Croghan v Blacktown City Council

Court of Appeal (NSW)|2019-09-03|Before: Meagher JA, McCallum JA, Molesworth AJ

Uniting Church in Australia Property Trust (NSW) v Takacs (No 2) [2008] NSWCA 172 White Industries Qld v Flower & Hart (a firm) (1998) 156 ALR 169 Category: Principal judgment Parties: Alan Croghan (Applicant) Blacktown City Council (Respondent) Representation: Counsel: M Hall SC / M Evetts (Applicant) N Eastman (Respondent)

Solicitors: Project Lawyers (Applicant) Matthews Folbigg (Respondent) File Number(s): 2019/72722 Publication restriction: Nil Decision under appeal Court or tribunal: Land and Environment Court Citation: [2019] NSWLEC 9 Date of Decision: 07 February 2019 Before: Molesworth AJ File Number(s): 2016/357169

headnote [This headnote is not to be read as part of the decision] On 12 August 2016, the respondent Council compulsorily acquired part of the applicant's land. The Valuer-General determined the amount of compensation to which the applicant was entitled to be $4.8 million. The applicant objected to that amount and commenced Class 3 proceedings in the Land and Environment Court, initially seeking compensation of $11.1 million before reducing his claim to $8.4 million shortly before the hearing in February 2018. In the result, the primary judge awarded the applicant compensation totalling $4.2 million. The primary judge subsequently ordered that the Council pay the applicant's costs of the proceedings on the ordinary basis until 27 September 2017 and, with one minor exception, the applicant pay the Council's costs on an indemnity basis thereafter. On that date, the Council made a formal offer of compromise under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.26 to resolve the proceedings for $5.2 million. That offer was not accepted. In making costs orders in accordance with UCPR r 42.15(2), the primary judge declined to exercise his discretion to "order otherwise". The applicant sought leave to appeal from those orders. The principal issue was whether, in determining whether to "otherwise order" under UCPR r 42.15, the primary judge erred in not considering whether in all the circumstances the applicant had acted reasonably in not accepting the offer of compromise. Held, granting leave to appeal and allowing the appeal (Meagher JA, McCallum JA and Simpson AJA agreeing): (i) By addressing the question of "the reasonableness of the conduct of the applicant in pursuing his claim", the primary judge erred in exercising the costs discretion under UCPR r 42.15. The proper exercise of that discretion directs attention to whether it is just and fair that the applicant should pay the costs of the proceedings from the date of the offer of compromise and on an indemnity basis, taking into account the nature of the proceedings, the circumstances in which that offer was made and not accepted, and the purposes of the offer of compromise provisions: [20], [35]. Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721; Morgan v Johnson (1998) 44 NSWLR 578 referred to. (ii) The Court should order "otherwise" under r 42.15. The applicant acted reasonably in not accepting the offer of compromise. At that time, the parties had not formulated their respective positions in pleadings and no expert reports, joint or otherwise, had been exchanged. In those circumstances, the applicant and his advisors could not assess the position taken by the Council by reference to the evidence it proposed to rely on, or make a realistic assessment of the likely outcome of the litigation: [36], [37]. (iii) The Council should pay the costs of the proceedings in the Land and Environment Court. The presumption that costs follow the event does not apply to Class 3 proceedings in recognition of the unique position of a claimant in compulsory acquisition compensation proceedings. The applicant did not act unreasonably in pursuing his claim for compensation. He was entitled to rely on the evidence of the experts retained in his case and the advice of his legal representatives concerning that evidence. UCPR r 1.5, Sch 1; Minister for Environment v Florence (1979) 21 SASR 108; Banno v Commonwealth (1993) 45 FCR 32; Dillon v Gosford City Council [2011] NSWCA 328; (2011) 184 LGERA 179 discussed. Brock v Roads and Maritime Services [2012] NSWCA 404; (2012) 191 LGERA 267 referred to.

