JAMES EDWARD BROMLEY & ORS v FORESTRY COMMISSION OF NSW

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 1847/96 FILE NUMBER(S) : LOWER COURT Macready AJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41088/02 CA 40164/03

MASON P MEAGHER JA SHELLER JA

FACTS Orders made by this Court in Bromley& Ors v Forestry Commission of New South Wales (2001) 51 NSWLR 378 declared that on the proper construction of special condition (n) of a Crown lease, the respondent was to pay the appellants one third of any royalty received on timber removed from the forest areas of the lease, to compensate for damage done to the appellants' interests in the leaseholding by licensed timber operations.

The appellants sought to prove that they had suffered compensable damage as a result of the leasehold land being no longer useful for grazing, due to debris on the ground from the forestry operations. The appellants sought to quantify their loss by reference to the cost of clearing the debris from forestry operations. Macready AJ held that no damage was in fact done, because the residue from the logging operations had not inhibited the use of the property for grazing; on the contrary, it made grazing easier.

On appeal, the appellants submitted that they were entitled, at their election, to recover the cost of reinstatement of the land regardless of whether the debris had diminished its value. They argued that the mere presence of residue, including stumps and treetops, represented "damage done to [their] interests in the holding by licensed timber operations" in terms of special condition (n).

HELD per Mason P, dismissing the appeal with costs (Meagher JA and Sheller JA agreeing):

1. Macready AJ did not err in concluding that the appellants had to prove that the land was useful for grazing or other economic activity before there could be "any damage done to [their] interests in the holding" in terms of special condition (n). Macready AJ's conclusion was in accordance with the case put before him by the appellants. [21]

2. The appellants are not entitled to compensation based on either diminution in value of the land, or the reasonable cost of its reinstatement. [41], [43] (a) The presence of debris from logging operations is not of itself compensable "damage" within special condition (n). [22], [43]-[44] (i) The focus of attention required by condition (n) is the loss stemming from the licensed timber operations. [23], [35], [42] (ii) There was no evidence that the debris was a matter of concern to the appellants or that they wished to have it removed. [39]-[40] (iii) Not every disturbance of the status quo is causative of loss. The debris from the logging operations did not inhibit the use of the property or grazing. On the contrary, the logging operations were actually found to have enhanced the grazing capacity of the land, notwithstanding the residual debris. [36]-[37], [40] (iv) Expert evidence tended to confirm the primary judge's conclusion that no economic damage stemmed from the licensed timber-cutting operations. [38] (b) Reinstatement or restoration must be a reasonable and proportionate response to the damage before the cost of reinstatement can be the measure of damages: Evans v Balog [1976] 1 NSWLR 36 at 40; Parramatta City Council v Lutz (1998) 12 NSWLR 335E. [41] (i) The appellants did not show that it would be reasonable to spend money removing the debris, since no compensable damage had been proved. [43]

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41088/02 CA 40164/03

MASON P MEAGHER JA SHELLER JA

BROMLEY & ORS v FORESTRY COMMISSION OF NSW JUDGMENT

1 MASON P: These proceedings are a sequel to Bromley v Forestry Commission of New South Wales (2001) 51 NSWLR 378. The factual and legal background is there set out. 2 Orders 5 and 6 made in that appeal were: 5. Declare that upon the proper construction of special condition (n) of the Crown lease 1919/1 the appellants are and were entitled to be paid by the respondent compensation for any damage done to their interests in the lease holding by licensed timber operations to the amount of one-third of any royalty paid to the respondent on timber removed from the forest areas of the lease. 6. Order that the issue whether the appellants have suffered any damages to their interests in the Lease holding by reason of the activities of licensed timber operations and, if so, the amount of any such damage be remitted to the Equity Division for hearing. 3 Examination of my reasons (at 394-6) and those of Heydon JA (at 397-8) discloses that the Court somewhat indulgently allowed the appellants a second run at the target in their attempt to prove that any damage falling within special condition (n) had actually occurred. Compensation was to be ascertained in the course of an inquiry that would also determine the quantity of royalties received by the Forestry Commission from licensed timber cutting activities in the "forest area". 4 Special condition (n) provides: The lessee shall be allowed compensation to the amount of one-third of any royalty paid to the Crown on timber removed from the forest area, to cover any damage done to his interests in the holding by licensed timber operations.

