Ace Developments Limited v Attorney-General
[2018] NZHC 1705
•11 July 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2015-485-933 [2018] NZHC 1705
BETWEEN ACE DEVELOPMENTS LIMITED
Appellant
AND
ATTORNEY GENERAL Respondent
Hearing: 5 March 2018 Appearances:
G D Jones and J Patrick for Appellant
P H Higbee and E J Couper for RespondentJudgment:
11 July 2018
JUDGMENT OF NICHOLAS DAVIDSON J
A. Introduction ……………………………………………………… [1] Nub of the appeal ………………………………………………… [7] B. Before the Panel ………………………………………………….. [10] Mr Hill’s submission to the Panel for Ace ……………………….. [12] The Panel Report …………………………………………………. [18] C. Litigation Antecedent to appeal ………………………………… [29] Ace Developments Limited v Attorney-General (High Court)…… [30] Ace Developments Limited v Attorney-General (Court of Appeal) [46] D. The submissions on appeal ……………………………………… [60] The competing positions ………………………………………….. [60] For Ace ……………………………………………………………. [62] For the Crown ……………………………………………………. [74] E. Discussion ………………………………………………………… [87] “Business” ………………………………………………………... [87] First alleged error – failure to allow disturbance costs …………. [88] Second error alleged – valuation, legal costs and other ………… [96] F. Disposition ………………………………………………………... [104]
ACE DEVELOPMENTS LTD v ATTORNEY GENERAL [2018] NZHC 1705 [11 July 2018]
A. Introduction
[1] This judgment is concerned with the correct measure of compensation for property compulsorily acquired (“taken”) by the Crown for the Metro Sports Facility in Christchurch, part of the rebuild of the city after the Canterbury Earthquake sequence which began in September 2010.
[2] Ace Developments Limited (“Ace”) owned property at
115-117 Moorhouse Avenue, Christchurch, which was developed and leased to car dealers, Ace Sales Limited and Orix Car Sales. It was taken by proclamation under the Canterbury Earthquake Recovery Act 2011 (“the CER Act”) and vested in the Crown on 14 August 2014.
[3] Part 2, sub-pt 5 of the CER Act established a process to determine compensation, and while that Act was repealed by the Greater Christchurch Regeneration Act 2016 (“the Regeneration Act”), compensation claims not completed ran on under the CER Act.
[4] Ace lodged a claim for compensation on 24 April 2014, seeking $8,135,029 which included the purchase of land in Moorhouse Avenue in substitution for that taken. A Compensation Panel (“the Panel”), heard the claim on 26 June 2015 and the Associate Minister, as the Minister’s delegate, attended the hearing. The Panel reported to the Associate Minister and a decision issued on 29 October 2015 held that Ace was entitled to compensation of $3,378,899.11 plus interest.
[5] Ace appeals against that decision under s 69(1A) of the CER Act, to which appeals pt 20 of the High Court Rules applies. The appeal proceeds by way of rehearing. It involves analysis of the evidence given before the Panel. Ace sought to improve its evidential position by seeking leave to adduce additional evidence on this appeal, but leave was refused by Gendall J,1 and an appeal against that
judgment was also dismissed.2
1 Ace Developments Ltd v Attorney-General [2016] NZHC 2467.
2 Ace Developments Ltd v Attorney-General [2017] NZCA 409, [2017] 3 NZLR 728.
[6] In response to the judgments which refused leave to adduce further evidence, Ace has narrowed its claim on appeal, recognising that parts of its claim cannot stand. It no longer seeks compensation for the cost of purchasing substitute land, but says it should have the costs of developing a substitute site so that its improvements are equivalent to those taken. That includes the costs of demolition, erecting new buildings and finding a tenant. Ace intended to develop two adjoining parcels of land at 63 and 69 Moorhouse Avenue as a substitute site, but now intends only to acquire and develop 63 Moorhouse Avenue from a company with which it is associated through shareholding. It seeks compensation to develop the same building which it intended to put on two sites, as costed by Rawlinsons Quantity Surveyors (“Rawlinsons”) on one site of 2,132m2. The land taken was 2,395m2.
Nub of the appeal
[7] The nub of this appeal, with some ancillary issues, is whether Ace can claim the cost of developing the site at 63 Moorhouse Avenue, in order to lease it for car sales, as a “disturbance” payment under s 66 Public Works Act 1981 (“PWA”), or whether it has been fully compensated when paid the value of the property taken, which included improvements. It says it has not been paid the “full compensation” to which it is entitled, whereas the respondent says that Ace has received full compensation and that:
The claimed amounts relate to an unreasonable development proposal, allow for double recovery or betterment, or are unsupported by the evidence, and are therefore unrecoverable.
[8] Ace’s disturbance claim was rejected in part because the cost of purchasing replacement property, in this case land, is not a valid disturbance cost. The Court of Appeal held that to be correct, and Ace does not challenge that.3 A claim of $820,000 for loss of “capital value” is no longer pursued. However, Ace still challenges the Panel’s finding that neither it nor any reasonable business person would spend $6,549,000 to gain an asset worth $2,580,000 and submits the Panel and the Minister were wrong in fact and in law as it has not received “full
compensation”.
3 Ace Developments Ltd v Attorney-General, above n 2, at [82].
[9] The claim now made, with 69 Moorhouse Avenue no longer part of Ace’s
plans, is expressed as follows:
Demolition costs (at 63 Moorhouse Avenue) $35,000 Cost of building $2,627,000 Leasing fees $47,000 Total disturbance claim $2,709,000 Less (69 Moorhouse Avenue) - $650,000 $2,059,000
B. Before the Panel
[10] The claim for disturbance costs arising out of relocation was made as follows:
Cost to buy 63 Moorhouse Avenue $2,275,000 Cost to buy 69 Moorhouse Avenue $1,500,000 Cost to demolish existing buildings $100,000 Cost of new building $2,627,000 Leasing fees $47,000 Total $6,549,000 Less value 115 Moorhouse Avenue - $3,400,000 $3,149,000
[11] The Panel did not accept that Ace or any other reasonable person would spend $6,549,000 to generate an asset (including 63 and 69 Moorhouse Avenue)
which on the evidence would be worth only $2,580,000 It said:
And
We note that the new development at $2,580,000 is worth substantially less than its cost of $6,549,000 meaning that it is uneconomic and not a project that any well informed investor would enter. The claim therefore infringes the claimant’s duty to mitigate its loss.
We agree that it is reasonable for a car sales business to relocate to Moorhouse Avenue but not reasonable to do it at any cost. According to Mr Alexander, Ace was prepared to spend $6,549,000 to obtain an asset which would be worth, on Mr Reid’s figures,
$2,580,000. We do not consider that a reasonable businessman would do it and despite his assertions to the contrary we do not
believe that Ace (or Mr Alexander) would do it either. As the Privy
Council said, the greater the disparity the more scrutiny is required and this supports our conclusion.
Mr Hill’s submission to the Panel for Ace
[12] Mr Hill presented the claim for compensation by Ace. The total built area at
115-117 Moorhouse Avenue was 697.2m2 with 1,725m2 of sealed yard. Most of the property was used by an international vehicle leasing, financing and retail company, Orix, and a smaller part at the rear was leased to Ace Sales Limited. After the Canterbury earthquake sequence, the improvements were repaired to an “as new” condition, to Code. This work was extensive, including replacing most of the concrete tilt slab panels, and pouring new concrete for most of the building.
