Land and Environment Court New South Wales Medium Neutral Citation: Monti v Roads and Maritime Services (No 4) [2019] NSWLEC 11 Hearing dates: 17, 19, 23, 29, 30, 31 October, 2, 6 and 19 November 2018 Date of orders: 13 February 2019 Decision date: 13 February 2019 Jurisdiction: Class 3 Before: Pepper J Decision: See orders at [166]. Catchwords: COMPULSORY ACQUISITION: resumption of quarry land – market value of land and disturbance agreed – determination of market value of the quarry business – use of discounted cash flow model to calculate the value of quarry business – whether loss of profits claimable as disturbance – claim for special value rejected. Legislation Cited: Land Acquisition (Just Terms Compensation) Act 1991, ss 54(1), s 55, 56, 57, 59, 66 Ballina Local Environmental Plan 2012 Cases Cited: Arkaba Holdings Ltd v Commissioner of Highways [1970] SASR 94 Barkat v Roads and Maritime Services [2018] NSWLEC 209 Boland v Yates Corporation Pty Ltd [1999] HCA 64; (1999) 167 ALR 575 Carlewie Pty Ltd v Roads and Maritime Services [2018] NSWCA 181 Dangerfield v Town of St Peters [1972] HCA 15; (1972) 129 CLR 586 Denshire v Roads and Maritime Services [2017] NSWLEC 181; (2017) 229 LGERA 118 George D Angus Pty Ltd v Health Administration Corporation [2013] NSWLEC 212; (2013) 205 LGERA 357 Health Administration Corporation v George D Angus Pty Ltd [2014] NSWCA 352; (2014) 88 NSWLR 752 Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547 Housing Commission of New South Wales v San Sebastian Pty Ltd [1978] HCA 28; (1978) 140 CLR 196 Melino v Roads and Maritime Services [2018] NSWCA 251 Mir Bros v Roads and Traffic Authority [2006] NSWCA 314 Moloney v Roads and Maritime Services [2018] NSWCA 252 Pastoral Finance Association Ltd v Minister [1914] AC 1083 Roads and Maritime Services v Allandale Blue Metal Pty Ltd [2016] NSWCA 7; (2016) 212 LGERA 307 SNS Pty Limited v Roads and Maritime Service [2018] NSWLEC 7; (2018) 232 LGERA 224 St John Ambulance Association of Western Australia Inc v East Perth Development Authority [2001] WASC 85; (2001) 114 LGERA 112 Sydney Water Corporation v Caruso [2009] NSWCA 391; (2009) 170 LGERA 298 Willoughby City Council v Roads and Maritime Services [2014] NSWLEC 6; (2014) 201 LGERA 177 Category: Principal judgment Parties: Allan Keith Monti (First Applicant) Phillip Daniel Monti (Second Applicant) Christopher John Monti (Third Applicant) Road and Maritime Services (Respondent) Representation: Counsel: Mr I Hemmings SC with Ms A Pearman (First to Third Applicants) Dr S Pritchard SC with Mr L Waterson (Respondent) Solicitors: Stacks Law Firm (First to Third Applicants) Clayton Utz (Respondent) File Number(s): 2017/62470 Publication restriction: N/A Judgment The Montis Claim Compensation for Market Value, Disturbance and Special Value in Respect of Compulsorily Acquired Land 1. On 1 April 2016, the Roads and Maritime Services ("RMS"), compulsorily acquired part of the land of Mr Allan Monti, Mr Phillip Monti and Mr Christopher Monti ("the Montis"), comprising six contiguous allotments at 103 Montis Road, Bagotville New South Wales ("the parent parcel"). 2. The acquired land is Lot 7 in Deposited Plan 1211069, being part of the land within Certificate of Title 3/1192234, and Lots 8 and 10 in Deposited Plan 1211069, being parts of the land within Certificate of Title 2/1192234 ("the acquired land"), for works associated with the Pacific Highway, Woodburn to Ballina Upgrade. 3. The Montis objected to the amount of compensation offered by the RMS for the acquired land, namely, the sum of $1,187,000 for market value and $258,765 for disturbance (totalling $1,445,765). The Montis therefore brought these proceedings pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 ("Just Terms Act"). 4. In addition to minor claims for legal costs and valuation fees, the Montis claim compensation for the market value of the acquired land and disturbance for the anticipated permanent loss of profits suffered from their inability to conduct a quarrying business on the acquired land. During the course of the hearing the Montis amended their claim to include a claim for special value. 5. I gratefully acknowledge the assistance of Parker AC in this matter. Having said this, each finding made in this judgment represents my view, albeit formed with the benefit of the advice given by the learned Acting Commissioner (Carlewie Pty Ltd v Roads and Maritime Services [2018] NSWCA 181 at [24]). The Just Terms Act 1. The amount of compensation to which the Montis are entitled is determined pursuant to Div 4, Pt 3 of the Just Terms Act. Section 54(1) of that Act provides as follows: 54 Entitlement to just compensation (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land. 1. The matters that are to be taken into account in determining compensation are exhaustively set out in s 55: 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (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) the disadvantage resulting from relocation, (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. 1. Section 56 is in the following relevant terms: 56 Market value (1) In this Act: market value of land at any time means 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, disregarding (for the purpose of determining the amount that would have been paid): (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. 1. The term "special value" referred to in s 55(b) of the Just Terms Act is defined in s 57 of the Act to mean: special value of land means the financial value of any advantage, in addition to market value, to the person entitled to compensation which is incidental to the person's use of the land. 1. Disturbance is provided for in s 59(1) of the Just Terms Act: 59 Loss attributable to disturbance (1) In this Act: loss attributable to disturbance of land means any of the following: (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, (b) valuation fees of a qualified valuer reasonably incurred by those persons in connection with the compulsory acquisition of the land (but not fees calculated by reference to the value, as assessed by the valuer, of the land), (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs); (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired), (e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage), (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition. The Montis' Claim for Compensation 1. Compared to their amended points of claim dated 14 September 2018, the Montis' claim for compensation under the Just Terms Act was amended significantly during the course of the hearing. Ultimately, their claim was quantified as follows: COMPENSATION AMOUNT main residence $169,400 northern land $135,000 s 55(a) and (f) quarry land $2,251,364 s 59(1)(a) and (b) $125,000 s 59(1)(f) $183,699 s 55(b) $329,732 TOTAL $3,194,195 1. As agreed to during the course of the hearing, the principal issues for the Court's determination were: 1. the market value of the land, in particular, the value of the quarry business acquired as part of the resumption (s 55(a) of the Just Terms Act); 2. the injurious affectation on the balance of the quarry as a consequence of carrying out the public purpose (s 55(f) of the Act); and 3. the quantum, if any, of the claim for special value (s 55(b) of the Act). Part of a Quarry is Acquired 1. At the Court's request, a statement of agreed facts was provided to the Court that set out many of the underlying facts central to the Montis' claim for compensation. 2. The parent parcel comprises of: Location Area Lot 2 DP 1192234 45.90 ha Lot 3 DP 1192234 0.636 ha Lot 1 DP 127944 0.445 ha Lot 36 DP 755691 20.23 ha Lot 202 DP 755691 16.19 ha Lot 104 DP 1137975 13.97 ha TOTAL 97.371 ha 1. The parent parcel's boundaries are outlined in the aerial map below: 1. The parent parcel is located within the Ballina Shire Council ("the Council") local government area. At the acquisition date, the parent parcel was located approximately four kilometres west of the then existing Pacific Highway. The parent parcel is approximately five kilometres south west of the village of Wardell. Wardell is a small rural village approximately 16 kilometres south of the coastal resort town of Ballina. 2. On the acquisition date, by acquisition notice published in the Government Gazette in accordance with the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act"), the RMS resumed the acquired land as specified in the table below: Location Area Lot 8 in Deposited Plan 1211069 (formerly part of Lot 2 DP 1192234) 7.938 ha Lot 10 in Deposited Plan 1211069 (formerly part of Lot 2 DP 1192234) 0.467 ha Lot 7 in Deposited Plan 1211069 (formerly part of Lot 3 DP 1192234) 0.342 ha TOTAL 8.747 ha 1. Following the acquisition of the acquired land, the remainder of the parent parcel ("the residue land") comprised the allotments specified in the table below: Location Area Lot 1 in DP 1211069 (formerly part of Lot 2 DP 1192234) 32.41 ha Lot 2 in DP 1211069 (formerly part of Lot 2 DP 1192234) 5.085 ha Lot 6 in DP 1211069 (formerly part of Lot 3 DP 1192234) 0.294 ha Lot 1 in DP 127944 0.445 ha Lot 36 in DP 755691 20.23 ha Lot 202 in DP 755691 16.19 ha Lot 104 in DP 1137975 13.97 ha TOTAL 88.624 ha 1. The acquired land and the residue land are set out below: 1. The public purpose for which the acquired land was resumed, as those words are used in ss 55 and 56 of the Just Terms Act, was the construction and operation of a four-lane motorway standard highway (two lanes in each direction) approximately 155 kilometres in length between Woolgoolga and Ballina. 2. The parent parcel, acquired land, and residue land, are zoned RU2 Rural Landscape under the provisions of the Ballina Local Environmental Plan 2012. 3. A dwelling house and associated shed are erected on Lot 36 DP 755691, and electricity, tank water, telephone and septic services are connected to the dwelling. Both Lot 2 DP 1192234 and Lot 202 DP 755691 have the benefit of a dwelling entitlement. 4. As at the acquisition date, improvements on Lots 2 and 3 DP 1192234 included: 1. a pre-fabricated/transportable site shed/office and a rainwater storage tank adjacent to Montis' quarry; 2. access roads and headlands; 3. gravel pads; and 4. timber posts and barbed wire fencing. 1. As at the acquisition date, the parent parcel was used for two purposes: first, for sugar cane farming, residential and associated agricultural purposes (that is, rural lifestyle purposes); and second, as a working quarry located on the acquired land. The Montis Lodge Two Development Applications Prior to the Acquisition Date 1. On 5 May 2006 the Montis lodged development application DA 2006/718 ("DA1"). The Council granted consent to DA1 on 22 February 2007. 