Bromley v Forestry Commission of NSW; Sweetman v Forestry Commission of NSW
[1999] NSWSC 791
•5 August 1999
CITATION: Bromley & Anor v Forestry Commission of NSW; Sweetman v Forestry Commission of NSW [1999] NSWSC 791 CURRENT JURISDICTION: Equity FILE NUMBER(S): 1847/96; 1525/97 HEARING DATE(S): 19, 20, 21 & 24 May 1999 JUDGMENT DATE:
5 August 1999PARTIES :
1847/96 James Edward Bromley (First Plaintiff)
Christine Mary Pollitt (Second Plaintiff)
Patricia Ruth Bromley (Third Plaintiff)
Forestry Commission of New South Wales (Defendant)
1525/97 Kenneth Irwin Sweetman (Plaintiff)
Forestry Commission of New South Wales (Defendant)JUDGMENT OF: Bergin J
COUNSEL : Mr AS Martin (Plaintiffs)
Mr S Gageler (Defendant)SOLICITORS: Deacons Graham & James (Plaintiffs)
IV Knight (Defendant)CATCHWORDS: Application for declaration that the plaintiffs are entitled to compensation pursuant to a special condition in a Crown lease - Whether forest area set apart under the Crown Lands Consolidation Act 1913 and the Returned Soldiers Settlement Act 1916 were revoked by revocations under s30 of the Crown Lands Consolidation Act 1913 - Whether such a contractual right was abrogated by the 1989 amendments to the Forestry Act 1916 - Application to set aside determinations made by the Forestry Commission under s30E(3) of the Forestry Act 1916 on the basis that the Forestry Commission had misconstrued the requirements of the legislation - taken irrelevant matters into account - failed to take relevant matters into account and for manifest unreasonableness - Interpretation of s30E of the Forestry Act 1916 - "costs incurred" - "in connection with". ACTS CITED: Forestry Act 1916 (NSW);
Crown Lands Consolidation Act 1913 (NSW);
The Returned Soldiers Settlement Act 1916 (NSW);
Crown Lands Act 1884 (NSW);
Ringbarking on Crown Lands Regulation Act 1881 (NSW);
Public Finance and Audit Act 1983 (NSW).CASES CITED: Wik Peoples v Queensland (1996) 187 CLR 1 ;
The Commonwealth v Hazeldell (1918) 25 CLR 552;
Melbourne Corporation v Barry (1922) 31 CLR 174;
Stanton v FCT (1955) 92 CLR 630;
Nelungaloo Pty Ltd v Commonwealth (1948) 75 CLR 495;
Cooper Brookes (Wollongong) Pty Limited v FCT (1981) 55 ALJR 434;
Allsands Pty Limited v Shoalhaven City Council (1993) 29 NSWLR 596;
New Zealand Flax Investments Limited v FCT (1938) 61 CLR 179;
Vardon v Commonwealth (1943) 67 CLR 434;
Burswood Management Limited v AG (Cth) (1990) 23 FCR 144;
Our Town FM Pty Limited v Australian Broadcasting Tribunal (1987) 16 FCR 465:
District Council Coober Pedy v Collector of Customs (1993) 42 FCR 127;
Cowell Electric Supply Co Ltd v Collector of Customs (1995) 54 FCR 1;
Australian National Railway Commission v Collector of Customs (SA) (1985) 8 FCR 264;
Collector of Customs v Rottnest Island Authority (1994) 48 FCR 177;
Drayton v Martin (1996) 67 FCR 1;
Racecourse Cooperative Sugar Association Ltd v Attorney General (Q) (1979) 142 CLR 460;
Nutton v Wilson (1888) 22 QBD 744;
Minister for Aboriginal Affairs v Peko Wallsend Ltd (1968) 162 CLR 24;
Associated Provincial Picture Houses Ltd v Wednesbury Corporation (1948) 1 KB 223; Foley v Padley (1984) 154 CLR 349;
R v Connell; Ex parte Hetton Bellbird Collieries Ltd (1944) 69 CLR 407;
Bruce v Cole (1998) 45 NSWLR 163;
Buck v Bavone (1976) 135 CLR 110;
Re Minister for Immigration and Multicultural Affairs for Commonwealth of Australia; Ex parte Moges Eshetu (1999) 162 CLR 577;
Jones v Dunkel (1959) 101 CLR 298.
Second Reading Speech Legislative Assembly 25 July 1989 Forestry Amendment Bill.DECISION: Contractual entitlement to compensation abrogated by 1989 amendments to Forestry Act 1916 - s30E(3) determinations by Forestry Commission set aside.
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONBERGIN J
THURSDAY 5 AUGUST 1999
1847/1996 - BROMLEY & OTHERS v THE FORESTRY COMMISSION OF NEW SOUTH WALES
1525/1997 - SWEETMAN v THE FORESTRY COMMISSION OF NEW SOUTH WALESJUDGMENT
The Parties and their Claims
1 These two matters were heard together with evidence in one being evidence in the other on 19, 20, 21 and 24 May 1999. Final written submissions were received on 28 June 1999.2 The plaintiffs in matter 1847/1996 (the Bromley proceedings) are James Edward Bromley, Christine Mary Pollitt and Patricia Ruth Bromley. The plaintiff in matter 1525/1997 (the Sweetman proceedings) is Kenneth Irwin Sweetman. In both the Bromley and the Sweetman proceedings the defendant is the Forestry Commission of New South Wales (the Commission).
3 Mr A S Martin, of counsel, appeared for the plaintiffs in both proceedings and Mr S Gageler, of counsel, appeared for the defendant in both proceedings.
4 The proceedings involve claims for compensation and royalties said to be payable to the plaintiffs by the defendant in respect of timber taken from land in respect of which the plaintiffs are lessees under Crown leases.
5 Although the plaintiffs in both proceedings have been paid some royalties they claim the defendant has;
(a) in the Bromley proceedings only, failed to pay compensation pursuant to a special condition within the Crown Lease.( the Bromley Compensation claim); and
(b) deducted costs from the royalties which were not properly deductible because they were not costs that were incurred as prescribed by s30E(2)(b) & (c) of the Forestry Act 1916,as amended (the Act) (the Bromley and Sweetman s30E(2) claims).
The Crown Leases
6 The Lease in the Bromley proceedings is Crown Lease 1919/1 of “all that Piece or parcel of Crown Land containing Four Thousand eight hundred and fifty-six (4,856) acres and being Portion 64 situate in the Parish of Tomalla in the County of Hawes in the land district of Scone as delineated on plan H 1610 - 1671” (the Bromley lease).
7 The history of the Bromley lease is as follows:
· On 15 November 1918 Crown Lands in Eastern Division, Land District of Scone and Upper Hunter Shire within boundaries within the Tomalla Occupation License No. 503A identified as No 53,072, containing an area of about 800 acres and 53,073, containing an area of about 840 acres, were reserved from sale generally pursuant to s29 of the Crown Lands Consolidation Act 1913.
· On 15 November 1918 pursuant to the provisions of the Crown Lands Consolidation Act, 1913 and The Returned Soldiers Settlement Act 1916 public notification was gazetted that 4,680 acres in the Parish of Tomalla County of Hawes were set apart for an original Crown lease to be disposed of to a returned soldier exclusively. Such land was to be available on and after 13 January 1919. It was gazetted that:
That part of the area which contains timber in excess of the requirements of lessee as tenant thereof is set apart as a forest area. The forest areas are shown on published litho by black shading. The land set apart is exempt from the operations of general license under the Forestry Regulations.
The gazette gave notice that the Crown lease was to be subject to the general provisions of the Crown Lands Acts and Regulations and to certain special conditions which included:
The forest areas shown on the litho (exhibit C) by black shading were identical to the areas designated reserve 53,072 and reserve 53,073 which had been reserved from sale generally also on 15 November 1918.
(f) No timber shall be cut or removed from the land for the purpose of sale, except subject to the provisions of the Forestry Act 1916 and Regulations thereunder at the time in force. The lessee may, however, take from the land leased to him such timber and other material for building and other purposes upon such land as may be required by him as tenant thereof, provided such land is not comprised within a timber reserve or State Forest.
(g) A proportion of the forest area not exceeding one third shall be absolutely exempt from the operation of any timber licences in order to provide a land supply for the development of the holding.
(h) No operations in connection with timber or products (other than by the lessee for his own use on the land leased or as provided by conditional), shall be allowed on the forest area except with the concurrence of the Department of Lands under special licence, to be issued by an authorised Forest Officer. Provided that with the lessee’s written consent such licence may also be issued to apply to timber or products on any part of the lease except in that part of the forest area exempted for the sole use of the lessee.
(i) The holder of a special licence to cut timber on the forest area or to remove products therefrom, shall be governed by the conditions and limitations of the licence which will be framed by the Forestry Department to protect the lessee’s interest in the land.
(j) The lessee shall be allowed compensation to the amount of one-third of any royalty paid to the Crown on timber removed from the forest area to cover any damage done to his interests in the holding by licensed timber operations; and
(q) The land outside reserves 53,072 and 53,073 from sale generally, notified this day, may be used for agriculture.
· Mark Edward Stephens, a returned soldier, was granted Crown Lease 1919/1 for the period 7 February 1919 to 6 February 1964.
· On 25 April 1933 Mr Stephens made application to the District Surveyor at East Maitland to revoke forest area on portion of his Crown Lease as shown in double lines on accompanying sketch. The accompanying sketch identified Forest Area -wished to be revoked. This was the forest area identical with Reserve 53,073. Mr Stephens suggested that if the timber was ringbarked he could carry more stock. He stated that the area is mostly very steep country and unsuitable for timber area, as timber could not be got out without great difficulty and in a great portion would be almost impossible. Mr Stephens suggested that a great portion of the timber was worthless.
· On 8 June 1933 the East Maitland District Surveyor notified the Secretary of the Commission of Mr Stephens’ application as follows;· By letter of 1 August 1933 the Secretary of the Commission notified the East Maitland District Surveyor as follows;
Subject; Request by M.E. Stephens for revocation of State Forest area within Crown Lease 19-1 Scone.
Crown Lease 19-1 comprises portion 64 of 4856 acres, Parish of Tomalla, County of Hawes.
Applicant now asks that the Forest Area, which is identical with Reserve 53,073 from sale, notified 19 November 1918, shown by red edge on…, be revoked
Please state whether there are any objections in the interests of your Commission to the revocation of R.53,073.
I am directed to inform you that there are no objections in the interests of forestry to the revocation of the Forest Area which is identical with R. 53,073 from sale notified 19th November 1918, within portion 64, Parish Tomalla, County Hawes.
· In early September 1933 Mr Stephens was advised by the District Surveyor’s office that the Forestry Commission report no objections to the revocation of the Forest Area within your Crown Lease 19-1 and that steps are now being taken to, have the necessary revocation gazetted and that upon such gazettal it would be open to Mr Stephens to carry out any necessary ringbarking subject to the usual permit being obtained from the Forestry Commission.
· On 11 September 1933 the District Surveyor referred the Request to the Under Secretary for Lands for approval which referral included the following:
The holder, M.E. Stephens, asks that the forest area (which is identical with Reserve 53,073 from sale notified on 15th November 1918) be revoked.
The Forestry Commission report no objection in the interests of forestry to the revocation of R.53,073.
It is submitted that necessary action be now taken to revoke the whole of Reserve 53,073.· On 18 September 1933 the Under Secretary for Lands approved the Request.
· On 22 September 1933 Revocation of Reserves from Sale, Lease etc. were gazetted as follows:
It is hereby notified that under the provisions of section 30 of the Crown Lands Consolidation Act 1913, the reserves from sale, lease etc., hereunder described, are hereby revoked.
Land District Scone; Reserve No 53,073; Purpose From sale generally; Date of Notification 15 Nov.,1918; Parish Tomalla; County Hawes; Shire etc. Upper Hunter; Area 840 acres; Part Revoked The whole H. 1610-16671R. Papers No. P 33-7.776.· On 23 April 1934 Mr Stephens applied to have the term of his lease extended to a lease in perpetuity.
· On 22 November 1934 the East Maitland District Surveyor referred Mr Stephens’ application for extension to the Under Secretary for Lands for Approval noting the following:· On 11 January 1935 Revocation of Reserves from Sale, Lease etc. were gazetted as follows:
Subject holding, comprising portion 64,containing 4856 acres, ex M T 1 and G Ls 1 to 5.
It is within Sandon Gold Field, Notified 31st July 1907; and partly within R. 53,072, Notified 15th November,1918.
The Forestry Commission ..report no objections to the application nor do they oppose revocation of R 53,072.
..the application is submitted for approval, subject to….revocation of R.53.072 from Sale generally.
· On 1 February 1935 Extension of Term of Crown Leases was gazetted as follows:
It is hereby notified that under the provisions of section 30 of the Crown Lands Consolidation Act 1913, the reserves from sale, lease etc. hereunder described, are hereby revoked;
Land District Scone; Reserve No. 53,072; Purpose From sale generally; Date of Notification 15 Nov.1918; Parish Tomalla; County Hawes; Shire etc. Upper Hunter; Area 800 acres; Part revoked The whole H 1610-1671; Papers L.34- 22,216.· On 14 September 1973 a Proclamation made by the Governor on 25 July 1973 was gazetted as follows:
It is hereby notified that the term of the under mentioned Crown leases has been extended to a lease in perpetuity.
