Monti v Roads and Maritime Services (No 3)

[2018] NSWLEC 183

Land and Environment Court

New South Wales

Medium Neutral Citation:	Monti v Roads and Maritime Services (No 3) [2018] NSWLEC 183
Hearing dates:	N/A (written submissions filed 9 and 12 November 2018)
Date of orders:	13 November 2018
Decision date:	13 November 2018
Jurisdiction:	Class 3
Before:	Pepper J
Decision:	See orders at [37].
Catchwords:	COMPULSORY ACQUISITION – whether the applicants should be ordered to pay the respondent’s costs thrown away occasioned by changes to the applicants’ claims for compensation during the course of the hearing that were subsequently abandoned – new claims resulted in additional legal costs incurred by the respondent to meet the claims – costs ordered against the applicants.
Legislation Cited:	Civil Procedure Act 2005, s 98 Land Acquisition (Just Terms Compensation) Act 1991, ss 55, 59
Cases Cited:	Brock v Roads and Maritime Service (formerly Roads and Traffic Authority of NSW) (No 3) [2012] NSWCA 404; (2012) 191 LGERA 267 Carlewie Pty Ltd v Roads and Maritime Services [2018] NSWCA 181 Dillon v Gosford City Council [2011] NSWCA 328; (2011) 184 LGERA 179 Monti v Roads and Maritime Services [2018] NSWLEC 34 Monti v Roads and Maritime Services (No 2) [2018] NSWLEC 178
Category:	Costs
Parties:	Allan Keith Monti (First Applicant) Phillip Daniel Monti (Second Applicant) Christopher John Monti (Third Applicant) Road and Maritime Services (Respondent)
Representation:	Counsel: Mr I Hemmings SC with Ms A Pearman (Applicants) Dr S Pritchard SC with Mr L Waterson (Respondent)   Solicitors: Stacks Law Firm (Applicants) Clayton Utz (Respondent)
File Number(s):	2017/62470
Publication restriction:	N/A

Judgment

The Montis Change Their Claim for Compensation for the Compulsory Acquisition of Part of a Quarry

1. The respondent in on-going compulsory acquisition proceedings in Class 3 of the Court’s jurisdiction, the Roads and Maritime Services (“RMS”), seeks its costs thrown away occasioned by two purported amendments to the claim for compensation made by the applicants, Mr Allan Monti, Mr Phillip Monti and Mr Christopher Monti (“the Montis”):

1. first, the Montis’s alternative approach to terminal value for the purposes of their claim under s 55(a) and (f) of the Land Acquisition (Just Terms Compensation) Act 1991 (“the Just Terms Act”) (“the terminal value claim”); and

2. second, the Montis’s alternative disturbance claim for loss of profits pursuant to s 59(1)(f) of the Just Terms Act (“the alternative disturbance claim”).

2. The factual background to, and description of, the Class 3 compulsory acquisition proceedings has been set out in earlier judgments (Monti v Roads and Maritime Services [2018] NSWLEC 34 at [1]-[7] and Monti v Roads and Maritime Services (No 2) [2018] NSWLEC 178 at [7]-[8]). It is adopted without repetition here.

3. Both applications for costs are opposed by the Montis.

4. By agreement with the parties, both applications were determined on the papers.

5. I am of the view that it is appropriate that the Montis pay the costs thrown away of the RMS associated with both claims.

Applicable Legal Principles for Awarding Costs in Compulsory Acquisition Proceedings

6. The applicable legal principles concerning an award of costs in Class 3 compulsory acquisition proceedings are that, first, the Court’s discretion as to costs under s 98 of the Civil Procedure Act 2005 remains unfettered. Thus, there is no presumption that costs follow the event. Second, in the exercise of the Court’s discretion, a claimant is usually entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense.

