Reported Decision : Reported Decision - (2006) 149 LGERA 217 Land and Environment Court of New South Wales CITATION : Macarbell Pty Limited v RTA, Michael Nasser v RTA [2006] NSWLEC 651 Proceedings 30801 of 2004 APPLICANT Macarbell Pty Limited RESPONDENT Roads & Traffic Authority of New South Wales PARTIES : Proceedings 30802 of 2004 APPLICANT Michael Nasser RESPONDENT Roads & Traffic Authority of New South Wales FILE NUMBER(S) : 30801 of 2004; 30802 of 2004 CORAM: Jagot J KEY ISSUES: Compulsory Acquisition of Land :- compensation - loss attributable to disturbance - whether stamp duty and legal fees for purchase of other land are costs relating to the actual use of the land, as a direct and natural consequence of the acquisition - whether any actual use of land - whether valuation fees reasonably incurred LEGISLATION CITED: Land Acquisition (Just Terms Compensation) Act 1991 Land and Environment Court Act 1979 s 69 A Woodbury and Ors v Wyong Shire Council [2006] NSWLEC 48; Bezzina Developers Pty Limited v Leichhardt Municipal Council [2006] NSWLEC 175; Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259; Costantino and Maric v RTA [2006] NSWLEC 248; Damjanovic and Anor v Roads and Traffic Authority of NSW (No. 2) [2005] NSWLEC 371; CASES CITED: Fitzpatrick Investments Pty Limited v Blacktown City Council (No 2) (2000) 108 LGERA 417; Kirela Pty Limited v Minister Administering the Environmental Planning and Assessment Act 1979 [No. 2] (2004) 132 LGERA 90; Maggiotto v Roads and Traffic Authority [2006] NSWLEC 54; Mir Bros Unit Constructions Pty Limited v Roads and Traffic Authority of New South Wales [2004] NSWLEC 612; [2005] NSWLEC 467; Nasser v Roads and Traffic Authority; Millstar Holdings Pty Limited v Roads and Traffic Authority (No 3) [2006] NSWLEC 562; Sebastian Cannavo and Alfia Jennifer Busa v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570; Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2004) 136 LGERA 164 DATES OF HEARING: 04/10/2006 DATE OF JUDGMENT: 11/01/2006 APPLICANTS Mr N Hemmings QC (solicitor) SOLICITORS Allens Arthur Robinson LEGAL REPRESENTATIVES: RESPONDENT Mr J Maston SOLICITORS Corrs Chambers Westgarth JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Jagot J 1 November 2006 30801 of 2004 MACARBELL PTY LTD Applicant ROADS & TRAFFIC AUTHORITY OF NEW SOUTH WALES Respondent 30802 of 2004 MICHAEL NASSER Applicant ROADS & TRAFFIC AUTHORITY OF NEW SOUTH WALES Respondent JUDGMENT Jagot J: A. Introduction 1 Macarbell Pty Limited and Michael Nasser own land in the Prestons industrial release area in Western Sydney. The Roads and Traffic Authority acquired part of their land on 10 October 2003. On 11 July 2006, I determined Macarbell and Mr Nasser's entitlement to compensation by reason of that acquisition, other than with respect to any loss attributable to disturbance (s 55(d) of the Land Acquisition (Just Terms Compensation) Act 1991). 2 Macarbell and Mr Nasser claim an entitlement to compensation by reason of loss attributable to disturbance in two respects. The RTA disputes both claims – one in part and one in whole. Accordingly, the issues are whether Macarbell and Mr Nasser are entitled to compensation as follows: (1) $27,500.00 on account of valuation fees ($9,102.50 for Macarbell and $18,397.50 for Mr Nasser). The RTA submitted that this amount must be reduced to $19,250.00 to reflect valuation fees "reasonably" incurred (s 59(b) of the Just Terms Act). (2) $818,480.58 on account of stamp duty and legal fees that Macarbell and Mr Nasser might reasonably incur to acquire land to replace the land compulsory acquired by the RTA ($128,680.65 for Macarbell and $669,799.93 for Mr Nasser). The RTA submitted that the evidence did not support the factual findings necessary to sustain this claim and that s 61 of the Just Terms Act precluded compensation on this account. B. Valuation fees reasonably incurred? 3 Section 59(b) defines one component of loss attributable to disturbance as valuation fees reasonably incurred in connection with the compulsory acquisition of the land. 4 Mr Nasser is the owner of part of the acquired land and a director of Macarbell. He appointed Mr Neskovski, valuer, to provide a valuation of the acquired land for the purpose of assessing the adequacy of the RTA's offer of compensation. Mr Neskovski valued the acquired land. He rendered an account to Macarbell and Mr Nasser on 19 November 2003 for $27,500.00 inclusive of GST. Mr Nasser did not consider Mr Neskovski's bill for $27,500.00 unreasonable. He paid the account. 