Doueihi & Anor v Roads & Traffic Authority of NSW

Roads Act 1993 Land Acquisition (Just Terms Compensation) Act 1991 Land and Environment Court Act 1979 LEGISLATION CITED: Environmental Planning and Assessment Act 1979 Environmental Planning and Assessment Regulation 2000 Land and Environment Court Rules 1996 Supreme Court Rules 1970

Lemworth Pty Limited v Liverpool City Council (2001) 53 NSWLR 371 CASES CITED: Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379

Ibrahim Doueihi and Mariette Doueihi PARTIES: A&M Doueihi Pty Limited Roads & Traffic Authority of NSW

1-3 A: Mr D Officer QC / V Culkoff COUNSEL: R: Mr B Cole QC / R Lancaster

1-3 A: Russo & Partners, Arcadia NSW SOLICITORS: R: Henry Davis York, Sydney

LOWER COURT JURISDICTION: Land & Environment Court

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40205/04 L& E 421/02

MASON P TOBIAS JA BRYSON JA

Date IBRAHIM DOUEIHI & MARIETTE DOUEIHI and A&M DOUEIHI PTY LIMITED v ROADS & TRAFFIC AUTHORITY OF NEW SOUTH WALES Judgment 1 MASON P: I agree with Tobias JA. 2 TOBIAS JA: Mr and Mrs Doueihi (the first appellants) were the registered proprietors of two adjoining allotments of land being Lot 4 in DP 1650454 and Lot 1 in DP 745175 and known as Nos. 134-138 Great Western Highway, Mays Hill (the resumed land). A&M Doueihi Pty Limited (the second appellant) was a company controlled by the first appellants. It owned and operated a florist business (the business) upon that part of the resumed land being Nos. 136-138 Great Western Highway, Mays Hill (Nos. 136-138). 3 By notification in the Government Gazette of 17 December 2001, the Roads & Traffic Authority of New South Wales (the respondent) compulsorily acquired the resumed land pursuant to the Roads Act 1993 and the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act). In accordance with s 46 of the Just Terms Act the appellants claimed compensation in respect of the value of the resumed land and the business. In this respect the parties treated the second appellant as having a leasehold interest in Nos. 136-138 being the land upon which the business was conducted which was also compulsorily acquired with the first appellants' interest in that land. It was common ground that the market value of that leasehold interest should be determined by valuing the business as a going concern. 4 The Valuer General on behalf of the respondent assessed the compensation payable to the appellants in the sum of $1,010,000 made up as follows: (a) Market value of the first appellant's interest in the resumed land $770,000 (b) Loss attributable to disturbance $40,000 (c) Market value of the second appellant's leasehold interest (i.e. , the business) in Nos. 136-138 $200,000

