Land and Environment Court of New South Wales CITATION : Penrith City Council v Sydney Water Corporation [2009] NSWLEC 2 APPLICANT: PARTIES : Penrith City Council RESPONDENT: Sydney Water Corporation FILE NUMBER(S) : 30940 of 2007 CORAM: Lloyd J KEY ISSUES: COMPULSORY ACQUISITION OF LAND :- valuation methodology - expert evidence - parcel of land - easements acquired for sewerage purposes - easement acquired for a right of carriageway Land Acquisition (Just Terms Compensation) Act 1991 ss 55, 56 LEGISLATION CITED: Penrith Local Environmental Plan 1997 Real Property Act 1900 s 80A Sydney Water Act 1994 ss 37, 38, 41, 44 Arrow v Electricity Commission of New South Wales (1994) 87 LGERA 363 Brancatisano v The Minister (1967) 16 LGRA 405 CASES CITED: Quach v Fairfield City Council [2004] NSWLEC 473 Roads and Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20 Rogerson v The Minister (1968) 16 LGRA 400 Sutherland Shire Council v Sydney Water Corporation [2008] NSWLEC 303 DATES OF HEARING: 15 December 2008, 16 December 2008, 17 December 2008 and 18 December 2008 DATE OF JUDGMENT: 19 February 2009 APPLICANT: T F Robertson SC and J E Lazarus SOLICITORS: Gadens Lawyers LEGAL REPRESENTATIVES: RESPONDENT: J J Webster SC SOLICITORS: Bartier Perry JUDGMENT: - 14 - IN THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Lloyd J Thursday, 19 February 2009 LEC No. 30940 of 2007 PENRITH CITY COUNCIL v SYDNEY WATER CORPORATION [2009] NSWLEC 2 JUDGMENT Background facts 1 HIS HONOUR: On 19 August 2005, Sydney Water Corporation acquired by compulsory process from Penrith City Council one parcel of freehold land and three easements over adjacent land. The question for determination is the amount of compensation to which the council is now entitled. 2 The freehold land, being lot 1 in deposited plan 1051278, has an area of 793 square metres and adjoins an existing sewage pumping station. The three easements are: (i) an easement five metres wide and variable over part of lot 3 and lot 4 in deposited plan 1051278, having areas of 319.1 square metres and 458.8 square metres respectively; (ii) an easement six metres wide and variable over lot 3 in deposited plan 1051278, having an area of 445.8 square metres; and (iii) a right of carriageway variable in width over lot 4 in deposited plan 1051278, having an area of 99.3 square metres. 3 The purpose of the acquisition is described in the notice of compulsory acquisition as being "for the purposes of the Sydney Water Act 1994". The council claimed compensation in the sum of $773,300, amended during the hearing to $727,714 and Sydney Water offered $249,050, amended during the hearing to $75,000. 4 The freehold land that was acquired and the land over which the easements were acquired are all within an attractive park known as Woodriff Gardens. The park also includes a major tennis complex. The whole of the land is zoned 6(a) Public Recreation and Community Uses under the Penrith Local Environmental Plan 1997. Valuation evidence 5 Each party relies upon the evidence of an experienced and highly regarded valuer, Mr T A Large for the council and Mr P Dempsey for Sydney Water. It is a constant source of surprise that two such highly experienced valuers can come up with figures that are poles apart - Mr Large with $727,714 and Mr Dempsey with $75,000. This is not the only case where this kind of thing occurs. It is, of course a notorious fact that expert witnesses are inevitably biased, even if only subconsciously so, in favour of the party by whom they are engaged. This means that the court must approach the expert evidence with a considerable degree of scepticism. 6 I should note here that I rejected that part of Mr Dempsey's evidence that was based on sales from which he sought to draw conclusions about the appropriate discount to be applied to account for the restricted uses under the zoning. That part of the evidence compared sales of open space land in various and disparate parts of Sydney with sales of nearby residential land. In Roads and Traffic Authority of New South Wales v Blacktown City Council [2007] NSWCA 20, Spigelman CJ (Beazley and Hodgson JJA concurring) said, at [50], that such evidence may be useful but it is not necessary to have evidence of that character. I rejected the evidence because it had no bearing on the value of the subject land. None of the sales were comparable with the subject land because: (i) all sales occurred in entirely different geographic locations far removed from the subject land in entirely different real estate markets; (ii) all sales were of vastly different sizes; (iii) some of the properties were affected by other significant constraints apart from zoning such as flooding, bushfire, threatened species and the like; and (iv) all properties had different development potentialities. I note that in Sutherland Shire Council v Sydney Water Corporation [2008] NSWLEC 303, Sheahan J (at [47]) concluded in relation to similar evidence in that case that each market functions in its own context, which made it difficult to apply any discount derived from an analysis of such sales more generally. Moreover, in the present case there is direct sales evidence of land having the same zoning within the Penrith Council area, which requires very few adjustments in making a comparison with the subject land and which thus provides a much more sound basis for comparison. 