Commonwealth of Australia v Leppington Pastoral Company Pty Ltd
[1995] FCA 547
•27 Jul 1995
C A T C H W O R D S
LANDS ACQUISITION - Compulsory acquisition of part of a dairy farm - Application for determination of compensation - Pre-acquisition litigation between the parties that was resolved on terms set out in a deed - Deed provided for lease back of acquired land for about 12 months with provision for extension of the term - Commonwealth acknowledged an obligation, in assessing compensation, to take into account the cost of relocating and reconstructing the resumee's buildings, plant etc located on the acquisition land and necessary for its "operations" at acquisition date - Meaning in this context of "operations" - Compensation to be assessed on relocation basis whether or not resumee does relocate - Whether it would be reasonable to assess compensation on the basis of providing an additional 30.5 ha of prime pasture land, as distinct from providing an annuity to buy extra dry feed - Details of the relocation plan: paddock slope standards; work necessary to convert hard-standing areas to pasture and vice versa; necessity for relocation of "Harvestore" - Necessity to avoid double-counting - Whether there ought to be a discount from the assessed compensation to take account of the delay in relocating.
Land Acquisition Act 1989, ss55 and 82
COMMONWEALTH OF AUSTRALIA v. LEPPINGTON PASTORAL COMPANY PTY LIMITED
No. NG 246 of 1994
AND
LEPPINGTON PASTORAL COMPANY PTY LIMITED v. COMMONWEALTH OF AUSTRALIA
No. NG 252 of 1994
CORAM: WILCOX J
PLACE: SYDNEY
DATE: 27 JULY 1995
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) NO. NG 246 of 1994
GENERAL DIVISION )
BETWEEN:COMMONWEALTH OF AUSTRALIA
Applicant
AND:LEPPINGTON PASTORAL COMPANY PTY LIMITED
Respondent
CORAM: WILCOX J
PLACE: SYDNEY
DATE: 27 JULY 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
The matter be stood over for mention at 9.30am on Tuesday, 29 August 1995.
There be liberty to apply on three days' notice.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) NO. NG 252 of 1994
GENERAL DIVISION )
BETWEEN:LEPPINGTON PASTORAL COMPANY PTY LIMITED
Applicant
AND:COMMONWEALTH OF AUSTRALIA
Respondent
CORAM: WILCOX J
PLACE: SYDNEY
DATE: 27 JULY 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
The matter be stood over for mention at 9.30am on Tuesday, 29 August 1995.
There be liberty to apply on three days' notice.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) NO. NG 246 of 1994
GENERAL DIVISION )
BETWEEN:COMMONWEALTH OF AUSTRALIA
Applicant
AND:LEPPINGTON PASTORAL COMPANY PTY LIMITED
Respondent
and
NO. NG 252 of 1994
LEPPINGTON PASTORAL CO PTY LTD
Applicant
AND:COMMONWEALTH OF AUSTRALIA
CORAM: WILCOX J
PLACE: SYDNEY
DATE: 27 JULY 1995
REASONS FOR JUDGMENT
WILCOX J: There are two applications before the Court, both arising out of the compulsory acquisition of land by the Commonwealth of Australia for the purposes of the construction of Badgerys Creek airport. The acquisition was effected pursuant to the Lands Acquisition Act 1989. It occurred on 11 December 1991 and involved 38.14 ha of land at Bringelly owned by Leppington Pastoral Company Pty Limited ("Leppington"), being part of a 579.8 ha dairy farm.
The background facts
Leppington is a company controlled by members of the Perich family. They are descendants of Loborji Perich who was born in Brieste, in the Croatian province of the Austro-Hungarian Empire, in 1912 and came to Australia in 1938. In 1943 he bought 32 ha of land at Cowpasture Road, Leppington. In about 1950, Mr Loborji Perich and his wife bought additional land at Leppington and started a dairy herd. Over the following decade, they acquired other land in the area. In 1962 they sold some of this and purchased a property containing about 230 ha at Bringelly. The company was incorporated in March 1963. Apparently, it took title to the Bringelly land at that time. In 1964 it acquired an adjoining property of about 350 ha. Since that time, the two properties have been used, together, as a dairy farm. They constitute the farm out of which 38.14 ha was taken by the Commonwealth.
At acquisition day, 11 December 1991, the farm comprised the following elements:
. fully irrigated prime pasture 159.1 ha
. winter irrigated pasture 41.0 ha
. dry pasture 276.4 ha
. water storage dams 65.7 ha.utility areas including building sites,
yards etc 37.5 ha
By acquisition day, management of the company had passed to Loborji Perich's sons, Anthony Mark Perich and Ronald Perich. By that time Leppington, or associated companies, had purchased other properties in the area. The relationship between the various farms was similar to that existing at the present time. Leppington uses the Bringelly property as a "base farm" on which it milks about 1,150 cows throughout the year (this being necessary to fulfil the company's milk quota) and rears calves (about 2,700 per year) born on the farm or a nearby associated farm. At the age of about four months, the calves are sent to one of the company's Central Western properties, at Trangie and West Wyalong. The females are later returned to Bringelly as pregnant heifers and potential milkers. The males do not return to Bringelly; they are sold as steers. The company also used the Trangie and West Wyalong farms for the production of grain used as dry feed at Bringelly.
