Mitchell v Boutagy

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J THURSDAY 1 NOVEMBER 2001 5226/99 EVI MITCHELL & 2 ORS V RHONDDA BOUTAGY & ANOR Judgment HIS HONOUR: Facts 1 The plaintiffs are the vendors and purchasers respectively of a property at 7 Inkerman Street, Mosman. The defendants are the executors of the estate of the late Margaret Evelyn Moss, who is the owner of the property at 6 Harston Avenue, Mosman. 2 The property at 7 Inkerman Street is an L-shaped block, upon which there is an old cottage facing the street, and a large area of undeveloped land behind the cottage and lower than it. The bottom of the "L" adjoins the rear of numbers 6 and 8 Harston Avenue, the Inkerman Street property being higher than the Harston Avenue property. 3 A house, which is about 60 years old, is erected on 6 Harston Avenue. The property is of a rectangular shape and the house faces the street frontage, facing in an easterly direction, so that the boundary between the Harrison Avenue and Inkerman Street properties is the western boundary of the Harston Avenue properties. The property at 6 Harston Avenue slopes from its south-western to its north-eastern corner. Generally, the Harston Avenue properties slope from south to north, so that the property at 8 Harston Avenue is higher than 6 Harston Avenue and 4 Harston Avenue is lower than 6 Harston Avenue. There is a two-car garage abutting onto the street frontage in the north-eastern corner of 6 Harston Avenue, and there are established trees, shrubs and plants along the western and northern boundaries. 4 On 9 June 1999 the Mosman Council granted a deferred commencement consent pursuant to s 80(3) of the Environmental Planning and Assessment Act 1979 (NSW) for the subdivision of 7 Inkerman Street into two allotments, and the erection of a dwelling house on the proposed front allotment. The consent required the applicant to obtain an easement to drain the site through a downstream property and for the easement to be registered within 12 months from the date of the consent. A 12 months extension was granted on 23 May 2000 and on 5 June 2001 a further extension was granted until 31 October 2001. A further short extension has been granted in light of the present proceedings. 5 The second and third plaintiffs propose to erect a second dwelling on the rear lot of the subdivision, which is to be a two-storey house with four bedrooms, a study and a double garage. Balconies are planned to extend across the full width of the northern elevation of the proposed residence on both levels. Although there was some evidence that trees would remain between the proposed dwelling and 6 Harston Avenue, it is clear on the evidence that the erection of the dwelling on the rear lot will affects the privacy of the backyard of 6 Harston Avenue, if the present plans of implemented. No development consent or building approval has yet been given for the second dwelling. 6 The plaintiffs have endeavoured to negotiate with the defendants to obtain an easement over 6 Harston Avenue for the benefit of 7 Inkerman Street. They have been unable to agree on compensation. The proposed easement is for stormwater drainage and sewerage. As I have said, it is required in order to meet one of the conditions imposed by the Council in granting its approval to the subdivision of 7 Inkerman Street. The easement will extend for nearly 48 m along most of the western boundary and all of the northern boundary of 6 Harston Avenue, and will be 1 m wide, and if it is granted a PVC pipe will be laid about 1 m underground. This will involve excavating a trench, digging up the floor of the garage and disturbing some trees, shrubs and plants. 7 There have been negotiations between the parties for the grant of the easement, but they disagree as to compensation. Mr Frank Egan, a valuer retained by the plaintiffs, has assessed "adequate compensation" under the provisions of s 88K(2)(b) of the Conveyancing Act 1919 (NSW) at $7,900. Mr Greg Oliver, a valuer retained by the defendants, has given an assessment of $83,000.

The proceedings 8 The plaintiffs' further amended summons seeks an order under s 88K of the Conveyancing Act imposing an easement to drain water and sewerage over the property at 6 Harston Avenue for the benefit of the property at 7 Inkerman Street, the easement to be 1 m wide and located as shown on the survey plan annexed to the summons, and to be in the terms of a draft s 88B instrument also annexed to the summons. The terms of the draft s 88B instrument have been agreed between the parties except in one respect. Clauses 9 and 11.1 of the draft deal with costs incurred by the transferor of the easement. The disagreement is that the defendants are insisting that the plaintiffs agree to pay their costs on a "full indemnity" basis and the plaintiffs have not agreed to do so. That is a disagreement about money, and therefore a matter that can be resolved, if not by negotiations, by an award of compensation. 9 Section 88K is in the following terms: (1) The Court may make an order imposing an easement over land if the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement.

