Land and Environment Court of New South Wales CITATION: Bombala Investment Pty Ltd V Great Lakes Council [1999] NSWLEC 75 PARTIES Applicant Bombala Investment Pty Ltd Respondent Great Lakes Council NUMBER: 30127 of 1998 CORAM: Sheahan J KEY ISSUES: :- Compulsory acquisition of an easement - disturbance - highest and best use LEGISLATION CITED: Compulsory acquisition of an easement - disturbance - highest and best use DATES OF HEARING: 03/01/1999 DATE OF JUDGMENT DELIVERY: 03/31/1999 Applicant Mr A J J Thompson (Barrister) Mr Digby Dunn (Solicitor) of Stacks Forster LEGAL REPRESENTATIVES: Respondent Mr P Tomasetti (Barrister) Mr P Rees (Solicitor) JUDGMENT: IN THE LAND AND Matter No: 30127 of 1998 ENVIRONMENT COURT Coram: Sheahan J OF NEW SOUTH WALES 31 March 1999 BOMBALA INVESTMENT PTY LIMITED Applicant v GREAT LAKES COUNCIL Respondent JUDGMENT Introduction 1. This is an objection under s 66 of the Land Acquisition (Just Terms) Compensation Act 1991 ("the Just Terms Act") to the amount of compensation offered to the applicant ("Bombala") by the respondent ("Council") for the compulsory acquisition of an easement for drainage over lot 35 ("lot 35"), Deposited Plan 850018, shown in Deposited Plan 268004, registered with the Registrar-General's office on 4 September 1997. 2. On 22 April 1998, Council offered Bombala $5,000 as compensation for the subject acquisition, under s 55 of the Just Terms Act. Bombala objected to the amount offered, and claimed an amount of $339,684. This amount has now been revised to $167,600. The Just Terms Act 3. Under s 37 of the Just Terms Act an owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation. Under s 54, an owner is entitled to such amount as will "justly compensate" the owner for the acquisition of "land". Relevantly, "land" is defined in the Just Terms Act to include any interest in land. 4. Section 55 provides: "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): (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." 5. Section 56 defines the meaning of the words "market value", s 58 defines "loss attributable to severance" and s 59 defines "loss attributable to disturbance". 6. Relevantly, s 62(3) makes special provision for acquisition of easements: "If the land compulsorily acquired under this Act consists of or includes an easement or right to use the surface of any land for the construction and maintenance of works (such as canals, drainage, stormwater channels, electrical cables, openings or ventilators), the easement or right is (unless the acquisition notice otherwise provides) taken to include a power, from time to time, to enter the land for the purpose of inspection and for carrying out any additions, renewals or repairs. Compensation under this Part is payable accordingly." 7. As the Courts have noted on many occasions the Just Terms Act is a comprehensive code as to how compensation is to be calculated. Background Description of the Subject Property 8. Lot 35 is located about 3 kilometres from the Central Business District, and several hundred metres from the Shopping Village, in the town of Forster on the New South Wales north coast. 9. Pipers Creek, which flows into Wallis Lake, forms the western frontage of the land. The eastern frontage is formed by The Lakes Way, the main road into Forster from the south. 10. Lot 35 is a "battle-axe" shaped block which is currently divided by the relevant drain into two sections: 1. A section comprising the "axe handle", approximately 60 metres wide, with a 300 metre frontage to Pipers Creek ("the elongated section"); 2. A section comprising the head of the "axe" and a small residue of "handle", measuring approximately 250 metres wide for most of its 300 metre frontage to the creek ("the remaining section"). (See Annexure C to Exhibit C4). 11. The elongated section is located generally to the north-west of the drain/easement and the remaining section to the south-east of it. The remaining section has a lengthy but interrupted frontage to The Lakes Way. 12. Improvements on the land include a Tavern and a Bottle Shop, which are both situated towards the Lakes Way frontage on the remaining section. (Plans showing the location of the Tavern and the Bottle Shop are contained in Annexure B to Exhibit C2). 13. Development consent (DC 168/98) has been granted for holiday type units on the remaining section of the subject property. Council has also granted development consent (DC 246/98) for 38 motel rooms, 52 cabins and tourist or recreational facilities on that section. The Drain 14. It was a condition of the development consent for the Tavern which currently stands on lot 35 that Bombala provide for the collection and piping of stormwater flowing under The Lakes Way. Agreement was reached between the parties that, in satisfaction of this condition, an allowance was made for an alternate drain, with water being diverted generally in a westerly direction along The Lakes Way and thence to Pipers Creek along an easement behind an adjoining skating rink (See Exhibit B2). This became, as it got closer to the Creek, the open drain which is now contained within the easement which is the subject of these proceedings. 15. The drain provides for water run-off from The Lakes Way, Angel Close and adjacent land, as well as a nearby caravan park and car sales development. Excess water run-off from a recent Woolworths development on the other side of the Lakes Way has also been directed into the drain. 