Reported Decision : (2002) 56 NSWLR 204 New South Wales Court of Appeal CITATION : Lismore City Council v Green Gro P/L [2003] NSWCA 19 HEARING DATE(S) : 06/02/03 JUDGMENT DATE : 25 February 2003 JUDGMENT OF : Meagher JA at 1; Ipp JA at 18; Cripps AJA at 19 DECISION : 1. Appeal allowed; 2. Set aside orders and verdict below; 3. In lieu thereof order that the respondent's statement of claim be dismissed with costs; 4. Order the respondent to pay the appellant's costs of the appeal. CATCHWORDS : Landlord and tenant - improvements - right to compensation - Agricultural Tenancies Act - value of improvements. LEGISLATION CITED : Agricultural Tenancies Act 1900 CASES CITED : Earl of Galloway v M'Clelland (1915) SC 1062 Lismore City Council PARTIES : v Green Gro Pty Limited FILE NUMBER(S) : CA 41061 of 2001 COUNSEL : A: B Preston SC & Miss Williams R: V R W Gray SOLICITORS : A: Phillips Fox R: Hertzberg Heydon LOWER COURT District Court JURISDICTION : LOWER COURT DC 19 of 2000 FILE NUMBER(S) : LOWER COURT Blanch CJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41061 of 2001 MEAGHER JA IPP JA CRIPPS AJA Tuesday, 24 February 2003 LISMORE CITY COUNCIL v GREEN GRO PTY LIMITED FACTS In November 1994, Lismore City Council entered into a joint venture agreement with Lismore Turf Pty Limited concerning certain land owned by the Council, and on which the parties proposed to establish a turf farm. In December 1995, Green Gro Pty Ltd assumed (as successor in title) Lismore Turf Pty Limited's obligations in respect of the turf farm. The joint venture was abandoned in 1999, and Green Gro Pty Limited commenced proceedings in the District Court to recover from Lismore City Council compensation for improvements Green Gro Pty Ltd claimed to have effected to the land. Blanch CJ entered a verdict in favour of Green Gro Pty Ltd, whereupon Lismore City Council appealed to the Court of Appeal. HELD per Meagher JA (Ipp JA and Cripps AJA agreeing) i. Section 5 of the Agricultural Tenancies Act 1900 is the principal provision setting out a tenant's rights to compensation for "improvements" effected by him. The tenant must not be put in a position where he improves the land without recourse to compensation. The tenant is not put in that position if (a) he is remunerated for his work under the agreement that governs his tenancy or (b) under the Act. ii. The Act has no operation where the claimed "improvements" are works which the tenant is obliged to create under the instrument that governs his tenancy, in this case the joint venture agreement between the parties. iii. For a sharefarmer effectively to be compensated twice for "improvements" effected by him, viz., by a reduction of rent, and by compensation awarded under the Act, would be a result so inequitable as to be hardly within the contemplation of the Act. iv. In assessing the value of an "improvement", s 15(1) of the Act requires that consideration be given (a) to the value of the "improvement" to an incoming tenant, taking into account (b) the value of any consideration or benefit given by the owner to the tenant for carrying out the improvement. HELD per Cripps AJA i. The claimed 'improvements' were works which the share farmer was obliged to create under the joint venture agreement. It follows therefore that there should have been a verdict for the defendant. ORDERS i. Appeal allowed; ii. Set aside orders and verdict below; iii. In lieu thereof order that the respondent's statement of claim be dismissed with costs; iv. Order the respondent to pay the appellant's costs of the appeal. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41061 of 2001 MEAGHER JA IPP JA CRIPPS AJA Tuesday, 24 February 2003 LISMORE CITY COUNCIL v GREEN GRO PTY LIMITED Judgment 1 MEAGHER JA: This is an appeal by the Lismore City Council from a judgment of Blanch CJ commanding it to pay the respondent Green Gro Pty Limited the sum of $40,000. In his Honour's opinion this was the amount which was owing by the appellant to the respondent under the provisions of the Agricultural Tenancies Act 1900, for "improvements". 2 The "improvements" were effected to certain land owned by the Council. At some time, apparently on 1 November 1994, the Council entered into a joint venture agreement (called by the parties "Heads of Agreement") with a company called Lismore Turf Pty Ltd with respect to that land. It is, unfortunately, necessary to set out at some length parts of that agreement. These are: "Whereas: The Lismore City Council ("The Council") has resolved to establish a turf farm in the South Lismore area as part of its overall development strategy to make use of effluent treatment and its disposal to maximise effluent re-use in order to reduce the impact on downstream waterways. And Whereas: Lismore Turf Pty Ltd ("Lismore Turf") wish to establish a turf farm. The parties hereto agree to enter into a joint venture for the development of a turf farm subject to the following terms and conditions: 1.0 Council shall make available that land adjacent to the sewerage works, as set out in the attached Plan marked "A", being portion of Lots 62, 71 and 74 in D.P. 755737 and Lot 1 in D.P. 182457 ("the turf farm"). 1.1 The area of the turf farm measures approximately 8 Hectares. Council has indicated that it may wish to increase the area of the farm to be turfed in which event any such increase shall be reviewed from time to time depending upon the viability of the farming operation. 