Application for payment of costs of interlocutory application - The Court's power to award costs under s 37 of the Supreme Court Act 1935 (WA) and O 66 r 1 of the Rules of the Supreme Court 1971 (WA) - Whether either party engaged in unreasonable conduct that would warrant the making of a costs order - Whether surrender by plaintiff of part of case would warrant the making of a costs order

Land Administration Act 1997 (WA)

Supreme Court Act 1935 (WA)

1 PRITCHARD J: The plaintiffs and the defendant have each applied to the Court for orders for the payment of the costs of, and incidental to, an interlocutory application brought by the defendant which ultimately proved unnecessary for the Court to determine. The defendant's application was rendered redundant as a result of a decision by the plaintiffs not to pursue one aspect of a claim for compensation made in their action.

2 In addition, the plaintiffs seek an order that the defendant pay some of their costs of preparing for the trial of this action, which the plaintiffs claim were 'thrown away' as a result of that decision.

3 For the reasons outlined below, I am not persuaded that in the exercise of my discretion I should make the costs orders sought by either the plaintiffs or the defendant.

4 In these reasons I deal with the following matters:

1. The factual background;
2. The Court's power to award costs;
3. Why the costs orders sought by the plaintiffs should be refused;
4. Why the costs order sought by the defendant should be refused.

5 In July 2006, the defendant acquired a portion of some land owned by the plaintiffs in the Peel region (the Land) for the purpose of the construction of the new Perth to Bunbury highway. In 2007, the plaintiffs commenced the present action in which they seek, amongst other things, compensation for the compulsory acquisition of the Land pursuant to s 241(2) of the Land Administration Act 1997 (WA) (the LA Act) and compensation for injurious affection, severance and betterment in respect of adjoining land owned by the plaintiff, pursuant to s 241(7) of the LA Act.

6 An issue which arose in relation to the plaintiffs' claim for compensation for injurious affection of the adjoining land was whether that compensation was to be assessed as at the date of the taking of the Land or the date of the trial of the action (the date of assessment issue). The defendant maintained that compensation for injurious affection was to be assessed as at the date of the taking of the Land, while the plaintiffs' view was that compensation was to be assessed as at the date of the trial.

7 In January and February 2012, the parties conferred in relation to the question whether the date of assessment issue should be resolved as a preliminary question in advance of the trial. Counsel for each of the parties held the view that it was not necessary to take such a course.

8 At a strategic conference in March 2012, the parties advised the Court that there was no need for the date of assessment issue to be resolved as a preliminary question in advance of the trial. (One of the reasons for that approach was that the parties anticipated that the date of assessment issue might be resolved in another matter which was before the Court at that time (the Spagnolo matter)). At that stage, the parties contemplated that the expert evidence adduced at the trial of the present action would take into account the alternative bases on which the date of assessment issue might be resolved, and that that issue would be one of the issues resolved at the trial.

9 The plaintiffs proceeded to have their expert witnesses prepare reports and those reports were served on the defendant in July 2012.

10 In September 2012, the solicitors for the defendant wrote to the plaintiffs' solicitors advising that they were of the view that the date of assessment issue should be resolved as a preliminary question, and outlining the basis for that change in position. Later in September 2012, the plaintiffs' solicitors advised that the plaintiffs would oppose any such application for the determination of a preliminary question.

11 In December 2012, the defendant brought an application for the determination of a preliminary question in relation to the date of assessment issue (the Application). The Application was the subject of a hearing on 13 May 2013. On 14 May 2013, I invited the parties to provide further evidence on affidavit, and submissions, in relation to the implications of dealing with the date of assessment issue as a preliminary question, as compared to the implications of not doing so. On 21 May 2013, Mr Nelson filed a supplementary affidavit which set out the extent of the increased discovery obligations that the defendant anticipated would flow from proceeding to trial on the basis of two possible dates for the assessment of compensation.

