ABI-K Pty Limited v Frank Shi

The law 7Section 88K provides: 88K Power of Court to create easements (1) The Court may make an order imposing an easement over land if the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement. (2) Such an order may be made only if the Court is satisfied that: (a) use of the land having the benefit of the easement will not be inconsistent with the public interest, and (b) the owner of the land to be burdened by the easement and each other person having an estate or interest in that land that is evidenced by an instrument registered in the General Register of Deeds or the Register kept under the Real Property Act 1900 can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement, and (c) all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect but have been unsuccessful. (3) The Court is to specify in the order the nature and terms of the easement and such of the particulars referred to in section 88 (1) (a)-(d) as are appropriate and is to identify its site by reference to a plan that is, or is capable of being, registered or recorded under Division 3 of Part 23. The terms may limit the times at which the easement applies. (4) The Court is to provide in the order for payment by the applicant to specified persons of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case. (5) The costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary. ... 8The legal principles governing the proper application of s 88K of the Act were most recently summarised by the Court of Appeal in Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445 ("Moorebank Recyclers") (citations omitted): 154. The requirement that the easement be reasonably necessary for the effective use and development of the land means something more than mere desirability or preferability over the alternative means available: Rainbowforce supra at [76]. However, reasonable necessity does not mean absolute necessity. The correct approach to the question, in our opinion, was stated by Hodgson J (as his Honour then was) in 117 York Street supra as follows: "It is clear that 'reasonably necessary' in s 88K(1) does not mean 'absolutely necessary', and thus that the requirement may possibly be satisfied even when the plaintiff's land could be effectively used or developed without the easement. In my opinion: (1) the proposed easement must be reasonably necessary either for all reasonable uses or developments of the land, or else for some one or more proposed uses or developments which are (at least) reasonable as compared with the possible alternative uses and developments; and (2) in order that an easement be reasonably necessary for a use or development, that use or development with the easement must be (at least) substantially preferable to the use or development without the easement. The first of those requirements may seem contrary to a statement by Hamilton J in Tregoyd Gardens (at 14) that the Court 'is not to judge upon the reasonableness of the particular development'. However, that statement is qualified by the words 'at least in this case'. If there are some possible reasonable uses or developments of the land for which a proposed easement is not reasonably necessary, then it seems to me that the easement cannot be 'reasonably necessary for the effective use or development' of the land, at least unless there is some proposed use or development, for which the proposed easement is reasonably necessary, which is itself a reasonable use or development. It may be that the particular use or development would need also to be preferable to the alternatives; but whether or not that is so, it would in my opinion certainly need to be at least reasonable." (at 508-509 citations omitted) 155. In Rainbowforce supra, Preston CJ of the Land and Environment Court, gave a relatively wide meaning to the concept of effective use and development (at [72]) stating that if use or development of land for some planning purpose such as residential, commercial or industrial cannot be achieved without the creation of the easement, the easement is reasonably necessary for such use or development to be effective. To the extent that Preston CJ was suggesting that subject to the other matters which he stated required consideration, an easement would be reasonably necessary for the effective use and development of the land if it was required for any proposed development, regardless of the development's desirability or economic effect, the proposition, with respect, is too wide. That approach would not take adequate account of the word effective. Equally, we do not believe, as suggested by Moorebank, that it is necessary to show that the easement is necessary to achieve the highest and best use of the land. In a case such as the present, where the easement is said to be necessary for the commercial development of the land, it is sufficient in our opinion to show that the proposed development is one which is appropriate to the area in which the land is situated and is at least an economically rational use of the land. That in our opinion is consistent with what was said by Hodgson J in 117 York Street supra in the passage which we have cited above (see also Lonergan v Lewis [2011] NSWSC 1133 at [22]). 156. That is not to say that an easement will always be granted in these circumstances. As we have indicated the authorities have established that the concept of reasonable necessity requires consideration of the effect of the grant of the easement on the servient tenement: O'Shea supra. Further, it is correct in our opinion, that the greater the burden on the servient tenement, the stronger the case needed to justify a finding of reasonable necessity: Rainbowforce supra at [77]; Khattar v Wiese supra at [27]; Woodland v Manly Municipal Council, supra at [12]; Lonergan v Lewis supra at [22]. 157. As we indicated earlier (par [131]) in Bloom v Lepre supra, Young J stated that where the effect of the easement was to sterilise the servient tenement insofar as the person's own development or use is concerned, the Court is not necessarily quite so favourable to the application. We would put the proposition more strongly. If the effect of the imposition of an easement was to effectively preclude a reasonably available development or use of the servient tenement appropriate to that land, then it would require a strong case of reasonable necessity before the easement would be imposed. 158. The determination of whether an easement is reasonably necessary for the use or development of the land also involves consideration of the alternative methods by which such use or development could be achieved. That is implicit in the concept of reasonable necessity. In the present case it involves the consideration of whether there is alternative access to give effect to the development. 159. None of the factors to which we have referred above can be considered in isolation from the others. Ultimately the question of whether an easement is reasonably necessary for the use or development of the land will be determined by an evaluation of those factors in conjunction with each other.

