SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0104
S APCI 2016 0105
S APCI 2016 0106
| SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT & RESOURCES | Applicant |
| v | |
| MANOR LAKES (WERRIBEE) PTY LTD (ACN 096 230 714) | Respondent |
S APCI 2016 0107
| SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT & RESOURCES | Applicant |
| v | |
| MANOR COMMERCIAL COMPANY PTY LTD (ACN 096 230 714) | Respondent |
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| JUDGES: | WARREN CJ, OSBORN and FERGUSON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 4 April 2017 |
| DATE OF JUDGMENT: | 18 May 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 114 |
| JUDGMENT APPEALED FROM: | [2016] VSC 358 (Emerton J) |
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LAND ACQUISITION AND COMPENSATION – Leave to appeal – Appeal – Loss attributable to disturbance – Whether costs of purchasing replacement land were ‘the natural, direct and reasonable consequence’ of the compulsory acquisitions – Whether consequence direct a question of fact – Whether open to court to make finding which it did – Whether the expression ‘other than the purpose for which it was used at the date of acquisition’ in s 41(2) of the Land Acquisition and Compensation Act 1986 (Vic) is a reference to the physical use of the land at the date of acquisition – Whether basis for assessment of market value included the potential of the land to be used for a purpose other than the purpose for which it was used at the date of acquisition – Whether costs claimed constituted a cost that would necessarily have been incurred in realising the potential of the acquired land – Leave to appeal granted in part – Appeal dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr S R Morris QC with Mr I G Munt | Herbert Smith Freehills |
| For the Respondent, Manor Lakes (Werribee) Pty Ltd | Mr J Delany QC with Mr P F Chiappi | Minter Ellison |
| For the Respondent, Manor Commercial Company Pty Ltd | Mr J Delany QC with Mr P F Chiappi | Minter Ellison |
WARREN CJ:
OSBORN JA:
FERGUSON JA:
The Secretary to the Department of Economic Development, Jobs, Transport and Resources as the acquiring authority (‘the Authority’) seeks leave to appeal with respect to an aspect of compensation which Emerton J has determined is payable to Manor Lakes (Werribee) Pty Ltd (‘MLW’) in respect of disputed claims made under the Land Acquisition and Compensation Act 1986 (‘the LAC Act’).
The claims arise out of the compulsory acquisition of land at Wyndham Vale for the purposes of the Regional Rail Link project (‘RRL’). The land in question forms part of an area of new residential development known as the ‘Manor Lakes Estate’ which was itself to be constructed within part of a larger area of land known as Manor Park. It was acquired by the Authority in three separate parcels between December 2011 and June 2013. Nothing turns on the fact of the staged acquisition and we shall refer to the three parcels together as the ‘acquired land’.
As part of the same project, the Authority also acquired land from Manor Lakes Commercial Company Pty Ltd (‘MCC’), the respondent to a further disputed claim determined by the trial judge. That land comprised part of a proposed activity centre intended to serve the surrounding residential area.
An application for leave to appeal with respect to her Honour’s determination of the MCC claim was abandoned by the Authority at the outset of the hearing of the application for leave to appeal. No question now arises with respect to it. The Authority concedes that MCC should have its costs of the application for leave to appeal.
The aspect of compensation which remains in issue is an amount of compensation for disturbance being a pecuniary loss claimed to have been suffered by MLW as the natural, direct and reasonable consequence of the divestment of MLW’s interest in the land acquired from it.[1]
[1]LAC Act ss 40, 41.
The trial judge accepted that, as MLW was a land development company, it was entitled to recover not only the market value of the land acquired from it but also the stamp duty paid by it on the cost of land purchased in order to replace what was in effect its stock in trade. The purpose of replacing the acquired land was to continue the progressive development of the Manor Lakes Estate. The compulsory acquisition of land comprised in the eastern side of the estate meant that MLW had to purchase additional parts of the Manor Park land as replacement land on the western side of the estate in order to continue its overall development.
The Authority accepts that the purchase of replacement land involved an incidental pecuniary loss by way of stamp duty charges, which was a natural and reasonable consequence of the compulsory acquisition. However, the Authority disputes that such loss was a ‘direct’ consequence within the meaning of s 40 of the LAC Act and, in the alternative, contends that a statutory limitation upon the recovery of compensation for loss attributable to disturbance contained in s 41(2) of the LAC Act precludes an award in the circumstances of the present case in any event.
An appeal to this Court from the trial judge’s determination lies only on a question of law.[2] In turn, the first proposed ground of appeal is that it was not open to her Honour to conclude that the pecuniary loss in issue was a direct consequence of the compulsory acquisition.[3]
[2]LAC Act s 89(2).
[3]See ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447, 463–5 [63]–[69] (‘ISPT’); S v Crimes Compensation Tribunal [1998] 1 VR 83, 88 (Phillips JA) and the cases there cited.
It is submitted by the Authority that the conclusion at which the trial judge arrived was precluded by the fact that MLW had determined to develop the whole of the Manor Lakes Estate prior to the compulsory acquisition and hence in due course to purchase further parts of Manor Park including the replacement land. The evidence was that if there had been no compulsory acquisition MLW would still have purchased the replacement land at some stage.
Both the acquisition of the acquired land and of the replacement land formed parts of a sequence of staged purchases of Manor Park land from a land banking company, MG Pastoral Company Pty Ltd (‘MGP’), which like MLW formed part of a conglomerate of companies owned and controlled by members of the extended family of Mr Bert Dennis.
The incidental costs of the purchase of the replacement land were thus, in the Authority’s submission, to be properly categorised as a direct consequence of the underlying decision to purchase and develop the Manor Lakes Estate as a whole and could not be properly categorised as a direct consequence of the compulsory acquisition.
Put another way, it was submitted by the Authority that the compulsory acquisition simply advanced the point in time in which the incidental costs of the purchase of the replacement land were incurred.
Secondly, the Authority contends that, because the market value of the acquired land was assessed on the basis that the land had the potential to be used for residential development, compensation could not be allowed for the expenses claimed by reason of s 41(2) of the LAC Act which provides:
If the market value of an interest in land is assessed on the basis that the land had potential to be used for a purpose other than the purpose for which it was used on the date of acquisition, compensation must not be allowed for—
(a)any special value in respect of any pecuniary advantage that would necessarily have been forgone in realizing that potential; and
(b)any loss attributable to disturbance that would necessarily have been incurred in realizing that potential.
This contention requires consideration first of the proper characterisation both of the purpose of the use which formed the basis of the assessment of market value and the purpose for which the acquired land was used at the date of acquisition. The Court must then ask itself whether the assessment of market value was made on the basis that the land had potential to be used for a purpose other than the purpose for which it was used on the date of acquisition.
Secondly, if the answer to this first sequential enquiry is ‘yes’, the proper application of s 41(2) requires consideration as to whether the loss claimed as attributable to disturbance would necessarily have been incurred in realising that potential to be used for a new purpose.
The proposed grounds of appeal are:
1. It was not open for the Court to find that the costs of MLW purchasing parts of Manor Park that were claimed to be replacement land were the ‘natural, direct and reasonable consequence’ of the compulsory acquisition of part of MLW’s land once it had found that had the compulsory acquisition not taken place, MLW would have acquired the replacement land in due course.
2. The Court erred in holding that the expression ‘other than the purpose for which it was used at the date of acquisition’ in s 41(2) of the LAC Act is not a reference to the physical use of the land at the date of acquisition.
