Taylor v Port Macquarie-Hastings Council

[2010] NSWLEC 153

Reported Decision: 175 LGERA 189

Land and Environment Court

of New South Wales

CITATION:

Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 153

PARTIES:

APPLICANTS:
John Henry Taylor and Mildred Joy Taylor

RESPONDENT:
Port Macquarie-Hastings Council

FILE NUMBER(S):

30623 of 2005

CORAM:

Biscoe J

KEY ISSUES:

COSTS :- in class 3 proceedings for compensation for compulsory acquisition under Land Acquisition (Just Terms Compensation) Act 1991 - general costs principles relating to such proceedings - whether offers of compromise fell within the rules of court - if so, whether otherwise orders should be made - whether offer of compromise alternatively operated as a Calderbank offer - whether costs should be apportioned - interest on costs.

LEGISLATION CITED:

Civil Procedure Act 2005, ss 56, 98, 101, Sch 6 cll 10, 15, 17
Land Acquisition (Just Terms Compensation) Act 1991, ss 3(1), 54(1)
Land and Environment Court Act 1979, s 34
Land and Environment Court Rules 1996, Pt 13 r 27
Supreme Court Rules 1970, Pt 22, Pt 52A r 22
Uniform Civil Procedure Rules 2005, rr 20.26, 42.13-17

CASES CITED:

AMP Capital Investors Ltd v Transport Infrastructure Development Corporation (No 3) [2007] NSWLEC 724
AMP Capital Investors Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325, 163 LGERA 245
Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349
Bailey v Meredith [2001] NSWCA 149
Banno v Commonwealth of Australia (1993) 45 FCR 32, 81 LGERA 34
Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109
Calderbank v Calderbank [1975] 3 All ER 333
Cassaniti v Commissioner of Taxation (No 1) [2006] FCA 1666
Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790
Constantino v Roads and Traffic Authority (NSW) (No 2) [2005] NSWLEC 209, 144 LGERA 224
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273
Crump v Equine Nutrition Systems Pty Ltd (No 2) [2007] NSWSC 25
Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141
East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159
EDPI Pty Ltd v Rapdocs Pty Ltd [2007] NSWSC 195
Evans Shire Council v Richardson (No 2) [2006] NSWCA 61
F & D Bonaccorso Pty Ltd v Canada Bay City Council (No 3) [2007] NSWLEC 569
Hillier v Sheather (1995) 36 NSWLR 414
Horton v Wyong Shire Council (No 2) [2005] NSWLEC 45
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85
Lahoud v Lahoud [2006] NSWSC 126
Leda v Weerden (No 3) [2006] NSWSC 220
Leichhardt Municipal Council v Green [2004] NSWCA 341
Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721
Maloney v Cowra Shire Council [2000] NSWLEC 107
Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 684
Minister for the Environment v Florence (1979) 21 SASR 108
Nevitoro Investments Pty Ltd v Hawkesbury City Council [2000] NSWLEC 151
New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100
North Albury Shopping Centre Pty Ltd v Albury Municipal Council (1983) 49 LGRA 215
Oshlack v Richmond River Council [1998] HCA 11, 193 CLR 72
Overton Investments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [2001] NSWCA 137, 113 LGERA 439
Pastrello v Roads and Traffic Authority of NSW [2000] 110 LGERA 223
Residents Against Improper Development Inc v Chase Property Investments Pty Ltd [2006] NSWCA 323, 149 LGERA 360
Shaw v Jarldorn (1999) 76 SASR 28
Smart Distribution Services Pty Ltd v General Wholesale Ltd (No 3) [2010] NSWDC 108
South Eastern Sydney Area Health Service v King [2006] NSWCA 2
Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 113
Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194
Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2010] NSWLEC 27
Wollong Pty Ltd v Shoalhaven City Council [2002] NSWLEC 164, 122 LGERA 331

DATES OF HEARING:

3, 6 August 2010

 
DATE OF JUDGMENT: 

13 August 2010

LEGAL REPRESENTATIVES:

APPLICANTS:
Mr T S Hale SC with Mr J R Dupree
SOLICITORS
Russo & Partners

RESPONDENT:
Mr T Robertson SC with Mr J Lazarus
SOLICITORS
Donovan Oates Hannaford

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES

BISCOE J

13 August 2010

30623 of 2005

TAYLOR v PORT MACQUARIE-HASTINGS COUNCIL
JUDGMENT


TABLE OF CONTENTS

Paragraphs


A. INTRODUCTION 1-7
B. BACKGROUND 8-15
C. COSTS PRINCIPLES IN JUST TERMS ACT
CASES 16-22
D. RULES OF COURT RE OFFERS OF
COMPROMISE 23-29
E. APPLICANTS’ 2005 OFFER OF COMPROMISE 30-40
F. RESPONDENT’S 2010 OFFER OF COMPROMISE 41-55
G. ASSUMING 2005 AND 2010 OFFERS
COMPLIED WITH THE RULES 56-61
H. APPORTIONMENT 62-82
I. INTEREST ON COSTS 83-87
J. ORDERS 88

A. INTRODUCTION

1 HIS HONOUR: In this matter I have determined that the applicants are entitled to compensation in the amount of $1,733,586 (comprising $1,525,000 plus statutory interest) under the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) for the resumption of their land at Kew by the respondent: Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 113. I am now determining costs.

2 There is no issue that the applicants are entitled to costs on the ordinary basis between 21 June 2005 when the proceedings were commenced and 29 August 2005 when the applicants made an offer of compromise.

3 Four costs claims are in contest.

4 First, the applicants claim indemnity costs pursuant to the rules of court from the date of their unaccepted 29 August 2005 offer of compromise of $1,200,000 plus costs on an indemnity basis which was expressed to be open for 28 days and to be made in accordance with the Supreme Court Rules 1970 (SCR) (the 2005 offer of compromise). The amount of compensation later awarded by the Court exceeds the amount of the offer. There are issues as to whether this was an offer of compromise in accordance with the rules of court and, if so, whether the court should exercise its discretion under the rules to otherwise order so as to deny the applicants’ entitlement to indemnity costs.

5 Secondly, the respondent claims indemnity costs from the day following its unaccepted 15 February 2010 offer of compromise of $1,600,000 plus statutory interest which was expressed to be open for four days until 19 February 2010 and to be made pursuant to the Uniform Civil Procedure Rules 2005 (UCPR) (the 2010 offer of compromise). The amount of the offer marginally bettered the amount of compensation later awarded by the Court. The date of expiry of the offer was the first day of the hearing, which commenced with a view of the subject property and comparable sales properties. There are issues as to whether this was an offer of compromise in accordance with the rules of court and, if so, whether the Court should exercise its discretion under the rules to otherwise order so as to deny the respondent’s entitlement to indemnity costs.

6 Thirdly, the applicants claim interest on costs pursuant to s 101 of the Civil Procedure Act 2005.

7 Fourthly, the respondent claims orders apportioning costs as follows:

(a) the following be excepted from any costs that the respondent has to pay the applicants:
(i) costs relating to the subpoena of 7 September 2005 which the applicants caused to be issued to the respondent;
(ii) costs relating to the application in the applicants’ notice of motion of 20 December 2005 that the respondent comply with the subpoena;
(iii) costs relating to Supreme Court proceedings No 4591/07 instituted by the applicants in 2007 to enforce a purported settlement of these proceedings and later discontinued;
(iv) costs relating to expert and lay evidence not tendered at trial;
(v) costs relating to interlocutory proceedings in which orders for costs were made in favour of the respondent.
(b) the applicants pay 15 per cent of the respondent’s costs of the proceedings from 1 October 2009 to 22 February 2010, being the costs associated with preparation of the case on the basis that the highest and best use of the land was for a rural/residential subdivision, which the applicants abandoned at trial.
(c) the applicants pay 60 per cent of the respondent’s costs from 1 October 2009, being the costs associated with the applicants’ three comparable sales which the Court did not accept.