12 On 29 May 2013, and before the Application could be determined by the Court, the plaintiffs' solicitors advised the Court that they had been instructed not to maintain the position that compensation for injurious affection should be assessed as at the date of the trial. It appears that the plaintiffs' change of position occurred when they came to appreciate that dealing with the date of assessment issue as a preliminary question might result in considerable delay in the resolution of their claim, particularly if the result of the preliminary question were the subject of an appeal.

13 The parties now seek the making of an order in the following terms:

The trial of this action be conducted on the basis that the sole date for assessment of compensation under s 241(7) of the Land Administration Act 1997 (WA) is the date of the compulsory acquisition of adjacent land held by the plaintiffs.

14 In view of the history of the matter, it is appropriate that that order be made in terms which reflect the consent of the parties to it.

(b) The evidence as to the reasons why the defendant made the Application

15 The reasons why the defendant decided to make the Application were set out in an affidavit affirmed by Mr Brendyn Nelson on 13 December 2012 (the Nelson affidavit) in support of the defendant's Application.

16 In the Nelson affidavit, Mr Nelson deposed that:

Subsequent to the strategic conference held on 16 March 2012:

(a) the parties have exchanged Statements of Issues, Facts and Contentions;

(b) the case of Spagnolo settled without addressing the [date of assessment] Issue;

(c) the Plaintiffs have provided the Defendant with their expert environmental, engineering and planning reports;

(d) the parties have exchanged the correspondence attached to this Affidavit; and

(e) the Defendants have been attempting to instruct their environmental, engineering and planning experts and obtain that expert evidence.

17 Mr Nelson went on to outline his belief that the determination of the date of assessment issue as a preliminary question would have a significant impact on the parties' discovery obligations and those of third parties and on the expert evidence required to be obtained for trial.

18 Mr Nelson deposed that on 10 September 2012, the defendant's solicitors wrote to the plaintiffs' solicitors enclosing a draft submission and a proposed application for the preliminary determination of the date of assessment issue. In that letter, Mr Nelson noted that the plaintiffs' expert reports were directed to the assessment of compensation for injurious affection both at the date of the hearing, or alternatively at the date of the taking of the adjoining land. However, the plaintiffs' expert evidence reflected the position up until the date of those reports. Mr Nelson's letter noted that, in effect, the defendant's expert evidence would need to be prepared on the basis of three different dates the date of the taking of the Land, the date of the experts' reports, and the date of the trial and that the costs that would be involved necessitated an early resolution of the date of assessment issue.

19 The position appears to be that having seen the plaintiffs' evidence, counsel for the defendant came to appreciate that proceeding to trial on the basis of two possible dates of assessment either at the date of taking of the Land, or the date of the trial itself would have implications that had not previously been contemplated.

20 Mr Nelson's evidence was not challenged, and the plaintiffs did not seek that he be crossexamined about the contents of the Nelson affidavit, for the purposes of the determination of the costs of the Application.

21 The plaintiffs and the defendant each seek an order that the other pay the costs of, and incidental to, the Application. The plaintiffs also seek an order that the defendant pay their costs

thrown away in preparing for trial on the basis that the correct date for the assessment of compensation under s 241(7) of the LA Act, being either the date of taking or the date of trial, would be determined by the Court at the substantive trial of the proceedings, and that the parties would adduce evidence in relation to both alternative dates.

22 I will refer to these costs as 'the costs thrown away'. The costs thrown away were said to be those incurred by the plaintiffs between January and September 2012, in the plaintiffs' preparation of their case for trial, and which encompassed obtaining evidence as to the compensation for injurious affection as at the date of the taking of the Land and as at the date of the experts' reports (on the basis that the latter would be updated in due course to reflect the position as at the date of the trial).

23 Counsel for the plaintiffs indicated that those costs were largely incurred in the plaintiffs' experts separately addressing the position as at both dates. Given that there is no longer any dispute that compensation should be assessed as at the date of the taking of the Land, the only portion of the costs incurred by the plaintiffs in relation to their expert evidence which could be said to have been 'thrown away' is that portion of the expert evidence relevant to compensation assessed as at the date of the trial. However, some evidence as to matters after the date of the taking of the Land may still be relevant to an assessment of compensation as at the date of the taking of the Land. It is not clear whether any costs incurred by the plaintiff in relation to the preparation of their expert reports would, in fact, be 'thrown away' in these circumstances.

