G&J Drivas Pty Ltd v Sydney Metro - [2023] NSWLEC 20 - NSWLEC 2022 case summary — Zoe

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G&J Drivas Pty Ltd v Sydney Metro

[2023] NSWLEC 20

Land and Environment Court (NSW)|2022-08-18|Before: Duggan J

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At a glance

Source facts

Court

Land and Environment Court (NSW)

Decision date

2022-08-18

Before

Duggan J

Source

Original judgment source is linked above.

Judgment (74 paragraphs)

[1]

lam Pty Ltd v Roads and Traffic Authority of New South Wales [2009] NSWLEC 1365 Niezabitowski v Roads and Traffic Authority (2006) 147 LGERA 417 Overton Investments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (2001) 113 LGERA 439 Peter Croke Holdings Pty Ltd v Roads and Traffic Authority of NSW (1998) 101 LGERA 30 Peter Sleiman Property Investments Pty Ltd v Valuer-General of New South Wales (No 2) [2021] NSWLEC 47 Prasad v The Minister Administering the Environmental Planning and Assessment Act 1979 [2010] NSWLEC 193 Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer Vizagapatam [1939] AC 302 Roads and Maritime Services (NSW) v United Petroleum Pty Ltd (2019) 236 LGERA 389 Roads and Traffic Authority v Mosca (2006) 146 LGERA 335 Roads and Traffic Authority v Perry (2001) 116 LGERA 244 SNS Pty Ltd v Roads and Maritime Services (NSW) (2018) 232 LGERA 224 Sydney Water Corporation v Caruso (2009) 170 LGERA 298 Tolson v Roads and Maritime Services (2014) 201 LGERA 367 Turner v Minister of Public Instruction (1956) 95 CLR 245 Weston Aluminium Pty Ltd v Environment Protection Authority (2022) 253 LGERA 374 Woollams v The Minister (1957) 2 LGRA 338 Yates Property Corporation Pty Ltd (In Liq) v Darling Harbour Authority (1991) 24 NSWLR 156 Yates Property Corporation Pty Ltd (In Liq) v Darling Harbour Authority (1990) 70 LGRA 187 Category: Principal judgment Parties: G&J Drivas Pty Ltd (First Applicant) Telado Pty Ltd (Second Applicant) Sydney Metro (Respondent) Representation: Counsel: A Galasso SC with L Waterson and A Richards (Applicants) R Beasley SC with M Astill (Respondent)

[2]

[3]

Judgment Nature of proceedings Facts Issues for determination Construction of s 56(1)(a) of the Just Terms Act Nature of disputed construction Applicants' submissions - construction of s 56(1)(a) Respondent's submissions - construction of s 56(1)(a) Findings on construction of s 56(1)(a) of the Just Terms Act Application of s 56(1)(a) to facts of this case Decrease in the value of the Acquired Land Was the decrease caused by the proposal to carry out the Public Purpose? Evidence relating to causation Applicants' submissions on causation Respondent's submissions on causation Findings on causation Discontinue Decision What stage would the development have reached as at the Date of Acquisition absent the Discontinue Decision and the Stop Work Decision? Evidence relating to identification of relevant works Town planning Awarding of tender Demolition Heritage investigations Applicants' submissions Town planning Additional 2.5 months for commencement of tender Heritage/archaeological evidence Conclusion on timing and works Respondent's submissions Town planning Awarding of the tender Heritage experts Findings on evidence as to timing and stage of works absent proposal to carry out the Public Purpose Conclusions on what work would have been completed disregarding Discontinue Decision and Stop Work Decision Which of these factors would have affected value? Applicants' submissions Respondent's submissions Findings on factors affecting value Market value Issues for determination in connection with market value Direct comparison Evidence Applicants' submissions Respondent's submissions Findings on valuation methodology Determination of market value on RLV methodology Inputs into residual land value (RLV) Development costs Timing for completion Applicants' submissions Rental income - retail Time for completion Development costs Capitalisation rate Internal rate of return/profit and risk Other inputs Respondent's submissions Rental income - retail Capitalisation rate Internal rate of return/profit and risk Time for completion Development costs Findings on inputs into RLV model Rental income - retail Time for completion Development costs Internal rate of return/profit and risk Capitalisation rate Consequential determination of market value Disturbance Disputed disturbance claimed Applicants' submissions Valuation fees - s 59(1)(b) Stamp duty etc - s 59(1)(f) Respondent's submissions Applicants' claim under s 59(1)(b) Applicants' claim under s 59(1)(a)-(e) (which is subject to claims under this provision in the alternative to claims under s 59(1)(f)) Findings on disturbance Applicants' claim under s 59(1)(b) Applicants' claim under s 59(1)(a)-(e) (which is subject to claims under this provision in the alternative to claims under s 59(1)(f)) Conclusion and directions

[4]

Nature of proceedings

By Class 3 Application filed 29 October 2021, G&J Drivas Pty Ltd and Telado Pty Ltd (the Applicants) object to the amount of compensation offered by Sydney Metro (the Respondent) for the compulsory acquisition of its interest in land pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act).
A Proposed Acquisition Notice was issued to the Applicants on 18 November 2020.
The Respondent acquired the land by publication of an acquisition notice in the New South Wales Government Gazette on 19 March 2021 (the Date of Acquisition).
The Valuer-General issued its Compensation Notice pursuant to s 42 of the Just Terms Act on 12 October 2021 for the acquisition in the amount of $145,611,457 which consisted of: 1. $145,000,000 in market value pursuant to s 55(a) of the Just Terms Act; and 2. $611,457 in disturbance pursuant to s 55(d) of the Just Terms Act.
Immediately prior to the Date of Acquisition, the Applicants held a freehold interest as tenants in common over the following allotments situated within the Parramatta CBD of the City of Parramatta local government area with a total area of 3,673.4m2 consisting of: 1. Lot 1 in Deposited Plan 1041242, being known as 220 Church Street, Parramatta 2150 (220 Church Street); 2. Lot 1 in Deposited Plan 720291, being known as 222-230 Church Street, Parramatta 2150 (222-230 Church Street); and 3. Lot B in Deposited Plan 394050, being known as 48 Macquarie Street, Parramatta 2150 (48 Macquarie Street); (together, the Acquired Land). Figure 1: aerial view of the Acquired Land outlined in blue.
The Acquired Land was acquired pursuant to the Transport Administration Act 1988 (NSW) for the purpose of the Sydney Metro West Project (the Public Purpose).
The Applicants claim compensation for the market value of the Acquired Land on the Date of Acquisition pursuant to s 55(a) of the Just Terms Act in the amount of $200,000,000. With the inclusion of legal costs, valuation fees and other financial costs pursuant to s 59 of the Just Terms Act, the total amount claimed by the Applicants is $212,051,025.65.
The Respondent contends that the Applicants are, depending on the valuation methodology adopted, entitled to market value in the amount of $119,000,000. With the inclusion of legal costs, valuation fees and other financial costs pursuant to s 59 of the Just Terms Act, the total amount claimed the Applicants are entitled to as compensation is $119,523,613.

[5]

Facts

As at the Date of Acquisition: 1. The Acquired Land was improved by a two-storey mixed-use office and retail complex known as "Greenway Plaza"; and 2. Parts of the Acquired Land were leased to and occupied by tenants (Former Tenants).
As at the Date of Acquisition: 1. The Land was zoned "B4: Mixed Use" under the Parramatta Local Environmental Plan 2011 (the LEP); 2. Development consent DA/828/2017 (Existing Consent) had been granted by the City of Parramatta Council (Council) on 5 December 2018 for, inter alia, the demolition of Greenway Plaza and the erection on the Acquired Land of a building: 1. comprising a 25-storey tower fronting Macquarie Street (Macquarie Street Tower) and a four-storey tower fronting Church Street (Church Street Tower); 2. sharing a common ground floor retail podium and basement (Common Podium); and 3. having a gross floor area of approximately 39,000m2 (Approved Original Building); 1. The Applicants had taken steps to seek, but had not been granted, an additional consent to, inter alia, increase the gross floor area (GFA) of the Existing Consent by approximately 7,000m2 through an increase to the height of the Church Street Tower (Church Street Extension).
In August 2019, the Applicants prepared and submitted a design excellence competition brief for the proposed Church Street Extension to the Council which was endorsed by the Council on 18 October 2019.
As at the Date of Acquisition no physical works had been undertaken upon the Acquired Land for the erection of any building. The Applicants contend that as at the Date of Acquisition they had in fact undertaken other non-physical steps to progress the development of the Approved Original Building with the Church Street Extension (Expanded Building) including the preparation of detailed drawings for the Expanded Building. In addition, the Applicants had entered into contracts for: 1. The marketing and future leasing of the Approved Original Building, including: 1. Leasing Agency Agreement between the Applicants and Cushman & Wakefield dated 29 July 2019; and 2. Leasing Agency Agreement between the Applicants and CBRE dated 24 October 2019; 1. The provision of architectural services pursuant to a Consultancy Agreement between the Applicants and Crone Partners Pty Ltd.
The Applicants further pleaded the following: 1. As a result of the proposal to carry out and/or the carrying out of the Public Purpose, the Applicants delayed and ultimately abandoned the development of the Expanded Building. In particular, in or around February/March 2019, the Applicants discontinued the preparation of detailed drawings for the Expanded Building, and on or around 21 October 2019, the Applicants ceased all work on the development of the Expanded Building; and 2. But for the proposal to carry out and/or the carrying out of the Public Purpose, the Applicants would have progressed the development of the Expanded Building with the result that the following circumstances would have pertained to the Land on the Date of Acquisition: 1. an additional consent authorising the Church Street Extension, as well as any modifications to the Existing Consent necessary to authorise the integration of the Church Street Extension with the Approved Original Building would have been granted by the Council; 2. each Former Tenant would have been given a notice under the relevant demolition clause and vacated the Land accordingly; 3. a tender for the construction of the Expanded Building would have been let by the Applicants in January or February 2020, resulting in a contract for the construction of the Expanded Building; 4. the erection of the Expanded Building would have commenced in or around July 2020 and by the Date of Acquisition the demolition of Greenway Plaza and the undertaking of required archaeological investigations would have been completed; and 5. the Expanded Building would have been expected to be completed in or around July 2023.
The two dates referred to in [13(1)] above relate to the happening of two events: 1. The first date being in or around February/March 2019, is the date it is said that the Applicants discontinued the preparation of detailed drawings for the Expanded Building on the basis that the Applicants had suspicions that the Site (or part of it) would be acquired for the Metro West Project. The risk of such acquisition influenced the Applicants' decision making in connection with the proposed development to the extent that they determined to discontinue the preparation of plans for the extended building. This decision is referred to in the evidence as the Discontinue Decision; and 2. The second date being on or around 21 October 2019, when the Applicants made a decision to cease all work on the development of the Expanded Building. This decision is referred to in the evidence as the Stop Work Decision. The Stop Work Decision is said to have occurred as a consequence of the receipt on that day of a telephone call from the Respondent by its representative, Mr David Hobart, wherein Mr Hobart advised that the whole of the Site was to be acquired by the Respondent for the Metro West Project.
The Respondent disputes that the Applicants are entitled to compensation for work not actually undertaken as at the Date of Acquisition.
It is common ground that the highest and best use of the Acquired Land is as a development site for a mixed commercial/retail development.

[6]

Issues for determination

There are a series of complex issues that arise on the facts of this case, each of which require consideration in order that a determination of amount of compensation for the acquisition of the Land may be made.
The first issue is a question of statutory construction relating to whether the claim as formulated by the Applicants is available in so far as the Applicants rely upon the application of the statutory disregard in s 56(1)(a) of the Just Terms Act relating to preparatory work that was not undertaken due to the Discontinue Decision and Stop Work Decision and in so far as that work (if relevant) did not comprise physical work on the Land.
The determination of the construction issue will determine the basis upon which the Acquired Land is to be valued to determine compensation.
If the Respondent's construction is correct, the Acquired Land will be valued as a development site with an occupied and tenanted existing building with the benefit of an approved development consent for the Approved Original Building and the reasonably likely potential for an approval for the Church Street Extension.
If the Applicants construction is correct the process of determination is more complex: it will be necessary to determine what is required to be disregarded by the application of s 56(1)(a), namely whether the Discontinue Decision and the Stop Work Decision were caused by the proposal to carry out the Public Purpose and whether the effect of those decisions resulted in a decrease in the value of the Acquired Land as at the Date of Acquisition. There was a significant volume of lay and expert evidence relating to the determination of these issues that will require consideration.
In either case the market value of the Acquired Land will require determination. There is a dispute between the parties as to the appropriate valuation methodology to be adopted. The Respondent contends that the direct comparison approach is the valuation methodology to be used. The Applicants contend that a residual land value (RLV) approach is appropriate. In each methodology there are disputes between the parties as to the appropriateness of various comparable sales and/or the appropriate inputs to be adopted for the RLV methodology. Again, there was significant expert evidence adduced relating to each of these matters that will require consideration.
Finally, there remains a dispute between the parties as to the claims for disturbance pursuant to s 59 of the Just Terms Act relating to the Applicants' claims for: 1. Fees for two valuers pursuant to s 59(1)(b) of the Just Terms Act; and 2. A claim for stamp duty and other associated costs as a financial cost pursuant to s 59(1)(f) of the Just Terms Act.

[7]

Nature of disputed construction

There is a dispute between the parties as to whether the Applicants' claim (referred to at [13] above) that the market value of the Acquired Land should be determined taking into account the anticipated progression of the Expanded Development in circumstances where such progression did not in fact occur is available upon a proper construction of the Just Terms Act. The resolution of this dispute involves a determination of the statutory construction of the relevant provisions of the Just Terms Act.
As a consequence of the circumstances referred to above, the Applicants contend that they made certain decisions relating to the development of the Land that would not have been taken but for the proposal to carry out the Public Purpose. On that basis, they contend that there was a decrease in the value of the Land. The asserted decrease is to be measured by determination of the value of the Acquired Land on the basis that as at the Date of Acquisition all of the development activities that the Applicants would have carried out to progress the development but for the proposal to carry out the Public Purpose had been carried out as at the Date of Acquisition.
The Applicants contend that such an approach is permissible pursuant to the provisions of s 56(1)(a) as the decisions not to progress the development (both individually and collectively) resulted in a decrease in the value of the Land caused by the carrying out of, or the proposal to carry out, the Public Purpose for which the Land was acquired.
The Respondent, whilst not disputing as a matter of fact that certain decisions were made not to progress the development (the particulars of the timing, nature and consequence of those decisions is disputed in some respects), contends that a proper construction of s 56(1)(a) does not permit the impact of such decisions on market value to be taken into account. The Respondent contends that s 56(1)(a) only permits a consideration of the impact on value of physical work actually undertaken as at the Date of Acquisition.
The relevant provisions of the of the Just Terms Act to which the parties referred were: 3 Objects of Act (1) The objects of this Act are - (a) to guarantee that, when land affected by a proposal for acquisition by an authority of the State is eventually acquired, the amount of compensation will be not less than the market value of the land (unaffected by the proposal) at the date of acquisition, and (b) to ensure compensation on just terms for the owners of land that is acquired by an authority of the State when the land is not available for public sale, and (c) to establish new procedures for the compulsory acquisition of land by authorities of the State to simplify and expedite the acquisition process, and (d) to require an authority of the State to acquire land designated for acquisition for a public purpose where hardship is demonstrated, and (e) to encourage the acquisition of land by agreement instead of compulsory process. (2) Nothing in this section gives rise to, or can be taken into account in, any civil cause of action. 54 Entitlement to just compensation (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land. … 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division) - (a) the market value of the land on the date of its acquisition, … 56 Market value (1) In this Act - market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid) - (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and …

[8]

Applicants' submissions - construction of s 56(1)(a)

