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Judgment handed down in Secretary to the Dept. of Economic Development v Manor Lakes (Werribee) Pty Ltd

18 May 2017

The Court of Appeal has today dismissed an appeal by the Secretary to the Department of Economic Development, Jobs, Transport and Resources (‘the Authority’) against a decision that it was liable to pay Manor Lakes (Werribee) Pty Ltd (‘MLW’) an amount of compensation for loss attributable to disturbance under s 41(1)(d) of the Land Acquisition and Compensation Act 1996 (‘the Act’).    

The Authority compulsorily acquired land from MLW for the purposes of the Regional Rail Link project.  MLW had intended to subdivide and develop the acquired land as part of the Manor Lakes Estate.

Following the compulsory acquisition, MLW purchased replacement land. The purpose of replacing the acquired land was to continue the progressive development of the Manor Lakes Estate. 

MLW and the Authority settled MLW’s claim for compensation for the market value of the acquired land. However, MLW also claimed that it was entitled to compensation for loss attributable to disturbance, namely stamp duty and other transaction costs incurred in purchasing the replacement land. The Authority argued that MLW was not entitled to any compensation for loss attributable to disturbance. Loss attributable to disturbance is relevantly defined in s 40 of the Act as ‘any pecuniary loss suffered by a claimant as the natural, direct and reasonable consequence of’ the compulsory acquisition.

The trial judge accepted that MLW, as a land development company, was entitled to recover the stamp duty and other transaction costs paid by it in order to replace what was in effect its stock in trade. 

Before the Court of Appeal the Authority raised two arguments. First, it argued that it was not open to the trial judge to find that the loss in issue was suffered as the ‘direct’ consequence of the compulsory acquisition, because the trial judge had already found that MLW would have purchased the replacement land in any event. The Authority had conceded that the relevant loss was the natural and reasonable consequence of the compulsory acquisition within the meaning of s 40 of the Act.

The Court of Appeal held that stamp duty paid with respect to replacement land may constitute a loss attributable to disturbance and that whether it does so in any given case will always be a question of fact. On the other hand, whether it was open to conclude that the loss in issue was suffered as a direct consequence of the acquisition was a question of law. The Court found that it was open to the trial judge to conclude that the relevant loss was suffered as a direct consequence of the compulsory acquisition.

The Authority’s second argument was that compensation was precluded by s 41(2)(b) of the Act, which provides:

If the market value of an interest in land is assessed on the basis that the land had potential to be used for a purpose other than the purpose for which it was used on the date of acquisition, compensation must not be allowed for— any loss attributable to disturbance that would necessarily have been incurred in realizing that potential.

The Court rejected the Authority’s argument that the characterisation of the purpose for which the acquired land was used at the date of acquisition was to be undertaken solely by reference to actual physical use. The Court of Appeal considered that the purpose for which land is used is not necessarily determined by its actual physical use.

The Court found that on the dates of acquisition ‘holding the land for subdivision’ constituted the acquired land’s use. While this differed from the basis on which the market value of the acquired land was assessed, s 41(2)(b) nevertheless did not apply. This was because the costs incidental to the purchase of the replacement land were not a loss that would necessarily have been incurred in realising the potential of the acquired land. Rather, those costs were pecuniary losses relating to realising the potential of other land, incurred in consequence of the compulsory acquisition.    

Read the Court's full judgment on Austlii (External link)

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