i

environmental audit costs amounting to $42,016.50;

ii

interest amounting to $9,536.38;

iii

legal costs on a solicitor-client basis taxed on County Court Scale D (failing agreement) for Micallef & Co Solicitors between 18 November 2004 and 6 April 2005 excluding:

a

compensation claims under the Planning and Environment Act 1987, s. 94;

b

referral of the file to Sica & Co as a result of Micallef taking leave of absence.

iv

All legal costs on a party-party basis taxed on County Court Scale D (failing agreement) for the compensation claim under the Planning and Environment Act 1987, s. 94.

Mr John Gaffney of counsel, instructed by Sica and Co, solicitors

1 Mr Borkovic ('the developer' and director of Keilor Homes PL) has found himself in an invidious position between the devil and the deep blue sea, to coin a phrase. He is the unfortunate purchaser of a vacant parcel of land that was a petrol station - together with a planning permit for redevelopment into five townhouses, which was silent as to environmental audit requirements.

2 After his purchase, the local council applied to VCAT pursuant to the Planning and Environment Act 1987, s. 87, to amend this planning permit which it had issued following a breach of its duty of care, resulting in him incurring consequential legal costs, unexpected costs associated with environmental audits and interest as a result of delay in commencing construction.

3 There is no doubt that the local council, exercising its planning powers under the Planning and Environment Act 1987, is responsible pursuant to cll. 13 & 14(4)(a) of the SEPP (Prevention and Management of Contamination of Land), for requiring certificates of environmental audit to be issued before any building work associated with a sensitive use has commenced. A residential development is one such sensitive use.

4 Council omitted including such a condition on its planning permit, hence triggering the need for a s.87 amendment.

5 This case concerns a claim under the Planning and Environment Act 1987, s.94 (2) (a) and to the extent that questions of law are involved, they have been adjudicated by the legal member, Mrs Tonia Komesaroff.

6 Section 94 (2) (a) reads:

If a permit is ..amended under this Division the responsible authority is liable to pay compensation to any person who has incurred expenditure ..as a result of the issue of the permit in respect of any of that expenditure which is wasted because the permit is cancelled or amended.

Parts 10 and 11 and section 37 of the Land Acquisition and Compensation Act 1986 with any necessary changes apply to the determination of compensation under this section as if a claim for compensation were a claim under section 37 of that Act.

8 The claims by Century Clothing Pty Ltd were settled with Brimbank CC in Terms of Settlement dated 12 September 2005.

9 The developer entered into a contract to purchase the subject land on 23 September 2004 together with a planning permit No. P020563 issued 16 May 2003 and accompanying plans endorsed 23 October 2003. He went to great pains in the contract provisions to commence the building process without delay.

10 Pursuant to special condition no. 7 of the contract of sale of land:

7. The Vendor will provide to the purchaser the building plans (sic) together with the planning permit to obtain a building permit thus forming part of this contract.

11 Pursuant to special condition no. 1 of the contract of sale of land:

1. The Vendor grants to the purchaser a licence to enter upon the land for the sole purpose of carrying out building works upon the execution of the parties of this contract and the payment of the deposit monies by the purchaser.

12 He organised immediate commencement of the building permit process. He lodged an application for building permit on 27 September 2004 with Mr Wawrowski, Brimbank City Council's building surveyor, using the latter because of their close relationship with council.

13 The planning permit was silent on the issue of any environmental audit ('audit') for the former petrol filling or service station.

14 On 7 October 2004 the building surveyor required that an environmental certificate be provided. Wawrowski sent the following requisition to the developer on 7 October 2004:

(10) Submit a statement from an environmental auditor stating that the soil on site is not contaminated and safe to build/live on.

15 The developer went through hoops, to coin a phrase again. First he tried to get the building surveyor to issue a permit with 1995 document from KME Environmental Managers and Engineers, which read:

TANK REMOVAL VALIDATION AT FORMER SHELL SERVICE STATION

KME were engaged by The Shell Company of Australia to validate the remediation of sub-surface contamination associated with leakage from former underground storage tanks and other fuel storage and handling facilities at the former Shell Service Station at the above location.

In relation to this scope of work, the remediation of the site has been validated in relation to hydrocarbon and lead contamination to a level consistent with those limits referred to in the Australia and New Zealand (ANZECC) Guidelines for the Assessment and Management of Contaminated Sites, or where no such limits exist, to the NSW EPA Guidelines for Assessing Service Station Sites.

16 Secondly, he tried to get Mr Dranyers, the author of the 1995 certificate, to correct the letter:

On the 8th Nov. 04 at 5.05pm phoned Mr P Dranyers on 9867-5911 re - validity of this letter, and if "The Guidelines for Assessing Service Station Sites" are for Victoria (not N.S.W.) (typist error). Mr Peter Dranyers confirmed that it is for Victoria and he will not amend this letter (update) as it is considered valid.

It will be appreciated if you could issue the permit today, please.

