Sales and Ors v Transport for NSW

Background

1. At the date of acquisition, the applicants were the registered proprietors of the Acquired Land, as tenants in common in unequal shares. For the purpose of valuation, it is relevant to note that the Acquired Land formed part of a larger contiguous area of land that was owned by the applicants, either collectively or individually, which had an area of 12ha ('Parent Parcel'). After the acquisition of the Acquired Land an area of 8.518ha either collectively or individually owned by the applicants remained of the Parent Parcel ('Residue Land').
2. The Acquired Land was acquired by Transport pursuant to the Just Terms Act for the purposes of the Roads Act 1993 (NSW), and in particular, the public purpose of upgrading and realigning The Northern Road (Stage 4) (which has since been constructed adjacent to the eastern boundary of the Residue Land), being a major road route to the proposed new Western Sydney Airport and surrounding "Aerotropolis".
3. An understanding of the physical relationship between the Parent Parcel and the Acquired Land (which is roughly a coffin-shaped pentagon) is gleaned from comparing the Parent Parcel (comprising Lot 1 in DP 90157, Lot 1 in DP 215715 and Lot 2 in DP 629074) and the Acquired Land (previously part of Lot 1 in DP 90157 and now comprising Lot 5 in DP 1234822) as shown in the following plans and in Annexure A to this judgment.

Plan of Acquired Land

1. The Parent Parcel is located within the local government area of Liverpool City Council ('Council'). At the date of acquisition, the Parent Parcel was located approximately 300m to the west of land on which it is proposed to develop the new Western Sydney Airport. To the north-west of the Parent Parcel is Luddenham village.
2. Relevantly for the purpose of valuation, at the date of acquisition the southern portion of the Parent Parcel (an area of 85,295m²), and accordingly the southern portion of the Residue Land (an area of 63,428m²), was zoned R2 Low Density Residential ('R2') under the Liverpool Local Environmental Plan 2008 ('LLEP') (land subject to the R2 zone is referred to as the 'Southern Land'). The northern portion of the Parent Parcel (an area of 34,705m²), and accordingly the northern portion of Residue Land (an area of 21,752m²), was zoned RU1 Primary Production zone ('RU1') under the LLEP (land subject to the RU1 zone is referred to as the 'Northern Land').
3. For present purposes, it is sufficient to note that, at the date of acquisition, under the LLEP, development comprising a residential subdivision would be permitted in the R2 zone but would not be permitted in the RU1 zone. An extract from the zoning map (on which the lots comprising the Parent Parcel can be seen) from the LLEP at the date of acquisition follows.

Extract from zoning map from the LLEP

1. The following plan more clearly depicts the location of the zone boundary between the RU1 zone and R2 zone under the LLEP (and therefore between the Southern Land and the Northern Land) on the Parent Parcel prior to the date of acquisition.
2. At the date of acquisition, and since January 2015, the Northern Land, while within the RU1 zone under the LLEP, was also part of a precinct ('Precinct 11') in the south-western extremity of the Western Sydney Employment Area ('WSEA'), being an area identified for future employment-related development and subject to the State Environmental Planning Policy (Western Sydney Employment Area) 2009 ('WSEA SEPP'). As the boundary of the WSEA follows the boundary between the Northern Land and the Southern Land, the Southern Land, which was in the R2 zone, was not within the WSEA.
3. The WSEA SEPP was made in 2009 with aims, inter alia, of promoting economic development and the creation of employment in the WSEA by providing for development including major warehousing, distribution, freight transport, industrial, high technology and research facilities, as well as coordinated planning and development of land in the WSEA. The WSEA SEPP provides development controls for the WSEA, including land use zoning.
4. While the WSEA SEPP provides for four discrete land use zones in the WSEA, at the date of acquisition, the WSEA SEPP mapped the Northern Land as "Unzoned Land", and cl 12 of the WSEA SEPP allowed innominate development on the unzoned land "with development consent". As will be seen, there is an issue between the parties as to whether at the date of acquisition the Northern Land would be considered to be able to be developed for residential subdivision under the WSEA SEPP.

The statutory valuation task

1. The amount of compensation to which a person whose land has been compulsorily acquired is entitled is set out in s 54 of the Just Terms Act, as follows: 54 Entitlement to just compensation (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land. …
2. Section 54 directs attention to the amount by which the owner of the land is worse off as a result of the compulsory acquisition. The market value of the land is a relevant consideration, but is not the only consideration, as s 55 of the Just Terms Act makes clear: 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division) - (a) the market value of the land on the date of its acquisition, (b) any special value of the land to the person on the date of its acquisition, (c) any loss attributable to severance, (d) any loss attributable to disturbance, (e) the disadvantage resulting from relocation, (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired.
3. The "market value" of land is subsequently defined in s 56 of the Just Terms Act, as follows: 56 Market value (1) In this Act - market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid) - (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. …
4. Noting the comments of Basten JA in Apokis v Transport for NSW (2020) 101 NSWLR 844; [2020] NSWCA 39 ('Apokis') at [36]-[44] regarding the role of the "judicial valuer", it is apt to note at this point that the statutory task the Court is undertaking is not to objectively determine the market value of the Acquired Land, but rather, in accordance with the terms of the legislation set out above, to determine the terms of the hypothetical transaction that would occur between the hypothetical purchaser and the hypothetical vendor of the Acquired Land at the date of acquisition. As will be seen, in these proceedings this involves judicial consideration of two discrete hypothetical transactions.

Highest and best use

1. When assessing market value under s 56 of the Just Terms Act, the Court considers the "highest and best use" of the Acquired Land at the date of acquisition.
2. While the concept of "highest and best use" is not explicit in the statutory text, it has been incorporated by reference to the hypothetical transaction, and the terms on which this would occur, being, "…the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted": Spencer at 440-441 (Isaacs J).
3. The assessment of the "highest and best use" of land is "applicable to the land before the acquisition": Apokis at [68]. This is when, in the process of undertaking the hypothetical transaction, the parties would assess what the highest and best use of the land would be. Thus, the question for the Court is "to discover the value of the land to the dispossessed owner if put to its best use": Turner v Minister of Public Instruction (1956) 95 CLR 245; [1956] HCA 7 ('Turner') at 274.

State of knowledge

1. In Spencer, the High Court adverted to the knowledge that can be attributed to the parties to the hypothetical transaction where Isaacs J at 441 indicated that the Court: "…must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property."
2. In Apokis at [36]-[47], Basten JA surveyed key cases since Spencer that engaged with the scope of knowledge that can be attributed to the parties to the hypothetical transaction. This includes cases such as ISPT Pty Ltd v Valuer General (NSW) [2009] NSWCA 31; (2009) 165 LGERA 25 at [4], where Allsop P recorded his doubt as to the aptness of the phrase "perfectly acquainted", a sentiment reflected by Basten J when he concluded, in terms which I consider are particularly apposite to these proceedings, that the reference to "perfectly acquainted" was unlikely to have been "intended to set a standard which would require an 11-day court hearing to determine the value of a largely undeveloped block of land of less than 80ha" and reiterated the need to focus on the statutory language: Apokis at [47].
3. I remain cognisant of the above matters in my consideration of the issues in these proceedings.

Summary of issues

1. As will be considered below, because the Acquired Land was not a discrete pre-existing parcel of land, the conventional "before and after" valuation method for determining the value of the Acquired Land has been adopted by both parties. This involves valuing the Parent Parcel as it existed immediately before the acquisition ('before scenario') by applying the statutory test and then applying the same test to the Residue Land after the acquisition ('after scenario'), where the value of the Acquired Land is assumed to be the difference between the two valuations. The before and after valuation method captures not only the market value of the Acquired Land at the date of acquisition, but also any increase or decrease in the market value of the Residue Land caused by the carrying out of the public purpose for which the Acquired Land was acquired. It also means that two hypothetical transactions are undertaken, the first in the before scenario, and the second in the after scenario.
2. While the before and after valuation method is agreed, the parties disagree about how the Parent Parcel and the Residue Land are to be valued, which, apart from differences between the valuers as to the actual valuation methodology to be adopted, also raises a number of questions of nicety regarding the highest and best use of the Parent Parcel and the Residue Land, including the precise nature and extent of the respective land's development potential as a residential subdivision.
3. Although it is agreed that the highest and best use of the Southern Land was residential subdivision, there is a disagreement (characterised by Transport as a "threshold dispute") between the parties as to whether, having regard to the interpretation and application of the LLEP and the WSEA SEPP, the highest and best use of any of the Northern Land at the date of acquisition was residential subdivision. This disagreement is relevant to the advice that the parties to the hypothetical transaction of the Parent Parcel in the before scenario, and the Residue Land in the after scenario, would receive about the Northern Land and would inform the terms upon which the hypothetical parties would transact. This affects the valuation of the Parent Parcel and the Residue Land, and accordingly the valuation of the Acquired Land under the Just Terms Act.
4. Transport maintains, and the applicants contest, that, at the date of acquisition, no part of the Northern Land could have been used for residential subdivision, such that no residential subdivision could have been undertaken on that part of the Parent Parcel in the before scenario or the Residue Land in the after scenario. Transport's position is that the highest and best use of the whole of the Northern Land (being 34,705m² in the before scenario and 21,752m² in the after scenario) was land banking for future employment purposes ('land banking') under the WSEA SEPP. As a result, any residential subdivision on the Parent Parcel and the Residue Land would be wholly contained within the boundaries of the Southern Land (being 85,295m² in the before scenario and 63,428m² in the after scenario).

1. The Court was invited to determine the issues raised in these proceedings in a manner which would facilitate the parties applying the Court's findings in the valuation process to determine the market value of the Acquired Land (including injurious affection) at the date of acquisition and accordingly the total compensation to which the applicants are entitled. That approach has been adopted.

Evidence

1. The hearing proceeded over eight days and the Court received extensive expert evidence in the fields of town planning, engineering, and valuation. I was assisted in hearing the proceedings by Acting Commissioner Knight in accordance with s 37 of the Land and Environment Court Act 1979 (NSW).
2. In relation to the primary issues noted above, the applicants relied upon town planning evidence of Stephen Connelly and valuation evidence of Paul Dale; and Transport relied upon town planning evidence of Anthony Rowan and valuation evidence of Grahame Hollinshead. Each expert gave evidence of the advice that would have been given to the vendor and purchaser in the hypothetical transactions.
3. Although the Court also received detailed engineering and development costing evidence from Aman Kalsi and Terry Hams, which was utilised by the valuers, the parties reached agreement as to the requirement for, and cost of, a number of matters relating to the works involved in the development of residential subdivisions on the Parent Parcel and the Residue Land.

