Land and Environment Court New South Wales

• Medium Neutral Citation: Hunter Environment Lobby Inc v Minister for Planning (No 3) [2012] NSWLEC 102
• Hearing dates: 3 April 2012
• Decision date: 08 May 2012
• Jurisdiction: Class 1
• Before: Pain J

Decision

The Second Respondent's application for costs is refused. The Court orders the Second Respondent to pay the Applicant's costs of the costs hearing as agreed or assessed.

• Catchwords: COSTS - partial costs order sought - whether fair and reasonable that the Applicant pay the Second Respondent's costs in relation to greenhouse gas issues
• Legislation Cited: Australian Constitution; Civil Procedure Act 2005 s 4, s 56, Sch 1; Clean Energy Act 2011 (Cth); Environmental Planning and Assessment Act 1979 Pt 3A s 75 H, s 75L (repealed), Pt 4 s 79C; Land and Environment Court Act 1979; Land and Environment Court Rules 2007 r 3.7; National Greenhouse and Energy Reporting Act 2007 (Cth); State Environmental Planning Policy (Major Projects) 2005
• Cases Cited: Arden Anglican School v Hornsby Shire Council [2008] NSWLEC 103; (2008) 158 LGERA 224; Gerroa Environment Protection Society Inc v Minister for Planning [2008] NSWLEC 173; Hill v Blacktown City Council [2008] NSWLEC 203; Hunter Environment Lobby Inc v Minister for Planning [2011] NSWLEC 221; Hunter Environment Lobby Inc v Minister for Planning (No 2) [2012] NSWLEC 40; Newbury District Council v Secretary of State for Environment [1981] AC 578; [1980] 1 All ER 731; Port Stephens Council v Sansom [2007] NSWCA 299; (2007) 156 LGERA 200; Prestige Building Services Pty Ltd v Coffs Harbour City Council [2006] NSWLEC 72; Randall Pty Ltd v Willoughby City Council [2005] NSWCA 205; (2005) 144 LGERA 119; Statewide Developments Pty Limited v Minister for Infrastructure and Planning [2005] NSWLEC 353; (2005) 142 LGERA 154
• Category: Costs
• Parties: Hunter Environment Lobby Inc (Applicant); Minister for Planning (First Respondent); Ulan Coal Mines Ltd (Second Respondent
• Representation: Mr M Seymour (Applicant); No appearance (First Respondent); Mr R Beasley SC (Second Respondent); Environmental Defender's Office Ltd (Applicant); No appearance (First Respondent); McCullough Robertson Lawyers (Second Respondent)
• File Number(s): 10998 of 2010

Judgment

1 In Hunter Environment Lobby Inc v Minister for Planning [2011] NSWLEC 221 (HEL No 1) handed down on 24 November 2011, I determined to grant approval to Ulan Coal Mines Ltd (Ulan) for an expansion of an existing coal mine subject to a number of modified conditions relating to biodiversity offset areas, offsetting of scope 1 greenhouse gas (GHG) emissions and groundwater. The parties were required to provide further oral submissions before the conditions could be finalised and did so on 13 March 2012. In an ex tempore judgment, Hunter Environment Lobby Inc v Minister for Planning (No 2) [2012] NSWLEC 40 (HEL No 2), I determined not to require the purchase of offsets for scope 1 GHG emissions by Ulan following the passage of the Clean Energy Act 2011 (Cth) (the CE Act) with introduction from 1 July 2012. Ulan now seeks its costs of the proceedings in relation to the GHG emissions.

2 In opening, the Applicant argued for the refusal of the project based on the extent of GHG emissions and pressed its alternative condition 18A - E, (exhibit F). The condition was:

18A. While the project is in operation, the Proponent must submit for approval, by 31 August each year, a report to the Director-General on the Scope 1, 2 greenhouse gas emissions associated with the project over the preceding financial year, including an assessment of the efficacy of the minimisation and mitigation actions described in the Air Quality and Greenhouse Gas Management Plan. Prior to approving the report, the Director-General must be satisfied that the emissions are within 5% of the scope of the original emissions budget projection, and can instruct the report to be amended and the Proponent must comply with any such instruction.

18B. If the report at condition 18A indicates that the total emissions budget, as estimated for the Environmental Assessment for the project, will be exceeded, the proponent shall be required to mitigate or offset the additional emissions.

18C. The Proponent must purchase and surrender Gold Standard Certified Emission Reductions (GS-CERs), or Australian Carbon Credit Units (ACCUs), to offset the Scope 1, 2 greenhouse gas emissions associated with the project that are identified in a report approved by the Director-General under condition 18A. The Proponent must acquire the offsets within one month of the approval of the report under condition 18A.

