Roads & Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20 (15 February 2007)

Last Updated: 26 February 2007

NEW SOUTH WALES COURT OF APPEAL

CITATION: Roads & Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20


FILE NUMBER(S):
40096/06

HEARING DATE(S): 15 February 2007

EX TEMPORE DATE: 15 February 2007

PARTIES:
Roads and Traffic Authority of New South Wales (Appellant)
Blacktown City Council (Respondent)


JUDGMENT OF: Spigelman CJ Beazley JA Hodgson JA

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT FILE NUMBER(S): 30133 of 2005



LOWER COURT JUDICIAL OFFICER: Bignold J

LOWER COURT DATE OF DECISION: 3 February 2006

LOWER COURT MEDIUM NEUTRAL CITATION:
Blacktown City Council v Roads and Traffic Authority of New South Wales [2006] NSWLEC 37

COUNSEL:
M Craig QC/ P Tomasetti (Appellant)
J Robson SC (Respondent)


SOLICITORS:
P J Kelso, Norman Waterhouse (Appellant)
Dr N G Brunton, Henry Davis York (Respondent)


CATCHWORDS:
REAL PROPERTY – resumption or acquisition of land – compensation – assessment – valuation of land – expert valuation – judicial valuation

LEGISLATION CITED:
Land Acquisition (Just Terms Compensation) Act 1991; s66, s56(1)
Local Government Act 1993

CASES CITED:
Bankstown City Council v Roads and Traffic Authority of NSW [2004] NSWLEC 772
Blacktown City Council v Roads and Traffic Authority of NSW [2006] NSWLEC 37
Canterbury City Council v Roads and Traffic Authority of NSW [2002] NSWLEC 161
Canterbury City Council v Roads and Traffic Authority of NSW [2004] NSWLEC 172
Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157
Leichhardt Council v Roads and Traffic Authority of NSW [2006] NSWCA 353

DECISION:
The appeal should be dismissed with costs.


JUDGMENT:

- 6 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40096/06

SPIGELMAN CJ

BEAZLEY JA

HODGSON JA

Thursday 15 February 2007

ROADS AND TRAFFIC AUTHORITY OF NEW SOUTH WALES v BLACKTOWN CITY COUNCIL

Judgment

1 SPIGELMAN CJ: The Appellant (the “RTA”) appeals from the determination of compensation under Pt 3 of the Land Acquisition (Just Terms Compensation) Act 1991 (“the Just Terms Act”) for land it compulsory acquired from the Respondent (“the Council”) in exercise of the powers of the RTA under the Roads Act 1993. The determination was made by Bignold J (Blacktown City Council v Roads & Traffic Authority of NSW [2006] NSWLEC 37).

2 The appeal to this Court is limited to questions of law. There are three grounds of appeal.

3 The land acquired by the RTA comprised three narrow strips of land, described as Lots 33, 34 and 35 in Deposited Plan 1061455, which have an aggregated area of some 1,305 square metres. Lots 33 and 34 adjoin one another and Lot 34 is separated from Lot 35 by Garling Road. The acquired land was a grass landscaped strip separating Sunnyholt Road from Garling Road and the industrial retail development on the western side of Garling Road.

4 Each of the three lots was excised from Council owned land known as the Falkland Crescent Reserve, situated on the western side of Sunnyholt Road approximately 3 kilometres north of the Blacktown CBD. The Falkland Reserve is classified as community land. It comprises some 16 acres.

5 The case proceeded before Bignold J on the agreed basis that the acquired land was zoned open space and that it was classified as community land under the Local Government Act 1993. The principal issue before his Honour was the effect of both the statutory restrictions on the market value of the acquired land. Subsequent to the judgment of Bignold J, this Court has determined in Leichhardt Council v Roads & Traffic Authority of NSW [2006] NSWCA 353 that the discount for the classification as community land was not appropriate.

