Brompton Lodge Pty Ltd (in administration) v Head, Transport for Victoria
[2020] VSC 797
•1 December 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
VALUATION, COMPENSATION AND PLANNING LIST
S ECI 2018 00283
| BROMPTON LODGE PTY LTD (ACN 004 458 833) (in administration) (and others according to the Schedule attached) | Plaintiffs |
| v | |
| HEAD, TRANSPORT FOR VICTORIA | First Defendant |
| and | |
| 1050 WESTERN PORT HIGHWAY PTY LTD (ACN 623 531 706) | Second Defendant |
---
JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 9–11, 14–18 September 2020 |
DATE OF JUDGMENT: | 1 December 2020 |
CASE MAY BE CITED AS: | Brompton Lodge Pty Ltd (in administration) & Ors v Head, Transport for Victoria & Anor |
MEDIUM NEUTRAL CITATION: | [2020] VSC 797 |
---
VALUATION OF LAND – Claim for loss on sale compensation under ss 98(1) and 106 of pt 5, Planning and Environment Act 1987 (Vic) – Preceding commercial agreement between landowners and a developer to subdivide and develop land – Sale of land by owners and assignment of compensation proceeds to the developer – Land sold below market value - Whether financial loss suffered by the owners – Whether financial loss was suffered as the natural, direct, and reasonable consequence of a reservation for road widening – Whether the owners sold the land at a lower price than they might reasonably have expected to get if part of the land had not been reserved – Planning and Environment Act 1987 (Vic) ss 98(1), 99(b), 101, 104, 105, 106, 109 – Land Acquisition and Compensation Act 1986 (Vic) ss 37(8), pts 10 and 11.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Morris QC with Mr P Chiappi | Arnold Bloch Leibler |
| For the First Defendant | Mr S Goubran SC with Mr C Hibbard | Hall & Wilcox |
| For the Second Defendant | Mr I Munt | Maddocks |
HIS HONOUR:
Introduction
Brompton Lodge Pty Ltd (ACN 004 458 833) (in administration) (‘Brompton’), Peter William Carpenter and Sandra Gael Carpenter (collectively, ‘claimants’) claim compensation under ss 98(1)(a) and 106 of the Planning and Environment Act 1987 (Vic) (‘PE Act’) for financial loss suffered as a consequence of the reservation for road widening of part of the land at 655 and 655S Cranbourne-Frankston Road, 700 Ballarto Road and 1000S and 1020 Western Port Highway, Cranbourne South (‘subject land’). They also claim expenses under s 101 of the PE Act and interest under s 60 of the Supreme Court Act 1986 (Vic) (‘SC Act’).
The subject land has an area of about 101.31ha, and was acquired by the claimants between 1966 and 1984. It was sold to 1050 Western Port Highway Pty Ltd (ACN 623 531 706) (‘purchaser’) in January 2018.
The claimants have assigned all of the proceeds of their compensation claim to the purchaser. It is the effective beneficiary of this proceeding. It was joined by consent as a party following an application by Head, Transport for Victoria (‘authority’).
The authority is responsible for the payment of compensation under cl 45.01 of the Casey Planning Scheme (‘planning scheme’). It has not made an offer of compensation, and denies that any compensation is payable.
In particulars of offer filed with the Court, the authority seeks that the claim be dismissed as the claimants have not demonstrated that they sold the subject land at a lower price than they might reasonably have expected to get if part of the land had not been reserved. This is a requirement of s 106(1) of the PE Act.
This judgment is concerned with whether the claim meets the threshold requirements for a claim for compensation under pt 5 of the PE Act.
Background
On 19 December 1978, an amendment to the Melbourne Metropolitan Planning Scheme reserved a strip of land approximately 8.5m wide along the western frontage of the subject land to the Western Port Highway for road widening. On the introduction of the new format planning schemes in 1999, the reservation was shown as Public Acquisition Overlay 1.
On 14 January 2016, Amendment C199 to the planning scheme reserved part of the subject land for the upgrade of the Western Port Highway which included the area of the 1978 reservation.
The subject land was brought within the Urban Growth Boundary (‘UGB’) in 2012. The Brompton Lodge Precinct Structure Plan (‘PSP’) was incorporated into the Urban Growth Zone in December 2016. Permits for the subdivision and development of the subject land were issued on 6 December 2017 and 10 September 2018.
On 2 November 2017, the claimants gave notice to the authority of their intention to sell the subject land under s 106(1) of the PE Act.
On 8 January 2018, the claimants entered into a contract (‘sale contract’) for the sale of the subject land to the purchaser for $55,000,000, excluding $101,400 for cattle. The sale contract contained a condition assigning the proceeds of the compensation claim to the purchaser. The sale contract settled on 30 January 2018.
