Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority

The obligation to remediate the land 15 Clause 6.1 of the Call Option Agreement provides, inter alia, that Ampol (Caltex) must carry out the Remediation Works as expeditiously as practicable, but in any case, prior to the Call Option Expiry Date. 16 Remediation Works are defined as those works necessary to remediate the existing environmental contamination of the property to a level which will not prevent the erection of residential dwellings on the property. 17 The Call Option Expiry Date means the date which is the later of:-

(i) Three years from the date of the Call Option Agreement (2 September 1997); or (ii) 30 days from the date of Completion. 18 Completion is defined to mean completion of the Remediation Works, including compliance by Ampol (Caltex) with its obligations to meet the extent of remediation required. 19 Clause 3.1 of the Call Option Agreement allowed Walker Group, by a Nomination Notice, to appoint a nominee or nominees to purchase the property upon exercise of the Call Option. 20 Clause 3.3 provides as follows:- 3.3 Nominee to be Bound If the Grantee appoints a nominee under clause 3.1, the Nominee:

(a) will have the full benefit of all covenants and agreements by APPL; and

(b) will be bound by all the obligations of the Grantee,

contained in this Agreement in substitution for the Grantee as if the Nominee had originally been named as the grantee of the Call Option in this Agreement. 21 The Call Option Agreement provides, in cl 2.5, that on the exercise of the Call Option a Contract for Sale and purchase of the property will be entered into between Ampol (Caltex) and the Grantee or Nominee on terms and conditions set out in an annexed contract. In McRoss, Palmer J held that the contract came into existence. 22 Clause 9 of the agreement expressly provided that Walker Group must not, without prior consent of Ampol (Caltex), assign or otherwise attempt to deal with its rights under the agreement, except as provided in cl 3. There is no evidence of an assignment or consent to an assignment, other than an implied acceptance by Ampol (Caltex) when it entered into the contract with McRoss, as the nominee of Walker Group. 23 Clause 11.8 of the Call Option Agreement dealt with the merger after exercise of the option in the following way:- 11.8 Non-Merger (a) A term or condition of, or act done in connection with, this Agreement does not operate as a merger of any of the rights or remedies of the parties under this Agreement and those rights and remedies continue unchanged.

(b) Each term of this Agreement that has not been carried into effect at the termination of this Agreement survives the termination.

(c) Each term of this Agreement survives the exercise of the Call Option. 24 The long-established doctrine of the privity of contract is that only parties to a contract may sue for breaches of that contract. It is a matter of construction of the particular contract to determine whether the parties intended to confer a benefit on a third party. The agreement made between Ampol (Caltex) and Walker Group is not strictly a third party contract whereby the agreement contemplates that Ampol (Caltex) will confer a benefit on a third party. No equity was created in the proposed nominee, McRoss, at the date the Call Option Agreement was made (Coulls v Bagot's Executor and Trustee Company Limited and Others (1966-1967) 119 CLR 460 at 501). 25 In Coulls at p 478 Barwick CJ expressed the following opinion in the course of his reasoning:- It must be accepted that, according to our law, a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations. For my part, I find no difficulty or embarrassment in this conclusion. Indeed, I would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another. 26 Furthermore, Windeyer J, after lengthy analysis doubting that a third party could benefit from an action to recover damages for failure to perform a contract by one of the parties to the contract, raised the prospect of an order for specific performance at p 503 in the following way:- Complete and perfect justice to a promisee may well require that a promisor perform his promise to pay money or transfer property to a third party. I see no reason why specific performance should not be had in such cases - but of course not where the promise was to render some personal service. There is no reason today for limiting by particular categories, rather than by general principle, the cases in which orders for specific performance will be made. The days are long past when the common law courts looked with jealousy upon what they thought was a usurpation by the Chancery of Court of their jurisdiction. Nevertheless I fail to see how allowing a promisee to obtain an order for specific performance by a promisor of his promise to pay moneys or transfer property to a third person can give the third person himself any right to enforce a contract to which he was not a party. The promisee has a choice of remedies. But unless he be a trustee of his contractual rights, he can, if he chooses, abandon both. 27 The right of a nominee of a person entitled to exercise an option to purchase, to exercise the option and to enforce a Contract for Sale against the person who granted the option has been regarded as an exception to the third party doctrine. The cases supporting this exception appear to turn on whether the option can be regarded as an offer made to the nominee and that the exercise of the option is in effect an acceptance of the offer by the nominee. Alternatively, the nominee has been treated as an assignee who gives notice of the assignment by the exercise of the option (David Jones Ltd v Lunn and Another (1969) 91 WN (NSW) 468 at 477-480). 28 Clause 2.1 of the Call Option Agreement provides as follows:- 2.1 Grant by APPL In consideration of the payment by the Grantee to APPL of the Call Option Fee, APPL grants to the Grantee, subject to the terms of this Agreement, an exclusive option exercisable during the Call Option Period for the Grantee (or, if a nominee is appointed under to clause 3.1, the Nominee) to purchase the Property for the Purchase Price. 29 Pursuant to cl 3.1 Walker Group acted "to appoint a Nominee…to purchase the Property upon exercise of the Call Option". Clause 3 is silent about any other aspect of the Call Option Agreement. The annexed form of Nomination Notice provided for nomination of the nominee "as contemplated by Clause 3 of the Call Option Agreement including, without limitation to exercise the Call Option contained in the Call Option Agreement and if such Call Option is exercised to purchase the Property (as defined in the Call Option Agreement)". The property is described by reference to the description in the Annexed Contract to the Call Option Agreement. The Annexed Contract contains no reference to remediation, except in Special Condition 9, which provides as follows:- SITE REMEDIATION (a) The Purchaser acknowledges it is aware that: (i) the property was previously used for the storage and distribution of petroleum products; (ii) the property has had various levels of hydrocarbon contamination; and

(iii) the Vendor has undertaken necessary remediation work at the property. (b) The Purchaser indemnifies and agrees to keep indemnified the Vendor against any: (i) claim, loss or damage the Vendor may suffer; and/or (ii) any penalty or fine under any law relating to the environment the Vendor may incur, arising out of the use of the property following completion. This special condition will not merge on completion of this Contract. 30 In McRoss, Palmer J held at [32] that condition 9 does not have the effect of relieving Caltex from the obligation under cl 6 of the Call Option Agreement. His Honour was not required to go further and find to whom the obligation was owed. Palmer J merely found that the obligations of Caltex under cl 6 of the Call Option Agreement to perform remediation survived the exercise of the Call Option. 31 Australand has become the controlling entity of Walker Group. The latter arguably remained the entity entitled to require remediation under the Call Option Agreement with Caltex at the relevant date. Walker Corp Pty has not been absorbed by Australand. The Put Option granted by McRoss (Walker Corp Pty) to Australand has not been exercised, indeed it was ultimately not necessary or practicable. Therefore, it would follow that apart from the provisions of cl 3.3 of the Call Option Agreement (if it has the effect contended by the applicant) Walker Corp Pty was not privy to any legal right to enforce the obligation to remediate created by the Call Option Agreement. There is no evidence to suggest that Australand would have, through its shareholding in Walker Group, pursued a remedy against Caltex on behalf of Walker Corp Pty.

32 Palmer J, at [46], was not prepared to imply a condition in the Contract for Sale that completion should be conditional upon performance of Caltex of its remediation obligations under the Call Option Agreement and that "one would have expected them (the parties) to qualify expressly the obligation in Special Condition 4(a) of the Contract accordingly". Condition 4(a) required merely that completion must take place on the date six weeks after the date of the contract. 33 His Honour found, at [48], that McRoss was not entitled to defer completion of the Contract for Sale until Caltex had carried out all necessary remediation works. In the course of his reasoning at [47], his Honour made the following observations:- It must, therefore, have been in the contemplation of the parties that McRoss could become bound to complete the Contract for Sale well before Caltex had finished carrying out Remediation Work in accordance with its obligation under the Call Option Agreement. By Clause 11.8 of the Call Option Agreement that obligation was made to survive the coming into existence of the Contract for Sale, so that McRoss would have had a remedy in damages for breach of contract if Caltex had breached Clause 6.1(b)(iii) even though McRoss itself had already completed the Contract for Sale in accordance with Special Condition 4(a). 34 It appears Palmer J assumed that McRoss, as purchaser, was entitled as nominee to enforce the obligation to remediate against Caltex notwithstanding it was not a party to the Call Option Agreement. The respondent's argument is that the applicant's interest in the land did not include an entitlement to purchase remediated land because the obligations to remediate the land were contained in the Call Option Agreement to which McRoss was not a party. Accordingly, the obligation was an obligation owed only to Walker Group as privy to the Call Option Agreement and was not able to be enforced by any other person. Furthermore, upon resumption of the land and pursuant to s 20(1)(b) of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act"), any obligations of Caltex under the Call Option Agreement were extinguished. 35 Moreover, it is the respondent's case that if Walker Group, as a consequence of the resumption is to incur the financial cost of remediation, as asserted in the alternative by the applicant in its Points of Claim, the applicant does not suffer any loss for the following reasons:- (a) Walker Group was the party involved in the bargain with Ampol (Caltex) ;

