Mir Bros Unit Constructions Pty Limited v Roads & Traffic Authority of New... [2005] NSWLEC 467 | Case summary

31535/03 MIR BROS UNIT CONSTRUCTIONS PTY LIMITED v ROADS & TRAFFIC AUTHORITY OF NEW SOUTH WALES JUDGMENT 1 HIS HONOUR : I gave my original decision with respect to compensation for the land acquired on 2 September 2004. On that occasion, applying the before and after method of valuation, I said that I determined the market value of the land acquired to be $4.9 million. As I will indicate the reference to "market value" was a mistake. I arrived at that figure after determining that the market value of the land before resumption was $12.9 million and the market value of the residue was $8 million. 2 The parties have subsequently identified an arithmetical error in the calculations which I had made. The error is an amount of $45,486 which it has been agreed should be added to the value of the acquired land making it $4,945,486. 3 The applicant now claims amounts over and above that value as part of its compensation. Some of those amounts have been agreed being: Stamp duty on purchase of property agreed at $284,691.90 Legal costs incurred in purchasing alternate land agreed at $15,000.00 4 Three further sums are claimed. The first sum is an amount of $22,500 being costs which were allegedly incurred by the applicant in negotiating with Masterton Homes which had indicated an interest in leasing a large factory building which was proposed to be constructed on the entire site, part of which has been acquired. The claim is comprised of executive time in pursing negotiations which were ultimately terminated when part of the land was acquired. 5 Two further sums, each of far greater significance, are claimed. The first is an amount of $508,412.18 claimed pursuant to s 59(d) and (f) of the Land Acquisition (Just Terms Compensation) Act 1991 because, it is submitted, the applicant would be required to purchase an additional 1,444 sq m of land in order to obtain the same amount of gross floor area it could have achieved on its original site prior to acquisition of part of that site. This claim is particularised as follows: 1. " The applicant claims a further $1,042,303.00 under s 59(d) and (f) of the Act because it is required to purchase an additional 2,530m² of land in order to obtain the same amount of Gross Floor Area (GA) it could have achieved prior to acquisition. Particulars (a) Prior to acquisition, taking into account council planning controls, including parking controls and set backs, the applicant could have developed 26,107m² of GFA on the land. (b) After acquisition, taking into account council planning controls, including parking controls and set backs, the applicant can now develop only 13,633m² of GFA on the residue land. (c) In order to replace the 12,474m² of GFA that was lost as a result of the acquisition, the applicant will need to acquire 20,968m² of additional industrial 4(a) zoned land, which is 2,530m² more than the area of the land acquired by the respondent, in order to achieve the same total GFA as could have been achieved before the acquisition. (d) The additional area required is a direct consequence of the impact of planning controls and the effect of the skewed boundary of the residue land created by the acquisition. (e) The additional costs to be incurred in acquiring the additional land referred to in paragraph 7 above, are itemised as follows: 1. (i) Cost of land purchase (2,530m² x $355 per square metre $898,150.00 1. (ii) GST on land purchase $89,815.00 1. (iii) Stamp Duty on land purchase ([$987,965.00 ¸ 100] x 5.5) $54,338.00" 6 The Second Further Amended Points of Claim Relating to Disturbance pleads this claim in the alternative pursuant to s 55(c) of the Act being an amount attributable to severance. 7 In the further alternative the amount is claimed as special value pursuant to s 55(b) of the Act. 8 The final sum claimed is an amount of $826,360 pursuant to s 59(d) and (f) of the Act, being the additional costs arising from the fact that the applicant must now develop two separate sites rather than one site as it could have done before the acquisition. This item is particularised as follows: 1. " The applicant claims a further $1,603,449.00 under s 59(d) and (f) of the Act for the additional costs arising from the fact that it must now develop two separate sites rather than one site as it could have been done before the acquisition. Particulars (a) The additional costs to be incurred in developing two parcels of land instead of one are as follows: 1. (i) Additional Project Management Costs $108,963.00 1. (ii) Additional Construction Costs $974,984.000 1. (iii) Additional Council fees $93,397.00 1. (iv) Additional Design Costs $426,105.00" 9 In relation to this item the arithmetical sum claimed has been agreed between the parties. However, a dispute remains as to whether or not the amount may be properly claimed. In the alternative this sum is also claimed pursuant to s 55(b) as special value. Background matters 10 It is accepted by the respondent that the applicant is involved in the investment business of acquiring land, developing it for industrial purposes and holding the developed properties in order to achieve a rental return. The enterprise is a significant business which the applicant has carried on for many years. Evidence of the nature of that business was given by Mr Samuel Mir who is the General Manager of the applicant company. 