Sebastian Cannavo and Alfia Jennifer Busa v Roads and Traffic Authority of New South Wales

Land and Environment Court (NSW)|2004-10-15|Before: Talbot J, Mr J

CITATION : Sebastian Cannavo and Alfia Jennifer Busa v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570 APPLICANT Sebastian Cannavo and Alfia Jennifer Busa PARTIES : RESPONDENT Roads and Traffic Authority of New South Wales FILE NUMBER(S) : 30078 of 2004 CORAM: Talbot J KEY ISSUES: Compensation :- Before and After Method preferred to Piece Meal Method for residue land - entitlement to financial costs of acquiring replacement land as loss attributable to disturbance denied. Compulsory Acquisition of land :- compensation for loss attributable to disturbance in respect of financial costs denied - Before and After method preferred where only part of land acquired. LEGISLATION CITED: Land Acquisition (Just Terms) Compensation Act 1991 s 55(d), s 55(e), s s 55(f), s 59(a), s 59(b), s 59(c), s 59(d), s 59(e), s 59(f) Liverpool Local Environment Plan 1997 Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259, unreported; CASES CITED: Harvey v Crawley Development Corporation [1957] 1 QB 485 ; Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2004] NSWLEC 535, unreported DATES OF HEARING: 27/09/04, 28/09/04 (site inspection), 29/09/04 DATE OF JUDGMENT: 10/15/2004

APPLICANT Mr J J Webster SC with Mr I J Hemmings (Barrister) SOLICITORS Thorntons Lawyers LEGAL REPRESENTATIVES: RESPONDENT Mr J B Maston (Barrister) SOLICITORS Blake Dawson Waldron

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

30078 of 2004 Sebastian Cannavo and Alfia Jennifer Busa v Roads and Traffic Authority of New South Wales

JUDGMENT 1 Talbot J: By Notice of Acquisition published in the NSW Government Gazette on 10 October 2003 the Roads and Traffic Authority of New South Wales ("the RTA") acquired Lot 13 DP 1053436 comprising 15,510m2 out of the total holding of 19,912m2 (4 acres, 3 roods and 26 perches) originally known as Lot 4 DP 28454402 thereby leaving Lot 8 DP 1053436 comprising 4,402m2 ("the land"). The land was acquired for the purpose of the Western Sydney Orbital ("WSO") road.

2 The applicants have lodged an objection to the amount of compensation offered pursuant to s 66 of the Land Acquisition (Just Terms) Compensation Act 1991 ("the Just Terms Act"). The applicants are a brother and sister who acquired the land from their father in 1983 by way of gift. Their father had conducted a trucking and truck repair business on the land since 1962. The first applicant is the principal of a construction and development business known as Prestons Civil, operating on the property. The second applicant, M/s Busa has derived income from the property as rent. Part of the original parcel (approximately 11,300m2) is in the Residential 2(a) zone, approximately 6,410m2 is in Recreation - Public (6a) zone and the remainder of about 2,200m2 is zoned Special Uses 5(a) - Drainage. 3 The whole of the land in the 6(a) and 5(a) zone has been acquired by the respondent. There is no issue that at the date of resumption the owners were entitled to require Liverpool City Council ("the Council") to acquire the 6(a) and 5(a) zoned land under the terms of the Liverpool Local Environment Plan 1997 ("LLEP 1997") and that compensation for that land would have been assessed on the basis that the underlying zone would have been Residential 2(a), but for the designated public purposes of public recreation and drainage. 4 The applicants' valuer, Walter Leo Dobrow adopted the Before and After Valuation Method and carried out a check valuation against the area acquired. The respondent's valuer, Colin Robert Sorrenson initially considered the most appropriate method of valuation in this circumstance to be the Direct Comparison approach utilising an analysis of the sales evidence available.

