The Judicial Committee of the Privy Council Decisions

Attorney General v. Henry Michael Horton and Another (New Zealand) [1999] UKPC 9 (8th March, 1999)

Privy Council Appeal No. 51 of 1998

Attorney General Appellant

v.

(1) Henry Michael Horton and

E.G. Levin Farm Settlement Trust) Respondents

FROM

THE COURT OF APPEAL OF NEW ZEALAND

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 8th March 1999

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Present at the hearing:-

Lord Nicholls of Birkenhead

[Delivered by Lord Hoffmann]

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1. In the early 1980s the government of the day decided to embark upon large scale open-cast coal mining at Ohinewai. By the use, or against the background of compulsory powers, it acquired large tracts of farm land, including 560 hectares belonging to the trustees of the E.G. Levin Farm Settlement Trust ("the trustees"). The land was acquired in 1986 and ownership was vested in the Crown. Within a relatively short time, government policy changed in two important respects. First, the specific project for the large Ohinewai open-cast mine was abandoned. Secondly, the government decided that it did not wish to be directly involved in coal mining at all. To give effect to the latter of these two decisions, the Crown on 31st March 1988 entered into an agreement with Coal Corporation of New Zealand Limited ("Coal Corp"), a state-owned company, by which, subject to certain exclusions, it transferred to Coal Corp all its coal mining properties and related assets. This transfer was made as a first step towards an eventual privatisation of the industry. The agreement also reflected the first decision, in that the Ohinewai properties were excluded from the transfer. They were identified in a schedule as "surplus properties", defined as "properties … surplus to the requirements of the company" and by clause 23.1 the Crown appointed Coal Corp to be its agent to sell them. But clause 23.9 gave Coal Corp itself an option to buy any of the surplus properties at market value.

 

2. Section 40 of the Public Works Act 1981 deals with the obligations of the Crown when land taken for public purposes is found to be no longer required. The material provisions read as follows:-

"(1) Where any land held under this or any other Act or in any other manner for any public work –

 

(a) Is no longer required for that public work; and

 

(b) Is not required for any other public work; and

 

(c) Is not required for any exchange under section 105 of this Act – the chief executive of the Department of Lands or local authority, as the case may be, shall endeavour to sell the land in accordance with subsection (2) of this section, if that subsection is applicable to that land.

 

(2) ... the chief executive of the Department of Lands or local authority, unless –

 

(a) He or it considers that it would be impracticable, unreasonable or unfair to do so; or

 

(b) There has been a significant change in the character of the land for the purposes of, or in connection with, the public work for which it was acquired or is held – shall offer to sell the land by private contract to the person from whom it was acquired or the successor of that person –

 

(c) At the current market value of the land as determined by a valuation carried out by a registered valuer; or

 

(d) If the chief executive of the Department of Lands or local authority considers it reasonable to do so, at any lesser price."

 

3. "Public work" is defined in section 2, so far as relevant, as "Every Government work ... that the Crown ... is authorised to construct, undertake, establish, manage, operate or maintain ..." and "Government work" is defined to mean "a work or an intended work that is to be constructed, undertaken, established, managed, operated or maintained by or under the control of the Crown or any Minister of the Crown for any public purpose". Although the Government initially held all the issued share capital in Coal Corp under the terms of the State-Owned Enterprises Act 1986, Coal Corp was not the Crown. It could therefore have been argued that the abandonment of mining as a state activity and its transfer to Coal Corp was sufficient in itself to show that land held for mining purposes was no longer required for any "public work". This would have given rise to an immediate obligation under section 40 to offer all such land back to its original owners. But this argument had been foreseen and provided against by section 24(4) of the State-Owned Enterprises Act 1986, which read as follows:-

"Nothing in sections 40 to 42 of the Public Works Act 1981 shall apply to the transfer of land to a State enterprise pursuant to this Act, but sections 40 and 41 of that Act shall after that transfer apply to that land as if the State enterprise were the Crown and the land had not been transferred pursuant to this Act."