5 Being dissatisfied with the amount of compensation so assessed, the appellants instituted proceedings pursuant to s 67 of the Just Terms Act in the Land and Environment Court for a re-assessment of compensation. In their amended points of claim the first appellants claimed compensation in the sum of $1,219,500 being $1,001,000 for the market value of the resumed land (ss 55(a) and 56); $150,000 for special value (ss 55(b) and 57); and $68,500 for disturbance (ss 55(d) and 59). The second appellant claimed $500,000 as the market value of the business, that is, of its leasehold interest in Nos. 136-138. The total claimed by the appellants was, therefore, the sum of $1,569,500. 6 Prior to the commencement of the hearing of those proceedings, an agreement was reached between the first appellants and the respondent with respect to the market value of No. 134 in the sum of $305,000 and disturbance in the sum of $40,000, a total of $345,000. Accordingly, the live issues at the hearing before the primary judge were confined to the market value of Nos. 136-138 and of the business carried out thereon. The resolution of these questions essentially depended upon two townplanning issues. 7 Although it was common ground that the business was lawfully carried on upon Nos. 136-138 pursuant to existing use rights which attached thereto, the extent of the land to which those rights attached was in dispute. It was ultimately agreed that the existing use extended only to an area of 95m² of that land. However, a much larger area thereof was actually used for the purpose of the business at the date of acquisition (approximately a further 300m²), but it was accepted that that use was unauthorised and, therefore, unlawful. 8 The two town planning issues which then arose were firstly, whether, at the date of acquisition, it would be open to the Holroyd Council (the Council) as a matter of legal power, if application were made to it for that purpose, to consent to the enlargement or expansion of that use to those parts of Nos. 136-138 upon which the business was being carried on unlawfully; and secondly, if the answer to the first issue was in the affirmative, what was the chance that the Council would, as a matter of merit, grant any such application. 9 The primary judge did not deal with the first issue as to whether the Council would have had the power to grant consent to the enlargement or extension of the existing use to the whole of Nos. 136-138 as he found that the second appellant had not discharged the necessary onus that would persuade the Court to conclude that there was a chance that the Council would grant consent to the use of a substantially increased portion of that land for the purpose of the business. 10 Accordingly, his Honour determined the appellants' entitlement to compensation in the sum of $1,001,000 being the agreed amount of $345,000 in respect of No. 134, $425,000 being the market value of Nos. 136-138 and $231,000 being the going concern value of the business. 11 With respect to the last-mentioned amount, his Honour accepted that the business should be valued in two components. The first comprised its future maintainable earnings (FME) for one year and the second comprised its net tangible assets. His Honour assessed the latter in the sum of $145,000. However, he assessed the former in the sum of $86,000 upon the basis that that amount constituted the FME from that part of the business conducted only upon 95m² of Nos. 136-138, being that part of that land in respect of which existing use rights attached. In this respect, the valuers agreed that if the business were to be so valued, then that valuation should be confined to the floral retailing business conducted on those portions of the land which were authorised for that purpose. 12 The appellants appeal to this Court only against the primary judge's determination that the FME of the business for one year was properly confined to the floral retailing business conducted upon the 95m² of Nos. 136-138 in respect of which existing use rights attached. It was contended that his Honour erred in law in failing to adopt the FME of the whole of the business, both authorised and unauthorised, upon the basis that he ought to have found that there was a chance that the Council would have approved an extension or expansion of the 95m² to the whole or substantially the whole of Nos. 136-138 which, at the date of acquisition, was actually being used for the purpose of the business. 13 The appellants acknowledge that their appeal is confined to questions of law: Land and Environment Court Act 1979 s 57(1).

The relevant facts 14 At the date of acquisition the resumed land was zoned 2(a) (Residential "A" Zone) under the provisions of Holroyd Local Environmental Plan 1991 (the LEP). Under that zoning the business was a non-conforming use. The objectives of the zone as described in the LEP were relevantly to provide and maintain the amenity of a predominantly low density living area and to restrict development which was, amongst other things, intrusive or environmentally inappropriate. 15 No. 138 Great Western Highway was located on the corner of the Great Western Highway and Houison Street. No. 136 adjoined No. 138's eastern boundary. As at 1983 there was erected upon No. 138 a shop with its entrance in Houison Street to which was attached a store and amenities. The shop abutted against the building erected upon No. 136. The front portion of that building was also used for the purpose of a shop whereas the rear portion was used as a four-bedroom residence. From 1983 to 1988 the shop at No. 138 operated as a take-away food establishment whereas that at No. 136 operated as a smallgoods takeaway shop. 16 On 12 September 1988 the Council granted Consent No. 88/293 "for the use of the existing shops as a milkbar and florist shop". The consent was granted in respect of the land described as Nos. 134-136 Western Road, Westmead but it was agreed by the parties that that was in error and ought to have referred to Nos. 136-138. Condition 4 of that consent was in the following terms: "Consent is given for the use of the existing shops as a milkbar and florist shop and no other use is to be conducted without consent from Council." 17 On 12 October 1988 a building application was submitted to the Council by the first appellants for what was described as "renovations to house, shop and new garage". According to his Honour, the plans accompanying that application revealed that No. 138 was used solely for retail purposes being a fish and chip shop whereas No. 136 depicted the front room of the building on the Great Western Highway frontage as a "games room" which in fact was the front room of the existing shop referred to in Consent No. 83/118. 18 In due course the building application was amended by deletion of the proposal to renovate the house and shop. On 17 January 1989 consent to the construction of the garage at the rear of Nos. 136-138 was granted. 19 In January 1989 application was made to the Council to install a coolroom in the area marked "store" at the rear of the shop erected on No. 138. That application was also duly granted. 20 It is apparent from the foregoing that the consents granted by the Council for use of Nos. 136-138 for retail purposes were confined to the shop and storeroom (later approved as a coolroom) erected upon No. 138 and the front "games room" of the building on No. 136. The floor area of the latter was agreed by the town planning experts for the parties at 30m² which accords with the dimensions of the "games room" shown on the plans that accompanied the October 1988 building application. When added to the area of the shop and store/coolroom erected on No. 138, the total area approved for retail use was 95m². 21 The first appellants constructed the garage which the Council had approved at the rear of Nos. 136-138 but it was never used for that purpose. Instead the first appellants installed a bunching machine in the garage which was used for bunching flowers. Thereafter the business comprised the retail sale of flowers from the shop at No. 138 and the wholesale supply of bunches of flowers from other parts of the buildings on both properties. 22 In 1999 a new bunching machine was acquired. The garage was extended from No. 136 by 3-4 metres across the rear of No. 134 to accommodate the new machine. A concrete slab was also installed partly on No. 136 and partly on No. 134 which was used for the purpose of the business. Furthermore, after 1994 the business had been extended into what had previously been the residential portion of the building erected on No. 136. The Council approved none of this work. However, it appeared common ground that the unauthorised uses of Nos. 136-138 (and, in part, No. 134) for the purpose of the business continued unabated for approximately 12 years prior to the date of acquisition. In this respect, Council officers inspected the premises on a number of occasions over that period in response to complaints whereby they became aware of the extent and nature of the use being made of the premises. Nevertheless, no action was taken by the Council to bring the unauthorised use to an end. 23 However, his Honour found (at [28]) that that fact did not lead to the conclusion that the Council was at any time condoning the use of the whole of Nos. 136-138 for the purpose of the business. Although the Council officers may have been aware of the extent of the use, his Honour was not prepared to conclude that there was any evidence that they were aware that it was a non-conforming use. In this respect, his Honour noted (at [23]) that the town planning experts for the parties had agreed that the fact that a Council takes no action against, or does not follow up, an illegal activity or development does not indicate that the Council approves of that activity or development. 24 Subsequent to the acquisition of the resumed land, the second appellant relocated the business to premises at 1 Franklin Street, Mays Hill known as "FlowerCity". Those premises had existing use rights for an automotive smash repair business. The second appellant applied to the Council for a change of use to a florist business including the development of a coolroom on part of that land formerly used as a carpark. Consent to those uses was duly granted.