18D. The Proponent must provide documentation, to the satisfaction of the Director-General, to demonstrate compliance with condition 18B. This documentation must be provided within two months of the approval of the report under condition 18A.

18E. The Director-General can waive compliance with the requirement to report on, and offset, the Scope 1, 2 greenhouse gas emissions of the project under conditions 18A, B, C and D if he/she is satisfied that:

(i) a financial or regulatory liability has been imposed under another law (of any jurisdiction) in relation to the relevant emissions; and

(ii) the liability is appropriate having regard to ecologically sustainable development and the risks posed by climate change.

3 In closing submissions the Applicant no longer sought refusal of the project on the basis of GHG emissions or an offset for scope 3 GHG emissions. It sought conditions requiring an offset for scope 1 and 2 emissions as the appropriate means of mitigating these impacts. After HEL No 1 the Applicant filed a draft condition (exhibit O) similar to the above but without an offset for scope 3 emissions or a requirement to purchase or surrender Gold Standard Certified Emission Reductions (GS-CERs) and including condition 18F, which states:

The Proponent shall implement all reasonable and feasible measures to minimise the release of scope 2 greenhouse gas emissions attributable to operations at the site and which are under the control of the Proponent, to the satisfaction of the Director-General.

4 Rule 3.7 of the Land and Environment Court Rules 2007 (the Court Rules) which applies in Class 1 proceedings relevantly provides:

(2) The Court is not to make an order for the payment of costs unless the Court considers that the making of an order as to the whole or any part of the costs is fair and reasonable in the circumstances.

(3) Circumstances in which the Court might consider the making of a costs order to be fair and reasonable include (without limitation) the following:

...

(c) that a party has acted unreasonably in circumstances leading up to the commencement of the proceedings,

(d) that a party has acted unreasonably in the conduct of the proceedings,

...

(f) that a party has commenced or continued a claim in the proceedings, or maintained a defence to the proceedings, where:

(i) the claim or defence (as appropriate) did not have reasonable prospects of success, or

(ii) to commence or continue the claim, or to maintain the defence, was otherwise unreasonable.

Evidence on GHG emissions

5 In relation to GHG issues, there were five expert reports and two joint reports (from Mr Macintosh, Professor Jones, Mr Blyth, and Dr Saddler and Mr Simes). Concurrent oral evidence was given by Mr Macintosh, Professor Jones, Mr Blyth and Dr Saddler on one day. Much of this evidence was directed to the Applicant's contentions that the volume of scope 1, 2 and particularly 3 emissions justified refusal or at least required substantial offset provisions.

6 Professor Jones and Mr Macintosh disagreed with Mr Blyth's opinion that the project's scope 1 and 2 emissions represent an insignificant contribution to Australia's GHG emissions. Professor Jones stated that approximately 80 per cent of the project's emissions would be scope 3 emissions. It was common ground among the experts that the project's coal seams are relatively low in methane and so coal sourced from another mine would typically have higher scope 1 fugitive methane emissions per tonne of coal extracted. Mr Simes and Professor Jones agreed that if the project was refused, no abatement of GHG emissions would result: see joint report of Mr Simes and Professor Jones. See also DG's report dated November 2010 (exhibit 1 p 702).

7 In relation to the social cost of carbon, after referring to numerous studies Professor Jones' report stated that the median estimate was approximately $15 - $75 per tonne of carbon dioxide (in 1995 United States dollars) being US$6 - $27 per tonne in 2010 dollars. The mean ranged from US$88 - $127 per tonne in 1995 dollars, being US$33 - $47 per tonne in 2010 dollars. In oral evidence Professor Jones explained that a lot of the studies on which those estimates are based consider costs around 1995 - 2000. The social cost of carbon increases as more GHG are emitted so that the social costs of GHG to be emitted between 2010 and 2030 would be higher than equivalent estimates in 1995 - 2000.

8 Mr Macintosh was cross-examined on the economic impact of the offset condition. He agreed that the offset condition which sought to neutralise scope 1, 2 and 3 emissions by requiring the purchase of GS-CERs would cost $490 million plus 140 million per year for the life of the project. Mr Macintosh accepted that Ulan would have to absorb the cost of the condition as it would not be able to charge more per tonne for the coal it extracts. He said it was not his brief to consider whether a cost of approximately $400 million per year would have a detrimental impact on the viability of the business but would not be surprised if the project did not go ahead as a result: TS171-172.

