New South Wales Court of Appeal CITATION : Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259 FILE NUMBER(S) : CA 40608/00 HEARING DATE(S) : 10 July 2001 JUDGMENT DATE : 13 August 2001 PARTIES : Blacktown City Council (Appellant) Fitzpatrick Investments Pty Limited (Respondent) JUDGMENT OF : Stein JA at 1; Brownie AJA at 7; Ipp AJA at 37 LOWER COURT JURISDICTION : Land & Environment Court LOWER COURT LEC 30071/97 FILE NUMBER(S) : LOWER COURT Lloyd J JUDICIAL OFFICER : COUNSEL : J Ayling (Appellant) M H Tobias QC & J J Webster (Respondent) SOLICITORS : Taylor Kelso (Appellant) Gordon & Johnstone (Respondent) CATCHWORDS : Resumption and acquisition of land - compensation - assessment and related matters - factors in estimating compensation - disturbance Land Acquisition (Just Terms Compensation) Act 1991; LEGISLATION CITED : Environmental Planning and Assessment (Amendment) Act 1985; Environmental Planning and Assessment Act 1979; Income Tax Assessment Act 1936. Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493, [1959] AC 248; The Council of the City of Parramatta v Brickworks Limited (1972) 128 CLR 1; Eaton and Sons Pty Limited v The Council of the Shire of Warringah (1972) 129 CLR 270; Goldsworthy Mining Limited v The Commissioner of Taxation (1975) 132 CLR 463; Vaughan-Taylor v David Mitchell-Melcann Pty Limited (1991) 25 NSWLR 580; CASES CITED: The Council of the Municipal Council of Ku-Ring-Gai v Mobil Oil Australia Limited, (Unreported) - Court of Appeal, 15 April 1992; South Sydney City Council v Houlakis and Teakdale Pty Limited (1996) 92 LGERA 401; Brewarrana Pty Limited v Commissioner of Highways [No. 2] (1973) 32 LGRA 240; Harvey v Crawley Development Corporation [1957] 1 QB 485; Boland v Yates Property Corporation Pty Limited (1999) 167 ALR 575; Banno v Commonwealth of Australia (1993) 34 FCR 32 at 40. DECISION : Appeal dismissed with costs. - 18 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40608/00 LEC 30071/97 STEIN JA IPP AJA BROWNIE AJA 13 August 2001 Blacktown City Council v Fitzpatrick Investments Pty Limited Judgment 1 STEIN JA: I agree with Brownie AJA. 2 As to the principal issue argued, the meaning of 'actual use' in s 59(f) of the Land Acquisition (Just Terms Compensation) Act 1991, the construction favoured by Lloyd J in the Land and Environment Court is correct. 3 While care must be taken in utilising the reasoning from decisions construing similar words in different legislative regimes, the cases mentioned by Brownie AJA are helpful in the task of construction. 4 The nature of the respondent's business was that of a land developer and the acquired land was part of its stock-in-trade constituting its 'land bank'. Holding the land in its land bank for subdivision was a use of the land in fact. That is sufficient to make it an 'actual use of the land' within s 59(f) of the Act. 5 The favoured construction gives the expression 'actual use' work to do. While physical use is not required, something which is only a potential future use would fall short of 'actual use'. 6 The appeal should be dismissed with costs. 7 BROWNIE AJA: The respondent was formerly the owner of a parcel of land at Prospect. In 1997 the appellant compulsorily acquired part of that land ("the acquired land"), leaving the respondent as the owner of the balance of the original parcel ("the retained land"). The parties did not agree upon the amount of compensation that was payable under the terms of the Land Acquisition (Just Terms Compensation) Act 1991 (the "Just Terms Act"), and the respondent brought proceedings against the appellant in the Land and Environment Court. 8 Sections 55 and 59 of the Just Terms Act provide: - "55. In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (a) the market value of the land on the date of its acquisition; (b) any special value of the land to the person on the date of its acquisition; (c) any loss attributable to severance; (d) any loss attributable to disturbance; (e) solatium; (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired. 59. In this Act: 'loss attributable to disturbance' of land means any of the following: (a) legal costs reasonably incurred by the person entitled to compensation in connection with the compulsory acquisition of the land; (b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land; (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs); (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those person in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired); (e) financial costs reasonably incurred (or that might reasonably be incurred) by those person in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage); (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition." 9 Lloyd J assessed the "market value" of the acquired land and, at the request of the parties, deferred consideration of the amount payable for "loss attributable to disturbance". The appellant paid to the respondent the amount assessed as the market value of the acquired land. The respondents paid that sum into an interest bearing account and, some months later, spent the money acquiring another parcel of land at Silverwater ("the replacement land"). Later still, the parties returned to the Land and Environment Court, to litigate the measure of the sum payable for loss attributable to disturbance. Lloyd J decided that question, in part in favour of the respondent, and the present appeal concerns two items of financial costs, the subject of that decision. The first of these items was a sum incurred by the respondent for legal costs incurred in buying the replacement land, and the second was a sum incurred for stamp duty in relation to the purchase of the replacement land. Lloyd J found that each of these items fell within section 59(f). 