The relevant findings of the primary judge 25 The appellants submitted to his Honour that at the date of acquisition there was a 70% chance, or at least a 50% chance, that the Council would have granted consent pursuant to clause 42 of the Environmental Planning and Assessment Regulation 2000 (the Regulation) to the enlargement or expansion of the existing use for the purpose of the business to encompass those parts of Nos. 136-138 which were, at that date, being unlawfully used for that purpose. On the basis of the evidence of their town planner, the appellants submitted that this chance existed because of the following factors: the Council had not attempted to restrain the unlawful use which had been in operation for some 12 years prior to the date of acquisition; Council officers had attended the premises in response to complaints and, therefore, must have been aware of the nature and extent of the use; the Council had tolerated other non-conforming uses in the area; there was no adverse environmental impact caused by the unauthorised use; and the Council had granted consent to the second appellant to relocate the business in an expanded form to land in the vicinity. 26 The respondent's town planner opined that there was no chance of the Council granting the consent contended for by the appellants due to the considerations required to be taken into account pursuant to s 79C of the Environmental Planning and Assessment Act 1979 (the EPA Act). They included the historical concern shown by the Council to limit any expansion of the commercial use of Nos. 136-138 as evidenced by the conditions imposed upon the consents which the Council had granted in the past; the objectives of the zone in which the land was situated and which were in conflict with its use for commercial purposes; the anticipated public response to community notification of any application to, in effect, render lawful the current unauthorised use of the land; and the extent and the nature of the intensification of that use. It was also submitted that the fact that the Council had granted consent to the use of the business at 1 Franklin Street was irrelevant since that consent authorised a less intense use than had been formerly conducted on that site. 27 The primary judge responded to these submissions in the following terms: "32. The submission of the applicants requires the Court to speculate upon a chance that council would approve the use of the unauthorised portions of the subject land for the purpose of a florist business. In assessing the highest and best use of land for the purposes of an award of compensation under the Just Terms Act, the Court must assess hypothetical uses however that is an entirely separate matter to making an assessment of a chance that a council might grant consent to an otherwise unlawful use. 33. The fact that other non-conforming uses may exist within the Holroyd local government area does not establish that those uses are necessarily unlawful. Mr Neustein conceded that such uses may have been lawfully conducted on the basis of existing use rights. The fact that the council had taken no steps to restrain the florist business conducted by the applicants does not lead to the inference that council had given tacit development consent for its operation. Additionally the fact that council had authorised the use of 1 Franklin Street for the florist business does not create any inference that it would approve such use on the subject land. 34. In the absence of evidence by the council that it was likely to approve the extent of the applicants' business use, the Court cannot draw the inference upon which the applicants rely. The applicants bear the onus of proof of establishing that, upon the balance of probabilities there was either a 70% chance or a 50% chance or any chance that approval would be granted. The applicants have not discharged the necessary onus to enable the Court to conclude that there was a chance that consent would be granted to the use of the substantially increased portion of the subject land for a florist business." 28 As I have already observed, the primary judge, although noting the respondent's argument that the Council would have no power to grant consent to the proposed extension or enlargement of the use of Nos. 136-138 for the purpose of the business, did not decide that issue. The argument was founded upon the requirement in clause 42(2)(b) of the Regulation that any such enlargement or expansion must be carried out only on the land on which the existing use was carried out immediately before the relevant date. However, his Honour suggested an alternative basis for his conclusion that the court should not draw an inference that the Council was likely to approve the contemplated enlargement or extension. This was that he considered (at [36]) that whether or not there was a chance that the Council might have approved any such extension or intensification of the existing use was not relevant to the assessment of compensation because of the provisions of s 56(1)(c) of the Just Terms Act. That section sets out the definition of "market value" and requires "any increase in the value of the land caused by its use in a manner or for a purpose contrary to law"

