Hamzah Pty Ltd v Department of Main Roads Queensland
[2008] QLC 62
•27 March 2008
LAND COURT OF QUEENSLAND
CITATION: Hamzah Pty Ltd v Department of Main Roads Queensland [2008] QLC 0062 PARTIES: Hamzah Pty Ltd
(claimant)v. Chief Executive, Department of Main Roads
(respondent)FILE NO.: A2006/0787 DIVISION: Land Court of Queensland PROCEEDING: Determination of compensation payable consequent upon the resumption of land pursuant to the Acquisition of Land Act 1967. DELIVERED ON: 27 March 2008 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER: Mr RS Jones ORDERS: 1. Compensation is determined in the amount of Two Million, Nine Hundred and Forty-six Thousand, Dollars ($2,946,000).
2. The Chief Executive, Department of Main Roads is to pay to Hamzah Pty Ltd interest at the rate of 6% per annum on the sum of $2,923,000 from 22 July 2005 to the date the Chief Executive paid to Hamzah Pty Ltd his advance on compensation.
CATCHWORDS: Compulsory acquisition of land - Acquisition of Land Act 1967 – Injurious affection to balance land caused roadworks - Valuation methodology – Best evidence of value – comparable sales method of valuation – only limited sales evidence available - hypothetical subdivision and discounted cashflow method of valuation. COUNSEL: Mr SP Fynes-Clinton, for the claimant
Mr W Cochrane, for the respondentSOLICITORS Condon Charles Lawyers, for the claimant
The Crown Solicitor, for the respondent
Details of resumption
Prior to 22 July 2005, Hamzah Pty Ltd was the registered proprietor of four adjoining parcels of land comprising an area of 71.616 hectares described as lots 206 on Survey Plan 135001 and lots 2, 3 and 4 on Registered Plan 22818, Parish of Gowrie. On 22 July 2005, the Chief Executive, Department of Main Roads resumed the whole of lot 4 for road purposes and, in particular, for roadworks associated with the Warrego Highway and Toowoomba Bypass. Lot 4 was 18.952 hectares in area.
The land is located on Gowrie Junction Road, Cotswold Hills within the borders of the Jondaryan Shire Council approximately 12.5 kilometres west of the Toowoomba Central Business District. At the date of resumption the land was zoned “Rural Residential” under the town planning scheme of the Jondaryan Shire Council and had the benefit of a preliminary approval for a material change of use for the development of 343 one thousand square metre lots.
Hamzah now seeks compensation pursuant to the Acquisition of Land Act 1967 (ALA) for the loss of lot 4 and the injurious affection caused to the balance land as a consequence of the roadworks underlying the resumption.
Initial Positions of the Parties
Pursuant to s.19 of the ALA, on 16 October 2006 Hamzah filed its claim for compensation. The amount claimed was $4,600,000 ("plus applicable GST") and orders that the Chief Executive pay appropriate compensation under the heading of Disturbance and interest on compensation. On 6 November 2006 an amended claim for compensation was filed seeking $5,015,000 ("including applicable GST") as compensation for the value of the land taken (including severance) and $31,390 under the heading of Disturbance plus interest.
On or about 3 October 2006 the Chief Executive paid to Hamzah the amount of $3,000,000 as an advance against compensation.
The Positions of the Parties at the Hearing
On the first day of the hearing of this matter the claim was amended to $6,088,000 for the value of the land taken including injurious affection and $34,897.32 under the heading of Disturbance.[1] Hamzah also had an alternative claim in the amount of $5,797,000. These amendments to the claim were predominantly as a consequence of the valuation exercises carried out by Mr Thiel, the registered valuer called on behalf of Hamzah.
[1] T. 8-T. 9.
Based on the evidence of Mr J Horrigan, also a registered valuer, the Chief Executive's valuation of the land taken including injurious affection and severance was $2,460,000 or, in the alternative, $2,000,000. As the case evolved it was contended on behalf of the Chief Executive that compensation should be determined in the lesser amount of $2,000,000.[2] Although it was acknowledged that that figure might have to be increased slightly to take account of the agreement reached about the value of the land before resumption. This matter is discussed in more detail below.
[2] Chief Executives written submissions at para 111.
At the conclusion of the evidence it was submitted on behalf of Hamzah that "on the evidence before the Court" compensation for the value of the land taken including injurious affection ought be determined at $4,750,000 or, in any event, not less than $3,850,000.[3] As I understand it, these figures exclude any allowance for disturbance which was agreed between the parties on an "all up" basis at $23,000 inclusive of interest.
