Land and Environment Court of New South Wales CITATION : T. Koutsouras v. State Rail Authority of New South Wales [1988] NSWLEC 27 APPLICANT T. Koutsouras PARTIES : RESPONDENT State Rail Authority of New South Wales FILE NUMBER(S) : 30360 of 1987 CORAM: Hemmings J KEY ISSUES: :- Public Works Act 1912 LEGISLATION CITED: Local Government Act 1919. Land and Environment Court Act English Exporters (London) Limited v. Eldonwall Limited, [1973]; CASES CITED: Jacobs J. in Housing Commission of N.S.W. v. San Sebastian Pty Limited, (1978); Spencer v. Commonwealth of Australia, (1907) DATES OF HEARING: DATE OF JUDGMENT: 10/27/1988 LEGAL REPRESENTATIVES: JUDGMENT: HIS HONOUR: Mr Theadore Koutsouras was the registered proprietor of all of the land comprised within Certificate of Title Volume 14165 Folio 80, being Lot 20 of Section 5 in Deposited Plan 10225 in the City of Bankstown, Parish of Bankstown, County of Cumberland, and known as Number 110 Park Road, East Hills ("the subject property"). By Notice published in New South Wales Government Gazette on 2nd November, 1984 the respondent compulsorily acquired all of the owner's interest in the subject property. The parties have been unable to agree on the amount of compensation, and application is made to this Court to determine such compensation in accordance with the provisions of s.124 of the Public Works Act 1912. The subject property was located within the East Hills Shopping Centre and erected thereon was a single storey brick shop. At the rear of the shop was a storeroom/ office and amenities. The rear yard was fenced and was used for the storage of timber and other saleable items. Construction of the building was generally of full brick, with rendered internal walls and concrete footings and with a floor of timber and concrete. The building had a typical shop front with cantilevered awning, but part of the frontage had been altered to provide a roller shutter door and a rough road base driveway to give access from Park Road to the yard behind the building. The rear of the property and workshop area was used for the purpose of a joinery shop, making kitchen cupboards. Gross floor area of the building was approximately 178m2. The building was structurally sound and did not appear to require any major essential repairs. The subject property was rectangular in shape, with a frontage of about 15.24m, with side boundaries of approximately 50.29m, having an area of 765.1m2. It had the benefit of services such as water, sewerage, gas, electricity and telephone, and Park Road comprised a bitumen surface with concrete kerbing and guttering and concrete footpaving. The property was situate within a 3a Business General Zone under the provisions of the Bankstown Planning Scheme Ordinance, and a small portion at the rear was partly reserved thereunder for local road purposes. The property had been subject to a lease to East Hills Holdings Pty Limited for a three year term, expiring on 15th September, 1981, and with a three year option. The annual rental was $7,800.00 and such had not been reviewed at the date of resumption. The property was resumed pursuant to the Transport Authorities Act 1980 and the Public Works Act 1912 for the purpose of constructing a railway between East Hills and Campbelltown, the route for which had been the subject of discussion and controversy for many years. The East Hills railway line terminated at the East Hills Shopping Centre, and for many decades it has been known that there was a proposal to bridge the Georges River for such purposes, but the precise location thereof was uncertain. As a consequence, from about 1980 the Bankstown Municipal Council included the following information on Certificates issued pursuant to s.342 AS of the Local Government Act 1919 with respect to land in the general locality:|CF2.|PSI "It is noted that it is the Government's intention to extend the East Hills rail line across the Georges River to Glenfield. This action would result in alterations to the present commercial area. Further enquiries regarding the location of the rail line should be directed to the Public Transport Commission. Enquiries regarding changes to the commercial area are to be directed to Council."|CF1.|PSO It appears that the State Rail Authority had to make a decision as to whether it should provide that link by resuming land through residential areas or through the existing commercial centre of East Hills. Apparently by 1980 it became public knowledge that the decision had been taken to provide that link through the commercial area and to such an extent that it would severely reduce the size of the shopping centre. Prior to resumption, the East Hills Shopping Centre comprised approximately forty-five retail outlets, including a Commonwealth Bank, Post Office, Totalisator Agency Board, hotel and a large supermarket/liquor store. At the date of resumption it was not a flourishing commercial centre and was inferior to nearby centres such as Panania and Revesby. It apparently served mainly the needs of the immediately adjoining residential area, as well as commuters using the railway station. The development of East Hills as a retail centre had not kept pace with other adjoining centres, and had been retarded for many years for a number of reasons; i.e. -1. Its location adjacent to a residential precinct of limited area, bounded on three sides by the Georges River and at the termination of the railway line. 2. The effect of the closure of a migrant hostel on the western side of the Georges River which relied upon the commercial centre. 