In our view, for the reasons which are elaborated below:
(a) the Authority has not shown that there is any real prospect of successfully demonstrating that it was not open to the trial judge to reach the conclusions which she did concerning the direct causation of the loss claimed by way of disturbance;
(b) the purpose for which the acquired land was used at the date of acquisition was not necessarily determined by its actual physical use but the basis on which the market value of the land was assessed was that the land had potential to be used for a purpose other than the purpose for which it was used at the date of acquisition;
(c) nevertheless, there is no real prospect of demonstrating that the loss claimed would necessarily have been incurred in realising that potential.
Consequently, leave to appeal should be granted in respect of ground 2 only but the appeal should be dismissed.
The statutory scheme
Section 30 of the LAC Act provides:
Subject to this Act, every person who, immediately before the publication of a notice of acquisition, had an interest in land that is divested or diminished by the acquisition of the interest to which that notice relates has a claim for compensation.
Section 41(1) further states:
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;
(b) any special value to the claimant on the date of acquisition;
(c) any loss attributable to severance;
(d) any loss attributable to disturbance;
(e)the enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;
(f)any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.
The critical factors under s 41(1) in the present case are defined by s 40 as follows:
In this Part—
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;
…
market value, in relation to any interest in land on a particular date, means the amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser;
It is also relevant to refer to the definition of special value:
special value, in relation to an interest in land, means the value of any pecuniary advantage, in addition to market value, to a claimant which is incidental to his ownership or occupation of that land.[4]
[4]LAC Act s 40.
Section 41(1) of the LAC Act provides a set of general principles on which compensation is to be based. These principles may be thought to reflect first an articulation of aspects of the underlying notion of the value of the acquired land to the owner by reference to subsidiary concepts of market value, special value, and severance. Secondly, they provide for compensation in respect of consequential loss attributable to disturbance; loss in the value of other land used in conjunction with the acquired land attributable to severance; depreciation in value of the interest of the claimant in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired; and certain incidental expenses.
Two further preliminary observations may be made. First, the terms in which the relevant concepts are articulated differ from those used in legislation in other jurisdictions relating to the same general subject matter. They also differ from the legislation which preceded the LAC Act.
The right to compensation for the compulsory acquisition of land is statutory and its content must turn upon the terms of the particular statute.[5] The construction of ss 40 and 41 must begin and end with their terms.
[5]Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259, 269–72 [29]–[35].
In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory),[6] the plurality emphasised that the task of statutory construction must begin with consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in legislation is the surest guide to its legislative intention. However, the meaning of the text may require consideration of the context, which includes the general purpose and policy of the provision, and in particular the mischief it is seeking to remedy.[7]
[6](2009) 239 CLR 27, 46–7 [47] (Hayne, Heydon, Crennan and Kiefel JJ).
[7]See also Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 248 CLR 500; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503.
Secondly, there may potentially be some overlap of the concepts covered by the definitions contained in s 40(1) of the LAC Act. Section 41(1) states ‘factors’ to which regard must be had. Nevertheless, some clear distinctions can be drawn. Special value is defined in terms to mean the value of a pecuniary advantage in addition to market value, and loss attributable to disturbance is specifically defined as a residual category of compensation by the last words of the relevant definition.
Section 41(2)[8] provides for a further limitation upon the circumstances in which compensation for loss of special value or loss attributable to disturbance can be recovered.
[8]Quoted at [13] above.
The first proposed ground of appeal involves the application of the concept of loss attributable to disturbance.
The second proposed ground involves the application of the concept of the assessment of market value.
It is necessary to say something further about both these concepts. It is convenient to begin with market value.
Market value
The definition of market value reflects the test elaborated by Isaacs J in Spencer v The Commonwealth:
To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.[9]
[9](1907) 5 CLR 418, 441.
In determining market value the Court must proceed in accordance with s 5A of the Valuation of Land Act 1960:
(1)Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.
(2)In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.
(3)Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account—
(a)the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;
(b)the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;
(c)the shape size topography soil quality situation and aspect of the land;
(d)the situation of the land in respect to natural resources and to transport and other facilities and amenities;
(e)the extent condition and suitability of any improvements on the land; and
(f)the actual and potential capacity of the land to yield a monetary return.
It can be seen that by sub-s (3)(a) the Court is required to have regard not only to the highest and best use to which the land might reasonably be expected to be put at the relevant time (here the date of acquisition) but also to any potential use of the land.
In compulsory acquisition cases, the Court must thus consider the hypothetical highest and best use of the land in the circumstances at the date of acquisition but also the potential future use of that land insofar as the evidence demonstrates that that potential affects the market value of the land.
Biscoe J elaborated the concept of highest and best use in Commonwealth Custodial Services Ltd v Valuer-General (NSW):
There is no statutory definition of ‘highest and best use’. It has been described in the High Court as ‘the most advantageous purpose for which [the land] was adapted’. It ‘is the present value alone of such advantages that falls to be determined’. In Park v Allied Mortgage Corporation Ltd Hill J said: ‘As Spencer’s case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land’. In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources Jacobs J said:
Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says — the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value.[10]
[10](2006) 148 LGERA 38, 45 [15] (citations omitted).
In ISPT Pty Ltd v Melbourne City Council, this Court endorsed the following statement in respect of highest and best use:[11]
Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value.[12]
[11]ISPT (2008) 20 VR 447, 459 [41].
[12]ISPT Pty Ltd v City of Melbourne [2007] VCAT 652 [62]. See Spicer v Valuer-General (1963) 10 LGRA 319, 320 (Else-Mitchell J).
Ordinarily, as Jacobs J said in the Adelaide Clinic case to which Biscoe J referred in the passage quoted above, the first step in the valuation of land will be to ascertain the highest and best use both presently open and potentially open in the foreseeable future.[13]
[13]Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410, 415.
Because s 41(2) refers to potential use, it is important to emphasise that in some cases the value of land will be determined not by its highest and best use in its present state but by its potential for future development. Thus land may be characterised in a shorthand way as ‘future industrial land’ or ‘future residential land’, even if it is neither currently used as industrial or residential land.
Likewise, it may have a potential which fundamentally informs its value even if the potential use is not currently lawful under planning controls or is currently impractical. In the event that the potential requires the implementation under a planning scheme of regulatory change or the construction of public services such as a main sewer, urban water supply or road link, it will be necessary for the valuer to take into account the risks and contingencies affecting the realisation of the potential which gives the land its market value.
In the case of the partial acquisition of land held by a claimant, market value falls to be assessed in accordance with s 41(3):
If less than the whole of the land in which a claimant's interest subsists is acquired or less than the whole of that interest is acquired, the market value of the acquired interest is the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition.
The application of this provision requires the assessment of the highest and best use of the whole of the land both before and after acquisition. Once again, the market value may be informed not simply by the current highest and best use of the land both before and after acquisition, but also by its potential for development in both the before and after situations.
Purpose of use
In the present case, the application of s 41(2) required the Court to characterise both the purpose of the use forming the basis of the assessment of market value and the purpose for which the acquired land was used at the date of acquisition.
The Authority submits that the characterisation of the purpose for which the acquired land was used at the date of acquisition is to be undertaken solely by reference to actual physical use.
We do not accept this submission. First, the characterisation of the purpose for which land is used must have regard to the real and substantial purpose of the use[14] if arbitrary and unjust consequences are to be avoided.
