Secretary, Department of Economic Development, Jobs, Transport and Resources v Stella
[2016] VSC 260
•25 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
VALUATION, COMPENSATION AND PLANNING LIST
S CI 2013 5011
| SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES | Applicant |
| v | |
| ENEA MARIA STELLA AND ANTONIO MODESTO STELLA AND SUPERNOVA FUND PTY LTD (ACN 163 326 298) | Respondents |
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JUDGE: | Bell J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 & 3 March 2016 |
DATE OF JUDGMENT: | 25 May 2016 |
CASE MAY BE CITED AS: | Secretary, Department of Economic Development, Jobs, Transport and Resources v Stella |
MEDIUM NEUTRAL CITATION: | [2016] VSC 260 |
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LAND ACQUISITION AND COMPENSATION – vacant land on urban fringe purchased by self-managed superannuation fund for long-term sale and/or development – compulsory acquisition of part of land for regional rail project – compensation payment used to purchase a factory park paying substantial rental – whether duties and costs of purchasing factory park attributable to disturbance – whether factory park to be characterised as a replacement for compulsorily acquired land – whether duties and costs a ‘natural, direct and reasonable’ consequence of acquisition – Land Acquisition and Compensation Act 1986 (Vic) ss 40, 41.
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APPEARANCES: | Counsel | Solicitors |
| For the applicant | Ms M Quigley QC and Mr S Tisher | Hebert Smith Freehills |
| For the respondents | Mr J Delany QC and Mr P Chiappi | Best Hooper Lawyers |
HIS HONOUR:
INTRODUCTION
Under pt 2 of the Land Acquisition and Compensation Act 1986 (Vic), the predecessor to the Secretary to the Department of Economic Development, Jobs, Transport and Resources compulsorily acquired vacant land belonging to Enea Maria Stella and Antonio Modesto Stella as the trustees of the AM & EM Stella Benefit Fund, a privately managed superannuation fund established for their benefit. In this referral of a disputed claim under pt 10 of that Act, the main issue for determination is whether Supernova Fund Pty Ltd, as the successor to Mr and Mrs Stella as the trustee of the Fund, is entitled to compensation by way of ‘loss attributable to disturbance’ pursuant to s 41(1)(d). By virtue of the definition of that expression in s 40, Supernova would be so entitled if it has suffered pecuniary loss as a ‘natural, direct and reasonable consequence’ of the acquisition.
After the land was acquired and using a combination of the compensation payment made by the Secretary for the acquired land and separately borrowed funds, other properties were purchased on behalf of the Fund. Stamp duties and legal and like expenses were incurred in respect of these purchases. Supernova claims these duties and expenses as disturbance losses upon the basis that the purchased properties effectively replaced the acquired land. The Secretary contends that the properties were purchased in consequence of an independent investment decision by the Fund rather than the Secretary’s acquisition of the land.
CLAIMED LOSSES ATTRIBUTABLE TO DISTURBANCE
Enea Maria Stella and Antonio Modesto Stella
Mr Stella is presently aged 73 years and Mrs Stella 72 years. The couple have enjoyed a long marriage and have three grown up children. Mr Stella was a successful dentist from which profession he retired in about 2008.
An issue emerged in this case as to whether Mr Stella was mainly a farmer or mainly a property developer. On the evidence, it is clear that his interest in buying property was to profit from its resale and/or development and that his interest in farming was secondary. While the acquired land was, at all material times, actually vacant and used for the purpose of primary production, this was because he was awaiting an opportune time to sell and/or develop it.
A related issue emerged in the case as to whether the acquired land was important to Mr and Mrs Stella’s retirement plans. The evidence established that it was. The land was purchased by them for the ultimate purpose of resale and/or development. When the Fund was established in 2007, the land became and remained its principal asset. As such, it represented seed capital to support whatever investment decisions would be made by the Fund for the benefit of Mr and Mrs Stella’s retirement.
The evidence also established that, over the years, Mr Stella exercised high skill and expertise in the field of property development, amassing considerable personal wealth in doing so. He was engaged in that activity both in his private capacity and as a joint trustee for, and later as the effective controller of Supernova as the trustee for, the Fund. The decisions that he made with respect to buying, selling and developing land, including the acquired land and the purchased properties, were based on objective investment considerations. As the Secretary was driven by the evidence to concede, the decision to purchase the latter properties, which Mr Stella was instrumental in making, was prudential if not providential.