The subject matter of s 56(1)(a), which are to be disregarded, comprise of two related elements: 1. Any increase or decrease in the value of the land; and 2. Caused by the carrying out of or the proposal to carry out the public purpose for which the land was acquired.
As to the first element, the text of s 56(1)(a) does not specify particular kinds of increases or decreases in value caused by the public purpose. The language used is perfectly general in scope and simply provides that the provision is engaged by any increase or decrease in value so caused. Prima facie, the word "any" is without limitation: see Niezabitowski v Roads and Traffic Authority (2006) 147 LGERA 417 at [35] referring to s 68(1) of the Just Terms Act.
The second element requires the increase or decrease in the value of the land to have been "caused by" the carrying out of or the proposal to carry out the public purpose. That element is usually addressed on a "but for" basis: Marcabell Pty Limited v Roads and Traffic Authority [2006] NSWLEC 366 at [26]; Barkat v Roads and Maritime Services [2019] NSWCA 240 at [79].
The following matters make it plain that both elements of the provision are engaged in the circumstances of this case.
First, the Respondent does not contend that the Applicants acted unreasonably in making the Stop Work Decision in October 2019 upon receipt of confirmation that the Land was to be acquired.
Second, but for the Public Purpose, the development would have progressed. This is clear from the evidence.
The position is that the Applicants, acting reasonably and because of the Public Purpose, ceased carrying out various activities and this resulted in the market value of the Land on the Date of Acquisition being less than what it would otherwise have been. The evidence of such a decrease is available by a comparison of the value determined by the Respondent's valuer on its scenario compared to any of the other Respondent's values determined by any of the valuation scenarios which adopt some or all of the works relied upon by the Applicants. On any view, a decrease in the value of the Land caused by the Public Purpose which engages s 56(1)(a) is established on the evidence.
Contrary to the Respondent's position that s 56(1)(a) is to be read down to exclude a very particular kind of decrease in value caused by the public purpose: a decrease in value that arises because the Acquired Land itself was not physically developed in a particular way due to the Public Purpose, the text of s 56(1)(a) does not specify particular kinds of decreases in value but refers to any kind of decrease in value in land so long as it is caused by the Public Purpose.
There is simply no warrant in the text of s 56(1)(a) for the Respondent's approach. There is a limited ability to construe a statutory provision in a manner that departs from the natural meaning of its terms - it must be plain that Parliament intended the provision to have another meaning: Esso Australia Pty Ltd v Australia Workers' Union (2017) 263 CLR 551 at [52]. The Respondent's interpretation of s 56(1)(a) departs from the natural meaning of its terms.
Further, the context and purpose of s 56(1)(a) make it plain that the Respondent's construction could never have been intended.
The entitlement to compensation is provided for in s 54 of the Just Terms Act.
While s 54 does not add to or subtract from the exhaustive list of matters in s 55 of the Just Terms Act to which regard is to be had in determining the amount of compensation, it is relevant to the question of construction of ss 55 and 56(1) for the reasons that follow.
First, the words in parentheses in s 55 ("as assessed in accordance with this Division") "pick up" s 54(1) with the result that the assessment of the amount of compensation having regard to the specified matters in s 55 must be directed towards determining an amount which will "justly compensate" the former owner for the acquisition: Tolson v Roads and Maritime Services (2014) 201 LGERA 367 (Tolson) at [37], [89] per Basten JA; see also [118], [126] per Preston CJ of LEC.
Second, the purpose identified in s 54, to justly compensate the former owner, may properly inform the interpretation of s 55 and subsequent provisions (which would include s 56(1)(a)) in Div 4: Tolson at [93] per Basten JA.
Had the Applicants continued to progress the development (rather than abandoning it because of the Public Purpose), the value of the Land on the Date of Acquisition would have increased. In these circumstances, the Respondent would have been liable to compensate the Applicants for this increased value. Yet, if the Respondent's interpretation of s 56(1)(a) is correct, the Applicants are not entitled to that increased value even though they acted reasonably in abandoning the development because of the Public Purpose. That would be a completely unjust result. In the terms of s 54, the amount of compensation would not "justly compensate" the Applicants for the acquisition of the Land.
The Respondent's interpretation of s 56(1)(a) would also not further the object of the Just Terms Act to guarantee that the amount of compensation will not be less than the market value of the Acquired Land "(unaffected by the proposal)": s 3(1)(a). The generality of this phrase is consistent with the generality of the language used in s 56(1)(a). It is antithetical to the Respondent's interpretation of s 56(1)(a) that seeks to read down its general language to exclude particular kinds of reductions in value caused by the Public Purpose.
The available authorities which touch upon this issue also support the Applicants' interpretation of s 56(1)(a).
The decision in Blacktown City Council v Lasseter [1996] NSWCA 51 (Lasseter) is directly contrary to the Respondent's approach to s 56(1)(a). Although Lasseter did not concern s 56(1)(a) itself, the Court of Appeal considered and rejected arguments that the principle now underlying the provision did not authorise the Court "to rewrite history so far as the physical characteristics of the land was concerned": at p 3.
Further, the Court of Appeal accepted that the principle that the resumed land is to be valued in the condition in which it existed at the date of resumption (upon which the Respondent relies) was "subject to" s 116 of the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act) (which performed a similar role to s 56(1)(a)): at p 4.
In Griffith City Council v Polegato (1990) 20 NSWLR 696 (Polegato) the facts bear some similarity to the present proceedings, but with one important distinction, namely that the acquisition was not causative of the decrease in value.
In Polegato, the former owners obtained development consent in 1976 and were in the process of developing their land as shops and flats. Those plans were ultimately frustrated by the acquisition of the land by the local council which had first raised the possibility of acquisition with the owners in 1977. The development was financially viable at this point but, by the time the land was ultimately acquired in 1980, it had become unviable due to dramatic increases in construction costs.
The primary judge awarded compensation on the basis that the viability of the development had to be assessed in 1977 not at the time of the acquisition in 1980. He did so on the basis of the decision of the High Court in Housing Commission of New South Wales v San Sebastian Pty Ltd 140 CLR 196 (San Sebastian) which concerned similar principles to those underlying s 56(1)(a).
The Court of Appeal overturned the decision of the primary judge. It accepted that the former owners had acted reasonably in ceasing work on the development of the land and that the development was deferred by the acquisition process until it ceased to be economically viable. However, that loss of viability was due to the effect of economic and market forces, not the acquisition process.
In Polegato the Court of Appeal stated at 701:D-E: It is clear that [the approach in San Sebastian] cannot assist the owners in the present case because the development potential which existed at what they claim was the start of the resumption process had disappeared for reasons other than the proposed resumption by the date of the acquisition. The principles applied in Housing Commission of New South Wales v San Sebastian require the land to be valued at the relevant date on the artificial, but just, assumption that such value has not been affected by the resumption process. It does not require or authorise the court to disregard facts themselves independent of the resumption process such as costs of building and general market values at the date of resumption.
The owners in Polegato were therefore unsuccessful because, on the acquisition date, their land had not suffered a decrease in value caused by the acquisition process. While that process had frustrated their plans for the development of the land, by the acquisition date, that development had been rendered unviable due to intervening market forces independent of that process.
This can be contrasted with the position of the Applicants. Even on the Respondent's case, the frustration of the Applicants' development plans by the Public Purpose led to a decrease in the value of the Land taking into account all relevant market conditions on the Date of Acquisition.
Importantly, there is nothing in the judgment in Polegato that refers to let alone supports the Respondent's approach to s 56(1)(a). Rather, the passage cited above supports the proposition that a Court is authorised to disregard any fact that is dependent on (not independent of) the resumption process. In the present case, that would include the fact that the Applicants ceased to progress the development because of the Public Purpose.
In Love v Roads Corporation (2014) 200 LGERA 76 (Love), the former owner claimed that, but for the public purpose, he would have secured an unrestricted permit for a quarry on the resumed land, and, by the acquisition date, an operating quarry would have been in existence: at [36]-[37], [62]. While the acquiring authority conceded that a permit would have been obtained, it denied that it would have been an unrestricted permit: at [57]. The primary judge accepted the authority's position: at [61]. He also found that the absence of a productive quarry on the acquisition date arose from various actions of the owner and not the public purpose: at [63]-[64]. These were findings of fact that raised no issues of law for the purposes of the appeal.
However, the primary judge also made observations to the effect that the Victorian equivalent to s 56(1)(a) did not extend to authorise the making of an assumption that hypothetical improvements existed on the resumed land and the valuation of the land on that assumption: at [66], [68]. These observations are similar to the contentions put by the Respondent in the present proceedings. Ultimately, the Court of Appeal did not need to determine whether the primary judge's observations were erroneous because Mr Love's case failed on the facts as set out above. However, it noted that, contrary to the primary judge's observations, there was "a line of authority that suggests that hypothetical improvements can be taken into account": at [69]. That line of authority included cases referred to by the Applicants in these proceedings including: Woollams v The Minister (1957) 2 LGRA 338 (Woollams); Polegato; Roads and Traffic Authority v Mosca (2006) 146 LGERA 335 (Mosca); and Halley v Minister Administering the Environmental Planning and Assessment Act 1979 (2010) 178 LGERA 327 at [70]-[75].
The thrust of the Court of Appeal's analysis in Love supports the Applicants' interpretation of s 56(1)(a). Notably, Lasseter was not referred to in Love and, as set out above, this directly supports the Applicants' approach. At the very least, the position was left open. This can be contrasted to the Respondent's approach, which treats the principle that land is to be valued in its existing physical condition as immutable.
In addition, the Respondent relies heavily on Yates Property Corporation Pty Ltd (In Liq) v Darling Harbour Authority (1991) 24 NSWLR 156 (Yates) and in particular the following passage from the judgment of Handley JA at p 175: In the appellant's submission it was open to the judicial valuer to value this vacant land by assuming that buildings are erected and leased, capitalising net rents and deducting building and establishment costs. In my view the trial judge was correct in principle in rejecting any such approach. It is contrary to the fundamental principle that what must be valued is the property taken in the condition at which it existed at the date of resumption.
It is not clear that the analysis in this passage is dealing with the scope of what is now s 56(1)(a) and its requirement to disregard decreases to the market value of land caused by the public purpose. The essence of the appeal was the primary judge's approach to the assessment of "special value", not market value. In this regard, the issue was whether an operating market could be assumed to be present on the land and appears to have been raised in the context of this claim for special value. The primary judge, Cripps CJ in the LEC, had determined that "the 'value to the owner principle' does not require me to assume that the markets were built and functioning": Yates Property Corporation Pty Ltd (In Liq) v Darling Harbour Authority (1990) 70 LGRA 187 at 196 (Yates LEC).
Further, the cases cited by Handley JA immediately following the above passage of Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer Vizagapatam [1939] AC 302 (Raja's Case) and Turner v Minister of Public Instruction (1956) 95 CLR 245 (Turner), did not concern the operation of the principle requiring the disregard of the impact of the purpose of an acquisition on value, they merely contain statements of general principle about the need to treat and value future potential uses of land as potential (not actual) uses. This supports the view that the passage was not directed at the principle underlying s 56(1)(a).
In any event, even if Handley JA was referring to the principle underlying s 56(1)(a) in the passage, his reasoning should not be followed in these proceedings.
First, it is directly inconsistent with the later decision in Lasseter as set out above. In fact, as mentioned above, the judgment in Lasseter expressly referred to this passage from Yates and accepted that it was "subject to" s 116 of the EP&A Act which was of similar effect to s 56(1)(a): at p 4:1-12.
Second, the approach to the passage in Yates taken in Lasseter has been followed in other cases: see Overton Investments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (2001) 113 LGERA 439 at [21].
Third, the position was at least left open by the Victorian Court of Appeal in Love.

[9]

Respondent's submissions - construction of s 56(1)(a)

Section 55 requires that the market value of the Acquired Land be assessed for the purpose of compensation and s 56(1)(a) does not change that primary directive. Section 56(1)(a) is a definitional provision to the effect that, in carrying out the assessment of market value of land, any increase or decrease in the value of that land by virtue of the public purpose to be disregarded. Nothing in s 56(1)(a) alters the fundamental requirement in s 55 to assess the market value of the land being the Acquired Land as it in fact was, as required by the hypothetical transaction.
Section 55 of the Just Terms Act, which constitutes an exclusive code for assessment of compensation following the acquisition of land, requires and allows regard to be had to, inter alia, (a) The market value of the land on the date of its acquisition.
There can be no doubt that the land, where referred to, is the land that has been acquired. This would be so in any event but the reference to its acquisition in the provision puts this beyond doubt. Thus, the required inquiry is as to the market value of the land what was actually acquired.
The concept of market value is explained in the definitional provision, s 56(1). Section 56 is simply not directed to the question of what land is to be valued as it commences with the general description "market value of land", that is: whatever land is to be valued this is how to determine its market value under the Just Terms Act. It is s 55 that identifies the land for which compensation is payable for market value, and that is the acquired land.
As a matter of general statutory interpretation definitions, including that in s 56(1) are not intended to enact substantive law: Alliance Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 at [12] (emphasis added): Except in rare cases, definitions are not intended to enact substantive rules of law. Their function is to aid the construction of those substantive enactments that contain the defined term or terms. Moreover, the meaning of the definition depends on the context and object of the substantive enactment. As I pointed out in Kelly v The Queen: [T]he function of a definition is not to enact substantive law. It is to provide aid in construing the statute. Nothing is more likely to defeat the intention of the legislature than to give a definition a narrow, literal meaning and then use that meaning to negate the evident policy or purpose of a substantive enactment ... [O]nce ... the definition applies, ... the only proper ... course is to read the words of the definition into the substantive enactment and then construe the substantive enactment - in its extended or confined sense - in its context and bearing in mind its purpose and the mischief that it was designed to overcome. To construe the definition before its text has been inserted into the fabric of the substantive enactment invites error as to the meaning of the substantive enactment ... [T]he true purpose of an interpretation or definition clause [is that it] shortens, but is part of, the text of the substantive enactment to which it applies."
The very clear words of s 55(a) reflect the basic principle of compensation law that it is the land that has been acquired that must be valued at the relevant date. This requires the valuation exercise to be undertaken for the land in its existing condition with all its potentialities as potentialities: Mosca at [15] per Handley JA (Mason P and Bryson JA agreeing), citing Yates at 175-6.
Section 56 does not change that which is required to be valued by the operative provision, s 55. Rather, it requires by its clear wording, any effect of the public purpose on the value of the land, whether positive or negative, to be disregarded for the purpose of assessing compensation.
There are no words within s 56 that could be construed as enabling compensation to be awarded for land other than the Acquired Land. There are simply no words anywhere in the provisions that allow any increased value that might have resulted from some physical change of Acquired Land that was not undertaken due to the impending acquisition, as if that development had actually occurred.
The very clear intent of the Just Terms Act, articulated most clearly in s 54, is that it is directed to awarding compensation. Compensation is a well understood expression, the purpose of which is to place in the hands of the claimant the monetary equivalent of that which they have been deprived, being the property taken from them. Compensation in the Just Terms Act is, prima facie, "compensation ... for loss": Leichhardt Council v Roads & Traffic Authority of NSW (2006) 149 LGERA 439 per Spigelman CJ at [37]-[38].
The Applicants' construction would provide compensation for something that the Applicants never had and did not lose (a well progressed development site); it is not within the well understood expression as above. That is, the Applicants did have and did lose the Acquired Land in its "as is" state at the Date of Acquisition with all of the improvements, with all of its potentialities including the potential for future development.
Further to this, there are also no words in the provision that allow any of the costs of realising that notional development to be taken into account in assessing value. That is, the compensation sought by the Applicants is for the transaction selling something that does not in fact exist and for which they have had to actually expend no money to achieve, however, the compensation assumes that this money has been spent in the carrying out of work as the market pays a price that recognises the value of that cost expended. Such an outcome could not have been intended by the text and object of the Just Terms Act. This is confirmatory that the provision simply does not envisage the approach contended for by the Applicants at all.
To illustrate, if the facts had been such that the Applicants' mooted development would have been completed by the date of acquisition, on the Applicants' construction they would have been entitled to some $600 Million+ compensation without actually having incurred any actual cost of construction.
There have been many cases where the provision has been engaged where the public purpose had an indirect effect on value by, for example, affecting the zoning of land, or interfering with provision of services which in turn affected value. However, these cases all concerned the effect of the public purpose on matters external to the land and the effect of those matters on the value of the land as it was. That is, matters that affected the value of the acquired land as it was.
There is no case of which the Respondent is aware where the forgoing of an act by the owner, where that act would have changed the land itself (and thus its value), has been held to be within the disregard for the purpose of ascertaining market value so as to allow compensation for that (notional) increase.
The Applicants contend that Lasseter is authority for the proposition that the Respondent's arguments have been "soundly rejected". This is not correct. The case did not consider the arguments raised herein nor could any reasoning in it be construed as having the effect of soundly rejecting them.
In Lasseter the issue did not arise in relation to works done (or not done) on the acquired land due to the public purpose. Rather, it arose because of the subdivision by the owner of land surrounding the acquired land so that it had become landlocked by the date of acquisition.
The acquiring authority argued that this landlocking was not to be disregarded because: ... the principle had no application to the present case, where the condition of the land immediately prior to the resumption (ie its landlocked condition) which depreciated its value, was not due to any establishment of a public work but was caused by the act of the[owner] in subdividing the land in the manner he did.
Beazley JA (with whom Priestley and Cole JJA agreed) identified the issue as follows: The sole issue raised on the appeal is whether the principle that resumed land is to be valued at the resumption date in its then present condition is subject to the principle in Housing Commission of New South Wales v San Sebastian Pty Ltd (1978) 140 CLR 196.
Despite the reference to "its then present condition" the actual condition of the land itself had not changed as a result of the acquisition (nor had any intended change not been undertaken as a result of the acquisition).
Beazley JA then rejected the submission above saying: The question therefore in the present case is whether the subdivision which created the landlock was part of the resumption process. In my opinion, it was, it being irrelevant that the resumption occurred after the land was subdivided. This land was always liable and likely to be resumed. The subdivision which was effected was predicated upon the basis that the land zoned 6(c) would be resumed. The limited access to the land zoned 6(c) created by the subdivision was a direct response to the zoning of that land and as such had sufficient connection with the resumption process to require that the landlock created by the subdivision be ignored for the purposes of the valuation.
In Polegato the Court at first instance found: In my opinion it is permissible, and on occasions necessary, to examine the effect of the resumption process on the business of the owner. In this case it is clear that the Council's conduct frustrated the owners' project to the point of leading them to abandon it. Indeed, there is little doubt that the Council desired to achieve this end since, if the applicants continued to implement the consent and construct the shops and flats, the Council would be faced with increased compensation. In my opinion to fail to take cognizance of the process and its effect on the applicants would not only deny them compensation for disturbance, but also reward delay by a resuming authority. It would run counter to the underlying principle that compensation for the compulsory taking of land shall be fair compensation. On the contrary, if the resumption process is to be ignored in the assessment of compensation it could encourage resuming authorities to sterilise land and delay resumption in order to deflate the value of the land and thereby minimise compensation to be paid to the detriment of dispossessed landowners. It would also run contrary to the principle that a dispossessed owner is to be put back, as far as money can, in the same position as if his land had not been taken. To deny compensation for disturbance or special value incurred as a result of the resumption process could render an injustice to a dispossessed owner. Such a result would have the effect of removing the element of the "value to the dispossessed owner" from the assessment of compensation. It is necessary therefore to test the viability of the project in 1977 and perhaps in 1978 but not in respect of 1980. In relation to this issue the Court has received considerable evidence from the valuers. The opinion of Mr. Hunt is that the project was viable in March 1977 returning to the Polegatos a surplus of close to $100,000 and a reasonable rate of return for Griffith.
The Court of Appeal (at p 700) upheld the Council's appeal holding, after referring to San Sebastian, that: In the present case however Stein J seems to have relied on the decision as authority establishing an entitlement in the owners to compensation for losses due to the resumption process because they ceased building work on the land and in the event lost the opportunity to develop the land in accordance with their development consent and building approval even although that development potential no longer enhanced the value of the land acquired at the date of acquisition, but because it had done so in March 1977 at the start of the resumption process. Although we do not think the owners can be said not to have acted reasonably in ceasing work as a result of the information they received from Council officers from time to time during and after March 1977 and although their development of the land was undoubtedly "disturbed" between 1977 and 1979 by being deferred from time to time until the development ceased to be economically viable, they cannot be compensated for losses from those causes by any assessment as at the date of acquisition itself. This is because by that date the development potential which had existed from 1977 to 1979 had already been lost due to the effect of economic and market forces.
In the end neither Lasseter nor Polegato are directly on point as neither considered any physical change to the actual acquired land said to have been (or not been) undertaken due to the public purpose or the acquisition. Although the land had physically changed in Polegato that was not the basis of the relevant claim. To the extent that in Polegato the Court of Appeal rejected the comprehensive "but for" claim made as to what would have happened in the years before the acquisition, but for its shadow, the case is strongly supportive of the submissions herein.
Where a dispossessed owner has undertaken acts which have incurred expenses consequent on (including prior to) an acquisition, and where expenses incurred in respect of the owner's thwarted plans have been wasted due to the acquisition, such expenses have been compensated as disturbance: Al Amanah College Inc v Minister for Education and Training (No 2) [2011] NSWLEC 254; SNS Pty Ltd v Roads and Maritime Services (NSW) (2018) 232 LGERA 224 (SNS) but these are clearly within s 59(1)(f) and have nothing to do with market value or the statutory disregard: Murlam Pty Ltd v Roads and Traffic Authority of New South Wales [2009] NSWLEC 1365 and Peter Croke Holdings Pty Ltd v Roads and Traffic Authority of NSW (1998) 101 LGERA 30 at 63; See also Caruana v Port Macquarie-Hastings Council (2007) 210 LGERA 1 at [49].
Consequently, what is to be valued in the hypothetical transaction is the Acquired Land in its physical state as at the Date of Acquisition, with its Approved Development Consent in place and the Potential Development Consent available, no more and no less.