B. BACKGROUND

8 The applicants’ land was compulsorily acquired on 1 April 2005 pursuant to the Just Terms Act. The respondent made a statutory offer of compensation of $861,600 based on the Valuer-General’s statutory valuation of 1 April 2005.

9 The applicants rejected the offer and commenced these proceedings on 21 June 2005. The parties were poles apart. The applicants claimed compensation for market value in the sum of about $4.5 million. The respondent contended that compensation for market value should be assessed at $900,000 or alternatively (if the land had industrial potential) at a maximum of $1,270,000.

10 The hearing before me began on 19 February 2010. The delay of about five years in the matter coming on for hearing is grossly excessive. The Court generally strives to hear a Just Terms Act claim within about nine months after commencement. As discussed below, some two years of that delay period was occupied with a wide subpoena to produce documents which the applicants caused to be issued to the respondent; and another year was occupied with the applicants’ fruitless Supreme Court suit for specific performance of an alleged settlement agreement.

11 On 8 August 2005 the respondent served an offer of compromise in the sum of $900,000 inclusive of interest and costs of $2,500. The offer was not accepted by the applicants. It is not directly relevant because the amount of compensation later awarded by the Court exceeds the amount of the offer. The applicants suggest without any real explanation that it might assist in the construction of their 29 August 2005 offer of compromise but I do not see how.

12 On 29 August 2005 the applicants served their 2005 offer of compromise: see [4] above. It was not accepted by the respondent.

13 On 22 February 2007 the Court ordered that the matter be referred for a conciliation conference under s 34 of the Land and Environment Court Act 1979. On 23 May 2007, after attending the conciliation conference, the parties prepared consent orders which provided for the respondent to pay the applicants $1,675,000 plus costs. A dispute arose between the parties as to whether the agreed sum was inclusive of interest. In September 2007 the applicants filed a summons in the Supreme Court of New South Wales seeking to enforce the proposed consent orders. In mid 2008 the summons was dismissed by consent. Thereafter the proceedings in this Court were reactivated.

14 On 28 January 2010 the respondent served an offer of compromise which was not accepted by the applicants, but it is not directly relevant because the compensation later awarded by the Court exceeds the amount of the offer.

15 On 15 February 2010 the respondent served another offer of compromise to which I have earlier referred to as “the 2010 offer of compromise”: see [5] above. The offer was not accepted by the applicants.

16 Section 98(1) of the Civil Procedure Act 2005 provides:

“98 Courts powers as to costs

(1) Subject to rules of court and to this or any other Act :
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.”

(emphasis added)

17 The discretion conferred by s 98 of the Civil Procedure Act is unconfined although it is subject to rules of court and “any other Act”. It is therefore subject to the UCPR and the Just Terms Act.

18 Under the UCPR, subject to Part 42, if the court makes any order as to costs, it is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs: UCPR 42.1.

19 Under the Just Terms Act, an applicant must be justly compensated: ss 54(1) and 3(1)(a) and (b). It “is appropriate that courts develop principles to guide the exercise of the s 98(1) discretion”: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 at [30] following Oshlack v Richmond River Council [1998] HCA 11, 193 CLR 72 at [22], [35]. The interference with the rights of the individual, the confiscatory nature of compulsory acquisition and the statutory entitlement to just compensation have led to the development of different principles in determining costs in cases concerned with compensation for the compulsory acquisition of land compared with ordinary litigation.

20 I recently considered those principles in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2010] NSWLEC 27 at [34]-[37]:

“34 The discretion to award costs in compensation matters is one that has been ‘uniquely applied to tilt the discretion in favour of the dispossessed owner’: Nasser v Roads and Traffic Authority (NSW) [2006] NSWLEC 562, 149 LGERA 289 at [32]. As Jagot J said in Simpson v Bagnall [2008] NSWLEC 79 at [10]:
‘…the compulsory acquisition of land is a serious matter where a dispossessed owner has no option other than to come to court if they dispute the amount of compensation offered. The consequence is that, in the ordinary course, a dispossessed owner can expect to obtain the usual order for costs in their favour, particularly when the amount of compensation determined is greater than that offered by the resuming authority.’


35 As a general principle, a person who has had their land taken by way of compulsory acquisition should not bear their own costs, but rather should be allowed to access the Court to present an arguable and well organised case without being deterred by the prospect of being ordered to pay costs if the case proves unpersuasive: Banno v The Commonwealth (1993) 81 LGERA 34, 45 FCR 32 at 53, Pastrello v Roads and Traffic Authority (NSW) [2000] NSWLEC 209, 110 LGERA 223 at [17]; AMP Capital Investors v Transport Infrastructure Development Corporation (No 3) [2007] NSWLEC 724 at [18] – [21]; AMP Capital Investors v Transport Infrastructure Development Corporation [2008] NSWCA 325, 163 LGERA 245 at [102].

36 In Serbian Cultural Club ‘St Sava’ Inc v Roads and Traffic Authority (NSW) (No 2) [2008] NSWLEC 78 a nil determination of market value gave rise to no order for costs. In that case Jagot J observed at [16]:
‘The cases show that there are no hard and fast rules leaning to any automatic results. The discretion with respect to costs is a broad one that must be exercised judicially having regard to all of the relevant circumstances.’

This decision was cited with approval in BMP Manufacturing Pty Ltd v Roads and Traffic Authority of New South Wales (No 2) [2009] NSWLEC 41.

37 In Banno v The Commonwealth (1993) 81 LGERA 34, 45 FCR 32, Wilcox J referred to the court’s general discretion as to costs and the public interest in allowing applicants in compulsory acquisition matters access to the court without being deterred by the prospect of being ordered to pay costs if their case proves unpersuasive. His Honour went on to observe at LGERA 53:
‘I distinguish the situation of resumees who pursue a vexatious, dishonest or grossly exaggerated claim or present their case in such a way as to impose unnecessary burdens on the Commonwealth or the Court.’”

21 The principles applicable to costs in proceedings for compensation for compulsory acquisition of land have been similarly expressed in many other cases, not limited to cases in this Court, including the following:

(a) In Minister for the Environment v Florence (1979) 21 SASR 108 at 134-135 Wells J said:
“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 s 18 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”.
(b) “The resumption of land is a serious matter. It is not apparent to me why a person who has had his land taken by a government or some other statutory authority should, in addition to losing his land, bear his own costs of seeking what in fact turns out to be just compensation” North Albury Shopping Centre Pty Ltd v Albury Municipal Council (1983) 49 LGRA 215 at 221 per Cripps J.
(c) “The Court has a general discretion as to costs, but the discretion must be exercised on principled grounds. The Commonwealth has succeeded on all issues. It would therefore seem difficult to justify ordering it to pay the applicants’ costs. Moreover, if this was ordinary litigation, the Commonwealth might reasonably expect to obtain an order that the applicants pay its costs. But this is not ordinary litigation. The relationship between the parties giving rise to the litigation did not arise out of their mutual desire; it arose because of a unilateral decision of the Commonwealth to acquire the applicants’ land in order to satisfy a perceived public need. The acquisition left the applicants in the position of either accepting the Commonwealth’s assessment of the proper compensation or of having the court rule on its adequacy. Perhaps people in that position should be allowed access to the Court, to present an arguable and organised case, without being deterred by the prospect of being ordered to pay the Commonwealth’s costs if their case proves unpersuasive. I distinguish the situation of resumees who pursue a vexatious, dishonest or grossly exaggerated claim or present their case in such a way as to impose unnecessary burdens on the Commonwealth or the Court”: Banno v Commonwealth of Australia (1993) 45 FCR 32 at 51; 81 LGERA 34 at 53 per Wilcox J.
(d) “It has been said many times that the compulsory acquisition of land from an unwilling owner is a serious interference with that person’s entitlement to quiet enjoyment and generally wide discretion to do with their own land as they see fit. It is a power of the State which is exercised for the public benefit. Very seldom does the resumption work to the benefit of the dispossessed owner. There needs to be a strong justification for awarding costs against an applicant where the effect of making that order is to erode the benefit of the just compensation recovered as a consequence of the Court’s determination. It is only in special cases that the Court will deprive the owner of the full benefit of the compensation which is determined as fair and just in the circumstances of the case. An order for costs against the interests of the applicants in this case would clearly have a significant impact on the ultimate amount to be recovered by the applicants”: Pastrello v Roads and Traffic Authority of NSW [2000] 110 LGERA 223 at [17] - [18] per Talbot J.