 

4. Thus the transfer of assets under the 31st March 1988 agreement was legitimated and furthermore, if Coal Corp chose to exercise its option under clause 23.9 to buy a surplus property because it was in fact considered necessary for its business, that property could also be transferred. Such transfers were, or would be, free of the resale obligation, which would arise only when Coal Corp itself no longer required the land and the other conditions of section 40 were satisfied. Although the contrary was argued in the courts below, it is now conceded that the fact that the Levin property was listed as surplus in the 31st March 1988 agreement is not conclusive evidence that it was not required for a "public work" within the meaning of section 40(1). The purpose of granting Coal Corp an option to purchase any of the surplus properties was to enable it, as the body now entrusted with coal mining operations, to review the position and decide that they were, after all, required for its intended works. If this was the case, they would be deemed required for "public works" and the resale obligation would not attach to them.

5. At the time of the 31st March 1988 agreement, Coal Corp had already embarked upon the review of its requirements. This continued during 1988 and as a result, on 10th February 1989 it wrote to most of the farmers in the Ohinewai area offering to sell them back their land at a current valuation in accordance with section 40. But no such offer was made to the trustees because by the end of 1988 Coal Corp had decided that although the grand design had definitely been abandoned, there was a possibility of opening a coal mine on a smaller scale, for which at least a part of the trustees' land might be needed. Matters were complicated by the decision of the Court of Appeal in Tainui Maori Trust Board v. Attorney-General [1989] 2 N.Z.L.R. 513, delivered on 3rd October 1989, which decided that in disposing of surplus land to its original owners or otherwise, Coal Corp was obliged to safeguard Tainui Maori claims for the return of land alleged to have been taken by the Crown in breach of the principles of the Treaty of Waitangi. The result of this decision was that Coal Corp suspended all sales of surplus land until the question of the Tainui claims had been resolved. The trustees heard from a Coal Corp representative that their land might form part of a settlement with the Tainui. This stimulated the trustees into asserting a claim in priority to the Tainui. They knew very little of what was happening within Coal Corp apart from the fact that most of their neighbours had received offers of resale and they had not. But gradually they assembled a picture from information obtained under the Official Information Act 1982 and answers to letters written by their solicitors. As a result, they issued proceedings alleging (in an amended statement of claim) that on or before 31st July 1988 the land formerly owned by the trustees was no longer required for a public work within the meaning of section 40 and that the Crown therefore should have offered to sell it to them within a reasonable time thereafter.

 

6. The action came on for trial before Hammond J. It was agreed that the principal issue was whether the land was, at any time after 31st March 1988, not required for coal mining purposes. If so, the trustees were prima facie entitled to purchase. Among the subsidiary issues also agreed was the question of whether the Crown or Coal Corp was entitled "to reconsider in the light of changed circumstances a decision as to whether or not the land is required for coal mining purposes". The proceedings have therefore been conducted throughout on the basis that (subject to the possibility of reconsideration) a finding that at some point in time after 31st March 1988 the land was no longer required for mining would mean that the trustees thereupon became entitled to re-purchase. This right has sometimes been described as a right of pre-emption, although their Lordships think it bears a closer resemblance to an option: the purchaser's right is not dependent upon the vendor choosing to sell but arises as soon as the land is no longer required. Hammond J. described it as an inchoate right which an owner of land taken by the Crown preserved throughout the latter's ownership and which came to fruition when the land was no longer required. It has been said in a number of cases to be the expression of a strong legislative policy to preserve the rights of an owner subject only to the continuing needs of the State.

 

7. Nevertheless, as a right in private law analogous to an option, it has some curious features. It is subject to defeasance by the exercise of the discretionary power conferred by section 40(2)(a). Furthermore, the existence of the right may well remain unknown to the owner for some considerable time. Since a decision that land is no longer required will usually be internal to the government department or state-owned enterprise, the owner may learn only much later, by use of the Official Information Act 1982 or accidental discovery, that his right to buy had accrued. By the time he claims to exercise it, policy may have changed and the land be once more required for public use. Subject to the question of reconsideration, the Crown would have to use its compulsory powers afresh and purchase at the later valuation. This may of course be a necessary consequence of the legislative policy of protecting the original owners. But Mr. White Q.C., who appeared for the Attorney-General, submitted that it might make more sense if the question of whether the land was required for public use was examined at the time when the owner was asserting the right to buy, rather than at some indeterminate previous date. He put this in two ways: first, that the obligation to sell was a public duty enforceable by mandamus but not giving rise to any right in private law until a contractual offer had been made and accepted, or, secondly, on the assumption that the statute creates a directly enforceable private right, that this is the true construction of the conditions upon which it may be exercised. But their Lordships think that it was not open to the Crown to advance such arguments in these proceedings. If the issues had not been agreed in the form recorded by the judge, the shape of the case might have been very different.