7. In Dillon v Gosford City Council [2011] NSWCA 328; (2011) 184 LGERA 179 the Court of Appeal stated that (at [60] and [70]-[72] per Basten JA, with whom Macfarlan JA and Handley AJA agreed):

60. The power to award costs in Class 3 proceedings in the Land and Environment Court arises under s 98 of the Civil Procedure Act. That section provides that "costs are in the discretion of the court": s 98(1)(a). The provision is said to be subject to rules of court and to any Act: the primary rule in that regard is UCPR r 42.1, which provides that "the court is to order that costs follow the event unless it appears to the court that some other order should be made ...". However, as the Council pointed out in a note following the hearing of the appeal, r 42.1 is an excluded provision in respect of proceedings in classes 1, 2 and 3 of the Land and Environment Court's jurisdiction: UCPR, Schedule 1. Accordingly, the discretion remains unfettered, in the sense that there is no presumption that costs should follow the event. Although the primary judge referred to assessing costs on an "issues won and lost" basis, it does not appear that he placed explicit reliance upon a principle that costs should follow the event, which would, in the circumstances, have been erroneous.

…

70.    In other respects, however, the appellants' propositions may be accepted. They support the proposition that a claimant for compensation in respect of a compulsory acquisition should usually be entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense.

71.    That approach is also consistent with the absence of any general presumption that costs should follow the event: the owner who has been compulsorily dispossessed is entitled to take reasonable steps to seek the judgment of the Court in respect of the adequacy of any compensation offered.

72.    Whether steps taken in maintaining proceedings are reasonable will depend upon the circumstances of the particular case. These may include a comparison between the positions adopted by the parties at the commencement of proceedings and the final outcome. To the extent that a claimant obtains less than the valuation provided by the Valuer-General, the claimant has been unsuccessful in the litigation. That will be a factor to be taken into account, but the weight given to that factor may depend upon the extent of the failure. The Court may also take into account the time and expense incurred in relation to specific items. Beyond such general statements, it is unhelpful to go, lest the very generality of the discretion be thought to be fettered in some way. In short, the purpose of an award of costs must be taken into account, namely to compensate the party for expenditure incurred in the course of litigation; the nature of the litigation and the reasonableness of the conduct of the litigation are central considerations.

8. Dillon was applied in Brock v Roads and Maritime Service (formerly Roads and Traffic Authority of NSW) (No 3) [2012] NSWCA 404; (2012) 191 LGERA 267, where Tobias AJA noted (at [92]-[97]):

92.    In my opinion the appellant's submissions should be accepted. Only two factors were referred to by the primary judge which could be said to be in some way adverse to her. The first was his Honour's statement at [113] of the costs judgment that she would have been better off had she accepted the statutory offer or either of the offers of compromise made close to the date of trial. As she did not accept those offers, his Honour considered that she was unsuccessful in her litigation. With the benefit of hindsight this was so.

93.    The second was his Honour's observation at [123] that the appellant may have had unrealistic hopes or expectations for her litigation. However, she was entitled to rely on the advice of Mr Jones and her legal representatives and there was no suggestion that she was acting unreasonably in doing so.

94.    Neither of these factors could, as a matter of principle, carry determinative weight in the application of the discretion with respect to costs in what has been referred to in the authorities as "out of the ordinary litigation". Further, neither factor is capable of displacing the principle that a claimant for compensation with respect to the compulsory acquisition of his or her land should usually be entitled to recover the costs of the proceedings where he or she has acted reasonably in pursuing the proceedings and has not conducted them in a manner which gives rise to unnecessary delay or expense. In the present case, his Honour specifically found (at [123]) that he could find no basis for a finding that the appellant (or for that matter the respondent) behaved unreasonably in the conduct of the litigation. Additionally, as the appellant submitted, his Honour did not find that it was unreasonable for the appellant to have held hopes or expectations with respect to the outcome of her litigation which ultimately turned out to be unrealistic.

