JUDGMENT No. sued Scdond otechen AT W D LANDS ACQUISITION - Resumption of club site - Assessment of compensation - Reinstatement method used - Expenditure incurred, or to be incurred, by club long after resumption date - Calculation of reinstatement costs made by reference to costs applicable at later date - Resumee entitled to interest on assessed compensation from resumption date notwithstanding that costs not yet incurred - Whether this factor should be taken into account in assessing compensation - Whether compensation should reflect costs at resumption date - Discount of compensation to offset interest earned on a portion of agreed compensation, not yet expended. Lands Acquisition Act 1989, ss.55, 58, 91 and 93 ENVEREIN LIVE L RI IB LIMITED v. THE COMMONWEALTH OF AUSTRALIA No. NG 605 of 1993 CORAM WILCOX J PLACE: SYDNEY DATE: 28 OCTOBER 1994 IN THE FEDERAL COURT OF AUSTRALIA No. NG 605 of 1993 NEW SQUTH WALES DISTRICT REGISTRY GENERAL DIVISION BETWEEN: H U B ER TU S SCHUETZENVEREIN LIVERPOOL RIFLE CLUB LIMITED Applicant AND: THE COMMONWEALTH OF AUSTRALIA Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 28 OCTOBER 1994 MINUTES OF ORDER THE COURT ORDERS THAT: 1. fhe further hearing of the matter be adjourned until Friday, 18 November at 9.30am. 2. At that time counsel bring in Short Minutes of an order designed to give effect to the conclusions set out above. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN_THE FEDERAL COURT OF AUSTRALIA No. NG 605 of 1993 NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION ee eet ee eet et BETWEEN: H U B E R T U S SCHUETZENVEREIN LIVERPOOL RIFLE CLUB LIMITED Applicant AND: THE COMMONWEALTH OF AUSTRALIA Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 28 OCTOBER 1994 NS FOR WILCOX J: On 21 April 1994 I answered two preliminary questions posed by the parties to this case. The p.rties then informed me that they wished to consider the implications of my answers and endeavour to reach an agreement that would obviate or shorten a further hearing. So I adjourned the matter to 4 October 1994. In the meantime, on 17 June 1994, I published reasons for my answers. When the matter came before me on 4 October, counsel told me their clients were close to agreement on the remaining issues. They requested some further time. Later in the day they informed me that the parties had resolved all issues save one: whether there ought to be any deduction from the compensation that would otherwise be payable by way of offset 2. of the interest that is payable to the applicant under s.91 of the Lands Acquisition Act 1989. Counsel put oral submissions to me on that point and followed them with supplemental written submissions. These reasons deal with that issue. The agreed facts In order to put the issue into context, it is necessary to recall that the parties agreed that s.58 of the Lands Acquisition Act applied to this case. That section provides: "58(1) This section applies where: (a) an interest in land (in this section called the 'old land') is acquired from a person by compulsory process; (b) immediately before the acquisition, the person was using the old land, or intended to use the old land, for a purpose other than the carrying on of a business; (c) but for the acquisition, the land would have been, or would have continued to be, used for that purpose; (d) at the time of the acquisition, there was no general demand or market for land used for that purpose; and (e) the person has acquired, or intends to acquire, another interest in other land (in this section called the 'new land') in substitution for the acquired interest and intends to use the new land for the same purpose. (2) The market value of the acquired interest on the day of acquisition shall be taken to be the greater of: (a) the amount that, apart from this section, 3. would be the market value (if any) of that interest on that day; and (b) the net acquisition cost in relation to the interest in the new land. (3) The net acquisition cost, in relation to the interest in the new land, is the amount calculated in accordance with the formula: CA +E - FI where: CA is the amount of the cost, or the likely cost, to the person of the acquisition of the interest in the new land; E is the amount of the expenses and losses incurred, or likely to be incurred, by the person as a result of, or incidental to, ceasing to use the old land and commencing to use the new land for the same purpose; and FI is the present value of any real and substantial saving in recurring costs (relating to land or an interest in land) gained by the person as a result of the relocation." The parties agree that the net acquisition cost, calculated in accordance with subs.