…
(f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition."
56 It has been held that disturbance costs may only be awarded under s 59(f) for costs relating to the actual use of the acquired land: see Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259; Mir Bros Unit Constructions Pty Limited v Roads & Traffic Authority of New South Wales [2006] NSWCA 314.
57 In Fitzpatrick, the respondent had purchased blocks of land over a number of years and held it for development purposes. The land was subsequently acquired by the Roads & Traffic Authority and there was a dispute as to the compensation payable under the Just Terms Act. The matter was heard at first instance by Lloyd J, who assessed the market value of the acquired land and deferred consideration of the amount payable for "loss attributable to disturbance". The appellant paid the market value to the respondent who subsequently used that money to purchase another parcel of land. The matter returned to the Land and Environment Court for a determination of what compensation was payable for "loss attributable to disturbance" under s 59(f). An issue arose as to whether the respondent was entitled to the legal costs and stamp duty incurred in purchasing the replacement land. Lloyd J found that each of these items fell within s 59(f).
58 In that case, it was accepted by both parties that the expression "the land" in s 59(f) of the Just Terms Act was a reference to the acquired land. The question then was whether the claimed costs related to the actual use of that land as a direct and natural consequence of the acquisition.
59 Stein JA, after observing that the respondent's business was that of a land developer, noted that the acquired land was part of its stock in trade constituting its "land bank". In those circumstances, the holding of the land as part of its "land bank" for subdivision was "a use of the land in fact". His Honour held, therefore, that that was sufficient to make the holding of the land "an actual use of the land" within s 59(f) of the Just Terms Act.
60 Brownie AJA accepted the respondent's contention that as its business was that of developing land for profit, then if it wanted to continue in this business after the compulsory acquisition of part of its stock in trade, that is, the land it had acquired for development purposes, it had to purchase other land to replace that compulsorily acquired. His Honour concluded at [35] that where land is acquired from a person who uses the compensation paid for the acquisition to buy new land to carry on the same business as was formerly carried out upon the acquired land, then an expense incurred in purchasing the replacement land was a direct and natural consequence of the acquisition. It was not a consequence of a decision to invest in some way that was novel to the investor, so as not to be "a direct and natural consequence of the acquisition". Stein JA also agreed with this reasoning of Brownie AJA, as did Ipp AJA (as his Honour then was).
61 In Mir Bros Spigelman CJ stated at [88] that "disturbance costs may only be awarded under s 59(f) for costs 'relating to the actual use' of the acquired land".
62 There have also been first instance decisions where claims under s 59(f) of the Just Terms Act have been upheld where improvements located on the acquired land were relocated. Thus, in Peter Croke Holdings & Ors v Roads & Traffic Authority of New South Wales (1998) 101 LGERA 30, Bignold J considered that the costs of the relocation of display homes was recoverable under either s 59(c) or s 59(f).
63 In Besmaw Pty Limited v Sydney Water Corporation (2001) 113 LGERA 246, the respondent compulsorily acquired an easement over the appellant's land which it used for extraction of construction sand. It also had a development consent for the property for development of the land as a tourist resort, with residential and commercial components.
64 Besmaw claimed an amount of approximately $1.5m, being the cost of providing alternate access to the land, claiming that its normal business activities would involve an alteration to the existing surface levels of the land affected by the easement, which would give Sydney Water Corporation the right to deny Besmaw physical access across the land. Sydney Water Corporation resisted the application on the basis that it was unlikely to act in accordance with the full extent of the rights it acquired under the easement and offered written assurances to that effect.
65 Sheahan J held that assurances were of little value and were not binding on its successors. His Honour found that the easement seriously impeded the possibility of Besmaw maintaining its access arrangements to its land for its sandmining or resort undertaking. His Honour concluded at [79] that having acquired the easement, it was reasonable for the Sydney Water Corporation to have guaranteed access to the bulk of the land. As neither the terms of the easement nor the correspondence between the parties provided that guarantee, his Honour concluded that the substantial disturbance claim, being the cost of the applicant itself providing alternate access to its land, that is, the residue land, was claimable under s 59(f).