[14]Cf Shire of Perth v O’Keefe (1964) 110 CLR 529, 535 (Kitto J).
Thus, if the actual physical use of land acquired is that of a carpark or office, that use may either be the purpose of the use of the land, or that purpose may be subsumed in the overall purpose of the use of the land as a whole. Thus land used for a carpark or office ancillary to a warehouse complex may be properly characterised as used for the purpose of a warehouse. Conversely, a store or carpark ancillary to an office complex may properly be characterised as used for the purpose of an office.
Secondly, use of the land does not necessarily connote active physical use at the date of acquisition. If vacant land is acquired shortly after a building has been demolished upon it, the land may still in a real and substantial sense be in the process of development for a particular purpose: it may be open to a court to conclude on the basis of evidence as to the ongoing conduct of the landowner and the sequential use of the land that it is being used for a particular purpose at the date of acquisition.
Before this Court the Authority relied on the reasoning of Barnett AJA (with whom Macfarlan and Ward JJA agreed) in the decision of Metricon[15] as demonstrating that the purpose of use referred to in s 41(2) must necessarily be determined by reference to the physical use of the acquired land as at the date of acquisition.
We do not accept that the decision in Metricon compels this conclusion.
First, Metricon was concerned with the question whether land was used for primary production within the meaning of the provisions of the Land Tax Management Act 1956 (NSW). As the Court emphasised, it was not a compulsory acquisition case and fell to be decided in a quite different statutory context from that considered in Blacktown City Council v Fitzpatrick Investments Pty Ltd.[16] We would add that the question which the Authority raises in the present case is one ultimately concerned with the interpretation of the Victorian statute.
[16][2001] NSWCA 259.
Secondly, insofar as Metricon was a case concerned with ‘land banking’ and that term is understood ‘as merely accumulating and holding a stock of land with a view to its future development’,[17] the present case was not such a case. The evidence showed MGP was a land banker and MLW was engaged in the systematic development of the Manor Lakes Estate and, but for the RRL, would have developed the acquired land by the date of acquisition. The basic facts were recited by MLW as follows in answer to a notice to admit served on behalf of the Authority.
1.As at 19 December 2011 there was no building present on the MLW Ballan Road Land [being the land contained in Certificates of Title Volume 11101 Folio 424, Volume 11132 Folio 719 and Volume 10985 Folio 072 immediately before the publication of a notice of acquisition for part of the land contained in Certificates of Title Volume 11101 Folio 424 and Volume 11132 Folio 719 and for all of Ce1iificate of Title Volume 10985 Folio 072 on 19 December 2011].
2.As at 19 December 2011 the MLW Ballan Road Land was not used for residential purposes.
3.As at 19 December 2011 the MLW Ballan Road Land had the potential to be used for residential purposes.
[17]Metricon [2017] NSWCA 11 [67].
Thirdly, the LAC Act does not use the terminology ‘actual use’ and the words ‘the purpose for which it was used’ are necessarily potentially wider.
Fourthly, the words ‘the purpose for which it was used’ are ordinary English words and their meaning is a question of fact in any particular set of circumstances. It is not for this Court to read an additional limitation into the words of the statute unless there is a clear warrant for doing so.
We are not persuaded that, as a matter of ordinary language, the characterisation of the purpose of use necessarily falls to be determined by the actual physical use of land at a particular point in time.
Fifthly, the construction urged on behalf of the Authority is not necessary to give effect to the purpose of preventing double recovery, which underlies the provisions of s 41(2) and to which we shall shortly turn.
Sixthly, a number of the cases referred to in Metricon support the view that the purpose of use of land will not necessarily be determined by the actual physical use of land. We draw particular attention to the following decisions. In Council of the City of Newcastle v Royal Newcastle Hospital, the Judicial Committee of the Privy Council stated:
An owner can use land by keeping it in its virgin state for his own special purposes. An owner of a powder magazine or a rifle range uses the land he had acquired nearby for the purpose of ensuring safety even though he never sets foot on it.[18]
[18]Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 CLR 1, 4.
In that case, the question was whether vacant woodland was ‘used or occupied by the hospital … for the purpose thereof’. The High Court held that it was.[19] The Judicial Committee of the Privy Council endorsed this conclusion, endorsing the approach adopted by Taylor J in the High Court:
The word ‘used’ is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed. The uses to which property of any description may be put are manifold and what will constitute ‘use’ will depend to a great extent upon the purpose for which it has been acquired or created. Land, it may be said, is no exception and [the relevant statutory provision] itself shows plainly enough that the ‘use’ of land will vary with the purpose for which it has been acquired and to which it has been devoted… Each of the forms of user referred to in the section relate to use by the owner and some of them, no doubt, contemplate a use which is synonymous with actual physical occupation and enjoyment. Others contemplate a use in a less direct form. But where an exemption is prescribed by reference to use for a purpose or purposes it is sufficient, in my opinion, if it be shown that the land in question has been wholly devoted to that purpose even though, the fulfilment of the purpose does not require the immediate physical use of every part of the land. In my opinion where a hospital acquires or sets apart, for a project which may properly be described as a purpose of a public hospital, a tract of land which it considers is the minimum requirement for its contemplated project and thereupon proceeds to carry out that project it, thereby, uses the whole of the land. How its purposes shall be fulfilled is, within reason, for it to decide and, as I have already said, it is nothing to the point to say that it has employed in the project more land than may, upon the views of others, be thought to have been necessary, or that in fact, it has derived no benefit or advantage therefrom in the fulfilment of its purposes.[20]
In Saville v Commissioner of Land Tax (NSW)[21] and in Rainn Pty Ltd v Commissioner of State Revenue,[22] it was recognised that land which was for the time being left fallow as part of a crop rotation cycle may be ‘used’ for agriculture despite the current absence of activity upon it. The deliberate maintenance of a state of inactivity may be the implementation of a purpose ‘for’ which the land was used, that is, the purpose of agriculture. Both these cases were land tax cases concerned with the question whether the land was ‘primarily used for primary production’.
[21](1980) 12 ATR 7, 11 (Roden J).
[22][2016] VSCA 338 [35] (Maxwell P, Santamaria JA and Riordan AJA).
In Blacktown City Council v Fitzpatrick Investments Pty Ltd,[23] the New South Wales Court of Appeal upheld the decision of the judge at first instance that the ‘actual use’ of land within the meaning of s 59(f) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) could be constituted by holding the land vacant for a particular purpose. Stein JA said:
The nature of the respondent’s business was that of a land developer and the acquired land was part of its stock-in-trade constituting its ‘land bank’. Holding the land in its land bank for subdivision was a use of the land in fact. That is sufficient to make it an ‘actual use of the land’ within s 59(f) of the Act.
The favoured construction gives the expression ‘actual use’ work to do. While physical use is not required, something which is only a potential future use would fall short of ‘actual use’.[24]
[23][2001] NSWCA 259.
[24]Ibid [4]–[5].
We interpolate that this passage does not in terms draw the distinction between ‘land banking’ and ongoing subdivision upon which MLW relies but it is clear the land owner in that case was a land developer and not simply a passive investor.
In turn, a number of subsequent decisions of the New South Wales Land and Environment Court analysed by Jagot J in Macarbell Pty Ltd v Roads and Traffic Authority (NSW)[25] illustrate this distinction.
