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[2018] VSC 555
General information, not legal advice.
Supreme Court of Victoria
2018-09-21
Ginnane J
Original judgment source is linked above.
LAND ACQUISITION - Compensation for compulsory acquisition of part of land - Before and after values - Effect of easements - Effect of Public Acquisition Overlay - Disturbance losses - Solatium - Valuation of Land Act 1960 s 5A; Land Acquisition and Compensation Act 1986 ss 41, 43, 44, .
1 Anne Hawthorne Wilson and Jennifer Greaves Thomas seek compensation from Melbourne Water because it compulsorily acquired part of their land at 685 Thompsons Road, Lyndhurst ('subject land') in November 2014. Melbourne Water intends to construct a retarding basin on the land to protect nearby land from flooding.[1]
2 Lyndhurst is located thirty five kilometres south east of central Melbourne.
3 Mrs Wilson and Mrs Thomas are sisters and are the registered proprietors of an estate in fee simple in the land as tenants in common in equal shares. I will refer to them as the claimants. They have referred their notice of disputed claim to the Court for determination in accordance with the Land Acquisition and Compensation Act 1986 ('LAC Act').[2]
4 Mrs Wilson and Mrs Thomas have a long family connection with the land. Their father and grandfather purchased 685 Thompsons Road, Lyndhurst and in turn they purchased it from their father in 1969. They used the land for cattle and sheep grazing and breeding through their AH Wilson and JG Thomas partnership. Their father also owned land at Yannathan, which is situated between Koo Wee Rup and Langwarrin and they acquired it for similar purposes.
5 As I will discuss below, Melbourne Water's acquisition of the land took more than eight years from the first indication of its intention to final acquisition.
6 The primary measure of compensation for acquired land is the difference, if any, in its market value on a 'before and after' basis. Those two values are determined by reference to the highest and best use to which the land might reasonably be expected to be put at the relevant date. They are entitled to be compensated fairly and fully for their loss and with all the generality that the statutory words permit[3], but are not entitled to receive more than fair compensation.[4]
7 At the request of the parties and accompanied by counsel, I undertook a view of the subject property and the properties relied on as comparable properties.
8 The claimants claim $11,443,473.26 compensation comprising:
(a) the value of the land on a 'before' and 'after' basis, with the 'after' basis calculated by application of a severance factor: $9,480,000[5]; calculated on the basis of $12,990,000 as the 'before' value less $3,510,000 as the 'after' value.
(b) Disturbance losses claimed under Part 4 of the LAC Act. The amount claimed in the amended particulars of claim totalled $754,295.33 and in the claimants' final written submissions totalled $876,555.32. The amounts in dispute were the loss of profit, loss of opportunity and executive time and the costs of Mrs Wilson purchasing a replacement property, the settlement of which is due to occur in 2026.
(c) Legal, valuation and other professional expenses of $138,917.94, most of which were admitted and were not in dispute[6];
(d) Solatium of $948,000.[7]
9 Melbourne Water has paid the claimants approximately $7,523,262.74 by way of three advances under s 51 of the LAC Act: $6,885,000 on 19 December 2014, $209,369.41 on 26 April 2016 and $428,892.86 on 18 August 2017.
10 The issues to be decided are the amount of additional compensation, if any, to paid to the claimants:
11 (a) for the market value of the acquired land, taking into account any adjustment required for easements and land affected by Public Acquisition Overlays;
(d) for professional and property replacement expenses.
12 The land, which is 84.88 hectares in area, is located at the north-west corner of Thompsons Road and Taylors Road at Lyndhurst in Melbourne's south-east midway between Dandenong-Frankston Road and the Westernport Highway. The area is well served by an established road network, including Thompsons Road, which is a major east-west arterial road connecting with Eastlink. The suburbs of Patterson Lakes and Carrum are to the west and Cranbourne to the east. The Monash Freeway is the major road link to Melbourne via Eastlink and is located approximately 2.6 radial kilometres west of the subject property.[8] The South Gippsland Highway and Dandenong-Frankston Road are both nearby and are major north-south transportation routes.[9]
13 The land has been subdivided into two lots of 41.34 and 43.54 hectares of undeveloped land which is presently utilised for the grazing of beef cattle. Plans of the land, which were evidence in the proceeding, are attached to this judgment.
14 Melbourne Water required a portion of the land for a stormwater retarding basin with a drainage function, carrying run off from urban areas to the east of the Dandenong Creek.[10] It acquired approximately 53.22 hectares of the 84.88 hectares. Lot 1 consisted of 41.34 hectares, of which 30.43 hectares were acquired and Lot 2 consisted of 43.54 hectares, of which 22.79 hectares were acquired. Following acquisition, the claimants' remaining parcels of land consisted of 10.91 hectares in Lot 1, 73.61 per cent having been acquired, and 20.75 hectares in Lot 2, 52.34 per cent having been acquired.[11]
15 Of the land acquired in Lot 1, 28.75 hectares were unencumbered by easements and reservations and 1.68 hectares were so encumbered. Of the land acquired in Lot 2, 20.11 hectares were unencumbered and 2.68 hectares were encumbered.
16 The land is level to slightly undulating in topography with a gentle fall to the north-west, but is largely cleared of vegetation with the exception of some scattered trees.[12]
17 The land is zoned Green Wedge, the precinct is insulated from urban development and as a result provides an opportunity for rural and residential living in a location accessible to metropolitan Melbourne.[13]
18 The regional land use features a combination of conventional residential development, industrial, rural and residential, grazing, cropping, market gardens and equine properties. Surrounding lands are predominantly in the Green Wedge Zone and consist of a mixture of improved and unimproved sites used for grazing and agricultural pursuits. Feingold Flower Growers adjoins to the west, the Melbourne Chevra Kadisha Cemetery, contained within a Public Use Zone, is immediately to the north-east, whilst the Sandhurst Golf Course and Residential Development are located opposite the south side of Thompsons Road. Located further to the west is the Eastern Sewerage Treatment Plant managed by Melbourne Water. Surrounding lands are subject to an Environment Significance Overlay ('ESO'), which creates a buffer zone for the treatment plant. The subject land is unaffected by this overlay.
19 The subject land was encumbered by four easements. The first, E-1, is an electricity easement initially in favour of the State Electricity Commission of Victoria and later SP AusNet. No installation assets have been installed within that easement, but it permits the erection of four towers and 24 poles and cables and apparatus required for the transmission of electricity. The location of such towers and poles had to be selected within 20 years of 8 November 1971.[14]
20 Easement E-1 runs over land 80 metres in width which is setback from Thompsons Road. The total area encompassed by the easement is 6.93 hectares. The impact of the easement upon Lot 1 is confined to the north-east corner, where it traverses diagonally from the northern boundary to the eastern boundary. It encompasses approximately 1.68 hectares of Lot 1. It traverses Lot 2 more extensively from the north-west corner to the south-east corner continuing along the same trajectory traversing from the western boundary through to the eastern boundary encompassing a further 5.25 hectares.[15]
21 Easement E-2 is in favour of the State Rivers and Water Supply Commission and occupies approximately 0.1967 hectares in the south-west corner of Lot 1.
22 Easement E-3 is in favour of the Shire of Cranbourne and occupies approximately 0.1498 hectares in the south-west corner of Lot 1.
23 Easement E-4 is a carriageway easement in favour of Lot 2 and occupies 0.382 hectares in the south-east corner of Lot 1.[16]
24 Section 41(1) of the LAC Act provides that, in assessing compensation payable to a claimant, regard must be had to the market value of the interest on the date of acquisition. 'Market value' is defined in s 40 as meaning the 'amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser'.
41 General principles on which compensation is to be based
(1) Except as otherwise provided in this Part, in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to the following factors -
(a) the market value of the interest on the date of acquisition;
(b) any special value to the claimant on the date of acquisition;
(c) any loss attributable to severance;
(d) any loss attributable to disturbance;
(e) the enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;
(f) any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.
(2) ...
(3) If less than the whole of the land in which a claimant's interest subsists is acquired or less than the whole of that interest is acquired, the market value of the acquired interest is the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition.
(4)-(7) ...
26 In Love v Roads Corporation[17], Osborn J described the purpose of s 41(3) in the following terms:
This subsection requires the assessment of market value in the present case to be undertaken by way of a 'before and after' analysis. A before and after analysis will embrace not only the loss of the value of the land acquired but also the effect of the acquisition upon the value of the balance of the land at the date of acquisition. Loss attributable to severance as defined in the [LAC Act] is thus potentially embraced by the before and after analysis (at least in so far as the notion of severance applies to the balance of the acquired land).[18]
27 Section 5A of the Valuation of Land Act 1960 ('VL Act') states:
5A Determining value of land
(1) Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.
(2) In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.
(3) Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account -
(a) the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;
(b) the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;
(c) the shape size topography soil quality situation and aspect of the land;
(d) the situation of the land in respect to natural resources and to transport and other facilities and amenities;
(e) the extent condition and suitability of any improvements on the land; and
(f) the actual and potential capacity of the land to yield a monetary return.
28 The VL Act requires that in considering the comparability of other sales, regard is to be given to the time at which they took place, their terms, the degree of comparability of the lands in question and any other relevant circumstances. The shape, size, topography, soil quality, situation and aspect of land must also be considered.
29 Two valuers provided expert evidence about the value of the land in the 'before' and 'after': Mr Les Brown as part of the claimants' case and Mr Rodney Stephen as part of Melbourne Water's. Both were well qualified to conduct the valuation having had many years of experience as valuers.
30 Mr Brown assessed compensation at $10,220,000 and Mr Stephen at $6,820,000. Their 'headline values' for the unencumbered land in the two lots were $ 160,000 per hectare for Mr Brown and $140,000 per hectare for Mr Stephen.
31 The valuers prepared a joint report in which they agreed that priority ought to be given to local comparable sales rather than sales further afield. Additionally, sales which took place close to the relevant date were the most comparable.
32 They also agreed that, at the relevant date, the land could be put in a 'highest and best use' to many uses and that both lots could accommodate a dwelling in the 'before'. They agreed that both lots in the 'after' situation had a variety of uses, although not all of the 'before' uses, because the reduced size resulting from the acquisition meant that some 'before' uses may not be permitted. For example, it was uncertain whether permission would be granted to build a house on both lots in the 'after'.
33 The claimants submitted that the highest and best use of land in the South East Green Wedge encompassed a range of uses, including commercial and not-for-profit uses, including intensive agriculture, community and institutional uses, utilities and land speculation. Mr Brown referred to a report from Matrix, which in respect of the highest and best use in the 'before' and 'after situations' referred to agricultural uses such as the keeping and breeding of horses.
34 The claimants submitted that I need not find one 'highest and best use' in the 'before' and 'after'. I did not understand Melbourne Water's submissions to be to the contrary. The claimants' submission was supported by the decision in ISPT Pty Ltd v Melbourne City Council[19], after referring to many relevant authorities, the Victorian Court of Appeal stated that:
The question raised by the applicant is whether it must be a precise combination of uses or whether it is open to leave a key component of that combination expressed in terms of a potential range of uses.
...
In our view the language of s 5A(3) is apt to embrace the potential description of highest and best use in terms of alternatives. First, in the absence of an apparent intention to the contrary, the use of the singular in the phrase "the highest and best use" should be understood to embrace the plural.38 Secondly, subs (3)(a) couples the phrase "highest and best use" with the phrase "and to any potential use". Further, subs (3)(f) required the tribunal to take into account the actual and potential capacity of the land to give a monetary return. It seems to us that the notion of potential use applicable to vacant land must have the theoretical capacity to embrace potential alternatives if such alternatives are proven to exist. Thirdly, the underlying notion of highest and best use takes account of all factors affecting its present and future potential and there is no sensible a priori reason for necessarily excluding alternative uses from such concept.
