Leichhardt Council v Roads and Traffic Authority of New South Wales

Leichhardt Council v Roads and Traffic Authority of New South Wales - [2005] NSWLEC 86 - NSWLEC 2005 case summary — Zoe

[23]

23 Corrie & Anor v MacDermott [1914] AC 1056; 18 CLR 511 is authority for the proposition that it is necessary to take into account the extent to which restrictions affect the value of land. In MacDermott v Corrie (1913) 17 CLR 223, Barton ACJ explained the relevant principle in the following terms (at 237): [The dispossessed owners] are not to be put in a better position than they would have held if the land had not been taken from them. Hence any restriction or other circumstance which diminishes the value in their hands must be allowed for in arriving at the value. 24 In the Privy Council, Lord Dunedin said (at 514): The value which has to be assessed is the value to the old owner who parts with his property, not the value to the new owner which takes it over. If, therefore, the old owner holds the property subject to restrictions it is a necessary point of inquiry how far these restrictions affect value. 25 Corrie v MacDermott has been consistently followed and applied in both the Court of Appeal and in this Court. In Hornsby Shire Council v Roads and Traffic Authority of New South Wales (1998) 100 LGERA 105, Stein JA described the restrictions applicable to land which is classified as community land under the LG Act in the following terms (at 107): The Local Government Act [1993], Chapter 6, Part 2, deals with "public land" vested in a council. The LG Act provides that all such public land must be classified as either "community" or "operational". If land is classified as "community land", it cannot be reclassified except by the process of making a local environmental plan under the Environmental Planning and Assessment Act 1979 (NSW) (the Planning Act ). Moreover, s 29 of the LG Act provides that a council must arrange a public hearing under s 68 of the Planning Act in respect of any such proposal. Prior to the LG Act,, there was no concept of "community land". No similar provision is to be found in the 1919 LG Act . A number of restrictions on the use and dealing with community land are to be found in Div 2 of Pt 2, Ch 6. First, such land can only be used and managed in accordance with a plan of management. The LG Act lays down detailed requirements for the content of management plans and for community participation in their making. The most severe restriction on the use to which community may be put is to be found in s 45. This provides that a council cannot "sell, exchange or otherwise dispose of community land". Further, a lease or licence of such land by a council is severely restricted by ss 46 and 47. 26 Stein JA then said, Priestly JA and Sheppard AJA concurring (at 107): The appellant accepts that the classification of the parcels as "community land" under the LG Act constitutes a restriction which is relevant to the determination of compensation upon resumption. Corrie v MacDermott (at 1062) is authority for the proposition that it is necessary to determine to what extent the restrictions affect the value of the land. The chance of those restrictions being discharged must also be considered (at 1064). 27 The trial judge in the Hornsby case had applied Corrie v MacDermott and valued the land, having regard to the restrictions in that case, as being one-third of the open space valuations. As to this, Stein JA said (at 108-109): It seems apparent that His Honour was "valuing" the restriction at two-third of the market value. That is, he concluded that the depressive effect of the restriction reduced the market value to one-third. In doing so, his Honour properly applied Kitto J in Royal Sydney Golf Club v Commissioner of Taxation (Cth) (at 391). … I can discern no error of law in his Honour's valuation of the restriction of the classification of community land and his determination of the chance of the restriction being discharged. 28 In Roads and Traffic Authority of New South Wales v Hurstville City Council (2001) 112 LGERA 223 Mason P, Sheller and Powell JJA concurring, said (at 226 [14]): Market value was to be determined on the basis of highest and best use. This meant that, if the parkland were to be placed for sale on the open market, it would be sold subject to the open space zoning and the statutory restrictions touching this particular community land, each of which placed significant restraints upon the exploitation of the land. It is common ground that what is to be valued in the present case is the value of the land to the respondent under the statutory conditions upon which the land was held at the time of resumption (see generally Corrie v MacDermott [1914] AC 1056 and Hornsby Shire Council v Roads and Traffic Authority (NSW) (1998) 100 LGERA 105 at 107). 29 In Ashfield Municipal Council v Roads and Traffic Authority of New South Wales (2001) 117 LGERA 203, Davies AJA, Mason P and Heydon JA concurring on this point, after referring to the Hornsby case and to Corrie v MacDermott (inter alia) said (at 230): It was, therefore, necessary for the trial judge to take into account, insofar as they were relevant, any restrictions placed upon the use of the lands, any restrictions imposed upon the sale of the lands and any restrictions imposed upon the disposition of the proceed of sale. 30 In the Ashfield case the Court of Appeal held however, that the primary judge erred in applying the two-thirds discount which had been applied in the Hornsby case without considering the particular facts in the case before him. As Davis AJA said (at 231): "Every case turns on its own facts".