[13] Mr Hill submitted compensation should cover relocation of Ace’s business to another site, and its re-establishment. He said even if those costs exceeded the present value of the business, this is not a bar to compensation on a relocation basis, citing the Privy Council in Director of Buildings and Lands v Shun Fung Ironworks Limited (“Shun Fung”).4 Mr Hill said that Ace could not obtain an existing property to replicate what was taken, so it found suitable land to erect a replacement building, and it relied on s 60 PWA, which states that the owner of the land taken should have “full compensation”. He took that expression to mean sufficient compensation to put the land owner in the same or similar position as if the take had not occurred.5 The land owner should obtain no more and no less than full compensation, under the “principle of equivalence”. Ace acquired no more land than was needed and it should be neither worse nor better off after the acquisition has occurred. He called in aid the Hellenic deities Themis and Dike,6 and the necessary balance between the powers of the Crown and the rights of citizens. Less prosaically, he referred to Lord Nicholls’ statement in Shun Fung, which is discussed below.
[14] Mr Hill referred to s 62 PWA which (relevantly) reads:
4 Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 All ER 846 (HKPC).
5 Birmingham City Corporation v West Midlands Baptist Trust (Association) Inc [1963] All ER 172.
6 Themis was the ancient Greek personification of divine order and natural law, and Dike the goddess of justice and moral order.
62 Assessment of compensation
(1) The amount of compensation payable under this Act, whether for land taken, land injuriously affected, or otherwise, shall be assessed in accordance with the following provisions:
(a) subject to the provisions of sections 72 to 76, no allowance shall be made on account of the taking of any land being compulsory:
(b) the value of land shall, except as otherwise provided, be taken to be that amount which the land if sold in the open market by a willing seller to a willing buyer on the specified date might be expected to realise, unless—
(i) the assessment of compensation relates to any matter which is not directly based on the value of land and in respect of which a right to compensation is conferred under this or any other Act; or
(ii) only part of the land of an owner is taken or acquired under this Act and that part is of a size, shape, or nature for which there is no general demand or market, in which case the compensation for such land and the injurious affection caused by such taking or acquisition may be assessed by determining the market value of the whole of the owner’s land and deducting from it the market value of the balance of the owner’s land after the taking or acquisition:
(c) where the value of the land taken for any public work has, on or before the specified date, been increased or reduced by the work or the prospect of the work, the amount of that increase or reduction shall not be taken into account:
(d) the special suitability or adaptability of the land, or of any natural material acquired or taken under section 27, for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only pursuant to statutory powers, or a purpose for which there is no market apart from the special needs of a particular purchaser or the requirements of any government department or of any local authority:
(e) the Tribunal shall take into account by way of deduction from that part of the total amount of compensation that would otherwise be awarded on any claim in respect of a public work that comprises the market value of the land taken and any injurious affection to land arising out of the taking, any increase in the value of any land of the claimant that is injuriously affected, or in the value of any other land in which the claimant has an interest, caused before the specified date or likely to be caused after that date by the work or the prospect of the work:
…
(3) Where any lessor’s or lessee’s estate or interest in any land is taken or acquired under this Act, such estate or interest may, if required by its owner, for the purpose of assessing compensation under this Act, be valued separately from the freehold.
[15] Mr Hill said that the Panel and the Crown had wrongly focused on the “current market value of the land”. He referred to Sir Wilfrid Greene MR’s comment in Horn v Sunderland Corporation, where damage suffered by an owner as the result of “disturbance”, for example of a business, is not a separate head of compensation such as injurious affection, but an element going to build up the compensation to which the owner is fairly entitled.7
[16] In Shun Fung, Lord Nicholls referred to the value of land as the value to the claimant, not its value generally, or to the acquiring authority, so if the land is being used to carry on a business, there is value in being able to conduct that business there without disturbance.8 Compensation should cover the “disturbance loss” as well as the market value of the land. If the business cannot be moved elsewhere, then prima facie the loss is the value of the business as a going concern. The “business” may lose value through the effect of acquisition. Together, these elements make up a “single whole” being the value of the land to the owner. Mr Hill then said compensation should allow for the replacement of the property “like for like” together with costs of relocation, so Ace should have sufficient funds “so that it is left in a neutral situation”, no worse and no better off than if the acquisition had not occurred.
[17] Mr Hill recognised that s 66 PWA sets out specific heads of disturbance that may be claimed, but the list is expressly not exhaustive, and he accepted there must be a causal connection between the loss for which compensation is sought and the acquisition, so losses are not too remote, and the claimant must have acted reasonably. He said a reasonable business owner, in the same “business” as Ace, should be compared with an Oakwood Properties’ (“Oakwood”) development to
house Blackwells, a prominent car sales business in Christchurch. In short, Mr Hill
7 Horn v Sunderland Corporation [1941] 1 All ER 480 at 484.
8 Shun Fung Ironworks Ltd, above n 4, at 852.
said that if Ace was denied sufficient funds to properly relocate its business the
Crown would have failed to provide Ace with such “equivalence”.
The Panel Report
[18] The claim by Ace was described as follows:
4.The amount claimed for the loss of the land is $3,400,000 plus GST (if any)9 which is based on a peer review valuation obtained from Mr Reid Quinlan.
5.Ace also has subsidiary claims which in total exceed the main compensation claim. They are as follows:
Disturbance-substitute property $3,400,000 Disturbance-land value $820,000 Sign relocation $47,627 Disruption to income $623,263 Legal and other costs on substitute site $42,470 Legal/valuation fees for claim $48,669 Accounting costs $4,000 $4,986,029
[19] The Panel found that the current market value to be compensated is not the value to the owner, but to hypothetical parties in the market. “Full compensation” paid under pt 5 PWA means payment of such money as “will place the affected owner in as similar a position as possible to the position existing prior to the acquisition, injurious affection or damage”.10
[20] As the Panel observed, a claimant’s position should not be improved, but be restored. For consequential loss to be compensated, it must be directly caused by the take, so as not to be too remote. There is a duty to mitigate loss caused by the take.
[21] The Panel said that disturbance under s 66 PWA does not include the capital cost of replacement property. It rejected the notion of a claimant being put “in the same position” whatever the cost of that, but rather that the Crown should provide “equivalent value”. In Shun Fung, the Privy Council held that a claim based on
relocation may exceed the amount payable for the land acquired, but the claimant
9 Unless stated otherwise all amount[s] in the report are plus GST if any.
10 Napier Lane Ltd v Minister of Lands LVP08/07.
had to establish its business could be relocated, that it intended to relocate, and that a reasonable business owner using his/her own money would do so.11 The greater the disparity between compensation on an extinguishment basis, and on a relocation basis, the more closely it will be scrutinised, because it is less likely that a reasonable businessman would spend more money than the value of the land taken. This reflects, as I understand it, the “law” of diminishing returns.
[22] The Panel did not accept that Ace was conducting a business on the land, but instead renting out premises. (I return to this, as I conclude this appeal does not involve the displacement of a “business” on the land taken).
[23] Under a Discounted Cash Flow (“DCF”) model with a slightly lower terminal capitalisation rate, the Panel reached a value of $3,315,000 and applying the same valuation methodology as valuers Telfer Young and Knight Frank, it concluded the current market value was net $3,300,000.
