Chung Yi Developments Pty Ltd ACN 138 392 533 v The Australian Capital Territory
[2020] ACAT 71
•11 September 2020
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
CHUNG YI DEVELOPMENTS PTY LTD ACN 138 392 533 v THE AUSTRALIAN CAPITAL TERRITORY (Administrative Review) [2020] ACAT 71
AT 15/2019
Catchwords: ADMINISTRATIVE REVIEW – compensation for compulsory acquisition of land – Northbourne Avenue Precinct –consideration of Lands Acquisition Act 1994, section 45 – consideration of appropriate methods to assess just compensation – whether to use subject block method or ‘before and after’ method – consideration of matters arising under section 45 for the purpose of assessing just compensation – consideration of ‘default or delay’ when calculating interest
Legislation cited: Lands Acquisition Act 1994 ss 33, 42, 45, 46, 53, 54, 56, 59, 104AD
Planning and Development Act 2007 ss 50, 276
Subordinate
Legislation cited: Lands Acquisition Declaration 2015 (No 1)
Planning and Development (Remission of Lease Variation Charges - Economic Stimulus and Sustainability) Determination 2016 (No 1)
Cases cited:3 Property Group 5 Pty Ltd v Commissioner for ACT Revenue [2019] ACAT 67
Barkat v Roads and Maritime Services [2019] NSWCA 240
Boland v Yates Property Corporation Pty Ltd (1994) 74 ALJR 209
Brewarrana Pty Ltd v Commission of Highways(No 2) (1973) 6 SASR 541
Carson v Minister for Environment and Planning (1990) 70 LGRA 215
Challenger Property Asset Management Pty Ltd & Anor v Stonnington City Council & Anor [2011] VSC 184
Commonwealth v Milledge (1953) 90 CLR 157
Daly v Manly Municipal Council (1983) 650 LGRA 246
Dangerfield v Town of St Peters (1971-1972) 129 CLR 586
De Ieso v Commissioner of Highways [1981] SASC 5454
Estate Of Anthi John Notaras v Commissioner of ACT Revenue [2017] ACAT 2
Maurici v Chief Commissioner of State Revenue [2003] HCA 8
Inglewood Pulp and Paper Co Ltd v New Brunswick Electrical Power Commission [1928] AC 492
ISPT Pty Ltd and City of Melbourne [2007] VCAT 652
Notaras v Commissioner for ACT Revenue [2016] ACAT 19
Olefines Pty Ltd v Valuer-General (NSW) [2018] NSWCA 265
re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16
Sharp v Western Australian Planning Commission [1999] WASC 223
Spencer v The Commonwealth (1907) 5 CLR 418
Springrange Pty Ltd v ACT and ACT Planning and Land Authority [2010] ACTCA 17
Sullivan v ACT Planning and Land Authority [2018] ACAT 76
Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295
Western Australian Planning Commission v Kelly [2007] WASCA 160
List of
Texts/Papers cited: Hyman, The Law Affecting Valuation of Land in Australia, (6th edition) (2020) The Federation Press
Jacobs QC, Law of Compulsory Land Acquisition, (2010), Lawbook Co
Tribunal: Presidential Member G McCarthy
Senior Member M Sinclair
Date of Orders: 11 September 2020
Date of Reasons for Decision: 11 September 2020
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 15/2019
BETWEEN:
CHUNG YI DEVELOPMENTS PTY LTD
ACN 138 392 533
Applicant
AND:
THE AUSTRALIAN CAPITAL TERRITORY
Respondent
TRIBUNAL:Presidential Member G McCarthy
Senior Member M Sinclair
DATE:11 September 2020
The Tribunal orders that:
1.The respondent pay the applicant $4,452,078.60 by way of compensation for the respondent’s acquisition of Block 18, Section 33, Dickson, plus interest and costs.
2.The parties have liberty to apply on 3 days’ notice.
………………………………..
Presidential Member G McCarthy
For and on behalf of the Tribunal
REASONS FOR DECISION
Background
1.In or about September 2009, the applicant, Chung Yi Developments Pty Ltd (Chung Yi), purchased a piece of land with the identifier Block 4, Section 33, Dickson in the ACT (Block 4) for the sum of $27,500,000.[1] Block 4 had the street address, 470 Northbourne Avenue, Canberra.[2]
[1] Statement of Maurice Falcetta made on 18 July 2019, paragraphs 5 and 6; Exhibit A4
[2] Statement of Maurice Falcetta made on 18 July 2019, Annexure “D”, page 3 of 7; Exhibit A4
2.Block 4 was an irregular shaped block, 214 m in length on its eastern boundary and 112 m on its western boundary, although these boundaries were parallel. The northern half of the block was approximately 106.5 m in width.[3] It had a total area of approximately 21,350 m².[4] Its western boundary ran parallel with Northbourne Avenue. Its eastern boundary ran parallel with Challis Street. It adjoined Block 20 to the north, which is the site of the former ACT Motor Vehicle Registry. It adjoined a watercourse to the south.[5]
[3] See Deposited Plan 11398, a copy of which is annexure “B” to Chung Yi’s application for compensation dated 12 November 2018 - see document 3, Exhibit A2
[4] See the Land Acquisition Plan attached to the Lands Acquisition Declaration 2015 (No 1); Annexure “D” to Chung Yi’s claim for compensation; document 3, Exhibit A2
[5] For a plan of the acquired portion, see the Land Acquisition Plan attached to the Lands Acquisition Declaration 2015 (No 1)
3.On 19 October 2015 (the acquisition date),[6] pursuant to section 33 of the Lands Acquisition Act 1994 (the Act), the Australian Capital Territory Executive (the Territory)[7] compulsorily acquired a rectangular portion of Block 4 at its northern end.[8] The acquired portion is approximately 29 m wide (extending southward from what was the northern boundary of Block 4) and approximately 106.5 m long (extending across the whole width of Block 4).[9] It has a total area of 3,088 m². The remaining portion of Block 4 has an area of 18,260 m².[10]
[6] See joint statement of facts dated 5 June 2019, paragraph 2
[7] The Lands Acquisition Act provides for different rights and responsibilities conferred on “the Executive”. That term is defined in the Dictionary to the Legislation Act 2001 to mean “the Australian Capital Territory Executive”. That body is established under section 36 of the Australian Capital Territory (Self-Government) Act 1988, the members of which are the Chief Minister and such other Ministers as are appointed by the Chief Minister.
[8] See Lands Acquisition Declaration 2015 (No 1) dated 14 October 2015, Land Acquisition Plan
[9] See Deposited Plan 11398
[10] See Land Acquisition Plan forming part of the Land Acquisition Declaration 2015 (No 1)
4.The acquired portion was given the identifier Block 18, Section 33, Dickson (Block 18). The remaining portion of Block 4 was given the identifier Block 17, Section 33, Dickson (Block 17). Following the acquisition, Block 4 ceased to be.
5.Block 4 is to the west of what was then a ‘T’ intersection between Challis Street running in a north – south direction and Cape Street running east from Challis Street. The northern and southern boundaries of Block 18 are in line with the northern and southern boundaries of Cape Street.[11]
[11] See Deposited Plan 11398
6.The Territory acquired Block 18 for use as a bus interchange and to give pedestrian access from the newly constructed Dickson Interchange Light Rail stop to the Dickson shopping precinct. The purpose of the acquisition has been achieved. Pursuant to section 56 of the Act, Chung Yi was entitled to make a claim for compensation arising from the acquisition of Block 18.
7.Pursuant to section 42 of the Act, Chung Yi is entitled to be paid compensation for the compulsory acquisition of Block 18. Section 42 provides:
42 Entitlement to compensation
A person from whom an interest in land is acquired by compulsory process is entitled to be paid compensation by the Executive in accordance with this part in respect of the acquisition.
8.Section 42 is in Part 6 of the Act, comprised of sections 42-78.
9.The amount of compensation to which Chung Yi is entitled must be determined under section 45 of the Act which provides:
45 Amount of compensation—general principles
(1) The amount of compensation to which a person is entitled under this part in respect of the acquisition of an interest in land is such amount as, having regard to all relevant matters, will justly compensate the person for the acquisition.
(2) In assessing the amount of compensation to which the person is entitled, regard shall be had to all relevant matters, including—
(a)except in a case to which paragraph (b) applies—
(i)the market value of the interest on the day of the acquisition; and
(ii)the value, on the day of the acquisition, of any financial advantage, additional to market value, to the person incidental to the person’s ownership of the interest; and
(iii)any reduction in the market value of any other interest in land held by the person that is caused by the severance by the acquisition of the acquired interest from the other interest; and
(iv)where the acquisition has the effect of severing the acquired interest from another interest—any increase or decrease in the market value of the interest still held by the person resulting from the nature of, or the carrying out of, the purpose for which the acquired interest was acquired; and
(b)if—
(i)the interest acquired from the person did not previously exist as such in relation to the land; and
(ii)the person’s interest in the land was diminished, but not extinguished, by the acquisition; and
the loss suffered by the person because of the diminution of the person’s interest in the land; and
(c)any loss, injury or damage suffered, or expense reasonably incurred, by the person that was, having regard to all relevant considerations, including any circumstances peculiar to the person, suffered or incurred by the person as a direct, natural and reasonable consequence of—
(i)the acquisition of the interest; or
(ii)the making or giving of the pre-acquisition declaration or certificate under section 21 in relation to the acquisition of the interest;
other than any such loss, injury, damage or expense in respect of which compensation is payable under part 7; and
(d)subject to section 50, if the interest is limited as to time or may be terminated by another person—the likelihood of the continuation or renewal of the interest and the likely terms and conditions on which any continuation or renewal would be granted; and
(e)any legal or other professional costs reasonably incurred by the person in relation to the acquisition, including the costs of—
(i)obtaining advice in relation to the acquisition, the entitlement of the person to compensation or the amount of compensation; and
(ii)executing, producing or surrendering such documents, and making out and providing such abstracts and attested copies, as the director general, the solicitor-general, the chief solicitor or a person authorised under the Law Officers Act 2011, section 29 (1) (Person authorised by chief solicitor) requires.
10.The phrase “regard shall be had to all relevant matters, including” (our emphasis) in the opening lines of section 45(2) requires the decision-maker to consider each of the matters set out in sections 45(2)(a) – (e) where applicable, irrespective of whether they have consequence when assessing just compensation, together with all other relevant matters that arise.
11.The matters listed in section 45(2) are not separate ‘heads’ of compensation. They are no more than matters to which “regard shall be had” when determining just compensation. We reject Mr Erskine’s submission that “market value”, or any other matter listed in section 45(2), is a “mandatory component of just compensation” that “must be determined and brought to account”.[12] Whether a matter in section 45(2) is an appropriate consideration for determining just compensation, or a component of just compensation, will depend on the facts in each case. Care must be taken, as the parties agreed, to avoid ‘double counting’ by reference to different matters.
[12] Closing submissions dated 28 October 2019, paragraphs 6 and 7
12.By application dated 12 November 2018,[13] Chung Yi claimed $9,108,609.57 as compensation for the compulsory acquisition of Block 18 (the Claim). The components of the Claim, referenced to section 45(2) of the Act, were as follows:
[13] Exhibit A2, pages 1-210
Ref
Act Ref
Material
Claim
3A
45(2)(a)(i)
‘market value of interest on the day of the acquisition’
$2,450,000.00
3B
45(2)(a)(ii)
‘the value on the day of acquisition of any financial advantage…’
No claim submitted
45(2)(a)(iii)
‘any reduction in the market value of any other interest in land…’
No claim submitted
3C
45(2)(a)(iv)
‘…any increase or decrease in the market value of the interest still held…’
$2,275,000.00
45(2)(b)
‘…loss suffered by the person because of the diminution of the person’s interest…’
No claim submitted
3D
45(2)(c)
‘any loss, damage or injury suffered… as a direct natural and reasonable consequence…’
$90,680.00
$4,100,000.00
45(2)(d)
‘…the continuation or renewal of the interest and the likely terms and conditions…’
No claim submitted
3E
45(2)(e)
‘any legal or other professional costs reasonably incurred by the person…’
$192,929.57
Total of claim under s45 of the Act:
$9,108,609.57
13.Pursuant to section 56(6) of the Act, the Territory was required to decide the Claim within 42 days after the day it was made unless, pursuant to section 56(7) of the Act, Chung Yi agreed in writing to an extension before the end of the 42 day period.