3. The uncertainty surrounding the location and resumption of land for the purposes of the extension of the East Hills railway. It is common ground that each of these factors contributed to the downgrading of the East Hills Shopping Centre as a viable commercial area, but each party disagreed as to their respective significance. The parties disagree as to the effect upon the viability of East Hills as a shopping centre as a consequence of knowledge of the proposals of the State Rail Authority. Not surprisingly, in these proceedings the applicant contended that the main reason for the lack of growth in the shopping centre was knowledge of the proposals to carry out the public works. The applicant was overseas and unable to give evidence, and his brother, Mr J. Koutsouras, gave a history of the acquisition of the premises in 1980, and a description of the improvements and the use of the subject property. He believed the premises had originally been designed for the purpose of a supermarket, but was used as a hardware store at the date of resumption. An access driveway which had been provided from Park Road made the rear yard of the premises more useful for the storage of goods, particularly in connection with the joinery business. He gave a description of the various types of businesses which were operating in the near vicinity of the subject property prior to resumption. He explained that the rent for the lease of the premises had not been renegotiated because it was intended to spend something in the order of $20,000 on improvements thereto. Mr T.M. Dundas, valuer on behalf of the applicant, assessed a land value of $170,000. To that figure he added a value of the buildings and improvements in the sum of $43,172, giving a total of $213,172, which he rounded off at $215,000. An unspecified sum was foreshadowed as a claim for stamp duty and legal fees for acquisition of a similar property. The applicant tendered no evidence nor made a submission in support of such claim. Unfortunately, Mr Dundas was not briefed to provide a valuation in this matter until after the demolition of the said improvements and the construction of the public works. He relied upon photographs and the description of the improvements made by the valuer engaged by the State Rail Authority, Mr C.R. Sorrenson, who inspected the property at the time of resumption. Mr Dundas is an experienced valuer, but his familiarity with the East Hills/Bankstown area was limited. He had previously been engaged to undertake a valuation for the purpose of a similar claim for the resumption of adjoining land and, as a member of the staff of the Valuer General, had visited the area in the early 1960s. For the purposes of his valuation he interviewed a number of owners and occupiers of premises in the East Hills district, and was strongly of the opinion that the main factor which retarded the natural growth of the East Hills centre was the uncertainty of the location and likely resumption of land for the purposes of the East Hills railway extension. He concluded that any sale that took place before or after resumption of the subject property would be "blighted" by such works and that such sales should therefore be treated with extreme caution. In his search for comparable land Mr Dundas ultimately settled on sales in Tower Street, Panania, and Alma Street, Padstow, as giving, in his opinion, the best evidence of the value of land in the East Hills Shopping Centre if the impact of knowledge of the railway proposals was to be ignored. Premises known as 136 Alma Road, Padstow sold for $105,000 on 31st July, 1985. That land was situated in a small retail centre of about six to eight shops zoned Neighbourhood Business, but was, in his opinion, in an inferior location to the subject property. It had a width of 14m, an area of 470m2, and had frontage to a public road and two laneways. It was a subdivision of an improved site previously used as a service station. The purchaser was the previous tenant of the said site, conducted a nursery business thereon and paid a rental of $230 per week. It was a condition of the contract that toilet facilities would continue to be provided for some time from the existing service station. Mr Dundas noted that in comparison with the subject property the said sale was of land which was not as wide, nor as large and was only within a Neighbourhood Business zone. He deduced a land value of $212 per square metre for such sale. Mr Dundas relied heavily upon the sale of premises known as 163 Tower Street, Panania, which sold for $60,000 on 18th June, 1982. That property had a width of 5.5m and an area of 224m2. It was vacant at