Banno, S. v Commonwealth of Australia
[1993] FCA 626
•08 SEPTEMBER 1993
SALVATORE BANNO and ANTONINO BANNO v. COMMONWEALTH OF AUSTRALIA and MINISTER
FOR ADMINISTRATIVE SERVICES
No. NG292 of 1992
FED No. 626
Number of pages - 22
Compulsory Acquisition of Land
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
WILCOX J
CATCHWORDS
Compulsory Acquisition of Land - Poultry Farm - Agreement between parties as to market value of land and certain incidental expenses - Dispute as to claims by applicants for compensation assessed on a reinstatement basis and losses incurred after acquisition and before vacation of possession - Cross-claim for occupation fee - Whether Minister's power to determine terms and conditions of occupation may be exercised retrospectively.
Lands Acquisition Act 1989, ss.47, 55, 58, 61 and 91.
HEARING
SYDNEY, 22-23 July 1993
#DATE 8:9:1993
Counsel for the Applicant: D Wilson and J M Atkin
Solicitors for the Applicant: Smith Monti and Costa
Counsel for the Respondent: R Bainton QC and C E Adamson
Solicitors for the Respondent: Australian Government Solicitor
ORDER
THE COURT ORDERS THAT:
1. The compensation payable to the applicants, Salvatore Banno and Antonino Banno, in respect of the acquisition of their land by the respondent, the Commonwealth of Australia, be assessed in the sum of Eight hundred and seventy two thousand two hundred and ninety nine dollars ($872,299).
2. There be judgment in favour of the cross-claimants, the Commonwealth of Australia and the Minister for Administrative Services, against the cross-respondents, Salvatore Banno and Antonino Banno, in the sum of Seventy five thousand seven hundred and forty three dollars
($75,743).
3. The matter of costs be reserved with liberty to any party to apply on seven days notice.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
WILCOX J This is a claim for compensation pursuant to the Lands Acquisition Act 1989 arising out of the compulsory acquisition of a poultry farm owned by the applicants, Salvatore and Antonino Banno. The land was acquired by the respondent, the Commonwealth of Australia, for the purposes of the proposed Badgery's Creek airport. It contains 4.981 hectares. The parties have agreed upon the value of the land and its improvements ($812,000), but they are in dispute as to other items of compensation claimed by the applicants. In particular, the applicants claim that the compensation paid to them should include the cost of re-establishing their poultry business at a new location.
The land was acquired on 29 September 1989 but the applicants stayed in possession until 31 March 1993. The Minister for Administrative Services, on behalf of the Commonwealth, allowed the applicants free occupation for the first 16 weeks. He sought an occupation fee of $385 per week in respect of the applicants' occupation of the land after the expiration of that time; that is, from 19 January 1990. No agreement was reached about terms and conditions of occupation. The Minister thereupon purported to determine an occupation fee at $385 per week, under s.47(4) of the Lands Acquisition Act. The fee has not been paid and the Commonwealth and the Minister cross-claim in these proceedings to recover $64,185, being a fee of $385 per week from 19 January 1990 to 31 March 1993, with interest on that sum.
The applicants' business
3. The applicants are brothers. They were born in Italy. Neither received any trade training. Each man migrated to Australia in the late 1960's and worked in unskilled jobs. In 1975, in conjunction with one Santo Giovanni, the applicants purchased the subject land. It was already used as a poultry farm. At that time, the production of eggs in New South Wales was regulated by State legislation. The farm had a quota of 8,209 hens; meaning that the owners of the farm were entitled to sell the eggs produced by that number of hens. The farm carried about this number of layers at the time of purchase. The property contained a main dwelling including six bedrooms, a small cottage, two laying sheds, a small shed used to house non-laying pullets and feeding equipment.
In 1976 Mr Giovanni left the partnership. The applicants continued on alone. From time to time, they purchased additional quotas and expanded their flock. By the time the industry was deregulated, in August 1989 (see the Egg Industry (Repeal and Deregulation) Act 1989(NSW)), the applicants held quotas for 24,212 hens. They were unable to house that number of laying hens, so they leased part of their quotas to other farmers. According to Mr Salvatore Banno, who gave evidence on behalf of himself and his brother, the applicants never held more than 17,000-18,000 laying hens.
In order to dispose of the matter immediately, it is desirable to state that the applicants' quota entitlement is not something to be taken into account in assessing this claim. As already implied, quotas were assignable. When the egg industry was deregulated, the Hen Quota Committee established under the 1989 Act paid compensation for all extant quotas, including those of the applicants.
Having regard to the issues between the parties, it is necessary to summarise the evidence concerning the operation of the business. Wayne Loneragan, a chartered accountant retained on behalf of the Commonwealth, made an analysis of the accounts attached to the applicants' tax returns. In relation to the three financial years last completed before the acquisition of the land, he found as follows:
Year ended Year ended Year ended 30 June 1987 30 June 1988 30 June 1989 $000 $000 $000 Sales 290 272 319 Gross trading
profit 66 68 109 Net profit
after
interest but
before
proprietors'
wages and tax 25 26 74
Shortly before acquisition of the property, but after service on the applicants of a pre-acquisition declaration, the applicants' solicitors, Smith Monti and Costa ("SMC"), wrote to the Australian Property Group ("APG"), which acted for the Commonwealth in connection with the acquisition, concerning an order for 14,000 pullets lodged with a chicken breeder earlier in the year. Delivery was then imminent. APG replied on 26 September 1989, stating that the applicants "have little option but to accept" the pullets. The reply indicated that the property would be available for lease back to the applicants "until at least the end of May 1990". There was to be a rent-free period of 16 weeks; thereafter occupation would be at market rental.
The applicants accepted the pullets. They became laying hens a few weeks later. It seems that the applicants operated at full capacity (that is, with about 17,000 laying hens) for the remainder of the financial year, to 30 June 1990. During that period there were negotiations about rent, APG claiming $385 per week from 19 January 1990. A rental agreement was prepared by APG and sent to SMC. But the applicants did not sign it. In May 1990, APG told SMC that the Commonwealth would not require vacant possession of the land before 31 October 1990.
