Property Partnerships Pacific Pty Ltd v The Owners of Strata Plan 58482

Conveyancing Act 1919, s 88K LEGISLATION CITED: Land and Environment Court Act 1979, s 40 Strata Schemes (Freehold Development) Act 1973, ss 18, 20 Strata Schemes Management Act 1996, s 61

117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504; Antipas v Kutcher (2006) 144 LGERA 289 at 295; Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575; Castagnet Investments Pty Ltd v Woollahra Municipal Council [2005] NSWLEC 647; Coles Myer NSW Ltd v Dymocks Book Arcade Ltd (1996) 7 BPR 14,638; Commissioner of Succession Duties (SA) v Executor Trustee and Agency Company of South Australia Ltd (1947) 74 CLR 358; Khattar v Wiese [2005] NSWSC 1014; CASES CITED: Macarbell Pty Ltd v RTA [2006] NSWLEC 366; Maidment v Roads and Traffic Authority [2006] NSWLEC 606; Mitchell v Boutagy (2001) 118 LGERA 249; Owners Strata Plan 13635 v Ryan [2006] NSWSC 221; Property Partnerships Pacific Pty Ltd v Woollahra Municipal Council [2005] NSWLEC 669; Tregoyd Gardens Pty Ltd v Jervis (1997) 8 BPR 15,845; Wengarin Pty Ltd v Byron Shire Council (1999) 9 BPR 16,985; Yates Property Corporation Pty Ltd (In Liq) v Darling Harbour Authority (1991) 24 NSWLR 156

DATES OF HEARING: 24-25/07/2006, 30/08-01/09/06, 11/09/06, 29/09/06

APPLICANT: Mr M Craig QC SOLICITORS Priest McCarron LEGAL REPRESENTATIVES: RESPONDENT: Mr J Robson SC SOLICITORS Norman Waterhouse

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

PROPERTY PARTNERSHIPS PACIFIC PTY LTD v THE OWNERS OF STRATA PLAN 58482

JUDGMENT HIS HONOUR: 1 This is contested application for an order imposing a drainage easement over the respondent's land under s 40 of the Land and Environment Court Act 1979 (Court Act).

2 In March 2005 the applicant applied to the Woollahra Municipal Council for development consent to demolish a four storey residential flat building containing seven dwellings, and to construct a new three storey residential flat building containing two dwellings over basement parking, at 10 Annandale Street, Darling Point (No 10). Although No 10 is below and slopes away from Annandale Street, the application proposed that site drainage be by way of installation of a detention tank and pump out to the Annandale Street stormwater drainage system. During the process of consideration of the development application the council's drainage engineer suggested that this method of drainage would be inappropriate and required investigation of gravity/downstream drainage across properties generally to the west of and below No 10. The respondent's land is No 45 New Beach Road (No 45) and is to the west of and below No 10. No 45 is a secure building comprising four stepped luxury strata apartments with good views over Sydney Harbour, each said to be valued at over $4 million.

3 In October 2005 the council refused the development application. The first ground of refusal was absence of a downstream drainage easement and consequent inability to reach the requisite satisfaction under cl 25(2) of the Woollahra Local Environmental Plan 1995 which provides: The Council must not grant consent to the carrying out of development on land or the subdivision of land to which this plan applies for any purpose unless it is satisfied that adequate provision has been made for the disposal of stormwater from the land it is proposed to develop.

4 The applicant appealed to this Court against the refusal under s 97 of the Environmental Planning and Assessment Act 1979. The appeal was heard by Senior Commissioner Roseth who determined to grant development consent, subject to the grant of a drainage easement. He adjourned the proceedings to allow the applicant an opportunity to obtain the easement by negotiation or by application under s 40: Property Partnerships Pacific Pty Ltd v Woollahra Municipal Council [2005] NSWLEC 669. An appropriate procedure in such a case was described in Castagnet Investments Pty Ltd v Woollahra Municipal Council [2005] NSWLEC 647 at [25] by Talbot J as follows: "After consideration of all issues and matters required to be considered before a development consent can be granted the Court can determine to grant consent subject to appropriate conditions including a condition that provision for disposal of stormwater be made in accordance with the plans and conditions applicable thereto without formally proceeding to make final orders until the applicant has a reasonable opportunity to make an application under s 40 of the Land and Environment Court Act 1979". There was before the Senior Commissioner in the s 97 proceedings a draft document entitled "Conditions of Development Consent", which was also tendered in the proceedings before me. Clause 7 provided for a stormwater drainage system in accordance with certain drawings. One of the drawings, H11-A, is in evidence before me and identifies the route of the proposed easement over No 45.

The proposed easement 5 The proposed easement runs from the south-west corner of No 10 through No 45. The proposal is for a high density polyethylene pipe originating from a stormwater detention tank on No 10. The pipe is to have a diameter of about 110 millimetres. It will penetrate through a micro tunnel bored in the high rock cliff cut into the hill at the boundary of Nos 10 and 45. From that point onwards it will have a diameter of 200 millimetres. The easement will run across a void at the rear of the building on No 45, then along a void less than a metre wide between the southern wall of No 45 and a rock wall or sliver which separates No 45 and No 44. The pipe will be attached to the southern wall of No 45 by brackets. It will then be necessary to drill under a stairway near the front of No 45 and under the pathway to New Beach Road until the pipe reaches the council stormwater drain on New Beach Road. There is a slab above the southern void on top of which is a pathway and planter bed separating the southern wall of No 45 and the rock wall or sliver between Nos 45 and 44.

6 A proposed instrument under s 88B of the Conveyancing Act 1919 is in evidence. It identifies the easement as "Easement to Drain Water 1 Wide and variable (Limited in stratum)". It appears that the word "metre" has been accidentally omitted before the word "wide". It contains the following terms of easement: Easement to Drain Water pursuant to Part 3 Schedule 8 of the Conveyancing Act 1919 except as varied by the following additions: 1. The owner of the servient tenement has the right, without the consent of the owner of the dominant tenement, to alter the location of the easement within the servient tenement provided that the servient tenement removes any existing drainage pipes and replaces them with other pipes suitable to provide adequate stormwater drainage from the dominant tenement and obtains all necessary approvals to do so. 2. The pipework to drain stormwater may be affixed to the Southern face of the block wall along the length of the void or to the underside of the slab soffit. 3. The owner of the lot benefited may: (a) drain water from any natural source through the lot burdened but only within the site of this easement, and (b) do anything reasonably necessary for that purpose including: · entering the lot burdened, and · taking anything on to the lot burdened, and · using any existing line of pipes, and · carrying out work, such as constructing, placing, repairing or maintaining pipes, channels, ditches and equipment. 4. In exercising the powers referred to in clause 3 above, the owner of the lot benefited must: (a) ensure all the work is done properly, and (b) cause as little inconvenience as is practicable to the owner and any occupier [sic] any improvement on it, and (c) restore the lot burdened as nearly as is practicable to its former condition, and (d) make good any collateral damage. Name of person or authority empowered to release, vary or modify restriction firstly referred to in abovementioned plan:

The owner for the time being of the benefited lot 7 The applicant submitted that clauses 1 and 4 of these terms go some way towards mitigating the consequences of the easement for No 45. On the other hand, any alteration under clause 1 would be at the cost of No 45. 8 In order for the pipe to be installed and maintained it will be necessary for access for workmen and materials to be provided through the ground floor security door, past glass doors, past the security lift and into the plant room area at the rear of the building where there is access to the rear and southern voids that I have described. Next to the lifts is a door, which fire regulations require to be unlocked, leading to the fire stairs. I accept the evidence of Mr Woods, the owner of one of the apartments, that there have been incidents where intruders hid in the fire stairs and from there broke into apartments.

9 The applicant tendered a "Construction Impact Management Plan" which it is proposed should govern the work required for the installation of the drainage line. The objectives of this document, as expressed therein, are to maintain a satisfactory level of cleanliness and resident access to common areas; maintain adequate building security while providing access to construction workers; maintain adequate fire egress; and ensure that any damage is identified and rectified promptly. It provides details of the work zone and the areas of No 45 through which access will be required to complete the installation. It provides that the duration of the works shall not exceed ten working days. It includes a helpful drawing showing the proposed drainage line, a copy of which is annexed to these reasons for judgment and marked "A". The drawing requires modification in one respect in that it shows the pipe fixed to the underside of the slab over the void whereas I understand that it is now proposed that the pipe be fixed to the southern wall of the building.

10 Four other possible routes for the easement were also canvassed in evidence. All five routes are shown on a plan, a copy of which is annexed to this judgment and marked "B". The proposed easement over No 45 is Route C on the plan. The other possible routes shown on the plan pass wholly or partly over other properties adjacent to No 10 or No 45. I consider them in more detail later in this judgment.