95.    As was noted by Basten JA in Dillon at [71], an owner of land who has been compulsorily dispossessed is entitled to take reasonable steps to seek the judgment of the court in respect of the adequacy of any compensation offered. The appellant took such steps and there was no suggestion that in so doing she acted unreasonably. Although in one sense she was unsuccessful in the litigation in that she obtained less than the statutory offer and accepting that that is a factor to take into account, on the other hand at trial she obtained an award of compensation which, with respect to market value, exceeded the amount contended for by the respondent by $117,087. In other words, at trial the respondent contended that apart from disturbance the amount which should be awarded to the appellant for the market value of the land as well as injurious affection and severance was $320,000. His Honour found that the proper amount was $437,087. To that extent she had a victory at trial.

96.    As Basten JA concluded at [72] in Dillon, the purpose of an award of costs, being to compensate the party for expenditure incurred in the course of litigation, must be taken into account although the nature of the litigation and the reasonableness of the conduct of the litigation by the claimant are central considerations.

97.    The nature of the litigation is, as Wilcox J observed in Banno, that it is not "ordinary litigation". Furthermore, as I have already noted, there was no finding by the primary judge that the appellant had acted in any way unreasonably in conducting the litigation. Finally, there was no finding by the primary judge that the appellant had pursued a vexatious, dishonest or grossly exaggerated claim.

9. Therefore, while there is a presumption that claimants are usually entitled to recover their costs of compulsory acquisition proceedings, this presumption is expressly conditioned upon not having conducted the litigation in an unreasonable manner that gives rise to unnecessary expense or delay. In exercising the discretion, it is permissible for the Court to take into account the time and expense incurred by parties having to meet specific claims that have been jettisoned during the course of the proceedings. The Court is not limited to whether the claimant has obtained more than the amount of compensation determined by the Valuer–General.

10. Accordingly, in Monti, where the hearing had to be vacated due to a late change in the RMS’s case, the Court awarded the costs thrown away occasioned by the vacation to the Montis (at [39]). Molesworth AJ made the following order (at [45](7)):

[45](7)    The Applicants’ costs thrown away due to the vacating of the scheduled dates for the primary hearing are to be paid by the Respondent, with the final orders with respect to their quantification and payment to be determined by the Court at the conclusion of the proceedings. Similar orders have been made recently in UTSG Pty Ltd v Sydney Metro [2018] NSWLEC 128 and ZGWH Holdings Pty Limited v Sydney Metro [2018] NSWLEC 154.

Terminal Value Claim

11. The Montis raised the terminal value claim in their opening written submissions (at [85]-[92]):

Terminal value

85.    It appears to the Applicants that there is a difference of opinion between the approach to terminal value by the land valuers and that used by the business valuers. That needs to be explored.

86.    The land valuers have agreed that the quarry land, in the before, is valued at the acquisition date at $625,000. Further, they have agreed that the present value of the quarry land in 25 years is $625,000. That appears to be a conservative approach which assumes no growth in land values other than by inflation.

87. The DCF includes, as it must, a terminal value. That terminal value is different between the business valuers for the Applicant and the Respondent (because of the assumptions already discussed above).

88.    However, the business valuer's consistent approach to terminal value is to include an in perpetuity quarry use value. By going to the “Applicants” tab in the model at line 140, column AD, the net present value of that in

perpetuity income stream is $131,623. In the Respondent's tab, similarly at line 140 column AD the in perpetuity quarry value is $44,940.

89. On either approach, that is significantly less than the agreed land valuer's present value of the quarry land at $625,000.

90.    As a result, it appears to the Applicants that it would be an error to include the in perpetuity quarry value rather than the present value of the future land value. That is because the present value of the future land value shows the higher and better use. Any parties to any future transaction would agree on that higher value.

91.    Of course, it is not a simple matter of adding $625,000. 95% of the $131,000 (or whatever the appropriate present value of the in perpetuity quarry value determined by the Court) also needs to be subtracted.

92. This is a matter that will need to be considered by the business valuers. It is a matter that will need to be determined by the Court.