[25](2006) 149 LGERA 217, 221–2 [15].
Loss attributable to disturbance
We turn then to the definition of loss attributable to disturbance found in s 40. As we have already noted, such loss is constituted by a pecuniary loss which is not otherwise compensable as market value or special value.
Further, the loss must be suffered as a natural, direct and reasonable consequence of the compulsory acquisition. In Halwood Corporation Ltd v Roads Corporation,[26] Batt J (as his Honour then was) examined authorities relating to earlier Victorian legislation including, in particular, James v Swan Hill Sewerage Authority[27] together with other authorities relating to the notions of natural, direct and reasonable consequence[28] in the context of cognate provisions of the Planning and Environment Act 1987.
[26](1995) 89 LGERA 280, 297–305.
[27][1978] VR 519, 525.
[28]Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 301–2 (Batt J).
Batt J expressed the view that the word ‘direct’ does not have the same meaning, but has a narrower and stricter meaning, than the other two adjectives.[29] The relevant meaning from the Shorter Oxford English Dictionary was ‘without intervening agency; immediate’.
[29]Ibid 302.
His Honour endorsed the view of Gobbo J in Mario Piraino Pty Ltd v Roads Corporation (No 2),[30] that ‘reasonable consequence’ meant that the loss was a reasonable response to the event giving rise to the right to compensation (in that case the permit refusal).[31] The relevant dictionary meaning of reasonable was ‘not going beyond the limit assigned by reason; not extravagant or excessive’.[32]
[30][1993] 1 VR 130, 142.
[31]Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 303.
[32]Ibid.
The word ‘natural’ had the meaning implicitly given by Harris J in James v Swan Hill Sewerage Authority[33] namely, arising according to the usual course of things. The relevant dictionary meaning was ‘taking place … in the ordinary course of nature’.[34]
[33][1978] VR 519, 527.
[34]Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 303.
Batt J further concluded that the three adjectives in combination connote a very close and limited connection between the event giving rise to a right to compensation (in that case the imposition or proposal of a planning scheme reservation) and the financial loss suffered.[35]
[35]Ibid.
The decision of Batt J at first instance in Halwood was upheld on appeal. Tadgell JA (with whom Brooking and Ormiston JJA agreed) relevantly expressed his conclusion in terms of the ordinary meaning of the words in issue:
In my opinion the reasoning which led his Honour to his conclusion betrayed no misunderstanding, as the appellant contends, of the nature of the reservation affecting the land. It is an inevitable conclusion on the assumed facts that any loss suffered by the owner was a consequence at least of the combined effect of the reservation and the owner’s decision to purchase reserved land. The ground assigned for refusal of a development permit was that the land was subject to the reservation for a public purpose. It is therefore not possible to say, according to an ordinary use of the English language, that any loss was suffered ‘as the natural, direct and reasonable consequence’ of a refusal to grant a permit.[36]
[36]Halwood Corporation Ltd v Roads Corporation Ltd [1998] 2 VR 439, 451 (Tadgell JA with whom Brooking and Ormiston JJA agreed) (emphasis added).
As Osborn J observed in Roads Corporation v Schembri,[37] the reasoning of Batt J at first instance in Halwood may properly be regarded as illuminating the ordinary meaning of the words used in the statute. Nevertheless, Batt J’s terminology should not be adopted in substitution for that of the statute. The ordinary meaning of the word ‘direct’ is capable of application to fact situations such as the one with which the present case is concerned.
[37](2009) 28 VR 229, 234 [28].
In an earlier decision as a single judge,[38] Tadgell J elaborated the underlying rationale for taking this approach by reference to a series of authorities including the decision of the House of Lords in Cozens v Brutus.[39] In Cozens, a man was charged with insulting behaviour after interrupting a tennis match at Wimbledon. The Wimbledon justices decided that the defendant’s behaviour was not insulting within the terms of the offence charged against him and dismissed the charge. The informant appealed to the Divisional Court which found that the defendant’s behaviour was insulting, having regard to the facts found by the justices. On appeal by leave to the House of Lords, Lord Reid rejected the proposition that the meaning of the word ‘insulting’ in the relevant provision of the Public Order Act 1936 was a matter of law.
In my judgment that is not right. The meaning of an ordinary word of the English language is not a question of law. The proper construction of a statute is a question of law. If the context shows that a word is used in an unusual sense the court will determine in other words what that unusual sense is. But here there is in my opinion no question of the word ‘insulting’ being used in any unusual sense. It appears to me, for reasons which I shall give later, to be intended to have its ordinary meaning. It is for the tribunal which decides the case to consider, not as law but as fact, whether in the whole circumstances the words of the statute do or do not as a matter of ordinary usage of the English language cover or apply to the facts which have been proved. If it is alleged that the tribunal has reached a wrong decision then there can be a question of law but only of a limited character. The question would normally be whether their decision was unreasonable in the sense that no tribunal acquainted with the ordinary use of language could reasonably reach that decision.
Were it otherwise we should reach an impossible position. When considering the meaning of a word one often goes to a dictionary. There one finds other words set out. And if one wants to pursue the matter and find the meaning of those other words the dictionary will give the meaning of those other words in still further words which often include the word for whose meaning one is searching.
No doubt the court could act as a dictionary. It could direct the tribunal to take some word or phrase other than the word in the statute and consider whether that word or phrase applied to or covered the facts proved. But we have been warned time and again not to substitute other words for the words of a statute. And there is very good reason for that. Few words have exact synonyms. The overtones are almost always different.
Or the court could frame a definition. But then again the tribunal would be left with words to consider. No doubt a statute may contain a definition — which incidentally often creates more problems than it solves — but the purpose of a definition is to limit or modify the ordinary meaning of a word and the court is not entitled to do that.
So the question of law in this case must be whether it was unreasonable to hold that the appellant’s behaviour was not insulting. To that question there could in my view be only one answer: No.[40]
[38]Franceschini v Melbourne and Metropolitan Board of Works (1980) 57 LGRA 284.
[39][1973] AC 854 (‘Cozens’).
[40]Ibid 861.
In Hope v Bathurst City Council,[41] Mason J also referred to Cozens[42] as exemplifying those cases in which, upon examination, a statute is found to use words in accordance with their common understanding and the question is whether the facts found fall within those words.
Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law. One example is the judgment of Fullagar in Hayes v Federal Commissioner of Taxation, where his Honour quoted the comment of Lord Parker of Waddington in Farmer v Cotton’s Trustees, which was adopted by Latham CJ in Commissioner of Taxation v Miller, that where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only. Fullagar J then said:
‘... this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and facta probantia (the facts adduced to prove or disprove that ultimate fact). The ‘facts’ referred to by Lord Parker ... are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally — so far as I can see, always — be a question of law.’
However, special considerations apply when we are confronted with a statute which on examination is found to use words according to their common understanding and the question is whether the facts as found fall within these words. Brutus v Cozens was just such a case. The only question raised was whether the appellant’s behaviour was ‘insulting’. As it was not unreasonable to hold that his behaviour was insulting, the question was one of fact.[43]
[41](1980) 144 CLR 1.
[42][1973] AC 854.
[43]Hope v Bathurst City Council (1980) 144 CLR 1, 7 (citations omitted).
This passage was approved as comprehensively stating the law by Gleeson CJ, Gummow and Callinan JJ in Vetter v Lake Macquarie City Council.[44]
[44](2001) 202 CLR 439, 450–1 [25].
