Damjanovic and Anor. v Roads and Traffic Authority of NSW (No. 2) - [2005] NSWLEC 371

NEW SOUTH WALES LAND AND ENVIRONMENT COURT

CITATION: Damjanovic and Anor. v Roads and Traffic Authority of NSW (No. 2) [2005] NSWLEC 371

PARTIES:
APPLICANTS:
Damjanovic and Anor.

RESPONDENTS:
Roads and Traffic Authority of NSW

CASE NUMBER: 30579
30580 of 2004

CATCH WORDS: Compulsory Acquisition of Land

LEGISLATION CITED:
Land Acquisition (Just Terms Compensation) Act 1991

CORAM: Bignold J

DATES OF HEARING: 13/05/2005 (written submissions 15,17 & 19/05/2005)

DECISION DATE: 08/07/2005

LEGAL REPRESENTATIVES

APPLICANT
J. Webster QC
A. Pearman

SOLICITORS
Thorntons Lawyers

RESPONDENT
R. Lancaster

SOLICITORS
Corrs Chambers Westgarth

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES
BIGNOLD J
8 July 2005
30579 and 30580 of 2004 Damjanovic and Anor. v Roads and Traffic Authority of NSW (No. 2)
JUDGMENT

In my reasons for judgment on 11 February 2005 I determined compensation in the sum of $15,963,000 plus two separate solatium payments plus disturbance compensation (see par 184 of (2005) NSWLEC 42).
The parties were directed to bring in short minutes to give effect to my reasons for judgment but in the event that the parties were unable to reach agreement on the reserved questions they had liberty to apply to the Court for its further adjudication upon the reserved questions.
In the event the parties have not been able to agree upon the Applicants’ disturbance claims concerning (a) valuation fees and (b) legal costs and stamp duty incurred by the Applicants in acquiring a replacement property and these disputed matters must now be adjudicated upon. Additionally the Respondent disputes the Applicants’ claim that an indemnity costs order be made in their favour in consequence of the Applicants’ “Calderbank” offer made by letter dated 15 November 2004. (However the Respondent does not dispute the Applicants’ entitlement to an ordinary costs order following their success in the litigation.)
I proceed to determine each of the three disputed matters:
(i) The Applicants’ claim to valuation fees
The Applicants claim $16,500 being the fee charged by their Consultant Valuer Mr W. Dobrow in his Tax Invoice dated 22 December 2003 which claims 50 hours at $300 per hour.
According to s59 of the Land Acquisition (Just Terms Compensation) Act1991 “loss attributable to disturbance” includes the following item:
(b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land.
The Respondent disputes the quantum of the valuation fees claimed. The basis for the Respondent’s objection is the opinion (formed on instructions) of the solicitor having the carriage of the litigation that the amount claimed “is significantly more than that usually claimed in the preparation of a valuation report…” (par 12 of affidavit of Sean Ventis sworn 27 April 2005).
Subsequent to that affidavit the Respondent received a copy of Mr Dobrow’s detailed break up of this 50 hours spent on his valuation task.
The valuation task presented by the case was a difficult task (as is attested by the detailed valuation evidence given at the trial). In my judgment the amount of the claim satisfies the statutory requirement that “the valuation fees be reasonably incurred”.
(ii) The Applicants’ claim to financial costs incurred in connection with their purchase of a replacement property
It is not in dispute that the Applicants purchased on 29 March 2003 a property at Badgerys Creek for a purchase price of $4,850,000. They purchased this property with the intention of relocating their existing poultry egg business. This occurred at a time during the extensive negotiations between the parties when it appeared the Respondent would purchase the whole of the Applicants’ landholding.
It was only subsequent to the purchase of the Badgerys Creek property that negotiations between the parties broke down leading ultimately to the Respondent’s compulsory acquisition on 13 February 2004 of part only of the Applicants’ land (namely the acquisition of some 2.3 hectares comprising the Wallgrove Road frontage portion of the Applicants’ land leaving a residue of 8.2 hectares upon which residue the existing poultry egg production development is located).
According to the affidavit sworn 13 May 2005 of the Applicants’ solicitor, Mr Grellman, one of the Damjanovic family members has been residing at the Badgerys Creek property since it was acquired and it is the intention of Mr Damjanovic Senior to commence living at that property once the poultry egg business has been relocated to that property.
Section 59 of the Just Terms Act includes the following matters within the concept of “loss attributable to disturbance”:
(c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs),
(d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired),
(e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage)
(f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.
The Applicants claim an amount of $262,729.25 in respect of legal costs and stamp duty on the purchase of the Badgerys Creek property.
The Respondent submits that this claim is not recoverable pursuant to s59 of the Just Terms Act because the Court’s determination of compensation for market value in the present case was based upon the assumption of a highest and best use of the acquired land and the residue land different from its existing use (i.e. poultry egg production) value, where that highest and best use would only be realisable by the termination of the existing use.
In so submitting the Respondent relies upon (i) s61 of the Just Terms Act and (ii) the decision of Talbot J in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2004) NSWLEC 535.
Section 61 of the Just Terms Act provides as follows:
If the market value of land is assessed on the basis that the land had potential to be used for a purpose other than that for which it is currently used, compensation is not payable in respect of:
(a) any financial advantage that would necessarily have been forgone in realising that potential, and
(b) any financial loss that would necessarily have been incurred in realising that potential.
In Walker Corporation Talbot J said at par 29:
The primary intention of the legislation in respect of disturbance is to further compensate an owner who is required to relocate an actual use where that actual use is the basis for assessment of compensation.
At par 38 his Honour held:
The present claim pursuant to s 59(f) fails primarily because the costs claimed have been subsumed by the amount of compensation payable in respect of market value assessed on the basis of the highest and best use.
Senior Counsel for the Applicants submit that their claim to disturbance loss is not excluded by the operation of s61 of the Just Terms Act or in consequence of the basis upon which compensation was awarded namely an underlying industrial zoning (see pars 104 to 110 of my earlier judgment). He submits that the compensation claimed is recoverable pursuant to s59(c), (d), (e) and (f) of the Just Terms Act in respect of the relocation of the Applicants’ two residences which had been erected upon the compulsorily acquired land. It was emphasised that the relevant relocation of the Applicants was not of their business premises but of their place of residence which prior to the acquisition had been located on the compulsorily acquired land forming part of the Applicants’ overall landholding upon which was developed the infrastructure for its poultry egg production business.
However, the Applicants submission must be assessed in the light of the undisputed evidence that the Applicants acquired the alternative property with the intention of relocating thereon their poultry egg production business, which intention also included the relocation of the Applicants’ residences which were obviously used and occupied in conjunction with, and ancillary to, the carrying on of that business.
Accordingly the relocation of the Applicants’ places of residence to the recently acquired alternative property must be understood to be part and parcel of the Applicants’ intention to relocate to that property their existing poultry egg production business. That was the principal intention for the Applicants’ acquisition of the alternative property and the relocation thereto of the Applicants’ place of residence was ancillary to that intention.
But even if the alternative property had been acquired by the Applicants merely to relocate their places of residence I do not consider that the compensation claimed for disturbance is recoverable in the present case. This is because of the operation of s61 of the Just Terms Act in the present case where the market value of the compulsorily acquired land was determined in my earlier judgment upon the basis that “the land had potential to be used for a purpose other that that for which it is currently used and where in realising that potential (both in respect of the compulsorily acquired land and the residue land) the financial advantage of continuing the existing development (i.e. the poultry egg production business and the ancillary dwelling places) “would reasonably have been foregone” in the same way that any financial loss of having to relocate that business and those dwelling places “would reasonably have been incurred in realising that potential”.
In so holding I would refer to and apply my exposition of the effect of s61 of the Just Terms Act in Peter-Croke Holdings Pty Ltd v Roads and Traffic Authority of NSW (1998) 101 LGERA 30 at 36 to 43 inclusive. That extended passage includes at 43 citation of the following extract from the judgment of the High Court of Australia in Crisp & Gunn Co-Operative Ltd v Hobart Corporation (1963) 110 CLR 538 at 547-548 which in my opinion illumines the effect of s61 and is particularly apposite to the Applicants’ disturbance claim:
Further we are of the opinion that the requirement of the statute that regard should be had in assessing compensation to a number of factors including ‘disturbance and any other matter not directly based on the value of the land’ does not justify the award of any amount for disturbance in addition to the market value of the land where, as here, that value exceeds the ‘present use’ value by an amount in excess of any loss resulting from disturbance.
Although the major component of the compensation awarded in my earlier judgment represents the injurious affectation caused to the residue lands by the compulsory acquisition (vide s55(f) of the Just Terms Act) it is the fact that the compensation awarded in respect of the market value of the compulsorily acquired land based upon a higher potential use of the land far exceeds the combined amount reflecting (i) market value based upon its current and existing use and (ii) the Applicants’ disturbance claim, that attracts the operation of s61 of the Act the effect of which is to deny recovery of the claimed compensation for disturbance. For the same reason that compensation for disturbance in respect of the relocation of the poultry egg production business was not recoverable in the present case, so the Applicants’ far lesser disturbance claim limited to legal costs and stamp duty incurred in respect of the acquisition of the alternative property is not recoverable. There is nothing unfair or unjust in such a conclusion in the present case where the compensation awarded for market value based upon a higher potential use far exceeded its value based upon the current or existing use of the poultry egg production business.
Senior Counsel for the Applicants placed reliance upon the decision of Lloyd J in Fitzpatrick Investments Pty Ltd v Blacktown City Council (No. 2) 108 LGERA 417 to support the Applicants’ disturbance claim based upon s59(c), (d) and (f) unaffected or unqualified by s61. It is true that Lloyd J’s judgment makes no reference to s61 of the Just Terms Act (nor do the judgments of the Court of Appeal affirming the decision - (2001) NSWCA 259) but this is not surprising since it is difficult to appreciate how s61 could apply to the facts of that case where in addition to compensation for market value of the compulsorily acquired land, compensation for disturbance was awarded in respect of legal costs and stamp duty incurred in the acquisition of a replacement property because it was held that the claimant was engaging in the business of subdividing land and by virtue of the compulsory acquisition it had lost the opportunity to subdivide the land and if it wished to continue in its business it had to acquire replacement land for the purpose of its business. In my judgment the decisions of Lloyd J and the Court of Appeal in Fitzpatrick Investments do not support (even by their silence) the Applicants’ submission that the entitlement to compensation for disturbance as provided by s59 of the Just Terms Act is immunised from the operation of s61 of that Act. Such an interpretation of the Just Terms Act, in my opinion, involves a serious misconstruction. On the other hand as I have earlier noted in Peter Croke Holdings I expressly held that any entitlement to compensation for disturbance in accordance with s59 was subject to the operation of s61 and I adhere to that view.