2. As at the acquisition date, the Montis were carrying out quarrying on the parent parcel pursuant to DA1. 3. The development consent authorises the operation of a shale quarry in two closely located resource areas on the parent parcel (resource area ("RA") 1 to the east and RA2 to the west) with maximum extraction rates of 50,000m3 per annum and an operating life of 20 years, or until 700,000m3 is extracted, whichever occurred first. 4. On 26 November 2014 the Montis lodged a further development application DA 2014/615 ("DA2") with the Council. DA2 sought development consent for the expansion of the shale quarry authorised under the consent granted for DA1 with maximum extraction rates of 100,000m3 per annum and an operating life of 25 years, or until 2.39 million m3 was extracted, whichever occurred first. 5. On 21 August 2015 the Joint Regional Planning Panel ("JRPP") refused DA2. 6. DA 2015/180 ("DA3") was lodged with the Council on 20 April 2015. DA3 sought development consent for the operation of a sand quarry with maximum extraction rates of 30,000m3 per annum and an operating life of 25 years, or until 400,000m3 was extracted, whichever occurred first. 7. The Montis withdrew DA3 on 3 September 2015. 8. The location of the acquired land and the approximate areas the subject of DA1, DA2 and DA3, and their limits of extraction, are indicated below: 1. Prior to the acquisition date, the areas were located within that part of the parent parcel comprising Lots 2 and 3 in DP1192234 ("the quarry land"). 2. Disregarding the carrying out of the public purpose, it was agreed that it was more likely than not (a 95% probability) that development consents would have been granted with respect to both DA2 and DA3 as at the acquisition date. 3. By the acquisition date, most of the materials located within the acquired land and authorised to be extracted under DA1 ("relevant materials") had been extracted by the Montis and the quarry was almost exhausted under DA1. Following the acquisition date, with the consent of RMS, the Montis have continued to extract the remaining relevant rock materials. 4. As at the acquisition date, the Montis had not commenced quarrying operations in RA2. Agreed Geology Matters 1. The quarry land is capable of producing a range of products including low quality material (such as engineered fill and bulk fill) and medium quality material including Select Material Zone ("SMZ") product and Densely Graded Base ("DGB") products that meet respective RMS specifications. 2. Significant volumes of SMZ product were supplied from the adjacent quarry ("Old Montis Quarry") to the recently completed Ballina bypass project, which was not part of the public purpose. 3. Nearby Gibsons Quarry is owned by RMS and is currently supplying significant volumes of rock material for the public purpose. 4. The quarry land is in the same geological unit (Neranleigh Fernvale Beds – NFB) as the adjacent Old Montis Quarry and Gibsons Quarry. NFB rock typically includes Argillite. Argillite can be used to make DGB and SMZ products. 5. No bulk sample testing of materials in the quarry land has been undertaken to confirm that medium quality products such as DGB can be produced. 6. In the absence of bulk sample testing there was some uncertainty (although the extent of that uncertainty was unknown) as to whether: 1. the quarry land could in fact be capable of producing the products referred to above and in what quantities; and 2. the material in the quarry land was of the same, or similar, nature to the material extracted from Old Montis Quarry or Gibsons Quarry. 1. In relation to sand, the parties adopted: 1. a starting volume of 400,000m3; 2. a sand density of 1.7; and 3. a sand wastage of 3% (as agreed by the geologists). Agreed Production Levels 1. It was not in dispute that the tonnage of materials processed and sold by the quarry over the period from financial years ("FY") 2012 to FY2017 was: 1. 19,299.10 tonnes in FY2012; 2. 22, 904.20 tonnes in FY2013; 3. 20,950.10 tonnes in FY2014; 4. 10,797 tonnes in the first half of FY2015; 5. 22,514 tonnes in FY2016; and 6. 32,523.50 in FY2017. Market Value of the Acquired Land Agreed Valuation Matters 1. There were two broad approaches to the valuation task. The first, carried out by the land valuers, was to determine the injurious effect of the proposal to carry out the public purpose on the land value. The second, by the business valuers, was to determine both the value of the quarry land and the injurious effect on the balance of the quarry. 2. By agreement it was not considered necessary for the Court to inspect the comparable sales that were relied upon by the valuers to determine compensation. 3. The approach to valuation to determine the amount of compensation to which the Montis are entitled under ss 55(a) and 55(f) of the Just Terms Act was by way of the 'before' and 'after' method. 4. The land valuers divided the land into three parts: 1. the main residence; 2. the quarry land; and 3. the north land. 1. As referred to above, in addition to the existing residence and the dwelling entitlements, the land was used by the Montis for cane farming and a quarry. 2. In the 'before' scenario, it was agreed by the land valuers that the market value of the parent parcel as at the acquisition date, if used for rural lifestyle purposes, was $1,760,000, comprising: 1. $625,000 for the quarry land; 2. $650,000 for the main residence land (Lot 36 DP 755691); and 3. $485,000 for the northern land (Lot 202 DP 755691, Lot 1 SP 127944 and Lot 104 DP 1137975). 1. These market values primarily had regard to the potential of each area to be used as a rural lifestyle lot with a dwelling entitlement, which could be used for a range of agricultural purposes, including the grazing of cattle and the growing of crops, including sugar cane, corn, beans, lucerne, or other cultivation typically found in the area. 2. In the 'before' scenario, the market value of the quarry land as at the acquisition date, if used as a quarry, was greater than the market value of the quarry land if used for rural lifestyle purposes. 3. In the 'after' scenario, the land valuers agreed that the value of the residue land as at the acquisition date was $1,220,600, comprising: 1. $390,000 for that part of the quarry land remaining on the residue land; and 2. $480,600 for the main residence land; and 3. $350,000 for the northern land. 1. The value of the residue quarry land on the acquisition date, if used as a quarry, was not greater than the value of the residue quarry land if used for rural lifestyle purposes. Agreed Business Valuation Matters 1. There was significant conformity between the business valuers (Mr Alan Robertson and Mr David Mullins for the Montis, and Mr Clayton Hill, Mr Darren Herdman and Dr Rodney Ferrier for the RMS). 2. First, they agreed that the correct approach to the assessment of compensation was by use of a discounted cash flow model ("DCF"). The DCF method assesses the quarry land value as equal to the net present value ("NPV") of the expected cash flows from the operation of a quarry on the quarry land. 3. Second, most of the inputs to the DCF calculation were agreed to prior to the hearing as a result of the joint conferencing process. During the hearing, agreement on one outstanding issue concerning the expected total volume of sand was reached as a result of a further joint conference between the parties' geological experts. This agreed position has been reflected in the DCF calculation. 4. Third, the experts agreed to use the 'before' and 'after' method of valuation. 5. Fourth, it was also agreed that in the 'after' scenario, the land value (as agreed by the land valuers) exceeded the quarry value (which was affected by the proposal to carry out the public purpose) as determined by the business valuers. As a result, the value in the 'after' scenario was agreed at $390,000. 6. Before discussing the business valuers' approach, it is appropriate to first consider the town planning framework. The Town Planning Framework 1. The land benefits from DA1 which authorises the following: 1. the extraction of 50,000m3 per annum; 2. with a life of 20 years; 3. to a maximum of 700,000m3; and 4. to a five metre reduced level ("RL"). 1. DA2 expanded DA1 by increasing the depth of extraction within the existing approved area of DA1. Relevantly, it approved the extraction of: 1. 100,000m3 per annum; 2. for 25 years; 3. to a maximum (combined with DA1) of 2,390,000m3; and 4. to a maximum depth of -15m RL. 1. Notwithstanding that DA2 was refused by the JRPP on 21 August 2015, it was an agreed position between the parties, informed by the town planners and applied by the business valuers, that the refusal was to be disregarded pursuant to s 56(1)(a) of the Just Terms Act. 2. Relevantly, and for the purposes of the DCF, the business valuers, relying upon the undisputed evidence of the town planners, applied a probability weighting of 95% to the granting of DA2. 3. DA3 authorised sand extraction: 1. of 30,000m3 per annum; 2. for 25 years; 3. to 400,000m3 maximum; and 4. to a depth of five metres. 1. Notwithstanding that the Montis withdrew the application for DA3, as the parties accepted, and as the town planners and business valuers agreed, the withdrawal of DA3 was to be disregarded under s 56(1)(a). Again, relying upon the town planning evidence, the business valuers applied a probability weighting of 95% to the grant of DA3. Remaining Issues for Determination 1. The following issues remained in dispute with respect to the Montis' claim for compensation: 1. first, the expected volume and price of hard rock products to be sold in the first year of operation following the acquisition date; 2. second, the Montis' claim for lost profits as a disturbance claim under s 55(d) of the Just Terms Act; and 3. third, the Montis' claim for the loss of income as a claim for special value pursuant to s 55(b) of the Just Terms Act. The Volume of Hard Rock Products 1. Of the rock products capable of being produced by the Montis, the Montis categorised the material into three different products depending on their quality: 1. DGB20, a high quality hard rock; 2. mid-range quality hard rock material; and 3. low-quality hard rock material. 1. Mr Herdman's position (for the RMS) was that 35,000 tonnes of hard rock products would be sold in the first year after acquisition, comprising of: 1. 