VE Property Pty Ltd v Sydney Water Corporation

Introduction 1 The applicant in this proceeding, VE Property Pty Ltd, seeks damages and compensation for alleged breaches of the Australian Consumer Law (ACL) by the respondent, Sydney Water Corporation. The pleadings have closed and the parties are in the process of exchanging lay and expert evidence. To this end, VE Property has filed lay and expert evidence while Sydney Water has filed lay evidence, but not yet expert evidence. 2 Sydney Water by way of an interlocutory application dated 8 November 2024 now seeks that the hearing of the matter be bifurcated pursuant to r 30.01 of the Federal Court Rules 2011 (Cth). That is on the basis that all issues other than the question of the quantum of damages and/or compensation would be determined first. In the alternative, Sydney Water seeks that the proceeding be stayed pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) until a related proceeding in the Land and Environment Court of New South Wales (LEC) (bearing proceeding number 2024/333095) has been finally determined. 3 The fact of two related proceedings between the same parties in two different courts raises the obvious question whether the two proceedings should be heard together. Although neither party seeks that outcome, I called on the parties to address it as a possibility because the basis for Sydney Water's interlocutory application rests on the assumption that the two proceedings would proceed separately in their respective separate courts whereas it may be that the better course is for the proceedings to be cross-vested in such a way as to allow for them to be heard and determined by the same court. 4 For the reasons that follow, I do not consider that it is practical for the Federal Court (FCA) proceeding to proceed without a resolution of the LEC proceeding - the former depends on the latter and, as will be seen, there is substantial overlap between them. However, it is also not satisfactory for the FCA proceeding to be bifurcated or otherwise stayed pending the determination of the LEC proceeding. In the circumstances, the best solution is that the FCA and LEC proceedings be cross-vested for determination together in one court. Such a course would avoid a multiplicity of proceedings, duplication of evidence covering the same facts and potentially conflicting findings, while also ameliorating, to the extent possible, the delay that would be occasioned by a stay in the form sought by Sydney Water. Cross-vesting would also remove the difficulties that may arise from the exercise of trying to separate out the FCA proceeding into two stages. The manner in which the cross-vesting would take place is of some complexity, which I will return to.

Factual background 5 Some brief background is necessary. The "facts" stated here are the facts alleged in the proceeding - they may be contested and may not ultimately be found to be established but that does not matter for present purposes which are concerned with what is alleged. 6 VE Property was the registered proprietor of 27.94 ha of land comprising several lots in Rosehill, New South Wales, having acquired it from Viva Energy Australia Pty Ltd in 2018 by contract of sale. Sydney Water is the statutory corporation which carries on activities of wastewater processing, storage, recycling and disposal within the State of New South Wales. From time to time, Sydney Water engages in the acquisition of land and infrastructure for the purpose of undertaking such activities, including by compulsory acquisition pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act). 7 Between August 2019 and March 2022, Sydney Water was engaged in the development of a new water treatment plant, termed the Camellia Treatment and Resource Recovery Facility (Camellia TRRF), with the subject property being identified as an appropriate site. 8 In 2022, and without having been informed of a resolution passed by Sydney Water to commence the acquisition process for the property, VE Property determined to sell the property. It engaged real estate agents to market the property and launched a public campaign inviting expressions of interest from potential buyers. 9 By letter dated 19 May 2022, Sydney Water informed VE Property that Sydney Water was proposing to build the Camellia TRRF and that the subject property may be required to facilitate that project. Consequently, the letter advised, Sydney Water was beginning the process to acquire the property pursuant to the Just Terms Act, which required under s 10A that there be a six-month negotiation period from the date of the letter to acquire the property by agreement (as opposed to the Act's coercive mechanisms). By letter dated 3 June 2022, Sydney Water confirmed to VE Property that the property was the preferred site for the Camellia TRRF. 10 On 2 June 2022, VE Property disclosed the correspondence received from Sydney Water to potential purchasers of the property via upload to an online data room. Following this disclosure some of the interested buyers either indicated that their offers were conditional on Sydney Water withdrawing its interest in the property or declined to participate further in the sale process because of Sydney Water's bid under the Just Terms Act. 11 On 9 June 2023, VE Property entered into a contract for sale with Canberra Data Centres Pty Ltd (CDC) at a price of $350 million plus an additional $4.18 million for site works. 12 On 21 June 2023, Sydney Water wrote to VE Property providing an update on the progress of the proposed acquisition. The letter was disclosed by VE Property to CDC. On 11 July 2023, Sydney Water's solicitors wrote to CDC stating that Sydney Water planned to acquire part of the property and requested a copy of the contract for sale. CDC met directly with Sydney Water on 24 July 2023 to ascertain the latter's intentions, whereupon it was advised that Sydney Water was definitely proceeding to buy or compulsorily acquire a 21.41 ha portion of the property (leaving the remaining 6.53 ha in the ownership of VE Property). CDC then rescinded the contract of sale with VE Property. 13 On 25 July 2023, Sydney Water's solicitors wrote to VE Property advising that Sydney Water remained willing to negotiate with VE Property on the acquisition but if VE Property did not wish to negotiate then at the appropriate time Sydney Water would commence the formal steps required under the Just Terms Act. 14 Following the commencement of the FCA proceeding, Sydney Water compulsorily acquired the property pursuant to the Just Terms Act on 24 May 2024. The compensation determined by the Valuer-General was in the amount of $346,961,427.37. Sydney Water made an advance payment of $312,265,284.63 in accordance with s 68(2) of the Just Terms Act to VE Property on 18 September 2024.