Judgment

MEAGHER JA: This is the concurrent hearing of an application for leave to appeal and, if leave is granted, the appeal from costs orders made in Class 3 proceedings in the Land and Environment Court. That appeal is limited to questions of law and does not lie, except by leave of the Supreme Court: Land and Environment Court Act 1979 (NSW) (LEC Act), ss 57(1), (4)(f). The power of the Land and Environment Court to award costs in the exercise of that jurisdiction is conferred by the Civil Procedure Act 2005 (NSW), s 98. However whilst the rules relating to the making of offers of compromise (Uniform Civil Procedure Rules 2005 (NSW) (UCPR), rr 20.25-20.32) and the costs consequences of the making of such offers (rr 42.13-42.18) apply to the exercise of that power, the presumption that in such proceedings costs follow the event (r 42.1) does not: r 1.5, Sch 1. The challenged costs orders were made in accordance with UCPR, r 42.15, the applicant, Mr Croghan, having rejected an offer of compromise made by the respondent Council and having then obtained a judgment for compensation which was less than the amount of that offer: Croghan v Blacktown City Council (No 2) [2019] NSWLEC 9 (Judgment (2)).

The costs orders

In the underlying proceedings the applicant sought compensation under Pt 3 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act) for the compulsory acquisition of part of his undeveloped land at Windsor Rd, Vineyard. Nine months before that acquisition on 12 August 2016 the Council by Deposited Plan 1214817 effected the subdivision of that land into three lots - the acquired lots 10 and 11 with frontages to O'Connell St to the west, and the retained lot 12 with its frontage to Windsor Rd, but no frontage to any other road.
The Class 3 compensation proceedings were commenced in late November 2016, the hearing proceeding in mid-February 2018. On 27 September 2017, the Council made a formal offer of compromise under UCPR r 20.26 to resolve the proceedings for $5,246,204 plus legal costs "as agreed or assessed on a party/party basis". That offer was open for a period of 28 days and not accepted. The applicant was awarded compensation totalling $4,227,314, being $4,195,000 for the market value of lots 10 and 11 and $32,314.98 for loss attributable to disturbance: Croghan v Blacktown City Council [2019] NSWLEC 2; (2019) 237 LGERA 227 (Judgment (1)).
Rule 42.15 relevantly provides: 42.15 Where offer not accepted and judgment no more favourable to plaintiff (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise: (a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
The primary judge declined to "order otherwise" with the consequence, following the applicant's non-acceptance of the Council's offer and the entry of judgment for a lower amount, that the Council's prima facie entitlement under r 42.15(2) prevailed. The Council was ordered to pay the applicant's costs assessed on the ordinary basis up to 27 September 2017, and, with one minor and irrelevant exception, the applicant was ordered to pay the Council's costs on an indemnity basis from 28 September 2017.
The primary judge's reasons for not ordering otherwise focus on whether the applicant had acted reasonably in pursuing his claim to judgment, that assessment being made in the light of the Court's final determination, as the following extracts from Judgment (2) show: 61… In this case, the Notice of Claim originally sought $11,157,252.00 and was maintained until the joint conferencing just four days before the primary hearing when the claim was reduced on the basis of Mr Phippen's revision of the figure to $8,405,752.00. It is well to be reminded that the Valuer-General's Determination of Compensation was $4,802,000.00, the Offer of Compromise was $5,246,205.00, and the Court's final award was $4,227,314.98. The most relevant focus in the Court's opinion should be on the Offer of Compromise. Here the Applicant has secured an award substantially less than the Offer of Compromise which could not, in the Court's opinion, be considered low. 63… I am of view that the relevant yardstick to determine the reasonableness of the conduct of the Applicant in pursuing his claim is not the figure appearing in the Points of Defence filed a mere working-day before the primary hearing commenced [$3,947,314], rather it is the Offer of Compromise which the Applicant chose to allow to lapse, which was for a figure nearly half a million dollars greater than the Valuer‑General's Determination and more than a million dollars greater than the Court's final determination of compensation payable.