[24] The claim before the Panel included the purchase of properties at 63 and
69 Moorhouse Avenue, for $3,775,000. As set out above, a new building would cost
$2,627,000 with $100,000 for demolition and $47,000 leasing fees, a total of
$6,549,000. The difference between that and the $3,400,000 for the land taken,
$3,149,000 was said to be the disturbance cost.
[25] The Panel was not aware of any case which held that the cost of building alternative premises, beyond the value of the property taken, is a recoverable disturbance cost. Mr Reid’s evidence was that after development, the replacement site would have a value of $2,580,000, which is $820,000 less than the value of the land taken, but at a “cost” of $6,549,000. (This included land purchase at 63 and
69 Moorhouse Avenue). The Panel said that outcome would be uneconomic and no well-informed investor would entertain that course. The Panel said it was not reasonable to relocate to Moorhouse Avenue at any cost, and reliance on Shun Fung went only so far because Ace was not relocating a business, but purchasing a substitute investment property. If Ace conducted a car sales business, it could have
claimed the costs of setting up facilities for that purpose, but not the cost of the land
11 Shun Fung Ironworks Ltd, above n 4, at 853.
and buildings. The Panel considered there was no sound legal basis for the claim and no compensation for development should be allowed.
[26] The claim for disturbance to income based on “business” interruption was said to apply between the date of the take and the date a replacement was to be available on interval from 14 August 2014 to 1 January 2017, when Ace Sales Limited took possession and moved vehicles onto the premises and displayed them for sale.
[27] In the end, s 61(b) of the CER Act was engaged, and the Panel found that compensation excludes claims for economic and consequential loss and for business interruption. It held that a claimant must carry on business on the land acquired, and Ace was just an investor landlord.
[28] The Panel recommended $6,860 be paid for the BBK and Knight Frank accounts, $1,640 for a further invoice, legal fees of $10,000, and $3,000 for one half of Grant Thornton’s fee, and it made a recommendation that Ace be reimbursed
$57,399.11 for the cost of relocating signage.
C. Litigation Antecedent to Appeal
[29] The litigation in the High Court and the Court of Appeal is relevant to this appeal.
Ace Developments Limited v Attorney-General (High Court)12
[30] Ace sought to adduce evidence on this appeal being:
(a) Evidence as to the sums being invested and likely return on such investment by other business people acquiring land in the vicinity of Moorhouse Avenue, Christchurch, for development as motor vehicle dealerships.
(b) Expert evidence comparing the economics of the appellant’s proposal to relocate its business to another site in Moorhouse Avenue against the economics of the investments of the other business people making or proposing similar projects.
12 Ace Developments Limited v Attorney-General, above n 1.
[31] The Associate Minister disallowed part of Ace’s claim because no reasonable businessperson using their own money would undertake the development project proposed by Ace. Ace complained that it could not get evidence to support its case because it had no power of compulsion to put evidence before the Panel, and further evidence was necessary to establish its compensation position. The explanation was said to constitute “special reasons” for it to be given leave.
[32] Mr Hill, in support of Ace’s application, said that he “understood” that its legal team approached Oakwood and Cockram for information about the Oakwood development but could not obtain it, so Mr Hill simply gathered what information he could from publicly available sources.
[33] The application to adduce further evidence was opposed by the respondent, on the grounds that it was not relevant because the CER Act does not provide for compensation for the purchase and redevelopment of a substitute property, and the question of “reasonableness” of Ace’s development was addressed before the Panel and the Associate Minister, so it was not new or fresh.
[34] Reservations about the reasonableness of Ace’s proposed course of action had been put to Ace’s advocate by the Panel, and mentioned in the draft report of the Panel of 25 August 2015, to which supplementary submissions were made but no additional evidence was provided. Ace said the reasonableness of its development proposal was irrelevant, and Gendall J held that it could not simply recast its case on appeal, but had to live with the strategy it adopted before the Panel and the Associate Minister; it had “nailed its colours to the mast”. There was nothing to support Ace’s case that it could not obtain evidence just because there were no powers to compel it. Hearsay evidence in Mr Hill’s affidavit did not support that, and the Court said it could have obtained expert evidence which it sought to adduce prior to the compensation decision being made. Gendall J found that Mr Hill’s affidavit lacked certainty as to what enquiries he made, of whom, and whether there was another source of information of the kind Ace sought to put before the Court on appeal.
[35] For the respondent, it was submitted that if the proposed evidence was to be adduced on appeal, the process undertaken before the Panel and Associate Minister
would have been nothing more than a “dummy run”. Gendall J referred to Ace’s contention that to acquire and develop an equivalent property would cost in the region of $8,000,000 rather than the $3,300,000 compensation it received, and for that proposition, it referred to Shun Fung.13
[36] Leave to adduce further evidence will be sparingly granted because appeals essentially proceed on the record of the initial decision maker. New evidence must not only be cogent and likely material, but such that it could not reasonably have been discovered at an earlier stage.14 Litigants must in general put their best case forward at first instance and live with the litigation strategy adopted. There are of course recognised exceptions where there is a good explanation and no prejudice or unfair disadvantage to another party.
[37] Gendall J held there were no special reasons to allow new evidence on this appeal. Mr Hill chose to argue before the Panel and the Associate Minister that the evidence which it sought to adduce on appeal was irrelevant. The Panel asked Mr Hill whether a reasonable company in the business of owning land would expend over $6,500,000 to acquire a property which would in the end have a value below
$2,500,000 and Mr Hill said that it did not matter what the value was at the end of that exercise, as the question is whether someone would spend that money, not what the fiscal outcomes would be. This was truly “nailing Ace’s colours to the mast”.
[38] The role of the Court (and the role of the Minister) is to consider if, on an objective basis, the course of action is open to a reasonable businessman given the evidence available. If the course of action is not indeed open to that reasonable businessman, then the Court or the Minister should not, indeed must not, interfere. Gendall J also said that adducing further evidence might well exclude the decision maker from being involved in the final decision and that could not be right, because that is a matter which Parliament has entrusted to the Minister. If leave was granted, the Crown could call its own expert evidence, there would be delay, and the evidence would be quite different from that before the Associate Minister. Ace was simply
trying to change its strategy.
13 Shun Fung Ironworks Ltd, above n 4.
14 Dean Selak Carrying Company Ltd v Lonergan [2015] NZHC 2230 at [27].
[39] In its draft report of 6 August 2015 to the Associate Minister of the Panel, it showed that it knew that Oakwood had an ownership interest in Blackwell, whereas Ace would have to find a tenant. The Panel disagreed that the final value of the premises compared with the cost of establishing them was irrelevant. At the
26 June 2015 hearing before the Panel, Mr Hill made three sets of supplementary submissions which did not address the reasonableness of Ace’s proposed course of action, nor mention the difficulty in getting further information. The Panel expressed its reservations about the reasonableness of Ace’s proposed course of action in its draft report saying that it was reasonable for a car sales business to relocate to Moorhouse Avenue, but not reasonable to do so at any cost. Mr Hill challenged the Panel and said it was not a court’s role or the role of the Minister to “superimpose upon the claimant its view as to what a reasonable businessman may do” and for that reason Ace chose not to provide any additional evidence on the issue of reasonableness.