(2) Such an order may be made only if the Court is satisfied that: (a) use of the land having the benefit of the easement will not be inconsistent with the public interest, and (b) the owner of the land to be burdened by the easement and each other person having an estate or interest in that land that is evidenced by an instrument registered in the General Register of Deeds or the Register kept under the Real Property Act 1900 can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement, and (c) all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect but have been unsuccessful. (3) The Court is to specify in the order the nature and terms of the easement and such of the particulars referred to in section 88(1)(a)(d) as are appropriate and is to identify its site by reference to a plan that is, or is capable of being, registered or recorded under Division 3 of Part 23. The terms may limit the times at which the easement applies. (4) The Court is to provide in the order for payment by the applicant to specified persons of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case. (5) The costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary. (6) Such an easement may be: (a) released by the owner of the land having the benefit of it, or (b) modified by a deed made between the owner of the land having the benefit of it and the persons for the time being having the burden of it or (in the case of land under the provisions of the Real Property Act 1900) by a dealing in the form approved under that Act giving effect to the modification. (7) An easement imposed under this section, a release of such an easement or any modification of such an easement by a deed or dealing takes effect: (a) if the land burdened is under the Real Property Act 1900, when the Registrar-General registers a dealing in the form approved under that Act setting out particulars of the easement, or of the release or modification, by making such recordings in the Register kept under that Act as the Registrar-General considers appropriate, or (b) in any other case, when a minute of the order imposing the easement or the deed of release or modification is registered in the General Register of Deeds. (8) An easement imposed under this section has effect (for the purposes of this Act and the Real Property Act 1900) as if it was contained in a deed. (9) Nothing in this section prevents such an easement from being extinguished or modified under section 89 by the Court. 10 The parties agree that the Court has the power to make an order under s 88K because, in terms of the subsection (1), the proposed easement is reasonably necessary for the effectively development of 7 Inkerman Street, which will have the benefit of the easement. No issue arises, in the present case, with respect to subsection (2)(a) and (c). The parties agree, as regards subsection (2)(b), that the owner of the land to be burdened by the easement, 6 Harston Avenue, can be adequately compensated for any loss or other disadvantage that will arise from the imposition of the easement. The only issue between the parties is as to the amount of the adequate compensation, having regard to subsections (2)(b) and (4).

Mr Oliver's valuation 11 Mr Oliver's valuation was dated 14 September 2001. It purported to assess compensation having regard to the following four components:

(4) injurious affection. 12 Mr Oliver's valuation made reference to the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), which is inapplicable to the valuation of an easement acquired by a private developer under s 88K. However, it does not appear to me, after reading the valuation and listening to his oral evidence, that Mr Oliver allowed this legislation to influence him to apply principles of valuation that would be inappropriate to the task at hand. 13 Mr Oliver's figure for loss of proprietary rights was $23,000. He assessed the land value of 6 Harston Avenue at $1,150,000. He said the easement would cause a loss of value by "blot on title" as well as a loss of amenity and utility. Taking into account that the proposed easement would be located away from the existing cottage, but that in view of the age and style of the cottage the property would almost certainly be viewed as a redevelopment opportunity in the relatively short term, he considered that a reasonable allowance for such loss of value would be 2% of the land value of the property, which is $23,000. 14 To support his assessment he referred to three cases, in each of which compensation for the acquisition of an easement was agreed through negotiation, at figures based upon a percentage of 2% or 2.5% of the land value. He also referred to Hamilton J's assessment in Tregoyd Gardens Pty Limited v Jervis (1997) 8 BPR 15,845. 15 As to reinstatement, there is no issue between the parties requiring an assessment, as it is proposed that in the s 88B instrument the developer will undertake to reinstate the property fully after the work is done. Mr Oliver found it unnecessary, therefore, to allocate a figure to this category. I note that agreement has been reached between the parties for compensation for shrubs and plants in the sum of $1,956. 16 Mr Oliver's figure for disturbance was $20,000. He noted that compensation should be made for the disturbance of carrying out the initial work, and also disturbances that would occur subsequently from time to time for the repair and maintenance of the line. He observed that an allowance for disturbance is very much a matter of judgment. He assumed that the work will take some time to complete (in oral evidence he said three or four weeks, which is consistent with the draft s 88B instrument) and the use of machinery such as a backhoe would be unlikely due the physical constraints, and therefore that jackhammers would be used. Additionally, the occupier of 6 Harston Avenue would lose the use of the garage during part of the work that would involve demolition, installation of pipes and reconstruction of that building. 17 Drawing a comparison with the Tregoyd Gardens case, in which Hamilton J (he said) assessed compensation at $6,500 for disturbance where the easement area was only 4 sq m in the rear corner of the property, he considered that a reasonable allowance, given the far greater amount of disturbance in the subject case, would be $20,000. 18 Mr Oliver's figure for injurious affection was $40,000. He proceeded on the understanding that without the grant of the proposed easement, the subdivision would not proceed and the property at 7 Inkerman Street would remain a single home site with the rear portion most likely used as a tennis court or landscape area; but if agreement were to be reached as to the grant of an easement, the subdivision would proceed and a second residence would be erected. He said, on these assumptions, the location and elevation of the new residence would cause substantial loss of privacy to the backyard of 6 Harston Avenue and consequential loss of value to the property. In his view, this would be a direct result of the granting of the easement and it was, therefore, appropriate to make an allowance for the loss of value in assessing compensation. His estimate was that the effect of the loss of privacy on the value of 6 Harston Avenue would be at least 3% to 4%, and therefore, he adopted and amount of $40,000.

Mr Egan's valuation 19 Mr Egan was able to read Mr Oliver's report before preparing his own, and he set out his "valuation rationale" by reference to the following four categories:

(d) injurious affection 20 It will be seen that Mr Egan's categories (a), (b) and (d) correspond approximately to Mr Oliver's categories (1), (3) and (4). Mr Oliver's category (2) (reinstatement) is no longer in issue. Nor, in effect, is Mr Egan's category (c). Mr Egan made an allowance for legal fees and other professional fees in the sum of $2,300. He also assumed that the plaintiffs, as a condition of the terms of the easement, would pay all legal fees. It appears to me that the best way of dealing with legal fees (apart from fees covered by the s 88B instrument) is by court order with respect to the costs and disbursements of and incidental to the proceedings, rather than by an allowance in the valuations. I shall, therefore, disregard Mr Egan's category (c) and deal with the question of the costs separately. That leaves, in effect, the questions of compensation for loss of proprietary rights, disturbance and injurious affection valued by Mr Egan at $5,600. 21 As to loss of proprietary rights (which Mr Egan called "blot on title"), Mr Egan noted that the easement could have a detrimental effect on the title, but he did not believe that the construction of drainage pipes and implementation of the easement would inhibit the redevelopment of the 6 Harston Avenue. He made an allowance of $3,000 for the "blot on title". He said he did not believe that the easement would diminish the market of the property by an amount more than this. 22 He made no further allowance for loss of proprietary value as provided for by Mr Oliver (who, it will be recalled, made an allowance for loss of amenity and utility as well as "blot on title"). In Mr Egan's view this additional allowance was indistinguishable from the allowance for disturbance. 23 As to disturbance, Mr Egan made inquiries with a local real estate agent and ascertained that the gross rental obtainable for 6 Harston Avenue would be $650 per week. He assumed that the work of installing pipes through the easement and reinstating the land would take four weeks. He allowed an amount of four weeks rental, in the sum of $2,600 (I assume the figure on $2,200 on page 11 of the report is a typographical error), on the basis that the property could not be leased during the construction period, or that the rent may have to be lowered to compensate the tenant for interruption of quiet enjoyment. 24 As to injurious affection, Mr Egan expressed the opinion that compensation in this category was not applicable. He referred to Coles Myer NSW Ltd v Dymocks Book Arcade Ltd (1996) BPR 14,638 (though not by its proper citation), which he regarded as authority for the proposition that any disturbance caused through the development of the adjoining property was not to be reflected in the value of compensation assessed for the purposes of s 88K. He also expressed the view that Mr Oliver's additional head of compensation for "injurious affection" was not distinguishable from the claim made for loss of proprietary value, and that it was not appropriate to compensate the owner of the servient tenement for the effect of the development rather than the easement itself. He pointed out that the easement was a requirement for approval of the subdivision rather than for development approval for the proposed new residence, and that the owner of 6 Harston Avenue would have the right to object to the proposed development.