Overview of the FCA proceeding 15 VE Property alleges that the correspondence from Sydney Water dated 19 May 2022 and 3 June 2022, the correspondence from Sydney Water's solicitors on 11 July 2023 and 25 July 2023, and Sydney Water's conduct in its meeting with CDC on 24 July 2023, represented that Sydney Water had determined to proceed with the acquisition of the property for the Camellia TRRF and that it was in a position to make a genuine attempt to acquire the land by agreement. 16 These representations are said to amount to misleading or deceptive conduct for the purposes of the ACL. VE Property claims that Sydney Water was not in a position to make a genuine attempt to acquire the property by agreement at the time of the representations. VE Property also advances a claim in unconscionable conduct under the ACL: Sydney Water is alleged to have made the representations with the intention of preventing the sale of the property on the open market or with the knowledge that its representations would have a material influence on the market perception of the property, among other matters. 17 By reason of this conduct, VE Property's loss and damage is said to be the value of the lost opportunity to sell the property other than to Sydney Water, ie "to the highest offeror at the time or otherwise at market at the time." 18 VE Property alleges that at the time of the misleading and deceptive or unconscionable conduct complained of "the Property was being actively marketed for sale and there was a value to the Property that was measurable by reference to (i) its market value to be realised as a result of that marketing (for example, sale to one of the interested parties prepared to acquire the land as an entire parcel); or (ii) the "true value" that the Property bears having regard to its inherent attributes (that is, the Potts v Miller [[1940] HCA 43; 64 CLR 282] basis, modified to take account of the fact that there was no sale of the Property)." 19 VE Property goes on to say that the measure of loss and damage is "the difference between the value that would have been obtained but for the contravening conduct and the compensation given in respect of the compulsory acquisition." The first amount, being the value that would have been obtained or the true value is referred to as the "top-line" figure. The second amount, being the amount of compensation that will ultimately be awarded under the Just Terms Act is referred to as the "bottom-line" figure.

Overview of the LEC proceeding 20 On 9 September 2024, VE Property objected to the Valuer-General's determination by commencing the LEC proceeding. Sydney Water has also challenged the Valuer-General's determination in the same proceeding. VE Property argues for a higher valuation while Sydney Water argues for a lower valuation relative to the compensation fixed by the Valuer-General. At present, the LEC proceeding has not advanced beyond the pleadings stage. 21 VE Property's contentions are that the correct compensation for the purposes of s 55 of the Just Terms Act is $552,534,427. VE Property makes reference to comparable sales in the region which evidence a higher range of per square metre prices compared to that relied on by the Valuer-General. VE Property also claims that it is entitled to the decreased value of the land adjoining or severed from the acquired parts of the property by reason of the proposal to carry out the works contemplated by Sydney Water per s 55(f) of the Just Terms Act. 22 Sydney Water's contentions, which respond to VE Property's, deny that there has been a decrease in the value of the adjoining or severed land and that in any event any decrease would not be attributable to the proposal to carry out works. Sydney Water does not accept that the comparable sales referred to by VE Property are an appropriate benchmark, and contends that adjustments to comparable sales are a matter for expert evidence. It relies on the contract for sale to CDC as evidence of market value. 23 It is further contended that the valuation must have regard to matters including the management of residual contamination, geotechnical conditions and flooding risks. The contamination in question is pleaded as including asbestos, heavy metals, PFAS, gases and hydrocarbons. Sydney Water contends that a purchaser of the property would make diligent inquiries to understand the impact and extent of the identified risks, including remediation required. In doing so, it is pleaded that there would have been an adverse impact on the price that would have been agreed. Otherwise, subject to expert evidence, Sydney Water claims the appropriate market compensation amount under s 55(a) is $284,700,000 to which an amount for "any loss attributable to disturbance" under s 55(d) still to be determined would be added (noting that the Valuer-General allowed only $307,427.37 under this head). 24 Notably, Sydney Water states in its contentions that expert evidence will be required, extending to disciplines such as valuation, civil engineering, quantity surveying, contamination, planning, geotechnical, hydrology and surveying. It also states that valuation of the property itself will be a matter for expert evidence.

