Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd
[2016] VSC 358
•24 June 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
VALUATION, COMPENSATION & PLANNING LIST
IN THE MATTER of the Land Acquisition and Compensation Act1986
S CI 2013 5893
S CI 2013 5894
BETWEEN
| SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES | Applicant |
| v | |
| MANOR LAKES (WERRIBEE) PTY LTD (ACN 096 230 714) | Respondent |
AND BETWEEN
S CI 2013 5895
| SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES | Applicant |
| v | |
| MANOR COMMERCIAL COMPANY PTY LTD (ACN 096 226 345) | Respondent |
AND BETWEEN
S CI 2015 03193
| MANOR LAKES (WERRIBEE) PTY LTD (ACN 096 230 714) | Applicant |
| v | |
| SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES) | Respondent |
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JUDGE: | EMERTON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 & 16 October 2015 |
DATE OF JUDGMENT: | 24 June 2016 |
CASE MAY BE CITED AS: | Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 358 |
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LAND ACQUISITION AND COMPENSATION – Loss attributable to disturbance – Replacement land costs – Land compulsorily acquired held for residential and commercial sub-division – Whether acquired land was stock in trade – Replacement land acquired pursuant to pre-existing option agreement – Whether acquisitions of replacement land ‘the natural, direct and reasonable consequence’ of the compulsory acquisitions – Meaning of ‘natural, direct and reasonable’ – Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280; Melbourne City Link Authority v Teford Pty Ltd (2001) 113 LGERA 102 – Whether an award of compensation for replacement land costs precluded by s 41(2) – Whether award of compensation for replacement land costs should be discounted on the ground that statutory interest accrued from the dates of acquisition rather than from the dates the costs were actually incurred – Land Acquisition and Compensation Act 1986 (Vic), ss 40, 41(1)(d), 41(2), 53.
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APPEARANCES: | Counsel | Solicitors |
| For Manor Lakes (Werribee) Ltd and Manor Commercial Company Pty Ltd | Mr J. Delaney QC with Mr P. Chiappi | Minter Ellison |
| For the Secretary to the DEDJTR | Mr S. Morris QC with Mr I. Munt | Herbert Smith Freehills |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background......................................................................................................................................... 4
Statutory Framework....................................................................................................................... 10
MLW’s claim...................................................................................................................................... 12
Authority’s submissions............................................................................................................ 12
The ‘sunk costs’ thesis................................................................................................................ 13
The effect of the Corridor Lease................................................................................................ 16
Natural, direct and reasonable consequence?........................................................................ 18
Timing................................................................................................................................. 18
The quantity arguments................................................................................................... 21
Section 41(2)................................................................................................................................. 25
MCC’s replacement land................................................................................................................ 28
Interest................................................................................................................................................ 32
Conclusions....................................................................................................................................... 35
HER HONOUR:
Introduction
These four proceedings involve claims for compensation pursuant to the provisions of the Land Acquisition and Compensation Act 1986 (‘LAC Act’) brought by a residential developer, Manor Lakes (Werribee) Pty Ltd (‘MLW’), and a commercial developer, Manor Lakes Commercial Company Pty Ltd (‘MCC’), arising from the compulsory acquisition of land owned by them in Wyndham Vale. The land was acquired by the Authority for the purpose of the Regional Rail Link Project (Section 2) (‘RRL project’). Broadly speaking, the land in question was acquired by the Authority for the rail corridor and the construction of the Wyndham Vale Railway Station, along with a substantial overflow car park.
MLW and MCC belong to the Dennis Family Group of companies, which has owned land in and around Wyndham Vale for many years. Together they are developing the Manor Lakes Estate, a large residential subdivision with some attendant commercial development.
Originally, the land that is being developed as the Manor Lakes Estate was a farming property known as ‘Manor Park’, 700 hectares of which was acquired in about 1988 by another member of the Dennis Family Group, MG Pastoral Company Pty Ltd (‘MGP’). MGP continues to hold the remnants of Manor Park as rural land, selling parcels of land in stages to MLW and MCC as and when they are in a position to develop new stages of the Manor Lakes Estate.
A number of stages of the Manor Lakes Estate have been developed and more stages are in the pipeline. Development is taking place across Manor Park from east to west. The Manor Lakes shopping centre has been developed by MCC at the eastern end on the corner of Ballan Road and Manor Lakes Boulevard, and it is intended that it form part of a major activity centre.
The land acquired for the purposes of the RRL project was all in the eastern section of the Manor Lakes Estate. The western portion was largely undeveloped at the dates of acquisition.
The land acquired for the RRL project was acquired on three separate dates. A notice of acquisition was served on each of MLW and MCC on 19 December 2011. Further notices of acquisition were served on MLW on 3 April 2012 and 19 June 2013. The land compulsorily acquired from MLW on 19 December 2011 is referred to as the ‘corridor land’; the land acquired from MLW on 3 April 2012 is referred to as the ‘Area C land’ and the land acquired from MLW on 19 June 2013 is referred to as the ‘car park land’.
The corridor land was acquired for the rail corridor and road reserve between Ballan Road and Manor Lakes Boulevard. The new Wyndham Vale railway station has also been developed on this land. Part of the corridor land was also acquired for the widening or realignment of Ballan Road, which was required as a result of the RRL project. The Area C land was acquired for the rail corridor and road reserve between Manor Lakes Boulevard and Greens Road. The car park land was acquired for an overflow car park for the Wyndham Vale railway station.
The land acquired from MCC on 19 December 2011 was parcel of land contiguous with the corridor land which was also acquired for the rail corridor and railway station.
All claims arising from the compulsory acquisition of the four parcels of land were negotiated and settled except the claims associated with the costs of purchasing replacement land. The corridor land had an agreed market value of $5,770,000; the Area C land had an agreed market value of $5,250,000; and the car park land had an agreed market value of $1,820,000. The land acquired from MCC had an agreed market value of $6,900,000.
MLW has acquired what it claims is replacement land[1] for the corridor land, the Area C land and the car park land. The replacement land is all in the western section of the Manor Lakes Estate in or around an area known as ‘Area E’. On 1 November 2013, MLW purchased 18.46 hectares from MGP for $6,864,082; on 9 September 2014, MLW purchased 10.62 hectares from MGP for $4,156,250; and on 6 March 2015, MLW purchased 27.84 hectares from MGP for $10,325,000.
[1]Although the Authority disputes that all of the land acquired by MLW as replacement land was in fact land that was acquired to replace the compulsorily acquired land, I will refer to it as ‘the replacement land’.
In each case, the replacement land was land owned by MGP that was already earmarked for sale to MLW and for development as part of the Manor Lakes Estate (West) at an unspecified time in the future.