5 I discussed the scope of condition (n) in the earlier Bromley decision at 381: 10. Compensation is for damage done to the lessee's interests in the Crown lease by licensed timber operations. The licence and its statutory incidents define the nature and extent of activities that may give rise to a right of compensation. However, for the purpose of condition (n) these activities are not confined to the loss stemming directly from the removal of timber. Indeed, it is arguable that the mere abstraction of royalty-bearing timber falls outside the condition once it is understood that, from prior to the commencement of the Forestry Act 1916 , there has existed a regime of royalty sharing between the Crown and the holder of tenures such as a Crown lease, such royalties being calculated by reference to quantities of timber removed under licence. In these circumstances, it appears unlikely that the very act generating a right to a share of royalty could itself be a form of "damage" within condition (n). This point was not argued, so it is merely flagged as a possible view of the construction of condition (n). 11. With this possible qualification, the "damage" addressed by condition (n) is not confined to direct disturbance of the physical environment through licensed timber-getting operations. Indirect losses, such as interference with quiet enjoyment or with the exploitation of the farming capacity of the land, are undoubtedly included.

Heydon JA and Ipp AJA agreed with these reasons. 6 The proceedings returned to the Equity Division where a judge ordered that the compensation claim (together with an additional claim for damages based on special condition (k)) be determined by a Master. Master Macready commenced the inquiry when he was a Master and continued it to completion during a term as an Acting Judge. 7 The parties agreed that the royalties totalled $522,830, which meant that compensation under special condition (n) was capped at $174,277. The claims for compensation under condition (n) and for damages for breach of condition (k) were dismissed (see Bromley v Forestry Commission [2002] NSWSC 883). Costs generally followed the event. 8 On 25 November 2002 the appellants filed a Notice of Appeal challenging the dismissal of the claim for compensation under condition (n) and the ensuing costs order. 9 The appeal was supported by a rule 8 affidavit sworn by the appellant's father on 27 November 2002, which established that more than $100,000 was at issue in the appeal but did not address the arguably interlocutory nature of the order under appeal. 10 On 14 February 2003 the Crown Solicitor's Office, representing the Commission, asserted that the appeal was incompetent because Macready AJ's orders were interlocutory. A Notice of Motion seeking to have the appeal struck out as incompetent, with an ancillary order extending the time fixed by Part 51 r25(1) of the Supreme Court Rules, was filed that day. 11 The appellants' solicitors disputed the assertion of an incompetent appeal, but properly countered with a defensive summons for leave to appeal. 12 At the commencement of the hearing the Court indicated a provisional view that the appeal was incompetent but that it was an appropriate matter for the grant of leave. We also indicated that it seemed appropriate that the respondent bear the costs thrown away by the delay in objecting to the incompetency of the appeal. The parties acquiesced (except in relation to the proposed costs order) and they went straight to the substantive issues. 13 In my view the appeal was incompetent because the inquiry relating to compensation under condition (n) represented no more than the working out of the rights pronounced by this Court in the earlier appeal. The leading case is Derrawee Pastoral Company Pty Ltd v McConochie (unreported, Handley JA, 24 February 1995) where the principles are set out. That decision has subsequently been approved by this Court in Kara Kar Holdings Pty Ltd v Brookton Holdings (unreported) 27 March 1997 at 10, Pollicino v Pollicino [2000] NSWCA 4 at 2 and 7, and Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146 at pars 35 and 36. 14 Before Macready AJ, the appellants sought to prove that the leasehold land was no longer useful for grazing with the consequence that they suffered compensable damage. The land was said to be no longer useful for grazing because of (a) debris on the ground from the forestry operations; and (b) damage to internal and boundary fences caused by logging. 15 The primary way in which the appellants sought to quantify their loss was by reference to the cost of clearing the debris resulting from forestry operations. 16 The compensation claim failed. The primary judge held that no damage was in fact done, because the logging operations and their residue made grazing no more difficult. They in fact made it easier. The reasons are set out by Macready AJ at pars 19-29 of his judgment. 17 The learned acting judge resolved conflicts in the evidence in a manner attracting no criticism. Having done so, he concluded that the debris (including stumps) did not prevent cattle mustering by dogs rather than horses. He also held that the difficulties in mustering due to the terrain were more substantial prior to logging than afterwards. He concluded (at [22]) that the actual debris resulting from the logging operations had not inhibited the use of the property for grazing purposes. 18 As regards the fences, they were badly damaged before logging commenced and further damaged by a wind storm in 1998. Logging operations were not responsible for this damage. In any event, damage of this kind in the forest areas did not impede grazing elsewhere on the subject land. This aspect of the claim is no longer pressed. 19 Macready AJ concluded (at [29]): In the result I am not satisfied that the logging operations have caused any damage to the leaseholders' interest in the way put forward by the plaintiffs. I note that a valuer for the plaintiff who commented that the presence of the fallen timber made it less attractive could not quantify in money terms the effect this would have on the value of the holding.

