Chaudry v Liverpool City Council

E M Power v Department of Education (unreported, NSWLEC, Hemmings J, 29 August 1989) Fitzpatrick Investments Pty Ltd v Blacktown City Council (No 2) (2000) 108 LGERA 417 Jovist Pty Limited v Campbelltown City Council (1970) 19 LGRA 134 Koutsouras v State Rail Authority of New South Wales (unreported, NSW Court of Appeal, Meagher JA, 29 November 1991) Leichhardt Council v Roads and Traffic Authority (NSW) (2006) 149 LGERA 439 CASES CITED: Minister of Environment v Petroccia (1982) 30 SASR 333; 55 LGRA 244 Redeam Pty Ltd v South Australian Land Commission (1977) 17 SASR 508; 40 LGRA 151 Roulston v Roads and Traffic Authority (unreported, NSWLEC, Sheahan J, 23 June 1997) Spencer v Commonwealth (1907) 5 CLR 418 Turner v Minister of Public Instruction (1956) 95 CLR 245 Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority (2008) 82 ALJR 489 Woollams v The Minister (1957) 2 LGRA 338

DATES OF HEARING: 20 August 2008 (on site view) 21 - 22 August 2008

APPLICANT Ms A Pearman SOLICITOR LEGAL REPRESENTATIVES: Williams Boxsell Georgas RESPONDENT Mr J Maston SOLICITOR Marsdens Law Group

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

JUDGMENT 1 Her Honour: The Applicant Mr Chaudry had his land at 135 McIver Avenue, Middleton Grange, compulsorily acquired on 14 February 2007 by Liverpool City Council (the Council) under the Local Government Act 1993 (the LG Act) for the purposes of an environmental corridor, construction and maintenance of a water management facility and bridge. He has appealed to this Court pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (the JT Act). The Court must determine the amount of compensation payable under s 66(2).

2 Relevant factors in determining compensation payable for land compulsorily acquired are set out in s 55 of the JT Act and include market value and disturbance. Disturbance under s 55(d) has been agreed in relation to legal costs and valuation costs at $9,900. Market value is defined in s 56(1) as: (1) In this Act: market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid): (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and … 3 The amount of market value sought by the Applicant is $2,210,760 and is disputed.

4 The land area acquired is 12,282m2. The land is affected in part by 1:100 year flood predictions according to the Liverpool City Council Flood Map available at the date of acquisition. Planning considerations 5 At the date of acquisition the land was zoned "environmental corridor" under the Liverpool Local Environmental Plan 1997 (Amendment No 71). The Council commissioned Mr McKenzie of McKenzie Land Planning Services Pty Limited to address the alternative zoning of the land and the hypothetical development potential of the site as at the date of acquisition on the basis that the actual zoning of the land as "environmental corridor" must be ignored pursuant to s 56(1) of the Act. 6 Mr McKenzie concluded that had the "environmental corridor" zone not applied to the Applicant's land, it is assumed that the principles of the Smart Growth Precinct Plan of Liverpool Council as they relate to drainage and residential development would have applied to the land. Mr McKenzie assumed that the drainage land requirements would be zoned "water management" and generally be subject to flooding. For residential development, he assumed that land adjacent to water management land would be zoned "small lot residential" and land not facing any "open space" or "water management" area would be zoned as "standard residential". 7 He would have advised the hypothetical purchaser, inter alia: (a) That the timing of development would be subject to availability of services to the site; (b) Council s 94 contributions would apply; (c) Some land filling would be required to provide flood free freeboard to dwellings along the drainage channel; (d) The release of some lots may be affected by development staging on adjoining land in order to satisfy bushfire hazard asset protection zone requirements; (e) The subdivision would be likely to involve the creation of irregular "residue" lots which would require negotiation with adjoining land owners in order to achieve final subdivision. 8 Mr McKenzie reviewed reports prepared for the Council as part of the water management scheme for which the land was acquired to determine that 11,405m2 was available for residential subdivision and 845m2 was not, due to flood impacts.

Valuation issues 9 Mr Large and Mr Sorenson, valuers, were called by the Applicant and the Council respectively. Both prepared individual reports as well as a joint report. They essentially adopted the McKenzie report, with some qualification in the case of Mr Sorenson in relation to the finding that 845m2 of the property would be unable to be used for residential development due to flooding as he did not consider that would be known to a hypothetical purchaser at the date of acquisition. They agreed the direct comparison method was the appropriate method to adopt. The valuers agreed the highest and best use of the land was as vacant englobo land purchased for higher density residential subdivision. They undertook the exercise of considering comparable sales to arrive at the appropriate land value. While in their respective reports they relied on numerous sales, when pressed they each nominated five sales they particularly relied on and these were seen by the Court on the view. Due to their different approaches there were no common sales in the five selected.

