Land and Environment Court of New South Wales CITATION : Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2004] NSWLEC 535 APPLICANT Walker Corporation Pty Limited PARTIES : RESPONDENT Sydney Harbour Foreshore Authority FILE NUMBER(S) : 30024 of 2003 CORAM: Talbot J KEY ISSUES: Compulsory Acquisition of Land :- compensation - disturbance - effect of compensation awarded on a highest and best use distinct from actual use. Land Acquisition (Just Terms Compensation) Act 1991 s 55, s 56(1)(a), s 59(a), s 59(b), s 59(f), s 61(a), s 61(b) LEGISLATION CITED: Environmental Planning and Assessment Act 1979, s 109 State Environmental Planning Policy No. 5 - Housing for Older People or People with a Disability State Environmental Planning Policy No. 56 - Sydney Harbour Foreshores and Tributaries. Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259, unreported; Commonwealth v Milledge (1953) 90 CLR 157; Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493, 1959 AC 248; CASES CITED: Fitzgerald v Blacktown City Council Land and Environment Court of NSW No. 30281 of 1993, 28 March 1994, unreported; N Stephenson Pty Ltd v Roads and Traffic Authority of New South Wales (1994) 83 LGERA 248; Vaughan-Taylor v David Mitchell-Melcann Pty Ltd (1991) 25 NSWLR 580; Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2004] NSWLEC 315, unreported DATES OF HEARING: 07/09/04, 08/09/04 DATE OF JUDGMENT: 09/24/2004 APPLICANT Mr J J Webster SC SOLICITORS Minter Ellison LEGAL REPRESENTATIVES: RESPONDENT Mr A E Galasso (Barrister) SOLICITORS Deacons JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Talbot J 24 September 2004 30024 of 2003 Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority JUDGMENT Introduction 1 Talbot J: Judgment was delivered on 9 July 2004 when the making of final orders was deferred until the issue of disturbance was resolved. Attempts to settle the argument were unsuccessful and the matter has been listed for the purposes of further argument. 2 The applicant is claiming compensation for loss attributable to disturbance within the meaning of s 55 and s 59(a), (b) and (f) of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act"). 3 The issue in relation to legal costs is in respect of quantum and reasonableness. The claim for valuation fees is based upon expenditure on fees paid to consultants other than a valuer. There is no claim for valuation fees paid to a valuer. It is claimed that the consultants were retained to provide advice to support a valuation. There is no evidence of its existence. 4 The claim for financial costs pursuant to s 59(f) is supported by evidence that the applicant and a predecessor incurred costs by obtaining advice and professional assistance preparatory to and making a development application to Leichhardt Council seeking consent for residential and industrial development and in respect of the future development of the land generally. It is claimed that the applicant reimbursed the predecessor for its costs. 5 The use of the land by the applicant at the date of resumption is said to be as a part of its land bank for future development. The activities specifically related to the claim for financial costs included:- (a) the preparation and submission of a development application for the use of the Site for aged and disabled and/or residential housing purposes; (b) the preparation and submission of individual Master Plans for both residential and industrial development at the Site; (c) the erection of display and community consultation centres on the Site itself and at the Broadway Shopping Centre, Broadway, for the purpose of providing information to the public and promoting the use of the Site for residential development; and (d) the preparation of preliminary site investigation regarding services and site contamination. 6 It is appropriate to be reminded of the factual matrix that supported the applicant's claim for a relevant interest in the land at the date of acquisition, namely 26 September 2002. The facts were set out in my judgment on 9 July 2004 and are not relevantly in dispute. It is convenient to summarise this aspect by the following chronology:- · 2 September 1997 – Caltex granted a Call Option to Walker Group Pty Ltd to acquire the land. · 2 September 1997 – Caltex and Walker Corporation Ltd entered a Put Option Agreement in respect of the land. · 13 January 2000 – Walker Group nominated McRoss Developments Pty Ltd as purchaser under the Call Option Agreement. · 19 February 2002 – The Premier of NSW announced a decision to acquire the site. · 19 February 2002 – The subject land was transferred from Schedule 1 under SEPP 56 to Schedule 2 by notice published in the NSW Government Gazette. · 19 April 2002 – McRoss exercised the Call Option. 7 McRoss subsequently changed its name to Walker Corporation Pty Ltd. Walker Corporation Pty Ltd (formerly McRoss) is a distinct corporate entity from Walker Corporation Ltd. The peripheral details of the relationship between the relevant companies are more fully explained in my earlier judgment Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2004] NSWLEC 315, unreported at [3], [4], [5], [6] and [7]. Legal costs 8 The evidence is that legal costs of $80,978.50 incurred for legal services provided by Minter Ellison Lawyers allegedly included:- (a) research regarding the Applicant's entitlement to compensation as a result of the compulsory acquisition; (b) considering the procedure and notification requirements for compulsory acquisition; (c) preparing brief to Senior Counsel on entitlement to compensation; (d) preparing advice on compulsory acquisition process; (e) considering valuation issues relating to contaminated land; (f) providing