14.By email dated 10 December 2018, the Territory requested an extension of time until 30 June 2019 to assess the Claim. Chung Yi agreed to an extension to 3 February 2019, but not to 30 June 2019.
15.The Territory did not assess the Claim before the expiry of the extended period. Pursuant to section 59(4) of the Act,[14] the Territory was therefore “taken to have rejected the claim”. Pursuant to section 104AD of the Act, Chung Yi was entitled to apply to the Tribunal for review of that (deemed) rejection of its Claim.[15] It did so, by application dated 21 February 2019.
[14] In our view, the words “the 42-day period” in section 59(4) should be construed as meaning the 42 day period mentioned in section 56(6) together with any extension of that period to which the claimant agrees in writing pursuant to section 56(7).
[15] In our view, where the Territory is “taken to have rejected claim” pursuant to section 59(4), that rejection should be treated as a rejection for the purposes of section 59(3), being a decision about which Chung Yi was entitled to seek review pursuant to section 104AD and item 2 to Schedule 1 of the Act.
16.The Tribunal heard the application on 9, 10, 11, 14, 15 and 16 October 2019 and 14 November 2019. Mr Erskine SC of counsel appeared for Chung Yi. Mr Walker SC with Mr Buckland of counsel appeared for the Territory.
17.With reference to each component of the Claim, we considered in turn each matter in section 45 (2).
Section 45(2)(a)(i) - market value of Block 18
18.Pursuant to section 45(2)(a)(i) of the Act, a matter to which the Tribunal must have regard is the market value of Block 18 “on the day of the acquisition”. “Market value”, for the purpose of Division 6.2 of the Act of which section 45 forms part, is defined in section 46 as follows:
46 Meaning of market value in div 6.2
For this division, the market value of an interest in land at a particular time is the amount that would have been paid for the interest if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer.
19.The definition of market value in section 46 reflects the common law meaning of market value, as set out in Spencer v The Commonwealth (Spencer).[16]
[16] Spencer v The Commonwealth (1907) 5 CLR 418
20.As at the acquisition date, Block 18 had been developed only as an ‘at grade’ carpark, meaning a hard-stand open air car park at ground level. For valuation purposes, it was unimproved land.
21.Nothing in section 45 of the Act requires assessment of compensation by reference to the unimproved value (UV) of the acquired land. However, to do so is logical in this case because Block 18 was undeveloped as at the acquisition date, save for the carpark that the parties agreed was of no material value.
22.Although unimproved, the development potential of Block 18 was significant. It was on land zoned Commercial Zone 5 (CZ5) under the Territory Plan. Subject to compliance with other relevant codes within the Territory Plan, the Commercial Zones Development Code (CZDC) permitted Block 18 to be used for a wide range of high-density commercial uses and for high-density residential use.
23.As the parties agreed, the market value of Block 18 should be determined by reference to its highest and best use. In Spicer v The Valuer-General (Spicer)[17] the NSW Supreme Court, per Else-Mitchell J, commented on this proposition as follows:
The law is quite plain that under the Valuation of Land Act 1916 (NSW) the unimproved value of land must be based upon the best or most profitable potential use and if the land was legally capable of being subdivided for residential purposes … it was proper to value it on a subdivisional basis.
[17] Spicer v The Valuer-General (1963) 10 LGRA 319. See generally Hyam, The Law Affecting Valuation of Land in Australia (6th edition) 2020, at pages 213-220
24.In Olefines Pty Ltd v Valuer-General (NSW) (Olefines) the NSW Court of Appeal, per Basten JA, described the concept as requiring an assessment of compensation by reference to:
the most financially rewarding use permitted within the boundaries of applicable legal regulation.[18]
[18] Olefines Pty Ltd v Valuer-General (NSW) [2018] NSWCA 265 at [16]
25.In Notaras v Commissioner for ACT Revenue (Notaras), the Tribunal referred to the definition of ‘highest and best use’ in the IVSC as follows:
[T]he use of an asset that maximises its potential and that is physically possible, legally permissible and financially feasible.[19]
[19] Notaras v Commissioner for ACT Revenue [2016] ACAT 19 at [25]
26.By reason of its location, the parties proceeded on the basis that the highest and best use for Block 18 was mixed use, commercial and multi-unit residential. The Tribunal respected that approach and proceeded accordingly.
27.The market value of Block 18 means the amount that a “willing but not anxious buyer” would have paid for it “if it had been sold at that time”, to quote from section 46. On this question, the parties took very different positions.
28.Chung Yi submitted that Block 18 had a significant market value in its own right, and that this value should be “determined and brought to account” as a component of just compensation. To assess compensation by reference to the market value of an acquired interest is sometimes described as using the ‘subject block method’.
29.The Territory submitted that Block 18’s market value in its own right could not be ascertained because the town planning impediments for developing it were so severe. For this reason, it said, the subject block method was not an appropriate method for assessing just compensation. The Territory submitted we should therefore use the ‘before and after’ method, to which we will return.
30.We pause here to note that Chung Yi’s claim for compensation in this proceeding, with reliance on section 45(2)(a)(i), bore no resemblance to its claim with reliance on a section 45(2)(a)(i) in its original Claim.
31.In its Claim, Chung Yi relied on two reports:
(a)A report dated 13 March 2018[20] from Mr Lindsay Callaghan, a town planner with Knight Frank Town Planning (KFTP).
(b)A report dated 14 October 2015,[21] but prepared on or about 18 June 2018,[22] from Mr Steven Flannery, a valuer with Knight Frank Valuations Canberra (KFVC).
[20] Annexure D to Chung Yi’s claim for compensation, being document 3 in exhibit A2
[21] Annexure C to Chung Yi’s claim for compensation, being document 3 in exhibit A2
[22] Transcript of proceedings, 14 October 2019, page 280, lines 30 - 45
32.In his report dated 13 March 2018, Mr Callaghan put forward four different development scenarios: development of Block 4 cleared of existing buildings (scenario 01), development of Block 4 with retention of existing buildings (scenario 02), development of Block 17 cleared of existing buildings (scenario 03) and development of Block 4 with retention of existing buildings (scenario 04). By reference to these scenarios, Mr Callaghan said that the potential plot ratio for development on Block 17 was 3,[23] whereas the potential plot ratio for development of (former) Block 4 was 3.3[24] meaning a “9.09% drop in potential GFA”. Mr Callaghan attributed this loss, or drop, “to the increased, relative impact of setbacks and other controls on the reduced block size”.[25] Mr Callaghan estimated that 157 fewer residential units could be built on Block 4 per his scenario 01 than could be built on Block 17 per his scenario 03.
[23] Mr Callaghan accepted that this was rounded up from 2.997
[24] Mr Callaghan accepted that this was rounded up from 3.278
[25] Report dated 13 March 2008, page 28
33.In his report dated 14 October 2015, Mr Flannery relied on scenarios 01 and 03 in Mr Callaghan’s report to conclude that the Territory had acquired a potential GFA of 15,266 m² which he equated to approximately 153 residential units. Mr Flannery calculated the land value, less charges, for these units to be $2,275,000. Mr Flannery said that this sum is payable as compensation under section 45(2)(a)(iii) of the Act, not section 45(2)(a)(i), although Chung Yi adopted that sum for the purpose of its claim under section 45(2)(a)(iv) of the Act.
34.For the purpose of section 45(2)(a)(i) of the Act, Mr Flannery assessed the market value of Block 18 by reference to its commercial value, not anything in Mr Callaghan’s report. Mr Flannery used the ‘comparable sales’ or ‘direct comparison’ method, by reference to sales of four commercial properties (two in Gunghalin and two in Forrest) to estimate a commercial Gross Floor Area (GFA) value for Block 18 of $850 per metre (total: $2,430,000) and a commercial site value for Block 18 of $800 per metre (total: $2,470,000). He then adopted midpoint of $2,450,000 “as the market value of the land acquired as at 14 October 2015”.[26] Chung Yi adopted that sum in its original Claim under section 45(2)(a)(i) of the Act.[27]
[26] Report dated 14 October 2015, page 35
[27] Mr Flannery agreed that the severance claim for the ‘lost’ 153 residential units ($2,275,000) and the market value claim by reference to the commercial value of Block 18 ($2,450,000) was double counting; transcript of proceedings, 14 October 2019, page 340, lines 11-12.
35.In this proceeding, Chung Yi abandoned the substance and reasoning in its Claim under section 45(2)(a)(i) of the Act. We accept that Chung Yi was able to do so, where the Tribunal conducts administrative review of a decision “afresh”, but a consequence was that the Territory was similarly required to start afresh in its response.
36.In this proceeding, Chung Yi recast its claim about the market value of Block 18 by reference to its multi-unit residential value, rather than its commercial value, and as a ‘stand alone’ block rather than the difference between what could have been built on Block 4 and what could have been built on Block 17.
37.To meet at least some of the planning considerations that would have arisen for development of Block 18, as a stand alone block for multi-unit residential use, Mr Erskine submitted that several assumptions must be made. As he put it:
… the hypothetical sale is a sale on the open market to a well-informed arm’s-length purchaser (section 46). In the ACT context, an open market sale of such a block carries with it important assumptions about the block. If those assumptions are not made, the block is effectively worthless because no purchaser would buy the block without those assumptions being made. That would defeat the entire purpose of the legislation to give effect to the requirement that compensation be “just”.[28]
[28] Opening submission dated 14 July 2019 at [18]
38.The assumptions we were asked to make were, in summary, as follows.
(a)That a subdivision of Block 4 into Blocks 17 and 18 has been approved by the ACT Planning and Land Authority (the Planning Authority).
(b)That, consequent upon the assumed subdivision, a Crown lease has been issued for Block 18 that would bind a prospective purchaser.
(c)That the assumed Crown lease has a purpose clause that would “reflect the type of purpose clauses found in Block 17, the former Block 4 and the blocks to the north of Block 18”.[29] The purpose clause has “a wide range of commercial uses including offices and retail”[30] and no GFA limit. Alternatively, he said, we should assume a GFA limit of around 13,000 m² of office use, consistent with the new Crown lease issued over Block 17.
(d)That the Territory Plan’s “zoning and applicable requirements” - which we took to mean the town planning requirements for approval of a development on Block 18 - “were those that applied to the land as part of Block 4 immediately prior to acquisition”.[31]
[29] Opening submission dated 14 July 2019 at [40]
[30] Opening submission dated 14 July 2019 at [25]
[31] Opening submission dated 14 July 2019 at [27]
39.Mr Erskine submitted:
… all these assumptions have to be made in order to have an open market on which Block 18 could be sold. That is the statutory basis for evaluation of the block (see sections 45 and 46). Without those assumptions, there would be no purchasers because the block would be unsaleable in any meaningful fashion.[32]
[32] Opening submission dated 14 July 2019 at [28]
40.Mr Erskine submitted that section 45(2)(a)(i) and section 46 of the Act require the market value of Block 18 to be determined “by asking what a prudent purchaser would [have paid] for the block itself”.[33] We agree.
