Generally, each State and Territory in Australia has legislation providing for the compulsory acquisition of land. In Queensland, this is dealt with under the Acquisition of Land Act 1967.
If land is compulsory acquired, the landowners will generally be entitled to receive compensation. If the land is worth a substantial value, the compensation can be millions of dollars. Generally the person or entity entitled to receive this compensation is clear. However, there can be situations where there is more than one potential claimant. The case of Golden Mile concerns the entitlement to compensation made in respect of compulsorily acquired land in NSW.
Golden Mile Property Investments Pty Ltd (in liq) (Golden Mile) purchased a parcel of land in 2004, which was subject to two mortgages in favour of Stacks Managed Investments Ltd (Stacks) and RTS Super Pty Ltd (RTS). After purchasing the land, Golden Mile was unable to pay its land tax, resulting in the Commissioner of Stamp Duties bringing an application to wind up Golden Mile. Subsequent to this, a liquidator was appointed to Golden Mile. Upon his appointment he lodged a caveat over the land to restrain any further dealings with it.
Golden Mile defaulted on its mortgage repayments to Stacks resulting in the issuance of a notice from Stacks requiring payment of the outstanding amount. In the event that the outstanding amount was not paid, Stacks expressed their intention to exercise power of sale.
On 13 August 2008, two out of three directors from Golden Mile formed Cudgegong Australia Pty Ltd (Cudgegong). On 21 September 2012, the land was acquired under the Just Terms Act by Transport for New South Wales (Transport NSW) for the construction of rail works. At the time of acquisition, Golden Mile remained the registered proprietor despite being deregistered as a company under theCorporations Act. In acquiring the resumed land, the compensation payable under the Just Terms Act was $4,223,400, with the sum of $3,043,760 distributed to Stacks and RTS. The dispute was between Golden Mile and Cudgegong as to which of them was entitled to the excess compensation.
THE CONTRACTS WITH STACKS
On 22 September 2008, Stacks, in the exercise of power sale under the first mortgage, entered into a contract (the First Contract) for the sale of the land with Cudgegong for a total purchase price of $2,250,000.
Almost four years later, on 21 June 2012, Stacks and Cudgegong revoked the First Contract and entered into another agreement (the Second Contract). The terms of this contract were otherwise identical to the terms of the First Contract except the purchase price was increased to $2,888,648, the addition of a provision which specified the Second Contract was a “terms contract” and Cudgegong agreed to make monthly interest payments, with the balance of the purchase price and accumulated interest to be payable on completion. The Second Contract also included various special conditions recognising that Transport NSW had proposed to acquire the land.
In March 2013, Cudgegong commenced proceedings against Transport NSW claiming an order that the compensation payable in relation to Cudgegong’s interest in the resumed land be determined at $16,273,522. Cudgegong would be required to pay to Stacks the balance of the purchase prince payable under its contract with Stacks. Cudgegong requested that the sum of $1,061,676 to be paid by Transport NSW in respect of an advance payment of compensation, be paid to them.
Golden Mile was later joined as a party for the purpose of determining the interests of Golden Mile and Cudgegong in the resumed land at the date of acquisition and the amount of compensation to which Golden Mile is entitled.
TRIAL JUDGE’S DECISION
In March 2014, the trial judge ordered Transport NSW to make an advance payment to Cudgegong of $757,300. The trial judge concluded that Cudgegong had a relevant interest in the resumed land under its arrangements with Stacks that took priority over any residual interest that Golden Mile may have had in the resumed land. Golden Mile sought leave to appeal.
On appeal, the court found the trial judge should have explored whether the Contracts were interdependent. If they were not interdependent, it would have been open to Stacks to inquire about the market value of the land or the best price reasonably obtainable for the land, and the failure to do so may well have been a breach of Stack’s power of sale.
If Stacks had breached its duty as mortgagee, Golden Mile’s interest would prevail over the interest acquired by Cudgegong. Accordingly, the court looked at the power of sale of the property of a Corporation, requiring the controller to take reasonable care to sell the property for not less than the market value of the property, or the best price reasonably obtainable.
The court noted that the trial judge reached her decision based on the fact that Golden Mile did not exist (as it was deregistered). However, the property of deregistered companies vests in ASIC. Accordingly, ASIC could have enforced the rights of Golden Mile as mortgagor.
The Court considered whether Cudgegong had an interest in the land under the Just Terms Act. Despite the Second Contract being incomplete, the court suggested that the definition of “interest” was wide enough to cover the rights of purchaser in an uncompleted contract for the sale of land, even if it cannot yet be said that the purchaser would be entitled to a decree of specific performance. Accordingly, Cudgegong would have an interest for the purposes of the Just Terms Act, assuming the valid exercise of the power of sale by Stacks.
Finally, the Court looked at interests of Golden Mile and Cudgegong. Upon the valid exercise of a power of sale by a mortgagee, the equitable right of the mortgagor is extinguished. Assuming that the Second Contract was a valid exercise of the power of sale by Stacks, it follows that Cudgegong acquired an equitable interest in the Resumed Land. This interest would take priority over any other interest in the Resumed Land created after the date of the Second Contract. That interest would also take priority over the interest of Golden Mile, despite Golden Mile’s being the earlier in time, because Golden Mile’s interest would be extinguished by a valid exercise of the power of sale.
Based on this, the court considered that the trial judge had erred on questions of law. The court granted leave to appeal.
While the matter is yet to be finally determined, this case provides insight into interests. It comes as a reminder to those dealing with property interests that are subject to compulsory acquisition to take care to protect their interests. The priority of various interests will have a significant impact on “who gets what” amount of compensation.
It’s also a reminder that mortgagee’s exercising their power of sale should make reasonable effort to obtain the market value of the land or the best price reasonably obtainable for the land. Failure to do this may result in a breach of their duty. This in turn could affect the party’s interests, and which prevails.
The author wishes to acknowledge Law Clerk Alice Blackburn for her contribution to this article.