Expandamesh Pty Ltd v Sydney Metro

Land and Environment Court (NSW)|2023-10-13|Before: Moore J

Introduction

Expandamesh Pty Ltd (the Company) owns a property at 175‑177 Botany Road, Waterloo (the site). On 11 October 2019, a substratum of the site was compulsorily acquired by Sydney Metro for the purpose of constructing tunnels to serve the Sydney Metro City and Southwest Project. The Valuer General determined the amount of compensation to be paid to the Company by Sydney Metro for the compulsory acquisition of the substratum through which the tunnels now run to be nil.
The Company commenced proceedings pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act) disputing the Valuer General's determination. The Company sought to be awarded compensation on two bases. The first was for the value of the substratum which had been acquired from it and the second was what the Company said was the reduction in value, for future development, of the site because of the additional restrictions that would apply on future development because of the existence of the railway tunnels.
The Transport Administration Act 1988 (the Transport Administration Act) sets out, in cl 2 of Sch 6B, the restrictions on potential claims for compensation of the value of any substratum when that substratum has been acquired for the purpose of underground rail facilities.
I dealt with the matter at first instance, determining that the extent of the disturbance of the ground on the Company's site (being a maximum of 1.5 mm) was sufficient to satisfy the test in cl 2(1)(a) of Sch 6B of the Transport Administration Act and that, as a consequence, the Company was not barred from claiming compensation pursuant to the Just Terms Act. The reasons for my original determination were set out in my first instance judgment, this being Expandamesh Pty Ltd v Sydney Metro (No 3) [2022] NSWLEC 137.

Introduction

Two preliminary matters required to be noted before I set out the terms of the written submissions for each of the parties and the Company's written submissions in reply. First, each of the primary written submissions was subject to amendment after the submissions were originally lodged. In each instance, the amendments comprised minor clarifications of what was said in the original version and neither correction could be expected to have given rise to any misunderstanding on behalf of the other party as to what was intended to be the position advanced by each set of original submissions.
Second, at the commencement of the Company's reply submissions (being submissions that were four pages in length rather than the two which had been specified in my timetabling directions), the Company sought (because the reply submissions were four pages in length rather than the two pages specified in my original directions) for leave to be given to rely on the lengthier reply document, given the - perhaps unexpected - scope of the submissions advanced on behalf of Sydney Metro. Having read Sydney Metro's submissions and the reply submissions on behalf the Company, I have concluded that it is appropriate to grant the leave sought for the Company to rely on the reply submissions in the form lodged on the afternoon of 13 October (within the time specified for the provision of these reply submissions).
I note that no objection has been communicated to my Associate, over the period since the Company's reply submissions were uploaded and the time I have finished the preparation of this judgment, to me granting consent for the extended length of the Company's reply submissions.
It is, for the purposes of addressing the matters raised by the parties, appropriate to set out each of the sets of submissions in their entirety.

