The Judicial Committee of the Privy Council Decisions

McLennan & Ors v. Attorney General (New Zealand) [2003] UKPC 25 (19 March 2003)

ADVANCE COPY

Privy Council Appeal No. 97 of 2001

(1) William Alexander McLennan and

(2) Wilson I McLennan and Others Appellants

v.

The Attorney General Respondent

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 19th March 2003

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Present at the hearing:-

Lord Slynn of Hadley

Lord Nicholls of Birkenhead

Lord Hutton

Lord Millett

Lord Rodger of Earlsferry

[Delivered by Lord Slynn of Hadley]

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1. T W McLennan and E D McLennan were respectively the owners and registered proprietors of certain lands which were from time to time compulsorily acquired by the Crown under the Public Works Act 1928 or subsequent legislation. The lands were eventually occupied by the New Zealand Defence Department and were known as Papakura Military Camp. The first appellant (plaintiff) is the successor to T W McLennan; the second appellants (plaintiffs) are the successors to E D McLennan within the meaning of the Public Works Act 1981 section 40(5).
2. Sections 40 and 42 of the 1981 Act as amended provide for steps which can or must be taken when land compulsorily acquired is not required for public works. In such a case by sub-section 40(1) the Commissioner of Works (subsequently the designated chief executive of the relevant department) "shall endeavour to sell the land in accordance with subsection (2) of this section, if that subsection is applicable to that land". Section 40 continues:-

"(2) Except as provided in subsection (4) of this section, the chief executive of the department within the meaning of section 2 of the Survey Act 1986 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 to 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 within the meaning of section 2 of the Survey Act 1986 or local authority considers it reasonable to do so, at any lesser price.

(2A) If the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority and the offeree are unable to agree on a price following an offer made under subsection (2) of this section, the parties may agree that the price be determined by the Land Valuation Tribunal.

…

42. Disposal in other cases of land not required for public work –

(1) Where –

(a) Any offer to sell land under section 40(2) of this Act has not been accepted within 40 working days or such further period as the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority considers reasonable; or

(b) Any land is no longer required for a public work and subsections (2) and (4) of section 40 of this Act do not apply –

the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority may –

(c) Cause the land to be offered for sale to the owner of any adjacent land at a price fixed by a registered valuer; or

(d) Cause the land to be offered for sale by public auction, public tender, private treaty, or by public application at a specified price.

Provided that where a local authority proposes to sell land by private treaty the provisions of section 230 of the Local Government Act 1974 shall be complied with."

3. In the course of 1991 it was decided in principle that the Camp should be closed and the units relocated. Discussions took place between the New Zealand Defence Force ("NZDF"), the Department of Survey and Land Information ("DOSLI") and the Papakura District Council ("the Council"). The Council had begun to consider the possibility of reserving some of the land for recreational purposes rather than permitting it to be used for residential purposes under the existing zoning, a factor which would obviously influence the value of the land. By letter of 19th October 1992 the NZDF informed DOSLI that the Camp less the area of the Special Air Service ("SAS") compound would become surplus to NZDF's requirement from mid-January 1993 but that the SAS compound would be required until mid-June 1993.
4. The disposal of the land obviously raised complex issues – the basis of the valuation, the effect of doubts as to whether the Council would eventually reserve the recreational area, the division of the land between the first and second appellants since a block of land belonging to one appellant fell between two blocks belonging to the other appellants and some buildings had been erected which straddled the boundaries, how to deal with the SAS occupied land – whether by excluding it, or including it in the sale but requiring a leaseback for a period. Eventually following a valuation of the 81.2 hectares to be offered to both appellants at a price of NZ$5,605,000, by letters of 16th July 1993 the first appellant was offered 33.4 hectares at a price of NZ$2,600,000 plus GST and the second appellants were offered 47.8 hectares at a price of NZ$3,005,000 plus GST. The offer included both the land which was no longer required, land the character of which had changed and the SAS land but the latter was included on the basis that it would have to be retained by NZDF until July 1993. It is the effect and consequence of these two offers and subsequent offers to the various appellants by DOSLI and by the successor of DOSLI, Land Information New Zealand ("LINZ"), as to which the parties disagree which has led to the present proceedings.
5. By their second amended statement of claim dated 18th December 1998 in proceedings for judicial review, the appellants claim that in the events which had happened DOSLI/LINZ was obliged to sell to the appellants the land referred to and at the price referred to in the said letters of 16th July 1993, alternatively at the then current market value in 1993. Alternatively it was claimed that the various offers made were nullities, since they were outside DOSLI's powers to make them, and that the land should be sold to the appellants at the current market value in 1993.
6. At the trial Patterson J reviewed the history of the negotiations between the parties in depth and his findings of fact are not challenged. In order to appreciate the issues raised it is necessary to summarise the facts.