Mr Large 10 Mr Large selected those sales in the area closest in location and time to the date of acquisition of the Applicant's land. There were few sales available. Four of his sales (sales 1, 2, 3 and 5) were purchased by either the Department of Education or the Council. The following table shows the sale value of each of these sales (rate column) and the adjustments made for timing, location, size, topography and disturbance to derive a value for the Applicant's land ("adj value" column). Sales where disturbance is 10 per cent were sales to developers where Mr Large allowed an additional 5 per cent to take into account stamp duty payable under s 59(d). He made positive adjustments where time adjustment was necessary because he considered the market had risen in the relevant period.

PROPERTY RATE TIMING LOC SIZE TOPO DISTURB ADJ VALUE SITE VALUE 1 40 Seventeenth Ave, West Hoxton $207.21 5% 0% 0% 0% -5% $207.21 $2,538.322.50 2 54 Seventeenth Ave, West Hoxton $231.03 0% 0% -5% 0% -10% $196.38 $2,405,599.88 4 130 Tenth Ave, Austral $206.61 0% 0% 0% -8% 0% $190.08 $2,328,494.70 5 250 Jardine Dr, Edmondson Park $180.92 0% 16% 3% -10% $197.20 $2,415,734.30 3 5 Sixteenth Ave, West Hoxton $207.28 5% 0% 0% 0% -5% $207.28 $2,539,180.00

11 These sales show a face value of $231 to $180.92. Mr Large considered that based on these sales the appropriate rate for the Applicant's land was $180/m2 suggesting a market value of $2,210,760.

12 The choice of sales 1, 2, 3 and 5 was criticised by Mr Sorenson as he did not consider they were arm's length negotiations given that the purchaser was a public authority with compulsory acquisition powers. None were acquired on the open market but after the public authority stated that it wished to acquire the property. Such entities are anxious buyers and the transaction is not at arm's length. In particular, he considered sale 2, which he had advised on 12 months before the actual sale (which he did not advise on), was not comparable as it was valued on a before and after basis and the price was likely to include an unknown amount for injurious affection as only part of the land was acquired, and impact on the residue land was likely to have been taken into account in the sale price.

13 Sale 4, 130 Tenth Avenue Austral, was a sale of land to a private developer. It is zoned non-urban and was bought to amalgamate with an adjacent site to enable a Seniors Living development. Mr Large argued that despite the inferior non-urban zoning, compared to the assumed residential zoning of the acquired land the sale was nevertheless comparable because such a development was possible on the Applicant's land. This was despite agreeing in the joint report that the most likely use of the Applicant's land was for higher density residential subdivision. Mr Sorenson considered the site was not at all comparable given its zoning and development use. He did not consider it was as likely as did Mr Large that a Seniors Living development could be carried out on the Applicant's land. I agree with Mr Sorenson that this sale is not comparable given its different zoning and the valuers' agreed highest and best use of the Applicant's land, which is not as a Seniors Living development. Mr Sorenson 14 Mr Sorenson selected several sales outside West Hoxton for englobo land purchased for residential subdivision. The following table identifies the sales, the face value (rate) and adjustments to arrive at the adjusted value for the Applicant's land:

PROPERTY RATE TIMING LOC SIZE TOPO DISTURB ADJ VALUE SITE VALUE 1 Lot 2000 Anzac Rd, Moorebank $135.06 -2% -5% 0% 0% 0% $125.61 $1,538,671.05 4 150 Lodges Rd, Elderslie $125.00 -10% 0% 20% 0% 0% $137.50 $1,684,375.00 5 394Caddens Rd, Claremont M'ows $101.26 -5% 7.5% 20% 0% 0% $124.04 $1,519,532.88 3 98 Johnson Rd, Bass Hill $145.84 -1.5% -5% 0% 0% 0% $136.36 $1,670,414,90 2 Lot 101 Gemas & huon Cres, H'y $208.12 5% -5% 0% -30% 0% $145.68 $1,784,629.00

15 He considered these sales suggested a rate of $135/m2. He made a negative adjustment for time as he considered the market in south-western Sydney had fallen before and since the date of acquisition. 16 Mr Sorenson considered the Applicant's land was not immediately available for development (as did the McKenzie report) given that at the date of acquisition the land lacked services, such as drainage works, so that no purchaser could have expected to be able to lodge a development application immediately on purchase. Mr Large basically agreed with this view. Mr Sorenson did not take this into account in his analysis of comparable sales but this confirmed that his approach was conservative according to the Council's counsel.