Whether the highest and best use is in fact proven to be a single use or a package of alternative uses will depend on the evidence. What use or uses are properly described as highest and best use will be a question of fact. It will also be a question of fact as to what degree of precision can be achieved in this description. Thus, in different strip shopping centres it may be possible to describe the highest and best use of a vacant block of land in one as "commercial development", or in another "retail development" (a specific form of commercial development) or in yet another as "supermarket development" (a specific form of retail development).
Whether it is possible to be more rather than less precise will be governed by the evidence. Likewise, the relevance of precision to the valuation exercise in issue will be governed by the evidence. It may be irrelevant for valuation purposes in one case to distinguish between a site having the potential for commercial development generally or retail development in particular, but in another case highly relevant to ascertain whether the site has the capacity to accommodate a particular type of shop by reason of characteristics (such as size) not common in the market.
It follows that the evidence may or may not permit a description of highest and best use other than in terms of generality which embraces alternatives and may or may not demonstrate that for valuation purposes it is necessary to do otherwise than so describe the highest and best use. These questions will always be questions of fact.
It may also be that it is relevant to identify alternative highest and best uses because the most profitable potential use is attended by serious risk. Such risk may arise with respect to the development of vacant land for any number of reasons, but those which have been illustrated by fact situations arising in litigation in this court in recent times include the potential cost of clean-up for environmental purposes, the need to obtain planning permit approval in contentious circumstances, or the need to obtain services as a precondition to development in circumstances where the provision of such services is uncertain.
There are a wide variety of other evidentiary considerations which may bear on the ascertainment of highest and best use. We have mentioned the above examples to demonstrate: first, that it is relatively easy to hypothesise factual situations that illustrate the proper characterisation of the highest and best use of land may involve questions of fact and degree on the evidence in a given case and, secondly, that such characterisation may involve contextual considerations which support the view that the articulation of potential alternatives is logically relevant.
It follows that in our view the question of what constituted the highest and best use of the land was one of fact to be resolved on the whole of the evidence before the tribunal. In turn, the question whether such use was in part comprised of potential alternatives was a subsidiary question of fact to be resolved on the evidence.[20]
35 I consider that I should find that the highest and best use of the subject land in both the 'before' and the 'after' was a variety of uses being agricultural and farming, commercial and not-for-profit uses, community, institutional and utilities uses and land speculation.
36 The valuers agreed that a premium was commonly paid for Green Wedge Zone land on the urban periphery, in part because purchasers were prepared to speculate about the possible rezoning of the land to urban land.
37 The valuers disagreed as to the following matters. The property market's trajectory at the relevant date; the effect of severance i.e. the acquisition; on the quantum of the allowance to be made for the loss of a water bore in each lot in the 'after'; as to any negative visual amenity caused by the acquisition, including the impact of the more irregular shape of the allotment in the 'after'; as to the impact of the lot size and total land holding in the 'after' being less than 40 hectares and as to the impact of the natural flow of water across the subject land in the 'after'. As is discussed below, the valuers also disagreed as to the effect of the power line easement on the value of the subject land.
The valuers' consideration of comparable sales
38 The claimants submitted that the best guide to the value of the subject land was the sales of land adjacent to it, especially the properties at 550 Taylors Road and 785 Thompsons Road. These two properties had originally been contained in the one parent title. Mr Brown considered that they were comparable sales which supported his headline rate of approximately $160,000 per hectare. I will next consider them.
39 Taylors Road is a formed, but unconstructed, road reserve designated for fire access only and running east-west. 550 Taylors Road is 17.3 hectares in size, located at the rear of the subject land and dissected by a deep open drain of one hectare area adjacent to its western boundary. In September 2011, SP AusNet sold 550 Taylors Road to Melbourne Water for $2,850,000 at $164,740 per hectare in an off-market sale.[21] However, if the value given to the land area occupied by the drain was reduced, the value of the remaining hectares would increase. Mr Stephen applied 20 per cent of the value of the unencumbered portion of the land to the one hectare occupied by the drain, that is a value of $35,000 for the hectare, which produces a value of $172,700 per hectare for the remaining land of 16.3 hectares.[22]
40 By the time of the hearing, Mr Brown considered that 550 Taylors Road was the most comparable property to the subject land as it adjoined it, was also irregular in shape, similar in size, bisected by a drain and enjoyed the same potential uses. Its sale price required fewer adjustments than other sales for the purposes of comparison to the subject land. He noted that the sale price had been freely agreed to after extensive professional advice was obtained by Melbourne Water and SP AusNet and was approved by the Valuer-General and the Government Land Monitor. The sale price was reached after discussions during a twelve month period. Both Melbourne Water and SP AusNet were willing, but not anxious, participants in the sale of the property.
41 The valuers disagreed about the significance of the sale having occurred off-market. Mr Brown considered that it did not affect the comparability of the sale as it followed a rigorous government process[23] and the claimants submitted that Melbourne Water should have produced any evidence that supported any argument to the contrary. Mr Stephen considered that because the sale was an off-market transaction and occurred under the cloud of possible compulsory acquisition, while it could be treated as providing background information, it was to be viewed with caution.[24]
42 The cases suggest that off-market sales should not be rejected completely as comparable sales, but should be used with considerable caution. This is especially the case when one party could compulsorily acquire the property.[25] Negotiations with an entity having that power often result in sale prices that are lower than would be obtained by a sale on the market.[26] Sometimes sales under the shadow of resumption may not reveal the market price.[27]
43 Although in 2011 Mr Stephen had acted for Melbourne Water in connection with the purchase of 550 Taylors Road, he paid it little regard in valuing the subject land. He explained this approach by pointing out that in 2011 there was only one comparable sale, 195 Gamble Road, Skye, which was half the size of the subject land and which sold in August 2010 for $180,074 per hectare. By November 2014, more comparable sales were available for reference.
44 The claimants pointed to the process by which the sale price of 550 Taylors Road was reached. When advising Melbourne Water in August 2011, Mr Stephen valued the land at $100,000 per hectare. Following extensive negotiations over 12 months in which he participated, Melbourne Water agreed to pay an additional $75,000 per hectare for the land, thereby resulting in a 'before' value of $175,000 per hectare and a purchase price of $2,775,000.[28] The other valuer, Mr Kensley, who acted on behalf of SP AusNet, valued the land at $2,900,000.
45 The claimants contended that, in this proceeding, Melbourne Water had wrongly downplayed the significance of the sale price of 550 Taylors Road and because it had done so, it was arguing that it should pay them less compensation for their land than it had paid SP AusNet for the nearby 550 Taylors Road, three years previously.
46 This property at 785 Thompsons Road was Mr Brown's primary sale[29] and was sold by SPI Powernet Pty Ltd in March 2013 for $3,500,000 to St Kryrillos and St Philopaterie Pty Ltd, who intended to build a church and a community centre on it, including playing fields.[30] The land was situated to the west of, and directly in front of, the 550 Taylors Road property and was sold for between $157,212 and $144,000 per hectare depending on the value given to the encumbered land.[31] SPI Powernet had previously designated 550 Taylors Road, which is to the south of 785 Thompsons Road, as a site for an electrical terminal station, but no longer required it.
47 The area of 785 Thompsons Road was 23.7 hectares, 21.6 hectares being unencumbered. The hectare rate of $157,212 was reached after valuing 2 hectares of land across the frontage of the property, which was subject to a Public Acquisition Overlay ('PAO') in favour of VicRoads, at $5,000 per hectare. The claimants pointed out that the purchaser had no knowledge of when the road, for which the PAO existed, would be built and would have to wait until any land was acquired in order to claim compensation. Melbourne Water criticised Mr Brown's methodology because he had not applied the same approach to the valuation of the part of the subject land that was affected by the PAO.
48 The land at 785 Thompsons Road was subject to easements. Easements E-1 and E-3 appeared to be power easements running across the front of the property within the PAO boundary. E-2 was an easement in favour of the vendor for electricity transmission purposes of about 1.478 hectare.[32] Mr Brown, considering that a purchaser would not attribute much value to the PAO land, adopted a value of $10,000 for it, while valuing the easement land at $75,000. He considered that a purchaser of the land would know of the PAO and that compensation for it could not be claimed until Melbourne Water compulsorily acquired the land. Excluding the land subject to the PAO, he divided the balance of the land by the remainder of the sale price to achieve a value of $157,200 per hectare.[33] He adjusted the sale price further because the land was sold on a 12 months' settlement, rather than the standard 90 days. To take account of that, he applied a discount rate of 8 per cent, which reduced the purchase price to $3,300,000, whereas Mr Stephen used a discount rate of 10 per cent.[34]
49 On the other hand, Mr Stephen, allowing $50,000 per hectare for the electricity easement land, arrived at a value of $144,000 per hectare from the sale price of 785 Thompsons Road.[35]
50 1005 Frankston-Dandenong Road was Mr Stephen's first placed comparable property, although he only became aware of it late in the valuation process.
51 Mr Stephen considered that the sale of 1005 Frankston-Dandenong Road was particularly relevant to the 'before' value of the subject land and supported his valuation of it at $125,000 to $140,000 per hectare. This sale in October 2014 was of 32.37 hectares at $136,855 per hectare of Green Wedge Zone land, for a total sale price of $4,420,000.[36] The land was adjacent to the Sandhurst Golf Course and Residential Development. Although that land was smaller than the subject land and was a contemporary sale, it was not subject to an electricity easement, nor a road widening reservation. It had the same zoning, was proximate to the urban growth boundary and was outside the ESO associated with the sewerage treatment plant.[37] Interest in the land was good and it was purchased by a local land bank investor on a 90 day cash settlement at a price a little above the vendor's original price.[38]
52 Mr Brown's opinion of the significance of 1005 Frankston-Dandenong Road was complicated by the fact that he had been given an incorrect description of the land and therefore had not considered it to be a relevant sale when initially undertaking his valuation.[39] But by the time he gave evidence, he had obtained accurate details of the property and its sale. He agreed that it should be included within the basket of comparable sales, but considered that it was to be treated with caution. It required adjustment for its location, shape and size and, in accordance with the vendor's wishes, it had been sold quickly and was therefore not exposed to the market for a significant period of time.[40] In his opinion, the land had more of a residential flavour than the subject land and its value might have been affected by a significant landscape overlay. He also considered that 1005 Frankston-Dandenong Road could only be given emphasis as a comparable sale if the two nearby 'RSSB' properties, 724 Frankston-Dandenong Road and 2 Boundary Road, Carrum Downs, which are discussed, below were also considered.
53 The second property to which Mr Stephen made particular reference was 616 Frankston-Dandenong Road. This was a sale of 43.94 hectares for $117,667 per hectare in June 2014 at a price of $4,850,000. It was encumbered by a 3.5 hectare easement and had two road frontages. Mr Stephen considered that it was a directly comparable property for the 'before' value of the subject land in size, sale date and zoning. While subject to the ESO, it was remote from the sewerage plant. Because of its size, he did not see its development potential being constrained by its shape.[41]
54 616 Frankston-Dandenong Road was located immediately opposite the Jayco development, and had potential for future industrial use. Two years later, in June 2016, Jayco purchased the property for approximately twice its 2014 sale price.[42] Mr Stephen explained this significant price increase as being the result of the property being sold on the open market to a cashed-up purchaser who owned a property located across the road.[43]
55 Mr Brown also gave this sale less weight because it was in a different location to the subject land, was on a main road, had an irregular triangular shape and was subject to the ESO. He considered that the location of the land gave it more of an industrial character, whereas some of the other comparable sales had a residential character.[44] But he accepted that, because of its proximity to the subject land, it was worthy of consideration.[45]
56 This was a sale of 46.03 hectares in August 2014 for $82,555 per hectare upon which Mr Stephen relied. The date of the sale, the size of the parcel and the industrial flavour of the sale made it comparable. It was subject to an ESO but not subject to an electricity easement.
