Archbold Industries Pty Ltd v Roads and Maritime Services

[2015] NSWLEC 174

Land and Environment Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Archbold Industries Pty Ltd v Roads and Maritime Services [2015] NSWLEC 174
Hearing dates:	5 and 14 November 2014
Date of orders:	03 November 2015
Decision date:	03 November 2015
Jurisdiction:	Class 3
Before:	Pepper J
Decision:	See orders at [68].
Catchwords:	COMPULSORY ACQUISITION: market value assessed on the basis of potential use – whether land had potential to be used for a purpose other than that for which it is currently used – whether compensation payable for disturbance for financial cost of construction of an alternative internal access way – whether financial loss would necessarily have been incurred in realising potential.
Legislation Cited:	Land Acquisition (Just Terms Compensation) Act 1991, Pt 3 Div 4, ss 55, 56, 59, 61, 66 Land and Environment Court Act 1979, s 34
Cases Cited:	El Boustani v Minister Administering the Environmental Planning and Assessment Act 1979 [2014] NSWCA 33; (2014) 199 LGERA 198 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 McDonald v Roads and Traffic Authority (NSW) [2009] NSWLEC 105; (2009) 169 LGERA 352 Roads and Traffic Authority (NSW) v McDonald [2010] NSWCA 236; (2010) 175 LGERA 276 Sydney Water Corporation v Caruso [2009] NSWCA 391 Willis v Roads and Maritime Services [2015] NSWLEC 165
Category:	Principal judgment
Parties:	Archbold Industries Pty Ltd (Applicant) Roads and Maritime Services (Respondent)
Representation:	Mr J Robson SC with Mr L Waterson (Applicant) Mr I Hemmings SC (Respondent)   Slater and Gordon (Applicant) Hunt & Hunt Lawyers (Respondent)
File Number(s):	30490 of 2013

Judgment

Archbold Claims for Disturbance in Respect of Compulsorily Acquired Land

1. On 22 February 2013, the respondent, Roads and Maritime Services (“RMS”), compulsorily acquired part of the land of the applicant, Archbold Industries Pty Ltd (“Archbold”), in the local government area of Bellingen, comprising Lot 150 DP 851515, which had frontage to Waterfall Way, Raleigh (“the parent parcel”).

2. The acquired land is Lot 2 DP 1180481 (“the acquired land”). The residue land is Lot 1 DP 1180481 (“the residue land”). A plan depicting the acquired land and the residue land has been attached at annexure ‘A’ for convenience.

3. On 1 June 2013 Archbold commenced these proceedings pursuant to s 66(1) of the Land Acquisition (Just Terms Compensation) Act 1991 (“the Act”) by way of objection to the amount of compensation offered, as determined by the Valuer-General.

4. Following a conciliation conference between the parties, an agreement dated 10 March 2014 was signed pursuant to s 34 of the Land and Environment Court Act 1979, under which it was agreed that the market value of the land acquired was $154,000 (noting that GST was not payable), and moreover, that RMS would pay Archbold’s costs, as agreed or assessed, excluding, however, the costs incurred in relation to a claim made pursuant to s 59(f) of the Act.

5. Thus, on 14 March 2014 Pain J ordered that the market value of the land be determined at $154,000.

6. However, while the parties have resolved the market value claim, a claim for disturbance remains. The claim relates to the costs associated with the construction of a new 600m long access way.

7. If that cost is recoverable, it is agreed at $176,000.

8. A view of the subject land by the Court and the parties took place on 5 November 2014. The hearing took place immediately after the hearing in Willis v Roads and Maritime Services [2015] NSWLEC 165. Because Mr Willis is the director of Archbold it was therefore convenient to hear the matters consecutively.

9. I am indebted to the invaluable assistance of Maston AC throughout the proceedings.

10. In short, RMS submits that s 61(b) of the Act applies to deny the claim because the financial cost of building the new access way is a loss that would necessarily have been incurred in realising the potential of the land to be used for a purpose other than that for which it is currently being used. For the reasons given in this judgment, I disagree and the $176,000 is recoverable.

Issues for Determination

11. By agreement the following two questions are to be determined by the Court in these proceedings:

Whether the applicant’s claim for $176,000 (including GST) for the construction of an access way is:

1 available pursuant to s 59(f); and

2 if the answer to 1 is ‘yes’, whether compensation is not payable because of s 61(b).