The proposed grounds of appeal

There are three proposed grounds of appeal. The first is that the primary judge erred in his application of r 42.15 in a Class 3 proceeding by failing in that context to have regard to the principles referred to in Dillon v Gosford City Council [2011] NSWCA 328; (2011) 184 LGERA 179 and Tempe Recreation (D.500215 & D.1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449; [2014] NSWCA 437. The argument made in support of this proposed ground is that in exercising the power to "otherwise order" under r 42.15 the primary judge erred in not considering whether in the circumstances, the applicant acted reasonably in not accepting the offer of compromise. Although stated in general terms, this proposed ground supports the applicant's contention that when determining whether to "otherwise order" the primary judge erred in not addressing that question. This narrower formulation of ground 1 as argued raises matters of general importance, and justifies a grant of leave.
The remaining two proposed grounds of appeal do not. Neither correctly characterises what the primary judge did in the exercise of the costs discretion. As to proposed ground 2, his Honour did not apply any presumption that costs should follow the event. Nor did he approach the question of costs by reference to any analysis which treated the offer of compromise rules as specifying the "event" from which costs should follow: cf the obiter observations of Basten JA in Cooee Communications Pty Limited v Primus Telecommunications Pty Limited (No 2) [2008] NSWCA 85 at [13] and Miwa Pty Limited v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]. As to proposed ground 3, whilst his Honour did describe the Valuer-General's determination as "highly material", he did not make the challenged costs orders by reason alone of the applicant's failure to obtain compensation which exceeded that determination. Leave to appeal on these grounds should be refused.
For the reasons which follow the appeal on ground 1 should be allowed, making it necessary for this Court to re-exercise the costs discretion.

