Land and Environment Court of New South Wales CITATION : Polegato & Anor v. Griffith City Council [1988] NSWLEC 162 APPLICANTS Giuseppe Polegato and Margaret Rose Polegato PARTIES : RESPONDENT Griffith City Council FILE NUMBER(S) : 30363 of 1981 CORAM: Stein J KEY ISSUES: :- LEGISLATION CITED: Local Government Act, (incorporating section 124 of the Public Works Act) Public Works Act Supreme Court of New Zealand in Russell v. The Minister of Lands; Stebbing v. Metropolitan Board of Works; Russell v. The Minister of Lands ; Moreton Club v. The Commonwealth ((1948); Spencer v. The Commonwealth ((l907); Wilson and the State Electricity Commission of Victoria (1921) ; Pastoral Finance Association v. The Minister ((1914); Commonwealth v. Reeve ((1948) ; Kennedy Street Pty. Ltd. v. The Minister ((l963); CASES CITED: Chapman v. The Minister ((1966) ; Arkaba Holdings Ltd. v. Commissioner of Highways (1969); Commissioner of Highways v. Tynan ((1982); Turner v. Minister of Public Instruction (1956); Haddad v. The Minister (Unreported 27 July 1987); Dangerfield v. Town of St. Peters (1972) ; Bronzel v. State Planning Authority (1979); Latimer v. North Coast National Agricultural Industrial Society (1938); Baringa v. Manly Municipal Council (1965) ; Castle Hill Brick Tile & Pottery Works v. Baulkham Hills Shire Council (1961) DATES OF HEARING: DATE OF JUDGMENT: 03/10/1988 APPLICANT Mr. Milne LEGAL REPRESENTATIVES: RESPONDENT Mr. Giles JUDGMENT: HIS HONOUR: This is a claim for compensation by Giuseppe Polegato and his wife Margaret Rose Polegato by virtue of section 536C of the Local Government Act, (incorporating section 124 of the Public Works Act), following the resumption of their land described as allotment 8, section 6, No. 4 Yambil Street, Griffith. The resumption was notified in the Government Gazette on 24 October 1980. The principal disputes between the parties relate to the applicants' claim for special value and/or disturbance as well as a claim for consequential losses. There is a relatively small discrepancy between the respective valuers for the parties on the issue of the market value of the land. Because of the manner in which the applicants present their claim for special value and disturbance it is necessary to relate the facts in some detail. By contract dated 25 February l976 the applicants agreed to purchase the subject land for $24,000. The land was vacant apart from 2 old sheds. The land has a frontage to Yambil Street of l8.29m and a depth to Banna Lane of 60.96m. The area of the land is lll3m2. The settlement of the purchase was effected on 24 April 1976. The intention of the applicants was to construct shops and residential flats on the land. The applicants had previous experience with similar developments in the Griffith township. On 4 May 1976 the Council granted development approval to the applicants for the erection of 2 shops and 18 residential flats on the land and on 6 July 1976 a building permit was issued. However, following discussions with a Council officer, amended building plans were lodged which reduced the number of flats by two and eliminated the need for a lift. This building application was approved on 29 July 1976. During the latter part of 1976, the applicants decided to carry out the building works themselves since the builders who the applicants intended to contract were having financial difficulties. In January 1977 they instructed a surveyor to survey the land and peg out the foundations. This work was completed on 6 February 1977. On l3 February 1977 an old shed was demolished and the foundations excavated. Later in the month steel was installed in the trenches. On 16 February 1977 a Council officer approached Mr. Polegato to indicate that Council was interested in acquiring a strip of land running along the western boundary for use as a footway. The officer, Mr.Meecham, promised to get back to Mr. Polegato. On 10 March 1977 the concrete was poured. In the meantime Mr. Meecham had not contacted the applicants. On 2l March 1977 Mr. Polegato was telephoned by another council employee, Mr. Fred Smith who, noting the concrete pour, asked Mr. Polegato to call on him. On 25 March 1977 Mr. Smith asked Mr. Polegato if he was interested in selling the land because the Council was interested in buying it for a car park. There was a further conversation and Mr. Smith indicated he would come back in May 1977. However, there was no further contact by him until August 1977, but apparently no progress had occurred in Council's intentions. By November Mr. Polegato was understandably becoming restless about the project and wanted to order bricks and was doubtless anxious to get on with building work. Accordingly, in December he spoke to his solicitor who telephoned Mr. Smith. The indication received by the solicitor was that Council was not proceeding to acquire. As a result in the new year (1978) the bricks were ordered and delivered to the site in February. Later that month or early March 1978 Mr. Smith contacted Mr. Polegato again. Mr. Smith noted that bricks were