[10]

Findings on construction of s 56(1)(a) of the Just Terms Act

It is true that the words of s 56(1)(a) contain no express words of inclusion of the Applicants' claim and it is equally true that it also does not contain express words of exclusion of the Applicants' claim. It is therefore necessary, adopting the usual rules of statutory construction, to ascertain from the words used, in the context of the provision and the whole of the Just Terms Act, whether the legislative intent was to include or exclude claims of this nature. In undertaking the exercise of construction, a meaning that best serves the objects of the Just Terms Act is to be preferred.
For the reasons that follow, I find that the provisions of the Just Terms Act do not preclude a claim for a decrease in the value of the Acquired Land caused as a consequence of the carrying out of the Public Purpose where such decrease relates to actions not undertaken where the undertaking of such actions would have produced in an increase in the value of the Acquired Land as at the Date of Acquisition. In this case, that may include actions not taken that are not (or would not have been) physically manifested on the Acquired Land.
The provisions of Div 4 of the Just Terms Act make provision for the determination of compensation in connection with the entitlement to compensation as expressed in s 37 as: 37 Right to compensation if land compulsorily acquired An owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation in accordance with this Part by the authority of the State which acquired the land.
Section 54 provides that the amount of compensation is such amount as, having regard to all relevant matters under that Part, will justly compensate the person for the acquisition of the land and the relevant matters are prescribed in s 55. The reference in s 55 relevant to these proceedings is that contained in s 55(a), namely market value. Section 55(a) limits the claim of market value in terms to that of the land on the date of its acquisition. It thereby fixes what is to be valued (the land) and the relevant date upon which such determination is to be made (the date of acquisition). On its face, without considering the balance of the relevant provisions it would appear (as was contended by the Respondent) that the market value of the Acquired Land is to be determined in the state it was at the Date of Acquisition. However, s 55(a) does not stand alone. The relevant term "market value" is also affected by the terms of s 56. Whilst the parties focus on s 56(1)(a) the whole of that definition is relevant in the statutory construction exercise. Section 56 provides: 56 Market value (1) In this Act - market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid) - (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. (2) When assessing the market value of land for the purpose of paying compensation to a number of former owners of the land, the sum of the market values of each interest in the land must not (except with the approval of the Minister responsible for the authority of the State) exceed the market value of the land at the date of acquisition. (3) If - (a) the land is used for a particular purpose and there is no general market for land used for that purpose, and (b) the owner genuinely proposes to continue after the acquisition to use other land for that purpose, the market value of the land is taken, for the purpose of paying compensation, to be the reasonable cost to the owner of equivalent reinstatement in some other location. That cost is to be reduced by any costs for which compensation is payable for loss attributable to disturbance and by any likely improvement in the owner's financial position because of the relocation.
A consideration of s 56 provides for a number of assumptions to be made that are not reflective of the physical state of the acquired land at the relevant date. Rather, s 56 requires, in some cases, a disregard of a factual state of affairs - such as unlawful uses and increases and decreases caused by the carrying out or the proposal to carry out the public purpose - or the requirement to value something other than the land acquired - where reinstatement is taken to be market value. Each of these non-factual state of affairs requires the creation of assumptions that do not factually exist to enable the valuation exercise to be undertaken.
From the provisions of s 56 it is plain that what was not intended by the legislation is that the words of s 55 were fixing a limitation on the determination of compensation to a factually accurate state of affairs as at the date of acquisition. The reference to the land in s 55 is a reference to the interest acquired (see the definition of "land" in s 4) and not a physical manifestation of works on that land as acquired.
The terms of s 56(1)(a) and (b) relate to what required to be "disregarded" in the determination of the value. The disregard is expressed with the opening word "any". That term is not defined. As was recently stated in Weston Aluminium Pty Ltd v Environment Protection Authority (2022) 253 LGERA 374 at [32]-[33]: 32 …because a term is undefined in a statute or regulation, it does not follow that it has the same usage as in ordinary speech. Indeed, the meaning intended in ordinary speech can only be identified by reference to its use in a particular sentence, in a particular context. The present context is a legal document, namely a regulation made under an Act of Parliament. How it is used in that instrument must depend on a careful analysis of the surrounding text and context. 33 Secondly, as this Court has warned on many occasions, reference to dictionaries to determine the meaning of statutory language can only assist in identifying the range of possible meanings. To determine the actual meaning, it is necessary to return to the context, and particularly the text of the statute. Indeed, dictionaries demonstrate that the term "dispose of" has more than one meaning, so that choice will be arbitrary unless the word is construed in its statutory context.
Having regard to the context in which that word is found, the word "any" does not operate to limit or constrain the type of increase or decrease - it merely requires, as a matter of fact, that such an increase or decrease is manifested as a fact. The words that constrain or limit the application of s 56(1) are the requirements that the increase or decrease be: 1. In the value of the land; and 2. Caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired.
Having regard to the words in s 56, and in particular s 56(1) the only limitation on the factors that are required to be disregarded is that they fall within the requirements as identified above. That is, any increase or decrease is to be disregarded if it affects the value of the land acquired and is caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired. In the present case, that construction may include (subject to be satisfied on the evidence as to the effect on value and the causation of the decrease) the decisions not to progress the development proposal on the Acquired Land.
Such a construction is broad, however, I do not consider that the breadth of the construction is itself a reason to construe the provision in the manner contended by the Respondent. It is plain that the object of the Just Terms Act is to compensate the dispossessed owner for acquisition of the interest in the Acquired Land and that the amount of such compensation is to be just, taking into account the relevant matters set out in the Just Terms Act: s 54. That provision itself reflects the objects of the Act in s 3(1)(a) and (b) that are: (a) to guarantee that, when land affected by a proposal for acquisition by an authority of the State is eventually acquired, the amount of compensation will be not less than the market value of the land (unaffected by the proposal) at the date of acquisition, and (b) to ensure compensation on just terms for the owners of land that is acquired by an authority of the State when the land is not available for public sale,
The stated object of guarantee itself references that the intended compensation determination is to be unaffected by the proposal. This language is itself broad and unconstrained referencing an intention that the relevant impacts on value - however they may arise - are not to affect the determination of compensation. The manner that such object is achieved is provided for by operation of s 56.
The illustration relied upon by the Respondent at [77] above to suggest that a broad construction is not appropriate does not assist in the statutory construction exercise. The illustration is seeking to demonstrate that the Applicants' statutory construction is unavailable because the facts of this case would produce a large increase in the otherwise determined value if the provisions of the statutory disregard were not applied. Such an outcome of the application of statutory language cannot, merely by the quantum of the increase in value that would be derived in a particular case, demonstrate an error of construction. If that construction is what was intended by the legislature the fact that in some cases it will result in a numerically large number is reflective of the legislative intent not a criticism of it. Equally, a particular case may result in the reduction in value (because an increase was caused by the public purpose) may be numerically large.
The statutory context also includes the regime for acquisition as contained in Part 2 of the Just Terms Act. Through the application of that regime, it is intended that there be a fixed, relatively short, time period between the notice of acquisition and the acquisition itself. The application of this regime has the dual purpose of providing some fixed period for a dispossessed owner to be given compensation and providing the acquiring authority with a limited period within which changes to the acquired land may be made that may impact on value. This contextual indicator operates to limit the types of claims such as the present where notice outside the regime (such as occurred here) may lead to claims of large quantum.
Further, it is true that the actual value determined is, in the real world, achieved as a consequence of the expenditure by the vendor of effort and funds to create the asset being sold - such is an inherent element in the sale price. However, the Just Terms Act requires a hypothetical sale on, in the case of s 56(1)(a), a hypothetical state of affairs, which is not a real-world sale. If the legislature intended that such factors, which may produce an amount of compensation determined for market value not reflective of actual real-world loss, it could have made provision to exclude such elements in the determination of market value such as has been done, by way of example, in s 61 of the Just Terms Act. The fact that it has done so for the circumstances in s 61 and not for the statutory disregard in s 56 is a contextual indicator that such a limitation is not imposed upon the market value assessment.
The criticism that the Applicants will benefit from work not carried out in the real world does not reflect the exercise required by s 56(1)(a). What is being determined in the value of the Land disregarding the decrease caused by the public purpose. The decrease in the value of the Land must be determined by some metric. In this case, due to the relevant factual circumstances, the parties have proceeded to quantify that decrease by ascertaining what degree of progress would have been made and, thereafter, how much would be paid by a hypothetical purchaser for that state of affairs as compared to the land value if that progress had not occurred. This analysis does not give rise to the requirement for an accounting of expenses as it looks to the land value and not the net value to the owner. The facts of this case may produce this perceived "windfall", however, that consequence will not necessarily follow in all cases as the factors that influence the land value will vary depending upon the facts of each case.
The illustrative circumstances that are relied upon by the Respondent as indicative of an inconsistency to the legislative intent to the extent that the Applicants may be compensated more generously than otherwise permitted would not arise in the usual course in the application of the legislative provisions to a usual case. The defect that the Respondent relies upon arises in large part, if not exclusively, as a consequence of its actions in this particular case, which case it is accepted by all as extremely unusual. That is, by verbally advising the Applicants on 21 October 2019 that the Land was to be acquired but taking no steps to effect that acquisition until 18 November 2020 when a proposed acquisition notice was served or until 19 March 2021 when the acquisition was effected, the Respondent created a circumstance where it would be unreasonable for the Applicants to continue the development of the Land but by doing so suffered a loss in value of that Land when valued at the Date of Acquisition. The circumstances are so unusual that the outcome produced cannot dictate a construction of the relevant statutory provision. The statutory provision is intended to apply to all circumstances in which an acquisition is effected by compulsory process, the fact that in such application peculiar facts may produce a greater or lesser sum of compensation than "usual" is the consequence of the manner of construction of the provision, not indicative of a contrary legislative intent.
In addition, the lack of authorities dealing with a similar factual scenario is also not of assistance in determining statutory construction. The lack of prior cases dealing with the particular circumstances that this case give rise to is not indicative that the construction is not to be accepted. The fact of the lack of prior authority could arise for many reasons unrelated to the task of statutory construction such as: acquisition by agreement rather than determination by the Court; or there not having been a factual scenario such as the present that requires the issue of construction to be resolved. Each party accepted that the facts of this case, in particular a telephone call from the acquiring authority some 18 months prior to acquisition was not known in the authorities.
As to the authorities that do exist dealing with matters with some connection to the question posed in this case such as Lasseter, Love and Polegato each of those cases turned on their own facts. To the extent that those facts determined the issues in dispute it was unnecessary to consider the question of the scope of the disregard in s 56 (or the equivalent applicable provisions) and to that extent provide little direct assistance in the resolution of the question in these proceedings. That being said, I do note that in none of the cases did the Court decline to deal with the factual disputes (that determined the case) due to the construction of the statutory provisions prevailing such claims at all. To that extent, I consider that such authorities are neutral in my consideration.
I further note that there is a line of authority (as referred to in Love at [69]) that in some circumstances, when engaging with the statutory disregard, it is open to consider hypothetical improvements. In Woollams the Court held at 345 and 346: For the foregoing reasons I am of opinion that s 124 requires the value of the subject property to be determined without regard to any effect on such value of the decision of the Board to establish the Warragamba Storage Dam project, i.e. its proposed establishment, and without regard to any effect on such value of the various steps taken by the Board up to the date of resumption, such as other resumptions and the like, in the process of establishing the project. … Construing the material portion of s 124 along the lines indicated, I am of opinion that the value is to be determined on assumption that the amenities and other economic and social conditions in the subject area did not deteriorate following upon and by reason of the decision of the Board to proceed with the Warragamba Dam project, and the acquisition by the Board of a number of properties in the Valley before the relevant date, and other events and circumstances associated with or consequential upon such acquisitions, and on the assumption that those amenities and conditions would have improved during the period under consideration, as they did in other primary producing and tourist areas during the post-war years, by reason of the increase in population, the improved prices being paid for primary products and the general economic development that occurred throughout the State. Whilst such improvements were not on the acquired land they were still to have been assumed to have occurred. Such an approach appears equally applicable where a relevant decision is taken by the dispossessed owner.
Such an approach is not inconsistent with the principle as espoused in Turner at 268 that (emphasis added): …It is, of course, to be valued in cases of compensation with a view to ensuring that the actual value contained in the land is replaced in the hands of the owner by an equivalent amount of money. The value must therefore be the value to the owner which the land possessed to him in its condition at the date of resumption. That value was necessarily affected by all the advantages which the land possessed and these might be a matter of future or even contingent enjoyment. Future advantages or potentialities must not be excluded. At the same time the value of these things must be assessed according to the condition of the land as it stood at the time of resumption: " it is the present value alone of such advantages that falls to be determined": Cedars Rapids Manufacturing & Power Co. v. Lacoste (1). You must not notionally bring what is only potential into actual being and value it as if it existed.
In Turner the value was being assessed on the potential of the land acquired at the date of acquisition and on that basis this proposition is not remarkable. However, it does not state a principle that the statutory disregard excludes assumed improvements. Rather Turner dictates that once the statutory disregard is identified it is that state of affairs that must be valued on the potential of the acquired land.
In Mosca the Court of Appeal rejected the first instance determination of value based upon "lost opportunities" for development that were found to have been caused by the public purpose. In rejecting that approach the Court found that each of the asserted "lost opportunities" were relevantly not lost as a consequence of the public purpose but rather either still existed or were caused by matters not related to the public purpose. Again, as in Love, Polegato and Lasseter, the determination turned on the facts as found and not on a finding of principle that s 56(1)(a) on a proper construction precluded the consideration of a change in value as a consequence of decisions to cease progressing a development or that limited such considerations to physical works undertaken on the Acquired Land.
As to the reliance by the Respondent on Yates I also consider that decision to be of little assistance in the determination of the present question. Yates was dealing with questions relating to special value (being an amount additional to market value as defined in s 57) therefore were not addressing the scope of the statutory disregard. The passage relied upon relates to the facts of that case in the circumstances of the claim made and I do not understand from the text that it was intended to be read as an exhaustive statement of principle applicable to all of the relevant considerations under s 55 or in particular s 56 of the Just Terms Act.
The Respondent characterises the provisions of s 56 as "definitional". To the extent that s 56 identifies what is meant by the term "market value" in s 55(a) it is definitional in that enables the legislative provisions to utilise a short form of words in lieu of the longer form of words. However, it is by its terms, even if definitional, to be read as part of the legislative regime each time the term "market value" is used in the Act such that whilst it would not alter the construction of an operative provision it does form part of the operative provision. However, s 56 is to be distinguished from a pure definitional provision in that not all parts of the "definition" will be applicable in all cases by virtue of the incorporation of the disregards inherent in that "definition". Accordingly, I do not consider the fact that s 56 operates in the sense of a definition limits the extent to which the words in s 55 are to be read or would operate to limit the extent of the compensation to which a dispossessed owner would be entitled in the manner contended for by the Respondent.
For those reasons, I do not accept the Respondent's contention that the Applicants' claim as formulated is precluded at law by a proper construction of the provisions of the Just Terms Act. I find that on a proper construction a claim such as that made by the Applicants is available.

