Roads Corporation v Murdesk Investments Pty Ltd [2008] VSCA 16

Court of Appeal (Vic)|2008-02-20|Before: MAXWELL P, CHERNOV and REDLICH JJA

Compulsory acquisition of land - Compensation - Appeal on question of law - Whether assessment of compensation in conformity with Land Acquisition and Compensation Act 1986 - Severance - Allowance for loss attributable to severance - Whether assessment of compensation plainly wrong or wrong in principle - Land Acquisition and Compensation Act 1986 ss 40, 41.

**1 I have had the advantage of reading in draft the reasons for judgment of Chernov JA. I too would dismiss the appeal. Subject to what follows, I would do so for the reasons which his Honour gives.

2 In relation to the question of calculating the allowance for severance I would add the following. The dispute is not one of principle but one of methodology. It is plain that the learned trial judge correctly addressed the question which is posed by s 41(1)(c), that is, whether there was 'any loss attributable to severance'. His Honour reached the conclusion[1] that the evidence supported a conclusion that a 15 per cent adjustment should be made for severance. His Honour proceeded immediately to set out how he considered that adjustment should be made.

3 In the table set out in his reasons for judgment his Honour specified that in the 'after' value, the 15 per cent adjustment for severance was a discount from the comparator sale price of $224,000 per hectare.[2] In other words, his Honour came to the conclusion that 15 per cent of $224,000 (that is, a total severance loss on the remaining 55.14 hectares of $1.852 million) was the appropriate measure of the severance loss.

4 There is nothing in s 41(1)(c) which requires a particular approach to be adopted. Nor is there anything in the valuation evidence to suggest that what his Honour did was methodologically unsound. On the contrary, those experts who adopted a discount for severance did so by applying the discount to the starting-figure for market-value.

5 As I have said, his Honour evidently considered that 15 per cent of $224,000 (rather than of that figure already discounted by 25 per cent) was the right measure**

of severance loss.[3] That was a matter of judgment. Like Chernov JA, I am satisfied that the conclusion was open on the evidence.

6 On 5 October 2006 a judge of the Supreme Court ordered that the appellant, Roads Corporation, pay the respondent, Murdesk Investments Pty Ltd, $3.29 million as compensation, pursuant to the Land Acquisition and Compensation Act 1986 ('the Act'), in respect of certain land owned by the respondent that was compulsorily acquired by the appellant pursuant to the notice of acquisition served on 11 February 2002. The parties could not agree on the amount of compensation that became due to the respondent by reason of the acquisition. Consequently, they referred the matter to the Supreme Court for determination pursuant to s 80(b) of the Act. The legislation contemplates, by s 89, that the decision of the court as to the amount of compensation payable in respect of the acquisition will be final, subject to the right to challenge the decision on appeal, but only on a question of law. As Batt J explained in Roads Corporation v Dacakis[4]:**

The existence of a question of law is not only a precondition to the right to appeal but also the subject matter of the whole appeal itself, so that the appeal does not operate as a rehearing of the whole dispute or matter ... .

And it has been made plain in numerous cases in this area of the law that in order to establish such error the appellant must demonstrate that, in arriving at the valuation, the court applied a wrong principle or that the decision is plainly wrong.[5] It has been recognised that the questions whether there is any evidence to support a finding of fact and whether an inference can be drawn from the facts found

7 The appellant's challenge to his Honour's valuation was confined to the judge's assessment of the allowance that should be made for the loss attributable to severance, which his Honour assessed at $1.85 million. Before us, the appellant's essential case was:

(a) There was no probative evidence to support his Honour's impugned finding or it was plainly wrong or unreasonable in the Wednesbury[7] sense.

(b) In making the impugned assessment his Honour erred in principle in that, contrary to s 41(3) of the Act, he did not apply the percentage discount to the value of the land that was net of an allowance for sewerage risk that related to that land.

**8 Before dealing with these submissions, it is necessary to set out briefly the circumstances surrounding the acquisition. The land in question, which was in two lots, had an area of approximately 74 hectares. It was situated on the southern side of Cooper Street, Epping, an outer suburb of Melbourne. A gas easement, affecting a little over three hectares, traverses the land. His Honour noted in his reasons that the locality in which the subject land was situated had been designated by the City of Whittlesea ('the Council') as the Cooper Street development area or precinct. Thus, although the subject land was zoned for rural purposes, there was an expectation that it would be rezoned to facilitate employment generating uses, more particularly, industrial or business uses. In February 1998, a parcel of land on the northern side of Cooper Street and opposite the subject land ('the Scanlan land') had been placed substantially in an industrial zone by way of a site specific planning scheme amendment. There was, however, some continuing uncertainty as to the future configuration of development of the area. There were two reasons for this. First, there was uncertainty as to the alignment of the proposed Craigieburn Bypass, a freeway extension to the Hume Highway that was to connect it to the Western Ring Road. Secondly, there was uncertainty as to whether sufficient sewerage capacity could be provided to cater for the development of the area.