16. It is a matter of some debate between the parties as to who constructed the drain, but both parties agree that Council has, from time to time, maintained it. Acquisition of the Easement 17. Acquisition of the easement was notified in the New South Wales Government Gazette Number 62 dated 27 March 1998 (page 2278). No issue has been raised as to the validity of this acquisition. Zoning of the Subject Land 18. Lot 35 was, at the date of acquisition, contained partly within the zone 1(c) (Future Urban Investigation Zone) and partly within zone 6(a) (Open Space and Recreation) under the Great Lakes Local Environmental Plan 1996 which was gazetted on 13 December 1996. 19. The objectives of the 1(c) Future Urban Investigation Zone are: "1.a) to conserve suitable rural land for future urban development by restricting development to those uses which are unlikely to - (i) lead to the premature and sporadic subdivision of land which would render the economic provision of public utilities and community facilities unreasonably more difficult or expensive once urban development takes place; and (ii) inhibit, in a significant manner, the potential for urban expansion in selected areas, particularly the urban fringe; and (iii) generate significant additional traffic or create or increase a condition of ribbon development on any road, relative to the capacity and safety of the road; and b) to ensure that development is carried out in a manner that minimises risks from natural hazards, functions efficiently, does not prejudice other economic development and does not significantly detract from the scenic quality of land within the zone." 20. The objectives of the 6(a) Open Space and Recreation Zone are: "1. to restrict development for the purposes of leisure and recreation to that which - (a) promotes worthwhile community benefits; and (b) does not reduce the amount and distribution of public open space areas below acceptable levels and standards which meet the needs of the community; and (c) does not have an unacceptable impact on the amenity of adjacent areas." The Applicant's Claim 21. The Amended Points of Claim particularise a revised claimed amount of $167,600, or, in the alternative, $74,664, These claims are made up of the following components: 1. Current market value of the easement - s 55(a) $5,600 2. Loss in value of land severed by easement - s 55(c) or (f) $152,000 3. Decrease in value of adjoining land - "injurious affection" - s 55(f) $10,000 4. Alternative to items 2 & 3, cost of piping easement - s 55(d) $69,064 22. The claim for $167,600 is the sum of items 1, 2, and 3, and the lesser alternative sum of $74,664 is the sum of items 1 and 4. 23. The "market value" claim has been settled between the parties at $5,300, midway between Council's offer and item 1 above, and Council submits that that is the only amount it should pay to the applicant by way of compensation. 24. The basis of Bombala's further and alternative claims is to be found in the expert valuation report of Peter Aulbury, who was instructed to prepare two valuations for the effect of the drainage easement, in the following alternative scenarios: Scenario 1 "The easement is left as an open drain in its current state, which will also require periodic access by the Council to maintain it excavated to an adequate depth." Scenario 2 "The drainage is fully enclosed in underground pipes to Council's specifications, with the covering ground formed into a wide dish-type drain to contain extra run off in times of flood." Scenario 1 - The Primary Claim - $167,600 - Items 1, 2 & 3 25. Mr Aulbury assessed items 1, 2, and 3 as follows: 1. $5,600 for the current market value of the easement (land area 560m2 @ $10/m2); 2. $152,000 for the loss in value of the elongated section (land area 1.52 hectares @ $10/m2); and 3. $10,000 for "injurious affection", comprising the loss of value caused by the division of the land by the easement, the decrease in value of lot 35 due to the unsightly appearance of the open drain, the need for periodic access to lot 35 to be granted to Council so it can maintain the drain, and the loss of patronage of the Tavern as a consequence of the drain's impact on access routes. (Mr Aulbury stated that he did not calculate a separate amount for each of these components). 26. The $10/m2 is based on comparable sales (albeit none of them recent). Scenario 2 - The Alternative Claim - $74,664 - Items 1 & 4 27. The amount Mr Aulbury adds to the market value of $5,600 to arrive at the "fallback" claim of $74,664 is $69,094 to cover the cost of piping the easement. The Respondent's Expert Reports 28. Three experts were engaged by the Council, and all provided reports, but only Council's Design Co-ordinator John McLoughlin gave oral evidence. Expert Valuer 29. Gabriel Longa (see Exhibit C4) considered the elongated section to be inferior in value to the remaining section due to its shape, access, flooding restrictions and environmental constraints. He concluded that the highest and best use of the elongated section is "considered to be for the purposes of a low scale and low intensity tourist development, such as cabins of pole construction above the 1:100 year flood level, with each development being linked by boardwalks." 