Prasad v Minister Administering the Environmental Planning and Assessment Act 1979

Costs in compensation cases 4Since the hearing on 7 March 2011, a major debate has occurred regarding the principles to apply to the determination of questions of costs in such matters. 5On 16 September 2010, I had delivered the court's third and final judgment in the litigation between Mr and Mrs Dillon and Gosford City Council (Dillon v Gosford City Council (No. 3) ("Dillon No 3") [2010] NSWLEC 168). On the question of costs, I applied the principles that I regarded as then well-established by the authorities. As I said (at [59]-[60]): The general principles to be applied are well known, and have been set out in many judgments of this court. I summarised them in Ray Fitzpatrick Pty Ltd v Minister for Planning (No.5) [Fitzpatrick No 5] [2008] NSWLEC 183 at [31]-[45], and applied them in that case, and, e.g., in BMP Manufacturing Pty Ltd v Roads and Traffic Authority of New South Wales (No.2) ["BMP"] [2009] NSWLEC 41. (See also the cases I reviewed in BMP, at [12]ff, and Biscoe J's recent second judgment in the Taylor litigation - Taylor v Port Macquarie-Hastings Council ["Taylor"] [2010] NSWLEC 153, especially at [16]-[22]). They commence with the propositions that (1) costs are awarded by way of compensation and not punishment (Latoudis v Casey [1990] HCA 59; 170 CLR 534); (2) compulsory acquisition cases are not "ordinary litigation", concerning as they do a unilateral exercise of executive power against the property rights of citizens (Banno v Commonwealth ["Banno"] (1993) 45 FCR 32; 81 LGERA 34); and (3) "there needs to be a strong justification for awarding costs against an applicant" (see Pastrello v Roads and Traffic Authority of New South Wales ["Pastrello"] [2000] NSWLEC 209; 110 LGERA 223). 6While I was preparing this judgment on the question of costs in Mr Prasad's case, Pepper J published, on 31 May 2011, her decision in Halley v Minister Administering the Environmental Planning and Assessment Act (No 3) ('Halley No 3') [2011] NSWLEC 94. Her Honour respectfully departed from my reasoning in Dillon No 3, and that of Biscoe J in Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority ("Walker") [2010] NSWLEC 27 and Taylor (cited in [5] above, but now reported at 175 LGERA 189). I had cited Taylor, but not Walker, in Dillon (No 3), but Pepper J cited both in Halley No 3. 7Biscoe J had expressed the view that in class 3 cases under the JTC Act, the costs discretion "tilted" in favour of dispossessed land owners (Walker at [34]), and that "different principles" were justified, in apportioning costs in acquisition cases, by the interference with an individual's rights, the "confiscating nature" of such acquisitions, and the "statutory entitlement to just compensation" (Taylor at [19]). His Honour set out, in exemplary fashion, a series of principles in Walker (at [16]-[22]), quoting extensively from authorities referred to above. 8On 21 July 2011, the Court of Appeal heard appeals by Mr and Mrs Dillon against my decisions in their litigation against Gosford City Council. Judgment was delivered on 26 October 2011, with the Court of Appeal (per Basten JA, with Macfarlan JA and Handley AJA agreeing) setting aside only part of my costs order(s) in Dillon No 3, and specifically holding that Halley No 3 was wrongly decided. 9Accordingly, the costs arguments in this long-reserved matter must now be resolved in accordance with the principles stated by the Court of Appeal in Dillon v Gosford City Council ("Dillon CA") [2011] NSWCA 328, to which I will return later in this judgment. 10Under s 98 of the Civil Procedure Act 2005 ('CPA') costs are, subject to any specific court rule or statutory provision, "in the discretion of the court". There are no rules in this court, nor in the Uniform Civil Procedure Rules 2005 ('UCPR') relevant to compulsory acquisition matters of this type, other than those UCPR which deal with Offers of Compromise (in Part 20 Div 4 and Part 42 Div 3, especially UCPR 42.14-42.15A). However, the Court of Appeal specifically held in Dillon CA that UCPR 42.1 ("costs follow the event") is an "excluded provision" (cl 3 of UCPR Sch 1), and so does not apply to proceedings in class 3 of this court's jurisdiction. 11While minds may continue to differ on the principles which the court should apply, the Court of Appeal has spoken, and no relevant amendments have since been made to applicable statutes or rules. 12The post-Dillon CA regime was recently discussed and applied by Biscoe J in Al Amanah College Inc v Minister for Education and Training (No 4) ('Al Amanah') [2012] NSWLEC 26, to which I will also return.

Background Summary of this matter 13The court's judgment in the substantive proceedings in this case, delivered on 5 October 2010 [2010] NSWLEC 193, contained a comprehensive statement of the background to the proceedings, not all of which history need be repeated here. It was, for many reasons, an unusual and difficult matter to determine. 14Mr Prasad and his family had purchased the subject land in April 2004 for an amount of $475,000 (equivalent to $78 per square metre ($78/m²)). It was a difficult site comprising 15 separate allotments, having a total site area of 6070m2. The request for acquisition was made by the applicant on the then available grounds of hardship, and the acquisition was gazetted on 12 December 2008. 15The land was zoned 1(a) General Rural under the local environmental plan and rezoned Environment Conservation on 28 July 2006 under a State Environmental Planning Policy. The parties were agreed, however, that pursuant to s 56(1)(a) of the JTC Act, compensation should be assessed, as appropriate to land with that General Rural zoning. 16The applicant sought compensation in the amount of $1,350,000 by way of market value, plus various amounts by way of disturbance. 17Negotiations between the parties were unsuccessful, both before and during the proceedings, and the Minister contended at the hearing that compensation should be limited to $485,000 for market value, and nil for disturbance. The applicant maintained his claim for market value of slightly more than $1.3M, and a minimum amount of $2,400 for disturbance. 18The court decided on a Market Value of $509,922, and refused the applicant's claim for disturbance (beyond valuation fees the Minister had paid prior to the proceedings). Costs were reserved. 19The applicant gave notice of Intention to Appeal against this court's decision, but the court was informed at the costs hearing that the appeal was not proceeding.

