James N Kirby Holdings Pty Limited v Transport for New South Wales - [2021] NSWLEC 111 - NSWLEC 2021 case summary — Zoe

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James N Kirby Holdings Pty Limited v Transport for New South Wales

[2021] NSWLEC 111

Land and Environment Court (NSW)|2021-06-10|Before: Duggan J

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At a glance

Source facts

Court

Land and Environment Court (NSW)

Decision date

2021-06-10

Before

Duggan J

Source

Original judgment source is linked above.

Judgment (36 paragraphs)

[1]

Nature of proceedings

On 4 October 2019 (the Date of Acquisition), the Applicant, James N Kirby Holdings Pty Limited (the Applicant) was the registered proprietor of the land comprising Lot 2 in Deposited Plan 100164 (Lot 2) and Lot 3 in Deposited Plan 22338 (Lot 3), together known as 429 West Botany Street, Rockdale (the Acquired Land).
By Acquisition Notice published in the Government Gazette on the Date of Acquisition, the Respondent, Transport for New South Wales, compulsorily acquired the Acquired Land.
The Applicant was offered compensation for the acquisition of its interest in the Acquired Land. The Applicant has commenced these Class 3 proceedings objecting to the amount of compensation offered pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (the Just Terms Act). In issue in these proceedings is the quantum of statutory compensation pursuant to s 55(a) and (f) of the Just Terms Act.
As at the Date of Acquisition and all material times after, the Applicant was also the registered proprietor of land adjacent to the Acquired Land, described as Lot 1 in Deposited Plan 1115388 and known as the Kirby Industrial Park, 415-443 West Botany Street, Rockdale (the Kirby Estate).

[2]

Factual background

The Acquired Land is comprised of two adjoining lots which form a rectangular shaped parcel situated on the western side of West Botany Street, between Lindsay and French Street in an industrial area. Lot 2 and Lot 3 each comprise 512m2 and are vacant, with no other improvements other than fencing.

[8]

Valuation evidence

Expert valuation evidence was also adduced from Mr Davis for the Applicant and Mr Lunney for the Respondent. Those experts agreed that in some circumstances an adjoining owner would pay more for land than the market generally would pay (the Adjoining Owner Premium).
However, the valuation experts disagreed as to whether the Adjoining Owner Premium would be paid in this case and, if so, what would be the quantum paid above the general market.
Mr Davis gave evidence that in his opinion there was a material benefit to an adjoining owner which would make the Acquired Land desirable to be incorporated into the Kirby Estate. This desirability was reflected in the additional FSR that would be available in any development proposal for the Acquired Land. That benefit was not marginal or inconsequential and would benefit the Kirby Estate held land by enabling the Acquired Land (with road frontage) to be incorporated and operate as part of the co-ordinated whole of the established industrial estate.
Mr Davis was of the opinion, based upon his experience that an adjoining owner in the position of the Kirby Estate would desire the purchase of the Acquired Land and would pay more to obtain it than a participant in the market that would not have those benefits and, thereby, would pay a premium above that which would be paid by other market participants. He was of the opinion that he would advise the Kirby Estate owners that it would have to pay in the order of 7.5% above the market to represent the Adjoining Owner Premium.
Mr Davis was cross-examined on whether the adjoining owner in such circumstances would be an anxious purchaser in the following exchange at Tcpt, 9 June 2021, pp 190(43)-191(24): TRONSON: You've agreed with Mr Lunney that the market value of the acquired land is $3,000 per square metre. WITNESS DAVIS: Indeed. TRONSON: That includes your hypothetical purchaser who says, "I'll pay extra, I'll pay more." That $3,000 per square metre includes that purchaser, doesn't it? WITNESS DAVIS: Well, Mr Lunney himself pointed out that when valuing properties, there is a range of values and the value that we happened upon is the one which we think is the highest and best. It's not to preclude somebody coming along who is desperate to buy a small site and say, "I'll pay a premium." TRONSON: If they're desperate to buy it, they're an anxious buyer, aren't they? WITNESS DAVIS: Well, they would be an anxious buyer but on the other hand they wouldn't be so anxious that they would be offering more than, say, 5 per cent premium. TRONSON: If they're an anxious buyer, they're not a buyer within the statutory test. Is that right? WITNESS DAVIS: If they were - yes, if they were anxious within the statutory test, you'd exclude them but there's-- TRONSON: So your person who pays the 5 per cent extra is an anxious buyer. WITNESS DAVIS: An enthusiastic buyer.
Mr Lunney initially expressed the opinion that it was unlikely that the Adjoining Owner Premium would be paid in the circumstances of this case. He formed that opinion based upon the evidence of the town planning experts prior to their agreement. By the time Mr Lunney gave oral evidence the town planning experts had resolved their dispute. As a consequence, Mr Lunney accepted in cross-examination that the Acquired Land would be sufficiently attractive to an adjoining owner to warrant the payment of an Adjoining Owner Premium. In this regard, he gave the following evidence: At Tcpt, 9 June 2021, p 133(1-7): GALASSO: So, if her Honour was to summarise all of that, the acquired land is, would you agree, far more valuable to the Kirby Estate as a purchaser than it would be to anybody else? WITNESS LUNNEY: The owner of the Kirby Estate, if developed in such a manner, could extract more from the acquired land. Yeah, I think - I think I would agree with that proposition. And at Tcpt, 9 June 2021, pp 133(38)-134(1): GALASSO: So, Mr Lunney, on the basis of the last proposition I put to you, we take it you accept that the Kirby Estate, would be prepared to pay more for the acquired land than any other purchaser. WITNESS LUNNEY: Yes. GALASSO: Then, may we take it, it becomes a matter of the quantum. WITNESS LUNNEY: I should qualify that last answer. I think I've said in my joint report before - perhaps even with the report in chief, I can't recall - but I would expect them to be a possible buyer - perhaps even a likely buyer. Whether they would necessarily pay more than anyone else, I can understand that there would be a motivation for them to buy it, for the reasons that we've discussed.
In assessing the quantum of the Adjoining Owner Premium Mr Lunney's primary position was that a determined market value pursuant to s 56 of the Just Terms Act required a valuer to assume an efficient market. In that context, rather than identifying a percentage value the market would dictate that the Adjoining Owner Premium would be necessary to be paid to exceed the amount willing to be paid by the general market participants. Such sum would represent one increment in the context of an auction bid or $1 more in other purchasing scenarios, and he stated in response to a question from me at Tcpt, 9 June 2021, p 116(44-50): HER HONOUR: Could I just ask - in a sale like this, you said it's either a dollar or an increment, what would be one increment in a sale like this? WITNESS LUNNEY: Difficult to be precise. HER HONOUR: Give me a range….What would be an increment? WITNESS LUNNEY: It might be 25 or 50 thousand.
In cross-examination Mr Lunney accepted the following proposition at Tcpt, 9 June 2021, p 116(16-38): WITNESS LUNNEY: I can accept that they are a likely buyer and I accept that they would likely outbid any other buyer. By what amount - GALASSO: You gave the example earlier, Mr Lunney, of - and I think I put it back to you - a comparable sale which was being transacted to an adjoining owner, and you expressed caution. The other alternative, you've said, was you would analyse the sale to see what the market value would be. Is there a rule of thumb that you would apply to that sale for an adjoining owner premium? WITNESS LUNNEY: Look, there are some general rules of thumb that valuers apply 10% in one that's often applied. But that is, ordinarily what you would do is try and pair that with other sales and figure out whether it was in line or out of line with the broader money. GALASSO: But, nonetheless, as I understand it, 10% would be, and is regarded, as a rule of thumb by valuers as an adjoining owner premium? WITNESS LUNNEY: Often, often, yes. GALASSO: And you understand that Mr Davis has not adopted the 10% but instead has adopted a lower rate. WITNESS LUNNEY: His rate is lower than 10%, that's right.

