Nelson v Commissioner of Highways (No 3) - [2023] SASC 22

Supreme Court of South Australia
(Land and Valuation Division)
NELSON v COMMISSIONER OF HIGHWAYS (No 3)
[2023] SASC 22
Judgment of the Honourable Justice Blue
17 February 2023
REAL PROPERTY - COMPULSORY ACQUISITION OF LAND
REAL PROPERTY - COMPULSORY ACQUISITION OF LAND - COMPENSATION - ASSESSMENT - MARKET VALUE
It was determined that the second applicant is entitled to compensation totalling $269,972.73 and the first applicant is entitled to compensation totalling $13,455.97 pursuant to the Land Acquisition Act 1969: Nelson v Commissioner of Highways (No 2) [2023] SASC 7.
The applicants seek an order that the respondent pay their costs of the proceeding (or alternatively a proportion of their costs). The respondent seeks an order that the applicants pay 50 per cent of the respondent's costs of the proceeding (or alternatively that each party bear their own costs).
Held:
1 Subject to the Court’s overriding discretion, the starting point in exercising the discretion under section 36 of the Land Acquisition Act 1969 is that the claimant should recover their costs of a proceeding seeking determination of the amount of compensation payable (at [32]).
2    It was not unreasonable for the applicants not to accept what the respondent contends were informal offers contained in the letters sent on behalf of the respondent in April 2014, August 2014 and October 2021 (at [57], [69], [72]).
3    The conduct of the applicants in not negotiating in response to the offers was not in the circumstances unreasonable such that they should be deprived of recovering costs on that account (at [59], [70], [77]).
4    The fact that the applicants recovered much less than the amounts contained in the formulations of claim does not entail that they should be deprived of recovering costs on that account (at [88]).
5    The applicants should be deprived of recovering costs insofar as they unsuccessfully pursued novel claims by way of a claim for loss of future profits of the business and for future loss of wages of Nelson family members (at [99]).
6    On a broad axe assessment, 25 per cent of the applicants' costs should be attributed to future profits and future wages claims (at [105]).
7    Order that the respondent pay 75 per cent of applicants’ costs of the proceeding (at [107]).
Land Acquisition Act 1969 (SA) s 23A, s 23C(1), s 23C(2)(b), S 23C(3)(b), s 36, s 36(b)(i); Supreme Court Act 1935 (SA) s 40, s 40(2); Evidence Act 1929 (SA) s 67C, referred to.
Anderson v Commissioner of Highways (No 3) [2018] SASC 166; Brewarrana v Commissioner of Highways (1973) 6 SASR 541; Chadrysiak v Commissioner of Highways (No 2) [2018] SASC 191; Dillon v Gosford City Council [2011] NSWCA 328, (2011) 184 LGERA 179; Love v Roads Corporation [2011] VSCA 434; Minister for the Environment v Florence (1979) 21 SASR 108; Morris v McEwen [2005] SASC 284, considered.

NELSON v COMMISSIONER OF HIGHWAYS (No 3)
[2023] SASC 22

Civil

BLUE J: On 19 January 2023 I determined that the second applicant Colin Nelson Nominees Pty Ltd (the Company) is entitled to compensation totalling $269,972.73 and the first applicant Colin Nelson is entitled to compensation totalling $13,455.97 by reason of the acquisition by the respondent, the Commissioner of Highways, of their respective interests in land on South Road Torrensville (the Land) pursuant to the Land Acquisition Act 1969 (SA) (the Act).[1]
[1] Nelson v Commissioner of Highways (No 2) [2023] SASC 7.
On 7 February 2023 I granted judgment in favour of the Company for $301,249.55 inclusive of interest and judgment in favour of Mr Nelson for $15,014.87 inclusive of interest.
Mr Nelson and the Company (collectively the Nelson Parties) seek an order that the Commissioner pay their costs of the proceeding (or alternatively a proportion of their costs). The Commissioner seeks an order that the Nelson Parties pay 50 per cent of the Commissioner’s costs of the proceeding (or alternatively that each party bear their own costs).
Background
I set out here matters of background relevant to costs. More detailed background facts are set out in my previous judgments.[2]
[2] Nelson v Commissioner of Highways [2020] SASC 109; Nelson v Commissioner of Highways (No 2) [2023] SASC 7.
Mr Nelson was the owner of the freehold interest in the Land. The Company was the owner of a leasehold interest in the Land and conducted a barbecue and wood heater business on the Land.
On 25 October 2013 the Commissioner served on Mr Nelson notice of intention to acquire the Land pursuant to section 10 of the Act.
On 13 March 2014 the Commissioner compulsorily acquired the Land. The Commissioner made an offer to pay $2,120,000 to Mr Nelson in respect of his freehold interest and paid that amount into Court. The Commissioner did not make an offer at that stage to pay the Company in respect of its leasehold interest in the Land or pay any amount into Court on account of the acquisition of its leasehold interest.
The Company continued to conduct the Business on the Land (rent free) after that date.
On 19 March 2014 there was a meeting between Mr Nelson (and possibly Mr Humphries) and Department representatives at which Mr Nelson said that he would seek $3.7 million compensation for the Land and $4.9 million compensation for the Business.
