Land and Environment Court of New South Wales CITATION: Mood and Ors v Cowra Shire Council [1999] NSWLEC 124 PARTIES APPLICANTS: Mood and Ors RESPONDENT: Cowra Shire Council NUMBER: 30136-7 of 1997 CORAM: Talbot J Compensation :- value of improvements partly built on adjoining land KEY ISSUES: Compensation:- neighbouring owner influence Compensation:- cost of improvements as an aid to determine value Compensation:- disturbance - cost of fencing LEGISLATION CITED: Land Acquisition (Just Terms Compensation) Act 1991 DATES OF HEARING: 05/24/1999; 05/25/1999; 05/26/1999 DATE OF JUDGMENT DELIVERY: 06/09/1999 APPLICANTS: Mr J B Maston (Barrister) SOLICITORS: Coode and Corry LEGAL REPRESENTATIVES: RESPONDENT: Mr J A Ayling (Barrister) SOLICITORS: Pike Pike and Fenwick JUDGMENT: Contents Paragraph The acquisition and the claim 1 - 10 The history 11 - 14 The issues 15 - 22 The legal issues 23 - 29 Value of road improvements 30 - 50 The market value of the acquired land 51 - 52 Severance 53 - 58 Loss attributable to disturbance 59 - 71 Total compensation 72 IN THE LAND AND Matter No. 30136-7 of 1997 ENVIRONMENT COURT Coram: Talbot J OF NEW SOUTH WALES Decision Date: 9 June 1999 Alan Michael Mood, John Leslie Mood and Robyn Laura Mood Applicants v Cowra Shire Council Respondent REASONS FOR JUDGMENT The acquisition and the claim 1. From the early 1950s the two parcels of land which are the subject of these proceedings have been held in various interests by the Baker and Mood families. Access is gained to the property by means of a formed gravel road leading off the Olympic Way near Koorawatha in Cowra Shire. The road is known as the Pipe Clay Road. 2. Private land acquired pursuant to a Notice of Compulsory Acquisition published in the Government Gazette on 18 April 1997 under the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act) was, at the date of acquisition, part of the site of an existing formed road. The balance of the road was within an existing road reserve. 3. Matter No 30136 of 1997 relates to the compulsory acquisition of land for road purposes through Lot 84 DP 752956, owned by Alan Michael Mood. 4. Matter No 30137 of 1997 relates to the compulsory acquisition of land for road purposes through Lot 85 DP 752956, owned JL and RL Mood. 5. Lots 84 and 85 are adjoining. 6. The southern boundary of the land owned by JL and RL Mood is also the boundary between Cowra Shire and Young Shire. 7. The areas of land resumed are in two categories. Firstly, there is land owned by the applicants at the date of acquisition and upon which the road has been constructed. The second category is land within the existing road reserve which has not heretofore been used for the purposes of the road. Land used for the road being land within the existing road reserve has not been acquired. 8. Those parts of the existing road reserve acquired by the Notice of Compulsory Acquisition are not required for the purposes of the road itself. The Court has heard that the Cowra Shire Council has offered to transfer them to the applicants for a nominal consideration. No agreement has been reached generally for the reason that the applicants harbour a concern about the future disproportionate levy of rates on those small parcels. 9. The applicants have each lodged an objection to the amount of compensation offered by the council. 10. Both matters have been listed for hearing together and it is agreed that evidence in one proceedings shall be evidence in the other. The history 11. The evidence establishes that the road within the road reserve and through Lots 84 and 85, and beyond, was originally built and formed by private land owners. These owners, including the applicants, have since accepted some of the responsibility for its maintenance for a period in excess of 40 years. The council has also carried out some maintenance work from time to time during that period. 12. The extent of work carried out by council within Lots 84 and 85 up to the date of acquisition appears to be minimal. The evidence in this respect is sketchy. However, the council records show that some work was carried out by the council up to the point of the entrance to the house on Lot 85 in 1957, 1967, 1980 and 1990. 13. The road area was cleared, formed and gravelled at the rate of 10 m 3 to the chain in 1957. It was re-gravelled to the same extent in 1967, 1980 and 1990. Although it is far from certain, there is at least a suggestion in the council records that some work was carried out in December 1972. 14. Otherwise the landowners have spread gravel from time to time, filled in potholes and kept the road generally in a condition which enabled it to be used by heavy vehicles such as timber jiggers. The issues 15. The principal issue in contention is whether the applicants are entitled to compensation which takes account of the added value to the land by the road improvements. The parties have been unable to agree on the present cost of establishing and constructing the road and there is conflicting evidence from the applicants' consulting engineer Mr Hosgood and the council's roads engineer Mr Newham. 16. There is also a dispute about the value of fencing acquired within the resumed lands. Furthermore, the applicants claim they are entitled to compensation for the cost of erecting new fencing either side of the road because of its changed status to a public road following acquisition. 