Chino Pty Limited v Transport Infrastructure Development Corporation and Anor

Chino Pty Limited v Transport Infrastructure Development Corporation and Anor - [2006] NSWLEC 768 - NSWLEC 2006 case summary — Zoe

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Proceedings 30243 of 2005 2 The First Respondent, Transport Infrastructure Development Corporation, ("TIDC") compulsorily acquired Lots 14 and 15 in DP 817116 from Willoughby City Council ("the Council") pursuant to s 19(1) of the Land Acquisition (Just Terms Compensation) Act 1991 ("Just Terms Act") on 27 August 2004. These lots were the former Bus-Rail Interchange at Chatswood. 3 Lots 14 and 15 were both burdened by registered easements one of which entitled any development of Lot 12, an air stratum immediately above Lots 14 and 15, to be supported by those lots. The acquisition of Lots 14 and 15 extinguished a number of easements which benefited Lot 12. The only easement at issue in these proceedings is the easement for support BB in DP802469. Lot 12 is an air stratum unlimited in height but limited in depth as at the date of acquisition to RL 101.3. The site area of Lot 12 is 102m2. The registered proprietor is Willoughby City Council. 4 Immediately before 27 August 2004 the Applicant held the following interests in land: (a) Freehold interest in Lot 6 DP 530717 ("freehold"); and (b) Leasehold interest in Lot 12 in DP 817116 - 98 year and 51 day lease commencing on 1 May 1990. The land referred to in (a) and (b) is known as 430 Victoria Avenue, Chatswood ("430"). 5 Erected on 430 is a three storey building in the following configuration: (a) Ground floor. Single tenancy contained wholly within Lot 6 in DP 530717. (b) First floor. The Applicant owns this freehold and it has two tenancies. One tenancy is wholly contained within Lot 6 in DP 530717. The second tenancy comprises both freehold and air stratum leasehold land. The only means of access to either tenancy is through Lot 12, the air stratum; and (c) Second floor. Single tenancy comprising both freehold (Lot 6) and air stratum land (Lot 12). The only direct access to the second floor immediately prior to 27 August 2004 was via an escalator on the adjoining land which was the former Bus-Rail Interchange. 6 The only means of access to the tenancies on the first floor and second floor is through the air stratum (Lot 12). Access to the air stratum could be obtained either: (i) prior to 25 January 2005, through Lot 16 in DP 817116 (which comprised a fly bridge and stairs); and (ii) prior to 27 August 2004, the first floor could be accessed by entering the second floor of the air stratum from the retail concourse of the former Bus-Rail Interchange and descending a set of stairs in the air stratum to the first floor.

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Events since acquisition 13 Since acquisition construction work has resulted in the demolition of the old Bus-Rail Interchange. Four concrete columns on TIDC land continue to provide support to Lot 12. A temporary lift has been built to enable access to Lot 12. Access to the upper levels of 430 can also be obtained via a temporary steel staircase which is located within land owned entirely by TIDC as a result of a further compulsory acquisition by TIDC in 2005. 14 TIDC advised that on 29 July 2005 it had compulsorily acquired the Council's freehold interest in approximately 50 per cent of the airspace occupied by the first floor slab, within Lot 12 (51m2 in plan), so that it had the legal right to cut through the slab to install the steel staircase from the ground floor. The lease to the Applicant was excepted from the acquisition so that the Applicant has no rights in relation to this staircase. The Applicant has no more than a leasehold interest in the air space, to the thickness of the slab and a little above it, at the riser of the top step of the staircase. This compulsory acquisition is not before the Court in the sense that any claim for compensation which may arise is not raised in these proceedings. I have identified the matter here as part of TIDC's argument is that access has continued to be provided to Lot 12 and hence 430 since acquisition. Relevant legislation 15 In s 4 of the Just Terms Act the definition of "land" includes any interest in land, and "interest in land" means (a) a legal or equitable estate or interest in the land, or (b) an easement, right, charge, power or privilege over, or in connection with, the land. 16 The land acquired is an interest in land (s 4) being an easement for support only. 17 "Public purpose" is defined in s 4 of the Just Terms Act as: … any purpose for which land may by law be acquired by compulsory process under this Act. 18 Section 20(1)(b) of the Just Terms Act states: (1) On the date of publication in the Gazette of an acquisition notice, the land described in the notice is, by force of this Act:

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35 Evidence of valuation experts was also relied on. The Applicant relied on the statement of evidence of Terry Davis, dated 28 September 2005 (Exhibit B), and a supplementary statement of evidence of Terry Davis, dated 4 November 2005 (Exhibit D) and a supplementary statement of evidence dated 8 November 205 (Exhibit C), an additional supplementary statement of Terry Davis, dated 22 November 2005 (Exhibit M), and Further Supplementary Statement of Evidence (Post Joint Conference) dated 17 November 2005 (Exhibit E). The First Respondent relied on the statement of evidence of Peter Dempsey, dated 1 November 2005 (Exhibit 3), Peter Dempsey's reply to the statement of evidence of Tim Simpson, dated 18 November 2005 (Exhibit 6), and Peter Dempsey's reply to the statement of evidence of Terry Davis, dated 11 April 2006 (Exhibit alpha). The Council relied on the statement of evidence of Terry Dundas, dated 2 March 2006 (Exhibit 1D). Numerous joint reports of the valuers were also relied on, dated 11 November 2005 (Exhibit H), 16 November 2005 (Exhibit J), 21 November 2005 (Exhibit 4) and 26 April 2006 (Exhibit 1G). The valuers also gave oral evidence at the hearing. 36 Mr Simpson, manager of Century 21 J Brough & Son, swore two affidavits dated 15 November 2005 and 16 November 2005, dealing with the history of rent paid at the premises to the Applicant and the loss of past rent. He states that the total amount of rent lost up to 20 November 2005 as a result of the two acquisitions was $167,377.58. There was an additional loss of $12,457.50 incurred as a result of additional management and advertising fees lost as a result of the acquisition. He also anticipated the total amount of rent lost up to the anticipated conclusion of the Respondent's works in mid-2008 would be $902,644.78. His affidavit of 16 November 2005 stated that if the Applicant were unable to release the premises between 1 December 2005 and mid-2008 then the total amount of rent lost would be $125,007.04. Mr Tobin swore an affidavit particularising the income which the Council had received from 430 and the amount of rent expected to be lost during construction.

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Chronology 39 In order to understand TIDC's arguments, the following chronology is set out. It includes events before and after the date of acquisition. The Applicant and Council argued that any events after the date of compulsory acquisition are irrelevant and that is an issue which I need to resolve. (i) 26 February 2002 - Approval was given by the relevant Minister under Pt 5 of the Environmental Planning and Assessment Act 1979 ("the EP&A Act) for the Parramatta Rail Link ("PRL"). (ii) January 2004 - First Respondent established as a statutory body of the Crown; Transport Administration Act amended to make First Respondent the proponent and determining authority for the PRL project. (iii) February 2004 - Letterbox flyer distributed in respect of the concept design and a review of environmental factors. (iv) 20 May 2004 - First development application for CTI lodged with the Minister for Planning, including details of the retail uses proposed. (v) 31 May 2004 to 29 June 2004 - Statement of environmental effects and modification to Pt 5 approval placed on public exhibition. (vi) 1 June 2004 - Jeff Burns, TIDC's agent, sends the Property Report and plans for the CTI to Chino's agent. This is argued by TIDC to include a report relating to the maintenance and regrant of the easement for support BB. (vii) 23 July 2004 - Brewster-Murray Pty Ltd consultants' report prepared for Chino's solicitor, Mr Wee. (viii) 27 August 2004 - Gazette notice published for compulsory acquisition of Lots 14 and 15. (ix) 17 December 2004 - Development consent granted by the Minister for Infrastructure and Planning, subject to conditions of consent, for development application 119-5-2004, for first stage of the development of the CTI Project, involving a podium level for landscaping, three separate building envelopes, two levels of underground parking, area for retail space and ancillary uses. (x) 28 January 2005 - Gazette notice published for compulsory acquisition of Lot 16. (xi) 6 February 2005 - Information centre at Chatswood Railway Station concourse opened to the public, containing information relating to both the Pt 5 EP&A Act and Stage 1 development application under Pt 4 of the EP&A Act aspects of the CTI. (xii) 22 August 2005 - Development consent 131-05-2005 granted by the Minister for Planning, for the second stage of the development of the CTI Project, for the construction and use of three residential buildings, construction and use of retail development, three basement levels for car parking, a residential loading dock, two retail loading docks, access to the residential drop-off for two of the towers, landscaping on the podium roof and stratum subdivision of the site.

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Pre-acquisition documents 40 TIDC relied on documents produced before the date of acquisition as demonstrating the public purpose included TIDC's intention at all times to reinstate the easement for support that was BB. Three documents were considered in some detail, the Brewster Murray Pty Ltd report (see par 39(vii)), the Property Report (par 39(vi)) and the Call for Detailed Proposals for the CTI ("the Call Document"). 41 The Brewster-Murray report dated 23 July 2004 concerning the impact of the new development on Chino Pty Limited was sent to Mr Wee, the Applicant's solicitor. It refers to a meeting held on 13 July 2004 between Mr Burn of Michael Collins & Associates (TIDC's agent), Mr Simpson of Century 21 (Applicant's agent), Mr Wee and Mr Auyeung of Brewster-Murray Pty Ltd. In the background section of the letter reference is made to the easement for support (columns) to Lot 12. The letter states:

The ground floor (RL.98.0) will remain unchanged. The existing concrete stair and columns supporting level 2 and level 3 will remain.
The stair in the mall (Lot 16) will be demolished. The existing escalator will also be removed.
Level 2 (RL.102) the existing concrete stair and concourse will remain. The concrete stair also links to level 3. The link to the new Interchange is uncertain.
Level 3 (RL.106) the existing stair and concourse will remain. The link to the new Interchange will be blocked. 42 Plans were annexed which show the four support columns on Lot 12. Also attached to the letter were: (a) the Property Report, (b) a detailed concept plan for the adjoining property, 430, (c) a survey report, and (d) detail of easements. 43 The Property Report forms part of the documentation prepared by TIDC for the Call Document. The Call Document was not attached to the Brewster Murray report. The Property Report states that it was provided to assist proponents in evaluating the opportunity to bid for the public/private partnership to undertake the CTI. The Report provides information about the CTI site, surrounding development, and interaction with adjoining properties in providing access to Chatswood Station. Aspects of the CTI addressed include land titles and affectations. Adjoining property includes a reference to 430 which is described. Chapter 8 states that TIDC intends to amalgamate the CTI sites and consolidate current titles for future subdivision to create stratum lots. It refers to the acquisition of Lots 14 and 15 by TIDC. Chapter 10 deals with easements. TIDC particularly relied on the following: Easements recorded on current land titles for lots partly or wholly within the CTI site are summarised in the attached schedule … These easements principally relate to rights of way and the provisions of … structural support and services to the CTI site and adjoining properties. In finalising the CTI site amalgamation and title consolidation, the owner intends to adopt the following approach in respect of easements

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The Call Document 48 The Call Document issued by TIDC invited proposals from parties wishing to undertake development of the CTI. The Call Document summarised the scope of the CTI and outlined the proposed contractual and commercial framework, including details of the development agreement to be entered into with the developer entity and the associated property sale and lease documents. 49 Section 1.3 states in part: The stratum lots purchased by the developer entity and those retained by Rail Corp will be burdened with and benefit from easements for pedestrian access, services [and] structural support … (emphasis added by TIDC). 50 The obligations of the developer entity are set out in s 2 - "Delivery". Section 2.9 Operational and Staging Requirements during Construction states: During the delivery of the CTI, including the integrated construction works, the developer entity must maintain, relocate or replace existing access, services and structural support for adjoining properties . The rights of adjoining property owners, tenants and other users of the accesses and services are to be respected and managed during the delivery of the CTI. (emphasis added by TIDC) 51 Section 3 of the Call Document is entitled "Legal Framework". In s 3.1, item 7 (stratum subdivision plan) states that the stratum subdivision plan is the concept stratum subdivision plan which, for the reference concept design, describes the stratum lots which will be created following completion of the integrated construction works to permit the stratum sales contemplated for the CTI. 52 Within section 3, par 3.3 entitled "Site Access and Ownership Issues" states: A document entitled "CTI Property Report" is included in Part 2.4. The CTI Property Report presents a consolidated summary of various property-related matters including: · The CTI site, surrounding development and the current interaction with adjoining properties in providing access to Chatswood Station · Existing buildings and services · Land titles and affectations, including the proposed consolidation of titles and the stratum sub-division plan based on the reference concept design · Property-related obligations in the envisaged development agreement

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Post-acquisition documents 56 Documents TIDC sought to rely on post-acquisition were extensive. The Applicant and the Council objected to relying on any documents produced after the dates of compulsory acquisition (27 August 2004 for Lots 14 and 15 and 25 January 2005 for Lot 16), on the basis these were irrelevant to the issues before the Court. 57 TIDC emphasised in argument that the two development consents for the CTI dated 17 December 2004 and 22 August 2005 were closely linked and were able to be considered as part of confirming the public purpose at the date of acquisition. Its submissions referred to the Stage 1 and Stage 2 development consents suggesting these were staged developments as provided for under the EP&A Act. The "Planning Assessment Report" from the Department of Planning (undated, tendered as Exhibit IJ by the Council) states that the two development consents are not staged consents under the EP&A Act and are separate, as the Council stressed in its submissions. This was conceded by TIDC but it nevertheless submitted that this was a matter of form only, as the two development consents were clearly related. 58 TIDC in its submissions took the Court to a number of plans attached to the two development consents granted after the first date of acquisition which show the premises on and next to Lot 12 continuing in their current form and the four concrete pillars supporting Lot 12. 59 TIDC also relied on draft deeds sent to the Applicant's agents on or about 7 December 2004 and 8 March 2005. On or about 7 December 2004 TIDC's agent sent to the Applicant's agent a draft deed which TIDC's agent stated "has been developed to document its [TIDC's] proposal to maintain the intent of easements extinguished upon acquisition and reinstate those easements upon completion of works". That draft deed provided inter alia for Chino's release and indemnity to the effect that TIDC was released unconditionally and forever from its obligations to comply with the statutory processes under the Act. Chino, at cl 7 of the deed, covenanted that: (a) to the extent that the parties, acting reasonably, agree: (i) the Dominant Tenement requires the benefit of easements to the effect and intent of the Interests, and (ii) the Project Works do not render the effect and intent of the Interests obsolete, TIDC covenants with Chino that TIDC will use reasonable endeavours to cause the creation of the Substituted Interests so as to provide the Dominant Tenement with benefits equivalent to the benefit previously provided by the Interests.