6 The Council relied upon valuation evidence from Mr Kent Wood. The RTA relied primarily on valuation evidence from Mr Peter Dempsey. Each of the valuers identified certain comparable sales including, as is often the case, a number of sales which they both addressed and other sales, about the comparable nature of which there was a difference of opinion which needed to be resolved by the judicial valuer.

7 However, the principal issue in dispute was the determination of the appropriate discount to the comparable sales which differed, including as applied to the comparable sales which both valuers addressed.

8 Mr Dempsey, for reasons he advanced and which were rejected by his Honour, applied a much more substantial discount than Mr Wood. This area of disputation is not in issue in this appeal, nor could it be in an appeal limited to questions of law.

Grounds 1 and 2

9 The Appellant dealt with Grounds 1 and 2 together. They state:

“Ground 1

Bignold J’s decision was flawed by a material error of law. He did not value the acquired land having regard to its actual physical location and the legal constraints arising from it being zoned as open space land as at the date of compulsory acquisition. His Honour valued the land as though it was good, flood free, building land without physical defect whereas it was not.

Ground 2

The proper approach required his Honour to value the acquired land having regard to the facts that it was land with an open space zoning, that it comprised of a narrow strip of land located on the kerbside of Sunnyholt Road, a very heavily trafficked road and between that road and Garling Road and as such was not and could ever be good, flood free, building land without physical defects.”

10 These grounds of appeal are based on the following extract from his Honour’s judgment:

“[15] All normal services, including mains, sewer, water, telephone and electricity are available to connect to the subject land (by which reference I include the entire land unit from which the compulsorily acquired land was excised) and that entire land unit is good, flood free, building and without physical defect. It is surrounded by the established residential localities of Kings Park (to the west) Kings Langley (to the east) and Acacia Gardens (to the north). Land situated immediately west of the subject land (on the opposite side of Garling Road) is zoned under the LEP and is developed for Industrial 4(c) purposes and includes existing buildings/goods retail outlets and fast food outlets.”

11 It is clear from the immediately preceding paragraph of this judgment, that his Honour’s reference to “the entire land unit” in par [15] is a reference to the whole of the Falkland Reserve.

12 Paragraph [15] occurs in a subsection of the judgment entitled “The Compulsorily Acquired Land”. This subsection outlines in a descriptive manner the acquired land and its context. However, the particular passage is not directed in terms to the acquired land as such, but to the whole of the Falkland Reserve. This reference was not, as his Honour well knew and his subsequent judgment indicated, a stepping stone in the course of valuation.

13 The Appellant submits that his Honour erred in choosing as his “starting point”, a characterisation of the acquired land as “good flood free building land”. There was, it submits, no evidence that the acquired land was such. On the evidence, it submits, it could not be characterised as such. Accordingly, his Honour, it submits failed to value the land in its existing condition with all its potentialities and this was contrary to principle.

14 In my opinion, his Honour did no such thing. He characterised, in a descriptive way, the whole parcel from which the acquired land had been excised. This was not a step in the valuation exercise of the acquired land, let alone a “starting point”. In my opinion, the Appellant’s submissions in this respect are entirely misconceived.

15 The particular choice of words in the first sentence of par [15] of his Honour’s judgment, find their origin in Mr Wood’s valuation report where, under the heading “Topography”, he said:

“Lots 33, 34 and 35 inclusive may be described as good flood free building land devoid of any physical defects. The land has a cross fall from north to south.”

16 This was similarly descriptive but, nevertheless, led to cross-examination by counsel for the RTA of Mr Wood, suggesting that he had erred in describing the land as “building land”: “Because Lots 33, 34 and 35 would not support buildings within their own boundaries, would they?”. (Transcript p52 line 30.)

17 To this line of questioning Mr Wood said that he agreed, because of the width of the land. No doubt by reason of this line of cross-examination, his Honour was careful to state in his par [15], that this particular description of the land applied to the whole of the Falkland Reserve, not to the three strips that were acquired by the RTA.