5 After conferring pursuant to the Expert Witness Practice Direction ("the EWPD") the valuers have agreed that both the Piece Meal Valuation Method and the Before and After Valuation Method are acceptable methods of valuation but that the Piece Meal Valuation Method is an easier method to adopt in this case. The latter method aggregates the market value of the land taken with appropriate amounts for other consequential losses allowed by s 55 of the Just Terms Act. An allowance is then made by deduction of any enhancement in the value of the residue land.

6 Although there is agreement in respect of the method of valuation, the applicants' valuer, Mr Dobrow contends for an assessment of market value in excess of three million dollars while Mr Sorrenson, the respondent's valuer, calculates a figure just over two million dollars. Essentially there are three fundamental differences between the valuers in respect of the determination of market value of the land. They relate to the application of different rates per m2, reliance on sales evidence, the extent of a discount for the public purpose zoned land to take account of the process of requiring the Council to acquire it and the amount of allowance for the treatment of Maxwells Creek that runs through the land. The valuers also strongly disagree about the application of s 55(f) of the Just Terms Act. Mr Sorrenson holds the opinion that the value of the residue land will be enhanced by $200,000 while Mr Dobrow argues the value will be decreased by $100,000. 7 I do not agree that the Piece Meal approach is entirely satisfactory in the circumstances of the acquisition of the western section of this land. This is because that part of the acquired land situated in the Residential 2(a) zone would have no access following the resumption. The consequence of a developer purchaser requiring the Council to acquire the 5(a) and 6(a) land would be that the residue of the acquired land in the Residential 2(a) zone would be isolated after that acquisition. Therefore it could not be developed except in conjunction with adjoining land. The adjoining land to the west is in the public purpose zonings and the valuers have assumed it will be acquired by the Council. The adjoining land to the east remains in the ownership of the applicants. The neighbouring land to the north and south is held by third parties. The valuers have nevertheless treated the whole of the acquired land as if it was actually within the Residential 2(a) zone on the basis that the hypothetical purchaser would have had the legal right to require acquisition of the 5(a) and 6(a) land by the Council and to recover compensation based on an underlying zoning of Residential 2(a).

8 Neither valuer appears to have considered the problem as I have foreshadowed it. For valuation purposes both treated the whole of the acquired land as if it was actually Residential 2(a) land. They applied a differential rate to the area of land required to establish a riparian zone around Maxwells Creek. Thereafter they made an allowance for the time, trouble and delay in dealing with the Council in order to recover the full compensation in respect of the 5(a) and 6(a) land from the Council. As I foreshadowed earlier, my concern is that a strict application of the Piece Meal Method would in fact result in a depression of the value of that part of the acquired land actually situated in the Residential 2(a) zone. The land in the public purpose zones in actual fact cannot be classified (for present purposes) as being Residential 2(a) land. Nonetheless, that is not to say that value cannot be attributed to it as if it was Residential 2(a) land subject to an appropriate adjustment for risk to take account of the process of acquisition by the Council. However, one of the consequences of adopting the Piece Meal Approach is to create an artificial and entirely theoretical set of circumstances that would never apply in practice. 9 I prefer to apply the strict Before and After Method by looking at the value of the whole of the land before acquisition, without any consideration or allowance for the impact of the WSO, and to credit against that amount the value of the residual land in the after situation, after taking into account whatever effect the WSO has on it. 10 It may be that the result of the assessment made under my preferred approach will not be discerned as being different in amount from that achieved using the Piece Meal Method, as the valuers have done, but the method is more realistic and less likely to lead to error unwittingly. The removal of the unrealistic element discussed earlier, in my opinion, means that the Court as judicial valuer is able to approach the task in a more conventional way thereby providing me with an acceptable level of confidence that the risk of inherent error is minimised. 11 There is adequate evidence to enable the Court to apply the before and after approach. I therefore propose to deal with the determination of market value in that way. The value of the land in the before circumstance will be assessed by me taking the position that a hypothetical purchaser would have purchased the land at the date of acquisition on a two fold basis, namely:-