57 Mr Stephen described this sale as occurring right on the relevant date and extremely close to the subject land. But, the sale price was considerably below the price of $140,000 per hectare that he applied to the subject land.[46] It had the same zoning, although it was within the ESO. It was offered for sale by two reputable agents who sought expressions of interest. The purchaser, who was the owner of adjoining land, was cashed up and purchased the property as a land bank.[47]
58 Mr Brown said this sale was at a very low price and he understood that the property had been on the market for a considerable period of time. He did not place a lot of reliance on it and he was never referred to it.[48] He agreed that the property size and the sale time were similar to the subject land, although a triangle of land had already been cut out of it. The zoning was the same except it was subject to a ESO, but not to an electricity easement. It had excellent exposure to two main roads. It was purchased by the adjoining owner, who conducted a well-established manufacturing business in South Dandenong.
59 This was a sale in August 2010 of 19.02 hectares for $180,074 per hectare. In 2011, Mr Stephen had relied on this sale when valuing 550 Taylors Road for Melbourne Water, but now thought it less helpful as there were a wider range of comparable sales.
60 Mr Brown said that he only learned of this property in the joint valuers' conference in 2011. It was near residential development and was almost at the end of a residential estate. He said that given the date of the sale and its location he did not think it was very helpful.[49]
61 RSSB was an Indian religious organization. Mr Brown relied on the two RSSB sales, which were properties 3 (2 Boundary Road, Carrum Downs) and 5 **(**724 Frankston-Dandenong Road, Carrum Downs). They were both March 2015 sales. Those properties were across the road from each other and near 1005 Frankston-Dandenong Road. Neither valuer relied on these sales as primary sales.
62 Property 3 was a sale of 7.92 hectares for $277,778 per hectare and property 5 was a sale of 18.37 hectares for $180,811 per hectare. The valuers disagreed as to whether they could be treated as a combined sale for the purposes of comparison with the subject land. Mr Stephen thought that they could not be because they had not been sold as a combined property. Rather, he considered that, their individual sale prices, supported his view that smaller sized land obtained a higher price per hectare and that there were buyers for smaller lots.[50] He also considered that the RSSB sales were of particular weight in the 'after' situation. They were two parcels that taken together were a similar size to the aggregate of Lots 1 and 2 in the 'after' situation.[51] However, he accepted that to some extent sale 3 at a price of $277,000 per hectare was an 'outlier'.
63 Mr Brown considered that the two sales could be treated as one sale of the combined parcels of land as they were purchased by the same buyer for the same purposes of a place of worship and associated uses[52], although the buyer obviously needed to consolidate the land holding. Combining them resulted in a land value of $208,000 per hectare. Mr Brown relied on these sales to support his valuation of the subject land at $160,000 per hectare.[53] He pointed out that no one suggested that that the sale prices of these two properties were unjustified, despite the fact that in October 2014, RSSB could have purchased 1005 Frankston-Dandenong Road, a larger property, for $136,855 per hectare.
64 This was a sale in January 2015 of approximately 18.6 hectares for $2,825,000 or $151,881 per hectare.[54]
65 Mr Brown said that in order for this sale to be used as a comparable sale, it required adjustment for location, size and the impact of an intrusive road reservation. He said that if he had known that approximately 6 of the 18.6 hectares of this property were potentially affected by the PAO, he would have valued the land at $220,000 per hectare.[55] Nevertheless, he considered that the sale showed that his headline rate of $160,000 per hectare for the subject land was conservative.
67 To similar effect, Melbourne Water pointed out that Mr Brown's own file contained details of the PAO and newspaper articles including 'freeway upgrade plan for Westernport Highway'. The evidence was that the PAO was on exhibition.
68 Mr Brown conceded that the purchaser was aware of the PAO and that he had not taken that it into consideration in his valuation.[58] But the claimants contended that Melbourne Water's criticisms in this respect lacked substance because of Mr Brown's evidence, to which I refer below, about the effect the PAO had on his valuation of the unencumbered land.
69 The claimants contended that there was no evidence that property values in the south east Green Wedge area had decreased between 2011 and 2014 and that therefore the sale of 550 Taylors Road in 2011 remained a comparable sale. Mr Stephen assumed in undertaking his regression analysis, described below, that the value of Green Wedge land in the area had increased by 5.4 per cent per annum from 2012 to 2014. Mr Brown said that it was difficult to quantify the increase in property prices.[59] The claimants submitted that the market was 'lumpy and unpredictable', but was a rising market.
70 Mr Stephen considered that the market for Green Wedge land in the south east had declined since 2011 and that the sale of 195 Gamble Road in that year, on which he had relied in valuing 550 Taylors Road, had occurred in a more buoyant market. However, he conceded that his opinion was based on anecdotal evidence rather than analysis, including information from agents of municipal valuations.[60]
71 I do not consider that the evidence supports the conclusion that the value of properties comparable to the subject property decreased between 2011 and 2014. Mr Stephen's regression evidence, to which I next refer, included an assumption based on an analysis of valuations performed by his firm in 2012 that comparable prices had increased. However, market values were patchy as is demonstrated by the differences between the sale prices of the RSSB properties at the high end of the market and the sale price of 856 Frankston-Dandenong Road at the lower end. I therefore consider that 550 Taylors Road remained a comparable and relevant sale in November 2014.
72 Mr Stephen's valuation of the subject land was influenced by the significance that he placed on the size of the comparable properties and his opinion that generally smaller lots obtained a higher price per hectare than larger lots. He considered that in part this was because smaller lots were more affordable and that Green Wedge land was seen as having a speculative uplift over the long term.[61] He found that the smaller the area of Green Wedge land, the higher the rate per hectare obtained on sale. The three sales of land in Pillars Road of 2, 14 and 12-13 hectares showed a distinct correlation between price per hectare and size.
73 To support his opinion, Mr Stephen's firm prepared scatter graphs and regression analyses of the fifteen sales that the valuers had considered or been referred to, being the sales detailed in the folder of comparable properties prepared for the hearing. Regression analysis plots on a vertical axis the rate per hectare obtained upon sale and on a horizontal axis the area of the property. A programme then inserts a line of best fit through the data. The extent to which that line of best fit explains the data is then given by the coefficient of regression.[62] The Valuer-General requires such an analysis as part of a sale of public land.
74 According to Mr Stephen's regression analysis, both his and Mr Brown's valuations were above the line of best fit in the 'before' and both were below the line of best fit in the 'after'.[63] The analysis indicated that approximately 64 per cent of the variation in the price per hectare of the 15 properties was explained by variation in land size.[64]
75 Melbourne Water provided a similar document adjusted for time as values can vary over time. This adopted the time adjustment as 0.445 per cent per month or 5.34 per cent per annum increase in value. This analysis explained 69.3 per cent of the variation in price per hectare by the variation in land size.
76 A regression analysis of the nine properties relied on by Mr Stephen as comparable sales unadjusted for time produced a 91 per cent correlation between the size of the property and the price per hectare and adjusted for time they showed an 88 per cent correlation. The comparable sales to which Mr Brown referred resulted in a 88 per cent correlation between the size of the property and sale price and when adjusted for time a 91 per cent correlation.[65]
77 The scatter graph and the regression analysis suggested that Mr Brown's 'before' value for the two larger parcels of the subject land was too high and his 'after' values, not adjusted for reduced size but adjusted downwards for severance, were too low.
78 However, Mr Brown criticised Mr Stephen's regression analysis because he considered that it only mapped raw data and not the comparability of a property by features such as location.[66] He considered that, although in general, the smaller the land area the higher the rate per hectare obtained on sale, the sales evidence of Green Wedge land did not show such a relationship.[67] Mr Stephen's sample was too small and was not supported by the sale price of 550 Taylors Road. He considered that purchasers who were likely to be interested in South East Green Wedge Zone land would be attracted by larger areas of land because they permitted a wider range of uses. While he had on occasion used regression analysis in undertaking valuations, he considered that it was of limited benefit when the volume of sales was insufficient to permit a reasonable judgment to be drawn about the data obtained.[68] The claimants gave the example of a speculator, who might be as interested in a larger land parcel. They also pointed to Mr Stephen valuation of 550 Taylors Road in 2011 when he valued the 'before', when part of a larger parcel, at the same rate per hectare as in the 'after' with a smaller parcel.
79 The claimants prepared their own regression scatter graphs that showed that by combining the two RSSB sales, the percentage showing the connection between the area of the land and the price achieved, decreased from 90 per cent to 50 per cent.[69] If the 856 Frankston-Dandenong Road sale at $82,555 per hectare was not included, the percentage decreased to 0.28 per cent. The claimants also produced a document concerning the 15 sales to which Mr Stephen had referred and which produced an even lower percentage. But, Mr Stephen disputed the comparability of some of those sales as they were not speculative uplift Green Wedge sales.[70] He also disputed that the two RSSB sales should be treated as a combined sale for the purposes of the regression analysis.
Conclusion regarding correlation between size of land and sale price
80 I consider that the value of regression analysis depends on the extent and comparability of the property samples used and, in this case, the sale prices achieved do not reveal a consistent pattern. So I do not give the regression analysis decisive weight.
81 However, I consider that the evidence does provide some support for the conclusion that, at least in the case of the sales that the valuers considered comparable, that smaller properties are more likely to obtain a higher price per hectare because they will be more affordable. But, I see force in the claimant's submission that in 2014 the market for Green Wedge land in the precinct of the subject land was unpredictable. The two RSSB sales and the sale of 856 Frankston-Dandenong Road support that conclusion.
82 The claimants submitted that in performing its valuation task, the Court must recognize the role and expertise of land valuers and the intrinsic uncertainty and subjectivity associated with their judgments of the value of land.[71] Comparable sales evidence is an aggregation of decisions taken by many people with different knowledge and expertise about the market for a particular class of land in a particular area and made for a mix of reasons. Suggested comparable sales must be analysed and adjusted so as to enable comparison of 'like with like'. Valuers reach a valuation by identifying comparable sales, analysing them by a rate per hectare, adjusting them for similarities and differences with the subject land and then applying those adjustments in order to assess the value of the subject land. Other things being equal, if there is a doubt as to the amount properly payable by way of compensation for the compulsory acquisition of land, that doubt should be resolved in favour of the more liberal estimate.[72]
83 Melbourne Water emphasised that both valuers had adopted a comparable sales approach and that the evidence of those sales is to be assessed taking into account the factors set out in s 5A(3) of the VL Act, such as the highest and best use of the property, planning controls, shape and size and other relevant circumstances affecting the property.
84 I consider that it is important to keep in mind that valuation of land is not a precise exercise and requires the exercise of judgment. As Dixon J stated in The Commonwealth v Reeve:
The rule thus laid down is almost indispensable to the administration of justice in compensation cases. For the estimation of a money sum is usually so much a result of judgment and sound discretion and so little the product of analytical reasoning, that, were it otherwise, every appeal would mean an assessment of compensation de novo, without any assignment of error in the reasoning or conclusions of the court appealed from.[73]
85 In similar vein Mason J stated in Federal Commissioner of Taxation v St Helens Farm (ACT):
As with the assessment of damages, especially in personal injury cases, the valuation of a property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense.[74]
86 The Court must critically evaluate the valuation evidence, but can accept the evidence of one valuer on one issue and the evidence of another valuer on another separate issue.[75]
87 Both parties criticised aspects of the valuations presented by the valuer called by the other party.
88 Melbourne Water criticised Mr Brown's valuation for not complying with an experts' obligation by not stating his opinion as to the market valuation required by s 41(3) of the LAC Act in his valuation report and instead identifying two alternative valuations. In addition, he had not amended his reports to express his later opinion, the appropriate 'after' value was calculated on a combined sale of the two lots thereby increasing the 'after' value to $3,510,000 and decreasing compensation to $9,480,000, a decrease of more than $700,000.[76]
89 On the other hand, the claimants contended that Mr Stephen in previous valuations had underestimated the sale price that particular properties would obtain. Mr Stephen had underestimated the value of the Green Wedge land at 735 Dandenong-Hastings Road. In October 2014 he had valued it at $125,000 per hectare, when it sold for $153,449 per hectare in January 2015.[77] Secondly, 724 Frankston-Dandenong Road sold for $180,800 per hectare in March 2015, whereas in October 2014, Mr Stephen anticipated that it would sell for $140,0000 a hectare.[78] They also contended that an additional reason establishing the relevance of 550 Taylors Road was that Mr Stephen had used the same valuation methodology for that property as he had in valuing the subject property.[79]
90 I consider that these instances of under valuations of properties demonstrate no more than that valuation is not a science and that valuations will not necessarily reflect the price a particular purchaser is willing to pay. I do not consider that they affect the weight to be given to Mr Stephen's evidence and opinions expressed at the trial.