(3) of s.58 and without taking into account the applicant's entitlement to interest on its award of compensation, is $2,107,560. They also agree that, on 21 December 1989, the day after the acquisition of the land, the respondent, the Commonwealth of Australia, paid the applicant, Hubertus Schuetzenverein Liverpool Rifle Club, $990,000 on account of the compensation to which it was entitled. They further agree that, on 18 September 1992, the Commonwealth paid the club a further $163,500 on account of compensation together with $72,268.75 for interest accrued on that payment between the date of acquisition and that day. 4. They agree that reinstatement expenditure was not incurred by the club until 1991, when it purchased the land in Adams Road, Luddenham on which it proposes to relocate its activities. The cost of acquisition was $346,522.40. There were some incidental expenses, but the parties agree that the money expended by the club to date, in connection with the reinstatement, is well below the $990,000 initial advance. The problem Section 91 of the Lands Acquisition Act is in these terms: "91(1) This section applies where the Commonwealth is liable to pay compensation to a claimant under this Part in respect of the acquisition of an interest, other than a mortgage interest. (2) The claimant is entitled to payment by the Commonwealth of interest on the compensation at the rate specified in, or ascertained in accordance with, the regulations from the day of the acquisition until the day on which the compensation is paid or, where payment is delayed through a default or delay of the claimant, until the day on which the compensation would have been paid but for the default or delay. (3) For the purposes of subsection (2), if: (a) the Minister made an offer of compensation to the claimant; (b) the claimant rejected the offer; and {c) the amount of compensation determined under this Part is less than the amount of the offer; 5. the payment of the compensation shall be taken to have been delayed through a delay of the claimant and the day on which the compensation would have been paid but for that delay shall be taken to be the day on which the claimant received notice of the offer. (4) If, on the day following the end of the period of 3 months that commenced on the day of the acquisition or any succeeding period of 3 months, the interest payable to the claimant under subsection (2) in respect of the period has not been paid, this Part has effect as if, on that day, the amount of compensation payable were increased by the amount of the unpaid interest. (5) Interest is not payable to the claimant on the whole or any part of the compensation otherwise than in accordance with this section." There is no question in the present case of a delay in payment of the compensation by virtue of default or delay of the claimant. Consequently, t 2 club is entitled to interest, at the specified rate, from the date of acquisition, 20 December 1989, to the date of payment. It is important to note that the Commonwealth concedes that this is so. Its counsel specifically accept that the Court has no power to deprive the club of interest on the assessed compensation and they do not ask the Court to do so. Their approach, rather, is to say that the very fact that the club has a statutory entitlement to interest makes it necessary for the Court to take account of the interest factor in order to avoid double counting. Of course, interest abates on a part payment, to the 6. extent of that payment. I gather that the club was not paid any interest in respect of the first advance ($990,000). Strictly, it would seem, the club is entitled to interest for one day on that sum; but this will amount to only a few hundred dollars. If the calculation was done correctly, the club was paid the interest to which it was entitled on the value of the second advance ($163,500) when that advance was made.__ So the club is now entitled to interest in respect of the difference between the assessed compensation and $1,153,500, the sum of the two advances. The Commonwealth's concession that the Court has no power over the matter of interest is clearly correct. Not only is this made plain by the terms of s.91; the matter has been dealt with (in relation to the 1906 Lands Acquisition Act) by the High Court of Aust~alia. In Dunn'ng v The Commonwealth (1960) 104 CLR 517 the High Court had to consider a case where pre-trial offers had been made by the Commonwealth at figures greater than those awarded by the trial judge. The Commonwealth submitted to the trial judge that he should take those offers into account and deny the plaintiffs their costs of the action. The trial judge declined to do this, because the offers made no mention of interest. He entered judgment for the assessed amounts with interest at the statutory rate of three per cent from resumption date until judgment. On appeal, the High Court held that the trial judge was wrong to concern himself with interest. At 526 the Court said: 7. ",.. no doubt if the appellants' claim for interest had been based upon a power residing in the Court, under some statutory provision or some general principle of law or equity, to make any award of interest by way of incidental relief, the compensation and the interest might properly be dealt with in the one judgment. But the subject of interest on compensation moneys under the Lands Acquisition Act is covered by s.40 