to be disregarded. 29 As a consequence of this provision the primary judge concluded (at [38]): "No authority has been referred to which would support the applicants' contentions that they are entitled to compensation upon the basis of a chance that the unauthorised use would be rendered lawful. In its assessment of the market value of the subject land and business the Court is required to disregard any increase ' in the value of the land caused by its use in a manner or for a purpose contrary to law '. Accordingly the development and use of the subject land which does not have a lawful approval cannot be included in the market value of the subject land and business pursuant to s 56(1)(c) of the Just Terms Act."

The submissions of the parties on the appeal 30 The appellants submitted that in compensation cases the court, in determining value, is required to have regard to the highest and best use to which the resumed land can be adapted. Accordingly, it routinely assesses what the hypothetical purchaser would pay bearing in mind the risks attendant upon gaining or not gaining any necessary Council approval for some alternative, but higher and better, use. Accordingly, in the present case the question was: what was the probability of the Council granting consent had an application been made to it for that purpose so as to permit the totality of the florist business to be lawfully conducted upon Nos. 136-138? Put another way, the hypothetical question to be considered was: was there a chance that the Council would consent to an expansion, enlargement or intensification of the existing use of Nos. 136-138 for the purpose of the business to include those parts of that land which were actually, albeit unlawfully, being used for that purpose at the date of acquisition? 31 The appellants seek to identify two errors of law made by the primary judge in his response to these questions. The first was his finding in [32] of his judgment that although the court must assess hypothetical uses of the resumed land, that was an entirely different question to the court assessing a chance that the Council might grant consent to what was an otherwise unlawful use. The second alleged error is founded upon the first sentence of [34] of his Honour's judgment where he said that in the absence of evidence by the Council that it was likely to approve the extension of the second appellant's business use, the court "cannot" draw the inference which the appellants sought. 32 The respondent contended that the errors so identified were illusory. Furthermore, it submitted that it would be inappropriate and contrary to the policy of the Just Terms Act to compensate the second appellant for its failure or neglect to seek to obtain approval for its previous unauthorised use of the land for the purpose of the business. Although, quite properly, the respondent does not seek to rely directly upon s 56(1)(c) of the Just Terms Act as did his Honour, it submitted that to compensate the second appellant upon the basis of a chance that the Council would, if application were made to it, grant consent to the extension or enlargement of the existing use so that it coincided with the actual use of Nos. 136-138 at the date of acquisition, would be to do indirectly what, according to s 56(1)(c), could not be done directly. Furthermore, it submitted that it would be an absurd consequence if compensation could be awarded under the category of "loss attributable to disturbance" where its assessment was prohibited under another category, in this case, the market value of the land. It would be wrong, so it was submitted, to permit the second appellant to benefit from years of its own wrong-doing. 33 Alternatively, the respondent submitted that the Council had no power to grant any such consent as to do so would be contrary to the requirement of clause 42(2)(b) of the Regulation that any enlargement, expansion or intensification of the existing use was to be confined to the land on which that use was carried out at the relevant date. That land, so it was submitted, was the 95m² of Nos. 136-138 which, it was agreed, was the only part of that land lawfully used for the purpose of the existing use. Reliance was placed upon the decision of this Court in Lemworth Pty Limited v Liverpool City Council (2001) 53 NSWLR 371 at 376-9 [32]-[36], 383 [74]. 34 Finally, the respondent submitted that the evidence upon which its town planning expert relied in order to conclude that there was no chance of the Council, as a matter of merit, granting any such consent was such as to justify his Honour's finding that he was not satisfied that the second appellant had discharged the necessary onus to enable the court to conclude that there was a 70% chance, or at least a 50% chance, of any such consent being granted to the use of a substantial portion of Nos. 136-138 for the business.

