Sydney Metro v G & J Drivas Pty Ltd

Background

1. At the date of acquisition, 19 March 2021, the acquired land had been improved by a two-storey mixed-use office and retail complex known as "Greenway Plaza", and parts of the site were leased to and occupied by tenants.
2. Development consent had been granted by the Parramatta City Council in December 2018 for the erection of a 25-storey tower on the site fronting Macquarie Street and a four-storey tower fronting Church Street, with a common ground floor retail podium and basement. The gross floor area totalled some 39,000m2. The respondents had taken steps to seek an additional consent to increase the height of the tower fronting Church Street which would increase the gross floor area by some 7,000m2 (Church Street Tower Extension). The Council had not yet determined that issue. It was common ground that the highest and best use of the site at the relevant time was as a development site for a mixed commercial/retail development.
3. At the date of acquisition no physical works had been undertaken upon the acquired land for the erection of the approved buildings. The respondents contend that they had undertaken other non-physical steps to progress the development of the approved building, including by starting to prepare detailed drawings for the Church Street Tower Extension. The respondents had also entered into two leasing agency agreements for the marketing and future leasing of the proposed buildings.
4. The respondents' awareness of the Sydney Metro West project, and its influence on their plans, was as follows: 1. Mr Coombes, a director of the second respondent, became aware of the project around the time it was first announced in November 2016. He was not initially concerned that it might impact the site. 2. Mr Coombes was aware that from around early 2018 Sydney Metro began issuing notifications of work for the project, including in the Parramatta CBD. On 28 May 2018 he received such a notification, being for some geotechnical investigation work in a lane immediately adjacent to the site. He then became concerned whether this might imply that some or all of the site might be acquired for the project. He discussed this with his colleagues in the respondents. They decided not to change any aspect of their own project because there was still a significant degree of uncertainty about whether the land would be affected. 3. In February and March 2019, based upon reports of the location of Sydney Metro's geotechnical investigations, Mr Coombes came to have "suspicions" that Sydney Metro would likely seek to acquire some or all of their site in order to build a metro station. After consideration, the respondents agreed not to abandon the development of the land but to reduce expenditure on their proposals in various ways, including not undertaking a design competition that the council had required in relation to the proposed Church Street Tower Extension and discontinuing the preparation of detailed drawings for the expanded building (this being the Discontinue Decision). 4. On 21 October 2019 a director of the first respondent received a phone call from a representative of Sydney Metro who stated that the whole site would be acquired by it for the Sydney Metro West project. The respondents decided then to cease all activities on their development proposal (this being the Stop Work decision).
5. In October 2021 a compensation notice was issued, based upon a valuation by the Valuer-General, which offered to pay the amount of $145,611,457, consisting of $145 million in market value pursuant to s 55(a) of the Act, and $611,457 in disturbance pursuant to s 55(d) of the Act.
6. The respondents commenced proceedings in the Court below objecting to the amount of compensation offered. They claimed compensation for the market value of the acquired land in the amount of $200 million, and disturbance in the amount of some $12 million. Sydney Metro contended that the appropriate valuation was $119,523,613.

Does market value take account of the steps not taken by the respondents?

The primary judge's decision

1. It was not in dispute that Sydney Metro had power to effect the acquisition of the respondents' land pursuant to the Transport Administration Act 1988 (NSW). What was in dispute was the appropriate valuation. There were matters of fact and law at issue between the parties in this regard.
2. The key legal issue with respect to market value related to the significance of the Discontinue and Stop Work Decisions, in circumstances where the primary judge found that but for those decisions the market value of the land as at the date of acquisition would have been higher than it was. The question, which turned on construction of ss 54-56 of the Act, was whether the market value of the acquired land should be determined taking into account the anticipated progression of the development of the site in circumstances where such progression did not occur because of the two decisions (see the judgment at [24]). Sydney Metro disputed that the respondents were entitled to compensation for work not actually done as at the date of acquisition. Her Honour resolved the issue in favour of the respondents' arguments: [92] … I find that the provisions of the Just Terms Act do not preclude a claim for a decrease in the value of the Acquired Land caused as a consequence of the carrying out of the Public Purpose where such decrease relates to actions not undertaken where the undertaking of such actions would have produced in an increase in the value of the Acquired Land as at the Date of Acquisition. In this case, that may include actions not taken that are not (or would not have been) physically manifested on the Acquired Land.
3. The case was conducted on the basis that the public purpose for which the respondents' land was acquired by Sydney Metro was its undertaking the Sydney Metro West project (noted at [154]).
4. The primary judge found that the Discontinue Decision was reasonable as, having regard to the information available at the time, the prospect of acquisition of some or all of the land was a real risk, although "not a likely certainty" (at [156]). As regards the Stop Work Decision, her Honour found, unsurprisingly, that for the respondents to have continued progressing their development proposal despite having been told that the land was to be acquired "would have been inexplicable in the circumstances" (at [169]). Her Honour found that both decisions were caused by the proposal to carry out the public purpose (at [161] and [170]).