In 1974 Leppington purchased a business that had an arrangement with Tooth's brewery for the disposal of its used brewery grain. Brewery grain is good stock food. Since that time, the company has taken all Tooth's brewery grain and fed it to the milking cows at Bringelly. Leppington also takes vegetable waste from a cannery at Bathurst. This is useful supplementary dry feed. The proportion fluctuates from season to season, but in a normal season approximately 65% of the milking cows' food needs are satisfied by imported dry feed. The remaining 35% is provided by the cows grazing the property's fully irrigated pasture. Sometimes the proportion of imported feed goes much higher; at times the milking cows rely almost entirely on imported dry feed. The dry stock generally graze the dry pasture areas, supplemented from time to time by grazing the winter irrigated pasture.
In 1977 Leppington purchased a company that conducted a business supplying farmers with an organic fertiliser derived from chicken manure and wood shavings. The purpose of the acquisition was to ensure a dependable supply of organic fertiliser for the Bringelly pastures. The situation has now changed. Presumably because of the increasing cow population at Bringelly, there is now a surplus of manure on the property. This surplus goes into the product that the organic fertiliser business sells to other farmers. The organic fertiliser business is now a substantial activity, involving the use of about 60 tractors and items of earthmoving equipment and 40 trucks. It is conducted from an office located on the subject property.
The acquired land comprises an area of about 32.4 ha of fully irrigated land and 5.8 ha of utility areas. The utility areas include the main dairy building and yards, the calf rearing pens and sheds, the feed store sheds, the main
machine areas, the company's main office and two principal residences.
The proceedings
After the acquisition there were discussions between the parties as to the amount of compensation payable to Leppington. No agreement was reached. Section 82 of the Lands Acquisition Act enables the Commonwealth to institute a proceeding in this Court for determination of the amount of compensation to which a claimant is entitled. Pursuant to that section, on 2 May 1994, the Commonwealth instituted proceeding G246 of 1994, naming itself as the applicant and Leppington as respondent. The Application sought determination of the amount of compensation payable to Leppington. A Statement of Claim, filed that day, asserted that the proper compensation was $8,460,000. This figure was subsequently reduced. A Further Amended Statement of Claim filed on 9 February 1995 sought a determination in the sum of $6,263,250.
Leppington responded to this proceeding by instituting another proceeding, G252 of 1994, in which it was the applicant and the Commonwealth the respondent. It claimed a determination of compensation in the sum of $52,240,816.
Common directions hearings were held. The parties agreed the two matters should be heard together. They filed affidavits which revealed that there were numerous issues between them, mainly relating to the effect of the resumption on the conduct of the remainder of the farm. At a directions hearing on 29 November 1994, counsel told me they thought many of these issues could be agreed, if the Court first determined some issues of principle. They offered to formulate some preliminary issues, which would be heard and determined; they would then endeavour to resolve the remaining issues by negotiation. They also suggested that I inspect the property before hearing the preliminary issues. I accepted these suggestions and fixed inspection and hearing dates.
On 24 April I inspected the land in company with representatives of the parties, including their legal representatives and some of the expert witnesses. The hearing commenced on 26 April and extended over several days. During the hearing the preliminary issues were amended in order to accommodate difficulties that emerged. In their amended form, they read:
"1.Do the provisions of the deed dated 21 August 1991 require the application of any special principle or approach to the determination of Leppington's claim for compensation and, if so, what?
2.In particular, does that deed, on its proper construction, mean no more than the Commonwealth is precluded from asserting that Leppington is not entitled to 'special value compensation' for the resumed land in excess of the market value of that land on the acquisition date?
3.Is the determinative factor of the expression 'operations as are (were) manifest at the acquisition date':
(a)the maintainable net profitability of those operations; or
(b)the manner in which Leppington was on the acquisition date carrying out those operations?
4.Having regard to the deed dated 21 August 1991 and the Lands Acquisition Act 1989 is the Commonwealth obliged to pay compensation in an amount equal to the cost of relocating and reconstructing the farm buildings, redesigning the remaining land and adopting new or varied farming practices in the manner set out in the plan marked 'LP4A' regardless of:
(a)whether or not Leppington intends to carry that plan into effect; and
(b)whether or not the expense which would be incurred by Leppington if it were to carry that plan into effect would be a direct natural and reasonable consequence of the Commonwealth's acquisition of the resumed land?
5.If the answer to 4 is 'no', according to what essential criteria are the expenses (to be) incurred by Leppington in relocating and reconstructing the farm buildings, redesigning the remaining land and adopting new or varied farming practices as a direct natural and reasonable consequence of the Commonwealth's acquisition of the resumed land (and the Commonwealth's resultant liability to pay compensation) to be assessed?
6.By what amount, if any, should the cost of relocation and reconstruction as at the resumption day, (being an element of the special value to form part of the compensation payable to the dispossessed owner) be discounted to reflect the period after resumption day during which Leppington may remain on the resumed land pursuant to a lease granted by the Commonwealth until the time at which
Leppington will or may incur the costs of relocation?"
These reasons for judgment relate to those issues. Issues 1, 2 and 3 overlap. I will consider them together. Issues 4 and 5 also overlap. I will deal separately with issue 6.
Issues 1-3: the deed
The circumstances of this resumption are unusual. The Commonwealth originally proposed to acquire more than 38.14 ha of Leppington's land. On 10 July 1989, pursuant to s.22 of the Act, a delegate of the Minister for Administrative Services served two pre-acquisition notices on the company. Leppington sought review of the declarations by the Administrative Appeals Tribunal: see ss.28-33 of the Act. The review hearing was conducted by a Presidential member, Moss J. During the hearing a question arose as to the available scope of review. In order to resolve that question, Moss J stated a case for the opinion of this Court. The stated case raised two questions of law. They were determined by a Full Court of this Court on 28 June 1990: see Leppington Pastoral Company Pty Limited v Department of Administrative Services (1990) 23 FCR 148.
