Plaintiff v Defendant

Plaintiff v Defendant - [2006] VSC 363 - VSC 2006 case summary — Zoe

Introduction

1 On 1 February 2000 the claimant purchased a parcel of land of approximately 74 hectares in area situated on the southern side of Cooper Street, Epping at No. 335-413 ("the subject land").

2 The subject land was comprised in two lots, more particularly described as Lots 4 and 5 on Plan of Subdivision 8359, Parish of Wollert, and described in Certificate of Title volume 6821 folio 152. Both lots run alongside each other with frontages to Cooper Street.

3 The land was traversed by a Gas easement affecting 3.337 ha.

4 The broader area comprising the subject land was known as the Cooper Street development area or precinct. It had been so designated by the City of Whittlesea ("the Council") as a matter of planning policy. Although the subject land was zoned for rural purposes there was an expectation that it would be rezoned to facilitate employment generating uses i.e. industrial or business uses.

5 In February 1998 a parcel of land at 300 Cooper Street on the northern side of Cooper Street and opposite the subject land ("the Scanlan land") had been substantially placed in an industrial zone by way of a site specific planning scheme amendment.

6 There was, however, some continuing uncertainty as to the future configuration of development in the area for two reasons. Firstly, there was uncertainty as to the alignment of the proposed Craigieburn Bypass, a freeway extension to the Hume Highway proposed to connect to the Western Ring Road. Secondly, there was uncertainty as to the capacity to provide sewerage infrastructure to development within the area.

7 The bypass was intended to run generally north south. In December 1999 a First Advisory Committee had recommended an option known as Option 5 some distance west of the subject land.

8 There was, however, continuing controversy over this alignment and through 2000 the bypass was understood to have the potential to take this alignment or alternatively to take a series of other alignments including one running within the western boundary of the subject land.

9 In mid 2000 a working party formulated a series of further possible freeway alignments and in August 2000 a Second Advisory Committee was appointed to consider the options. In December 2000 the Second Advisory Committee recommended Option Y which ran over the western portion of the subject land.

10 On 21 January 2001 the Premier of Victoria formally announced the bypass alignment as following a route which traversed the western portion of the subject land in a north south strip.

11 On 1 July 2001 approximately 43 hectares of the Scanlan land was sold into a joint venture ("Northpoint") for $9,734,139.

12 In September 2001 amendment C23 to the Whittlesea Planning Scheme was approved facilitating the acquisition of land for the proposed bypass by the imposition of a public acquisition overlay.

13 In October 2001 part of the Scanlan land was compulsorily acquired to facilitate a widening of Cooper Street in the vicinity of the subject land.

14 In December 2001 Yarra Valley Water (the local sewerage authority) made an offer to Northpoint for the provision of sewerage to its proposed development.

15 On 11 February 2002 ("the relevant date") Roads Corporation ("the authority") served a notice of acquisition with respect to that portion of the subject land required for the freeway.[1]

16 As a result of such acquisition the claimant claims compensation in respect of the market value of the land, together with loss due to severance.

17 It also initially claimed costs associated with replacement of the land but that claim is not now pursued.

18 It further, however, claims loss attributable to disturbance and also claims a series of expenses and interest upon the compensation payable to it.

19 At the request of and with the consent of the parties, the Court has first heard the claim for loss of market value and severance. Such claim is logically distinct from the further claims and it was submitted that if it was resolved by the Court there was some prospect the balance of the claim might be capable of compromise.

20 In summary the acquisition had the following effect on the dimensions of the subject land:

[23]

37 A valuer may express an opinion of value which is founded in part upon hearsay but he cannot give hearsay evidence of disputed facts which lie outside his own personal knowledge.[16]

38 Regard may be had to evidence of events subsequent to the acquisition as confirming or tending to confirm the foresight which the hypothetical purchaser would have had at the relevant date.[17]

39 Other things being equal if there is a doubt as to the amount properly payable by way of compensation that doubt should be resolved in favour of the more liberal estimate.[18]

Principal Conclusions as to Contentious Facts

40 The assessment of the contextual circumstances relevant to valuation in the present case has given rise to a series of contentious questions of fact. Different views on these underlying factors explain to a significant degree the positions of the parties. Before turning to the valuation evidence it is therefore appropriate to set out my principal conclusions as to contentious underlying facts (recognising of course that there remain other subsidiary questions of fact to be resolved). In my opinion critical elements of the underlying circumstances were as follows.

41 But for the implementation of the relevant public purpose the land would either have been rezoned or have been ripe for rezoning to facilitate employment generating uses ("employment uses") as at the relevant date.

42 Nevertheless the prudent purchaser would have apprehended a significant risk that difficulties with the supply of sewerage to the land would delay the commencement and/or progress of development of the land, and may constrain to some degree the range of potential uses.

43 By reason of this risk the land could not be regarded as ripe for subdivision but had demonstrable potential for future subdivision directed to the accommodation of employment uses and subject to the resolution of sewerage provision.

44 The value of the land was enhanced by the freeway proposal, which enhancement must be taken account of in the after situation.

45 The value of the surrounding area including the Scanlan land was enhanced by the freeway proposal, which enhancement must be disregarded in assessing the before value by reference to comparable sales within that area.

46 The effect of the acquisition was to reduce the after value of the land not only by reason of the loss of value of the land acquired but also by reason of the impact of severance upon the balance.

Zoning

47 Because of the extent of the evidence called with respect to town planning and sewerage issues it is convenient to deal with these matters first before turning to the valuation evidence (including that as to issues of enhancement and severance).

48 Town planning evidence was called from Mr Milner and Mr Mawson on behalf of the claimant and from Mr Whitney on behalf of the authority. Mr Milner and Mr Whitney gave evidence as experienced town planners as to the planning framework in which the case falls to be assessed. Mr Mawson gave evidence as to steps actually undertaken by Coomes Consultants ("Coomes") to achieve a rezoning of the land.