Relevant legal principles 25 The Court's task under s 88K(2)(b) and (4) is to assess appropriate compensation for the grant of the easement measured as adequate compensation "for any loss or other disadvantage that will arise from the imposition of the easement". In Goodwin v Yee Holdings Pty Limited (1997) 8 BPR 15,795 Windeyer J rejected an argument that the compensation to which s 88K(4) refers is not the compensation to which s 88K(2)(b) refers. 26 Section 88K(2)(b) uses the words "loss or other disadvantage that will arise from the imposition of the easement". That language imposes a requirement for a causal relationship between the loss or disadvantage for which compensation is claimed and the imposition of the easement. The section does not in terms clarify the nature of the causal relationship required. 27 In my opinion, it is a proper inference, in these circumstances, that the common law of causality enunciated in such cases as March v E & M H Stramare Pty Limited (1991) 171 CLR 506 should be applied. In that case, Mason CJ said (at 515) that the question of causation is a question of fact which "must be determined by applying common sense to the facts of each particular case". It is this common sense approach to causality that I should apply in the present case. 28 In Wengarin Pty Limited v Byron Shire Council (1999) 9 BPR 16,985, Young J said (at 16,989) that ordinarily compensation will be:

(a) the diminished market value of the affected land (including what is sometimes call the hope value, that is, the potential use to which the subject land could have been put);

(b) associated costs that would be caused to the owner of the affected land;

(c) an assessment of compensation for insecurity, loss of amenities such as loss of peace and quiet; and

(d) the compensation is to be less than compensating advantages, if any. 29 His Honour said there may be some exceptional cases where it is extremely difficult to assess the compensation, but it is clear that the applicant is to derive a considerable benefit from the application, and that in such circumstances, it may be appropriate to assess the compensation on a percentage of the profits that would have been made. Counsel for defendant expressly disavowed invoking that category here. 30 I should note that counsel for the defendants was concerned to stress that in this case the plaintiffs serve to gain from the development which leads to their seeking an easement, whereas the defendants, by comparison, are in a hapless situation, not wanting the easement but realising that under s 88K it can be foisted upon them. That, according to the defendants, should lead the Court to err on the side of a generous order for compensation rather than a miserly one, although they acknowledge that the defendants are not entitled to what counsel referred to as a swingeing verdict or some huge windfall. 31 It seems to me that this submission does not does not accurately reflect the law. The Court's task under s 88K is to assess adequate compensation. It is not to err on the side of generosity or miserliness. The fact that the plaintiff is a developer is relevant, because the development provides the jurisdictional basis under subsection (1) for the Court to intervene. But apart from the exceptional cases to which Young J referred, the fact that the plaintiff/developer may generate profit, substantial or moderate, from the development in connection with which the easement is sought, does not justify any departure from what would otherwise be the principles upon which adequate compensation is assessed. 32 It appears that the categories of compensation under s 88K include, in the case of grant of a permanent easement such as an easement to drain stormwater, compensation for loss of the proprietary rights taken by the grant of the easement, as well as the compensation for the disturbance effected by carrying out the initial work and subsequent repair and maintenance: Tregoyd Gardens at 15,851. As Windeyer J said in Goodwin at 15,801, "what is to be compensated is the loss arising from the compulsory acquisition or imposition of the easement". Cases where the compensation was based wholly or substantially on disturbance, such as Goodwin and Katakouzinos v Roufir Pty Limited (1999) 9 BPR 17,303, are cases in which the easement was for short-term operations such as (in those cases) the erection of the scaffolding to permit building operations. In 117 York Street Pty Limited v Proprietors of Strata Plan 16123 (1998) 43 NSWLR 504 there was a permanent easement for a gutter to collect rain water, and easements of a more temporary nature to allow the passing of a crane over the defendants' building and for the erection of scaffolding. An allowance was made for "blot on title" for the easement for the gutter, as well as allowance for disturbance in respect of the easements as a whole based upon loss of rent. 33 It is well established that the loss or disadvantage for which compensation is provided in s 88K does not include the loss of the bargaining position that the owner of the servient tenement would have had if s 88K had not been enacted: Goodwin at 15,801; 117 York Street at 515-6, Wengarin at 16,988. It also appears, from the facts and decision in Goodwin, that compensation for disturbance can be made on a "loss of rent" basis even if the property is not tenanted, although it must appear from the evidence that there will be a real disruption to occupation in order for this measure of compensation to be appropriate. It also appears that compensation for additional costs, such as anticipated moving expenses, will not be given unless there is proof that expenses of that kind will be incurred. 34 The defendants emphasised that the onus of proof in a case for compensation under s 88K is on the plaintiffs: see 117 York Street, at 516, but compare Wilson v Forrester-Babcock (2000) 10 BPR 18,377. Although the defendant does not bear an evidentiary burden, where facts are peculiarly within the defendant's knowledge and the defendant does not adduce relevant evidence it may be open to the Court to draw unfavourable inferences. However, it does not seem to me that the issues in this case depend upon questions of onus of proof.