Town planning - WSEA

1. Although the primary question for the Court in these proceedings involves the valuation of land, it is appropriate that the disagreement between the parties in relation to the advice that the parties to the hypothetical transactions would receive regarding the interpretation and application of the LLEP and the WSEA SEPP and the resulting highest and best use of any of the Northern Land be resolved, given the implications for the valuation of the Parent Parcel and the Residue Land, and accordingly, the valuation of the Acquired Land under the Just Terms Act. This requires consideration of the applicable planning instruments and the likely view of the consent authority, being Council, as to the development of the Northern Land.
2. It is agreed that at the date of acquisition, the hypothetical parties would have received advice and transacted on the basis that the Southern Land was ripe for residential subdivision, and that Council would grant development consent for residential subdivision on land zoned R2, such that the highest and best use of the Southern Land as part of both the Parent Parcel and the Residue Land was residential subdivision.
3. Given this, the question is whether the parties to the hypothetical transactions would transact on the basis that the highest and best use of the Northern Land was residential subdivision, both in the before scenario and the after scenario. As outlined above, the Northern Land was subject to the RU1 zone under the LLEP (pursuant to which residential subdivision was prohibited) and also mapped as "unzoned land" under the WSEA SEPP at the date of acquisition.
4. The parties provided detailed submissions in relation to the interpretation and application of cl 12 of the WSEA SEPP to the Northern Land. In summary, the applicants' primary position is that cl 12(1) of the WSEA SEPP (which provided that "[d]evelopment may be carried out on unzoned land only with consent") operated to permit development for any purpose, including residential subdivision, on the Northern Land with development consent. The applicants submit that cl 12(2) (which requires the consent authority to consider impact on adjoining zoned land, and be satisfied the development is appropriate and compatible with land uses on any such adjoining zoned land, prior to granting development consent) should be interpreted by reference to the adjoining R2 zoned Southern Land (under the LLEP) and is accordingly satisfied, such that residential subdivision would be allowed on the whole of the Northern Land. The applicants' alternative position is that Ancillary Facilities for a residential subdivision on the Southern Land could be located on the Northern Land.

The application of the WSEA SEPP

1. Before considering the parties' positions in further detail, it is convenient to note the relevant provisions of the WSEA SEPP applicable at the date of acquisition, noting that cl 12 was subsequently repealed on 11 June 2020, as follows: Part 1 Preliminary … 3 Aims of Policy (1) This Policy aims to protect and enhance the land to which this Policy applies (the Western Sydney Employment Area) for employment purposes. (2) The particular aims of this Policy are as follows: (a) to promote economic development and the creation of employment in the Western Sydney Employment Area by providing for development including major warehousing, distribution, freight transport, industrial, high technology and research facilities, (b) to provide for the co-ordinated planning and development of land in the Western Sydney Employment Area, (c) to rezone land for employment or environmental conservation purposes, (d) to improve certainty and regulatory efficiency by providing a consistent planning regime for future development and infrastructure provision in the Western Sydney Employment Area, (e) to ensure that development occurs in a logical, environmentally sensitive and cost-effective manner and only after a development control plan (including specific development controls) has been prepared for the land concerned, (f) to conserve and rehabilitate areas that have a high biodiversity or heritage or cultural value, in particular areas of remnant vegetation. 4 Land to which Policy applies This Policy applies to the land identified on the Land Application Map. Note. The Land Application Map shows the subject land divided into the following precincts: … (j) Precinct 11 (Broader Western Sydney Employment Area). … 6 Consent authority For the purposes of this Policy, the consent authority for development of land to which this Policy applies is, subject to the Act, the council (referred to in this Policy as the relevant council) of the local government area in which the land is situated. Note. The approval of the Minister may also be required for the carrying out of development referred to in Part 3A of the Act (Major infrastructure and other projects). … 8 Relationship to other environmental planning instruments (1) State Environmental Planning Policy No 1 - Development Standards does not apply to the land to which this Policy applies. (2) This Policy to prevail over LEPS In the event of an inconsistency between this Policy and a local environmental plan or deemed environmental planning instrument that applies to the land to which this Policy applies, this Policy prevails to the extent of the inconsistency. Part 2 Permitted or prohibited development 9 Land use zones The land use zones under this Policy are as follows: (a) IN1 General Industrial, (b) IN2 Light Industrial, (c) E2 Environmental Conservation, (d) SP2 Infrastructure. 10 Zoning of land to which Policy applies For the purposes of this Policy, land is within the zones shown on the Land Zoning Map. 11 Zone objectives and land use table (1) The Table at the end of this clause specifies for each zone: (a) the objectives for development, and (b) development that may be carried out without consent, and (c) development that may be carried out only with consent, and (d) development that is prohibited. (2) The consent authority must have regard to the objectives for development in a zone when determining a development application in respect of land within the zone. … … 12 Unzoned land (1) Development may be carried out on unzoned land only with consent. (2) Before granting consent, the consent authority: (a) must consider whether the development will impact on adjoining zoned land and, if so, consider the objectives for development in the zones of the adjoining land, and (b) must be satisfied that the development is appropriate and is compatible with permissible land uses in any such adjoining land. … Part 4 Development Control Plans 18 Requirement for development control plans (1) Except in such cases as the Director-General may determine by notice in writing to the consent authority or as provided by clause 19, the consent authority must not grant consent to development on any land to which this Policy applies unless a development control plan has been prepared for that land. (2) The requirements specified in Schedule 4 apply in relation to any such development control plan. … … Part 5 Principal development standards … 23 Development adjoining residential land (1) This clause applies to any land to which this Policy applies that is within 250 metres of land zoned primarily for residential purposes. (2) The consent authority must not grant consent to development on land to which this clause applies unless it is satisfied that: (a) wherever appropriate, proposed buildings are compatible with the height, scale, siting and character of existing residential buildings in the vicinity, and (b) goods, plant, equipment and other material resulting from the development are to be stored within a building or will be suitably screened from view from residential buildings and associated land, and (c) the elevation of any building facing, or significantly exposed to view from, land on which a dwelling house is situated has been designed to present an attractive appearance, and (d) noise generation from fixed sources or motor vehicles associated with the development will be effectively insulated or otherwise minimised, and (e) the development will not otherwise cause nuisance to residents, by way of hours of operation, traffic movement, parking, headlight glare, security lighting or the like, and (f) the development will provide adequate off-street parking, relative to the demand for parking likely to be generated, and (g) the site of the proposed development will be suitably landscaped, particularly between any building and the street alignment. … Part 6 Miscellaneous provisions … 33A Development near zone boundaries (1) The objective of this clause is to provide flexibility where the investigation of a site and its surroundings reveals that a use allowed on the other side of a zone boundary would enable a more logical and appropriate development of the site and be compatible with the planning objectives and land uses for the adjoining zone. (2) This clause applies to so much of any land that is within the relevant distance of a boundary between any 2 zones. The relevant distance is 50 metres. (3) This clause does not apply to: (a) land zoned E2 Environmental Conservation, or (b) land within the coastal zone, or (c) land proposed to be developed for the purpose of sex services or restricted premises. (4) Despite the provisions of this Policy relating to the purposes for which development may be carried out, consent may be granted to development of land to which this clause applies for any purpose that may be carried out in the adjoining zone, but only if the consent authority is satisfied that: (a) the development is not inconsistent with the objectives for development in both zones, and (b) the carrying out of the development is desirable due to compatible land use planning, infrastructure capacity and other planning principles relating to the efficient and timely development of land. (5) The clause does not prescribe a development standard that may be varied under this Policy. …

Applicants' position

1. The applicants submit that the WSEA SEPP did not prohibit a residential subdivision on "unzoned land" at the date of acquisition, and that such development was governed by cl 12. Accordingly, subject to the consideration of any impact on adjoining zoned land and the objectives for development in those zones, and being satisfied that the development was appropriate and compatible with permissible uses on any adjoining land that was zoned (as required by cl 12(2)), a consent authority could grant consent for a residential subdivision under the WSEA SEPP. The applicants contend that the consent authority would be satisfied that a residential subdivision on the Northern Land would be entirely consistent with the objectives for development of the Southern Land which is zoned R2 under the LLEP. Thus, the parties to the hypothetical transactions would transact on the basis that the highest and best use of the Northern Land both as part of the Parent Parcel in the before scenario and as part of the Residue Land in the after scenario would be a residential subdivision.
2. The applicants contend that the fact that the Northern Land is "unzoned land" under the WSEA SEPP and that cl 12 permits development for any purpose on unzoned land with development consent (noting the qualifications in cl 12(2)), while under the LLEP, the Northern Land is zoned RU1 which would not permit residential subdivision, means there is inconsistency between the LLEP and the WSEA SEPP. Pursuant to cl 8 of the WSEA SEPP, the WSEA SEPP prevails over the LLEP.
3. The applicants submit that "unzoned land" in an environmental planning instrument (such as the WSEA SEPP) cannot be likened to "deferred land" in an environmental planning instrument, as while the environmental planning instrument controls unzoned land but does not purport to zone it, the environmental planning instrument does not control nor zone deferred land. The applicants submit that the WSEA SEPP controls unzoned land in the WSEA such as the Northern Land and requires development consent for development, creating an inconsistency between the WSEA SEPP and the LLEP, where the provisions of the WSEA SEPP prevail, citing DEM (Australia) Pty Ltd v Pittwater Council [2004] NSWCA 434; (2004) 136 LGERA 187 at [6]-[7]; Hastings Point Progress Association Inc v Tweed Shire Council [2009] NSWCA 285; (2009) 168 LGERA 99.