18 It is quite clear from reading his Honour’s judgment as a whole, that this particular description of the Falkland Reserve as “building land”, played no role in the course of his Honour’s valuation exercise. The only suggestion in the Appellant’s submissions that it had played any role, was to focus on the fact that a number of comparable sales used by Mr Wood, including those adopted by Mr Dempsey, were residential zonings or residential existing use situations, being land acquired by the Council for open space.

19 This was tortured into a submission that in some manner his Honour had taken into account “building land”, for purposes of determining the market value of the acquired land. This submission should be rejected.

20 As Mr J Robson SC, who appeared for the Council submitted, the comparable sales on which reliance was placed were not just taken into account by Mr Wood, they were also taken into account by Mr Dempsey the RTA’s valuer, and appropriately so, for reasons that I will hereinafter set out.

21 Each such sale constituted a sale of a relevant character, being land acquired for open space by the very Council whose land was being compulsorily acquired. The fact that the Council had to pay a value based on the use of the land as a residence, was a matter which required a discount to be applied to the rate per square metre, before determining the market value of the acquired land.

22 This exercise, as I will set out further below, is quite common. It was the key exercise undertaken in this case by the two valuers, upon which a substantial difference of opinion existed and which his Honour had to, and did, resolve in favour of Mr Wood. Indeed, as his Honour set out at some length, Mr Wood’s approach of adopting a 50 percent discount, to reflect the combined effect of an open space zoning and a community land classification, had been adopted by judges of the Land and Environment Court in a number of cases. He referred to Canterbury City Council v Roads & Traffic Authority of NSW [2002] NSWLEC 161; Canterbury City Council v Roads & Traffic Authority of NSW [2004] NSWLEC 172; Bankstown City Council v Roads & Traffic Authority of NSW [2004] NSWLEC 772.

23 His Honour expressed a view that Mr Wood’s discount of 50 percent for both the open space zoning, and the community land restriction, may have been excessive, but he nevertheless applied it.

24 This process indicates to me beyond doubt, that his Honour did not value the land on any basis capable of characterisation as “building land”. The entire point of applying a discount for the open space zoning was because his Honour recognised that the acquired land could not be the subject of residential buildings.

Ground 3

25 Ground 3 is as follows:

“Having made the errors identified in paragraphs 1 and 2 above, his Honour then fell into further error in that he valued the land having regard to what he found was sales of comparable land but which sold on the basis that each had a residential zoning and was good, flood free, building land without significant physical defects.”

26 My above analysis also disposes of this ground of appeal. His Honour did take into account comparable sales, including comparable sales relied upon by both valuers, which had a residential zoning or residential use. I can see no legal error involved in this exercise. I will come to the additional submissions made orally in a moment.

27 The entire point of the exercise was to look at those sales which involved land acquired by the Council for the purpose of conversion to open space and to apply a substantial discount for, relevantly, the fact that there was a residence on each of the premises which increased the value above that which would be appropriate for application to the valuation exercise required to be undertaken in this case.

28 The very point, as I have mentioned, of the substantial discount, insofar as it encompassed an allowance for an open space zoning, was to reduce the market value suggested by these comparable sales, to a situation in which the sales could be regarded as comparable.

29 In undertaking this exercise, his Honour never again used the terminology “good flood free building land”, which had appeared in the descriptive passage early in his judgment. His Honour had to choose between the two valuers and did so in a manner that is not, and in most respects could not be, the subject of appeal.

Additional Submissions

30 I turn now to the additional submissions made orally today. Mr M Craig QC, who appeared in this Court for the RTA, submitted that it was an error of principle to use land capable of being used for residential purposes, as being in any way comparable, for the purpose of valuation of open space land. He also submitted that there was no rational basis for the rate of discount of 50 per cent, propounded by Mr Wood, which his Honour somewhat reluctantly adopted and applied.

31 This submission was significantly different from the written submissions. In the normal case, the choice of comparable sales and of a discount rate, gives rise to a question of fact. There may, however, be a legal error involved in the process, and the Appellant relied on this Court’s reasoning in Roads & Traffic Authority of NSW v Mosca [2006] NSWCA 159; [2006] 146 LGERA 335 at [60].

