Land and Environment Court (NSW)|1993-04-02

PETAR RUKAVINA v. THE COUNCIL OF THE CITY OF WAGGA WAGGA [1993] NSWLEC 29 (2 April 1993)

OF NEW SOUTH WALES DECISION DATE: 2 April 1993

This is a claim for compensation by the first applicant, Petar Rukavina, in respect of the compulsory acquisition of lots 6 to 13 inclusive in section F, DP 7231, Angel Street, Lake Albert, Wagga Wagga ("the subject land").

The subject land comprises an area of 7.836 hectares. It is roughly rectangular in shape. On the north, it has a frontage to Angel Street, on the west it fronts an unnamed gravel lane six metres wide, on the east it is bounded by private land presently being subdivided, and on the south it is bounded by a reserve being part of an area known as "Lake Albert Common".

The current subdivision into eight lots was created by DP 7231 in 1913. Seven of the lots are vacant, and no internal subdivision roads exist. There is an old cottage on lot 6, which is the lot at the corner of Angel Street and the unnamed lane. The cottage is occupied by the second applicant, Sarah Marion Robertson (to whom I will refer later).

An important feature of the subject land, for present purposes, is that it is traversed by two arms of a creek known as Crooked Creek. The western arm of that creek passes across the subject land from south to north, across lots 7 and 12, about 100 to 150 metres from the western boundary. The eastern arm of that creek crosses the south eastern corner of the subject land and then runs outside of but close to the subject land's eastern boundary.

The subject land is generally cleared, but well established trees border both arms of Crooked Creek.

Under the Wagga Wagga Local Environmental Plan 1985 ("the 1985 LEP") the land is zoned "6 - open space" and is shown hatched on the zone map. The 1985 LEP specifies, in relation to land so hatched, that the objective of that zone is ".... to identify (land) which will be acquired by the council in the future for open space or public recreational purposes".

In addition, the 1985 LEP map shows portion of the subject land as being within a flood plain boundary. Cl 12 of the 1985 LEP defines the "flood plain" area (marked on the same map between broken black lines) as being the land flooded in the 1974 floods. Cl 12 provides that no building or work shall be carried out on the flood plain except with the consent of the council, and then only if it is not likely to impede the flow of flood waters, imperil the safety of persons, or have other adverse effects.

In addition to this constraint, the Wagga Wagga Development Control Plan 1986 ("the DCP") provides, in cl 7.6.8, that that part of the subject land which is within the flood plain is subject to special provisions which stipulate that a dwelling-house be erected 500mm above the known maximum flood height.

The subject land was compulsorily acquired by the respondent pursuant to Div 3 of Pt 2 of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act"). That division applies (as its heading states) to "Owner - initiated acquisition in cases of hardship". The first applicant's right to require acquisition by the compulsory process referred to was established by order of this Court on 28 August 1992.

It remains, however, for this Court to determine compensation for the compulsory acquisition, following upon the first applicant's objection to the amount of compensation offered by the respondent (s 66).

Div 4 of the Just Terms Act deals with the determination of the amount of compensation. Relevantly, it provides as follows:

"54 The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land.

55 In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division):

(a) the market value of the land on the date of its acquisition;

(b) any special value of the land to the person on the date of its acquisition;

(f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired".

The only one of the matters which is relevant in this case is that encompassed by subs (a) of s 55. No claim was made in respect to the other matters, in part following upon s 26 of the Just Terms Act, which provides that, in relation to land compulsorily acquired under Div 3 of Pt 2 (which, as I have said, the subject land was) the special value of land and any loss attributable to severance or disturbance and solatium need not be taken into account.

The Just Terms Act defines "market value" in s 56 as follows:

'market value' of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid);

(a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired; and

(b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired; and

Subs (a) of s 56 requires the Court, in assessing compensation, to ignore any increase or decrease in the value of the subject land caused by the carrying out of the public purpose for which the land was acquired. This is no more than a statutory statement of the general law, known as the Pointe Gourde principle - see Housing Commission of New South Wales v San Sebastian Pty Limited [1978] HCA 28; (1978) 37 LGRA 214 at 222, and the comment by the Court in Griffith City Council v Polegato & Anor (1990) 20 NSWLR 696 at 699.