The principle has been applied to the question whether an incident was directly caused by the driving of a motor car for the purposes of the Transport Accident Act 1986.[45]
[45]See, for example, Transport Accident Commission v Lees (2002) 37 MVR 78, 82–3 [17] (Bongiorno J); Koutroulis v Transport Accident Commission (2011) 58 MVR 48, 53 [11] (Kaye J).
Although relating to a different statutory context, these decisions confirm that questions of directness of causation are essentially questions of fact.
In Melbourne City Link Authority v Teford Pty Ltd, Batt JA (with whom Tadgell and Chernov JJA agreed) said of his earlier decision in Halwood:
In Halwood Corporation Ltd v Roads Corporation[46] 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,[47] 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[48] 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.[49]
[46]Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 297–305.
[47]Halwood Corporation Ltd v Roads Corporation [1998] 2 VR 439, 451.
[48]Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 303.
[49]Melbourne City Link Authority v Teford Pty Ltd (2001) 113 LGERA 102, 112–3 [24] (‘Teford’).
We would respectfully agree with the view that in relative terms the combination of the words involved in the phrase ‘natural, direct and reasonable consequence’ connotes a very close and limited causal connection. But ultimately the task for this Court must be that articulated by Tadgell JA in Halwood,[50] namely to ask whether it was open to the trial judge to conclude that the evidence in the present case demonstrated a pecuniary loss suffered as a direct consequence of the acquisition.
[50]Halwood Corporation Ltd v Roads Corporation Ltd [1998] 2 VR 439.
In Teford it was accepted, both at first instance and on appeal, that in general terms a claimant may be entitled pursuant to s 41(1)(d) of the LAC Act to an amount of compensation for stamp duty paid on the transfer to it of land purchased to replace the land acquired compulsorily, as being loss attributable to disturbance.[51] In a footnote, Batt JA observed:
In planning compensation cases stamp duty on replacement land was included in the award of compensation in, for instance, Yarn Traders Pty Ltd v Melbourne and Metropolitan Board of Works [1970] VR 427; 24 LGRA 15 and it was recognised that such an expense was in principle capable of recovery as financial loss in Mario Piraino Pty Ltd v Roads Corporation [No 2] [1993] 1 VR 130, 145; 76 LGRA 263, 278; Roads Corporation v Melbourne Estates and Finance Co Pty Ltd [1993] 2 VR 602, 616–7; 79 LGERA 1, 16 and Equity Trustees Executors and Agency Co Ltd v Melbourne and Metropolitan Board of Works [1994] 1 VR 534, 551; 81 LGERA 86, 102.[52]
[51](2001) 113 LGERA 102, 110 [16].
[52]Ibid n 18.
As the trial judge in the present case noted,[53] Gobbo J observed in Redwood Court Pty Ltd v Roads Corporation,[54] after rejecting a claim for loss of profits from the future development of an undeveloped piece of land made pursuant to s 98 of the Planning and Environment Act 1987:[55]
Nor does this conclusion preclude a claim that more readily falls within value to the owner, sometimes also referred to as special or retention value, of the kind illustrated in Kennedy Street Pty Ltd v The Minister[56] and Chapman v The Minister.[57] Those cases are illustrations of a principle that in my view supports an award of compensation 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 … acquisition.
[53]Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd [2016] VSC 358 [59] (‘Reasons’).
[54](1992) 76 LGRA 358 (‘Redwood Court’).
[55]Ibid 362.
[56](1962) 8 LGRA 221 (‘Kennedy Street’).
[57](1966) 13 LGRA 1 (‘Chapman’).
In turn, his Honour allowed a claim for the incidental costs of replacing land stock.[58]
[58]Redwood Court (1992) 76 LGRA 358, 367.
The cases of Kennedy Street[59] and Chapman[60] to which his Honour referred were cases of claims for special value relating to costs, such as development approval costs, incurred by the claimant for the purpose of developing land. The correctness of the decision in each case was criticised by Callinan J (with whom Gaudron and Gummow JJ relevantly agreed) in Boland v Yates Property Corporation Pty Ltd.[61] As Callinan J observed, everything the claimant had acquired for the purpose of developing the land was readily transmissible and of value to any purchaser. It was thus reflected in market value.[62]
[59]Kennedy Street (1962) 8 LGRA 221.
[60]Chapman (1966) 13 LGRA 1.
[61](1999) 167 ALR 575, 663–7 [331]–[348].
[62]Ibid 664 [336].
Nevertheless in the same case,[63] Callinan J endorsed the conceptual definition of disturbance contained in the Australian Law Reform Commission Report Lands Acquisition and Compensation as one of the elements presently taken into account in assessing compensation in all Australian jurisdictions.[64] That definition defines disturbance as follows:
This covers economic losses which result naturally, reasonably and directly from acquisition. It may include such items as removal expenses, costs of necessary replacement of furniture and fittings, legal and other costs of purchasing new accommodation and loss of local goodwill.[65]
His Honour’s analysis thus recognised that expenses of the kind referred to by Gobbo J may be recoverable by way of loss attributable to disturbance although the entitlement (if any) must of course turn on the terms of the specific statutory provision including those governing remoteness.
[63]Ibid 655 [294].
[64]Australian Law Reform Commission, Lands Acquisition and Compensation, Report No 14 (1980).
[65]Ibid 122 [241].
In Redwood Court,[66] Gobbo J also referred to the decision in Yarn Traders Pty Ltd v Melbourne & Metropolitan Board of Works.[67] In that case, stamp duty incidental to the purchase of replacement land was also characterised, without detailed analysis, as a claim for an element of special value. In Redwood Court itself, Gobbo J not only held that the loss claimed was the natural, direct and reasonable consequence of the refusal by the responsible authority to grant a planning permit but also that the loss reflected an element of value to the owner within the meaning of value in s 104 of the Planning and Environment Act 1987.
[66](1992) 76 LGRA 358, 366–7.
[67][1970] VR 427.
As the analysis of Dixon CJ and Kitto J in The Commonwealth vMilledge[68] explains, a loss of the kind in issue may be regarded as reflecting an element of underlying value to the owner. But the better view is that under the provisions of the LAC Act such a claim is not one for special value but for loss attributable to disturbance.
[68](1953) 90 CLR 157, 164.
The stamp duty costs in issue in the present case are not readily characterisable as special value incidental to ownership of the land, rather they are in the nature of a cost which may be consequentially incurred following the acquisition. They are claims for disturbance in the sense of the concept explained by Callinan J in Boland v Yates Property Corporation Pty Ltd.[69]
[69](1999) 167 ALR 575, 654–6 [292]–[297].
Moreover, it is not the Authority’s case that the claim should fail because it is in truth one for special value. Rather the Authority seeks to rely upon the strict terms of the provisions of the LAC Act concerning loss attributable to disturbance.
In our view, stamp duty paid with respect to replacement land may constitute a loss attributable to disturbance. Whether it does so will always be a question of fact.
This was the view taken by Osborn J in Roads Corporation v Schembri,[70] which was a claim for losses attributable to disturbance under the provisions of the LAC Act. His Honour held that it was open to conclude that, in circumstances where land was purchased to replace stock held by a property developer, incidental expenses resulted in a pecuniary loss suffered as the natural, direct and reasonable consequence of the acquisition.[71]
[70](2009) 28 VR 229.