The costs submissions for the Company

The costs submissions for the Company were in the following terms: 1 On 24 November 2022, the Court delivered judgment in this Class 3 proceeding (see Expandamesh Pty Ltd v Sydney Metro (No 3) [2022] NSWLEC 137 (PJ)), in which the Court relevantly held that: a) Expandamesh was entitled to claim compensation under the Just Terms Act for the acquisition of part of the substratum of its land, pursuant to clause 2(1)(a) of Schedule 6B to the Transport Administration Act 1988 (NSW) (Transport Act), because the surface of the overlying surface of its land was disturbed by a subsidence of at least 1.5mm caused by the construction of the tunnels through/under the respondent's land (see PJ[90]-[92]); b) Expandamesh was entitled to compensation under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act) in the sum of $20,000, for the market value of the acquired land (per ss 55(a) and 56(1) of the Just Terms Act) (see PJ[186]-[190], [236]). However, Expandamesh was not entitled to compensation under s 55(f) of the Just Terms Act (see PJ[223]-[231], [236]); and c) Sydney Metro was to pay Expandamesh's costs of the proceedings (see PJ[232]-[235], [236]). 2 Sydney Metro appealed to the Court of Appeal, raising the following grounds of appeal in respect of the primary judgment: a) Ground 1: That the primary judge erred by applying an improper construction of clause 2(1)(a) of Schedule 6B to the Transport Act to the facts of the case, and that the primary judge ought to have found that on the facts of the case the surface of the overlying soil was not "disturbed" within the meaning of clause 2(1)(a) on its proper construction, and therefore Expandamesh was not entitled to any compensation under the Just Terms Act; b) Ground 2: That the primary judge erred in determining that Expandamesh was entitled to compensation in accordance with ss 55(a) and 56 of the Just Terms Act for the market value of the acquired land in the amount of $20,000 based on the evidence of the respondent's valuer, Mr Dyson, on the basis that the evidence "was not capable of rationally supporting the determination"; and c) Ground 3: That the primary judge erred "by failing to have proper regard to the matters specified in s 55 of the Just Terms Act in determining the amount of compensation to which [Expandamesh] was entitled", by failing to offset the amount of compensation to which Expandamesh was entitled pursuant to ss 55(a) and 56 of the Just Terms Act for the market value of the acquired land against the amount by which the value of the residue land had increased by reason of the carrying out of the public purpose for which the acquired land was acquired by Sydney Metro pursuant to s 55(f). 3 On 29 August 2023, the Court of Appeal (Leeming JA, Griffiths AJA and Simpson AJA) delivered its judgment allowing the appeal on Ground 1 but dismissing Grounds 2 and 3: see Sydney Metro v Expandamesh Pty Ltd [2023] NSWCA 200. The Court of Appeal held (see Order 2) that Expandamesh is entitled to no compensation under the Just Terms Act by operation of clause 2 of Schedule 6B of the Transport Act in respect of the compulsory acquisition of the substratum of its land. The Court of Appeal ordered that the issue of costs of the primary proceedings be remitted to the Land and Environment Court (see order 3). 4 Expandamesh submits that notwithstanding the outcome of the appeal, the Court should order Sydney Metro to pay Expandamesh's costs of the primary proceedings, for the following reasons. 5 The Court had previously stated (at least on a preliminary basis) that Sydney Metro, as the acquiring authority, should pay Expandamesh's costs of the primary proceedings even if (as has now occurred) Expandamesh was not entitled to any compensation for the acquisition of its land: see PJ[234]. With respect, the Court's reasoning in reaching that conclusion was correct and accords with settled principles: see PJ[232]-[235]: 6 The Court's reasoning accords with recent decisions of the Court of Appeal: see eg Dillon v Gosford City Council [2011] NSWCA 328; (2011) 184 LGERA 179 at [60]-[66] and [70]-[72] per Basten JA (with whom Macfarlan JA and Handley AJA agreed); and Roads and Maritime Services v United Petroleum Pty Ltd [2019] NSWCA 41; (2019) 99 NSWLR 279 at [67] per Basten JA (with whom Macfarlan and Payne JJA and Preston CJ of LEC agreed), and at [122] per Sackville AJA. 7 In Dillon v Gosford City Council, Basten JA stated the applicable principles as follows: "[60] The power to award costs in Class 3 proceedings in the Land and Environment Court arises under s 98 of the Civil Procedure Act. That section provides that "costs are in the discretion of the court": s 98(1)(a). The provision is said to be subject to rules of court and to any Act: the primary rule in that regard is UCPR r 42.1, which provides that "the court is to order that costs follow the event unless it appears to the court that some other order should be made … ". However, as the Council pointed out in a note following the hearing of the appeal, r 42.1 is an excluded provision in respect of proceedings in classes 1, 2 and 3 of the Land and Environment Court's jurisdiction: UCPR, Schedule 1. Accordingly, the discretion remains unfettered, in the sense that there is no presumption that costs should follow the event. Although the primary judge referred to assessing costs on an "issues won and lost" basis, it does not appear that he placed explicit reliance upon a principle that costs should follow the event, which would, in the circumstances, have been erroneous. … [63] In Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2010] NSWLEC 27 at [35] Biscoe J identified a general