Denshire v Roads and Maritime Services

Denshire v Roads and Maritime Services - [2017] NSWLEC 181 - NSWLEC 2017 case summary — Zoe

Special value claim after compulsory acquisition of part of land

The Applicant Steven Denshire owns land known as 21 Jubilee Street Townsend (the Land). Part of the Land was compulsorily acquired on 27 February 2015 by the Respondent the Roads and Maritime Services (RMS) for the Pacific Highway upgrade between Woolgoolga and Ballina. Steven Denshire commenced an appeal under s 66(1) of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) in relation to the compensation payable for the partial acquisition of the Land. The Court has jurisdiction to determine these appeals under s 19(e) of the Land and Environment Court Act 1979 (Court Act). I thank Acting Commissioner Maston for his valuable assistance in determining this matter.
On 11 January 2008 Steven Denshire granted a general power of attorney appointing Warwick Denshire his father and Nicholas Denshire his brother as his attorneys. The power of attorney appoints the two attorneys jointly and severally. He was represented by lawyers in these proceedings until 10 working days before the hearing. Steven Denshire was represented in the first phase of the hearing by his brother and then his father acting consecutively under the power of attorney and/or as agent under s 63(2) of the Court Act.
The parties agreed market value and disturbance. At issue is a claim of special value as first identified by Steven Denshire on the first day of the hearing. After three days of hearing the matter was adjourned for several weeks to provide the opportunity to Steven Denshire to prepare his submissions in response to those of RMS. The RMS presented its arguments first in the interests of fairness to Steven Denshire, contrary to the usual course in such matters. At the reconvened hearing Steven Denshire was again legally represented.
The Court is acting as the judicial valuer in this case per Sydney Water Corporation v Caruso (2009) 170 LGERA 298; [2009] NSWCA 391 at [3], [35], [37], [146] and [150] and Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156; 73 LGRA 47.
In Roads and Traffic Authority of New South Wales v Perry (2001) 52 NSWLR 222; [2001] NSWCA 251 Handley JA (Powell and Hodgson JJA) explained that an applicant bears the onus of proving their claim for compensation in compulsory acquisition matters, at [67]: The [Just Terms] Act defines the right of a former land owner to compensation in both positive and negative terms. This definition, including its negative as well as its positive aspects, is "a statement of the complete factual situation which must be found to exist" before a landowner has a right to compensation and he therefore bears the onus of proof.

[6]

Chronology

The Court does not understand the following chronology to be contentious. Date Event 25 November 2004 Clarence Valley Council grants Development consent 2004/0418 for 24 lot subdivision of the future Denshire property (including the Acquired Land). October 2005 RMS announces Pacific Highway Upgrade route options and provides a display for community comment. September 2006 RMS announces preferred route and provides a display for community comment. 10 January 2008 Steven Denshire purchases the property for $645,000. 11 January 2008 Steven Denshire gives Power of Attorney to Warwick Denshire and Nicholas Ryan Denshire. January 2009 RMS announces concept design and provides a display for community comment. May 2009 The Minister for Roads asks RMS to work with local cane growers and affected landowners to investigate the feasibility of an alternative route that avoids the high value cane land along the south arm of the Clarence River between Tyndale and Maclean. October 2010 Following community feedback, RMS announces alternative alignment near Tyndale and provides a display for community comment. 20 October 2010 Proposed Residential Subdivision Plans for the Denshire property are finalised. 20 October 2010 Construction Certificate 2008/0028 for subdivision works on the Denshire property is issued. February 2011 RMS provides a Pacific Highway Upgrade Community update. August 2011 RMS decides to include the alternative route between Tyndale and Maclean in the Environmental Assessment for the Woolgoolga to Ballina Project (after receiving feedback from the community concerning the discussion paper for the alternative alignment). October 2011 RMS provides a Pacific Highway Upgrade Community update. 23 December 2011 The Denshire property is part zoned SP2 - Infrastructure under Clarence Valley LEP 2011. Previously, the whole of the Denshire property was zoned R2(a) - Residential. March 2012 RMS holds a community information session at Tyndale and sends out an information session letter prior to the session. 20 October 2012 Construction Certificate 2008/0028 expires. October 2012 RMS provides a Pacific Highway Upgrade Community update. December 2012 RMS provides a Pacific Highway Upgrade Community Update regarding the EIS. 12 December 2012 to February 18 2013 Woolgoolga to Ballina Project EIS is published and on display to the public for community comment. RMS holds public information sessions for community on: January 2013 • 16 January 2013 - Tyndale • 17 January 2013 - Gulmarrad • 18 January 2013 - Maclean March 2013 RMS sends the Maclean Interchange alternative options letter and map out to relevant households and invites the community to comment on the two alternative routes developed for the Maclean Interchange and access to Townsend and Gulmarrad. 15 March 2013 Put and Call Option Agreement entered into by Mr Taylor and Warwick Denshire. 13 May 2013 John Moreton (RMS) emails Warwick Denshire concerning the proposed acquisition. 24 June 2014 NSW Planning Minister grants Infrastructure Planning Approval for the Woolgoolga to Ballina Pacific Highway Upgrade Project. 25 November 2014 RMS issues a Proposed Acquisition Notice to the Applicant for the Acquired Land. 27 February 2015 Date of Acquisition of the Acquired Land (ie. Gazette notice published).