Legislative provisions

1. Section 37 of the Act sets out the right to compensation in relation to interests in land which have been compulsorily acquired by a relevant authority: 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.
2. The term "authority of the State" is defined in s 4(1) to mean Ministers, statutory bodies representing the Crown, councils under the Local Government Act 1993 (NSW), and any other authority authorised to acquire land by compulsory process.
3. Sections 54-56 are in a Division headed "Determination of amount of compensation". They address the entitlement to compensation, matters to be considered in determining the amount of compensation, and the notion of market value: 54 Entitlement to just compensation (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land. (2) If the compensation that is payable under this Part to a person from whom native title rights and interests in relation to land have been acquired does not amount to compensation on just terms within the meaning of the Commonwealth Native Title Act, the person concerned is entitled to such additional compensation as is necessary to ensure that the compensation is paid on that basis. 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division) - (a) the market value of the land on the date of its acquisition, (b) any special value of the land to the person on the date of its acquisition, (c) any loss attributable to severance, (d) any loss attributable to disturbance, (e) the disadvantage resulting from relocation, (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired. 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. (3) If - (a) the land is used for a particular purpose and there is no general market for land used for that purpose, and (b) the owner genuinely proposes to continue after the acquisition to use other land for that purpose, the market value of the land is taken, for the purpose of paying compensation, to be the reasonable cost to the owner of equivalent reinstatement in some other location. That cost is to be reduced by any costs for which compensation is payable for loss attributable to disturbance and by any likely improvement in the owner's financial position because of the relocation.

The competing constructions

1. As noted, the dispute is as to whether the market value of the acquired land should be determined taking into account the anticipated progression of the development of the site in circumstances where such progression did not occur because of the two decisions taken by the respondents. The focus of the dispute was and is on what is sometimes called the "statutory disregard" in s 56(1)(a), namely that the notion of market value is to be assessed "disregarding … 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".
2. Her Honour treated this in substance as raising an issue of "but for" causation. She stated at [117] that: the enquiry required by s 56(1)(a) is not the hypothetical sale to the hypothetical purchaser but rather a determination, in the circumstances of this case, as to what stage the particular development by these Applicants would have reached but for the proposal to carry out the Public Purpose.
3. As explained, the primary judge found as a matter of fact that (a) the respondents would have done certain things but for having become aware of the possibility of their site being acquired, and (b) that if they had done those things the market value would have been higher as at the date of acquisition. Her Honour thus found that causation was made out in a "but for" sense and, on her view of the correct construction of the provisions, that was enough. The respondents supported this construction.
4. Sydney Metro submitted that ss 55 and 56(1)(a) do not direct a court to look beyond the actual state of the acquired land as at the date of acquisition. It said: Section 56(1) is a definitional provision that operates with respect to the phrase market value where appearing in s 55(a). It requires that any increase or decrease in the value of the land caused by the public purpose to be disregarded. It is clearly directed to any change in value of the land required to be valued by s 55(a) that might have been caused by the public purpose. It does not, on any reading of the text, authorise or require a modification of the operation of s 55(a) so that it would provide compensation for the value of the acquired land in anything other than its actual state at the date of acquisition.
5. It argued that s 56(1)(a) did not require the Court to take into account physical changes to the state of the land which had not in fact occurred as at the date of acquisition.