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TIDC submissions on public purpose 62 TIDC argued that it had confirmed before and after acquisition that it will be providing ongoing rights of support to Lot 12 and that the Applicant and the Council cannot therefore argue this case on the basis that it does not yet have those rights. The conduct of the public purpose was relevant to the claim under s 55(f). 63 TIDC argued that if a "fact" is part of the public purpose or the proposal to carry out the public purpose, then it must be assumed by the valuers and the Court in arriving at compensation. 64 TIDC argued that the public purpose of the acquisition for the CTI project included the intention to restore the easement for support benefiting Lot 12 and hence Lot 6. That intention was able to be known by a prudent hypothetical purchaser at the date of acquisition from the documents then available and from inquiry at TIDC, and is confirmed by events since the date of acquisition which are able to be taken into account. TIDC argued that the carrying out of the proposal for which the land was acquired after acquisition is directly relevant evidence under s 55(f) because that refers to the increase or decrease in value of other land which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose. 65 TIDC's case was based on an extensive examination of the documents and plans prepared by or for TIDC in relation to the CTI development before and after the date of acquisition. Based on this material TIDC argued that a prudent hypothetical purchaser would have been aware at the date of acquisition that it was part of the public purpose that the easement for support be reinstated. The extinguishment of the easement was a step in the scheme whereby the removal of the easement was temporary. Assurances were given to the Applicant before (and after) acquisition that the easement would be effectively regranted. According to TIDC, it was never in a position to deny support because the public purpose included the retention of that support. TIDC is constrained in dealing with Lot 12 by its planning approval to carry out the public purpose and the absence of development consent to demolish the supporting structures. TIDC's intentions were confirmed by the documents relied on after the acquisition, such as the first and second development consents and the plans attached to those which show Lot 12 continuing with concrete columns. 66 While generally events after acquisition are not able to be taken into account, subsequent or future events can be considered in the following circumstances: (a) Where the future events were foreseeable, evidence of them is inadmissible not to prove a hindsight, but to confirm a foresight: Housing Commission of NSW v Falconer [1981] 1 NSWLR 547 at 558 per Hope JA;

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Council's arguments 72 The public purpose must be determined at the date of acquisition to enable compensation to be determined. No documents after the date of acquisition can be considered; see Gosford Shire Council v Green (1980) 48 LGRA 201. Firstly, it is illogical to argue that the same purpose contemplates that an easement be regranted when it clearly was extinguished at the time of the compulsory acquisition. Secondly, if a mistake was made it could have been corrected but was not. Thirdly, there is no statement before or after acquisition that easement BB will be reinstated. The Property Report is designed to obtain expressions of interest from developers to carry out the development, and states that nothing in it should be relied on. It creates no legal obligations on any body. TIDC's intentions could change at any time. 73 The only reference in plans to the reinstatement of the easement occurs after litigation commenced. Mr Keats' oral evidence of 1 June 2006 was that he was instructed by TIDC's solicitors after this case was commenced to prepare the relevant plan to enable the creation of an easement for support. The deed now relied on by TIDC (dated 8 March 2005) was provided only after the litigation commenced (18 March 2005) and was not provided to the Council in any event. The matters relied on by TIDC as demonstrating its intention to reinstate the easement for support are irrelevant to the issue of compensation payable to the Council for the acquisition. 74 The Applicant and the Council relied on Besmaw Pty Ltd v Sydney Water Corporation (2001) 113 LGERA 246 to support their argument that what has been acquired must be determined by examining the terms of the acquisition and it is irrelevant that the acquiring authority asserts that it will not take advantage of the rights acquired. The Applicant and the Council argued that the reasoning in Besmaw has direct application to this case. The fact that Besmaw related to a claim for disturbance under s 59(f) does not limit its application. 75 Besmaw concerned an application for compensation for the compulsory acquisition of an easement for access to enable the construction of a sewer main by the acquiring authority. Market value was agreed at $9000 and was not in dispute. Besmaw claimed compensation for disturbance under s 55(d) and 59(f) of the Just Terms Act. Section 59(f) relates to any other financial costs reasonably incurred relating to the actual use of the land as a result of the acquisition. Besmaw claimed $1,515,900 under that section as the cost of providing alternative access to the land, as it argued that the loss of the easement would give the acquiring authority the right to deny them physical access across the land. The acquiring authority disputed the applicant's entitlement to recover this amount, and argued that the rights of the acquiring authority were not wide enough to actually exclude the applicant from the land or from any real exercise of its proprietary rights. 76 Sheahan J held that on its proper construction the easement did not totally deny Besmaw's right of access to the land, but allowed the holder of the easement to deny Besmaw access adequate enough to enable it to continue carrying out its use of the land for sandmining and tourist development. Therefore his Honour held that the easement seriously impeded Besmaw maintaining its access arrangements. Further, assurances given by the resuming authority to Besmaw that the difficulties it anticipated would not eventuate could not be relied on in lieu of compensation. His Honour gave his reasons for this at [19], stating: [The applicant] can never come back for more money if ownership of the easement, or any relevant exploitation policy regarding it, might change in the future. Its loss of rights is permanent, and any assurances given by [the acquiring authority] regarding exercise of the acquired rights may be illusory, transient, and/or not binding on any of its successors.