Negotiations prior to the substantive proceedings 20When the negotiations opened between the parties prior to compulsory acquisition, the Department of Planning offered the Prasad family, on 8 September 2008, an acquisition price of $525,000 exclusive of GST (see letter 8 September 2008, Annexure 'A' at fol 4 of Maureen Peatman's affidavit, dated 7 February 2011). 21The applicants did not accept the offer (see Mr Prasad's letter of 16 September 2008, Annexure 'B' at fols 13 and 14 of the Peatman affidavit). Among other things contained in that letter, Mr Prasad said on behalf of his family: (1)that they considered the offer "not reasonable, fair and just", as it was "significantly lower, (50% less), and has no bearing to the market prices, around the ''base date" of the "valuation year of 2008". They objected that, before and after the lodgement of their request for acquisition, they carried out extensive research on comparable sales, and established "a clear pattern/trend of the price range for our property"; (2)that he had written in detail to the Valuer General ('VG') on 4 February 2008, and the VG had replied on 12 February 2008. He relied on the advice and information provided by the VG, who "analyse/assessed the applicable 'valuation range' for our property". At that point Mr Prasad had written to the Department seeking "expedition of the acquisition process", and saying that he had arrived at a valuation of approximately $1.02M. He said in his letter: Therefore, in light of the significant discrepancy between the "purchase price offered and our sound assessment, based on the Valuer's own advice/data", we reasonably foresee, that the probability of reaching any "reasonable and balanced/fair settlement", is very remote. and (3) (at fol 14 of Annexure 'B' - underlining in the original): Accordingly, to avoid a "protracted and costly negotiation", which we know, would inevitably fail, and to save ensuing wastage of the taxpayers' money, I suggest that your Department complete the acquisition through compulsory process. Thus we would be able to negotiate directly with the Valuer General with the knowledge that Valuer General is "legally liable" for intentionally misleading us if/when his valuation would not match with our "assessment"- which is based on his advice/information. However, in the event your Department is willing to be "fair and just" by offering a "realistic/reasonable" purchase price, we, out of goodwill and in good faith, are willing to reciprocate accordingly by accepting a compromised price which is "fair" to all concerned, and thereby forget the entire 'debacle'. It should be noted, that your valuer has to justify why his valuation is 50% lower, than other comparable sales, which were also, valued by qualified and registered valuers. It should be further noted, that we have been forced to seek compensation, due to your Department's removal of our fundamental democratic right to choose the price/time for the sale of our land. The DoP unreasonably sterilised our use/trade rights to the land through imposition of ECZ. The ripple effect of this was that, ECZ made our land worthless, thus directly removing a collateral, which in turn, directly breached our mortgage contracts, (which required immediate replacement of the lost/reduced asset), and which made our repayments unsustainable, as, due to ECZ, we could neither farm our land to derive income to offset the repayments, nor could we sell a portion of the land to reduce our debt. 22By a "Without Prejudice" letter dated 2 October 2008 (Annexure 'B', fol 16), the Department had told Mr Prasad that its offer of 8 September 2008 was "based on a valuation report prepared by the Department's consultant Valuer. The Department is not prepared to make this report available to you at this time". The Department offered to fund an independent valuation, to the value of a maximum of $3,000 inclusive of GST (subject to the right to claim for a higher fee if the valuer so quoted). 23Mr Prasad replied to the offer to fund the valuation, also on 2 October 2008 (Annexure 'B', at fol 15). He sought "to ensure that there is a common understanding of the intention and the purpose of the valuation required", by seeking confirmation or clarification of the following five questions:

1. Is there a need for another valuation?
2. What is the minimum/maximum number of valuations required? 3.In the event the new valuation report indicates a valuation level higher or equal to our valuation assessment of $1.02m on size based only (not taking into account other relevant factors as advised by the Valuer General), would you confirm that then your Department would be obliged to accept that valuation as correct market value for purchase of our land? 4.In the event your Department would not be obliged to accept the new valuation, then what happens next, and how long would that procedure be? 5.When would you provide us the basis of your initial offer?

The Acquisition, the commencement of proceedings, and further negotiations 24The acquisition was gazetted on 12 December 2008 (fol 11), and, on 19 February 2009, the VG determined the market value at $480,000 which was the sum then offered by the Minister to the Prasad family (see fols 8-10). 25On 7 May 2009, the class 3 application was filed by solicitor Steven Klinger on behalf of the applicant. 26On 12 June 2009, in anticipation of Mr Klinger withdrawing from the matter, Mr Perkins, who continues to represent the applicant, filed his appearance in the proceedings. Points of Claim asserting a market value of $1.3M were filed on 3 July 2009. Points of Defence were filed on 14 July 2009. Amended Points of Claim were filed on 4 March 2010, claiming $1,313,430 for market value. 27On 9 February 2010 (Annexure 'C', at fol 19), the solicitors for the Minister wrote to Mr Perkins, referring to the approaching hearing date, and said: In a genuine effort to settle this matter without the necessity of a hearing before the Court we have been instructed to offer your client $538,000 in full and final settlement of this matter. We note that this offer is 12% above the Valuer General's determination of $480,000. 28The letter went on to say that the offer was made in accordance with the so-called Calderbank principles (Calderbank v Calderbank [1975] 3 All ER 333), and, if not accepted, the letter would be relied upon in relation to any application for costs. (I will return to those principles, but they can be relied upon only when offers are made while proceedings are on foot. So, in this case, they apply only to negotiations after 7 May 09.) The offer made on 9 February 2010 was expressed to remain open until close of business 26 February 2010. The time allowed for consideration is a relevant consideration when the principles are invoked. 29The matter was back before the List Judge on 12 February 2010, and on 16 February a pre-trial mention was appointed for 17 February 2010 (before me as the trial judge). 30Mr Perkins wrote back to Ms Peatman on 22 February 2010 saying, inter alia (Annexure 'D', fol 20): ... our client does not accept that the sum of $538,000 represents an appropriate or reasonable settlement figure, having regard to: (a)the development potential of the land (based upon the underlying zoning) at the date of acquisition; and, moreover (b)the legitimate expectation at the date of acquisition (and ignoring the public purpose) that the subject land would be rezoned to residential, in the short to medium term. Our client considers that an appropriate and reasonable level of compensation would be the sum set out in the applicant's points of claim. However, with a view to resolving the matter and avoiding the costs and inconvenience of a protracted hearing, our client is prepared to accept the sum of $950,000 in full and final settlement in the matter. 31The letter went on to say (fol 20) that that offer was also made in accordance with Calderbank principles, and that the letter would be relied upon in the event of a costs hearing. The offer was to remain open until close of business 26 February 2010 (fol 21). It was not accepted. 32The hearing was conducted over four days, 1-4 March 2010, and, as noted earlier, judgment was delivered on 5 October 2010.