On 9 April 2018, the claimants made a claim for compensation. The claim became a disputed claim on 9 July 2018 under s 37(8) of the Land Acquisition and Compensation Act 1986 (Vic) (‘LAC Act’).
On 11 July 2018, the claimants referred the disputed claim to the Court for determination.
On 27 May 2019, the authority issued a summons for an order that questions related to the assignment of the proceeds of the compensation claim be determined by the Court as a separate or preliminary question under r 47.04(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’). Richards J was not satisfied that the validity of the assignment should be determined as a separate question before trial, and refused the application.[1]
[1]Brompton Lodge Pty Ltd v Roads Corporation [2019] VSC 490.
The pathway to development
Peter and Sandra Carpenter are now 79 and 76 years of age. They are the directors of Brompton. They are also the directors of Carpenter Nominees Pty Ltd (ACN 004 990 514) which owns all of the shares in Brompton. Mr Carpenter owns all of the shares in Carpenter Nominees Pty Ltd. For many years, they farmed and lived on the subject land.
The UGB was established in 2002. The subject land was not originally included within the UGB. In 2005, the UGB was expanded, but not so as to include the subject land.
In March 2006, Mr Carpenter was approached by John Woodman as to a possible land deal involving the Amstel Golf Course at 1000 Cranbourne-Frankston Road, Cranbourne (‘Amstel land’). Mr Carpenter had discussions with Mr Woodman, his son Heath Woodman, and Simon Berry.
In 2007, Brompton and Mr Carpenter entered into an agreement with Urban Development Investments Australia Pty Ltd (ACN 118 918 924) (‘UDIA’), a company controlled by Heath Woodman and Simon Berry (‘2007 deed’).
The 2007 deed recited that Brompton owned the subject land, and that UDIA had the expertise and experience necessary to develop the subject land to its best advantage.
Under the 2007 deed, the parties agreed that:
(a) Brompton and Mr Carpenter as owners would sell the eastern part of the subject land to the owner of the Amstel land for $13 million, conditional on the rezoning of the Amstel land for residential use;
(b) UDIA was responsible for bringing the subject land within the UGB. If successful, the parties would negotiate a joint venture for the development and sale of the land within the UGB;
(c) UDIA would keep Brompton and Mr Carpenter fully informed as to progress and indemnify them for costs and expenses; and
(d) the 2007 deed would sunset on 21 December 2011.
The sale of part of the subject land to the owner of the Amstel land did not eventuate. Nevertheless UDIA continued to endeavour to have the subject land brought within the UGB and rezoned for residential development.
In 2009, UDIA arranged for Watsons Pty Ltd, town planners, to lodge a submission to the Growth Areas Authority (‘GAA’) for inclusion of the subject land within the UGB. In August 2010, Amendment VC68 substantially extended the UGB. The subject land was not included within the UGB.
On 8 July 2011, UDIA arranged for Minter Ellison, solicitors, acting on behalf of Brompton and Mr Carpenter to make a submission to the Logical Inclusions Advisory Committee (‘LIAC’) for the subject land to be placed within the UGB. The GAA and the City of Casey (‘Council’) supported the proposal.
On 26 July 2011, Brompton, Mr Carpenter and UDIA extended the sunset date of the 2007 deed to 31 December 2012.
On 11 November 2011, the LIAC Report recommended the inclusion within the UGB and rezoning of the subject land to Urban Growth Zone. This was done by Amendment C170 to the planning scheme approved on 13 September 2012.
The PDA
The claimants did not wish to become property developers. On 23 September 2013, they entered into a property development agreement (‘PDA’) with UDIA, Simon Berry and Heath Woodman. This was a commercial agreement for the subdivision, development and sale of the subject land akin to a joint venture.
Under the PDA, it was agreed in substance that:
(a) UDIA would subdivide and develop the subject land (‘project’);
(b) UDIA would have the right to undertake the project in accordance with the PDA;
(c) UDIA would receive a development fee;
(d) UDIA would pay the holding costs, project costs and the Growth Areas Infrastructure Contribution levy; and
(e) an advisory committee would be appointed to supervise the conduct of the project by UDIA.
Mr Carpenter described how the proceeds of subdivision and development were to be distributed under the terms of the PDA. The proceeds were to pay:
(a) GST;
(b) the claimants $25 million;
(c) the borrowings and costs of development;
(d) 50.01% to the claimants and 49.99% to UDIA of the next $90 million of proceeds;
(e) 60% to the claimants and 40% to UDIA of the next $20 million of proceeds; and
(f) 50.01% to the claimants and 49.99% to UDIA of any remaining proceeds.
From 2013 to 2016, the advisory committee met regularly to advance the project. The PDA was varied by deed on 13 February 2014.
