Frame v Minister for Lands Surveys and Environment [1979] PGLawRp 700; [1979] PNGLR 626 (21 December 1979)

	Home \| Databases \| WorldLII \| Search \| Feedback Papua New Guinea Law Reports

RESUMPTION AND ACQUISITION OF LAND - Resumption under statutory power - Compensation - Calculation of - “Just terms” - Valuation procedures - Accountancy approaches - General principles - Lands Acquisition Act 1974, s. 19(3)[dcccxiv]¹ - Constitution of the Independent State of Papua New Guinea. s. 53(2)[dcccxv]².

The appellant whose coffee plantation was acquired compulsorily under the provisions of the Lands Acquisition Act 1974, appealed under s. 23 of that Act against the amount of compensation determined by the Minister pursuant to s. 22 of the Act and in accordance with s. 19 of the Act.

Section 19 of the Lands Acquisition Act 1974 sets out the principles for determining the amount of compensation to be paid by the Government and s. 19(3) provides that in determining the average annual net profit, and the value of improvements the Valuer General shall “have regard to the accepted principles of valuation practice and shall have regard to the current value of any improvements on the land and any chattels the property of the owner or owners of the land being used or the land in connexion with the development of, or production from, the land.”

Section 53(2) of the Constitution of the Independent State of Papua New Guinea provides:

N2>“(2) Subject to this section, just compensation must be made on just terms by the expropriating authority, giving full weight to the National Goals and Directive Principles and having due regard to the national interest and to the expression of that interest by the Parliament, as well as to the person affected.”

N1>(1) “Just terms” in s. 53(2) of the Constitution involves full and adequate compensation for the compulsory taking.

N1>(2) Under s. 19(3) of the Lands Acquisition Act 1974, the determination of the average annual net profit is to be treated as a valuation exercise or as a step in such an exercise.

This was an appeal under s. 23 of the Land Acquisition Act 1974 against the amount of compensation determined under the Act for compulsory acquisition of the appellant’s coffee plantation. The provisions of s. 23 of the Act are set out infra at p. 000.

RAINE ACJ: I believe this is the first appeal of its kind. The appellant had his coffee plantation acquired compulsorily under the provisions of the Lands Acquisition Act 1974, he has no redress against that if the Act is valid, but he complains that the compensation is quite inadequate. His appeal is under s. 23 of the Act, and his grounds of appeal are in order.

Whilst I found the Act difficult to follow in parts, it is not an unusual statute in common law countries, it enables the Government to seize land that it believes can be put to better or different uses, so that the country and its people can be enriched, and I think that the enrichment that is envisaged is not merely material enrichment, but moral also.

Mr. Frame, like others in his boat, might regret being torn from the acres he has long nurtured so that it now bears such good coffee trees, producing coffee of a very high standard. It is often a very emotional experience for people to be dispossessed in this way. In my own country I have often read rather pathetic stories of families being terribly upset because their homes are compulsorily acquired, sometimes homes with a history, homes with beauty. But if they stand in the way of some great development, then, sadly, they must go. Thus we have this sort of legislation. Mr. Morling of Queen’s Counsel for the appellant does not, of course attack the scheme of the Act, nor does he approach this case on an “ad misericordiam” basis. In my opinion, no question of “solatium” can arise under this legislation (infra) or from the Constitution of the Independent State of Papua New Guinea. For a discussion of this see March v. City of Frankston[dcccxvi]³. This is most helpful, but deals with legislation that is very different from the statute I am concerned with. However, I do believe, with respect, that much that fell from Barber J. reinforces me in the way I have approached my task. Even if there is a permissible amount that can sometimes be added for “solatium”, and I do not believe this, this is a case concerning pecuniary loss only. He bases his case, firstly, on s. 53(2) of the Constitution. It says (the emphasis is mine):

(2) Subject to this section, just compensation must be made on just terms by the expropriating authority, giving full weight to the National Goals and Directive Principles and having due regard to the national interest and to the expression of that interest by the Parliament, as well as to the person affected.”

As I read the last underlined words, in conjunction with the preceding words underlined, this subsection, whilst insisting on just terms, puts things somewhat in the balance.

Of course, the exercise is not only to be measured by s. 53(2) of the Constitution, or by s. 10 of it. There is also the Act. I set out hereunder the sections that I see as particularly relevant.