49 There was little disagreement as to the relevant planning history of the area but there was some disagreement in hypothesising the likely before situation if the freeway proposal is disregarded.

50 Relevant elements of the underlying planning context are:

[63]

"With regard to the extent of rezoning a fundamental question to be considered is servicing capacity. As discussed in a range of related reports on the Cooper Street and Epping North areas there is a limited amount of sewer capacity which can be made to develop land. With regard to 'allocation' of available sewer capacity via the land planning system Council has previously indicated a consistent position that preference will be given to allocation of available capacity to employment land over residential land and that the extent of rezoning will be limited to that amount of land which can be provided with reticulated services. While Yarra Valley Water has prepared a servicing strategy for the area it is clear that all the land, or even a substantial amount of land, within the development plan area can not be immediately provided with reticulated sewerage. This being the case it is appropriate for Council to continue to indicate a preference for employment based land uses by delaying the rezoning of the future residential areas. With regard to the extent of rezoning of land for employment purposes it is considered that there may need to be a deviation from Council's earlier position.

Given the increasingly high profile nature of the Cooper Street area taking into account construction of the Craigieburn Bypass and duplication of Cooper Street, pressure needs to be exerted to ensure broad scale augmentation of services occurs so that the land can be provided with reticulated sewer and water. From a servicing authority perspective whether the land is zoned can be a significant indication as to whether the land is likely to be developed in the short to medium term. Taking this issue into account, it is proposed that the area bounded by the Craigieburn Bypass to the west, the O'Herns Road deviation to the north, the boundary of the land currently zoned industrial and the residential suburb of Lalor to the east and the residential land and the Whittlesea Gardens to the south be rezoned to a suitable urban zone."

[68]

95 It is difficult to give great weight to the reasons of the L143 panel. Firstly, as I have said its concerns were substantially resolved by the relevant date. Secondly, they were not found by the planning authority or the Minister to be persuasive.

96 Moreover, the evidence as a whole leads to the conclusion that the rezoning was in fact held up by the alignment process. The evidence shows that the claimant was specifically advised by its consultant that resolution of the freeway alignment was a precondition to rezoning. There are a number of references in the documents to this effect and Mr Mawson's evidence confirmed that such advice was given. The claimant's approach to Council for a part residential rezoning took place in this context. The claimant was not initially faced with any realistic prospect of a rezoning in the short term. The exploration of what it viewed as the highest and best use of the land is entirely understandable in this context.

97 The consultants' advice that the resolution of the freeway alignment was a precondition to rezoning was on the whole of the evidence (including that of Mr Whitney) correct. The terms of the MSS were plain and reflected the advice of an independent panel. The new format planning scheme thus elevated the freeway alignment issue to a threshold issue of structure planning for the area. In turn, Council documentation reflects the fact that it was the clear view of Council planning officers that the finalisation of the freeway alignment was a precondition to a planning scheme amendment.

98 It was also submitted on behalf of the authority that the resolution of access arrangements to the land was independently delayed by the review of Council's Cooper Street strategy. This strategy was itself critically dependent on finalisation of the freeway alignment and I am not persuaded that finalisation of the freeway alignment was not the critical impediment to rezoning during the period at issue.

(h) Overlays

99 It was submitted that Mr Whitney's evidence should be accepted and that the historic evidence supports the view that Council would not have supported the rezoning without a detailed outline development plan rather than simply a more general local structure plan. I am not persuaded that absent the uncertainty concerning the freeway alignment an adequately resolved outline development plan could not have been formulated.

100 It follows that in my view, although the land was not zoned for urban purposes at the relevant date, its status was in substantial part a result of the delay in implementing the freeway proposal. Further, as I have said, I am satisfied that as at the relevant date but for the freeway proposal the land would either have been zoned or the process of rezoning would have been substantially implemented.

Sewerage

101 As the planning history set out above demonstrates, the availability of sewerage infrastructure was clearly identified as a key factor constraining development of the Cooper Street area in the period leading up to the date of acquisition.[23]

102 On 29 May 2006 the engineering experts retained by the parties[24] reached agreement as to the answers to a series of questions and endorsed a joint report. They did so in part as the result of advice received from two officers of Yarra Valley Water, Mr Hart and Mr Pearson. The first question and the answer to it were as follows:

[70]

(a) The Yarra Valley Water Cooper Street Strategy included as Appendix F in Jordan 1[25], sets out the current servicing arrangements at the relevant date.

(b) The inquiry at Yarra Valley Water would have revealed that sewer (Cooper Street East branch sewer) is possibly available which would service the northern catchment of the property subject to advised capacity limitations.

(c) A temporary pumping station was available to connect to the existing sewers but was constructed by Northpoint and would require agreement from Northpoint for access. (Subsequent advice from Mr Pearson and Mr Hart was that access would be made available to the pump station by Yarra Valley Water.)

(d) Sewerage services for the southern section of the land would require the connection of sewer to the Haberfield (Edgars Creek) and golf course (Central Creek/Merri Creek) systems.

(e) It is expected that the consultant would negotiate with Yarra Valley Water to optimise the available capacity and reduce the costs to the developer."

103 The effect of these answers is that at the relevant date development of the northern portion of the subject land fronting Cooper Street may have been capable of sewering to the east along Cooper Street via the Cooper Street East branch sewer (which in turn connected with a main along the Edgars Creek running to the south and joining the Edgars Creek sewer).

104 Sewering of the central portion of the subject land would require connection to the east across the Haberfield land to the Edgars Creek sewer.

105 Sewering of the southern portion of the land would require construction of a sewer to the south linking up with the Central Creek/Merri Creek systems to the south and west.