On 25 March 2014 Mr Humphries sent a letter to the Department providing a narrative description of those figures in response to a request by the Department. On 27 March 2014, in response to a further request by the Department, he provided a detailed breakdown. The breakdown in respect of the Land comprised $2.75 million based on Mr Fudali’s valuation, $800,000 for “developer’s profit estimate” and $150,000 for disturbance. The breakdown in respect of the Business comprised $1.31 million market value (based on adjusted profit of $149,562 per annum); $1.65 million for “developer’s profit estimate”; $500,000 for intangible assets; $180,000 for loss of profits in the 2014 year; and various other compensation heads.
On 16 April 2014 Brian Sander provided to the Department a valuation of the Business at $600,000.
On 23 April 2014 Mr Berry, Manager Real Estate Services at the Department, sent a letter to Mr Allen. It said that the Department had received a formal valuation valuing the Business at $600,000 inclusive of plant, goodwill and stock. It noted that the average stock figure over the last four years was $140,000 and said that the Department therefore offered $460,000 for the Business exclusive of stock. It said that, if not all of the stock was sold during the proposed closedown sale, a valuation of any remaining stock could be undertaken and an adjustment made to the figure of $460,000 to include the remnant. It said that, in light of these matters, the Department was unable to accept the Nelson Parties’ claim of $8.6 million (referred to in Mr Humphries’ letter).
On 27 May 2014 Mr Allen on behalf of the Nelson Parties sent a letter to Mr Berry requesting a copy of Mr Sander’s valuation. On 30 May 2014 Mr Berry sent to him a copy of the valuation.
On 13 June 2014 the Company ceased to conduct the Business and vacated possession of the Land.
On 25 August 2014 the Department sent a letter to Mr Nelson. It said that the Department remained willing to negotiate in relation to his compensation claim. It referred to Mr Sander’s valuation valuing the Business at $600,000, noted that the average stock figure was considered to be $140,000 and said that hence the remainder was valued at $460,000. It offered $2.6 million in total for the property and business interests.
On 15 July 2016 Michael McClaren provided to Mr Nelson’s solicitors a valuation of the Business. He valued the Business at $651,230. He also estimated the loss of opportunity of Mr Nelson to earn a future salary in the Business at $248,290 and the loss of opportunity of Mr Nelson’s wife and three of his sons to earn a future salary in the Business at $80,263. The total of the three amounts was $979,783.
On 11 August 2016 the Nelson Parties’ solicitor sent a letter to the Commissioner’s solicitor formulating a claim. The claim comprised:
·$2,750,000 for the freehold value of the Land;[3]
·$140,000 for transfer fees and stamp duty that would be incurred to replace the Land with other investment land;
·$30,000 for time spent;
·$651,230 for the market value of the Business;[4]
·$328,553 for the loss of opportunity of Mr Nelson, his wife and three of his sons to earn a future salary in the Business;[5]
·$123,937 for lost profits of the Business in the 2014 year; and
·$4,255.97 for rates and taxes in the 2014 year.
[3]    Based on Mr Fudali’s report dated 19 December 2013.
[4]    Based on Mr McClaren’s report dated 15 July 2016.
[5]    Based on Mr McClaren’s report dated 15 July 2016.
On 18 September 2016 Simon Winter provided to the Department a valuation of the Business. This valuation was not tendered. However, Mr McClaren made references to it in his second report. It appears from those references that Mr Winter valued the Business at $189,262.
On 16 December 2016 the Commissioner’s solicitor sent a letter to the Nelson Parties’ solicitor responding to the letter of 11 August 2016. It made an offer of compensation as follows:
·$2,120,000 for the freehold value of the Land;[6]
·$10,000 for time spent; and
·$90,000 for the market value of the Business less retained stock and plant.[7]
[6] Based on Mr Wood’s report dated 11 July 2013.
[7] Being $190,000 based on Mr Winter's valuation of $189,262 less $100,000 for stock and plant.
On 21 September 2017 the Nelson Parties instituted the proceeding referring the issue of the compensation payable to them by the Commissioner to the Court for determination pursuant to section 23C of the Act. In their statement of claim, they claimed the same amounts as were the subject of the formulated claim dated 11 August 2016, except that the claim for transfer fees and stamp duty was adjusted to $166,663.
On 30 October 2017 the Commissioner filed a defence, which:
·pleaded that the freehold value of the Land was $2,120,000;[8]
·denied that the Nelson Parties had incurred transfer fees or stamp duty on replacement land;
·denied that time spent was compensable;
·pleaded that the market value of the Business was $190,000 and after deduction of retained stock and plant was $37,105;[9]
·denied that loss of opportunity of Mr Nelson, or his family to earn a future salary in the Business was compensable;
·pleaded that further particulars were required of the claim for lost profits of the Business in the 2014 year; and
·denied that rates and taxes in the 2014 year were compensable.
[8] Based on Mr Wood’s valuation dated 11 July 2013.
[9] Based on Mr Winter’s valuation dated 18 September 2016.
On 19 May 2021 Mr McClaren provided a second report responding to Mr Winter’s 2016 report. He now valued the Business at $491,393, estimated the loss of opportunity of Mr Nelson to earn a future salary in the Business at $301,809 (on a no hindsight basis) and the loss of opportunity of Mr Nelson’s wife and one son to earn a future salary in the Business at $44,580. The total of the three amounts was $837,782.
On 26 July 2021 Mr Winter provided a second report responding to Mr McClaren’s report. He now valued the Business at $165,000.
On 26 October 2021 the Commissioner’s solicitor sent by email a letter to the Nelson Parties’ solicitor expressed to be without prejudice, save that the Commissioner reserved the right to refer to it on the subject of costs. It offered $320,000 plus interest and costs to resolve all outstanding claims by the Nelson Parties. It was expressed to be open only until 5.00 pm on 29 October 2021.