[71]Ibid 241 [54].
In the present case, the Authority contends that it was not open to conclude that the loss in issue was suffered as a direct consequence of the acquisition. This question is a question of law.
For completeness, it is convenient to record that, as the trial judge noted,[72] this was not a case of an independent investment decision, made subsequent to the compulsory acquisition and having no real causal connection with the acquisition.[73] The question is whether an admitted connection meets the statutory criteria.
[72]Reasons [78], [89].
[73]Eg Teford (2001) 113 LGERA 102, 114 [28]; Secretary, Department of Economic Development, Jobs, Transport and Resources v Stella (2016) 215 LGERA 314, 327 [50].
Double recovery
The apparent purpose of s 41(2) is to prevent double recovery of compensation. If a claimant recovers compensation on the basis of market value assessed by reference to the potential of the land to be used for a purpose other than the existing use, it would be logically inconsistent to allow claims for loss attributable to disturbance arising out of that existing use.
Dixon CJ and Kitto J stated the relevant principle in The Commonwealth v Milledge:
There remains the item of the plaintiff’s claim described as business disturbance. Though it was considered convenient in this case, as it often is, to deal with this topic as a separate matter, it must always be remembered that disturbance is not a separate subject of compensation. Its relevance to the assessment of the amount which will compensate the former owner for the loss of his land lies in the fact that the compensation must include not only the amount which any prudent purchaser would find it worth his while to give for the land, but also any additional amount which a prudent purchaser in the position of the owner, that is to say with a business such as the owner’s already established on the land, would find it worth his while to pay sooner than fail to obtain the land. But a prudent purchaser in the position of the owner would not increase his price on account of the special advantage he would get by not having to move his business, unless the amount he would have been prepared to pay apart from that special advantage was the value of the land considered as a site for that kind of business. Disturbance, in other words, is relevant only to the assessment of the difference between, on the one hand, the value of the land to a hypothetical purchaser for the kind of use to which the owner was putting it at the date of resumption and, on the other hand, the value of the land to the actual owner himself for the precise use to which he was putting it at that date. It follows that if in the first instance the land is valued on the basis of its suitability for some more profitable form of use, there can be no justification for making an addition to the value so ascertained because of disturbance. There would be an obvious inconsistency in doing so, as the Privy Council pointed out in Standard Fuel Co v Toronto Terminals Railway Co.[74] The Court of Appeal took the same view in Horn v Sunderland Corporation.[75] The Master of the Rolls in that case expressed the point in these words: ‘He (the owner) can only realize the building value in the market if he is willing to abandon his farming business to obtain the higher price. If he claims compensation for disturbance of his farming business, he is saying that he is not willing to abandon his farming business, that is, that he ought to be treated as a man who, but for the compulsory purchase, would have continued to farm the land, and, therefore, could not have realized the building value’.[76] The conclusion reached was that when land being used for agricultural purposes is ripe for building, and compensation for its compulsory acquisition is fixed on the basis of its value as building land, compensation for disturbance of the agricultural business should only be awarded to the extent (if any) that the value of the land for agricultural purposes together with the compensation for disturbance exceeds the compensation payable on the basis of the land being building land.[77]
[74](1935) 3 DLR 657.
[75](1941) 2 KB 26.
[76]Ibid 35.
[77]The Commonwealth v Milledge (1953) 90 CLR 157, 164–5.
These principles were applied by the High Court in Crisp & Gunn Co-operative Pty Ltd v Hobart Corporation,[78] as applying with equal force to cases where the land resumed represented one only of several parcels upon which business activities were conducted. The Court constituted by McTiernan, Taylor and Windeyer JJ expressed the opinion that:
The requirement of the statute that regard should be had in assessing compensation to a number of factors including ‘disturbance and any other matter not directly based on the value of the land’ does not justify the award of any amount for disturbance in addition to the market value of the land where, as here, that value exceeds the ‘present use’ value by an amount in excess of any loss resulting from disturbance.[79]
[78](1963) 110 CLR 538, 547.
[79]Ibid 547–8.
The fact and nature of a pecuniary loss
In order to understand the basis on which the trial judge determined to allow the claim for loss attributable to disturbance, it is necessary to say something about the way the case was put to her.
As the trial judge recorded, the primary position of the Authority at trial was that MLW had not suffered a loss at all.
The Authority submits that the costs of purchasing replacement land for development land cannot be recovered as disturbance losses because the very purpose of acquiring development land is to sell it. The sale of the land is necessary in order to realise its potential. The purchase costs of the development land were ‘sunk costs’ in that no benefit was to be derived from them.[80]
[80]Reasons [51].
It was expressly submitted that the incurring of property purchase costs in relation to replacement land was not the consequence of the RRL acquisition.
This argument was elaborated by contrasting the position of MLW with the position of a homeowner who would need more than the market value of his or her property before selling it in order to purchase an equivalent home.[81]
[81]Ibid [52].
On the other hand, if a homeowner had granted another person an option to buy the property within a relatively short time and the land were compulsorily acquired before the option was exercised, the homeowner would only have lost the value of the property.
As the trial judge noted, it was further submitted as follows:
On this analysis, the value to the landowner of the costs involved in the purchase of land is connected to the period of time for which the owner anticipates holding the land. If there is evidence that the landowner bought the land with the intention of selling it at a profit to someone else and the land is compulsorily acquired before that can occur, then the landowner will not have lost the benefit of the purchase costs as a result of the compulsory acquisition.[82]
[82]Ibid [53].
We pause to note that none of the hypothetical examples which were proffered by the Authority are directly comparable to the position of a residential subdivider who purchases land with a view to developing a subdivision within it and on-selling derived from it.
Nevertheless, again as the trial judge recorded:
This analysis founds the Authority’s submission that, unlike the landowner who intends to hold the land for a long period of time and thereby to reap the benefit of the purchase costs, MLW did not intend to benefit from the purchase costs by holding the land. It purchased the land in order to sell it because to realise the potential that the land had for future residential use, it was necessary to sell it either to another developer or to lot purchasers. Unlike the long-term landowner, MLW will be fully compensated for the loss of the land taken if it is compensated for the market value of the land, that is, the value for which it could have sold the land to another developer or to lot purchasers.
On this basis, the Authority submits that the costs of acquiring the replacement land are not recoverable as actual losses to MLW, because it did not intend to hold the land that was compulsorily acquired and enjoy the benefit of the purchase costs of that land.[83]
[83]Ibid [54]–[55].
We interpolate that this position does not sit comfortably with the Authority’s concession to this Court that the stamp duty costs in issue constituted a pecuniary loss suffered as a natural and reasonable consequence of the acquisition but not a direct one.
In any event, the trial judge rejected the submission set out above. First, her Honour found that the land acquired formed part of MLW’s stock in trade:
In his evidence, Bert Dennis explained that when MLW buys land for urban residential development, it does so on its trading account, and stamp duty and purchase costs become part of the development costs that are recouped from sales of the developed land.
The land taken by the Authority was land purchased by MLW from MGP for development. It formed part of MLW’s stock in trade, that is, land the development of which would produce a profit for MLW, enabling the recoupment of its development costs, including the purchase costs of the land. As I understand the position, the land taken was land that was ripe for development but remained undeveloped (in the sense that it had not been subdivided), and the agreed market value reflected this state of affairs.[84]
[84]Ibid [57]–[58].