5 Mr Nasser has developed and subdivided land since the 1970's through various vehicles, including partnerships (with family members and others), joint ventures and corporations. He considered that the valuation task was complicated, because it involved a large parcel of land dramatically affected by the RTA acquisition, in circumstances where that affectation extended to an agreement for lease between Macarbell and T.D.G. Auto Care Pty Limited (a claim not pressed in the proceedings), requiring review of a large amount of information. 6 Mr Lunney, valuer, considered $27,500.00 excessive. Based on his experience, and having regard to enquiries he made, he said that suitably qualified and experienced valuers generally charged in the order of $250 to $350 per hour in 2003. Mr Lunney thought that a suitably qualified and experienced valuer should take approximately 50 hours to complete the valuation. If the highest end of the range of consultancy fees were used ($350 per hour), Mr Lunney calculated that a reasonable valuation fee should be no more than $19,250.00 (inclusive of GST). 7 Mr Maston, on behalf of the RTA, submitted that, as Mr Neskovski's fee was a charge made by a professional, the only evidence relevant to the reasonableness of the fee was evidence of another professional – in this case, Mr Lunney. Mr Hemmings QC, on behalf of Macarbell and Mr Nasser, submitted that clients pay valuation fees. What is reasonable is informed by the amount the client was willing to pay. 8 I accept that the mere fact of payment by a client does not, of itself, necessarily make a valuation fee "reasonably incurred" within the meaning of s 59(b) of the Act. The fact of payment was not the only evidence, however. The evidence of both Mr Nasser and Mr Lunney is relevant to the question of the reasonableness of Mr Neskovski's valuation fee. Mr Nasser had considerable experience with respect to the acquisition and development of land and, I infer, with respect to land valuations. He considered the valuation complex, was satisfied that the fee was reasonable, and paid the account. Although I do not know the actual rate per hour used by Mr Neskovski, Mr Lunney identified the range of rates of experienced and competent valuers as generally between $250 and $350 per hour. I accept that evidence. Based on that evidence, a rate of $350 per hour, while the highest rate in the range, was reasonable. On that rate, the difference between what Mr Lunney considered reasonable and the amount Mr Neskovski in fact charged represents somewhere between 21 and 28 hours of additional work. 9 I am satisfied that Mr Neskovski's valuation task was relatively complex, and would have involved an assessment of substantial material. Given the nature of the valuation required (in particular, the size of the land, the location of the acquired land, and the configuration of the residue land), and the range of material that I accept Mr Neskovski would have had to consider to carry out the valuation, I do not accept Mr Lunney's opinion that the fee of $27,500.00 was excessive and unreasonable. 10 I am satisfied that Mr Neskovski's account of 19 November 2003 constitutes a valuation fee reasonably incurred by Macarbell and Mr Nasser in connection with the compulsory acquisition of the land. Accordingly, Macarbell and Mr Nasser must be compensated with respect to that amount. C. Stamp duty and legal fees on replacement land? General observations 11 Section 59(f) defines a component of loss attributable to disturbance as "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". 12 Macarbell and Mr Nasser based this part of their claim on Fitzpatrick Investments Pty Limited v Blacktown City Council (No 2) (2000) 108 LGERA 417 (affirmed on appeal in Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259). 13 In Fitzpatrick, Lloyd J held that s 59(f) of the Just Terms Act took its plain meaning and should not be read down (at [16] to [18]). He found that Fitzpatrick's business was the development of land by subdivision, and that it held the acquired land for the purpose of that business. Hence, there was an "actual use" of the land within the meaning of s 59(f), being the use of land as stock-in-trade for the residential subdivision business. Fitzpatrick lost its developable land because of the acquisition. If it wished to continue its business, it had to purchase other land. It followed that the purchase of the other land (albeit industrial land) was a direct and natural consequence of the acquisition. Accordingly, the financial costs reasonably incurred by Fitzpatrick in acquiring the other land (stamp duty and legal fees) were compensable. 