To actually develop the eastern portion of land in the Residential 2(a) zone, and
To negotiate with the Council to acquire the whole of the land in the 5(a) and 6(a) zones. 12 In the after situation, the value of the residue of the land comprising 4,402m2 in the Residential 2(a) zone and having a frontage to Skipton Lane will be assessed taking account of any affectation by the WSO. 13 It remains for the Court to make its own judgement in order to adjudicate the discordant views in respect of:-
The treatment of Maxwells Creek;
The allowance to be made by way of discount for the land in the public purpose zones; and
The sales evidence. Proposals for Maxwells Creek 14 The flooding experts Associate Professor James E Ball and Drew Bewsher agree that the total width to be allowed for the creek together with an appropriate riparian zone is 70m. However, if the site was to be developed in isolation from any adjoining site, then Professor Ball would dictate that compensatory flood storage be located outside the 70m corridor. A proposal put forward by Mr Bewsher would be acceptable in riparian terms but would require a coordinated approach with other landholders along Maxwells Creek in order to maintain the works within the 70m width. 15 The reasons for disagreement and divergence of opinion between Professor Ball and Mr Bewsher are demonstrated by the following statement taken from a joint report presented to the Court following their joint conference in accordance with the EWPD. 2. There is disagreement between the experts as to: a) The level of caution (i.e. risk) that a prudent purchaser would adopt; b) Whether a prudent purchaser would assume that the site could be developed 'with neighbours' or would need to be developed 'in isolation.' In this regard, Professor Ball believes the prudent purchaser would assume that, at the date of acquisition, the development and any works associated with the development could only proceed outside the 70m wide riparian zone because of the need to obtain DIPNR's approval. As a result, the works necessary to ensure existing flood conditions are maintained (or improved) need to be located between the limits of the development and the 70m wide riparian zone. When design details of these flood related works are available it may be possible to negotiate with DIPNR for these works to be located inside the riparian zone as is the case with Mr Bewsher's works. 3. Mr Bewsher believes that if development 'with neighbours' was possible, development up to the limits of his 70m wide creek corridor could occur at the date of acquisition. If development 'with neighbours' was not possible, a staged development would be necessary. The first stage of development could occur up to the limits of the yellow lines shown on Mr Bewsher's Figure 2 at the date of acquisition, with further development occurring up to the 70m corridor at a subsequent time. 4. Note that in relation to the staged development and the yellow lines on Mr Bewsher's Figure 2. Professor Ball agrees with the concept proposed by Mr Bewsher. That is, development could be staged with initial development occurring "in isolation" of neighbouring properties and subsequent development occurring once the proposed regional scheme (ie Mr Bewsher;s Figure 1) had been implemented. 16 The yellow lines on Mr Bewsher's figure 2, referred to above, demonstrate the extent of the area outside the agreed riparian corridor that could not be developed initially pending a coordinated approach with adjoining and adjacent owners abutting Maxwells Creek upstream and downstream of the subject site.

