Respondent to pay compensation to the Applicant in the sum of $1,108,600 pursuant to s 55 of the Land Acquisition (Just Terms Compensation) Act 1991

TONY FIDLER AS TRUSTEE FOR HOWSHIP HOLDINGS PTY LIMITED

1. By notification published in the New South Wales Government Gazette No. 102 dated 19 September 1997 Port Stephens Council ("the Council") gave notice of the acquisition by compulsory purchase of the land being known as Lot 2 in Deposited Plan 854716 ("Lot 2") and Lot 71 in Deposited Plan 861094 ("Lot 71") hereafter referred to as "the subject lands" in accordance with the provisions of the Land Acquisition (Just Terms Compensation) Act, 1991. Such acquisition was stated to be for the purpose of open space in accordance with Port Stephens Local Environmental Plan, 1987. On the 16th October, 1997 by a Compensation Notice the Council offered the Applicant the sum of $730,000 for the land so acquired, being the determination of compensation by the Valuer General. The Applicant rejected the offer and claimed, as set out in its Points of Claim, the sum of $2,577,500 as compensation.

2. The subject lands are located between Navala Avenue and Ullora Road at Nelson Bay and comprises an area known as Pillinda Park. They comprise an area of approximately 3.145 hectares (Lot 71) and 3,374 square metres (Lot 2) and are located on the crown and sides of a ridge or knoll immediately to the north of and in close proximity to, Gan Gan Hill. The subject lands are in a prominent position adjacent to the Nelson Bay Road which is the main vehicular access to the town of Nelson Bay and the foreshore of Nelson Bay. The geographic area comprises part of the Tomaree Peninsula. The site which has very steep slopes is covered with natural vegetation consisting of sclerophyll forest having a canopy height of 6-10 metres and natural bushland beneath is clearly visible and forms a major landmark from the shoreline of Port Stephens. The site is bounded on the west, north and east by urban lots. Views from the subject lands are panoramic and the subject lands are visible from most of the area comprising Nelson Bay and Port Stephens.

3. In February 1996 the Council approved a two lot subdivision of Lot 7 in DP 854332 which created Lot 71 (the principal portion of subject lands) and Lot 72 in DP 861094 ("Lot 72"). In 1997 the Council approved a re-subdivision of the aforesaid Lot 72 pursuant to Development Application J1499/96 into 12 residential lots. Lot 72 generally is located in a depression or natural "saddle" which is bounded on the south by Gan Gan Hill and on the north by Lot 71, being the residue of land in the former Lot 7 in Deposited Plan 854332.

4. The subdivision of Lot 7 in DP 854332 into Lots 71 and 72 was, according to the evidence of one the Council's witnesses, Mr Gardner Browne approved "on the basis this was in the saddle rather than in the more prominent ridge line area and the retention of "Pillinda Park" knoll would help screen the development". Strict conditions of consent were required by the Council including a provision that a Section 88B instrument be prepared to provide for the retention of trees to screen the dwellings along the ridge line on the eastern side of the subdivision. The Council also required the retention of natural vegetation around the margins of the subdivision. On the western side of the ridge and on the eastern side a strip of land was required for dedication as public reserve.

5. The remaining portion of the subject lands is known as Lot 2. It lies to the south of Lot 71 and is separated from Lot 71 by Lot 72 and by Lily Hill Road. Such lands have an area of 3374 m2. The slopes on this lot vary from approximately 16% in a former quarry, 10% on the ridge line and 35-40% on the north-eastern part of the site. The very steep slopes which characterise Lot 71 are not present on this portion of the land, but its elevation above Lot 71 and Lot 72, and a close proximity to the Crown of Gan Gan Hill, make the land very conspicuous.

6. Nelson Bay was first subdivided in approximately 1917 and developed by a surveyor-subdivider, Henry Ferdinand Halloran. The late Mr Halloran, who was prominent in the early planning history of this area had represented Australia at a 1924 conference of the International Garden City and Town Planning Association, with another eminent Australian designer, the late John Sulman. Mr Halloran was a leader in "Garden City" town planning and an advocate of zoning for land use at a time when this concept was in its origins. Such concepts were incorporated into the "Salamander Estate, Nelson Bay", which includes Pillinda Park. The original layout incorporates curvilinear streets, the character of which has been preserved. The Salamander Estate was described by a Council witness, Mr Gardner Browne as providing:

"one of the few executed examples of Garden City planning which included Walter Burley Griffin's Port Stephens City at North Arm Cove and Halloran designs over the much of the remainder of a northern shores of Port Stephens."

7. There are three prominent peaks indicated in the 1917 plans of subdivision which rise steeply above the surrounding landscape known as Carinparinga Reserve, Karrara Outlook and Pillinda Park, the last mentioned being the subject lands. As part of the original planning, subdivision was confined to flat or gently sloping land. The volcanic peaks which dominate the landscape were, according to the original plans, to be retained as parkland.

8. Mr Gardner Browne has observed that the Halloran design for Nelson Bay emphasised the forested peaks which, together with the retention of other bushland and reserves known as "mini-parks" resulted in the development of residential area of distinctive character. He observes:

The prominent bushland knoll of Pillinda Park is one of the most prominent features at the centre of the subdivision. There are many views to it within the subdivision itself from the major road, Galoola Road and from the local streets.

The historic town plan has given the locality a particular "garden suburb" character unique to the region as its principles have persisted here including the nomination of the ridgetops as parklands to contribute to the forested backdrop of Nelson Bay.

