VINCENT NOMINEES PTY LTD -v- WESTERN AUSTRALIAN PLANNING COMMISSION [2012] WASC 28 (2 February 2012)

Supreme Court of WA|2012-02-02|Before: Beech J

First Defendant : State Solicitor for Western Australia

1 In 2008 the plaintiff sold two properties, lot 7 and lot 8 Holmes Street Gosnells, to the first defendant (the WAPC). There was a reserve over part of lots 7 and 8. By then, there was a dispute between the plaintiff and the WAPC about lot 8. The dispute arose from a payment of compensation in 1983, by the WAPC's predecessor, to the previous owner of lot 8 for the effect of the reserve.

3 The content and scope of the dispute, and who was making what claims in that dispute, are in issue between the parties in this action.

4 In very broad overview, the plaintiff fails because:

(a) the first issue is the proper construction of the contract: who must show what in order to succeed in the dispute? I find that, in substance, the plaintiff must show that the payment of compensation to the previous owner was invalid; and

(b) the second issue is the validity of the payment of compensation to the previous owner. I am not satisfied that the plaintiff has established the invalidity of the payment.

5 The rest of these reasons are divided into the following sections:

(6) Reasons for rejecting the plaintiff's primary and first alternative constructions;

(7) Principles relevant to construction of contracts;

(9) The background facts about the underlying dispute;

(10) The proper construction of the contract of sale: the merits of the WAPC's primary construction compared to its alternative construction;

(12) Was the amount of compensation agreed? If so, when?

(14) The validity of the Greenham payment: the parties' contentions;

(15) The validity of the Greenham payment: the test for invalidity;

(16) The validity of the Greenham payment: did the statutory scheme permit the MRPA to agree the amount of compensation?

(17) The plaintiff's other attacks on any agreement;

(18) The plaintiff's attacks on the Board of Valuers' valuation;

(19) The plaintiff's attacks on the purported determination or resolution of the affected value by the MRPA; and

Sections 2 10 concern the proper construction of the contract of sale. Sections 11 19 concern the validity of the payment to the previous owner.

6 In order to understand the issues in the action it is necessary to outline some background facts. Later in these reasons I will set out the facts in more detail.

7 The plaintiff bought lot 8 in May 1983 from Mrs Margaret Greenham. It has an area of 2.0917 ha. Earlier, in April 1981, a portion of 0.5391 ha of lot 8 had been reserved for 'Important Regional Roads' under the Metropolitan Region Scheme (MRS). That reserve remained in place, although in 1999 the purpose of the reservation was changed to 'Primary Regional Road'.

8 Before selling lot 8 to the plaintiff, Mrs Greenham gave notice, under the relevant legislation, to the Metropolitan Region Planning Authority (MRPA) of her intention to sell the property. There was then a series of steps taken by the MRPA and the Board of Valuers which I will describe later. (The MRPA is the predecessor to the WAPC).

9 In June 1983, after lot 8 had been transferred to the plaintiff, Mrs Greenham claimed compensation from the MRPA for the injurious affection of lot 8 by the reservation.

10 In August 1983, the MRPA paid $12,500 compensation to Mrs Greenham. The legal effect, if any, of that payment is in issue. There are also a number of issues about the steps taken and events leading to that payment.

11 On 15 August 1993, the MRPA registered a caveat against lot 8, as contemplated in the legislation.

12 The plaintiff did not become aware of the caveat until September 2006. At that time, the plaintiff had contracted to sell lot 8. The purchaser discovered the caveat after a title search and the contract fell over. The plaintiff wrote to the Minster for Planning, complaining about the caveat. A dispute arose between the parties. As I have said, the content of the dispute in itself is an issue. After the dispute arose, the parties negotiated a sale by the plaintiff to the WAPC of lot 8 as well as a neighbouring property, lot 7.

13 In May 2008, the WAPC and the plaintiff entered a contract of sale of lots 7 and 8. There is no issue about the purchase of lot 7.

14 The proper construction of the contract of sale is the first major issue in this action and will determine what the other issues are.

15 The contract of sale is dated 29 May 2008 and is made between the plaintiff as seller and the WAPC as purchaser. In the contract the plaintiff is referred to as Nizich, which is the surname of the plaintiff's directors. The contract recitals include the following:

(a) In or around 1983 WAPC's predecessor The Metropolitan Region Planning Authority paid $12,500.00 compensation to Nizich's predecessor in title as compensation for injurious affection arising from a reservation in relation to part of Lot 8, which compensation entitlement arose upon the first sale of the property from Nizich's predecessor in title to Nizich following the reservation of the land under the Metropolitan Region Scheme ('MRS Reservation'), pursuant to section 36 of the former Metropolitan Region Town Planning Scheme Act 1959 (MRTPS Act).

(b) At that time, the amount of compensation paid represented a quarter of the full market value of Lot 8 unaffected by the MRS Reservation. WAPC asserts that subsections 36(3) and (7) and section 36AA and section 37(5) of the MRTPS Act, now also reenacted as sections 171, 180 and 192 of the Planning and Development Act 2005, operate to support the position that the WAPC is entitled to reduce the unaffected value of Lot 8 by the proportion that the compensation it previously paid bore to the value of the land at the time the compensation was paid.

Nizich disputes all the claims referred to in Recital B ('the Dispute').

WAPC has offered $1,895,000.00 plus GST (if applicable) to purchase Lot 7 from Nizich and $1,406,250.00 plus GST (if applicable) to purchase Lot 8 from Nizich.
The Parties agree that the offer for Lot 7 is full market value unaffected by the MRS Reservation and that there is no dispute or argument between the Parties in relation to the sale and purchase of Lot 7.
In relation to Lot 8 the parties agree that the full market value unaffected by any MRS Reservation ('full market value') of Lot 8 is $1,875,000.00 plus GST. WAPC has discounted the full market value of Lot 8 by one-quarter of the full market value to reflect the proportionate value of the alleged compensation payment made to Nizich's predecessor in title.
WAPC and Nizich have agreed to proceed with the settlement of the conveyance of Lot 7 and Lot 8 based on the purchase prices referred to in Recital D but without prejudice to and on the terms and conditions referred in this Contract including the assertion by Nizich of his entitlement with respect to the Dispute to be paid the additional one-quarter value of the full market value of Lot 8 after the transfer of Lot 8 to WAPC.