When the Full Court's judgment was delivered, it was envisaged that the AAT review would be resumed and determined in light of the answers to the stated case. However, shortly before the date of the resumed hearing, the parties entered into negotiations regarding variation of the pre-acquisition declarations. They ultimately reached agreement on that matter and embodied their agreement in a deed dated 21 August 1991.
Clause 1 of the deed provided that the varied pre-acquisition declarations should involve four components: acquisition of the freehold of a parcel of land identified on a plan ("the acquisition land"), an easement for construction of navigational aids on an appurtenant parcel of land, and restrictions on user over two other parcels of Leppington land. Clause 2 contained a mutual covenant to do whatever was necessary to enable the varied pre-acquisition declarations to become absolute and effect gazettal of the acquisition of the acquisition land, the easements and the covenants. Clause 3 required the Commonwealth to lease the acquisition land to Leppington on terms contained in an annexed draft lease. The draft lease provided for an initial term from the date of acquisition to 30 November 1992. However, the Commonwealth was to be entitled to terminate the lease at any time by giving 12 months notice in writing, if it required the land for the development of the airport. Leppington also had the right to terminate on 12 months notice, without any restriction on its reason for doing so. The draft lease required the Commonwealth, not less than nine months before the expiration of the initial term, to notify Leppington either that it intended to grant Leppington an option for a further lease of the land (on the same terms but subject to rental adjustment) for ten years from 1 December 1992 or that it required the land to be vacated on 30 November 1992. If it failed to give notice, either way, Leppington was to be entitled to continue in occupation of the land until the expiration of nine months' notice to vacate. I do not know whether the Commonwealth gave a notice, choosing the first alternative, or whether Leppington is holding over because of the Commonwealth's failure to give any notice. Whatever the explanation, at the date of the hearing, Leppington continued to occupy all the acquisition land. No vacation date had been fixed.
Clause 4 required Leppington, in return for a payment of $2,000, to transfer to the Commonwealth a small parcel of land not included in either of the original pre-acquisition declarations. This transfer is not presently relevant.
Clause 5 (a) provided that, if the varied pre-acquisition declaration became absolute and the acquisition was effected, "the Commonwealth agrees to pay compensation to the Company for the acquisition in accordance with Part VII of the Act" and to make an initial advance of compensation monies in the sum of $4,200,000 subject to the company executing a deed of release. Sub-clauses (b) and (c) of this clause must be set out in full:
"(b)Subject to the Act, the Commonwealth acknowledges that it shall, in assessing the amount of compensation payable to the Company, take into account, amongst other things, the cost involved in carrying out the work and adopting the farming practices specified below:
(i)the relocation and reconstruction on the remaining land of the Company's buildings, plant, equipment and other material presently located on the acquisition land ("the Farm Buildings") necessary for the Company's operations as are manifest at the acquisition date; and
(ii)the redesign of the remaining land as may be necessitated by the relocation and reconstruction of the Farm Buildings taking into account such matters as the possible need for alteration to or replacement of the fencing, paddock subdivisions, irrigation system, sullage pits, electricity, town water supply, roads and all infrastructure improvements existing on the Company's land at the acquisition date; and
(iii)the adoption of new or varied farming practices that may be required to enable the Company to continue its operations at the same standard and degree of efficiency as are manifest at the acquisition date as a result of the alteration to the irrigation system where such alteration is necessitated by the re-routing of the Northern Road as detailed in clause 6 hereof or the acquiring of the easements and covenants;
PROVIDED HOWEVER that when making a claim for compensation the Company shall in addition to complying with the requirements of Section 67 of the Act specify and itemise the amounts of compensation claimed for the items
detailed in this sub-clause and the basis on which those amounts have been calculated.
(c)The Company acknowledges that it intends to relocate and reconstruct the Farm Buildings on the remaining land and agrees that in consideration of the Commonwealth agreeing to vary the Pre-Acquisition Declarations resulting in the Commonwealth acquiring a lesser portion of the Company's land than as detailed in the Pre-Acquisition Declarations and in consideration of the Commonwealth making the acknowledgments detailed in sub-paragraph (b) above the compensation payable to the Company for the acquisition shall be determined as if it had relocated and reconstructed the Farm Buildings and continued its operations on the remaining land as are manifest at the acquisition date whether or not the Company does in fact so relocate and reconstruct."
Clause 6 related to a proposal to relocate the Northern Road, which bordered Leppington's land. The proposal was for a deviation of the road along a strip of land that was part of the acquisition land. The effect of the re-routing would be to sever a small part of Leppington's retained land ("the tunnel land") from the remainder of it. Clause 6 provided that, if this re-routing occurred, the Commonwealth would construct a tunnel between the tunnel land and the remaining land for the purpose of providing access by irrigation and farm vehicles and animals.
The remaining clauses of the deed are not presently relevant.
