Sydney Water Corporation v Marrickville Council [2014] NSWCA 438 | Case summary

Court of Appeal (NSW)|2014-11-12|Before: Basten JA, Emmett JA, Leeming JA, Biscoe J

Judgment 1BASTEN JA: The appeal and the cross-appeal should be dismissed for the reasons given by Leeming JA. The following observations are not by way of qualification to anything stated in those reasons. 2As noted at [19] below Mr Lunney, the valuer instructed by Sydney Water Corporation ("Sydney Water"), adopted the primary position that the residential land values relied upon by the Council's valuer should be disregarded. However, the appellant did not contend in this Court that there was error in failing to adopt that approach: see at [37] below. Had it done so, it would have been necessary to consider the case on an entirely different basis. Lest it be thought that the assumption underlying the approach accepted in the current appeal was necessarily correct, it is desirable to identify that assumption. 3The value of the interest in land acquired by the appellant was to be assessed in accordance with the Land Acquisition (Just Terms Compensation) Act 1991 (NSW). Of relevance for present purposes is the prescription as to the matters to which regard must be had in determining the amount of compensation to which the land owner is entitled, namely "the market value of the land on the date of its acquisition": s 55(a). The term "market value" is defined in s 56(1) to mean, relevantly, "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...". 4What is to be valued is the land (or interest in land) which has been acquired. It is necessary to assess the value of that land by reference to the uses to which it may be put. As a matter of fact, the trial judge concluded that "[t]he highest and best use of the easement area is as public open space": at . As noted by Spigelman CJ in Leichhardt Council v Roads & Traffic Authority of NSW [2006] NSWCA 353; 149 LGERA 439 at [66]: "The proceedings before [the trial judge] proceeded on the basis that market value had to be determined on the basis that the land was open space. There is a market for such land from councils, schools, colleges, sporting organisations and property developers who are required to satisfy open space requirements for major developments." 5There are statements in the cases to the effect that the value of land held by a council for parkland may be assessed by reference to the price that the council would have to pay to acquire such land. The trial judge referred to City of Brighton v Road Construction Authority [1986] VR 255; 59 LGRA 262 at 272 (Gobbo J) and to Leichhardt Council v Roads and Traffic Authority of New South Wales (No 3) [2009] NSWLEC 3, at [25], [33] and [34] (Lloyd J). 6Those authorities were held by the trial judge to support the proposition stated at [14] (and repeated in greater detail at [16]): "If a council is prepared to buy residential land and residential values for open space purposes, such as where there is a shortage of needed open space land in a locality (as is often the case in inner city localities), then in assessing market value compensation for compulsory acquisition of the council's open space land, there should be no discount from comparable residential sale prices merely because the acquired land is zoned for open space ..." 7So far as that proposition went, it was unexceptionable, with the possible qualification that it was unclear whether the intended reference was to land which was being acquired as open space, or land which was being used as open space but was required for a different public purpose. But the statement was not complete and could be misleading. 8In Roads & Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20, Spigelman CJ (with the concurrence of Beazley and Hodgson JJA) noted that there had been a challenge to the practice of valuing replacement land, but not a challenge which dealt with the expert evidence in the case: [40]-[48]. The challenge was said not to raise any demonstrable error of law. No doubt that will frequently be so: however, there might be an error of law if the valuation undertaken for the purposes of s 55(a) were not directed to the value of the land acquired, but the ability of the owner to obtain land to replace that acquired. 9Focus on the land being acquired in the present case would probably have demonstrated that it had no value as residential land, although it may have had value for industrial purposes. Whether the valuation evidence demonstrated that it was not reasonably open to a judicial valuer to take account of residential value is unclear: that case was not mounted on appeal. Rather, the case for Sydney Water (in this Court) proceeded on the basis that the residential values could be taken into account, with an appropriate discount factor. Accordingly, the issue raised above need not be addressed further. 10EMMETT JA: The appellant, Marrickville Council, appeals from a determination made by the Land and Environment Court of the amount of compensation payable following the acquisition of easements by Sydney Water Corporation over land owned by the Council. I have had the advantage of reading in draft form the proposed reasons of Leeming JA. I agree, for the reasons proposed by his Honour, that there was no error of law involved in the determination of the Land and Environment Court. I agree with the orders proposed by his Honour. 11LEEMING JA: By judgment promptly delivered 8 days after a 6 day hearing, the primary judge determined the compensation payable to Marrickville Council, following the acquisition of easements for the purpose of a water pipe along the edge of land owned by it in inner Sydney, just north of Tempe Reserve and adjacent to the Alexandra Canal, in the amount of $1,634,000. Sydney Water Corporation has appealed and the Council has cross-appealed, both challenging parts of the methodology adopted by the primary judge. However, an appeal only lies from proceedings in Class 3 of the jurisdiction of the Land and Environment Court "on a question of law": Land and Environment Court Act 1979 (NSW), s 57(1). Neither the appeal nor the cross-appeal raises a question of law. Both must be dismissed.