[9]

Put and Call Option dated 15 March 2013

Relevant sections of the P&C Option between Warwick Denshire and Mr Taylor are as follows: PUT & CALL OPTION DATED 15th day of March 2013 BETWEEN: WARWICK MAXWELL DENSHIRE of 10 Phoenix Road, Black Hill in the State of New South Wales ("the Grantor") AND: GLEN TAYLOR of 20 McEwan Street Belmont South, in the state of New South Wales; Company Director (the Grantee) PREAMBLE: A. The Grantor has authority from the registered owner of the land described in Item 1 of the First Schedule, to enter into sales agreements relating to the land. B. The Grantee has requested the Grantor to grant to the Grantee a Call Option on the basis that the Grantor will have the right to require the Grantee to purchase the land by exercising the put option. … 1. Definitions 1.1 In this Agreement, unless the context otherwise requires: … "Call option" means the option granted in Clause 2.1; "Call Option Expiry Date" means the date as set out in Item 5 of the First Schedule; … "Contract" means a Contract for the sale and purchase of a lot or the land as the case may be on the terms set out in the Contract referred to in the Second Schedule; ... "Put option Expiry Date" means 14 days from the expiry of the Call Option or such later date as is provided for in Clause 4.2.(b). … 1A. Development Application Development Application 2004/0418 was approved on 16th November 2004 for a 24 lot subdivision. The Grantee agrees to construct the lots as shown in the plan to comply with the conditions of consent. 1B. Registration of the plan The Grantor agrees to register the plan of subdivision in a timely manner and will supply the Grantee a [sic] with a copy of a Sales Contract for each new lot as well as two title searches for two of the new lots indicating that registration has been completed PROVIDED THAT the Grantor may in his absolute discretion register the subdivision. 2. Call Option 2.1 In consideration of the payment of the Option Fee by the Grantee to the Grantor, the Grantor offers to sell to the Grantee or its nominee all of the lots by one or more Contracts at the price per lot set out in Item 3 of the First Schedule. 2.2 The Grantee or its nominee may purchase any one or more of the lots individually or together at any one or more times for the amount per lot specified by the Grantee but not less than the amount set out in the First Schedule. 2.3 The Call Option is irrevocable until the Call Option Expiry Date and will lapse at 5.00pm on such date. 3. Exercise of Call Option 3.1 The Grantee may with respect to any one or more of the lots exercise the Call Option at any time prior to 5.00pm on the Call Option Expiry Date by delivering to the Grantor's Solicitor two copies of a Contract for sale executed by the Grantee or its nominee with the name and address of the Grantee or its nominee with the name and address of the Grantee or its nominee as Purchaser, details of the Purchaser's Solicitor and the price nominated by the Grantee as provided in Clause 2.2 inserted in the Contract and the deposit as specified in the sales contract. The Contract shall be otherwise completed with the title reference to the land and shall have attached a copy of the Folio Identifier, Deposited Plan and Section 88B Instrument. … 4. Put Option 4.1 If the Grantee has not exercised the Call Option with respect to any lot by the Call Option Expiry Date the Grantee grants to the Grantor an option to require the Grantee to purchase any of such lots at the price set out in the First Schedule for the relevant lots and on the terms set out in the Sales Contract. 4.2 The Put Option is irrevocable and can be exercised at any time after the Call Option Expiry Date and will lapse without further notice at 5.00pm on the date which is fourteen (14) days after the last to happen of: (a) The Call Option Expiry Date; (b) The rescission or termination of any Contract entered into as a result of the exercise of the Call Option with relation to any lot 5. Exercise of Put Option The Grantor may exercise the Put Option by delivering to the Grantee or its Solicitors two (2) copies of the Sales Contract completed by adding appropriate details of the Grantee, the price and the date for completion ascertained in accordance with the provisions hereof and signed by the Grantor as Vendor. The Grantor shall annex to the Contract a copy of the Folio Identifier, Deposited Plan and Section 88B Instrument. The Grantee or its nominee shall sign and return one copy of such Contract with the deposit as specified in the sales contract, to the grantor within fourteen (14) days of the exercise of the Put Option. … 9. Access 9.1 From the date of execution of this Agreement the Grantee and its contractors and consultants may enter upon any or all of the lots for the purposes of inspection, survey, and selling. All such entry shall be at the sole risk of the Grantee. 9.2 In exercising its rights under Clause 9.1 the Grantee acknowledges that: 9.2.1 nothing shall permit or authorise interruption to the Grantor's quiet enjoyment of the lots; 9.2.2 any such right of entry shall be exercised at the risk of the Grantee and any other person entering pursuant thereto; 9.2.3 The Grantee shall be responsible to make good at its expense any damage to any of the lots caused directly or indirectly by any person entering the lots pursuant to this clause; 9.2.4 The Grantee agrees to indemnify the Grantor and to hold the Grantor always indemnified against any claim for civil damages or prosecution for breach of any law if such claim or prosecution arises out of or in consequence or the exercise by the Grantee of its rights under this Clause; 9.2.5 The Grantee further indemnifies the Grantor in respect of any action, claim, suit or demand of whatsoever nature or kind and which may be made or brought against the Grantor as a result of the Grantee or any persons authorised by the Grantee entering upon any or all of the lots. 9.3 The Grantee will effect and maintain at its own expense public risk insurance for an amount of $10 million for any one claim and workers' compensation insurance cover to the extent that all persons who may frequent the land may be appropriately insured. … FIRST SCHEDULE 1. Land Lot 2 DP807072 2. Lots in proposed Plan of Subdivision (Annexed Plan) Proposed Lots 1-24 3. Price Lot 1 $145,000 Lot 2 $140,000 Lot 3 $140,000 Lot 4 $140,000 Lot 8 $140,000 Lot 9 $135,000 Lot 10 $140,000 Lot 11 $145,000 Lot 12 $155,000 Lot 13 $155,000 Lot 14 $135,000 Lot 15 $125,000 Lot 16 $130,000 Lot 17 $130,000 Lot 18 $130,000 Lot 19 $130,000 Lot 20 $130,000 Lot 21 $170,000 Lot 22 $140,000 Lot 23 $250,000 Lot 24 $210,000