The Court's Primary Judgment 33The fundamental issue underlying the determination of the applicant's claim by the court was the current and future potential of the land. As recorded (in [22] of our judgment), the applicant contended that a prudent purchaser would have expectations (adopting the underlying zoning and excluding the public purpose) that: (a) Having regard to the context and constraints of the land, residential development could be carried out under the General Rural zoning and (separately) (b)The land will be released for urban purposes in the "short to medium term". 34The respondent, on the issue of potential use for residential development, argued that the subject land suffered from constraints arising from the presence of endangered ecological communities. However, in this respect, there was no contest by the applicant about the evidence of the ecological expert who had prepared a report. 35We dealt with the potential for residential development (at pars [24]-[34]), arriving at the opinion that a hypothetical prospective purchaser would have concluded that the subject land did not have development potential for the construction of a dwelling at the date of the acquisition. We then dealt with the prospects for urban release (at pars [35]-[44]), and concluded that any prudent purchaser would find the market to be purely speculative as to when any future potential would be realised. 36There was a serious dispute between the valuers (see summary at [54] of the principal judgment). Mr Dyson, for the Minister, arrived at a figure of $80/m2 (ie $485,000), while Mr Phippen, for the applicant, arrived at a figure of $220/m2 (ie $1,350,000). 37After anxious, long and detailed consideration, we concluded that, as with the planning evidence, we preferred the expert evidence called on behalf of the Minister. (In some of these more difficult acquisition cases, the court concludes in favour of experts on one side on one aspect of a matter, and the other side on another). 38Much of the dispute between the valuers in this case concerned the fact that the applicant had previously sold another block of land which was quickly on-sold for double the price he had accepted (see our judgment at par [77]). 39Having preferred the evidence of Mr Dyson over that of Mr Phippen, we accepted the respondent's submission that a value of $93/m2 would be the absolute ceiling for a valuation. Having looked at other properties introduced to the court as comparables, but at the lower end of the scale, and indicating rates between $79 and $84/m², we arrived at a value of $90/m2. 40We concluded (at [86]), following a thorough evaluation of all the valuation evidence, that the applicant could be compensated for the market value of the land at the rate of $84/m2, which brought the court to the market value of $509,922. 41The applicant's disturbance claim was refused. (Judgment extracted at Annexure 'E', fols 22-24)