The subject land and the easements 12A series of connected easements were acquired over Lot 306 of Deposited 1136081. That lot has an irregular "U" shape and an area of 8.268ha. There is a generally level area alongside Alexandra Canal, through which the easements run. Further away from the canal there is what the primary judge described as "a steeply rising vegetated area leading to an elevated near level area on which is a section used as a golf driving range and a dog off-leash area". There is also, still further away from the canal, a second relatively narrow strip of land which is a wetlands area. 13The pipeline is mostly elevated above the surface of the land and runs in a corridor close by the canal. To the north-east of the land, the land adjoins, and the pipeline runs into, land owned by Sydney Airport Corporation Ltd (SACL), in respect of which a further easement has been acquired, which is the subject of one of the grounds in the cross-appeal.

The parties' methodology 14The primary judge found (and no issue is taken on appeal) that the land within the easement on which the pipeline was constructed was "totally sterilised" and therefore had suffered a 100% diminution in value. The area between the pipeline and the canal could still be used (including as an access road) and his Honour found that it had suffered a diminution in value of 40%. The total area within Easements A and E which had been totally sterilised was 1,611m2. The area adjacent to the canal which had been reduced in value by 40% was 2,640m2. There is another minor area subject to the easements to which it will not be necessary to refer. 15It will be seen that the total area of Lot 306 (in excess of 8 ha) dwarfed the footprint of the easements (less than 4,400m2) - almost a 20-fold difference. Or, to make the same point, the easement covered 5.5% of the lot. 16There was agreement between the parties' valuers, which was accepted by the primary judge, as to the following valuation principles: "(a) For the purpose of determining any diminution in value of land which is affected by an easement, it is appropriate to assume that the dominant tenement will or may use the easement to the extent permitted by the terms of the easement. In other words, it is appropriate to consider, at least as a worst case scenario, that the owner of the easement will use the easement to the maximum extent permitted by the terms of the easement. (b) Compensation for the acquisition of an easement is usually quantified by determining the diminution in the market value of the land owner's interest. This approach is usually adopted because it is difficult to establish a market of sellers and buyers of easements. (c) The highest and best use of the easement area is as public open space. The easement area and the land between the easement area and Alexandra Canal would have no development potential other than for uses permitted under the existing zoning of the easement area, even if an alternate or underlying zoning may be assumed to apply to the land. This is because of the physical constraints which apply to the land, which include topographic constraints (landfill batter-slope), proximity to the heritage listed Alexandra Canal, flood liability, former contamination and aircraft noise constraints. (d) It would be difficult, if not impossible, to accurately identify any diminution in the market value of the land if the whole of Lot 306 were to be assessed on a before and after valuation basis. This is because of the large size of Lot 306 (8.268 hectares) and the relatively small size of the acquired easements (4,379.3 square metres) and the nature of the easement area. (e) The most appropriate method of valuation is the piecemeal method." 17On that agreed methodology, it remained to determine the square metre value of the land which had been either wholly or partly sterilised by the easement. Here the parties' approaches diverged. 18Council pointed to two nearby lots, each of 613m2, which had been acquired by it in 2005 and 2006 at rates of $1,126 and $914 per square metre respectively. The land, when acquired, had been zoned for open space, but had nonetheless been valued as if it were residential land which it had formerly been; the improvements on the lots had been demolished and they had been consolidated within the Tempe Reserve Recreation Area, adjoining the western side of Lot 306. Based on those acquisitions, Council's valuer adopted a rate of $1,000 per square metre, to which a discount of 20% was applied to reflect the difference in size between the residential sites (613m2) and the area affected by the easement (4,379.3m2). 19Sydney Water's valuer said that those sales were not relevantly comparable and should be disregarded entirely. Alternatively, if regard were to be had to them, Sydney Water submitted that a much larger discount should have been applied, reflective of the fact that the comparison was not between the 613m2 and the 4,379.3m2 over which the easement ran, but between the 613m2 and the total area of Lot 306, in excess of 8 hectares. Council's valuer gave evidence, in response, that had that been the correct approach, rather than reducing the $1,000 per square metre by 20%, to $800 per square metre, he would have reduced the rate to $325 per square metre (which is to say, almost 70%). 20Sydney Water's primary case at trial was that the most relevant evidence of value was derived from the sale by SACL of an easement over the adjoining land to the north-east. That sale had been negotiated at an effective rate of $125 per square metre. Council's valuer considered that this sale was not comparable.