24 The starting point for any application for an award of costs is a consideration of the source of the power to make costs orders. In the case of actions seeking compensation for the compulsory acquisition of land (and associated claims for compensation for injurious affection) those actions may be commenced and maintained in a court of competent jurisdiction and are heard and determined in the same manner as ordinary actions.[1] The costs of such actions are 'at the discretion of the court'.[2] That wide discretion is entirely consistent with the Court's wide discretion to order costs under s 37 of the Supreme Court Act 1935 (WA) and in O 66 r 1 of the Rules of the Supreme Court 1971 (WA) (RSC) which applies to proceedings in this Court.[3] Order 66 r (1) provides:

Subject to the express provisions of any statute and of these Rules the costs of and incidental to all proceedings ... shall be in the discretion of the Court but, without limiting the general discretion conferred on the Court by the Act, and subject to this Order, the Court will generally order that the successful party to any action or matter recover his costs.

25 Section 223(9) of the LA Act does not expressly exclude the operation of the RSC (and O 66 r 1 RSC in particular) to the exercise of the discretion to award costs in respect of actions for compensation for injurious affection under the LA Act.[4]

26 The Court's discretion, while wide, must be exercised judicially.[5] When there is no trial of an action on the merits, and if both parties have acted reasonably in bringing and defending the proceedings, the proper exercise of the Court's discretion as to costs will ordinarily be that no order as to costs will be made.[6] That is because the Court cannot form a view about which party should get their costs without forming a view about the merits of the case. Ordinarily the Court will not embark on a determination of the merits for itself in what would effectively be a hypothetical trial.[7] In my view, these principles assist in the exercise of the Court's discretion to order costs in the present case where there was no determination of the Application on its merits.

27 Even if there has been no determination of the merits, the Court retains its discretion to make a costs order in an appropriate case. One of the circumstances which may warrant a costs order is where a party's conduct has been so unreasonable that the other party should obtain the costs of the action.[8] That approach is reflected in O 66 r 1(2) RSC which relevantly provides:

If the Court is of opinion that the conduct of a party ... after the commencement of the litigation ... has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the cost of an unsuccessful party either wholly or in part.

28 Another circumstance which may justify a costs order, even when there has been no determination of the merits, is where it is apparent from the orders put before the Court that one party has effectively 'surrendered'. 'In those circumstances, a cost order may be justified on the basis that success in an action usually controls the exercise of discretion in favour of a cost order, and the successful party is ordinarily entitled to a cost order.'[9]

29 The overriding consideration in any given case remains, however, that any costs order should do justice between the parties.

3. Why the costs orders sought by the plaintiffs should be refused

30 The defendant submitted that the receipt of the plaintiffs' expert reports in July 2012 'caused the defendant to consider the ramifications of on-going discovery of documents relating to the actual application'.[10] It was also submitted that the defendant's change of position on whether there should be a preliminary determination of the date of assessment issue was based on 5 'changed circumstances'. Those were that the Spagnolo decision did not resolve the date of assessment issue, that the plaintiffs' evidence referred to evidence at three dates (namely the date of taking of the Land, the date of each expert's report and the date of the hearing), the extent of the discovery obligations had been clarified, the extent of confidentiality issues in relation to discoverable documents had been revealed, and the extent to which the trial would be shortened by a preliminary question had been clarified.

31 In the course of the hearing in relation to the costs of the Application, counsel for the plaintiffs made clear that the sole basis upon which the plaintiffs sought both the costs of the Application, and the costs thrown away, was unreasonable conduct on the part of the defendant. I understand the plaintiffs' case to be that the defendant's unreasonable conduct was its decision to depart from what the plaintiffs saw as an agreement reached between the parties in January 2012 that the date of assessment issue would be resolved at the trial rather than as a preliminary question.

32 The nub of the plaintiffs' submissions as to why the defendant's conduct was unreasonable was set out in [18] of the plaintiffs' written submissions. In essence, there were four reasons why the plaintiffs submitted that the defendant's conduct had been unreasonable. I do not accept that these reasons, either alone or in concert, support the conclusion that the defendant's conduct was unreasonable.