Relevant principles

There was not much attention, either before the primary judge or in this Court, to the principles which apply to the exercise of the discretion conferred by r 42.15 to "order otherwise".
It is convenient to start with the statement of those principles by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581-582: (1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital [(1992) 27 NSWLR 721] (at 725-726); Hillier [(1995) 36 NSWLR 414] (at 421, 431). (2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724). (3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve [(1993) 42 NSWLR 100] (at 102); Hillier (at 422). This is because, from the time of non-acceptance "notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise": Maitland Hospital (at 724); see also Hillier (at 420). (4) Lying behind the rule is the common knowledge that "litigation is inescapably chancy": Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). … (5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for "otherwise ordering": Hillier (at 419); Quach [(Court of Appeal, 15 June 1995, unreported)].
In ordinary litigation, where the presumption that costs follow the event applies, a significant consideration in determining that an order "otherwise" is justified is whether in the circumstances the offeree acted reasonably in rejecting the offer, although it is recognised that it may not be sufficient to justify such an order that the offeree reasonably believed at the time that it was justified in rejecting the offer: see New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102; The Uniting Church in Australia Property Trust (NSW) v Takacs (No 2) [2008] NSWCA 172 at [15], [18], [31]; Leach v Nominal Defendant (QBE Insurance (Australia) Limited) (No 2) [2014] NSWCA 391 at [48]; Aukuso v Tahan (No 2) [2018] NSWCA 302 at [60] - [62]. A similar approach is taken to the exercise of the costs discretion in the face of the rejection of an informal offer, although in such a case there is no presumption that the offeree who does not accept, and does not obtain a more favourable judgment, will pay indemnity costs from the date of the offer: Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25]; Miwa at [8]; and Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [32]-[36], [60].
In Fairall v Hobbs (No 2) [2017] NSWCA 133, where it was accepted that the presumption in r 42.15 might be displaced "by demonstrating that the rejection of the offer was reasonable", the Court described the matters relevant to such an assessment as including: …where the full parameters of the dispute are still uncertain at the time of the offer: Equity 8 Pty Limited v Shaw Stockbroking Limited [2007] NSWSC 503 at [42]; or where the offeror's case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85]; or where all relevant evidence has not been served before the offer: Vale v Eggins (No.2) [2007] NSWCA 12 at [22].
And in Aukuso at [71], [73] in relation to an offer of compromise made in an appeal, the late service of appeal books which deprived the offeree's legal advisers "of any reasonable opportunity to consider the offer in light of all relevant material" ultimately justified a departure from the prima facie consequence of its non-acceptance.
However as Wells J explained (at 134) in Minister for Environment v Florence (1979) 21 SASR 108, the position of a claimant in compulsory acquisition compensation proceedings is different from that of a plaintiff in ordinary litigation. That claimant is given the right to claim compensation but has no choice as to whether to make a claim to enforce that right or not. His Honour continued: Upon an ordinary claim in the general jurisdiction it is, generally speaking, obvious who has won and who has lost, and correspondingly clear why costs usually follow the event. Upon a claim for compensation for land compulsorily acquired, it is not, generally speaking, appropriate to speak of one party as having won; compensation is awarded to one who has already been given, by statute, the right to receive it. It is therefore as just to say of the latter sort of case that the claimant ought, in the absence of special circumstances, to receive his reasonable costs of obtaining the compensation that is, ex hypothesi, his due as it is to say of the former sort of case that prima facie costs follow the event in favour of the party who has won.
Similar observations were made by Wilcox J of the compensation claim made in Banno v Commonwealth of Australia (1993) 45 FCR 32 at 51: But this is not ordinary litigation. The relationship between the parties giving rise to the litigation did not arise out of their mutual desire; it arose because of a unilateral decision of the Commonwealth to acquire the applicants' land in order to satisfy a perceived public need. The acquisition left the applicants in the position of either accepting the Commonwealth's assessment of the proper compensation or of having the Court rule on its adequacy.
The Just Terms Act confers a right to compensation for compulsorily acquired land (s 37), guarantees that the amount of compensation will be not less than market value assessed under that Act (ss 3, 10) and provides for the former owner to be given an offer of compensation determined by the Valuer-General and to be informed of its right to object to the amount offered (ss 41, 42, 43 and 47). That right is exercised by lodging an objection with the Land and Environment Court which must then hear and determine that claim (s 66); and in proceedings to which the rule that costs follow the event does not apply.
Accordingly, as was observed in Dillon (at [70], [71] per Basten JA), the relevant principles provide that the "owner who has been compulsorily dispossessed is entitled to take reasonable steps to seek the judgment of the Court in respect of the adequacy of any compensation offered"; and, consistent with there being no general presumption that costs should follow the event, that owner is usually entitled to recover the costs of the proceedings "having acted reasonably in pursuing [them] and not having conducted them in a manner which gives rise to unnecessary delay or expense". Applying these principles, in Brock v Roads and Maritime Services [2012] NSWCA 404; (2012) 191 LGERA 267 this Court held at [95] - [99] (Tobias AJA) that the claimant was entitled to her costs of the proceedings at first instance, she having acted reasonably in seeking the judgment of the Court in respect of the adequacy of the respondent's offer based on the Valuer-General's determination, and notwithstanding that she had obtained less than the amount of that statutory offer.
Thus, in relation to the application of the offer of compromise provisions, Class 3 compensation proceedings are not "the ordinary" case. Nevertheless they are subject to the provisions concerning the costs consequences of offers of compromise (rr 42.13-42.18) and effect must be given to their purpose, being to encourage the compromise of such proceedings, by obliging the offeree to give serious consideration to the risk involved in non-acceptance of the offer, thereby providing the acquiring authority with an opportunity to bring about the early resolution of the proceedings and their attendant risk of an adverse costs order.
The exercise of the power to displace the application of r 42.15(2) directs attention to the circumstances in which the offer of compromise was not accepted and whether it is just and fair that the offeree who rejected an offer, later taken by the Court's judgment to have been reasonable, should pay the costs of the proceedings from the date of that offer, and on an indemnity basis: Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Kirby P Mahoney JA and Samuels AJA); Morgan v Johnson at 581-582. Those circumstances include that such proceedings are not simply between individual litigants pursuing private interests and that the acquiring authority is notionally the "real cause and occasion of the litigation", at least where the claimant has acted reasonably in rejecting the offer and pursuing the proceedings.
With respect to the time when the offer is made, this Court also emphasised in Maitland Hospital (at 725): The rule does no more than oblige litigants, and those advising them, to consider realistically, upon the best information available to them, the prospects of success and the likely outcome of the litigation... The purpose of the rule is to put a premium on realistic assessment of cases. It is not to demand perfect foresight which is denied even to the judges. That is why a discretion is retained, under the rules, for the Court to order otherwise than as the rule provides. But the ordinary provision is expected to apply in the ordinary case.
It follows that a relevant matter is the extent to which the claimant and its legal and other advisers are in a position at the time the offer is made to make an assessment of the likely outcome of the litigation. Ordinarily that will require that the issues on which that outcome depends are able to be determined, and that the lay and expert evidence of the parties directed to those issues has been exchanged or otherwise made available. This is particularly so where the claimant's justification in bringing the proceedings is to test the adequacy of the statutory compensation offered.
Before ground of appeal 1 can be addressed, it is necessary to understand the course of the compensation proceedings, and in particular the position between the parties at the time the offer of compromise was made.

