Ground 1
45 As I have indicated, the essence of this ground as advanced by the appellant was that the primary judge had in his determination of the englobo value of the 2(a) and 1(e) land taken as his starting point the rate pf $180/m² adopted by Mr Wood as his base rate for land with immediate residential potential. It was submitted that in doing so his Honour must have accepted that that base rate of $180m² was, as Mr Wood had stated in evidence, the englobo value of 2(a) land which was unconstrained by flooding. poor access, aircraft noise or ecological considerations.
46 Accordingly, and subject to a discount for risk (which, on Mr Wood's evidence reduced his base rate of $180/m² to $120/m²), the appellant submitted that flood management and developments of $1,665,200 should have been deducted from the resultant value, determined by his Honour and based upon his adoption of Mr Wood's rates per square metre, to arrive at the value of the subject land before acquisition. The primary judge's failure to do so constituted an error of valuation principle so that his assessment of the market value of the acquired land was open to review for legal error: Yates Property Corp (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 177G; 73 LGERA 47 at 67; Melwood Units Pty Ltd v Commissioner for Main Roads (1978) 52 ALJR 593 at 595; 37 LGERA 387 at 391; Roads & Traffic Authority (NSW) v Muir Properties Pty Ltd [2005] 143 LGERA 192 at 208 [78]; Roads & Traffic Authority (NSW) v Mosca (2006) 146 LGERA 335 at 340 [21]. The respondents conceded so much if it were in fact the case that his Honour had adopted Mr Wood's base englobo rate of $180/m² for unconstrained 2(a) land.
47 However, the respondents' ultimate submission was that although it was accepted that Mr Wood's englobo residential rate of $180/m² was based on unconstrained residential 2(a) land available for immediate development, the $180/m² adopted by his Honour as the base rate for both the 2(a) and 1(e) land was not the $180/m² determined by Mr Wood but was Mr Neskovski's englobo rate for the 2(a) land of $200/m². His Honour had, so it was submitted, discounted that rate by $20/m² rather than Mr Neskovski's $10/m² to take account of the flood mitigation and road access costs applicable to the subject land over and above those costs already assumed in the $200/m² rate based by Mr Neskovski on comparable sales which were similarly, but to a lesser extent, constrained by flooding, noise and access issues as the subject land.
48 In order to resolve this issue it is necessary to refer to various paragraphs of his Honour's judgment. As I have already observed, he considered (at [92]) that Scenario 3 was the closest of the scenarios which he had listed, although it required some modification to accord with his findings which I have listed in [27] above. His Honour noted that Scenario 3 reflected Mr Neskovski's original valuation although Mr Wood had made a secondary valuation of the land on the basis of that scenario. He concluded that the Court would
"therefore determine the appropriate valuation on the basis of the valuers' competing valuations in Scenario 3."
49 The primary judge then turned to Mr Neskovski's valuation based on Scenario 3 which I have set out in [32] above. With respect to the "before" situation, his Honour observed (at [94]) that
"…Mr Neskovski valued the 2(a), 5(a) and 6(a) land at a rate of $190/m². Mr Neskovski agreed that filling and service costs would be approximately $26/m² and that replanting would cost $3/m², but considered that the rate of $190/m² already included a discount for these costs, because the comparable sales would also have involved such costs."
50 With respect to the 1(e) land, his Honour noted (at [95]) that Mr Neskovski had arrived at a value of $140/m², which included a discount for filling, service and replanting costs. He had then made a further deduction to each of his 2(a) and 5(e) rates for risk, based upon the risks of delay in obtaining development consent, the precise area of land which might be developable, the affectation by ANEF contours, other unforeseen delays and possible inaccuracy of information. For these constraints Mr Neskovski had deducted 25% from each of the base rates he had adopted to arrive at a rate of $135/m² for the 2(a), 5(a) and 6(a) land and $105/m² for the 1(e) land.
51 At [99] his Honour noted that in arriving at his values for englobo residential land, Mr Neskovski relied primarily upon two sales of residential 2(a) land in the Liverpool area. He observed that Mr Neskovski:
"claimed that these sales were of englobo land which was similarly constrained to the [respondents] land."
52 Principally, Mr Neskovski had relied upon what was referred to as the Bernera Road sale, the adjusted englobo rate for which he determined at $197/m². However, approximately only 10% of that land was subject to flooding by a 1:100 year flood. His Honour then noted (at [101]) that Mr Wood had said that that sale was not comparable to the subject land as it was only 6-7% flood affected whereas the subject land was at least 65% flood affected.
53 His Honour then referred (at [102]) to reliance by Mr Neskovski on what was referred to as the Ash Road sale, the adjusted englobo rate for which was determined by him at $201/m². He then noted that Mr Wood's evidence was that the land the subject of that sale was suitable for immediate development and that the constraints upon that land listed by Mr Neskovski were significantly less severe than those which impacted on the subject land. Mr Wood assessed the appropriate rate for this sale at $191/m².