17. Mr Hosgood contends that 58 per cent of the area of the road running through Lot 85 is on JL and RL Mood's land. Mr Newham agrees with this apportionment. However, Mr Hosgood has calculated that 67 per cent of the area of the road through Lot 84 is owned by Alan Mood, whereas Mr Newham says the result of a computer calculation shows that only 59 per cent of the constructed road is within Lot 84. 18. Mr Hosgood told the Court that he calculated the apportionment by using odometer readings from a vehicle whereas, in both cases, Mr Newham relied on computer calculations based on survey information provided by his staff. The calculations provided to Mr Newham have not been challenged. It is preferable to accept an actual calculation carried out by computer and based on survey information rather than an informal estimate based solely on odometer readings and observation. 19. Although the applicants' valuer, Mr Pye, suggested that there may be other potential purchasers for the land acquired from the applicants, such as developers intent upon creating or maintaining access to other land, there can be little doubt that at the date of acquisition the only realistic purchaser for that part of the applicants' land improved as a road would have been the council. Even if other potential purchasers could be contemplated, the council is the one most likely to pay a consideration to purchase those parts of the road acquired from the applicants. 20. The question for the Court is not whether compensation should be paid to the applicants for the roadworks constructed and maintained over the years on their own land resumed or within the existing road reserve. 21. The sole task of the Court is to ascertain the market value of the land and the entitlement to compensation beyond that, if any, by having regard to the matters referred to in s 55(b) - (f) of the Just Terms Act. 22. Except to the extent of a minor concession, the council resists the applicants claim for compensation in respect of severance caused by the acquisition. The legal issues 23. In Geita Sebea and Ors v The Territory of Papua (1941) 67 CLR 544 the High Court considered the principles to be applied to the assessment of compensation where the acquiring authority, as the existing lessee, had carried out significant improvements, including an aerodrome, on the land acquired. Even though, as appeared to be probable, the buildings could be removed, the assessment of compensation was made assuming that the owners were willing vendors and the Crown was a willing purchaser and that it would benefit the Crown to pay something more for the resumed land rather than to have to go to the expense of removing and re-erecting the fixtures elsewhere. The decision of the High Court in Geita Sebea however does not establish a principle that enables the Court, in assessing compensation in this case, to allow the value of the land without the improvements and then merely to add the cost of constructing the improvements with a proper deduction that recognises depreciation. 24. The Just Terms Act requires the Court to determine the amount of compensation by having regard to the value of the land acquired. It is important to discern between the cost of improvements and their value at the date of acquisition ( Collins and Anor v Livingstone Shire Council (1972) 127 CLR 477 at 484 and 500 and Blue Mountains City Council v Mulcahy (1998) 100 LGERA 193 at 201). 25. In Collins the High Court decided that the Court at first instance was incorrect when it awarded the appellants the unimproved value of the land and the cost of fencing but allowed nothing for the value of a reservoir already constructed partly on the acquired land and partly on adjoining land. The court below should have taken into account that the reservoir in its notionally incomplete state could have been completed by work done on the adjoining lands. Furthermore, it was erroneous to regard the cost of construction as the proper measure of value, the cost being only one of the facts to be considered in arriving at the value. The weight to be given to cost would depend on the other evidence. 26. The only current legal distinction between Geita Sebea and Collins is that, in the former case, a fully constructed aerodrome was acquired, whereas in the latter case, similarly to the present, only part of the improvements forming part of an existing structure was situated on the resumed land. 27. The fact that part of the road is constructed within the road reserve immediately adjoining the acquired land also raises the question of whether the resumed land possessed a " special potentiality in the hands of the council " of the type referred to by Bignold J in Croghan v Hawkesbury City Council (1998) 99 LGERA 375 at 387. 