New South Wales Supreme Court CITATION : Muhibbah Engineering (M) BHD v Giuseppe Vartuli [2009] NSWSC 265 HEARING DATE(S) : 9 March 2009 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 9 March 2009 DECISION : Plaintiff to pay defendant compensation of $72,116.25. CATCHWORDS : EASEMENT - easement for drainage of water - quantum of compensation to be paid – land liable to flood affected in part – heads of compensation – whether allowance for "blot on title" appropriate LEGISLATION CITED : (NSW) Conveyancing Act 1919, s 88K(1), s 88K(4), Schedule 4A, Part 3 CATEGORY : Principal judgment 117 York Street Pty Limited v Proprietors of Strata Plan 16123 (1998) 43 NSWLR 504; (1998) 8 BPR 15,917 Goodwin v Yee Holdings Pty Limited (1997) 8 BPR 15,795 Khattar v Wiese [2005] NSWSC 1014; (2005) 12 BPR 23,235 CASES CITED : King v Carr-Gregg [2002] NSWSC 379 Mitchell v Boutagy [2001] NSWSC 1045; (2001) 10 BPR 19,187 Swann v Spiropoulos [2006] NSWSC 860 Tregoyd Gardens Pty Limited v Jervis (1997) 8 BPR 15,845 Wengarin Pty Limited v Byron Shire Council [1999] NSWSC 485; (1999) 9 BPR 16,985 PARTIES : Muhibbah Engineering (M) BHD (plaintiff) Giuseppe Vartuli (defendant) FILE NUMBER(S) : SC 5023/08 COUNSEL : Mr G Sirtes SC (plaintiff) Mr D Allen (defendant) SOLICITORS : Gray & Perkins (plaintiff) V L Macri Lawyers (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Friday 9 March 2009 5023/08 Muhibbah Engineering (M)BHD v Giuseppe Vartuli JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff Muhibbah Engineering (M) BHD is the registered proprietor of land at 28 Yarrunga Street, Prestons comprised in folio identifier 2/XXX915, which is occupied by Favelle Favco Cranes Pty Limited. The defendant Giuseppe Vartuli is the registered proprietor of land located to the northwest of Muhibbah's land and overlapping its rear boundary at lot 27 Yarrawa Street, Prestons, comprised in folio identifier 27/XX59. The area has relatively recently been rezoned as industrial, following previous rural and residential uses, and its proximity to the M7 motorway makes it attractive to industry. Located directly to the north of Muhibbah's land and to the east of Mr Vartuli's land is lot 101 Yarrawa Street, owned by Trust Company Ltd. Muhibbah's land is more elevated than Mr Vartuli's land and the Trust Company's land and surface water from Muhibbah's land drains over the two other lots. 2 In 2007 the Trust Company developed its land. It alleged that storm water discharge from pipes on Muhibbah's land interfered with the construction works, and otherwise with the Trust Company's land, and commenced proceedings in this Court against Muhibbah for injunctive relief. In order to comply with injunctions granted in those proceedings, Muhibbah has constructed the first stage of a storm water drainage system to convey surface water from its property to Cabramatta Creek, substantially in accordance with a Development Control Plan prepared by Liverpool Council in 2007, which provided for water to be drained through a property located to the immediate west of Muhibbah's land and south of Mr Vartuli's property, via a drainage line immediately adjacent to but outside Mr Vartuli's southern boundary. However, having explored various options for conveying storm water from the north-western corner of its property to Cabramatta Creek, Muhibbah formed the conclusion that the most efficient means of achieving that end was to drain it through a proposed easement along and just within the southern boundary of Mr Vartuli's land. 3 By Summons filed on 2 October 2008, Muhibbah claimed against Mr Vartuli the following relief: 1. An Order that the Defendant grant an easement for the benefit of the Plaintiff on the title of Lot 27 in Deposited Plan XX59 ("the title") in accordance with the storm water damage plan of Acor Appleyard Consultants Pty Ltd constituted by drawing numbers 382598/C1 (issue 2), 382598/C2 (issue 4), 382598/C3 (issue 4), 382598/C4 (issue 4) and 382598/C5 (issue 2), pursuant to section 88K of the Conveyancing Act 1919. 2. An Order that the Plaintiff pay the sum of $55,000.00 to the Defendant as compensation for the loss of use of the land on the title the subject of the easement referred to in Order 1 above, and/or for any other disadvantage that will arise from the imposition of the easement. 3. There be no Order as to costs in favour of either party in the proceeding. 4 On 28 November 2008, an order was made by consent that an easement be granted by Mr Vartuli in favour of Muhibbah on the title of 27/XX59 in accordance with order 1 of the Summons, such grant to take effect on and from the date of the orders. As can be seen, order 1 in the Summons refers to drawings in a storm water drainage plan of ACOR Appleyard Constructions. Those plans depict an easement to drain water 3.3 metres wide just inside and extending along the southern boundary of Mr Vartuli's land, from a point approximately 8 metres to the west of its eastern-most boundary, until a dog leg close to the western boundary which leads into a tributary of Cabramatta Creek. 