Tempe Recreation Reserve Trust v Sydney Water Corporation

The costs rules 5Proceedings for compensation by reason of compulsory acquisition of land are within Class 3 of the Court's jurisdiction: s 19(e) Land and Environment Court Act 1979. The Court's power to award costs in Class 3 proceedings arises under s 98 of the Civil Procedure Act 2005, which provides that subject to rules of court, costs are in the discretion of the court, and the court has full power to determine by whom, to whom and to what extent costs are to be paid. The general rule that costs follow the event in r 42.1 of the UCPR, applicable in ordinary civil proceedings, does not apply in Classes 1, 2 and 3 of the Court's jurisdiction, which comprise the core of its merits review jurisdiction. However, the rules in Part 42 Division 3 of the UCPR (rr 42.13 - 42.17) relating to offers of compromise do apply to proceedings for compensation by reason of the acquisition of land: r 1.5, Schedule 1 UCPR. 6Under the UCPR the formal requirements of an offer of compromise are strict, and the costs consequences are stern if it is not accepted and the applicant does not better the offer. The formal requirements of an offer of compromise are prescribed in r 20.26, which at the time of the offer provided (it has since been amended): 20.26 Making of offer (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. (3) A notice of offer: (a) must bear a statement to the effect that the offer is made in accordance with these rules, and ... (7) The following provisions apply if an offer is limited as to the time it is open for acceptance: (a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial, ... (8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer. ... 7Rule 42.15(2) prescribes the indemnity costs consequences for a plaintiff if it does not accept and does not better an offer of compromise. At the time of the offer r 42.15 provided (it has since been amended): 42.15 Where offer not accepted and judgment as or less favourable to plaintiff (1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim concerned as favourable to the plaintiff, or less favourable to the plaintiff, than the terms of the offer. (2) Unless the court orders otherwise: (a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made. (emphasis added)

Whether r 20.26 complied with 8The offer has the hallmarks of compliance with r 20.26 in that it was exclusive of costs (r 20.26(2)), open for 28 days (r 20.26(7)(a)) and explicitly in accordance with r 20.26 (r 20.26(3)(a)). It was a genuine offer of compromise in the sense that it was for a much larger amount of compensation ($268,000) than first determined by the Valuer-General ($6,000). I would say that rr 20.26 and 42.15 each requires an offer capable of acceptance. I address, without deciding, whether this was an offer capable of acceptance as a discretionary consideration when determining whether an "otherwise order" should be made under r 42.15(2): see below at [24].

Whether r 42.15 engaged 9Rule 42.15 is engaged where an offer was made by the respondent and not accepted by the applicant, and the applicant obtained an order on its claim that was as favourable, or less favourable, to it than the terms of the offer: r 42.15(1). 10Assuming that a determination of compensation by the Court under the Just Terms Act (in this case by reference only to the matters s 106A of the Crown Lands Act) is an "order or judgment on the claim" within the meaning of r 42.15(1), in my opinion r 42.15 is not engaged because it was not as or less favourable to Tempe than the terms of the offer. It is true that the amount of the determination was less than the amount of the offer. However, fundamentally the case concerned the interpretation of an easement unilaterally drafted and imposed by SW over almost the entire length of Tempe Reserve. The main question was whether or not the easement permitted SW to place a large water pipeline above the surface of Tempe Reserve. If so, then the public enjoyment of Tempe Reserve would be greatly diminished and the compensation payable to Tempe could well have been millions of dollars (as Tempe contended). SW contended for nil compensation on the interpretation that I adopted. If Tempe had accepted the offer it would have received $268,000 but without resolution of the interpretation question. In contrast, under my decision Tempe is entitled to $106,000 plus the antecedent findings that SW's rights under the easement do not permit works above the surface of Tempe Reserve. That result is, in my view, much more valuable than the mere dollar amount offered by SW. The fact that there may be no issue estoppel as against SW's successors in title because they are not parties to the proceedings does not significantly diminish the practical importance of a curial decision as to the meaning of the easement.