According to Mr Loneragan's analysis, the applicants obtained excellent financial results in 1989-1990. Sales increased to $397,000, gross trading profit to $146,000 and net profit after interest, but before proprietors' wages and tax, to $153,000. The large increase in the value of sales may have been attributable to the deregulation of the egg market at the beginning of the financial year. Net profit after interest was heavily influenced by interest earnings of $53,000 (presumably interest earned on the quota acquisition moneys received from the Hen Quota Committee), as against net interest expenses incurred in the three preceding years.
In July 1990, APG advised SMC that possession would not be required before 30 April 1991. On 20 February 1991, SMC wrote to APG seeking its present forecast as to when vacant possession would be required. APG replied on 1 March 1991 pointing out that the applicants had not signed the lease document and that arrears were accruing. The letter said that leases at Badgery's Creek "may now be extended to 30th April 1992"; consequently the expiry date of the lease might be any date up to that day. The applicants did not sign the lease but they remained in possession of the land.
It seems that the number of laying hens fell to about 13,000 by the end of October 1990. There was some delay in replacement. However, by the end of January 1991, the sheds were back to full capacity. The applicants made further purchases in February. In March 1991, they sold some aged hens. According to Mr Loneragan's analysis of the records, the number of laying hens was down to 14,000 at the end of March. However, a series of small purchases brought the number of layers back to 16,000 over the ensuing five months.
The financial results for 1990-1991 were poor, perhaps partly because of the over-supply of eggs generated by the boom that immediately followed deregulation. Sales were down to $263,000, gross profit to $57,269 and net profit to $21,701.
In August or September 1991, the applicants took delivery of a further 10,000 pullets. On the analysis of the situation made by Robert Hawkings, the applicants' accountancy expert, these deliveries took total laying stock back to full shed capacity. On Mr Loneragan's analysis, the number of stock exceeded theoretical capacity. Perhaps it does not matter which expert is correct. On any view, the sheds operated at full capacity until late 1992. According to Mr Hawkings, due to natural attrition the number of layers then fell below capacity.
In November 1991, SMC asked for further information regarding the date when vacant possession would be required. On 18 December, APG responded that vacant possession was likely to be required by 31 March 1992. On 6 January 1992, this date was altered to 30 April 1992. A second lease document was prepared but not signed. There was correspondence between APG and SMC regarding this matter, but without result.
It seems that APG never agreed to extend the date for giving vacant possession beyond 30 April, 1992. But the applicants did not vacate on that day and APG took no action to force them to leave. On 22 May 1992, the applicants commenced this proceeding.
Sales for the year 1991-1992 increased to $328,924. But costs also increased; so gross profit was lower at $50,381. Net profit was only $19,878.
On 7 July 1992, a delegate of the Minister made a formal decision, under s.47(4) of the Lands Acquisition Act, determining that the terms and conditions of the applicants' occupation of the property would be those set out in the two lease documents that had been prepared but not signed. The delegate gave as his reasons for the decision that the lease documents had not been executed, no agreement as to payment of rent had been reached and no rent had been paid.
On 16 September 1992, the delegate gave the applicants notice to quit the property on 27 November 1992. They did not do so. On 15 December 1992, the Cross-claimants amended their Cross-claim so as to include a claim for an order pursuant to s.132 of the Lands Acquisition Act giving them possession of the property. However, before the matter came on for hearing, on 31 March 1993, the applicants vacated the property.
The applicants' claim
19. Long before their land was acquired, the applicants became aware of the possibility that this would happen. Both applicants were married with children. The two families lived on the farm and wished to maintain this way of life. In 1986 the applicants commenced to inspect alternative locations. In that year they visited poultry farms near Orange and at Cobbity. Both contained much greater land areas than their existing farm (Orange 300-400 acres, Cobbity 30 acres). The asking price of each property exceeded $1,000,000. In 1987 they inspected a property at Kellyville. It contained only two acres but the price was $1,000,000; presumably because of potential for urban development. They also saw a farm at Armidale. It was very different to their existing property. It comprised about 900 acres of rocky land but contained sheds housing about 14,000 chickens. The asking price was $975,000. In 1988 they inspected a poultry farm at Warnervale, near Wyong. It was on the market at $825,000 but there was a problem arising out of the zoning of the land. In 1989 the applicants visited a property at McGrath Hill near Windsor but the owner would not indicate a price.
At about the time of the compulsory acquisition, the applicants contracted to purchase a parcel of land, containing 18.98 ha, at Lakesland in the Shire of Wollondilly. The purchase price was $500,000. The applicants incurred purchase costs (legal expenses, stamp duty and other disbursements) totalling $21,072.70. The property contained a four-bedroom dwelling but was otherwise undeveloped. Before purchasing the land, the applicants inquired about its suitability for poultry farming. They ascertained from Wollondilly Shire Council that there were no relevant planning restrictions. They learned from the Water Board and Prospect County Council, respectively, that reticulated water and electricity were available. They also retained a surveyor and an engineer to advise them regarding the design of a dam and the best location for poultry sheds. The applicants settled the Lakesland purchase on 13 November 1989, the settlement money coming from a payment by the Commonwealth on account of the compensation due to them. I am satisfied that the applicants purchased the Lakesland property with the intention of re-establishing their poultry business at that location. From the applicants' point of view, there was every reason to continue their business. They were then aged 48 and 46 years respectively. Each had a wife and dependent children. They were experienced poultry farmers but untrained for any other form of employment.
On 22 January 1990, the applicants lodged a development application with Wollondilly Shire Council. The proposed development was described in the application as "1. Construct new dwelling 2. Poultry establishment (eggs) 3. Clear land of trees 4. Dam 5. Market garden fruit orchard". Plans for poultry sheds were later submitted to the council. On 17 October 1990, the council gave consent to the establishment of a poultry farm. Building plans were subsequently lodged. On 13 September 1991, the council gave building approval to the construction of a poultry shed to house 20,000 birds. Since then, nothing has happened. Building work has not commenced. Mr Banno said in evidence that he and his brother do not have sufficient money.