[33] Opening submission dated 14 July 2019 at [40]
41.Mr Erskine submitted, with reliance on Block 18’s dimensions, rectangular shape and total area of 3,088 m², that it would have been “an attractive saleable block”[34] if offered to the market. Its market value should therefore be determined by valuing it “directly”, meaning we should value the block “as if it had been put onto the market with all of its development potential.”[35]
[34] Opening submission dated 14 July 2019 at [47]
[35] Opening submission dated 14 July 2019 at [48]
42.Regarding the development potential of Block 18, and thus its market value, Mr Erskine relied on a second report dated 12 July 2019 from Mr Callaghan in which he put forward three scenarios for development of Block 18.[36] Mr Callaghan provided his second report in response to a letter of instruction dated 3 June 2019 from Chung Yi’s solicitor, Mr Falcetta,[37] in which Mr Callaghan was instructed to make, in substance, the assumptions that Mr Erskine submitted we should make for the purpose of determining the market value of Block 18.
[36] See Callaghan report dated 12 July 2019; Exhibit A1, tab 9
[37] Attachment A to Mr Callaghan’s report dated 12 July 2019
43.Mr Callaghan’s first scenario (scenario 01) entailed a three storey commercial development with no basements, a total building height of 11.4 m, zero side setbacks, 84 car spaces and a total GFA of 3,088 m².
44.Mr Callaghan’s second scenario (scenario 02) entailed a seven storey commercial development with two basements, a total building height of 25 m, a front setback of 10 m to Northbourne Avenue and 5 m side setbacks, 241 car spaces and a total GFA of 12,824 m².
45.Mr Callaghan’s third scenario (scenario 03) entailed an eight storey residential apartment development containing 127 one, two and three bedroom units, two basement car parks, ground floor and first floor car parks, a total building height of 25 m, a front setback of 10 m to Northbourne Avenue, front and side setbacks assumed to be compliant with the applicable planning codes, 191 car spaces and a total GFA of 12,443 m².
46.Mr Erskine relied on scenario 03, for the purpose of assessing the market value of Block 18, because it represented the “highest and best use” for the block. He submitted there was a reasonable prospect that the proposed residential development could have been built to comply with the Territory Plan and with the National Capital Plan as at the acquisition date. He contended that Block 18 should therefore be valued on this basis.
47.As to what that value should be, Mr Erskine relied on a second report dated 20 June 2019 from Mr Flannery in which he valued Block 18 on the basis that it is developed for multi-unit residential housing. With reference to Mr Callaghan’s scenario 03, Mr Flannery estimated the average land value per unit of the proposed 127 residential units that could be built on Block 18 to be $60,000 giving a residential value of $7,620,000. After allowing for a 50% lease variation charge (LVC), Mr Flannery assessed the market value of Block 18, based on multi-unit residential use, to be $4,900,000.[38] In his closing submissions,[39] Mr Erskine maintained that this sum represents the market value of Block 18, and is payable as a component of just compensation pursuant to section 45(2)(a)(i) of the Act.
[38] Flannery report dated 20 June 2019, pages 12 and 16
[39] Closing submissions dated 28 October 2019, annexed summary of compensation
48.Where the parties agreed, and we accept, that mixed use commercial and multi-unit residential is the highest and best use for Block 18, we did not need to consider Mr Callaghan’s scenarios 01 or 02. However, had we done so, for the reasons discussed below, the outcome would have been the same.
49.We appreciated that Mr Callaghan’s scenario 03 design was put forward for valuation purposes, not planning purposes. The design was well advanced from ‘sketch stage’, but Mr Callaghan was not suggesting it would withstand the rigour of an assessment for planning purposes. In his supplementary report dated 30 September 2019, Mr Callaghan said:
I reiterate that the potential for development yield assessments prepared by [KFTP] … are a first step high-level yield assessments (sic) and are not designs developed after the iterative process of conceptualising and testing those concepts against the specific applicable rules and criteria of the planning codes with the aim of developing a proposed that will withstand the level of scrutiny applied by any approving authority.[40]
[40] Callaghan report dated 30 September 2019, paragraph 3 t), page 5
50.Mr Callaghan accepted that adjustments and minor reductions in scale would have been necessary to obtain planning approval.
51.As we understood it, Mr Callaghan’s intention was to put forward a proposal about the development potential of Block 18, and therefore the amount that a “willing but not anxious” buyer would have paid for it “had it been sold at the time”.[41]
[41] These phrases are drawn from the definition of “market value” in section 46 of the Act
52.In response, Mr Walker did not challenge Mr Callaghan’s design with reliance on factors that probably could have been addressed by making minor adjustments. The Territory’s position was that, for several ‘big picture’ reasons, Mr Callaghan’s suggested development or anything resembling it had no realistic prospect of obtaining planning approval - with the consequence that no reasonable and informed prospective purchaser would have bought Block 18 with an understanding that it was likely to obtain approval to construct anything resembling Mr Callaghan’s design.
53.We agree that the market value of Block 18 should be assessed by reference to its development potential. We adopt the reasoning of the WA Supreme Court, per Pringle QC, in Sharp v Western Australian Planning Commission (Sharp) on which Mr Erskine relied, that the task is not to decide whether, as a fact, planning approval would be given, but “how a hypothetical purchaser would have viewed the prospects of obtaining approval” [42] (our emphasis).
[42] Sharp v Western Australian Planning Commission [1999] WASC 223 at [78]
54.In De Ieso v Commissioner of Highways (De Ieso), the Supreme Court of South Australia, per Wells J, took a similar approach. In that matter, the Commissioner of Highways resumed a portion of a parcel of land for road purposes. The parties agreed that the parcel of land was “ripe for subdivision into residential allotments”, but disagreed as to the number of residential allotments that the remaining land could support after the resumption - and hence its value. The disagreement arose from different opinions about whether the different subdivision plans would or would not prove acceptable to the relevant planning authorities. In response to this disagreement, Wells J said:
The Court is not, in my opinion, called on to inquire ultimately whether, as a fact, the planning authorities would have approved a relevant plan of sub- division. Rather it is called on to decide how a hypothetical prospective developer (who may be assimilated, in the present context, with the willing but not anxious, hypothetical purchaser posed by the judgments in Spencer’s case) would have viewed his potential financial return if he were considering a proposal that included one or other of the proposed plans.[43]
[43] De Ieso v Commissioner of Highways [1981] SASC 5454; 27 SASR 248 at 253
55.There was of course no prospect that, as at the acquisition date, a residential building would be built on Block 18: the land has been acquired for public use. Mr Erskine reminded us, and we accept, that this fact is irrelevant. The task was to consider what “a willing but not anxious buyer” would have paid for it had it been, instead, sold to the market at the time.
56.In our view, the “willing but not anxious buyer” is also a reasonable and well-informed buyer. In De Ieso, Wells J commented that the “two hypothetical men” in Spencer:
are assumed to be cognisant of all circumstances which affect [the land’s] value”, and among those circumstances are the opinions of men, regarded as authoritative in such matters, with respect to value and factors affecting value.[44]
[44] De Ieso v Commissioner of Highways [1981] SASC 5454; 27 SASR 248 at 252. See generally Jacobs, Law of Compulsory Land Acquisition, Lawbook Co, at [18.125] – [18.130]
57.We have considered Mr Callaghan’s development proposals on this basis.
58.Mr Walker relied on the evidence of Mr van der Walt, a town planner and principal director of Canberra Town Planning (CTP), to submit that none of Mr Callaghan’s development scenarios, or anything resembling them, had any realistic prospect of obtaining development approval with the result that a reasonable and well-informed buyer would not buy Block 18 with the belief that any of the development scenarios (or anything approximating any of them) could be achieved.
59.In his report dated 26 August 2019[45] in reply to Mr Callaghan’s second report, Mr van der Walt reviewed each of Mr Callaghan’s three scenarios against the planning controls in the National Capital Plan (the NCP), the Northbourne Avenue Precinct Code (the NAPC), the Residential Zones Development Code (the RZDC) and the Multi Unit Housing Development Code (the MUHDC) to explain why, in his view, scenario 01 “would not be capable of achieving development approval” and why, in his view, scenarios 02 and 03 do “not represent a reasonable development outcome on Block 18”.
[45] Exhibit R8
60.Regarding scenario 03, Mr van der Walt stated:
the proposal appears unable to satisfy rules or criteria that relate to residential amenity under the [MUHDC].[46]
[46] van der Walt report dated 26 August 2019, page 31; Exhibit R8
61.For the reasons given in his report, Mr van der Walt concluded:
In my opinion, the development scenarios provided in the Knight Frank report would not be pursued by a reasonable person as a development outcome for Block 18 and may not receive a favourable consideration if pursued as part of a development application.[47]
[47] van der Walt report dated 26 August 2019, page 31; Exhibit R8
62.We appreciated that this is a valuation case, not a planning case. Our task was not to determine whether scenario 03 or something resembling it would, or would not, obtain planning approval. Our task was to consider the difficulties that someone applying for planning approval for scenario 03 or something resembling it might strike, and their prospects of overcoming those difficulties, for the purpose of determining what a reasonable, well-informed willing but not anxious buyer would pay for Block 18, having regard to those difficulties.
63.In De Ieso, Wells J commented on the need to assess value from the viewpoint of the informed hypothetical purchaser who would hold opinions and/or advice about prospects of obtaining planning approval for a stated proposal. It is not a matter of whether an opinion proves to be right or wrong. It is the level of certainty, or uncertainty, about development potential that would impact upon the amount that hypothetical purchaser would pay. His Honour said:
Finally, it is impossible to overlook the very human tendency for a developer - like an entrepreneur in any field of commerce - to cut his business risks as far as reasonably practicable; and because the Court must consider what the decision of a hypothetical developer would have been before the purchase took place, and not after it - when he could, within limits, feel his way - it must give real weight to the possibility that the hypothetical developer would be guided more by a plan from which there were absent, than by a plan in which there were present, elements of controversy.[48]
[48] De Ieso v Commissioner of Highways [1981] SASC 5454; 27 SASR 248 at 254
64.Put simply, the greater the difficulties a willing but not anxious buyer perceives they will have in obtaining planning approval and the lower the prospect of overcoming them, the lower the amount that the buyer would pay for the land.
65.In our view, the primary difficulty with scenario 03 was the low, if any, prospect of obtaining approved access to Block 18 for a residential development of the kind or scale that Mr Callaghan put forward.
66.Block 18 shares a common boundary to the north with Block 20. As at the acquisition date, Block 20 was being used as the ACT Government Motor Vehicle Registry site, but there was no suggestion that a willing but not anxious buyer of Block 18 would have seen any prospect of obtaining a long-term easement, or right-of-way, across Block 20. By February 2016,[49] the Territory was calling for expressions of interest to buy the block, and it was soon sold to a third-party.
[49] Statement of Maurice Falcetta dated 24 September 2019, Annexure W
67.Block 18 shares a common boundary to the south with Block 17. Access from the south would have been impossible unless the Crown lessee of Block 18 was able to obtain a right-of-way across Block 17 to Challis Street. There was no evidence about the willingness of Chung Yi (being the Crown lessee of Block 17) to grant an easement to such a buyer, or the terms upon which it would be given. The only person who could have reasonably relied upon obtaining an easement of that kind would have been Chung Yi.
68.Block 18’s western boundary fronted Northbourne Avenue. There was no dispute that a Crown lessee of Block 18 would have had negligible, if any, prospect of obtaining access to the block from Northbourne Avenue, and almost no prospect of obtaining egress from the block to Northbourne Avenue, because the National Capital Authority would not have permitted it.[50]
[50] Transcript of proceedings, 10 October 2019, page 177, lines 45 - 47
69.The only possible access to Block 18, therefore, was from the east, off Challis Street. Mr Callaghan agreed. When asked about how residents and service providers could access Block 18, Mr Callaghan said:
Access would be from a Challis Street location either on the site or via right-of-way.[51]
[51] Transcript of proceedings, 10 October 2019, page 107, lines 43-44
70.We understood Mr Callaghan’s evidence to mean access directly from Block 18 (on its eastern boundary) onto Challis Street, or via a right-of-way across Block 17 to the south or Block 20 to the north. However, as mentioned, access via a right-of-way was not put forward as a viable prospect for a willing but not anxious buyer.