[14]

Evidence relating to causation

The evidence relating to the making of the two relevant decisions was adduced by the Applicants from a director of each of the Applicant companies: Mr Dimitri Drivas of the First Applicant and Mr Michael Coombes of the Second Applicant. Mr Drivas and Mr Coombes were involved in the progression of the development proposed on the Land. A significant amount of documentary material was referred to by each witness.
The affidavit of Mr Coombes sworn 26 February 2022 specifically deposed in relation to the causation issue in the following paragraphs of his affidavit: 47 Attached at Tab 11 is a copy of an announcement of the Respondent's Sydney Metro West project (Metro West Project) dated 14 November 2016. I first became aware of the Metro West Project at or around this time. At this time, I was not concerned that the Land might be needed for the train station in Parramatta proposed under the Metro West Project (Metro Station) because I considered that it was more likely to be located under or adjacent to the existing Parramatta heavy rail train station to create an interchange between the two networks. The heavy rail station is located between Darcy Street and Argyle Street in the Parramatta CBD which is approximately 250 metres from the Land. … 75 From around 2018, Sydney Metro began a program of issuing notifications of works proposed for the Metro West Project. Notifications under this program regarding proposed works in the Parramatta CBD were received by Ms Georgina Amanonce (the Applicants' property manager for its Parramatta and Penrith properties) and then forwarded by her to me. 76 On 28 May 2018, I received a notification regarding a proposed geotechnical investigation in Houison Place which is the lane off Horwood Place directly adjacent to the Land. On receiving this notification, I became concerned about the implications of these investigations as they were so close to the Land and therefore whether the Land (or some part of it) might be acquired for, or affected in some way by, the construction of the Metro Station. I discussed these concerns with Dimitri and Pascal. I do not recall the exact words spoken but I recall that Dimitri and I decided not to change any aspect of the 50 Macquarie St Project because we considered that there was still a significant degree of uncertainty about whether the Land would be affected by the Metro Station. A copy of the Sydney Metro notification dated 28 May 2018 is at Tab 27. … 101 Anthony Khoury is the Director of Khoury and Partners, a real estate agency base in Parramatta. I have known Anthony for a number of years. 102 On 11 February 2019, Dimitri and I received an email from Anthony Khoury which advised us that the likely Metro Station location was within the vicinity of George Street, Church Street, Phillip Street and Horwood Place. A copy of this email is at Tab 47. 103 On 22 February 2019, I read an article in the Sydney Morning Herald that included a map showing the locations of prior geotechnical investigations carried out by Sydney Metro in relation to the Sydney Metro West Project (including the one referred to at paragraph 76). Later that day, Anthony Khoury sent Dimitri and I a map upon which he had marked the exact locations of previous geotechnical investigations carried out by Sydney Metro in or around Horwood Place in November 2018. A copy of the article and the email and map from Anthony Khoury are at Tab 48 and Tab 49, respectively. I also recall having a conversation with Greg Crone around that time in which he expressed concern around the likelihood that the Metro Station could be located over the Land and the Horwood Place Carpark. … 105 After considering the emails, the article and my conversation with Greg Crone referred to in paragraphs 102 and 103 above, I formed the view that the most likely location for the Metro Station would be over the Horwood Place Car Park due to its central location within the Parramatta CBD, its proximity to Parramatta Square and its distance from the Parramatta River. I also assumed that resuming the Horwood Place Car Park from PCC was likely to be less difficult for Sydney Metro than if it resumed land from a private owner. 106 I was also aware that the platforms of stations on the Sydney Metro City and Southwest line were approximately 200 metres long and assumed that the Metro Station in Parramatta was therefore highly likely to be the same length. I understood that the Horwood Place Car Park was in the order of 105 metres long and would therefore be unable to accommodate a platform 200 metres long. Accordingly, I considered that land additional to the Horwood Place Car Park would be required for the Metro Station, either a further 50m in a south easterly direction to Smith Street and/or a further 110m in a north westerly direction through the Land to Church Street. 107 I suspected that Sydney Metro would likely seek to acquire some or all of the Land rather than other land connecting Horwood Place Car Park to Smith Street because I considered that: (a) there would likely be a higher passenger load to Church Street than Smith Street because Church Street was (and remains) the predominant retail spine in the Parramatta CBD; and (b) even if Sydney Metro acquired the land between Smith Street to and including the Horwood Place Car Park, it would still need to acquire part of the Land because the distance from the western side of the Horwood Place Car Park to Smith Street was in the order of 150 metres, leaving that land less than the 200 metres in length I had assumed Sydney Metro required for its station length as I refer to in paragraph 106. 108 Over the course of several telephone conversations in late February and March 2019, Dimitri and I discussed my suspicions. I do not now recall the specific words used in the conversations but I recall that we: (a) were both concerned about the risk that the Land or part of it might be acquired by Sydney Metro for the Metro Station (Risk); (b) did not decide to immediately abandon the development of the Land as, between us, we hoped that: i. my suspicions would prove to be wrong; or ii. if my suspicions proved to be correct, that the Applicants might be able to negotiate an arrangement with Sydney Metro to retain development rights over the Land once the Metro Station was constructed. (The steps taken by the Applicants to pursue this possibility are described below); (c) agreed to reduce expenditure by discontinuing preparation of the plans for the Expanded Building which I refer to at paragraph 104 above; and (d) agreed to continue to engage with PCC regarding a DA for the Church Street Extension (Church Street Extension DA). … 117 On 23 May 2019, I was emailed a copy of a letter from PCC dated 22 May 2019. The letter confirmed in writing that the Applicants were required to undertake a competitive design process for the Church Street Extension. Copies of the email and letter are at Tab 62 and 63. 118 Shortly after receiving this letter from the PCC, Dimitri and I had a telephone call to discuss its implications. I do not recall the exact words spoken during the conversation but I recall that, because of the uncertainty caused by the Risk and now the competitive design process required by PCC, we agreed to suspend the design work on the Church Street Extension DA. 119 On 19 June 2019, Pascal sent an email to the consultants (copying me and Dimitri) notifying them that design work on the Church Street Extension DA had been suspended. Attached at Tab 64 is a copy of an email from Pascal. … 124 On 4 July 2019, I had a meeting with Greg Arnold and Jeheon Son from Lend Lease concerning the potential effects of the Metro Station on the 50 Macquarie St Project. I do not now recall the exact words spoken at the meeting but recall that we discussed the prospects of collaborating with Lend Lease to propose to Sydney Metro a development of the broader precinct. At Tab 68 is an email dated 4 July 2019 from me to my father, Dimitri, George Drivas and Pascal Bobillier about this meeting. 125 On 22 July 2019, the Applicants wrote to Sydney Metro regarding the possibility of leasing the Land to Sydney Metro with the intent that an over-station development might be undertaken by the Applicants after the Metro Station had been constructed. A copy of this letter is at Tab 69. 126 On 2 August 2019, the Applicants received a reply from Sydney Metro to its letter of 22 July 2019 referred to at paragraph 125 above, advising that Sydney Metro was in the early planning and design phase of the Metro West Project and that, while noting submissions were not being called for, our comments had been noted. A copy of this letter is at Tab 70. … 131 On 21 October 2019, I had a telephone conversation with Dimitri in which he informed me that David Hobart of Sydney Metro had called him earlier that morning to say that the Land would be acquired by Sydney Metro for the Metro Station. 132 I cannot recall the exact words spoken but recall that during this conversation we decided to cease all activities concerning the 50 Macquarie St Project including: (a) participation in the design competition for the Church Street Extension to which I refer at paragraph 129 above; and (b) all work by the Agents. 133 On 21 and 22 October 2019, at my direction, Pascal sent emails to the Applicants' consultants, the competitors under the Design Competition Brief and the Agents informing them of the acquisition of the Land. Copy of these emails are at Tab 75, Tab 76 and Tab 77, respectively. 140 On 19 March 2021, an acquisition notice under the Just Terms Act for the Land was published in the NSW Government Gazette.
The affidavit of Mr Drivas sworn 1 March 2022 deposed in relation to the causation issue that he agreed with Mr Coombes' evidence relating to the material events and decisions concerning the progressing of the development as identified in pars 38 to 130 of Mr Coombes affidavit. He further deposed: 21 In relation to MPC [76], I recall having a discussion with Michael, most likely over the telephone in late May 2018, about the geotechnical investigations referred to in MPC [76]. I do not recall the exact words used but I recall that we agreed that there was no certainty that the Land would be impacted by the Metro West Project and that we therefore agreed to press on with it. … 28 In relation to MPC [108], I recall having several telephone discussions with Michael in late February and early March 2019 concerning the Risk. I do not now recall the exact words spoken but I do recall that we agreed to reduce expenditure on plans for the Expanded Building whilst continuing to pursue the Church Street Extension DA. 29 In relation to MPC [118], I recall that sometime after 23 May 2019 I had a discussion with Michael about the position of the PCC on the design competition for the Church Street Extension. I cannot now recall the exact words spoken between us but I recall that we agreed to suspend the design work on the Church Street Extension DA both because of the Risk to which was now added PCC's requirement that we submit to a design excellence competition. … 34 In relation to MPC [131-132], early on the morning of Monday, 21 October 2019, I received a call on my mobile telephone at my home from Mr David Hobart. I can't recall the exact words spoken but I recall that he told me that the Land was to be acquired for the Metro Project and that Sydney Metro would contact me with more information. 35 Immediately following the receipt of this call, I made contact by telephone with Michael and I relayed to him what Mr Hobart had said to me. 36 I recall speaking with Michael several times that morning. During one of these calls, although I cannot now recall the exact words spoken, we decided that we would stop all work on the 50 Macquarie Street Project.
Each of these witnesses was cross-examined on this evidence.

[15]

Applicants' submissions on causation

The Applicants, acting reasonably and because of the Public Purpose, ceased carrying out various activities which resulted in the market value of the Land on the Date of Acquisition being less than what it would otherwise have been. On any view, that is a decrease in the value of the Land caused by the Public Purpose which engages s 56(1)(a).
Relevantly, the Respondent does not contend that the Applicants acted unreasonably in deciding to completely abandon the Development in October 2019 upon receipt of confirmation that the Land was to be acquired. Therefore, there is no doubt that but for the Public Purpose, the Stop Work Decision would not have been made.
The evidence of Mr Drivas and Mr Coombes was that but for the Public Purpose, the Development would have progressed. The witnesses did not resile from this position in cross-examination. In particular, both Mr Drivas and Mr Coombes rejected the contention that the Applicants would have "pressed pause" on the Development and not proceeded with letting a construction tender in 2020 due to the COVID pandemic and the potential absence of tenant precommitments.
As the Applicants' chronology shows, had the Development been progressed by the Acquisition Date: 1. The design competition for the Church Street Extension would have been completed (in December 2019); 2. A development consent for the Church Street Extension and any modification to the Existing Consent would have been in place (by December 2020 if not before); 3. The existing tenants would have been given notices to vacate (in December 2019; 4. A tender would have been let for the construction of the Development (in February 2020); 5. A construction contract would have been executed (in June 2020); and 6. Demolition of the existing structures would have been completed (in September 2020).
To the extent that it was contended that the Discontinue Decision was made solely as a result of the Council's requirement for a design competition such submission should be rejected. An analysis of the evidence indicates that the Applicants were aware of the risk of acquisition well before the Discontinue Decision and at no time did they indicate their assessment of risk or their decision-making to the consultants - such processes were unrelated to the task of the consultants. It is inappropriate to draw any inference from the fact that when the Discontinue Decision was made that the whole of the considerations would be transmitted to the consultants, only that part of the decision-making that related to their work was communicated, consistent with past dealings.
Further, the evidence discloses that the decision to suspend the progress of the detailed drawings was taken in February 2019, months before the Applicants' employee, Mr Pascal Bobillier's email referring to the requirement for the design competition. The reference in his email to "the design" was a reference to the design of the Church Street Extension, the progress of which was not suspended in February. As Mr Coombes explained, the drawings involved in progressing the Church Street Extension with the Council were "Level 2" drawings which were different to and less detailed than the "Level 3" detailed design drawings for the entire Development (which, prior to suspension, culminated in the Revision E drawings of 27 February 2019), the progress of which was suspended in February 2019.
In any event, even if a finding was made that the detailed Revision E drawings would not have been further progressed by the Applicants until the endorsement of the competition brief for the Church Street Extension on 18 October 2019, the Respondent's own construction programming expert, Mr Shahady, accepted that the 2.5 month period between mid-October 2019 and the completion of the competition at the end of December 2019 would have been sufficient time for the alignment of the Revision E drawings and the competition brief. The timeline in the chronology would therefore have remain unaltered.
Mr Coombes gave evidence that, absent the Public Purpose, it was the Applicants' intention to commence construction on the Expanded Building as soon as possible. The Applicants had been assessing the market for developments such as that proposed for some time and were of the opinion, based upon market advice, that there was demand for the Expanded Building and that such demand would be strong into the expected date of practical completion. Whilst other developments were coming on-line there was a window in which the Applicants' development could be delivered during strong demand. As a result of the Applicants' financing structure and the advice received, they would have moved to develop the Expanded Building without precommitments by tenants.
Mr Coombes accepted that if the development proceeded in the manner contended by him that it was unlikely that there would be committed tenants by commencement of construction.
Ms Cheong was of the opinion that a developer would not commence construction without significant tenant precommitment. In her experience a developer will not commence construction unless at least 50% of floor space had committed tenants. The developer without tenant precommitment would continue to market the availability for tenants of the proposed building whilst receiving income from the sitting tenants until such time as the necessary precommitment was obtained.
In cross-examination Ms Cheong accepted that the timing for precommitment was up to 50% prior to the commencement of construction - continuing during construction to 100% at practical completion. She further accepted that the financing structure of a developer may influence this decision and a developer that had cash reserves and was not relying upon borrowing may proceed without precommitment.
Mr Hillier was of the opinion that tenant precommitment was not determinative in the decision as to the commencement of construction, particularly for a developer with a financing structure of a type similar to the Applicants.
The evidence of Mr Coombes should be accepted. The suggestion that tenant precommitment is an essential precondition to the commencement of construction should not be accepted. As Mr Coombes attested and as Ms Cheong ultimately accepted, a developer, such as the Applicants, with cash reserves will not be reliant on precommitment. Further, and very importantly in this case, as Ms Cheong accepted, the critical point for tenant precommitment is not at the date of the commencement of construction but at practical completion. In this case, with these Applicants, the lack of tenant precommitment would not have delayed the start date of construction.
The logic of such a decision is further reinforced by the market analysis the Applicants were undertaking during the period leading up to the Date of Acquisition which indicated that there remained a strong market in the Parramatta CBD and that if the Applicants' development were completed in a timely manner and completed by 2023 it would take advantage of a period of a lack of supply of other new developments coming on-line in that period. There was therefore an impetus to complete the Applicants' development which was reflected in the actual actions taken by them prior to the effect of the proposal to carry out the Public Purpose and would have continued had that proposal not impacted on the Applicants' decision making.

[16]

Respondent's submissions on causation

The Respondent contended that the Discontinue Decision was not caused by the Public Purpose but by the decision of the Council (unrelated to the Public Purpose) to require the Applicants to undertake a design competition for the Church Street Extension. The consequence of the Discontinue Decision was to delay the commencement of work on detailed designs for the Expanded Building until after completion of the design competition in around 31 December 2019 with consequential impacts upon the carrying out of any further works on the Land being delayed so that, even on the Applicants best case, as at the Date of Acquisition little if any physical work would have commenced on the Land.
The Respondent did not submit that the evidence of Mr Drivas and Mr Coombes was untruthful, rather it submitted that having regard to the reliability of human memory the Court should consider that evidence in light of a consideration of the contemporaneous documentary evidence that at least does not support, or does not fully support, what is contained in Mr Coombes and Mr Drivas' affidavits.
The Respondent traversed the communications between the Applicants and their consultants and identified that there was no communication to the consultants that any direction or delay in the completion of the detailed design was influenced by the risk of acquisition, however, references were made to the decision by the Council to require a design competition. From such an analysis of the whole of the evidence the Court would be persuaded that, in truth, the reason for the delay in any preparation or continuation of design drawings, plans for the Expanded Building was not a perception that there is a risk of acquisition, all or part, but because of what the Council said to the Applicants on 20 March 2019 that a design competition was required.
The documents and the evidence or absence of evidence indicate that because of the Council's position, the Applicants put off moving forward with design drawings until the time when the design competition would have finished, namely 31 December 2019 and to the extent that any action or decision that was caused by the Public Purpose could not occur until after 31 December 2019.
The Respondent accepted that if, contrary to its submissions, the Discontinue Decision (or either decision) was caused by both a consideration of the requirement for the design competition and the risk of acquisition then such is sufficient to find that the Public Purpose caused the making of the decision, and it could not submit that things would have stopped until at least after 31 December 2019.
As to the Stop Work Decision, there would be real doubt, even if the Applicants were in a position to commence construction that they would have done so. In particular, whether they would have embarked on a $200 Million+ project without leasing precommitments and in light of the market headwinds that were known to be emerging.
There can be no real doubt that the feasibility of the project depended on having tenants in occupation as soon as possible following completion. That this was of great importance to the Applicants is evidenced by the following: 1. They engaged first class agents in both CBRE and Cushman and Wakefield; 2. Between July 2017 and September 2019 there were monthly formal meetings between the Applicants and the agents; 3. Even though Mr Drivas left the management of the project in general to Mr Coombes, he was consulted on major decisions. Nevertheless, he attended all of these meetings, except when on leave, and then he read the reports. Mr Drivas was intimately aware of these reports and it is clear that the leasing of the building was a major matter; 4. The reports identify that the Applicants had set out a required level of precommitments at 15,000m2. This terminology suggests that the number is consequential. That is, only if the number is met will there be a consequence. The clear inference is that the consequence would be that the Applicants would actually commit to commencing the development; and 5. Mr Drivas agreed that if tenants could not be found this would be a financial disaster for the building if not for the group.
This evidence indicates that even if the approvals and the like had been obtained so as to support the proposition that the development could have commenced by a certain date, that does not necessarily mean that it would have been so commenced. As Ms Cheong observed every single one of the other development sites she considered had precommitments.
No reasonable prudent developer in the position of the Applicants would have committed to proceed given the "headwinds" that came into existence in 2020 which fundamentally changed the market dynamics for commercial development such as: 1. The COVID-19 lockdowns in 2020; 2. Significant additions to stock (about 35% increase over total stock); 3. Vacancy rates rising; and 4. Average net rents stalling since 2019.
Furthermore, given these headwinds, even if the Applicants' case is accepted that it would have continued to progress the development but for the Public Purpose, no prudent hypothetical purchaser as at the Date of Acquisition would accept these significant headwinds without de-risking the project by first securing tenant precommitments.