Did the primary judge err in law? 35 It cannot be gainsaid that, subject to the respondents' contention based upon the provisions of clause 42(1)(b) of the Regulation, the potential existed for the Council to consent to the enlargement, expansion or intensification of the existing use of Nos. 136-138 for the purpose of the business and that, had there been a chance of that potential being realised, it would have influenced the factors which the hypothetical prudent purchaser would entertain when determining what he or she would offer for the business as a going concern. The factual issue that thus arose concerned the likelihood of that potential being realised which in turn depended upon the chance of the Council granting consent thereto: cf Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379 at 391. In this respect, the second appellant's townplanner concluded that there was a 70% chance, or at least a 50% chance, whereas the respondent's townplanner concluded that there was little or no chance. Absent some disclosure of particular error, a finding by the primary judge one way or the other would, clearly, be a finding of fact. 36 The second appellant has, in my opinion, identified the only possible legal errors on the part of the primary judge in its reference to his Honour's observations in [32] and [34] of his judgment. So far as the former is concerned, it may be that what his Honour was referring to was the difference between the Court determining on the one hand the highest and best use of the land and, on the other, assessing the chance that the Council might grant consent to what was an unlawful use of the land. If this were so then his Honour would be correct. There may well be a difference between determining, on the one hand, the potential of land to be used for a purpose for which it was not being used at the date of acquisition but which was otherwise permissible with consent and, on the other, the chance that the Council might approve an existing unauthorised and prohibited use to which the land was being put at that time. 37 To put the distinction slightly differently, it may be one thing to contemplate the highest and best use of Nos. 136-138 being the extension of the business to the whole or substantially the whole of that land upon the assumption that, apart from the 95m², the balance of the land had not been used for an unlawful purpose but another, knowing that the balance of the land had been used unlawfully for that purpose, to seek to determine the chance of the Council consenting to that continued use. 38 On the other hand, there may be less of a difference and possibly no difference between assessing, on the one hand, the potential of Nos. 136-138 being put to a higher and better, albeit hypothetical, use than that to which it was actually being put at the date of acquisition, where that potential use is one involving the expansion, extension or intensification of an existing non-conforming use and, on the other, the chance that the Council might approve an existing unauthorised use.