Transport's position

1. Transport accepts that cl 12(1) of the WSEA SEPP permits development for any purpose (including residential subdivision) on the Northern Land with development consent, with the apparent result that it accepts the WSEA SEPP prevails over the LLEP due to inconsistency.
2. However, Transport does not accept the applicants' position that the Northern Land could be developed as a residential subdivision. This is because first, cl 12(2) only applies to physically adjoining land that is zoned under the WSEA SEPP; and second, in any event, the satisfaction of the criteria in cl 12(2) does not automatically lead to development consent for a residential subdivision being granted by Council, in circumstances where a residential subdivision is antithetical to the aim of the WSEA SEPP to preserve the whole of the WSEA for future employment purposes.
3. Transport takes the same view in relation to the applicants' alternative position regarding Ancillary Facilities being located on the unzoned Northern Land, suggesting that this would not be approved because the sole purpose of the Ancillary Facilities would be to service the residential subdivision on the Southern Land rather than support the employment purposes of the WSEA. As a result, the parties to the hypothetical transactions would be advised that the highest and best use of the Northern Land was for land banking.
4. Transport's first argument is that the reference to "adjoining zoned land" (in cl 12(2)(a) of the WSEA SEPP) relates to land discretely zoned under the WSEA SEPP that adjoins the "unzoned land" the subject of cl 12(1). In the circumstances before the Court, while the R2 zoned Southern Land physically "adjoins" the Northern Land, it is not "adjoining zoned land" (emphasis added) for the purposes of cl 12(2) because it has not been zoned as one of the land use zones specified under the WSEA SEPP. Transport provides a number of submissions to support this contention: first, the WSEA SEPP only applies to land identified in the "Land Application Map" (as per cl 4) which does not include the Southern Land; second, the WSEA SEPP contains a list of four "land use zones" in cl 9, none of which was equivalent to the R2 zone; third, pursuant to cl 10, the zoning of land under the WSEA SEPP is set out in the "Land Zoning Map", which does not include the Southern Land; and fourth, the "Land Use Table" in cl 11 contains specific objectives, and permitted and prohibited uses, within the four nominated land use zones.

Consideration

1. The interpretation and application of the WSEA SEPP and LLEP to the Northern Land raises issues of statutory construction. As noted above, my consideration is undertaken in the context of the advice that the parties to the hypothetical transactions would receive. However, where those parties are attributed a state of knowledge (which is, if not "perfectly acquainted" with the land and cognisant of the circumstances that may affect its value, likely in any event to have been informed by advice in relation to the legally correct interpretation and application of the WSEA SEPP and LLEP to the Northern Land), it is appropriate to determine what the legally correct interpretation and application of the WSEA SEPP and LLEP to the Northern Land is, given the implications this has for the resulting highest and best use of the Northern Land and thus the valuation of the Parent Parcel and the Residue Land.
2. The applicable legal principles that I am to apply when undertaking the task of statutory construction are well known, however some initial brief comments can be made. The objective is to construe the relevant statutory provision so it is consistent with the language and purpose of the statue when considered as a whole: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 ('Project Blue Sky') at [69]. While ordinarily the legal meaning of the provision will reflect the grammatical meaning of the provision, in certain limited circumstances, the context of the words, the consequences of construction, the purpose of the statute, or the canons of construction may require the words of the provision to be read in a different way: Project Blue Sky at [78]; SZTAL v Minister for Immigration and Border Protection; SZGTM v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 at [14].
3. These general principles of statutory construction apply to the interpretation of environmental planning instruments such as the LLEP and the WSEA SEPP: Cranbrook School v Woollahra Municipal Council (2006) 66 NSWLR 379; [2006] NSWCA 155 at [36]. In this respect, while environmental planning instruments should be interpreted in a practical manner, this does not override general principles of statutory construction nor require "laxity or flexibility" in interpretation: Tovir Investments Pty Ltd v Waverley Council [2014] NSWCA 379 at [54]; Wingecarribee Shire Council v De Angelis [2016] NSWCA 189 at [20]; 4nature Incorporated v Centennial Springvale Pty Ltd (2017) 95 NSWLR 361; [2017] NSWCA 191 at [45]. This is also consistent with s 33 of the Interpretation Act 1987 (NSW) ('Interpretation Act'), which applies to environmental planning instruments by virtue of s 5(6), and requires a construction which promotes the purpose or object of an Act over one which would not.

Town planning - lot yield and development cost

1. Apart from the consideration of the area on which a residential subdivision would be able to be undertaken on the Parent Parcel in the before scenario and the Residue Land in the after scenario, and based upon the above discussion in relation to the LLEP and the WSEA SEPP, the Court received detailed evidence on a number of further town planning matters which would likely impact the lot yield and development cost of any such residential subdivision. The issues to be resolved by the Court, in the context of the position that would be adopted by the parties to the hypothetical transactions, include, first, the amount of public open space that would need to be provided in a residential subdivision in the before scenario and the after scenario; and second, whether physical treatment would need to be applied on the eastern boundary of the Residue Land in the after scenario.
2. The materiality of these further town planning matters depends to a large extent on the valuation methodology adopted by the Court when valuing the land for residential subdivision, as lot yield and cost are important integers in the HDM valuation methodology. In contrast, if the DCA valuation methodology is adopted, the lot yield in particular appears less material. As noted earlier, Transport contends that the divergence of opinions on these further town planning matters is another reason why the HDM is less reliable than the DCA in terms of valuation methodology.
3. The Court was provided with a number of scenarios for residential subdivision that engage with different iterations of the above town planning matters and proffer a resulting lot yield, prepared by the town planners. Potential scenarios and lot yields were provided in the following evidence: Mr Connelly's and Mr Rowan's initial positions in their individual expert reports (part of Ex A (A1), (A2)); the town planning joint expert report dated 21 December 2019 (part of Ex A (A3)); the further individual expert report of Mr Connelly dated October 2020 (Ex C); the supplementary report of the town planners provided 14 October 2020 (Ex D); and the further additions to the joint planning and costings report (Ex H). In addition, the valuers undertook valuations of a number of different scenarios and potential iterations (a process which was subject to its own issues to be resolved by the Court, as discussed above) and proffered market values of certain scenarios and development costs in the following evidence: Mr Hollinshead's and Mr Dale's initial expert reports (part of Ex A (C1), (C2)); the joint report of the valuation experts dated 26 August 2020 (part of Ex A (C3)); the supplementary joint report of the valuation experts dated 1 October 2020 (part of Ex A (C5)); and the further supplementary joint report of the valuation experts dated 29 October 2020 (Ex J).

Public open space

1. The town planners disagreed about the amount of public open space to be provided in any residential subdivision in the before scenario and the after scenario. As noted above, this issue is to be considered in the context of the position that the parties to the hypothetical transactions would take, which also imports consideration of the amount of public open space Council would likely require in a residential subdivision.
2. The town planners agreed that there are no specific requirements within the WSEA SEPP, Council's Liverpool Development Control Plan 2008 ('LDCP'), or the Liverpool Contributions Plan 2009 ('Contributions Plan') that details the amount of public open space to be provided in a residential subdivision.
3. Generally, Mr Connelly opined that a smaller amount of public space would be required than the amount opined by Mr Rowan. This was because Mr Connelly considers that Luddenham has adequate (if not excessive) total public open space in the amount of 4.6ha, such that Council would not require a significant amount of open space in a residential subdivision (also noting the in perpetuity maintenance burden that public open space imposes on Council). Mr Connelly's preferred "pocket park" approach adopted the standard of ensuring dwellings were within 400m walking distance of a park.
4. In contrast, Mr Rowan contested the assertion that there is excess public open space in Luddenham, noting, first, that Council is likely to consider the provision of public amenities and public services when granting consent to a residential subdivision; second, that the existing public open space services the existing residential population; and third, that the distance from the eastern side of a residential subdivision to the existing public open space would be excessive. Mr Rowan opined that additional public open space would be required and used the following inputs as a basis for his calculation: first, a benchmark for open space for residential release areas adopted from the NSW Department of Planning, Industry and Environment's rate for growth areas (being 2.83ha per 1,000 persons); and second, the likely occupancy rate of a residential subdivision on the basis of Council's Contributions Plan (being 3.4 persons per dwelling). Mr Rowan also gave evidence noting that open space was unlikely to be required to be dedicated to Council as "public open space", but would be provided as "community open space" (where Mr Connelly gave contrary evidence that there could be no "community open space" in a Torrens Title subdivision, meaning that open space required dedication to Council in the usual way or via a voluntary planning agreement).

Applicants' position

1. The applicants adopt Mr Connelly's evidence and submit that the parties to the hypothetical transactions in the before scenario and the after scenario would transact on the basis that (beyond Mr Connelly's "pocket park" approach) no additional public open space would be required in a residential subdivision, as a result of the overall availability of public open space in the "Airport and Rural locality" in 2016 (being 94ha of district and regional open space). In this respect, the applicants rely on the presence of two large recreation reserves in Luddenham - Luddenham Showground and Sales Park (where Sales Park, despite being in the adjacent Penrith local government area, is located within Luddenham village and within the "Airport and Rural locality"). They contend that Mr Connelly's allowance of 2,419m² for public open space in his residential subdivision layouts is appropriate.
2. The applicants also refer to Council's Liverpool Population and Social Infrastructure Study (Judith Stubbs, 2019) ('Study'), which while prepared after the date of acquisition, includes the requirements for open space in each locality from 2016 to 2041 (and thus records the requirements for open space applicable at the date of acquisition). The applicants contend that the Study illustrates that there was a surplus of parks and open space in 2016 in the "Airport and Rural locality" due to the small population, and as such, on the date of acquisition, Council would not require any more public open space than that proposed by Mr Connelly in his residential subdivision layouts in the before scenario and the after scenario.
3. The applicants contest Mr Rowan's evidence that the advice he would give to the parties undertaking the hypothetical transactions in the before scenario and the after scenario was that approximately 1ha of public open space would be required to be provided with a residential subdivision, on the basis that Council may require it for recreation. They consider this to be "excessive, overly burdensome, [and] not an economic use of land". The applicants submit that Mr Rowan either misunderstands or misapplies the formula for open space (as the benchmark of 2.83ha per 1,000 persons includes regional, district and local open space, and should not be used as a formula for additional local open space without consideration of existing regional and district open space). In this respect, residents of a residential subdivision in the before scenario and the after scenario would have access to 94ha of open space at a district and regional level, meaning that no additional local open space would be required.

Transport's position

1. Transport contests the applicants' and Mr Connelly's "pocket park" approach to public open space in a residential subdivision in the before scenario and the after scenario. First, they submit that Council would not be satisfied that there was adequate existing public open space by reference to public open space located in a different local government area to that for which Council had responsibility. Second, they note that where a residential subdivision would increase demand for public open space, the parties to the hypothetical transactions would assume that public open space would need to be provided to meet this demand. Third, they do not accept the applicants' reliance on the Study on the basis that the town planners did not have regard to the Study and it does not address the demand for local public open space generated by a residential subdivision.
2. Transport also rejects Mr Connelly's secondary position of utilising Mr Rowan's formula using a lower occupancy rate. This is because Mr Connelly's preferred position is his "pocket park" approach, and although he exhibited "general reluctance" about his secondary position, it was recently proffered, and the rate nominated in Council's own Contributions Plan represents a more appropriate occupancy rate.
3. Finally, Transport notes that in relation to the 2005 development consent, the use of part of the Northern Land for effluent disposal and stormwater treatment was not mutually exclusive with the use of this area also for community open space.