Findings on valuation 35 Mr Egan is a very experienced valuer, whose evidence has been accepted in other cases: see, for example, Goodwin's case. Nevertheless, I found myself unpersuaded by some of his evidence. 36 Counsel for the defendants encouraged me wholly to disregard Mr Egan's evidence, on what I consider to be extravagant grounds. Counsel submitted that Mr Egan was inclined to defend the indefensible, was evasive at times, and plucked figures from the air. While I do not accept those submissions, it did seem to me there were areas of his evidence indicating some lack of thoroughness or preparation. For example, he was not able to recall in the witness box the area affected by the proposed easement. I was not clear that he had considered precisely what kind of easement was proposed. He seemed unsure whether the easement was for water only or also for sewerage. He said that he had not considered the implications for value of the loss of privacy in the backyard of 6 Harston Avenue. And his evidence seems to me to have displayed some misunderstanding of Dymocks' case, in which (while the Court's reasoning on compensation is not reported) it appears that there was no compensation for loss or damage caused by the development because on the facts the development could have proceeded in any event. 37 More generally, I am reluctant to accept Mr Egan's overall conclusions. Though some of the points he makes in his reasoning seem to me to be correct, my reluctance stems from the sheer implausibility of the conclusion he has reached. As counsel for the defendants submitted, it seems implausible to say that any sane owner of land worth in excess of $1 million in Mosman would, for a sum of $5,600, agree to the level of inconvenience that the construction of this easement would entail, with jackhammers, moving equipment, demolition, tearing up the reinforced concrete floor of the garage, removal of rockeries, trees and shrubs, partial demolition of a retaining wall, and so on. The question for me is not, in terms, whether a sane owner in the position of the defendants would accept the valuer's figure; but before considering the evidence in detail, it is appropriate, in my view, to stand back and consider whether the overall conclusions reached are plausible and, in my view, Mr Egan's overall conclusions are not plausible. 38 Mr Oliver appeared to me to be perhaps less experienced and, in any event, less confident than Mr Egan, and in some respects his methodology seemed (in ways that I shall issue explain) to be wanting. Very often his evidence amounted to saying he had selected a figure as a matter of judgment with no particular criteria guiding his conclusion. Nevertheless, it seems to me, that in some respects his methodology is useful and his conclusions on some matters are, in my view, acceptable. 39 I shall turn now to consider the appropriate valuation figures in respect of the three categories that remain in contention, namely, loss of proprietary rights, disturbance, and "injurious affection".

