Arinson Pty Limited v City of Canada Bay Council

[6]

Dealings with the Relevant Land

The appellants are Arinson Pty Limited ("Arinson"), Omaya Investments Pty Ltd ("Omaya Investments") and Omaya Holding Pty Limited ("Omaya Holding"). Those companies are closely related. Each of them has the same sole director and guiding mind, Mr Antoine Bechara. He is an experienced property developer in the Strathfield area, and a builder. The sole shareholder of Omaya Investments and Omaya Holding is Mr Bechara's wife. The sole shareholder of Arinson is Omaya Holding.
Between them, the appellants now own all the properties at 2-12 Chapman Street, and 11-21 Chapman Street.
The properties in question lie within an area of 5.5 hectares known as the "Strathfield Triangle" which lies between Strathfield Railway Station, Parramatta Road and the main northern railway line. More precisely, that triangle is bounded by Leicester Avenue, Parramatta Road and the Great Northern Railway Line.
On 31 October 2003 the relevant Minister effected, by a notice under s 37 of the Roads Act 1993 (NSW) that was published in the Government Gazette, the closure of a large part of Chapman Street. The part that was closed is shown shaded in the diagram at [9]. It is known as 1A Chapman.
Though it was not a matter of contention, it is appropriate to state the effect of the closure of 1A Chapman. Before the closure of 1A Chapman, when the whole of Chapman Street was a public road, members of the public had a right, both at common law and arising under s 5 of the Roads Act 1993, to pass along it. More importantly for present purposes, each owner of land adjoining Chapman Street had the right conferred by s 6 of the Roads Act 1993: "6 Right of access to public road by owners of adjoining land (1) The owner of land adjoining a public road is entitled, as of right, to access (whether on foot, in a vehicle or otherwise) across the boundary between the land and the public road. (2) The right conferred by this section does not derogate from any right of access that is conferred by the common law, but those rights are subject to such restrictions as are imposed by or under this or any other Act or law."
In addition the owners of the adjoining land had the common law rights that Sholl J had recognised in Walsh v Ervin: [4] "The plaintiff as the owner of freehold land adjoining the road, which was and is a public highway, had and has a right (subject to any statutory interference therewith) to free and uninterrupted access to the highway from any point on his land contiguous with the highway, and from the highway to any point on his land contiguous therewith. This is a private right, which the plaintiff enjoys as an adjoining landowner ...It is not to be confused with, and is in fact quite distinct from, the public right which he or any other member of the public has to use the surface of the highway itself for the purpose of lawfully passing and repassing thereon ...".
Section 38 of the Roads Act 1993 provided, as at the date of the gazettal of the closure of 1A Chapman: "38 Effect of notice of closure (1) On publication of the notice closing the public road concerned: (a) the road ceases to be a public road, and (b) the rights of passage and access that previously existed in relation to the road are extinguished. (2) The land comprising a former road: (a) … (b) in the case of a public road that was previously vested in a council (other than a public road in respect of which no construction has ever taken place), remains vested in the council, and …"
Section 38(1)(b) abolishes the previously existing rights of passage and access in unqualified terms. It is effective to abolish the common law and statutory rights of passage of the members of the public, and both the statutory right of access under s 6 of the adjoining owners, and the common law right of access of the adjoining owners.
The effect of the closure was that the properties at 11-19 Chapman Street became landlocked, and 1A Chapman became operational land that the Council had power to dispose of. Money received by the Council from its sale could only be used to acquire land for public roads or for carrying out roadwork on public roads. [5]
Even though 1A Chapman was closed, as a matter of law, in 2003, as a matter of physical reality it remained open, and was used as a road until August 2011. In that month the Council effected a physical closure of 1A Chapman Street by fencing it.