of the Act, and that section plainly intends to deal with the topic exhaustively. It provides that compensation shall bear interest at the rate of three per centum per annum from the date of the acquisition, or the time when the right to compensation arose, until payment thereof is made to the claimant or deposited in the Treasury. ... The right to interest is thus separately conferred by the statute, and when interest becomes payable the cause of action is separate from the cause of action for compensation. ... where, as here, the purpose of the action is to have the amount of compensation determined, it is premature to consider the question of interest in that action. In the present case interest was not even mentioned in the statement of claim, and in our opinion it should not have been dealt with in the judgment. The objection to its being there dealt with is not, as was suggested during the argument, that State legislation providing for interest on judgment debts would cause interest to become payable on the interest itself: this result could not ensue, for 8.40 prescribes what the Commonwealth's liability for interest shall be, and any State legislation on the topic would be precluded by 8.109 of the Constitution from applying to the case. The objection is that the Commonwealth's statutory liability for interest was not in issue in the action, and therefore was not a subject for adjudication." As this passage makes clear, not only does the Court assessing compensation have no power over interest; ordinarily, it is not even concerned with the fact that interest will be payable. Ordinarily, statutory interest will not result in double counting. In the ordinary case, 8. compensation is assessed upon the basis of the factors set out in 8.55(2)(a) or (b) of the Act, all of which are to be determined as at the date of acquisition, together with such incidental expenses, mentioned in paras. (c) or (e), as might apply. The incidental expenses will not necessarily be incurred at the date of acquisition, but they are likely to be incurred shortly thereafter. Any advantage gained by the claimant in receiving interest on those items in relation to the period before they are expended is likely to be minimal. The position is likely to be different in s.58 cases. Section 58 contemplates an assessment of compensation on the basis of the cost of acquiring other land, the expenses incurred in making it suitable for the same use as the old land and the losses incurred in ceasing the use of the old land and commencing the use of the new land. The section does not apply to land that was used, immediately before acquisition, for the conduct of a business: see subs.(1)(b). A resumee to which the section applies will typically be a community organisation such as a club, church or charity or an institution such as a school or hospital. Many community organisations and institutions are dependent upon honorary officers, with limited time and business experience. The resumee may lack substantial funds and be unable to enter into the financial obligations necessary to achieve relocation until its compensation entitlement is determined, perhaps received. A resumee seeking to have compensation assessed under s.58 is, of course, bound to act with reasonable 9. dispatch. Even so, having regard to the matters just mentioned, several years may elapse between the date of acquisition and the date of relocation. The method of assessment adopted for s.58 cases does not ignore 8.55. Section 55(1) continues to apply. I will return to the significance of that subsection. Section 55(2) also applies, but in a significantly different way. Paragraph (a) of that subsection continues to require that, in assessing the compensation to which the resumee is entitled, regard be had to "the market value of the interest" (in the land) "on the day of the acquisition". However, in a s.58 case, this is the greater of the market value of the interest, assessed in the usual way, or "the net acquisition cost in relation to the interest in the new land": see s.58(2). Subsection (3) of 8.58 sets out a formula for calculating the net acquisition cost. It comprises the actual or likely cost to the resumee of the acquisition of the interest in the new land (CA) together with the expenses or losses incurred, or likely to be incurred, in connection with the change from the old land to the new (E), less the present value of any real and substantial saving in recurring costs (FI). It is at this point, according to counsel for the Commonwealth, that the problem arises. They accept that, where any delay in relocation is reasonable in the circumstances, the resumee is entitled to have items CA and E calculated by reference to the actual cost, or likely cost, 10. notwithstanding that this cost may be greater than it would have been at resumption date. But they say that, if the Court merely enters judgment for the reinstatement cost, with the statute providing for interest on that amount, the result may be unfair. They say that, as in this case, the reinstatement