For all of the foregoing reasons I hold that the disputed component of the Applicants’ disturbance claim is not recoverable.
(iii) The order for legal costs in the proceedings
The Applicants claim an order for indemnity costs upon the basis of the Respondent’s non-acceptance of a “Calderbank” offer made on behalf of the Applicants at the conclusion of the first day of the hearing which commenced on 15 November 2004. The “Calderbank” letter which was sent by facsimile transmission at 5.19pm that day and was said to be open for acceptance until 10am on Wednesday 17 November 2004 offered to settle the Applicants’ compensation claims for a combined amount of $3,871,700 plus statutory interest plus costs. The offer was not accepted by the Respondent. The compensation awarded to the Applicants at the trial is more than a fourfold increase on this offer.
At the time that the offer was made the Applicants’ claims to compensation had not been founded or advanced upon the basis upon which the Court ultimately awarded compensation (namely upon the basis that the governing planning controls applying to the Applicants’ lands were those contained in Sydney Regional Environmental Plan No. 31 – Regional Parklands). Indeed valuations reflecting the relevant planning controls did not come into existence until the second week of the hearing and well after the lapse of the Applicants’ “Calderbank” offer and after the Court had determined as a preliminary question on the second day of the hearing that the relevant planning assumption upon which the required valuation of the compulsorily acquired land was to be based was that Sydney Regional Environmental Plan No. 31 imposed the governing planning controls on the development of the Applicants’ lands. Moreover at the time that the “Calderbank” offer was made and for the brief period it remained open for acceptance the hearing of the Applicants’ claims was not far advanced because of the Respondent’s several applications to vacate the hearing dates or to adjourn the hearing, being applications that were based in part upon the conduct of the Applicants in the litigation, including on the eve of the commencement of the hearing their application to join as another claimant, the family company which operated the poultry egg production business on behalf of the individual claimants. (This application was abandoned at the commencement of the hearing but the belated disclosure that the business was conducted not by the Applicants but by a family company opened up a fresh line of enquiry for the Respondent.)
In my judgment the Respondent’s decision not to accept the “Calderbank” offer was not an unreasonable decision having regard to the timing of the offer and the considerable state of flux in which the Applicants’ claims stood at the time that the offer was made and during its brief duration. By the time that the offer had expired there was not in existence any valuation undertaken by either party based upon the proper planning assumption, namely that the relevant planning controls governing development of the Applicants’ lands were those imposed by Sydney Regional Environmental Plan No. 31 – Regional Parklands. That proper planning assumption, which was not reflected in any of the valuation evidence then in existence (including the valuations relied upon in the parties’ negotiations before the decision was taken by the Respondent to compulsorily acquire part only of the Applicants’ lands), had only been established by the Court’s determination of that question as a preliminary issue during the course of the second day of hearing on 16 November 2004, in circumstances where neither party would have had any reasonable basis for appreciating the effect of that planning assumption upon the true valuation of the compulsorily acquired land before the “Calderbank” offer was to lapse at 10am the following morning. The full impact on value of the proper planning assumption to be made by the valuers was not appreciated until much later in the hearing and only finally appreciated when I delivered judgment in the proceedings awarding compensation for an amount far greater than the Applicants had originally claimed.
For these reasons the Respondent’s non-acceptance of the Applicants’ “Calderbank” offer does not in my judgment warrant the making of an indemnity costs order in favour of the Applicants. In context it was not unreasonable conduct of the Respondent not to accept the Applicants’ offer.
In so concluding I have exercised my discretion in accordance with the approach as to the effect of a “Calderbank” offer on the Court’s discretion to award costs enunciated by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council (2000) NSWCA 323 which was later approved by the Court of Appeal in Jones v Bradley (No. 2) (2003) NSWCA 258 in preference to a different line of judicial authority. Giles JA stated the following principle at par 37 of his judgment:
The making of an offer of compromise in the form of a Calderbank Letter ... where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure.
A most important circumstance concerning the “Calderbank” offer made in the present case is the fact that the compensation awarded to the Applicants was based upon a valuation approach that had not been previously advanced until after the commencement of the hearing of the Applicants’ claims and after the “Calderbank” offer had been made and had lapsed: cf Fowdh v Fowdh (unreported Court of Appeal BC 9302200).

