State of Tasmania v Effingham Pty Ltd (No 2)

[2006] TASSC 32

[2006] TASSC 32

CITATION:              State of Tasmania v Effingham Pty Ltd (No 2) [2006] TASSC 32

PARTIES:  STATE OF TASMANIA
  v
  EFFINGHAM PTY LTD

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M285/2003
DELIVERED ON:  8 May 2006
DELIVERED AT:  Hobart
HEARING DATE:  10 February 2006
JUDGMENT OF:  Blow J

CATCHWORDS:

Real Property – Resumption or acquisition of land – Compensation – Proceedings for compensation – Action for compensation – Other states or territories - Tasmania – Costs – Excessive claim – Unreasonableness.

Land Acquisition Act1993 (Tas), s60(2).
Minister for the Environment v Florence (1979) 21 SASR 108; Pastrello v Roads & Traffic Authority of New South Wales [2000] NSWLEC 209; Downie v Sorell Council [2005] TASSC 74, referred to.
Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2005] NSWLEC 10, distinguished.
Aust Dig Real Property [375]

REPRESENTATION:

Counsel:
             Applicant:  T J Williams
             Respondent:  M J Temple-Smith
Solicitors:
             Applicant:  Director of Public Prosecutions
             Respondent:  Temple-Smith Partners

Judgment Number:  [2006] TASSC 32
Number of paragraphs:  29

Serial No 32/2006
File No M285/2003

STATE OF TASMANIA v EFFINGHAM PTY LTD (NO 2)

REASONS FOR JUDGMENT  BLOW J

8 May 2006

1. On 19 July last I made a determination pursuant to the Land Acquisition Act 1993 ("the Act") as to the amount of compensation to be paid by the Crown in right of the State to the respondent with respect to acquisitions of land and easements for the purpose of a natural gas pipeline: State of Tasmania v Effingham Pty Ltd [2005] TASSC 55. Each party claims to have been victorious in relation to the assessment of compensation. Each has now sought an order for costs. The respondent is seeking a simple order that the applicant pay its costs. The applicant is seeking an order that the respondent pay its costs as from 17 March 2005, that being the day when a settlement offer made by it expired. It contends that each party should bear its own costs in relation to work done prior to that date. The submissions of counsel in relation to costs took a whole day. Each counsel provided me with an outline of his submissions. Each outline was over 20 pages long. I do not think there are any arguments relevant to costs that have been overlooked. The costs probably exceed the amount I awarded by way of compensation. I suspect that the thoroughness of counsel reflects that situation.

1. The general rule that costs follow the event has been modified in relation to compensation proceedings under the Act by s60(1) and (2) thereof, which provide as follows:

"(1)   The costs of, and incidental to, any arbitration or proceedings before the Court under this Act are in the discretion of the arbitrator or the Court.

(2)     In exercising a discretion to award costs under subsection (1), the Court or arbitrator must take into consideration –

(a)     where the subject matter of the proceedings or arbitration relates to the amount of compensation payable, the amount of compensation awarded as compared with the amount (if any) offered by the acquiring authority; and

(b)     the extent to which the proceedings or arbitration has arisen from, or been affected by –

(i)unreasonable conduct on the part of the claimant or the acquiring authority; or

(ii)the failure of the claimant to give adequate particulars of the claim or supply supporting material when required to do so; or

(iii)an excessive claim by the claimant; or

(iv)an unduly depressed offer by the acquiring authority."

Comparison of amounts awarded and offered

1. The compensation awarded to the respondent, excluding GST and interest, was as follows:

For a parcel of land acquired by the Crown	$367.00
For access and services easements acquired by the Crown	965.50
For pipeline easements acquired by the Crown	7,461.00
For disturbance	8,000.00
For injurious affection	50,350.00
Total	$67,143.50

The first four of the above items were agreed to by the parties. They were able to reach agreement as to all matters except for the compensation for injurious affection, which was the only matter to which the hearing related. The parties also agreed that a further $21,000 was to be paid to a partnership referred to at the trial as "the Archer partnership" as compensation for disturbance in accordance with the Act, s27(1)(f).