[3] Written submissions on behalf of Hamzah Pty Ltd, para 5.
The reasons underlying each of the parties having alternative compensation assessments are dealt with below.
The Issues
During the course of the hearing numerous issues arose and were the matter of some controversy. In my opinion however the major issues requiring resolution are:
1. The most appropriate valuation methodology.
2.The number of lots lost as a consequence of the resumption.
3.The nature and extent of the injurious affection affecting the balance lots in subdivision.
4.The affect on the value of the balance lots caused by the injurious affection. (The before and after value of the lots in subdivision).
Valuation Methodology
Mr Thiel described his primary valuation exercise as a “residual or hypothetical” development analysis. This exercise requires the notional subdivision of the whole of the land in the before resumption case and the notional subdivision of the balance land in the after case.
The hypothetical subdivision valuation methodology is often, as was the case here, criticised for being unreliable because of its reliance on variable inputs often subjectively chosen by the user. Only small variations in some of the more significant inputs in the valuation exercise can result in material variations in the end results. Some of the more significant inputs of Mr Thiel's valuation are: the selling price of the lots, the number of lots, the rate of sale of lots, development costs and the appropriate allowance for profit and risk. In the after case the exercise is further complicated because of the need to determine how the price of lots is affected by the public works underlying the resumption.
Mr Horrigan relied primarily on what he described as a direct comparison valuation based on a comparison of the subject land with land sales which occurred at or about the date of resumption. Such an approach is a well recognised method of land valuation however, it is of course entirely dependent on the valuer selecting, analysing and applying reliable sales evidence.
Both valuers carried out check valuations. In the case of Mr Thiel he carried out a check by reference to land sales ranging between 2 hectares and 57 hectares.[4] It is tolerably clear that it was Mr Thiel's initial opinion that his sale 14 provided the best check evidence of value for the subject land. However, for reasons which will be discussed in more detail below, during the course of the trial Mr Thiel rejected this sale as reliable evidence of value. Mr Thiel's sale 14 is Mr Horrigan's sale 1.
[4] Mr Thiel's sales summary; Ex 2, p. 60.
Mr Horrigan carried out a hypothetical subdivision check valuation. His exercise differed from that of Mr Thiel in that Mr Thiel's exercise involved a relatively sophisticated discounted cash flow analysis whereas Mr Horrigan's approach was, to use Mr Fynes-Clinton's words, a "static" valuation which did not bring into account variations in price and costs over time.
I do not accept that Mr Horrigan’s check valuations provide any reliable evidence of value. Mr Horrigan's primary method yields a before value of about $9,200,000[5] while one of his checks yields a before value of $11,400,000.[6] The closest result to the before figure produced by his primary method is the after resumption figure of $9,000,000 produced by Mr Horrigan's 284 lot hypothetical check valuation.[7] Further, in his after resumption scenario it is tolerably clear that Mr Horrigan relied primarily on the previous Land Appeal Court decision of Kabale Holdings Pty Ltd v Department of Transport[8] to arrive at his lot price discount rate of 12.5% and the likely extent or level of intrusion of highway noise over the residual land. Kabale, like the vast majority of cases which come before this Court, largely turned on its own particular facts. In this case there was no meaningful attempt by Mr Horrigan to compare the Kabale land and the subject land either in an in-globo state or in subdivision in either the before or after resumption situations.
[5] Ex.10, p. 10.
[6] Ex. 10, p. 21.
[7] Ex. 10, p. 22.
[8] [1997-98] 18 QLCR 166 (LAC).
In this case the criticism of Mr Thiel's primary valuation method, at least in respect of the before case, is largely unjustified. There was no disagreement between the valuers as to the number of lots available for sale in the before resumption case (343 lots), nor about the rate of sale and appropriate allowance for profit and risk (20%). There was also agreement on the costs of development. There was also a reasonable degree of conformity between the valuers about the price the lots might achieve in the before case. Mr Thiel's valuation proceeded on an average price of about $119,000 per lot. Mr Horrigan's prices ranged from $100,000 per lot to $115,000 per lot[9] at an average price of about $108,000 per lot.
[9] Ex, 10, p. 21.
Turning to Mr Horrigan's primary direct comparison valuation approach, it was severely criticised by Mr Fynes-Clinton in his final submissions. In summary the bases for the criticism were:
i.In truth Mr Horrigan only relied on one sale, his sale 1. (Mr Thiel's sale 14), and one sale is insufficient to provide any meaningful evidence of value.
ii.In any event there is no probative evidence that sale 1 is truly comparable to the subject land as Mr Horrigan failed to carry out any meaningful comparison between it and the subject land.
iii.Further, the sale being one involving related parties it is inherently unreliable in any event.
