Mir Bros Unit Constructions Pty Limited v Roads and Traffic Authority of New... [2004] NSWLEC 612 | Case summary

JUDGMENT 1 HIS HONOUR: This case involves the acquisition by the respondent of an area of land at Prestons which is an industrial estate near Liverpool. The land was resumed for the purpose of constructing the M7 motorway. It will link with the M5 to provide access towards the city and the Hume Highway to the south, and is ultimately proposed to link up with the M4 to the north and west. It will form a very significant traffic link within the Sydney traffic network. 2 The land was compulsorily acquired on 10 October 2003. The resumed land has an area of 1.844 hectares and originally formed part of a larger parcel with a total area of 4.097 hectares. The residue, after acquisition, accordingly has an area of 2.253 hectares. The land is zoned General Industrial 4(a) under the Liverpool Local Environmental Plan 1997. The parties are agreed that the highest and best use of the resumed land was for industrial purposes. 3 The land acquired forms the rear section of a parcel which has a frontage to Jedda Road and is located some hundreds of metres from a point at which access will be able to be gained to the M7 when it is completed. As I understand the situation, the plans provide for a roundabout configuration at that location which will give access in both directions to the motorway. 4 At present, to access the available freeway system comprising the M5, it is necessary to travel a distance in excess of three kilometres if seeking to access the M5 to progress towards the city. A further distance is required to access the M5 and move to the south along the Hume Highway. 5 The resumed land was originally liable to flooding but, before resumption, was filled and compacted by the owner. The owner is a company forming part of a family group with significant land holdings. As I understand the evidence, its business is comprised of the acquisition and development of land and generally the retention of the developed land as an investment. 6 The resumed land had access to water and sewerage facilities and could have been developed at the date of acquisition. However, before development could be achieved, monetary contributions would have been payable (s 73 Sydney Water Act 1994 (NSW)). As it happens, nothing turns on this fact because the comparable sales, when analysed, are in the same position. 7 Prestons is now a developing industrial area. This is made plain by the view I had of the locality with the parties. Although the evidence does not show a rate of sales as intense as in some other areas, it is apparent that development is now proceeding and is being accompanied by the upgrading of existing roads and the provision of new roads. But for the fact that much of the land within the area is low-lying requiring filling to secure it from flooding, it is high quality industrial land. 8 In the amended points of claim, the applicant claims a total sum for compensation of $7,576,140. That sum is comprised of a claim for $6,450,000, being the market value of the land taken, plus disturbance claimed in the sum of $1,126,140. 9 As I have indicated, the applicant's business comprises the acquisition, development and securing of investment from land, commonly industrial land. As I understand it, the applicant has not, at the present date, been able to secure industrial land to replace the land acquired, but is negotiating to secure residential sites for this purpose. 10 Those negotiations have not yet come to completion and accordingly, the parties have agreed that I should proceed and determine the compensation for the land taken, leaving disturbance to be further considered when the applicant is in a position to prove an ultimate transaction. In my opinion this is a sensible course for it will enable the Court to address the issue of disturbance on a sound footing. 11 Accordingly, I will not discuss in these reasons the evidence given in relation to the matter of disturbance, but will ultimately adjourn these proceedings so that the matter of disturbance can be considered as a discrete issue. 12 Each party has retained a valuer. For the applicant, Mr Dobrow of Dobrow Valuations carried out an assessment and gave evidence. For the respondent, Mr Sorrenson of M J Davis Valuations prepared a report and has given evidence. Their evidence was received concurrently and I had the benefit of a view in the company of the valuers when the various issues were discussed. 13 As will become apparent, the valuers are agreed that the before and after method is an appropriate mechanism to arrive at the compensation payable in this case. Conducted appropriately, this method will enable the valuation to be undertaken having regard to, and eliminating where appropriate, the impact from the construction of the roadworks for which the land was resumed. 14 When he prepared his report, Mr Sorrenson addressed the question of the value of the resumed land by seeking to identify the rate per metre appropriate for industrial land having the relevant qualities. Mr Dobrow approached the matter in the same way. In his written report, Mr Sorrenson concluded that the value per metre of the whole of the land, including the resumed portion, was the same before resumption as the dollar rate per metre after resumption. However, in the course of preparing for the hearing in the matter, Mr Sorrenson has further reflected on the position and has arrived at a different view. He now believes that, for reasons which I will ultimately explain, the dollar rate per metre for the remaining land after acquisition is at a higher level than before. 15 Mr Sorrenson was criticised in submissions, it being said that his change of position should cause his evidence to be discounted and that his opinion should be considered to be unreliable. His report was also criticised because it was said that it did not adequately expose the reasoning process by which he arrived at his conclusion. 