Mr Banno's evidence is understandable. Expert evidence discloses that the October 1989 cost of reproducing the Badgery's Creek sheds at Lakesland (new buildings, of course, but with the same sizes and layouts as the old) was $562,800. Buildings providing a modern, efficient layout would cost $724,000. On top of that figure the following expenditure would be required:
Plumbing, drainage and water purification $39,600 Pump equipment 8,505 Electricity supply-extension to property 16,222 On site electricity costs 31,484 Poultry shed site preparation 40,360 Engineer's fees 7,650 Concrete spillway 9,500 Fees for approvals 2,000 Total additional costs $155,321
The addition of this figure to the cost of acquiring Lakesland ($521,072.70) and of erecting sheds similar to those at Badgery's Creek ($562,800) gives a total re-establishment cost of $1,239,193.70.
The applicants say that the assessment of their compensation should include this amount, together with solatium for two households ($21,360); the loss of profits sustained by them by virtue of the acquisition until they vacated the Badgery's Creek land on 31 March, 1993 ($52,409); the loss of profits they will suffer during construction at Lakesland ($38,420); the capitalised value of the increased cost of transporting eggs to market from Lakesland, as compared with Badgery's Creek, till the year 2006, the assumed retirement date of Antonino Banno, ($51,684); and the capitalised value of the increased cartage cost of feed ($54,849). The total of these claims is $1,457,915.70. The applicants would be double-counting if they added a claim for the agreed value of the Badgery's Creek property. They do not do so.
In its amended Defence the Commonwealth concedes the applicants' entitlement to compensation of $872,249. This is the total of a series of items that actually total $872,299:
Agreed market value of the land and
improvements at 30 September 1989 $812,000 Stamp duty and legal costs on purchase
of a replacement property for $812,000 36,401 Accountancy and valuation fees 2,038 Legal fees for initial advice 500 Solatium 21,360 Total $872,299
The Commonwealth says that the amount claimed in the Cross-claim should be set off against this.
Although there is no dispute about solatium, I should explain the conceded figure. Solatium is payable under s.61 of the Lands Acquisition Act:
"61(1) This section applies where:
(a) an interest in land is acquired from a person by compulsory process;
(b) the interest entitled the person to occupy a dwelling on the land;
(c) immediately before the acquisition the person was occupying the dwelling as his or her principal place of residence; and
(d) because of the acquisition, the person has ceased to be entitled to occupy the dwelling as his or her principal place of residence.
(2) The amount of compensation to which the person is entitled in
respect of the acquisition is the sum of $10,000 (or that amount as indexed by section 126) and the greater of the following amounts:
(a) the amount of compensation to which the person would, apart from this section, be entitled;
(b) the amount necessary to reimburse the person for the costs of acquiring a reasonably equivalent interest in land that entitles the person to occupation of a reasonably equivalent dwelling."
The parties agree that s.126 (which indexes the stipulated sum of $10,000 by reference to the Consumer Price Index) had the effect of increasing that sum to $10,680 as at the date of acquisition of the applicants' land. The Commonwealth does not concede that the section requires a double solatium payment where there are two owners of acquired land, both of whom reside on it with their families. But counsel informed me that, without prejudice to its general position, in this case the Commonwealth agreed to a double solatium payment ($21,360) as sought by the applicants.
Reinstatement: legal aspects
27. The applicants divide the disputed elements of their claim into two categories: those arising out of the planned relocation of the business at Lakesland and the loss of profits said to have been sustained between the date of acquisition and the date of yielding up possession of the land.
In relation to the first category, there is little factual dispute. The Commonwealth did not contest any of the estimated construction costs. The only items criticised were the estimates of the capital value of the increased cartage costs involved in operating at Lakesland. The Commonwealth argues that none of the reinstatement items is recoverable, as a matter of principle.
Section 58 of the Lands Acquisition Act permits assessment of compensation on a reinstatement basis under certain circumstances. However, the section does not apply to this case; if for no other reason than that it does not apply where the land was used for carrying on a business immediately before the acquisition. Counsel for the applicants accept that s.58 is inapplicable. Nonetheless, they contend that the reinstatement claim is covered by the Act. They say that s.55 applies. That section relevantly provides:
"55(1) The amount of compensation to which the person is entitled under this Part in respect of the acquisition of an interest in land is such amount as, having regard to all relevant matters, will justly compensate the person for the acquisition.
(2) In assessing the amount of compensation to which the person is entitled, regard shall be had to all relevant matters, including:
(a) ...
(b) ...
(c) any loss, injury or damage suffered, or expense reasonably incurred, by the person that was, having regard to all relevant considerations, including any circumstances peculiar to the person, suffered or incurred by the person as a direct, natural and reasonable consequence of:
(i) the acquisition of the interest; or
(ii) the making or giving of the pre-acquisition declaration or certificate under section 24 in relation to the acquisition of the interest;
other than any such loss, injury, damage or expense in respect of which compensation is payable under Part VIII;
(d) ...
(e) ..."
Referring to s.55(1), counsel contend that anything short of the amount of money necessary to enable their clients to re-establish their business at Lakesland will fail to justly compensate them for the acquisition. They argue that the acquisition deprived their clients of their business and livelihood; unless they are enabled to reinstate their business they will be permanently disadvantaged. Counsel also submit that the claim for reinstatement falls within the specific matter referred to in s.55(2)(c).
Counsel for the Commonwealth accept that the principle enshrined in s.55(1) is wide enough to accommodate a business reinstatement claim in an appropriate case. I think that this is correct. The inapplicability to a particular case of a specific reinstatement provision, such as s.58, does not necessarily exclude reinstatement items: see Harvey v Crawley Corporation (1957) 1 QB 485 especially at 492 and 495. Counsel express reservations about the application of s.55(2)(c). Having regard to counsel's concession about s.55(1), it is not necessary to reach a concluded view about that matter. But, as this is the first case in which the paragraph has fallen for consideration, it is useful to mention the nature of the problem: the limitation imposed by the inclusion in the paragraph of the word "direct".
