Sydney Harbour Foreshore Authority v Walker Corporation Pty Ltd

CATCHWORDS: Just terms compensation - land zoned for waterfront industrial use - whether land could be treated as having been zoned for residential use - meaning of 'proposal' in s56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991 -contaminated land - whether contractual right to remediation could be taken into account in determining value of land at the date of acquisition

Sydney Harbour Foreshore Authority Act 1998 (NSW) Land Acquisition (Just Terms Compensation) Act 1991 (NSW) Land and Environment Court Act 1979 (NSW) LEGISLATION CITED: Sydney Harbour Foreshore Authority Regulation 1999 Lands Acquisition Act 1989 (Cth) Environmental Planning and Assessment Act 1979 (NSW) Interpretation Act 1987 (NSW)

Housing Commission (NSW) v San Sebastian Pty Ltd (1978) 140 CLR 196 Pointe Gourde Quarrying and Transport Company Limited v Sub-Intendant of Crown Lands [1947] AC 565 South-Eastern Ry Co v London County Council [1915] 2 Ch 252 Fraser v City of Fraserville [1917] AC 187 Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426 Roads and Traffic Authority (NSW) v Perry (2001) 52 NSWLR 222 Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 Waters v Welsh Development Agency [2004] 1 WLR 1304 Collins v Livingstone Shire Council (1972) 127 CLR 477 Spencer v The Commonwealth (1907) 5 CLR 418 Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379 CASES CITED: Housing Commission (NSW) v San Sebastian Pty Ltd (1978) 140 CLR 196 The Minister v Stocks & Parkes Investments Pty Ltd (1972) 129 CLR 385 The Crown v Murphy (1990) 64 ALJR 593 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2004] NSWLEC 535 Wimpey Construction UK Ltd v The Minister (1984) 53 LGRA 75 Palmaco Pty Ltd v Minister Administering the National Parks and Wildlife Act 1974 [No. 3] (1991) 71 LGRA 441 Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151 Western Australia v Ward (2003) 213 CLR 1 Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 The Queen v Kearney; Ex parte Japanangka (1983-4) 158 CLR 395 Turner v Minister of Public Instruction (1956) 95 CLR 245 McRoss Developments Pty Ltd v Caltex Petroleum Pty Ltd [2004] NSWSC 183

Sydney Harbour Foreshore Authority (A) PARTIES: Walker Corporation Pty Ltd (R)

Appellant: B W Walker SC/B J Preston SC/A E Galasso COUNSEL: Respondent: D F Jackson QC/J Webster SC/I J Hemmings

Appellant: Deacons SOLICITORS: Respondent: Minter Ellison

LOWER COURT JURISDICTION: Land & Environment Court

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40866/04 LEC 30024/03

BEAZLEY JA BASTEN JA STEIN AJA

27 July 2005 THE SYDNEY HARBOUR FORESHORE AUTHORITY v WALKER CORPORATION PTY LTD

This is an appeal from a decision of the Land and Environment Court ("the LEC") in relation to the valuation of land, owned by the Walker Corporation Pty Ltd ("Walker Corporation") compulsorily acquired by the Sydney Harbour Foreshore Authority ("the Authority"). The land in question is known as Ballast Point, a headland on the southern side of Sydney Harbour. There was significant public debate about how the land should be utilised involving the Leichhardt Council ("the Council") and numerous parties from 1989 to the date of acquisition in September 2002. At the time of the acquisition, the land was zoned for waterfront industrial use. However, the land was treated by the LEC as subject to a zoning permitting residential use on the basis that the Council would have rezoned for residential use had it not been of the view the land should primarily be rezoned open space, a zoning consistent with the purpose for which it was ultimately acquired. The LEC held that pursuant to s 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Act"), it was necessary to treat the land as having been zoned for residential use at the date of acquisition. In addition, the land was contaminated and required remediation to enable residential use. Walker Corporation had a contractual entitlement to require the previous owner to remediate the land at no cost to it. Accordingly, the LEC held it should be valued without deduction for the costs of remediation. The issues for the Court of Appeal to determine included: (i) whether the LEC made an error of law in assessing the land as if it were zoned for residential use; and (ii) whether the LEC made an error of law in assessing the land as if remediated to an acceptable level for residential use. Held as to (i): Per Basten JA (Beazley JA and Stein AJA agreeing):

1. The LEC could not disregard the maintenance of the industrial/waterfront zoning in the present case, until the proposal for the relevant public purpose for which the land was resumed became known, if that planning decision was made for proper planning purposes, regardless of whether the land would ever be resumed. There was no factual finding that that was not the case. The possibility of rezoning was a relevant matter to be considered but the land should not have been valued on the basis that it had in fact happened.
2. Instead of seeking to assess, from the perspective of the hypothetical purchaser, the chance of a rezoning, and noting a decline which could be attributed to the statutory considerations in s56(1)(a) of the Act, the trial judge valued the land on the assumption that the rezoning had in fact taken place. That assumption could only be justified if the refusal of the Council to rezone was itself part of the proposal to acquire the land for the public purpose for which it was acquired or a step in the carrying out of that public purpose. Held as to (ii): Per Basten JA (Beazley JA and Stein AJA agreeing):
3. A direct, non-contingent right to have the specific land the subject of the acquisition improved in a way which adds to its value in the hands of the owner is a right for which compensation may be obtained under the Act.
4. Alternatively, the value that would be paid to the hypothetical purchaser may take into account the potentiality of the land, including the potentiality for residential development. Since Walker Corporation could have the remediation done at no cost to it, the price it would hypothetically receive should not be reduced on that account.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40866/04 LEC 30024/03

BEAZLEY JA BASTEN JA STEIN AJA

27 July 2005 THE SYDNEY HARBOUR FORESHORE AUTHORITY v WALKER CORPORATION PTY LTD Judgment 1 BEAZLEY JA: I agree with Basten JA. 2 BASTEN JA: By notice published in the Government Gazette on 26 September 2002, the Appellant acquired an area of land at Ballast Point, Birchgrove, on Sydney Harbour, "for the purposes of the Sydney Harbour Foreshore Authority Act 1998". The registered owner of the land at the date of acquisition was Caltex Petroleum Pty Ltd ("Caltex"), but the Respondent, formerly known as McRoss Developments Pty Ltd, was the purchaser of the land pursuant to an option to purchase exercised some five months prior to the acquisition. The Respondent rejected an offer of compensation made by the Appellant and commenced proceedings in the Land and Environment Court of New South Wales, seeking an assessment of the value of its interest in the land, pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ("the Land Acquisition Act"). 3 In a judgment delivered on 9 July 2004, Talbot J in the Land and Environment Court assessed the value of the Respondent's interest in the land on the basis that the land should be treated as subject to a zoning permitting residential use. The bulk of the land was, at the date of acquisition, zoned for waterfront industrial use and had been so zoned at all material times, reflecting its historical use as a storage facility for petroleum products. The trial judge held that, but for the proposal to acquire the land for public open space, it would have been rezoned for residential use and, pursuant to s 56(1)(a) of the Land Acquisition Act, it was necessary to treat the land as having been so zoned at the date of acquisition. Pursuant to s 57 of the Land and Environment Court Act 1979 (NSW) an appeal to this Court from such a decision may be brought on a question of law only. The primary issue in the present case is whether the basis on which his Honour assessed compensation was materially affected by a relevant legal error. 4 A second and subsidiary question in the Court below concerned the right of the Respondent to have its interest in land valued on the basis that the land had been remediated, so that contamination resulting from its earlier industrial use was reduced to a level which would permit its future use as residential land. The land had not in fact been remediated at the date of acquisition, but the Respondent had a contractual entitlement, as against Caltex, to require that remediation be carried out at no cost to the Respondent. His Honour accepted the Respondent's argument that the land should be valued as if remediated to an acceptable level for residential use. The second question arising on the appeal is whether his Honour was correct in law in adopting that approach. 5 Although it may be thought logical to consider the second question first, as it requires identification of the relevant interest in land which was acquired from the Respondent, that question involves a discrete and severable issue and the submissions of the parties focused primarily on the first question. It is convenient to deal with the questions in the order set out above.

The statutory scheme: Foreshore Authority Act 6 The Appellant, the Sydney Harbour Foreshore Authority, was established by s 10 of the Sydney Harbour Foreshore Authority Act 1998 (NSW) ("the SHFA Act") and was declared, by s 11 of the Act, to be a statutory body representing the Crown. The Appellant therefore came into existence on 14 December 1998, being the date of commencement of the SHFA Act. The functions of the Foreshore Authority are set out in s 12 of the SHFA Act, which reads as follows: " 12 Functions - generally (1) The Authority has the following functions: (a) to protect and enhance the natural and cultural heritage of the foreshore area, (b) to promote, co-ordinate, manage, undertake and secure the orderly and economic development and use of the foreshore area, including the provision of infrastructure, (c) to promote, co-ordinate, organise, manage, undertake, secure, provide and conduct cultural, educational, commercial, tourist, recreational, entertainment and transport activities and facilities. (2) In addition, the Authority has the following functions in relation to particular classes of land within the foreshore area: (a) in relation to core land - to develop and manage core land, (b) in relation to non-core land - to develop, manage and deal in non-core land, (c) in relation to managed land - to manage managed land in accordance with the terms of the agreement with the owner or occupier of the land, (d) in relation to the public domain - to enhance and manage the landscape of the public domain and to improve, maintain and regulate the use of the public domain." 7 Subsection 12(2) identifies particular functions with respect to four separate categories of land. For present purposes, reference is required only to paragraphs (a) and (b), relating to "core land" and "non-core land" respectively. The acquired land came within the terms of the SHFA Act only upon acquisition, at which time it became "non-core land". Subsequently, pursuant to an amendment to the Sydney Harbour Foreshore Authority Regulation 1999 ("the Regulation") the land was declared to be "core land" for the purposes of s 6 of the SHFA Act. Non-core land is defined by s 7 of the SHFA Act in the following terms: " 7 Non-core land For the purposes of this Act, non-core land means that part of the land within the foreshore area, not including core land, that is vested in the Authority from time to time." 8 The principle differences in relation to the core and non-core land, reflected in subsection 12(2), relate to the powers of disposal and dealing in land. Broadly speaking, the Foreshore Authority cannot dispose of any interest in its land without the consent of its Minister, except by way of lease or licence for a term that does not exceed five years: sub-ss.19(4) and 20(2). Otherwise, and with the consent of the Minister, the Foreshore Authority may sell non-core land, but not core land, although it may mortgage, charge, exchange and transfer roads to other authorities: s 19(2). The Foreshore Authority may also surrender land to the Crown to be dedicated for any specified public purpose or as a public road: s 21(1). 9 Although the Foreshore Authority may have functions conferred on it by other legislation (s.14) it was not suggested in the present case that any relevant functions had been so conferred. It was common ground that the reference in the notice of acquisition to "the purposes of" the SHFA Act, was a reference to the functions identified in s 12. Apart from the terms of sub-s.12(1), and the requirement in s 15 that the Foreshore Authority take into consideration "the principles of ecologically sustainable development" in carrying out any of its functions, there appears to be no statutory constraint on the manner in which the Foreshore Authority is to develop and manage land pursuant to s 12(2).

