the Council of the City of Liverpool v the Commonwealth of Australia [1993] FCA 539; (1993) 119 ALR 357 (1993) 81 Lgera 405 (1993) 46 FCR 67 (10 November 1993)

FEDERAL COURT OF AUSTRALIA

THE COUNCIL OF THE CITY OF LIVERPOOL v THE COMMONWEALTH OF AUSTRALIA
No. NG0009 of 1993
FED No. 803/93
Number of pages - 17
Compulsory Acquisition Of Land
[1993] FCA 539; (1993) 119 ALR 357
(1993) 81 LGERA 405
(1993) 46 FCR 67

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
WILCOX J

CATCHWORDS

Compulsory Acquisition Of Land - Public roads vested in local council - Acquisition of roads for purposes of airport - Effect of prohibition on sale of the roads whilst they remained public roads - Whether compensation should be assessed by reference to market value at an assumed sale following an assumed road closure - Relevance of quantum of money that had been expended by the applicant on the construction and maintenance of the roads - Relevance of relationship between the rate income of the council in the area of acquisition and the cost of maintaining the roads - Relevance of value of roads to the acquiring authority - Compensation assessed on the basis of loss by council of the chance of receiving the proceeds of sale of the land, if the roads were closed for reasons unrelated to the proposed airport.

Lands Acquisition Act 1989, ss.52, 55, 56, 60 and 93.

Local Government Act 1919 (NSW), ss.232 and 276.

Crown and Other Roads Act 1990 (NSW), ss.42, 43, 44 and 45.

HEARING

SYDNEY, 21-22 October 1993
10:11:1993

Counsel for the Applicant: W R Davison

Solicitors for the Applicant: Rowens

Counsel for the Respondent: R J Bainton QC and C Adamson

Solicitors for the Respondent: Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:
1. The compensation payable to the applicant, the Council of

the City of Liverpool, in respect of the acquisition of its
land by the respondent, the Commonwealth of Australia, be
assessed in the sum of One hundred and ninety two thousand
dollars ($192,000).
2. The relief sought in the Cross-claim be reserved, with
liberty to either party to apply on seven days notice.
3. The respondent pay to the applicant the costs incurred by it
in connection with the proceeding between 23 September 1993
and the date of these orders, together with the costs of
preparation for the trial whenever occurred; but excluding
the costs incurred by the applicant in relation to the
evidence of Neil John Strickland and Frank Kevin Egan. The
costs relating to the trial are to be taxed and allowed on
the basis of a trial occupying only one day.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

WILCOX J In form, this case is commonplace. It is a claim for compensation in respect of the compulsory acquisition of land, in this instance an acquisition effected by the respondent, the Commonwealth of Australia, pursuant to the Lands Acquisition Act 1989. The date of acquisition was 17 July 1991, on which day the Minister for Administrative Services published a Declaration of Acquisition in the Commonwealth Gazette. The land was acquired for the purpose of constructing the new Badgery's Creek airport.

2. The unusual feature about the case is that the acquired land consisted entirely of public roads. The land contained a total of 32.6316 hectares. This figure included 8213 square metres within an unmade road which one of the valuers suggested was not vested in the applicant, Liverpool City Council. The correctness of that suggestion was not explored at the trial; it makes little difference to the result. It is common ground that, immediately prior to the acquisition, the remainder of the land, almost 32 ha., was vested in the council pursuant to s.232 of the Local Government Act 1919 (NSW). That section has since been repealed. At the date of acquisition it read:

"232.(1) Except where otherwise expressly provided, every public road,
and the soil thereof, and all materials of which the road is composed,
shall by virtue of this Act vest in fee-simple in the council, and the
council, if it so desire, shall by virtue of this Act be entitled to be
registered as the proprietor of the road under the provisions of the Real
Property Act 1900.
(2) The vesting in fee-simple under this section shall be deemed to be
not merely as regards so much of the soil below and of the air above as
may be necessary for the ordinary use of the road as a road, but so as to
confer on the council subject to the provisions of this Act the same
estate and rights in and with respect to the site of the road as a

private

person would have if he were entitled to the site as private land held in
fee-simple with full rights both as to the soil below and to the air
above.
(3) Unless otherwise expressly provided nothing in this section shall be
deemed:
(a) to affect any express or implied dedication to the public;
(b) to affect any existing right of the Crown or of any person in

respect

of any easement or under the provisions of any Act, except in so far as
the council is authorised by or under this Act to control and regulate

the

digging up of public roads;
(c) to affect any right of the Crown or of any person in respect of any
minerals below the surface of any road;
(d) to authorise the council to grant, demise, dispose of, or alienate
the road or the soil or materials thereof;
(e) to impose on the council any liability in respect of any rate under
any Act or in respect of any dividing fence under the Dividing Fences Act
1951 or any liability in any case where the council would not be subject
to the liability if this Act conferred on the council the care, control,
and management of the road and did not vest the road in fee-simple in the
council; or
(f) to prevent any land from being considered as adjoining within the
meaning of section 124 of the Public Works Act 1912.
(4) This section shall bind the Crown."

3. Having regard to its configuration, the land would not in any case be easy to value. But the difficulty is compounded by the nature of the applicant's title. That factor has caused the parties' valuers to adopt fundamentally different approaches to the assessment of compensation; leading the applicant to argue that the Court should value the acquired land at $3,500,000 and the respondent to put a primary contention that it had no value whatever. Each party advances alternative methods of assessment; between them they provide five different approaches. None of them is satisfactory.