However, the subject of attention in this case is the Fund, not Mr Stella. The question at issue is whether the purchased properties are truly to be characterised as replacements for the land acquired from the Fund. Having regard to Mr Stella’s controlling influence as a trustee of the Fund, his expertise as a property developer is a relevant fact in understanding the nature of the investment activities of the Fund. But the nature of those activities is not to be understood by reference to Mr Stella’s property development activities generally, which are much more diverse than those of the Fund.
Acquired land: Black Forest Road, Wyndham Vale
The land compulsorily acquired by the Secretary was approximately 28.35 hectares of 143.19 hectares owned by Mr and Mrs Stella (as trustees for the Fund) under four titles at Black Forest Road, Wyndham Vale in Victoria. Mr Stella or entities associated with him owned other land in the area. I will call the 28.35 hectares the Black Forest Road land. It was acquired by the Secretary for the purposes of the Regional Rail Link 2 Project.
The 143.19 hectares were never developed for residential purposes by the Fund. The rules governing self-managed superannuation funds did not permit the Fund to do so, although it could profit greatly by the rezoning and development of the land for that purpose. Mr Stella took a number of necessary steps towards that end. In particular, he participated in planning processes which would ultimately facilitate the development of the whole of the land for residential and associated uses. The acquired land was valued for compensation purposes upon this highly advantageous basis, as it should have been.
The farming activities on the 143.19 hectares were carried out by the separate entity of Mr and Mrs Stella in partnership. In that capacity, they paid a modest rent to themselves as the trustees of the Fund. Putting that rent aside, the land was not income producing until the Black Forest Road land was acquired by the Secretary. That acquisition effectively brought forward the disposition of that land by the Fund, for it would ultimately have been sold and/or developed for residential and associated purposes when the planning rules allowed.
‘Replacement’ properties: Smeaton Grange Road, Smeaton Grange
The ‘replacement’ properties, as Mr and Mrs Stella and the Fund would characterise them, consisted of an 8-unit industrial property development, being units 1-6 at 1-7, and 9 and 11, Smeaton Grange Road, Smeaton Grange in New South Wales, which was a small industrial park. By contrast with the Black Forest Road land, the Smeaton Grange properties were developed and income producing. When these properties were purchased on behalf of the Fund, it moved from being the owner of valuable vacant but (virtually) non-income producing land which it intended later to sell and/or develop to being the owner of a small factory park in respect of which it was also the income-receiving landlord. At all times, the investment decisions made by the Fund with respect to the Black Forest Road land and the Smeaton Grange properties were for the best interests of the Fund in terms of Mr and Mrs Stella’s retirement.
The Black Forest Road land was on the urban fringe in Melbourne and the Smeaton Grange properties were in an industrial suburb of New South Wales. In submitting that the two were not comparable, the Secretary sought to make much of that difference. I do not think the different geographic locations of the land and the properties counts for much. Depending on the other facts and circumstances, disturbance losses could just as legitimately be incurred in relation to replacement properties (properly so called) in New South Wales as they could be in relation to replacement land in Victoria.
AM & EM Stella Benefit Fund
Mr and Mrs Stella established their self-managed superannuation fund in 2001 on legal and accounting advice. They are the sole beneficiaries. On accounting advice, they transferred beneficial ownership of the acquired land to the Fund in 2007.
I find in favour of Mr and Mrs Stella and Supernova that, through the effective controlling agency of Mr Stella, at all material times the Fund had the capacity to engage in the business of owning land for resale and/or development as far as the rules governing self-managed superannuation funds permitted from time to time. Depending upon those rules, the Fund could and would (if prudent) engage in buying, selling and developing land, including the Black Forest Road land, borrowing for that purpose if necessary. The rules prevented the Fund from developing property itself, but it could be part of a joint venture that might do so. The rules initially prevented borrowing but were changed to permit this before the Smeaton Grange properties were purchased.
While the Fund had the capacity to engage in the business of owning land for resale and/or development, historically it only did so with respect to the 143.19 hectares of which the Black Forest Road land was a part. That 143.19 hectares was the principal asset of the Fund. It did not have a stock in trade of multiple properties that was regularly turned over. There was nothing circulating about the Fund’s dealings with land. It is very hard to compare the activities of the Fund with those of a property developer who is regularly engaged in that kind of business.
The Smeaton Grange properties were purchased for the Fund in April 2013. At that time, the non-acquired part of the 143.19 hectares at Black Forest Road, Wyndham Vale was the principal asset of the Fund. The investment strategy of the Fund was adopted at a meeting of Mr and Mrs Stella as the trustees on 30 June 2012 and was in general terms. That strategy permitted property holding but was not confined to it. The strategy emphasised the importance of ‘a spectrum of diversity in the class of assets that it holds’. In fact, at all material times the Fund held shares, securities and cash, although in a total value that was substantially smaller in proportion to the value of its real property.