On 27 October 2021 the Nelson Parties’ solicitor sent an email to the Commissioner’s solicitor seeking a breakdown of how the settlement amount was comprised, to which he received a reply on the same day stating that the Commissioner declined to offer a breakdown as to how the all-inclusive amount was derived.
On 28 October 2021 Mr Winter provided to the Department a third report. He now valued the Business at $165,171 on the basis of the 2010 to 2012 years.
On 1 November 2021 the trial commenced.
On 9 November 2021 Mr McClaren provided a third report. He now valued the Business on an alternative basis of the 2010 to 2012 years at $364,685, estimated the loss of opportunity of Mr Nelson to earn a future salary in the Business at $1,190,136 (on a no hindsight basis) and did not alter his estimate of the loss of opportunity of Mr Nelson’s wife and one son to earn a future salary in the Business at $44,580. The total of the three amounts was $1,599,401.
On 11 November 2021 Mr Sander updated his assessment. He now valued the Business using the 2013 year at $359,221 or alternatively at $235,000 using the 2010 to 2012 years.
Costs principles
Section 36 of the Act provides:
36—Costs
In any proceedings under this Act the Court may award such costs as it thinks proper, but, in making an order for costs, shall, where it is, in the opinion of the Court, appropriate to do so, take into consideration—
(a)the amount of compensation awarded by the Court as compared with the amount (if any) offered by the Authority; and
(b)the extent to which, in the opinion of the Court, the proceedings have arisen from, or been affected by—
(i) unreasonable conduct on the part of the claimant or the Authority; or
(ii)an excessive claim by the claimant or unduly depressed offer by the Authority; or
(iii)a failure on the part of the Authority or the claimant to negotiate in good faith.
Starting point
The initial words of the section providing that “the Court may award such costs as it thinks proper” confer a discretion upon the Court in a similar manner to the discretion conferred by subsection 40(2) of the Supreme Court Act 1935 (SA).
However, whereas it is firmly established that, subject to the Court’s overriding discretion, the starting point in exercising the discretion under section 40 of the Supreme Court Act 1935 (SA) is that costs follow the event, it is firmly established (and common ground between the parties) that, subject to the Court’s overriding discretion, the starting point in exercising the discretion under section 36 of the Act is that the claimant should recover their costs of a proceeding seeking determination of the amount of compensation payable.
This is in the context that the Court’s jurisdiction under section 23C(1) and 23C(2)(b) of the Act is to resolve a question arising in the course of negotiations referred by the claimant or the Authority into Court. Although the Court has power under section 23C(3)(b) to make orders for compensation that it finds justified on the claim, its jurisdiction nevertheless is to resolve a question arising in the course of negotiations.
In Brewarrana v Commissioner of Highways[10] Wells J said in respect of section 46 of the Compulsory Acquisition of Land Act 1925 (SA) (which was in different terms to section 36 of the Act):
In all but the most exceptional cases, the claimant is entitled to some compensation, ex concesso; the only question is whether he is to receive more or less. Ordinarily, too, he can expect to receive his costs to be taxed, because he was in no way responsible for the compulsory acquisition; the statute tells him, in effect, that he must be given fair compensation, and if he disputes the acquiring authority’s offer, he is entitled to have a court fix the correct amount. Speaking generally, the practical question will usually be whether there is some ground for depriving the claimant of some or all of his costs, or whether, exceptionally, the Authority should be awarded some costs.[11]
[10](1973) 6 SASR 541.
[11] At 581-582.
In Minister for the Environment v Florence[12] Wells J said in respect of section 36 of the Act:
Upon an ordinary claim in the general jurisdiction it is, generally speaking, obvious who has won and who has lost, and correspondingly clear why costs usually follow the event. Upon a claim for compensation for land compulsorily acquired, it is not, generally speaking, appropriate to speak of one party as having won; compensation is awarded to one who has already been given, by statute, the right to receive it. It is therefore as just to say of the latter sort of case that the claimant ought, in the absence of special circumstances, to receive his reasonable costs of obtaining the compensation that is, ex hypothesi, his due, as it is to say of the former sort of case that prima facie costs follow the event in favour of the party who has won. But costs are, as always, discretionary; and no hard and fast rule will ever be allowed to occupy part of an area controlled by a discretion, however predictable the result of its exercise may be in certain sorts of cases.[13]
[12](1979) 21 SASR 108.
[13] At 134-135.
In Dillon v Gosford City Council[14] Basten JA (with whom Macfarlan JA and Handley AJA agreed) said in respect of the position in New South Wales (where the Act did not contain an equivalent of section 36 of the Act):
The appellants … argued that his Honour failed to adopt a strong presumption in favour of claimants for compensation receiving their costs of proceedings in the Court.
… 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.
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.[15]
[14] [2011] NSWCA 328, (2011) 184 LGERA 179.
[15] At [67], [70]-[71].
In Love v Roads Corporation[16] Warren CJ, Tate JA and Emerton AJA said in respect of the comparative provision[17] of the Land Acquisition and Compensation Act 1986 (Vic):
We accept that the position of a claimant in proceedings under the Act is not that of an ordinary litigant and that the starting point for the exercise of the Court’s discretion as to costs is that the dispossessed owner should recover the costs of making the claim. The discretion as to costs in compensation proceedings is tilted in favour of the claimant.[18]
[16][2011] VSCA 434.
