Bunney v the State of South Australia No. Scgrg-99-209

BUNNEY v THE STATE OF SOUTH AUSTRALIA
[2001] SASC 18

Full Court: Doyle CJ, Olsson and Bleby JJ

1................ DOYLE CJ...... In my opinion the appeal should be dismissed. I agree with the reasons given by Justice Bleby for dismissing the appeal.

I agree that the trial Judge was entitled to prefer the approach of the respondent’s valuer to that of the appellant’s valuer. I agree with the reasons given by Bleby J for rejecting the criticisms of the approach taken by the trial Judge. I acknowledge the force of the argument advanced by Mr Hayes QC, counsel for the appellant, to the effect that in the circumstances a reasonably willing purchase from the position of the respondent would have been prepared to pay a premium to acquire the subject land. However, that is a matter to be decided on the facts of the particular case, and is a matter on which the Judge was again entitled to prefer the approach of the respondent’s valuer.
In short, in my respectful opinion no error has been demonstrated in what I might call the basic approach to the matter taken by the trial Judge.
For those brief reasons I agree that the appeal should be dismissed.

5................ OLSSON J...... I concur that the appeal should be dismissed.

6................ BLEBY J:........ This is an appeal against an order of a judge of the Land and Valuation Division of this Court for payment of compensation made pursuant to s 4 and s 5 of the Encroachments Act 1944. Before the trial Judge there was no dispute that the respondent’s building encroached on the appellant’s land, and that the appropriate remedy was to transfer a portion of the appellant’s land to the respondent. Before the trial Judge there was an issue as to whether compensation was payable at all. However, on the appeal, the only challenge to the trial Judge’s decision is as to his Honour’s assessment of the amount of compensation payable to the appellant.

It is an unusual case of encroachment. The land the subject of the encroachment is part of a narrow right of way known as allotment 246. The allotment is approximately 2.8 metres wide at the point of encroachment, and has an overall length of approximately 409.52 metres. The allotment extends in a westerly direction from Penfold Road, Magill, parallel to and north of The Parade. Portion of the allotment 246 extends, at its western end, where it terminates, into land owned by the Minister of Education, on which the Minister conducts the Norwood‑Morialta High School.
The fee simple of allotment 246 had been purchased by the appellant early in 1997. At the time of trial the Minister was the only person known to have right of way over the land, although the trial Judge accepted the possibility that other presently unidentified landowners may also have a right of way over the land.
The extent of the projection of the allotment into the Minister’s land was from the relevant eastern boundary of the Minister’s land for a distance of approximately 74.24 metres, and it was agreed that the fee simple of the whole of that portion of allotment 246 should be transferred to the Minister.
The trial Judge determined that the unimproved capital value of the portion of land to be transferred was $300. As the respondent conceded that the encroachment arose from negligence on the part of the Minister, his Honour acted in accordance with s 5(1) of the Encroachments Act, and ordered compensation to be paid at three times the unimproved capital value, namely $900.
There are few (if any) physical features by which the boundaries of the allotment the subject of the right of way can now be ascertained. It has not been used as such over its length for a great many years, having been created in 1855. Both the Minister and the owners of the allotments which abut allotment 246 to the east of the Minister’s land have tended to use the land as their own. The appellant’s principal apparent interest in purchasing it was as an accretion to an allotment which he owns on the western side of Penfold Road and on the northern boundary of allotment 246.
It is convenient to adopt the description and the plan appearing in the trial Judge’s reasons for decision. The appellant’s land is marked “A” in the plan below. The land owned by the Minister is marked “school” and its borders are marked by a heavy black line. Allotment 246 is the shaded area shown on the plan leading from Penfold Road to the school. The road passes along the rear of allotments which have a frontage to The Parade and a small cul-de-sac leading off it. It was as registered proprietor of the school land that the Minister had a right of way over the land in question. The school is surrounded by residential development.