The trial judge's findings of fact

The first offers

7. The offers of 16th July 1993 ("the first offers") were each expressed to remain open for 40 working days from the date of the letters. It was stated that the appellants' signature to the agreement attached would constitute a binding contract and that a deposit of 10% was payable immediately upon the execution of the agreement. If the appellants disagreed with the price it might be determined by the Land Valuation Tribunal under section 40(2A) of the Act if DOSLI agreed to such a course. The draft agreement which was on DOSLI's current conditions of sale contained, the judge found, "provisions normally included for the sale of land".
8. In early August the Council gave notice of a review of its urban district scheme and that it proposed to rezone part of the Camp as a reserve. The Crown said that it would object to the rezoning. It extended the period for acceptance of the offer till 8th October and then "put the offers on hold" pending the hearings on the proposed review. Because of the delay of the zoning hearings DOSLI by letter of 27th July 1994 granted an extension to 31st August 1994 by which time the offerees must either:-

"(1) Accept the offers, by completing and returning the agreements attached to the offers, together with the deposits, or

(2) Accept the offer of the land by completing the agreements but making a counter offer supported by a valuation report from a registered valuer ..."

Or, it was stated:-

"(3) The offers will lapse."

9. A further extension was granted to 30th September 1994 by DOSLI's letter of 31st August 1994. But by the former date the initial offers had to be accepted or a counteroffer made accompanied by a valuation report from a registered valuer. In default of agreement as to price "the parties will refer the matter to the Land Valuation Tribunal to determine price". A subsequent extension was granted to 31st October 1994.
10. On 31st October 1994 the appellants submitted two offers for the land covered by the first offers but sub-divided differently from the first offers. The total price offered was NZ$1.9 million as opposed to NZ$5,605,000 asked by DOSLI. DOSLI replied that these offers were not made on the special forms provided and were not unconditional. There were then discussions as to whether title should be obtained by the Crown before there was a commitment to buy by the appellants as the latter proposed. No final decision at this stage was reached on this or on the zoning question.
11. By letter of 23rd November 1994 DOSLI told the appellants' agents that time for acceptance was extended to 28th February 1995 "by which time scheme plan approval should be received and the zoning question should be clearer. Upon receipt of scheme plan approval we will review our valuation and make the offerees new offers. They will then have 40 working days in which to respond by either accepting our offers or making counter-offers supported by a valuation report. At that point the purchase of the land will be unconditional regardless of the final price whether set by agreement or the Land Valuation Tribunal".
12. No further extension of time was asked for or given. But by letter of 16th February 1995 DOSLI told NZDF "In view of our stated intention to make new offers we intend to allow the current offers to expire …".
13. The appellants contended that the two counteroffers of 31st October were acceptances of the first offers and brought into effect binding agreements. The judge did not agree that the appellants had accepted the first offers merely by making it clear that they wished to purchase the land. The judge held that the letters of 31st October were clearly counteroffers and were not merely "alterations or additions to the agreement" which the offers of 16th July 1993 had authorised the appellants to make. He also held that the appellants had done no more than indicate a desire to buy without making a commitment and without agreeing the price or a method of finally determining the price. Accordingly the first offers of 16th July 1993 were not accepted; there were no contracts.