(b) Any rights of Walker Group were never transferred to McRoss (Walker Corp Pty) ;

(c) The only entitlement of McRoss (Walker Corp Pty) in relation to the resumed land was for its purchase (but not for its purchase in a remediated state to such an extent that it was entitled to require remediation of the land, as distinct from Walker Group's entitlement to require remediation);

(d) Even if remediation was to be incurred by Walker Group (which is denied…), Walker Group is a different person to McRoss (Walker Corp Pty) and hence those financial costs are not costs incurred by McRoss (Walker Corp Pty) …;

(e) In any case, those financial costs would not relate to the actual use of the land by McRoss (Walker Corp Pty) …

36 The Call Option Agreement granted an exclusive option to purchase between a date three months from the date of the agreement and either three years from the date of the agreement or 30 days from completion of the remediation works. The completion of the remediation works is provided for only in the Call Option Agreement. However, when the Contract for Sale was signed, the purchaser was thereafter bound to complete the purchase within six weeks irrespective of whether the remediation works had been completed. Clause 3 allowed the grantee of the option to nominate a nominee "to purchase the Property upon exercise of the Call Option". The terms of cl 6 requiring remediation survived the exercise of the Call Option by dint of cl 11.8 of the Call Option Agreement. 37 The nominee is expressed by cl 3.3 to have the full benefit of all covenants and agreements by Ampol (Caltex) contained in the agreement. There is no limitation on the covenants and agreements to which cl 3.3 applies except that they must be contained in the agreement. Although McRoss (Walker Corp Pty) acquired the land pursuant to a Contract for Sale that was relevantly silent on the matter of remediation and notwithstanding that it was not a party to the Call Option Agreement, in my opinion, it nevertheless had an assigned right to require remediation of the land by Ampol (Caltex) pursuant to cl 6 of the Call Option Agreement as nominee under the irrevocable conditional offer made by Ampol (Caltex) (David Jones Ltd v Lunn; Westminster Estates Pty Ltd and Another v Calleja [1970] 1 NSWR 526; O'Halloran Enterprises Pty Ltd v Williamson; Farr [1979] VR 33 and Clark v Lonergan [1961] NSWR 313).

The applicant's interest in the land 38 The definition of land in s 4 of the Just Terms Act "includes any interest in land". Pursuant to s 4 "interest in land" means:- (a) a legal or equitable estate or interest in the land, or

(b) an easement, right, charge, power or privilege over, or in connection with, the land. 39 Clearly, the applicant held an equitable interest as purchaser under the Contract for Sale at the date of resumption. The applicant claims that either the equitable interest relates to land in a remediated state or that the assigned right to require remediation is an interest within the meaning of [(b)] of the definition in s 4. Alternatively, the applicant contends that the remediation cost has become a loss attributable to disturbance. 40 In Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151 Meagher JA (with whom Mason P and Powell JA agreed) referring to an interest in land for the purposes of the Just Terms Act said the following at p 155:- Some limitation must be placed on the words. Whilst the rights which fall within par (b) must be wider than the rights which fall within par (a), I feel that they must be limited to jura in re aliena, proprietary or quasi-proprietary rights less than a fully fledged estate, that is, easements, charges, profits a prendre, profits a rendre, licences coupled with interests, etc. 41 Section 253 of the Native Title Act 1993 (Cth) contains a definition of "interest" in relation to land or waters. That definition includes the following:- … (b) any other right (including a right under an option and a right of redemption), charge, power or privilege over, or in connection with: (i) the land or waters; or (ii) an estate or interest in the land or waters; or … 42 In Byron Environment Centre Incorporated v The Arakwal People and Others (1997) 78 FCR 1; 96 LGERA 1 Lockhart J said as follows:- Importantly, the definition of 'interest' in s 253 is expressed to be 'in relation to land or waters'. The definition that follows is in wide terms; in particular where it refers to par (b) to any other right (that is, other than a legal or equitable estate or interest in the land or waters), including a right under an option and a right of redemption; and a charge, power or privilege over, or in connection with the land or waters or an estate or interest in the land or waters; or a restriction on the use of the land or waters, whether or not annexed to other land or waters. The words 'over' and 'in connection with' are words of wide import. Nevertheless, in my opinion, the word 'interest' in s 253 is used throughout the definition to convey some form of proprietary or contractual right, power or privilege concerning the land or waters. 43 Lockhart J adds a "contractual" right, power or privilege to the category of interests recognised by the definition in s 253. The reference to a right under an option was not, so far as I am able to discern, a relevant consideration for the decision by Lockhart J. 44 Madgwick J, in Kanak v Minister for Land and Water Conservation (2000) 110 LGERA 23 at 38, preferred the approach taken by Lockhart J in the context of the Commonwealth legislation rather than the formulation offered by Meagher JA in relation to "somewhat tighter language of a different statute". In Minister for Education and Training v Tanner (2003) 128 LGERA 281 Brownie AJA (with whom Beazley JA and Santow AJA agreed) referred to the judgment of the Court of Appeal delivered by Meagher JA in Hornsby as "apt to resolve the issue posed in that case, but…ought not to be treated as a substitute for or a restatement of the words of the legislation, and they need to be read in their context". He went on to foreshadow the prospect to refine the words used in the resolution of other cases. 45 The nature of rights and privileges recognised by this Court include occupation of part of premises under a legal right derived from agreement with the owners that did not amount to a lease (West and Others v Roads and Traffic Authority (NSW) (1995) 88 LGERA 266) and occupation of a caravan park under a tenancy at will by persons who were shareholders of the corporate landlord (Mooliang Pty Limited and Others v Shoalhaven City Council (2001) 114 LGERA 45). 46 I am unable to find any direct authority in respect of an interest akin to the legal right held by Walker Corp Pty to require remediation of the subject land. 47 Following the making of the Contract for Sale, what the applicant held, in addition to an equitable interest as a purchaser, was a personal contractual right to require Caltex to remediate the land. The latter does not appear to easily fall within the categories of interest in (b) of the definition in s 4 as qualified by Meagher JA. In my view, it cannot be regarded as a proprietary or quasi-proprietary right recognised by the Court of Appeal in Hornsby. 48 In McRoss, Palmer J found that the right of McRoss to enforce the obligation of Caltex to remediate the land enured beyond the making of the Contract for Sale but that the purchaser was nevertheless bound to complete the purchase within six weeks irrespective of whether the remediation works had been completed. The equitable interest of McRoss in the land under the Contract for Sale does not, on its face, therefore, contemplate an interest in the land in a remediated state. 49 The fact that the determination of the amount of compensation already paid to Caltex had regard to the cost of remediation has no direct bearing on the determination of the interest of Walker Corp Pty in the land, even if the resuming authority appears to accrue a benefit for a second time, except to the extent that s 56(2) of the Just Terms Act is relevant. Section 56(2) provides as follows:- (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. 50 Although s 54 of the Just Terms Act provides for the dispossessed owner to be justly compensated, s 55 defines the only matters to be regarded in determining the amount of compensation. The market value of the land is one of those matters that the Court must have regard to. Given that land includes any interest in the land and that an interest in the land includes a right in connection with the land, by force of the definition in s 4, the question becomes whether the assigned right to require remediation of the land is an interest in land that had a market value. If it is such an interest, the Court must then determine what amount would have been paid for that interest if it had been sold at the relevant date by a willing but not anxious seller to a willing but not anxious buyer. Pursuant to s 20 of the Just Terms Act, on the date of publication in the Gazette of the acquisition notice the land (including any interest in the land) is vested in the respondent "freed and discharged from all…interests…rights… and contracts in, over or in connection with the land". Caltex thereupon was freed from the contractual obligation to remediate. The authority took that release into account in determining the amount of compensation to be paid to Caltex as unpaid vendor and registered proprietor of the land at the date of publication. At the same time the applicant lost the assigned right to have the land remediated at the cost of the third party. 51 The resolution of this issue has not been easy but I hold that the right to remediation was an interest in the land contemplated by the statutory definition as a contractual right in connection with the land. In doing so, I have been illuminated by the approach taken in Byron Environment Centre by Lockhart J and encouraged by the wider view expressed by the Court of Appeal in Tanner to break the shackles apparently imposed by Meagher JA in Hornsby. 52 Accordingly, the applicant is entitled to compensation that includes an amount that reflects the value of the right to have the land remediated. By refusing to adjust the market value of the land to reflect the cost of remediation, the applicant will receive an amount that justly compensates it for the acquisition of its interests in the land in compliance with s 54(1) of the Just Terms Act. Moreover, the responsibility of the cost of remediation is allocated appropriately. 53 Judicial findings such as those by Handley JA in Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209 that the land must be valued "in the condition in which it existed at the date of resumption" are concerned to ensure that land with a particular potential, such as for building purposes, is not valued as though the potential development had occurred. In this case the distinction is that, as a consequence of the combined operation of clauses 3 and 6 of the Call Option Agreement, the applicant was entitled to have the land remediated to the point where it will be suitable for residential development and accordingly held it as if the fact had occurred at no further cost to it. Alternatively, the contractual right to have the land remediated at no cost to it had the result that the interest of the applicant under the Contract for Sale was, in effect, to acquire the land in a remediated state. It would therefore have been able to offer the land for sale on the basis that remediation would occur at no cost to the hypothetical purchaser.