106 The conclusions of the joint report were further addressed and elaborated in evidence called on behalf of the complainant from Mr Hunter, Ms Hamila and Mr Hawkins. No engineering evidence was called by the authority. It relied on the terms of the joint report, background documentation and evidence elicited in cross-examination as to the sewerage context at the relevant date.

107 The central dispute between the parties in respect of sewerage matters is the evaluation of the possibility that the northern portion of the site might be sewered via Cooper Street. Such sewering would facilitate an initial stage of development in the optimal location for business/industrial uses.

108 The dispute arises from the fact that the Cooper Street branch sewer had a limited capacity and was also "possibly" available to other land owners who might materially take up such capacity.

109 Further such capacity constraint had led to flow conditions being placed on the supply of sewerage to the Northpoint industrial subdivision on the northern side of Cooper Street. If part of the subject land were sewered along Cooper Street such conditions would also have been imposed (hence the reference to advised capacity limitations in the joint report answer set out above).

110 The engineers' joint report subsequently addressed hypothetical plans of subdivision for the land which envisage the creation of new lots in the northern portion of the land (in different configurations).

111 The engineers further agreed:

[97]

139 The sensitivity of these matters is corroborated by a valuation report prepared by Mr Dudakov in respect of part of the Scanlan land acquired compulsorily for the purposes of the widening of Cooper Street. This referred not only to the designation of existing sewerage infrastructure for the Scanlan land as at 5 October 2001 but also to the advantageous delay as a consequence to the development of other properties by up to three to five years.

140 There is no evidence prospective purchasers of the subject land in 2002 were in fact advised by the Council or Yarra Valley Water that sewerage was immediately available to the property and some hearsay evidence directly to the contrary.[28]

141 As against the matters of uncertainty noted above it was reasonably possible that the provision of pumping facilities might be expedited by cost sharing agreements with Northpoint (as the joint statement of engineers in this case envisages) or Haberfield. The upfront capital cost of such facilities could be split between developers.

142 Further, it was possible that engineering solutions might become available other than in accordance with the strategy. In particular additional capacity might be found for the Cooper Street area if less demand were placed on the system as a whole by development in the Epping North area. Alternatively, technical solutions such as on site treatment might be developed. Whatever the ultimate outcome of sewerage arrangements was to be, however, it was likely to involve delay.

143 In my view it is not possible to precisely quantify the delay but a prudent purchaser would allow for the risk of delay and the market perception of the likely flow restrictions. The evidence supports the view a purchaser would conclude that the delay in sewerage servicing would in all probability be at least two years and possibly longer.

144 There was a further probability of the imposition of flow restrictions on the land as had occurred in the Northpoint offer, also affecting the potential marketability of the land.

145 Further, the difficulty and risk as to the provision of sewerage infrastructure was such that the prudent purchaser would not have regarded the land as immediately ripe for subdivision even if it was zoned or about to be rezoned to facilitate urban development. Rather the prudent purchaser would have regarded the land as having demonstrable potential for future subdivision and development for employment generating purposes.

146 The claimant submits that weight should be given to Mr Dickey's understanding of sewerage proposals within the Epping North area as at the date of acquisition. In my view it is not Mr Dickey's expectation that is relevant but that of the prudent hypothetical purchaser.[29] For the reasons I have stated the evidence demonstrates considerable uncertainty as to the actual mode and timing of sewerage infrastructure for the subject land as at the relevant date. Moreover, Mr Dickey's evidence as a whole corroborates the view that sewerage infrastructure issues bore directly on the value of the site. Thus he noted after discussions with Council officers on 21 September 2001:

[99]

147 Likewise, the subsequent history of sewerage infrastructure on the Northpoint land does not detract, in my view, from the risks a prudent purchaser would have acknowledged at the relevant date.

148 The engineers' joint report should be accepted with respect to two basic propositions. Firstly, the hypothetical purchaser would have evaluated the availability of sewerage infrastructure by reference to the Yarra Valley Water Cooper Street Strategy of 12 October 2000. Secondly, the hypothetical purchaser would have had regard to the offer made to Northpoint on 20 December 2001 and the terms of that offer. These documents support the conclusions I have reached.

The Valuation Evidence

149 The claimant called valuation evidence from Mr Holland and Mr Wallace and the authority from Mr Dudakov and Mr Brown.

150 Mr Holland ultimately assessed the before value at $10 million and the after value at $5.5 million resulting in compensation of $4.5 million.

151 Mr Wallace ultimately assessed the before value at $10,952,300 and the after value at $6,072,300 resulting in compensation of $4,880,000.

152 Mr Dudakov ultimately assessed the before value at $9,216,000 and the after value at $6,922,000 resulting in compensation of $2,294,000.

153 Mr Brown ultimately assessed the before value at $6 million and the after value at $3.75 million resulting in an assessment of compensation at $2.25 million.

154 I have come to the view that the framework of Mr Dudakov's assessment of valuation is to be preferred to that of the other valuers but that the adjustments made within this framework require some revision having regard to the evidence as a whole. The net effect of these adjustments is to lift the compensation payable.

155 Before turning to Mr Dudakov's evidence, however, it is appropriate to say something further as to my reasons for rejecting the opinions of the other valuers.

Mr Holland

156 In the course of his evidence Mr Holland produced the following assessment of compensation.

BEFORE ASSESSMENT

[109]

(b) He analysed the purchase price paid for the subject land pursuant to a terms contract of $5 million in January 2000 as having a cash equivalent of $4,491,740 (reflecting approximately $67,000 a hectare).[32]

(c) He had regard to development plans demonstrating potential subdivision facilitating employment generating uses representative of the ultimate highest and best use of the land.