[17]Section 91 of the Victorian Act is largely the same as section 36 of the South Australian Act, albeit that it contains some additional factors to be taken into account under subsection 2(b) and is subject under subsection 2(c) to other provisions of the Act.
[18]At [173]. (Footnote omitted)
Matters to be taken into consideration
The subsequent words of section 36 provide that the Court “shall, where it is, in the opinion of the Court, appropriate to do so, take into consideration” the matters listed in paragraphs (a) and (b).
On the one hand, it is mandatory for the Court to take the specified matters into account. On the other hand, this is mandatory only where the Court is of opinion that it is appropriate to do so. This entails that the Court must take into account these matters when it considers that they warrant a departure from the starting point that the claimant should recover their costs.

In Minister for the Environment v Florence[19] Wells J explained the position in these terms:
It is to be observed that the direction is not unconditional; the Court is only to give effect to the direction where it considers it appropriate to do so. The implication, in my opinion, is that before applying the substance of pars (a) and (b) there must be some identifiable facts or circumstances signifying the appropriateness of considering, in particular, the relationship between the Authority’s best offer and the amount awarded, unreasonable conduct on the part of either party, or an excessive claim or unduly depressed offer. Put another way, what the section means is … , when the facts and circumstances seem to call for it, the Court is to consider the implications, for the case then before it, of those paragraphs.[20]
[19](1979) 21 SASR 108.
[20] At 135.
Quantum of claim, Authority’s offer and negotiations
The provisions relating to the Court taking into consideration the claim by the claimant, offers by the Authority and any failure on the part of the Authority or the claimant to negotiate in good faith raise for consideration the positions taken by the parties in and before the proceeding as to the amount of compensation and in negotiations.
Section 36(a) refers to the amount of compensation (if any) offered by the Authority. This is a reference to the amount of compensation offered by the Authority pursuant to section 23A. If the Authority makes no offer of compensation pursuant to section 23A (for example if it takes the view that the claimant has no interest in land or that the claimant’s interest is valueless), paragraph (a) will have no application. However, where the Authority makes an offer of compensation under section 23A (the usual case), paragraph (a), when considered relevant by the Court, requires a comparison between the amount of compensation determined by the Court to be payable on a reference under section 23C with the amount of the Authority’s section 23A offer.
By contrast, section 36(b) includes a reference to an excessive claim by the claimant, an unduly depressed offer by the Authority or a failure by either party to negotiate in good faith. This entitles the Court, where appropriate, to have regard to the negotiating positions of the parties as well as their formal positions in the proceeding. In particular, it entitles the Court to have regard not only to open positions and offers but also to negotiations subject of formal rules offers or settlement privilege save as to costs offers (Calderbank offers). Just as under section 28 of the Defamation Act 2005 (SA) the Court can have regard to a failure to make an offer, so too under section 36(b) of the Act the Court can, where appropriate, have regard to a failure to make an offer.
The matters referred to in paragraph (b) are only to be taken into consideration if and to the extent that the proceeding has arisen from or been affected by the relevant conduct of a party. This requires consideration of the causative effect on the proceeding of the conduct of the party in relation to the amount of compensation and in negotiations.
In Love v Roads Corporation[21] Warren CJ, Tate JA and Emerton AJA said in respect of the comparative provision of the Land Acquisition and Compensation Act 1986 (Vic):
We agree with senior counsel for the Corporation that while the policy underlying paragraph (a) may have been for the Corporation to proceed by way of open offers and to permit the claimant to have the benefit of those, the policy underpinning paragraph (b) is different. It appears to be directed to discouraging the institution or the continuing conduct of litigation which is either without merit or the conduct of which is prolonged by excessive claims or unreasonable conduct of one sort or another. The ability to use ‘without prejudice’ offers once proceedings under the Act have commenced is consistent with such a policy.[22]
[21][2011] VSCA 434.
[22]At [166].
Unreasonable conduct
Section 36(b)(i) provides for the Court to take into consideration, where appropriate, the extent to which the proceedings have arisen from or been affected by unreasonable conduct by a party.
One circumstance in which section 36(b)(i) will have potential operation in relation to a claimant will be when the claimant unreasonably pursues a particular head of claim, particularly if it is a novel head of claim, on which the claimant is unsuccessful.
In Anderson v Commissioner of Highways (No 3)[23] the claimant unsuccessfully pursued a novel claim for compensation for personal injury allegedly caused by the compulsory acquisition. Parker J ordered that the claimant not recover his costs of the proceeding insofar as they related to that claim. Parker J said:
The defendant further submits that the plaintiff did not succeed on the question it had referred to this Court under s 23C. The plaintiff’s position was not supported by any authority and was comprehensively rejected by this Court. The costs incurred by the plaintiff arose in in pursuing a claim for compensation that was not part of his “due”. Neither principle nor fairness suggests that the plaintiff should be awarded costs in these circumstances.
…
For the reasons referred to … above, I do not consider that the circumstances support the making of an order that the successful defendant pay the costs incurred by the unsuccessful plaintiff.[24]
[23][2018] SASC 166.
[24]At [16], [19].