Mr Stella explained in his evidence that the compulsory acquisition of the Black Forest Road land derailed his own resale and/or development plans with respect thereto. I accept this evidence. From a commercial and investment perspective and as the effective controller of the Fund, he was compelled to accommodate the fact of the compulsory acquisition. In practical terms, this meant that he had to make an investment decision with respect to compensation in the ultimate amount of $13.75 million that was paid by the Secretary to the Fund in and after December 2011.
Mr Stella gave evidence about considering a number of different investment options. In April 2013, the Fund purchased the Smeaton Grange properties. It was not unreasonable for Mr Stella (and therefore the Fund) to take such a time to make this decision. As the respondents submitted, his course of action was unremarkable. Mr Stella went about this task carefully and ultimately made a beneficial investment decision on behalf of the Fund. The passage of time in no way breaks any connection between the acquisition of the Black Forest Road land and the purchase of the Smeaton Grange properties.
After the Fund purchased the Smeaton Grange properties, it purchased an interest in a hotel in country Victoria. That hotel is operated by two entities of which the Fund is one. One entity operates the business and the Fund holds the real estate. The Fund also acquired a minority interest in a winery. These purchases were made with the income (rental) produced by the Smeaton Grange properties. That income is also used to pay pensions to Mr and Mrs Stella.
Purchase of Smeaton Grange properties
The statutory notices of intention to acquire the Black Forest Road land were served upon the Fund in July 2011. The land was compulsorily acquired by notice served in December 2011. In that month, an initial offer of compensation of $12,800,000 was made by the Secretary to the Fund (being $11,340,000 for market value, $1,460,000 for severance and nothing for disturbance or other matters). In January 2012, $12,800,000 was advanced to the Fund at its request. The Secretary went into possession of the Black Forest Road land in January 2012. In June 2015, the Secretary agreed that compensation for market value and severance should be $13,750,000 and accordingly paid the Fund an extra $950,000. The parties remain in dispute about the Fund’s entitlement for loss attributable to severance.
As pressed at trial in the respondents’ further amended particulars of claim, the claimed losses attributable to disturbance (not including interest and costs) are set out in this table:
i Comito Iacovino & Co – Legal costs $ 15,535.00 ii. Disbursements $ 3,190.40 iii. Romano Di Donato Solicitor – Legal costs $ 10,883.87 iv. Comito Iacovino & Co (re: Mortgage Advance) Legal costs $ 3,000.00 v. National Australia Bank – Application fees, legal costs & registration fees $ 37,428.05 vi. Stamp Duty on purchase (based on a purchase price of $13,750,000) $741,740.00 vii. Valuation fees – Jones Lang LaSalle $ 10,450.00 viii. Mortgage Duty $ 70,141.00 ix. Accounting fees $ 16,433.00 $908,801.32
Table: Losses attributable to disturbance claimed by respondents
On the evidence, the payment of $13,750,000 in compensation constituted a change in circumstances for the Fund. Part of the Fund’s capital by way of land was converted into a corpus of cash. That corpus of cash produced income that would be heavily taxable unless the Fund went into ‘pension mode’. The accounting advice was that the Fund should go into that mode. But, unless the Fund invested the cash in a way that produced an income greater than the cash deposit rate, the corpus of capital constituted by the cash would be gradually depleted by the payment of the pension.
Mr Stella’s response to these changed circumstances was to cause the Fund both to go into pension mode and to purchase the Smeaton Grange properties. On the evidence, these decisions were reasonably prudent to make. Going into pension mode legally minimised the tax payable on the income of the Fund. Purchasing the Smeaton Grange properties produced a return on investment of above 10 per cent, from which the pensions could be paid.
The purchase price of the Smeaton Grange properties was $27,500,000. The Fund paid that price with a combination of the funds paid by the Secretary by way of compensation and borrowed funds. In doing so, it took lawful advantage of recent changes to the laws governing self-managed superannuation funds which permitted the borrowing of money in such circumstances.