On 30 June 2014, UDIA’s rights under the PDA were assigned to Brompton Developments Pty Ltd. This company then changed its name to UDIA Consolidated Pty Ltd (ACN 600 437 376) (‘UDIA Consolidated’).
Following the inclusion of the subject land within the UGB, UDIA and then UDIA Consolidated commenced discussions with the Council to prepare a planning scheme amendment for the adoption of the PSP to facilitate development of the subject land.
On 15 December 2016, Amendment C190 was approved incorporating the PSP in the planning scheme and rezoning the subject land as Urban Growth Zone sch 11.
Sale of the subject land
In 2016, the claimants and UDIA Consolidated decided to test the market by offering the subject land for sale. The following offers were received:
(a)Dahua offered $76 million to be paid over 28 months;
(b)Villawood offered $84 million to be paid over 30 months; and
(c)Country Garden offered $100 million to be paid over 12 months.
On 24 February 2017, the claimants accepted the Country Garden offer although some matters remained unresolved. Negotiations with Country Garden continued until September 2017 but were not successful. The sale to Country Garden did not proceed.
UDIA Consolidated then negotiated with the claimants to buy the subject land. The negotiations were conducted by Simon Berry who reported to Heath Woodman. Initially, UDIA Consolidated offered the claimants $40 million together with the compensation for the reservation of part of the subject land by the authority. Mr Carpenter said that this was not satisfactory as it left uncertain the amount he would receive by way of compensation. He proposed to Heath Woodman that the claimants receive an amount of $60 million on an all-in basis. Ultimately, $55 million was agreed on the same basis.
In negotiations with UDIA Consolidated, Mr Carpenter said that he was influenced by a number of factors:
(a)the Country Garden offer of $100 million set a benchmark for the subject land;
(b)under the PDA, the claimants as owners would receive $25 million plus their share of the profit from development over a number of years;
(c) the project involved risk;
(d)in 2012, a cash flow had been prepared that showed the claimants receiving a total of $80 million under the PDA including the $25 million land cost; and
(e)later cash flow calculations showed the claimants receiving only about $70 million under the PDA despite increasing lot prices since 2012.
The agreements
On 29 November 2017, the claimants and UDIA Consolidated entered into heads of agreement for the sale of the subject land, the assignment of the proceeds of the compensation claim, and the release of the parties from the PDA. Subsequently, UDIA Consolidated nominated the purchaser to buy the subject land.
On 8 January 2018, the claimants, UDIA Consolidated, Simon Berry and Heath Woodman entered into a deed of surrender and release of the PDA (‘PDA surrender deed’) conditional on settlement of the sale contract. The PDA surrender deed took effect on the settlement of the sale contract. Pursuant to the PDA surrender deed:
(a) the PDA was terminated, with each party to the PDA surrender deed unconditionally releasing each other party from any further obligation under the PDA;
(b) UDIA Consolidated agreed to make no claim against the claimants in relation to an amount of $602,302 advanced to them on the landowner retention amount as defined in the PDA; and
(c) UDIA Consolidated remained responsible for holding costs relating to the subject land as provided in the PDA.
The sale contract was executed on the same day. The purchase price of the subject land was $55,101,400 of which $101,400 related to cattle with a deposit of $250,000. The sale contract was subject to the purchaser obtaining a loan from Nomura, a financier, by 19 January 2018. Heath Woodman and Michael Goldthorp signed the sale contract as directors of the purchaser and guaranteed its performance. Settlement was due on 22 January 2018 and took place on 30 January 2018.
Special condition 30 of the sale contract dealt with the assignment to the purchaser of the proceeds of the claim for compensation against the authority and provided:
30.1 Definitions
In this special condition 30, ‘Compensation’ means the full monetary amount of compensation which the Vendor receives from [the authority] as a result of its claim for compensation under section 106 of the [PE Act] in respect of Public Acquisition Overlay – Schedule 1.
30.2 Assignment of Compensation
(a)Subject to Settlement occurring and with effect from the Settlement Date, the Vendor assigns to the Purchaser the Vendor’s right, title and interest in the Compensation.
(b) To give effect to Special Condition 30.2(a), the:
(i)parties will set up a new bank account in the joint names of the Vendor and the Purchaser with a bank mutually agreed by the parties where both parties are signatories of the account (New Account);
(ii)Vendor will authorise and direct VicRoads to pay the Compensation into the New Account;
(iii)parties acknowledge and agree that once the Compensation is paid into the New Account it is held on trust for the Purchaser and is the irrevocable property of the Purchaser; and
(iv)Vendor authorises the Purchaser to transfer the Compensation from the New Account to its own bank account and it will sign any necessary documents to facilitate this transfer.