In Chadrysiak v Commissioner of Highways (No 2)[25] the claimant unsuccessfully pursued a novel claim for compensation for loss in respect of a replacement property in a rising market allegedly caused by the compulsory acquisition. I ordered that the claimant not recover his costs of the proceeding insofar as they related to that claim. I said:
[D]ue to the different nature of the exercise of the costs jurisdiction under section 36 of the Act, it would not have been appropriate to order that Mr Chadrysiak pay the Commissioner’s costs and the Commissioner does not seek such an order. Conversely, I do not consider that it is appropriate to order that the Commissioner pay Mr Chadrysiak’s costs. The issues in relation to the rising market claim were not merely the usual quantum issues arising on a conventional claim in respect of which the prima facie approach articulated by Wells J in Minister for the Environment v Florence and the New South Wales Court of Appeal in Dillon v Gosford City Council applies. On a holistic assessment, the costs incurred by Mr Chadrysiak in prosecuting the rising market claim were not caused by the compulsory acquisition of his property (even though they would not have been incurred but for the acquisition). Rather they were caused by Mr Chadrysiak’s prosecution of a claim in respect of which he was unable to prove that the acquisition caused the loss due to a rising market that he claimed.[26]
[25][2018] SASC 191.
[26]At [30]. (footnotes omitted)
Without being exhaustive, another circumstance in which section 36(b)(i) will have potential operation in relation to a claimant will be if the claimant is guilty of misconduct of the type that would affect the exercise of the costs discretion in ordinary (non-acquisition) cases.
Amount awarded v amount offered
In the present case, the Commissioner never made an offer of compensation under section 23A and never paid any amount into Court on account of the claims the subject of the second trial. Paragraph (a) of section 36 therefore has no potential application.
This does not entail that regard cannot be had under paragraph (b) to the Commissioner’s informal offers made in 2014 or 2021.
Informal offers
The Commissioner refers to the letters sent on behalf of the Commissioner in April 2014, August 2014 and October 2021, contends that they comprised informal offers, contends that the Nelson Parties achieved less than the amount of those offers and contends that the Nelson Parties acted unreasonably in not accepting those offers.
April 2014
In relation to the letter sent by the Department on 23 April 2014, the Commissioner contends that it conveyed an offer to pay compensation of $460,000 on the basis that the Nelson Parties would retain the stock of the Business. The Commissioner contends that this exceeded the total compensation assessed at $283,428.
The Nelson Parties accept that the total compensation assessed is less than $460,000. However, they contend that the letter did not convey an offer capable of acceptance so as to give rise to an agreement; the letter was not a Calderbank letter; and in any event it was not unreasonable for them not to accept any “offer” conveyed by the letter or to negotiate at that stage in response to it.
I accept the Nelson Parties’ submission that the Department’s letter did not make an offer capable of acceptance so as to give rise to an agreement. Rather, it indicated a willingness by the Commissioner to resolve any non-freehold land claims by the Nelson Parties on the basis of the starting point of valuing the Business at $600,000 in accordance with Mr Sander’s valuation with a deduction to be made in respect of stock. It left open for decision and negotiation both the identification of stock on account of which a deduction should be made and what was to become of that stock. It indicated a willingness by the Commissioner to pay $460,000 on the basis that the Nelson Parties retained all trading stock of the Business. It indicated a willingness by the Commissioner alternatively for the Nelson Parties to have a close down sale and for there to be an accounting in respect of the value of any stock ultimately unsold. In respect of the latter alternative, there was ambiguity about the proposed accounting, but one construction is that the Nelson Parties would be paid $460,000 plus the value of any remnant stock.
It is not surprising that the letter did not comprise an offer capable of acceptance so as to give rise to an agreement because the Business was still trading, the situation was dynamic (including that the stock position would have been changing daily) and any resolution at that time would have required a dialogue between the parties rather than being comprised of a purely unilateral offer simply accepted. However, the fact that the letter did not convey an offer capable of acceptance so as to give rise to an agreement entails that it cannot be said that it was unreasonable for the Nelson Parties not to accept an “offer” made in the letter. Rather, the contention must be that it was unreasonable for the Nelson Parties not to negotiate in good faith in response to the letter.
I reject the Nelson Parties’ contention that the letter cannot be taken into account because it is not a Calderbank letter. It is true that the letter is not expressed to be without prejudice save as to costs and does not indicate that it may be relied upon on the issue of costs. However, the letter is not expressed to be without prejudice. The question whether it was originally the subject of settlement privilege under section 67C of the Evidence Act 1929 (SA) is moot because it was tendered without objection at the trial and received into evidence.
The conduct of the Nelson Parties at that stage in not negotiating in response to the letter was not unreasonable. First, there was a necessary interrelationship between the value of the freehold interest in the Land and the value of the Business (the value of the leasehold interest in the Land). The value of the freehold interest was valued by the land valuers based on a multiple of their assessment of commercial rent. The value of the Business was valued by Mr Sander by deducting his assessment of commercial rent. The higher the commercial rent, the higher the freehold land value but the lower the business value. The multipliers were different as between the land valuers and the business valuer. The assessments of commercial rent differed between the valuers
This tension was recognised by the Department’s 23 April 2014 letter, which included the following passage:
[Y]our client’s interest as an owner of the land is in direct competition with his interest as the owner of the business.
In these circumstances, it was not feasible for the Nelson Parties to resolve the question of compensation for the leasehold interest in the Land without at the same time resolving the question of compensation for the freehold interest in the Land.
Further, there was a large difference between the valuations obtained by the parties of Mr Nelson’s freehold interest in the Land. The Department’s valuer had valued that interest at $2,120,000. Mr Nelson’s valuer had valued it at $2,750,000.
Secondly, as at April 2014 the Nelson Parties had not obtained their own valuation of the Business. It was not unreasonable for them to decline to negotiate in relation to compensation in respect of the Business until they obtained their own valuation (which they ultimately obtained from Mr McClaren).