16 The operative part of the contract includes the following:

WAPC agrees to buy and Nizich agrees to sell Lot 7 and Lot 8 both free of all Encumbrances (including any easements and restrictions), and including all buildings and improvements erected on Lot 7 and Lot 8 and with vacant possession 30 days after the date of execution of this contact ('the Settlement Date') upon the following terms and conditions:

1.1 the purchase price for Lot 7 (100% of full market value) will be $1,895,000.00 plus GST (if applicable);

1.2 the purchase price of Lot 8 will be $1,406,250.00 plus GST (if applicable) which price may be varied subject to the resolution of the Dispute in the manner provided for in paragraphs 2 and 3;

(a) Provided he commences proceedings against WAPC in the Supreme Court within six (6) months of the Settlement Date, Nizich shall be entitled to pursue his claim for the difference between the purchase price paid by WAPC for Lot 8 on the Settlement Date and the full market value for Lot 8 in order to satisfy his claim in the Dispute.

(b) Notwithstanding that Nizich may be successful in any proceedings referred to in paragraph (a) brought against WAPC, WAPC is entitled to remain the registered proprietor of Lot 8 following settlement.

(c) Provided proceedings are issued as indicated in 2(a), Nizich's rights with respect to the Dispute survive and do not merge with Settlement.

For the avoidance of doubt, the Parties agree that if Nizich is successful in the Dispute with respect to the one quarter of the full market value not otherwise paid to him by the WAPC, then WAPC will be required to pay an additional $468,750.00 plus GST if applicable to Nizich as the remainder of the purchase price for Lot 8.

17 The first issue in the case is the proper construction of the contract of sale. In what circumstance is the plaintiff entitled to the additional $468,750 (the Additional Sum)?

18 I begin with some preliminary observations about the language and structure of the contract of sale to explain how the construction issue arises.

19 Clause 1.2 provides that the purchase price for lot 8 of $1,406,250 plus GST may be varied subject to the resolution of the Dispute (defined in Recitals B and C) as provided in cl 2 and cl 3.

20 Clause 2 entitles the plaintiff to commence proceedings within six months to pursue its claim for the difference between the purchase price paid at settlement and the agreed full unaffected market value of lot 8, in order to satisfy its claim in the Dispute.

21 Clause 2(c) preserves the plaintiff's rights with respect to the Dispute.

22 Clause 3 makes it clear that if the plaintiff succeeds in the legal proceedings respecting the Dispute, the WAPC will be obliged to pay the Additional Sum as the remainder of the purchase price for lot 8.

23 The upshot is that if the plaintiff succeeds in the proceedings respecting the Dispute, it is entitled to payment of the Additional Sum.

24 That invites attention to what the Dispute is, and what is entailed in the plaintiff's succeeding in relation to the Dispute.

25 The Dispute is defined in Recitals B and C. The definition provision of the contract is not to be read in isolation from the operative provisions of the contract. Rather, the definition should be inserted in the relevant operative provisions and the contract then construed as a whole: see the cognate principle of statutory construction: Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216 [84], [103].

26 Recital B sets out claims said to have been made by the WAPC. Recital C states that the plaintiff disputed all of those claims, and defined that as 'the Dispute'. The contract of sale says nothing about the grounds on which the plaintiff disputed the WAPC's claims.

27 Recital B(b) records the WAPC's assertion that various provisions of planning legislation operate to mean that the WAPC is 'entitled to reduce the unaffected value of Lot 8' by one quarter (that being the proportion that the compensation claimed by the WAPC to have been previously paid bore to the value of the land at the time). That is the only identified legal consequence of any element of the Dispute.

28 Recital C records that the plaintiff denies all of the WAPC's claims, including the claim in Recital B(b). With the possible exception of Recital G, to which I will refer later in these reasons, there is nothing in the contract of sale identifying any positive claims by the plaintiff, or any positive legal consequence said by the plaintiff to arise from its denials or from any claims.

29 However, as the WAPC's submissions emphasise, cl 2 and cl 3 are couched in terms of '[the plaintiff's] claim' (see cl 2(a), in two respects), '[the plaintiff's] rights' (cl 2(c)), and the plaintiff being successful in the Dispute (cl 3).

30 These features of the contract of sale give rise to questions of construction about defining the circumstances in which the plaintiff will have succeeded in relation to the Dispute (and so become entitled to the Additional Sum). Is it for the plaintiff to show that some or all of the WAPC's claims in Recital B should fail? If so, which claim or claims? Or is it for the plaintiff to establish a claim of its own? If so, what claim?

31 In these respects at least, the contract of sale is ambiguous and susceptible of more than one interpretation. That much is common ground between the parties.

32 The parties put five competing constructions, although, as I will explain, two of them in substance amount to the same thing.

33 The plaintiff's primary construction is as follows. The Dispute relates to the WAPC's claim that, without reference to any contemplated compulsory acquisition, by operation of the applicable legislative provisions it was entitled to reduce the unaffected value of the property so as to reduce the price to be paid for lot 8 by 25%. The plaintiff succeeds in relation to the Dispute if it defeats that claim.

34 The plaintiff advances two alternative constructions. The plaintiff's first alternative construction has these elements:

(a) the Dispute was about the valuations that had been used by the MRPA in the course of the events leading to the payment of $12,500 to Mrs Greenham;

(b) prior to the 2008 contract of sale, the plaintiff had contended that those valuations were unreasonably high and the payment of $12,500 did not represent one quarter of the true unaffected market value;

(c) if the plaintiff succeeded in those contentions, it would succeed in the Dispute and become entitled to the Additional Sum; and

(d) it was not necessary for the plaintiff to demonstrate that success in these contentions made the valuations invalid, or had any other legal consequence for the relative rights of the plaintiff and the WAPC.