16 I accept that Mr Sorrenson's original report was inadequate. However, ultimately the problems in this matter fall within a small compass and in my opinion, the matters in respect of which both valuers have been required to bring their experience and judgment to bear are such that the opinion of Mr Sorrenson carries significant weight, notwithstanding the deficiencies in his initial report. 17 Both Mr Dobrow and Mr Sorrenson have considerable experience and knowledge of the relevant markets. Mr Sorrenson, together with his firm, carries out many valuations of land, industrial and other lands, in the course of any year. I formed the view during the course of Mr Sorrenson's evidence that he had a good and sound knowledge of the market, and in some respects I prefer his opinion as to some elements of the value of the resumed land to that of Mr Dobrow. 18 Although other sales information was collected by the valuers, they are agreed that there are two sales which are of the greatest assistance in resolving the issues before the Court. In fact, Mr Dobrow says the two sales are the only relevant matters. Mr Sorrenson believes that it is appropriate to look further afield than Prestons to sales at Wetherill Park, Chullora and Condell Park for guidance. However, these areas are sufficiently far removed from the site that no time was spent in the course of these proceedings in seeking to analyse sales in those other locations. Although they may give some indication of the market for industrial land within the Sydney area, I do not believe they are of any significant utility in determining the answer to the problem which the Court must address. 19 For a number of reasons, the valuation task in this matter is not easy. Although the two sales, to which I will later return in detail, provide useful information, neither of them is considered by the valuers to be comparable without the necessity to make adjustments. Some of those adjustments require the exercise of professional judgment, there being no empirical evidence which can guide them. This of course is not an unusual position and it is necessary for the Court, having regard to the evidence before it, ultimately to come to a conclusion doing the best it can with the available material: see Hornsby Shire Council v Roads and Traffic Authority of New South Wales (1998) 100 LGERA 105 at 108. 20 The first sale of significance is of the parcel of land known as Lot 6, Whyalla Place, Prestons. The sale occurred in September 2002, a little over twelve months before the date of acquisition of the subject land. It is agreed by the valuers that during that time, the market was rising rapidly making it difficult to translate, with any precision, the price obtained for the sale to the land acquired. It is apparent that the market may have been rising between two and three per cent per month during this period. Mr Dobrow provided evidence from sales at Garner Place, Ingleburn, which were sales and resales, to support that view. 21 The land at Lot 6, Whyalla Place, Prestons had an area of 1.278 hectares and realised $238 per square metre. The land had exposure to Hoxton Park Road with access directly to that road provided by a slip lane. Hoxton Park Road is undergoing reconstruction and widening and will ultimately have six traffic lanes and will obviously be a busy road. As a consequence, the sale price must have included a significant component by reason of the commercial advantage which exposure to passing traffic brings. 22 The sale is also complicated by the fact that it was purchased prior to auction by some of the persons who were, through a corporate structure, the previous owners of the property. It is believed by Mr Dobrow that in fact, if put to the open market, the sale may have realised more than was in fact achieved, the sale having occurred just prior to a planned auction. Mr Dobrow may be right in this view, but the true position is unknown. The sale cannot be seen as entirely free from any complexity arising from the identity of the vendor and the purchaser. 23 If adjusted at a rate of two per cent per month, the sale would show at the date of acquisition a rate per metre on the subject site in the order of $350 per square metre. 24 The valuers agree, and in my opinion their judgment is appropriate, that the second sale, which is of a property at 16 Lyn Parade, Prestons, is more useful in resolving the value of the resumed land. That property sold in March 2004 for $6,500,000 plus GST. The area of the land sold was 1.898 hectares and it was sold at a rate of $342 per square metre. The land required filling and the best evidence before the Court is that this would have cost in the order of $450,000. 25 It is unclear whether the purchaser acquired the property allowing that sum for filling but, having regard to the evidence before me, I believe it appropriate to accept that the sale price should be adjusted for filling costing that amount. This would give an adjusted rate for the sale of $365 per square metre . 26 The valuers are agreed that the market continued to rise from October 2003 to March 2004. Mr Sorrenson says the total increase would be in the order of ten per cent; Mr Dobrow says in the order of eight per cent. I am unable to determine with any greater precision the rate of that rise, there being no empirical evidence. 27 Accordingly, it is appropriate to resolve that aspect of the matter in favour of the dispossessed owner and a percentage rise of eight per cent should be adopted. This would give a dollar rate at the date of acquisition of $338 per square metre. 