Note: any payment will be excluding of GST

The question referred to above is to be determined on the agreed basis for market value, as follows:

The market value of the land is assessed on the basis that the land had potential, at the acquisition date, to be used for a 26 lot subdivision in accordance with the subdivision plans prepared by Planners North and shown in plan 4.2 in the Planners North report of November 2013.

Factual Background Giving Rise to the Claim for Disturbance

12. The evidence consisted of an agreed statement of facts, to which was attached:

1. a cadastral plan of the parent parcel immediately before acquisition;

2. a plan of the land after acquisition as comprised in the residue land;

3. an engineer’s report prepared by Mr Richard Green of Enginuity Design Pty Ltd, dated 14 January 2014, entitled “Report on New Access Road Costings” (“the Green Report”);

4. sketch plans of potential subdivisions before and after acquisition (sketches numbered 1 and 2, respectively) in which the potential subdivision before the acquisition contained 26 lots including a large residue lot, Lot 26, in the southern portion of the land, and the potential subdivision after acquisition, a 24 lot subdivision including a large residue lot, Lot 24, in the southern portion of the land. The sketch plans are attached to this judgment at annexure ‘B’; and

5. a colour aerial photograph labelled “Figure 1 site plan”, showing a dwelling house near the northern boundary to Waterfall Way, part of the land before acquisition, and part of the land compulsorily acquired. Superimposed on the photograph are the original access way and the proposed replacement access way. Again, for convenience, a copy of this photograph, with the marked-up access ways is attached to these reasons at annexure ‘C’.

13. From that evidence the following agreed facts may be distilled:

1. since 1989 the parent parcel was primarily used by Archbold for cattle grazing and growing timber;

2. in the mid 1990s Archbold caused a cleared gravel way to be formed (“the original access way”);

3. the original access way allowed Archbold to maintain the eastern boundary fence and move plant, stock and equipment within the parent parcel;

4. access to the parent parcel from the adjoining Pacific Highway adjacent to its eastern boundary to maintain the fencing was not possible;

5. from around 2002 Archbold used the original access way for the agricultural and rural purposes referred to in (a) and (c) above;

6. in 2001 Transgrid compulsorily acquired an easement near the eastern boundary of the parent parcel for electricity supply purposes;

7. part of the original access way was located within the easement;

8. also in 2002, Transgrid upgraded and extended the original access way within the easement to assist with power line construction;

9. in May 2011 the parent parcel was destocked because Mr Willis, the director of Archbold, went overseas and there was no farm hand to assist with the parent parcel;

10. in November 2011, upon his return from overseas, Mr Willis decided not to restock the parent parcel until compulsory acquisition of the acquired land was completed;

11. Archbold intends to restock the land once acquisition of, and construction on, the acquired land has been completed;

12. part of the original access way was located on the acquired land as shown in annexure ‘C’ (“acquired access way”).

13. following the acquisition of the acquired land, Archbold was unable to use the acquired access way;

14. following the acquisition of the acquired land, Archbold is responsible for ongoing maintenance and repair of the fencing of the boundary of the acquired land and the residue land (“new boundary fencing”);

15. once the compulsory acquisition process and related construction on the acquired land have been completed, Archbold intends to arrange for the construction of an access way on the residue land to replace the acquired access way (“replacement access way”) so that it may maintain and repair the new boundary fencing and move plant, stock and equipment within the residue land;

16. from an engineering perspective, the replacement access way is a feasible, appropriate, and suitable replacement for the acquired access way;

17. the total cost to Archbold to construct the replacement access way is $176,000.00 (inclusive of GST), as set out in section 5 of the Green Report; and

18. Archbold intends to replace the original access way with the replacement access way “so that it may maintain and repair the new boundary fencing and move plant, stock and equipment within the residue parcel”.