(c) After the date on which Settlement occurs, the parties agree that:
(i)the Purchaser may act on the Vendor’s behalf in respect of the Vendor’s claim for Compensation (Compensation Claim) and, in this regard, the Purchaser will have the full carriage of the Compensation Claim including without limitation doing all things necessary and convenient to prepare, lodge, and pursue the Compensation Claim and appointing its own consultants to assist with the Compensation Claim;
(ii) the Vendor must:
(A)not, and must procure that its consultants and/or the Vendor’s Legal Practitioner do not, take any action in respect of the Compensation Claim including without limitation settling or finalising the claim or accepting any amount of Compensation from [the authority] unless it obtains written instructions from the Purchaser to do so;
(B) at the Purchaser’s cost:
(1)promptly provide to the Purchaser copies of all documents, notices or correspondence the Vendor received in respect of the Compensation Claim;
(2)do all things reasonably required by the Purchaser in respect of the Compensation Claim including executing any necessary documents within 7 days of written request from the Purchaser.
(d)The Vendor indemnifies the Purchaser against all actions, claims, proceedings, demands, liabilities, losses, damages, expenses and costs (including legal costs on a full indemnity basis) that may be brought against the Purchaser or which the Purchaser may pay, sustain or incur as a direct or indirect result of any breach or non-performance of this special condition 30.2 by the Vendor.
(e)If the Vendor breaches this special condition 30.2 prior to Settlement, the Purchaser may end this Contract by written notice to the Vendor with immediate effect. General Condition 27.1 does not apply to this special condition.
Relevant statutory provisions
Part 5 of the PE Act provides for compensation for owners and occupiers where financial loss is suffered as a consequence of the reservation of land for a public purpose.
Section 98(1) of the PE Act provides:
The owner or occupier of any land may claim compensation from the planning authority for financial loss suffered as the natural, direct and reasonable consequence of—
(a)the land being reserved for a public purpose under a planning scheme; or
…
Section 99 provides:
A right to compensation and the liability of a planning authority or responsible authority to pay compensation arises—
…
(b)under section 98(1)(a), (b) or (c), on the sale of the land concerned under section 106; or
…
Section 101 deals with claims for expenses and provides:
If compensation is payable under section 98, the owner or occupier of any land may also claim from the planning authority or responsible authority any legal, valuation or other expenses reasonably incurred in preparing and submitting the claim.
Section 104 imposes a cap on compensation and provides:
The compensation payable for financial loss under section 98 must not exceed the difference between—
(a)the value of the land at the date on which the liability to pay compensation first arose; and
(b)the value that the land would have had at the date if the land had not been affected by any circumstance set out in section 98(1) or (2) or 107.
Section 105 provides for the provisions of the LAC Act to apply to claims under pt 5:
Parts 10 and 11 and section 37 of the [LAC Act], with any necessary changes, apply to the determination of compensation under this Part as if the claim were a claim under section 37 of that Act.
Section 106(1) provides:
(1)The owner of land may claim compensation under section 98 after the sale of the land if—
(a)the owner of the land sold it at a lower price than the owner might reasonably have expected to get if the land or part of the land had not been reserved or proposed to be reserved; and
(b)before selling the land, the owner gave the relevant authority not less than 60 days notice in writing of the owner's intention to sell the land.
Section 109(1A) provides that if a planning scheme designates a public authority as an acquiring authority for the purpose of the PE Act, the acquiring authority is liable to pay any compensation arising under pt 5.
Relevant authorities
Section 98(1)(a) of the PE Act provides for an owner of land to claim compensation for financial loss suffered as the natural, direct and reasonable consequence of the land being reserved for a public purpose under a planning scheme.
In Love v Roads Corporation, the Court held:
The Corporation argued, and we agree, that disturbance loss, unlike severance, is personal to the disposed owner and depends upon the owner showing that he or she has suffered an actual loss that is a natural, direct and reasonable consequence of the acquisition, drawing on notions from tort.[2]
[2][2011] VSCA 434, [96] (Warren CJ, Tate JA and Emerton AJA).
In Studley Developments Pty Ltd v Department for Planning and Urban Growth, the Court said:
In order to succeed in its claim for financial loss under s 98(2) it is first necessary…that the claimant first establish that [it] has suffered such loss, and then to show that the loss was suffered as the ‘natural, direct and reasonable consequence’ of the refusal of the permit.[3]
[3][1994] 1 VR 643, 647 (Southwell and Teague JJ; Brooking J agreeing at 644) (‘Studley’).
In Studley, the claimant purchased land subject to a reservation from a vendor who had retained the right to compensation and was separately compensated by the authority. The Court held that the claimant had not suffered any loss because the reservation had already stripped the reserved land of its development potential for residential subdivision.
In claims for compensation under pt 5 of the PE Act, the foundational decision is that of the Court of Appeal in Halwood Corporation Ltd v Roads Corporation.[4] The Court determined that the entitlement to claim compensation under s 98(1)(a) of the PE Act was confined to owners and occupiers at the time of imposition of the relevant reservation. It is the act of reserving the land for a public purpose that is the prescribed criterion for identifying the person entitled to compensation.