advice on resumption, valuation and existing rights issues; and (g) obtaining and reviewing documents from the Respondent under Freedom of Information Act 1989 ('FOI Act'); and (h) providing advice on the stamp duty issues associated with the compulsory acquisition of the Site. 9 Bowring Stone Lawyers were also retained by Walker Corporation Pty Ltd. It is alleged that $19,290.97 was incurred for legal services by Bowring Stone Lawyers to:- (a) provide legal advice on the proposed redevelopment of the land known as Ballast Point in Balmain ('Site') including the applicability and effect of planning controls and availability of existing use rights; (b) act in an appeal to the Land and Environment Court in relation to a deemed refusal of a development application and application for a declaration of existing use rights; and (c) provide legal advice on the ability to claim compensation as a result of the compulsory acquisition of the Site. 10 Fees paid to Ian Hemmings of Counsel are also claimed. 11 Mr Galasso submits on behalf of the respondent that the total amount of the legal costs are self evidently excessive and should be significantly reduced to a figure that the Court considers to be commensurate with the work in connection with the compulsory acquisition of the land and to be properly regarded as reasonably incurred in accordance with the terms of s 59(a) as follows:- 59 Loss attributable to disturbance In this Act : loss attributable to disturbance of land means any of the following: (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, … 12 The Court has been presented with the relevant invoices and effectively invited to decide the reasonableness and veracity of the claim from a perusal of those documents. I have done that. There are a number of minor inconsistencies which are not explained although they have little bearing on the outcome. After making allowance for related work regarding other matters, the applicant does not claim all of the costs rendered in the invoices produced from the solicitors. I am not satisfied that all of the claimed items charged by Minter Ellison Lawyers are costs reasonably incurred in connection with the compulsory acquisition itself. I have examined all of the invoices and doing the best I can in the circumstances, I am prepared to recognise the following costs paid to Minter Ellison Lawyers as claimable pursuant to s 59(a):- 28 June 2002 Invoice 654232 $21,500.00 28 June 2002 Invoice 654244 $ 7,035.50 6 August 2002 Invoice $12,641.00 30 October 2002 Invoice $ 2,704.00 23 December 2002 Invoice $11,258.00 Total $55,138.50 13 The costs paid to Bowring Stone are in respect of advice and legal action only peripherally related to the compulsory acquisition. They are mainly concerned with pending proceedings in classes one and four of this Court's jurisdiction. In my assessment the costs are not directly relevant to the costs contemplated and allowed by s 59(a) and accordingly are disallowed as not relevant. Mr Hemmings was briefed by Bowring Stone and it follows the fees paid to him must also be rejected. Valuation fees 14 The claim for valuation fees is made pursuant to s 59(b) which states:- 59 Loss attributable to disturbance In this Act: loss attributable to disturbance of land means any of the following: (b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land … 15 The claim includes costs incurred in the sum of $21,242.04 attributable to services provided by Planning Workshop Australia said to assist in valuing the site as a result of the compulsory acquisition. The applicant also incurred expense for payments to Planning NSW and the respondent in respect of information required for the purported purpose of assisting in determining the value of the site. 16 None of these costs were fees paid to a valuer nor have they been linked to a specific valuation that incorporated the information. The consequence of obtaining the information and the result in the context of a valuation is not explained. The words of s 59(b) are plain and in my view they do not extend to cover costs other than those that can be categorised specifically as valuation fees. The reference to "fees" in s 59(b) is more concise than the more general and wider expression of costs used in the other subsections of s 59. In my opinion the payments relied upon were not paid in respect of the services of a valuer and therefore fall outside the ambit of the subsection. Section 59(f) claim 17 Section 59(f) of the Just Terms Act provides: 59 Loss attributable to disturbance In this Act: loss attributable to disturbance of land means any of the following: ( 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. 18 Compensation was assessed on the most advantageous potential of the land after firstly setting aside the industrial zoning current at the date of acquisition as a step in the resumption process and then allowing for the risk of achieving the maximum yield from any residential development. Accordingly the market value was assessed at a sum greater than the value which the land had in its present state as industrial zoned land. 19 Reliance upon an existing use to support residential development would have involved a significant risk that would have reduced the amount of compensation. Although it was not necessary for the Court to adopt a proposal for development pursuant to State Environmental Planning Policy No. 5 - Housing for Older People or People with a Disability ("SEPP 5"), again, in that case, there would have been the additional risk of achieving a yield equivalent to the potential recognised, on the basis assumed by me, namely the land would have been zoned residential at the date of resumption. The market value of the land was assessed on the basis that the highest and best potential use was as if it had been actually zoned for residential purposes. 