[40] Although Gendall J found there were no special reasons to grant leave to adduce the evidence in question, and that was the end of the leave application, he went on to hold that the proposed evidence was not material to the appeal. Under s 61 of the CER Act “compensation” excludes economic or consequential loss unless provided by that Act. It is not defined as “consequential loss” but Gendall J cited McGregor on Damages:15
The normal loss is that loss which every claimant in a like situation will suffer. The consequential loss is that loss which is related to the circumstances of the particular claimant.
[41] Gendall J addressed the submission that the proposed evidence was not material or relevant to the appeal. Under s 61 of the CER Act, compensation excludes economic or consequential loss except as provided by the CER Act. The statute provides no definition of consequential loss, but it relates to the circumstances of the claimant. He observed that Ace’s business arguably might be that of a landlord leasing commercial properties to high end car dealerships for investment return, and Ace sought to adduce evidence to support its claim for the
costs of acquiring and developing an alternative and equivalent property to enable it
15 McGregor on Damages (19th ed, Sweet & Maxwell, London, 2014) at [3-0008].
to continue that business. That would fix the compensation to the particular type of tenant which Ace sought. Gendall J said that in his view such loss is not normal or direct, but consequential, and is a loss peculiar to Ace, so it is not compensatable under the CER Act.
[42] Ace said development costs were compensatable under s 66 PWA as they fell under “disturbance”. While compensation is determined as far as practicable in accordance with the provisions of pt 5 PWA, that does not oust the statutory definition of compensation, which is displaced only where there are strong indications to the contrary, in the statutory context. Gendall J thought there is a reasonable argument that s 66 PWA does not provide for compensation to acquire and develop a substitute property, whereas disturbance payments such as legal and valuation fees, removal costs, and improvements not readily removable from the acquired land, or of a particular use to a disabled owner, are good examples of disturbance payments under s 66(1)(a) and (b) PWA.
[43] Gendall J could not find any authority where s 66 has applied to award the compensation sought by Ace, but as s 66(1) refers to “all reasonable costs”, he accepted Ace’s submission that the word “including” means the list is not exhaustive. Ace referred to the Privy Council in Shun Fung, where a similar statutory provision in Hong Kong was considered. Gendall J cited this passage:16
The purpose of these provisions … is to provide fair compensation for a claimant whose land has been compulsorily taken from him. This is sometimes described as the principle of equivalence. No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realise if sold by a willing seller, not an unwilling seller. But subject to these qualifications, a claimant is entitled to be compensated fairly and fully for his loss. Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation. A person is entitled to compensation for losses fairly attributable to the taking of his land, but not to any greater amount. It is ultimately by this touchstone, with its two facets, that all claims for compensation succeed or fail.
[44] Ace said that full compensation based on the advice in Shun Fung should include the reasonable costs of acquiring and developing alternative or equivalent
property, but Gendall J found that compensation payable under the CER Act is
16 Shun Fung Ironworks Ltd, above n 4, at 852.
guided by the principle noscitur a sociis, and took this passage from Statute Law in
New Zealand:17
Noscitur a sociis (associated words rule) – It is imperative that a particular word whose meaning is under consideration be read in the context of the other words of the section in which it appears. Its exact shade of meaning may be coloured by those other words. As Stamp J has said (in Bourne v Norwich Crematorium Ltd [1967] 1 WLR 691 at 696):
English words derive colour from those which surround them. Sentences are not mere collections of words to be taken out of the sentence, defined separately by reference to the dictionary or decided cases, and then put back into the sentence with the meaning which you have assigned to them as separate words.
…
This simple associated words rule of context sometimes goes by a Latin
name, “noscitur a sociis”: “it is known by the company it keeps”…
[45] Gendall J thought that the costs of acquiring and developing alternative and equivalent property “does not fit with the company it keeps”, because “all reasonable costs” in s 66(1)(a) PWA take their colour from the list, and those costs claimed do not fit with the examples given in the legislation. Further, and of moment, if Ace is correct and s 66 PWA enabled compensation for purchase and development of an equivalent property, ss 64 and 74 would have no meaning.
Ace Developments Ltd v Attorney-General (Court of Appeal)18
[46] The Court of Appeal addressed the intended appeal to the High Court as predicated on an entitlement to “full compensation” for relocation, to be interpreted in light of the “recovery” purposes of the CER Act, which include businesses having to engage in extensive rebuilding and redevelopment, notwithstanding the economic cost of doing so, as they either would do so or leave Christchurch altogether. This underpinned Ace’s argument that the economic reasonableness of the proposal is irrelevant.
[47] The Court addressed whether relocation costs as a head of compensation are available under the CER Act and granted leave to appeal against Crown opposition
17 J F Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009)
at 232.
18 Ace Developments Ltd v Attorney-General, above n 2.
because while interlocutory, the appeal raised an important question of law that might be dispositive of Ace’s claim. The Court observed that when land is compulsorily acquired under the PWA, compensation under s 66 or its common law equivalent has been awarded for the costs of relocating a business, usually described as a “disturbance” payment. However, Ace says s 66 and other provisions of the PWA apply to land compulsorily acquired under the CER Act. Gendall J had rejected that proposition because the CER Act has its own compensation regime which expressly excludes economic or consequential loss, and he considered relocation costs are economic or consequential loss.
[48] The Court of Appeal addressed the interaction between ss 61 and 64 of the
CER Act with subpt 5 of pt 2 PWA. Compensation is “actual loss” under s 61
CER Act but expressly excludes economic or consequential loss and some other forms of loss. Relocation costs are not therefore compensatable if they are not an actual loss or are an economic or consequential loss. There is no other provision in the CER Act providing for compensation. The Court did not accept that “actual loss” and “economic or consequential loss” are “opposites”, nor did it accept that s 61 points to losses that are not actual losses. The words “actual loss” should have their ordinary and natural meaning, being real and significant loss that has been suffered or will be suffered. That distinguishes a loss which is non-existent or theoretical. A claim for compensation for relocation costs is thus a claim based on actual loss.
[49] The Court then considered whether “economic or consequential loss” per s 61(L)(vii) includes relocation costs. “Economic loss” cannot simply mean all claims for monetary compensation as all claims would be excluded. In tort, economic loss is financial loss or harm to an economic interest, as distinct from physical damage, and falls into one of three categories: (a) consequential economic loss, being financial loss arising from physical harm; (b) pure economic loss, being financial loss which does not arise from physical harm; and (c) relational financial loss. Ace’s claim falls within (b).
[50] The Court discussed whether relocation costs incurred by the owner of the land taken are a direct loss, and therefore not consequential. The s 61(b) exclusions
seem to have been generated by the Regulatory Impact Statement of 28 March 2011, issued by the State Services Commission. Consequential loss must have been intended to import concepts of causation, directness and remoteness and relocation costs are in the nature of a consequence, not direct or immediate upon the compulsory taking of the land, but downstream, the product of choices made by the owner of the land taken. They relate to the circumstances of a particular claimant, and the loss of every complainant will differ. Hence, economic or consequential loss does not include relocation costs within the meaning of s 61(b) and they are not compensatable, unless there is a provision in the Act to the contrary.
[51] Under s 64(3) of the CER Act, compensation is to be determined in accordance with the provisions of pt 5 PWA, recognising that compulsory acquisition has always been viewed as a serious interference with individual rights. All the compensation provisions contained in pt 5 PWA including s 66 should apply and that left the question whether Ace’s claim as mounted was outside the scope of the PWA as Gendall J had found.