The approach of the primary judge 21The primary judge followed an intermediate course. His Honour rejected both parties' submissions that the sales relied on by the other were not truly comparable, and had regard to both. As will be seen below, Sydney Water accepted that there was no error of law in having regard to the sales of (formerly) residential land, but Council contended that there was error of law in having regard to the SACL easement. 22Contrary to Council's submissions, the primary judge did rely upon the sale by SACL, although not before making substantial adjustments to its $125 per square metre sale price, which resulted in an increase of 235%, to $419 per square metre. The SACL land was located immediately beyond one of the airport runways. The largest adjustment, by 150%, was by reason of the fact that the SACL land was subject to much more significant height limitation through being beneath controlled airspace than Council's land. Over the SACL land the maximum height permitted without approval under the Airports Act 1996 (Cth) ranged between 1m and 12m. The maximum height permitted on Council's land ranged between 10m (at the north where it adjoined the SACL land) to in excess of 50m towards the south. His Honour also applied adjustments attributable to aircraft noise, road access, environmental issues and onerous easement conditions. 23Contrary to Sydney Water's submissions, the primary judge had regard to the sales of (formerly) residential land. In accordance with the opinion of Council's valuer, his Honour discounted the $1000 per square metre rate by 20% to reflect the larger area affected by the easements. His Honour rejected the much larger discount, in the order of 70%, for which Sydney Water contended, based on a comparison with the area of Lot 306. However, his Honour went on to apply further adjustments, all save one of which were negative, to the $800 per square metre rate for the residential land. The net effect of these was to reduce the rate for the residential land by 25% (the negative adjustments were of availability of services, flood affectation, aircraft noise, environmental issues and the controlled airspace height limitation). 24Making all those adjustments, the rate for the level residential land was $550 per square metre, while that for the SACL land was $419 per square metre. 25His Honour then combined those two adjusted rates as follows (at [31]): "My adopted rates derived from the comparables considerably narrow the difference but illustrate that neither sale provides conclusive evidence. In this circumstance, I consider that it is necessary to apply a weighting to each sale to reflect its reliability. The SACL transaction is the most subjective due to percentage adjustments required to account for the development height restriction, aircraft noise, environmental issues and the onerous easement conditions. I consider that the rate derived from the residential sales should carry a weighting of 60 percent and the rate derived from the SACL transaction 40 percent. Applying these weightings, I have determined a rate of $497.60 for the level land and $383.80 for the embankment area." 26(As will be seen from that passage, the primary judge in fact separately addressed the value of the level land subject to the easements and the sloping embankment land. The latter formed somewhat less than 20% of the affected land. That level of detail is irrelevant to the appeal and cross-appeal and I say nothing more of it.)