7,000 tonnes of DGB20 products; and 2. 28,000 tonnes of other hard rock products, with no further mid-range and low-quality split. 1. In reaching this conclusion he principally had regard to: 1. the actual hard rock production levels prior to the date of acquisition (which were agreed to be approximately 20,000 tonnes per annum on average); 2. the fact that no DGB20 product had been sold prior to the date of acquisition; and 3. uncertainty as to whether the remaining resource was of sufficient quality to produce DGB20 products, particularly given the lack of bulk sample testing. 1. By contrast, Mr Robertson's (on behalf of the Montis) position was that 55,000 tonnes of hard rock products would be sold in the first year after acquisition, comprising of: 1. 20,000 tonnes of DGB products (consisting of 11,000 tonnes of DGB20 and 9,000 tonnes of mid-range product); and 2. 35,000 tonnes of other hard rock products. 1. In reaching this conclusion he principally took into account: 1. the actual hard rock production level for the financial year following the date of the acquisition (agreed to be approximately 32,500 tonnes); 2. apparent requests from existing and potential customers; 3. his view as to the likely high quality of the resource; and 4. his analysis of the likely demand and supply in the market. The Evidence of Mr Herdman is Preferred as to the Volume of Hard Rock Products 1. Commencing with the DGB20 material, it is accepted, relying on the evidence of Mr Herdman, that the Montis' quarry was capable of producing DGB20. The issue, however, was whether this material would be produced and sold. That is, was there a market into which a hypothetical purchaser could sell 7,000 or 11,000 tonnes of this product at the nominated price (agreed by the experts to be $25 per tonne. See the discussion below). 2. While it is correct that Mr Herdman accepted that his analysis of the market was not sufficiently "sophisticated…to say that the 11,000 as opposed to the 7,000 was correct" (T258.34), the Court nevertheless prefers the evidence of Mr Herdman to Mr Robertson. It does so for the reasons explained below. 3. First, Mr Robertson relied on the amount of 32,500 tonnes produced in FY2017 to support his contended volumes of hard rock production (both DGB20 and other). It was for this reason that he used 35,000 tonnes as his starting point. 4. But given that the amount of material actually produced in FY2017 was post the acquisition date of 1 April 2016, it would not have been in the contemplation of the hypothetical purchaser. The volume has been used by him to impermissibly confirm a foresight and not, as was argued by the Montis, to establish a hindsight (Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547 and SNS Pty Limited v Roads and Maritime Services [2018] NSWLEC 7; (2018) 232 LGERA 224 at [184]). So much so was accepted by Mr Robertson during cross-examination (T181.26-182.33). 5. Second, the rock products were extracted and sold by the Montis following the acquisition pursuant to an agreement with the RMS whereby the Montis could remain on the land and continue to extract and sell material (T120.29-120.49). This agreement was, as the RMS correctly submitted, an aspect of carrying out the public purpose, and therefore, any increase in the market value of the quarry land arising as a result of higher production levels achieved during this period ought to be disregarded (s 56(1)(a) of the Just Terms Act). 6. The extent to which Mr Robertson properly disregarded the public purpose was unclear (Housing Commission of New South Wales v San Sebastian Pty Ltd [1978] HCA 28; (1978) 140 CLR 196 at 206-207 and see the recent discussion of the statutory disregard in Barkat v Roads and Maritime Services [2018] NSWLEC 209 at [174]-[188]). As elicited during cross-examination, his report prepared for the Montis in 2017 on the value of the quarry and the resources lost due to the acquisition was, in part, "a cut and paste job" (T137.38) of an earlier 2015 report. In both documents Mr Robertson's estimate of hard rock production in the first year following acquisition was 71,400 tonnes. Mr Robertson received no instructions to disregard the impact of the public purpose when preparing his 2015 report. 7. On balance, I do not accept that Mr Robertson, despite the Montis' (and his) assertions to the contrary, correctly applied the statutory disregard mandated by s 56(1)(a) of the Just Terms Act in calculating the amount of hard rock product sold in the first year post acquisition. While there was no obligation to disregard the sale of hard rock products to the RMS generally, there was, as was correctly put by the Montis in their oral submissions (T446.21-446.25), a requirement to disregard the sale of products to the RMS "for the carrying out of this public purpose, being the 155 kilometres of road of this job". It does not appear that this was properly carried out by Mr Robertson. Mr Robertson accepted, for example, that the class of prospective purchasers of the quarry within his contemplation included contractors supplying material for the public purpose (T187.46-188.09). 8. The Montis sought to level the same criticism against Mr Herdman, namely, that his evidence was also inconsistent with the statutory disregard insofar as he had ignored the agreed fact that consent for DA2 would be granted and that he did not take this into account in his estimate of 35,000 tonnes of rock product based on an average of the previous actual production achieved prior to the date of acquisition. However, given that his estimated tonnage reflected an increase in non-DGB20 production levels to 28,000 tonnes, and that he made an allowance of 7000 tonnes of DGB20 product reflecting the granting of DA2, this criticism is, in my view, difficult to sustain. 9. In any event, the evidence did not disclose that DGB20 production could only occur under DA2. DGB20, as both Mr Robertson and Mr Herdman agreed in their joint expert report dated 15 March 2018, was (any uncertainty notwithstanding) capable of being produced under DA1. Although no DGB20 rock had been produced as at the date of acquisition, a similar product had been recovered. As Mr Robertson stated, the Montis' quarry had the capacity of producing DGB20 and that historical production figures would have included demand for DGB20 products (T220.21-221.05). 10. And, but for the acquisition, production under DA2 would not have commenced until 1 January 2016, that is, shortly prior to acquisition. Three months is insufficient to establish a "proven track record" of DGB20 production. It was, however, sufficient to demonstrate that the rock could be produced (T231.21). On this basis, it is unlikely that significant amounts of extracted DGB20 product would have been included in the historical production records prior to the acquisition date. 11. The Montis also submitted that Mr Herdman had impermissibly worked "backwards" from a total tonnage of 35,000 of hard rock material and simply applied a percentage split (20%) to arrive at 7,000 tonnes of DGB20 products and 28,000 tonnes of other hard rock products (relying on his reasoning contained in the joint expert reports dated 2 and 15 March 2018). But the evidence discloses that Mr Herdman utilised this approach to rebut the volumes arrived at by Mr Robertson, who used a similar percentage split methodology to justify his estimated tonnage of hard rock products, including DGB20 (see "Attachment E: Marketing Analysis to Justify the Production Figures Used by A Robertson in the Montis' Before Case 1", attached to the joint expert report dated 2 March 2018). 12. Third, the FY2017 production levels represented a substantial increase in the average production levels compared to those achieved in the preceding period (an increase of approximately 43%, due in part to demand from the RMS as a result of the public purpose). As a consequence, in my opinion, the prudent hypothetical purchaser would not place as much reliance upon the FY2017 level as the Montis did. 13. Support for this conclusion may be found in Mr Mullins' report dated 28 September 2017, where he noted the "uncertainties associated with future tonnage, and in particular whether FY2017 was a 'one-off'". It was for this reason that he initially suggested (although later resiled from) reliance on an average tonnage achieved. This prudent approach is in contrast to Mr Robertson's adoption of the FY2017 amount. 14. Fourth, both Mr Robertson and Mr Herdman agreed in their joint experts report dated 2 March 2018, that "further testing of the hard rock resource is required in order to accurately predict what hard rock products the resource is capable of producing and at what percentage splits". In that report, both experts agreed that "as hard rock annual production splits cannot be accurately predicted in this instance, annual tonnage should be based on a total annual tonnage figure for all hard rock products and an annual production figure for DGB20 products". 15. However, no testing or analysis, including bulk sample testing, was undertaken in order to predict with any certainty what hard rock the quarry was capable of producing. That it could have easily been carried out by prospective purchasers is of limited weight. That it was not obtained would arguably be a matter of concern and would increase any uncertainty associated with the production of DGB20 (see generally T200-204). In my opinion, the absence of any such results more than justifies the caution inherent in Mr Herdman's estimate of 7,000 tonnes of DGB20 and I accept his position that a hypothetical purchaser would proceed on the basis of lower, rather than higher, expected returns of DGB20 rock. This was supported by the fact that Mr Robertson advised the Montis to undertake bulk sample testing which was not, unlike similar tests carried out in relation to the sand resource, carried out by them (T201.50-202.30). 