Smith, Leslie Alexander v Roads and Traffic Authority of New South Wales

Carter v RTA [2006] NSWLEC 89; Housing Commissioner NSW v San Sebastian Pty Ltd & ANor (1978) 140 CLR 196; Raja Vyrichera Narayana Gajapatiraju v Revenue Divisional Officer [1983] AC 302; CASES CITED: RTA v Muir Properties [2005] NSWCA 460; RTA v Perry & Anor (2001) 116 LGERA 244; Smith v RTA [2005] NSWLEC 438; Spencer v Cth (1907) 5 CLR 418; Sydney Harbour Foreshore Authority v Walker Corporation Pty Ltd [2005] NSWCA 252

DATES OF HEARING: 10/04/2006-13/04/2006, 25/09/2006-28/09/2006, 05/10/2006 (written submissions), 12/10/2006 (written submissions), 20/10/2006 (written submissions)

APPLICANT Mr J Webster SC with Ms A Stenmark SC SOLICITORS Somerville Laundry Lomax LEGAL REPRESENTATIVES: RESPONDENT Mr J Simpkins SC with Mr R Lancaster (barrister) SOLICITORS Clayton Utz

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

30669 of 2004 Leslie Alexander Smith v Roads & Traffic Authority

JUDGMENT 1 Talbot J: This matter has a chequered history. The applicant is the owner of farming land adjoining the southern boundary of Alstonville in the Ballina Shire. On 6 February 2004, part of the applicant's land comprising an area of 8.78 ha was acquired by the respondent, the Roads and Traffic Authority, and a further area for the purposes of a splayed corner comprising 213.5 m2 was acquired on the 17 September 2004 to facilitate construction of a bypass of the Bruxner Highway around the town of Alstonville. The area of the property before acquisition was 51.35 ha of which 21 ha had a recognised and agreed potential for residential development but for the proposal to develop the bypass. 2 Separate questions were raised for determination during 2005. On 30 August 2005 McClelland CJ, as he then was, delivered a judgment providing answers to those questions (Smith v Roads and Traffic Authority of New South Wales [2005] NSWLEC 438). After the primary argument was concluded the Court of Appeal handed down its decision in Sydney Harbour Foreshore Authority v Walker Corporate Pty Ltd [2005] NSWCA 252. Submissions were made to the Chief Judge that this decision significantly alters the traditional approach to the application of s 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act"). McClellan J found it necessary to consider whether the submission was correct. The applicant submitted that as the approach would be contrary to the decision to the High Court in Housing Commissioner NSW v San Sebastian Pty Ltd and Anor (1978) 140 CLR 196 and the Court of Appeal in Roads and Traffic Authority (NSW) v Perry and Another (2001) 116 LGERA 244, it should not be accepted. 3 The Chief Judge identified in simple terms his understanding of the application of s 56(1)(a) as follows:- 1. Identify the zoning of the land at the date of acquisition.

2. Determine whether that zoning was imposed or retained in order to facilitate the implementation of the public purpose for which the land was acquired.

