Leichhardt Council v Roads and Traffic Authority of New South Wales

Ashfield Municipal Council v Roads and Traffic Authority of New South Wales (2001) 117 LGERA 203 Baulkham Hills Shire Council v Basemount Ltd (2003) 126 LGERA 339 Blacktown Council v Roads and Traffic Authority of New South Wales (2006) 144 LGERA 265 Corrie v McDermott [1914] AC 1056; 18 CLR 511 Hornsby Shire Council v Roads and Traffic Authority of New South Wales (1998) 100 LGERA 105 Leichhardt Council v Roads and Traffic Authority of New South Wales [2005] NSWLEC 86 CASES CITED: Leichhardt Council v Roads and Traffic Authority of New South Wales (2006) 149 LGERA 439 Mayor Councillors and Citizens of the City of Brighton v Road Construction Authority [1986] VR 255 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Peacock v Repatriation Commission (2007) 161 FCR 256 Roads and Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20 Roads and Traffic Authority of New South Wales v Hurstville City Council (2001) 112 LGERA 223 Sutherland Shire Council v Sydney Water Corporation [2008] NSWLEC 303

DATES OF HEARING: 22 October 2008 and 23 October 2008

APPLICANT: T F Robertson SC and J E Lazarus (barrister) SOLICITOR: M Lyons Leichhardt Municipal Council LEGAL REPRESENTATIVES:

RESPONDENT: A E Galasso SC SOLICITORS: Clayton Utz

JUDGMENT:

• 13 - IN THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

LEICHHARDT COUNCIL v ROADS AND TRAFFIC AUTHORITY OF NEW SOUTH WALES (No. 3) [2009] NSWLEC 3

JUDGMENT 1 HIS HONOUR: On 11 July 2003, the Roads and Traffic Authority of New Wales ("the RTA"), acquired by compulsory process an area of land owned by the applicant, Leichhardt Council, for the City West Link Road. The land had an area of 896.8 square metres and was open space with two cricket practice pitches and landscaping. 2 In proceedings brought by the council I determined that the market value of the acquired land was $1,175 per square metre, which I then reduced by 80 per cent by reason of the statutory constraint imposed by its zoning as open space and the restriction on its alienation as community land under the Local Government Act 1993: Leichhardt Council v Roads and Traffic Authority of New South Wales [2005] NSWLEC 86. I did so because of a decision of the Privy Council in Corrie v McDermott [1914] AC 1056, 18 CLR 511 and two decisions of the Court of Appeal in Hornsby Shire Council v Roads and Traffic Authority of New South Wales (1998) 100 LGERA 105 and Roads and Traffic Authority of New South Wales v Hurstville City Council (2001) 112 LGERA 223, which are to the effect that any restriction or other circumstance which diminishes the value must be allowed for in determining the market value. 3 An appeal to the Court of Appeal was successful: Leichhardt Council v Roads and Traffic Authority of New South Wales (2006) 149 LGERA 439. That Court determined authoritatively that the decisions upon which I relied should not be followed and the restriction upon alienation of the land in the hands of the council is to be ignored when determining market value under the Land Acquisition (Just Terms Compensation) Act 1991, ss 55(a) and 56(1). The Court of Appeal allowed the appeal in part and remitted the matter to this Court.

The extent of the remittal 4 There is a dispute between the parties as to the extent of the order of remittal. It is, therefore, necessary to set out the terms of the Court of Appeal's order: 1. Appeal allowed in part. [Ordered: 1 December 2006]

2. Set aside the judgment of the Land and Environment Court delivered on 4 March 2005 to the extent that it assesses market value pursuant to s 55(a) of the acquired land and injurious affection pursuant to s 55(f) of the residue land.

