RTA v Maggiotto & Anor [2007] NSWCA 24 (26 February 2007)

Last Updated: 27 February 2007

NEW SOUTH WALES COURT OF APPEAL

CITATION: RTA v Maggiotto & Anor [2007] NSWCA 24


FILE NUMBER(S):
40128/06

HEARING DATE(S): 8 February 2007

JUDGMENT DATE: 26 February 2007

PARTIES:
Roads and Traffic Authority of New South Wales
Angelo Maggiotto
Maria Maggiotto

JUDGMENT OF: Hodgson JA Tobias JA Campbell JA

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT FILE NUMBER(S): L&E 30188/03

LOWER COURT JUDICIAL OFFICER: Cowdroy J

LOWER COURT DATE OF DECISION: 22/2/06

LOWER COURT MEDIUM NEUTRAL CITATION:
Maggiotto v Roads and Traffic Authority [2006] NSWLEC 54

COUNSEL:
A: J Griffiths SC / P Tomasetti
R: N Hemmings QC

SOLICITORS:
A: Henry Davis York, Sydney
R: Allens Arthur Robinson, Sydney

CATCHWORDS:
REAL PROPERTY – Resumption or acquisition of land – Compensation – Assessment and related matters – Valuation of land – Conflicting methods of valuation used by Expert Witnesses - Deductions for constraints on land – Where valuation of one Witness ostensibly adopted but method used by that witness not followed through

LEGISLATION CITED:
Environmental Planning and Assessment Act 1979
Land Acquisition (Just Terms Compensation) Act 1991
Land and Environment Court Act 1979
Suitor’s Fund Act, 1951

CASES CITED:
Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409
Melwood Units Pty Ltd v Commissioner for Main Roads (1978) 52 ALJR 593; 37 LGERA 387
Roads & Traffic Authority (NSW) v Mosca [2006] NSWCA 159; (2006) 146 LGERA 335
Roads & Traffic Authority (NSW) v Muir Properties Pty Ltd [2005] NSWCA 460; [2005] 143 LGERA 192
Yates Property Corp (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156; 73 LGERA 47

DECISION:
(a) Appeal allowed
(b) Set aside Orders 1 and 2 of Cowdroy J made on 22 February 2006
(c) Remit the proceedings to the Land and Environment Court for the respondents’ claim for compensation to be assessed according to law
(d) The respondents to pay the appellant’s costs of the appeal with respect to Ground 1 of its Amended Grounds of Appeal filed on 1 August 2006 but to have a certificate under the Suitor’s Fund Act, 1951 if otherwise qualified
(e) The appellant to pay the respondents’ costs of preparation of the appeal with respect to Grounds 2, 3 and 4 of the Amended Grounds of Appeal


JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40128/06

HODGSON JA

TOBIAS JA

CAMPBELL JA

Monday 26 February 2007

ROADS AND TRAFFIC AUTHORITY OF NSW v ANGELO MAGGIOTTO & ANOR

Judgment

1 HODGSON JA: The background to this appeal and the issues involved are set out in the judgment of Tobias JA. I respectfully disagree with pars.[60]-[69] of his judgment, and in the result. I have no other disagreement with his judgment, and I will otherwise adopt what Tobias JA says.

2 The gravamen of the appellant’s complaint, upheld by Tobias JA, was that the primary judge failed to take into account and deduct the cost of flood management works of $1,665,200.00 in arriving at the before acquisition value of the land; or at least, failed to give reasons why, having adopted Mr. Wood’s rate of $180/m², he did not make the deduction of $1,665,200.00 that Mr. Wood said should be made.

3 I agree with Tobias JA that there are indications in the primary judge’s reasons supporting the appellant’s complaint, in the last sentence of par.[106], the first sentence of par.[107] and the first sentence of par.[113]. However, there are matters pointing the other way which in my opinion are stronger.

4 In discussing the valuation of Mr. Neskovski, the valuer called for the appellant, the primary judge said this:

94 In the before situation, Mr Neskovksi valued the 2(a), 5(a) and 6(a) land at a rate of $190/m2. Mr Neskovski agreed that filling and service costs would be approximately $26/m2 and that replanting would cost $3/m2, but considered that the rate of $190/m2 already included a discount for these costs, because the comparable sales would also have involved such costs.

5 In relation to the valuation of Mr. Wood, the valuer called for the respondent, the primary judge said this:

106 Mr Wood’s initial valuation was based upon the advice of the respondent’s expert’s in relation to flooding, ecological constraints and town planning. However, as referred to above, Mr Wood’s initial valuation was based upon facts which the Court has rejected. Accordingly the Court relies upon Mr Wood’s alternative valuation in Scenario 3.

107 In that scenario, Mr Wood adopted a base rate of $180/m2 in respect of the 2(a) land. He then deducted one third of value for risk, to arrive at a rate of $120/m2 for the 2(a) land. He said the risk deduction was slightly higher than usual because of the number of constraints affecting the land.

6 In commenting on comparable sales, the primary judge said this:

111 The Court accepts that the sales relied upon by Mr Neskovski were superior to the land. The Bernera Road land was elevated, gently sloping land and was unaffected by any flooding constraints except for a small portion in the south-eastern corner. The constraints on development were negligible.

7 And the primary judge gave his conclusion in relation to the “before” value of 2(a) land as follows:

113 On the basis of scenario 3, the Court adopts Mr Wood’s initial assessment of $180/m2 for the 2(a) land in preference to Mr Neskovski’s $190/m2. The land is clearly inferior to the sales of 2(a) land relied upon by Mr Neskovski. The Court does not consider that Mr Neskovski’s discount sufficiently reflects the disparity. The Court also considers that the number of contingencies in relation to development of the 2(a) land, which extend beyond those of the comparable sales, justifies a greater discount for risk as adopted by Mr Wood. The Court adopts a figure of 33% to allow for such risk. Accordingly, the Court adopts a rate of $120/m2 for the 2(a) land.