14. The Green Report relevantly stated that:

1. the compulsory acquisition of land resulted in the excise of approximately 600m of the original access way which was previously used to service the southern portion of the property. As a result, the replacement access way would now be required through the residue land so that the property could continue to be maintained and serviced;

2. the original access way ran in a southerly direction and generally followed the eastern boundary of the parent parcel (see attachment ‘C’). It provided internal serviceability to the entire property from Waterfall Way (close to which the dwelling for the property is located) through to the southern portion of the property;

3. the replacement access way was designed is to give a similar level of service to the southern portion of the property as that provided by the section of original access way excised by RMS;

4. the replacement access way was generally to be aligned with the new property boundary line to the acquired land, in order to enable inspections and maintenance of the new boundary fencing; and

5. the cost estimate summary indicated that, at a point 535m from the commencement of the replacement access way in the north, the replacement access way would join up with the existing way to the south.

Market Value of the Acquired Land

15. It was not in dispute that the market value of the acquired land was assessed on the basis that the land had potential, as at the acquisition date, to be used for the purpose of a 26 lot subdivision in accordance with the subdivision plans prepared by Planners North as shown in annexure ‘B’.

16. The plans show 25 rural residential allotments each fronting a new internal subdivision road and a 26th lot encompassing the southern section of the parent parcel, also with frontage to the internal subdivision road. There are no dimensions shown on the individual lots but the sketch 1 (in the before scenario) had a scale which indicated that the western boundary of Lot 26 was approximately 100m long and was, in parts, over 800m wide, with an eastern boundary of more than 400m.

17. Both the original access way and the acquired access way traversed the parent parcel that is shown in sketch 1 of annexure ‘B’ subdivision plan.

18. The agreed facts indicate that in the before scenario the intention was to continue grazing cattle and moving plant, stock and equipment in the southern area of Lot 26 and in other areas within the rural residential lots, at least to the extent of accommodating the rural access way. Critically, it was agreed that the carrying out of the hypothetical subdivision shown in sketch 1 of annexure ‘B’ in the before scenario, would not have involved the construction of the replacement access way.

19. Conversely, in order for Archbold to maintain the means of access described above, the carrying out of the hypothetical subdivision shown in sketch 2 of annexure ‘B’ in the after scenario, meant that it would be necessary to construct a new access way.

20. Having regard to the agreed facts, it may be reasonably inferred that, but for the acquisition, Archbold would have continued to use the land for the purpose of grazing cattle and moving plant, stock and equipment and use the dwelling shown to be on the land in annexure ‘C’.

21. It is not possible to say where the existing dwelling on the land immediately prior to acquisition stood with respect to the allotments in the rural residential subdivision or whether it was intended to be retained in the after scenario. However, no disturbance claim is raised in respect of the dwelling house and it is not necessary to consider it further in order to answer the questions posed.

22. Work had not yet physically commenced on the subdivision or the construction of the replacement access way.

23. It is also clear, and not a matter of contention, that the highest and best use of the parent parcel was its potential for the 26 lot subdivision, moreover, that the subdivision could be effected without requiring the cessation of the grazing enterprise.

24. Further, it can be accepted from the terms of the orders made by Pain J on 14 March 2014, determining the market value of the land within the meaning of ss 55(a) and 56 of the Act, that the value was derived wholly from the land’s potential to enable the carrying out of the 26 lot subdivision.

Is the Claim for Disturbance Available Under s 59(f) of the Act?

25. Section 59(f) of the Act provides for the recovery of disturbance loss for:

59 Loss attributable to disturbance

In this Act: "loss attributable to disturbance" of land means any of the following:

…

(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.

26. Both parties accepted that the cost of constructing the replacement access way to replace the section of the original access way, which was situated on the acquired land, is a financial cost which falls within s 59(f) of the Act. That is to say, the cost in question might reasonably be incurred in the actual use of the residue land as a direct and natural consequence of the acquisition.

27. Having regard to the recent decisions of the Court of Appeal in Health Administration Corporation v George D Angus Pty Ltd [2014] NSWCA 352 and El Boustani v Minister Administering the Environmental Planning and Assessment Act 1979 [2014] NSWCA 33; (2014) 199 LGERA 198, and at first instance in George D Angus Pty Ltd v Health Administration Corporation [2013] NSWLEC 212; (2013) 205 LGERA 357, the following principles may be distilled in order to assess whether an applicant has a claim for loss of disturbance under s 59(f) of the Act:

1. first, it has now been clarified beyond any doubt that loss of income and/or profits attributable to disturbance can only be claimed under s 59(f) of the Act, and not as part of “special value” under s 57 of the Act. There is no overlap between the two categories of loss (Health Administration Corporation at [55]-[63] per Emmett JA, Leeming JA and Tobias AJA agreeing);

2. second, the “financial costs” that are reasonably incurred, or that might be reasonably incurred, include expenses which a person entitled to compensation incurs and financial losses which a person suffers as a consequence of the acquisition (George D Angus at [100] per Preston J);

3. third, the question is whether the financial costs that are “reasonably incurred” must (or might) be incurred reasonably, and not whether those costs are reasonable in themselves. In other words, the expression “might reasonably be incurred” is taken to refer to the time at which compensation is being assessed, so that compensation is payable for this head of loss only if the financial costs have actually been incurred, or if it would, at the relevant time, be reasonable to incur them (George D Angus at [103]). This limitation does not, however, require a person entitled to compensation to alter their business in fundamental respects (George D Angus at [168]);

4. fourth, the financial costs must be “relating to the actual use of the land” that had been acquired. Where there is acquisition of only part of the land, leaving a residue parcel, if the actual use of the residue is so intimately connected with the actual use of the acquired land, so that the uses are intertwined and dependent on each other, that will be sufficient to engage the provision (George D Angus at [104]);

5. fifth, the “use” of the land is the use by the person entitled to compensation, not the use by the acquiring authority. It must be the actual and not a potential future use (George D Angus at [105]);

6. sixth, the term “relating to” is of wide import (George D Angus at [106]); and

7. seventh, the financial costs must be “as a direct and natural consequence of the acquisition”. That is to say, there must be a causal connection between the acquisition of the land and the incurring of the financial costs. The acquisition need not be the sole cause of incurring the financial costs, it will be sufficient if it is a cause. Moreover, the costs need to be a consequence of the acquisition and not the carrying out the public purpose for which the acquisition was undertaken (George D Angus at [107]). If the financial costs are not the “direct and natural” consequence of the acquisition, they will be too remote to be recoverable. In this regard, consequences that are generally foreseeable are usually “direct and natural” (George D Angus at [108]-[109]).

28. Applying these principles to the facts as agreed in this case, it becomes obvious that the cost of the replacement access way meets the requirements of s 59(f), a matter about which there was little controversy.

29. The replacement access way is, from an engineering perspective, feasible, appropriate and suitable, with the total costs agreed at $176,000. In other words, the financial cost of its construction will be reasonably incurred. In this instance, the original access way was a physical improvement to the acquired land in existence as at the date of the acquisition. Part of the original access way was located on the acquired land. Following the acquisition, Archbold can no longer use that part of the access way. If the acquisition had not occurred, Archbold would still be able to use the access way on the acquired land and the necessity for a replacement access way would not exist. The financial costs of replacing the access way are, accordingly, not too remote, and are a direct and natural consequence of the acquisition.

30. Furthermore, as the agreed facts establish, the parent land, as at the date of acquisition, was actually used by Archbold for the purpose of grazing cattle and the growing of timber, notwithstanding the temporary suspension of that activity caused by the compulsory acquisition of the acquired land, the public works, and the breach of stock-proof fencing on the eastern boundary. The intention of Archbold was to restock the land. There is no evidence of abandonment of these agricultural uses and the uses can be accepted as the actual use of the land as at the date of acquisition for the purposes of s 59(f) of the Act.

Does s 61 of the Act Apply to Deny the Claim for Disturbance?

31. Rather, the real issue for determination between the parties was whether s 61 of the Act barred the claim for disturbance.

32. Section 61 of the Act, if engaged, will operate to deny the claim. It relevantly provides that:

61 Special provision relating to market value assessed on potential    of land

If the market value of land is assessed on the basis that the land had potential to be used for a purpose other than that for which it is currently used, compensation is not payable in respect of:

…

(b)    any financial loss that would necessarily have been incurred in realising that potential.

33. It is now clear, after the Court of Appeal’s forthright decision in El Boustani that the expression “the market value of land is assessed” in s 61 refers to the particular assessment of the particular matter of market value in accordance with Div 4 of Pt 3 of the Act, and not what the prudent purchaser in the position of the owner would pay for the land (El Boustani at [88] and [89]).