[8]

Development Consents and Purchase Negotiations

In 2000 the Council granted to Arinson development consent for demolition of existing buildings, consolidation of properties and erection of 146 units within three residential flat buildings over two basement levels of car parking for 163 vehicles on an amalgamated site comprising 1A Chapman and the adjoining properties on its eastern and western sides. The 2000 consent had a deferred commencement until 1A Chapman was closed and sold by the Council into a development site.
Between 2001 and 2004 various of the plaintiffs purchased the properties which they now own in Chapman Street. Arinson purchased 13 and 21 Chapman Street in 2001, and 11 Chapman Street in 2003. Arinson had contracted to purchase 17 and 19 Chapman Street from the Council, but the Council terminated that contract in December 2003 when Arinson went into provisional liquidation and failed to comply with a notice to complete. Omaya Holding then completed the purchase of 17 and 19 Chapman Street. Omaya Investments purchased 15 Chapman Street in 2004.
Mr Bechara assisted the Council to seek the closure of 1A Chapman by providing it, in April 2001, with written consent to the closure in relation to 2, 4, 8 and 13 Chapman Street, and in arranging for a real estate agent to provide consents from the owners of 6, 10, 15 and 21 Chapman Street. At that time the owners of 6, 10, 15 and 21 Chapman Street were people other than the appellants.
In 2002 a second development consent was granted to Arinson for the construction of 170 units on the amalgamated site. That consent was subject to the same deferred commencement condition, and required surrender of the 2000 consent.
In 2003 the Council granted a further development consent to Arinson, for the construction of 158 units on the amalgamated site. That consent also was subject to the deferred commencement, and required surrender of the earlier consents. One of the conditions of the 2003 consent was that Arinson pay the Council the fees incurred in closing Chapman Street, which it did.
In June 2000 the Council resolved to accept an offer of $1,200 per square metre that it had received for its properties in Chapman Street. There is no finding about who made that offer, and in any event it did not result in a contract for sale.
In November 2003 the Council offered to sell 1A Chapman to Arinson for $2,700,000. That price represented the rate of $1,612 per square metre. The offer was not accepted.
In March 2006 the question of the Council selling 1A Chapman to one of the appellants arose again, but no legally binding agreement was reached. By June 2006 there was agreement in principle between Mr Bechara and the Council that if they could not reach agreement on a selling price the price would be determined by an independent valuer. However that agreement in principle did not lead to a legally binding agreement.
In 2007 the Land and Environment Court declared that the 2003 development consent was invalid. [6]
In June 2009 the Council granted another development consent to Arinson, with a lapsing date of 2 June 2014, for a development consisting of 158 units, with car parking, on an amalgamated site comprising 1A Chapman and the adjoining properties of the appellants. One of the conditions of the consent required the vehicular access to be redesigned, but that redesign never occurred. That consent was about to expire when the Land and Environment Court made the orders appealed from. It is common ground that it has now expired.
The Council had received expressions of interest in purchasing 1A Chapman from two different owners of other properties in Chapman Street, in 2007 and 2011 respectively. In October 2010 the Council's solicitors notified the solicitors for the appellants that the Council would not consider selling 1A Chapman until a Strathfield Triangle Development Control Plan, which was then in draft form, was adopted, and that any decision to enter into direct negotiations would be made after considering specific probity advice.

[10]