1.2 Council shall enter into a lease agreement in respect of the turf farm for a period of ten years, granting an option to Lismore Turf to renew for a further period of ten years. 1.3 The rental shall be $1.00 per annum. 2.0 In addition to Council providing the land to the joint venture, Council shall: 2.1 Provide treated waste water effluent from the sewerage works as identified on the attached Plan, as required by Lismore Turf for the duration of the lease period. 2.1.1 Council intends to make use of treated waste water with a higher content of phosphorus in the future. Any decision to implement that strategy shall be mutually agreed to by the parties at that time. 2.2 Provide a suitable single pump which shall have sufficient capacity to deliver flow and pressure as specified by Lismore Turf. 2.2.1 Council shall, at its own cost, maintain and fuel the pump for a period of 12 months from 1 November 1994. 2.3 Provide a suitable compressor, as specified by Lismore Turf. (Lismore Turf acknowledge that the compressor and pump have been delivered to the site, and are suitable for the farming operations). 2.4 Erect a standard four strand wire fence, with gates, so as to prevent cattle from grazing on the farm. 2.5 Prepare the site so as to provide a self draining surface free from hollows and undulations within the limits of the natural site contours. 2.6 Deliver and spread gypsum at the rate of 2.5 tonne per hectare in accordance with the specification provided by Lismore Turf. 2.7 Provide and spread suitable chemicals to eradicate weeds and to limit the growth of weeds on site as directed by Lismore Turf with the last application of herbicide coinciding with the first planting of turf. 3.0 Lismore Turf shall, as its contribution to the joint venture: 3.1 Supply and install Leaky Pipe Irrigation System including equipment to monitor and control the supply of effluent water. 3.2 Plant Greenleas Couch strain turf and continue to cultivate as required. 3.3 Provide equipment with the exception of the pump and compressor, required for the satisfactory farming of the turf. 3.4 Provide and erect on Council land and in an agreed position, a shed for the storage of the computer and equipment. 3.5 Provide all labour required for the satisfactory farming of the turf (with the exception of labour relating to the maintenance and fuelling of the pump up to and including 31 October 1995). 3.6 Maintain a written record of events that take place on site and record such data to satisfy the requirements of the regulating authorities. 3.7 Provide all marketing, commercial and administrative services. 4.0 Council shall satisfy the conditions of the Development Approval with the regulating authorities so as to allow Lismore Turf to obtain a license from the Environmental Protection Authority for the use of effluent water as a source of watering the turf. Lismore Turf shall keep that license current at all times. It is recorded that Lismore Turf has received verbal assurance that the Environmental Protection Authority has approved the license. 5.0 The joint venture shall continue for the period of the lease subject to the joint venture making a profit in year three. However, in the determination of a profit, should the joint venture not make a profit in year three because, and solely because of any type of natural disaster that may occur, then, this clause shall not apply and the lease shall endure for the period as set out herein. 5.1 Before any distribution of profit to the parties, the capital invested by the parties shall be repaid as a first charge against cash resources. 5.1.1 The capital referred to in clause 5.1 above, shall be repaid, in direct proportion to the total capital invested by both parties. As an example, if Lismore Turf contributed a total capital of $150,000.00 and the Council contributed a total capital of $50,000.00 then a capital repayment of, say, $40,000.00 would be dispensed as to $30,000.00 to Lismore Turf and $10,000.00 to the Council. 5.2 After 30 October 1995, the maintenance, labour and fuel costs incurred by the Council shall be included as an operating expense of the joint venture. The joint venture shall make payment to Council of the costs on a quarterly basis in arrears. 5.3 Lismore Turf and Council shall be entitled to interest at 8% p.a. on capital advanced which shall be included as an operating cost (up to year 3). 6.0 The joint venture agrees that the net profit after tax, if any, shall be apportioned as to 40% to Council and 60% to Lismore Turf. 3 On 11 December 1995 by a Deed between Lismore Turf Pty Limited and a company then called Cameron and West Realty Pty Limited, the former assigned to the latter "all its right title and interest in respect of (a) its interest under the Heads of Agreement and (b) the plant and equipment". Cameron & West Realty Pty Limited subsequently charged its name to Green Gro Pty Limited. It is not contested that this document effectively placed the respondent in the position formerly occupied by Lismore Turf Pty Limited. 4 Under the Heads of Agreement each party had mutual rights and obligations in the joint adventure thereby established. Each party was exposed to some risk if the venture did not succeed, and stood to profit if it did. In fact it did not succeed and never made a profit. In about 1999 the joint venture was abandoned. 