The second to fifth offers

14. Negotiations continued and on 3rd July 1996 LINZ offered land to the trustees on behalf of the appellants plus 6000 square metres of additional land not covered by section 40 of the Act. The offer included the SAS land and the land the character of which had changed. The price stated was NZ$6 million plus GST but that second offer was withdrawn by the Crown on 30th July 1996.
15. On 23rd August 1996 LINZ made a third offer at NZ$5,850,000 plus GST. This included once again the land covered by the SAS compound which by letter of the same date the appellants were told would have to be leased back to NZDF; it also included the land the character of which was said to have changed. LINZ on 9th September 1996 told the appellants' solicitors that before it could enter into negotiations on the price the Crown would require an unconditional counteroffer supported by a valuation report. On 16th September 1996 it was agreed at a meeting that Treasury Group on behalf of the appellants would by 20th September provide counteroffers supported by a valuation report and that on receipt of such the Crown would provide a valuation. Valuations were exchanged on or about the 20th September 1996 but no counteroffer was sent by that date. Although contending that the first offers had been extended rather than that they had lapsed the appellants provided counteroffers on 17th October 1996 for a total price of NZ$2,500,000 plus GST. LINZ rejected this by letter of 21st October 1996 because the price was unacceptable, the wrong agreement form was used and the nominated purchasers (McLennan No 1 Limited and McLennan No 2 Limited) were not the offerees for the purpose of section 40 of the Act. LINZ took the position that its only obligation was to negotiate in good faith to see if the gulf between the parties on price and terms could be reduced; on the other hand Treasury Group on behalf of the appellants contended that the counteroffers could not be rejected. There must either be a negotiated settlement of the price or the matter must be referred to the Tribunal or the High Court.
16. On 12th December 1996 having been advised that the value at August 1996 was about NZ$8.5 million and by December was NZ$9 million and considering that the current market value was approximately NZ$10,800,000 for 52 hectares, excluding the SAS land and the land required for reserves and sport fields, LINZ withdrew its offer of 23rd August 1996. Treasury Group contended that the third offer could not be withdrawn and that the valuation should be for such land as at July 1993.
17. On 11th November 1997 the Crown Law Office told the appellants' solicitors that the Crown had been advised that in the circumstances set out "its obligations to your clients under section 40 of the Public Works Act in respect of the remaining land (ie excluding the areas required for the training facility and the recreational reserves) had not yet been discharged and that further and final offers for that land should be made under section 40". The reasons for this advice were not given.
18. In the event fourth offers (excluding the SAS land and the reserved land) at a total price of NZ$10,800,000 plus GST were sent on 19th December 1997 but were not accepted within the 40 day period. On the expiry of that period the Crown Law Office said that the Crown had now discharged its obligations to the plaintiffs under the Act in respect of the land other than the reserved land and the SAS training land in respect of which it had no obligations.
19. On 2nd September 1998 the fifth offer was made for the sport field at the 1998 market value of NZ$3.1 million. The plaintiffs said they accepted "at a price placed on a 1993 valuation".

The judge's conclusions

20. The judge rejected the view that all offers after the first were made, and had to be made, under section 42(1) of the Act. As a matter of construction there was nothing to prevent further offers being made, or offers renewed, under section 40. In the present case it was intended that the offers should be made, they were capable of being made and they were made under section 40 at least in part. If, as the judge held, the second and third offers were in any case invalid because they had not been made at the 1993 July valuation, the Crown had not discharged its obligations under section 40 when it made the fourth and fifth offers. The appellants were adamant that the valuation had to be either the 16th July 1993 or some time between that date and the 31st October 1994. On the other hand the Crown wished to sell at the current market value at the date of the various offers.
21. By extending the period for the offer made to be accepted so that the zoning and valuation matters could be resolved and insisting on a later valuation so as to maximise its return on the sale of the property the Crown had failed to discharge its obligation under section 40 of the Act. It must accordingly sell the land (other than the SAS compound and land in respect of which there had been significant change of character) at a price equivalent to the current market value at July 1993 and it must sell the land subject to the offer of 2nd September 1998 (the sports field) at a price based on a valuation at 16th July 1993. However the SAS land was still needed and not surplus to requirement so that the Crown had no obligation to sell that land under section 40 of the Act. If the land became surplus subsequently it might be sold at the current market valuation on the date it became surplus.
22. The judge however rejected the appellants' contention that the chief executive's obligation to "offer to sell the land by private contract" excluded the incorporation of terms reasonable and normal in a similar sale of property or required that particular forms of contract should be used. The provision of a settlement date, the requirement of a deposit and of valuation to support a counteroffer were all unobjectionable. The terms challenged at the hearing had in any event not been objected to in the course of the negotiations.
23. Accordingly the Attorney General appealed and the appellants cross-appealed.