9 For some years prior to the acquisition there was continuing controversy over this alignment of the proposed bypass and in 2000 the bypass was understood to have the potential to take an alignment within the western boundary of the subject land. This matter was essentially resolved by the Premier's announcement on 21 January 2001 that the bypass alignment would follow a route which traversed the western portion of the subject land in a north/south strip.

10 On 1 July 2001, approximately 43 hectares of the Scanlan land were sold into a joint venture ('Northpoint') for $9,734,139 (at about $224,000 per hectare) and 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. In December 2001 Yarra Valley Water (the local sewerage authority) made an offer to Northpoint for the provision of sewerage to its proposed development.

11 As has been mentioned, on 11 February 2002 ('the relevant date') the appellant served on the respondent a notice of acquisition in respect of that portion of the subject land that was required for the freeway. The acquisition left unaffected an area of approximately 55.1 hectares. Relevantly, the acquisition reduced access from the subject land to the frontage of Cooper Street from 699.4 metres to 271.81 metres, a difference of 427.59 metres. As a result of the acquisition, the respondent claimed compensation in respect of the market value of the land, together with the loss due to severance pursuant to the Act.**

12 It is necessary to refer briefly to the statutory provisions that were relevant to the assessment of the respondent's entitlement to compensation. Section 30 of the Act essentially provides that a party in the position of the respondent 'has a claim for compensation' in respect of the acquired land. Part 4 of the Act then deals with the measure of such compensation. Thus, s 40 defines the 'market value' of the interest in the land that is to be acquired as 'the amount of money that would have been paid for that interest if it had been sold on [the relevant] date by a willing but not anxious seller to a willing but not anxious purchaser'. As his Honour observed, this provision reflects the test formulated by the High Court in Spencer v The Commonwealth.[8] Section 41(3) of the Act provides that, in the case of a partial acquisition of land, 'the market value of the acquired interest is the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition'. Thus, the sub-section requires the assessment of market value to be undertaken by way of a 'before and after' analysis and involves the determination not only of the loss of the value of the land acquired but also the effect of the acquisition upon the value of the balance of the land. Hence, loss attributable to severance, as that term is defined in the Act, is embraced by the 'before and after' analysis (at least insofar as the notion of severance applies to the balance of the land). The market value is to be assessed by reference to the potential highest and best use of the land as at the relevant date in order to reflect the full value of the land to the owner. Such an approach is recognised in Turner v Minister of Public Instruction[9] and March v City of Frankston[10] and in s 41(2) of the Act. Section 41(1) relevantly stipulates that 'in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to [factors that include] any loss attributable to severance ...'. 'Loss attributable to severance' is defined in s 40 as 'the amount of any reduction in the market value of any other interest of a claimant in the acquired land or any interest of the claimant in other land used in conjunction with the acquired land which is caused by its severance from the acquired land'. Hence, the Act recognises, generally, that:

... the taking of portion of an entire holding carried on as one property is not necessarily compensated by a mere reward of the value of the portion taken considered simply as if it were a separate and independent parcel of land. The taking of part may result in a diminution in value to the owner of what remains and, in particular, that may happen because of a disturbance in the previous proportions of different classes of land or of lands used for different purposes or in different ways.[11]

13 In his reasons, his Honour made a comprehensive analysis of the zoning of the area. Given that the above findings are not challenged otherwise than as to severance, it is not necessary to restate them here. It is sufficient to note the following. His Honour considered that, although the land was not zoned for urban purposes at the relevant date, that was primarily brought about by the delay in implementing the freeway proposal. As has been mentioned, the judge was also satisfied that, but for the freeway proposal, at the relevant date the land would either have been rezoned for urban purposes or the process of such rezoning would have been substantially implemented. It has already been noted that his Honour considered that the availability of sewerage infrastructure to the area was also a key factor constraining development in the period leading up to the acquisition. Nevertheless, his Honour said, because of the agreed evidence of the engineering experts who were retained by the respective parties, he was able to conclude that at the relevant date development of the northern portion of the subject land fronting Cooper Street may have been capable of being sewered as follows: to the east, along Cooper Street, the central portion would require connection to the east across land of others to the Edgars Creek sewer and 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.