The proceedings
4. It seems that the Commonwealth initially valued the council's claim at the figure of $600,000. I do not know how that sum was computed. According to the terms of the Amended Defence, on 2 May 1992, the Commonwealth made an advance payment of compensation to the council in the sum of $540,000 (being 90% of the Commonwealth valuation: see s.85 of the Lands Acquisition Act) together with interest on that sum from resumption day to the date of payment. The council thought it was entitled to more than $600,000. On 11 January 1993, it instituted this proceeding by filing an Application and Statement of Claim in which it sought an order that compensation be assessed at $3,500,000. The Commonwealth filed a Defence on 25 February 1993, contending that the compensation should be assessed at $600,000. On 23 September 1993, shortly before the hearing, the Commonwealth filed an Amended Defence by which it contended that compensation should be assessed as nil. The Amended Defence contained a Cross-claim seeking an order that the council repay the whole of the advance and interest.

The acquired land
5. It is unnecessary to state much detail about the acquired land. At resumption day there were about a dozen different roads within the area of 1770 ha. in which the airport is to be located. I will call this area, "the airport area". One road, The Northern Road, is to be left open to the public. The notice of acquisition did not include the land within this road. However, it included all the land within the other roads. The roads are typical rural roads, with formed pavements but no kerbing, guttering or footpaths. Most of them are bitumen sealed. The condition of the bitumen varies from excellent to poor. Some roads have gravel surfaces. Several roads are comparatively short, giving access to only a few allotments. Some are cul-de-sacs. Two roads, Badgery's Creek Road and Longleys Road, are major local distributors.

6. The subject area was transferred to the City of Liverpool from the Shire of Nepean by the Local Government (Areas) Act 1948 (NSW). The records concerning the roads in the airport area now in the possession of Liverpool City Council go back only to 1948. They apparently contain no evidence of the dedication of any of the subject roads, so the council assumes they were all dedicated before 1948. The council has no information as to the circumstances of dedication, or whether any predecessor council made any payment for any land included in the roads. The Badgery's Creek area has been farmed for a very long time. It is reasonable to surmise that some, perhaps most, of the subject roads were opened during the 19th century. Having regard to the subdivision pattern in the airport area, it is probable that some of the shorter roads were dedicated more recently by subdividers. There is no reason to assume any significant public expenditure on acquisition of the land over which the roads were opened.

7. Neil Strickland, Manager Civil Works of the applicant, gave evidence concerning the construction and maintenance costs incurred by the applicant since 1948. It is no criticism of Mr Strickland to say that this evidence is not very satisfactory. Mr Strickland has only recently joined the council. In giving his evidence, he was entirely dependent on council's records. The records are not complete. Moreover, they are not kept in a form that readily yields the desired information. Mr Strickland went through council's resolutions approving its work programs in each year since 1948 and isolated items referring to a road within the airport area. He assumed that work had in fact been performed in accordance with the approved program and that this work was properly characterised as construction work, as distinct from maintenance work. Both these assumptions were questioned by counsel for the respondent. Moreover, as Mr Strickland acknowledged, a problem emerged in relation to many items. Some of the identified roads lay partly within the airport area and partly outside. Only the parts within the airport area were acquired. The problem is that the works programs do not distinguish between expenditure on the parts inside the airport area and those outside it.

8. Mr Strickland's initial assessment was that the historic construction cost of the subject roads was $1,394,036. He used the Consumer Price Index to convert the expenditure to 1993 values and obtained a figure of $3,566,962. After considering criticisms of his assessment made during the course of cross-examination, Mr Strickland produced a revised calculation that showed an historic construction cost of $689,248 and a present value of $2,247,896.

9. In relation to maintenance, Mr Strickland faced the difficulty that council's records showed only its overall road maintenance expenditure in each year. The expenditure was not broken down into parts of the council's area. Mr Strickland calculated that the length of the resumed roads was 14.525 km and that this was 2.725% of the length of all sealed roads in council's area. He found that, during the period 1948 to 1993, council spent $30,415,690 on road and bridge maintenance, unrecouped footpath maintenance and road traffic signs. He took 2.725% of this figure and obtained $828,828 as the estimated amount of road maintenance expenditure within the airport area. Once again using the Consumer Price Index, Mr Strickland calculated that the present value of the total expenditure is $57,956,479 and that 2.725% of that figure is $1,579,314.

The statutory provisions
10. Before going to the contentions put on behalf of the parties, it is desirable to refer to the statutory provisions governing the assessment of the compensation to which the applicant is entitled. Those provisions are all contained within Part VII of the Lands Acquisition Act, headed "Compensation for Compulsory Acquisition of Interests in Land".

11. Section 52 of the Lands Acquisition Act states that:

"A person from whom an interest in land is acquired by
compulsory process is entitled to be paid compensation by
the Commonwealth in accordance with this Part in respect of
the acquisition".

The section does not exclude a public body, such as a local authority, from entitlement to compensation. Counsel for the respondent concedes that, in principle, the applicant is entitled to be paid compensation; the question is how much (if any) compensation is appropriate.