cost may be calculated by reference to building costs applying years after the resumption date and before the claimant has actually spent the money; so the claimant is receiving full indemnification for the cost of the new building. They argue that, if interest is then paid, on an award that is not discounted because of the entitlement to interest, the claimant obtains more than indemnification. The legislative history of s.58 suggests that Parliament made a deliberate decision to provide full relocation costs, notwithstanding t at they were incurred after resumption date, provided the claimant acted reasonably. Section 58 was based on the recommendations in para.259 of the report of the Australian Law Reform Commission "Lands Acquisition and Compensation" (ALRC 14). That paragraph included the following sentences: "The Commission favours a provision which allows the reinstatement method where three conditions are fulfilled: . The acquired land was used or intended to be used for a purpose for which there is no general demand or market for land. . But for the acquisition the land would have been, or continued to have been, used for that purpose. 11. . The claimant has acquired, or intends to acquire, substitute land for use for that game purpose. In such cases the court should be free to calculate compensation by reference to the cost of acquiring the other land and the cost and losses incurred or likely to be incurred in relocation (ascertained as at the date when it would be reasonably practicable for the cost or losses to be incurred) and by subtracting from that sum the amount, if any, by which the claimant has improved, or is likely to improve, his financial position by the relocation." See also cl.39 of the draft Bill prepared by the Commission and set out in Appendix C of the report. Counsel for the Commonwealth accept that the items of expenditure claimed by the club were, or will be, incurred within a reasonable time and that, in consequence, the club is entitled to re over =he value of those items notwithstanding that they would have been less at resumption date. And, as already stated, they accept that interest is payable on the awarded compensation. They say the way to avoid double counting, and unfairness to the Commonwealth, is to deduct from the agreed reinstatement cost the value of the interest that will be payable. The problem posed in this case is likely to arise in most, if not all, s.58 cases. Moreover, it will often involve a significant monetary sum. No doubt it does so in this case. It is now almost five years since the date of resumption, so the club will be entitled to almost five years' interest on 12. the assessed compensation. And interest rates were high during much of this time. But can the Court take this factor into account? Counsel 's_contentions Counsel for the Commonwealth say there is no legal barrier to the Court making an adjustment to allow for the interest that will be payable on the award. They rely on two provisions in the Act: s.55(1) and s.93. Those provisions are as follows: "55(1) The amount of compensation to which a person is entitled under this Part in respect of the acquisition of an interest in land is such amount as, having regard to all relevant matters, will justly compensate the person for the acquisition." "93. In any case where the Federal Court, or the High Court exercising jurisdiction under section 75 of the Constitution, is of the opinion that the application of any of the provisions of this Act would result in an acquisition having been made otherwise than on just terms, the Federal Court, or the High Court, may determine such compensation or make such order (whether against the Commonwealth or against another person) as, in its opinion, is necessary to ensure that the acquisition is on just terms." Counsel for the club dispute the application of both these provisions. Their primary position is that no adjustment should be made. They say that the Act provides a formula for determining the amount of compensation to which a 13. 8.58 claimant is entitled and the Court should determine that amount pursuant to the formula and ignore the matter of interest. They say interest takes care of itself, pursuant to 8.91, and it would be inconsistent with that section for the Court to offset compensation against the interest. They rely heavily upon Dunning. By way of alternative submission, counsel say that, if the Court is minded to take into account the matter raised by their opponents, the appropriate course is to assess the relocation costs as at the date of resumption. If that course is taken, they say, there will be nothing anomalous or unfair in allowing the club to retain the full value of the statutory interest on that amount from that day. My_view I doubt that s.93 of the Lands Acquisition Act has anything to do with this case. It is apparent from the form of s.93 that it was inserted to avoid any possibility that any part of the Act would be held to be constitutionally invalid. The constitutional foundation of the legislation is, of course, 