The vital change that occurred in the Applicants’ case between the time that the offer was made (and lapsed) and the time that the change first materialised later in the course of the hearing firmly supports the conclusion that the Respondent’s non-acceptance of the offer was not unreasonable.
The Respondent clearly concedes that the Applicants having emerged in the litigation as the clear victor obviously are entitled to the usual costs order.

Conclusions and Orders

Since all matters reserved in my earlier judgment have now been resolved it is possible to now make final orders disposing of the proceedings conformably to my earlier and present decisions and to the matters otherwise agreed between the parties (eg as to the distribution of the compensation among the Applicants).
Accordingly I make the following orders (which adopt the draft form of orders proposed by the parties):

(A) In proceeding No. 30580 of 2004

The amount of compensation to which the Applicants are entitled pursuant to ss55(a), (c) and (f) of the Land Acquisition (Just Terms Compensation) Act 1991 (“Act”) is determined at $13,221,258.00 (“Compensation”).
The amount of compensation to which the Applicants are entitled pursuant to s55(e) of the Act is $39,330.00 (“Solatium”).
The amount of compensation to which the Applicants are entitled pursuant to s55(d) of the Act is $19,250.00 (“Disturbance”).
The unpaid rent due to the Respondent to be set off in accordance with s34(4) of the Act is $14,400.00 (“Unpaid Rent”).
The Respondent pay to the Applicants Compensation, Solatium and Disturbance less the advance payment of $1,064,128.50 less the Unpaid Rent, namely the sum of $12,201,309.50 (“Balance”).
The Respondent pay to the Applicants interest on the Balance pursuant to s49 of the Act.
The Respondent pay the Applicants’ costs of the proceedings as agreed or assessed (except for costs in respect of the hearing on 13 May 2005).

(B) In Proceeding No. 30579 of 2004

The amount of compensation to which the Applicants are entitled pursuant to ss55(a), (c) and (f) of the Land Acquisition (Just Terms Compensation) Act 1991 (“Act”) is determined at $2,741,742.00 (“Compensation”).
The Respondent pay to the Applicants the Compensation as determined less the advance payment of $110,880.00 namely the sum of $2,630,862.00 (“Balance”).
The Respondent pay to the Applicants interest on the Balance pursuant to s49 of the Act.
The Respondent pay the Applicants’ costs of the proceedings as agreed or assessed (except for costs in respect of the hearing on 13 May 2005).