In Harvey the English Court of Appeal considered rule (6) of the rules for assessment of compensation under the Acquisition of Land (Assessment of Compensation) Act 1919 (UK). That rule permitted recovery of compensation for disturbance. Mrs Harvey's house had been acquired. The Court held that she was entitled to recover the legal costs and surveyor's fees associated with purchasing a new home. But Denning LJ at 493 emphasised that disturbance compensation covered only the direct consequences of an acquisition:
"I would therefore say that this money which has been expended, this 200 odd, which is the direct consequence of Mrs. Harvey being turned out of her house, is properly to be regarded as compensation for disturbance. But I would not like this to be taken too far. Cases were put in the course of the argument. Supposing a man did not occupy a house himself but simply owned it as an investment. His compensation would be the value of the house. If he chose to put the money into stocks and shares, he could not claim the brokerage as compensation. That would be much too remote. It would not be the consequence of the compulsory acquisition but the result of his own choice in putting the money into stocks and shares instead of putting it on deposit at the bank. If he chose to buy another house as an investment, he would not get the solicitors' costs on the purchase. Those costs would be the result of his own choice of investment and not the result of the compulsory acquisition."
In its report "Lands Acquisition and Compensation" (ALRC 14) the Australian Law Reform Commission at para.242 referred to Denning LJ's examples. It went on:
"Many of the expenses which are presently allowed as disturbance may not be 'direct' consequences of acquisition. For example, is the cost of buying new curtains or carpets really a loss resulting directly from acquisition? The requirement of directness may result in a too narrow approach to compensation for disturbance. In cases of compulsory acquisition it is preferable to err on the side of generosity in deciding what is to be included under the heading of 'disturbance'. It seems unreasonable that a landowner who is forced to reinvest his money because of compulsory acquisition should not be compensated for the cost of such reinvestment, provided it was reasonably incurred. After discovering that his land is to be acquired, a landowner may wish to relocate before the actual acquisition takes place. This may result in a mitigation of his losses. It should be made clear in any statutory provision that costs thus incurred are to be compensated. Compensation should be payable for any loss or damage suffered or cost incurred as a 'natural and reasonable' consequence of the acquisition. The word 'direct' should be avoided."
Although the 1989 Act was substantially based upon the Commission's recommendations, Parliament did not adopt this particular suggestion. The word "direct" was included in s.55(2)(c), possibly thereby importing the limitations perceived by Denning LJ. It can be argued that his Lordship's comment about an investor choosing to put his money into stocks and shares, or into another house, applies to a situation where landowners choose to invest their compensation money in other land on which they can re-establish their business. My inclination is to think this argument is not correct; that, even if Denning LJ's items are not examples of "direct" loss, there is a valid distinction between the replacement of a passive investment (stocks and shares or a house) and the transfer of an actively-operated business from one location to another.
However, as I have said, it is not necessary to determine whether s.55(2)(c) is available to the present applicants. Section 55(1) does not limit recoverable compensation to that arising out of direct effects. It is an open-textured provision requiring the Court to consider what amount of money will, under all the circumstances, "justly compensate" the dispossessed landowner. If the circumstances are such that a claimant can be justly compensated only by reference to the cost of reinstating a business in another location, this course must be taken.
The justice of compensating a disturbed business proprietor on the basis of reinstatement cost has been recognised in many cases. Perhaps the earliest of them was A and B Taxis Limited v Secretary of State for Air (1922) 2 KB 328, a case arising out of the war-time requisitioning of the claimant's motor garage. When the government took over the garage, the claimant purchased other premises. The government ultimately vacated the requisitioned premises, whereupon the claimant sold its new premises and moved back to its original location. The claimant sought compensation for the loss it sustained on the purchase and sale of the substitute premises. The War Compensation Court held that this was not "direct loss or damage" arising out of the requisitioning of the premises. The Court of Appeal reversed that decision. Bankes LJ referred at 336-337 to the principle stated in Cripps on Compensation:
"There are some cases in which the income derived, or probably to be derived, from land would not constitute a fair basis in assessing the value to the owner, and then the principle of reinstatement should be applied. This principle is that the owner cannot be placed in as favourable a position as he was in before the exercise of compulsory powers, unless such a sum is assessed as will enable him to replace the premises or lands taken by premises or lands which would be to him of the same value. It is not possible to give an exhaustive catalogue of all cases to which the principle of reinstatement is applicable. But we may instance churches, schools, hospitals, houses of an exceptional character, and business premises in which the business can only be carried on under special conditions or by means of special licences."
In this passage, Cripps was, of course, considering cases of permanent deprivation of land. Bankes LJ went on to apply the principles enunciated in the passage to temporary deprivation:
"It must depend on the facts whether in a particular case the principle of reinstatement so stated applies; and the material considerations would seem to be, first, the nature of the business which is to be displaced; it would be unreasonable to incur great expense in reinstating a business which could only be carried on at a loss; secondly, the time during which the business is to be displaced; if the time was very short it might be unreasonable to incur any expense in reinstating it. But if it were not reasonable to shut up the business and claim compensation on the footing of its total destruction - if the reasonable course were to keep it alive by transplanting it elsewhere - then the next question would be, was it reasonable for the proprietor to take the premises he took and incur the expense he incurred in adapting them to the requirements of the business?"
This decision was referred to by Davidson J in Grace Bros Pty Limited v Minister for the Army (1944) 45 SR (NSW) 206, also a case of a temporary requisition of land. Interestingly, at 211 his Honour envisaged that the reinstatement approach might be applied to a business trading at a loss, provided that the owner could establish a reasonable prospect of improvement.