The relevance of existing use rights 54 The respondent likens an existing use to a privilege similar to the "right" under development consent and, therefore, the Court, as judicial valuer, must determine whether an existing use exists at the date of acquisition as part of the process of determining the attributes of the land. 55 The applicant, on the other hand, says that whether there are existing use rights arises only as part of the consideration of potentiality of the land and that risk is assessed accordingly in the market value approach. 56 I do not accept that an existing use can be regarded as being altogether in the same category as a right under a development consent. Although, in a limited sense, it carries the same benefits as a consent, namely that, pursuant to s 107, nothing in the Environmental Planning and Assessment Act 1979 ("the EP&A Act") or an environmental planning instrument prevents the continuance of the existing use. There are nevertheless constraints imposed by s 107(2) and an existing use can be abandoned. The existing use right that runs with the land is more properly described as an entitlement to relaxation of constraints otherwise applied by the current planning scheme. That entitlement does not attach to any particular individual. It is subject to formal proof of its lawfulness. 57 As Kirby P explained in North Sydney Municipal Council v Boyts Radio and Electrical Pty Ltd (1989) 16 NSWLR 50 at 56, according to one view the ultimate objective of recognising existing use rights "after a transitional protection of the established beneficiaries of such rights, is their termination (by abandonment) or their confinement (by the prohibition of alteration, extension or intensification)" so that "the overall objectives of a universally applicable planning law will be achieved in a coherent and consistent fashion". He recognised at p 57 an alternative view that the:- …principle was to exclude existing use rights from the general requirement of new planning law and of respect for the accrued rights of private property, out of recognition of the inequity of imposing upon those rights the retrospective operation of newly introduced planning law and out of regard for the fact that in our form of society, with private ownership of land, the character of a neighbourhood cannot suddenly be changed by the stroke of the planner's zoning pencil.

58 He described the position as a conflict between private and social rights. The former, he said, tends towards protection of private interests in land by adopting a wide definition of, and generous approach to, existing use rights. On the other hand, identifying and defining existing use rights with specificity and precision tends to uphold the social interest represented by the planning law and to confine derogation from that interest to a narrow class of case. 59 The difficulty of concisely specifying an existing use is demonstrated by the continuing discussion arising in cases such as Shire of Perth v O'Keefe and Another (1963) 110 CLR 529, The Council of the City of Parramatta v Brickworks Ltd (1972) 128 CLR 1, Woollahra Municipal Council v Banool Developments Pty Ltd (1973) 129 CLR 138 and Royal Agricultural Society of New South Wales v Sydney City Council (1987) 61 LGRA 305. 60 Kirby P summarised the position as he saw it in Boyts Radio at p 59 as follows:- 1. Defining "existing use" depends upon a detailed examination of the facts of each case. Inevitably there will be borderline cases where the characterisation of the use which is protected will be controversial and upon which minds may differ. 2. Nevertheless, the general approach to be taken is one construing the "use" broadly. It is to be construed liberally such that confining the user to precise activity is not required. What is required is the determination of the appropriate genus which best describes the activities in question. 3. In determining that genus , attention should be focused on the purpose for which the determination is being made. This is a town planning purpose. It therefore considers the use from the perspective of the impact of the use on the neighbourhood. This is because the regulation of the use within the neighbourhood is the general purpose for which planning law is provided. 61 Thus it can be seen that an existing use right is not something that can always be readily drawn from a concise set of circumstances or by reference to a single document or instrument. In the absence of an express determination of existing use rights in relation to the land either by a court or by an unequivocal acknowledgement of a relevant consent authority at the relevant date, a purchaser could not always be certain that the perceived rights could be relied upon to support a development application to change the use to another use, including a use that would otherwise be prohibited. 62 The equation of an existing use right to a development consent only arises in the context of continuing the existing use. To that limited extent, the analogy drawn by Mr Preston may be apposite. 63 In my view, an hypothetical prospective purchaser would not proceed to acquire the land on the basis of existing use rights attached to it, except, and only, where the existing use rights have been established and acknowledged beyond doubt. It is unrealistic to expect that, in practical terms, final proof would be required or available in some cases as it would not be feasible to obtain conclusive proof in the context of negotiations for outright purchase. Certainly a purchaser would make enquiries about the possibility of existing use rights and, depending upon the extent of available evidence at that time, would take the prospect into account as a relevant factor but prudently allowing for commensurate risk according to the particular circumstances. 64 I, therefore, hold that it is correct to take into account the facts that would have been available to a prospective purchaser at the relevant date to determine the appropriate risk factor for relying on an existing use right in order to carry out future non-conforming development of the land. Taking such a course is not inconsistent with the principle relied upon by Mr Preston, namely that determining what constitutes the land involves ascertaining the actual status and condition of the land both legal and factual at the date of acquisition. Whether existing use rights prevailed is a mixed question of fact and law, the answer to which may not be precisely known by the purchaser at the time. Accordingly, where the legal and factual position remains equivocal, that would be a condition which carried through to the doubtful legal status of the land at the date of acquisition. 65 When Leichhardt Local Environmental Plan 2000 ("LEP 2000") came into force on 22 December 2000 the land was zoned industrial and the purpose of a liquid fuel depot was prohibited. The applicant claims that the existing use of the land is for a liquid fuel depot. Alternatively, it was an innominate use such as petroleum products and distribution or oil terminal. The respondent characterises the use as industry port uses and warehouse. The latter uses continued to be permissible in the zone after LEP 2000 came into effect. 66 Characterisation of the use is a question of fact. It is not appropriate to characterise the use by reference to a definition in a planning instrument. The proper approach is to describe the use broadly at a level of generality that covers the collection of alike activities carried out on the land. There can be more than one purpose. If one purpose operates independently and is not merely incidental to another purpose it is not necessarily deprived of its character merely because it is ancillary to or connected to another use (Foodbarn Pty Limited and Others v Solicitor-General (1975) 32 LGRA 157 at p 161 and Baulkham Hills Shire Council v O'Donnell (1990) 69 LGRA 404 at p 410). 67 Over the years since 1955 there has been a plethora of applications recorded on the registers of the council. There are various references to "warehousing", "production of lubricants", "petroleum production distribution", "bulk terminal", "oil storage terminal", "manufacturing packaging and distribution facility", bulk oil loading facility", "grease manufacturing", "lubricating oil terminal and grease manufacturing plant", "marine diesel fuel bunkering" and "production of lubricants and greases". In November 1998 Caltex (Ampol) wrote to Walker Corp Ltd in the following terms:- This site was the original gasoline terminal for distribution of petrols and other petroleum hydrocarbon products to the Sydney market. It was operated by Texaco which later formed Caltex. In its mid term the use changed to a grease and lubricants manufacturing facility and remained Caltex prime source of these products until early in the 1990's.

In later years it has been the main point of supply of diesel to the harbour marine traffic. It shares this role with a similar Shell facility at Gore Bay. It has also been used for bulk storage of lubricant base oils.

Currently it supplies fuel to ferries, fishing boats and water taxis operating Sydney Harbour.