The course of the proceedings

At the time the offer of compromise was made in September 2017 the applicant's claim to compensation of $11,157,251, at least formally, remained as first made to the Council in July 2016. It included $5,975,000 as the market value of lots 10 and 11, and $5,150,000 being the reduction in the value of the retained lot 12 because of uncertainty as to its vehicle access to Windsor Rd. That claim was originally for loss attributable to severance (s 55(c)). It was later reformulated as being for the decrease in the value of that retained lot (s 55(f)). There was also a small claim to "disturbance costs" totalling $32,314.
In October 2016 the Valuer-General's determination of the amount of compensation ($4,802,000, including $4,791,000 for market value that in turn included $343,300 for a decrease in the value of lot 12), and its supporting valuation of Mr Venter, was served on the applicant. The applicant's claim and objection to that compensation notice, commencing the proceedings in the Land and Environment Court, was filed on 29 November 2016. The Council also did not accept the Valuer-General's determination and filed its notice to that effect in early February 2017, at the time of the first directions hearing.
At that time the applicable practice note of the Land and Environment Court (Practice Note Class 3 Compensation Claims effective from 15 July 2011) proposed that the "usual" directions to be made at the first directions would provide for the exchange of lay and expert evidence, as well as the preparation of joint experts' reports, followed by the filing of points of claim and points of defence; and that there would then be a settlement or conciliation conference before the second directions hearing at which a hearing date would be fixed. The directions made in the current proceedings did not follow that suggested chronology and instead adopted a timetable more consistent with that proposed by the current practice note in that Court (Practice Note Class 3 Compensation Claims dated 15 March 2019). Between April and July 2017 the parties participated in conciliation conferences arranged by the Court as provided by LEC Act, s 34. There is no evidence as to what documents were prepared and exchanged in those conferences, no doubt because in the absence of the consent of both parties such documents are not admissible, either in the substantive proceedings or in proceedings concerned solely with a question of costs: LEC Act, ss 34(11), (12).
At the second directions hearing in August 2017 the applicant's claim was fixed for hearing in February 2018, and directions were made for the filing of pleadings, the service of experts' reports, and, in some disciplines, the preparation of joint reports. The material before this Court as to when those expert reports, including joint reports, were prepared or served is incomplete. What is clear however is that the joint reports, and any reply evidence of the experts, were not available before December 2017. Specifically, the joint hydrology experts' report (Mr Bewscher for the applicant and Dr Martens for the Council) was prepared in early December 2017 and the joint valuation experts' report (Mr Phippen for the applicant and Mr Lunney for the Council) did not become available until early February 2018. Points of claim were filed on 14 December 2017 and points of defence on 9 February 2018. The points of claim particularised the claim for $11,157,314. However at the time the valuers' joint report became available that claim was reduced to $8,405,752, reflecting a revision of the claim for the decrease in value of lot 12. The points of defence conceded an entitlement to compensation of $3,947,314, including $3,915,000 as the market value of the acquired lots.