3. Remit the matter to the Land and Environment Court for determination of the market value of the land and injurious affection of the residue land (being a 30% reduction of its value) without reduction on account of the statutory constraint on alienation of the land in the hands of the Appellant. [Ordered: 9 February 2007] 5 The council submits that the terms of the order of remittal are to be understood as follows:

The matter is remitted to this Court for - · the re-determination of the market value of the land (and injurious affection of the residue land) from "scratch" ; and

· in its re-determination this Court is not to take into account the statutory restraint on alienation. 6 That is, according to the council, the whole question of what is the market value of the land is open for re-determination so that my original determination of a market value of $1,175 per square metre (before applying any reduction) is also open for re-determination afresh. 7 The RTA submits, however, that Order 3 of the Court of Appeal is a composite phrase, for - s the determination of the market value of the land (and injurious affection of the residue land) without reduction on account of the statutory constraint on alienation. 8 Another way of looking at the RTA's understanding of the order for the remittal is that the concluding words (or second limb) of the order amounts to a conditional remitter - that is, this Court is to determine the market value, but only limited to the extent of ignoring any reduction on account of the statutory constraint on alienation. This does not throw open for re-determination the whole question of the market value of the land afresh. The original determination of a market value of $1,175 per square metre stands. The restriction on alienation in the hands of the council is to be ignored. The only question is the extent to which, if at all, there should be a reduction on account of the open space zoning alone. 9 It can immediately be seen that the order is not in the usual or customary terms of an order for remitter, which is typically along the lines of "the matter is remitted to the court for re-determination in accordance with the law", or "the matter is remitted to the court for re-hearing and re-determination conformably with these reasons for judgment". It has been held that the use of such language is an unqualified remittal, and in the absence of some express qualifications or limitations there is no limit to the re-determination of all the issues relevant to the applicant's claim: Baulkham Hills Shire Council v Basemount Ltd (2003) 126 LGERA 339; Peacock v Repatriation Commission (2007) 161 FCR 256. The express use of concluding words of Order 3 in the present case, however, suggests that Order 3 is a composite phrase rather than having two elements, as submitted by the council. That is, the concluding words of the order are words of limitation which limit the extent of the remitter. 10 The council submits that if there is any doubt about the extent of the remitter ordered by the Court of Appeal, any such doubt is resolved by a review of the reasons for judgment. 11 The key passage, in my opinion, is at par [64] of the Chief Justice's judgment (with whom the other members of the Court of Appeal agreed): If it were clear that, when his Honour came to apply the discount of 80 percent, he attributed the whole of that amount to the restrictions applicable to community land, then it would be appropriate for this Court to simply place his Honour's initial figure of $1,175 per square metre into the calculation and recompute the amount of compensation payable. However, it is not clear to me that that is what has happened and, accordingly, the most appropriate order for this Court to make is to remit the matter. 12 It seems from the passage that the Chief Justice would have been prepared to resolve the whole appeal based upon the figure of $1,175 per square metre, if it had been clear that the discount had been applied wholly for the restriction on alienation which applies to community land. That is, there would have been no need to remit the matter. This passage is clear support for the RTA's understanding of the extent of the remitter. 13 The council, however, points to pars [71] and [72] of the Chief Justice's judgment in which his Honour pointed out that, in respect of the "comparable sale which his Honour regarded as the most closely analogous to the present case" (9 The Crescent, Annandale) I had made an adjustment for decontamination which appears to be in the wrong direction. The Chief Justice then said at [73]: As it is by no means clear to me what has happened in the present case, I do not feel confident in adopting his Honour's figure of $1,175 per square metre as the market value of the acquired land. Accordingly, it is necessary for this Court to remit the matter for further computation. 14 Upon the basis of its understanding of the terms of the order for remitter the council proceeded to re-open the whole question of the value of the acquired land from the beginning. It argued that all the various comparable sales should be re-analysed and the figure should be re-calculated from "scratch", including not only the adjustment to be made in analysing the various sale for decontamination, but also the various other adjustments to be made for improvements, for existing use entitlements, for location and for embellishment of the subject land. That is, the council strongly argued that the whole valuation exercise should, in effect, be re-opened and redone - in effect, a retrial. 15 The exercise that the council wishes me to perform convinces me that this was not the intention of the Court of Appeal. An order for remitter is not an order for retrial: Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, 416 [75]. This is particularly so in an appeal limited to a question of law. I reject the council's approach. The judgments in the Court of Appeal do not suggest that it was the intention to require the whole valuation exercise to be re-opened and redone - that is, a re-trial. There is no mention in any of the judgments that the various other matters now sought to be raised by the council should be re-litigated. 16 No challenge was made on appeal to the figure of $1,175 per square metre which was found to comprise the market value of the acquired land, absent restrictions. None of the matters that the council seeks to re-litigate over were raised in the notice of appeal. There was no allegation by the council that there should be a re-calculation of the market value figure as found. The comments at pars [71] to [73] relate to one of several comparable sales which were relied upon in arriving at the figure of $1,175 per square metre. However, no one particular sale was relied upon, but rather a range of them which were not apparently affected by the same error. Moreover, the particular sale which was described as the most closely analogous to the present case simply meant that there was no need to make an adjustment for location, and apart from that fact no particular or special weight was attributed to it. I do not understand the reservations of Spigelman CJ at par [73] in relation to one of the several comparable sales, means that there should now be a complete retrial. 17 In other words, I accept the submission of the RTA that the order of remittal in the present case does not require this court to re-open and re-determine the whole question of the market value of the land or to carry out a complete re-analysis of all the comparable sales: it is limited to the question of what adjustment should be made for the restriction imposed by the underlying zoning of the acquired land as open space alone, and ignoring any reduction on account of the statutory constraint on alienation in the hands of the council. The concluding words of the order of remittal are to be construed limiting the extent of the remitter.