In each case, MLW purchased the replacement land at a discount on the independently assessed value of the land. Charter Keck Cramer (‘CKC’) carried out valuations of each of the replacement parcels. The CKC valuation of the first parcel of replacement land was $7,845,500; the CKC valuation of the second parcel of replacement land was $4,750,000; and the CKC valuation of the third parcel of replacement land was $11,800,000.
MCC has not yet purchased replacement land, but proposes to do so.
MLW and MCC now claim the costs associated with purchasing replacement land as losses attributable to disturbance pursuant to s 41(1)(d) of the LAC Act.
MLW makes the same claim for the costs of acquiring replacement land in three proceedings,[2] but only seeks a single award of compensation. MLW claims, in respect of each purchase, amounts for stamp duty as follows:
[2]Proceedings SCI 2013 5893, SCI 2013 5894 and SCI 2015 03193.
(a) In respect of the first parcel of replacement land, it claims stamp duty of $431,502 (paid on the CKC valuation of $7,845,500);
(b) In respect of the second parcel of replacement land, it claims stamp duty of $261,250 (paid on the CKC valuation of $4,750,000);
(c) In respect of the third parcel of replacement land, MLW claims stamp duty of $100,042. This is a proportion of the amount of stamp duty actually paid on the third purchase, based on the difference between the amount assessed (agreed) for the market value of the whole of the acquired land ($12,840,000) and the combined value of the first and second replacement land purchases ($11,021,062), being $1,818,938.
In addition, MLW claims transfer registration fees in respect of the three purchases of $1,577, $1,588 and $1,588 respectively.
The total amount claimed by MLW for replacement land costs is $797,547.
MCC claims stamp duty in the amount of $379,500 payable on a prospective purchase of land worth $6.9 million and costs estimated at $5,000, making a total of $384,500.
The Authority contends that neither MLW nor MCC is entitled to compensation for the costs of acquiring the land in question because they have failed to establish that the losses that they claim are the natural, direct and reasonable consequence of the acquisition by the Authority of any of the corridor land, the Area C land, the car park land or the land belonging to MCC that was to form part of the Manor Lakes Activity Centre.
Background
To support their claims for disturbance losses under s 41(1)(d) of the LAC Act, MLW and MCC adduced evidence from Mr Albert (‘Bert’) Dennis and Mr Marshall Dennis. Bert Dennis is Marshall’s father and the founder of the Dennis Group. He gave evidence on behalf of MLW in relation to the acquisition of the replacement land by MLW and as to the effect of the compulsory acquisitions on the arrangements for the staged development of the Manor Lakes Estate more generally. Marshall Dennis, as a director of MCC, gave evidence about MCC’s attempts to acquire replacement land. Both Bert and Marshall Dennis attended for cross-examination.[3]
[3]The Authority filed affidavit evidence for Mr Singleton, a surveyor, and Mr Dobrilovic, a former employee of the Authority. Neither was required to attend for cross-examination.
In order to understand the evidence, and the arguments made by the Authority, it is necessary to have regard to a number of legal agreements affecting the land in question that the Authority contends are relevant to the issues in dispute.
The first set of agreements comprises the ‘Transport Corridor Agreement’ and the ‘Transport Corridor Lease’, which were entered into between MLW and the Council on 16 January 2006.
By the Transport Corridor Agreement, MLW agreed to lease to the Council a narrow strip of land running between Ballan Road and Greens Road (‘proposed transport corridor’). The proposed transport corridor lay within the land that was later compulsorily acquired by the Authority as the corridor land and the Area C land.
The recitals to the Lease recorded that the Council wished MLW to refrain from developing the proposed transport corridor for a period of ten years; that MLW agreed to refrain from developing the proposed transport corridor provided that the Council entered into a ten year lease of the proposed transport corridor for use exclusively for outdoor sporting, recreational, cultural or similar outdoor activities and assumed responsibility for its maintenance for that period; and that the Council intended to pursue the development of a train line and railway station on the proposed transport corridor over the course of that ten year period.
Bert Dennis explained the background to this arrangement in his oral evidence. He said that in the mid-1990s, the Council produced a report on the future shape of Werribee that included a rail corridor running parallel to the existing railway line to Geelong. At around this time, Bert and a senior officer from the Council had a discussion about securing the proposed transport corridor, as they realised that if no provision was made for it, it would never be developed. They therefore devised the scheme to set aside land for a period of ten years to give the authorities time to decide whether there would be a train line in the area. As a result, MLW entered into the agreement with the Council to preserve the land for a future transport corridor.
Bert Dennis gave evidence that the width of the proposed transport corridor was arrived at using a notional plan of subdivision to create lots along the corridor for the eventuality that the land was not developed as a train line. At the time, he had no idea whether the development of the transport corridor would involve two rails, four rails or heavy rail. The parties simply made an allocation of land permitting MLW to subdivide the land if the development of the train line did not proceed.
Bert Dennis gave evidence that the parties understood that the Transport Corridor Lease might operate for no more than a week. Had the authorities decided there was to be no train line, the Lease would have been terminated. Ten years was agreed as the outer limit for the operation of the Lease, with a tacit understanding that if the train line did not come about, the Lease would come to an end and MLW would move to develop the land for residential subdivision.
The second set of agreements concerns the arrangements for the transfer of Manor Park land held by MGP to MLW for development.
By agreement dated 21 April 2010 between MGP and MLW, MGP granted to MLW the option to purchase any part or parts of Manor Park at a discount of 12.5% on the most recent valuation (‘Option Agreement’). The discount recognises the activities undertaken by MLW to improve the value of the land, and reflects the fact that MLW, through the development of adjacent land, has brought all of the services to the land. The Option Agreement replaced a very similar option agreement between the parties dated 28 November 2008, which itself replaced earlier option agreements.
A third set of agreements concerns arrangements between MLW and the Council for the development of the western section of the Manor Lakes Estate in the area known as ‘Area E’. Area E forms part of the Manor Lakes Development (Western Section).
On 11 October 2010, following the execution of the Option Agreement, the Council and MLW entered into an agreement under s 173 of the Planning and Environment Act 1987 in respect of the development of Area E. On 15 October 2010, the Council granted a permit for the residential subdivision of part of Area E.[4] The s 173 agreement for Area E terminated on 17 April 2013, when the arrangements were incorporated into a more general s 173 agreement between the Council, MGP and MLW.
[4]The permit was amended on 7 November 2011 to delete reference to the number of lots.
Bert Dennis gave evidence both orally and on affidavit as to the circumstances in which MLW acquired the replacement land.
