In brief - Court of Appeal reinstates previous position with regard to costs orders
The Court of Appeal has recently confirmed that when dispossessed landowners in NSW challenge the compensation paid by acquiring authorities via class 3 proceedings in the Land & Environment Court, costs are usually awarded in favour of the dispossessed landowner, provided they act reasonably in pursuing the proceedings.
Courts have adopted a cautious approach to costs
The power to compulsorily acquire a person's land is one of the more substantive powers available to all levels of government and numerous statutory agencies.
Unsurprisingly, when dispossessed landowners in NSW elect to challenge the compensation paid by acquiring authorities, via class 3 of the NSW Land & Environment Court's jurisdiction, the Court has adopted a somewhat cautious approach to the question of who should pay the costs of such proceedings, particularly in circumstances where the sum awarded by the Court is not significantly different to that determined by the acquiring authority in the first instance.
Compulsory acquisition cases are not "ordinary litigation"
The general principles to be applied in compensation cases associated with compulsory acquisitions have been addressed in numerous judgments over many years, which may be summarised as follows:
- compulsory acquisition cases are not "ordinary litigation", concerning as they do a unilateral exercise of executive power against the property rights of citizens: Banno v Commonwealth (1993) 45 FCR 32.
- "there needs to be a strong justification for awarding costs against an applicant": Pastrello v RTA of New South Wales  NSWLEC 209.
- "different principles" were justified in apportioning costs in acquisition cases by reason of the interference with an individual's rights, the "confiscating nature" of such acquisitions and the "statutory entitlement to just compensation": Taylor v Port Macquarie-Hastings Council  NSWLEC 153.
sual presumption that costs do not follow the event
Until quite recently, the usual presumption had been that costs do not generally follow the event. (When "costs follow the event", this means that the unsuccessful party pays the costs of the successful party.)
That general presumption was shattered abruptly and somewhat controversially by the decision of Justice Pepper in Halley v Minister Administering the Environmental Planning and Assessment Act 1979 (No 3)  NSWLEC 94, in which her Honour held that the so-called "general principles" relating to costs orders in cases concerning compulsory acquisitions, developed over many years, could no longer be maintained, particularly in light of the enactment in more recent times of the Civil Procedure Act 2005 (CPA), the Uniform Civil Procedure Rules 2005 (UCPR) and the Land and Environment Court Rules 2007 (2007 Rules), none of which, in her Honour's view, distinguish or exempt compulsory acquisition cases from "the usual rule" that costs follow the event.
It follows, her Honour held, that rule 42.1 of the UCPR applies, and becomes the starting point for any consideration regarding the question of costs. That rule provides, unambiguously, that the appropriate order is that 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".
Her Honour acknowledged the departure:
 I accept that this position does not sit comfortably with a considerable body of opinion of this Court. But many of these cases were decided before the enactment of the CPA, the UCPR or the 2007 Rules. They must now be viewed through a different prism and approached with caution. Judicial comity alone is no answer to this altered legal landscape...
Court of Appeal decision in Dillon v Gosford City Council
Since the decision of Halley No 3, the Court of Appeal has weighed in on the controversial debate. In the judgment Dillon v Gosford City Council  NSWCA 328, the Court of Appeal held, in a unanimous verdict, that "there is no presumption that costs follow the event" in class 3 proceedings, in stark contrast to the decision in Halley No 3 and somewhat fortuitously for dispossessed landowners wishing to have their statutory valuations reviewed by the Land & Environment Court.
In part, the decision was predicated on clause 1.5 and Schedule 1 of the UCPR, which expressly exclude the operation of the UCPR from classes 1, 2 and 3 of the Land & Environment Court's jurisdiction. This appears not to have been addressed in the decision Halley No 3.
Dispossessed landowners should usually be entitled to recover costs
The Court of Appeal in Dillon made two further important observations regarding the award of costs in compensation cases of this nature:
- a claimant for compensation in respect of a compulsory acquisition should usually be entitled to recover the costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in a manner which gives rise to unnecessary delay or expense. [at para. 70]
- the owner who has been compulsorily dispossessed is entitled to take reasonable steps to seek the judgment of the Court in respect of the adequacy of any compensation offered. [at para. 71].
The decision of the Court of Appeal in Dillon embraces, in substantial part, the "usual principles" traditionally relied upon by the judges of the Land & Environment Court in dealing with compensation disputes arising from compulsory acquisitions. A number of decisions handed down this year have, as a consequence, adopted the reinstated position on costs.
In the decision of Prasad v Minister Administering the Environmental Planning and Assessment Act 1979 (No. 2)  NSWLEC 59, for example, the applicant obtained only a marginally better result on compensation than originally offered, but was awarded his costs of the proceedings.
Applicants for compensation obliged to act reasonably
What has not changed, however, is the obligation imposed on applicants to act reasonably and diligently in the conduct of litigation challenging statutory valuations, lest they dislodge the presumption of a favourable costs order.
Disentitling conduct on the part of an applicant can take many forms:
- excessive and unsupportable compensation claims
- delay in the conduct of the proceedings
- the rejection, in limited circumstances, of offers of compromise and Calderbank offers made by the acquiring authority
Parties may be ordered to pay their own costs
Importantly, costs will not always be awarded in favour of dispossessed landowners, particularly in circumstances where the Court awards a sum which is, on any view, substantially less than the original statutory offer.
In the recent decision of Brock v RTA of New South Wales (No.2)  NSWLEC 114, handed down in May 2012, the Court ordered each party to pay their own costs of the class 3 proceedings. Briefly stated, the applicant's land was acquired by the RTA (the forerunner to Roads and Maritime Services) in October 2008. The statutory offer made by the RTA at the time was $724,828 (comprising market value and disturbance entitlements). As the hearing approached the applicant was claiming approximately $1.5 million.
The applicant was ultimately awarded a total of $480,020.25 in compensation, plus a relatively small amount in statutory interest, representing a significant shortfall on the original statutory offer and substantially less than what was being claimed by the applicant in the lead up to the hearing. In the circumstances, the Court felt compelled to order each party to pay their own costs of the proceedings.
The final word on costs in class 3 proceedings, for the time being at least, belongs to Justice Sheahan in the decision of Brock:
 While minds may continue to differ on the principles which the Court should apply, the Court of Appeal has spoken, and no relevant amendments have since been made to applicable statutes or rules. Each case will continue to be decided on its individual facts. As Jagot J, when a judge of this Court, pithily observed in Serbian Cultural Club 'St Sava' Inc & Serbian Cultural Club Limited v RTA of New South Wales (No 2)  NSWLEC 78, there are "no hard and fast rules" or "automatic results" in class 3 costs matters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.