ROADS AND TRAFFIC AUTHORITY v TOMS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, SHELLER and COLE JJA 1 November 1995, 16 November 1995 [1995] NSWCA 393 LANDS ACQUISITION (JUST TERMS COMPENSATION) Act 1991 — method of valuation-wrong addition of statutory contribution sum to land value to determine compensation payable. Priestley JA I agree with Cole JA. Sheller JA I agree with Cole JA. Cole JA The respondent Mr JT Toms was the owner of 10.47 hectares of land being Lot 1, Deposited Plan 559413 which was resumed by the Roads and Traffic Authority (RTA) on 27 May 1994 for road construction purposes. Bannon J on 24 March 1995 awarded compensation to Mr Toms for the land resumed pursuant to the Lands Acquisition (Just Terms Compensation! Act 1991 in the sum of $6,378,000. That sum was made up as follows: Bare land value 4,188,000 Hypothetical s94 contribution 2,010,240 Legal expenses 16,000 Valuation fees 8,400 Relocation expenses 1,500 Stamp duty 17,994 Solatium 15,000 House value 120,000 TOTAL 6,377,134 This was rounded to $6,378,000. The only item challenged by the appellant is the inclusion of the hypothetical s94 contribution of $2,010,240 in the awarded compensation. In determining his valuation, Bannon J rejected claims for monetary compensation based upon severance of the land from a residue of land owned by the respondent, and for "injurious affection" caused to it. Mr Toms, by a cross-appeal, challenged that rejection. ENTITLEMENT TO COMPENSATION $54(1) Lands Acquisition (Just Terms Compensation) Act 1991 entitles a person to compensation for resumed land in such amount as will justly compensate the person for the acquisition of the land. The matters to be considered in determining the amount of compensation are those set forth in s55 which provides: "55. In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): 2 UNREPORTED JUDGMENTS (a) the market value of the land on the date of its acquisition; (b) any special value of the land to the person on the date of its acquisition; (c) any loss attributable to severance; (d) any loss attributable to disturbance; (e) solatium; (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired." It follows that Bannon J was obliged to determine the market value of the land on the date of its acquisition, any loss attributable to severance and any increase or decrease in the value of any other land of Mr Toms which adjoined or was severed from the acquired land by reason of the proposed carrying out of the construction of the freeway, that being the purpose for which the land was acquired. THE RESUMED LAND Mr Toms' father purchased the resumed property and surrounding lands in 1927. In 1951 the subject land was reserved under the County of Cumberland Scheme for "Proposed County Road", being the planned Castlereagh freeway. In 1958 the respondent purchased the resumed land and adjoining lands from his father. In 1970, 35 acres of that land was sold, it being subsequently developed as the residential King's Park Estate. On 19 March 1971 by Interim Development Order No 41, the King's Park Estate was rezoned Residential 2(e). It was agreed between the parties that, but for the zoning reserving the resumed land for an arterial road, the resumed land would have been zoned residential. That was thus the underlying zoning. On 21 October 1977 the subject land was zoned "Special Uses Road 5(b)" under the City of Blacktown Interim Development Order No 133 and this zoning was continued under the City of Blacktown Local Environmental Plan 1988 with the land being zoned "Special Uses Road 5(b) Arterial Road and Arterial Road Widening - Proposed Castlereagh Freeway (F2)". In February 1984 and in 1988 surrounding lands were rezoned Residential 2(a). In 1984 certain land at Quakers Hill was sold (the Sciarra sale), and 1993 land to the north of the resumed land was sold to Orlit Homes. Thus to the south of the resumed land was land which became King's Park Estate, and immediately to the north was land sold to Orlit Homes and a smaller parcel sold to Sciarra. Those two parcels of land, together with the land released to develop Quaker's Hill, and further to the north to develop Parklea, were all available for consideration as comparable parcels of undeveloped land suitable for development for residential purposes and thus required consideration as comparable sales to determine the market value of the resumed land. THE VALUATION EXERCISE The parties' expert valuers, and Bannon J, considered various suggested comparable sales of undeveloped land in endeavouring to determine the market value of the resumed land. Developers of land are liable to pay contribution for the provision of public amenities, public services and water services pursuant to the Environmental Planning and Assessment Act 1979!, and the Water Supply 1. s94 URJ ROADS AND TRAFFIC AUTHORITY v TOMS (Cole JA) 3 Authorities Act 19872. At the hearing the parties and their valuers accepted that the price a developer would pay for land zoned residential