[11]

Affidavit 21 November 2016

Warwick Denshire swore three affidavits in these proceedings. The first sworn 21 November 2016 addressed the formation of the P&C Option and the process by which the acquisition occurred. Warwick Denshire is a farmer and property developer. He stated that he has considerable experience developing residential land by way of subdivision for sale. Warwick Denshire holds a general power of attorney on behalf of Steven Denshire.
Warwick Denshire deposed that Steven Denshire purchased the Land in 2008 with an intention to develop the property by way of subdivision and sell the individual lots. Development consent to subdivide the Land into 24 residential lots had been obtained prior to the purchase. The purchase was made with a loan of $600,000 from Kiriwina Finance Company Ltd (Kiriwina). An additional loan was approved to cover development costs.
On 15 March 2013 Warwick Denshire prepared and entered into a P&C Option to sell 21 of the 24 lots to be created from the subdivision to Mr Taylor. Warwick Denshire deposed that Steven Denshire was to receive $3,050,000 from the sale of the 21 lots according to the prices listed in the First Schedule of the P&C Option.
Warwick Denshire deposed in his affidavit that cl 1A contains a mistake. "Grantee" (Mr Taylor) should read "grantor" (Warwick Denshire) in the second sentence. Warwick Denshire intended to construct the subdivision. He would be paid $800,000 by Steven Denshire for this work.
Warwick Denshire was contacted by RMS by phone on 13 May 2013 to advise him that part of the Land may be acquired. Warwick Denshire then placed the subdivision on hold as a result of uncertainty surrounding the potential acquisition. He received a written offer from RMS dated 18 September 2013 to purchase part of the Land for $90,000 plus valuation and legal costs. Agreement to purchase was not reached. On 24 November 2014 RMS sent a proposed acquisition notice and claim for compensation form to Warwick Denshire. The acquisition was gazetted on 27 February 2015. A report prepared for RMS determined compensation for market value and disturbance in the sum of $139,338.
Warwick Denshire asserted that the acquisition has rendered the Land "materially different to that to which the [P&C] Option refers with a result that the terms of the Option are incapable of being implemented". The subdivision works have not been carried out and the lots remain unsold.

[12]

Affidavit 10 July 2017

Warwick Denshire swore a second affidavit dated 10 July 2017 which expanded on matters deposed to in the first affidavit. Warwick Denshire provided further detail about his experience with residential subdivisions. He attached copies of four P&C Options related to subdivision development in Fletcher, in three of which Mr Taylor was grantee. Warwick Denshire deposed that the P&C Option in the present case was prepared by him without the assistance of a solicitor using the previous P&C Options with Mr Taylor as templates. He stated that all previous dealings with Mr Taylor involved Warwick Denshire doing subdivision construction works and another party selling the lots. It is clear that the words "grantee" and "grantor" were mixed up in cl 1A of the P&C Option owing to Warwick Denshire's lack of legal expertise.
Warwick Denshire deposed to a telephone conversation with Steven Denshire in which Warwick Denshire offered that if Steven Denshire lent him the profit from sales under the subdivision Warwick Denshire would do all the work including registration for $800,000, the rest of the profit would be Steven Denshire's and that could be rolled into the development of Fletcher.
Warwick Denshire deposed that at the time the P&C Option was signed it was "common knowledge that the Pacific Highway was going to be upgraded". He did not know any details about the upgrade at that time. He spoke to an RMS employee about the acquisition process in June 2013 then contacted Mr Taylor in July 2013 to suggest placing the subdivision on hold. Warwick Denshire deposed that Mr Taylor became "increasingly agitated and abusive towards me about the delay" apparently due to the disruption this would cause to sales off the plan at the Fletcher development. Mr Taylor indicated that he no longer wanted to proceed with the deal due to uncertainty on 8 April 2014. At no point has Mr Taylor attempted to enforce the P&C Option. Warwick Denshire deposed that he would have undertaken the subdivision works, registered the subdivision and sold 21 lots to Mr Taylor under the P&C Option had it not been for the acquisition by RMS.
Warwick Denshire deposed that Kiriwina approved a further loan of $450,000 to cover development costs on the Land. In addition to loan obligations to Kiriwina, Council rates have been incurred since 15 March 2015.
Warwick Denshire deposed that he arranged a commercial lease agreement with a tenant to use part of the Land for storage purposes as he thought it would be useful to have a local on site for security reasons. A copy of the lease was attached to the affidavit. The lease was granted by a company of Warwick Denshire called Wentworth Development (NSW) Pty Ltd from 15 March 2013 to 15 March 2014 with no options to renew. In fact the lease was held over under cl 3 of the lease and continued up to the date of acquisition on 27 February 2015. The lease related to part of the subject land. The land leased was described as "21 Jubilee Street - Property Lot 23 & 24". Lots 23 and 24 are the only two lots with frontage to Jubilee Street as shown on a sketched plan of the proposed subdivision attached to the lease. The permitted use was described in the lease as "commercial/storage use - the timber building on the land is uninhabitable". A special condition emphasised that the timber building was to be used for storage purposes only. Warwick Denshire deposed in his affidavit that the lease did not prevent him from carrying out the subdivision works.