14 The Court of Appeal affirmed Lloyd J's decision. Stein JA observed that Fitzpatrick's land was part of its stock-in-trade and that this constituted a use of land. He said that a physical use of land was not required, but a potential future use would fall short of "actual use" (at [4] – [5]). Brownie AJA (with whom Stein and Ipp JJA agreed) made the same point - that future or potential uses were not actual uses (at [26] and [27]). Fitzpatrick actually used its land for the purpose of residential subdivision, as the land was acquired and held for that purpose, to be subdivided and sold for profit when the time was ripe (at [24]). The purchase of replacement land involved financial costs relating to that actual use. The "need and the occasion" for that purchase related to Fitzpatrick's business – it needed the replacement land to hold, subdivide and resell (at [28]). As Fitzpatrick's business was developing land for profit (not holding it as a passive investor) it had to buy the replacement land to continue its business (at [34]). The costs of purchase were thus a direct and natural consequence of the acquisition, not the consequence of a novel investment decision (at [35]). 15 Subsequent decisions disclose a range of factual circumstances in which these claims have been upheld and rejected. For example, claims were upheld in Maggiotto v Roads and Traffic Authority [2006] NSWLEC 54 (the activity of buying, developing and selling land was carried out by the applicants as joint tenants or as directors of corporations), Nasser v Roads and Traffic Authority; Millstar Holdings Pty Limited v Roads and Traffic Authority (No 3) [2006] NSWLEC 562 (the Nasser brothers were in the business of land development for subdivision purposes both on their own and with others) and Mir Bros Unit Constructions Pty Limited v Roads and Traffic Authority of New South Wales [2004] NSWLEC 612 and [2005] NSWLEC 467 (by agreement of the respondent, where the Court had found that the applicant's business involved the "acquisition, development and securing of investment from land, commonly industrial land"), but rejected in Kirela Pty Limited v Minister Administering the Environmental Planning and Assessment Act 1979 [No 2] (2004) 132 LGERA 90 (the land was not being used for any purpose at acquisition), Costantino and Maric v RTA [2006] NSWLEC 248 (the applicants had not established that the acquired land was part of their stock-in-trade constituting a land bank), Sebastian Cannavo and Alfia Jennifer Busa v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570 (the applicants were holding the land as an investment), Bezzina Developers Pty Limited v Leichhardt Municipal Council [2006] NSWLEC 175 (the applicant owned a single parcel only, and purchase of replacement land was not likely), Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2004) 136 LGERA 164 (claim subsumed by compensation on assumed higher use – s 61 of the Just Terms Act), Damjanovic and Anor v Roads and Traffic Authority of NSW (No. 2) [2005] NSWLEC 371, and A Woodbury and Ors v Wyong Shire Council [2006] NSWLEC 48 (s 61 precluded the claims). 16 Accordingly, each case must be decided on its facts. Leaving aside s 61, these questions must be answered. (1) What was the actual use of the acquired land, if any, at the acquisition date? (2) If the acquired land was actually used at the acquisition date, have financial costs been reasonably incurred (or might such costs reasonably be incurred) relating to that actual use, as a direct and natural consequence of the acquisition? 17 If these matters are resolved in an applicant's favour, s 61 must be considered. Section 61 provides that if market value of the acquired land has been assessed on the basis that the land had the potential to be used for a purpose other than that for which it was used at the acquisition date, then the applicant cannot also recover any financial advantage that would necessarily have been forgone or any financial loss that would necessarily have been incurred in realising that potential. Actual use? 18 The RTA submitted that the evidence precluded finding that Mr Nasser and Macarbell were in the business of land development at the acquisition date, because their activity of that nature (considered in isolation from other vehicles in which Mr Nasser was involved) was minimal, involving isolated instances (with Macarbell having purchased the subject land and one other property only, and Mr Nasser having purchased the subject land only). Accordingly, the land, being otherwise vacant, was not actually used at the acquisition date for any purpose. 