8 In my opinion, it appears from these passages that the primary judge was aware (i) that the cost of necessary flood management work had to be deducted in order to arrive at a value for flood-affected land on the basis of a hypothetical development of that land; (ii) that at least in relation to some comparable sales, this cost had already been deducted; and (iii) one difference between the subject land and comparable sales was in the degree of flood affectation and cost of necessary flood management works.

9 Paragraph [94] of the judgment shows that Mr. Neskovski’s rate of $190/m² included a discount covering the cost of flood management works for the subject land, on the basis that $10/m² was sufficient because to deduct $26/m² (the full cost of such work) would involve double counting, since comparable sales would also have included at least some such cost.

10 Paragraph [111] of the judgment shows recognition by the primary judge that one aspect of the superiority of Mr. Neskovski’s comparable sales was reduced flood problems, albeit that the land referred to in that paragraph still had some flooding constraints, which would have required some flood management costs.

11 In those circumstances, in my opinion the reference to inferiority in the second sentence of par.[113] includes inferiority in relation to flood affectation, and the need for correspondingly greater expenditure on flood management; and this is confirmed by the third sentence of par.[113], suggesting a need for a greater discount than suggested by Mr. Neskovski. That discount was $10/m², covering the need for greater flood management works as shown by par.[94]; and so I would read par.[113] as indicating that the primary judge favoured a greater discount, which would also cover flood management works.

12 I accept that this interpretation of the judgment could be seen as conflicting with the first sentence of par.[113], because the adoption of “Mr. Wood’s initial assessment of $180/m² for the 2(a) land” strongly suggests adoption of the basis of that assessment, as having been arrived at before making any allowance for flood mitigation. However, I think the other considerations I have mentioned are stronger; and I am not satisfied that the primary judge overlooked something so basic as the need to allow for the cost of flood management works.

13 The conflict between two possible interpretations of the primary judge’s judgment might conceivably be seen as a deficiency of reasons. However, I do not think any uncertainty about what the primary judge did in this case can be so characterised: although there are two possible interpretations, on either of them the reasons are sufficient, albeit that on one interpretation (that adopted by Tobias JA) they would disclose an error of law. I do not think the circumstance that there are two possible interpretations of the judgment in this case is sufficient on its own to suggest a miscarriage of justice, particularly when, as shown by Tobias JA at par.[71] of his judgment, the error of law he detected would make a difference of the order of $150,000.00 to $200,000.00, not anything like the $1,665,200.00 which Mr. Wood said should be deducted from the “before” figure.

14 In my opinion, the appeal should be dismissed with costs.

15 TOBIAS JA: On 4 October 2002 the Roads and Traffic Authority of New South Wales (the appellant) compulsorily acquired from the respondents under the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act) part of Lots 17, 18 and 19 in DP 2475 (the subject land) at Hoxton Park for the purposes of the Western Sydney Orbital (also known as the Westlink M7) (the M7) pursuant to the Roads Act 1993. The land so acquired is now known as Lots 113, 114 and 115 in DP 1045185 (the acquired land) whereas the balance of the subject land is now known as Lots 102, 103 and 104 in DP 1045185 (the residue land). The area of the subject land was 5.844 hectares. The land acquired was 2.1964 hectares, leaving the residue land of 3.648 hectares.

16 At the date of acquisition the subject land was vacant and unserviced. It was bounded on its north by Government Road which was unformed and unmade, on its south by a drainage reserve approximately 20 metres wide and on its east by Hinchinbrook Creek. It was located approximately 700m south of Hoxton Park Airport (the airport) and was directly under the flight path.

17 Pursuant to s 42 of the Just Terms Act, the appellant gave notice to the respondents that, pursuant to s 47, the Valuer General had determined the amount of compensation to be offered to them in respect of the acquired land as $571,270. Of that sum, $485,000 represented the market value of the acquired land, $6,270 was for disturbance and $80,000 was for what is known as “injurious affection” with respect to other land owned by the respondents adjoining the subject land.

18 Being dissatisfied with the amount of compensation so offered, pursuant to s 76(1) of the Just Terms Act, the respondents lodged an objection to the Land and Environment court seeking a determination of the amount of compensation to which they were entitled. The objection was heard and determined by Cowdroy J who, on 22 February 2006, assessed the respondents’ claim for compensation with respect to the market value of the acquired land under s 55(a) of the Just Terms Act in the sum of $2,497,585.60 and, further, assessed their claim for compensation for disturbance under s 55(d) of that Act in the sum of $127,258.

19 Pursuant to s 57(1) of the Land and Environment Court Act 1979 (the Court Act) the appellant appealed to this Court against the primary judge’s assessment of compensation with respect to both the market value of the acquired land as well as the amount determined by him with respect to disturbance. Such an appeal is confined to questions of law.

The background characteristics of the subject land

20 At the time of acquisition the subject land fell within a number of different zonings under Liverpool Local Environmental Plan 1997 (the LEP). The majority of Lot 17 and a small portion of Lot 18 were zoned Residential 2(a) (the 2(a) land). The remaining portion of Lot 18 and the whole of Lot 19 were zoned 1(e) Future Urban (the 1(e) land). That part of Lot 17 which bordered Hinchinbrook Creek was zoned partly Special Uses – Drainage 5(a) and partly Recreation Public 6(a).

21 Whereas prior to acquisition the unmade portion of Government Road constituted the northern boundary of Lots 17, 18 and 19, after acquisition only a small portion of Lot 19 remained so bounded.

22 The boundary between the 2(a) and 1(e) land corresponded to the location of an Aircraft Noise Exposure Forecast (ANEF) contour. The 2(a) land was within the 20-25 ANEF contour whereas the 1(e) land was within the 25-30 ANEF contour. Those contours were determined by the Commonwealth Civil Aviation Authority.