(d) He recorded a series of advices as to when sewerage would be likely to be available and expressed the opinion that a prudent purchaser would be "conservative" and would expect either a lengthy delay, or to provide temporary sewerage arrangements at their own cost.

(e) He relied upon advice from engineering consultants that the earliest date for the upgrade of sewerage infrastructure would be 2009.

(f) As a result of the above matters he concluded there was some potential for an initial stage of development of the subject land along Cooper Street once planning permission was obtained but that this relied upon temporary sewerage arrangements being economically viable.

(g) He adopted a direct comparison approach as his primary method of valuation because in his view a prospective purchaser at the relevant date would have considered the long term potential of the property and purchased the property with a view to development once sewerage infrastructure in particular was available.

(h) He identified the sale of 360 Cooper Street, Epping to Northpoint Enterprise Park in July 2001 for a price of $13,164,139 equivalent to $224,162 per hectare ("the Northpoint sale") as "the best indicator of value, although adjustment must be made for the fact that the land is zoned and had sufficient sewerage capacity available to enable immediate development."[33]

(i) He discounted the comparable sale price of $224,000 per hectare by 10% per annum for 82 months being the time period before which the hypothetical purchaser would assume development could occur (i.e. January 2009). As a result he arrived at a value of $113,425 per hectare. It can be seen this discount effectively halves the value first identified by comparison.

(j) He checked the level of discount against analysis of the price paid in February 2002 for a parcel of residential land not sewered or zoned but located within the same growth corridor in O'Herns Road, Epping. The analysis reflected a 42% discount.

(k) Having regard to this check he adopted $125,000 per hectare as the value of the developable area of the property and 50% of that rate for the portion of the land subject to a gas pipe easement.

(l) The full value of the property as at February 2002 was calculated to be:

[118]

On balance he resolved to apply a discount of 25% below unaffected value to the easement affected land (as against his previous reduction of 50%).

• In the event that development of the subject land were to proceed prior to the development of other holdings, fixed upfront costs would be incurred, which in the after situation would necessarily be amortised over a lesser area thereby giving rise to the possibility of severance.

• The shape of the front land in the after situation is somewhat more irregular and as a result, subsequent subdivision may require the construction of a one sided road. This would again give rise to higher costs in the after situation. Offsetting these matters would be the benefit the lots would have due to their exposure to the freeway.

• While in the after situation there would be fewer lots fronting Cooper Street. These lots would achieve a premium above the before values due to the proximity of the freeway interchange.

171 The first three points noted in (c) above were agreed to in evidence by Mr Holland and substantially agreed to by the other two valuers. The principal disagreement between the valuers was not as to the fact of severance impacts but as to the manner in which they should be evaluated.

172 Mr Dudakov continued to be of the view that reduction in size in the after situation and proximity to the freeway were enhancements which should be taken into account.

173 He considered whether the fact that the land was comprised in two lots at the relevant date added to its value. He did not consider that it did because each lot was relatively long and thin making development in isolation less feasible and because he doubted that price maximisation could be achieved on the basis of separate hypothetical purchases of each lot. (Mr Holland was of the view that the fact of two existing allotments would add value to a purchaser because it would inter alia facilitate financing of future development).

174 Mr Dudakov maintained his previously adopted unaffected value of $125,000 per hectare but increased his assessment of the easement affected land to $93,750 per hectare.

175 In the after situation he adopted the same unaffected value of $125,000 per hectare for the reduced area of land. He no longer adopted a $5,000 per hectare premium in the after situation due to the reduced size of the holding and the proximity of the land to the freeway. He discounted this enhancement because of the possibility that the after costs of development would be greater on a developable area basis, and the uplift of lot prices arising from the freeway may not fully offset such costs.

176 He maintained a value of $10,000 per hectare for the severed land.

177 Accordingly, his revised calculations were as follows:

[134]

"The discussion in the present case has focused too much on the issue of time and the debate as to whether three years delay is or is not decisive. In my view the passage of time is not always decisive and the analysis method may be inappropriate even in cases where the time delay is less than three years.

It is a question of fact in each case as to what is the appropriate method and it is unwise to seek to lay down prescriptive rules in this matter. At the same time, it is reasonable to regard a period of three years before any significant development and sale as raising a very real doubt as to this method because of the uncertainties involved in use of current estimates of sale prices and costs. In my view the starting point is that the valuation should, if possible, be founded on sales of comparable land. This is subject to the following qualifications and the particular circumstances of the case. (a) Where there are no comparable sales then the use of the analysis method is necessary; (b) Where there is little evidence by way of comparable sales, then use of the analysis method as a check is appropriate; (c) Where the subject land that has been acquired is part of a larger parcel and issues of severance and injurious affection and enhancement arise, it will be necessary that an analysis exercise be carried out if there are grounds for believing that a before and after valuation will not meet these issues. Thus, if there are significant differences in lot yield or in development costs between the before and after parcels then usually a full analysis should be carried out as a check. I say 'usually' because sometimes the matter can be satisfactorily dealt with by an allowance that reflects differences of cost. This may occur where the cost factor is readily isolated and it can be said that there is only one disadvantage, for example, the need for additional drainage or a longer road, that is peculiar to the before or after parcel. The reason why the broadacre sales approach rather than analysis should ordinarily be the primary or even sole approach is that the task of valuation is to be addressed by an analysis of comparable sales. The alternative view submitted on behalf of the claimants is that in every case of valuation of land that is more or less ripe for subdivision, the land should be valued by the use of the hypothetical analysis method. There is some support for this argument in those cases which discuss the use of the hypothetical analysis method where the land is ripe for subdivision. See, for example, Brewarrana Pty Ltd v Commissioner of Highways [No 2] (1973) 6 SASR 541; 32 LGRA 170 at 181-2; Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245; Waalt Homes Pty Ltd v Road Construction Authority (1987) 64 LGRA 346. But even in land that is clearly ripe for subdivision, it does not follow that the analysis method must always be employed. This is so, where the entire holding of subdivisional land was acquired so that no issues of severance, injurious affection or enhancement could arise and where there was ample sales evidence as to what was being paid at the relevant time by subdividers for equivalent parcels of land. In such an example, the broadacre sales approach should in my view be preferred, for it will reflect a valuation that is founded on sales evidence."