The proposed easement is "reasonably necessary" 9I shall deal with each of the elements of s 88K in turn. The first is s 88K(1), which provides that the Court's discretion to order an easement is engaged if the Court is satisfied that "the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement". In the present case that means that the Court must be satisfied that the easement for drainage proposed by ABI-K is reasonably necessary for the effective use or development of 50 Felton Road. 10Applying the principles set out in Moorebank Recyclers, the key point summarised by the Court at [155] is that: ... where the easement is said to be necessary for the commercial development of the land, it is sufficient, in our opinion, to show that the proposed development is one which is appropriate to the area in which the land is situated and is at least an economically rational use of the land. 11Translating that principle to the facts of this case, the Court is satisfied that the proposed development of 50 Felton Road as set out in the Council's deferred development consent is appropriate to the area in which 50 Felton Road is situated. The fact that the Council has given its consent after the usual process of advertising and community consultation (all of which was demonstrated or referred to in the evidence before me) is a proper basis upon which the Court can conclude that the proposed development is an appropriate one. 12That conclusion satisfies the statutory requirement insofar as s 88K(1) refers to the effective use or development of 50 Felton Road. The reasonable necessity of the easement, as required by s 88K(1) is, in this case, demonstrated by the fact that the Council has made the grant of the proposed easement the condition precedent to ABI-K's development consent coming into effect. 13In considering s 88K(1), I have not overlooked that the authorities in this area require the concept of reasonable necessity also to be considered by reference to the effect of the grant of the easement on the servient tenement. Those authorities, the Court of Appeal noted in Moorebank Recyclers, also support the conclusion that the greater the burden on the servient tenement, the stronger the case needed to justify a finding of reasonable necessity. 14In this case, it is difficult to identify any significant deleterious consequence for 15 Blenheim Road if the proposed easement is granted. The proposed easement will relate only to the surface of the land and the subsurface. It will not impinge upon the use of the set back area for any other purpose. In particular, because (but for 100 millimetres) it is confined to the set back area, it will not be sterilising a part of 15 Blenheim Road which would otherwise have been available for building development. 15At this stage of the Court's consideration, it is necessary to advert again to Mr Shi's development application currently before the Council. There was evidence before me that when Mr Shi's wife made enquiries of the Council concerning the possible consequences of the easement for Mr Shi's development application, a town planner from the Council responded by email: What happens at the Court hearing will definitely impact on how your current DA proceeds...If the easement is granted by the Court over your property, the dwelling at the front will need to be amended to ensure [sic] it does not encroach into the easement (this includes the eaves). 16I infer from this piece of evidence that the Council will certainly take into account the proposed easement (if it is imposed) in considering Mr Shi's development application. However, I do not think that the communication from the Council can be taken as proof of anything much more than that. In particular, it cannot be taken as a statement binding upon the Council or reflective of detailed and informed consideration of the consequences of the granting of the proposed easement for Mr Shi's development application. 17Nevertheless, I have taken into account the fact that the Council will, in considering Mr Shi's development application, obviously have regard to the easement and consider whether any amendment to the application is required. In the course of argument Mr Shi's real concern about this issue was identified as the apparent contradiction between the proposed easement being one metre wide and the set back area only being 900 millimetres wide. There was a concern expressed on behalf of Mr Shi that the existence of the easement might cause the Council to require some change to his development application insofar as it contemplates some structures being erected up to the set back area and therefore theoretically over, and perhaps into, the area the subject of the easement. Mr Shi did not suggest that this was a necessary legal consequence of the existence of the easement. 