20 For the purpose of the present argument the applicant contends that the actual use at the date of compulsory acquisition was as part of a land bank. The subject land as part of the land bank at that date could only be physically used with the consent of the council for uses permissible within the industrial zone or pursuant to any future development consent relying upon the establishment of an existing use or SEPP 5. I held that the industrial zoning was a step in the resumption process which had caused the value of the land to decrease. 21 In order for the applicant to capitalise the value of the land as part of its land bank and to realise the highest value of the land on the basis of its potential residential purpose, a rezoning was required. This had not occurred at the date of resumption. 22 Notwithstanding that it was a part of a potential land bank the land was characterised by zoning at the relevant date as industrial land. The Court was in a position to notionally set aside the industrial zoning in order to recognise the highest and best use for the purposes of the Just Terms Act. Otherwise the capacity to realise the full potential was dependent upon a rezoning. 23 Notwithstanding the land is to be regarded as part of a land bank held by the applicant for the purpose of future medium density residential development, it was not capable of achieving that purpose on the relevant date. It cannot be said therefore that it was being used for the purpose attributed to it in accordance with the application of the definition of market value in section 56 (1)(a) of the Act. 24 The distinction between the potential adopted for the purpose of assessing market value pursuant to s 56 and the actual current use at the date of resumption is critical for the purpose of applying s 61 of the Act. Section 61 provides:- 61 Special provision to market value assessed on potential of land If the market value of land is assessed on the basis that the land had potential to be used for a purpose other than that for which it is currently used, compensation is not payable in respect of: a) any financial advantage that would have necessarily have been forgone in realising that potential, and b) any financial loss that would have necessarily been incurred in realising that potential. 25 Prior to the enactment of the Just Terms Act the approach accepted by the courts had been that a claim for disturbance was only relevant to the hypothetical purchaser who was actually using the land for the use that formed the basis for the assessment of value at the date of resumption (Commonwealth v Milledge (1953) 90 CLR 157 at 164). The typical case was where the dispossessed owner occupied the land for a purpose that was not its highest and best use. A claim for disturbance of a current use was regarded as inconsistent with a realisation of value based on a higher use. 26 The use of the land at Ballast Point at the date of acquisition was constrained by the prevailing industrial zoning. It was only after that zoning was notionally set aside, as a step in the resumption process, that the impediments of the zoning were hypothetically removed to enable the Court to value the land without the constraints, as land that could be developed for residential purposes. It is therefore not reasonably open for the applicant to argue that the market value of the land has been assessed on the basis of its current use at the relevant date. 27 Moreover the applicant was never in personal possession of the lands so that its actual use was not disturbed in the physical sense. Furthermore it entered into the contract to purchase the land as land zoned for industrial purposes. There was no certainty that the land could ever be used for residential development. Therefore it could not have been the case that the applicant was actually using the land for residential purposes, whether as part of a land bank or otherwise. 28 The determination of market value has been made on the basis that the land had potential to be used for a purpose other than that for which it was capable of being currently used at the date of acquisition. The hypothesis of setting aside the current zoning does not change the approach to an assessment of compensation for loss attributable to disturbance. The prospective use for a residential purpose was not capable of being disturbed because there was no capacity to enjoy it in the first place. 29 The primary intention of the legislation in respect of disturbance is to further compensate an owner who is required to relocate an actual use where that actual use is the basis for assessment of compensation. One of the principal objects of the Just Terms Act is to ensure compensation on just terms. There will be no injustice by denying the present applicant compensation attributable to disturbance if there has been no financial cost to the applicant that is attributable to the actual use of land. Any cost incurred in seeking to obtain development consent based on SEPP 5 or existing use was in respect of in an attempt to obtain approval for a higher use. Section 61 means that the dispossessed owner cannot recover additional compensation for disturbance either based upon a loss of future financial benefit as a consequence of realising the higher use or the loss incurred in achieving that potential. 30 The physical improvements on the land only accommodated an industrial use. Accordingly if there was an actual and physical use of the land it could only have been for an industrial purpose. That was clearly a use different to that upon which the market value of the land has been assessed. 