the date of sale, but was subsequently developed with a shop with residence above. The said sale was within a small business retail centre located approximately 400m from the main Panania retail centre. It was zoned General Business and was within a retail area of some seventeen shops. In his opinion, the locality was equal to or marginally inferior to East Hills as a shopping centre. He noted that the sale site was narrower than the subject property, and about one-third of its size. He deduced that that sale represented $267.60 per square metre, or $10,928 per metre frontage. Whilst, for the reasons already given, he considered that sales in the East Hills centre should be treated with extreme caution, he analysed two adjoining sales in Park Road, East Hills. 98 Park Road sold on 23rd January, 1985 for $88,000, and 98A Park Road sold on 5th June, 1985 for $30,000. These adjoining properties were in an inferior location to the subject property, divorced from the main retail centre, and difficult to develop. He deduced a land value of $267.86 per square metre, and in his opinion such sales demonstrated the minimum value that could be assigned to the subject property. Mr Dundas referred also to a sale of premises known as 364 Hector Road, Bass Hill, which was sold on 3rd February, 1984 for the sum of $139,000. That site was within a small neighbourhood shopping centre on a busy road close to the Hume Highway and which, in his opinion, was inferior to the commercial centre of East Hills. The land was improved with two shops and a dwelling, and he noted that whilst the contract indicated that the whole of the land was zoned for commercial purposes, in fact one-third thereof was zoned residential. Mr Dundas reconciled the sales evidence in the following way:|CF2.|PSI "765.1 sq.m. @ $220 - $168,000 (see Alma Rd sale) $230 - $175,973 15.24 m @ $11,000 - $167,640 (see Tower St sale) $11,500 - $175,260 Adopt Land Value - $170,000"|CF1.|PSO In cross examination, Mr Dundas conceded that at the date of resumption, applying a reasonable rate of capitalisation, such valuation of the subject property would demand a rental of something in the order of $400 per week. Mr Sorrenson was engaged by the respondent at or about the time of the resumption to undertake on its behalf the assessment of compensation for a large number of properties at East Hills. He inspected the East Hills Shopping Centre and the improvements on the subject property at or about the date of resumption. Mr Sorrenson valued the improvements on the subject property at the date of resumption at $38,000 and, after analysis of comparable sales, valued land and fencing at $60,000. He sought to check that valuation by a capitalisation of estimated nett annual rental of the property. He carried out the following exercise:|CF2.|PSI "Estimated gross annual rental income $8,580 Less outgoings which include Council rates, MWS & DB rates, Insurances, Maintenance, etc. per annum estimated at 1,500 Total nett annual rental $7,080 Then, value when capitalised at 8% per annum, i.e. $7,800 x 100/8 $88,500 Plus the estimated value of surplus rear land 8,000 $96,500"|CF1.|PSO Mr Sorrenson relied for his land value principally on sales in Tower Street, Panania, and a sale at 125-127 Wellington Street, Sefton. He compared those sales with sales in Macarthur Avenue, Revesby, and Cahors Road, Padstow. In his opinion, those parts of Revesby which included the sales of 161-165 Tower Street and those in Macarthur Avenue were retail areas which were in all relevant respects similar, but slightly superior to the East Hills Shopping Centre, even if the impact of knowledge of the public works was ignored. In his opinion, however, the most comparable shopping centre was at Sefton. Property known as 161 Tower Street, Panania, sold on 2nd August, 1983 for $117,000. It comprised a typical ground level shop with a residence above, and in his opinion, represented a land only value of $40,000. He noted that the sale of the adjoining property, number 163, had a similar frontage and area. It realised $60,000 for vacant land, which was much higher than that deduced from the other two improved sales. The sale of 165 Tower Street, which comprised a lock-up shop at date of sale, was made to an adjoining owner for $81,500 after the date of resumption. In his opinion, those sales were the best evidence to establish a value for a comparable parcel of land at East Hills. The premises, 9 Macarthur Avenue, Revesby, sold for $84,000 on 20th September, 1983, included an older style dwelling and had a frontage of 13m, and an area of approximately 500m2. 