68 At 22 December 2000, according to the evidence of its former employee, Neville Robert Beyer, part of the Caltex site was used for the storage of lubricants, greases, cartridges, lubricating oil and diesel that was predominantly distributed to commercial vessels. Other ancillary uses included an administration building, a tank for the storage of groundwater and pipes associated with refuelling. 69 The respondent argues that the proper characterisation of the land was for the purposes of port uses or warehouses, not a liquid fuel depot. In the alternative, the respondent contends that only the site of Tank 7921, the distribution pipes to the wharf and the wharf itself could be said to be land actually and physically used for the purpose of a liquid fuel depot. 70 It is apparent from the above that there was a range of individual fuel related activities carried on over the site over the years. The question is whether an hypothetical purchaser would have reasonably regarded the contemporary use on 22 December 2000 and at the date of acquisition as justifying the application of the description of liquid fuel depot to the collective uses of the site and, if so, to what degree of confidence it could be regarded as within the statutory definition of "a depot or place used for the bulk storage for wholesale distribution of petrol, oil, petroleum or other unflammable liquid". The council did not concede in correspondence with the applicant that existing use rights were available. 71 However, on 15 November 2001 McRoss obtained advice from senior counsel in the following terms:- The land is currently zoned Industrial under Leichhardt Local Environment Plan 2000 (the LEP). In that zone the use of land for the purpose of a liquid fuel depot is prohibited. However, the land has at all material times, and still is, used for that purpose. It follows that the use of the land by Caltex for the purpose of a liquid fuel depot is an existing use within the meaning of s.106(a) of the Environmental Planning and Assessment Act 1979 (the Act). 72 The opinion did not canvass the specific issue of whether existing use rights applied to the land but went on to advise whether constraints imposed by cl 14(1)(a) and cl 14(1)(c) of State Environmental Planning Policy No. 56 - Sydney Harbour Foreshores and Tributaries ("SEPP 56"), s 92A(2)(d) of the Environmental Planning and Assessment Regulation 2000 and State Environmental Planning Policy No. 55 ("SEPP 55") were of any force or effect by virtue of the provisions of s 108(3) of the EP&A Act. Senior counsel advised they were not. 73 There is also an issue whether there was a risk the existing use, if it existed at all, had been abandoned at the relevant date. The purchaser would have been aware that existing use rights can be lost by abandonment and, therefore, it can be expected some enquiries would have been made and some advice sought in that respect. From 2001 onwards the evidence shows that the use of the remaining parts of the site was progressively reduced until 27 May 2002 when Metropolitan Fuel Distributors, the operator of the site, advised the Premier the refuelling terminal will cease to operate due to McRoss exercising an option to develop. 74 In a consultant's report commissioned by McRoss in October 2002, CH2M Hill stated that at 7 May 2002 the main functions of the site were fuel unloading, fuel dispensing, packaged lubricant store and that fuel distillate was unloaded from road tankers at the tanker discharge bay which was delivered to Tank 330 via fixed piping. However, Mr Beyer say that the tank was decommissioned in May 2002. 75 By September 2002 Caltex had cleared all tanks, equipment had been removed and no fuel was stored on the site. Accordingly, an hypothetical purchaser would have recognised a prospect of eventually establishing an existing use but at the same time appreciating the significant risk of being able to ultimately establish that the existing use could be relied upon to provide the platform for the approval of an alternative non-complying use. In my opinion, it would not have been free from doubt to an extent that would have justified unqualified confidence that an existing use right in fact existed over the whole of the site. Nevertheless, the purchaser would have placed considerable reliance on the prospect that it did. 76 If I had to decide it now (which, in light of my earlier ruling, is not required), in my opinion, based on the evidence in respect of the position, at December 2000 Caltex was using part of the land as liquid fuel depot. The balance of the land was either being used as a warehouse or was not being currently used for any purpose, following progressive decommissioning of the plant. This general state of affairs continued during the period within 12 months before resumption on 26 September 2002. As the use of the land as a liquid fuel depot was limited to part of the land only, the applicant may not have benefited from existing use rights in respect of a liquid fuel depot over the whole site. This is how the prospective purchaser would have seen the position. Steps in the resumption process 77 The next question that arises for determination is whether the SHFA, as resuming authority, is required to pay compensation at the value for industrial land or at some other value. In Housing Commission of NSW v San Sebastian Pty Ltd and Others (1978) 140 CLR 196 Jacobs J recognised there are many situations where the relationship between the zoning and the proposed public works is not clear cut. 78 In 1983 Cripps J, in the context of s 116 of the EP&A Act as it then was, recognised that where the purpose of a zoning of land in a particular way was to give effect to an intention that the land be acquired, it was not necessary to make the connection between a zoning for the public purpose and the subsequent resumption (Wimpey Construction UK Ltd v The Minister (1983) 53 LGRA 75). Following the same reasoning, in order to determine the highest and best use of land to which s 116 or the San Sebastian principle apply, Hemmings J decided that the land is deemed to be subject to planning controls which would have applied had there never been any intention to resume (Palmaco Pty Ltd v Minister Administering the National Parks and Wildlife Act 1974 [No. 3] (1991) 71 LGRA 441 at 448). Further to what Jacobs J said at 206-7 in San Sebastian, in The Crown v Murphy and Another (1990) 71 LGRA 1; 64 ALJR 593 the High Court reiterated the principle "that restriction on land use…maintained as a result of consultation with the resuming authority" must be ignored for the purpose of assessing the value of resumed land and then made it clear at p 4 and p 545 that the principle applies 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 be regarded as a step in the process of resumption. 79 It is not just the zoning that must be ignored. It is the increase or decrease in the value of the land at the date of acquisition caused by the potential to carry out the public purpose. The decision in San Sebastian directs the Court to value the land on an artificial basis, namely that the value has not been affected by the resumption process (Griffith City Council v Polegato and Another (1990) 20 NSWLR 696 at 701). In contrast to s 56(1)(b) of the Just Terms Act, s 56(1)(a) does not refer to the resuming authority. It mentions only that an increase or decrease in the value of land caused by the proposal to carry out the public purpose must be ignored. 80 It is appropriate to now analyse the events leading up to the resumption for the purpose of determining the effect of applying the abovementioned principles to the present case. 81 Until Leichhardt LEP 2000 was made on 22 December 2000 the subject land was zoned part residential and part waterfront/industrial. The residential zoning applied to part-lot 1 DP 192275 and a closed road. Pursuant to LEP 2000 the whole of the land was zoned industrial by including it in the general industrial zone. The industrial zoning applied at the date of acquisition. 82 On 19 March 1991 the council resolved to hold a public hearing to be conducted by Commissioners of Inquiry for Environment and Planning in regard to four draft Leichhardt LEPs ("the DLEPs") in respect of four sites, including the subject site. The Commissioners prepared a report in July 1991. The principle objective of the report was to determine the most appropriate form of the DLEPs for each of the sites having regard to relevant directions as to content and the particular issues arising out of the hearing. 83 It is convenient to quote from the report itself the history of actions prior to the hearing fortuitously identified by the Commissioners:- The use of the sites has either ceased and/or there is now a desire to owners or prospective purchasers that the sites be rezoned to permit significant residential development thereon. Applications for rezoning supported by development concepts for each site were submitted to Council at varying intervals between April and November [1989]. The applications and DLEPs generally in conformity therewith were placed on public exhibition until May 1989. On 12 June, Council resolved to impose a moratorium on the rezoning of the sites (Monsanto site excluded) to enable the preparation of a comprehensive planning study for the Peninsula. On 15 June, the then Minister for Planning and Minister for Local Government, the Hon David Hay, MP, issued a direction under Section 55 of the EPA Act requiring Council to perform its functions pursuant to Section 68 of the Act and submit DLEPs for the five sites by 21 July 1990. The Minister later informally extended the date for submission. A comprehensive report dated August 1990 was prepared by the Council's Town Planning Department. This detailed its analysis of the proposals and the public submissions thereto and recommended the submission of the DLEPs included therein, for the five sites, to the Minister. At its meeting on 23 August 1990, Council resolved, inter alia, to exhibit the DLEPs as recommended in the report and to then hold a public hearing. The Minister was so informed. On 30 August 1990 the Minister appointed a Planning Administrator to administer all the planning functions of the Council under the EPA Act within the Balmain Peninsula. The Administrator rescinded the resolution of Council of 23 August and resolved, inter alia, that the then subject DLEPs be exhibited for four weeks, together with Stages 1 and 2 of the then available traffic study of the area which had been prepared by Stapleton and Hallam. The exhibition was from 11 October to 8 November 1990. In addition, separate public workshops were held on open space, density/urban design, traffic and contamination. These issues were considered to be the principal matters of concern. Site specific workshops were also held in regard to the three localities the subject of the DLEPs. Following the exhibition, Council's Town Planning Department submitted a further comprehensive report, dated December 1990, to the Administrator. It appears that he decided that no public hearing was to be held and proposed some amendments to the plans as prepared by the Town Planning Department. This decision was made some time before 25 December 1990. On 19 February 1991 the Court of Appeal ruled "invalid" the appointment of the Planning Administrator following an appeal thereto by the Balmain Association Ltd/Balmain Development Trust. The Council then took over the processing of the DLEPs. On 19 March 1991 it resolved to hold a public hearing to be conducted by Commissioner W Simpson assisted by Commissioner M Carleton. All persons who wished to be heard were to be heard. The hearing was "not to exclude any matters relating to the proposed future development of the Peninsula which could possible affect its amenity". 84 The Commissioners recommended that the council amend and determine the DLEPs for submissions to the Minister pursuant to s 68 of the EP&A Act in accordance with the DLEPs prepared by them and appearing as an appendix to the report. The aims and objectives of DLEP 81 in respect of the subject site include the following:- (a) to rezone the land and encourage its redevelopment for residential and open space purposes in the interests of the proper and orderly planning of the land;