The Court of Appeal

24. The court dealt with three issues, two raised on the appeal and one on the cross-appeal.
25. The first issue was whether the first offers were validly made. This in substance was a question as to whether the Crown was entitled to incorporate the general conditions of contract into this particular contract. According to the appellants the persons from whom land had been taken and their successors at this stage were in a special position which was quite different from that of ordinary vendor and purchaser. Once the statutory conditions had been met the appellants had a vested right to the land without conditions of sale being introduced. The Court of Appeal like the judge rejected this contention. Section 40 merely required an offer to sell by "private contract". As in a sale under section 42 there was no reason to exclude the Crown from introducing bona fide the usual terms and conditions of sale. The power to do this is not precluded by the fact that section 43 specifically permitted land to be sold on deferred payment extending over such period and on such terms as the Minister might determine. That was a way in which the Minister could monitor the way in which the chief executive was performing his obligation but it did not otherwise exclude the incorporation of normal terms. Here the terms included were reasonable and no objection was taken to them in the course of the negotiations.
26. The appellants argued that the Crown had allowed the first and later offers to lapse because it could not until 1996 convey unencumbered title. The court considered that this argument should not be admitted as it was raised only in the Court of Appeal and in any event was unsound. The Crown was bound under section 40 even if it had problems in giving title and it had throughout acted in good faith. The first ground raised should therefore be dismissed.
27. The second issue was whether when the first offer lapsed the Crown was under any further section 40 obligation and if not "whether in expressing further offers to be pursuant to the section, it took upon itself an obligation to comply with the section, in particular by making such offers at a July 1993 valuation".
28. The Court of Appeal considered that the Crown had "fully discharged its section 40 obligation when it made its first valid offer; these offers were not accepted and lapsed on 28th February 1995". It was said that the further offers made were expressly made under section 40 but they were in reality new offers not required to be made under section 40. The plaintiffs could not insist on further extensions and the Crown gave generous extensions. When the Crown made new offers it was acting under section 42 or under its general powers of sale and was not required to follow the terms of section 40. It followed that current market value at the date of subsequent offers could be adopted. The judge was therefore wrong, said the Court of Appeal, in declaring that the Crown was obliged to sell the land other than the sports field at the 1993 value. There was never a contract as to the sports field which was offered for sale in September 1998 since the Crown stipulated the 1998 value as established by the Lands Tribunal and the appellants counter-offered the 1993 value.
29. As to the third issue raised on the cross-appeal the court accepted as did the judge that the SAS compound was never within section 40 since it had never been "no longer required" for public works. Even when it was included in the first offer it had been made clear that the land was still in use and would not be available with the other lands. As to the land said to have undergone a significant change of character the offer back lapsed and if there had been a change of character the land would be excluded from the obligation under section 40 by virtue of sub-section 40(2)(b).
30. The Attorney General's appeal was thus allowed and the appellants cross-appeal dismissed.

