Murdesk Investments Pty Ltd v Roads Corporation [2007] VSC 175

Murdesk accepts the offer as part compensation for the land acquired by VicRoads but wants to negotiate about the following things:

• Murdesk contends that the market value of the land acquired by VicRoads as at the gazettal date of 11 February 2002 was $4,000,000 plus solatium of 10% of the market value of the land.

• Legal, valuation and professional and other expenses necessarily incurred by reason of the acquisition in land (particulars of which will be provided).

• Special value of the land to the claimant (particulars of which will be provided).

• Loss attributable to disturbance (particulars of which will be provided).

• The loss that will be incurred by the claimant by reason of the payment of stamp duty and other costs relating to the original purchase of the land pursuant to the contract of sale referred to aforesaid [A contract pursuant to which the claimant purchased the property from George Edward Bell on 1 February 2000].

• Business disruption (particulars of which will be provided).

• All interest due in respect of the claimant's loss aforesaid (particulars of which will be provided).

• GST should be added to the claim as required.

5 This claim was not supported by a sworn valuation. On 30 June 2003 the claimant filed and served particulars of claim as follows:

(a) Market value of the land acquired - $8,000,000 or alternatively $4,000,000;

(b) Loss on sale of 235 Harvest Home Road - $600,000;

(c) Stamp duty (at the base rate of 5.5%) and other acquisition costs on the purchase of a replacement site;

(d) Business losses incurred by the claimant including:

(i) time spent by the officers of the claimant;

(ii) damages in the form of interest on the amount awarded over and above the interest due under the Land Acquisition and Compensation Act, for the period of the delay by the authority in making its initial offer;

(e) Legal valuation and other expenses totalling $119,616.07;

(f) The authority provide access, services and remedial works to the severed portion of land to the west of the acquired land;

(g) The authority provide access from the severed land on the west of the acquired land to the severed land on the east of the acquired land;

(h) The authority provide direct road access and independent services to lot 4 being part of the severed land on the east of the acquired land.

6 It can be seen that on its face the claim exceeded $8,000,000 and included claims for a series of alleged consequential pecuniary losses including a claim for loss on the sale of land in Harvest Home Road said to flow from the financial consequences of the compulsory acquisition.

7 In June 2005, following extended interlocutory steps, the claimant filed amended particulars of claim as follows:

(a) Market value, value to the owner or special value of the land acquired - $5,280,000;

(b) Stamp duty and other acquisition costs on the purchase of the replacement site - $268,400;

(c) Loss on the sale of 235 Harvest Home Road - $2,563,532.03, plus compound interest from 31 December 2004;

(d) Loss of future capital profits - $4,575,000;

(e) Legal valuation and other expenses, including $120,000 for time spent by the claimant - $196,632.55;

(f) Physical interference with improvements on the subject land - $10,000.

The total claim was thus $12,893,564 (plus compound interest in respect of the loss of 235 Harvest Home Road). The amended particulars of claim did not make a specific claim for solatium.

8 On 3 August 2005 the solicitors for the authority served an offer of compromise in the sum of $2,300,000 plus interest plus costs. The matter then proceeded through further interlocutory steps including a process of joint report by engineering experts with respect to sewerage issues relating to the servicing of the land.

9 The hearing of the matter was by agreement of the parties and with the leave of the Court, in the first instance limited to issues relating to the effect on value of partial acquisition of the parcel of land comprising the acquired land. When the matter came on for hearing on 7 June 2006, senior counsel for the complainant informed the Court and the authority that the claimant would not pursue the following items of its claim:

(a) Claim (b) being stamp duty and other acquisition costs on the purchase of a replacement site in the sum of $268,400;

(b) Claim (d) being loss of future capital profits in the sum of $4,575,000; and

(c) Claim (f) being physical interference with improvements on the subject land in the sum of $10,000.