Text and context

1. Section 56(1)(a) involves a causation inquiry: the court is to disregard 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 in question. Here, the immediate causes of the found decrease in value of the Parramatta site were the Discontinue and Stop Work Decisions made by the respondents. Those decisions were caused by the suspicion (for the Discontinue Decision) then knowledge (for the Stop Work Decision) that Sydney Metro would move to acquire the site. The relative loss of value found by the primary judge - or, more strictly, the failure to increase in value - was thus indirectly caused by the possibility of acquisition, where the subsequent acquisition was itself a consequence of the public purpose of Sydney Metro undertaking the Sydney Metro West project. In that sense, there is a "but for" causal link between the public purpose and the relative loss in market value of the kind found by the primary judge.
2. Establishing causation in a legal context typically involves attribution of legal responsibility. It is "always purposive": Comcare v Martin (2016) 258 CLR 467; [2016] HCA 43 at [42]. Assessing legal causation commonly involves considerations beyond a purely factual "but for" inquiry: see eg Travel Compensation Fund v Robert Tambree t/as R Tambree and Associates (2005) 224 CLR 627; [2005] HCA 69 at [28]-[29] and [45]-[49]; Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19 at [11]. In terms of identifying the further considerations which may apply to limit the attribution of causal responsibility, where the causation requirement is established in a statutory regime "notions of 'cause' … are to be understood by reference to the statutory subject, scope and purpose": Allianz Australia v GSF Australia (2005) 221 CLR 568; [2005] HCA 26 at [99]; also Comcare v Martin at [42].
3. Here, the issue is the drawing of a link of attribution between a possible cause (the actual or proposed carrying out of the public purpose) and an effect (an increase or decrease in value of the land) for the purpose of determining a legal result (the calculation of market value for an acquired property as at the date of its acquisition). The question then arises as to whether the Parliament should be understood to have intended that the legal result depend simply upon a "but for" analysis, and, if so, "but for" what exactly?

Purposive considerations

1. Section 3(1) sets out the objects of the Act, which include the following: (a) to guarantee that, when land affected by a proposal for acquisition by an authority of the State is eventually acquired, the amount of compensation will be not less than the market value of the land (unaffected by the proposal) at the date of acquisition, and (b) to ensure compensation on just terms for the owners of land that is acquired by an authority of the State when the land is not available for public sale …
2. The primary judge appeared to attribute some significance to the reference in paragraph (a) to market value being "unaffected by the proposal", saying that this indicates "an intention that the relevant impacts on value - however they may arise - are not to affect the determination of compensation" (at [101]). No doubt the paragraph does allude to s 56(1)(a) but it does not indicate what sorts of effects of the proposal are to be taken into account. If anything, the paragraph militates slightly against the respondents' construction by referring to being unaffected by the proposal rather than by the acquisition (echoing the point made above at [40]).
3. Of more significance is paragraph (b), which refers to ensuring "compensation on just terms". That intention is further manifest by s 54(1) of the Act, which provides that the amount of compensation to which a person is entitled "is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land" (emphasis added). It is that which is the "dominant test": Leichhardt Council v Roads & Traffic Authority (NSW) (2006) 149 LGERA 439; [2006] NSWCA 353 at [37]. As has been said in a related context, "[c]ompensation prima facie means recompense for loss": Nelungaloo Pty Ltd v Commonwealth (1948) 75 CLR 75 at 571; [1947] HCA 58. A key purpose of the Act thus is to provide just recompense for loss. Obviously there is room for argument as to what just recompense may be. In one significant respect, however, the respondents' construction leads to a result which clearly is not just, nor a recompense for loss.
4. A consequence of the respondents' construction is that they, and other claimants in their position, will obtain compensation on the premise that things were done in relation to or on the land by the date of acquisition which were not in fact done. If those things had occurred in fact then the owners would in general have had to expend money for them to occur. The owners would only obtain the net benefit of the increase in value after accounting for the costs of obtaining that increase. Yet on the respondents' construction the authority would be obliged to pay that nominal market value without the owners having had to expend the money. Both parties submitted that it was not consistent with the Act to provide for some netting off process, given that the provisions require the payment of market value (as defined) disregarding the relevant increase or decrease in value. Neither party, for example, argued that s 61 had any role to play in this regard. As the primary judge put it, the "analysis does not give rise to the requirement for an accounting of expenses as it looks to the land value and not the net value to the owner" (at [105]).