Loss of proprietary rights 40 The valuers are agreed that a component of valuation is the loss caused by the "blot on title" flowing from the imposition of the easement. That is consistent, in my view, with the legal principles that I have outlined. Mr Oliver gave a figure of $23,000 and was not able, in oral evidence, to break that figure down as between blot on title and what he called loss of amenity and utility. Mr Egan gave a figure of $3,000 for "blot on title". 41 In my opinion, the correct approach lies somewhere between the approaches taken by the two valuers. I agree with the submissions of the plaintiffs that loss of amenity and utility is not a sub-category of loss of proprietary rights. As I have said, the task for the Court under this category is, in Windeyer J's words, to compensate for the loss arising from the easement - as a matter of effect on title. I find it implausible to say that the effect on title is worth as little as $3,000. I disagree with Mr Egan's observation that the easement would not diminish the market for the property by an amount of more than $3,000, having regard to the contrary assessment by Mr Oliver. I accept evidence to the effect that some buyers would be discouraged from bidding for a property containing an easement of this kind in a market where there may be properties available with no such easement, and that buyers would expect some discount in purchase price because of the presence of the easement. 42 Mr Oliver applied a mathematical formula in which he took the value of the land, and allowed 2% of that value, to reach the figure of the compensation for loss of proprietary rights. His examples of other negotiated outcomes support his approach, by giving some indication of market value, thought the evidence is weak. The trouble with his approach is that the figure at which he arrived was said to include compensation for loss of amenity and utility. In my view, that does not fall within the present category. 43 My conclusion, therefore, is that I must strike a figure less than $23,000, but more than $3,000 in this category. Doing the best I can, and having listened carefully to Mr Oliver's evidence, from which it was plain that "blot on title" was a more significant component of this category than loss of amenity and utility, I have decided to assess compensation in this category at $20,000.

Disturbance 44 I find Mr Oliver's reasoning under this heading to be unsatisfactory. He emphasised that it was a matter of judgment, but he gave no clear rationale for reaching the figure of $20,000. However, he was correct to say that it was necessary to take into account future disturbance as well as disturbance during the work to install the pipes. 45 Mr Oliver was also right to say that the work would involve jackhammers and would last for about three or four weeks, and that the occupier of 6 Harston Avenue would lose the use of the garage during the substantial part of that time. It was not clear from the evidence that the occupier would find it absolutely necessary to vacate the property during the period of demolition, but in the end, that issue did not seem to be a matter in contest between the parties because Mr Egan's assessment for disturbance proceeded on the assumption that it was reasonable to vacate the property during the period of the work. 46 I find Mr Egan's assessment under this heading to be more plausible than the assessment by Mr Oliver. Mr Egan calculated a figure of $2,600 on the basis that the fair rental value should be allowed for the four weeks during which, he assumed, the work would take place. I note that this loss of rent approach has been accepted in some of the cases such as Goodwin and 117 York Street. It seems to me that it is a convenient and appropriate way to assess compensation for disturbance here. 47 However, Mr Egan has not taken into account any figure for future disturbance. Counsel for the defendants contended, with some passion, that the Court must take into account the risk that in future there would be disruption because of the need to service and maintain the pipes. That risk is worth something, he said, and cannot be disregarded. 48 I agree with counsel, but I must say it is very difficult to make an assessment of the risk. The evidence before me indicated that PVC piping would be used, and I take judicial notice of the fact that piping of that kind is less likely to be interfered with by tree roots and other disruptions than the older style of clay piping. No one can guarantee there would be no need for maintenance ever again, but it seems to me the likelihood of maintenance is not particularly high. In the circumstances, again doing the best I can to apply a common sense approach, I allow a figure of $2,000 for future disturbance. Therefore, the total figure for disturbance is $4,600.