18Having considered the relevant part of the Council's Development Control Power concerning boundary setbacks, I am myself unable to see why the proposed easement should prevent Mr Shi from being able to build in accordance with his current development application if consent is ultimately granted by the Council. However, in saying that I readily acknowledge that the particular point has not been the subject of detailed argument before me. However, no submission was put by Mr Shi that the proposed easement would constitute an insurmountable barrier to him obtaining consent for the development for which he has applied. 19To deal with Mr Shi's concern about the potential effect of the proposed easement on Mr Shi's current development application, insofar as that concern may impinge upon the exercise of the Court's discretion, ABI-K has proffered an undertaking in the following terms: The Plaintiff undertakes to the Court that it will support to Hills Shire Council the approval of the scheme of development contained and shown in the attached drawing, notwithstanding that it may encroach on the strip of land affected by an easement for drainage 1 m wide at the western Boundary of 15 Blenheim St, Carlingford. 20The Court will require that undertaking to be given before granting ABI-K the relief that it seeks. 21The authorities also require the question of reasonable necessity to be assessed by reference to alternative methods by which the use or development could be achieved. In this case that involves considering whether there is an alternative location for the proposed easement. ABI-K presented evidence from both a planner and an engineer to support its submission that there was no reasonable alternative to the proposed easement running down the western boundary of 15 Blenheim Road. The only alternative would be to run the easement through 17 and 17A Blenheim Road. The Court accepts that there are several reasons why that is not a sensible alternative. Some of those reasons are given in the report of ABI-K's consulting engineer: 1. 17 and 17A are built to their eastern/western boundary. As evident from the plans by A.W McCARTHY PTY. LTD. the dwellings are 910mm distance from the side boundary of the property, with a pipe line from the downpipe of the roof running along the distance between the side boundary and dwelling. 2. 17 and 17A and the northern boundary. As evident from the plans by A.W McCARTHY PTY. LTD. the dwellings are 2160mm and 2350mm distance from the northern boundary of the property. 3. Concrete pathway along 17 eastern boundary. 17 has a concrete pathway along the eastern side of house (distance 1340mm) at the front of the property. This is indicated on plan SW248-6. 4. Concrete driveway on western boundary of 17. There is a concrete driveway on 17 western boundary, which has an on site detention tank located underneath the driveway (as evident from the plans prepared by A.W McCARTHY PTY. LTD). This tank is 2.88m deep and takes the entire width of the driveway, hence blocking any means of an easement pipe running along the western boundary. Also it would be a costly exercise to dig up the concrete driveway for an easement pipe, then pour concrete once the pipe is laid. 5. Western boundary of 15. By contrast to the above point, the western boundary of 15 is grass the entire distance of the boundary as evident from plan SW248-6. It would thus be capable of quick, cheap and minimally disturbing work with ease of remediation. 22In addition to those matters, the evidence demonstrates that once 50 Felton Road is developed, the trees that will be preserved on the boundary between 50 Felton Road and 15, 17 and 17A Blenheim Road, have a natural gap between them which makes the western boundary of 15 Blenheim Road the logical place for the proposed easement to run. I also take into account the fact that in negotiating the proposed easement, if ABI-K were to have to do so with the respective proprietors of 17 and 17A Blenheim Road, it would have to deal with two groups of people over two titles. In the case of 15 Blenheim Road ABI-K only has to deal with Mr Shi. 23For these reasons the Court is satisfied that there is no sensible alternative from a practical point of view to the proposed easement running down the western boundary of 15 Blenheim Road.