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Market value s 55(a) 83 Although TIDC argued that the carrying out of the public purpose related to s 55(f) it is also necessary for the resolution of all relevant issues that I consider the argument on public purpose in relation to market value. Market value under s 55(a) is assessed at the date of acquisition. Even if an examination of documents available up to the date of acquisition did make clear to a resumee that the resuming authority was only intending to temporarily remove an easement for support, taken under the Just Terms Act a resumee's entitlement to compensation for market value crystallises on the date of acquisition. In this case the Applicant and the Council lost an interest in land which meant that they had no enforceable legal right to require TIDC to maintain the support of Lot 12. TIDC's intentions about the maintenance of an easement for support in the future are irrelevant to the entitlement to compensation for market value under the Act. 84 The Applicant and the Council argued that the public purpose is that stated in the acquisition notice, that is, the CTI. While there are numerous cases where the scope of a project which is the public purpose of the acquisition are identified through documents created before the acquisition, in this case the issue of public purpose is essentially determined by both the content and the legal effect of the gazette notice. Part of that purpose as manifested in or because of the notice was the extinguishment of easement BB because that was the legal consequence of the compulsory acquisition effected by TIDC. TIDC made no use of the mechanism available to it under s 20(2) of the Just Terms Act to provide for the easement to be maintained. 85 While TIDC stressed that it is a public authority and the Court should assume it would act properly in the exercise of its functions, I also consider that TIDC must have acted deliberately in removing the easement for support, clearly a significant legal entitlement for the Applicant and the Council. In the circumstances of a compulsory acquisition the Applicant and the Council are entitled to assume that the authority will exercise fully its legal rights. In this case that is the right to remove support to Lot 12. Even accepting there was some intention shown in documents prior to the acquisition to maintain support of Lot 12, the Applicant and the Council had no enforceable right as against TIDC to maintain that support and hence the right to compensation is provided for under the Just Terms Act.

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91 As identified above the Property Report and Call Document were prepared to assist commercial tenderers wishing to undertake the construction of the CTI to tender. The Call Document and the documents attached to the Brewster-Murray report, including the Property Report, do not make any explicit statement that the easement for support BB must be reinstated nor could it be said that such an implication arises from these documents. The references to easements in the Property Report at par 43, are made in general terms and refer to ensuring that structural support to other properties is maintained, including structures that are not protected by easements on current land title. Section 11 of the Property Report refers to procuring alternative access to Lot 12. 92 The Detail of Easements attached to the Brewster Murray Report (par 47) refers to easement BB and states it is to be modified. That means "extinguish … retain any benefit if appropriate, and modify or replace after works to suit redevelopment". 93 The Call Document extracted in part at par 48 - 53 refers to the maintenance of structural support to adjoining properties generally but the note set out at par 53 emphasises that the document is introductory only and should not be relied on. 94 It is clear that the concrete columns supporting Lot 12 are contained in several plans referred to in the evidence. However, the Property Report and Call Document do not give rise to any enforceable legal right for the Applicant and the Council or anyone else. No development consent had been granted for the CTI at the time these documents were brought into existence and they simply do not provide the certainty TIDC claims for them about its intentions. This material could clearly be considered by a prudent hypothetical purchaser and would suggest that TIDC is unlikely to remove support in the immediate future but does not provide any legal basis to overcome the effect of the acquisition notice. (iii) Are post-acquisition documents able to be considered? 95 TIDC argued that because s 55(f) refers to the value of other land severed from the acquired land by reason of the carrying out of the public purpose, its intentions in relation to how the public purpose would be carried out must be considered and that can include consideration of matters before and after the date of acquisition.

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97 In Dwight documents of the acquiring authority were admitted and referred to for the purpose of identifying the nature of the public purpose and the way in which it was to be carried out, in order to determine impacts on the retained land (including future environmental impacts). The nature of the public purpose as stated in the gazette notice was for the purposes of the Water Board Act 1987, but in order to know the specific works and the specific uses to which the acquired land was to be put, the authority's plans, documents and correspondence had to be examined. It was agreed that the public purpose of the acquisition was for providing trunk drainage alongside a creek and for artificial wetlands to enhance the in-stream purification of treated effluent from a sewage treatment plant being developed by the Respondent. Here the acquisition notice and its legal effect could not be clearer. 98 Injurious affection under s 55(f) is determined at the date of acquisition in accordance with the wording of that section. The Court must decide what a prudent hypothetical purchaser making all proper inquiries would take into account. Cases have held that circumstances after acquisition can be taken into account in limited situations, and this can only be done where an event was foreseeable at the date of acquisition and aids in confirming a hindsight and not to prove a foresight. As stated at par 66, TIDC relied on Falconer in argument. The Council relied on Gosford City Council v Green (1980) 48 LGERA 201. 99 In Gosford v Green, the owner's land was acquired by the Council for the public purpose of a carpark. Its final design was different to what was originally proposed at the time of acquisition. The change in design occurred after the acquisition, but before the hearing. The change was more detrimental to the residue land on which Green's shop was erected, than what would have been the case under the original proposal. Reynolds JA (Samuels JA and Mahoney JA concurring) held at 207 that the fact that the change of design was unknowable at the date of acquisition meant that it was not to be taken into account in assessing compensation for injurious affection. Reynolds JA stated at 207 that: In my opinion, as a matter of principle, what in fact happened can have no logical probative relationship to what a reasonable purchaser would at an earlier date have expected to happen. In my respectful view, the unsoundness of the present situation was demonstrated in the judgment of Sugerman J in R. Fowler Ltd v Valuer-General (1951) 18 LGR 113, at p.116, where he makes it clear that in such an inquiry as must be undertaken in this case, which is value at the time the notice was published in the Gazette, there is no question of preferring actuality to prophecy… 100 Mahoney JA added further at 210 that: It is agreed that the question whether the relevant works enhanced the value of the land remaining with Mr Green is to be determined as at the date of resumption…The extent to which events subsequently occurring can be taken into account in determining the value of property as at a particular date, need not be considered in detail…I think that the knowledge to be attributed to the notional purchaser is that which as a prudent purchaser making all proper inquiries, he would have at the date of the resumption…