17 Thirdly, on 12 November 2005, he tried to get confirmation from Kilpatrick & Associated PL, Occupational Hygiene and Environmental Consultants, that the NSW guidelines were relevant for Victoria.

18 All of the above efforts failed to convince Wawrowski to issue the building permit. So the developer was forced to re-commence the clean bill of health proofs all over again, notwithstanding that this process had been carried out in 1995 on behalf of Shell.

19 Borkovic obtained a fee proposal from Diomidis Environmental Consultants on 27 November 2004 and employed them on 22 December 2004. They reported to the independent environmental auditor, SKM, in February 2005 when SKM took over and gave the site a clean bill of health on 13 April 2005. Wawrowski issued the building permit on 4 May 2005.

20 In the meantime, Wawrowski alerted council to their error, and on 25 November 2004, council wrote to Borkovic:

RE: 46-50 Furlong Road, North Sunshine - Environmental Audit Issues

From our recent discussions, I understand that Keilor Homes Pty Ltd is intending to act on planning permit P020563 (the Permit) which is a permit for the construction of 5 double storey dwellings at 46-50 Furlong Road, North Sunshine (the Site).

Because the Site has previously been used as a service station, it is Council's view that the Site is potentially contaminated land. Council is concerned that if you build the 5 dwellings on the Site, if the land is actually contaminated, the dwellings may not be able to be used.

For this reason, I write to ask you to apply in to Council to amend the Permit to add the following conditions:

21 Council also faxed the following request to him on 25 November 2004:

Myself, Carey Patterson together with Doug Loney and Mark Sadler from our Sunshine Office would like to meet with you on Monday afternoon at 3.00pm at our Sunshine Office to discuss this matter. Could you please advise if this is suitable.

If you were to agree to the process outlined in the letter, it would be possible for Council's Building Surveyor to issue a conditional Building Permit for the development however no works on site could commence until the environmental audit conditions had been satisfied.

22 Borkovic did not apply in to Council to amend the Permit. Instead, on 9 December 2004 council applied to VCAT to amend its permit on the basis of its material mistake.

23 The chronology indicates that the developer commissioned the environmental audit after council applied to VCAT to amend the permit it had issued.

24 The permit was amended by consent of all interested parties on 9 May 2005 to incorporate the following condition:

15A Prior to commencement of the development permitted by this Permit, either

(i)

A certificate of environmental audit must be issued for the land in accordance with Section 53Y of the Environment Protection Act 1970; or

(ii)

An environmental auditor appointed under the Environment Protection Act 1970 must make a statement in accordance with Section 53Z of that Act that the environmental conditions of the land are suitable for residential use;

(iii)

3 copies of the certificate of environmental audit or statement, complete audit report and audit area plan must be submitted to the Responsible Authority;

(iv)

A copy of the certificate or statement of environmental audit issued for the land must be provided to each owner of the land or part of the land. Where there are conditions attached to the issue of a Statement of Environmental Audit, the statement must be provided under a covering letter, which draws attention to any conditions on the statement of environmental audit.

25 The developer has abandoned his claims for clearing the underground tanker and concrete hard stand, and has also abandoned his claim for los of profit on sale of the townhouses.

26 Environmental audit costs of the consultant and the auditor were:

Sinclair Knight Merz, Report of Environmental Audit,

27 Interest lost as a result of delay between the date of settlement and the date the building permit issued:

i

advice on rescission of contract of sale of land and being made a party to a s.87 planning permit amendment application by council $10,070.65 (John Micallef & Co);

ii

initiating a compensation claim pursuant to the Planning and Environment Act 1987, s. 94, including the costs of this hearing (in excess of $3,653.30).

29 Pursuant to the Planning and Environment Act 1987, s. 94(2)(a):

If a permit is ..amended under this Division the responsible authority is liable to pay compensation to any person who has incurred expenditure ..as a result of the issue of the permit in respect of any of that expenditure which is wasted because the permit is cancelled or amended.

30 Council submits none of the above heads of claim are claimable under s.94 (2)(a) because none of the above expenditure was 'wasted' as a result of the issue and subsequent amendment of the planning permit. Instead, it argues the environmental audit report will be used in a future section 32 statement to future townhouse purchasers, therefore not 'wasted'.

31 Rather, submits council, the audit was incurred unexpectedly because of the building permit requirement and most of it was incurred before the planning permit was amended by consent of the parties on 9 May 2005.

32 Council argues:

It is clear that any delay in construction in the period from 7 October 2004 to the issue of the building permit was due to the obtaining of the environmental certificate, not the amendment of the permit. Keilor Homes did not need the amendment of the permit to start construction; it did need the certificate to get the building permit in order to start construction, which Wawrowski refused to issue.

Accordingly, it cannot be said that the interest incurred by Keilor Homes for part of that period was expenditure incurred because of the amendment of the permit.