10 In the course of the trial the authority made an offer without prejudice, save as to costs in the sum of $2,555,000 in full settlement of the claim

11 Following a 17 day hearing the Court delivered its reasons for decision in respect of the claim for land value (inclusive of market value, value to the owner, special value and loss attributable to severance) on 5 October 2006 awarding the sum of $3,298,100 (as subsequently amended).

12 On 15 November 2006 a mediation was held with respect to the outstanding items of claim being:

(a) Claim (c) being the alleged loss on sale of 235 Harvest Home Road in the sum of $2,563,532.03 plus compound interest;

(b) Claim (e) being legal valuation and other professional expenses, including time spent by the claimant in the sum of $196,632.55; and

(c) Solatium.

13 At the mediation the claims for solatium and legal valuation and other expenses (excluding the time spent by the claimant) were settled in the sums of $100,000 and $60,000 respectively together with $40,000 for interest, payable on or before 22 November 2006.

14 The claims with respect to loss on sale of 235 Harvest Home Road and time spent by the claimant were withdrawn.

15 Thereafter judgment was entered in the following terms:

"2. The Claimant is entitled to an award of $3,298,100 in respect of the claim for market value and severance together with interest thereon.

3. Subject to further submissions made on behalf of the Respondent within 48 hours, the Claimant is entitled to an award of interest in the sum of $899,203.21 together with daily interest thereafter until payment of the principal sum awarded. Interest is to accrue at the daily rate of $418.33."

16 Section 91(1) of the Land Acquisition and Compensation Act 1986 (the "LAC Act") provides:

"(1) In any proceedings under this Part, the Tribunal or the Court (as the case requires) may award such costs as it thinks proper but in making an order for costs must, if the Tribunal or Court considers it appropriate to do so, take into consideration--

(a) the amount of compensation awarded by the Tribunal or Court as compared with the amount (if any) offered by the Authority; and

(b) the extent to which, in the opinion of the Tribunal or Court, the proceedings have arisen from, or been affected by--

(i) unreasonable conduct on the part of the claimant or the Authority; or

(ii) the failure of the claimant to give adequate particulars of the claim or supply supporting material when required to do so; or

(iii) an excessive claim by the claimant; or

(iv) an unduly depressed offer by the Authority; and

(c) any other matters which under this Act are to be taken into account in determining the allocation of costs."

17 It is submitted on behalf of the claimant that it should have its costs of the proceeding on a solicitor client basis taking into account the following matters:

(a) The amount of compensation awarded by the Court as compared with the amount offered by the authority (s.91(1)(a) LAC Act);

(b) The extent to which the proceedings have arisen from or been affected by unreasonable conduct on the part of the authority (s.91(1)(b)(i) LAC Act);

(c) The extent to which the proceedings have arisen from or been affected by an unduly depressed initial offer (s.91(1)(b)(iv) LAC Act);

(d) The special nature of the costs jurisdiction in matters of this kind;

(e) The actions of the authority prior to the referral to the Court, which it is said were such as to give rise to special circumstances warranting the award of solicitor/client costs;

(f) The history of offers made by the authority which it is submitted were very low and unduly depressed;

(g) The excess of the sums claimed on behalf of the claimant above that recovered in the proceeding, did not materially add to the costs of the parties, and/or should be disregarded having regard to the claimant's success on the principal claim, the additional sum recovered at mediation, the quantum of interest recovered, and the underlying basis of the proceeding namely that of a compulsory acquisition forced upon the claimant.