33 I will deal with each of the plaintiffs' submissions in turn. Before doing so, it is convenient to note that there is one answer to each of the plaintiffs' submissions. Underlying each of the plaintiffs' submissions is the implicit (if not express) submission that Mr Nelson's evidence at par [21] [22] of the Nelson affidavit should not be accepted, or at the least, should be viewed with some scepticism by the Court. However, Mr Nelson was not crossexamined about what he set out at par [21] [22] of the Nelson affidavit. On the face of it, nothing in the Nelson affidavit, or its annexures, suggests that its contents should not be relied upon. In those circumstances, in so far as the plaintiffs submit that Mr Nelson's evidence as to the reasons for the defendant's change of position should not be accepted, those submissions must be rejected.

34 I turn to consider each of the plaintiffs' submissions. The plaintiffs submit that the reasons given in paragraph 21(a) and (b) of the Nelson affidavit do not provide a legitimate basis for the defendant's change of position in relation to the date of assessment issue. In any event, the plaintiffs say that the defendant failed to promptly inform the plaintiffs of its reasons for changing its position, by which time the plaintiffs had incurred significant costs in relation to expert and other fees, and that the defendant's conduct was therefore unreasonable.

35 I am unable to accept these submissions. Paragraph 21 of the Nelson affidavit must be considered in its context. It constituted part of Mr Nelson's explanation of the timing of the Application. Paragraph 21 must be read in conjunction with paragraph 20, which explains why the defendants did not seek an order for a preliminary hearing at the strategic conference in March 2012. Mr Nelson deposed that those reasons were that there was insufficient evidence that a preliminary question would shorten the trial, that it was anticipated that the Spagnolo matter may resolve the date of assessment issue, and that it was unclear what (if any) different orders for compensation would result, dependent on a correct answer to the date of assessment issue. In paragraph 22, Mr Nelson explains that the events referred to in paragraph 21 led the defendant to confirm its view that a preliminary hearing should be held and that the defendant's solicitors received instructions to make the Application at that stage.

36 Viewed in that context, the matters referred to in paragraph 21 of the Nelson affidavit constitute a summary of the major developments in the litigation following the strategic conference of March 2012. I do not understand the import of paragraph 21 to be that the matters referred to in each subparagraph individually prompted or justified the defendant's change of position. In any event, however, it is not inherently improbable that the Statement of Issues, Facts and Contentions, or the result of the Spagnolo matter, could have prompted the defendant to change its position. Absent some crossexamination of Mr Nelson, I do not see any basis for rejecting his evidence that as a result of the matters set out in paragraph 21 (including paragraph 21(a) and (b)) the defendant confirmed its view that a preliminary hearing on the date of assessment issue should be held.

37 As to the plaintiffs' submission that the defendant failed to promptly inform the plaintiffs of its reasons for changing its position, there was no evidence as to precisely when the defendant changed its position. However, it is clear from the correspondence annexed to the Nelson affidavit[11] that that change of position occurred as a result of the defendant's legal advisers receiving the plaintiffs' export reports, at which point the defendant's legal advisers formed a different view about the best way to deal with the date of assessment issue. There is no sound basis for concluding that the defendant delayed telling the plaintiff about its change of view.

38 Secondly, the plaintiffs say that the reason relied on by the defendant at paragraph 21(c) of the Nelson affidavit namely the receipt of the plaintiffs' expert reports had no factual foundation. They also submit that this reason was initially advanced by the defendant as the sole reason for its change in position, and that that suggested that the other 'reasons' given had been manufactured to 'artificially bolster its [the defendant's] argument'. The basis for this submission appears to be that when the defendant began engaging its own experts it had already formed the view that there should be a preliminary question on the date of assessment issue. The plaintiffs appear to have surmised this from the fact that the defendant's solicitors instructed their experts in March or April 2012, but instructed them only to address matters relevant to the assessment of compensation for injurious affection calculated as at the date of the taking of the Land, rather than at both that date and the date of the trial.