28. His Honour undertook a careful analysis of the authorities before he allowed a value additional to the market value that the land would ordinarily have, but for the special potentiality that enabled the council to continue to operate a sewage treatment plant on adjoining land. It is unnecessary to reiterate the reasoning and analysis undertaken by Bignold J. I find it sufficient for the purposes of this case to adopt his conclusion that s 56(1)(a) of the Just Terms Act does not disqualify a claim for compensation in addition to the ordinary market value by reason of its position adjoining land owned by a potential purchaser who has a particular need or interest in buying the land. The adjoining owner, as a prudent purchaser, may pay more for the land rather than lose the opportunity to acquire it, thereby increasing the market value. 29. The Court proposes to follow the line of authority referred to above and have regard to the prospect of added value from the roadworks and the position of the council as a theoretical purchaser of the parts of the road within Lots 84 and 85 and its particular interest as an adjoining owner. Value of road improvements 30. The major evidentiary issue centred on the establishment of an appropriate current cost basis for the existing road improvements and the proper rate of depreciation to be applied. 31. Mr Hosgood bases his estimates upon information provided to him by the applicants. He used RTA published rates and his experience to quantify cost of materials and construction. 32. On the other hand the council relied upon Mr Newham who based his estimate on the actual costings used by the council in carrying out work itself or when quoting on contracts for third parties. 33. In summary, Mr Hosgood would have advised Mr Alan Mood that that value of the road improvements within Lot 84 is in the order of $37000. In the making of this assessment Mr Hosgood assumed that 67 per cent of the constructed road through Lot 84 was within Lot 84. 34. JL and RL Mood would have received advice that the value of the road improvements within Lot 85 is in the order of $55880. 35. Using council's estimates of the cost of materials and labour, Mr Newham estimated that the depreciated value of the roadworks in Lot 84 was $9110. The comparative value for roadworks in Lot 85 as established by Mr Newham is $27015. 36. The question to be decided is what account the council, on the one hand, would have taken of the advice given to it as a prospective purchaser of the land for the purpose of determining what it should pay for the land having regard to the improvements on it. 37. The applicants, as the prospective vendors, may or may not have had the benefit of advice from a person standing in the shoes of Mr Hosgood. Nevertheless, the Court is entitled to assume, particularly after hearing the evidence of Mrs Mood who was able to give a first hand account of road building and maintenance since the early 1950s, that they would have had a full understanding and appreciation of the extent of works and material required to bring the road into its present condition. The position of the applicants can be equated to any other willing but not anxious vendor who, being in their position, expected to be paid a reasonable consideration for the improvements. They would no doubt take into account that only part of the road was constructed on the land the subject of the sale and that they could not expect to be fully reimbursed on a present day cost basis for an expenditure spread over some 40 years. 38. Although the Court accepts it would be reasonable for the theoretical vendor to seek advice about the value of the improvements, the appraisal of the likely purchase price would involve a realistic approach to the prospect of recovering any more than a price the most likely purchaser would offer. 39. The information provided to the applicants by Mr Hosgood would be informative and provide some limited assistance in establishing the ambit of their claim for value added to the market value of the land by the road improvement. It would not however finally determine the amount they would accept as the component value of the land contributed by the road works. 40. On the other hand the council would be aware that a number of advantages would accrue to it if it could acquire the land, with the improvements, by private treaty. First and foremost, as a matter of convenience and practicality, it would be preferable to acquire the applicants' land rather than relocate to another site which could involve acquisition of land and the building of an entirely new road at the new location. Alternatively, the council might consider establishing the balance of the road surface on that part of the existing road reserve which is not already used for the established road. 41. In either case the council would need to weigh a number of exigencies, including convenience, feasibility of construction, cost and delay. 42. There is no dispute that the existing made road is in a condition which supports the actual use at the date of acquisition and that only minimum works were required to bring it up to an appropriate standard for this class of road. 43. The Court is satisfied that in the whole of the circumstances, the council as a prospective purchaser would be concerned to place itself in a position where it owned the whole of the area over which the road has been constructed and that, in assessing the purchase price it is prepared to pay, would have some regard to the cost estimates provided by its own staff. 