Consideration

1. I accept that the transacting parties in the before scenario and the after scenario would assume that Council would take into account the provision of public open space when assessing and approving an application for development consent for a residential subdivision, such that some public open space would have to be incorporated into a residential subdivision layout. While the applicants and Transport put forward competing positions in relation to the public open space likely to be required by Council in a residential subdivision, and Mr Connelly and Mr Rowan provided competing evidence, I prefer the evidence of Mr Rowan and the position proffered by Transport. My reasons follow.
2. I accept that a new residential subdivision would generate an increased demand for public open space, such that the hypothetical parties would consider that Council requires the provision of additional public open space in a residential subdivision layout (rather than relying on existing public open space). When considering the amount of public open space required, I find that Council would place weight on the amount of public open space available within its local government area. In this respect, I do not consider that the availability of existing public open space in other local government areas (such as Sales Park, being in the adjacent Penrith local government area) or at a regional or district level, would mitigate Council's concerns about ensuring there is adequate additional public open space to meet additional demand, such that they would accept Mr Connelly's "pocket park" approach.
3. Rather, I prefer Mr Rowan's formula for ascertaining the amount of public open space to be provided in response to a new residential subdivision in the before scenario and the after scenario. I note that the inputs adopted by Mr Rowan are based on, or derived from, Council documents that were available to the hypothetical parties at the date of acquisition (and I prefer these inputs to those derived from resources that postdate the date of acquisition). While the applicants criticise Mr Rowan's use of the benchmark of 2.83ha per 1,000 persons on the basis that it is not limited to local open space, I consider, first, Mr Rowan properly seeks to use the formula to calculate the demand for additional public open space that would be generated by residents in a new residential subdivision (where the formula can be applied at different scales including the subdivision scale); second, while this demand for public open space can be addressed through the provision of regional, district and local open space, no additional public open space at a regional or district level is being proposed; and third, therefore, the demand for additional public open space would be addressed through the provision of local public open space.

Physical treatment on the eastern boundary of the Residue Land

1. The applicants and Transport disagree about the approach that the parties to the hypothetical transaction would take to the risk of Council requiring a physical treatment on the eastern boundary of the Residue Land in the after scenario, to mitigate the impact of the adjacent public purpose (being The Northern Road) on a residential subdivision. Depending on the characteristics of the physical treatment, this may have the effect of reducing the available space for residential subdivision and accordingly the lot yield in the after scenario, as well as increasing the development cost of a residential subdivision in the after scenario.
2. The town planners agreed that they would advise the parties to the hypothetical transaction in the after scenario that the proposed residential lots along the eastern boundary of the Residue Land would be subject to road noise (where this noise would not have existed in the before scenario). The town planners' evidence was that there is no requirement in the WSEA SEPP, LLEP or LDCP for a physical treatment on the eastern boundary of a residential subdivision on the Residue Land. However, the town planners gave conflicting evidence about the physical treatment on the eastern boundary that may be required by Council in any event to attenuate the impact of the road.
3. Mr Connelly opined that there is a risk that Council would require a physical treatment on the eastern boundary of the Residue Land as "best practice" to manage the noise, visual, psychological and air emission impacts of the public purpose. Given this, the hypothetical parties would be advised, and transact on the basis, that a residential subdivision may need to include "road related impact mitigation proposals". In support of his position, Mr Connelly noted that the environmental impact statement for The Northern Road indicates that predicted noise levels exceed Transport's noise control guidelines and cumulative limits at existing dwellings adjacent to the Residue Land. Mr Connelly provided three physical treatment options, which after some development during the hearing, finally constituted: first, a 40m wide mound; second, a 5m wall; and a 1.8m fence. While Mr Connelly opined that a 40m wide mound was best practice, he noted he could best assist the Court by focusing on a 5m wall and a 1.8m fence.

Applicants' position

1. The applicants contend that the eastern boundary of the Residue Land would be subject to road noise impacts in the after scenario, which were not present in the before scenario, as a result of the additional new road. The applicants note that where the two neighbouring properties to the Residue Land were identified in the environmental impact statement for the public purpose as eligible for acoustic treatment as a consequence of the noise impact of the public purpose, a residential subdivision of the Residue Land would also be subject to noise impacts giving rise for a need for acoustic treatment.
2. Further, the applicants disagree with Transport's reliance on noise as a result of "latent" aircraft and aircraft-related activity impacting the Residue Land as a reason that no physical treatment on the eastern boundary would be required. The applicants submit that the "latent" aircraft and aircraft-related activity noise which would occur in the before scenario and the after scenario, and the road noise resulting from the public purpose in the after scenario, are separate considerations. Further, the applicants submit that aircraft would be flying to the northeast or southwest of the Residue Land, rather than flying overhead 24 hours a day as speculated by Transport. Finally, the applicants contend that expected aircraft noise impacting the Residue Land would decrease by the time the Western Sydney Airport is operational, as a result of improved jet engine technology.
3. Given this, the applicants submit that the "risk" of Council requiring a physical treatment on the eastern boundary of the Residue Land maintained by Mr Connelly is one that the parties would factor into the hypothetical transaction in the after scenario as a cost of developing a residential subdivision. Further, the applicants contend that the parties would consider the appropriate physical treatment on the eastern boundary of the Residue Land to be a 5m wall, at a development cost of $1,060,000.

Transport's position

1. Transport submits that the parties to the hypothetical transaction would not assume that a 5m wall was "required to ameliorate perceived amenity impacts caused or contributed to by the public purpose", and that this physical treatment on the eastern boundary of the Residue Land would be "a disproportionate response". Transport relies on the fact that dwellings in the residential subdivision in the after scenario will already be subject to significant noise amelioration measures due to the proximity to the Western Sydney Airport, and submits that any visual impacts of the public purpose would be minimal. Transport contends that the applicants' submissions referring to decreased aircraft noise in the future are "bold and unsubstantiated".
2. As a result, Transport's position is that the appropriate physical treatment on the eastern boundary of the Residue Land is an "ordinary" 1.8m fence. Transport contends that this is the measure that has been required for other roadside developments approved by Council. Transport also notes that there is flexibility in the layout of the residential subdivision in the after scenario, and the relocation of roads and parks could reduce the noise and visual impact of the public purpose on the Residue Land, thus reducing the need for a physical treatment.
3. Transport brought the Court's attention to the differing positions of the applicants' town planner, Mr Connelly (who advocated for the "best practice" mound but later focused on a 5m wall and a 1.8m fence), and the applicants' valuer, Mr Dale (who adopted a 5m wall after originally adopting a 20m mound), submitting that the applicants' own valuer rejected the applicants' town planning experts' best practice position, which detracts from Mr Connelly's credibility on the topic.

Consideration

1. I note that while on the site view, the Court observed an earthen mound on the Acquired Land. I give this factor little weight, except to the extent that it is relied upon to confirm a foresight, on the basis that the question before the Court is what the parties to the hypothetical transaction would have anticipated that Council would have required as a physical treatment on the eastern boundary of the Residue Land on the date of acquisition, not what has actually been undertaken in the time that has passed since the date of acquisition. It follows that I also give little weight to any changes in the opinions of the town planners or valuers that arose as a result of the presence of the earthen mound on the Acquired Land after the date of acquisition.
2. I accept that there is a risk that Council would require some form of physical treatment on the eastern boundary of the Residue Land to mitigate the impacts of the public purpose, being a not insubstantial road, on the Residue Land. The issue for the Court to resolve is the character of the physical treatment that the parties to the hypothetical transaction in the after scenario would consider to be required, on the applicants' submission, a 5m wall; and, on Transports submission, a 1.8m fence.
3. Considering the above submissions and evidence, a threshold question arises about the effect of the "latent" aircraft and aircraft-related activity noise impacts (which would impact both the Parent Parcel in the before scenario and the Residue Land in the after scenario due to their proximity to the new Western Sydney Airport) as against the effect of the public purpose. I find that while the impacts of the public purpose on the Residue Land constitute a separate issue to the aircraft and aircraft-related activity noise impacts, road noise impacts must be considered in the context of the broader acoustic environment affecting a residential subdivision on the Residue Land. In this respect, road noise would be one of a number of noise impacts on dwellings in the residential subdivision in the after scenario. I accept that the dwellings in the residential subdivision will already be subject to a number of noise amelioration measures, which while undertaken to address aircraft and aircraft-related activity noise impacts, would also reduce the impact of road noise. In these circumstances, Council is less likely to require a significant physical treatment on the eastern boundary of the Residue Land on the basis of the noise impact of the public purpose.

Conclusion on lot yield and development cost

1. My findings in relation to the two outstanding town planning issues are as follows: first, the parties to the hypothetical transactions would transact on the basis that Council would require additional open space to be provided in a residential subdivision in the before scenario and the after scenario, to meet the additional demand for public open space generated by new residents. Transport's submissions and Mr Rowan's evidence are to be preferred in this regard. Second, the parties to the hypothetical transaction would transact on the basis that Council would require physical treatment on the eastern boundary of the Residue Land in the after scenario to mitigate the impacts of the adjacent public purpose. Given the variety of impacts on the Residue Land as a result of an adjacent busy road, I am of the view that Council would require a 5m wall, and the parties would transact on this basis.
2. Taking these conclusions, I find that the lot yield of a residential subdivision on the Parent Parcel in the before scenario would have a lot yield of 78 lots. In the after scenario, the lot yield of a residential subdivision on the Residue Land would be 59 lots and would involve a discrete development cost for the provision of a 5m wall, which, as noted above at [144] is subject to final calculations by the parties.