Ulan's submissions

9 Ulan mainly relies on r 3.7(3)(d) and (f) and to a lesser extent on (c) in seeking all of its costs in relation to the GHG issue. It argued that it was fair and reasonable for the Applicant to pay the costs sought for the following reasons: firstly, condition 18A - E should not have been pressed; secondly, the Applicant should not have pressed for refusal on GHG issues; and thirdly, following delivery of HEL No 1 condition 18A - F should not have been pressed given the passage of the CE Act (Cth).

10 Parties to litigation have a duty to facilitate the just, cheap and quick resolution of the real issues in the proceedings. They must justify any order sought by evidence and argument. In Port Stephens Council v Sansom [2007] NSWCA 299; (2007) 156 LGERA 200 at [72] Spigelman CJ identifies that the purpose of Class 1 proceedings is to improve the quality of planning decisions. The Applicant did not do this but sought the imposition of irrational and unreasonable conditions.

11 Firstly, the condition as drafted was unreasonable, unworkable and irrational. The experts' reports disclosed that total GHG emissions from the project were a very small percentage of Australia's total emissions: see report of Mr Blyth. Professor Jones stated that 80 per cent of the project's emissions were scope 3 emissions. It was not reasonable for the Applicant to seek an offset for scope 3 emissions. Scope 3 emissions formed a large part of its case and there was much evidence and argument on whether these should be offset.

12 No other country offsets scope 3 emissions. Had the Applicant limited its case to an offset for scope 1 emissions at the outset, much of the expert evidence would not have been necessary as the evidence in Ulan's Environmental Assessment would have sufficed. Absent the CE Act (Cth), it would have been reasonable for the Applicant to seek an offset for scope 1 emissions and Ulan would not have sought its costs.

13 No attempt was made to check the likely economic impact on Ulan of the condition the Court was being asked to impose which required the purchase of GS-CERs or ACCUs. The cost to Ulan of purchasing GS-CERs was prohibitive, being up to $630 million per year or up to $5,000 per tonne. Such a condition if imposed was effectively a refusal as Ulan did not make an annual profit of anything remotely close to that cost: see Xstrata plc Annual Report 2010 (exhibit 24A). No attempt was apparently made by the Applicant to investigate the economic burden of its proposed GHG condition. Seeking a refusal of the project in these circumstances was unreasonable and irrational. The Applicant was aware from the report of Professor Jones (exhibit E at p 10) of the likely cost of carbon being in the order of $15 - 75 per tonne (in 1995 United States dollars): see also TS123. The carbon price set by the CE Act (Cth) is $23 per tonne. The true cost to Ulan of the Applicant's condition 18 came out only in cross-examination of Mr Macintosh who stated that it was not his brief to look at the economic impact of the condition on Ulan. If such a condition were imposed that would have rendered the mine unviable. Any decision-maker acting rationally would not have contemplated imposing such a condition.

14 No market existed for ACCUs as the statutory framework for these did not then exist and the Applicant did not ascertain whether the market for GS-CERs was of a sufficient size.

15 The mechanism requiring the Director-General (DG) to assess whether reasonable mechanisms were in place (condition 18E) was imprecise and irrational.

16 Secondly, it was unreasonable and irrational for the Applicant to commence and maintain a claim that the project should have been refused because of GHG emissions. The approval sought was not for a new mine but for an extension of an existing mine, and the consolidation of the project had environmental, social and economic benefits. The Applicant knew from the DG's report and the joint report of Mr Simes and Professor Jones that if the project were refused, there would be no abatement of GHG emissions and there would be a risk of higher emissions before the hearing commenced. The Applicant has not articulated why it sought refusal of the project based on GHG emissions and that claim should never have been commenced. The Applicant should have known that there was no reasonable prospect of the Court granting refusal of the mine based on GHG emissions. By pressing for this, unnecessary expert evidence was required in order to meet the Applicant's case. The delay in making this concession caused unnecessary expense and a costs order should follow: Prestige Building Services Pty Ltd v Coffs Harbour City Council [2006] NSWLEC 72 at [21]; Statewide Developments Pty Limited v Minister for Infrastructure and Planning [2005] NSWLEC 353; (2005) 142 LGERA 154. No reasonable decision-maker after balancing all the factors would have refused the project because of the extent of its GHG emissions.

17 The Applicant continued to seek refusal of the project on the grounds of GHG emissions and an offset for scope 1, 2 and 3 emissions until final oral address when its position changed. That was a major change in the case as identified in HEL No 1 at [34].