The appeal, the cross-appeal, and their resolution 27By its appeal, Sydney Water contended that the primary judge erred in discounting the residential component only by 20%, by reference to the footprint of the easement, rather than by some 70%, by reference to the size of Lot 306. By its cross-appeal, Council contended that the primary judge erred in the further discounts of 25% allowed by the primary judge to the residential rate, and separately erred by regarding the SACL land as a comparable. 28That there is no question of law in either the appeal or the cross-appeal is readily apparent. An error of valuation principle may - but need not be - an error of law: Maurici v Chief Commissioner of State Revenue [2003] HCA 8; 212 CLR 111 at [8]. However, the fact that there was agreement on the applicable methodology to the extent reproduced at [8] above is a powerful indication that no error of law was involved in the present case. Morling J said as much in Nock v Minister for Capital Territory (1982) 48 LGRA 293 at 296: "If it be accepted that no error of law was made by Mr Gowing in adopting his method of valuation, it is difficult to see how it can be argued that the tribunal erred in law in giving weight to a valuation made in accordance with it." 29It is convenient first to deal with the cross-appeal, where the position is clearest. 30Whether or not a sale is comparable is a matter of degree and judgment. It may be accepted that there can be error of law if the finding that a sale is or is not comparable was not reasonably possible or open on the evidence, or in making an adjustment which is not reasonably possible or open on the evidence. A line of consistent authority, collected in this Court's reasons in ISPT Pty Ltd v Valuer General [2009] NSWCA 31; 165 LGERA 25 at [23]-[25] supports those propositions. 31The position in respect of adjustments to comparable sales is the same. Almost every "comparable" sale requires adjustment. Hope JA said in Leichhardt Municipal Council v Seatainer Terminals Ltd (1981) 48 LGRA 409 at 434: "The need to make adjustments to values deduced from sales in order to arrive at the true valuation of the land to be valued does not preclude the court which has the task of valuing the land from relying upon the sales as comparable in the relevant sense, nor from the making by the court or by valuers of adjustments which may be nothing more than the best guess that can be made." 32It is plain that whether or not an adjustment to a comparable sale should be made, and if so by what amount, is likewise a matter of degree and judgment. 33Both in identifying what is comparable, and in making appropriate adjustments, the position was described by Wells J in Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170 at 180: "... there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not. It is in my view, all a matter of degree: ... Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill." 34One valuer considered the sale of an easement over the SACL land to provide some evidence of value, another did not. The judge determined that it did, but only after making significant adjustments to it, and then as a minor (40%) contributor. No doubt the amount of the adjustments, and the 40% weighting, are contestable. But irrespective of that, and irrespective of whether there is any factual error in the approach, there is no error of law in the approach taken. 35It is no answer to this reasoning for the Council to point to the (large) magnitude of the adjustments. The "limits" to which Hutley JA referred in Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at 383, and on which Council relied, are those stated at the conclusion of his Honour's judgment: limits of irrationality and failing to give effect to a principle of valuation. The fact that the primary judge considered that a large adjustment was required in order to allow for the differences between the Council's land and the SACL land does not mean that error of law is disclosed. His Honour's reasons for doing so were (no differently from every aspect of the exercise) contestable, but they were rational. 36Similarly, the primary judge discounted the value of the (formerly) residential land by reference to adjustments attributable, in his view, to the differences between land adjoining the western boundary of Lot 306, and the land alongside the canal which was subject to the easements. Again, the nature and extent of those adjustments were contestable, but there is no error of law in the approach taken. 