I accept that it is tolerably clear that Mr Horrigan's valuation is dependant on his analysis of his sale 1 and that his other in-globo sales are of little or no relevance. In this context my attention was drawn to the observations of McLure J in Western Australian Planning Commission v Arcus Shopfitters Pty Ltd[10] where his Honour said:
"However, a core requirement of the comparable sales method is that the comparable sales be sufficient in volume to justify a deduction or inference as to value. What is sufficient in volume will vary from case to case. Generally, it will require multiple (more than two) sales. In those circumstances it is necessary to consider the comparable sales evidence as a whole in order to assess whether any of the sale prices are out of line with the main body of the sales evidence or whether there are any other conflicts in the evidence. As Wells J noted in Brewarrana (supra), the sale price is not necessarily the same thing as market value. There may be some unknown factor affecting the price paid or a sale may, after collective analysis, legitimately be regarded as a market aberration. To consider each sale relied on by the experts in isolation and rule as to its comparability with the subject land in the way the trial Judge did is to assume firstly, that the sale price reflects market value and secondly, that there will be a single most comparable sale on which to determine value. Those matters should not be assumed. They must be tested."
[10] [2003] WASCA 295 at [51], Per Mc Lure J (Anderson and Steytler JJ agreeing).
I agree that in many cases it might be difficult to reach any meaningful conclusion about value in the absence of a sufficient number of comparable sales. However, I do not take His Honour to be saying that in no case will a Court be able to reach a conclusion about value based only on the evidence of one sale. As was recognised by the Land Appeal Court recently, while it not a desirable situation , in some cases the only reliable evidence of value may come down to one sale.[11]
[11] PT Limited & Anor v Department of Natural Resources and Mines [2007] QLAC 0077 at [102] –[104].
Whether the valuer has to rely on only one sale or has a basket of sales available to him it is fundamental that each sale be sufficiently comparable to the subject land. I agree that Mr Horrigan's evidence concerning this sale on its own would make it difficult to be confident that the sale land was in fact sufficiently comparable to the subject land. However, as I understand the evidence of Mr Thiel, he also initially had regard to this sale and only rejected it after finding out that it involved related parties. He did not reject it because it was not able to be sensibly compared with the subject land.
Turning then to the issue of the related parties, the basic facts are as follows. Trevan Pty Ltd was the purchaser of the land. The vendors were Acaso Pty Ltd, Jetan Investments Pty Ltd and Wealth Coach Pty Ltd. The directors of Trevan Pty Ltd were Messrs Anderson and Trevarthen and its shareholders included Mr Anderson and Jetan Investments Pty Ltd. Mr Trevarthen was also a director of Jetan.[12]
[12] see generally at T. 110-111.
This relationship between the purchasers and vendor companies was such that, according to Mr Thiel, it was not an "arms length" transaction and therefore should be disregarded. Mr Horrigan at the time of preparing his report apparently did not know of the relationships between the companies. However, upon this information being revealed he did make some enquiries about it. These enquiries led him to conclude that the sale was still reliable evidence of value.
I accept that sales involving related parties should be treated cautiously. That is so because, for reasons personal to the parties, the sale price might be artificially inflated or deflated. However, in this case there is the evidence of Mr Horrigan to the effect that the sale was at market value. Further, Mr Thiel did not say that the sale price was manifestly too high or too low. Overall it is my opinion that Mr Thiel rejected this sale for no other reason than it involved related parties. The closest he came to saying that the sale price might not have been at market value was to say in response to questions from Mr Cochrane that: "I think potentially it's distorted"[13] and “… may not reflect the full market value”.[14] In circumstances where, until discovering the relationships between the vendor and purchasers, Mr Thiel seemed content to accept this sale as reflecting market price, I do not find this evidence particularly convincing.
[13] T. 193 L. 28.
[14] T. 194 L. 4.
On balance, I do not accept that no weight can be accorded to Mr Horrigan's primary valuation. In my opinion sale 1 provides at least some support for Mr Horrigan's assessment of the value of the land in the before case of approximately $9,200,000 based on an average raw lot price or value of $26,829 per lot. In this context it is worth noting that Mr Thiel's before value of the subject land was $9,702,324.[15] The valuers were within approximately 5 per cent of each other about the before value of the subject land. In such circumstances it was not surprising that the parties were able to reach agreement on the before value in the amount of $9,450.000.[16]
[15] Ex. 34.
[16] T. 251 L. 15-25.