**14 There was a considerable body of valuation evidence before his Honour from valuers who had significant experience in the field. The principal expert witnesses for the respondent were Mark Holland and John Wallace. Mr Holland assessed the before value of the land at $10 million and the after value at $5.5 million, resulting in a compensation assessment of $4.5 million. Mr Wallace's corresponding figures were $10.9 million, $6 million and $4.88 million. In his valuation, Mr Holland assessed severance at 10 per cent of the after value figure of a little over $11 million, at $1.1 million, whereas Mr Wallace attributed no separate value to the severance factor.

15 The valuers who gave evidence for the respondent were Brian Dudakov and Leslie Brown. Their respective before and after value figures, and the resultant assessments of compensation, were $9.2 million, $6.9 million and $2.29 million by Mr Dudakov, and $6 million, $3.75 million and $2.25 million by Mr Brown. Mr Dudakov would have assessed severance at 15 per cent of the after value, except for the fact that he considered that it would have been offset by a 5 per cent enhancement factor in the after value. Mr Brown would have allowed $690,000 (or 15.5 per cent of his after value) for severance.

16 Given the narrowness of the complaint about his Honour's assessment of the compensation payable to the respondent, it is not necessary to deal with all of the valuation evidence. Suffice to say that his Honour preferred the framework of Mr Dudakov's assessment of the valuation to that of the appellant's valuers, although in light of the evidence as a whole the learned trial judge made some revisions to Mr Dudakov's adjustments, including that pertaining to severance. I mention for completeness that his Honour did not accept Mr Holland's assumption that the land was ripe for subdivision and, thus, rejected his valuation based on a hypothetical subdivision. The judge noted that Mr Holland's opinion was not based on comparable sales. His Honour also rejected Mr Wallace's valuation methodology which was, to a large extent, based on a hypothetical three lot subdivision of the land into 'super lots'. The learned trial judge said that he was satisfied that Mr Dudakov was correct in concluding that the highest and best use of the land was sale of the land as broad acre land with potential for development, that the correct method of valuation was by reference to comparable sales, that the best indicator of value was the Northpoint sale, relevantly adjusted, that the land was to be valued as a single parcel and that the gas easement did not occasion loss of value to the 'before' land.**

**17 In terms of principle, his Honour noted that the best evidence of market value ordinarily consists of evidence of comparable sales either before or after the relevant date.[12] He considered that, but for the implementation of the relevant public purpose, the land probably would have been rezoned, or it would have been ripe for rezoning, such as to facilitate employment generating uses. Nevertheless, his Honour said, the likely purchaser would have apprehended that there was a significant risk that difficulties with supply of sewerage to the land would delay the commencement of such development and/or its progress and thereby constrain, to some degree, the range of its potential uses. The learned trial judge concluded that in light of that risk the land could not be regarded as ripe for subdivision at the time the notice of acquisition was served, although it had demonstrable potential for future subdivision for the purposes referred to, albeit subject to the resolution of the sewerage position. His Honour considered that the value of the land was enhanced by the freeway proposal and that such enhancement had to be taken into account in the after situation, but not in assessing the before value which was to be determined by reference to comparable sales within the area. The learned judge also noted that 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 of it.

18 After reviewing the evidence, as has been mentioned, his Honour concluded that it supported the view that the Northpoint sale was properly regarded as an 'after' sale and that the before value calculated by reference to it should be discounted for enhancement by a factor of 10 per cent. His Honour also considered that, on the evidence, the appropriate discount for sewerage risk was 25 per cent and that an allowance should be made for severance in the after situation of 15 per cent (approximately $1.85 million). His Honour said that the freeway constituted an enhancement factor of 2 per cent which should be deducted for the purpose of calculating the before value. The learned judge summarised his conclusions by way of the following table.[13]**

Easement affected land ($145,600 per hectare less 25%

19 It is evident, therefore, that in determining the amount of compensation to which the respondent was entitled, his Honour allowed for severance in the amount of $1,852,704, although that amount is not stated in terms in his reasons. Nevertheless it is apparent from the application of 15 per cent that his Honour allowed for severance to the after value of the remaining land that he considered to be $224,000 per hectare for relevant purposes.