1-3 Macarthur Avenue sold for $230,000 on 11th October, 1983 and comprised older style dwellings. This site has been redeveloped with a two storey office building. The land had a frontage of approximately 26m, and an area of 1,050m2 approximately. In Mr Sorrenson's opinion the sale of 125-127 Wellington Street, Sefton was of the greatest assistance. It was almost opposite a railway station, was of similar potential and similar competition to East Hills, and was the most comparable. It sold for $106,000 on 10th June, 1983 and comprised two ground level shops with detached dwelling at the rear. It had a frontage of approximately 19m, and an area of 180m2. He said it gave him confidence in the figures that he had assessed from the sales of the properties closer to East Hills. He was familiar with all of the sales relied upon by Mr Dundas. The Alma Road property, in his opinion, was a superior site to the subject property because of its location in a shopping centre adjacent to a good residential area with good trading figures, particularly at weekends. It also fronted a major by-pass road with high traffic flow. In his opinion, Tower Street was also slightly better than the East Hills Shopping Centre because the road carried heavy through traffic, it complemented the nearby Panania Shopping Centre and was not in competition with it, and adjoined a strong residential area. He was of the opinion that 98 and 98A Park Road had more of a commercial potential rather than retail, and too many adjustments would have to be made to such sales to make any real comparison with the subject property. In his opinion, the East Hills Shopping Centre, because of its physical constraints, was never likely to serve much more than a neighbourhood shopping function. In his opinion, the most significant additional factor in the retardation of its growth was the closure of the nearby migrant hostel centre, and the proposals for the construction of the railway had a lesser impact. Mr Sorrenson did analyse a sale at premises known as 37 Maclaurin Avenue, East Hills, which was one of the properties ultimately affected by the railway proposals. It sold for $100,000 on 4th November, 1983 and comprised a ground level shop with a residence above. It had a frontage of approximately 6m, and area of 152m2. The actual contract price was $150,000, but Mr Sorrenson interviewed the purchaser, and determined that $50,000 had been paid for fixtures and fittings. Mr Sorrenson did not attempt to deduce a land value and he rejected that sale because he thought it was high and "out of line", and enquiries revealed that the purchaser was unaware at that time of any of the proposals for the extension of the East Hills railway line. In cross examination, however, he conceded that that sale might indicate the value of land in the East Hills centre to a purchaser unaffected by knowledge of the proposals to carry out the public work. The practice of valuation is a complex science, requiring the application of skill and experience by the expert in order to make a personal judgment. It is not uncommon for competent and experienced valuers on the same or similar data to arrive at a different opinion. In this case I must choose between the competing judgments of two such experts. Mr Hyam, Counsel for the applicant, strongly criticised the evidence of Mr Sorrenson to the extent that he had not inspected any of the contracts of the sales upon which his valuation relied. In particular, Counsel submitted that the Court should not prefer his valuation, because it was based merely upon information received from others concerning the circumstances of each sale. I found that submission most surprising, because, if correct, it would necesssarily have also applied to a great deal of the significant evidence of the applicant's own valuer. There can be no doubt that copies of the actual contracts and direct evidence from the respective parties is the best and most reliable evidence of a sale and relevant circumstances affecting the price. However, a valuer is an expert witness and is entitled to express an opinion about matters within his special field of competence. It is inevitable that such opinion will be influenced by matters arising in the conduct of his practice. These must include information obtained concerning numerous transactions in which he has been engaged and of which he could give first hand evidence, together with that which has been merely the subject of advice or enquiry. A valuer must be entitled to rely upon information obtained from publications, textbooks, reports, notices of transfer and discussion with other valuers and experts as part of the background information relevant to the market place. In my opinion, it is well settled that the opinion of a valuer based solely upon training and general experience is admissible, even in a Court in which the rules of evidence apply. It is a matter for the Court as to the weight to be given to such opinion particularly if it is in competition with one based upon direct evidence t ested by cross examination. Counsel for the applicant relied heavily upon the decision in English Exporters (London) Limited v. Eldonwall Limited, [1973] 1 All E.R. 726, which related to the determination of an interim rent and the evidence which was admissible for that purpose. Counsel for the applicant did not submit that Mr Sorrenson, giving expert evidence, may not express the opinions he had formed as to value, even though substantial contribution to the formation of his opinions had been made from matters of which he had no first hand knowledge. However, in support of his submission, Counsel relied upon the finding of Megarry J. that in that matter the valuer may not give hearsay evidence stating the details of any transactions not within his personal knowledge in order to establish such as matters of fact. The decision of Megarry J. concerns the admissibility of evidence in the Chancery Division. However, that decision has no significance in this matter because the Land and Environment Court is a Statutory Court which, in proceedings such as this in Class 3 of its jurisdiction, is not bound by the rules of evidence; s.38 Land and Environment Court Act ("the L.