(b) to enhance the visual amenity of the area and, in particular, views from the Parramatta River;

(c) to encourage the relocation of petroleum products manufacturing from the land to which this plan applies;

(d) to encourage residential development which is appropriate to the scale, character and diversity of the locality and the characteristics of the site;

(g) to create a public foreshore reserve linking Mort Bay Park to Ballast Point; and

(h) to ensure that such parts of the land to which this plan applies as may be contaminated are remediated before any development takes place on those parts of the land. 85 The prescribed FSR for development on the land was recommended not to exceed 0.8:1, including any land which may be dedicated to the council for open space purposes. 86 In a report to the council dated 22 August 1991 the Municipal Town Planner recommended that Leichhardt Municipal Council ("the council") adopt the DLEPs in accordance with the Commissioner's advice. A direction made pursuant to s 55 of the EP&A Act required the council to submit DLEP 81 to the Department of Planning by 6 September 1991. The direction expired on 6 September 1991 and on 10 September 1991 the then Minister for Planning wrote to the council expressing concern that despite efforts to ensure the council had sufficient time to carry out its functions it had not complied with the direction. A new council was elected on 14 September 1991. 87 Prior to the notification of State Environmental Planning Policy No. 32 - Urban Consolidation ("SEPP 32") in the Government Gazette on 15 November 1991, the council rejected a recommendation that the council adopt DLEP 81 and on 21 October 1991 had formally resolved to reject State intervention into its affairs and to appoint an external planner to assume overall supervision of the Balmain re-zonings in conjunction with public consultation. 88 At its meeting on 10 December 1991 the council resolved to seek funds from the Commonwealth and State governments to acquire the whole of the Caltex site. At a Special Council Meeting on 17 December 1991 proposals in principle were adopted to allow for mainly residential development and open space on the contaminated sites, subject to DLEP 81 being deferred until both Governments have responded to the council's request for finance. The council held a Special Meeting on 6 February 1992 to consider a Mayoral Minute that identified the council's first priority for the Caltex site, that it should be open space and, therefore, DLEP 81 should be deferred until both Governments have responded to the council's request for funds. On 11 February 1992 the council submitted DLEPs for three of the Balmain sites under s 68(4) of the EP&A Act. DLEP 81 in respect of the Caltex site was excluded. 89 On 21 February 1992 the Minister purported to make Greater Metropolitan Regional Environmental Plan No. 1 ("GMREP 1") whereby the Minister was made consent authority in respect of the Balmain peninsula sites. GMREP 1 was declared invalid by the Court of Appeal on 10 December 1992 (Leichhardt Municipal Council v Minister for Planning and Director and Planning (1992) 78 LGRA 306). GMREP 1 amended Leichhardt LEP 20. The objectives for the four former industrial sites included an aim to encourage re-development of the land within those sites for residential, commercial, open space and special industrial purposes, with a particular objective for the Caltex site to identify the land to be used for open space purposes on, and providing access to, the foreshore of Sydney Harbour at Ballast Point consistent with Sydney Regional Environmental Plan No. 23 - Sydney and Middle Harbours. 90 Before the Court of Appeal ultimately determined that GMREP 1 was invalid, the council resolved, on 6 October 1992, to advise the Minister for Planning "in the strongest possible terms" that a current development application in respect of a proposal for 157 dwellings at Ballast Point was contrary to the clearly stated position of the council that the site be purchased for inclusion in the Sydney Harbour National Park ("SHNP") and as regional open space. The council resolved to submit to the Department of Planning that the development application be refused by the Minister as the consent authority. A letter reflecting the terms of the council resolutions was sent to the Department of Planning on 21 October 1992. 91 On 24 December 1993 the Minister purported to make Greater Metropolitan Regional Environmental Plan No. 2 ("GMREP 2") pursuant to s 51 of the EP&A Act. On 29 June 1994 Caltex lodged a DA for residential development of the site pursuant to GMREP 2. Development consent was granted on 25 March 1995 for the construction of 174 medium density dwellings with a FSR of 0.803:1. The development consent ceased to have any effect after the Court of the Appeal declared GMREP 2 invalid on 17 May 1995. Between December 1995 and May 1998 LEPs were made in respect of the former industrial sites, except the Caltex site. In the meantime, on 10 January 1996, the Mayor of the council wrote to the Prime Minister "seeking support for funding towards purchase of the Caltex/Ampol site at Ballast Point, as part of Sydney Harbour National Park". 92 Put and Call Options between Ampol and Walker Group were agreed on 2 September 1997. 93 Following a submission made by Delmo Pty Limited that requested the Caltex site be rezoned to residential and open space, council planners made the following comments on 14 August 1998:- This significant site has a history of discussion between Council and stakeholders about alternative future uses and their environmental and economic impacts. To date no agreement has been reached. The arguments in the late submission do not provide sufficient justification for a zoning change. Given the differing viewpoints of the stakeholders it is recommended that the site retain its current industrial zoning. 94 The submission was made by Delmo in response to a proposal to zone the whole of the site industrial under a draft Town Plan. The council merely noted the submission and that no further action was required. 95 On 21 August 1998 SEPP 56 was gazetted and the Caltex site was listed in Schedule 2 as a site of strategic significance. In accordance with Pt 4 of SEPP 56 development consent must not be granted for development that relates to sites of strategic significance unless there is a Master Plan for the land, the consent authority has taken the Master Plan into consideration and the development is consistent with the Master Plan, unless the Minster waives those requirements. 96 On 22 September 1998 the council resolved to participate in a work party to development a Master Plan for Ballast Point under SEPP 56. 97 On 7 October 1998 the Department recommended to the Minister that a co-ordinated process be established between those having an interest in the site, the council and the Department for the purpose of preparing a Master Plan for the site. The council supported the suggested co-ordinated approach on 15 December 1998 but re-iterated its position to support the retention of industrial uses on the site until such time as the land becomes available for open space. The council maintained its position during the course of the preparation of a Ballast Point Industrial Master Plan through 1999. 98 On 14 December 1999 the council adopted a resolution to request that the State and Federal Government purchase the Caltex site at Ballast Point for inclusion in the SHNP. At the same time the applicant, or one of its associates, developed a proposal for waterfront light industry development in conjunction with open space and a small scale residential use adjoining the main Ballast Point site. The Director Sydney Regional Central of the Department of Urban Affairs and Planning ("DUAP") observed in a file note dated 18 January 2000 that "Walker's previous proposals for large scale residential development and a small headland park appeared to have been shelved (or at least postponed for the time being)" and "it is premature for the Minister to commit to any particular solution for the site, or action by the State Government". 99 A briefing note to the Minster from the Director on 27 January 2000 confirmed the process of preparing a draft Master Plan for the above purposes. The historic preference of Walker for residential development is noted as well as the council's established position that it wished to see either open space or industry at Ballast Point. DUAP's established position is noted as to promote a "best planning solution" for the site from a local and regional perspective. After discussing the available options and procedural matters, the Director made the following recommendation:- RECOMMENDATION The planning, design and financial issues on this site are extremely complex. It is considered premature for the Minister to commit publicly to any particular solution for the site, or action by the State Government, without further assessment on the specific impacts any proposed option may have. At this stage, no option should be ruled in, or ruled out, until there is sufficient information on which to base a judgement. 100 Following a report from its Environmental Management Division, the council, on 28 March 2000, resolved, inter alia,:- 1. That the Council resolve that in principle, it is prepared to participate on a Steering Committee for the development of two further master plans for open space and for residential purposes with a large amount of public open space on the Ballast Point site.