Proceedings in the Court Below

The relief that had originally been sought in the proceedings appealed from included an order for the transfer of 1A Chapman for $1,200 per square metre, an easement "in equity" over 1A Chapman, and other equitable relief or damages. An order under s 88K of the Conveyancing Act 1919 was sought as an alternative. All the claims, except for the order under s 88K, were abandoned three days before the proceedings were due to be heard in the Supreme Court in February 2014. The abandonment of those claims was part of the reason why the proceedings were transferred to the Land and Environment Court.
The affidavit evidence of Mr Bechara had been that his intention was to develop his company's properties in accordance with the development consent. However, in cross-examination he gave evidence, which had not previously been foreshadowed, that he was no longer interested in purchasing 1A Chapman or in acting on the development consent, and that he had decided that Omaya Investments would sell 17 and 19 Chapman Street. The primary judge did not accept the evidence given in cross-examination, apart from a concession that Mr Bechara made that Omaya Investments was not in any financial difficulties. The judge held that he was not prepared to exclude the possibility that one of Mr Bechara's controlled entities might purchase 17 and 19 Chapman Street, if they were to be for sale, and 1A Chapman, and if the then current development consent lapsed he might seek to obtain a new consent to take advantage of the denser development that would then be possible.
The judge accepted evidence from planners that a right of way easement over 1A Chapman would be required in favour of 11-19 Chapman Street if they were to be developed as individual residential lots, but no such easement was needed in favour of 21 because it had direct access from Bakers Lane. He accepted that it was highly unlikely that the Council would approve a residential flat building on 11-21 Chapman Street with all access along Bakers Lane, since Bakers Lane was not wide enough to provide two-way vehicular and pedestrian traffic. He also accepted that it was improbable that development consent would be given for a substantial residential flat building on an amalgamated 11-19 Chapman Street if the sole access was through a small corner easement on the south-eastern corner of 1A Chapman.
Section 88K of the Conveyancing Act 1919 provides, so far as is relevant: "88K Power of Court to create easements (1) The Court may make an order imposing an easement over land if the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement. (2) Such an order may be made only if the Court is satisfied that: (a) use of the land having the benefit of the easement will not be inconsistent with the public interest, and (b) the owner of the land to be burdened by the easement and each other person having an estate or interest in that land that is evidenced by an instrument registered in the General Register of Deeds or the Register kept under the Real Property Act 1900 can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement, and (c) all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect but have been unsuccessful. (3) The Court is to specify in the order the nature and terms of the easement and such of the particulars referred to in section 88 (1) (a)-(d) as are appropriate and is to identify its site by reference to a plan that is, or is capable of being, registered or recorded under Division 3 of Part 23… (4) The Court is to provide in the order for payment by the applicant to specified persons of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case."
The primary judge's finding that compensation should be payable was contained in [73] of his judgment: "In my opinion, there are no special circumstances of the case sufficient to justify not awarding compensation. The plaintiffs relied on the road closure to obtain development consent for the amalgamated site, and knew they had to purchase 1A Chapman. Until recently, the plaintiffs' primary claim was for the transfer of 1A Chapman at a rate per square metre derived from a resolution of the Council in 2000. Abandonment of that case is not indicative of the absolute removal of a possibility of a plaintiff or a related company purchasing 1A Chapman for an amalgamated development. The Council is free to, and wishes to, sell 1A Chapman, consistently with the planning controls. The easements to be imposed would be a blight which would reduce the purchase price. A plaintiff or a related entity is a potential purchaser of 1A Chapman given that the plaintiffs own all the surrounding land. If the purchaser is one of the plaintiffs or a related entity and if the plaintiffs have been granted the easements without compensation, they will then be benefited to the extent of the blight because they have not had to pay the value of the easements. The plaintiffs would therefore receive a windfall gain. If the amalgamated development contemplated by the development consent does not eventuate, then the plaintiffs should reasonably have foreseen that their land would be developed as an alternative amalgamated development for which they would have to acquire easements such as those that have been granted and for which they would be required to pay compensation."

[11]

Failure to follow the required reasoning process?