16. Fifth, Mr Robertson stated that he relied on customer requests and other business records and plans of the Montis to support his contended tonnages. This reliance was demonstrated to be, however, misplaced. There were no business plans as claimed by Mr Robertson, no financial forecasts, no budgets and no estimates of market share (T70.05-70.32). Likewise, there was no cogent evidence of any customer requests for hard rock products prior to the date of acquisition. Mr Phillip Monti confirmed this during cross-examination. He did not keep records of any customer requests and was not aware of any such written records (T70.34-72.28). The request from FEDC referred to in Mr Phillip Monti's affidavit affirmed 15 August 2017 ("the first Monti affidavit") to supply "a large quantity of 'armour rock' to be used for river bank stabilisation", presumably under DA2, was made after the acquisition date and ought not be taken into account. Although in his affidavit sworn 18 October 2018 ("the second Monti affidavit") Mr Phillip Monti made reference to "a number of enquiries from new customers for large tonnages, including one enquiry for 80,000 tonnes for bulk fill for a subdivision at Evans Head" and "continuing strong demand for our quarry products and we are anticipating continuation of that strong demand", in cross-examination it was revealed that in fact he knew nothing about these "enquiries", there was no documentary proof of them (T76.32-77.39), and that the enquiry for 80,000 tonnes not only occurred after the acquisition date, but was in excess of any order that the Montis had previously filled. 17. Sixth, Mr Robertson justified his estimated tonnages by reference to DA2 and DA3 and the likely increase by the Montis in the quantity and quality of rock product as a consequence of the almost certain grant of these approvals. However, as the RMS submitted, with which I agree, the grant of DA2 and DA3 was not a guarantee of financial viability. For example, the JRPP expressed doubt as to whether or not the Montis' operation needed to be expanded because the other quarries in the region could service future demand. In its report recommending that DA2 be refused, it acknowledged that the region "contains many of the fastest growing urban areas in NSW and the demand for extractive materials will increase with continued population growth" but went on to observe that (p 27): Notwithstanding this, there are a number of approved quarries in the Ballina Shire (not within the W2B Highway upgrade corridor) that can service this demand for extractive materials, inclusive of that required for the W2B project. 1. Seventh, with respect to the market demand for the hard rock products capable of being and actually produced by the Montis' quarry, Mr Herdman and Mr Robertson agreed that (ignoring the public purpose) the 'before' case quarry sales volume assumed by a prospective purchaser as at the acquisition date were as follows (see the table at paragraph 4.4 of their joint expert report dated 15 March 2018): Quarry Operator Volume (tpa) Montis Quarry Monti 30,000 Montis Pit Quarry Solutions Pty Ltd 10,000 Eatons Quarry Quarry Solutions Pty Ltd 0 Gittoes Quarry Quarry Solutions Pty Ltd 70,000 Westbridge Lane Dojoo Pty Ltd 0 Teven Quarry Holcim 350,000 Teven Quarry Boral 200,000 Tuckombil Quarry Ballina Shire Council 0 Stokers Quarry Lismore City Council 0 Blakebrook Quarry Lismore City Council 200,000 Clovass Quarry Holmes Extractive Resources 200,000 Woodview Quarry RVC 30,000 Mullers Pit Jeffery Latham 0 Newmans 20,000 (Robinsons Quarry) Wilcock's Quarry Lewis Quarry 30,000 Three Chain Road Quarry Lismore City Council 0 Santin Quarry Mick Santin 20,000 Gibsons Quarry RMS 0 Jali Quarry RMS 0 1. But it is also the case that Mr Herdman agreed that in order to know whether or not the volume of sales in the table at paragraph 4.4 referred to above was a true surrogate of demand (T244.24-245.15), it was necessary to know what proportion of product each quarry was selling (high, medium or low quality hard rock) (T247.29) and that based on population data, either the use of that table as a surrogate for demand, or the figure of 7000 tonnes of DGB20 per capita adopted by him, was wrong (T249.29). 2. Notwithstanding these concessions, in my view, the table at paragraph 4.4 of the experts' joint report does not, as the Montis submitted, indicate that there is an undersupply of the market for hard rock products warranting the adoption of Mr Robertson's estimated volume of 11,000 tonnes of DGB20 material. To accept this would be inconsistent with Mr Robertson's oral evidence to the effect that based on the actual production in the region of the Montis' quarry in 2016, there was in fact an excess of market supply over demand for most of the competing quarries as at the date of acquisition on a per capita basis, and that he has been wrong to conclude to the contrary (T240 and 243.15-243.29). Mr Robertson therefore agreed that "the prudent purchaser would therefore take a cautious approach to the prediction of first year volumes" (T243.34). 3. For these reasons, Mr Robertson's contended volumes of hard rock production are to be eschewed in favour of Mr Herdman's estimates, the latter of which represent a more realistic and reasonable calculation having regard to the historical performance of the quarry and the likely future market capacity under DA2. 4. To the extent that the Montis criticised Mr Herdman's approach as "opaque", this may be rejected. As discussed above, Mr Herdman was not, as contended, "working backwards". Rather he adopted a prudent approach based on the historical production records for the quarry, the lack of documented customer requests for product, the absence of bulk sampling and product testing, and an absence of shortfall in supply to meet expected market demand. 5. This is therefore not, as the Montis submitted, a "clear" example of when the Court would apply the general principle of resolving doubts in favour of a more liberal estimate as espoused in Sydney Water Corporation v Caruso [2009] NSWCA 391; (2009) 170 LGERA 298 (at [3] per Allsop P). Price of the Hard Rock Products 1. As was plainly stated in their joint expert report dated 2 March 2018, Mr Robertson and Mr Herdman "did not agree as to the selling price of [all of] the DGB products" (under "Price of products" at paragraph 5.3), this was so notwithstanding that earlier in the report the experts had agreed that "further testing of the hard rock resource is required in order to accurately predict what hard rock products the resource is capable of producing and at what percentage splits" (under "Market demand and quarry sales" at paragraph 4.8 i)). And because (at paragraph 4.8 iii)): …as hard rock annual production splits cannot be accurately predicted in this instance, annual tonnage should be based on total tonnage for all Hard Rock products and an annual production figure for DGB 20 products, with no percentage splits for any other grades of material. This would apply to both the Before and After Case scenarios. 1. Mr Herdman's pricing was based on $25 per tonne for DGB20 products (agreed to by Mr Robertson) and $12.88 per tonne for other lower quality products (also agreed to by Mr Robertson). However, unlike Mr Robertson, Mr Herdman did not consider any further product or price splits to be appropriate because of an absence of testing and other historical information concerning the quantity and type of hard rock extracted from the quarry (see paragraph 5.7). 2. The RMS therefore argued that the agreement for limited product splits reflected the uncertainty regarding the quality of the resource arising from the absence of adequate bulk fill testing and that this would "drive the purchaser's attitude to the split of particular products and their prices." 3. Mr Robertson, on the other hand, introduced a further product split called "other DGB type materials" (mid-range material) which he priced at $18 per tonne. This gave rise to his blended rate of $21.85 per tonne for all three products. In his opinion, resource drilling and logging and petrographic testing of the argillite rock in DA2 indicated that it was likely to produce "higher quality quarry products than the resource in DA1" (paragraph 5.6). 4. Given that it was accepted by both Mr Herdman and Mr Robertson that: 1. the Montis' quarry was capable of producing the three different types of hard rock products (DGB20, mid-range and low quality) (T261.19); 2. $18 per tonne was not incorrect (T261.21-261.24. That is, Mr Herdman, while not agreeing with the rate, accepted that it was not "wrong"); and 3. the mid-range product was more valuable than the low quality material but less valuable than the DGB20 (T260.35-260.44), it is both logical and reasonable to find that a hypothetical purchaser would attempt to maximise profits by selling as much DGB20 as it could, then proceed to sell the mid-range material, and then ultimately the lower quality product. 1. In other words, it should be accepted that the highest and best use of the land would include the sale of mid-range hard rock product. I make this finding notwithstanding the uncertainty referred to earlier in this judgment occasioned by inadequate hard rock product testing across all three product splits. My conclusion in this regard is reinforced by the agreed fact that the Montis' quarry was in the same geological unit as the adjacent Old Montis Quarry and Gibsons Quarry, both of which either contained, or produced, the same or similar material. 2. Mr Robertson's blended rate of $21.85 per tonne cannot, however, be applied to the tonnages of hard rock products earlier found by the Court based on its preference for Mr Herdman's evidence as to volume. This is because the rate excludes the agreed amount of $12.88 per tonne for the low quality rock products. That is to say, Mr Robertson's weighted average includes only the price for the DGB20 and mid-range rock products calculated by reference to his estimated volumes for those products. 3. Moreover, because Mr Herdman does not further split the non-DGB20 hard rock products (28,000 tonnes) into mid and low range material (for the reasons discussed above), the different prices referred to above for the three different types of hard rock material cannot be applied to his estimated volumes. 4. Because a weighted average cannot be calculated on the available evidence using Mr Herdman's estimated volume of non-DGB20 rock product, doing the best that it can, the Court has adopted a non-weighted average of the prices for the mid and low quality hard rock products, resulting in an average price per tonne of $15.44. In doing so, the Court accepts the inherent assumption that an equal proportion of each type of hard rock (that is, mid and low quality) is capable of being produced in the Montis' quarry. 5. Applying a price of $15.44 per tonne to the remaining 28,000 tonnes of hard rock capable of being produced by the Montis' quarry comes to $432,320. In my opinion, this figure is an amount that would be likely to be accepted by the hypothetical parties having regard to all of the available evidence. 