54 After referring to some other sales relied upon by Mr Neskovski, his Honour turned to a consideration Mr Wood's valuation. He said:
"106 Mr Wood's initial valuation was based upon the advice of the respondent's expert's in relation to flooding, ecological constraints and town planning. However, as referred to above, Mr Wood's initial valuation was based upon facts which the Court has rejected. Accordingly the Court relies upon Mr Wood's alternative valuation in Scenario 3.
107 In that scenario, Mr Wood adopted a base rate of $180/m² in respect of the 2(a) land. He then deducted one third of value for risk, to arrive at a rate of $120/m² for the 2(a) land. He said the risk deduction was slightly higher than usual because of the number of constraints affecting the land."
55 Under the heading "Findings - Valuation", his Honour considered (at [110]) that each of the valuers had relied upon sales of englobo property which did not entirely reflect the characteristics of the subject land. With respect to the sales relied upon by Mr Neskovski, he considered (at [111]) that the Bernera Road land was unaffected by any flooding constraints except for a small portion in the south east corner which was negligible and that the Cowpasture Road land (also relied on by Mr Neskovski) was not subject to flooding or airport noise at all.
56 With respect to the "before" scenario, the primary judge then observed:
"113 On the basis of scenario 3, the Court adopts Mr Wood's initial assessment of $180/m² for the 2(a) land in preference to Mr Neskovski's $190/m². The land is clearly inferior to the sales of 2(a) land relied upon by Mr Neskovski. The Court does not consider that Mr Neskovski's discount sufficiently reflects the disparity. The Court also considers that the number of contingencies in relation to development of the 2(a) land, which extend beyond those of the comparable sales, justifies a greater discount for risk as adopted by Mr Wood. The Court adopts a figure of 33% to allow for such risk. Accordingly, the Court adopts a rate of $120/m² for the 2(a) land.
114 The Court considers that in Scenario 3, the 1(e) land would be of comparable value to the 2(a) land once rezoned. The 1(e) land is in fact less constrained by flooding and vegetation than the 2(a) land, and accordingly the risks attendant on development of that land are less in certain respects. However, the uncertainty with respect to whether the rezoning of the 1(e) land would occur and its precise timing significantly increases the risk with respect to the purchase of the 1(e) land. Further, there would necessarily be a delay of at least five years in the rezoning process. Accordingly the Court considers that a discount of 70% to the figure of $180/m² is an appropriate [rate] for the 1(e) land, which results in a rate of $54/m²."
57 The respondents submitted that, properly understood, the primary judge in [113] had not accepted Mr Wood's englobo unconstrained value of the 2(a) land at the rate of $180/m² but had adopted that rate by discounting Mr Neskovski's englobo 2(a) rate of $200m² by doubling the $10/m² to $20/m² the discount applied by Mr Neskovski for flood mitigation and road access, thereby recognising that Mr Neskovski's $200/m² based on the comparable sales relied upon by him in reaching that figure already reflected the cost of overcoming the flooding and noise constraints (such as they were) applicable to the land the subject of those sales.
58 Accordingly, if in fact the primary judge had adopted Mr Neskovski's $200/m² which he had then discounted to $180/m², there would be an element of double discounting if he had acceded to the appellant's submission that the total costs of the flood mitigation and development works of $1,665,200 should be deducted from the adjusted englobo rates for the various components of the subject land which his Honour had valued on a "before" basis in the amount of $4,662,280 (see [33] above).
59 The foundation upon which the respondents submitted that [113] of his Honour's judgment should be so understood was focussed on the third sentence of that paragraph where his Honour said that the Court did not consider that Mr Neskovski's discount sufficiently reflected the disparity between the subject land and the sales of 2(a) land relied upon by Mr Neskovski in determining his rate of $200/m².
60 In my opinion the respondents' understanding with respect to [113] of his Honour's judgment should be rejected for the following reasons. First, the last sentence of [106], the first sentence of [107] and the first sentence of [113] make it patently clear that his Honour was adopting Mr Wood's englobo rate for the 2(a) land of $180/m² and not Mr Neskovski's rate of $200/m² discounted by $20/m² to arrive at the same figure. Second, the first sentence of [113] his Honour expressly stated that he adopted Mr Wood's initial rate of $180/m² for the 2(a) land "in preference to Mr Neskovski's $190/m²". His Honour then observed that the subject land was clearly inferior to the land the subject of the sales relied upon by Mr Neskovski.
61 Third, it is true that his Honour then observed that he did not consider that Mr Neskovski's discount sufficiently reflected "the disparity". Given the fourth sentence of [113] which followed, I am prepared to accept that his Honour rejected Mr Neskovski's discount of $10/m² whereby he reached an englobo rate for the 2(a) land of $190/m². But it does not follow, and in my respectful opinion flies in the face of his Honour's express adoption of Mr Wood's base rate of $180/m² for the 2(a) land, that, rather than adopting Mr Wood's base rate, his Honour was adopting Mr Neskovski's discounted rate of $190/m² which he then further discounted by $10/m² to reach a rate of $180/m².