[17]

Discontinue Decision

The first relevant event that the Applicants rely upon as producing a decrease in the value of the Acquired Land is the Discontinue Decision taken on or about February/March 2019. The taking of the Discontinue Decision was said to have two consequences that impacted upon the value of the Acquired Land by decreasing its value: 1. The Applicants decided to reduce expenditure by discontinuing preparation of plans for the Expanded Building; and 2. The Applicants decided to suspend work on the Church Street Extension DA, including not undertaking the necessary design competition.
The first question to be determined is whether, on the evidence, the taking of this decision was caused by the proposal to carry out the Public Purpose for which the Land was acquired.
The causation question is, as was accepted by the parties, a question that asks whether: the proposal to carry out the Public Purpose, the Applicants would have made the Discontinue Decision? It is, therefore, necessary to consider whether on the evidence there is the necessary link to the Public Purpose.
The term public purpose is defined in the Just Terms Act to mean: public purpose means any purpose for which land may by law be acquired by compulsory process under this Act.
Despite the Applicants initially pleading that the Public Purpose related only to the construction of the station component of the Metro, the case was conducted upon the basis that the Public Purpose was relevantly the Sydney Metro West project.
The evidence as to the reasons for the taking of the Discontinue Decision were comprised by the evidence of Mr Drivas and Mr Coombes. From that evidence I find that as at the date of the Discontinue Decision: 1. The Public Purpose had been publicly announced; 2. The exact details of the route of the metro line and the location of the metro station had not been determined; 3. Geotechnical work had been undertaken by the Respondent in connection with the Public Purpose in proximity to (but not including) the Acquired Land; 4. The undertaking of the geotechnical work and its locations was known to members of the public including the Applicants; and 5. The location of the geotechnical work indicated a real prospect that, subject to final design, at least part of the Acquired Land would be adversely impacted by the undertaking of the Public Purpose, including the potential acquisition of part or all of the Land.
Having regard to those factors relating to the progress of the Public Purpose and the publicly available knowledge as to that progress, that by the date of the making of the Discontinue Decision it was reasonable for the Applicants to consider that there was a real risk that the carrying out of the Public Purpose would require the acquisition of part or the whole of the Acquired Land and that acquisition of part or whole of the Acquired Land would frustrate the carrying out of the Applicants' development proposed on the Land. However, in light of the advice from the Respondent that the route and design of the Public Purpose had not yet been finalised, the prospect of acquisition remained a risk and not a likely certainty. Therefore, the decision to continue with the progressing of the Applicants' development proposal, albeit in a manner that did not incur significant cost, was reasonable in the circumstances.
These findings however are not sufficient to meet the requirements as set out in s 56(1)(a) as it is necessary to determine whether "but for" the proposal to carry out the Public Purpose the Applicants would have taken the steps it did. If so, it is also necessary to establish that the consequence of the making of the Discontinue Decision caused a decrease in the value of the Acquired Land.
In light of my findings at [155] above and from the evidence of Mr Coombes and Mr Drivas identified at [123]-[124] above, which evidence I accept, notwithstanding the testing of that evidence in cross-examination, that the Discontinue Decision to reduce expenditure by discontinuing plans for the Expanded Building was made solely on the basis of the proposal to carry out the Public Purpose. It is apparent from that evidence that the Applicants had engaged in a planning process with the Council for the Original Development Consent that included a design competition. They did so to obtain that consent. Whilst the Applicants sought to avoid the design competition for the Church Street Extension, they were unsuccessful. There is nothing to suggest that the design competition for the Church Street Extension was so onerous or otherwise unpalatable such that the Applicants would respond to the requirement by making a decision to delay the progressing of the detailed plans for the development. To the contrary, the scope of the design competition was very limited such that it was capable of being undertaken without significantly impacting upon the progressing of the detailed design plans. Accordingly, on the evidence, the only plausible explanation is that it was the impact of the Public Purpose in conjunction with the further requirements of Council and, therefore, the decision not to progress the detailed design would not have been made but for the Public Purpose.
The second consequential decision being the decision to suspend work on the Church Street Extension DA, on the evidence was influenced by two factors. The first was the risk associated with the proposal to carry out the Public Purpose and the second was that the Applicants had been advised by the Council that it was required to undertake a design competition for that part of the development. These two factors, on the evidence acted in concert to give rise to the decision to suspend this aspect of the design work. The relevant question is not whether there were other factors that influenced the final decision to not engage in the design competition, but rather would that decision have been made but for the proposal to carry out the Public Purpose. Whilst, on the evidence, I accept that if the Council had not required the design competition the Applicants may well have continued to undertake the relevant design work notwithstanding the proposal to carry out the Public Purpose. I do not accept that the Applicants would not have undertaken the design competition absent the proposal to carry out the Public Purpose.
The Applicants had, in the past, engaged in the design competition process for this development. The Applicants through discussions with Council were aware that there was a possibility that the Council would require a competition notwithstanding the Applicants' submissions to the contrary. The Applicants continued to engage with the Council and on the evidence were committed to obtaining the necessary consent even if such required a design competition. I therefore find that the requirement that a design competition be undertaken was not the reason for the decision to suspend work. The decision to suspend work was caused by the proposal to undertake the Public Purpose and, but for that proposal the design work would have progressed. Consistent with the Applicants' Discontinue Decision to limit the incurring of significant costs, the design competition process involved the incurring of significant cost and as such was not progressed due to the identified risk arising from the proposal to carry out the Public Purpose.
For the reasons outlined above, I find that the Discontinue Decision and the two consequential actions referred to at [150] above were caused by the proposal to carry out the Public Purpose.
In the circumstances, I am satisfied that the Discontinue Decision caused a decrease in the value of the Acquired Land. On that basis the Discontinue Decision is a matter that meets the requirements of s 56(1)(a) and is therefore to be disregarded for the purposes of determining the market value of the Acquired Land.
The primary contention of the Respondent that the Stop Work Decision was not caused by the Public Purpose related to the contention that the Applicants would have not progressed the construction of the Expanded Building due to changed market conditions and/or due to a lack of tenant precommitment. As to the Respondent's contention that the construction of the Expanded Building would not have commenced in any physical sense as at the Date of Acquisition due to the lack of tenant precommitment, rather than as a result of the effect of the proposal to carry out the Public Purpose, I do not accept that submission for the reasons that follow.
First, I accept the evidence of Mr Coombes and Mr Drivas that a developer of the Applicants' finance structure could fund the development from its own reserves of cash thereby avoiding the need for commercial lending. The consequence being that tenant precommitment, whilst desirable, was not an essential precondition to these Applicants (or a hypothetical developer of such a financial structure) commencing construction.
Secondly, even if tenant precommitment was a precondition to the commencement of construction, the 18-month period between the telephone call from Mr Hobart and the Date of Acquisition would have been sufficient to obtain tenant precommitment. As was evidenced, the Applicants had already begun the process of securing tenants, with one large commercial tenant expressing interest and other potential tenants being identified. These activities were also paused when the Stop Work Decision was made. There is no evidence that suggests that absent the Stop Work Decision such endeavours would not have progressed with a degree of success.
Thirdly, it was accepted by Ms Cheong that she had not factored into her scenarios the continuation of the securing of tenancies in the 18-month period between notification and the Date of Acquisition. On her scenarios she allowed an 18-month period after the Date of Acquisition for those searches to occur. She accepted in cross examination at Tcpt, 12 August 2022, p 341(35-43). GALASSO: --you accept, do you not, that 18 months between October 2019 and March 2021, even knowing that Samsung were in play in October 2021, was more than sufficient time for there to be some pre-commitments on the lease; correct? WITNESS CHEONG: Yes, I accept that, yes. It's, possible-- GALASSO: And you accept that? WITNESS CHEONG: --yes. Implicit in this concession is that the tenant precommitments could have been secured in the 18 months leading up the Date of Acquisition. The consequence being that as at the Date of Acquisition the progression of the construction of the Expanded Building would not have to be delayed to obtain significant precommitment by tenants.
In addition, so as not to have to revisit this issue later, as at the Date of Acquisition, a hypothetical purchaser would be aware of the tenant precommitment. Whilst such agreements, like the construction contract, would be personal to the hypothetical vendor and not form part of the hypothetical sale, sufficient confidence would be drawn such that a further 18 months would not be budgeted into the construction period to achieve tenant precommitment. Rather the period I have allowed to permit the hypothetical purchase to retender the construction contract below at [356] would also be utilised to negotiate with the precommitted tenants to engage with the hypothetical purchaser.
As to the change in market conditions referred to by the Respondent those conditions were in play as at the Date of Acquisition, whereas the Applicants (and a hypothetical purchaser) were projecting the market to the date of practical completion. The available evidence was a softening of the market, not a depressed market. There was expected to continue to be strong demand for buildings such as that proposed and the projected timeline for construction indicated that the building would be delivered into a strong market due to the window of supply. For those reasons, I do not consider that the evidence supports a finding that either those Applicants, or a hypothetical purchaser, would either not commence construction or would materially delay construction.
For those reasons, there can be no doubt on the evidence that the Stop Work Decision was caused by the proposal to carry out the Public Purpose. The decision, as reflected in the evidence of Mr Drivas and Mr Coombes, was taken as a direct and natural consequence of the telephone call from the Respondent advising the whole of the Land was to be acquired. To have continued to develop the land for the Applicants' development proposal in light of this advice would have been inexplicable in the circumstances.
Accordingly, I am satisfied that the Stop Work Decision was caused by the proposal to carry out the Public Purpose.
As to whether such decision had an effect on the value of the Acquired Land the evidence is also clear. Even on the case propounded by the Respondent absent the Stop Work Decision, the Applicants' would have continued with the design work and by the Date of Acquisition have at the very least obtained a development consent for the Church Street Extension. Such a consent would have increased the value of the Land in that the approved development would have provided for a greater floor space and the sale of the Land with such a proposal would have increased its value as a development consent reduced the risk and delay for a potential purchaser in the redevelopment of the land - which redevelopment was the highest and best use for the Acquired Land.
Accordingly, I find that the Stop Work Decision having been caused by the proposal to carry out the Public Purpose also caused a decrease in the value of the Acquired Land and that such a decrease is required to be disregarded for the purposes of determining market value.

[21]

Town planning

The expert planning witnesses, Ms Swan for the Applicants and Ms Deegan for the Respondent, reached significant, and almost entire, agreement in their evidence as to the steps required in the planning phase of the Development and the timing required for those steps. In particular, Ms Swan and Ms Deegan agreed: 1. The Existing Consent had been granted to the Applicants with a total GFA of 39,069m2 and a Floor Space Ratio (FSR) of 10.6:1 in December 2018; 2. The Applicants sought to pursue a new DA for the Church Street Extension, to utilise residual GFA available under the updated site-specific Parramatta Local Environmental Plan 2011 (PLEP); 3. To utilise an additional 7,004m2 GFA up to a maximum FSR of 12.5:1, a design competition was required under cl 7.10(8) of the PLEP; 4. It was reasonable to assume that the design competition for the Church Street Extension would have been concluded with an announcement of the winner by the end of December 2019; and 5. A consent for the Church Street Extension could reasonably have been expected to have been granted by December 2020.
The issue that remained between the experts was the precise time required for the grant of the consent for the Church Street Extension following the completion of the design competition.
Ms Swan was of the opinion that a DA lodged in the first quarter of 2020 had reasonable and high prospects of success of being approved within that same calendar year (that is, no later than December 2020).
Ms Deegan was of the opinion that she would advise that the approval of the Church Street Extension DA may be possible by December 2020, however, there was no certainty on that date as she expected 10 month average DA processing time and the possibility that a further application would be needed to modify the Existing DA to enable integration between the Church Street Extension and the Existing Consent and that such may add a degree of risk in terms of timeframe for the site.
In cross-examination Ms Deegan accepted that there were measures within the development application process that could ameliorate such timing risks such as the power to impose conditions upon the development consent amending the Existing DA so as to avoid the need for a modification and the right to appeal to the Land and Environment Court for a deemed refusal appeal.

[24]

Heritage investigations

There was significant agreement between the heritage/archaeological experts as to the timeframes required for heritage and archaeological works on the Land as a site of Aboriginal archaeological and cultural heritage significance. The areas of agreement were: 1. An AHIP for testing from Heritage NSW would be required in accordance with the National Parks and Wildlife Act 1974 (NSW) and this would take between 4-6 months to obtain; 2. A permit to disturb or excavate relics would be required under s 140 of the Heritage Act 1977 (NSW). Such a permit usually takes six weeks to be issued, but can be obtained concurrently with the AHIP to test; 3. Excavation of finds would most likely be required, which would require an AHIP for harm, and this would take between 4-6 months to obtain; and 4. Two months would be required for the excavations.
However, the heritage experts disagreed as to whether an additional period of time should be added to the period for the archaeological works to allow for the discovery of unexpected relics, such as human skeletal remains or archaeological finds of State significance.
Dr Comber did not consider that such risks warranted any further time to be provided as liaison would have already taken place with Heritage NSW at the time of applying for the s 140 permit, such that in the event significant archaeology including skeletal remains were uncovered mitigation measures could be implemented quickly and within the two-month period already allowed for excavation.
Mr Hansel remained concerned as to the risk of such unexpected discovery and considered it appropriate that the timing of archaeological works be considered on a "minimum risk" and "maximum risk" scenario.
The "minimum risk" scenario related to the assumptions and predictive models as to the findings are confirmed and no State significant relics or significant Aboriginal objects found. In this scenario, he considered works might be finalised within 5-6 months of the initial permits. The "maximum risk" scenario was where there was found State significant relics with high integrity, together with significant Aboriginal objects. In such event the excavation would take at least three to four months and possibly longer in a worst-case scenario.

[34]

Findings on evidence as to timing and stage of works absent proposal to carry out the Public Purpose

As to matters that relate to the progress of the Expanded Building absent the Discontinue Decision and the Stop Work Decision a number of my earlier findings feed into this determination, namely: 1. The detailed plans and design competition would have been progressed and awarded: see [171]; and 2. Tenant precommitment would have continued and progressed: see [165]; In light of those findings, and for the same reasons as outlined in connection with those findings, the contention by the Respondent that a further 18-month period from the awarding of the tender to permit tenant precommitment cannot be sustained.
Further, the Respondent's contention that an additional 2.5 months would be required to award the tender to enable the detailed plans to be prepared is also founded on the assumption that I have rejected, that the Applicants stopped work on the detailed plans for reasons other than the Public Purpose. Therefore, for the same reasons, I reject that a further 2.5 months should be added to the otherwise agreed 4.5-month period to enable the awarding of the tender.
As to the time required for heritage investigations, evidence was given by two archaeologists experienced in the undertaking of site investigation such as was required for the Site: Dr Comber for the Applicants and Mr Hansel for the Respondents.
The experts were in broad agreement as to the fundamental aspects of the archaeological investigations with the exception as to whether any allowance should be made for any time that may be required to complete the investigation in the event that some State significant object or relic was discovered during the course of the investigation. Both experts considered that in light of past experiences of themselves and from other archaeological investigations in the locality that such a discovery was not likely but could not rule out the making of such a discovery.
Dr Comber was of the opinion that the period of time of two months that she allowed for excavation was sufficient to include any time periods that would be required in the event of the discovery of any such relic and, therefore, the risk did not require any further time to be added to her estimate. The only qualification she made was that if skeletal remains were found that a further period may be required but she assessed, based upon her experience of other proximate sites, that such a discovery was extremely unlikely such that she would not anticipate more than the two months excavation period allowed by her. It was her opinion that a period of no more than eight months would be required for the heritage and archaeological works to occur.
Mr Hansel identified two scenarios which he described as "minimum risk" and "maximum risk".
Having regard to the opinions of the heritage experts, evidence was adduced from construction scheduling experts: Mr Zantis for the Applicants and Mr Shahady for the Respondent. With respect to the aspect dealing with the heritage investigations these experts expressed opinions as to what period would be allowed in a construction schedule for those works to be completed. This evidence was adduced to serve two purposes: first, to assist in ascertaining what work, if any would have been completed if the Stop Work Decision had not been made; and secondly, to ascertain the completion date of construction for the purposes of valuing the market value of the land on a RLV methodology. In light of the findings I have made that the Discontinue Decision and Stop Work Decision are to be disregarded for the purposes of determining market value, I need to consider this evidence in the context of the first of the purposes for which it was adduced, that is, what if any of the heritage investigation works would have been completed as at the Date of Acquisition. This enquiry requires a different emphasis to be placed upon the construction scheduling evidence, as the construction schedulers are undertaking a totally predictive exercise to determine a reasonable construction period. This predictive exercise assumes, in large part, that none of the work has in fact been undertaken, whereas the exercise I must undertake requires me to determine as a matter of fact on the evidence what work would have been undertaken as at the relevant date. In this regard, on either case, there will be certainty in respect to some or all of the heritage works having been completed by the Date of Acquisition.
The evidence of the construction schedulers was that Mr Zantis adopted Dr Comber's evidence as to the time required. Mr Shahady considered the advice of Mr Hansel but did not allow the maximum risk or the minimum risk scenario but rather an averaged time as he explained orally.
I do not accept that Mr Hansel's maximum risk scenario is appropriate in the circumstances of this case. As the archaeologists agreed some instruction as to likely archaeological finds can be drawn from archaeological investigations in proximity to the Site. In this case, the archaeological investigation of a much larger investigation area comprising the Parramatta Square development indicates that it is unlikely that a find such as skeletal remains are likely to be discovered upon investigation of the Site. The capacity to complete the investigations within the time period specified by Dr Comber is consistent with expectations of those proximate Parramatta Square investigation which were in fact undertaken by her. The Site being so proximate and of relatively small area does not on the available evidence indicate that it would be likely that any "unexpected" finds would delay the process of investigation. I accept the evidence of Dr Comber that the period anticipated by her is sufficient to accommodate any "expected" finds and that in the unlikely event that skeletal remains were found such a delay would be accommodated within the construction programme.
For those reasons, I accept that to the extent that the heritage investigations required the obtaining of permits such permits would be obtained concurrently and would be in place at the date of the completion of the demolition of the buildings. Thereafter, the heritage excavations investigation could commence immediately upon completion of demolition with the total time for completion of the heritage investigations from the date of the receipt of the AHIP and s 140 permit being completed within a total period of 8 months.

[38]

Respondent's submissions

Whether or not there would have been any actual tender by the vendor companies resulting in any construction contract is irrelevant.
That is simply because the market value of the land must be assessed on the hypothetical sale of it (simpliciter). The transaction to be assumed does not include any assignment of other property or rights, such as the rights of the vendor under any construction contract. The existence of a novation clause in any such contract merely means that the rights may be assignable but that is no answer to any such assignment to the hypothetical purchaser being beyond the statutorily mandated assumed transaction.
This proposition is made good by the very case the Applicants put, that is that the entry into the building contract back in 2020 would be valuable, compared to a contract entered into later including after the Date of Acquisition. In other words, a purchaser would pay more for the site with the assignment of the contract than it would without such assignment. Thus, the price payable by the hypothetical purchaser under such a transaction is not reflective of market value only, but market value plus the benefit of the contract.
To undertake both an analysis for the s 56(1)(a) disregard and the subsequent market value assessment it is necessary to establish the date upon which the Applicants' proposed development would be completed.
Whatever time might be required, the actual steps that would be required to achieve completion are as set out in the table to par 59 of the Joint Expert Construction Programmers Report. Critically they must all commence after the Date of Acquisition because they are things that the hypothetical purchaser must do, given that the first step is to tender and select preferred contractor (effectively enter into a building contract). The Applicants building contract, not being able to be part of the analysis (being a personal right) is to be disregarded. The hypothetical purchaser must be assumed to have to tender for its own contract after the Date of Acquisition.