11 Mr Mir said that the applicant has endeavoured to find a property as an alternative to the land which was acquired but, notwithstanding very considerable efforts in this regard, it has not been successful. During the period when the search was carried out the claim for disturbance was adjourned, the expectation being that the compensation could be fixed by reference to an actual property. As this has not been possible the parties are agreed that relevant items should be assessed by reference to the value of the land taken ($4,945,486) on the assumption that all of those moneys would be expended in acquiring an alternative property. 12 Mr Mir gives evidence of the negotiations which the applicant undertook with Masterton Homes. He indicates that both himself and another member of the family allocated a significant amount of time to negotiations with Masterton Homes which was time which they could have allocated to pursing other projects. The amount claimed is comprised of an estimate which Mr Mir makes of the time both he and the other family members spent in the negotiations, allowed at a significant hourly rate. 13 The evidence discloses that negotiations with Masterton Homes had proceeded to the point where draft sketches were prepared and a pre-development application meeting was conducted with Liverpool Council. Once it was appreciated that the rear section of the land would be acquired, negotiations apparently came to an end. Method of valuation 14 In my earlier reasons I assessed the value of the acquired land which is, of course, the rear section of a parcel of approximately 4 ha in total area. I adopted the method used by the parties' valuers - the "before and after approach." When part of a larger parcel is acquired leaving a residue lot which can readily be disposed of in the market place and, accordingly, conveniently valued, there are significant advantages in adopting the "before and after" method. It will pick up many items which might otherwise have to be separately valued. 15 In the present case I found that the market value of the original parcel of land was $12.9 million. This represents the price at which a vendor and purchaser would meet if negotiating the sale of the vacant site with all of its advantages together with its disadvantages. Those advantages include of course, any economies of scale which come with the development of a large site, either with one large building, or, with two or more buildings. The benefit from the size of a single project or the flexibility of multiple projects on the one site is clearly a potential advantage. However, there are also disadvantages with a large site, of which the most readily identifiable is the greater risk attaching to its development. Larger amounts of capital may be locked up before a return can be achieved. 16 Whatever may have been the extent of these advantages and disadvantages they are all reflected in the market value of the land. 17 The $8 million sum which I determined to be the market value of the residue is a sum which reflects the advantages and disadvantages of that smaller parcel. Obviously because the site is smaller the economies of scale which may have been available from the development of the larger original holding have been lost - they are not available to the residue. However, because the site is smaller and is worth less, the risk in its development is less than the risk involved in developing the larger site. Quantifying these individual elements would be difficult but because they are inherent in the market value of the land this is not necessary. 18 Once the before value - $12.9 million and the after value - $8 million have been identified the difference is the value of the acquired land to the original owner. The advantages which the dispossessed owner had in owning the original parcel will be captured by this method of assessing compensation. 19 The operation of the "before and after" method and its advantages have been considered in a number of cases. It was explained by Reynolds JA in Gosford Shire Council v Green (1980) 48 LGRA 201 where his Honour said at 208: 1. " This question refers to a method of arriving at the amount of compensation payable under s 124 of the This question refers to a method of arriving at the amount of compensation payable under s 124 of the Public Works Act where part only of the claimant's land is resumed. It has been pointed out by Walsh J in Parkes Developments Pty Ltd v Burwood Municipal Council (1969) 17 LGRA 257, at p 264 that the whole provision deals with a single concept of compensation in which the figure arrived at takes account of damages caused by severance as well as enhancement and the reference in the question is to a convenient method of arriving at this sum of compensation and dealing with both damages for severance and enhancement in value at one stroke. It is a method which was expounded by Roper J in Realty Corp Ltd v Commissioner for Main Roads (1940) 14 LGR 204 as being the easiest and proper way to ascertain the compensation to be paid: [See also Kerswell v Commissioner for Main Roads (Court of Appeal, 13 July 1978, unreported)]. If the whole parcel is valued at the time of resumption and then the residue is valued, the difference is the ascertained amount of compensation and severance damage and enhancement of the value of the residue are comprehended without any necessity for specification." 