7 Direct sales evidence of comparable open space land within the same locality as the acquired land is the best evidence of what the market would pay for similar land at the date of acquisition. There are two sales of such open space land identified by Mr Large: at No. 110 Station Street, Penrith and at No. 12 Carson Lane, St Marys. Although the land at No. 110 Station Street has the same zoning as the subject land in Woodriff Gardens, the evidence shows that the sale was based on an underlying zoning of General Business, which is reflected in the purchase price. Accordingly, attention was focused on the sale of land having the same zoning as the subject land at No. 12 Carson Lane, St Marys. 8 The St Marys sale occurred on 22 October 2005, about the same time as the compulsory acquisition. That land has an area of 10,720 square metres and was used as a lawn bowls club by St Marys Bowling Club. It was sold to an adjoining owner, St Marys Band Club, which has a registered club on its land. Enquiries by both valuers disclosed that the band club purchased the land with a view to eventually expanding onto the bowling club land, although nothing has occurred in the three years since its purchase. The bowling club land also adjoins a large public oval also zoned 6(a) Public Recreation and Community Uses, and a high school. The sale figure was $3,850,000, which is $359 per square metre. 9 The parties' valuers each adopted a different approach in applying this sale to the acquired land. Both valuers agreed, however, that there did not need to be any adjustment for time since the sale occurred at about the same time as the compulsory acquisition. Both valuers also agreed that the subject land was better located than the St Marys Bowling Club and that a 10 per cent adjustment for location was appropriate. 10 Mr Large also made an adjustment for size of plus 25 per cent. This, he says, was because the St Marys' land is 10,720 square metres whereas the subject land is 793 square metres. Mr Dempsey, however, made an adjustment for size of minus 25 per cent, because the subject land comprised part of the Woodriff Gardens comprising more than four hectares. That is, as I understand his reason, the subject land must be valued as part of a much larger area being the whole of the park in which it is situated. 11 I am unable to agree with Mr Dempsey on this point. Despite the strong submission by Mr J J Webster SC, appearing for Sydney Water, who sought to support Mr Dempsey's approach, the legislation is conclusive. Section 55 of the Land Acquisition (Just Terms Compensation) Act 1991 states that in determining the amount of compensation "regard must be had to the following matters only..." (the emphasis is mine). The matters to which regard may only be had are: (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. (Emphasis added). 12 It can be seen that s 55 draws a clear distinction between "the land" - being the acquired land - in paragraphs (a) and (b), and "other land" of the person at the date of acquisition which adjoins or is severed from the acquired land, in paragraph (f). It follows that in determining the market value of the acquired land, it is only that land which is to be considered in the hypothetical sale described in s 56(1), namely, "the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer" (emphasis added). 13 Different considerations may apply if the valuers had adopted the "before" and "after" method of valuation, commonly applied where there has been an acquisition of part of a larger holding. In the present case, however, the valuers did not do so. They adopted the direct comparison method. It seems to me that the court must thus assume that there was a sale of the acquired land, and only the acquired land, on the date of acquisition. In rejecting as I do, Mr Dempsey's downward adjustment of 25 per cent for size, I am left with Mr Large's upward adjustment of 25 per cent, which is also consistent with the approach adopted by Sheahan J in the Sutherland case, at [45]. 14 Mr Dempsey also makes a downward adjustment to the St Marys sale to account for what he calls the adjoining owner influence. This is based on an assumption that the band club would have been prepared to pay an additional five per cent over the market value because of the advantage it would have had as an adjoining owner to the bowling club land. An adjoining owner influence may exist in certain cases where the facts demonstrate a critical need for the acquisition: Quach v Fairfield City Council [2004] NSWLEC 473. I am not persuaded that second-hand evidence of a wish by the band club to expand onto the bowling club demonstrates a critical need for that land. 15 In my opinion, however, any adjoining owner influence is cancelled by a similar adjoining owner influence in the case of the subject land. In the hypothetical sale of the subject land called for by s 56 of the Act, there would be at least two hypothetical purchasers who were adjoining owners, namely Sydney Water which owned the adjoining sewage pumping station site, and the council itself, which, of course, owned the rest of Woodriff Gardens. 