Injurious affection 49 It appears to me that the difference between the parties in this category relates to the subject of causation, to which I have referred. What Mr Oliver calls compensation for injurious affection (a term not specifically recognised in this context, as counsel for the plaintiffs has pointed out) is the loss to the value of the property caused by the loss of privacy, which will arise if the second dwelling is constructed after the easement is granted. Mr Oliver took the view that there was a direct causal relationship between the loss of value caused by loss of privacy in those circumstances and the imposition of the easement, because the Council has imposed as condition for the subdivision approval that an easement be granted. Therefore, if the easement is granted and the subdivision occurs, it can be confidently expected, in his view, that the second dwelling will be constructed in accordance with the plans to which I have referred. 50 Mr Egan's disagreement with Mr Oliver on injurious affection, apart from questions of quantum and the legal interpretation of Dymocks' case, is a disagreement about causation. In Mr Egan's view, there will be new events supervening after the grant of the easement before any loss of privacy occurs. One cannot be confident, in the circumstances, that what is now proposed as regards the second dwelling will actually come to pass. 51 Applying, as best I can, the common sense approach to causality advocated by the High Court and applicable in my view under s 88K, I have come to the conclusion that Mr Egan's analysis on this point is to be preferred to Mr Oliver's. It seems to me that although there is a tangible probability that after the granting of the easement, a development application for the second dwelling will be approved, and that the second dwelling may well have an outlook which will interfere with the privacy of the backyard of the 6 Harston Avenue, one cannot be sure of the outcome of any of the steps which will need to be taken before privacy is interfered with. For example, Council may require the developer to take steps to protect the privacy of neighbours, especially if they object vigorously. As a matter of common sense, it does not seem to me that the granting of the easement will cause the loss of privacy that may eventually occur. Consequently, it seems to me, there is no compensation payable under the category, if this category is in any case an appropriate one. 52 I should add that were I disposed to grant compensation in this category, I would not be persuaded that $40,000 is an appropriate figure for the loss of privacy that would occur if the second dwelling were erected in the manner proposed. I say this because the evidence indicated to me that there are windows along the north side of 8 Harston Avenue, and it appears to me while there are trees along the boundary between Nos 8 and 6, in all probability the occupiers of No 8 can already look into the backyard of No 6. It also appears that from the window at the rear of the house at 4 Harston Avenue there is a view over the backyard of No 6, partially obscured by a tree. Given, therefore, that there is already some compromise of the privacy of the backyard of No 6, it seems to me that a $40,000 discount to land value is probably excessive. If I were required to make an estimate in the circumstances, I would halve it.

Other matters 53 There is some evidence before me that the installation of a sewerage easement along the north side of 6 Harston Avenue may be an advantage to any future developer of the that site. It was said it would at least be possible for the developer to tap into the existing sewer line once it is installed. The argument implies that there should be some discount to the compensation which would otherwise be payable to take account of this advantage. Young J pointed out in Wengarin that the compensation is to be less compensating advantage, if any. 54 In my opinion, the evidence did not establish a compensating advantage in the sense referred to by Young J. To put it at its highest, the evidence only went to show it was possible for a developer to take an advantage in the way described. There was no evidence to indicate what would be involved in tapping into the sewer line, what approvals would be needed, what costs would be entailed, and whether in any future development that method of sewerage would be more advantageous than some other method. I am, therefore, not prepared to make any allowance to the plaintiffs on this ground. 55 I was urged by the defendants to take into account that the easement, although over the metre of land next to the boundary upon which, at present, buildings are not permitted to be constructed, could in future be an impediment of the development of the property. The argument was that one cannot assume that the current building requirements would remain static. An easement of this kind is granted forever. There is a risk that at some time in the future, near or remote, it would be permissible for buildings to be constructed up to the boundary line and, in those circumstances, that the easement would interfere with the desired investment of the property. 56 It seems to me there is also a probability, difficult or impossible to assess, that if there is any change to building requirements of this kind, it will occur in an environment in which the existence of a drainage and sewerage pipe one metre underground would not be regarded as an obstacle to building construction. All of these matters are so imponderable that, in my view, it is impossible to give any real value to the risk contended for by the defendants. I, therefore, disregard it.

Conclusion 57 Setting aside the question of costs, in my opinion the defendants are entitled to compensation as follows:

(iv) total $26,556. 58 I intend to deal separately with the question of costs, taking into account that under s 88K(5) the costs of the proceedings are payable by the applicant subject to any order of the Court to the contrary, and taking also into account the provisions of clauses 9 and 11.1 of the draft s 88B agreement. 59 There is no disagreement as to the appropriateness of order 1 in the further amended summons and, therefore, I propose to make order 1, and to order compensation in the sum of $26,556 and to hear the parties on the question of costs.