A and B Taxis was applied by Barber J, of the Victorian Supreme Court, in Keogh v Housing Commission of Victoria (1969) 18 LGRA 289, a case of permanent deprivation of land. The claim arose out of the acquisition of a leasehold interest. The claimant relocated his business in new premises in a different suburb. The finances of the business were interwoven with those of associated companies, so it was difficult to determine the business' profitability, if any. Barber J said he was -
"prepared to assume that it is a going concern carried on profitably in the sense that it supplies an income to the Keogh family. At worst it is a business with potential of profit".
On this basis, Barber J allowed part of the cost of architect's fees and of partitioning and shelving (discounting the claim because the claimant would enjoy a longer lease in the new premises) and the whole of the additional insurance and rental for the new premises.
Commissioner of Highways v Shipp Bros Pty Ltd (1978) 19 SASR 215 involved a reinstatement claim by a tow truck operator. At the time of the hearing the claimant remained in occupation of the acquired land; although it had made inquiries, it had not found an alternative location. This circumstance led Wells J, of the South Australian Supreme Court, to reject the reinstatement approach. However, in the course of his reasons, he summarised the relevant principles. His Honour pointed out at 219-220 that, in compensation cases, the court is concerned to consider the value of the land from the viewpoint of the claimant; this value may be greater than market value. He went on at 220-221:
"4. Where the taking of the land, for one reason or another, has the
effect of destroying the business, the compensation will, speaking generally, and subject to qualifications arising from special circumstances, amount to the value, assessed at the date when it is apparent that re-establishment of substantially the same business is impracticable, of the land and business as a going concern, less, of course, a reasonable allowance for moveable plant and equipment that is retained.
5. A business may be held to have been destroyed in various ways and in many different sets of circumstances. It may be destroyed because it has been so closely integrated with the particular land ... that no other comparable site is to be found. It may be destroyed because it has been exclusively or heavily dependent upon and characterized by a local reputation and connection; to set up the same kind of business elsewhere would be, therefore, to establish a completely new venture.
6. But the reputation and connection of a business may not be concentrated within narrow local limits and the business may not, or not to any great degree, be bound to the subject land. The strength and extent of that reputation and connection, and the freedom of the business from physical and administrative fetters binding it to the subject land, may be such that the business cannot fairly be held to have been destroyed by the acquisition. The answer to the question 'Destroyed or not destroyed?' will necessarily depend on a wide range of circumstances as to which it would be undesirable - probably even harmful - to purport to lay down any hard and fast rules.
7. The role played by re-establishment in the process of computing compensation is not left at large, and must be regulated because, within comparatively liberal limits, it is expected that a claimant will, like the plaintiff in a claim for damages at common law, take proper steps to mitigate his loss. Causation is, as always, the ultimate test - on the one hand, for example, the circumstances may be such that it would be wholly unreasonable for the claimant to do other than promptly to lay out moneys in order to effect a simple and inexpensive transfer to an immediately available and obviously appropriate alternative site. On the other hand, a proposal to relocate (or each such proposal, if more than one be under examination) may lie uncomfortably close to the limits of acceptability, and may present itself (or themselves) as by no means the only course (or courses) reasonably open to the claimant. In such circumstances, proof of causation may lie nicely in balance, and the Court may find it difficult to choose between holding the business to have been, in truth, destroyed, and assessing compensation upon the basis of costs of re-establishment that are closely scrutinised and sometimes discounted."
Wells J observed at 221 that -
"if the costs of available relocation plainly and substantially would exceed the value of the business as a going concern (after making due allowance for retained moveable assets) it would not be the reasonable and natural consequence of expropriation to incur such costs, and hence compensation could not justifiably be assessed by reference to them ... Even if the claimant has no alternative to obtaining new fixed assets that are more expensive and commodious than those he has lost, the Court may well make some allowance against the claimant in recognition of that enhancement".
At 221-222 Wells J made some comments that the applicants see as pertinent to this case:
"9. The profitability - the net maintainable profits - of the business
affected by the acquisition must always be weighed but need not be decisive. Causation remains the test. For the purposes of cases such as the one before me, the court is not assessing the standing of the subject business in the market as a possible investment; it is determining whether the claimant is acting reasonably in seeking to transplant his business. A potential investor is likely to decline to invest in a small family business ... where its net maintainable profit does not exceed that of a well-established and diversified public company. But those who control and manage the former may view what is their own quite differently. Their business may represent more than just a means of getting a living - it may represent, too, their chosen way of life. Even though conventional accounting practice would present such a company as making only small profits, the salary and wages received, and the other direct and indirect benefits derived, from the company may provide the shareholders ... with satisfactory emoluments, and reasonably inspire in them a determination to carry on elsewhere which the Court should endorse: ... The members of the controlling family may, not unreasonably, be willing to expend an amount on re-establishment notwithstanding that it exceeds - not immoderately - the value of the business computed according to standard accounting procedures based upon net maintainable profits. The dividing line, in practice, between deriving financial rewards from a family company by drawing salary and wages, and deriving them from distributed net profits is often imperfectly drawn. Accordingly, a court may allow itself some latitude in approving the re-establishment of a family company's business, even though, as a matter of cold commercial judgment, an accountant would not recommend a client to invest in the same business."
After discussing the facts, Wells J set out his findings. They included a finding that the value of Shipp Bros' business as a going concern did not exceed the value of the land and improvements. Nonetheless, "the business was able to maintain a separate existence and provide the Shipp family with a reasonable living". Under those circumstances, it was not unreasonable for the claimant to seek to re-establish its business elsewhere. However, as stated earlier, he rejected the reinstatement approach because the claimant had not found a new site.
In Kozaris v Roads Corporation (1990) 75 LGRA 346 Gobbo J, of the Victorian Supreme Court, assessed compensation flowing from the acquisition of a portion of a farm. The acquired land included the site of a second farm dwelling. One question was whether the assessment should take account of the replacement cost of this building or merely its market value. Gobbo J selected the former alternative. He pointed out, at 350-351, that the reinstatement approach depended upon proof of the inability of the dispossessed owner to purchase an equivalent property in the market and, at 352, that the question whether the replacement cost should be discounted because the owner has "new for old" depended upon whether the more expensive premises would yield a higher profit. In the case of a farm dwelling, it would not.