39 On the balance, it seems to me that his Honour was probably referring to the former, clearer distinction (in [36]-[37] above) and, if so, his observations do not involve any error of law. Even if this were not so, and his Honour was referring to a distinction which does not in fact exist, nonetheless I do not consider that his Honour's remarks disclose any error of law or, at least, any error which relevantly infected his conclusion in [34] of his judgment. 40 Were it not for the first sentence of [34], his Honour's conclusion that the appellants had not discharged the relevant onus would be unexceptional. Certainly, they bore the onus of showing that there was some chance that the consent in question might be granted: The Crown v Murphy (1990) 64ALJR 593 at 597G. To do that it was necessary for them to provide oral or documentary evidence supporting the proposal which was sufficiently cogent as to enable the primary judge to conclude on the balance of probabilities that the appellants' application might have met with the Council's approval. However, as the High Court observed in Murphy at 97A, it would not be open to the court assessing compensation to speculate at large as to any such chance. 41 It was also open to the primary judge to accept the respondent's expert's evidence that there was no chance of the Council granting consent to the expansion or enlargement of the existing use for the business to the whole or substantially the whole of Nos. 136-138. The question therefore is whether his conclusion in [34] that the appellants had not discharged their onus was infected by any error of law disclosed in the first sentence of that paragraph which, for ease of reference, I repeat: "In the absence of evidence by the council that it was likely to approve the extent of the applicant's business use, the court cannot draw the inference upon which the applicants rely." 42 My concern is whether his Honour was in effect saying that it was not legally open to him to draw the inference that there was a chance that the Council might grant the consent to which the appellants aspired unless there was evidence from the Council that it was likely to grant such consent. In other words, was he saying that he "cannot" draw the necessary inference as a matter of law or as a matter of fact? If the former, then he legally erred. If the latter, he did not. 43 In my opinion, when the first sentence is read with the balance of [34], I do not consider that his Honour was intending to do other than indicate that the fact that there was no evidence from any relevant Council officer that the Council might approve, or that that officer would have recommended that the Council approve, an application for development consent to extend the existing use for the business to the balance of Nos. 136-138, made it difficult to accept the cogency of the factors relied on by the second appellant's town planning expert or favouring the grant of such a consent without some response to them by the Council itself or its relevant officer. Those factors, as I have indicated, included the failure of the Council to object to or seek to restrain the continuation of the unauthorised use; its approval of the use of the land at 1 Franklin Street for the purpose of the relocation of the business; the suggestion that the Council had tolerated other non-conforming uses in the area; and the assertion that any such expansion would not have any adverse environmental consequences. 44 These factors were, to say the least, argumentative and the determination of the weight to be attached them (given the counter factors relied on by the respondent's town planner) justified the difficulty his Honour identified given the absence of any evidence from or on behalf of the Council. After all, this was not a case where the Council was the acquiring authority. Evidence from a senior planning officer who was employed by the Council at the date of acquisition, if available (and there was apparently no evidence that it was not), would have been of significant value in coming to a conclusion one way or the other with respect to the chance of a consent being forthcoming. 45 Read as a whole, I do not consider that his Honour was confining the fact finding exercise with respect to the chance of the Council granting consent to an expansion or enlargement of the existing use to whether or not there was evidence that the Council would in fact be likely to grant that consent. In other words, he was not asserting that without that evidence he could not, as a matter of law, draw the inference that there was a chance that such consent would be granted.

46 Nevertheless, the second appellant submitted that when taken in conjunction with final sentence of [32] where his Honour observed that the appellants' submission required the court to speculate upon the relevant chance, the first sentence of [34] required the conclusion that his Honour was not prepared to assess the merits of the chance occurring but had confined himself to postulating as to whether or not the Council would have granted the consent irrespective of whether it was acting reasonably. In other words, as I understand the submission, the primary judge was declining to determine the factual issue for himself. 47 In my opinion there is no merit in this contention. His Honour was doing no more than saying, in effect, that he could not speculate on the chance of the Council granting the relevant consent without the benefit of evidence from the Council as to its likely attitude. Given the competing factors advanced by each of the town planners in support and in denial of the chance manifesting itself, it was clearly open to the primary judge to regard the onus which clearly lay upon the appellant as not having been discharged in the absence of evidence from the Council. In my opinion, no legal error on his Honour's part has thus been demonstrated. 48 In the light of the foregoing, it is unnecessary to consider the respondent's alternative arguments based upon the decision of this Court in Lemworth. 49 I would however note that the primary judge's alternative basis for his conclusion set out in [38] of his judgment was, in my opinion, erroneous in that it involved a misconstruction of s 56(1)(c) of the Just Terms Act. The contention of the second appellant that it was entitled to compensation with respect to the loss of the business based upon a chance that the Council would grant consent to the extension or enlargement of the existing use was not, in my opinion, prevented or prohibited by that provision.