 

8. The judge found as a fact that "by June 1988 Coal Corp had come to the view that the land was no longer required". It "did reach a decision to dispose of the Levin land by sale (without first going to the plaintiffs). And it acted for a time as if the land was for sale". But the judge found that within a short time the position became "fuzzy" and by the end of 1988 Coal Corp had changed its mind and decided that it required the land after all. The judge decided that it would be wrong to force Coal Corp to sell land which it considered necessary for a public work because "for a relatively short time" it had held the view that the land was not required. The Court of Appeal disagreed. It said that once conditions (a) and (b) and possibly (c) of section 40(1) were satisfied, the chief executive of the Lands Department came under a mandatory obligation to sell. There was "no further role for the department or agency responsible for the public work for which the land was held" and "no room for reconsideration of the earlier conclusion that the land was not required for a public work". The right to an offer vests, subject only to being defeated by the exercise of the discretion conferred by section 40(2)(a) or by the state of facts described in 40(2)(b). There is no provision for the right being divested simply by a change of mind on the part of the government department or state-owned enterprise.

 

9. Their Lordships respectfully consider that the reasoning of the Court of Appeal is correct. If section 40 confers an enforceable right to buy, then their Lordships consider that when the conditions upon which it comes into existence have been satisfied, it must vest subject only to those grounds of defeasibility expressly stated in the statute. Mr. White, while not challenging the judge's findings that by June 1988 at the latest, Coal Corp had formed the view that it did not require the land, distinguished between Coal Corp's decision that the land was not required and the question of whether it was in fact not required. Section 40(1)(a) says that the land must not be required, not merely in the opinion of Coal Corp but as a matter of objective fact. He referred to Macfie v. Callander and Oban Railway Co. [1898] AC 270, in which it had been held, on the basis of expert evidence, that land was required for the purposes of a railway on the relevant date notwithstanding that the directors of the company had earlier considered it superfluous and had actually tried to sell it. Likewise in the present case, he submitted, the land had been objectively required and the officers of Coal Corp who considered it superfluous had been mistaken.

 

10. One distinction between this case and Macfie, as Mr. Williams Q.C. for the respondents pointed out, was that in the latter case the question raised by the relevant statute was whether the land was superfluous on a particular date, namely the tenth anniversary of the date limited for completing the railway. Expressions of opinion about whether it was required at an earlier date could not be conclusive on this point. In the present case, however, the obligation to sell arises whenever the conditions of section 40(1) are satisfied. But their Lordships think that an even more practical distinction is that the question of whether land is required for the purposes of an existing railway constructed under statutory powers lends itself to objective assessment in accordance with expert evidence. It is a question on which the opinion of the directors may well be wrong. In the present case, however, the question of whether the land was needed for coal mining depended entirely upon the intentions of Coal Corp. If they intended to mine in the area, they could require the land for mining or ancillary works. If they did not, the land would not be required. There was no existing enterprise to which Coal Corp's needs could be objectively related. In their Lordships' opinion there was on the facts of this case no distinction between Coal Corp not requiring the land and it deciding that it did not require the land. And the finding of the judge was not merely that certain officers of Coal Corp had considered the land superfluous but that the decision was attributable to the company. Their Lordships therefore think that the Court of Appeal was right to treat the judge's findings as showing that in June 1988 at the latest, Coal Corp did not require the land. They will humbly advise Her Majesty that the appeal should be dismissed. The Attorney-General must pay the respondents' costs before their Lordships' Board.