71.Access and egress directly from Block 18 onto Challis Street would have presented significant difficulties. To support a residential development of the kind proposed by Mr Callaghan, access would have been necessary to permit cars to enter and exit the development in a forward direction.[52] It would also have been necessary to have separate entry and exit access, and for the internal driveways from Block 18 to Challis Street to be at least 5 m wide.[53] Scenario 03 proposed basement, ground level and first floor parking, which would have necessitated dual carriageway ramps up and dual carriageway ramps down. Separate access would also have been necessary to permit waste removal trucks to enter and exit the development in a forward direction. By reference to these several requirements regarding the total width of required access, Mr van der Walt said:
I'm not an engineer, but I would expect to see something in the order of 4 or 5 metres, probably 5 metres per ramp, and a little bit less for the trucks. It could be 12 to 15-odd metres, that disappears into dual [ramps] up, dual ramps down, and a space for a truck in the middle.[54]
[52] Parking and Vehicular Access General Code, paragraph 2.3.2 b); Multi Unit Housing Development Code, R74
[53] Multi Unit Housing Development Code, R75
[54] Transcript of proceedings, 10 October 2019, page 180, lines 24-25
72.To comply with minimum side setback requirements, the building in scenario 03 was 17.5 m wide,[55] meaning that the access driveways would have taken up almost all the width of the building and approximately half the eastern edge of Block 18 directly opposite the entrance to Cape Street from Challis Street.
[55] The Multi Unit Housing Development Code, R29, requires 6 m side setbacks
73.The driveways would have created, in effect, a ‘crossroad’ intersection between Challis Street running north and south, and Cape Street and the driveways running east and west. This would have caused another significant difficulty in obtaining planning approval. The Parking and Vehicular Access General Code (the Parking Code), paragraph 2.3.2 d), provides that “location of access points directly opposite the terminating road of a T-junction should be avoided”.
74.Mr Cilliers, a town planner with the Planning Authority, explained that Australian Standard 2890.1:2004 required the minimum distance of an access driveway from an intersection to be “beyond the influence of normal queue length at the intersection”.[56]
[56] Cilliers witness statement, paragraph 25
75.We accept that these requirements regarding access at a T-junction or intersection are somewhat qualitative. However, in the context of an eight storey development for 127 residential dwellings, in our view, a developer would have had great difficulty in meeting either of these requirements.
76.In his oral evidence, Mr Cilliers said:
I could not see myself approving any development with an access arrangement like that. I just simply can’t see it happening.[57]
[57] Transcript of proceedings, 11 October 2019, page 267, lines 25 - 28
77.There was yet another problem with access. Mr Van der Walt said that approval for access of the kind required from Block 18 onto Challis Street, opposite Cape Street, would almost certainly not have been given without ‘signalisation’ (ie traffic lights).
78.Mr Callaghan said he was not qualified to comment on whether access at the crossroad would require signalisation, but agreed there would be “resistance on the part of the Territory authorities to providing signalisation … simply to provide entry and egress to a single block”.[58]
[58] Transcript of proceedings, 10 October 2019, page 109, lines 38-40
79.Mr Cilliers was of the same view. Based on his experience, he said that a signalised access arrangement (meaning traffic lights) to support a development similar to any of Mr Callaghan’s scenarios at the junction of Challis and Cape Streets “would be highly unlikely to obtain support, and then only as an absolute last resort if an access arrangement could not be achieved otherwise.”[59]
[59] Cilliers witness statement, paragraph 25
80.There are at least two examples of traffic lights to facilitate access to a single block (they being, access to McDonald’s fast food outlets at the northern end of Newcastle Street, Fyshwick and at Emu Bank, Belconnen).[60] However, they are very different developments from that proposed by Mr Callaghan. In our view a well-informed buyer would realise the high risk that it would not obtain approval for traffic lights to permit direct access from Block 18 to Challis Street.
[60] Witness statement, David Field, paragraph 55 - Exhibit A 28
81.There was yet another problem with access. Mr Van der Walt referred to R42 of the NAPC, which applies to all development in the CZ2 and CZ5 Commercial Zones within the Northbourne Avenue Precinct. This Precinct includes Section 33, Dickson, which in turn includes Block 18.[61]
[61] See Figure A1 to the Northbourne Avenue Precinct Code
82.R42 provides:
Loading docks or vehicular entries to buildings are not located on frontages to the street.
83.By reason of Block 18’s narrow frontage, compliance with R42 would have been almost impossible.
84.Compliance with R42 was not mandatory. A developer could instead have complied with C42 which provided:
Loading docks and vehicular entries do not dominate the street frontage or conflict with parking and pedestrian movements in front of the building.
85.However, given the necessary width for the access driveways, say 13 m, meaning approximately 75% of the width of the proposed building, compliance with C42 would have presented a developer with significant difficulty. Regarding the likely structure, Mr Van der Walt said:
I think [a developer] will have difficulty having any amenity other than potential service and loading dock type structures, as well as vehicle entries.[62]
[62] Transcript of proceedings, 10 October 2019, page 180, lines 17 - 18
86.In our view, these compounding and seemingly insurmountable problems with obtaining compliant access to Block 18 for development of anything resembling scenario 03 would have significantly impacted on the amount that a willing but not anxious buyer would have paid for Block 18 “if it had been sold” as at the acquisition date.
87.Even if the difficulties with access were overcome, Mr Callaghan’s design had other significant planning difficulties. Mr Walker referred to insufficient setbacks which would have needed to be addressed in order to obtain planning approval. Also, compliance with the setback provisions of the MUHDC[63] would have significantly reduced the number of residential units that could be built and thus reduced the market value of Block 18.
[63] See rules and criteria 29 and 30 of the Multi Unit Housing Development Code
88.Also, Mr Callaghan’s scenario 03 did not include any balconies on the northern or southern sides of the proposed development, which would have been required to comply with R61 or associated C61 of the MUHDC. To add the balconies with dimensions that complied with Table A9, referred to in R61 b) of the MUHDC, and which made provision for screened “service functions” for dwellings on an upper floor level as required under Table A9, would have required further set back of the internal living areas of the proposed units in order to achieve compliance. This would have further reduced the number of residential units that a building could contain and thus further reduced the market value of Block 18.
89.The need for balconies would then have created problems with overlooking from the necessary balconies into the residential developments which could be to the north and to the south. To construct liveable unit areas and also to address the need for reasonable privacy from overlooking on such a narrow block in a manner that would comply with R60 or associated C60 of the MUHDC would have presented significant difficulties.
90.In reply, Mr Erskine referred to balcony screens on a development at 241 Northbourne Avenue in support of a submission that the difficulties with overlooking could be addressed. Different viewpoints followed, by way of evidence and in submission, about whether privacy screens were a realistic option to enable compliance with R60 or associated C60 of the MUHDC.
91.We did not need to determine whether compliance with R60 or C60 could be achieved. From the viewpoint of a willing but not anxious buyer contemplating the purchase of Block 18, it is enough that overlooking and how to deal with it was yet another uncertainty that a willing but not anxious buyer, “cognisant of all circumstances which affect [the land’s] value”, would have realised and taken into account when deciding how much they would pay for the block “if it had been sold” as at the acquisition date.
92.Much debate also occurred about whether scenario 03 provided sufficient space for a waste removal truck to service the proposed development and sufficient clearance for trucks to pick up a dumpster and lift it overhead.[64] Mr Walker noted that Mr Callaghan’s scenario 03 did not accommodate these needs. Different opinions then followed about the extent and feasibility of changes to the design to meet these needs. Again, whatever changes were made, the saleable floor area would have needed to be reduced to provide space for the waste removal truck and so reduce the land value of Block 18.
[64] See mandatory R99 of the Multi Unit Housing Development Code, which requires post occupancy waste management facilities to be endorsed by TAMS
93.Another difficulty was parking and car manoeuvrability required under the Parking Code for the number of proposed residential units. Where Mr Callaghan’s design was done for valuation purposes, no one was suggesting compliance or non-compliance: the issue was, in a general sense, how much adjustment to his design would be necessary to obtain required parking and manoeuvrability. Mr van der Walt and Mr Callaghan then made generalised and differing statements about the extent of modifications to the design that would be necessary to achieve compliance. The extent of necessary modifications would necessarily reduce the number of residential units that could be built and so reduce the land value of Block 18. For valuation purposes, the willing but not anxious buyer would take into account the uncertainty regarding this topic when deciding how much to pay for the land.
94.An informed willing but not anxious buyer would not presume that these planning difficulties would, by one means or another, be overcome and so ‘press on’ regardless. The prospective buyer would take advice from a town planner, who would refer them to section 50 of the Planning and Development Act 2007 (P and D Act) that prohibits approval of a development that is inconsistent with the Territory Plan. The town planner, as Mr van der Walt did in his first planning report, might also refer to the sentiment expressed in the Tribunal’s decision in Sullivan v ACT Planning and Land Authority (Sullivan), published after the acquisition date, where the Tribunal said:
[T]he Territory Plan and the codes that form part of the Plan including the Precinct Code need to be applied according to what they say, not what persons think they should say. If a provision needs to be reviewed and changed, so be it. But until it is changed, it must be applied. … These clear quantitative rules are not to be varied or interpreted according to subjective perceptions of good planning outcomes. They state what they state, and must be applied accordingly.[65]
[65] Sullivan v ACT Planning and Land Authority [2018] ACAT 76 at [28]
95.In our view, when the significant difficulties with access, setbacks, balconies, privacy and parking, among other issues,[66] are taken together, a reasonable and well-informed buyer would recognise that development of anything resembling scenarios 01, 02 or 03 (however superficially attractive) had very poor prospects of obtaining planning approval. That led to a further problem.
[66] The need for a foyer, the need for communal open space which could cause the loss of the eighth storey and the need for compliance solar access were further issues that a developer might have needed to address
96.R33 of the CZDC provides that a subdivision will be permitted only where:
(a)it is part of a development application for another “assessable development”; and
(b)“it is demonstrated that any residual block can accommodate another assessable development designed in accordance with the relevant sections of this code.”
97.Compliance with R33 is a mandatory requirement: there is no corresponding criterion.
98.The language in R33 of the CZDC is repeated in R27 of the NAPC, although (of course) the words “this code” at the end of R27(b) is a reference to the NAPC, not the CZDC. Again, compliance with R27 is a mandatory requirement.
99.At hearing, uncertainty emerged about the meanings of ‘assessable development’ and ‘any residual block’ in R33 and R27.
100.Does ‘assessable development’ mean capable of being assessed, even if not capable of being approved, or does it mean capable of being assessed and approved? If the former, what is necessary to achieve that capability?
101.Does ‘any residual block’ mean the block ‘left over’ after the subdivision, meaning (in this case) Block 17, or does it mean ‘any’ residual block arising from the subdivision, meaning (in this case) Blocks 17 and 18 arising from the subdivision of Block 4?
102.A willing but not anxious buyer would want advice about what is necessary to comply with R33 of the CZDC and R27 of the NAPC because compliance would be necessary in order to develop Block 18. This forced us to consider these questions.