Case law

1. The parties could not identify any cases directly addressing the matter at issue. They each referred to various cases which had addressed relevant principles, albeit in the main addressed to other statutory schemes. These cases throw limited light on the issue.
2. Sydney Metro started by giving some emphasis to the "Point Gourde principle" which s 56(1)(a) was said to manifest, referring to the Privy Council's decision in Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565. The High Court was unsurprisingly critical of a similar argument in Walker, saying that it "is the terms of [the] legislation that are determinative and it is not to be assumed that they reproduce or attempt to reproduce an understanding of 'principles' derived by way of gloss" on other statutory schemes (at [47]; see also at [31] and [35]); note further RD Miller Pty Ltd v Roads and Maritime Services NSW (2020) 103 NSWLR 234; [2020] NSWCA 241 at [154]-[156].
3. Sydney Metro referred to Turner v Minister of Public Instruction (1956) 95 CLR 245; [1956] HCA 7. That case involved consideration of s 124 of the Public Works Act 1912 (NSW), which required that compensation be assessed according to the value of the resumed lands at the time of publication of notification of the resumption, "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". It was later said in the High Court that that provision "states in statutory form a principle which had been developed in the cases independently of express statutory provision": Housing Commission of NSW v San Sebastian Pty Ltd (1978) 140 CLR 196; [1978] HCA 28, at 205, referring to Point Gourde.
4. Dixon CJ said the following in Turner (at 268, citation omitted): 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. At the same time the value of these things must be assessed according to the condition of the land as it stood at the time of resumption: "it is the present value alone of such advantages that falls to be determined". You must not notionally bring what is only potential into actual being and value it as if it existed.
5. On its face the last sentence, in particular, militates against the respondents' case here. Similarly, Williams and Kitto JJ each said, by reference to earlier authority, that "it is the possibilities of the land and not its realized possibilities that must be taken into consideration" (at 281 and 288). The land at issue in Turner had the potential for subdivision but at the time of acquisition no steps had been taken to subdivide it. The High Court upheld the finding of the Full Court that "the only sale that could be considered is a sale of the land as it was at the date of resumption, that is un-subdivided, but having the clear potentiality that it was fit for subdivision" (see at 269). However, the issue did not turn on what steps the owner would have taken but for learning of the proposed resumption. Thus the Court was not considering the issue at hand, let alone doing so by reference to the current statutory text and context.

Conclusion

1. Textual and contextual considerations point away from the respondents' construction in that the causal question needs to be directed to the effects on the value of the land of the authority carrying out or proposing to carry out the public purpose, not the effects of the proposed acquisition. It strains reasonableness of attribution for there to be causal significance to the free choices of the owners in response to the possibility or certainty of acquisition. The respondents' construction moves away from the central concern of s 56(1)(a).
2. Importantly, purposive considerations point against their construction, in particular the fact that their construction would enable former owners in their position - being a position which is far from unique - to obtain a windfall gain.
3. The cases to which the parties referred offered something to either side, but ultimately do not address the question at hand.
4. Weighing these factors together, the respondents' construction is not the better understanding of the intended operation of s 56(1)(a) of the Act. An increase or decrease in value caused only by choices made by an owner prior to the date of acquisition in relation to the land, being choices made because of the possibility or certainty of the land being acquired, are not the types of effects on value which can be regarded as having been caused by the actual or proposed carrying out of the public purpose for which the relevant authority is acquiring the land. Section 56(1)(a) does not require that the land be valued on a hypothetical basis as if such choices had not been made. Her Honour erred in concluding to the contrary. The grounds of appeal relating to assessment of market value should thus be upheld.
5. One further point should be addressed. As noted above at [43], Sydney Metro conceded that in circumstances where a rezoning would have occurred or development consent would have been obtained but for the actual or proposed carrying out of the public purpose, then the absence of the rezoning or development consent could and should be disregarded in assessing market value. Sydney Metro's version of the appropriate dividing line related to whether what would have been done involved physical changes to the land. That delimitation does not properly recognise that the issue being addressed is a causal one. The limitation is better expressed by saying that increases or decreases in value caused only by choices made by the owner because of the proposed acquisition are not to be disregarded pursuant to s 56(1)(a). In general, it is the fact of possible acquisition which is of concern to the owner, not the actual or proposed carrying out of the public purpose itself. That does not mean that the likelihood of a rezoning or development consent being obtained by the date of acquisition but for the actual or proposed carrying out of the public purpose is necessarily to be ignored, even though doing so may have involved taking account of steps that would have been taken by the owner. That is so because a step in the causal analysis in such cases may be that any application for rezoning or for consent would likely have been refused because of the public purpose. Thus the public purpose itself in such a case has causal significance in the analysis beyond steps the owner would or would not have taken because of the proposed acquisition.

