Australia: Interest on Compensation: 16/12 Formosa & Anor v Maroochy Shire Council (No.2) [2012] QPEC 21

Planning and Environment case updates - March 2012 cases

Robertson DCJ

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Compensation – where Appellants awarded compensation for reduction in value of their land as a result of planning scheme amendment – Interest – Where Respondent submits that the Court's practice of applying the default judgment rate should not be followed, and that commercial rates should apply – Delay – Where appeal lodged against refusal of claim for compensation and no steps taken for four years – where leave to proceed given only after Court initiated activation of file – whether in all the circumstances the delay was unreasonable

Facts: This was an application for interest on a sum of $350,000 which the Court had ordered Council to pay the Appellants for injurious affection pursuant to s. 5.4.2 of the Integrated Planning Act 1997 (IPA) as being the reduction in value of the Appellants' land at 92 Memorial Drive, Eumundi resulting from amendments to the Respondent's planning scheme which came into effect on 7 May 2002.

The Appellants had originally appealed against Council's refusal of their development application for Sunday markets. That appeal was dismissed on 25 November 2005.

A claim for compensation in the amount of $1,635,000 was then made to Council on 24 May 2006. That claim was refused, and the appeal against that refusal was filed on 8 September 2006.

No formal step was taken in the compensation appeal until it was brought on for review by the Court in 2010. An order was subsequently made granting leave to the Appellants to proceed, notwithstanding the failure to take any step for a period in excess of two years.

The Court's Judgment in relation to the amount of compensation payable was made on 16 December 2011.

It was common ground that the Court had a broad discretion to award interest on unpaid monies, and that s. 47(1) of the Supreme Court Act 1995 applied.

The Appellants conceded at hearing that interest was to be calculated from the date the Court dismissed the original appeal against Council's refusal of their development application (25 November 2005).

However, it was argued by Council that the Appellants had "unreasonably delayed" the compensation appeal such that the interest component should be calculated for only 2.5 years of the six years between the date of the Court's dismissal of the original appeal and the Court's Judgment in the compensation appeal on 16 December 2011. The Appellants filed an affidavit setting out reasons for the delay, which was unchallenged by Council.

In relation to the rate of interest to be applied, the Appellants submitted that the Court should follow the practice adopted by previous Courts in applying the rate applicable to default judgments when judgment is given. This would mean applying interest rates of 9 per cent up to 30 June 2007 and 10 per cent thereafter.

Council submitted that the Court should allow interest at 5.5 per cent being the average rate since 2006 by reference to the ten year Government Bond Rate published by the Reserve Bank of Australia, on the basis that the Appellants were entitled to interest as part of "reasonable compensation".

Decision: The Court held that:

  1. Mere delay was not enough to lead to a reduction in the time over which interest was to be paid; it was only if the circumstances permit of the description "unreasonable delay" that a Court might (not must) reduce the period of time.
  2. A careful analysis of the circumstance that pertained during the four year period characterised as an unreasonable delay by the Council was persuasive that the delay in all the circumstances was not unreasonable. It followed that the Appellants were entitled to interest for the whole period from 25 November 2005 to Judgment on 16 December 2011.
  3. No case could be found, or had been referred to by the parties, in which the rate of interest to be applied seemed to be in dispute. It seemed to have been accepted that the default judgment interest rate applied without any analysis as to why in a particular case that should be so.
  4. The default interest rates throughout the relevant period were well above the commercial rate. Taking into account that generally bank term deposit rates were higher than Bond yields, and inferring that the Appellants would have re-invested the monies for another three years prior to the significant drop in term deposit rates in late 2008 consequent upon the Global Financial Crisis, a rate of 7.5 per cent per annum to be applied throughout the relevant period was just and fair.

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.

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