18 Thirdly, the Applicant continued to unreasonably press for the unworkable GHG condition 18A - F after HEL No 1 and the CE Act (Cth) was passed. This meant further expert evidence was prepared. The Court found the condition was unnecessary and unwarranted in HEL No 2. The Commonwealth regime applies to almost all of Ulan's scope 1 emissions and the Applicant was advised of this by Ulan's solicitors and in written submissions after HEL No 1. The purpose of the condition was to meet Australia's international obligations and as the CE Act (Cth) was designed to give effect to these, and given Mr Macintosh's evidence that it was ideal for the matter to be dealt with at a national level, it was unreasonable for the Applicant to continue pressing the condition.

19 In reply, Ulan submitted it was entitled to bring the claim that the Court did not have the power to make the conditions, relying on Newbury District Council v Secretary of State for Environment [1981] AC 578; [1980] 1 All ER 731 and that was not enlarging the case. Ulan did not lose that argument in relation to scope 3 emissions because that ground was abandoned. It was incorrect for the Applicant to argue that its abandonment of the scope 3 emissions offset and its claim for refusal of the project was a reasonable response to the evidence, as the Applicant had evidence such as the DG's report suggesting these arguments were untenable before the hearing commenced. Further, there was no expert evidence saying there was an overwhelming public interest in refusing the project on GHG issues. The Applicant should have considered the economic consequences of the condition it sought given that it was an aim of the State Environmental Planning Policy (Major Projects) 2005.

Applicant's submissions

20 In Sansom at [69] the Court of Appeal identified that where a costs rule applies to a number of different statutes which are classified in a certain way under the Land and Environment Court Act 1979, the way the relevant principles apply depends on each statutory regime. Accordingly, the Applicant submitted that the provisions of the now repealed Pt 3A of the Environmental Planning and Assessment Act 1979 (the EPA Act) should be considered. Unlike Pt 4, Pt 3A allowed for the environmental assessment of a project application to be more flexible depending on the DG's preliminary assessment. Only after the DG accepted that a proponent's environmental assessment was undertaken in accordance with his or her requirements was it publicly exhibited enabling submissions from third parties to be made. Also, unlike s 79C(1)(d) which applies in Pt 4 matters, in granting approval the Minister was not bound under Pt 3A to take into account public submissions. Part 3A had more limited public participation provisions than Pt 4. An appeal under Pt 3A s 75L by third party objectors was allowed in a limited number of cases. Inherent in exercising that right of appeal is the ability to raise for the Court's attention matters pertinent to the environmental assessment of the project which the DG may not have had regard to or the objector feels was not given sufficient weight. Costs awarded against a third party objector because a proponent convinced the Court that the merits of the assessment favour a grant of approval would have a "chilling effect" on this right.

21 A proponent has a choice whether to engage directly or indirectly on an issue raised by an objector in an appeal under s 75L. For issues that are irrational or improper a proponent can use the usual Court processes to limit or exclude unreasonable issues. Ulan engaged on the GHG issue. (Ulan in reply stated that it received the Applicant's conditions only a couple of days before the hearing so that a response before the hearing was impractical and in any event a party cannot strike out a condition in the same manner as it might for pleadings.) In any case, this merits appeal involved a new, complex issue that is confronting everybody internationally, nationally and locally by the assessment of this project. The novelty of the issue does not make it irrational or unreasonable.

22 Cases on costs awarded in merits appeals involving proponents for development and local councils are not apt to apply in a third party objector appeal. The Court of Appeal stated in Sansom at [71] - [74] that an appeal from a consent authority is "an element of the management of the scheme of the EPA Act by that authority" because the consent authority has "public interest regulatory responsibilities" and should be "anxious to ensure that it made the correct decision". The statement that "a significant purpose served by planning appeals is to improve the quality of decision-making" was made in that context. Statutory authorities are desirous of achieving that because that is the very power they have been given by Parliament. The Court of Appeal recognised that individuals and corporations do not have the same obligations. Rather, they have a "legitimate expectation that the decision-making process will resolve in the correct or preferable decision." A third party objector is an individual who has no ability to control what will happen with the application, it is not like a council or consent authority which statutorily must take a balanced and broad view in reconciling all the conflicting materials presented to it. The Parliament's intention in allowing third party objector appeals in Pt 3A must have been to allow a third party objector to have its own view of what is important in environmental assessment.

23 In relation to limiting the case to scope 1, the DG's environmental assessment requirements required an assessment of scope 1, 2 and 3 emissions of the project, not just scope 1. The Court accepted the evidence of Professor Jones and Mr Macintosh that scope 1 emissions alone were significant. Professor Jones' evidence was also significant as it demonstrated that data from a single project could be used to quantify to some extent the social cost of carbon of that project. The Applicant had a proper basis to believe that further environmental assessment of GHG emissions was necessary. The evidence of Mr Macintosh supported the Applicant's argument that scope 1, 2 and 3 emissions could be offset by the requirement to purchase ACCUs or GS-CERs. By contending that the Applicant should never have sought an offset condition covering scope 1, 2 and 3 emissions, Ulan is attacking Mr Macintosh's evidence as irrational or unreasonable and this does not justify a costs order: Arden Anglican School v Hornsby Shire Council [2008] NSWLEC 103; (2008) 158 LGERA 224 at [18].