Valuation - valuation methodology

1. The parties agree that the "before and after" valuation method is the appropriate valuation method for determining the value of the Acquired Land. This method accounts for the matters set out of at ss 55(a), (c), and (f) of the Just Terms Act (being the market value of the acquired land, any loss attributable to severance, and any increase or decrease in the value of any other adjoining or severed land held by the person at the date of acquisition) but not ss 55(b), (d) and (e): Apokis at [28].
2. However, as noted above, the parties dispute the appropriate valuation methodology to be adopted when valuing the Parent Parcel and the Residual Land for the purposes of the before and after valuation method. In summary, Transport submits that the DCA should be utilised, while the applicants submit that the HDM, using the Estate Master program, should be utilised. I note here that while the DCA and the HDM are variously described as an "approach" and "method", they constitute competing valuation methodologies. Given the issues joined between the parties, a short summary of the different valuation methodologies and the manner the valuers have applied them, provides useful context prior to considering the parties' positions.
3. In these proceedings, utilising the DCA involves deriving a $/m² value for each of the Northern Land (zoned RU1 under the LLEP and unzoned under the WSEA SEPP) and the Southern Land (zoned R2 under the LLEP) of the Parent Parcel and the Residue Land on the basis of realised market sales of land similar (that is, "comparable") to the land being valued. These market sales are then adjusted to create equivalence with the Parent Parcel and the Residue Land. The usual, but not only, manner of utilising the DCA was summarised in New South Wales Cremation Company Pty Limited v Valuer General [2016] NSWLEC 135, as follows: "[99] It has been accepted that a generally valid method of conducting a comparable sales approach is to undertake it in the four steps of accumulation, analysis, adjustment and application. [100] First, the valuer, judicial or otherwise, should accumulate comparable properties. In undertaking this process, the "sales to be treated as comparable sales need to be truly comparable", although the Court should not be "unreasonably selective" of its comparable properties in any event. … [102] Second, the valuer should analyse those comparable sales. This often involves converting the value of those sales into another measurement that can be easily compared. Examples of this process include converting those sales into unitary rates, such as a [rate per square metre]. [103] Third, the valuer should adjust those properties it considers comparable to create equivalence with the unimproved subject land. As stated by Biscoe J in Holcim (Aust) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [31]: The basis for the valuers' valuation assessments is the sales comparison method. Accepted valuation practice permits adjustments for differences, such as in location, area and time to enable valuers to have comparable values which, following adjustment, account for the various differences with the subject property. Such adjustments are generally based on a reasoning process drawing on the skill and experience of the valuer and are undertaken to derive an opinion of value through a deductive process. Because properties are rarely identical, adjustments for differences are obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property. Too many adjustments potentially render the comparable sale unsafe to rely upon. Caution is therefore required where large adjustments are to be made. Reflecting the significant roles of skill, experience and personal assessment in the adjustment process, the scope for differences in the quantum and direction of adjustment between valuers can be considerable. Third, the Court should then apply these adjusted values to the subject property. The purpose of this is to determine, based on comparable sales and as best it can, what value the subject property would obtain if it were to be sold on the market. [104] Fourth, the valuer should apply the comparable sales to determine a value of the subject land based on the adjusted values of the comparable properties." (some citations omitted)

The valuers' evidence

1. Valuation evidence was provided by Mr Dale (retained by the applicants) and Mr Hollinshead (retained by Transport). In addition to their primary individual expert reports, the valuers participated in joint conferencing and prepared three joint expert reports. Each valuer provided details of their primary valuation methodology, any secondary "check" valuation methodology that was utilised, and considered a range of different development scenarios resulting from differing instructions regarding the nature and extent of the highest and best use of the Northern Land and Southern Land in both the before scenario and the after scenario, as well as the approach to town planning issues.
2. In summary, Mr Dale utilised the HDM (applying the Estate Master program) as his primary valuation methodology when valuing land with the highest and best use as residential subdivision. Mr Dale also gave consideration to the DCA, and while he entertained comparable sales and adjustments for the purposes of the before scenario, as a result of his concern with the DCA valuation methodology he did not complete the analysis, and did not consider the DCA in the after scenario. Mr Dale maintained that there were no sufficiently comparable sales of englobo land zoned to allow residential subdivision to support the use of the DCA, and where certain comparable sales of englobo land were sought to be utilised (considered below), the extent of the adjustments required to those sales undermines the reliability of the DCA valuation methodology. Therefore, the HDM valuation methodology is to be preferred.
3. Mr Dale initially utilised the HDM for the Southern Land only as at that time he utilised the DCA for the Northern Land on the basis that its highest and best use was for land banking and there were sufficient comparable sales of RU1 zoned land to support the use of the DCA (thus taking a blended approach to the valuation methodologies on the assumption that the land would transact in one sale). However, Mr Dale later utilised the HDM for the whole of the Parent Parcel and the Residue Land on the changed assumption (which I have determined above is not to be adopted) that the Northern Land could also be used for residential subdivision.
4. Mr Hollinshead utilised the DCA as his primary valuation methodology, and applied this valuation methodology first, when valuing land with the highest and best use as residential subdivision (which he assumed was confined to the Southern Land); and second, when valuing land with the highest and best use for land banking (which he assumed constituted the Northern Land). Mr Hollinshead maintained that the DCA is the most "direct and reliable" valuation methodology, and that there were "sufficiently reliable" comparable market sales for it to be used to value both the land with the highest and best use as residential subdivision and the land with the highest and best use for land banking. In contrast, Mr Hollinshead opined that the HDM requires subjective and opinionative inputs which have the potential to cause unreliability, which led him to utilise the HDM (also applying the Estate Master program) as a secondary "check" valuation methodology only.

DCA valuation methodology

1. In summary, the DCA was utilised by both valuers to determine a $/m² value for land with the highest and best use for land banking (which I have found to be the whole of the Northern Land). Both valuers also considered the DCA when determining a $/m² value for land with the highest and best use as residential subdivision (which I have found to be confined to the Southern Land), although while Mr Hollinshead derived rates for both the before scenario and the after scenario, Mr Dale only undertook adjustments in the before scenario before reverting to the HDM valuation methodology.
2. When considering the use of the DCA for land with the highest and best use as residential subdivision, the valuers identified and analysed three common sales of land for englobo residential development, being sales at 23 Allan Road, Mulgoa (the 'Mulgoa Sale'); 205 Seventh Avenue, Austral (the 'Austral Sale'); and 110 Croatia Avenue, Edmondson Park (the 'Edmondson Park Sale'). Both valuers agreed that the Mulgoa Sale is the most comparable (stating "…it is of the most relevance and the most assistance"), although Mr Dale maintained concerns as to its true comparability and therefore the appropriateness of utilising the DCA more generally. Mr Hollinshead also considered a sale at 70-80 Croatia Avenue, Edmondson Park in his individual expert report, while Mr Dale considered a sale at 30 Gurner Road, Austral in his individual expert report.
3. The Mulgoa Sale relates to the sale of 4.274ha of land zoned RU5 Village which exchanged on 4 August 2016, 18 months before the date of acquisition in these proceedings, for the sum of $6,635,000. To create equivalence between the Mulgoa Sale and the hypothetical transaction for the Parent Parcel in the before scenario, the valuers agreed on a number of adjustments including: the existence of a development consent (−5%); the existence of airport noise (−10%); the risk relating to securing approval for connection to the external sewer (−5%); the cost of providing an external sewer network at $47/m² (−20%); and that no adjustment would be made in relation to size (0%). The valuers disagreed about the required adjustments for market movement and location, and also diverged regarding the appropriate kind of adjustment ("label") to create equivalence, with Mr Hollinshead making an adjustment for dwelling density per hectare of gross developable area and Mr Dale making an adjustment for gross revenue per hectare. Each of these contested adjustments for the Mulgoa Sale when compared to the Parent Parcel in the before scenario is discussed in more detail.

HDM valuation methodology

1. As noted above, the HDM was used by Mr Dale as his primary valuation methodology when valuing the part of the Parent Parcel in the before scenario, and the part of the Residue Land in the after scenario, with the highest and best use as residential subdivision. Although he undertook a number of valuations using the Estate Master program based on various scenarios, Mr Hollinshead maintained his reliance on the DCA as he was concerned about the subjective and opinionative process for determining inputs into the HDM, and the assumptions and projections that are required to be made when utilising the HDM, in circumstances where the HDM is sensitive to changes in assumptions, projections and input values.
2. The Court was provided with a number of valuations undertaken using the HDM based on different scenarios for residential subdivision that engage with different iterations of the areas available for residential subdivision, lot yields, and development costs over the course of these proceedings.
3. In their initial individual expert reports and joint expert report, Mr Dale undertook valuations using the HDM for the R2 zoned Southern Land (with supporting Ancillary Facilities located on the Northern Land) in the Parent Parcel in the before scenario and the Residue Land in the after scenario, while Mr Hollinshead undertook valuations using the HDM for the whole of Parent Parcel in the before scenario and the Residue Land in the after scenario (which incorporated both residential subdivision and rural lots). Each valuer initially adopted the respective planning and engineering evidence of the party that engaged them. In his supplementary statement of evidence dated 18 September 2020 Mr Hollinshead revised his land value rate for the Northern Land on the basis that the highest and best use was for land banking, and provided a revised valuation using the HDM which was confined to the R2 zoned Southern Land in the Parent Parcel in the before scenario and the Residue Land in the after scenario.
4. The supplementary joint report of the valuation experts dated 1 October 2020, included competing valuations using the HDM from the valuers for four scenarios based on the residential subdivision layouts of Mr Connelly and Mr Rowan in the before scenario and the after scenario. As considered below, I have found these helpful given my various findings. The valuers undertook further valuations using the HDM in their further supplementary joint report dated 29 October 2020, where they considered 12 hypothetical development scenarios based on, first, Mr Connelly's residential subdivision layouts which assumed a residential subdivision could be developed on the Northern Land; and second, Mr Connelly's and Mr Rowan's competing lot yields and development costs (ultimately comprising valuations of 3 before scenarios and 9 after scenarios). This resulted in the determination of 12 discrete valuations which the valuers state is "predicated on certain assumptions that may or may not be correct", in circumstances where there was "strong disagreement" between the town planners. None of these later scenarios reflect my various findings.