The appropriate adjustment 18 I should note that I rejected evidence of the RTA's valuer, Mr P Dempsey, based upon sales evidence which was said to demonstrate a difference in values of land having radically different zoning but otherwise having similar characteristics. In Roads and Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20, Spigelman CJ (Beazley and Hodgson JJA concurring) held, at [50], that such evidence may be useful but it is not necessary to have evidence of that character. I rejected the evidence because it had no bearing upon the value of the subject land, being evidence of sales in entirely different geographic locations far removed from the subject land and in entirely different real estate markets having different development potentialities. I note that in Sutherland Shire Council v Sydney Water Corporation [2008] NSWLEC 303, Sheahan J said that he did not obtain any assistance from similar evidence that was adduced in that case, holding (at [47]) that each market functions in its own context, which makes it difficult to apply to the subject land any discount derived from an analysis of the properties considered. 19 The parties accept, and I agree, that the subject land should not be valued as if it could be used as residential: Ashfield Municipal Council v Roads and Traffic Authority of New South Wales (2001) 117 LGERA 203 at 226 [86], per Davies AJA (Mason P concurring). This is because it is necessary to take into account any relevant restrictions upon the use of the land: Ashfield Municipal Council v Roads and Traffic Authority of New South Wales at 230 [100], Mayor Councillors and Citizens of the City of Brighton v Road Construction Authority [1986] VR 255 at 263. The fact that there are restrictions upon use does not, however, necessarily mean a lower value: Ashfield Municipal Council v Roads and Traffic Authority of New South Wales at 231 [107], City of Brighton at 263. 20 In the Ashfield case the facts were not dissimilar to those in the present case. Open space land owned by the council had been compulsorily acquired by the RTA for the City West Link Road. Ashfield Council, like Leichhardt Council in the present case, is an inner city council with a shortage of open space land. I respectfully adopt the comments of Davies AJA (Mason P concurring) (at 231): [106] It was, therefore, significant that the comparable properties upon which the trial Judge relied were properties which had been purchased by municipal councils for public recreation or public open space. Those sales demonstrated the value which communities in Sydney were prepared to pay to obtain such land. Although none of the land in the comparable sales was subject to any specific restriction, public open space was its highest and best use and, in each case, the land was purchased for that purpose. In no case was the land purchased for profit making, for development or for resale. It was purchased with the intention that it would be held and used as public open space or for public recreation. [107] In this context, the restrictions imposed upon the subject Lots had little significance . The comparable sales were of lands which had been acquired for a comparable use. The comparable sales reflected the value which the community placed upon such land. [108] The task is always to assess the value of that which has been acquired. The subject lands were held by a municipal council and were devoted to public recreation. The comparable sales, which reflected acquisitions made by councils of land to be devoted to such a purpose, were good evidence of the value to the Council of the lands from which it has been dispossessed. (The emphasis is mine.) 21 The judgment of Gobbo J in the City of Brighton case is to a similar effect. In that case, Gobbo J fully discusses the problems in valuing open space land. The judgment of Gobbo J has been followed and applied in this Court in Blacktown Council v Roads and Traffic Authority of New South Wales (2006) 144 LGERA 265 at 284 [78]-[82]. Gobbo J noted (at 257) a deficiency of parkland in the municipality, and unlike other municipalities which have been able to secure undeveloped lands more readily, the claimant had to find its parkland in a more settled and developed area; as a general rule it had paid market prices for land zoned and used for residential purposes. The same observations may be made about Leichhardt Council in the present case. 22 The relevant statutory provision in the City of Brighton case (s 11B(1)(a) of the Lands Compensation Act 1958 (Vic)) required compensation to be based upon the market value of the land. I also respectfully adopt the comments of Gobbo J in considering the market value (at 263): ... 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 purchase a satisfactory alternative. It is always a relevant consideration 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 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 buyer does not want and cannot really realise.

