The First Issue: Did his Honour err in law in failing to take into account the terms of the Deed and in concluding that Collex suffered a loss of airspace? (Grounds 1, 2, 3(a) and (b) of the Amended Notice of Appeal)
85 As we have observed, the RTA did not challenge his Honour's adoption of the DCF methodology as the primary basis for the assessment of the compensation payable. Indeed, that challenge would have been unavailable to it, as its own expert agreed that the DCF methodology was the preferable approach to the assessment of compensation. It asserted, however, that the DCF methodology was flawed, having regard to the premises upon which it was based. The particular challenge was to the underlying calculation used to assess the discounted cash flow in the "after" situation. That calculation took into account a 15 per cent reduction (approximately 1 million m3) in landfill capacity as a result of the acquisition.
86 The 15 per cent reduction in landfill capacity, on Mr Reed's calculation, resulted in a 1.02 million m3 loss of airspace otherwise approved for solid waste landfill. Mr Reed then calculated the projected loss in earnings, based on that reduction, by calculating the variation in the net present value of discounted cash flows prepared for "the before and after case". It was submitted that in undertaking this calculation, Mr Reed took no account of Austral's right under cl 8.2 of the Deed to provide alternative airspace to make up for that shortfall. Nor did he take account of the operation of cl 8.3 should the airspace provided by Austral be less than 250,000 m3 per annum and which would result in a reduction (at the rate of $4 indexed per m³) of the annual Minimum Payment. Further, Mr Reed's underlying methodology also failed, so it was submitted, to take into account the operation of cl 8.5 of the Deed.
87 Mr Reed's approach in reducing the landfill capacity by 15 per cent was in one sense reflected in his Honour's findings (at [65]-[66]) that the Airspace Creation Payment was not relevant to the assessment of compensation for the purposes of the Just Terms Act, and that any adjustment of payments made by Collex to Austral was a matter of private agreement between them and thus was an irrelevant consideration. In other words, his Honour regarded the terms of the Deed as irrelevant to the assessment of compensation and this would have included the relevant provisions of cl 8.
88 The RTA made two complaints about these findings. First, it submitted that the implicit finding that the terms of the Deed were irrelevant was inconsistent with the primary judge's determination of the separate question and in particular, was inconsistent with the determination of SQ 4(c) and SQ 4(d). His Honour's determination of these questions is set out at [51] above. In general terms, he determined that the prudent hypothetical purchaser and vendor would have been advised that the proper interpretation of the Deed required the conclusion that cl 8 would be applicable to the continued operation of the extraction and filling of Lots 8 and 9. It was common ground between the parties that the hypothetical purchaser of Lot 9 would be a person who was reasonably financial and who would take over Collex's landfill operations and other obligations under the Deed insofar as those obligations were applicable to Lot 9.
89 Collex submitted that having regard to his Honour's determination in his answer to SQ 4(d) that Austral was not required by cl 8 to replace any land or airspace compulsorily acquired by a public authority, this argument was not open to the RTA. His Honour's finding was that, although Austral was not required to provide alternative airspace, it remained subject to cl 8.2 to cl 8.5. In our opinion, the significance of the question his Honour answered lies in the word "required". In other words, was Austral "required" to replace airspace? His Honour answered that question correctly: cl 8.2 provided that, if Austral could not provide airspace in accordance with cl 8.1, "it may provide an equivalent amount of reasonably adjacent Airspace". It was not obliged to do so. But his Honour also held that that provision as well as cl 8.3, cl 8.4 and cl 8.5 continued to operate.
90 The second complaint was the substantive challenge to his Honour's finding that the terms of the Deed (including cl 8) were irrelevant to his determination of compensation. The RTA contended that the assumption of a loss of landfill capacity, upon which Mr Reed calculated the discounted cash flow in the "after situation", was erroneous because it failed to take into account cl 8 of the Deed which required Austral to provide a specified minimum volume of airspace per annum either from Lot 1 or other of its quarries. It followed on the RTA's argument that the hypothetical purchaser of Lot 9 would have to pay to Austral a portion of the Minimum Payment of $1 million Indexed payable each year. Otherwise, there was to be a proportionate adjustment of the yearly minimum Airspace Creation Payment: see cl 8.3.1. Likewise, there was a requirement to provide a proportion of the specified volume of airspace over the life of the Deed: otherwise there was to be an adjustment to the original purchase price of Lot 1: cl 8.4 and cl 8.5.
91 Mr Reed's approach was to have regard only to the volume of airspace that was to be provided under the terms of the Deed and to the reduction in that volume caused by the acquisition. The RTA contended that if the market value of Lot 9 was assessed having regard to the volume of airspace actually delivered, then the compensatory provisions in cl 8.3 and cl 8.5, and Austral's right under cl 8.2 to provide alternative airspace elsewhere, should also have been taken into account in the "after" valuation.