The cross-appeal relating to the nominal construction contract

1. The primary judge held at [231] that but for the Discontinue and Stop Work Decisions the respondents would, by the date of acquisition, have entered into a construction contract for the proposed building. The respondents' usual form of construction contract contained a clause enabling them to novate/assign the contract to a third party at their option. The respondents submitted that this contract would itself have added to the value of the site, because it would have saved the prospective purchaser some 4.5 months in proceeding with the development. That time saving had material monetary value, they said, given the amount of capital involved in buying, developing and exploiting the site.
2. The primary judge rejected the respondents' argument. The respondents complain in the cross-appeal that her Honour erred in so doing. Her reasons were as follows: [241] There was no evidence adduced that would indicate an increase in market value of the Land by the existence of a construction contract or if such increase did exist the quantum of any such increase. On that basis, I am unable to establish on the facts of this case that the mere presence of the construction contract would affect market value. As a matter of general principle, I do not accept that the mere presence of a construction contract where such contract was not transferred to the purchaser would increase market value. The contractual benefits are personal to the parties and there is no guarantee that such a bargain would be available to the hypothetical purchaser. To the extent that it is suggested that a purchaser would pay more as they know that there is a contract which can be novated, I do not consider that such value represents a component of market value. Any price attributed to any advantages from the Applicants' let tender that may flow to the purchaser through novation or otherwise would comprise a premium paid for a benefit not associated with the interest in the land, and as such is not to be taken into account in the determination of market value.
3. The primary judge thus gave three reasons for rejecting the argument: (1) there was no evidence there would be an increase in market value from having such a construction contract; (2) as a matter of general principle - implicitly meaning tendency in fact as opposed to legal principle - her Honour did not accept that such an increase should be inferred; and (3) even if there was such a benefit, she did not regard it as being part of the value of the respondents' interest in land.

Disturbance

1. Section 55(a) of the Act provides that in assessing compensation regard must be had to "any loss attributable to disturbance". That notion is then explained in s 59(1): In this Act - loss attributable to disturbance of land means any of the following - (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, (b) valuation fees of a qualified valuer reasonably incurred by those persons in connection with the compulsory acquisition of the land (but not fees calculated by reference to the value, as assessed by the valuer, of the land), (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs), (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired), (e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage), (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.
2. The primary judge found that the compensation payable to the respondents for disturbance pursuant to s 55(d) of the Act was $10,819,388.85. One component of that - $182,845.00 for valuation costs pursuant to s 59(1)(b) of the Act - was not disputed on appeal. Another component not disputed was for legal costs reasonably incurred by the respondents, awarded pursuant to s 59(1)(a) of the Act. What was disputed was the remainder, ordered pursuant to s 59(1)(f) of the Act, relating to "stamp duty on replacement land; legal fees on purchase of replacement land; and loan establishment fees" (quoting [418]). By far the most significant of these integers was stamp duty, and the focus of argument was on that component.
3. The judgment does not disclose how the stamp duty amount was calculated, but her Honour appears to have contemplated that it would be calculated by reference to the market value determined for the land acquired (see at [418]). It appears to have been assumed that the replacement land would cost exactly the same amount as the market value of the site. The subsequent orders recording the precise numbers were made by consent, without any additional reasons being given by the primary judge.

Conclusion

1. It follows from the above that the appeal should be upheld in relation to both the market value and disturbance aspects of the respondents' compensation claim. The cross-appeal should be dismissed. It was not disputed that the matter would have to be remitted if the appeal was upheld.
2. It was not submitted that costs in this Court should not follow the event: note United at [67]-[68] and [122]-[123]. That should occur for both the appeal and the cross-appeal. The costs order made in the proceeding below should be set aside, but costs should then be a matter for the Land and Environment Court to determine at the conclusion of the remitted proceeding.
3. The orders of the Court should be as follows: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. The orders made by the Land and Environment Court on 29 May 2023 are set aside. 4. The matter is remitted to the Land and Environment Court for compensation to be assessed according to law. 5. The respondents/cross-appellants are to pay the costs of the appellant/cross-respondent on the appeal and cross-appeal.
4. GRIFFITHS AJA: I agree with Kirk JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 February 2024