The correct approach to costs 42Jagot J, when a judge of this court, pithily observed in Serbian Cultural Club 'St Sava' Inc & Serbian Cultural Club Limited v Roads and Traffic Authority of New South Wales (No 2) ("Serbian") [2008] NSWLEC 78, that there are "no hard and fast rules" or "automatic results" in class 3 costs matters. 43Wilcox J said in Banno (cited above at [5]) - at [53]) that litigation of this type is not "ordinary litigation", and that the discretion as to costs must be exercised on principled grounds. A public authority's acquisition of private land is not a case of mutual desire, but of a unilateral decision taken by the public authority (albeit as in this case at the request of the acquiree). The acquiree is left in the position of either accepting the VG's determination, or invoking the role of the court to rule on its adequacy. People whose land is acquired should not be deterred by the prospect of being ordered to pay the acquiring authority's costs if their case proves unpersuasive. His Honour found an exception in the case of "resumees who pursue a vexatious, dishonest or grossly exaggerated claim or present their case in such a way as to impose unnecessary burdens on 'the public revenue or the court'". 44In Pastrello (cited above at [5]), Talbot J said (at [17]): ... the compulsory acquisition of land from an unwilling owner is a serious interference with that person's 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. 45In Overton Investments Pty Ltd v The Minister Administering Environmental Planning and Assessment Act 1979 ("Overton") [2001] NSWCA 137; (2001) 113 LGERA 439, the Court of Appeal reviewed an order I had made that each party pay its own respective costs. The VG had determined compensation at $727,500, but the defendant had argued for an amount of $84,000 at the hearing, and I awarded $105,000. On appeal, the applicant argued that, as it had succeeded in obtaining an award greater than that for which the respondent contended, it was entitled to be regarded as the successful party and awarded its costs in accordance with the usual rule that costs follow the event. The respondent argued that it was entitled to its costs as the applicant had been unsuccessful, failing on the principal issue, namely that of the underlying zoning of the land. Stein JA approached the question of costs on the basis that the applicant had been clearly unsuccessful. He said (at [69]-[74]): 69 In the hearing of objections under the Act to the statutory amount of compensation determined by the Valuer-General to be offered to the landowner, I do not think that it should always follow, exceptional circumstances aside, that costs should follow the event of an award of compensation. The Act sets up a fairly precise regime for the assessment and determination of compensation. In the first instance this is to be determined by the Valuer General. His determination of the amount to be offered to the landowner as compensation and the procedures to be followed in relation to such offer are all provided for by the Act. It is clear that if the landowner objects within 90 days to the amount of compensation offered it does so by instituting proceedings in the court. The Court is then required to hear and dispose of the person's claim for compensation by fixing an amount that will "justly compensate" that person. 70 The amount of compensation to be determined by the court is at large and the Valuer-General's determination may or may not play a part in the hearing. Like this trial, most compensation hearings take a considerable time to hear by reason of the valuation evidence regarding hypothetical developments, comparable sales and the like. This case was no exception. 71 This Court heard argument as to the relevance to the issue of costs of the amount of the Valuer-General's determination and its relationship to the ultimate award by the Court. I do not understand either party to suggest that it is an irrelevant factor to be taken into account on costs. In my view, it can be a relevant factor but one which rarely will be a determining one. Nevertheless, I do not see that his Honour placed any undue weight on the factor. 72 Nor do I see that it is a simple matter of ascertaining who won or lost the litigation. Compensation determinations are not like awards of damages for personal injury. Obtaining an award of compensation of $100 does not necessarily mean that a landowner "wins" the litigation. A judge is entitled to look realistically at the litigation, the issues, the way it was conducted and the result, in order to assess who really succeeded and to what extent. 73 In my opinion, the exercise of the discretion by his Honour, although involving the error identified above, was otherwise a sound exercise of discretion. The result of the order that each party pay its and his own costs was a fair one and properly reflective of the litigation. I do not think that this Court should intervene. In any event, if the Court were to re-exercise the costs discretion, I would come to the same conclusion as his Honour. 74 On a final note, it was said that if a landowner was not entitled to his costs of a trial where an award of compensation is obtained, then he could be at the mercy of the Government in prolonging the litigation. I do not accept that this is so and indeed, the opposite could be claimed. That is, if a landowner is always to get its costs so long as it obtains an award of compensation, however small, the resuming authority may be at the mercy of the landowner in prolonging a trial. 46Banno, Pastrello and Overton were at the centre of Pain J's consideration in Yakas v Roads and Traffic Authority (NSW) (No 2) ("Yakas") [2004] NSWLEC 598; (2004) 139 LGERA 116. The VG determination in Yakas was $1.22M, but the respondent argued for $1.5M at the hearing. The applicant claimed $8.2M, but moderated the claim to approximately $5M at the hearing. Pain J accepted the respondent's case and awarded $1.5M. Her Honour rejected an argument that the Overton decision represented a change in the law. She accepted (at [19]) the applicant's submission that Overton was authority for the proposition that applicants are not automatically regarded as successful and, therefore, entitled to costs, "merely because they have obtained an award of compensation". 47Pain J accepted the Stein JA approach in Overton of looking "realistically at the litigation, the issues, the way it was conducted and the result, in order to assess who really succeeded and to what extent". She considered that Yakas had been successful and she ordered the respondent to pay the applicant's costs. Some of the applicant's submissions, eg on underlying zoning, had been unsuccessful, but Her Honour acknowledged that the case was arguable and had no frivolous aspect. The unsuccessful arguments did not occupy a substantial amount of the court's time. 48Her Honour noted (at [10]) the applicant's argument that: ... where an applicant in a compulsory acquisition matter is successful in obtaining a larger award of compensation than that initially awarded by the authority acquiring the land under the compensation process giving rise to the litigation and: (a) the case run by the applicant was arguable or not unarguable and consisted of cogent arguments; (b)the applicant has not pursued frivolous, vexatious, dishonest or grossly exaggerated claims; and (c) the proceedings were not extended due to any procrastination or wasting of time by the applicant; the Court's discretion to grant an award of costs under s 69 of the Land and Environment Court Act 1979 (NSW) ought to be exercised in favour of the applicant. 49In Simpson v Bagnall ("Simpson") [2008] NSWLEC 79, Jagot J said (at [10]): The compulsory acquisition of land is a serious matter where a dispossessed owner has no option other than to come to court if they dispute the amount of compensation offered. The consequence is that, in the ordinary course, a dispossessed owner can expect to obtain the usual order for costs in their favour, particularly when the amount of compensation determined is greater than that offered by the resuming authority. 50In Fitzpatrick No.5 (cited above at [5]), another extremely complex situation arose, including concerns on questions of costs, and a contest about the payment or cancellation of interest, with the result of requiring interest to be paid back. The court had decided only that the statutory offer had been validly accepted. I set out the general rules and principles regarding costs (at pars [31]-[39]), and I applied them to JTC Act cases (in [40]-[43]). At [51] I said: It is trite to observe that the information base upon which litigants and their advisers consider issues arising in litigation, and make their decisions about them, shifts over time. What is required is that the Court look, on the question of costs, at all the circumstances pertaining at each particular stage of the proceedings (per Hunt AJA in King, and Santow JA in Green). ("King" is a reference to South Eastern Area Health Service v King [2006] NSWCA 2, and "Green" a reference to Leichhardt Municipal Council v Green [2004] NSWCA 341). 51As I observed in BMP (cited above at [5] - at [13]), where the court awarded $496,470, as against a VG of $592,200, a claim of $2.161M, and the respondent's contention, at trial, for $350,220: Clearly there is more for the court to consider than simple arithmetical comparisons. 52In BMP, after reviewing the relevant authorities, I concluded (at [19]-[23]); 19What failed in the present case were large claims by the applicants for site redevelopment costs and business losses (in terms of both profit and value). 20I do not regard them as "frivolous" claims at all. They were "arguable" and "presented efficiently and economically" (Banno at 53). In the end I found them unsupported by authority or the evidence before the court as a whole. They certainly amounted to an "ambit claim", but I do not accept the submission that they were "grossly exaggerated", in the sense in which that term was used by Wilcox J in Banno, in conjunction with the words "vexatious" and "dishonest". 21The applicants should be neither compensated nor penalised for putting such claims in all the circumstances of the case. The respondent does not seek its costs for resisting them, but, those claims having largely failed, the respondent cannot be expected to pay the applicants' costs of arguing them. 22Looking "realistically at the litigation", I cannot conclude that the applicant was "successful". 23Accordingly, each party is ordered to pay its own costs of the proceedings, including (1) the costs involved in finalising the substantive orders to be made, and (2) the costs of the hearing on costs.