5 The only substantive issue remaining for determination is the quantum of compensation to be paid by Muhibbah to Mr Vartuli pursuant to (NSW) Conveyancing Act 1919, s 88K(4). However, in the course of the hearing it has become apparent that some minor modification to and further specification of the easement to be imposed is appropriate, and accordingly, I will, in due course, with the consent of the parties, revoke the order previously made and make an order in substitution for it, the major difference being that what will be imposed will be an easement 3 metres and not 3.3 metres in width, in light of the evidence establishing that an easement 3 metres in width will be acceptable to Liverpool Council. 6 The compensation referred to in s 88K(4) is the same compensation or loss or disadvantage that will arise from imposition of the easement as mentioned in s 88K(2)(b) [Goodwin v Yee Holdings Pty Limited (1997) 8 BPR 15,795; Mitchell v Boutagy [32]. The Court's task, therefore, is to assess appropriate compensation for the imposition of the easement measured as adequate compensation for loss or any other disadvantage that will arise" Mitchell v Boutagy [25], [32]; Khattar v Wiese [2005] NSWSC 1014 [65]. The approach to assessment of compensation in cases of this type was described by Young J (as his Honour then was) in Wengarin Pty Limited v Byron Shire Council (1999) 9 BPR 16,985 (at 16,989); and by Hamilton J in Tregoyd Gardens Pty Limited v Jervis (1997) 8 BPR 15,845, see also Mitchell v Boutagy [2001] NSWSC 1045 [32], Austin J: (1) Ordinarily, such compensation includes any diminution in market value of the affected land (including the potential use to which it could have been put); (2) Any associated costs caused to the owners of the affected land; (3) Provision for insecurity and loss of amenities such as peace and quiet; (4) In the case of a permanent easement such as one to drain storm water, loss of the proprietary rights taken by the easement; and (5) Compensation for the disturbance effected by carrying out the initial work and subsequent repair and maintenance. 7 In some of the cases provision has also been made for compensation in the nature of an allowance for "blot on title"; I shall return to this in due course. 8 Mr Vartuli's land is, at least in part, subject to inundation. Part of it falls below the 1 percent or 1 in 100 year flood level; more of it falls below the probable maximum flood or PMF level; some of it is above the PMF level and thus not subject at all to inundation. 9 Muhibbah's valuer, Mr Windred, attributed to Mr Vartuli's property a market value of $250 per square metre in respect of the part not subject at all to inundation, $225 a square metre in respect of the part subject only to inundation by a probable maximum flood, and $125 a square metre in respect of the part subject to inundation by a 1 in 100 year flood. From this, in his initial report he deduced an average value over the length of the easement – which he calculated to be 185.7 metres – of $180 a square metre. Using the then proposed 3.3 metre easement, he attributed to the whole easement an area of 613 square metres, which at $180 per square metre produced a figure $110,340. On the basis that, after the grant of the easement, use of the area of the easement would be shared (presumably approximately equally) between Mr Vartuli's land and Muhibbah's land, he calculated appropriate compensation as 50 percent of that figure, namely $55,000. 10 The defendant's valuer, Mr Carrapetta, attributed to Mr Vartuli's property a value of $300 a square metre in respect of the flood-free part, $225 a square metre in respect of the part exposed to a probable maximum flood, and $125 a square metre to the part exposed to a 1 in 100 year flood. He calculated the total length of the proposed easement as 230.34 metres, and the area (at 3.3 metres wide) as 760 square metres. Applying his per square metre values to the 85 metres of the easement which he assessed to be flood-free produced a total of $84,150 for that part. He was of the view that in respect of that part the proprietor of Mr Vartuli's land would retain practically no useful benefit, based on the highest and best use of the land, and made no reduction. In respect of 65 metres of the easement which travelled through the area affected only by a probable maximum flood, he applied the same 50 percent discount for shared use as was used by Mr Windred, to produce a figure of $24,131. In respect of the 80.4 metres of easement which he assessed travelled through the land subject to a 1 in 100 year flood, he again applied the same 50 percent discount as Mr Windred, to arrive at a figure of $16,570. This produced, on his assessment, total compensation of $124,851. To that he proposed that there be added an additional allowance of $25,000 for "blot on title", disturbance and inconvenience during construction, and from the ongoing right of access of the dominant owner, producing all up a rounded figure of $150,000. 11 The valuers conferred on 26 November 2008. They identified a number of areas of difference. One related to the length and therefore the area of the easement, bearing in mind that both still proceeded on the basis that there would be a 3.3 metre wide easement. This difference, they said, could and should be resolved by survey. Secondly, there was a difference between them, albeit a minor one, in the various portions of the easement that would be affected by the different levels of flood to which reference has been made. Again, they concluded that this could and should be resolved if necessary by a surveyor. 