Land Acquisition Act 10 Section 17(1) of the SHFA Act deals with the acquisition of land. Relevantly for present purposes, it provides: " 17 Acquisition of land (1) The Authority may acquire land, for the purposes of this Act, by agreement or by compulsory process in accordance with the Land Acquisition (Just Terms Compensation) Act 1991."

A complementary provision in the Land Acquisition Act provides that it applies to the acquisition of land "by an authority of the State which is authorised to acquire the land by compulsory process": s 5(1). 11 The Land Acquisition Act provides in Part 2 for certain pre-acquisition procedures, which require that an authority give the owner of land written notice of its intention to acquire. The minimum period of such notice is 90 days prior to acquisition: s 13(1). After that period, the authority is required to act "as soon as practicable": s 14(1). In the present case, a pre-acquisition notice was given to the Respondent on or shortly after 6 June 2002. 12 The act of acquisition is effected by a notice published in the Gazette, pursuant to s 19(1) which provides: " 19 Compulsory acquisition by notice in Gazette (1) An authority of the State that is authorised to acquire land by compulsory process may, with the approval of the Governor, declare, by notice published in the Gazette, that any land described in the notice is acquired by compulsory process."

The effect of such a notice is provided in s 20(1): " 20 Effect of acquisition notice (1) On the date of publication in the Gazette of an acquisition notice, the land described in the notice is, by force of this Act: (a) vested in the authority of the State acquiring the land, and (b) freed and discharged from all estates, interests, trusts, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land." 13 The term "land" may, depending upon its context, refer to a geographical area, or to legal interests in such an area. "Land" is defined in s 4 of the Land Acquisition Act to include "any interest in land". The latter phrase is also defined, in terms which are of some importance in relation to the second question raised on this appeal: " ' interest' in land means: (a) a legal or equitable estate or interest in the land, or (b) an easement, right, charge, power or privilege over, or in connection with, the land."

As will be discussed in relation to the second question, there are discrepancies between the content of this definition and that which is extinguished pursuant to s 20(1)(b). Thus, the terms in par (b) of the definition, "power or privilege" are not to be found in s 20(1), whilst the terms "trusts, restrictions, dedications, reservations, … rates and contracts", found in s 20(1), do not appear in the definition of "interest" in land. Similar, though not identical discrepancies may be found in the equivalent provisions of the Lands Acquisition Act 1989 (Cth), ss.6 and 41(4). 14 Provision is made for the entitlement of a dispossessed owner to compensation in Part 3, Div 1 of the Land Acquisition Act. The primary provision, s 37, reads as follows: " 37 Right to compensation if land compulsorily acquired An owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation in accordance with this Part by the authority of the State which acquired the land."

In its terms, this section provides an entitlement to compensation for that which is lost, and not by reference to that which is acquired by the authority of the State. 15 Provision is made with respect to the amount of compensation payable in Part 3, Div 4 of the Land Acquisition Act. Section 54 relevantly provides: " 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."

The nature of the entitlement might have been more clearly expressed if this provision had reflected the terminology of s 37, but nothing appears to turn on this consideration for present purposes. 16 The two key provisions for the purposes of this appeal are to be found in ss.55 and 56, which relevantly provide as follows: " 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 … . 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. (2) When assessing the market value of land for the purpose of paying compensation to a number of former owners of the land, the sum of the market values of each interest in the land must not (except with the approval of the Minister responsible for the authority of the State) exceed the market value of the land at the date of acquisition."

In relation to the first ground of appeal, the focus of submissions was on the proper construction of par (a) in s 56(1).

The factual background 17 During the hearing of the appeal both parties devoted no little time to documentary materials recording the history of public disputation in relation to the potential uses of the acquired land, commencing in late 1989 and proceeding through to the date of acquisition in September 2002. This material demonstrated a high degree of contestation between all potentially interested parties in relation to the headland known as Ballast Point on the southern side of Sydney Harbour which, in February 2002, was described by the Premier in the following terms: "Ballast Point forms a natural gateway to the western harbour and is one of the most prominent land features in the harbour." 18 The land had been purchased in 1928 for use as a bulk terminal for distribution of petroleum products, an industrial use continued in more recent years by Caltex. In a document from Caltex to the Respondent, written in November 1998 and set out in the judgment of Talbot J at [67], the use of the land was described in the following terms: "This site was the original gasoline terminal for distribution of petrols and other petroleum hydrocarbon products to the Sydney market. It was operated by Texaco which later formed Caltex. In its mid-term the use changed to a grease and lubricants manufacturing facility and remained Caltex prime source of these products until early in the 1990's. In later years it has been the main point of supply of diesel to the harbour marine traffic. It shares this role with a similar Shell facility at Gore Bay. It has also been used for bulk storage of lubricant base oils." 19 It appears from the materials before the Court that consideration of the future of the site followed upon the realisation that Caltex no longer wished to continue its existing usage, as demonstrated by an application submitted on its behalf in November 1989 for the site to be rezoned to permit residential development, by the construction of 163 units. The range of publicly expressed views, which appear to have been stimulated, at least in part, by this proposal may be appreciated from a report prepared by two Commissioners of Inquiry for Environment and Planning, dated July 1991. The Inquiry was directed to four draft Local Environmental Plans prepared for the Balmain peninsula, one of which, known as LEP 81 related specifically to the Caltex site. The summary of submissions to the Inquiry, listed in the report, identifies the principal parties to the Inquiry in the following manner: · Leichhardt Council Town Planning Department · Residents and resident organisations · State Government authorities · Professional bodies · Other organisations · Owner or developer of subject sites. Within these categories, the Commissioners identified the involvement of a remarkable range of individuals and organisations, although that was partly due to the scope of the Inquiry, which covered as well as the Caltex site four other sites on the Balmain Peninsula. 20 The volume of evidence to which the Court was taken demonstrated, as one might expect, a wide range of opinions as to future use, many of which were subject to substantial change over time. Amongst those which changed, were the views of the State Government. On two occasions, in 1992 and 1995, the relevant State Minister sought to intervene to ensure that a significant part of the land was used for residential development. However, when the Government intervened again in February 2002, its purpose was to acquire the land from Caltex so that Ballast Point and its partner on the north side of the Harbour, Balls Head, would "form permanent green beacons on the western harbour corridor". However, the Premier also stated that: "Part of the Ballast Point site has to be set aside for a small maritime re-fuelling area to help maintain Sydney as a working harbour."

The case for the Appellant relied to a significant degree on the fact that the State, as the ultimate acquiring authority, had changed its position dramatically between 1989 and 2002. 21 On the other side of the coin, there was a significant degree of continuity in the position adopted by the Leichhardt Municipal Council. It had consistently resisted moves to rezone much of the area for residential development and had maintained a form of industrial zoning, with the apparent intention that any change of use should commit the bulk of the land to public open space. The Respondent placed reliance upon the fact that the Council had consistently pursued that goal and was ultimately successful in persuading the State Government to its view, which led the latter to acquire the land to give effect to that purpose. 22 Any answers to be given to questions as to who held what views about the use of the land, and at what point in time, were matters of fact for the trial judge which, except to the extent that they involve questions of law, cannot be reviewed by this Court. The Appellant accepted that position. Accordingly, the use which could properly be made of an inquiry into the extensive documentary record was limited. The use made of that inquiry in this Court was primarily directed to giving some greater feel for the facts as actually found by the trial judge. Given the limitations inherent in that purpose, it is desirable to identify the nature of the legal arguments raised before turning to the findings of fact and, to the extent that it is useful, the underlying material.