In his affidavit made on 30 July 2015, Bert Dennis deposed that the core business of MLW was acquiring land and subdividing it for residential use. From time to time, MLW acquired land from MGP and developed that land for residential purposes. He deposed that, had the Authority not acquired the corridor land, the Area C land and the car park land from MLW, those parcels would have been developed by MLW for residential purposes.[5] To the extent that the land taken was subject to the Transport Corridor Lease, had there been no acquisition by a third party for the purposes of developing the transport corridor prior to the expiry of the term of the Lease, MLW would have developed that land for residential purposes at the end of the Lease.
[5]Which includes roads.
Bert Dennis also deposed that the compulsory acquisition of the corridor land and the Area C land had interfered with MLW’s ability to plan and stage development of the Manor Lakes Estate.
In his oral evidence, Bert Dennis explained that prior to the compulsory acquisitions, MLW owned Areas DG, ET and C, and it was proposing to develop them as quickly as possible before purchasing any more land for development. Once the compulsory acquisitions occurred, there was a lot of uncertainty in relation to the development of Areas C and DG. MLW was proposing to develop Area C, but with all the changes that were brought about by the development of the transport corridor, MLW had to prepare a new development plan, and that took a considerable amount of time. The development plan for Area C has now been approved, but as MLW has begun to invest in services, it has identified further difficulties arising from the development of the transport corridor for the RRL project.
The two affidavits made by Bert Dennis on 16 December 2014[6] explain in some detail the difficulties experienced by MLW with the staging of the Manor Lakes Estate development as a result of the compulsory acquisition of the corridor land and the Area C land respectively and the implementation of the purpose for which the land was acquired. He explained that MLW faced limitations on its ability to develop along the Armstrong Road corridor north of Manor Lakes Boulevard due to the compulsory acquisition of the corridor land and the anticipated acquisition of more land for the overflow car park. There were complications associated with road alignment issues and road access into the site and also significant issues around noise and the noise mitigation measures that would be required. This made it difficult to develop the land as anticipated and required MLW to look to other areas for development.
[6]These affidavits were made for the purposes of claims by MLW for solatium, but generally describe the way in which the compulsory acquisitions interfered with the staged development of the Manor Lakes Estate by MLW.
In his affidavit made on 16 December 2014 in relation to the effects of the compulsory acquisition of the corridor land, Bert Dennis deposed as follows in relation to the development of the Area E (replacement) land:
15.Throughout 2008 and 2009, there had been strong demand for land within the Manor Lakes eastern estate, with some 20-50 sales per month. Builders at the time were critical to the success of [MLW’s] land sales, with the majority of the lots within the Manor Lakes estate being sold as house and land packages. The first point of contact for customers seeking to have a house built is the builder. Any loss of support from builders is detrimental to [MLW’s] business.
16.[MLW] was looking to release land within the Property to meet continuing demand. The uncertainty as to access from Ballan Road, however, meant that [MLW] had to look at opening up development on other parts of the estate. The preferred option was a precinct known as ’area C’ which was further to the south and east of the Property. … Due to complications created by the subsequent partial acquisition of land by the [Authority] within area C, [MLW] did not have endorsed plans to allow this development. [MLW] therefore brought forward development in ‘area E’, which is some distance to the west of the Property.
17.The sales for area E were disappointing. This was due principally to the loss of commitment from builders. Builders want customers to be able to visit the display village and the land for sale within close proximity. [MLW’s] display village on Eureka Drive (to the south of the Property) was too far from area E and the route between the two was circuitous.
To similar effect, in his affidavit made on 16 December 2014 in relation to the compulsory acquisition of the Area C land, Bert Dennis deposed:
37.With a continuing demand for residential lots within the Manor Lakes estate, the limitations on its ability to develop in the north, and the delays in obtaining endorsed plans to allow development of Area C, [MLW] was obliged to look elsewhere within the estate. This caused [MLW] to bring forward the development of areas E and F … to meet the demand.
38.Area E was predominantly aimed at first home buyers. [MLW’s] inability to proceed with Area C meant that it could not offer customers the option of premium properties, for example, to take advantage of the considerable visual amenity of the reserve area and waterways around Skeleton Creek. This would have broadened the appeal of the estate beyond the market for first home buyers, at a time when Government incentives to those home buyers were being reduced. Offering a range of property types throughout Manor Lakes would have improved the sales rate across the estate.
Bert Dennis stated that had there been no RRL project, MLW would have purchased the Area E (replacement) land, but later in the process and after the development of the lots in the transport corridor. The rationale underlying the timing of purchases of land from MGP was to secure a continuous supply of land to suit development at the rate at which it was being undertaken, but without buying too much. Buying too much land involved bringing forward unnecessarily stamp duty, purchase costs, land tax and increased rates.
Statutory Framework
MLW and MCC claim compensation for the costs of acquiring replacement land under s 41(1)(d) of the LAC Act as ‘losses attributable to disturbance’. Disturbance loss is one of the factors to which regard must be had when assessing compensation under the LAC Act.
Section 40 of the LAC Act sets out relevant definitions, including the following:
Loss attributable to disturbance means any pecuniary loss suffered by a claimant as the natural, direct and reasonable consequence of –
(b)the fact that an interest of the claimant in that land [the land in respect of which the notice of intention to acquire has been served] has been divested or diminished, being a pecuniary loss for which provision is not otherwise made in this Part.
In Halwood Corporation Ltd v Roads Corporation[7] and Melbourne City Link Authority v Teford Pty Ltd,[8] Batt J (first as a judge of the Trial Division and then as a Justice of Appeal) authoritatively set out the approach to be adopted when construing and applying the words ‘the natural, direct and reasonable consequence’.
[7](1995) 89 LGERA 280 (‘Halwood’).
[8](2001) 113 LGERA 102 (‘Teford’).
In Halwood, Batt J considered the meaning of the expression ‘the natural, direct and reasonable consequence’ in the context of s 98 of the Planning and Environment Act 1987, which gives a right to compensation for financial loss where, among other things, land is reserved for a public purpose under a planning scheme. His Honour referred to the Shorter Oxford English Dictionary definitions to conclude that ‘natural’ meant arising according to the usual course of things;[9] ‘direct’ meant without intervening agency or immediate;[10] and ‘reasonable’ meant not going beyond the limit assigned by reason or not extravagant or excessive.[11] According to his Honour, the three adjectives in combination connoted a very close and limited connection between the event giving rise to compensation and the financial loss suffered.[12] In particular, the word ‘direct’ stood out as being eloquent of the immediacy required between the event (in that case, the imposition of the reservation) and the financial loss suffered.[13]
[9]Halwood (1995) 89 LGERA 280, 303.
[10]Ibid, 302.