1. On 28 February 2005 the Crown offered $91,500 by way of compensation.  That sum is of course greater than the sum that I awarded.  However a simple comparison of the two figures is inappropriate because of the following factors:

(a)It is apparent that the offer was made under the mistaken assumption that only the respondent was entitled to compensation for disturbance under s27(1)(f).

(b)The offer was made on terms which were set out in the letter of 28 February 2005.  According to those terms, the sum of $91,500 would be payable only if the Crown did not fence the land over which the access and services easements were acquired.  As an alternative, the Crown offered to fence that land and to pay the respondent $6,875 less.  The hearing proceeded on the basis that the Crown was to bear the cost of that fencing.

(c)The sum offered included a component of $47,300 for injurious affection.  That was $3,050 less than the amount awarded for injurious affection.  The offer was therefore inadequate in relation to the head of compensation to which the hearing related.

1. The Crown subsequently made a payment into court of $84,625.  That represented the offered sum of $91,500 less the fencing figure of $6,875. 

1. On 4 May 2005 the Crown made a final offer of $85,093.50, made up as follows:

For the parcel of land acquired by the Crown	$367.00
For the access and services easements acquired by the Crown	965.50
For the pipeline easements acquired by the Crown	7,461.00
For disturbance	29,000.00
For injurious affection	47,300.00
Total	$85,093.50

1. As can be seen, the sums attributed to the first three items are the figures that the parties agreed upon. The figure of $29,000 for disturbance is equal to the sum of the $8,000 awarded to the respondent and the $21,000 payable to the Archer partnership. The sum of $47,300 offered for injurious affection is $3,050 lower than the sum I awarded. For the purposes of s60(2)(a), I must take into consideration the fact that the amount of compensation awarded was $67,143.50, whereas the amount offered by the Crown was $85,093.50. However I will also take into consideration the fact that the Crown's offers were made upon the false assumption that the respondent alone was entitled to compensation for disturbance, the fact that it was common ground that the compensation that should be awarded for disturbance totalled $29,000, and the fact that the Crown's offers included inadequate components for injurious affection.

Section 60(2)(b) factors - introduction

1. Section 60(2)(b)(ii) is of no relevance to this case, since there is no complaint that the respondent failed to give adequate particulars of its claim or to supply supporting material when required to do so.  In my view, s60(2)(b)(iv) is also inapplicable.  The offers by the Crown were inadequate, but I doubt that they could properly be described as "unduly depressed", and their inadequacy certainly had no effect in relation to the institution or conduct of the proceedings.  However counsel for the applicant placed great reliance upon s60(2)(b)(i) and (iii), which I will now address.

Unreasonable conduct

1. The applicant contends that the proceedings were affected by unreasonable conduct on the part of the respondent.  It contends that the conduct of the respondent was unreasonable in that:

(a)it unreasonably asserted that there were significant safety risks associated with the pipeline, and that compensation should be assessed accordingly;

(b)it unreasonably asserted that the respondent and any subsequent owners of the land would incur expense and suffer losses as a result of occupational health and safety (OH & S) obligations, and that compensation should be assessed accordingly; and

(c)it unreasonably exaggerated the effect of the pipeline in various respects, which I will detail later.

The applicant contends that, as a result, the respondent adduced evidence which it should not have adduced; it was necessary for the applicant to adduce evidence that it would not otherwise have needed to adduce, and to recruit and call witnesses whom it would not otherwise have needed; and the hearing was much longer than should have been necessary.

1. At the hearing, the respondent contended that the value of its property was affected by a risk that the pipeline would leak, rupture or explode, resulting in injury or death.  The valuer called by the respondent, Mr Harrison, based his opinion as to the appropriate compensation for injurious affection in part on the premise that the value of the property was affected by such safety risks.  I rejected that proposition as a result of expert evidence adduced by the Crown as to the safety of the pipeline.