Contentions of parties on appeal 23 The Appellant's case turns on the following legal requirements. First, s 55 provides an exhaustive statement of the matters which must be taken into account in determining an amount of compensation, not merely by describing them as the "only" relevant matters but, through the words in parenthesis, by picking up the method in which they are to be applied by reference to other provisions in the Division, including, relevantly for present purposes, s 56, in relation to the concept of "market value". It follows, according to the Appellant's argument, that whilst caselaw from other jurisdictions may be relevant to identifying the manner in which the statutory matters should be worked through, and may be of assistance in determining the historical precedents from which the statutory language was derived, the legal requirements must ultimately be sourced in the statutory language. 24 To this end, it is necessary to focus on the factors which must be disregarded for the purpose of par (a) of sub-s.56(1) by considering the express terms of that provision. At the heart of its operation is the concern that the value of the land may have been increased or decreased by one of two matters, namely either the carrying out of the public purpose for which the land was acquired, or the proposal to carry out that public purpose. The primary focus in the present context is on the effects of "the proposal". The relevant proposal, according to the Appellant, was that for which the State Government ultimately acquired the land, through the Foreshore Authority, namely the purposes of that Authority. The fact that the Foreshore Authority did not come into existence until 14 December 1998 does not mean that the proposal could not have existed prior to that date: the functions of the Foreshore Authority encompassed purposes which would always have been within the power of the State Government to effect. The mechanism by which they were ultimately achieved was not critical: however the proposal must have been one which was formulated, or at least adopted, by the State Government. A similar, or even an identical, proposal presented as part of a political campaign by a "ginger group", or even by a local municipal council seeking to advance the interests of the residents within its locality, would not satisfy the statutory test. 25 The Appellant conceded that, on this approach, there might be activities which significantly affected the value of land ultimately acquired, which were not to be disregarded. Such a conclusion must, of course, operate in both directions. Thus, if the conduct of persons who were strangers to the ultimate acquiring authority conducted an effective public campaign which led to the value of the relevant lands increasing, the State authority would be liable for the increased value. In the contrary situation, the owner of the relevant interests in the land would have to wear any relevant diminution in value in analogous circumstances. In the alternative, and accepting that at some point (unidentified on the facts) steps were taken which fell within the terms of s 56(1)(a), the Appellant argued that, as a matter of law, no such finding could be made while there was no unity of purpose between the State, being the ultimately acquirer, and the Council. 26 The Appellant argued that the test required to be undertaken in applying s 56(1)(a) required findings as to the nature of "the proposal", identification of "the public purpose" for which the land was acquired and consideration of the effect of either or both on the value of the land. 27 The arguments for the Respondent, which were accepted by the trial judge, resisted what was said to be a narrowing of the scope of the provision, without any clear support from the statutory terminology. It would work a grave injustice, on the Respondent's argument, if the identity of the proponent of the public purpose was limited to the ultimate acquiring authority or some other agent of the State Government. Nevertheless, it was not necessary to expand the class of relevant proponents beyond the local municipal council, because it was the conduct of the Council in failing to rezone the land which led to the decrease in value which, as the Respondent put it, should be disregarded. 28 Because of the approach adopted by the primary judge, there was no factual finding as to the terms of "the proposal" or what constituted "the carrying out of" the public purpose for which the land was acquired. Nevertheless, the contention of the Respondent was that the primary judge found, at least implicitly, that the purpose was the use of the land as public open space and the carrying out of that purpose, or the proposal to carry out that purpose included the conduct of the Council, as the consent authority, from the first refusal of the Caltex development application in 1989. The Respondent did not seek to distinguish between the two limbs of the provision. The Respondent also sought to rely upon the finding by the trial judge that the land would, as a matter of fact, have been rezoned as sufficient to insulate the conclusion reached by his Honour from review in this Court. 29 The Respondent also argued that the identity of the acquirer was of no consequence. Whilst the Council may not have had the funds to acquire the land itself, the underlying public purpose proposed for the land by the Council was in substance the same as that for which it was ultimately acquired by the Appellant. 30 Both sides sought to draw support from the judgment of Jacobs J in Housing Commission (NSW) v San Sebastian Pty Ltd (1978) 140 CLR 196, discussed below. For the reasons noted below, it may be inappropriate to read his Honour's analysis as necessarily applying in circumstances where, contrary to the facts of that case, there is no unity of purpose between the relevant levels of government. However, in one form the Respondent's argument, although it was put primarily in terms that conduct falling within s 56(1)(a) dated back to 1989, did not turn on that aspect. It would be sufficient if, at any point prior to February 2002, unity of purpose was demonstrated in order to allow the principles established in San Sebastian to operate. 31 This brief summary of the legal submissions does not do justice to the full extent of the arguments presented, but it does demonstrate that the ultimate question of construction fell within a reasonably narrow compass. In general terms, s 56(1)(a) constitutes a statement of the Pointe Gourde principle, so identified by reference to the decision of the House of Lords in Pointe Gourde Quarrying and Transport Company Limited v Sub-Intendant of Crown Lands [1947] AC 565. The principle did not originate in that case; it dates back at least to the early years of the last century: see South-Eastern Ry Co v London County Council [1915] 2 Ch 252, 258 (Eve J) and Fraser v City of Fraserville [1917] AC 187 at 194 (Lord Buckmaster). What is surprising is that over the last century there has been no reported case to which the Court's attention was drawn which bears any close analogy to the present facts.

Legal principles: factors to be disregarded 32 The operation of paragraph (a) of s 56(1) can only be understood in the context of the chapeau. The chapeau requires the identification of a "market value" by reference to an hypothetical value, on the assumption that there had been a sale between two parties, each of whom could be described as "willing but not anxious" to complete the deal. Because the land was acquired and not the subject of any such sale, the exercise must remain hypothetical, although in particular cases there may have been a recent change in ownership of all or part of the land which may provide great assistance in assessing market value: see, eg, Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426 at 436 (PC). That value will depend both on the physical features and legal status of the land, as known to the owner and the hypothetical purchaser. The statutory test thus depends upon states of knowledge about that which has happened and that which might be anticipated. 33 Turning to paragraph (a), the language envisages that the effect upon the value of the land which must be disregarded is that which has resulted from either the carrying out of the public purpose or from the proposal to carry out the public purpose. Because the exercise of assessing compensation is carried out after the acquisition, by reference to circumstances at the date of acquisition, the past tense is adopted - the reference is to the change in value of the land "caused" by relevant conduct or proposals and the public purpose is that for which the land "was acquired". 34 The possibility that the value of the land might change by reason of the carrying out of the public purpose is most likely to operate in circumstances where the purpose is being undertaken either in stages, or over time, and where progress has already been made before the land in question is acquired. The discussion in this Court in Roads and Traffic Authority (NSW) v Perry (2001) 52 NSWLR 222 illustrates this possibility. That case involved the upgrading of the Pacific Highway near Repton, south of Coffs Harbour in northern New South Wales. The respondent's land at Perry's Hill was acquired for the purposes of the highway construction. As grazing land, it had a relatively low value. However, it contained a significant source of rock which was required for a part of the construction project. Applying Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 ("The Raja's Case") the Court held that the identity of the "scheme" for which the land was acquired was of critical importance. If the scheme included the elevation of part of the carriageway over a flood plain, the enhanced value of the land due to the rock deposits was attributable to the very scheme for which the land was acquired. However, if the flood plain construction was part of a different scheme, the land enjoyed an enhanced value as a source of rock for the purposes of the other scheme. Accurate identification of the "scheme for which the property is compulsorily acquired" was thus critical to the proper resolution of the case: see per Handley JA at [52] relying on Fraser v City of Fraserville [1917) AC 187 at 194. As his Honour explained at [61]: "At its inception the Raleigh Deviation extended north of Man Arm Creek but did not directly affect the claimant's land … . This scheme, in its final form, may not have included the extension of the highway through the claimant's land north of Man Arm Creek to Perry's Hill. If so this would then be the subject of a separate scheme (the Perry's Hill scheme). The claimant would be entitled for compensation for any increase in value 'entirely due' to the Raleigh Deviation because that would not be the scheme which underlay this acquisition. However any increase in value 'entirely due' to the Perry's Hill scheme would have to be excluded." 35 In the particular circumstances of the case, the factual question so presented seems to require fine distinctions, which could have dramatic consequences for both the landowner and the acquiring authority. However, as a matter of principle, the alternative results may be readily comprehended. Thus, The Raja's Case involved the compulsory acquisition of land which contained a valuable source of fresh spring water which was required for the development of a nearby harbour, with new industries. The construction work began in 1920. It was some six years later in 1926 when the need for an alternative source of water was appreciated and the proposal developed to acquire the spring and its catchment area, together with a strip leading to the new harbour. By the time the need for the source of fresh water was identified, the potentiality of the Raja's land to supply that resource had given the land an enhanced value. Accordingly, the acquiring authority was required to pay the Raja the enhanced value on the basis that this scheme was not part of the original scheme. 36 The contrary result was reached in the more recent case of Waters v Welsh Development Agency [2004] 1 WLR 1304. That case involved the construction of a barrage across the mouth of Cardiff Bay, as incidental to the carrying out of works in a development area adjacent to the Bay: ibid at [76], per Lord Scott of Foscote. As his Lordship noted at [77]: "One of the effects of a construction of the barrage would be to raise the level of the water in the bay. The raising of the water level would flood the mudflats of the Taff/Ely Estuary and cause serious damage to an area of that Estuary which in 1980 had been designated a site of special scientific interest ('SSSI'). The mudflats within the SSSI were an important breeding site for dunlin and redshank."

As a result of this concern, a condition of the estuary development was that the relevant authority should establish an alternative reserve to cater for the displaced bird life. The land of the claimants was acquired for that purpose. 37 On the basis of The Raja's Case, the claimants argued that their land had an enhanced value as a result of the barrage construction project, for which they were entitled to be compensated upon resumption. Their claim was rejected on the basis that the need to acquire alternative land as a nature reserve was an integral part of the barrage construction project and hence they could not claim enhancement resulting from the very scheme or project pursuant to which their land was acquired. Lord Nicholls of Birkenhead expressed a level of disquiet as to the difficulties, and indeed artificiality, of the distinctions which needed to be drawn in identifying a relevant "scheme". His Lordship noted that these difficulties could give rise to real doubts about the fairness of the principles currently applied. At [56] he said: "The wider the scheme, the greater the potential for inequality between those outside the area of acquisition, whose land values rise by virtue of the scheme, and landowners whose properties are acquired at a value which disregards the scheme. Conversely, the narrower the scheme, the greater the potential for an authority being called upon to pay compensation inflated by its own investment in improved infrastructure or other regeneration activities." 38 In this context, it is also helpful to note the principle established in Collins v Livingstone Shire Council (1972) 127 CLR 477. That case involved the construction of a reservoir by the respondent Council on land, some two-thirds of which was owned by the appellant. As noted by Gibbs J at p 495: "The respondent, with a brave disregard for legal niceties, had built the reservoir and the fence without obtaining the consent of the appellants and before giving to the appellants notice of its intention to exercise its powers of compulsory acquisition."