Section 40 of the Land and Environment Court Act 1979 11 Section 40 of the Land and Environment Court Act 1979 provides: 40 (1) If the Court has determined to grant development consent on an appeal under section 97 of the Environmental Planning and Assessment Act 1979, the appellant may apply to the Court for an order imposing an easement over land. (2) The Court, on application under subsection (1), may make an order imposing an easement over land if it is satisfied that: (a) the easement is reasonably necessary for the development to have effect in accordance with the consent, and (b) use of the land having the benefit of the easement will not be inconsistent with the public interest, and (c) the owner of the land to be burdened by the easement can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement, and (d) all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect but have been unsuccessful. (3) The jurisdiction of the Court to make an order under this section is exercisable only by a Judge, whether or not sitting alone. (4) Before making an order under this section, the Court must notify the owner of the land affected by the proposed easement (other than an owner who is a party to the proceedings before the Court), and the owner of any land on which it may be necessary for works to be carried out in connection with the easement (other than such a party), of the proposed easement or works, or both.

(5) An owner of land affected by the proposed easement and an owner of land on which it may be necessary for works to be carried out in connection with the easement: (a) may object to the proposed easement or works, and (b) is entitled to appear before the Court in support of the objection. The Court must consider each objection.

(6) The Court: (a) is to specify in the order the nature and terms of the easement and such of the particulars referred to in section 88(1)(a)-(d) of the Conveyancing Act 1919 as are appropriate, and (b) is to identify its site by reference to a plan that is, or is capable of being, registered or recorded under Division 3 of Part 23 of the Conveyancing Act 1919. The terms may limit the times at which the easement applies. (7) The Court is to provide in the order for payment by the applicant for the order to such persons as the Court specifies of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case.

(8) The costs of the proceedings, in so far as they relate to an order sought or made under this section, are payable by the applicant for the order, subject to any order of the Court to the contrary. …

12 Under s 40 the following questions arise in these proceedings: (1) Is the proposed easement reasonably necessary for the development to have effect in accordance with the development consent which the Court has determined to grant [s 40(2)(a)]? (2) Will the use of the applicant's land be not inconsistent with the public interest [s 40(2)(b)]? (3) Can the owner of the land to be burdened be adequately compensated for any loss or other disadvantage that would arise from imposition of the easement [s 40(2)(c)]? (4) Have all reasonable attempts been made by the applicant to obtain the easement or an easement having the same effect, but been unsuccessful [s 40(2)(d)]? (5) If yes to each of the foregoing, should the Court exercise its discretion to impose an easement [s 40(2)]? (6) Unless there are special circumstances, what compensation is appropriate and to whom should it be paid [s 40(7)]? (7) Is there any reason why the costs of the proceedings should not be paid by the applicant [s 40(8)]?

13 These questions are identical to those that arise under the Conveyancing Act 1919 s 88K except for the first which, under s 88K, is: Is the proposed easement reasonably necessary for the effective use or development of the applicant's land? Accordingly, cases on s 88K are generally authoritative in relation to s 40 of the Land and Environment Court Act 1979. The Supreme Court has exclusive jurisdiction to impose easements under s 88K, which was enacted in 1995. This Court has exclusive jurisdiction to impose easements under s 40, which was enacted in 2002.

Is the proposed easement reasonably necessary? 14 The Land and Environment Court Act 1979 s 40(2)(a) requires the Court to be satisfied that the proposed "easement is reasonably necessary for the development to have effect in accordance with the consent".

15 The different requirement of the Conveyancing Act s 88K(1) is that the proposed easement be "reasonably necessary for the effective use or development" of the land to be benefited. The meaning of this requirement where there is more than one possible route for an easement to satisfy the necessity, was analysed in Khattar v Wiese [2005] NSWSC 1014 at [30] - [31] by Brereton J: 30 … In this case, the proposed development is impossible without the easement or an easement to like effect. It follows that an easement is reasonably necessary for the use or development of the plaintiffs' land. But this is not conclusive of whether the proposed easement is reasonably necessary: two subsidiary issues require to be addressed.

31 First, where, as here, there is more than one possible course for an easement to satisfy the necessity, a further question arises as to whether the particular proposed easement is reasonably necessary. A similar problem confronted Hamilton J in Tregoyd Gardens . In that case, the plaintiff's need for an easement could have been satisfied by an easement over either of two properties ' the Jervis land ' and ' the Barbalace land '). In rejecting the Jervis' contention that reasonable necessity had not been made out (in respect of an easement over their land), and that other possible alternatives (in particular, an easement over the Barbalace land) had not been negatived, Hamilton J said that it could not be the intention of the Act that, if an easement would be equally efficacious over two pieces of land, it could not be granted over either, just because it could not be said that it was necessary for it to be granted over one as opposed to the other (emphasis added):- However, only three alternatives are mentioned in the evidence. The first is the scheme for pumping uphill which the Council will not countenance. The only other schemes are for a drainage line to carry the water away downhill which, as set out above, to be possible, must pass through either the defendants' land or the Barbalaces' land. It is reasonably necessary that it must pass through one or the other; although the difference between the two is not great, it is in my view easier and more convenient on the evidence that it pass through the defendants' land than through the Barbalaces' property. It cannot be the intention of the Act that if an easement would be equally efficacious over two pieces of land it cannot be granted over either because it cannot be said that it is necessary for it to be granted over that piece of land as opposed to the other . In these circumstances I am of the view that the plaintiff has established reasonable necessity as claimed by it and I so find.

32 I respectfully agree with Hamilton J that the purpose of s.88K would be defeated if, it being equally efficacious to obtain an easement over either of two lots, it could then be said that it was not necessary for it to be obtained over one or the other of them. In such a situation, the applicant may, within reason, select that lot over which it desires to acquire an easement. This may require the court to undertake some evaluation of the alternatives, in order to be satisfied that the applicant's proposal is reasonable as between them, but this need not involve a precise assessment of the respective advantages and disadvantages of each course, nor necessarily acceptance that the applicant's preferred course is objectively superior to the alternatives, so long as it is reasonable. In this, the court may be guided by the inference that an applicant will ordinarily pursue that course which offers the greatest practical and economic advantages for the development, and incur the least liability to pay compensation: a developer's economic interests will powerfully influence it to select the most reasonable course.

33 The plaintiffs consider that the Susan Street alternative is inferior, because it will involve a longer drain and easement (in the order of 70 metres and opposed to 30 metres) and a substantially greater cost (in the order of $19,000 as opposed to $10,000). In addition, the plaintiffs are concerned that such an easement would impinge much more closely on structures on the servient property or properties. The plaintiffs say that their cost estimates include provision for the protection and preservation of the trees in the site of the proposed easement. In those circumstances, I consider that the plaintiffs' preference for the proposed easement through Mrs Wiese's land over the Susan Street option is reasonable. 16 A closely analogous approach is warranted under s 40(2)(a) of the Land and Environment Court Act 1979 because it too contains the words "reasonably necessary" (or, if not warranted under s 40(2)(a), would at least be warranted in the exercise of the Court's discretion). Thus, it is not the intention of s 40 that if an easement would be equally efficacious over two pieces of land it cannot be granted over either because it cannot be said that it is necessary for it to be granted over one rather than the other. There can be no development on the applicant's land in accordance with the development consent which the Court has determined to grant without a drainage easement to the stormwater system in New Beach Road. It follows that an easement is reasonably necessary for the development to have effect in accordance with the development consent. This is not conclusive of whether the proposed easement over No 45 is reasonably necessary. There are several possible routes for an easement to satisfy the necessity. The question is whether the particular proposed easement is reasonably necessary. The applicant has selected No 45 as the land over which it desires to acquire an easement. This may require the Court to undertake some evaluation of the alternatives in order to be satisfied that the applicant's proposal is reasonable as between them, but it need not involve a precise assessment of their respective advantages and disadvantages nor acceptance that the applicant's preferred course is objectively superior, so long as it is reasonable.

17 Five potential easement routes have been identified, referred to as Routes A, B, C, D and E and shown in the copy plan which is Annexure B to these reasons for judgment. All lead to the council stormwater drain in New Beach Road. As previously mentioned, Route C is the applicant's preferred easement. It runs through No 45, the respondent's land, and is the subject of this application.

18 Routes A and B are partly or wholly over 46 New Beach Road (No 46) which is immediately to the north of No 45. Route A runs from the north-west corner of No 10 through 12 - 14 Annandale Street, then through No 46. Route B runs from the north-west corner of No 10 through No 46. Route A would require the creation of two easements. These routes are longer than the other routes, are through established gardens and under paths and stairways and the presence of services has yet to be identified. I accept the evidence of Dr David Robinson, the court appointed hydrology expert, that adoption of Routes A or B over No 46 would have significant environmental consequences in terms of loss of vegetation and the time required for vegetation to recover once the excavations are reinstated.