3. If the answer to question 2 is yes, that zoning is notionally set aside, and the potential of the land and ultimately its market value is assessed by determining how the land would have been zoned, at the date of acquisition, but for the proposal to carry out the public purpose . 4 His Honour considered the effect of the decision in Perry where Handley JA identified that s 56(1)(a) embodied the principle stated in Spencer v The Commonwealth (1907) 5 CLR 418 and the principles in Raja Vyrichera Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam [1983] AC 302 ("The Raja case"). 5 McClellan J stated principle as follows at [93] and [94]:- Because the land must be valued at the date of acquisition it is at that date that the hypothetical state of affairs must be identified. The effect both direct and indirect of that scheme must be disregarded and the land valued having regard to the hypothetical "state of affairs." It seems to me that this was the task which the High Court required to be undertaken in San Sebastian. Once it had been identified that the proposed zoning of the land as residential "was a step in the resumption process" it had to be set aside and the land valued having regard to the uses which would have been permitted, but for the proposed public purpose. 6 Having identified 1989 as the starting point of the opposition to rezoning of the Walker land, it was submitted that Basten JA determined that the appropriate question to ask was what were the prospects of rezoning for residential purposes in 1989 in order to determine how those prospects have been further diminished by the date of the ultimate acquisition. McClellan J clearly disagreed with this approach and expressed the following opinion at [123]:- In my opinion, the approach which I have indicated to be traditional is consistent with that required by San Sebastian and the principles approved by the Court of Appeal in Perry . Furthermore, it seems to me it is the only means whereby just compensation can be provided. If, in Walker Corporation , Basten JA has suggested a different approach to the problem in the circumstances of that case care would be necessary in accepting that his Honour has defined a principle of general application. I recognise that if Walker Corporation contains a ratio of general application, even if contrary to San Sebastian , I would be obliged to follow it ( Attorney General (UK) v Heinanman Publishers Australia Pty Ltd & Anor (1987) 10 NSWLR 86 at 189). However, it seems to me that if there is such a ratio it would conflict with Perry and because Perry is consistent with San Sebastian I would adopt an approach consistent with Perry . 7 The questions determined in the earlier part of the proceedings are set out by the Chief Judge at [10] and the answers appear at [132]. The questions and the answers leave it open for the Court to determine compensation either in accordance with the traditional approach identified by McClellan J or in accordance with the principles enunciated in Walker. 8 His Honour found that the zoning or the failure to change the zoning of that part of the Smith land zoned 7(c) (Environment Protection Water Catchment), was caused by the proposal to carry out the development of the bypass, and at the date of acquisition the prospect of it being rezoned 2(a) Living Area, was highly likely and had been since at least 1989. He found that in the early 1970's there was a reasonable prospect of the land being rezoned Village. His Honour also found, accepting that the zoning of that part of the resumed land zoned 9(a)(Main Roads Proposed) was a step in the proposal to carry out the development of the bypass at the date of acquisition, the prospect of it being rezoned 2(a) Living Area was highly likely and had been since at least 1989 and again that in the early 1970's there was a reasonable prospect of the land being rezoned Village. 9 In the alternative, in each case His Honour found that at the date of acquisition the land would have been zoned 2(a) Living Area had it not being zoned in the way caused by the proposal to carry out the development of the bypass as a step in the proposal to carry out the development of the bypass. 10 I perceive the questions posed as preliminary questions to the former Chief Judge as inviting findings of fact with the prospect that those findings would be applied according to the principle eventually adopted by this Court in respect of the approach to be taken. It was therefore not strictly essential for His Honour to determine the effect of the decision in Walker as the mere answers to the questions would have allowed the parties to prepare for a hearing on the alternative bases. The determination of the preliminary questions did not necessitate a resolution of the apparent dilemma created by the decision of the Court of Appeal in Walker. On remitter from the Court of Appeal following the decision in Walker I made a further decision adopting the reasons of the Court of Appeal expressed by Basten JA as I was directed to determine compensation in that matter in accordance with the findings of the Court of Appeal. An appeal has also been lodged in respect of that decision but, so far as I am aware, it remains undetermined. 11 The respondent in this case submits that I should not follow the earlier decision of the Chief Judge, even though it was in the same matter, but that I am bound to follow the Court of Appeal in Walker. Although the findings of the former Chief Judge are strictly obiter dicta they nevertheless reflect a powerful opinion from a senior judge in this jurisdiction in respect of a matter within the field of the special expertise of this Court. Moreover, I agree with the expression of opinion by McClelland J at [123]. I note that Bignold J took a similar view in Carter v RTA [2006] NSWLEC 89 at [17]. 12 However, the applicant contends that any application to rezone and an application for consent to a subdivision of the Smith land into say 202 conventional residential lots would have been lodged simultaneously and that the cost of preparing reports and supporting plans would be a common one, in terms of effort and time, to both applications. Moreover, it is contended that a purchaser would have regarded the potential for rezoning as 100% with no potential risk even on the basis that the existing zoning at the date of resumption is accepted. The applicant's primary position is that the land should be treated as already zoned for residential purposes at the date of resumption. Nevertheless it is contended that a similar time frame would apply in the predevelopment phase, irrespective of which approach is taken. 13 In the "after" situation the whole of the residue land is zoned 7(c) with limited potential for development other than for agricultural uses. In respect of the "after" situation, the applicant also claims that whilst there are presently two cottages on the residue land, the result of the acquisition is to remove any building entitlements that might have previously been applicable to the land. 14 I propose to proceed and determine the amount of compensation payable by the respondent to the applicant on the basis of the conclusion reached by McClellan J namely that the urban potential of the land would have been recognised and, but for the public purposes of the roadway, the land would have been zoned to facilitate urban development at the date of acquisition [121]. The urban potential of the land up to the ridge running through the centre would have been released under the LEP in 1989 with a zoning of 2(a) Living Area, there being no inherent or underlying obstacle to a rezoning permitting residential development.