Conclusion – market value and injurious affection

Compensation 55(a) and (f)

Main Residence:    $169,400

Northern Land:    $135,000

Quarry (adjusted for terminal value)

$2,686,799 –

$125,042 (95% of $131,623)

$2,561,757

Plus      $625,000

$3,186,757

Minus after value (agreed)

$390,000

$2,796,757

Total:          $2796,757 + $169,400 + $135,000

= $3,101,157

12. In essence, and as submitted by the RMS:

1. the Montis sought to abandon the agreed methodology of the quarry experts as to the calculation of terminal value in the discounted cash flow (“DCF”) model used to assess compensation under ss 55(a) and 55(f) of the Just Terms Act (the agreed methodology is recorded in the Supplementary Joint Expert Report After Case 2, dated 15 April 2018 at [4.3]), and to substitute a higher amount ($625,000) that they claimed was the agreed position of the land valuation experts as to the present value of the quarry land (if used for rural lifestyle purposes) at the end of the initial 25 year period of quarry operations; and

2. although it was not in dispute that the land valuation experts had not agreed on any net present value amount (T42.48-43.05), it was agreed that $625,000 was the market value of the quarry land as at the date of acquisition and the quarry experts had taken this into account in adopting their agreed position on terminal value (which was to assume quarrying for a further period of 25 years following the period of the granting of the DA2 and DA3 consents).

13. On the first day of the hearing, the Montis’ contended that what the land valuation experts had agreed was equivocal and they sought orders that the land valuation experts produce a further joint report to either confirm that the $625,000 amount was the agreed net present value, or if this was not the agreed position, to determine what that net present value was (T25.32-25.38 and 47.22-47.32).

14. RMS opposed the making of the orders (T42.28-43.20):

PRITCHARD: Should I address at the outset the application, in effect, for a direction in relation to further joint conferencing? The respondent opposes any further joint conference on this issue. The applicant is seeking now to walk away from its amended points of claim, which were drawn on the basis of the terminal value approach agreed by the valuers in the joint report. It's not until we received the written submissions that it became apparent that there was now an attempt to rely on the land value approach to terminal value, or non‑approach to terminal value, which I'll address in a moment.

The Court appreciates that the quarry experts agreed, the appropriate methodology for assessing the terminal value in the before scenario, assuming that the quarry activities would continue on the land for a further period of 25 years beyond the 25-year committed under the development consents assumed to be in place. I took the Court to the paragraph in the supplementary Court book documents 13, para 14.3 where the quarry valuers agreed that that's the approach to adopt to the assessment of terminal value for the purpose of their assessments. What the applicant now seeks to do is abandon that agreed methodology, and substitute a higher amount, or what - on Mr Hemmings, where he put it in his opening, could be a higher amount on the basis of that said to be the agreed position of the land valuation experts, Mr Frogley and Mr Dempsey. But what is clear is that the land valuation experts did not agree or provide any evidence as to the present value of the amount which is to be received in 25 years’ time, and that would involve the application of appropriate discount rate. That is not what the land valuers have done. And in supplementary court book 15 it is clear in a letter from Mr Frogley the land valuer of the applicant, Mr Frogley confirms that the land valuers have not agreed to the present value as at the date of acquisition discounted to the present.

In reaching their agreement as to the methodology for terminal value, the quarry experts specifically took into account this additional evidence from the land valuation experts on terminal value and the Court would conclude that they rejected the utility of the evidence of the land valuers. What Mr Hemmings said as we understood it was that the quarry valuers have assumed the quarry in perpetuity and there’s nothing wrong with that in principle, is what Mr Hemmings said. They should not now be permitted to go behind and revisit a matter that has been dealt with by the quarry valuers on the basis of a late discovery since the filing of their amended points of claim that the application of the agreed methodology produces a lower number than could be the case if further evidence is adduced form the land valuers on something that they were asked to look at and didn’t look at. So in our respectful submission they should not be permitted to do so at this late stage in the hearing.

ACTING COMMISSIONER: Could I just clarify, Ms Pritchard? The 625,000 is that their assessment of value now or as I understand it, their assessment of value now and in year 25 because magically the growth rate and the discount rate were the same?

PRITCHARD: Well, it’s not clear what they were doing.

ACTING COMMISSIONER: So it appeared the block of land was 625,000 for the next 25 years.

