Railway Commissioners (NSW) v Perpetual Trustee Co Ltd [1905] HCA 38; (1905) 3 CLR 27 (29 September 1905)

The Railway Commissioners of New South Wales Defendants, Appellants; and The Perpetual Trustee Company, Limited Plaintiffs, Respondents.

[His Honor having stated the facts and referred to the terms of the leases as already set out, continued.] The effect of these stipulations was that, as to so much coal as would produce a royalty of £700 a year calculated at the specified rate, the lessors were in the same position as to beneficial ownership as if they had agreed to sell that quantity of coal to the lessees at the fixed price of £700. We will speak of this coal as the £700 worth of coal. With respect to the rest of the coal, the lessors had agreed to sell to the lessees for the agreed royalty so much of it as might be brought to bank during the term of the lease. With regard to the excess, therefore, beyond the £700 worth, the lessors retained a beneficial interest in the coal equal to the amount of the royalty. For, as pointed out by Lord Cairns L.C. in Gowan v. Christie[1], a mining lease is in effect a sale of the minerals to the lessee for the stipulated rent or royalty. The leases contained a stipulation that if the mines were worked out during the term the rent should cease.

Sec. 135 of the Public Works Act 1900 provides as follows: [His Honor read the section, and proceeded]: That section does not in express terms provide for compensation to any persons except the person, whether owner, lessee or occupier, by whom the notice of the intention to work the mine is given, but it was held in Smith v. Great Western Railway Co.[2], that under a corresponding section (78) of the English Railways Clauses Consolidation Act 1845, when such a notice is given by the person immediately entitled to work the mines, and compensation is offered to him, all other persons interested in the mines are also entitled to compensation, while on the other hand their right to work the mines is also inhibited. This result was arrived at by calling in aid sec. 6 of that Statute, which provided that "the company shall make to the owners and occupiers of, and all other persons interested in, the lands taken or used for the purposes of the railway, or injuriously affected by the construction thereof, full compensation for the value of the lands so taken or used." The Public Works Act 1900 does not contain any section in terms identical with sec. 6 of the Railways Clauses Consolidation Act, but it was conceded by the appellants that sec. 95 of the Act and the following sections conferred on the plaintiffs a corresponding right.

The principle governing the right of lessors and lessees to compensation in such cases is thus stated by Lord Cairns L.C. in the case just cited[3]. "It appears to me that what is intended by the legislature with regard to mines under a railway is this: the railway company is to be under no obligation to compensate any person until there is someone who has a right to work, and who is prepared to work, the mines. When that person gives the notice of his intention to work the mines, the directors are to come to an agreement or settlement with that person, and to come to a settlement with that person according to what his rights may be; if the rights of that person are to take away the coal, to exhaust it entirely, and if he has a tenure the length of which will enable him to take away the coal and to exhaust it entirely, the railway directors may be bound, and, I should think, would be bound, to compensate that person to an extent equal to the whole value of the minerals. If his right is not so great; if he cannot take away the whole, or if the extent of his tenure is not such as would enable him to take away the whole, the directors would have to compensate him to an extent less than the value of the whole. Then, as it seems to me, the Statute makes, in the 6th section, another provision which is to be read along with this 78th section as to the lessee, and which, as I really think, entirely protects the right of the reversioner." His Lordship then read the 6th section, and proceeded: "Of course lands includes mines, and I read this therefore as a general provision that all other persons interested in the mines shall be compensated for the amount of their interests therein." After again referring to the 78th section, he went on[4]: "My Lords, that appears to me to be the solution of the whole of this case—Mr. Smith (the landlord) may be able to show that over and above the interest which the lessee had in these mines, an interest which would enable him, the lessee, to work and take away the whole of the coal, there was some farther, some ulterior interest, which he, Mr. Smith, was entitled to, and in respect of which he may receive compensation; and if he is able to show that, he may support a claim for compensation under the 6th section."