Valuation 15 Both valuers have adopted the "before and after" approach (see for example RTA v Muir Properties [2005] NSWCA 460) and in the "before" situation adopted check methods of valuations including the discounted cash flow (DCF) approach and hypothetical development. 16 The Court appointed an expert valuer, Mr Ian Jelley, to address a number of specific questions that were put to him on 20 April 2006 in relation to the use of DCF by a prospective purchaser as well as the criteria and assumptions that would be used for calculating DCF for the purposes of the "before" value of land capable of residential development. It is Mr Jelley's view that it is almost inconceivable that an intending informed purchaser for the category of land investment relevant to the Smith land would not carry out a cash flow analysis.

17 Subject to competing adjustments, it is agreed between the valuers that the market value of the remaining lands after acquisition, comprising 42.55 ha, is $1,702,000. The "before" value of that part of the land that will not be developed for residential purposes has also been agreed at $1,274,700.

Comparable Sales - the "Before" Valuation 18 The valuation issues relate to the market value of the land with potential for residential development. Mr Allsopp, the valuer retained by the applicant, principally relies upon a sale of a property known as River Oaks at Ballina, comprising an area of 24.305 ha at a contract price of $12,113,000 on 15 January 2005. Although the applicant's case is developed on the basis of this sale Mr Allsopp in his oral evidence referred back to and relied upon an original sale of the same land on 20 October 2003 for $12,360,000.00.

19 The contract for sale of River Oaks is not straightforward. The original contract was signed in 2003 and it was re-executed in January 2005 for a reduced price. The vendor was entitled to a free house under the original contract. There was a difference of opinion regarding liability for GST and a Deed of Variation was required after the second contract to provide for a reference to the Australian Taxation Office for a ruling and an agreement to abide by that ruling. The vendor provided finance following settlement in October 2005 with an interest free period. The land was zoned to permit residential development with a potential for 206 sites, which Mr Allsopp assessed at $60,000 for each en globo dwelling. He estimates that the cost of developing the subject land at Alstonville will be $27,000 or $28,000 per lot less than the cost of developing the sale land so that River Oaks in his opinion should be adjusted to $85,800 for each en globo lot, by adding the additional cost. Moreover the River Oaks land at date of sale had development consent for 170 single residential lots, 34 duplex and 2 medium density sites together with open space and playing fields. 20 One of Mr Allsopp's supporting sales relates to a smaller parcel at Ballina Heights comprising 2.032 ha yielding 17 Lots at $113,000 per block en globo which he adjusts back to $65,000 for the subject land on the basis of the size and location. He also relied on the sale of adjoining land at Ballina Heights with a potential yield of 22 blocks at $101,000 per lot en globo, which he also adjusted to $65,000 for size applied to the Smith land.

21 The applicant contends that a prudent purchaser would assess the likely yield from the subject land at the rate of $231,000 per lot (compared with River Oaks at an achieved average of $259,565 per lot against an anticipated yield of $243,000 per lot at time of purchase) and that accordingly a conservative "before" value of the subject land would be $65,000 per lot en globo. On a yield of 202 lots that is a "before" value for the developable land of $13,130,000. The agricultural land comprising 30.35 ha (the residue of the Smith holding) had an agreed value of $1,274,700 before the acquisition. 22 After hearing the evidence I maintain a serious doubt that the take-up rate of the Smith land at Alstonville will be maintained at a rate equivalent or even comparable to that which is likely to apply at Ballina (where River Oaks is situated) thereby increasing the risk factor for the subject land. The demonstrated take-up rate for vacant land in Ballina is 4.8 sales per month compared to the achieved rate in Alstonville of 1.2 sales per month over the same period. Furthermore the favourable terms of the River Oaks sale with vendor finance are advantageous to the purchaser and require adjustment. Fifty (50) out of a total of fifty-three (53) lots in stage 1 have been presold. There is also a difference of opinion between valuers regarding the correct comparison of the development potential for the two sites either based on lot yield or the number of dwellings to take account of multiple occupancies. The time for obtaining development consent and other approvals for the Smith land demands a further adjustment. A proper analysis of the River Oaks contracts is extremely difficult. 23 Neither party has carried out an exercise taking all the above factors fully into account although Mr Hamilton, the RTA's valuer, attempted a different approach to Mr Allsopp based on the expected dwelling yield. He derived a rate of $49,000 per dwelling. He adjusted that rate for most of the above factors to get a value the equivalent of $40,000 per lot for the first 100 lots to be sold from the Smith land. The balance, in his opinion, is properly assessed at a premium to rural value but at a discount to residential. Overall he says this approach supports $120,000 per ha, namely, $6,174,000.