4. That Council reiterate its existing policy to not alter the zoning on that site. 101 The Department identified the master planning process as involving an assessment of the land use potential of the site and alternative land use options. It was suggested by the Director of the Urban Design Advisory Service that a Steering Committee consisting of the council, DUAP and Walker Corp commence work in February with completion and a public exhibition in September. By September 2000 a draft framework plan for Ballast Point had been developed by the Department. The draft framework plan is non-committal in respect of the future land uses and possible re-development opportunities, except to say that any proposals for re-development for the site should comprise a significant element of public open space and that an element of the site should be retained for harbour uses to best utilise existing infrastructure. The draft plan went on to state as follows:- · An element of enabling development, compatible with proposed public open space and maritime precinct uses, may also be considered on the western portion of the site. Any development that may be permitted in this location should continue the pattern and form of existing development along Ballast Point Road and Wharf Road. Visual impact and traffic impact will be major determining factors on the land use type, size and form of enabling development that might be considered on this part of the site. Enabling development could include a variety of uses, including industrial, business and/or residential. 102 In a submission to the Premier on 18 October 2000 the Sydney Harbour Foreshore Authority ("SHFA") sought to have the Caltex site at Ballast Point incorporated within the SHFA area boundary by transferring it to Schedule 1, thereby making it a site of state significance and replacing the council with the Minister for Urban Affairs and Planning as consent authority. The primary goals were identified as to increase public access to the harbour foreshore and in addition to create a new park and open space to build on the maritime heritage of the site by providing opportunities for activities related to the working water front. The submission also recognises that it would also enable compulsory acquisition by the government. The background briefing in the submission referred to a proposal by Walker Corp to build 140 luxury apartments on the site, the draft Master Plan for an industrial option and the ongoing commitment of the council to its position that nothing apart from industrial use should be permitted. By December 2000 the Government had commenced preparing a framework plan for the site, together with 23 other locations. LEP 2000 was made on 22 December 2000. 103 In March 2001 the option of the State acquiring the site in order to "unlock this strategic harbourside site" was canvassed in an internal briefing note to the Chairman of SHFA. The note was prepared as a precursor to a discussion with Mr Laing Walker. Representatives of Caltex and McRoss met with the Minister's delegate on 2 May 2001 when the following three options were suggested for moving forward on the site:-

(1) Purchase by SHFA; (2) Proceed with Industrial Master Plan; or (3) Modest residential development as part of a residential/mixed use option after transfer of the site from Schedule 1 to Schedule 2 under SEPP 56. 104 In December 2001 the council became aware that the prohibition of liquid fuel depots under the LEP afforded the prospect of existing use rights and raised a proposed amendment to the LEP to overcome "this anomaly". On 19 December 2001 the Department of Planning was aware that SHFA was ready to undertake all necessary procedures and allocate the necessary resources to acquire the land by compulsory acquisition. 105 By letter dated 22 January 2002 the Mayor of the council requested the Premier to meet with her and other interested parties to discuss an approach to future planning for Ballast Point. The Mayor stated that the "constant battle to hold back development will continue until such time as the State Government intervenes". Between the date of that letter and 5 February 2002 the Chairman of SHFA foreshadowed a decision by the Government to acquire the site for a park. On 11 February 2002 it was decided to transfer the site from Schedule 1 to Schedule 2 under SEPP 56. This change was gazetted on 19 February 2002. On that same date the Premier announced a decision to acquire the site. 106 It is the applicant's case that the initial step in the resumption process was taken on 6 February 1992 when the council adopted the recommendation in the Mayoral Minute by deferring DLEP 81. It is further contended that thereafter council actions are consistent only with the objective to have the land transferred into public ownership as a harbourside park with the maintenance of some maritime uses. The challenges to GMREP 1 and GMREP 2, the rejection of the Delmo submissions on 14 August 1998, the confined use of the land primarily for public open space in the draft framework plan prepared in 2000, followed by the retention of part of the land and the inclusion of the balance of the land in an industrial zone rather than a residential zone under LEP 2000 are all said to be indicative of the council's strategy to oppose residential development so that the land could be acquired for the public purpose and are, therefore, steps in the resumption process that must be disregarded. 107 The respondent says the acts and omissions relied upon by the applicant were not related to the proposal to carry out the public purpose for which the land was acquired, namely "for the purposes of the Sydney Foreshore Harbour Authority Act 1998", including not only the functions of protection and enhancement of the natural and cultural heritage of the foreshore area but also orderly and economic development and use of the foreshore area. The submission by the respondent is that at least the following three situations can be envisaged where the necessary causal relationship with the public purpose will not be established:- (a) where the claimed step in the resumption process was for a different public purpose than the public purpose for which the land was acquired;

(b) where the claimed step in the resumption process is for multiple purposes, one of which is the public purpose for which the land was acquired, but the public purpose for which the land was acquired was not the substantial purpose; and

(c) where the public purpose for which the land was acquired did not cause the claimed step in the resumption process but rather the claimed step leads to the public purpose and consequent resumption. 108 A number of cases are cited to demonstrate the respondent's argument. For example, in Rees and Another v Minister for Planning and Housing (1991) 76 LGRA 167 Gobbo J rejected the claimant's argument that a reservation of adjoining land for cemetery purposes was part of the acquisition scheme to acquire the subject land for the purpose of open space. However, Gobbo J made the following observations that are relevant in the present context at p 171:- Sometimes it will not be clear whether or not the detrimental acts are part of the scheme of acquisition. It is not necessary that only the eventual acquiring authority is involved for the scheme may be set in train by a planning authority that is different from the eventual resuming authority. A court should not be astute to restrict the operation of the principle to only obvious and direct activities in pursuit of the scheme. 109 In Blue Mountains City Council v Mulcahy (1998) 100 LGERA 192 the Court of Appeal rejected the council's argument that works for the construction of a road built at a time when there was no intention to open a public road were carried out for the purpose to which the land was subsequently compulsorily acquired, namely as a road. These and the other authorities relied upon do not assist the Court in the present circumstances. 110 The council, as the initiating zoning authority, has consistently resisted any entreaty by the State Government, particularly after the recommendation of the Commission of Inquiry, to re-zone the land in order to recognise the pending demise of the industrial use. It has vigorously maintained a campaign to persuade one or other of the arms of government to acquire the land or to provide the requisite finance to enable the council to do so, so that it could be developed as public open space. The council made the cost of future acquisition of the land for the public purpose an element of its s 94 Contributions Plan. Ultimately the council was rewarded for its efforts when the State Government used the statutory vehicle, the SHFA, for resumption of the land. The public purpose of the SHFA Act is consistent with the public purposes of establishing public open space along the foreshores announced by the Premier on 19 February 2002. The effect of maintaining the industrial zoning was to constrain the development of the land for the higher and better use such as for residential purposes, thereby reducing the value of the land at the date for resumption. The maintenance of the industrial zone as a holding zoning can be regarded as a means of freezing the development of the land until the council was in a position, directly or indirectly, to arrange for its acquisition for the public purpose by whatever means became available to it. It was ultimately successful in achieving that purpose vicariously. 111 If the council had not taken the stance it did, the land would have been zoned residential by the making of DLEP 81 consistently with the recommendation of the Commission of Inquiry or by an overriding action by the State Government. 112 Contrary to the respondent's submission, I am satisfied the maintenance and extension of the industrial zoning from 1992 onwards and its reinforcement in 2000 are a step in the resumption process for the following reasons:-

(a) Although the zoning was not specifically for the public purpose, it maintained the status quo pending the council being able to arrange acquisition of the land for the public purpose;

(b) It was instrumental in the successful execution of the proposal, and therefore critical to the accomplishment of the aim, to bring the land into public ownership as a harbourside park;

(c) It was maintained (notwithstanding strong pressure to change it) by the public authority primarily responsible for zoning of the land that was also coincidentally plainly a driving force behind the ultimate decision to acquire the land;

(d) Although the council recognised that some industrial use might ultimately be achieved, its principal objective was to have the land turned over for use predominantly as a harbourside park;

(e) It is not necessary that the zoning explicitly restrict the use to the purpose for which the land is resumed. It is sufficient if the zoning has the intended effect in practice of constraining development potential in the interim period pending resumption in the interest of facilitating acquisition. The industrial zoning had that effect and thereby reduced the value of the land at the relevant date as against its residential value; and

