McDonald's Australia Limited v Transport Infrastructure Development Corporation

APPLICANT Mr J Webster SC SOLICITOR LEGAL REPRESENTATIVES: Hunt and Hunt RESPONDENT Mr R Lancaster with Ms B Nolan SOLICITOR Clayton Utz

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

30586 of 2005 McDonald's Australia Limited v Transport Infrastructure Development Corporation (No 2)

JUDGMENT ON COSTS 1 Her Honour: In McDonald's Australia Limited v Transport Infrastructure Development Corporation [2006] NSWLEC 796 (McDonald's No 1) on 21 December 2006 I made an order that the amount of compensation to which the Applicant was entitled pursuant to s 55 of the Just Terms Act was $1,177,983.09. This consisted of $1,112,000 for disturbance under s 59(f) and $65,983.09 under other heads of disturbance in s 59. Costs were reserved.

2 The Applicant has now filed a Notice of Motion seeking its costs of the proceedings, supported by an affidavit of Ms Peatman dated 16 March 2007. The Respondent, Transport Infrastructure Development Corporation (TIDC) has filed a Notice of Motion seeking the following orders in relation to costs:

1. The Respondent pay, on a party party basis, the Applicant's costs in these proceedings which were incurred up to and including 16 August 2006.
2. The Applicant pay, on an indemnity basis, the Respondent's costs in these proceedings which were incurred from and including 17 August 2006.
3. The Applicant to pay the Respondent's cost [sic] of and incidental to this Motion. An affidavit of Ms Cashmere dated 13 March 2007 was filed in support. 3 TIDC relied inter alia on its offer of settlement in a "Calderbank" letter of 17 August 2006. The Respondent's offer of settlement to the Applicant comprised the following primary terms: (i) $1,100,000 for compensation less any compensation already paid as an advance payment (ii) interest on the compensation amount in accordance with s 49 of the Act, and (iii) reasonable legal costs as agreed or assessed subject to a limit of $50,000. 4 The letter stated: This offer is made in accordance with the principles set out in the decision in Calderbank and Calderbank [sic] (1975) 3WLR 586 and, should your client not accept this offer, we reserve our client's right to produce this letter in the Court on the question of costs at which time our client will be seeking full indemnity costs from the date of this letter. (emphasis in original)

Applicant 5 The Applicant argued that it was successful in these proceedings having obtained an amount of compensation in excess of the $650,000 originally assessed by the Valuer-General. In Pastrello v Roads and Traffic Authority of New South Wales (2000) 110 LGERA 223 at [17] Talbot J said: It has been said many times that the compulsory acquisition of land from an unwilling owner is a serious interference with that persons entitlement to quiet enjoyment and generally wide discretion to do with their own land as they see fit. It is a power of the state which is exercised for the public benefit. Very seldom does the resumption work to the benefit of the dispossessed owner. There needs to be a strong justification for awarding costs against an applicant where the effect of making that order is to erode the benefit of the just compensation recovered as a consequence of the Court's determination. It is only in special cases that the Court will deprive the owner of the full benefit of the compensation which is determined as fair and just in the circumstances of the case. 6 This is similar to statements in North Albury Shopping Centre Pty Ltd v Albury Municipal Council (1982-1983) 49 LGRA 215 of Cripps J at 221 and Banno v Commonwealth of Australia (1993) 81 LGERA 34, Wilcox J at 53 referring to Commonwealth legislation. 7 The TIDC offer of settlement in the letter of 17 August 2006 was not a reasonable proposal to bring the proceedings to an end and the Applicant's rejection of the offer was reasonable.

TIDC 8 TIDC argued that there are numerous factors which the Court should take into account which suggest the orders it seeks are reasonable, as follows: (i) The Applicant commenced proceedings on the basis of an exaggerated claim for compensation, this claim was maintained up until after the commencement of the hearing. (ii) The Applicant pursued numerous alternative bases of valuation, notwithstanding that the expert retained by it had agreed on the most appropriate methodology of calculation of compensation due to the applicant. (iii) The Applicant maintained throughout the hearing the claim that it was entitled to compensation for the market value of the business which was found to be unsustainable (McDonald's No 1 at [11] - [17]) and for special value, which was also found to be unsustainable (McDonald's No 1 at [18] - [23]). (iv) The Applicant amended its claim on multiple occasions during the hearing, including by the increase in the amount claimed for equipment write-off, relying in the end on its Fourth Amended Points of Claim, and (v) The Applicant was unsuccessful on the primary question of valuation evidence, namely the appropriate discount rate to apply in the discounted cash flow calculations (McDonalds No 1 at [55]). 9 In relation to order 2 in TIDC's Notice of Motion concerning the payment of indemnity costs by the Applicant from and including 17 August 2006, this is sought on the basis that: (a) the Applicant unreasonably rejected the Respondent's offer of settlement made by letter dated 17 August 2006 (b) the other circumstances of the case as set out above in par 8.