24 Mr Hamilton derives a "before" valuation for the developable land in alternative circumstances. 25 In the first place he assumes that the land with residential potential comprising 21 ha had not been rezoned at the date of resumption but that a rezoning to allow residential development of the type contemplated was "highly likely". That gave a derived value of $5,474,700 based upon the market value of the 21.1 ha at $200,000 per ha, reflecting a yield of 210 lots at $20,000 per lot being $4,200,000 together with the 30.35 ha of agricultural land at the agreed value of $1,274,700. 26 If the Court accepts that the land with residential potential should be valued in the "before" situation with actual residential zoning Mr Hamilton's values the 21.1 ha at $250,000 per ha, namely $5,275,000 together with the agreed market value of the balance at $1,274,700 realising a total of $6,549,700. 27 Mr Hamilton's overall approach (fully explained for the first time in oral evidence) is to break the developable land on the Smith property into two components. The first component, he believes, can be built developed and sold within a five-year time frame. He treats the balance as being developed over the following five years. That has the effect of reducing the development potential of the land down to 100 lots. They would sell at the rate of approximately two per month. For the first 100 lots he adopts $40,000 per lot or $400,000 per ha over roughly 10 ha. For the balance of approximately 11 ha he adopts about $120,000 per ha on the basis that the parties to the hypothetical sale would either look at the present day value and defer it for up to ten years or determine a premium over the agricultural value of the land. That premium he says would be 50% over the agricultural value. 28 Mr Hamilton primarily relies upon three sales to establish his value of that part of the Smith land capable of development for residential purposes.