The actual mechanism for the purchase of the Smeaton Grange properties was as follows:
·on 11 April 2013, Mr Stella caused to be incorporated a company by the name of 8 Grange Properties Pty Ltd
·8 Grange Properties Pty Ltd entered into a contract of sale for the purchase of the Smeaton Grange properties the deposits for which were paid from the accounts of the Fund out of the funds paid to it by the Secretary
·on 16 April 2013, Mr Stella caused to be incorporated another company, namely Supernova
·on the same day, Mr and Mrs Stella entered into a deed of appointment and variation, appointing Supernova as the new trustee of the Fund
·on 2 May 2013, 8 Grange Properties Pty Ltd and Supernova entered into eight separate declarations of trust for the Smeaton Grange properties because eight titles were acquired by 8 Grange Properties Pty Ltd as the legal purchaser and held on eight separate bare trusts for Supernova (as the trustee for the Fund) as the beneficiary
·on 22 July 2013, Supernova (as trustee of the AM & EM Stella Benefit Fund) received letters of offer from the National Australia Bank for the balance of funds required to acquire the Smeaton Grange properties
·in September and October 2013, settlement was effected, with the balance required being advanced by the National Australia Bank.
As such, 8 Grange Properties Pty Ltd now holds the legal title to the Smeaton Grange properties and Supernova (as trustee of the Fund) holds the beneficial ownership. Supernova, in its capacity as trustee, receives all the income derived from the rent, and also receives any associated tax deductions.
Those are the factual circumstances in which the dispute over Supernova’s claim for compensation by way of disturbance loss arises. I now turn the applicable legal principles.
ELIGIBILITY FOR LOSSES ATTRIBUTABLE TO DISTURBANCE
The principles governing the payment of compensation for compulsorily acquired land are specified in the Land Acquisition Compensation Act. As s 1(b) provides, a purpose of that Act is ‘to provide for the determination of the compensation payable in respect of land … acquired’. Specific attention is given to the measure of compensation in pt 4. As relevant to the present case, s 41 provides:
(1)Except as otherwise provided in this Part, in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to the following factors—
(a) the market value of the interest on the date of acquisition;
…
(d) any loss attributable to disturbance;
…
The principles specified in these and the other provisions of s 41 reflect the root principle of ‘equivalence’,[1] namely that an owner is entitled to be compensated ‘fairly and fully’ for his or her loss but is not entitled to receive ‘more than fair compensation’.[2]
[1]Horn v Sunderland Corporation [1941] 2 KB 26, 49 (Scott LJ).
[2]Roads Corporation v Love (2010) 31 VR 451, 470 [83] (Osborn J).
The issue of substance in the present case is whether the stamp duty and legal and like costs associated with the purchase by the Fund of the Smeaton Grange properties constitutes ‘loss attributable to disturbance’ under s 41(1)(d). This section is to be found in pt 4. For the purposes of that part, the expression ‘loss attributable to disturbance’ is exhaustively defined in s 40 as follows:
loss attributable to disturbance means any pecuniary loss suffered by a claimant as the natural, direct and reasonable consequence of—
(a)the service upon the claimant of a notice of intention to acquire, where the Authority has refused or failed to give consent to the carrying out of improvements to the land in respect of which that notice has been served or the effecting or obtaining of any sales, transactions, licences or approvals in respect of that land; and
(b)the fact that an interest of the claimant in that land has been divested or diminished, being a pecuniary loss for which provision is not otherwise made in this Part;
…
Paragraphs (a) and (b) of the definition of ‘loss attributable to disturbance’ in s 40 specify independent and not cumulative circumstances in which such losses may be claimed. In other words, the word ‘and’ between the two paragraphs is to be read disjunctively as ‘or’.[3] In the present case, paragraph (b) applies: the Fund claims a pecuniary loss as a consequence of the acquisition by the Secretary of the Black Forest Road land for which provision is not otherwise made in pt 4.
[3]Melbourne City Link Authority v Teford Pty Ltd (2001) 113 LGERA 102, 110 [16] (Batt JA, Tadgell and Chernov JJA agreeing) (‘Teford’).
As a principle of compensation, loss attributable to disturbance is specified in s 41(1)(d) separately to the market value of land in s 41(1)(a). This reflects the general principle of compensation that ‘disturbance is a separate head of compensation from the value of the land to the owner’. Those words were spoken by Bray CJ in Brewarrana Pty Ltd v Commissioner of Highways.[4] The Chief Justice went on to offer this understanding of the principle:
[4](1973) 4 SASR 476, 484 (Bray CJ).