What, then, follows? The task of the judicial valuer is then to determine, as best he or she can, what planning controls would apply to the land in question had it not been reserved or zoned for a particular public purpose. That determination may be largely conjectural, but it is the appropriate first step in determining the highest and best use of the land (see Pamalco Pty Limited v Minister Administering the National Parks and Wildlife Act 1974 [No 3] (1991) 71 LGRA 441 at 448, and Russellan Pty Limited v Roads and Traffic Authority of New South Wales (1992) 75 LGRA 263 at 267). The authorities to which I have just referred were, of course, determining compensation on resumptions occurring before the enactment of the Just Terms Act. They were decided when s 116 of the Environmental Planning and Assessment Act 1979 applied, which provided that where land was reserved by an environmental planning instrument and thereafter resumed, the value of that land should be determined as if it had not been reserved. That section was repealed by the Just Terms Act. I do not think, however, (and nor was it argued before me) that the applicable principles that I have just enunciated have been changed in any material respect by the new Just Terms Act. As I have said, s 56(1)(a) states the general law, and the task which follows from that still pertains, and it is to that I now turn.

The respondent contends that, had the subject land not been zoned open space, it would have been zoned rural/residential, permitting development within a two hectare minimum area. The first applicant contends that the most likely zoning would have been residential.

A starting point for this exercise is to consider the whole area in which the subject land is situated, and the current zoning of subject land.

The subject land is in that part of Wagga Wagga known as Lake Albert. It is to the east of Lake Albert itself. Immediately to the north of the subject land, on the other side of Angel Street (to which the subject land has frontage), is Rawlings Park, zoned under the 1985 LEP as open space. Immediately to the west of the subject land, between the subject land and Lake Albert, the land is zoned residential, and fully developed as such. Immediately to the south, the subject land adjoins an area zoned as No 6 - open space, being part of the reserve known as Lake Albert Common. But on the southern side of that Common, in the area of Rowe, Bocquet and Power Streets to the south of the subject land, land is zoned residential. To the east, land is zoned rural, and comprises, in the main, two hectare minimum rural/residential lots. In fact, the land immediately adjoining the subject land to the east is currently being developed into rural/residential lots comprising areas ranging from 2.72 hectares to 1.95 hectares.

In my opinion, it is not possible to draw any conclusive inference from the current zoning of the neighbourhood that the subject land would have been zoned residential or, alternatively, rural/residential. Some assistance, then, might be gained from examining the planning history of the subject land.

The City of Wagga Wagga Planning Scheme ("the 1965 planning scheme") came into force on 2 April 1965, and zoned the subject land as non-urban 1(b). The effect of this zoning was that only one dwelling-house was permissible for every 80 hectares. However, cl 29 of the 1965 planning scheme permitted the Minister, on application, to vary the minimum area required for the erection of a dwelling-house, and a number of variations were granted. Some of these were in immediate vicinity of the subject land, but none of them affected the subject land.

Under the 1965 planning scheme, land to the west of the subject land was zoned residential 2(b). Land to the north, now Rawlings Park, was zoned non-urban 1(b).

It is significant to note that the land to the south of the subject land, in the vicinity of Rowe, Bocquet, and Power Streets, was also zoned non-urban 1(b) under the 1965 planning scheme, but it formed an area known as the Village of Lake Albert which had existed as a village since about 1860. Some of the variations made under cl 29 were made in respect of dwellings to be erected in this area, and by about 1976 there were some 15 lots in this area which had residences built upon them.

In connection with a submission to have Wagga Wagga designated in 1973 as a regional administrative centre in New South Wales, strategic planning was carried out. For that purpose, two strategic plans, known as plans 'A' and 'B', were brought into existence. The goal was to provide an ultimate city population of 100,000 people. Plan 'A' provided for the residential growth of the city of Wagga Wagga to the south, whilst plan 'B' made some alterations to the residential planning for the southern area, and dealt with residential planning to the north. It is not clear from these plans precisely where the subject land is located on them, since they are only concept plans. What is, however, clear from these plans is that the subject land was not included in those areas to the north and to the south of the city itself which were designated for future residential expansion. Either the subject land remained simply unaffected in its non-urban 1(b) zone or it might have been included in a portion of land designated "future industrial". Thus, it is possible to say that, in 1973, the subject land was not designated residential nor was it designated open space.

However, in 1975, strategy plan 'C' was prepared, which combined plans 'A' and 'B', and the subject land was placed in an area designated "major open space".

When the 1985 LEP was promulgated, the major open space zoning was carried through in respect to the subject land so that it received its current zoning of "6 - open space".

That history does not support, in my opinion, an inference that the zoning would have been residential rather than rural/residential, had the subject land not been zoned open space. It was not considered as residential when plans 'A' and 'B' were prepared for the strategic planning for the city of Wagga Wagga, and there is no indication that it would have been residential.