39 The plaintiffs' submission cannot be accepted. Again, Mr Nelson was not crossexamined as to whether the defendant had changed its position prior to receiving the plaintiffs' expert reports. Furthermore, even if the defendant's solicitors had instructed their experts in March or April 2012 on the basis that their evidence would concern the assessment of compensation as at the date of taking of the Land, it could be inferred that at that stage the defendant intended to pursue a preliminary question of the date of assessment issue. Three alternative inferences are open. First, it had always been the defendant's position that the date for the assessment of compensation for injurious affection was the date of the taking of the Land. Instructing its experts to consider matters relevant to compensation calculated as at that date was entirely consistent with the defendant's approach to the case. Secondly, it is possible that the defendant's solicitors intended that upon the receipt of the plaintiffs' expert evidence, further evidence could be sought from the defendant's experts to respond to the plaintiffs' expert evidence, if it was necessary to do so. Thirdly, it is possible that the defendant may have intended to proceed to trial relying only on expert evidence relevant to compensation assessed as at the date of the taking of the Land, and to seek to persuade the Court that that was the correct date for resolution of the assessment issue.

40 The plaintiffs' third submission was that the correspondence referred to in paragraph 21(d) of the Nelson affidavit postdated the defendant's change of position, and in any event merely referred back to the other reasons relied on by the defendant. The correspondence annexed to the Nelson affidavit indicates that the defendant placed the plaintiffs on notice that he considered that the date of assessment issue should be determined at a preliminary question, and sought to confer with the plaintiffs about their view, and the reasons for it. Having received the plaintiffs' responses, it was clear that the plaintiffs would not consent to date of assessment issue being determined as a preliminary question, and it became necessary for the defendant to bring the Application.

41 Fourthly, the plaintiffs submitted that the instruction of the defendant's expert witnesses (to provide evidence in relation to the position as at the date of the taking) demonstrated that the defendant had not acted in good faith when bringing the Application. For the reasons set out above at [39], this submission also must fail.

42 There are two further reasons why I do not consider that it would be just to order that the defendant pay the plaintiffs' costs of the Application, and the costs thrown away. As to the costs of the Application, it is difficult to see why the defendant should pay the plaintiffs' costs when the defendant brought the Application only after the plaintiffs advised that they would not agree to the defendant's proposal for a preliminary question on the date of assessment issue. The Application became redundant only when the plaintiffs decided not to pursue their claim that compensation for injurious affection falls to be assessed as at the date of the trial. In my view, nothing in these circumstances renders the defendant's conduct unreasonable, so as to warrant it paying the plaintiffs' costs of the Application.

43 Finally, as to the costs thrown away, I do not consider that it would be just to require the defendant to pay the plaintiffs' costs thrown away in circumstances where it had always been the plaintiffs' case that compensation for injurious affection should be assessed as at the date of the trial. To make out that case, it would always have been necessary for the plaintiffs to obtain expert evidence going to matters which occurred after the date of the taking of the Land. The defendant's decision to apply for a preliminary question did not result in the plaintiffs' costs of obtaining expert evidence on that point being thrown away. Those costs were thrown away only as a result of the plaintiffs' decision not to pursue their case that compensation should be assessed as at the date of the trial.

4. Why the costs order sought by the defendant should not be made

44 The defendant submitted that although there had been no determination of the Application on the merits, nevertheless the plaintiffs should be required to pay his costs of the Application, either because the plaintiffs' conduct was sufficiently unreasonable to warrant that order, or because the plaintiffs had effectively surrendered on the date of assessment issue.