Senior counsel for the appellant's, Mr Coles QC, submits, by reference to cases drawn from areas of discourse far removed from s 88K, [7] that "special circumstances" are ones that are out of the ordinary, or unusual. He submits that the primary judge failed to follow the reasoning process required by the statute namely first identifying whether there were special circumstances, and then, if there were, deciding whether those circumstances produced the consequence that compensation should not be ordered. Rather, Mr Coles submits, in the first sentence of [73] the judge bundled the two steps of the process together.
I do not accept the statute requires any such two-step process of reasoning. Circumstances can be "special", in the sense that they are factually out of the ordinary, but for the purpose of s 88K circumstances are only relevantly "special" if they arguably justify a conclusion that compensation is not payable. The statute does not require a judge to undertake the exercise of identifying respects in which the circumstances are out of the ordinary, if those circumstances have no fairly arguable bearing on whether compensation should be paid.
In any event, a decision under s 88K(4) of the Conveyancing Act 1919 that compensation is not payable is inevitably made in a forensic context in which it is the party that contends that no compensation is payable who has the onus of identifying the special circumstances by reason of which it contends that no compensation is payable. In the present case the judge was dealing with a particular submission that the appellants had made, that particular circumstances surrounding the closure of 1A Chapman were relevantly "special". In [9] of his judgment the judge said: "At the heart of the case are the following circumstances in which the plaintiffs' properties became landlocked, on which the plaintiffs rely to argue that they should have the easements without compensation."
The judgment then went on to list those circumstances. The opening sentence of [73] of the judgment expresses the primary judge's conclusion that the circumstances that he had already listed at [9] did not justify not awarding compensation. In my view this method of reasoning is in accord with the statute.
The appellants' written submissions contended that the first sentence of [73] misstated the statutory test because there is no anterior presumption that compensation must be awarded unless not doing so can be "justified". However in oral argument Mr Coles accepted that, once the court had decided, pursuant to s 88K(2)(b) that the owner could be adequately compensated, the effect of s 88(4) was that the default position was that compensation is payable, but there was a persuasive burden on someone who sought to assert that compensation should not be paid. [8] I cannot see any difference of substance between the proposition that Mr Coles accepted, and what the primary judge said in the first sentence of [73].

[12]

Restoration of status quo requires no payment of compensation?

Mr Coles accepts that, if one ignored the circumstances in which the road came to be closed, the owner of landlocked land has the option either of purchasing a sliver of land which allows access to a public road, or obtaining an easement over a sliver of land which allows it access to a public road. He accepts that, if the owner acquired an easement, there would ordinarily be no argument that it should not pay for the easement. [9] However, he submits that the circumstances in which 1A Chapman came to be closed, and what has happened since its closure, make a critical difference to whether compensation should not be payable.
The appellants submit that the basis upon which the closure of 1A Chapman occurred has failed, because the development for the purposes of which the frontagers surrendered their right of access to Chapman Street has not gone ahead. They submit that it would be appropriate for the frontagers to be put back into the situation approximating the one they were in before the closure, by granting them an easement that will provide access to a public street. They submit that, when the Council has obtained a valuable asset as a result of the closure, it is only fair that it did not receive a second windfall, in the form of a price for the granting of the easement, which restores to the frontagers a less extensive right of access than they had formerly enjoyed when Chapman Street was a public road.
An oddity in that submission is that the court below has granted the appellants easements that benefit all their lots on the eastern side of 1A Chapman, but at the time the closure of 1A Chapman was gazetted in October 2003 the appellants did not own No 15, 17 and 19. [10] However I will proceed by assuming, without deciding, that it does not matter that at the time of the gazettal of the closure the appellants did not own all of the lots that they now own.
Even on the basis of that assumption, I do not accept the submission. First, the consents that the frontagers gave to the closing of 1A Chapman were not conditional on having access to a public road restored if the then current development consent (or any other development consent) was not acted upon. The granting of the development consents, from 2000 onwards, would have conferred value on the land of the frontagers, and surrendering access to 1A Chapman would have assisted in realising that value. Granting consent to the closure was an economically rational thing for the frontagers to do at the time. There is no suggestion that the appellants, or any of the other frontagers at the time the consents were granted, consented to the closure of 1A Chapman by reason of any misrepresentation or inducement that the Council made to them. In these circumstances there is no reason why the court should approach the question of whether it should order that the easements be granted without compensation on the basis that a restoration of the status quo is called for, either in whole or in part.
Second, it is not as though it is now possible for the frontagers and the Council to be put back into the situation that they were in before the consent was granted. The changes in the planning controls that govern the Strathfield Triangle have made possible a more intense form of development on the subject land.
As well, under the 2013 Strathfield Triangle DCP the judge found that there would be: "a new lane 7 metres wide running down the eastern side of the plaintiffs' properties located to the east of 1A Chapman and connecting with Leicester Avenue to the east; and access points to the amalgamated development site from its south west in Cooper Street and from the new lane to its east. Under these plans, if implemented, the plaintiffs' properties at 11-19 Chapman Street would cease to be landlocked." [11]
If that plan went ahead that would provide an additional reason why there would be a situation different to the one that existed before the closure of 1A Chapman.
Third, the submission fails to recognise that the appellants have been granted easements additional to ones that give them access to a public road, namely the easements for services and drainage. Before the closure of 1A Chapman the appellants had no right analogous to the easements for services and drainage. In that respect granting the easements without compensation would not effect a restoration of the status quo.
Fourth, even though the earlier development consents have now expired, the judge found that there was still a possibility that the appellants, or a company related to them, might purchase 1A Chapman. Even though the particular development consents that were in place at the time the consents to the closing of 1A Chapman were granted have now expired, it is a realistic possibility that there will be other development consents enabling more intense development of a parcel of land that includes the land of the appellants and 1A Chapman. Thus, it cannot be said that the basis upon which the frontagers consented to the closure of 1A Chapman has irretrievably failed. However, if the easements were to be granted to the appellants without compensation, that would be a final and irreversible decision.
A final difficulty with the submission is that Mr Coles accepts that the "council obviously has a duty, when realising a public asset to get the best price it can for it." [12] Once the Council had acquired 1A Chapman, it would not be performing its public duty if it were to voluntarily give up part of the property rights attaching to 1A Chapman without payment. The Court should be slow to require the Council to enter a transaction, like the grant of the easements, on terms that would be a breach of its public duty if the Council had entered that transaction voluntarily.