Finally, I refer to Brown Bros (Marine) Holdings Pty Ltd v New South Wales Land and Housing Corporation, (1991) 72 LGRA 50 a decision of Hemmings J of the New South Wales Land and Environment Court. That case concerned the acquisition of waterfront industrial land at Balmain, Sydney. The resumee relocated its business at Tomago near Newcastle and sought compensation on a reinstatement basis. The respondent objected that the claimed reinstatement cost exceeded the value of the business but Hemmings J held that this was not determinative of the issue. It was only one of the matters that should be considered; where, because of costs, it is not reasonable that the business be relocated and reinstated, compensation should be paid on the basis of the extinguishment or destruction of the business.
Reinstatement: application to this case
44. I have already accepted that the present applicants purchased the Lakesland property with the intention of there re-establishing their business. But counsel for the Commonwealth submit that it would be inappropriate to assess compensation on a reinstatement basis because, to quote from Shipp, "the costs of available relocation plainly and substantially would exceed the value of the business as a going concern"; so it would not be a reasonable and natural consequence of the expropriation to incur those costs. They say that, even conceding that present profitability is not essential, this business was plainly worth less than the agreed market value of the land and improvements. They refer to the trading results of the business for the three years immediately before acquisition. It will be recalled that they disclosed net profits, in round figures, of $25,000, $26,000 and $74,000. Counsel for the Commonwealth emphasise that these figures are calculated without making any allowance for the applicants' labour. They each worked full-time on the property, including at weekends. As counsel say, wages at market rates would easily eliminate the 1986-1987 and 1987-1988 profits and significantly diminish the profit for 1988-1989. If each applicant had been paid wages of $25,000 per year, the three year net profit of $125,000 would have become a loss of $25,000.
Post-acquisition trading figures should be regarded with caution. As a theoretical proposition, at least, they may have been affected by the acquisition itself. However, even if regard be had to them, the applicants' position is not much different. The 1989-1990 result was excellent, yielding a net profit of $153,000. But in 1990-1991 and 1991-1992 the figures were only $21,000 and $19,000. If $25,000 wages had been paid to each applicant for each year the net profit for these three years would have been only $43,000; and the fact that there was any profit at all stemmed from a conjunction of unusual factors in 1989-1990: the immediate effects of deregulation and the receipt of egg quota money, apparently put out at the high interest rates then prevailing. Looking at the six-year results, it is impossible to resist the conclusion that the business returned to the applicants no more than modest wages.
Of course, as the authorities make clear, lack of present profitability does not necessarily exclude the reinstatement approach. If a business has prospects of future profitability, it may nevertheless be reasonable for the proprietor to reinstate it. But there is nothing in the present case to suggest that, absent the acquisition, profitability would have improved. The boom of 1989-1990 soon burst. Although the applicants had security of tenure until at least 30 April 1992 and the sheds were operating at full capacity during most of 1990-1991, net profit for that year was only about $21,000. It declined further in 1990-1992, notwithstanding operation at full capacity for most of the year.
As it seems to me, the only basis upon which it can be argued that it is reasonable for the applicants to reinstate their business at the Commonwealth's expense is that referred to by Wells J in para.9 of his judgment in Shipp, quoted above: the expropriation has cost them their jobs and lifestyles. It seems to me erroneous to address reasonableness only in financial terms. Many, if not most, Australian farms yield a profit (if any) that could be bettered in other forms of investment. Yet people buy farms; presumably, because they are attracted to the rural lifestyle and because the farm furnishes them employment. The Court should take account of this fact in determining, under s.55(1) of the Lands Acquisition Act, what amount of compensation is necessary to compensate farmers for the loss of their land. As a result of the subject expropriation, the present applicants have each lost a source of remuneration worth about $25,000 per year, whether that sum be treated as wages or share of profit. Especially at a time of high unemployment, this is a significant loss. The applicants may find it extremely difficult to obtain alternative employment. They have also lost the home in which they resided with their families. Contrary to the submission of counsel for the Commonwealth, I am not prepared to say that the minimal, or non-existent, profitability of the business necessarily rules out the re-instatement approach.
Counsel for the Commonwealth submit that, if the applicants wisely invest the portion of their compensation that represents the agreed market value and replacement purchase cost ($848,401), they will be able to enjoy, without working, an income greater than they obtained from the poultry farm. I do not think this is so; allowance must be made for the house. The applicants have lost a six-bedroom house capable of accommodating two families. There is no evidence about house values but the Court is entitled to take judicial notice of their general level. It seems to me reasonable to assume that it would cost $250,000-$300,000 to purchase a six-bedroom home within reasonable distance of the educational and social facilities the applicants' families require. That would leave a balance of $550,000-$600,000 compensation money. Whatever the position in earlier times, it is difficult to see that the applicants today could securely invest this sum in a passive investment that would yield a reliable income of $50,000 per year.
On the other hand, it must be said that they could go close to achieving that result. It ought to be possible for the applicants securely to invest $550,000-$600,000 so as to obtain a reliable return of 6%-7%; that is, $33,000-$42,000 per annum. Consideration of that fact calls into question the reasonableness of the applicants spending about $1.24 million to obtain a level of income only commensurate with what they earned at Badgery's Creek. If the applicants had $1.24 million available and wished to enjoy a rural lifestyle, they could surely buy a small rural allotment with a large house - or buy a vacant lot and build a large house - for, say, $500,000. This would leave them $900,000. If they invested that sum at only 6% per annum they would receive $54,000 per annum, without having to work at all. The investment required to develop Lakesland is justifiable only if that property will yield appreciably more than $50,000 per annum. Possibly it will. It is a larger property, nearly four times the size of Badgery's Creek. It is apparently suitable for orchard development, and perhaps other rural pursuits. Even if sheds were erected that conformed with the sizes and layouts of those at Badgery's Creek, the applicants would have the advantage of new sheds, rather than old. This must lead to cost savings. If compensation was assessed by reference to the cost of developing Lakesland it would be necessary to make a significant discount from that cost to reflect the financial benefits that would accrue to the applicants from the translation of their business to the new location. On the limited evidence available to me, it would be difficult to determine the appropriate discount. However, if an allowance of one-third was made, it would eliminate the difference between the two figures ($848,000 and $1.24 million). Notwithstanding the availability of the reinstatement approach in point of principle, in the circumstances it is not appropriate to this case.