In the same case Lord Penzance said[5]: "There is further to be observed, that the directors are not only to arrange with the lessee, but, if he is a person who is entitled to take all the coal, the compensation for preventing him from taking the coal, must be the full value of the coal left:" and again[6], referring to the particular circumstances of the case: "I have had the greatest difficulty in seeing, from the beginning to the end of this case, how (I take it on the supposition in the first instance that the rent was paid) the lessor could have any interest in the question whatever. The lessor ascertained what the value of the coal was, and entered into an agreement by which he handed over to the lessee the right to take the whole of the coal. He granted him a lease which was so calculated in point of time as to enable him to take the whole of the coal, and he took a rent which represented the whole value of the coal, and supposing that rent had been paid to him, it passes my comprehension to see what possible interest the lessor had remaining. He got the value of his coal, the whole value of his coal had been paid in the shape of rent, and it would be absolutely immaterial to him whether the tenant had taken out the coal, and sold it, or whether the tenant had, under the 78th section of this Act, been obliged to leave the coal there, and received the value of it as compensation from the railway company. The position of the lessor in either the one event or the other would have been precisely the same. Therefore I really do not see what interest remained in the lessor." Lord O'Hagan said[7]: "In the case before us the lease of Hodgkins constituted, substantially, a sale of the coal. Its value was estimated on the face of the instrument, and the payment was, as for rent, arranged with the plain understanding that the whole of it should be removed, within a term of fifteen years. As Lord Justice Mellish said: In the case of minerals, if a man is the lessee of minerals, and has time to take the minerals, and has the right to take the minerals, he does take the minerals, however limited his interests may be; and, when he has once taken and got the minerals and sold them, the person who has to come in after him is just as much deprived of the minerals as if the person who got them had been the owner in fee simple. Here the lessee had the right and the time to take the minerals, and therefore a property in them over which he had full control. He sold that property and got the worth of it in the way indicated by my noble and learned friend who last addressed your Lordships, and with him I confess I have difficulty in discovering the existence of any real loss of which the reversioner can complain. The coal was disposed of, purchased, and paid for; and there was an end to any claim to it, save on the part of the compensating company. It was not, as has been well put at the Bar, the case of a farm or of a house, to be used during a term and go back to the owner at the end of it. Here the lessee bought the coal and sold it, and got the price of it, and the offer of the respondents, which will be made effective by your Lordships' judgment, seems to me to have given the appellant more than he has any right to demand. But, even if it be otherwise, and, either with reference to royalties or anything else, he has a title to any further compensation he may enforce that title effectually by a proceeding under the 6th section of the Railway Clauses Act."

The duty of the Court in the present case is to apply the doctrines thus laid down to the circumstances appearing by the documents and facts. [His Honor having made further reference to the facts and to the proceedings, as already stated, proceeded:]

The first objection taken is that the learned Judge adopted the wrong principle in the assessment of compensation. It is contended that, having regard to the area of the land under lease, the length of the term, the probable quantity of coal available, and the probable output of the mine, the actual return to the plaintiffs, by way of rent and royalty together, during the residue of the term was not likely to be diminished by reason of the inhibition, and that they would, therefore, not sustain any actual loss until the expiration of the term, when they would get the land back from the lessees subject to the inhibition as to the area in question. There was evidence from which the learned Judge might have drawn this inference if he had accepted the evidence. In this view, the plaintiffs would only be entitled to compensation for the future loss which they would sustain from their inability to work this coal after the termination of the lease. But this, the appellants contended, should be estimated at the present value of what it would have been worth as coal in situ at the termination of the lease. The plaintiffs, on the other hand, contended that the case should be considered as one of a present interference with a present proprietary right which the plaintiffs and their lessees were about to exercise, on the one hand by selling, and on the other by purchasing and taking away, the coal in the area in question. Now, primâ facie, the owner of property is entitled to do what he likes with his own, and to dispose of it at such times and on such terms as he pleases. A mining lease is, as already pointed out, in substance a sale of the minerals. In the present case the foundation of the rights of both lessors and lessees is an interference with a present right of which they were prepared to take, and intended to take, immediate advantage. The power exercised by the Commissioners, for the exercise of which they have offered to make compensation, is conferred by law. Their act is therefore not unlawful, but they must make compensation. Now, when one person is authorized to take the property of another against his will on the terms of paying the value, it is not competent for the person exercising this authority to claim that a diminution should be made in the price on the ground that, if he had not taken the property, the owner would probably not have been able to sell it for some time, and that therefore the price should be estimated at the present value of a sum payable in futuro, when another purchaser might be expected to be forthcoming. Nor is it competent to him to claim a diminution of price on the ground that the market for the particular kind of property is limited, and that by acquiring the property in question, and so taking it out of the market, the taker has conferred on the owner an opportunity, which he would not otherwise have had, of disposing of other property of the same kind. Such considerations are too remote. The case is dealt with as a present interference with present proprietary rights, and no allowance by way of set off or reduction of price can be rightfully claimed in respect of incidental advantages which the owner deprived of his property may acquire in respect of other property which he has an equal proprietary right to use and dispose of at his will. In some cases the legislature has by express enactment made provision for reducing the price or compensation to be paid in respect of land taken for public works by an amount representing the enhancement in value of other property of the owner, but in the absence of such express enactment it is clear that no such allowance can be made.