10 The letter of 17 August 2006 was relied on as a Calderbank letter and can be taken into consideration on the question of costs: Messiter v Hutchison (1987) 10 NSWLR 525, Calderbank v Calderbank [1975] 3 WLR 586. The offer remained open until 12 September 2006 the first day of the hearing. 11 The approach of TIDC's valuer, Dr Ferrier, was the approach adopted by me in awarding compensation. At 17 August 2006 the amount awarded on that approach would have been $1,005,000 according to the valuers' joint report (exhibit C). The offer of settlement of $1,100,000 was reasonable. The offer was $95,000 more than Dr Ferrier's maximum estimate of compensation.

Finding 12 These are Class 3 proceedings in which compensation has been awarded for the compulsory acquisition of the Applicant's land in a sum substantially greater than provided in the Valuer-General's Points of Assessment. The Court has wide discretion to award costs. The approach in Pastrello, North Albury and Banno (in the context of Commonwealth legislation relied on by the Applicant) is generally applicable. 13 In Wollong Pty Ltd v Shoalhaven City Council (2002) 122 LGERA 331 at [40] Talbot J considered a Calderbank letter in Class 3 proceedings and held: Applicants who appeal to this Court following an offer to pay compensation by an acquiring authority should not be discouraged from testing the adequacy of the offer by the threat of a punitive costs order. The conduct of the litigation by the applicant does not, in the Court's view, trigger an order for indemnity costs notwithstanding the Calderbank letter and subsequent Offer of Compromise. However, that does not necessarily lead to the conclusion that the circumstances do not warrant an order that the applicant pay the party and party costs or at least some part of the respondent's costs.

14 As submitted by the Respondent the Calderbank letter is a matter which I may consider in the exercise of discretion on costs but it is not decisive of whether indemnity costs ought be paid by the Applicant from that date. As argued by the Applicant, a telling factor must be that the award of compensation was greater than the amount in the offer of settlement. 15 In the recent Court of Appeal decision of Brymount Pty Limited (trading as Watson Toyota) v Cummins and Anor, Young Shire Council v Cummins (No 2) [2005] NSWCA 69, Beazley JA (with whom Ipp and McColl JJA concurred) stated at [12] - [14]: As the Court of Appeal identified in Jones v Bradley (No.2) [2003] NSWCA 258 at [6]-[8], there are two competing views as to how the Court exercises its discretion where there has been a Calderbank offer. One view is that a Calderbank offer gives rise to a prima facie presumption that the party who rejects the offer should pay the other party's costs on an indemnity basis should the former receive a less favourable result than the offer of compromise: see Multicon Engineering Pty. Ltd. v. Federal Airports Corporation (1996) 138 ALR 425. The alternative view, and the one endorsed by this Court in Jones v Bradley (No.2), is that the rejection of (what ultimately transpires to be) a more favourable offer is not decisive as to the awarding of costs on an indemnity basis: see SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 [37]. Rather, the question whether the court will exercise its discretion to award costs on an indemnity basis depends on all the circumstances of the case (MICA (1992) Pty Limited v Kenny & Good Pty Ltd (1996) 70 FCR 236, at 239). In SMEC Testing Services Pty Limited, Giles JA considered that the following factors were relevant to determining whether costs should be awarded on an indemnity basis where a Calderbank offer had been made:

(a) Whether the rejection of the compromise offer was reasonable in the circumstances: Giles JA at [37] held that, while the rationale of Calderbank offers was to promote settlement of disputes, "an offeree can reasonably fail to accept an offer without suffering in cost". (b) The time frame in which the offeree had to consider the offer. This factor is relevant as it usually accords with a party's legal advisers being given sufficient time to weigh up the prospects of a case and the potential value of any damages sought, as against the likely costs should the claim fail. (c) Whether the letter of compromise explicitly stated that the offer was made in Calderbank terms, the exact conditions of the offer, and whether indemnity costs would be pursued if the offer was rejected.