An intermediate position?
50. Rejection of the reinstatement approach does not necessarily mean that the Court ought to allow only market value and the consequential items agreed by the Commonwealth. The question remains whether that would "justly compensate" the applicants for the loss of their land. A possible intermediate course would be to "top up" the agreed $848,000 so as to yield a figure that, after purchase of a house, would provide the applicants $50,000 per year from a secure passive investment. This would require an additional $200,000 or thereabouts, so as to make available $750,000-$800,000 after purchase of the house.
If I was satisfied that the applicants had no other way of reinstating their pre-acquisition income, I would take this course. But I am not so satisfied. The evidence about alternatives is sparse. The applicants' search for an alternative poultry farm extended over a wide geographical area, but it was not intensive. Over a period of three years (1986-1989) they inspected only seven properties. I accept that they have fully disclosed the properties of which they were aware, but there is no evidence as to the nature or extent of their inquiries. I also accept that the applicants were not personally aware of an alternative superior to Lakesland. However, in order to establish that there was no better alternative, they need to go further than that. One method would have been to adduce evidence from a real estate agent in each of the possible new areas negativing the availability of suitable land in that district. The evidence does not establish that the properties inspected by the applicants were the only operating poultry farms on the market. Neither does it negative the possibility of the applicants' purchasing vacant land and building the necessary sheds. There is nothing special about a poultry farm. Some planning schemes limit the area within which poultry farms may be established but there remain substantial tracts of rural land within which the use is permissible. The old quota restrictions have disappeared. And it must be remembered that $813,000 was the agreed market value of this land with all its improvements, suggesting that a property like this could have been purchased at the date of acquisition for about that sum.
Even if I had material enabling me to find that Lakesland was the best alternative poultry farm available to the applicants, I could not conclude that the applicants have no better alternative than to make a passive investment of their compensation moneys, after purchasing a large house. On that finding, I would have to exclude investment in a poultry farm, the only form of work in which the applicants are skilled. But they are experienced business people. They have been in Australia for many years. Mr Salvatore Banno, at least, has a good command of English. Both the applicants are apparently in good health. There must be many businesses available to persons armed with a capital sum of $450,000 - $500,000 which do not require special skills or experience; but in which the proprietors may become involved and which will yield them, whether by way of wages or profit, a return of $50,000 per year.
Loss of profits
53. The applicants claim that their compensation should include an allowance for the profits lost by them during the period they carried on business between the acquisition of the land and their vacating possession.
There are two reasons why I do not think this claim is tenable. The first is a reason of principle. Once the reinstatement basis of compensation is rejected, there is no reason why a resuming authority should pay compensation for losses incurred by a dispossessed owner after the date of acquisition. Upon acquisition, a resumee has the choice of leaving immediately or staying until vacant possession is required. If the resumee chooses to stay and incurs losses, those losses result from the choice not the expropriation. As it seems to me, the only basis upon which a resuming authority can be made responsible for post-acquisition losses is where the Court determines that it is appropriate to apply the reinstatement approach. In such a case it will generally be reasonable to continue the business pending relocation, even at a loss; the reason being that this loss is less than would result from the cessation of trading activities. In other words, the trading loss is an item of relocation expense. But once the reinstatement approach is rejected, the claim is left without foundation in point of principle.
The second problem about the applicants' claim for lost profits is an evidentiary one. The only basis of the claim put by the applicants is that they were uncertain when vacant possession would be required, and this uncertainty caused them to delay replacing laying hens with a consequential loss of egg production. There was uncertainty as to when the Commonwealth would require possession of the land. This must have caused difficulties for the applicants. But there is no evidence that the difficulties led to them restricting the number of laying hens. The analysis of Mr Loneragan demonstrates that the farm was working at or near capacity for almost all the time between acquisition and vacation of possession.
In the result, the applicants fail to make out their claims for the items of compensation additional to those conceded by the Commonwealth. I assess the compensation payable to the applicants at the conceded figure of $872,299.
The occupation fee
57. As indicated, the Commonwealth and the Minister cross-claim against the applicants to recover the occupation fee of $385 per week fixed by the Minister in respect of their occupation of the acquired land between 19 January 1990 and 31 March 1993. This claim amounts to $64,188. There is no dispute about the computation of that sum. Neither is there any dispute about the amount of interest that would be payable on that sum, if the Court allowed pre-judgment interest on the balance outstanding from time to time assessed on the same basis as that used for the computation of interest on outstanding compensation; that is, the assessed secondary market yield in respect of five year non-rebate Treasury bonds: see s.91(2) of the Lands Acquisition Act and reg.5 of the Lands Acquisition Regulations 1989. Interest assessed on that basis to the date of judgment amounts to $11,555, making a total claim of $75,743.
The applicants acknowledge that they remained in possession of the land until 31 March 1993 and that the delegate of the Minister purported to determine an occupation fee of $385 per month. But they say this determination was invalid because it took place after the commencement of the relevant occupation.
The determination was made on 7 July 1992. It was based on s.47(4) of the Lands Acquisition Act. Section 47 reads:
"47.(1) Where:
(a) an interest in land is acquired by an acquiring authority by compulsory process; and
(b) the interest entitles the authority to possession of the land;
a person occupying the land on the date of acquisition is entitled, subject to this section, to remain in occupation of the land or of such part of the land as the person specifies, by notice in writing given to the Minister, for the period of 6 months or for a longer period fixed by agreement between the Minister and the person.