37Sydney Water accepted that no error of law was disclosed by the inclusion of the (formerly) residential land as comparable sales, but submitted that error of law was shown by the adjustment of only 20% on the values achieved, calculated by reference to the area of land affected by the easement, as opposed to some 70%, by reference to the whole of Lot 306. Consistently with the more extenuated position taken by Council on its cross-appeal, Council did not submit that Sydney Water's ground did not raise a question of law. However, that does not relieve this Court of the task of satisfying itself that the appeal falls within the limited grant of jurisdiction in s 57(1) of the Land and Environment Court Act. 38The limitation on this Court's appellate jurisdiction in appeals such as this is long-standing. Formerly, no appeal lay from a determination of the value of land compulsorily acquired by the (former) Land and Valuation Court, except insofar as a party could seek a case to be stated to the Supreme Court for decision on a question of law: Land and Valuation Court Act 1921 (NSW), s 17. Of all the members of the Court in Turner v Minister of Public Instruction [1956] HCA 7; 95 CLR 245, it was Dixon CJ who gave the closest consideration to that jurisdictional limitation. His Honour said at 267: "It is therefore only questions of law which the Supreme Court has jurisdiction to decide for the purpose of reviewing a determination of compensation or value. No doubt at the foundation of the present case lies the criterion of value for which Spencer v The Commonwealth (1907) 5 CLR 418 has been so frequently cited. But it by no means follows that the modes of reasoning employed in applying the criterion are matter of law." 39Dixon CJ also said (at 268): "But what matters for present purposes is first that valuation cannot be made to depend entirely on a logical process or formula and second that in any case questions of logical reasoning about considerations of fact are not to be confused with questions of law." 40The first difficulty with Sydney Water's submission is the same as that identified above: it is difficult, to say the least, to maintain that a particular sale is comparable, but to contend that an adjustment to it involves error of law. I do not regard what his Honour did as irrational. The essential task was to extrapolate from a relatively high per square metre rate from the sale of a small (originally residential) lot, in order to determine the diminution in value of a larger lot (some one hundred and thirty fold larger), only around one twentieth of which was affected by the easement. Some discount is required. There can be no suggestion of any precise mathematical relationship between relative size and the discount. To the extent that there be error (I am not suggesting there was any), it is not error of law. 41At the forefront of its written submissions, Sydney Water pointed to the fact that the approach adopted by the primary judge was "of significance not just in this case but more generally". The submission was elaborated orally: "But the fact that [the before and after, and piecemeal, methodologies] are so prominent and regularly applied as methodologies, should incline the Court to identify the true error of principle in the application of one of those methodologies as an error of law within s 57 because it is apt to operate as a principle that will be picked up in subsequent cases and so on, and a statement of valuation principle in that sense can have some ongoing effect as though it were a principle of law or a principle by which to exercise the statutory power to determine compensation." 42That submission would be apt if an appeal lay but only by leave. It might also find favour in the United Kingdom, for a different reason. There it has been said what is a question of law depends on "whether as a matter of policy one thinks that it is a decision which an appellate body with jurisdiction limited to errors of law should be able to review": Lawson v Serco [2006] UKHL 3; [2006] 1 All ER 823 at [34], where Lord Hoffmann echoed what had been said in Moyna v Secretary of State for Work and Pensions [2003] UKHL 44; [2003] 4 All ER 162 at [26]-[27]. Most recently, these principles have been confirmed in Jones v First-tier Tribunal [2013] UKSC 19; [2013] 2 AC 48 at [16] and [42]-[46]. In New Zealand, Elias CJ has expressed attraction to a similar view in Vodafone, Telecom, Commerce Commission [2011] NZSC 138 at [16] but cf the approach adopted by Blanchard, McGrath and Gault JJ. 43There is no universally satisfactory test for defining an error of law: Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; 186 CLR 389 at 394. What in any particular case amounts to an error of law depends on context: see for example Attorney-General (NSW) v X [2000] NSWCA 199; 49 NSWLR 653 at [25]-[44] especially at [37]. However, there