[52] The Court of Appeal said that exactly what Ace’s business comprehended was a factual question, beyond the scope of the appeal before it. The High Court should determine the answer, but the Court worked on the assumption that Ace was in the business of owning and leasing specialist car yards, and considered “full compensation” in that context. It accepted that “full” must mean the equivalent of that which has been taken away.19 That means the claimant has the right, so far as money can achieve it, to be put in the same position as if the land had not been taken.20 Ace’s claim is based on its submission that the underlying objective of the compensation regime is to achieve “equivalence”. Common law disturbance payments were compensatable where businesses were required to move as a result of
land being taken, and s 66 made that entitlement statutory.
19 Drower v Minister of Works and Development [1984] 1 NZLR 26 (CA) at 29; Minister of Works and Developments v David Reid Electronics Ltd HC Dunedin M91/89, 18 December 1989 at 3; and see Russell v the Minister of Lands (1898) 17 NZLR 241 (SC) at 251.
20 Minister of Works and Development v David Reid Electronics Ltd, above n 19, at 2; and Russell, above n 19 at 253.
[53] “All reasonable costs” must be coloured by the list provided in the legislation, as Gendall J found. Such costs are incidental, additional to payment of market value for the land taken. A disturbance payment of such potential scale as the capital cost of acquiring substitute land would have been made express in the legislation, and could well be the biggest cost of all, as the Court observed. No case could be found where a disturbance payment included the cost of buying substitute property, and s 66 was drafted to confirm and consolidate existing compensation law. This is not comparable to the effect on a tenant which leases compulsorily acquired land. Tenants are paid for the loss of their use of that land whereas, once compensated based on market value, the land owner can buy elsewhere.
[54] Part 5 would be meaningless in some respects, particularly as to ss 65, 73 and
74, if the costs of acquiring substitute land were allowed as disturbance payments. Section 65 applies to land devoted to a purpose for which no general demand exists and is a targeted provision. Sections 73 and 74 provide that if the market value of the owner’s interest in the taken land is insufficient for it to acquire another property of an equivalent standard, there may be financial assistance in the form of a loan. If compensation, rather than a loan, were available as a disturbance payment, that would make a nonsense of these two provisions.
[55] Relevant to this appeal, the costs of demolition, development, and leasing fees were recognised to be in a different category as they fit more easily into the concept of disturbance resulting in additional but incidental costs, consistent with case law. Such costs must be reasonable and not too remote and the Court was quite clear that development on a substitute site may be compensatable if that cost is reasonable and not too remote. The Court does not seem to have been referred to the evidence of existing buildings on 63 Moorhouse Avenue which was before the Panel.
[56] If relocation costs are not disturbance payments under s 66, it was argued that they were recoverable under s 68 as compensation for “business loss” which is not defined in the PWA, but relates to loss of profits. Otherwise, s 74 would be meaningless, as mentioned.
[57] In conclusion, the Court said that compensation is not available for the difference between the value of the property taken and the value of substitute property, nor for the cost of acquiring a substitute property. Incidental relocation costs including development on a substitute site are in principle recoverable depending on whether they are reasonable and to the extent that they do not result in betterment. These costs may include demolition and replacement of existing buildings on substitute land, and leasing fees. This is consistent with the purpose of the CER Act to ensure that Christchurch recovers from the earthquakes.
[58] The Court was unclear whether the evidence Ace sought to adduce was relevant to the reasonableness of relocation costs but in principle said such costs may be recoverable. Even if relevant, the Court would disallow new evidence because Ace was trying to shore up its case on an issue which was understood at the time the Associate Minister made her decision. The Court agreed with Gendall J that Ace had not adequately explained the difficulties it had experienced in obtaining evidence which it now sought to adduce. The Court disapproved of a previous hearing acting as a “dummy run”.21
[59] Thus, the appeal was dismissed but with the observation that disturbance costs may include redevelopment and other costs as part of relocation.
D. The submissions on appeal
The competing positions
[60] Mr Jones for Ace says it has not been paid “full compensation” which includes the cost of demolition at and development of the substitute site, including construction of a new building equivalent to that which was taken. The question of law is whether that is compensatable as “disturbance” under s 66 PWA. Ace also initially sought full valuation and legal costs of $94,791.49 under s 66(1)(a) of PWA, but reduced that claim to $21,500. I am left uncertain about the figures, and reserve
leave to settle these elements, as discussed below.
21 Telecom Corporation of New Zealand Ltd v Commerce Commission [1991] 2 NZLR 555.
[61] Ms Higbee for the respondent says that Ace has received full compensation, and the amounts claimed are for an “unreasonable development proposal, allowing for double recovery or betterment”, and are “unsupported by the evidence, and are therefore unrecoverable”.
For Ace
[62] Mr Jones refers to s 64(3) which reads:
(3) For compensation for the compulsory acquisition of land, the Minister must determine compensation having regard to its current market value as determined by a valuation carried out by a registered valuer; and so far as practicable, the Minister must determine compensation in accordance with the relevant provisions of Part 5 of the Public Works Act 1981.
[63] The core components of compensation are current market value, and the provisions of pt 5 PWA. Compensation is defined in the CER Act.
61 Meaning of compensation
In this subpart, compensation –
(a) means compensation for actual loss; but
(b) except as provided by this Act, does not include compensation for –
…
(vii) economic or consequential loss:
…
(ix) business interruption:
(x) any other loss that the Minister reasonably considers is unwarranted and unjustified.
[64] The Court of Appeal held that Ace’s claim for “relocation costs” was “economic or consequential loss” and excluded from compensation unless there was a provision in the Act providing to the contrary, and compensation under pt 5 of the Act is such a contrary provision. All pt 5 provisions of the PWA, including s 66 for
disturbance payments, therefore apply to Ace’s claim.22 Mr Jones emphasised the
PWA:
60 Basic entitlement to compensation
(1) Where under this Act any land—
(a) is acquired or taken for any public work; or
(b) suffers any injurious affection resulting from the acquisition or taking of any other land of the owner for any public work; or
(c) suffers any damage from the exercise (whether proper or improper and whether normal or excessive) of—
(i) any power under this Act; or
(ii) any power which relates to a public work and is contained in any other Act—
and no other provision is made under this or any other Act for compensation for that acquisition, taking, injurious affection, or damage, the owner of that land shall be entitled to full compensation from the Crown (acting through the Minister) or local authority, as the case may be, for such acquisition, taking, injurious affection, or damage.
[emphasis added]
[65] Section 62(1)(b) provides that compensation is based on “market value” but that is further qualified:
62 Assessment of compensation
(1) The amount of compensation payable under this Act, whether for land taken, land injuriously affected, or otherwise, shall be assessed in accordance with the following provisions:
(a) subject to the provisions of sections 72 to 76, no allowance shall be made on account of the taking of any land being compulsory:
(b) the value of land shall, except as otherwise provided, be taken to be that amount which the land if sold in the open market by a willing seller to a willing buyer on the specified date might be expected to realise, unless—
(i) the assessment of compensation relates to any matter which is not directly based on the value of land and
22 Ace Developments v Attorney-General, above n 2 at [49].
in respect of which a right to compensation is conferred under this or any other Act; or
[66] Mr Jones says this is consistent with the “full compensation” contemplated by s 60. He refers to separate compensation provision for “business loss”:
68 Compensation for business loss
(1) The owner of any land taken or acquired under this Act for a public work who has a business located on that land shall be entitled to compensation for—
(a) business loss resulting from the relocation of the business made necessary by the taking or acquisition which loss, unless the owner and the Minister or local authority otherwise agree, shall not be determined until the business has moved and (if the circumstances so require) until sufficient time has elapsed since the relocation of the business to enable the extent of the loss to be quantified; or
(b) loss of the goodwill of any such business, if—
(i) the land is valued on the basis of its existing use; and
(ii) the owner gives such assurances and undertakings not to dispose of the goodwill and not to engage in any similar trade or business as may be required by the Minister or local authority.