[9]

Applicant's submissions

The Applicant submitted that the town planning agreement identified a real and material benefit to the Kirby Estate if it developed the Acquired Land as an integrated part of the Kirby Industrial Estate. That benefit is peculiar to the Kirby Estate due to the location as an adjoining landowner but also as a consequence of the surplus of FSR in the Kirby Estate that is capable of being applied to the redevelopment of the Acquired Land. This demonstrates, as a matter of fact, that the Kirby Estate would be a potential participant in the hypothetical market required to be assumed in s 56 of the Just Terms Act and that it would be willing to pay more for that benefit than any other participant in the market as it is the only adjoining owner that has been identified as having available FSR.
The quantum of the Adjoining Owner Premium must be determined in the context of a hypothetical sale. In such a hypothetical sale it cannot be determined what "one increment" would be as the sale of land such as the Acquired Land need not be sold at auction but may be sold by expression of interest where the lower bid is unknown. In sales of this type of property what is more likely is that the adjoining owner would be required to identify an amount sufficient to outbid any potential underbidder and the purchaser would do that by identifying a percentage sum above the general market.
The evidence discloses that as a rule of thumb or practice amongst valuers is to consider a 10% sum above general market to be an acceptable Adjoining Owner Premium. In this case, the Applicant suggests a sum below that rule of thumb in the amount of 7.5%. The general market value has been agreed between the valuers and the Adjoining Owner Premium should be calculated at 7.5% of that sum and the compensation for market value should be determined at a total sum for s 55(a) of the Just Terms Act as $3,303,690.
The Court would reject the Respondent's approach that the Adjoining Owner Premium should be limited to $1 or one increment. Such approach has been rejected in MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 at [73] (MMAL) where it was held (see also: Northern Territory v Griffiths (2019) 269 CLR 1 at [251] per Edelman J): 73 …valuation is not done on the basis of an estimate of what a third party would pay and then allowing the majority holder one more bid. This is because a vendor in a market, including a "fair market", would know that the majority holder was prepared to pay more and is well placed to bargain for a higher price by refusing to sell. The minority holder would not part with the property unless the majority holder offered a price that was substantially closer to the price the latter would be willing to go up to. The "one more bid" approach does not describe a situation of a "willing but not anxious vendor" in the exchange bargain test.
The acceptance of an Adjoining Owner Premium in this case is not evidence that the Kirby Estate would be an "anxious" purchaser. Rather, it is a recognition that the market value will be determined, as a question of fact, in some cases by a market that includes an adjoining owner, and provided the Adjoining Owner Premium is in an amount justifiable on the facts of the case, it is not of itself evidence of an anxiety in the purchaser.

[10]

Respondent's submissions

As a matter of fact in this case, the Court would find that the market value of the Acquired Land, including any amount contended for as the Adjoining Owner Premium, is reflected in the agreement of the valuers as to the value of the Acquired Land at [13(1)] above.
There is no evidence to establish as a fact that the Adjoining Owner Premium would be paid. The Applicant has adduced no evidence that the Kirby Estate had demonstrated a keen interest in the Acquired Land nor made its interest known prior to acquisition: compare with the circumstances in Croghan.
The evidence in this case was limited to various options that may be available should the Kirby Estate choose to purchase the Acquired Land which options are generalised comments on various potential configurations of development on the Acquired Land. The highest at which this evidence could be put is that whilst the Acquired Land may be more valuable to the Applicant and it may be prepared to pay more for it than other interested purchasers, such information would not be known to the market in the same way as it was in Croghan.
The evidence of Mr Davis that was volunteered in oral evidence is that one reason why a hypothetical purchaser in the Applicant's position might choose to pay a premium is that it was "desperate to buy a small site" (see [23] above). The prospect of a "desperate" bidder is inconsistent with the statutory definition of market value which requires the purchaser not to be anxious.
The Court would find that adjoining owner premiums in the order of 10% are due to anxiety and are not reflective of market value.
In the alternative, the Court would adopt Mr Lunney's assessment that the Adjoining Owner Premium would comprise one increment which would add around $25,000 to $30,000 to the compensation.
The Applicant's reliance on the decision in MMAL is misplaced. In this case, the consideration related to "fair market value" and not the definition of market value in ss 55 and 56 of the Just Terms Act.