Error of principle in assessment of severance

**20 It is convenient to deal first with the appellant's claim that his Honour relevantly erred in his assessment of loss attributable to severance by applying 15 per cent to an after value of the retained land of $224,000 per hectare, rather than a value that was net of the 25 per cent discount for sewerage risk, namely, approximately $168,000 per hectare.

21 It is plain enough, and the contrary was not pressed by either party, that where only a portion of the owner's land is compulsorily acquired the proper measure of compensation payable to the owner is the value of the land taken as well as the value of any depreciation in the remaining land occurring by reason of the acquisition. As is made apparent in Castle Hill Brick Tile & Pottery Works Pty Ltd v Baulkham Hills Shire Council,[14] 'severance damage' is the depreciation in the value of the retained land resulting from its division into two or more parts, or its reduction in area, and consequent loss of value for some current or higher potential use. So much is recognised by s 41(1)(c) of the Act which requires the Valuation Court, in assessing the amount of compensation payable to a claimant in respect of an interest which is compulsorily acquired, to have regard to factors that include 'any loss attributable to severance'. As has been mentioned, the term 'loss attributable to severance' is defined in s 40 as meaning 'the amount of any reduction in the market value of [the remaining land] ... caused by its severance from the acquired land'. And, as has also been mentioned, s 41(3) relevantly prescribes:**

If less than the whole of the land ... is acquired ... the market value of the acquired interest is the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition.

**22 The appellant contended, correctly, in my view, that in valuing the severance component his Honour effectively applied the 15 per cent to the 'gross' Northpoint value per hectare of the subject land without first discounting it for sewerage risk. It was said that this did not comply with the requirements of the abovementioned statutory provisions. More particularly, it was said that the error lay in his Honour's failure to recognise that the value of the remaining land was $224,000 - the Northpoint figure - but reduced by 25 per cent so as to reflect the sewerage risk. It was argued that, in order to value the reduction in the 'market value' of the remaining land occasioned by the severance, 15 per cent should have been applied to that resultant sum. As it was, said the appellant, his Honour applied the 15 per cent to a value attributable to the retained land that was not its market value and thus failed to make the assessment of the loss attributable to severance in accordance with the Act. Thus, it was submitted, his Honour's valuation of severance was infected by an error of principle and should be set aside.

23 I consider, however, that his Honour did not err as is alleged. As I have said, his Honour considered that it was appropriate in the circumstances that he described that an amount of approximately $1.8 million be allowed for severance, which was reflective of 15 per cent of the Northpoint value of the land. That amount constituted part of the assessment of the 'market value of the interest after the acquisition' for the purposes of s 41(3) of the Act.[15] To have done otherwise, as the appellant contends, and applied the 15 per cent to the net figure after deducting $156,000 per hectare for sewerage risk would have produced a discount on an already discounted market value. Put another way, it would have amounted to double counting for the purpose of the assessment of 'the market value of the interest after the acquisition' and would not have reflected a reduction in the 'market value of the ... land' by reason solely of severance.

24 His Honour's task of ascribing a value to the discount referrable to severance involved a discretionary value judgment, the exercise of which involved the application of opinion.[16] I consider that this judge, who is very experienced in this area of the law, did not make the basic error for which the appellant contends under cover of this ground. The method employed by his Honour was no different from that followed by the expert valuers who gave evidence before him.

25 Thus, as I have said, I consider that his Honour did not err in principal as is contended for by the appellant.**

26 I now turn to consider the appellant's attack on his Honour's assessment of the value of severance on the basis that the conclusion was not open on the evidence, or was plainly wrong or was relevantly unreasonable. In support of these contentions, the appellant put forward the following arguments.

Severance assessment based almost entirely on subdivisional costs

27 It was first said, as I understand it, that his Honour's assessment of severance was based almost wholly on his view that, as a result of the acquisition, future subdivisional costs will be increased unduly in respect of the remaining land. It was contended that the judge treated other consequences of the acquisition as going, not directly to severance loss, but to increasing future costs of subdivision. Thus, it was said, although his Honour acknowledged that reduction in the size of the land as a result of compulsory acquisition leads to higher value per unit, he considered that this was counter-balanced by evidence that land bankers were seeking large parcels of land with appropriate potential such as the subject land. Thus, the appellant said, his Honour did not factor the reduction in size of the land into his assessment of severance, except to the extent that he recognised that such reduction would produce the risk of fixed upfront infrastructure costs having to be amortised over a smaller area. It was also claimed for the appellant that his Honour essentially found that any increase in costs arising from the resultant irregular shape of the remaining land would be reflected in an increase in subdivisional costs. The appellant further contended that the loss of 78 metres of direct Cooper Street frontage was not discussed in his Honour's reasons as a matter of substance in terms of severance and that, in any event, the 78 metres in question enjoyed significantly enhanced exposure in the 'after situation'. Counsel also pointed out that his Honour must have considered that the impact of the design and development overlay (which would affect potential uses) to severance assessment was less than 5 per cent and, hence, not of great significance, given that his Honour rejected the view of Messrs Holland and Brown that the overlay justified as much as 5 per cent deduction from the value of the affected land.