103.In our view, although without the benefit of argument and without being determinative, “a development application for another assessable development” contemplates provision of a DA for a proposed development, in addition to the DA applying for the subdivision, with enough information to enable the Planning Authority to assess and determine that the proposed development will comply with the Territory Plan and with the P and D Act generally. For a DA to be ‘assessable’ simply because it has sufficient information to assess it against relevant rules and criteria, regardless of whether the proposal would or could be approved, would render R33 and R27 purposeless. In other words, in order for the subdivision to be approved, R33 and R27 require provision of a development proposal that can be approved on a block arising from the subdivision.
104.Applying that construction of R33 a) and R27 a) in this case would present a willing but not anxious buyer of Block 18 with significant difficulty because a DA for anything resembling any of the scenarios put forward by Mr Callaghan would have exposed, for the reasons given, the very low probability that planning approval would have been given.
105.On the meaning of ‘any residual block’, and again without the benefit of submissions and without being determinative, we share Mr Cilliers’ view[67] that R33 b) and R27 b) apply to ‘any’ block arising from the subdivision, and in this case Blocks 17 and 18. We accept that a willing but not anxious buyer could readily establish that Block 17 “can accommodate” an “assessable development”, but the same cannot be said for Block 18. Here again, Block 18 is in difficulty for the same reasons.
[67]Transcript of proceedings, 11 October 2019, page 249, lines 25 – 27
106.Regarding compliance with R33, and implicitly R27, Mr Cilliers said:
[A]ll three scenarios [presented by Mr Callaghan] are unlikely to present a viable development that will satisfy the tests in rule 33. Based on my experience, planning and land authority would not approve a development application involving a residential and/or commercial mixed-use development that will lead to a site configuration similar to the current Block 18.[68]
[68] Cilliers witness statement dated 29 August 2019, paragraph 19
107.Mr Erskine submitted, in effect, that we should ignore compliance with R33 and R27 as a precondition to approval of the subdivision because, as a fact, the subdivision has occurred.[69] We disagree. The submission ‘cherry picks’ the fact of the subdivision, but ignores the fact of its purpose: to create a bus interchange. To ascertain the market value of Block 18, the willing but not anxious buyer would need to know the prospects of achieving (mandatory) compliance with R33 and R27. The only evidence on that issue suggests that compliance would be unlikely, at best.
[69] Closing submissions dated 28 October 2019, paragraph 19
108.Mr Erskine relied on Daly v Manly Municipal Council (Daly)[70] and Western Australian Planning Commission v Kelly (Kelly)[71] to submit that the subject block method remained appropriate, notwithstanding the poor (if any) prospect that a subdivision of Block 4 into Blocks 17 and 18 would have been approved. Those cases, in our view, do not support the submission. In Daly, the Court found (on the evidence) that the subdivision would have been approved and valued the block accordingly.[72] In Kelly, the Court acknowledged different approaches in order to derive appropriate compensation, but noted that “this is not a compensation case; the respondent is only entitled to the market value of the Reserve Land”.[73]
[70] Daly v Manly Municipal Council (1983) 650 LGRA 246
[71] Western Australian Planning Commission v Kelly [2007] WASCA 160
[72] Daly v Manly Municipal Council (1983) 650 LGRA 246 at 306
[73] Western Australian Planning Commission v Kelly [2007] WASCA 160 at [40]
109.Section 45(2)(a)(i) of the Act is directed to market value. It requires one, and only one, assumption to be made: that the acquired land was offered to the market instead of being acquired. With that assumption, everything else falls to be determined according to what “is physically possible, legally permissible and financially feasible”.[74]
[74] This phrase is drawn from the IVSC quoted in Notaras v Commissioner for ACT Revenue mentioned above
110.For this reason, we were not persuaded that we should make the several assumptions that Mr Erskine submitted we should make. If Block 18 is “unsaleable in any meaningful fashion”, then so be it. Nothing in sections 45(2)(a)(i) or 46 require Mr Erskine’s assumptions to be made. In our view, to make these assumptions would lead us into error. The market would not assume these facts, and nor should we. To illustrate the point, if we adopt Mr Erskine’s assumptions in order to achieve a market value, why not make another assumption that Mr Callaghan’s scenario 03 would be approved in order to quantify the value? The whole approach is artificial, and contrary to the concept of “market value”.
111.That is not to say that Mr Erskine’s assumed facts could not or would not eventuate. The point is that, when assessing market value, it is not for us to assume these facts. Rather, it is for us to consider what a willing but not anxious buyer would assume. For example, we agree that a willing but not anxious buyer could and would assume that the town planning requirements for a development on Block 18 would be the same as for a development on Block 4 - to pick up a portion of Mr Erskine’s fourth assumption. Whether the buyer would make Mr Erskine’s first three assumptions is more problematic.
112.What assumptions to make (along with many other issues) is an issue for the willing but not anxious buyer to consider when deciding how much to pay for Block 18 had it been sold at the time. In this case, however, for the reasons given, in our view a willing but not anxious buyer would realise the very poor prospects of Mr Erskine’s assumed facts becoming reality in the context of Mr Callaghan’s designs.
113.We are not saying that a rectangular block of land, 3088 m² in area, adjoining Northbourne Avenue and zoned CZ5 would not attract a reasonable purchaser if sold on the open market. We are saying that a willing but not anxious buyer would recognise that Block 18 would not support anything resembling any of Mr Callaghan’s designs, and it should not be valued as if it could.
114.The difficulty was that we had no evidence about what a willing but not anxious buyer would reasonably assume could be built on Block 18 that would comply with the planning laws of the ACT, and what the buyer would therefore have paid. Applying the test in Spencer, that was the question for determination. All we could conclude was that, whatever could be built on Block 18 as a stand alone block, it would have been significantly more modest than anything put forward by Mr Callaghan.[75]
[75] This is not to imply anything critical of Mr Callaghan. He prepared his designs with instructions to make assumptions that, in our view, should not be made when considering the block’s ‘market value’.
115.Nevertheless, in support of his submission about the kind and scale of development that could be built on Block 18, Mr Erskine relied on an internal email from Mr Cilliers to Mr Phillips[76] sent on 18 January 2017[77] in which Mr Cilliers put forward two scenarios that he considered “to be most likely” for development of Block 18. First, Mr Cilliers said that the block could be used for office development, “commercially activated at [ground floor level] (say restaurants)”. This, he said, would entail 14,616 m² of offices at levels 1-7 and 2,088 m² of commercial space at the ground floor level. Alternatively, Mr Cilliers said that Block 18 could be used for residential development, “commercially activated at [ground floor level] (say restaurants)”, with development “at the order of 145 to 160 units at levels 1-7 with 2088 m² of commercial space at [ground floor level]”.
[76] Mr Phillips was, at the time, a senior officer with the Planning Authority
[77] See attachment C to Mr Callaghan’s report dated 30 September 2019, Exhibit A7
116.Mr Cilliers then noted what he characterised as “more realistic scenarios” for office development and residential development. For office development, he said “it is possible” that 10,440 m² of offices could be developed at levels 3-7 with 2088 m² of commercial space at ground floor level, which would require parking in “the order of 281 spaces” which could be met with two basements and two podium levels. For residential development, he said that “it is possible” to develop in “the order of 100-120 units at levels 3-7 with 2088 m² of commercial space of the ground level”. He stated that the parking requirement would be in the order of 280 spaces, excluding service and waste removal vehicles.
117.Mr Erskine’s submitted that we should rely on the opinions of Mr Cilliers in his email. In our view, the submission lacked substance. Mr Cilliers stated in his email that his “rough estimate” of the development potential of Block 18 was given on two assumptions: first, that a proposed development “would satisfy all key requirements in the Northbourne Avenue Precinct Map and Code”; and second, that the development would have “zero side setback” on the southern side, meaning it would be “attached or form part of a larger development across the site prior to subdivision of block 18”.
118.In evidence, Mr Cilliers explained that by his second assumption he had in mind that the development would be “physically attached to another larger development on Block 17 … as an integrated sort of development” so that there would be one construction “straddling [Blocks] 18 and 17” .[78]
[78] Transcript of proceedings, 11 October 2019, page 234, line 23 – page 235, line 9
119.Mr Cilliers never suggested in his email that Block 18 could be developed as a ‘stand alone’ block, and (in our view) there was no reasonable basis for anyone to infer from the email that he was doing so.
120.For these reasons, we have concluded that we have no sufficient evidence about what the market value of Block 18 would have been if it had been sold as a stand alone block. We can only surmise that it would have been modest, with the result that the market value of Block 18, per section 45(2)(a)(i) of the Act, is not an appropriate consideration when assessing just compensation.
Section 45(2)(a)(ii) - value, in addition to market value, incidental to ownership
121.The second matter in section 45(2)(a) that we needed to consider was the value of any financial advantage to Chung Yi, in addition to the market value of Block 18, that was incidental to its ownership of Block 18. Courts have repeatedly noted that section 45(2)(a)(ii) of the Act, or its equivalent in other jurisdictions, is directed to a special value in the acquired land in addition to its market value.[79]
[79] See generally Hyam, The Law Affecting Valuation of Land in Australia (6th edition) (2020) at pages 464 - 470
122.Chung Yi did not make any claim for compensation by reference to section 45(2)(a)(ii), and so we did not consider it further.[80]
Section 45(2)(a)(iii) - reduction in market value of any other interest
[80] An interesting question arises as to whether the value of Block 18 to Chung Yi should be assessed under section 45(2)(a)(ii) or section 45(2)(a)(iii), given that Block 18’s value to Chung Yi was much more than its market value. In the event, it was not necessary to consider this question because the outcome would be the same. Also, we concluded that section 45(2)(a)(iii) was the preferable ground to award compensation because Mr Flannery assessed compensation for severance under that provision
123.Chung Yi did not submit a claim under section 45(2)(a)(iii) of the Act for compensation for “any reduction in the market value” of its interest in Block 17 “caused by the severance by acquisition” of Block 18. Nevertheless, we agree with Mr Flannery[81] that Chung Yi has a claim for compensation under that section. In saying so, we do not imply any oversight on Chung Yi’s part by not making a claim. The absence of a claim under section 45(2)(a)(iii) is properly attributable to it instead claiming under sections 45(2)(a)(i) and (iv) of the Act, and its care not to ‘double count’.
[81] Flannery report dated 14 October 2015, page 28
124.Whilst we did not have sufficient evidence about the market value of Block 18, and surmised that it could only have been modest, we were well satisfied that it had significant value to Chung Yi because all the planning difficulties raised by the Territory that diminished the value of Block 18 if it had been sold as a stand alone block either did not arise or Chung Yi was able to address them with options that would not have been available to a prospective purchaser of the block.
125.In Sharp, with reference to the High Court’s decision in Dangerfield v Town of St Peters (Dangerfield)[82] and other authorities, Pringle QC noted:
It is fundamental that an owner is entitled to be compensated on the value of the land to him or her.[83] (our emphasis)
[82] Dangerfield v Town of St Peters (1971-1972) 129 CLR 586 at 590
[83] Sharp v Western Australian Planning Commission [1999] WASC 223 at [74]
126.In Sharp, Pringle QC adopted with approval the comments of Fletcher Moulton LJ in re Lucas and Chesterfield Gas and Water Board as follows:
The owner receives for the lands he gives up their equivalent ie, that which they were worth to him in money. His property is therefore not diminished in amount, but to that extent it is compulsorily changed in form. But the equivalent is estimated on the value to him, and not on the value to the purchaser, and hence it has from the first been recognised as an absolute rule that this value is to be estimated as it stood before the grant of the compulsory powers.[84]
[84] re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16 at 29 - 30
127.This reasoning also illustrates why the use of ‘market value’ is sometimes entirely inappropriate for the purpose of assessing compensation. In his work, Law of Compulsory Land Acquisition, Marcus Jacobs referred to Davies in Law of Compulsory Purchase and Compensation (4th edition, 1984), where the author said:
The question of market value is a paradox which lies at the heart of the law of compulsory purchase of land. “Market value” as a concept means a purely natural phenomenon, namely a price-level reached between buyers and sellers bargaining with the minimum of artificial constraints: in theory without any such constraints. But this condition of the “free-market” is the very opposite of the condition of a compulsory purchase, which is ex hypothesi a situation of constraint. Therefore to say that compulsory purchase compensation is to be assessed at “market value” is to say that a state of affairs is to be visualised in terms of its direct opposite.