20 The fact that the "before and after" method captures compensation for severance and any special value to the owner has been explained in many cases (see Morrison v Commonwealth (1971) 34 LGRA 273; Commissioner of Highways v Tynan (1982) 53 LGRA 1. It has been found to be particularly useful to avoid double counting in relation to matters of enhancement or severance, see the discussion by Hemmings J in Carson v Minister for Environment and Planning (1990) 70 LGRA 215 and Realty Corp Ltd v Commissioner for Main Roads (1940) 14 LGR(NSW) 204. The method has been applied under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW): see Corcoran v Minister for Public Works (unreported, NSWLEC, 27 October 1993). 21 In my earlier judgment I indicated that the valuers "are agreed that the before and after method is an appropriate method to arrive at the compensation payable in this case" [13]. The parties were, of course, agreed that compensation for disturbance could not be considered at that time as an alternate investment property had not yet been identified. I had in mind and had assumed that the parties had in mind, that the purchase of an alternate property would enable the accurate quantification of the cost of stamp duty, legal costs of conveyancing and the like. 22 In [53] of my reasons I referred to "market value." Having regard to the agreement of the parties' valuers and because the "before and after" method of assessing compensation has been used, this was an error. In fact the sum of $4.9 million, now corrected to $4,945,486, represents both the market value of the land to the applicant and because the In [53] of my reasons I referred to "market value." Having regard to the agreement of the parties' valuers and because the "before and after" method of assessing compensation has been used, this was an error. In fact the sum of $4.9 million, now corrected to $4,945,486, represents both the market value of the land to the applicant and because the "before and after" method has been used, includes any amount for severance or special value by reason of the applicant's original ownership of the larger parcel. It also includes any amount for disturbance said to arise from the fact that the applicant will now have to develop two parcels of land rather than a single parcel. 23 It must follow that both of the substantive claims which have been pressed whether described as disturbance, severance or special value fail. The sum of any compensation due to the applicant for these items has been captured in the amount which I have already assessed. 24 Against the possibility that my view on these matters is not correct I discuss below my opinion as to whether the claims would otherwise have any substance. The applicant's claim in relation to additional land 25 The applicant's claim under this heading is based upon the fact that the boundary between the acquired land and the residue is not a line at right angles to the side boundary of the property. It runs at an angle with the consequence that it may not be possible to develop the residue land in a manner which would be as efficient as it would be if the residue lot was comprised of a rectangle. Evidence with respect to the alternative forms of development was given by an architect who has provided a complex array of diagrams demonstrating various forms of development for the site. During the course of his evidence discussion took place as to whether or not it would be possible to develop on the residue land to its rear boundary avoiding the necessity for a set back along that section. There are restrictions on that opportunity brought about by the requirements for fire safety under the Building Code of Australia. 26 Ultimately, the precise configuration of any acceptable development on the land could not be determined. Notwithstanding the uncertainties involved, I am satisfied that the fact that the boundary is at an angle is not a significant impediment to the development of the land. A stepped building could be provided and with the requirement for a minimum level of car parking I am of the opinion that only a minor portion, if any, of the available land would be lost for effective development. It must be remembered that it is necessary in the present circumstances to assess a hypothetical project. The precise configurations of any development on the site will depend upon the requirements of the prospective tenant which could require a lesser building area and significantly more hard stand area. If this was to occur the fact that the property has a diagonal boundary may be no impediment at all. Even if a more conventional form of development is required I am not persuaded that any development potential is lost by reason of the diagonal boundaries. 27 This claim was also pressed on the basis that the gross floor area of the buildings which can be achieved on the site to be acquired, together with the gross floor area which can be developed on the residue, will be likely to be less than the area which could have been achieved on the original site. This will occur because boundary set backs will be required along a greater length of the two buildings than would have been required if only one building had been constructed. It is submitted that the reduced floor area will bring a lesser return for the applicant for which it should be compensated. 