20 The nub of the appellants' case in this Court is that the primary judge failed to consider a submission that the presence of debris and residue resulting from licensed timber operations was itself "damage" within special condition (n). The judge erred, it is submitted, because he wrongfully concluded that the appellants had to prove that the land was useful for grazing or other economic activity before there could be "any damage done to [their] interests in the holding". It was sufficient to prove that logging operations left debris that could have been removed. It was open to the appellants to claim compensation for that "damage" either based upon the diminution in value of the land or the reasonable cost of its reinstatement. Evans v Balog [1976] 1 NSWLR 36 at 39-40 and Parramatta City Council v Lutz (1998) 12 NSWLR 293 at 335 were cited. 21 This submission overlooks the way the case was fought below. There, the appellants set out to prove that logging operations interfered with the capacity to use the land economically by grazing. They did not suggest loss of amenity or a pleasant view. Macready AJ addressed the claim presented to him and held, correctly on the facts, that logging caused no interference in the capacity to use the land for grazing. The case that was addressed and rejected was that any leaseholder wishing to maximise the return for the land would have suffered consequential loss due to logging operations. 22 This leaves the appellants' submission that they are entitled, at their election, to recover the cost of reinstatement of the land regardless of whether the debris diminished its value. It is unnecessary to consider whether the submission was put below or the consequences for the appellants if it was not. In my view, the debris of itself is not "damage" within the special condition. 23 The focus of attention required by condition (n) is the loss stemming from the licensed timber operations. 24 The appellants claim compensation for the estimated cost of removing debris from the logged areas of the leasehold land. The evidence established that 1,378 hectares were logged. A quotation from Mulbring Agricultural Services dated 16 August 2001 indicated that the cost per hectare of clearing the debris was $950 per hectare (including stump removal) or $625 per hectare (excluding stump removal). This was the only evidence on the topic and, since it was unchallenged, it is capable of establishing the reasonable cost of removing the debris from the logged areas of the leasehold land as at August 2001. Macready AJ so regarded it (see his judgment at [9]) and he was in my view entitled to do so. 25 His Honour was also entitled to conclude on the evidence that approximately 70% of the debris then on site was attributable to the logging operations. Those operations had taken place between January 1986 and June 2001. 26 The licensed timber operations on the subject land involved felling between 39,500 and 46,700 trees. The trees were felled by being cut at a height approximately three feet above ground level. The log or logs were taken from the trunk of the tree. The head of the tree (the top of the trunk, including attached limbs and foliage) was cut off, usually below the first limb. The residue remaining after the removal of the log or logs comprised the tree stump, which remained in the ground, and the head of the tree and any branch removed, which remained on the ground. This apparently was normal logging practice and did not apparently contravene the licences granted to timber operators by the Commission.

Submissions on appeal 27 The appellants did not contest the factual conclusions of the primary judge. The thrust of their attack on appeal was the argument that the mere presence on and in the ground of residue from timber harvesting operations, including stumps and tree tops, represented "damage done to [their] interests in the holding by licensed timber operations". 28 The appellants laid emphasis upon the words "any damage" in condition (n). They submitted that the debris, especially the loose debris, represented direct disturbance of the physical environment through licensed timber operations, thus falling within condition (n) as exegeted in par [11] of my reasons in the earlier appeal. 29 One specific argument was based upon portion of the written evidence of Mr Irwin, a real estate valuer. His unchallenged evidence included the following: The existence on the lease of residue from timber operations (including tree tops) makes the lease less attractive than a comparable lease without such residue of timber operations. However, despite extensive research, I have been unable to obtain sales evidence of directly comparable properties that are without and with residue of timber operations present, and for that reason I am unable to quantify, in monetary terms, the extent of the affect of the timber operations on the lessees' interests in the lease.

30 The respondent submitted that condition (n) requires proof of damage to the leasehold interest. This, together with the earlier reference to "compensation" emphasises the need to prove something more than the disturbance of the status quo by logging operations. 31 According to the respondent, there was no evidence of the appellants' intention to remove the residue or debris or to do any other work in the affected areas. Nor was there evidence that a hypothetical reasonable leaseholder would have acted any differently. 32 Mr Irwin's evidence did not, it was submitted, establish any reduction in value consequent upon the logging operations. The inability of a valuer to place any monetary sum on the disturbance due to residue meant that the Court should conclude that the appellants had failed to establish any diminution in value. It was quite unreasonable in those circumstances to consider recovery of the cost of re-instatement as an alternative measure. To do so would be wholly disproportionate to the "damage" (if any) suffered.