[41]

Evidence

Ms Cheong relied on four sales in the locality: 1. Sale 1: 41-43 Hunter Street; 2. Sale 2: 81-83 George Street; 3. Sale 3: 85-87 George Street; and 4. Sale 4: 12 Hassall Street.
Sale 2 and Sale 3 were adjoining sites separately sold for the purposes of a combined development site (GPT Sales).
Whilst Mr Hillier did not consider the direct comparison method was an appropriate valuation methodology, he considered the comparable sales 1 to 3. He did not consider Sale 4 as comparable due to its zoning and location.
An inspection of the Acquired Land, the location generally and each of the comparable sales was undertaken in the company of the parties' representatives.
Ms Cheong's use of the comparable sales related to a determination of what she referred to as a "Step 1 value". The Step 1 value was the value of the Land on the Date of Acquisition assuming it did not have the benefit of any development consent at all. Thereafter, she adjusted this base "Step 1 value" to reflect the usual adjustments for comparability. In addition, for each scenario utilised in her valuation she adjusted the Step 1 value to accord with the assumptions required by her various valuation scenarios. In addition, Ms Cheong was of the opinion, as expressed in the revised joint expert report at pars 28-30, 59, 70-71: 28. Given there were a number of development site sales in the Parramatta CBD market at the date of acquisition with similar characteristics to the Land (immediate development potential), I consider reliance on the Direct Comparison method an appropriate approach. 29. I agree with Mr Hillier that a development feasibility model would have been undertaken concurrently. 30. In these proceedings, I have undertaken this in Scenario 3a and in my primary evidence I comment and reconcile the values obtained through Direct Comparison and the feasibility model (or Hypothetical Development method). … 59. I agree with Mr Hillier that the process of Direct Comparison adjustments would be of high risk if they were carried out in a vacuum, i.e. not done concurrently with a feasibility model or reconciled with sales of development approved sites in CBD commercial markets. … 70. At the date of acquisition if the Land had in fact commenced construction (e.g. demolition and early works), with tenant pre-commitments secured, then the Land to be valued under the Act should be as a partially developed site. 71. Were that the case, I agree with Mr Hillier that construction works could then commence immediately post the date of acquisition and the Hypothetical Development method should be the primary method of valuation.

[43]

Respondent's submissions

The direct comparison approach is generally an approach that is preferred to any hypothetical development analysis including an RLV analysis.
As was stated in Graham Trilby Pty Ltd v Valuer-General [2008] NSWLEC 217 at [27]: ...it is well recognised that, if comparable sales are available, direct comparison has repeatedly been identified as the conventional valuation technique. The basis for this preference is obvious -if comparable sales are available then they represent direct evidence of the market's evaluation of all of the variables that a valuer must otherwise account for by a subjective opinionative process in the residual or hypothetical development approach. This proposition underscores why the fact that developers buying en globo parcels may routinely use a residual analysis to determine land value is an insufficient reason (at least considered in isolation) to disregard or place little, if any, weight on comparable sales. (References excluded.)
There is much judicial commentary suggesting caution with using the hypothetical development approach due, at least in part, because of the number and significant impact of subjective assumptions that are required to me made to formulate the necessary inputs and the wide ranges in possible values that can result: Peter Sleiman Property Investments Pty Ltd v Valuer-General of New South Wales (No 2) [2021] NSWLEC 47 at [189]-[202] per Robson J.
These proceedings are illustrative of the problem referred to in these cases. There is considerable risk in adopting the RLV method here due to the many variables that must be quantified, and where small variations to these inputs, one way or the other, can result in a substantial difference to the derived value.
On the direct comparison approach the vast majority of the evidence is irrelevant. The only thing that happened (or did not happen) due to the impending public purpose that affected the value of the land, was that the s 4.55 modification and the Church Street Extension DA were not pursued when the agreed evidence of the town planning experts was that these would have been obtained by December 2020.
What makes a sale comparable is, as observed by Jagot J in Cook, Saad, Raguz & Ors v Roads and Traffic Authority of New South Wales [2007] NSWLEC 136 at [35]: "... the valuer must consider whether, having regard to the circumstances (using that word in its broadest sense) appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v Commonwealth (1907) 5 CLR 518"
This is an entirely conventional approach to what is a comparable sale as was held in Prasad v The Minister Administering the Environmental Planning and Assessment Act 1979 [2010] NSWLEC 193 per Sheahan J.
In the circumstances of this case, where there exists a sufficient number of post-July 2006 sales of land, which may be regarded as reasonably "comparable" (in the valuation sense of that word, that is, zoned in accordance with the underlying zoning of the Land and located in its general proximity), the determination of the market value of the Land can be approached, with confidence, using the comparable sales approach.

[46]

Development costs

Evidence relating to the costs of undertaking the development was given by quantity surveyors engaged by each party: Mr Bolt, for the Applicants and Mr McBeth, for the Respondent.
Mr Bolt determined the cost of the development having regard to actual costs derived from two similar projects undertaken at around the Date of Acquisition at two sites at Parramatta Square.
Mr McBeth undertook an assessment of costs based upon an element-by-element costing using acceptable reference material such as the commonly utilised Rawlinsons to cost each item.
Whilst there appeared on the face of the calculations to be significant difference in the costs, the experts gave evidence at Tcpt, 10 August 2022, p 204(3)-205(8) in the following terms: HER HONOUR: So the table 1 in your joint report which is at 2704 is the six million - rounding down - difference between you WITNESS MCBETH: Yes. HER HONOUR: Is that just the difference in how the benchmark versus elemental WITNESS MCBETH: Yes. Well, that's how I view it. HER HONOUR: Mr Bolt, you pulled a face. WITNESS BOLT: Sorry, your Honour. Yes, it was quite difficult for us, actually, to apportion the costs against those headings, in actual fact. So there's no - there will be, inevitably, a little bit of distortion because, for example HER HONOUR: But that's why I've gone to the total number. WITNESS BOLT: Yeah, that's right. Yeah. HER HONOUR: Rather than breaking it up because some of them, you say, you've included it. It's, obviously, included in one of the other line entries? WITNESS BOLT: Absolutely. Yeah. So we're not so far different. I mean HER HONOUR: It's six million. It's quite a WITNESS BOLT: Well, from a quantity..(not transcribable).. perspective that percentage is within what we would consider. If two individual experts priced the project even if the drawings were at, let's say, DA stage you would expect a three - four - three or 4%, probably, fluctuation between those two costs. But I HER HONOUR: You're nodding, Mr McBeth. So I take it you're agreeing with Mr Bolt? WITNESS MCBETH: I agree. I agree that, like, if two different people are approaching the one set of documentation, equally, they're approaching it from a different angle. You'll never get the example same number. HER HONOUR: This is within the expected range? WITNESS BOLT: I would suggest, yes. I mean, I feel as if I've had the benefit of two live jobs both of which were both in Parramatta Square. So I had some really, really - it's unusual. But I had some very, very good cost data to rely upon. So I didn't really question that. After I had looked at the database I could see that those were appropriate jobs to use as a - for a benchmarking exercise. HER HONOUR: As I said, that six million is the difference between the two approaches and between two different quantity surveyors doing the same exercise even if you use the same approach. Is that right? WITNESS BOLT: Absolutely. I agree. I agree with you, yes. Yes, your Honour.

[48]

Rental income - retail

The difference in retail rent is approximately $1 Million. During oral evidence it became apparent that part of this difference arose because the valuers relied on slightly different versions of the Revision E drawings (neither of which corresponded precisely with the Revision E drawings annexed to Mr Coombes' affidavit, each of which depicted a different number of retail suites.
However, that there are different versions reflects the significant degree of flexibility available as to the composition of the retailers and the division or configuration of the floor space between those retailers, regardless of the configuration in the plans in an approved consent.
It was uncontroversial that a purchaser of the Expanded Building would seek to configure the retail space in a way so as to maximise the achievable rents, and that generally, a greater number of smaller tenancies can increase the revenue that can be derived.
Ms Cheong accepted that Mr Hillier's proposed composition or configuration of retail leases did not propose an unrealistic tenant mix, in that it was "not outside the realms of possibility". Accordingly, the Court should prefer Mr Hillier's plan as more accurately reflecting the approach of a rational developer seeking to maximise the retail rents.
Mr Hillier's approach, which while adopting higher face rents, incorporates higher lease incentives than Ms Cheong, also more accurately reflects the approach of the development market to face rents. That is, it is in an owner's interest to charge as much as possible in face rents because these amounts are capitalised for the purposes of the valuation exercise, and these are frequently offset by significant incentives to the lessee. Ms Cheong agreed face rents are somewhat of a "furphy" in this industry, that incentives are "as typical in this industry as night follows day", with A-grade offices being particularly "vicious" in respect of incentives.
Finally, while Ms Cheong sought to rely upon what she referred to as "flattened rents" as at the Acquisition Date (a proposition which was not borne out on the data relied upon by Ms Cheong, she ultimately agreed with Mr Hillier that in any event, the owners would not be looking to have retail tenancies leased around the Acquisition Date, but instead would run the process into practical completion). As noted by Mr Hillier, this would involve consideration of very different market consideration to those existing on the Acquisition Date.
In these circumstances, the retail rent adopted by Mr Hillier is accurate, reflective of the approach of the industry, and should be adopted.

[49]

Time for completion

The essence of the dispute between the construction programming experts is that Mr Shahady contends the construction period is 9 months longer than the period assessed by the Applicants' expert, Mr Zantis. As a consequence, in Mr Shahady's opinion, the development would be completed to a "warm shell" stage (prior to the final tenant fit out) by the end of April 2024, while Mr Zantis considers the warm shell would be completed by the end of July 2023.
The additional 9 months allowed by Mr Shahady can be divided into three categories: additional time for heritage works (5 months), additional time for construction risks/contingency (1.5 months) and additional time before commencement of tender (2.5 months). Each category is dealt with in turn below. Ultimately, none of the additional 9 months allowed by Mr Shahady should be accepted. On the basis of the earlier findings, it is only that component that relates to the additional 1.5 months allowed by Mr Shahady for additional construction risks. This constitutes an allowance of 5% and is in addition to the 15% already incorporated by both Mr Zantis and Mr Shahady for inclement weather for the period of the building works.
A 15% contingency for the period of the building works (equating to 12% for the entire build) is sufficient.
In the event the Court finds a further allowance should be incorporated, it should be limited to an allowance for inclement weather during the heritage excavation phase only, in light of Mr Zantis' evidence that inclement weather can be of assistance during the demolition phase and the AHIP for harm is an off-site process not affected by inclement weather. If Dr Comber's evidence as to an excavation period of two months is accepted, at an allowance of 15% as referenced by Mr Zantis, this further allowance would equate to just over one week of additional time.
Ultimately, the construction programming timeline of Mr Zantis, as set out in the supplementary joint report should be preferred, and the additional 9 months contended for by Mr Shahady should not be accepted. As observed by the Court, in some respects Mr Zantis' timeline is itself conservative and has the potential to be abridged, such as if tenders for demolition and main works were run in parallel, with demolition then able to commence earlier than July 2020.
For the above reasons, the evidence of Ms Swan, Dr Comber and Mr Zantis should be accepted, such that the key timelines in the construction of the Development, but for the Public Purpose, would have occurred as set out in the Applicants' chronology.

[50]

Development costs

The Applicants' quantity surveying expert, Mr Bolt, derives a total development cost of approximately $237 Million, while the Respondent's expert, Mr McBeth, derives a total cost of approximately $262 Million. Central to the difference between the total costs are the different underlying rates per m2 adopted by each expert.
Mr Bolt adopts a rate of $3,119m2 GFA, which he derives from the costs actually incurred on two high-rise office development projects undertaken in Parramatta Square, which he escalates to 2020 when the Development would have commenced. Mr Bolt records that the two projects are located in close proximity to the Land and were tendered under similar conditions by Tier 1 Contractors as would have occurred in respect of the Development, as such it is derived from actual costs, and consequently the rate adopted has embedded within it the cost of preliminaries, builder's margin and the like, and reflects the usual contingencies that would accompany a development of the nature of the Development.
Mr McBeth's key underlying rates are $2,887m2 GFA (main building) and $1,713m2 GFA (basement). Mr McBeth's underlying rates are grounded in nothing more than his general expectations and experience and unspecified benchmarks for a Grade A commercial tower. In oral evidence Mr McBeth also said he relied on "checks" against "other projects" and that his rate is "within a range" but none of the "checks", details of the "other projects" or "range" relied upon was in evidence. The absence of such analysis meant it was not possible for Mr McBeth to explain, for example, why his estimate for the excavation and construction of the basement was almost double that of Mr Bolt's.
Mr Bolt's rate of $3,119m2 GFA, derived from the actual costs of specific, comparable developments, should be preferred. In circumstances where there is no evidence as to the basis of the calculation of the rate adopted by Mr McBeth, the Court can have no confidence in its reliability (strictly speaking because of the absence of criteria enabling evaluation of his conclusion it ought to be rejected).
The other key difference between the quantity surveying experts was in relation to contingencies. Mr McBeth adopts multiple contingencies, including a 5% "construction contingency" and a 7.5% "design development contingency", a total of 12.5%. Despite the high reliability of his underlying rates, Mr Bolt nevertheless conservatively applied a contingency of 2.5% to those rates. The need for such large contingencies again demonstrates the inherent unreliability of the rate adopted by Mr McBeth. Mr McBeth also accepted in cross-examination that his 7.5% or approximately $15 Million in contingency for design development would be significantly reduced in the event that, by February 2020, he had the benefit of more detailed design plans than the Revision E drawings. It is apparent that, absent the Public Purpose, that would have been the case.
The Court should find the total costs of construction for the development to be $237,987,067.01, as found by Mr Bolt.

[51]

Capitalisation rate

Mr Hillier uses a capitalisation rate of 4.625% while Ms Cheong prefers a rate of 4.8%. All other things being equal, a lower capitalisation rate derives a higher as if complete value and a higher RLV. Mr Hillier's rate should be preferred.
While Mr Hillier's rate is consistent with properties in the Sydney CBD of a similar kind to the Development, this is a reflection of the strong investment drivers and market conditions that would have existed in respect of the Development on the Acquisition Date.
These included, as set out in his primary report: 1. The nature of the Development as an A-Grade building - this is not a matter of dispute; the significant public investment on the Acquisition Date in infrastructure affecting the Parramatta CBD (excluding the Public Purpose) such as the light rail and significant private development such as Parramatta Square - again, not a matter of dispute; 2. The completion of the construction of the Development at a time of reduced supply of competing office accommodation (Completion Window) - this factor is dealt with below; and 3. The significant weight of commercial funds seeking an investment opportunity like the Development - this factor is dealt with below.
In relation to the Completion Window, the evidence of Mr Coombes and Mr Drivas was that one of the reasons they would have proceeded with the Development but for the Public Purpose was to capitalise on a gap in the supply of competing office accommodation at the expected time of completion of the Development. This gap was clearly set out in the last leasing report prepared for the Applicants in September 2019 (prior to them abandoning the Development due to the Public Purpose the following month).
Ms Cheong agreed that there was such a gap. She also accepted that, on the Acquisition Date, there was unlikely to be any competition to the Development on the horizon. Thus, her numerous references to "waves of supply" should be ignored.
On the demand side, although Mr Hillier candidly accepted that vacancy rates were perceived to be rising in 2020, this risk was not being seen as determinative by the kinds of purchasers seeking to purchase properties like the Development. Ms Cheong agreed in the joint report that, although rents were soft on the Date of Acquisition, investor capital in search of prime investments was strong. To a certain extent, although the GPT purchases (Sales 2 and 3) are not accepted as reliably comparable sales, their existence demonstrates market demand, by the class of purchaser relevant to the Land.
Ms Cheong also agreed that the data on which she had relied showed that, as at the Acquisition Date, rents had not dropped and sharp increases in vacancy rates were yet to occur. Further, COVID impacts would not have been realised at the time the Applicants would have let the tender for the Development and COVID lockdowns were only reinstated after the Acquisition Date.
Therefore, disregarding impermissible hindsight, a sophisticated purchaser looking to purchase the Land on the Acquisition Date would not have expected a dire market downturn.
Further, as Mr Hillier explained, like the Applicants themselves, a large-scale developer (such as Lend Lease or Mirvac) would have had the capacity to fund the purchase of the Development without tenant precommitments using income derived from other properties in their portfolios. In any event, Ms Cheong agreed that it was very likely that the Applicants would have secured tenant precommitments for the Development by the Date of Acquisition.
Ultimately, Ms Cheong's slightly higher capitalisation rate was driven by her judgment that the office market in Parramatta faced "headwinds on two fronts" being increased volume of supply and contracting demand due to COVID lockdowns.
Taking into account the matters referred to above, Ms Cheong's assessment of the market is overly pessimistic. On the supply side, rather than a "wave" of oversupply, there was unlikely to have been any competitor developments to the Development on completion. On the demand side, competition to purchase the Development would have been strong and potential purchasers would not have expected market conditions to sharply deteriorate.
For these reasons, Mr Hillier's slightly lower capitalisation rate should be preferred.

[52]

Internal rate of return/profit and risk

Both valuers adopt a 12% target IRR however Mr Hillier's IRR reflected in his adopted residual land value ($200 Million) was 10.97% being slightly lower than his 12% target and Ms Cheong's resultant IRRs for scenario 3 (which remain around her target of 12%).
As Mr Hillier pointed out, his lower reflected IRR must be seen in the context of the larger cost allowances he adopts compared to Ms Cheong, including much larger amounts for rent incentives. That is, having effectively extracted the risk/contingency through allowances, the reflected rate is lower as those items have been excluded. Indeed, that Ms Cheong has adopted materially lower rent incentives compared to Mr Hillier is difficult to reconcile with her contention referred to above that the market was facing significant "headwinds" on the Acquisition Date. A similar inconsistency arises with Ms Cheong's assumption that the Development would have been fully leased at practical completion.
A greater difference arises in relation to the so-called "profit and risk" or "P&R" hurdle rate - 12.24% Mr Hillier versus 17.8% Ms Cheong (using the Applicants' non-valuation evidence). Notably, Mr Hillier's rate was much closer than Ms Cheong's to the 13% P&R recorded for the Dexus sale at North Sydney on which Ms Cheong relies.
As Mr Hillier pointed out, while he has taken account of the P&R rate, the IRR is a more appropriate hurdle rate for a project like the Development. Ms Cheong accepted that the P&R was a "static" measure more apposite to a simple feasibility model while the IRR was more commensurate with the EstateMaster model. This is confirmed in the EstateMaster user manual which states that a residual land value based on the P&R is only suitable for shorter projects of no greater than two years duration.
Ms Cheong's resort to an academic paper in support of her adopted hurdle rates was misplaced. That paper was based on 2016 data for developers of all kinds across both Australia and New Zealand. In any event, that paper concluded that residential (not commercial) developers were more likely to use the P&R.
Ultimately, the same market factors driving the choice of capitalisation rate also drive the choice of hurdle rates. For the reasons set out above, Ms Cheong's "head winds" characterisation of market conditions on the Date of Acquisition is too pessimistic. Accordingly, Mr Hillier's hurdle rates should be adopted.