19 I am satisfied that Mr Nasser through various vehicles (partnerships, companies and joint ventures) is in the business of buying, improving, holding and disposing of land for profit by a range of methods (including immediate development and resale, development and resale when the time appears ripe, and development and lease for a term, and any combination thereof as may appear advantageous at the time having regard to market conditions). The fact that Mr Nasser has on one occasion bought and sold land without seeking to improve it (a small residential lot within a Landcom subdivision) does not alter the character of his business. I accept that Macarbell is a company that Mr Nasser uses to further his involvement in his business. 20 I do not accept the submissions on behalf of the RTA that the activity of Mr Nasser and Macarbell must be considered in isolation from the extensive development activities in which Mr Nasser has been generally involved. The evidence discloses that Mr Nasser develops land through a variety of vehicles. To ignore Mr Nasser's involvement in the development of land through those vehicles would be inappropriate, when it is plain from the evidence that Mr Nasser is not a mere investor or silent partner in those vehicles, but has control and/or immediate and direct involvement with them, and uses them to further his business. 21 The fact that Mr Nasser chooses to use those vehicles and that other people have an interest in them also, and use them for their own ends, does not preclude me finding that Mr Nasser and Macarbell were both in the business of buying, improving, holding and disposing of land for profit at the acquisition date. Given the extensive acquisitions, development and resales carried out by the vehicles that Mr Nasser used for the purpose of his development business, I am satisfied that Mr Nasser was so involved (and remains so). Macarbell was so involved (and remains so) because it was (and is) one of the vehicles used by Mr Nasser for that purpose. 22 The RTA submitted that the fact that Macarbell entered into an agreement for lease of the land (to bind it and Mr Nasser) in January 1996 also precluded a finding of any actual use of the land (other than, perhaps, for the purpose of the lease) at the acquisition date. Entry into the lease, the RTA said, was the antithesis of the facts considered in Fitzpatrick. 23 Macarbell and Mr Nasser initially purchased the land for the purpose of development (industrial subdivision) and resale after the land was zoned industrial. After the rezoning, Macarbell entered into an agreement for lease in January 1996, intended to bind Macarbell and Mr Nasser. The lease required Macarbell and Mr Nasser to develop the land in accordance with building plans suitable for use by the lessee (T.D.G. Autocare Pty Limited). The lease was to be for a term of 10 years, with rent reviews for CPI each year commencing June 1997 (twelve months after the intended completion of the improvements, and the lessee commencing occupation), and market reviews in 1999 and 2002. To ensure that they could comply with their development obligations under the lease, Macarbell obtained financing from the Arab Bank Australia, with Mr and Mrs Nasser (the directors of Macarbell) acting as guarantors. 24 I accept Mr Nasser's evidence that the purpose of this transaction was to obtain income, to be used to further his business (to assist in securing development finance for other projects). I also accept that Mr Nasser and Macarbell could have disposed of the reversion in the future depending on market conditions and the availability of an appropriate offer, but had no particular plan to do so at the time Macarbell executed the agreement for lease. I do not consider the transaction evidences Mr Nasser (or Macarbell) acting as passive investors in the sense that term is used in Fitzpatrick. The lease required the development of the land, and was to be used as an asset of Mr Nasser's business, to assist in securing finance for the purchase and development of other land. 25 I accept that the proposal to carry out the M7 created uncertainty about the available land area, and about Macarbell and Mr Nasser's capacity to discharge their lease obligations. They did not proceed with the lease, after receiving the RTA's notification in January 2006 about option 5 being a likely route for the M7 (an option that materially affected their land). I infer that the M7 was the cause of the parties abandoning the lease by agreement. I accept that the uncertainty about the land required for the M7 continued until the acquisition in October 2003. I am satisfied that, for that period, Macarbell and Mr Nasser held the land (including the land ultimately acquired by the RTA) as an asset of their development business, intending to deal with the when land the time was ripe (such time being undoubtedly affected by the continuing uncertainty associated with the M7 proposal). In other words, on the abandonment of the lease, the character of the holding did not change. The particular development vehicle (the lease) was abandoned, but the land continued to be held for the purpose of the business of buying, improving, holding and disposing of land for profit. 