35 The plaintiff advances the following second alternative construction:

(a) the Dispute was about the validity of the payment of compensation to Mrs Greenham and the WAPC's right to maintain its caveat; and

(b) the plaintiff would succeed in the Dispute if it showed that the payment of compensation to Mrs Greenham was invalid and that, consequently, the WAPC was not entitled to maintain its caveat.

36 The WAPC's primary construction is that the Dispute was about whether the plaintiff was entitled to compensation for the effect of the reservation. The WAPC contends that the plaintiff would become entitled to the Additional Sum only if it establishes that, as at the date of the contract of sale, it had a subsisting right to compensation for the effect of the reservation on lot 8.

37 The WAPC's alternative construction is that the Dispute was about whether by reason of the MRPA's payment to Mrs Greenham, the WAPC would have been entitled to reduce the unaffected value by 25%, and thus to the extent of the Additional Sum, if it had compulsorily acquired lot 8 from the plaintiff. On this construction, it contends that the plaintiff will be entitled to the Additional Sum if it establishes that the WAPC would not have been entitled to reduce the unaffected value of lot 8 by the relevant proportion if it had compulsorily acquired lot 8.

6. Reasons for rejecting the plaintiff's primary and first alternative constructions

38 In my view, it can be said at once that the plaintiff's primary construction, and its first alternative construction, find no support in the language of the contract of sale, and must be rejected.

39 I deal first with the plaintiff's primary construction. The WAPC's claims are set out in Recital B, by reference to various sections of the planning legislation. I will set out those provisions later in these reasons.

(a) compensation is not payable until (relevantly) the reserved land is first sold after the reservation: MRTPS Act s 36(3) (and Planning and Development Act 2005 (WA) (PD Act) s 177(2), although not referred to);

(b) if compensation for injurious affection has been paid, the authority can lodge a caveat against the land specifying the amount of compensation paid: MRTPS Act s 36(7), PD Act s 180;

(c) if compensation has been paid in relation to a matter, no further compensation is payable under any other provision of the Act as a result of the same thing: MRTPS Act s 36AA; PD Act s 171; and

(d) on a compulsory acquisition of reserved land for which compensation has been paid, there is to be deducted from the compensation assessed as payable an amount that bears the same ratio to that assessed amount as the compensation paid bears to the unaffected value, as determined under the Act: MRTPS Act s 37(5), PD Act s 192(2).

41 Nothing in those provisions is even remotely capable of sustaining a right, on the WAPC's part, to reduce the purchase price in a contract, freely entered into by both parties, for the WAPC to purchase lot 8 from the plaintiff. I do not think Recital B can be read as involving a claim by the WAPC to that effect. Nor is such a claim by the WAPC to be found elsewhere in the contract, read as a whole.

42 Further, to my mind, the obvious absence of any legal foundation for such a claim by the WAPC is itself a ground militating against construing the Dispute to mean the question of whether the WAPC could sustain such a claim. In the setting of a consensual sale it was obvious that the WAPC had no entitlement to reduce the price below that for which the plaintiff would agree to sell. On the plaintiff's construction, the WAPC agreed that it would pay the Additional Sum if it (the WAPC) failed in its claim to an entitlement that, plainly and beyond argument, it did not have. Objectively, that is an unlikely intention to ascribe to the WAPC.

43 The plaintiff sought to draw support for its preferred construction by reference to assertions said to have been made by the WAPC in correspondence preceding the contract of sale. I will outline that correspondence later in these reasons. The plaintiff submits that, in that correspondence, the WAPC asserted that it had a 25% ownership interest in lot 8, arising from its payment of compensation to Mrs Greenham. As I will explain, I do not read the correspondence in the way invited by the plaintiff. More fundamentally, the preceding correspondence cannot be used to give the contract of sale a meaning that, read as a whole and in context, its language cannot bear. The instrument must be read in its context, but it is the instrument that is to be construed. Reference to the context is not a licence to rewrite the contract to include provisions reflecting what the court infers from the background facts to have been intended by the parties. The search is for the intention of the parties as embodied in the words they have used in the instrument: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 110; Permanent Building Society (in liq) v Wheeler (1993) 10 WAR 109, 118 120.

44 In my opinion, the Dispute, as that term was used and defined in the contract of sale, did not encompass an assertion by the WAPC of a 25% interest in lot 8.

45 The plaintiff's first alternative construction also finds no support in the language of the contract of sale. Counsel for the plaintiff in effect accepted that (ts 331). The valuations that preceded the payment to Mrs Greenham are not mentioned anywhere in the contract of sale. The contract should not be construed to mean that the Dispute turned on the reasonableness or correctness of valuations not mentioned in the contract.

46 Moreover, it is objectively unlikely that the WAPC would have agreed to what is entailed by this construction. On this construction, once the plaintiff showed, in the subsequent proceedings, that the payment of $12,500 was unreasonably high or did not represent one quarter of the true unaffected market value, it would be entitled to the Additional Sum. It would not need to demonstrate invalidity or any other legal consequence to succeed. That would substantially have improved the plaintiff's position, and correspondingly disadvantaged the WAPC's position, compared to the positions in the absence of the agreement about the Additional Sum in the contract of sale. There is no apparent reason why the WAPC would have so agreed.

47 The plaintiff's second alternative construction and the WAPC's alternative construction substantially amount to the same thing. Counsel for both parties accepted that that was so (ts 432, 476). If the plaintiff shows that the payment of compensation to Mrs Greenham was invalid, it would follow that the WAPC was not entitled to maintain the caveat, so the plaintiff would succeed on its second alternative construction. It would also follow that the WAPC would not have been entitled to reduce the unaffected value by 25% on a compulsory acquisition, so the plaintiff succeeds on the WAPC's alternative construction. The substance of both constructions is that the plaintiff succeeds if and only if it shows that the payment to Mrs Greenham was invalid.

48 The choice between this construction and the WAPC's primary construction is less straightforward.

49 I begin by outlining the principles relevant to construction of contracts.

7. Principles relevant to construction of contracts

50 The principles relevant to the construction of contracts and other instruments were not in dispute.

51 The primary duty of the court in construing an instrument is to endeavour to discover the intention of the parties as embodied in the words they have used in the instrument: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (109 110); Permanent Building Society (in liq) v Wheeler (118 119).