29 The primary sale upon which Mr Hamilton relies is an area of 28.82 ha at North Ballina adjoining the existing Ballina Heights Estate. The land is partly zoned 1(d) and the remainder is in the 7(f) zone. The 1(d) zone is a rural zone marked for urban expansion. The land in the 7(f) zone has no development potential and is unlikely to be accepted as an offset to developer contributions under s 94. Ignoring the land in the 7(f) zone Mr Hamilton foreshadows a yield of 140 lots reflecting a value of $42,857 per en globo lot. Although the land may ultimately be developed for residential purposes the price requires a significant adjustment to reflect the lack of imminent development potential compared to the subject land. Mr Allsopp regarded this sale as showing $42,857 per lot for deferred en globo land in June 2003 with adjustment to be made for a staged payment for the purchase price and rent free occupation period for the vendor as well as the vendor retaining the right to compensation for resumption of part of the land by the RTA. Nevertheless Mr Allsopp asserts that the sale confirms the $65,000 per en globo lot adopted by him in respect of the subject land. 30 The second primary sale relied upon by Mr Hamilton was in respect of 24.47 ha at Murwillumbah which shows a value placed upon an en globo lot of $42,057 or $163,465 per ha. I have not been persuaded that the sale of the land at Murwillumbah can be made relevant to a determination of the price that a prudent purchaser would pay for land at Alstonville. Similarly, a sale of land at Goonellabah reflecting $26,786 per en globo lot at $144,046 per ha, which I inspected, has in my opinion very little relevance to the establishment of a market value for land with residential potential at Alstonville. 31 Although his analysis of the sale of River Oaks is persuasive, I find that the evidence of Mr Hamilton in relation to the application of the abovementioned three sales to the subject land is not compelling. 32 It is obviously unsatisfactory and indeed distinctly unhelpful for the Court to be placed in a situation where one valuer is contending that $14,404,700 is the value of the subject before acquisition and the other valuer arrives at a figure of $6,549,700. One of them, or both, is clearly wrong. 33 I have already referred to the opinion of the applicant's valuer in respect of the price the Smith land would be likely to yield in the current market, namely $231,00 per lot. On the other hand Mr Hamilton assesses the likely yield at $215,000 per developed lot. Mr Hamilton's lower assessment is primarily derived from his observation that the proposed model subdivision for the Smith land caters for much smaller lots than those generally available in the market at Alstonville. Mr Jelley reviewed the sales evidence provided by both Mr Allsopp and Mr Hamilton and concluded that the median price for lots being sold at the relevant time was $225,250 per lot compared with an average price of $231,000 per lot. After noting that from February 2004 the market was rising, Mr Jelley expressed an opinion that at the time of valuation the purchaser would adopt a more optimistic view to likely price outcomes during subsequent development. However given the disagreement between Mr Hamilton and Mr Allsopp he undertook two identical cash flows with one based on lot sales at $215,000 and the other at $231,000 to see what effect that had on the en globo value of the land when the assessment is done on the same cash flow model. 34 The immediate past history of land sales in Alstonville is that releases have been controlled almost entirely by one landholder so that the development period has been more extended than that foreshadowed for the Smith land, particularly by the applicant. Given the anticipated rate of release of the subject land and the comparatively smaller sizes envisaged I am inclined to agree with the more conservative approach adopted by Mr Hamilton in this respect bearing in mind Mr Jelley's observation that the median price for lots suggests there were more sales occurring in the lower price range. It has not been demonstrated that the rising market after February 2004 was necessarily a factor the prudent hypothetical purchaser would have taken into account on 6 February 2004. Although Alstonville is obviously an attractive town with good facilities I accept Mr Hamilton's assessment that land at Ballina and Ballina Heights should achieve a better rate of sale than Alstonville. According to Mr Hamilton the much larger retail centre and range of facilities in Ballina would make it a more vigorous market for a developer. The sales of land out of River Oaks Estate and other sales in Ballina should therefore be adjusted accordingly. That in my opinion requires a greater adjustment than that allowed by Mr Allsopp to something more in the range of $215,00 per lot deduced by Mr Hamilton. In making that assessment I have taken into account the prospect that some lots in the hypothetical development of the Smith land will have an agricultural aspect that will have the effect of increasing their attraction in the market. 35 The bottom end of the range of sales of developed land goes down to $175,000 at Alstonville with a number of sales at around $210,000. Prime lots have achieved as much as $290,000. I find it more likely than not therefore that a developer would regard the subject land at the date of resumption as likely to achieve an average sale price in the order of $215,000 as estimated by Mr Hamilton, or at the outside $220,000. 36 It is my opinion that overall the en globo value of the subject land at Alstonville is inferior to the land comprised in the comparable sales at Ballina. Apart from the reduced development cost of the Smith land, the River Oaks development is superior. The real value of the subject land is somewhere between the $26,000 per lot en globo across the board, adopted by Mr Hamilton, on the basis of an "actual" residential zoning and the $65,000 per en globo lot derived by Mr Allsopp. 37 Apart from the difference in the value derived from the River Oaks sale in the order of $25,000 per en globo lot in the first instance the derivation of only $120,000 per ha based on a sale price reflecting a premium over agricultural land for the deferred part of the Smith land by Mr Hamilton takes the valuers even further apart. 38 Although the actual figures assessed by Mr Hamilton might be regarded as extremely conservative his methodology is logical notwithstanding, as he put it, "there's probably no science to it". His "top down" approach is more likely, in my opinion, to reflect an approach that the hypothetical purchaser would take at the date of resumption. It would be more than likely that a well-informed vendor would be acutely aware of the extended selling period for a development comprising over 200 lots at Alstonville and reach the same conclusion. Mr Allsopp's direct application of the River Oaks sale on the basis that the subject land would be assumed to sell in the same time frame is rejected. In my view Mr Hamilton has underestimated the market in the order of 50% whereas Mr Allsopp has overestimated the value of the Smith land with development potential in the order of 25%. It is appropriate therefore to pursue a check valuation method. Check Valuations (a) Hypothetical Development 39 Using this methodology as a check method Mr Allsopp adopted $13,273,839 or $65,712 per lot en globo for the developable land. He again allowed $231,000 for the sale of each of the 202 lots including GST. He made a comparison between River Oaks and the subject land on the basis that River Oaks had a life of seven years with the life of the project on the subject land estimated at 10 years. The evidence does not support the conclusion that a prospective hypothetical purchaser would have necessarily adopted the estimates of seven years and 10 years. This aspect of the argument is explored more fully later in these reasons. The consequence is to bring the rate of development on the subject land more into line with the rate of development and sale of land in Ballina. No allowance appears in respect of obtaining development consent and interest holding costs during that period. A period of two years to obtain approvals and a ten-year selling period would extend the life of the project to 12 years. I am not in a position to make relevant adjustments to Mr Allsopp's calculations. Accordingly I have not used his hypothetical development methodology as a check valuation except as an indication of what Mr Allsopp would have told a purchaser. A project with a longer life generally demands a greater return on investment. Moreover the competing arguments put by the parties in relation to the use of the hypothetical development check method are irreconcilable.