In those circumstances, the appellants claimed a value for their land based on the enhancement caused by the construction of that part of the reservoir which was on their land. That claim was unanimously upheld by the High Court. However, only Gibbs J expressly discussed the Pointe Gourde principle, stating at 497-498: "In the present case the scheme underlying the acquisition provided for the construction of a complete reservoir. In so far as the work done in pursuance of that scheme was done on the land of the appellants, I have already pointed out that it cannot be disregarded for it affected the condition of the land itself. However, in so far as the work done under the scheme on other land had the effect of further enhancing the value of the appellants' land, it has to be disregarded. In other words, the appellants were entitled to be awarded the value of the land in its actual condition at the time of resumption and with all the potentialities it had at that date, but without any increase in value due to the fact that the construction of the reservoir and fence had been completed. The Land Court and the Land Appeal Court were therefore required to indulge in a flight of the imagination and to value the land on the assumption that no part of the reservoir or the fence had been erected on the adjoining land." 39 In order to apply these principles in the context of the Land Acquisition Act, it is necessary to replace references to "the scheme" with reference to "the public purpose for which the land was acquired". That public purpose, although expressed in the singular, might well be multi-faceted, as the broad functions of the Foreshore Authority in the present case demonstrate. That being said, the cases demonstrate that some care must be given to identifying the relevant purpose, even where lands are resumed sequentially, by the one acquiring authority in pursuit of what may, in broad terms, be described as the component parts of an overall project. Alternatively, the concept of a "scheme" may in some circumstances better equate with a "proposal" for carrying out public purposes. That apparently minor variation in terminology may be significant because s 56(1)(a), as noted above, appears to contemplate on the one hand conduct which constitutes the carrying out of a public purpose and, on the other, the existence of a "proposal" to carry out a public purpose: it does not expressly refer to steps taken in the development of a proposal or steps which are merely preparatory to the carrying out of the public purpose. Nor, in its terms, does it require the disregarding of a failure to do something, which might have resulted in an enhancement of the value of the claimant's land, prior to the date of acquisition. 40 Before considering whether the caselaw would support some broader construction of the language of s 56(1)(a) than appears on its face, it is important to note that all of the cases referred to so far have been concerned with increases in the value of land and the extent to which such increases must be disregarded because they flow in some way from the pursuit of public purposes for which the acquisition took place. As may be seen, on the basis of The Raja's Case, the general approach has been to look for some clear connection between the scheme or proposal pursuant to which the land was acquired and the cause of the increase in value. A causal connection by itself was not sufficient in The Raja's Case, nor in Perry, nor in Waters v Welsh Development Agency. There is a question as to whether the same approach is required in relation to considerations which result in a decrease in value, or whether some modification of that approach is required. 41 The Respondent relies squarely on the role of the Council, as the primary consent authority in relation to development, as the body with primary power (absent some overriding action by the Government) to rezone land to accommodate appropriate development. The action (or inaction) of the Council was relied upon by the trial judge as constituting "steps in the resumption process". As already noted, that terminology does not fall expressly within the language of s 56(1)(a): accordingly, it is necessary to see whether such a construction is justified or required by authority. 42 The starting point for that inquiry is to note the absence of any governing authority dealing with this aspect of s 56(1)(a).

The authorities 43 Before considering the resumption cases which address the effects to be disregarded, it is helpful to identify the general approach to valuation of land in such circumstances, applying the principles set out in Spencer v The Commonwealth (1907) 5 CLR 418. 44 This approach is illustrated in the judgment of Kitto J in Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379. In that case his Honour was required to consider the value of land held by the golf club at Rose Bay which, at the relevant date, was "vacant land" and was "reserved" for the purposes of parks and recreation areas: ibid at 382.7. As such, it could not be used for residential development. For that to be permitted, the land would need to be removed from the operation of the County of Cumberland Planning Scheme Ordinance. Although that in fact happened some 16 months after the relevant date (see p.387), his Honour held (at 388): "There was always the possibility that … the Minister might take the matter out of the county council's hands, but a notional purchaser, considering the land on 30th June 1951, could not reasonably expect that there was much chance of his ever being able to get permission for the use of any substantial part of the appellant's land for residential purposes contrary to the council's policy."

Although there was evidence that the classification of the reserved lands was a grave error on the part of the council, because, pursuant to cl 17 of the Ordinance, the owners could require the council to acquire the lands, the council lacked the resources to undertake any significant level of forced acquisition: at 386-387. (Whether that was a consideration which was within the knowledge of the hypothetical purchaser is unclear.) 45 The legal exercise being undertaken in Royal Sydney Golf Club was not a valuation of resumed land, but a valuation of land in private ownership, for tax purposes. Nevertheless, a similar argument was put as in the present case, namely that the lands should be treated as available for residential use because, had an application for residential subdivision been lodged, the council would have been bound to take steps to remove the land from the Ordinance or be enforced to acquire the land, for which it did not have the funds. In the circumstances, his Honour adopted the following approach, at 391: "In the result my opinion is that a notional intending vendor and purchaser, treating about the appellant's land on 30th June 1951, and fully informed as to all relevant considerations, would have proceeded, in discussing price, on the footing that there was only a slender chance that it would ever become permissible to use any part of the land for other than recreational purposes. For that reason, I do not think that a method of valuation can be supported which aims first to ascertain what value the land would have had on the relevant date if it had been free from the restrictions of the Ordinance, and then to fix upon a deduction to be made from that value in order to reflect the depressive effect of the restrictions. That may be an acceptable method of allowing for restrictions which operate merely for a limiter period; but it is not with restrictions of that kind that this case is concerned. I think the proper course is to inquire first what was the value of the land on the footing that there was no possibility of its ever being turned to other than recreational purposes, and then how much extra should be allowed for such chance as there was of securing permission for residential use at some future time." 46 Significant reliance was placed by the trial judge and supported by the Respondent in this Court, on the analysis contained in the judgment of Jacobs J in Housing Commission (NSW) v San Sebastian Pty Ltd (1978) 140 CLR 196. Indeed, both parties relied upon this decision. The judgment of Jacobs J was the subject of agreement, without further comment, by Gibbs ACJ, Stephen J, Murphy J and Aickin J. Before turning to the reasoning set out in the judgment, it is necessary to identify the statutory provision in question and the facts which gave rise to the dispute. 47 The key statutory provision was s 124 of the Public Works Act 1912 (NSW), now repealed. That provision dealt with both purchase and resumption and covered in one primary clause, subject to two provisos, not only the question of present relevance, but questions of severance from other lands of the owner and the exercise of statutory powers otherwise injuriously affecting such other lands. Relevantly for present purposes, the provision read: "124. For the purpose of ascertaining … the compensation to be paid, regard shall in every case be had … to the value of the land to be … taken ...; and the same shall be assessed according to what is found to have been the value of such lands, estate or interest at the time … notification [was] published … and without reference to any alteration in such value arising from the establishment of railway or other public works upon or for which such land was resumed… ."

The language of the matter to be disregarded, namely an alteration in value "arising from the establishment of … [the] public works upon or for which such land was resumed" differs significantly from the terminology of the current provision. Whilst that terminology appears to encompass the carrying out of the public purpose, to adopt the present statutory terminology, it does not expressly advert to a variation caused by "the proposal to carry out" the public purpose for which the land was acquired. 48 Turning to the facts of the case, the first relevant step in the process leading up to the resumption was the preparation by the State Planning Authority, at the request of the Sydney City Council, of the Woolloomooloo Redevelopment Study. It was the adoption, by the Council, and exhibition of the study which induced the plaintiff in the proceedings to purchase land in Woolloomooloo, part of which was resumed. The resumed land was purchased between December 1969 and August 1970. On 16 July 1971, the City Council zoned the resumed land as "county centre" pursuant to a planning ordinance prescribed on that date. The strategic plan which accompanied the rezoning provided that the precinct in question "should be re-established as much as possible in predominantly residential uses". The agreed facts (set out at page 199, par 8) stated in part: "This proposal for predominantly residential uses arose quite independently of any proposal for public acquisition of land in the area for such uses." 49 In December 1972, negotiations commenced between the Federal and State Governments and the City Council with respect to the redevelopment of the area for residential purposes, which it was the policy of the Federal Government to bring about. In December 1974, a strategic plan was adopted, with the support of all three levels of government. At par 17, the facts set out by Jacobs J at p.201 stated: "By notification in the Government Gazette of 18th July 1975, the resumed land was resumed together with nearly all land in private ownership in the Woolloomooloo Basin north of the railway viaduct. At the date of resumption the only planning restrictions having statutory force or effect were those imposed by the City of Sydney Planning Scheme under which the resumed land was in a county centre zone."

The case stated by the trial judge continued at par 18 in the following terms: "By notification in the Government Gazette of 8th August 1975, the City of Sydney Planning Scheme was suspended in respect of land in the Woolloomooloo area and an interim development order (known as Interim Development Order No. 26) was made in the terms of the draft referred to above. Under this order the whole of the Woolloomooloo area is zoned for residential development … . The resumed land was included within a residential (R1) zone which provided that development which may be carried out only with the consent of the Council includes 'commercial premises' and does not include 'a private hospital' which is prohibited. For practical purposes the only redevelopment potential of the resumed land under the said interim development order was 'residential'."

The significance of this change was that the respondent (San Sebastian) had purchased the land between December 1969 and August 1970 and, on 12 January 1973, had submitted a development application to the Council for approval to erect a "surgical private hospital". In May 1973, the development application was amended to reduce the size of the proposed hospital. The application was never determined. The facts in the case stated included the following (at pars 19, 20 and 21, p.202): "Until mid-1973 development applications for the land in the Woolloomooloo Basin were considered on their merits by the City Council having regard to the City of Sydney Planning Scheme and the Woolloomooloo Redevelopment Study. After mid-1973 decisions on applications were mostly deferred pending the finalisation of the proposed action plan.

On 12 January 1973, the plaintiff submitted a development application to the Council for approval to erect on the resumed land and the other land a surgical private hospital. The application was amended to reduce the size of the building by a plan submitted on 21 May 1973.

On 24 September the Council resolved to defer the application '… as approval of the application in its present form will be contrary to the aims and policies contained in Action Plan Priority 14A of the City of Sydney Strategic Plan …'." 50 On 25 June 1975 an agreement was signed by the State and Commonwealth Governments, which was deemed to have operation from 1 July 1974 and confirmed "arrangements which had previously existed between the three levels of government in respect of the planning of the area and in particular that the defendant would be the constructing and managing authority for the area". Annexed to the agreement was a draft interim development order. The factual findings continued: "Had the Council considered the application having regard to the draft interim development order it would have been likely to refuse the application as not being for residential development. The proposed zoning in the draft interim development order should be regarded as a step in the resumption process, that is, as a zoning for the works for which the resumed land had been resumed. The form of the draft interim development order was dictated by the inter-governmental contemplation that the defendant, as constructing and managing authority, would acquire the land to be developed for housing purposes." 51 As appears from the foregoing facts and chronology, the draft interim development order, described as a "step in the resumption process" was found as a fact to have been "dictated by" the inter-governmental arrangements which were treated by the agreement of 25 June 1975 as having been in operation since 1 July 1974 and which predated the resumption only by some three and a half weeks. The gazettal of the interim development order occurred three weeks after the resumption. 52 The case stated for the Court of Appeal, and ultimately dealt with in the High Court, included the following question and answer: "Question (a): Was I entitled to take into account, for any purpose relevant to the assessment of compensation: … (ii) The various planning steps taken with a view to achieving predominantly residential use of the land in the Woolloomooloo area.

