Valuers. On page 4, the author defines disturbance to include legal costs and valuation fees. On page 24, the author assesses the compensation that he considers payable with reference to market value and states in paragraph 2: In regards to other entitlements of compensation, I consider that the dispossessed owner is entitled to disturbance under s59 which has yet to be finalised. 4. I had not briefed any of the above named valuers as to any costs of the Applicants that would fall into the category of being disturbance costs. 5. I was therefore conscious that any negotiations to settle the compensation claim based on valuations prepared for either party would need to exclude legal and consultant costs incurred by the Applicants which would ordinarily be included in disturbance costs and would not be included in the legal costs of the proceedings. For this reason, when Offers of Compromise were made by me on behalf of the Applicants on 31 January 2007, I qualified the Offers in my covering letter to Abbott Tout of that date by specifically referring to lump sum amounts …plus costs being all legal and consultant costs… 6. It was my belief, at the time I made the Offers, that all costs previous to the proceedings were incorporated in the expression plus costs being all legal and consultants costs as stated in my letter of offer of 31 January 2007 and that acceptance of the Offers would mean that my clients would have obtained all the legal and consultant costs incurred subject only to assessment. 7. My letter to Abbott Tout of 20 February 2007, annexed a schedule that identified to the best of my knowledge and belief, all legal and consulting costs incurred by the Applicants arising from or relating to the acquisition of the subject land including non proceeding costs that would fall into the category of being disturbance costs. 8. On 16 April 2007, I became aware that an invoice from Burrell Solicitors totalling $1,335 had been omitted by mistake form the list enclosed with my letter of 20th February 2007. I advised Abbott Tout of this by letter dated 16th April 2007, a copy of which is annexed hereto marked A. (emphasis added) CONSTRUCTION 20 It is common ground that a settlement agreement in each matter came into existence by virtue of the acceptance letter of 22 February 2007. There is no suggestion by either party that the acceptance letter was in reality a counter-offer (which has not been accepted). 21 In my view, the applicants' solicitor's letter of 31 January 2007 made the enclosed offers of compromise conditional upon the respondent accepting the applicants' terms set out in the letter. The letter stated that the applicants "will settle the matter" on the basis of payment of the amount specified in the offers of compromise "plus costs being all legal and consultants costs excluding the costs specifically relating to hypothetical development scheme option 3". If these words include legal and consultants costs referred to in s 59(a) or (b) of the Just Terms Act, it is necessary to read the letter and each attached offer of compromise together as constituting a composite settlement offer in each matter. Under the terms of the concluded settlement agreements, the respondent is to have the benefit of the specified exclusion of option 3 costs referred o in the letter. The respondent negotiated unsuccessfully for a further exclusion of costs in its letter of 19 February 2007. However, the respondent elected on 22 February 2007 to accept the original offer. 22 The first issue is the construction of the words "plus costs being all legal and consultants costs excluding the costs specifically relating to hypothetical development scheme Option 3". In particular, do the words "plus costs being all legal and consultants costs" include legal and valuation costs referred to in s 59(a) and (b) of the Just Terms Act? The words must be construed objectively and in context. The argument for a negative answer essentially is that s 59(a) and (b) costs form part of the compensation for which the Act makes provision and each offer of compromise quantified the amount of "total compensation". 23 However, when the words in issue are construed in context and by reference to other textual considerations an affirmative answer is suggested. The first and most important contextual consideration is the legal framework which gave rise to the litigation, namely, the Just Terms Act. Sections 55(d) and 59(a) and (b) allow for recovery of "legal costs" and consulting fees of a specific type, namely "valuation fees", as losses due to disturbance. The words "all legal and consultants costs" in the letter of 31 January are wide enough to include legal costs and valuation fees referred to in s 59(a) and (b), as well as legal and consultants costs which are costs in the proceedings. Moreover, there was no need to include the words "being all legal and consultants costs" in the 31 January letter and to reiterate those words in the solicitors' discussion on 6 February unless they were intended to include costs which answered that description but which were additional to costs of the proceedings. 24 Further, the settlement offers were made against the background of the parties' joint valuation report, which quantified compensation except for losses due to disturbance. This tends to suggest that the reference in the 31 January offer letter to unquantified "legal and consultants costs", in addition to the quantified compensation sum, included such costs which constituted losses due to disturbance. Finally, the applicants' letter of 20 February included a schedule of legal and consultants costs going back to 2003 and stated that "the real issue is the bottom line overall including costs" and emphasised the "net position" of the applicants. The respondent's reply of 22 February, which accepted the offers of compromise, shows an understanding that the applicants' claim for "costs" included everything in that schedule and that they would have to be assessed if not reduced by agreement. The applicants' "bottom line overall including costs" and "net position" could hardly be assessed without regard to all costs that it had incurred including those referable to s 59(a) and (b).