1. The substance of the expert evidence available to the Crown on the safety issue was made known to a director of the respondent company, Mr Archer, in late 2001, or possibly early 2002, in connection with a planning appeal.  In these proceedings, discovery was made by the Crown in late 2004 of documents relating to the safety issue.  Subsequently four witnesses swore affidavits for the Crown in relation to the safety issue in December 2004 and February 2005.  They all gave evidence at the hearing.  Two of them came from other states to do so.  The respondent did not call any expert evidence as to the safety issue, but tested the opinion evidence of the Crown's experts by cross-examining them.  They were cross-examined intelligently, and not for too long.

1. Although the respondent was unsuccessful as to the safety issue, I do not think it was unreasonable for the respondent to test the Crown's experts in relation to this issue by cross-examining them.  The fact that the Crown went to considerable trouble and expense to adduce thorough evidence from highly qualified experts as to this issue may well reflect the situation that, at the time of the hearing, there were many outstanding claims for compensation relating to the pipeline and there had not previously been a determination of a claim in relation to the pipeline by the Court.

1. In relation to the OH & S issue, the respondent relied on expert evidence from a consultant named Shorter.  After his affidavit was filed and served, the Crown responded by engaging an eminent Melbourne OH & S expert, Adjunct Professor Viner.  Other Crown witnesses swore further affidavits for the purpose of debunking Mr Shorter's opinions.  Mr Shorter and Adjunct Professor Viner both gave evidence at the hearing.  I rejected the opinions of Mr Shorter.  I concluded that they were unrealistic, and inconsistent with common sense.  He made absolutely ridiculous assertions to the effect that substantial expenditure would have to be incurred, and substantial losses suffered, in perpetuity in relation to OH & S issues related to the pipeline.

1. I do not think it was unreasonable for the respondent to seek advice from an OH & S expert as to what financial impact, if any, the presence of the pipeline would have in relation to OH & S issues.  The respondent found itself in a difficult situation once it had engaged Mr Shorter and received from him a report that was obviously absurd.  Once the report was received, the respondent had a number of options.  One option would have been to place full reliance on Mr Shorter's opinions, but the respondent had the good sense not to do that.  Another option would have been to forget Mr Shorter and engage another OH & S expert, but that would have involved additional cost and delay.  Another option would have been to abandon the idea of adducing expert OH & S evidence, and simply to submit that the respondent and any future owner of the land would be put to trouble and inconvenience in having to explain to employees and contractors what restrictions existed, and what precautions needed to be taken, in the vicinity of the pipeline, pointing out its location to them.  That would have been the best option.  However the respondent instead opted to place limited reliance on Mr Shorter's opinions.  Counsel for the respondent did not submit that his calculations should be used as a basis for calculating compensation for injurious affection, but did submit that his opinions should be given some weight.  I expect the respondent was reluctant to abandon altogether the idea of relying upon Mr Shorter after incurring the cost of a lengthy report.  However, in my view, that was the only reasonable option.  Adducing evidence from Mr Shorter was unreasonable, in my view, because his opinions were so far-fetched as to make his evidence useless.

1. At the hearing the respondent relied upon the evidence of only one valuer, a Mr Harrison.  I concluded that he had significantly overstated the adverse effects of the pipeline easement relating to security risks, disease risks, and the loss of privacy; that he had taken into account the possibility of problems relating to centre pivot technology when there was no likelihood of that technology being introduced; and that evidence given by him to the effect that there would be greater injurious affection if the pipeline were not fenced did not bear scrutiny.  He also exaggerated the impact of the pipeline in relation to other matters that I did not mention in my judgment, including erosion, the burying of dead stock, the construction of drains and other works, and farming development.  However the matters addressed by Mr Harrison were, generally speaking, matters that had to be considered in relation to the injurious affection claim.  I do not think the conduct of a party to a case like this should be regarded as unreasonable merely as a result of that party calling a witness whose opinions are based on assumptions that are shown to be inaccurate, unduly pessimistic, or unduly optimistic.  I do not think the assumptions made by Mr Harrison were so inappropriate that the respondent's conduct in relying upon his evidence should be regarded as unreasonable.  I do not think the proceedings were made significantly longer or more costly as a result of Mr Harrison forming opinions that needed to be contradicted, to be tested in cross-examination, and to be the subject of submissions.