66 It must be said, however, that Fitzpatrick was concerned with the meaning of "actual use" within s 59(f). In Mir Bros the approach of and the comment by Spigelman CJ was also focussed upon the distinction between the actual use as opposed to the potential use of the acquired land. Nonetheless, there are now two authorities of this Court where it has been either accepted or held that s 59(f) relates to disturbance costs relating to the use of the acquired land and not the residue land.
67 In the present case, the residence was located on the residue land and the claimed costs presently under consideration relate to costs associated with the relocation of the residence from one position to another on the residue land. The respondents' argument is that the use of the residence was so intricately linked with running the business on both the acquired land and the residue land, that the expenses claimed fell within s 59(f).
68 The trial judge at [72] noted that the only cases where the Court had awarded compensation under s 59(f) where the compensation related to the use of the residue land were McBaron & Ors v Roads & Traffic Authority of New South Wales (1995) 87 LGERA 238 and Johnston v The Roads & Traffic Authority [2000] NSWLEC 111.
69 In McBaron, Talbot J held that, as a result of the acquisition, it was not practicable to maintain a dairy at its existing location on the residue land because of the manner in which the acquired land had divided the pasture land from the milking bails, requiring a significant movement of cows each day for milking purposes. In those circumstances, his Honour held that the residue land would suffer a decrease in value equivalent to replacing the milking bails and associated facilities, after making allowance for the residual value of what was already on the property. He considered that that could be factored into the valuation under s 55(f). His Honour considered that alternatively, the cost of a replacement dairy could be addressed as an element of the loss attributable to disturbance. He concluded at 247 that as the dairy building located on the residue land would lose its utility as a consequence of the acquisition of the acquired land, it was appropriate to allow for the cost of a new dairy, also on the residue land.
70 In Johnston, Cowdroy J held at [59] that the cost of the removal of a house from one part of residue land to the other was claimable under s 59(f). His Honour observed at [78] that claims under s 59(f) were potentially broad: see Marshall v Director General of the Department of Transport (2001) 205 CLR 603; [2001] HCA 37 at [38] where Gaudron J stated that statutory provisions conferring rights to compensation for injurious affection should be "construed with all the generality that their words permit".
71 In our opinion, this Court should not accept the correctness of Johnston, which related only to the use of the residue land. It is contrary to the decisions of this Court in Mir and Fitzpatrick. However, the decision in McBaron is different. In our view, if the actual use of the residue land is so intimately connected with the actual use of the acquired land so that use of the one is dependant on use of the other, then that is sufficient to bring it within s 59 (f).
72 In the present case, the trial judge rejected the appellant's argument that McBaron and for that matter, Johnston, were wrongly decided. She observed that it was clear that in McBaron, the use of the dairy was directly related to the use of the acquired land. However, her Honour distinguished McBaron from the facts of this case so that it did not follow, on her view that the same approach ought to be taken in relation to the relocation costs claimed in respect of the new dwelling. Her Honour concluded at [79]:
"The costs of relocating the dwelling are not able to be claimed under s 59(f) as the reason the Applicants' wish to build a new house is due to the public purpose, namely the highway, not because of the disruption to the Applicants' business as was the case in McBaron . In that case the use of the acquired land and the residue land was so intimately connected that a claim under s 59(f) was maintainable."
73 Her Honour also found at [81] that having regard to the "before" and "after" approach adopted by both valuers, an element of injurious affection relating to the loss due to excessive noise had been included in the "after" valuation. In this regard, she applied the statement of Tobias JA in Roads & Traffic Authority (NSW) v Muir Properties Pty Limited (2005) 143 LGERA 192; [2005] NSWCA 460 at [103], where his Honour observed that often a "before" and "after" valuation exercise was conducted when part only of land was acquired and that on that approach "any injurious affection to the retained land by reason of the acquisition to the public purpose" was captured. However, this is not always the case as the summation methodology adopted by the valuers and her Honour demonstrated.