92 Collex's argument in response to the RTA's challenge to the primary judge's determination that cl 8 of the Deed was irrelevant, can be reduced to two propositions. First, the assessment of compensation was made on the basis that the hypothetical purchaser of Lot 9 was bound by and would have the benefit of the terms of the Deed. Second, there would be a loss of airspace due to the acquisition of Lot 9 and the effect this would have on Lot 8. However, there was nothing in the Deed that dealt with the consequence of a compulsory acquisition by a public authority of any part of the land to which it applied. Accordingly, as Lot 9 was compulsorily acquired through no fault of Austral, the latter could not be required to make any reimbursement for that consequential loss of airspace to Collex pursuant to cl 8.3. Nor was Austral required to consider whether to make up that lack of airspace pursuant to cl 8.2. In other words, the provisions of cl 8 were, as his Honour held, irrelevant.
93 During the course of the argument on the appeal, a suggested reformulation of this submission was that, acknowledging that neither Collex nor Austral contended that the Deed had been frustrated by the acquisition of Lot 9, there was an implied term that Austral would have available to it the whole of Lot 1 to provide the specified airspace of 6.8 million m3. On this argument, rather than having a continuing obligation to provide 6.8 million m3 of airspace from the reduced area of Lot 1, that is, from Lot 8 alone, a proportionate share only would be required to be made available by Austral to Collex on that lot. In that circumstance, cl 8 did not arise for consideration. The only relevant loss of airspace in respect of Lot 8 would be the extent to which the proportionate volume of airspace would be reduced by the fact that there had to be a 30.48 metre setback from its western boundary.
94 The implication of such a term would follow from the terms of the Deed for the following reasons. The Deed contemplated that there could be a disposal of part of Lot 1: see definition of "Dispose of" at [25] above. Although there were restrictions on the sale of Lot 1 (see cl 14), the Just Terms Act required that any such prohibition on sale be ignored insofar as it applied to Lot 9: see Leichhardt Municipal Council v Roads and Traffic Authority of New South Wales [2006] NSWCA 353; (2006) 149 LGERA 439. In other words, the compulsory acquisition of Lot 9 occurred in a sale between a hypothetical vendor and purchaser. Although there was a temporary prohibition on the sale of any part of Lot 1 within five years from the Commencement Date, that would have to be ignored for the purposes of the hypothetical sale of Lot 9. The Deed would, however, be otherwise operative for the purpose of that sale.
95 It would follow that if there was an assessed entitlement to dispose of Lot 9 and the terms of the Deed otherwise applied, it would be necessary to imply a term that the hypothetical purchaser of Lot 9 as well as Austral would be bound by the terms of the Deed in proportion to the airspace available on that land: see BP Refinery (Westernport) Pty Ltd v Hastings Shire (1977) 180 CLR 266 at 283. That proportion would have been ascertainable because the Plan annexed to the Deed delineated the area on Lot 9 that was to be used for excavation with the consequent creation of airspace. Collex adopted this as an alternative way to approach its case.
96 Whilst we are of the opinion that there would be such an implied term, for reasons we explain below, we do not consider that Collex's approach needs to be categorised as involving an implied term of the Deed. Nor do we consider that the implication of such a term completely answers the question of whether Collex is entitled to compensation for the approximately 300,000 m3 of lost airspace from Lot 9 due to the acquisition.
97 In the "before situation", the market value of Lot 1 would be assessed having regard to the terms of the Deed. In the "after situation", two steps were required. First, the market value of the airspace on Lot 8 had to be determined on the assumption that it had been sold in accordance with the terms of the Deed: that is, landfill operations could continue to be carried out on that land: see Leichhardt Municipal Council. However, compared to the "before situation" there would be a loss of airspace from Lot 9 of approximately 300,000 m3 and there would be some further loss because two separate excavations would be required, whereas previously when the land was one lot, there would be a single excavation at the point where Lots 8 and 9 abutted.
98 Second, there has to be compensation for any decrease in the value of Lot 8 by reason of the proposal to carry out the public purpose for which Lot 9 was acquired. In this regard, there was a loss of approximately 700,000 m3 of airspace on Lot 8 due to the 30.48 metre setback requirement and the reconfiguration of contours required as a result. This amounted to a total loss of airspace of approximately 1 million m3, the exact figure claimed being 1,048,186 m3.
99 On this approach, as Lot 9 had been hypothetically sold in accordance with the terms of the Deed, there was no further room for the operation of cl 8.2 to cl 8.5, as their effects had already been taken into account in the "before" and "after" exercise. Collex contended that this was the reasoning behind his Honour's conclusion at [65], namely, that the question of any adjustment of payments made by Collex to Austral was a matter for private agreement and did not fall for consideration in the proceedings. In other words, it was not for his Honour to determine what, if anything, Collex and Austral would have agreed to as between themselves, now that there was approximately 1 million m3 less airspace available on Lots 8 and 9 due to the acquisition of Lot 9. Further, it was submitted that there was no obligation on a person whose land had been compulsorily acquired to 'mitigate' their loss by taking measures such as the RTA suggested: that is, reconfiguring Lot 8 in such a way as to eliminate or minimise any such loss of airspace.