17 In his original report Mr Sorenson also included 40 Seventeenth Ave West Hoxton (Mr Large sale 1) but he considered this report was unreliable because of the purchaser's identity (a public authority). It was not in the five sales he relied on at the view.

18 Mr Large criticised Mr Sorenson's choice of sales because they were all distant from the Applicant's land and required substantial adjustment to take into account location. He would adjust all the sales upward for location as follows: (i) sale 1, 12 per cent; (ii) sale 2, 12 per cent; (iii) sale 3, 16 per cent; (iv) sale 4, 28 per cent; (v) sale 5, 21 per cent. 19 Sales 4 and 5 were a long way from the Applicant's land, hence the very large adjustments considered necessary for location. Mr Large also considered the market was rising and made a positive adjustment for time to all the sales. When he adjusted Mr Sorenson's sales he considered the derived value of the Applicant's land was: (i) sale 1, $165/m2 (ii) sale 2, $210/m2 (iii) sale 3, $179/m2 (iv) sale 4, $189/m2 (v) sale 5, $157/m2

20 A number of issues arise about which valuer's approach to the selection of comparable sales and their adjustment when analysed in relation to the subject site is correct. (i) Purchase by public authority 21 Apart from his sale 4, Mr Large has selected sales closest to the Applicant's land. None of these sales were on the open market but were sales to the Council or the Department of Education following those authorities indicating their intention to acquire the properties. None of the sales were to developers seeking land for englobo medium density residential development, the highest and best use agreed by the valuers for the site. Mr Sorenson considered Mr Large's sales had utility as secondary evidence only because the purchasers were public authorities. 22 The Applicant submitted that while sales to public authorities should be treated with caution, such sales can nevertheless be relied on. Caution is necessary because public authorities have an unnatural advantage in the bargaining process so that they can obtain a discounted price due to the threat of acquisition, see Meagher JA in Koutsouras v State Rail Authority of New South Wales (unreported, NSW Court of Appeal, Meagher JA, 29 November 1991), Minister of Environment v Petroccia (1982) 30 SASR 333; 55 LGRA 244 referring to Woollams v The Minister (1957) 2 LGRA 338, Jovist Pty Limited v Campbelltown City Council (1970) 19 LGRA 134 and Redeam Pty Ltd v South Australian Land Commission (1977) 40 LGRA 151. In Roulston v Roads and Traffic Authority (unreported, NSWLEC, Sheahan J, 23 June 1997) Sheahan J considered that if there was evidence that the public authority agreed to consensual business the Court should not ignore such sales.

23 The Council agreed that sales to public authorities should be approached with caution. The sales relied on by Mr Large (sales 1, 2 and 3) may include amounts for injurious affection and solatium so that they do not disclose market value only. This certainly applies to sale 2 in particular which included amounts for injurious affection. That sale was based on a before and after method of valuation which includes other factors apart from market value of the acquired land. None of the sales were conducted on the open market.