26 Although Fitzpatrick involved a business of purchase, subdivision and resale, a person carrying out a business of buying, improving, holding and disposing of land for profit by subdivision and sale, as well as other methods does not necessarily fall outside s 59(f). Persons carrying on such a business require land as their landbank or stock-in-trade. Accordingly, I do not accept that the fact that Mr Nasser and Macarbell had open a variety of options for developing their land (for example, development lease as executed in 1996) precludes a finding of actual use of the land within the meaning of s 59(f). 27 The fact that Mr Nasser and Macarbell had not determined the particular development vehicle for the land at the acquisition date also does not alter the character in which they held, and actually used, the land at that date. It is true that their industrial development might have been implemented through various mechanisms depending on the market and the overall effect of the acquisition of part of the land for the M7. In Fitzpatrick, it was accepted that the land was held for the purpose of residential subdivision "when the time was ripe" (at [24]). Similarly, here, the fact that the land would be exploited for the purpose of the development business when conditions were commercially attractive does not mean that the land was held for a mere future or potential use. 28 The tax returns of Macarbell (where it was identified as property investor), compared to those of the partnership in which Mr Nasser was involved (identified as property development – land development or subdivision) do not undermine this conclusion. Macarbell purchased its land intending development and sale after rezoning. It undertook development obligations in the agreement for lease. The description "property investor" in its tax returns does not mean "passive investor" in the sense used in Fitzpatrick, and is not determinative in the face of the overall facts. 29 The RTA also submitted that the actual use of the land at the acquisition date was for the purpose of the lease. I understood the RTA relied on this submission primarily for the purpose of s 61 of the Just Terms Act (in that I assessed the market value of the interests of Mr Nasser and Macarbell as the value of the three vacant industrial lots ripe for development, not the value of a reversion as if the land had been leased). I deal with s 61 below. Otherwise, the RTA said that but for the M7 the land would have been used for the lease at the acquisition date. 30 The land was not the subject of an agreement for lease at the acquisition date. The lease had been abandoned some 7 years prior to the acquisition. Accordingly, Mr Nasser and Macarbell were not using the land for the purpose of the lease at the acquisition date. There is no provision in s 59 requiring the carrying out, or the proposal to carry out, the public purpose to be disregarded (c.f. s 56(1)(a)). Section 59 assumes that the compensable loss, if any, is causally connected to the acquisition (and hence the public purpose) in the ways specified. 31 As I am satisfied that Mr Nasser and Macarbell were actually using their land at the acquisition date for the purpose of their development business, I must consider whether they might reasonably incur financial costs relating to that actual use, as a direct and natural consequence of the acquisition. Costs relating to, and direct and natural consequence of, acquisition? 32 In Fitzpatrick, the purchase of the other land related to and was a direct and natural consequence of the acquisition, because the owner was in the business of subdividing land. Fitzpatrick held the acquired land for that purpose. If it wished to remain in business (that is, continue the actual use), it had to buy replacement land to subdivide and sell. 33 Given my findings above, I accept that if Mr Nasser and Macarbell wish to remain in the business of acquiring, developing and dealing with land, they must buy land to replace the acquired land. I accept that they have been actively seeking to do so, but have not yet done so for various reasons. I accept that one of those reasons has been their desire to obtain certainty about their entitlement to compensation before committing themselves to buying replacement land. I do not consider that a disentitling factor. Nor do I consider Mr Nasser and Macarbell to be disentitled from making the claim merely because they have not yet located suitable replacement land. That would be contrary to the terms of s 59(f), which contemplate that financial costs might reasonably be incurred. 