[18]

Valuation evidence

Mr Dempsey valuer instructed on behalf of Steven Denshire stated in his report dated 25 July 2017 that he considered market value, special value and disturbance were relevant to the assessment of compensation. He adopted the town planner's opinion that the highest and best use of the land prior to acquisition was for the approved 24 lot subdivision. Mr Dempsey referred to 22 sales placing most reliance (least adjustment necessary) on the sale of the adjacent land at 33 Jubilee Street. The market value of the acquired land based on this use was $57,000 once costs of construction as calculated by Mr Philpott of $1.9 million were deducted from the gross realisation of $3,450,000, allowing for a cost of debt of 8% and profit margin of 25%. Adopting Mr Philpott's costs resulted in a value below the market value of the parent parcel as a rural home site which Mr Dempsey assessed at $387,000. The other lesser construction costs provided to Mr Dempsey were from a construction company Daracon, whose evidence was not ultimately read in these proceedings and an estimate by Warwick Denshire of $800,000. No further mention of special value appears in his report.
Mr Lunney valuer for RMS prepared a report dated 26 July 2017 in which he concluded that the approved subdivision was economically unviable both before and after acquisition. He undertook a hypothetical development calculation which derived a residual land value of $95,000, significantly lower than the market value of the parent parcel based on its use as a rural lifestyle property. Mr Lunney analysed the adjacent property 33 Jubilee Street which was the best evidence of the market value of the parent parcel at the date of acquisition. The land at 33 Jubilee Street had a similar area to the parent parcel, enjoyed the benefit of a development consent for a 23 lot subdivision and sold 22 days prior to the date of acquisition. It sold for $525,000, which confirmed Mr Lunney's opinion that the highest and best use of the parent parcel at the date of acquisition was as a rural lifestyle property and not a residential subdivision. On this basis he valued the parent parcel at $480,000.
The valuers prepared a joint valuation report dated 3 August 2017. They agreed that the market for vacant residential land at Townsend was not strong at the date of acquisition in light of the approved subdivisions in the immediate area which supplied the demand for that type of land. The hypothetical development model they undertook was not economically viable unless the P&C Option was legally enforceable. Various development scenarios were identified in a table including different assumptions of costs applying Mr Philpott's and Warwick Denshire's costings. It is only necessary to set out two scenarios considered. Calculation Assumptions Calculated Residual Land Value … • Parent Parcel 7 • Assumes option was valid $1,607,000 • Assumes Mr Denshire's cost estimate • Parent Parcel 8 • Assumes option was valid $520,000 • Assumes Mr Philpott's cost estimate

[19]

