Universal Land and Investments Limited v the Commonwealth of Australia [1987] ACTSC 6 (16 February 1987)

SUPREME COURT OF THE ACT

UNIVERSAL LAND and INVESTMENTS LIMITED v. THE COMMONWEALTH OF AUSTRALIA
S.C. No. 1862 of 1981
Lease from Commonwealth of Land for Grazing and Agricultural Purposes

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Kelly J.(1)

CATCHWORDS

Lease from Commonwealth of land for grazing and agricultural purposes - Provision that land might be withdrawn from lease in whole or in part for Commonwealth purposes without compensation - further provision that lessee to be compensated for certain fixtures, erections and improvements - Land withdrawn for urban development - Claim that timber treatment to be compensated as improvement having regard to its value to lessee as an inducement to potential buyer for purpose of urban development - Meaning of "improvements" considered.

Cedars Rapids Manufacturing and Power Company v. Lacoste (1914) AC 569.

The Commonwealth of Australia v. Oldfield [1976] HCA 17; (1976) 133 CLR 612.

Raja Vyricherla Narayana Gajapatiraju v. The Revenue

Divisional Officer, Vizagapatam (1939) AC 302.

Turner v. Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245.

Minister of State for the Navy v. Rae [1945] HCA 6; (1945) 70 CLR 339.

HEARING

CANBERRA
16:2:1987

DECISION

By its summons dated 4 August 1983 issued following the amendment of its writ on 2 August 1983 Universal Land and Investments Limited (the plaintiff) sought the following:-

"1. A declaration that the defendant is

liable to pay to the plaintiff as
compensation for the withdrawal of the
lands leased by the Defendant to the
Plaintiff by lease dated 21st March 1956
such sum as has been determined by Mr.
Arbitrator Bennett, in his findings
published on 3rd January 1974, as the
value of the timber treatment whenever
effected prior to withdrawal of the said
lands, having regard to the potential of
the said lands for residential
development but without regard to the
use of the said lands as set out in the
said lease or any relevant ordinances of
the Australian Capital Territory.

2. An order that the Defendant pay to the
Plaintiff the amount determined in
accordance with 1. above.

3. An order that the defendant pay to the
plaintiff interest on the amount
determined in accordance with paragraph
1. above at a rate which to the Court
seems fit.

4. An order that the Defendant pay the
Plaintiff's costs of the arbitration and
of these proceedings."

2. On 29 August 1984 the defendant Commonwealth of Australia by its summons sought:-

"1. A declaration whether the Defendant is
liable to pay to the Plaintiff as part
of the compensation for the withdrawal
of the lands leased by the Defendant to
the Plaintiff by lease dated 21 March
1956 such sum as has been determined by
Mr. Arbitrator Bennett as the value of
the timber treatment whenever effected
assessed:

(a) on the basis that the land is
suitable and adaptable to rural use
only; or

(b) on the basis that the Claimant is
entitled to have any potential for
residential development taken into
account in assessing value but
having regard to the restrictions
on the use of the land as set out
in the lease or any relevant
Australian Capital Territory
ordinance; or

(c) on the basis that the Claimant is
entitled to have any potential for
residential development taken into
account which ignoring restrictions
on use of the land as set out in
the lease or any relevant
Australian Capital Territory
ordinance.

3. An order that the Plaintiff pay the
Defendant's costs of the arbitration and
of these proceedings."

3. By its further summons dated 6 November 1984 the defendant sought the following:-

"1. A declaration that in the event of a
finding being made that timber treatment
be assessed on the basis that the
claimant is entitled to have taken into
account potential for residential
development ignoring restrictions on use
of the land as set out in the lease or
any Ordinance, the Defendant be entitled
to a credit for payments already made in
respect of the value of the structures
and pasture improvement on the subject
land which would be regarded as having a
nil value if the potential of the land
for residential development was taken
into account.

