Posted on August 6, 2023 by Sue Puckeridge and James King 1

TfNSW liable for nuisance in constructing the Sydney Light Rail – the importance of project planning

As part of wider class action proceedings, the Supreme Court of NSW (Court) has found Transport for NSW (TfNSW) liable for financial damage suffered by two businesses during the construction of the Sydney Light Rail under the legal principles of nuisance. The legal representatives for the plaintiffs contend that there could be thousands of people who fall within the class defined as Group Members for the purpose of the class action.

It is not known if the decision will be appealed but it sets out a number of important principles in relation to nuisance, its application to large construction projects and contractual negotiations.  Public authorities entering into infrastructure contracts should be aware of the need to properly account for risks in a project in the planning and management stages so as to avoid substantial and unreasonable impacts on adjoining landowners.

Background

The facts of this case are complicated and a detailed explanation can be found in the judgment itself. We set out a summary of the facts we consider to be pertinent below.

The main planning of the Sydney Light Rail project commenced in 2012. TfNSW determined that the Sydney Light Rail would be built and operated through a public and private partnership. On 17 December 2014, following two years of planning and development, Connecting Sydney, known as “CSY”, negotiated and then entered into an extensive project deed with TfNSW (Project Deed). The Project Deed covered the design, construction and operation of the Sydney Light Rail for 15 years. CSY subcontracted its responsibilities under the Project Deed to other subcontractors.

TfNSW planned for the construction of the Sydney Light Rail route to be completed in stages which were called ‘fee zones’ and which would be occupied for different periods of time. The aim of doing so was to ensure minimal disruption to businesses along the route.

The Project Deed, provided that the contractor could not be penalised for time overruns in a fee zone which were due to ‘Utility Works Events’.  Such events were unexpected works required to deal with unidentified utilities on the route. In fact, the contractor could claim compensation for Utility Works Events. The maximum penalty which could be imposed against the contractor for not completing the project on time under the Project Deed was $7.5 million.

Utilities Risk

A major risk of delay and additional costs identified by TfNSW at the time of entering into the Project Deed was the potential for problems from the presence of utilities along the proposed route. Ausgrid had warned TfNSW that the costs and timings in dealing with utilities set out in their plans was likely to be a significant underestimation.

TfNSW was aware that there was a risk that the treatments required would be different for different utilities. At the time the Project Deed was signed, no agreement existed with the utilities providers as to how their utilities would be treated.

Additionally, it was expected that utilities, which were not known to exist at the time of entry into the Project Deed, would be discovered during the course of the construction. During preliminary trenching works, 30% of the utilities discovered were unknown.

Construction of the Sydney Light Rail and impact on businesses

The construction and development of the Sydney Light Rail line between Circular Quay and Randwick/Kingsford in Sydney occurred between 2015-2020. The project was due to be completed by March 2019. As it turned out, the Sydney Light Rail Project it was not completed until March 2020, a year overdue.

Hunt Leather Pty Ltd (Hunt Leather) operated two luxury goods stores in the Strand Arcade and the Queen Victoria Building (QVB). The light rail construction took place outside these stores between November 2015 and 2019. The plaintiff contended that the QVB store closed as a result of the Sydney Light Rail construction.  Ancio Investments Pty Ltd (Ancio) operated a restaurant on Anzac Parade in Kensington. Light rail construction took place outside that restaurant between August 2016 and February 2019. As a result, the profitability of the restaurant deteriorated and it permanently closed in April 2019.

The fee zones in which the plaintiffs businesses were located, were occupied for periods that significantly exceeded the anticipated occupation period.

Issues and Principles of Nuisance

The tort of nuisance provides common law protections for owners and users of land against substantial and unreasonable interference by others with their use and enjoyment of the land. This commonly includes things like preventing neighbours from creating loud noises, excessive light, oppressive smells, and dishcharge or water from one property onto another.

Not every interference with the use or enjoyment of land gives rise to an actionable claim in nuisance. Courts will attempt to strike a balance between the right of the landowner or person causing the nuisance to use its land as it sees fit and the interest of affected landowners to be protected from interference with their rights.

Issues considered by the Court

The main issue before the Court  was whether TfNSW caused a substantial and unreasonable interference with the comfortable and convenient enjoyment of the business premises by Ancio and Hunt Leather, amounting to an actionable private nuisance.