Dillon 53In Dillon, the costs arguments were as complex as those on the substantive issues in the case. In Dillon No 3, I considered the costs issue in terms of the various phases of the litigation, and in respect of various individual items (see pars [56]-[80]). I have already quoted [59] and [60] (in [5] above), but I now set out the rest of those paragraphs to establish the foundation for my examination of the Court of Appeal's decision to vary my orders: 56In so far as costs might follow the "event", as in "success" or otherwise in the proceedings, the applicants could be said to have succeeded in the proceedings in terms of their recovering (1) more than the Valuer General's determination ($148,152 cf. $100,000), (2) more than the claim originally put to the Council ($148,152 cf. $125,150), (3) much more than the amount argued by the Council at the hearing ($148,152 cf. $50,000), (4) much less than they had eventually claimed during the 1995-2006 negotiations ($148,152 cf. $375,108 or more), and (5) only a little less than they were prepared to accept during the hearing ($148,152 cf. $150,000). 57Mr Dillon is very critical of Council for its conduct throughout the matter, commencing well before the litigation, using terms in respect of Council, such as "abject laziness", "sinister", "unscrupulous", "deceitful", "lousy", "covert", "deplorable abuse of process and power", "get off their butt", "total disregard for its statutory duty", etc. to encourage the court to find the Council's conduct "unreasonable" or "disentitling", to the degree necessary to found an award of costs on an indemnity basis. 58Mr Tomasetti conceded (subs 11.6.10, par 38) that the court might well consider a partial costs order (say up to 50%) in favour of the applicants on the basis of "issues won and lost". ... 61Having again reviewed the history of this litigation, I can find no basis upon which to order either party to pay any costs of the other on an indemnity basis. 62On an "issues won and lost" basis, an order in favour of the applicants for 50% (as conceded by Mr Tomasetti) may be appropriate. However, the respondent rejected what was clearly a reasonable offer made by the applicants during the trial to settle for much less than they were claiming, and very close to what they have ultimately been awarded. 63I have concluded that the interests of justice are best served by my ordering the respondent to pay 75% of the applicants' costs of the proceedings up to and including the making of "final" orders on 22 July 2009, on a party-party basis. 64As the order arrived at immediately above covers the period from commencement until 22 July 2009, and the order made on 31 March 2010 covers the costs incurred by Council, in the period on and from 10 August 2009 until 31 March 2010, in respect of the Notice of Motion to reopen the proceedings, I now turn, finally, to consider the costs incurred in regard to the determination, after a contested hearing on 17-18 June 2010, of the residual dispute between the parties over compensation for the scour protection works. 65The dispute about that claim ran from delivery of the Dillon (No.1) judgment on 6 June 2008 until it was finally determined by this present judgment. 66The liability for the costs of having and resolving the dispute has to be determined with reference to the way it was conducted, the attempts to resolve it, and the movements in the amount in contest. 67Mr Tomasetti submits that the way Mr Dillon has conducted this last phase of the applicants' case, after his lawyers withdrew following the court's first judgment, "has resulted in more court appearances and further costs being generated by the respondent than would normally be the case". That would appear to be a well-founded submission, given that the parties appeared before the Commissioner and myself seven times between the delivery of judgment on 6 June 2008 and the hearing on 17-18 June 2010. 68The original claim, made only when the proceedings were on foot (see [52]), was for an amount of $130,000, but it was later put at $175,156, and then $197,556. The Council's advice as the hearing approached was that the appropriate total cost was $171,600, and Mr Dillon abandoned any claim for more (other than by way of "additional" costs). 69The experts engaged by the parties agreed that both parties should share in the cost. They were directed to confer, and reached the pragmatic 53/47% compromise, to which Mr Tilley adhered during searching cross-examination. 70Council was prepared to accept that apportionment, but the applicants pressed on, seeking an order that the Council pay the total cost, and prevailing on their expert to resile from the agreement and to argue for a higher estimated cost. 71The court has now adopted the Council's independent estimate of cost, the experts' agreed apportionment of that cost, and Mr Dillon's estimate of some additional costs, with the result that an amount of $98,152 will be awarded. 72Just prior to the June 2010 hearing, the parties exchanged "offers of compromise", said to be made on both sides in accordance with the so-called Calderbank principles (see Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586). 73All those offers were limited to the scour protection issue, and expressed also to be "exclusive of costs". The exchanged correspondence is before the court (in Exhibit C5): Council's offer of 19 May 2010 was in the sum of $82,323.32, being 47% of the applicants' CCC quote of $175,156, with nothing allowed for the "additional costs" claimed. The applicants offered, in response on 31 May, to accept $190,000. The Council then offered, on 2 June, $92,857, being 47% of the revised CCC quote of $197,556 ([13] above), adding a further condition that the current Court of Appeal proceedings be discontinued (see [9] above). The applicants reaffirmed their settlement figure, on 9 June, as $190,000. 74Biscoe J discussed, at helpful length, in Taylor (cited above in [59]), the rules in respect of Offers of Compromise, and the law regarding the Calderbank principles (see [23]-[29] and [38]-[39] of His Honour's judgment), before applying them to a very complex factual situation, citing extensive additional authority. I respectfully adopt His Honour's analysis, and will apply it in this case. 75I myself had cause to consider the Calderbank principles, and relevant rules, in the unusual circumstances of Monaghan v Holroyd City Council [Monaghan] [2009] NSWLEC 112; 167 LGERA 321, and I observed (at [74]-[75]) that "mere use of the word 'Calderbank' is not sufficient to bring a communication within the ambit of the ... principles", such that an order for indemnity costs be made when "a genuine offer of compromise which it was unreasonable ... not to accept" has been rejected. 76I am satisfied that, having lost the case it put at the original hearing in complete opposition to the applicants' scour protection claim, the Council acted reasonably in: Waiving the Fitzpatrick condition the court imposed on compensation for the works (requiring the work to be done before any compensation is paid), Accepting advice that it should pay 47% of the cost, Obtaining independent advice on the quantum of that cost, and Making offers of compromise based on quotations obtained (not in admissible form) by the applicants, rather than on the advice it received as to cost. 77Mr Dillon acted at least emotionally, if not unreasonably, (1) in refusing to accept that the applicants should bear some of the cost, (2) in pressing to a hearing their claim for the whole cost, steadily inflated, despite expert advice, and (3) in not compromising on his settlement figure of $190,000. 78The applicants have fallen short of their settlement figure on this aspect of the case by about 50% ($98,152 cf. $190,000), and have exceeded the Council's highest settlement offer by only $5,295 in circumstances where the court has extended a generous level of discretion to the applicants in regard to ancillary costs involved in the project. 79They should not recover their costs on this issue, and should make a reasonable contribution to the costs incurred by the Council. 80I have concluded that the relevant principles dictate that, in the interests of justice, the applicants should be ordered to pay 50% of the Council's costs in respect of the scour protection dispute, on a party-party basis. 54The relevant costs orders I made (in [82]) were as follows: (6) The respondent is ordered to pay, on a party-party basis, 75% of the applicants' costs of the substantive proceedings, up to and including 22 July 2009. (7) The order made on 31 March 2010 that the applicants are to pay the respondent's costs in respect of the Notice of Motion of 25 September 2009, as incurred on and after the filing of the original Notice of Motion on 10 August 2009, on a party-party basis, is confirmed. (8) The applicants are ordered to pay the respondent's costs in respect of the Notice to Produce withdrawn by the applicants on 20-21 May 2010. (9) The applicants are ordered to pay, on a party-party basis, 50% of the respondent's costs in respect of the substantive proceedings, on and from 23 July 2009 until the date of this judgment. 55All three of this court's decisions in Dillon were appealed, but only the costs appeal (against my decision in Dillon No 3) was successful, and it succeeded only in part, the Court of Appeal overturning only Order (9) above, which operated in favour of the Council. 56In expressly declining to follow Halley No 3, the Court of Appeal affirmed in Dillon CA that there was no presumption that costs follow the event in class 3 (see Dillon CA at [60], [65], and [66]): The court applied Pastrello, Walker, and Simpson, and referred also to Banno, and the seminal decision of Wells J in Minister for the Environment v Florence (1979) 21 SASR 108 (at 134-5), holding that a claimant for compensation, acting reasonably in terms of, for example, delay and expense, should usually be entitled to costs ([61]-[64], [67]-[70], and [72]), despite the "absence of any general presumption that costs should follow the event" ([71]). 57The Court of Appeal said (at [70], [71], [72], and [74]): 70. ... a claimant for compensation in respect of a compulsory acquisition should usually be entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense. 71. That approach is also consistent with the absence of any general presumption that costs should follow the event: the owner who has been compulsorily dispossessed is entitled to take reasonable steps to seek the judgment of the Court in respect of the adequacy of any compensation offered. 72Whether steps taken in maintaining proceedings are reasonable will depend upon the circumstances of the particular case. These may include a comparison between the positions adopted by the parties at the commencement of proceedings and the final outcome. To the extent that a claimant obtains less than the valuation provided by the Valuer-General, the claimant has been unsuccessful in the litigation. That will be a factor to be taken into account, but the weight given to that factor may depend upon the extent of the failure. The Court may also take into account the time and expense incurred in relation to specific items. Beyond such general statements, it is unhelpful to go, lest the very generality of the discretion be thought to be fettered in some way. In short, the purpose of an award of costs must be taken into account, namely to compensate the party for expenditure incurred in the course of litigation; the nature of the litigation and the reasonableness of the conduct of the litigation are central considerations. ... 74In respect of the first stage of the proceedings, the appellants recovered 75% of their costs, in circumstances where they would have expected to do considerably worse on the basis of a costs follow the event rule. The primary issue resolved, namely the market value of the land, was resolved in favour of the Council's offer and against the submissions made for the appellants. They were successful in establishing an entitlement to an amount (then unquantified) on account of scour protection works, but they were unsuccessful in respect of other items of compensation claimed. On the other hand, his Honour took into account the offer made midway through the first stage of the hearing, which was in effect the amount for which the appellants were ultimately successful. These circumstances do not demonstrate error on the part of the primary judge in respect of the costs of the first stage. 58I have already set out, at regrettable length (in [53] above), the arguments I developed in Dillon No 3 in support of my orders, including Order (9). Basten JA decanted, for himself, from my judgment, some justifications for my making that order (see [76]), and then analysed arguments, available on the facts, which might support not only an order that each party pay its own costs, but possibly also an order for costs in the applicant's favour ([77]-[78]). Basten JA concluded ([79]-[80]): 79Although it is hard to identify a decision of the primary judge on a question of law which has been erroneously answered, it is clear that the parties required the relevant principles to be addressed and applied. Thus this is not a case in which an error is said to arise in respect of a question of law which was not argued below: rather, it is a case where error appears to have arisen, although the precise point at which it arose cannot be identified with certainty. Apart from the undue expansion of interlocutory steps and of the final hearing, the primary judge appears to have placed significant weight on the failure of the appellants to respond reasonably to the final pre-hearing offer of the Council. The counter-offer may have been unreasonably high, but the appellants did better than the Council's offer. If they were entitled to the judgment of the Court on quantum, requiring them actually to pay costs was inconsistent with the application of correct principle. That involved an implicit erroneous decision as to correct principle, being a question of law. 80In those circumstances, the challenge to the costs order in respect of the second stage of the proceedings should be upheld and that order should be set aside. ... 59The relevant order made by the Court of Appeal (at 83) was in these terms: Set aside order (9) made in the Land and Environment Court on 16 September 2010 and in lieu thereof direct that each party bear their and its own costs of the proceedings not covered by other orders. 60The Court of Appeal then applied UCPR 42.1 to the question of the costs of the appeal, to which that rule clearly applies, c.f. at first instance. "[A]pportioning the costs as between issues and using a broad brush" ([82]), the court ordered the Dillons to pay two-thirds of the Council's costs of the appeal.