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Approach to valuation - Application under s 88K or before and after method? 111 TIDC through the valuer Mr Dempsey argued that because there is a legal right available to the Applicant and the Council under s 88K of the Conveyancing Act the cost of that application was the appropriate measure of compensation. This approach was said to accord with fundamental assumptions for establishing market value under the Just Terms Act and the principle in Spencer v The Commonwealth (1907) 5 CLR 418. Section 88K of the Conveyancing Act 1919 states: (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. … (4) The Court is to provide in the order for payment by the applicant to specified persons of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case. (5) The costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary. … 112 TIDC argued that the valuation of what a prudent hypothetical purchaser would pay must not ignore any "facts" raised by the parties including legal rights or restrictions on the land. A prudent hypothetical purchaser would obtain legal advice on the legal rights relevant to the purchase of 430. In this case the purchaser would be advised of the availability of s 88K of the Conveyancing Act which gives rise to a right to seek an easement for support in the Supreme Court of New South Wales. Cases relied on in support were Hornsby Shire Council v Roads and Traffic Authority (NSW) (1998) 100 LGERA 105 and Council of the City of Liverpool v Commonwealth of Australia (1993) 46 FCR 67. Legal advice about cases such as Antipas v Kutcher (2006) 144 LGERA 289 would be obtained.

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Applicant/Council on s 88K argument 114 Both the Applicant and the Council argued that TIDC's argument in relation to s 88K was fundamentally flawed. It was contrary to any known method of valuation, was not based on the valuer's own approach but simply reflected his acceptance of the advice of TIDC's lawyers to that effect. It is not a simple matter to make a s 88K application to the Supreme Court and success is in no way guaranteed, as demonstrated by a list of cases under s 88K a large number of which were unsuccessful. Given that the easement has been resumed by TIDC and that compensation has to be calculated at the date of acquisition, the approach in Besmaw at par 77-78 must apply. Before and after method 115 The Applicant argued the before and after method was the correct approach to the calculation of market value of the easement. The before and after method allows the value of 430 before the acquisition to be compared with the value after the removal of the easement for support. As the acquisition of the easement is the acquisition of part of the land the before and after method is the most reliable method of valuation see Alan Hyam The Law Affecting Valuation of Land in Australia (3rd ed), The Federation Press, Sydney, 2004, p 114. Where an acquiring authority resumes an easement the before and after method is generally used and not the value to the acquiring authority of the rights acquired. The appropriate approach is to look to the market value of the whole of the land to which the easement was appurtenant with the easement in place, compared to the market value of the whole of the land without the easement in place. This approach in this case requires consideration of the loss of future rental income. The difference is the value to the owner of the easement. As Lot 12 and Lot 6 are interlinked within the one structure then the whole of the Applicant's land 430 has to be considered. 116 The Applicant originally claimed a separate amount for loss of future rent under s 55(f) but advised the Court during the hearing this claim would not be pursued. I consider this modification of the Applicant's claim was necessary as it would otherwise have been "double dipping" in relation to loss of future rental income. 117 Reliance was placed on cases from the United States on valuing the loss of an easement for support due to the paucity of Australian and United Kingdom cases on this issue. According to the Applicant, English law does not generally allow the extinguishment of easements.

[70]