on the site and said words to the effect, "You've got to hang on there is a strong possibility that Council will require the block for a carpark". Following this conversation Mr. Polegato stopped work on the site. In the circumstances Mr. Polegato decided to direct his energies at developing land at Probert Avenue, Griffith, and later in Wakaden Street, Griffith. Whilst there may have been some uncertainty in October 1978 as to whether Council would proceed to acquire the land, it appears that Mr. Polegato was aware through information which he had informally received that the acquisition would proceed. A formal notice of intention to resume was served on 16 May 1979 and confirmed on 5 October 1979. The Governor gave his approval to the resumption proceeding on 26 September 1980 and it was formally notified in the Gazette on 24 October 1980. However, in the meantime a number of changes had occurred to the Council's building and planning codes and controls which had the effect of restricting and reducing the amount of development permitted on the land. Also, during the period between 1977 and 1980 there were dramatic increases in building costs without a concomitant increase in land values. It is the submission of the applicants that the resumption process began in February 1977 and from that time until the resumption in October 1980, the land was in effect rendered sterile. Further, as at the date of the resumption there was a valid and subsisting development consent to erect 2 shops and 18 flats which had been rendered ineffective by the Council through the conduct of its officers. The evidence of conversations between Mr. Polegato and Council officers and between his solicitor and a Council officer was lead in the applicants' case. That evidence was not challenged and the Council officers concerned gave no evidence. I may therefore accept the applicants' evidence of what took place. On the evidence I find by inference that the Council had formed the intention to acquire the subject land, if necessary by way of resumption, from February 1977 or at least by March of that year. By reason thereby the applicants' plans were frustrated. On behalf of the applicants Mr. Milne submits that his clients are entitled to have a sum for pre-resumption disturbance included in the assessment of compensation. The dispossessed owner is, in his submission, entitled to be put back in the position as he would have been if his land had not been taken. On the other hand Mr. Giles for the respondent submits that section 124 of the Public Works Act requires that compensation be assessed according to the value of the land at the time of resumption. Any prior dates, including the giving of the notice of intention to resume under Ordinance 77, are not material to the assessment of the value of the land. I will return to these arguments later when I come to the issue of special value and/or disturbance. The market value of the land The applicants' valuer Mr. Hunt assessed the market value of the land at $69,6l5, while the respondent's valuer, a Mr. Maundrell, arrived at a valuation of $66,780. The difference between the valuations appears to be attributable to an adjustment of comparable sales by an increase of 20% (Mr. Hunt) or 10% (Mr. Maundrell) because of the better position of the subject land (than the comparables). I find it difficult, if not impossible, to choose between the evidence of the valuers on this aspect and am not prepared to accept one over the other, as is urged on me by the parties. Doing the best I can I intend to split the difference and award $68,000 for the land value as at the resumption. Improvements Here the difference between the valuers is a little over $400.00 ($11399 cf. $11838). As a consequence little time was spent by the parties in addressing this issue. I intend to allow the sum of $ll,500 as appropriate to the evidence. Entrepreneurial profit The issue as to entrepreneurial profit is whether such an allowance should be made on improvements only or on the value of the land plus improvements. Mr. Maundrell is of the opinion that the entrepreneurial profit of 10% should be calculated only on the improvements. The Council submits that the profit does not include the land content until the project is completed and the entrepreneur's work is finished. In any event, it is submitted that the project was non-viable as at any date so no such profit should be allowed. I will deal with the issue of viability later and at this stage it is only necessary for me to indicate that I find the project to be a viable one in 1977 and up until the notice of intention to resume was served in May 1979. It is undisputed that by October 1980 (when the land was resumed) the project had become non-viable. As against the respondent's submission the applicants say that an entrepreneur brings to bear his skills on the whole project which includes the realty and not just the imp rovements. In part the skill is in acquiring the right land in order to implement the proposal. The promoter's skill and ability is