Land District Scone Shire Woolooma
Parish Tomalla; County Hawes; Crown Lease 1919-1; portion 64; 4,856 acres; holder Mark Edward Stephens; L 34-22,216
“I, Sir Arthur Roden Cutler, Governor of the State of New South Wales and its Dependencies, in the Commonwealth of Australia, in pursuance of the provisions of the Forestry Act 1916 and with the advice of the Executive Council, do, by this my Proclamation, declare that the land described in the Schedule hereto is dedicated as a State Forest.Barrington Tops State Forest No 977,No 3 Extension. An area of about 966.72 hectares in the Parish of Tomalla, County of Hawes, being portion 64 delineated in plan catalogued H 1610 -1671R in the Department of Lands Inclusive of the non-public reserved road,20.115 metres wide, traversing the portion, and portions MT 1, Gl 1, Gl 2, Gl 3, Gl 4 and GL 5 but exclusive of the public reserved road, 20.115 metres wide, traversing the portion.
Schedule
Eastern Division
Land District of Scone; Scone Shire;
Newcastle Forestry District· On 7 May 1976 Crown Lease 1991/1 was transferred by way of sale to the plaintiffs.
8 Since 1 October 1986 Mr Sweetman has been and remains the holder of and lessee of Crown leases 1915/4 and 1915/5 which are leases in perpetuity. The leased land is described as Lots 73 and 74 in Deposited Plan 753715 in the Parish of Tomalla in the County of Hawes Shire of Scone delineated on Crown Plans 1482.1671 and 1483.1671 respectively (the Sweetman leases). The Sweetman leases are adjacent to the Bromley lease.
The Bromley Compensation Claim
9 The plaintiffs claim that since January 1986 timber has been removed from the forest areas within the Bromley lease by licensed timber operations. It is claimed that the defendant has been paid royalties in respect of the timber removed from those forest areas and that Special Condition (n) of the Bromley lease requires the defendant to pay compensation to the plaintiffs to the amount of one-third of those royalties.
10 The Crown Lease witnessed by the Governor on the 28th August 1940 (Ex.A) contains special condition (n) which provides that:
(n) The Lessee shall be allowed compensation to the amount of one-third of any royalty paid to the Crown on timber removed from the forest area, to cover any damage done to his interest in the holding by licensed timber operations.11 Mr Martin submitted that the forest areas in the Bromley lease were co-extensive with Reserves 53,072 and 53,073 which were reserved from sale generally pursuant to s29 of the Crown Lands Consolidation Act 1913. He submitted that although the reservations from sale generally had been revoked on 1 February 1935 and 22 September 1933 respectively there was no revocation of the forest areas.
12 He submitted special condition (n) remains unaffected by the Forestry Act 1916 and that compensation was therefore payable to the plaintiffs. A central plank to this claim was Mr Martin’s submission that the provisions of the Act and Regulations which preceded the present s30E were concerned with the grant of timber licences and did not expressly purport to vary or affect the terms of Crown leases.
13 The Forestry Commission denies the Bromley plaintiffs are entitled to any compensation under special condition (n) of the Bromley lease. Mr Gageler submitted that there are three reasons why the claim based on special condition (n) must fail;
(1) Special condition (n) only applies to timber removed from a forest area and such an area has not existed within the Bromley lease at any relevant time (Forest Areas).
(2) The right conferred by special condition (n) has been abrogated by Division 3 (Payment of royalty) of Part 3 (Provisions relating to the taking of timber, products and forest materials)of the Forestry Act 1916 which it is submitted is an exhaustive code in relation to payment of royalties which is inconsistent with any contractual entitlement to royalties. (Abrogation/Exhaustive Code); and
Forest Areas
(3) Special condition (n) only confers a right to recompense for loss up to one third of any royalty paid to the Crown and the plaintiffs have not shown they suffered any damage (Loss & Damage).
14 Mr Gageler submitted that the forest areas are the areas of the Lease reserved from sale under s29 of the Crown Lands Consolidation Act 1913. He relied on the legend in the published litho which states Forest Areas (reserved from sale generally) barred against conversion. He submitted that the proper construction of the Lease is that the forest areas are the reserved areas 53,072 and 53,073; the two are not simply matters of geographical co-incidence and once the reservations from sale generally were revoked the forest areas no longer existed.
15 The assessment of this submission against Mr Martin’s submission that the forest areas survived the revocation of the reservations of 53,072 and 53,073 from sale generally requires an analysis of the legislative structure within which the reservations and revocations occurred.
16 During the period 1918 to 1935 when these reservations and revocations occurred the Minister administering the Forestry Act 1916 was required to cause a classification of the forest lands of the State for the purpose of determining which of such lands were suitable to be permanently dedicated as State forests or temporarily reserved from sale as timber reserves (s17).
17 Under s22 of the Forestry Act 1916 the Governor, on the recommendation of the Minister and with the concurrence of the Secretary for Lands, could by notice in the Gazette temporarily reserve from sale any Crown land as a timber reserve or revoke or alter, in whole or in part, any such reservation of land for a timber or forest reserve.
18 There was no definition of forest reserve but timber reserve was defined as land temporarily reserved for forestry purposes (s4). No reservation from sale of land as a timber or forest reserve could be revoked or altered except under the Act (s23).
19 The Governor could also dedicate certain land as a State forest and such dedication could not be revoked except under the Act (s23). State forest was defined as land dedicated under the Act as a State forest (s4).
20 During the same period, in particular on 15 November 1918, the Minister for Lands also had power under s85(2) of the Crown Lands Consolidation Act 1913 to subject any lands set apart under that section to reservations of timber scrub or undergrowth and to such other reservations and restrictions as to the Minister may seem necessary in the public interest and be specified in the notification. There was a definition of scrub (s5) but there was no definition of timber or undergrowth. The Minister had the power to alter the notification under s86 of the Crown Lands Consolidation Act 1913 but not, it seems, so as to affect the reservation made under s85(2) of the Act.
21 The reservations of 53,072 and 53,073 from sale generally as gazetted on 15 November 1918 were pursuant to s29 of the Crown Lands Consolidation Act 1913. The relevant section at the time provided:
The Minister may by notification in the gazette reserve any Crown lands therein described from being sold or let upon lease or license in such particular manner as may be specified in such notification; and the lands shall thereupon be temporarily reserved from sale or lease or licence accordingly, and, unless the contrary is expressly declared, shall not be reserved from sale or lease generally.
22 The setting apart of the land for the Crown Lease was also gazetted on 15 November 1918. Although gazetted as pursuant to the Crown Land Consolidation Act 1913 and the Returned Soldiers Settlement Act 1916 there was no reference to the specific sections in these Acts pursuant to which the Minister acted. I am of the view that the notification was pursuant to s85 of the former Act and s3 of the latter Act.
23 Under s85(1) the Minister had the power to set apart land for holdings, including lease holdings, of the kinds specified in the notification in the Gazette. S85(2) provided:24 Section 85(4) of that Act provided:
(2) The areas of land set apart by the Minister may be limited to the surface only of such land or to the surface and to such depth below the surface as may be specified in the notification, and such areas shall also be subject to any reservations of timber scrub or undergrowth and to such other reservations and restrictions as to the Minister may seem necessary in the public interest and be specified in the notification.
25 The notification in the gazette on 15 November 1918 setting the land apart contained a Note to the description of the land which read as follows;
(4) Notwithstanding anything in this Act, or the Mining Act,1906, or the Forestry Act 1916 the setting apart of any land for original or conditional purchase conditional lease homestead selection settlement lease conditional purchase lease homestead farm suburban holding or Crown-lease shall have the effect of revoking any reserves, or parts of reserves, or population areas within the boundaries of the lands so set apart, unless the contrary is expressly declared by the terms of the notification. Such revocation shall take immediate effect on the expiration of the day next preceding the day upon which the land becomes available in pursuance of the notification; Provided that the revocation of any reserve for mining or mining purposes or any timber reserve shall not be so effected unless in the case of a reserve for mining purposes the consent thereto of the Secretary of Mines or in the case of a timber reserve of the Minister administering the Forestry Act has been obtained.
Such setting apart as aforesaid shall also have the effect of revoking any previous setting apart of the same land unless the contrary is expressly declared by the terms of the notification.
Note.-Includes part (about 1,700 acres) of classification reserve, notified 19th October 1910, parts (about 1,150 acres) of reserve 35,186 from conditional sale, and part (about 1,830 acres) of reserve 39,646 from sale for mining, which parts are hereby revoked. The above is exclusive of mining portions gold leases 1 to 5 inclusive, and mining tenement 1. The area capital value, annual rent, and survey fee are subject to adjustment after survey. Reserves Nos 53,072 and 53,073 from sale generally, are not affected by this notification.
If I am right in the view that the setting apart of the land for the Crown Lease on 15 November 1918 was pursuant to s85 of the Crown Lands Consolidation Act 1913 reserves 53,072 and 53,073 from sale generally were therefore not revoked by force of s85(4) because the contrary was expressly declared by the terms of the notification.
26 I am of the view that this Note militates against any suggestion that the forest areas merged with the Reserves. Had it been intended that the forest areas were to be the Reserves a statement to such effect could have been made in the Notification. What was said was something quite different. The forest areas were referred to as the shaded areas on the Litho rather than by specific reference to Reserves 53,072 and 53,073 and these Reserves were not affected by the notification.
27 There is no evidence before me by way of gazettal that suggests that the Governor reserved the land in 53,072 and/or 53,073 as timber or forest reserves under the Forestry Act 1916.
28 What is clear is that reservations from sale generally of 53,072 and 53,073 were pursuant to s 29 of the Crown Lands Consolidation Act 1913. It is also clear that the revocations of these reserves in 1933 and 1935 were made pursuant to s30 of that Act. S30 provided that:
Timber or forest reserves or reserves revocable under section one hundred and six of the Mining Act, 1906, shall not be subject to revocation or modification under this section.
29 There was no definition of timber reserve or forest reserve in the Crown Lands Consolidation Act 1913.
30 I am of the view that the gazettal of 15 November 1918 in particular that portion in which the Minister set apart as a forest area certain part of the land was a reservation of the forest area (a forest reserve) pursuant to s85(2) of the Crown Lands Consolidation Act 1913.
31 I disagree with Mr Gageler’s submission that the forest areas had no independent existence from the reservations 53,072 and 53,073 from sale generally. Reservations 53,072 & 53,073 on the one hand and the forest areas on the other hand were reserved separately and respectively under s29 and s85 of the Crown Lands Consolidation Act 1913. The reserves 53,072 and 53,073 endured the reservation of the same land as forest areas under s85(2) by reason of the express intention in the notification in the Gazette.
32 In reaching the conclusion that although these reservations were of identical areas they were separate from each other, I have had regard to s31 of the Crown Lands Consolidation Act 1913 which provided:33 The terms of the notification of 15 November 1918 do not include the words temporarily reserved from sale as a timber reserve as used in the Forestry Act 1916. The published litho (Ex. C) does not use those words either. It uses the words Forest Areas (Reserved from Sale generally) barred against conversion. I am of the view that this is a reference to a special condition of the Lease at the time which provided that:
31. No dedication or reservation shall be held to be invalid by reason of the land being already reserved at the date of such dedication or reservation, or by reason of the revocation of any other reservation including wholly or in part the same land.
(p) The right of conversion into any other form of tenure of the areas within reserves 53,072 and 53,073 from sale generally, notified this day, as provided for in sections 135 and 184 of the Crown Lands Consolidation Act, 1913, is hereby barred.
It does not seem to me that the words in the Litho could have the effect of merging the two quite separate reservations, one under s29 in which the words reserved from sale generally are used and the other under s85(2) in which the words areas..subject to any reservation of timber are used.
34 Neither party has submitted that the use of the words set apart in the notification of 15 November 1918 in relation to the forest area have any specific significance. The Minister had the power to set apart land for holdings pursuant to s85(1) and such land as set apart by the Minister could be limited and/or subjected to restrictions and/or reservations under s85(2). I am of the view that the notification subjected the portion of the land shown on the published litho by black shading to a reservation of forest or timber area.
35 As the forest area was not a reservation from sale of a timber reserve under the Forestry Act 1916 I am of the view that s23 of that Act would not apply for the purpose of any revocation of the areas. I am also of the view that the reference to timber and forest reserves in s30 of the Crown Lands Consolidation Act 1913 includes a reference to such reservation pursuant to s85(2) of that Act. I am therefore of the view that the forest areas could not have been revoked under the s30 notifications in 1933 and 1935.
36 There has been no submission by either party as to the affect, if any, of the Governor’s Proclamation on 25 July 1973 gazetted on 14 September 1973 in which it appears that the land in the Bromley Lease was dedicated as a State Forest under the Forestry Act 1916. I say ‘appears’ because it is not clear from the evidence whether the whole of the leased land is included in such dedication.