6. Applying a price of $25 per tonne to the 7,000 tonnes of DGB20 capable of being produced comes to $175,000. 7. Accordingly, the total value of the hard rock products is $607,320. Summary of Market Value of the Acquired Land in the 'Before' Scenario 1. Because the other elements of the DCF calculation for the quarry value were agreed, applying the tonnages and prices as determined above (7,000 tonnes of DGB20 rock at $25.00 per tonne and 28,000 tonnes of non-DBG20 rock at $15.44 per tonne), the value of the acquired land as a quarry in the 'before' scenario applying the agreed DCF model is $1,968,981 (the probability adjusted common estimate of the value of the land used for quarrying). 2. The market value of the acquired land under s 55(a) of the Just Terms Act in the 'before' scenario is therefore $3,103,981, comprising: RESIDUE LAND BEFORE main residence $650,000 northern land $485,000 quarry land $1,968,981 TOTAL $3,103,981 Value of the Injurious Affectation 1. The other elements of the 'before' and 'after' method of valuation were agreed, including the values in each scenario of the residue land owned by the Montis affected by the public purpose, the highest and best use of which is for rural lifestyle purposes. 2. As agreed by the land valuers, the value of the land in the 'after' scenario, having regard to the injurious affectation on the land in carrying out the public purpose, was $539,400, comprised of: RESIDUE LAND BEFORE AFTER VALUE main residence $650,000 $480,600 $169,400 northern land $485,000 $350,000 $135,000 quarry land $625,000 $390,000 $235,000 TOTAL $1,760,000 $1,220,600 $539,400 1. There is, however, as submitted by RMS, an inconsistency in the Montis' claim for compensation insofar as they seek the difference between the quarry value of the land in the 'before' scenario and the value of the quarry in the 'after' scenario, as well as the difference in the market values of the whole of the parent parcel and the residue land when used for lifestyle purposes. 2. The Montis cannot claim that the highest and best use of the land in the 'before' scenario is its use as quarry and thus not for rural lifestyle purposes, and obtain the benefit of its higher market value as a quarry, while also claiming an amount which is based on the highest and best use of the entire parent parcel, including the quarry land, namely, rural lifestyle purposes (and not as a quarry). 3. Rather, the Montis should be compensated for any reduction in the value of the residue land under s 55(f) of the Just Terms Act. This is because compensation for market value of the land (including the quarry land) in the 'after' scenario has been assessed on the basis of its use for rural lifestyle purposes and this (agreed) amount takes into account the effect of the public purpose. Summary of Compensation Under ss 55(a) and (f) of the Just Terms Act 1. Therefore the total amount of compensation to which the Montis are entitled having regard to ss 55(a) and (f) of the Just Terms Act, is $1,883,381 calculated as follows: * in the 'before' scenario a value of $3,103,981, comprising: (a) $1,968,981 for the quarry land in the before scenario (as a quarry); and (b) $1,135,000 for the residue land (the main residence and the northern land) (as rural lifestyle); and * in the 'after' scenario, a land value of $1,220,600, comprising: (a) $390,000 for the quarry land (as rural lifestyle); and (b) $830,600 for the residue land (the main residence and the northern land) Loss Attributable to Disturbance Under ss 55(d) and 59(1)(f) of the Just Terms Act 1. The Montis' claim for loss of profits as an aspect of their claim for loss attributable to disturbance under s 55(d) (as further defined in s 59(1)(f) of the Just Terms Act) was substantially amended during the course of the hearing. 2. An alternative method of calculating disturbance encompassing lost profits was also formulated, adopted and then abandoned by them during the trial. 3. The fundamental error in the Montis' approach to their claim for lost profits was that it overlapped with the amount being claimed under ss 55(a) and (f) of the Just Terms Act, and therefore, amounted to impermissible double-counting upon the proper construction of the Act. 4. Such an approach was recently rejected by the Court of Appeal in Moloney v Roads and Maritime Services [2018] NSWCA 252 (handed down during the course of the hearing), where Payne JA stated (at [98]-[100], with whom Beazley P and Basten JA agreed, at [1] and [17], respectively): 98 I reject the appellants' contention that whatever be the content of a claim made and addressed under ss 55(a), (b) and (f), the Court must separately determine entitlement to compensation for disturbance under s 55(d) as reflected by s 59(f) of the Just Terms Act, without regard to the fact that the same amount, in whole or in part, has already been the subject of a claim for compensation under s 55(a), (b) or (f) of the Just Terms Act. This approach is inconsistent with the overlapping nature of the heads of compensation in s 55 and with prior authority in this Court, including McDonald which was otherwise heavily relied upon by the appellants. 99 The loss of profits claim illustrates the potentially overlapping nature of the heads of compensation in ss 55(a), (b) and (f) of the Just Terms Act and s 55(d) as reflected by s 59(f) of the Just Terms Act. The finding of the primary judge that "the right to potential profits from growing sugarcane after the date of the acquisition is encapsulated in the market value of the land" was plainly correct. The market value of the acquired land included the capacity of that land to generate a profit in the future, whether by growing sugar cane or doing anything else. 100 It is not a gloss on the legislation to recognise the overlapping nature of the heads of compensation in s 55. Section s 55 requires that "regard must be had" to the identified matters, without specifying how they should be understood to interrelate. When compensation has been obtained, in full, for losses occasioned by the acquisition in the claim for market value under s 55(a), (b) or (f) of the Just Terms Act, a separate claim for the same amount as disturbance under s 55(d) is not maintainable. 1. Pursuant to the reasoning in Moloney, it is now unarguable that the Just Terms Act does not permit a claim for disturbance under s 59(1)(f) for the loss of profits or income from the carrying on an activity on the acquired land where the capacity of the land to derive that income or profits is included in the assessment of the market value of that land. 2. As a consequence, the Montis' claim for loss of profits, which comprised a significant proportion of their claim for compensation, cannot succeed. In short, Moloney was entirely dispositive of this aspect of their compensation claim. The claim was not, however, formally abandoned by the Montis presumably in order to preserve whatever appeal rights they may have. 3. Nevertheless, as a result of the concession, and the binding nature of Moloney, it is not necessary to deal with this issue further. 4. The claim for the construction for a new shed for the protection of the Montis' quarry machinery was, correctly, in my view, abandoned by them during the course of the hearing. 5. The Montis' claim for expenditure for the construction of roads, headland, cane drains and backfill in the amount of $183,699 was agreed to by the RMS. 6. Further claims for disturbance with respect to legal costs, valuation fees, stamp duty costs and other financial costs under s 59(1)(a)-(e) of the Just Terms Act were agreed to by the parties in the sum of $125,000. The Montis Are Not Entitled to Compensation for Special Value Pursuant to s 55(b) of the Just Terms Act 1. After conceding the "devastating" effect of the decision in Moloney (T362.22), the Montis amended their claim to include a claim for special value under s 55(b) of the Just Terms Act in the amount of $510,473 (see the Montis' Second Further Amended Points of Claim filed on 19 November 2018). Although, confusingly, this amount does not conform with the evidence of Mr Mullins who calculated the claim in the amount of $329,732 (see below). 2. The claim arose out of the reasoning in the decision of Melino v Roads and Maritime Services [2018] NSWCA 251, which was handed down at the same time as Moloney. Moloney says nothing about an alternative approach to claiming loss of income as special value. However, in Melino, Payne JA agreed (at [80]) with Basten JA (at [14]) that the farm structures (cattle yards and farm machinery shed) on the acquired land had special value to the owners which was compensable under s 55(b) of the Just Terms Act. 3. Adopting the reasoning of Spigelman CJ in Mir Bros v Roads and Traffic Authority [2006] NSWCA 314 (discussed further below), in Melino Basten JA opined that (at [14]-[15]): 14. The next question is whether the persons entitled to compensation can claim the replacement cost of new farm structures in place of those situated on the acquired land. The view taken by the primary judge was that these costs fell into the same category as the replacement of the house, the compensation for the loss being part of the calculation of market value of the acquired land. In principle that would be correct, if the value of the farm structures as part of the ongoing farm business were fully reflected in the market value of the acquired land. If that were not the case, it would presumably be because the value of the farm structures was quite limited to a purchaser of the land which was too small to farm, but was higher for the owner of the adjoining agricultural land. That conforms to the approach adopted by Spigelman CJ in Mir Bros: "[83] I accept the Appellant's submission that the 'before and after' test will not always compensate loss of the character claimed, ie lost capacity to use the adjoining land in conjunction with the acquired land. Such a loss may be special to the owner of the adjoining land and could be a loss sustained in addition to the market value of the adjoining land. The 'before and after' test, which operates by reference to market value only, will not necessarily compensate such a loss." 15. On the approach accepted in Mir Bros, the farm structures on the acquired land had "special value" for the owners of the acquired land, as provided for by s 55(b) and s 57 of the Compensation Act. That value was "incidental to" the owners' use of the acquired land for the