The applicants' approach to valuation methodology

1. The applicants submit that the HDM should be used to value the Parent Parcel and the Residue Land as it is the preferred valuation methodology where land is "ripe" for subdivision. This is because the HDM reflects how the parties to the hypothetical transactions would value the land, being on the basis that it will be immediately developed to obtain a profit. In these circumstances, the hypothetical purchaser would offer, and the hypothetical vendor would accept, a price that reflects the cost of the developing the land as a residential subdivision with a reasonable margin for profit for the developer.
2. The applicants submit that there is significant judicial support for the use of the HDM, and refer to a number of authorities where the HDM was utilised including: Closer Settlement at 65; Turner at 261; and the discussion of Wells J in Brewarrana Pty Ltd v Commissioner of Highways (No 2) (1973) 6 SASR 541; (1973) 32 LGRA 170 ('Brewarrana') at 552, where his Honour noted: "The evidence leaves me in no doubt that, once again, the question resolves itself into one of degree. Plainly, a calculation based on a hypothetical subdivision will not be vitiated simply because some very slight delay might be experienced before realization could begin, but an inordinate delay of, say, several years could, equally plainly, render the whole undertaking so speculative that a conclusion as to value would be wholly unreliable. In between those two extremes, the skilled valuer will have to decide at what stage the speculative element looms so large that the method becomes unsafe. His decision will depend on all the circumstances of each particular case."
3. In response to "limitations" raised in relation to the use of the HDM (citing Pritchard J in Kelliher v Commissioner for Main Roads (No 2) [2015] WASC 478 at [97]-[99]), the applicants submit: first, as there remains only limited disputed inputs because the valuers are "substantially agreed on every cost input", errors that may sometimes arise from numerous variables dependent on the exercise of subjective judgment are avoided; second, a review of the range of matters to be considered when setting the P+R Margin for the valuation using the HDM (such as demand for lots, delay in completing the subdivision, and supply of lots from neighbouring subdivisions) supports the use of the HDM as there is good demand for lots, the delay in completing the subdivision is agreed, and there is no prospect of competing neighbouring subdivisions and limited other subdivisions in the area; and third, as the land being valued remained ripe for subdivision at the date of acquisition, issues regarding reliability of the HDM where the hypothetical subdivision may not occur for some time do not arise. Given this, the applicants contend that the HDM is the "most appropriate method of valuation".

Transport's approach to valuation methodology

1. Transport submits that where there are "sufficiently reliable comparable sales", the DCA is the conventional valuation methodology. Transport refers to Graham Trilby Pty Ltd v Valuer-General [2008] NSWLEC 217 ('Graham Trilby') at [27], where Jagot J noted that comparable sales represent direct evidence of the market's evaluation of that which must otherwise be accounted for by the valuer utilising the HDM valuation methodology.
2. Transport accepts that the sufficiency of comparable sales is a matter of fact and degree. An "inherent feature" of the DCA is adjustments to create equivalence between the comparable sale and the subject sale, which involve valuation judgments and so are "subjective". Transport contends that the Court should consider the specific circumstances in which adjustments are being made, and the reliability of each adjustment, not their cumulative magnitude. In these proceedings, Transport submits that the adjustments made to the comparable sales identified by the valuers are "not high".
3. Transport notes that the Court has previously held that one comparable sale, subject to the proper adjustment, analysis and application, can provide a sufficient foundation for the use of the DCA: Dan Wei Zheng v Roads and Maritime Services [2017] NSWLEC 77 ('Dan Wei Zheng') at [129]; citing Toveno Pty Ltd v Roads and Maritime Services [2014] NSWLEC 1266 ('Toveno') at [65], [94]; citing Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111; [2003] HCA 8. The valuers agree that the Mulgoa Sale is the most comparable sale, and also agree to the majority of the adjustments to that sale. Transport also notes that the Courts have previously used the DCA in circumstances where there are "far from perfect" comparable sales available, citing Marrickville Council v Sydney Water Corporation [2013] NSWLEC 222 at [19]; Sydney Water Corporation v Marrickville Council [2014] NSWCA 438. Transport disagrees with the applicants' characterisation of the sales identified as comparable as "sales of single residential allotments" and submits instead that they are englobo sales.
4. Transport makes submissions regarding the three main disagreements between the valuers in relation to the adjustments to the Mulgoa Sale, contending that the Court should prefer the adjustments put forward by Mr Hollinshead. First, the +57% adjustment for market movement proposed by Mr Dale for the Mulgoa Sale cannot be supported because: the average house sales in Luddenham utilised by Mr Dale were unreliable because they come from a different market to the subdivided lots that would result from the Parent Parcel and the Residue Land; when these different market sales are removed, the adjustment becomes a small negative or nil adjustment; and the adjustments are inconsistent with Mr Dale's adjustment for location. Second, Mr Dale's approach to adjustment for location is not supported by market evidence, such that the "transparency" of Mr Hollinshead's adjustment should be preferred. Third, Mr Dale takes an irreconcilable position in relation to the exclusion of the riparian corridor from the gross developable area, but the inclusion of the riparian corridor in the calculation of the dwelling density per hectare of gross developable area.

Consideration

1. It is generally accepted that, insofar as there are comparable sales available to the valuer (being sales of land that are sufficiently similar to the subject land so as to allow a comparison to be made between them), the conventional valuation method is the DCA. As posited by Transport, the DCA is generally preferred because the comparable sales "represent direct evidence of the market's evaluation of all the variables that a valuer must otherwise account for by a subjective opinionative process" when undertaking the HDM valuation methodology: Graham Trilby at [27].
2. There has been much judicial consideration of both the DCA and the HDM, and the circumstances in which it is appropriate to use each valuation methodology. In this respect, I adopt the comments of Wells J in Bronzel v State Planning Authority (1979) 21 SASR 513; (1979) 44 LGRA 34 at 516, wherein his Honour recognised the availability of different methodologies for valuation and the importance of retaining an open mind about these different methods: "… I am not disposed to reject any method of valuation adopted by either valuer on the ground that it is not worth considering; it seems to me that if Spencer's case [Spencer v The Commonwealth (1907) 5 CLR 418] … is to keep its practical worth in this jurisdiction, this Court should be slow to reject any method that, in expert hands, is capable of yielding a result within bounds that are not unreasonable. The limitations of every method must, of course, always be kept clearly in mind..." (citation added)
3. My analysis of the authorities referred to by the parties leads me to the view that, while there is a general, and understandable, judicial preference for the DCA, this is dependent upon a factual finding that the comparable sales sought to be relied upon are truly comparable, and consideration as to whether there is an orthodox alternative methodology. For the reasons that follow, and not without some concern, I find that, in relation to the valuation of the R2 zoned Southern Land, valuation using the HDM valuation methodology is to be preferred.
4. I accept the general proposition that whether a sale is sufficiently comparable is a question of fact and degree and while some adjustment is always necessary, too much adjustment will render it unsafe to use: Brewarrana at 551. I am conscious that, as submitted by Transport, it has on occasion been held in this Court that it is sufficient for one sale only to be truly comparable to justify the use of the DCA valuation methodology: Dan Wei Zheng at [29]; Toveno at [65], [94].

Valuation - hurdle rates and injurious affection

1. Having resolved the appropriate valuation methodologies to be used when valuing the Parent Parcel in the before scenario and the Residue Land in the after scenario, some further comment is required in relation to its application. More specifically, the two outstanding valuation issues identified above also need to be resolved by the Court.
2. I have resolved the issue of the appropriate valuation methodologies to be used when valuing the Parent Parcel in the before scenario and the Residue Land in the after scenario, in favour of the HDM for the Southern Land with the highest and best use as residential subdivision and the DCA for the Northern Land with the highest and best use for land banking. However, some further comments are required in relation to the application of these valuation methodologies. More specifically, the two outstanding valuation issues involving the appropriate hurdle rates to be adopted, and whether there should be an allowance for any injurious affection to the Residue Land as a result of the construction of the public purpose, also need to be resolved by the Court.

Hurdle rates

1. When valuing the R2 zoned Southern Land using the HDM with the Estate Master program a target rate of return must be adopted. The valuers, and the parties, disagree as to: first, the type of rate of return to be adopted as the minimum target rate of return, or "hurdle rate", when undertaking the valuation; and second, the quantum of the hurdle rates to be adopted when undertaking the valuation.
2. The Court was directed to the Estate Master program "User Manual" ('Manual') and the parties made detailed submissions on the issue. A review of the Manual indicates that, in short, there are two different methods of calculating residual land value in the Estate Master program, which require the adoption of different target rates of return. First, residual land value can be calculated on the target internal rate of return (being the target IRR hurdle rate), whereby the residual land value is the maximum price for the land that a hypothetical purchaser would pay to make the calculated IRR equal the target IRR hurdle rate or their net present value equal zero. Second, residual land value can be calculated on a target development margin referred to as the profit and risk factor (being the P+R Margin hurdle rate), whereby the residual land value is the maximum price for the land that a hypothetical purchaser would pay to make the calculated development margin equal to the target return for the development.
3. The applicants contend that it is appropriate to include the P+R Margin in the HDM as a hurdle rate (as Mr Dale has done and Mr Hollinshead has not). The applicants submit that the appropriate target P+R Margin is 25% and the appropriate target IRR is 16.5% as opined by Mr Dale. In contrast, Transport contends that it is appropriate to include the IRR in the HDM as a hurdle rate, without including the P+R Margin as a hurdle rate, and that the appropriate IRR is 20%, as adopted by Mr Hollinshead.
4. The resolution of the appropriate type and quantum of hurdle rates is important, because they are practically included as inputs into the Estate Master program and affect the determination of land value using the HDM valuation methodology. Generally, if the hurdle rates are higher, a higher return is required on the hypothetical development and the purchaser in the hypothetical transaction pays less for the R2 zoned Southern Land to achieve that higher return. This has the effect of depressing the purchase price for the hypothetical transaction, which reduces the valuation of the Parent Parcel and the Residue Land, and accordingly the Acquired Land.