12. Section 55 is important to the present case. It should be set out in full. The section opens with a statement of general principle, in subs(1), and directs attention, in subs.(2), to particular matters that must be taken into account, to the extent of their relevance, in making the assessment required by subs.(1):

"55.(1) The amount of compensation to which a person is entitled under
this Part in respect of the acquisition of an interest in land is such
amount as, having regard to all relevant matters, will justly compensate
the person for the acquisition.
(2) In assessing the amount of compensation to which the person is
entitled, regard shall be had to all relevant matters, including:
(a) except in a case to which paragraph (b) applies:
(i) the market value of the interest on the day of the acquisition;
(ii) the value, on the day of the acquisition, of any financial
advantage, additional to market value, to the person incidental to the
person's ownership of the interest;
(iii) any reduction in the market value of any other interest in land
held by the person that is caused by the severance by the acquisition of
the acquired interest from the other interest, and
(iv) where the acquisition has the effect of severing the acquired
interest from another interest, any increase or decrease in the market
value of the interest still held by the person resulting from the nature
of, or the carrying out of, the purpose for which the acquired interest
was acquired;
(b) if:
(i) the interest acquired from the person did not previously exist as
such in relation to the land; and
(ii) the person's interest in the land was diminished, but not
extinguished, by the acquisition;
the loss suffered by the person because of the diminution of the person's
interest in the land;
(c) any loss, injury or damage suffered, or expense reasonably incurred,
by the person that was, having regard to all relevant considerations,
including any circumstances peculiar to the person, suffered or incurred
by the person as a direct, natural and reasonable consequence of:
(i) the acquisition of the interest; or
(ii) the making or giving of the pre-acquisition declaration or
certificate under section 24 in relation to the acquisition of the
interest;
other than any such loss, injury, damage or expense in respect of which
compensation is payable under Part VIII;
(d) if the interest is limited as to time or may be terminated by

another
person - the likelihood of the continuation or renewal of the interest and
the likely terms and conditions on which any continuation or renewal would

be granted;
(e) any legal or other professional costs reasonably incurred by the
person in relation to the acquisition, including the costs of:
(i) obtaining advice in relation to the acquisition, the entitlement
of the person to compensation or the amount of compensation; and
(ii) executing, producing or surrendering such documents, and making out
and providing such abstracts and attested copies, as the Secretary to the
Attorney-General's Department or a person authorised under subsection
55E(4) of the Judiciary Act 1903 requires."

13. Section 56 defines the term "market value" as:

"... the amount that would have been paid for the interest if it had
been sold at that time by a willing but not anxious seller to a
willing but not anxious buyer."

14. Section 60 contains a list of matters that must be disregarded in assessing compensation. They include:

"(c) any increase or decrease in the value of the land caused by the
carrying out of, or the proposal to carry out, the purpose for which
the interest was acquired;"

15. So, in determining the subject claim, the Court must disregard any alteration in value caused by the proposed airport.

16. Finally, s.93 commands the Court to ensure that the acquisition is on just terms:

"93. In any case where the Federal Court, or the High
Court exercising jurisdiction under section 75 of the
Constitution, is of the opinion that the application
of any of the provisions of this Act would result in
an acquisition having been made otherwise than on
just terms, the Federal Court, or the High Court, may
determine such compensation or make such order
(whether against the Commonwealth or against another
person) as, in its opinion, is necessary to ensure
that the acquisition is on just terms."

The applicant's first contention: assessment by reference to council's expenditure
17. As mentioned, the applicant puts its case in alternative ways. One approach is based upon the council's expenditure on the resumed roads over the years, it being said that any assessment of fair compensation would ensure that council is repaid the present value of what it has expended. Counsel puts the same argument in another way by saying that it could not be supposed that the council, as a willing but not anxious vendor of the resumed land, would be willing to sell it for less than it had expended.

18. I do not think this approach can be accepted. It is wrong in principle. Cost is not the same thing as value. A resumee is entitled to be compensated for the value to him/her of the interest that has been compulsorily acquired. That value will rarely equal the money expended by the resumee in respect of the land. The relationship between the present value of the acquisition cost and land value at resumption day depends, firstly, on a comparison between the actual (historic) acquisition cost and the true value of the land at that time and, secondly, on the variations that have occurred in land values since acquisition and those that have occurred in whatever index, like the Consumer Price Index, is used to calculate the present value of the acquisition cost. The relationship is fortuitous and irrelevant to the task in hand - the acquiring authority is bound to pay compensation assessed by reference to the value of the land on the day of acquisition, whatever the relationship between this figure and the historic acquisition cost or its present value. Because of population growth and inflation, the historic cost of acquisition will ordinarily be less than the value of the land at the date of acquisition. But the principle applies equally to the less common situation of the value of the land dropping below its acquisition cost.

19. If acquisition cost is irrelevant, it is even more erroneous to take into account maintenance expenditure. Landowners undertake maintenance expenditure in order to maximise use and enjoyment of their land during the period of their ownership and to retain its capital value. Because maintenance costs are recurring items, like rates and taxes, it would be absurd to include those costs in an assessment of the capital value of the land. It would be even more absurd to do so without allowing for the benefits of that expenditure over the period of ownership and its diminishing effect over time. The point is illustrated by the present case. The applicant seeks to have the Court take into account road maintenance expenditure over a period of 45 years, without making any allowance for the facts that Liverpool rate-payers, and other road-users, have enjoyed the benefit of that expenditure during that time and that the benefit of the early expenditure must have long disappeared.