[4][1998] 2 VR 439 (‘Halwood (No 2)’).
Tadgell JA held that:
The evident purpose of s 98(1)(a)…is not to prescribe a qualifying characteristic of land which entitles its owner or occupier to claim compensation, but to specify substantively the owner or occupier of land who may claim compensation for financial loss as a consequence of a designated act in relation to the land, namely the land’s reservation for a public purpose under a planning scheme. To adopt the dichotomy referred to above, it is the act of reserving the land, rather than the land’s condition or state of reservation, that is the prescribed criterion…This is sufficient to gainsay the contention that no right to claim compensation arises until compensation can be quantified and become payable by virtue of the happening of an event described in s 99.[5]
[5]Ibid 449–50.
Tadgell JA upheld the reasoning of Batt J[6] at first instance that any loss suffered by the claimant was not suffered as the natural, direct and reasonable consequence of a refusal to grant a permit under s 99(2) because the land was already subject to the reservation when the land was purchased.
[6]As he then was.
Batt J adopted the analysis in City of Nunawading v Day, where JD Phillips J said:
…reservation does little more than subject all changes in use to the requirement that the responsible authority first grant a permit; it does not finally commit the land in question to the purpose behind the reservation.
Reservation alone, or even proposed reservation, can nevertheless justify a claim for compensation under s 98(1) and it is appropriate that s 99 should then provide a ‘trigger’ to give rise to the right to claim compensation and the liability to pay compensation. That is the purpose of s 99(a) and (b).[7]
[7][1992] 1 VR 211, 225–6.
Tadgell JA agreed with this analysis but said that he would prefer to say that the right to claim was given by both s 98(1) and (2). Section 99 provided a trigger giving rise to the right to claim and the liability to pay compensation. A sale in the circumstances described in s 106(1) was a trigger for the right to claim and the liability to pay compensation under s 98(1)(a), (b) and (c).[8]
[8]Halwood (No 2) (n 4) 447–8.
At first instance, Batt J noted that:
as the terms of s 99(b) and s 106(1) make clear, the subject matter of the claim which the seller may make is defined by, and the right to claim is conferred by, s 98(1)(a), s 98(1)(b) or s 98(1)(c), and not by s 106. But…s 106 is of practical effect in quantifying the loss caused.[9]
[9]Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 287 (‘Halwood (No 1)’).
Later in his judgment, Batt J said:
…sale under s 106 not only expressly constitutes under s 99(b) the trigger for a right to compensation under s 98(1)(a), s 98(1)(b) or s 98(1)(c) but also by virtue of s 106(1)(a)…furnishes both the measure of the owner’s gross loss and satisfaction of the causal requirement of s 98(1).[10]
[10]Ibid 289.
In Capela v Minister for Energy, Environment and Climate Change, Emerton J concisely said:
If s 98(1) is the sole and unqualified source of the entitlement to claim compensation from the planning authority for the imposition of a reservation, s 106 serves the same purpose as s 99, in that it enables the claim to be advanced by quantifying the loss suffered as a consequence of the reservation of the land. It also ensures that the causal connection between imposition of the reservation (or proposed reservation) and the loss on sale is satisfied.[11]
[11][2018] VSC 360, [65].
In Plunkett, Richards J cited Halwood (No 2) and Capela[12] and referred to the Western Australian Court of Appeal decision of Bond Corporation v Western Australian Planning Commission where the Court said:
…payment for compensation should be [sic] only be made when the owner of land actually receives less money for the land that he or she would have received had there been no reservation…[13]
[12]Plunkett v Roads Corporation [2019] VSC 39, [13] (‘Plunkett’).
[13](2000) 110 LGERA 179, 188 [37] (Ipp J; Wallwork J agreeing at 191 [58], Owen J agreeing at 191 [59]).
Her Honour said:
The compensation provisions in Pt 5 of the PE Act…provide for fair compensation for affected landowners, while also facilitating orderly land use planning for public purposes and conserving public funds by deferring the payment of compensation until actual loss is suffered.[14]
[14]Plunkett (n 12) [61].
Section 104 of the Act imposes a cap on the amount of compensation that may be recovered under s 98. The purpose of s 104 is to limit the compensation payable for losses resulting from the reservation or proposed reservation of land. It is not concerned with properly compensating the owner for what he or she has lost. The cap applies to all types of compensation under s 98. It does not inform the assessment of loss under s 98(1).[15]
[15]Barilla v Roads Corporation (2017) 54 VR 198, 213 [72] (Emerton J) (‘Barilla’); Plunkett (n 12) [14].