Issues 1-3: the contentions
There is some common ground between the parties regarding the effect of the deed. Notwithstanding the proposed airport and acquisition, Leppington wished to continue its farming operations and, in particular, to use the acquisition land as long as possible. The parties agree that one effect of the deed is to preclude any argument by the Commonwealth that, since Leppington did not intend immediately to relocate on the remaining land the buildings and facilities that were on the acquisition land, it was entitled to be compensated only on the basis of the market value of the acquisition land. They also agree that the deed excludes the argument that proved successful in Banno v Commonwealth (1993) 45 FCR 32: that compensation ought not be assessed on a reinstatement basis because the cost of reinstatement would exceed the value of the resumee's business. The parties further agree, in a general way, that the deed manifests a mutual intention that the assessment of compensation for resumption of the acquisition land take into account the effect of the resumption upon the remaining land; in particular upon the company's dairying operations. Thereafter they part company. Leppington say that the deed contains a concession by the Commonwealth that the items of expenditure listed in paras. (i), (ii) and (iii) of cl.5(b) of the deed, constitute costs incurred by Leppington as a direct, natural and reasonable consequence of the resumption: see s.55(2)(c)
of the Act. Counsel say that, as cl.5(b) is not stated to be subject to the Act, it must be read as a concession by the Commonwealth of the reasonableness of any expense incurred by Leppington in the relocation and reconstruction of the farm complex and the continuation of the operations that were manifest at acquisition date. On this basis, no question of proportionality arises; it is enough that the expenditure is necessary in order to maintain the resumption date operations.
Turning to cl.5(c), counsel for Leppington not only contend that this sub-clause excludes a Commonwealth argument that the reinstatement approach is inapplicable because Leppington did not intend immediately to relocate and reconstruct the buildings on the resumed land, and did not in fact do so within a reasonable time thereafter. They say it also excludes any argument by the Commonwealth that compensation calculated as at acquisition date should be discounted by reason of the delay in relocation that was then likely to occur. According to Leppington's counsel, cl.5(c) requires compensation to be assessed "as if Leppington had at the date of resumption relocated and reconstructed the farm buildings; and continued its operations on the remaining land as were manifest at that date". On the evidence, they say, these operations were: the grazing of cattle; the milking of some 1,150 cows; the provision and maintenance of improved and irrigated pastures; the provision and use of a feedlot for dry feed; the rearing of some 2,700 calves (some born on the property and others brought in from associated farms) and the collection, preparation, storage and sale of organic fertiliser. They say that each of these activities and operations was manifest at acquisition day, as were the buildings, plant, equipment and materials used in connection with them. The deed requires compensation to take account of the cost of reinstating each of these activities, and the buildings, plant, equipment and materials they require, without any limitation by reference to notions of proportionality or reasonableness. Moreover, say counsel, the words "operations on the remaining land as are manifest at (acquisition) date" refer not only to the end result of those operations, the production of particular quantities of milk and organic fertiliser and numbers of calves, but each element in the total operation; for example and in particular, the maintenance of the same irrigated pasture - dry feed mix as at the acquisition date. The reasonableness of the expenditure necessary to reinstate each element in the operations is already conceded, they say. The only limitation is that the expenditure incurred on a particular element of reinstatement is the most economical way of reinstating that element. In particular, counsel say, it is inconsistent with the deed, and therefore erroneous, to assess compensation on the basis of calculating what is necessary to maintain the net profitability of the farm at its acquisition date level. Counsel for Leppington say that issue 1 should be answered "yes", the relevant special principle or approach being that
just outlined. They say issues 2 and 3 should each be answered "no".
Counsel for the Commonwealth say that the deed has a more limited effect than that suggested by their opponents. They agree that issue 1 should be answered affirmatively but they say that the relevant special principle or approach is that "the Commonwealth [must] pay 'special value compensation' on the basis that Leppington is deemed to have incurred the least cost of reinstating the farm on the remaining land as will enable it to maintain the net profitability of the operations as were manifest at that date subject to:
(a)the discount point (issue 6) and
(b)its taking into account the benefit of a perpetual annuity provided by the Commonwealth (as part of the compensation) to defray the cost of hard feed necessary to replace such pasture production as may be lost".
Counsel say that issue 2 should be answered "yes", issue 3(a) "yes" and issue 3(b) "no".
The Commonwealth's argument commences with the observation that the recitals to the deed and clause 1 make clear that the Commonwealth was exercising powers conferred by the Lands Acquisition Act. The agreement to pay compensation, in cl.5(a), was an agreement to pay compensation to the company for the acquisition "in accordance with Part VII of the Act"; that is, the Lands Acquisition Act. Part VII of the Act (ss.52 to 93) deals with compensation for compulsory acquisition of interests in land. These factors, they say, indicate that the general principles concerning the amount of compensation, as set out in s.55 of the Act, are to apply. They go on:
"Principally, the considerations stated in sub-section (2)(c) are germane: that is, that the expense notionally involved in the proposed (but deemed) relocation must be shown by Leppington to be a 'direct natural and reasonable consequence' of the acquisition. Nothing in the deed suggests otherwise. Any argument to the effect that the phrase 'the company's operations as are manifest at the acquisition date' (appearing in clause (5)(b)(i) and (c) confers an entitlement on Leppington to compensation calculated according to the cost of reinstating the farm (on the remaining land) by way of replication, so far as practical, of that which existed on the acquisition date, without regard to the application of such a qualifying test as 'necessary or sufficient to maintain net profitability' is untenable."
Counsel say that the reference in cl.5(c) to "operations ... as are manifest at the acquisition date" was not intended as a reference to each particular element in the farming activity; it "stands to be construed in a general, and ambulatory, sense namely as broadly descriptive of the operations of the base farm as a dairy, a producer of organic fertilisers, the administrative headquarters of Leppington's agricultural (and other) activities and the place to which and from which purchased hard feed is delivered and resold etc".