10 On the appeal, there was no issue but that the sums in question had been reasonably incurred, and it was common ground that the expression "the land" in s 59(f) of the Just Terms Act was a reference to the acquired land. Three questions arise. The first concerns the proper meaning in the circumstances of the case of the expression "actual use"; the second concerns the proper meaning in the circumstances of the case of the composite expression "relating to the actual use of the acquired land"; and the third concerns the proper meaning in the circumstances of the case of the expression "a direct and natural consequence of the acquisition". 11 "Actual use" The word "use" has been the subject of a good deal of litigation in different contexts. In Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493, on appeal [1959] AC 248 the hospital owned some 327 acres of land. On one relatively small fragment of that land it operated a tuberculosis hospital, and it kept the balance of the land in a virgin state, so as to provide a buffer zone between the hospital and the surrounding land, thereby securing for the hospital patients an unpolluted atmosphere, and quiet and serene conditions. At the time, these were regarded as advantages to patients with tuberculosis. The statute provided that all land in a local government area was rateable except land belonging to a public hospital that was "used or occupied by the hospital ... for the purposes thereof". The trial judge, Richardson J said: - "I have reached the conclusion, looking at the whole of the evidence, that the subject land is in fact used for the attainment of a desirable result in connection with the treatment of tuberculosis at this hospital and which could not be attained without the use of the subject land, and therefore it is used for a purpose connected with the hospital. There is a connection between the user and the purposes of the hospital. It is not essential to the user of land that it be used physically, it is also used if it is applied to any advantageous purpose." 12 In the Full Court, Maguire J, with whom Roper CJ in Eq agreed, said: - "'Rankin Park' can be said, on the evidence, to stand in a different position from the majority of other hospitals. Its purpose is to treat the patients who are required to remain in the hospital for protracted periods and who are suffering from a disease the effective treatment of which requires not merely medical and nursing skill but the provision of surroundings which are conducive to repose and equanimity of mind in an atmosphere as free as possible from dust and other vitiating elements. I think that the preponderance of evidence is in favour of the view that the retention of a large area of undeveloped land attached to the hospital is necessary for the attainment of this purpose. It seems to me that it can truly be said that by retaining the land in question so that the purposes of the hospital might be achieved, the hospital is 'using' that land for its purposes. Ordinarily, the use of land would involve some activity on or in relation to it, but where the question is whether the land is used for a particular purpose, an enquiry into how that purpose can best be achieved is necessary. The evidence establishes that the land, the subject of the present action is necessary to the fulfilment of the purposes of the hospital, and, in my view, the hospital, by retaining it in its virgin condition, is using it for those purposes" 13 In the High Court Williams J decided the case in favour of the hospital, on the basis that the land was occupied by the hospital for its purposes. Taylor J decided the case on the basis that the land was used for the purposes of the hospital, saying: - "The word 'used' is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed. The uses to which property of any description may be put are manifold and what will constitute 'use' will depend to a great extent upon the purpose for which it has been acquired or created. Land, it may be said, is no exception and s 132 itself shows plainly enough that the 'use' of land will vary with the purpose for which it has been acquired and to which it has been devoted. It may be used for a public cemetery, for a common, for a public reserve, in connexion with a church or school and so on. Each of the forms of user referred to in the section relate to use by the owner and some of them, no doubt, contemplate a use which is synonymous with actual physical occupation and enjoyment. Others contemplate a use in a less direct form. But where an exemption is prescribed by reference to use for a purpose or purposes it is sufficient, in my opinion, if it be shown that the land in question has been wholly devoted to that purpose even though, the fulfilment of the purpose does not require the immediate physical use of every part of the land. In my opinion where a hospital acquires or sets apart, for a project which may properly be described as a purpose of a public hospital, a tract of land which it considers is the minimum requirement for its contemplated project and thereupon proceeds to carry out that project it, thereby, uses the whole of the land. How its purposes shall be fulfilled is, within reason, for it to decide and, as I have already said, it is nothing to the point to say that it has employed in the project more land than may, upon the views of others, be thought to have been necessary, or that in fact, it has derived no benefit or advantage therefrom in the fulfilment of its purposes." 