(a) The amount claimed up until 7 June 2006 was $9,435,464 (plus compound interest) more than the compensation awarded to the claimant;

(b) The claims abandoned on and after 7 June 2006 totalled $7,536,932, of which $2,683,532 was not abandoned until after trial and further mediation;

(c) The claimant should pay the costs of the claims abandoned or discontinued by it;

(d) The authority should get its reasonable costs of discrete issues determined in its favour;

(e) The authority has been the most successful party up until the first day of trial;

(f) The Court is entitled to have regard to offers of compromise and "Calderbank" offers but in the present case they do not relevantly bear upon the Court's discretion;[1]

(g) The claimant should get its costs of the market value issue on a party/party basis;

(h) The claimant should not get the costs of the evidence of Mr Wallace and Mr Holland, having regard to the nature of that evidence, and the Court's conclusions with respect to it;

(i) There was no unduly depressed offer made by the authority;

(j) The claimant's initial pursuit of the claims which were ultimately abandoned, constituted unreasonable conduct, and warrants the award of costs on a solicitor/client basis;

(k) Conversely, the authority did not engage in unreasonable conduct;

(l) The claim was excessive;

(m) The claimant should not get the reserved costs of interlocutory hearings in circumstances where the claim it was pursuing was excessive;

(n) The directions hearing on 24 November 2006 related solely to the claimant's pecuniary loss claims subsequently abandoned; and

(o) The claimant should not get the costs of the mediation of 30 August 2003 which the claimant attended without valuers or experts.

The Claimant's Core Entitlement to Costs

19 It is conceded that the claimant has a core entitlement to costs relating to the assessment of compensation with respect to the value of the acquired land.

20 In my view the core issue in this proceeding was the ascertainment of the net effect upon market value resulting from the partial acquisition of the claimant's land.

21 This issue was very materially complicated by two preliminary factual considerations:

(a) What was the hypothetical zoning of the land as at the relevant date?; and

(b) What was the hypothetical capacity of the land for connection to sewer at the relevant date?

22 This second issue was materially advanced by the joint report of experts delivered prior to the trial, but nevertheless the costs to the claimant in demonstrating its case as to both issues were significant.

23 I accept the submission made on behalf of the claimant that the conceptual basis underlying the award of costs to a claimant in compulsory acquisition compensation proceedings, differs from that involved in ordinary civil litigation. This is because the claimant has been placed in the situation giving rise to the litigation, by the action of the State and through no choice of its own. In turn the claimant is entitled to ascertain the compensation to which it is entitled.

24 In Minister for the Environment v Florence[2] Wells J stated:

Compulsory acquisition cases differ of course from ordinary claims dealt with in the general jurisdiction in one significant respect: the claimant, unlike the ordinary plaintiff, had no choice whether to make a claim or not; the mere acquisition by compulsory process gave him, by virtue of s.18 of the Act, a claim to compensation which he could hardly be expected to renounce.

Upon an ordinary claim in the general jurisdiction it is, generally speaking, obvious who has won and who has lost, and correspondingly clear why costs usually follow the event. Upon a claim for compensation for land compulsorily acquired, it is not, generally speaking, appropriate to speak of one party as having won; compensation is awarded to one who has already been given, by statute, the right to receive it. It is therefore as just to say of the latter sort of case that the claimant ought, in the absence of special circumstances, to receive his reasonable costs of obtaining the compensation that is, ex hypothesi, his due, as it is to say of the former sort of case that prima facie costs follow the event in favour of the party who has won. But costs are, as always, discretionary, and no hard and fast rule will ever be allowed to occupy part of an area controlled by a discretion, however predictable the result of its exercise may be in certain sorts of cases. ...

Against the history of a wide ranging discretion given to this Court with respect to costs, I am, I apprehend, to construe s.36 flexibly and not restrictively, to the intent that the special nature of the jurisdiction to which it relates should be duly recognized, and orders made in that jurisdiction that are just and expedient.[3]

25 I accept and respectfully adopt this general statement of principle. I do not accept the authority's submission that it purports to constrain the Court's general discretion. Rather it elaborates the underlying context in which that discretion is to be exercised.

26 It follows from the fact that the claimant has recovered a sum in excess of that offered to it, that it has succeeded on what I have characterised as the core issue in the proceeding, and from the fact that the Court's function is a compensatory one in the sense discussed above, that the claimant is entitled to the core of its costs being those costs reasonably associated with the making of its claim for market value.