Dillon applied, and the Calderbank principles 61In Al Amanah, which was decided on 24 February 2012, Biscoe J considered Dillon CA, and discussed the Calderbank principles, and Offers of Compromise under the UCPR. A major issue for him was the time allowed for the offer to be accepted, and, in that respect, he relied on the Court of Appeal decision in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) ("Kooee") [2008] NSWCA 85, at [15]-[23]. He noted ([14]-[16]): (1) that Calderbank offers "live outside the rules of court", (2) that their purpose "is to promote settlement, not to permit parties to raise the stakes by making offers in circumstances where it is not realistically possible for the opponent to respond, then claim additional costs", and (3) that the Calderbank offer in the instant case did not comply with the requirements of the UCPR regarding an Offer of Compromise. 62The applicant in Al Amanah offered to accept $1M in settlement of its $1.43M disturbance claim, but the respondent did not accept that offer in the time stipulated, and Biscoe J made orders, in consequence of accepting a Referee's report, awarding $1.3M. His Honour said (at [17]): ... r 42.15(2)(b) envisaged an order for indemnity costs in relation to an offer made "on or after the first day of the trial". In such circumstances, the defendant will be entitled to an order for costs assessed on an indemnity basis "as from 11.00am on the day following the day on which the offer was made". 63After quoting at length from Kooee (in [22]), His Honour noted ([23]) that the Court of Appeal analysis, in the context of UCPR Offers of Compromise, applied (with only minor adaptation) to Calderbank offers, and held that the offer in Al Amanah was not shown to have been left open for a period which was reasonable, and that it was not unreasonable for the respondent not to have accepted it. Hence, indemnity costs were refused. 64The relevance of Calderbank principles, and their application in cases of this kind, had been extremely well put by Biscoe J in Taylor (at [38]), before the Court of Appeal decided Dillon CA: 38. A Calderbank offer is a recognised method of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is refused. Although Calderbank offers lie outside the rules of court, they are allowed because they facilitate the public policy objective of providing an incentive for parties to end their litigation as soon as possible: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14]. The court may award costs on an indemnity basis after the date of a Calderbank offer if it was unreasonable in the particular circumstances for the offeree not to have accepted the offer and the offeree ends up worse off than if the offer had been accepted. There is no automatic right to indemnity costs if a Calderbank offer is not accepted: East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159 at [13]-[15]. The Calderbank offeror bears the onus of satisfying the court that in all the circumstances the failure to accept the offer was "unreasonable" and that the court therefore should exercise the discretion to award indemnity costs in the offeror's favour: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) at [31]. It is relevant to the exercise of the discretion that the offeror's final case was significantly different to its case when the offer was made: East West at [16]. 65As I noted in Monaghan (cited in [53] (75) above - at [74]-[75]), mere use of the word Calderbank does not bring a settlement communication within the Calderbank principles: to ground any order for indemnity costs, there must be a genuine offer of compromise which it is unreasonable to refuse. See also Green ([50] above); and Fitzpatrick No 5 (at [75]-[80]) on what might be seen as an inappropriate response to an offer of compromise.