principle that "a person who has had their land taken by way of compulsory acquisition should not bear their own costs, but rather should be allowed to access the Court to present an arguable and well organised case without being deterred by the prospect of being ordered to pay costs if the case proves unpersuasive". Jagot J stated in Simpson v Bagnall [2008] NSWLEC 79 at [10] that "in the ordinary course, a dispossessed owner can expect to obtain the usual order for costs in their [sic] favour, particularly when the amount of compensation determined is greater than that offered by the resuming authority". [64] The principle thus stated was expressed in similar, though less unequivocal, terms by Wilcox J in Banno v Commonwealth of Australia (1993) 45 FCR 32 at 51. However, the underlying principle has a longer history, a clear exposition being found in the judgment of Wells J in Minister for the Environment v Florence (1979) 21 SASR 108 at 134-135. … [70] … [A] claimant for compensation in respect of a compulsory acquisition should usually be entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense. [71] That approach is also consistent with the absence of any general presumption that costs should follow the event: 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. [72] Whether steps taken in maintaining proceedings are reasonable will depend upon the circumstances of the particular case. These may include a comparison between the positions adopted by the parties at the commencement of proceedings and the final outcome. To the extent that a claimant obtains less than the valuation provided by the Valuer General, the claimant has been unsuccessful in the litigation. That will be a factor to be taken into account, but the weight given to that factor may depend upon the extent of the failure. The Court may also take into account the time and expense incurred in relation to specific items. Beyond such general statements, it is unhelpful to go, lest the very generality of the discretion be thought to be fettered in some way. In short, the purpose of an award of costs must be taken into account, namely to compensate the party for expenditure incurred in the course of litigation; the nature of the litigation and the reasonableness of the conduct of the litigation are central considerations." 8 Expandamesh acted reasonably in pursuing the proceedings, and it did not conduct the proceedings in a manner which gave rise to any unnecessary delay or expense. That being the case, Expandamesh, as the claimant for compensation in respect of a compulsory acquisition of part of its land, is entitled to recover its costs of the proceedings. 9 The commencement and maintenance of the proceedings by Expandamesh was eminently reasonable in circumstances where there were no previous decisions as to the proper construction or application of clause 2(1) of Schedule 6B to the Transport Act (or the equivalent provision in section 62(2) of the Just Terms Act). The proceedings raised a novel issue of general importance which was eminently arguable, and the resolution of the proceedings has contributed in a material way to the proper understanding, development and administration of this important point of the law: see eg Caroona Coal Action Group Inc v Coal Mines Australia Pty Ltd (No 2) [2010] NSWLEC 59; (2010) 173 LGERA 280 at [60]-[61] per Preston CJ. 10 Expandamesh's land had been compulsorily acquired. Expandamesh was not in a position to know whether it was entitled to compensation until the proper construction and application of clause 2(1) had been decided by the courts. In these circumstances it could not be said that Expandamesh acted unreasonably in commencing and maintaining the proceedings. To suggest otherwise is to say that, its land having been compulsorily acquired, it was unreasonable for Expandamesh to commence proceedings for compensation when there was unresolved question about whether it was or was not entitled to compensation. 11 That the issue raised by Expandamesh in the proceedings was a novel issue of general importance and eminently arguable is reinforced by (a) the fact that the Court found in favour of Expandamesh in the primary judgment, and (b) following the primary proceedings, Sydney Metro agreed to pay Expandamesh's costs of the appeal proceedings regardless of the outcome so that there was a contradictor in the Court of Appeal (in circumstances where Expandamesh was otherwise going to file a submitting appearance in the Court of Appeal). 12 The proceedings follow the Court's earlier decision in Landan Developments Pty Ltd v Sydney Metro [2019] NSWLEC 65, in which the Court decided a related question about the construction and operation of clause 2(1) of Schedule 6B to the Transport Act, namely whether the circumstances identified in paragraphs (a), (b) and (c) of clause 2(1) were limited to circumstances of the kind specified that have occurred after the construction of the relevant underground rail facilities: see Landan at [65]. In Landan, Sydney Metro properly accepted that it should pay the costs of the applicants regardless of the outcome of the hearing of the separate question: see Landan at [63]. That was no doubt because the matter was a "test case" arising in Class 3 proceedings concerning a claim for compensation in respect of a compulsory acquisition. Sydney Metro should take the same position with respect to costs in the present case, being a "test case" arising in Class 3 proceedings concerning a claim for compensation in respect of a compulsory acquisition. 13 For these reasons, the Court should order Sydney Metro to pay Expandamesh's costs of the primary proceedings as agreed or assessed.