28 Counsel also argued that, in assessing severance, his Honour proceeded on the false premise that the subdivisional costs on a square metre basis in the 'before' and 'after' situations were $55.84 and $70.80 respectively, resulting in a cost differential in the order of $1.4 million. The appellant claimed that the differential figures must have been taken by his Honour from Mr Holland's evidence on the false basis that they were relevant to the assessment of subdivisional costs of the remaining land. In fact, it was said, Mr Holland's figures were referrable not to a notional differential in subdivisional costs of the remaining land (before and after acquisition) but to a comparison of subdivisional costs of the whole land by reference to earlier and subsequent plans.

**29 It was further put for the appellant that his Honour essentially contradicted his earlier findings as to the subdivisional costs differential by his finding that such costing was not capable of precise assessment because the subject land was not ripe for subdivision at the relevant date.

30 It was also said in this context that notwithstanding his Honour's (qualified) conclusion that the subdivisional costs differential was in the order of $1.4 million he valued the loss occasioned by severance in an amount that exceeded that costs estimate by over $450,000 yet failed to explain the basis on which the greater figure was determined.**

Percentage of 15 per cent allegedly taken from Brown's evidence

31 The appellant also contended that his Honour probably based the percentage rate of 15 per cent on the severance adjustment that was allowed by Mr Brown. It was pointed out by the appellant that Mr Brown's monetary allowance of $690,000 for severance equated to 15.5 per cent of his after land value but, said counsel, the valuer did not make his assessment on a basis of it being any particular percentage of the after value, so that his Honour would not have been justified in converting Mr Brown's assessment into a percentage figure and then applying it to the after value as determined by him.

**32 It was also pointed out for the appellant that his Honour's valuation of severance was inconsistent with, or gained no support from, the evidence of the respondent's valuers (or from those called by the appellant).

33 It was said for the appellant that, in light of the above, his Honour's assessment of $1.85 million for severance was not open on the evidence, or was plainly wrong, or was relevantly unreasonable.**

**34 I consider, however, for the reasons given below, that his Honour's valuation of severance was not vitiated by error for which the appellant contends. First, on a fair reading of his Honour's reasons it is apparent that he did not base his assessment of severance predominantly on the increase in subdivisional costs in the after situation. Rather his valuation was based, as is made plain in his Honour's reasons, on all severance factors including reduced frontage to Cooper Street, reduced land size, irregular shape of the land, additional development costs and the effect of the overlay. I consider that the appellant's claim in this regard demonstrates a misreading of his Honour's reasons and the impact of the various consequences of the acquisition on severance value. Thus, the reduction in size would not only reflect an increase in subdivisional costs but also give rise to the perceived increase in risk, interest and holding expenses associated with increased upfront infrastructure costs associated with the after plan. Similarly, the irregularity of the shape of the remaining land and its reduced exposure to Cooper Street went to its value and utility to a potential purchaser. And, as the respondent submitted, it is plain enough that the reduced frontage and exposure to Cooper Street are clearly serious severance detriments when the frontage land is to be developed for business and employment uses. As his Honour noted, the slip lane alignment and the tree reserve associated with the freeway interchange intruded across the north-western corner of the land. Thus, both reduced access and reduced exposure would plainly be important to a hypothetical purchaser in determining the amount that might be offered for the land.

35 And it could not seriously be contended that the judge should have quantified separately each severance impact or that he could have done other than make a general allowance for severance. I consider that his Honour correctly made an overall allowance for severance and did so as a percentage of the Northpoint price of the land, as he had done in respect of other allowances and as the expert valuers also had done. It is sheer speculation, I think, for the appellant to claim, as it has done, that his Honour decided upon an adjustment of 15 per cent by reference to the monetary allowance of $690,000 for severance fixed by Mr Brown. As I have pointed out, the selection of the 15 per cent by the trial judge was based upon all severance effects.