The trial Judge had before him conflicting opinions of two valuers. Mr Morgan, who gave evidence for the appellant, valued the land at what he considered its highest and best use, namely for residential sub-division. Notwithstanding that he accepted that the Minister was the only likely purchaser for the relevant portion of the land and that it would not be surplus to the Minister’s requirements for many years, he still described the land as ripe for residential development. He considered that removal of the private road would remove an impediment to residential development of the Minister’s land in the future, and that as it would benefit the whole of the Minister’s land, he considered that it would attract a premium of one‑half to one‑third over and above its ordinary market value. By reference to previous sales of substantial parcels of land sold for residential sub-division, he arrived at a value per square metre of the allotment, and after addition of the premium of 25 per cent he considered the allotment to be valued at $35000. That was the value unencumbered by the Minister’s entitlement to enjoyment of the right of way. He discounted the value of the allotment unencumbered by one‑third in recognition of that right, resulting in a final figure of $23000.
Mr Taylor gave evidence for the respondent. He considered that the allotment was severely limited by its shape and size, its limited utility, especially if used by motor vehicles, the fact that it was subject to the right of way, and difficulties attendant upon sale. These included costs associated with obtaining plans of division to enable the sale to each of the adjoining owners, including surveying and conveyancing costs. He noted that the appellant had paid $1000 for the fee simple, and he considered that the greater part of price paid was attributable to that portion of the land adjacent to the appellant’s allotment. In his opinion, the balance of the allotment had a nominal value. He assessed the value of the portion to be acquired at $100.
The trial Judge rejected Mr Morgan’s approach. He did not accept that the land was ripe for residential development. Lot 501, shown on the plan, had been sold by the Minister as being surplus to requirements in 1997, and a substantial new building had been erected by the Minister on the school land in 1996. There was a strong likelihood that the Norwood-Morialta High School would remain at that site indefinitely. For the foreseeable future, his Honour considered that the highest and best use of the land was as school land.
By reference to other sales information before the court, the trial Judge was able to conclude that the value placed upon the whole of allotment 246 by Mr Morgan was similar to that of a vacant residential allotment in the area, a proposition which the trial Judge was unable to accept, given the nature of the land with all its disadvantages.
His Honour also accepted Mr Taylor’s evidence that the position of the land to be acquired did not justify a premium above its ordinary market value. The acquisition would be of benefit to the Minister, but given that any future sub-division could be designed around it, it was not of such benefit to warrant a premium. In any event, he considered that the fact that the land was not to be valued as residential land removed the capacity for a premium.
He noted that the Minister had no incentive to purchase the land. The Minister had been using it for at least forty years without difficulty, and had actually paved part of it. The right of way was not required for access, and in reality, the Minister was the only purchaser of the fee simple. As such, he would be able to dictate the terms of any agreement to purchase the land. That bargaining power was increased by the fact that the appellant would be unable to sell any part of the allotment for unrestricted use unless he obtained the consent of the Minister.
The trial Judge was alive to the possibility that the applicant could apply to the Registrar-General pursuant to s 90B of the Real Property Act 1886 to extinguish the easement, but his expectation of achieving that would be reduced by the use that the Minister was lawfully making of that portion of the land which protruded into the school land and which abutted the southern boundary of Lot 500. Extinguishment would impair those rights presently enjoyed by the Minister.
His Honour further noted it was not entirely clear whether persons who owned the allotments with frontages to The Parade and David Street which abut allotment 246 enjoyed a right of way over the land. His Honour noted that although the certificates of title to those allotments made no reference to the right of way, it might still be available by reason of s 69IV of the Real Property Act.
All these factors, in his Honour’s view, combined to reduce substantially the value of the land.
His Honour also accepted Mr Taylor’s evidence concerning the one known sale of a private road in the City of Adelaide which, on Mr Taylor’s evidence, although not entirely comparable, justified the price paid for the allotment by the appellant.
His Honour therefore preferred Mr Taylor’s evidence, but with one qualification. Although the stated consideration for the purchase of the land by the appellant was $1000, the vendor was the executor of the estate of the descendant of the last survivor of the original owners. The vendor also required payment of its expenses of approximately $4500, and his Honour accepted that the true price paid for the land was $5500. Based on that figure, the pro-rata value of the land to be acquired by the Minister was $990. However, his Honour pointed out that that process ignored the fact that the major factor in the value paid by the appellant was as an addition to his own allotment. His Honour considered that it also ignored all of the other limitations upon the value of the land. He concluded that the value of the portion of the allotment to be acquired should accordingly be reduced to $300.
The principal issue between the parties on the appeal was whether the trial Judge was correct in rejecting the evidence of Mr Morgan and in acting principally on that of Mr Taylor. The role of an appellate court in these circumstances has been clearly stated by Dixon J in The Commonwealth v Reeve (1949) 78 CLR 410 at 423:
“In Commissioners of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd (1947) 74 CLR 358 at 367, the following passage occurs in the judgment of Latham CJ, Rich and Williams JJ:
......... ‘It would not be proper for this court on an appeal of this nature to substitute its own opinion for that of the court below unless it were satisfied that the court below acted on some wrong principle of law, or that the value was entirely erroneous.’
Their Honours then refer to the statement of Lord Buckmaster in Charan Das v Amir Khan (1920) LR 47 Ind App 255 at 264, that the
......... ‘Board will not interfere with any question of valuation unless it can be shown that some item has improperly been made the subject of valuation or excluded therefrom, or that there is some fundamental principle affecting the valuation which renders it unsound.’
The rule thus laid down is almost indispensable to the administration of justice in compensation cases. For the estimation of a money sum is usually so much a result of judgment and sound discretion and so little the product of analytical reasoning, that, were it otherwise, every appeal would mean an assessment of compensation de novo, without any assignment of error in the reasoning or conclusions of the court appealed from.”