The agreements
The PDA was essentially a joint venture between the claimants as owners and the Woodman interests as the subdivider and developer through UDIA and later UDIA Consolidated. The claimants agreed to split the profits to be made from the project with the developer. The claimants were passive investors and were not required to retain consultants, borrow money, or bear project costs.
The active investor was UDIA and later UDIA Consolidated. It had to procure the extension of the UGB, rezoning of the subject land, approval of the PSP and subdivision permits. It was responsible for retaining planners, surveyors, engineers, and other consultants. It was exposed to the risk that the project might not be approved or might be delayed.
Under the PDA, the claimants could expect to realise only some profits from the project. The other profits would go to the developer.
The PDA surrender deed and the sale contract are interdependent. They are agreements between parties who had been in commercial relations for over 10 years. There are three main transactions embraced in the two agreements:
(a)the surrender and mutual release of the rights and obligations of the parties under the PDA;
(b)the sale of the subject land; and
(c)the assignment of the proceeds of the claimants’ compensation claim.
The agreements constitute a novation of the PDA being an extinguishment of the rights and obligations of the parties under the PDA, and their replacement by new rights and obligations in the PDA surrender deed and sale contract.[16]
[16]ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2012) 245 CLR 338, 349–50 [26]–[28] (French CJ, Crennan, Kiefel and Bell JJ); Olsson v Dyson (1969) 120 CLR 365, 388 (Windeyer J); Scarf v Jardine (1882) 7 App Cas 345, 351 (Lord Selborne LC).
The sale contract forms part of a wider commercial agreement intended by the claimants to conclude their involvement in the development of the subject land and avoid further costs and risk in litigation against the authority.
Threshold requirements
The requirements of a statutory cause of action are determined by construing the statute that creates the cause of action. The right to bring a claim for compensation under pt 5 is available only to an ‘owner’ and ‘occupier’ as defined in ss 3 and 98AA of the PE Act. Sections 98(1)(a) and 106(1)(a) are concerned with the financial loss suffered by the owner or occupier at the time that all or part of the land was reserved. Part 5 does not create any right of compensation in relation to losses sustained by other persons. The Court is only concerned with the financial loss to the claimants.
Under s 98(1), the claimants must prove that they suffered financial loss, and that the financial loss they suffered is the natural, direct and reasonable consequence of the reservation. Under s 106(1)(a), they must show that they sold the subject land at a lower price than they might reasonably have expected to get if part of the subject land had not been reserved.
The evidence
Mr Carpenter’s evidence
Mr Carpenter was the only witness called by the claimants concerning the negotiations leading to the sale contract and the PDA surrender deed. He said that he focussed on getting what he thought was an appropriate price for the subject land. The consideration set out in the sale contract and the PDA surrender deed was the only consideration received by the claimants.
Before the sale of the subject land, a number of residential lots had been sold to individual buyers. Most of the lot sales had a sunset date which had expired. Subsequent to settlement, the purchaser cancelled all lot sales contracts and replaced them with new contracts. The lot sales contracts with builders for the sales village were not replaced.
Mr Carpenter stated that there had been bargaining between his family and Heath Woodman after the Country Garden offer was received but no agreement was reached as to the potential division of the proceeds.
He said that when he decided to accept UDIA Consolidated’s offer of $55 million, there was no allocation in his mind as to any aspect of the consideration for the sale. He had viewed the assignment of the proceeds of compensation in cl 30.2(a) as a condition of the sale contract.
Mr Carpenter said that the purchaser had exercised its power under cl 30.2(c)(i) of the sale contract to act on the claimants’ behalf and pursued the compensation claim through this proceeding. He understood from cl 30.2(c)(ii) of the sale contract that the claimants were not to interfere in any action taken by the purchaser. He had done what was asked of him.
Mr Carpenter stated that UDIA Consolidated’s initial offer of $40 million was unsatisfactory to him, as it provided no certainty as to the amount of compensation that the claimants would receive. He and his family were weary of the whole process and wanted to move on with their lives. The sale of the subject land for $55 million included the right to the proceeds of compensation. It was up to the purchaser to pursue compensation with the authority.
Mr Les Brown’s evidence
Mr Les Brown, an experienced valuer, was called by the claimants. Mr Brown was not instructed to undertake a valuation of the subject land, but to give evidence of the financial loss suffered by the claimants under the provisions of the PDA by reason of the reservation. Using an escalated model, he determined that the net present value of the loss to the claimants occasioned by the reservation prior to the sale contract was $25,203,543 using a 6% discount rate. The net present value of the loss fell to $20,496,167 if a 9.35% discount rate or a static model was used.