1. In my view, the conduct of the respondent was unreasonable only to the extent that it adduced, and to a degree relied upon, the evidence of Mr Shorter.  The Crown chose to respond to that evidence by calling an eminent interstate expert.  It need not have done that.  Mr Shorter's opinions were so absurd that there was never a likelihood of any reliance being placed on them.  The proceedings were made longer and more costly as a result of Mr Shorter being called, but also as a result of the way in which the Crown responded to the adducing of his evidence.

Excessive claim

1. Counsel for the respondent submitted at the hearing that the compensation for injurious affection should be assessed at about $140,000 to $150,000.  That submission was based upon the expert evidence of Mr Harrison.  On 5 April 2004, Mr Harrison swore an affidavit in which he assessed the compensation that should be payable for injurious affection as $110,000, provided the boundaries of the pipeline easement were fenced.  He estimated the cost of such fencing to be $151,200.  On 29 September 2004 he swore a further affidavit in which he expressed the opinion that his figure of $110,000 should be increased by approximately $40,000 if the easement were not fenced.  That apparently led to the higher figure of $150,000 adopted by counsel for the respondent.

1. However the applicant relies not just upon the stance taken by the respondent at the trial, but also upon the respondent having claimed larger sums prior to the hearing.  The history of the negotiations between the parties is as follows:

·On 17 September 2002 the respondent's then solicitor wrote to one of the Valuer-General's officers claiming $725,000 compensation, as well as certain expenses.  No component for injurious affection was quantified.

·That officer wrote back to the respondent's solicitor on 4 February 2003 making a counter offer of $50,360.  That did not relate to injurious affection alone.  The amount offered was only $10 more than the amount that I assessed for injurious affection, but that is an insignificant coincidence because there were other substantial components of the respondent's claim.

·On 23 July 2003, the respondent's then solicitor wrote to the Crown's solicitors.  It appears from that letter that the injurious affection component of the $725,000 claim amounted to $686,328.

·On 31 July 2003 representatives of the parties and their valuers met to discuss the claim, but it was not resolved.

·On 5 April 2004 Mr Harrison swore the affidavit in which he assessed the compensation for injurious affection as $110,000, subject to the boundaries of the pipeline easement being fenced. 

·On 29 September 2004 Mr Harrison swore the further affidavit in which he said that his figure of $110,000 should be increased by approximately $40,000 if the easement were not fenced. 

·By letter dated 23 December 2004, the respondent's solicitors made an offer of settlement for $160,000.  That figure related to all components of the claim.

·On 28 February 2005, the Crown made the offer of $91,500.

·On 16 March 2005, the Crown made the payment into Court of $84,625.

·On 4 May 2005, the Crown made its final offer of $85,093.50.

1. The claim for $725,000 was no doubt excessive.  In fairness to the respondent, I should point out that it was made upon the basis that the Crown had acquired rights of ingress and egress over the whole of each parcel of land affected by the pipeline easement whereas, from 28 February 2005 onwards, the parties negotiated on the basis that the Crown was to have rights of ingress and egress only at either end of the 20 metre wide pipeline easement.  I assessed compensation on the latter basis.

1. It is important to note what s60(2)(b)(iii) requires me to take into account.  It does not require me to take into account the making of an excessive claim.  It requires me to take into account the extent to which the proceedings have arisen from, or been affected by, an excessive claim.  If, from the outset, the respondent had made and pursued a claim that was not excessive, I think it would still have been necessary and appropriate for these proceedings to have been instituted, and for the proceedings to have been conducted in very much the same way.  Since adequate compensation was not offered to the respondent, the size of the amounts claimed by it from time to time have really made no difference to the course of the proceedings.