[67] In combination, Mr Jones submits that the reasonable costs incurred in moving from the land taken to other land acquired in substitution, including development costs, and the “business loss” resulting from relocation, together comprehend what Ace seeks on this appeal. He refers to the Laws of New Zealand:23
66. Full compensation. This term means such sum of money as will place the dispossessed owner in a position as similar as possible to that which such owner was in before the land was taken. The governing principle of compensation is the award of a monetary equivalent for what has been lost. The word “full” has the added purpose of emphasising that a claimant is entitled to receive the complete equivalent of that which has been taken: it implies a direction that the entitlement must not be whittled down in any respect.
In compensation cases the Court or Tribunal will resolve doubts in favour of a more liberal estimate than in cases involving the valuation of property for revenue purposes.
23 Laws of New Zealand Compulsory Acquisition and Compensation at [11].
However, the Court or Tribunal must not be over-generous in assessing compensation, but must award a sum which will fairly and adequately compensate for the loss of land of which the owner has been dispossessed in the public interest.
[68] Ace’s claim for “relocation” costs falls within s 66 and Mr Jones says that while the cost of acquiring substitute land is not recoverable, demolition on such site, development costs and leasing fees fall within the concept of a disturbance payment, if reasonable and not too removed. Mr Jones submits that s 66 is not confined to compensation for the owner of a business on the land, but applies to the owner of any land taken for a public work whether or not the owner has a business on the land. As such he says Ace does not need to show it was carrying on a business to claim relocation costs, but if it does, he says it was “in business” as many years ago it developed the site for car sales and leased it for that use throughout its time as owner.
[69] While compensation for losses caused to a business is available under s 68 of the PWA, I say now that I do not think this argument is tenable as s 68 refers to a business located on that land not the business of leasing to a business on that land. It was not Ace’s business to conduct a business on that land but to provide it for the business purpose of another.
[70] Mr Jones focuses on the Court of Appeal saying that the cost of demolition of buildings on a substitute site and its development and leasing fees are in principle recoverable as disturbance compensation, contrary to the Panel’s recommendation to the Minister. The Court did not say what recoverable costs might amount to in this case, and it was addressing this in principle only.
[71] Ace called evidence before the Panel from a valuer Mr Quinlan, and costings by Rawlinsons, quantity surveyors. Mr Jones says there is no evidence to suggest those costings are not accurate. Mr Jones accepts that any claim for compensation must be objectively reasonable, so while it is reasonable for a car sales business to relocate to Moorhouse Avenue, this will not come at any cost for the purpose of compensation. The Panel had evidence that major car sales groups had purchased land in Moorhouse Avenue for car yards, and Oakwood had spent a large sum to purchase land to develop and lease to Blackwells. The development of the
Blackwells site was at a much higher cost than Ace’s proposal, on a pro-rata basis, yet the Panel reported that Ace’s proposal was uneconomic and a well-informed investor would not undertake such a proposal, so infringed Ace’s duty to mitigate its loss. The Panel said:
59.But we do not reach our conclusion on this basis for the reason that we do not accept that a reasonable businessman using his own money would embark on the project.
[72] Mr Jones says that this conclusion does not stand given the evidence available about the Oakwood development. Comparative figures before the Panel showed that on Ace’s revised plan, the development costs per square metre were
$1,301.13 for Ace, and $2,134 for Oakwood. Mr Jones says Ace seeks only its reasonable development costs which compare very favourably with the only other evidence available, and that such costs are not otherwise too remote, being the “natural and reasonable consequence of the dispossession of the owner”.
[73] While the Court of Appeal said there was no evidence about the buildings at
63 Moorhouse Avenue, a valuation before the Panel described them as relatively modest - about 110m2 in area, providing showroom space and a workshop, to a value of some $200,000. Those are nothing like the equivalent of the buildings at
115-117 Moorhouse Avenue, developed for car sales in a desirable location, and Mr Jones says to restore Ace’s position it needed not just to acquire another property in the locality but to spend money to develop it to an equivalent standard, and such is a “direct, natural, and foreseeable consequence of the acquisition and is not too remote to be compensated”.
For the Crown
[74] Ms Higbee referred to the following passages from the Court of Appeal judgment.
[77] While we consider that the cost of acquiring the substitute land (and the loss of land value) is not recoverable under s 66, we consider that the costs of demolishing the existing buildings on the substitute site and developing it, as well as the leasing fees, are in a different category. They fit more easily into the concept of a disturbance payment being an additional but incidental cost and are consistent with the case law.
[78] However, their recoverability in any given case will depend on whether the costs are reasonable and not too remote. There is no evidence about the existing buildings on the substitute site and Mr Cooke did not know what they were. He conceded that if for example it was a 10 storeyed hotel, then it would not be reasonable to demolish it. He also accepted there would need to be an adjustment in the event of betterment. To the extent any relocation costs have already been taken into account in the assessment of the market value of the land taken, there would also have to be an adjustment.
…
[83] Other incidental relocation costs which have not already been taken into account when calculating the market value of the land taken may be recoverable, depending on whether they are reasonable and to the extent they do not contain an element of betterment. The cost of demolishing and replacing existing buildings on substitute land together with leasing fees may fall within that category.
Ms Higbee says s 66 of the PWA applies to losses caused by moving from the land taken to the substitute land, which have not already been taken into account in the market valuation of the land acquired, not involve any betterment, and that are otherwise reasonable and not too remote. To avoid speculation, Ms Higbee agrees that if any further compensation is payable, then it should be by way of reimbursement of costs incurred as Ace suggests.
[75] Ms Higbee accepts the aim of s 66 PWA is to put the landowner “so far as
money can do it, in the same position as if its land had not been taken from him.”24
In principle s 66 therefore contemplates the owner being put in the position it held before its land was taken, but it identifies only one type of “landowner” – a family – home owner - and that is not applicable to business relocation, discussed below.
[76] In Shun Fung, the Privy Council held that full compensation includes the costs of business relocation or payment of goodwill if there is a causal connection between the taking and acquisition, and the loss is not too remote or unreasonable.25
Despite a dearth of authority, Ms Higbee says that a landlord is not entitled to business relocation costs in addition to the market value of the land taken, where the going concern is operated by a third party. The Court of Appeal left it to the High Court to determine, but proceeded on the assumption that Ace was in the business of
owning and leasing specialist car yards. I have said and repeat that I consider it
24 E Toomey New Zealand Land Law (3rd ed, Thomson Reuters, 2017) at [15.6.07] citing
Horn v Sunderland Corp, above n 7.
25 Shun Fung Ironworks Ltd, above n 4. See also Ace Developments Ltd v Attorney-General, above n 2, at [68], regarding s 66.
untenable that this is a compensatable “business” as “the business” must be on the land not of the land, by the statute’s plain words.