However, the financial loss ss 98(1) and 106(1) speak of is the financial loss suffered by the claimants on the sale of the subject land. The sum of $55 million paid to the claimants by the purchaser was consideration not only for the sale of the subject land but also for the assignment of the proceeds of the compensation claim for the loss identified by Mr Brown. The figure calculated by Mr Brown did not address, and was unrelated to the claimants’ financial position after receiving the sale price of $55 million and assigning the proceeds of the compensation claim to the purchaser.
Given the provisions of the sale contract and PDA surrender deed, I have not found it possible to identify or calculate any financial loss suffered by the claimants as a consequence of the reservation on the sale of the subject land under s 106.
The valuation evidence
Three valuers undertook valuations of the subject land. Brian Dudakov was called by the claimants, and Marcus Willison and Geoffrey Brown were called by the authority.
In Plunkett, Richards J held that the relevant date is the date of completion of the sale contract.[17] Here, it makes no difference to the valuations whether the date of the sale contract (8 January 2018) or the date of settlement of the sale contract (30 January 2018) is taken as the relevant date.
[17]Plunkett (n 12) [77].
There was a high level of agreement between the valuers as to the unaffected and affected value of the subject land at the relevant date. The valuers adopted unaffected values between $129 and $143 million and affected values between $110 and $121 million.
It is beyond doubt that the subject land was sold at a gross undervalue. The sale price of $55 million is unrelated to the unaffected or affected values of the subject land. No meaningful comparison can be made between the unaffected land value and the sale price.
The submissions
Authority’s submissions
The authority submitted that the claimants had not shown any compensable financial loss under pt 5 as they failed to prove that:
(a)they suffered financial loss as the natural, direct and reasonable consequence of the reservation of part of the subject land as required by s 98(1)(a); and
(b)they sold the subject land at a lower price than they might have reasonably expected to get if part of the land had not been reserved as required by s 106(1)(a).
In amplification of these submissions, the authority contended:
(a)the claimants were made whole by selling their right to compensation;
(b)the asserted loss was hypothetical and did not reflect actual loss;
(c)the claimants’ evidence establishes that they received more money than they would otherwise have expected to receive, as they received $55 million when otherwise they expected to receive $40 million; and
(d)the sale price of $55 million is an unaffected sale price at grossly below market value.
Claimants’ submissions
The claimants submitted:
(a)the loss to be recovered is the loss suffered by the owners as a consequence of the act of reserving the subject land;
(b)there is no requirement under s 99(b) or 106(1) that the sale price be the affected value of the land;
(c)the price that the claimants might reasonably have expected to get if part of the subject land had not been reserved was $129-143 million;
(d)it is only if the sale price including consideration for the assignment of the proceeds of compensation exceeds the unaffected value of the land (which is not the case here) that real questions might arise as to whether the trigger in s 99(b) is satisfied; and
(e) what the claimants did with the compensation proceeds do not bear on the question whether they suffered loss in consequence of the reservation.
Analysis
Section 106 imposes requirements in sub-ss (1)(a) and (b). It is not just a trigger.
The issue under sub-s (1)(a) is whether the claimants sold the subject land at a lower price than they might have expected to receive had part of the subject land not been reserved. There is no doubt that the requirement in sub-s (1)(b) is satisfied.
By the sale contract, the claimants sold the affected land and assigned the proceeds of the compensation claim to the purchaser. Taken together, what the claimants sold and assigned is the direct equivalent of the value the unaffected land.
Mr Carpenter did not say that he would have sold the subject land to the purchaser at a higher price than $55 million were it not for the reservation. His concern with the $40 million offer was that it left open the amount of the compensation claim. The purchase price was raised to $55 million on the basis that the compensation claim would benefit and be the responsibility of the purchaser.
A sale of the subject land at market value was never in contemplation. Mr Carpenter was well aware of the division of proceeds under the PDA referring to cash flows of $80 million and $70 million to the claimants from lot sales over a period of years. The sale price of $55 million was not unreasonable from his perspective having regard to the present value of the claimants’ future revenue stream under the PDA, and his awareness of the inherent risks.
There is no evidence from Mr Carpenter or anyone else that he sold the subject land at a lower price only by reason of the reservation. To the contrary, he obtained an acceptable price in the negotiations by agreeing to transfer the subject land together with the proceeds of the claim for compensation.
Mr Carpenter’s decision as to the sale price was not rash or ill-conceived. It was cautious and careful, and assisted by family input. It made allowance for the fact that the developer’s obligations under the PDA had been partly, but substantially, performed through the change to the UGB, the rezoning, the approval of the PSP, the grant of permits and the commencement of lot sales.
The sale of the subject land did not quantify the amount of compensation payable as a consequence of the reservation of part of the subject land. The sale price did not measure nor reflect the gross loss suffered by the claimants. It did not allow the quantum of the compensation claim to be calculated. It was simply the negotiated consideration for the sale of the subject land, the assignment of the proceeds of the compensation claim and the extinguishment of the parties’ rights under the PDA.