62 Fourth, his Honour in the second and third sentence of [113] was in my opinion expressing his reasons for rejecting Mr Neskovski's $200/m² for the 2(a) land because of the disparity between the sales upon which he had relied to reach that figure and for the subject land. Having rejected Mr Neskovski's rate of $190/m², he expressly adopted Mr Wood's rate of $180/m². At no point did he indicate or imply that his starting point was Mr Neskovski's $200/m² or his discounted rate of $190/m². Nor did he state that he adopted the rate of $180/m² by doubling Mr Neskovski's discount of $10/m² to $20/m².
63 Fifth, in the fourth sentence of [113], his Honour rejected the discount for risk of 25% adopted by Mr Neskovski and adopted Mr Wood's discount of 33 ⅓%. This was a further indication of his wholesale rejection of Mr Neskovski's valuation of the 2(a) land and his adoption of that of Mr Wood.
64 It follows from the foregoing that in my opinion it is patently clear that the second and third sentences of [113] constituted the reasons why his Honour was not prepared to accept Mr Neskovski's $190/m² and why he considered that he should adopt Mr Wood's rate of $180/m² for the 2(a) land. Contrary to the respondents' submission, there is nothing in the first three sentences of [113] which would permit one to accept that his Honour adopted $180/m² for the 2(a) land by further discounting Mr Neskovski's $190/m² by a further $10m² to reflect "the disparity" between the land the subject of the sales relied upon by Mr Neskovski and the subject land. The first sentence of [113] simply does not permit any such understanding of his Honour's reasoning process.
65 For the respondents' submission to have had any possibility of success, the first sentence in [113] should have omitted the words "Mr Wood's initial assessment of" so that that sentence would have read: "On the basis of scenario 3, the Court adopts $180/m² for the 2(a) land in preference to Mr Neskovski's $190/m²."
66 The flaw in to the respondents' submission is his Honour's express adoption of Mr Wood's assessment of $180/m² rather than arriving at that rate by a further discounting of Mr Neskovski's $190/m². The latter is an exercise which his Honour simply did not undertake.
67 For the foregoing reasons, in my opinion his Honour adopted Mr Wood's discounted englobo rate for the 2(a) land of $120/m².
68 So far as the 1(e) land was concerned, it is apparent from [114] that his Honour's commencement point was that of Mr Wood, namely $120/m², being the same rate that which Mr Wood had determined with respect to the 2(a) land. Mr Wood in his valuation exercise then deferred that rate of $120/m² for five years thereby reaching a discounted englobo rate of $74.51/m². His Honour considered that Mr Wood's discount rate of 33⅓% was insufficient for the reasons he set out in [114]. Accordingly, he discounted the figure of $180/m² as being the value of the 1(e) land once rezoned to 2(a) by 70% in order to reach an appropriate rate per square metre for that land and which, as he expressly observed, took into account the delay of at least five years in the rezoning process. It was therefore unnecessary for him to defer the resultant rate of $54/m² for five years as had Mr Wood in his "before" valuation.
69 It was not suggested by the respondents that in discounting the base rate of $180/m² by 70% in respect of the 1(e) land that his Honour was reflecting in that discount rate the flood management/development costs relating to that 1(e) land which were minimal in any event.
70 As I have indicated, by the end of its submissions, the respondents quite properly accepted that if a proper understanding of his Honour's reasons set forth in [113] of his judgment was that he had in fact adopted Mr Wood's base rate of $180/m² for the 2(a) land rather than discounted Mr Neskovski's $190/m² by a further $10/m² to reach the same rate, then it followed that his Honour had erred in principle by failing to then deduct flood management and development costs of $1,665,200 or, at least, $1,507,000 being the amount of those costs agreed by the parties' quantity surveyors.
71 The respondents initially submitted that the amount of $1,665,200 should also be deducted from his Honour's "after" valuation with the result that each of those deductions cancelled each other out. However, during the course of argument it was accepted that based upon the agreement between the quantity surveyors with respect to flood management/development costs pre-acquisition and post-acquisition, there was a differential of at least $146,000 in that the post-acquisition works were agreed at $146,000 less than the pre-acquisition works. There was also the possibility of another $50,000 differential, the details of which were not explored. The point, however, is that the effect of the differential of $146,000 is that the compensation for the market value of the acquired land awarded by his Honour in the sum of $2,497,585.60 would need to be reduced by at least that amount.
72 The respondents submitted that for there to be a relevant error of law by the primary judge to justify intervention by this Court it was not sufficient to show that some error of law appeared in the judgment or during the course of the trial but that the error found was required to be one upon which the decision depended so that it was vitiated by that error: Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 419.
73 In my opinion, his Honour's decision is vitiated by the error which I have identified. The amount of compensation he awarded in respect of the market value of the acquired land which resulted from his failure, given the differential in the pre-acquisition and post-acquisition flood management and development costs, to take account of those costs when determining both his "before" and "after" valuations was greater than the compensation to which the respondents were entitled.
74 It follows that Ground 1 advanced by the appellant succeeds with the result that his Honour's assessment of compensation with respect to the market value of the acquired land must be set aside and the matter remitted to the Land and Environment Court for further consideration.