[11]Ibid, 303.
[12]Ibid.
[13]Ibid 303-304.
In Teford, the Court of Appeal considered the meaning of those words in the context of the LAC Act. Justice Batt (with whom Tadgell and Chernov JJA agreed) referred to the view that he expressed in Halwood, and emphasised his conclusion that the three adjectives in combination connoted a very close and limited connection between the event and the financial loss suffered.[14] Further, in considering whether a purchase of replacement land was the ‘direct’ consequence of the compulsory acquisition, Batt JA rejected as direct a purchase that had its genesis in the compulsory acquisition but where the compulsory acquisition was ‘no more than a necessary condition’ for the purchase of the land, which involved ‘the independent act of the [claimant] in making, at its choice, an additional investment’.[15]
[14]Teford (2001) 113 LGERA 102, [24].
[15]Ibid, [28].
Roads Corporation v Schembri[16] also concerned claims for replacement land costs as losses attributable to disturbance under the LAC Act. Justice Osborn stated that the reasoning of Batt J in Halwood (concerning s 98 of the Planning and Environment Act 1987) was to be regarded as illuminating the ordinary meaning of the words ‘natural, direct and reasonable consequence’ in the LAC Act.[17] He said that the word ‘natural’ means arising according to the usual course of things; the word ‘direct’ connotes an immediate and substantial causal connection; and the word ‘reasonable’ connotes a reasonable response to the event triggering the right to compensation.[18]
[16](2009) 28 VR 229.
[17]Ibid, [28].
[18]Ibid, [25].
Most recently, in Secretary to the Department of Economic Development, Jobs, Transport and Resources v Stella,[19] Bell J held, based on Halwood, that the test of causation constituted by the expression ‘natural, direct and reasonable consequence’ was to be distinguished from and was narrower than common law tests of causation based (for example) on what was ‘reasonably foreseeable’. The word ‘direct’ has work to do.[20] Referring to Teford, his Honour restated the proposition that the statutory test of causation is stricter than the common law test and said:[21]
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 [ ] all of the facts and circumstances, the purchase constitutes an independent additional investment.
[19][2016] VSC 260.
[20]Ibid, [39].
[21]Ibid, [41].
It is therefore necessary for MLW to establish that the purchase costs for the replacement land for which claims have been made as losses attributable to disturbance are the natural, direct and reasonable consequence of the compulsory acquisition of the acquired land in the sense that there is ‘a very close and limited connection’ between the divestment of MLW’s interests in the land taken and the purchase of each of the parcels of replacement land. MCC must establish the same in respect of the purchase of replacement land that it intends to acquire. In each case, the compulsory acquisition must be more than the genesis of or a necessary condition for the acquisition of the land in question in the sense of producing funds for ‘an independent additional investment’.
MLW’s claim
Authority’s submissions
The Authority’s case that the replacement land costs claimed by MLW are not losses attributable to disturbance is based on a number of propositions:
(a) MLW has not suffered pecuniary loss as a result of the acquisitions for which it has not already been compensated, as it has received compensation for the market value of the land taken on the basis that its highest and best use was for the purpose of urban residential development. To achieve this value, the land had to be sold and this required MLW to give up any future benefit from its purchase costs;
(b) The purchase costs of the replacement land are not the consequence of the RRL project acquisitions, because MLW was always going to buy the Area E parcels for urban development;
(c) The Area E parcels cannot be regarded as replacement land for the corridor land or the Area C land because part of that land was subject to the Transport Corridor Lease and could not be sold as urban land at the dates of acquisition; and
(d) The amount of land involved in the replacement land purchases and the value of that land far exceed the amount and value of the land compulsorily acquired, with the consequence that the Area E land cannot reasonably be regarded as ‘replacement land’.
The Authority also argues that MLW is barred from receiving compensation for the replacement land costs because s 41(2) of the LAC Act is engaged.
As to MCC’s claim, the Authority says that MCC has not shown any actual loss or that any loss was the natural direct and reasonable consequence of the fact that MCC’s interest in the acquired land was divested.
The ‘sunk costs’ thesis
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.
The position, so the Authority says, is very different where a person acquires a property which he or she intends to hold, for example, to live in. If the property was acquired for $1 million, a further $55,000 will have been paid to the government in the form of stamp duty. The day after the acquisition, the land would still be worth $1 million, but the landowner would want more than $1 million to give it up, having just incurred the purchase costs. The landowner could purchase another property for $1 million, but would then have to pay stamp duty on the second property and would be out of pocket by the amount of the purchase costs. In such a circumstance, the Authority says, it is entirely appropriate that there be an award for lost purchase costs under the head of disturbance. However, if the landowner in question granted another person an option to buy the property within a relatively short period of time, and the property was compulsorily acquired before the option could be exercised, the landowner would only have lost the value of the property. He or she would not have lost the benefit of the purchase costs, because the period of his or her anticipated holding was only a matter of months.
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.
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.
I reject this submission.
In his evidence, Bert Dennis explained that when MLW buys land for urban residential development, it does so on its trading account,[22] and stamp duty and purchase costs become part of the development costs that are recouped from sales of the developed land.
[22]MLW cannot claim a capital gains tax rollover for its development land. By contrast, MCC buys land for a ‘long-term hold’ on its capital account and is eligible for a capital gains tax rollover.
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.
There is longstanding authority on the availability of compensation under the LAC Act for the costs of replacing land that was a developer’s stock in trade.[23] Thus, for example, in Redwood Court Pty Ltd v Roads Corporation,[24] Gobbo J allowed a claim for legal fees and stamp duty for the acquisition of replacement land on the basis that the land was stock in trade that had to be replaced. Referring to earlier cases,[25] his Honour said:[26]
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.
[23]Batt JA referred to a number of authorities in footnote 18 in Melbourne City Link v Teford (2001) 113 LGERA 102.
[24](1992) 76 LGRA 358.
[25]Kennedy Street Pty Ltd v The Minister (1962) 8 LGRA 221; and Chapman v The Minister (1966) 13 LGRA 1.
[26]Ibid 362.
In Blacktown City Council v Fitzpatrick Investments Pty Ltd,[27] the New South Wales Court of Appeal accepted the claimant’s argument that it was in the business of developing land for a profit and if it wanted to continue in this business, it had to do what it did, which was to buy other land.[28] The Court said: [29]
[W]here land is acquired from a person who invests the compensation then received in order to continue to carry on the same business as was formerly carried on the acquired land, an expense incurred in buying replacement land is a direct and natural consequence of the acquisition, and not a consequence of a decision to invest in some way that is novel to the investor.
[27][2001] NSWCA 259 (‘Blacktown’).