is no suggestion of which I am aware that the decisions of the House of Lords and the United Kingdom Supreme Court referred to above reflect the law of Australia. To the contrary, the British emphasis on expediency and policy is at odds with the focus on the particular statutory language emphasised in Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390 at [89], as well as with what is said in this context by Professor Aronson under the (aptly evocative) heading "Cynical reductionism unacceptable" in M Aronson and M Groves, Judicial Review of Administrative Action, 5th ed Lawbook Co 2013, pp 196-198. Moreover, considerable care is required when seeking to apply decisions of United Kingdom courts on "error of law" and "question of law", since essentially all errors of law are jurisdictional in the United Kingdom, while Australian law insists upon maintaining a distinction between jurisdictional error and non-jurisdictional error of law on the face of the record. 44In any event, to respond to Sydney Water's submission on its merits, this was a very unusual application of valuation principles. It is not likely that the available comparable sales in most valuation cases will require so much adjustment and extrapolation as was required in the present case. 45Sydney Water submitted that the primary judge erred in relying on what Lloyd J had said in Penrith City Council v Sydney Water Corporation [2009] NSWLEC 2 at [10]-[13] in rejecting its submission that a discount referable to the whole of Lot 306 should have been applied to the sales of (formerly) residential land. I acknowledge that there in force in the submission that the reasoning of Lloyd J is not directly applicable to the acquisition of an easement over part of a large lot, as opposed to the acquisition of the whole of an existing lot. But even if Sydney Water's submissions be taken at their highest, his Honour was faced with an acknowledged need to discount the per square metre value of the sales of the (formerly) residential land, as but one element in a long process of applying an agreed methodology. Council's valuer favoured a discount of 20%; Sydney Water's valuer favoured a discount of 70%. Even if part of the reasoning supportive of his Honour's adoption of Council's valuer's opinion in this respect disclosed an erroneous understanding of a decision relied upon, there is no error of law. As Dixon CJ said, the process is not entirely logical, and questions of logical reasoning about considerations of fact must not be confused with questions of law. 46Finally, Sydney Water submitted that the reasoning of the primary judge disclosed error of law because it was contrary to s 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW). It was said that: "The rate per square metre that the primary judge considered appropriate to apply to the land affected by the easements was increased from the rate that would have been applicable to Lot 306 generally because the land under the easements has a much smaller area than Lot 306 generally, which was itself a consequence of the acquisition and therefore required to be disregarded." 47Had the primary judge had regard to any increase or decrease in the value of the land caused by the acquisition of the easement, and had that been material to the determination of compensation, then error of law would have been disclosed. However, it is sufficient to say that Sydney Water's submission does not accurately characterise the approach taken by the primary judge, as may be seen from what is set out earlier in these reasons. 48It is to be kept firmly in mind that the task required to be undertaken was difficult. The easements were located on a highly unusual parcel of land. It is utterly unsurprising that there were no closely comparable sales. It is plain that the primary judge fully appreciated the limitations of the different sales propounded by the parties, and endeavoured, in a way that was transparent and rational, albeit undoubtedly contestable, to bring points of distinction to account. In so doing, no error of law is disclosed. 49The appeal and the cross-appeal should be dismissed. An order which fairly reflects the absence of success of any moving party, as well as avoiding the scope for disputation as to costs between them, is that there be no order as to costs, with the intention that each party bear its own costs of the appeal and of the cross-appeal. 50Accordingly, I propose these orders:

Appeal dismissed.
Cross-appeal dismissed.

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: 19 December 2014

Land and Valuation Court Act 1921(NSW)

Sydney Water Corporation v Marrickville Council

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