Disposition of ground of appeal 1

As I have noted earlier, in their submissions to the primary judge neither party referred to the decisions of this Court considering the circumstances which justify a departure from the prima facie position in r 42.15(2) by ordering otherwise. The applicant's written submissions did, however, contend that the, or an, important consideration was whether at the time the offer was open he acted reasonably in not accepting it. The circumstances relied on to demonstrate the reasonableness of that non-acceptance included: that at the time the Council had not served any expert evidence; that the applicant was not aware the Council would rely on Mr Lunney's valuation evidence and conclusions until February 2018; that there remained uncertainty as to whether access would be permitted from lot 12 to Windsor Rd; and that the joint hydrology report had not yet been prepared.
In response, the Council submitted that r 42.15 applied and that there should be no order "otherwise" where (1) the compensation awarded was $574,685 less than the Valuer-General's offer and "significantly" less than the amount of the offer of compromise, and (2) the applicant had relied on the valuation evidence of Mr Phippen which was "significantly flawed and unreasonable". Those flaws as described emerged in Mr Phippen's written evidence in the joint valuation report, in his reply to that report and in his oral evidence. Neither of these matters was relevant to an assessment of the reasonableness of the applicant's non-acceptance of the Council's offer of compromise in October 2017. The first was not apparent until the principal judgment was delivered in January 2019 and the second only became apparent in February 2018. However, each was likely to be relevant to the exercise of the costs discretion, assuming a departure from the prima facie position in r 42.15(2) was justified.
As is apparent at Judgment (2) [63], what the primary judge sought to assess, and with the benefit of the findings and conclusions in that judgment, was "the reasonableness of the conduct of the applicant in pursuing his claim". The matters to which his Honour had regard in doing so included: that the applicant had legal and expert advisers for a period of at least 20 months leading up to the hearing: at [52], [53]; that during that period those advisers and the applicant should have been alerted to the prospect that he might not make out his original claim: at [54]; that the applicant had the Valuer-General's determination and Mr Venter's valuation for 16 months before the commencement of the hearing: at [55]; that notwithstanding Mr Venter's assessment as at October 2016 that there should be a 5 per cent allowance for a diminution in the value of lot 12 due to the Windsor Rd access issue, Mr Phippen was only prepared to move from a 50 per cent to a 20 per cent reduction in value in February 2018: at [56], [57]; that the applicant's original claim was maintained until the joint conference of the valuers, when that claim was reduced to $8,405,752: at [61]; and that the applicant made and pressed "what the Court considered to be a highly exaggerated claim" until the commencement of the hearing: at [62].
There are two respects in which the primary judge did consider the consequences for the applicant of not having evidentiary or other material available at the time the offer of compromise was made. They were the non-availability of any hydrology report to be relied on by the Council and the absence of any evidence of Mr Lunney: Judgment (2) [58], [59]. Each was considered in response to the applicant's argument summarised above and dismissed, in the case of the first, on the basis that Mr Venter's report raised the significance of the hydrology issue and, in relation to the second, on the basis that Mr Venter's valuation was a well-reasoned opinion as to the market value of lots 10 and 11 to which the applicant should have had regard. However at no point did the primary judge, taking those matters into account, address whether in October 2017 the applicant had acted reasonably in not accepting the Council's offer of compromise in proceedings brought to test the adequacy of the Valuer-General's determination.
At that time the applicant had that determination and Mr Venter's valuation report supporting it. The determination had not been adopted as correct by the Council and Mr Venter's assessment of the market value of lots 10 and 11 was $1.5 million less than the market value claimed by the applicant, seemingly on the basis of an earlier valuation of Mr Phippen. The applicant had participated in conciliation conferences between April and July 2017. However, the evidence does not indicate what material was exchanged, and knowledge acquired, by the parties in those conferences. At the conclusion of that exercise directions were made for the filing of pleadings and the service of experts' reports.
By the time of the hearing there remained four principal issues in the claim for compensation. The expert evidence directed to those issues covered five disciplines: valuation; hydrology; traffic engineering; surveying; and town planning. The surveying and town planning evidence was given by way of joint expert reports and no cross examination of those experts was required. At least two of those four issues turned on the evidence of the valuers. The first was whether the market value of the acquired land should be determined by adopting a "piecemeal" approach as contended for by Mr Phippen, or a "before and after" approach as was adopted by Mr Lunney. The difference between these two methodologies is summarised at Judgment (1) [75]-[77]. The second issue, which also engaged the traffic engineering evidence, concerned the effect of the acquisition of lots 10 and 11 on the value of the retained lot 12, that acquisition preventing access to O'Connell St, but leaving road access via Windsor Rd. Mr Phippen's position initially was that there had been a 50 per cent reduction in the value of lot 12. The Council's position, relying on Mr Lunney's evidence, was that the reduction in value was no more than 5 per cent, which was ultimately to be offset by a 5 per cent increase in the value of that development lot because of its reduced size (Judgment (1) [153]).
The remaining two issues concerned the values to be given to the land, applying Mr Lunney's "before and after" assessment. The third was as to the area of the acquired land to be treated as permanently flood prone. That issue engaged the expertise of Dr Martens, the Council's environmental engineer, and Mr Bewscher, a civil engineer. The fourth issue was which zoning assumption should be adopted in valuing, in the "before" scenario, the part of the retained lot 12 zoned for educational purposes. The applicant contended that zoning should be disregarded when determining the reduction in the market value of that lot.
The primary judge erred in exercising the costs discretion under r 42.15. Here the proper exercise of that discretion required that he determine - taking into account the nature of the proceedings, the circumstances in which the offer was made and rejected and the purposes of the offer of compromise provisions - whether the presumption that the claimant should bear the costs of the litigation from the time of rejection of the offer, and on an indemnity basis, should be displaced. Instead, as did the judge at first instance in Tempe, the primary judge applied the principles which would apply to the exercise of the general costs power on the final determination of proceedings, where there had been no offer of compromise. It follows that the costs orders must be set aside, and the discretion under r 42.15 re-exercised.