Those principles were adopted by Gibbs J in Emerald Quarry Industries Pty Ltd v Commissioner of Highways (SA) (1979) 142 CLR 351 at 355 - 356.

I am not satisfied that the appellant has demonstrated any error of law, principle or fact in the trial Judge’s assessment of the unimproved capital value of the land.
The appellant argued that there were such errors in the trial Judge’s rejection of the opinion of Mr Morgan that the land should be valued as being ripe for residential sub-division. I disagree.
Although the school land is surrounded by suburban residential development, and although, if sold, the school land would no doubt be valued as a whole at that time as being ripe for sub-division, there was no immediate prospect of the subject land ever being sub-divided in the foreseeable future. Even if its ultimate highest and best use were for sub-division, the evidence showed that the surrounding land (the school land) would continue to be used as a school indefinitely. The land acquired could only ever be used for residential sub-division if the school land was sub-divided.
While its ultimate highest and best use, in conjunction with the school land, might well be sub-division, its value per square metre for that purpose to a potential purchaser would have to be so heavily discounted because of the uncertainty as to whether it would ever be so used, as to be quite unreliable: See Brewarrana Pty Ltd v Commissioner of Highways (No 1) (1973) 32 LGRA 170 at 181.
This was not unencumbered land. It was land subject to a right of way. Its value to the owner could not be great. In a similar situation, the value of the fee simple was described by Pike J in Napper’s Estate v Randwick Municipal Council (1929) 9 LGR 87 as “nominal”. In Ashfield Municipal Council v Roads and Traffic Authority of NSW [2000] NSWLEC 117, Sheahan J accepted a submission that an easement to a gas utility which allowed to the utility “full use” of the land surface, including the erection thereon of buildings, justified as “relevant and appropriate” a reduction of 90 per cent of the unencumbered value of the land.
A right of way prevents any permanent obstruction to the surface of the land which adversely affects the right of passage by the owner of the dominant tenement over the land. It severely restricts the use that may be made of the land. It must detract substantially from the value of the unencumbered fee simple. As Mr Taylor observed in evidence, one cannot see the Minister, as a prudent purchaser, paying a pro rata residential rate and relinquishing his right of way as well.
The appellant submitted that the trial Judge erred in treating the sale of another private road in the City of Adelaide as being of significance. It was suggested that the circumstances of the sale were so different that it should not have been taken into account at all. Whilst there were differences, and they were adverted to by Mr Taylor and by the trial Judge, it was a case where the right of way in question was of significant value to the purchaser, thereby tending, if anything, to inflate the price. The trial Judge acknowledged that the sales were not wholly comparable. Its significance, however, was to demonstrate that the price paid by the applicant when he purchased allotment 246 was a proper indicator of its true value. In my opinion, there was no error of principle in the reliance placed by the trial Judge on that sale.
During the course of argument, a question arose as to the right of the appellant to fence the boundaries of the right of way, including those boundaries of the land with Lot 500. The implication that the appellant would seek to draw from such a right is that it would diminish the practical value of the right of way presently being exercised by the Minister, and would increase the value of the land to the appellant.