& E. Court Act"). It may inform itself on any matter in such manner as it thinks appropriate, and as the proper consideration of the matters before the Court permits. Such proceedings must be conducted with as little formality and technicality and with such expedition as the requirements of the L.& E. Court Act, and of every other relevant enactment, as to the proper consideration of the matters before the Court permit. It is the practice of this Court in this type of proceedings to require the exchange of valuation and expert reports prior to the setting down of the matter for hearing. Such reports must explain the basis of valuation and give an analysis and reconciliation of sales. It is prudent for each party to examine closely all contracts for sales relied upon by the respective valuers prior to the hearing. Each party may elect to call direct evidence with respect to matters in dispute and, in appropriate circumstances, object to the introduction of hearsay evidence; e.g. if it comes as a surprise or has little probative value. Whilst the Court is not bound by the rules of evidence, it nevertheless retains a discretion to restrict or reject evidence. It must always observe the rules of natural justice and may not act without evidentiary material or draw inferences which do not follow fairly and reasonably from the material before it. In most cases in Class 3 concerning the assessment of compensation and the valuation of land it is most likely that it would be inappropriate to apply strictly the procedures more pertinent to ordinary civil litigation between private parties. This specialist Court was created to remove, in cases of this kind, the pre-existing restrictions imposed by the rules of evidence. In my opinion, it was vested with a discretion to enable an expert valuer to give evidence of all of the matters taken into account by him in the formulation of his opinion. The view of Megarry J. (supra) that there is no |CF2.|PSI"compelling reason of policy"|CF1.|PSO why the Chancery Court should exercise a discretion to allow hearsay evidence of the matters relevant to the basis of the expert's opinion can have little relevance to this Court. I reject the submission of the applicant that the opinions of the valuer for the respondent should be given little or no weight for the reason only that the surrounding circumstances and details of comparable sales were given as hearsay, or that the contracts for relevant sales were not examined or tendered in the proceedings. The assessment of compensation for the subject property is to be determined pursuant to the provisions of s.124 of the Public Works Act, as amended, which requires that it be determined as at the date of the resumption |CF2.|PSI"and without reference to any alteration in such value arising from the construction of any works upon the land"|CF1.|PSO. In addition to that statutory obligation, over many years a similar principle was developed by the Courts, as fully expounded by Jacobs J. in Housing Commission of N.S.W. v. San Sebastian Pty Limited, (1978) 140 C.L.R. 196. It is well established that steps taken in the process of a subsequent resumption may be taken into account by the Court to determine whether the market value of the land had been depressed or elevated by a foreknowledge of the proposed public works. Any such effect upon the value of the land must be ignored in the assessment of compensation for such compulsory acquisition. It is common ground that a proposal involving the acquisition of land and the construction of a railway in the vicinity of the East Hills Shopping Centre was a notorious fact for many years. Its precise location was uncertain and the extent to which it would impinge upon the commercial centre was a matter of speculation, at least until the late 1970s. I am satisfied, on the evidence, that at least from that time knowledge of such proposals had a deleterious effect upon the growth and viability of the East Hills Shopping Centre, and consequently an effect upon the value of land therein. I am satisfied, however, that because of its physical restrictions, location and the impact of the closure of the migrant hostel, even in the absence of knowledge of such proposals it was unlikely that the centre would ever have developed into anything more than a "better than average" neighbourhood shopping centre. That is not to say that I accept Mr Sorrenson's opinion that foreknowledge of the proposals did not have a significant impact upon the centre. In my