Canterbury City Council v Roads and Traffic Authority of New South Wales

JUDGMENT (No. 2) 1 Lloyd J: On 27 February 2004, after a six-day hearing, I determined the amount of compensation to which the applicant (Canterbury City Council) was entitled following the compulsory acquisition of land by the respondent (Roads and Traffic Authority of New South Wales ("the RTA")), for the construction of the M5 East Motorway (Canterbury City Council v Roads and Traffic Authority of New South Wales [2004] NSWLEC 172). 2 The council was successful in that the amount of compensation which I determined was more than the amount offered by the RTA. As a consequence, the RTA has offered to pay the council's costs of the proceedings on the usual party/party basis. The council, however, seeks its costs of the proceedings on an indemnity basis. The question for determination, therefore, is whether the council is entitled to an order for costs on an indemnity basis. 3 The council's argument is twofold. Firstly, it says that the RTA steadfastly adopted an opinion of its valuer, which was wholly unreasonable. Secondly, and as part of what the council says amounts to unreasonable conduct, it relies upon two written offers of compromise which it sent to the RTA's solicitors shortly before the hearing, which were not accepted by the RTA in accordance with the principle explained in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586. Unreasonable conduct? 4 The land that was compulsorily acquired comprised many allotments along the route of the M5 East Motorway as it passes through the council's area. The principal question which occupied the bulk of the hearing time was the market value of a large number of allotments listed in Schedule 1 to the notice of acquisition. The council claimed (in its points of claim) total compensation of $6,653,500.00, of which $5,160,000.00 was for the various allotments listed in Schedule 1 ("the Schedule 1 land"). This was based upon a market value of $350.00 per square metre. The council also made an alternative claim to the Schedule 1 land having regard to a previous decision of Pearlman J (Canterbury City Council v Roads and Traffic Authority of New South Wales [2002] NSWLEC 161). That case was concerned with a claim for rental value of the land, in which her Honour made a 50 per cent deduction in the market value to take account of its classification as community land under the Local Government Act 1993. The council's alternative claim to the Schedule 1 land on this basis was $2,580,000.00 based on a market value of $175 per square metre. At the hearing, however, the council's valuer did not support the claim based on a market value of $350.00 per square metre and contended only for a market value of $175.00 per square metre, after making allowance for the 50 per cent deduction. 5 The RTA, in its points of assessment of compensation, offered $1,400,000.00 for the land listed in Schedule 1, which was based on a market value of $50.00 per square metre. The RTA's valuer accepted that, as an alternative basis, the market value may be $175.00 per square metre, but the RTA and its valuer propounded the primary proposition that the market value was $50.00 per square metre. 6 The discount factor of 50 per cent is a reflection of what Pearlman J decided in determining the value of a leasehold interest that the RTA had previously acquired in the same land (Canterbury City Council v Roads and Traffic Authority of New South Wales [2002] NSWLEC 161). Her Honour determined the market value of the land as at 3 April 1998 as $250.00 per square metre, which was then discounted by 50 per cent to take account of the statutory restrictions on the use and alienation of community land. The same land was subsequently compulsorily acquired on 28 March 2002, resulting in the claim that was heard and determined by me. It is self-evident that land values had changed in the intervening four years. 7 I determined the market value of the Schedule 1 land, after taking into account the discount factor of 50 per cent, as $175.00 per square metre, resulting in compensation for that land of $2,900,000.00 and which was later amended under the slip rule to $2,665,075.00. In other words, I accepted the alternative basis propounded by the council and its valuer. 8 Mr P C Tomasetti, appearing for the council, submits that it was wholly unreasonable for the RTA to contend: (a) for compensation based upon $50.00 per square metre; (b) for a sum lower than that which had been adopted by Pearlman J as the basis for determining the value of the leasehold interest, namely $125.00 per square metre; (c) for a sum lower than that which had been adopted by Talbot J in determining the value of neighbouring land in Hurstville, also $125.00 per square metre; (d) for compensation at $50.00 per square metre following the council's offers of compromise; (e) for a sum lower than that which the RTA agreed to be compensated by Transgrid, following the compulsory acquisition by Transgrid of part of the subject land in March 2003. Transgrid had compulsorily acquired part of the subject land by notice of acquisition in March 2003, and by deed dated 15 September 2003 between Transgrid