According to counsel, the "ambulatory" sense of the expression permits -
"an assessment of those activities, not with precise reference to the manner in which they were conducted on the acquisition date but, rather, with an appreciation of their development over time (at least) until that date and (perhaps) beyond it."
Issues 1-3: conclusions
In the course of submissions, both sets of counsel referred to the principles of construction summarised by Gibbs J in Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 at 109-110:
"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious,
unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority ... Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd v Arcos Ltd that the court should construct commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance."
Although Gibbs J was in dissent in that case, because he construed the relevant agreement differently from the other members of the High Court, there is no doubt about the principles he enunciated. His words have been cited and applied on numerous occasions. Consistently with those principles, it is necessary to bear in mind the context in which the deed was executed. There had been a dispute as to the necessity for the Commonwealth to acquire Leppington's land or, at least, as much of it as originally proposed. Litigation ensued, Leppington being concerned to minimise any disruption of its activities. An agreement was reached. This involved a reduction of the area to be acquired, as compared with the original proposal. Presumably, the agreed area was that which the Commonwealth officers thought to be the minimum necessary for airport purposes. Even so, from Leppington's point of view, the acquisition area was significant, not so much in proportional terms (it constituted only 6.7% of Leppington's land), but because it contained most of the farm buildings and substantial hard-standing areas. If dairying operations were to continue, those buildings and areas would have to be relocated on the remaining land. Given the likely cost of relocation, it is understandable that Leppington wished to be assured that its compensation claim would be assessed on a relocation basis. I think cl.5(b) was designed to achieve this end. But the sub-clause is of limited scope. Stripped to its essentials, it requires the assessment of compensation to take into account
"the cost involved in ...
(i)the relocation and reconstruction on the remaining land of the ... buildings, plant, equipment and other material presently located on the acquisition land [and which are] necessary for the Company's operations ... manifest at the acquisition date; and
(ii)the redesign of the remaining land as may be necessitated by [that] relocation and reconstruction ...; and
(iii)the adoption of new or varied farming practices ... required to enable the Company to continue its operations at the same standard and degree of efficiency as are manifest at the acquisition date as a result of the alteration to the irrigation system ... necessitated by the re-routing of the Northern Road ...".
It will be noted that para.(iii) is concerned with the cost of new or varied farming practices only insofar as they arise out of the alteration to the irrigation system necessitated by the re-routing of the Northern Road. However, this limitation seems unimportant. No doubt, para.(i) would include the cost of a variation in farming practices that was incidental to the relocation and reconstruction of one or more of the physical items referred to in that paragraph: "buildings, plant, equipment and other material ... located on the acquisition land". Primarily, however, sub-clause 5(b) is concerned with the cost of relocating those items.
Sub-clause 5(c) also relates to the relocation and reconstruction of the items referred to in sub-cl.5(b) but it is concerned with a different aspect of that subject: ensuring that compensation is determined on a relocation basis, even if relocation does not occur. Curiously, although it seems to confer a substantial benefit on the company, the sub-clause is framed as a concession by Leppington. Leppington was made to acknowledge that it intended to relocate and reconstruct the items listed in sub-cl.(b) on the remaining land and, in consideration of acts by the Commonwealth, to agree that compensation should be determined on that basis. Perhaps the Commonwealth officers concerned with the deed thought that compensation would be greater if not determined on a relocation basis; possibly because Leppington might assert that relocation and reconstruction were impossible or infeasible and demand compensation on the basis that its business was wholly destroyed.
As will be apparent from my recital of the parties' submissions, a major issue is the meaning of the phrase, "operations as are manifest at the acquisition date". The question assumes practical importance because of the high cost of converting dry pasture land to irrigated pasture land. It is common ground that it will be reasonable for Leppington, when it has to vacate the resumed land, to replace its lost 32.4 ha of fully irrigated land by converting to fully irrigated pasture a similar area of winter irrigated pasture or dry land; and that it is reasonable for the assessment of compensation to take account of the cost of this conversion. It is now also agreed that the amount of land that will be required for the relocated utility areas, which must come from current pasture land, is much the same as at present. It follows that, if the necessary conversions are made to ensure an on-going 159.1 ha of prime pastures and 41.0 of winter pastures, the acquisition will ultimately result in a loss of 38.2 ha of dry land. According to Ian Gibb, the principal expert witness for Leppington, dry land produces about 8 tonnes of feed per annum, winter irrigated pasture about 12 tonnes and prime pasture about 18 tonnes. So the loss of 38.2 ha of dry land involves a feed loss of about 305 tonnes per annum. To recover that loss, it would be necessary to convert an additional 30.5 ha of dry land to prime pasture; 10 tonnes per annum being the difference in productivity between dry land and prime pasture. Leppington points out that, unless it makes that conversion, it will suffer a loss of pasture feed. It argues that the conversion is necessary to maintain its "operations ... manifest at the acquisition date"; therefore, the assessment of compensation must take this conversion into account. The Commonwealth argues that the loss of pasture feed can be replaced, much more cheaply, by increasing the bought-in dry feed component; the relevant "operations" are the production of milk, calves and organic fertilisers and these can be maintained otherwise than by maintaining the same level of pasture production.
The issue just stated accounts for much of the difference in the parties' assessment of the appropriate level of compensation. As might be expected, the portion of the property that, over the years, has been selected for year-round irrigation is that which is flattest and most accessible. Less flat and accessible areas have been used for winter irrigation. The roughest country has been left as dry pasture. To convert this land to irrigated pasture would be extremely expensive.