24 My conclusion on this issue is as follows. The parties relied on similar authorities to suggest that sales to public authorities should be treated with caution but that such sales are admissible; see Koutsouras v State Rail Authority per Meagher JA in obiter. 25 This point was considered in Redeam v South Australian Land Commission per Jacobs J who, citing Woollams v The Minister, determined that "there is no principle of law which requires the Court to reject completely the evidence of sales to the acquiring authority" (at 158). In this case, the only comparable sales evidence available to the valuers were previous sales to the respondent acquiring authority, and so his Honour acknowledged that he had to take account of it "with all its difficulties". 26 In this case the public authority has not entered the open market to purchase land as referred to in E M Power v Department of Education (unreported, NSWLEC, Hemmings J, 29 August 1989). 27 In other cases in this Court such as E M Powers v Department of Education and Roulston v Roads and Traffic Authority such sales have been taken into account noting the need for caution in their application. As sales 1, 2, 3 and 5 relied on by Mr Large are close to very close to the Applicant's land, generally similar in topography albeit less flood affected than the Applicant's land and the purchase date was close to the date of acquisition, these sales should be considered. 28 Sales to public authorities can have both a depressive and an enhancing effect on a sale price; see Petroccia at 339; 250. In this case Mr Large's approach of deriving $180/m2 for the Applicant's land from sales ranging from $180/m2 to $207/m2 and $231/m2 suggests that he considered the public authority as purchaser had enhanced the sale price. I will take into account the sales relied on by Mr Large but the analysis of those sales must be further adjusted to take into account that enhancing effect. (ii) Should highest and best use be reflected in comparable sales 29 All of Mr Sorenson's sales were purchases by private sale on the open market of englobo lands for medium residential purposes, the agreed highest and best use of the Applicant's land. He submitted that the general area of south-western Sydney should be considered as comparable to the Applicant's land as developers of englobo land of similar size would be looking for development opportunities throughout that wider area. All the sales he considered were some distance from the Applicant's land with two sales (sales 4 and 5) being at a substantial distance and for very large sites of over 100,000m2. Mr Sorenson made no adjustment for location for these sales. Nor did he consider their larger size required adjustment as he considered developers operating in this market would not distinguish between sites based on this difference in size. He considered his sale 1 at Moorebank was the most comparable followed by his sale 2 at Holdsworthy. Mr Large considered sale 1 was out of line being low compared to all the other sales. Both sales 1 and 2 were in inferior areas compared to the Applicant's land. He adjusted all of Mr Sorenson's sales up by a significant amount to take into account location and timing. 30 Mr Sorenson has selected sales 1, 2 and 3 which were purchased for the highest and best use agreed by the valuers, all at some distance from the Applicant's land, but within the general area. Sales 4 and 5 are too far away to be considered comparable in my view. 31 Mr Sorenson's sales 1, 2 and 3 can be considered as secondary evidence. His sales do need to be adjusted for location although not to the extent that Mr Large has done. (iii) Was market rising or falling at the date of acquisition? 32 The valuers made different adjustments of the comparable sales for time because they disagreed on whether the market was rising or falling at the date of acquisition. According to Mr Large the market was rising. He argued this was supported by the previous sale of sale 5 (Edmondson Park) in September 2003 for $3.3 million and in August 2007 for $3.654 million. He considered this showed an increase in value of 10 per cent. He also submitted that if sales 3 ($207/m2 in 2005) and 2 ($231/m2 in 2007) are compared there is clearly increase in value. 33 I agree with the Council's criticism of this analysis that overall market movement cannot be determined by comparison of sales on different dates of two different properties. Further the Edmonson Park sale relied on by Mr Large is explicable on the basis that the development costs (s 94 contributions, infrastructure costs) for that area changed from unknown in 2003 to final in 2007, a likely explanation provided by Mr Sorenson as to why there were changes in the prices paid for the same property.

34 Mr Sorenson considered that based on his experience of the south-west Sydney market that the medium range residential market had a severe downturn from late 2003 to mid to late 2004 which stabilised until 2006 when there was a further gradual decline. Mr Sorenson is an experienced valuer and I accept his opinion on this matter. His adjustments for time (negative) for comparable sales are to be preferred. (iv) Should flood liable land have different value? 35 Mr Sorenson allowed $70/m2 for the flood liable land on the acquired property. Mr Large applied the same rate across the whole of the land but stated in the joint report that if he were to apply a different rate for flood liable land it would be $40/m2. 36 The issue arises of whether I should apply a differential rate for flood affected land. According to Mr McKenzie's planning report the amount of flood affected land is 845m2. This report was accepted by both valuers albeit with a qualification by Mr Sorenson that such a report would not necessarily be available to a hypothetical purchaser at the date of acquisition. 37 According to the Council's flood map available at the date of acquisition a markedly greater area of the subject land was flood affected by a 1:100 year flood. This lead to a submission, made for the first time in closing submissions by the Council's counsel, that a greater area should be assumed to be flood affected than the McKenzie report identified. That report took into account reports prepared as part of the public purpose of the acquisition, namely water management, which must be disregarded. The area that a prudent, hypothetical purchaser was likely to consider to be flood affected was not specified in the evidence (and I infer would be less than the area identified as flooded in the Council's flood map) and the submission made was that this should be taken into account in a general way. The submission concerning the need to disregard steps taken as part of the public purpose of the acquisition is correct. However, given that this issue was only raised in closing submissions for the first time, was not adequately explored in the valuers' evidence, was not a specific issue the Applicant had any notice of, and lacks specificity as to the amount of land I should consider is flood affected, I consider I should apply the flood affected area as identified in the McKenzie report. It is common valuation practice to apply a lesser rate to such land given that it cannot be used for residential development and I will do so in this matter.