32 Mr Craig submitted that residential land cannot be logically used, on any basis, for computation of the market value of the acquired land. Such sales were simply not comparable because the acquired land could not be used for residential purposes. In making this submission, Mr Craig acknowledged that the expert called below by the RTA, Mr Dempsey, had, in accordance with prior practice, also had resort to land capable of residential use as comparable sales.

33 Mr Dempsey said in his written report :

“[45] The most reliable valuation evidence is to apply comparable sales of other land used and zoned open space or lands with a similar use potential essentially having a highest and best use of public recreation.

[46] A less reliable valuation approach is to derive the Market Value of the acquired lands from the sale of lands with a zoning permitting a higher and better use compared to that of the acquired land.

[47] These sales are less reliable because they involve land of a different character particularly in relation to zoning and use potential. Such land is likely to attract a different class of buyer.

[48] If sales of other open space land are unreliable or irrelevant, then one may then use those less reliable sales.”

34 He went on to identify what kind of adjustments were appropriate where such “less reliable” sales are used, including the adjustments made for both open space zoning and, as was accepted at the time, for the community land classification.

35 By reason of the fact that much open space land is categorised as community land, there are few and often no relevant transactions of a comparable character. Necessarily resort must be made to the use of comparable sales, which Mr Dempsey identified as “less reliable.”

36 The submission made on behalf of the RTA is that Mr Dempsey, along with all the other expert valuation evidence in this and similar cases, was wrong. So that basically not only were such sales, “less reliable”, but they were entirely impermissible, indeed, illogical and irrational.

37 In the present case, there was one transaction of the character which Mr Dempsey identified as most reliable, being the sale of a very small parcel of open space land. However, his Honour, after detailed consideration of the nature of that transaction, rejected it. The RTA accepts in this Court that his Honour was entitled to do that.

38 The end result was, the RTA now contends, that the approach adopted, albeit as a second best approach by its own valuer, was impermissible. Accordingly, there was here no evidence before his Honour which could logically, or even rationally, be used for purposes of comparison.

39 The result may be that the Respondent did not discharge its onus in the proceedings below, because no other valuation methodology was propounded. Accordingly, the judicial valuer would have had to conclude that the Respondent had not discharged its onus under s 66 of the Just Terms Act.

40 As the expert evidence of both parties in this case affirms, and numerous other decisions of the Land and Environment Court also indicate, valuation of open space land under the Just Terms Act has often involved comparable sales of properties acquired by councils for open space purposes, which properties had residential zonings or residential uses.

41 These authorities, and the expert evidence in this case, indicate that such evidence has often been given, and that expert valuers, including the expert valuers in this case, have frequently accepted it as appropriate. I am not prepared to overturn such a practice on the basis of submissions from the bar table which are made without any reference to expert evidence.

42 This is a matter with a considerable amount of background in expert valuations decisions in the Land and Environment Court. To seek to thus undermine the whole of this expert evidence, including expert evidence of the valuer called for the RTA in the present case, is, to say the least, a bold course.

43 The submission that sales of residential land cannot logically be regarded as comparable does not in my opinion, actually arise on any of the grounds of appeal, which are quite specifically pleaded. At the outset of the oral hearing in this case, the Appellant was given an opportunity to amend its grounds of appeal, and did not do so. That is sufficient to dispose of this matter. However I think it is, in any event, a submission that should be rejected.

44 The long accepted practice reflected in the expert evidence in this case, identifies, appropriately, that a person who wishes to acquire land for the purpose of open space, is in fact prepared to pay residential values to make such an acquisition. This is an example of the “willing but not anxious purchaser” element of the market valuation test, the traditional test now found in s56(1) of the Just Terms Act.

45 It is the case that the “willing but not anxious seller”, element of the hypothetical transaction, requires compensation for the additional value of residential use. However in my opinion, it is at least relevant to look at transactions in which residential land has been acquired for open space purposes, and it is logical to focus on land of that character, for purposes of the relevant analysis, rather than on the full range of residential land transactions, where both the purchaser and vendor have a residential use in mind.