(f) The council, as the responsible planning authority, stoutly resisted the development of the land for a residential use and used the industrial zoning to bolster its opposition. The Government was content to leave the zoning in place after it brought the land within the net of SEPP 56 as a site of strategic significance. The SHFA at all relevant times to it, recognised the potential for open space at the site. 113 The scheme to make the land available as a harbourside park was initiated by the council and pursued by it consistently until the land was acquired following the announcement by the Premier on 19 February 2002. The scheme was initiated at the council meeting on 10 December 1991. Thereafter, the value of the land was constrained by maintenance of the industrial zoning in order to thwart any development for residential purposes as contemplated by DLEP 81. 114 If the council had not resolved to maintain the industrial zoning, the land would have been re-zoned and thereby released for residential development more or less in accordance with DLEP 81. The industrial zoning decision decreased the value associated with the potential for residential development and therefore s 56(1)(a) of the Just Terms Act requires, for the reasons already explained in [78], the Court to disregard it. The proper application of principle in this way was conveniently summarised by Hodgson JA in Roads and Traffic Authority of New South Wales v Perry and Another (2001) 52 NSWLR 222 at 240 as follows:- Application of the principle in Point Gourde Quarrying and Transport Co. Ltd v Sub-Intendant of Crown Lands [1947] AC 565, as expressed in s 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991, requires identification of "the public purpose for which the land was acquired"; and as indicated by Handley JA, this generally requires identification of the scheme for the purposes of which the acquisition was made. Then, the principle requires any variation in value caused by the carrying out or proposal to carry out this scheme to be disregarded. Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 can then be reconciled with the Pointe Gourde principle… 115 Moreover, I agree with the obiter remarks of Gobbo J in Rees, namely that provided the actions of the planning authority that sets the scheme in train are in pursuit of the scheme, it is not necessary for that authority to be the eventual resuming authority. 116 Pursuant to ss 55 and 56 of the Just Terms Act, I propose to determine the market value of the land at an amount that reflects the potential for residential development on the basis that the industrial zoning is disregarded and that the underlying zoning was residential allowing medium density development.

The development proposal 117 As a consequence of my finding that the industrial zoning is to be ignored and that the underlying zoning would allow for residential development, it is not necessary to consider whether residential development would have occurred relying upon existing use rights, SEPP 5, SEPP 56 or the underlying zoning. The arguments in respect of yield are inherently the same except that Ken Wood, on behalf of the respondent, considers there would be marginally less risk associated with a SEPP 5 development than there would be relying upon the underlying zoning as residential. The applicant's valuer, Frank Egan, does not make allowance for any risk in any case. The risk issue will be separately addressed. 118 The parties agree that the hypothetical purchaser would have taken into account the context of the site in a very strategic location on the shores of Sydney Harbour, the views of the site from the waterway, the character, scale and context of adjoining development, the topography of the site, existing vegetation, the need for a foreshore building line, the requirement to ensure public access to the foreshore, the provision of significant open space, heritage considerations, the need for landscaping, provision of view corridors within the site, the recognition of the site as part of a working harbour, the extent of public interest in the site and other issues dealing with access, traffic generation and internal aspects of development. 119 Having regard to the whole of the evidence, particularly the expert evidence of architects and town planners, it is highly probable that the hypothetical purchaser would have received conflicting advice about the potential yield, in terms of residential units, that could be achieved from the site. It is unlikely, however, that the same purchaser would have had the benefit of the far-ranging and wide scope of advice and competing argument of the type that has been made available to the Court through the presentation of evidence by a plethora of experts and voluminous submissions by counsel. Nevertheless, the purchaser would, in my view, have had the benefit of over-arching assessments of the potential for the site that would have identified the range of possibilities and the associated degree of risk. It is necessary, therefore, that the Court balance the evidence made available to it by having regard to the practical context of the willing but not anxious purchaser dealing with a vendor of the same mind. 120 JFN Murray, a Chartered Survey, in his publication The Principles and Practice of Valuation, 5th ed, 1973, properly identifies the process the Court must undertake by describing judicial determination of value as the reduction of the contract curve to a point, not because there are many buyers and sellers, but because the point of equipoise between the conflicting interests has been found by weighing the facts as they might be apparent to the willing but not anxious purchaser. It is a matter for the Court to investigate and collate the data available to it, select the method of valuation and, by applying that method and using the data, arrive at a solution. 121 In Spencer v The Commonwealth of Australia (1907) 5 CLR 418 Griffiths CJ described the necessary mental process at p 432 as follows:- …to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce … a willing vendor to sell it, or, in other words, to enquire at what point a desirous purchaser and a not unwilling vendor would come together. 122 Isaacs J put the position of the hypothetical purchaser and vendor at p 441 as being:- …perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences and inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property. 123 The Court's role is not to determine what would have been approved, but rather to decide how the hypothetical purchaser acting prudently after obtaining the advice of relevant experts familiar with and experienced in the developments of residential medium density would have assessed the potential for the development of the subject land (EJ Cooper & Son Pty Limited v Baulkham Hills Shire Council (2003) 131 LGERA 226 and De Ieso v Council of the Highways (1981) 27 SASR 248). 124 It is, therefore, proper and, indeed, imperative for the Court to take into careful consideration the positive matters and potential constraints which have been referred to in order to identify the obstacles to the achievement of the perceived development that the hypothetical purchaser must negotiate to achieve the highest and best use of the land. These include not only the planning controls but the likely attitude and influence of objectors and council officers, studies and reports available in the public arena in respect of not only the subject land but its environs and the likely approach and advice to be given by relevant government departments. This information would have been collated and referred to or obtained by professional advisors, including town planners, architects and potential financiers so that the opportunities and risks are evaluated in an informed way. Except in the most straight forward cases, such as a single dwelling house, in modern times the degree of confidence of achieving the ultimate goal of developing land to its highest and best use is to be tempered by considerations and investigations of the type to which I have referred. Some of the evidence given to the Court would not be directly available in the public arena but I accept nonetheless that the issues raised by that evidence would have been matters that the prudent purchaser, properly advised, would have had to take into account in a general way. 125 At the date of acquisition SEPP 56 applied. Irrespective of whether the land was in Schedule 1 or Schedule 2, the Minister would have taken a pivotal role in the determination of any development application. SEPP 56 does not alter the zoning of the land so that the land would have remained zoned for residential purposes under the local LEP. The provisions of SEPP 56 do not provide a capacity to override another environmental planning instrument but nevertheless any development application would raise significant issues in relation to the State Government policy of co-ordinating the planning of development on the foreshores of Sydney Harbour. 126 It is reasonable to assume, from the evidence, that the consent authority would be anxious to constrain the density of development on the site having regard to its strategic location but at the same time be mindful of State Government urban consolidation policy. LEP 2000 provides for an FSR of 0.7:1, whereas the recommendation by the Commission of Inquiry was that the FSR should not exceed 0.8:1. The purchaser may have received conflicting evidence from town planning consultants as to the extent of FSR that could be achieved. That would have ranged from an FSR of 0.7:1 over a net area, after making due allowance for roads and open space, up to 0.8:1 on a gross basis. Accordingly, the number of units that might be foreshadowed extends from 69 units at the lowest end of the spectrum up to 138 units on the most generous assessment. 127 Caltex supported a re-zoning application made in 1989 with a Master Plan for a residential development comprising a mix of two, three and four-bedroom units in 18 blocks with a total of 163 large units. Caltex obtained a yield of 174 medium density dwellings with an FSR of 0.803:1 under the development consent granted to it on 25 March 1995. At the date of acquisition, McRoss had made an application for a SEPP 5 development in respect of 83 units with an FSR of 0.55:1. The applicant contends that the latter application was made in a climate where the council was opposed to any development and the government was actively considering acquisition and, therefore, represents the minimum potential of the land. 128 There is critical disagreement on whether the appropriate foreshore building line should demand a setback of up to 30m or, in accordance with the recommendation of Dr Sonia Lyneham, only 10m with a 3m building setback. It is the applicant's case that the objects behind a foreshore building line must be to deal with the visual aspect from the water and to allow public access along the foreshore. In this respect, the applicant relies upon physical constraints of the site, particularly those provided by the natural features of the land on the southern side and the nature of the slope and aspect in the north. The respondent also draws attention to the actual foreshore building line in the adjoining residential areas on the peninsula. 129 It is not seriously disputed that, in order to accommodate an appropriate setback from the harbour, extensive landscaping and substantial open space, approximately half of the site could be excluded from a developable area for the purpose of structures. The quid pro quo for giving over such a significant part of the site would be to allow a more generous FSR for medium density housing on the elevated sections of the land. I am not persuaded that significant importance would be attached to the suggestion that the southern cliff-face would have been left exposed as a reminder of the previous industrial activities that occurred on the site. Notwithstanding that the cliffs have been recognised from time-to-time, it is a curious concept that rock faces which are currently obscured by the industrial structures on the site could be made to serve as a historical reminder in the way contended by the respondent's witnesses.