[11]

Findings on Adjoining Owner Premium

The market value of land that has been acquired is to be determined by reference to a hypothetical sale in a hypothetical market. It is inherent in this exercise that the market in which the hypothetical transaction will occur is identified. It is the characteristics of that market, having regard to the characteristics of the land that will determine its value.
In this case, the Acquired Land comprises two allotments. The parties proceeded on the basis that the two allotments would be sold as one offering. I accept that this is the appropriate approach having regard to the evidence of the valuers and the characteristics of the site, including the narrowness of each of the lots and the increase in width, size and therefore development potential that would be afforded by the consolidation of the two lots, which in turn would produce a higher value in the market than if sold as two single sites.
When the Acquired Land is viewed as a single offering what is apparent is that it is has three adjoining owners. Each of these adjoining owners would benefit to some degree by acquiring the Acquired Land for consolidation with the existing landholdings. The nature of the zoning and the type of development surrounding the Acquired Land provided good evidence of an industrial area that is attractive to industrial uses where such uses benefit from proximity to transport and metropolitan Sydney. Such uses are generally undertaken on lot sizes in excess of that of the Acquired Land. These factors all indicate, on the evidence of this case, that any person considering purchasing the Acquired Land would have regard to the fact that there is likely to be interest from adjoining owners and that the interest from adjoining owners may produce a premium being paid for the land in excess of its value as a single (albeit combined) enterprise. That is the market.
Inherent in the Respondent's contention that any premium paid by an adjoining owner indicated an anxiety such that it falls outside the concept of market value prescribed by the Just Terms Act suggests that the influence of an adjoining owner participating in the hypothetical market can never be taken into account. This cannot be accepted as a statement of principle. Where there is some characteristic of land that has been acquired that has the potential to increase or decrease the pool of potential purchasers such factors must be taken into account in determining what matters a hypothetical purchaser will take into account in determining how much the land is worth.
The concept of an anxious purchaser is to be distinguished from a purchaser who is paying a fair price for what the land has to offer. This distinction was formulated with compelling precision in Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam (1939) AC 302 at 312 (cited in Croghan at 386-387) in the following terms: The compensation must be determined, therefore, by reference to the price that a willing vendor might reasonably expect to obtain from a willing purchaser. The disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy must alike be disregarded. Neither must be considered as acting under compulsion. This is implied in the common saying that the value of the land is not to be estimated as its value by the purchaser. But this does not mean that the fact that some particular purchaser might desire the land more than others is to be disregarded. The wish of the particular purchaser, though not his compulsion, may also be taken into consideration for what it is worth.
In this case what has been identified is not a compulsion for the land or an irrational need for the land but rather a recognition that there exists in the hypothetical market persons who are willing to pay for the potentiality of the land which can be realised with the benefit of an existing adjoining landholding. Whether that potentiality produces a premium price over and above those who do not value that potentiality in the land will depend on the circumstances in each particular case. Therefore, to the extent that the Respondent's submissions suggest that where an adjoining owner is prepared to pay a premium, such purchaser must in all circumstances be precluded as an "anxious" purchaser I reject this submission.
In the circumstances of this case, I find that there is a real material potentiality of the Acquired Land in the hands of the Kirby Estate. That potentiality is greater than all other potential purchasers, including other adjoining owners. The surplus FSR that is available for use on the Acquired Land if incorporated into the Kirby Estate is likely to produce a greater development return. I accept the evidence of Mr Davis and Mr Lunney that the Acquired Land will be worth more to the Kirby Estate than any other hypothetical purchaser. This potentially is evidenced by the multiplicity of options available if developed with the Kirby Estate. The surplus FSR available provides for numerous options to give effect to that benefit. The fact that no particular option was chosen, plans developed and a desire not expressed in the market does not diminish the inherent value in this case to the Kirby Estate.
The question then is whether that potentiality would result in a higher price being paid by the Kirby Estate than any other hypothetical purchaser in the marketplace. Both valuers by their evidence accept that there would be: Mr Lunney saying $1 or one increment; Mr Davis saying 7.5% of the value in addition to the general market price. The real question, therefore, is what that amount would be having regard to the facts of this case.
Whilst I accept the evidence of Mr Lunney that the quantum of any amount should reflect the efficient market as is required by s 56 of the Just Terms Act, I consider that the approach of a single dollar or a single increment is a representation of a market of perfect efficiency, which is beyond that which is required by s 56 of the Just Terms Act. I must assume a hypothetical sale in a hypothetical market. Such an assumption must be made in a hypothetical real world context as is recognised by the underlying assumption that the purchaser is perfectly acquainted with the land and cognisant of all circumstances which might affect its value: Spencer v Commonwealth (1907) 5 CLR 418 at 441. In this case, in order to adopt the primary approach of Mr Lunney, the purchaser would also need to know what the underbidder's maximum bid would be in order to identify what the last dollar or increment would need to be in order to become the highest bidder for the land. This does not happen. For that reason, whilst I accept that the proposition of Mr Lunney's primary position is, in a purist sense, technically correct, it is not a reasonable hypothetical feature of the hypothetical market for the hypothetical transaction.
Rather, as was identified by Mr Lunney in his cross-examination, valuers are unable to identify with absolute precision what the general market will fix as the value of the land, and so valuers often adopt a rule of thumb that considers a premium in the order of 10% above the general market price to be what an adjoining owner purchaser would be advised by a valuer to envisage so as to represent a margin that would be sufficient to secure the purchase.
In this case, having regard to the potentiality that the Acquired Land will bring if developed with the existing Kirby Estate I accept the evidence of Mr Davis that a sum of 7.5% being a sum within the range identified by Mr Lunney and Mr Davis as being a reasonable expectation of an appropriate amount to be added to the general market price as representing the Adjoining Owner Premium.
For those reasons, I determine that for the purposes of s 55(a) of the Just Terms Act the market value of the Acquired Land at the Date of Acquisition is $3,303,690.