23 Clause 18 of the LEP prohibited the erection of dwellings in areas where the ANEF exceeded 25. In areas where the ANEF contours were between 20 and 25, dwelling houses could be erected provided they met Australian Standard AS2021-1994 (Acoustics – Aircraft Noise Intrusion – Building Siting and Constructions) (AS2021).

24 Furthermore, pursuant to s 117 of the Environmental Planning and Assessment Act 1979 (the EPA Act), the Minister had made Directive G16-Aircraft Noise which, relevantly, provided that draft local environment plans prepared by councils should not rezone land for residential purposes where the ANEF from time to time advised by the Civil Aviation Authority exceeded 25, except where the council satisfied the Director that any particular provision or area should be varied or excluded from that prohibition.

25 Furthermore, at the date of acquisition 82% (according to the appellant) or 65% (according to the respondents) of the subject land was identified as flood liable on the Flood Liable Land Map (FLLM) prepared by Liverpool City Council (the Council).

The relevant findings of the primary judge

26 So far as the assessment of the market value of the acquired land was concerned, the major issues contested before the primary judge were as follows:

(a) Whether the 2(a) land could be developed for residential purposes given that it fell within a high hazard flood risk classification under the FLLM and might also be within a floodway;

(b) Whether the 2(a) land could be filled and thereby rendered flood-free.

(c) Whether flood-free access could be provided to the 2(a) land.

(d) Whether the 1(e) land was likely to be rezoned to 2(a) and, if so, when.

(e) The impact upon the residential potential of both the 2(a) and 1(e) land of the ANEF contours with reference to either the possibility of the airport being closed or those contours being reviewed.

27 The primary judge made the following relevant findings:

(a) The respondents’ proposal for the development of the subject land for residential purposes represented an acceptable proposal as at the date of acquisition ([62]).

(b) Although substantial earthworks would be required before development of the 2(a) land could take place in order to raise the level of that land above the 1:100 year flood level, the evidence of the respondents’ hydraulic expert should be accepted to the effect that flooding constraints on the subject land would not prevent its development for residential purposes ([65]).

(c) The Council would approve development in high-hazard floodway areas provided adequate flood mitigation measures were undertaken and a prudent hypothetical purchaser would have been entitled to expect the Council to have given that approval as at the date of acquisition ([68]).

(d) There was only a small risk that the Council would reject an application for the residential development of the subject land on the grounds of flooding, it being significantly more likely that it would accept the respondents’ proposal for the residential development of the subject land ([70]).

(e) The residue land would be affected to the same extent by flooding after acquisition and construction of the M7 as the subject land was before acquisition ([72]).

(f) A prospective hypothetical purchaser as the date of acquisition could not have confidently assumed that the airport would close in the near future but that there was some prospect that the ANEF contours would be reviewed and altered in accordance with the respondents’ proposal that the 20-25 ANEF contour would be more appropriate for the 1(e) land. As there was no formal mechanism to request review, as there therefore was some uncertainty as to the process for obtaining a review ([81]-[82]).

(g) Based upon the acoustic information collected by the respondents, the Council could have sought exemption from Directive G16 and at the date of acquisition a prudent purchaser could have been reasonably confident that the Council would have supported any such application based upon its in principle support for the respondents’ rezoning application and its longstanding campaign for closure of the airport and release for residential development of the land (including the subject land) affected by airport noise. Accordingly, there was a real prospect of the 1(e) land being rezoned on this basis although there was also some risk and the possibility of delay in pursuing such a rezoning in this way ([83]).

(h) Accordingly, at the date of acquisition a prudent hypothetical purchaser would have considered that there was a real prospect that the 1(e) land could have been rezoned for residential development within five years, albeit with a substantial risk that such a rezoning would not eventuate or would be delayed beyond five years ([84]).

(i) As the flooding issues could have been addressed to the Council’s satisfaction and given the prospect of the ANEF contours with respect to the 1(e) land being reviewed, a prospective hypothetical prudent purchaser would have regarded the whole of the subject land as being available for residential development. Further, such a purchaser would have regarded the 2(a) land as being suitable for medium density development ([88]-[89]).

The basis of the primary judge’s valuation of the market value of the acquired land

28 Mr Lopco Neskovski gave valuation evidence on behalf of the respondents and Mr Ken Wood on behalf of the appellant. Initially, each of their valuations was based upon factual assumptions with respect to flooding and town planning provided to them by the parties’ respective experts in those fields. Mr Neskovski’s initial valuation was made on the basis that the 2(a) land could be developed immediately and that the 1(e) would be rezoned within five years. Mr Wood’s initial valuation was made on the basis that the 2(a) land could not be developed because of flooding and ecological constraints and that there was no prospect of the 1(e) land being rezoned in the near future. He therefore attributed a value to the subject land based only on its use as a market garden.

29 During the course of the hearing both valuers provided additional valuations postulating the different factual findings the Court might make with respect to the flooding, ecological and town planning evidence. There were five such scenarios of which, ultimately, the primary judge adopted Scenario 3, this being the closest to his findings in relation to flooding, ecology and airport noise constraints referred to above. That scenario was that the 2(a) land had immediate development potential and that the 1(e) land was likely to be rezoned for residential purposes within five years. That scenario reflected Mr Neskovski’s original valuation although, as the primary judge noted (at [92]), Mr Wood had at the request of the Court made a secondary valuation of the land on the basis of that scenario.

30 His Honour then determined that compensation would be assessed on the basis of the valuers’ competing valuations with respect to Scenario 3. However, he recognised that that scenario would require some modification to accord with his findings which I have set out above.