(2) If the Minister is satisfied that it is essential that the acquiring authority enter into possession of the land or part of the land urgently, the Minister may give to the occupier written notice:
(a) stating his or her reasons for being so satisfied; and
(b) fixing the date on which the person is to vacate the land or part of the land, as the case may be.
(3) The person to whom the notice is given ceases to be entitled to remain in occupation of the land, or the part of the land, as the case may be, on the date fixed by the notice.
(4) The terms and conditions (including any amount payable in respect of occupation on and after the date of acquisition) on which the person remains in occupation of the land are the terms and conditions agreed upon by the Minister and the person or, if they cannot agree, the terms and conditions as determined by the Minister and set out in a notice given to the occupier.
(5) A notice under subsection (2) or (4) shall set out the reasons for the Minister's decision.
(6) Application may be made to the Administrative Appeals Tribunal for review of a decision of the Minister under subsection (4).
(7) Where a right conferred by subsection (1) expires, nothing in this section precludes the making of an agreement between the occupier and the acquiring authority regarding the further occupation of the land by the occupier."
It will be noted that s.47(4) deals with the terms and conditions of occupation; in default of agreement between the parties, they are to be the terms and conditions determined by the Minister and notified to the occupier.
Counsel for the applicants argue that the sub-section envisages that the terms and conditions will be determined in advance. They say that retrospective determination would be unfair; dispossessed owners should have the opportunity of considering the acceptability of the terms and conditions before becoming bound by them. They may prefer to vacate the land than to remain in occupation under the stipulated terms.
I do not think that the power of determination conferred by s.47(4) is restricted to terms and conditions determined in advance of the occupation authorised by the section. The wording of s.47(4) does not suggest such a limitation. Counsel's point about unfairness would be cogent if the owner was compelled to accept whatever terms and conditions the Minister (or delegate) chose to impose. But s.47(6) provides for review of determined terms and conditions by an independent body, the Administrative Appeals Tribunal ("AAT"). While the dispossessed owner might remain in occupation of the land without knowing what terms and conditions will ultimately be fixed, the owner has the right to challenge any arbitrary or unfair terms or conditions.
The provision conferring a right of review not only mitigates the harshness of retrospective unilateral determination; it also suggests that Parliament envisaged that determinations might be made retrospectively. The section does not require the Minister to concede any period of rent-free occupation. Even if a practice developed of allowing a short rent-free period, as in this case, that would generally be inadequate to provide time for the parties meaningfully to negotiate about terms and conditions and reach a situation of failure to agree, for the Minister or delegate to make a determination and the parties to complete AAT proceedings. If the applicants' argument is correct, an intransigent owner could, in practice, readily obtain rent-free occupation for a substantial period.
An alternative view is that it is enough that the initial decision (that is, by the Minister or delegate) be made before the commencement of the relevant occupation, the AAT being free to make a decision having retrospective effect. This would reduce the practical problem, but it would leave the dispossessed owner in occupation of the land without knowing what terms and conditions would finally be imposed.
Even in cases where there is no request for AAT review, the applicants' construction of s.47(4) would present enormous practical problems, especially in cases where many properties are simultaneously acquired; for example, for an airport or other major work. In such cases it would be extremely difficult for Commonwealth officers to carry out meaningful negotiations with all affected owners within a short time. Not all dispossessed owners have legal and valuation advice at the time of acquisition. Sometimes people are unavailable through illness or other causes. Many landowners are unconfident in financial matters. It often takes time for resumees to come to terms with the loss of their land and be ready to enter meaningful negotiations. A construction of s.47(4) preventing retrospective determination of terms and conditions would discourage patient and genuine negotiations by Commonwealth officers and lead to hasty determinations that may be harsh or ill advised. It would encourage behaviour directly antithetical to the approach proposed by the Law Reform Commission and embodied in the legislation.
Section 47 stemmed from a recommendation of the Law Reform Commission. In para 180 the Commission said:
"A person whose land is acquired should be entitled, as a general rule, to a period after acquisition during which he may consider his position and arrange other accommodation. A period of six months is recommended. In the overwhelming majority of cases a delay of six months in obtaining possession will cause no problem to the Commonwealth. There will be cases in which the Commonwealth has urgent need for possession of the acquired property. In such cases the Minister ought to be empowered to give a notice requiring possession on a particular day. The notice should specify the Minister's reasons. The Minister's requirement should not be made subject to review by the Administrative Appeals Tribunal. The delay occasioned by review may defeat the purpose for which the special power was exercised. The Minister should be obliged to endeavour to obtain agreement regarding the terms and conditions upon which the former owner remains in possession and, in default of agreement, should be empowered to determine the terms and conditions. In most cases the determination will be retrospective. In many cases the owner will be in a poor bargaining position. In these circumstances it is reasonable to make the terms and conditions, applicable during the six months after acquisition, subject to review by the Administrative Appeals Tribunal. If the Minister agrees to the former owner remaining in occupation after the expiration of six months, terms should not be subject to review. At that stage it is reasonable to treat the parties as negotiating on more equal terms as landlord and tenant." (My emphasis.)
I reject the applicants' submission on this matter. In my opinion the determination is valid. There should be judgment for the cross-claimants for the amount claimed.
Orders
68. I propose to order that compensation be assessed in the sum of $872,299 and that the Commonwealth and Minister have judgment on the cross-claim in the sum of $75,743.
As requested by counsel, I will reserve the question of costs, giving leave for any party to apply for an order. I have reached no firm view about costs and will consider on their merits any submissions that may be put before me if an application is made. But it may assist the parties if I make some observations.
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 well 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. The present applicants' case was arguable. It was presented efficiently and economically, the hearing occupying only two days.
Different considerations may apply to the cross-claim. In its nature that proceeding was more akin to normal commercial litigation and the applicants' point was scarcely arguable. But the cross-claim occupied only a minute fraction of the total hearing time. If that was the only matter in dispute between the parties, I cannot imagine that the case would have to come to Court. It would seem wrong to allow the cross-claim significantly to affect the costs position.
As I say, these are tentative comments made without hearing from counsel. These are subject to revision if any party applies for a costs order.
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