37 I have presumed there has been no such submission because s25 of the Forestry Act 1916 provides that such dedication does not affect any lease or license from the Crown current and in force at the time of such dedication. There is also no express provision in the Forestry Act 1916 that such a dedication would revoke the reservation made under s85(2) of the Crown Lands Consolidation Act 1913. However if I am wrong in relation to this aspect of the matter it may be of little consequence because of my findings in relation to Mr Gageler’s second submission as to why the plaintiffs’ claim must fail.
38 I conclude that the forest area referred to in the notification gazetted on 15 November 1918 was not revoked by the revocation of the reserves 53,072 and 53,073 from sale generally.
Exhaustive Code/Abrogation
39 Mr Gageler submitted that if there is a contractual right to compensation that survived the 1930’s it has been abrogated by Division 3 of Part 3 of the Forestry Act 1916. He acknowledged that there was no express abrogation but submitted that it had occurred by necessary implication.
40 He submitted that there is no way of reading Division 3 of the Act other than by way of providing an exhaustive code for the payments of royalties to the lessee and further submitted that it would be absurd for the lessee to have an entitlement to some part of one third of a royalty payable under the Act and some further contractual right to some other share of the royalty.
41 Mr Martin submitted that there has been no abrogation of the plaintiffs’ contractual entitlement because the provisions of the Forestry Act and Regulations which preceded s30E did not purport to vary or affect the terms of Crown leases either expressly or by necessary implication.
42 A decision on this aspect of the matter requires a review of the legislative history in relation to the payment of royalties pursuant to the Forestry Act 1916 and the Regulations made thereunder.
43 The system whereby compensation could be claimed by lessees of Crown Lands in relation to timber within a Crown lease was first introduced by the Ringbarking on Crown Lands Regulation Act 1881. The lessee was only entitled to make a claim for compensation in respect of ringbarking of trees on the leased land if it was covered by a permission granted by the Minister and it had increased the value of the land to any purchaser. Such compensation was limited to one shilling and threepence per acre (s4).
44 The system for royalty payments to the Crown for timber felled on Crown Lands contained in the Crown Lands Act 1884 required persons licensed to fell timber on Crown Lands and Timber Reserves to pay royalty calculated according to the class of timber felled and/or according to a scale fixed by Regulation. That Act also required the licensee to pay to the Crown what was described as “upset rent” (s115).
45 The first Forestry Act of 1909 provided that the licences of timber getters and other licensees would be subject to the payment of royalty to the Crown (s16(a); s17(3)). The calculation of the royalty at that time was on the log measurement of the timber or as prescribed by the director of Forests. Royalty was to be paid both on timber felled and on products taken from the lands under the Act (s18 & 19).
46 In the 1916 Forestry Act which repealed the 1909 Act s30 provided for the payment of royalties to the Crown for timber and products taken in pursuance of licences issued under the Forestry Act. That royalty was to be fixed by the Forestry Commission but was not to be less than such minimums, if any, as were prescribed by the Regulations (s30).
47 The Regulations to the 1916 Act provided for an apportionment of royalty to be payable to a Crown lessee. That payment was a requirement imposed by a special condition included in special licences under Regulation 46. The special condition required payment by the licensee to the Crown of two-thirds and to the lessee of one-third of the amount of any royalty imposed. That Regulation came into force in June 1917.
48 Regulation 46 was amended in 1920 to include the following proviso:
The payment to the Crown of two-thirds and to the lessee of one-third of the amount of any royalty charged; provided that no payment of part of royalty charged shall be made to the lessee in respect of timber obtained from any such lease or part of such lease situated within a State Forest or Timber Reserve.
49 The Regulation in that form remained unaltered until 1957 when it was amended to provide that the Crown was to be paid 95% and the lessee 5% of the royalties paid to the Crown by the licensees. The terms of the proviso were not amended.
50 In 1972 the Forestry Act 1916 was amended and a system was introduced whereby the Crown lessee became entitled to one-third of royalties paid after the deduction of a prescribed amount. At this time the Regulations were also amended and Regulation 46 was omitted. This system remained in place until 1984 when the Act was further amended.
51 In 1984 that part of the Act entitling the lessee to a payment of one-third of the royalty after the deduction of the prescribed amount was repealed. The amending Act set up a compensation fund (s30C) into which was to be paid such part of royalties collected which the Commission determined should be set aside for payment of compensation to Crown lessees.
52 This scheme was set up under a new Division 5 which provided that where timber or products had been removed from the land by timber operators the Commission was to make an assessment of the amount of compensation, if any, payable in respect of “disturbance to the land occasioned by the taking of timber, products or forest materials” (s30K). Under these provisions the Commission was required to take certain matters into account when assessing the compensation to which the Crown lessee was entitled (s30L).
53 Although royalty was still paid to the Crown the lessee had no statutory entitlement to share in that royalty albeit that the source of the funds for the compensation fund was the royalties. The lessee only had an entitlement to have an assessment of compensation made for disturbance to the land in his lease holding.
54 In 1989 the system of apportionment of royalty was re-introduced into the legislation. Section 30E came into force and the former compensation provisions were phased out over a twelve month period (s30K). Section 30L prohibited the payment of compensation and an apportionment of royalty during the same period.
55 In support of his submission that the legislation had, by necessary implication, abrogated the plaintiffs’ contractual entitlement in special condition (n) Mr Gageler relied upon Wik Peoples v Queensland (1996) 187 CLR 1. In particular he referred to the following portion of Kirby J’s judgment at p 248-249:
Existing proprietary rights might be affected by Parliament by acting within, and in accordance with, its constitutional power. However, to deprive a person of pre-existing proprietary interests, the legislation enacted by Parliament must clearly do so, either by express enactment or by necessary implication.
56 A legislative intention that persons are to be dispossessed of valuable property rights or contractual rights in respect of such property should not be implied unless expressed in unequivocal terms incapable of any other meaning. If the statute is capable of being interpreted without supposing that it is interfering with such rights it should be so interpreted. The Commonwealth v Hazeldell (1918) 25 CLR 552 at 563; Melbourne Corporation v Barry (1922) 31 CLR 174 at 206.
57 I am not satisfied that the legislative and regulatory history of the particular apportionment of royalties between the Crown and its lessees viewed in isolation can assist me in the search for the alleged necessary implication. The fluctuation in the Crown lessees share of the royalties during this long history from one-third (1917-1957) to 5% (1957-1972) to one-third (1972-1984) to nil (1984-1989) and back to one-third (1989 to date) may be more indicative of political vagaries than of any discernible integrity of policy in respect of the relationship between the Crown and its lessees. However the history of the development of the structure of the schemes requires a closer analysis.
58 Although not specifically addressed in argument before me, it may be argued that the original lessee was disentitled to the compensation under special condition (n) during the period 1920 to 1972 when the prohibition was in place pursuant to regulation 46 preventing any payment of “part of royalty charged..in respect of timber or products obtained” from the lease or any part of the lease situated in a State Forest or Timber Reserve. Alternatively it may be argued that the prohibition was in place to prevent a double payment of royalty and compensation in respect of the same land.
59 I am of the view that the reference in special condition (n) to “the amount of one-third of any royalty” was to fix the maximum compensation that could be paid to a lessee. It was not a payment of royalty. It was a payment of compensation that had been capped at an amount equivalent to one-third of any royalty paid to the Crown in respect of timber removed from the forest area. This amount remained capped at one-third even when the apportionment under Regulation 46 was set at 95% to the Crown and 5% to the lessee between 1957 and 1972.
60 The lessee was not receiving a payment “in respect of timber or products” pursuant to special condition (n). What the lessee was entitled to receive was a payment “to cover any damage done to his interest in the holding by licensed timber operations”. The two concepts are quite different. If this were not so it is to be expected that during the period 1957 to 1972 the capping of the compensation would have been reduced to 5% of any royalty paid. This was not done.
61 Royalty payments to Crown lessees have been at the sole discretion of the Crown. The maintenance of the Crown land under Crown leases has contributed to the capacity of the Crown to earn income from licensees in the form of a royalty payment. Those licensees have paid the royalty for the privilege or right under their licences to take the timber or products from the land the subject of the Crown leases. Stanton v FCT (1955) 92 CLR 630. The Crown lessees shared in that income to whatever extent the Crown, in its sole discretion, decided from time to time.
62 Compensation is a payment of a different kind. It is for recompense for a loss suffered. In the context of real property it provides a replacement in monetary value of property or rights which have been lost or damaged (s126(1) Real Property Act 1900 (NSW)).
63 I see no necessary implication that the contractual entitlement under special condition (n) was lost during the period up to 1972 nor am I satisfied that the necessary implication of this prohibition was to equate a share of royalty with an entitlement to compensation and thus prevent a double payment.
64 There was no such prohibition during the period 1972 to 1984. The plaintiffs were therefore entitled to the share of the one-third of the royalty after the deduction of the prescribed amount in respect of timber and products taken from the land. I am satisfied that the plaintiffs’ contractual entitlement to compensation pursuant to special condition (n) could sit quite comfortably with the statutory provisions in respect of the apportionment of royalties during this period. One was an unconditional statutory entitlement to a share of the Crown’s royalty income, the other was compensation “to cover damage”.
65 The present statutory provisions for the apportionment of royalties are similar to the provisions between 1972 and 1984 except the “prescribed amount” to be deducted under the former scheme has been replaced by particular reference to the deduction of certain “cost incurred”. The more complex feature of discerning any necessary implication from the introduction of the present system of apportionment is what happened between 1984 and 1989 when the compensation system was introduced and subsequently phased out.
66 The statutory compensation was for “disturbance to the land occasioned by the taking of timber products on and from the land” (s30K(1)&(2)). The assessment of compensation for the “disturbance” required consideration of the effects of the operations carried out on the land for the taking of the timber and products and the construction of roads, bridges, gates and ramps and any incidental works associated with the operations. The consideration of the effects of this construction was irrespective of whether such construction was on the land (s30K(3)).
67 In making the assessment of whether any compensation should be paid the Commission was required to consider “both beneficial and detrimental” effects on the land of these operations and/or construction (s30K(3)).
68 Special condition (n) entitled the lessee to compensation for “damage done to his interest in the holding by licensed timber operations”. It did not accommodate a process of reducing or eliminating the compensation payable by taking into account the fact that a bridge was constructed some miles from the land which may have improved the licensees access to the land.
69 The statutory compensation scheme did accommodate such a process. It effectively allowed the Commission to recoup its costs of construction and incidental works associated with the timber, products and forest materials operations by determining that such were beneficial effects on the leased land, setting them off against any detrimental effects and thereby eliminating any liability to pay compensation to the lessee. It could then keep the whole of the royalties paid to it by the licensees. Alternatively it could reduce the amount of royalty payable to the lessee by such a process.
70 The lessees were able to object to the assessment made by the Commission and, if agreement could not be reached, the matter was then referred to the Valuer-General who would review that assessment and make a new assessment. The Valuer-General was also required to take the same matters into consideration that the Commission was required to consider in its assessment (s30L).
71 In 1989 when the statutory provisions constituting the compensation scheme were repealed they were replaced by the present s30E which provides;
30E Apportionment of Royalty-Certain Land
(1) This section applies to a royalty payable in respect of timber, products or forest materials taken on or from prescribed land.
(2) When a royalty to which this section applies is paid to the commission the commission is required to pay to the landholder concerned one-third of the balance of the royalty remaining after deduction of the following amounts:
(a) any part of the royalty that is payable pursuant to a determination under s30D (payments to certain organisations),
(b) any costs incurred by the commission in connection with the establishment, planting, maintenance, improvement and protection of the timber, products or forest materials,
(c) any costs incurred by the commission in connection with the facilitation of the taking of the timber, products or forest materials, including the costs of construction and maintenance of roads, bridges, gates, ramps and incidental works,
(3) The costs that are deductable under subs (2)(b) and (c) are to be as determined by the commission.
(4) A share of royalty payable by the commission to a landholder under this section must be paid before the expiration of one month after the end of the financial year of the commission that is current when the royalty concerned is paid to the commission.
(5) Nothing is this Division entitles a landholder to be paid an amount of royalty in respect of the taking of timber, products, or forest materials under a licence held by a the landholder.72 This section gives recognition to those costs which under the compensation scheme were referable to the “effects (both beneficial and detrimental) on the land”. The Commission is not required to determine these costs with reference to any beneficial or detrimental effect to the lessees’ land.
73 I have been referred to the Second Reading Speech in the Legislative Assembly on 25 July 1989 in relation to these amendments which in part refers to this aspect of the matter. The Honourable Member for Clarence, Mr Causley the then Minister for Natural Resources, said at p 8470;
The legislation contemplates that the Forestry Commission will be able to carry out essential silvicultural work, fire control activities and the construction and maintenance of roads and bridges in the knowledge that the costs of such activities and the associated administrative costs will be fully recoverable upon the harvest of the timber to which they relate. This will promote the orderly supply of valuable timber resources to industry and, at the same time, provide adequate recompense for the affected landholder. (emphasis added)
and later at p 8471:
The legislation will serve to properly compensate landholders of certain Crown timber lands in respect of harvesting activities on their land by reference to a formula which is certain. Thus it will avoid the complexities with assessment of compensation and the consequent potential for appeals to the Valuer General.