91 Other criticisms were levelled at the valuers' evidence.[80] For example, the claimants submitted that Mr Stephen was less responsive to questions in cross-examination than Mr Brown. But I do not consider that these criticisms affected the weight to be given to Mr Stephen's evidence. I considered that both valuers attempted to give an expert assessment of the value of the subject land. Although I have differed from their approaches in some respects, I did consider that they applied their minds as independent experts to the matters on which they were asked to express an opinion.
92 A consideration of comparable sales runs the risk of descending into a consideration of the many factors that influenced the price obtained for those properties, rather than a consideration of the value of the subject land. Reasonable expert opinion can disagree about such issues. Their use involves the application of judgment rather than precise mathematical calculation.
93 The Court must determine the market value of the land in accordance with s 5A of the VL Act. As previously stated, the considerations to be taken into account in assessing the degree of comparability of sales include the time when they occurred, their terms, the use of the land, its highest and best use, the effect of any regulation of the land, its shape and size, its location, any improvements to it and its potential to yield a monetary return.
94 The parties made detailed submissions about the nine sales discussed above. There was no exact comparable sale. As mentioned, I see force in the claimants' submission that the market for Green Wedge land in the Lyndhurst area was 'unpredictable'. Although the evidence suggested that land prices had increased prior to November 2014, there was no consistent explanation for the prices achieved save for subjectivity and the particular purpose of the purchaser. I accept the claimants' submission that some of the sales were particularly influenced by one-off subjective needs of the purchaser. By that I mean they were not needs that could be attributed to the hypothetical willing but not over anxious purchaser.
95 None of the properties were comparable in size to the subject property in the 'before', which was 84 hectares with 53 hectares acquired. The closest was 856 Frankston-Dandenong Road, Carrum Downs which was an August 2014 sale of 46.03 hectares at $82,555 per hectare. But that was a sale at a markedly lower price than other properties achieved. The other large parcel was 616 Frankston-Dandenong Road of 43.94 hectares which obtained $117,767 per hectare in June 2014. The two highest prices were obtained for the two RSSB properties of 18 and 7 hectares.
96 The time of some of the sales was very proximate to the acquisition date of the subject land in November 2014. The sale of 1005 Frankston-Dandenong Road occurred in about September 2014. The sales closest to the acquisition date of November 2014 such as the RSSB sales obtained high prices, but others sales such as of 856 Frankston-Dandenong Road in August 2014 obtained the low price of $82,555 per hectare. However, that price may have been influenced by the ESO.
97 The terms of some sales were significant, for instance, the 785 Thompsons Road sale had a 12 month settlement period rather than the standard 90 days.
98 The shape of the land may affect its uses and some of the comparable sales were of triangular shaped blocks.
99 The location of the properties was also relevant. Those closest to the subject property obtained higher prices - 550 Taylors Road, three years previously at $164,740 per hectare for 17 hectares in an off-market sale and 785 Thompsons Road in March 2013 at $144,000 per hectare for the 21.6 unencumbered hectares.
100 I do consider that the sale price of $164,740 per hectare for 550 Taylors Road is highly relevant and supports a price of $150,000 per hectare for the subject land. The detailed negotiations leading to that sale were scrutinised by the Land Monitor and overcome doubts arising from it being an off-market sale. On one analysis, the sale achieved $172,000 per hectare. I also place particular weight on the sale of 785 Thompsons Road at approximately $144,000 per hectare.
101 I also place some weight on the sale of 1005 Frankston-Dandenong Road at $136,855 per hectare. In some respects it had more attractive features than the subject property - there was no electricity easement or PAO affecting it and it was outside the ESO. But I have balanced that sale against the two RSSB affected sales which achieved much higher prices in March 2015.
102 I have decided to adopt a headline value of $150,000 per hectare for the 'before' value of the unencumbered parts of lot 1 of the subject land, which was the top of Mr Stephen's valuation range.
The effect of the easements on the 'before' value
103 I have previously described the easements over the subject land. In reaching a valuation of the acquired property, the significance of the easements encumbering it in both the 'before' and the 'after' must be considered.
104 E-1 is the SP AusNet electricity easement. Mr Brown valued the land in easements E-1, E-2 and E-3 in Lot 1 at $80,000 per hectare for 1.98 hectares, being a reduction of 50 per cent in his valuation of the unencumbered land.
105 I next consider the value of the easement land of Lot 1 in the 'before'. In the case of the electricity easement land, Mr Stephen adopted a value of $50,000 per hectare and Mr Brown $80,000. The main basis for the difference appears to be whether SP AusNet will ever use the easement.
106 Mr Stephen valued the encumbered easement land in E-1 in the 'before' at $50,000 per hectare due to diminished ownership rights and utility of the encumbered portion of the land. He said that his valuation of the easement land was guided by Green Wedge land values which had no speculative urban value. But, he acknowledged that there was little precise evidence on which to base the valuation and that it involved a subjective exercise of judgment.[81] He considered the effect on the values of the properties from two potential zoning changes or 'uplifts' of the subject land, being industrial or residential. In his opinion, either uplift would increase the value of the easement land, but not to the level of Mr Brown's valuation of $80,000 per hectare and any uplift might not occur for a long time.[82] If the uplift was as result of rezoning of the land as residential he would place a nil value on the land encumbered by easement E-1.
107 Mr Stephen described the effect of the electricity easement, E-1, on the subject land's value in the following evidence:
I recognize an appropriate value for the subject property's class to fall between $100,000-$150,000 per hectare.
I do however also consider it is critical to recognise the existing easements that affect the land, specifically that in favour of State Electricity Commission of Victoria. This seemingly benign easement has the prospect of containing significant infrastructure which could be seen to interfere with the rural amenity of the land and similarly impact upon any speculative urban conversion of the land, in the event that it accommodates above-ground powerline infrastructure.
Accordingly I apply a level of value below that which would otherwise prevail: I apply $140,000 per hectare for Lot 1 where the easement is contained towards the north east corner of the land and therefore 'affects' the balance of the land more modestly. In recognition of the bisecting nature of the easement impacting upon Lot 2, I apply $125,000 per hectare to that site, as the potential for property-wide deleterious effect is greater.
The applied levels of value acknowledge that whilst purchasers are fewer and more cautious, the site may still include some speculative premium if the land were to be offered for sale.
Despite the current single occupancy and common ownership the more recent subdivision provides flexibility of independent sale and use and this is recognized in this assessment depicted herein.
...
The subject property prior to acquisition of part by Melbourne Water comprises two substantial and regular shaped broad hectare Green Wedge zoned land holdings of approximately 41.34 and 43.54 hectares that are subject to an easement in favour State Electricity Commission of Victoria. I estimate this easement to be approximately 80 metres in width and it traverses diagonally through the sites from the eastern boundary, setback a little from Thompsons Road, through to the northern boundary of the site. The eastern (Lot 1) is also affected by an easement in favour of State Rivers and Water Supply Commission and an easement to Shire of Cranbourne located to the south western corner of the site. Also a carriageway easement in favour of Lot 2 is located to the south east corner of Lot 1.
The easement areas are of significance in so much that they would be treated by a hypothetical purchaser as suggestive of the potential of diminished utility (albeit no assets are yet contained within the powerline easement) and as I note on the previous page, a lower threshold of value is appropriate for these lands [than] for other sites free of such blight.[83]
108 In cross-examination, Mr Stephen gave the following evidence about the value of the land affected by the electricity easement:
Do you agree that when it comes to this valuation task, there is very, very little market evidence upon which the valuer can base their evidence?---I think you're correct.
Does it follow that whether we prefer Mr Brown's 50 per cent or 50,000, really comes back to a subjective valuer opinion?---I think it is subjective, but you've got to have some basis for the subjectivity.
Yes, but I thought that you said that there was very, very little market evidence to assist you? ---There is, but you've still got to have a rationale in arriving at it. You don't just apply a percentage. I think that's an inappropriate approach.
Well why is that any less or more appropriate than simply applying 50,000? ---Yeah well 50,000 was guided by really what the land values in the green wedge were that weren't associated with an uplifting value because of this speculative urban boundary proximity, so what I did was I looked at sales of green wedge land sales that didn't have the spectre of that uplift and I said give the benefit of the doubt to the land owner and put the full value, full green wedge value not associated with speculative uplift on this land so that in fact in a green wedge utility your utility use, I've put value on it. I think I've been most generous. If you look at what you might do in the event of future urban development land and there's two scenarios.[84]
109 The valuers differed on whether E-1, the electricity easement, would ever be activated. Mr Stephen considered that it might be because of developments in the area requiring power augmentation[85] and it might involve significant above-ground infrastructure which would interfere with the amenity of the land.[86] He considered that a hypothetical purchaser would enquire about the easement and learn that it had been activated and would be used for a major transmission line.[87] He gave evidence that he had accepted information given to him by Mr Allen of SP AusNet that they had activated the easement by deciding the location of the infrastructure assets to be placed on the easement land.[88] He also took into account that SP AusNet had refreshed an easement on the south-west corner of the adjacent 785 Thompsons Road property.[89]
110 Mr Brown adopted a 'more optimistic' conclusion about adverse effects on the land value caused by the electricity easement because he thought that the infrastructure and the terminal station were no longer required.[90] He considered that the unencumbered land contained ample room for any development even if infrastructure was installed.[91] However, because the easement was a 'blight' on title and diminished ownership rights, he valued the easement land at 50 per cent of his unencumbered rate of $160,000 per hectare, that is $80,000 per hectare.
111 I prefer Mr Stephen's assessment that it is likely that the easement will be used and propose to adopt his valuation of the electricity easement, E-1, of $50,000 per hectare. There was evidence to support his conclusion that the easement is likely to be used including action that SP AusNet has taken. Mr Brown's valuation of $80,000 per hectare was rather based on the assumption that it would not be. Clearly, if the easement was used, that would have a major impact on the value of the land.
112 Mr Stephen explained the figure of $50,000 as follows:
The application of a percentage discount is somewhat subjective, but in this instance I've applied a value of 50,000 a hectare, which I think goes to the benefit of the land owner in saying that I'm putting Green Wedge value, that is full...Green Wedge value not influenced by speculative proximity to urban growth boundaries on it.[92]
113 There was little attention given in evidence or submissions to the value of the land in easements E-2, E-3 and E-4. I consider that the value to be given to them is very much a matter of judgment bearing in mind the value given to the unencumbered land. Mr Stephen valued all the easement land at $25,000 per hectare, whereas Mr Brown valued at least the land in E-2 and E-3 at $80,000. It is not clear what value he gave the carriageway land in E-4. As a matter of judgment, rather than any mathematical analysis, taking into account the value that I have given to the electricity easement land, I consider that I should value the land in E-2 and E-3 at $50,000 per hectare. I consider that I should value the land in E-4, which is a carriageway easement, at $25,000 per hectare.
114 I have described the differences in the valuers' evidence about the risk that the electricity easement will be activated. The easement has a potential to significantly affect the uses that may be made of Lot 2, as the plan attached to the judgment demonstrates. I prefer Mr Stephen's assessment of the likelihood of the easement being activated. I do not consider that Mr Brown's approach of applying the same value for Lot 1 and Lot 2 is appropriate. Because of the size of the electricity easement and its potential use, I consider that I should apply the value of $135,000 to the 'before' value of Lot 2. If it had not been for the electricity easement, I would have valued it at $150,000 per hectare as I have valued the unencumbered value of Lot 1.