[13]

Particularisation of dispute

Section 55(f) of the Just Terms Act provides: 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) - … (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired.
In this case, the Applicant contended that the adjoining land would suffer a decrease in value in the amount of $5,775,000 as a consequence of the carrying out of the Public Purpose due to the following factors (Injurious Affection Claim): 1. The disruption to the access to and from the Kirby Estate via West Botany Street due to construction impacts. This disruption would continue, albeit to differing extents, through the period of construction of the Public Purpose Works; 2. The impacts upon the uses carried on within the Kirby Estate as a consequence of dust emissions during construction of the Public Purpose Works; and 3. The stigma caused by: the presence of a 40m high ventilation outlet on land immediately adjoining the Estate; and the presence of the tunnels beneath the Estate. Which stigma would be a post-construction continuing effect on the value of the Kirby Estate.
The Respondent contended that there was an increase in the value of the adjoining land in the amount of $1,654,040 as a consequence of the carrying out of the Public Purpose Works by the time savings and consequential reduction in costs (including fuel consumption and wear and tear on vehicles) (the Betterment Claim) as a consequence of: 1. Reduced travel times using the Public Purpose Works; or 2. Reduced vehicle numbers congestion upon the existing surface roads.
Both parties accepted that the Injurious Affection Claim, whilst identified by reference to particular impacts is to be determined by an accumulation of what is determined to be the impact on the value of the adjoining land as a consequence of the accumulated effects. The amount representing the loss in the value of the Kirby Estate would be an amount of compensation in addition to the market value for the Acquired Land determined pursuant to s 55(a) of the Just Terms Act.
Both parties further accepted that if the Betterment Claim was established, it was to be offset against the market value determined in accordance with s 55(a) of the Just Terms Act and any amount determined in the Injurious Affection Claim but was not to be offset against any compensation for disturbance determined in accordance with s 55(d) of the Just Terms Act.

[14]

Documentary evidence

Prior to the Date of Acquisition, the Respondent publicly exhibited an EIS which considered and justified the project that would comprise the Public Purpose. The EIS stated: Changes to the road network Detailed traffic staging and the use of temporary retaining structures would allow the maintenance of existing through lanes (two eastbound and two westbound) and turn movements along President Avenue during construction. President Avenue would need to be closed to traffic for a number of nights during the erection of the President Avenue shared cycle and pedestrian bridge, to ensure safe construction. In addition, the outer lanes of West Botany Street will need to be closed outside of peak hours during site establishment at C3, prior to construction of the cut-and-cover structures. Other changes to the road network around President Avenue, shown on Figure 7-13 and Figure 7-14, are anticipated to include: Temporary diversion of West Botany Street traffic lanes for the cut-and-cover structures across West Botany Street and utility relocations Reinstatement of original alignment of West Botany Street following construction of the cut and cover structures Temporary traffic signals on West Botany Street at C2 to allow safe movements of construction traffic into and out of C2
The changes at West Botany Street were illustrated in Figure 7-31 as:
The accompanying Traffic and Transport section further noted: Property access Access to properties not acquired, leased or otherwise occupied for project purposes would generally be maintained at all times during construction. Where temporary impacts on existing property access are unavoidable as a result of construction activities (e.g. footpath and pavement works), consultation would be carried out with the landowner and/or tenant to provide equivalent standards of access.
In response to public and other submissions made to the EIS the Respondent exhibited a response to submission (RTS) which stated: Access along West Botany Street During construction, the outer lanes of West Botany Street would need to be closed outside of peak hours during site establishment at the President Avenue construction ancillary facility (C3), prior to construction of the cut-and-cover structures. Other changes to the road network along West Botany Street are anticipated to include: Temporary diversion of West Botany Street traffic lanes for the cut-and-cover structures across West Botany Street and utility relocations Reinstatement of original alignment of West Botany Street following construction of the cut-and cover structures Temporary traffic signals on West Botany Street at the Rockdale construction ancillary facility (C2) to allow safe movements of construction traffic into and out of C2 Temporary traffic signals on West Botany Street at C3 in order to allow construction traffic to pass from the construction area for the Rockdale Motorway Operations Complex (south) (MOC3) on the eastern side to the western side of West Botany Street. Access to properties not acquired, leased or otherwise occupied for project purposes would generally be maintained at all times during construction (including the industrial and commercial properties located along West Botany Street). The northern entrance to the Kirby Industrial Park along West Botany Street would be maintained during construction, including for heavy vehicles such as B-double trucks. Access may not always be able to be maintained at the southern entrance to the Kirby Industrial Park along West Botany Street. During detailed design, further investigation into potential lane/road closures and B-double access requirements will be investigated further, including in the area around the Kirby Industrial Park. Where temporary impacts on existing property access are unavoidable as a result of construction activities, consultation will be carried out with the landowner and/or tenants to provide equivalent standards of access.
As at the Date of Acquisition approval had not been given to the Public Purpose Works. There is a dispute between the parties as to whether, being a post-acquisition event, such conditions are a relevant consideration. Notwithstanding the dispute, the relevant conditions of approval with which the Respondent is required to comply for the construction of the Public Purpose Works (the Conditions of Approval) provided: E120 Access to all utilities and properties must be maintained during construction, where practicable, unless otherwise agreed with the relevant utility owner, landowner or occupier. E121 Any property access physically affected by the CSSI must be reinstated to at least an equivalent standard, unless otherwise agreed by the landowner or occupier. E131 During construction, all reasonably practicable measures must be implemented to maintain pedestrian and vehicular access to, and parking in the vicinity of, businesses and affected properties. Disruptions are to be avoided, and where avoidance is not possible, minimised. Where disruption cannot be minimised, alternative pedestrian and vehicular access, and parking arrangements must be developed in consultation with affected businesses and implemented prior to the disruption. Adequate signage and directions to businesses must be provided prior to, and for the duration of, any disruption.