12 Thirdly, as to the impact of the proposed easement on use of the flood-free part of the land, Mr Carrapetta was of the view that the highest and best use of the land was development in the flood-free area right up to the east and southern boundaries, which would be precluded on the southern boundary by the easement for 85 metres commencing from the eastern boundary, to the extent of the 3.3 metre width the of the easement. As development of that strip would be, he said, denied by the easement, he remained of the view that 100 percent of the market value of that strip should be included in the compensation. Mr Windred, on the other hand, was of the view that development would not necessarily extend right up to the boundary in any event – as it had not on other nearby developed properties, and bearing in mind the overall size of the property – and that the site of the easement would remain available for curtilage purposes such as driveways or car parking. 13 Fourthly, the valuers agreed, as they had in their original reports, that $225 a square metre was an appropriate figure for that part of the easement that ran through land affected only by a probable maximum flood, and $125 a square metre for that part affected by a 1 in 100 year flood. They also agreed that attributing 50 percent of those amounts to the grant of the easement was appropriate in respect of those parts. (Mr Carrapetta subsequently sought to resile from the agreement that $225 was appropriate for the land affected only by a probable maximum flood and I shall return to that). 14 Fifthly, they agreed that $275 a square metre was an appropriate compromise amount for the flood-free part on a 100 percent use basis, but subject to their continuing disagreement as to whether there should be any apportionment of that amount. 15 Finally, Mr Carrapetta sought to support an allowance for "blot on title" on the basis that the right of the dominant owner to access not only during but after the construction of the easement was an ongoing detriment; Mr Windred, on the other hand, contended that given the current undeveloped state of the land, any such disruption fell within his proposed 50 percent allowance shared for use. 16 In order to resolve the issues which were capable of resolution by survey, the Court appointed a single party's expert surveyor, one Mr Hutcheon, who undertook a survey and provided a report. In that report he noted that parties had recently agreed that the easement would be 3 metres and not 3.3 metres in width. Although, initially, at the hearing there was some uncertainty as to whether that position was maintained, in the course of the hearing it became clear that what was proposed, and sought, and consented to, was a 3 metre wide easement, and the order that I will ultimately make will reflect that. Accordingly, compensation is to be assessed on that basis. 17 Mr Hutcheon determined that the total length of the easement was 188.5 metres, and based on a 3 metre easement this produces a total area of 562 square metres. In his initial report, he calculated the area of Mr Vartuli's land that was liable to be affected by a 1 in 100 year flood and the balance which he described as "flood-free"; he did not at that stage separately identify that area which was said to be liable to affectation only by a probable maximum flood. However, in a supplementary report he addressed that question, the result of which was that of the total easement area of 562 square metres, 165.5 square metres at the eastern end was in land that is entirely flood-free, 228.5 square metres in the centre was in land affected only by a probable maximum flood, and 188 square metres at the most was liable to be affected by a 1 in 100 year flood. 18 In respect of the 168 square metres of the easement in land that is affected by a 1 in 100 year flood, it is uncontentious that the appropriate figure is $125 a square metre, and the appropriate attribution of that to the creation of the easement is 50 percent, which produces a figure of $10,500. 19 As I have foreshadowed, Mr Carrapetta sought to depart from his original agreement that $225 a square metre was appropriate for the land affected only by a probable maximum flood. His initial concession that that figure was appropriate appeared to be founded on the view that land liable to be affected, even though only by a probable maximum flood, would attract some discount, albeit only a relatively slight one, in the mind of the potential purchaser. His departure from that view appears to have been provoked by the initial report of Mr Hutcheon, although it distinguished only flood-free land from land affected by a 1 in 100 year flood, and did not address the question of a probable maximum flood. Mr Carrapetta interpreted the surveyor's use of the terminology "flood-free" as meaning the whole of the land outside the 1 in 100 year flood zone as not liable to be affected by flood at all. It is plain that that was not what the surveyor was asserting and, in any event, such an assertion would not be within the surveyor's competence. What the surveyor initially did was merely to survey the 1 in 100 year flood level, ignoring the PMF level. 