Submissions on Costs 66The submissions made in writing and orally at the hearing now have to be viewed, and reviewed, in light of Dillon CA, and its application by Biscoe J in Al Amanah.

The Minister 67Mr Hemmings, appearing for the Minister in the present matter, relied upon the approach in Yakas. During the negotiations for acquisition, the Minister had offered $525,000. When compulsory acquisition was pursued, after the applicant had pleaded that he was fixing his $1.02M on the basis of the VG's information, the VG determined the value at $480,000. In a subsequent effort to settle the litigation, the Minister offered $538,000. 68The Minister makes no criticism in the way the applicant's case was run, so this is not put as a case of "disentitling conduct". The applicant accepted the respondent's case on ecological constraints, and the parties also agreed on the underlying valuation point. Mr Hemmings argued that a perusal of my judgment provides for a realistic look at the way the proceedings were conducted. Simply put, the applicant ran some issues unsuccessfully. 69On the "current potential" point, the instrument required 10ha, and the applicant had only 0.6ha. The letter the court relied upon (at pars [25]ff of the principal judgment) pre-dated the original offer and the proceedings. There was serious doubt as to whether an SEPP 1 objection was available and likely to succeed. On the question of "future potential", the applicant's case was purely speculative. 70Mr Hemmings submitted that the $510,000 result is not an event which costs should follow. The letter offering $538,000 should be seen as a Calderbank offer, and it must be viewed in the context of the whole history of the matter. The applicant's rejection of the Calderbank offer was unreasonable, as his earlier reliance on the VG had been overtaken. In the end result, this should sound in indemnity costs on and after the date of the letter, namely 9 February 2010.