would be affected by the quantum of the contributions payable upon the land. As commonsense dictates, a developer would pay more for land attracting a lesser contribution than he would for adjacent or similar land attracting a greater contribution. Accordingly, when considering the sales of adjacent or nearby land which were said to be comparable sales, it was necessary to determine and then adjust for any difference in contribution rates for the parcels of land being considered. To take an entirely theoretical example, if there were two materially similar 10 hectare allotments of undeveloped land (Lots A and B) which were subject to different contribution regimes, Lot A attracting a contribution of $500,000 and Lot B a contribution of $200,000, a developer who would, exercising sound commercial and market judgment pay, say, $1 million for the 10 hectares of Lot A, would on the same basis, pay $1.3 million for the 10 hectares of Lot B. The total undeveloped cost to the developer of each 10 hectares in Lot A and Lot B for land and development contributions would be $1.5 million, but the theoretical market value of the land in Lot A would be $100,000 per hectare and in Lot B $130,000 per hectare. In neither instance is the theoretical value of land $150,000 per hectare, although the land may have had that value if it could have been developed for residential purposes free from any development contribution. The example demonstrates, and would similarly demonstrate if variations between the relevant valuation considerations pertaining to Lots A and B were taken into account, that the contribution amount is not a figure to be added to actual market value for purposes of s55. Bannon J recorded his understanding of the parties recognition of the relevance of contribution payments in determining value, and the applicability of allegedly comparable sales, as follows: "Both parties agreed that the amount of compensation payable would have to take into account the contribution which Blacktown City Council would have required pursuant to s94 of the Environmental Planning and Assessment Act 1979, as a condition of approval of a residential subdivision."3 Understood in the manner I have described in the example above, Bannon J was correct in his understanding that the parties had agreed, and valuation principle required, that regard be paid to the amount of contribution payable. However neither party advanced, nor did their experts advance, and nor does proper valuation principle require, that in determining the value of the resumed land, one adds to the "bare land value" the amount of contribution payable, which is what Bannon J did. That is because, in determining the market value of the land at the date of acquisition one determines what would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding certain matters referred to in s564. Both parties, and Bannon J, recognised that the land was to be valued upon the basis of its potential for development as residential land. Thus it would have attracted a development contribution. The appropriate contribution to apply to the resumed land so that its value might be determined by reference to comparable sales in respect of which the development contribution was also known and taken into account was thus required to be determined. 2. 827 3. Appeal Book, at 558U 4. Lands Acquisition (Just Terms Compensation) Act 1991, s56(1). 4 UNREPORTED JUDGMENTS The valuation exercise required the selection of comparable sales, the determination of the total of the purchase price paid by the developer together with the contribution paid or payable in respect of that land to give a total cost per hectare, the adoption of that sum (subject to any necessary adjustments) as the total cost which a developer would pay for the land resumed (including contribution), and deduction from that sum of the amount of contribution determined as appropriate for the resumed land. That is the exercise which the claimant's valuer undertook. Bannon J, however, erroneously simply added to a determined bare land value the amount of contribution which he found would have been applicable to the resumed land. In so doing he was in error. Further, Bannon J gave no reason at all for simply adding to the bare land value which he determined the amount of the contribution which he found would have applied to the resumed land. His Honour simply said: "To this must be added the hypothetical s94 contribution of $2,010,240 as being money a developer would be prepared to pay, giving a total of $6,198,240.00."5 The appellant submitted both that this addition was an error of valuation principle and such an error was one of law, not fact, and second, that the judgment was appellably wrong for failure to give reasons for the addition.