130 Although there would be minimal risk arising from the zoning of the land (if any), nevertheless there would have been a considerable risk associated with achieving the greater yield from this prominent, significant and sensitive site. 131 The market value of the land is to be assessed on the basis agreed by the valuers, namely at a rate per unit. There will need to be a factor of risk that recognises that a yield of 138 units may not be achieved. 132 There is no doubt that the prospective purchaser would have been aware that there is a feasible expectation of yield to be as low as 69 units. However, there is also no doubt that alternative advice would have been available to the effect that, by adopting a foreshadowed FSR of 0.8:1, relying upon the history of other sites and the consideration given to this site over the previous decade, that 138 units could have been recognised as achievable. 133 Taking all of those matters into account, now it is appropriate to have regard to the valuation evidence.

Valuation 134 The valuers, Mr Egan and Mr Wood, were required to confer pursuant to the Expert Witness Practice Direction prior to giving evidence. Following their conferencing in that way, they produced a joint statement of evidence, which identified the points of agreement, their points of disagreement and the reasons for disagreement. A schedule of figures derived by the valuers, referable to the alternative development scenarios, was attached to the joint statement of evidence. Given a residential zoning allowing medium density development on the land, they agreed that irrespective of the number of units, the price paid by the hypothetical purchaser, having regard to the market conditions at the time, would have been at a rate of $600,000 for each unit equivalent. 135 Mr Wood applies a risk factor, which includes the prospect of a re-zoning, and for obtaining development consent. The applicant contends, and I agree, that there should be no allowance of a risk factor in respect of a re-zoning. However, I am satisfied that a significant risk factor would have been allowed for maximum potential development comprising 138 units either by reducing the number of developable units or by applying a percentage discount.

136 Any consent authority would have been under pressure from residents to set aside the area at the point for open space and to preserve an aesthetic appearance from the water with public access around the harbour foreshore. These issues would have driven the authority to give close consideration to density, height and separation of buildings and to limit the perception of bulk and scale of the development, particularly from its external appearance. The access to the site is along a congested and narrow network of streets leading into and along the Balmain peninsula. That would have raised issues about the desirable numbers of population. 137 Three of the experts relied upon by the respondent, including the Government Architect, Chris Johnson, in his capacity as the Chair of Sydney Harbour Design Review Panel, preferred to recommend a development comprising only 69 units. Mr Johnson made the following seven cogent points:- 1. Public Access along the Foreshore must be maximised. 2. Greening of the Foreshore is to be encouraged to soften the harbour edge. 3. Ecology of the harbour and the Parramatta River must be preserved and enhanced.

4. Views to and from the harbour must be preserved and enhanced particularly from the public places.

5. Working Port activities must be encouraged to continue with appropriate activities related to shipping, harbour safety, recreation and public transport.

6. Heritage buildings, structures and sites along the foreshore should be conserved and interpreted.

7. Building Design near the foreshore must be of high quality and generally be low in height to reinforce the topography. 138 If Mr Johnson had been invited to attend a pre-development application discussion, he would have raised the following broad design principles for the site:- · Ensure the whole perimeter appears as a "natural" landscape headland similar to Balls Head and the other nearby peninsulas · Ensure the waterfront edges of the Peninsula are "natural" landscape · Ensure good public access around the waterfront edges · Ensure the eastern point is well landscaped and reads as a "natural" feature · Ensure that the top of the peninsula has a canopy of mature trees · Ensure continuity between the edge landscape and the ridge landscape · Ensure the significance of the carved and stone form from the north are respected by incorporating them in a landscape rather than crowding them with buildings · Ensure the significance of the sandstone cliff to the south is respected by avoiding buildings between the cliff and the waterfront · Buildings located above the north and south cliffs should be set back to allow landscape, particularly mature trees, to retain the "natural" feel of the peninsula · New buildings can be constructed along the ridge below the tree canopy height. This is likely to lead to three to four storey buildings · Minimise roadways and external car parking · Underground car parking should not impinge on the heritage sandstone walls · Ensure good public pedestrian access to the site to the peninsula and to the waterfront. This must "feel" public and not be too close to private dwellings · Building forms must be broken up to allow fingers of greenery and trees to surround the buildings 139 Although, as the evidence shows, it is unlikely the Design Review Panel's views would have been available to the hypothetical purchaser, Mr Johnson's opinion nevertheless conveniently summarises the likely issues that would be addressed by a developer looking to purchase the land in September 2002. 140 It is to do no disservice to the carefully considered evidence of Gary Sheils and Nick Cooney, who also supported the respondent's case, to say that Mr Johnson caught up the general thrust of the respondent's argument to support a yield of only 69 units from the site. They all supported each other in this respect. 141 On the other, Dr Lyneham, Neil Ingham and Dr Richard Lamb provided equally plausible evidence to support a development comprising 138 units. 142 This dichotomy demonstrates the dilemma a purchaser would have faced. 143 Mr Wood applied a 20 per cent risk factor against achieving development consent. I do not accept there would have been any perception of risk for a development comprising 69 units. Both valuers agree that for 69 units the hypothetical purchaser would have paid $41,400,000 at the rate of $600,000 per unit. 144 At the other end of the scale, the purchaser would have accepted that the prospect of achieving 138 units carried significant risk. 145 Allowing only for the time to achieve consent, Mr Egan assesses the price the purchaser would pay, based on 138 units, at $80,153,466. That is a discount of $2,646,534. Mr Wood allows a 20 per cent risk factor for achieving development consent thereby discounting the price of $82,800,000 in that circumstance to $66,240,000. If the prospective hypothetical purchaser had been entitled to foreshadow developing 83 units, Mr Egan would calculate the price at $49,800,000, ignoring risk 146 As I have already said, if the 20 per cent discount allowed by Mr Wood ("in respect of a possible yield of 138 units") was adopted, the price would have been $66,240,000. That result is, in my view, an optimistic one. A further adjustment should be made to take account of the extreme sensitivity of the site and the likely controversy the development application would generate. The opposing expert views and the different development concepts for the site received strong support from the respective expert proponents. That conflicting advice would have alerted the prospective purchaser to the problems confronting an applicant for development consent but yet leaving it with a measured degree of confidence that the prospect of achieving the higher level of yield was a distinct possibility. There was in fact a strongly arguable case for its achievement, albeit with difficulty. 147 Having regard to the whole of the circumstances, I have determined on the balance of probabilities that the point of equipoise would be $60,000,000 in the extremely competitive market that prevailed at the time of acquisition. That amount represents the application of a risk factor of between 25 per cent and 30 per cent on the basis the land had been zoned residential and 138 units was considered to be achievable. It is my view that the prospective hypothetical purchaser would have taken that approach. 148 No allowance has been made for the cost of remediating the site for the reasons already explained, namely that the purchaser as holder of the equitable interest in the land had a relevant contractual right to take delivery of the land on the basis that the vendor would accept the responsibility for the cost to remediate to the point where the contamination will not prevent residential development. This fact is recognised by the settlement made between the respondent and Caltex. 149 I determine, therefore, that the market value of the land at the date of acquisition on 26 September 2002 for the purpose of determining compensation payable to the applicant was $60,000,000. 150 An allowance must be made for the cost associated with completion of the Contract for Sale. As the deposit was refunded, following the determination by Palmer J in McRoss, the total amount of the purchase price, namely $16,500,000 should be deducted to reflect the true loss by taking account of the actual cost of completing the transaction. The respondent submits that the Court should take account of this sale as a relevant guide to the value of the land at the date of the exercise of the Call Option, as it occurred after the date of announcement of the proposal to acquire the site. This overlooks the fact that the original Call Option Agreement, which set the price, was made on 2 September 1997, some five years earlier. However, the value of the equitable interest was conditional upon payment of the purchase money and the contract is therefore relevant to that extent. Caltex has been compensated for the loss of the purchase price. Disturbance

151 The parties have requested that compensation for disturbance be reserved until the question of the highest and best use is resolved. This is likely to be based on agreement. Costs

152 There has been no submission in respect of costs. Accordingly, the question of costs is also reserved. Orders 153 Final orders cannot be made until the issue of disturbance is resolved. The parties are directed to bring in the form of agreed orders within 14 days or alternatively apply to have the matter re-listed within that time. 154 The exhibits may be returned.

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