20. Although construction costs, strictly so called, may properly be regarded as capital costs, the same difficulty arises in relation to them. Some of these costs were incurred many years ago. The constructed items must have depreciated. It is anomalous to adjust the historic cost upwards, to allow for inflation, without also adjusting downwards to allow for depreciation.

21. Finally, in relation to counsel's alternative way of putting this approach, the proposition assumes an ability to sell the roads at resumption day. For reasons that I will develop, this assumption is invalid.

The applicant's second contention: assumed purchase by adjoining owners
22. The other basis of assessment argued on behalf of the applicant comes from a valuation report written by Frank Egan, an experienced consultant valuer. This basis values the resumed land at $3,500,000. Mr Egan explained that he felt bound to assume a sale of the subject land on 17 July 1991, the reason being the definition of "market value" in s.56 of the Act. He observed that "(f)or the land to be sold, the roadways have to be assumed to be closed". New South Wales law permits the closure of public roads, subject to compliance with specified procedures. At the date of resumption, the relevant provisions were contained in Part 4 of the Crown and Other Roads Act 1990, to which I will return. Mr Egan said that, because of s.60 of the Lands Acquisition Act, he had disregarded the proposed airport and "assumed the highest and best use of the adjoining land is as currently utilised; i.e. small to medium sized rural holdings, residential cottages, schools etc". Mr Egan argued that it followed from the assumption that, at the relevant date, the subject roads were closed, that there would be no vehicular access then available to a significant portion of the adjoining land. He called that the "landlocked" area. It is bounded on the east by Badgery's Creek and presently accessible by, but only by, resumed roads. As Mr Egan analysed the position, even on these assumptions, there would still be vehicular access to the remainder of the adjoining land, off Elizabeth Drive, which runs east-west along the northern border of the airport area, or The Northern Road. However, in order to take advantage of that access, the landowners would need to combine their allotments and re-subdivide. They would then run into the difficulty that the current minimum lot size in the area is 40 ha. Mr Egan pointed out that, if this standard had to be complied with, "almost all existing lots in this area would have to be amalgamated; thus reducing their value".

23. Mr Egan thought that -

"(r)ealistically, the only viable purchaser of the roads
are the adjoining owners; in this case the FAC (Federal
Airports Corporation), as they own all of the adjacent
land".

He said he considered the value of the landlocked land, "redundant unless access can be provided", to be over $18 million. The value of the land accessible off The Northern Road and Elizabeth Drive was at least $34 million. He said:

"A 'willing but not anxious buyer' of the subject land would have full
knowledge of the need to ensure access to all of its holdings. Further,
it would be aware there is a limited market for the subject land.
Conversely, 'a willing but not anxious seller' would have full knowledge
of the adjoining owners' need to acquire the subject land in order to
safeguard an investment of many millions of dollars. Such a seller would
also be aware of the cost of purchasing similar replacement land in close
proximity if the need arose.
It is our opinion the total market value of the properties that are
landlocked, as per Item 1 above, as at the 17th July 1991, would be to

the

order of at least $18,000,000. The total market value of the properties,
as per Item 2 above, as at the 17th July 1991, would be at least
$34,000,000. We considered therefore the owner of such lands, realising
he is the only viable purchaser of the subject properties, would be
prepared to pay only 10% of the value of the landlocked properties and 5%
of the value of the remaining properties to ensure their continued
viability. This represents a total purchase price of $3,500,000."

24. As a check on this assessment, Mr Egan considered the per hectare value of land in the area. He said that, although there were some larger lots within the proposed airport site, the predominate lot size was 2 ha. He referred to some sales of 2 ha lots that he thought indicated a value at resumption day of about $100,000 per hectare. He applied that rate to the area of the resumed land (32.25 ha) and reached a figure of $3,250,000.

25. The figure formally adopted by Mr Egan was $3,500,000, based on his primary assessment of value.

26. Mr Egan's approach was heavily criticised, both by the valuer who gave evidence on behalf of the respondent, Charles Woodley, and by counsel for the respondent. A major objection to the figure of $3,500,000 is that it depends directly upon two arbitrarily-adopted percentages: 10% and 5%. Why these figures, rather than greater or less percentages? In particular, on the assumptions made by Mr Egan, why would the hypothetical vendor not exact from the hypothetical purchasers, the adjoining landowners, full "ransom value"; that is, the price that they would agree to pay sooner than lose the ability to use or sell their land. This price would be well above 5% or 10%. Particularly in the case of the landlocked land, it would have to be close to the full value of the adjoining land. Mr Egan was unwilling to go that far. No doubt he realised that the effect of that argument would be to require the Commonwealth to pay twice for the land in the airport area. I can understand his reticence, but there is no logic in his decision to stop where he did.

27. However, there is a more fundamental objection to Mr Egan's approach. It is incorrect to assess compensation on the assumption that the roads were closed at the date of acquisition. They were not. A valuer who assesses the value of a property by reference to its market value must, contrary to the fact, assume a sale on the relevant day; but otherwise the valuer takes the facts as they really were. A valuer is no more entitled to assume a change in the status of land, to make it saleable, than he/she would be entitled to assume a more favourable zoning, location or market situation. If the status of the land precludes the possibility of sale on the relevant day, value may have to be assessed in some other way, rather than by reference to market value.