The Applicant 71Mr Perkins submits that hardship brought about the subject acquisition, and a poor result in the litigation should not be compounded by the burden of a costs order. The applicant recovered more than the VG's valuation, and, therefore, had succeeded in the proceedings. True it is that the Prasads did not recover $1.3M, but Mr Perkins points to the following factors: (a)the sum claimed was based on expert valuation advice, which itself was based on expert planning advice. (b)the fact that the court did not accept the applicant's expert advice does not render the case "vexatious, dishonest or grossly exaggerated", in that the applicant in any way imposed "unnecessary burdens on the acquiring authority" (see Banno) - as Mr Perkins puts it, "the threshold established under Banno is a relatively high one, which the applicant cannot be said to have transgressed". (c)the fact that the sum awarded was less or significantly less than the original claim does not in and of itself constitute grounds for depriving the applicant of its costs - see Serbian, per Jagot J (d)the fact that the sum awarded was only modestly more than the determination of the VG does not in and of itself constitute grounds for depriving the applicant of its costs of the proceedings - see again Serbian. (e)the relationship between the VG's determination and the ultimate award is, according to Overton, "relevant", but not "determining" of the costs issue. 72Mr Perkins submits that the applicant presented its case in a reasonable, efficient, and economical way. It did not seek to delay or prolong the matter, did not materially depart from the position adopted in the pleadings, and did not run protracted or unnecessary arguments. The applicant and his team proceeded with due expedition. (The court notes that the case finished in four days, not five). The applicant obtained expert evidence only in respect of what he considered issues in contention, and took no issue with the ecological expert evidence. 73Mr Perkins relies on the judgment of Beazley JA (with whom Ipp and McColl JA agreed) in Brymount Pty Limited v Cummins; Young Shire Council v Cummins (No.2) [2005] NSWCA 69. Beazley JA noted that the Court of Appeal preferred the view 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. The court must consider all the circumstances of the case. Was a rejection of the compromise reasonable in the circumstances? Did the offeree have sufficient time to consider the offer and weigh up the prospects of the case? Did the letter offering a compromise explicitly invoke the Calderbank principles? 74Mr Perkins further submits that the offer of $538,000 was uncertain, in that it was said to be "in full and final settlement of the matter", and did not address whether that sum was to be inclusive of interest and where the burden of costs might fall. The offer was also made ten months after the proceedings commenced, by which time the applicant had incurred significant costs. The offer would mean foregoing interest and paying his own costs. 75An award for costs against the applicant in the present case would erode the benefit of the just compensation recovered under the court's determination. The respondent has not met the Pastrello test of strong justification. 76Mr Perkins submits that the respondent should not be entitled to rely, in any way, upon the $525,000 letter in assessing the reasonableness of declining the $538,000 offer. Mr Prasad sought justification for the VG number and the basis of the offer (see fols 14.6 and 15.7), and the Department (at fol 16) declined to provide its report. His counter offer of $950,000 was a substantial concession against the claim he had maintained to that date (and then maintained at the hearing). 77Mr Perkins said (T7.3.11, p27, LL40 - 48): So I put that forward as saying that in all the circumstances, a poor, dispossessed mum and dad has no choice but to embark upon the process, ought not to be penalised in the final hour, for I guess, sterile principles of Calderbank letters, which fundamentally send an applicant backwards. And I point out that it is also an application based on hardship. So we've got a mum and dad that have proceeded on a hardship application, and let's face it, a hardship is almost invariably as it is in this case, one of financial hardship. So it's a layer upon layer of hardship for an applicant that goes down this road, when faced with technical arguments of Calderbank offers.

Submissions on Interest 78Section 66(4) of the JTC Act provides as follows (emphasis added): (4) If the Land and Environment Court decides that the amount of compensation payable (without the addition of interest) does not exceed by more than 10% the amount of compensation offered by the authority of the State, the Court may cancel or reduce the amount of interest that has accrued under this Act in respect of the compensation since the institution of the proceedings. 79It would appear (T7.3.11, p 345, LL5 - 8) that an amount of approximately $10,000 may have to be refunded if the respondent succeeds in its Notice of Motion so far as it deals with interest. The applicant submits that he should not, as a matter of justice, be expected to repay the interest component of any advance payment already made to him, nor to forego any interest that might be payable on the balance due to him after the compensation judgment. 80Mr Hemmings took issue with the suggestion there was some uncertainty caused by the fact that the purported Calderbank letter of 9 February 2010 did not deal, in terms, with the questions of costs or interest. He noted that those matters were not raised by the applicant in his response of 22 February 2010.

Consideration 81The applicant maintained, throughout the acquisition, negotiations and proceedings, a position well above what the State was offering. He was fortified by valuation advice upon which he relied, advice which, unfortunately for him, the court, as final arbiter of the compensation to be paid, ultimately rejected. 82In Constantino v Roads and Traffic Authority (NSW) (No. 2) [2005] NSWLEC 209; (2005) 144 LGERA 224 (at [13] - [15]), Bignold J held that any issue about interest should not influence the court in deciding the burden of costs 83However, while Dillon CA has settled the position regarding costs, there is little if any authority on how the court should exercise its statutory discretion on the cancellation or reduction of interest. 84Given the nature of the interest discretion, it would seem to me that the propriety and reasonableness of the applicant's conduct of the proceedings must be a factor in judicial consideration of the interest question, as well as of the costs question. 85The position, shortly summarized, is that Mr Prasad sought advice from Valuer General in February 2008, and translated it into a market value claim of approximately $1M for the subject land. The department offered him roughly half that amount, but would not provide the report on which that was based. It then paid for him to obtain independent advice, and that indicated a market value of $1.3M, an amount he maintained as his claim. 86The VG determination for JTC Act purposes was $480K. The Minister later offered $538K in an effort to avoid litigation. Mr Prasad asked for $950K on the same basis (two-thirds of what his expert advised). The Minister contended at the hearing for $485K. 87It was not unreasonable conduct for either side to reject those settlement offers, but the Minister makes no complaint at all about Mr Prasad's conduct of the litigation. In the end, however, the court accepted the Minister's valuation evidence and rejected his. 88Clearly, no case has been made out for either party to recover from the other any costs on an indemnity basis. 89However, on the principles, probably best stated in Pastrello (see [44] above), and now clearly upheld by Dillon CA (at [70] ff), I consider that it is "just and equitable", and/or "fair and reasonable", that the applicant should recover his costs of the substantive proceedings on a party-party basis. 90Equally, despite the mathematical realities of the dollar amounts involved, I believe I should exercise the court's discretion not to interfere with the statutory entitlement to interest. 91While it was perfectly reasonable for the respondent to argue the questions of both costs and interest, the applicant has been entirely successful on both notices of motion, and should be awarded his costs of arguing them, on a party-party basis.

92The orders of the Court will, therefore, be:

1. The applicant's Notice of Motion filed in court on 7 March 2011 is upheld, with the costs order to take effect on a party-party basis.
2. The respondent's Notice of Motion filed on 8 February 2011 is dismissed.
3. The respondent is ordered to pay the applicant's costs on both Notices of Motion, on a party-party basis. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 March 2012