2. An order that the plaintiff pay the
defendant's costs of the arbitration and
of these proceedings."

4. On 21 March 1956 the Commonwealth granted to the plaintiff's predecessor in title a lease of Block No. 28A in the District of Woden containing an area of 1288 acres or thereabouts for a term of 50 years commencing on 1 January 1956. The lease was granted pursuant to the Leases Ordinance 1918 and the Regulations under that Ordinance. It recited that subject to the covenants thereinafter contained the land was to be used by the lessee only for grazing and agricultural purposes and/or for such other purposes as might be approved by the Minister for the time being administering the Leases Ordinance 1918. By clause 1(g) the lessee covenanted with the Commonwealth "to use the said land only for grazing and agricultural purposes and/or such other purposes as may be previously approved in writing by the Minister". By clause 2 of the lease the Commonwealth covenanted with the lessee inter alia as follows:-

(d) If any land is withdrawn from this lease
pursuant to paragraph (c) of clause 3 of
this lease, to pay to the lessee the
value at the date of the withdrawal of
any fixtures, erections and
improvements, on or effected by the
lessee to the land so withdrawn, except
such fixtures erections and improvements
as are removed by the lessee in
pursuance of paragraph (c) of this
clause, such value to be ascertained by
agreement or in default of agreement by
arbitration under the provisions of the
laws for the time being in force in the
(Australian Capital) Territory relating
to arbitration."

5. By paragraphs (c) and (g) of clause 3 of the lease it was mutually covenanted and agreed:-

"(c)that if at any time during the
continuance of this lease the whole or
any portion or portions of the said land
shall be required by the Commonwealth
for the purpose of roads or railways or
for any Defence Commonwealth or
Government purpose or any purpose
incidental to the development expansion
or beautification of the city of
Canberra or for any other public purpose
whatsoever the Commonwealth or the
Minister on behalf of the Commonwealth
may by notice in writing served on the
lessee withdraw the whole or any such
portion or portions of the said land
from this lease;"

"(g)that if any land is withdrawn from this
lease pursuant to paragraph (c) of this
clause, the lessee shall not be entitled
to any compensation in respect of the
land withdrawn or, except as provided in
paragraph (d) of clause 2 of this lease,
in respect of any fixture, erection or
improvement on the land withdrawn;"

6. By a series of notices given pursuant to paragraph (c) of clause 3 of the lease the Commonwealth withdrew from the lease successively parcels of 85 acres, 42 acres, 11 acres, 38 acres, 560 acres and 552 acres. The several withdrawals proceeded over a period of just under three years, the last taking effect on 22 March 1965.

7. The Commonwealth by its counsel admitted that shortly after the withdrawal of the land in question from the lease it underwent substantial urban development by the Commonwealth and came to form part of the City of Canberra.

8. In a letter accompanying the formal notice of withdrawal of the parcel of 85 acres from the lease the then Assistant Secretary (Lands) of the Department of the Interior advised that the parcel was being withdrawn for city development purposes. Following receipt of the notice of withdrawal from the lease of the parcel of 42 acres the plaintiff apparently wrote to the Department of the Interior seeking the reason for the withdrawal and was subsequently advised that the land had been withdrawn for "projected city development, being required now for advanced tree planting for that purpose". A third letter, that concerned with the withdrawal of the parcel of 38 acres from the lease, referred to the withdrawal as being for "Commonwealth purposes". The letters and notices in respect of the two largest parcels made no reference to the purpose for which the parcels were withdrawn from the lease.

9. I think it a reasonable inference to draw from the material placed before me without objection that all the land was withdrawn for the purpose of city development or, to use the phrase generally used during the course of the hearing, "urban development". In any event I am prepared to assume that that was the purpose of the withdrawal in each case. Evidence which was objected to was placed before me for the purpose of proving that to have been so but 2 do not think it necessary to rule on the admissibility of that evidence, being content to act on the inference just referred to. Again, in any event, in view of the conclusion I have reached on the principal question, that referred to in the declaration sought by the plaintiff, I would be prepared to act on the assumption referred to above.

10. Counsel for the plaintiff submitted that the applicable principles were to be found in those authorities which dealt with the resumption or acquisition of land, whether compulsory or not, pursuant to the provisions of enabling statutes. Counsel conceded, as of course he was bound to do, that the question was one of construction of a term in a contract between two parties but that that did not prevent the application of principles to be found in the cases dealing with resumption or compulsory acquisition under such statutes. Indeed, counsel submitted that those principles were only declaratory of what the common law always had been in connection with such matters.