[28]Ibid, [34].
[29]Ibid, [35].
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.
The effect of the Corridor Lease
The Authority further submits that MLW cannot prove that the losses that it claims are the natural or direct consequence of the divestment of its interests in the parts of the corridor land and the Area C land leased to the Council under the Transport Corridor Lease. According to the Authority, while the Lease did not affect the assessment of the market value of the corridor land or the Area C land, the existence of the Lease is relevant to whether the losses claimed are attributable to disturbance, because at the dates of acquisition the land that was the subject of the Lease (the proposed transport corridor) was not available for development by MLW and had been removed from its trading stock. The Authority contends that there should be no compensation for the costs of replacing land that was not in fact available for development on the relevant dates. Insofar as the replacement land was intended to replace MLW’s stock in trade, only the land that did not include the proposed transport corridor was replaceable as stock in trade.
Again, I do not accept this submission.
The relevant parts of the corridor land and the Area C land were zoned for urban development and were available for urban development, subject to the Transport Corridor Lease. To the extent that the Lease created a temporary impediment to the development of that particular part of MLW’s land, it was no different from other impediments that might affect the course of the development of MLW’s land, such as environmental or other regulatory controls. Restrictions on the development of land are common and do not remove the land in question from the developer’s trading stock. The developer may have to obtain approvals or set aside other land for habitat in lieu of the land in question, but that does not mean that the land ceases to be part of the developer’s trading stock.
In this case, there was a legal agreement with the Council affecting the development of the proposed transport corridor in the form of an arrangement that had four years to run from the date of the first acquisition. In the context of development land, four years is not a long time. This is reflected in the fact that the Lease was not sufficiently important to cause the valuers to treat the proposed transport corridor any differently from the other land that was valued on the basis of its potential for urban development.
In my view, those parts of the corridor land and the Area C land that formed the proposed transport corridor and were subject to the Transport Corridor Lease remained part of MLW’s stock in trade. They were to be developed upon termination or expiry of the Lease which, on the evidence of Bert Dennis, could have happened at any time.
Natural, direct and reasonable consequence?
As discussed, in order to be compensable as losses attributable to disturbance, the costs of purchasing the replacement land must have been ‘the natural, direct and reasonable consequence’ of the compulsory acquisition of the corridor land, the Area C land and the car park land.
MLW’s interests in the land taken were divested in December 2011, April 2012 and June 2013. The purchases of the replacement land did not commence until November 2013, six months after the date of the final divestment (of MLW’s interest in the car park land). Further parcels of replacement land in and around Area E were purchased in September 2014 and March 2015. The first two parcels of replacement land in Area E had a value roughly commensurate with the value of the corridor land and the Area C land. However, the third parcel of replacement land in Area E was valued at over $10 million, whereas the car park land was valued at only $1,820,000. As a result, MLW claims the purchase costs of only a small proportion of the third parcel of replacement land.
Timing
The Authority questions the causal nexus between the divestment of MLW’s interests in the corridor land, the Area C land and the car park land and the purchase costs for the replacement land on the basis that MLW would have purchased the replacement land whether or not the compulsory acquisitions occurred.
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.
Thus, on 28 November 2008 and 21 April 2010, while MGP still owned the parcels of replacement land in Area E, it entered into agreements with MLW giving MLW the option to purchase any part or parts of Manor Park, including the parts that became the replacement land. The Option Agreement provided for a discounted purchase price, making the purchase of the land very attractive and, so the Authority says, inevitable. The Authority argues that once the Option Agreement was in place, it would have been ‘madness’ for MLW not to have acquired the replacement land from MGP at some stage. The acquisition of the replacement land was bound to happen and was not a consequence of the compulsory acquisition, let alone its natural, direct and reasonable consequence.
According to the Authority, the chronology of relevant events shows planning for the development of the Area E land to have been well advanced by the time of the first compulsory acquisition (the corridor land). The relevant events include entry into the Area E s 173 agreement on 11 October 2010, the grant of the permit that applied to the initial development of the Area E land on 15 October 2010 (amended on 7 November 2011) and the fact that some time before that permit was granted, work would have been done to obtain the permit. All of this occurred before the compulsory acquisition of the corridor land and well before the acquisition of the Area C land and the car park land. A further s 173 agreement in respect of the development of Area E was entered into on 17 April 2013, before the compulsory acquisition of the car park land.
In these circumstances, so the Authority says, MLW’s purchase of the replacement land was not ‘the natural, direct and reasonable consequence’ of the divestment of MLW’s interests in the land taken.
In cross-examination, Bert Dennis was asked about the development of the Area E land and the various permissions and arrangements obtained or put in place for the development of that land. He agreed that MLW initiated work to obtain a planning permit for Area E well before the date of any of the compulsory acquisitions and that, had there been no compulsory acquisitions, MLW would still have bought the three parcels of land in Area E at some stage. He also agreed that the Option Agreement enabled MLW to buy land at a discounted rate from MGP and that sales from MGP to MLW were sales between two related parties.[30]
[30]However, he gave evidence that MGP was owned by his two sons and was separate from the umbrella that was described as the Dennis Family Corporation.
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.
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.
The quantity arguments
The Authority submits that, as the basis for MLW’s claim for disturbance losses relates to the replacement of land, MLW should be confined to recovering purchase expenses in relation to the same area of land as the area of land taken for the RRL project. The total area of land taken was just over 12 hectares, while the total area of the replacement land was almost 57 hectares.
An accepted basis for the assessment of replacement land costs is by reference to the amount of compensation awarded for the market value of the land taken.[31] A claimant whose property is valued at $5 million will replace it with another of similar value and become liable to pay stamp duty based on the value of that property. As the Authority emphasised in its submissions on ‘sunk costs’, when a claimant is compensated for the purchase costs of replacement land, what is being replaced is the benefit of the purchase costs of the land taken. If the area of the land taken rather than its value is used, the financial loss actually suffered will not be addressed.
[31]See for example Melbourne City Link Authority v Teford (2001) 113 LGERA 102 and Roads Corporation vSchembri (2009) 28 VR 229.
The Authority further submits that the market value of the land taken (agreed at $12,840,00) is not reflected in the value of the three parcels of replacement land. As the value of the first two parcels of replacement land was $12,595,500 (almost equal to the value of the land taken), it says that the purchase of a third parcel for $11,800,00 is neither a direct nor a reasonable consequence of the compulsory acquisition.