17 In my view it is realistic to assume, and entirely reasonable for compensation purposes to accept that if the WSO had not been in contemplation at the date of acquisition, the lands bounded generally by Skipton Lane, Ash Road, Kurrajong Road and Camden Valley Way would have been developed for urban purposes or would be in the course of being so developed. If that assumption is correct, and I propose to make it, then the area required for a riparian corridor or zone along the course of Maxwells Creek would be 70m wide. The prudent hypothetical purchaser therefore would have assumed that the compensation payable by the Council following a notice to acquire would be adjusted to take account of the fact that the corridor could be not be regarded as developable land, notwithstanding the assumption that the underlying zone would have been Residential 2(a). I have adopted an estimation by Peter Laybutt, the applicant's town planner, that a 70m corridor through the subject land would comprise 3461m2. 18 Even if the adjoining land had not been physically developed for residential subdivision at the relevant date, I accept that it would have been most likely that the neighbours would have been willing and probably anxious (by permitting the riparian works to be carried out to make it ripe for development) to cooperate in order to release the intrinsic value of their own land. Any foreshadowed risk of the works not occurring solely within the 70m corridor would have been minimal, in my opinion. 19 The applicants' valuer Mr Dobrow has adopted a rate of $55 per m2 for land within the riparian corridor using the rate in the Council's section 94 Contributions Plan, adjusted in accordance with the provisions of the Plan. Mr Sorrenson attempted to use comparable sales which he says show a range between $16 and $73 per m2 leading him to adopt as a matter of judgement $40 per m2. The sales relied upon by Mr Sorrenson are difficult to analyse and there is insufficient evidence for me to fully understand how they were negotiated. Given that it is assumed the Council will be acquiring most of the land pursuant to its statutory obligations the purchaser would have taken significant cognisance of the rates published in the Council's own section 94 Contributions Plan and in my opinion would regard $55 per m2 as a reasonable expectation for the rate of compensation to be recovered in respect of the 2910m2 in the 5(a) and 6(a) zone in due course. The same rate would be applied to the remaining 551m2 in the Residential 2(a) zone. Allowance for acquisition by Council of 6(a) and 5(a) zoned land 20 There is no question of any risk that the Council would not acquire the land. Both parties have assumed that the hypothetical purchaser would have delivered a notice pursuant to cl 55 and 62 of the LLEP requiring the Council to acquire the land immediately following the theoretical purchase on the acquisition date. It is readily acknowledged by both valuers that the market was increasing at the rate of 2% per month. The hypothetical purchaser would not be looking to make a significant profit out of the transaction. The primary purpose of purchasing the land would be to develop the land in the Residential 2(a) zone. The 5(a) and 6(a) land would have been purchased on the sole basis that the purchase money paid for that part of the site would be recovered in a short time. 21 The applicants' valuer has assessed the risk factor at 10%. The RTA's valuer would have allowed a discount of 20%, which he says is the figure adopted by himself and other valuers from time to time in similar circumstances. Mr Dobrow's justification for the 10% discount appears to be more arbitrary and relies heavily upon a conversation he had with a developer the night before he gave his evidence.

22 I accept that the hypothetical purchaser would have recognised that there would be time and cost incurred before obtaining payment from the Council. There would not be a high level of uncertainty about the amount of compensation that would be recovered from the Council in due course, but nevertheless some contingency in that respect would be allowed. Several months would lapse before the Council could be legally required to formally acquire the land after notice had been given. 23 There must be a recognition of the inherent costs involved in the process of negotiating with the Council and even the prospect of the necessity for an objection to this Court if an agreement for the amount of compensation could not be negotiated. 24 Having carefully considered all of the contingencies and the unusual circumstance of a purchase under the aforementioned conditions I think it is most likely that the hypothetical purchaser would have discounted the purchase price of the drainage and open space land by an amount in the order of 20%. I have reached that conclusion doing the best that I can from the evidence. The conclusion is supported by the evidence of Mr Sorrenson. His experience suggests a discount at the rate of 20% of the price which reflects the value of the land on the basis it could be developed for residential purposes. The developable area in the 5(a) and 6(a) zones on the assumption the land had been zoned Residential 2(a), would have been 8,610m2 less 2,910m2 required out of it for the riparian corridor and Maxwells Creek, namely 5,700m2.