Thirdly, as at April 2014 there were other heads of compensation that the Nelson Parties had already identified to the Department. These included loss of profit during the 2014 year, closing down costs, time spent and rates and taxes in respect of which I held they were entitled to compensation. These heads of loss were not encompassed in the Department’s 23 April 2024 letter.
Fourthly, the parties were at a very early stage in relation to the assessment of compensation in April 2014. The Commissioner had only acquired the Land in March 2014 and the Company was still conducting the Business on it. No proceeding was instituted until September 2017.
Fifthly, the situation was dynamic as at 2014 and remained dynamic up to and during the trial. The situation, and the positions of both parties, evolved substantially over time. The Department obtained a valuation from a new valuer, Mr Winter, in 2016 that was vastly less than Mr Sander’s valuation. As result, the Department was no longer willing to resolve the Business claim based on Mr Sander’s valuation and offered $90,000 in December 2016 based on Mr Winter’s valuation. The valuers changed their opinions in significant respects over time. By the time of trial, the parties’ positions were quite different to their positions in 2014.
August 2014
In relation to the letter sent by the Department on 25 August 2014, the Commissioner contends that it also conveyed an offer to pay compensation of $460,000 on the basis that the Nelson Parties would retain the stock of the Business. The Commissioner observes that this exceeds the total compensation assessed at $283,428.
Unlike the April 2014 letter, the August letter did make an offer capable of acceptance so as to give rise to an agreement. However, the offer was a global offer of $2,600,000 for the property and business interests. By comparison, the total compensation assessed was $2,613,428. This was greater than the global offer, albeit only by less than one per cent.
It was not unreasonable for the Nelson Parties not to accept this global offer for the reasons referred to at [59] to [66] above.
The 25 August 2014 letter did not make an offer to resolve just the non-freehold land compensation claims and, in any event, it would have been incapable of acceptance so as to give rise to an agreement for the same reasons as in respect of the April 2014 letter. It was not unreasonable for the Nelson Parties not to respond at that stage for the reasons referred to at [59] to [66] above.
October 2021
In relation to the letter sent by the Commissioner’s solicitor on 26 October 2021, it conveyed an offer to pay compensation of $320,000, which exceeds the total compensation assessed at $283,428.
The offer was open for only 72 hours. In addition, it was made on the Tuesday before the commencement of trial on the following Monday. The position was still dynamic even at that late stage, with the Commissioner serving Mr Winter’s third report (which was prepared on a different basis to all previous valuation reports) on the day after the offer was made. In the circumstances, it was not unreasonable for the Nelson Parties not to accept the offer.
In Maclean v Rottnest Island Authority[27] the Authority made a Calderbank offer, open for three days, on the Tuesday before commencement of trial on the following Monday. The trial judge declined to deprive Mr Maclean of costs due to the offer. This was upheld by the Full Court. Wallwork and McKechnie JJ and Einfeld AJ said:
Calderbank letters may be useful in advancing the administration of justice by putting parties pursuing small or doubtful claims on notice and forcing them to review their position.
However, the Court should not encourage the use of a Calderbank letter delivered shortly before trial when the other party might reasonably be expected to have their minds on a number of matters. The use of a Calderbank letter is an aid to the administration of justice and should be encouraged.[28]
[27][2001] WASCA 323.
[28]At [35]-[36].
In Morris v McEwen[29] the defendant made a Calderbank offer open for seven days. The trial judge ordered that the plaintiff pay the defendant’s costs from 14 days after the making of the offer because the plaintiff did not accept the offer. This order was reversed by the Full Court. White J (with whom Debelle J agreed) said:
In considering whether to give a Calderbank letter the same effect as an offer lodged pursuant to Rule 40, a number of matters will be relevant. These will include: whether or not an offer could have been lodged pursuant to Rule 40; any difficulties associated with the framing of an appropriate offer; any difficulties occurring because of the involvement of other parties in the litigation; the proximity of the trial at the time when the offer was made and the time available to the plaintiff in which to consider the offer; the commitments to which the plaintiff may be subject at that time; and the extent to which, if at all, the circumstances of the offer, or its terms and conditions, differ from the circumstances, or terms and conditions, of an offer lodged in accordance with Rule 40. This is not intended to be an exhaustive list of the matters which may be relevant.
… Being expressed to be open for a short time only, the offer did not achieve one of the aims of the régime established by Rule 40. It did not afford to the plaintiff a continuing opportunity to reflect on the adequacy of the offer in the light of further consideration of his prospects. The terms of the offer, together with the plaintiff’s rejection of it on 6 May 2003, created the circumstance that the plaintiff was then left with two options only: proceed to trial or abandon his claim altogether. That is not consistent with the “spirit and intent” of Rule 40
…
In the respects which I have identified, the offer departed in a significant way from the régime established by the courts to encourage parties to settle their differences without the need of litigation. That departure made it inappropriate to attach such significance to the defendants’ offer. In my opinion, the Judge was in error in giving to an offer that was only ever intended to be open for 7 days and which was expressed as an offer which would not be repeated, the same effect as an offer, lodged in accordance with the Rules of Court, which would remain open for acceptance at any time up to a date 7 days prior to the commencement of the trial.[30]
[29][2005] SASC 284.
[30]At [75]-[76], [79].
Although each case must be decided by reference to its own facts, the approach taken in those two cases is applicable in the present case.
The Commissioner contends that, if it was not unreasonable for the Nelson Parties not to accept the offer, it was unreasonable for them not to negotiate after the offer had expired such that they should be deprived of costs on account of the making of the offer.