74 Thus the royalty was given a purpose - that of proper compensation of the lessee for the harvesting activities on the land. For the first time royalty was equated with compensation. The legislation recognised that equation with s30L preventing the payment of compensation and royalty during the same period.
75 It is important to keep in mind that I am not assessing the fairness of the legislative scheme. At this stage I am only dealing with the interpretation of it to discover whether the contractual entitlement to compensation has been lost. The fact that the legislative scheme may deliver an amount less than that which would be payable under the contractual entitlement may be said to be relevant to the decision as to whether the abrogation is necessarily implied. Even if I were to accept such a proposition caution would have to be exercised in relation to it because there is no rule that requires the legislature to act fairly.
76 I am of the view that one of the purposes of the royalty apportionment scheme enacted to replace the compensation scheme is to compensate the lessee for damage done to his interests in the holding by timber operations. Mr Martin submitted that the compensation in special condition (n) is directed to a matter different from the timber operations of licensees who are required to pay royalty. He submitted that it is simply directed to timber removed from forest areas. This submission cannot be sustained in the light of the wording of the special condition which specifically refers to damage done by “licensed timber operations”.
77 The legislative scheme for the payment of royalty is for the same compensation as that for which special condition (n) provides. In those circumstances I am of the view that the amendments have the necessary implication that an additional right to compensation for the very same damage could not endure whilst this legislation is in place.
78 I am of the view that the contractual entitlement to compensation under special condition (n) has been abrogated by necessary implication of the 1989 amendments to the Forestry Act 1916.
Loss or Damage
79 Mr Gageler submits that the terms of special condition (n) of the Bromley Lease do not give the plaintiffs an entitlement to one third of royalty paid to the Crown. He emphasises the reference to compensation for damage in the clause and submits that it provides an entitlement to recompense for loss (Nelungaloo Pty Ltd v Commonwealth (1948) 75 CLR 495 at 571) up to a particular capped amount if there is any damage done to the lessee’s interests. He submits that the plaintiffs have not shown any such damage in this case and therefore this claim must fail.
80 Mr Martin submits that all the plaintiffs have to establish is that timber was removed from the forest area during the relevant period. He submits that such removal enlivens the compensatory provisions and the plaintiffs are entitled to payment of compensation irrespective of proof of damage. He submits that there is no necessity to prove damage for the declaratory relief sought and that quantification can be dealt with at a later time
81 If I am wrong in the interpretation of the legislative implication of abrogation of the plaintiff’s contractual entitlement I am however of the view that any declaration as to entitlement to compensation should not be made until damage has been proved. There has been no damage proved in this case.
82 For the above reasons the plaintiffs’ claims for compensation pursuant to special condition (n) of the Crown lease in the Bromley proceedings fails.83 The 1989 amendment to the Forestry Act 1916 required the Commission to pay to the lessee one-third of the balance of the royalty it received in respect of the lessee’s land after the deduction of certain amounts. Those amounts were prescribed by s30E(2)(b) and (c). They were:
The Legislative Scheme
The Bromley and Sweetman s30E(2) claims
84 The costs to be deducted as prescribed by s30E(2)(b) and (c) were “to be as determined by the commission”.
(b) any costs incurred by the Commission in connection with the establishment, planting, maintenance, improvement and protection of the timber, products or forest materials
(c) any costs incurred by the Commission in connection with facilitation of the taking of the timber, products or forest materials, including the costs of construction and maintenance of roads, bridges, gates, ramps and incidental works.
Costs incurred
85 The plaintiffs contend that the words “costs” and “incurred” in s30E(2)(b) & (c) should be given their ordinary and natural meaning Cooper Brookes (Wollongong) Pty Limited v FCT (1981) 55 ALJR 434 at 437. It was submitted that the ordinary and natural meaning of the words “costs” in the section is the actual costs. This is said to include all direct and indirect costs of the Commission.
86 The word “costs” usually carries the meaning of “an amount paid out”. The cost of an item is not determined either by taking the present day cost and discounting it or by applying an index to historical cost (Allsands Pty Limited v Shoalhaven City Council (1993) 29 NSWLR 597 at 607).
87 The plaintiffs contend that the word “incurred” in the section means “paid or borne”. It is submitted that the costs must have been paid or borne by the Commission to fall within the terms of the section. The plaintiffs place emphasis on the fact that the word “incurred “ is used as a verb in the past tense to qualify the word “costs”.
88 The word “incurred” has been held to mean not only “defrayed, discharged or borne” but includes “encountered, run into or fallen upon”. It must be more than merely “impending, threatened or expected” (New Zealand Flax Investments Limited v FCT (1938) 61 CLR 179 at 207).
89 The defendant submitted that the use of the word “costs” in s30E is an expression of inherent flexibility. In support of this submission Mr Gageler relied upon Vardon v Commonwealth (1943) 67 CLR 434 in particular in the judgment of Latham CJ at 444 wherein His Honour in interpreting the term “cost” in the context that a maximum price was “fixed at the cost of those goods…plus 20% thereof” said:90 Mr Gageler also relied upon the following portion of Rich J’s judgment:
“…as the Commissioner has specified neither landed costs nor any other cost, and as the term ‘costs’ is necessarily uncertain in meaning when applied to goods of the description to which the notice refers, the notice is not a notice fixing a price within the meaning of Regulation 23(1)(b).”
“ ‘Cost’, not being defined, is an ambiguous and uncertain term. The general idea of cost covers a number of different meanings (p.35, Incidence of Overhead Costs, Professor Maurice Clark). One finds in Carter’s Advanced Accounts such expressions as flat cost, prime cost and total cost. And Professor Van Sickle, Cost Accounting, p.4 says that ‘while cost accounting can be defined it is quite another thing to endeavour to define costs’ ”.
In connection with
91 The plaintiffs contended that the meaning of the phrase “in connection with” depends on its context and the purpose of the statute in which it appears (Burswood Management Limited v AG (Cth) (1990) 23 FCR 144 at 146).
92 It is submitted that the phrase has a wide connotation (Our Town FM Pty Limited v Australian Broadcasting Tribunal (1987) 16 FCR 465 at 479-80). The connection need not be direct or immediate although a question of degree will be involved. It must, however, be real and substantial rather than remote (District Council of Coober Pedy v Collector of Customs (1993) 42 FCR 127 at 140-141; Cowell Electric Supply Co Ltd v Collector of Customs (1995) 54 FCR 1 at 11).
93 The plaintiffs submitted that where a physical asset has been acquired for a number of purposes, it is only that portion of the acquisition costs in connection with the relevant purpose which should be taken into account. The plaintiffs also submitted that the other portion of the cost, which has no connection with the relevant purpose, should be disregarded. In other words the phrase “in connection with” in the appropriate statutory context requires an apportionment process to be adopted (Australian National Railways Commission v Collector of Customs (SA) (1985) 8FCR 264 at 270; Collector of Customs v Rottnest Island Authority (1994) 48 FCR 177 at 189-191; Cowell Electric Supply Co Ltd v Collector of Customs (1995) 54 FCR 1 at 11).
94 Mr Gageler submitted that the words “in connection with” in s30E(2)(b) and (c) were also words of inherent flexibility. In support of this submission he relied upon Drayton v Martin (1996) 67 FCR 1 in particular at p 32 of the judgment of Sackville J:
“Of course, the meaning of the phrase ‘in connection with’ whether used in the statute or in a contract, must depend on the context: Burswood Management Ltd v Attorney General (Cth) (1990) 23 FCR 144 at 146. Nonetheless, the width of the ordinary meaning of the phrase is indicated by a passage from the judgment of Wilcox J in Our Town FM Pty Limited v Australian Broadcasting Tribunal (1987) 16 FCR 465, at 479- 480:
“The words ‘in connection with’ have a wide connotation, requiring merely a relationship between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163.”
Costs as determined
95 The defendant submitted that the requirement of s30E(3) that the costs referred to in s30E(2)(b) and (c) are to be as determined by the Commission is a highly significant requirement. It was submitted that the word “determine” is used elsewhere in Part 3 of the Act to confer a discretion on the Commission (s30B and s30D). It is submitted that its use in s30E also gives the Commission such a discretion (Racecourse Cooperative Sugar Association Ltd v Attorney General (Q) (1979) 142 CLR 460 at 479).
96 The defendant submitted that s30E(3) makes clear the intention of the legislature that the identification of the “costs” that are sufficiently “connected with” the activities referred to s30E(2)(b) and (c) to require deduction under those paragraphs is a matter for the opinion or satisfaction of the Commission.
Second Reading Speeches
97 Once again I was referred to the Second Reading Speeches in both the Legislative Assembly and the Legislative Council in relation to these amendments to assist in the understanding of the nature of the costs to be deducted from the royalties.
98 In the Legislative Assembly Mr Causley referred to the royalty apportionment scheme prior to 1985 and said:99 As to the intention of the legislation in respect of the ability of the Commission to carry out its operations Mr Causley said that this could be done
“That formula largely confined the costs that could be offset by the Forestry Commission to those actually incurred in the provision of roads, bridges and other capital infrastructure necessary for a harvesting operation. In effect, the range of costs actually incurred in facilitating removal of timber was far wider. The old royalty sharing arrangements effectively left many of the costs actually borne by the Forestry Commission in connection with the harvest of timber unaccounted for when royalty payments were assessed.”
And later:
“Unlike the old system, the new arrangements embodied in the legislation before the House will permit the Forestry Commission to deduct the costs incurred in connection with the establishment, planting, maintenance and improvement and protection of the timber, products or forest materials the subject of a licence, as well as the costs incurred in connection with the actual taking of the timber. These provisions are intended to permit the forestry Commission to offset against a landholder’s share of royalties an appropriate part of the expenditure that in fact facilitated payment of the royalty share… In practice, the proposed legislation will achieve two things: first, it will guarantee a fixed share of net royalty to the landholder of Crown timber land; and, it will permit the recouping of those costs, including associated administrative costs, incurred by the Forestry Commission in the care, control, management and ultimate harvesting of timber resources.”
“…in the knowledge that the cost of such activities and the associated administrative costs will be fully recoverable upon the harvest of the timber to which they relate.”
In relation to the way in which the costs are to be determined Mr Causley said:
“It is anticipated that the Forestry Commission will determine these costs by reference to standard commercial accounting practices as used in its commercial accounts generally. This is consistent with the commission’s commercial charter as confirmed by amendments made by Parliament last year to the banking and financial provisions of the Forestry Act.”
100 The reference to the confirmation of the Commission’s commercial charter was a reference to the 1988 Amendment to the Forestry Act whereby the Commission was given an express statutory power to open and maintain an account with a Bank approved by the Treasury and to expend amounts up to $500,000 without the need to obtain approval from the Minister.
101 The Commission is subject to the provisions of the Public Finance and Audit Act 1983. It is required to keep proper accounts and records in relation to all of its operations and in particular is required to prepare and submit the financial statements to the Minister and Auditor General within a period of six weeks after the financial year (ss41 and 41A). The financial statements are required to be prepared “having regard to current accounting standards and industry practices” (s41B).
Interpretation of s30E
102 The royalty scheme set up under this legislation had a dual purpose. As referred to in my reasons in relation to the Bromley Compensation Claim one of its purposes was to compensate the lessee for damage/disturbance to the lessee’s interests in the leasehold by licensed timber or harvesting operations.
103 The other purpose was to enable the Commission to offset against a landholder’s share of royalty what was described as “an appropriate part of the expenditure that in fact facilitated payment of the royalty share”. Certainty it was thought that this was a scheme intended to enable the Commission to offset costs additional to those that it had previously been able to offset. These were the matters in s30E(2)(b) although, on one view, it may have been possible to take these into account under the previous s30K(3)(a) in the former compensation scheme.
104 The reference in the Second Reading Speech to the anticipation that the Forestry Commission would determine the costs “by reference to standard commercial accounting practices as used in its commercial accounts generally” was in my view a recognition that the Commission would be preparing accounts that would assist it in determining costs pursuant to s30E(3).
105 This does not mean that simply because a cost was included in the commercial accounts of the Commission it would be appropriate to deduct it from the share of royalty irrespective of whether it fell within the prescriptions in s30E(2)(b) or (c). Such an interpretation would in my opinion run counter to the spirit and purpose of the legislation.
106 In my view it was intended that in determining costs the Commission would refer to those accounts to identify the “appropriate part of the expenditure” that should be deducted pursuant to the prescription in s30E(2)(b) and (c). It was not intended that the costs in the accounts were to be the costs as determined. They had to be costs as “incurred in connection with” the matters referred to in s30E(2)(b) or (c).
107 I am assisted in the interpretation of this section by the approach adopted by Priestley JA in Allsands Pty Ltd v Shoalhaven City Council (1993) 29 NSWLR 596. In that case the Court was considering the terms of s94(2A) of the Environmental Planning and Assessment Act 1979 in which a local council could subject a development consent to a condition requiring the payment of the monetary contribution towards “recoupment of the cost” of providing public amenities in the area being developed.