[15]

Traffic engineering evidence

Evidence was adduced by expert traffic engineers, Mr McLaren for the Applicant and Mr Hollyoak for the Respondent. The experts prepared written reports and gave oral evidence at the hearing.
The traffic engineers agreed: 1. The Kirby Estate is serviced by a range of vehicle types including B-Double trucks and 20m length articulated vehicles; 2. Access to and from the Kirby Estate by heavy vehicles is only available via West Botany Street and is not available at the other vehicular access point to Beach Street; 3. B-Double trucks can only service the Kirby Estate in a single one-way route with entry via the southern driveway and exit via the northern driveway; 4. The restriction of access to either the northern or southern driveway would prevent B-Double trucks servicing the Kirby Estate for the period of such restriction; and 5. The Conditions of Approval with respect to traffic and access matters accorded with their experience with the types of conditions imposed for projects such as the Public Purpose.
The traffic engineers disagreed on whether there was a likelihood that access to one or both of the driveways would be restricted during the period of construction.
Mr Hollyoak, relying upon the Conditions of Approval that required the maintenance of the access as far as practicable, and for the preparation and implementation of a construction transport management plan (CTMP), was confident that restrictions would be managed and reduced as far as practicable and would provide for a means of consultation with the Kirby Estate to minimise disruption if they were unavoidable.
Mr McLaren was of the opinion that the geometry of West Botany Street and the diversion works proposed during construction would likely pose restrictions on the southern driveway. The nature and extent of such restrictions could not be ascertained with certainty without detailed design drawings, but from a logical consideration of the material available it was reasonable to conclude that there would be periods of time when access was prevented or when some restrictions on movement to the southern driveway would need to be imposed.
At the very least the Kirby Estate would be required to monitor, consult and manage the impacts on its driveways, and this would involve obtaining regular advice from a traffic engineer and consulting with tenants. This type of management is over and above what would be required absent the construction. The construction period is likely to be for a lengthy period with a constantly changing impact on access. The northern driveway, by separation from the tunnelling works is less likely to be impacted as often or to the same extent as the southern driveway, however, there is likely to be some interference during the construction access road diversion and the subsequent rebuilding of West Botany Street. These factors identify that the Conditions of Approval and RTS are expressly identifying that there is a likely risk that access will not be maintained as there are clear indications that retaining unrestricted access will not be practicable for periods of time during the construction of the Public Purpose Works.

[16]

Evidence - dust impacts

The Conditions of Approval provided, relevantly with respect to dust emissions: AIR QUALITY AND ODOUR E1 Measures must be implemented to minimise and manage the emission of dust, odour and other air pollutants during construction and operation.
The Applicant tendered a report of an air quality expert, Ms Cox. She was not cross-examined on her evidence.
Her evidence identified the uses being conducted upon the Kirby Estate at the Date of Acquisition and ranked them by the vulnerability of those uses to adverse dust impacts and was of the opinion that the following types of uses that were present at the Date of Acquisition (and at later periods) were likely to be adversely impacted by construction dust emissions: 1. Food production uses; and 2. Printing and binding uses.
Such uses occupied smaller floor area units in the Kirby Estate. There were, at any of the times studied, a total of two tenancies that fell within the category of these vulnerable uses.
The balance of the use types on the Kirby Estate were characterised as either being possible for impact or unlikely.
In considering the potential impacts Ms Cox observed: 45. The Air Quality Technical Report concludes at Section 7.1.7 that even with a Dust Management Plan (also referred to as a Construction Air Quality Management Plan) there may be impacts during construction: • "However, even with a rigorous Dust Management Plan in place, it is not possible to guarantee that the dust mitigation measures would be effective all the time. There is the risk that nearby residences, commercial buildings, hotel, cafés and schools in the immediate vicinity of the construction zone, might experience some occasional dust soiling impacts. This does not mean that impacts are likely, or that if they did occur, that they would be frequent or persistent. Overall construction dust is unlikely to represent a serious ongoing problem. Any effects would be temporary and relatively short-lived, and would only arise during dry weather with the wind blowing towards a receptor, at a time when dust is being generated and mitigation measures are not being fully effective. The likely scale of this would not normally be considered sufficient to change the conclusion that with mitigation the effects will be 'not significant'". 46. I concur with the statement in the Air Quality Technical Report that dust mitigation measures are unlikely to be effective at all times. Further, as discussed further in Section 7.4, it is my opinion that there is potential for these impacts to occur frequently during the construction period, and at a magnitude that the impacts could be significant.
Ms Cox concluded by identifying the advice she would give a prospective purchaser of the Kirby Estate as it related to construction dust impacts as: 78. It is my opinion that there is high probability that the Kirby Industrial Estate will be adversely impacted by dust emissions during the construction activities for the M6. Based on the monitoring data collected during the construction of the WestConnex M8, it is my opinion that there is potential for these impacts to occur frequently during the construction period, and at a magnitude that the impacts could be significant. The magnitude of the air quality impacts could be similar to the 2019/2020 bushfires, and whilst health risk is outside my area of expertise, recent Australia research does state that "overall the evidence to date does not indicate a clear 'hierarchy' of harmfulness for particulate matter from different emission sources" i.e. that all sources of particulate matter have similar health impacts. This has potential to create issues for both current and future tenants whose businesses are/may be dust sensitive.

[18]

Evidence - increase in value due to traffic efficiencies

The traffic engineers gave evidence relating to the potential for traffic efficiencies upon completion of the Public Purpose Works. The traffic engineers agreed that the potential areas for benefit were the alternative route to the M5 motorway provided by the Public Purpose Works and the reduction in traffic on the existing route to the M5 motorway via West Botany Street. To the extent that such benefits operated it would provide the greater benefit during peak hours with the benefit diminishing in periods outside peak. They disagreed as to the quantification of such potential peak time benefits.
Mr McLaren agreed that the Public Purpose Works were intended to provide greater accessibility to the M5 motorway by road users in the southern parts of Sydney. He identified that the subject site was not directly benefited as: 1. Drivers would have to travel south to the President Avenue access location before travelling to the M5 motorway. There is a real possibility of increased congestion at President Avenue which would produce a delay that would offset any time saving once the Public Purpose Works have been accessed; 2. Drivers may be discouraged from using the Public Purpose Works due to the imposition of tolls; 3. The Kirby Estate's location is such that it has the readily accessible non-tolled access to the M5 motorway via West Botany Street; and 4. The West Botany Street access would remain desirable particularly with any consequential reduction in through traffic that takes the Public Purpose Works route.
In conclusion, Mr McLaren was of the opinion that to the extent that there was any time saving in peak hours such time saving would be approximately 3 minutes which saving would have to be balanced against the cost of the toll.
Mr Hollyoak was of the opinion that peak traffic time savings would also be in the order of 3 minutes. However, he was of the opinion that such a time saving would offset the toll costs considering the fact that the Public Purpose Works route would avoid seven sets of traffic lights and the often congested M5 motorway connection with the route from West Botany Street.