Answer: … (ii) Yes, but in respect of any such planning step which was the act of the New South Wales Government or of the commission, or to which either was a party, and which was part of, or led to or was done in contemplation of the decision to construct public housing which was the subject of the agreement of 25th June 1975, only for the purpose of determining the extent to which the step by itself or with other such steps, effected an alteration to the value of the resumed land."

This part of the answer was approved by the High Court. 53 In the circumstances of San Sebastian, the rezoning of the land as residential had a tendency to diminish the value. In the circumstances, the public purpose, namely the provision of public housing, was a purpose which would effect some, but not all, of the land likely to be rezoned residential. That proposed public purpose emanated from the agreement of the three levels of government, which included an authority of the State, as the resuming authority and the Council, as the planning authority responsible for zoning. However, Jacobs J recognised that such a close connection might not always be the case. His Honour stated at 206: "Restrictions on land use, so that, explicitly or practically, use is restricted to a use for a public purpose for which the land might be resumed, are commonly imposed as a result of consultation with or direction by the public authority concerned with the carrying out of the particular public purpose. In such a case where there is a direct relationship between the restriction on land use and the proposed establishment of the public works the effect on value of the zoning or restriction ought to be ignored." 54 That probably described the case in San Sebastian, but may not fully cater for the present facts. As his Honour recognised, the relationship between the zoning and public purpose may well not be so clear-cut. Thus, he stated in relation to land rezoned open space and then resumed for a public reserve, at 207: "Does the resuming authority pay compensation at the depreciated value of open space or at some other value? The question cannot be correctly answered without knowing whether there was any connection between the zoning as open space and the subsequent resumption. If the zoning was done with the intent or in anticipation that the land would be resumed for a purpose such as a public reserve or if the zoning was proposed or dictated by the resuming authority then s 124 requires that the zoning be ignored. It is only a step in the process of subsequent resumption. But in other circumstances the resumption may be unconnected with the act of zoning. It may be that the resuming authority selects the land for resumption as a public reserve because it is zoned open space; if does so it is doing no more than ensuring that it, as well as others, conforms to the planning scheme. In those circumstances there is no relevant relationship between the zoning and the public purpose. No public purpose, existing or anticipated, intended or urged by the zoning authority, leads to the zoning; rather the zoning leads to the public purpose and consequent resumption." 55 Although the first answer given in this passage was relied upon by the Respondent, care should be taken in reading the first alternative out of context. Thus, I do not take his Honour to be saying that a rezoning, which the planning authority intended or anticipated should give rise to a resumption, would in every case constitute a step in the resumption process, absent any indication of agreement on the part of the resuming authority. 56 His Honour then went on to consider cases of "added complexity" where the planning scheme is in the course of preparation. In such a case, as his Honour acknowledged, the land might properly be zoned open space, with consequences for value, which should not be disregarded: "Particularly in this situation the question may arise whether, irrespective of any public purpose existing or anticipated, the planning scheme would be likely to zone the lands in a way which in a general sense was related to the kind of purpose for which the land might be resumed. Thus a planning scheme may properly zone lands for open space and for the provision of facilities and amenities thought necessary for proper planning. At the stage of preparation of a planning scheme zoning for such purposes is a possibility which cannot be ignored. At the same time a particular designation in a proposed planning scheme which reflects an intended use for a public purpose must be ignored." 57 The present case bears some resemblance to that situation insofar as the appropriateness of the existing zoning of industrial/waterfront had been called into question, in the sense that the current owner did not wish to maintain such use. Of course the views of the owner were not conclusive and the Council may have thought such a zoning remained appropriate and maintained it for that reason. However, the facts disclose that maintenance of the industrial zoning was in effect an interim measure pending the discovery of a means by which the land might become available as some form of public open space. Such a holding position was consistent with the anticipation of a planning scheme which would properly zone the land for open space because the Council thought such a zoning necessary for proper planning. 58 Following these broad statements of principle, Jacobs J discussed possible constraints on the proper approach emanating from The Minister v Stocks & Parkes Investments Pty Ltd (1972) 129 CLR 385 and from the judgment of Hope JA in this Court. Two propositions were important in that step in the argument. The first was the constraint accepted by Hope JA, based on the Stocks & Parkes Case, to distinguish between proposals for a public purpose emanating from the State Government or its authority and proposals emanating from other sources. In rejecting that proposition, Jacobs J stated (at 213): "Section 24 refers to the establishment of public works. These words are in my opinion wide enough to cover the whole subject matter of the establishment of the particular public work - proposal or requirement by the relevant authority, intention of the planning authority by such a zoning to induce the establishment of the public work, even urging by outside bodies that the public work should be established. … I only add that it would no doubt ordinarily be found that the effect on value which is required to be disregarded will diminish the less specific and authoritative is the proposal to establish the public work." 59 His Honour dismissed the relevance of this consideration in the case because he concluded that the proposal for public housing "appears to have emanated from [the Housing Commission] or those who could direct its course". Although the Respondent relies on this passage as supporting the position taken by the trial judge, there are difficulties in accepting that conclusion unreservedly. The reference to "the relevant authority" in the passage quoted from Jacobs J appears to be a reference to the resuming authority. In the present case, at least until shortly before the resumption, there seems to have been little prospect that any relevant State authority would succumb to pressure to resume the land for open space, thus reducing its value for residential development. On the other hand, it does not follow from anything said in San Sebastian that, until a relevant public purpose is identified, the statutory provision requires that the value of the land be assessed according to a zoning it never had. No doubt maintaining the zoning in the present case made resumption more attractive, because the compensation payable would be less than if a residential zoning had been accepted. 60 The second point in the discussion by Jacobs J is the approval of the principle stated by Hope JA in this Court in the following terms: "A special problem arises in the present case because of the mixed history of planning proposals for the use of land in the Woolloomooloo Basin, and of other matters bearing on that use. This history included proposals and other matters indicating that development in the relevant part of Woolloomooloo would probably or possibly be limited to residential development in a general sense, but did not suggest any public housing works. Insofar as any of these matters altered the value of the resumed land, s 124 would not require that alteration to be disregarded."

What follows from this discussion is that, as a matter of principle, the Court below could not disregard the maintenance of the industrial/waterfront zoning in the present case, until the proposal for the relevant public purpose for which the land was resumed became known, if that planning decision was made for proper planning purposes, regardless of whether the land would ever be resumed. There is no factual finding that that was not the case: it was a relevant matter to be considered and was not considered. 61 Importantly, the same conclusion can be reached by considering the conjunctive operation of two separate principles which are broadly incorporated into the current statutory scheme. Those are the principle in The Raja's Case, and the Pointe Gourde principle. 62 As explained by Handley JA in Perry, the principle in The Raja's Case has a different operation from the Pointe Gourde principle, and hence from s 56(1). The decision in The Raja's Case turned on the fact that the land acquired from him had a commercial value because of its resource, which formed part of the market value of the land. That potentiality was capable of valuation before one came to the separate question, namely whether its value had been enhanced by the establishment of the public purpose which was the occasion of its acquisition. The approach adopted in Perry was referred to with approval by Lord Brown of Eaton-under-Heywood in the House of Lords in Waters v Welsh Development Agency [2004] 1 WLR 1304 at [138] and [161] and [162]. 63 That principle can, however, operate to the disadvantage to the landowner. Land may have a characteristic which diminishes its value, or constrains an increase in value. The value of the land, with all its inherent characteristics, will depend on its physical location, whether there are surrounding developments and a host of other considerations, including social preferences and environmental factors. One may take, by way of example, an hypothetical block of land on the outskirts of an expanding city. The land in question is low-lying, but is surrounded by higher ground. All the land is available for residential development, but the higher ground is developed first because it is seen as more attractive to potential purchasers. The low-lying ground is then identified as part of a flood plain and is found to be subject to inundation after heavy rain. The local council rezones the land to prohibit residential development. The land is capable of commercial development so long as it is drained and the level is raised. A development application is required to be accompanied by an environmental impact statement. Preparation of that statement identifies that portion of the flood plain as having special conservation significance. Accordingly, the council imposes constraints which prevent any significant development and brings the area to the attention of the State authority responsible for environmental protection. The limitations imposed by the council drastically reduce the potential uses of the land and hence its market value. Because of the conservation significance of the site, it is later resumed by the State authority for the public purpose of environmental protection. 64 In this example, whether or not the restrictions on development imposed by the council have a remote or a close connection with the ultimate resumption, the diminution in the commercial value of the land flows from an inherent characteristic which had the potential to have that effect before any resumption was proposed. It was not the proposed resumption which lowered the value of the land, but the inherent characteristic. 65 It is, of course, true to say that land will only be resumed in circumstances where it suits the needs of the acquiring authority. Thus, in Perry's Case, the precise route of the upgraded highway no doubt depended upon the physical characteristics of the land in different corridors. The difference is that the public purpose in that case existed without reference to those characteristics. In the hypothetical case, it was the characteristic of the land which gave rise to the particular public purpose. 66 This approach is consistent with that adopted by the High Court in The Crown v Murphy (1990) 64 ALJR 593. That case involved an area of land at Mon Repos Beach near Bundaberg which was acquired for the purposes of an environmental park, because the beach was the site of a world-renowned turtle rookery. Prior to the resumption, the land had been subject to a rural zoning which permitted subdivision into allotments only with a minimum area of 8 hectares. A subdivision would not have been possible unless it included adjacent land, because the total area resumed was 12.83 hectares. A development application sought rezoning so as to permit subdivision into 40 allotments. Objections made to the Shire Council included one from the National Parks and Wildlife Service which submitted that "subdivision of the land would effectively render the land unavailable for acquisition for nature conservation purposes": ibid at p.594 (col 1). The Council refused the rezoning application because of the detrimental effect it would have on the turtle rookery. As the Court further noted: "Some time later, the Council wrote to the National Parks and Wildlife Service seeking assistance in resisting an appeal from the refusal of the application for rezoning and stating that 'Council is in this case protecting the interests of the State Government departments'. The land was resumed before the appeal was determined." 67 An attempt by the landowners to have compensation assessed on the basis of a notional rezoning which would permit subdivision into 40 allotments was rejected by the Land Appeal Court. That Court held that "a prudent purchaser would not add anything over and above the land's home site value in expectation of a more liberal approach to zoning or subdivision at some future date". The Court stated (see 64 ALJR at 595 (col 1-2)): "We cannot fail to look at the position that, had there never been a scheme of positive action of which the resumption was an integral part, the position would have been that the land would have already had a Rural zoning and any proposed developer would have been faced with a council which would have been strongly and reasonably opposed to any rezoning which may have affected the rookery." 68 The approach of the Land Appeal Court was upheld by the High Court. The view of the Full Court of the Supreme Court of Queensland was that this reasoning demonstrated error because the landowners were entitled to have compensation assessed on the basis that the prospect of rezoning should be considered (ibid at 594 (col 2) C): "… free, not only of the pressures of the National Parks and Wildlife Service on the local authority, but without regard for the possible impact of a subdivision which might follow upon the rezoning upon the turtle population.":

The High Court upheld the proposition that both the resumption itself and the representations of the National Parks and Wildlife Service were to be disregarded: ibid at 595C-D. That, their Honours said, followed from the approach required by Pointe Gourde and San Sebastian . However, the judgment continued: "Of course, a characteristic or attribute of the land which affects its value must be taken into account in the assessment of compensation even if the planning restriction which is a step in the process of resumption is dependent upon or directed to that characteristic or attribute. The Land Appeal Court considered that the existence of the turtle rookery adjacent to the land was an attribute of the land which affected its value to the extent that the existence of the rookery itself militated against the rezoning."