and the RTA, the RTA's claim for compensation was settled on the basis of a market value of $175.00 per square metre. Consideration 9 The Court will not lightly depart from the standard practice in the awarding of costs (Degmam Pty Ltd (In Liq) v Wright (No. 2) [1983] 2 NSWLR 354 at 358 per Holland J). It will be appropriate to award indemnity costs, however, where a party, properly advised, should have known that it had no chance of success (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J). Indemnity costs may also be awarded if there is an element of abuse of process, or the proceedings have been maintained for some ulterior or extraneous purpose, or there is some evidence of unreasonable conduct (MGICA (1992) Ltd v Kenny & Good Pty Ltd (No. 2) (1996) 70 FCR 236 at 240-241). As to unreasonable conduct, the ordinary basis for costs orders should only be departed from where the conduct is "plainly unreasonable" (Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No. 2) [1999] NSWCA 133, LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 at [108], [119]). I shall consider each of the matters raised by the council in turn. The earlier judgments 10 The RTA and its valuer abandoned reliance on any of the sales which were relied upon in the cases before Pearlman J and Talbot J. The RTA's valuer had a new set of sales, although in the end result they were found by the Court not to be comparable to the subject land. 11 In the present case the RTA was hoping to persuade a judge of the Court that its valuer had found some comparable sales which justified the approach that it took in the proceedings. In relying on those sales, it could not be said that the case that was argued on behalf of the RTA was hopeless, or that it was not supported by any evidence. 12 In the present case it cannot be said that in relying on these new comparable sales the RTA, properly advised, should have known that it had no chance of success. Neither can it be said that the RTA's conduct was plainly unreasonable on this basis. Unlike some cases in which orders for costs have been made on an indemnity basis, the RTA at least had expert evidence to back up its position. The RTA and its valuer were fully entitled to argue that the sales upon which they relied ought to be accepted. The fact that the Court was not persuaded by the expert evidence does not mean that the RTA case was either hopeless or plainly unreasonable on this basis. The offers of compromise 13 In considering whether the conduct of the RTA was unreasonable, it is also necessary to have regard to the Calderbank offers to which I now turn. 14 On 20 August 2003 - five days before the hearing commenced - the council's solicitors wrote to the RTA's solicitors asking whether the RTA would be prepared to settle the matter on the following basis: That compensation be based on: 1. a market value of $175.00 per square metre for the whole of the land acquired in Schedules 1 and 3 (excluding Lot 270); 2. a 6% rental at 10% in respect of the 2-year leasehold acquisition (which we note is already applied by both valuers); 3. Lot 270 be valued at 346,000.00 ; and 4. Disturbance determined at $30,000.00 . 15 The letter stated that if the RTA were to contest the hearing claiming a market value of anything less than $175.00 per square metre then the council would press for costs on an indemnity basis. The letter sought an acceptance of the offer by close of business on 23 August 2003. 16 It seems that this letter was then superseded by another letter written by the council's solicitors to the RTA's solicitors on the following day, 21 August 2003. The letter sets out an argument for rejecting the value of $50 per square metre adopted by the RTA's valuer. The letter then continues: In any event we are instructed that the Council will still accept compensation at the rate of $175 per square metre for all but lot 270 under s 55(1)(a) [of the Land Acquisition (Just Terms Compensation) Act 1991]. To be added to that is the figure of $350,000 for lot 270. To be added to that figure is the sum of $88,750 for the claim for damage to lot 58 under s 55(1)(f) [of the Land Acquisition (Just Terms Compensation) Act 1991]. The council also seeks $30,000 for disturbance costs and its legal costs incurred to date in preparing for these proceedings. In addition the council claims $476,000 (a figure we believe is agreed if the land value is $175 per square metre) for the leasehold land in Schedule 3. … We intend to rely upon this letter in the accordance with the principles set out in Calderbank v. Calderbank [ [1975] 3 WLR 586, [1975] 3 All ER 333]. 17 These letters must be compared with the finding of the Court, which are as follows: The amount of compensation under the Land Acquisition (Just Terms Compensation) Act 1991 is determined as follows: (a) In relation to the land described in Schedule 1 of the Notice of Acquisition dated 28 March 2002, other than Lot 270 in deposited plan 16265, the sum of $2,665,075. (b) In relation to the leasehold interest in the land described in Schedule 3 of the Notice of Acquisition dated 28 March 2002, the sum of $480,000. (c) By consent, in relation to Lot 270 in deposited plan 6265, the sum of $346,000. (d) In relation to Lot 58 in deposited plan 14705, pursuant to s 55(f) of the Land Acquisition (Just Terms Compensation) Act 1991 , the sum of $30,000. (e) By consent, disturbance under s 55(d) of the Land Acquisition (Just Terms Compensation) Act 1991 in the sum of $15,000. 