124 In this case I need to determine what compensation is payable under s 55 as that is the only basis on which it can be awarded under the Just Terms Act. If the terms of s 55 are considered, it is clear that the cost of a legal action under s 88K which may lead to reinstatement of the interest in land extinguished by the compulsory acquisition is not a head of compensation recoverable under s 55(a) as market value or s 55(f) or as injurious affection at the date of acquisition given that the public purpose included the extinguishment of the easement for support. I agree with the Applicant and the Council that is simply not an approach supported by valuation methodology in relation to the assessment of market value or any other head of compensation under s 55. 125 Anderson, the only case relied on by TIDC, was an appeal under the Valuation of Land Act 1916. It is not a decision binding on me. In that case the subject land originally had a right of way for access to a public road, however the council resumed that right of way for the purpose of providing a right of way for the council and easement for a pipeline. The effect of this resumption was to extinguish the existing rights of way attached to the land. However the owners continued to access the road without a formal legal arrangement. The valuer argued the access could be obtained by negotiated agreement, or sought pursuant to s 88K of the Conveyancing Act. The applicant argued it should obtain the cost of the carrying out of the construction of a bitumen-sealed road. In determining which approach to take, Nott C had regard at [9] to the history of the land. At [14]-[15] Nott C declined to accept the applicant's method of valuation for the land, and held that an intending purchaser could expect to negotiate the purchase of a right of way, or obtain an easement pursuant to s 88K. 126 I do not consider the approach in Anderson is applicable in this case. It is an ex tempore decision delivered in a valuation of land case where it does not appear that the arguments I have heard were before the Commissioner. It was not considering the express terms of the Just Terms Act. 127 I also agree with the Applicant's submissions as to why Mr Dempsey's approach is flawed. Mr Dempsey, a valuer appearing for TIDC, valued the easement on the basis that the appropriate figure was the cost of reinstatement of the easement under s 88K of the Conveyancing Act. This cost was $44,000 on the basis of legal advice apparently received from TIDC's solicitors, Clayton Utz. There is no separate evidence to support the accuracy of that amount apart from its appearance in Mr Dempsey's evidence. It appears a low estimate. He was asked to assume, and he did, that there was a very high likelihood such an application would be granted. Mr Dempsey stated in oral evidence that had he not been instructed by TIDC's solicitors in relation to the Conveyancing Act s 88K application, which advice he accepted, he would have applied the before and after method also. The Applicant criticised Mr Dempsey's approach because he failed to apply his own independent analysis or to take any other legal advice but chose to rely entirely on the advice of TIDC's solicitors. He equated the advice he received from TIDC's lawyers to the advice that a prudent hypothetical purchaser would receive. I agree with that criticism. I therefore found his views of limited assistance in understanding why he considered this was an appropriate methodology to apply. 128 The assumption by TIDC and Mr Dempsey that a s 88K application is bound to succeed assumes that where an easement is acquired for a public purpose, s 88K(2)(a) of the Conveyancing Act is satisfied, in other words, that the grant of the easement will not be inconsistent with the public interest. Given that the easement has been acquired for a public purpose under the Just Terms Act I do not consider I can assume this requirement will be fulfilled. Further, compensation is potentially payable under s 88K(2)(b) of the Conveyancing Act to the owner of land on whom the easement is imposed, that is, TIDC. Advice from TIDC's counsel that it would not seek compensation is speculative. 129 The Applicant's counsel raised the issue of whether a tenant could apply under s 88K(1) at all given that it is a tenant of Lot 12, not the owner. This was unresolved, TIDC arguing that a tenant such as the Applicant could. I do not need to decide this issue. 130 The existence of s 88K of the Conveyancing Act is a matter about which a prudent hypothetical purchaser could obtain legal advice. Section 88K provides a right to apply to the Supreme Court of New South Wales for the grant of an easement. It does not provide a right to an easement. 131 The acquisition of a property at the date of acquisition dependent on a right of support which was only obtainable by undertaking litigation has to raise some consideration of risk for a prudent hypothetical purchaser. TIDC's approach as expressed by Mr Dempsey makes no allowance at all for any risk.

[78]

144 430 has several tenancies being a newsagent at ground floor, dentist and internet café on first floor, medical centre on the second floor. Mr Davis makes the following observations: 430 comprises a three storey retail and commercial premises, occupying a prime location in the pedestrianised portion of Victoria Avenue and adjacent to Chatswood Railway Station and Bus/Rail Interchange. The property has excellent exposure to concentrated pedestrian traffic flows and has the additional benefit of a lengthy ground floor return frontage along Orchard Road. The ground floor and upper levels of 430 are partly occupied as retail and commercial tenancy areas. Access to the ground floor newsagency shop is available from the Victoria Avenue and Orchard Road frontages. Access to the upper levels is entirely dependent (apart from the internal fire stairs, which are unsuitable for public access) upon the Easements Lease and the Steps lease. 145 Mr Davis calculated the amount of rental that would be payable under the various tenancies to the Applicant and applied a capitalisation rate to that amount to arrive at a before value being the figure a willing buyer and seller engaging in an arm's length transaction would agree on. While initially disagreeing, Mr Dempsey and Mr Davis agreed a before value of $6,875,000 in their joint report dated 21 November 2005 (Exhibit 4), applying a capitalisation rate of 5.25 per cent. They disagreed on the after value. 146 Mr Davis considered the after value was calculated by considering the amount of rent that would be lost for Lot 6 (held as freehold) under the 99 year lease of Lot 12 on the basis that a prudent hypothetical purchaser would assess the risk that the upper levels of 430 would cease to function if the columns supporting Lot 12 were removed and loss of rent would result. He assumed the newsagent on the ground floor would be able to continue operating as access was from Victoria Avenue and therefore did not rely on entry via Lot 12 as did the upper levels of Lot 6. He considered the prudent hypothetical purchaser would take a conservative approach and adopted a nominal one year of income in combination with a risk adjusted equivalent yield of 8 per cent because a prudent hypothetical purchaser would not pay for the prospect of an income stream that could be terminated at any time. In addition, the risk of termination may reasonably be expected to affect the ability of tenants in the upper levels of 430 as security of tenure would not be assured. He therefore adopted a capitalisation rate of 8 per cent rather than 5.25 per cent adopted for the before valuation. In his first report (Exhibit B) Mr Davis considered the after value was $3,310,000 resulting in compensation of $3,625,000. He provided a "sensitivity" analysis which also calculated compensation assuming from two to five years income from the upper level might be reflected in a commensurate reduction in the purchase price. In his Supplementary Statement (Post Joint Conference) (Exhibit E) he provides revised calculations and claims compensation payable is $4,305,000. Further "sensitivity" calculations are also provided. Subsequent to this supplementary report of Mr Davis the valuers jointly agreed on a different amount for the before value (Exhibit 4).