judgment, Mr Dundas' valuation of the land is clearly extravagant and unsupported by the sales evidence. A reconciliation of such sales cannot justify the assignment of a figure anything like $220-230 per square metre, nor $11,000-11,500 per metre frontage. Reliance upon the Alma Road sale is unsafe, even if it was to be regarded as being within a comparable shopping centre. It has frontage to a very busy road and two laneways, and it has a smaller area. Of greater significance is the strong likelihood that the purchase price included a sum representing a special value to the purchaser in connection with the goodwill of his business. In my opinion, it was also inappropriate to rely heavily upon a value mainly deduced from the highest of the three sales in Tower Street, and also not to make allowance where sales were of significantly smaller properties. It was a more serious error to apply figures deduced therefrom to the full frontage and to the whole of the area of the subject property. This error is p ointed up by the fact that the applicant had effectively reduced the frontage of the subject premises for retail purposes in favour of the construction of a driveway to give access to the rear yard. Further, whilst such driveway made the rear yard more usable for storage and an industrial purpose, in my opinion it did not give it similar retail value to that of the sales. Mr Dundas' approach to valuation might be appropriate in a prime commercial area, particularly if it is ripe for redevelopment, where site area and floor space ratios are of singular importance. In my opinion, his approach is inappropriate for the assignment of values to the subject property being a large parcel located in a commercial area having the character of East Hills at the date of resumption. Mr Sorrenson is an experienced valuer who resides and carries on his practice in the general area. He demonstrated to my satisfaction an intimate knowledge of the relevant area and the shopping centres within which sales were analysed. In my judgment, the opinion of Mr Sorrenson with respect to the comparability of the various shopping centres is therefore to be preferred to that of Mr Dundas. I also prefer Mr Sorrenson's selection of comparable sales, his analysis and reconciliation of such sales. However, I am most uncomfortable with the land valuation for the subject property which he deduces from such sales. I am also unpersuaded that the check valuation with its arbitrary allowances and assumptions confirms such valuation. I am satisfied that the respective sales at 161-165 Tower Street, Panania are the best available evidence of the market value of land in a commercial centre, of character and potential comparable with but superior to the subject locality if the impact of knowledge of the proposed public works is to be ignored. The use of the sale of premises known as 37 Maclaurin Avenue, East Hills is unsafe, but I observe that it confirms the comparability of the sales 161-165 Tower Street with the subject property. The sales in Macarthur Avenue satisfy me that an otherwise comparable parcel of considerably wider frontage would have a value higher than a 5.5m parcel in Tower Street. It is unfortunate that Mr Sorrenson did not also fully analyse the sale of 125-127 Wellington Street, Sefton, as I am satisfied that it may be used as a check of a valuation assigned from the other sales. Notwithstanding its wider frontage but much smaller area, the sale price of that property indicates a land value for the subject property in excess of that assigned by Mr Sorrenson. Unfortunately, none of the comparable sales permit a direct application of values deduced therefrom, nor do the expert opinions or submissions resolve to my complete satisfaction the necessary adjustments to the sales evidence to assign a value to the subject property. However, it is my duty to make a final assessment of compensation. To do that I must therefore put myself, as far as it is possible, in the position of persons who are conversant with the subject property at the date of resumption, and ascertain on the evidence what a purchaser would have had to offer for the land to induce a willing vendor to sell it. In other words, to enquire at what point a desirous purchaser and a not unwilling vendor would reach agreement. Doing the best I can, in my judgment a desirous purchaser and a not unwilling vendor, on the facts that I have found, would "come together" at a figure of $90,000 as the value of the land and fencing at the date of resumption; cf. Spencer v. Commonwealth of Australia, (1907) 5 C.L.R. 41 8 at 440. There is little difference in the respective valuations of the improvements on the subject land at the date of resumption. Having heard each valuer give evidence and considered their reports, I prefer the opinion of Mr Sorrenson. I find that the improvements on the subject property at the date of resumption had a value of $38,000. The orders of the Court are therefore: 1. Compensation assessed at $128,000. 2. Exhibits may be released. 3. Costs reserved. 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.