31 In this respect, the valuers approached their task in respect of all scenarios by undertaking a valuation of the subject land before the acquisition of the acquired land and from which they deducted a valuation of the residue land after acquisition: in other words, they adopted a conventional “before” and “after” valuation approach.

32 As the valuers’ competing valuations with respect to Scenario 3 formed the basis of the parties’ submissions with respect to the primary issue on the appeal, it is convenient to set out in full their written valuation with respect to that scenario.

“3. Foreseeable that the airport would close and likely that there was development potential for the whole of subject land

Assume:

(a) It was likely that the portion of the applicant’s land zoned 2(a) Residential was developable for residential purposes in accordance with figure 4 of Drew Bewsher’s Statement of Evidence in Chief (Exhibit C – copy attached);

(b) As at the date of acquisition it was anticipated that Hoxton Park Airport would close in the foreseeable future;

(c) It was likely that the land zoned Future Urban 1(e) would be rezoned for residential purposes in the foreseeable future; and

(d) Development of the Future Urban 1(e) land for residential purposes would be possible albeit with further flooding mitigation work including a 45m-60m wide drainage channel.

Value “before”	Wood	Neskovski
		Englobo Area 26,024 m² (Incl O/Space & Drainage Englobo 2(a) Rate $200/m² Less $10/m² ($260,240) Discount for Flood Mitigation & Road Access = ($190/m²)
Residential 2(a) – 22,830m²	@ $180/m²	@ $190/m²
Less allowance for contingencies risk etc	1/3 ($60/m²) @ $120/m² $2,739,600	25% ($47.50/m²) @ $142.50/m² $3,708,420
		Englobo 1(e)Rate $165/m² Less $25/m² ($810,500) Discount for Flood Mitigation & Road Access
Plus Future Urban 1(e) land – 22,580m² @ $120/m² Deferred 5 years @ 10% = $(120 x 0.62092)		Rural 1(e) $140/m² Less Allowance for Contingencies etc 25% ($47.50/m²) = ($105/m²)
Discounted Englobo Rate	= $74.51/m² $1,682,436	32,420m² @ $105/m² $3,404,100
Plus 13,030m² Open Space and Drainage³ @ $25/m²	$325,750 $4,747,786	Included In 1(e) Area $- $7,112,520
Less Flood Management	$1,665,200 $3,082,586	Nil Neskovski Total Discount from Sales Rates for Flood Mitigation & Road Access ($1,070,740)
	$3,082,586	$7,112,520
Value “after”	Wood	Neskovski
	(Assuming development of residue area of 9,100m²)	(Res 2(a) Area Not Viable for Development Given Agreement of Management works $1,361,000) + Significant Diminution By WSO & Loss of Road Frontage & Amenity
Residential 2(a) – 9,100m² @ $120/m²	$1,092,000	36,480m² @ $70/m² $2,553,600
Future Urban 1(e) including Plus Rural 1(e) 25,800m² @ $74.51/m²	$1,922,358	Included above
Plus Open Space and Drainage – 1,600m² @ $25/m²	$40,000	Included above
	$3,054,358
Less Flood Management works	$271,750	Nil
	$2,782,358	$2,553,600
Therefore diminution in value =	$3,082,586 -$2,782,358 $299,758 SAY $300,000	$7,112,520 $2,553,600 $4,558,920 SAY $4,550,000
Note: Neskovski Before Res 2(a) – 2.38 ha + Drainage & Open space 0.2224 ha = 26,024m² Note: Neskovski Before Valuation discount for Flood Mitigation & Road Access
	From Englobo 2(a) less $10/m² ($260,240) From Englobo 1(e) Less $25/m² ($810,500) Neskovski Total Discount for Flood Mitigation & Road Access ($1,070,740)

33 I have emphasised in italics the item for Flood Management. in Mr Wood’s valuation the emphasis of other parts of both valuations which are emphasised were so emphasised in the original.

The primary judge’s findings on market value

34 The primary judge determined the market value of the acquired land based on the before and after valuation approach in the sum of $2,497,585.60 calculated in accordance with the following table:

Before

Land	Size	Rate	Value
Residential 2(a) land	23,800m²	$120/m²	$2,856,000
Rural 1(e) land	32,420m²	$54/m²	$1,750,680
Recreation and drainage land 5(a) and 6(a)	2,224m²	$25/m²	$55,600
Total	58,444m²		$4,662,280

After

Residue Land	Size	Rate	Value
Residential 2(a) land	10,060m²	$90/m²	$905,400
Rural 1(e) land	25,379m²	$48.60/m²	$1,233,419.40
Recreation and drainage land 5(a) and 6(a)	1,035m²	$25/m²	$25,875
Total	36,474m²		$2,164,694.40

Difference between before and after scenarios

Before	$4,662,280
After	$2,164,694.40
Difference	$2,497,585.60

35 The critical issue debated on the appeal related to his Honour’s findings with respect to the “before” valuation of the subject land. A comparison of the table set out in the preceding paragraph with the valuers’ valuations based on Scenario 3 set out in [19] indicates that his Honour adopted the same rate per square metre for the 2(a) land ($120) as had Mr Wood, rather than the rate of $142.50m² adopted by Mr Neskovski. Further, with respect to the 1(e) land, he adopted a rate of $54/m² which was less than the $74.51/m² adopted by Mr Wood and $105/m² adopted by Mr Neskovski. He also adopted Mr Wood’s $25/m² for the recreation (6(a)) and drainage (5(a)) land as a separate component of the valuation rather than Mr Neskovski’s inclusion of that land as part of the 1(e) land.

36 It will be noted, however, that Mr Wood then deducted from his valuation of the 2(a), 1(e) and open space and drainage land the cost of flood management works in the sum of $1,665,200. That amount was derived from the agreed quantification by the parties’ quantity surveyors of $1,507,000 with respect to flood management/development work pre-acquisition, to which Mr Wood had added $158,200. The appellant’s quantity surveyor asserted that this amount represented flood management/development works of the 1(e) land pre-acquisition following resolution of the noise constraints with respect to that land.