19 Routes D and E pass wholly or partly over No 44, immediately to the south of No 45, which is an excavation site for a substantial development. Route D runs from the south-west corner of No 10 through No 45 for a short distance, through the rock wall which separates Nos 45 and 44, and then along No 44 on its northern boundary to New Beach Road. This route was sometimes referred in the evidence as the "short route". Route E runs from the south-west corner of No 10 through No 8 Annandale Street (No 8), then through No 44. Routes D and E would necessitate the creation of two easements. Dr Robinson was concerned about serious delay that may be occasioned by effecting drainage by routes D or E given the uncertainties that pertain to the development of No 44 and the need for that development to reach a relatively advanced stage before the pipe could be installed on No 44.

20 The owners of Nos 46 and 8 have expressed opposition to an easement over their properties. The respondent opposes the proposed easement over No 45 (Route C) but, by letter dated 22 May 2006 from its solicitors to the applicant's solicitors, indicated that it would be prepared to agree to Route D given that Mr Hanna, the director of the corporate owner of No 44, had sworn an affidavit confirming that it was willing to grant a drainage easement through No 44. The letter said: In order to facilitate your client accessing the existing easement on No 44 New Beach Road, we are instructed that our clients would agree to a short stormwater drain across the south-east corner of their site (provided that all pipes are below the corner deck of Unit 4) to be formalised by way of a s 88B instrument to be registered on title. It would then be possible for your client to directly tap into the existing easement on No 44 at a point in the south-eastern corner of our client's site.

It would then be a matter for your client to negotiate terms of an easement with Mr Hannah, whom as we have indicated already has confirmed he would facilitate such discussions.

Our client's offer is on the basis that their costs in these Class 3 proceedings to date are attended to by your client which would be significantly less than costs incurred in the event that the matter proceeds to a full hearing...

We make this without prejudice offer in an attempt to avoid the ongoing litigation, and to ensure that there is an outcome which is satisfactory to all parties and which resolves this dispute as efficiently as possible.

21 There were subsequent negotiations between the solicitors as to this proposal but no agreement was reached. Mr Hanna gave evidence that he was willing, and had always expressed his willingness to the applicant, to permit the applicant to have a drainage easement over No 44. Later in this judgment it will be necessary to consider his evidence in more detail.

22 The easement route options were assessed in the evidence of two hydrology experts, Dr David Robinson, a court appointed expert, and Mr Michael Boyden, who was retained by the respondent. In his initial report, Dr Robinson assessed the alternative routes. He considered that Route C over No 45 was the most favourable and that Routes A and B over No 46 were the least favourable. Mr Boyden then provided reports in which he expressed preference for a route through No 46 or, alternatively, the route through Nos 8 and 44. These hydrology experts then produced two joint reports. In the first joint report, they assessed the easement options (other than option A). In their second joint report, they considered a statement by Mr van Kretschmar, a representative of the applicant, concerning the various routes. They agreed substantially with his estimates of the various construction costs viz Route E (Nos 8 and 44) $110,000, Route D (Nos 45 and 44) $100,000, Route C (No 45) $50,000 and Route B (No 46) $52,000. I accept those estimates.

23 Mr Boyden's recommendations in the second joint report were as follows:

1. 44 New Beach Road is presently burdened by a drainage easement. Its owner has expresses [sic] a willingness to accept water from 10 Annandale Street and provision for the incorporation of stormwater provisions within development of 44 New Beach Road is clear.
2. 44 New Beach Road is presently excavated and a Section 96 Approval has been gained from Woollahra Council (5/6/2006). There is therefore no reason why, subject to the securing of agreements and easements, construction can not commence immediately.
3. Construction works associated with the drainage of 10 Annandale Street through 8 Annandale Street will only involve micro boring through rock, deep under the north east corner of 8 Annandale Street. There is no need for entry to 8 Annandale Street at any time prior to, during or after construction of the drainage system.
4. 8 Annandale Street presently benefits from a stormwater easement through 44 New Beach Road.
5. Drainage through 8 Annandale Street is the most cost effective method for the provision of drainage from 10 Annandale Street.
6. Though drainage through 46 New Beach Road would be the more conventional route, given that the owners of 46 New Beach Road have resisted the provision for drainage through their property, have accepted and are apparently willing to accept excess flows from 10 Annandale Street entering their property, in my opinion, it is acceptable to diverge from convention in this instance.
7. In the long term, should there develop a concern by the owners of 46 New Beach Road with regard to drainage from 10 Annandale Street, there will always be the opportunity for the owners to address their situation at that time and independently of any other property.

24 Mr Robinson's conclusions and recommendations in the second joint report were as follows: Routes that pass through and discharge from 44 New Beach Road From an overall ease of construction and social and environmental impact point of view, these are the preferred discharge routes however they cannot be recommended because there is much uncertainty over when these routes could be utilised because the pipework cannot be installed in 44 New Beach Road until construction re-commences and can be scheduled into their construction program. Also this route requires two easements and transfers water from an upstream property on to one to which it does not naturally drain.

The additional information provided indicated that the costs of these routes were substantially more expensive than the other two routes. Also the tolerances on the drilling needed for the route through 8AS to 44NBR did add to the engineering complexity and fine working tolerances would be needed in the drilling process. The final drainage pipe cannot be initially provided and it is still uncertain when the construction of 44NBR will commence and reach a point where the final drainage line can be permanently installed. It is most likely that the pipeline would need to be constructed in two stages; firstly the permanent section of the pipeline could be constructed but there would have to have [sic] a temporary connection through the building site until the permanent pipe could be installed. There is also uncertainty as to whether the stormwater from 10 AS, 8 AS and 44 NBR would need separate pipes or they could be rationalised into two or one pipe.

Routes that pass through and discharge from 46 New Beach Road. From an overall difficulty and cost of construction and social and environmental impact point of view, this is the least preferred discharge route. This route requires only one easement but does transfer all of the surface runoff from 10 Annandale Street onto 46 New Beach Road. This route would eliminate the present occasional flooding of 45 NBR.

The additional information provided indicated that the cost of this route is of the same order of the cost of the route through 45NBR. There are still uncertainties about what, if any, obstructions or constraints may be found during the excavation needed for the stormwater line.

Routes that pass through and discharge from 45 New Beach Road. From an overall ease and cost of construction and social and environmental impact point of view, this is the recommended discharge route. This route requires only one easement and transfers all of the surface runoff from 10 Annandale Street onto 45 New Beach Road. This route would eliminate the present occasional flooding of 45 NBR. The owners of 45 New Beach Road will need to be compensated for the additional burden that this option will place on them.

The additional information provided did not cause me to modify my original recommendation.

The recommended route for the easement is from 10 Annandale Street through 45 New Beach Road.

25 There was unchallenged evidence from a plumber, Mr Jones, which I accept, that installing a drainage line on No 45 as proposed would be significantly more economical, quicker and less disruptive than the alternative installation of a drainage line along the eastern and northern boundaries of No 46.

26 The applicant submitted that the alternatives to an easement over No 45 are all inferior because they involve greater cost, uncertainty, two easements rather than one, or other difficulties.

27 The extent of the burden of the proposed easement on the servient property is also a relevant consideration. The greater the burden, the stronger is the case needed to justify a finding of reasonable necessity: Khattar at [27]. The burden on No 45 is significant because, as mentioned earlier, the installation and maintenance of the pipe requires invasion of the security arrangements for this luxury residential building. In that regard the hydrology experts agreed in a third joint report that the need to gain access to the pipeline after installation is very unlikely. However, in oral evidence Mr Boyden said, and I accept, that from an engineering point of view it would be advisable to inspect the installation every three to five years. Both experts agreed, and I accept, that such an inspection would be likely to take in the order of half an hour on each occasion.

28 I accept that the applicant's proposed route over No 45 (Route C), in preference to the routes over No 46 and No 8 (Routes A, B and E), is reasonable given the difficulties in relation to Nos 46 and 8 disclosed by the evidence. That leaves for consideration the route over Nos 45 and 44 (Route D).

Mr van Kretschmar and Mr Hanna - Conversations 29 The dealings between Mr van Kretschmar on behalf of the applicant and Mr Hanna on behalf of the owner of No 44 are relevant to both s 40(2)(a) (the Court's satisfaction that the easement is reasonably necessary for the development to have effect in accordance with the consent) and 40(2)(d) (the Court's satisfaction that all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect, but have been unsuccessful).