108 The council had adopted a method of fixing the contribution figures under s94 and in doing so created a formula which required the estimation of the written down “current cost” of the asset value. In considering the meaning of the word “cost” in the phrase “recoupment of cost” Priestly JA came to the conclusion that it was reasonably clear that the word must be referring to “actual cost” (p 606F). His honour was of the view that the words within the section seemed to be directed towards actual cash amounts in respect to both contribution and recoupment. He said at 607A:109 Priestley JA analysed the relationship between the various subsections for the purpose of placing the word “cost” in context and went on to say at 607D:
“The first of these is ‘recoupment’, which in its context carries a strong idea of getting back something paid out. The other word, ‘cost’, also usually carries the meaning of an amount paid out.”
“The words of s94(2A) do not justify estimating ‘cost’ either by taking present day cost and discounting it, or by applying an index to historical cost. The first method might yield a result approximating historical cost. On the other hand, it might not, which is what, in my opinion, prevents it being supportable by the words of s94(2A). The second method in its own terms produces a figure different from historical cost. But it is historical cost, that is, what the council actually paid out, that the subsection is in my opinion referring to. Any estimating must be done with a view to arriving at that ‘cost’, and it is towards that cost that payment of a monetary contribution may be required as a condition of consent.”
110 Similarly I am of the view that the words within Division 3 of the Forestry Act 1916 and more particularly s30E are directed towards cash amounts or cash notions both in respect of royalty and costs incurred. The landholder receives a cash payment as a particular share of the royalty. It is referred to as a “balance” remaining after deduction of particular amounts.
111 Having regard to the dual purpose of this legislation I am of the view that the “royalty” is the actual royalty not one that has been indexed or upon which some calculation of interest has been made over the 12 month period to which it related. I am also of the view that the “costs incurred” are the actual costs incurred in connection with the matters referred to in subs(2)(b) & (c) not those that have been indexed to reach what has been referred to in these proceedings as current costs.
112 In taking into account each parties’ submissions in relation to the meaning of the words “in connection with” in the section it is also important to have regard to the more recent history of the legislation since 1984. Under the compensation scheme that was in place between 1984 and 1989 in the now repealed Division 5 s30K(3) required that in making any assessment of compensation:
(3).. the commission shall take into consideration the effects (both beneficial and detrimental) on the land, and on any roads, fences, gates, buildings or works situated on the land, of -
(a) the operations carried out on the land for the purpose of taking timber, products or forests materials, as the case may be, on or from the land;
(b) the construction (whether or not on the land) of roads, bridges, gates and ramps, and any incidental works, associated with those operations; and
(c) such other matters as may be prescribed
113 The focus in the compensation scheme was on the effects on the land of the landholder. It is presumed that if the detrimental effects of the timber operations and/or the associated construction works outweighed the beneficial effects on that particular landholding the commission would award some compensation.
114 The present scheme, having as one of its purposes the compensation of the landholder, recognises the previous beneficial effects of the construction works as a permissible deduction from the royalty payable to the landholder ins30E(2)(c) as:115 The reference in the Second Reading Speeches to the Commission’s capacity in the present system to offset its costs against royalties is not dissimilar to the previous system which necessarily involved weighing the beneficial effects against the detrimental effects on the land. The new system expressly included or alternatively extended the category of beneficial effects or costs that the commission was entitled to deduct from the royalty in s30E(2)(b):
(c) any costs incurred by the commission in connection with the facilitation of the taking of the timber, products or forest materials, including the costs of construction and maintenance of roads, bridges, gates ramps and incidental works.
(b) any costs incurred by the commission in connection with the establishment, planting, maintenance, improvement and protection of the timber, products or forest materials.
116 S30E(2) requires the Commission to pay one-third of the balance of the royalty after the deduction of the costs incurred to “the landholder concerned”. The use of the word “concerned” may be described as a little lax and in the interpretation of such a term it is appropriate to look to the object intended to be attained by its use (Nutton v Wilson (1888) 22 QBD 744 per Lindley LJ at 748).
117 In my view the object to be attained is the payment of one-third of the balance of a particular royalty to a particular landholder. The particular royalty is that which is received from the licensed operations on that landholder’s land. It is not intended that the royalty received in respect of some other landholder’s land should be the subject of payment to this particular landholder.
118 Equally the object is to deduct costs incurred which relate to the landholder concerned. The costs incurred that are deducted must be in connection with the establishment, planting, maintenance, improvement and protection of the timber, products, or forest materials of the particular landholder or in connection with the facilitation of the taking of the timber, products or forest materials of the particular landholder.
119 There may be costs incurred in connection with the particular landholder or landholder concerned that are also costs incurred in connection with another landholder. Take for example the costs of contruction of a bridge over a creek that facilitates access to neighbouring leases. The cost of this construction would be a permissible deduction, appropriately apportioned, from the royalty of each landholder. It may also be a permissible deduction from each even if it only provides access to one of the leases but facilitates the protection work on that lease so as to protect the timber on the neighbouring lease.
120 In a wider context the Commission may incur costs in connection with the protection of the timber on the land of a particular landholder which may benefit all landholders. Take for example the overheads incurred in the development of a particular technique to protect timber from fire which is applied to the particular landholder’s timber. Once again so long as they are costs in connection with the particular landholding the cost, appropriately apportioned, could be deducted.
121 I accept the plaintiff’s submission that the phrase “in connection with” in the context of s30E requires an apportionment process to be adopted to ensure that costs of the construction or acquisition of assets which may have been constructed or acquired for a number of purposes are not the sole burden of the lessee who benefits from but one of the purposes.
122 I conclude that s30E requires the commission to pay to the plaintiffs one-third of the balance of the royalties received in respect of timber, products or forest materials taken on and from their respective leases. I am further of the view that the balance is to be reached by the deduction of the actual amounts paid out or borne by the Commission, appropriately apportioned, in connection with:123 The parties’ respective approaches to the basis upon which the Court can review the Commission’s determinations are consistent, although expressed differently. The plaintiffs allege that the determinations purportedly made by the defendant pursuant to s30E(3) of the Act were determinations:
(a) the establishment, planting, maintenance, improvement and protection of the timber, products or forest materials on the land within plaintiffs leases; and/or
(b) the facilitation of the taking of the timber, products or forest materials on or from the land in the plaintiff’s leases.
Approach to be adopted
124 The defendant submitted that the determination by the Commission under s30E(3) can only be attacked on administrative law grounds. In that respect reliance was placed on Foley v Padley (1984) 154 CLR 349 in particular upon the judgment of Gibbs CJ at 353 in which His Honour applied the statements of Latham CJ in R v Connell; Ex parte Hetton Bellbird Collieries Ltd (1944) 69 CLR 407. The statements by Latham CJ warrant emphasis in this case. His Honour said at p 430:
(a) in which costs were deducted which were not incurred as prescribed by s30E(2)(b) or (c);
(b) which took into account irrelevant matters which should not have been taken into account; and
(c) which failed to take into account matters which should have been taken into account.
The plaintiffs also claim that the defendant acted wholly unreasonably in making its determinations under s30E(3) of the Act ( Minister for Aboriginal Affairs v Peko Wallsend Ltd (1968) 162 CLR 24; Associated Provincial Picture Houses Ltd v Wednesbury Corporation (1948) 1 KB 223 at 228).
125 I was also referred to the decision in Bruce v Cole (1998) 45 NSWLR 163 in particular to the judgment of Spigelman CJ at 184 where His Honour applied the “contemporary Australian doctrine” in Buck v Bavone (1976) 135 CLR 110 citing the following portions of that judgment at 118 -119:
“Thus, where the existence of a particular opinion is made a condition of the exercise of power, legislation conferring the power is treated as referring to an opinion which is such that it can be formed by a reasonable man who correctly understands the meaning of the law under which he acts. If it is shown that the opinion actually formed is not an opinion of this character, then the necessary opinion does not exist.”
And at p 432:
“ It should be emphasised that the application of the principle now under discussion does not mean that the court substitutes its opinion for the opinion of the person or authority in question. What the court does is to inquire whether the opinion required by the relevant legislative provision has really been formed. If the opinion which was in fact formed was reached by taking into account irrelevant considerations or by otherwise misconstruing the terms of the relevant legislation, then it must be held that the opinion required has not been formed. In that event the basis for the exercise of power is absent, just as if it were shown that the opinion was arbitrary, capricious, irrational, or not bona fide.”
126 This passage in Buck v Bavone has recently been considered in Re Minister for Immigration and Multicultural Affairs for Commonwealth of Australia; Ex parte Moges Eshetu (1999) 162 CLR 577. Gummow J said at p 609, par 137:
“Whether the decision of the authority under such a statute can be effectively reviewed by the courts will often largely depend on the nature of the matters of which the authority is required to be satisfied. In all such cases the authority must act in good faith; it cannot act merely arbitrarily or capriciously. Moreover, a person affected will obtain relief from the courts if he can show that the authority has misdirected itself in law or that it has failed to consider matters that it was required to consider or has taken irrelevant matters into account. Even if none of these things can be established, the courts will interfere if the decision reached by the authority appears so unreasonable that no reasonable authority could properly have arrived at it. However where the matter of which the authority is required to be satisfied is a matter of opinion or policy or taste it may be very difficult to show that it has erred in one of these ways, or that its decision could not reasonably have been reached. In such cases the authority will be left with a very wide discretion which cannot be effectively reviewed by the courts”.
127 To decide this part of the plaintiffs claims it is necessary to have some understanding of the accounting operations of the Commission and the determinations that were made by the Commission.
“This passage is consistent with the proposition that, where the criterion of which the authority is required to be satisfied turns upon factual matters upon which reasonable minds could reasonably differ, it will be very difficult to show that no reasonable decision-maker could have arrived at the decision in question. It may be otherwise if the evidence which establishes or denies or, with other matters, goes to establish or to deny, that the necessary criterion has been met was all one way” .
Accounting Operations of the Commission
128 The operations of the Commission are organised geographically into . separate regions and within those regions into separate districts. Up to the end of 1991 there were nine regions and forty-five districts throughout New South Wales. At the time of the hearing of this matter the number of regions had been reduced to five and the number of districts to twenty-nine.
129 Up to the end of 1991 the Commission maintained a predominantly manual accounting system in which costs were captured on hand written cards and later compiled in summary form by automated processes. There was a Chart of Accounts which was known internally as the Standard Job List. This was used throughout the Commission as the basis for costing expenditure and for capturing costs into two broad activities (1) commercial operations and (2) non commercial operations.
130 The Commission’s commercial operations covered what was described as the core forest management business. The eight (8) categories or projects within the commercial operations were growing stock; capital expenditure; maintenance; protection; public relations; research and experiment; overheads; and marketing operations. In the Chart of Accounts these categories were broken down into approximately 280 separate jobs and were identified with separate job numbers.
131 Non-commercial operations encompassed non-core services such as the provision of community fire fighting services and public recreational facilities.
132 The Chart of Accounts dealt with each of the categories of the commercial operations and the Commission approached the costing of expenditure within these categories on the following basis:
Growing Stock: These were direct costs relating to what was described as the pre-establishment and ongoing maintenance of the forest. It included clearing burning, planting, culling/thinning of timber stands, fertilising and pruning.
Capital Expenditure: These included costs of and associated with the purchase of land, the purchase or construction of buildings and fire towers, the construction of roads, fences, landing fields and aircraft.
Maintenance: These costs were said to refer to any expenditure designed to ensure that there was no significant deterioration in the condition of the asset. It included expenditure relating to roads and bridges (including soil erosion mitigation, grading, gravelling and the replacement of drainage structures such as pipes culverts and sumps); buildings and installations (including work camps, headquarters, depots, fences, water supplies, offices and holiday camps); and forests (including timber inventory/assessments, hydrology equipment installation and maintenance).
Protection: These were the direct costs associated with protection of the forest estate and included fire fighting, control burning, noxious weed and plant disease control, control of feral animals and catchment management - water quality upkeep.
Public Relations: These were the direct costs associated with forestry publications, construction and maintenance of recreation areas, supervision of aboriginal sites, emergency relief services and costs associated with rangers.
Research/Experiment: These were the direct costs associated with the investigation into all matters associated with forest management and included forest silviculture techniques, tree breeding, fire research, wood preservation, log storage studies and wood properties.
Overheads: These were the indirect cost associated with the administration of the district regional or head office which could not be directly attributed to a forest. It included telecommunication costs, plant maintenance, safety training, safety equipment and clothing and environmental impact studies. and
Marketing Operations: These were the direct costs associated with the harvesting of timber and related products. They included harvesting, planning, tree marking, measuring, supervision of operations and reject tree allowance.
133 During the period in which the manual accounting system was in place costs incurred by the Commission were recorded as they were incurred at the district level, regional level or head office level. The primary accounting records for direct (non overhead) costs were time sheets for wages staff, vehicle logs and individual expenses vouchers. Salaried staff did not maintain time sheets and their salaries were accounted for as overheads.