Applicants' position

1. The applicants made detailed submissions regarding the appropriateness of using the P+R Margin and the IRR as hurdle rates in the Estate Master program. The applicants submit that allowance for profit and risk (through the P+R Margin) is included in the HDM to account for the costs incurred by the hypothetical purchaser in preparing the englobo land for subdivision; the risk of selling the subdivided lots, and the prices for which they are sold; and, the return on the investment made.
2. The applicants contend that "judicial discretion" overwhelmingly supports the use of the P+R Margin as an input into the HDM. For example, the applicants refer to the comments of Gobbo J in Coastal Estates Pty Ltd v Bass Shire Council [1993] 2 VR 566; (1993) 79 LGERA 188 at 578, where his Honour noted: "One of the key ingredients has always been the allowance for profit and risk. The choice of this figure was traditionally supported by evidence as to what minimum figure professional subdividers expected from the particular kind of development, with different rates being sought according as to whether the subdivision was an industrial, residential or resort subdivision. The rate so arrived at might then be modified, according as to whether the time lines were especially long or short."
3. The applicants also provide details of the P+R Margin adopted by the courts in a number of previous cases. The applicants criticise Mr Hollinshead's failure to engage with the P+R Margin as a hurdle rate, and contend that this "failure to properly consider P+R" results in high allowances in the before scenario and low allowances in the after scenario, with the net effect of reducing the compensation to which the applicants are entitled.
4. The applicants submit that Mr Dale's approach of using both the target IRR of 16.5% and the target P+R Margin of 25%, "fully" informs him to provide advice to the hypothetical purchaser (consistent with comments of Dixon CJ in Turner at 268, regarding checking results "by reference to as many sources of information and inference as may be found"). They submit that in contrast (and contrary to Dixon CJ's commentary in Turner), Mr Hollinshead "hides" the P+R Margin.
5. In relation to the quantum of hurdle rates, the applicants submit that Mr Dale's target P+R Margin of 25% is "an acceptable and conventional allowance". Further, Mr Dale's evidence was careful and considered and his position remained firm under cross-examination.

Transport's position

1. Transport adopts Mr Hollinshead's approach to the hurdle rates. Transport submits that Mr Hollinshead's decision to use the IRR as a hurdle rate (and not the P+R Margin) is consistent with the Manual, which specifies that the appropriate hurdle rate for longer term projects of more than two years is the IRR. In the present circumstances, the project life being considered for the development of a residential subdivision on the Parent Parcel and the Residue Land is greater than two years, and so the IRR should be adopted as the hurdle rate.
2. With reference to the Manual, Transport submits that there are two different methods of calculating residual land values (as noted above), meaning that the P+R Margin and the IRR are based on different principles and methods of calculation (with the result they will most likely result in different values for the same development). Transport submits that using the IRR properly takes into account the time value of money, and is suitable and more effective for longer term projects.
3. Transport contends that using the P+R Margin is flawed and can lead to misleading results for projects that extend beyond two years. Transport contends that Mr Dale's approach and use of the P+R Margin is "directly contrary" to the Manual, in circumstances where the development of a residential subdivision on the Parent Parcel and the Residue Land will take more than two years.
4. In relation to quantum of the IRR hurdle rate, Transport defends Mr Hollinshead from the applicants' criticism of the change from his initial rate of 25% to his later rate of 20%. Transport points out, that this change was fully explained by Mr Hollinshead in his evidence, and moreover, works in the applicants' favour.
5. Transport also contests the applicant's criticism of Mr Hollinshead's use of the four comparable sales to derive an IRR hurdle rate. Although the use of these sales was criticised by the applicants because the total project length for each was less than two years in length and according to the Manual, a P+R Margin should be used for projects of this length and not an IRR, Transport suggests that this criticism is misplaced because the sales were in fact used to derive a range of IRRs from which an appropriate IRR for the subject land was derived by Mr Hollinshead.
6. Transport criticises Mr Dale's approach to the quantum of the IRR and the P+R Margin hurdle rates, and in particular, his reliance on "general experience" in valuation for large and small developers when adopting his target IRR and P+R Margin. Transport also notes that Mr Dale's target IRR of 16.5% is in the lower half of the acceptable range, whereas his target P+R Margin of 25% is at the top of the range, and contends that Mr Dale accepted in cross-examination that this was inconsistent.

Consideration

1. Given the manner in which the evidence has been given and the expertise of each of the valuers, I find it difficult to prefer the evidence of one valuer over the other. Both valuers have approached the issues of the appropriate type of hurdle rate, and then the appropriate quantum, to be adopted from differing yet valid perspectives. I further consider that each valuer has given reasonable evidence despite the criticisms made by the parties in their respective submissions.
2. I consider the comments of Wells J in Brewarrana at 543, to be apposite in these circumstances, where, in considering the evidence of valuers in the proceedings, his Honour noted: "The testimony given by the expert valuers called by the parties demonstrated once again the extraordinary differences in the opinions that, after serious and prolonged deliberation, may be advanced by experienced, professional men in respect of identical subject matter. … The process of valuing land, of course, has something of the character not only of a science but also of an art, in which knowledge, experience and judgment of people, commerce and fashion play integral parts, and it might be thought that the remarkable disparities between the values supported on each side were attributable solely, or at least mainly, to the skill with, and the manner in, which that art was exercised."
3. As noted above, the various other primary inputs into the Estate Master program were ultimately agreed between the parties and this agreement contributed to my determination that the HDM was, in the present circumstances, to be preferred over the DCA: cf. Brewarrana at 554.
4. Turning first to the type of hurdle rate to be adopted, I note that Mr Hollinshead's approach of adopting the IRR as a hurdle rate is consistent with the Manual, and further that this would be persuasive to the parties undertaking the hypothetical transactions in the before scenario and the after scenario: Vilro Pty Ltd (In Voluntary Liquidation) v Roads and Traffic Authority NSW (No 3) [2010] NSWLEC 234; (2010) 179 LGERA 47 at [248]. However, I also consider Mr Dale's evidence that the approach of the market is to prioritise the P+R Margin (to the extent that a purchaser's bid would not be prepared without making reference to the P+R Margin) to be persuasive, and likely to reflect the actual behaviour of the parties to the hypothetical transactions in the before scenario and the after scenario. I also consider the point about the parties to the hypothetical transactions seeking to access to as many sources of information and inference when transacting, to be well made, and to support consideration of both the IRR and P+R Margin as hurdle rates.

Injurious affection in the after scenario

1. The applicants raise the issue of injurious affection, being a decrease in the value of the Residue Land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the Acquired Land (as set out in s 55(f) of the Just Terms Act) was compulsorily acquired. The Acquired Land has been utilised for the upgrade and realignment of The Northern Road, which runs adjacent to the Residue Land.
2. Given my findings above in relation to the physical treatment on the eastern boundary, and specifically that the parties to the hypothetical transaction would transact on the basis that a 5m wall would be required, I consider that no further allowance needs to be made for injurious affection when undertaking the HDM valuation in the after scenario, on the basis that the Residue Land would be effectively screened from The Northern Road by a 5m wall. My reasons for this conclusion are illustrated through a brief consideration of the evidence and the parties' submissions in relation to injurious affection, as follows.
3. Mr Hollinshead originally reduced the per square metre rate of the R2 zoned land on the Residue Land by −2.5% to account for injurious affection in the after scenario, as a result of the impact of the road on the private open space of the residential subdivision, when undertaking his primary DCA valuation. When undertaking his HDM valuation, Mr Hollinshead applied a −5% discount to the gross realisation of the lots along the eastern boundary of the Residue Land to account for the impact of road noise. However, after observing the earthen mound on the Acquired Land at the site view and considering the future aircraft and aircraft-related activity noise that would impact the Residue Land in both the before scenario and the after scenario, Mr Hollinshead reduced his allowance for injurious affection for both the DCA and HDM valuation methodologies to 0%.
4. Mr Dale opines that if a 1.8m fence is the physical treatment that was found to be appropriate on the eastern boundary of the Residue Land in the after scenario, the gross realisation of $530,000 per lot (in the before scenario) should be reduced by −4.53% across all lots in the after scenario when undertaking the HDM valuation to account for injurious affection, arising from the amenity impacts of the road on the Acquired Land on residential subdivision on the Residue Land. However, where "effective screening" of the public purpose is undertaken, encompassing noise impacts, visual impacts and air pollution, Mr Dale opines that no reduction for injurious affection is required in the after scenario. Mr Dale adopted Mr Connelly's evidence to the effect that a 5m wall would be an adequate screen, but a 1.8m fence would not.

Applicants' position

1. The applicants criticise Mr Hollinshead's change of position on injurious affection on the basis of the earthen mound being observed on the Acquired Land, noting that he does not have access to details of the characteristics of the mound, and as such cannot be sure of mound's ability to mitigate the negative impact of the road on the Residue Land. They also note that Mr Hollinshead's position is inconsistent with Mr Rowan's position, where Transport's town planner accepted that injurious affection would have occurred.
2. The applicants submit that it would be appropriate for the Court to find that the public purpose has caused injurious affection across the Residue Land. If the appropriate physical treatment on the eastern boundary in the after scenario is a 1.8m fence, the applicants' position is that the Court would nonetheless accept injurious affection has occurred across the Residue Land and that a −5% reduction to the average gross realisation of the lots should be applied to all lots in the after scenario. However, the applicants appear to accept that no additional allowance for injurious affection would be required if an adequate physical treatment is applied on the eastern boundary to mitigate injurious affection to the Residue Land.

Transport's position

1. Transport submits that it has never taken the position that the public purpose will have no impact on the Residue Land - rather, its position is that the degree and nature of the visual and noise impacts of the public purpose on the Residue Land is such that a 1.8m fence physical treatment on the eastern boundary would be adequate to address these impacts. Given this, Transport submits that, accepting the construction of a 1.8m fence, there would be no decrease in the value of the Residue Land in the after scenario due to injurious affection resulting from the public purpose. However, if the Court finds that a reduction for injurious affection in the after scenario is appropriate in any event, then Transport's position is that if the HDM is the preferred valuation methodology, Mr Hollinshead's −5% reduction to the gross realisation of the lots along the eastern boundary of the Residue Land should be adopted.
2. Transport criticises Mr Dale's position on injurious affection on the basis that this was adopted during the hearing as a "fallback" because the applicants' position on a 5m wall was "disproportionate". Further, Transport submits that Mr Dale failed to provide a "cogent explanation" of why he adopted the approach of applying the reduction for injurious affection to all lots rather than just the lots on the eastern boundary of the Residue Land which are adjacent to the public purpose.

Consideration

1. The submissions made by the parties about injurious affection in the after scenario are contingent on my findings about the physical treatment on the eastern boundary of the Residue Land likely to be required by Council. I have found that the parties to the hypothetical transaction would transact on the basis that Council would be likely to require a physical treatment on the eastern boundary, in the form of a 5m wall.
2. Where a 5m wall is constructed in the after scenario, the Residue Land would be effectively screened from noise impacts, visual impacts, and air pollution generated by The Northern Road, such that no further allowance for injurious affection needs to be made.