I accept most of Leppington's submissions in relation to the construction of the deed. I agree that cl.5(b) contains a concession by the Commonwealth that the items listed in paras.(i), (ii) and (iii) are compensable. The clause precludes any argument that the cost of these items is not a direct, natural and reasonable consequence of the resumption. But the monetarily significant items are those included in para.(i), and these items are limited by the words "necessary for the Company's operations as are manifest at the acquisition date"; so the critical question is the meaning in this context of the word "operations". I agree with Leppington's submission that at acquisition date, the relevant operations included the milking of some 1,150 cows, the rearing of some 2,700 calves per annum and the collection, preparation, storage and sale of organic fertiliser. But I do not agree that the "operations" referred to in the deed comprised each management element in the production program. The milking and rearing of cattle necessarily involved their feeding. But the feeding of the cattle was incidental to the commercial operations being conducted on the property; it was not an end in itself. To tie the word "operations" to the particular practices in place at acquisition date would be to disregard the farm's dynamic nature. Its history has been one of constant change. Since its purchase in 1962, the farm has been increased in size, its water storage capacity has been progressively increased, its pastures have been developed, more efficient irrigation systems have been installed and the dairying and calf-rearing operations have been improved. Importantly, Leppington has widened its range of dry feed and increasingly relied upon it. The company has adjusted the proportions of the various feeds in the light of experience. In the result, productivity per cow has risen, year by year.
There is no reason why the parties would have intended that the assessment of compensation be fixed to each management element. Leppington was concerned at the loss of a significant part of its land. It obviously wished the Commonwealth to meet the cost of reorganising its activities in such a manner as to ensure that there was no loss of productivity or profit. The company had no interest in perpetuating whatever precise method of operation might happen to exist at acquisition date. The deed itself recognised that relocation would necessarily involve management changes.
In answer to issues 1 to 3, I hold that the deed does require the application of a special principle or approach to the determination of Leppington's claim; but this principle or approach falls between the extreme positions suggested by counsel. The deed does more than preclude a Commonwealth argument that Leppington is not entitled to "special value compensation" for the resumed land in excess of its market value at resumption date. It requires the assessment of compensation to take account of the cost of relocating and reconstructing the buildings, plant, equipment and other material located on the resumed land at acquisition date as may be necessary to maintain the commercial operations then being undertaken (the production of milk and calves and the organic fertiliser business) and to maintain those operations at a level of productivity and profitability similar to that achieved at that time. I do not think it relates the assessment of compensation to any particular management practice or method of feeding the cattle. The deed does not resolve the question what relocation and reconstruction steps are needed to provide the feed required to maintain the commercial operations at a similar level of productivity and profitability. That question has to be determined by reference to the criterion of reasonableness.
On the evidence, it would not be reasonable to assess compensation on the basis that 30.5 ha of dry land (additional to the dry land required to be converted to prime pasture or winter irrigated land in order to maintain the totals of 159.1 ha and 41.0 ha respectively) would be converted to prime pasture in order to maintain the same pasture/dry feed ratio as applied at acquisition day. Although there is some uncertainty about the cost of converting these 30.5 hectares, the parties agree it amounts to several millions of dollars; whereas the cost of an annuity sufficient to defray the recurring cost of making up the shortfall by purchase of additional dry feed would be only a few hundred thousand dollars. No farmer, using his or her own money, would make the conversion, rather than accept the cost of additional dry feed. If reasonableness is the criterion, the Commonwealth should not be asked to do so either.
Contrary to the submission of counsel for Leppington, the substitution of additional dry feed for the 305 tonnes of pasture feed lost by the reduction of dry grazing land would not dramatically change the balance between pasture feed and imported dry feed. Using Mr Gibb's figures, the property presently produces about 5,567 tonnes of pasture feed each year (159.1 ha at 18 tonnes per hectare, 41.0 ha at 12 tonnes per hectare and 276.4 ha at 8 tonnes per ha). A loss of 305 tonnes represents a loss of about 5% of that figure. Adopting a ratio of two units of imported dry feed to
one of pasture, as reflected in the estimate of 65% imported feed in normal seasons, this equates to about 2-3% of the amount of dry feed bought by the company, less in poor seasons. Such a change does not fundamentally alter the nature of the company's operations.
Issues 4 and 5: plan LP4A
Plan LP4A is a plan prepared by surveyors retained by Leppington. Its purpose is to illustrate the company's proposals for the eventual relocation and reconstruction of its buildings, plant and equipment, fencing, services etc. Preliminary issue 4 asks, first, whether the Commonwealth is obliged to pay compensation in an amount equal to the cost of relocating and reconstructing in accordance with that plan "whether or not Leppington intends to carry that plan into effect". Leppington says this question should be answered affirmatively, that its intention is irrelevant. Counsel for the Commonwealth contend for the opposite answer, noting that there is no evidence that Leppington does intend to carry the plan into effect.
