MOUNT LAWLEY PTY LTD -v- WESTERN AUSTRALIAN PLANNING COMMISSION [No 3] [2008] WASCA 158 (28 July 2008)

MOUNT LAWLEY PTY LTD -v- WESTERN AUSTRALIAN PLANNING COMMISSION [No 3] [2008] WASCA 158 (28 July 2008) - WASCA 2008 case summary — Zoe

[57]

In my view, it may be assumed that the hypothetical prospective purchaser of the reserved Mount Lawley land in May 1996 would have made enquiries which established the following facts:

(1) Some 75 ha of the land constituted wetlands which were protected under the Lakes EPP.

(2) It could be argued that the boundaries of the wetlands on plan 1815 had been mapped inaccurately in 1991, or had changed subsequently due to changes in the level of the water table. However, there would be little prospect of persuading the EPA to amend the Lakes EPP.

(3) Although the Lakes EPP did not prohibit development of wetlands, there was a presumption against it: and the EPA was likely to oppose development in this case, having regard to its view that the Lexia wetlands generally were of high conservation value. The EPA's view was arguable, but it was justifiable on the evidence: in particular, the unique combination on the Swan Coastal Plain of the size and pristine quality of the wetlands and their proximity to each other.

(4) The upland areas surrounding the wetland basins were well suited for urban development, being elevated and well drained.

(5) The vegetation on the upland areas was banksia woodland in very good condition.

(6) Large areas of woodland of that kind, containing the Heddle vegetation complexes to be found on the reserved Mount Lawley land were present in secure reserves elsewhere, but not in association with such a substantial group of wetlands in such pristine condition.

(7) There were no priority flora on the Mount Lawley land.

(8) The wetland areas provided a habitat for the Southern Brown Bandicoot, which was a protected species. This would not preclude development, but it would be necessary in any development to ensure that the habitat was preserved, and adequate corridors provided, to ensure free movement of the Bandicoots.

(9) It would be a requirement of any development that vegetation buffers be provided round the wetlands. Although the width of the buffers might be a matter for negotiation, the EPA's usual practice was to require the minimum width of 50 metres when wetlands were included in an urban development. This would involve some 50 ha of land.

(10) Other agencies - and CALM in particular - were more conservation inclined than the EPA, but only the EPA was empowered to prevent development, or to impose onerous conditions.

(11) Before any development could proceed, it would be necessary for a full environmental assessment to be carried out. This would enable all interested authorities, organisations and individuals to make submissions, which the EPA would take into account in considering its attitude to development.

(12) Subject to these matters (which amounted to a considerable qualification), some 195 ha of the Mount Lawley land would be suitable for development.

[75]

Contention (1) is correct, in an arithmetic sense. However, reference to plan 1815 demonstrates that nowhere on the Swan Coastal Plain is there an assembly of wetlands of comparable size to those on the Mount Lawley land, nor in such close proximity to each other. Further, the existence of other Jandakot suite wetlands does not detract from the fact that in 1996 those on the Mount Lawley land were in virtually pristine condition, having been retained in that state for over 100 years.

Dr Tingay regarded the term 'pristine' as being unscientific (TS 7514). However, with due respect, that seems to me to be an unreasonable point to take, given that such a quality must be obvious to any informed observer.

Contention (2) is based on Dr Tingay's understanding of the classification of wetlands in the Wetland Atlas. He said, for example, that the Lexia wetlands had lower values than 17 per cent of the Jandakot suite sumplands. However, he accepted that it was equally true to say that compared with 82 per cent of wetlands, the Lexia sumpland had a high conservation value (TS 7813).

In any event, I do not consider this kind of comparison to be valid. It assumes that the classification in the Wetland Atlas to involve a ranking of wetlands. But according to Dr Semeniuk (a co-author of the work) whose evidence I have referred to above (and which I accept), that was not the intention.

Contentions (3) and (4) may be taken together ...

The fact that Jandakot suite wetlands have been preserved in Melaleuca Park says nothing about the quality of those wetlands. Dr Tingay had visited Melaleuca Park, but, as I understand his evidence, only for the purpose of comparing vegetation types (TS 7567).

Contention (5) is based on Dr Tingay's acceptance of the opinions expressed by Dr Davies and Dr van der Moezel 'as being the only reliable evidence that we were able to discover' (TS 7443). However, for reasons given above, I consider that reliance was misplaced.