Analysis 33 The respondent's submissions should be accepted. 34 The appellants' right is contractual, but it is a right to "compensation…to cover…damage done to [their] interests in the holding by licensed timber operations". 35 It was common ground that condition (n) invited the analogy of the tortious measure of damages. The tort analogy and the reference to "compensation" (cf Nelungaloo Pty Ltd v The Commonwealth (1948) 75 CLR 495 at 571) indicate that the focus is upon restoration of that which is lost. 36 It therefore cannot be the case that any disturbance of the status quo creates a right to compensation. Indeed, condition (n) recognises the Crown's right to authorise the removal of timber subject to the payment of royalties, a portion of which are paid in turn to the lessee. In these circumstances, it seems antithetical to condition (n) to read it as stating that the very act of timber cutting is itself damage. I adhere to the view expressed in the latter portion of par [10] of the earlier Bromley decision (see par 5 above). 37 Not every disturbance of the status quo is causative of loss. One can hypothesize that some timber clearance operations will enhance the earning capacity of the affected land and thereby, generally speaking, its value. (I say "generally speaking" because I could envisage a situation where the visual amenity of a forest area is itself value-enhancing.) In the present case it was found that the timber felling operations enhanced the grazing capacity of the subject land, even allowing for the stumps and debris left behind. 38 It may well be that certain activities carried out in the course of licensed timber operations will self-evidently damage the value of the leasehold. In those circumstances, it may be possible to say that some "damage" was done and a court may be obliged to do the best it can to put a monetary value on that damage in order to vindicate the lessee's right to "compensation". But this is not the present case. Mr Irwin's evidence did not take the matter any further, because he could not translate his aesthetic opinion (about the unattractiveness of the residue) into a monetary sum. Given an expert valuer's inability to do this exercise, a court should itself exercise caution. In reality, Mr Irwin's evidence tended to confirm the conclusions of the primary judge that no economic damage stemmed from the licensed timber-cutting operations. 39 There was no evidence to suggest that leaving the residue onsite presented any impediment to grazing or other operations, or any restriction upon the commercial exploitation of the leasehold. Nor was there any evidence that the debris was a matter of concern to the appellants or that the appellants wished to see its removal. Some of it had been there since 1986. The quotation from Mulbring Agricultural Services was obtained by the appellants' solicitor, presumably for litigation purposes to show the reasonable cost of clearing the debris, if ever this was wanted. 40 As indicated, Macready AJ found that the debris from the logging operations had not inhibited the use of the property for grazing purposes. This finding was well open in light of the silences in the appellants' case. I am not inferring some oversight on the part of the appellants' legal advisers. Everything points to the conclusion that the debris was simply not a matter of concern to the appellants, nor would it have been a matter of concern to any leaseholder placed in their position. Providing further support for this, senior counsel for the respondent has produced a helpful written submission which indicates, by reference to the evidence in detail, that the principal owner of the lease (Mr James Bromley) rarely visited the property; that the property never had a dwelling; and that there were no stock yards, fences or other improvements for the yarding of stock. There was indeed positive evidence that the area the subject of the logging was never suitable for pastoral use generally. The Lease obliged the appellants to obtain the Commission's permission to sub-let and such permission had never been sought. Accordingly, there was no evidence of any attempt to offer the subject area to third parties for agistment. 41 The cases relied upon by the appellants (Evans and Parramatta City Council) do not establish that a plaintiff can automatically elect between diminution of value or restoration costs in a tortious claim against a defendant who damages land or goods. Restoration and repair costs may be a way of valuing loss, but only if it is reasonable to do so. The touchstone remains loss. In some cases reinstatement would provide an unjust enrichment rather than a negation of loss. Reinstatement must be a reasonable and proportionate response to the damage before the cost of reinstatement can be the measure of damages (see Evans at 40, Parramatta at 335E, Trindade & Cane, The Law of Torts in Australia 3rd ed, 2000 pp 554-5, Fleming, The Law of Torts 9th ed, 1998 pp 282-3, McGregor on Damages 16th ed, 1997 pp965ff). 42 These considerations are, if anything, strengthened by the language of special condition (n). As indicated, the reference to "compensation" emphasises the need to demonstrate loss. So too does the reference to "damage done to [the leaseholder's] interests". 43 The appellant suggested that Mr Irwin's evidence showed the reasonableness of removing the debris and the appropriateness of treating such removal as a measure of the appellants' loss. I do not agree. It was at its highest an aesthetic opinion expressed by a valuer moving beyond his area of expertise. In light of the way that the case was fought below, the total absence of material from the appellants that the debris reduced the value of their land or caused them any concern, and the finding that it was a positive enhancement as regards mustering of stock, I am (like the primary judge) unpersuaded that any compensable damage (ie loss-causing damage) has been proved. The appellants have not shown that it would be reasonable to spend money removing the debris or the stumps. 44 The analogy of the damaged motor vehicle was invoked by the appellants. It is a poor analogy because the appellants were never entitled to have the forest put back to its pristine condition. They were entitled to be compensated for damage stemming from the timber-getting operations, but no relevant damage was proved.

Orders 45 In the circumstances the following orders should be made:-

1. Grant leave to appeal in accordance with the amended Notice of Appeal filed on 23 June 2003.

2. Appeal dismissed with costs. 46 MEAGHER JA: I agree with Mason P. 47 SHELLER JA: I agree with Mason P.

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