Issues on which the respondent failed

1. The applicant contends that it was wholly successful in relation to two significant issues – the safety issue and the OH & S issue. It contends that the respondent acted unreasonably in relation to those issues at the trial. It relies not just on the provisions of s60(2), but also on the case law as to departing from the general rule that costs follow the event when a party has been unsuccessful in relation to significant issues.

1. The relevant principles as to departure from that general rule were usefully summarised by Toohey J in Hughes v Western Australian Cricket Association (Inc) [1986] ATPR ¶40-748 at 48,136 in the following terms:

   "The discretion must of course be exercised judicially. There are decisions, both of Australian and English courts, that throw light on the way in which the discretion is to be exercised. I shall not refer to those decisions in any detail; I shall simply set out in a summary way what I understand to be their effect.

   1  Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 KB 47.

   2  Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar [1893] 1 QB 564.

   3  A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 13 SASR 4 at 12."

1. That passage was cited with approval by Underwood J (as he then was) in Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (No 3) (2003) 12 Tas R 325 at 331.

1. In Cretazzo v Lombardi (supra), Jacobs J said the following at 16:

"But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues."

1. Counsel for the applicant relied heavily on the decision of Talbot J in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2005] NSWLEC 10. In that case, one component of a claim for compensation related to disturbance. The acquiring authority claimed that the applicant was entitled only to $50,000 for disturbance. The applicant sought a much larger amount. Talbot J awarded $55,138.50 for disturbance. He treated the acquiring authority as the successful party in relation to that issue, and ordered the applicant to pay the costs in respect of a separate hearing that had been held on that issue. In this case, counsel for the applicant submitted that it should similarly be regarded as the successful party in relation to the injurious affection issue, and should therefore have its costs.

1. In my view it is not as simple as that.  I think Walker CorporationPty Ltd v Sydney Harbour Foreshore Authority should be treated as a discretionary decision based on a unique set of facts.  The total amount of compensation payable to the successful applicant in that case was over $43 million.  Its claim related to a property that it had contracted to purchase for $16.5 million.  The land was compulsorily acquired before completion of the purchase contract.  It was not a case in which an order for costs would erode the awarded compensation to any significant degree, whereas this is such a case.

Exercise of the discretion as to costs

1. Some of the principles that should be applied in determining costs applications in cases like this were set out by Wells J in Minister for the Environment v Florence (1979) 21 SASR 108 in the following passage at 134 – 135:

   "Compulsory acquisition cases differ of course from ordinary claims dealt with in the general jurisdiction in one significant respect: the claimant, unlike the ordinary plaintiff, had no choice whether to make a claim or not; the mere acquisition by compulsory process gave him, by virtue of s18 of the Act, a claim to compensation which he could hardly be expected to renounce.

   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."

2. Since the compensation awarded was only $3,500 more than the Crown had offered, and tens of thousands of dollars less than the respondent was seeking, I think the Crown should be regarded as having had a greater victory than the respondent in this case.  However I regard it as very significant that the respondent needed to take this case to a hearing in order to obtain the amount of compensation that I determined to be appropriate.  Another factor weighing in favour of the respondent is that its compensation will be significantly eroded if it is ordered to pay costs, or if it does not recover its costs in full:  Pastrello v Roads & Traffic Authority of New South Wales [2000] NSWLEC 209; Downie v Sorell Council [2005] TASSC 74 per Hill AJ at par112. But for the respondent's reliance on Mr Shorter's evidence and its failure on the OH & S issue, I think the application of the principles that I have referred to would have led me to the conclusion that the applicant should pay all the respondent's costs. Taking into account those principles, the respondent's unreasonable conduct in relying upon Mr Shorter's evidence, and its failure on the OH & S issue, I think the appropriate course is to order the applicant to pay the bulk of the respondent's costs, but not all of them.

1. I order that the applicant pay 85 per cent of the respondent's costs.