34. The Court of Appeal in that case went on to identify the correct approach to now be taken in applying s 61 of the Act. In order to fall within the chapeau of this provision, four requirements must be established:

1. first, the expanded phrase “if the market value of the land is assessed” refers to the assessment of market value made by the person determining the dispossessed owner’s claim for compensation. A court determining a person’s claim for compensation must assess the market value of the land and any loss attributable to disturbance, and then consider if s 61 applies (El Boustani at [90]-[91]);

2. second, the market value of the land must be assessed, as a precondition, “on the basis that” the land had potential to be used for a purpose other than that for which it is currently used. The word “basis” bears its natural and ordinary meaning namely, “the fundamental foundation on which the assessment of the market value of the land rests” (El Boustani at [92]). The court must not assess the market value merely by “having regard to” or “being influenced by” the use specified in the chapeau to s 61 of the Act (El Boustani at [93]);

3. third, the basis on which the market value of the land must be assessed is “that the land had potential to be used for a purpose other than that for which it is currently used”. Thus if the purpose of the current use of the land is the basis, or even a basis, on which the market value of the land is assessed, s 61 will not apply (El Boustani at [94]); and

4. fourth, the chapeau refers to the need for the basis on which market value is assessed to be that the land “had potential” to be used for a purpose other than that for which it is currently being used. The expression “had potential” has two temporal elements. The first, deriving from the word “had”, is that the time at which the land needs to have “had” the requisite potential is the date of the acquisition, notwithstanding that the assessment of the market value of the land occurs later in time. The second, deriving from the word “potential”, is that the potential for development for the other purpose will need to be “sufficiently temporally proximate or ripe” in order for the precondition in s 61 to be satisfied (El Boustani at [95], [99] and [100]).

35. Applying the principles summarised above to the agreed facts forming the basis of these proceedings, it is abundantly clear that (and it was not disputed by Archbold) the requirements in the chapeau to s 61 are satisfied.

36. The Court had determined that the market value of the acquired land is $154,000 pursuant to s 34(8) of the LEC Act. This is an approach to market value that is consistent with the statutory scheme in ss 55 and 56 of the Act and which does not avoid the operation of s 61. The market value was determined on the basis that that the land had the potential, as at the acquisition date, to be used for a 26 lot subdivision, as described above. The purpose for which the acquired land was being used at the date of the acquisition was for grazing cattle and timber growing. Accordingly, market value has been determined on the basis that the land has the potential, at the acquisition date, to be used for a purpose other than cattle grazing and timber growing, namely, for the purpose of the 26 lot residential subdivision. Furthermore, it can comfortably be found that the subdivision was, on the facts referred to above, temporally proximate or ripe in the requisite sense. Although there is no indication of the time in which the stated potential of the land is intended to be realised it may nevertheless be assumed that the determination of its market value by the Court indicates that the potential subdivision development is reasonably proximate and certain. There was no suggestion that the realisation of the potential would be inordinately delayed.

37. Consequently, I am satisfied that the chapeau to s 61 of the Act is engaged.

38. However, this is not the end of the matter. In addition to the requirements of the chapeau, RMS must establish the matters contained in sub-paragraphs (a) and (b) of that section.

39. Subparagraph (a) is not relevant. The application of subparagraph (b), however, is central to the resolution of this case. It demands that RMS demonstrate that the costs in question – those of constructing the replacement access way – “would necessarily have been incurred in realising that potential”, that is to say, the 26 lot subdivision.

The Meaning of s 61(b) of the Act

40. The meaning of s 61(b) of the Act was also elucidated by the Court of Appeal in El Boustani:

1. first, the words “financial loss” include “financial costs” of the kind falling within the four subparagraphs of s 59 of the Act (Sydney Water Corporation v Caruso [2009] NSWCA 391; (2009) 170 LGERA 289 at [186] and [190] and El Boustani at [107]);

2. second, the words “the potential” have the same meaning as ascribed to that term as used in the chapeau, in other words, the potential of the land to be used for a purpose other than that for which it is currently used (El Boustani at [108]);

3. third, the words “in realising” mean “making real or giving reality to”. Accordingly, the composite phrase “in realising that potential” refers to making real or giving reality to the potential of the land to be used for a purpose other than that for which it is currently used: “in short, it refers to the transformation from the potential for, to the reality of, using the land for a purpose other than that for which [sic] is currently used” (El Boustani at [109]); and