36 I also consider that it is plain enough that the learned judge did not make the error for which the appellant contends when he made reference in his reasons to the cost difference of $1.4 million which has already been mentioned. More specifically, in calculating the loss attributable to severance the trial judge did not make a finding that there was a cost differential of $1.4 million between the subdivisional costs in the before situation and the after situation, as the appellant contended. On the contrary, his Honour concluded that the cost differential was not capable of any precise assessment because the subject land was not ripe for subdivision at the relevant date. The judge said that the particular form of development was unknown at the date of acquisition, and the time required to develop the land similarly was unknown, so that there was no satisfactory basis for assessing future costs and, whilst the hypothetical subdivision analysis had demonstrated that there would be a significantly higher potential cost subdivision, that assessment could not be used as a direct basis for quantifying the effect on value as at the relevant date.

37 Hence, even if the appellant was correct in the submission that the costs differential to which his Honour referred was, strictly speaking, inappropriate, nothing turns on this for present purposes. As I have said, a fair reading of his Honour's reasons makes it apparent that he made no finding to that effect. It is also apparent from what I have said that there is no inconsistency between his Honour's reference to the subdivisional costs differential of $1.4 million and his finding that such a difference cannot be assessed with precision.

38 Moreover, the impugned finding was not inconsistent with the evidence of the valuers on this issue, as the appellant claims. On the contrary, that finding was consistent with their evidence and, in particular, that of Mr Brown and Mr Holland. In his analysis of the matter his Honour noted the range of compensation assessments made by the valuers and the basis on which they were made. All of them made allowance for severance in one way or another in the after situation. As the respondent pointed out, whilst his Honour's adjustment of 15 per cent for**

severance was more than allowed by Mr Dudakov, it was less than the percentage respectively allowed by Mr Holland and Mr Brown. Overall, it was well within the range of percentages available to him on the evidence of the valuers.

**39 In the circumstances, I would reject the appellant's claim that, in assessing severance at 15 per cent of the Northpoint value of the remaining land, his Honour erred in law as the appellant contended. The impugned finding was, as I have said, well open on the evidence, was not plainly wrong and was not relevantly unreasonable.

**41 I have had the advantage of reading in draft the reasons of Chernov JA. As to the first question of law raised by the appeal I agree for the reasons that he has advanced that in calculating the loss attributable to severance the trial judge did not make a precise assessment as to the cost differential between the subdivisional costs in the 'before' situation and the 'after' situation because the subject land was not ripe for subdivision as at the relevant date. His Honour concluded that it was difficult to postulate a particular form of subdivision as a satisfactory basis for assessing future costs and that whilst the hypothetical subdivision analysis had demonstrated that there would be a significantly higher potential cost subdivision, that assessment of costs could not be used as a direct basis for quantifying the effect on value as at the relevant date.

42 The appellant has also failed to make out its contention that his Honour's conclusion that there should be an adjustment of 15 per cent to the 'after' market value for the loss attributable to severance was based upon the monetary allowance of $690 000 for severance fixed by one of the expert witnesses, which equated to**

15.5 per cent of that witness's 'after' land valuation.[17] The calculation of 15 per cent by the trial judge was based upon all severance effects including reduced frontage adjustments for size, additional development costs and DDO2 control. There is in my view no foundation for the alternative submission of the appellant that it was not open to the trial judge to find that these factors in combination warranted the adjustment for severance that was made.

**43 As to the second question of law raised by the appellant, in substance the appellant contends that the trial judge did not calculate the loss attributable to severance by determining 'the amount of any reduction in the market value' of the land 'caused by its severance from the acquired land'. This is the determination called for by the Land Acquisition and Compensation Act 1986.[18] Where there is a partial acquisition of land, s 41(3) of the Act provides that the market value of the acquired interest is the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition. Section 41(1) relevantly provides that in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired, regard must be had to the factors specified in sub-s (1) including 'any loss attributable to severance'. That loss is defined in s 40 as meaning 'the amount of any reduction in the market value of ... any interest of the claimant in other land used in conjunction with the acquired land which is caused by its severance from the acquired land.' Thus severance damage is the depreciation in the value of the retained land as a consequence of the acquisition.[19] The loss attributable to severance as defined in the Act, is as the trial judge stated, embraced by the before and after analysis.[20]