44. It is unlikely that the council would have been in the position where it would contemplate the value of the roadworks to it as being derived from a costs base established by reference to RTA or private contract criteria. 45. If the council, as the theoretical purchaser, had been appraised of the estimates of value put forward on behalf of the applicants by Mr Hosgood, that factor may have played a role in persuading the council that it might need to increase the price in order to persuade the vendors to sell so that it could gain the advantage of taking over the existing works established on land adjoining the reserve already under its control. 46. Mr Hosgood included a figure of $6500 as the cost of fencing along the road through Lot 84. On the same account he included a figure of $20400 in respect of Lot 85. In the light of the council's declared policy that it does not undertake any fencing of rural roads, it is not inappropriate to disregard the cost of fencing for the purpose of determining the market value of the land, being the price which the council might agree to pay to the applicants as vendors, particularly as the existing fencing was old and not built to a standard making it suitable as a boundary fence. By taking out the fencing element, the depreciated value of the road through Lot 85 established using Mr Hosgood's figures is $32770. After the same adjustment is made for Lot 84, and accepting that only 59 per cent of the road is within the lot, Mr Hosgood's value of improvements within Lot 84 is reduced to $17703. 47. The issue of fencing is separately raised by the applicants as a loss attributable to disturbance within the meaning of s 59(f), being a claim for financial costs reasonably incurred relating to the actual use of the land as a direct and natural consequence of the acquisition. 48. Except for fencing, which he excluded, the applicants' valuer Mr Pye adopted the valuation of the replacement cost of the improvements undertaken by Mr Hosgood. However, he disputed Mr Hosgood's approach to depreciation. Instead of depreciating the estimate of the replacement costs by 55 per cent as Mr Hosgood had done, he preferred a rate of 15 per cent. Mr Pye's argument is that if the council outlaid 15 per cent of the replacement cost, the road could be brought back to its original condition. In other words he expected the council to pay the full value of the existing road less the cost of re-sheeting the gravel surface. Mr Pye relied on the engineer to determine the cost. Thereafter he determined value. After determining the value by discounting the estimated cost of the road at the rate of 15 per cent, he then adds a five per cent adjustment to take into account the adjoining owner influence. Further adjustment is made to allow for road survey and design costs at the rate of 10 per cent of the actual cost. 49. Using his criteria, Mr Pye determined the value of the road improvements on the JL and RL Mood land at between $59000 and $60000. Adopting a proportionate adjustment to the valuation of the road improvements within Alan Mood's land, his method derives a figure of just over $36000 for Lot 84. It is unlikely, in the Court's opinion, that the council would have been prepared to, in effect, pay for virtually the full present day cost of building the road improvements as this method entails. 50. Having regard to all the above facts and circumstances therefore, the Court is satisfied that, based on the advice of its engineer, the council might have been persuaded to offer a premium for the roadworks and, in the case of Alan Mood, pay up to $18000 above the actual market value of the improved land, and in the case of JL and RL Mood, up to $33000, in order to ensure achieving the benefit of acquiring the land rather than lose it and, as a result, be forced to follow one or other of the less attractive alternatives identified above. These offers would not have been so far different from the advice that the applicants would have received to cause it to be rejected. This assessment takes account of peripheral items such as road survey and design costs and the adjoining owner influence. The market value of the acquired land 51. The underlying market value of the land acquired out of Lot 85 is agreed at $1750. The agreement in respect of Lot 84 is an underlying market value of $1000. 52. The Court finds that the market value of the acquired land at date of acquisition is: JL & RL Mood (Lot 85) $34750 Alan Mood (Lot 84) $19000 Severance 53. The taking of the road area within Lot 85 has isolated three triangular parcels of land of about one hectare between it and those adjoining parts of the existing road reserve compulsorily acquired on the same day. The acquired part of the existing road reserve in each case abuts the residue of Lot 85 or Lot 30 also owned by JL and RL Mood. 54. One triangular parcel of about two hectares has been isolated in Lot 84. 55. The argument in relation to the amount of reduction in the market value of the severed land is restricted to $200 in the case of Lot 85 and $375 in the case of Lot 84. 56. In the circumstances the Court has decided that the applicants are entitled to the benefit of compensation determined at the higher figure for which they contend. 