The Court also considered a number of additional issues in its judgment, including whether provisions of the Civil Liability Act 2002 applied. Those considerations are not discussed in this blog.

Did TfNSW cause a substantial and unreasonable interference?

The plaintiffs contended that the construction activities carried out during the Sydney Light Rail project were substantial and unreasonable.

There was no claim that the operation of the Sydney Light Rail itself was a nuisance. Rather, the activities constituting the nuisance were the operation of heavy construction machinery, vibrations, noise and dust, the presence of hoardings close to the business premises and the general restriction of pedestrian and vehicular movement by closure of surrounding roads during construction.

The above interferences in combination with the length of time that the work was conducted outside of the plaintiffs premises were found to be a substantial interference (except in relation to the Hunt Leather QVB store).

The Court noted that there would be differing levels of interference with individual businesses who may be Group Members, depending on a range of factors in the proceedings.

The Court found that even though TfNSW was not undertaking the work it created the state of affairs which led to a substantial and unreasonable interference with the businesses during the period of construction, and that the substantial period of interference was foreseeable. The cause of delays in the relevant fee zones were the:

• the number of modifications by TfNSW during the course of the construction work;
• the discovery of many previously unknown utilities, leading to delays in the treatment these utilities; and
• delays in reaching agreement with utility providers in respect of the treatment of the utilities.

In concluding that the interference was unreasonable, the Court considered a number of factors including:

• the length of the interference  (being much longer than TfNSW had assured business owners it would be);
• the nature and purpose of the activities being carried out;
• the relationship between the parties, including the obligations of TfNSW as landowner;
• the public benefit of the activities;
• whether the landowner took care to avoid unnecessary interference. While the Court did not accept that negligence is a factor in establishing nuisance it was nevertheless not satisfied that TfNSW exercised reasonable care to protect the interests of the business owners along the route;
• whether there were self-help measures available to the plaintiffs; and
• the extent to which TfNSW might have known or anticipated that the interference would impact on the financial interests of the adjoining landowners. In this case there was no doubt that TfNSW knew of the high risk that the interference could have on the financial interests of the adjoining landowners.

Should TfNSW be held liable for the nuisance?

The Court was careful to note that interference by way of construction activities such as reductions in vehicle or pedestrian traffic, closure of roads and dust impacts are not by themselves a basis for actionable nuisance. There must be something more, or otherwise the ability and entitlement of people and government to undertake ordinary construction work would be impeded.

The Court agreed with the plaintiffs that TfNSW should be held liable for the private nuisance because it was responsible for failures in the design, planning and contract negotiation phases (up to December 2014 and the signing of the Project Deed) of the project, even though it did not carry out the construction works which caused the actual interference.

TfNSW had assured the business owners to be affected by works on the route that it would minimise disruption by requiring work to be carried out in stages and ensuring that the contractor complied with that requirement. Despite that, it contracted on advantageous terms to the contractor and provided no real deterrence for any departure from the fee zone schedule in relation to utilities issues.

The utilities risk was so high, that the other parties to the Project Deed were unwilling to accept more than a limited responsibility for the utilities risk.  As such, TfNSW took the risk in respect of the requirements of the utility providers.

Implications of the Decision

This decision makes it clear that careful consideration needs to be given to both known and unknown risks in planning and management an infrastructure project that is likely to impact on adjoining landowners.

If the planning and management of a project is found to be the source of a substantial and unreasonable interference, the fact that the principal is not undertaking the physical construction works may be of little assistance in nuisance proceedings.

Although TfNSW was faced with competing interests and was required to undertake a commercial negotiation in preparing the Project Deed, the Court found that it did so on terms that were advantageous to the contractor. The risk to the business owners along the route arising from agreed terms was highly probable and potentially extreme. This decision highlights that contractual terms should be effective to ensure that any risks which could be a nuisance are either taken on by the responsible contractor or effectively minimised.

The complete judgment is available here Hunt Leather Pty Ltd v Transport for NSW [2023] NSWSC 840.

If you have any questions in relation to this decision, please leave a comment below or contact Sue Puckeridge on 02 8235 9702 or James King on 02 8235 9722.