15. The Court granted the Montis’ request, taking into account the fact that there was sufficient time for the joint conference to occur and for the claim to be dealt with within the allocated four week hearing time (T49.18-49.23).

16. The land valuation experts conferred and produced a further joint report. Ultimately, however, this report was neither relied upon by the Montis nor adduced in the proceedings because the experts were unable to derive a net present value. In other words, the original finally agreed position of the valuation experts remained undisturbed.

17. Subsequently, Mr Ian Hemmings SC, appearing for the Montis, acknowledged that his understanding of what the land valuation experts had agreed in relation to the net present value was incorrect (T59.14-59.26):

HEMMINGS: Apologies for the delay. But thank you for the time. Since we last were together the valuers have performed an exercise the consequence of which means they have not been able to come up with a net present value of the land in year 25. So my understanding of an agreement was incorrect. Hopefully the transcript isn’t working yet. But my understanding is the agreement was incorrect and in fact when they sit down to try and determine what the indexing and/or discount rate might be they agree that they are not in a position to do so.

So that simply means to the extent I had suggested that, if the land value at the terminal date was higher than the in perpetuity quarry value which should be inserted, I do not and cannot put a value before the Court to do that comparison. So that will not trouble the Court.

Alternative Disturbance Claim

18. The alternative disturbance claim appeared for the first time in a further supplementary joint expert report of Mr David Mullins and Dr Rodney Ferrier dated 22 October 2018. The further supplementary joint report was produced to deal with other changes to the Montis’s loss of profits claim that were made during the course of the hearing.

19. In essence, the alternative disturbance claim – which resulted in an amount of compensation of over $13,000,000 – involved the expected cash flows from the quarry only being discounted at the agreed rate of 14.9% during the actual year they were expected to be earned (rather than over the 25 years of the DCF model which was the previously agreed approach) (see the Further Supplementary Joint Expert Report, dated 22 October 2018 at [4.13]–[4.15]).

20. The Montis claim that the alternative disturbance claim arose as a result of comments made by Parker AC during opening submissions on 17 October 2018. The comments relied upon were as follows (T35.10-36.12. Note that the reference to “His Honour” should be to Parker AC):

HIS HONOUR [sic]: That's largely embedded in the cash flow?

HEMMINGS: Largely amending?

HIS HONOUR [sic]: Embedded in the cash flow. So the cash flow said you lose 25 years, each year is this nominal amount of money. I can understand that being the loss. What is present valued is not the loss. It becomes something else, doesn’t it? It becomes an amount that the party is willing to accept in lieu of 25 nominal payments.

HEMMINGS: No, it's got nothing to do with - and perhaps I'm misunderstanding you, and I apologise if I am, but - what anyone's willing to accept. It's got everything to do with we're trying to quantify the total off the loss.

HIS HONOUR [sic]: So why isn't it just the 25 years nominal amounts added up?

HEMMINGS: Because that would overcompensate my client, because the $100,000 that I love in year 25 - if I got paid it in year 25, that'd be $100,000 and then have to be increased for inflation. But if I'm going to get $100,000 in year 25, and I get that paid today - as I understand it, perhaps I'm wrong - $100,000 in 25 years is not worth $100,000 today.

HIS HONOUR [sic]: So that's the time value of money. That's that if you discounted the rate you would get to put it in the Commonwealth Bank. You'd end up with an equivalent amount. If I understand it, for some reason it's been discounted at a discount rate relevant to the risk of the business when the risk of the business is already in the cash flow. So they're getting a lump sum of money. If they stick it in the Comm Bank, it could be discounted at whatever the Comm Bank's rate is, and they'd end up with their annual payments the same as they would have got for the loss they're being compensated for. If it's discounted at anything higher than that, is something more than the time value of money - so they're getting, for some reason, some assessment of value starting to come into a cost loss exercise. I just thought this might be a useful case to raise the issue. So leave it with me to think about.

HEMMINGS: Yes. Can you just excuse me, just one second.

HIS HONOUR [sic]: I may have missed something really fundamental.

HEMMINGS: Unlikely.