In Teford,[32] the Court of Appeal held that the purchase of a particular property as replacement land for land compulsorily acquired was neither a reasonable nor a direct consequence of the compulsory acquisition. The land acquired by the Authority had a market value of $4,210,000. The claimant acquired three properties as replacement land. The first two properties had a combined value of $4,225,000. A third property was acquired for $1,650,000. The Court held that it was open to find that the stamp duty referable to the first two purchases was the natural, direct and reasonable consequence of the acquisition, based on the replacement land purchases themselves being a direct and reasonable consequence. However, the purchase of a third property was neither a direct nor reasonable consequence, having regard to both the amount already expended and the cost of the third property. While the purchase of the third property had its genesis in the compulsory acquisition, the acquisition was not the direct cause of the purchase. The direct cause of the purchase was the claimant’s decision to make a further investment after having re-invested more than the value of the land taken.[33]
[32](2001) 113 LGERA 102.
[33]Ibid, [28].
In this case, the assessed (agreed) value of the corridor land was $5.77 million and the first parcel of replacement land was valued by CKC at $7.845 million. The assessed value of the Area C land was $5.25 million and the second parcel of replacement land was valued by CKC at $4.75 million. The first purchase of replacement land was therefore more valuable than the corridor land but the second purchase was somewhat less valuable than the Area C land. The first two parcels combined were roughly equivalent in value to the combined value of the corridor land and the Area C land. However, the third parcel was acquired in March 2015 for a purchase price of $10,325,000 (based on the CKC valuation of $11,800,00). This was much greater than the value of the car park land.
There was no evidence about why the third parcel of land acquired in March 2015 was so large. However, MLW claims purchase costs based on only a portion of the value of the third parcel, being the difference between the combined purchase prices of the first two parcels of replacement land and the value of the land taken.
Both the land taken and the replacement land were destined to be divided up into a large number of much smaller lots. In this context, it makes sense to treat the replacement lands as divisible in order to achieve the closest possible equivalence between the value of the land compulsorily acquired and the value of the replacement land.
Given the exercise undertaken by the claimant to achieve this equivalence, I reject the submission that the purchase of the third parcel of land cannot be considered to be the reasonable consequence of the compulsory acquisition. After the purchase of the first and second replacement parcels, MLW still had a notional amount available to it with which to purchase replacement land. MLW purchased the third parcel on the basis that only some of it would qualify as replacement land, having regard to the notional amount available. This was not a situation like the one in Teford, where the claimant decided to make a further investment after having re-invested more than the value of the land acquired from it.
Plainly, MLW cannot claim the stamp duty costs for the whole of the third parcel of replacement land. But it can, in my view, claim stamp duty costs in relation to the notional acquisition of a part of that land. In so doing, it is seeking the costs of replacing land purchased by it for residential subdivision as the Manor Lakes Estate with land of an equivalent value that is also destined for residential subdivision as the Manor Lakes Estate.
As a further matter, however, the Authority submits that MLW has ‘used a technique to have the Teford method applied more generously than it should’. This is because MLW has calculated the difference between the value of the first two parcels of replacement land and the value of the land taken using a figure for the former based on what MLW paid for the replacement land under the Option Agreement (market value less 12.5%) rather than the independently assessed CKC market value of that land (upon which it paid stamp duty).
The market value of the land taken (the corridor land, the Area C land and the car park land combined) was $12.84 million. CKC valued the first two parcels of replacement land at $7.845 million and $4.75 million respectively, producing a combined value of approximately $12.6 million. However, MLW’s claim for stamp duty costs for the third replacement parcel is based on the combined value of the first two parcels being approximately $11.02 million, reflecting the discount at which MLW was able to acquire the replacement land. This creates a bigger difference between the combined value of the first two parcels and the market value of the land taken, resulting in a larger claim for stamp duty costs.
Using the CKC valuations, the combined value of the first and second replacement parcels s is $12,595,500. The value of the land taken is $12,840,000, and the difference between the two is approximately $244,500. This stands in contrast to the figure used by MLW of $1,818,938, which generates a much higher figure for stamp duty costs.
The stamp duty costs claimed for the first and second replacement parcels are based on the CKC valuations of the replacement parcels, not on the discounted amounts actually paid by MLW. The market value of the land taken was, of course, also the (undiscounted) independently assessed market value of the land acquired by the Authority.
However, MLW submits that when compensating for the costs of purchasing replacement land, what is important is the price actually paid for the replacement land. It is not for the Court to investigate whether the purchaser has done well or badly from the bargain. Furthermore, in this case, the 12.5% discount was applied to compensate MLW for the costs of bringing services to the border of the land being purchased.
What may be replaced at the expense of the acquiring authority is land of a certain value, being the value of the land taken. MLW is permitted to replace land up to a value of $12,840,000 (or thereabouts) and to claim stamp duty costs based on the purchase of land of that value. The stamp duty compensation to which MLW is entitled in respect of the first two replacement parcels represents stamp duty on replacement land valued at $12,595,500. If MLW is compensated for stamp duty costs on land valued at a further $1,818,938, it will receive compensation for stamp duty costs on land valued at $13.8 million, well over the $12.84 million value of the acquired land.
In my view, MLW is entitled to stamp duty costs associated with the purchase of the third parcel of replacement land based on a replacement land value of $244,500 only.
Section 41(2)
The other major limb of the Authority’s argument against MLW receiving compensation for its purchase costs of the replacement land is that such compensation is precluded by s 41(2) of the LAC Act.
Section 41(2) relevantly provides:
(2)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)….
(b)any loss attributable to disturbance that would necessarily have been incurred in realizing that potential.
Section 41(2)(b) operates to preclude compensation for what might otherwise have been a recoverable loss in circumstances where the market value of the land is assessed on the basis of its highest and best use, but that was not the use to which the land was put at the date of acquisition.
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.
Further, I am not persuaded that the expression ‘other than the purpose for which it was used at the date of acquisition’ is a reference to the physical use of the land at the date of acquisition. In Blacktown,[34] Stein JA held that where the claimant’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 for subdivision was a use of the land in fact.[35]
[34][2001] NSWCA 259.
[35]Ibid, [4].
The land here in question was land that was ripe for subdivision but had not yet been subdivided. The purpose for which it was used on the dates of acquisition was as the stock 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. In my view, therefore, holding the land for subdivision constituted its ‘use’ on the dates of acquisition for the purposes of the phrase ‘other than the purpose for which it was used on the date of acquisition’ in the chapeau to s 41(2) of the LAC Act. That was also the basis upon which its market value was assessed upon its compulsory acquisition. The condition in the chapeau is therefore not satisfied.
For the reasons I have previously given, the proposed transport corridor is in no different position.
Section 41(2)(b) does not preclude an award of compensation for MLW’s costs of purchasing replacement land.
MCC’s replacement land
The MCC land was compulsorily acquired by the Authority in December 2011. MCC seeks to recover an amount for future stamp duty liability and other replacement land purchase costs on the basis that it is in the process of acquiring replacement land.