28. If justification for the principles just expressed is necessary, it is provided by the present facts. At the relevant day, the date of resumption, s.276 of the Local Government Act provided that a public road, other than a temporary road, could be closed permanently only in accordance with Part 4 of the Crown and Other Roads Act. That Part provides a procedure whereby any person may apply to the Minister (of Lands) to close a road (s.43(1)). The Minister may refuse an application for any apparently appropriate reason (s.43(8)). If the Minister proposes to consider closing the road, the Minister must publish a Gazette notice particularising the proposal and inviting the lodgment of objections at the office of the Department of Lands (s.44(1)). The Minister must publish an advertisement drawing attention to the notice in a local newspaper and cause service of a copy of the notice on the owner of each "major interest" in any land having frontage to the road proposed for closure (s.44(2)). Only after that procedure has been undertaken, may the Minister close the road (s.45(1)).

29. When those provisions are considered, the artificiality of Mr Egan's assumption becomes apparent. Having regard to the nature and scale of development in the airport area and the existing road pattern, it may be dogmatically asserted that, absent a major development proposal, it would be unthinkable simultaneously to close all the roads the subject of the acquisition. The airport proposal must be disregarded. There was no other major development proposal. Consequently, the assumption of road closure must be examined on the basis of a continuation of present land uses. If somebody had applied to close all these roads, almost certainly the Minister would have rejected the application immediately. If he had decided to consider the proposal, he would have needed to give notice to each landowner whose property fronted an affected road. This means virtually all owners within the airport area. The recipients would have felt outraged. Politically, it would have been impossible for any Minister to proceed to closure.

30. I accept that, if value is to be assessed by reference to market value, it is necessary to assume a sale; even though no sale took place on the relevant day. Otherwise, the facts should be taken as they are. There are enough complexities and artificialities in the assessment of value without including an assumption about the happening of another event, that did not happen and would never have happened. By reason of the assumption on which it is based, Mr Egan's primary approach must be rejected.

31. Mr Egan's check value of $3,250,000, calculated by applying a rate of $100,000 per hectare to 32.5 ha, suffers from the same objection. This check also assumes that the land was sold at the relevant day, stripped of its status as public roads; in other words, that the roads were closed.

32. I cannot accept any of the bases of valuation advanced on behalf of the applicant.

The respondent's first contentions: value to the Commonwealth
33. The respondent's valuer, Mr Woodley, rejected a "market value" approach. He said that the requirement that the roads be used as public roads meant that they had no market value; the council could not sell them.

34. Mr Woodley considered two other approaches. First, he noted that, by resumption day, the Commonwealth owned all the other land in the subject area. He asked himself what was the value of the resumed land to the Commonwealth and said that -

"(h)aving regard to limited evidence of market value for
large holdings with non-urban zoning the land value
determined on this approach would not exceed $10,000 per
hectare".

On this basis, the land would have a total value of about $320,000.

35. The problem about this approach is its underlying assumption. I agree that it is always legitimate to regard the acquiring authority as a potential purchaser. So the Commonwealth should not be excluded from consideration. And, by resumption day, the Commonwealth owned all the adjoining land. If the roads had value to the Commonwealth, as an owner of non-urban land rather than an airport authority, it would be proper to take that value into account. Circumstances can be imagined in which the roads would have such a value; for example, because their incorporation into the adjoining holdings facilitated a re-subdivision or major new development of those holdings, other than for an airport. If those circumstances had applied, the council might have contracted to apply to the Minister for closure and transfer to the Commonwealth. However, those circumstances do not exist in this case. So far as the evidence indicates, apart from the airport proposal, there has never been a suggestion of a major new development on the adjoining land or for a more remunerative form of use than the existing mix of small farms and rural residences. Absent the airport proposal, there would be no reason for a person who owned all the other land in the area also to acquire the roads. Many allotments are already smaller than the minimum size allowable in new subdivisions. Mr Woodley acknowledged these matters. His assumption that the Commonwealth would be prepared to pay $10,000 per hectare was based on the fact that the purchase would enable inclusion of the land in the airport. But s.60 requires that the airport proposal be disregarded. It follows that it is impermissible to value the land upon the basis of its value to the Commonwealth.

The respondent's second contention: council's income and expenditure
36. Mr Woodley's second approach was to look at the council's local income and expenditure. That approach was complicated by the fact that, after the date of resumption, the Commonwealth and the council made an agreement whereby the Commonwealth agreed to make payments to the council in lieu of rates and, in return, the council agreed to maintain some of the resumed roads in accordance with an agreed program. The agreement was intended to operate only temporarily, until all the properties that the Commonwealth had acquired ceased to be occupied by their former owners or other private tenants. On the basis that this agreement should be entirely disregarded, Mr Woodley initially calculated that the resumption of the roads resulted in a net annual loss to the council of $50,000, and that this figure ought to be capitalised at $480,000. Paragraphs 23-25 of Mr Woodley's first affidavit show his calculations:

"23. Estimated 1991 annual rate income
with public road access $500,000
Estimated 1991 annual rate income
without public road access $300,000
Estimated annual loss $200,000
Deduct annual savings
in road maintenance costs $150,000
Net annual loss $ 50,000
24. This loss would continue until rezoning for
redevelopment and if a 10 year deferral is adopted
the average annual loss is estimated to approximate
$75,000.
25. On the basis of these estimates the payment required
to adequately compensate the Council for the net
annual loss of rates would be the present value of
$75,000 per annum for 10 years allowing an average
annual earning rate of 9% (factor 6.4) i.e. $480,000."