4. fourth, the financial loss must be a loss that would “necessarily have been incurred” in realising that potential. That is to say, the loss must be incurred inevitably or as a result of realising the potential to use the land for a purpose other than that for which it is currently used (Roads and Traffic Authority of New South Wales v McDonald [2010] NSWCA 236; (2010) 79 NSWLR 155 at [94]). If the financial loss is incurred for reasons other than realising the potential to use the land for that other purpose, this requirement will not be met (El Boustani at [111]). If or when a financial loss will be inevitably incurred or as a necessary result in realising that potential will, in turn, depend, at least in part, on the temporal proximity, or remoteness, of the potential. The more remote the potential, the less likely the financial loss will inevitably incur or be necessary (El Boustani at [113]).

41. Applying these principles to the agreed facts, first, clearly the s 59(f) cost of building the replacement access way is a financial loss to which s 61 relates.

42. Second, there can be no controversy that the potential is the potential of the land to be used for the purpose of a 26 lot residential subdivision, which is, as discussed above, different to the current use of the land for the purpose of cattle grazing and timber growing.

43. Third, again it was not really in dispute that, as seen from sketch 1 of annexure ‘B’, that part of the access way is situated on land that includes proposed lots in the subdivision (lots 1 to 4). Therefore, in realising the land’s potential to be used for the purpose of a 26 lot residential subdivision, the land will be transformed from the potential for, to the reality of, using the land for the purpose other than that for which it is currently used (El Boustani at [109]).

44. It is in the application of the fourth element of s 61(b) of the Act that falls to be determined in this case.

45. In this regard, it is important to recall that it was agreed that in carrying out the hypothetical subdivision in sketch 1 of annexure ‘B’ in the before scenario the construction of the replacement access way was not required. Whereas, in carrying out the hypothetical subdivision shown in sketch 2 of annexure ‘B’ in the after scenario it would have been necessary to construct a new access way in order for Archbold to maintain and repair the new boundary fencing and move plant, stock and equipment within the residue land.

46. RMS’s submission may be put succinctly, namely, that because the compensation task has not assumed that the proposed lots were burdened by an easement for an access way, it was necessary to remove the access way, and therefore, it became necessary to construct the replacement access way on the residue lot (Lot 26) in the subdivision. As a consequence, the financial loss or cost of building the replacement access way was one that was inevitably incurred in realising the subdivision potential of the land, and hence, s 61(b) prevents the recovery of that financial loss.

47. Archbold, however, submitted that in a partial acquisition such as the present acquisition, s 61(b) only applies to the determination of the market value of the acquired land as part of the parent land, that is to say, in the before scenario, and not to the residue land (citing McDonald at [90]). Therefore, RMS had to establish that the cost of constructing the replacement access way would have been inevitably incurred in realising the potential of the development in the before scenario. Because it was not in dispute that the subdivision in the before scenario would not have involved the building of the replacement access way, the cost of its construction would not have necessarily been incurred in realising that development, s 61(b) was therefore not satisfied and the disturbance claim could not be denied.

48. It is necessary, therefore, to analyse McDonald in order to appreciate the proper context of the passage relied upon by Archbold.

49. McDonald concerned the acquiring authority compulsorily acquiring part of Ms McDonald’s land for the upgrade of a highway. The acquired land had located on it Ms McDonald’s residence and a shed used in her landscaping business, all of which she planned to reinstate on the residue land. The authority charged her rent from the date of the acquisition until she vacated the premises and the reinstatement was complete. Ms McDonald made a claim for compensation under the Act, including for disturbance. At first instance (McDonald v Roads and Traffic Authority (NSW) [2009] NSWLEC 105; (2009) 169 LGERA 352), Biscoe J accepted as the basis of the valuation of the acquired land that the highest and best use of the parent land was its potential to be used for a purpose other than that for which it was used as at the date of the acquisition. His Honour held that Ms McDonald’s disturbance losses had been, or were to be, incurred because her existing residential and business use of the acquired land had been terminated by the resumption. His Honour concluded that the question under s 61(b) of the Act, was whether any of the disturbance costs would necessarily have been incurred in realising the seven lot subdivision potential of the acquired land on which market value was assessed. His Honour held that the answer was “no”. He accepted the assessment of Ms McDonald’s valuer that the existing residential use could continue on one lot in the subdivision, that the business could continue on another lot, and that Ms McDonald would not have to move off the land in order to realise the subdivision potential.