(b) Discounted Cash Flow (DCF) 40 All valuers undertook a check valuation using DCF, including Mr Jelley. 41 Mr Jelley made a current value assessment at February 2004 based upon realisation at the rate of $215,000 per lot to establish a value of $7,617,379. Adopting Mr Allsopp's higher estimate of $231,000 per lot he achieved $8,476,116. He averaged the value of the en globo land at $8,046,747 to give an estimated en globo value exclusive of GST of $8,000,000. 42 Mr Jelley produced the abovementioned results as a second exercise as initially he omitted an interest charge, which should have been included in the holding costs. In his oral evidence he explained that he had also omitted to take into account cash flow from February 2004 to July 2005. After that was taken into account his current value assessment was as follows:

Based on $231,000 per lot: $8,070,753 43 In each case he adopted an internal rate of return (IRR) of 25%. He discounted the present value over the planning period at 8% and distinguished that calculation from the interest that he added at the rate of 8% in his second exercise. 44 His analysis, using Estate Master, of cash flows of the River Oaks sale indicated an underlying development margin ranging from 50 - 60% and an IRR ranging from 22.61 - 32.7% depending upon the sales rate adopted. Given the projected sales rate of about two per month for the subject land and the location of that land at Alstonville he believes the appropriate rate for the subject to be 60 - 70% development margin and an IRR of 25%. He says that the Alstonville land showed an IRR of 25% applying the River Oaks sale with the additional risk for obtaining development consent. 45 Mr Allsopp and Mr Jelley agree that any figures derived for a period after 10 years are unreliable. Rather than adopting Mr Jelley's IRR of 25% Mr Allsopp prefers to make an adjustment for the development consent at 2.4% noting that the additional cost of construction at River Oaks balances to some extent against the lack of a development consent. As a consequence he adopted 22.62% in his oral evidence based on a "top of the head" assessment whereas originally in his written assessment he adopted an IRR of 23.36%. 46 The discussions in relation to the DCF regenerated the argument regarding the rate of sales comparing Alstonville with Ballina and the comparative costs of construction. 47 The dichotomy between Mr Allsopp and Mr Hamilton regarding the realisation price at Alstonville carries over into the DCF exercise as can be seen from the above calculations. At Alstonville Mr Allsopp believes a minimum of 12 presales can be relied upon whereas Mr Jelley and Mr Hamilton would only recognise 6 presales. 48 Mr Allsopp used the margin scheme for GST purposes whereas Mr Jelley and Mr Hamilton did not. 49 As opposed to Mr Jelley's IRR of 25% Mr Hamilton adopted an IRR of 27.5%. Mr Allsopp says that the IRR used by him is the exact IRR adopted on the same "inputs" used in the River Oaks analysis. In his opinion the River Oaks sale should be analysed as GST free. That conclusion is not readily open when the documents are examined. However, Mr Allsopp's argument is that River Oaks would be GST free as a rural property and that by March 2004 the margin scheme was being used. That required a valuation to be taken at 2000. There is no evidence to support what actually happened. Even after the contract was executed a second time the parties were in serious doubt and found it necessary to execute the deed of variation that I referred to earlier. 50 Mr Allsopp takes account of interest generated on a positive cash flow from sales on the basis that it is an established practice for a developer to do that in larger subdivisions. According to him that approach would equally apply to the River Oaks sale. Mr Hamilton said that in his experience he has never known a purchaser who pays an extra premium for an anticipated positive cash flow. Mr Jelley reiterated his experience to the same effect as Mr Hamilton. In Mr Hamilton's experience an IRR of 27.5% is appropriate particularly in the light of the time frame for the Smith development. Accepting Mr Allsopp's adjustment of River Oaks at 2.4% for the development application he would apply a further adjustment to take account of the more buoyant market, this further adjustment would be 2.5%. 51 Mr Jelley agreed with Mr Webster in cross-examination that if he could be satisfied that a sale was exclusive of GST then the IRR could be reduced. There was no opportunity for Mr Jelley to carry out such an exercise. Notwithstanding that the vendor held the land for rural purposes he would nevertheless tend to use the ordinary scheme and not the margin scheme. However in his opinion it is irrelevant which course he took as he treated both exercises on the same basis. 52 Belatedly, and only in cross-examination, Mr Allsopp contended that initially the developer of the Smith land could depend upon between 35 and 40 presales. He was not able to point to any earlier document or direct statement to that effect. Moreover when tested in relation to his estimation of the life of the River Oaks development at 7 years, Mr Allsopp confirmed that if he had adopted the historical figure for the take-up rate in Ballina the life of the development would be shorter. He even acknowledged that it could be as short as 4 years compared to the period of 10 years from the date of purchase for the Smith development. Although he subsequently qualified the four-year period by saying that it would be highly doubtful that it could be achieved he acknowledged that if the true comparison is between River Oaks over 4 years and the Smith land over 12 years the purchase of the River Oaks land would be preferable although account would need to be taken of the additional development costs for the Ballina land. After taking account of the higher realisation figure for the Ballina land Mr Allsopp agreed with Mr Simpkins that the River Oaks sale would be superior on all accounts setting aside the additional cost of development. 53 After dealing with all the complicating and complicated factors involved up to that point Mr Allsopp expressed an opinion in cross-examination that a developer-purchaser would carry out a fundamental exercise at the date of purchase taking account of only three factors, namely, (1) the number of blocks that could be generated, (2) the gross realisation figure expected and (3) the anticipated costs of construction per block. Any questions regarding cash flow and the point of incurring outlays would be dealt with in detail at a later stage in conjunction with an accountant. 54 In his final analysis Mr Hamilton confirmed that a cash flow analysis based on a realised price of $215,000 per lot using a target IRR of 27.5% showed a reasonable value of $6,384,328 exclusive of GST. Although different Mr Hamilton said he was not uncomfortable with the result from his DCF application compared to the comparable sales result. 55 The DCF analysis by Mr Allsopp results in a land value of $10,172,000 reflecting an IRR of 23.36% based on the River Oaks sale. He makes the observation that with the adoption of a seven-year development period for the subject land as opposed to a ten-year development period the DCF method shows a land value of $13,305,000.