The public interest 24It is then necessary to address what I shall loosely refer to as the statutory preconditions to the making of an order under s 88K(1) which are set out in s 88K(2). 25The first of these is that the Court must be satisfied that "use of the land having the benefit of the easement will not be inconsistent with the public interest". This question may be simply answered in the affirmative by reference to the fact that the Council has approved ABI-K's proposed development of 50 Felton Road. In the circumstances of this case that is sufficient to satisfy the Court that the use of 50 Felton Road will not be inconsistent with the public interest. While it may not always be so, it is difficult to imagine an example where an approved development might, for some other reason, be inconsistent with the public interest.

Compensation 26The second precondition is that the Court must be satisfied that Mr Shi "can be adequately compensated for any loss or other disadvantage that would arise from the imposition of the easement". ABI-K has presented evidence from a valuer who sets out his opinion that a sum of $21,500 would be adequate compensation to Mr Shi for the imposition of the easement: Having regard to our sales evidence range of $659.05 to $992.52 we have adopted a rate per square meter of land to be $750.00. We view the following financial assessment as follows: $ $ 53.59 square metres @ $750.00 = 40,193

Less Adopt discount rate of 90% to commensurate land Of the stormwater easement area The 90% adopted factor has regard to this area being situated within a side boundary legislative setback (900mm setback is required) as this part of the land cannot be built upon 36,174

Sub total 4,019

Add Estimate diminution value for title affectation For burdening property say 15,000

1. Sub total - adopt 19,019

Add disturbance value Trench digging 2,500

2. Sub total 21,519

Less betterment value Nil 21,519

Adopt estimate of compensation payable 21,500

Adopt 21,500

27Without setting out his underlying explanation in any detail in these reasons, I am satisfied that the way in which the valuer has approached the matter has a rational basis and is a proper exercise of expertise. Based upon that evidence, the Court finds that Mr Shi can be compensated and that the sum of $21,500 is appropriate compensation. I will in due course order such compensation to be paid to Mr Shi pursuant to s 88K(4).

Reasonable attempts to obtain the easement 28The final statutory precondition requires the Court to be satisfied that "all reasonable attempts have been made by the applicant for the order to obtain the easement ... having the same effect but have been unsuccessful". 29ABI-K has tendered into evidence a sequence of correspondence between its solicitors and solicitors who at one time acted for Mr Shi. There was then further correspondence directly between ABI-K's solicitors and Mr Shi personally after he terminated the retainer of his solicitors. The pre-action correspondence ran between 10 May 2012 and 1 August 2013. 30It is unnecessary for me to set out the detail of that correspondence, other than to record that it sets out a series of commercially sensible offers of compromise inviting Mr Shi to agree to the imposition of the easement. While the first offer made by ABI-K was for compensation in the sum of $15,000, ultimately ABI-K offered the sum of $40,000, in addition to otherwise assuring Mr Shi that it would bear all of the costs associated with obtaining and giving effect to the easement. All of those offers were rebuffed by or on behalf of Mr Shi. Mr Shi ultimately made a proposal set out in paragraph [37] below, including that the matter be resolved either by ABI-K purchasing his land or him purchasing ABI-K's land. That seems to me, looking at the matter charitably, to be unrealistic and uncommercial. Mr Shi's position was not reasonable. The Court is satisfied that ABI-K made all reasonable attempts to obtain the proposed easement before commencing these proceedings.