The difficulty with contention (6) is that as Mr Middle said (and as I accept) there was at May 1996, no single document by which the national or regional conservation significance of wetlands could be assessed: each case was assessed individually.

[128]

The Working Paper classified natural resources into a number of categories, including bushland and wetlands. As to wetlands, it was noted that:

' ... only in latter years has the real value of certain natural features been recognised, and hence their subsequent incorporation into regional parks has occurred. Wetlands are perhaps the best example. Historically most were considered worthless as landscapes, having social value mainly as sites for market gardens around their peripheral margins. Their ecologies, revered by pre-european Aboriginal society, were neither understood nor appreciated by the colonial community at large except in a purely utilitarian sense. This has quite recently changed. Wetlands today are a principal focus of community concern with the region's environment. Hence, from alienated tenure following first settlement, many wetland environments are now being incorporated into new reserves and being acquired back into public ownership. Major portions of Lake Joondalup and the East Cockburn wetland chain for example, have only been reserved in the MRS and acquired by governments in the last two decades.'

Later in the Working Paper, there was a description of the wetlands and an explanation of their importance:

'The wetlands of the coastal plain are surface expressions of the groundwater table. They are numerous, varied in physical character and changeable in size and occurrence. Size varies from the largest such as Lake Joondabup at over 1km width or Lake Joondalup at +3kms in length, to the smallest swamps which sprinkle portions of the region in large numbers. Some are permanent with open water to 2m depth but most are shallow and lose their standing waters each summer as the water table drops and massive summer surface evaporation rates (3 metres per year) take their toll. Some 67% of 15,700 hectares of all wetlands on the Swan Coastal Plain are lost each summer in this way.

The wetlands are important because they are biologically the most productive environments of the plain. They are therefore a significant part of the region's ecology. They feature a diversity of vegetation in their waters, along their margins and on adjacent drier ground. Their function as waterfowl habitats and summer refuges for inland and migratory birds is recognised internationally.

The occurance [sic] of wetlands reflects the changing land form. Many occur in chains running parallel to the coast in association with the different dune systems. Hence wetlands of one type or another are found throughout the coastal plain, and as such represent an important opportunity for landscape interest and wildlife value.'

And later again:

'In the last 10 years the wetlands have gained great conservation interest. Although it is estimated that between 60 to 80 percent of the original stock of wetlands have disappeared, there still remains a large wetland resource. Wetlands located within the urban area have mostly been substantially modified, and inevitably so. Retention of wetlands in unchanged, natural condition requires almost total isolation from all surrounding land use. Even then regional changes in groundwater quality over the wide area can still influence the character and condition of a wetland.

The greatest risk to the overall capacity of the wetland system is that it will diminish due to excessive lowering of the water table. This could result from continued, unchecked pumping of water from the aquifer, particularly from private bores.

Another concern is that individual decisions will continue to be made to drain, fill in or clear the associated vegetation of small and ephemeral wetlands, especially those in rural locations. It is easy to compromise and attach little importance to the loss of any one wetland. But over a long period the cumulative effect may lead to a serious depletion of the total stock. The varied wildlife dependent on them, particularly waterfowl, will consequently diminish also.'

The Working Paper referred also to the geological setting of the Swan Coastal Plain:

'The coastal plain has been the focus for the majority of urban development in the region.

The plain is comprised of sedimentary rocks culminating in a geologically very recent series of dune systems running parallel to the coastline. These form the dominant but variable landscape character of the plain (Figure 2).

Nearest the coast are the most recent Quindalup and Spearwood Dune Systems. These are relatively fertile and exhibit the steepest terrain and most interesting topography of the plain. Midway occurs a broad band of Bassendean Sands. These are extremely infertile, higher in elevation (up to 60m AHD) and feature an open landscape with wide horizons.'

The Mount Lawley land is situated on the infertile Bassendean Sands. However, the Working Paper noted the importance of the northern banksia woodlands on the Bassendean Sands.

Reference was made also to the importance of groundwater in the Swan Coastal Plain, and in particular, the superficial or unconfined aquifer mentioned above: the Gnangara Mound:

'The larger Gnangara Mound to the north has a north south ridge rising to 70 metres AHD, a total volume of 65,000 million cubic metres and volume of stored water estimated at 13,000 million cubic metres. The southern, smaller Jandakot Mound has an elevation of 25 to 30 metres only and a storage capacity estimated at 5000 million cubic metres.