50. In other words, there was no inconsistency between continuing to use the parent land for its existing residential and business uses, on the one hand, and subdividing it into seven rural residential allotments, on the other. What caused the existing actual use of the parent land to cease on the acquired land was its acquisition, not its potential for subdivision into rural residential allotments. It was for this reason that the disturbance claim succeeded in McDonald and was not barred by s 61.

51. On appeal, the acquiring authority submitted that it was necessary to assume a sale by Ms McDonald to a developer who would seek to realise the potential by subdividing the land into the relevant number of allotments and selling them. The Court of Appeal rejected this argument on the basis that it did not follow that, having determined the before value of the parent land, it had to be assumed for the purpose of determining the loss attributable to disturbance that the owner actually sold the parent land and abandoned her current use of it at the time of its acquisition (McDonald at [70]).

52. Another submission made by the acquiring authority in McDonald, and rejected by the Court of Appeal (at [76]–[85]), was that Ms McDonald could not claim the market value of the land acquired on the basis that the highest and best use of the parent parcel and residue land was en globo land sold for rezoning and subdivision, and additionally claim the financial costs (disturbance loss) of building roads and other infrastructure on the residue parcel in order to continue to use the residue land as a single parcel home site and landscape supply business.

53. Tobias JA noted that the primary judge had found, as a matter of fact, that the subdivision potential of the parent land could be realised without Ms McDonald incurring any financial loss by terminating the use of that land for its existing residential and business purposes (at [78(c)]), and that attributable disturbance related to losses or costs incurred post-acquisition were as a “direct and natural consequence of the acquisition” (see s 59(f)). Whether those costs were expended upon the residue land, where only part of a parcel was compulsorily acquired, or on a different parcel of land, where the whole of the parcel was acquired, did not matter. It was in this context that Tobias JA opined (at [89]–[91]):

89.    Even accepting that there would be no added value to that [being the residue] land by the expenditure of the disturbance costs if it be the case … that those costs would be wasted and/or that the landscape business would need to cease in the event that the residue land was developed as a four lot residential subdivision, those facts are simply irrelevant.

90. In my opinion, s 61(b) only applies to the determination of the market value of the acquired land as part of the parent land and then only if the realisation of the potential of that land to be subdivided into seven rural residential allotments required the cessation of the use of the residence and shed upon the proposed lot 27 and the cessation of the landscape business on the proposed lot 26. Whether such termination or cessation is necessary in order to realise the relevant potential of the parent land is a question of fact. That fact, having been determined by the primary judge contrary to the RTA, cannot be erected into a question of law

91. Again I emphasise that s 61(b) is not as such directed to loss attributable to disturbance within the meaning of s 59 although if it does apply it may have the effect of denying any such loss. As I have observed if the potential of the parent land to be subdivided into seven rural residential allotments can only be realised if the existing residential and business uses were required to cease, then and only then, would the respondent be barred from recovering compensation for costs attributable to the relocation of uses that would be required to cease in any event. But that is not the present case.

54. Tobias JA also noted that it was not suggested, and no evidence had been put before the Court supporting the proposition, that the market value which the primary judge attributed to the parent land in the before valuation was necessarily dependent upon the cessation of the use of the existing residence and the carrying on of the landscape business (at [96]).

55. Similar to McDonald, in the present case Archbold does not intend to cease cattle grazing and timber growing activities, despite the acquisition. Further, Archbold’s business of grazing cattle and timber growing is not required to cease in order for the subdivision to be realised. The question, therefore, becomes whether the potential subdivision use is inconsistent with the existing agricultural uses.

56. The most recent consideration of s 61 of the Act by the Court of Appeal is in El Boustani, discussed above. In my opinion, there is nothing in the reasoning of the latter decision that disturbs the reasoning in the former.

57. Applying the reasoning in McDonald and El Boustani to the agreed facts of this case, the building of the replacement access way for agricultural and rural purposes, as distinct from the construction of an internal road as part of a rural residential subdivision, is not, in my opinion, the inevitable result of realising the potential for subdivision, it is for the purposes of gazing cattle, growing timber and other rural activities.