Whether an "otherwise order" should be made 11Lest I am in error in deciding that r 42.15(2) of the UCPR is not engaged, I turn to the question whether an "otherwise order" should be made thereunder. 12The rationale for the rules relating to offers of compromise was summarised in Morgan v Johnson (1998) 44 NSWLR 578 at 581 - 582 by Mason P (with whom Sheller JA agreed) (citations omitted): (1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation. (2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance. (3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party. This is because, from the time of non-acceptance "notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise". (4) Lying behind the rule is the common knowledge that "litigation is inescapably chancy". For this reason, the ordinary provision is expected to apply in the ordinary case. The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule. As Clarke JA expressed it in Houatchanthara (at 2-3): The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk. (5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind. Reasons must be given for "otherwise ordering". 13In relation to the discretion in r 14.15(2) to make an "otherwise order", there are conflicting lines of authority in the Court of Appeal as to whether an applicant must generally show exceptional circumstances or only a justification for exercising the discretion. They were identified, without deciding which line of authority to follow, in Barakat v Bazdarova [2012] NSWCA 140 at [42] - [50]. One of the authorities favouring exceptional circumstances was Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [35] where McColl JA held (Mason P and McClellan CJ at CL agreeing): The onus is on the respondent to demonstrate why the Court should not order the respondent to pay the appellants' costs on an indemnity basis. In particular, the respondent must establish that it had given serious thought to the risks involved in not accepting the offers, had assessed the appellants' case properly and in the context of the relevant rules and the achievement of their purpose as outlined in Morgan. Generally, exceptional circumstances are required to justify such an order denying the appellants' entitlement: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [83]) per Hunt AJA (Mason P and McColl JA agreeing). 14On the other hand, in general, a party's reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs: South Eastern Sydney Area Health Service v King [2006] NSWCA 22 at [84]. 15SW is prima facie entitled to an order for indemnity costs against Tempe from the day following the day of the offer of compromise and the onus is on Tempe to establish a basis on which the court should make an "otherwise order" under r 42.15(2). The mere nature of compulsory acquisition compensation proceedings is insufficient to justify an "otherwise order" since that rule has been specifically identified as applying to such proceedings. SW submits that a claimant for compensation for compulsory acquisition of land who rejects an offer of compromise that exceeds the amount it ultimately obtains has prima facie acted unreasonably because of the statutory presumption in r 42.15. I think that puts it too highly. With respect to the passage in Caine quoted above, SW points out that there is no direct evidence to show that Tempe gave serious thought to the risks involved in not accepting the offer and had assessed SW's case properly etc. However, in my view this is capable of being established by inference as much as by direct evidence. This is illustrated by Viera v O'Shea (No 2) [2012] NSWCA 121 at [25], where the Court of Appeal inferred without direct evidence that "the [offeree] and his lawyers no doubt assessed what was at stake and made an informed decision not to accept the fresh offer". I draw much the same inference in the present case from the earlier correspondence between the parties in which Tempe unsuccessfully sought from SW a variation to the easement to clarify that the works could not be above the surface of the reserve and indicated that in the absence of such a variation the Council would seek compensation for the possibility that was what the easement permitted, coupled with its pleading and evidence quantifying a claim on the latter basis in the millions of dollars. 16In my opinion, the following circumstances provide a sufficient basis for an "otherwise order" in this case, even if it is necessary to establish exceptional circumstances. 17First, in my opinion, the exceptional costs principle that guides the exercise of the Court's discretion when deciding whether to award costs to an applicant in compulsory acquisition compensation proceedings also guides the exercise of the Court's discretion to make an "otherwise order" under r 42.15(2). The exceptional costs principle is that "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 the manner which gives rise to unnecessary delay or expense": Dillon v Gosford City Council [2011] NSWCA 328, (2011) 184 LGERA 179 at [70] per Basten JA (Macfarlan JA and Handley AJA agreeing); Brock v Roads and Maritime Services [2012] NSWCA 404, (2012) 191 LGERA 267 at [79] - [82] per Tobias JA (Beazley and Meagher JJA agreeing). The exceptional costs principle is responsive to the fact that compulsory acquisition compensation proceedings are not ordinary litigation, and in such proceedings it is not generally appropriate to speak of one party as having won: Brock at [81]. The principle expressed in Caine to guide the exercise of the discretion whether to make an "otherwise order" was in the context of ordinary litigation where the costs follow the event rule applies. In Dillon Basten JA said: [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. [72] Whether 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. 18In Brock, after quoting the passages in Dillon quoted above, Tobias JA referred to the following authorities which illuminate the rationale of the exceptional costs principle: [81] I interpolate that the principle underlying Basten JA's observations in the preceding paragraph has its genesis, as his Honour noted at [64] of his reasons in Dillon, in the judgment of Wells J in Minister for the Environment v Florence (1979) 21 SASR 108 ; (1979) 45 LGRA 127 where at 134-135 his Honour said: 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 or fast rule would ever be allowed to occupy part of an area controlled by a discretion, however predictable the result of its exercise maybe in certain sorts of cases. [82] Similarly, in Banno v Commonwealth (1993) 45 FCR 32 at 51 (also referred to by Basten JA), Wilcox J observed: The Court has a general discretion as to costs, but the discretion must be exercised on principled grounds. The Commonwealth has succeeded on all issues. It would therefore seem difficult to justify ordering it to pay the applicants' costs. Moreover, if this was ordinary litigation, the Commonwealth might reasonably expect to obtain an order that the applicants pay its costs. But this is not ordinary litigation. The relationship between the parties giving rise to the litigation did not arise out of their mutual desire; it arose because of a unilateral decision of the Commonwealth to acquire