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. (The emphasis is mine.) 23 Gobbo J took into consideration evidence of sales of residential land purchased by the council for parkland, and arrived at a market value which reflected the history of parkland purchases, which showed that the council generally purchased parcels that were wholly suitable for parkland purposes but which had some factor that brought about a reduced price as residential land (at 270). That is, the council had paid prices for the most part which were at a lower level than prevailing residential values, because the particular properties that it had purchased were impaired in some respect. The level was in order of 75 to 80 per cent of residential values generally. This seemed to his Honour to be confirmatory of the market value of the subject land and as being reflective of the history of parkland purchases by the council, which showed generally that it purchased land suitable for parkland purposes but which had some factor, such as a physical constraint, which brought about a reduced price as residential land. 24 Importantly, Gobbo J rejected a claim put forward on behalf of the claimant which had, as its basis, the replacement cost of residential properties, as essentially reinstatement (at 272), which is not open to the disposed owner. His Honour held that the claimant was confined to market value in accordance with s 11B of the Act, but it was the fact that there was an ascertainable market value in that case. 25 In Roads and Traffic Authority of New South Wales v Blacktown City Council at [40] to [42], the Court of Appeal accepted the practice of using comparable sales of properties acquired by councils for open space purposes, but which had residential zoning or residential uses. Spigelman CJ also accepted the long established practice that a person who wishes to acquire land for the purpose of open space is, in fact, prepared to pay residential values to make such an acquisition (at [44]). His Honour said (at [44]): This is an example of the "willing but not anxious purchaser" element of the market valuation test, the traditional test now found in s 56(1) of the Just Terms Act. 26 Spigelman CJ acknowledged (at [45]) that the "willing but not anxious seller" element of the hypothetical transaction required compensation for the additional value of the residential use. For this reason his Honour thought that sales of residential land were not determinative, but saw nothing wrong with an approach that accepts the relevance of such transaction and then proceeds to apply a discount (at [46]). 27 I find the City of Brighton case particularly informative. As in that case, the evidence in the present case shows that there is a market for land purchased for use as open space and that market value is readily ascertainable. I have found that the market value for such land in the Leichhardt area is about $1,175 per square metre. That is the price that a willing but not anxious hypothetical purchaser who wishes to buy land for open space purposes is prepared to pay. The purchasers interested in buying the land in the hypothetical sale may not only include the council, but also State government authorities, developers seeking open space to maximise floor space ratios or to offset contributions under s 94 of the Environmental Planning and Assessment Act 1979, sporting and recreation clubs, schools and universities (who were accepted by Sheahan J in the Sutherland case as potential purchasers). The willing but not anxious vendor would know this, would know the price that the hypothetical purchaser would be prepared to pay and would be unlikely to settle for less. 28 In the City of Brighton case, Gobbo J was prepared to adopt as the relevant market the prices paid by the council for residential land which it intended to use as parkland. I am prepared to adopt the same approach in the present case. The evidence shows that there is a market for such land in Leichhardt and the evidence also shows the price that a hypothetical purchaser is prepared to pay for such land. 29 As noted by Davies AJA in the Ashfield case, however, the seller in such cases would require compensation for the additional value of the residential use, so it would be appropriate to apply a discount. In my analysis of the comparable sales, however, I deducted the value of the improvements from the comparable sales in arriving at an average of $1,175 per square metre. Any further discount, if any, need not be great, because the purpose of the hypothetical transaction is to put the land to its use as open space, and the price paid for land to be put to that use was $1,175 per square metre. All that the restriction upon use does is to restrict the range of potential purchasers (which, as noted in par [27] above, may include the council, but may also include others). However, as Gobbo J also noted in the City of Brighton case (at 263), it is necessary to guard against the view that restrictions, because they restrict the class of potential purchasers, inevitably mean a lower value. 