[137]

191 Accepting that the question is one of fact in each case, the above statements fortify me in the view that the approach adopted by Mr Dudakov and Mr Brown as their primary approach is the correct approach to valuation in this case.

192 In the present case there is comparable valuation data available (to which I shall shortly come). There is also real uncertainty attending the date on which the land would in fact have been ripe for subdivision in the eyes of the hypothetical purchaser. The sewerage evidence indicates that a delay of at least some two years was likely for the initial supply of sewerage but this date was itself uncertain. Further supply of sewerage to subsequent stages of development was also attended by uncertainty and the prospect of further delay.

193 In my view the approach of Mr Dudakov and Mr Brown of valuing the land by reference to comparable sales with adjustments, was appropriate subject to the proviso accepted by both Mr Dudakov and Mr Brown that a hypothetical subdivision analysis could assist to test some of the potential parameters of loss due to severance.

194 I do not accept Mr Wallace's approach was correct, namely to hypothetically create super lots providing in advance for potential stages of future development. It may be that such a scheme would appeal to a purchaser of the whole of the land but as at the relevant date the highest and best value was to be achieved by the sale of the whole of the land to a purchaser having flexibility as to its ultimate form of development and the capacity to seek to maximise the yield from the land in conjunction with the subsequent resolution of sewerage infrastructure supply.[41]

195 In this regard I accept Mr Brown's evidence that major developers do not ordinarily sell super lots to competitors. They generally control the land and preserve their bargaining position. Further, a sale of three lots to three individual owners as at the relevant date would materially increase the risks faced by at least two of such owners, that development of any part of their land would be materially delayed by competition for infrastructure with the third.

196 In addition, as Mr Brown pointed out the creation of super lots could itself result in the loss of primary production status, and attract higher land tax rates and charges on the land, without facilitating further subdivision at that point in time.

197 Likewise, I do not accept Mr Holland's primary valuation methods based firstly, on a conventional "Turner" hypothetical subdivision analysis and secondly, on a more complex hypothetical subdivisional analysis using the Estatemaster computer program. I do not accept this approach firstly because of the view I have reached as to the highest and best use of the land at the relevant date and secondly, because I am persuaded on the whole of the evidence that the fundamental approach adopted by Mr Dudakov and Mr Brown is appropriate and involves less risk of error due to variables. As Mr Brown said:

[149]

207 It was contended on behalf of the claimant that the subject land should be regarded as better than the Northpoint land in three respects. First, it was said that at the time of the Northpoint sale a 150 meter wide strip of land adjacent to the proposed freeway alignment remained in a rural zone. This is true but it was clear that it had no sensible future use save as an adjunct to the industrial land and that its rezoning would be a matter of course. I do not regard it as having been in a materially different position from that which I have hypothesised would have been the position of the subject land but for the freeway proposal.

208 It was next said that the Northpoint land required a substantial body of fill. The evidence in this regard was unsatisfactory and there was no direct evidence of the fill requirement. Consequently, I am not persuaded it should be regarded as a material factor. The valuers gave widely different hearsay evidence concerning this aspect of the matter and I am not persuaded a sensible basis for adjustment has been established.[45]

209 It was also submitted that the comprehensive development zoning of the subject land would give it a higher value than the industrially zoned Northpoint land. A comprehensive development zone would facilitate both industrial and business uses. The valuation evidence does not, however, enable this potential advantage to be quantified satisfactorily. Further, I accept the evidence of Mr Brown that industrial use may include substantial office use coupled with warehousing, and the division between industrial and business use may be one of degree.

210 It was further put that the Northpoint sale occurred eight months prior to the relevant date in a rising market. While I accept that in general terms this is true, this factor requires evaluation in the context of the other matters e.g. enhancement, which I will elaborate. Ultimately, I am not persuaded this factor can be demonstrated to require adjustment[46].

Adjustment

211 I turn then to a series of further matters potentially requiring adjustment. As Mr Dudakov said, the parameters for such adjustment can notionally be seen as the market price paid for the land by the claimant and the value derived from the Northpoint sale.

Two Lots

212 Mr Dudakov and Mr Brown valued the land as a single parcel. In my view they were correct to do so although it was divided into two lots both having frontage to Cooper Street as at the date of the acquisition.

213 Once it is accepted that the highest and best use of the land at the relevant date was to be held for further subdivision the presence of two lots made no material difference to its value. The capacity to subdivide presumes the capacity to change the title scheme and better achieve an appropriate sequence of development. Whether and in what form the land was in the first instance subdivided into super lots would be a matter for the developer and as Mr Dudakov said would involve little relative cost. Hence there is no real advantage inherent in the existence of two preceding lots in the circumstances which would arise once rezoning was achieved.

214 It would not be sensible to sell the two lots separately as at the relevant date, because as Mr Dudakov observed their elongated and relatively thin shape materially inhibited their individual subdivision. Separate sales would also create individual risks arising from competition for sewerage infrastructure.

Enhancement

215 The price paid for the Northpoint land reflects enhancement as a result of the freeway proposal. The same enhancement affected the subject land at the relevant date. Once the freeway alignment was finalised both the Northpoint land and the subject land became parcels of land adjacent to the freeway and a proposed diamond interchange at Cooper Street. The enhancement from the freeway would not fully crystallise until it was constructed in what might be anticipated to be three to four years after the relevant date. Thus the holding of the land during this period would also result in a benefit in this regard. As the highest and best use of the land was to hold it for future development the freeway proposal may be regarded as having materially enhanced its value. For like reasons the impact of the freeway construction period on the value of the subject land would not have the adverse impact upon a hypothetical purchaser asserted on behalf of the claimant.