The Authority submits that the Court should not be satisfied that MCC will, in the future, acquire land that can be properly described as replacement land and that its claim is ‘all too vague and airy fairy’.
Marshall Dennis gave evidence that it is MCC’s intention to purchase land to replace the land taken. On 19 April 2013, MCC applied to the Australian Taxation Office for an extension of time to acquire replacement land under the capital gains tax (‘CGT’) rollover provisions. On 10 May 2013, the Commissioner made a private ruling extending the time for MCC to purchase a replacement asset until the end of the financial year ending 30 June 2017 (the ‘CGT ruling’).
MCC submits that its position is the same as that of Dr Beresford in Teford, the only difference being that MCC has not yet secured replacement land. The land taken was, and the land to be purchased is, land for development and holding in the long term as an asset.
MCC argues that when considering the delay, the Court should bear in mind that MCC did not formulate its claim until March 2014, and this was understandable given the complexities that it confronted in relation to the RRL project. In the context of this delay, MCC sought and obtained the CGT ruling in May 2013. MCC now has until 30 June 2017 to replace the acquired land and it has been going about trying to do so. Marshall Dennis has been actively looking for replacement land, has kept a dedicated file of replacement properties considered, and is currently putting together a proposal for an acquisition of land across the road from the Manor Lakes Activity Centre. Furthermore, Bert Dennis gave evidence that, in the past, each time land has been acquired from a company in the Dennis Group, that land has been replaced in order to take advantage of the CGT rollover relief.
According to Marshall Dennis, since October 2012 MCC has been actively investigating the purchase of replacement land. His affidavit documents the inquiries made and preliminary feasibility assessments undertaken in relation to the following properties:
(a) Torquay Central Shopping Centre (October 2012) (not tendered for);
(b) 926-930 High Street, Armadale (November 2012) (no offer made);
(c) portfolio of 7-Eleven stores in Queensland (November 2012) (no attendance at auction);
(d) Bunnings store in Bairnsdale (January 2013) (considered to be over-valued);
(e) 1559-1567 High Street, Glen Iris (January to July 2013) (not proceeded with because of difficulties in obtaining a rezoning to allow part of the site to be used for offices);
(f) 277 Camberwell Road, Camberwell (March 2013) (not proceeded with because of inadequate on-site car parking and concerns about potential health risks associated with old cooling towers);
(g) 627-631 Glenferrie Road, Hawthorn (April 2013) (not proceeded with because of planning uncertainty);
(h) Equity Trustees building at 472-478 Bourke Street, Melbourne (July 2013) (hesitated because of limited flexibility with internal configuration and because of significant heritage issues and missed out); and
(i) 865-871 Dandenong Road, Malvern East (October 2014) (hesitated because the property required substantial renovation and there was a lack of on-site car parking, and then missed out).
Marshall Dennis also deposed that in late 2011, when the Authority compulsorily acquired the land from MCC, the commercial property market was in a trough. However, a significant upturn in the commercial property market over the last two years has seen prices climb and made it harder for MCC to find a replacement property of comparable value in which to invest. He confirmed that MCC intended to take advantage of the extended CGT rollover relief and that it was continuing to make inquiries about potential replacement land opportunities, including greenfield sites in western Melbourne.
In his oral evidence, Marshall Dennis was asked about the criteria used for identifying potential replacement land. He said he had been looking at properties that showed a similar long-term capability for development, re-development, and holding. He also said that the general investment market had affected his ability to locate and secure a suitable replacement property. The low interest rate environment, investors chasing high yield returns, volatility in the equity markets and the introduction of Asian money had made finding a suitable replacement asset difficult. He said that while his affidavit referred to searches up to the end of 2014, he had continued on behalf of MCC to look for replacement land.
It was put to Marshall Dennis in cross-examination and he agreed that the Dennis family is always on the lookout for good investments, that a good investment was not necessarily one associated with the Dennis family residential developments, and that good opportunities might occur elsewhere in the market. He agreed that he is actively involved in looking for opportunities on behalf of the Dennis Family Group and that, as a potential investor, he is often in touch with agents, obtaining details of properties, doing feasibility studies and the like. However, he disagreed that when he investigated the properties that are listed above, the buying entity had not been determined. He said that the purpose of the investigation was to capitalise on the CGT rollover relief obtained by MCC as a result of the compulsory acquisition.
In re-examination, Marshall Dennis was asked about the source of the documents that were exhibited to his affidavit relating to the properties investigated. He said that since the CGT ruling, he had kept a hard copy file containing these documents and that there were also soft copy files on his computer containing things like title particulars, title plans and so forth. The file has a handwritten note on the front that reads ‘Manor Commercial CGT rollover’.
Marshall Dennis also said that MCC was looking to buy some land to the immediate north of the existing 3.61 hectares so far developed as the Manor Lakes Activity Centre, as well as a further parcel of land adjacent to Tarneit Central on the north side of Leaks Road.
MCC submits that on the basis of this evidence, the Court should find that it is more likely than not that MCC will purchase replacement land.
Two overlapping issues arise in relation to this claim. First, is it more likely than not that MCC will purchase land that qualifies as ‘replacement land’? Secondly, is a positive finding open on the evidence that the land replacement expenses are ‘in the process of being incurred’? [36]
[36]Roads Corporation v Melbourne Estates and Finance Co Pty Ltd [1993] 2 VR 602, 617.
MCC lost a large (3.45 ha) and valuable piece of land that it held and proposed to hold into the future for commercial development. When asked what criteria he had been using to identify potential replacement properties, Marshall Dennis said he looked for properties that showed a similar long term capability for development, re-development and holding as an income-earning asset.
Most of the properties considered by Marshall Dennis met that description. It seems likely that land will be acquired by MCC in the future that meets this description and will qualify as replacement land.
As to whether the Court can be satisfied that the expenses are in the process of being incurred, this is not a situation like the one in Roads Corporation v Melbourne Estates and Finance Co Pty Ltd,[37] where there had been a delay of years, ‘coupled with no evidence as to ongoing search or preparations and no explanation for the inactivity’[38] or in Equity Trustees Executors and Agency Co Ltd v Melbourne and Metropolitan Board of Works,[39] where Gobbo J refused to allow replacement land costs because ‘there was no evidence that any steps had been taken by anyone to secure a replacement house or houses or even to inspect a house or houses’.[40] There is, in my view, the necessary substratum of fact to support a finding that the expenses are in the process of being incurred, in the sense that the search for a replacement property has been and is being undertaken.
[37][1993] 2 VR 602.
[38]Ibid, 617.