Costs 60 (After further submissions) The question of costs proves to be a matter of some difficulty. Section 88K(5) states that the costs of the proceedings are to be payable by the applicant subject to any order of the Court to the contrary. That, it seems to me, reflects a legislative policy. The policy is that the Court should be empowered to require the defendant to grant an easement to the applicant against his or her will, but generally on the basis that the cost of obtaining the easement is to be borne by the applicant. It would only be if there were circumstances of unreasonableness on the defendant's part that the Court would exercise its discretion to make an order to the contrary under subsection (5). 61 In the present case, the defendants have obtained a valuation which was vastly higher than the valuation obtained by the plaintiffs. Then, it appears, they have acted in reliance upon the valuation obtained for them. 62 On 10 October 2001, the plaintiffs' solicitors wrote to the defendants' solicitors making an offer, notwithstanding the much lower valuation given by their valuer, of $28,100 together with the defendants' costs as assessed or agreed, in order to settle the matter. 63 Counsel for the defendants contends this was not an offer capable of being accepted, because the parties were still negotiating about some fundamental aspects of the s 88B instrument and the easement. I disagree with that submission. It would have been possible for the defendants to say, putting aside the disagreement on those other matters, that the compensation offered in the letter of 10 October was acceptable to them on the assumption that the easement would not become something different from what was at that stage contemplated. The letter is, therefore, something to be taken into account. 64 However, the letter does not have the significance that such a letter might have in other circumstances, because of the legislative policy to which I have referred. The offer made on 10 October was still not much more than one-third of the value attributed to the easement by the defendants' expert. It was not unreasonable for them to continue to rely on their expert's assessment, as far as I can see from the evidence now before me. It was not unreasonable for them to do so in reliance, as well, on the legislative policy to which I have referred. 65 This case is somewhat different from the Goodwin case, in which Windeyer J treated the compensation issue as separate (so far as costs were concerned) from the issue about whether the easement should be imposed. He declined to order the party seeking the easement to pay the costs of compensation issue because he was unimpressed with the evidence of the expert engaged by the owner of the servient tenant. There was also a letter of offer in that case. 66 Here, I have not taken a general view against the evidence of Mr Oliver. On the contrary, I have accepted a substantial part of it. The principal component of Mr Oliver's valuation not accepted by me is his valuation of $40,000 for injurious affection. While I disagree with his view on that point, the ground for my disagreement is very much a question of judgment, in the application of the common sense approach to causality. The key difference between his assessment and my own lies in his assertion that the loss of privacy to which he refers is a direct result or will be a direct result of the grant of the easement. While I disagree with him, it is possible, in my view, for a reasonable valuer to hold his view and for the valuer's clients, the defendants, to adhere to that view as reasonable persons. 67 It therefore seems to me that in this case I should seek to reflect the legislative policy in s 88K in my order for costs. My conclusion does not mean that in another case the owner of the dominant tenement would be unable, by such a letter as the one of 10 October, to induce the Court to make an order contrary to the normal order prescribed by subsection (5). If, in the Court's assessment, it is unreasonable for the owner of the servient tenement to disregard or not favourably respond to a letter of offer, then a contrary order may well be justified. On balance, my view is that it was not unreasonable for the defendants to continue to rely on their valuer's opinion after receiving the letter of 10 October, and therefore not to take up the offer there made. 68 Clauses 9 and 11.1 of the draft s 88B agreement annexed to the further amended summons deal with costs. It appears to me appropriate that the defendants should be able to recover their costs and expenses on a full indemnity basis in connection with the matters referred to in clause 9(1) and (2), and also in connection with clause 9(3) and (4) except as regards the costs of the litigation. It appears to me that the costs of the litigation should be ordered in accordance with the principles set out in s 88K(5) which says the costs of the proceedings are payable by the applicant, but does not stipulate that they must be on an indemnity basis. 69 Therefore, I propose to direct the plaintiffs to pay the costs and expenses of the defendants referred to in draft clauses 9 and 11.1 of Schedule 1 to the further amended summons on a full indemnity basis, except for the costs referrable to these proceedings, which the plaintiffs are to pay the defendants without any special provision for indemnity. 70 I make the following orders:

(1) Order in terms of paragraph 1 of the further amended summons.

(2) Order that the plaintiffs pay the defendants compensation under s 88K(4) of the Conveyancing Act 1919 (NSW) in the sum of $26,556.

(3) Order the plaintiffs to pay the costs and expenses of the defendants referred to in clauses 9 and 11.1 of Schedule 1 to the further amended summons on a full indemnity basis except for the defendants' costs of these proceedings, which are to be paid by the plaintiffs but not on an indemnity basis. *********************************

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