27 It is also entitled to reasonable costs in respect of those aspects of the claim upon which it succeeded by reason of the outcome of the final mediation, namely solatium and s.41(1)(f) expenses.

28 The remaining questions which must be determined as between the parties are therefore:

(a) How should the costs of the discontinued claims be treated?;

(b) Do the costs claimed by the claimant include unreasonable costs in respect of particular matters?; and

(c) Does the conduct of the authority warrant an award of costs on a solicitor/client basis?

The Discontinued Claims

29 The authority submits that where a claim is abandoned, the costs of such claim are payable pursuant to the general provisions of the Rules of the Supreme Court in accordance with r63.15.

30 I do not accept this submission. In my opinion, the terms of s.91(1) LAC Act override the general rules. If I am of the opinion it is appropriate to have regard to factors there listed, I must take them into consideration.[4]

31 Conversely, I do not accept the submission of the claimant that the abandoned claims did not materially affect the costs of the parties. In my view, it is plain that they did. They gave rise to the need for extensive discovery, and additional valuation and accounting evidence. Moreover, they were, as the authority submits, claims of very substantial quantum and some complexity[5]

32 The claims abandoned were not pursued before the Court and in my view the costs associated with them should be paid by the claimant. I do not accept the submission made on behalf of the claimant that I am in a position to determine whether the abandoned claims were in fact nevertheless reasonable. As was submitted on behalf of the authority, I cannot conduct a mini trial of this issue on the material before me. It is possible to "cherry pick" documents which both support and contradict the claimant's position. The contested claims were not put to the test and cannot, in my view, be dealt with on any other basis but that it is to be inferred from their abandonment that they had no substantial prospect of success or were de minimis.

33 I am not satisfied however that the costs of the abandoned claims should be paid on a solicitor client basis. As r.63.15 illustrates the mere fact of abandonment does not lead to this conclusion. I am not satisfied that the making of the abandoned claims was so unreasonable as to warrant solicitor client costs. In so concluding I am in part influenced by the fact that the assessment of loss flowing from a compulsory acquisition is not straight forward as a matter of fact in cases such as the present, and involves the application of categories which are not necessarily mutually exclusive or easy of application as a matter of law.

34 It would be possible to order the taxing of the costs of separate issues, but in my view the better approach is first, to exclude certain costs which are plainly related to the abandoned claims only, and secondly, otherwise to allow a percentage of the claimant's overall costs prior to the first day of trial. I propose to adopt this approach because of the extent and complexity of the interlocutory steps undertaken by the parties and the obvious desirability of limiting so far as is reasonably possible the extent to which the taxation of costs must dissect this material.

35 Insofar as the exclusion of specific costs is concerned, I would exclude the costs of the valuations undertaken on behalf of the claimant with respect to the Harvest Home property. I would also exclude the costs of the directions day of 24 November 2006 which was generated by pecuniary loss claims subsequently abandoned.

36 Insofar as the percentage adjustment is concerned, I would otherwise allow 70% of the claimant's costs prior to trial, being an allowance discounting both the claimant's costs of the abandoned issues and providing a set-off in respect of the authority's costs of such issues.[6]

37 In reaching this figure I have sought to allow appropriately for the fact that some affidavit material which related primarily to abandoned claims, may also be said to bear upon the claims for solatium and s.41(1)(f) expenses which were settled upon the final mediation. As such the claimant is entitled to the relevant cost.

38 I have rejected the authority's submission that costs should be awarded on the basis that it was the most successful party up until the date of trial. Whilst this may be true in terms of the ambit of claims, it does not allow adequately for the core nature of the claims proved thereafter and the relative extent of preparation associated with them.

39 The ruling I have made will accommodate the fact that a number of directions hearings, occasioning reserved costs, were concerned with both the core claims subsequently established and claims ultimately abandoned.