74 In our opinion, her Honour erred in three respects in her determination of the claim under s 59(f). First, although her finding at [79] that the reason that the respondents wished to build a new dwelling was due to the public purpose, namely, the new highway, and not because of the disruption to their business, was a finding of fact, we are of the opinion that her Honour asked herself the wrong question. Pursuant to s 59(f), her Honour was required to consider whether the respondents had reasonably incurred any other financial costs or might reasonably incur other financial costs relating to the actual use of the acquired land as a direct and natural consequence of the acquisition. The determination of that question is not determined by reference to the respondents' ''wish" in relation to the building of a new dwelling. Nor was it correct to ascertain the basis for the respondents' "wish", as her Honour appears to have done herself, when she found that the "wish" to build the new dwelling was due to the public purpose. The public purpose was the reason for the acquisition. Section 59(f) focuses on costs reasonably incurred relating to the actual use of the land as a direct and natural consequence of the acquisition.
75 The second error, in our opinion, was that her Honour assumed that the "before" and "after" values had encapsulated any injurious affection so that the claimed items had been included in the "after" value. Accordingly, to allow them under s 59(f) would involve "double dipping". Her Honour's assumption was based upon the comment of Tobias JA in RTA v Muir Properties quoted above. However, although the valuations undertaken by the valuers in this case were on a "before" and "after" basis, that methodology was applied to determine the market value of the acquired land under s 55(a) only. The valuations also adopted a summation approach in respect of the market value of the improvements including the residence. In such a case, it cannot be assumed that the items now claimed were captured in the market valuation of the realty. Indeed, it is difficult to see that they could have been, having regard to the separate basis of valuation adopted with respect to the market value of the residence. This is particularly so in relation to certain of the items, in particular the costs of the bridge, the costs of complying with the development application for the new dwelling and the relocation of fences.
76 Her Honour's assumption that the claimed costs were caught up in the "before" and "after" valuation exercise appears to have affected her approach to the valuation exercise that she was required to undertake. In particular, she said at [80]:
"The logic of the case for compensation under s 59(f) argued by the Applicants' counsel was not entirely clear to me, given the existence of s 55(f) of the Just Terms Act which is the means by which "injurious affection" claims are dealt with. There are many statements of this, most recently in the decision of the Court of Appeal in Roads and Traffic Authority v Muir Properties Pty Limited [2005] NSWCA 460. In considering the "before and after" valuation exercise called for by s 55(f), Tobias JA (with whom McColl JA and Hunt AJA agreed) stated at [103] that:
'It is often the case that when only part of a dispossessed owner's land is compulsorily acquired, a "before" and "after" valuation exercise of the whole of that owner's land is conducted. In other words, the market value of the land before acquisition is determined (including the acquired land) as is its value after acquisition (excluding the acquired land). In this way the difference between the two values determines not only the market value of the acquired land but also captures any injurious affection to the retained land by reason of the acquisition for the public purpose.'"
77 Her Honour then said at [82]:
"The approach in McBaron , which appears to be correct, suggests that an applicant may choose between a claim for loss of value of improvements under s 55(f) or as disturbance under s 59(f) where the latter section is satisfied. The approach in McBaron was to allow a claim under s 59(f) or s 59(c). Given my finding that the partial cost of establishing a new dwelling is not compensable under s 59(f), are there any other matters which fall into this category as identified in McBaron ?"
Her Honour then proceeded to consider items other than those that related to the construction of the new dwelling claimed under this heading.
78 Although the valuers adopted the "before" and "after" approach to the valuation exercise, as we have already observed they did so on what is referred to in valuation parlance as a summation basis. This involves taking each component to be valued and, instead of valuing them together, valuing each separately. The drawback of this methodology is that the exercise does not necessarily capture not only the market value of the components but also any injurious affection. That was the case here.