45 The defendant's submission that the plaintiffs' conduct was unreasonable is not without some force. It was the plaintiffs' decision not to pursue compensation for injurious affection up until the date of the trial which rendered the Application redundant. That change of position only occurred after the hearing of the Application, and after the defendant had incurred its costs of bringing the Application. Furthermore, it is not clear why it was not apparent to the plaintiffs (once the defendant advised that it intended to bring the Application) that the defendant would be likely to appeal if the hearing of a preliminary question were not ordered, or if the Court ordered a preliminary question be determined but concluded that compensation for injurious affection should be assessed as at the date of the trial. However, I have reached the conclusion that the plaintiffs' conduct was not unreasonable, taking into account the whole history of the matter, so as to warrant an order that they pay the defendant's costs of the Application. In this respect, the plaintiffs' change of position has necessarily saved the defendant some of the costs which he would have incurred in pursuing a hearing of the preliminary question, or alternatively of conducting a trial on the basis of alternative cases, as to both the date of assessment as at the date of trial, and as at the date of the taking of the Land.

46 As for the defendant's submission that the plaintiffs had effectively surrendered on the date of assessment issue, and that that warranted an order that the plaintiffs pay the defendant's costs of the Application, I do not accept that submission. In order to make an assessment of whether the plaintiffs' conduct, in truth, amounted to a 'surrender', it would be necessary to reach the conclusion that an assessment of the merits of the parties' respective positions could properly be made. In circumstances where the date of assessment issue is not addressed expressly in the LA Act, has not been the subject of any judicial consideration in this State, and has not been argued by the parties in these proceedings, it is neither possible to make, nor appropriate to attempt, that assessment for present purposes.

47 For completeness, I note that the plaintiffs sought to explain the basis for their decision not to pursue the date of assessment issue. It is not entirely clear whether, or why, the reasons for the plaintiffs' change of position could be relevant to the surrender issue. Even if those reasons are relevant, I am not persuaded that they support the defendant's claim of surrender. Counsel for the plaintiffs submitted the plaintiffs' change of position came about because they were faced with the prospect of increased costs, and a lengthy delay in the resolution of their claim, if the date of assessment issue was dealt with as a preliminary question. In that circumstance the plaintiffs made a pragmatic decision designed to avoid those costs and that delay. In those circumstances, I do not think that it can be inferred that the plaintiffs' decision not to pursue the date of assessment at the date of trial reflected a conclusion on their part that the point lacked merit.

48 Taking all of these matters into account, in my view the order which should be made in respect of the costs of the Application is that there should be no order as to costs.

1. With the consent of the parties, the trial of this action is to be conducted on the basis that the sole date for assessment of compensation under s 241(7) of the Land Administration Act 1997 (WA) is the date of the compulsory acquisition of adjacent land held by the plaintiffs.
2. There be no order as to the costs of the defendant's chamber summons dated 14 December 2012.

[1] Land Administration Act 1997 (WA) s 223(3).

[2] Land Administration Act 1997 (WA) s 223(9).

[3] McKay v Commissioner of Main Roads (No. 7) [2011] WASC 223 (S) [50] (Beech J).

[4] McKay v Commissioner of Main Roads (No. 7) [2011] WASC 223 (S) [50] (Beech J).

[5] Naidoo v Williamson [2008] WASCA 179 [39], [42] (Steytler J), [47] (Pullin JA agreeing), [48] (Murray AJA agreeing).

[6] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin [1997] HCA 6; (1997) 186 CLR 622, 625 (McHugh J); Brickhill as Trustee for TLAJ Trust v McArthur [2013] WASC 160 [8] (Martin CJ).

[7] Re Traditional Values Management Ltd; Handberg v Dantay Pty Ltd [2012] VSC 308; Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin [1997] HCA 6; (1997) 186 CLR 622, 624 - 625 (McHugh J); Australian Securities Commission v AustHome Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201 (Hill J); Hoddinott v Willmott Forests Ltd (recs and liqs apptd) (in liq) [2012] VSC 282 [4] (Davies J).

[8] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin [1997] HCA 6; (1997) 186 CLR 622, 624 (McHugh J); Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201 (Hill J).

[9] Re Traditional Values Management Ltd; Handberg v Dantay Pty Ltd [2012] VSC 308 [3] (Davies J); see also Peet Ltd v Richmond [2010] VSCA 71 [16] (Nettle JA), [42] (Neave JA agreeing).

[11] Annexure BDN3 to the affidavit of Mr Brendyn Nelson, affirmed 13 December 2012.