34 It follows that I am satisfied that Mr Nasser and Macarbell need to buy replacement land to continue their business. Buying that land relates to the actual use of the acquired land, as a direct and natural consequence of the acquisition. In buying that land, they will incur financial costs (stamp duty and legal fees). The stamp duty will be reasonable if calculated by reference to the land acquired, and my findings with respect to market value. The legal fees will be reasonable if they fall within a range of reasonable fees for that type of conveyancing transaction. Accordingly, Mr Nasser and Macarbell's claim for stamp duty and legal fees with respect to buying replacement land is consistent with s 59(f) of the Just Terms Act. Does section 61 preclude claims? 35 Mr Nasser and Macarbell were using the land at the acquisition date for the purpose of their business. The land was vacant land zoned for industrial purposes (other than the strip adjacent to the creek), held in three titles, ripe for industrial development (subject to the site development issues that I addressed in my principal reasons). In other words, the potential of the land coincided with its actual or current use at the acquisition date. 36 In these circumstances, I do not consider that s 61 has any role to play. The market value of Mr Nasser and Macarbell's interests was assessed assuming a highest and best use consistent with the current use of the land at the acquisition date. The factual conditions in s 61 (that market value was assessed on the basis of the land having potential other than that for which the land was currently used) are not satisfied. 37 I do not accept the RTA's submission that the land was "currently used" for the purpose of the lease at the acquisition date so that Mr Nasser and Macarbell obtained compensation for market value on a higher and better potentiality (that is, vacant industrial land ripe for industrial development). The land was not so used, for the reasons I have given above. Conclusion about financial costs 38 I am satisfied that the factual circumstances in this matter enliven the operation of s 59(f). Mr Nasser and Macarbell have not acquired replacement land, however. Given the reference in s 59(f) to financial costs that might reasonably be incurred, that fact does not preclude compensation on this account. I consider it appropriate for the parties to have the opportunity to address on the question whether compensation under s 59(f) should be deferred to enable Mr Nasser and Macarbell to acquire the replacement land (in which event liberty to apply would need to be granted). I deal with that by directions. D. Costs 39 The RTA agreed that it should pay the costs relating to Macarbell and Mr Nasser's principal claim. It submitted that, if I determined that the financial costs claims under s 59(f) were not available, then I should order Macarbell and Mr Nasser to pay the RTA's costs (or the bulk of its costs) relating to the disturbance claim. 40 I have found that Macarbell and Mr Nasser are entitled to compensation on account of the full valuation fee, and are entitled to financial costs under s 59(f). It follows that the RTA should be ordered to pay Mr Nasser and Macarbell's costs of the proceedings as agreed or as assessed. E Conclusions 41 For the reasons given above, Macarbell and Mr Nasser are entitled to compensation for loss attributable to disturbance on account of valuation fees ($9,102.50 for Macarbell and $18,397.50 for Mr Nasser). They are entitled to compensation under s 59(f) for stamp duty and legal fees on the acquisition of replacement land ($128,680.65 for Macarbell and $669,799.93 for Mr Nasser). They are entitled to statutory interest (s 50). They are also entitled to the usual costs order. 42 I direct the parties to approach the Registrar within 7 days to obtain a hearing before me within a further 7 days thereafter (to commence at 9.00am) if they wish to be heard on the question of deferral of the grant of compensation under s 59(f). If they do not wish to be heard about that matter, I direct the parties to file within 7 days agreed determinations of compensation in both proceedings reflecting the conclusions in my principal decision and this decision (including the entitlement to compensation under s 59(f)). If agreement cannot be reached as to the form of the determinations within those 7 days, the parties are also directed forthwith to approach the Registrar to list the matter before me at 9.00am within a further 7 days thereafter. **************************** 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.