Her Honour then held that there was longstanding authority that compensation might be allowed for the costs of replacing land that was a developer’s stock in trade.[85]
[85]Ibid [59]–[60].
Her Honour then concluded:
As the land compulsorily acquired from MLW formed part of its stock in trade, an award for its market value alone will not meet the situation where MLW incurs expenses in securing replacement land for development. For the purposes of its business, MLW was required to replace developable land taken for the RRL project by purchasing other developable land. It is not the case that it suffered no ‘actual’ loss in the form of lost purchase costs, as it was required to incur new purchase costs for replacement land in circumstances where it was unable to recoup the purchase costs of the land taken from sales of that land as subdivided land.
The Authority’s submission that MLW did not propose to benefit from its sunk costs cannot be accepted. In my view, MLW suffered loss over and above the market value of the land taken in that it lost the opportunity to recoup the costs of purchasing the land by selling the land in developed form.[86]
[86]Ibid [61]–[62].
On appeal, senior counsel for the Authority made clear that the conclusion last stated above is not now challenged.
It can be seen that her Honour held in essence that, because MLW was required to pay two sets of incidental stamp duty costs in order to place itself in the position it would have been but for the acquisition, it could establish that the second set of costs was incurred as a result of the acquisition.
In our view, this conclusion was plainly open to her Honour and, as we have already noted, it is implicit in the Authority’s concession that the costs constituted a natural and reasonable pecuniary loss suffered in consequence of the acquisition, that her Honour was correct.
Direct consequence
As can be seen from the passages from her Honour’s Reasons which we have set out above, the Authority’s basic argument concerning causation was elaborated at trial by reference in the first instance to notions of the landowner’s intention with respect to the period of time over which the land would be held but for the acquisition.
The significance of issues of timing was the subject of further reference in submissions specifically concerned with the requirement that the relevant pecuniary loss be a direct consequence of the acquisition. As the judge recorded:
Having regard to the circumstances disclosed in the evidence, the Authority says that the only loss MLW could possibly be said to have suffered was by reason of having to spend a dollar today, rather than a dollar next year. However, it could not even be said that even the advancement of the expenses in time was the direct consequence of the compulsory acquisitions, because steps to acquire the replacement land had been put in place several years before the first acquisition — the acquisition of the corridor land in December 2011 — and were well advanced by that time.[87]
[87]Ibid [71].
In support of this submission the Authority emphasised the following aspects of the facts:
·MLW obtained options to purchase the replacement land from MGP in November 2008 and April 2010;
·the options provided for a discounted purchase price (fixed to reflect the fact that MLW would take relevant services to the boundaries of the option land);
·planning for development of the replacement land was well-advanced by the date of the compulsory acquisition;
·in cross-examination Mr Bert Dennis agreed that had there been no compulsory acquisition, MLW would still have purchased the replacement land at some stage.
The trial judge made the following findings of fact with respect to this aspect of the matter.
It is therefore not disputed by MLW that it would have acquired the replacement land parcels in due course, had there been no compulsory acquisitions.
In my view, this does not detract from MLW’s need to replace land stock taken from it through the compulsory process. MLW owned land that it proposed to subdivide into residential lots and sell. That was its business. When it lost that land, it was a natural and reasonable response to purchase other land to subdivide and sell in the pursuit of its business.
Moreover, Bert Dennis gave evidence, which was not challenged, that the replacement land was acquired from MGP out of sequence and that the timing of the acquisition of the replacement land was the result of the divestment of MLW’s interests in the land taken. MLW intended to develop other parts of the Manor Lakes Estate before Area E. It became necessary to turn to Area E for the next stage of development as the consequence of MLW’s inability to develop land it proposed to develop next in sequence, particularly around the northern part of the transport corridor and in Area C. The development of Area E following the compulsory acquisitions was not optimal for the reasons given by Bert Dennis in his affidavits. This alone makes plain that acquiring the Area E parcels was not the product of an independent act of making an additional investment, but was forced upon MLW because of the circumstances of the compulsory acquisitions.[88]
[88]Ibid [76]–[78].
These conclusions accorded squarely with the evidence.
Her Honour went on to conclude:
MLW’s case for compensation is based on the need to replace the land taken in order to replenish its stock in trade to pursue the development of the Manor Lakes Estate. The direct and substantial cause of the purchase of additional land stock in Area E in 2013, 2014 and 2015 was the unavailability of land slated for earlier development due to the compulsory acquisitions and the implementation of the project for which the land was taken. MLW needed to acquire additional stock because its existing stock had either been taken or could not be developed and sold as anticipated due to the implementation of the RRL project.
In my view, MLW was entitled to replace land stock taken from it and it did so. It replaced like with like. It had to buy new land stock in order to pursue its business of developing the Manor Lakes Estate. Given that MLW’s principal business function was to develop the Manor Lakes Estate, it is unsurprising that it acquired replacement land from within the area proposed to be developed for that purpose. It was logical for the replacement stock to be purchased from the land that it anticipated buying and developing as the Manor Lakes Estate in due course. The arrangement with MGP was for that to occur over time on a staged basis. The acquisition of replacement stock in Area E arose ‘in the usual course of things’ having regard to the divestment of MLW’s interest in other land that it proposed first to develop as the Manor Lakes Estate and was a reasonable response to the resumption of its land by compulsory acquisition.
In my view, therefore, the purchase costs of the replacement land were the natural, direct and reasonable consequence of the divestment of MLW’s interests in the land taken for purpose of the RRL project.[89]
[89]Ibid [79]–[81].
In our view, it was plainly open to her Honour to conclude that the purchase of the replacement land was a direct consequence of the compulsory acquisition for the reasons she gave.
Once it is accepted that (as the Authority concedes) the consequences of the acquisition resulted in pecuniary loss of the kind claimed, the same matrix of fact which supports this conclusion demonstrates that the loss might be regarded as direct.
Section 41(2)
As the trial judge recorded,[90] the Authority also submitted that the loss claimed as attributable to disturbance could not be recovered because of the provisions of s 41(2).
[90]Ibid [101].
The argument was that the market value of the land acquired from MLW was assessed on the basis of its potential for subdivision, but that was not the purpose for which it was used at the dates of acquisition. Because the land was not developed for residential use on the dates of acquisition and was not in fact used for residential subdivision, its ‘actual use’ was different from its ‘potential use’. It was further submitted that compensation was therefore not allowable for any loss attributable to disturbance of the actual use that would necessarily have been incurred in realising the potential of the land for residential subdivision. It was said that as the sale of land was integral to realising its potential this meant forgoing the benefit of sunk costs relating to its initial purchase.
It can be seen that the argument involved sequential steps:
(d) the characterisation of the purpose of use of the land upon which the market value of the acquired land was assessed;
(e) the characterisation of the purpose of the use of the land at the date of acquisition;
(f) comparison of the two purposes of land use identified; and
(g) the characterisation of the incidental costs incurred in purchasing replacement land as a loss attributable to disturbance of the actual use of the acquired land that would necessarily have been incurred in realising the potential of the acquired land.
The trial judge found that the land acquired formed part of a parcel which was ripe for subdivision but had not yet been subdivided.[91]
[91]Ibid [104].
Her Honour further found that the purpose for which the acquired land was used on the dates of acquisition[92] was as the stock in trade of a residential subdivider, in circumstances where, as the developer used it up (by subdividing it and then selling it) the developer would replenish its stock by acquiring more land for development from MGP.