HIS HONOUR [sic]: But possible.

HEMMINGS: I can't answer your question at the moment, Commissioner. Can I have the opportunity to take it onboard? Because I think, as I presently understand what you're asking me, is something I should definitely be taking onboard. All I could say at the moment is, as I understand the approach the experts have taken, because Dr Ferrier doesn’t make any difference to his DCF about market value versus disturbance, he's applied the 14.9%. I'll speak to Mr Mullins and - he has it, at the moment, and I'll take that onboard.

HIS HONOUR [sic]: I'm sure it'll come up sometime in the next 15 days of hearing.

21. After the luncheon adjournment, Mr Hemmings SC said the following, “I’ve had a discussion with Mr Mullins and I understand the import of your inquiry. I just need to get to the bottom of it” (T38.27).

22. Later, when explaining the content of the further supplementary joint report, Mr Hemmings SC stated (T99.28-99.39):

… Now, that’s both for and against me, because Mr Mullins has had that raised by the commissioner before and had not, in his evidence‑in‑chief, adopted that approach. So there is no doubt it is a new approach in my case. It is a new approach that we understand corresponds directly to the inquiry that the commissioner made. Now, perhaps he was just speaking off the cuff - I don’t know. All I can say was that it was an inquiry that he made of me during the course of my submissions as to whether the discount rate was the correct approach. Now, it’s an incorrect approach potentially - I’ll try that again. What then happens in this joint report is, starting at part 4, there’s the approach to assessment of disservice compensation, and that’s, in effect, confirming the differences between them in relation to the current approach. Then starting at 4.7, there is something called Disturbance Alternative Calculation.

23. The alternative disturbance claim, although never formalised by the Montis, caused the proceedings to be adjourned for almost a week to allow the RMS to meet it.

24. The alternative disturbance claim was squarely relied upon by the Montis (T286.17-288.10):

HEMMINGS: Can I add to that for the point of view of the submission that I intend to make, if that's of assistance? So, there is now a alternative approach to calculation, but as Mr Mullins has just said, it does require that the only thing one is discounting back for, is time. So, there needs to be certainty in cash flows, year after year and so an example that I was going for the purpose of submissions but I'll use it now to make my position clear, and I might give Dr Ferrier the opportunity to comment upon it, if, for example, you had an entirely risk free business, so you could be sure that the cash flows in year one, sure of cash flows in year two, sure of cash flows in year three et cetera, to which you then apply no discount rate of course, because it's certain, but the Court understands the extreme example that I give.

If it was absolutely certain and you were trying merely to account for the fact that you are receiving those cash flows today rather than over time, that is the calculation that Mr Mullins has done. If, for example, the other extreme is let's say the business was a start-up tech company that had a you beaut product in year one, but it meant it had to come up with a you beaut product again in year three and again in year five and again in year seven, and so the certainties of the cash flows simply could not be demonstrated, you would work out a discount rate for the normal discounted cash flow, but then in each year you could not say, "And the cash flows in that year will again be 14.9 and then again 14.9."

So to bring it back just for time would be wrong. That's what Mr Mullins has said in his report and repeated again now. It means there is a matter for the Court to determine, and it's been expressed in some materials I've seen as "Mr Mullins' alternative" and I've been calling it "the Commissioner's alternative". Can I say, your Honour, with respect, shakes her head when I say "the Commissioner's alternative". If there's to be any fault placed on Mr Mullins for having done what he's done‑‑

HER HONOUR: No. No-one is doing that.

HEMMINGS: He's done so because he was requested to do so by me.

HER HONOUR: I've just gone over the transcript at page 35 commencing line 10 going down to about line 45 and there are many comments that are made from the bench. That doesn’t mean to say that suddenly it's on the alternative case from the bench.

HEMMINGS: I'm sorry, now I can't‑‑

HER HONOUR: There are many comments that are made by the bench during the course of a hearing, but that doesn’t give rise to an alternative case from the bench at that hearing.