30 By about mid 2005 Mr van Kretschmar had formed the view that he would prefer the easement from No 10 to go through No 45; had retained geotechnical engineers Jeffrey and Katauskas to comment on the drilling of that route, and had obtained a report from Lipscombe and Associates for the various options.

31 In an affidavit of 8 March 2006, Mr Hanna recounted a telephone conversation between himself and Mr van Kretschmar which took place in or around mid-2005: [4] Mr van Kretschmar: 'My name is Hugo van Kretschmar. I am the owner of the property behind and to the left of you, the block of units behind your neighbour No. 45. I have a DA approval to build a new block of apartments, and the DA requires an easement for storm water drainage down to New Beach Road. I have spoken to the neighbours at No. 45 as well as the neighbour behind you Mrs Di Napoli regarding the easement.' Mr Hanna: 'I don't think you will have an easy time negotiating with them.' Mr van Kretschmar: 'I know that.' Mr Hanna: 'If you want an easement down the side of my property, then I am more than happy to cooperate.' Mr van Kretschmar: 'I am aware that Mrs Di Napoli already has an easement through your land for drainage.' Mr Hanna: 'I am happy for you to tap into that connection. You will have to speak to our engineer obviously, to ensure that the pipe has sufficient capacity to carry the additional flow. Why don't you give Lionel Kools from my office a call on XXXX XXX XXX and liaise with him, but more than happy to help.'

Mr van Kretschmar : 'I'd prefer to go through No.45 if I can as it is easier for me, but I'll give your bloke a call.' 32 Mr van Kretschmar, in an affidavit sworn on 25 November 2005, also recounts a conversation between himself and Mr Hanna on 9 June 2005: [52] Mr van Kretschmar: 'I am advised by Council that I am required to drain stormwater from 10 Annandale St to Council's drainage system in New Beach Rd. I am investigating the options that may be available to me. Whilst I realise that I do not have a common boundary with you, I would like to know how you would feel about granting me an easement if I were able to gain access to your property through either 8 Annandale St of 45 New Beach Rd.'

Mr Hanna: 'I have had many dealings with the owners of both those properties and suspect they will not agree to grant you an easement - in which case my position is somewhat moot. I will discuss it with our drainage engineer however and let you know.'

33 In his affidavit of 18 January 2006, Mr van Kretschmar recounted a subsequent conversation between himself and Mr Hanna on 4 January 2006: [6] Mr van Kretschmar: 'I notice that there has been no construction progress on your property for some time. What is the reason for this?'

Mr Hanna: 'Construction at 44 New Beach Road stopped approximately 2 months ago because we were issued with an Order for Demolition on account of building works not being in accordance with the approved Construction Certificate Plans. We had to move the building forward 500mm to accommodate problems with the location of the boundary to our rear (8 Annandale Street) and our approved plans did not show this. Mr Peter Woods of 45 New Beach Road had the location of our foundations surveyed and advised Council who then issued the Demolition Order. We are currently preparing amended plans and intend to lodge a s96 Application with Council in the near future. There will be no further building works until such time as these amended plans are approved and a new Construction Certificate issued.'

Mr van Kretschmar: 'Do changes by way of your s96 plans, assuming it gets approved, mean that the approximately 1.5m wide rock wall between N. 44 and 45 New Beach Road can remain in place?'

Mr Hanna: 'The rock wall must be removed to accommodate our development. We can construct the building without removing the rock wall but we need the consent of the owners of 45 New Beach Road to remove the rock wall because it supports a part of their structure. To date, the owners of 45 New Beach Road, and particularly Mr Peter Woods, have refused to give the necessary consent. One of their stated reasons for not giving consent is that security to their property would be compromised if we demolished the wall.'

Mr van Kretschmar: 'Is the existing drainage easement benefiting 8 Annandale Street located in the same strip of land as the rock wall that needs to be removed?'

Mr Hanna: 'Yes. The rock wall needs to be removed to accommodate 8 Annandale Street drainage line.'

Mr van Kretschmar: 'The DA conditions for my property handed down by the Court requires me to obtain an easement and install drainage infrastructure prior to commencing construction. If the Court, in my s40 proceedings with 45 New Beach Road, were to decide that my drainage should instead pass in part through your property - then based on what you have just said I would have to wait with my development until such time as you have completed your building work and reached agreement with 45 New Beach Road to demolish the wall. How long do you anticipate that will take?'

Mr Hanna: 'The building work should take approximately 12 months - but who knows how long Council will take to approve our s96 application, if at all, and then how long it takes us to final [sic] reach agreement with the owners of 45 New Beach Road, if ever!'

34 That conversation was denied by Mr Hanna in his affidavit of 8 March 2006. He deposed that his conversation with Mr van Kretschmar on 4 January 2006 was, instead, to the following effect: [5] Mr van Kretschmar: 'What's happening with your site?' Mr Hanna: 'There have been some issues with council following some complaints by the neighbours regarding the location of the structure on the site. We have lodged an application for a new CC that was rejected. Council then requested that we lodge a s.96 amendment and we are hopeful of that being approved fairly quickly.'

Mr van Kretschmar: 'What is happening with the wall between you and No. 45? Has that had anything to do with your problems with the Council?'

Mr Hanna: 'No. There have been issues with No. 45 regarding the wall and those issues have yet to be resolved. They want the wall face to remain, but I would prefer if possible that the face be removed and a new wall built in its place using concrete blocks and faced with sandstone. I had previous discussions with the neighbours, but they resulted in proposals which contained onerous conditions which I could not agree to and hence the matter remained unresolved. I therefore have decided to proceed with the construction of the building and to revisit this issue and resume discussions with the neighbours once my structure was up.'

Mr van Kretschmar: 'So are you able to build the building itself with the wall still there?'

Mr Hanna: 'Yes, but we will not have a fire passage. By putting up the building this will alleviate one of their major concerns being the presence of a wall for security purposes, and then if the rock wall was then removed the security issue would not be compromised.'

Mr Hanna: 'I am hopeful that the s.96 will go through quickly and that I can resume construction of the building. Thereafter I will resume discussions with the neighbours about the rock wall.'

Mr van Kretschmar: 'Well, there is a bit of uncertainty as to how long this will take on your property, so I am better off pushing to get the easement through No. 45.'

Mr Hanna: 'As I told you Hugo, you are more than welcome to go through my property and I am happy to do whatever I can to help.'

Mr van Kretschmar: ' I need to go through the motions of asking you for an easement, and it would help me greatly if you could be seen to be ignoring me or to be telling me to go and get lost. What I want to do is to fax you a request in writing, and for you to ignore it. '

35 The part of the conversation between Mr van Kretschmar and Mr Hanna that is most in issue is the statement which appears in bold above. In cross-examination, Mr Hanna maintained that Mr van Kretschmar had said those words. In his affidavit of 10 July 2006 and again in cross-examination, Mr van Kretschmar denied that he said those words, and deposed that the above conversation rather concluded with words to the following effect: "I will write to you to confirm the details of our conversation. Whilst I do not believe it is in my interest for my drainage line to pass through your property, I will nevertheless ask you whether you are willing to grant an easement, and if so on what terms. It is up to you if you wish to respond, but if you do not it will be taken as a 'no'".

36 On 9 January 2006 Mr van Kretschmar sent a fax to Mr Hanna in which he sought to confirm his understanding of the telephone conversation of 4 January 2006, and which concluded by asking whether Mr Hanna would be willing to grant an easement to drain stormwater, and on what terms (including any compensation payable). The fax stated: Thank you for taking the time on 04.01.06 to discuss with me the current status of your development at 44 New Beach Rd.

I confirm my understanding as follows:

1. Work has currently stopped on site on account of a Demolition Order issued by Woollahra Council due to works constructed not being in accordance with approved plans.
2. As a result of boundary issues with your neighbour to the east (8 Annandale St), the building on your approved development needs to be 'compressed' by approximately 500mm along the east / west axis of the building.
3. You are currently preparing amended plans which you intend to submit by way of S96 application to obtain approval for the necessary changes noted in item 2 above.
4. Once the S96 application is approved and a new corresponding Construction Certificate is issued you intend to continue construction.
5. There is a section of unexcavated rock approximately 1.5m wide and of varying height (approximately 3.0m - 11.0m) located long your (northern) boundary with 45 New Beach Road. This section of rock supports a boundary wall to 45 New Beach Rd. In order to excavate the rock, the wall above (which it supports) needs to be demolished.
6. In order to fully complete your development (either in accordance with current approved plans or amended plans noted in item 3 above) the section of unexcavated rock noted in item 5 above needs to be removed. The rock needs to be removed to accommodate a fire escape passage necessary for your proposed development as well as a stormwater drainage line from 8 Annandale St which leads through to New Beach Rd.
7. The stormwater drainage line from 8 Annandale St which passes through your property is located within a drainage easement 1.0m wide located along your northern boundary. The easement is located wholly within the area of the unexcavated rock. In order to relocate the drainage easement you would need the consent of the owner of 8 Annandale St. You do not believe the owner of 8 Annandale St will agree to the easement being relocated.
8. You have had extensive negotiations over the past 12 months with the owners of 45 New Beach Road in an attempt to obtain their agreement to the removal of the unexcavated section of rock. These negotiations have failed.
9. Your current intention, once S96 plans are approved and a corresponding Construction Certificate has issued, is to construct that part of your development that can be constructed with the unexcavated section of rock remaining in place. Once you have completed construction, to the extent that you can, given the constraints imposed by the unexcavated rock, you will recommence negotiations with the owners of 45 New Beach Rd regarding the excavation of rock, demolition of existing boundary wall and construction of a new boundary wall.
10. Only once you have the necessary consent from the owners of 45 New Beach Rd and the rock has been excavated can you replace the existing temporary drainage line from 8 Annandale St with a permanent drainage line located within the existing drainage easement.