37 On the other hand, Mr Neskovski had approached the “before” valuation upon the basis of an analysis of the various comparable sales said by him to have related to land which also had flooding and noise constraints but to a lesser extent than those affecting the subject land and which, according to Mr Neskovski, would have been reflected in his analysed englobo rate/m² of the land the subject of those sales. Accordingly, he adopted a rate of $200/m² as the englobo value of the 2(a) land which he then discounted by $10/m² for flood mitigation and road access required to be expended with respect to that land and which was not reflected in his englobo rate derived from the sales upon which he relied of $200/m².

38 Similarly, with the 1(e) land Mr Neskovski adopted an englobo rate of $165/m² which he then discounted by $25/m² to account for flood mitigation and road access. A total discount of $10/m² and $25/m² in respect of the areas of each of the 2(a) and 1(e) land amounted to $1,070,740.

39 Mr Wood’s evidence, ultimately accepted by the respondents during the course of the hearing of the appeal, was that his $180/m² for the 2(a) land was his determination of the value of unconstrained residential englobo land; that is, land having none of the constraints relating to flooding and/or noise affectation applicable to the subject land. Mr Wood was cross-examined on this issue but steadfastly maintained that his rate of $180/m² was for residential land that was filled (that is, was flood free) and which had public road access: (Black 2/326 R-S; 331 F-H & U-V; 429 D-E).

40 According to Mr Wood, therefore, apart from the element of risk related to whether or not the Council might approve of a residential development and other risk factors, it was necessary as a separate matter to deduct the assumed costs relating to road construction, the extension of services and the filling of the 2(a) land in order to render it flood-free and available for immediate residential development. It was for this reason that he deducted the sum of $1,665,200 from what he referred to as the unconstrained englobo values of the 2(a) and 1(e) land which he had determined as $180/m² before discounting for risk to $120/m² and then, with respect to the 1(e) land, deferring for five years.

41 However, it is apparent from the table set out in [32] above that the primary judge did not make any such deduction in either his “before” or “after” calculations.

The appellant’s Grounds of Appeal

42 The appellant’s Amended Notice of Appeal filed on 1 August 2006 raised four grounds of appeal, of which Grounds 1 and 2 were as follows:

1. In determining the market value of the land his Honour applied a methodology that relied upon identification of the development potential of the land acquired and then valuing the land with that potential but his Honour erred in law in applying that methodology by accepting that the land acquired had a potential for residential development whilst failing to take account of the prohibitive development cost to realise that potential.

Particulars

His Honour accepted that the land zoned 2(a) Residential situated out in (the) high hazard floodway of Hinchinbrook Creek, would be connected by a causeway to the flood free land to the west and likely to be approved for development by council. His Honour failed to take into account all the development costs involved in such a scheme and failed to address the appellant’s submission that such costs would render the development commercially unviable.

2. His Honour erred in law by failing to give reasons for rejecting the appellant’s argument that the development described in Ground 1 above was not commercially feasible and therefore relevant to the determination of “market value” under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW).”

43 At the commencement of the hearing of the appeal and notwithstanding that extensive written submissions had been provided by both parties with respect to it, Ground 3 was abandoned.

44 Ground 4 (as further amended at the commencement of the hearing of the appeal) alleged that his Honour erred in law in allowing compensation for legal costs pursuant to s 59(a) of the Just Terms Act and stamp duty on the purchase of a replacement property pursuant to s 59(f) of that Act. It was alleged that such compensation was prohibited by s 61 of the Act. Again, the parties made extensive written submissions on that issue. In its oral submissions in chief, the appellant pursued that ground of appeal but, properly and wisely, after considering matters raised by the Bench with respect to that ground, it also was ultimately abandoned. Accordingly, only Grounds 1 and 2 were pressed by the appellant for determination on the appeal.

Ground 1

45 As I have indicated, the essence of this ground as advanced by the appellant was that the primary judge had in his determination of the englobo value of the 2(a) and 1(e) land taken as his starting point the rate pf $180/m² adopted by Mr Wood as his base rate for land with immediate residential potential. It was submitted that in doing so his Honour must have accepted that that base rate of $180m² was, as Mr Wood had stated in evidence, the englobo value of 2(a) land which was unconstrained by flooding. poor access, aircraft noise or ecological considerations.

46 Accordingly, and subject to a discount for risk (which, on Mr Wood’s evidence reduced his base rate of $180/m² to $120/m²), the appellant submitted that flood management and developments of $1,665,200 should have been deducted from the resultant value, determined by his Honour and based upon his adoption of Mr Wood’s rates per square metre, to arrive at the value of the subject land before acquisition. The primary judge’s failure to do so constituted an error of valuation principle so that his assessment of the market value of the acquired land was open to review for legal error: Yates Property Corp (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 177G; 73 LGERA 47 at 67; Melwood Units Pty Ltd v Commissioner for Main Roads (1978) 52 ALJR 593 at 595; 37 LGERA 387 at 391; Roads & Traffic Authority (NSW) v Muir Properties Pty Ltd [2005] NSWCA 460; [2005] 143 LGERA 192 at 208 [78]; Roads & Traffic Authority (NSW) v Mosca [2006] NSWCA 159; (2006) 146 LGERA 335 at 340 [21]. The respondents conceded so much if it were in fact the case that his Honour had adopted Mr Wood’s base englobo rate of $180/m² for unconstrained 2(a) land.