It remains then to consider whether there were any factors which would lead to a contrary inference. These factors relate to the suitability of the land for residential development. Mr Bingham strongly argued that the subject land had simply never been considered as residential. When strategy plan "C" came into force, the subject land was designated "open space" because that logically flowed from the open space requirements of the city and from the location of Rawlings Park and Lake Albert Common. But there was, so he contended, no impediment to zoning the subject land residential had not the open space imperative intervened.

I do not, however, accept Mr Bingham's argument. The subject land was partly included, in the 1965 planning scheme, within a flood plain. I am satisfied that the potential for actual flooding of the eastern and western arms of Crooked Creek was mitigated by about 1970. Since the beginning of this century, various works had taken place in order to divert water from Crooked Creek into Lake Albert, and by 1970 this diversion had fully taken place. Nonetheless, the flood plain notation remained on the planning instruments. There are two possible effects of the flood plain notation. The first is its effect on the possible zoning of the land. The other is its effect on the market value of the subject land, and I shall deal with that in due course. However, for present purposes, I am satisfied that, although major flooding of Crooked Creek ceased after 1970, nonetheless, the subject land was still for zoning purposes substantially affected by the flood plain notation. It is not fanciful to think that town planners, in considering land suitable and available for residential development, would look to land otherwise available rather than land situated within a flood plain (notwithstanding that the DCP noted land could be developed for dwellings providing that those dwellings were raised above the ground to a level of at least 500mm).

For all these reasons, I have formed the opinion that the subject land would have been zoned rural/residential at the date of the resumption had it not been zoned open space.

Mr Williams, who has had over 30 years of experience as a valuer with the Valuer-General's office in the Wagga Wagga district, gave evidence for the respondent.

On the basis that the subject land would have been zoned rural 1(d), allowing residential lots of 2.02 hectares minimum area, Mr Williams' first approach was to conclude that the highest and best use of the subject land was four lots fronting Angel Street. He examined a number of sales of rural land and concluded that the most direct comparison was with an area of 23.9 hectares of land zoned rural 1(d) fronting Lake Albert Road which sold in January 1992 for $100,000. Taking into account that the Lake Albert Road comparative sale is situated at an inferior location and is almost totally designated as flood plain, Mr Williams assessed the current market value of the subject land on the date of resumption at $125,000.

Mr Williams' first approach has a major difficulty. It ignores the fact that the subject land was, at the date of resumption, already subdivided into eight lots, which could have been sold as they were without subdivision approval from the council. It is incumbent upon the valuer to take the land in its actual condition at the date of resumption, and, on this basis, the valuer would need to endeavour to establish a market value for the subject land as an eight lot subdivision. (See Yates Property Corporation Ltd (in liq) v Darling Harbour Authority (1991) 73 LGRA 47 at 69.

But looking at the subject land as it was at the date of resumption, that is, subdivided into eight lots, raises yet another difficulty. The eight lots at that date were unsaleable as individual lots. Seven of them were totally unserviced, and only five of the eight had road access.

Mr Williams attempted to overcome this difficulty in his next approach. He took into account that the rear lots, lots 10, 11 and 12, had no road frontage. The provision of access would involve additional cost and Mr Williams concluded therefore that it would be preferable to join the rear lots to the front lots giving three large lots (combining lots 9 and 10, lots 8 and 11, and lots 7 and 12) together with two smaller lots, lots 6 and 13. On the basis of comparative sales, he valued the resultant five lots in total at $320,000, and, after allowing for legal costs and commission, a profit and risk factor of 25 per cent and the cost of providing water, power and fencing, he reached a market value of the subject land of $190,000.

Mr Hubbard is a valuer employed by McGees, who has had about eight years' experience as a valuer and who gave evidence for the first applicant. His preferred approach was to value the subject land on the basis of an en globo subdivision of 60 residential lots. For comparative purposes, Mr Williams also considered a hypothetical 60 lot subdivision, but in view of my finding that the zoning would have been rural/residential, I have ignored residential subdivision as a basis of valuation.