Determination of Market Value of the Developable Smith Land at Date of Acquisition 56 In summary, the respective conclusions of the valuers are as follows:

Comparable sales $13,130,000 DCF (10-year development) $10,172,000 DCF (7-year development) $13,305,000 Hypothetical development $13,273,839

DCF ($215,000 realisation per lot) $7,252,313 DCF ($231,000 realisation per lot) $8,070,753

Comparable sales $5,275,000 DCF $6,384,328 57 It is obvious from the above that a prospective purchaser would be in a quandary as a consequence of the conflicting advice if they had access to each of the valuers. The hypothetical vendor who had the same advice would look to the higher end of the range of expectation. It is not appropriate in my view to resolve the dilemma merely by taking an average of the opinions. However the figures disclose the range of values that could be justified according to what factors are taken into account. Mr Hamilton's comparable sales figure has not been corroborated by any check method other than his DCF where he adopts an IRR that is out of line with the analysis made by both Mr Jelley and Mr Allsopp. On the other hand Mr Allsopp has shown a tendency to strain for the highest conceivable value without being inclined to rationalise his position on the basis of alternative criteria or approach or recognise the value of a second opinion. The conflict between them could be explained in large measure by an aspiration to strive for the result consistent with their respective client's interest. Nonetheless irrespective of that possible explanation neither of them displayed a degree of irrationality or incredibility that leads me to be entirely dismissive of their evidence. 58 I am satisfied that Mr Allsopp would have advised the hypothetical prospective vendor that there was a real prospect that the Smith land that is capable of residential development could possibly be worth in excess of $13,000,000 but at the least $12,000,000. Emboldened by that advice the vendor would nevertheless be faced with an hypothetical purchaser who had advice that the land was worth as little as $5,275,000, based on analysis of some sales, ranging up to a figure of $10,000,000 depending upon the approach taken with a check against a projected discounted cash flow analysis. It is clearly foreseeable that the parties would in the circumstances resort to a check method of valuation. 59 Ultimately what I have to decide as a judicial valuer is, as a matter of fact, what amount would have been paid for the land if it had been sold at the time by a willing but not anxious seller to a willing but not anxious buyer as required by s 55(a) and s 56(1) of the Land Acquisition (Just Terms Compensation) Act 1991 and in so doing have regard to all relevant matters under Part 3 of the Act so that it will justly compensate the person whose land has been acquired (s54 (1)). To achieve that objective the Court has an obligation to ascertain the theoretical point of equipoise between the competing hypothetical interests. I have decided that the 21 ha of the Smith land would have been zoned for residential development at the date of acquisition but for the proposal to build the bypass. But it did not have the benefit of development consent. Having regard to the constrained rate of expected demand for housing lots compared to Ballina land as well as an anticipated price for a developed lot at the date of acquisition in the range between $215,000 and $230,000, say $220,000, the two parties to the assumed sale would have reached an agreement for a price of $10,000,000. In determining that figure it is not necessary for me to decide whether the calculations by Mr Jelley are correct or that the advice from Mr Allsopp or Mr Hamilton is preferred. It is nevertheless implicit in my determination that none of the opinions of the witnesses have been accepted other than as a piece of advice that would have been available to players in the market. However the price of $10,000,000 attributes approximately $50,000 as the value of each potential en globo lot which is reasonably consistent with the evidence of both Mr Allsopp and Mr Hamilton and capable of rationalisation from their advice being in the range between the figure of $40,000 envisaged by Mr Hamilton for the first 100 lots and the figure of $65,000 adopted by Mr Allsopp. 60 Adopting the agreed "before" figure of $1,274,700 for the balance of the land I determine that the value of the Smith land before the acquisition is $11,274,700. 61 Taking the agreed figure of $1,702,000 as the market value of the land remaining after acquisition the amount of compensation to which the applicant is entitled having regard to the matters in s 55(a) and (f) of the Act is $9,572,700.