52 The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood the terms to mean. It has been said in a number of cases in the High Court that that normally requires consideration not only of the text of the document, but also of the surrounding circumstances known to the parties, and of the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 [8], [53].

53 In Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45, three justices of the High Court recently stated that trial judges (and intermediate appellate courts) are bound to apply what was said by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352 about the admission of surrounding circumstances in construing contracts, unless and until the High Court says otherwise. In Codelfa, Mason J said that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one interpretation, but it is not admissible to contradict the language of the contract when it has a plain meaning.

54 Read as a whole, the reasons for Mason J in Codelfa may not limit the receipt of evidence of background facts as much as is sometimes suggested. See, in this regard, the observations of McLure JA in Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117 [154]. Further, a broad concept of ambiguity may apply in this context; see, for example, South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 [35]; Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd [1999] WASC 218; (1999) 21 WAR 425 [43] [45].

55 In any event, in this case, as I have explained, the language of the contract of sale is ambiguous and susceptible of more than one meaning, and that was common cause. Consequently, evidence of background facts and the genesis of the contract of sale is admissible as an aid in its construction. However, as I have observed in relation to the plaintiff's preferred construction, there are significant limits on the role of the background facts. It remains the instrument that is to be construed. See [43].

56 An instrument should be construed so as to avoid it making commercial nonsense or giving rise to commercial inconvenience: Zhu v The Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 [82]; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 [43]. However, as Gleeson CJ, Gummow and Hayne JJ observed in Maggbury [43], what comprises 'business commonsense' in respect of a particular contract, as an objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible.

57 Among the background circumstances and context for an agreement may be matters of law: Maggbury Pty Ltd v Hafele Australia Pty Ltd [11]; Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; (2002) 240 CLR 45; Amcor Ltd v Construction, Forestry, Mining & Energy Union [2005] HCA 10; (2005) 222 CLR 241 [13], [50], [64]; Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119 [113].

(1) it is only matters actually known by both parties, not all matters reasonably available to them, that are admissible background facts;

(3) there is no pleading or evidence that the parties were aware of any particular effect or had any particular understanding of the legislation concerning the WAPC's powers.

59 Some of the authorities on the first point were analysed by Edelman J in The City of Subiaco v Local Government Advisory Board [2011] WASC 322 [116] [121]. In my view, it is unnecessary to enter into a discourse on general principles on the first two of these points. My task is to construe the contract of sale. The contract of sale expressly mentioned various legislative provisions. It did so in the context of outlining the assertions that had been made by the WAPC and denied by the plaintiff, giving rise to the Dispute. That being so, in my opinion, it is appropriate to have regard to the legislative framework to construe the contract of sale. In those circumstances, I do not think that the third point is of any significance. I think the proper construction is to be derived from the contract itself and the legislative framework to which it refers. Those matters may indicate an objectively ascertained common intention or understanding.

60 At the time the contract of sale was entered into, part of lot 8 was reserved. The WAPC had lodged a caveat on the basis of the MRPA's payment of $12,500 to Mrs Greenham in 1983.

61 By s 173 of the PD Act, a person whose land is injuriously affected by the making or amendment of a planning scheme is entitled to obtain compensation for the injurious affection from the responsible authority. The WAPC is the responsible authority for the purposes of the MRS: PD Act s 4.

62 Compensation for injurious affection arising from the reservation of land for a public purpose is affected by s 177 of the PD Act. Section 177(1) and s 177(2) provide:

(1) Subject to subsection (3), when under a planning scheme any land has been reserved for a public purpose, no compensation is payable by the responsible authority for injurious affection to that land alleged to be due to or arising out of such reservation until -

(a) the land is first sold following the date of the reservation; or

(b) the responsible authority -

(i) refuses an application made under the planning scheme for approval of development on the land; or

(ii) grants approval of development on the land subject to conditions that are unacceptable to the applicant.

(2) Compensation for injurious affection to any land is payable only once under subsection (1) and is so payable -

(a) under subsection (1)(a) to the person who was the owner of the land at the date of reservation referred to in subsection (1)(a); or

(b) under subsection (1)(b) to the person who was the owner of the land at the date of application referred to in subsection (1)(b),

unless after the payment of that compensation further injurious affection to the land results from -

(c) an alteration of the existing reservation of the land; or

(d) the imposition of another reservation of the land.

63 Further, s 171 of the PD Act provides as follows:

(1) If compensation has been paid under a provision of this Part in relation to a matter or thing no further compensation is payable under any other provision of this Act as a result of the same matter or thing.

(2) When a person is entitled to compensation under this Act in respect of any matter or thing, and is also entitled to compensation in respect of the same matter or thing under any other written law, that person is not entitled to compensation in respect of that matter or thing both under this Act and that other written law, and is not entitled to any greater compensation under this Act than that person would be under the other written law.

64 Section 171 was one of the legislative provisions referred to in Recital B of the contract of sale.

65 Section 180 was also referred to in Recital B. It provides that when compensation has been paid under s 177, the responsible authority may lodge a notification with the Registrar of Titles, specifying the amount of compensation paid and the proportion which that compensation bears to the unaffected value of the land. The significance of that proportion appears in s 192, to which I will refer shortly.

66 If a person claims compensation for injurious affection, the responsible authority (here the WAPC) may elect to acquire the land instead of paying compensation: PD Act s 187. If the responsible authority and the owner of the land are unable to agree the price, it is determined by reference to the value of the land without regard to any increase or decrease in value attributable wholly or partly to the planning scheme: PD Act s 187(3), s 188(1).

67 Section 190 gave the WAPC power to purchase land in the MRS from any person who was willing to sell it. That is the power that was in fact exercised by the WAPC in acquiring lots 7 and 8.

68 Section 191 provides that the WAPC, as responsible authority, may for the purpose of a planning scheme, compulsorily take land within the scheme. At the time of the contract of sale, that provision had been interpreted to empower the responsible authority to take the whole of land only part of which had been reserved: Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2007] WASC 43. After the date of the contract, the Court of Appeal held that the section does not empower the WAPC to take land which is zoned and not reserved: Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2008] WASCA 211; (2008) 38 WAR 276 [41] [49]. That view was subsequently confirmed by the High Court: Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2010] HCA 2; (2010) 240 CLR 409 [33] [34].