HEMMINGS: It doesn’t automatically give rise to it. I'm taking responsibility for it, I had thought it was the appropriate thing for the parties to have done, the Commissioner having, as I understood it, suggested that there was an alternative because it was reassessing business risk as opposed to time cost of money and my recollection is there's the extract from the Commissioner saying, "Perhaps this is the case in which it could be considered," and I was, in fact, surprised that Dr Ferrier did not engage in the debate with Mr Mullins during the course of the joint reporting process because it appeared to us it was something that was alive as a consequence of the debate with the Commissioner during the course of my opening.

That's the genesis of the alternative calculation. I've given two extremes at the moment as to when one departs from what is entirely orthodox approach that Mr Mullins originally adopted to whether there is something which then merely accounts for, and I do return to Commissioner's not saying, "Do it this way," that inquiry of me during I think it was before the luncheon adjournment where I said I needed to go away and think about it, to determine whether it was a case where it was appropriate to take a different approach where the only additional risk was to account for the time cost of money.

If the Court is satisfied, and this will be the ultimate submission I'm making, if the Court is satisfied that with the benefit of the expert evidence that we have in a fairly unsophisticated industry, so there's not great change in demand, there's no great change in cost, there's not great change in profit, there's not going to be great changes in technology that mean all of a sudden it's like no‑one wants to be an Apple iPhone X, they want to be something else, if the Court is satisfied that the industry sits in that category so when the experts have gone to the level of detail they have to predict cash flows, we were able to say, "That's 14.9% and I can be satisfied that's an appropriate risk to apply year after year."

Then if that is the conclusion the Court comes to, that means the only additional adjustment that's made is the alternative adjustment to bring it back for the time cost of money. If the Court rejects that first proposition, then we fall back to the position that the experts have otherwise dealt with. As I understand, therefore, the exercise that needs to be dealt with by these experts, two things arise, I think, on the alternate approach - quite possibly three.

One is whether Dr Ferrier would accept it as an alternate approach at all, the second would be if it is acceptable as a possible alternative approach, is he satisfied that the certainty of the cash flows year on year means it only needs to be adjusted for time, and then thirdly if he does, does he agree with the fact that a real rate, which I think he would agree it needs to be, adjusting to a 10-year Commonwealth bond or something else would be an appropriate discount rate. Now, he hasn’t previously opined in relation to that but I know if 4.6 is his favourite figure then we can then adjust as a real number and work that out if it would be.

25. The alternative disturbance claim was not only ‘engaged in’ by Dr Ferrier, it was soundly rejected by him. The issue was discussed at length in the further supplementary joint report (the Further Supplementary Joint Expert Report, dated 22 October 2018 at [4.7]–[4.34]), and both Mr Mullins and Dr Ferrier were cross-examined extensively about it (T344.20-354.33).

26. It was only after the cross-examination of Dr Ferrier and Mr Mullins had concluded, that on 1 November 2018 the Montis notified the RMS that they would not press the alternative disturbance claim. This was communicated to the Court in an email concerning the tendering of documents later that day.

27. The following exchange then took place between the bench and Mr Hemmings SC on 6 November 2018, albeit while Mr Hemmings SC was seeking an adjournment to deal with the purportedly “devastating” effect on his case of very recent Court of Appeal authority (the context is explained in Monti v Roads and Maritime Services (No 2) [2018] NSWLEC 178) (T388.23-389.03):

HER HONOUR: What about the option of the disturbance claim? I mean, surely you would - like, it doesn’t fall into the same category. That's just simply going to abandon by, and it was abandoned prior to. It was abandoned prior to the Court of Appeal decisions in Muller.

HEMMINGS: Well, your Honour, there are detailed submissions I want to make in relation to that, your Honour. Firstly, as in the context of costs in class 3 proceedings and I want to go back to deal with the principles properly in costs in relation to class 3 proceedings to see what the consequence should be.