In my view the Court should order "otherwise". It is not submitted that the applicant's decision not to accept the statutory offer based on the Valuer-General's determination was unreasonable, particularly in circumstances where the Council did not accept the correctness of that determination, and subsequently made an offer of compromise which exceeded it. Accordingly the applicant was justified in bringing the compensation proceedings testing the adequacy of that statutory offer. As at September 2017, when the offer of compromise was made, the parties had not formulated their respective positions in pleadings and no expert reports, joint or otherwise, had been exchanged. Accepting that the issues between them would have been identified and debated in the course of the conciliation process, the position remained that none of the expert evidence, and particularly that relating to valuation, hydrology and traffic engineering, had been exchanged. In those circumstances the applicant and his advisers could not assess the position taken by the Council on those issues by reference to the evidence it proposed to rely on.
Mr Venter's valuation did not constitute such material. His opinion supported the statutory offer the adequacy of which the applicant was questioning in the proceedings. As at October 2017 its correctness had not been adopted by the Council. The applicant did not have the evidence of Mr Lunney to be relied on by the Council, and Mr Venter's reference to the significance of the hydrology issues did not assist in any assessment of that issue. Looking at the position in mid-October 2017 the applicant's position remained that he could make a realistic assessment of the likely outcome of the litigation. For that reason he acted reasonably in not accepting an offer of compromise which was higher than the Valuer-General's determination. For that reason the operation of r 42.15(2) should be displaced. The remaining question as to the costs of the proceedings is to be determined without regard to that offer, and by reference to the principles summarised at [15] - [18] above, there being no later offers of compromise made by the Council.
The primary judge described the applicant's claim of $11,157,314 as a "patently inflated or exaggerated claim": Judgment (2) [60], [62] and [63]. That description is directed to the part of the applicant's claim made for the reduction in the value of lot 12 due to road access issues. As first made, that claim was for a 50 per cent reduction in the value of that lot and, as put in final submissions, was for a 20 per cent reduction in its value. The primary judge eventually allowed a 5 per cent reduction, which was then offset by an allowance for "betterment" due to the reduced size of that lot. The quantum of that reduced value, whether it be 20 per cent or 5 per cent, depended on the resolution of the valuation issues described above.
That reduced value claim was supported by Mr Phippen's evidence which the primary judge rejected, his Honour describing the arguments supporting it as "ill-conceived and exaggerated" (Judgment (2) [63]). This notwithstanding, it was not submitted by the Council or found by his Honour that the applicant believed that part of his claim as initially made was exaggerated but nevertheless maintained it. In his reasons for the costs orders the primary judge also referred to Mr Phippen's evidence as being "flawed and unreasonable", although it was only submitted to his Honour that this became apparent as a result of the production of the joint expert report and Mr Phippen's later oral evidence.
As part of an arguable case brought in proceedings of this kind, a claimant will usually put on expert evidence. Acting reasonably, parties are entitled to rely on that evidence and the advice of their legal representatives concerning it: Brock at [93]. Speaking generally, the more that advice involves a matter of specialist expertise the more difficult it will be to establish that a party acted unreasonably in relying upon it when it is given by an appropriately qualified expert: White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 at 242-243; [1998] FCA 806 (Goldberg J); Ridehalgh v Horsefield [1994] Ch 205 at 237 (Sir Thomas Bingham MR); Purfleet Farms Limited v Secretary of State for Transport, Local Government and the Regions [2003] 1 P & CR 324 at [37] (Potter LJ). Furthermore, detailed re-examination of the reasonableness of reliance on expert valuation or legal advice should be avoided in determining costs - it is sufficient to note that the issue involved "some legal complexity": Miwa at [11], [19] (Basten JA, McColl and Campbell JJA agreeing): Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [148] (Basten JA); Perisher Blue at [16] (the Court).
Neither the fact that the claim as initially made was exaggerated nor the fact that Mr Phippen's evidence as it emerged in February 2018 was flawed provides a sound basis for denying the applicant his costs of the proceedings in circumstances where it was not submitted or found that the applicant knew that the claim was exaggerated; and the making of that part of the claim did not separately result in unnecessary delay or expense.
It remains to consider the extent to which the amount that the claimant recovered was less than the determination of the Valuer-General. In this regard, it is instructive to consider what the position might have been if the applicant had succeeded on the two issues which did not depend on the acceptance of Mr Phippen's evidence.
The first involved the estimation of the permanently flood-prone area of the acquired lots 10 and 11. Adopting Mr Lunney's methodology, as did the primary judge, if Mr Bewscher's evidence had been accepted, the market value of the land would have been $4,840,000 rather than $4,195,000, as found by the primary judge (Judgment (1) [133]), resulting in an outcome exceeding the Valuer-General's determination by $70,300 after disturbance loss of $32,300 is brought to account.
The second issue was as to the zoning assumption to be made in the "before" scenario in the valuation of the retained lot 12 for the purpose of assessing the extent to which its value had been decreased. If the zoning assumption to be made was R2 Low Density Residential (as contended by the applicant) rather than SP2 Educational Establishment (as contended by the Council and found by the primary judge) the value of that land before the acquisition as found by Mr Lunney would have increased by $860,058 (being the $54 psm zoning differential applied to 15,927 ha, the area of that part of lot 12). Success on this second issue, as well as the first, would have produced an outcome of $5,732,058, exceeding the Council's offer of compromise by almost $500,000.
This analysis shows that although the applicant ultimately obtained less than the Valuer-General's determination, that outcome could have been different had he succeeded on issues which the primary judge did not consider involved either extravagance or exaggeration, or reliance on "significantly flawed and unreasonable" evidence. That being the position, I am satisfied that in pursuing the proceedings to judgment the applicant did not act unreasonably, and accordingly that he is entitled to his costs of the proceedings.