28 The valuers are agreed that there is a need to make other adjustments to this sale but disagree as to what those adjustments should be. Mr Dobrow believes that the resumed land formed part of a superior holding to the sale because of its exposure to passing traffic, the fact that the sale was adjacent to a large open drainage channel, and the fact that the sale comprised at its rear boundary an irregular-shaped parcel of land. Mr Sorrenson believed that the subject land was not superior to the sale and that the matters identified by Mr Dobrow would not be reflected in the market. 29 On this aspect of the matter I accept Mr Dobrow's judgment. It seems to me that the subject land provided a superior site having regard to its exposure to passing traffic on a road which was significantly busier than Lyn Parade. I also consider that the presence of the drainage channel and, to a lesser degree, the irregularity of the shape of the sale land have the consequence that the resumed land is a superior site. Mr Dobrow believes that that superiority was of the order of five per cent and I accept his judgment in that respect. 30 Mr Dobrow believes that apart from time and the superior quality of the resumed land, no other adjustments are necessary. Mr Sorrenson, however, believes that it is necessary in the ultimate exercise to reflect an adjustment for size when determining the rate per square metre for the land before resumption and also believes that the M7 roadworks have had a significant impact on the value of the land after acquisition. 31 As I have indicated, sale two, 16 Lyn Parade, was of an area of land of 1.898 hectares. The resumed land formed part of a parcel more than twice that size, being 4.097 hectares. Conventional understanding of the market, particularly for industrial land, would reflect a different rate per metre for industrial sites in excess of four hectares compared with one which was less than half that size. This is because of the assumption, borne out by experience over many years, that there would be less buyers in the market for the larger parcel and that anyone acquiring that parcel for development purposes would, by reason of the necessity to acquire a larger holding, accept a greater risk as to the likely profitable development of the land. 32 Mr Dobrow gave evidence that because larger parcels were apparently in short supply and the applicant has had difficulty finding replacement land, that in his view the conventional approach would not be appropriate in this instance. Mr Sorrenson, however, believed that, having regard to his experience the disparity between the two lots was so significant that a discount would inevitably operate in relation to the larger parcel. 33 I am satisfied that it would be likely that there would be less buyers for a parcel in excess of four hectares than for the smaller area. This judgment is reinforced by the evidence, such as it is in this case, and in particular by an offer made by CSR to acquire an area of about a quarter the size of the original holding. As recently as May 2004, CSR made a conditional offer for a one hectare portion of the land at a rate of $425 per square metre. CSR apparently proposed to develop the land for a concrete batching plant of which there are a number operated by CSR's competitors in the Prestons area. No doubt, given the development which is occurring in Liverpool, this is a strategically appropriate location for such a plant and accordingly, it would appear that CSR has been keen for some time to acquire the land. However, a concrete batching plant needs only one hectare of land from the four hectare parcel. The history of the negotiation reinforces Mr Sorrenson's view that although there may be a demand for smaller parcels, there would be less demand and thus a lesser rate would be paid for large parcels such as the original holding. 34 Mr Sorrenson assesses the adjustment necessary for size to be five per cent and, as I have indicated, Mr Dobrow says there should be no adjustment at all. In this respect I accept Mr Sorrenson's judgment. 35 The further matter which requires consideration is the effect, if any, of the M7. As I have indicated, at present it is a journey in excess of three kilometres to the M5 which gives access to so much of the Sydney freeway network as is connected to it. If going south, a further distance is required to be travelled. 36 Mr Dobrow says that he made inquiries of the purchasers within the Prestons area and, although he was told that purchasers saw the prospect of the M7 as a bonus, he did not discern that it had influenced their judgment as to the price they were prepared to pay. On the other hand, Mr Sorrenson says, although I do not understand him to be able to point to direct evidence from sales, that the access which will be available to the M7 and from the M7 to the balance of the Sydney road network, including other freeways, is a significant asset to the Prestons area. 37 Mr Dobrow believes that the present access to the M5 is an advantage to the Prestons area and that by providing easier access to the M7, the Prestons area will not be significantly advantaged over its present situation. 38 Reference was also made to the possibility that a toll may be payable on the M7, although the evidence does not indicate whether such a toll would be payable between the access from Jedda Road and the M5, which is a relatively short distance. In any event, given the nature of the industrial traffic and the movement of goods which might utilise the M7/M5 relationship, I do not believe that the presence of a toll is likely to be a significant matter. 39 There is no doubt in my mind that an industrial area which is directly served by a major motorway, or freeway system, would have a significant attraction as against an industrial area which has to utilise local roads before access can be gained to part of the motorway system available in Sydney. 