24 The Applicant was motivated by a concern about the contribution of significant GHG emissions from the mine to anthropogenic climate change. This was part of a collection of issues concerning ecologically sustainable development (ESD) which the Applicant felt required the attention of the Court. Commencing the proceedings on the bases raised was reasonable.

25 In terms of maintenance of the proceedings, the Applicant's change of position was a reasonable and rational response to the evidence that became available to it following joint reporting and cross-examination of the experts. Ulan should not be compensated for participating in an ordinary merits review involving a new and developing area. A narrowing of issues even during final address is not a circumstance that is so unusual or unreasonable as to warrant a costs order. The Applicant reasonably believed there was overwhelming public interest in the refusal of the project based on GHG emissions or, if the project was allowed to proceed, in the imposition of an offset. The Court had adopted offsets as a strategic means to ameliorate environmental impacts (in for example, Gerroa Environment Protection Society Inc v Minister for Planning [2008] NSWLEC 173), so the Applicant was not acting irrationally in proposing an offset in this case.

26 There is no obligation on the Applicant to consider the economic viability of the conditions it proposes. It is entitled to bring before the Court environmental issues it considers require greater assessment. The Applicant was not required to have regard to the economic benefits that mining a resource might bring to Ulan or anyone else as Ulan and the Minister were there to bring forth those issues, and did. It was the Court's role to weigh up the evidence and determine the best outcome. The Court has held that economic viability of a project is not a relevant consideration under s 79C in Pt 4 cases: see Hill v Blacktown City Council [2008] NSWLEC 203, referring to Randall Pty Ltd v Willoughby City Council [2005] NSWCA 205; (2005) 144 LGERA 119 per Basten JA. There was no formulated policy or legislative framework for dealing with GHG. The Applicant cannot be found unreasonable or irrational in setting out an ambit claim for such a policy and suggesting, based on expert evidence, that GS-CERs or ACCUs should be used.

27 In HEL No 1 at [105] - [106] and [108], the Court indicated that some form of offset condition would be adopted, subject to clarification. Accordingly, the Applicant was justified in presenting that condition; it was not so irrational that it should never have been presented.

28 Costs after HEL No 1 should not be paid by the Applicant. The Court sought more assistance concerning the CE Act (Cth) and the Applicant should not be liable for the costs of that assistance. It was incorrect for Ulan to argue that the passing of the CE Act (Cth) meant that the Applicant should have capitulated. The Applicant had expert evidence suggesting that some of Ulan's emissions would fall under the exemptions and thresholds in the CE Act (Cth) so the Applicant was justified in asking the Court to create a planning response to the emissions that would not be captured by the Commonwealth scheme. Moreover, the Court's finding in HEL No 2 was that the conditions were unnecessary or unwarranted in light of the evidence. The Applicant only became aware of that evidence, being the revised percentage figure comprising the scope 1 emissions that Ulan was not liable to pay a carbon price for under the CE Act (Cth), when Ulan filed a further expert report on 6 March 2012.

29 If the Court were minded to award costs against the Applicant, it would be unfair to award all costs relating to the issue of GHG emissions. Ulan enlarged the scope of the issues by contending that the Court had no power to impose such conditions which the Court rejected. Even if the Applicant had sought an offset of scope 1 emissions only, Ulan would still have opposed it and the preparation of evidence and submissions would have been necessary. Further, the Applicant would have been successful in the imposition of an offset condition, absent the CE Act (Cth).

Consideration

30 The usual rule in Class 1 merits appeals is that each party pays its own costs. Only if it is fair and reasonable in the circumstances of a particular case should costs be awarded: Court Rules r 3.7(2). Ulan relied mainly on r 3.7(3)(d) and (f) and to a lesser extent on (c) in seeking its partial costs. These subrules may overlap. The focus of its submissions appeared to be r 3.7(3)(f) relating to the Applicant commencing and continuing the claim for refusal of approval and/or the imposition of amended condition 18.