(e) “It is only in special cases that the Court will deprive a dispossessed owner of the benefit of a costs order particularly when the amount recovered is greater than that offered by the resuming authority at any time and significantly greater than any amount offered prior to the litigation”: Horton v Wyong Shire Council (No 2) [2005] NSWLEC 45 at [28] per Talbot J.
(f) After referring to the judgment of Cripps J in North Albury Shopping Centre , Bignold J said in Constantino v Roads and Traffic Authority (NSW) (No 2) [2005] NSWLEC 209, 144 LGERA 224 at [8] – [10]:
“This general approach to the exercise of its costs discretion in proceedings to determine compensation for compulsory land acquisition has consistently permeated the decisions of this Court throughout its history, although it has never been translated into a general or inflexible rule that every claimant obtaining a judicial determination of compensation should obtain a costs order in the proceedings resulting in that determination.”
(g) In Wollong Pty Ltd v Shoalhaven City Council [2002] NSWLEC 164, 122 LGERA 331 at [41] Talbot J said:
“The question remains whether the applicant was sufficiently unreasonable in refusing the offers to settle to justify an order that it pay the respondent’s costs on a party and party basis or whether the philosophy expressed by Wilcox J in Banno v Commonwealth (1983) 81 LGERA 34 should prevail.”

His Honour concluded that the applicant should pay the respondent’s costs on the ordinary basis after the service of the respondent’s Calderbank letter.

22 The application of these principles can be seen in decisions of the Court of Appeal. In AMP Capital Investors Ltd v Transport Infrastructure Development Corporation (No 3) [2007] NSWLEC 724 the Valuer General had determined the amount of compensation to which AMP was entitled in the amount of $683,150. AMP claimed compensation of $21,465,352. This Court at [1] determined compensation as nil yet ordered that each party pay its own costs notwithstanding the result. The costs order was not disturbed on appeal: AMP Capital Investors Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325, 163 LGERA 245. In Overton Investments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [2001] NSWCA 137, 113 LGERA 439 the statutory valuation had been $727,500. This Court determined compensation at $186,031.54. The Minister unsuccessfully sought to have Overton pay its costs. The costs decision of the primary judge was upheld on appeal. Stein JA at [72] observed that such proceedings were not like ordinary litigation. In Residents Against Improper Development Inc v Chase Property Investments Pty Ltd [2006] NSWCA 323, 149 LGERA 360 at [251] McClellan CJ at CL obliquely referred to the special costs principles developed in relation to proceedings under the Just Terms Act.

D. RULES OF COURT RE OFFERS OF COMPROMISE

23 The rules of court encourage compromise of litigation by prescribing costs consequences for unaccepted offers of compromise. A party who does not accept an offer of compromise made by the other party will only know after judgment if it was right to fight on rather than to accept the offer. The offer of compromise costs rules operate on the premise that if an offer is made by one party, the other party will weigh up the advantages and disadvantages of not accepting the offer. In doing so, that party should take into account the ordinary risks of such litigation: Shaw v Jarldorn (1999) 76 SASR 28 at 29-30 (FC). A significant risk in many cases under the Just Terms Act is that it is difficult to predict the amount of compensation that might be awarded where, as is common, there are large differences in the valuation assessments and underlying planning assessments of the respective parties’ expert valuers and planners. The present case is in that category: the applicants, supported by their valuer, claimed market value compensation of over $4.5 million; the respondent, supported by its valuer, contended that market value was $900,000 or, alternatively, $1,270,000.

24 At the time of the applicants’ 2005 offer, the applicable offer of compromise rules were SCR 22 and 52A.22 which applied by dint of Pt 13 r 27 of the Land and Environment Court Rules 1996. It was not until later, on 28 January 2008, that that regime ended when this Court came under the regime of the Uniform Civil Procedure Rules 2005 and the Civil Procedure Act 2005. Although the Land and Environment Court Rules 1996 have been repealed and the old Supreme Court Rules no longer apply to these proceedings, the old Supreme Court Rules in force when the 2005 offer of compromise was made should be applied, and the parties proceeded on the basis that they were applicable, to that offer: see the transitional provisions in the Civil Procedure Act 2005 Schedule 6, cll 10, 15 and 17; Crump v Equine Nutrition Systems Pty Ltd (No 2) [2007] NSWSC 25 at [62].

25 The rules of court applicable to the respondent’s 2010 offer of compromise are UCPR 20.26 and 42.13 – 42.17.

26 Relevantly, the effect of the rules of court is as follows:

(a) as regards the applicants’ 2005 offer of compromise, where an applicant makes an offer of compromise not accepted by the respondent, and the applicant receives a judgment no less favourable than the offer, then, unless the court otherwise orders, the applicant is entitled to costs on an indemnity basis from the day the offer was made, and costs on the ordinary basis before the date of the offer: SCR 52A.22(4);
(b) as regards the respondent’s 2010 offer of compromise, where a respondent makes an offer not accepted by the applicant, and the applicant receives a judgment not more favourable than the terms of the offer, then, unless the court otherwise orders, the applicant is entitled to costs on the ordinary basis up to and including the beginning of the day following the date of the offer, and, unless the court otherwise orders, the respondent is entitled to costs on an indemnity basis thereafter: UCPR 42.15(2).

27 The onus is on the offeree to demonstrate why the Court should make an “otherwise” order under the rules. Exceptional circumstances are generally required to justify such an order: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [83]; Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109. It is impossible exhaustively to state the circumstances in which the discretion to make an otherwise order might be exercised: New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (CA) at 102. However, the fact that an offeror’s case had changed significantly between the date of the offer of compromise and the trial in which the offeror obtained a better result than the amount of the offer provides a sufficient basis for an order denying the offeror’s entitlement to indemnity costs: South Eastern Sydney Area Health Service at [85] following Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725. Inadequacy of information available to the offeree at the time of the offer is a relevant consideration: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [24].

Supreme Court Rules

28 Relevantly to the applicants’ 2005 offer of compromise, SCR 22 and 52A.22 provide:

“ Part 22 Offer of Compromise

Division 1 Offer to compromise non-costs claim

1 General

Subject to Division 2:
(a) …
(b) if an offer of compromise made under this Division contains a term which purports to negative or limit the operation of Part 52A rule 22 (1), that offer shall be of no effect for any purpose under this Division or Part 52A rule 22.

2 Application

In any proceedings the plaintiff or the defendant may make to the other an offer to compromise any claim in the proceedings on the terms specified in the notice of offer.

3 Time for making or accepting offer

(1) An offer may be made at any time before the time prescribed by subrule (8) in respect of the claim to which it relates.
(2) A party may make more than one offer.
(3) An offer may be expressed to be limited as to the time it is open to be accepted but the time expressed shall not be less than 28 days after it is made .
(4) (Repealed)
(5) An offeree may accept the offer by serving notice of acceptance in writing on the offeror before:
(a) the expiration of the time specified in accordance with subrule (3) or, if no time is specified, the expiration of 28 days after the offer is made, or
(b) the time prescribed by subrule (8) in respect of the claim to which the offer relates,
whichever is sooner.

(6) An offer shall not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders.
(7) An offer is open to be accepted within the period referred to in subrule (5) notwithstanding that during that period the party to whom the offer (the first offer) is made makes an offer (the second offer) to the party who made the first offer whether or not the second offer is made in accordance with this Division.
…

Part 52A Costs

22 Offer of compromise

(1) Upon the acceptance of an offer of compromise in accordance with Part 22 rule 3 (5), the defendant shall, unless the Court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted.
(2) If a notice of offer contains a term which purports to negative or limit the operation of subrule (1), that offer shall be of no effect for any purpose under Part 22 or this rule .
(3) Subrules (4)–(6) apply to an offer which has not been accepted at the time prescribed by Part 22 rule 3 (8).
(4) Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders , the plaintiff shall, subject to rule 33, be entitled to an order against the defendant for the plaintiff’s costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to his costs incurred before and on that day, assessed on a party and party basis.”