Resolution 31For the foregoing reasons I am satisfied that the Court should exercise its discretion to impose the proposed easement. It is necessary that I now record some aspects of the way in which the matter proceeded, in particular paying due attention to the fact that Mr Shi was unrepresented. Before me Mr Shi appeared with the assistance of his wife. It was clear that Mr Shi is not fluent in English and I permitted his wife, who was basically fluent in English, to speak on his behalf. Mrs Shi provided the Court with a document entitled "Statement Opposing the Plaintiff's Orders". I have read that document and directed that it be retained on the Court file. 32In addition Mrs Shi made oral submissions. In the course of her submissions Mrs Shi made reference to a number of matters about which there was no evidence. The Court had on earlier occasions made directions for Mr Shi to file evidence, but he never did so. I attended carefully to Mrs Shi's submissions on behalf of her husband but have only taken them into account insofar as they are supported by or otherwise relate to the evidence that was before me, all of which (with one exception) was material tendered by ABI-K. The one exception is the email communication from the Council's town planner referred to in paragraph [15] above. 33The concerns which Mrs Shi raised on behalf of her husband were these. First, Mrs Shi submitted that the proposed easement could not be granted because it was wider than the set back area. For the reasons which I have set out in paragraphs [14] to [20] above, I am not satisfied that the fact that the proposed easement is 100 millimetres wider than the set back area is either a practical or legal impediment to the imposition of the proposed easement. 34Second, Mrs Shi submitted that the easement would somehow make that part of Mr Shi's land "public". There was a concern that it would then become available to be used by the electricity or phone company for the laying of other lines or pipes. I reject that submission. The proposed easement is for drainage only. In and of itself it will not permit other utilities to use it. Any application by a utility for an easement for any other purpose will be dealt with in accordance with its merits at the time. There is no evidence before me that anyone else presently intends to seek any other kind of easement over the area which will be occupied by the proposed easement. 35Next, Mrs Shi submitted that the easement would adversely affect Mr Shi's development application that is currently before the Council. For the reasons set out in paragraphs [14] to [20] above, I do not accept that submission. I cannot see any substantial reason why there should be an adverse effect, particularly where the undertaking which has been proffered by ABI-K will make it clear to the Council that, as the beneficiary of the proposed easement, ABI-K has no concerns about Mr Shi's current development application. 36Next, Mrs Shi submitted that the valuation evidence relied upon by ABI-K did not consider the existence of the granny flat. While that may be strictly true, the ultimate calculation of compensation would be unaffected by the existence of the granny flat since the compensation was calculated by reference to the unimproved value of the land that would be the subject of the proposed easement because it largely comprised the set back area, which could not be built upon. Mr Shi did not file any evidence in opposition to the valuation and Mrs Shi was unable to demonstrate to me why any failure to take account of the existence of the granny flat made any difference. 37Next, Mrs Shi submitted that there were "better options" which should have been acted upon by ABI-K. Those better options were put forward in a letter from Mr Shi to ABI-K's solicitors dated 24 July 2013 as part of the pre-action correspondence to which I referred in paragraph [30] above and were: (a) Your clients make compensation payment of $250,000.00 plus costs under s 88K for the easement to be granted by me. (b) I purchase your client's property for $1.5 million (an above market price). (c) Your clients purchase my property at market value or as agreed. (d) Your client reverse it's (sic) refusal to develop the land together due to greater public interest 38In the context of the matters in issue, none of those options could be relevantly described as a "better option". Rather, they demonstrate what I consider to be the unreasonableness of Mr Shi's approach in responding to ABI-K's overtures in relation to the proposed easement. 39Next, Mrs Shi submitted that it would have been better for the easement to run through numbers 17 and 17A. For the reasons set out in paragraphs [21] and [22] above I do not accept that submission. 40Finally, Mrs Shi submitted that the compensation offered was inadequate. However, beyond making references (unsubstantiated by evidence) to the value of other properties in the area, Mrs Shi was unable to direct me to any material that supported her submission that the amount of $21,500 is not adequate compensation for the imposition of the easement. 41Finally, in the course of argument, my attention was drawn to the precise terms of the proposed easement sought. ABI-K seeks an easement in terms of Schedule 8 Part 3 of the Act. An easement in those terms is appropriate, subject to one matter. Such an easement would permit pipes to be laid upon the surface of the servient tenement. In the circumstances of this case that would not be appropriate. I have been informed by counsel for ABI-K that it does not press for an easement extending to above the surface of the land which will be the subject of the proposed easement. ABI-K will bring in precise terms for the proposed easement in accordance with Schedule 8 Part 3 of the Act, but omitting any reference to the capacity to lay pipes upon the surface of the servient tenement.

Costs 42Section 88K(5) provides that "the costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary". ABI-K submits that the Court should order to the contrary in this case. 43I accept counsel for ABI-K's submission that the discretion under s 88K(5), to make an order to the contrary, can be exercised by parity of reasoning with the way the Court would approach costs against the background of the general rule in UCPR Part 42 rule 42.1 that costs follow the event but a Calderbank offer has been made. Applying the Calderbank principles by analogy, the question is whether Mr Shi's refusal of the offers was unreasonable. 44In this case reasonable offers were made, including the ultimate pre-action offer of $40,000 compensation and a subsequent Calderbank letter after proceedings were commenced referring to the valuation evidence (see paragraph [26] above) offering $30,000. The offers made clear that they would be tendered as to the costs of these proceedings. Mr Shi's responses, as demonstrated by his letter which I have extracted from paragraph [37] above, were unreasonable. He did not accept the offer of compensation of $40,000 or the Calderbank offer of $30,000 and has not achieved a better result in these proceedings. 45ABI-K has not pressed for its costs on an indemnity basis. It should have its costs on the ordinary basis and I will therefore make an order to the contrary for the purposes of s 88K(5).

Orders 46I direct ABI-K to bring in Short Minutes of Order reflecting these reasons. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 May 2014