128.For this reason, we concluded that the ‘before and after’ method should be used for determining just compensation consequent upon its compulsory acquisition. This involves, in summary, calculating the value of Block 4 ‘before’ the acquisition of Block 18, calculating the value of the residual land ‘after’ the acquisition (ie the value of Block 17) and then deducting the ‘after’ value from the ‘before’ value.[85] The difference, according to this methodology, can be treated as Chung Yi’s loss as at the acquisition date. It is also a method that takes into account the planning inefficiencies on which Chung Yi relied (for example, constraints in size to accommodate overlooking and set back considerations) that would have occurred if Blocks 17 and 18 had been developed as separate blocks.
[85] De Ieso v Commissioner of Highways [1981] SASC 5454; 27 SASR 248 at 249; Alan Hyam, The Law Affecting Valuation of Land in Australia (fifth edition) 2014 at page 164
129.We recognise that the before and after method is often used for acquisitions of land that has no ascertainable value because they are small pieces of land, but they are only illustrative of the principle that underpins the suitability (or not) of the before and after method in a particular case. As stated by the NSW Land and Environment Court, per Hemmings J, in Carson v Minister for Environment and Planning:
[The before and after method] is often the most appropriate method of valuation when it excised parcel is an unusual size or shape, or if other reasons make it likely to be difficult to sell or even unmarketable. this method is particularly appropriate to avoid double counting of damages where questions of enhancement or severance arise. …(our emphasis)[86]
[86] Carson v Minister for Environment and Planning (1990) 70 LGRA 215 at 221
130.In Carson, the Court decided not to use the before and after method, but this turned on its conclusion that the method had “no utility because the same result would be achieved by merely valuing the resumed parcel itself”.[87] Earlier, although in the context of whether compensation should be paid for its “special value” to Mr Carson, the Court rejected the claim on the basis that Mr Carson “rather than lose the subject land … would not have paid any more for it at the date of resumption than any other person”.[88]
[87] Carson v Minister for Environment and Planning (1990) 70 LGRA 215 at 221
[88] Carson v Minister for Environment and Planning (1990) 70 LGRA 215 at 220
131.The facts in this case are plainly distinguishable from the facts in Carson. Block 18 was of much more value to Chung Yi than to anyone else because, unlike anyone else, it could favourably develop Block 18 in conjunction with development of Block 17.
132.This conclusion is consistent with the opinion of Mr Carlo King, a senior valuer with the ACT Valuation Office, who said that Block 18 should not be valued as a ‘stand alone’ block because no reasonable informed purchaser would have paid more than a nominal amount for it.[89]
[89] Mr King said that the highest and best use of Block 18 in its own right would be as an ancillary on-grade car park with a suggested value of $800,000, which he agreed was unrealistic. Where permissible access to and from Block 18 as a ‘stand alone’ block would have been problematic, if used as a carpark, we had doubts that the market value would even be this sum.
133.As the parties agreed, no method of valuation should be necessarily preferred over another. The task is to choose the method best suited to the facts of the case at hand.[90] In this case, because of the significant disparity between Block 18’s market value and its value to Chung Yi, we concluded that the before and after method is the more appropriate means for assessing compensation consequent upon its acquisition.
[90] Boland v Yates Property Corporation Pty Ltd (1994) 74 ALJR 209 at 268; Bronzel v State Planning Authority (1979) 44 LGRA 34 at 38; Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353 at [223]
134.We turn to quantification.
135.Both parties agreed, whether we used the subject block method or the before and after method for assessing compensation, that value should be quantified using the ‘comparable sales method’ because (in this case) it provides “the best evidence of the market”. This also involves the highest and best use of the land to be valued. In this case, the parties agreed that this is predominantly multi-unit housing. They also agreed that the common denominator for comparing sales should be the average land value per residential unit that each comparable block could support.
136.The ‘comparable sales method’ entails, in summary, estimating the value of the block in question by reference to the sale prices achieved for other blocks in a suitable ‘basket of sales’ that are reasonably comparable with the subject block in terms of size, location, permissible use, time of sale and the like.[91] In this case, by ‘time of sale’, we mean at a time proximate to the acquisition date.
[91] See Alan Hyam, The Law Affecting Valuation of Land in Australia (fifth edition) at page 185 on the method
137.The use of the ‘before and after’ method required consideration of a basket of sales that were materially similar to Block 4 in order to derive the ‘before’ value, consideration of a basket of sales that were materially similar to Block 17 in order to derive the ‘after’ value, and then deducting the ‘after’ value from the ‘before’ value to arrive at a value for Block 18.
138.The blocks must be valued, as at the acquisition date, as if they were offered to the market ‘as is’. There are no legislative directions or statutory assumptions that must or should be made for the purpose of valuing the blocks. This contrasts with statutory assumptions that must be made for the purpose of valuing land for other purposes.[92] All existing and permissible uses, improvements, costs, constraints, obligations, disadvantages and so on must be taken into account.
[92] See 3 Property Group 5 Pty Ltd v Commissioner for ACT Revenue [2019] ACAT 67 at [68] – [73]
139.We begin with existing permissible uses. Pursuant to the ‘purpose clause’ in clause 3(a) of the Crown lease,[93] Block 4 could have been used as follows:
[93] Chung Yi’s claim for compensation, Annexure “G”
(a)Subject to sub- clause (b) and (c) of this clause to use the premises only for any one or more of the following purposes:
i.offices personal and commercial services and agencies;
ii.a kiosk and a restaurant café or snack bar; and
iii.clubrooms and recreational purposes
140.Clause 3(b) of the Crown lease, as amended in 2014, set a gross floor limit for Block 4 as follows:
(b)That the gross floor area:
i.of the building shall not exceed 15,006 square metres provided that 590 square metres shall be used only for an ancillary substation and emergency generator room;
ii.used for the purpose of a kiosk shall not exceed 10 square metres; and
iii.used for the purpose of a restaurant or café shall not exceed 230 square metres
141.Drawing on the Supreme Court’s decision in Springrange Pty Ltd v ACT and ACT Planning and Land Authority,[94] the words ‘the building’ in sub- clause (b)(i) means the total of any building or more than one building, not the maximum GFA of each or any building that may be built on the site, notwithstanding the definition of ‘building’ in the Crown lease to mean “the building or any buildings on the land at the date of commencement of the lease and any building or buildings constructed on the land”. We therefore proceeded, as did the parties, on the basis that the GFA limit for Block 4 was 15,006 m².
[94] Springrange Pty Ltd v ACT and ACT Planning and Land Authority [2010] ACTCA 17
142.Block 4 was developed in the late 1970s. As at the acquisition date the development comprised an eight storey commercial office building with a covered portico/driveway off Northbourne Avenue and a three-storey purpose-built datacentre adjoining the main office building.[95] The buildings were tenanted and so generated rental income at commercial rates.
[95] See Flannery report dated 14 October 2015, page 13
143.We did not need to consider the rental income or the capital value of the buildings, when assessing the value of Block 4, because the block was significantly underdeveloped. The buildings occupied only a portion of Block 4. Also, Block 4 was on land zoned CZ5 under the Territory Plan, which meant that a mixed use multi-unit residential and/or commercial development could have been built on the block up to eight storeys or 25 m in height, with setbacks of 12 m facing Northbourne Avenue to the west, 6 m facing Challis Street to the east and 6 m facing Block 20 to the north.[96] In short, as at the acquisition date, Block 4 was able to support a development of significantly more value than the development that was on the site.
[96] These factors remain current as at the date of our decision, but that is not relevant. The Tribunal must consider facts and circumstances as at the acquisition date.
144.The value of Block 4 must be assessed by reference to its highest and best use. The parties agreed, as do we, that the highest and best use for the block would have been a mixed-use development comprised of commercial use of the ground floor and residential use on the upper floors. This means that the existing buildings had little if any relevant value, and Block 4 should be valued by reference to its potential value, less the cost of demolishing the existing buildings in order to obtain a clear site.
145.It also means that we should put aside Mr Flannery’s original approach, using the before and after method, to determine the value of Block 18 by reference to its commercial use.
146.In order to realise its development potential, it would have been necessary to remove the GFA limit in the Crown lease purpose clause and to add residential use as a permissible use. As at the acquisition date, these changes would have been permitted, but would have attracted a lease variation charge (LVC), pursuant to section 277 of the P and D Act. The parties agreed there was a clear ‘business case’ for developing Block 4 for mixed-use commercial/residential use, notwithstanding the LVC and site clearance costs that would be payable.
then spend it immediately in carrying out that work. So the net result is going to be zero.[158]
[158] Transcript of proceedings, 9 October 2019 page 8, lines 19 - 22
222.The parties commenced with dramatically different estimates of the costs necessary to provide the additional 21 spaces. Chung Yi commenced with a claim for $4,100,000,[159] to cover the cost of significant construction work that, it said, would be necessary to achieve the additional car spaces. The Territory contended that an additional 21 car spaces could be achieved on Block 17 by reconfiguring the line markings in the car park. As Mr Walker put it, this could be done by “painting a few lines, shifting a few curbs and pulling out a couple of unregulated trees”.[160]
[159] See claim for compensation dated 12 November 2018, pages 4 and 5
[160] Transcript of proceedings, 16 October 2019 page 597, lines 42 - 43
223.Fortunately, the civil engineers engaged by the parties (Mr Field from Northrop Consulting Engineers and Mr McPherson from AMC Architecture) were able to agree on a sensible and compliant outcome that achieves a yield of 281 spaces on Block 17. It involves reducing car space widths to 2.4 m, redoing the line marking in the existing car park (which we understood to mean the entire carpark), retaining the two existing access routes into Block 17, relocating the bicycle enclosure in order to reclaim car parking areas, relocating the motorcycle parking area to allow for inclusion of shared zones for accessible parking and including (in the count of 281 spaces) existing parking located on the western side of Block 17. The agreed works were documented in “Joint statement sketch SK 1000 revision 3” prepared by Mr Field and Mr McPherson (the Agreed Works).[161]
[161] Exhibit A27
224.The civil engineers agreed that this was a “pragmatic solution”, which we understood to mean a solution that the Planning Authority would accept as a means by which Chung Yi could comply with its Crown lease over Block 17 pending redevelopment of the site. We accept their evidence.
225.The task then was to quantify the cost of the Agreed Works.
226.Chung Yi relied upon the evidence of Mr Peter Spaven, a quantity surveyor with Wilde and Woollard, who estimated the cost of constructing the Agreed Works[162] at $306,000 plus GST.
[162] Mr Spaven made his calculations by reference to sketch SK06 prepared by Northrop engineers. The parties agreed that sketch 06 is the same or materially the same as sketch SK 1000 revision 3 prepared by Mr Field and Mr McPherson, and that Mr Spaven’s costings were in accordance with sketch SK 1000; transcript of proceedings, 14 November 2019, page 694, lines 4 - 23
227.Mr Spaven’s estimate included a trade cost allowance of $26,440 for the additional costs that would be incurred by carrying out the Agreed Works over the Christmas period. Mr Spaven agreed that he factored in the additional cost because he was instructed to do so.[163] This instruction was to minimise interruption to the tenants in the building on Block 17, and to enable Chung Yi to comply with its ongoing obligations under its existing sub-leases to provide 109 car spaces.