44 The trial judge resolved to act upon the expert evidence of Mr Dudakov that the Northpoint sale was the best indicator of value of the subject land in both the before and after stage. The trial judge found that the $224 000 per hectare - based upon the 'Northpoint' sale value - should be discounted per hectare by 25 per cent to allow for 'sewerage risks' to arrive at the market value of the subject land. [21]

45 At the conclusion of the section of his Honour's reasons dealing with 'the valuation evidence'[22] his Honour set out his conclusions as to the value of the subject land and then referred to three 'appropriate adjustments' in these terms:**

In my opinion the evidence supported the conclusion that:

(a) The Northpoint sale is properly regarded as an "after" sale and the before value calculated by reference to it should be discounted for enhancement by a factor of 10%.

(b) The discount for zoning and sewerage considerations adopted by Mr Dudakov in both the before and after situations is excessive. In my view the appropriate discount is 25%.

I shall also elaborate my reasons for each of these conclusions. They produce the following result.

71.2245 hectares @ $145,600 per hectare $10,370,287

Easement affected land ($145,600 per hectare less 25%

**46 His Honour then elaborated upon his reasons for the discounts that were necessary. First he explained why he accepted the Northpoint sales as the appropriate 'before' and 'after' value subject to the matters which called for an adjustment.[23] Having dealt with the discount for enhancement, his Honour explained the adjustment for sewerage risk, recognising that the sewerage servicing uncertainty affected the market value of the Northpoint land.[24] He set out his reasons for the conclusion that an adjustment of 25 per cent to the Northpoint sale was appropriate for sewerage considerations as the evidence as a whole corroborated the view that sewerage infrastructure issues bore directly on the value of the site.[25]

47 The final adjustment with which his Honour dealt was severance. It is evident both from the above table[26] and from his Honour's reasons in dealing with severance[27] that his Honour rejected the view of two of the experts that the DDO2 overlay justified a 5 per cent reduction from the value of the land affected. His Honour concluded:**

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 DDO2 overlay.[28]

48 The calculations in the table show that his Honour combined the adjustment for sewerage risks of 25 per cent and the adjustment of 15 per cent for severance by deducting 40 per cent from the Northpoint value per hectare of the subject land. The appellant contends that in doing so his Honour fell into error, as he did not, as the statute prescribes, calculate the 'reduction in the market value of the subject land' caused by its severance from the acquired land.[29] It was submitted that the severance adjustment of 15 per cent had to be calculated on the 'after' value of the subject land, being the Northpoint sale figure of $224 000 after the discount of 25 per cent for sewerage risk had been deducted. The contention is amplified in ground 6 of the notice of appeal:

Assuming the learned trial judge was correct to allow 15 percent for severance (which is denied), then, even on his approach, he erred because:

(a) the judge took the 'after' value of $224,000 per hectare (the unadjusted Northpoint sale price) less 25 percent for sewerage risk ($56,000). Applying a reduction of 15 percent to that sum, $168,000 per hectare, would have resulted in a reduction of a further $25,200 per hectare for an "after" value of $142,800 per hectare:

(b) In lieu of (a), the judge took 15 percent of the unadjusted Northpoint sale price at $224,000 per hectare - $33,600 per hectare, and reduced $168,000 per hectare by that sum (15 percent of $224,000) for a value in the "after" of $134,400 per hectare;

(c) the error in calculation meant that even accepting the trial judge's approach, the compensation awarded exceeded that which ought to have been awarded by the sum of $463,176.

**49 The question which arises is whether the adjustment for severance of 15 per cent of the Northpoint sale value without first discounting that figure by 25 per cent to allow for the sewerage risk, produced an amount which exceeded the reduction in the market value caused by the severance of the land from the acquired land.

50 The appellant's argument, which had a superficial attraction, cannot be sustained, for the reasons which Chernov JA and Maxwell P give. I would make some additional observations. The appellant carries the burden of proof that the determination of severance loss was not made in accordance with the Act. But the Act, while defining what constitutes severance loss, does not prescribe the method by which that loss is to be calculated. The appellant has not demonstrated that the method employed by his Honour was not intended to, and did not in fact, produce the sum which his Honour had determined was the amount by which the market value of the severed land had been reduced.