The resulting pattern is a distinctive visual form closely related to the dramatic topography of the locality derived from the curvilinear street system along the contours, the forested ridges which are conspicuous throughout the urban area and from viewpoints further away. This pattern contributes much to the special character of Port Stephens and can be observed not only from the urban area but also from the Port Stephens Waterway and Foreshores and other vantage points in the northern part of the Tomaree Peninsula. The forested backdrop to the urban areas at and around Nelson Bay is of regional visual significance.

9. In recent years residential subdivision has been approved on the southern portion Carinparinga Reserve and, by virtue of the subdivision of Lot 72, in the saddle immediately to the south of the subject lands. No subdivision has taken place on the northern portions of the two ridges or knolls which comprise Carinparinga Reserve and Pillinda Park, each of which face Port Stephens.

10. The Applicant's town planning expert Mr Neil Ingham has provided a report to the Court which does not challenge the visual prominence of the knoll upon on which the subject lands are located.

11. No planning scheme existed for the Port Stephens area until 1960 when the Northumberland County District Planning Scheme was introduced. Such scheme generally adopted the planning of the area conceived by the Halloran subdivision. However, it extended areas designated as parks or reserves by including an area known as the Karrara Outlook. Under the scheme, land which had been nominated as parks or reserves under the Halloran plan were zoned as "6(a) Open space public parks and recreation". The volcanic peaks or knolls around the southern shores of Port Stephens including the knoll known as Pillinda Park were so zoned.

12. Interim Development Order No. 23 was introduced in 1974. No alteration was made to the zoning of the subject lands, but the zoning of land to the south of the subject lands was altered by rezoning it from 6(a)(Open Space - Recreation) to Residential 2(a) which permitted residential development. By the same Order other lands in the Halloran subdivision were similarly rezoned to allow for residential development, such lands including a portion of Carinparinga Reserve and Fern Gully Park. Historically, it appears that certain rezonings effected by such Order resulted from requests by a land owner who was permitted to subdivide certain portions of the Carinparinga Park and Fern Gully Park in exchange for dedication of other lands. As part of the arrangement, certain areas on the lower slopes of Pillinda Park which contained dwelling sites having slopes of 15-26% were permitted to be developed for residential purposes.

13. In subsequent years, studies were made of land in the Hunter region of which the Port Stephens area formed part. In 1983 the Lower Hunter Landscape Improvement Study referred to lands including the subject lands as having:-

"a high priority for management for its visual value, being an area of distinctive visual variety and visual prominence."

14. The Study recommended that a category known as "protection priority 1a for visual value" be allocated to lands including the subjects lands, being the highest priority for protection recognised by the Study.

In 1986 the National Trust of Australia (NSW) published the Tomaree Peninsula Landscape Study which referred to the knolls at Port Stephens as providing:-

"... the most distinctive topographic and landscape features of the Tomaree Peninsula. They are particularly conspicuous in the generally flat landscape of the Peninsula, rising dramatically from its lowlands and waters...

The peaks provide visual variety in the landscape and their steep conical forested slopes introduce a repeated form which conveys a certain distinctive harmony to the landscape. Extensive, attractive views may be had from these hills, especially from Gan Gan which dominates the Peninsula and from points along the southern shores of the Port."

The report noted that special visual controls would be necessary and continued:-

"The visual value of the forested hills has been generally recognised and the natural skyline is now being protected. Whilst this measure is important to maintain the character of the area, it is necessary to obtain an adequate visual depth from the skyline with the upper limit of development. This has not been achieved on the northern face of Gan Gan, where future urban development will extend above 100 metres in elevation in places. Special visual controls will be especially important here."

15. The Port Stephens Local Environmental Plan ("the LEP") was implemented in 1987. The land use provision applicable to the subject lands under the LEP is zone No. 6(a)(Public Recreation Zone). The objective of this zone is described as follows:-

The objectives of this zone are to recognise and ensure that publicly owned land is developed for open space recreation, to encourage the development of open space which best satisfies community needs and commit developments associated with or complementary to open space.

Within such zone works carried out for the purpose of landscaping, gardening and bushfire hazard reduction can be carried out without development consent. Certain activities can be carried on with consent which are described as follows:-

Advertising structures; agriculture; aquaculture; caravan parks; childcare centres; clubs; educational establishments; forestry; places of assembly; public building; racecourses and showgrounds; recreation areas; recreation facilities; tourist facilities (except hotels and motels); utility installations (other than gas holders or generating works).

16. The LEP establishes various standards for residential development. The Residential 2(a) zone was intended to provide and maintain the amenity of a predominantly low density living area and to enable sensitive infill of medium density living styles. A minimum dwelling allotment area of 500 m2 was prescribed for the 2(a) zone. The Council's Subdivision Code DCP No. 34, provides a wide variety of environmental and building controls including the provision of standards for minimum widths of carriageways for subdivisions and associated matters. The Council has also adopted the lower Hunter Urban Housing Development Control Plan which provides guidelines for the development of housing in the residential zones. Accordingly, the Council has a wide range of measures at its disposal to ensure the orderly and desirable development for lands within its jurisdiction.

17. By LEP Amendment No. 122, made on the 5th December 1997 an amendment was made to the LEP to provide for a new zone known as Zone (f3)(the Environmental Protection [Small Holdings] Zone). Within such zone, agriculture is permitted and:

low density residential development which is compatible with the environment.

It was restricted in its application to Lot 72 and by virtue of its provisions, provided that Lot 72 could be divided into no more than 12 lots of which 11 were identified for use as residential purposes. The remaining lot was allocated to the roadway within the subdivision. It also provided that no more than one dwelling could, with consent of the Council be erected in each such lot for use for residential purposes.