farming enterprise partly carried out on the adjoining land to the west of the acquired land. 1. In Melino the primary judge had failed to consider a claim for disturbance with respect to the farm structures and had hence committed appealable error. In remitting the matter back to this Court, Payne JA observed that it was preferable if the issue were addressed under the head of compensation for special value. In other words, did the farm structures have special value to the dispossessed owners pursuant to s 55(b) of the Just Terms Act. Alternatively, the appellants could elect to rely on a claim for compensation for disturbance under s 59(1)(f) of that Act. 2. As pleaded in their Second Further Amended Points of Claim, the Montis were able to use their 'free' labour to extract, process, and sell hard rock products from their quarry which gave them a financial advantage over a hypothetical purchaser that had a monetary value, or special value, that was in addition to the market value of the acquired land for which they were entitled to compensation. The Concept of Special Value under the Just Terms Act 1. The concept of special value has its origins in Pastoral Finance Association Ltd v Minister [1914] AC 1083, where the Privy Council emphasised that the value to be established is the value of the land to the dispossessed owner (at 1088): Probably the most practical form in which the matter can be put is that they [the dispossessed owners] were entitled to that which a prudent man in their position would have been willing to give for the land sooner than fail to obtain it. 1. The Pastoral Finance principle was applied by the High Court in Dangerfield v Town of St Peters [1972] HCA 15; (1972) 129 CLR 586, where the land resumed was suitable for rubbish disposal but unsuitable for building purposes, although it could be used for recreational activities. The owners were familiar with the business of the town's garbage disposal and knew that there was no other suitable land available for this purpose. They also knew that they could use the land for this purpose for some time. It was held that the land ought to be valued on the use being made, and desired to be made, and not merely on the price a hypothetical purchaser wanting it for recreational purposes would pay for it. Therefore, to value the land only for recreational purposes would be to erroneously deny the owner of the value of the land to that owner (at 590 per Barwick CJ). 2. Describing special value as that which exceeds market value in Arkaba Holdings Ltd v Commissioner of Highways [1970] SASR 94, Bray CJ said that special value must (at 100): …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. 1. The passage above was approved by Gleeson CJ in Boland v Yates Corporation Pty Ltd [1999] HCA 64; (1999) 167 ALR 575 (at [80]), who observed that special value directs attention to the perspective of the vendor (at [83]). 2. In Boland Callinan J explained special value (under an earlier iteration of the Just Terms Act) as (at [292]): [292] …its value to the owner over and above its market value. It arises in circumstances in which there is a conjunction of some special factor relating to the land and a capacity on the part of the owner exclusively or perhaps almost exclusively to exploit it. None of the examples given by the Full Federal Court are true examples of special value. There will in practice be few cases in which a property does have a special value for a particular owner. Obviously neither sentiment nor a long attachment to it will suffice. The special quality must be a quality that has an economic significance to the owner. A possible case would be one in which, for example, a blacksmith operates a forge in the vicinity of a racetrack on land zoned for residential purposes as a protected non-conforming use, the right to which might be lost on a transfer of ownership or an interruption of the protected use. Such a property will have a special value for its blacksmith owner, and perhaps another blacksmith who might be able to comply with the relevant requirements to enable him to continue the use but to no one else. 1. In an often cited passage, his Honour went on to observe that (at [293]-[295]): [293] The Australian Law Reform Commission report Lands Acquisition and Compensation, with some slight adaptations goes some way towards correctly defining special value as "that additional economic advantage which the owner obtains, by reasons of his ownership . . . and which is not reflected in the market value". The example which I have given answers this description. What Handley JA in the Court of Appeal regarded as special value in this case does not. [294] Disturbance was discussed not entirely unambiguously by Dixon CJ and Kitto J in Commonwealth v Milledge. In doing so their Honours adopted language that was used by the Privy Council in Pastoral Finance Association Ltd v Minister in referring to special value: [I]t must always be remembered that disturbance is not a separate subject of compensation. Its relevance to the assessment of the amount which will compensate the former owner for the loss of his land lies in the fact that the compensation must include not only the amount which any prudent purchaser would find it worth his while to give for the land, but also any additional amount which a prudent purchaser in the position of the owner, that is to say, with a business such as the owner's already established on the land, would find it worth his while to pay sooner than fail to obtain the land. But a prudent purchaser in the position of the owner would not increase his price on account of the special advantage he would get by not having to move his business, unless the amount he would have been prepared to pay apart from that special advantage was the value of the land considered as a site for that kind of business. Disturbance, in other words, is relevant only to the assessment of the difference between, on the one hand, the value of the land to a hypothetical purchaser for the kind of use to which the owner was putting it at the date of resumption and, on the other hand, the value of the land to the actual owner himself for the precise use to which he was putting it at that date. By contrast the Australian Law Reform Commission report defines, correctly in my opinion, disturbance as "cover[ing] economic losses which result naturally, reasonably and directly from acquisition. It may include such items as removal expenses, costs of necessary replacement of furniture and fittings, legal and other costs of purchasing [an alternative site] and loss of local goodwill." Some of these items may, however, also fall under the head of valuation previously referred to as reinstatement. [295] I would merely add that compensation for disturbance may not be available if the claims for it are too remote as I think the settlement sum may well have been here. 1. The blacksmith example given by Callinan J in Boland was expanded upon in St John Ambulance Association of Western Australia Inc v East Perth Development Authority [2001] WASC 85; (2001) 114 LGERA 112 (at [99], although it must be noted that the legislative framework under which the claim for special value was assessed in that case differed markedly from s 57 of the Just Terms Act): 99. …as in the example of the blacksmith's forge given by Callinan J, the claimant is entitled to that which a prudent purchaser in the position of the claimant would have been willing to give sooner than fail to obtain the property. In other words, the blacksmith owner, or the proprietor of land suited to an unusual activity which cannot be easily accommodated on another site, are in a position to advance a claim for special value, provided that subject land is already being used for the special business or unusual activity. 1. Considerable reliance was placed on the blacksmith example by the Montis, however, as Preston J in George D Angus Pty Ltd v Health Administration Corporation [2013] NSWLEC 212; (2013) 205 LGERA 357 cautioned (at [56]): 56. The terms of s 55 and ss 56-60 are determinative. It should not be assumed that they reproduce or attempt to reproduce an understanding of "principles" derived by way of judicial gloss upon the spare terms of similar provisions of earlier legislation: Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority at [47]. Nor should the court, in construing the statutory provisions of Div 4 of Pt 3 of the Act, slavishly follow judicial decisions of another jurisdiction in respect of similar or even identical legislation: Marshall v Director General, Department of Transport [2001] HCA 37; (2001) 205 CLR 603 at [62]; Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority at [31]. 1. Special value under the Just Terms Act was the subject of the decision in Mir Bros. That case concerned parts of a large industrial site acquired for the purpose of a road. Compensation was claimed for disturbance, severance, and special value, for the purchase of extra land in order to develop the site in such a way that it had the same floor space to that which could have been achieved on the original parcel of land. A further claim for special value was made for the loss of the economies of scale. It was submitted that the dispossessed owner was in the business of development and that the losses were therefore special to it. The owner argued that it suffered a special loss due to the unique potential for the use of the acquired land in conjunction with the adjoining residue land. It was held, however, that no special value existed and that the claim only related to the size of the land which was an aspect of its market value. 2. In that case, Spigelman CJ described special value as (at [71]): 71. Special value under s 57 relates to an "advantage" to the owner "in addition to market value". This is not a value that is necessarily captured in the "before and after" method. Similarly, the "before and after" test does not necessarily take into account all disturbance costs as defined in s 59. 