8.52(xxxi) of the Constitution. That placitum confers on the Commonwealth Parliament power to make laws for: "The acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws." 14. In the absence of a provision such as s.93, there exists, at least, a theoretical possibility of the Act being held to confer power to make an acquisition on unjust terms. If that happened, the conferral of power, and any purported acquisition, would be invalid. The purpose of s.93 was to rule out this possibility. If the Act, apart from s.93, has the effect of conferring power to acquire otherwise than on just terms, the Court is to provide just terms. My view about s.93 is consistent with that expressed by Jacobs J, in relation to the corresponding provision (s.31) of the 1956 Act, in Albany v Commonwealth of Australia (1976) 12 ALR 201. His Honour said at 233: "I do not think that the distinction can be drawn between the use of the words 'just terms' in s.31 and their use in s.51(xxxi) of the Constitution. The clear intention of s.31 is to ensure that the Act cannot operate in such a way that the constitutional requirements will be infringed. It is established that the statutory rate of interest does not infringe that requirement. In these circumstances I do not think that the court can, or indeed should, substitute a different rate of interest. In my opinion, the compensation which I have expressed above is the proper compensation in all to which this plaintiff is entitled, together with interest in terms of the statute." I see more force in the Commonwealth's reliance on 8.55(1). The genesis of this provision was the Law Reform Commission's concern that no disadvantage be suffered by claimants because of its decision to recommend the enactment of a list of compensable items: see para.236 of the 15. Commission's report for its recommendation regarding the enactment of a statutory list and para.237 for its suggestion of a "just compensation" override. But the words suggested by the Commission were not one-sided. The Commission suggested a provision that "(t)he amount of compensation payable to a person ... is such amount as will justly compensate the person in respect of the acquisition": see cl.35(1) of the Commission's draft Bill. Parliament adopted very similar language in s.55(1) of the Act, with the addition of the words "having regard to all relevant matters". In the result, a resumee's statutory entitlement is to such amount. as compensation as will justly compensate him or her for the acquisition, having regard to all relevant matters; that and no more. If the effect of the entitlement to statutory interest on an award of compensation calculated merely by reference to the formula in s.58(3) would be to provide more than the amount required to "justly compensate" the resumee, it is to that extent excessive. Compliance with s.55(1) requires the Court to sheer away the excess. I do not think that Dunning governs this case. The High Court was there concerned with the propriety of the trial judge's approach to the matter of costs. Relevantly, the Court was not concerned about the quantum of compensation. If the case has any present significance, it is only for its assertion of the principle that interest takes care of itself, by virtue of the statute. The Court need not protect a Claimant in regard to interest. Dunning is not authority 16. against the Commonwealth's principal submission in this case, that the statutory entitlement is a factor that ought to be taken into account in determining what monetary sum is necessary to "justly compensate" a s.58 resumee for the acquisition. The club's alternative submission should be rejected. In this particular case, that submission suits the interests of the resumee. For reasons related to the general economy, there has been only a small increase in building construction costs between December 1989 and the present time. The exact extent of the increase is in dispute. During much of this time, interest rates have been high. However, in times of high inflation, the opposite is likely to be true; construction costs increases will probably exceed real interest rates Thir was the situation in Australia during most of the time from the end of the second World War until 1989. If compensation is assessed in a time of high inflation by reference to the costs prevailing at resumption date, serious injustices will occur: see the discussion in Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547. The injustices caused by price inflation concerned the Law Reform Commission in making its recommendations: see para. 44 of its report. They explain why the Commission recommended that compensation for reinstatement be calculated by reference to the actual or estimated costs of the resumee; as at the date when it was reasonable to incur them, rather than at resumption date: see para.259. Parliament's adoption of the 17. Commission's recommendation shows it shared the Commission's concern. For the Court to accede to counsel's alternative submission, which happens here to be advantageous to