115 I consider that after values of the two Lots in the same section of this judgment, because one issue in the 'after' is whether the highest and best use of the remaining land is by a combined sale of the two lots, rather than separate sales.
116 After the compulsory acquisition, the remaining part of the subject property at 685 Thompsons Road consists of two substantial, although irregularly shaped, parcels of land of approximately 10.91 and 20.75 hectares, which continued to enjoy frontage to Thompsons Road. Mr Brown described Lot 1 after the acquisition as a small parcel of land of very odd shape, affected by the PAO, but much diminished and abutting the proposed Melbourne Water facility on its northern boundary.[93] Lot 1 remains encumbered by drainage and carriageway easements, but not it appears by the electricity easement.
117 Lot 2 remains encumbered by the electricity easement.[94]
118 The valuers differed in their approach to the 'after' value of the remaining land. Mr Brown reduced his 'before' value of Lot 1 by a severance factor of 60 per cent to $64,000 per hectare, and reduced his 'before' value of Lot 2 by a severance factor of 33 per cent to $107,000.
119 The claimants' approach, however, was influenced by the fact that the hypothetical purchaser of the balance of the subject land would be concerned by the water retention facility to be built next door and the reduction in the available uses of the land.[95] In addition, the detail of VicRoads' plans for widening Thompsons Road were still unknown.
120 Mr Brown's application of a severance percentage to reach the 'after' value was based on the land's loss of visual amenity, its shape, the interference with the natural flow of water and the loss of the bore water. However, the bore water issue has been resolved by payment of an amount of $40,000. There is no reticulated water or sewer servicing the land.[96]
121 Mr Brown considered that the application of a severance percentage to the 'before' value of the land was the best approach to the valuation of the 'after'. He said that it was difficult to find comparable sales other than 785 Thompsons Road and that valuation was a subjective exercise.[97] However, he pointed to the sale price of 785 Thompsons Road at a higher rate per hectare of $144,000 than the 'before' value of 550 Taylors Road.[98] Mr Brown considered that Lot 2 in the 'after' was different from 785 Thompsons Road because of its shape and the effect of the easement. However, he agreed that the larger the land, the less the irregularity of its shape is an issue.[99] Mr Brown's value for the 'after' for the subject land was only 67 per cent of the land next door at 785 Thompsons Road taking the higher price of at $157,212 per hectare.[100]
122 Mr Brown noted that the non-acquired part of Lot 2 was larger than Lot 1, it had a more regular boundary but its proximity to the water retention project still potentially raised issues of its use. As previously mentioned, Mr Brown considered that SP AusNet may no longer want the electricity easement. He agreed that a purchaser of Lot 2 would have to design land uses around the easement as it occupies 12 per cent of the land, but he considered that there was ample room for that to occur.[101]
123 The claimants also submitted that the Court could adopt Mr Brown's 'before' valuation and Mr Stephen's 'after'.[102]
124 As I explain in more detail below, with one exception, Mr Stephen's valuation of the 'after' in Lot 1 remained the same as in the 'after', at $140,000 per hectare for the Lot 1 land.
125 Relying on Mr Stephen's evidence, Melbourne Water submitted that Mr Brown's severance approach was incorrect, did not comply with the requirements of s 41(3) of the LAC Act and in any event was too high. He had not identified the sales on which he had based his 'after' value. Rather than a severance approach, Mr Brown should have considered the highest and best use of the land in the 'before' and 'after' scenarios. None of the matters upon which Mr Brown relied supported his severance approach.[103]
126 Mr Stephen's value of the 'after' was reached after he looked at sales, particularly 1005 Frankston-Dandenong Road, adjusted them for size and adjusted his valuation for the 'arm' of land remaining along the front of Lot 1.
127 Melbourne Water submitted that its plan for the retarding basin did not change the overall topography of the subject land. The plan of August 2011 did not show any interference with the land, or any structures or any indication that the natural flow of water on the subject land would be interfered with.[104]
128 There was another point of difference. In determining the 'after' value of the remaining land, the valuers differed on whether the valuation should assume two separate sales of Lots 1 and 2 or a combined sale of the two. In Mr Brown's opinion, combining lots one and two of 31.6 hectares was the highest and best use because it would provide a purchaser with more options for land use than the purchaser of one of the lots would have. He allowed a severance of 25 per cent for such a sale.[105]
129 Mr Brown's valuations were a 'before' value of $12,990,000 valuing lots 1 and 2 separately. His 'after' value on the basis of a sale of both lots 1 and 2 of the remaining land was $3,510,000 resulting in compensation of $9,480,000, a reduction in the valuation of $700,000.[106]
130 In contrast, Mr Stephen considered that the sale of the two lots separately was the highest and best use of the land, because more buyers would pay a higher price for two small lots than for one combined lot.[107] He explained this as follows:
I am of the view that in regard to the levels of value adopted herein, no particular differential exists as a result of smaller land size in the 'after', given that any potential increase in value due to smaller and more affordable land holding is counter-balanced by inferior shape and potential loss of some quasi commercial activities no longer permitted because of the land no-longer meeting the 40 hectare minimum area.
I also note that there may be some potential increased risk in securing planning permission for a dwelling on each allotment in the 'after' situation, as both allotments fall below the minimum subdivisional size.
The presence of the somewhat benign-looking retarding basin and wetlands facility is not considered to have a negative impact upon the visual amenity of the lands.[108]
Mr Stephen's approach resulted in compensation of $6,820,000 being payable to the claimants.
131 With one exception, Mr Stephen's 'after' value for Lot 1 remained the same as his 'before' value of $140,000 per hectare. The exception stemmed from his change to his valuation of Lot 1 in the 'after' following his consideration of Mr Brown's report. He reduced his valuation of the 1.1 hectare 'arm' along the Thompsons Road frontage in the 'after' by 50 per cent of his 'before' value and valued it at $58,010. That adjustment reduced the 'after' value of Lot 1 and increased his assessment of compensation payable to the claimants calculated under s 41(3) from $6,750,000 to $6,820,000.[109]
132 Mr Stephen also considered that the sale price of 735 Dandenong-Hastings Road at $153,449 per hectare was of assistance in the 'after' value having regard to its size, its position adjacent to the urban growth boundary, its two road frontages, that it was Green Wedge land and that it was outside the ESO.[110]
133 The valuers disagreed on whether the electricity easement decreased the value of the unencumbered land in Lot 2. Mr Stephen thought that it did and he accordingly discounted the value of the unencumbered land in Lot 2, that is the non-easement land, from $140,000 to $125,000 per hectare, because a hypothetical purchaser would regard the electricity easement E-1 as potentially diminishing the utility of the land and affecting the unencumbered land in Lot 2.[111] That valuation would reduce Mr Brown's 'before' value of Lot 2 by $575,000.
134 Mr Stephen considered that once the easement was activated, there would be two irregular shaped semi-triangular parcels bisected by the easement and the choice of location of any buildings that might be affected. I have set out above part of his evidence on this issue.
135 Mr Brown described Mr Stephen's reduction in the value of the unencumbered land in Lot 2 as inappropriate double counting, when he had already decreased the value of the encumbered land.[112] The claimants pointed out that the valuers had adopted a different approach with 616 Frankston-Dandenong Road, where neither had adjusted its value in the 'after' because of its triangular shape, although Mr Stephen considered that its shape was offset by its size.[113]
136 The claimants also referred to 550 Taylors Road and contended that Mr Stephen had included an allowance for a drain that divided that property because it made access across the land more difficult. But he had not reduced the value of that unencumbered land because of that drain, whereas he had reduced the value of the unencumbered part of Lot 2 of the subject land because of the size of the electricity easement. But**,** Mr Stephen explained that his approach was due to the drain running through the back of 550 Taylors Road and not impeding development.[114] In a third property at Clyde, with land zoned Green Wedge that was in the 'investigation area' for possible residential land, Mr Stephen placed no value on the electricity easement land.
137 Unlike Mr Stephen, Mr Brown did not consider that it was appropriate to reduce the value of the unencumbered land in Lot 2 because of the size of the easement. He adopted 50 per cent of his headline value for the servient tenement land encumbered by the electricity easement, but did not otherwise reduce the value of Lot 2 in the 'before' or 'after'. Melbourne Water criticised this approach pointing out that the figure of 50 per cent was an arbitrary percentage and that its effect on the value of the encumbered tenement depended on the value given to the unencumbered land.
138 Mr Stephen's 'after' value for Lot 2 otherwise remained at $125,000 per hectare because of the effect of the electricity easement on the unencumbered land. He again applied a value of $50,000 a hectare for the land subject to the electricity easement, because the easement encompassed 12-13 per cent of Lot 2. In making that valuation, he took into account the visual and potential physical intrusion of the 'assets' or infrastructure required for the proposed power line on the easement land, and the resulting constraints on development of the site.[115]
The effect of the easements on the 'after' value of Lot 2
139 The valuation of the land in Lot 2 raises separate issues about the effect of the electricity easement on the value of the unencumbered land. The easement encompasses 12 per cent of Lot 2, bisecting its and creating two irregular triangular parcels.
140 In respect of the 'after', the easement only applies to Lot 2, as the electricity easement does not affect the land remaining in Lot 1 in the 'after'.
141 I adopt Mr Stephen's value of $50,000 per hectare for the encumbered land in the electricity easement in Lot 2 in the 'after', because again I accept his assessment of likelihood that the electricity easement will be used by SP AusNet. I consider that his valuation of the easement land reflects that conclusion.
Findings on the 'after' value of Lots 1 and 2
142 I do find that smaller lots may achieve a higher sale price per hectare than larger lots as the sales of 785 and 735 Thompsons Road demonstrate. The comparable sales, particularly the RSSB sales, support that conclusion. But I do not consider that there is any basis to conclude that the valuation of the 'after' should occur on a combined basis of Lots 1 and 2 because, in my opinion, such a valuation methodology does not comply with the requirements of the legislation and the highest and best valuation approach, as it is less likely to provide a wider group of potential purchasers.
143 I also do not consider that Mr Brown's severance approach of valuing the 'after' by a flat percentage reduction of the 'before' value is appropriate. The percentages that he adopted are not based on, or connected to, any comparable sale. Indeed, applying his percentages produced not a value of the 'after' land, but rather a reduction of the 'before' value by the percentage. And, that percentage was not based on any comparable sales.
144 I consider that Lot 1 has an 'after' value of $150,000 per hectare for unencumbered land, save for the elongated strip of land of 1.1 hectares. The Court can take into account the shape of the land being valued. I adopt a figure of $57,592.50 in respect of that land which is close to Mr Stephen's valuation of $58,010.
145 In the case of Lot 2, I consider that a lower value of the 'after' should be given to the unencumbered land. I consider that the size of the area over which the easement runs is likely to have an effect on the remaining unencumbered part of Lot 2. That land occupies a significant part of Lot 2, some 12 per cent, and there is a risk that a hypothetical purchaser will be influenced by its possible effect on development of the remaining land. I value the unencumbered part of Lot 2 at $125,000 per hectare, because of the risk of adverse effect caused by the easement on Lot 2 if it is activated.
146 This issue concerns the treatment of the road reservation adjoining Thompsons Road, which is subject to a PAO, being whether it should be disregarded and what consequences that would have. It encompasses about 4 hectares and relates to the likely widening of Thompsons Road.
147 The subject land was reserved for two public purposes contained in two PAOs 1 and PAO 6. The purposes of the PAOs were:
PAO 1: Acquisition Authority is specified as Roads Corporation and the purpose of acquisition is for the widening of Thompsons Road.