[77] Ms Higbee puts it “…what has [Ace] lost?”. If there is a loss, she says it lies in the value of the property taken, compensated through the market value mechanism. She submits there is no evidence of any other loss by Ace, as the owner and lessor of specialist car yards. Parts of the combined 115-117 Moorhouse Avenue site had been leased to other businesses to do with cars, but not necessarily car sales. The essence of this submission is that Ace does not require further compensation under s 66 to put it in the same position as if the land and improvements at
115-117 Moorhouse had not been taken. As a landlord, it simply invested in a rent-producing asset, and once the value of that asset is compensated, including improvements, Ms Higbee says: “… there seems to be little room for further disturbance”. For reasons which follow, I think this rather tentative submission does not bar a claim of the kind that Ace makes here.
[78] Even if relocation costs are to be considered, Ms Higbee submits that development costs claimed are not payable under orthodox considerations, citing Shun Fung and the Court of Appeal’s judgment in this case. When Ace claims
$2,627,000 to erect a new building at 63 Moorhouse Avenue, the Crown says that goes beyond what it is entitled to, as the market value of its improvements have already been factored into the $3,300,000 payable for the property taken. It is not “reasonable” for Ace to spend the claimed sum to erect a new building which is in a different league to that on the land taken. 115-117 Moorhouse Avenue had a late
1990s industrial building on it with a rentable floor area of approximately 680m2.
Earthquake repairs were completed, and the building was well presented, offering a good standard of commercial accommodation. Compensation of $3,300,000 plus GST (if any), included the value of these improvements, and there were seven valuations before the Panel and the Associate Minister, in a range of $2,630,000 to
$3,480,000. The valuation methodologies included income/capitalisation, depreciated replacement cost, and market comparison.
[79] The costs of development which Ace claims have therefore already been taken into account when calculating the market value of the land according to
Ms Higbee, so the $2,627,000 first sought (adjusted to $2,050,000) would represent “double recovery” or in valuation language, betterment. Depreciated replacement costs for the buildings on the land taken were estimated somewhere between
$1,100,000 and $1,200,000, and the replacement costs estimated by Rawlinsons are
$2,267,000.
[80] Ms Higbee accepts that in principle development costs might fall within the scope of s 66, given the Court of Appeal’s observations, but if so, it must be subject to such costs not already having been taken into account in the market value exercise, and there being no element of betterment. This proposition is submitted to be consistent with the scheme of pt 5 of the PWA, as the purpose of compensation is to award market value for what has been acquired, with limited exceptions.
[81] Section 66(1)(b) of the PWA provides an example of disturbance costs that might be recovered:
an allowance for any improvements not readily removable from the land taken or acquired which are of particular use to a disabled owner or any disabled member of an owner’s family and which are not reflected in the market value of the land. [emphasis added]
[82] Ms Higbee submits there is no evidence in this case that there is no general demand or market for the property acquired, or that some aspect of the improvements on it are not reflected in its market value, but to the contrary. Otherwise “reasonable” compensation for relocation is described in Shun Fung, by the Privy Council:26
The law expects those who claim recompense to behave reasonably … if a reasonable person in the position of the claimant would not have incurred, or would not incur, the expenditure being claimed, fairness does not require that the authority should be responsible for such expenditure.
…
It all depends on how a reasonable businessman, using his own money, would behave in the circumstances. In such a case, however, the tribunal or court will need to scrutinise the relocation claim with care, to see whether a reasonable businessman having adequate funds of his own might incur the expenditure. This is particularly so when, as in the case of the claimant company, compensation assessed on a relocation basis would greatly
26 Shun Fung Ironworks Ltd, above n 4, at 126-127 (Emphasis added).
exceed the amount of compensation payable on an extinguishment basis. The greater the disparity, the more closely the claim should be examined, because the less likely it would be that a reasonable businessman would behave in this way. Compensation is not intended to provide a means whereby a dispossessed owner can finance a business venture which, were he using his own money, he would not countenance.
[83] Ms Higbee says the proposal to spend $2,050,000 to erect a new building at
63 Moorhouse Avenue is not “reasonable”, but that does not mean it is not “useful”. Rather, she says there is no evidence of the value of 63 Moorhouse Avenue so redeveloped, and it is difficult to determine the impact that putting a building on one site will have on the “value proposition” which results. Using Mr Quinlan’s calculation and methodology, the Crown says that to spend $2,050,000 to erect a new building when the total value of the property, including the new building and underlying land will be some $1,900,000, is simply not reasonable. Even if the value on completion of development adjusts to a higher figure, spending $4,945,000 to acquire and develop the property is not reasonable, and no one having adequate funds of his or her own would incur such expenditure.
[84] Analogy with Oakwood’s costs of developing a car yard to be leased to Blackwell Motors is submitted problematic because there is no evidence to support the comparative figures advanced by Mr Jones, and Ace’s attempt to adduce further evidence was rejected by Gendall J and the Court of Appeal. Ace referred to publicly available information, but Ms Higbee says that was not given to the Panel. There is no evidence of the Oakwood development’s end value, to assess the overall reasonableness of the development to an investor landlord such as Ace. It turns out that Oakwood has an ownership interest in Blackwell Motors, and without understanding that relationship and how the deal was structured, the Court cannot reasonably use this as a comparator.
[85] The figure of $2,627,000 was first derived from Mr Quinlan’s evidence given
to the Panel. The land taken is rectangular with frontages on two streets of about
35.25 metres, at a depth of 68 metres, and level. 63 Moorhouse Avenue extends approximately 105 metres back from Moorhouse Avenue, further than the standard lots in the locality, and the rear of the site has no value as a display yard. It will have a base industrial value for storage, workshop development or similar. The Crown’s
submission is that the Court simply does not know enough on the evidence to conclude that the replacement building can be accommodated at
63 Moorhouse Avenue. I do not make anything of this. The claim proceeds on the
basis it can be, and I see no reason not to accept Ace’s assertion in this regard.
[86] Because the Crown considers Ace has received full compensation, it submits that overall there is no reason for Ace to be paid the cost of demolition of existing improvements and the construction of improvements to achieve full compensation, as it has that compensation already.
E. Discussion
“Business”
[87] I have said that the proposition that the compensation sought here is for loss of a “business” is untenable because on a straightforward reading of s 68 a “business loss” relates to a business carried on on the property taken, and it includes reference to the “goodwill of any such business” which is incompatible with more of ownership of land and buildings. The s 68(1) reference to a “business located on that land” distinguishes the business from the land.
First alleged error – failure to allow disturbance costs
[88] On this important principle, I do not accept that in all circumstances full compensation is achieved simply by reference to the value of the land and buildings or improvements taken. The CER Act is intended to put an owner in the position they were in before the property was taken. The Court of Appeal recognised that one of the purposes of the CER Act is to ensure that Christchurch communities recover from the earthquake. Section 3 refers it to the purpose of “… restor[ing] the social, economic, cultural, and environmental well-being of greater Christchurch communities” and enabling a “focused, timely, and expedited recovery.” Those objectives are clearly not served by displacing a functioning, profitable, job-creating enterprise so that it cannot continue to operate, and “full compensation” in light of these purposes is to allow the enterprise, whatever it is, to continue with as little fuss
and expense as possible. Here, that is the enterprise of owning a property to lease to high end car sale businesses.