37. Mr Woodley later discovered that he had overestimated the council's rate income from the subject area. If the land in the airport area had all been privately owned in 1992, it would have yielded the council $231,815 in rates. If that income was reduced by 40% because public road access was no longer available, as Mr Woodley previously assumed, the loss to revenue would be $92,726. But that figure is less than the amount that the council spent each year on the resumed roads. Accordingly, Mr Woodley argued, the loss of the roads improved the council's financial position, rather than the contrary.

38. This approach, also, is open to serious criticism. Understandably, Mr Woodley was not able to refer to any material justifying his estimate that, if the adjoining land lost public road access, its value, and therefore the council's rate income from that land, would decline by 40%. It seems to me that this estimate is much too low. As Mr Egan's analysis demonstrates, the closure of the resumed roads would have a catastrophic effect on land values within the airport area, considering that land as non-urban land unaffected by an airport proposal. If I had to make a judgment about the matter, I would double Mr Woodley's figure of 40%. On this basis, the lost revenue would slightly exceed the annual road expenditure.

39. However, in my opinion, it does not matter what is the correct percentage loss of rate income. The assessment of compensation cannot be approached in this way. It is meaningless to compare the rate revenue derived by a council from a part of its area with the moneys it spends on roads in the area. Councils receive road funds from a variety of sources, including State (and even Federal) Government grants. The relationship between needs and funding was not investigated at the hearing, but it is reasonable to suppose that there is some such relationship and that a reduction in the length of a council's public road system might lead to a reduction in its government grants. Moreover, roads are only one of the services, financed from rates, that councils provide to residents. It is wrong to appropriate all the council's rate income from the airport area to the provision of roads.

40. The factors I have mentioned bear in opposite directions. They are not intended to indicate the proper result; but merely to make the point that it is incorrect to approach the matter in this way.

41. Mr Woodley went on to consider the annual loss sustained by the council, taking into account the terms of its agreement with the Commonwealth. Once again, he had to adjust his initial figures. Having done that, he calculated an effective annual loss of $49,000. He capitalised this at $384,000 and adopted that figure as his assessment of the compensation properly payable to the applicant.

42. This last exercise has all the defects of its predecessor, with the addition that it is wrong in principle to take into account the terms of the agreement.

43. The council's claim for compensation crystallised on resumption day. In the words of s.55(1) of the Act, on that day the council became entitled to such an amount of compensation as would justly compensate it for the acquisition. That entitlement having arisen on resumption day, its quantum could not be affected by a subsequent event such as the agreement on maintenance. I accept that evidence of post-resumption events is sometimes admissible; for example, a sale made shortly after a resumption day may cast light on the level of the market on that day. But such evidence only assists the court to quantify the entitlement that crystallised on resumption day. It is different in kind from evidence of a new event that occurred after resumption day and, if taken into account, would change the claimant's entitlement. This point will be obvious if I illustrate it by referring to a less unusual event such as an unexpected rezoning of the resumed land. But it applies equally to the making of an agreement regarding the future use or maintenance of the land or payments to be made in connection therewith.

44. In the result, I find myself unpersuaded by any of Mr Woodley's approaches.

The respondent's third contention: no market, no value
45. The preferred position of the respondent is that the applicant is entitled to no compensation, or at best a nominal figure. Counsel point to the principle that compensation must be assessed by reference to the value of the land to the owner, not its value to the acquiring authority. They refer to the line of authority that includes such well known cases as Stebbing v Metropolitan Board of Works (1870) LR 6 QB 37; Re Lucas and Chesterfield Gas and Water Board (1909) 1 KB 16; Cedars Rapids Manufacturing and Power Company v Lacoste (1914) AC 569; and Corrie v McDermott (1914) AC 1056.

46. Counsel say that, in this case, the land was inalienable at resumption day: see s.232(3)(d) of the Local Government Act. As a result, it had no value. They mention the facts of Stebbing, where a Divisional Court held a rector not entitled to compensation in respect of the compulsory acquisition of part or all of three graveyards vested in him. The reason was that he had no power to alienate the land. Counsel place particular stress on the decision of the Judicial Committee of the Privy Council in an Indian case, Manmatha Nath Mitter v Secretary of State for India (1897) LR Ind. App. 177. This was a claim for compensation arising out of the compulsory acquisition of three strips of land. Each strip comprised part of a public road, but the trial judge held that the plaintiffs had title to the subsoil of two strips and awarded compensation for their acquisition. The High Court in Bengal set aside the award on two grounds: the plaintiffs had not established their title and they had not proved that the land had a separate market value. The Judicial Committee affirmed the High Court's decision. Their Lordships said that the High Court was "so clearly right on the question of value" that they need not enter into the matter of title. They went on, at 182:

"The land was taken for a public purpose under the provisions of the Land
Acquisition Act, 1870, and the plaintiffs' right is not to recover the
land, but to claim compensation for it. By ss.13 and 24, the market

value

of the land at the time of awarding compensation is to be taken into
consideration. It is not suggested that there is any market value of
these lands as roadways. Mr. Graham argues that when the compensation

was

awarded in this case the roads had been broken up, and therefore the
Subordinate Judge rightly valued the land as belonging absolutely to the
plaintiffs, free from the burden of the roads and capable of being used
for any purpose. In their Lordships' opinion that would be a very
unreasonable construction of the Act. There is an express provision in
s.25 that the assessor shall not take into consideration any increase to
the value of the land acquired likely to accrue from the use to which it
will be put. That points to the time when the land is acquired as the
time for ascertaining its value. Independently of that provision, it
would lead to very strange and capricious results if changes in the
condition of the land between the time when it was taken and the actual
conclusion of the award were to increase or to lessen its value. The
time of awarding compensation must be construed as meaning the time of
compensation - the time at which the right to compensation attaches. At
that time these plots of land were roadways; and the plaintiffs are
claiming for a supposed loss of value which had no existence when the
ownership of the land was changed."