Under s 106(1)(a), the claimants must show that they sold the subject land at a lower price than they might have expected to receive had part of the subject land not been reserved. They have not done so. The consideration they received under the sale contract is the same as they would have received had part of the subject land not been reserved. Mr Carpenter did not suggest, and there is no reason to believe that the price in the sale contract would have been any higher if part of the subject land had not been reserved.
Did the claimants suffer financial loss as the natural, direct and reasonable consequence of the reservation?
To be recoverable under pt 5, the financial loss said to have been suffered must be the natural, direct and reasonable consequence of the act of reservation.
Loss on sale is typically informed by the purchase price under the contract of sale relied on as the trigger under s 106(1). The sale will ordinarily be an arm’s length transaction at the relevant date between independent parties who are willing, informed but not unduly anxious and who do not overlook any ordinary business consideration.[18]
[18]See Spencer v Commonwealth (1907) 5 CLR 418, 432 (Griffith CJ), 441 (Isaacs J).
The causal connection between the reservation and financial loss required by s 98(1) was considered by Batt J in Halwood (No 1).[19] Batt J held that ‘natural’ means arising according to the usual course of things; ‘direct’ means without intervening agency or intermediate; and ‘reasonable’ means not going beyond the limit assigned by reason or not extravagant or excessive. The three adjectives, in combination, connote a very close and limited connection between the event giving rise to compensation and the financial loss suffered.[20]
[19]Halwood (No 1) (n 9).
[20]Ibid 302–3. See also Melbourne City Link Authority v Teford Pty Ltd (2001) 113 LGERA 102, 112–3 [24] (Batt JA, Tadgell J agreeing at 104 [1], Chernov JA agreeing at 115 [31]).
In Barilla, Emerton J said to the same effect:
In Halwood Corp Ltd v Roads Corporation, and subsequently in Melbourne Citylink Authority v Tefford, the Court held that ‘natural’ means arising according to the usual course of things; ‘direct’ means without intervening agency or intermediate; and ‘reasonable’ means not going beyond the limit assigned by reason or not extravagant or excessive. The three adjectives, in combination, connote a very close and limited connection between the event giving rise to compensation and the financial loss suffered.[21]
[21]Barilla (n 15) 205 [35].
The sale of the subject land at a price well below market value, the assignment of the proceeds of the compensation claim to the purchaser, and the simultaneous extinguishment of the parties’ rights under an existing commercial contract for the development of the subject land are all unusual and extraordinary intervening causes in the present case.
The subject land was not sold on the open market or at auction. It was sold to the developer with whom the claimants were in existing commercial relations. When the subject land was sold, the claimants were tied by their contractual commitments to the developer. Given their obligations under the PDA, they could not sell to another party without obtaining the developer’s concurrence.
When interest was sought from other developers such as Country Garden, the claimants received offers that were much higher than $55 million.
A loss suffered under an agreement with the features that I have described is not ‘natural’ or arising in the usual course of things, or ‘direct’ without intervening agency, nor can it be described as ‘reasonable’. The sale price should represent the affected value of the subject land. It cannot be said that there is a close and limited connection between the reservation and the financial loss said to have been suffered by the claimants.
I have previously noted the observations of Batt J in Halwood (No 1), that the sale under s 106 is ‘of practical effect in quantifying the loss caused’[22] and ‘furnishes the measure of the owner’s gross loss and satisfaction of the causal requirements of s 98(1)’.[23] I have also noted the similar observation of Emerton J in Capela, and the reference to ‘actual loss’ by Richards J in Plunkett.[24] Here, the sale held out as the sale under s 106 performs none of these functions. It is of no assistance in quantifying the actual loss caused by the reservation and does not measure the owners’ gross loss. It has no causal nexus with the imposition of the reservation.
[22]Halwood (No 1) (n 9) 287.
[23]Ibid 289.
[24]See [60]–[62].
I have considered whether I should make any further findings of fact in the event that this proceeding goes further. Upon reflection, I have decided that it is not possible to do so as the sale price and terms provide no meaningful basis for the quantification of the loss on sale attributable to the reservation.
Conclusion
For these reasons, I accept the authority’s submissions and find that the claim for compensation does not meet the requirements of ss 98(1) and 106(1)(a) of pt 5 of the PE Act, and must be dismissed.
SCHEDULE OF PARTIES
BROMPTON LODGE PTY LTD (in administration) (ACN 004 458 833) First Plaintiff PETER WILLIAM CARPENTER Second Plaintiff SANDRA GAEL CARPENTER Third Plaintiff - and - HEAD, TRANSPORT FOR VICTORIA First Defendant 1050 WESTERN PORT HIGHWAY PTY LTD
(ACN 623 531 706)
Second Defendant
2
6
0