In the present case, the critical characteristic of the land was its potential for use as public open space, a potential accepted not only by the State authority and the Council, but by the various development applications, including that of the Respondent.

Approach of primary judge 69 In the Land and Environment Court, the primary judge expressly eschewed an approach which valued the land according to its actual zoning, but allowing for an additional factor to take account of the prospect, as assessed by the hypothetical purchaser, of the land being rezoned for residential use. Rather, his Honour treated the land as if it had been rezoned, the failure to do so being a matter which was to be "disregarded": at [116]. As a result, he rejected the approach of one of the valuers, Mr Wood, who adopted a different approach, stating (at [135]): "Mr Wood applies a risk factor, which includes the prospect of a re-zoning, and for obtaining development consent. The applicant contends, and I agree, that there should be no allowance of a risk factor in respect of re-zoning."

On the approach his Honour adopted, residential zoning, described as "the underlying zoning" at [116], was assumed, the industrial zoning ignored (at [117]), and the inherent characteristics of the land taken into account only in assessing the yield, in terms of the number of residential units likely to be permitted: at [126]-[132]. 70 The significance of the distinction between the two approaches is nicely illustrated by a second judgment of his Honour in the Land and Environment Court handed down on 24 September 2004. In the later judgment, the Court dealt, amongst other things, with a claim for a relatively minor sum as "loss attributable to disturbance", pursuant to s 59 of the Land Acquisition Act. The difficulty faced by the Respondent in pursuing that claim was that it ran foul of s 61, the land having been assessed on the basis of a purpose other than that for which it was "currently used". Thus, in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2004] NSWLEC 535, Talbot J described the result of the earlier case in the following terms: "[26] The use of the land at Ballast Point at the date of acquisition was constrained by the prevailing industrial zoning. It was only after that zoning was notionally set aside, as a step in the resumption process, that the impediments of the zoning were hypothetically removed to enable the Court to value the land without the constraints, as land that could be developed for residential purposes. It is therefore not reasonably open for the applicant to argue that the market value of the land has been assessed on the basis of its current use at the relevant date. [27] Moreover the applicant was never in personal possession of the lands so that its actual use was not disturbed in the physical sense. Furthermore it entered into the contract to purchase the land as land zoned for industrial purposes. There was no certainty that the land could every be used for residential development. Therefore it could not have been the case that the applicant was actually using the land for residential purposes, whether as part of a land bank or otherwise."

The fact that there was "no certainty that the land could ever be used for residential development" invites close attention to the reasoning by which the valuation was made on a counter-factual assumption. 71 In the course of his Honour's brief consideration of the relevant legal principle, reference was made to both San Sebastian and The Crown v Murphy: at [77] and [78]. His Honour referred to the statement of principle, taken from San Sebastian, and approved by the Court in Murphy, that "restrictions on land use … maintained as a result of consultation with the resuming authority" must be ignored for the purpose of assessing the value of resumed land. His Honour also referred to the statement from San Sebastian set out above at [53] and approved in Murphy at 595E. However, his Honour made no reference to, nor did he discuss the principle, affirmed in Murphy, that an attribute of the land which affected its value, because it militated against rezoning, was a consideration which the Land Appeal Court in that case had properly taken into account in assessing the extent to which a prospective purchaser would pay an enhanced value to reflect the possibility of rezoning. Rather, his Honour concluded at [79]: "It is not just the zoning that must be ignored. It is the increase or decrease in the value of the land at the date of acquisition caused by the potential to carry out the public purpose."

With respect, neither of these propositions flows from the judgment in Murphy . 72 It may be significant, in relation to the approach adopted by the primary judge that, in addition to referring to San Sebastian and Murphy, he also identified two decisions of the Land and Environment Court applying s 116 of the Environmental Planning and Assessment Act 1979 (NSW) ("the EP&A Act"). In relation to the first case, Wimpey Construction UK Ltd v The Minister (1984) 53 LGRA 75, his Honour noted at [78]: "In 1983 Cripps J, in the context of s 116 of the EP&A Act as it then was, recognised that where the purpose of a zoning of land in a particular way was to give effect to an intention that the land be acquired, it was not necessary to make the connection between a zoning for the public purpose and the subsequent resumption … ."

His Honour continued, referring to the judgment of Hemmings J in the second case, Palmaco Pty Ltd v Minister Administering the National Parks and Wildlife Act 1974 [No. 3] (1991) 71 LGRA 441, and stated: "Following the same reasoning, in order to determine the highest and best use of land to which s 116 or the San Sebastian principle apply, Hemmings J decided that the land is deemed to be subject to planning controls which would have applied had there never been any intention to resume … ."

His Honour appears to have applied this approach in the present case. 73 Section 116 of the EP&A Act was repealed by the Land Acquisition Act in 1991, but when in force, at the date of the decisions referred to above, provided as follows: "116(1) Where land reserved by an environmental planning instrument pursuant to s 26(c) or proposed to be reserved by a draft environmental planning instrument is resumed or appropriated, the value of that land shall be determined as if it had not been so reserved or proposed to be reserved."

Two points require consideration in relation to that provision, both of which are set out in the judgment of Hemmings J in Palmaco . First, where s 116 operates, as his Honour stated at 448: "Neither s 116 nor the reasons in San Sebastian explain the nature and extent of planning controls, if any, which are deemed to replace those which must be disregarded."

Hemmings J considered a number of possible approaches and concluded that the correct approach is to treat the land as "deemed to be subject to planning controls which would have applied had there never been any intention to resume." That, as his Honour noted, required the determination of the deemed controls, as a question of fact. 74 The second point concerned the circumstances of a case where the land in question had not been reserved by the planning instrument, whether by way of zoning or otherwise. Of that case Hemmings J said at 449: "If the land is not zoned or proposed to be zoned for a public purpose at date of resumption, s 116 has no application in such circumstances. However, the principles of San Sebastian could apply to such steps if they affect the value of the land. If the necessary nexus can be established, the Court will still ignore the planning controls over the land and assume those which would have applied had there been no intervention by the resuming authority… ."