47. In response to this argument, counsel for the applicant referred to the decision of the High Court of Australia in Commonwealth of Australia v Arklay [1952] HCA 76; (1952) 87 CLR 159. The issue in that case was the basis upon which compensation should be assessed where sales of land were subject to war-time price controls. The trial judge, Webb J, held that, at the date of resumption, the Commonwealth Treasury would not have approved a sale of the land at a price exceeding pounds 3,400, but this price would not have represented the land's true value. He thought that, immediately upon the removal of controls, the land would have sold for pounds 4,100 and, six months later, it would have been worth pounds 4,550. Webb J thought the owner would have anticipated this rise and, at resumption date, would have elected to retain the land rather than sell it at the controlled price. He based his assessment on the figure of pounds 4,550 but deducted pounds 200 because of the delay that would occur before that price became available. The Commonwealth appealed against this decision, arguing that Webb J erred in principle in assessing compensation at a figure higher than Treasury was likely to allow. The Full Court (Dixon CJ, Williams and Kitto JJ) disagreed. They pointed out that the assumption underlying an assessment of market value, a sale between a willing but not anxious vendor and a willing but not anxious purchaser, presupposed that a vendor could ask any price that it would be reasonable to expect the purchaser to pay. That price would normally exceed that fixed by a price controller; if it were not so, there would be no need for price control. So an owner, though otherwise willing to sell, might elect to wait, in the hope that price regulation would terminate. As the task of the court was to assess compensation based on the value of the land to the owner, this possibility must be taken into account. At 174 their Honours said:

"In the case of goods produced during a period of price control for
immediate sale and consumption the fixed price might well provide fair
compensation. Much would depend upon how the price was fixed and whether
this price was a fair and reasonable price having regard to the costs of
production and the margin of profit allowed in the light of the general
control of the problem of inflation. Such goods, especially perishable
goods, might have no retention value and no value to the owner except

what

he could then presently obtain. But the Lands Acquisition Act is dealing
with compensation for the compulsory acquisition of land. It is an Act
designed to provide just terms for the acquisition at all times whether
Australia be at peace or war. Land is a permanent asset and it has a
value capable of surviving temporary controls and financial strains and
stresses that occur during hostilities."

48. The facts of Arklay are remote from those of the present case. On 17 July 1991, the present applicant was not faced with a system of price control or a temporary restriction on its power to alienate the land. It was faced with a total prohibition that would enure indefinitely, unless the law was changed. It was most unlikely that the law would be changed in such a way as to permit local authorities to alienate public roads. The constraint on Liverpool City Council's ability to exploit the commercial potential of its land was considerably greater than that faced by Ms Arklay.

49. Nonetheless, Arklay is helpful in resolving the present case. The legislation under which Arklay was decided, the Lands Acquisition Act 1906, contained no equivalent of s.55(1) of the 1989 Act. Yet the decision applied an aspect of the principle that came to be expressed in that subsection. That expression is in wider terms than anything said in Arklay and is framed as a fundamental principle. It is important that everybody concerned with the assessment of compensation bear the principle in mind. Market value is a very useful tool in assessing compensation. In the majority of cases, it will provide the surest guidance. But the concept must be kept as a tool. It must not be allowed to dominate the process of assessment, forcing error; for example, the making of a complementary but unwarranted assumption, as in Mr Egan's evidence, or the entire rejection of compensation simply because the resumee had no capacity to sell, as in the submissions of counsel for the respondent. From time to time there will be cases where compensation cannot satisfactorily be determined by reference to market value. In those cases it is necessary to remember the principle expressed in s.55(1), and stand back from the market and consider the total financial effects of the acquisition on the resumee.

50. Secondly, Arklay illustrates the positive aspect of the concept called "value to the owner", as distinct from the negative aspect emphasised in the line of cases cited by the respondent's counsel. Arklay shows that "value to the owner" may exceed the price available to the owner, even from a willing but not anxious purchaser, on resumption date. Of course, if there was no prospect whatever, on resumption day, of the owner being able to sell the land (as in Stebbing), and the owner will not suffer any loss of income or other financial disadvantage in parting with the land, the land will have no value to the owner. However, if the retention of the land offers even a prospect of later financial advantage, that prospect represents value to the owner. The prospect must be taken into account in determining the appropriate compensation.

My assessment of compensation
51. It is clear that the resumed land was not saleable on resumption day, that the council earned no income from the land, and that its loss did not cause the council any immediate or certain financial disadvantage. However, there was one prospect of financial return which the council lost on resumption: the possibility that, one day, a part or parts of the roads would be closed, the land sold and the council receive the sale proceeds.

52. Section 276 of the Local Government Act, as it stood at resumption day, provided that if a public road vested in a council is closed in accordance with Part 4 of the Crown and Other Roads Act and the fee simple in any part of the land is subsequently disposed of under that Act or the Crown Lands Acts by way of sale, "the council is entitled to any of the proceeds that remain after deducting the costs of carrying out the sale". The subject resumption deprived the council of the chance of ever receiving the proceeds of sale of any part of the resumed land. In accordance with the principle embodied in the notion of "value to the owner", the council is entitled to be compensated for the loss of this chance.