Disturbance 62 Figures for legal and valuation fees payable pursuant to s 59(a) and s 59(b) of the Act have been agreed in the sum of $8,015. 63 The applicant makes a further claim for an alleged expense that will be incurred in pursuing an application to the council for reinstatement of building entitlements said to be lost as a consequence of the acquisition. This is either a claim under s 59(f) as a loss attributable to disturbance being a financial cost incurred (or that might reasonably be incurred) relating to the actual use of the land as a direct and natural consequence of the acquisition or should be regarded as a reduction in the market value of other land under s 55(f). The amount of the claim is $15,000 in respect of anticipated fees that will become payable to a town planner. It is Mr Allsopp's evidence that in order to reinstate the dwelling building entitlements lost as a consequence of the subdivision of the land by the respondent it will be necessary to engage the services of the town planner to prepare and lodge a development application supported by an objection under State Environmental Planning Policy No. 1. The valuation of the residue land assumes that the two building entitlements are attached to the land. The applicant's town planning consultant, Mr Stephen Connelly, has advised that because the RTA registered its plan of subdivision without first obtaining development consent from council it has effectively removed the dwelling entitlements from the residential lots. Thus, should the existing dwelling houses be abandoned it would not be possible for council to allow the erection of a dwelling house on these residential parcels. 64 The Court is not assisted by any evidence other than the above assertions by Mr Allsopp and Mr Connelly in their written reports. The claim appears to be contingent on the removal, loss or abandonment of the two existing dwellings on the land. There is no evidence brought to my attention that envisages such a loss within the foreseeable future. Presumably the two houses can be maintained in the meantime and that accordingly there is no imminent liability to engage the services of a town planner and incur the expense. The presence of the houses on the land has been taken into account in assessing the "after" value of the land. I can see no reason to allow any further claim for disturbance under s 59(f) or to adjust the agreed value of the remaining land for the purpose of s 55(f). I am not satisfied either that the value of the residue has been reduced or that the alleged financial costs "might reasonably be incurred".

Costs 65 Although the applicant contended for a higher figure than that determined by the Court it has achieved an advantageous result beyond that which the respondent offered or proffered in the course of evidence. It is appropriate therefore in the absence of any disentitling conduct on the part of the applicant for the respondent to pay the costs of the applicant in respect of the litigation.

Orders 66 I have determined the compensation payable as follows:

Market value of the land acquired and decrease in the value of other land of the applicant determined in accordance with sections 55(a) and 55(f) of the Land Acquisition (Just Terms Compensation) Act 1991 $9,572,700

Loss attributable to disturbance $8,015 67 I direct that the parties file appropriate minutes of orders to reflect the Court's decision within 7 days. The exhibits may be returned.

10/11/2006 - typographical error in figure given for market value - Paragraph(s) 66

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