5 In addition to fulfilling its obligations under the Heads of Agreement, the appellant Council obtained a development consent for the conducting of a turf farm on the land. Its total cost of doing all this was about $40,000.00 6 The respondent tenant, for its part, fulfilled all its obligations whilst it was in occupation of the land. 7 Blanch CJ entered a verdict under the Agricultural Tenancies Act 1900 in favour of the tenant in respect of "improvements" it claimed to have effected to the land. This amount comprised the following items: (a) standing crop - $10,000; (b) current crop - $20,000; (c) shed - $4,500; (d) turfing drainage channels - $3,000; (e) groundwater bores - $1,000; (f) fertilizer - $1,000; (g) soil conditioner - $500. 8 The term "improvement" is defined in s 4 of the Act as follows: "improvement" means any work or thing carried out on a farm in the course of a tenancy, being a work or thing that would be of value to an incoming tenant, but does not include the repair or replacement of any work or thing already on the farm, except as provided by this Act." 9 Section 5 of the Act is the principal provision in the Act setting out a tenant's rights to compensation for "improvements" effected by him. Section 4 of the Act sets out the objects of the legislation. Peeping out of the verbiage, one can discern a desire to see that no injustice be done by permitting a landowner to claim the benefit of an improvement which the sharefarmer has created without right of payment under whatever document governs his occupation. The sharefarmer must not be put in a position where he improves the land without recourse to compensation. But he is not put in this position if he is remunerated for his work either under his agreement or under the Act. 10 Section 5 provides as follows: 5 Agreements to be in writing (1) An owner and a tenant each have the right to have the provisions of any agreement creating the tenancy reduced to writing signed by the other party. (2) If the owner and the tenant cannot agree on the terms of an agreement that is to be reduced to writing, the terms of the agreement may be determined by arbitration. 11 Thus, the appellant's principal ground of appeal was that the Act has no operation where the claimed "improvements" were works which the sharefarmer was obliged to create under the joint venture agreement between the parties, and this consideration seems to have escaped his Honour's attention. 12 The point may, I think, be illustrated by reference to the shed, which was one item in respect of which his Honour ordered the appellant to pay compensation. The entirety of his Honour's reasoning on this item is contained in the following paragraph: "Insofar as the shed is concerned the claim is for four thousand five hundred dollars and that was in fact the cost of the shed, it may be that that should be depreciated but the cost of building a new shed would obviously have been, at the time of the vacation of the premises, more than four thousand five hundred dollars so I am prepared to allowed (sic) the amount claimed by the plaintiff of four thousand five hundred dollars." By clause 3.4 of the Agreement it was the sharefarmer's obligation "to provide and erect on Council land and in an agreed position, a shed…", and it was in consideration of this and other obligations that the rent was reduced from whatever was a fair market rental to the nominal rent of $1.00 per annum. So that, on his Honour's view, the sharefarmer gets paid for erecting the shed once, by way of reduction of rent, under the Agreement, and a second time under the Act. This is a result so inequitable as to be hardly within the contemplation of the Act. 13 I would uphold the appellant's contention in this regard. I note also that in Scotland the Court of Session came to a similar conclusion in Earl of Galloway v M'Clelland (1915) SC 1062, a decision which has subsequently been followed by the Scottish Courts. 14 If that were not enough, the Act requires that if an "improvement" exists consideration should be given to the "value of the improvement to an incoming tenant" (s 15 (1)). As can be seen from the extract of his Honour's judgment which I have quoted, there was no attempt to grapple with this problem, either in respect of the shed or in respect of any of the other alleged "improvements". 15 Nor in determining the "value" of the "improvements", did his Honour allow his attention to be deflected to "the value of any consideration or benefit given by the owner to the tenant for carrying out the improvement." (s 15 (1)) Indeed if this question were raised at all it would have the curious result of deducting from the amount of compensation awarded by his Honour (i.e. the sum of $40,000) the cost to the Council of the obligations it performed (i.e. also the sum of $40,000). 16 All in all, I would allow the appeal, set aside the verdict and orders below, and in lieu thereof order that the respondent's statement of claim be dismissed with costs. 17 I should also order the respondent to pay the appellant's costs of the appeal. 18 IPP JA: I agree with Meagher JA. 19 CRIPPS AJA: I agree with Meagher JA that the Agricultural Tenancies Act does not operate to allow compensation where the claimed "improvements" were works which the sharefarmer was obliged to create under a joint venture agreement. It follows therefore there should have been a verdict for the defendant and I agree with the order proposed by Meagher JA. ****** Last Modified: 02/26/2003 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.