100 In approaching the DCF on the basis that there was a total loss of approximately 1 million m3 of airspace, Collex's experts treated Lots 8 and 9 as a single unit for the purposes of valuing the lost airspace in the "before" valuation and Lot 8 as a single unit in the "after" valuation. Collex submitted that this was an accepted valuation approach, notwithstanding that the "valuation" was being undertaken under the different provisions of the Just Terms Act, namely, s 55(a) in the case of Lot 9 and s 55(f) in the case of Lot 8: see Roads and Traffic Authority of New South Wales v Muir Properties Pty Ltd [2005] NSWCA 460; (2005) 143 LGERA 192.
101 In Muir Properties, Tobias JA observed (at 212 [103]) that a "before" and "after" valuation of the whole of the land was often undertaken where part only of land was compulsorily acquired. His Honour explained:
"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. This approach will also, in an appropriate case, capture any loss due to the severance of the dispossessed owner's land by that acquisition."
102 Tobias JA further stated (at 212-213 [104]):
"In proceeding according to that approach, there has never been any doubt that the Pointe Gourde principle is applied in the ' before ' valuation exercise. In other words, the ' before ' value is determined on the basis of disregarding any decrease in the value of the land arising out of the purpose of the compulsory acquisition and any steps in the scheme leading to that acquisition. It is only in the ' after ' value that any decrease by reason of the proposed implementation of the public purpose for which the resumed land was compulsorily acquired is taken into account."
103 This paragraph must now be read as if the reference to the Point Gourde principle was read as a reference to s 56(1) of the Just Terms Act: see Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2008] HCA 5; (2008) 233 CLR 259. See also Leichhardt Municipal Council.
104 In Roads and Traffic Authority of New South Wales v Damjanovic [2006] NSWCA 166; (2006) 146 LGERA 403, Tobias JA confirmed the appropriateness of the "before" and "after" approach to the market value of the acquired land pursuant to s 55(a) of the Just Terms Act and any injurious affection to the retained land pursuant to s 55(f). Damjanovic provides some assistance in understanding the present case.
105 The respondents in Damjanovic owned 10.33 ha of land with a frontage to Wallgrove Road. The land was used for poultry egg production. The RTA compulsorily acquired a portion of the land, comprising a band of variable width ranging between 50 and 75 metres fronting Wallgrove Road, for the purposes of the M7. It was common ground between the valuers that a "before" and "after" approach should be adopted for the purposes of assessing the market value of the acquired land and any injurious affection to the retained land. The parties' expert valuers had valued the land in the "before" situation on the basis of its use for industrial purposes. They differed, however, as to the basis upon which the land should be valued in the "after" situation.
106 The effect of the compulsory acquisition of the land fronting Wallgrove Road was to eliminate the direct road access between the retained land and the M7, with the consequence that the retained land was left without any usable road frontage. The RTA had provided a temporary access to the retained land during the construction of the M7, and it was accepted by the parties that this temporary access would become the only continuing road access to that land. The alternative road access was sufficient for the purposes of the respondents' egg poultry business, but was not sufficient to carry any additional traffic, should the land be used for any "higher use" and, in particular, for industrial use.
107 The dispossessed owner's valuer considered that the restricted access arrangements significantly diminished the value of the retained land in the "after" situation and he therefore "valued" the land on the basis of its existing use. The RTA's valuer considered that in the "after" situation, the land should be valued on the same basis as in the "before" situation, namely, as land available for industrial use.
108 The primary judge held that the effect of the M7 on the retained land was to decrease its value, essentially because of the loss of its usable street frontage which had provided direct access to the land, compared to the situation before the date of compulsory acquisition, when the land had a substantial street frontage with three separate driveways directly connecting the land to Wallgrove Road. The access the property had before acquisition made the land suitable for industrial purposes. Once that access was lost, the retained land was no longer suitable for industrial use. The primary judge had concluded that just as the road frontage of the respondents' land was conducive to its potential for industrial development, the absence of such frontage (after acquisition of a portion of the land) was destructive of that potentiality.
109 In Damjanovic, the RTA contended on appeal that the primary judge had erred in law in that by focussing upon the effect of the creation of the M7 on the respondents' retained land, he had "demonstrated an approach to the valuation 'after' acquisition which was entirely inconsistent with the approach he had applied to the valuation 'before' acquisition" (at [58]).
110 Tobias JA, Beazley and Santow JJA agreeing, rejected the RTA's contention. His Honour said that:
"[66] … the fundamental flaw in the appellant's argument is that it denied the proposition that when valuing the retained land, the valuers were required to assume that the land did not have a 390 metre frontage to Wallgrove Road from which access for industrial purposes was permitted. If that argument was correct and the retained land was to be valued upon the same basis as the respondents' land in the ' before ' valuation, then the result would ignore the decrease in the value of the retained land by reason of the undertaking of, or the proposal to undertake, the public purpose for which the respondents' land was acquired. This result would be contrary to s55(f) of the Just Terms Act .