The overlap between the FCA proceeding and the LEC proceeding 25 Although currently expressed as the Valuer-General's valuation, the "bottom-line" figure in the FCA proceeding is subject to possible variation, up or down. Both VE Property and Sydney Water have challenged the Valuer-General's determination of the compensation amount due to VE Property for the compulsory acquisition of the property in the LEC proceeding. VE Property contends that the assessed compensation is too low, while Sydney Water contends that it is too high. Should VE Property succeed in the LEC proceeding, the quantum of damages or compensation it would be able to obtain in the FCA proceeding (assuming liability) would be commensurately reduced in accordance with any increase from the Valuer-General's valuation. It may even be that any revised valuation obtained by VE Property in the LEC proceeding exceeds the maximum amount that VE Property could have realised from a sale of the property to certain identified buyers or by reference to the "true" or market value. In this scenario, the point of the FCA proceeding would fall away. Also, should Sydney Water succeed in the LEC proceeding, the quantum of damages or compensation payable to VE Property in the FCA proceeding (again, assuming liability) would increase in accordance with any reduction from the Valuer-General's initial valuation. 26 Consequently, the determination of a numerical sum of damages or compensation due to VE Property in the FCA proceeding, if any, is dependent on a final judgment in the LEC proceeding including any possible appeal from such a judgment to the Court of Appeal of the Supreme Court of New South Wales and, with special leave, the High Court of Australia. 27 On the interlocutory application, VE Property submits that the FCA proceeding can proceed to final hearing and judgment in the ordinary course prior to any final judgment in the LEC proceeding. Declarations could then be made on the question of liability and the quantification of compensation with the final figure being merely a matter of subsequent arithmetic once the bottom-line figure has been ultimately determined. That submission loses its force in the light of the substantial overlap of evidence between the two proceedings. 28 The principal point on which that overlap arises is market valuation. In the LEC proceeding, under s 55(a) of the Just Terms Act the Court will have to determine the "market value" of the acquired property on the date of its acquisition, ie 24 May 2024. By the definition in s 56(1), "market value" means the amount that would have been paid for the land if it had been sold by a willing but not anxious seller to a willing but not anxious buyer disregarding certain matters presently not relevant. That component to the determination of the bottom-line figure is substantially similar to the determination of the "true" or market value of the property as a whole in the determination of the top-line figure. In particular, it will necessarily canvass the various matters relevant to the status and condition of the land, principally contamination and the costs of remediation, and comparable sales including the extent to which the contract for sale to CDC is evidence of true value. It might also canvass the interest shown in the property by potential purchasers pursuant to VE Property's sales campaign before Sydney Water notified its interest. The fact that the top-line figure is to be determined with reference to different points in time, namely mid-2022 and mid-2023, does not avoid the overlap - there is no suggestion that the true or market value of the land changed materially in the two year period between mid-2022 and May 2024 other than because of the impugned conduct of Sydney Water.

Bifurcation or stay? 29 The essential problem that the interlocutory application seeks to address is the substantial overlap between the FCA proceeding and the LEC proceeding. That is both that the FCA quantification relies on the outcome in the LEC and that there is likely to be overlapping evidence and intermediate findings of fact on the question of true or market value. 30 Sydney Water's preferred solution to those difficulties is to bifurcate the FCA proceeding as explained. The principal difficulty with that approach is that there will be some overlap in evidence between the initial hearing on liability and causation and the subsequent hearing on quantum. Notably, that would include the offers to purchase and the expressions of interest and their value, including what the offerors knew about the condition of the property. Also, it would include the counterfactual, that is what would have occurred but for the offending conduct. Indeed, Sydney Water acknowledges that "disentanglement of evidence concerning liability, causation and loss cannot be guaranteed." But even aside from the overlap in evidence within the two parts of a bifurcated FCA proceeding, bifurcation of the FCA proceeding would not resolve the difficulties created by the overlap with the parallel LEC proceeding. 31 Sydney Water's alternative solution is to stay the FCA proceeding pending the finalisation of the LEC proceeding. The only real advantage to that approach would be if it turned out that the valuation arrived at in that proceeding was so great that no loss was suffered by VE Property even if Sydney Water was otherwise liable in the FCA proceeding. Although that is a possibility, and it is in effect the possibility flowing from VE Property's contention as to value in the LEC proceeding, it cannot be said at this stage that that is a likely outcome. Otherwise, a stay would merely serve to delay the FCA proceeding for an indeterminate period of time whereafter all questions of liability and causation and most of the issues underlying the determination of quantum would still have to be determined. The latter issues would be all of those going to the top-line figure, ie the value that VE Property would have been able to realise for the property but for the conduct complained of or the "true value" of the property at the relevant time. Although some intermediate facts relevant to those issues may be determined in the LEC proceeding, there will be many others that will not be so determined. But even aside from those issues of delay, simply staying the FCA proceeding pending the final determination of the LEC proceeding will not resolve the difficulties created by the overlap of intermediate issues and evidence between the two proceedings. 32 VE Property's solution, being the dismissal of the interlocutory application, will also not resolve the difficulties created by the overlap with the parallel LEC proceeding. 33 Those conclusions focus attention on whether it is possible and, if so, desirable for the FCA and LEC proceedings to be heard together in the same court.