18 A comparison of the offer contained in the letter of 21 August 2003 and the finding of the Court discloses the following: Offer Findings (a) Schedule 1 land $2,665,075.00 $2,665,075.00 ($175.00 per square metre) ($175.00 per square metre) (b) Schedule 3 land $476,000.00 $480,000.00 (c) Lot 270 $350,000.00 $346,000.00 (d) Lot 58 - (s 55(f) of the Land Acquisition (Just Terms Compensation) Act 1991) $88,750.00 $30,000.00 $30,000.00 $15,000.00 (e) Disturbance - (s 55(d) of the Land Acquisition (Just Terms Compensation) Act 1991)

20 The second point to be noted is that the letters do not amount to offer of compromise within the meaning of Pt 22 or Pt 52A r 22 of the Supreme Court Rules 1970 (which applies in this Court by dint of Pt 13 r 27 of the Land and Environment Court Rules 1996). 21 It follows that the offers are not capable of triggering the automatic result in Pt 52A r 22 of the Supreme Court Rules 1970. Nevertheless, the making of the offers should be taken into account in the exercise of the Court's broad discretion as to costs. 22 In Hofer v Howell (2001) 113 LGERA 391, I noted (at 397) that although there are policy arguments in favour of putting the makers of compromise offers in a better position in relation to costs, these alone are not sufficient to justify departure from the well settled principles relating to costs. I further said that the rejection of a reasonable offer is only one consideration among many to be taken into account in determining whether there are special circumstances justifying an order for indemnity costs. These comments were expressly adopted by the Court of Appeal in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 at [118] (per Young CJ in Eq, Meagher and Hodgson JJA concurring). 23 An order for indemnity costs is not justified in the present case based on the so-called Calderbank letters alone. It is necessary to determine whether there is another additional matter which can be taken into consideration in determining whether indemnity costs should be awarded. The Transgrid transaction 24 There is a Treasury Directive that where property is transferred between government departments, the compensation for that property must be calculated at market value. In March 2003, Transgrid, a government department responsible for the electricity network in NSW, acquired part of the subject land from the RTA. On 15 September 2003, Transgrid and the RTA agreed to compensation based on a market value of $175.00 per square metre. This agreement occurred while this matter was part heard. When the hearing resumed in February 2004, the RTA did not retract its claim for compensation on the basis of $50.00 per square metre. 25 I consider this conduct to be plainly unreasonable. The RTA was not justified in persisting with its claim for $50.00 per square metre once it had agreed to a market value of $175.00 concerning part of the subject land, notwithstanding that this was a separate transaction. This was not merely comparable land, but the subject land itself. It was unreasonable for the RTA to claim the lesser sum when it had already acknowledged that the market value of the land was $175.00 as at March 2003, a mere twelve months after the subject acquisition occurred. 26 In determining whether to make an order for indemnity costs I must take into account all the circumstances. Although the offers made by the council did not qualify as offers under the Calderbank principle, they still constitute reasonable offers. Even though the Court found for an amount that was more than that offered by the council, the difference was minor. Moreover, these offers were made a few weeks prior to the date that the deed of settlement that was signed between the RTA and Transgrid. The RTA's refusal to respond to the offer in some positive way and its decision to persist in its claim on the basis of $50.00 per square metre constituted unreasonable conduct in light of these circumstances. The respondent's persistence in contending for a value of $50.00 per square metre following the Transgrid transaction resulted in an extra three days of hearing, causing unnecessary costs to the parties and unnecessary time to the court. I am satisfied that these factors constitute special circumstances to justify a departure from the usual order for costs. Indemnity costs should be ordered from the date of the Transgrid settlement as a result of the RTA's unreasonable conduct. Orders 27 The formal orders of the Court are: (1) The respondent pay the applicant's costs up to but not including 15 September 2003, on a party/party basis. (2) The respondent pay the applicant's costs from 15 September 2003 inclusive, on an indemnity basis. (3) The respondent pay the applicant's costs of the notice of motion for costs. I hereby certify that the preceding 27 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.

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