14 Webb J agreed with Williams and Taylor JJ. Fullagar and Kitto JJ dissented. To read their judgments is to see that the law might have developed differently. However, on appeal, Lord Denning said: - "Their Lordships are of opinion that it was used for those purposes. Mr MacKenna submitted that an owner of land could not be said to use the land by leaving it unused: and that was all that had been done here. Their Lordships cannot accept this view. An owner can use land by keeping it in its virgin state for his own special purposes. An owner of a powder magazine or a rifle range uses the land he has acquired nearby for the purpose of ensuring safety even though he never sets foot on it. The owner of an island uses it for the purposes of a bird sanctuary even though he does nothing on it, except prevent people building there or disturbing the birds. In the same way this hospital gets, and purposely gets, fresh air, peace and quiet, which are no mean advantages to it and its patients. True it is that the hospital would get the same advantages if the land were owned by the Crown or by a trust which had determined to keep it in a natural state, or by an owner who was under a restrictive covenant not to build on the land. But the advantages then would be fortuitous or at any rate outside the control of the hospital. Here they are intended, and that makes all the difference." 15 In The Council of the City of Parramatta v Brickworks Limited (1972) 128 CLR 1, the relevant legislation prevented the respondent from using certain land as a brickworks or quarry, subject to clause 32 of an ordinance which provided that "an existing use of land may be continued", "existing use" being defined as meaning the use of land for the purpose for which it was used immediately before a certain date. Gibbs J (as he then was) said at 21: - "I would agree that the word 'use' in cl. 32 means a present use; it does not include a contemplated or intended use. It is not enough to bring cl. 32 into operation that land has been acquired with the intention of using it for a particular purpose in the future. On the other hand, it is not necessary, to constitute a present use of land, that there should be a physical use of all of it, or indeed of any of it." 16 His Honour referred to Royal Newcastle Hospital and continued: - "Obviously where an expanse of land has been acquired for the purposes of quarrying it cannot, because of practical considerations, be excavated all at once, but this does not mean that the part which has not been actually dug up is not used for the purpose of quarrying. Similarly a farmer, who has acquired land for the purposes of an orchard, may be said to use the whole of it for that purpose, although only part has been planted with trees." 17 In Eaton and Sons Pty Limited v The Council of the Shire of Warringah (1972) 129 CLR 270 a similar question was raised under relevantly indistinguishable legislation, but where the appellant claimed the benefit of the "existing use" of certain land as a timber yard, and timber was stored on part only of the relevant land. The balance of the land was not physically used at all, and the proportion of the land upon which timber was actually stored varied from time to time. The case is significant for present purposes only in that the court accepted as established, the notion that land might be "used" in a relevant sense, although only part of it was physically so used at any one time. At 274, Barwick CJ distinguished land in existing use and land merely intended for future use, and at 287 - 290 Stephen J discussed situations where the use was intermittent or fluctuating. 18 In Goldsworthy Mining Limited v The Commissioner of Taxation (1975) 132 CLR 463 the question was whether, for income tax purposes, certain land, the subject of a lease was used for the purpose of producing assessable income. The land the subject of the lease was an area of ocean floor, and the taxpayer dredged part of the land away, so as to provide deep water access to a port. The purpose of the granting of the lease had been to enable that to be done, and once it had been done, the land in question had been removed: there was then deep water access to the port. At 470 - 471 Stephen J said: - "The taxpayer contended that it made use of the demised sea-bed in two distinct ways. Its principal use was what it described as a passive use; that is to say, its use for containing within the dredged bed and sides of the channel, including a swinging basin, that depth of water essential if the deep-draught vessels required for the carriage of its iron ore overseas were to gain access to its port installation. There was also, it was said, a further use, the active use involved in the actual dredging of the demised land, a process which, after the original dredging, required to be carried out from time to time so as to maintain the required depth of water. Each of these uses was said to be a use for the purpose of producing assessable income. The taxpayer sought to rely upon the concept of passive use recognised in Council of the City of Newcastle v Royal Newcastle Hospital : affirmed on appeal. That decision is no doubt authority for the proposition that actual physical use is not an essential ingredient of the concept of 'use'; land may be of use to its owner in other ways. But both in this Court and by their Lordships on appeal what was spoken of was the concept of using land by allowing it to serve a desired end by its mere existence, perhaps leaving it in its virgin state …" 19 In 1985 the Environmental Planning and Assessment (Amendment) Act was enacted to amend the Environmental Planning and Assessment Act 1979. Section 109(1) of the 1979 Act had provided that consent did not need to be obtained in respect of "the continuance of a use … of land for a lawful purpose", which use predated the relevant date. However, the amending Act added s 109(2) which was in these terms: - "Nothing in subsection (1) authorises - (a) any alteration or extension to or rebuilding of a