18. The Applicant contends, supported by its various experts, that had the subject lands not been reserved for public recreation purposes it would have been placed in the same zone as the land in the vicinity and allocated a residential (2(a)) - Residential "A" Zone. The Applicant says that the 6(a) zoning constitutes a step in the resumption process, which began with the zoning for recreation under the 1960 Northumberland County District planning Scheme Ordinance. For valuation purposes, it says that such zoning must be ignored. It claims that it would have been able to develop Lot 71 into a 26 lot subdivision and Lot 2 into a 5 lot subdivision in accordance with a plan of subdivision (hereafter referred to as "the subdivision") prepared by its surveyors, Fagan Mather Duggan Pty Limited. It relies upon the following matters:-

1. Land to the north, east and west have been zoned Residential 2(a), subdivided and developed. The lots in the proposed subdivision would be substantially larger than other residential lots in the area and accordingly would enable the preservation of vegetation within the bounds of Lot 71 and Lot 2. In recent years residential development has expanded in the area. The Applicant points to the development of the 12 lot subdivision on Lot 72 and the fact that a subdivision was approved on the southern portion of Carinparinga Reserve.

2. The development of a subdivision is possible despite the existence of the very steep slopes which is typical of the knoll on which Lot 71 is located.

3. A development control plan could be implemented concerning the community title development to ensure provision of construction standards, the maintenance of setbacks and visual buffer zones, vegetation and bush regeneration on disturbed areas, and associated matters.

4. In the subdivision, significant vegetation, including ridge top tree canopy would be retained. The impact of subdivisional roads could be minimised by a community title development which would obviate the need to comply with Council's usual requirements for subdivisions so far as provision of roadways and footpaths are concerned.

5. Although the geotechnical evidence confirms that there is risks of instability on various portions of the subject lands medium to high risk, measures could be adopted which would render building on each of the lots a feasible proposition.

6. There are no other constraints upon development.

19. The Applicant relies upon two valuations of the subject lands. Mr. Frank Kevin Egan has provided a valuation of Lot 71 which ignores the 6(a)(Public Recreation Zone) and adopts Residential 2(a) zone on the basis of a hypothetical 26 lot subdivision prepared in accordance with the subdivisional plan. Mr Egan has relied upon estimated costs of the development of the subdivision as supplied by the Applicant's surveyor. Such costs have been based on the experience of the costs of the adjoining subdivision on Lot 72 which was completed in December 1997, and upon the basis that no faults were detected of a geotechnical nature. On the basis that an average price $190,000 per lot would have been achievable for the 26 lots in the subdivision, and taking into account a profit and risk factor of 30%, Mr Egan assesses the market value of Lot 71 at $1,925,000.

20. In relation to Lot 2 Mr Egan has made an assessment based upon identical considerations for a subdivision of 5 residential lots in accordance with the plan. An average sale price of $170,000 per allotment was adopted and at a profit and risk factor of 20%. On this basis the value of Lot 2 is assessed at $435,000. Mr Egan's valuation were effective as at 19 September 1997, namely the date of the compulsory acquisition.

21. Mr C J Fagan, a registered valuer of Dupont Fagan Valuers has also made an assessment of the value of the subject lands. In respect of the aforesaid Lot 71, adopting the hypothetical development method in respect of the proposed subdivision, and adopting valuations of residential allotments in the area, he assesses the realisable value of each lot in the proposed subdivision at $195,000. After deducting marketing expenses, legal costs, estimated development costs, holding costs and applying a profit and risk factor of 30%, Mr Fagan assesses the current value of the land $2,060,000.

22. As to Lot 2 and using similar parameters he assesses that each lot in the hypothetical 5 lot subdivision would realise approximately $172,500. After deduction of expenses and costs, the englobo value of Lot 2 as at 19 December 1997 was assessed by him to be $415,500.

23. In assessing the net value of the subject lands, the Applicant has taken into account not only the estimated average sale price for each lot in the subdivision but also the costs of development. Development costs of $1,288,000 was allowed for the 26 lot subdivision. The geotechnical assessment prepared by Mr Robert Carr of Robert Carr and Associates Pty Limited confirms the presence of bedrock outcrops with medium risk of instability and in other places of high risk instability. He assessed the geotechnical risks on Lot 71 as ranging from very high, high, medium to low and very low. He concluded that the site was "considered geotechnically developable for residential purposes", but qualified his observations by stating that any development would impose constraints, both in relation to subdivision design including roads, allotment land and drainage and allotment development, namely, foundations to rock, flexible type of structure, minimal slope identification and drainage control. The development would require "incorporation of geotechnical recommendation in both conceptual and final design" and that before any plan of subdivision was prepared, it should be the subject of detailed geotechnical investigation.

24. Mr Peter Douglas Fagan, surveyor, prepared the estimated development costs and had extensive experience, extending over 30 years in subdivisional development. He acknowledged there would need to be fill and cut to prepare the subdivision, but not as extensive as suggested by the Council's engineer. The subdivisional design was prepared in an attempt to avoid, as much as possible, such earthworks. Various considerations were taken into account, including access to lots from the roadways and road design.

25. In respect of rock excavation, an allowance of $720,500 was made, calculated on the experience of the completed adjacent subdivision on Lot 72. Mr Fagan did not allow for blasting of the rock but asserted that if blasting were required, it would be a cheaper option than the use of rock hammers to achieve a necessary result.