[163] Transcript of proceedings, 16 October 2019 page 608, line 20, page 610, lines 8 - 9
228.There are at present 259 spaces on Block 17. At hearing, Mr Spaven agreed that the construction work could be done in stages, in order to maintain at least 109 car spaces at any given time, without increasing the total cost of the Agreed Works to any significant degree.[164]
[164] Transcript of proceedings, 16 October 2019 page 609, lines 8 - 15
229.For this reason, we were satisfied that the work would not have to be done over a Christmas holiday period when costs would be higher. We disallow $26,440 from the estimated total trade cost of carrying out the agreed construction work ($200,000), giving a revised sum of $173,560.
230.The Territory also challenged Mr Spaven’s estimate of $250 per car park for line marking and signage. This, it said, was excessive but the Territory did not provide any contrary evidence. The Territory applied for leave to file further evidence to support its claim that line markings and signage could be done at a lesser cost. Over Mr Erskine’s objection, I gave the Territory leave to apply for leave to lead further evidence on the topic, in the event that agreed quantification could not be achieved by private discussion between the parties.[165]
[165] Transcript of proceedings, 16 October 2019 page 623, line 1 – page 624, line 30
231.Thirty-four days after I gave leave to apply, and on the day before the day listed for hearing final submissions, the Territory filed an application for leave to file evidence from a quantity surveyor in reply to most, if not all, aspects of Mr Spaven’s estimated cost of the Agreed Works. The application sought leave to lead further evidence on topics well beyond that for which liberty to apply had been granted. There was still no available evidence on the topic for which leave to apply was granted.
232.We dismissed the application. Grant of leave to file and serve the proposed further evidence would necessarily have required reconsideration of the whole issue, including time for Mr Spaven to provide evidence in reply and - in all probability - the need for a further hearing to hear conflicting evidence about the cost of constructing the Agreed Works.
233.There being no evidence, save for that of Mr Spaven, about the cost of constructing the Agreed Works, and where we found him to be a reliable and independent expert witness, we accepted his evidence.
234.Removal of the line item for construction work to be carried out during the Christmas holiday period generated a corresponding reduction in preliminaries and profit (22% of the total trade cost) and contingencies (10% of the total cost). We calculated the reduced sum for preliminaries and profit to be $38,183.20, producing a total cost of $211,743.20. We calculated the reduced sum for contingencies, being 10% of that sum, to be $21,174.32, giving a total construction cost of $232,917.52. According to Mr Spaven, to that must be added 14% for consultants, management and authority fees, which we calculated to be $32,608.45, giving a total project cost of $265,526.00. To that must be added GST of 10%,[166] giving a final total of $292,078.60 to meet this “expense reasonably incurred”[167] as a consequence of the acquisition of Block 18.
[166] Mr Spaven notes in section 7.0 of his report that his cost assessments are exclusive of GST
[167] This phrase is drawn from section 45(2)(c)
235.We turn to the question whether Chung Yi should receive compensation for reconfiguring the car park on Block 17 in circumstances where it proposes to redevelop the site. Why, Mr Walker rhetorically asked, should Chung Yi receive money to reconstruct a car park that will not be built or will soon be demolished to redevelop the site? He relied on section 47 of the Act which states:
47 Special provision where market value determined on basis of potential of land
Where the market value of an interest in land acquired by compulsory process is assessed upon the basis that the land had potential to be used for a purpose other than the purpose for which it was used at the time of acquisition, compensation shall not be allowed in respect of any loss or damage that would necessarily have been suffered, or expense that would necessarily have been incurred, in realising that potential.
236.He relied also on a so-called Milledge principle,[168] which, he said, provides that if a valuation of land is done on the basis of residential potential then compensation should not be allowed for costs necessarily incurred in achieving that potential - i.e. in this case, demolition of the carpark to facilitate the intended mixed use residential development.
[168] The principle is derived from the High Court’s decision, Commonwealth v Milledge (1953) 90 CLR 157
237.In reply, Mr Erskine relied on the fact that the Territory’s acquisition of Block 18 and its issue of a Crown lease over the residual Block 17 requiring 280 car spaces where the block has only 259 car spaces has placed Chung Yi in breach of its new Crown lease. He said that Chung Yi acknowledges its obligation to rectify the breach by creating an additional 21 car spaces, but the Territory should pay for the cost of it doing so because the acquisition of Block 18 created the breach.
238.In reply to section 47 of the Act and the Milledge principle, Mr Erskine submitted that these considerations lack substance because the redevelopment of Block 17 will not be occurring in the short-term. He submitted that the redevelopment process under the P and D Act will take years, not months, if one thinks in terms of the time to pass before a development application is prepared, is probably amended and is approved. He said that in the meantime, compliant car parking needed to be built.
239.We preferred the submissions on behalf of Chung Yi. Section 47 is not relevant. First, it concerns the market value of the land acquired, Block 18, where the claim for parking reconfiguration concerns work to be done on the residual block. Second, even if the principle underpinning section 47 were to be applied to the residual block, the section concerns loss or damage to realise a potential. Construction of a reconfigured car park is not necessary to realise the potential of Block 17: indeed, if anything, the Agreed Works will create further structures that Chung Yi will need to demolish at further cost in order to realise the potential. For the same reason, the Milledge principle has no application: construction of the car park is not a cost incurred in order to develop the site for mixed-use residential development. It is a cost incurred for a different and contrary purpose.
240.We also accepted Mr Erskine’s submission that development of Block 17 will not occur in the short term. Although in a different context, Mr Flannery and Mr King agreed that development approval for a mixed-use development that would realise the highest and best use of Block 17 would take at least 12 months. Then there is the question of when Chung Yi might choose to commence the development process or whether it might choose to sell the block.
241.There was no suggestion that the Territory was willing to permit Chung Yi to remain in breach of its Crown lease for the indefinite future.
242.For these reasons, we were satisfied that the reconfigured car park needs to be built and that, pursuant to section 45(2)(c) of the Act, the Territory should pay $292,078.60 to Chung Yi to cover its costs of doing so.
Section 45(2)(c) - mortgage interest
243.In this proceeding, but not in its original claim for compensation, Chung Yi claimed compensation for having to pay interest on its loan of $10 million from the Taiwan Business Bank. The Bank holds a mortgage over Block 4 by way of security. Mr Erskine submitted that, by reason of the acquisition of Block 18, the loan was “14% more than it required” and that it should therefore be compensated for the interest that it was unnecessarily paying on the loan running from the acquisition date to the date upon which it receives compensation. The sum of 14% was derived from the fact that Block 18 represents 14% of Block 4.
244.The submission seemed to be that because, it was said, Chung Yi’s loan was secured against the whole of Block 4, the interest it was paying on the loan should be apportioned across the whole block. From there, Mr Erskine submitted that because Block 18 has been resumed, but it was continuing to pay interest on the loan, it should be compensated for the portion of the interest that it was paying that would have been attributable to Block 18 but for the resumption. He submitted that the compensation should be quantified using the following formula:
LA x IR x 14% of the LdA x n
where:
LA = the average loan amount over the period ($10 million)
IR = the average rate of interest over the period (3.369%)
LdA = the Land Area (meaning, as we understood it, the Land Area of Block 4, being 21,350 m²)
n= the period in years (4 years).
245.By reference to this formula, Chung Yi claimed $20,664 by way of compensation.[169]
[169] See Chung Yi closing submissions dated 28 October 2019, paragraphs 56-57 and summary of compensation payable
246.Mr Walker submitted that compensation is not payable, and relied on section 52(2) of the Act which provides:
As a general rule, the compensation to which the owner [of an interest in acquired land] is entitled in respect of the acquisition shall be determined as if the interest had not been subject to any mortgage.
247.Mr Erskine relied on the words “As a general rule” to submit that that there must be exceptions to the general rule. He submitted that compensation should be paid in this case, by way of an exception, in order to provide just compensation.
248.We found it unnecessary to enter debate about the operation section 52. Even if were to depart from the ‘general rule’, we were not satisfied on the evidence or on the reasoning for the submission that compensation is payable. The submission proceeds by reference to several assumptions that we were not persuaded should be drawn. For example, the submission is based on a claim that following the resumption of Block 18, Chung Yi held a loan for more money than it required, and so was paying more interest that it needed to. In our view, it is equally likely, if not more likely, that Chung Yi maintained the loan (irrespective of the acquisition of Block 18) because it wanted to. On the evidence, Chung Yi bought Block 4 for $27,500,000, [170] meaning the loan of $10 million represented a small portion of the value of the equity against which it was secured. Also, Mr Erskine stated:
[the] mortgage is part of a series of securities which secure a wide variety of Chung Yi’s interests around the globe. So it’s a slightly more complicated document than it might even appear on its face.[171]
[170] Statement of Maurice Falcetta made on 18 July 2019, paragraphs 5 and 6; Exhibit A4
[171] Transcript of proceedings, 9 October 2019, page 36, lines 28-31
249.There was no evidence of any relationship between the amount of the loan and the size of Block 4, or of any wish by Chung Yi to reduce the loan consequent upon the acquisition of Block 18. There was no evidence about the purpose for which Chung Yi borrowed the loan amount, in particular whether it used the loan to purchase Block 4. The Loan Statements from the Bank show that on 22 October 2009 Chung Yi took an interest only loan of $10 million from the Bank for a fixed five year period, and retained the loan for a further five year period commencing on 22 October 2014.[172] Chung Yi’s purpose for taking the loan is unknown.
[172] Statement of Morris Falcetta, made 2 September 2019, Annexure A; Exhibit A5
250.We were not persuaded that the acquisition of Block 18 had any bearing on the loan, or that Chung Yi “required” it for the purpose of purchasing Block 4, or that the amount “required” was reduced as a consequence of the Territory acquiring Block 18. It follows that we are not persuaded that any compensation should be paid to Chung Yi by reference to the interest it has paid the Taiwan Business Bank on the loan since the acquisition date.
Section 45(2)(c) - re-securitisation
251.Chung Yi submitted that the compulsory acquisition of Block 18 and the consequential cancellation of Block 4 as an interest in land has put the status of its mortgage “in doubt”. Mr Erskine submitted that this has occurred because Chung Yi obtained funds from the Taiwan Business Bank secured against Block 4, not Block 17 or Block 18. For this reason, he said, Chung Yi might have to re-finance its loan, or repay some part of the principal, if the Bank was not satisfied that Block 17 represented sufficient security against the loan.
252.Mr Erskine acknowledged that the Bank “has not (yet) raised the matter with it”,[173] but submitted that compensation under the Act must be assessed and paid “once and for all”.[174] He said, therefore, Chung Yi should be compensated to guard against the possibility that it may incur costs to comply with any refinancing arrangements that the Bank may later require. The solicitors for Chung Yi estimated that the refinancing costs could be “in the order of $50,000”.[175] In its closing submissions, Chung Yi sought this sum by way of compensation.
[173] Closing submissions dated 28 October 2019, paragraph 60
[174] Closing submissions dated 28 October 2019, paragraph 60
[175] Statement of Mr Irvine dated 15 October 2019, paragraphs 2 and 23; Exhibit A30.
253.We were not persuaded by this submission. The compulsory acquisition occurred on 19 October 2015. By letter dated 28 October 2015, the Territory informed the Bank that Block 18 had been acquired.[176] It enclosed a copy of the Lands Acquisition Declaration form. It informed the Bank that a claim for compensation could be made in respect of mortgage interest and enclosed a form for the Bank to complete if it wished to claim. It never did.
[176] The letter forms part of MFI2, which we decided should be taken into evidence
254.It is also apparent that the Bank acted on the Territory’s information about the acquisition of Block 18 by obtaining a valuation report dated 20 January 2016 from Jones Lang Lasalle Advisory Services Pty Ltd (JLL) regarding the market value of Block 17. JLL valued it at $22 million. That was ample security against Chung Yi’s $10 million loan, which is consistent with the absence of any evidence of the Bank requiring Chung Yi to refinance its loan.