PAO 6: Acquisition Authority is specified as the Floodplain Management Authority and the purpose of the acquisition is specified as drainage purposes.[116]
148 In their joint report, both valuers acknowledged the existence of PAO 1 over the subject land which benefited VicRoads. However, Mr Brown was instructed by the claimants' solicitors to ignore it for the purposes of the valuation, while Mr Stephen acknowledged its existence but made no adjustment to the value of the subject land because of it. Thus, while the valuers approached the relevance of the PAO differently, the differences had no material effect.[117]
149 The claimants contended that, by virtue of s 43(1)(d) of the LAC Act, Mr Brown was correct to disregard the road reservation in carrying out his valuation. His instructions were to ignore the PAO because of the decision in Rigby v Secretary to the Department of Sustainability and Environment.[118] But that litigation was settled and the case provided no basis for Mr Brown to disregard the PAO in carrying out his valuation.
150 In his evidence, Mr Brown considered that the land affected by the PAO should not be given the same value as the unencumbered land, nor should a severance percentage be applied to it.[119] The claimants contended that his approach was consistent with the terms of s 43(1)(d) of the LAC Act_._[120]
43 Matters affecting compensation
(1) In assessing compensation, the following matters must be disregarded -
(a) any increase or decrease in the market value of the interest in land which is acquired arising from the carrying out, or the proposal to carry out the purpose for which the interest was acquired;
...
(d) in a case where the land in which the acquired interest subsists is reserved for a public purpose in a planning instrument, any restrictions upon the use or development of that land which are imposed by, or are a consequence of, the reservation;
152 In Streetworks Pty Ltd v Linking Melbourne Authority, Osborn J said of s 43(1)(d):
The effect of s 43(1) is that the question of market value is to be assessed by reference to hypothetical assumptions which require the effects of the carrying out or proposal to carry out the purpose for which the land was acquired to be disregarded.
Section 43(1)(d) requires a particular class of circumstances bearing on the value of the land to be disregarded, namely planning restrictions imposed pursuant to the reservation of the land for a public purpose.
The relevant public purpose is not necessarily one related to the purpose for which the land was acquired.
On the other hand, s 43(1)(a) is directed not to a particular class of circumstances affecting value, but a causal consequence of a specified character. Any increase or decrease in the market value of the interest in land which is acquired must be disregarded if it arises from the carrying out or the proposal to carry out the purpose for which the land was acquired.
The better view may be that the relevant purpose is the underlying statutory purpose of acquisition...[121]
153 Osborn J's judgment principally concerned s 43(1)(a) and the identification of the zoning of the land in issue that was to be assumed at the acquisition date for valuation purposes. However, significantly his Honour stated that in the context of s 43(1)(d) 'the relevant public purpose is not necessarily one related to the purpose for which the land was acquired'.
154 Mr Brown had valued the PAO affected part of the land at 785 Thompsons Road, next to the subject land, at $5,000 per hectare.[122] If he had adopted the same valuation of the 4.96 hectares of the land affected by the PAO, his valuation of the Lot 1 land would have been reduced to $150,069 per hectare. That would have reduced his overall assessment of compensation of $12,990,000 by $769,000 to $12,221,000.[123] Melbourne Water submitted that his approach was incorrect.
155 PAOs do not always affect the value of land to a hypothetical purchaser. As previously mentioned, the PAO did not affect the sale price of 735 Dandenong-Hastings Road, because the purchasers were aware of it and it did not adversely affect their plans for the land.[124]
156 Melbourne Water submitted that the decision of Osborn J in the Streetworks case did not support disregarding the effect of the PAO on the subject land. It submitted that the PAO was not associated with the acquisition of the land, when that acquisition of land was for the purpose of constructing the retarding basin, whereas the purpose of the PAO was VicRoad's reservation to enable road widening.
157 Mr Stephen agreed that there were different views as to whether the PAO reservation should be disregarded in the valuation of the subject land. But his instructions were that reservations connected with the acquisition in question should be disregarded.[125] However, he did not regard the PAO as connected with the purpose of the acquisition, so he did not disregard it. Therefore, he considered that the acquired land had to be valued on the basis that it was subject to the VicRoads PAO.[126] But, as he explained in his third report, he still did not adopt a lower value for the PAO land. He did have regard to the PAO and the proposed works, including the retarding basin, on the land, but did not consider that they reduced its value. He considered its effects, including the length of time for which it sterilised the land and the rights of the parties[127], but concluded that because the land was zoned Green Wedge, the PAO would have less of a sterilising effect on it.[128] He stated:
I find that in the 'before' situation, my existing approach was to make no calculative adjustment for PAO 1 remains reasonable, chiefly on the rationalisation that even as a 'blight' in the mind of a hypothetical purchaser, the PAO 1 did not imply a particularly long-term period of quarantine for the land, given the road upgrade works to Thompsons Road (which are the purpose of this PAO) had been 'in train' for some time prior to the relevant date, and were foreseeably to occur without significant delay.
This means that any hypothetical purchaser of such land at the relevant date would not be unnecessarily burdened with reserved land for a long period, with formal acquisition and compensation for same appreciably swift. The same could be said in the 'after' situation as the timeline to the reserved PAO 1 land being acquired and compensation would be unchanged.
Despite this, my review of this particular question had led me to reconsider the value of the land in the 'after' situation; not directly as a consequence of PAO 1 per se, but rather as a function of looking at specifically the western lot in isolation, in the 'after' situation.[129]
Conclusion about the valuation of the land subject to the Public Acquisition Overlay
158 My interpretation of s 43(1)(d) of the LAC Act leads to the conclusion that the VicRoads PAO affecting the subject land should be disregarded for the purpose of assessing compensation. I consider that s 43(1)(d) applies to any reservation of land for a public purpose in a planning instrument which imposes any restrictions upon the use or development of the land, whether or not that reservation or restriction is associated with the acquisition. However, I agree with the opinion of Mr Stephen, that even without that interpretation, no reduced value should be given to the land that is subject to the PAO, save for the 1.1 hectares, being the 'arm' of land along the front of the subject land.
159 My conclusions as to the valuation of the land are as follows:
(i) $150,000 per hectare for 39.2837 hectares = $5,892,555
Total: $5,892,555
(i) E-1: $50,000 per hectare for 1.6789 hectares = $83,945
(ii) E-2: $50,000 per hectare for 0.1967 hectares = $9,835
(iii) E-3: $50,000 per hectare for 0.1498 hectares = $7,490
(iv) E-4: $25,000 per hectare for 0.0382 hectares = $955
Total: $102,225
(i) $150,000 per hectare for 9.7649 hectares = $4,786,412.50
(i) Land affected by 'arm shape': $75,000 per hectare for 0.7679 hectares = $57,592.50
(ii) Remaining E-2 land: $25,000 per hectare for 0.1907 hectares = $4,767.50
(iii) E-3: $25,000 per hectare for 0.1498 hectares = $3,745
(iv) E-4 (carriageway land): $12,500 per hectare for 0.0382 hectares = $477.50
TOTAL LOT 1 COMPENSATION: $5,994,780 - $1,531,317.50 = $4,463,462.50
(i) $135,000 per hectare for 38.2913 hectares = $5,169,325.50
(i) E-1: $50,000 per hectare for 5.2533 hectares = $262,655
(i) $125,000 per hectare for 18.1778 hectares = $2,272,225
(i) E-1: $50,000 per hectare for 2.571 hectares = $128,550
Total Lot 2 After value: $2,400,775
TOTAL LOT 2 COMPENSATION: $5,431,980.50 - $2,400,775 = $3,031,205.50
160 The claimants claim disturbance loss. They bear the onus of establishing that claim. Loss attributable to disturbance is defined in s 40 of the LAC Act as any pecuniary loss suffered by a claimant as 'the natural, direct and reasonable consequence' of the fact that an interest of a claimant in the relevant land has been 'divested or diminished', being a pecuniary loss for which provision is not otherwise made in Part 4 of the Act.
161 To be entitled to recover a compensable loss under s 41(1)(d), a claimant must establish the three elements of disturbance loss - that it is a natural, direct and reasonable consequence of the acquisition.[130] In Roads Corporation v Schembri[131], after referring to earlier authority of this Court, Osborn J said that the word 'natural' means arising according to the usual course of things; the word 'direct' connotes an immediate and substantial causal connection; and the word 'reasonable' connotes a reasonable response to the events triggering the right of compensation.
162 The items of disturbance loss claimed were for loss of opportunity, loss of profits and a claim for executive time.
163 The disturbance loss claims were principally based on the claimants' evidence, which was not significantly disputed by Melbourne Water. That evidence set out the chronology of the acquisition of the land.
164 Melbourne Water first wrote to the claimants on 23 May 2006 stating that it would investigate whether the site was suitable for a water retarding basin. In July 2006, Melbourne Water informed them that the compulsory acquisition of the property would be completed by February 2007. As time passed, Melbourne Water gave them different indications of the area of the land that it intended to acquire. The acquisition was dependent on rezoning of the land north of Glasscocks Road as industrial, but that did not occur until March 2009. In that year, Melbourne Water informed them that it intended to purchase their property in 2010. Then, in 2011, it informed them that the area required for the retarding basin would be less than the area of the property affected by the PAO. Time was then taken to survey the area that Melbourne Water actually required. Near the end of 2011, the claimants consented to an amendment to the planning scheme to reduce the area that was the subject of the PAO, and that was not completed until April 2013.
165 Melbourne Water then notified the claimants that it had decided not to proceed with the acquisition until 2015-16. This news devastated the claimants as their plans would be placed on hold for another three years, after having already been on hold for nine or ten years. Time was becoming increasingly precious to them. So following advice, they notified Melbourne Water under the Planning and Environment Act 1987 ('PE Act') that they intended to sell the land unless they received a guaranteed acquisition date. They had been advised that that was the only way to expedite an outcome and that they could claim compensation from Melbourne Water for any loss on the sale arising from the PAO. Following their notification, Melbourne Water in May 2014 served a notice of intention to acquire the subject land.
166 On 22 September 2014, the subject property was divided into two lots and separate titles issued. In October 2014, Melbourne Water issued revised survey plans showing the areas allocated between Lots 1 and 2. The notice of acquisition was published in the Victorian Government Gazette on 6 November 2014.
167 On 19 November 2014, Melbourne Water offered Mrs Thomas and Mrs Wilson compensation in the sum of $6,885,000 for the acquisition of their land.
168 Mrs Wilson gave evidence that, since May 2006 when Melbourne Water first indicated that the property might be compulsorily acquired for use as a retarding basin, she has spent hours worrying about and discussing with her sister and other family members the timing and outcome of the acquisition and the fate of the property. As previously mentioned, the property was part of their family heritage and their business and represented a large part of their family wealth.
169 The lengthy acquisition process disrupted their business and plans for retirement as they did not know when they would lose part of their property and it wore them down. At least eight times, Melbourne Water changed its plans about the acquisition date and the area that was to be acquired.[132]
170 The claimants did not know the law regulating the compulsory acquisition of land. All their work responding to the acquisition has been very time consuming and many days have been occupied in working with Mrs Wilson's daughter to provide their solicitors with information. Time and money that they could have invested in their business or for other purposes were spent responding to Melbourne Water's communications, in seeking to learn when the acquisition would occur and altering their life and business plans to be ready for that event. They had to find and retain lawyers and other experts, provide them with instructions and consider their advice. They had to attend many meetings with representatives from Melbourne Water, their lawyers and their expert advisors.
171 The claimants gave evidence about what their plans for the land would have been if the compulsory acquisition had not occurred. The effect of their evidence that they may well have sold part, or indeed all, of it by 2014 in any event. Thus, Mrs Wilson said that by 2006, when she received notice that Melbourne Water was to acquire the property, industry and increasing numbers of new residents were encroaching on, and affecting, their property. For instance, their gates and other goods had been stolen and rubbish dumped on their property.[133] Sale prices for land in the area were increasing and agents were showing some interest in the property.
172 Mrs Thomas, the younger sister, said that in 2006 she was in her early sixties, fit and healthy and intending to continue farming activities whilst her health remained. She said that when Melbourne Water's first letter arrived in 2006 their plans were probably to sell half the land.[134] It was very likely that if the acquisition process had not commenced, they would have sold the property between 2006 and 2017. As she explained, 'the prices were up and we were getting lots of nibbles from the agent',[135] but Melbourne Water then informed them that it was going to acquire part of the property.