[89] Land and buildings taken may be made up of valuable land, and old but well-maintained and fit for purpose buildings, achieving a good rental return. Faced with the taking of that land and those buildings, the party to be compensated in full may reasonably seek to replicate what it had, to purchase land and construct buildings with the same utility as those taken, to achieve the same sort of return. As a matter of principle, full compensation may reflect this replication, but there is more to it than that, as the Court of Appeal has said. If that was all there was to it, to physically replicate what was taken, that would have no regard to the economic outcome by way of rent, return on capital, betterment, or reasonableness.
[90] Full compensation must be fair and reasonable, and not result in betterment, although I conclude this is not an absolute proposition. These concepts inter-relate. There is no intention evident in the legislation nor in the body of compensation law, which developed outside of statute, that full compensation may include an element of betterment. It may be that the party compensated must construct a new building to replicate its position as a lessor, but if it achieves a better outcome, expressed in financial terms by an increase in property value, whether by a higher rental, or not, there must be allowance for that in fixing compensation. The position is more nuanced if to achieve the same rental and value outcome some extra development expenditure is required, beyond the value of what improvements were taken.
[91] I conclude that “fair and reasonable” compensation must bring to account betterment, and a measure of whether the required investment in a substitute property is warranted given the value outcome achieved. It seems wrong that a party be compensated for constructing buildings which, in combination with the underlying land, produces an end value much lower or much higher than the amount expended in purchase and development simply because in a physical sense it wants to replicate what it had. That proposition does not fit with the philosophy of “full compensation”, as to simply reflect the cost involved of replication or replacement is not and has never been the lawful measure.
[92] To be clear, it may be that the cost of redevelopment is compensatable where it is reasonable, subject to a discount for betterment where all the landowner seeks is to be put back in the same or similar position it occupied before the take, but it must still be objectively reasonable. It may be that betterment should financially not be discounted, because the landowner cannot financially account for that, but maybe that is to be adjusted by a security taken over the substitute land to reflect the betterment.
[93] In this case there is an evidential shortfall to assess such elements following Gendall J’s refusal to grant leave to adduce further evidence, upheld by the Court of Appeal. I see no way in which this Court can or should reverse that course.
[94] In short, I conclude that there will be circumstances where the cost of new buildings or other development components may be compensatable as part of full compensation, however, any calculation must:
(i)reflect no more and no less than the replacement of the physical space and utility of the land and improvements taken.
(ii)allow for any betterment in value, whether the capital value which reflects the new buildings by depreciated replacement cost valuation or otherwise so that compensation will adjust to avoid a windfall. The assessment of betterment is an exercise which evidentially will involve valuation methodology.
(iii)be fair and reasonable, which means that some commercial reality must attend development expenditure. This will involve the reality of the exercise, just as here whether the commercial outcome justifies the expenditure.
[95] The lack of evidence before the Court to make such an assessment in this case means the appeal must be dismissed and Ace’s earlier stance, that it is not for the Court to consider the reasonableness of development, is rejected outright.
Second error alleged – valuation, legal costs and other
[96] Ace says it has not been paid its reasonable valuation and legal costs. Sections 66(1)(a)(ii) and (iii) PWA provide that disturbance costs comprehend all reasonable valuation and legal fees, and costs incurred in respect of the land taken and the land acquired. Ace claimed legal, valuation, survey and accounting costs of
$53,202.49 for the land taken, and $41,589 for the land acquired.
[97] The Panel was in error when it told the Minister that Lane Neave Lawyers acted for Ace Sales Limited and not Ace Developments Limited. It was under the impression that some legal fees were incurred by Ace Sales Limited, which influenced its advice as to reimbursement of legal costs. The Panel seem to have recommended disallowance of some of these costs because it disallowed claims for business loss and relocation. If this judgment allowed the claim for costs of developing a substitute site, then the appellant sought a reasonable contribution to its costs of pursuing those claims, but I have found to the contrary.
[98] In Pryor v Minister of Land Information, the High Court held that:27
Such reasonable valuation and legal fees recoverable are for those incurred in an attempt to negotiate a settlement, or until an agreement is reached. This is distinct from litigation costs for the hearing in the Land Valuation Tribunal, and on appeal, which are governed by s 90.
[99] Costs under s 90 are at the discretion of the Tribunal or Court. There is no GST, but Ace claims compensation for professional fees which relate to the land taken and relocation. The amount compensated was $21,500 (excluding GST),
$18,500 (excluding GST), for reasonable valuation costs, and a contribution to legal fees prior to the land vesting in the Crown. The Panel thought some of the invoices were too late to relate to work regarding the negotiation or acquisition of the land, as vesting occurred on 14 August 2014.
[100] Ms Higbee says that the recommendation of the Panel was an appropriate and reasonable award, and it did not compensate for any “loss” which did not justify
compensation. The Associate Minister awarded $3,000 (excluding GST), for Ace’s
27 Pryor v Minister of Land Information [2015] NZHC 3117 at [18].
professional fees for relocating a billboard, and Ace claims $32,350.65 (excluding GST), for professional fees relating to relocation, but those costs relate to the redevelopment proposal which Ms Higbee says is unreasonable and would result in double recovery and betterment. The Court does not know how such costs would reflect the professional work carried out on the proposal to purchase the substitute land at 63 and 69 Moorhouse Avenue land, the costs of which are not recoverable, and the work of professionals on a different proposal involving one lot only.
[101] Demolition costs are linked to what is said to be an unreasonable proposal to spend $2,657,000 for erecting the new building, and $35,000 demolition fees. The demolition fees reduced from $100,000 to $35,000, on Ace’s instructions to counsel, but there is no secure evidence in this regard. There is really insufficient evidence, apart from a description by Knight Frank of relatively modest buildings consisting of a showroom and workshop at 63 Moorhouse Avenue. However, I am sympathetic to those costs as experience suggests they may be about right. If the parties cannot agree, I will hear from them further.
[102] The cost of $47,000 for leasing fees to find a tenant is also compensatable. While the market value is determined with reference to the capitalised market rental for the property, so Ace would receive a lump sum based on the future income stream, that is a capital value and leasing fees to secure a further income stream is part of that exercise if incurred. Mr Quinlan said that leasing fees are 25 per cent of the estimated market rent, based on 63 and 69 Moorhouse Avenue being developed, and it is not known what the leasing fees would be for one lot at Moorhouse Avenue alone. Again, this seems in order if the fees can be substantiated.
[103] In coming to judgment, I have been left uncertain about costs, professional and otherwise, but I will address those further if required. I otherwise conclude these issues in principle, as above. Ace should have its legal fees and all valuation costs for the work which relates to the land taken and it should have all advertising costs for the new site. I reserve leave for memoranda to be filed as to these ancillary issues.
F. Disposition
[104] (1) The appeal on the substantive legal issues for the measure of compensation is dismissed, and no further compensation is payable. (2)
The appeal against the refusal to order further professional fees, demolition costs and marketing fees is adjourned part heard but is
answered in principle above. I reserve leave for further argument if
the parties cannot agree.
…………………………………….
Nicholas Davidson J
Solicitors:
Crown Law, Wellington
Tavendale and Partners, Christchurch
Copy to counsel:
G D Jones, Barrister, Bridgeside Chambers, Christchurch
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