47 However, the respondents’ ultimate submission was that although it was accepted that Mr Wood’s englobo residential rate of $180/m² was based on unconstrained residential 2(a) land available for immediate development, the $180/m² adopted by his Honour as the base rate for both the 2(a) and 1(e) land was not the $180/m² determined by Mr Wood but was Mr Neskovski’s englobo rate for the 2(a) land of $200/m². His Honour had, so it was submitted, discounted that rate by $20/m² rather than Mr Neskovski’s $10/m² to take account of the flood mitigation and road access costs applicable to the subject land over and above those costs already assumed in the $200/m² rate based by Mr Neskovski on comparable sales which were similarly, but to a lesser extent, constrained by flooding, noise and access issues as the subject land.

48 In order to resolve this issue it is necessary to refer to various paragraphs of his Honour’s judgment. As I have already observed, he considered (at [92]) that Scenario 3 was the closest of the scenarios which he had listed, although it required some modification to accord with his findings which I have listed in [27] above. His Honour noted that Scenario 3 reflected Mr Neskovski’s original valuation although Mr Wood had made a secondary valuation of the land on the basis of that scenario. He concluded that the Court would

“therefore determine the appropriate valuation on the basis of the valuers’ competing valuations in Scenario 3.”

49 The primary judge then turned to Mr Neskovski’s valuation based on Scenario 3 which I have set out in [32] above. With respect to the “before” situation, his Honour observed (at [94]) that

“...Mr Neskovski valued the 2(a), 5(a) and 6(a) land at a rate of $190/m². Mr Neskovski agreed that filling and service costs would be approximately $26/m² and that replanting would cost $3/m², but considered that the rate of $190/m² already included a discount for these costs, because the comparable sales would also have involved such costs.”

50 With respect to the 1(e) land, his Honour noted (at [95]) that Mr Neskovski had arrived at a value of $140/m², which included a discount for filling, service and replanting costs. He had then made a further deduction to each of his 2(a) and 5(e) rates for risk, based upon the risks of delay in obtaining development consent, the precise area of land which might be developable, the affectation by ANEF contours, other unforeseen delays and possible inaccuracy of information. For these constraints Mr Neskovski had deducted 25% from each of the base rates he had adopted to arrive at a rate of $135/m² for the 2(a), 5(a) and 6(a) land and $105/m² for the 1(e) land.

51 At [99] his Honour noted that in arriving at his values for englobo residential land, Mr Neskovski relied primarily upon two sales of residential 2(a) land in the Liverpool area. He observed that Mr Neskovski:

“claimed that these sales were of englobo land which was similarly constrained to the [respondents] land.”

52 Principally, Mr Neskovski had relied upon what was referred to as the Bernera Road sale, the adjusted englobo rate for which he determined at $197/m². However, approximately only 10% of that land was subject to flooding by a 1:100 year flood. His Honour then noted (at [101]) that Mr Wood had said that that sale was not comparable to the subject land as it was only 6-7% flood affected whereas the subject land was at least 65% flood affected.

53 His Honour then referred (at [102]) to reliance by Mr Neskovski on what was referred to as the Ash Road sale, the adjusted englobo rate for which was determined by him at $201/m². He then noted that Mr Wood’s evidence was that the land the subject of that sale was suitable for immediate development and that the constraints upon that land listed by Mr Neskovski were significantly less severe than those which impacted on the subject land. Mr Wood assessed the appropriate rate for this sale at $191/m².

54 After referring to some other sales relied upon by Mr Neskovski, his Honour turned to a consideration Mr Wood’s valuation. He said:

“106 Mr Wood’s initial valuation was based upon the advice of the respondent’s expert’s in relation to flooding, ecological constraints and town planning. However, as referred to above, Mr Wood’s initial valuation was based upon facts which the Court has rejected. Accordingly the Court relies upon Mr Wood’s alternative valuation in Scenario 3.

107 In that scenario, Mr Wood adopted a base rate of $180/m² in respect of the 2(a) land. He then deducted one third of value for risk, to arrive at a rate of $120/m² for the 2(a) land. He said the risk deduction was slightly higher than usual because of the number of constraints affecting the land.”

55 Under the heading “Findings – Valuation”, his Honour considered (at [110]) that each of the valuers had relied upon sales of englobo property which did not entirely reflect the characteristics of the subject land. With respect to the sales relied upon by Mr Neskovski, he considered (at [111]) that the Bernera Road land was unaffected by any flooding constraints except for a small portion in the south east corner which was negligible and that the Cowpasture Road land (also relied on by Mr Neskovski) was not subject to flooding or airport noise at all.

56 With respect to the “before” scenario, the primary judge then observed:

“113 On the basis of scenario 3, the Court adopts Mr Wood’s initial assessment of $180/m² for the 2(a) land in preference to Mr Neskovski’s $190/m². The land is clearly inferior to the sales of 2(a) land relied upon by Mr Neskovski. The Court does not consider that Mr Neskovski’s discount sufficiently reflects the disparity. The Court also considers that the number of contingencies in relation to development of the 2(a) land, which extend beyond those of the comparable sales, justifies a greater discount for risk as adopted by Mr Wood. The Court adopts a figure of 33% to allow for such risk. Accordingly, the Court adopts a rate of $120/m² for the 2(a) land.

114 The Court considers that in Scenario 3, the 1(e) land would be of comparable value to the 2(a) land once rezoned. The 1(e) land is in fact less constrained by flooding and vegetation than the 2(a) land, and accordingly the risks attendant on development of that land are less in certain respects. However, the uncertainty with respect to whether the rezoning of the 1(e) land would occur and its precise timing significantly increases the risk with respect to the purchase of the 1(e) land. Further, there would necessarily be a delay of at least five years in the rezoning process. Accordingly the Court considers that a discount of 70% to the figure of $180/m² is an appropriate [rate] for the 1(e) land, which results in a rate of $54/m².”