173 The acquisition had other effects on them. Although Mrs Thomas was relieved when Melbourne Water finally completed the acquisition, it severely affected their business by leaving them with ugly remnants of the land and all but destroying the viability of the property for farming or grazing. So, they purchased replacement properties. Mrs Thomas purchased two properties at Caramut and Melbourne Water has compensated her for the cost associated with those purchases. She has also purchased land at Ruffy, about 20km south of Euroa, and is claiming compensation for the cost of acquiring that land. In June 2016, Mrs Wilson purchased a replacement property of 267 hectares at Labertouche near Drouin under a terms contract with completion in 2026. She claims the costs associated with that purchase and that claim is disputed by Melbourne Water and the replacement costs have not been accepted.
174 The claimants claim $236,178.86 for the loss of the opportunity to earn interest on the compensation paid by Melbourne Water if it had been paid at an earlier date. They claim that Melbourne Water had represented to them that it would acquire the land by various dates, the latest being in July 2013. On the basis of that representation, they submit that if they had received the compensation by 23 September 2013, they would have then purchased the replacement land.
175 The claimants allege that they lost the chance to earn interest on the compensation from 23 September 2013 until receipt of the advance of compensation on 19 December 2014 as the natural, direct and reasonable consequence of Melbourne Water's departure from its representations. Their quantification of that sum in the amount of $236,178.86 is not challenged.
176 The claimants allege that on 27 July 2012, Melbourne Water's solicitors made representations to their solicitors to the following effect:
(a) The Greater Dandenong Planning Scheme would need to be amended before the Authority could acquire part of the property including to amend the part of the property that was reserved for a public purpose;
(b) the claimants could expedite the amendment and thereby the acquisition of part of the property by consenting to it and hence, the payment of compensation under the LAC Act_._
177 They allege that, relying upon the representations, they consented to the proposed amendment to the planning scheme and planned to sell the property or make a claim for compensation under Part 5 of the PE Act. The Greater Dandenong Planning Scheme was amended in February and April 2013 and modified the area of the property which was reserved for a public purpose. They allege that after publication of approval of the two amendments, the Authority departed from the representations and failed to serve a notice of intention to acquire the land until 9 May 2014.
178 In response, Melbourne Water submitted that from 26 March 2009, when part of the property was reserved for the public purpose of constructing a water retention facility, the claimants had the right to seek compensation under Part 5 of the PE Act. But, it was for them to sell the property and make such a claim and they did not do so.
179 On that basis, Melbourne Water submitted that it had no obligation to pay the claimants compensation until part of their land was acquired in 2014. The PE Act imposed no requirement that the land be acquired at a particular date. Furthermore, it denies that it made the representations alleged by the claimants or that the claimants have proved loss flowing from Melbourne Water's acquisition of the property. In fact their property may have increased in value during the period covered by their claim.
180 As Melbourne Water submitted, this part of the disturbance claim was based on a hypothesis that it had acquired, or had been obliged to acquire, the subject land in about August 2013. But that had not occurred and the claimants therefore suffered no loss as a result of not being paid compensation at about that time. Until their land was acquired, Melbourne Water was under no obligation to pay them compensation and was not liable for any loss of opportunity to earn interest on compensation that it was not obliged to pay.
181 The claimants could have made a claim under Part 5 of the PE Act, which by s 98 permits the owner of any land to claim compensation from the planning authority for financial loss suffered as the natural, direct and reasonable consequence of the land being reserved for a public purpose under a planning scheme. The right to claim compensation in respect of such a reservation occurs on the sale of the land under s 106 (see s 99(b)). Compensation can also be claimed where the responsible authority has refused to grant a permit for the use of the development of the land on the ground that it is or may be required for a public purpose. However, the claimants did not make any such claim.
182 I add that I do not accept Melbourne Water's alternative argument that the claim for loss of opportunity damages cannot succeed because the property may have increased in value in the period in which the claimants claim a loss. That argument was not developed and no evidence presented specifically to substantiate that argument.
183 The next part of the claimants' disturbance claims was for loss of profits from their farming business in the sum of $38,553.
184 As mentioned, the claimants are partners in the partnership of AH Wilson & JG Thomas and at the date of the acquisition used the property for the business of grazing cattle. Their case was that, but for the acquisition, they had the potential to continue the business for another ten years. Had they sold any part of the land or business during that period they could have received a capital sum for it. They further argued that the carrying capacity of the property has been significantly reduced as the natural, direct and reasonable consequence of the acquisition of part of their land. The consequential loss to the partnership was of $12,670 in profit per year. The net present value of this annual loss of profits for ten years was $108,078. The claimants initially claimed that amount, but as explained below, was later reduced to $38,553.
185 Both parties tendered reports from agricultural experts about the loss of profits claim, the claimants from Mr Robert Stewart and Melbourne Water from Mr John Mulvany. Their written advice and written evidence concerned, amongst other things, the impacts and losses, if any, Melbourne Water's acquisition caused on the operation of the claimants' business.
186 They prepared a joint witness statement on agricultural loss. Their methodology was to calculate the difference between 'fixed' costs spread across livestock carried 'in the before' and 'fixed' costs spread across livestock carried 'in the after'. The 'difference' represented the additional unit cost for the farm business for every unit of livestock 'in the after'. They prepared tables showing the calculation of disturbance loss and its present value. From those tables they agreed that the annual cost of disturbance for financial year 2017 was $11,173, that the cost of disturbance for financial year 2015 was $2,961 and that the cost for financial year 2016 was $4,387. They agreed on a real discount rate equivalent to the Australian Bond Rate, currently 2.31 per cent for five years and 2.79 per cent for ten years.
187 They disagreed as to the period that the business would remain in a steady state, with Mr Mulvany believing that a five year period was appropriate and thus the net present value was $38,553 and Mr Stewart believing that a ten year period was appropriate with a net present value of $84,209. However, at an early stage in the hearing the claimants accepted that the appropriate basis of their claim was the five year period of $38,553 being the additional unit cost to the farming business for every unit of livestock 'in the after'.
188 But, the question remained whether the loss claimed of $38,553 was the natural, direct and reasonable consequence of the acquisition.
189 The claimants' argued that the acquisition had disrupted their business by removing a large part of their land. Following the acquisition, they were unsure what stock they could retain. The acquisition had all but destroyed the viability of the remaining land for farming purposes and that she and her sister had to purchase other properties for this purpose.
190 Mrs Thomas stated that the land was divided into three paddocks and the acquisition interfered with two of them.[136] After the acquisition, they ran 98 cows or calves on the land rather than the previous number of 120. Their stock numbers are still less than they would have been if no land acquisition had occurred.
191 Melbourne Water denied that the carrying capacity of the property had been significantly reduced as the natural, direct and reasonable consequence of the acquisition or that the claimants had suffered the consequential loss alleged. It argued that, while the partial acquisition of the property had resulted in a reduction of land available for farming, that reduction was reflected in the loss of the land's market value for which compensation was payable in accordance with s 41(3) of the Act. It contended that 'disturbance loss' is only recoverable when the pecuniary loss suffered is not otherwise recoverable, for instance as compensation under s 41(3).
192 Melbourne Water also relied on its continuing allowance of the claimants' use of the acquired land to graze their cattle. Mrs Thomas gave evidence that the claimants had farmed the land up until the hearing date, that stock numbers were 'pretty much the same because [they were] farming exactly the same land' after the acquisition[137], and that Melbourne Water had not erected fences to prevent their access the land. Because the claimants were continuing to farm the land, there was no evidence that the acquisition had caused them any loss.
193 Melbourne Water also argued as the claimants had been paid compensation for the acquisition, they had been able to use that money to purchase replacement land. Both claimants had used part of the compensation paid to them in that manner. If they received their loss of profits claim, they could not receive the costs associated with acquiring replacement properties.
194 The claimants' claim is based on their loss of profits caused by reduced herd numbers, which they contend was caused by Melbourne Water's acquisition of part of the land.
195 The claimants had run the two properties at Lyndhurst and Yannathan as one enterprise. Since the acquisition process commenced in 2006, they have continued to farm most of the same land, although a small part of the Lyndhurst land has been lost to VicRoads.
196 The fact that the claimants' income from their grazing and farming partnership has decreased provides some support for this loss of profits claim. However, in my opinion, the totality of the evidence does not support it.
197 The evidence to which I have referred does suggest that the claimants were able to decide the stock numbers that they would graze on the land as they were allowed to continue using it. Based on the evidence at the trial, I cannot not find that the claimants have proved that the loss of profits claimed was the natural, direct and reasonable consequence of the acquisition of the land.
199 The executive time claim related to pecuniary loss for time spent on matters said to have arisen as a natural, direct and reasonable consequence of the compulsory acquisition calculated on an hourly rate. The quantum of the claim was calculated on the base that the claimants worked on the property for a combined average of 35 hours per week for 52 weeks of the year work totalling 1,820 hours per year. Their executive time claim was for the period between 23 May 2006 and 22 April 2016 being the value of 930.55 hours of work connected with issues arising from the acquisition, which claim or loss was said to arise as a natural, direct and reasonable consequence of the planned acquisition of part of their land. Much of the evidence about the time that the claimants spent connected with the acquisition claim was based on a comprehensive and meticulous diary kept by Mr Brian Wilson, who is Mrs Wilson's husband. The composition of the 930 hours was listed in an annexure of 58 pages, the accuracy of which was not disputed. By way of example, the first few items listed in the annexure from the 2006 year record the perusal of emails to and from Melbourne Water and attending meetings with Melbourne Water's representatives both at its offices and at the subject property. The claimants' evidence was that, if the acquisition had not occurred, they would have spent those hours on their business or on other personal matters. They contended that the considerable time they spent responding to the acquisition claim had a pecuniary value to them capable of being measured by the effect on their farming business.
200 The claimants calculated an hourly rate to value this executive time by dividing their gross income by 1820 hours. That hourly rate varied between $23.21 and $76.80 depending on the year. They claimed $52,385.30 which was based on 930.55 hours at $56.30 an hour.
201 The amounts claimed for executive time were described as a loss attributable to disturbance or as part of a solatium claim which I consider below.
202 The claimants submitted that the authorities demonstrated that claims for executive time have succeeded when the expenditure of time was established as having a monetary impact on the claimants.[138]
203 Melbourne Water argued that the claimants had not presented evidence of any loss to them or reduction in their taxable income that was a natural, direct and reasonable consequence of the acquisition. It relied on the decision in Love v Roads Corporation, where a claim for executive time was rejected because the claimed executive time did not result in an actual loss of income to the claimants.[139] Melbourne Water also submitted that the relevant income figures were net and not gross figures as the claimants' had used as the basis of their claim.
204 It is clear that the compulsory acquisition of the claimants' land has consumed a substantial amount of their time and has caused them considerable distress and anxiety at a significant point in their lives. While I do not diminish the importance of these matters, an executive time claim is a financial claim that can succeed only if the Court is satisfied that the claimants, directly or through their partnership, have lost the amount claimed, or some other amount, as a natural, direct and reasonable consequence of the acquisition. While I see some force in the submission that the claimants' income might have been greater if they had not had to devote their time to considering and responding to the acquisition, I do not consider that the evidence presented establishes any loss of that nature. I do not consider that the amount claimed has been quantified or established in a way that enables me to accept it.
205 While it is true that in Secretary to the Department of Infrastructure v Williamstown Bay and River Cruises Pty Ltd [140], this Court upheld a loss of revenue claim, but in that case the claimant appears to have led evidence in the VCAT hearing that established that loss of revenue and limited attention appears to have been given to that part of the claim.[141] In contrast, this case is similar to Love v Roads Corporation[142], where the plaintiff did not establish that his income from his enterprise carried out on his property was reduced as a result of his expenditure of time associated with the acquisition.[143]
206 In my opinion, the claimants have not established that their taxable incomes or their partnership's income was reduced by reason of the time that they spent in connection with the acquisition.[144]
207 There is no evidence that the amount claimed for executive time was an actual pecuniary loss suffered as a natural, direct and reasonable consequence of the acquisition, being a pecuniary loss for which provision was not otherwise made in Part 4 of the LAC Act.