16 Mr Dempsey finally makes a downward adjustment for the fact that the subject land is adjacent to an existing sewer pumping station. That is, as I understand it, the amenity of the subject land is said to be adversely affected by the presence of the pumping station. 17 In my opinion, however, such an adjustment should not be made. The existing sewer pumping station was well screened from the adjoining park - and in particular from the tennis complex - by dense screen planting, as appears from photographs tendered in evidence. Moreover, there is nothing to suggest that there was any odour associated with the pumping station. Neither of the most likely hypothetical purchasers of the subject land would have regarded the presence of the pumping station adversely. Indeed, Sydney Water as a hypothetical purchaser would have regarded it as an advantage since it proposed to increase the capacity of the pumping station. And it seems that the council as a hypothetical purchaser would not be concerned about the presence of the pumping station if it wished to add to the area of the park. Finally, if there were to be any expansion of the existing tennis complex within the park, then the subject land would have been otherwise available for any additional car parking that may have been required, as to which the pumping station would have no impact. 18 Mr Large also allows an upward adjustment to the bowling club sale of $100,000 to account for demolition of the existing St Marys Bowling Club building. I note that despite the fact that the sale occurred over three years ago, the building still stands. There is a suggestion in the evidence that the building, although externally sound, is in need of repair and maintenance if it were to be re-used. In the absence of any direct evidence of the intention of the band club in relation to this building and in the absence of any evidence of the costs of repair or demolition, as the case may be, I am not inclined to make any allowance for its demolition. 19 The market value of the 793 square metres parcel that was acquired, being lot 1 in deposited plan 1051278, may thus be determined as follows: $359 per square metre, based on the sale per square metre of the St Marys Bowling Club; Add 10 per cent for the superior location of the subject land; Add 25 per cent adjustment for size Adjusted rate therefore becomes $485 per square metre Resultant market value therefore ($485 x 793) is $384,605. 20 I do not rely upon any potential for a rezoning of the subject land. There is a suggestion in the evidence that the council for some years had been exploring alternative uses of Woodriff Gardens, including the possibility of relocating the tennis complex. In my view, however, these were proposals only which had been made over several years, had never firmed into any concrete proposal, and would not have been a consideration in the mind of any hypothetical purchaser. Easements 21 On the date of compulsory acquisition, one of the easements contained a 450 millimetre diameter overflow pipe from the existing pumping station to Peach Tree Creek, which runs along the western edge of Woodriff Gardens. According to deposited plan 1051278, the easement was acquired for sewerage purposes. The second easement contained a 600 millimetre diameter rising main connected to the pumping station via a valve chamber, and according to the deposited plan it was also acquired for sewerage purposes. The third easement was acquired for a right of carriageway, adjoining an existing right of carriageway, providing access through the park to the land on which the existing pumping station stands. 22 Sydney Water already had, under ss 37 and 38 of the Sydney Water Act 1994, the ownership of all works installed on the land including the pipelines and valve chamber and the right to enter and occupy the land to operate, maintain, remove, extend etc any of its works. In doing so, however, Sydney Water was liable to compensate those who suffered damage by the exercise of its functions (s 41). All land in or on which a work of Sydney Water is installed is taken to be subject to a covenant in favour of Sydney Water to ensure that the work is not wilfully or negligently destroyed, damaged or interfered with, that no structure is placed on or near the work in a manner that interferes with the operation of the work, and that the ground is not opened to expose any pipe or work of Sydney Water without reasonable excuse (s 44(1)). 23 The easements now acquired by compulsory process contain a wider range of prohibitions upon the council as the owner of the servient tenement. The memorandum under s 80A of the Real Property Act 1900 incorporating the covenants under the easements states that the registered proprietor must not : 4.1.1 use or allow to be used the Land for any purpose which may obstruct or prevent Sydney Water from having full and free access to the Land, 4.1.2 do or allow to be done anything whatever that may adversely affect support of the Land or of the Works placed or which may be placed in the Land, 4.1.3 place, erect or construct or allow to be placed, erected or constructed upon the Land any building or other structure whatever, 4.1.4 make or allow to be made by any means whatever any alteration to the existing surface levels of the Land, 4.1.5 place or construct or allow to be placed or constructed or