69 The parties filed detailed written submissions about the extent to which and circumstances in which the state of the law at the time of the contract, as distinct from at a later time, is the relevant context for construction of a contract. The plaintiff submits that the appellate decisions in the Mandurah Enterprises cases mean that the WAPC had no power to take the whole of lot 8, only the reserved portion, and it does not matter that those decisions came after the date of the contract of sale. Because there was no power to take all of lot 8, the submission continues, the WAPC's alternative construction should not be adopted, because that construction is founded on a hypothesis that was not legally available.

70 It is not necessary to engage in an analysis of general principles. That is so, in my opinion, for two reasons.

71 First, the nature of the construction issue should be noticed. The issue relates to what is entailed by succeeding in relation to the Dispute. The parties were in dispute about their respective rights and obligations. That involves consideration of the legal framework governing their rights and obligations.

72 Secondly, in my view, what was contemplated by the parties about the legislative context is sufficiently clear from the terms of the contract.

73 If the WAPC had taken land under s 191 of the PD Act, compensation for that taking would have been payable under pt 10 of the Land Administration Act 1997 (WA). The value of the land would be assessed without regard to any increase or decrease in value attributable to the planning scheme, but having regard to any amounts of compensation already paid or payable in respect of the land for injurious affection resulting from the reservation: PD Act s 192(1). Section 192(2) provides that compensation already paid or payable is to be taken into account by deducting from the compensation assessed an amount that bears the same ratio to the compensation assessed as the compensation paid or payable under div 2 of pt 11 bears to the unaffected value of the land as determined under pt 11. It is that ratio which, according to Recital B, the WAPC claimed it could apply to reduce the unaffected value of lot 8.

74 Section 192 of the PD Act was referred to in Recital B. That section is engaged or potentially applicable only in the circumstance that a responsible authority has taken land under s 191 of the PD Act. Recital B says that:

(a) the compensation paid in 1983 was a quarter of the unaffected value of (the whole of) lot 8; and

(b) the WAPC asserts that the effect of the legislation referred to is that the WAPC was entitled to reduce the unaffected value by a quarter (that being the proportion that the compensation previously paid bore to the unaffected value of the land at the time).

To my mind, in that context, the fact that s 192 is referred to suggests contemplation of the possibility that, acting under s 191, the WAPC might take all of lot 8, not only the reserved portion, and then rely on s 192 to reduce the compensation payable for the taking. Application of the one quarter proportion would not make sense in the context of a taking of only the reserved part of lot 8. That is because the one quarter proportion was derived from the relationship between the unaffected value of the whole ($50,000) and the compensation paid ($12,500).

75 If I were wrong about this, it would not affect my construction of the contract of sale. In particular, it would not lead me to adopt the plaintiff's preferred construction or its first alternative construction. I have already explained my reasons for rejecting those constructions: see section 6. If I considered that the legislative context meant that the WAPC had no power to acquire the whole of lot 8 that would, if anything, tend in favour of the WAPC's preferred construction over its alternative construction (and the substantially equivalent second alternative advanced by the plaintiff). See section 10 on the merits of the WAPC's two constructions. But, in the end, it would not alter my view.

76 I turn to the evidence about the background facts regarding the underlying dispute in existence at the time of the contract.

9. The background facts about the underlying dispute

77 On 20 September 2006, Mr and Mrs Nizich wrote on behalf of the plaintiff to the Honourable Alannah MacTiernan, Minister for Planning. The letter stated that the plaintiff had just become aware of the MRPA's caveat, when it was discovered by a purchaser from the plaintiff under a recently signed contract of sale. The letter said that an officer of the WAPC, Mr Hillyard, had said that a deal was done with the previous owner, Mrs Greenham, after the plaintiff had become owner of lot 8.

78 The letter requested assistance in having the caveat removed immediately.

79 On 27 October 2006, the plaintiff entered into another contract of sale of lot 8. The contract was conditional on removal of the caveat by 27 April 2007. Subsequently, the caveat was not removed and the contract lapsed for failure of the condition.

80 By letter of 10 November 2006, the Minister wrote to Mrs Nizich. The letter stated that:

(a) Mrs Greenham had lodged a notice of intention to sell on 2 February 1983;

(b) this was necessary to trigger her rights for compensation, if her property was sold for less then the market value because of the reservation;

(c) on 28 February 1983, the Board of Valuers assessed the unaffected value of the property as $50,000 and the value of the reserved section as being $14,000;

(d) the MRPA wrote to Mrs Greenham in April 1983 advising that the affected value of land was $37,500 and should a sale occur she should submit a claim for compensation and she would be paid accordingly;

(e) the compensation claim was made after the transfer of land; and

(f) the Minister was seeking further legal advice, through the WAPC.

81 By letter of 13 August 2007, the WAPC wrote to the plaintiff's solicitors. A copy of that letter is document 6 in the agreed bundle of documents that is exhibit B. I will use the shorthand exhibit B6. The letter referred to a recent meeting between the parties and a subsequent opinion obtained from the State Solicitor's Office on the issues raised at that meeting. The letter stated that any retrospective 'checking' or attempting to disturb the findings of the Board of Valuers (a matter raised at the meeting) was not something that should be undertaken by the WAPC. The view of the State Solicitor's Office was that it would be necessary to find bad faith or fraud or to demonstrate that the finding of the Board was so unreasonable as to be selfevidently wrong. Further, the letter stated that any disturbance of the Board of Valuers' findings would only go to the quantum of compensation that had been paid to the original recipient of the compensation. The letter further stated that the WAPC 'still has a 25% interest in the value and ownership of Lot 8' (exhibit B6, page 11). On page 12, it stated that compensation had already been paid and 'cannot be paid a second time, and for that reason, the WAPC effectively retains a 25% interest in the ownership of Lot 8'.

82 Counsel for the plaintiff emphasises the unqualified assertion on page 11 of a 25% interest. In my view, read as a whole and in the statutory context, the letter asserts a 25% interest only in the sense explained on page 12.