The purpose of this Act is to enable the Government to acquire land by agreement or by compulsory process in accordance with this Act:

N5>(i) for subsistence farming where other land for that purpose is insufficient in any area; or

N5>(ii) for economic development so that they may share in the economic progress of Papua New Guinea; or

(c) for any educational, social welfare or community development purpose where other suitable land is either unavailable or insufficient,

so as to implement the policies of the Government to develop the rural areas of Papua New Guinea and to assist, where necessary, the non-overseas residents of the urban areas of Papua New Guinea to achieve a better standard of living.

(2) For the purposes of Section 53 (protection from unjust deprivation of property) of the Constitution, the purpose expressed in Subsection (1) is a public purpose.”

(1) Notwithstanding anything contained in any other law of Papua New Guinea, where in the opinion of the Minister it is necessary to do so for any of the purposes of this Act, the Minister may:

(a) where a period of two months has expired after the service of a notice to treat, or of notices to treat, in relation to any land to be acquired under this Act; or

(b) at any time, where he is satisfied that the owner of the land to be acquired under this Act cannot after diligent search and inquiry be located; or

(c) at any time, where he has given a certificate under Section 8(5) in relation to any land to be acquired under this Act, by notice published in the Government Gazette declare that the land specified in the notice is acquired by compulsory process under this Act.

(2) Upon the publication of a notice of acquisition of land under Subsection (1), the land to which the notice applies is, by force of this Act—

(b) freed and discharged from all interests, trusts, restrictions, declarations, reservations, obligations, contracts, licences, charges and rates (other than local government charges and rates),

to the intent that the legal estate in the land and all rights and powers incident to that legal estate or conferred by this Act are vested in the Government.

(2A) Notwithstanding any other law relating to the acquisition of chattels by the State, where—

(a) land acquired or to be acquired under this Act is developed or partly developed land; and

(b) at the time the land is acquired, certain chattels the property of the owner or owners of the land are being used on the land in connexion with the development of, or production from, the land,

upon the publication of a notice of acquisition of the land under Subsection (1), absolute ownership of the chattels is, by force of this Act, vested in the State.

(3) The land acquired under this section may be an easement, right, power, privilege or other interest which did not previously exist as such in, over or in connexion with land.”

N2>“19. PRINCIPLES FOR DETERMINING THE AMOUNT OF COMPENSATION PAYABLE BY THE GOVERNMENT

(1) The Government shall, in respect of any land acquired by compulsory process under this Act, pay by way of compensation for that land:

(b) in the case of land which has been developed or partly developed for purposes other than the return of income—the product of the value of the improvements, as determined by the Valuer-General, and the prescribed factor for that land; and

(c) in the case of land which has been developed or partly developed for the purpose of returning an income and which at the date of acquisition of the land:

N5>(i) has been in production for not less than five financial years—the product of the average annual net profit received in relation to that land over the five financial years immediately preceding the date of acquisition, as determined by the Valuer-General, and the prescribed factor for that land; or

N5>(ii) has been in production for more than one financial year but less than five financial years—the product of the average annual net profit which would have been received in relation to that land over the period of five financial years immediately preceding the date of acquisition if the land had been in production for the full period, as determined by the Valuer-General, and the prescribed factor for that land; or

N5>(iii) has been in production for more than one financial year but has incurred an average annual net loss for the period it has been in production, or for the period of five financial years, immediately preceding the date of acquisition, whichever is the lesser period—the amount fixed by the Minister, after receiving a report from the Valuer-General, for that land; or

N5>(iv) which has been in production for less than one financial year or is not yet in production—the product of the value of the improvements on the land, as determined by the Valuer-General, and the prescribed factor for that land.

(2) Where there are two or more claimants in respect of a parcel of land, the Government is not liable for any amount of compensation exceeding that for which it would have been liable if there was only one claimant and all rights to compensation in relation to the land were vested in him.

(a) in determining the average annual net profit for the purposes of Subsection (1)(c)(i) and (ii); and

have regard to the accepted principles of valuation practice and shall have regard to the current value of any improvements on the land and any chattels the property of the owner or owners of the land being used on the land in connexion with the development of, or production from, the land.”

The High Commissioner in Council may, for the purpose of prescribing the factors to be used in determining the compensation payable by the Government under Section 19, after receiving a report from the Valuer-General, by regulation, fix a factor in relation to:

(1) The annual net profit received from a parcel of land acquired by compulsory process under this Act is the amount by which the gross income received from that land during a year of income exceeds the total outgoings in respect of the land for that year as determined by the Valuer-General.

(2) In determining the total outgoings in respect of any land for the purposes of Subsection (1) regard shall be had to:

N5>(xi) management, accountancy fees, rents, postage and other minor matters; and

(1) The Minister shall, after receipt of a claim for compensation in accordance with Section 17, determine the amount of compensation payable to the claimant or to each of the claimants, as the case may be, whose claim has been accepted for determination.