As the table shows, we agree that a number of these calculations derived a residual land value which was in excess of the agreed "rural lifestyle value" of $470,000. 30. We note that the calculation which exceeds the agreed rural lifestyle value by the greatest margin is Calculation 7 which assumes that the approved subdivision could have been completed at a cost of $800,000 as estimated by Mr Warwick Denshire. 31. We note that Mr Philpott, in his supplementary report has addressed Mr Warwick Denshire's estimated development cost. He has concluded that this cost estimate is too low. He has expressed the opinion that it would not have been possible to complete "all the work to registration" for $800,000. 32. Mr Lunney is of the opinion that an intending purchaser of the Parent Parcel, as at the Date of Acquisition, would be unlikely to place any significant weight on a development cost estimate which was prepared by the vendor or a relative of the vendor. An intending purchaser which had the benefit of Mr Philpott's report and Mr Philpott's supplementary report would likely form the opinion that the cost which would be incurred by the purchaser in completing the approved subdivision would be between $1,823,044 and $1,918,104. 33. Mr Dempsey makes no assumptions as to cost as this is outside his expertise. He also notes the Applicant has not retained a cost expert report and consequently we do not have the benefit of a joint report dealing with cost. I agree with Mr Lunney that a purchaser would make their own enquiries in relation to cost and once that information is received would likely take that information into account along with all other contractual conditions in arriving at a purchase price.
The valuers ultimately agreed market value of the acquired land of $70,000 on the basis that the P&C Option was not legally binding and enforceable at the date of acquisition and hence a residential subdivision was not economically viable. The residual land value of $400,000 was less than the agreed rural lifestyle value of the parent parcel of $470,000.
At the hearing Steven Denshire did not rely on Mr Dempsey's report beyond accepting that market value should be $70,000. Mr Dempsey did not appear to give evidence in person.
Mr Lunney also prepared a supplementary report (Exhibit 3) dated 14 August 2017 during the hearing which addressed the issue of special value. Steven Denshire's special value claim was not identified until the first day of hearing on 13 August 2017. In his supplementary report Mr Lunney expressed his opinion that the P&C Option had a depressing effect on the value of the Land to the owner because: 1. Clause 1A states that "the Grantee agrees to construct the lots as shown in the plan to comply with the conditions of consent"; 2. Clause 1B provides that the grantor agrees to register the plan of subdivision in a timely manner at his discretion; 3. the call option gives the grantee the right to "call" (or require) the grantor to enter into a contract of sale of land for any one or more of the nominated 21 of the 24 lots the subject of the development consent (as determined by the grantee) on valid exercise of the call option before the call option expiry date; 4. the put option entitles the grantor, on valid exercise of the put option before the put option expiry date, to require the grantee to enter into a contract to purchase from the grantor any one or more of the nominated lots which the grantee has not required the grantor to sell to the grantee; 5. there is no stipulation as to the time frame over which the grantee would be required to "construct the lots" and thus enable the grantor to register the subdivision so as to trigger the call option or, in turn, the put option.
Calculation 7 above assumes that the total cost to complete the approved subdivision to registration would be $800,000. In his reports of 1 August and 10 August 2017, Mr Philpott expressed the opinion that Warwick Denshire's cost estimate of $800,000 was too low and that it would not have been possible to cover all of the necessary works required for completion to registration, even without taking any labour costs into account. Mr Lunney did not have sufficient information and documents available to enable him to form an opinion as to the capacity (including the financial capacity and ability to raise construction finance) to undertake the subdivision works at the relevant time for $800,000.
Given the significant disparity between Warwick Denshire's estimate of development costs and the "fixed price lump sum contract" and Mr Philpott's estimate of development costs, Mr Lunney's opinion was that calculation 7 and the residual land value derived by that calculation is of no assistance in determining either the market value of the parent parcel or any special value.
In Mr Lunney's opinion, some limited assistance can be gained from calculation 8. This calculation derived a residual land value of $520,000 which is greater than the agreed rural lifestyle value of $470,000. Both calculations are based on the assumption that the P&C Option was "valid". Mr Lunney was instructed that, in its existing form, the P&C Option did not operate in this manner. As such, it would be necessary to make a downward adjustment of the residual land value under calculation 8 to take into account the perceived time, cost and risk associated with the potential rectification of the P&C Option in the Supreme Court. Although the quantification of such adjustment would be a difficult and subjective exercise, the necessary adjustment will be significant and the resultant residual land value would almost certainly be lower than the agreed rural lifestyle value of $470,000.
From this analysis it is apparent that the only calculations which would result in a residual land value being calculated which was higher than the agreed rural lifestyle value of $470,000 (having regard to the need to rectify the P&C Option) are calculations based on an unrealistically low development cost. These are inconsistent with Mr Philpott's expert evidence, or calculations which assume Warwick Denshire's estimated development cost as set out in the "fixed price lump sum contract".

[24]

Construing grantee and grantor in cl 1A

Clause 1A of the P&C Option should be construed so that "grantee" is read as "grantor" in the second sentence. Properly construed this avoids an absurd result. Warwick Denshire should be responsible for the construction of lots as to construe cl 1A otherwise would lead to an unreasonable result, relying on Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 at 109 per Gibbs J (dissenting, but not on this issue). To impose the obligation on Mr Taylor to build the subdivision would be an absurd and inconsistent operation of the P&C Option.
Clause 9 of the P&C Option is inconsistent with the construction that Mr Taylor had imposed on Warwick Denshire an obligation to "construct the lots". Clause 9 expressly provides that Mr Taylor had limited rights to enter the lots for the purposes of inspection, survey and selling - to which were attached several specific obligations detailed elsewhere in the P&C Option (such as not interrupting Warwick Denshire's quiet enjoyment, indemnities and the obligation to have insurance). The specific and relatively detailed nature of the obligations under cl 9 in respect of access for the seemingly non-invasive purposes of inspection, survey and selling is inconsistent with a construction of cl 1A that contains no details concerning the much more onerous obligation to "construct the lots".
Clause 1B provides that the grantor Warwick Denshire may at his absolute discretion register the subdivision. Options only commence when registered. That the options are not readily engaged is absurd giving rise to no contractual benefit to Mr Taylor.
There is no suggestion in the evidence that, other than the second sentence of cl 1A, the obligations upon Mr Taylor to "construct the lots" are detailed. It would be absurd to conclude that this single sentence, absent any other agreement, was sufficient to cast upon Mr Taylor the obligation to perform a subdivision at a cost of $800,000 (if he were to perform the work in accordance with the costs the subject of the development agreement between Steven and Warwick Denshire) or $1.9 million (on Mr Philpott's evidence).
The proposition that the second sentence of cl 1A, on its proper construction, imposes an obligation on Warwick Denshire is consonant with the evidence concerning an agreement between Warwick and Steven Denshire for construction of the lots. There is no suggestion in the evidence of an agreement between Mr Taylor and Steven Denshire for construction of the lots. Mr Taylor also sent an email to the solicitors for RMS on 24 May 2016 which stated that "He [Warwick Denshire] never went ahead and did the development", indicating that the agreement was between Warwick and Steven Denshire. A construction of cl 1A that imposed the obligation to construct the lots on Warwick Denshire would avoid an unreasonable result as it would conform to the underlying evidence.