the resumee, would be to disregard these matters. Worse, it would be to ignore the terms of the definition of E, in s.58(3). That definition says that E is "the amount of the expenses ... incurred, or likely to be incurred, by the person ..."; that is, actually incurred or likely to be incurred, not a hypothetical amount that would have been incurred if the expenditure had been incurred at resumption date. It seems to me that the only way of complying with 8.55(1), without contravening any other provision in the Act, is to take the course suggested by counsel for the Commonwealth: to discount the agreed $2,107,560 in such a way as to take account of the fact that the club will be entitled to interest on the assessed compensation as from the date of resumption, even though the assessment is based on expenditure incurred, or to be incurred, long after that time and at current prices. Counsel for the Commonwealth submitted that, if I reached this conclusion, I should so indicate and leave the parties to calculate the discount. I am happy to do this. It is not possible to make the calculation without knowing the various rates of interest that have applied from time to time. Over the five year period, there were probably many variations in the prescribed rate. The calculation is a complex 18. mathematical exercise which I would prefer someone else to do. There is, however, a question of principle as to the ingredients in the calculation. Counsel for the Commonwealth suggested that every item should be taken into account; that is, each advance and each item of expenditure. Counsel 's object was to have the calculation take account, by way of discount, of the interest on any sum of money that had been paid at any particular time by the Commonwealth, but not yet expended by the club on relocation. I think this is too complicated an exercise. Moreover, it would fail to take into account the fact that the club has been paying rental to the Commonwealth in respect of its continued use of the resumed land. Ordinarily, in a loose way, interest offsets any rental paid by the resumee to the Commonwealth. I propose to adopt a simpler approach. I do not pretend that it will yield a result that is accurate to the last dollar. But precision is rarely possible in resumption cases. The approach I propose will yield a result that is broadly fair, any error being in favour of the resumee. That is as it should be. As I have said, the initial advance of $990,000 comfortably exceeds the total expenditure so far incurred by the club. No injustice would be done to the club if I ignored both the interest value of this payment and the expenditure already incurred. After allowing for the expenditure out of 19. the $990,000 fund from time to time, the value of the interest attributable to the $990,000 would more than cover the rental payments. If this course is taken, the calculation becomes relatively easy. The discount need be applied only to the balance of the agreed total expenditure, $1,117,560. I suggest the calculation be made as at 18 November 1994, - I will enter judgment that day. The question for the calculator will be: what amount of money, bearing interest on the whole of that amount at prescribed rates from 20 December 1989 to 18 November 1994 would, when the calculated interest is added to that amount, provide the sum of $1,117,560? When the answer is available, I will add to it $990,000 and enter judgment for that total sum. In effecting payment of the assessed compensation, the Commonwealth will be entitled to deduct the advances of compensation already made, $990,000 and $163,500. The interest calculation will be based on the balance due from time to time; that is, the judgment sum less advances made. The Commonwealth will be entitled to deduct from the calculated interest the interest already paid, apparently $72,268.75. It will be noted that the question framed by me makes no reference to the payments made on 18 September 1990. I think this is appropriate. The payments themselves will be picked up in the calculation of the amount necessary to pay 20. out the judgment. The calculation will take account of the advantage to the club of its entitlement to interest on the capital payment of $163,500. It has taken part of that advantage by receiving a payment of interest ($72,268.75). It has taken the remainder by having the use of the advance since 18 September 1990. I will adjourn the further hearing of the matter until 18 November 1994. I direct that, on that day, counsel bring in Short Minutes of an order designed to give effect to the conclusions set out above. I certify that this and the preceding nineteen (19) pages are a true copy of the Reasons for Judgment of the Honourable Justice Wilcox. fal Associate: Ets C4 27mnJ Dated: 28 OCTOBER 1994 APPEARANCES Counsel for the Applicant: J P Hamilton QC with A A Hyam Solicitors for the Applicant: Matthews Folbigg Counsel for the Respondent: R J Bainton QC with C E Adamson Solicitors for the Respondent: Australian Government Solicitor Dates of hearing: 4 October 1994