allow to remain on the Land any pavement of concrete or having any form of bituminous surface with or without a base course of ballast or rock fill or like material, 4.1.6 place or allow to be placed or to remain on the Land any timber, article of plant or any stores, filling, rubbish or other material whatever, 4.1.7 park or place or allow to be parked or placed or to remain on the Land any vehicle whatever, other than vehicles temporarily parked or placed on the Land so that they may be removed without delay when necessary, 4.1.8 plant or allow to be planted in or upon the Land any tree or shrub other than shrubs that may be removed and reinstated if necessary or convenient for purposes of the performance of any Function, 4.1.9 do or allow to be done any landscaping which would be contrary to the provisions of clauses 4.1.3 or 4.1.4, 4.1.10 place or allow to be placed in, upon or over the Land any services including without limitation electrical, telecommunication, gas, water, wastewater and stormwater services with or without piped, conduits, cables or ducts. 24 Although the memorandum allows the registered proprietor to apply to Sydney Water to do one or more of the things specified in cll 4.1.3 to 4.1.10 (inclusive), and Sydney Water may "in accordance with the proposer exercise of its [f]unctions … give an approval or refuse to give an approval", the right does not extend to cll 4.1.1 and 4.1.2. 25 The parties' valuers have each adopted an entirely different approach to the assessment of compensation for the acquisition of the easements. 26 Mr Dempsey says that in the "before" situation there were existing pipelines covered by rights under the Sydney Water Act and which must be taken into account. As I understand his evidence, he says that there was no real impact from the creation of the easements for sewerage purposes on a before and after basis other than the blot on title. He would allow a diminution in value of the land covered by those easements of 10 per cent for the blot on title, which he then discounts by two-thirds because of the presence of the existing pipelines. I note, however, that the purpose of the acquisition was to decommission the existing 450 millimetre pipeline from the pumping station to Peach Tree Creek and install a new 750 millimetre diameter overflow pipeline, along with an additional pipeline and valve chamber between the existing pumping station and the rising main, noted in par [33] below. 27 Mr Large, on the other hand, gives full effect to the restriction imposed by the easements, which in his opinion warrant a discount of 50 per cent. He notes that the discount adopted by Mr Dempsey is "ridiculously low" and would not even cover the "blot on title" discount, normally a minimum of 10 per cent. 28 The relevant principles for determining compensation for the compulsory acquisition of an easement are described by Bignold J in Arrow v Electricity Commission of New South Wales (1994) 87 LGERA 363 at 366-367: They are, in my opinion, compendiously expressed in D Brown's "Land Acquisition" (3rd ed, 1991) p 144/145. I shall confine quotation to the following passage: Where an easement is compulsorily acquired the principles to be applied in assessing compensation are no different from those applying when the full fee simple is acquired. For practical purposes it becomes a matter of assessing the extent to which the claimant has been disadvantaged as a natural and reasonable consequence of the taking of the easement. The test is the attitude of the hypothetical prudent purchaser and the extent to which in the opinion of such person the claimant has suffered diminution in the value of his property... 29 It is self-evident that a purchaser of the council's land would discount its value by reason of the very existence of the easement: Rogerson v The Minister (1968) 16 LGRA 400 at 404. The court must, therefore, assess the reduction in value of the land by dint of the easements. This in turn depends upon the nature of the restriction imposed by the easements: Brancatisano v The Minister (1967) 16 LGRA 405. 30 Rogerson was the case where a property already had a sewer main through it together with the concomitant statutory rights of inspection and maintenance, and over which an easement was subsequently acquired. Hardie J held (at 404) that it was appropriate to apportion the diminution in value as between the two factors: the existence of the sewer main and statutory rights on the one hand and the acquisition of the easement on the other. 31 Mr T F Robertson SC, appearing for the council, submits, however, that the full impact of both the existing pipelines and the restrictions imposed by the easements must be taken into account and that the approach of Mr Large, noted in par [27] above, is correct. Mr Robertson relies upon the express purpose of the compulsory acquisition as published in the Gazette, namely "for the purpose of the Sydney Water Act 1994", which includes the use by the Sydney Water of the existing pipelines. That is, as I understand the submission, Rogerson is distinguishable from the present case, full account should be taken of the acquisition of the easements for sewerage purposes and there should be no apportionment. 