(emphasis added)

29 There are significant differences between the offer of compromise regime in the UCPR and the regime in the old SCR. Relevantly, under SCR 22.3(3) all offers had to be open for acceptance for at least 28 days, but under UCPR 20.26(7)(b) the offer must be left open “for such time as is reasonable in the circumstances” in the case of an offer made less than two months before the date set down for commencement of the trial. Further, the position of an offer which is not exclusive of costs is now specifically governed by UCPR 20.26(2). UCPR 20.26 and 42 provide:

“20.26 Making of offer

(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.
(2) An offer must be exclusive of costs , except where it states that it is a verdict for the defendant and that the parties are to bear their own costs.
…
(6) An offer may be expressed to be limited as to the time it is open for acceptance.
(7) The following provisions apply if an offer is limited as to the time it is open for acceptance:
(a) the closing date for acceptance of the offer must not be less than 28 days after the date on which the offer is made, in the case of an offer made 2 months or more before the date set down for commencement of the trial,
(b) the offer must be left open for such time as is reasonable in the circumstances, in the case of an offer made less than 2 months before the date set down for commencement of the trial .

…
(10) A party may make more than one offer in relation to the same claim.
(11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer.
(12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division.”

42.13 Application

This Division applies to proceedings in respect of which an offer of compromise (the offer concerned ) is made under rule 20.26 with respect to a plaintiff’s claim (the claim concerned ).

42.13A Where offer accepted

(1) This rule applies if the offer concerned:
(a) is made by the plaintiff and accepted by the defendant, or
(b) is made by the defendant and accepted by the plaintiff.
(2) The plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made, unless:
(a) the offer states that it is a verdict for the defendant and the parties are to bear their own costs, or
(b) the court orders otherwise.


42.15 Where offer not accepted and judgment as or less favourable to plaintiff

(1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim concerned as favourable to the plaintiff, or less favourable to the plaintiff, than the terms of the offer.
(2) Unless the court orders otherwise:
(a) the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and
(b) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made”.
…
(emphasis added)

30 The respondent submits that:

(a) because the applicants’ 2005 offer of compromise required the respondent to pay the applicants’ costs on an indemnity basis, it purported to “negative or limit the operation” of SCR 52A.22(1) which provided that, upon acceptance, the respondent shall, unless the Court otherwise orders, pay the applicants’ costs up to and including the day the offer was accepted;
(b) consequently, the offer was ineffective as an offer of compromise under the rules: SCR 22(1)(b), 52A.22(2).

31 An offer of compromise purporting to be pursuant to the rules which is expressed to be for $x “plus costs” is an offer made pursuant to the rules because it merely makes plain that which was in any event the fact under UCPR 42.13A: Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 684; Smart Distribution Services Pty Ltd v General Wholesale Ltd (No 3) [2010] NSWDC 108.

32 An offer of compromise for a specified amount “inclusive of costs” cannot be given effect to under the rules of court because it is impossible to determine whether or not the result of the proceedings is more or less favourable than the offer: Associated Confectionary (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. In that case Giles J held that a defendant’s offer of compromise of a money sum inclusive of costs was ineffective under the SCR because (a) it conflicted with an SCR provision that upon acceptance the plaintiff was entitled to tax its costs and (b) it purported to negative or limit the operation of an SCR provision that upon acceptance the plaintiff was entitled to costs on the ordinary basis. Those SCR provisions were similar to the later SCR 52A.22(1) and (2). UCPR 20.26(2) (“an offer must be exclusive of costs”) reflects the law as stated in Associated Confectionary: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194; Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [28]. Those cases (see Dean at [23]) recognised that the governing reasoning is inconsistency between an offer of compromise and the provisions of the rules with respect to costs.

33 In Trustee for the Salvation Army the Court of Appeal held that an offer of compromise which included a term that the offeror’s costs be paid “out of the estate of the deceased on the indemnity basis” was inclusive of the costs of the proceedings and accordingly no effect could be given to it under the UCPR: at [10] – [25]. The Court of Appeal did not say whether this costs term offended the rules because of its requirement that costs be paid out of the estate or whether it also offended the rules because it required the costs to be paid on the indemnity basis. If the latter, then the decision is in point.

34 SCR 52A.22(1) provides that upon acceptance of an offer of compromise under the rules “the defendant shall, unless the court otherwise orders, pay the costs in respect of the claim by the plaintiff against the defendant up to and including the day the offer was accepted”. That means costs on the ordinary basis (formerly called the party and party basis). The applicants’ 2005 offer of compromise conflicts with that rule because it required the respondent to pay the applicants’ costs on the indemnity basis. The governing reasoning in this area is inconsistency between an offer and the provisions of the rules relating to costs. That term of the offer may be regarded as purporting to negative or limit the operation of SCR 52A.22(1) within the meaning of SCR 52A.22(2). Accordingly, the 2005 offer of compromise in my opinion was ineffective as an offer of compromise under the SCR.

35 If I am in error and the 2005 offer of compromise was effective under the SCR, the respondent submits that the Court should exercise its discretion to make an “otherwise” order under SCR 52A.22(4) that the 2005 offer has no costs consequences such that the applicants are only entitled to costs on the ordinary basis from that date until 15 February 2010 (subject to certain exceptions). The respondent submits that an otherwise order should be made because:

(a) the statutory valuation, which was the most recent valuation available to the respondent at the date of the 2005 offer, valued the land at between $764,400 and $859,400;
(b) the offer was made at an early stage of the proceedings and the applicants did not provide a valuation exceeding their offer until October 2009;
(c) the applicants changed their case after the offer was made which is a sufficient reason to deny indemnity costs;
(d) the applicants have conducted their proceedings in a wasteful and dilatory manner which has caused the respondent to incur large costs unnecessarily. A successful offeror may be deprived of costs attributable to its conduct: EDPI Pty Ltd v Rapdocs Pty Ltd [2007] NSWSC 195 at [82] – [85];
(e) the applicants’ offer was overtaken by the respondent’s 2010 offer;
(f) the applicants’ case as presented to the Court was rejected in its entirety.

36 If the 2005 offer of compromise is effective under the SCR (contrary to my opinion), then having regard to the principles discussed at [27] above, I am persuaded by factors (a), (b) and (c) of the respondent’s submissions that an otherwise order should be made that the 2005 offer of compromise has no costs consequences.

37 The applicants alternatively submit that the 2005 offer of compromise should be considered as a Calderbank offer (named after the seminal case of Calderbank v Calderbank [1975] 3 All ER 333).

38 A Calderbank offer is a recognised method of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is refused. Although Calderbank offers lie outside the rules of court, they are allowed because they facilitate the public policy objective of providing an incentive for parties to end their litigation as soon as possible: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14]. The court may award costs on an indemnity basis after the date of a Calderbank offer if it was unreasonable in the particular circumstances for the offeree not to have accepted the offer and the offeree ends up worse off than if the offer had been accepted. There is no automatic right to indemnity costs if a Calderbank offer is not accepted: East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159 at [13] – [15]. The Calderbank offeror bears the onus of satisfying the court that in all the circumstances the failure to accept the offer was “unreasonable” and that the court therefore should exercise the discretion to award indemnity costs in the offeror’s favour: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 at [31]. It is relevant to the exercise of the discretion that the offeror’s final case was significantly different to its case when the offer was made: East West at [16].

39 An offer of compromise purporting to be made under the rules of court but which in fact falls outside the rules can operate as a Calderbank offer only if it clearly indicates an intention to operate as a Calderbank offer in the event that it does not fall within the rules: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [31] – [34].