57 The respondents submitted that, properly understood, the primary judge in [113] had not accepted Mr Wood’s englobo unconstrained value of the 2(a) land at the rate of $180/m² but had adopted that rate by discounting Mr Neskovski’s englobo 2(a) rate of $200m² by doubling the $10/m² to $20/m² the discount applied by Mr Neskovski for flood mitigation and road access, thereby recognising that Mr Neskovski’s $200/m² based on the comparable sales relied upon by him in reaching that figure already reflected the cost of overcoming the flooding and noise constraints (such as they were) applicable to the land the subject of those sales.

58 Accordingly, if in fact the primary judge had adopted Mr Neskovski’s $200/m² which he had then discounted to $180/m², there would be an element of double discounting if he had acceded to the appellant’s submission that the total costs of the flood mitigation and development works of $1,665,200 should be deducted from the adjusted englobo rates for the various components of the subject land which his Honour had valued on a “before” basis in the amount of $4,662,280 (see [33] above).

59 The foundation upon which the respondents submitted that [113] of his Honour’s judgment should be so understood was focussed on the third sentence of that paragraph where his Honour said that the Court did not consider that Mr Neskovski’s discount sufficiently reflected the disparity between the subject land and the sales of 2(a) land relied upon by Mr Neskovski in determining his rate of $200/m².

60 In my opinion the respondents’ understanding with respect to [113] of his Honour’s judgment should be rejected for the following reasons. First, the last sentence of [106], the first sentence of [107] and the first sentence of [113] make it patently clear that his Honour was adopting Mr Wood’s englobo rate for the 2(a) land of $180/m² and not Mr Neskovski’s rate of $200/m² discounted by $20/m² to arrive at the same figure. Second, the first sentence of [113] his Honour expressly stated that he adopted Mr Wood’s initial rate of $180/m² for the 2(a) land “in preference to Mr Neskovski’s $190/m²”. His Honour then observed that the subject land was clearly inferior to the land the subject of the sales relied upon by Mr Neskovski.

61 Third, it is true that his Honour then observed that he did not consider that Mr Neskovski’s discount sufficiently reflected “the disparity”. Given the fourth sentence of [113] which followed, I am prepared to accept that his Honour rejected Mr Neskovski’s discount of $10/m² whereby he reached an englobo rate for the 2(a) land of $190/m². But it does not follow, and in my respectful opinion flies in the face of his Honour’s express adoption of Mr Wood’s base rate of $180/m² for the 2(a) land, that, rather than adopting Mr Wood’s base rate, his Honour was adopting Mr Neskovski’s discounted rate of $190/m² which he then further discounted by $10/m² to reach a rate of $180/m².

62 Fourth, his Honour in the second and third sentence of [113] was in my opinion expressing his reasons for rejecting Mr Neskovski’s $200/m² for the 2(a) land because of the disparity between the sales upon which he had relied to reach that figure and for the subject land. Having rejected Mr Neskovski’s rate of $190/m², he expressly adopted Mr Wood’s rate of $180/m². At no point did he indicate or imply that his starting point was Mr Neskovski’s $200/m² or his discounted rate of $190/m². Nor did he state that he adopted the rate of $180/m² by doubling Mr Neskovski’s discount of $10/m² to $20/m².

63 Fifth, in the fourth sentence of [113], his Honour rejected the discount for risk of 25% adopted by Mr Neskovski and adopted Mr Wood’s discount of 33 ⅓%. This was a further indication of his wholesale rejection of Mr Neskovski’s valuation of the 2(a) land and his adoption of that of Mr Wood.

64 It follows from the foregoing that in my opinion it is patently clear that the second and third sentences of [113] constituted the reasons why his Honour was not prepared to accept Mr Neskovski’s $190/m² and why he considered that he should adopt Mr Wood’s rate of $180/m² for the 2(a) land. Contrary to the respondents’ submission, there is nothing in the first three sentences of [113] which would permit one to accept that his Honour adopted $180/m² for the 2(a) land by further discounting Mr Neskovski’s $190/m² by a further $10m² to reflect “the disparity” between the land the subject of the sales relied upon by Mr Neskovski and the subject land. The first sentence of [113] simply does not permit any such understanding of his Honour’s reasoning process.

65 For the respondents’ submission to have had any possibility of success, the first sentence in [113] should have omitted the words “Mr Wood’s initial assessment of” so that that sentence would have read: “On the basis of scenario 3, the Court adopts $180/m² for the 2(a) land in preference to Mr Neskovski’s $190/m².”

66 The flaw in to the respondents’ submission is his Honour’s express adoption of Mr Wood’s assessment of $180/m² rather than arriving at that rate by a further discounting of Mr Neskovski’s $190/m². The latter is an exercise which his Honour simply did not undertake.

67 For the foregoing reasons, in my opinion his Honour adopted Mr Wood’s discounted englobo rate for the 2(a) land of $120/m².

68 So far as the 1(e) land was concerned, it is apparent from [114] that his Honour’s commencement point was that of Mr Wood, namely $120/m², being the same rate that which Mr Wood had determined with respect to the 2(a) land. Mr Wood in his valuation exercise then deferred that rate of $120/m² for five years thereby reaching a discounted englobo rate of $74.51/m². His Honour considered that Mr Wood’s discount rate of 33⅓% was insufficient for the reasons he set out in [114]. Accordingly, he discounted the figure of $180/m² as being the value of the 1(e) land once rezoned to 2(a) by 70% in order to reach an appropriate rate per square metre for that land and which, as he expressly observed, took into account the delay of at least five years in the rezoning process. It was therefore unnecessary for him to defer the resultant rate of $54/m² for five years as had Mr Wood in his “before” valuation.

69 It was not suggested by the respondents that in discounting the base rate of $180/m² by 70% in respect of the 1(e) land that his Honour was reflecting in that discount rate the flood management/development costs relating to that 1(e) land which were minimal in any event.