255.Also, Chung Yi’s solicitor, Mr Irvine, gave a statement referring to a meeting regarding Chung Yi’s claim that occurred in late 2017. He attached, at annexure A, a photograph of notes he wrote on a whiteboard at the meeting. From our perusal of Annexure A, the meeting appears to have involved a general (and perhaps preliminary) consideration of issues arising for Chung Yi to consider as a consequence of the acquisition of Block 18. Regarding any consequential re-securitisation, Mr Irvine wrote “mortgagee has not required additional equity”.
256.In his closing submissions dated 28 October 2019, more than four years after the acquisition date, Mr Erskine acknowledged that the Bank has not raised the matter. It is, in our view, so remote as to be beyond contemplation that the Bank would require Chung Yi to refinance its loan or recast its security documentation by reference to events that occurred so long ago.
257.On the evidence before us, we were not persuaded that the acquisition of Block 18 caused or will cause any cost for Chung Yi in relation to its loan from the Bank.
258.Perhaps the only cost arising from the acquisition is the cost of obtaining the report from JLL, but there was no evidence about that cost or who paid it.
259.For these reasons, we disallow the claim for re-securitisation.
Section 76 - Interest
260.Where the Territory is liable to pay compensation to Chung Yi under Part 6 of the Act, as we have determined, Chung Yi is also entitled to interest on the compensation under section 76 of the Act. The relevant parts of that section state:
76 Interest payable on compensation—interests other than mortgage interests
(1) This section applies where the Executive is liable to pay compensation to a person under this part in respect of the acquisition of an interest, other than a mortgage interest.
(2) The person is entitled to payment by the Executive of interest on the compensation at the rate specified in, or ascertained in accordance with, the regulations from the day of the acquisition until the day on which the compensation is paid, or where payment is delayed through a default or delay of the person, until the day on which the compensation would have been paid but for the default or delay.
(3) For subsection (2), if—
(a)the Executive made an offer of compensation to the person; and
(b)the person rejected the offer; and
(c)the amount of compensation determined under this part is less than the amount of the offer;
the payment of the compensation shall be taken to have been delayed through a delay of the person and the day on which the compensation would have been paid but for that delay shall be taken to be the day on which the person received notice of the offer.
(4) ...
(5) Interest is not payable to the person on the whole or any part of the compensation otherwise than in accordance with this section.
261.The acquisition date is 19 October 2015. The potential interest is therefore significant. As at the acquisition date, there was no time limit under the Act for making a claim for compensation. By letter dated 17 December 2015, the ACT Chief Minister confirmed that fact to the (then) solicitor for Chung Yi.[177] The law on this subject changed on 1 September 2017, upon commencement of the Lands Acquisition Amendment Act 2017 which introduced section 61A. Sections 61A(1) and (2) provide:
[177] Statement of Maurice Falcetta dated 24 September 2019, annexure S
61A Executive may make offer of compensation where no claim is made
(1) This section applies if—
(a)the Executive is satisfied that an interest in land (other than a mortgage interest) has been acquired by compulsory process from a person; and
(b)at least 3 years have passed since the date of acquisition; and
(c)the person has not made a claim for compensation under section 56.
(2)The Executive may make an offer of compensation to the person that the Executive considers the person is entitled to in accordance with division 6.2 (Amount of compensation—interests other than mortgage interests).
262.Section 61A did not impose a time limit for making a claim: it gave the Executive a right to make an offer. Under section 61A(4), if an offer was made, the person was then not entitled to make a claim for compensation under section 56 of the Act. None of this arises for consideration. Although Chung Yi made its Claim on 12 November 2018, a few weeks more than three years after the acquisition date, the Executive did not make an offer of compensation prior to Chung Yi making its Claim.
263.Returning to section 76(2) of the Act, Mr Walker submitted that by reason of Chung Yi’s (alleged) delay in making its claim, it is not entitled to interest to the extent that its delay has caused a delay in payment of compensation. He relied on correspondence between the Territory and Chung Yi in late 2014 and expert valuation advice it received in September 2015[178] to submit that, by the acquisition date, it was in a position to lodge a claim for compensation. He submitted that Chung Yi has not provided any explanation for why it took from October 2015 to November 2018 to lodge its Claim. He submitted that Chung Yi cannot “treat its entitlement compensation as if it were a debenture deposit with the Territory [on which] the Territory is required to pay interest until [Chung Yi] decides to withdraw its money.”[179]
[178] The Tribunal accepts the documents marked MFI 3 into evidence
[179] Closing submission dated 6 November 2019, paragraph 35
264.Mr Walker noted that eight months after the Territory received Chung Yi’s Claim it paid $3,600,000[180] to Chung Yi by way of compensation (the Interim Payment). He submitted, by reference to this fact, that Chung Yi should be allowed only eight months’ interest, being interest payable for the period October 2015 to June 2016.[181] The implication of the submission seemed to be that if Chung Yi had made its Claim on or about the acquisition date, as it could have done, compensation could and would have been paid on or about eight months later.
[180] Exhibit A32; Respondent’s submissions dated 2 September 2019, paragraph 52
[181] Opening submission dated 2 September 2019, paragraph 53; closing submission dated 6 November 2019, paragraph 37
265.To address Mr Walker’s submission, it is first necessary to ascertain the meaning of ‘default or delay’ in section 76(2) of the Act. With reliance on the preceding words “where payment is delayed”, Mr Erskine submitted that the default or delay “relates to the payment, not to either the claim or the offer made”.[182] We agree, but section 76(2) is silent as to the cause of the default or delay in making the payment. In our view, there is no confinement about cause, provided the cause falls within the meaning of the words “default or delay of the person”.
[182] Closing submissions in reply dated 12 November 2019, paragraph 51
266.Mr Erskine also submitted that section 76(2) “is explained in section 76(3)”, and that section 76(3) “illustrates the sort of situation” where delay has occurred. We found the submission somewhat ambiguous, but concluded that the circumstance described in section 76(3) is no more than a circumstance in which payment “shall be taken to have been delayed”. It does not exclude other circumstances where payment has been delayed because of “delay of the person”.
267.The issue in this case is whether a person’s lodgement of a claim later than it could have been lodged, causing payment to be made later than it could have been made, constitutes “delay of the person” for the purposes of section 76(2).
268.Interpretation of section 76 must have regard to its purpose, namely to address a person’s circumstances in the period from when their land has been compulsorily acquired to when they receive compensation for the acquisition. Hyam notes the following comment of the Privy Council in Inglewood Pulp and Paper Co Ltd v New Brunswick Electrical Power Commission regarding an entitlement to interest:
The right to receive interest takes the place of the right to retain possession.[183]
[183] Inglewood Pulp and Paper Co Ltd v New Brunswick Electrical Power Commission [1928] AC 492 at 499 cited in Hyam, The Law Affecting Valuation of Land in Australia (6th edition) 2020 at page 392
269.A Full Court of the Supreme Court of South Australia expressed materially the same statement of principle in Commissioner of Highways v Farmer (No 2) Pty Ltd:
The Act provides for landowners to be compensated in full for the acquisition of their land. In the event that there is a delay in the payment of compensation, interest is payable to protect the value of the compensation in real terms and to compensate the landowners for not having had the use of the funds from the time they were entitled to them.[184]
[184] Commissioner of Highways v Farmer (No 2) Pty Ltd [2015] SASFC 121 at [31]
270.In our view, having regard to the principle underpinning the entitlement to interest, the words “default or delay of the person” entail error or failure of some kind on the part of the person that causes payment to be delayed. ‘Default’ could include, for example, non-compliance with the specifications required under section 56 (2) to be stated in a claim. ‘Delay’ might contemplate, for example, an unreasonable period between when the Territory asked for details about a claim in order to consider it and when the detail was provided.
271.We were not persuaded that Chung Yi making its claim in November 2018 constitutes ‘delay’ for the purposes of section 76(2). Nothing in section 76 contemplates that a person entitled to compensation under Part 6 of the Act must make a claim as soon as practicable, or be penalised by denial of interest should they not do so. To the contrary, as the Chief Minister noted, “there is no time limit for the making of a claim.” Also, section 61A provides that a period of “at least 3 years [must] have passed” following the date of acquisition before the Executive becomes entitled to make an offer that (if made) would preclude the person from making a claim. This suggests that three years is a reasonable period within which a person entitled to compensation can make a claim. Chung Yi made its claim only a few weeks more than three years after the acquisition date.
272.Also, we were not persuaded on the facts that Chung Yi ‘sat on its hands’ for three years before making its Claim. In his statement dated 24 September 2019, Mr Falcetta details Chung Yi’s unsuccessful dealings with the Executive up to May 2016 regarding a possible land swap, and correspondence throughout 2017 with the Executive regarding lodgement of its Claim.
273.For these reasons, we were satisfied that Chung Yi is entitled to interest on the compensation that we have determined is payable under section 45(2)(a(iii) of the Act from the acquisition date to the date on which the compensation is paid, with allowance (of course) for the Interim Payment already paid.
274.The parties proposed, and we accept, that they will seek to reach agreement on the amount of interest payable, having regard to our conclusions regarding liability. The Tribunal will hear from the parties, if agreement on quantum cannot be reached.
275.We were unable to determine whether interest is also payable on the amount that we have determined is payable to cover Chung Yi’s future cost of reconfiguring the carpark, especially where that cost has been assessed at 2019 prices. Common sense suggests interest is not payable. Chung Yi is not presently ‘out-of-pocket’ for this sum: the compensation is to cover a future cost that Chung Yi will need to meet. However, section 76 may suggest otherwise. We will hear from the parties on this issue, if agreement cannot be reached.
Conclusion
276.Pursuant to section 45(1) of the Act, the Territory should pay Chung Yi $4,452,708.60 by way of compensation for the acquisition of Block 18 comprised of the following amounts:
(a)Compensation for the acquisition of Block 18 – $4,430,000 (the Compensation Amount).
(b)Compensation for the costs of constructing a compliant carpark on Block 17 - $292,078.60.
277.Pursuant to section 76 of the Act, Chung Yi is also entitled to interest:
(a)from the acquisition date to the date of the Interim Payment on the Compensation Amount; and
(b)from the date of the Interim Payment to the date on which the Compensation Amount is paid on the amount made up of the Compensation Amount less the Interim Payment.
278.Whether Chung Yi is also entitled to interest on the compensation payable to cover the future cost of reconfiguring the carpark remains to be determined.
279.Pursuant to sections 45(2)(c) and/or (e) of the Act, Chung Yi is also entitled to be compensated for costs or expenses reasonably incurred in relation to the acquisition of Block 18.
280.We will re-list the matter for directions on 3 days’ notice to hear whether the parties have reached agreement on interest and costs, or whether the matter needs to be listed for further hearing on either or both of those issues.
………………………………..
Presidential Member G McCarthyFor and on behalf of the Tribunal
HEARING DETAILS
FILE NUMBER:
AT 15/2019
PARTIES, APPLICANT:
Chung Yi Developments Pty Ltd ACN 138 392 533
PARTIES, RESPONDENT:
The Australian Capital Territory
COUNSEL APPEARING, APPLICANT
C Erskine SC
COUNSEL APPEARING, RESPONDENT
P Walker SC and B Buckland
SOLICITORS FOR APPLICANT
Trinity Law
SOLICITORS FOR RESPONDENT
ACT Government Solicitor
TRIBUNAL MEMBERS:
Presidential Member G McCarthy
Senior Member M Sinclair
DATES OF HEARING:
9, 10, 11, 14, 15, 16 October 2019, 14 November 2019
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