brought to bear on the totality of the project, including the realty. In Mr. Milne's submission it is illogical to ignore the realty until the project is complete. I accept the applicants' submissions on this issue. I can see no reason why the margin for entrepreneurial profit should be confined to improvements and the land ignored. Accordingly, I award the sum of $7,950 under this head being 10% of $79,500 ($68,000 + $ll,500). Use value and removal of sheds and fencing There is a dearth of evidence on this issue and the valuers assessments are $600 (Mr. Maundrell) and $2,000 (Mr. Hunt) respectively. It is again difficult to choose between them but I have come to the conclusion that a reasonable allowance is $l,000. Consequential losses The applicants claim $26,700 for abortive expenditure and consequential losses relating to preparation of plans, drawings and specifications. The figure is Mr. Hunt's estimate of the scale architectural fees. As I understand the respondent's submission no allowance should be made under this head because the expenditure added nothing to the value of the land since the project was at all points of time non-viable. I have already indicated that I am satisfied that the project was adequately viable to the Polegatos from 1977 until sometime in 1979. In the light of that finding I can see no reason why I should not accept Mr. Hunt's evidence and make the allowance. I do not accept that this aspect of the claim should be offset against capital gains in the land value as maintained by Mr. Maundrell. Since there is no dispute as to the figure I allow the sum of $26,700. Special value and/or disturbance There is no doubt that the best starting point for an evaluation of the relevant law is still Spencer v. The Commonwealth ((l907) 5 CLR 418). More than 80 years on several passages stand out as beacons. At page 435 Barton J. said:- "I am unable to say that the bare market value of the land for workingmen's residences ona particular day would be a value constituting a real compensation for this taking. The Court must take into consideration all the circumstances, and, to quote the admirable judgment of the Supreme Court of New Zealand in Russell v. The Minister of Lands (17 N.Z.L.R., 241, at p.253), must "see what sum of money will place the dispossessed man in a position as nearly similar as possible to that he was in before". His loss is to be tested by the value of the thing to him: Stebbing v. Metropolitan Board of Works (40 L.J.Q.B., l, at p.5, per Cockburn C.J.), and the loss he has sustained is not necessarily to be gauged by what the land would realize if peremptorily brought into the market on a day named. True, it is "value" which is to be assessed, but the value to the loser of land compulsorily taken is not necessarily the mere saleable value. See Russell v. The Minister of Lands (40 L.J.Q.B., l, at p.5, per Cockburn C.J. and 17 N.Z.L.R., 780." In my opinion there is nothing inconsistent in this passage with the statements of principle of Griffith C.J. at 432 and Isaacs J. at 44l. In Commissioner of Highways v. Tynan ((1982) 53 LGRA l at 9) Wells J. concluded that the principles to be applied where special value is in issue are "virtually the same as those laid down in Spencer's case...." The fundamental tenet of compensation being based upon the value to the dispossessed owner has been echoed on many occasions but is exemplified by Dixon J., as he then was, in The Moreton Club v. The Commonwealth ((1948) 77 CLR 253 at 257):- "It must, however, be steadily borne in mind that compensation depends upon the value to the owner dispossessed. It is the owner's loss that is to be estimated and that may be done in various ways. 'In cases of compulsory acquisition the value to the owner may, according to the circumstances, be proved in more ways than one, but a very common way is to base it upon, though not necessarily to confine it to, the market price - that is, the price which a willing buyer would give to a willing seller who was desirous of getting rid of the property and had made his preparations accordingly. In cases of compulsory acquisition, however, an owner may be able to show that the value to him is something more than such market price....' - per Cussen J., In re Wilson and the State Electricity Commission of Victoria (1921) V.L.R. 459, at p. 464." In the landmark decision of Pastoral Finance Association v. The Minister ((1914) AC 1083 at 1087-9) the Privy Council stressed that the value to be established is the value to the dispossessed owner. The concept of the distinction between market value and the (special) value to the owner has now been firmly established in Australia for many years, see e.g., Commonwealth v. Reeve ((1948) 78 CLR 410 at 418), Kennedy Street Pty. Ltd. v. The Minister ((l963) 8 LGRA 221) and Chapman v. The Minister ((1966) 13 LGRA l at 18). In a more recent exposition of the concept of special value to the owner, Arkaba Holdings Ltd. v. Commissioner of Highways ((1969) 19 LGRA 398 at 404) Chief Justice Bray said:- "It is, of