46 I find this to be a relevant source of information but, of course, by reason of the ability of the vendor in the hypothetical sale, to get compensation for the use as a residence, it is not determinative. I see nothing wrong with an approach which accepts the relevance of such transactions, and then proceeds to apply a discount.

47 As the expert evidence in this case manifests, valuers accept the validity of this general approach. In my opinion no basis has been set forth which could establish the proposition that the approach is either illogical or irrational. In valuations, as in computation of damages, a court, relevantly a judicial valuer, must often do the best he or she can with the materials before the Court. That may involve a broad brush.

48 A significant element involved in this process is the element of judgment. Where, as is the case with the valuation of open space land, actual comparable sales are few, an indirect approach is, in my opinion, appropriate. The formulation of a judgment, whether by a valuer giving expert evidence or by the judicial valuer, often calls for a broad judgment to be made, just as the determination of damages requires a broad judgment to be made. This is not a process that can be parsed and analysed with precision.

49 I refer to Mr Craig’s submission that the 50 per cent discount adopted in this case, was itself not shown to have any rational basis. The submission was that, in order for a computation of this character to be made, some sort of “analytical valuation methodology” had to appear. There may be occasions on which such a methodology can be identified.

50 Perhaps there may be cases, and there was one suggested to exist on the evidence in the present case, where one could derive something from sales of two blocks of land, which themselves are very similar, but which have some particular difference in their use. For example, one could be used for residential purposes and one not, which may indicate something in the nature of an appropriate discount that could be applied more generally. There may be such evidence of a specific character that is useful. It is not in my opinion necessary to have evidence of that character.

51 Expert valuers acquire the ability to make estimates of this character, on the basis of the whole of their experience. They can make such estimates without needing to rely on specific transactions. That is what both valuers did here. His Honour, as a judge sitting frequently in matters, was entitled to bring the expertise of a judge of the Land and Environment Court to the making of a similar judgment, and to adopt the same approach. I can see no error which raises a question of law in the procedure adopted by his Honour in this respect in the present case.

52 Mr Craig QC drew attention to the fact that Mr Wood approached some of the comparable sales on the basis that they were residential land which was not serviced. In this respect Mr Wood noted in the summary of his approach, given by his Honour, that the sales would require some “upward adjustment on account of the subject land being fully serviced land”. Mr Wood did not quantify any such adjustment but it would clearly, as Mr Craig submitted, have informed his overall judgment as to the rate per square metre which he found to be reflected in the comparable sales. Again, I do not see how this arises on any ground of appeal.

53 This particular element in Mr Wood’s approach adopted by his Honour may not appear entirely appropriate. However, I find it difficult to characterise it as an issue of principle that would give rise to a question of law. More significantly, I do not interpret Bignold J’s judgment to have adopted each of the stepping stones in Mr Wood’s analysis. He adopted his general approach. He preferred that approach and eventually accepted it, albeit with reservations. He adopted the final computation, although indicating that he may have been inclined to adopt an even higher valuation. His Honour was entitled to approach the matter of judicial valuation in this matter without adopting each of the specific steps in Mr Wood’s analysis.

54 The Appellant also directed attention to a reference in Mr Wood’s analysis in which he computed an average rate per square metre with respect to three of a number of sales which happened to be in the same area. Mr Craig referred to authority which suggests that a process of averaging is not consistent with valuation principle. He referred particular to Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157 esp at 161.

55 It is by no means clear to me that this reasoning is applicable to the particular use made by Mr Wood of the three specific sales which he averaged in the process of his reasoning. However, I am satisfied that this matter, even if it does raise a question of law, does not arise on any ground of appeal.

56 Accordingly in my opinion the appeal should be dismissed with costs.

57 BEAZLEY JA: I agree.

58 HODGSON JA: I agree.

59 SPIGELMAN CJ: The order is as I have indicated.

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LAST UPDATED: 23 February 2007