The costs submissions for Sydney Metro

The costs submissions for Sydney Metro were in the following terms: Introduction 1. These submissions are made in response to the applicant's submissions on costs dated 15 September 2023 (AS). For the reasons that follow, the applicant should be ordered to pay the respondent's costs. In the alternative, each party should bear their own costs. The costs orders made by this Court on 31 August 2022, however, should not be disturbed. Argument 2. Section 98 of the Civil Procedure Act 2005 (NSW) (CPA), which applies to all civil proceedings in, relevantly, Class 3 of this Court's jurisdiction by reason of Sch 1 to that Act, provides that costs are in the discretion of the Court (s 98(1)). Ordinarily, costs follow the event. Where, as here, an appeal has been determined favourably to a party, in the ordinary course that party is entitled to their costs at first instance. 3. In cases in this Court's Class 3 jurisdiction (including compulsory acquisition cases), there is no presumption as to costs either way. Thus, in Serbian Cultural Club 'St Sava' Inc v Roads and Traffic Authority (NSW) (No 2), Jagot J, then a member of this Court, observed that "[t]he cases show that there are no hard and fast rules leading to any automatic results. The discretion with respect to costs is a broad one that must be exercised judicially having regard to all of the relevant circumstances." 4. That observation coheres with the judgment of the Court of Appeal in Dillon v Gosford City Council. The principles articulated in that case are as follows: a) A claimant for compensation in respect of a compulsory acquisition "should usually be entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense". b) The owner who has been compulsorily dispossessed of an interest in land "is entitled to take reasonable steps to seek the judgment of the Court in respect of the adequacy of any compensation offered". c) Whether reasonable steps have been taken "will depend upon the circumstances of the particular case". Those circumstances include "a comparison between the positions adopted by the parties at the commencement of proceedings and the final outcome". Whether a claimant has been "unsuccessful in the litigation" "is a factor to be taken into account, but the weight given to that factor may depend upon the extent of the failure". 5. More recently, in Roads and Maritime Services (NSW) v United Petroleum Pty Ltd, Basten JA added that "the final outcome remains a relevant consideration, particularly where a claimant has raised a number of issues capable of substantially affecting the compensation awarded, but has failed on all the major points". It follows that the applicant's suggestion (at AS [5]-[6] and [8]) that the final outcome of its claim for compensation is not relevant to the Court's exercise of discretion in s 98 of the CPA is not supported by the authorities. 6. In the present case, the weight given to the final outcome must be substantial. Not only was the applicant wholly unsuccessful (which alone sets the present case apart from Dillon and United Petroleum), but it also failed to satisfy a precondition to the exercise of its right in s 37 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) to be paid compensation in accordance with Part 3 of that Act. The Court of Appeal described it as a "threshold question". It is also of relevance that in Dillon the applicant for compensation was "a person who has had their land taken" and a "dispossessed owner". That is not a factually analogous description of the applicant in the present case. In this case, the applicant has lost a substratum of land that it was not using, and was almost certainly never going to use. The acquisition of that substratum, far from causing any inconvenience or disruption to the applicant, has instead increased the value of its land, as found in the first instance judgment. 7. Offers of settlement made in a proceeding are relevant to the exercise of the Court's costs discretion. The respondent made two offers to settle these proceedings in accordance with the principles in Calderbank v Calderbank. The first was made on 5 March 2021 and the second on 9 September 2022. Each invited the applicant to discontinue its application. The latter spelled out the reasons why the application would fail, including that the applicant did not meet the threshold criteria in cl 2(1) of Sch 6B to the Transport Administration Act 1988 (NSW), and, importantly, offered to pay the applicant's reasonable costs of the proceedings up to and including the filing of a notice of discontinuance. The latter offer was a generous one. It was a genuine offer of compromise, made at a time when the parties' evidence had been filed and served. The terms of the offer were clear and the reasons why the offer was made on the terms proposed (and the applicant's prospects of success were slim at best) were comprehensive. The letter foreshadowed an application for indemnity costs should the offer not be accepted. In these circumstances, it was at a minimum unreasonable for the applicant not to accept the second offer. 8. The applicant's reliance (AS [5]) on observations made by this Court as to what order it may have been minded to make as to costs had the applicant been unsuccessful in establishing an entitlement to compensation in the sum of $20,000 is misplaced. Since that time the Court of Appeal has delivered judgment and the settlement offers made by the respondent have been drawn to this Court's attention. 9. The fact that this case raised a question of statutory construction is not significant so far as the exercise of this Court's discretion is concerned (cf AS [9]-[12]). While the question was important to the parties, there was nothing in the judgment of the Court of Appeal to suggest that the question was particularly complex. And whether or not the applicant's position was "arguable" (AS [9]), it remains the case that the applicant was not just wholly unsuccessful but failed to overcome a jurisdictional threshold. A claim for costs made by the respondent is not met simply because the applicant's contentions were "arguable". There is no presumption in favour of a claimant however meritorious or unmeritorious their claim. 10. Further, the applicant is wrong to submit that "there were no previous decisions as to the proper construction or application of … the equivalent provision in section 62(2) of the Just Terms Act" (AS [9]): Leeming JA and Griffiths AJA identified the Court of Appeal's judgment in Hornsby Shire Council v Gosper as one such case. As the passage quoted at [73] of the joint judgment shows, the Court in Gosper said this about s 62(2): The section draws a distinction between a right to disturb the landowner's use of the land on the surface and the case where there is no such right in which case compensation is limited to actual damage and, in the case of a tunnel, this only to the extent that the surface of the overlying soil is disturbed or the support of the surface is destroyed or injuriously affected by the construction of the tunnel (subs (2)). 11. The applicant's description of the present case as a "test case" (AS [12]) is inapt. This was not a case involving vindication of the public interest or the articulation of a principle of law having general application. Rather, it concerned principally the proper construction of a provision in a statute and its application to a dispute involving the exercise by a private entity of a right conferred on it by a different statute. In any event, the respondent is not bound by the approach that it took in a different case in this Court (cf AS [12]). 12. Finally, the applicant does not obtain any assistance from the fact that, after this Court delivered judgment, the respondent "agreed to pay [the applicant]'s costs of the appeal proceedings of the outcome so that there was a contradictor in the Court of Appeal" (AS [11]). That offer was made for a particular reason - to ensure that there was a contradictor in the Court of Appeal - and said nothing as to whether application of the principles enunciated in cases such as Dillon required that the respondent pay the applicant's costs of the proceeding in this Court. Moreover, despite that offer, the Court of Appeal made no order as to the costs of the appeal. Conclusion and orders sought 13. For the foregoing reasons, the applicant should be ordered to pay the respondent's costs of these proceedings on the ordinary basis up to and including 15 September 2022 and on an indemnity basis from 16 September 2022. 14. Alternatively, the Court should order each party to bear its own costs. However, to order the respondent to pay the applicant's costs in circumstances where the latter did worse in the Court of Appeal than merely to fail to obtain any compensation would also involve misapplication of Dillon (and cases in the Court of Appeal that have followed it).
As can be seen from the above set out costs' submissions on behalf of Sydney Metro, two offers of compromise were made to the Company prior to the commencement of the first instance hearing before me. As can also be seen, Sydney Metro relies on the second of those offers (one dated 9 September 2022 and which was open for acceptance until 15 September 2022) as to setting the time from which Sydney Metro submits, on its primary position, that the Company should pay its costs up until that the expiry of the offer on the ordinary basis and, thereafter, on the indemnity basis.
No reliance for the purposes of a costs' outcome is placed by Sydney Metro on its first letter of offer to the Company. I will later address how the second letter of offer should (or should not) influence the outcome of this costs' determination. It is sufficient, for present purposes, to note that a copy of the second letter of offer is reproduced as Annexure A to this judgment.