The proper approach, in my opinion, is to take the subject land as it is, that is, as an eight lot subdivision, with a willing but not anxious purchaser prepared to purchase all eight lots from a willing but not anxious vendor upon the basis that that purchaser provides services and then on-sells all lots. Some argument took place as to whether s 56(1) of the Just Terms Act requires regard to be had only to a sale to one buyer of all eight lots, or permits regard to be had to a sale of each lot to eight different buyers. In my view, this point in this case is of no consequence. Whether the hypothetical sale is to one purchaser or eight of them, the approach must be the same. (See Closer Settlement Ltd v The Minister; Decentralisation Ltd v The Minister (1942) 17 LGR 62 at 65; Bain v Housing Commission of New South Wales (1952) 18 LGR 194 at 197; Canberra Freeholds Ltd v Queanbeyan Municipal Council (1973) 27 LGRA 134 at 136-7 and Nuland Developments Pty Ltd v Parramatta City Council (1978) 37 LGRA 258 at 273-4). In my opinion, the highest and best use of the subject land on the date of resumption was a sale of eight lots in subdivision, with access and services provided. But the eight individual lots were incapable of immediate sale in subdivision on the date of resumption. On the date of resumption one of two courses would have had to have been followed - either the first applicant, as owner, would have realised the subdivision potential by selling the lots to individual buyers on a contractual condition that he provided the necessary access and services; or he could have sold all eight lots to one buyer on the basis that that buyer realised the subdivision potential. It follows from this approach that I consider that allowance must be made in the calculation of market value for a profit and risk factor. In valuing the eight lots, Mr Hubbard did not allow such a factor, but I believe that a profit and risk factor is not only commercially realistic, it follows authority. It is based on the well known passage in the judgment of Kitto J in Turner and Anor v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245 at 291:

"It all comes back to the one point: at the date of resumption the land was simply incapable of immediate sale in subdivision, and it would necessarily remain incapable of sale in subdivision until time, trouble and expense had been laid out upon it; and no one, present owner or incoming owner, is likely to be so completely unbusinesslike as to make these outlays unless he believes that he can reasonably count on getting from the subdivision sales an amount which will exceed the present value of the land by such a sum as will make it all worth his while. The deduction is therefore not condemned by calling it the profit which a purchaser would require. It would have to be allowed for even by an existing owner, in working out what was the money equivalent of the land to him at the date of resumption, as distinguished from the money which it could be made to produce in nine or ten months' time provided that he set about dealing with it in the right way. There simply cannot be a difference between the price which would be agreed upon between a businesslike purchaser and a businesslike vendor and the amount which a businesslike owner would treat himself as leaving invested in the land in the event of his deciding to retain it ....".

That principle has not, in my opinion, been displaced by the Just Terms Act. Mr Bingham argued, as I understood him, that the words ".... if (the land) had been sold at that time ...." in s 56(1) assume a sale, and thus obviates the necessity to allow a profit and risk factor. In other words, his argument is that one has to assume a sale (which may well be conditional on the vendor providing the services and access) but that the risk of realisation is removed since the assumed sale has already been effected.

I do not, as I have said, regard that argument as correct. The principle laid down in Spencer v The Commonwealth of Australia [1907] HCA 82; (1907) 5 CLR 418 still applies. One must look at what price a willing but not anxious purchaser would give to a willing but not anxious vendor. That price is the figure upon which they would come together (per Griffith CJ in Spencer's case at 432). In point of principle, it is the same, whether one assumes a sale upon the relevant day, or whether one asks, as did the learned Chief Justice: "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" (at 432).

And if that is the principle, which I think it is, then Turner's case and the line of authority following it to which I have earlier referred still apply. In this case, either the purchaser or the vendor would be put to the trouble and expense of providing access and services to the lots. There is, therefore, a risk in the venture which would have to be allowed, whether one assumes a sale on the date of resumption of all eight lots to different purchasers, or all eight lots to one purchaser.

I am not satisfied, however, that the percentage to be discounted in this regard should be 25 per cent as provided for by Mr Williams. Mr Hubbard, as I have said, allowed no profit and risk factor at all. However, estimates by any expert in any case are only guidelines, and the judicial valuer may take into account all relevant factors: see Thistlethwayte v The Minister No [2] 19 LGR 167 at 171 and the Pamalco case at 451. I take into account that no subdivision approval is required, nor any subdivision survey, but only the time, expense and inherent risk of escalating cost of installing rights-of-way, sewer and other services. I also take into account that the applicant may have elected to carry out these works himself which would delay settlement for approximately two months (as Mr Hubbard suggested in Ex 17). In the light of these factors a profit and risk factor of 15 per cent in my opinion is more realistic.