26. As to the issue of the proposed concrete roadway, the Applicant relies upon evidence of an engineer, Mr Andrew Newberry concerning estimated costs of construction of concrete roadways and drainage.

27. As to visual assessment, Dr Richard John Lamb of Lambcon & Associates concluded that a residential development of the site was feasible. He would support the hypothetical subdivision as "reasonably reflecting a feasible use and value for the site".

28. The Council rejects the contention that the subject lands would ever have qualified for residential zoning. The Council has submitted that the relevant nexus between the acquisition and the zoning of the subject lands prevailing at the time of acquisition, namely 6(a) - Recreation, under the LEP has not been established. It submits that, ignoring the acquisition and of the zoning, it has not been proven that the appropriate zoning was not Zone 6(a) in view of the location and prominent geographical features of the subject lands.

29. Associate Professor Finn Thorvaldson, previously of the School of Landscape Architecture of the University of New South Wales provided his assessment of the regional landscape of the Tomaree Peninsula at Port Stephens and of the specific area known as Pillinda Park. His report, although agreeing with certain of the propositions raised by Dr Lamb of Lambcon and Associates, states:

... I am convinced that the result of residential development, if it could be achieved, would be recognised as an intrusive visual element within the quality character landscape visually analysed previously. Such an intrusion upon both the ridgeline and steep side-slopes of native vegetation would bring about many new forms, shapes, colours and textures that would reduce the visual value of the most important scenic quality landscape of the Nelson Bay area. The recognised scenic value of the subjects sites, in association with their context, would be destroyed if the sites were allowed to be developed as a residential area.

Lot 71 includes the naturally vegetated steeply sloping faces of the northern portion of this ridge, with its height difference of 50 metres from existing property boundaries an [sic] the lower slopes to the crest of the knoll. The combined effect of numerous views of this vegetated landform forms part of the regions distinctive landscape character. Lot 2 is a small yet important part of the Gan Gan - Pillinda Park ridge recognised mainly in silhouette as part of the strong landform profile adjacent to the cleared notch revealed by the Lily Hill Road as it crosses the ridgeline...

The distinct landforms of conical and elongated hills, with steep wooded slopes and strong curvilinear ridgelines, provides a sense of scale, continuity and visual enclosure to Nelson Bay. They provide the strong contrasts that give Nelson Bay a unique character of regional significance. The dominance of the steeply sloping vegetated lands with the distinctive landform relief provides a visual setting that is both memorable and of outstanding scenic quality...

The recognised scenic value of the subject sites, in association with their context, would be irreparably damaged if the sites were allowed to be developed as a residential area.

30. The Council submits the subject lands are quite unsuitable for residential development because of the steep terrain. Its expert Mr Gardner Browne concluded that any hypothetical development as proposed would adversely affect the local and regionally significant visual values of the site. In respect of Lot 71 he observes that the site is substantially steeper and more prominent than other developed areas in the locality. Accordingly any development of the type proposed would require extensive earth works including retaining structures. Building structures erected upon the land, because of the steep slopes, would be very conspicuous. He considered that the site was generally unsuitable for residential development because of such slopes, visual sensitivity and inadequate access. He did however concede that on the lower levels of Lot 71 in certain locations, up to four lots could be created for residential subdivision which would not cause unacceptable visual impact.

31. As to Lot 2 he stated that development of the site into five residential lots as proposed would result in tree clearing and the erection of buildings which would interrupt the regionally significant and continuous forested backdrop and skyline to Nelson Bay. Further, three of the proposed lots would be on slopes in excess of 30% which was unsuitable for residential development. The provision of a necessary fire protection zone would result in inadequate depth for the accommodation of dwellings. He did, however suggest that a one lot subdivision may be feasible provided any dwelling was erected on the floor of a former quarry that exists upon such lot.

32. As a further ground of objection, the Council challenges the viability of the development. Geotechnical information was provided on behalf of the Council by Mr Arthur Love of Coffey Partners International Pty Limited. He observed that there was several areas on Lot 71 which were classified as having high risk of instability and which would require extensive remedial works or even raise considerations affecting the geotechnical viability of the subdivision. He estimated that the slopes on the eastern side were generally 50-55% with some less steep areas and some other steep slopes of up to 75%. The western slopes were generally 45-55% in the upper sections reducing to 35-45%, and the northern slopes were generally 35-45% and with some steeper sections to 55%. Numerous areas of instability were observed on the western and north-western flanks. It was common ground between the experts of both parties that there were significant outcrops of high strength massive rock, the removal of which would require blasting. In a supplementary report Mr Love reported that slopes on the eastern side of the ridge in fact were as high 80%. The rock was very shallow in these steep areas and was likely to be of very high strength and which would therefore impose a major cost problem for any hypothetical developer. As to Lot 2, he indicated that the size of the lots of the Applicant's subdivision would need to be increased to allow for slope.

33. The Council's surveyor, Mr P R Blackley of Pulver Cooper & Blackley Pty Limited, civil engineers, has assessed that in the proposed 26 lot subdivision two lots contained slopes of less than 20% within the proposed building area; three lots contained slopes of 30%; one lot contained slopes of 35%; eight lots contained slopes of 40%; two lots contained slopes of 45%; nine lots contained slopes of 50% and one lot contained slopes of 55%. Mr Blackley gave evidence that as a general rule grades above 25% made access to land difficult and grades of 35% are considered the upper limit of providing access in residential subdivision. He was not aware of any subdivision of more than three lots where grades of 40% had been tolerated.