The reply costs submissions for the Company

The reply costs submissions for the Company were in the following terms: 1. In its written submissions on costs filed 29 September 2023 (RS), Sydney Metro submits that not only should it not be ordered to pay Expandamesh's costs but also applies for an order that Expandamesh pay its costs of the proceedings, including on an indemnity basis from 16 September 2023. Sydney Metro's application for costs should be refused. 2. Having regard to the significance of Sydney Metro's application for costs (including indemnity costs), which it had never previously foreshadowed, the response to Sydney Metro's submissions necessarily extend beyond the directed 2-page limit, Therefore, Expandamesh seeks the leave of the Court to submit this 4-page written submission. 3. In response to RS [2]-[5], the principles applicable to the awarding of costs in Class 3 compensation claims are clear. Those principles have been stated by the Court of Appeal in Dillon v Gosford City Council and other cases and are binding on the Court: see AS [6]-[9]. To the extent that Sydney Metro submits in RS [2]-[5] that the Court should depart from or ignore those principles, those submissions should be rejected. 4. In RS [5], Sydney Metro cites the Court of Appeal's decision in Roads and Maritime Services v United Petroleum Pty Ltd (2019) 99 NSWLR 279 at [67] but ignores the critical passages in that paragraph. The full statement of principle in United Petroleum is as follows: "So far as the principles governing costs in the Land and Environment Court in proceedings under the Just Terms Act were concerned, the parties were in agreement that the Court had an unfettered discretion, which was properly exercised in accordance with the approach adopted in Dillon v Gosford City Council. Accordingly, and as a general principle, "a claimant for compensation in respect of a compulsory acquisition should usually be entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense." Nevertheless, the final outcome remains a relevant consideration, particularly where a claimant has raised a number of issues capable of substantially affecting the compensation awarded, but has failed on all the major points. On the other hand, it is also a relevant consideration that the appellant was successful at trial on two major aspects of its claim, based on principles derived from decisions of this Court. In these circumstances, the appellant's [ie RMS] claim for costs of the trial should be rejected. United, although having ultimately been entirely unsuccessful, should retain its costs of the trial, having acted reasonably in pursuing the proceedings at that stage." 5. Applying those principles, Expandamesh should be awarded its costs of the trial, as previously submitted in AS [8]. Nowhere in its submissions does Sydney Metro suggest that Expandamesh acted unreasonably in pursuing the proceedings or conducted the proceedings in a manner which gave rise to unnecessary delay or expense. Indeed, in the United Petroleum case, the applicant ultimately failed on all issues but the Court rejected the submissions by RMS that the applicant should not be awarded its costs of the trial. For the same reasons, the Court should reject Sydney Metro's submissions in the present case. 6. In response to RS [6], Expandamesh was unsuccessful only because it failed on the threshold question concerning the operation of clause 2(1) of Schedule 6B to the Transport Act. That was the important question of principle which this Court and the Court of Appeal were required to resolve in the proceeding. Otherwise, Expandamesh would have been awarded compensation. Rather than that being a factor weighing against Expandamesh being awarded costs, the fact that it failed only on the important threshold question is a factor which weighs in favour of awarding Expandamesh its costs of the proceedings, as previously submitted in AS [9]-[11]. 7. In further response to RS [6], Sydney Metro's submission that Expandamesh should be denied its costs because only a substratum of its land was acquired, and because the Court found that the Sydney Metro project in fact increased the value of its land, should be rejected. The submissions are entirely unsupported by authority. In particular, there is no principle to the effect that an applicant should be denied its costs of the proceedings whenever the Court finds that the acquisition of part of its has resulted in betterment. Nor is there any principle that an applicant should be denied its costs where the land which is acquired is (according to the acquiring authority) of no use or little use to the applicant. 8. In response to RS [7], there are several reasons why Sydney Metro's offers have no costs consequences. First, the offers were not offers of compromise made under UCPR r 20.26 and therefore do not engage the costs rules in UCPR Pt 42 Div 3. Second, the offers purported to be Calderbank offers as so must be assessed against the relevant principles applicable to Calderbank offers. Third, Sydney Metro does not make any submissions as to how the offers satisfy those principles or why the offers justify Sydney Metro being awarded its costs, including on an indemnity basis. Fourth, the offers clearly do not satisfy the applicable principles because they are merely offers to capitulate: Sydney Metro invited Expandamesh to discontinue the proceedings without the payment of any compensation. The offer to pay Expandamesh's costs up to the date of the offer was not "generous" because, applying the usual rule as to costs of Class 3 compensation claims (set out above), Expandamesh would be entitled to its costs of the proceedings if it ran the proceedings and was unsuccessful. Offers to capitulate are not complying Calderbank offers. 9. In response to RS [9]-[10], Sydney Metro's submissions to the effect that the issues raised in this case were not particularly important or complex or novel should not be accepted. This case was the first to consider the question of the proper construction of clause 2(1) of Sched 6 to the Transport Act (and s 62(2) of the Just Terms Act). Contrary to Sydney Metro's submissions, the proper construction of that provision had not been considered in any previous decisions. Hornsby Shire Council v Gosper concerned the construction of s 62(2) of the Just Terms Act, not s 62(1), and had limited relevance (if any) to the proper construction of clause 2(1) in this case. 10. In response to RS [11], Sydney Metro's submissions that it is "inapt" to describe the proceedings as a "test case", and that the proceedings did not raise any principle of general application or importance, is wrong, in particular when this proceeding is considered in the context of the series of proceedings which preceded it. In particular: (a) In 2018, at least three applicants filed Class 3 compensation claims against Sydney Metro which raised issues concerning the construction of clause 2(1) of Schedule 6B to the Transport Act: Landan Development Pty Ltd, Opera Australia and Altmonte Holdings Pty Ltd. On 31 August 2018, at the initiative of the Court, directions were made for the hearing of a separate question in those three proceedings. (b) On 20 June 2019, the Court delivered judgment in Landan Development Pty Ltd v Sydney Metro [2019] NSWLEC 65 (Landan) which answered the separate question in the three proceedings. As at the date of the decision, there were six proceedings in the Court's list for which the determination of the separate question was potentially relevant: see Landan at [11]. The Court determined at [56]-[61] that there should be a second separate question with all parties being entitled to be heard. (c) On 13 September 2019, the Court made directions for the determination of the second separate question (which orders were formally made on 2 October 2019). During that directions hearing, the Court raised the question of mediation, to which counsel for Sydney Metro replied: "Our client is normally always… content to participate in mediation. But these are questions in the nature of the test case on essentially the legal meaning of the threshold provisions… If we mediate the… test case, then it will not… be a test case". As a consequence, the Court determined the proceedings should not be sent for mediation. Counsel for Opera Australia referred to the potential impact this might have on any subsequent costs order. In short, Sydney Metro, as it was entitled to do, would not compromise because it wanted a determination as to the proper construction of clause 2(1) due to its importance. (d) On 8 April 2020, Robson J delivered judgment in Opera Australia v Sydney Metro [2020] NSWLEC 28 (Opera Australia). Due to the practical difficulties which arose from the evidence filed by Sydney Metro (which were unforeseen at the time the orders were made on 2 October 2019), Robson J held that the second separate question was not an appropriate means of determining the proper construction of clause 2(1). As a consequence, the "test case" as to the proper construction of clause 2(1) was to be determined as an issue in the final hearing. 11. It was in this context that Expandamesh commenced these proceedings in 2020, which ultimately became the "test case" as to the proper construction of clause 2(1). Given the history detailed above, it is peculiar that Sydney Metro would contend otherwise. That was the very description given by its counsel to the proceedings then before the Court, which raised exactly the same issue as the present proceedings. 12. In response to RS [12], contrary to Sydney Metro's submissions, the fact that Sydney Metro was willing to pay Expandamesh's costs of defending Sydney Metro's appeal in the proceedings so that there would be a contradictor, demonstrates the novelty and public importance of the issue raised in the proceedings as to the proper construction of clause 2(1). Indeed, in its written submissions in the Court of Appeal, Sydney Metro stated (at [5]): "The Appellant has agreed to pay the Respondent's costs of the appeal and so seeks an order to this effect. This agreement was reached in part to facilitate the active participation of the Respondent in the appeal on this appeal ground which raises an important issue of statutory construction" (emphasis added). 13. In further response to RS [12], no significance attaches to the failure of the Court of Appeal to make any costs order. No doubt the Court, as did Expandamesh, took the view that such an order was unnecessary since Sydney Metro was bound by the agreement between the parties as to the costs of the appeal and that it would honour the agreement. 14. For the reasons set out above, Sydney Metro's application for costs, and its proposed costs orders, should be rejected. 15. The Court should order Sydney Metro to pay Expandamesh's costs of the proceedings.