40 Examination of relevant plans reveals that the M7 will provide a so-called "orbital link" between southern and western Sydney with the northern and, ultimately, the north-eastern half of the city. By accessing the M7, it will be possible to travel for a very significant distance around the Sydney area on a freeway or motorway system. As a consequence, the movement of goods to the industrial area and the movement of goods out of it, both to locations within other parts of the city or to country or interstate locations, will be very significantly enhanced. 41 To my mind, it is inconceivable that the construction of the M7 will not provide a significant advantage to the Prestons industrial area. That advantage is the greater because the design of the M7 provides for an access point within the industrial area and, as I have indicated, is a short distance from the resumed land. 42 As I have indicated, Mr Dobrow did not believe that any adjustment should be made for the effect of the M7. In rejecting this view, I am left with the judgment of Mr Sorrenson, that the adjustment should be of the order of ten per cent. 43 As I have earlier indicated, and as is so often the case, the evidence does not enable me to identify in any empirical way the extent of the relevant benefit. However, as I have said, to my mind it is undoubtedly present and is a significant matter. Resolving, as I must, any doubts I have in the matter in favour of the applicant company, I am satisfied that the figure of ten per cent may be a little high and it is appropriate to adopt a figure of seven per cent. Accordingly, in identifying the comparability of the land with that of the sale, an adjustment for the benefit of the M7 should be made of that order. 44 It is now possible to make appropriate adjustments and analyse, having regard to the second sale, the compensation which may be payable. 45 Before I do that, I should also refer again to the evidence in relation to offers made for part of the subject land. As I have indicated, CSR made offers which ultimately concluded in an offer made in May 2004 for a one hectare portion at $425 a square metre. This of course was made at a time when the construction of the M7 was definitely known and, in my judgment, the offer would have been influenced by the prospect of access to the M7 being available at the end of the road. Although that access may not have been of value to CSR in moving the ultimate product to the market, which is likely to be the local residential and industrial developing areas, it would undoubtedly be a very significant advantage in bringing in the necessary raw materials to carry out the batching exercise. 46 I am satisfied that it is appropriate, having regard to the discussion by Wilcox J in Goold & Rootsey v The Commonwealth of Australia (1993) 79 LGERA 407, to admit into evidence the fact that the offers were made and details of those offers. Although I have taken this course, I do not believe the offer to be of great significance in the resolution of the problem in this matter. 47 Evidence in relation to the offer was tendered by the applicant and, in my opinion, to the extent that it is of any value in this case, it tends to confirm the value of the land left to the owner after the acquisition has taken place. It does not, in my opinion, provide any reliable evidence of the value of the whole of the land at the date of resumption. 48 An offer was made for the development and leasing of the whole of the land. That offer was not accepted and could not have been accepted because of the intention of the Roads and Traffic Authority to acquire almost half of the land. I accept that that offer is evidence that there were persons in the marketplace looking to obtain and utilise large sites but, in my opinion, that offer is not of significance in resolving any of the issues in this case. 49 Looking to the ultimate position in relation to the compensation by reference to the second sale, the sale analyses, as I have already indicated, at a rate of $342 a square metre. Adjusting for the fill, the rate is $365 a square metre and, adjusting for time at eight per cent, it is $338 a square metre. The adjustment for size and superiority of the subject site in the before calculation cancel each other out. The adjustment for the M7 is seven per cent, which gives a land value before resumption of $12,864,580, which should be rounded to $12,900,000. 50 After resumption, as I have indicated, the residue land has the benefit of the M7 and, being of lesser size, is more closely comparable to the sale. Thus, adjusting for time but accepting that it is a superior site, in my judgment, the appropriate rate for the residue land would be that it is worth 5 per cent more than the sale. That gives a figure applied to the residue of $7,995,897, which can be rounded to $8,000,000. That gives compensation with the appropriate roundings of $4,900,000. 51 As I have indicated, reference was made, particularly by Mr Sorrenson, to the sales of other industrial parcels in the area, some significantly removed from Prestons. As I have indicated, I am satisfied that those sales provide little direct guidance to the appropriate values to be adopted in relation to the resumed land because of the differences in location and other factors which will influence them. However, I do not understand the results of the analysis which I have conducted to be out of line with the assistance which might be gained from those matters. 52 As I have indicated, the valuers are agreed that the Lyn Parade sale is of greatest utility in deriving the compensation in this case. I am satisfied that this judgment is correct. I am also satisfied that the analysis which I have indicated to be appropriate is the best means by which value can be determined in this case. 53 Accordingly, I determine the market value of the land acquired to be $4,900,000. **********

Mir Bros Unit Constructions Pty Limited v Roads and Traffic Authority of New South Wales

At a glance

Court

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Judgment (7 paragraphs)

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Legislation Cited (1)

Cases Cited (2)

Cited By (6)