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.