[25]

32 In this Court, in Canterbury City Council v Roads and Traffic Authority of New South Wales [2002] NSWLEC 161 Pearlman J applied Corrie v MacDermott in holding that it is necessary to inquire how far the restrictions arising from the fact that the resumed land was classified as community land and was therefore the subject to severe restrictions on sale, exchange and disposal, affect its value (at [20]). Pearlman J noted the difficulty in performing this task (at [22]): The conventional approach to determining market value is to have regard to comparable sales. The difficulty with this case is that there are no truly comparable sales, since land zoned as open space and held as community land cannot be sold. 33 Pearlman J then turned to the question of how to apply the principle stated in Corrie v MacDermott (at [28]): Initially, Mr Dundas [the Council's valuer] made a deduction of 50% to take account of the statutory restrictions. This resulted in him adopting a value of $125 per square metre. However, in a subsequent report, he altered this approach, on the basis that, where councils have purchased land to provide open space, they have done so knowing that the land will be classified as community land and subject to the restrictions under the LG Act. There is therefore no justification, in his opinion, for a further discount for these restrictions and consequently his final valuation was $250 per square metre for the majority of the resumed land. This approach does not accord with principle, and Mr Dundas's initial approach seems to me to be correct. 34 Pearlman J then said that in the case which she was deciding, "the likelihood of re-classification of the resumed land from community land to operative land - (which is free of the particular restrictions) is very low". Her Honour continued (at [31]): The evidence establishes that there is a lack of open space land classified as community land in the Canterbury local government are, and there are statutory hurdles to overcome in achieving a lifting of the restrictions (see Hornsby Shire Council v Roads and Traffic Authority (the judgment on appeal) per Stein JA at 108). 35 Her Honour held that one method of applying the principle that the statutory restrictions must be taken into account is to discount the value by reason of them. In that case, her Honour adopted the expert evidence of the council's valuer, Mr Dundas, and applied a deduction of 50 per cent.

[34]

39 Mr Robertson SC and Ms Jagot also submit that the discount approach involves double counting the effect of the restrictions on value: it is not legitimate to discount the value reached by examining what the class of hypothetical purchasers have done in comparable situations, when the assumption on which the hypothetical purchase is based is that the land will be held subject to the same restrictions. Reliance is placed upon Mayor, Councillors and Citizens of the City of Brighton v Roads Construction Authority [1986] VR 255 (at 263). In that case Gobbo J found, after considering the evidence, that there was a market for open space land, which was effectively constituted by purchases on the part of local government authorities of residential land for use as open space. Accordingly, his Honour awarded compensation at near residential values, taking into account that, generally speaking, the quality of residential land purchased by councils was impaired in the same way, which made it less valuable than residential land. Gobbo J then considered the effect of restrictions on the use or disposition of open space land and concluded that it would be an error to assume that such restrictions necessarily depressed market value. Mr Robertson SC and Ms Jagot rely upon the following passage in His Honour's judgement. After referring to Corrie v MacDermott and the Royal Sydney Golf Club case, his Honour said (at 263): At the same time it is necessary to guard against the view that restrictions, because they restrict the class of potential purchasers, inevitably mean a lower value… The price the purchaser will pay will be largely influenced by the fact that for that purchaser this land will or may be able to be used for its highest and best use and the further consideration of what it would otherwise cost to purchaser a satisfactory alternative. It is always a relevant matter that land restricted to more or less one use such as parkland offers less potential uses than other land not so restricted. That may widen the appeal of the latter but it does not mean the first parcel will not have particular value for a purchaser of parkland, especially if the only effective way of securing parkland is to buy land with added potential that the buyer does not want and cannot readily realise. 40 In my view, however, the discount approach does not involve double counting the effect of the restrictions on the land value. The sales upon which both parties have relied in the present case are of land which, although purchased for use as open space land, may in each case also be used for its existing use as either residential, industrial, or for some other use with development consent. There is no guarantee that the Council, upon purchasing such land, will retain it. For example, the Council immediately on-sold the Ferry Road land to Australand. Further, if the land is retained by the Council, it may not automatically be put to use as open space. For example, the property purchased by the Council at No. 9 Crescent, Annandale is still being used for an industrial purpose and the occupier is, presumably, paying rent to the Council. Moreover, the vendor of such land, being fully informed, is not going to part with it for a lesser sum simply because the purchaser may want to put it to a limited non-economic use when he or she knows that another purchaser can continue either the existing use or some changed use. In the case of the acquired land, however, the vendor and purchaser in the hypothetical sale would be taken to be aware of the restrictions applying to the land which in turn would influence the price - that is, there would be no opportunity to use it for either an industrial or residential purpose or for some purpose other than open space.