These two water bodies are not only principal sources of water for the urban population, but are essential components of the region's ecology. The vegetation and animals of the region are directly dependent upon the groundwater. They are also a dominant feature of the water balance of the region. Without their existence the coastal plain would be barely habitable.

Seepage from the aquifers supplies water into the few surface water courses that exist, and where the water table is exposed at the ground surface there occur the distinctive swamps and lakes of the plain.'

[130]

Mr Singleton's evidence, all of which I accept, was that one purpose of the Working Paper was to explain succinctly how an 'opportunity constraints analysis' was undertaken. This involved, ultimately, the preparation of a 'constraints map' on which environmental, social and engineering factors were combined, so that their composite effect on urban development could be assessed. In this way, it would be possible to devise a planning strategy for the Metropolitan Region.

The working diagrams produced by Mr Singleton (exhibit 2883) indicated that the Mount Lawley land was in an area of largely medium and partly low constraint. However, as Mr Singleton explained in his evidence, planning for the Metropolitan Region did not, at that stage, envisage the north-east corridor as being as extensive as it became later. For this reason, the Mount Lawley land did not 'get heavily considered for a major growth area for urbanisation' in the 1987 study (TS 9083).

The Mount Lawley land was recognised in 1987 as having a high conservation value. Mr Singleton said it was one of the few locations he visited for the purpose of the study; and that he did so 'because it was such an unusual find ... a superb piece of bush (Banksia Woodland)'. He referred to the high quality of the woodland, which had not been cleared previously; to the wetland features and to the topography. This featured a series of dunal ridgelines which partially enclosed the site and hence provided additional landscape interest and a degree of natural protection.

For these reasons, the Mount Lawley land 'was deliberately excluded from consideration as a possible location for future urban development'. Indeed, Mr Singleton prepared a plan which showed the Mount Lawley land (and some land to the east containing wetlands) as an accretion to the land already in public ownership, thereby extending the Metropolitan Park System to that extent. He accepted that the inclusion of the Mount Lawley land was not essential solely for the purposes of linking areas of parkland (TS 9078). Further, Mr Singleton contemplated that the Mount Lawley land would be subject to restricted development if in private ownership, or that it would be acquired for public purposes by negotiation, or compulsorily (TS 9080).

In my view, Mr Singleton was well qualified to express the opinions referred to above. His first degree in geography (1973) included subjects relating to environmental science. His Master's degree had a component of environmental planning and involved a thesis on urban wetlands. He is the author of a chapter entitled 'Environmental Planning for the Swan Coastal Plain' in a 1992 work 'Regional Planning in WA', and he has practised as an environmental geographer and regional planner since 1974, this work involving planning and environmental studies.

[216]

Normally, large property like the Mt Lawley land, where there are planning and/or environmental issues to be addressed, does not sell on the basis of an unconditional cash contract. Rather, such land is purchased on a conditional contract, allowing the purchaser to put in place the required approvals, zoning, etc before the sale becomes unconditional.

It is not my instruction to assess a 'conditional value', but rather I am to assess a market value that a well-informed purchaser and vendor would agree at the date of valuation. This assumes an unconditional contract and a timely settlement. Hence, while all due diligence is done before committing to a contract, the expert opinions as highlighted above are divided and do not give the purchaser total confidence in achieving a rezoning or getting urban development or having the environmental areas adjusted.

Under these circumstances I am of the opinion that a purchaser would be likely to adopt a far more conservative approach to the price he/she would be prepared to pay for the Mt Lawley land. I am also of the opinion that the vendor of such land would have to acknowledge that a cash price for the land with its uncertainties would reflect the risk of rezoning not being achieved and environmental boundaries not being adjusted.

The best result that could be envisaged is a rezone to 'Deferred Urban' and then ultimately to 'Urban', plus having the environmental boundaries reduced to the minimum area as identified in the Tingay report and then having no objections from the EPA, CALM, Water and Rivers Commission, Water Corporation and the WAPC on residential development. In my opinion this is an unrealistic expectation, given the strong arguments against rezoning or changing environmental boundaries or achieving urban development.

The worst case scenario is that rezoning would be refused, the land will remain rural and the environmental boundaries will remain unaltered.