Valuation evidence 25 There is no stand out sale that delivers an uncomplicated comparison with the subject land at the date of acquisition. 26 Both valuers analysed a sale at the corner of Ash Road and Camden Valley Way Prestons and achieved conflicting results. The land the subject of the sale is in an inferior location compared to the applicants' land and is affected by a proposed road widening and transmission line easement through the site. After allowing for the cost of demolition of existing structures at $200,000 and by recognising that 16,140m2 is available for development outside the area required for road widening and the transmission line, the unadjusted rate per m2 for developable land calculates out at $226m2. This figure does not take account of any adjustment for the utility value of the area covered by the easement and the negative effect of the transmission line on part of the developable land and the inferior location next to the M7 and Camden Valley Way. After making those adjustments, using my own judgement, I have concluded that the comparable value shown by this sale is $250m2. This contrasts to $280m2 calculated by Mr Dobrow and $190m2 by Mr Sorrenson. 27 I reject as totally unrealistic an attempt to analyse the sale of a parcel in Geraldton Street Prestons by deeming it to be integrated with adjoining land previously purchased by the purchaser and then making adjustments to both sales. 28 After making adjustment for a transmission line and riparian set back there is confirmation for a rate of around $250m2 from a contemporaneous sale of 13,120m2 in Coffs Harbour Avenue, Hoxton Park. 29 Sales in the Rural 1(e) Future Urban Zone after adjustment for rezoning, time and relevant negative impacts show a value for the subject land up to $240m2. While these sales are not directly comparable, they provide a check on the underpinning value for the subject land. 30 I have not been greatly assisted by a sale of an old school site at the corner of First Avenue and Hoxton Park Road in December 2001. The adjustment for time together with constraints leaves considerable room for doubt. At best it shows a rate of approximately $215m2.

31 Overall the evidence of the sales suggests a rate between $240m2 and $260m2 for land capable of being developed for residential use. Exercising my own judgement by doing the best that I can in the circumstances I adopt a rate of $250m2. The Valuation 32 The Court is now in a position to assess the amount payable as compensation for the value of the land acquired on a before and after basis. Before Acquisition Land in 2(a) zone Unaffected by riparian corridor 11,300m2 551m2 10,749m2@ $250m2 $2,687,250

Area of riparian corridor in 2(a) zone 551m2 @ $55 $30,305

Land in 5(a) and 6(a) zone Unaffected by riparian corridor Zone 6(a) land 6,410m2 Zone 5(a) land 2,200m2 8,610m2 Area in riparian corridor 2,910m2 5,700m2 Value of 5,700m2 assumed as developable land for residential purposes at $250m2 $1,425,000 less cost of fill $20,000 $1,405,000 Area in riparian corridor 2,910m2 in 5(a) and 6(a) zone @ $55 $160,050 $1,565,050 Allow for risk in respect of Council acquisition at 20% $313,010 $1,252,040

Value before acquisition $3,969,595

After Acquisition 4,402m2 @ $270m2 $1,188,540 Value of land acquired $2,781,055

33 No allowance has been made for demolition of existing structures as they are entirely situated on the residue land and the same cost would be applicable to the before and after situation. Moreover I have not allowed any discount or addition for enhanced or injurious affectation in the after situation, because in my view, after adopting an amount of $90,000 per dwelling site on a yield of 13 dwellings to justify the figure of $270m2 any further benefit for increased convenience and more relaxed development conditions on a smaller site is regarded by me as offset by the injurious affectation of the proximity of the WSO and additional cost and delay for the provision of drainage and sewerage services following the construction of the new road. Loss attributable to disturbance 34 Pursuant to s 55(d) of the Just Terms Act the applicants claim stamp duty, legal costs and mortgage costs incurred in purchasing replacement properties as financial costs reasonably incurred as being a loss attributable to disturbance.

35 Section 59(f) defines the category of loss as follows:- ( 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. 36 Mr Webster SC refers to the following explanation I gave in Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2004] NSWLEC 535, unreported at [29] The primary intention of the legislation in respect of disturbance is to further compensate an owner who is required to relocate an actual use where that actual use is the basis for assessment of compensation. One of the principal objects of the Just Terms Act is to ensure compensation on just terms. 37 It was recognised in Walker that the holding of developable land in a land bank for future development could be an actual use for the purpose of s 59(f) (Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259, unreported). 38 As noted earlier at [2] the first applicant has physically used the property for the purpose of conducting business known as Prestons Civil, while the second applicant has benefited from the receipt of rent derived from a single cottage and the industrial use of the land. 39 The evidence of the first applicant, Mr Sebastian Cannavo is that his long term plan was to develop the property in conjunction with his neighbours using machinery now owned by his company and fill generated from other construction sites. He states that he has substantial experience in filling excavating and development of both industrial and residential land and he has undertaken a number of residential subdivisions, including a 38-lot subdivision in 1997 at Bullaburra. 40 M/s Alfia Jennifer Busa also told the Court that she always planned to develop the property. 41 Both applicants have purchased properties which they say are investments. The property purchased by Mr Cannavo is a beach front house at 55 Mitchell Parade Mollymook whereas the property purchased by his sister is in Devonshire Road Rossmore.