There is a problem about the form of issue 4. In asking the significance of Leppington's intention, it refers to a particular plan. I agree with counsel for the Commonwealth that there is no evidence as to whether or not Leppington intends to implement this plan. Evidence of such an intention could have been led from one or both of the directors who gave evidence. But I agree with counsel for Leppington that its intent is irrelevant. That would not normally be so; ordinarily, it is essential for a claimant seeking compensation on a reinstatement or relocation basis to prove that it has an intention to reinstate or relocate, if it has not already done so: see Feiglin v Housing Commission of Victoria (1969) 18 LGRA 261 at 264-265, Sydney Sailors Home v Sydney Cove Redevelopment Authority (1977) 34 LGRA 370, Commissioner of Highways v Shipp Bros Pty Ltd (1978) 19 SASR 215; 43 LGRA 355. In this case, however, the deed relieves Leppington of that burden. Clause 5(b) of the deed, contains an acknowledgment by the Commonwealth that compensation shall be assessed by taking into account the cost involved in the items listed in paras. (i), (ii) and (iii), including the relocation and reconstruction of the buildings etc on the acquisition land. There is no requirement of an intention to relocate. The effect of the deed, nonetheless, is that the cost of relocation is a factor in assessing compensation.
The second part of issue 4 raises the relevance of a particular expense being a direct, natural and reasonable consequence of the Commonwealth's acquisition of the resumed land. As will be apparent from my discussion of issues 1 to 3, I think this is a relevant consideration. I do not think there is anything in the deed that obliges the Commonwealth to meet the cost of incurring an expense that is not the direct, natural and reasonable consequence of its acquisition of the resumed land and of the relocation and reconstruction of the buildings etc necessary for maintenance of Leppington's commercial operations to a similar level of productivity and profitability.
The real questions, in relation to issues 4 and 5, concern particular features of plan LP4A. At the commencement of the hearing, there were many differences between the parties concerning aspects of plan LP4A. During the hearing, the majority of these differences disappeared; mostly because of justified concessions by the Commonwealth after hearing the relevant Leppington evidence, in a few cases by Leppington abandoning a contention. I need not say anything about these resolved questions. At the end of the hearing, only four practical questions remained. In the hope that it will assist the parties to resolve their remaining differences, I will state my view about each of them.
The first outstanding question is the area of prime irrigated land that ought to be provided: 159.1 ha as at present or 189.6 ha? The difference, of course, is the 30.5 ha already discussed. For the reasons already indicated, I think that compensation should be assessed on the basis of 159.1 ha of prime irrigated land, but with a capital sum sufficient to provide an annuity that will allow Leppington to buy additional dry feed equivalent to the pasture produced by 32.4 ha of dry land.
The second outstanding question concerns acceptable paddock slope standards. There is a relationship between the steepness of a paddock and the efficiency of a travelling irrigator. The evidence contains two plans relevant to slope standards. Exhibit 4 gives slope gradients, using a four colour code system: steeper than 1:25; 1:25 to 1:35; 1:35 - 1.50 and flatter than 1.50. Only small segments of the acquisition land are steeper than 1:25 whereas a significant proportion of the proposed new irrigation pastures are in that category. In itself, this is not of critical importance. Provided that the irrigators will function efficiently, there is no need to incur the considerable expense of making the new pastures as flat as the acquired land. The essential requirement is that the irrigators operate as efficiently. The experts agree that irrigators operate efficiently on slopes up to 1:10, with one qualification, but experience problems at steeper grades. The qualification is that the slope needs to be no steeper than 1:25 over the first 30 metres of the irrigator run. In the light of that agreement, compensation should be assessed on the basis of a reconstruction plan achieving these standards.
The next matter is the action that needs to be taken in converting hard-standing areas to pasture land and the reverse. There is a contest on this matter between Mr Gibb, on behalf of Leppington, and the Commonwealth's principal expert witness, Robert Doyle. I prefer Mr Gibb's evidence. No doubt, in time, the minimalist approach of Mr Doyle would yield acceptable pastures but the cost of lost production in the meantime would exceed the saving in reconstruction costs. Similarly, it is desirable quickly to re-establish efficient hard-standing areas. Accordingly, I think the assessment of compensation should assume reconstruction according to Mr Gibbs' prescriptions.
The final matter is one of relatively minor importance. The plant presently standing on the acquired land includes a food storage bin called a "Harvestore". It has not been used in recent years and the Commonwealth argues that it should be regarded as redundant and its relocation cost ignored. However, Leppington does not think it redundant. The company says it remains a useful facility and may be needed in the future. Its argument is that it falls within the items listed in clause 5(b)(i) of the deed and should be taken into account. I agree with this. It seems the item is still in useable condition. There may be some doubt whether it will be "necessary" for future operations; but, if so, the resumee should have the benefit of the doubt.
In discussing the four remaining reconstruction issues, I have referred to the assessment of compensation "taking into account" particular items. I have chosen this language because I do not see the assessment of compensation as being simply an exercise in adding up reconstruction cost items. Even in a case covered by s.58 of the Act, the relevant exercise under subs.(2) is the ascertainment of the market value of the acquired land. This is consistent with the traditional approach to reinstatement; even reinstatement strictly so-called, that is of a non-commercial use of land for which there is no general market. As Hope JA said in Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547 at 554:
"The reinstatement principle is not a principle to be applied outside or regardless of the provisions of s.124 [of the New South Wales Act]; it is a principle whereby the value of the land to the owner, and thus the value of the land for the purposes of that section, can be assessed. No matter what principle of assessment is applied, what has to be arrived at is the value of the land as at the date of the notification of the resumption."
If that statement is true of reinstatement strictly so-called, it applies even more strongly to a case, like the present, where relocation expenses are relevant simply as a guide to assessing what a prudent person in the position of the resumee would have paid for the resumed land rather than have failed to obtain it; to adopt the classical test enunciated by the Judicial Committee of the Privy Council in Pastoral Finance Association Ltd v The Minister [1914] AC 1083 at 1088. The distinction between the two situations was explained by Hope JA in Falconer at 556.