1. Appositely, his Honour went on to observe that (at [83]-[85]): 83. I accept the Appellant's submission that the "before and after" test will not always compensate loss of the character claimed, i.e. lost capacity to use the adjoining land in conjunction with the acquired land. Such a loss may be special to the owner of the adjoining land and could be a loss sustained in addition to the market value of the adjoining land. The "before and after" test, which operates by reference to market value only, will not necessarily compensate such a loss. 84. However, it is clear from his Honour's reasons that he concluded that no such special value existed in this case. The land was vacant industrial land. The allegedly special position related only to the size of the land. Size is a matter that does affect the market value of the land. Where there is no difference between the value of the land in general, and its value to the owner, there is no special value: Turner v Minister for Public Construction (1956) 95 CLR 245. That principle is now enshrined in the statutory definition of "special value" which requires such value to be "in addition to market value". 85. In Service Design Pty Ltd v Commissioner of Highways (No 2) (1986) 59 LGRA 176, Matheson J held that the potential of land for subdivision is not a matter capable of attracting special value in the hands of the resumed owner, as the potential for subdivision is one of the inherent characteristics of the land. Similarly, in my opinion, the potential for development, or the potential for development of the then holding (which is said to be the special business of the Appellant), is an inherent characteristic of the land. The value created by that potential is included within the market value. The Appellant is not the only developer/investor in the fictional market exchange under s56(i). 1. At first instance in George D Angus, Preston J explained the concept of special value in the following terms, emphasising the distinct nature of special value from the other heads of compensation under the Just Term Act (at [59]-[60]): 59. Another example is the concept of special value. Special value now means what s 57 says it means, namely "the financial value of any advantage, in addition to market value, to the person entitled to compensation which is incidental to the person's use of the land." Early judicial decisions gave a different meaning to the concept of special value and also included losses attributable to disturbance, including business disturbance, within the concept of special value: see Pastoral Finance Association Ltd v The Minister [1914] AC 1083 at 1088, 1089; Horn v Sunderland Corporation [1941] 2 KB 26 at 33, 45, 51-52; The Commonwealth v Reeve (1949) 78 CLR 410 at 417-420, 425, 434-436; The Commonwealth v Milledge (1953) 90 CLR 157 at 164; Housing Commission of NSW v Falconer [1981] 1 NSWLR 547 at 556-557, 572-574; and Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (1999) 74 ALJR 209 at 226. This was because earlier judicial decisions were assessing the value to the owner of the land and such value was to be assessed taking into consideration the loss of the business that the owner conducted on the land or the loss of trade or production involved during the period of relocation of the business to other premises. As was said in Housing Commission of NSW v Falconer: Thus, where the owner is carrying on a business on the land, that which is resumed is the land but the effect of the resumption may be to extinguish the business, or even to pass the benefit of the intangible elements of it to the resuming authority. But it has been repeatedly said that the owner is not compensated for the loss of the business as such: it, and its loss, are taken into account only if and in so far as they constitute an element in the value of the land. ... It is upon the basis of the "value to the owner" principle that amounts variously described for "disturbance" and the like have been awarded. Thus the court has taken into account, as part of the special value of the land to the owner or occupier, the costs which he would incur in moving to other equivalent premises, the loss of trade or production involved during the period of the move, and the cost of setting up in the new premises (at 572-573). 60. This value to the owner approach informed the formulation of special value as involving what "a prudent purchaser in the position of the owner, that is to say with a business such as the owner's already established on the land, would find it worth his while to pay sooner than fail to obtain the land": The Commonwealth v Milledge at 164; Arkaba Holdings Ltd v Commissioner of Highways [1970] SASR 94 at 100; Housing Commissioner of NSW v Falconer at 573; Boland v Yates Property Corporation Pty Ltd at 225. 1. On appeal, in Health Administration Corporation v George D Angus Pty Ltd [2014] NSWCA 352; (2014) 88 NSWLR 752, the Court of Appeal affirmed that that special value (determined as at the date of acquisition) was distinct from market value and other losses attributable to disturbance which must, by reason of their very nature, arise post-acquisition (at [59]). Relevantly, Tobias JA observed that (at [55]): 55. El Boustani in my view mandates rejection of the appellant's submission that loss of income and/or profits due to disturbance can be compensated for as part of "special value" as now separately and differently defined in s 57. The formulation in s 57 would not, in my view, permit the recovery of disturbance losses in the manner adopted by the primary judge in the present case. The relevant advantage to which s 57 refers must, to be recoverable, be determined as a "financial value" in addition to market value. However, as the earlier authorities demonstrate, special value to the owner cannot be assessed by capitalising the savings and additional profits which the business would probably have earned but for its destruction by the acquisition of the land upon which it was carried out and then adding the resultant figure to the market value of the acquired land. 1. Aspects of the reasoning of the Court of Appeal's decision in George D Angus were queried more recently by the same Court in Roads and Maritime Services v Allandale Blue Metal Pty Ltd [2016] NSWCA 7; (2016) 212 LGERA 307. In that case, Basten JA questioned why the loss of profits from the obstetric practice being operated by Dr Angus could not be treated as special value under the Just Terms Act. He opined as follows (at [35]-[36]): 35. The loss of profits of the obstetric practice being operated by the tenant arose from the fact that the acquired land, close to the local hospitals, had allowed Dr Angus to carry on his that part of his practice without the possible delay incurred by having to travel from another part of the rural city. Thus the acquired land had "special value" to its owner. Why the loss could not be treated as special value under the Just Terms Act must have depended upon some limitation imposed by s 57 (which defined "special value") not explained in the reasons, except by the reference to El Boustani. 36. El Boustani v The Minister administering the Environmental Planning and Assessment Act 1979 did not concern any distinction between the interests of landlord and tenant, but involved a claim by the owners of resumed land. The statements of principle dealt with matters involved in the assessment of the market value of land, pursuant to s 61 of the Just Terms Act, and were not directly concerned with other elements of s 55. However, the reasoning appeared to reject, as no longer relevant, statements in cases involving earlier legislation recognising claims for disturbance and special value, including a passage from the judgment of Mahoney JA in Housing Commission of New South Wales v Falconer. The reasoning also required that prior authorities, including those referring to "value to the owner", a term not used in the Just Terms Act, must be "treated with care. Caution may be appropriate, but the Just Terms Act adopts (and defines) terms which have an established provenance in this area of the law. Further, the fact that s 55 (and accompanying provisions in Pt 3 Div 4) are to be the only matters to be addressed does not imply that each is independent of the other and self-sufficient. The conclusion that loss of profits of a business cannot be accommodated in market value of the land or special value to the owner, but must be a loss attributable to disturbance, is an overly prescriptive position. 1. More recently, in Denshire v Roads and Maritime Services [2017] NSWLEC 181; (2017) 229 LGERA 118 Pain J refused a claim for special value arising out of a put and call option concerning the subdivision development of the acquired land and the sale of constructed lots (at [86]): 86. Steven Denshire submitted that his claim for special value falls within the definition in s 57 as the benefits to him under the P&C Option are in addition to market value. It is necessary to construe ss 54(1), 55(b) and 57. Firstly, "to the person" refers to the person entitled to compensation which in this case is Steven, not Warwick, Denshire. Secondly, the "financial value of any advantage" must be to the person entitled to compensation, namely Steven Denshire. Thirdly, that value and that advantage must be in addition to market value. Fourthly, the advantage must be incidental to the person's use of the land at the date of acquisition. 1. Pain J noted that "fundamental to a successful claim for special value is that the advantage must be in addition to market value" (at [89]). Relevantly, she rejected the special value claim because, first, the ability to subdivide the land was inherently a part of the market value of the land, assuming that this was the highest and best use of the land (with which the valuers agreed), which remained after acquisition (at [89]-[93]). In other words, the financial advantage claimed was not related to any special quality of the land. Put another way, the alleged financial advantage was not incidental to the use of the land as at the date of acquisition. Second, even accepting that the concept of "advantage" contained in s 57 of the Just Terms Act is broad, her Honour nevertheless found that the applicant had no unique capacity to exploit the land given that he possessed no enforceable contractual right at the relevant time. Accordingly, no financial advantage existed (at [100]). Third, the special value claim was "in the nature of an impermissible 'double dip' of compensation" insofar as no deduction had been made for the value of the developed residue land (at [105]). The Montis' Claim for Special Value is Rejected 1. It was not in dispute that as at the acquisition date the Montis provided 'free' (in the sense of not directly renumerated) labour to the quarry, which included the operation of machinery used to extract and process rock from the quarry and the completion of the administrative tasks necessary to run the quarry as a business. 