It seems to me that disturbance has always been understood to relate to the disruption of or interference with some business or process of living or other activity carried on or proposed to be carried on the subject land, not to loss consequent on the owner not being able to realise in due time the land considered simply as an investment.[5]
Consistently with that understanding, in this court Gobbo J said in Redwood Court Pty Ltd v Roads Corporation[6] that an award of compensation may be made under analogous planning legislation
to an owner developer who is in effect deprived of his stock in trade and incurs expense and costs of delay in securing replacement land to develop. The award of market value does not meet the situation as the developer owner cannot simply buy replacement land by entering the market. He has to search and investigate and incur cost and delay before he is again in substance in the position he was in at the time of the refusal or the acquisition.[7]
There are several examples of awards of compensation for disturbance being made in such circumstances,[8] all turning on their own facts, and the Fund seems to bring itself within this category.
[5]Ibid.
[6](1992) 76 LGRA 358 (‘Redwood’).
[7]Ibid 362.
[8]See Redwood (1992) 76 LGRA 358, 362 (Gobbo J); Teford (2001) 113 LGERA 102, 112 [23] (Batt JA, Tadgell and Chernov JJA agreeing); Roads Corporation v Schembri (2009) 28 VR 229, 241 [58] (Osborn J) (‘Schembri’).
While the authorities on the principles of compensation illustrate the general concept of disturbance loss, the provisions of the Land Acquisition and Compensation Act now exhaustively specify the circumstances in which it applies. As the definition of ‘loss attributable to disturbance’ in s 40 specifies, the loss must be pecuniary in nature and occur as the ‘natural, direct and reasonable consequence’ of the notice of intention to acquire (para (a)) or the divestment of the claimant’s interest in the acquired land (para (b)). The gravamen of the definition is to be found in the particular principle of causation that is specified and it is this principle that must be applied in the present case.
The decisions of Batt J in Halwood Corporation Ltd v Roads Corporation[9] and of Batt JA (Tadgell and Chernov JJA agreeing) in Melbourne City Link Authority v Teford Pty Ltd[10] have authoratively established the approach to be adopted when interpreting and applying the definition of ‘loss attributable to disturbance’ in s 40, and particularly the test of causation constituted by the expression ‘natural, direct and reasonable consequence’.
[9](1995) 89 LGERA 280 (‘Halwood’).
[10](2001) 113 LGERA 102.
Halwood was concerned with the identical expression in s 98(1) of the Planning and Environment Act 1987 (Vic). As Batt J stated,[11] the source of the expression was the report on land acquisition compensation of Stuart Morris, barrister.[12] The report was subsequently considered by the government’s land acquisition task group, which recommended adoption of Mr Morris’s recommendations in relation to the test of disturbance loss.[13] While acknowledging the importance of the common law concept of causation, Batt J was at pains to emphasise that the statutory test was paramount, stating that ‘the common law notion of causation has been, if not modified, supplemented by the inclusion of the words “the natural, direct and reasonable consequence”’.[14] This accords with the importance afforded to the text of legislation in the process of interpretation.[15]
[11]Halwood (1995) 89 LGERA 280, 299.
[12]Stuart Morris, Land Acquisition and Compensation: Proposals for New Land Acquisition and Compensation Legislation (1983) 72 [623].
[13]Land Acquisition Task Group, Land Acquisition and Compensation Procedures in Victoria: A Report to the Minister for Planning on the Morris Report (1983) 67-8 [3.37].
[14]Halwood (1995) 89 LGERA 280, 299.
[15]Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27, 46 [47] (Hayne, Heydon, Crennan and Kiefel JJ); Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ).
In recommending that the causation test for land compensation includes ‘direct’ as well as ‘natural and reasonable’ consequences, the Morris report referred[16] to the judgment of Harris J in this court in James v Swan Hill Sewerage Authority.[17] His Honour there held that the word ‘direct’ was not narrower than the words ‘natural and reasonable’.[18]
[16]Stuart Morris, Land Acquisition and Compensation: Proposals for New Land Acquisition and Compensation Legislation (1983) 73 [625].
[17][1978] VR 519 (‘James’).
[18]Ibid 527.
In Halwood, Batt J expressly declined to follow the judgment of Harris J in James. Batt J criticised the reasoning of Harris J as amounting to the proposition that the words ‘direct’, ‘reasonable’ and ‘natural’ all have the same meaning, namely ‘reasonably foreseeable’.[19] His Honour held that, in the legislation in question, ‘the word “direct” does not have the same meaning as, but a narrower and stricter meaning than, the other two adjectives’.[20]
[19]Halwood (1995) 89 LGERA 280, 302.
[20]Ibid.