Whilst we are strongly of the view that it is not in the public interest for our drainage line to pass through your property and are pursuing the grant of an easement wholly through 45 New Beach Rd, we seek your response to: (a) Whether you would be willing to grant us an easement to drain stormwater; (b) If an easement is granted on what terms it would be granted including any compensation payable.

38 The applicant submitted that the fax provided an objective means of determining what was said. However, in cross-examination Mr Hanna indicated, and I accept, that he did not reply because of the terms of his conversation with Mr van Kretschmar to which he deposed.

39 Mr Hanna agreed in cross-examination that in the 4 January 2006 conversation he told Mr van Kretschmar that construction work on No 44 had stopped and that the building work would take approximately 12 months. That work did not resume until August 2006. Mr Hanna did not agree, however, that this indicated that construction would not finish until about August 2007. He said that it in fact should be completed in March or April 2007 because they had changed their construction method. Mr Hanna also said in cross-examination that the property was advertised for sale in May 2005 by the previous mortgagee who was in possession because the owner was in default of financing arrangements. Under the current loan facility (with a new mortgagee), completion of construction is required by 31 December 2006 and breach of that requirement will be a default under the mortgage. He disagreed, however, with the suggestion that the project was therefore at risk because completion of construction was now not expected until March or April 2007. The reason for his disagreement, he said, was that he had met with the mortgagees in about May 2006, at which meeting the latter accepted that the project would be delayed and indicated that they would not call up the mortgage until the project was completed and sold, unless there were further delays beyond the new estimated time of completion of March/April 2007. That verbal arrangement, he said, is not recorded anywhere.

40 I generally accept the evidence of Mr Hanna. I prefer his evidence to that of Mr van Kretschmar where they are in conflict. Mr Hanna had no apparent interest in these proceedings and I was influenced by his demeanour. In particular, I accept that in about mid 2005 and on 4 January 2006 he indicated to Mr van Kretschmar that he was willing to provide the applicant with an easement over No 44, and that on 4 January 2006 Mr van Kretschmar said to him words to the effect "I need to go through the motions of asking you for an easement and it would help me greatly if you could be seen to be ignoring me or to be telling me to go and get lost. What I want to do is to fax you a request in writing, and for you to ignore it."

41 These findings are not dispositive of the question whether the proposed easement over No 45 is reasonable compared with an easement over No 45 / No 44. They may, however, have ramifications for the question whether the applicant made all reasonable attempts to obtain the latter easement.

42 These findings also do not mean that I accept that Mr Hanna's time estimates for works and completion are reasonable or are likely to be achieved. In my view, there is uncertainty in that regard, on the evidence before me. Nor do I accept that the owner of No 44 necessarily has any legally enforceable agreement with, or equity against, its mortgagees arising out of the undocumented discussion in or about May 2006. Again, I consider that there is uncertainty in that regard, on the evidence before me.

43 There is uncontested evidence from Mr van Kretschmar, which I accept, of a conversation between Mr Hanna and him on 28 July 2006. On that occasion, Mr Hanna said that any pipeline entering No 44 would have to be located within 1.2 metres of its northern boundary and on top of the rock wall; that the applicant would not be able to start work on the easement until approximately 3 months after work had commenced on No 44; and that the installation of the pipe would have to be completed before the work on No 44 was completed. In oral evidence on 1 September 2006, Mr Hanna testified that the easement pipe would have to be put in after No 44 had completed work on its concrete structure, which was estimated to take 3 months, and before completion in March/April 2007. Assuming work were to go as Mr Hanna hopes or expects, obliging the applicant to procure an easement over No 44 will present further uncertainty for the applicant. One of the matters to be resolved would be that, apparently, the respondent has contemplated that the pipe would penetrate the rock wall between Nos 45 and 44, whereas Mr Hanna has contemplated that it would pass over the top of the rock wall. The applicant would be left with only a small window of time in which to reach agreement with Nos 44 and 45 (and the mortgagees of No 44) as to the this issue of location and as to compensation. If no agreement were reached it would have to make a s 40 application to the Court. Assuming an expeditious agreement or s 40 order, it would then have only a relatively small window of time to lay the pipe.

44 Having regard to the uncertainty, extra cost and the requirement for two easements rather than one, I conclude that the applicant's proposal to put the easement over No 45 is reasonable compared with the alternative route partly over No 45 and partly over No 44.

45 Accordingly, in terms of s 40(2)(a), I am satisfied that the proposed easement is reasonably necessary for the applicant's development to have effect in accordance with the proposed development consent.

Will use of the applicant's land be not inconsistent with the public interest? 46 This is the requirement in s 40(2)(b). It is not in contest. The development of the applicant's land, in accordance with the determination of the Senior Commissioner to grant development consent, is lawful. It is consistent with other developments in the area. It is consistent with the respondent's own development. I am satisfied that the proposed use of the applicant's land is not inconsistent with the public interest.

Can the owner of the land to be burdened by the easement be adequately compensated for any loss or other disadvantage that would arise from imposition of the easement? 47 Section 40(2)(c) provides for the Court to be satisfied that "the owner of the land to be burdened by the easement can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement". Strictly, this is a separate matter from the amount of compensation, which is dealt with in s 40(7): "The Court is to provide in the order for payment by the applicant for the order to such persons as the Court specifies of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case".

48 Legal ownership of all the common property in a strata scheme is vested in the owners corporation, but only as agent for the owners, who are vested with the beneficial ownership proportional to the unit entitlement of their respective lots: ss 18, 20 Strata Schemes (Freehold Development) Act 1973 (NSW).

49 In Khattar v Wiese [2005] NSWSC 1014 at [50] Brereton J said that: "injury to intangible benefits and the imposition of intangible detriments, such as reduced amenity and enjoyment of property, and exposure to increased disruption and interference, may weigh heavily against a conclusion that the servient owner can be adequately compensated for the purposes of s 88K(2)(b). 50 This is not a case where the owner's loss or other disadvantage cannot be readily identified and valued. I am satisfied that the owner can be adequately compensated for any loss or other disadvantage that would arise from imposition of the easement, for reasons that will be apparent from my analysis of the quantum of compensation later in this judgment.

Have all reasonable attempts been made to obtain an easement? 51 The requirement of s 40(2)(d) is that the Court is satisfied that "all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect but have been unsuccessful".

52 It has been held that if an easement over alternative land would have the same effect as the proposed easement, then the applicant is obliged to seek and make all reasonable attempts to obtain the alternative grant: Tregoyd Gardens Pty Ltd v Jervis (1997) 8 BPR 15,845. In Khattar (above) at [54] Brereton J commented that: "This construction is consistent with the policy that compulsory imposition of an easement and expropriation of proprietary rights should be a last resort, and an applicant should first be required to take all reasonable steps to obtain an alternative solution… As Hamilton J said in Tregoyd Gardens, in this context reasonableness is a matter of degree, and the relative advantages, convenience and costs of the various options are relevant."

53 I am satisfied that all reasonable attempts were made to acquire easements over No 46 and No 8 which, I accept, were rebuffed. I have earlier considered in some detail the evidence concerning an attempt to acquire an easement over No 44. I have indicated that I prefer the evidence of Mr Hanna to that of Mr van Kretschmar where they are in conflict. On Mr Hanna's evidence, which I accept, he had indicated to Mr van Kretschmar from around mid 2005 that the owner of No 44 was willing to provide an easement over the northern boundary of No 44 to benefit the applicant's land; and Mr van Kretschmar told him on 4 January 2006: "I need to go through the motions of asking you for an easement, and it would help me greatly if you could be seen to be ignoring me or to be telling me to go and get lost. What I want to do is to fax you a request in writing, and for you to ignore it".