28 Apart from the legal difficulties I am not persuaded that the applicant could sustain the claim in any event. Although it is possible that less floor area will be achieved in the two developments, particularly if one building had proved to be viable on the original site, the accepted position would be that a larger building would be likely to achieve less rent per sq metre than would two buildings of smaller area. If this was to occur the applicant may not be disadvantaged. Ultimately, any analysis never rises above speculation which could not be sufficient for the applicant to sustain a claim see Roads & Traffic Authority (NSW) v Perry & Anor (2001) 116 LGERA 244 at 257. The necessity to develop two sites and section 59(f) 29 I have already indicated that the parties are agreed that the arithmetical sums particularised must be spent by way of additional expenditure to that which would have been spent on those items if the applicant had been able to develop the whole of its original holding at the same time. For this purpose it does not matter whether the original holding was developed with one building, or, two or more, providing they were undertaken at the same time. The additional costs are said to be incurred because of the fact that two smaller sites are being developed for which a project manager will charge a fee at a higher percentage of the cost of the building and there will be other associated supervision and design costs. 30 The question is whether or not by applying the "before and after" method these costs have also been accommodated. As I have already explained, in my opinion, they have. 31 No doubt the applicant has fixed upon a claim for this item because it can identify that it will incur additional costs in developing two sites over and above the cost which it may have incurred if it was carrying a larger development on one site. If a method of valuation had been adopted which did not inherently pick up and make adjustments for the advantages and disadvantages of the different sized parcels the moneys claimed may have been separately compensable. However, as the "before and after" method has been used these items have been brought to account. 32 Section 59(f) of the Act provides that an applicant may recover "financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition." 33 The meaning of this subsection was considered by the Court of Appeal in Blacktown City Council v Fitzpatrick Investments Pty Ltd [2001] NSWCA 259 where the Court was required to consider whether costs incurred in buying replacement land were compensable. In that case the applicant was in the business of acquiring and holding land and a question arose as to whether or not the cost in acquiring replacement land related to the "actual use of the acquired land." Brownie AJA with whom the other members of the Court agreed, held that the expression "relating to" is of wide import, and accordingly "both the need and the occasion for the purchase of the replacement land related to the actual use of the acquired land, that is, to conduct its business the respondent needed to acquire and then hold the replacement land for later subdivision and resale." [28] 34 In the present case the applicant seeks to sustain its claim in relation to the costs of developing two sites under this subsection. Apart from the fact that that item has been captured by the "before and after" method I do not believe that sum is related to the costs of acquiring other land relevantly "relating to the actual use of the land. In the present case the applicant seeks to sustain its claim in relation to the costs of developing two sites under this subsection. Apart from the fact that that item has been captured by the "before and after" method I do not believe that sum is related to the costs of acquiring other land relevantly "relating to the actual use of the land." Notwithstanding the fact that in Fitzpatrick the phrase was accorded a wide meaning, the amount identified in the present case is derived from the additional costs said to be occasioned by the greater expense required to build on the residual land together with increased costs of building on the newly acquired land. Although in Fitzpatrick the acquiring and holding of land constituted its use, there was no suggestion that this could be extended to the costs of its later development. 35 In any event I do not believe the applicant has made out this aspect of its claim to the relevant standard. It is possible to carry out the arithmetical exercise which has been undertaken but the form, including the size of any ultimate development or developments, is presently unknown. Any conclusion that the ultimate cost of the appropriate development of two parcels will be greater than the development of the original parcel of land would be purely speculative. Executive time wasted 36 I am not persuaded that the amount claimed under this head is recoverable. The company would in the ordinary course of its business conduct many negotiations some of which will come to fruition and others of which will fail. The evidence does not persuade me that a satisfactory arrangement with Masterton Homes could necessarily have been achieved. The parties were merely involved in preliminary negotiations. Accordingly, I am not satisfied that the time spent in negotiation with Masterton Homes has been lost in a manner which would justify compensation under the legislation. 37 I direct parties to bring in short minutes of order which reflect these reasons.

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

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