course, well established that it is the value to the owner which must be paid, even if that value exceeds the market value (Pastoral Finance Association Ltd. v. The Minister ((l9l4) A.C.1083); Minister for Public Works v. Thistlethwayte ((1954) A.C.475)). The additional element is commonly called "special value to the owner", e.g. Thistlethwayte's case ((1954) A.C. at p. 49l). But this special value must, in my view, arise from some attribute of the land, some use made or to be made of it or advantage derived or to be derived from it, which is peculiar to the claimant and would not exist in the case of the abstract hypothetical purchaser. Would a prudent man in the position of the claimant have been willing to give more for this land than the market value rather than fail to obtain it or regain it if he had been momentarily deprived of it? (Pastoral Finance case ((l9l4) A.C. at p. 1087); per Kitto J. in Turner v. Minister of Public Instruction ((1956) 95 C.L.R. 245, at p. 292))." In approaching this issue one should not lose sight of the ultimate purpose of the assessment of compensation and the statement by Dixon C.J. in Turner v. The Minister ((1956) 95 CLR 245 at 264) is worthy of emphasis:- "The ultimate purpose of the inquiry is to find a figure which represents adequate compensation to the landowner for the loss of his land. Compensation should be the full monetary equivalent of the value to him of the land. All else is subsidiary to this end." Of course part of the difficulty not infrequently faced by the courts is the almost interchangeable use of the terms "special value" and "disturbance". A reading of the authorities confirms this blurring of terminology, see for example Commonwealth v. Milledge ((1953) 90 CLR 157 at 164) and Arkaba Holdings at 404. The applicants submit that they are entitled to an additional sum in compensation over and above the land value and whether it is to be described as special value to the owner or disturbance, it necessarily involves a "value" to be added to market value of the land. In assessing whether there is any special value to the owner over and above the market value of the land the test laid down in the Pastoral Finance case (at page 1087) is still to be applied. The concept of "value to the owner" was considered at length by the Court of Appeal in The Housing Commission v. Falconer ((1981) 1 NSWLR 547), in particular by Mahoney J.A. at pp.572-3, viz:- "Property is, of course, to be valued by reference to whatever potential it may have to whoever may be the owner of it: Turner v. Minister of Public Instruction (1956) 95 CLR 245. But it has long been accepted that, in compensation cases, the value of property may go beyond this. Its value is its value to the particular owner and, in assessing that value, there is to be taken into account also a potentiality which is available only to the individual who is the owner at the relevant date or is peculiar to him: Pastoral Finance Association Ltd v The Minister (1914) AC 1083, at pp 1087, 1088; see also Spencer v Commonwealth (1907) 5 CLR 4l8, at p 435; Minister for Public Works v Thistlethwayte (1954) AC 475, at p 491. On this basis, if the land is, physically, by reason of its zoning or otherwise, particularly suited for the use to which the then owner wishes to put it or is putting it, and that makes it specially valuable to him, that which is to be assessed in money terms is not merely the value of the land ge nerally on the market but its value having regard to that special value:" Applying the relevant principles of compensation to the present facts it may be seen that there are alternative approaches adopted by the valuers. The approach of Mr. Hunt to special value appears to be to assess the disturbance caused by reason of the resumption process. This includes the loss of opportunity to erect 7 flats because of the changes in the Council's development requirements and the additional costs of compliance with the new Council flat and parking codes. He assessed these items at around $58,000. In addition Mr. Hunt includes the increased building costs of the project from March 1977 until the resumption ($225,000) and holding charges for the same period ($36,341). In his estimation the total of this aspect of the claim is around $320,000. Another valuer called by the applicants, Mr. Woodley, approached the matter differently. On the assumption of viability of the project in 1977 he assessed the value to the owner of the partly developed site in June 1977 as $65,000 (see Exhibit AA). In order to place the owners so far as possible in the same position as they were before the commencement of the resumption process he believed that the increased costs of construction should be taken into account. This he assessed at $280,000. He described this sum as "disturbance" but said it could be equated to "special value". According to Mr. Maundrell the only special value to the owner was the sum of $4,400 in respect of the acquisition of an alternative site. He rejected any further claim for special value on the