40 I reject the applicants’ Calderbank claim for indemnity costs. In the first place, the 2005 offer of compromise was not in my view a Calderbank offer because it purported to be under the SCR and did not indicate clearly or at all an intention to operate as a Calderbank offer if it did not fall within the SCR. Secondly, it was not unreasonable for the respondent to have refused the offer. It was made at an early stage of the proceedings when the respondent had been provided with no valuation evidence that would support the offer (indeed the applicants did not produce any such valuation evidence until years later) and it was for far more than the amount of the statutory valuation which was the only valuation of which the respondent was then aware.

F. RESPONDENT’S 2010 OFFER OF COMPROMISE

41 The respondent’s 15 February 2010 offer of compromise was open for four days. The UCPR required it to be open for “such time as is reasonable in the circumstances”.

42 The applicants apply orally for an order dispensing with the applicable uniform rules and a consequential order making applicable the old SCR provisions which required the offer to remain open for 28 days. The applicants submit that the Court has power to make such orders under the Civil Procedure Act Schedule 6 cl 15(2) because these proceedings were commenced before the commencement date of the UCPR. Clause 15 provides:

“ 15 Pending proceedings

(1) Subject to subclause (2), this Act and the uniform rules apply to relevant proceedings commenced in the Land and Environment Court before the relevant commencement date in the same way as they apply to relevant proceedings commenced on or after that commencement.
(2) If relevant proceedings are commenced in the Land and Environment Court before the relevant commencement date, the Land and Environment Court may make such orders dispensing with the requirements of the uniform rules in relation to the proceedings, and such consequential orders (including orders as to costs), as are appropriate in the circumstances.”

43 Assuming without deciding that the Court has power to make the orders sought, in the exercise of my discretion I decline to do so. In the first place, it would be grossly unfair to the respondent to make such an order when the respondent reasonably and clearly relied on the UCPR provisions when making the offer. Secondly, I can see no good reason why such an order should be made.

44 The applicants then submit that as the respondent’s offer of 15 February 2010 was open for acceptance for only four days it was not open for a time that was “reasonable in the circumstances” as required by UCPR 20.26(7)(b), and therefore was not effective as an offer of compromise under the rules.

45 In Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85, a commercial case, Kooee served an offer of compromise on Primus on the day before the trial was due to commence which was expressed to remain open for less than 23 hours. The offer was not accepted and was more favourable to Primus than the judgment Primus ultimately obtained. The Court of Appeal held that the offer was not left open for such time as was reasonable in the circumstances and so could not bring an entitlement to indemnity costs under the rules. Basten JA delivered the leading judgment. Giles and Tobias JJA, agreeing with Basten JA’s balancing of the relevant factors, added at [2]:

“…the many observations to the effect that service of an offer of compromise under rules of court obliges the offeree to give serious thought to the risks of the proceedings and their outcome (eg Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724; Hillier v Sheather (1995) 36 NSWLR 44 at 422) mean that the court should not be ungenerous to an offeree in determining whether a time is reasonable.”

46 Basten JA balanced the relevant factors as follows:

“15 Viewed in the abstract, an offer which is made less than 23 hours before the commencement of a hearing and requiring acceptance within that period, would not appear to have been left open for a reasonable time. Against that, there are practical considerations which might support a different conclusion. The first is that each of the parties had made prior offers, that of Kooee having been the subject of explanation as to the method of calculation of the component parts. Secondly, less than two weeks earlier Primus had made an assessment of its own position which led it to make an offer to settle for an amount of $2.5 million, an amount $1.25 million above the first Kooee offer. The second offer by Kooee reduced that gap by $300,000. Both the figures and the timing suggest that Primus could have been expected to assess the second offer with reasonable expedition.

16 The practical circumstances which must have existed at the time the offer was made may be said to tend in either direction. Thus, it appears to be common ground, as the Court might have assumed, that the legal representatives of Primus were conferring in preparation for the forthcoming trial, throughout the period that the offer was open. While that may have facilitated an immediate consideration of the offer by advisers who were focused on the relevant issues, it may also be said that the provision of an offer the day before trial provided an inconvenient distraction from preparation of the case for hearing.

…

20 In considering whether the time allowed for acceptance is ‘reasonable in all the circumstances’ once a trial commences, or indeed final preparation commences, three factors come into play. The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation.

21 In relation to the first factor, it should be accepted that by the day before the hearing, in commercial litigation involving experienced counsel and solicitors, the legal representatives would have been able to give the client an immediate assessment of:
(a) the approximate costs incurred to date;
(b) the likely length of the trial;
(c) the approximate amount of costs assessed on an indemnity basis if the matter proceeded to trial, and
(d) the most likely outcome, which may involve a range as to quantum.
It should also be accepted that someone with authority to bind the client would have been available to give instructions based on legal advice as to the preferable response.


22 In seeking to demonstrate that the offer had not been left open for a reasonable time in all the circumstances, Primus sought to put before the Court evidence of how the offer was made and the circumstances of its own legal representatives at the time. However, that material was not relevant for this purpose. The question of reasonableness must be judged objectively, in the circumstances known, or which should reasonably have been anticipated, by both parties . In setting the time during which the offer is to remain open, the offeror must necessarily rely upon the circumstances as known to it, or which should reasonably be anticipated by it. The actual circumstances of the recipient, unknown to the offeror, may be relevant to an application that the Court otherwise order in relation to costs of a valid unaccepted offer, but so might evidence as to whether the recipient took any steps to bring such matters to the notice of the offeror .

23 In the present case, the time allowed was, on any view, a short period for the consideration of a global assessment of a reasonably complex dispute. It is Kooee which seeks to establish an entitlement to indemnity costs. To do that it must demonstrate that its offer was left open for a period which was reasonable in all the circumstances. Because the present case is truly borderline, it should be concluded that Kooee has failed to establish that its offer was left open for a reasonable time. Accordingly, the offer did not fall within UCPR r 20.26 and its non-acceptance did not engage the costs consequences in r 42.15.”

(emphasis added)

47 Basten JA also commented on the absence of a basis for an otherwise order (if it were to be assumed that the offer was open for a reasonable time):

“24 If, contrary to the conclusion reached above, it were thought that the offer was open for a reasonable time, there would have been no obvious basis for the Court to make an order other than that which would flow from the operation of r 42.15. It was not suggested in the present case that any of the considerations which sometimes apply, such as inadequacy of information, or a change in the basis of a case, was relevant in the present circumstances. It would have followed that Primus would have been entitled to its costs of the trial on the usual basis up until 11.00am on 31 January 2007 and thereafter would have been required to pay Kooee’s costs on an indemnity basis.

48 In Leda v Weerden (No 3) [2006] NSWSC 220 a negligent advice action failed. Shortly before the hearing commenced the defendant made an offer of compromise which was more favourable to the plaintiff and which stated that it was open for acceptance for four days. It was not accepted. Gzell J held that the offer was open for acceptance for a reasonable time in the circumstances. His Honour reasoned as follows at [10] – [12]:

“10. In my view, the parties will be in the best position to assess an offer when it is made shortly before the commencement of the trial. By that stage preparation for the trial will be well in hand and the legal advisers will, therefore, be armed with sufficient information to make a reasoned judgment of the offer.

11. It was said that the plaintiff was in the throes of significant preparation for trial and was not in a position to give consideration to the offer. The whole point about offers of this nature is to encourage the proper compromise of litigation in the private interests of litigants and in the public interest in the prompt and economic disposal of litigation. Recent reference to these matters was made by Hunt AJA in South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [83].

12. In my view, the offer was in compliance with the Uniform Civil Procedure Rules 2005, r 20.6 with the consequence that r 42.15(2)(b)(i) applies and, unless the court orders otherwise, Leda is entitled to an order against Mr Weerden for its costs in respect of the claim, to be assessed on the ordinary basis, up to the beginning of the day following that on which the offer was made and Mr Weerden is entitled to an order for costs on an indemnity basis thereafter. I propose to make orders in accordance with that provision. I do not see any basis upon which I should make an order to the contrary.”