[31]

Finding on construction of P&C Option

Steven Denshire's counsel submitted that the Court should construe the P&C Option in a certain way. He does not seek an order for rectification of the P&C Option which is an action that would presumably be necessary in the Supreme Court if Warwick Denshire as a party sought to enforce it.
I am construing the P&C Option in the absence of submissions from Mr Taylor, one of the parties to that agreement. The scheme of the P&C Option if "grantee" remains in the second sentence of cl 1A is financially onerous on Mr Taylor even if he could decide to implement the agreement at a time of his choosing as RMS submitted. He would be responsible for paying the option fee, the cost of developing and registering the subdivision and also buying the lots he built, effectively paying twice.
In Australian Broadcasting Commission v Australasian Performing Right Association Ltd Gibbs J held at 109 that where there are two competing constructions available a contract must be construed to avoid a "capricious, unreasonable, inconvenient or unjust" result. In Codelfa Mason J held at 352: [W]hen the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.
The word "grantee" has a clear meaning in cl 1A but when read in the context of the whole P&C Option the consequence is absurd. I accept Steven Denshire's submissions in this regard.
I agree with Steven Denshire that it would be absurd to expect a person in Mr Taylor's position to pay for the civil engineering works (worth $1.9 million according to Mr Philpott) and then pay full price for the finished subdivision lots. I adopt the reasoning of Steven Denshire on this issue and reject the argument of RMS to the contrary. Thus, the obligation to construct the lots and register the subdivision lay with Warwick Denshire.
In relation to whether a reasonable time should be inferred I note that cl 1B of the P&C Option already states that the grantor is to register the plan of subdivision in a timely manner. The inference of completion in a reasonable time can be drawn for the reason given by Steven Denshire's counsel. As RMS submitted it is not possible to determine what is reasonable, and Steven Denshire has not sought to do so. Reasonableness might depend on prevailing and future property market conditions, the grantee's ability to construct and other unknown variables. I am not able to imply a time frame for the subdivision development obligation.
Further, the only evidence on time frame in these proceedings (which is provided by RMS' quantity surveying expert Mr Philpott) estimates that it would take Warwick Denshire approximately four and a half years' worth of labour to complete the project. Steven Denshire has not commented on whether this time frame would be reasonable.
Given my conclusion on the reading of "grantee" in cl 1A I do not need to determine whether Steven Denshire presumably through his father could step in to build the subdivision and so trigger the call option.

[33]

Steven Denshire's submissions

Steven Denshire's counsel referred to Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209; [1999] HCA 64 at [292]-[293] per Callinan J identifying that special value arose in circumstances where there was a conjunction of some special factor relating to the land and a capacity of the owner exclusively or almost exclusively to exploit it for economic advantage. In Roads and Traffic Authority v Hurstville City Council (2001) 113 LGERA 223; [2001] NSWCA 11 at [40] Mason P (Sheller and Powell JJA agreeing) referred to Boland v Yates at [293] where Callinan J referred approvingly to the Australian Law Reform Commission definition of special value as "that additional economic advantage which the owner obtains, by reason of his ownership... which is not reflected in the market value". The statutory language of s 57 is wide referring to any advantage additional to market value which is incidental to an applicant's use of the land.
The advantage was the benefit to Steven Denshire of the lots being sold to Mr Taylor under the P&C Option following the carrying out of the subdivision. While it is true that the P&C Option was not entered into by Steven Denshire that fact does not prevent s 57 from being engaged. That is because Warwick Denshire was bound to act in his son's best interests as his attorney which of course is consonant with their familial relationship. It follows that Warwick Denshire would not have let the put option expire (in the event that Mr Taylor did not exercise the call option), when exercising the put option would have been to Steven Denshire's advantage. The gain to Steven Denshire in the event that lots were sold pursuant to the P&C Option falls within the term "any advantage" in s 57.
The requirement in s 57 is that special value be "in addition to market value". The P&C Option does not run with the land thus it cannot be taken into account in determining market value. A prospective purchaser would not be able to take advantage of the P&C Option and would accord no value to it. The circumstances of this case are in contrast to Boland v Yates, where - in respect of land upon which markets were proposed to be built - the conclusion was reached that the proposed development would be available to any purchaser, and so formed part of the market value.
As for the requirement in s 57 that the "advantage" be "incidental" to Steven Denshire's use of the land, the financial advantage arises by reason of an agreement to sell the lots the subject of the P&C Option, upon the construction of lots on the land. This financial advantage is incidental to Steven Denshire's use of the land.
The conclusion that s 57 is engaged is consonant with Callinan J's reasoning in Boland v Yates at [292]-[293]. In particular, the financial advantage here is one "relating to the land and a capacity on the part of the owner exclusively or perhaps almost exclusively to exploit it". No one other than Steven Denshire receives a financial benefit from the P&C Option. Similarly, the financial advantage is one that "has an economic significance to the owner". This is not a case where Steven Denshire is claiming that "special value" is engaged because of sentiment or long attachment, see Bronzel v State Planning Authority (1979) 21 SASR 513 at 525 referred to in Roads and Traffic Authority v Hurstville City Council at [46].