[36]

42 Mr Robertson SC and Ms Jagot also submit that where, as here, there is a shortage of available land for purchase for open space, a demand for open space and a program for the purchase of open space by buying residential land, then the price for land already capable of use for open space purposes might be higher than residential values. The following comments of Gobbo J in the Brighton City Council case are relied upon (at 263): Where a parcel of land is set aside for parkland use, its value will be related to the price that a purchaser of parkland will be prepared to pay, given that such purchaser will be using the land for that which constitutes for it the highest and best use of the land. It will also be related to what that purchaser would have to pay - assuming reasonable opportunity and not compulsion to effect a purchase - if it were to purchase other land that might equally meet its purpose. Such purpose of other land may lead it to have to pay the equivalent of residential values. The fact that emerges very clearly is that municipalities, especially those like that claimant in developed areas, cannot purchase land appropriately zoned for parkland purposes. They are obliged to buy residential land, at or near residential values, when they wish to secure parkland. The authority's valuers argued that where a municipality bought residential land for parkland purposes and then had imposed on the land a reservation for public open space, its value was immediately reduced. It is difficult to understand why this is so, for the municipality is the main factor in the market for parkland. It will clearly be prepared to pay the original price it paid for the very good reason that, if it did not buy this land at that price, it would be compelled to pay that price for residential land, there being no parkland so zoned available for sale. 43 In summary, the Council submits that where, as here, the highest and best use of the acquired land is open space, it should be valued according to comparable sales of land acquired for open space purpose, adjusting value to take account of position, quality, state of readiness and the like, with no discount to what otherwise would be the open market value for such land.

Parties

Applicant/Plaintiff:

Leichhardt Council

Respondent/Defendant:

Roads and Traffic Authority of New South Wales

Legislation Cited (1)

Environmental Planning and Assessment Act 1979(NSW)

Cases Cited (12)

Leichhardt Council v Roads and Traffic Authority of New South Wales [2005] NSWLEC 86 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments.

Ashfield Municipal Council v Roads and Traffic Authority of New South Wales (2001) 117 LGERA 203; Canterbury City Council v Roads and Traffic Authority of New South Wales [2002] NSWLEC 161; Commissioner of Succession Duties (SA) v Executor Trustee and Ageing Co of South Australia Ltd (1947) 74 CLR 358 at 373-374; Corrie & Anor v MacDermott [1914] AC 1056; 18 CLR 511; Hornsby Shire Council v Roads and Traffic Authority of New South Wales (1998) 100 LGERA 105; London County Council v Church Wardens etc of Erith & Ors [1893] AC 562; MacDermott v Corrie (1913) 17 CLR 223; CASES CITED: Mayor, Councillors and Citizens of the City of Brighton v Roads Construction Authority [1986] VR 255; Parramatta City Council v Valuer-General (1964) 10 LGERA 160; Roads and Traffic Authority of New South Wales v Hurstville City Council (2001) 112 LGERA 223; Royal Sydney Golf Club v Federal Commissioner of Taxation (Cth) (1955) 91 CLR 610; Royal Sydney Golf Club v Federal Commissioner of Taxation (Cth) (1957) 97 CLR 379; Stephen v Federal Commissioner of Land Tax (1930) 45 CLR 122; Sydney Sailors' Home v Sydney Cove Redevelopment Authority (1977) 36 LGERA 106

(2001) 117 LGERA 203

(1947) 74 CLR 358

(1998) 100 LGERA 105

(1913) 17 CLR 223

(1964) 10 LGERA 160

(2001) 112 LGERA 223

(1955) 91 CLR 610

(1957) 97 CLR 379

(1930) 45 CLR 122

(1977) 36 LGERA 106