49 In many if not most cases of ordinary litigation, of which Leda was one, an offer of compromise open for four days made shortly before trial will be open for a reasonable time in the circumstances. Shortly before trial is the season for offers, the time when the parties are generally attune to compromise and well positioned to judge the acceptability of an offer. That appears to explain why the UCPR provide for a 28 day acceptance period for offers made more than two months before trial, but for a “reasonable period in the circumstances” for offers closer to trial. Although one offer may not a season make, in the present case the parties were attune to offers for the respondent had made a lower offer a month or so earlier and the parties had engaged in a conciliation conference shortly before the respondent’s 15 February 2010 offer.

50 The present case is borderline but I consider that, in the context of this claim under the Just Terms Act, the 2010 offer was not open for a reasonable time in the following circumstances known, or which should reasonably have been anticipated, by both parties:

(a) the applicants were elderly people (aged 78 and 81) who were likely to be reliant on their lawyers and valuer for advice;
(b) the applicants’ resumed land was a significant asset for them and the amount of compensation would have a significant effect on their financial future;
(c) because of factors (b) and (c) the applicants were not likely to respond quickly to an offer of compromise and it was not reasonable to expect them to respond quickly;
(d) the applicants’ valuer Mr Dobrow would be constrained in advising the applicants’ legal representatives as openly as otherwise because he could not disclose what was happening in the Court directed joint conference with the respondent’s valuer in which he was engaged during the week of 15 February with the object of producing a joint report which set out the matters on which the valuers agreed, the matters on which they disagreed and the reasons for disagreement. That report was dated Monday 22 February, after the offer had expired. The Court’s Practice Note Class 3 Compensation Claims stated at [37] – [38]:
“37. If experts are directed by the Court to confer, experts are to ensure that any joint conference is a genuine dialogue between experts in a common effort to reach agreement with the other expert witness about the relevant facts and issues. Any joint report is to be a product of this genuine dialogue and is not to be a mere summary or compilation of the pre-existing positions of the experts.
38. Legal representatives are not to attend joint conferences of experts or be involved in the preparation of joint reports without the leave of the Court.”
(e) the applicants’ lawyers were engaged in final preparation and, together with the applicants’ valuer, had to travel to northern New South Wales on Thursday 18 February for the Court’s view of the subject property on Friday 19 February. The valuers’ joint report was not yet available to them.

51 If I am in error and the 2010 offer of compromise was effective under the rules of court, the applicants submit that the Court should exercise its discretion under the rules to otherwise order as follows:

(a) if their 2005 offer of compromise was valid, order the respondent to pay the applicants’ costs from the date of the applicants’ 2005 offer on an indemnity basis;
(b) if their 2005 offer was invalid, order the respondent to pay the applicants’ costs on the ordinary basis.

52 The actual circumstances of the offeree applicants, unknown to the offeror respondent, may be relevant to the application for an otherwise order but so might evidence of whether the applicants took any step to bring such matters to the notice of the respondent: Kooee at [22] cited at [46] above.

53 Relevant actual circumstances of the applicants, unknown to the respondent, included the following: (a) in the perception of the applicants’ solicitor, the applicants were not in a position to make a decision during the time the offer was open because their senior counsel was unable to confer with their solicitor due to counsel’s other commitments and they were only able to speak by mobile phone on the day of the Court view on 19 February 2010, and their valuer had (erroneously) told the solicitor he could not advise at all in relation to the offer because he was engaged in the joint expert conference; (b) the applicant, Mr Taylor, was ill during the week of 15 to 19 February and was unable to attend on his solicitor until Friday 19 October, at 2 pm; and (c) the applicants were people whose practice, apparently due to their health and age, was to confer face to face with their solicitor and to take days to consider advice.

54 I take into account that the applicants’ solicitor took no steps to bring those circumstances to the respondent’s attention; nor (apparently because he was unaware of the true position himself) did he inform the applicants’ valuer that the latter was not prevented from advising in respect of the offer (subject to the constraints relating to the pending joint experts’ conference). If it is relevant, I do not think it is safe to accept the respondent’s suggested inference from the applicants’ later settlement offer on 27 April 2010 of $2.8 million (plus interest and costs) that even if the respondent’s 2010 offer of compromise had been open for longer, it undoubtedly would not have been accepted.

55 On balance, assuming that the 2010 offer of compromise was effective under the rules, I am persuaded that when the circumstances referred to at [53] above are added to the circumstances listed at [50] above, an otherwise order should be made that the 2010 offer of compromise has no costs consequences under the rules.

56 Assuming (contrary to my opinion) that the 2005 and 2010 offers both complied with the rules relating to offers of compromise (and that otherwise orders are inappropriate), the respondent submits that the rules must then apply to both offers with the result that the applicants are entitled to indemnity costs after the date of their 2005 offer and the respondent is entitled to indemnity costs after the date of their 2010 offer. The respondent submits that what otherwise might be a conflict after the date of the 2010 offer should be reconciled by making an otherwise order that:

(a) the applicants’ 2005 offer ceased to have effect when the respondent’s 2010 offer took effect; or
(b) alternatively, from the time when the respondent’s 2010 offer took effect the respondent’s entitlement to costs thereunder should be set off against the applicants’ entitlement to costs under their 2005 offer.

57 The first of those alternatives attributes superiority under the rules to the second offer. The second of those alternatives gives equal operation to both offers under the rules and proposes a setoff. In other contexts there is generally no difficulty in making an order for set off of costs as, for example, was done in Bailey v Meredith [2001] NSWCA 149 at [27].

58 As the scenario flowing from the assumption made at [56] above does not arise on the conclusions that I have reached, it is unnecessary to resolve it. However, I will consider a further alternative: that on the proper construction of the rules, only the 2005 offer has indemnity costs consequences because it was earlier in time.

59 In Hillier v Sheather (1995) 36 NSWLR 414 there were two offers of compromise by the defendant, one before the trial and the other at trial. The plaintiff did not accept either. Both were more favourable to the plaintiff than the judgment which he obtained. The Court of Appeal by majority held that the costs consequence under the rules applied to the earliest offer and that the second offer was irrelevant. Cole JA said at 431-432 (Kirby P agreeing at 421):

“Subject to the Court’s power to make a contrary order, once an offer is made and not accepted, [the costs consequence rule] operates upon that offer. It lies alive yet dormant awaiting the decision of the Court in that action. If the decision is less favourable to the plaintiff than an offer made by the defendant in accordance with [the rules, the costs consequence rule] is immediately enlivened in respect of that offer.
…

If a plaintiff can disregard a first offer, without risk as to costs, settlement is discouraged. The provision of the rules providing for successive offers must mean that the Court, subject to the right for adequate reason to make a contrary order, must apply the costs consequences of the rule to the earliest offer to which it can apply, being the first offer in point of time which is more favourable to the defendant than the verdict received.”

60 Kirby P said at 420 - 421:

“Once an offer is made which turns out to be higher than the judgment recovered, prima facie the rule applies. On the theory of the rule, the litigation after that offer (which, ex post, is shown to have been a reasonable one), has been occasioned by the refusal or failure of the plaintiff to accept the offer. That is why, exempting order apart, the plaintiff must bear the costs from that time.

…

Plainly, the rules are designed to promote offers of compromise by parties to litigation...Equally clearly, they are designed to promote early offers of compromise…I therefore agree with the analysis which Cole JA has offered…In the approach which I take, the second offer was irrelevant.”

61 Although the factual scenario was different in Hillier in that it involved successive offers by the same party, it is arguably consistent with that decision to conclude in a case such as the present that the costs consequence of the rules applies to the first offer to which it can apply and that a subsequent offer by either party is irrelevant. After all, the costs incurred after the date of the first offer would have been avoided if that offer had been accepted. This interpretation of the offer of compromise rules may be said to be consistent with their object of encouraging early settlement and with the interpretation mandated by s 56 of the Civil Procedure Act which requires the court to give effect to the overriding purpose of the quick, as well as the just and cheap, resolution of the real issues when it interprets any provision of the rules. However, as stated earlier, it is unnecessary to decide this question.