[36]

In addition to market value

Fundamental to a successful claim for special value is that the advantage must be additional to market value. Development consent for a residential subdivision was granted in relation to the parent parcel in 2004. The residue land can be subdivided under a modified development consent which the town planners agree is able to be obtained under s 96 of the EPA Act. At the date of acquisition the valuers agreed that use of the land as a rural lifestyle property was a more valuable use than subdivision. Nevertheless, the ability to subdivide land is inherently part of market value.
Steven Denshire's claim does not rely on any attribute of the land. There is nothing "special" about the acquired or residue land. It remains capable of subdivision after acquisition assuming that market conditions are favourable regardless of who is the owner.
Boland v Yates a professional negligence claim concerning valuation advice was considering s 124 of the Public Works Act 1912 which did not refer to special value. The special value the subject of the professional negligence claim was recognised as arising at common law. Callinan J considered special value extensively and the following paragraphs from his Honour's judgment are often referred to on this topic: [292] I group these two topics together because although they are separate they are related concepts. The special value of land is its value to the owner over and above its market value. It arises in circumstances in which there is a conjunction of some special factor relating to the land and a capacity on the part of the owner exclusively or perhaps almost exclusively to exploit it. None of the examples given by the Full Federal Court are true examples of special value. There will in practice be few cases in which a property does have a special value for a particular owner. Obviously neither sentiment nor a long attachment to it will suffice. The special quality must be a quality that has an economic significance to the owner. A possible case would be one in which, for example, a blacksmith operates a forge in the vicinity of a racetrack on land zoned for residential purposes as a protected non-conforming use, the right to which might be lost on a transfer of ownership or an interruption of the protected use (See for example s 79C of the Environmental Planning and Assessment Act 1979 (NSW)). Such a property will have a special value for its blacksmith owner, and perhaps another blacksmith who might be able to comply with the relevant requirements to enable him to continue the use but to no one else. [293] The Australian Law Reform Commission report Lands Acquisition and Compensation, with some slight adaptations goes some way towards correctly defining special value as "that additional economic advantage which the owner obtains, by reasons of his ownership ... and which is not reflected in the market value" (Australian Law Reform Commission, Lands Acquisition and Compensation, Report No 14, (1980), par 239). The example which I have given answers this description. What Handley JA in the Court of Appeal regarded as special value in this case does not.
In Mir Bros Unit Constructions Pty Ltd v Roads and Traffic Authority of New South Wales [2006] NSWCA 314 the size of the land was rejected as the basis for a special value claim under the Just Terms Act because that was part of its market value. The observations of Spigelman CJ (Handley and Tobias JJA agreeing) in Mir Bros at [84] and [85] are pertinent: 84 …The land was vacant industrial land. The allegedly special position related only to the size of the land. Size is a matter that does affect the market value of the land. Where there is no difference between the value of the land in general, and its value to the owner, there is no special value: Turner v Minister for Public Construction (1956) 95 CLR 245. That principle is now enshrined in the statutory definition of "special value"… 85 In Service Design Pty Limited v Commissioner of Highways (No 2) (1986) 59 LG RA 176 Matheson J held that the potential of land for subdivision is not a matter capable of attracting special value in the hands of the resumed owner, as the potential for subdivisions is one of the inherent characteristics of the land. Similarly, the potential development, or the potential for development of the then holding (which is said to be the special business of the Appellant), is an inherent characteristic of the land. The value created by that potential is included within the market value. The Appellant is not the only developer/investor in the fictional market exchange under s 56(i).
As Boland v Yates at [292] and Mir Bros emphasise special value generally derives from a special feature of land for a particular owner. In this case the financial advantage to Steven Denshire arises from his father's ability to undertake subdivision construction and registration in a commercial arrangement with someone like Mr Taylor. That advantage is not related to any special quality of the land. The ability to achieve sales of individual lots in a subdivision development is an inherent characteristic of such land and the value created by that potential is necessarily included in the market value assuming that is the highest and best use of the land. In this case the town planners agreed the highest and best use of the land was for residential subdivision. The valuers considered sales evidence based on that use, principally a 33 lot subdivision approved on the adjacent property and another large subdivision close by in Townsend, to conclude that the market at the date of acquisition was not strong because supply exceeded demand. The valuation of the land on the basis of a rural lifestyle property was therefore adopted by the valuers as being the more valuable use at the date of acquisition.
Steven Denshire's counsel submitted that a hypothetical purchaser on the date of acquisition "would not be able to take advantage of the P&C Option and would accord no value to it". This is not strictly true. Immediately before the compulsory acquisition took place the essence of the P&C Option is an agreement between Warwick Denshire and a person willing to purchase the available lots at fixed prices (Mr Taylor). An inherent feature of the market for subdivision of development land is the desire of the owner to secure sales (whether by pre-sale or in the ordinary course) of the lots and realise a development profit. The existence of Mr Taylor at a particular time signifies one available purchaser. The market value for finished lots in this situation takes account of all purchasers in the market and knowledge of them.