Further, it cannot be said that the expenditure was wasted. It was simply part of the cost of development.

33 Mr Chiappi on council's behalf gives the following examples of 'wasted' expenditure, which he says would fall within the purview of s.94:

If new works/buildings under the original permit had to be demolished to enable the environmental clean-up to occur under the amended permit that new construction cost would be 'wasted', therefore claimable.

Example of "wasted" legal cost is a s.173 agreement that became redundant because of planning permit cancellation. That s.173 agreement charge is "thrown away".

34 If council is right about the audit requirement being made under the Building process, then council could have avoided its obligations under the SEPP and eventually under s.94 by not requiring a s.87 amendment at all!

Was the audit requisition a planning requirement or a building requirement?

35 There is no doubt that the council, exercising its planning powers, is responsible pursuant to cl.13 & 14(4)(a) of the SEPP (Prevention and Management of Contamination of Land), for requiring certificates of environmental audit to be issued before any building work associated with a sensitive use has commenced.

36 Nowhere in that SEPP is the obligation placed upon the building surveyor under the building controls (Building Act 1993, Building (interim) Regulations 2005 or the Building Code of Australia).

37 As for the content of the building controls themselves, pursuant to the Building Act 1993, s. 24:

(1) ...the relevant building surveyor must not issue a building permit unless he or she is satisfied that-

(a) the building work and the building permit will comply with this Act and the building regulations; and ......

(c) any relevant planning permit or other prescribed approval has been obtained; and

(d) the building permit will be consistent with that planning permit or other prescribed approval.

38 Given that the planning permit existed, Wawrowski's requisition appears beyond power. The relevant planning permit had been obtained and had the developer appealed Wawrowski's requisition to the Building Appeals Board, he would have had it struck out. In other words, the audit was a direct result of the amended planning permit, not the building permit.

39 Furthermore, as SKM's audit report states twice at pages 1 & 5, it perceives its involvement as a result of the council's planning responsibility:

.... and the City has subsequently required that, prior to development and use, an environmental audit is to be conducted under the Environment Protection Authority Act 1970 to confirm that that site is suitable for the proposed residential use.

.... It is understood that the City of Brimbank has issued a permit for the proposed residential development and has subsequently required that, prior to commencement of the development and use, an environmental audit is to be conducted under the Environment Protection Act 1970, to conform that the site is suitable for the proposed residential use.

Expenditure wasted as a result of the issue of the original planning permit

40 It is my opinion that the 'wasted expenditure' as a result of the permit is the difference between what the developer would have paid for the land with knowledge of that condition no. 15A and the contract price without that condition.

41 Another way of expressing this is that the developer paid for a "trouble free" block of land with unencumbered planning permit, but as a result of the permit amendment, was left with a "troublesome" block of land with an audit-encumbered planning permit. What he "wasted" was the extra amount he paid for a "trouble free" site plus permit, when, at the end of the day, he had to expend that extra amount to satisfy the amended permit-with-audit condition. As he says:

Following receipt of this letter, the Applicant instructed its solicitor, John Micallef, to endeavour to withdraw from the Contract of Sale on the grounds that had the proposed amendment to the Planning Permit as foreshadowed in the letter dated 25 November 2004 been known to the Applicant, it would not have entered into the Contract of Sale at all or may have only purchased it at a substantial discount to cover the additional costs and expenses of complying with such permit conditions.

42 One of the ways of assessing that difference, or 'wasted expenditure' is by deducting from the price he paid the now ascertainable costs of:

i

audit costs;

ii

interest incurred between the date of settlement and the date of the building permit (assuming he would have had the building permit by settlement if this audit requisition had not incurred);

iii

Legal advice and necessary legal involvement in a s.87 VCAT amendment application not brought by him.

43 It is theoretically possible that he may have paid even less again for the land given the risks associated with obtaining a clean bill of health, but we have no valuation evidence and the advantage of the above is that the wasted expenditure is more certainly assessable.

44 We find the audit costs amounting to $42,016.50 necessarily incurred or "wasted" in respect of this former petrol filling station being converted to a residential development.

45 We also find the interest paid to the Commonwealth Bank reasonably incurred because the developer lost no time in applying for building permission after paying the deposit monies, and lost no time in complying with the surveyor's requisitions (excluding audit). Further, the requisitions are standard, non complex ones that would have been satisfied before settlement.

46 As pointed out earlier in the chronology, the contract contained two special conditions that the planning permit and plans be part of the contract, so time was of the essence in obtaining the building permit; also the developer gained a licence to enter the land to build.

47 We agree with council that a distinction should be drawn between legal costs forming part of the advice on rescission and s.87 involvement, and the s.94(5) legal costs of the compensation claim. As to the former, we find that the developer is entitled to legal costs on a solicitor-client basis which should be taxed on County Court Scale D failing agreement. As to the latter, we find that the developer is entitled to legal costs on a party-party basis which should be taxed on County Court Scale D failing agreement.