79 Thus, in his valuation report of 13 January 2005, Mr McDonald separately valued the land component of the property on the "before" basis and the residue land on the "after" basis. In so doing, he applied various comparable sales and determined the "before" value of the property at $750,000 or $40,000/ha as a rural home site. He then determined the "after" value of the residue land on the same rate per hectare. In fact he stated that he considered that a pro-rata rate for a reduction in the land value of the property was appropriate, namely, 4ha @ $40,000/ha = $160,000. There was nothing, he said, which made the property any less valuable in the "after" situation.
80 Accordingly, in his calculation of compensation, Mr McDonald determined the market value of the acquired land pursuant to s 55(a) in the sum of $257,000 which included the $160,000 difference between the area of 18.59ha pre-acquisition and 14.59ha post-acquisition.
81 At the same time he valued on a "before" and "after" basis each of the other components of the property including the residence, garage, former dairy bails, hay shed, machinery shed, yard complex and cattle chaser. Importantly, under the heading "Section 55(f) - Increase or decrease in value of other land", he wrote "not applicable".
82 On behalf of the respondents Mr Allsop adopted an identical summation approach. He valued the land component of the property separately from the improvements. Relevantly, he valued the land component "as cleared, fenced, water supply, internal roading, electricity" in the "before" situation in the sum of $700,000 or 18.595ha @ $37,500/ha and in the "after" situation in the sum of $550,000 or 14.59ha @ $37,500/ha. Eventually, the valuers agreed that the market value pursuant to s 55(a) of the Just Terms Act of the acquired land was $160,000: see [10] of the judgment.
83 Had the valuers approached the "before" and "after" valuation in the more conventional way, then the "after" value, on her Honour's findings, would have needed to reflect the necessity to relocate the residence 300 metres from the new highway as the appellant required. The costs of that relocation (now claimed under the heading of disturbance) would have resulted in a lower value of the residue land in the "after" situation.
84 In other words, due to the injurious affection of the residue land by reason of the carrying out or the proposal to carry out the public purpose for which the acquired land was acquired, a hypothetical purchaser of the residue land would have discounted the price he or she would pay for that land due to the impact of the new highway on the residence rendering it uninhabitable and thus necessitating the construction of a new dwelling 300 metres removed from the highway boundary. That discount would directly reflect the extra costs involved in providing the very same services and facilities which the respondents now claim under s 59(f).
85 It is therefore wrong for the appellant to assert that her Honour misapplied the "before" and "after" methodology by failing to capture any s 55(f) injurious affection given the common approach of the valuers to that exercise.
86 It is equally wrong for the appellant to submit that to now allow the same costs as disturbance under s 59(f) as might have been taken into account under s 55(f), will result in an increase in the value of the residue land which will involve double-dipping or double-counting. This is not so. There would only be double dipping if injurious affection resulted in the "after" value of the residue land being reduced so that the differential between the "before" value of the whole property and the "after" value of the residue land increased and then disturbance in respect of the same costs as were reflected in the injurious affection of the residue land were awarded in addition.
87 It thus follows that the trial judge erred when at [89] she accepted the appellant's submission that it would be a case of "double dipping" to allow as disturbance the cost of improvements to the residue land caused by the necessity to relocate the residence which had been rendered uninhabitable because those costs had been reflected in the loss of value of the residue land which had been incorporated into the assessment of the value of the improvements (presumably the residence) under s 55. No such loss of value of the residue land had been so incorporated. This error was more than an error of fact: it was an error of valuation principle.
88 The question still to be resolved at this point is whether the errors we have identified are sufficient to allow this aspect of the cross-appeal. The finding of error of law will not call for appellate intervention if, on the facts as found by her Honour, there was no basis for a claim under s 59(f). Central to the determination of this question is her Honour's finding in respect of the relationship of the residue land to the acquired land. We have already referred to these facts above, but they need to be revisited for the purpose of resolving this question.
89 Her Honour makes the first of her findings in this respect at [78] where she says that:
"… the facts in this case are not the same as McBaron so that it does not follow that the same approach ought to be taken in relation to [these] costs".