134 The time sheets, vehicle logs and individual expense vouchers were collected fortnightly and processed by office staff in accordance with the Chart of Accounts. An accounting unit prefix was attached to each cost in addition to the allocation of the specific job number.
135 An accounting unit comprised either a geographic forest type classification or a district/regional/head office overhead classification. In the Newcastle Region there were six districts (Wyong, Buladelah, Cessnock, Dungog, Gloucester and Muswellbrook) and each had a number of accounting units within them. Additionally the Newcastle region itself had a number of accounting units.
136 These units were identified with particular symbols. In the Gloucester district, where the plaintiffs leases are, there were six accounting units - Barrington BFPA with the symbol NGB, Clarence BFPA with the symbol NGC, Hardwoods with the symbol NGG, Oxley BFPA with the symbol NGO, Putty BFPA with the symbol NGP and District with the symbol NGX.
137 The Newcastle Region had seven accounting units. They were Sundry Deposits with the symbol NXD, Guarantees with the symbol NXG, Leave with the symbol NXL, Nurseries with the symbol NXN, Stock with the symbol NXS, General with the symbol NXX and Hardwoods with the symbol NXZ.
138 It was possible to identify the item of expenditure by the use of the job numbers and symbols for the accounting units. For example a job number 823 was designated safety training costs. If the item of expenditure was labelled NGX823 it was understood that it was a cost incurred or allocated in the District accounting unit of the Gloucester District for safety training.
139 All the costs in the manual card system were totalled and transferred to a quarterly statement of expenditure and forwarded to head office. The fourth quarter return of the statement of expenditure was used to compile the management accounts for each accounting unit.
140 In December 1991 the Commission converted from a manual accounting system to a fully automated accounting system know internally as the Financial and Management Reporting System (FMRS). FMRS produced monthly management accounts by profit centres rather than by accounting units.
141 Under the FMRS costs are still initially recorded in the time sheets for wages staff, the vehicle logs and the individual expense vouchers. These are then entered into the local computer based systems and each month electronic files are transmitted to Head Office. Following the monthly receipt of these files a central electronic file is created. Monthly management accounts are created from this central electronic file for what has been described as the “responsibility centre”, which is presumably the profit centre. These files are consolidated to produce regional consolidated management reports and ultimately one consolidated report on the activities of the Commission.
The Commission’s s30E(3) Determinations
142 The 1989 amendments to the Forestry Act 1916 phasing out the compensation scheme and re-introducing the royalty scheme commenced operation on 24 November 1989. Prior to the commencement a Marketing Officer of the Commission developed various formulae to assist the Commission in making determinations under s30E(3) as to what costs were to be deducted from the gross royalties pursuant to s30E(2)(b)&(c).
143 On 29 January 1990 the Commission issued a circular to its staff entitled “Forestry (Amendment) Act 1989.Restoration of royalty shares to landholders”. It has been referred to in the proceedings as Circular 1112. In addressing the requirements under s30E(3) the circular stated:
The basis of some cost determinations should be the Regional Management Accounts for the relevant species group rather than the accounting unit.
Relevant costs are considered to be those incurred in growing stock, maintenance, protection, research, short-life roads, administration, and marketing, as well as depreciation and amortisation in certain instances. Administration costs should be taken from the Region species group management Accounts Summary, with all others taken from the relevant local accounting unit Management Accounts.
144 The circular then provided formulae for the calculation of deductible costs for marketing expenditure, road maintenance, protection, research, short-life roads, overheads and depreciation and amortisation. The circular reported that the method for determining the deductible costs would be reviewed after 12 months.
145 By July 1990 the Commission had cause for reviewing the maintenance, region and head office overheads, and depreciation aspects of the method of determination of costs under s30E(3). The cause, although not detailed, was said to be a “particular set of circumstances” where the use of the formulae in circular 1112 “would have resulted in payments to lessees at variance with the intentions of the 1989 amendment of s30E of the Forestry Act”.
146 The Secretary of the Commission issued a circular numbered 5731. In relation to the depreciation cost a Regional Forester was given permission to refine the formula by categorising roads into those fully depreciated and those not fully depreciated. The circular stated:
The decision to refine this statement may be made by the Regional Forester in the interests of obtaining a more accurate assessment of the true costs attributed to leasehold logging. The procedure should not be refined to obtain a better result for either party in a particular year.
147 If this approach was to be adopted the circular required accurate records of roads to be kept to enable segregation of roads at the time the lessee’s share of royalty was calculated. The circular further provided that if fully depreciated roads were used for leasehold logging there was to be nil cost for this item.
148 On 2 August 1990 the Secretary of the Commission circulated a memo dealing with the method of determination subsequent to the issue of circular 5731. The memo stated:149 It seems further difficulties were encountered and on 5 April 1991 the Assistant Commissioner of the Commission advised the Minister for Tourism, Lands & Forests that:
Subsequent calculations have shown that inequities still appear to exist between lessees.
And in stressing that the following action was to apply only until there was a general review of the method of determination the memo stated:
Circular 1112 provides for a review of the system of Lessee share calculation after 12 months. In the meantime to ease the effect of the anomalies which might still exist in the system, it has been approved that a minimum level of royalty payment, equivalent to 5% of gross royalties derived from each lease will be made to the relevant lessees.
In situations where the lessee would otherwise be entitled to a payment which was less than 5% of gross revenue derived from the lease, a management contingency figure should be shown on the worksheet as a negative value, which will effectively reduce costs such that one third of net royalties is equivalent to 5% of gross royalties. In the subsequent advice to the lessee, this management contingency will be reflected in the level of “Administration costs”.
150 In dealing with the adoption of the 5% minimum royalty payment the Assistant Commissioner advised:
The Lessee royalty apportionment scheme established in 1989 was designed to cope with the range of situations and to accurately reflect the costs of generating royalty on a lease by lease basis. It was intended to review the procedures once sufficient experience and data were obtained.
Because of the complex calculations involved in the scheme and the wide range of royalty share proportions experienced so far, the Commission has decided to undertake a review of the procedures with a view to simplification.
151 The review was completed in late 1991 and on 10 December 1991 the Chairman of the Conservation and Land Management Committee advised the Minister for Conservation and Land management that the Committee had finalised the review. The Chairman advised:
The appropriateness of the 5 percent minimum is a subjective judgment. Some disturbance is involved with logging and it was considered inappropriate that the Lessee may not receive any recompense at all. Therefore 5 percent was chosen as a reasonable minimum to fulfil the objectives of the legislation and compensate the Lessee for disturbance, regardless of the costs associated with the particular lease.
As a result of its deliberations the Committee recommends to you that the scheme be modified as follows;
* averaging provisions should be introduced for non-access related costs at 40%;
* the minimum lessee share should be fixed at 10%.
Also the Committee feels that relief should be offered to those lessees who have been severely impacted by the operation of the scheme in its current form. Your consideration of an ex-gratia payment or equivalent to lessees who are able to demonstrate unfairness or other special circumstances would be appreciated.152 On 4 August 1992 Circular 1112 was amended and circulated. The new system was to apply from 1 January 1992 and provided that costs as determined were “ made up of a management charge plus access cost”. The forest management charge was determined as 40% of the gross royalty received in respect of the lease. The charge for use of permanent roads was determined as 0.74% of gross royalty from the lease per kilometre of road used. It was also determined that the minimum share of royalty for a lessee was 10% of gross royalty. This was applied in instances where deduction of the Forestry Management charge and Access cost from the gross royalty resulted in a balance of less than 30% of the gross royalty.
153 Charles Maurice Mackowski, Ecologist, was the person requested to perform the review which resulted in this new system. He conducted the review in 1991 and early 1992 when he was employed as a Marketing Officer with the Commission. His qualifications at that time were Bachelor of Science (Forestry) and Master of Resource Science. He had no formal accounting qualifications.
154 The method utilised by Mr Mackowski in this review warrants close analysis because his conclusions were adopted as the determinations under s30E(3) of the costs to be deducted under s30E(2)(b)&(c) for the period 1992 to 1996. They were contained in the amended circular 1112 referred to above.
155 Mr Mackowski understood that the purpose of his review was to simplify Circular 1112. He was requested to work out a much simpler system of calculating the deductible costs. He was also requested to work out a more equitable system.
156 One of the considerations in his review was to reduce and contain the costs of calculating the costs to be deducted under s30E(2)(b)&(c) of the Act. He understood that to that time the Commission had been incurring considerable costs in carrying out these calculations.
157 The materials with which Mr Mackowski was supplied to conduct his review were Circular 1112 and the subsequent circulars relevant to it and the calculations or work sheets prepared in respect of each lease in New South Wales at the district level.
158 The district calculation sheets related to the royalties that had been paid and the calculations of the costs that were deducted in respect of all of the leases in New South Wales between November 1989 and the end of July 1991.
159 Mr Mackowski used the Excel Spreadsheet Software and created a spreadsheet for each individual lease. Within the spreadsheet he created a separate row for entry for each of the items in the cost structure of each of the costs that had been deducted from the royalties received in respect of each lease.
160 After the data had been entered into the spreadsheets Mr Mackowski looked at what are called scattergraphs and “did what the statistician called teasing the data”. He said:
“I explored the data to see what relationships were obvious to the eye before having a go at looking at any relationships statistically, probably sound.”
He also said:
“I had columns of costs and columns of other parameters…and I just did an exploratory assessment, statistical assessment of the information in there and the patterns I got from the ones I finally settled on.”
161 After looking at the scattergraphs Mr Mackowski went back and did a standard deviation on the relationship of costs to royalty and if the standard deviation was greater than 30% the particular instance was not selected.
162 In giving an example as to how he approached his task he referred to marketing costs and said:
“Marketing costs were a certain component of gross royalty and that was the best I could get for it. And then I looked at the other costs and the way of harmonising. I don’t know if that is the right word but the way of getting uniformity was a way of getting a figure which that was applicable across all leases as best as possible, was to get all the management costs, if you like, and say they were 40 percent or something”.
163 By this process Mr Mackowski arrived at a particular relationship between costs and royalty and recommended that a figure of 40% was an appropriate percentage to charge for forest management and 0.74% an appropriate percentage to apply in respect of roading costs.
164 He admitted that 0.74% was arrived at by an averaging process. He said it was an estimate but suggested it was a tight estimate of the average of roading costs of all leases in the State.
165 He frankly acknowledged that neither the Forest Management charge (40% of royalty) nor the roading costs figure (0.74% of royalty) were “actual costs” that may have been incurred by the Commission.
Review of the Commission’s s30E(3) determinations
166 Mr Gageler submitted that the determinations made by the Commission pursuant to s30E(3) were reasonable. He submitted that unless the Commission was to dramatically change its whole system of accounting upon the introduction of the amendments in 1989 the determination of the costs required to be deducted pursuant to s30E(2)(b) and (c) necessarily involved the Commission in apportioning the costs captured and recorded for district wide accounting units to individual leases.
167 In support of this last submission Mr Gageler relied upon the evidence of Neil Victor Hunt who was during the relevant period employed by the defendant as the manager of the internal audit branch of the Commission and subsequently as the financial accountant. Mr Hunt gave evidence that neither the manual accounting system nor FMRS provided for the capturing or recording of costs on the lease specific basis. His evidence was that whilst the capturing of costs on a lease specific basis would have been possible he suggested that such a system would be practically unworkable given the nature of the costs involved.
168 He went on to say that the defendant’s operations are undertaken in areas remote from district headquarters and that the operations cover vast areas which require extensive travel. It was suggested that these factors generally preclude undertaking tasks on an individual basis which in turn preclude many significant costs from being project specific.
169 The main thrust of Mr Gageler’s submission therefore was that the legislature did not intend the Commission to have to dramatically change its whole system of accounting and therefore it was permissible for it to make the determinations it did. I will deal further with these submissions when I come to the specific complaints made by the plaintiffs in respect of these determinations.
170 Mr Gageler also submitted that the methodology employed by the Commission in applying the forest management charge of 40% and a permanent road charge of 0.74% of gross royalty was reasonable. He submitted that the decision to adopt the simplified method was made on the recommendation of a Parliamentary Committee which had been presented with both Mr Mackowski’s findings and information relating to the administrative difficulties caused by the complexity of the earlier methodology.
171 I have no doubt that Mr Mackowski attended to the requests made of him as diligently as possible. He was asked to simplify circular 1112 and it appears he certainly achieved that outcome. His brief to lessen the costs burden on the Commission in the calculation of these costs, although not the subject of specific evidence, can be assessed as successfully completed by reason of the relative simplicity of the new system.
172 It is clear from the evidence that from the commencement of the royalty scheme in 1989 the Commission was concerned that the determinations it had made were impacting adversely on the lessees by failing to provide reasonable compensation to them. This much was recognised in the Assistant Commissioner’s advice to the Minister in relation to the fixing of the minimum share of royalty at 5%.
173 This seems to have been a recognition that the system was unfair or alternatively lacked proportionality. Part of the rectification of it, as the Commission saw it, was the determination of 5% of the gross royalty as the lessees’ minimum share.