The same principles apply to the compensation payable in the present case. There is, indeed, no question of enhancement of value to any part of the plaintiffs' coal by reason of the inhibition. The effect of it is that they are prevented from selling to their lessees coal which they would otherwise have sold to them, and the fact that they are at liberty to sell to the lessees a corresponding quantity of other coal is quite irrelevant. If, indeed, the rent payable by the lessees had been a fixed rent, and the lessees had been entitled on payment of the rent to take as much coal as they thought fit during the term of the lease, there would have been in effect a sale of all the coal, and the lessors, so long as they received the full price, that is the rent, would sustain no loss by reason of the inhibition, but the loss would fall entirely on the lessees, and would be considered in estimating the compensation payable to them. If the result of the inhibition were to bring about a cessation of payment of rent by reason of the exhaustion of the coal before the end of the term, this would no doubt be a loss for which the lessors would be entitled to compensation, but the amount would be only the reversionary value of the future rent which they would probably lose. But that is not this case. For these reasons we are of opinion that the basis adopted by the Supreme Court was right so far as it proceeded upon the present value of the profits to be derived from the coal which was about to be worked immediately, and not upon the reversionary value of that coal at the expiration of the lease.

The appellants took the further objection that, so far as the £700 worth of coal was concerned, the plaintiffs had sustained no loss, since, on the basis on which the case was treated, they would continue to receive this amount undiminished, and that therefore the sum of £700 a year should be deducted from the probable total annual payments of £1620, which were the basis of the learned Judge's assessment. It has been already pointed out that, so far as regards the £700 worth of coal, it is purchased and paid for. The plaintiffs ought not, therefore, to be paid for it over again. But which part of the output of the mines ought to be regarded as so, paid for? The appellants seek to attribute this rent entirely to the coal within the inhibited area. The respondents claim to be entitled to attribute it entirely to coal obtained from the rest of the mine. Now, the basis of the assessment of compensation, which cannot be more than a restitutio in integrum, is that the plaintiffs are to be put in the same position as if the notice not to work had not been given. In that case they would have received rent and royalties in respect of the coal in question, and also in respect of coal from other parts of the mine. To which part of the coal so taken should the fixed rent of £700 be attributed? Having regard to the terms of the lease, the obvious answer is that it should be attributed to the coal first taken in each year, and, if coal was simultaneously being taken from different parts of the mine, should be attributed to those different parts in proportion to the quantity taken from them respectively. If all the coal would have been taken from the inhibited area, the whole should have been attributed to the coal from that area. If none would have been taken from it, then none of the £700 should be attributed to it. Now, it was assumed throughout the case that the coal which would have been taken from the inhibited area would have formed part only of the total output during the ten years adopted by the learned Judge as the basis of the assessment. It follows that the whole of the £700 cannot be deducted from the gross royalties calculated on that coal. On the other hand it cannot all be attributed to the output from the rest of the mine. The only way, therefore, to do complete justice is to divide the £700 between the output from the inhibited area and the rest of the output in proportion to their probable respective quantities, and to treat the coal represented by the proportion of the £700 attributable to each as paid for in full, and the residue as subject to royalty. It follows that a deduction should have been made from the annual instalments of £1620 of a sum bearing the same proportion to £700 as the probable output from the inhibited area would have borne to the total output from the mine. This calculation was not made by the learned Judge, nor were the necessary inferences of fact upon which it must be founded made by him. The case should therefore be remitted to him for that purpose.

The learned Judge, as already stated, calculated the present value of the future royalties as of the date when the first of them would have been payable. This was apparently through inadvertence, since it is admitted that the compensation should be estimated as of the date when the notice not to work, which is the act entitling the plaintiffs to compensation, was given. The present value should, therefore, have been calculated, as at 23rd December, 1901, of future instalments, the first of which was payable at the time when the first royalty would have been payable after that date. This is a mere matter of arithmetical calculation.

Another point was taken by the appellants as to the interest allowed by the learned Judge on the sum arrived at as the present value of the instalments. In the case of In re Richard and Great Western Railway[8], decided by the Court of Appeal in November, 1904, it was held that interest cannot be awarded in respect of the period between the giving of the notice not to work a mine and the making of the assessment of the amount of compensation payable. This case was apparently not cited in the Supreme Court, but its authority was not contested before us, and we think we ought to follow it.

Unless the plaintiffs consent to a reduction of the verdict in accordance with the principles which we have indicated, it will be necessary formally to set aside the verdict and grant a new trial so far as may be requisite for a re-assessment of the amount of damages on those principles, but without disturbing the findings of the learned Judge on the substantial questions of fact determined by him.

[1] L.R. 2 H.L. Sc., 273, at pp. 283, 284.

[2] 3 App. Cas., 165.

[3] 3 App. Cas., 165, at p. 179.

[4] 3 App. Cas., 165, at p. 181.

[5] 3 App. Cas., 165, at p. 185.

[6] 3 App. Cas., 165, at p. 187.

[7] 3 App. Cas., 165, at p. 191.

[8] (1905) 1 K.B., 68.

High Court of Australia

Railway Commissioners (NSW) v Perpetual Trustee Co Ltd [1905] HCA 38; (1905) 3 CLR 27 (29 September 1905)

HIGH COURT OF AUSTRALIA