the applicants' land in order to satisfy a perceived public need. The acquisition left the applicants in the position of either accepting the Commonwealth's assessment of the proper compensation or of having the Court rule on its adequacy. Perhaps people in that position should be allowed access to the Court, to present an arguable and well-organised case, without being deterred by the prospect of being ordered to pay the Commonwealth's costs if their case proves unpersuasive. I distinguish the situation 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 Commonwealth or the Court. The present applicants' case was arguable. It was presented efficiently and economically, the hearing occupying only two days. I pause to observe that both Wells and Wilcox JJ were highly experienced advocates and judges in cases involving the assessment of compensation upon the compulsory acquisition of land. (emphasis added) 19In Al Amanah College Inc v Minister for Education and Training (No 4) [2012] NSWLEC 26 at [13], I said of the exceptional costs principle in Dillon that it is: ... underpinned by several considerations. First, [it is] consistent with the common law's protection of property rights (including its presumption, in the interpretation of statutes, against an intention to interfere with vested property rights) and with the international recognition of the right to property as a human right: R & R Fazzolari Pty Ltd v Parramatta City Council [2009] HCA 12, 237 CLR 603 at [40] - [44] per French CJ. Secondly, a compulsorily dispossessed owner has no entitlement to put its case for compensation and have it determined other than, respectively, to and by this Court (s 66 Just Terms Act). Thirdly, the experience of this Court is that generally the Valuer - General's statutory determination of compensation, which dictates the statutory offer of compensation (s 42 Just Terms Act), is relatively cursory compared with the intense investigation by both sides when the matter reaches the Court on objection to the offer. Commonly, both parties on the appeal, and their experts, contend for compensation in amounts which differ greatly both from the Valuer General's determination and from each other's contention. 20In my opinion, the exceptional costs principle confirmed in Dillon and Brock also informs the exercise of the discretion when considering whether to make an "otherwise order" under the offer of compromise costs rule in r 42.15(2). Therefore, in general, an "otherwise order" should be made where the claimant for compensation for compulsory acquisition of land has acted reasonably in pursuing the proceedings and has not conducted them in a manner which gives rise to unnecessary delay or expense. Tempe acted reasonably in pursuing the proceedings and did not conduct them in a manner that gave rise to unnecessary delay or expense. It conducted its case efficiently and economically. It was reasonable that the underlying issue of interpretation of the easement be resolved since, on one interpretation, the easement could seriously affect the public's future enjoyment of Tempe Reserve, in which case the compensation would likely be large. 21Secondly, it was reasonable and in the public interest that the issue of interpretation of the easement be resolved. Its interpretation was not resolved by the offer of compromise. The offer did not propose any particular interpretation. The interpretation issue was resolved by the proceedings continuing to a conclusion. This reason is fortified by the fact that it was SW which unilaterally drafted and imposed the easement, and the fact that prior to commencement of the proceedings Tempe unsuccessfully sought to negotiate to resolve the interpretation issue by an amendment to the easement clarifying that it did not permit works above the surface. But SW, whilst prepared to make changes to the corresponding easement affecting the adjoining land (the subject of other resumption compensation proceedings), refused to make any changes to the easement over Tempe Reserve. I do not accept SW's submission to the effect that the interpretation for which it contended was so obvious that there was no scope for argument. 22Thirdly, SW's case changed between the date of the offer of compromise and the determination of the proceedings. The fact that the offeror's case has changed significantly between the date of its offer of compromise and the hearing in which judgment is obtained, does provide a sufficient basis for an order denying the offeror's entitlement to indemnity costs. The rationale is that it would be unfair to the offeree to make an order for indemnity costs when the offeror's case at the hearing is different from that known to the offeree at the time of the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85]. SW had maintained that the award of compensation was governed by s 55 of the Just Terms Act and denied the application of s 106A of the Crown Lands Act 1989. That it did so comprehensively is apparent from the fact that its valuer did not undertake a valuation under s 106A. This position was abandoned without explanation the day before the hearing commenced (being a Sunday). SW's submission that the concession was made in a timely manner cannot be accepted. 23Fourthly, because this was the first case to consider the unprecedented s 106A of the Crown Lands Act, it was very difficult to answer whether the offer of compromise was one that should be accepted. 24The inquiry whether an "otherwise order" should be made assumes that the offer was capable of acceptance by the offeree. It is unnecessary to decide Tempe's submission (prompted by a question I raised during the hearing) that the offer was not capable of acceptance because it was for "judgment" for Tempe in a specified amount, whereas under the Just Terms Act the Court does not give a "judgment" but determines the compensation to which the applicant is entitled. The Court's power under the Just Terms Act is to dispose of an objection to the acquiring authority's statutory offer by determining or deciding the amount of compensation to which the person is entitled: ss 55, 66, 68 Just Terms Act. Section 3(1) of the Civil Procedure Act 2005 defines "judgment" as including "any order for the payment of money, including any order for the payment of costs". However, the definition is not exhaustive. "Order" is not defined. Section 90 provides that the court is "to give such judgment or make such order as the nature of the case requires". It might be said that this Court's determination of compensation under the Just Terms Act is an order that the nature of the case requires within the meaning of s 90. However if that were so, the Court would have power under Part 8 (ss 102 - 138) of the Civil Procedure Act to enforce a determination of compensation under the Just Terms Act, in particular as a "judgment debt", that, under s 106(1)(a) of the Civil Procedure Act, could be enforced against the acquiring authority by a writ for the levy of property. It might be thought that goes beyond what the legislature intended.

Orders 25The respondent's amended notice of motion filed on 11 February 2014 is dismissed with costs. 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: 21 March 2014