The appellant may exercise all the rights of an owner of the fee simple in respect of the allotment except those which cause substantial interference, such as to justify an action in nuisance, with the exercise by the dominant owner of the rights expressly or by necessary implication conferred on the dominant owner by the terms of the grant: Finlayson v Campbell (unreported) Supreme Court of NSW, Young J, 4 September 1997, BC9704054 at 8. In some cases this may allow the servient owner to build on the land, provided that reasonable access is still provided, or that the activity does not amount to a substantial interference with the dominant owner’s rights. That would undoubtedly entitle the servient owner, in most cases, to fence the boundaries, provided that the dominant owner has access from his land by means of openings or gates at such point or points as would reasonably meet the dominant owner’s requirements: Dunell v Phillips (1982) 2 BPR [97140] at 9522. Waddell J cited a number of cases to support that proposition. See also Bradbrooke and Neave: “Easements and Restrictive Covenants in Australia” (2nd Edition) p 170, para [6.32]. However, in Dunell v Phillips, Waddell J continued (at 9522):
“However, the cases cited do not, in my opinion, establish that a servient owner is always entitled to fence the common boundary if the grant is silent on this point. He will not be entitled to do so if it be found that the intention of the parties was that the right of way be used in association with land of the dominant owner.
None the less, the natural presumption that a servient owner should be entitled to fence his land is a matter of considerable importance to be taken into account in deciding what inference is to be drawn from the circumstances existing at the time of the grant of the right of way in the present case.”
In this case the Minister was entitled to “free and unrestricted right of way” over the allotment. By virtue of s 89 and Schedule 5 of the Real Property Act, that includes a right to pass and repass “for all purposes, and either with or without horses or other animals, carts, or other carriages”.
The relevant part of the allotment is very narrow. Any openings or gates in a fence or wall would have to be wide enough to enable any vehicle, including goods carrying vehicles, that could practically use the right of way to turn into or from the servient land: cf Finlayson v Campbell (supra) at 9. Furthermore, any such fence or wall would itself have to be of such a nature as not to restrict unduly such rights of access and passage.
I am not persuaded that the appellant’s right so to fence the land increases to any material extent the value of his interest in the land. In the circumstances, particularly the narrowness of the land, such a right (if it exists) would be substantially curtailed if the Minister’s rights were not to be unreasonably affected. Furthermore, without further evidence, given the protrusion of the land in question into the Minister’s land and the fact that there is no evidence that the land has ever been fenced, I would be reluctant, in this case, to apply the presumption referred to by Waddell J in Dunell v Phillips, given the possibility that the right of way, at least where it abuts Lot 500, was intended to be used in association with Lot 500, and to allow not necessarily only linear passage over the land.
I accept, as did the trial Judge and the valuers who gave evidence, that realistically the most likely purchaser of the land in question would only ever be the Minister. However, the Minister did not require it for access or for sub-division. He was most unlikely to be interested in paying a premium for the land, and was in a strong position to influence the terms of any agreement to purchase the land.