As observed above, the trial commenced immediately after the offer expired. By that stage, both parties had spent considerable time and incurred considerable costs preparing for and commencing the trial. Further, the position was still dynamic in that further expert reports were prepared and opinions expressed during the currency of the trial. In all of the circumstances, it was not unreasonable for the Nelson Parties not to negotiate in response to the offer such that they should be deprived of costs on account of the making of the offer.
Comparison between amount of claim and result

The Commissioner refers to the difference between the amount of compensation ultimately claimed by the Nelson Parties at the second trial totalling $2,079,773 and the amount of compensation assessed totalling $283,428.70. The Commissioner contends that the difference of $1,796,344 amounts to an “excessive claim” within the meaning of section 36(2)(b) of the Act.
As the Nelson Parties point out, the principal reason for the large difference is the fact that the Nelson Parties failed in their claims for the present failure of the Company’s future profit (the future profit claim), ultimately formulated by them at trial at $828,351, and for loss of opportunity of future wages earned by Nelson family members (the future wages claims), ultimately formulated at $525,878.
An “excessive claim” is only prescribed by 36(2)(b) of the Act to be taken into consideration if and to the extent that “the proceedings have arisen from or been affected by” the excessive claim. In this case, the proceeding did not arise from the amount of those claims as it was necessary in any event for the Court to determine the market value of the Business (the business value claim). In relation to the future profit and future wages claims, the real issues at trial related to whether the claims should succeed at all rather than to their quantum. In those circumstances, it could not be said that the proceeding was substantially affected by the amount of the claims.
In relation to the business value claim, the Commissioner refers to the fact that the claim as ultimately formulated at trial was for $365,123 and was assessed by the Court at $236,844. However, the Commissioner’s position at trial was that the business value was only approximately $165,000 and the amount assessed substantially exceeded that amount. The claim by the Nelson Parties was based on the expert opinion of Mr McClaren and cannot be characterised as an “excessive claim” within the meaning of the section.
In relation to the 2014 loss of profit claim, the Commissioner refers to the fact that the claim as ultimately formulated at trial was for $213,751 and was assessed by the Court at $106,876. However, the Commissioner’s position at trial was that no amount should be assessed under this head and the amount assessed therefore substantially exceeded that amount. Further, the amount was assessed as 50 per cent of $213,751 on the basis of mixed causation the subject of an evaluative judgment. The claim by the Nelson Parties cannot be characterised as an “excessive claim” within the meaning of the section.
In relation to the stock warehousing claim, the Commissioner refers to the fact that the claim as ultimately formulated at trial was for $57,338.20 and was assessed by the Court at $19,042. However, the Commissioner’s position at trial was that no amount should be assessed under this head and the amount assessed therefore substantially exceeded that amount. The amount assessed depended upon an assessment of the length of the period of warehousing that was reasonable, which involved the exercise of a substantial degree of judgment. The claim by the Nelson Parties cannot be characterised as an “excessive claim” within the meaning of the section.
In relation to the time spent claim, the Commissioner refers to the fact that the claim as ultimately formulated at trial was for $20,910 and was assessed by the Court at $10,000, being the amount conceded by the Commissioner. However, the dollar amount of the difference is relatively small and further the time spent on this issue was also relatively small.
The balance of the heads of claim were either determined largely in favour of the Nelson Parties or were alternative simple claims to the heads of claim that were determined.
The Commissioner contends that, but for what the Commissioner contends was the excessive amount of the claims, agreement might have been reached on the compensation payable. However, there were fundamental disagreements between the parties in relation to the core issue of the business value claim which in my assessment would have resulted in the matter proceeding to trial in any event.
The Commissioner also refers to the claim formulated by Mr Humphries in March 2014 for $4.9 million for the Business and $8.6 million overall. However, it is evident from the summary rejection of that claim by Mr Berry on 23 April 2014 that the Department did not take that formulated claim seriously and an objective consideration of its contents corroborates this. The excessive formulated claim had no significant causative effect and, as observed above, until the Nelson Parties obtained a business valuation (which they obtained from Mr McClaren in 2016), they were not in a position to negotiate a resolution. When they obtained that valuation, Mr Humphries’ formulation was superseded by the formulation communicated by their solicitors in August 2016.
On an overall assessment, the proceeding has not arisen from or been significantly affected by excessive claims by the Nelson Parties.
Result on separate issues
The Commissioner contends that a proportion of the costs of the proceeding, which the Commissioner submits should be assessed as 50 per cent, were caused, not by the compulsory acquisition or the necessity for the Court to determine the amount of compensation due under section 23C, but by the decision by the Nelson Parties to prosecute claims that could not be supported on the available evidence.
It is necessary in order to consider this contention to address the different heads of claim.
The core claim, and the one on which the most time was spent at trial and with the greatest number of sub-issues and complexity, was the business value claim. If that had been the only claim the subject of the proceeding, there would be no reason not to order that the Commissioner pay the Nelson Parties’ costs of the proceeding. At the sub-issue level, the Nelson Parties succeeded on the issue of the multiplier; the Commissioner largely but not exclusively succeeded on the issue of wages; and there was mixed success on other issues. However, particularly taking into account that this is a compensation case governed by section 36, this is not a case where a mixed costs order should be made based on mixed success. Overall, the Nelson Parties achieved significantly more than the Commissioner’s position at trial and their position was supported by the valuation opinion of Mr McClaren.