25 In my opinion, on their proper construction, the words "all legal and consultants costs" in the 31 January 2007 letter meant such costs allowable as costs of the proceedings as well as such costs allowable under the Just Terms Act as items of disturbance under ss 55(d) and 59(a) and (b).

26 Senior counsel for the applicants acknowledged during the hearing before me that the latter category, as assessed or agreed, is restricted to the items totalling $11,997 referred to in the applicants' solicitor's letter of 16 April 2007.

27 The respondent council submitted that compensation for disturbance is recoverable under the Just Terms Act only as part of a single sum awarded for compensation and that the Court has no power to compel the respondent to pay sums under s 59(a) or (b) in addition to a sum for compensation. It is unnecessary to rule on this submission because I propose to give effect to the settlement agreement by making declarations which accommodate the single compensation sum principle to which the submission is directed. Where, as in the present case, parties have agreed to settle proceeding under the Just Terms Act by payment of a specified sum for compensation and, in addition, payment of costs being losses attributable to disturbance as described in s 59(a) or (b), the Court can and should mould its relief to give effect to the agreement.

ALTERNATIVE CLAIM 28 As my construction favours the applicants, it is unnecessary to consider the applicants' alternative claim for leave to withdraw their offers of compromise. However, I think that it would fail at the threshold. It depends upon a finding that the offers of compromise come within and are effective for the purposes of Pt 22 Div 1. On that basis the applicants rely on Pt 22 r 3(6) which provides that "An offer shall not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders." In order to come within Pt 22, an offer of compromise should comply, at least substantially, with the formal requirements of Pt 22 r 1A(2)(a) which requires that an offer of compromise shall be prepared in accordance with Pt 65 rr 1 - 4 (which prescribe the form of Court documents) and shall bear a statement to the effect that the offer is made in accordance with Pt 22 Div 1. Contrary to that rule, on the finding that I have made, part of each applicant's offer of compromise related to legal and consultants costs which constituted losses due to disturbance under the Just Terms Act, but that part was not in the document entitled "Offer of Compromise" but in the accompanying letter. Consequently, in my view, the offers of compromise, in the real and wide sense of including the terms in the accompanying letter, were outside the contemplation of Pt 22.

DECLARATIONS AND ORDERS 29 In each matter, I make the following declarations and orders:

1. Declaration that the respondent is liable to pay the applicants' legal and consultants costs under s 59(a) and (b) of the Land Acquisition (Just Terms) Compensation Act 1991, as agreed or assessed. The applicants' claim for such costs is limited to the items in the schedule to the letter dated 16 April 2007 from Burrell Solicitors to HWL Lawyers.
2. Declaration that the respondent is entitled to have judgment entered for the total of (a) the legal and consultants costs referred to in declaration 1, when they are agreed or assessed, and (b) the amount of compensation specified in the applicants' offer of compromise dated 31 January 2007.
3. Order that the respondent pay the applicants' costs of the proceedings as agreed or assessed excluding the costs specifically relating to hypothetical development scheme option 3.
4. Grant liberty to apply on five days notice. Such liberty may be exercised for the purpose of seeking the Court's assessment of the legal and consultants costs referred to in declaration 1 if they are not agreed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.