Furthermore, in the present case, it is necessary to bear in mind the need to comply with the overriding imperative of s.55(1): that the compensation be "such amount as, having regard to all relevant matters, will justly compensate the person for the acquisition". Although the matters to which I have referred must all be taken into account, at the end of the day a judgment must be made.
It follows that it would be erroneous to assess compensation by adding the market value of the acquired land to the cost of doing everything necessary to bring the remaining land to a level of productivity and profitability equal to that of the whole property before the resumption. The relevance of the latter cost is that it indicates the value to Leppington of the acquired land. To add the general market value, would be to overcompensate Leppington. It would have both "the money and the box"; both a payment for the lost land and an asset as valuable as before.
Issue 6: discount
Issue 6 raises the question whether there ought to be a discount from the cost of relocation and reconstruction, assessed as at resumption day, to reflect the delay in incurring that cost. It will be recalled that the deed required the Commonwealth to lease the acquired land back to Leppington until 30 November 1992. So the parties knew there would be some delay before Leppington needed to incur relocation costs. At the time of the deed (or the resumption), however, they did not know how long the delay would be. So far as the evidence indicates, the Commonwealth had not then decided whether or not to offer the further, ten year, lease envisaged by the draft lease. The parties now know that, over 3.5 years after resumption day, Leppington still occupies the resumed land and no notice of termination of the lease has yet been given. So Leppington will remain in occupation for at least another nine months; how much longer I cannot say. There is no evidence that enables me to make an estimate about that matter.
Notwithstanding these uncertainties, counsel for the Commonwealth argue that, as a matter of principle, a discount must be allowed. They make the point that the present value of a sum of money which is to be expended (or received) in the future is less than its nominal value. They offer an example from personal injuries litigation, inviting me to assume an injured plaintiff who will need a particular operation in ten years' time. If the awarded damages include the cost of this operation, the plaintiff will have that sum in the meantime and the opportunity of profitably investing it. So the present cost must be discounted to take account of that fact. Of course, this is fair to a plaintiff only if any increase in the cost of the operation, in the period before it becomes necessary, is no greater than the after-tax return to the plaintiff from investment of the money during that same period. In times of high inflation, this condition is often not satisfied. But I accept that such an approach is justifiable in principle. There is no doubt that the present value of a future payment is less than its nominal value. The
relationship between inflation and potential income is a matter to be considered in selecting the discount rate.
Counsel for the Commonwealth argue that, in the present case, the discount should be calculated by reference to a delay of five years. They point out that it now appears likely that there will be a delay of at least five years between resumption day and the time when Leppington will have to expend the relocation moneys.
I do not accept this step in the argument. Although it will rarely be possible to assess compensation on resumption day, it is fundamental that compensation must be assessed as at that day. This was recently pointed out by Tamberlin J, with whom Davies and Whitlam JJ agreed, in Hubertus Schuetzenverein Liverpool Rifle Club Limited v Commonwealth of Australia (13 July 1995, not yet reported). Dealing with the significance of the reference to "interest on the compensation", in s.91 of the Act, his Honour said "it presupposes that the quantum of compensation has been determined prior to the time when interest commences to accrue, that is to say, as at the date of acquisition" (original emphasis). An assessment as at the date of acquisition requires the assessor to take into account then discernible probabilities and possibilities and then-known intentions of relevant people. An assessor may look at facts that occurred after resumption day for the purpose of confirming a foresight, but not to apply hindsight to facts that were not predictable at acquisition day: see Falconer at 558.
At acquisition day it was known that Leppington could not be forced to vacate the acquired land for at least 12 months. So it was known that relocation could be postponed for at least that time. But there is no evidence, whether concerning objective facts or the intentions of Commonwealth officers, that enables me to say it was predictable there would be a longer delay. An assessment made as at acquisition day should allow a discount for 12 months, but not more.
I should add that I do not think there is anything in the deed that excludes the adoption of a 12 month discount factor. Clause 5(c) contains a Commonwealth acknowledgment that compensation shall be determined on a relocation basis whether or not Leppington does in fact relocate, but it does not contain an acknowledgment that the relocation will occur without delay. It could hardly have done so, given the deed's provision for a lease back until 30 November 1992, at least. Having regard to that provision, it would be absurd to construe cl.5(c) in the manner advocated on behalf of Leppington; namely, as requiring compensation to be assessed "as if Leppington had at the date of resumption relocated and reconstructed the farm buildings".
Orders
The above discussion will, I trust, indicate my views about the preliminary issues formulated by the parties. In accordance with the suggestion made by counsel, it is appropriate for me to allow them an opportunity to consider these reasons and discuss the possibility of resolving the remaining issues. I will stand the matters over for mention at 9.30am on Tuesday, 29 August 1995, with liberty to apply on three days notice.
I certify that this and the preceding thirty-seven (37) pages
are a true copy of the Reasons for Judgment
of the Honourable Justice Wilcox.
Associate:
Dated: 27 July 1995
APPEARANCES
Counsel for Leppington: N A Hemmings QC and D P Wilson
Solicitors for Leppington: Marsdens
Counsel for the Commonwealth: D Grieve QC and C F Adamson
Solicitors for the Commonwealth: Australian Government Solicitor
Dates of hearing: 26, 27 and 28 April 1995
1, 2 and 5 May 1995
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