(2) The Minister shall, as soon as practicable after he makes a determination under Subsection (1), cause a copy of the determination to be served on the claimant or each of the claimants, as the case may be, by registered post to the last address of the claimant known to the Minister.”

(1) A claimant whose claim has been accepted by the Minister and who is dissatisfied with a determination made by the Minister under Section 22 may, within three months after the date on which a copy of the determination was served on him or such further time as the Supreme Court may allow, appeal to the Supreme Court against the determination on all or any of the following grounds:

(a) that the valuation determined by the Valuer-General for the improvements to the land is an incorrect valuation; and

(b) that the average annual net profit which was received, or which would have been received, in relation to the land, as the case may be, as determined by the Valuer-General, is incorrect; and

(c) that the Minister used an incorrect prescribed factor when assessing the compensation payable for the land or the improvements.

(2) The notice of appeal shall state the amount of compensation which the claimant claims and the interest in respect of which it is claimed.

(3) Where an appeal under this section has been instituted in the Supreme Court in relation to an interest in land, the Court may by order direct any person (other than the appellant) who has claimed compensation arising out of the acquisition of the land, and whose claim has been accepted under Section 17, to join as a respondent in the proceedings within a time specified in the order, and that person shall comply with that direction.

(4) A determination of the Supreme Court under this section is binding on the Government and the claimant and on all persons who had an interest in the land at the date of acquisition of the land, whether or not they were represented before the Court on the hearing of the appeal.”

Naturally, there are other sections I have considered, but those set out above are the more critical, and I must now turn my mind to consider what they mean. With respect to those who drafted s. 19(3), this is by no means easy. Senior counsel is very much more experienced than I in this field, indeed, vastly so. Yet even he found trouble when I rather pestered him, I hasten to add, in a non-hostile way, as to the meaning of s. 19(3).

Mr. Lucas, in his final argument, seemed to me to resist the proposition that this was an appeal against under-valuation. I cannot see how the issue here is really anything but a valuation issue, one involving the views of an expert on coffee like Frame, an expert like Jones on coffee sales, and coffee generally, and an expert like Cottrell on accounting principles applied to the particular exercise. How can there be just terms unless the exercise is approached, in a professional way, by experienced men? I believe that Frame, Jones and Cottrell are experts in their fields, and I believe they spoke the truth. Of course, this is a different thing to saying they were right. But I am convinced that they did their best to be honest, and I liked them all as witnesses.

I have this reservation in the case of Mr. Frame, but it is not one that he should feel is hurtful to him. After over thirty years at the bar and on the bench I am well aware that parties are very much inclined to put their case at its highest. This is human nature. Mr. Morling, whilst, of course, loyal to his client, realised this. I think Mr. Frame has, possibly unwittingly, rather exaggerated his claim, but this in no way destroys his credit. As a party, with much at stake, he is a bit too close to the case.

Whatever I do, I imagine there could be an appeal to the Supreme Court. Therefore, let me say that I regarded Frame as a witness of truth. I completely accept the other two witnesses. They were impressive. No evidence, apart from exhibits, was led by the respondent. It was available. Mr. Lucas was going to lead evidence, he told me so on 12th December. On 13th December he had a change of heart. The failure to call evidence can, in some cases, be regarded as being without significance. For instance, the nominal defendant in the hit-run situation, where the hit-run driver is not apprehended, generally cannot call much evidence “qua” liability. In other cases witnesses might be available but it might be a waste of time to call them. But there are cases where the failure to call available and significant witnesses could persuade the judge that nothing they could say could really alter the situation established, “prima facie”, in the case-in-chief, and it seems to me that this is such a case, and that is how I look at it.

I now turn to the facts of the case. They are not easy, but both counsel have made them a lot easier than might otherwise have been the case, by allowing the evidence to be led in the way it was.

I think it would clear the decks if I first dealt with the opposition by Mr. Lucas to Mr. Cottrell’s stand on a number of items that Mr. Lucas has marked with an asterisk in his exhibit 7.