83 By letter of 25 September 2007, the plaintiff's solicitors wrote to the WAPC enclosing a valuation of lot 8 by Mr Zucal, dated 31 July 2007. The letter stated that there were now two independent valuations saying the unaffected value of lot 8 at the relevant time was about $37,500, supported by sales evidence. Further, the letter stated that it appeared the Board of Valuers erroneously assessed the unaffected value at $50,000. The presence of that error was said to mean there was no basis to discount the present day value of lot 8. To do so would, the letter asserted, only 'compound the error and unfairly transfer the burden of the error to our client' (exhibit B9).

84 By letter of 15 October 2007, the WAPC wrote in response. The letter stated that:

(a) the WAPC was not able to disturb the Board of Valuers' assessment made in 1983;

(b) the WAPC did not agree that the independent valuations made in 2007 sustained the conclusion that the Board of Valuers had made a valuation error;

(d) disturbance of the Board of Valuers' assessment could only be achieved by legal proceedings instituted by the plaintiff.

85 The letter set out a value for 75% of lot 8 at $1,406,250 and said that the WAPC would be willing to acquire lot 8 at that price. A note explained that this was 'after 25% caveat interest deducted' (exhibit B10, page 48).

86 In the context of the preceding correspondence and the statutory framework, the references to a 25% interest were to be understood in the sense explained on page 12 of exhibit B6.

87 The following features of the dispute between the plaintiff and the WAPC emerge from these background facts:

(a) the genesis of the dispute was that the plaintiff wanted to sell lot 8 (and had contracted to do so) and the MRPA's caveat prevented it from doing so;

(b) in response, the WAPC explained the history, including the approach taken by the Board of Valuers;

(c) the plaintiff asserted that the valuations in 1983 were wrong and too high, and supported that assertion with valuations conducted in 2007;

(d) in the correspondence that is in evidence, the plaintiff's solicitors did not spell out what, if any, legal consequences there might be if there was some flaw in the 1983 valuations. Rather, they appealed to general unfairness;

(e) the WAPC's letter of 15 October 2007 made some reference to the possibility of 'disturbance' of the 1983 valuations by legal proceedings to be instituted by the plaintiff. That letter did not spell out any specific legal consequences of disturbance of the valuations;

(f) the WAPC's earlier letter of 13 August 2007 had asserted that disturbance of the 1983 valuations would only affect the amount of compensation paid to Mrs Greenham;

(g) in correspondence, the WAPC took the position that the MRPA's payment of $12,500 compensation in 1983, and its caveat, and the statutory provision that compensation cannot be paid a second time meant that, in effect, the WAPC had a 25% interest in lot 8;

(h) at no stage did the plaintiff make any application for compensation for the reservation of lot 8, or give any indication of an intention to do so. To the contrary, the plaintiff wanted to sell lot 8; and

(i) at no stage did the WAPC indicate an intention to compulsorily acquire lot 8.

10. The proper construction of the contract of sale: the merits of the WAPC's primary construction compared to its alternative construction

88 For the reasons that follow, I prefer the WAPC's alternative construction (and the plaintiff's second alternative construction) to the WAPC's primary construction. In short, I consider that the alternative construction finds greater support in the text and structure of the contract of sale, and nothing in the background facts sustains a different approach.

89 The WAPC's submissions emphasise that cl 2 and cl 3 are couched in terms of '[the plaintiff's] claim' (cl 2(a)), '[the plaintiff's] rights' (cl 2(c)) and the plaintiff being successful in the Dispute (cl 3). Moreover, Recital G refers to the plaintiff's 'assertion of [its] entitlement with respect to the Dispute'. The WAPC submit that those expressions reveal a claim by the plaintiff of a positive entitlement, and that, in context, that can only mean a claim for compensation for the reservation.

90 In my view, these references can and should be read as meaning the plaintiff's claim that it should succeed in the Dispute and thereby be entitled to the Additional Sum, not as a reference to a positive claim by the plaintiff that gave rise to or constituted the Dispute. Further, cl 2(c) can be read as inserted in an abundance of caution to avoid a merger argument, rather than as involving the assertion by the plaintiff of a subsisting right.

91 In my view, the following features of the language and structure of the contract of sale favour my preferred construction.

92 First, the Dispute is defined as the disputing by the plaintiff of the WAPC's assertions recorded in Recital B. It is not defined by reference to any claim by the plaintiff for compensation. Moreover, there is no reference in the contract of sale to any such claim. Nor is any such claim made, or expressly contemplated, in the preceding correspondence.

93 Secondly, the substance of the WAPC's claim in Recital B(b), denied by the plaintiff, is that it was entitled to 'reduce the unaffected value of Lot 8 by the proportion that the compensation it previously paid bore to the value of the land at the time compensation was paid'. In my view, that language and substance resonates with, and is apposite to, the position applying on a compulsory acquisition. The notion of the stated proportion illustrates that. The same is true of the reference in Recital F to discounting by one quarter to reflect the proportionate value.

94 Thirdly, Recital B(b) listed a number of sections of the MRTPS Act and PD Act that the WAPC relied on for its asserted entitlement. I have already outlined those provisions. In my view, those references favour my preferred construction, although I acknowledge the references to s 36AA of the MRTPS Act and s 171 of the PD Act may be contraindications.

95 In my opinion, the legal context in which the parties contracted also militates against the WAPC's primary construction. This is a consideration I give less weight than the textual matters just stated. In my view, it was clear at the date of contracting that the plaintiff did not then have any subsisting right to compensation for the reservation. No right to compensation would arise until an event referred to in s 177(1) of the PD Act occurred. A sale by the plaintiff could not arguably trigger a right under s 177(1)(a). Regardless of any issues about the validity of compensation paid to Mrs Greenham, the sale by her was the first sale following the reservation, so by s 177(2)(a) she is the person entitled under s 177(1)(a). Assuming any rights to compensation were not extinguished by the sale (as to which see Western Australian Planning Commission v Temwood Holdings Pty Ltd [2004] HCA 63; (2004) 221 CLR 30 [37], [94] [109], [161]), no compensation could be payable until a development application was refused or granted on unacceptable conditions. No development application had been made or was contemplated. I think the absence of any subsisting right of the plaintiff to compensation was sufficiently clear to militate against the WAPC's primary construction.