30. Relevantly, Mr Longa drew attention to the fact that prior to the acquisition of the easement, if the elongated section were to be developed for any purpose, some form of access would have been required across the drain. He considered that the easement had no affect on the potential development of the elongated section of land, due to the "overriding factors and limitations on development imposed by the zoning and the environmental constraints of the site". 31. Longa recommended that $5,000 compensation should be offered to Bombala, consisting of $2,000 for the market value of the acquired easement interest, and $3,000 for losses attributable to disturbance. He was critical of Mr Aulbury's suggested market valuation of $5,600 because it was based on the value per metre of freehold land. Longa points out that a freehold interest has not been acquired here; but only an easement, ie. the right to drain water across such an interest. 32. Longa contended that it was not the acquisition which had divided or separated one part of lot 35 from another. In fact, no adverse physical effect, severance or injurious affection could be said to have been brought on by the acquisition. The acquisition of the easement made no difference to the appearance and operation of the drain, and claims for compensation for the loss of patronage of, or access to, the Tavern, or for the appearance of the drain could not be considered to be a direct and natural consequence of the acquisition. Expert Planner 33. Roger Busby is the Manager of Strategic Planning for the Council. (See Exhibit C2). He described the elongated section as being narrow, low lying and substantially covered with vegetation. It adjoins Crown foreshore and gives a scenic buffer to the waterway. By comparison, he describes the remaining section as higher and substantially cleared. 34. Mr Busby testified that the compulsory acquisition of the easement over the existing drainage line has in no way affected the development potential of lot 35. Development on the elongated strip is restricted, in any event: (i) by environmental constraints, unrelated to the acquisition, including flooding, the need to preserve water quality within Pipers Creek, visual significance of the existing dense vegetation, and fauna habitat; and (ii) by the restrictive provisions of the 6(a) zone, which would not allow subdivision unless "it was for community benefit, community purpose and did not reduce the amount of open space to an unacceptable level and did not impact upon the amenity of adjacent areas". 35. Mr Busby also stated that prior to the compulsory acquisition some form of access would have been required across the drain for any development and this need is unaffected by the acquisition. Expert Civil Engineer 36. John McLoughlin is a civil engineer (see Exhibit C3). He has been employed by the Council since 1974. 37. He noted that the subject property is low lying and may be subject to flooding. He also gave evidence, as an expert on Council practice, as to the Council's intention to pipe the easement. He stated that if this piping project was not included in the works programme for the 1999/2000 budget year, there would be a high probability that it would be completed in the next year. What are the issues? 38. As noted earlier, the parties have agreed that the amount of compensation payable by way of market value (s 55(a)) is $5,300, halfway between the amounts arrived at by Mr Aulbury and Mr Longa. 39. The amount Council offered by way of compensation, to which Bombala has objected, was $5,000, being arrived at by adding $2,000 for market value and $3,000 for disturbance, as per Longa's valuation. Council has now conceded an amount of $5,300 by way of market value. It may be regarded as having not denied, but as having already conceded, that the amount properly recoverable by Bombala for disturbance, as part of any overall compensation to be awarded, is $3,000. 40. In his valuation Longa allowed $2,000 for legal fees and $1,000 for valuation fees. However, Bombala has claimed additional amounts for severance and injurious affection, or, in the alternative, for disturbance, and the Council denies all such claims. Is there severance? 41. Confronted with expert reports which reveal conflicting opinions, I prefer the evidence of Mr Longa. The compulsory acquisition of the easement has not caused any "severance" of the land in the sense contemplated in the Just Terms Act. The access restriction which currently exists was created by the construction of the open drain, pursuant to the agreement between Bombala and the Council in satisfaction of the conditions of development consent for the Tavern, and not by the acquisition of the easement. 42. Accordingly, I have determined that no amount of compensation is properly payable for losses attributed to severance. Decrease in Value of Adjoining Land 43. The question of compensation for "injurious affection" is dealt with by s 55(f) of the Just Terms Act. 44. In Arrow v Electricity Commission of New South Wales (1995) 87 LGERA 363. Bignold J, in addressing the question of additional injurious affection, said (at 373): "The question of further injurious affection is essentially a matter of opinion. … the question creates great difficulty (because of the obvious element of subjectivity compared with the far more concrete question of the loss of subdivision potential)." 