In Halwood,[21] Batt J analysed the contribution made to the statutory causation test by the three elements. Summarising that analysis, Osborn J said in Roads Corporation v Schembri[22] that
the word ‘natural’ in this context means arising according to the usual course of things. The word ‘direct’ connotes an immediate and substantial causal connection. The word ‘reasonable’ connotes a reasonable response to the event triggering the right to compensation.[23]
As can be seen from these remarks, eligibility for disturbance loss compensation depends upon all of the different elements of the definition being satisfied in the particular facts and circumstances: the losses must be the natural, direct and reasonable consequences of the acquisition. It has been expressly held that the ‘reasonable’ element ‘poses an objective, not a subjective, test’[24] and it is clear that all of the elements of the definition are to be so interpreted and applied.
[21]Ibid 301-3.
[22](2009) 28 VR 229.
[23]Ibid 234 [25] (footnote omitted).
[24]Teford (2001) 113 LGERA 102, 112 [23] (Batt JA, Tadgell and Chernov JJA agreeing).
Because the statutory causation test is objective, the Secretary sought to challenge the reasonableness of the decision to purchase the Smeaton Grange properties on the merits, almost as if the court were the manager of the Fund and was in the position of (effectively) making that decision itself. The evidence of the Secretary’s witness on this subject was not satisfactory, both because he barracked for the Secretary’s case and was not fully qualified for the task. More fundamentally, objective application of the reasonableness (and each other) element of the statutory test must take account of the fact that purchase, investment and like decisions are matters of judgment and evaluation as well as arithmetic. While the court will carefully consider the reasonableness of such decisions when called for, it will do so in a way that takes their nature into account. I reject the submissions of the Secretary on this aspect of the case.
Returning to Halwood, Batt J went on to say that the ‘three adjectives in combination … connote a very close and limited connection’ between the planning decision and the financial loss[25] and were ‘eloquent of the immediacy’ required by the statutory test between the two.[26] It is clear from his Honour’s decision that the test of causation constituted by the expression ‘natural, direct and reasonable’ is to be distinguished from, and is narrower than, common law tests of causation based (for example) on what is ‘reasonably foreseeable’. In particular, the word ‘direct’ has work to do.
[25]Halwood (1995) 89 LGERA 280, 303.
[26]Ibid 304; the judgment of Batt J was affirmed on appeal without detailed consideration of these issues: Halwood Corporation Ltd v Roads Corporation [1998] 2 VR 439, 451 (Tadgell JA, Brooking and Ormiston JJA agreeing) (‘Halwood Corporation’).
While Halwood concerned planning legislation, Teford concerned the interpretation and application of ss 40 and 41 of the Land Acquisition and Compensation Act. As we have seen, those provisions apply in the present case. In Teford, Batt JA (Tadgell and Chernov JJA agreeing) adopted his reasoning in Halwood as applicable to the interpretation and application of those provisions, as follows:
In Halwood Corporation Ltd v Roads Corporation[27] I considered the meaning of the expression ‘the natural, direct and reasonable consequence’. That decision, including the conclusion that it was not possible to say that the loss in question was suffered as such a consequence of a refusal to grant a permit, was affirmed on appeal,[28] but without the need for any detailed consideration of the expression. I do not repeat the views I expressed in the case beyond noting the summary[29] that the three adjectives in combination connoted a very close and limited connection between the imposition or proposal of the reservation there in question and the financial loss suffered.[30]
[27] (1995) 89 LGERA 280, 297-305.
[28] Halwood Corporation [1998] 2 VR 439, 451.
[29]Halwood (1995) 89 LGERA 280, 303.
[30]Teford (2001) 113 LGERA 102, 112-3 [24].
In Teford, the Victorian Civil and Administrative Tribunal had upheld a claim by the landowner for stamp duty paid with respect to the purchase of three replacement properties. The trial judge dismissed the appeal. The Court of Appeal upheld the Authority’s appeal in relation to one of properties. The basis of this decision was not that the total value of that property exceeded the value of the acquired land. In that connection, Batt JA (Tadgell and Chernov JJA agreeing) held:
Because there is such a range and also, I am inclined to think, because no two parcels of land are the same and the attainment of exact monetary equivalence cannot be expected, questions of degree are involved and it will by no means necessarily be the case that stamp duty on replacement property costing somewhat more than the established value of acquired land will not be within the definition of loss attributable to disturbance.[31]
Rather, his Honour held that there was an insufficient immediacy of connection between the acquired land and the third property:
It is true that the purchase had its genesis in the acquisition. But, in my view, the acquisition was no more than a necessary condition for the purchase: it was not the direct cause of it. Rather, the direct cause was the respondent's decision to make a further investment after having re-invested more than what was in fact the value of the land acquired from it. That was, to adapt the words of Gobbo J in Elense No 17 Pty Ltd v Minister for Public Works,[32]the independent act of the respondent in making, at its choice, an additional investment.[33]
These observations flow from the fundamental proposition that the statutory test of causation is stricter than the common law test. Accordingly, it will not be sufficient for the compulsory acquisition to be the genesis of or a necessary condition for the activity associated with the claimed losses. Where that activity is the purchase of further property with funds derived from compensation paid in respect of acquired property, the costs of the purchase will not be disturbance losses if, in the all of the facts and circumstances, the purchase constitutes an independent additional investment.