This statement of principle is not identical to the paraphrase in the judgment under appeal, nor does the judgment under appeal recognise the distinction clearly acknowledged by Hemmings J between s 116 and the San Sebastian construction of s 124 of the Public Works Act . It is a fair summary of s 116 that it did require a zoning to be ignored, in circumstances where it applied, as stated by the primary judge at [79]. (It would not have applied in the present case.) However, as the discussion of Murphy above demonstrates, the San Sebastian principle did not require that a particular zoning should be disregarded: rather, it asked a more sophisticated question, namely whether the zoning which was imposed (or possibly maintained) constituted a step in a process which could properly be described in the statutory terms as "the establishment of … public works … for which such land was resumed." 75 The circumstances in the present case resemble those in Murphy, in that the special characteristic of the land in this case was responsible both for the potential increase in value and the resulting restrictions on use. A large area of unused land on an inner-harbour headland was likely to be highly valued by residential purchasers. The same characteristic gave rise to the non-commercial value of the land as public open space. Although the land might not have been acquired, had there not been a perceived need for more public open space in the Leichhardt municipality, it was the characteristic of the land, namely its suitability for that use, which caused not only the resumption, but the earlier restrictions on development imposed or maintained by the Council. Thus, the restrictions on development and the acquisition had a common cause, to be found in a special characteristic of the land: but it does not follow that the restrictions, which constrained the commercial value of the land, were imposed as part of the carrying out of the public purpose of the acquisition. 76 The logic of this conclusion can be tested by reference to the valuation exercise undertaken by the trial judge on the basis that the land could be developed for residential use. In undertaking that exercise, the judge acknowledged that the special character of the land would mean that a large portion of the land would in any event be set aside as open space, that a height limit would be imposed on any structure and that the floor/space ratio would be kept within identified limits. This, his Honour noted, was a common approach amongst the experts (at [118]): "The parties agree that the hypothetical purchaser would have taken into account the context of the site in a very strategic location on the shores of Sydney Harbour, the views of the site from the waterway, the character, scale and context of adjoining development, the topography of the site, existing vegetation, the need for a foreshore building line, the requirement to ensure public access to the foreshore, the provision of significant open space, heritage considerations, the need for landscaping, provision of view corridors within the site, the recognition of the site as part of a working harbour, the extent of public interest in the site and other issues dealing with access, traffic generation and internal aspects of development." 77 The question which the valuation exercise required to be addressed was to identify that level of development, between the highest levels proposed by developers and the lowest point of no development at all, which might reasonably be expected to be permitted. In other words, it was the same set of factors which could have produced moderate constraints, severe constraints or a total prohibition on development. His Honour accepted that they would have resulted in an hypothetical purchaser expecting to achieve only a moderate level of development. Those factors operated in that way, regardless of the actual public purpose for which the land was acquired. They did not invoke the operation of s 56(1)(a): nor should they have. If those factors could properly be taken into account in assessing the amount of development that would be permitted, if the land had been zoned residential, it follows that they should also have been taken into account in assessing the possibility that the land would be so rezoned. This, however, did not occur. To start with the assumption that the land had in fact been rezoned residential was, in this context, an error of law which materially affected the resulting valuation. 78 The trial judge found, as a matter of fact, that since about 1989, the Council had been resolutely opposed to rezoning the site to permit residential use, because it took the view that the vast bulk of the site (with the possible exception of a small area already zoned for residential use) should be open space. Counsel for the Respondent took the Court through a volume of documentary material to demonstrate that such a finding was entirely justified; he submitted that any other finding would have been perverse. Hyperbole aside, there is no doubt that the finding was reasonably open on the evidence and could not be disturbed. Counsel for the Appellant did not seek to disturb the factual finding, but rather sought, by reference to an even greater volume of material to demonstrate that the stance taken by the Council did not constitute any part of the proposal to acquire the land for the public purposes pursuant to the acquisition which took place in 2002, nor did it constitute a step in carrying out those public purposes. If s 56(1)(a) is not engaged in the present case, the matter can readily be resolved by reference to the factual findings in the judgment, without reference to the underlying evidence. 79 As the trial judge noted, Caltex made an application to be permitted to develop the land for residential use in 1989, being the first of the actions which invoked what became a standard response of the Council thereafter, namely that no change would be made to the zoning which might give rise to development inconsistent with the preferred use of the site as public open space. When, in 1991, Australand obtained an option to purchase the site from Caltex, it may be inferred that the price agreed involved some calculation on both sides of the possibility that the zoning might nevertheless change to permit residential development. For Caltex's part, it had already tested the waters, unsuccessfully. On the other side, Australand was to test the waters by seeking consent to its own proposal for residential development. The factors involved in the calculation of the value of the option were no doubt manifold and multi-faceted. For example, there was always the chance that the Council would change its position, either in principle, or in response to a varied development application. Alternatively, if the Council remained obdurate, there was the chance that the State Minister could be persuaded to take over the Council's powers as consent authority and approve residential development of the site. Indeed, relevant Ministers attempted on two occasions, as noted above, to take that step, although for procedural reasons they were unsuccessful. Accordingly, if the land had been acquired compulsorily in 1991, it would have been appropriate to assess compensation by reference to the value of the site with its then current industrial zoning, but with an allowance for increased value referable to the prospect that approval might be obtained for residential use. That is the approach adopted by Kitto J in Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379 at 391, supra at [45]. 80 Of course, the acquisition did not occur in 1991, but in 2002. Over that period the value of the land changed significantly. There may also have been changes in the degree of likelihood that the willing but not anxious buyer would have accorded to the chance of a change in the zoning of the land. The finding of the trial judge suggests that the position of the Council remained consistent over that period, although there was no express finding in this respect, because the exercise currently contemplated was not undertaken. The prospect of change may also have varied with the change in Minister and policy at State Government level. It seems likely that, from the public announcement by the Premier of the Government's intention to acquire the land, on 19 February 2002, the chance of permission being granted for residential use must have approached zero. It is possible that there had been earlier consideration of such an acquisition, either known or suspected by informed members of the public, which had reduced the prospect of rezoning significantly prior to the Premier's announcement. If so, such a reduction may well have been part of the proposal, or the carrying out of the public purposes for which the land was acquired. There are, however, no findings of fact in relation to these matters either. 81 Instead of seeking to assess, from the perspective of the hypothetical purchaser, the chance of a rezoning, and noting any decline which could be attributed to the statutory considerations in s 56(1)(a), the trial judge valued the land on the assumption that the rezoning had in fact taken place. That assumption could only be justified if the refusal of the Council to rezone was itself part of the proposal to acquire the land for the public purpose for which it was acquired or a step in the carrying out of that public purpose. As a matter of principle, the approach adopted did not ask that question and is wrong, for the reasons set out above.

Disregarded effects 82 This conclusion does not obviate the need to identify potential variation to 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": s 56(1)(a). In some cases, no distinction will be necessary or, perhaps, possible. The carrying out of a public purpose envisages the taking of concrete steps to achieve an identified aim. The existence of a proposal is likely to precede the taking of concrete steps. Nevertheless, neither is likely to affect the value of the land in the eyes of the hypothetical purchaser unless the purpose has been publicly identified or is capable of being publicly known. In the present case, if the critical actor were the Council, the formulation of the proposal and the first steps in pursuit of it, largely coincide. 83 The existence of the two separate limbs of s 56(1)(a) does, however, affect the operation of that provision in two significant ways. First, where the effect to be disregarded is the failure to change an existing zoning, rather than the imposition of a zoning consistent with the public purpose, the value of the land to the hypothetical purchaser is likely to depend upon an assessment of the prospect of rezoning: in most cases it will be inappropriate to treat the land as having been rezoned, on the basis that this would have happened on the probabilities. That exercise is to substitute a view of the Court for the view of the hypothetical purchaser. That approach may have been required under s 116 of the EP&A Act, but it is not the correct approach under s 56(1)(a) of the Land Acquisition Act. 84 Secondly, the nature of the exercise will differ in a case where the public purpose reflects an inherent characteristic or value of the land, as compared with the case where the public purpose exists independently of the characteristics of the land ultimately chosen to effect the purpose. 85 The lesson of San Sebastian is that no narrow view should be taken of steps which may affect the value of land. Nevertheless, it is necessary to distinguish between conduct which constitutes a proper exercise of planning powers irrespective of the ultimate resumption and a use of planning powers in pursuit of a proposed resumption. The facts in the present case suggest that, although it had powers of compulsory acquisition, the Council, perhaps for financial reasons, was never likely to exercise those powers. In any event, that is a factual question which may need to be addressed. The reason why it is significant is that, in a case where planning powers and powers of compulsory acquisition are vested in separate bodies, the absence of any intention on the part of the State authority with power to acquire in order to carry out such a public purpose will, except perhaps in unusual cases, suggest that the exercise of planning power in the hope that the State authority may change its mind will be unlikely to constitute the carrying out of the public purpose. The present case is unusual in this respect. As the material before the primary judge demonstrates unequivocally, the State Government was for many years opposed to the overall public purpose and committed to the use of the land for residential purposes. The significance of the two attempts by Ministers in 1992 and 1995 to take over planning control of the site so as to approve residential development, demonstrates this difference in circumstances. The fact that the attempts were legally flawed is beside the point: the State not only did not seek to pursue the relevant public purpose - it actively opposed it. 86 Nevertheless, it does not follow that a rezoning for residential use, at that date, should be treated as an assumed fact. Although the exercise may seem artificial, it is necessary to ask what the prospects of rezoning were at the date at which, for whatever reason, the terms of s 56(1) were engaged. If the chance of the Council rezoning for residential use was, at that time, assessed at 25%, why is it appropriate for the Court to disregard entirely the substantial likelihood that no rezoning would have occurred immediately prior to that time? 87 Furthermore, it is far from clear that s 56(1) operates so as to require that a failure to act be disregarded. The trial judge avoided this question by referring to the "underlying residential zoning". With respect, if all that is meant is the zoning which he believed would have been imposed absent the Council's desire to see no redevelopment, it is a misleading expression which tends to conceal the nature of the legal issue at stake. 88 Once a proposal to acquire the land had been adopted, the refusal of an application to rezone the land could well be seen as the carrying out of the public purpose for which the land was (later) acquired. Nevertheless, there is no statutory warrant to assume that the opposite decision was taken. Rather, s 56(1)(a) requires that any increase or decrease in the value of the land caused by that refusal to rezone must be disregarded. On the assumed fact noted above, namely that, at the time the proposal was adopted, the market rated the chance of a rezoning at 25%, the adoption of the proposal would have reduced that figure to an insignificant level. The rejection of a development application which constituted a step in carrying out the public purpose, would, in all likelihood, come after the adoption of the proposal. In that case, it would have no effect on the value of the land. On the other hand, it is possible that such an act might precede the public knowledge that the proposal had been adopted and might reduce the expectation of rezoning from 25% to 10%. Public knowledge of the proposal would then reduce the chance to zero. Either way, the decrease in value which should be disregarded pursuant to s 56(1)(a) is the loss of the 25% chance of rezoning for residential use. Because this calculation was not undertaken by the trial judge, the judgment must be set aside and the matter remitted to the Land and Environment Court to be determined according to the principles outlined above. 89 It is clear that the following factual findings would have been open to the primary judge: · the Council exercised its powers to maintain non-residential zoning over the site as a proper exercise of planning powers; · whilst the Council had power to resume the site for public open space, it never sought to exercise those powers; · whilst the State Government was in favour of residential development on the land, the likelihood of a rezoning for that purpose was high; · at some point in time, prior to the State Government embracing the public purpose for which the land was resumed, the likelihood of Government intervention to permit residential development, and accordingly the likelihood of residential development, declined, and · at the point at which the State authority formulated an intention to acquire the site for the public purpose for which it was resumed, the likelihood of residential development diminished, perhaps to a level at which it no longer affected the value of the land. 90 If findings of fact were made following the general course identified above, the change in value which would need to be disregarded would be the change between the last two steps. Of course, any particular findings might require a variation in the approach suggested. Because this Court cannot make factual findings on the appeal, it is not possible to take this exercise further. It is therefore neither appropriate nor desirable to consider further the lengthy documentary material to which the Court was taken by both parties, in order to comment further on the possible factual analyses. It is sufficient to note that the primary judge did not undertake such an exercise in fact-finding, because the process of reasoning was diverted by the legal error identified above.

The remediation issue 91 On this approach the question whether the land should be valued as if remediated will remain a live issue on remittal. The Appellant has acquired unremediated land which will no doubt require some level of remediation before it can be used for public purposes. Thus, the Foreshore Authority says it should not be required to pay for something which it has not acquired, namely remediated land. 92 The Respondent says it was entitled to a freehold interest in the land with a right to have it remediated at no cost to it. Accordingly, even though the land had not been remediated at the date of acquisition, it has lost the benefit of a valuable right in relation to the land.

No 'Interest in land' submission 93 The Appellant says the Respondent is entitled to be compensated for what it has lost, but that which is the subject of its entitlement to compensation must be an "interest in land": Land Acquisition Act, s 37. Accordingly, it says the question is whether the contractual entitlement of the Respondent to have the land remediated by Caltex, at the expense of Caltex, constituted an interest in land. 94 The Appellant concedes that the contractual right may well fall within the terms of s 20 (set out above at [12]) because it is a contractual right "in connection with the land". Nevertheless, it argues, the definition of an "interest" in land in s 4 is more limited. In particular, it relies upon the analysis adopted by this Court in Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151, holding that the rights of "care, management and control", possessed by the appellant Council in that case did not constitute an "interest" in land for the purposes of s 4 of the Land Acquisition Act. The definition of "interest", set out at [13] above, has two limbs. Whilst the first limb, (a), uses the very word being defined, it is clearly intended to be more restricted than the second limb in par (b). Of this definition, Meagher JA stated in Hornsby Council (at 155C-D): "In a sense every member of the public has a 'right' over the land in question: he can go on it and have a picnic. But it was hardly intended that he could claim compensation on a resumption. If it were, the machinery of notifying holders of 'interests' would extend to infinity. Some limitation must be placed on the words. Whilst the rights which fall within par (b) must be wider than the rights which fall within par (a), I feel that they must be limited jura in re aliena, proprietary or quasi-proprietary rights less than a fully-fledged estate, that is, easements, charges, profits a prendre, profits a rendre, licences coupled with interests, etc."