In relation to the 2014 loss of profit claim, on an overall basis the Nelson Parties were successful. The Commissioner denied that any compensation was payable in relation to this claim. The only qualification to the success of the Nelson Parties is that 50 per cent of the loss of profit was assessed as being caused by the acquisition. The time and costs associated with that sub-sub-issue were relatively small compared to this head of compensation as a whole. Moreover, it involved an evaluative judgment as to the effect of competing causes. If that had been the only claim the subject of the proceeding, there would be no reason not to order that the Commissioner pay the Nelson Parties’ costs of the proceeding.
In relation to the stock warehousing claim, on an overall basis the Nelson Parties were successful. The Commissioner denied that any compensation was payable in relation to this claim. It is true that the Nelson Parties failed on the issue whether the claim should be quantified by reference to the incidental costs of acquisition of the Beverley warehouse but that method of quantification was not seriously pursued and occupied little time at trial. It is also true that the length of the period of lost rent was less than was contended by the Nelson Parties but again this sub-sub-issue occupied only limited time at trial and required the exercise of an evaluative judgement.
Leaving aside the future profit claim, future wages claims and time spent claim, the balance of the heads of claim were either those in respect of which the Nelson Parties were essentially successful or the claim was conceded by the Commissioner or were simple alternative heads of claim to those that were determined and collectively occupied relatively limited time at trial.
The Nelson Parties failed in relation to the future wages claims. I concluded that these claims in respect of both Mr Nelson and members of his family were not sustainable on the merits and there was no adequate evidence to support them. Collectively, substantial time was spent at trial in relation to these claims.
The Nelson Parties failed in relation to the future profit claim. I concluded that this claim was not sustainable on the merits and there was no evidence to support it. Significant time was spent at trial in relation to this claim, albeit substantially less than in respect of the future wages claims.
The Nelson Parties failed in relation to the time spent claim. The amount assessed was the amount conceded by the Commissioner. I accept that the Nelson Parties were obliged to incur the costs before trial of preparation in relation to this claim in order for the Commissioner to concede the amount of $10,000. The time spent at trial in relation to this claim was limited.
The future profit claim and the future wages claims were both novel claims. There was no precedent in relation to the former and either no precedent or at most a single precedent in relation to the latter. They failed for want of evidence to sustain them. Although the amount of the claims did not significantly affect the time spent trial, nevertheless they comprised the two largest claims in terms of dollar value.
The approach adopted in each of Anderson v Commissioner of Highways (No 3)[31] and Chadrysiak v Commissioner of Highways (No 2)[32] referred to at [48] to [49] above should be adopted in relation to these two heads of claim. The Nelson Parties should not recover from the Commissioner their costs of the proceeding insofar as they are attributable to these two heads of claim.
[31][2018] SASC 166.
[32][2018] SASC 191.
In each of Anderson and Chadrysiak, the order was that the claimant not recover the costs attributable to the relevant head of claim. The Court did not order that the claimant pay the Commissioner’s costs attributable to the relevant head of claim, albeit that the Commissioner did not seek such an order.
In the ordinary jurisdiction of the courts where the starting point is that costs follow the event and the court decides in its discretion to make a mixed costs order on the basis of mixed success on separate issues, the court has a discretion whether to deprive the party to whom costs would otherwise be payable of the relevant portion of the costs or also to order that that party notionally pay the relevant proportion of the opponent’s costs. In the ordinary jurisdiction, the court is more reluctant to order the latter than merely the former.
In the compulsory acquisition jurisdiction of the courts, although the court undoubtedly has power to order that the claimant notionally pay a portion of the Authority’s costs, it is rare for this to occur. Thus, in the cases cited by the Commissioner,[33] orders were made either that the claimant not recover costs or recover only a portion of their costs but not that the claimant (actually or notionally) pay a portion of the Authority’s costs.
[33] Minister for the Environment v Florence (1979) 21 SASR 108; Dillon v Gosford City Council (2011) 184 LGERA 179; Anderson v Commissioner of Highways (No 3) [2018] SASC 166; Chadrysiak v Commissioner of Highways (No 2) [2018] SASC 191.
The conduct of the Nelson Parties in advancing the future profit claim and future wages claims without proper evidentiary support justifies depriving them of the portion of their costs assessed as referable to those heads of claim but is not sufficient to justify notionally ordering them to pay the Commissioner’s costs referable to those heads of claim.
In relation to each of the future profit claim and future wages claims, although the Nelson Parties succeeded on the sub-sub-issues of whether the claim was open on the pleadings or open as a matter of law under the Act, it is not appropriate to descend to that further level of sub-sub-issues. If the Nelson Parties had not advanced those claims, those sub-sub-issues would not have arisen. In addition, the less than ideal manner in which the Nelson Parties pleaded and advanced their case gave rise to the pleadings issues being raised by the Commissioner. Given the novel nature of the claims, it was necessary for the Court in any event to consider whether they could be advanced under the Act.
It is necessary to undertake a broad axe assessment of the proportion of costs incurred in relation to the future profit claim and future wages claims out of the total costs. Having regard to the time spent at trial on those issues, the documentary evidence adduced on those issues and the written submissions addressing those issues and making an assessment of the time spent and costs incurred before trial in relation to those issues, my assessment is that 25 per cent of the Nelson Parties’ costs should be apportioned to those issues.
Accordingly, the appropriate costs order is that the Commissioner pay 75 per cent of the Nelson Parties’ costs of the proceeding.
Conclusion
I order that the respondent pay 75 per cent of the applicants’ costs of the proceeding on the standard costs basis.