40 I have also rejected the authority's submission that no costs should be recovered by the claimant in respect of the mediation hearing attended by it prior to trial without experts and valuers. I am not in a position to judge whether such conduct was the cause of a failure to resolve the matter by mediation at that point in time. The course adopted by the claimant in fact limited the costs to which both parties were potentially exposed and I am not able to be persuaded on the balance of probabilities that it was unreasonable.

41 It is also just that the Claimant get the costs of the final mediation at which it was materially successful, albeit substantial claims were not pursued.

The Costs of the Claimant's Valuation Witnesses

42 The authority submits the claimant should not get the costs of its valuation witnesses at the trial, Mr Wallace and Mr Holland.

43 I do not agree. First, such evidence did not relate to a discrete issue upon which the claimant failed. Second, the evidence of the valuers contributed to the matrix of evidence upon which the Court ultimately made detailed findings as to appropriate adjustments to comparable sales evidence. Third, the Court did not accept the valuation opinion of the authority's witnesses. Fourth, the hypothetical valuation exercise in issue was a particularly difficult one in the historical circumstances confronting the valuers. Fifth, the claimant was seeking to advance a claim for compensation in circumstances not of its making. Sixth, the claimant retained reputable independent professional witnesses. Seventh, the Court should not descend to the dissection of the evidence with respect to an issue upon which the claimant ultimately succeeded, in the sense that it achieved an award in excess of the sum offered to it.

44 In my view, this is a case in which it is apposite to bear in mind the observation of Jacobs J in Cretazzo v Lombardi[7]:

But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.[8]

45 The observations by his Honour seem to me to be particularly apposite to a claimant for compensation seeking to ascertain an entitlement resulting from the compulsory acquisition of its land. Further, in the present instance I am not faced with an argument about the severance of the costs of issues but with the severance of the costs of witnesses. Such a disaggregation of the claimant's costs is not in my view justified by the circumstances of the case. Moreover, although the discretion in issue is ultimately unfettered,[9] it would be a novel and difficult course to so disaggregate the costs of an issue upon which the claimant has succeeded.

The Claim for Solicitor/Client Costs

46 The claimant submits that the claim was generated at the outset by the failure of the authority to make an offer of compensation in accordance with the terms of s.31 of the LAC Act.[10] The claimant further submits the claim was unreasonably prolonged thereafter by reason of the fact the authority made a series of unduly depressed offers. As a result it is submitted the Claimant should get its costs on a solicitor client basis.

47 I do not accept these submissions:

(a) As I have said, this case presented an inherently difficult valuation exercise both to the claimant and the authority;

(b) The Act provides for the time for offer to be extended by agreement, and this was initially done with the consent of the claimant until 21 March 2002, the delay thereafter until the making of an offer was some 3 months;

(c) The Act provides incidental mechanisms to compensate a claimant if the Authority delays in making an offer, first by way of interest, second by way of solatium and third (in an appropriate case) by way of compensation for consequential pecuniary loss. It further provides the option to a claimant to make a claim itself pursuant to s.37(1).

(d) I do not accept that it has been shown the authority acted in bad faith in initially foreshadowing the making of an offer more quickly than in fact occurred. Nor do I accept that its initial estimate of time in this regard was obviously unreasonable having regard to the circumstances as they then presented themselves;

(e) The claimant initially made a claim for compensation unaccompanied by a valuer's certificate or valuation, and in my view this mirrors the difficulties which it is apparent the authority experienced;

(f) The principal impact upon the claimant arising from the delay by the authority in making an offer, appears to have been with respect to its dealings with respect to the Harvest Home Road land, the claim in relation to which was ultimately abandoned.

(g) Whilst I accept the phrase "unduly depressed" should be given an objective meaning, ascertained by reference to the circumstances of the claim as a whole, I do not accept the offers made on behalf of the authority were in all the circumstances of the case so unreasonable as to warrant the award of solicitor/client costs. Further the claim advanced on behalf of the claimant was itself excessive and in my view this effectively counterbalances the unduly depressed offers made by the authority.