[39][1994] 1 VR 534.
[40]Ibid, 551-552.
It is true that the ‘paper trail’ in relation to the search for a replacement property is somewhat thin, and that the properties that have found their way into the ‘Manor Commercial CGT rollover’ file are varied and are quite different from the acquired land in that they all involve developed land. The closest ‘fit’ is the property across Ballan Road, which did not make it into the file.
Nonetheless, the contents of the file and the evidence of Marshall Dennis that the properties in question were under consideration as replacement properties for the acquired land establish that efforts were made, and continue to be made, to acquire replacement land.
I am satisfied that MCC’s claim for stamp duty costs on a land value of $6,900,000 is made out. I am also prepared to allow the estimated general costs of $5,000, although I note that the registration costs claimed by MLW do not exceed $2,000 per parcel.
Interest
Section 53 of the LAC Act provides for interest to be paid on compensation in the following terms:
(1)If an amount of compensation is awarded by the Court or the Tribunal under this Act, the amount that represents the difference between the amount of compensation awarded and the amount of compensation offered by the Authority immediately before the claimant’s claim became a disputed claim bears interest at the rate for the time being determined under s 52 from –
(a)the date of acquisition of the claimant’s interest; or
(b)the date on which the Authority entered into possession of the land in which that interest subsists -
whichever is the earlier, until the date that the compensation is paid by the Authority.
In this case, there are disputed claims for compensation in relation to replacement land costs. The effect of s 53 is that interest is payable on amounts that are awarded as replacement land costs from the dates of acquisition to the date or dates of payment of the compensation awarded.
The Authority submits that the formula for calculating interest in s 53 is unfair where compensation is payable in respect of amounts actually incurred by the claimant after the date of acquisition. In this case, the stamp duty that MLW seeks to recover was only paid in 2014 and 2015, but compensation for those payments will attract interest from the (much earlier) dates of acquisition. The Authority submits that it would be appropriate for MLW to recover interest on and from the date that it actually paid the stamp duty, and that, in order to prevent MLW receiving a windfall gain, it is necessary to discount any assessed amount of compensation back to the relevant dates of acquisition.
In substance, the Authority asks the Court to discount the amount of compensation awarded for replacement land costs to ‘cure’ the unfairness of the windfall gain in relation to interest. It contends that the appropriate discounting period for amounts actually incurred is the period between the date the expenses were incurred and the date of acquisition. The discount rate would be the rate applicable under s 53 of the LAC Act. This would have the net effect that the amount recovered by MLW would be equivalent to the assessed amount of disturbance loss plus interest from the date that loss was actually incurred at the statutory rate under s 53.
The Authority submits that the concept of discounting a loss back to an earlier date is well accepted in the law and that it should be applied to disturbance losses under the LAC Act.
In support of this submission, the Authority relied on the decision of Wilcox J in Hubertus Schuetzenverein Liverpool Rifle Club v The Commonwealth,[41] which concerned a claim based on provisions in the Commonwealth legislation[42] providing for compensation to be awarded on a reinstatement basis. Justice Wilcox held that the only way to comply with the statutory requirement that the amount of compensation payable be such amount as would justly compensate the claimant was to discount the agreed amount of compensation so as to take account of the fact that the Club would be entitled to interest on the assessed compensation from the date of resumption, even though the assessment was based on expenditure incurred, or to be incurred, a long time after the date of resumption and at then current prices.[43]
[41][1994] FCA 1428.
[42]Lands Acquisition Act 1989 (Cth).
[43][1994] FCA 1428, [25].
However, on appeal, the Full Court Federal Court of Australia[44] held that the entitlement to interest was not relevant when determining the amount of compensation to be awarded. There was a clear distinction between compensation and interest under the statute and the structure of the provision for interest[45] emphasised this distinction by treating them as discrete matters.
[44]Hubertus Schuetzenverein Liverpool Rifle Club Ltd v The Commonwealth (1995) 58 FCR 46.
[45]Section 91 of the Lands Acquisition Act 1989 (Cth).
The same distinction can be found in the LAC Act. The LAC Act provides, in Part 3, for the right to compensation; in Part 4, for the measure of compensation; and, in Part 6, for the payment of compensation and interest on compensation. The right to compensation and the measure of compensation are therefore dealt with in different parts of the LAC Act from the interest provisions. In Part 4, s 41 sets out the general principles on which compensation is to be based. Section 41(1) sets out the factors to which regard must be had in assessing compensation and none of these factors refers to or includes interest. In Part 6, s 53 provides for interest to be payable on the amount of compensation, this amount having been arrived at in accordance with Part 4. This separation, in my view, evinces a legislative intention that the entitlement to compensation and the measure of compensation be separate and distinct from the entitlement to interest.
Moreover, the entitlement to interest in s 53 is based on an amount of compensation having been awarded. The award is first in time, which precludes the entitlement to interest being taken into account in determining the award.
This construction is supported by s 56 of the LAC Act, which provides for interest in respect of expenses.[46] Section 56 provides that amounts awarded in respect of expenses bear interest from the date on which the claimant paid the expenses. This is so, despite anything to the contrary in s 53 or s 54. It is plain from these words that s 56 ‘carves out’ expenses from the general rule in s 53 and that, were it not for the express provision in s 56 for interest on amounts awarded for expenses, a claimant would be entitled to interest on expenses backdated to the date of acquisition, no matter when the expenses were incurred.
[46]It is not submitted by the Authority that the replacement land costs were expenses for the purposes of s 56.
The award of compensation will not be adjusted in the manner contended for by the Authority.
Conclusions
MLW and MCC have made out an entitlement to recover the costs of replacing the land that was compulsorily acquired for the RRL project.
Subject to any mathematical or other adjustments that may need to be made, Orders will be made to the following effect:
(1) Pursuant to s 41(1)(d) of the LAC Act, the Authority pay MLW the following amounts in respect of stamp duty and transfer registration fees:
(a) In relation to its purchase of the land described in certificate of title volume 11444 folio 810, stamp duty in the amount of $431,502 and transfer registration fees of $1,577;
(b) In relation to its purchase of the land described in certificate of title volume 11552 folio 976, stamp duty in the amount of $261,250 and transfer registration fees of $1,588;
(c) In relation to its purchase of the land described in certificate of title volume 11187 folio 968, stamp duty calculated on a land value of $244,000 and transfer registration fees of $1,588;
(2) Pursuant to s 41(1)(d) of the LAC Act, the Authority pay MCC the following amounts in respect of stamp duty and general land purchase costs:
(a) In relation to its proposed purchase of replacement land to a value of $6,900,000, stamp duty of $379,500 and general costs of $5,000.
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