31 Pitching the applicant's case at its highest, the character of the land as part of a so-called land bank is regarded as land within an industrial zone that entitled the owner either to rely on an existing use right as the basis for making a development application for consent to change from one non-conforming use to another non-conforming use, or to seek consent to development consistent with SEPP 5. 32 The applicant's argument in support of an existing use was that the land was being used for the prohibited use of a liquid fuel depot. The disturbance of that use, if any, was a loss attributable only to the user, namely Caltex. The applicant never had possession under the uncompleted contract. 33 Any financial costs expended by the applicant in seeking development consent for its own purposes were subsumed in the award of compensation for the highest and best potential use based on the assumption that the underlying zoning would have permitted residential development. As I said earlier the potential use based on the underlying zoning is a higher use than a potential based on establishing existing use or satisfying the requirements of SEPP 5. The potential was elevated by the underlying zoning to a degree of certainty that significantly limited the risk. 34 Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493, 1959 AC 248 is authority for the proposition that actual physical use is not an essential ingredient in the concept of "use". If the holding of the land serves a designed end then that is its use. Section 59(f) uses the expression "actual use". That is to be distinguished from the expression actually physically being used in the context of section 109 of the Environmental Planning and Assessment Act ("the EP&A Act") (see Vaughan-Taylor v David Mitchell-Melcann Pty Ltd (1991) 25 NSWLR 580). 35 An actual use is to be distinguished from a future or potential use. The Court of Appeal has recognised that holding developable land in a land bank for future development could be an actual use for the purposes of s 59(f) (Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259, unreported). The claim for loss attributable to disturbance in that case was for financial costs incurred as legal costs and stamp duty in buying replacement land. The Court of Appeal gave the expression "relating to" a wide import and held at [28] that:- …both the need and the occasion for the purchase of the replacement land related to the actual use of the acquired land, that is, to conduct its business the respondent needed to acquire and then hold the replacement land for later subdivision and resale. 36 The earlier approach by this Court has been consistent with the finding of the Court of Appeal (see for example Fitzgerald v Blacktown City Council Land and Environment Court of NSW No. 30281 of 1993, 28 March 1994, unreported) and N Stephenson Pty Ltd v Roads and Traffic Authority of New South Wales (1994) 83 LGERA 248. 37 In Stephenson there were special circumstances that deprived the applicant of the right to recover the financial costs claimed but nevertheless the effect of s 59(f) was clearly recognised, namely, that although costs incurred prior to acquisition are not compensable as a general rule it is not imperative that the costs be deferred until acquisition occurs. 38 The present claim pursuant to s 59(f) fails primarily because the costs claimed have been subsumed by the amount of compensation payable in respect of market value assessed on the basis of the highest and best use. Moreover there was no temporal nexus between the time the expenses were incurred and the acquisition. The costs claimed were in relation to the applicant's, and its predecessor's, attempts to obtain development consent and to the future development of the land in a general sense. They related to the actual use of the land as a land bank but they were not incurred as a direct and natural consequence of the acquisition. They were incidental costs incurred by the applicant and its predecessor in the conduct of its business and the realisation of the potential of the land. They were incurred irrespective of the acquisition. They were incurred prior to the announcement by the Premier that the Government intended to acquire the land on 19 February 2002. Significantly the applicant did not acquire an equitable interest in the land as purchaser under the uncompleted contract, being the interest it held at the date of acquisition, until 19 April 2002. 39 The costs claimed fall outside the ambit of s 59(f) for all of the above reasons. 40 Having regard to this finding it is not necessary to resolve the issue raised by the respondent that some of the costs claimed were payments made as the reimbursement of costs incurred by a related corporation before the applicant was nominated or entitled to exercise the call option under the Call Option Agreement and therefore could not be categorised as financial costs within the meaning of s 59(f). However I have not been persuaded that if the costs had been incurred on account of the dispossessed owner, and otherwise could be claimed under s 59(f) the sole fact of reimbursement would necessarily dislodge the claim. Orders 41 Having regard to the above determination and the judgment delivered 9 July 2004 the Court determines as follows:- 1. The compensation payable to the applicant by the respondent, pursuant to s 55 of the Land Acquisition (Just Terms Compensation) Act 1991, is $43,555,138.50, that is, $43,500,000 for market value together with $55,138.50 for disturbance. 2. Costs reserved. 3. Exhibits may be returned. 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.