70 As I have indicated, by the end of its submissions, the respondents quite properly accepted that if a proper understanding of his Honour’s reasons set forth in [113] of his judgment was that he had in fact adopted Mr Wood’s base rate of $180/m² for the 2(a) land rather than discounted Mr Neskovski’s $190/m² by a further $10/m² to reach the same rate, then it followed that his Honour had erred in principle by failing to then deduct flood management and development costs of $1,665,200 or, at least, $1,507,000 being the amount of those costs agreed by the parties’ quantity surveyors.

71 The respondents initially submitted that the amount of $1,665,200 should also be deducted from his Honour’s “after” valuation with the result that each of those deductions cancelled each other out. However, during the course of argument it was accepted that based upon the agreement between the quantity surveyors with respect to flood management/development costs pre-acquisition and post-acquisition, there was a differential of at least $146,000 in that the post-acquisition works were agreed at $146,000 less than the pre-acquisition works. There was also the possibility of another $50,000 differential, the details of which were not explored. The point, however, is that the effect of the differential of $146,000 is that the compensation for the market value of the acquired land awarded by his Honour in the sum of $2,497,585.60 would need to be reduced by at least that amount.

72 The respondents submitted that for there to be a relevant error of law by the primary judge to justify intervention by this Court it was not sufficient to show that some error of law appeared in the judgment or during the course of the trial but that the error found was required to be one upon which the decision depended so that it was vitiated by that error: Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 419.

73 In my opinion, his Honour’s decision is vitiated by the error which I have identified. The amount of compensation he awarded in respect of the market value of the acquired land which resulted from his failure, given the differential in the pre-acquisition and post-acquisition flood management and development costs, to take account of those costs when determining both his “before” and “after” valuations was greater than the compensation to which the respondents were entitled.

74 It follows that Ground 1 advanced by the appellant succeeds with the result that his Honour’s assessment of compensation with respect to the market value of the acquired land must be set aside and the matter remitted to the Land and Environment Court for further consideration.

Ground 2

75 In view of my findings with respect to Ground 1, it is strictly unnecessary to deal with the second ground of appeal. Nevertheless, I shall do so lest it be suggested that it had any substance.

76 The relevant part of his Honour’s judgment dealing with this issue is to be found in [61] where he said:

“Mr Sanders considered that Stage 1 of the applicants’ proposal would not be approved as it would create an isolated pocket of residential land surrounded by flood liable land. Mr Sanders believed that the 2(a) land had very limited development potential because of the severity of physical constraints, principally flooding and ESL. If residential development were permissible at all on the 2(a) land, Mr Sanders considered that development involving single dwellings on conventional allotments would be more appropriate than the medium density development proposed by the applicant. On this basis, the respondent submitted that the applicants’ proposal was not viable.”

77 The appellant accepted that his Honour’s factual findings, which involved the rejection of Mr Sanders’ evidence, undermined the submission referred to in the last sentence of [61]. It submitted, however, that that was not the only basis upon which it had been submitted that the respondents’ proposal was not viable. The difficulty with this submission was that, as reflected in par 31 of the appellant’s written submissions on the appeal, its case before the primary judge was that the development of the 2(a) land was not commercially viable in the absence of an ability to develop the 1(e) land in either the “before” or “after” scenarios.

78 Accordingly, the lack of commercial viability argument depended upon a finding by his Honour that the 1(e) land had no potential for rezoning for residential use. It further depended on the 2(a) land only being suitable for subdivision into 27 conventional housing lots. Not only did his Honour find to the contrary in relation to that proposition, he also found that it was appropriate that the 2(a) land should being subject to medium density development as proposed by the respondents.

79 The appellant was requested to indicate to the Court whether there was any evidence from Mr Wood to support the proposition that the development of the land in accordance Scenario 3 was commercially unviable. It was unable to do so. In my opinion it follows that the second ground of appeal was at all times misconceived and it should be rejected.

Conclusion

80 The appellant has succeeded on it first ground of appeal in establishing that his Honour erred in principle when adopting Mr Wood’s base englobo 2(a) rate of $180/m² which was a rate applied to land which was unconstrained by flooding and/or airport noise by failing to deduct in both the “before” and “after” valuations the costs associated with the filling and development of the land to enable its residential potential to be realised.

81 As it was common ground that the costs post-acquisition were at least to the extent of $146,000 less than the costs pre-acquisition, it follows that his Honour’s assessment of the market value of the acquired land, being the difference between the “before” and “after” valuations, has over compensated the respondents at least to that extent. I would also add that although the respondents are entitled to compensation under s 55(d) of the Just Terms Act, the amount assessed by his Honour of $127,258 will need to be recalculated as that figure is based upon his assessed market value of $2,497,585.60. It will therefore need to be adjusted to apply to the ultimate determination of the market value of the acquired land.

82 As to the costs of the appeal, in my view the respondents should pay those costs only with respect to Ground 1 of the appellant’s Amended Grounds of Appeal whereas for the reasons referred to in [43], [44] and [73] above, the appellant should pay the cost of preparing the appeal with respect to Grounds 2, 3 and 4.

83 I would therefore propose the following orders:

(a) Appeal allowed.

(b) Set aside Orders 1 and 2 of Cowdroy J made on 22 February 2006.

(c) Remit the proceedings to the Land and Environment Court for the respondents’ claim for compensation to be assessed according to law.

(d) The respondents to pay the appellant’s costs of the appeal with respect to Ground 1 of its Amended Grounds of Appeal filed on 1 August 2006 but to have a certificate under the Suitor’s Fund Act, 1951 if otherwise qualified.

(e) The appellant to pay the respondents’ costs of preparation of the appeal with respect to Grounds 2, 3 and 4 of the Amended Grounds of Appeal.

84 CAMPBELL JA: I agree with Justice Tobias.

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LAST UPDATED: 26 February 2007