208 The claimants also sought an amount for solatium. The purpose of an award of solatium is to compensate claimants for intangible and non-pecuniary disadvantage resulting from the acquisition. When it is payable, it is to be calculated under s 44 of the LAC Act.
44 Solatium
(1) The amount of compensation may be increased by such amount, not exceeding 10 per cent of the market value of the land, by way of solatium as is reasonable to compensate the claimant for intangible and non-pecuniary disadvantages resulting from the acquisition.
(2) In assessing the amount payable under subsection (1), there must be taken into account all relevant circumstances applicable to the claimant including, without limiting the generality of the foregoing -
(a) the interest of the claimant in the acquired land; and
(b) the length of time during which the claimant had occupied the land; and
(c) the inconvenience likely to be suffered by the claimant by reason of removal from the land; and
(d) the period of time after the acquisition of the land during which the claimant has been, or will be, allowed to remain in possession of the land; and
(e) the period of time during which, but for the acquisition of the land, the claimant would have been likely to continue to occupy the land; and
(f) the age of the claimant; and
(g) where the claimant at the date of acquisition is occupying the land as the claimant's principal place of residence, the number, age and circumstances of other people (if any) living with the claimant.
(3) If no solatium is paid to a claimant, a person other than a claimant who, at the date of acquisition, had occupied the acquired land for a continuous period of not less than 12 months before that date as the person's principal place of residence may claim from the Authority such amount, not exceeding 10 per cent of the market value of the land, by way of solatium as is reasonable to compensate the person for intangible and non-pecuniary disadvantages resulting from the acquisition.
(4) In determining the amount payable under subsection (3), there must be taken into account all relevant circumstances applicable to the person, including the matters referred to in subsection (2)(b), (c), (d), (e), (f) and (g).
(5) If the Authority rejects a claim for solatium made by a person under subsection (3), that person is to be taken to be a claimant and the claim to be a disputed claim for the purposes of this Act.
210 Melbourne Water offered the claimants compensation of solatium in the sum of $150,000. The claimants claim solatium in the sum of $948,000, being 10 per cent of the market value of the acquired land.
211 The claimants claim for solatium is based on the following facts and circumstances. They have a lifelong connection with the land acquired. In 1941, the year of the first claimant's birth, their grandfather and father purchased the property and used it for sheep farming and cattle grazing. While they were growing up, they spent most weekends at the property. In those days, Dandenong was a country town and the claimants regularly travelled the area. In 1969, they purchased the property from their father and ran it together. A major part of their lives has been spent performing farming tasks and looking after the property. The claimants' children enjoy farm life and a number of them operate farms or work in agricultural pursuits.
212 By 2006, the claimants wished to use the value of the subject land to establish their children in life and for their own financial security. The proposal to acquire part of their land denied them that opportunity. Thereafter, their best hope of realising the full value of the land without uncertainty was to await the payment of compensation by Melbourne Water. They consider that they lost the opportunity to control the timing and the terms of a sale of their property or part of it.
213 The long acquisition process caused them considerable stress and worry and disturbed their plans to farm the property. As previously mentioned, the claimants have spent many hours finding lawyers and expert advisors, and providing instructions to and receiving advice from them.
214 In opposition to the claimants' claim for solatium, Melbourne Water submitted that its offer of $150,000 was more than sufficient to compensate them for the loss of the farming land, bearing in mind that neither of them resided on it. It had allowed them to continue to use the acquired property rent free since the acquisition. In addition, the claimants were intending to sell the property in any event. Melbourne Water emphasised that the Court must first determine whether the circumstances justify an order for solatium taking into account the considerations set out in s 44(2).
215 Section 44(1) of the LAC Act makes clear that the purpose of solatium is to compensate the claimant for intangible and non-pecuniary disadvantages resulting from the acquisition.
216 In Roads Corporation v Love, Osborn J said of a claim for solatium:
What is contemplated is the discretionary award of a lump sum in circumstances justifying such award. This reflects the approach taken by Barber J in respect of earlier legislation. In Mayberry v Melbourne and Metropolitan Board of Works, Barber J stated of the then s 26(c) of the VL Act:
[T]he proper approach is not to deal in percentages but to decide what amount of money will compensate for the compulsory nature of the acquisition. What has the claimant lost as a matter of intangible - worry, trouble and nuisance which is not compensated for by any element in the amount awarded in respect of substantial legally provable claims. Such sum should be awarded, whatever percentage of the value of land it represents, so long as it is within the limit imposed by the 10 per cent.
Nevertheless, some proportionality to the pecuniary loss compulsorily inflicted upon the claimant might be thought to be relevant to the award in a particular case. Accordingly, whilst I accept that the statute does not require an award of a percentage of market value, I do not accept that questions of proportionality to market value are necessarily irrelevant to the disposition of the issue. Particularly in cases of land used for commercial purposes, the market value of the land acquired in itself and the facts relating to 'before' and 'after' values seem to me to be circumstances which might be relevant to the overall assessment of solatium. This is not of course to suggest that there should be any necessary relationship between market value and solatium.[145]
217 I next consider the facts that are relevant to the considerations detailed in s 44(2).
218 Prior to the acquisition, the claimants had been the registered proprietors of the land for many years.[146] Before then, they had spent much time on the land when their father owned it.[147] The claimants are 77 and 73 years old.[148] They continue to use the acquired land and have purchased replacement properties and have, to some extent, relocated part of their farming activities to other properties.[149] They probably would have sold at least part of the land in any event.[150] They do not reside at the land as their principal place of residence.[151]
219 I accept that the claimants have suffered much stress and anxiety because of the long time that the acquisition has taken. The diary kept by Mr Brian Wilson records the amount of work that the acquisition caused them. Through no fault of their own, the acquisition did not occur until 2014, although on a number of occasions along the way they were given different indications as to when it would. A decade of their lives has been significantly affected by the acquisition. That is a very important consideration when the property has been so central to their lives.
220 On the other hand, I also consider it relevant that the claimants have been allowed to occupy the land on a rent free basis since the acquisition.
222 In my opinion, an award of solatium is appropriate and the appropriate amount is $180,000. Important matters justifying this award are the time that the acquisition has taken, the claimants' long association with the land, the inconvenience they have suffered and their age. Other significant matters are the stress and anxiety suffered by the claimants because of the length and uncertainties of the acquisition process. I have also taken into account that Melbourne Water allowed them to continue to use the land.
223 The remaining issue concerns the replacement costs of $254,363.79 incurred by Mrs Wilson in purchasing the replacement property at Labertouche. This claim principally concerned stamp duty together with some legal costs. That purchase is not to be settled until 2026. While Mrs Wilson purchased the property for her son, she was the purchaser. Melbourne Water argued that the replacement property was acquired for the son, but she was the purchaser under the contract.
224 In my opinion Mrs Wilson has suffered a loss that is connected with the acquisition. I accept that the replacement property costs do not have to be incurred or paid at the date of the hearing.[154] Mrs Wilson is entitled to the amount she claims. In Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd, Emerton J allowed replacement property costs because:
There is, in my view, the necessary substratum of fact to support a finding that the expenses are in the process of being incurred, in the sense that the search for a replacement property has been and is being undertaken.[155]
225 The Court of Appeal dismissed an appeal and stated:
In our view, stamp duty paid with respect to replacement land may constitute a loss attributable to disturbance. Whether it does so will always be a question of fact.[156]
226 I consider that these replacement costs should be awarded to Mrs Wilson subject to appropriate discount for receiving the amount now, but not being liable to pay it until 2026. I will hear the parties as to the calculation of the appropriate amount.
227 I refer to my conclusions about the 'before' and 'after' value of the claimants' land.
228 The compensation to which the claimants are entitled is $7,494,668 calculated as follows:
229 I find that the claimants' disturbance losses have not been established, save for the replacement property costs I mention.
230 I award the claimants solatium in the sum of $180,000.
231 Melbourne Water must pay Mrs Wilson replacement property costs for the Labertouche property in a sum which represents the present value of $254,363.79.
232 I will hear the parties as to any further orders which may be required.
[1] Court Book, Wilson v Melbourne Water Corporation (Supreme Court of Victoria, S CI 2016 01575, 20-22, 28-30 November, 13 December 2017), 224, 233, 259 ('CB').
[3] Marshall v Director-General, Department of Transport [2001] HCA 37; (2001) 205 CLR 603 at 623 (Gaudron J).
[4] McCann v Roads Corporation [2011] VSC 96 [18] (Osborn J).
[6] T 7, 14; Defendant's submissions [4]; s 41(1)(f) LAC Act.
[11] CB 197; Transcript of Proceedings, Wilson v Melbourne Water Corporation (Supreme Court of Victoria, S CI 2016 01575, 20-22, 28-30 November, 13 December 2017), 337 ('T').
[19] [2008] VSCA 180; (2008) 20 VR 447 (Warren CJ, Kellam JA and Osborn AJA).
[25] Woollams v The Minister (1957) 2 LGRA 338 at 347 (Hardie J).
[26] Rocco Fraietta v Roads and Maritime Services (NSW) [2017] NSWLEC 11 at [98]- [100] (Robson J).
[27] Chircop v Transport for New South Wales [2014] NSWLEC 63 at [44]- [45] (Biscoe J).
[31] T 298, 361; CB 225,286-7.
[54] Mr Stephen's rate per hectare was based on 18.41 hectares at $153,449 per hectare.
[69] T 533; They excluded four sales that had been subsequently rezoned to residential T 657.
[71] Crompton v Commissioner of Highways (1973) 5 SASR 301; Holcim (Aust) Pty. Ltd. v Valuer-General [2009] NSWLEC 225.
[72] Roads Corporation v Love (2010) 31 VR 451 [122] (Osborn J).
[73] [1949] HCA 22; (1949) 78 CLR 410 at 423.
[74] Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336, 381.
[75] Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184; (2011) 34 VR 445 [17]-[18] (Croft J).
[118] [2012] VSC 427; T 401.
[121] Streetworks Pty Ltd v Linking Melbourne Authority [2011] VSC 264 [10]-[14].
[130] Love v Roads Corporation [2011] VSCA 434 at [96] (Warren CJ, Tate JA, Emerton AJA).
[131] [2009] VSC 369 [25].
[138] Melbourne City Link Authority v Telford Pty Ltd [1999] VSC 106; Secretary to the Department of Infrastructure v Williamstown Bay and River Cruises Pty Ltd [2011] VSC 191 and Mario Piraino Pty Ltd v Roads Corporation [No 2] [1993] VicRp 9; [1993] 1 VR 130.
[139] (2010) 31 VR 451 at [753], [756] (Osborn J).
[142] (2010) 31 VR 451, 540-1 [746]-[754].
[145] (2010) 31 VR 451 at [776] to [779] (citations omitted).
[152] See Secretary to the Department of Economic Development, Jobs, Transport and Resources v Avid Property Group Nominees Pty Ltd [2017] VSCA 136.
[153] Roads Corporation v Love [2010] VSC 537 and Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd [2012] VSC 319 [416]-[417].
[154] Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd [2016] VSC 358 [122] (Emerton J) and on appeal [2017] VSCA 114 [86]-[89] (Warren CJ, Osborn and Ferguson JJA).
[155] [2016] VSC 358 [122]
[156] Secretary to the Department of Economic Development, Jobs, Transport & Resources v Manor Lakes (Werribee) Pty Ltd [2017] VSCA 114 [86] (Warren CJ, Osborn and Ferguson JJA).
Wilson
Melbourne Water [2018] VSC 555
(2001) 205 CLR 603
(2010) 31 VR 451
(2008) 20 VR 447
(1973) 5 SASR 301
(1949) 78 CLR 410
(1981) 146 CLR 336
(2011) 34 VR 445