Introduction

The history of costs considerations in compulsory acquisition compensation determination cases makes it clear that the fact of the dispute being one as to the entitlements to compensate a dispossessed owner gives rise to a more sympathetic consideration for costs outcomes for such owners. It is to be noted that, in [232] to [234] of my first instance decision earlier quoted, I set out a little of the costs history which provides guidance for me in my making of a costs' determination concerning the first instance hearing.
The competing positions advanced for the Company and for Sydney Metro on the question of costs at first instance are ones advocating starkly different proposed outcomes.
As can be seen, the Company proposes that it should have its costs of the first instance proceedings on the ordinary basis.
Sydney Metro proposes that the Company should pay Sydney Metro's costs up until the expiry of the offer contained in Annexure A (an offer characterised by Sydney Metro as constituting a Calderbank offer - the description derived from the decision in Calderbank v Calderbank [1976] Fam 93; [1975] 3 All ER 333) and, as a consequence of the Company rejecting that offer, Sydney Metro says that it should have its costs on the indemnity basis thereafter. In this context, is be noted that the offer is not suggested, by Sydney Metro, to be one made pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 - an offer of compromise provision that differs as to its requirements from what is required for a Calderbank offer.
I have earlier set out [232] to [235] of my first instance decision, explaining why I had concluded that, even if I was wrong about the Company's entitlement to compensation, I was satisfied that the Company should have its costs of the first instance proceedings (on the ordinary, as agreed or assessed, basis).
I now turn to reconsider whether (and, if so, to what extent) I should alter the position I set out at [236] of my first instance decision. This process must be undertaken after my consideration of the earlier set out submissions from the parties as to how each proposes I should now approach making a costs determination.

Costs for the period up to the expiry of Sydney Metro's second offer of compromise

As observed in the submissions advanced on behalf of the Company, the first instance hearing before me was, effectively, the second in a sequence - a sequence commencing with Landan Development Pty Ltd v Sydney Metro; Opera Australia v Sydney Metro; Altomonte Holdings Pty Ltd v Sydney Metro [2019] NSWLEC 65, a decision that dealt with when it might be appropriate for a landowner to commence proceedings after being dispossessed of a substratum for the purposes of constructing railway tunnels.
The first instance proceedings before me were, effectively, ones testing the scope of what might be necessary to satisfy cl 2(1)(a) or (b) of Sch 6B of the Transport Administration Act in order to permit a dispossessed substratum owner to be able to seek to access the processes established by the Just Terms Act and, thus, be able to seek to establish an entitlement to compensation for the compulsorily acquired substratum. It is, at this point, appropriate to set out the terms of the relevant provision in Sch 6B of the Transport Administration Act which had given rise to the issues which required determination at first instance. The provision is in the following terms: 2 No compensation for acquisition of land for underground rail facilities (1) If land under the surface is compulsorily acquired under the Land Acquisition (Just Terms Compensation) Act 1991 for the purpose of underground rail facilities, compensation is not payable under that Act unless - (a) the surface of the overlying soil is disturbed, or (b) the support of that surface is destroyed or injuriously affected by the construction of those facilities, or (c) any mines or underground working in or adjacent to the land are thereby rendered unworkable or are injuriously affected. (2) Section 62(2) of the Land Acquisition (Just Terms Compensation) Act 1991 does not apply to the compulsory acquisition of land under that Act for the purpose of underground rail facilities. (3) Expressions used in this clause have the same meaning as in the Land Acquisition (Just Terms Compensation) Act 1991. (4) This clause extends to the acquisition of land for the purpose of underground rail facilities before the commencement of this clause, but not so as to affect any payment or award of compensation made before that commencement.
In my first instance decision, I was required to determine whether either (a) and/or (b) of the above provision was engaged in the factual circumstances applicable to the Company's site - being circumstances which had arisen after the tunnelling had taken place (the Company's proceedings arising in a fashion consistent with my earlier decision in Landan).
As a reading of my first instance decision discloses, I held that (a) was satisfied, but that (b) was not satisfied. My finding was a finding of fact based on the geotechnical evidence. As earlier noted, I determined that the Company was entitled to compensation of $20,000 for the acquisition of the substratum and that the Company was not entitled to compensation for any loss of development potential for the site (as a consequence of such improvement development potential arising as a consequence of the public purpose - being the construction of Sydney Metro's project).
The finding of fact that I made based on the geotechnical evidence (that there had been a disturbance to the surface of the Company site, a disturbance of no more than 1.5 mm) was not challenged on appeal. A reading of the Court of Appeal's decision makes it clear that my error was holding that a surface disturbance of that small magnitude was to be regarded as de minimus non curat lex and not of such an extent as to open the gateway as required by cl 2(1)(a) of Sch 6B of the Transport Administration Act.
The factual conclusion as to the existence of disturbance is, I am satisfied, sufficient to demonstrate that the Company's commencing and running of the proceedings could not be regarded as so lacking in merit that they ought not to have been commenced and run (at least until the date of Sydney Metro's second offer expiring) - this being the first element of the submission by Sydney Metro that the Company should meet Sydney Metro's costs of the proceedings.
I earlier set out (in my first instance decision at [324]) the position of Tobias AJA in Brock v Roads and Maritime Services (formerly Roads and Traffic Authority of NSW) (2012) 191 LGERA 267; [2012] NSWCA 404 - the circumstances being fairly described as applicable to this element of the costs dispute requiring my determination.
As a consequence, I am satisfied that the Company is to be regarded as a dispossessed owner who has commenced proceedings (and continued those proceedings, at least until the expiry date of Sydney Metro's second offer) in a fashion that can be regarded as one which did not give rise to unnecessary delay or expense in its determination.
For these reasons, I am satisfied that the Company is entitled to its costs on the ordinary basis, at least until the expiry date of Sydney Metro's second offer of compromise.