building or work; (b) any increase in the area of the use made of a building, work or land from the area actually physically and lawfully used immediately before the coming into operation of the instrument therein mentioned…" 20 The effect of the amending legislation, and particularly of the words "actually physically … used" was considered by this Court in Vaughan-Taylor v David Mitchell-Melcann Pty Limited (1991) 25 NSWLR 580. At 587 Priestley JA said: - "The effect of s 109, as it was interpreted in light of the High Court decisions, was radically changed by the addition to it, operative from 3 February 1986, of subs (2). That subsection requires that 'use' be understood in a much narrower sense than before; its effect was, in my opinion, to limit the continued use previously permitted by s 309 and s 109 without consent, to the actual use of the land on the day when the planning laws otherwise would have affected it, that actual use being confined to the land actually (as opposed to potentially) physically being used, and the extent of the use of that land likewise being limited to its extent on that day." 21 At 590 Meagher JA said: - "In normal parlance, land which was vacant on the relevant day, and which was held in reserve for future operations but which was untouched by mining operations of any kind on that day, would not be described as 'actually and physically' used for 'mining'; Mr Simos QC virtually conceded that to adopt his contentions, either in their primary form or in their alternative re-formulation,, would be to rob the terms 'actually' and 'physically' of all content; nor was any convincing reason advanced why the normal meaning of those words should yield to some wider meaning. When land is, and when it is not, in actual physical use for any purpose will always raise difficult factual questions for a court to evaluate. In a case like the present, for example, it will always include land actually dug, but it may well be more extensive than that. Land on which roads have been constructed, or other work done, preparatory to mining, might well be 'actually and physically' used for the purpose of mining, despite the fact that true mining operations have not yet begun. Likewise, land which lies fallow, on a rotational basis, is doubtless 'actually and physically' used for agricultural purposes. So also, vacant land surrounding a hospital might well be 'actually and physically' used for hospital purposes. But I cannot see how a discrete parcel of land, undisturbed by any current activity, and simply held in reserve for some future activity, can be considered presently to be 'actually and physically' used for that activity." 22 See too, Mahoney JA (as he then was) at 584-585; The Council of the Municipal Council of Ku-Ring-Gai v Mobil Oil Australia Limited, Unreported, Court of Appeal, 15 April 1992; and South Sydney City Council v Houlakis and Teakdale Pty Limited (1996) 92 LGERA 401. 23 Section 59(f) of the Just Terms Act used a different expression: "actual use". Lloyd J found that the business of the respondent was "the development of land by subdivision"; that it held the acquired land "for the purpose of development by way of residential subdivision"; that the "actual use for which it held the acquired land [was] for the purpose of development by way of subdivision"; that by reason of the acquisition, the respondent "lost its developable land", and replaced that land by "acquiring other developable land"; and that but for the acquisition the respondent could have developed the acquired land. 24 Consistently with the reasoning in cases such as Royal Newcastle Hospital and Brickworks, these findings of fact mean that "the use" to which the respondent put the land for its purposes, prior to the acquisition, was use for the purpose of residential subdivision. The acquired land formed part of what was called the respondent's "land bank", being land acquired and held for the purpose, when the time was ripe, of being subdivided and resold for profit. 25 However, the appellant challenges the proposition that this was an "actual use" of the land. The respondent took us to the Macquarie Dictionary, which gave these meanings for the word "actual": - " 1. Existing in act or fact; real. 2. Now existing; present…" 26 The respondent submitted that the word "actual" had been inserted to emphasise to the reader that the use had to exist in fact, and to distinguish such a use from a future use, or a potential use, and pointed out that if the question had to be decided independently of the Just Terms Act, a future use or potential use might have been the subject of compensation for disturbance: Brewarrana Pty Limited v Commissioner of Highways [No. 2] (1973) 32 LGRA 240 at 247. 27 Although at first blush this gives the word "actual" little apparent work to do, I think it is correct. The reasoning in Royal Newcastle Hospital and in Brickworks was recognised by the Parliament: the 1985 amendment to the Environmental Planning and Assessment Act recognised the reasoning and legislated to narrow the benefits conferred by the reasoning; and the Just Terms Act also recognises the reasoning, and operates to narrow the benefits otherwise conferred in the granting of compensation for loss attributable to disturbance. However, in the circumstances of this case, the financial costs in question were associated with the actual use by the respondent of the acquired land. 28 "Relating to actual use" The appellant contended that the costs incurred in buying the replacement land did not relate to the actual use of the acquired land. However the expression "relating to" is of wide import, and the findings of fact of Lloyd J, set out above, lead to the conclusion that the respondent purchased the replacement land, in order to replace one parcel of developable land with another for the purposes of its business. This seems to me to be correct. In the circumstances of this case, both the need and the occasion for the purchase of the replacement land related to the actual use of the acquired land, that is, to conduct its business the respondent needed to acquire and then hold the replacement land for later subdivision and resale. 