31 No cases considering costs in merits appeals in relation to Pt 3A projects were referred to by the parties. In the context of whether to award costs in a merits appeal commenced under Pt 4, Spigelman CJ (Mason P and Beazley, Giles and Ipp JJA agreeing) in Sansom said:

[71] There is, in my opinion, a clear analogy with the role of a consent authority under the EPA Act. An appeal from a consent authority is similarly "an element of the management" of the scheme of the EPA Act by that authority. To treat such a review as equivalent to a lis between adversarial parties is, in most cases, a considerable oversimplification. In particular, it does not give weight to the public interest regulatory responsibilities of the consent authority, which should itself be anxious to ensure that it has made the correct decision. In such a context, characterisation of the proceedings either as "merits review" or as equivalent to adversarial litigation does not appear to me to be a particularly useful approach to the formulation of the judgment for which r 4(2) provides.

[72] In my opinion, a significant purpose served by planning appeals is to improve the quality of the decision-making process. This is a purpose which any statutory consent authority should be presumed to be anxious to achieve as an incident of its exercise of the statutory powers which Parliament has reposed in it. Individuals and corporations who challenge such decisions do not have the same obligations. They do, however, have a legitimate expectation that the decision-making process will result in the correct or preferable decision.

32 This extract focusses on the role of a statutory consent authority and the reasoning applies by analogy to Pt 3A merits appeals which are also aimed at achieving better quality decisions. Spigelman CJ identifies that individuals and corporations who challenge a decision do not have the same obligations as the public interest regulatory responsibilities of a consent authority. This costs application concerns a merits appeal conducted by a third party objector.

33 In Sansom at [69] Spigelman CJ emphasised the importance of considering the scope and purpose of a particular legislative scheme when considering a particular costs regime. The Applicant's submission on the different statutory processes under Pt 3A compared to Pt 4 (at par 20 above) are apposite. That statutory regime informs the context of third party objector appeals before this Court. There is no equivalent to s 79C in Pt 3A. In determining whether or not to approve a project under s 75J, the Minister is required to have regard to the DG's report, but not any particular planning consideration. Section 75L provides that any person who made a submission under s 75H objecting to an application for project approval and who is dissatisfied with the Minister's determination to grant approval to the project can appeal to the Court within a limited time. There are no restrictions in s 75L on how an objector is to run an appeal, issues it must consider, or a requirement to consider the economic impact of the conditions it seeks. The Applicant emphasised that the role of third party objectors as compared to consent authorities and proponents for development should be considered. I accept the Applicant's submission at par 20 above that under the statute a third party objector to a Pt 3A project can bring forward any issues it considers were insufficiently considered in the Minister's assessment, provided these are rational and supported by adequately qualified expert evidence where this is needed. A third party objector's concerns are not defined by matters considered by the Minister in approving the project.

34 In raising scope 1, 2 and 3 GHG emission impacts of the project, the Applicant was raising a new matter in the context of a merits assessment in Class 1 proceedings, as I observed in HEL No 1 at [32]. Determining how to respond to the impact of GHG emissions continues to be a challenge to state and Commonwealth governments. At the time of the hearing, there was no policy or legislative framework requiring amelioration of these impacts for individual projects at the national or NSW government level. That situation has since changed to some extent for large emitters of GHG with the passage of the CE Act (Cth) and related legislation, which commences on 1 July 2012. It is important to consider in this costs application that the management of GHG emissions from individual projects is a new and emerging area of environmental assessment in NSW and nationally, and the application of offsetting measures through the purchase of carbon credits is relatively untested in Australia. The Applicant brought proceedings because it was concerned about the impact of the project on the environment broadly, including in relation to climate change, considered the project was contrary to the principle of inter-generational equity, the conservation of biological diversity and ecological integrity: HEL No 1 at [33]. The third party objector appeal provision in s 75L entitled the Applicant to bring before the Court environmental issues it considers require greater assessment than occurred in the Pt 3A process.

35 Ulan's submission that the project would only produce an insignificant amount of GHG emissions is not supported by the evidence before the Court referred to in HEL No 1. It also submitted that if refused, there would be no appreciable impact on GHG emissions globally. If that submission is accepted, third party objectors seeking to bring before the Court individual projects which will emit substances contributing to state, national and global environmental problems would have their ability to bring such impacts before the Court for consideration significantly curtailed as a practical matter. Further, there is no statutory basis for so limiting matters considered in a Class 1 merits appeal. The contribution of individual projects to cumulative environmental impacts must be able to be considered in such appeals.

Whether the Applicant should have sought and maintained condition 18A - E

36 The Applicant had credible expert evidence suggesting that the GHG emissions could be offset using GS-CERs or ACCUs. I accept the Applicant's submissions that it was not unreasonable where there was an absence of policy or legislative framework on the issue, to suggest these as a possible mechanism. As submitted by the Applicant (at par 27 above), it would have been successful in the imposition of an offset condition, absent the CE Act (Cth): HEL No 1 at [105] - [106], [108]. While the condition may not necessarily have been identical to that drafted by the Applicant, it was not unreasonable or irrational for the Applicant to propose the condition. As submitted by the Applicant, given that the DG's requirements related to scope 1, 2 and 3 emissions, it was not acting irrationally or unreasonably in seeking an offset condition for scope 3 emissions.