216 The sales evidence at a series of locations referred to by the valuers including Somerton and Derrimut demonstrates ready access to freeway or other major transport infrastructure (such as fixed rail) enhanced the value of industrial land at the relevant date.

217 The evidence also shows there are categories of industrial/business uses to which such access is beneficial and other categories of uses which may be benefited by the visual exposure offered by a site adjacent to a freeway.

218 The claimant itself relies on the fact of expressions of interest in the subject land by Honda prior to the acquisition. The land offered by the claimant to Honda in November 2000 was an elongated parcel running down from Cooper Street along the western boundary of the subject land immediately adjacent to the then anticipated freeway alignment. It was intended that a variety of uses would be accommodated within this parcel of land all benefiting from the prominence of the site and its ease of access. The choice of abuttal to the freeway for the proposal was plainly deliberate. Indeed Mr Dickey sought a premium on this basis.

219 Insofar as the subject land as a whole is concerned the evidence discloses there were a number of potential purchasers who expressed interest to the claimant in the whole of the land after the freeway alignment was finalised and none who expressed such interest beforehand.

220 The Northpoint sale itself was not finalised until after the freeway announcement and despite hearsay evidence as to the alleged background to the sale, the price paid was paid in the context of certainty as to the freeway location and in the expectation of the inconvenience of freeway construction. Furthermore, following the freeway announcement Northpoint sold the south western corner of the Northpoint land facing Cooper Street and adjacent to the freeway off-ramp for the purpose of development of a BP service station. The terms of the sale fixed the obligation for settlement by reference to the (anticipated) freeway completion date. It is apparent the site was not simply selected because it was on Cooper Street but because it was adjacent to the freeway exit.

221 The claimant itself considered the possibility of a service station development on its land after the relevant date. I am satisfied that the freeway announcement facilitated a series of uses such as service stations benefiting directly from the freeway interchange.

222 The process of development of the Scanlan land has been slow and did not take off until after the freeway announcement despite the attributes of the area described in evidence by the claimant's valuers.

223 I reject the evidence of Mr Wallace that the freeway proposal should not be regarded as materially enhancing the value of the land. I accept the evidence of Wallace that within an industrial subdivision land immediately adjacent to a freeway may not sell as well as other land suffering lesser amenity effects but having good road access. This general proposition, however, does not detract from the strength of the fundamental proposition that the potential use of both the Northpoint land and the subject land was materially enhanced by finalisation of the freeway proposal and its implementation.

224 Mr Wallace also contended that the subject land was well served in any event by major arterial roads running north south and connecting with the ring road in that it had the Hume Highway to the west and Edgars Road (which was proposed to be upgraded as at the relevant date) located to the east. I do not accept these routes offered comparable access or exposure to that which a hypothetical purchaser would anticipate would be provided by the freeway.

225 Mr Holland allowed a figure of 10% enhancement in his calculations because in the after situation the subject land was "nearer" to the proposed freeway interchange. This implicitly reflects an even higher enhancement deriving from the freeway proposal as a whole.

226 Mr Holland arrived at this figure despite the view that enhancement would be offset by detriment during the freeway construction period. He also agreed in the course of his evidence that there was a sudden jump in values in the area following the announcement of the freeway alignment.

227 Mr Dudakov's September 2004 valuation attributed a 5% enhancement factor to the freeway proposal. In his final valuation he regarded this as off-set by the possibility that the after costs of subdivision would be greater on a developable area basis. Mr Brown noted that holding the land would create additional holding costs in that rezoning would trigger a supplementary valuation and potentially higher Council rates and land tax charges. As against this one of the benefits the land would achieve if it were held would be the development of the freeway infrastructure. This would enhance the value of the general locality as has been experienced in other industrial sectors of metropolitan Melbourne. Mr Brown did not identify a specific factor for enhancement.

228 In my view a figure of 10% for enhancement as at the date of acquisition is appropriate, although it is apparent that further enhancement would have occurred upon completion of the freeway and the highest and best use of the land was to hold it for future development after some years, during which it could be anticipated the freeway would be progressively constructed.

229 The 10% should be deducted in the before situation.

Zoning and Sewerage

230 For the reasons I have stated I am satisfied no material discount should be given for the fact the land was not rezoned at the relevant date. It should be regarded as probable that, but for the freeway proposal, the land would either have been rezoned or very substantially advanced in the rezoning process towards a comprehensive development zone as at the relevant date.

231 Likewise, for the reasons I have stated, however, I am of the view that a substantial risk still attended the timely provision of sewerage to the land and hence the capacity to subdivide.

232 Mr Dudakov applied a discount on the basis that the land would not be capable of being sewered before 2009. This conclusion was not supported by engineering evidence to this effect, although I accept he was so advised by engineers who were not called to give evidence. In my view the hypothetical purchaser as at the relevant date would have considered that sewerage could not be provided in less than two years, but there was a real and substantial risk that both the initial provision and progressive augmentation of such supply might be subject to further delays.

233 The engineers who signed the joint report also reported on the feasibility of a potential before and after plan of subdivision. The before and after plans ultimately agreed as feasible and forming the subject matter of agreed costings, provided for some 24 lots in the northern portion of the site in the before situation and some 17 lots in the after (although there was some disagreement as to whether the internal subdivisional figuration adjoining the freeway reserve was optimal). It was agreed the northern portion of the subject land was within the Edgars Creek drainage scheme and costs were based on:

[160]

238 Having regard to the evidence as a whole it seems to me that both Mr Brown and Mr Dudakov were correct in allowing for an adjustment with respect to the valuation of the subject land because of the probable delay and uncertainty as to the implementation of sewerage infrastructure.