[53]

Other inputs

The key valuation inputs have been dealt with in detail above. However, there are a number of other valuation inputs, as set out in Tables 3 and 4 of the final joint valuation report (Exhibit F), in respect of which the experts were unable to agree.
As described above, Mr Hillier built into his analysis a variety of components for risk and contingency, which in turn justified his tighter IRR. Therefore, if the Court adopts Mr Hillier's IRR, this necessarily involves acceptance of Mr Hillier's position for the following inputs in Table 3 of Exhibit F: leasing incentives (items 24-25), assumed tenant occupancy levels (items 26-27), lease tail allowances (item 29), agents' leasing fees (item 28), project marketing (item 30), agents' fees (item 31) and legal fees (item 33).
The valuers have also adopted different amounts (in some cases only slight differences) for the following inputs: 1. Office rental (item 3) [Cheong]; 2. Car parking spaces and rental (items 6 and 7) [Cheong]; 3. Motorbike spaces and rental (items 8 and 9) [Hillier]; 4. Signage rental (item 10) [Hillier]; 5. Telecommunications rental (item 11) [Cheong]; 6. Storage area and rental (items 12 and 13) [Hillier]; 7. Embedded network (item 14) [Hillier]; 8. Due diligence (item 21) [Hillier]; 9. Statutory fees (item 22) [Hillier]; 10. Land holding costs (item 23) [Hillier]; 11. Transaction marketing (item 32) [Hillier]; and 12. Loan establishment fees (item 35); [Cheong].
In relation to these inputs, there is no basis to suggest that the reasoning of either valuer was in any way fallacious, that they took into account irrelevant considerations or was otherwise erroneous. Rather, the Court can conclude that there are simply two open views on these amounts. In these circumstances, the general principle that doubts should be resolved in favour of a more liberal estimate should be applied: see Sydney Water Corporation v Caruso (2009) 170 LGERA 298 (Caruso) at [3], Big Country Developments Pty Ltd v Transport for New South Wales [2021] NSWLEC 86 at [42].
Accordingly, for each of these inputs, the Court should adopt whichever of the amounts adopted by Ms Cheong or Mr Hillier derives a higher RLV, all other things being equal, and adopt the rate identified in the list at [313] by reference to the witness identified.

[54]

Rental income - retail

Having regard to the inputs into the RLV it is to be noted that whilst there are differences of varying amounts for a number of elements of income the biggest single variation is to the retail rental income (approximately, $3.6 Million for Mr Hillier and approximately $2.3 Million for Ms Cheong).
Ms Cheong's figures appear to be based on a later set of drawings than Mr Hillier but to be fair no set of drawings could be said to be definitive and further, any purchaser would be able to reconfigure the retail areas depending on a number of factors, including tenant requirements.
Further, the evidence was that a purchaser would not be overly concerned about the retail areas until practical completion, they being a minor element in the overall development.
It is difficult to say what would be the precise level of retail income. However, the real question is what is a purchaser likely to estimate as the total income from the building of which retail will, on any view, be a very minor component.
As Mr Hillier agreed, at the Date of Acquisition there was an expectation in the market for rents to decrease. Due to the events of COVID hitting hardest retail and food outlets the face rents on the areas that he has used are on the high side. Given the rising vacancy rates, the expected fall in rents and the known impacts of COVID (as well as the future unknown impacts thereof) there is no warrant at all for using rents "on the high side".
Given that the hypothetical purchaser was buying a site for the purpose of development and that tenanting it will (on any view) be several years into the future from that time, rental income for their purposes, and thus for the purpose of this case, cannot be determined absolutely.
Although in relative terms the overall $1 Million difference between the valuers is not great the Court needs to select an income figure for the analysis. This is not a matter where a doubt must be decided in favour of the owner, but rather is a matter where there is a range of not-incorrect answers. However, for the reasons set out above, the figure should not be on the "high side" and so simply splitting the difference may be inappropriate and the Court should select a figure closer to Ms Cheong's amount for the reasons above.
This is especially so where, as is apparently common practice, face rents can be manipulated by offering incentives which are taken into account below the line. In other words, values based on capitalisation of rent can be artificially inflated by offering tenant cash, fitout costs and other incentives in exchange for higher face rents.

[55]

Capitalisation rate

The competing numbers are 4.625% for Mr Hillier and 4.8% for Ms Cheong.
The selection of a capitalisation rate is reflective of risk, where the lower the risk the lower the capitalisation rate (resulting in a higher value on a given income projection).
In selecting her capitalisation rate Ms Cheong considered the following attributes of the building on completion: 1. A new A-grade office tower of nearly 40,000m2; 2. A location proximate to Parramatta Square and Parramatta train station; and 3. Fully leased asset with assumed Weighted Average Lease Expiry (WALE) of 6.7 years.
Consequently, even 4.8% is a low capitalisation rate but 4.625% is far too low for the following reasons: 1. Ms Cheong pointed out that only premium grade developments in the Sydney CBD have capitalisation rates of between 4.25% and 4.75% and that A grade developments in both Sydney CBD and suburban office markets show a range of 4.9%-5.3%. The rate she selects at 4.8% is generous to the Applicants. 2. Mr Hillier agreed that his rate was more commensurate with Sydney CBD buildings, but that it could be explained by prevailing market conditions. Mr Hillier also conceded that the other comparable sales which he relies upon for his capitalisation rate are not directly comparable to the proposed development on the Acquired Land. Nevertheless, he agreed that at the Date of Acquisition commercial premises vacancy rates were increasing across the Australian CBD markets, including for A grade (and other grade) buildings and that the vacancy rates for A grade buildings in Parramatta were rising more sharply, a factor of which the hypothetical purchaser would be aware and would expect vacancy rates to continue to rise past the date of acquisition and could hit 17.6%. 3. Mr Hillier agreed that these factors would give investors cause to factor in a significant amount of risk. Further, there was a perception in the market that risks would increase. Evidence derived from the Colliers publication, suggested that new development would require significant precommitment. This was consistent with the evidence of Ms Cheong that absolutely every single one of the other development sites that she considered did have tenant precommitment prior to commencement of construction. It is also consistent with the objective evidence of the Applicants' own conduct in specifying a minimum 15,000m2 of pre-leasing commitment required to be achieved by the appointed leasing agents. Nevertheless, Mr Hillier disagreed that tenant precommitment was a requirement. 4. Mr Hillier identified a range of sales as support for the proposition that the market was progressing developments without precommitments. However, Ms Cheong provided explanations as to why those sales did not provide the asserted support for Mr Hillier's position. When it was put to Mr Hillier under cross-examination, he agreed that those sales did not support the proposition that the market was commencing developments without any precommitments. 5. If it is assumed that the construction will proceed absent tenant precommitment, this would necessarily be a matter that would go to risk and thus to an increase in the capitalisation rate. Mr Hillier seems to agree with this by agreeing that a hypothetical purchaser would pay less for a building without tenant precommitments than one with them.

[58]

Development costs

There are two main differences in terms of quantum between the experts: 1. Preliminaries ($7,878,926 difference); and 2. Contingencies, both design and construction ($10,595,119 and $10,153,367 difference respectively).
The contingencies can generally be explained by the difference in the approach taken by each expert: the benchmarking approach adopted by Mr Bolt and costing of each element of construction indicated in the Revision E drawings utilised by Mr McBeth.
Mr Bolt had selected two completed projects, totalled the actual construction costs and derived a rate per m2 of GFA and made an adjustment for time. Mr Bolt indicated that he had adopted this approach because the Revision E drawings were not sufficiently detailed so as to allow him to calculate the costs individually on an element-by-element basis. This is despite the Applicants' construction programmer, Mr Zantis, expressing the view that the Revision E drawings are sufficient for a builder to tender on.
As a consequence of the "actual costs" derived from the other projects, Mr Bolt stated that he did not need to include any contingency. However, Mr Bolt did agree that on the basis of the lack of maturity of the Revision E drawings which Mr McBeth relied upon was not irrational and was a perfectly normal approach to allow a design contingency. Mr Bolt also agreed that it was not irrational for Mr McBeth, given his approach to adopt a figure of 5% for construction contingency.
The Respondent submits that Mr McBeth's approach is to be preferred as the projects relied upon by Mr Bolt are different buildings to the hypothetical development on the Acquired Land, constructed some years before the Date of Acquisition in 2017 and 2018 and there might well have been risks which did not eventuate resulting in a lower rate per m2. Mr McBeth's approach is the approach that would ordinarily be adopted when advising a developer instead of a broad rate per m2, which assumes that there is no design or construction risk.
Further, and more fundamentally, the whole purpose of contingencies is to allow for unforeseen events. It is therefore fallacious to justify not allowing contingencies by using identified individual projects' costs. The fact (if it be so) that with those particular projects that there was no event for which a contingency might be made, does not mean that there will be no such event for the Land.
The purchaser would only be concerned with the costs that they would incur to carry out the development and that would be an assessment of those costs made at the Date of Acquisition.
Mr Bolt assessed costs as at the assumed date of the tender in February 2020. Because Mr McBeth was instructed to engage with the exercise of Mr Bolt, he has also assessed costs at the that date. There is evidence that as at the Date of Acquisition there was an escalation in costs caused by COVID which escalation was beyond normal escalation.
If the Court does adopt the RLV method, it would be necessary for the quantity surveyors to provide further report(s) that address costs as at the Date of Acquisition.

[59]

Rental income - retail

The variation in value of the retail income was in some part due to the differences in the layouts of the retail areas relied upon by each expert. Ms Cheong was provided with plans that showed a shop layout where the shop area was larger with a consequential lesser total number of shops. As a result, her rental income was lower. Mr Hillier had a layout that showed smaller shop layouts with consequential increase in the number of shops and rental income. Each layout had inherent plan difficulties (for example: an excess of common area; and shops, with no access).
Each expert agreed that a hypothetical purchaser would consider there to be a great deal of flexibility in the ultimate number and layout of retail spaces and that such a decision would not be made until late in the development programme. They also agreed that the hypothetical purchaser would select a layout that produced the greatest return to them in retail rent.
On that basis, I accept that the retail layout adopted by a hypothetical purchaser would seek to maximum retail return and would assess the potential retail income on such basis. The experts ultimately adopted 2,373m2 on the relevant area of retail and I accept that assessment.
The experts also disagreed on the face rental rate to be applied to the retail areas. Both experts agreed that a face rent would be adopted to maximise the return, however, such face rental would be coupled with rental incentives to attract tenancies. Further, Ms Cheong considered that as at the Date of Acquisition retail rental in the Parramatta market had flattened with the influences of the COVID pandemic and there were appreciable vacancies at that time. In adopting her rate, she considered that a lesser face rate was desirable. Whilst I accept that as at the Date of Acquisition these factors were present I also accept that the face rent is the indicator used by developers for the undertaking of an RLV with the incentives taken into account "below the line", such that the incentives are not totally ignored for valuation purposes but treated in an appropriate manner to ensure the rent is not inflated by using face rent only nor is it unreasonably reduced by applying the incentives as if the face rent is reduced for the full term of the lease. For those reasons, I accept Mr Hillier's approach to the adoption of the face rent and his consequential dealing with the incentives as a below the line consideration.
As to the face rent to be adopted, Mr Hillier observed that whilst COVID had an impact as at the Date of Acquisition such impacts would have been ameliorated sufficiently by practical completion such that a face rent "on the high side" of current rents should be applied. I accept that the market would not have considered that the impacts of COVID as at the Date of Acquisition would have continued to have the same impact on the market as at the date of practical completion. However, I do consider that as at the Date of Acquisition the manner of recovery of the market was yet unknown and that some degree of caution would be applied to a consideration of retail rents achieving pre-COVID rents for the type of retail facility envisaged for the proposed highest and best use. Accordingly, rather than adopting the "high end" of the range of rents the market would adopt a rate that reflected uncertainty in the impacts of COVID and recovery from it.
For those reasons, I consider that the face rental rate utilised by Mr Hillier is appropriate subject to an adjustment of -15% to reflect the market uncertainty. This produces a retail rental rate of $3,075,000 per annum net face rental (rounded).

[62]

Internal rate of return/profit and risk

With respect to the IRR both experts adopted a target IRR of 12%, however, the IRR derived by each expert does not achieve the actual target, but through the EstateMaster process produces a "resultant IRR". Ms Cheong's resultant IRR was slightly above 12% as it related to what she identified as "scenario 3" and Mr Hillier's resultant IRR was 10.97% for his similar scenario.
I am advised that in EstateMaster, both the IRR and P&R are produced by the software as a type of check as to the ultimate value produced as a product of the calculation of the relevant inputs. That is, in this case, the experts have nominated a 12% IRR as the target that a development should reach to provide for an appropriate rate of return on investment for a developer to decide that the proposal was financially supportable. As both experts have agreed that a target IRR of 12% is appropriate, I consider that such is the target IRR that should be adopted for the purposes of the EstateMaster analysis. I understand that such is all that I am required to determine for the purposes of the running of the EstateMaster programme reflecting my findings on the relevant inputs: see Tcpt, 17 August 2022, p 429(28-37).
However, it also became apparent that Mr Hillier's determined value did not meet that target IRR. Whilst that position may change when the programme is run with the findings made in this judgment, I have been asked to determine whether such a variation between the target and the derived IRR is appropriate.
Achieving a target IRR is iterative in the sense that manipulation of the inputs can affect the resulting IRR. In this case, it is apparent that Mr Hillier and Ms Cheong do not adopt the same income and cost inputs with the consequence that the difference in the resulted IRR is not purely reflective of the impact on IRR of the contentious issues such as: development time; retail rental; or capitalisation rate. In that respect, I accept from the evidence that Mr Hillier's determination of RLV inputs a number of costs (or a higher cost rate) than Ms Cheong. As a consequence of adopting such inputs the development flattens the risk profile by inputting all anticipated costs at a level sufficient to cover the real cost expectation. Ms Cheong, by not providing for such costs carries a risk that such costs will need to be met (or met at a higher sum) out of the anticipated profit (or IRR) of the project. On that basis, I accept that the resultant IRR of Mr Hillier, whilst less than the target IRR, because of the manner of calculation would not indicate that the value is "too high", as suggested by the Respondent, but rather achieves a similar and acceptable risk profile by a conservative inclusion of costs in the RLV calculation. For that reason, all things being equal, I would not have rejected Mr Hillier's value on the basis that the derived IRR was less than 12%.
In light of my finding at [363] above, I consider it appropriate that Mr Hillier's costings referenced at items 24, 25, 26, 27, 28, 29, 30, 31 and 33 of Table 3 in Exhibit F be adopted for the running of my findings by EstateMaster and indicate that if those costings are adopted a resulting IRR of a percentage within the range of the target IRR but not less than 10.97% would be acceptable.
Mr Hillier utilised the IRR as the hurdle rate, Ms Cheong utilised the P&R. In a development of the type proposed with the construction period being in excess of two years I accept the Applicants' submission that the EstateMaster analysis is more appropriately reflected in an IRR and not the P&R. The P&R is a more static hurdle rate and inappropriate to adopt for a development of this type. The adoption of the IRR in preference to the P&R is also reflected in the EstateMaster manual. I therefore adopt an IRR and not a P&R for the appropriate hurdle rate.

[63]

Capitalisation rate

The capitalisation rates adopted by each valuer reflected their perception of the appropriate risk. They drew from their experience and the considerations of capitalisation rates adopted in other commercial developments in the Sydney CBD and other lower order commercial centres.
In their evidence both experts acknowledged that the Sydney CBD was a stronger prestige commercial market than the Parramatta CBD. Ms Cheong analysed capitalisation rates in the Sydney CBD as being in a range 4.25%-4.75%. Mr Hillier accepted that his adopted capitalisation rate was comparable to those of the Sydney CBD rather than a lower order CBD. I do not accept that a developer in the Parramatta CBD would consider a capitalisation rate materially less than the expected upper range for the Sydney CBD would be appropriate. There is a stronger market in the Sydney CBD for premium commercial buildings with commensurate rental returns. Accordingly, I reject Mr Hillier's capitalisation rate of 4.625% as being too low.
Ms Cheong's capitalisation rate of 4.8% was influenced by a consideration of suburban commercial areas, which I consider to be less desirable than the Parramatta CBD. Accordingly, I give little weight to the range of capitalisation rates identified for those areas but to observe that the risk associated with the Parramatta CBD would be considered less than reflected for those areas.
Ms Cheong also took into account a concern relating to the extent of tenant precommitment for the development. For the reasons identified earlier, I do not accept that as at the Acquisition Date that the hypothetical purchaser would consider the position of tenant precommitment of a concern that the capitalisation rate would be affected to the extent considered by Ms Cheong or at all.
I also do not accept the consideration of Ms Cheong that there was market evidence as at the Date of Acquisition of drops in rents in Parramatta or increased vacancies. The significant drops to which Ms Cheong referred occurred after the Date of Acquisition. Further, the impacts of COVID comprising the second lockdown period in NSW was also after that date, such that to take those factors into account in the manner that Ms Cheong has would be to take into account hindsight derived from later event, which is impermissible in the exercise required by s 55 of the Just Terms Act.
For each of those reasons, I consider the capitalisation rate adopted by Ms Cheong to be too high.
To the extent that the Respondent submitted that Ms Cheong's capitalisation rate was already too generous to the Applicants with the inference being that even if it was not accepted it should not be reduced, I do not accept that approach. Ms Cheong derived her capitalisation rate and did not resile from it, notwithstanding the Respondent's criticism of it as compared to other markets. By identifying the reasons for the fixing of the rate if I do not accept such reasons then as a matter of logic and consistency of the evidence before me the rate must be adjusted from its starting position.
Accordingly, doing the best I can with the evidence available to me, I consider a capitalisation rate towards the upper end of the range for the Sydney CBD to be appropriate as it represents the higher risk end of the CBD which would broadly reflect a lower risk level for the Parramatta CBD and reflect the difference in the relative markets whilst acknowledging the supremacy of the Parramatta CBD over lower order commercial centres. Having regard to the totality of the evidence including the nature of this development as an A grade commercial development where there was evidence of relatively strong demand and a "window" of supply required that this development was able to target I consider the appropriate capitalisation rate to be 4.7%

[64]