[31]Ibid 113 [25].
[32]Elense No 17 Pty Ltd v Minister for Public Works (1990) 77 LGRA 46, 61.
[33]Teford (2001) 113 LGERA 102, 114 [28].
As submitted on behalf of the respondents, it may be accepted that whether disturbance loss has been suffered is a question of fact.[34] The facts of the present case must therefore be carefully examined. It may also be accepted that the requirement of the statutory test is for causal and not necessarily temporal immediacy of connection between the acquisition and the pecuniary loss.[35] As I have already stated, the time delay between the acquisition and the purchases in the present case is, in this case, immaterial. I would also accept that a claim for disturbance loss is not necessarily defeated by the purchase of several properties in (alleged) replacement of acquired land. In this case, it is not determinative that the Fund purchased the eight units constituting the Smeaton Grange properties to (allegedly) replace the Black Forest Road land (noting in the Fund’s favour that it did so in one transaction). I similarly accept the respondent’s submission that the so-called complexity of the purchase transaction and the associated trust arrangement tells the court little about the connection between the acquisition and the purchase: the extensive formal documentation was simply a function of the subject matter of the purchase and the fact that the purchaser was a self-managed superannuation fund that was part-borrowing the purchase price.
[34]Halwood (1995) 89 LGERA 280, 306 (Batt J).
[35]Mario Piraino Pty Ltd v Roads Corporation [No 2] [1993] 1 VR 130, 142-3 (Gobbo J); Brimbank City Council v Keilor Homes Pty Ltd (2006) 148 LGERA 24, 34 [44] (Osborn J).
I do not accept, however, the submission implicitly if not explicitly made on behalf of the respondents that, because disturbance loss is conceptually derived from the law of tort, eligibility for compensation arises where the acquisition has caused or materially contributed to the loss or where ‘but for’ causation between the acquisition and the loss is established. To the contrary, the test of ‘natural, direct and reasonable consequence’ in the definition of ‘loss attributable to disturbance’ in s 40 of the Land Acquisition and Compensation Act is more strict, and requires a closer immediacy of connection between the acquisition and the loss, than the test of causation in the law of tort.
So much for the eligibility criteria. Now to their application in this case.
WHETHER CLAIMED DISTURBANCE LOSSES ARE ELIGIBLE
In written submissions made before and after the hearing, the respondents submitted that the Fund incurred duties and costs of $908,801.32 to purchase the Smeaton Grange properties by way of replacement land for the compulsory acquisition of the Black Forest Road land. The amount claimed represents that proportion which the amount of $13,750,000 bears to the total purchase price of $27,500,000.
It was submitted that the Fund would not have entered into the purchase of the Smeaton Grange properties but for the compulsory acquisition of the Black Forest Road land. The duties and costs incurred with respect to that purchase were a natural, direct and reasonable consequence of the acquisition.
They were a natural consequence because it was in the ordinary course of things for the Fund to replace the loss of a significant property asset with another such asset. The Black Forest Road land was purchased for resale and/or development and the acquired portion would have been sold or developed with the whole of the land had it not been acquired. The development would have been gradual, creating a flow of income into the Fund. The purchase of the Smeaton Grange properties brought about the equivalent result. The purchase and ownership structure was simply the result of the legislative provisions relating to self-managed superannuation funds and were not out of the ordinary.
They were a direct consequence because there was an immediate and substantial connection between the acquisition and the purchase. The previously expected chain of events – the gradual development of the whole of the Black Forest Road land – was interrupted by the compulsory acquisition of part of that land. The replacement land constituted by the Smeaton Grange properties was purchased in direct consequence. It was a land for land exchange. The compensation money for the acquisition was used to part-fund the purchase. The Fund’s accounts reveal the path of that money from the Authority to the Fund to the vendor of the Smeaton Grange properties. It was wrong to focus on the difference between the actual use of the acquired land (farming and agricultural purposes) and the actual use of the Smeaton Grange properties (factory park). The acquired land was bought for income-producing development; the Smeaton Grange properties were income-producing developments.