20 Mr Carrapetta's departure from his earlier opinion also seems to have been influenced by a conversation he said he had over the weekend before the hearing with an officer of the Council about flood affectation. In the circumstances of this case, where the parties' valuers had reached an agreed position which could then be put to the surveyor, I do not regard a conversation with a Council officer, not otherwise proved in evidence and emerging only in cross-examination, as being sufficient reason to justify a departure from a previously agreed position. 21 Moreover, the Liverpool Development Control Plan shows that, while significant development can be undertaken in land above the 1 percent line but within the PMF line, that land is still subject to restrictions which do not apply to land above the PMF line – thus in paragraph 9.3 of the Liverpool Development Control Plan 2008, land above the 1 percent line but within the extent of the probable maximum flood is described as low flood risk category as distinct from no flood risk. The table which forms part of chapter 9 shows that while many, indeed, most land uses are permissible in a low flood risk area, there are some (described as critical uses and facilities) which are not permissible in that area at all, and others (described as sensitive uses and facilities) which are subject to significant constraints or limitations. Sensitive uses and facilities include educational establishments, schools, hazardous or offensive industry or storage establishments, liquid fuel depots, seniors housing, telecommunications facilities and group homes. Critical facilities include community facilities, hospital and residential care facilities. Those limitations must have some impact on the value of land affected by a probable maximum flood and the circumstance that being appraised of DCP. 22 That Mr Carrapetta was able to agree that a discount from $275 to $225 per square metre was appropriate until his misinterpretation of the surveyor's report seems to me to further support a reason to adhere to that position now. 23 I therefore reject Mr Carrapetta's attempt to depart from his earlier view in this respect. It follows that the 228.5 square metres of the easement which lies between the 1 percent flood line and the PMF line, at $225 a square metre, and attributing 50 percent to the creation of the easement, produces a figure of $25,206.25. 24 That leaves the remaining 165 square metres of the easement in the flood-free land, in respect of which both valuers now agree that the starting point is a market value of $275 a square metre. The difference between them is whether 50 percent or 100 percent of that amount should be attributed to the impact of the easement. In my view, it cannot be right to attribute 100 percent to the creation of the easement in circumstances where there is not to be a transfer of the freehold. Although, undoubtedly, based on the highest and best use of the land, the utility of the strip in question to the proprietor of Mr Vartuli's land will be reduced, the land will not be totally lost to that proprietor: Mr Vartuli will retain the freehold and the ability to do anything on it not inconsistent with the easement. As he will not be deprived of the freehold, it cannot be right to attribute 100 percent of the market value of the strip to the creation of the easement. 25 On the other hand, I do not think it follows that, in respect of this strip, the same 50 percent factor that has been accepted in relation to other parts of the easement is necessarily appropriate. A question of judgment is involved, as to the relative impact of the creation of the easement on the utility and thus value of the land in question to the registered proprietor. At first, I was inclined to compare the residual value of the strip in the flood-free area to the residual value of the strip in the area affected by probable maximum flood. However, as the evidence has emerged, it has become clear that building works can take place in the PMF area, though not below the 1 percent flood line. That inclines me to the view that a better comparator is the residual value of the easement in the area below the 1 percent flood line, namely $125 per square metre. I also bear in mind Mr Carrapetta's evidence to the effect that, whereas driveways could be built or provision made for car parking in the area below the 1 percent line, the geographical configuration of the strip that would remain behind a building in the flood-free zone would impose further restrictions on its utility. 26 The residual value of the easement land in the 1 percent flood zone – being half of $125 ($62.50) per square metre – implies that 77 percent of the value of the easement in the flood-free zone would be lost by creation of the easement [($275 - $62.50) ÷ $275]. Substitution of the residual value of the easement land in the PMF zone (half of $225 = $112.50) would produce a result of 60 percent [($275 - $112.50) ÷ $275]. Bearing in mind the very confined shape and limitations of the strip, and its geographical shape, and bearing in mind also what I will say below about "blot on title", I have concluded that the appropriate allowance – on the basis that the strip behind the assumed building would be of slightly less utility to the proprietor of Mr Vartuli's land than the easement land in the 1 percent zone – is 80 percent. 27 Accordingly, the 165.5 square metres at $275 per metre produces a figure $44,512.50, and the 80 percent of that lost by creation of easement is $36,410. 