34. In relation to development cost, there was a gross disparity between the estimates of cost for the hypothetical subdivision. The essential differences between the parties concern the estimated cost for road construction and drainage. Whereas Fagan Mather Duggan Pty Limited (Applicant's surveyor) allowed construction costs of $1,287,235 for development of Lot 71 and $198,000 for development of Lot 2, the Council's engineering experts estimated initially an amount of $1,730,230 would be required to develop Lot 71 in accordance with the plan of subdivision. However, that estimate was later increased to take in to account a cost assessment for the blasting of rock. The revised cost estimate was $2,200,000. This was the allowance said to be necessary for a 6 metre wide road formation comprising the internal access road, as estimated by Mr David England, of Pulver Cooper & Blackley Pty Limited, civil engineers based upon a price tendered by Mountain Industries Pty Limited to construct such work.

35. Mr Blackley estimated that the minimum road and drainage cost for the subdivision would be such as to increase the estimated development costs of the Applicant's surveyors by an additional $1,112,800 in respect of Lot 71. As for Lot 2, the estimated cost was assessed at $190,000. Each of the parties challenged the basis of costing, and the estimates of the other party in numerous respects. Despite extensive cross examination, the parties remained apart by a sum exceeding $800,000.

36. So far as the Applicant's costing assessments were concerned, the Council submitted that the allowances for numerous aspects of the work for the creation of the subdivision were inadequate. The Council also pointed out that Mr Andrew Arthur Newberry (an employee of Bolte Civil), who gave evidence for the Applicant concerning blasting and road construction work was a mechanical engineer and not a civil engineer. His assessment was therefore to be questioned. On the other hand the Council's experts were also challenged. As to blasting, it was submitted that the Council's contractor showed a reluctance to undertake the work and accordingly he had provided an excessive estimate. However, this was only one aspect of the differences between the parties. The extent of any cut and fill for the proposed subdivisional roads was a matter of dispute between the experts, and even the method of construction of the concrete roadway could not be agreed upon. In respect to the last mentioned matter, the Council's experts contended that a concrete roadway would require double reinforcing mesh, whereas the Applicant's expert contended that a single layer of mesh would be adequate. Issues arose concerning the provision of guard rails and doubt remained whether the specifications for road construction would be that applicable to a community title subdivision or some other standard. I state these matters for the purpose of demonstrating the disparity of unresolved expert opinion with which the Court was confronted. In summary, the differences between the parties as to the costs of subdivision remained, the Applicant contending that the cost of construction would amount to $1,160 per metre for road and drainage, whereas the Council's expert contended that the minimum cost of construction would be approximately $3,300 per metre.

37. The Council adduced evidence of value of the subject lands from Mr Colin Robert Sorrenson, a licensed valuer of a firm of M J Davis Valuations. Mr Sorrenson considered that the site of Lot 71 was too steep for residential development and for various other reasons concluded the highest and best use of Lot 71 was and is for open space purposes. Having regard to other sales of comparable properties he assessed the value of Lot 71 at $250,000 as at September 1997 (the date of acquisition) and Lot 2 in the sum of $50,000 with its 6(a) Public Recreation zoning.

38. Mr Sorrenson also made an assessment of the value of the subject lands adopting the hypothetical development method. In doing so, he assumed development costs advised to him by a company known as Land Design Pty Limited which assessed development expenses for Lot 71 at $1,287,235. After deducting these expenses, together with other associated costs, fees, risk margin and assuming a sale price of an average of $175,000 per lot, Mr Sorrenson assessed the value of the land at $1,000,000. He assessed the value of Lot 2 at $400,000 after applying the same rationale and estimating development expenses to be $190,000, with an average selling price of $170,000 per lot. He also made an alternative assessment for the hypothetical subdivision on Lot 71 by applying the development expenses assessed by the Council's civil engineers, Pulver Cooper & Blackley Pty Limited to be in the sum of $2,400,035 and concluded that the volume of Lot 71 calculated on this basis, would result in a net value of between $700,000 and $750,000.

39. In view of the observation by Council's expert, Mr Browne that a four lot subdivision (hereafter referred to as the "minimal subdivision") might be permissible, Mr Sorrenson prepared a valuation of Lot 71 upon the basis that it could be divided into a total of four lots for the purposes of residential development in conjunction with adjoining residential development. On this basis, Mr Sorrenson has made an englobo valuation of Lot 71 in the sum of $500,000.

40. As to Lot 2, if this were permitted to be used for a one lot residential use with a dwelling being erected on the former quarry floor, he assessed the value of such land to be $200,000.

41. The Applicant elected not to place any evidence before the Court of its assessment of the value of Lot 71 and of Lot 2 calculated upon this basis of a minimal subdivision.

42. The Council has raised an issue which impinges the merits of the Applicant's claim. The Council says that the subject lands together with the land which was previously Lot 72 comprised one parcel and was acquired by the Applicant in December 1994 for $950,000. Upon the Applicant's application, the Council gave approval of a 12 lot subdivision of Lot 72 pursuant to Development Application J1499/96, on the basis that such subdivision represented the full extent of development of the Applicant's lands at Pillinda Park. Accordingly the Council submits that in view of this agreement, Lot 71 never had any potential for further development. It further submits that the sum of $950,000 paid for Lot 71 and Lot 72 in 1994 must represent a comparable sale for the purpose of the assessment of an englobo comparison.

43. As a consequence of the compulsory acquisition, the Applicant is entitled to be compensated in accordance with the provisions of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Act") in such amount as will justly compensate it in accordance with Section 54(1) of the Act. Section 55 of the Act specifies the matters which are to be taken into account in determining the quantum of such compensation. In the determination of the market value of the land, Section 56(1) provides:

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 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 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.