[22]

Respondent's valuer - Mr Lunney

Mr Lunney expressed the opinion that the quantification of such claim would be a difficult and subjective exercise. Notwithstanding those difficulties, the valuer must do their best to attempt to quantify the Betterment Claim. In this case, the material benefits from a traffic point of view would be an improved situation to the Kirby Estate once the Public Purpose Works are completed. Such benefits would make the Kirby Estate more desirable due to the improved accessibility of transport. This would, doing the best he can, result in a sum in excess of any amount for the Injurious Affection Claim and, therefore, would cancel each other out.
Mr Lunney considered that the Injurious Affection Claim would be limited only to the exceptional and unlikely situation of access that B-Double trucks being restricted. He considered that none of the other impacts identified would affect land value. He determined that the Injurious Affection Claim would be in the order of $360,000.
After the conclusion of the traffic engineer's evidence Mr Lunney, in his supplementary report, reduced his determination of the value of the Betterment Claim to 2.5% being the equivalent to $1,654,040.
Mr Lunney stated in his expert report in chief: 106. I appreciate that quantifying Betterment would be a difficult and subjective exercise. A significant degree of value judgment would be required. 107. I have not sought to quantify Betterment, or to off-set it, against the Market Value of the Acquired Land. In doing so, I have resolved the benefit of any genuine doubt in favour of the Applicant.
Mr Lunney considered that the approach of Mr Davis in utilising a capitalisation of net rent approach was inappropriate as: 1. The adoption of the changed capitalisation rate in the after scenario projects any perceived loss or risk in perpetuity; 2. Even on Mr Davis's identification of the risks associated with the Public Purpose Works, they relate primarily, if not exclusively, to the 4-year construction period. Therefore, the risk or impact on value must be limited to that period. If this calculation is undertaken there would be a diminution of the investment of $132,000 or 0.20% of the before value; and 3. The real risk that there would be a reduction in rent as a consequence of the construction of the Public Purpose Works is overestimated by Mr Davis. An unduly pessimistic view of the potential impact on rental income would be a 5% reduction for the four years of construction. This would produce a reduction of $591,162 or 0.9% from the before scenario.
If any sum is to be attributed to Injurious Affection Claim the amount should be determined at $360,000 or 0.55% of the before value as being the approximate mid-point in the two alternative calculations undertaken by him.

[23]

Applicant's submissions

In considering the various claims made under s 55(f) of the Just Terms Act it is necessary to determine whether there has been an overall increase or decrease in the value of the Kirby Estate by reason of the Public Purpose.
The Applicant contended that its primary position was that the Betterment Claim should be dismissed and that an amount for the Injurious Affection Claim should be made, as summarised in its Amended Points of Claim at [47] of its submissions as: 47. In summary, the Applicant claims that a modest reduction in the value of the Estate (an amount of $5.775 million against a total value of the Estate of approximately $66 million) arises from a combination of the following impacts of the Project: a. the risk that access to either or both of the driveways on West Botany Street will be blocked or restricted during the construction of the Project as referred to above - this is the subject of the expert traffic evidence; b. the risk that significant dust and debris affecting tenants of the Estate will be generated during the construction of the Project - this is the subject of the Applicant's expert air quality evidence; c. the presence of the ventilation facilities to be constructed on the Acquired Lots and adjoining land as part of the Project; d. the presence of the tunnels to be constructed underneath the Estate as part of the Project.
Mr McLaren's determination of the impact on the Kirby Estate from potential access issues is to be preferred. Mr Hollyoak grossly underestimates the risks pertaining to access to the Kirby Estate. His approach that assumes little or no impact is not supported by the publicly available information which was available to a hypothetical purchaser that made it apparent that there would be periods, unspecified in time and duration, when access would not be available at least to B-Double trucks. In light of this information his evidence should be rejected. Mr McLaren, on the other hand, takes into account not only the fact that access will be denied at times but also the uncertainty as to when and for how long such access will be precluded. His evidence should be accepted.
The risk is further exacerbated by the fact that the principle user of B-Double trucks is Wallace International. That tenant occupies the largest single floor area in the Kirby Estate and is responsible for a majority of the rental income of the Kirby Estate. The lease for Building 8 was nearing its expiry date. A hypothetical purchaser would be concerned that Wallace International, having regard to the stated lack of security of access for its heavy vehicles would likely vacate the premises or require a rent reduction to compensate it for the access interference. This would have an impact on what a purchaser would pay for the Kirby Estate as at the Date of Acquisition. The Respondent's reliance upon the fact that the Wallace International has subsequently renewed its lease should be rejected. The relevant date for the determination of compensation is the Date of Acquisition. The lease renewal post dates this event and is therefore irrelevant: Bligh Consulting Pty Ltd v Ausgrid (2016) 217 LGERA 258 at [48].
As to the air quality impacts, the uncontested evidence of Ms Cox concludes that there is a high probability of adverse dust impacts during construction which has the potential to create issues for both current and future tenants that have a dust sensitivity. This reduction in the available market for future tenants and the potential to existing tenants would reduce what a hypothetical purchaser would pay for the Kirby Estate.
The ventilation outlets will be visually prominent and the evidence of Mr Davis that this would produce a stigma to the Kirby Estate which would in turn have some negative effect on value should be accepted.
The presence of the tunnels may impact future redevelopment of the northern part of the Kirby Estate which is characterised by older style industrial buildings. The presence of the tunnels would be a blot on the land and produce a reduction in value.
In quantifying the amount of the reduction of the value of the Kirby Estate Mr Davis's approach is to be preferred. He takes into account the evidence of Mr McLaren which is the more appropriate measure of risk to the access for heavy vehicles as well as the potential risks to rental returns of the other impacts. The before and after approach of Mr Davis taking all of these factors into account determines that the most accurate assessment of loss is the capitalisation of rents methodology. Ultimately, he attributes a modest change in capitalisation rates of 0.5 of 1% (or 50 basis points).
The suggestion that the approach of Mr Davis overstates any reduction in value because it reflects a decrease in perpetuity should be rejected. The impacts identified by Mr Davis are not just limited to the construction period. The impacts of the tunnels and the ventilation stacks are ongoing matters that sound in a reduction in value. Nor will a value determined by reference to the construction period include the reduction in value from the impacts on redevelopment potential.
The discounted cash flow (DCF) analysis undertaken by Mr Lunney should be rejected as it fails to take into account the real risk that Wallace International may vacate the premises or require a reduction in rent to accommodate the access impacts.