Understandably, the Respondent noted the reference to 'et cetera' at the end of the passage. 95 In the circumstances of the case, the absurdity identified by Meagher JA as arising if the interest of the Council in the control and management of parkland was treated as a compensable interest for the purposes of the Land Acquisition Act should be accepted. However, as the Respondent suggests, that conclusion may not determine the outcome of the present case. 96 The distinction between a power of care, control and management and the vesting or creation of an interest in land was addressed in Western Australia v Ward (2003) 213 CLR 1 at [214] ff. The right of a council to exercise care, control and management might better be described as a responsibility or even a liability, than as an interest having a commercial value: Hornsby Council at 153A-D (Mason P). The High Court has held that land set aside for public purposes should be seen as held subject to a public trust, in the non-technical sense identified in Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at [44]-[47]. Such a public trust is a purpose trust, in which no individual, nor the public at large, have any beneficial interest. On the other hand, the interest of the Council as trustee, while it might be an interest in land for particular purposes (see The Queen v Kearney; Ex parte Japanangka (1983-4) 158 CLR 395 at 405 (Gibbs CJ) and 411 (Wilson J), is either not an interest for the purposes of the Land Acquisition Act or, in the alternative, is not an interest which has a market value for the purposes of that Act. 97 The primary argument put by the Appellant, on the basis of authority, is that the Court is required to value the land according to its condition on the day of acquisition. Support for this proposition was found in Spencer v The Commonwealth (1907) 5 CLR 418 at 432 (Griffiths CJ) and at 440-441 (Isaacs J). Reference was also made to the statement of Dixon CJ in Turner v Minister of Public Instruction (1956) 95 CLR 245 at 268, his Honour noting that the land must be valued "in its condition at the date of resumption". However, that statement, and other statements to similar effect, must be read in context. Dixon CJ said of the land: "It is, of course, to be valued in cases of compensation with a view to ensuring that the actual value contained in the land is replaced in the hands of the owner by an equivalent amount of money. The value must therefore be the value to the owner which the land possessed to him in its condition at the date of resumption. That value was necessarily affected by all the advantages which the land possessed and these might be a matter of future or even contingent enjoyment. Future advantages or potentialities must not be excluded. … You must not notionally bring what is only potential into actual being and value it as if it existed." 98 In the present case, the Respondent had a legal entitlement not merely to have the freehold estate transferred to it by Caltex, but to have the land remediated by Caltex. According to its bargain with Caltex, it had an existing entitlement to the land in a remediated condition, at the date of acquisition. Accordingly, at that time, it could have entered into a contract of sale with an hypothetical purchaser on the basis that the land would be transferred in a remediated state. If the value of the land had not changed over the period between the date at which the Respondent entered into the option to purchase, with the associated agreement for remediation, and the date of acquisition, the Respondent would have made no profit. However, it is not clear why it should receive less than it paid, simply because Caltex had not then completed its part of the bargain. 99 However, the Appellant says "land" means "any interest in land" and is not such an interest. Nevertheless, accepting that the contractual entitlement between the Respondent and a third party did not constitute an equitable interest in land within par (a) of the definition set out at [13] above, it does not follow that a legally enforceable right to have improvements carried out is not a "right … over, or in connection with, the land" for the purposes of par (b). In my view, a direct, non-contingent right, to have the specific land the subject of the acquisition improved in a way which adds to its value in the hands of the Respondent, is a right for which compensation may be obtained under the Land Acquisition Act. By that means, the owner is provided with compensation on just terms for the extinguishment of its interest in the land by means of the acquisition. Accordingly, such a construction accords with the objects of the Act, as set out in s 3(1). Such a construction is one which will promote the purpose or object underlying the act, in accordance with s 33 of the Interpretation Act 1987 (NSW).

A 'market value' approach 100 The same result may be reached by a different approach. What is to be valued is the Respondent's equitable interest in the land. The land is not to be sold as if it had been remediated at the date of acquisition, but the value which would be paid by the hypothetical purchaser may take into account the potentiality of the land, including the potentiality of residential development. Residential development will not occur unless the land is remediated. Thus, remediation is but one of the expenses which would be taken into account by the hypothetical purchaser. If remediation would not in fact constitute an expense to the purchaser, because the Respondent would sell the land subject to its obligation to have it remediated, the hypothetical purchaser would pay the full value for the remediated land. Similarly, if the Respondent could have the remediation done at no cost to it, the price it would hypothetically receive should not be reduced on that account. 101 That approach appears to have been adopted in the present case. The value of the land, as remediated, was assessed by the primary judge at $60 million: Judgment at [149]. However, his Honour deducted from that figure the amount of $16.5 million, being the price which the Applicant must have paid, under the contract with Caltex, in order to obtain the land in a remediated state. Because, in related proceedings, the Respondent had recovered the deposit paid under the contract to Caltex, the Respondent had paid nothing to Caltex. This came about as a result of the decision of Palmer J in the Equity Division in McRoss Developments Pty Ltd v Caltex Petroleum Pty Ltd [2004] NSWSC 183. 102 According to the primary judge in the present case, Caltex received $14,375,000 as compensation for the acquisition of its interest in the land: Judgment at [4]: an identical figure appears in the judgment of Palmer J at [5]. His Honour continued: "The amount of compensation was calculated by deducting from the purchase price under the Contract the amount which Caltex would have had to spend in carrying out remediation work to the Land."

If this statement is correct, then the value of the remediation was estimated at $2,125,000. 103 It is the case for the Foreshore Authority in the present appeal that it should not have to pay the value of the unremediated land, calculated at $60 million. However, the amounts payable under the judgment below (disregarding the value of disturbance) together with the amount paid by agreement to Caltex will total only $57,875,000. Thus, the calculation undertaken by his Honour appears to have accepted that the total value to be paid by the Appellant, as the acquiring authority, was the value of the land in a remediated state, less the cost of remediation. In other words, it has obtained the land at market value (whether that calculation be correct or not) less the estimated cost of remediation as at the date of resumption. 104 The Appellant objects to this analysis on the basis that the hypothetical purchaser of the land, as at the date of acquisition, "would not be influenced by the price which had been agreed between the appellant and Caltex". Further, the Appellant objects that the figure which was adopted, as between it and Caltex, to represent the cost of remediation, was less than half of the actual cost of remediation according to the evidence called by the Appellant at trial. 105 The second point may be accepted, but it recognises that the trial judge took into account a figure by which the total value of the land was reduced to reflect the costs of remediation. It is not a ground of appeal that his Honour got the figure wrong. Nor does the Appellant complain, understandably, of the allowance made by the trial judge for the cost to the Respondent of actually acquiring its equitable interest in the land, so that the amount of compensation to which it was held entitled was the value of the land less the cost of acquisition. As his Honour said, at [150], "the total amount of the purchase price, namely $16,500,000 should be deducted to reflect the true loss by taking account of the actual cost of completing the transaction". 106 In relation to the first limb of the Appellant's objection to this approach, the point raised is seen to be immaterial. True it is that the hypothetical purchaser is not influenced by the price agreed between the Appellant and Caltex, but that is because the hypothetical purchaser is not allowing for the cost of remediation in the price it pays, for the reasons noted above. Nor does it follow that the amount payable to Caltex cannot be considered by the Court. It would be a relevant consideration if the exercise required by s 56(2) were undertaken. The fact that the Court, in a particular proceeding, is assessing the value to one former owner only does not prevent it taking into account payments made to other former owners, as no doubt the acquiring authority would wish to ensure that the Respondent does not obtain the value of land for which it has not paid. 107 The exercise sought to be undertaken by the Appellant is artificial in the extreme. It is well understood that where land has the potential for residential use or subdivision, it can be valued on the basis of that higher use, even if it presently has no residential building on it or has not been subdivided. That is because the Court is entitled to take the view of the hypothetical purchaser who would pay for the land on that basis, albeit subject to allowance for the cost of putting the land in that more valuable condition. Remediation is an essential element of that exercise. The only question was whether the Respondent had the capacity to sell the land on the basis that it would be remediated, without itself incurring the costs of remediation. The cost to the Respondent of remediating the land (if any) was, on that approach, a question of fact. It was open to the trial judge to hold, as he did, that the Respondent could have achieved remediation at no cost to it.

Conclusions 108 In my view the Appellant has succeeded in demonstrating that the Court below assessed the market value of the land on a false basis. It follows that his Honour's orders will need to be set aside and the matter remitted for reconsideration in accordance with the principles set out above. 109 It is necessary to consider the consequence of this conclusion in relation to the question of costs. Although the Respondent's argument was successful on the remediation issue, this was a minor issue in the appeal. Another minor issue was abandoned. Further, the Respondent had filed a cross-appeal which it abandoned in its written submissions. As the Appellant was successful on the major point, which occupied most of the hearing time, the appropriate order is that the Respondent should pay the Appellant's costs of the appeal and cross-appeal. 110 I would also propose that the costs of the trial be dealt with by the Land and Environment Court on remittal, in the absence of any agreement between the parties. Again, the parties should have leave to propose an alternative outcome in respect of the costs of the trial. 111 I propose the following orders: (1) Appeal allowed and orders made by the Land and Environment Court on 24 September 2004 set aside. (2) The matter is remitted to the Land and Environment Court to be dealt with according to law. (3) The Respondent is to pay the Appellant's costs of the appeal and cross-appeal in this Court, but to have a certificate under the Suitors' Fund Act 1951 (NSW), if otherwise so entitled. (4) Direct that the costs of the parties in the Land and Environment Court be determined by that Court, on the further hearing of the matter. 112 STEIN AJA: I agree with Basten JA.

05/08/2005 - Misspelt name of Aickin J. - Paragraph(s) 46

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