45. Accordingly, I have considered the opinions of both sides with respect to the claims made in this case by way of injurious affection under subsection 55(f) of the Just Terms Act. 46. Bombala's claim for $10,000 for injurious affection is based upon the report of Mr Aulbury, relating to losses attributable to the acquisition and the need for periodic access to lot 35 to maintain the drain. In cross-examination, Mr Aulbury admitted that his figure of $10,000 was purely subjective and did not involve the calculation of the value of the individual components. Mr Thompson, Counsel for Bombala, suggested in his closing submissions that $7,000 may be a more appropriate figure for the Court to allow, reducing the "fallback" or Scenario 2 claim to $71,664. 47. I will now examine, in turn, the two components of this aspect of the claim. (i) Losses Attributable to the Acquisition 48. Bombala has claimed for losses resulting from the decrease in value of land adjoining the acquired easement due to the unsightly appearance of the open drain, and the loss in patronage and access to the Tavern from the north across the "severed land". 49. Neither of these claims can be substantiated. The acquisition of the easement has not caused the unsightly appearance of the open drain, nor has it created a loss of patronage and access to the Tavern. Whilst these losses may have been suffered by Bombala, they are not losses attributable to the acquisition of land, being factors already present before the acquisition of the easement. 50. They cannot be the subject of compensation under s 55 of the Just Terms Act. (ii) The Need for Regular Maintenance 51. It is agreed between the parties that the drain within the easement requires regular maintenance by Council. As such, Bombala claims compensation for the Council's power to enter Bombala's land for this purpose under s 62(3) of the Just Terms Act. However, during cross-examination, Mr McLoughlin stated that Council workers could, if instructed, maintain the easement without crossing Bombala's private property. This could be achieved (as he says it often has been in other cases) by having the maintenance machinery enter the easement via a neighbouring property. 52. I am satisfied that, in accordance with the oral evidence given by Mr McLoughlin, Bombala's land need not be entered for the purposes of regular maintenance of the open drain within the easement. Therefore, no compensation is payable under s 62(3) of the Just Terms Act. The Alternative Claim for Disturbance 53. Since compensation has been denied for Bombala's second and third items of claim, the question of compensation for disturbance (Bombala's fourth item of claim) arises. 54. Disturbance is defined in s 59 to include "reasonably incurred" legal costs, stamp duty costs, valuation fees, and financial costs of various types. The definition relevantly embraces in s 59(f) "any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition". 55. Bombala claims that, as the actual use of the easement is the drain, the cost of "piping-in" the drain may reasonably be incurred as a direct and natural consequence of the acquisition, and therefore is compensable. 56. It was argued by Council that the term "actual" use of land referred to the land as a whole and I accept this interpretation of the provision. 57. During cross-examination, Rinaldo Lani, principal of Bombala, conceded that "the land" is currently being used as a Tavern and a Bottle Shop, and to some extent the elongated section, and that part of the remaining section near the drain (in the "handle" of the "axe"), is surplus to the needs of lot 35's current use. 58. In Broken Bay Peninsula Pty Limited v Minister Administering the National Parks and Wildlife Act 1974 (unreported, Land and Environment Court, 24/10/97) Cowdroy AJ stated at par 149: "To be recoverable pursuant to s 59 of the Act, financial costs must be incurred relating to the 'actual' use of the land, not merely to the 'proposed use' of the land. To give the word 'actual' its necessary effect, it must relate to an expense in relation to a physical use of the land being carried out at the time that the costs are incurred or when they are 'thrown away'." 59. In applying this principle to the current circumstances, the financial costs do not relate to the "actual" use of land, because they are distinct and separable from the use of the land as a Tavern and Bottle Shop. Consequently, compensation is not payable under s 55(d) of the Just Terms Act. 60. Nonetheless it is "reasonable" that Bombala receive some compensation for "disturbance" items claimable under the balance of s 59, in respect of which the only evidence available to the Court is in the expert estimate provided by Longa, namely $3,000 for legal and valuation expenses. Conclusion 61. I conclude that compensation is payable to Bombala for market value under s 55(a), and for disturbance under s 55(d) of the Just Terms Act. 62. The amount to be determined in the first respect has been agreed between the parties at $5,300, and that for disturbance should be $3,000. Bombala's other claims for compensation fail. Orders 63. The formal orders of the Court will be as follows: 1. Objection upheld. 2. Amount of compensation determined at $8,300. 3. Question of costs reserved. 4. All exhibits may be returned. I HEREBY CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR JUDGMENT HEREIN OF THE HONOURABLE JUSTICE T.W. SHEAHAN. Associate: Dated: 31 March 1999 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.