2. The quarry was operated in a partnership between the Montis. The Montis were not paid wages but were remunerated for the provision of their labour by means of the profits derived from the partnership. 3. The Montis submitted that because a component part of the operating expenditure was labour, and because in determining the amount of compensation to be paid to the Montis it was assumed that the labour costs would be paid to someone other than the Montis, the compensation received by them would be reduced by the amount for labour paid to someone else. But the Montis were not directly paid for their labour, rather they received a distribution of a portion of the profits. As a result, the compensation received by them was further reduced because they did not receive value for their own labour. These uncompensated labour costs were a "financial value" pursuant to s 57 of the Just Terms Act. 4. The Montis further contended that the financial value was an "advantage" in the relevant statutory sense because, by reason of their ownership of the quarry, they were able to "enjoy the fruits of their own labour", whereas the hypothetical purchaser was paying for labour in order to derive profit. The ability of the Montis to derive profits and receive value from the use of the land and to obtain the benefit of their own labour gave them an advantage compared to the hypothetical purchaser which arose from the ownership of their land. It was also incidental to their use of the land for the purposes of a quarry. 5. Assuming that a claim for special value was available to the Montis, the Joint Expert Report – Special Value Claim by Dr Ferrier and Mr Mullins dated 12 November 2018, resulted in the experts assessing the net present value of the notional labour costs of the Montis as at the date of the acquisition as: Mr Mullins (Montis) Dr Ferrier (RMS) Tonnes attributable to Montis' labour 32,523.5 22,904.2 22,904.2 Net Present Value $329,732 $233,333 $238,516 1. The difference in values is the result of a difference in inputs used for the land valuation model, namely, the first year tonnages and the split between the different rock types. 2. It was agreed between the experts that as at the date of acquisition the highest tonnage extracted by the Montis was 22,904.2 tonnes. It was this volume that was used by Dr Ferrier (for RMS), whereas Mr Mullins (for the Montis) adopted the post-acquisition FY2017 amount of 32,523.5 tonnes. 3. There are at least six reasons why the Montis' claim for special value must fail. First, it is not correct to claim, as the Montis do, that they were not paid for the labour that they provided to operate the quarry. As both Mr Mullins and Dr Ferrier agreed, although the Montis did not receive any wages or salary in return for providing their labour, they were nevertheless remunerated for it by way of the profits (which were increased because they did not incur any external labour costs) they received from drawings from their partnership. As a result, the "financial value of any advantage" was, as RMS submitted, illusory. The level of production achieved by the Montis was not "free" because while supplying it at the quarry, it could not be supplied for a fee elsewhere. There was, therefore, no "advantage" in supplying their own labour at the quarry. 4. Second, having regard to the authorities above, the purported "advantage" was not "in addition to the market value". The highest and best use of the land was for quarrying and its market value has been calculated on this basis. The land's potential to be used for that purpose is an inherent characteristic of the land. The advantage relied upon by the Montis is a particular aspect of the manner in which that inherent characteristic is to be exploited. Accordingly, it is not recoverable as special value. 5. Third, removal of the external labour costs from the DCF model used to calculate the value of the quarry increases the market value of the acquired land. In this regard, the Montis' special value claim focuses on the particular inputs used to quantify the market value claim. I agree with the submission of the RMS, however, that the hypothetical purchaser of the quarry would be unlikely to be structured as a partnership, and therefore, to pay more to obtain the quarry, than a purchaser structured as a company – which is, in any event, the basis upon which the market value claim was assessed. There is, therefore, no advantage that is "in addition to the market value" as required by s 57 of the Act. 6. Fourth, the claimed "advantage" is a product of the legal structure of the partnership itself and not an existing incident of the – or "incidental to" – the Montis' use of the land. That is, the fact that wages were not paid to the Montis is an attribute of a legal structure and not an attribute of the Montis' use of the land; it is an incident of the legal structure pursuant to which the Montis have chosen to operate their quarry. In other words, there is no advantage to the Montis because they must give their labour for free. Were it otherwise, such an advantage would arise in every use of land conducted through a partnership (or as a sole trader) rather than a corporate entity. 7. Fifth, even if the definition of "special value" in s 57 of the Just Terms Act was able to be satisfied, as the RMS, correctly, in my view, noted, quantification of the claim using the agreed model is based on an assumption that the Montis would have provided their own labour in the quarry for a period of 11 years after the acquisition date. This assumption, however, is not, in my opinion, maintainable on the evidence. Although Mr Phillip Monti deposed in his first affidavit that it was the Montis' intention to substantially expand the quarry business and to keep working at the quarry, how long for was unknown. Thus Mr Mullins conceded that he did not know when the Montis would have ceased to work in the business (T329.34). Accordingly, there is insufficient evidence before the Court to find that the Montis would have provided their labour in the quarry for another 11 years. The Court therefore cannot determine the special value claim using the model adopted by the experts for its calculation, and in the absence of any other method supported by the evidence for quantifying the claim, it must fail. 8. Finally, even if the claim were maintainable, in my view, Dr Ferrier's adoption of a tonnage of 22,904.2 is to be preferred. Section 55(b) expressly requires that special value is to be determined "on the date of the acquisition". Mr Mullins' adoption of an annual tonnage of 32,523.5 tonnes for FY2017 was based on events after the acquisition date (see the discussion earlier in the judgment). This is not a case, as the Montis contended, where subsequent matters are used to confirm a foresight already established on the basis of other evidence (Falconer). Rather, the FY2017 tonnage was used impermissibly by Mr Mullins to establish a hindsight with respect to this adoption of estimated tonnage. 9. Furthermore, in calculating their special value claim, the Montis (that is, Mr Mullins) rely on integers derived from assessing the market value of the entire quarry land, not just the acquired land, which assumes the granting of DA2 and DA3 (using the DCF model) as at the date of acquisition. However, these integers cannot be used to calculate the special value of the acquired land without modification (see the manner in which the special value claim is pleaded at paragraphs 77 - 95 of the Second Further Amended Points of Claim). For example, the DCF calculation of market value includes a discount rate likely to be adopted by a hypothetical purchaser reflecting their knowledge of the business and assessment of the appropriate risk premium. In my opinion, in order to properly assess special value, a discount rate should be that adopted by the Montis that takes into account their intimate knowledge of the business and their assessment of the appropriate risk premium, which may be different from that of the hypothetical purchaser. 10. In light of the findings made above, it follows that the Montis' special value claim must be rejected. Conclusion 1. For the reasons given above, the Montis are entitled to compensation in the amount of $2,192,080 determined as follows: HEAD OF COMPENSATION AMOUNT ss 55(a), (b) and (f) $1,883,381 ss 55(d) and 59(1)(a) and (b) $125,000 ss 55(d) and 59(1)(f) $183,699 TOTAL $2,192,080 Costs 1. On 30 November 2016 the NSW Valuer-General determined compensation for the compulsory acquisition of the Montis' land at $1,445,765. During the hearing RMS calculated the total compensation payable to the Montis to be $1,771,056. Given that I have determined that the compensation payable to the Montis is $2,192,080, it is appropriate that the RMS pay the Montis' costs of the proceedings, subject to any previous costs orders made by this Court in this matter. 2. Having said this, the Montis' claim altered fundamentally several times in close proximity to, and during, the course of the hearing. A different costs order may therefore be warranted. On this basis, the parties have 14 days after the publication of this judgment to approach the Court for a variation of the cost order. Orders 1. For the reasons given above, I have determined compensation to the Montis under the Just Terms Act in the amount of $2,192,080. However, in case there are arithmetic errors in the calculations contained in this judgment, particularly with respect to the use of the agreed DCF model, I will grant liberty to apply under the slip rule within 14 days of the publication of this judgment to correct any such errors (Willoughby City Council v Roads and Maritime Services [2014] NSWLEC 6; (2014) 201 LGERA 177 at [143] per Biscoe J). 2. The orders of the Court are therefore: (1) compensation under the Just Terms Act is determined in the sum of $2,192,080 comprising: 1. value under ss 55(a) and (f) of $1,883,381; and 2. disturbance under s 55(d) of $308,699; (2) the respondent is to pay the applicants' costs unless, within 14 of the maki ng of these orders, either party applies to the Court for the making of an alternative costs order; (3) liberty to restore within 14 days of the publication of this judgment to correct any arithmetic errors in the calculation of the compensation determined; and (4) the exhibits are to be returned. ********** Amendments 13 February 2019 - numbering 14 February 2019 - Formatting of image 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. Decision last updated: 14 February 2019