28 As I have said, in a number of cases "blot on title" has been referred to as a head of compensation in this area, [see 117 York Street Pty Limited v Proprietors of Strata Plan 16123 (1998) 43 NSWLR 504; Mitchell v Boutagy; King v Carr-Gregg [2002] NSWSC 379; Swann v Spiropoulos [2006] NSWSC 860, [104]]. 29 Where the utility of land to the registered proprietor will be practically unaffected by the imposition of an easement – or indeed even enhanced – but the creation of an easement would mean that there was a recording on title which would not otherwise be there and which might present some, albeit slight, deterrent to a purchaser, I can see the basis for a separate head of compensation for a "blot on title". Such compensation would reflect the fact that a purchaser might be prepared to pay not quite so much for land affected by a registered easement as for land entirely unaffected, even though the easement creates no practical impediment to user of the servient land. 30 In the present case, however, the basis upon which I have assessed compensation is to provide full compensation to the registered proprietor of the servient land for the decreased utility and value of that land to the servient owner. I do not see how against that background there can be an occasion to award a further amount for the prospect that a purchaser might pay less, as the registered proprietor will be fully compensated for the reduced utility of the part of the land to him. Partly for that reason, and partly because I accept that the onus of proof in this type of case lies on the plaintiff, I have erred, if anything, in the defendant's favour in fixing the appropriate proportion of the eastern part of the easement at 80 percent. 31 Mr Vartuli also advanced a claim for compensation in respect of what was called "the remainder land", being a strip 8.4 metres long and 3 metres wide at the eastern extremity of his southern boundary; which is unaffected by the easement in the sense the easement does not run through it, but which represents the 3 metre wide strip between the commencement of the easement and the eastern boundary. It seems to be suggested that a developer of Mr Vartuli's land would not be able to develop that area. In my view, no witness has said as much. It is not apparent why that area would not be able to be developed or a concrete slab built on it; and at least until Friday of last week no valuer appeared to suggest that allowance should be made in respect of it. I do not allow any claim in respect of the remainder land. 32 Also at the heel of the hunt, a claim was made for compensation in respect of the "creek land", being a tributary of Cabramatta Creek into which the drainage easement will discharge to convey water across Mr Vartuli's land to Cabramatta Creek. This is an existing tributary of Cabramatta Creek through which storm water already flows. There is no evidence that the creation of the easement will in that respect have any additional impact on Mr Vartuli's land. I do not allow any claim in respect of the creek land. Conclusion 33 I allow compensation: · In respect of the part of the easement in the 1 in 100 year flood zone, which is 562 square metres at 50 percent of $125 per square metre, the sum of $10,500; · In respect of the part above the 1 in 100 year flood zone but within the PMF zone, which is 238.5 square metres at 50 percent of $225 per square metre, the sum of $25,206.25; · In respect of the flood free zone, which is 165.5 square metres at 80% of $275 per metre, the sum of $36,410. 34 The total compensation is therefore $72,116.26. As tempting as it is to round that, lest any offers have been made, I think the appropriate course is to make an order in the precise amount so calculated. 35 Upon the bringing in of short minutes accompanied by a plan in registrable form I will make orders to the following effect: 1. Order that the order made on 28 November 2008 in terms of paragraph 1 of the short minutes of order of that date granting an easement be set aside; 2. In lieu thereof, Order pursuant to Conveyancing Act, s 88K(1), imposing over the defendant's land comprised in lot 27, deposited plan XX59, an easement to drain water 3 metres wide in terms of Conveyancing Act Schedule 4A, Part 3, appurtenant to the land comprised in folio identifier 2/XXX915 and burdening the land folio identifier 27/XX59, with the person having the right to release, vary or modify the same being the registered proprietor for the time being of the land in folio 2/XXX915, and being located as depicted on the plan attached to these orders and marked A, as "Easement to drain water 3 wide". 3. Order, pursuant to s 88K(4), that the plaintiff pay the defendant compensation assessed in the sum of $72,116.25. 36 Ordinarily, the plaintiff would pay the defendant's costs, but lest there be any argument to the contrary, I will offer the parties an opportunity to be heard. 37 There being no contrary submission, I will also make an order that the plaintiff pay the defendant's costs. 38 I adjourn the proceedings for short minutes to 23 March 2009 at 9.45am. 39 I reserve liberty to the parties to apply in chambers by arrangement with my Associate in the meantime. ********** 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. 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