Consequential determination of market value

In light of my findings above, the table of EstateMaster inputs as provided by the parties in which they identified the matters that required determination, I find that the inputs that I was required to determine which I have inserted in the table below in the "findings required" column are the inputs to be adopted for a determination of the market value as at the Date of Acquisition. To the extent that there remain inputs where findings are required and there is no material difference on the evidence between the approaches of the relevant experts, I accept the Applicants' submission at [315] that the sums referred to at [313] should be applied with the exception of car parking/motorbike parking. There remains one input identified in the table as "Development Leasing Cost - Downtime" for which I could identify no corresponding evidence or submission. Accordingly, I have noted this in the table and ascribed at $0 value.
These determined inputs are not a wholesale adoption of either the Applicants' or the Respondent's case and will, therefore, require a re-running of the EstateMaster programme with the adopted inputs as identified below. Until that process is complete the exact quantification of my findings as an amount of compensation cannot be made, however, the approach to the identification of that sum has been fixed. I will make directions to enable this process to occur. Topic Finding Required? Modelling Assumptions Capitalisation Rate 'As If Complete' Yes - 4.7% Office Area Yes - 37,583m2 Only 1m2 difference - adopt the higher number of Ms Cheong. Yes - 2,373m2 Retail Area There was no dispute between experts Adopt agreed sum from Exhibit F page 19. Total Net Income No - sum of indented amounts as found below. Office Rental Yes - Adopt Ms Cheong $24,356,455pa Retail Rental Yes - Accept Mr Hillier less 15% $3,075,000pa Car Parking Rental Yes - $338,250 As the difference appears to relate to a division by Mr Hillier of car and motor bike parking and Ms Cheong assuming only car parking it is appropriate to consolidate the two and utilise the marginally higher total of Mr Hillier. Motorbike Rental n/a combined into car park rate above. Signage Rental Yes - $125,000 Telecommunications Rental Yes - $ 100,000 Storage Rental Yes - $225,250 Embedded Network Yes - $100,000 Development Timing (from Acquisition Date to Practical Completion Yes 32 months Commencement of Development Works Yes 4.5 months after Date of Acquisition. Cost of Development Works Completed as at Acquisition Date Yes - to be recalculated in accordance with Mr Bolt's costings. Cost of Outstanding Development Works as at Acquisition Date Yes - to be recalculated in accordance with Mr Bolt's costings. Assumed tenant occupancy at Practical Completion Yes - 76.53% Assumed tenant occupancy within 12 months post Practical Completion Yes - 100% Topic Finding Required? Treatment of GST (GST - net model) No - agreed between the parties that there is not net difference. Agreed to adopt the Respondent's approach. EstateMaster Inputs - Revenues Gross Sale Revenue No - function of capitalisation rate and total net income ultimately found. Net Sales Revenue No - calculated from Gross Sales Revenue less Selling Costs ultimately found. Gross Rental Income No - calculated from Office and Retail rentals. Net Rental Income No - calculated from Gross Rental Income less Leasing Costs. Total Revenue No - calculated from Net Sales Revenue plus Net Rental Income. EstateMaster Inputs - Costs Land Acquisition - Stamp Duty No - agreed to be 5.5% of land purchase cost ultimately found. Land Acquisition Cost - Due Diligence Yes - $300,000 Construction Costs (including any contingencies) Yes - to be recalculated in accordance with Mr Bolt's costings. Statutory Fees (s 7.12) No - agreed to be 3% of construction costs ultimately found. Development Leasing Cost - Total Office Leasing Incentives Yes - $71,739,525 Calculated in accordance with Mr Hillier's costings at item 24 of Table 3 Exhibit F. Development Leasing Cost - Total Retail Leasing Incentives Yes - calculated in accordance with Mr Hillier's costings at item 25 of Table 3 Exhibit F. Development Leasing Cost - Leasing Marketing Costs Yes - $500,000 Development Leasing Cost - Agents Leasing Fees Yes - 14% total gross face rental Development Leasing Cost - Downtime Yes - no evidence found. Adopt $0. Land Holding Cost - Land Tax Yes - this input together with Council rates, water rates and insurance to be calculated in accordance with Mr Hillier's composite rate at item 100 of Table 3 Exhibit F. Land Holding Cost - Council Rates Yes - this input together with Council rates, water rates and insurance to be calculated in accordance with Mr Hillier's composite rate at item 100 of Table 3 Exhibit F. Land Holding Cost - Water Rates Yes - this input together with Council rates, water rates and insurance to be calculated in accordance with Mr Hillier's composite rate at item 100 of Table 3 Exhibit F. Topic Finding Required? Land Holding Cost - Insurance Yes - this input together with Council rates, water rates and insurance to be calculated in accordance with Mr Hillier's composite rate at item 100 of Table 3 Exhibit F. Selling Cost - Agents Fees Yes - 0.35% Selling Cost - Transaction Marketing Yes - $155,000 Selling Cost - Legal Fees Yes - $310,000 Financing Charges - Loan Establishment Fees Yes - $0 Interest Expense (Debt Costs) Yes - 3% This sum was agreed if the senior debt premised on securing tenant precommitment required by the lender. In light of findings on tenant precommitment this is considered the appropriate debt cost. EstateMaster Inputs - Performance Indicators Target IRR Yes Agreed IRR of 12% adopted with a resultant IRR of not less than 10.97%. Target P&R Yes - not applicable.

[66]

Valuation fees - s 59(1)(b)

The Applicants claim $286,631 in valuation fees pursuant to s 59(1)(b), being $182,845 for Mr Peter Dempsey of Dempsey Valuation Advisory and $103,786 for Mr Dwight Hillier and Mr Joe Bolster of Colliers. The Respondent contends there is no entitlement to compensation for the cost of two valuers as the costs are not reasonably incurred. The Respondent supports this contention by pointing to the fact that the Applicants have only adduced evidence from Mr Hillier in the proceedings.
Pursuant to s 59(1)(b), loss attributable to disturbance includes "valuation fees of a qualified valuer reasonably incurred by those persons in connection with the compulsory acquisition of the land." It is undisputed that the fees claimed are "valuation fees", and that those charging the fees fall within the meaning of "qualified valuer". The reference to "a qualified valuer" may be properly construed as "qualified valuers": s 8(b) of the Interpretation Act 1987 (NSW).
The fees must be reasonably incurred. The requirement for reasonableness governs the word "incurred", and thus the issue is whether the relevant fees are incurred reasonably: George D Angus Pty Ltd v Health Administration Corporation (2013) 205 LGERA 357 at [70] and [103].
Having regard to the magnitude of the estimated value of the Land and the significant complexity regarding its valuation, incurring the costs of the two valuers was reasonable in the circumstances.
That evidence was adduced from only Mr Hillier is not relevant. First, it is uncommon for the Court to permit evidence from two valuers. Secondly, forensic decisions made about the identity of expert witnesses in these proceedings are not germane to the statutory test which only requires valuation fees to be incurred "in connection with the compulsory acquisition of land." Such a connection is present here where Mr Dempsey's report was prepared for and provided to the Valuer-General in support of the Applicants' claim for compensation following the acquisition of the Land by the Respondent.
In the event the Court considers valuation fees for only one valuer is reasonable, in accordance with the principle described above at [315], the Applicants as dispossessed owners should be entitled to the larger fees in Mr Dempsey's invoice in the amount of $182,845.

[67]

Stamp duty etc - s 59(1)(f)

The Applicants are property developers. On the Acquisition Date, they held the Land as an asset of their business of property development together with a number of other properties.
The acquisition of the Land by the Respondent has removed it from that portfolio of property assets and the Applicants intend to purchase a property to replace the Land in the portfolio should a suitable opportunity arise. The Applicants will incur stamp duty, legal costs and loan establishment fees in respect of that purchase.
In the circumstances, such costs are compensable under s 59(1)(f) of the Act. So much was first established in Blacktown City Council v Fitzpatrick [2001] NSWCA 259 (Fitzpatrick); see more recently SNS at [345]-[347].
In a series of recent decisions, the Court of Appeal has preferred a narrower interpretation of s 59(1)(f) than previously adopted: see Melino v Roads and Maritime Services (2018) 235 LGERA 63; Moloney v Roads and Maritime Services (2018) 233 LGERA 363; Roads and Maritime Services (NSW) v United Petroleum Pty Ltd (2019) 236 LGERA 389 (United Petroleum); and Alexandria Landfill Pty Ltd v Transport for NSW (2020) 243 LGERA 102 (Alexandria Landfill).
The essence of that interpretation is that s 59(1)(f) is not a "catch-all" provision to be interpreted literally and independently of the other paragraphs of s 59(1). Rather, and particularly given the use of the phrase "other financial costs" in s 59(1)(f), the provision is limited to recovery of amounts of the same kind as those recoverable under the preceding paragraphs, being amounts in the nature of expenditure or outgoings: see United Petroleum [13]-[14], [96]; and Alexandria Landfill at [123]-[124], [414]-[415]. Thus, the provision does not permit recovery of loss of profits: Alexandria Landfill at [137]-[139], [416].
None of these cases overruled Fitzpatrick - to the contrary, both Alexandria Landfill and Fitzpatrick have been applied recently in the Court of Appeal: G Capital Corporation Pty Ltd v Roads and Maritime Services (2019) 100 NSWLR 771 (G Captial). Nor does the interpretation of s 59(1)(f) adopted in those cases require that result. Stamp duty, legal costs and loan establishment fees are plainly in the nature of expenditure or outgoings.
The Respondent says that the Applicants had no actual use of the Land. That contention should be rejected. The principle established in Fitzpatrick is that use of land does not have to be a physical use and that the holding of land for the purpose of a land development business is an actual use of land for the purpose of s 59(1)(f): see Fitzpatrick at [4]-[5].
If this kind of use can be established on the facts, as it can with the Land for the reasons set out above, the fact that the land may have been leased to tenants does not alter the position: G Capital [17(b)], [25]-[27]. This is particularly so where, as in the present case, the tenancies were able to be terminated by notice to facilitate the Development.
The Respondent's grounds of objection to this claim are twofold. Notably, it does not contend that Fitzpatrick should be overruled so that no claim of the kind advanced by the Applicants is recoverable under s 59(1)(f). Rather, as set out below, the Respondent contends that the Applicants have not made out certain aspects of their claim on the facts.
First, as relevant to s 59(1)(f), it is contended that the Applicants had no "actual use" of the Land. This is incorrect, the Applicants' use of the Land was their holding of the Land for the purpose of their business of land development.
Secondly, the Respondent contends there is no evidence that the Applicants themselves (as opposed to the wider CGP or DPG) were property developers who held the Land as part of the stock in trade of that business. That is also incorrect. Both Mr Coombes and Mr Drivas provide detailed evidence as to the development business of the Applicants. This includes details of the properties held by the Applicants as part of that business which included the Land. This evidence is consistent with the 2022 financial statement prepared for the Applicants which identifies the various properties owned by them.
In these circumstances, it is plain that the Land, and these other properties, were held by the Applicants themselves on the Date of Acquisition for the purpose of their land development business. In other words, together with these other properties, the Land formed part of the "stock in trade" of the Applicants' business: see G Capital at [25] referring to Hazcorp Pty Ltd v Roads and Traffic Authority of New South Wales [2006] NSWLEC 661.
Evidence supporting the amounts claimed is contained in Mr Coombes' affidavit sworn 5 August 2022 at pars 11-19.
With respect to the Respondent's reliance on s 61 it is only engaged; that is, if the market value of the land is assessed on the basis if the land had the potential to be used for a purpose other than that for which it's currently used. Such is not the factual circumstances based on the evidence in this case. In this case, the actual use in retail/commercial and it will remain so.

[69]

Applicants' claim under s 59(1)(a)-(e) (which is subject to claims under this provision in the alternative to claims under s 59(1)(f))

The Applicants were not in occupation, nor did they have any actual use of the Acquired Land.
Whilst there is evidence of an intention on the part of the Applicants to develop the Acquired Land, there is no evidence that the Applicants, in their own right as the former registered proprietors of the Acquired Land, are property developers who held the land as stock in trade and could be entitled to stamp duty or mortgage establishment costs or legal fees on a replacement property.
The Applicants, despite being on notice of this at all times, have only adduced evidence as to the businesses of the broader Coombes Group and Drivas Group, but none of that is relevant in the absence of some express agency arrangement: Dial a Dump Industries Pty Ltd v Roads and Maritime Services (NSW) (2017) 221 LGERA 73 at [32] per Beazley P with whom McColl and Leeming JJA relevantly agreed; confirming Dial A Dump Industries Pty Ltd v Roads and Maritime Services (2016) LGERA 285 at [28] per Preston CJ of LEC.
In the alternative, if stamp duty would otherwise be payable under s 59 it is precluded by operation of s 61: 61 Special provision relating to market value assessed on potential of land If the market value of land is assessed on the basis that the land had potential to be used for a purpose other than that for which it is currently used, compensation is not payable in respect of- a) any financial advantage that would necessarily have been forgone in realising that potential, and b) any financial loss that would necessarily have been incurred in realising that potential.
In Blacktown City Council v Concato (No 4) (2020) 245 LGERA 14 at [140] Campbell J in dealing with an objection to an enrolled valuation where market value had been assessed on the basis of site ripe for redevelopment said: There can be no doubt that the market value of the acquired land as at the date of acquisition on which the Valuer-General proceeded gave what might be regarded as "full freight" for its potential to be used for the purpose of medium density housing development in accordance with the underlying zoning of R3. It also follows, that the question I have posed whether relocation costs and stamp duty are financial losses that would necessarily have been incurred in realising that potential must also be answered in the affirmative. If this is correct, s 61 was fully engaged and the relocation costs and stamp duty on the former owner's new home were not losses attributable to disturbance.
In doing so Campbell J referred to Caruso at [185] where Tobias JA (with whom the other judges agreed) said: Of course, it does not necessarily follow that if s 61 applies it trumps each of the sub-paragraphs of s 59. Relevantly to the present case, it only denies compensation for disturbance where the relevant costs in respect of which a claim is made under s 59 would necessarily have been incurred in realising the potential to which s 61(b) refers. Thus, s 61 would not prevent a claim for disturbance under ss 59(a) and (b). But where stamp duty is incurred by persons entitled to compensation in connection with the purchase of land for relocation where that relocation is necessary to enable the potential to which s 61 refers to be realised, then in my views 61 denies a claim under s 59(d).
In these proceedings, on any view the Applicants will be compensated on the basis of the land being used for a higher and better use than its use at the Date of Acquisition, namely as a development site for use as addressed by all the witnesses. To use the phrase of Campbell J, compensation for market value will reflect full freight for that potential and so s 61 is fully engaged.
Contrary to the Applicants' submissions the use of the term "purpose" in the Just Terms Act does not necessarily mean purpose in the terms that the language uses are characterised in a planning law context. The Just Terms Act is about uses that are different to the current use, meaning a different development, a different thing. It is not involved in categorising the purpose for which the development was used as opposed to categorising the purpose for which the development might be used in a market value assessment. The intent of the provision is to identify something that will produce a different value.

[71]

Applicants' claim under s 59(1)(a)-(e) (which is subject to claims under this provision in the alternative to claims under s 59(1)(f))

In light of the evidence in this case, in particular the evidence of Mr Coombes and Mr Drivas together with the accounting evidence available I am satisfied that the Applicants together held the Land, owned jointly, for the purposes of a common business of identifying, then acquiring, prime commercial real estate with development potential, undertaking appropriate refurbishment or redevelopment to add value and then actively managing the improved property going forward as a long-term income generating asset. The Applicants conduct the business referred to as part of an ongoing relationship which runs as part of but distinct from the broader Coombes Group and Drivas Group of companies. This is so on the facts of this case that the Applicants were in fact actively in the process of developing the Land, not just passively holding it.
I am therefore satisfied that the Land was held as part of the stock in trade of the business such that, applying the principles in Fitzpatrick that the Applicants' use of the Land was an actual use of Land for the purposes of s 59(1)(f) of the Just Terms Act and would be entitled to the disturbance they claim for replacing the Land.
The Respondent contends that s 61 does also arise for consideration. In this case, the valuation method utilised to determine the market value was on the basis of the potential of the Land for a redeveloped commercial/retail development of greater floor area and superior market attraction than the use being undertaken actually on the Land as at the Date of Acquisition. This fact is complicated in the present circumstances by the statutory disregard. In light of my findings, the Land must be assumed as being in the process of redevelopment including, but not limited to, the current building being demolished. On that assumption, the market value is being determined (in effect) on the assumed fact that the Expanded Building is under construction in the broad sense.
Section 61 applies where the land had potential to be used for a purpose other than that for which it is currently used where that potential remained unrealised. In this case, it is not the potential for redevelopment that was being determined as part of market value, but rather the actual in progress use was for that future use that is the potential had been realised. Accordingly, I find that s 61 is not applicable to the circumstances of this case.
For the foregoing reasons, I find that the Applicants are entitled to their claim pursuant to s 59(1)(f) for stamp duty on replacement land; legal fees on purchase of replacement land; and loan establishment fees. Each of these items are dependent upon the ultimate market value determined after the EstateMaster programme has been run utilising the input values determined by me, and I will make directions to permit the disturbance claims to be determined as a consequence of the finding on market value.

[72]

Conclusion and directions

For the reasons outlined herein I am presently unable to determine the quantum amount of compensation until such time as the RLV is undertaken utilising the inputs I have found herein. Accordingly, I publish these reasons as interim findings pending that determination.
In light of the detailed input determinations, I expect that the quantification of the compensation should be undertaken in reliable manner such that there is ultimately a quantification that can be adopted by consent. However, there are some components, such as the revised quantity surveyor adjustment that may produce some degree of dispute. With that in mind I will make directions that permit the parties some time to consider the totality of my findings and produce further material for consideration before bringing the matter back for mention.
In light of my findings, I direct: 1. The parties to address me at 9am on 20 March 2023 as to whether any part or parts of these reasons should remain restricted from publication having regard to the confidentiality orders made on 9 August 2022; 2. The Applicants to serve a report prepared by Mr Bolt adjusting his costing figures to the Date of Acquisition by 3 April 2023; 3. The Respondent to advise the Applicants if Mr Bolt's adjusted costing is agreed by 17 April 2023; 4. If Mr Bolt's figures are accepted by the Respondent, the Applicant undertake an EstateMaster determination of RLV utilising the inputs contained in the table at [375] above by 24 April 2023; 5. If the quantum of market value and disturbance as determined in accordance with these reasons is agreed the parties are to file short minutes of order setting out that agreement by 1 May 2023; 6. In the event that there is any disagreement as to Mr Bolt's costings or the RLV calculation or the disturbance claims the parties are to advise the Court by 1 May 2023 of the nature and scope of the dispute; 7. The matter be listed for mention on 2 May 2023 at 9am; 8. The parties at the mention of the matter on 2 May 2023 at 9am are to indicate whether a hearing in respect to costs is required and if so to provide short minutes of order to facilitate such a hearing; and 9. The parties have liberty to apply on 1 days' notice. Annexure A

G&J Drivas Pty Ltd v Sydney Metro

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