basis that as a matter of law one could only assess compensation as at the date of resumption when the project was admittedly non-viable. If, which he did not concede, one could go backwards in time to consider the effect of the resumption process on the project, then his opinion was that the project was at all points of time non-viable. In Britton & Anor. v. The Minister for Education (Land and Environment Court Unreported 3 May 1985) Perrignon J. had to consider a claim "for business disturbance or special value" based on the assertion that the activities of the resuming authority so interfered with or frustrated the applicants' development that they were prevented from subdividing and selling and thus make a profit. After referring to some of the authorities he said:- "However, the word "compensation" in section 124 of the Public Works Act should be construed widely rather than narrowly: Housing Commission of N.S.W. v. Falconer (1981) N.S.W.L.R. 547 at pp. 569-570. In the present case I am of the opinion that disturbance was caused to the applicants' subdivisional activities by the activities of the Department in 1974 and 1975 and I think that such disturbance should be reflected in the compensation to be paid." I had to consider Britton recently in Haddad v. The Minister (Unreported 27 July 1987). In that case the Court was faced with a claim for pre-resumption disturbance for losses caused by a series of steps in the resumption process prior to gazettal. These included a number of conservation orders imposed by the Minister under the Heritage Act. I came to the conclusion that the applicants were entitled to be compensated for a measure of disturbance arising out of the pre-resumption steps. I said "to ignore the reality of the disturbance claim would lead to the applicants not being fully compensated". I was also satisfied that no double compensation was involved. It is of course true that the exercise must be approached in an objective fashion and not upon subjective matters such as sentimental or emotional attachments. Further it may not exceed the commercial value of the special advantage of the land (see Dangerfield v. Town of St. Peters ((1972) 129 CLR 586) and Bronzel v. State Planning Authority ((1979) 44 LGRA 34). However, I am satisfied by the evidence that the land had a special value to the owners in accordance with the principles enunciated in the Pastoral Finance case. The special value lay in the fact that the applicants had consumated a development consent for the erection of 2 shops and 18 residential flats on the land. Notwithstanding changes in the planning and building requirements of the Council, they were entitled to complete the proposal. Fruition of the project was brought to an end by the Council's conduct which in effect froze the development. In passing I note the remark of Wells J. in Tynan (at p.14) that the categories of special value, like negligence, are never closed. In my opinion it is permissible, and on occasions necessary, to examine the effect of the resumption process on the business of the owner. In this case it is clear that the Council's conduct frustrated the owners' project to the point of leading them to abandon it. Indeed, there is little doubt that the Council desired to achieve this end since, if the applicants continued to implement the consent and construct the shops and flats, the Council would be faced with increased compensation. In my opinion to fail to take cognizance of the process and its effect on the applicants would not only deny them compensation for disturbance, but also reward delay by a resuming authority. It would run counter to the underlying principle that compensation for the compulsory taking of land shall be fair compensation. On the contrary, if the resumption process is to be ignored in the assessment of compensation it could encourage resuming authorities to sterilise land and delay resumption in order to deflate the value of the la nd and thereby minimise compensation to be paid to the detriment of dispossessed landowners. It would also run contrary to the principle that a dispossessed owner is to be put back, as far as money can, in the same position as if his land had not been taken. To deny compensation for disturbance or special value incurred as a result of the resumption process could render an injustice to a dispossessed owner. Such a result would have the effect of removing the element of the "value to the dispossessed owner" from the assessment of compensation. It is necessary therefore to test the viability of the project in 1977 and perhaps in 1978 but not in respect of 1980. In relation to this issue the Court has received considerable evidence from the valuers. The opinion of Mr. Hunt is that the project was viable in March 1977 returning to the Polegatos a surplus of close to $100,000 and a reasonable rate of return for Griffith. On the other hand Mr. Maundrell is of the contrary view. His calculations reveal a negative value and he concluded that the development and building approval added nothing