¢ The respondent submitted that an error of valuation principle was an error of fact not of law and thus not appealable, and this did not raise a question of law appealable under s57 of the Land and Environment Court Act 1979. It is unnecessary to decide whether error in valuation principle constitutes an error of law or of fact'. It is apparent the trial judge gave no reasons for adding the contribution sum, and thus appealable error is shown. Counsel for the respondent could advance no reason to support such an addition. The simple addition of the contribution sum is clearly wrong. Accordingly the appeal must be upheld. The valuation exercise which the parties asked the trial judge to undertake was to determine an appropriate bare value for the resumed land, and to adjust that sum by a figure equivalent to the differential between the contribution paid or payable in respect of the comparable sale and the contribution which the trial judge found would have been payable in respect of the resumed land. The claimant contended that but for the road reservation the resumed land would have been developed following the release of the King's Park land in 1971 and would have attracted a contribution of $91,223 per hectare. Now it would attract a contribution rate of $192,722, as did the adjoining Sciarra sale land. A developer would thus now pay $101,489 less per hectare. Thus that sum should be added to the determined bare land value of $400,000 per hectare to produce a total value of $501,489 per hectare. Thus for the claimant to succeed on this aspect it was necessary for the trial judge to find a differential between the contribution the land would have attracted but for the reservation, and the contribution it would now be found to attract. 5. Appeal Book, at 563C 6. North Sydney Council v Ligon 302 Pty Ltd (unreported) Court of Appeal, 28 July 1995 per Kirby P and cases there cited. 7. Yates Property Corporation Pty Ltd (In liquidation) v Darling Harbour Authority (1991) 24 NSWLR 156 at 158-161, 170-171, 182-183; Valuer General v Dobrel Pty Ltd (1993) LGERA 334 at 335-336, 371, 339. URJ ROADS AND TRAFFIC AUTHORITY v TOMS (Cole JA) 5 The RTA contended there was no differential in contribution. Contribution rates which might have been applicable to the reserved land were: Kings Park land $91,233 Parklea land $235,112 Special 250 land (Orlit) $192,722 Quakers Hill land $191,122 Bannon J accepted that the contribution rate applicable to the resumed land was that applicable to the adjacent Orlit sale land, namely $192,722. His Honour rejected the claim that the resumed land would have attracted the King's Park contribution rate. There was thus no differential between the contribution rate applicable to the resumed land and the comparable sale land. It follows that there was no "added advantage" of a lower contribution rate which the claimant had lost in consequence of the resumption. Thus there was nothing to add to the bare land value already determined. The finding that there was no differential between the contribution rate for the resumed and comparable land was open to the trial judge, and may not be challenged in this Court. It follows that the appeal must be upheld, and the compensation determined by Bannon J reduced by the amount of the contribution wrongly added to the determined bare land value of $400,000 per hectare or $4,188,000. The compensation thus becomes $4,366,894. CROSS APPEAL S55 requires regard to be had to any loss attributable to severance' and to a related but different matter, namely, variation in the value of residue land held by the owner of the resumed land which is effected by either adjoining or being severed by the public work for which the land is resumed?. In respect of loss attributable to severance the respondent initially claimed $1,004,931. In respect of the matters referred in s55(f) the claim noted: "to be advised". It seems the parties, and the trial judge regarded the two matters as overlapping and treated them as one. His Honour said: "Lastly, there is the claim for severance. This is based on the view set out in Mr Alford's Report (Exhibit C, at 14, 15), that but for the reservation of the subject land for the Proposed Arterial Road, the applicant's remaining 5.518 ha north of the proposed freeway, would have been released for Residential 2(a) development, along with King's Park Residential area in the mid-1970's. The argument then proceeds that because of the severance the land would now be required to pay s94 contributions at the rate required for the Special 250 release (the Orlit purchase) namely, $192,722 per ha instead of at the King's Park rate of $91,233.00, and would also be required to bear an extra charge of $42,007.00 per ha for drainage. As I have said previously, I accept Miss Savage's evidence, and I am not satisfied the severed land would have borne the same contribution rates as the King's Park release area. I am not satisfied that absent the reservation, to quote Mr Alford, "a lower rate would have applied and that the consequence of this is that the price paid for the land would have been higher". I therefore reject the claim for severance." 10 8. s5S(c). 