Cross-vesting as an appropriate course 34 As explained, the substantial overlap between the two proceedings gives rise to powerful reasons why they should be heard together. That course would avoid the potential for conflicting findings of fact in the two proceedings, duplication of evidence, the duplication and attendant prejudice of the cross-examination of witnesses and the duplication of the use of judicial resources. However, there is no means by which the FCA proceeding could be transferred directly to the LEC, or vice versa. The Supreme Court of New South Wales must be involved as an intermediate step under the terms of the cross-vesting legislation. 35 Under s 8(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) (CV Act NSW), the Supreme Court has the power to remove a proceeding pending in a court of the State (such as the LEC) to it, on either its own motion or on the application of a party to that proceeding. The Supreme Court may do this if it appears that the proceeding "arises out of, or is related to, another proceeding pending in the Federal Court … and, if an order is made under this subsection in relation to the relevant proceeding, there would be grounds on which that other proceeding could be transferred to the Supreme Court." Following the removal of the LEC proceeding to the Supreme Court, the FCA proceeding would then be able to be transferred by this Court to the Supreme Court under s 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (CV Act Cth) or s 138C of the Competition and Consumer Act 2010 (Cth). This would enable the disposal of all the issues in the one court. 36 The Supreme Court could also elect to transfer the LEC proceeding once removed to the Supreme Court to this Court under s 5(1) of the CV Act Cth. However, para (b)(ii)(A) directs attention to whether the LEC proceeding would have been "incapable of being instituted in the Supreme Court and capable of being instituted in the Federal Court", and para (b)(ii)(B) to the extent to which the issues in the LEC proceeding arise under or involve questions as to Commonwealth law, both apart from any accrued or cross-vested jurisdiction. The language of the Just Terms Act (in s 66) makes clear that the LEC is the exclusive forum for valuation challenges under that Act, and no issues of federal law arise from the contentions in the LEC proceeding. Unlike for this Court, there is no uncertainty about whether the Supreme Court could determine the LEC proceeding once transferred to it, as made clear by s 149E of the Civil Procedure Act 2005 (NSW) for transfer orders under s 149B, or under the plenary jurisdiction of the Supreme Court for the administration of justice in New South Wales under s 23 of the Supreme Court Act 1970 (NSW). While ultimately a matter for the Supreme Court, the balance of factors for transfer of the LEC proceeding from the Supreme Court to this Court, rather than transfer of the FCA proceeding to the Supreme Court, weigh strongly against the former. The interests of justice, in the context of the exercise of this Court's powers under the CV Act Cth weigh strongly towards the latter. 37 The parties debated other possibilities but agreed that if I concluded that the two proceedings should be heard together, the mechanism identified above is the best way of achieving that outcome. 38 It follows that I am satisfied that I should order a stay of the FCA proceeding in order for either of the parties, although that would most obviously be VE Property, to be able to apply for the removal of the LEC proceeding to the Supreme Court by way of s 8(1) of the CV Act NSW. Upon such a removal, the FCA proceeding will be transferred to the Supreme Court under s 5(4) of the CV Act Cth. Under s 5(7) of that Act, such a transfer does not require any application by a party - it can be done of the Court's own motion.

Costs 39 I consider that Sydney Water has been substantially successful in its interlocutory application. Although I have resolved that the proceeding should not simply be stayed pending the final outcome in the LEC proceeding as contended for by Sydney Water, I have resolved to stay the proceeding. The basis for that stay vindicates Sydney Water's contentions with regard to the overlap between the two proceedings and the inappropriateness of the FCA proceeding continuing (at least on issues of quantum) in parallel with the LEC proceeding. In contrast, I have rejected VE Property's contention that the two proceedings can simply progress in parallel. 40 In those circumstances, Sydney Water should have its costs of the interlocutory application. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.