174 Although this determination may have been a well meaning attempt to adjust what the Commission saw as the anomalies and unreasonable results of its previous determinations it did not proceed upon a proper understanding of the requirements under s30E of the legislation. It was admitted to be a subjective judgment but it paid no regard to determining the costs incurred prescribed in s30E2(b) or (c) as required under s30E(3).
175 This approach infected the next phase of the Commission’s determination in adopting the results of Mr Mackowski’s review.
176 It is apparent from the evidence, particularly the annexures to Mr Mackowski’s affidavit, that the Commission was motivated by a consciousness that although the previous compensation scheme had provided the lessee with the entitlement to have the assessment of compensation reviewed there was no equivalent entitlement in respect of the share of royalty under the amending legislation.
177 The system about which the Commission had been so worried that it had ordered a review and fixed an interim 5% minimum royalty share was the very basis of the future system. All Mr Mackowski did was to “tease the data” of the costs that had been allegedly incurred over the previous twelve month period for all the leases of New South Wales and relate them to the royalties received in relation to all the leases of New South Wales.
178 This paid absolutely no regard to the actual costs incurred in the period during which the royalty was received. The percentages were applied irrespective of whether the actual costs incurred were $1 or $1 million. In my view this was clearly a misconstruing of the requirements of the legislation. It took into account costs of another time irrespective of the amount of costs during the period for which the royalty was received. It also locked the system in to what had been recognised by the Commission as one that was anomalous and needed a subjective fixation of a 5% minimum to attempt to dilute its unreasonable results.
179 It can be seen from the new system that commenced in 1992 that the Commission was still concerned about the anomalous situation that had arisen. It lifted the minimum share of royalty for the lessee from 5% of gross royalty to 10% of gross royalty. These determinations require closer analysis.
180 When the Secretary of the Commission fixed the minimum at 5% of gross royalty in his circular of 2 August 1990 he directed the staff to enter a management contingency figure in the work sheets as a negative value. He suggested that that would effectively reduce costs “such that one-third of net royalties is equivalent to 5% of gross royalties”. In the 1992 circular amending the system the direction was that a contingency allowance should be applied to the Forest Management Charge so that net royalty equals 30% of gross royalty.
181 What the lessee was required to be paid was one-third of the balance of the royalty after deduction of costs incurred. There does not appear to have been any assessment of whether such a minimum would be less than what the lessee was truly entitled to had the actual costs incurred been determined.
182 The Commission seems also to have been motivated to achieve a result that would give lessees similar shares of royalty irrespective of the different costs incurred in different areas. This much can be gleaned from the concerns that there were “anomalous” results. In other words some results deviated from what the Commission thought was normal or expected.
183 I am of the view that although the Commission may have been well-intentioned it made its determinations in relation to the 1992 to 1996 deductible costs without properly understanding the requirements and obligations placed upon it to pay to the lessee one-third of the balance of the royalty after deduction of the costs incurred as prescribed in s30E(2)(b) and (c). I am also of the view that these determinations were so unreasonable that no reasonable person in this position could have made them.
184 I shall deal now with the specific complaints made by the plaintiffs in these proceedings.
Claims in respect of costs deducted in the period January1990 to December 1991
185 The Commission deducted marketing costs, roading costs, protection costs and administration costs from the gross royalties received in respect of the plaintiffs’ leases to arrive at the balance which it referred to as the net royalty. The plaintiffs were then paid one-third (1/3) of the net royalty.
186 The plaintiffs make no claim in respect of the marketing costs but attack the roading, protection and administration costs.
187 Each of the parties relied upon expert evidence in support of their cases. The plaintiffs relied upon the report and evidence of Stephen Robertson, a principal within the Performance Improvement Group of Ernst & Young. The defendant relied upon the reports and evidence of Frank Otto Fischl a partner of the firm, PricewaterhouseCoopers working in the Dispute Analysis and Investigation section of that firm.
188 The experts were called to give evidence prior to Mr Mackowski giving evidence in relation to the method he used in the review. Neither expert was recalled to comment upon this method nor did their reports deal with it although each expressed an opinion upon the appropriateness of the percentage of gross royalty charge.
189 Mr Robertson was critical of the Commission’s use of royalty revenue as a cost driver. He proffered the opinion that revenue was not a cost driver at all and said that it is what the market has paid for the product and is therefore absolutely unrelated to the incurring of costs.
190 Mr Fischl did not agree with this proposition. However he did agree that there were alternative cost drivers to revenue or royalty. For instance in the case of planting costs he agreed that rather than using revenue as a cost driver one could use the actual number of trees that may have been planted during the relevant period. He also agreed that an alternative cost driver in calculating protection costs could have been the number of acres or hectares of forested areas rather than the royalty or revenue. Although this agreement was qualified to “all things being equal” he did not explain what that meant.
191 A debate occurred between the two experts as to whether activity based costing was the only or most appropriate method of cost accounting to be utilised in calculating costs. I need not go into the detail of this debate because I have formed the view that the Commission was not entitled to approach the determination of costs by saying that it had to reach certain conclusions because of the way in which its accounts are prepared. Additionally it is clear that in the 1990 to 1991 period the costs were captured based on specific activities. Mr Fischl was not aware of any reason why such a system could not have continued after 1992.
Roading costs
192 During this period the deduction of roading costs were made pursuant to the formulae included in circular 1112 issued in January 1990. Road maintenance costs were determined by dividing the total of certain project 3 jobs (job 4 assistance to Shire-Road maintenance; job 8 forest roads, culverts and bridges (including signs); and job 10 forest road - grading) on a district basis by total revenue from the district. This division then reached what was identified as the “maintenance ratio”. The maintenance ratio was then multiplied by the gross revenue from the particular lease in question.
193 Annual depreciation associated with the cost of existing permanent roads in an accounting unit was calculated by first taking the original cost of construction of each road, adjusting that cost to current cost by the application of indexing and amortising that cost over either five, fifteen or twenty years. In other words dividing the total current cost by the number of years to determine the cost applicable to the current year.
194 The Commission said that the total annual depreciation, for all permanent roads in the accounting unit was calculated by then adding the depreciation figure as so calculated for each road. The total figure was then apportioned to an individual road by dividing the length of the relevant road used to log the lease by the total lengths of permanent roads within the accounting unit. That value was further apportioned to individual landholders by multiplying it by the royalty from the relevant lease divided by the total gross royalty of logs transported over the road from all landholders.
195 The indexing applied used the mean increases in CPI Sydney (All Groups) and AWE (Employed Male Unit) NSW.
First complaint - indexing construction costs of roads
196 The first complaint made by the plaintiffs in respect of the determination of roading costs to be deducted was that the Commission deducted the current costs of construction by applying an index to the actual cost of construction. It was submitted that the Commission should have deducted only the actual costs of construction.
197 The plaintiffs submitted that the application of the indexing created an inflated figure which is a false figure. Mr Robertson opined that the use of current costs artificially inflates the actual costs. Mr Fischl did not comment upon this matter and Mr Martin made what he described as a fundamental point that the complaint made by Mr Robertson remained unanswered.
198 However Mr Gageler submitted that the use of a replacement cost depreciation and amortisation figure as a starting point was not unreasonable. He submitted that indexed historical costs are still “costs”, sometimes referred to as current costs. He submitted that although Mr Robertson had criticised the use of the inflated cost he acknowledged that the concept of “current costs” was a recognised accounting tool.
199 Adopting Mr Gageler’s proposition in cross examination of Mr Robertson that indexing is a well recognised accounting tool seems to make Mr Martin’s point. These costs were in fact the result of the utilisation of an accounting tool not a cost incurred in the construction of a road.
200 Mr Gageler relied upon the portion of the Second Reading Speech in the Legislative Assembly in which Mr Causley said that it was anticipated that the Commission would determine the costs by reference to standard commercial accounting practices. I am of the view that such a statement of anticipation does not entitle the Commission to utilise accounting tools to inflate costs that were incurred as defined within s30E(2).
201 As I have said earlier I agree with the approach adopted by the court in Allsands Pty Ltd v Shoalhaven City Council (1993) 29 NSWLR 596 at 607. Certainly this allows the Commission to have regard to accounting practices and in so doing requires the Commission to determine the costs which were incurred not the costs that were inflated after they were incurred.
202 I conclude therefore that the first ground of complaint in respect of the roading costs in this period is made out. The Commission has misconstrued the requirements under the legislation. It has thus misdirected itself in determining these particular costs. It has taken irrelevant matters, the indexing of the costs, into account.
Second complaint - Shire Road resumed in 1977
203 The second complaint made by the plaintiffs in respect of these costs during this period is that the cost of 37.5 kilometres of the Shire Road was included in the roading costs. The claim the plaintiffs make is that the cost of this portion of the road should not have been included because it was transferred to the Shire in 1977.
204 This complaint depends upon a finding of fact in respect of whether the Shire Road was transferred to the Gloucester Shire in 1977. The defendant claims it was not transferred to the Shire and that only its maintenance was taken over by the Shire and therefore it was an appropriate cost to be included in the roading costs.
205 The plaintiffs relied upon a letter from their solicitor to the senior legal officer of the defendant dated 27 March 1995 and a response to that letter dated 28 July 1995. (annexures SS and VV respectively to the affidavit of Christine Mary Pollitt of 12 April 1996) The question posed was as follows:
In relation to the Barrington Tops Road east of the eastern boundary of the State Forest:
(a) please confirm that this road was handed over to the Gloucester Shire Council in 1977 and has been fully maintained by it since that time.
The answer to that question was as follows:
This section of the Barrington Tops Road was constructed by State Forest and resumed by Gloucester Shire in 1977. Essentially all maintenance since that date has been council’s responsibility.
206 The plaintiffs emphasised the use of the word “resumed”. The plaintiffs submit that resumption of the road meant that the construction costs of this portion of the road could no longer be taken into account.
207 The defendant submitted that I would be satisfied on the evidence that what really happened in 1977 was that the defendant retained ownership of that portion of the road but that the Gloucester Shire Council merely took over the maintenance of that portion of the road. The evidence relied upon by the defendant is an answer to interrogatory 15 (ex D) and a statement made in the Commission’s Management Plan for Gloucester Management Area 1984 (ex. E).
208 The question posed and answer given in the interrogatory is as follows:209 The statement in the Management Plan appears at p18 under the heading Forest Management General. It is as follows:
15A Please confirm:
The original cost of the construction of this road was $289,612, that it was constructed in 1971 - 1972 and that it was handed over to the Gloucester Shire Council in 1977 and has been fully maintained by Gloucester Shire Council since that time (letter from State Forest to us dated 28 July 1985).
15B Partly incorrect. The original cost was $257,821 over the period 1967/68 to 1971/72 and the maintenance was handed over to the Gloucester Shire Council in 1977 which has maintained the road since then.
Upon completion of the Barrington Tops Road in 1978, that part of the area west of the Mount Royal Ranger and formerly within Muswellbrook District administration was transferred to Gloucester.
210 This point was made at the commencement of the hearing in the plaintiffs’ outline of the claims to be made in the proceedings. None of the witnesses called by the defendant were asked about this particular matter, there is no other documentary material to evidence the status of that portion of the road. Mr Martin submitted that in the circumstances the rule in Jones v Dunkel (1959) 101 CLR 298 should be applied in the plaintiffs’ favour in my finding on this aspect of the matter.
211 I disagree. Although the defendant used the word “resumed” in its letter of 28 July 1995 such word was not adopted in the interrogatory. Certainly the interrogator referred to the letter in which the word “resumed” was used but adopted the words “handed over”.
212 The two relevant questions raised in the interrogatory were (1) please confirm that it was handed over to the Gloucester Shire Council in 1977; and (2) please confirm that it has been fully maintained by the Gloucester Shire Council since that date. These questions were answered (1) the maintenance was handed over to the Gloucester Shire Council in 1977 and (2) it has maintained the road since then. I am satisfied that on this evidence that this portion of the road was not resumed.
213 The second claim in respect of roading costs made by the plaintiffs fails.
Third complaint - roads constructed for different purposes
214 The third complaint made by the plaintiffs in respect of roading costs in this period is that the Commission took into account the whole of the costs of the construction of the permanent roads (Shire Road, Barrington Tops Forest Road, Dilgry Circle Road, Thunderbolts Road and Gummi Road) although those roads had been constructed for purposes other than in connection with those set out in s30E(2)(b) and (c). These roads are located close to each other and are depicted in the maps of the area.(Ex B)
215 The plaintiffs rely upon statements within the defendant’s 1984 Management Plan for the Gloucester Management Area to support the submission in relation to the purpose of the construction of these permanent roads. The statements relied upon indicate that the Barrington Tops Road was a road of high standard because it had to cope with pressure of harvesting, recreational and administrative traffic, particularly during the extremes of weather experienced in the high plateau areas (par 1.3.1.1 Ex E).