239 It was also true that the hypothetical purchaser of the subject land at the relevant date was confronted with the likely imposition of limitations on sewerage flow at the time of subdivisional permits. But this same limitation was known to affect the Northpoint land at the date of the Northpoint sale and hence does not call for any further adjustment.

240 Mr Brown dealt with the factor of delay and uncertainty in the provision of sewerage by utilising comparable sales of unzoned and unsewered land as the underlying basis of his valuation.

241 Mr Holland acknowledged the significance of the sewerage factor by valuing the westernmost of the two existing lots at significantly less than the easternmost, because the western lot was less well placed in terms of access to sewerage infrastructure.

242 Mr Wallace proposed the sequential subdivision of super lots and in so doing he also recognised the significance of infrastructure supply to the land.

243 In the ultimate I have concluded that Mr Dudakov's approach of explicitly adjusting the Northpoint sale for sewerage considerations is appropriate, but in my view the evidence supports an adjustment of 25% at the relevant date rather than the substantially greater adjustment which he made. The adjustment which should be made reflects a not insignificant risk, but it is not capable of precise mathematical modelling.

Severance

244 In the after situation the land was reduced in size, reduced in its frontage to Cooper Street, and altered in its overall shape and relative dimensions so as to create a more constrained area for development in terms of its east west dimensions.

245 As a result of the acquisition the subject land was reduced from 74.50 hectares to 55.14 hectares (leaving aside the severed splinter of 2.9415 hectares).

246 The valuation evidence demonstrated that ordinarily reduction in size would lead to a higher value per unit. In the present case, however, this is counterbalanced by evidence that at the relevant date land bankers were seeking large parcels of land with appropriate potential such as the subject land.[47] Moreover, the acquisition did not radically change the order of size of the site in the sense that it changed its potential range of future use in any fundamental respect.

247 On the other hand the reduction in size meant that if development of the land proceeded in advance of other land holdings in the immediate area, fixed up front infrastructure costs might have to be amortised over a smaller area.

248 Save for this latter risk I am not persuaded the change in size materially affected the value per hectare of the after land.

249 The acquisition also resulted in a reduction of frontage to Cooper Street reducing such frontage to some 350 metres, of which only 272 potentially had relatively direct access[48]. Whilst it can be said the visual exposure of the subject land as a whole was improved by the prospect of lateral exposure to the freeway and exposure to the interchange at its north west corner in particular, it is nevertheless clearly correct that the direct exposure to Cooper Street available to business uses was reduced. Likewise, although the evidence supports the view that most lots having a frontage to Cooper Street in the before situation would have been likely to have been accessed via a service road, the potential number of business uses with direct vehicular access to Cooper Street would also be reduced.

250 The acquisition produced an irregular western boundary and reduced east west dimensions both absolutely and in proportion to the depth of the subject land. The before and after plans produced following the joint experts conference demonstrate the potential cost of the initial stages of subdivision might as a result be materially increased particularly if it became necessary to build a less efficient road layout due to the more constrained site.

251 Subdivisional costing at the relevant date (including sewerage), showed $55.84 per square metres in the before situation and $70.80 per square metres in the after situation subdivision as at the relevant date, resulting in a cost differential in the order of $1.4 million.

252 I do not accept that this cost is capable of any precise assessment because I do not accept the land was ripe for subdivision as at the relevant date. Its potential for future development must be regarded as quite fluid. Thus there is no satisfactory basis on which a hypothetical purchaser would realistically exclude potentially larger land users such as Honda and it is difficult to postulate a particular form of subdivision as a satisfactory basis for assessing future costs. Further, unless the date for subdivision can be confidently predicted it is difficult to model future costs. In addition the costings do not cover the whole of the land and cannot necessarily be directly translated to a before and after valuation of the whole of the land. They include the cost of works such as the signalised intersection to Cooper Street which would benefit the whole of the land, but involve significant upfront cost in the initial subdivision. Hence this is a case where the hypothetical subdivision analyses undertaken demonstrate a significantly higher potential cost of subdivision[49] but they cannot be used as a direct basis for quantifying the effect on value as at the relevant date.

253 As I have set out above Mr Dudakov acknowledged that the hypothetical plans of subdivision demonstrate that the shape of the front of the land in the after situation is more irregular and results in the possibility of having to construct a "one sided" road, giving rise to higher costs in the after situation. He also acknowledges the reduction in potential for lots fronting Cooper Street. As I have also said, however, he sees these matters as being off-set by other factors.

254 In my view the countervailing factors which he identifies and the set-off which he adopts do not adequately adjust for these matters.

255 Mr Brown made an adjustment for severance equivalent to 15.5% of significantly less land values than those adopted by Mr Dudakov and reflecting an allowance in the order of $690,000.[50]

The DDO 2 Planning Overlay

256 The claimant's valuers also contend that a further adjustment should be made for the DDO 2 overlay. The effect of this overlay is to impose a permit control intended to ensure adequate construction standards are adopted to protect noise sensitive uses adjacent to the freeway.

257 I accept the view of Mr Dudakov and Mr Brown that at the relevant date the hypothetical purchaser would have had some concerns as to the market perception of this overlay but it would not in fact materially constrain future use and development. Accordingly it gives rise to some but not significant severance impact. Further, the Northpoint sale reflected this factor in any event and no other sales, evidencing a negative impact were adduced. I do not accept the view of Mr Holland and Mr Brown that the DDO 2 overlay justifies a 5% deduction from the value of the land affected.