Mr. Lucas, or those assisting him, got their figures from the Frame company tax return. Mr. Cottrell has reduced them, for the purpose of establishing what he believes to be a true net profit. Mr. Lucas opposes the reduction. In effect, he says that Frame cannot have it both ways. I say he can. Two entirely different things are involved. For tax purposes Mr. Frame was perfectly entitled to rate his and his wife’s services as high as he liked, or as low. It was his money, his land, and his coffee. Of course, if he exaggerated the value to the plantation of his services beyond what the gross profits would stand, then, in the following year or years, he would have to cut himself back. Mr. Cottrell, appreciating this, did the realistic thing, and as to the Frame salaries and benefits did not look at them with Frame eyes, but with a purchaser’s eyes. There is nothing tricky in this, no question arises as to falsity of the company tax returns. Some people like to live well, thus they take more out of their holdings for their personal pleasure than they are possibly really worth when looked at in a cold blooded way by an accountant or an interested businessman who considers purchase. But, as I have indicated, this is their affair. Mr. Cottrell, in my opinion, adopted a sound procedure when he reduced the Frame personal earnings considerably so as to show a prospective purchaser what the real profits were. Of course, this resulted in an increased valuation, for correct and logical reasons.

Thus I reject the respondent’s contentions in exhibit 7, and I accept exhibit F. It strikes an average of K54,317 profit, which I accept. Multiplied by the four factor, this would give compensation amounting to K217,218. This would, without more, ensure the success of the appeal, although it would hardly be a spectacular victory.

My immediate response to this sum is to say it is obviously far too low, and demonstrably so. It would seem to be a figure that ignored improvements. Now the Act is most unclear about them. I suppose there are two ways in which one can deal with improvements. Firstly, one can simply value the land, then adding a realistic sum for improvements. Secondly, one can do a global valuation, looking at the land in its improved state, the value of the improvements complementing the essential thing, which is the land. As an example, a sheep station in my home State would be worth more if it had full fencing, and good fencing.

However, Mr. Morling was very frank. He acknowledged that if the amount paid was pretty close to the mark, or if I get pretty close to the mark, then Mr. Frame simply cannot have it both ways. Of course, this is so, and Mr. Morling’s concession is proper. In fact it is no concession at all. It is the very truth. In most cases you sell your property with all its improvements in one line; take built-in wardrobes in a house sale, or big tubs of flowers in a courtyard in a similar sale. If the vendor wants to retain something he has an affection or a use for, then he excludes it from the contract of sale. If not, it’s generally “all in”.

Just terms have been discussed quite often in Australia. Latham C.J. in Johnston Fear & Kingham v. The Commonwealth[dcccxvii]⁴ said “ ‘Just terms’ involve full and adequate compensation for the compulsory taking.” And see what Sir George Rich has to say[dcccxviii]⁵. He distinguishes an appropriator from a statutory expropriator.

I find that the amount awarded was palpably unjust. I am in no doubt that the appeal must be allowed. But what is just compensation?

This brings me to consider s. 19(3) which is difficult to understand. It seems strange to me that the Valuer-General should be required to determine the average net profit “hav(ing) regard to the accepted principles of valuation practice.” However, my duty is to make the Act work if I believe I can do so without virtually re-writing it. It is not my prerogative to legislate. I think that the draftsman had valuation in his mind, and treated the determination of the average net profit as a valuation exercise, or as a step in such an exercise. This seems to make sense if one reads sub-s. (3) with sub-s. 1(c)(i), for the Valuer-General not only has to determine the average annual net profit, he also has to set the factor, which, whatever it is, is then used to multiply the average profit. In my opinion the setting of the factor is very much a valuer’s task. But I acknowledge that it is curious that the determination of the factor is not alluded to in sub-s. (3).

Whilst it is true that no appeal against the setting of a factor under s. 20 is really provided for, if the Act is valid in that it provides just terms, then it follows that in an appeal of this nature the appellate court is bound to consider whether the factor was fairly fixed. In making his report the Valuer-General has to be fair, and apply recognised valuation principles. Clearly, so to comply, the Valuer-General would, inter alia, have to pay regard to the current prices for coffee, the improvements to the land, the fact that the Frame coffee was in great demand, being very high quality, the fact that on the highest of probabilities the plantation’s production would be maintained for some time at least at past levels, the fact that if prices did fall sharply in a year or two that the existence of the Coffee Industry Fund takes care of that risk to an extent, the fact that the appellant’s contributions to that fund are not now his property so they have been dissipated, and finally, the fact that because of the time at which the plantation was acquired, the appellant was denied about two-thirds of his income for the year of acquisition, as May, June, July and August are the peak production months. Acquisition in September or October would have been a very different thing indeed.