54 Notwithstanding these findings, the question remains whether the applicant took all "reasonable" steps to obtain that easement and whether it is an easement "to the same effect" as the proposed easement over No 45 alone. In this context, reasonableness is a matter of degree and the relative advantages, convenience and cost of the options are relevant considerations.

55 As indicated earlier, the respondent at a late stage, in May 2006, wrote to the applicant proposing to resolve the matter by agreement for Route D. This is the short route over No 45 which would penetrate the rock wall or sliver between Nos 45 and 44 and then proceed along the northern boundary of No 44 to the council's stormwater drain in New Beach Road.

56 There are substantial disadvantages with Route D (Nos 45 and 44) and Route E (Nos 8 and 44) as compared with Route C (just over No 45). These are greater cost, uncertainty and consequential risk of delay, and the requirement for two easements rather than one. The cost of an easement along Route D is about $100,000. The cost of an easement over Route E is about $110,000. The cost of the proposed easement over Route C (No 45) is about $50,000. The owner of No 8 has indicated strong opposition to an easement over that property and there has been a history of litigation between the owners of Nos 8 and 44 concerning the development on No 44 which aggravates the position. As analysed earlier, there is uncertainty in relation to No 44 as to whether and when the development will be completed and as to whether and when agreement could be reached between the owners of Nos 44 and 45 concerning the precise location and formalisation of the easement and the quantum of compensation. This uncertainty is exacerbated by the rather narrow timeframe which Mr Hanna indicated in his evidence would be required if an easement were to be put over No 44.

57 Having regard to these manifest disadvantages of an easement over route D (Nos 44 and 45) compared with the proposed easement over route C (No 45), I am satisfied that the applicant has made all reasonable attempts to obtain an easement having the same effect as the proposed easement.

Discretion 58 Notwithstanding satisfaction of all the requirements of s 40(1) and (2), it still remains in the discretion of the Court whether to grant or withhold relief. In Khattar (above) at [60] Brereton J said in the context of the equivalent discretion under s 88K of the Conveyancing Act 1919: That discretion is to be exercised having regard to the purpose of the section, which might be summarised as facilitating the reasonable development of land whilst ensuring that just compensation be paid for any erosion of private property rights… Consideration of exercise of the discretion will only arise once the court is satisfied that the servient owner can be adequately compensated, but will often be informed, if not determined, by a finding that there can be adequate compensation… While the confiscatory nature of the section may be relevant, and likewise the extent of the burden which would be imposed on the servient land, the mere reluctance of the servient owner to accept an easement is not relevant… The existence of a superior alternative might well remain at least a relevant discretionary consideration, if it is not determinative of ' reasonable necessity '.

59 Likewise, in my opinion, the purpose of s 40 is to facilitate the reasonable development of land whilst ensuring that just compensation is paid for any erosion of private property rights. In my view, there are no discretionary considerations sufficient to refuse relief. Having regard to the purpose of s 40, the findings I have made and the circumstances, I propose to exercise the Court's discretion in favour of the applicant.

Quantum of compensation 60 Section 40(7) provides that: "The Court is to provide in the order for payment by the applicant for the order to such persons as the Court specifies of such compensation as the Court considers appropriate, unless the Court determines that compensation is not payable because of the special circumstances of the case".

61 It has not been suggested that there are any special circumstances that would warrant the Court determining that compensation is not payable. Accordingly, it is necessary to provide for the payment of such compensation as the Court considers appropriate and to specify the persons to whom it should be paid. Who might the "persons" referred to in s 40(7) be? Obviously they include the owner of the servient tenement referred to in s 40(2)(c), which requires the Court to be satisfied that "the owner of the land to be burdened by the easement can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement".

62 The equivalent provisions to s 40(2)(c) and (7) in the Conveyancing Act 1919 are s 88K(2)(b) and (4). In this context in Khattar (above), Brereton J said: [65] The onus of proof in a case for compensation under s.88K is borne by the applicant [ 117 York Street , 516; Mitchell v Boutagy (2001) 118 LGERA 249; (2001) 10 BPR 19,187; (2002) NSWConvR 56-024; [2001] NSWSC 1045 (Austin J), [34]]. This compensation is the same compensation " for any loss or disadvantage that will arise from imposition of the easement " as is referred to in s.88K(2)(b) [ Goodwin v Yee Holdings ; Mitchell v Boutagy ]. The court's task, therefore, is to assess appropriate compensation for the imposition of the easement, measured as adequate compensation " for any loss or other disadvantage that will arise from the imposition of the easement " [ Mitchell v Boutagy , [25]]…

[66] … In Tregoyd Gardens , Hamilton J identified, in the case of grant of a permanent easement such as one to drain stormwater, that compensation will normally include compensation for loss of the proprietary rights taken by the easement, and compensation for the disturbance effected by carrying out the initial work and subsequent repair and maintenance. In Mitchell v Boutagy , Austin J held that provision was to be made both for initial disturbance (upon installation of the pipes) and future disturbance (least in the future there was a need to service and maintain the pipes). Ultimately, His Honour allowed $2,600 (being the rental value for four weeks during which the initial works would take place), and a further $2,000 (about three weeks) for future disturbance.

63 In Owners Strata Plan 13635 v Ryan [2006] NSWSC 221 at [85] Rein AJ summarised the compensation principles under s 88K as follows: (1) The compensation referred to in s 88K(4) is compensation for any loss or other disadvantage (as referred to in s 88K(2)(b)) caused by the easement: see Goodwin v Yee Holdings Pty Ltd ( 1997) 8 BPR 15,795 at 15,801 per Windeyer J. (2) Section 88K(2)(b) requires a causal relationship between the loss or disadvantage for which claim is made and the imposition of the easement: Mitchell v Boutagy (2001) 118 LGERA 249 at [26]. (3) Causation is to be ' determined by applying common sense to the facts of each particular case ': as set out in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 515; Mitchell at [27]. (4) Ordinarily compensation will have three elements: (a) the diminished market value of the affected land, including the potential use to which the land could be put; (b) associated costs that would be caused to the owner of the affected land; (c) an assessment of compensation for insecurity, loss of amenities such as loss of peace and quiet; and will allow as an offset any compensating advantages: per Young J in Wengarin Pty Ltd v Byron Shire Council (1999) 9 BPR 16,985; [1999] NSWSC 485 at [26]. (5) There may be an exceptional case where it is extremely difficult to assess compensation and it is clear that the applicant is to derive a considerable benefit from the application, and where it may be appropriate to assess the compensation on a percentage of the profits that would have been made: Wengarin per Young J. (6) The Court ' should not err on the side of generosity or miserliness ', and leaving aside (5) above, the fact that the plaintiff ' may generate profit, substantial or moderate, from the development in connection with which the easement is sought, does not justify any departure from what would otherwise be the principles upon which adequate compensation is assessed ': Mitchell per Austin J at [31]. (7) Compensation under s 88K includes, in the case of a grant of a permanent easement, compensation for loss of proprietary rights taken by the grant of the easement and compensation for the disturbance effected by carrying out the initial work and the costs of subsequent repair and maintenance. The first aspect is often referred to as the ' blot on title ' and the second as ' disturbance ': Mitchell at [32]. (8) Loss or disadvantage does not include the loss of the bargaining position that the owner of the servient tenement would have if s 88K had not been enacted: Goodwin v Yee Holdings Pty Ltd ( 1997) 8 BPR 15,795 at 15,801; 117 York Street at 515, 516; Wengarin at 16,988. Loss of rent can be compensated: Goodwin. (9) The plaintiff has to establish what the relevant losses and disadvantages are as part of satisfying the Court that the persons affected can be adequately compensated: 117 York Street at 516, but onus should not be overemphasised: see Wilson v Forrester-Babcock (2000) 10 BPR 18,377; [2000] NSWSC 1208, and unfavourable inferences can be drawn where evidence of facts is peculiarly within the knowledge of the defendant: Mitchell at [34].