44. Subsection 56 of the Act reflects the principle established by the High Court of Australia in Housing Commission of New South Wales v San Sebastian Proprietary Limited & Ors [1978] HCA 28; (1978) 140 CLR 196 and by the Court of Appeal United Kingdom in Pointe Gourde Quarrying and Transport Pty Limited v Sub Intendent of Crown Lands [1947] AC 565 page 572. The principle requires the Court in, assessing compensation, 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. Such principle has been discussed and applied in this Court: see judgment of Pearlman J in Petar Rukavina & Anor v Council of the City of Wagga Wagga (unreported, Pearlman J, 30001/93, 2 April 1993); see also F & J Cauchi v Blacktown City Council (unreported, Pearlman J, 30231/93, 4 November 1993). I should add that the High Court of Australia in The Crown v Murphy [1990] HCA 42; (1990) 64 ALJR 593 affirmed the adoption of the Pointe Gourde principle and the San Sebastian principle. Accordingly, the duty of the Court is to ensure that compensation is awarded in accordance with the Act. Such task requires the Court, so far as money can do so, to place the Applicant in a position as if its land had not been compulsorily acquired (see Horn v Sunderland Corporation [1941] 2 KB 26 per Scott LJ at page 42; Birmingham Corporation v Westmidland Baptist (Trust) Association (Inc) [1970] AC 874 at pages 895-896; Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547 at 569; Nelungaloo Pty Limited v Commonwealth & Ors [1947] HCA 58; (1947-1948) 75 CLR 495 at 569). For this purpose it is essential to examine the contentions of the Applicant concerning the potential use, and accordingly, the value, of the subject lands.

45. Section 55 of the Act directs the Court to consider only the matters referred to in sub-paragraphs (a) to (f) inclusive in its determination of the assessment of each category of compensation. Clearly enshrined in the Act is the requirement that in its assessment of market value, the Court exclude the public purpose zoning of the land. Accordingly, the Court is obliged to assess what would have been the appropriate zoning for the land without regard to the public purpose. The principle as explained by Crisp J in Beard v Director of Housing [1961] Tas SR 141 at 148 still applies, namely the Court must consider the special potentiality of the land (see also Kitto J in Turner v Minister for Public Instruction [1956] HCA 7; (1956) 95 CLR 245 at 286-287). It is useful, in this context, to consider the principle enunciated by Dixon CJ in Turner v Minister for Public Instruction (supra) at 264 where His Honour said:

The ultimate purpose of the inquiry is to find a figure which represents adequate compensation to the landowner for the loss of his land. Compensation should be the full monetary equivalent of the value to him of the land. All is subsidiary to this end.

When applying the Act, the Court is not to consider the purchase price for the subject lands, as had previously been the case; see Chapman v The Minister (1966) 13 LGRA 1 (Supreme Court of New South Wales, Court of Appeal), unless it is agreed that the quantum of the purchase price provides relevant evidence of the value of the land as at the date of its acquisition. So far as the assessment of the market value of the subject lands is concerned, the purchase price paid for compulsorily acquired lands and the length of time for which such lands have been held in the ownership of the Applicant are not matters for the Court to consider.

46. It is the common opinion of the experts retained for both the Applicant and the Respondent that the subject lands are located on a prominent ridge top which forms part of the visual backdrop to southern Nelson Bay. The green vegetation on the knoll comprising Carinparinga Reserve and Pillinda Park are of undisputed visual importance. The Council has recognised the extreme sensitivity and significance of such lands by ensuring that any Residential 2(a) zoning has not extended to the prominent portions of such knolls. Council's expert evidence confirms the need to preserve such areas in their natural state to ensure the maintenance of the amenity and scenic grandeur of Nelson Bay and Port Stephens.

47. The Applicant submitted that the Council, in effect, has already set a precedent for residential development on prominent lands because of its approval of a subdivision on the southern portion of Carinparinga Reserve and because of the permission it has granted to develop Lot 72. It has also permitted similar residential development on hillsides in the vicinity. Certainly the Council has permitted residential subdivision on areas which have previously been regarded as suitable for open space but never upon lands possessing such critical significance as the subject lands. Any development of the type proposed would have resulted in destruction of lands having vital scenic significance. Irrespective of cost and safety considerations, it is apparent that the subdivision on such a prominent and steeply sloping knoll, although technically possible, would have resulted in the transformation of the knoll and of the surrounding amenity, aggravated by the need to elevate houses or alternatively excavate in order to create a sufficiently level surface for development on most of the lots.

48. The Applicant has submitted that the facts of its claim were identical to the circumstances in Broken Bay Peninsula Pty Limited v Minister Administering the National Parks and Wildlife Act 1974 (Unreported: No. 30136/95). There is however a vital distinction between the facts of that case and the present. The evidence in that case disclosed that the relevant council had actively considered a subdivision of the resumed land of the density contended for prior to its public purpose zoning, and but for agitation to bring the land into public ownership, would probably have approved the zoning of the land for residential purposes.

49. A View of the subject lands confirms its strategic position and the need to ensure their preservation, as was recognised in the original 1917 Halloran subdivision. I accept the expert opinion provided by the Council's witnesses that a residential subdivision of 26 lots on Lot 71 and a 5 lot subdivision on Lot 2 would never be approved. The irreparable damage caused to such significant landmarks could never be redressed by any restrictions, or conditions, since necessary clearing of natural vegetation for the purposes of roadway and residential construction would permanently alter the character of the landscape. The proposed subdivision on such a confined area in such a prominent location could not be countenanced by any responsible authority.