Costs for the period after expiry of Sydney Metro's second offer of compromise

Introduction

I have earlier noted that, on 9 September 2022, Sydney Metro had made a second offer of compromise to the Company - the offer of compromise upon which Sydney Metro now relies. As earlier noted, a copy of that letter of offer is reproduced as Annexure A to this decision. There are two matters to be observed about the offer.
I now turn to consider what order should be made with respect to costs incurred from the date of expiry of Sydney Metro's second offer of compromise (the terms of which are set out at Annexure A). As can be seen from the terms of Annexure A, it sets out Sydney Metro's analysis of the evidence disclosed in the various joint expert reports as at that time.
It is not necessary to set out any of the detail advanced concerning this evidence - that detail can be seen by reading Annexure A. It is sufficient to note that Sydney Metro proposed that, on a proper understanding of that evidence, the Company should accept that its case was doomed to fail. As a consequence, Sydney Metro made an offer of compromise (then and now described as being a Calderbank offer) to the Company.
Two issues arise concerning this offer. These are: 1. whether or not Sydney Metro's second offer can properly be characterised as being a Calderbank offer. If it cannot (this being the position advanced for the Company in its costs' submissions in reply), it can have no effect in supporting Sydney Metro's claim to be paid its costs from the expiry of the offer with those costs to be on the indemnity basis; and 2. if Sydney Metro's second offer is correctly to be characterised as a Calderbank offer, what costs consequences (if any) should arise for the Company as a consequence of the Company's non-acceptance of the offer?
It is appropriate to record what was observed by the Court of Appeal as noted at [88] of the decision: 88. … The parties were agreed that there should be no order as to the costs of the appeal (Sydney Metro having agreed already to bear Expandamesh's costs of the appeal in order to have a contradictor), but the issue of the costs of the proceedings below will need to be remitted to the LEC.
The importance of a contradictor in the appeal proceedings is, in my assessment, reflective of the importance of settling the nature of what any applicant must satisfy in order to pass through the gate in cl 2(1)(a) of Sch 6B of the Transport Administration Act.
Although not argued before me in any formalised fashion as a test case, undoubtedly the Company's application provided an appropriate basis to commence the consideration of the boundaries of those provisions (just as my hearing and determination in Landan determined relevant timing of commencement of proceedings issues with respect to potential rail tunnel construction compensation claims).
Although ultimately unsuccessful for the reasons explained in the decision of the Court of Appeal, it is clear from a reading of my first instance decision that I did not consider that the Company's case was so fanciful that it did not warrant consideration and reasoned determination. This, I am satisfied, provides a pointer to the appropriate direction to be adopted in the determination of the costs of the proceedings before me at first instance.
The two relevant elements of the letter at Annexure A, which arise for consideration as to what should be the consequence (if any) of the Company rejecting the offer from Sydney Metro, are the second paragraph on page 3 of the letter and the terms of the offer itself, set out under the heading "Offer of Settlement", also on page 3 of Annexure A. These two paragraphs are set out below: Even if, contrary to the above, your client could satisfy the threshold criteria and Mr Dyson's evidence as to the amount of compensation was accepted in its entirety (and assuming your client obtained a costs order in its favour), having regard to the considerable costs expended by your client to date and those it would need to incur in preparation for and attending the upcoming hearing, the amount of costs your client would ultimately bear appears to be disproportionate to the amount of compensation your client would ultimately receive, on this best-case scenario. Offer of Settlement In light of these matters, I am instructed my client will consent to the discontinuance of these proceedings, on or before 15 September 2022, on the basis that my client will pay your client's reasonable costs of the proceedings up to and including the date of filing of the Notice of Discontinuance (excluding costs in respect of which the Court has made a costs order in these proceedings).
I am satisfied that the appropriate points for commencement of my consideration are the second to fourth propositions set out in paragraph (8) of the Company's reply submissions on costs. These propositions are in the following terms: 1. Second, the offers purported to be Calderbank offers as so must be assessed against the relevant principles applicable to Calderbank offers. 2. Third, Sydney Metro does not make any submissions as to how the offers satisfy those principles or why the offers justify Sydney Metro being awarded its costs, including on an indemnity basis. 3. Fourth, the offers clearly do not satisfy the applicable principles because they are merely offers to capitulate: Sydney Metro invited Expandamesh to discontinue the proceedings without the payment of any compensation. The offer to pay Expandamesh's costs up to the date of the offer was not "generous" because, applying the usual rule as to costs of Class 3 compensation claims (set out above), Expandamesh would be entitled to its costs of the proceedings if it ran the proceedings and was unsuccessful. Offers to capitulate are not complying Calderbank offers.