Another question of difficulty, in considering a valuation on the basis of an eight lot subdivision, is the amount which should be taken into account as development costs. Each party submitted different estimates of these development costs. For the first applicant, an estimate was provided by Mr R J Kendall, amounting to $83,300 (Ex 15). Mr Kendall conceded, in giving evidence, that this estimate did not include the provision of sewer, and if that were added, it would involve an additional expense of $53,000. Mr B Short, the respondent's engineer, provided an estimate of these development costs at $172,840 (Ex J). There were five items on which the engineers differed. Mr Short allowed an amount of $4,500 for the provision of access culverts, whereas Mr Kendall omitted such a cost. In my opinion it should be provided for, because access driveways installed to the rear blocks would be of little utility without them. The second and third items can be considered together. Mr Short allowed $40,800 for a sewer gravity feedline of 480 metres, and $10,500 for 150 meters of rising main, both in connection with the provision of sewer services. For these two items, Mr Kendall's estimate was $28,000. I prefer to adopt the figures of Mr Kendall in this regard. The fourth item was the electricity supply, which Mr Kendall estimated at $20,000 and, upon evidence being furnished from the local electricity supplier (Ex K), Mr Short concluded that the amount should be $28,900. That figure appears to me to be more accurate. Mr Short allowed an amount of $10,840 to cover rates, legal costs on purchase and advertising. I do not think that these items are properly allowable, on the basis that the rates would be passed on to the purchasers, and that the other items regarding legal and stamp duty and advertising are inappropriate if the sale is considered to one buyer. Taking into account these matters, I calculate the development costs to be $134,700 as follows:

The next problem for consideration is the gross realisation prices which should be attributed to each lot. The difference in values attributed by each valuer can be seen in the following table:

Both valuers, as is the practice, relied on comparable sales to set the gross realisation prices, making adjustments for location and other factors in the comparison of the subject land to the comparative sales. On the whole I prefer Mr Hubbard's gross realisation prices. He considered that the subject land would have made an attractive subdivision, because of its location in the more exclusive suburb of Lake Albert, its proximity to shops and other services, and its tree cover. He did not consider that the flood plain notation would have such an adverse effect so as to reduce the prices which he has set, because in one of the comparative sales, (at Yaram Place and Featherwood Place), where lots are substantially affected by the flood plain (shown by an easement for drainage following the flood plain boundary) prices are being achieved from $62,000 to $65,000. Mr Hubbard did not, in contradistinction to Mr Williams, consider the land to be low lying and adversely affected by water in the two arms of Crooked Creek, even though those creeks may flow at times of rainfall because they capture rain from a wide catchment area.

The next matter to consider is the effect, if any, of cl 15 of the 1985 LEP. Cl 15 provides that development may, with the consent of council, be carried out on land which is within 20 metres of a boundary between any two zones for any purpose for which development may be carried out in the adjoining zone on the other side of the boundary. Both Mr Hubbard and Mr Moore, a town planner of many years standing, who gave evidence for the first applicant, considered that lots 6 and 13 of the subdivision would have potential for residential development in accordance with this clause. On this basis, Mr Hubbard estimated that the area involved was some 4,146 square metres, which would yield nine 450 square metres lots. He estimated those lots to have a value, taking into account selling expenses, profit and risk, development costs and interest, of $60,000. I do not think that this allowance should be made. First, none of the experts could give any examples of residential development being carried out in the Wagga Wagga district as a result of the provisions of this clause. Secondly, subcl (3) of cl 15 requires important factors such as planning, design and ownership relating to the optimum development of the land to be taken into account. Thirdly, this section of the land abuts a lane only six metres wide. These factors make it improbable that such intensity of development would be carried out.

Doing the best I can, then, I make following calculation:

The parties (including Ms Robertson herself) have filed a consent order, valuing her interest at $13,250. I note that Ms Robertson has entered into a lease for a period of three years in respect of premises of the first applicant at 1A Inglis Street, Lake Albert.

1. The compensation which shall be paid for the resumption on 30 October 1992 of the property, lots 6-13 inclusive, section F, DP 7231, Angel Street, Lake Albert, Wagga Wagga, is $319,000.

2. The said sum of $319,000 includes compensation of $13,250 which shall be paid in respect of the interest of the second applicant Ms Robertson.

I HEREBY CERTIFY THAT THIS AND THE PRECEDING 18 PAGES ARE A TRUE AND ACCURATE RECORD OF THE REASONS FOR JUDGMENT HEREIN OF THE HONOURABLE JUSTICE M L PEARLMAN AM.

PETAR RUKAVINA v. THE COUNCIL OF THE CITY OF WAGGA WAGGA [1993] NSWLEC 29 (2 April 1993)

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Judgment (62 paragraphs)

PETAR RUKAVINA v. THE COUNCIL OF THE CITY OF WAGGA WAGGA [1993] NSWLEC 29 (2 April 1993)

Cases Cited (3)