42 In Harvey v Crawley Development Corporation [1957] 1 QB 485 the English Court of Appeal allowed a claim for the cost of purchasing a new home as the direct consequences of an acquisition. However Denning LJ warned against taking the principle too far, as follows at p 493:- Supposing a man did not occupy a house himself but simply owned it as an investment. His compensation would be the value of the house. If he chose to put the money into stocks and shares, he could not claim the brokerage as compensation. That would be much too remote. It would not be the consequence of the compulsory acquisition but the result of his own choice in putting the money in stocks and shares instead of putting it on deposit at the bank. If he chose to buy another house as an investment, he would not get the solicitor's costs on the purchase. Those costs would be the result of his own choice of investment and not the result of the compulsory acquisition. 43 In Walker and Fitzpatrick the applicant companies were in the actual business of acquiring land for the purpose of development and then selling the developments for profit. The present applicants did not hold the subject land as part of a trading stock of land in the sense of a land bank. Brownie AJA described the position in Fitzpatrick as follows at [23] and [24]:- Lloyd J found that the business of the respondent was "the development of land by subdivision"; that it held the acquired land "for the purpose of development by way of residential subdivision"; that the "actual use for which it held the acquired land [was] for the purpose of development by way of subdivision"; that by reason of the acquisition, the respondent "lost its developable land", and replaced that land by "acquiring other developable land"; and that but for the acquisition the respondent could have developed the acquired land. Consistently with the reasoning of in cases such as Royal Newcastle Hospital and Brickworks, these findings of fact meant that "the use" to which the respondent put the land for its purposes, prior to the acquisition, was use for the purpose of residential subdivision. The acquired land formed part of what was called the respondent's "land bank", being land acquired and held for the purpose, when the time was ripe, of being subdivided and resold for profit.

44 There is no evidence to confirm that either of the applicants acquired the land as developable land or that they intended to develop the replacement land by way of subdivision. 45 Although Mr Cannavo has carried out development previously, his primary business was a contractor through his company. M/s Busa has no previous business involvement in land development 46 In my opinion the land acquired did not form part of the applicant's trading stock in the manner discussed by Brownie AJA in Fitzpatrick and Stein JA who described the nature of the respondent's business "as that of a land developer and the acquired land was part of its stock-in-trade constituting its 'land bank'". The facts in the present case are clearly distinguishable. The applicants' argument at its highest shows they were holding the land as an investment rather than as trading stock. They continued to hold the land after the gift was made to them by their father as a preferred choice of investment. The rather vague and unstructured proposal to develop the land in conjunction with a neighbour in due course does not in my opinion raise the case above the example used by Denning LJ in Harvey. In my view the applicants have not established an entitlement for compensation in respect of loss attributable to disturbance in accordance with s 59(f) of the Act. 47 The applicants have abandoned any claim for loss attributable to disturbance in respect of legal costs, valuation fees, financial costs, stamp duty costs and mortgage costs pursuant to s 59(a), (b), (c) (d) and (e) as well as a claim for solatium under s 55(e) of the Just Terms Act.

Orders 48 Pursuant to s 66 of the Just Terms Act the Court determines the objection to the amount of compensation offered by the respondent in the amount of $2,781,055.

49 The question of costs is reserved, as there has been no argument in that respect, but the exhibits may be returned.

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Judgment (24 paragraphs)

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Cited By (18)