Conclusion

258 On the evidence as a whole I am satisfied that an adjustment of 15% should be made to Mr Dudakov's calculation to allow for severance in respect of factors relating to size, dimensions, subdivisional potential, the interface with Cooper Street and insofar as necessary the effect of the DDO 2 overlay.

259 For the above reasons the compensation payable with respect to loss of market value and severance should be assessed at $3,294,500 in accordance with the conclusion set out at [182] above.

[161]

[1] Appendix A shows a plan of the subject land and the acquired portion.

[2] Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418

[3] Above at 441

[4] [1914] UKPC 77; [1914] AC 1083 at 1088

[5] Turner [1956] HCA 7; (1956) 95 CLR 245 at 264; March v City of Frankston [1969] VicRp 44; [1969] VR 350 at 356.

[6] Crompton v Commissioner of Highways (1973) 32 LGRA 8 at 25.

[7] 85 LGERA 143 at 149

[8] See also King v Minister for Planning and Housing [1993] VicRp 11; [1993] 1 VR 159 at 183; Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2004] NSWLEC 315; Sydney Harbour Foreshore Authority v Walker Corporation Pty Ltd [2005] NSWCA 251; (2005) 63 NSWLR 407; Broken Bay Peninsular Pty Ltd v Minister Administering the National Parks and Wildlife Act 1974 [1997] NSWLEC 165.

[9] Smith v Roads and Traffic Authority of New South Wales, [2005] NSWLEC 438 and the cases there cited.

[10] At [63].

[11] Road Traffic Authority of New South Wales v Mosca [2006] NSWCA 159 and the cases there referred to at [50]-[54].

[12] Section 41(e) and see the definition of "loss attributable to severance" in s.40.

[13] Coastal Estates v Bass Shire Council [1993] VicRp 92; (1993) 2 VR 566 at 577-579; Vicgrain Assets Pty Ltd v Hindmarsh City Council [1999] VSC 47 at [62].

[14] Coastal Estates v Bass Shire Council [1993] VicRp 92; (1993) 2 VR 566 at 577-579.

[15] Makita (Australia) Pty Ltd v Sprowles [2001] 25 NSWLR 705 at 743-744, [85].

[16] Wright v Sydney Municipal Council (1916) 16 SR NSW 348; English Exporters (London) Ltd v Eldonwall Ltd (1973) 1 All ER 726; Bromley v Housing Commission New South Wales (1985) 3 NSWLR 407.

[17] Housing Commission of New South Wales v Faulkiner [1981] 1 NSWLR 547 at 558 and 563; Minister for the Army v Parbury Henry & Co [1945] HCA 52; (1945) 70 CLR 459 at 514.

[18] Commissioner of Succession Duties SA v Executive Trustee and Agency Co of SA Ltd [1947] HCA 10; (1947) 74 CLR 358 at 374; Gregory v Federal Commissioner of Taxation [1971] HCA 2; (1971) 123 CLR 547 at 565.

[19] This precinct included the land known as the Haberfield/McKee land to the east and south of the subject site.

[20] The Council officer's report articulating the basis of its position expressly acknowledged sewerage constraints identified by the panel, a matter to which I shall return. It noted that Council had made a conscious decision not to rezone the whole Cooper Street precinct given among other things that zoning all the land industrial would require a solution to the long term servicing (sewerage) issue, which could not be determined at that stage.

[21] On 12 September 2000 the claimant waived its rights pursuant to the above conditions and paid a further deposit of $250,000. The purchase was subsequently completed.

[22] At the relevant date the MSS and new format planning scheme were in place, drainage for the Scanlan land was further resolved, the road network was better resolved, the freeway alignment was finalised, the options for adjacent land would be clarified by rezoning the subject land, and further work had been done on the provision of sewerage infrastructure.

[23] See e.g. cl.21.06-7 of the MSS quoted above.

[24] Mr Jordan and Mr Wright on behalf of the authority and Mr Hunter, Mr Hawkins and Ms Hamila on behalf of the claimant

[25] dated October 2000

[26] The subject land fell in stage 2 and land to the west in stage 3.

[27] It appears this statement went through a series of iterations.

[28] Contained in the claimant's contemporaneous records of discussions with the prospective purchasers.

[29] I do not accept that the C12 panel proceedings resulted in an actual recommended allocation of sewerage capacity from Epping North to the Cooper Street redevelopment area prior to the relevant date.

[30] It is difficult to see how it could be proper both to deduct additional development costs and apply a substantial deduction for severance.

[31] He stated: "Your Honour, developers use plans to help them determine an indicative level of value at - when they're looking at buying land. Often times they don't have all the information available to them and neither do valuers often so they use it as a tool to understand what the likely parameters are. We then reference our analysis to sales of broad acre land which have similar potential and it is a preferred approach to, where you can, rely on sales of land which has potential which has already been sold. What I've been - what I attempted to do in my valuation was analyse the land in question and refer it to sale of other parcels of land in order to form my opinion."

[32] As Mr Dudakov emphasised in evidence this reflected a significant discount for unzoned and unserviced land, when compared with other sales, particularly the sale of land on the corner of Cooper Street and the Hume Highway referred to further below.

[33] The Scanlan land was sold in two stages. The first in February 2001 and the second in July 2001. Mr Dudakov combined the two to arrive at the total price stated. Although the rate per hectare is derived from the second stage of the sale.

[34] Mr Dudakov stated in evidence: "... essentially the valuation of the subject land boils down to the purchase of the subject itself earlier, the sale of the serviced and zoned land immediately opposite and how you make appropriate adjustments with those two givens with the balance of the evidence is the task."

[35] Even assuming the land was rezoned and sewerage available to it, Mr Wallace said at [23] and [24] of his Affidavit sworn 26 November 2005:

At a glance

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Cases Cited (11)