[13]

The "blight" argument - in substance

Mr Coles submits that the judge was in error in taking the view that if the appellants, or some related entity, purchased 1A Chapman then the easement would be a blight which would reduce the purchase price. Mr Coles submits that, if the appellants (or a related entity) purchased 1A Chapman, the easement would be a matter of complete irrelevance to them, because they would not need the easement once they owned the fee simple, as their ownership of the fee simple would enable them to do the things concerning the land that the easement entitles them to do.
That submission does not take account of the fact that the appellants are not the only possible purchasers of 1A Chapman. For any purchaser other than the appellants the easement would be a blight which would reduce the purchase price. If the appellants wanted to purchase 1A Chapman the price that they would have to pay would depend upon the price that other potential purchasers were willing to pay. If the other potential purchasers regarded the easement as a blight that reduced the purchase price, the price that the appellants would have to pay to purchase 1A would be correspondingly reduced, notwithstanding that the easements would be of no use to them once they had acquired 1A Chapman.
The submission also fails to take account of the fact that even if the Council sold 1A Chapman to an adjoining owner it would have a responsibility to seek to obtain the market price of the land. The evidence demonstrates that the market value of the land without the easement is greater than the market value of the land when subject to the easements.
The appellants and the Council each called evidence from a valuer. Both valuers agreed that the easements had a monetary value, though they differed about the quantum of their value. Both valuers adopted a methodology of calculating the area of the land that was affected by the easements, ascertaining the value of that land per square metre if it were not affected by the easements, and expressing an opinion about the percentage by which that value would be reduced by reason of the easements. The valuers had a difference of opinion about the value of the land if not affected by the easements, and also about the appropriate percentage discount to apply to that value. While the primary judge preferred the evidence of the Council's valuer on both those topics, the essential thing for present purposes is that all the evidence in the case was that the value of the land when subjected to the easement was less than the value of the land without the easement. In those circumstances the judge was well justified in expressing the view that the "easements to be imposed would be a blight which would reduce the purchase price."