53. It is very difficult to assess what amount is appropriate to compensate the council for the loss of the chance. Logically, the assessment involves three elements; all to be considered on the basis that there was no airport proposal and no road resumption but, otherwise, on the basis of the facts existing on 17 July 1991. The three elements are: the rate per hectare that would be realised if land within a closed road was sold; the proportion of the total road system within the area ever likely to be closed; and the discount to be made because of the time that must elapse before any sale proceeds would become available to the council. In the present case I think the third factor may be put to one side. The resumed land is located in a developing area whose property values were increasing at a greater rate than the inflation rate. Having regard to the situation of the land and the rapid increase in the population of western Sydney, it is reasonable to assume a continuation of this trend, in the absence of the airport. The greater the period before the roads were closed, and the land sold, the greater the likely real value of the land at that time. It is sensible to offset deferment against rising real value.

54. Returning to the first two factors I have mentioned, the first is the easier to assess. The relevant prospect is of one or more strips of road being, one day, closed and the land sold to an immediately adjoining owner. The valuers agree that, in this area, values per hectare vary considerably, depending on lot size. The valuers used sales evidence to determine likely values per hectare, at resumption date, for land in three categories: 2 ha lots, 10 ha lots and 40 ha lots. On Mr Egan's analysis, 2 ha lots were yielding about $100,000 per hectare. Mr Woodley thought the range for 2 ha lots was $85,000 to $90,000 per hectare. The valuers agreed that 10 ha lots sold for about $30,000 to $35,000 per hectare. Mr Egan thought the range for 40 ha lots was between $25,000 and $30,000 per hectare. Mr Woodley selected slightly lower figures, $20,000 to $25,000.

55. As the prospect is of one or more sales of a section of road to an immediately adjoining landowner, the most relevant figures are those relating to smaller holdings. The area of land sold to any one purchaser would be likely to be small. On the other hand, there is a premium element in the price of 2 ha lots; the purchase of such a lot enables the purchaser to erect a house. Although the acquisition of part of an adjoining road might add to the amenities of a property, assuming that alternative access was available or procured, that acquisition would not enable the purchaser to erect a second house or subdivide the land. I think the selected rate per hectare should be greater than the agreed 10 ha rate ($30,000 - 35,000) but below the rate available for 2 ha lots. It would be reasonable, I think, to work on the basis that closed road land would fetch an average of $60,000 per hectare.

56. The more difficult task is to determine how much (if any) of the resumed roads would ever have been closed, in the absence of an airport proposal. I think very little. I have not calculated the areas of land within each road, but it is obvious that a large part of the total 32 ha is contained within the major distribution roads. It is difficult to imagine circumstances, absent the airport, that would have led to their closure. I suppose there was always a chance of a developer, public or private, proposing a major development for which it was prepared to consolidate a large site and incur the cost of purchasing many houses and house sites. The existence of the possibility is demonstrated by the fact that the Commonwealth decided to take that course in connection with the airport. But realism suggests that the prospect was remote.

57. However, not all the resumed roads are major distributors. As previously mentioned, a number of roads serve only a few properties. Some are cul-de-sacs. At resumption day there existed a somewhat greater prospect that, sometime in the future, one or more of these roads might be closed and the land sold to the adjoining owner or owners; perhaps in conjunction with a new development requiring an aggregation of some allotments, perhaps as part of a consolidation and re-subdivision of land. It must be remembered that, at resumption day, the airport area was still comparatively undeveloped.

58. In a case where the task of assessing compensation comes down to the evaluation of a chance, it will rarely be possible to demonstrate that any particular figure is correct. I certainly cannot do so in this case. I can only consider all the relevant factors and make a judgment about them; a "best guess" perhaps. Specifically, I must bear in mind the total area of the resumed roads (32 ha in round figures) and apply the figure of $60,000 to that number of hectares as expresses my best assessment of the proportion of the roads that would eventually have been closed and sold. Approaching the matter in this way, I select the figure of 10%. So I multiply 3.2 by $60,000 and assess the applicant's compensation in the sum of $192,000.

Orders
59. Compensation will be assessed in the sum of $192,000. This figure is less than the amount advanced by the respondent. So a refund will be necessary. As I have mentioned, the Commonwealth filed a cross-claim seeking an order for the repayment to it of the difference between the advance and the assessed amount. However, counsel for the applicant informed me that it was unnecessary to make an order; if the Court assessed the compensation at a figure less than the advance, his client would co-operate with the respondent in calculating the appropriate refund and paying that amount. I accept this assurance. I will not deal with the matter of a refund, except to reserve liberty to apply in case any difficulty arises.

60. In relation to costs, the matter is a little complex. The assessed amount is more than that on offer to the applicant after 23 September, but it is less than that available at any earlier stage. I think that the applicant should have the costs incurred by it between 23 September and the date of this judgment, together with the costs of preparation for the hearing whenever incurred. These costs should not include the costs incurred in relation to Mr Strickland's or Mr Egan's evidence, both of which categories of evidence were misconceived. Moreover, as the case would have finished comfortably in one day, in the absence of this evidence, the applicant's costs should be taxed upon the basis of a single day's hearing.