50. The fact that the public purpose of the compulsory acquisition is to be ignored pursuant to Section 55(1)(a) of the Act does not automatically entitle the landowner to compensation for a use that would never have been permitted. Put another way, the Applicant bears the onus of demonstrating that, but for the public purpose and its related zoning, the subject lands would have been zoned differently. The following extract from the judgment in The Crown v Murphy (supra) at page 595 is pertinent.

"The statement of principle by the majority in the Full Court and the statement of the necessary consequential inquiry are unexceptionable. One purpose of this principle is to ensure that a resuming authority does not employ planning restrictions to destroy the development potential of the land and then assess compensation for its resumption on the basis that the destroyed potential had never existed: Melwood Units Limited v Main Roads Cmr [1979] AC 426 at 434. The principle applies in cases where there is a direct relationship between the planning restriction and the scheme of which resumption is a feature and extends to cases where there is merely an indirect relationship, provided that the planning restriction can properly regarded as a step in the process of resumption: Housing Commission of New South Wales v San Sebastian Proprietary Limited, at 206-207."

51. The subject lands has never had potential for residential development of the zoning contended for by the Applicant, namely Residential 2(a). Since 1917 the quality of such land and its unique characteristics have been recognised. There is no evidence to suggest that either the Council or its predecessors in time have ever contemplated a subdivision of the subject lands for residential purposes at all. It could be said that such a development of land so prominent and important could never be seriously contemplated. I reject the claim that, but for the acquisition, the subject lands could have been developed in the manner contended for by the Applicant.

52. The Council, whilst maintaining that no residential development should be allowed, conceded that it may have possible to permit a minimal subdivision. The expert opinion of Mr Browne states as to Lot 71:

It is concluded that the site is generally unsuitable for residential development because of steep slopes, visual sensitivity and inadequate access. However, it is considered that 2 residential lots could be accommodated on the flattened area at the head of the formed access way off Ullora Road. A further 2 lots could be accommodated on the north western corner of the site with access up to 9.1 metre wide access way to Ullora Road. A total of 4 dwellings could be sited at these locations without unacceptable impact on adjoining dwellings or the visual amenity of the locality, provided they are set low on the site and are only 1 or 1.5 storeys in height.

It is concluded that the site is generally unsuitable for development ... because of visual sensitivity and steep slopes. The need for protection from bushfires and measures to provide safe access for vehicles and pedestrians also impose constraints on ... development. These comments apply whatever the land is zoned. It may be possible to site a single dwelling on the former quarry floor on the western side of the site. This would be conspicuous from the Lookout access road but ... represents the maximum development potential of the site, if it were zoned Residential 2(a).

53. I would have been persuaded by the Council's submission that the subject lands should be regarded but for the zoning as open space had it not been for Council's concession that a minimal subdivision could have been possible. In the circumstances, adopting the principle that it is appropriate for the Court to err in favour of the Applicant in any cases of doubt, the Court accepts that such a development may have been permissible and will value the subject lands accordingly. Accordingly, the highest and best use of the land for the purposes of the assessment of compensation is to be treated as that of the minimal residential subdivision. I consider that, the Applicant, by virtue of the Council's concession of a minimal subdivision, has been treated generously. Accordingly, the Court finds that, but for the compulsory acquisition, the zoning would have been a special zoning which would achieve a limited residential use similar to that applied to Lot 72, namely Environmental Protection [Small Holding] Zone - (f3). Whilst the Applicant argues that such a proposal would result in development over the whole of the site and transform it effectively into residential land, the Council submits that such a subdivision could be justified upon the ground that it is on the lower slopes of the knoll and strict development controls could be implemented to ensure that the visual aspects of the land were not destroyed.

54. Although in view of my conclusion it is not necessary to reach a finding upon the estimated construction costs of the subdivision as contended by the Applicant, I state hereunder my conclusions upon such evidence. Despite the numerous witnesses who were called for the Applicant and the Respondent concerning the construction cost, differences concerning the need to blast rock, the extent of cut and fill, the cost associated with the construction of a road service, the rates for undertaking excavation work and incidental matters remained unresolved. Experts for each party had extensive experience in subdivisional work. The root cause of the impasse was undoubtedly the difficult nature of the site.

55. The works necessary to develop the subdivision on Lot 72 did not involve the carrying out of any development work on slopes as steep as those on the subject lands, nor did it involve cut and fill as extensive as that which would have been experienced had the 26 lot subdivision been constructed. For these reasons, I consider the Applicant's development cost estimate is unduly optimistic. For the purposes of estimate only, I am prepared to accept the submission of the Applicant that the Council's expert's assessment is calculated on an unduly conservative basis. Accordingly, it is appropriate to fix an amount for development costs which would increase the Applicant's estimate and at the same time decrease the Respondent's estimate. Accordingly, for hypothetical valuation purposes only, and although it is irrelevant in view of the ultimate finding I would allow, as the development costs for the 26 lot subdivision a sum of $1,687,000.

56. As regards the development of Lot 2, the Applicant's cost estimate to develop it was $198,000 and the Council's estimate $190,000. For the purposes of the current task, again irrelevant in view of my finding, I would assess the costs at $195,000.

57. As regards profit and risk factor for Lot 71 and Lot 2, I would accept the 30% and 20% respectively as allowed by Mr Egan.