51 The appellant contended that that sum, ($1 852 704) could not have represented his Honour's determination of the amount by which the market value of the severed land had been reduced. I do not agree. Amongst the factors his Honour stated that he took into account in assessing severance loss was the high potential cost of subdivision. His Honour found that was not capable of precise assessment but there was evidence before his Honour of a cost differential in the order of $1.4 million. That consideration, in conjunction with the other factors to which his Honour referred, is consistent with his Honour having made a determination that the amount of severance loss was in the order of $1.85 million. Hence the method of calculation which his Honour employed to produce that figure.

52 In any event, if there was any lack of detail in his Honour's process of reasoning which gave rise to any uncertainty, it was removed by the exchange which occurred between counsel for the appellant and his Honour in a hearing which followed the publication of his Honour's reasons. Counsel for the appellant drew attention to his Honour's calculations and in a detailed submission advanced the very argument now raised by ground 6. Counsel for the appellant suggested that what his Honour had intended to do was to fix a figure of $1.4 million as the severance loss, which would have been arrived at by taking 15 per cent of the Northpoint value after it had been discounted by 25 per cent for the sewerage risk. Counsel for the appellant acknowledged in the course of argument that the $1.4 million estimate for increased subdivisional cost was not the only factor which his Honour had apparently taken into account in calculating severance damage.

53 His Honour did not accept that there was any need to revise his calculation. His Honour said:**

I did consider whether the deductions identified at paragraph [181] of my reasons should be disaggregated in both the before and after situations and if so in what order. In the event I elected to do the calculation as I did and was satisfied with the result and there has been no slip in it.

Thus his Honour confirmed his intention to produce that sum which he had determined appropriate for severance loss and to do so by means of a discount on the unadjusted Northpoint sale value.

54 For these reasons I would dismiss the appeal.

[1] Murdesk Investments Pty Ltd v Roads Corporation [2006] VSC 363, [181].

[3] At a subsequent hearing, when the calculation was queried by counsel for the Corporation, his Honour said: 'I elected to do the calculation as I did and was satisfied with the result.'

[5] See, eg, Commissioner of Succession Duties (South Australia) v Executor Trustee and Agency Company of South Australia Ltd [1947] HCA 10; (1947) 74 CLR 358, 367 (Latham CJ, Rich and Williams JJ); The Commonwealth v Reeve [1949] HCA 22; (1949) 78 CLR 410, 423 (Dixon J), 437 (Williams J); The Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157, 159 (Dixon CJ and Kitto J); Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336, 381 (Mason J); Roads Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508, 517-23 (Batt J).

[6] See, eg, Australian Gas Light Company v Valuer-General (1940) 40 SR(NSW) 126, 138 (Jordan CJ); Roads Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508, 517-20 (Batt J).

[7] Wednesbury Corporation v Ministry of Housing and Local Government [1965] 1 WLR 261.

[8] [1907] HCA 82; (1907) 5 CLR 418, 441 (Isaacs J). See also Pastoral Finance Association Ltd v The Minister [1914] UKPC 77; [1914] AC 1083, 1088 (Lord Moulton).

[11] F W Hughes Pty Ltd v Minister for Conservation (1950) 17 LGR (NSW) 275, 281.

[12] Coastal Estates Pty Ltd v Bass Shire Council [1993] VicRp 92; [1993] 2 VR 566, 577-9 (Gobbo J).

[13] The reproduced table contains obvious but inconsequential arithmetic errors.

[15] The other relevant aspect of the assessment of the value was the deduction of 25 per cent of the Northpoint value of the land to reflect sewerage risk.

[16] See, eg, Hazeldell Ltd v The Commonwealth [1924] HCA 36; (1924) 34 CLR 442, 452 (Isaacs ACJ); The Commonwealth v Reeve [1949] HCA 22; (1949) 78 CLR 410, 423 (Dixon J); Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336, 381 (Mason J); Electricity Commission of NSW v Arrow (1994) 85 LGERA 418, 419 (Kirby P); Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] VicRp 61; [1983] 1 VR 657, 669 (Lush, Murphy and Jenkinson JJ).

[17] The trial judge found the land to have a different 'after' value.

[19] Castle Hill Brick Tile and Pottery Works Pty Ltd v Baulkham Hills Shire Council (1961) 7 LGRA 139, 207.

[20] Murdesk Investments Pty Ltd v Roads Corporation [2006] VSC 363, [26].

[23] See [154], [205], [232], [243] and fn 34 as to the trial judge's reasons for accepting Mr Dudakov's assessment.

[24] Ibid [89],[101],[114]-[115],[127],[137]-[138].

Acquisition and Compensation Act 1986

At a glance

Court

Decision date

Before

Source

Judgment (104 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)