The appeal to the Board

31. On the present appeal the arguments of the appellants that the form of the offers was defective as to the SAS compound and as to the land that was said to have undergone a change of character were not pursued subject to argument as to the precise area of land to be excluded from the section 40 obligation.
32. The first issue raised by the appellants is whether the Crown can say that at 28th February 1995, when it treated the first offers as having lapsed without having been accepted by the appellants, the Crown had discharged its obligations under section 40. As a secondary matter the appellants contend that the Crown had not given warning that the time limit would be insisted on and the appellants had relied on a representation that the time would be extended not to a specific date but to the receipt of a scheme plan approval for the division of land when new offers under section 40 would be made. The offerees would then on the receipt of the offers have 40 days to accept them.
33. The second issue is connected. If the first offers were not accepted or lapsed did section 40 permit the Crown to make a new section 40 offer or to extend the time for the original or an amended section 40 offer even after the 40 day period had run. The appellants say that any of these can be done and whichever was done in this case justified the declaration made by Patterson J. The Court of Appeal was wrong to say that the obligation had been discharged when the first offer finally lapsed on 28th February 1995. The Crown had not then discharged its obligation under section 40 and was entitled and indeed bound under section 40 to make new offers or to reinstate a section 40 offer as part of its duty "to endeavour to sell the land" to the previous owners before it could exercise powers under section 42(1) of the Act. What happened here was that subsequent offers were a reinstatement of the first offer with or without variation.
34. Their Lordships consider that the basic structure of section 40 and section 42 of the Act is clear. (a) Where land is no longer required for the purpose of which it was compulsorily acquired the chief executive must endeavour to sell the land in accordance with subsection 40(2). (b) Subject to certain exceptions set out in the section he must offer to sell the land by private contract to the person to whom it was acquired or his successor. (c) Unless the chief executive considers that it is reasonable to offer a lesser price he "shall" offer it at the current market value of the land as determined by a registered valuer. (d) Unless the offeree accepts the offer within 40 working days or such further period as the chief executive considers reasonable he may cause the land to be offered for sale to adjacent owners or by public auction, tender or private treaty.
35. There is nothing in these provisions which entitles the offeree to insist on an extension of the time of 40 days or such other period as is fixed by the chief executive. If an offer complying with the section is made and the offeree does not accept it within the relevant period he loses his right to accept it. The offer is gone and the Crown can proceed to sell the land under section 42(1)(c) or (d) or perhaps under a general power of sale as owner of the land or to declare it Crown land under section 43 of the Act.
36. Nor is the Crown under an express or an implied obligation to make further offers under section 40 once the period of its initial offer has expired: there is no right express or implied in the offeree to insist on a further offer.
37. It was accepted by the judge and the Court of Appeal, and the Board accepts, that in July 1973 a valid offer was made by private contract at the current market value at that time. The plaintiffs did not accept that offer and no question as to valuation was referred to the Land Valuation Tribunal. That does not mean that by making an offer the Crown's obligation is necessarily discharged. That obligation is discharged when having made the offer the Crown gives the offeree the opportunity to accept it until the end of the 40 day period or other relevant period. It is obvious that if the Crown makes the offer but withdraws it without good reason within the 40 day period it has not discharged its obligation.
38. Here the first offers were not withdrawn. They were allowed to remain open until they lapsed. But when they lapsed it was on the footing of DOSLI's stated intention, set out in its letter of 16th February 1995, to make new offers. In this circumstance the Crown cannot be regarded as having discharged its statutory obligation when the first offers lapsed. On the contrary, the Crown's public law obligation extended to making the promised new offers. For good measure, this analysis accords with what the Crown thought it was doing when making new offers subsequent to the first offers.
39. The answer to the first two issues is, therefore, that as at 28th February 1995 the Crown had not discharged its obligation under section 40 and it was obliged, therefore, to make a further section 40 offer.
40. The third issue raised is whether the second to fifth offers were valid, in view of their dates of valuation. For the purposes of this issue the second and third offers can be set on one side at once. They were withdrawn. These offers did not discharge the Crown's obligation. The appellants contend that the fourth offers were not valid because the valuations on which they were based were not made at the date the land became surplus or when the first offer was made or should timeously have been made but at subsequent dates. Patterson J considered that an offer based on market valuation current at the date of the subsequent offers was invalid. DOSLI or LINZ should have insisted on the appellants deciding whether to accept an offer based on the first valuation. It did not do so because it wanted to maximise its profits particularly if the zoning decision was decided in favour of residential use. The appellants contend that the result of the Court of Appeal's judgment is inconsistent with a decision of Smellie J which since it was not appealed is binding on the parties. It is moreover inconsistent with the opinion of the Privy Council in Attorney- General v Horton [1999] 2 NZLR 257 that the right to a varied and timely offer was a vested right.
41. Smellie J was asked to decide as a preliminary issue of law "where the Chief Executive is required to offer back land to a former owner or their successors pursuant to section 40(2) of the Public Works Act 1981, at what date is current market value to be determined?".
42. His decision as reported in McLennan v Attorney-General [1999] 2 NZLR 469, was at p 481:-