57. Compensation for severance is determined as follows: Alan Mood Lot 84 $750 JL and RL Mood Lot 85 $375 58. Although the applicants also contend they are entitled to compensation for inconvenience, the costs of obtaining permits for unregistered motor vehicles to cross the public road and new fencing, as loss attributable to severance, none of these items can be classified as the amount of " any reduction in the market value of any other land " which is caused by that other land being severed. They may fall for consideration as loss attributable to disturbance and will be dealt with separately under that heading. Loss attributable to disturbance 59. The parties have agreed that legal costs and valuation fees are properly allowed as follows: Alan Mood Lot 84 $4300 JL and RL Mood Lot 85 $4867 60. The applicants claim that, following the establishment of the status of the road as a public road, they are obliged to fence on either side of the new road reserve in order to protect the safety of their livestock and to ensure that there is no threat to users of the road caused by straying animals. 61. The existing road was fenced but it is no longer entirely on an appropriate line. Furthermore, it was built many years ago to a standard commensurate with its principal practical purpose at that time, as internal paddock fencing. 62. The Court is persuaded that, notwithstanding the pre-existence of the made road through Lots 84 and 85, the formal establishment of the road as a public road justifies fencing on either side to enable the applicants to carry on their agricultural pursuits with the appropriate degree of confidence that livestock will not escape and further that an appropriate barrier is erected between the road and private land. 63. This need arises as a direct and natural consequence of the acquisition. The Court recognises that the applicant might necessarily incur the cost of fencing on either side of the road without any expectation of a contribution from the council as the owner of the road. The cost of the fencing falls within the meaning of a financial cost referred to in s 59(f) of the Just Terms Act. 64. Mr Pye estimated the cost of fencing as follows: Alan Mood Lot 84 $10500 JL and RL Mood Lot 85 $30500 65. He made allowance for re-use of some existing fencing. 66. There is no substantive evidence which contradicts these figures, although Mr Newham ventured an opinion that rather than $10/m 2 allowed by Mr Pye, the cost would not exceed $7/m 2 . Both claims will be allowed at the amount established by Mr Pye. He recognised that in the circumstances it would not be reasonable to also compensate the applicants for the loss of fencing. Mr Hosgood's claim in that respect is disallowed. 67. Mrs Mood and Alan Mood gave evidence that, as a consequence of advice from relevant authorities, they had applied for permits to allow unregistered vehicles used on the farm to cross or travel along the road within the property. Mr Pye calculated the compensation for payment of annual fees for the permits on the present value of $510 per annum at seven per cent. 68. The need for the permit does not, in the Court's opinion, arise solely as a direct and natural consequence of the acquisition. The reason the permits were obtained is because farm vehicles are being used on a public road. No change has accrued following acquisition which directly gives rise to the application for the permits. The Court is not satisfied the applicants are entitled to compensation for loss attributable to disturbance on this account. 69. Finally, Mr Pye claimed that, based upon his instructions from the applicants, significant permanent inconvenience will be caused by the impact of increased traffic on animal movements across the road. There is also an inherent inconvenience caused by the loss of the use of areas adjacent to and within the road and permanent separation between paddocks. 70. Mr Pye experienced difficulty in identifying which head of compensation the claim for inconvenience arises. In cross examination he suggested that any future purchasers would reduce the value of the whole of the land on the basis of the inconvenience caused by the presence of the road. However, he admitted that no direct valuation had been made in that respect. Although the claim resembles the matter referred to in s 55(f), it has not been put or quantified on that basis. There is no evidence to justify a claim in respect of $10000 by Alan Mood and $15000 by JL and RL Mood. The Court is not satisfied that any loss arising from inconvenience can be realistically quantified or even that it exists. 71. The applicants are entitled to compensation for loss attributable to disturbance as follows: Lot 84 Alan Mood $4300 legal costs and valuation fees $10500 fencing $14800 Lot 85 JL and RL Mood $4867 legal costs and valuation fees $ 30500 fencing $35367 Total compensation 72. The Court determines that the applicants are entitled to the following compensation. Matter No 30136 of 1997 Alan Mood Lot 84 $19000 Market value of the land acquired 750 Severance 14800 Loss attributable to disturbance $34550 Total Compensation Matter No 30137 of 1997 JL and R L Mood Lot 85 $34750 Market value of the land acquired 375 Severance 35367 Loss attributable to disturbance $70492 Total Compensation DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.