H. APPORTIONMENT

62 The respondent submits that there should be special orders apportioning costs such that (a) certain costs should be excepted from any costs awarded to the applicants and (b) the applicants should be ordered to pay certain of the respondent’s costs: see [7] above.

63 In ordinary litigation, the circumstances may make it reasonable that the successful litigant bear its own costs of litigating a discrete issue on which it has failed, or even in some cases that the litigant should be ordered to pay the other party’s costs of that discrete issue: F & D Bonaccorso Pty Ltd v Canada Bay City Council (No 3) [2007] NSWLEC 569 at [15] – [17].

64 Similarly in litigation under the Just Terms Act although the special nature of such litigation compared with ordinary litigation bears on the question of whether it is reasonable to make such an order: see [17] - [21] above. There should be taken into account that, as a general principle, a person who has had their land taken away by way of compulsory acquisition should be allowed to access the court to present an arguable and well organised case without being deterred by the prospect of being ordered to pay costs if the case proves unpersuasive. Nevertheless, there have been compulsory acquisition compensation cases where an applicant has been deprived of the costs of a discrete issue on which it was unsuccessful. For example, in Nevitoro Investments Pty Ltd v Hawkesbury City Council [2000] NSWLEC 151 at [36], the applicant failed on a discrete claim under s 55(f) of the Just Terms Act and the costs order was that the respondent pay the applicant’s costs except for the costs relating to that claim. Again, in Maloney v Cowra Shire Council [2000] NSWLEC 107 the costs recovered by successful applicants under the Just Terms Act were reduced where a major plank of their claim (a discrete claim for road improvements) was rejected and determined by relying on established principles applied to the facts of the case.

Uncontroversial apportionment

65 As requested by the respondent, it is uncontroversial to expressly except the following from the costs awarded to the applicants even though, in the absence of express exclusion, I do not think they would fall within an order for costs in any event:

(a) costs relating to the applicants’ Supreme Court proceedings to enforce the purported settlement of these proceedings;
(b) costs relating to evidence not tendered at trial;
(c) costs relating to interlocutory proceedings in which orders for costs were made in favour of the respondent.

Apportionment: applicants’ 2005 subpoena and notice of motion

66 The respondent submits that the applicants should not have (a) their costs of the applicants’ subpoena to the respondent of 7 September 2005 seeking documents dating back to 1980 which was served prior to pleadings, and (b) their costs of the respondent’s notice of motion filed on 20 December 2005 claiming an order that the respondent “strictly comply” with the subpoena.

67 The following history is relevant:

(a) the 2005 subpoena which the applicants caused to be issued was prior to issue being joined by pleadings or otherwise;
(b) the terms of the subpoena were extraordinarily broad seeking documents back to 1980;
(c) a couple of hundred pages of documents were produced by the respondent in answer to the subpoena, many of which had been very difficult to locate due (inter alia) to their age;
(d) the applicants’ notice of motion was not served until after the day on which the applicants had arranged for it to be listed for hearing and, consequently, it had to be stood over;
(e) in answer to the notice of motion the respondent served an affidavit setting out the extensive searches that it had undertaken;
(f) in April 2006 the applicants’ lawyers availed themselves of the respondent’s invitation to review any of the respondent’s documents which related in any way to the proceedings;
(g) following that meeting, in July 2006 the applicants requested an additional 28 paragraphs of documents – even larger than the list in the subpoena – the relevance of which was highly questionable. The respondent’s search for the documents required several weeks’ work;
(h) the respondent prepared and served affidavits from four of its officers in relation to the applicants’ notice of motion concerning compliance with the subpoena;
(i) the notice of motion was heard in December 2006 and again in February 2007 when two of the respondent’s officers were cross-examined. The costs of the notice of motion and the hearing were reserved;
(j) no orders were made against the respondent in respect of the production of documents;
(k) out of the hundreds of documents produced by the respondent in answer to the subpoena, not a single one was tendered at the hearing of this matter nor used to cross-examine any witness. The respondent’s solicitor was cross-examined on his evidence to that effect. He was firm that, to the best of his recollection, that his evidence was correct. No evidence to the contrary was tendered;
(l) no progress was made at all in this two year period in relation to the rest of the proceedings. The applicants had not even filed points of claim let alone any evidence.

68 The respondent submits that the 2005 subpoena led to a substantial waste of time and resources. There is some force in the submission. Causing the issue of a subpoena to produce documents prior to issue being joined by pleadings or otherwise is generally an abuse of process because the relevance of the documents cannot then be properly assessed and determined: Cassaniti v Commissioner of Taxation (No 1) [2006] FCA 1666 at [13], [16]. The terms of the subpoena and the list of documents subsequently requested appeared to have the hallmark of a wide-ranging fishing expedition. It is unacceptable that the subpoena should have occupied centre stage for two years with no progress otherwise being made in the proceedings. No compliance order was made against the respondent as sought in the applicants’ notice of motion.

69 In the circumstances, even if I were to put aside the matter referred to at [67(k)] above, I am persuaded that the costs in relation to the subpoena and notice of motion should be excepted from the costs awarded to the applicants.

Apportionment: preparation of case on basis that highest and best use was for a rural/residential subdivision

70 The respondent submits that:

(a) the applicants’ valuation case as communicated to the respondent in the report of 1 October 2009 of the applicants’ valuer Mr Dobrow was that the highest and best use of the land was for rural/residential subdivision;
(b) the applicants abandoned that case when they opened their case at the hearing on 22 February 2010 and then and thereafter contended that the highest and best use was urban;
(c) as the respondent’s solicitor’s evidence was that 10 to 15 per cent of the respondent’s costs between 1 October 2009 and 22 February 2010 were associated with the issue of a rural/residential subdivision highest and best use, the Court should order the applicants to pay 15 per cent of the respondent’s costs between those dates.

71 One might be forgiven for thinking that the facts asserted in (a) and (b) above were objectively ascertainable and therefore capable of being agreed by the parties one way or the other. Unfortunately, they are in contest.

72 The applicants submit that:

(a) Mr Dobrow’s 1 October 2009 valuation was not based, or partly based, on a rural/residential subdivision but was based on comparable sales;
(b) it was never the applicants’ case that the highest and best use of the land was for urban purposes, rather its case was on the basis of its comparable sales, broadacre only. However, the applicants accept that it was the potential for future urban use that influenced the sale price of the comparable sales.

73 In his report of 1 October 2009 Mr Dobrow considered sales of three vacant broadacre rural lots (his comparable sales method) and said that he believed they “represent the price that a prudent hypothetical developer would pay to secure the subject property for a rural/residential subdivision”. The tabular analysis of those three comparable sales in the report said that they were “subdivisible into rural residential home sites with consent”. The report’s synopsis said that surrounding lots have been converted into rural/residential allotments “and the topography of the land to be acquired allows for ready development for rural/residential subdivision, subject to development consent”. The report included an incomplete hypothetical development valuation assessment which adopted a 17 lot rural/residential subdivision plan prepared by a planner; adopted a specified price per lot based on sales to the north of rural/residential lots; and said that further investigation was required to determine the likely development costs at the acquisition date. The impression created was that the hypothetical development analysis was not completed because that further investigation was required. It is clear enough in my view that in this report Mr Dobrow valued the land only on the basis of its use as a rural/residential subdivision.

74 By letter of 28 October 2009 the respondent sought confirmation of this from the applicants. There was no reply and the respondent proceeded on the basis that that was the applicants’ case.

75 The report of the respondent’s valuer Mr Wood which was filed late, on 21 January 2010, concluded that the highest and best use of the land was as a single dwelling rural/residential home site.

76 In the valuation experts’ joint report dated 22 February 2010 (the second day of the hearing, the first day being occupied with the Courts’ view of the land and comparable sales properties), Mr Dobrow said that the highest and best use of the land was not a rural/residential subdivision and appeared to be of the view that it was urban, as was the highest and best use of the properties comprising the applicants’ three comparable sales.