"For the purpose of a valid offer to sell land under s 40(2)(c) of the Public Works Act 1981 the date on which the current market value is to be determined is the date on which the land is validly offered back or the date on which the valid offer back should have been made, if it is established that there has been a failure to act timeously and with due expedition in all the circumstances of the particular case, in determining to make an endeavour to sell the land in terms of s 40(1) and in determining to offer to sell the land in terms of s 40(2)."

43. The appellants submit that the Court of Appeal was wrong to say that what happened here was beyond anything contemplated by Smellie J. The offer was made and offers subsequent to the first offer were all replacement offers or offers made because earlier offers had been withdrawn; and subsequent offers must be treated as being subject to the same conditions as the first offer i.e. that the value should be taken at the time the land became surplus or within a reasonable time thereafter.
44. Their Lordships do not accept that the fourth offers were invalid. The statutory obligation was to make a timeous offer. Here, each party, for its own purposes, wished to have the zoning position clarified before finalising the terms of any contract of sale. That did not finally happen until December 1997. It was in these circumstances that the fourth offers were made, in pursuance of the section 40 obligation. In the circumstances these offers were made timeously, despite the overall lapse of time. Having been made timeously, these offers were properly made at current market values.
45. There is no question of the appellants being misled in this regard. Both parties expected that any further offers would be made at current market values, reflecting the (expected) clarification of the zoning position.
46. This analysis does not involve shifting the content of the statutory obligation to a later date. The Crown's obligation remained the same throughout: to make a timeous offer at the then current market value. But what amounts to a timeous offer must depend on the circumstances.
47. The fifth issue raised was whether there ever was a binding contract to buy the sports field. The offer was that the second appellants could accept the offer within 40 days "on the Crown's terms including the right to have the price determined by the Land Valuation Tribunal under section 40(2)(a) of the Public Works Act" or reject the offer or make a counteroffer. The appellants' agents wrote:-

"… we advise that they wish to buy back the land based on a 1993 valuation and accordingly accept the Crown's offer to sell. If attempts to reach agreement on an appropriate price on this basis [the 1993 price] are unsuccessful then the price will need to be determined by the Land Valuation Tribunal."

The Crown replied "You have accepted the Crown's offer … subject only to price being determined". The appellants say this was a clear acceptance of an offer subject only to price being determined as in Deane v Attorney-General [1997] 2 NZLR 180; this means the offer was accepted at the 1993 price and they do not say that there was a contract of the 1998 price. The Court of Appeal was wrong to decide that there was a contract at the 1998 price. Acceptance of the 1993 price was not a counteroffer. What happened was that the parties had agreed a mechanism for the determination of the price on a matter as to which they were otherwise agreed.

48. Accordingly the sole issue is whether there was a binding contract at the July 1993 market value. If there had been there would be no problem in referring the valuation to the Land Valuation Tribunal if the parties could not agree on price.
49. Though the matter is not without some difficulty their Lordships consider that the Court of Appeal's analysis of the correspondence was the correct one. The second appellants reply was conditional on the 1993 price being accepted. It amounted to a counter-offer which was not accepted and there was no binding contract. This is clearly not a case where the 1993 date was accepted for the actual valuation which still had to be worked out.
50. Accordingly their Lordships will humbly advise Her Majesty that the appeal of both appellants should be dismissed with costs.