30 The fact that there are restrictions on the use of the land and consequently a restricted class of potential purchasers may have some depressing effect on the hypothetical sale of the subject land, but for the reasons explained the reduction in the present case, if any, would at most be marginal. This approach is entirely consistent with that which was adopted by Gobbo J in the City of Brighton case and by Davis AJA in the Ashfield case, as noted in pars [18]-[21] above. 31 The factors which influenced Gobbo J to adopt a value in the order of 75 to 80 per cent of prevailing residential values in the City of Brighton case are not present here. Those comparable sales in the present case which were impaired in some respects, have been taken into account in arriving at the average of $1,175 per square metre. 32 In the Sutherland case, Sheahan J accepted the fact that the appropriate discount to apply in a particular case will depend upon its own facts and circumstances (at [95]). In that case Sheahan J applied a one-third discount to residential values, in a case where the acquired land was zoned public open space. The evidence in that case showed that the provision of open space in Sutherland had recently stabilised, the amount of open space was generous compared to general standards of open space provision, and the council had apparently resolved to acquire less open space (at [79] and [92]). 33 The facts and circumstances of the present case are different from those in the Sutherland case. Unlike Sutherland, there is a severe shortage of open space in Leichhardt. Leichhardt Council is active in the market of acquiring land for the purpose of open space. That is, the council is a buyer of land in the market for open space, it accumulates open space, there is a shortage of open space in the municipality and the council pays residential values to obtain it. The hypothetical willing but not anxious seller, with the knowledge of the market, would be aware of the prices paid by the willing but not anxious buyer and would thus be unwilling to settle for less than a full residential value in the hypothetical sale. 34 As in the City of Brighton case, the market value disclosed in the present case reflects the history of purchases by the council for open space in Leichhardt. Moreover, as noted by Gobbo J in the passage set out at par [22] above, this may lead and, in fact, has led, to the council having to pay the equivalent of residential values. Accordingly, in my opinion, the discount due to the fact that the subject land is zoned for open space, on the facts and circumstances of the present case, should be nil. It represents the price that a willing but not anxious purchaser is prepared to pay and a willing but not anxious seller is prepared to accept, for land intended to be used for open space in Leichhardt. The result is a market value for the acquired land of $1,175 per square metre, that is, the sum of $1,053,740.

Orders 35 The parties agree on the amount claimed for disturbance, namely $7,945. The order of remittal also requires the determination by this Court of the amount for injurious affection of the residue land (being a 30 per cent reduction of its value) without reduction on account of the statutory constraint on alienation of the land in the hands of the council. The area of the residue land is 1,145 square metres. I have found that is had a market value on the revised basis of $1,345,845 (based on $1,175 per square metre). A 30 per cent reduction of its value is $403,754. Accordingly, the Court makes the following orders:

(1) The amount of compensation under the Land Acquisition (Just Terms Compensation) Act 1991 is determined in the sum of $1,465,439, as follows: (a) market value pursuant to s 55(a), the sum of $1,053,740; (b) special value pursuant to s55(b), nil; (c) loss attributable to severance pursuant to s 55(c), nil; (d) by consent, loss attributable to disturbance pursuant to s 55(d), the sum of $7,945; (e) the decrease in the value of the retained land, pursuant to s 55(f), the sum of $403,754.

I hereby certify that the preceding 35 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.