They were a reasonable consequence because the Smeaton Grange properties met the needs of the Fund and the retirement interests of Mr and Mrs Stella. The Fund replaced the acquired land (which would have been developed for income-producing sale or development) with developed land (which was income-producing already). The income was used to pay pensions to Mr and Mrs Stella. It would have been imprudent to retain the compensation moneys as cash in the Fund due to the adverse tax consequences. It was immaterial that the Smeaton Grange properties were greater in value than the acquired land. As those properties were a very attractive purchase, it was reasonable to purchase them with a combination of compensation moneys and borrowed funds. This did not alter the equivalence analysis.
These submissions must be rejected. I emphasise that the connection required is a ‘natural, direct and reasonable’ one (see the definition of ‘loss attributable to disturbance’ in s 40 of the Land Acquisition and Compensation Act). The requirement that stands in the way of the claim in the present case is the requirement that the loss be a direct consequence of the acquisition. On analysis, the claimed losses are no more than the indirect consequence of the acquisition and are the direct consequence of an independent decision made (effectively) by Mr Stella as to how the compensation payment for the Black Forest Road land would be invested on behalf of the Fund.
I cannot accept the broad conception of causation that was put forward by the Fund. According to that conception, the Smeaton Grange properties replaced the Black Forest Road land because those properties became the vehicle for achieving the income-producing purposes of the Fund for which purpose the Black Forest Road land was initially acquired. This conception of causation focusses too greatly upon the purposes of the Fund, which the submissions also placed on a high plane, and too little upon whether there was an immediate connection between the compulsory acquisition and the losses claimed. Such a conception of causation is inconsistent with the specific definition of causation given in the legislation, as properly interpreted. It represents a kind of helicopter view where all of the features of the causal landscape seem to merge into and be connected with each other. I do not suggest that purpose is irrelevant to causation, for Schembri[36] is a good example of it being relevant. But it is a matter relevant to the application of the test of ‘natural, direct and reasonable consequence’, not the test itself.
[36](2009) 28 VR 229, 241 [54] (Osborn J).
The Fund sought to bring the case into the stock-in-trade category, with land being the stock and sale and/or development being the trade. As I find above, the case cannot be so categorised. The investment strategy of the Fund was general, permitting owning property for resale and/or development. But that property owning activity was carried out by reference to the Black Forest Road land. The principal activity of the Fund did not consist in turning over a stock of land in trade. The activities of the Fund after the purchase of the Smeaton Grange properties do not suggest otherwise. The facts of the case are far removed from Schembri and the others like it (see above).
On the evidence, the claimed duties and costs were directly caused by Mr Stella’s individual investment decision that the Fund should purchase the Smeaton Grange properties with the compensation payment made in respect of the Black Forest Road land. The duties and costs were indirectly caused by, or had their genesis in, the acquisition because the purchase money came substantially from the compensation payment. In that sense the acquisition was a necessary condition for the purchase. As Teford shows, however, this will not be sufficient where, to repeat, the purchase represents ‘the independent act of the respondent in making, at its choice, an additional investment’.[37] The Fund in the present case did make that choice.
[37]Teford (2001) 113 LGERA 102, 114 [28] (Batt JA, Tadgell and Chernov JJA agreeing).
In my view, the present case illustrates that the ‘direct’ element of the statutory definition has separate and different work to do than the ‘natural’ and ‘reasonable’ elements. I can accept that it was ‘natural’, in the sense of being in the usual course of things, for the Fund to purchase the Smeaton Grange properties with the compensation payment, just as it would have been natural in that sense to make another such investment decision. I can also accept that it was ‘reasonable’ for the Fund to replace the Black Forest Road land with the purchased properties, for the income/capital profile and especially the high rate of return associated with those properties suited the purposes of the Fund (by then in pension mode) very well indeed. I make that finding taking into account that purchase, investment and like decisions are matter of judgment and evaluation as well as arithmetic (see above). But the duties and costs associated with the purchase are not losses attributable to disturbance unless they are the ‘direct’ consequences of the acquisition and they were not.
CONCLUSION
The claim for compensation for loss due to disturbance made by the respondents is not established. The duties and costs in relation to the purchase of the Smeaton Grange properties were not incurred as the ‘natural, direct and reasonable’ (emphasis added) consequence of the compulsory acquisition of the Black Forest Road land as required by ss 40 and 41 of the Land Acquisition and Compensation Act. I will hear the parties in relation to the order that should be made and costs.
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