[82]

Finding on valuation 152 As I am the judicial valuer I must arrive at my own conclusions taking into account relevant evidence in making my determination. I have determined that the before and after approach is the appropriate methodology and this determines the compensation payable under s 55 (a) and (f) in this case. (i) Applicant 153 In Kater Pearlman J refused to accept uncontradicted valuation evidence without adjustment in circumstances where other valuers had not adopted the same approach. The Court of Appeal in Hornsby Shire Council v Roads and Traffic Authority (NSW) (1998) 100 LGERA 105 held at 108-109 that a judge was: …entitled, if not bound, to do "the best that he could" on the basis of the whole of the evidence….acting as the judicial valuer…involves making inferences and applying experience and judgment in order to determine what are really hypothetical questions - questions which may (permissibly) involve subjective judgments. 154 Here the valuers for TIDC and the Applicant have applied entirely different methodologies and I have accepted that the overall approach of Mr Davis is correct. Mr Dempsey has commented on Mr Davis' approach although he did not apply this methodology. As identified at par 145, the valuers agreed that the before value of 430 was $6,875,000 applying a capitalisation rate of 5.25 per cent. It is therefore necessary to determine the after value so that this can be deducted from the before value to arrive at the appropriate amount of compensation. 155 The lower the capitalisation rate used, the higher the net present value of an asset. A low risk secure investment therefore attracts a low rate. 430 is in a prime location and has a secure income return. That location and potential for secure income return continues in the after situation but with greater risk. 156 There are two principal issues to consider in terms of assessing the loss of future cash flows, namely the appropriate capitalisation rate to apply given the risk of loss of support due to the lack of an easement for support, and what period should be assumed for the continuation of rent in that after scenario. It is also relevant for a purchaser to consider that the business on the ground floor of 430 (Lot 6) can continue regardless of whether support is withdrawn to upper floors. 157 The availability of an application to the Supreme Court of NSW under s 88K of the Conveyancing Act and the requirement for development consent for demolition of Lot 12 are matters which a prudent hypothetical purchaser on obtaining legal advice is likely to take into account in considering the likely risk of removal of support. I accept the criticisms of Mr Davis' approach made by TIDC's counsel (see par 148(b) and (c)) that he failed to have regard to these factors but as the Applicant's and Council's valuers noted, and as stated at par 131, a purchaser would be very careful about the acquisition of a property when successful litigation would be required to reinstate the necessary easement. 158 While I do not agree as already indicated with TIDC's argument that the sum total of compensation payable is the cost of an application under s 88K, the possibility of such an application being made is a factor which a prudent hypothetical purchaser may well obtain legal advice about and take into account. I do not consider I am able to draw any certain conclusion as to the likelihood of success of such an action and have already indicated that I do not accept TIDC's argument that success is virtually assured. The availability of such a right to apply to the Supreme Court of New South Wales for reinstatement of the easement should be assumed as having the possibility of success in the mind of a prudent hypothetical purchaser, based on legal advice. 159 I also consider that a prudent hypothetical purchaser would consider it is unlikely that development consent for the demolition of Lot 12 would be granted quickly. As referred to at par 94, a prudent hypothetical purchaser would also be able to review the publicly available information from TIDC up to the date of acquisition as set out at par 41 - 53 (and assuming that is all publicly available, about which there is some dispute). That information would suggest that there is not an immediate intention to remove support. 160 Consequently a prudent hypothetical purchaser would consider there was some risk of loss of support but not to the extent Mr Davis allows, represented by his valuation in the after scenario based on only one year of rent continuing and a capitalisation rate of eight per cent. While I do not accept the criticisms made by TIDC that Mr Davis is not comparing "like with like" (par 148(a)) in the before and after approach it is appropriate to adjust for less "risk" of loss of support in the mind of a prudent hypothetical purchaser. That means a calculation with a lower capitalisation rate in the after scenario that is less than the eight per cent applied by Mr Davis but greater than the 5.25 per cent agreed by Mr Dempsey and Mr Davis in the before scenario.

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Judgment (90 paragraphs)

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Cases Cited (14)

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