The Company's second proposition

Ritchie's Uniform Civil Procedure NSW addresses settlement/Calderbank offers, at 42.13.26, saying "the settled principle in NSW is that a settlement/Calderbank offer may justify a special order for costs, including an order for costs on an indemnity basis, if the final judgment is no more favourable than the offer".
The commentary also makes it clear that (citations omitted) the possibility of a special order for costs (indemnity costs) depends on the Court's satisfaction that: a. the offer must involve a genuine compromise; b. the rejection of the offer was unreasonable; and c. the offer sufficiently foreshadowed its use to support a special costs order.
One of the cases cited in the relevant Ritchie's analysis is SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323. In the decision, at [37], Giles JA said (citation omitted): 37. The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure…

The Company's Third proposition

The Company's third proposition is correct but it is reasonable for me to make the assumption that Sydney Metro advances its offer on the basis that Sydney Metro believed that it satisfied the relevant elements I have set out above concerning Calderbank offers.

The Company's fourth proposition

The footnote in the Company's submissions at the conclusion of the fourth of the propositions set out above is a reference to Bartlett v Australia & New Zealand Banking Group Ltd (No 2) [2016] NSWCA 142 at [26]. The relevant element of that paragraph is in the following terms (citations omitted): 26. In order to attract the consequences of a Calderbank offer, the offer must involve a real element of compromise, rather than an invitation to capitulate:
In this instance, in the face of the agreed evidence of the geotechnical experts that there had been a disturbance of the surface of the Company's land (albeit even if only one of 1.5 mm) Sydney Metro's offer did amount to capitulation in circumstances where the Company was entitled to test (succeeding before me, but failing on appeal) whether the agreed extent of disturbance did open the gateway required by cl 2(1)(a) of Sch 6B of the Transport Administration Act. Although unsuccessful on appeal, I do not consider that it was unreasonable under the circumstances for the Company not to accept Sydney Metro's offer.
I expressly note that, in drawing that conclusion, I have made a finding based on the assumption that these proceedings should be assessed against standards applying in "plain vanilla" and conventional civil litigation. That is sufficient to dispose of the proposition that Sydney Metro should be entitled to its costs (whether on the indemnity basis or not) from the date of expiry of the offer set out in the correspondence at Annexure A.

These are compulsory acquisition proceedings

However, as is made abundantly clear from the earlier historical authorities (particularly the decision of the Court of Appeal in Brock), these are not conventional civil litigation proceedings - in that they are proceedings where a dispossessed landowner is seeking compensation for the compulsory acquisition of, in this case, a substratum of the dispossessed owner's (the Company's) land.
Although it is unnecessary for the purposes of reinforcing the conclusion which I have set out above, it is clear from the extract from SMEC Testing earlier set out that the non-acceptance of an offer (even if otherwise entirely conventionally compliant) does not automatically lead to a costs order against the party not accepting the offer.
Two examples of where there has not been such a consequence in Class 3 compensation proceedings are Tempe Recreation (D.500215 and D.1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 421; [2014] NSWCA 437 and Croghan v Blacktown City Council [2019] NSWCA 2480.
In this instance, I am satisfied that it was not unreasonable for the Company to reject the offer and to continue to test whether it was entitled to compensation. As a consequence, with respect to the second element of Sydney Metro's claim - for an award of costs to it on the indemnity basis from the date of the expiry of the offer contained in the letter at Annexure A, this claim must also be rejected.

Conclusion

In [325] of my first instance decision (earlier set out at [6]), I indicated that I considered that the Company was entitled to its costs of the proceedings before me even if I was wrong about the Company's entitlement to any compensation for the acquisition of the substratum. Consistent with the principles applicable to Class 3 compensation proceedings, I am satisfied that the Company, in pursuit of its claim, did not act unreasonably nor did it cause unnecessary delay or expense in its pursuit of its claim. Under those circumstances, I remain of the view that the Company should be awarded its costs of the first instance proceedings.
However, two earlier orders made by me in earlier preliminary proceedings require to be preserved. I have done so in the orders set out below.

Costs of the costs' consideration.

I can see no basis why, in light of the overall conclusion which I have reached for the reasons set out above, that I should not order that the costs incurred by the Company in addressing these costs' considerations should also be paid by Sydney Metro.

Orders

The orders of the Court, therefore, are: 1. The Respondent is to pay the Applicant's costs of the first instance hearing as agreed or assessed, other than the costs subject of the order made on 27 April 2022 that there be no order for costs arising from the determination of the challenge by the Respondent to the Applicant's Notice to Produce served on the Respondent (Expandamesh Pty Ltd v Sydney Metro [2022] NSWLEC 43) and the costs order in the Respondent's favour made on 31 August 2022 (Expandamesh Pty Ltd v Sydney Metro (No 2) [2022] NSWLEC 109); and 2. The Respondent is to pay the Applicant's costs of these costs' considerations as agreed or assessed.

Annexure A.pdf 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: 18 October 2023

(2012) 191 LGERA 267

(2011) 184 LGERA 179

(2010) 173 LGERA 280

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Cases Cited (23)