48 The case is not one of "special circumstances" in the sense referred to by Winneke P in Spencer v Dowling & Anor. [11]

The Appropriate Order

49 In my view the Court should order that the authority pay:

(a) 70% of the claimant's costs of the proceeding up until 7 June 2006 but excluding:

(i) the costs of and incidental to the valuers' valuations of the property known as 235 Harvest Home Road;

(ii) the reserved costs of the directions hearing on 24 November 2006.

(b) The claimant's costs of the trial and mediation of the proceeding after 7 June 2006 (including the costs of taking judgment on 24 October 2006).

50 I will hear the parties as to the costs of this application.

[1] In the circumstances it is unnecessary to further address this submission.

[2] (1979) 45 LGRA 127 at 149-150.

[3] Conclusions adopted by Gobbo J in Mario Piraino Pty Ltd v Roads Corporation [1991] VicRp 90; [1991] 2 VR 534 at 541-542 and in Coastal Estates v Shire of Bass [1994] VicRp 13; [1994] 1 VR 210 at 213.

[4] I also note rule 63.02 provides:

"The power and discretion of the Court as to costs under section 24 of the Act shall be exercised subject to and in accordance with this Order."

I am exercising the power and discretion conferred by s.91 of the LAC Act not s.24 of the Supreme Court Act 1984.

[5] Save for the $10,000 claim for interference with improvements.

[6] Byrns v Davie [1991] VicRp 93; [1991] 2 VR 568 at 571.

[7] (1975) 13 SASR 4 at 16.

[8] Discussed in the State of Victoria v The Master Builders Association of Victoria, unreported decision of the Appeal Division of the Supreme Court of Victoria, 15 December 1994. Cited with approval by Tadgell J at p.5 and Eames J at p.7.

[9] cf Rozniak v GIO (1997) 41 NSWLR 608 at 615 per Mason P.

[10] (1) After the notice of acquisition has been published in the Government Gazette the Authority must make an offer in writing to each claimant of whose entitlement to compensation it is aware.

(2) An offer under this section must be made--

(a) within fourteen days after the date of acquisition; or

(b) within such further period as--

(i) may be agreed upon in writing between the Authority and the claimant; or

(ii) the Minister administering the special Act may certify.

(3) The offer must set out the amount that the Authority, on the information available to it, has assessed as a fair and reasonable estimate of the amount of compensation payable to the claimant under this Act on the assumption that the claimant held the interest in respect of which the offer is made.

(4) An offer under this section must be accompanied by--

(a) a copy of the certificate of valuation to which the Authority has had regard in making its offer; and

(b) a statement explaining the difference between its offer and the valuation referred to in paragraph (a) if these differ; and

(c) a statement in the prescribed form setting out the principal rights and obligations of persons whose interests in land have been acquired under this Act.

(5) In making its offer the Authority must have regard to a valuation of the land carried out by the Valuer-General or a person who holds the qualifications or experience specified under section 13DA(1A) of the Valuation of Land Act 19602.

(6) A valuation under sub-section (5) may be made in respect of the specific interest acquired or in respect of the freehold interest in the land whichever appears to the Authority to be appropriate in the circumstances.

(7) If an offer of compensation is made under this section in respect of an acquired interest and immediately prior to the date of acquisition--

(a) the interest was affected by another interest in the land; or

(b) rates, taxes or other charges were charged upon the land in which the interest subsists-- the Authority may reduce the amount of its offer by an amount equal to the amount that it considers is necessary to provide for that other interest or to pay those rates, taxes or other charges.

(8) To the extent that an amount of compensation offered under this section, or any part thereof, is not disputed, the amount offered is binding upon the Authority unless the Authority can demonstrate that the information contained in the offer and relied upon by the Authority in making the offer was incorrect.

[11] [1996] VSC 51; (1997) 2 VR 127 at 147.