(v) Amount of valuation 38 I must determine the appropriate amount of compensation payable as the judicial valuer in light of my findings on the relevant issues above. 39 As to the relevant principles to apply, the parties' submissions did not agree entirely on the correct approach. The oft quoted principle in Spencer v Commonwealth (1907) 5 CLR 418 per Griffith CJ is that: In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together. 40 This approach is reflected in s 56(1)(a) of the JT Act; see par 2 above. 41 The Applicant relied on, inter alia, Dixon J in Turner v Minister of Public Instruction (1956) 95 CLR 245 at 266 and 267 to the effect that "value" means value to the owner. 42 As pointed out by the Council's submissions, the "value to the owner" refers to legislation prior to the JT Act. In Leichhardt Council v Roads and Traffic Authority (NSW) (2006) 149 LGERA 439 Spigelman CJ (Campbell J and Basten, Beazley and Bryson JJA concurring) at [26] - [32] held that value to the owner has no operative function in "market value" under the JT Act. As also submitted by the Council, the High Court in Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority (2008) 82 ALJR 489 at 499 - 500; [48] - [51] affirmed that the definition of market value in s 56(1) of that Act assumes a hypothetical vendor and purchaser. 43 The two valuers in this matter have taken quite different approaches to the selection of comparable sales and appear to have done so for sound reasons. Neither approach is ideal. A public authority is the purchaser in the sales selected by Mr Large for properties that are generally similar to and close to the Applicant's land. I have held above that it is appropriate to consider these sales albeit with downward adjustment needed to take into account the circumstance that the market was falling (par 32-34) and also that the purchase by the public authority is likely to have had an enhancing effect (par 24-28). 44 As also noted earlier at par 12, Mr Sorenson identified a further difficulty with analysing the sales selected by Mr Large in that it is unknown if the amounts paid reflect market value only or additional matters such as injurious affection and solatium. Mr Large did not speak to any of the vendors to find out the position. Sale 2 has the highest figure derived of $231/m2 and was a sale to the Department of Education by a developer who Mr Sorenson advised 12 months before the sale. Mr Sorenson's evidence was that there were other considerations such as injurious affection considered at the time he gave advice. The sale was of part of the land only, not the whole parcel. He did not know what the final figure paid represented but considered it was unlikely to have been market value only. I consider Mr Large's sale 2 should be ignored. 45 Sale 1, virtually next door to sale 2, to the Department of Education was analysed by Mr Large to show an adjusted rate of $207/m2. Mr Large does not know but assumed it represented market value only. That sale is also unreliable for the reasons identified by Mr Sorenson. That reasoning also applies to sale 3 ($207/m2) and Edmondson Park ($180.92/m2). Downward adjustment of the figure adopted by Mr Large of $180/m2 is also necessary in light of these matters. 46 This adjustment down of Mr Large's figure is confirmed by considering the sales considered by Mr Sorenson which demonstrated a much lower figure. I considered which of Mr Sorenson's sales could be comparable at par 30-31. His sale 1, which he considered most applicable, when adjusted by Mr Large for location and timing showed $165/m2. Sale 2 was adjusted by Mr Large to derive a figure of $210/m2 but that appears too high to be relevant. As identified in par 31, the adjustments made by Mr Large for location should be reduced. 47 I consider the applicable rate should be $165/m2 for the 11,405m2 of land able to be developed for residential development. 48 As considered at par 35-37, a lower rate in the flood affected land is appropriate. A rate of $70/m2 should be applied for the 845m2 of flood liable land, as identified by Mr Sorenson in his evidence. Compensation should therefore be awarded in the amount of $1,940,975. Disturbance - claim for stamp duty 49 The Applicant's counsel was instructed to apply for stamp duty as part of the disturbance claim. No evidence of the basis for making such a claim such as an affidavit of the Applicant was provided to support a claim such as that awarded in Fitzpatrick Investments Pty Ltd v Blacktown City Council (No 2) (2000) 108 LGERA 417. In the absence of any appropriate evidence to found a claim for stamp duty I cannot award it in light of the authorities on this matter. Orders 50 For the reasons set out above I order that: 1. Pursuant to the Land Acquisition (Just Terms Compensation) Act 1991, compensation should be awarded to the Applicant in the amounts of $1,940,975 for market value and $9,900 for disturbance. 2. Costs are reserved.

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