[24]

Respondent's submissions

The Respondent's primary submission is that the quantum of the Betterment Claim will exceed the Injurious Affection Claim and, therefore, will offset each other such that no additional sum should be added to the market value to take account of any s 55(f) decrease in value. However, a deduction should be made to take account of the residual Betterment Claim (once offset against the Injurious Affection Claim).
The Applicant's approach overstates the risks associated with the Public Purpose and, in addition, calculates any consequential reduction in value in perpetuity rather than for the period in which the risk would manifest.
The construction risks with which the Applicant is concerned will be adequately managed by the Conditions of Approval. On the evidence there is a sufficient degree of certainty that equivalent access will be maintained during construction such that there is no risk that would result in a reduction in value of the Kirby Estate. Whilst there may be some caution to be exercised and some consultation necessary during construction, these factors will be an inconvenience rather than a reason to pay less for the Kirby Estate.
Even if there were interruptions to the southern driveway and consequential disruptions for the use of the Kirby Estate by heavy vehicles such disruptions would not be sufficient to cause a purchaser to consider that Wallace International (or any of the other tenants) would vacate the premises. This fact is reinforced by Wallace International recently renewing its lease notwithstanding the Public Purpose Works.
As to the impacts of dust, ventilation stacks and the tunnel, insufficient evidence has been adduced that would permit a finding that such factors would have an impact on the value of the Kirby Estate.
Mr Lunney's method of calculation is to be preferred as it is limited to the construction period only and his assessment of the risk involved is more realistic.
He has adopted two methods of calculation. The first, is a DCF adopting Mr Davis's differential capitalisation rates. This approach produces a difference of 0.20% or $132,636 for the 4-year construction period.
In the second approach he determines that the risks associated with income is that at an unduly pessimistic assessment it would be reduced by 5%. Having regard to the 4-year construction period that amount should be, in effect, "averaged" over the whole period such that the loss would amount to $591,162.
As the first approach is too optimistic and the second too pessimistic as to risk, he adopts a middle position of $360,000 which sum should be adopted.

[25]

Disruption to access

The hypothetical purchaser as at the Date of Acquistion would have been aware of the proposals relating to the construction programme of the Public Purpose Works through the exhibited EIS and RTS documents. Those documents make it plain that there will be a real risk that during the 4-year construction period there can be no guarantee that the southern driveway will always remain accessible. This fact has the consequence that there will be periods, unknown in quantity or duration, during the construction period where B-Double trucks and 20m articulated vehicles will not be able to service the site. Such periods will have a direct impact upon the tenancies that utilise such heavy vehicles, including, in particular, the tenant Wallace International. This tenant produced the major proportion of the total rental return of the Kirby Estate, utilises B-Double trucks and operates at time periods in excess of usual business hours.
It is also apparent from the evidence that the only property likely to have access adversely impacted to any material degree by the construction of the Public Purpose is the Kirby Estate. All other impacted properties have either been acquired or the access can be managed without unacceptable impacts.
Having regard to the published material in the EIS and RTS, together with the evidence of the traffic experts, I find that a hypothetical purchaser would not assume that the access to the northern driveway will be affected to any material extent. The location of the driveway to the proposed temporary relocation of West Botany Street, and the capacity to manage access to that driveway during road reconstruction is such that the risk to access would be assessed as low to nominal.
The Conditions of Approval were not in force at the Date of Acquisition and, therefore, would not be known to the hypothetical purchaser. Therefore, I do not have regard to the actual Conditions of Approval. However, each traffic expert accepted that conditions of this nature were anticipated to be imposed on the approval for the Public Purpose Works and they would advise a hypothetical purchaser to that effect.
However, the hypothetical purchaser would not, as has been contended by Mr Hollyoak, accept that any conditions like the Conditions of Approval and the adoption of an anticipated CTMP would ensure that access to the southern driveway would be maintained sufficiently such that there would be no material impact on the users of the Kirby Estate for the use by heavy vehicles. I accept the evidence of Mr McLaren that the material available to the hypothetical purchaser at the Date of Acquisition would cause a purchaser to assume that there will be periods where access will not be maintained. However, I do not accept the evidence of Mr McLaren as interpreted by Mr Davis that a purchaser would proceed on the basis that such disruptions would be lengthy, and likely to result in the loss of tenancies or a significant reduction in the rental return for the Kirby Estate during the 4-year construction period.
The risk will be managed so that the quantum and duration of such events are minimised to circumstances where it is not practicable to maintain access. Such periods will be managed as to time and duration by negotiation between the Kirby Estate and Transport for New South Wales and those periods will be identified such that notice is given to those within the Kirby Estate that will be affected by access restrictions. The consequence is that during the 4-year construction period there will need to be ongoing management of the Kirby Estate over and above what would be required in the before scenario. Having regard to the evidence from the traffic engineers as to what the management of the construction impacts on access would involve, I find that such activities would include, at a minimum: 1. Obtaining advice from a traffic engineer as to any CTMP; 2. Retaining a traffic engineer from time to time to monitor/advise and negotiate on any access changes proposed as part of the CTMP; and 3. Deploy a manager to the Kirby Estate to facilitate negotiations with the tenants and Transport for New South Wales in fixing the procedures for access restricted periods and alternative equivalent standards of access.
In addition, I accept that there may be occasions that the owner of the Kirby Estate may have to negotiate some compensation to tenants (including, for example, rent abatement) affected by access closures. However, such amounts would relate to the specific periods of closure and not be so significant as to cause concern as to loss of tenancies or if there were a loss of a tenant an inability to obtain a new tenant that would not be so affected by the access for heavy vehicles on similar terms.
Each of these necessary activities would only be required as a consequence of the carrying out of the Public Purpose and will impose on the owner of the Kirby Estate costs and inconvenience that would not otherwise be present. In addition, tenant expectations of access and the impact on the use of the tenant's areas within the Kirby Estate will require management, and potential incurring of costs, that would not be required but for the carrying out of the Public Purpose.
I consider that it is also relevant that such costs and expenses will occur almost simultaneously with the hypothetical purchase. That is, in the first 4 years of ownership of the Kirby Estate these issues will need to be managed on an ongoing basis. The hypothetical purchaser being unable to speculate as to construction timing would have to assume such costs would occur upon commencement of construction and then decrease towards the end of the construction period.
Having regard to the limitation of restrictions to only those periods where it is not practicable to retain access, the risk of loss of tenants is low. The period of impact is relatively short and contained, being the 4-year construction period. The period of access restriction is considered to be of short duration and managed as far as practicable, such that the risk of numerous extended periods of restricted access is unlikely. However, it would be considered that there will be such periods of restriction of access to the southern boundary and as a consequence periods where heavy vehicles will be unable to use the Kirby Estate.
These increases in costs, time, management and potential rent reductions would cause a purchaser to pay less for the Kirby Estate as a consequence of the carrying out or proposal to carry out the Public Purpose.