96 It is true that the WAPC had not indicated an intention to compulsorily acquire lot 8. Nevertheless, there was an apparent understanding that the WAPC had power to compulsorily acquire lot 8 (see section 8). That understanding seems to me to be part of the backdrop for the contract of sale. There is some sense in the parties agreeing that lot 8 be sold on terms that reflect a proportionate discount that would have applied if the WAPC had instead invoked its compulsory acquisition powers. For the reasons I have explained in section 8, it is not to the point that, on a proper understanding of the legislation, the WAPC did not have the power to compulsorily acquire the whole of lot 8 under s 191.

97 In what I have said in the previous paragraph, and generally in adopting my preferred construction, I do not overlook that compensation for compulsory acquisition has elements and features that do not arise in a consensual setting. Examples include compensation for taking without agreement (often termed solatium) and for special value to owner. This was a point emphasised by counsel for the plaintiff. However, for reasons already given in section 6, I do not think this point sustains the plaintiff's primary construction or its first alternative construction. In short, that is because those constructions do not find adequate support in the language of the contract of sale.

98 For these reasons, I prefer the WAPC's alternative construction (and the plaintiff's second alternative construction).

99 On my preferred construction of the contract of sale, the plaintiff is entitled to the Additional Sum if and only if it establishes that the payment of compensation to Mrs Greenham was invalid. That brings me to the question of the validity of that payment. The remainder of these reasons are taken up with that question.

100 I begin by setting out the facts relating to the payment of $12,500 to Mrs Greenham.

101 The facts were largely but not entirely agreed. Much of what follows comes from the statement of agreed facts (exhibit F) and volume 1 of the agreed bundle of documents (exhibit A).

102 On or about 2 February 1983, Mrs Greenham gave written notice, with reference to s 36 of the MRTPS Act, to the then existing MRPA of her intention to sell lot 8. She applied in writing at the same time to the Board of Valuers for a valuation of lot 8 (as required by s 36C) (exhibit A4). The notice was in a standard form prescribed under the Metropolitan Region (Valuation Board) Regulations 1967 (WA). Mrs Greenham gave notice that she wished to be heard on the valuation, requesting the Board to contact an identified person who would appear on her behalf.

103 The Board of Valuers' practice in respect of valuations made in 1983, including the valuation made at the instance of Mrs Greenham in respect of lot 8, was to record and retain:

(a) any photographs taken of any improvements on the property to be valued; and

(b) the completed form titled 'Valuation Form' in relation to that property.

With the exception of brief sales summaries containing references to comparable sales appended to five Valuation Forms prepared by one particular Board member, the practice for the balance of the 37 valuations prepared by the Board in 1983 was not to record or retain any other sales or other evidence (if any) on which the valuation was based or any further valuation methodology.

104 On 14 February 1983, the Secretary of the Board of Valuers wrote to Mr Geoffrey Russell, requesting a valuation of lot 8 by 25 February 1983. The letter apologised for the short notice, saying the MRPA file had been received that day (exhibit A5A). Mr Russell was a very experienced valuer, who had been a member of the Board of Valuers since 1977. Over time, he held a number of positions in the Australian Institute of Valuers and was awarded life membership in 1985. He died in 1993.

105 A Valuation Form was completed by Mr Russell on 25 February 1983. Mr Russell recommended to the Board that the value of the whole of lot 8 not being affected by the reservation was $50,000, of which $14,000 was attributable to the reserved section (exhibit A6). The form is signed by the chairman of the Board as having been endorsed by the Board. Nothing on the form reveals anything about the methodology used. The preprinted form had space for the area of the land. That was not filled in. The form does not specify the area of the reserved section.

106 Mr Russell's firm rendered an invoice in the sum of $165 plus disbursements.

107 On or about 28 February 1983, the Board of Valuers communicated by letters from the chairman to Mrs Greenham and to the MRPA that it had valued the whole of lot 8 as not being affected by the reservation at $50,000, of which $14,000 was attributable to the reserved section (exhibit A8).

108 By letter of 8 March 1983, the Board of Valuers sent Mr Russell's completed Valuation Form to the MRPA (exhibit A10).

109 On or prior to 14 April 1983, the Finance Committee of the MRPA noted the advice from the Board of Valuers that lot 8 had an unaffected value of $50,000, of which $14,000 was attributable to the reserved portion. The Finance Committee then adopted a resolution to the effect that the unaffected value of lot 8 be $50,000 and the affected value be $37,500 (exhibit A12, page 29). In the latter respect, the Committee's resolution did not arise from the Board of Valuers' valuation. The minutes do not record the reasoning leading to the conclusion about affected value.

110 On or about 14 April 1983, the Finance Committee compiled the minutes of its meeting of 14 April 1983, which were also designated 'Report: MRPA/2062' (Report 2062). This contained under the heading '7. Compensation Section 36', the item '307/2/25/153 Greenham' and a reference to pages 73 74. Those pages dealt with the matters I summarised in the preceding paragraph.

111 At its meeting on 27 April 1983, the MRPA considered Report 2062 of its Finance Committee, and passed certain resolutions in relation to that, including a concluding resolution 'to adopt the balance of Report 2062 and endorse the actions taken' (exhibit A12, pages 22 23). The balance of Report 2062 encompassed the item relating to Mrs Greenham.

112 At all material times there was no delegation by the MRPA of any of its powers to its Finance Committee pursuant to s 19 of the MRTPS Act in respect of or concerning any of these matters.

113 On or about 21 April 1983, the MRPA wrote a letter to Mrs Greenham advising that the value of the property as affected by the reservation was $37,500 (exhibit A10). The letter stated that should a sale be finalised at the affected value, Mrs Greenham should submit a copy of the contract and the enclosed compensation claim form, and then 'arrangements will be made for payment of compensation monies'.