Conclusion on valuation issues

1. My findings in relation to the two outstanding valuation issues are as follows: the appropriate hurdle rates to be adopted when undertaking valuations using the HDM are a target P+R Margin of 25% and a target IRR of 16.5% in the before scenario and the after scenario, as opined by Mr Dale. No discrete allowance needs to be made for injurious affection in the after scenario.
2. On the basis that the Court accepted the appropriateness of the HDM valuation methodology when valuing the land with the highest and best use as residential subdivision (which I have), and given the significant areas of agreement between the various experts, the Court was invited to make discrete findings in relation to outstanding matters, and to direct the parties to confer and provide an agreed quantum of the market value of the Acquired Land (including injurious affection) determined by the adoption of the Court's findings, including through appropriate modelling in the Estate Master program, to enable the Court thereafter to make an order for the determination of the total compensation to which the applicants are entitled.
3. Although I take this course somewhat reluctantly, I am conscious that the evidence of the Estate Master program modelling presently before the Court that reflects or is similar to my findings (particularly in relation to the lot yield of a residential subdivision on the R2 zoned Southern Land in both the before scenario and the after scenario), is confined to: Mr Hollinshead's modelling detailed in Mr Hollinshead's "HDM Detailed Inputs and Discussion" within Annexure 1 of the supplementary joint report of the valuation experts dated 1 October 2020 (part of Ex A (C5)); and Mr Dale's "Development Cost Correction, AR Design Proposal" within the "Supplementary JER Valuation" within Annexure 3 of the further supplementary joint report of the valuation experts dated 29 October 2020 (Ex J), which updated Mr Dale's earlier modelling detailed in Mr Dale's "HDM Detailed Inputs and Discussion" within Annexure 2 of the supplementary joint report of the valuation experts dated 1 October 2020 (part of Ex A (C5)) to make provision for the physical treatment on the eastern boundary of the Residue Land in the after scenario by allowing $1,060,000 for the construction of a 5m wall.
4. I consider that the later expert evidence received by the Court (including the supplementary report of the town planners provided 14 October 2020 (Ex D); Mr Hams' and Mr Connelly's joint report for development costing filed 15 October 2020 (Ex G); and most of the further supplementary joint report of the valuation experts dated 29 October 2020 (Ex J)) appears to address development scenarios which do not precisely reflect my findings detailed above. I am also concerned that the various costs of construction (including matters such as the construction bond, cost of provision of external sewerage works, including rising main works) which were otherwise agreed between the experts in relation to certain development scenarios, may not remain directly applicable as a result of the findings that I have made.

Disturbance costs

1. Pursuant to s 55(d) of the Just Terms Act, in determining the amount of compensation regard must be had to any loss attributable to disturbance. This is defined exclusively in s 59(1) as follows: 59 Loss attributable to disturbance (1) In this Act - loss attributable to disturbance of land means any of the following - (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, (b) valuation fees of a qualified valuer reasonably incurred by those persons in connection with the compulsory acquisition of the land (but not fees calculated by reference to the value, as assessed by the valuer, of the land), (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs), (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired), (e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage), (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.
2. The parties are mostly in agreement as to the loss attributable to disturbance that is claimed by applicants, however, one matter remains in dispute. The applicants claim the sum of $25,805.35, being fees for obtaining town planning advice and a report incurred prior to the commencement of these proceedings ('early town planning fees'), as legal costs under s 59(1)(a) of the Just Terms Act. Transport contests this amount on the basis that the early town planning fees do not constitute legal costs for the purposes of the Just Terms Act. Otherwise, the parties agree that the applicants are entitled to the sum of $81,373.31 for legal costs under s 59(1)(a) of the Just Terms Act, and the sum of $59,620.29 for valuation fees under s 59(1)(b).

Applicants' position

1. The applicants make the following submissions in support of their claim for disturbance including the early town planning fees as legal costs, bringing the claim to the total sum of $166,798.95.
2. First, the applicants' lawyer Mr Peter James required input from the applicants' town planner, Mr Connelly, as a "precedential step" in order to give legal advice, and so retained Mr Connelly and incurred disbursement costs. The applicants submit that if a lawyer requires town planning (or other) advice in order to give proper legal advice to their client, then the cost of that town planning (or other) advice is "encapsulated" within the right to recover legal costs under s 59(1)(a) of the Just Terms Act. The applicants also note that Mr James required the town planning advice in order to properly brief the applicants' valuer, Mr Dale, to obtain valuation advice.
3. Second, the early town planning fees are "disbursements" of Mr James, where the expression "legal costs" includes disbursements (by reference to s 4 of the then Legal Profession Act 2004 (NSW), currently s 6 of the Legal Profession Uniform Law (NSW)). Therefore, the early town planning fees would be included in the applicants' legal costs. The applicants note that Transport has not disputed at the inclusion of other disbursements in their claim for legal costs. The applicants' counsel contend that the position taken by Transport in relation to the early town planning fees was unusual.
4. Third, the scope, purpose and intention of s 59 of the Just Terms Act suggests that a broad approach to legal costs should be taken by the Court. The applicants note the right to obtain compensation for disturbance is provided in the context of a person being required to participate in a number of statutory processes and incur costs as a result of the acquisition of their land by a public authority, through no fault of their own. The applicants submit that the intention of s 59, through the inclusion of legal costs; valuation fees; relocation costs; stamp duty costs; financial costs reasonably incurred; and other financial costs relating to the use of the land as a direct and natural consequence of the acquisition, is to cover the person's costs involved in the process.
5. Further, the applicants submit that a person is entitled to take advice from valuers and lawyers as to their rights in the circumstances of the acquisition. The Just Terms Act clearly provides for a person to recoup the professional fees and disbursements of a valuer - where valuers costs often include the costs of information and advice obtained from third parties, such as planning costs; engineering costs; graphic design work; and quantity surveyor work, which inform the valuation. The applicants contend that the situation for recouping legal costs should be analogous to this, with the result that s 59(1)(a) of the Just Terms Act should not be construed narrowly so as to include professional fees for legal advice, but exclude disbursements, such as search fees, that enable the legal advice to be given.

Transport's position

1. Transport submits that the total sum of $140,993.60 is appropriate for loss attributable to disturbance, which excludes the applicants' claim for early town planning fees. Transport makes the following submissions in support of their position: first, Transport refers to previous cases of this Court in which legal costs were found to exclude the costs of third parties and work of a non-legal nature. In Penfold and Bracey at [132], Biscoe J found that the costs of town planners; negotiators; surveyors; researchers; quantity surveyors; architects; and a developer, were not legal costs and were not allowable under s 59(1)(a) of the Just Terms Act. In Ironhill at [258], McClellan CJ of LEC, analysed the work done by a person who was both a solicitor and a director of the applicant, and found that "various research and investigative tasks" were carried out by the person on behalf of the applicant and could not be "correctly described as legal work which would give rise to legal costs…".
2. Second, Transport submits that the statutory text of the Just Terms Act does not support a broad interpretation of legal costs to include the costs of obtaining town planning advice. In this respect, "[f]or better or worse", the Just Terms Act is not intended to permit applicants to recover town planning costs and the applicants should not be able to obtain compensation for town planning costs merely by structuring the cost as a disbursement in the course of obtaining legal advice.
3. Transport refutes the suggestion by the applicants that the nature of the case affects the operation of s 59(1)(a) of the Just Terms Act, which, Transport submits, applies to all acquisitions of land "in accordance with its tenor". In this respect, where legal costs are not defined in the Just Terms Act and the definition is not imported from the then Legal Profession Act 2004 (NSW) or, the current Legal Profession Uniform Law (NSW) (contrary to the applicants' submission), Transport submits that it only extends to "costs incurred in respect of work of a legal nature by legal practitioners".

Consideration

1. Having considered the submissions made by each of the parties, I am satisfied that the early town planning fees constitute legal costs for the purposes of the Just Terms Act, and that as a result, these fees should be included in the applicants' loss attributable to disturbance, such that the total sum is $166,798.95.
2. Starting with s 59 of the Just Terms Act, I consider that the scope, purpose and intention of the section indicates a legislative intention that a person who has had land compulsorily acquired by a public authority is compensated for the statutory process that they are inevitably involved in, through loss attributable to disturbance. In this respect, I accept the applicants' submissions at [262].
3. In relation to s 59(1)(a) of the Just Terms Act, I note that legal costs which are eligible to be compensated as loss attributable to disturbance are those legal costs which are "reasonably incurred", and further incurred "in connection with" the compulsory acquisition of the land. I consider that the text and context of this section indicates a legislative intention that the reasonable costs of a person obtaining legal advice in relation to compulsory acquisition are compensated. This ensures that the person is informed about the statutory process, their rights and obligations under this process, and whether offers of compensation are appropriate. Moreover, I consider that it would be inconsistent with the legislative purpose to compensate a dispossessed owner for only part of the fees required to be incurred to enable legal advice to be provided: Eureka Operations Pty Ltd v Transport for New South Wales [2021] NSWLEC 41 at [153].
4. I accept that the reasonable costs of obtaining legal advice includes the costs of obtaining third party information and advice, where this third-party information and advice directly informs, in the sense of being required for the provision of, the legal advice. Simply stated, if a legal practitioner requires third party information and advice to provide proper and comprehensive legal advice, then this information and advice is properly considered a legal cost.
5. I note the concern of Transport in relation the purposeful structuring of costs as disbursements in the course of obtaining legal advice, in order to obtain the benefit of the costs being legal costs, and compensation for loss attributable to disturbance. I do not consider the contractual relationship between the legal practitioner and the third party, or whether the services of the third party are recoverable as a disbursement, to be determinative in my consideration. Rather, it is the content of the third-party information and advice, and its relevance to the legal advice that is being given to the person who has had their land compulsorily acquired, that is the key consideration.

Costs of proceedings

1. The applicants submit that because Transport's assessment of compensation is higher than the amount of compensation determined by the Valuer General of NSW, the applicants should be awarded their costs of the proceedings.
2. While I consider that this reflects the usual order, I appreciate that the parties may wish to revisit the matter of costs. As a result, costs will be reserved.

Orders

1. The Court orders that: 1. The parties are directed to confer and provide the Court with an agreed sum representing market value (including injurious affection) of Lot 5 in DP 1234822 at Luddenham in accordance with my findings, including through appropriate modelling using the Estate Master development feasibility program. 2. The parties are granted leave to contact my Associate regarding the determination of the total compensation to which Nancy Eileen Sales, Paul Howard Roots and Gail Elizabeth Borg are entitled. 3. Costs are reserved.

Annexure A (868381, pdf) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 September 2021