37 Although it may have been a simpler case had the Applicant only sought a condition for offsetting of scope 1 emissions, it is speculative to consider what the extent of the evidence and submissions would be, given Ulan's opposition to any offset condition. I consider that similar evidence from Professor Jones and Mr Macintosh would have been necessary to address the offsetting of scope 1 emissions and that was necessary to establish the environmental significance of these and the possible offset mechanisms for addressing them.

38 Ulan argued that the Applicant abandoned its offset for scope 3 emissions very late in the hearing. The Applicant submitted that its change in position resulted from the narrowing of the issues in light of the evidence which evolved during the hearing. During final oral address the Applicant said it no longer sought an offset for scope 3 emissions because of an "element of practicality about the capacity to offset scope 3 emissions": TS596.50 - 597.3. In the circumstances of this case that was not an unreasonable response by the Applicant.

39 Ulan was also critical of a number of aspects of condition 18A - E. The carbon credit schemes proposed were either non-existent (ACCUs) or the market not demonstrated to be large enough (GS-CERs). I agree there was some uncertainty about the application of these relatively new, in Australia, carbon credit schemes. This underscores the novelty of GHG emission amelioration measures. Their proposal by the Applicant and likely refinement in the course of the hearing was not unreasonable. Condition 18E requires the DG to make a judgment call about the effectiveness of GHG schemes in light of ESD principles. That this placed an onerous and unworkable burden on the DG was not apparent (see HEL No 2 at [20]). The condition could have been fine-tuned in any event but did not ultimately require the Court's attention.

40 It was reasonable for the Applicant to continue to seek a condition which was supported by expert evidence. Ulan should not be compensated for having to respond to such a condition. It was reasonable and in conformity with the Applicant's duty to the Court under s 56(3) of the Civil Procedure Act 2005 to then withdraw or amend the condition if it considered the evidence no longer supported it. (That section applies in Class 1 proceedings by force of s 4 and Sch 1 of the Civil Procedure Act.)

Economic impact

41 Ulan submitted that the economic impact of the offsets through carbon credit purchase was so large it was unreasonable to propose the condition requiring purchase of these for scope 1, 2 and 3 emissions. Ulan's argument was based on the general duties of parties in civil litigation to engage in conduct that achieves the objects of just, quick and cheap resolution of proceedings. Ulan also relied generally on Spigelman CJ's statement in Sansom in [72] that a purpose of a merits appeal is to improve the quality of decision-making. That statement does not provide support for Ulan's submission that economic impacts of implementing ameliorating measures must be considered by an applicant in a merits appeal.

42 In arguing that economic viability was not a planning consideration in Pt 3A, the Applicant relied on Hill, a merits appeal under Pt 4, in which I stated the following about s 79C of the EPA Act:

[28] In relation to individual economic hardship caused to the Applicant, in Patra Holdings at [15] Pearlman J held that economic viability in the sense of profitability of a particular business cannot be relevant, relying on Kentucky Fried Chicken Pty Ltd v Gantidis (1979) 140 CLR 675 at 687. In Randall Basten JA (Giles and Santow JJA concurring) suggested that economic viability could be considered as a planning consideration under s 79C of the EP&A Act. He held at [36]:

It remains, of course, to consider whether there is some inviolable constraint on the statutory concept, which has been contravened in the present case. At the point of greatest limitation, it may be argued that the economic impact of a proposal on the application for development consent may not be the kind of impact which should be considered. Nevertheless, as is illustrated by the judgment of Kerr LJ in R v Westminster City Council; Ex parte Monahan [1989] 3 WLR 408 at 425, quoted by Bignold J in City West at [139], the imposition of a condition may involve financial constraints on the economic viability of a particular development, which may be of significance in particular circumstances. At the very least, such a consideration will not necessarily fall outside the boundary of "planning" considerations sought to be identified by the Claimant.

[29] I agree with the Minister's submissions that Randall supports the submission in this case that whether the development for which consent has been granted is economically viable for this Applicant is not a material consideration under s 79C in the absence of particular circumstances. I do not consider there are particular circumstances in this case suggesting this is a matter I should consider, although I accept that this means there is likely to be financial hardship for the Applicant in building the dwelling for which he has approval.