I should mention that the Valuer-General’s valuation was put in evidence by Mr. Lucas during the appellant’s case. The way the case was being conducted Mr. Morling did not object, and, of course, he expected the valuer would be called, as did I. At the heel of the hunt Mr. Lucas decided to call no witnesses at all. Thus it will be seen that Mr. Morling was misled. I hasten to add, and I’m sure senior counsel would agree with me, I do not mean misled by any sharp practice, but misled nevertheless. Mr. Lucas had every right to change his mind, no doubt he had very good reasons for doing so. Of course, in these circumstances, the valuation, which is exhibit 4, went untested, and if it contained material that purported to cut down the appellant’s case to a serious extent then I could give it little weight. However, I have looked at it, and “qua” the four factor it recommended it says this:

“One method of valuing plantations is to assess average annual profit and multiply this by a factor (years’ purchase) as revealed by sales. The annual profit is based on prices averaged over a number of years. In times of high prices, such as at present, an additional allowance is made for super profit. The factor used for coffee plantations, after allowing for super profit, is slightly in excess of four. Plantations are being purchased by the government at these prices. Private sales which have been analysed have revealed figures ranging from three and one-half to seven. These figures are based on production costs at the time of sale. The most recent sales have been very high and have undoubtedly been influenced by the existing high crop prices and the availability of finance.

The Act requires that the figure be applied to the annual net profit for the five financial years immediately preceding the acquisition. It is not practical to adjust the sales figures to allow for the differences in cost over the five year period.”

Bearing in mind the excellent results achieved by Mr. Frame, his many improvements, and the undoubted efficiency of the whole operation, which on acquisition was a real “going concern”, more likely to improve than go downhill, one wonders why, in view of what I have quoted, the valuer pulled a factor of four out of such a clear sky. One wonders whether the valuer took into account some of the matters that are referred to in the statutory business paper which is part of exhibit 4. I regard the valuation as one that is open to attack, and strong attack. It has not been defended, for the valuer has not been called.

In my opinion justice would be done in this case by applying a factor of a little over five, and accordingly I determine under s. 23 that the compensation should be K290,500.

The respondent must pay the costs of the appellant, as taxed or assessed. If taxed, then I indicate that I will certify a special fee for southern counsel, namely Mr. Morling. I fix his brief fee, on a party and party basis, at K675, with refreshers on a two-thirds basis. I allow Mr. Morling’s hotel expenses, and his return fare from Sydney to here, but on a Brisbane to Moresby basis, and a single fare from here to Goroka, on an economy class basis. I leave it to the Registrar to establish how many refreshers or part refreshers should be allowed. I note, for the information of the Registrar, that the charter flight from Goroka to here was, in my opinion, reasonable. It was the only way in which we could all get to Waigani and go on in the afternoon of 12th December. The Registrar should be careful to see that Mr. Kirke has been reimbursed for the return flights from Goroka to Port Moresby. He cannot claim these returns and the charter. In fact, the costs of the charter probably resulted, great though they might have been, in the saving of very considerable costs of a purely legal nature, and it was only a fluke, and because of my rank, that I got on the scheduled flight with Air Niugini. Mr. Morling’s party could not have joined me. Every seat in my plane was filled.

I would also indicate to the Registrar that I feel that it was reasonable to bring Mr. Cottrell to Port Moresby. However, the appellant must appreciate that this no doubt allowed him to do things, in relation to other matters, that concerned him as a partner of Coopers and Lybrand, and I do not see why all of his expenses as a witness should be visited on the respondent. I expect Mr. Kirke, with the help of Mr. Cottrell to present some sort of “break up” as an annexure to the bill of costs. This should not be difficult, it need not go into minutiae, it will have to be a rule of thumb sort of thing. But, in view of what I have said, the Registrar will need some help.

If there are any special matters that I have omitted, then liberty to either side to apply on one day’s notice.

Determined that the compensation be increased from the ordained sum to compensation of K290,500. Order that the respondent pay the appellant’s costs. Certificate for southern counsel. Registrar to assess costs on basis set out in judgment.

iv>
R>

[dcccxiv] Infra p. 629.

[dcccxv] Infra p. 628.

[dcccxvi] [1969] VicRp 44; [1969] V.R. 350, at p. 356.

[dcccxvii] [1943] HCA 18; (1943) 67 C.L.R. 314, at p. 323.

[dcccxviii] [1943] HCA 18; (1943) 67 C.L.R. 314, at p. 324.

PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.paclii.org/pg/cases/PGLawRp/1979/700.html

Papua New Guinea Law Reports

Frame v Minister for Lands Surveys and Environment [1979] PGLawRp 700; [1979] PNGLR 626 (21 December 1979)

Papua New Guinea Law Reports - 1979