In the full knowledge of all of the conflicting expert opinion available to both vendor and purchaser and in my mind no compelling argument one way or another, I do not believe either party would realistically expect the property to achieve a cash sale based on the best result ie an urban value. The 'downside' if rezoning and environmental boundaries remain unchanged would be a massive 'loss' to the purchaser and conversely a windfall gain to the vendor. The market evidence put forward later in this report supports this conclusion.

On the other hand, the divided expert opinion does provide some hope of achieving a better-than-rural zoning/use for the land, given its proximity to the northeast corridor. With this comment and large englobo landholdings with perceived potential being in short supply and difficult to obtain (as stated by Peet & Co in its Oakford Syndicate Prospectus) I would also expect both vendor and purchaser to anticipate a cash sale to reflect a price better than just a rural value ie some premium for potential, but not so high as to disregard the risk.

One could expect reasoned arguments, supported by expert opinions, for and against the alteration to the environmental boundaries. But the sole arbiter for such change is the EPA, which has a history of being a zealous guardian of environmental issues, particularly with wetlands.

The EPA is an autonomous department, with sometimes an intractable, steadfast stance on issues it regards as important. While all development approvals have to be processed by relevant government departments, the EPA has the ability to block development indefinitely if in its view a prospective development could be challenged on environmental grounds. With no right of compensation under the Environmental Protection Act, an obstructionist position by the EPA could frustrate, prolong or prevent development completely.

[220]

I draw the conclusion that the land has to be valued with its rural zoning, but I am also to acknowledge any facts, such as re-zoning potential that would be known to the two parties in a transaction, plus any facts which may create obstacles to achieving a re-zoning.

As stated previously, there was a clear intention to create a North East Corridor, with the 1990 Urban Expansion Policy Statement identifying the North East Corridor as likely to contribute about 13% of the total land available for residential lot production for the metropolitan area.

In drawing a conclusion as to potential a lay person must be guided by expert opinions, which in this instance are diverse and conflicting.

I have concluded that, if the land had not been reserved or environmentally-constrained, there would have been a reasonable expectation from both vendor and purchaser that the Mount Lawley land may have had potential for re-zoning to Urban Deferred and eventually to Urban in due course.

However, the environmental issue is the obstacle as the land does have substantial low-lying wetlands areas, known as Lexia Wetlands, with surrounding Banksia woodland. The wetlands have been mapped by the Environmental Protection Authority and their conservation has been acknowledged by all consultants employed to study the environmental issues impacting on the land.

Evidence presented has illustrated that the EPA is at times difficult to deal with and with no recourse to compensation under the Environmental Protection Act a developer really has no other option but to comply with all EPA requirements to progress a development or indeed a re-zoning if the EPA decides that rezoning is not beneficial on environmental grounds.

With different environmental views from eleven consultants and conflicting points of view about the extent of the wetlands and buffer, plus examples of past EPA involvement in stopping development, I believe a prospective purchaser would base the purchase price on the known and perhaps conservative 126 ha wetlands area.

With wetlands of this magnitude, one would expect them to be eventually zoned Parks and Recreation and be acquired by the Government. I am not aware of any private purchases for large areas of wetland, such as this. A purchaser would be well aware of this and would clearly purchase the whole property with the intention of transferring the wetlands to the government and expect to achieve a value for such wetlands.

Any speculative purchase based on an anticipated reduced wetlands area (ie a higher price paid for a greater dry land area) would leave the developer vulnerable and out of pocket if an approach for a wetlands area reduction was refused by the EPA. This would leave the developer with no option but to transfer the larger wetlands area to the government, but still only at a price appropriate for wetlands.

[227]

It was clearly Government policy to establish a northeast residential corridor and the 1991 Urban Expansion Policy Statement identified that corridor as supplying a reasonable proportion (13%) of Perth's expected residential lot production. I believe that, while there is an argument for part of the Mount Lawley land to have been considered for re-zoning from Rural to Urban Deferred and eventually Urban, there is also a very persuasive argument against rezoning/urban development on environmental grounds.

I am also of the opinion that the Lexia Wetlands, which form a large part of the Mount Lawley land, (41% of the land area) would have been a major obstacle to any re-zoning and/or development potential. I consider an informed purchaser would have adopted a conservative view on those wetlands in estimating a purchase price. There are conflicting views as to the importance and size of the wetlands/buffer area, with the actual mapped area being clearly noted at approximately 126 ha.