58. In the current circumstances, the requirements of s 61(b) of the Act are satisfied only if the works described in the agreed statement of facts lead to Archbold incurring a financial cost which is inevitable and indispensable to the realisation of the potential to use the land for the purpose of the subdivision. As stated above, part of the existing access way used for the grazing of cattle and the growing of timber was situated on the acquired land. The proposed work and its consequent financial cost relate to the replacement access way to be built on the residue land. Its anticipated location does not correspond with the location of any of the proposed subdivisional roads. There is no suggestion that the value of the part of the access way that was acquired was relevant to the carrying out of the potential subdivision.

59. Contrary to the RMS’s submission which seeks to attribute the cost of the replacement way to a necessity to remove the existing road to enable the transformation of the land to rural residential lots, the real question is whether the presence of the existing access way on the north east of the land involved work that was necessary or inevitable to the realisation of the subdivision. The access way is not an impediment to the creation of any of the allotments.

60. In El Boustani Preston J said (at [111], emphasis added):

If the financial loss is incurred for reasons other than realising the potential to use the land for that other purpose, it will not satisfy the requirement of being necessarily incurred to realise that potential.

61. In conformity with the principles espoused in McDonald and El Boustani, because it is agreed that the development of the subdivision in the before scenario would not have involved the building of the replacement access way, the expenditure on its construction would not have been have been incurred inevitably in developing the subdivision and s 61(b) cannot be satisfied.

62. The expenditure of the financial cost to construct the replacement access way is not a cost incurred inevitably in, or as a necessary result of, realising the potential to use the land for a purpose other than grazing cattle or timber growing. The cost of the replacement access way to enhance the use of the land for these agricultural uses on the rural residential lots is not inconsistent with the potential of the land for subdivision (cf McDonald at [73], [74], [98] and [99]). The potential subdivision is one which provides Lot 26 in the southern portion of the parent parcel as the obvious principal allotment for grazing cattle, in addition to other allotments requiring the use of the access way for grazing, the maintenance of rural fencing, and timber growing, as distinct from rural residential purposes.

63. I am therefore not persuaded that the requirement that the financial loss claimed under s 59(f) of the Act would, in conformity with s 61(b) of that Act, “necessarily have been incurred in realising the potential” of the proposed 26 lot subdivision.

61. Consequently, the financial loss claimed is not one to which attracts s 61 of the Act and Archbold is not prevented from recovering the financial costs referable to the construction of the replacement access way.

Conclusion

65. Accordingly, the questions posed by the parties for determination may be answered as follows:

Whether the applicant’s claim for $176,000 (incl GST) for the construction of an access way is:

1 available pursuant to s 59(f)? ‘Yes’; and

2 if the answer to (1) is “yes”, whether compensation is not payable because of s 61(b)? ‘No’. Compensation for any loss attributable to disturbance under the act is payable.

Costs

66. There is no presumption that costs follow the event when determining which party is liable for the compulsory acquisition of land (Dillon v Gosford City Council [2011] NSWCA 328; (2011) 184 LGERA 179 at [60]). Having said this, Archbold has clearly been successful in these proceedings.

67. Furthermore, there is no known reason why RMS ought not pay Archbold’s costs of the proceedings. At all times Archbold has acted reasonably in the pursuit of its claim and has not conducted the proceedings in a manner which has given rise to unnecessary delay or expense (see the principles in Dillon at [70]–[72] and Brock v Roads and Maritime Services (No 3) [2012] NSWCA 404; (2012) 191 LGERA 267 at [79]–[82]).

Orders

68. The orders of the Court are therefore:

1. compensation under Pt 3 Div 4 of the Land Acquisition (Just Terms Compensation) Act 1991 for the compulsory acquisition of Lot 2 DP 1180481 is determined in the sum of $330,000, comprising $154,000 for market value (s 55(a)), and $176,000 for disturbance (s 55(d));

2. the respondent is to pay the applicant’s costs; and

3. the exhibit is to be returned.

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Annexure A

Annexure B

Annexure C

Amendments

02 December 2015 - Amendment Solicitors

Decision last updated: 02 December 2015