11. Counsel referred to Cedars Rapids Manufacturing and Power Company v. Lacoste (1914) AC 569. At p 576 the Judicial Committee of the Privy Council said:-

"The law of Canada as regards the principles
upon which compensation for land taken is to
be awarded is the same as the law of England,
and it has been explained in numerous cases,
nowhere with greater precision than in the
case of In re Lucas and Chesterfield Gas and
Water Board (1909) 1 KB 16, where Vaughan
Williams and Fletcher Moulton L.J.J. deal with
the whole subject exhaustively and
accurately.

For the present purpose it may be sufficient
to state two brief propositions:- (1) The
value to be paid for is the value to the
owner as it existed at the date of the
taking, not the value to the taker. (2) The
value to the owner consists in all advantages
which the land possesses, present or future,
but it is the present value alone of such
advantages that falls to be determined.

Where, therefore, the element of value over
and above the bare value of the ground itself
(commonly spoken of as the agricultural
value) consists in adaptability for a certain
undertaking (though adaptability, as pointed
out by Fletcher Moulton L.J. in the case cited,
is really rather an unfortunate expression)
the value is not a proportional part of the
assumed value of the whole undertaking, but
is merely the price, enhanced above the bare
value of the ground which possible intended
undertakers would give. That price must be
tested by the imaginary market which would
have ruled had the land been exposed for sale
before any undertakers had secured the
powers, or acquired the other subjects which
made the undertaking as a whole a realized
possibility."

12. Counsel conceded that all the authorities to which he referred were concerned with valuations of land resumed or acquired compulsorily under statute.

13. I am prepared to accept on the authorities cited by counsel that when land is withdrawn from a lease and compensation is payable in respect of it the principles applicable are those which the authorities relating to compulsory acquisition or resumption establish. It seems to me, with respect, that this was the approach taken by the High Court in The Commonwealth of Australia v. Oldfield [1976] HCA 17; (1976) 133 CLR 612, admittedly in connexion with a definition of the word "improvements" only.

14. If those principles are applicable in this case it matters nothing that the only possible entity which might take back the land from the lessee was the Commonwealth. I refer to Raja Vyricherla Narayana Gajapatiraju v. The Revenue Divisional Officer, Vizagapatam (1939) AC 302, the headnote of which sets out the law with what I may respectfully describe as accuracy and clarity:-

"Land compulsorily acquired must be valued
not merely by reference to the use to which
it is being put at the time at which its
value has to be determined, but also by
reference to the uses to which it is
reasonably capable of being put in the
future.

Where the land has unusual features or
potentialities, the Valuing Officer must
ascertain as best he can from the materials
before him the price a willing purchaser
would pay for the land with those features or
potentialities. The owner is entitled to,
and the Valuing Officer must, ascertain the
value of the potentialities, even when the
only possible purchaser of the potentialities
is the authority purchasing under powers
enabling compulsory acquisition."

15. Counsel also made a submission concerning the effect upon the value of the timber treatment of the virtual certainty that the land was inevitably destined for urban or residential development. I quote his submission in part:-

". . . the value to the owner was that he must
be taken to have known the value . . . as must
every developer, of course including the
Commonwealth although the Commonwealth in
this case would have known, as it were, all
the more, that the value of timber treatment
to this owner was virtually, as it were, 100
per cent for urban development, because we
know that it was not just a possibility or a
mere potentiality or a potentiality in the
sense of probabilities, that this land would
come to be used for urban development but
that it was a certainty."

16. It seems to me, however, that to proceed on that basis is to ignore the first of the brief propositions laid down in Cedars Rapids Manufacture and Power Company v. Lacoste (supra) in the second paragraph of the passage from that case cited above.

17. If, however, I have misconstrued the submission and the proposed urban development is to be taken into account as a present advantage which the timber treatment possesses, and the true construction of the lease requires that the plaintiff be granted the benefit of the advantage thus inherent, the second proposition referred to in the passage just referred to is to be taken into account.

18. It is unnecessary to cite at length Australian authority which follows the principles laid down in the cases to which I have made reference. It is enough to refer, for example, to Turner v. Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245.