In SMEC Giles JA and Priestley JA concurred, with Rolfe JA dissenting. 16 In Leichhardt Municipal Council v Green [2004] NSWCA 341 Santow JA held at [19]: … where an offer of compromise has been made under the [Court's] Rules, a prima facie entitlement arises in the relevant party to have costs awarded in accordance with the appropriate Rule. This entitlement, though subject to the Court's discretion to prevent substantial injustice in exceptional cases, will rarely be interfered with: District Court - Practice Note 42; Supreme Court - Hillier v Sheather (1995) 36 NSWLR 414 and Morgan v Johnson (1998) 44 NSWLR 578. By contrast, the costs consequences attendant under general law upon an offer of compromise made in a Calderbank letter lie within the discretion of the Court, to be exercised having regard to all the relevant circumstances of the case: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] per Giles JA; affirmed in Jones v Bradley (No 2) (supra) at [9] per curiam. It is not the case that unaccepted offers of compromise by Calderbank letter should give rise to a prima facie presumption of indemnity costs if the offer is not bettered. (emphasis in original)

17 All of these cases are directed to circumstances where the offer in the Calderbank letter is not bettered in the final proceedings, whereas in this case I did award compensation in a greater amount. The case law is clear that the circumstances of the particular case where a Calderbank offer has been made are relevant, such as whether the refusal of the offer was unreasonable. 18 TIDC sought to show that the increased amount of compensation of $1,112,000, which was greater than the Calderbank offer, was a result of failure on the Applicant's part. Evidence was adduced and submissions were made concerning the change in the amount claimed by the Applicant as a result of $118,132 for equipment write-off not being taken into account in the valuers' evidence. This resulted in the original figure of Dr Ferrier of $1,005,000 being increased, ultimately, to $1,112,000 (after further adjustment by the valuers) during the hearing, the amount of compensation I awarded. TIDC argued that this was the only reason the amount of compensation awarded was greater than the amount offered in the Calderbank letter of 17 August 2006. As the additional increase in the amount of compensation was due to the Applicant's presentation of its case and its evidence, this was another factor that should be taken into account in determining that indemnity costs should be awarded. 19 The Applicant argued that the amount of $118,132 was identified in the Amended Points of Claim dated 24 May 2006 at the time that the Calderbank offer was made. These showed equipment write-off in the sum of $118,132. The variation in figures by the expert valuers later in the proceedings was not the fault of the Applicant's conduct of the proceedings. I accept this submission. 20 Further, the offer capped costs at $50,000, whereas the Applicant's evidence in the affidavit of Ms Peatman is that its costs substantially exceeded that amount at 17 August 2006. The Applicant's refusal of the offer of settlement in the Calderbank letter was not unreasonable. There can be no basis for awarding costs or indemnity costs against the Applicant in relation to the Calderbank letter. 21 The further matters relied on by TIDC in par 8 concern the Applicant's conduct of the proceedings in raising a number of unsuccessful arguments about the appropriate approach to valuation of the loss of business on the basis of market value and a claim for special value (see par 8(i), (ii), (iii)). While it is true that the Applicant did run these unsuccessful arguments I do not consider these took up an inordinate amount of hearing time. It is also true that I preferred TIDC's argument as to the appropriate discount rate (see par 8(v)), but there is no suggestion that there was any unnecessary or frivolous argument by the Applicant on this issue. This issue was determined by consideration of the valuers' different approaches in their evidence. The fact I preferred the approach of the valuer called by TIDC does not suggest the Applicant should not get its costs. 22 TIDC also complains of multiple amendments of the pleadings (see par 8(iv)) by the Applicant as evidenced by its reliance on the Fourth Amended Points of Claim. While multiple amendment of points of claim is not encouraged, I do not consider in the circumstances of this case that this caused such additional costs to be incurred that the Applicant should be deprived of its costs. 23 I note that TIDC also relied on arguments which it abandoned on the first day of the hearing concerning the appropriate approach to valuation. While these arguments did not take up hearing time I surmise that preparation time was spent on these by the parties. 24 I consider the Applicant's costs should be paid and will so order. As it was successful on its notice of motion for costs, it should also have the costs of that motion.

25 The Court makes the following orders:

1. The Applicant is successful on its notice of motion of 23 February 2007.
2. The Respondent is unsuccessful on its notice of motion dated 13 March 2007.
3. The Respondent is to pay the Applicant's costs of the proceedings.
4. The Respondent is to pay the Applicant's costs of the Applicant's notice of motion dated 23 February 2007.

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