64 In the context of s 40, in Antipas v Kutcher (2006) 144 LGERA 289 at 295 [28] - [30] Lloyd J said: [28] There is no material difference between s 40 of the Court Act and s 88K of the Conveyancing Act relating to compensation. The principles of determining compensation under s 88K may thus be applied to the determination of compensation under s 40. [29] The onus of proof for the question of the appropriate amount of compensation is upon the applicant: 117 York St Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 at 576, 98 LGERA 171 at 182-183, Mitchell v Boutagy at [34]. [30] In Wengarin Pty Ltd v Byron Shire Council (1999) 9 BPR 16,985, Young J, drawing upon cases decided in the Supreme Court of Queensland, set out, at [26], a number of general principles which apply in considering the question of compensation: (i) The compensation referred to in subs (4) [cf subs (7) of s 40] is the same compensation as is referred to in subs 2(b) [cf subs 2(c) of s 40], that is, adequate compensation for loss or other disadvantage. (ii) The compensation is not a substitute for the price that could have been exacted if the section did not exist. (iii) The compensation is not just the diminished value of the affected land. (iv) Ordinarily the compensation will be: (a) the diminished market value of the affected land; (b) associated costs that would be caused to the owner of the affected land; (c) an assessment of the compensation for insecurity and loss of amenities such as loss of peace and quiet; (d) the compensation is to be less where there are advantages to be taken into account. (v) There may be some exceptional cases which fall outside the net of the section where it is extremely difficult to assess the compensation, but it is clear that the applicant is to derive a considerable benefit from the application. In such circumstances it may be appropriate to assess the compensation on a percentage of the profits that would be made.

65 I propose to determine compensation by reference to the principles referred to above. 66 A case of the present type is akin to a compulsory acquisition case where valuation doubts are resolved in favour of a more liberal estimate. This principle has been twice affirmed by the High Court. The second occasion was by Callinan J in Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575 at [356], agreeing with Dixon J's famous dictum in Commissioner of Succession Duties (SA) v Executor Trustee and Agency Company of South Australia Ltd (1947) 74 CLR 358 at 373 - 374: There is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate. Recent affirmation of that principle in this court is found in Macarbell Pty Ltd v RTA [2006] NSWLEC 366 at [12] (Jagot J) and Maidment v Roads and Traffic Authority [2006] NSWLEC 606 at [49] (Biscoe J).

67 The court in a case such as the present is a judicial valuer. In Yates Property Corporation Pty Ltd (In Liq) v Darling Harbour Authority (1991) 24 NSWLR 156 (CA) at 182-183 Handley JA spoke of a situation where a court or a valuer had to make adjustments to values deduced from comparable sales, adjustments which may be nothing more than the "best guess" that can be made. His Honour then said: A judicial valuer is not required to formulate verbal reasons for such guesses or exercises of judgment. Australian courts, and in particular the High Court, have frequently referred to the statement by Lord Hobhouse in Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [1901] AC 373 at 391: … in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusion arrived at.

68 A valuation report was prepared by a court appointed expert, Mr Gregory Preston. He assessed compensation at $25,000 "representing the blot on the title". He made his assessment in the following way. He estimated the area of the easement at 3.96 square metres by multiplying the width of the pipe, which he took to be approximately 110 mm, by its length of 36.02 square metres. He said "it would then be usual to estimate the land value of the land affected by the easement. The land value would then be adjusted by a percentage factor, based on the impact of the easement upon the servient tenement. The impact of any easement which totally sterilises the use of the land would have a factor of 100%, whereas an easement with only minimal affectation would have an impact in the order of 5-10%. In the case of the subject property, where the saleable strata allotments are not impacted upon by the easement; and where the section 88B instrument gives the right to the servient tenement to alter the location of the easement with any future development; we believe that the impact upon the servient tenement of the proposed easement would be minimal… As stated in Dr Robinson's report, the servient tenement will be benefited to the extent that the inundation at the rear of 45 New Beach Road, Darling Point, will be mitigated by virtue of the creation of the easement. I have therefore formed the view that any burden of the easement on the servient tenement would be offset by the benefit it receives in improved drainage. The creation of the easement therefore would merely represent a blot on the title of the servient tenement... I believe that a nominal compensation sum in the order of $25,000 would be reasonable in the circumstances". 69 A valuation report of Mr Walter Dobrow, who was retained by the respondent, took a different approach and assessed compensation as follows:

(a) compensation for loss of proprietary rights being a blot on the common property title and including injurious affection. He considered that the market value of the four units would be diminished by $60,000 per unit $240,000 (b) compensation for disturbance during the period of construction of the easement, assuming the period was no more than two weeks, at $11,000 per unit $44,000 (c) compensation for the dominant tenement's right to return to the easement at any time, and at multiple times in the future, at $5,500 per unit _$22,000 Total $306,000

70 Subsequently, a joint valuation was prepared by Mr Preston and Mr Dobrow. They agreed, and I accept, that the appropriate valuation rate is $9,727 per square metre.

71 In this joint valuation report, Mr Preston calculated the area of the easement at 22.8 square metres based on a survey of the area of the easement, which is less than a metre wide for most of its length. This is more than five times the area that he calculated in his initial report.

72 In the joint valuation report, Mr Preston changed his initial estimate of compensation payable by multiplying the surveyed area of 22.8 square metres by the agreed rate of $9,727 per square metre to arrive at an estimated market value of the easement area of $221,772. He adopted 10 percent of this figure because, in his perception, the easement would have minimal impact on the property and No 45 would derive a benefit from the creation of the easement. He thereby arrived at a figure in the order of $22,177 which he rounded to $22,000. He then "allowed an additional $20,000 representative of the physical blot on the title" and said that his "adjusted figure" was $44,000. Arithmetically, the last figure was obviously wrong, as he conceded in oral evidence, and should have been $42,000.

73 In oral evidence, Mr Preston made a number of concessions. He explained that in the joint report his assessment of $22,000 for loss of proprietary rights included the blot on title; that his reason for adding $20,000 was simply that it was a "reasonable additional amount to add"; that the $22,000 in his original report was "woefully inadequate"; and that like minds may differ as to what the compensation should be. Mr Preston did not explain adequately why the initial assessment of $25,000 compensation in his original report did not increase five-fold or substantially in the joint report where he agreed that the area of the easement was over five times greater than his original estimate.

74 Mr Preston explained in oral evidence that he adopted 10 percent because of what he understood from Dr Robinson's report to be the compensatory benefit from the easement of mitigation of flooding in the rear void. Dr Robinson thought that the route through No 45 would mitigate or eliminate the present occasional flooding in the rear void of No 45 from No 10. I am not satisfied on the evidence that there would be any such betterment or, alternatively, that it would be caused by the easement over No 45. Mr Woods, an owner of one of the strata apartments in No 45, gave evidence that the "flooding" on No 45 in the rear void occurred because of the cutting and removal of downpipes from the existing flat building at No 10. I accept his evidence. Assuming this were to be remedied by the proposed easement over No 45, it would not be reasonable in the circumstances, I think, to offset this as a betterment when determining the statutory right to compensation. Further, as Mr Preston acknowledged in oral evidence, the alleged betterment does not result from the imposition of the proposed easement over No 45 but rather from the proposed development at No 10, regardless of whether or not there is an easement over No 45. Finally, there is no guarantee that the development will ever occur, and therefore no guarantee that the alleged betterment will ever occur. Whilst the consent (unless it lapses) will enure with the land, there is no requirement on the owner from time to time of No 10 to ever carry out the development. If it is not carried out, the easement will remain in place over No 45 and would be a blot on the title without the alleged betterment. Accordingly, Mr Preston's assessment of compensation as 10 percent of the market value of the easement area is not justified and should be increased to 25 percent. That element of compensation on his approach would therefore be $55,443 (25 percent of $221,772). Whether he would have added his rather arbitrary further sum of $20,000 to this figure, if it were adjusted in the way I have described, is unclear.

75 In the joint valuation report, Mr Dobrow considered, based upon enquiries with key real estate agents active in sales of these type of properties as well as the market itself, that a prudent purchaser in the current market would make an allowance of between $50,000 and $100,000 for the proposed easement and for the fact that the dominant tenement had the right to enter upon any part of the servient tenement at any time (the so-called, "right to return"). He adopted what he called a "conservative" $60,000 per strata lot. This produced a total for the four strata lots of $240,000.

76 In this context, Mr Dobrow said, and I accept, that it is difficult to analyse sales of properties affected by easements to determine the affect of an easement because some purchasers may make a small allowance for the affect of an easement whereas others may make a significant allowance. The question he considered was: what allowance would a prudent hypothetical purchaser make for the subject easement? He hypothesised that an owner might wish to expand the building in some way to utilise what is otherwise an unused void. He said that compensation should allow for the fact that the only access to the easement area is through the ground floor security gates, past the security glass doors, past the security lift and into the plant room area.

77 Mr Dobrow's evidence that there would a loss of value of the individual units (which he considered to be $60,000 per unit, a total of $240,000), may be contrasted with the evidence of Mr Pallier, a real estate agent experienced in marketing and selling real estate in the eastern suburbs. Mr Pallier said that in his experience potential buyers of strata titled apartments will not seek to discount the purchase price because of drainage easements affecting the common property. He said that he had been involved with the sale of several properties with a similar easement and the easement was not mentioned to him. He agreed in oral evidence that people would wish to be compensated for the interference with their enjoyment of their property arising from giving access to others for the purposes of such an easement.