The primary judge's decision on costs 50 In a supplementary judgment of 12 March 2004, the primary judge ordered that the respondent pay the appellants' costs of the proceedings up to and including 6 March 2003 and that the appellants pay the respondent's costs of the proceedings after that date. The basis of this decision was that 6 March 2003 was the date upon which an offer of compromise was made by the respondent to the appellants in the sum of $1,100,000 (exclusive of legal costs) pursuant to Pt 22 r 3 of the Supreme Court Rules 1970 (SCR) (which, together with Pt 52A rule 22, was applied to the Land and Environment Court by Pt 13 r 27 of the Land and Environment Court Rules 1996). That offer expired on 4 April 2003 and was rejected. 51 As the total amount of compensation awarded by the Court was $1,001,000, Pt 52A r 22(6) of the SCR provided that the appellants were entitled to an order against the respondent for their costs in respect of their claim up to and including the day the offer was made and that the respondent was entitled to an order against the appellants for its costs in respect of the claim thereafter "unless the Court otherwise orders". 52 The appellants had submitted that his Honour should "otherwise order" upon the basis that in April 2003, shortly before the hearing was to commence, the respondent became aware for the first time of the unauthorised use of Nos. 136-138 for the business as a consequence of which, in amended points of defence filed on 20 November 2003, it had reduced the amount of compensation for which it contended from $1,010,000 (as originally determined by the Valuer General) to $741,000. 53 The appellants sought the leave of this Court to appeal against his Honour's decision with respect to the costs of the proceedings below, such leave being required by s 57(4)(f) of the Land and Environment Court Act 1979. At the end of the oral argument the Court indicated to the parties that that leave would be refused. 54 The relevant error in his Honour's reasoning alleged by the appellants on the leave application was that the fundamental nature of the case changed when, on the very day the offer of compromise expired, the respondent notified the court and the appellants that it was proposing to contend for a significantly lower amount of compensation than that originally assessed as a consequence of its discovery that a significant part of the actual use of Nos. 136-138 for the purpose of the business was unauthorised and, therefore, unlawful. It was as a consequence of that change in the respondent's position that, for the first time, the issue which was the subject of the substantive appeal, arose, namely, whether there was a chance that the Council would grant consent to the extension or enlargement of the existing use for the purpose of the business to those parts of Nos. 136-138 which were being used for that purpose unlawfully as at the date of acquisition. 55 It was therefore submitted that the fundamental error made by the primary judge in the exercise of his discretion to not "otherwise order", was his failure to take into account the fact that the offer of compromise related to the proceedings as originally formulated when the respondent was offering $1,100,000 and the appellants were claiming $1,569,500. On the other hand, as reformulated, the respondent assessed the appellants' entitlement to compensation in the sum of $741,000 whereas the appellants achieved an award of compensation from the primary judge well in excess of that amount, namely, $1,001,000. In these circumstances, so it was contended, his Honour should have ordered that the respondent pay the whole of the appellants' costs of the proceedings at first instance. 56 The appellants accepted that in order to challenge successfully his Honour's orders for costs, it was necessary for them to demonstrate that the primary judge erred in law in refusing to "otherwise order". The difficulty faced by the appellants is that the basis upon which they submitted that his Honour's discretion to "otherwise order" miscarried, namely, his failure to take into account a relevant consideration, did not and could not amount to an error of law. It is for those reasons that the Court at the conclusion of oral argument, refused the appellants leave to appeal against his Honour's costs order.

Conclusion 57 In my opinion the following orders should be made: (1) Leave to appeal against the orders made by Cowdroy J on 12 March 2004 be refused; (2) The appeal against Order 1 made by Cowdroy J on 5 March 2004 be dismissed; (3) The appellants to pay the respondent's costs of the appeal and the application for leave to appeal.

58 BRYSON JA: In my opinion the Court of Appeal should make the orders proposed by Tobias JA. With two qualifications I agree with the judgment of Tobias JA. 59 His Honour's view in [48] of his judgment is that the alternative basis for conclusion, in [38] of Cowdroy J's judgment, was erroneous. That is to say, Tobias JA has expressed the view that s.56(1)(c) of the Land Acquisition (Just Terms Compensation) Act 1991 did not prevent or prohibit compensation with respect to the loss of the business based on the chance that the Council would grant consent to the extension or enlargement of the existing use. I do not join in this view because it is not clear to me that Council has power to grant such a consent, and also because if Council had power to grant such a consent and would have had regard to the use being made of the land at the time of the resumption, which was lawful as to part of the land and unlawful as to the greater part, it may be right to conclude that the value attributable to the chance of obtaining that consent was value caused by its use in a manner or for a purpose contrary to law. Neither Cowdroy J's alternative basis nor Tobias JA's view is necessary for decision of the case, the answer is unclear to me and I prefer not to express any view. 60 With respect to costs I joined in the order refusing leave to appeal because I was of opinion that it was not reasonably arguable that Cowdroy J's exercise of discretion as to costs had miscarried. **********

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