There is unlikely to be any increase in the area of the wetlands and buffer, but in light of the illustrated examples that developers have faced dealing with the Environmental Protection Authority and all the arguments put forward by environmental consultants, I doubt whether an informed purchaser would speculate a purchase price on a reduced wetlands area. Also, I believe the technicalities of the arguments for and against rezoning/development are difficult for a lay person to comprehend, which would also support my view as to a conservative rather than a speculative approach to value.

The downside of such speculation is that the area of the wetlands would not be adjusted by the EPA and the only buyer for a large tract of environmentally-sensitive suite of wetlands would be the Government, which would be expected to pay a price similar to other large wetlands acquired at the time.

In light of these comments, I consider a land value rate of $15,000 per ha to be reasonable and supportable by the sales evidence, particularly the sale of Lot 1 Hopkinson Road, Forrestdale, for the usable (dry land) area of the reserved land. This also represents a premium of 50%-100% above the prevailing rural values for much smaller lots in close proximity to the Mount Lawley land. Further, I consider a rate of $10,000 per ha to be applicable to the wetlands/buffer, based on the highest rural values applicable in this locality at the time, which also compares favourably with government purchases of wetlands. These rates have been applied as follows:

[244]

As noted earlier the most likely profile of the buyer of the subject land would be either a wealthy individual or a land developer and these individuals and organisations simply do not acquire land of this significance without very detailed due diligence.

As noted earlier, I am of the opinion, in practice there would have been a very limited 'market' for the land holding. I doubt very much a buyer would have purchased this land holding unless they could negotiate lengthy 'terms' or perhaps a two to three year option to work through the issues or conditional upon development approval. My instructions require me to arrive at a market value at the date of valuation.

Nevertheless, to undertake this valuation, I need to assume the buyer will either do preliminary due diligence prior to making an offer to assess the potential or will enter into an offer subject to lengthy due diligence. Such due diligence would normally include expert advice from town planning, engineering, environmental where necessary, surveying, valuation and legal to mention a few. Each would then be commissioned to prepare a report for consideration of the buyer. These consultants are from private practice, however as part of their process they are experts and well versed in speaking to relevant local authorities and government departments.

The private consultants would have been able to obtain information from the relevant authorities to form the basis of their formal reporting as part of the due diligence exercise on behalf of the hypothetical buyer.

Accordingly, I am of the opinion the private consultants would have been able to obtain enough information to suggest to the hypothetical buyer that due to the existing wetlands and uncleared uplands that there was enough likelihood to express caution and concern. The extent of that caution and concern is difficult to measure, however is considered to be enough for a buyer to think seriously about the acquisition.

Once the buyer has all this relevant information they will then make an internal decision on whether to proceed with the acquisition or to walk away. In many instances the developer would assess their pricing consideration based on a 'fall back' or worst case scenario.

I am of the opinion in this instance a buyer would start with the worse case scenario being that of a Rural zoning and assessing a price based on that scenario. They would then conduct an internal review with their consultants who have undertaken the due diligence to assess the likelihood of some development potential. I am of the opinion this process would suggest there is some possibility of further development potential however no certainty would exist. I doubt any professionally competent consultant would guarantee development would occur but would heavily qualify their opinion.

In summary, I am of the opinion a buyer would have paid rural value plus a small component for future urban potential. The additional amount for the urban potential is difficult to assess as both parties have differing views on the urban development potential due to environmental and planning constraints. For a developer to part with a large sum of money they would take an opportunistic approach and view the acquisition on the basis of an entrepreneurial play. That is, they may have paid a small premium only over and above rural values and in the event of using their skills and expertise to negotiate a suitable development outcome, would view this as their reward only.

The other factor a buyer would have certainly considered is the quantum of money they would have had sitting 'idle' for some years. As at the date of valuation, my valuation amount is considered a significant sum of money for a buyer to outlay and not have 'working' for them.

Having considered all of the above points and the situation a buyer would reflect in assessing the value of the property as at the date of valuation I now explore a number of comparable sales.

In noting these sales below, I have given due consideration to the following:

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (301 paragraphs)

MOUNT LAWLEY PTY LTD -v- WESTERN AUSTRALIAN PLANNING COMMISSION [No 3] [2008] WASCA 158 (28 July 2008)

The principal features of the whole of the admissible evidence

Minutes of the meetings of the Metropolitan Planning Council in November and December 1991 and associated matters_._

What the purchaser would have learned that favoured upzoning

What the purchaser would have known that made upzoning unlikely

Legislation Cited (3)

Cases Cited (11)