43 The unconstrained appeal provision in s 75L means that any person who objected to a Pt 3A project can appeal if they consider that any environmental impacts were not taken sufficiently into consideration by the Minister. The statement in Hill that the economic viability of a particular proposal is not material in a Pt 4 merits appeal also applies in merits appeals for Pt 3A projects. There are no particular circumstances as referred to in Randall suggesting the Applicant was bound to consider the economic impact of its proposed offset conditions. I note that given the nature of carbon credit schemes which rely on a market with fluctuating prices, the cost of these will vary over time and hence their economic impact. Ulan and the Minister were parties to the merits appeal and could and did bring forth issues concerning the economics of the project and the impact of a GHG offset condition. The Applicant's conduct of the appeal in proposing carbon credit schemes was not unreasonable in the circumstances.

Whether the Applicant should have sought and maintained refusal of the project based on GHG emissions

44 It was not unreasonable or irrational for the Applicant to propose that the project be refused on the ground of GHG emissions at the outset of and during the hearing. It was the first time such an issue was advanced in a merits appeal and the project involved a significant expansion of the project, doubling the production rate from 10 million tonnes to 20 million tonnes of coal a year, with a concomitant increase in GHG emissions for an extension of the life of the mine to 20 years. The Applicant's experts considered the scope 1, 2 and 3 emissions would be significant.

45 Ulan argued that the Applicant abandoned its claim for refusal of the project based on GHG emissions. The Applicant stated that its change of position narrowed the issues and that it acted responsibly in doing so. In final oral address, the claim for refusal was no longer sought because of "the likelihood and capacity of the Court to refuse [the project] on the basis of scope 3 emissions": TS596.50 - 597.3. Where a change of position in Class 1 proceedings results in costs being thrown away, it may be fair and reasonable to award costs.

46 Cases referred to by Ulan, Prestige and Statewide, to argue that the Applicant acted unreasonably in the conduct of the proceedings by delaying unreasonably in taking action or making proper concessions are not helpful. In Prestige it was found to be fair and reasonable to award costs because the council initially refused to consent to the applicant's application to amend its Class 1 appeal which it later consented to, but only after the applicant had filed and listed its notice of motion seeking leave to amend: at [20]. Preston J in Prestige referred to Statewide with approval at [21]. Statewide concerned a Minister's delay in formally revoking a s 121B order, costing the applicant a significant amount of money per day, despite the Minister being satisfied a month earlier that the terms of the order were met: at [28]. The actions of the Minister were unreasonable and the consequent delay in formally revoking the order was a capitulation (at [27]).

47 Here, the circumstances are different. The Applicant had expert evidence supporting its claim for refusal and the offset condition for scope 1, 2 and 3 emissions. After cross-examination of the expert witnesses it weighed up the evidence before determining in final oral submissions that its position should change. Ulan submitted that the condition sought was not economically justifiable relative to Professor Jones' evidence of the social cost of carbon. I have held above that the Applicant was not bound to consider the economic impacts of the economic instruments proposed. That Mr Macintosh said in cross-examination that he was not briefed to look at the economics of the project but that he would not be surprised if the project became unviable with the imposition of such a condition does not reflect on the Applicant. Further, given my conclusion above (par 37) that similar evidence would have been necessary in relation to scope 1 emissions only, I do not consider substantial costs were wasted by the Applicant's change of position.

48 The Applicant's change of position in final submissions having commenced and maintained a claim for refusal of the project based on the extent of the GHG emissions was not so unreasonable that a costs order in Ulan's favour is warranted.

Whether Applicant should have pressed condition 18A - F after delivery of HEL No 1

49 Costs after HEL No 1 should not be payable for the reasons given by the Applicant at par 28 above. Whether the imposition of a condition requiring offsets of GHG under a State planning law breaches the Australian Constitution in light of the CE Act (Cth) is not self-evident and remains an unresolved question. That I did not impose an offset condition was a result of the further expert evidence necessary to address the application of the scheme to be implemented under the CE Act (Cth) to the Ulan project. It is not fair and reasonable for these costs to be payable by the Applicant.

Conclusion

50 The Applicant did not act unreasonably in the circumstances leading up to, or in the conduct of, the proceedings to justify an award of costs under r 3.7(3)(c) or (d). Rule 3.7(3)(f) also does not apply.

51 The costs of disputed costs hearings are generally awarded in Class 1 proceedings as these are considered to be separate from the usual merits process. Costs generally follow the event unless there is disentitling conduct. As the Applicant has been successful in resisting the costs application and incurred legal costs in doing so it is appropriate to award costs in its favour.

Order

52 The Second Respondent's application for costs is refused. The Court orders the Second Respondent to pay the Applicant's costs of the costs hearing as agreed or assessed.

 

Decision last updated: 30 May 2012