78 Alternatively, if the Court chose to adopt the "piecemeal" approach proposed by Mr Preston, Mr Dobrow considered that compensation should be for an easement one metre wide, as is traditional, which produces an area of 36 square metres. He also considered that a further allowance should be made to compensate for the fact that access will not be limited to the area of the easement alone. He calculated the area of the accessway at 72 square metres for the purpose of determining compensation for this aspect. He then assessed compensation as follows:

Easement area 36 m2 x $9,727 m2 = $350,172 x 40% affectation rate $140,069 Access area 72 m2 x $9,727 m2 = $700,344 x 10 % affectation rate _$70,034 Disturbance (as per his initial report) $44,000 Right to return (as per his initial report) _$22,000 Total $276,103

79 Disturbance and the so-called right to return, which I think is a form of disturbance, were calculated on a rental basis. The valuers assumed that the installation work for the pipe would take two weeks and agreed that the market rental of each strata unit was between $2,500 and $3,000 per week. Mr Dobrow arrived at his disturbance figure of $44,000 as follows. He considered that having regard to the calibre of the occupant and disturbance required to install the pipe, a premium would have to be paid to compensate for disturbance over and above the standard weekly rental. He thereby arrived at a rental of $11,000 per week, but considered that this should be adjusted by 50 percent to $5,500 per week because the impact over the estimated two weeks for the work would not be constant. Thus $5,500 per week x 2 weeks x 4 strata units = $44,000. Mr Preston conceded in oral evidence that he had made no allowance for disturbance by reason of access for construction or maintenance inspections thereafter. Mr Preston said in the joint report that if any allowance was to be made for disturbance, it should perhaps be limited to 50 percent of a reasonable market rent (which he considered to be $2,750 per week) for two weeks: hence $2,750 per unit for the two weeks x 4 strata units equals approximately $11,000. As regards the so called "right to return", on Mr Boyden's evidence, which I accept, maintenance inspections should occur every three to five years for about half an hour.

81 First, in my opinion, the applicant is entitled to compensation for loss of proprietary rights over the area of the easement. I take this to be the surveyed area of 22.8 square metres which Mr Preston adopted. This should be multiplied by the agreed rate of $9,727 per square metre. The resultant figure is $221,772. I propose to adopt 25 percent of this figure to reflect the impact of the easement on No 45. The resultant compensation is $55,443. In my view, there is no justification for the easement area of 36 square metres adopted by Mr Dobrow on the basis of a "traditional" one metre easement. Nor, in my view, is there any justification for his assessment of compensation for 72 square metres at the same rate for the access area. The access area only has to be used during the initial installation period and any subsequent maintenance inspection. Compensation in relation to the access area is embedded in the compensation for disturbance which I propose to award as stated below. I accept Mr Pallier's view that there will not be any diminution in the value of the individual strata lots given that the easement is hidden away in an unused void.

82 Secondly, in my opinion, there should be compensation for disturbance for two weeks' work to install the pipe and for a maintenance inspection every three to five years for about half an hour. I consider that Mr Dobrow's calculation of $11,000 per strata lot for the period of installation of the easement contains too large a premium over the normal market rental of $2,500 to $3,000 per week for that element alone. However, I accept a figure of $11,000 per strata lot on the basis that it also covers compensation for disturbance during future maintenance inspections and for the security risk during all access periods.

83 In summary, my assessment of compensation is as follows: Loss of proprietary rights to common property $ 54,443 Disturbance $ 44,000 Total $ 98,443

Is there any reason why costs should not be paid by the applicant? 85 Section 40(8) of the Land and Environment Court Act 1979 provides: "Costs of the proceedings, in so far as they relate to an order sought or made under this section, are payable by the applicant for the order, subject to any order of the Court to the contrary".

86 The applicant accepted that it should pay the respondent's costs on the ordinary basis. The respondent sought costs on an indemnity basis. In Tregoyd Gardens Pty Ltd v Jervis (1997) 8 BPR 15,845 at 15,856 Hamilton J made a costs order on an indemnity basis and noted that he had been informed that Simos J had made such an order in Coles Myer NSW Ltd v Dymocks Book Arcade Ltd (1996) 7 BPR 14,638 (the costs order does not appear in the report of the latter case).

87 However, the weight of authority favours the award of costs to an applicant on the ordinary basis and not on an indemnity basis, unless the applicant has engaged in unreasonable conduct - which is not alleged in the present case. In 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 at 523 Hodgson CJ in Eq said: "The provisions of s 88K(5) are not such as to indicate that an indemnity costs order should be made as of course in favour of a defendant". In Mitchell v Boutagy (2001) 118 LGERA 249 at 262 [60] Austin J said: "Section 88K(5) states that the costs of the proceedings are to be payable by the applicant subject to any order of the Court to the contrary. That, it seems to me, reflects a legislative policy. The policy is that the Court should be empowered to require the defendant to grant an easement to the applicant against his or her will, but generally on the basis that the cost of obtaining the easement is to be borne by the applicant. It would only be if there were circumstances of unreasonableness on the defendant's part that the Court would exercise its discretion to make an order to the contrary under subs(5)". His Honour added at 263 [68]: "… It appears to me that the costs of the litigation should be ordered in accordance with the principles set out in s 88K(5) which says the costs of the proceedings are payable by the applicant, but does not stipulate that they must be on an indemnity basis". In Khattar v Wiese [2005] NSWSC 1014 at [77] Brereton J said: Section 88K(5) reflects a policy that while the court is empowered to require a defendant to suffer an easement against his or her will, that should generally be on the basis that the cost of obtaining it is borne by the applicant, and only in circumstances of unreasonableness on the defendant's part would the court exercise its discretion to make an order to the contrary [ 117 York Street , 523-524; Mitchell v Boutagy , [60]]. In several cases, the applicant has been required to pay the defendant's costs on an indemnity basis [see, for example, Tregoyd Gardens ], but this is not invariably so [ 117 York Street , 523-524; Mitchell v Boutagy , [68]], even when the application has failed [ Blulock , [23]].

88 In Wengarin Pty Ltd v Byron Shire Council (1999) 9 BPR 16,985 at [34] Young J indicated that he would order the successful plaintiff to pay the defendant's costs of the proceedings on the ordinary basis. In a recent s 40 case in this Court, Antipas v Kutcher (2006) 144 LGERA 289 Lloyd J ordered the applicant to pay the respondent's costs on the ordinary basis.

89 If the point were free from authority, I would be inclined to say that costs should be on an indemnity basis. The reason is that this is confiscatory legislation which provides for compensation and for the respondent to have its day in court and to receive costs, even if it loses. It seems consistent with the legislative intent for a respondent not to be out of pocket in costs if it does that which the legislature authorises it to do in such a context. However, the weight of contrary authority is now too great for that view to prevail at first instance. Accordingly, I propose to order that the applicant pay the respondent's costs on the ordinary basis.

Orders 90 Subject to giving the parties an opportunity to address me as to the form of orders, they may be to the following effect: (1) Easement be imposed in the form of the instrument intended to be created pursuant to s 88B of the Conveyancing Act 1919 annexed hereto and marked "A" and as shown on the survey plan annexed hereto and marked "B". (2) The applicant shall pay to the respondent in respect of the said easement compensation in the sum of $100,000 within seven days of the date of this order. (3) The applicant shall carry out or cause to be carried out the work required in relation to the installation of a drainage line for the easement in accordance with the Construction Impact Management Plan annexed hereto and marked "C". (4) Liberty to apply on three days' written notice: (a) to the respondent for further compensation if some unexpected event occurs or if the applicant does not comply with order 3. (b) to the applicant to make application for the setting aside or modification of any of these orders. (5) The applicant to pay the respondent's costs of the proceedings. (6) The parties shall forthwith arrange for proceedings No 10640 of 2005 to be listed before the Senior Commissioner.

91 The proposed instrument under s 88B of the Conveyancing Act 1919 contains terms of easement which I have set out in paragraph 6 above. One term requires the owner of the lot benefited to "make good any collateral damage." I think that this is insufficient and that it should be replaced and supplemented by terms which require the owner of the lot benefited to: · upon the happening of any damage to the lot burdened or to the building or to any improvements erected thereon in any way attributable to the grant or use of the easement, make good the same or pay to the owner of the lot burdened full compensation in money for such damage; · at all times keep the owner of the lot burdened indemnified against all actions, claims, proceedings, costs and expenses arising out of the exercise or use of the easement.

92 I direct that the parties bring in short minutes of order to give effect to these reasons within seven days, by arrangement with my associate.

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