Conclusion

In the result, I propose the following orders: 1. Grant leave to the applicant, Alan Croghan, to appeal from orders (2), (3) and (4) made by Molesworth AJ on 7 February 2019 on ground 1 in the draft notice of appeal. 2. Direct that within 7 days the applicant file a notice of appeal limited to ground 1 of the draft notice of appeal. 3. Appeal allowed. 4. Set aside orders (2), (3) and (4) made by the Land and Environment Court on 7 February 2019. 5. The respondent pay the applicant's costs of the proceedings in the Land and Environment Court, assessed on the ordinary basis. 6. The respondent pay the applicant's costs of the appeal and application for leave to appeal.
McCALLUM JA: I agree with Meagher JA.
SIMPSON AJA: I agree with Meagher JA.

Amendments 17 October 2019 - Coversheet amended to include omitted counsel 22 May 2020 - Minor typographical amendments made to paragraphs [1], [3], [6], [12], [16], [22], [27], [30], [32], [33], [34], [35], [36], [38], [40] and [44].

In paragraph [26] "dated 29 June 2011" changed to "effective from 15 July 2011".

In paragraph [43], "32,000" amended to "32,300"; "70,000" amended to "70,300"; "thereby" amended to "resulting in an outcome". 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. Decision last updated: 22 May 2020

(Uniform Civil Procedure Rules 2005(NSW)

(2012) 191 LGERA 267

(2011) 184 LGERA 179

(2019) 237 LGERA 227

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