[92]It having been acquired in three separate pieces.
It followed then that on the dates of acquisition ‘holding the land for subdivision’ constituted its use. MLW was not a land banker but a developer undertaking the development of the area comprising the acquired land as quickly as it could.
The Authority placed considerable emphasis upon appeal on the fact that a substantial portion of the acquired land was in fact physically used for the purpose of public sports facilities pursuant to a lease arrangement entered into with the local municipal council pending the resolution of the final alignment of the RRL. In our view, this fact did not preclude her Honour from making the findings which she did. The physical use in question was undertaken in the course of implementing the residential subdivision of the land as a whole which comprised, in part, the acquired land.
Nevertheless, this does not fully resolve the application of the purpose requirements stated in s 41(2). The characterisation of the purpose of the land use on the dates of acquisition which her Honour made did not resolve the question whether the market value of the relevant interest in land was assessed on the basis of its potential for another use. The trial judge was not required to assess the market value of the acquired interest in land but there was material before her which makes clear the basis on which it was assessed.
The LAC Act requires that the compensation for compulsory acquisition be commenced with an initial offer of compensation which sets out the amount that the Authority, on the information available to it, ‘has assessed as a fair and reasonable estimate of the amount of compensation payable to the claimant under this Act on the assumption that the claimant held the interest in respect of which the offer is made’.[93]
[93]LAC Act s 31(3).
The process of assessment contemplated by the statute continued through the response by the claimant pursuant to s 33 and the Authority’s reply to the claim contemplated by s 36. The fact that it was resolved by agreement does not mean that it was any less a process of assessment.
In the case of the MCC land there was an express statement in the deed of settlement relating to the claim
that although the land was vacant on the date of acquisition, it had the potential to be used for a commercial centre, which was the highest and best use.
In the case of MLW, the recitals in the settlement deed relating to the two larger pieces of land acquired from MLW (referred to as the corridor land and the area C land) included before and after plans depicting the potential residential subdivision of the land.
Furthermore, the trial judge had before her an affidavit from a solicitor acting for the Authority which exhibited compensation assessments prepared for the Valuer-General of Victoria in respect of each of the three parcels of land acquired from MLW. Each of those assessments expressly identifies the potential for residential development as informing the market value of the land including the specific potential for development of a proposed retirement village upon the land.
It follows that the market value was assessed on a basis that took account of its potential for future residential subdivision, development and use. The characterisation of the purpose of the existing use at the dates of acquisition as ‘holding the land for subdivision’ was one which directly contemplated a future, more beneficial use of the land but the existing use and potential use were for different purposes.
The market value of the land was thus assessed on the basis that it had the potential to be used for a purpose other than the purpose for which it was used at the dates of acquisition.
Despite the above conclusion, however, we do not agree that the fact the market value was assessed on a basis which had regard to the potential use of the land enables the Authority to rely on s 41(2)(b). The costs incidental to the purchase of replacement land were not, as that subsection requires, a loss that would necessarily have been incurred in realising the potential of the acquired land.
Rather, as MLW submits, they were pecuniary losses relating to realising the potential of other land incurred in consequence of the acquisition.
There was no element of double compensation in the claim. Nor was there any inconsistency in the notion of the potential of the acquired land involved in the assessment of market value and the loss claimed attributable to disturbance.
The costs were incurred in order to enable MLW to pursue the same use on alternative land as that being undertaken at the dates of acquisition upon the acquired land.
The market value of both the acquired land and the replacement land reflected its immediate potential to be used for a fully developed residential subdivision.
These conclusions reflect the primary basis on which the trial judge determined that s 41(2) was not dispositive of MLW’s claim.
The trial judge concluded that the loss in issue did not fall within the category proscribed pursuant to s 41(2)(b) and hence the Authority could not rely upon that subsection.
The Authority submits that the market value of the land taken from MLW was assessed on the basis of its potential for residential subdivision, but that was not the purpose for which it was used on the dates of acquisition. There were no buildings on the acquired land on the dates of acquisition and, as the land was not used for residential subdivision, its ‘actual’ use was different from its ‘potential’ use, satisfying the condition in the chapeau to s 41(2). Compensation is therefore not allowed for any loss attributable to disturbance that would necessarily have been incurred in realising the potential of the land for residential subdivision, that is, in subdividing the land for residential purposes and selling it to a developer or to lot purchasers. As the sale of the land is integral to realising its potential, this means giving up the benefit of the sunk costs.
It will be observed that the last piece of the argument involves acceptance of a proposition that I have already rejected, namely, that replacement land costs for development land are not recoverable because the developer necessarily has to forgo the benefit of the purchase costs that it incurred in buying the land in order to realise its value. Moreover, the construction advanced by the Authority would effectively preclude the recovery of the purchase costs of replacement land in every case where, at the time of its compulsory acquisition, development land formed part of a developer’s stock in trade. However, it is well established that compensation can be awarded for the purchase costs of replacement land where the developer acquires land to replace land that was its stock in trade.[94]
[94]Reasons [101]–[102].
We agree with her Honour’s conclusion. In our view, the loss in issue does not fall within the words of the statute. Nor does it involve any double recovery of the type which the statute is intended to preclude.
Proposed ground 2 of appeal is directed to the second reason that the trial judge gave for rejecting the Authority’s case pursuant to s 41(2). If, however, her Honour’s primary reason for refusing the submission is upheld, as it should be, the error alleged in proposed ground 2, even if made out, could not vitiate her Honour’s decision.
Conclusion
For the above reasons, leave to appeal should be refused with respect to ground 1.
Leave to appeal should be granted with respect to ground 2 because of the issue it raises with respect to the characterisation of the use of the acquired land. But, the appeal should be dismissed for the reason we have stated. Namely, that, in any event, the loss in issue does not fall within the terms of s 41(2)(b).
- - -
- AGLC
- Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd (ACN 096 230 714) [2017] VSCA 114
- Case
- [2017] VSCA 114
- Decision Date
CaseChat Overview and Summary
The primary legal issues involved the interpretation of section 41(2) of the Act, which pertains to compensation for loss attributable to disturbance. The court had to decide whether the consequence of incurring such costs was a question of fact or law, and whether the court was open to making the finding it did. Additionally, the court examined whether the phrase "other than the purpose for which it was used at the date of acquisition" in section 41(2) referred to the physical use of the land at the date of acquisition. Another key issue was whether the basis for assessing the market value of the acquired land included the potential for it to be used for a purpose other than its existing use. The court also had to determine if the costs claimed constituted a cost that would necessarily have been incurred in realising the potential of the acquired land.
The Supreme Court of Victoria held that the assessment of compensation was a question of law and fact. The court found that the costs incurred in purchasing replacement land were not compensable because they did not arise as a natural, direct and reasonable consequence of the compulsory acquisition. The court also concluded that the phrase in question referred to the physical use of the land at the date of acquisition and that the basis for assessing market value did not include the potential for the land to be used for a different purpose. Consequently, the costs claimed did not constitute a cost that would necessarily have been incurred in realising the potential of the acquired land. The appeal was dismissed, but leave to appeal to the Court of Appeal was granted in part.
The final orders of the court included dismissing the appeal against the Supreme Court's decision with respect to the assessment of compensation for loss attributable to disturbance, but granting leave to appeal in part to the Court of Appeal.
Orders
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Background
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Evidence
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