29 "As a direct and natural consequence of the acquisition" A complicating feature of the case was that after the appellant paid the respondent an amount representing compensation for the market value of the acquired land, the respondent invested that sum at interest. Some sixteen months later, it took the money out of that account and used it to buy the replacement land. A reason for doing this was that the respondent had been advised that, if it effectively "rolled over" the acquired land by using the money it had received to buy further land, generally for the purpose of subdivision and resale, it would not have to pay capital gains tax upon the eventual resale of the replacement land; but if it did not do this, it might incur a liability for capital gains tax upon the realisation of any profit it otherwise made upon investing the compensation money already received. See generally s 160ZZK of the Income Tax Assessment Act 1936 (in its then form). 30 The respondent accepted and acted upon this advice. The replacement land was different in some respects from the acquired land: it was a considerable distance away, and it was industrial land rather than potential residential land. Lloyd J said: - "The [respondent] had by reason of the acquisition lost its parcel of developable land. It replaced the developable land which it lost by acquiring other developable land. But for the acquisition, the [respondent] could have developed the land acquired by the [appellant]. If it wanted to continue to develop land by way of subdivision it had to purchase other land for that purpose. The fact that the amount of compensation for market value received by the [respondent] was earning interest for some sixteen (16) months does not, in my opinion, destroy the causal connection between the compulsory acquisition and the subsequent purchase of other land. It would be most unusual for a replacement property to be immediately available to the [respondent] upon its receipt of the compensation money. It is self-evident that the [respondent] would have to spend time locating a suitable property and then negotiating the purchase thereof." 31 I see no error in this. The use of the expression in s 59(f) of the Just Terms Act "costs reasonably incurred (or that might reasonably be incurred)" demonstrates that costs incurred after acquisition might fall within the subsection, and the fact is that the respondent was in the business of developing land for subdivision, so that the occasion of the acquisition left it with some capital, which capital it used to buy the replacement land for use in that business. The subsection speaks of "a consequence" rather than "the consequence" and, it seems clear, a consequence of the acquisition was the purchase of the replacement land, with its incidental financial costs. 32 The appellant pointed to a passage to a judgment of Denning LJ in Harvey v Crawley Development Corporation [1957] 1 QB 485 at 493: - "Supposing a man did not occupy a house himself but simply owned it as an investment. His compensation would be the value of the house. If he chose to put the money into stocks and shares, he could not claim the brokerage as compensation. That would be much too remote. It would not be the consequence of the compulsory acquisition but the result of his own choice in putting the money into stocks and shares instead of putting it on deposit at the bank. If he chose to buy another house as an investment, he would not get the solicitors' costs on the purchase. Those costs would be the result of his own choice of investment and not the result of the compulsory acquisition." 33 It also pointed to what Callinan J said in Boland v Yates Property Corporation Pty Limited (1999) 167 ALR 575 at 657-658: - "They have an appearance of remoteness because every investment, whether following an involuntary transfer or resumption, or a sale in the ordinary course, made by an investor or business person, if such a person decides to embark upon the same sort of investment, will involve the payment of charges and costs associated with it. It is understandable, however, that the resuming authority might have paid money over and above its strict obligation to do so to this tenacious respondent in the interests of bringing this prolonged and no doubt distracting litigation to finality and in order to save further legal costs." 34 The respondent replied, saying that its business was that of developing land for profit, and that it was not a passive investor. If it wanted to continue in this business, it had to do what it in fact did, namely buy other land. I consider that this is correct, and note that Wilcox J was of the same view (obiter): Banno v Commonwealth of Australia (1993) 34 FCR 32 at 40. 35 Additionally, in a case such as this one, where land is acquired from a person who invests the compensation then received in order to continue to carry on the same business as was formerly carried on on the acquired land, an expense incurred in buying replacement land is a direct and natural consequence of the acquisition, and not a consequence of a decision to invest in some way that is novel to the investor. 36 Conclusion The appeal should be dismissed with costs. 37 IPP AJA: I agree with Brownie AJA. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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