Secondly, I want to talk about the circumstances that led up to the adjournment that was given and thirdly the circumstances suggesting the amendment that had been made. I haven't actually ever amended my application to include the cost of the amended disturbance claim. I never sought that leave. I did have the report before the Court and I had the report before the Court for reasons that I explained which there appears to be disagreement between my interpretation of the Commissioner's comments and the Court's but we had thought we were doing the correct thing by addressing a matter that had been put to us by the Court.

Now, I need to deal with that. Your Honour with respect raises your eyebrows and you shook your head last time I said it so I know I've got an uphill battle and that's why I want to deal with it on the transcript and with the support of authority because clearly I have an uphill battle in relation to the costs, the reservation of the costs in relation to that component and for that reason it has nothing to do with the Court of Appeal decisions on Friday, I accept that. It had everything to do with instructions that I obviously incorrectly gave because I anticipated that we should be responding to the Commissioner's inquiries, so that was my mistake and if my client suffers from it, so be it and that's why I need to address it in some detail.

The Montis Should Pay the Costs Thrown Away of the RMS

28. There can be no doubt that the Montis’s conduct of the proceedings in respect of the two claims specified above has given rise to unnecessary wasted expense on the part of the RMS.

29. In respect of both matters, it is unarguable that the Montis decided to change their claim for compensation during the course of the hearing in material respects only to subsequently abandon those changes. It is also unarguable that the changes involved the incurrence of additional costs to the RMS.

30. To argue, as the Montis did in their written submission, that the claims “did not cause the any [sic] delay in the proceedings” is, first, not only incorrect in respect of the alternative disturbance claim (it caused a delay of almost a week), second, it is not a complete answer to the issue of costs thrown away. Additional costs must have been incurred by the RMS with respect to, in each instance, further joint conferencing of the valuation experts, the production of further joint reports, and the provision of associated legal advice.

31. While with respect to the terminal value claim these costs were probably modest, they were nonetheless incurred by the RMS as a consequence of the Montis presumably seeking to amend their claim, even if, ultimately, this did not occur.

32. In relation to the alternative disturbance claim, in particular, there can be no doubt that this dramatic increase in the amount of compensation claimed by the Montis (almost $10 million) resulted in additional legal advice being provided and, as the transcript bears out, additional oral evidence from Mr Mullins and Dr Ferrier being required. All of these costs were wasted upon the Montis abandoning their alternative disturbance claim.

33. To contend, as Mr Hemmings SC did, particularly in relation to the alternative disturbance claim, that no formal amendment of the Montis’s claim was made was, in my opinion, disingenuous. All parties, and the Court, plainly acted on the assumption that a formal change to the Montis’s claim as reflected in their points of claim and disturbance schedule would in due course be made.

34. In any event, the reasonableness of the Montis’s conduct in raising both additional claims only to later abandon them when the evidence appeared not to support them, must be judged by reference to matters of substance and not form. As a matter of substance, the Montis actively pursued these claims with the resultant incurrence of costs thrown away by the RMS.

35. Finally, in respect of the alternative disturbance claim, it is no answer that the Montis pursued this alternative as a result of their interpretation of observations made by Parker AC during the course of opening addresses. Ultimately, it was the Montis’s forensic decision alone to pursue this alternative claim and then to abandon it. There was neither an invitation, nor a direction, made by the Court to pursue this claim, either expressly or by implication (and nor could there have been given that the observations relied upon emanated from Parker AC alone: see Carlewie Pty Ltd v Roads and Maritime Services [2018] NSWCA 181). Any suggestion to the contrary must be rejected.

36. In all the circumstances, I find that the conduct of the Montis in respect of the terminal value claim, and also in respect of the alternative disturbance claim, to be unreasonable in the requisite sense.

Orders

37. For the reasons given above, it is appropriate that the Montis pay the RMS’s costs incurred in relation to the abandonment of the two claims raised by them during the hearing. The orders of the Court are therefore that:

1. the applicants are to pay the respondent’s cost thrown away of the terminal value claim (as defined above);

2. the applicants are to pay the respondent’s costs thrown away of the alternative disturbance claim (as defined above); and

3. the applicants are to pay the respondent’s costs of these two costs applications.

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Decision last updated: 13 November 2018