32 Although an acquisition "for the purpose of the Sydney Water Act" covers a wide range of purposes, there is evidence of the more particular purpose in the report of Australian Water Technologies into the proposal to upgrade the existing pumping station. That report states that the sewage pumping station located in Woodriff Gardens is under-capacity and does not meet current occupational health and safety requirements. The report also states that the sewage pumping station is to be upgraded with greater capacity and storage, in particular to "provide pumping capacity and emergency storage for predicted 2010 flows". Further evidence of the purpose of the acquisition of the easements is found in a plan prepared for Sydney Water in July 2000 which shows the locations of the proposed easements and notation that the existing 450 millimetre diameter pipeline from the pumping station to Peach Tree Creek is to be decommissioned and a new 750 millimetre diameter overflow pipeline is to be installed, and an additional pipeline and valve chamber are to be installed between the pumping station and the existing rising main. 33 I find therefore, that the particular purpose of the acquisition was the upgrading of the pumping capacity and emergency storage of the existing pumping station and that the totality of the proposal included the integral component of decommissioning the existing pipeline to Peach Tree Creek and the construction of a new larger capacity pipeline and the additional pipeline and valve chamber between the pumping station and the existing rising main. This is further confirmed by the notation on the deposited plan 1051278 that the easements were acquired "for sewerage purposes". Thus, according to Mr Robertson SC, the full diminution in value should be allowed. 34 Despite the identified purpose of the acquisition of the easements for sewerage purposes, I do not accept Mr Robertson's submission. The fact of the existence, at the date of compulsory acquisition, of the original pipelines and the rights conferred by the Sydney Water Act in relation thereto cannot be ignored. There is nothing in the facts of the present case to distinguish the principle applied by Hardie J in Rogerson. 35 As Hardie J also noted in Rogerson, the assessment of the additional depreciation in value referable to the easements is a matter of considerable difficulty. In the present case I do not accept Mr Dempsey's assessment of a discount to 10 per cent of the market value, reduced by a further two-thirds. In addition to the obvious blot on title, I accept the observation of Mr Large that the respective shape and size of the easements effectively sterilise not only the land within the easements themselves but also other land between the easements. The easements "for sewerage purposes" cover much more land and are much wider than the land occupied by the pre-existing pipelines. Finally, as noted in par [23] above, the restrictions imposed by the easements are wider than those that formerly existed under the Sydney Water Act. 36 In cross-examination, Mr Dempsey conceded the proposition that the easements for sewerage purposes sterilise significantly more land than do the existing pipelines. All this suggests that Mr Large's assessment of a 50 per cent diminution in market value attributable to the easements is to be preferred - before any apportionment as discussed in Rogerson. 37 The total area of land affected by the three easements is 1,323 square metres. The two easements that were created for sewerage purposes have a combined area of 1223.7 square metres. The right of carriageway, having an area of 99.3 square metres, is not affected by any pre-existing pipeline or statutory rights and should, in my opinion, be depreciated by the full 50 per cent adopted by Mr Large. As to the easements for sewerage purposes, doing the best I can as the judicial valuer and having viewed the site of the easements, the apportionment of the diminution in the value between the two factors, the existing pipelines and associated statutory rights on the one hand and the acquisition of the easements on the other, and having regard to the additional restrictions now created by the easements, should in the present case be half and half. 38 I therefore assess and determine the compensation payable in respect of the land affected by the easements in the sum of $172,454, calculated as follows: · 1223.7 square metres easement for sewerage purposes at $485 per square metre market value discounted by 50 per cent to $242.50 per square metre, of which half is attributable to the existing pipeline and statutory rights, resulting in 1,223.7 x $121.25 equals $148,374; and · 99.3 square metres right of carriageway x $485 per square metre discounted by 50 per cent to $242.50, resulting in 99.3 x $242.50 equals $24,080. Orders 39 The court determines the amount of compensation to which the council was entitled as at the date of compulsory acquisition, 19 August 2005 in the sum of $557,059.00, made up as follows: Lot 1 in deposited plan 1051278 - $384,605.00 Easements - $172,454.00 TOTAL $557,059.00 The question of costs is reserved. The exhibits may be returned. I hereby certify that the preceding 39 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd. Associate Dated: 19 February 2009 ********** 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.