to the value of the land. Indeed, in his opinion the applicants made a bad judgment and the resumption had saved them from a bad investment. He also considered that the loss of opportunity to erect 7 flats on the land as a result of the development control changes added nothing to the value. No increase in building costs was added because of his conclusion of non-viability. However, when one examines the differences between the valuers' assessment of viability, it is to be observed that Mr. Maundrell includes certain items, such as maintenance at 1%, rent collection fees and higher vacancy factors while Mr. Hunt does not. The differences in part relate to matters personal to the Polegatos and I do not see why these factors should not be taken into account. The question is the viability of the project to the dispossessed owners and not to some hypothetical entrepreneur. There are other discrepancies between the approaches of the valuers to viability. For example, Mr. Maundrell subtracts a 20% profit and risk factor from the nett realisation of the project. It is not clear to me why this is appropriate. Carefully analysing the evidence as to viability I conclude that I prefer that of Mr. Hunt. It seems that Mr. Maundrell had always been well satisfied of the non-viability of the project that he had a difficulty in replacing his set of assumptions with any others. I also question his assumption that the property would only be developed for resale rather than being held as an investment, as was the intention of the applicants. In my opinion the assumptions on which Mr. Hunt's assessment are based are largely in accordance with the reality of the Polegatos' situation and Mr. Polegato's evidence. Moreover, I accept that the intentions of the applicants were reasonable, understandable and attainable. I find that the project was viable in 1977 and 1978. Having arrived at the conclusion that the applicants are entitled to be compensated for disturbance to their undertaking, the task of assessing it in money terms is far from easy. While accepting the viability of the project in 1977 and 1978 the compensation must still be limited to the amount which any prudent purchaser in the position of the owner would pay for the land rather than fail to obtain it. There are no figures for disturbance or special value before the Court other than those presented by the applicants. However, it does not follow that I necessarily have to accept such figures. It seems to me that the money assessments for disturbance or special value of Mr. Hunt and Mr. Woodley are unrealistic and exceed what any prudent purchaser in the position of the owner would pay rather than fail to obtain the land. When one analyses the project and the likely profits that it would derive if it had proceeded without interruption, it seems to me that the figures of $280,000 (Mr. Woodley) and $320,000 (Mr. Hunt) are excessive. I appreciate that the approach should be generous rather than niggardly (Latimer v. North Coast National Agricultural Industrial Society (1938) 17 LVR 67 at 73). Nevertheless, it is very difficult to know what is a reasonable and proper measure for disturbance. One must also take care to see that the sum awarded for this element of disturbance does not constitute double compensation. It is impossible to assign a precise basis for arriving at an appropriate sum, see Britton v. The Minister. However, taking into account all I know of the financial nuances of the project derived from the evidence, and taking a robust approach, I assess compensation for disturbance at $100,000. (To this should be added the agreed disturbance or special value of $4,400). I am satisfied that this sum reasonably represents the sum which a prudent purchaser in the position of the owners would have been prepared to pay sooner than fail to obtain the land (e.g., Baringa v. Manly Municipal Council (1965) 15 LGRA 201 at 105, Castle Hill Brick Tile & Pottery Works v. Baulkham Hills Shire Council (1961) 7 LGRA 139 at 147 and Milledge at 164), and further, does not involve any element of double compensation. In arriving at this figure for special value I have been mindful of the approach of the Judge in Tynan at p.24:- "What I must attempt is to settle on a figure by a judicial process not dissimilar to that undertaken when the court seeks to reflect an item of loss in general damages, unsupported by the sort of calculation discussed by the High Court in Todorovic v. Waller. For this purpose, I must wield a broad axe, but on the totality of the evidence for and against the claimant on this issue, I fix $l,000 as fair and reasonable" In summary compensation is made up of the following sums:- Market value of land $68,000 Improvements ll,500 Entrepreneurial profits 7,950 Sheds etc. l,000 Consequential losses 26,700 Special value/disturbance l04,400 $2l9,550 Accordingly I fix compensation in the sum of $219,550. At the request of the parties I reserve all questions of costs. The exhibits may be returned. 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