58. The Applicant was unable to adduce evidence of a comparative englobo parcel of land. The Council's valuer, Mr Sorrenson, was able to give examples of englobo sales but, due to a combination of factors, their comparability was challenged, and taking into consideration the enormous variables associated with topography, geotechnical and geographic locations, date of acquisition and intervening economic circumstances, I do not find any englobo sale to be of any assistance in the assessment of the subject lands, including the purchase of Lot 72 and the subject lands in 1994.

59. The valuers relied upon sales of residential lots in the vicinity which were claimed by one or the other to be comparable. The sales produced fluctuations and depending upon the amenity of the particular lot. In relation to the subdivision proposed by the Applicant, it estimated $190,000 to $195,000 as the average sale price for lots on Lot 71 and approximately $170,000 to $172,500 for each lot in the subdivision of Lot 2. The Council's estimate of the average value for such lots was $170,000. Although, in view of the findings I make, it becomes irrelevant, I consider that the appropriate value for such lots would have been an average of $185,000 for the lots on Lot 71 and $172,000 for the lots on Lot 2.

60. As stated previously, the Applicant has assessed the value of the subject lands on one basis only, namely that Lot 71 was capable of subdivision into 26 lots, and Lot 2 into 5 lots, and that it is entitled to compensation in the sum of between $1,925,000 and $2,060,000 for Lot 71, between $415,000 and $435,000 for Lot 2. The Council, adopting a 6(a) zoning, assesses the value of Lot 71 at $250,000 on the basis that the land was unsuitable for residential development and that the highest and best use was open space purposes, and Lot 2 at $50,000. Lot 2 was valued at $200,000 if developed as a single homesite, and on the basis that the 6(a) zoning was ignored.

61. I consider that the 6(a) zoning should not be adopted in view of the Council's concession that the minimal subdivision may have been possible. Accordingly, the only fair basis for valuation is that of the minimal subdivision. On this basis the Council's expert valuer, values Lot 71 at $500,000, and Lot 2 at $200,000 as at the date of resumption. His evidence was not challenged and no evidence was adduced in response. In the circumstances, it can be inferred that evidence could not be adduced which would have assisted the Applicant: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

62. No valuer provided evidence of the value of individual lots in the minimal subdivision. Accordingly to give to the Applicant the benefit of any doubt had a four lot subdivision on Lot 71 and a residential lot from Lot 2 been created it is appropriate to investigate the hypothetical value of such lots.

63. There has been a recent sale of a residential lot which provides a very useful guide. In April 1998, namely approximately seven months subsequent to the date of acquisition, contracts were exchanged for the sale of a residential lot in the subdivision comprising the former Lot 72 for a consideration of $250,000. For the present purposes, although there is no evidence that the sale has in fact been completed, I am prepared to assume that it is representative of the sale price of such lot. The question arises whether such a sale can be taken into consideration for the purposes of assessment valuation since it was subsequent to the date of acquisition.

64. In February 1996 the Council approved the subdivision of Lot 72 as a community title subdivision. It was subsequently changed to a Torrens title subdivision of twelve lots in 1997. Accordingly, although sales of lots in the final subdivision had not been effected as at the date of the acquisition of the subject lands, at that date there existed the potential that such lands would be available for sale. Taking into account such potential, I adopt the approach of Bignold J in Scarf & Ors v Canterbury Municipal Council (unreported, 30279/88, 9 August 1989) and accept that such sale although unrealised at the date of resumption can be considered for the purpose of assessing the value of lots in the minimal subdivision.

65. The lot which has achieved the sale price of $250,000 had panoramic views and building would proceed relatively easily. In the minimal subdivision, strict building controls would exist and views from any dwellings erected on the lots might not be as spectacular, but the substantially increased size of the lots would be a compensating factor. For the purposes of a hypothetical exercise, I consider that it would be appropriate to fix an estimated average sale price for each of the four lots in the minimal subdivision at $250,000 and the same amount for the whole of Lot 2, it being treated as a residential lot on this hypothetical basis. Accordingly, gross value of Lot 71 calculated on this basis would amount to $1,000,000. The hypothetical costs of development must be deducted to arrive at a net value. There was only one estimate provided for such costs, namely, that of the Council which assessed such costs to amount to $141,400. After deducting this sum from the gross estimated realisation, the net value of Lot 71 amounts to $858,600.

66. As to Lot 2, no estimates have been provided for development costs and I assume that they are negligible. Accordingly, the value of $250,000 is the appropriate net value of such lot.

67. In total therefore I assess the highest and best use of the land as a subdivision for residential purposes, and having an Environmental Protection [Small Holding] Zone limited to a four lot subdivision on Lot 71 and one lot from Lot 2. I find that the Applicant is entitled to be awarded the sum of $858,600 representing the net value of Lot 71 and $250,000 representing the value of Lot 2. In total, the Applicant is entitled to receive $1,108,600 as compensation pursuant to s 55 of the Act as the market value of the subject lands. Such assessment takes into consideration the restriction on the use of the land (see Corrie v MacDermott [1914] AC 1056), which this Court is entitled to do (see Hornsby Shire Council v Roads and Traffic Authority of New South Wales (unreported: NSWCA, judgment 19 August 1998)).

68. As the question of costs has not yet been argued, I reserve this issue.

I HEREBY CERTIFY THAT THIS AND THE PRECEDING 25 PAGES ARE A TRUE AND ACCURATE RECORD OF THE REASONS FOR JUDGMENT HEREIN OF THE HONOURABLE ACTING JUSTICE DENNIS A COWDROY OAM