Mr Hayes QC, for the appellant, submitted that to take such a factor into account was contrary to Raja Vyricherla Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam [1939] AC 302. The Privy Council in that case reiterated (at 322 - 323) that the value to be ascertained is the price that would be paid by a willing purchaser to a willing vendor, and not the price that would be paid by a “driven” purchaser to an unwilling vendor. Their Lordships concluded (at 323):
“For these reasons, their Lordships have come to the conclusion that, even where the only possible purchaser of the land’s potentiality is the authority that has obtained the compulsory powers, the arbitrator in awarding compensation must ascertain to the best of his ability the price that would be paid by a willing purchaser to a willing vendor of the land with its potentiality in the same way that he would ascertain it in a case where there are several possible purchasers and that he is no more confined to awarding the land’s ‘poramboke’ value in the former case than he is in the latter.”
That surely means that where there is in effect only one potential purchaser, the value of the land is still what a willing purchaser will pay to a willing vendor. While it may be that the Minister is in a position to dictate the price, it only means, in circumstances such as these, that there is no identifiable reason why the Minister should want to pay any more for the land than any other purchaser. For reasons which have been identified, that is nothing like its value for immediately sub-dividable land. In other circumstances, as their Lordships pointed out Raja’s case, there may be effectively one purchaser who is willing to pay a greater sum than other possible purchasers. The example given in that case was of a railway company with powers of compulsory acquisition. Another example might be a mining company wishing to have unrestricted access to the surface of land bearing minerals suitable for exploitation. In those cases, the vendor will be entitled to reap the benefit of that willingness. It does not follow that where the likely sole purchaser has no pressing desire or need to purchase the land, he must pay a price far higher than any other reasonable purchaser is prepared to pay.
The appellant also submitted that the sale of the land to the appellant in 1998 was not relevant evidence of the value of the land. As the appellant conceded, the trial Judge did not approach the question of valuation in that way. He merely concluded that the approach of Mr Taylor, which he favoured, was confirmed by the amount paid by the appellant for the land. As the trial Judge has not been shown to have erred in any matter of principle, that was a not unreasonable observation, whatever the process may have been by which the appellant arrived at the purchase price in negotiation with the then vendor.
There was ample justification for the trial Judge to reject the evidence of Mr Morgan and to accept that of Mr Taylor. Mr Taylor’s view was that the appellant had paid a realistic price for the allotment.
However, Mr Taylor’s opinion appears to have been based on the consideration of $1000, apparently stated in the transfer. That coincided with the valuation that the appellant had obtained from a Mr Sullivan before the sale. The trial Judge found that, in addition, the appellant had been required to pay the legal and other expenses of the vendor of approximately $4500, and that the price actually paid for the land was approximately $5500.
To the appellant’s advantage, his Honour took that as the value of allotment 246. He noted that if one determined the value of the portion transferred by simply pro-rating that figure, the result was a figure of $990. His Honour continued:
“But that is an overly simplistic approach. It ignores the fact that the major factor in the value of the private road to the applicant is as an addition to his allotment. It also ignores all of the other limitations upon the value of the land and, in particular, it ignores:
(1)... that the private road is subject to a right of way in favour of the Minister;
(2)that the Minister is able to bargain with the fact that he is the holder of the dominant tenement;
(3)... that the land is at the western end of the private road and causes no inconvenience to any other person;
(4)that the land is very long and narrow and has very limited utility.
For all of these reasons, the value of $990 must be substantially reduced. I agree with Mr Taylor that as the subject land is at the western end of the private road its value is thereby significantly reduced. Having regard to the fact that the Minister is a prudent purchaser aware of his superior bargaining position and that he can trade his relinquishing of the right of way against the price sought by the applicant, I think that the value of the subject land is no higher than $300. I therefore assess its unimproved capital value at $300.”
There was a suggestion, in argument, that his Honour had effected a double discount by virtue of repeating some of the relevant factors after he had already given the reasons why the figure of $990 should be substantially reduced.
The factors that his Honour first listed were factors peculiar to the sale of that particular portion of the allotment, as opposed to sale of (say) the eastern end of the allotment. They were factors which related either to the physical location of the portion of allotment 246 to be acquired or to the fact that the proposed transferee was the Minister, who owned the land surrounding that portion to be acquired. In the paragraph that followed, his Honour was merely restating, in more general terms, those two aspects. I do not interpret what his Honour said as double counting.
The resultant figure of $300 was, to the appellant’s advantage, significantly greater than the figure that Mr Taylor was prepared to allow as the value of that portion.
I can see no grounds on which the assessment of the trial Judge should be disturbed. I would dismiss the appeal.

[2001] SASC 18

14 February 2001