216 The report also referred to the fact that the Barrington Tops Forest Road represented the service link between the Manning and Hunter Valleys and consequently provided ready access to the State Forest areas for roadside rests. (1.6.3 Ex. E) It referred to the variety of uses such as bushwalking, bike riding, 4WD motoring, picnicking, camping, swimming and fishing. (1.6.3 Ex. E)
217 The report also detailed the settlement of both the Upper Hunter and Upper Manning area. It referred to the establishment of a busy township in the Gloucester area, extensive agricultural development and the completion of the Barrington Tops Road finally linking the Hunter and Manning valleys “giving a boost to the Tourist and Timber industries”. (1.7.1.3 p 49 Ex. E)
218 There was also reference in the report to the “Barrington Club” when the area was used for limited recreation, mainly horse riding and fishing. It was said that the Barrington Club consisted of “prominent citizens of Newcastle” who established a hut and used the Barrington Tops primarily for trout fishing. There was further reference to the other clubs such as the Newcastle Trades Hall and Working Club and the Newcastle Technical College Bushwalking Club which had traditionally used the areas for recreation since the early 1950’s. (1.7.1.5(v) Ex. E) There is also reference in the report to scientific research being carried out in the area.
219 Annexure B to the affidavit of Edward Robert Bromley of 24 February 1999, the plaintiffs’ father, is a brochure produced by the defendant in which the forest areas of the Barrington Tops are advertised with a map and description including that “recreation activities on State Forests is encouraged and some tables, fireplaces and camping sites have been set aside for your use”. It claims “ALL roads are public roads”.
220 John Graham Reynolds, a sales manager employed by the defendant, also gave evidence that the Barrington Tops Road links the Hunter Valley and the Manning Valley. He said it conveys private and commercial traffic east/west from Gloucester to Scone and west to Taree. He agreed that each of the roads, Barrington Tops Road, Dilgry Circle Road, Thunderbolts Road and Gummi Road were used by the public for recreational or private purposes. It is clear from the evidence that this would also be the case with the Shire Road and that it would be used for commercial purposes as well.
221 The plaintiffs submitted that the actual use to which an asset is put subsequently can be evidence of the purpose of its acquisition (Collector of Customs v Rottnest Island Authority at 189-191; Cowell Electric Supply Co Ltd v Collector of Customs at 11). It is submitted that in the circumstances of all of these uses I will be satisfied that the purpose of construction was other than in connection with those set out in s30E(2)(b) and (c).
222 I am satisfied that the construction of the Barrington Tops Road as referred to in the Management Report included the purpose of harvesting the timber. I am also satisfied that it was constructed for other purpose including the use by the public as a link between the Manning and Hunter Valleys. I am also satisfied that the other permanent roads referred to were constructed for purposes other than harvesting including both recreational and commercial uses.
223 The fact that the construction of these roads had the additional purpose of facilitating use, including recreational use by the public generally and commercial use linking of the two valleys, was not taken into account by an appropriate apportionment when determining these costs.
224 I am of the view that the Commission failed to take these relevant matters into account and misconstrued the requirements of the legislation in determining these particular costs. I am also of the view that such a determination without an apportionment was so unreasonable that no reasonable person could have made it. The third ground of complaint made by the plaintiffs is therefore made out.
Fourth complaint - roads used for other purposes
225 The fourth complaint made by the plaintiffs in respect of roading costs was that there had been no apportionment of costs deducted when the use to which the roads had been put are uses other than the harvesting of timber from the plaintiffs’ land. The evidence relied upon in relation to the third complaint is relied upon in respect of this complaint.
226 I make the same finding in respect of this complaint for the same reasons as I made in respect of the third complaint. Accordingly the fourth complaint made by the plaintiffs is made out.
Fifth complaint - construction costs of roads to other leases
227 The fifth complaint was that the Commission took into account the construction costs of all the roads in the Gloucester Accounting Unit although some of the roads had been constructed and used for the transport of timber from leases other than the leases in question.
228 This determination although requiring the plaintiffs to bear the burden of the costs of roads used by other lessees made no provision for the plaintiffs to share in the royalties for those other lessees. In any event having regard to the interpretation I have made of the section it is clear that the Commission also misconstrued the requirements of the section and misdirected itself in determining these costs.
229 In all the circumstances I am satisfied that it was manifestly unreasonable for the Commission to include costs of the construction of roads for the purpose of taking timber and products from leases other than the plaintiffs’ lease without an apportionment recognising this fact.
Sixth complaint - costs of fully depreciated roads
230 The sixth complaint in respect of roading costs during this period made by the plaintiffs is that the multiplier used to determine the permanent road construction included the whole of the length of permanent roads used to transport timber harvested from the plaintiffs’ lease notwithstanding the fact that the Barrington Tops Forest Road within the Barrington Tops State Forest, the Dilgry Circle Road and Gummi Road Stage II had been fully depreciated respectively by 30 June 1987, 30 June 1990 and 30 June 1991.
231 The defendant once again points to the accounting practice adopted by it in determining these costs. It submitted that the inclusion of these costs was a matter of detail that did not make the determination unreasonable. Consistently with my previous rulings and my interpretation of the requirements of the section I am satisfied that this determination involved a misconception of the requirements of the section and the taking into account of irrelevant matters.
232 This claim made by the plaintiffs is made out.
Protection Costs
233 The district protection cost was calculated on a rolling five year average in order to even out unusual seasonal variations in fire fighting. The index was then applied to the specific amount of sales pertaining to the lease for the period in question to determine the protection costs. It is apparent however that the Commission deducted “any non-applicable protection costs not related to the lease” (interrogatory 83B Ex. D).
234 This statement that the Commission deducted any non-applicable protection costs not related to the lease was not specifically tested in the evidence. There was evidence that during the period 1 January 1990 to 30 June 1991 little if any protection work was done on the plaintiffs’ leases. There was such work carried out on the plaintiffs’ lease in the period from 1 July to 30 December 1991.
235 The plaintiffs claim that the Commission’s deduction of these costs was inappropriate because it was not apportioned. This submission seems to fly in the face of the answer to interrogatory which specifically infers that non-applicable protection costs “not related to the lease” were deducted. It is also clear that the Commission took the view that the protection work carried out in the district in respect of the timber benefited all lessees in the area.
236 The only real issue in this particular aspect of the matter is whether the indexing of the averaging of the costs under the formula utilised was one that would sit consistently with my interpretation of the section. I am of the view that it cannot having regard to the interpretation I have given to the section that the requirement is to deduct actual costs not current or indexed costs.
237 Accordingly I am of the view that the application of the indexing process was a misconception of the requirements of the section by the Commission and the plaintiffs’ claim in respect of the protection costs in this period is made out and the taking into account of irrelevant matters.
Administration costs
238 The complaint made by the plaintiffs in respect of administration costs during this period is that the whole of the defendant’s administration costs were deducted by apportioning them between landholders on the basis of royalty payments. It was submitted that only those costs incurred in connection with the taking of the timber should have been deducted.
239 The defendant submitted that the only administration costs that were deducted were those referable to marketing, growing stock, maintenance, protection and short life roads. It submitted that the method of calculation and apportionment of those costs was reasonable and an appropriate determination under s30E(3) of the Act.
240 It is apparent that the collection of papers relating to the management accounts makes clear that the method of overhead distribution did not include all the overheads but only a proportion of the overheads which related to marketing, growing stock, maintenance, protection and short life roads. These particular items (item 5, 7, 8, 9 and 11 respectively) were then allocated in accordance with the method of overhead distribution referred to within those working papers (Ex. 1.6, 1.7 and 1.8).
241 The defendant submits that the plaintiffs’ criticism that costs of non-forestry activities were included in the administration cost is an apparent misunderstanding of the way in which items 13, 14 and 15 were derived. Certainly Mr Hunt was cross examined about this process and he was of the view that the denominator within the determination would cure any pooling of overheads which included overheads relating to non-forestry related matters.
242 Although far from straightforward it seems to me that notwithstanding the fact that the formula utilised for the purposes of reaching a figure for overheads contained a denominator, the evidence demonstrates that the pooling of the overheads included overheads for non-forestry related activities. Once that pool was toxified with the inclusion of those non-forestry related activities the denominator could not cure its inclusion.
243 I am therefore of the view that the defendant’s response to the plaintiffs’ criticism is inadequate. I agree with the plaintiffs’ submission that in determining the overheads which included non-forestry related overheads the Commission has misconstrued the requirements under the legislation and took into account irrelevant matters. The determination is vulnerable to successful attack.
244 I am of the view that the plaintiffs’ complaint in respect of administration costs is made out.245 During this period the Forest Management Charge and the Access Road Costs were deducted from the gross royalties received in respect of the plaintiff’s leases to reach the figure for the net royalty. The plaintiffs were paid one-third (1/3) of the net royalty.
Claims in respect of costs deducted in the period January 1992 to December 1996
246 The plaintiffs’ claims in respect of the Forest Management Charge are as follows;
Forest Management Charge
1. The charge calculated on a rule of thumb formula of 40% of gross royalty did not relate to the actual costs incurred in relation to the plaintiffs’ lease.2. The formula was based on State wide figures for 1990 and 1991 and not costs relating to the plaintiffs’ lease for those years
3. The formula was based on the 1990 and 1991 costs which included deductions which by reference to the claims in those years were deductions that were not permissible under the Act.
247 In relation to each of these claims the defendant says that the application of the formula was reasonable and represents a reasonable determination of costs under s30E(3).
248 Having regard to the view I have already expressed in respect of the approach adopted by Mr Mackowski and determined by the Commission I am satisfied that the application of this percentage to the gross royalties was a misconception of the requirements under s30E and took into account irrelevant matters. I am also of the view that the determination was so unreasonable that no reasonable person in this position could have made it. Accordingly the forest management charge is vulnerable to a successful attack.
249 Each of the plaintiffs’ complaint in respect of the Forest Management Charge is made out.250 The plaintiffs claims in relation to the Road (Access) Costs are as follows;
Road (access) Charge
1. The charge calculated by the application of a formula of 0.74% of gross royalty per kilometre of roads used did not relate to the actual costs incurred to transport the timber from the plaintiffs’ lease. Additionally the plaintiffs claim that the formula was based on State wide figures for 1990 and 1991 and not costs relating to the plaintiffs’ lease for those years.
2. The access charge which continued at the rate of 0.37% per kilometre for the Shire Road should not have been charged because that road had been transferred to the Gloucester Shire Council in 1977 and in any event much of its construction costs had been fully depreciated.
3. The multiplier used to determine permanent road construction costs included the whole of the length of permanent roads used to transport timber harvested from the plaintiffs’ leases notwithstanding:
(i) the whole of the construction costs of the Barrington Tops Forest Road within Barrington Tops State Forest had been fully depreciated by 30 June 1987;
(ii) that the whole of the construction costs of the Dilgry Circle Road had been fully depreciated by 30 June 1990; and
(iii) the whole of the construction costs of Gummi Road Stage II had been fully depreciated by 30 June 1991.
251 The defendant’s answers to these claims are as to (1) it claims that the formula was reasonably based on State wide figures for 1990 to 1991 and represented a reasonable determination of costs; as to (2) it submits that this matter does not effect the reasonableness of the determination of the costs; and as to (3) it submits the utilisation of the multiplier was reasonable in its determination pursuant to s30E(3) of the Act.
252 For the same reasons that I have given in respect of the vulnerability to attack of the Forest Management Charge I am also of the view that the application of the 0.74% of gross royalty is also vulnerable to successful attack. This also applies to the access charge relating to the Shire Road but not for the reason that it was transferred to the Gloucester Shire Council.
253 Consistently with my previous ruling I am also of the view that the plaintiffs’ complaint in respect of the multiplier on the road access charge is made out.
Manifest unreasonableness
254 The plaintiffs make a further claim that the determinations made by the defendant in the period 1992 to 1996 were manifestly unreasonable because the costs deducted during that period were far greater and out of all proportion to the costs deducted in 1990 and 1991.
255 Part of my findings in respect of the determinations in this period depended upon an interpretation of s30E based on an understanding that the legislation included as one of its purposes the compensation of the lessee. This was a persuasive factor in reaching the conclusions that the deductible costs incurred were the actual costs in connection with the operations as they related specifically to the plaintiffs’ leases.
256 I am of the view that this part of the plaintiffs’ claim should be understood as an alternative claim. If I am wrong in my findings that the determinations made by the Commission during this period resulted from the errors of law to which I have referred, the taking into account of irrelevant matters and the manifest unreasonableness of the determinations I would not be satisfied that the basis of this alternative claim could be made out by the plaintiffs.
Conclusion
257 The Bromley plaintiffs have failed to establish any entitlement to compensation pursuant to special condition (n) of their Crown lease.
258 The Bromley plaintiffs and Mr Sweetman have for the reasons given established that the determinations of the Commission pursuant to s30E(3) of the Forestry Act 1916 as particularised, but for the claim in relation to the Shire Road, should be set aside.
259 In these circumstances the determinations made by the Commission as particularised in the pleadings should be set aside and an account should be taken of all the royalties paid to the defendants in respect of the plaintiffs’ land during the period 1990 to 1996. I shall refer the matter for inquiry as to such amount and/or damages either to a Master of this Division or alternatively to a Referee under Part 72 should the parties agree on the adoption of such a course.
260 The parties are to bring in short minutes reflecting these findings and I will hear any application in respect of costs of these proceedings.
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