[29]

Betterment

The improvements to access upon completion of the Public Purpose Works is said by the Respondent to increase the value of the Kirby Estate either by reduced travel time if the Public Purpose Works are used or reduced travel time due to a decrease in traffic on the surface roads as a consequence of other road users utilising the Public Purpose Works. The question is not whether there will be traffic and transport improvements as a consequence of the Public Purpose Works, it is the goal of all public infrastructure that it improves some underlying condition. The question is whether the improvements are such that a hypothetical purchaser would pay more to purchase the Kirby Estate as a consequence of the carrying out of the Public Purpose Works.
As stated by Mr Lunney, such an exercise is subjective and difficult to quantify, but that exercise must be undertaken. In this case the evidence of the traffic engineers is that there will be, in peak periods, a reduction in travel time by 3 minutes if the Public Purpose Works were utilised but this improved travel time would come at the cost of a toll. As to the surface roads, there would be no toll and a slight improvement in travel time in the order of 2-3 minutes. On either case the benefit or disbenefit would flow to the truck owner. Whilst I have evidence that at least one of the tenants of the Kirby Estate runs its own fleet of heavy vehicles I have no evidence as to the balance of the tenants. Nor is there any evidence that the rental value of the Kirby Estate is linked to transport costs in any compelling way. Nor is there any evidence that such a saving in time and wear and tear on the vehicle would impact on the price paid for transport from the Kirby Estate. On that basis, I find that there being no direct link established between rents and trucking costs I am unable to be satisfied that the improvement on the transport system as a consequence of the Public Purpose would have an increase in value of the Kirby Estate.

[31]

Quantification of Injurious Affection Claim

For the reasons outlined above, the only item that I find will have an impact on the value of the Kirby Estate is the risk of the restriction on heavy vehicle access during construction. As a consequence, the "all risk" approach applied by Mr Davis cannot be adopted. Further, the DCF method utilised by Mr Davis assumes reductions in rental returns over a period of years for all of the "all risk" factors including that post construction. He does not identify a quantum that is able to be excised from his calculation for the single risk I have accepted. Nor does the quantification of his approach allow for a modification of his inputs to account only for the access issue during the construction period. For that reason, I reject the quantification approach of Mr Davis.
Whilst Mr Lunney's approach was limited solely to the construction period I consider that he has, by relying on the evidence of Mr Hollyoak, underestimated the risk of interruptions of heavy vehicle access to the Kirby Estate. The additional management actions required and the recognition that it is reasonably likely that access will be prevented on an unknown number of periods for an unknown length of time would also cause the hypothetical purchaser to reduce the value to take account of that material risk which costs he has not taken into account. Whilst conditions akin to the Conditions of Approval provide some comfort that such periods will not be the norm and that consultation with stakeholders will be taken into account in managing these periods of disruption, it is unlikely that the hypothetical purchaser would consider that there was a material risk that tenants such as Wallace International would vacate the premises. It would be reasonable for a hypothetical purchaser to consider that there was a reasonable risk that some compensatory measures would need to be negotiated with tenants such as Wallace International, for such periods. For those reasons, Mr Lunney's quantification of the reduction in value underestimates the risk to the purchaser and the consequential determination of the reduction in value.
Notwithstanding that neither expert's approach is adopted, I must do what I can to determine the value of this loss. In doing so, where there are doubts the general principle that any such doubt must be resolved in favour of the dispossessed owner must also apply: Sydney Water Corporation v Caruso (2009) 170 LGERA 298 at [3]. Each of the parties accepted that it was open to me, as judicial valuer, in this exercise to adopt an approach different to that adopted by either the Applicant or the Respondent, provided such approach was supportable on the evidence.
In determining the quantum of the reduction in value I take into account: 1. The Kirby Estate has as its before value the amount of $66,161,607; 2. The impacts of Injurious Affection will crystalise within the 4-year construction period, which period will coincide largely with the purchase date by the hypothetical purchaser. The purchaser would consider it more likely that the costs will be incurred in the early stages of construction and diminish towards the end of the construction period; 3. The periods of access interruption will not be for the whole of the 4-year construction period and will be limited to circumstances where it is not practicable to maintain access; 4. Access interruptions will relate to the southern driveway and will only impact the B-Double trucks and 40m articulated vehicles; 5. All other sized vehicles will be capable of servicing the Kirby Estate even if the southern driveway is closed. However, road works within West Botany Street and associated construction traffic management may render the use of the West Botany Street less convenient and more time consuming; and 6. Ongoing management will be required to ensure mitigation of any impacts due to the construction project on the users of the Kirby Estate. Such management actions will likely be required for the whole of the construction period.
Taking those factors into account an amount that is to be incurred in the relatively short term would be assessed by the hypothetical purchaser. Doing the best I can on the basis of the evidence before me I determine the total amount for Injurious Affection as it relates to the real risk of impacts on access to the Kirby Estate during the 4-year construction period as 2.5% of before value being $1,654,040.18 rounded up to $ 1,655,000. Such sum representing the reduction at the Date of Acquisition that would be sufficient to meet the potential cost of the risks associated with the running the Kirby Estate during the first four years together with the risks of compensatory measures for heavy vehicle use during the periods when the southern driveway is unavailable. In light of the hypothetical purchaser needing to have the funds immediately available to account for such costs, I do not consider that any adjustment should be made to take account of the value of money over the 4-year construction period.