9. s55(f) 10. Appeal Book, at 563Q-564G. 6 UNREPORTED JUDGMENTS The claim for severance later advanced was in the sum of $790,000!!. The claim was formulated as follows: (a) But for the reservation a major portion of the residual land held by the respondent (5.518 hectares) would have been included in the King's Park residential development. There it would have attracted a development contribution of $91,233 per hectare. (b) Because of the reservation that did not happen. The residual land may be developed but will now attract the special 250 land development contributions of $192,722 per hectare. Thus the reservation resulting in severance means the residue land attracts higher development contributions of $101,489 per hectare. (c) In addition extra drainage works are required in consequence of severance totalling $42,007 per hectare. (d) The total additional cost of developing the land in consequence of reservation, and consequential severance or affection is $143,496 per hectare, or $791,810 rounded to $790,000. !2 In addition the sale price to Orlit Homes of portion of the severed land was reduced by $196,928, being $42,007 per hectare, for land sold. These were additional drainage works necessary to permit the Orlit Homes development and were necessary only because of severance. Had these lands not been severed or affected by the reservation, they would previously have been developed in the King's Park development. In address, the claim for $42,007 per hectare for drainage works was abandoned reducing the claim to $560,000.!3 The claim for severance or injurious affection thus depends upon acceptance that the severed land would have been included in the King's Park development in the 1970's. His Honour accepted the evidence of Miss Savage which denied this proposition. His Honour found: "Miss Savage pointed out that the King's Park plan did not even consider the subject land. Miss Savage also said that if the land had been zoned as residential in 1971, a hypothesis which has to be applied in this case, then it would not have been included in the Parklea release area contribution plan (Exhibit 11) either." !4 As the resumed land was found not to have been considered for the King's Park release, and according to Miss Savage, would not have been considered for that release, it follows that the residue land to the north is in a similar situation. The consequence is that the factual basis for the claim for severance, which hinged upon additional contribution costs in consequence of not being included in the King's Park development, has not been accepted by the trial judge. This argument on the cross-appeal fails. As an alternative argument, the claimant submitted to Bannon J that, as the residue land could not now be developed until 1998 or 2005 because, as severed land it was subject to a controlled staged release for residential development when water and sewerage will be available, the claimant lost the value of the residue land for the period of deferment. Counsel calculated this loss as being the difference between actual value of the residue land ($171,000 per hectare) and the present value of the sum to be realised at that price in 2005 at a discount rate of 10%. That calculated at $437,480. 11. Report of LB Alford, Appeal Book, at 354-355. 12. Appeal Book, at 354-355. 13. Appeal Book, at 313 14. Appeal Book, at 559U. URJ ROADS AND TRAFFIC AUTHORITY v TOMS (Cole JA) 7 Bannon J did not address that argument in his judgment, and the respondent seeks that the matter to returned to Bannon J for consideration. In my view that course should not be adopted and this Court should reject the argument. First, it was not the subject of any evidence but was merely a calculation advanced by Counsel!5. Second, the argument depends upon it being established that if the land had been zoned residential in 1971 it would have had water and sewerage available to it. That was not established. Third, the calculation advanced is wrong in principle. If any loss be suffered, it is the present value of the differential between the future realisable value of the land when watered in 2005 and the value of the land in 2005 unwatered. These matters were raised at the hearing before Bannon J by counsel for RTA but not responded to then, or before this Court. In my view the alternative argument advanced must fail. I propose the following orders. ORDERS 1. Appeal upheld. 2. Orders of Bannon J dated 24 March 1995 set aside. 3. Compensation is awarded pursuant to the Land Acquisition (Just Terms Compensation Act 1991 in the sum of $4,366,894. 4. Order the appellant to pay the costs of the respondent of the proceedings before Bannon J. 5. Cross-appeal dismissed. 6. Respondent to pay the appellant's costs of the appeal but to have, if qualified, a certificate under the Suitors Fund Act. 7. Respondent to pay the appellant's costs of the cross-appeal. COUNSEL: Appellant: MH Tobias QC/JA Ayling Respondent: JJ Webster SOLICITORS: Appellant: Crown Solicitor for the State of NSW Respondent: J Greenwood and Co 15. Appeal Book, at 313-314