19. But, as I have indicated earlier, it is all very much a matter of construction of the lease. In my opinion the construction contended for by the plaintiff is incorrect. It seems to me that the essential fallacy in the argument put forth is that the plaintiff is to be compensated for the fixtures, erections and improvements as though they were land. But the land is the substratum of those fixtures, erections and improvements. It is clear from the lease and a matter of common ground that no compensation in respect of the land itself is to be payable upon its withdrawal from the lease. The plaintiff therefore begins with what seems to me to be an insuperable difficulty.

20. I think that to attempt to value a part of the improvements to the land as though they were to be treated as the land itself is to ascribe to those improvements a characteristic which they have not got. They are simply not, in my opinion, "land" as that word is properly to be understood in cases of this kind. Timber treatment in the context of this case can hardly be affixed to the soil in the sense used in the maxim "quicquid plantatur solo, solo cedit". For certain limited purposes the word "improvements", to include at least timber treatment and pasture improvement, has been treated historically in Australia as though it had the characteristics of land but this, I think, depends upon the peculiar use of the word in various statutes which have been the subject of consideration and some of which are referred to in The Commonwealth of Australia v. Oldfield (supra). It follows, in my opinion, that the word "improvements" used in paragraph (d) of clause 2 is not to be so construed as to enable the possible advantages which the improvements to the land possessed in respect of proposed urban development to redound to the benefit of the plaintiff.

21. If the view just put forward be incorrect, I think there is another basis upon which, upon the proper construction of the lease, the plaintiff should fail. The agreement was that upon withdrawal the plaintiff should be paid the value of the relevant fixtures, erections and improvements, the latter necessarily including pasture improvement and timber treatment. The plaintiff conceded by its counsel that if the declaration it sought were made it would be necessary to attribute no value to the pasture improvement because pasture improvement could be of no use to the Commonwealth withdrawing the land for urban development. But the Commonwealth contracted to pay the value of all improvements which necessarily included pasture improvement. It seems to me most unlikely that the parties were agreeing that, while pasture improvement might have a value if the appropriate basis of valuation was in the context of use for grazing and agricultural purposes, it could have none if the land were ripe for urban development and if that possibility had to be taken into account as a potential advantage to the plaintiff. I do not think one could separate from the fixtures, erections and improvements on the land one specific item and treat it differently from all the other items comprehended within that phrase and attempt to value it on a different principle.

22. The matter may be tested in another way. Is it likely that the parties intended that no value should be attributed to, for example, a small corrugated iron shed located on the property and useful to the plaintiff but which could be of no value to the Commonwealth because it had no use for it having regard to the purpose for which the land was withdrawn? It seems to me that the parties were agreeing that all the fixtures, erections and improvements should be valued on the basis that they were ordinary parts of a rural property. The possibility that fixtures, erections and improvements might have been removed by the plaintiff during the term of the lease as was provided for by paragraph (f) of clause 2, a paragraph which I do not think necessary to set out, and that thereupon the Commonwealth was not required to pay their value seems to me to indicate further that the basis of the valuation of them referred to in paragraph (d) of clause 2 of the lease was that just referred to.

23. I refuse, therefore, to make the declaration sought in paragraph 1 of the plaintiff's summons.

24. I turn to the question of interest. The lease made no provision for the payment of interest on compensation if delayed. The plaintiff relies, therefore, on the equitable rule that in the case of land, interest on arrears of purchase money, whether under a compulsory acquisition or a consentual contract of sale, might be awarded under equitable principles, the principle in question extending to every form of property compulsorily acquired which might be the subject of a contract falling within the cognizance of a court of equity and enforceable by the remedy of specific performance. Minister of State for the Navy v. Rae [1945] HCA 6; (1945) 70 CLR 339 at pp 348-9.

25. While it is true that the fixtures, erections and improvements on the land withdrawn from the lease could not be the subject of an order for specific performance and on the view I have expressed above, some part at least of those improvements does not constitute land at all, there is, nevertheless, such a close relationship between the fixtures, erections and improvements and land that the principle referred to above ought to be applied. It seems to me, however, that the rate or rates of interest payable and the period during which it ought to be paid are matters for the arbitrator rather than for the Court which is seised only of the questions of law set out in the various summonses.

26. So far as costs are concerned, I think the costs in this Court ought to be dealt with on the basis of an ordinary action inter partes but, since each party has succeeded in part, I will hear argument on the question of costs.

27. The parties should bring in draft short minutes of orders they seek following the reasons for judgment set out above.