114 The plaintiff points out that this letter was written before the MRPA resolution of 27 April 1983 to adopt the Finance Committee resolution about lot 8. However, in my view, nothing turns on that, because the Finance Committee's actions were ratified by the MRPA by its resolution on 27 April 1983.

115 On 9 May 1983, the plaintiff and Mrs Greenham entered a written contract for the sale of the whole of lot 8 from Mrs Greenham to the plaintiff for the sum of $37,500 (exhibit A13).

116 At the time of the purchase of lot 8, the plaintiff was aware that part of lot 8 was reserved under the MRS.

117 The contract did not contain any term or condition in relation to claims of compensation for injurious affection of lot 8 arising from any reservation of lot 8 under the MRS.

118 On 25 May 1983, ownership of lot 8 was transferred to the plaintiff.

119 On or about 8 June 1983 and by letter, Mrs Greenham claimed compensation from the MRPA for injurious affection in respect of lot 8 on the ground of the reservation, pursuant to s 36 of the MRTPS Act (exhibit A18). Mrs Greenham attached a copy of the contract of 9 May 1983.

120 On 13 June 1983, the MRPA wrote to Mrs Greenham, referring to a telephone conversation between Mr Hendry and Mrs Greenham on 9 June 1983. The letter requested the compensation claim to be amended from $14,000 to $12,500 and thanked Mrs Greenham for her cooperation (exhibit A19A).

121 On 15 June 1983, the property manager of MRPA authorised payment of $12,500 compensation in respect of Mrs Greenham's claim (exhibit A20). The form requested payment to the Crown Law Department and referred to the MRPA's approval by the minutes I have already referred to.

122 By letter of 21 June 1983, Mrs Greenham sent an amended claim form, claiming $12,500 compensation (exhibit A20A).

123 By letter dated 28 June 1983, the secretary of the MRPA requested the conveyancer at the Under Secretary for Law to draw up the release agreements and arrange for the appropriate caveat to be lodged before the compensation of $12,500 was paid (exhibit A21).

124 There was also a payment voucher dated 28 June 1983 for payment to the Crown Law Department (exhibit A22). I infer that the Crown Law Department received the $12,500 and then paid that sum on behalf of the MRPA once the documents were prepared and executed.

125 On or about 9 August 1983, the MRPA paid Mrs Greenham a sum of $12,500 under a document expressed to be a deed of that date between the MRPA and Mrs Greenham, but executed only by Mrs Greenham (exhibit A24). The terms of the deed were as follows:

The land described in the Schedule hereto (hereinafter called the 'affected land') has been reserved under a Town Planning Scheme (hereinafter called 'the Scheme') made under the Town Planning and Development Act 1928 as amended in respect of which Acts the Authority is the responsible Authority.

The Owner was at the time of the said reservation the registered proprietor of the affected land and after the affected land was so reserved gave to the Authority notice of her intention to sell the affected land.

The Owner has sold the affected land at a price less than that which she might reasonably have expected to receive had the affected land not been reserved under the Scheme as aforesaid and the Owner therefore claims that the affected land was injuriously affected by the said reservation.

The Authority has agreed with the Owner that the value of the land had it not been affected by the reservation was the sum of FIFTY THOUSAND DOLLARS ($50,000.00) and considers that by reason of the said reservation a fair and reasonable valuation of the affected land is the sum of THIRTY SEVEN THOUSAND FIVE HUNDRED DOLLARS ($37,500.00).

The Authority has elected and agreed to pay the Owner as compensation for the said injurious affection the sum of TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500.00) being the difference between the said sum of FIFTY THOUSAND DOLLARS ($50,000.00) and the said sum of THIRTY SEVEN THOUSAND FIVE HUNDRED DOLLARS ($37,500.00).

The Owner transferred the affected land to VINCENT NOMINEES PTY LTD of Lot 3 Clifton Street Kelmscott by transfer registered in the Office of Titles on the 25th day of May 1983.

NOW THIS DEED WITNESSETH:

THAT the Authority shall pay to the Owner the said sum of TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500.00) upon the acceptance at the Office of Titles at Perth of caveat lodged by the Authority against the affected land and such Caveat shall be lodged as soon as practicable after the execution of this Deed by the Owner.
THAT in consideration of the said sum of TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500.00) to be paid by the Authority the Owner as hereinfore provided the Owner hereby acknowledges and declares that such payment constitutes compensation in full satisfaction and discharge of her claim for compensation under the provision of the said Act and all other claims or rights of claim by her or any other person or persons claiming by through or under her by reason of the reservation of the affected land under the Scheme and the loss or damage caused thereby and of all other claims or rights of claim which she now has or but for the execution of these presents could or might have had in respect of the injurious affection of the affected land by the said reservation and for all loss of damage suffered thereby.

SCHEDULE

Portion of Canning Location 16 and being Lot 8 on Plan 8225 being the whole of the land comprised in Certificate of Title Volume 280 Folio 184A.

126 On or about 15 August 1983, the MRPA registered caveat C602204 against the original title of lot 8 as to an estate or interest in lot 8 by virtue of s 36 of the MRTPS Act (although incorrectly referred to as s 36 of the 'Town Planning and Development Act 1928'), in that on 9 August 1983 the MRPA made the payment of $12,500. The caveat describes the payment as having been made 'in full satisfaction of a claim for compensation for injurious affection arising out of [the reservation]' (exhibit A26).

127 As at the date of registration of caveat C602204, the registered proprietor of the property was the plaintiff and its address was Lot 3 Clifton Street, Kelmscott.

128 Section 138 of the Transfer of Land Act 1893 (WA) required that when a caveat was lodged, notice of the caveat was given by the Registrar of Titles to the registered proprietor. That was the practice of the Office of Titles in 1983 (exhibit A44; exhibit 2). Nevertheless, I accept the unchallenged evidence of Mr and Mrs Nizich, the directors of the plaintiff, that they did not receive notice of the caveat. They, and thus the plaintiff, first became aware of the caveat in 2006.

129 The parties were at issue about whether these facts gave rise to an agreement between the MRPA and Mrs Greenham about the amount of compensation.

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Judgment (422 paragraphs)

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