77 The applicants’ rural/residential subdivision use case was abandoned in the applicants’ opening at the hearing. The transcript records that on many occasions over the first three days of the hearing it was indicated for the applicants that the potential use of the land and the applicants’ three comparable sales for which the applicants contended was urban potential.

78 The assessment of the respondent’s solicitor, Mr Miles, was that approximately 10 to 15 per cent of the respondent’s costs between 1 October 2009 and 22 February 2010 were thrown away as a result of the abandonment.

79 The issue of rural/residential subdivision use and the issue of the three comparable sales properties (in respect of which the respondent also seeks a special costs order) are closely interwoven. Mr Dobrow thought when he prepared his 2009 report that the former was driving the value of the latter and that the subject land had the same highest and best potential use. He abandoned that view in the joint report and it was abandoned by the applicants in their opening at the hearing. Mr Dobrow and the applicants then took the position that what was driving the price of the applicants’ comparables was their potential urban use and that this was also the potential use of the subject land. As the two issues to which I have referred are interwoven, the question of apportionment of costs of each should not be decided in isolation from the other. It is therefore advisable to consider the costs issue relating to the applicants’ three comparable sales before deciding the rural/residential subdivision costs issue.

Apportionment: the applicants’ three comparable sales

80 The respondent submits that the applicants should pay 60 per cent of the respondent’s costs from 1 October 2009 being the respondent’s solicitor’s estimate of the respondent’s costs associated with the applicants’ three comparable sales on which the applicants were unsuccessful.

81 Such a costs order in favour of the respondent would include the costs of the lengthy hearing and potentially undermines the award of compensation. Here the repeated observations in the authorities that such proceedings are not ordinary litigation carry weight.

82 In many cases under the Just Terms Act the comparable sales relied on and the highest and best use of the subject land contended for by one party’s valuer may be preferred to the different comparable sales relied on and the different highest and best use contended for by the other party’s valuer without that resulting in an adverse costs order against the latter party. The applicants adduced expert evidence supporting their three comparable sales. The respondent’s competing expert valuation report based on industrial use was influential in the Court’s determination of market value and trumped the applicants’ valuation based on their three comparable sales, but that report was served late and well after the commencement of the hearing. The Court’s routine direction that the experts confer and produce a joint report stating the matters on which they agree, the matters on which they disagree and the reason for any disagreement is designed to encourage identification and narrowing of the real issues. In the present case it had the effect of eliminating, or crystallising the elimination of, the issue of rural/residential subdivision potential. Ultimately, the applicants succeeded on the valuation issue in the sense that the Court determined that the market value substantially exceeded the statutory valuation and the value for which the respondent contended, albeit the Court’s determination was far less than that for which the applicants contended. On balance, I am not persuaded that it is reasonable to make a special costs order in regard to the applicants’ three comparable sales or to the issue of the rural/residential subdivision highest and best use.

83 The applicants claim interest on costs under the Civil Procedure Act 2005 s 101 which relevantly provides:

“ 101 Interest after judgment

…
(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs.
(5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:
(a) the date or dates on which the costs concerned were paid, or
(b) such later date as the court may order.”

84 The exercise of this discretion focuses upon whether the successful party has been out of its money for costs already paid and whether that party will be appropriately compensated by an award of costs in its favour without an award of interest on costs already paid.

85 There is no evidence that the applicants have actually made any payments yet to their lawyers on account of costs and disbursements. The respondent submits that this lack of evidence means that there is an insufficient evidentiary foundation for the making of the order. No doubt an interest order should not be made if it were positively established that no costs and disbursements had actually been paid. But I disagree with the submission in a case such as the present where the evidence is silent. It has been held that (a) even where no inference can be drawn that costs and disbursements have actually been paid it is appropriate to make an order in a form which makes interest on a particular amount of costs run only from the date when the actual payment of the amount is made; (b) an order in that form contains its own safeguards against the applicants being able to recover interest on costs and disbursements unless they have actually been paid; and (c) the form of the order also has to take account of the fact that any amounts actually paid may not be allowed on an assessment of costs: Lahoud v Lahoud [2006] NSWSC 126 at [81] – [85] (Campbell J); followed in Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790 at [26] – [30] (Bergin J) and Leda v Weerden (No 3) [2006] NSWSC 220 at [18] – [23] (Gzell J). Although they were commercial cases, in my opinion they should be applied in proceedings under the Just Terms Act. Money paid by an applicant to finance litigation under the Just Terms Act is likely to have been money which could have been put to some other financially advantageous use. Conversely, the respondent, by not being required to pay costs until some time in the future when they are agreed or assessed, is likely to have been able to retain the amount of the costs to its financially advantageous use. Further, the special nature of proceedings under the Just Terms Act discussed earlier weighs in favour of ensuring that applicants are not out of pocket in financing litigation which they had no real choice but to bring.

86 In Lahoud Campbell J adopted a pragmatic approach to the calculation of interest in the form of the order, at [84] - [85] (omitting citations):

“84. The form of the order for interest on costs has occasioned me some concern. As the plaintiffs have succeeded in obtaining an order for indemnity costs in relation to only one issue in the proceedings, it is possible that there will be some costs and disbursements which the plaintiff has paid from time to time as the litigation progressed, but which are not allowed on assessment. It might sometimes be possible to cast an order in the form of allowing interest only on such costs as the plaintiff has paid as are allowed on assessment -- but such an order would require the assessor to conduct what would amount to a separate assessment in relation to each payment that the plaintiffs had made. While the making of such a series of costs assessments would be within the scope of section 353 Legal Profession Act 2004, adopting such a procedure has the potential for making the costs assessment itself more complex and expensive. Further, it sometimes happens in the course of litigation -- and the evidence does not tell me whether it has happened in the course of this litigation -- that a litigant makes payments to his lawyers from time to time of lump sums on account of costs, without purporting to allocate those payments to particular memoranda of fees or items of work performed. If that had happened in the present case, one could not tell whether the whole or any part of such a payment had been allowed on assessment.

85. In all the circumstances, the appropriate way of calculating interest on costs is to ascertain the total of the amounts which the plaintiffs have paid and are liable to pay for costs and disbursements, ascertain the total amount of costs and disbursements allowed on assessment, calculate the percentage which the total amount allowed on assessment bears to the total costs and disbursements which the plaintiffs have paid or are liable to pay, and allow the plaintiffs interest on that percentage of each payment which they have made from time to time on account of costs and disbursements”.

87 I will make the interest order in the same rather algebraic form as it was made in the cases to which I have referred, as set out in the final paragraph of this judgment.

88 The orders of the Court are as follows:

1. The respondent is to pay the applicants’ costs on the ordinary basis except for the following:
(a) costs relating to the subpoena of 7 September 2005 which the applicants caused to be issued to the respondent;
(b) costs relating to the application in the applicants’ notice of motion of 20 December 2005 that the respondent comply with the subpoena;
(c) costs relating to Supreme Court proceedings No 4591/07 instituted by the applicants to enforce a purported settlement of these proceedings;
(d) costs relating to expert and lay evidence not tendered at trial;
(e) costs relating to interlocutory proceedings in which orders for costs were made in favour of the respondent.
2. In this order:
X -- equals the total amount of costs and disbursements which the applicants have paid or are liable to pay to their legal advisers in connection with these proceedings.
Y -- equals the total amount of costs and disbursements allowed on assessment to the applicants in connection with these proceedings.

The Allowed Percentage equals ((y/x ) x 100)%

Order the respondent to pay to the applicants’ interest on costs and disbursements, at the rates set out in Schedule 5 Uniform Civil Procedure Rules, on the Allowed Percentage of each amount of costs and disbursements actually paid by the applicants, from the date of payment by the applicants of each such amount of costs and disbursements until the first to occur of:

(a) such time as the respondent has paid the costs due to the applicants under any order made in these proceedings, or
(b) any further order relating to interest on costs in these proceedings.

3. The exhibits may be returned.