[37]

No relevant use of land at date of acquisition

The P&C Option only commences if: 1. Mr Taylor had found a purchaser or purchasers for one or more lots at not less than the prices and on the terms nominated in the schedule to the P&C Option; 2. the subdivision works had been completed to the satisfaction of the local council or a certifier, and a subdivision plan had been registered; 3. the put option or call option was exercised by written notice from Mr Taylor to Warwick Denshire or from Warwick Denshire to Mr Taylor; and 4. Mr Taylor had paid the consideration of $10,000 required under the P&C Option.
As noted in pars 75-76 there is no specific time frame in which the P&C Option is to be effected.
There was no use of the land relating to the alleged financial advantage namely residential subdivision taking place at the date of acquisition as s 57 requires. The Land was partially let to a tenant under a lease. Steven Denshire would have been a trespasser on the Land because the tenant would have had exclusive possession of a key part of it. The terms of the lease are summarised in par 27 above. The lease related to Lots 23 and 24 in the proposed subdivision, which fronted Jubilee Street and would have obstructed vehicular access to the remainder of the subdivision while the lease continued up to the date of acquisition. The permitted use of those lots and the timber building on it was for storage purposes only. There is no evidence that at any time during the lease term and up to compulsory acquisition of the acquired land any significant work took place on the subdivision land.
Steven Denshire may well argue in response to the finding in the previous paragraph that no relevant subdivision use occurred at the date of acquisition because the P&C Option had already been frustrated by the acquisition. Without determining that issue at this point in the judgment, Warwick Denshire entered into the P&C Option in March 2013 and was contacted about possible acquisition of part of the Land by an RMS representative shortly afterwards in May 2013. At this point he placed the subdivision on hold. While he does not state this in his affidavits I infer this means that he terminated the P&C Option. He did not proceed with any subdivision works. I do not have the benefit of evidence from Mr Taylor as to his understanding of this unilateral action of Warwick Denshire. The consequence of that decision is that the use of the land by Steven Denshire at the date of acquisition is as I have described in the previous paragraph.
I find that any alleged financial advantage was not incidental to Steven Denshire's use of the land on the date of acquisition.

[40]

Extent of loss of financial advantage

Assuming there was a loss of financial advantage how much financial advantage has been lost? As RMS submitted, relying on the advice of the town planners, the residue land can be subdivided into 20-24 lots. They agreed that a s 96 modification application for the existing development consent can be made to enable a modified subdivision plan to be approved. This suggests that the modification must be substantially the same as the existing consent. The residue land can be exploited in a similar way as in the "before" scenario. This leads to my next conclusion.
I accept RMS' submission that the special value claimed is in the nature of an impermissible "double dip" of compensation because: 1. the $3,115,000 figure represents the full amount payable under the P&C Option for the entirety of both the acquired land and residue land after that land is developed (without the lots excluded from the P&C Option). The $1,181,896 figure (the alternative calculation suggested by Steven Denshire's counsel assuming Mr Philpott's costs are preferred) represents the maximum amount payable under the P&C Option for the entirety of both the acquired land and residue land (without the excluded lots) after that land is developed, less the cost of carrying out the subdivision development (depending on whether Warwick Denshire's or Mr Philpott's costing is preferred); 2. no deduction has been made for the value of the developed residue land, the value of which is intrinsically included in Steven Denshire's figures. Essentially, he would be paid the purchase price for lots in a fully developed subdivision, while retaining the land on which those lots would hypothetically be developed so that he can develop them in actuality and sell them over time at market prices; and 3. there is no appropriate evidence from Steven Denshire on how the developed residue value of the land should be calculated for the purpose of off-setting the double dip contained in the starting figure.

[44]

Finding on frustration

In Codelfa Mason J (Stephen and Wilson JJ agreeing) stated at 357: ... I agree with Stephen J's acceptance of the approach adopted by Lord Reid and Lord Radcliffe in Davis Contractors. Lord Reid said that the task of the court is to determine "on the true construction of the terms which are in the contract read in light of the nature of the contract and of the relevant surrounding circumstances", "whether the contract which they did make is … wide enough to apply to the new situation: if it is not, then it is at an end". Later he described frustration as "the termination of the contract by operation of law on the emergence of a fundamentally different situation". Lord Radcliffe said: … frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract…It was not this that I promised to do. His Lordship, noting that special importance attaches to an unexpected event, observed "There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for".
Applying this authority to the particular circumstances here is problematic as I have no evidence from Mr Taylor as to whether he considered the P&C Option could not be given effect. According to Warwick Denshire's evidence he acted unilaterally in 2013 to place the subdivision on hold. That makes a finding as a matter of fact assessed at the date of acquisition of whether frustration resulted from the acquisition difficult to determine. It is not self-evident that it was frustrated for the reasons given by RMS. That Mr Taylor identified frustration of the P&C Option in his claim for compensation is not useful in the absence of any evidence from him. As already stated it is not necessary that I finally determine this issue but my preliminary view is that Stephen Denshire has not established that the acquisition did frustrate the P&C Option.

At a glance

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Judgment (48 paragraphs)

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Cases Cited (23)

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