[15]

Expectation to purchase

Another submission relates to the final sentence of [73] of the primary judge's judgment. Mr Coles accepts that, if the amalgamated development contemplated by the development consent (i.e., one which involved the totality of 1A Chapman and the lots on either side of the part of Chapman Street that abutted 1A Chapman) did not proceed, the appellants should reasonably have foreseen that the land would be developed as an alternative amalgamated development (i.e. a development in which the lots abutting the eastern side of 1A Chapman were amalgamated). He also accepts that, in the latter situation, the appellants should reasonably have foreseen that the alternative amalgamated development would be one for which they would have to acquire easements such as those that have been granted. [14] However he disputes that the appellants should reasonably have foreseen that they would be required to pay compensation for those easements.
The written submissions, not elaborated on this point in oral argument, contended that the parties were not heard on whether the appellants ought reasonably to have foreseen that they would be required to pay compensation for the easements, and that it was not pleaded nor the subject of evidence.
I do not accept that submission. As to whether the appellants were not heard on the point, they were given the opportunity to make submissions concerning it. The judge raised squarely with Mr Coles the topic of the contemplation of the appellants. In the course of addresses his Honour said: "Well, it might be said that it was always contemplated that you should be paying for number 1A. The original contemplation has fallen through, that is, purchased the land for which you would pay, but if you're getting some other benefit from 1A and using it in some other way under an easement, you should pay for it." [15]
As to whether it was the subject of pleading, there was no occasion for a contention about what was reasonably contemplated by the appellants to be pleaded. Under Uniform Civil Procedure Rules, r 14.7, subject to some presently immaterial exceptions, "a party's pleading must contain only a summary of the material facts on which the party relies, and not the evidence by which those facts are to be proved".
As to whether it should have been the subject of evidence, evidence that went in express terms to the question of what the appellants ought reasonably to have forseen would have been inadmissible. Evidence was given about the circumstances in which 1A Chapman came to be closed, and it is on the basis of that evidence that the judge drew conclusions about what the appellants ought reasonably to have foreseen. That way of proceeding is unexceptional.

[16]

Judge's Decision Contrary to a Legal Policy?

Mr Coles also submits that there is a matter of legal policy which is contrary to the approach that his Honour took. The policy to which he refers arises from the decision in Muschinski v Dodds, [16] in particular from the passage in the judgment of Deane J, where his Honour said: [17] "… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do."
I do not accept that the principle identified by Deane J has any work to do in the present circumstances. It related to the circumstances in which property acquired for the purposes of a de facto relationship between natural persons could sometimes become the subject of a constructive trust. It extended to de facto relationships some equitable principles that had been developed in the law of partnership. Like all judicial statements of principle, Deane J's words must be read bearing in mind the context in which they were uttered. As Earl of Halsbury LC said in Quinn v Leathem: [18] "… every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found."
For the purposes of the argument I will make the doubtful assumption that granting consent to the road closure, with the consequence that the right of access was lost counts as a contribution of property. However there was a joint endeavour between the appellants and the Council only in the loosest sense, that each hoped for a benefit to accrue to it from a development of the land in question. That joint relationship or endeavour was of a business kind, not the type of relationship of mutual trust and confidence that exists in a partnership, and in a de facto relationship. The benefits that the appellants and Council might have gained from it were of different types - the appellants stood to make a profit in the course of a business, while the Council stood to be assisted in carrying out its public functions. There is no occasion to apply the doctrine explained in Muschinski v Dodds, even by analogy. As Deane J said in Chan v Zacharia: [19] "There is 'no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them' (per Lord Selborne LC, Barnes v Addy (1874) LR 9 Ch App 244, at p 251)."

Arinson Pty Limited v City of Canada Bay Council - [2015] NSWCA 199 - NSWCA 2015 case summary — Zoe

At a glance

Court

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Judgment (18 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (11)

Cited By (5)