In circumstances where agreement was able to be reached on the before value of the land I consider that it was largely unnecessary for me to deal with Mr Horrigan's sale 1 in such detail. However, given the quite extensive submissions made about it by both parties I thought it appropriate to at least deal with their primary submissions about it.
For the reasons expressed above my conclusions concerning the methodology debate are:
i.Mr Horrigan's hypothetical exercises are too unreliable and are rejected.
ii.Mr Horrigan's "direct comparison" valuation is sufficiently reliable to provide probative evidence of value but only of the before value of the land. This conclusion is not based on a rejection of Mr Horrigan’s valuation methodology but rather on my rejection of his assessment of the nature and extent of the injurious affection to the balance land resulting from the roadworks underlying the resumption. These issues are dealt with below.
iii.Subject to the matters addressed below Mr Thiel's valuation exercises are of some assistance in determining the value of the balance land after the resumption of lot 4.
The Number of Lots Lost
The dispute between the parties about the number of lots available for subdivision in the after case is the reason for each of the valuers having alternative valuations. On behalf of Hamzah it is contended that after resumption only 284 residential lots were available. On behalf of the Chief Executive it was contended that 302 lots were available. Out of an abundance of caution the valuers carried out valuations based on each scenario.
Somewhat ironically the source of the 284 lot scenario was Mr Brown, the townplanner relied on by the Chief Executive. In paragraph 45 of his first report[17] Mr Brown says:
"In my opinion, Comparison Design 2 at Appendix 13 represents the extent and type of development that the Council would have approved (as a preliminary approval overriding the Planning Scheme) immediately before the relevant date, on the balance of the land, excluding the resumed land, as evidenced by the approval of 31 March 2005."
Comparison Design 2 in Appendix 13 shows a 284 lot layout over the balance land.
[17] Ex. 11.
Mr Brown's first report was completed at or before 13 August 2007. On 10 August 2007 Mr Brown and Mr Kehoe, the civil engineer called to give evidence on behalf of Hamzah signed off on a "Joint Report". The last paragraph of that report essentially repeats Mr Brown's opinion as set out above.
At the time Mr Brown prepared his initial report and signed off on the joint report he was not aware that Hamzah was in possession of a subdivision layout showing 303 lots over the balance land. In the circumstances of this case it is not necessary to traverse the reasons as to why this layout plan was not revealed earlier. However, I agree with Mr Cochrane and Mr Kehoe that it should have.
The 303 lot layout cannot be readily dismissed. It was initially the product of a Brisbane based firm of architects and planners who produced a concept plan at or about 29 July 2005, about one week after the date of resumption. That concept plan was then fine tuned by Mr Kehoe's firm. According to Mr Kehoe: "… We adopted his layout and then tried to engineer it and optimise what we could with his layout."[18] In this context it needs to be borne in mine that not only is Mr Kehoe a professionally qualified and experienced civil engineer but he has also been actively involved with real estate subdivisions in and around Toowoomba for many years including the proposed subdivision of the subject land. Further, at or about September 2006 Mr Kehoe was advising the relevant local authority, the Jondaryan Shire Council, that it was hoped that with the council's co-operation a subdivision of "some 300" lots could be an affordable reality.[19] The 303 lot layout had also been previously referred to as the "Amended layout … Master Plan A Stages 1 to 8" in correspondence from Mr Kehoe's firm dated 23 May 2006 in response to a subdivision information request by the council.[20]
[18] T. 19 L. 15: The concept plan is Ex. 18and the revised layout plan is shown in Ex. 19.
[19] Ex. 23. p. 3.
[20] T. 47 L. 24-50, T. 48 L. 1-5 and Ex. 28.
Mr Kehoe said that he was not confident that a yield in the order of 300 lots could be achieved. This was, according to him because of a number of possible constraints including drainage, topography, park contribution a pumping station and pedestrian and road connectivity. On the other hand, Mr Brown's evidence was to the effect that it was likely that the Council would approve up to 302 lots. One lot would be lost to accommodate a sewerage pump station. Upon making enquiries of the council in February 2006 Mr Horrigan was advised that "… up to around 300 lots may be possible but would require additional approval."[21]
[21] Ex. 10, p. 5.4; T. 272 L. 5-30.
It is not for me to decide whether the Council would in fact approve a subdivision of 302 lots or only 284 lots. My role is to determine how the properly advised purchaser and vendor acting prudently and reasonably would come together at a price for the land.[22] Having regard to the matters raised by Mr Kehoe the prudent purchaser would probably argue that a lot yield of only 284 lots could be reasonably expected. On the other hand the prudent vendor armed with the advice of Mr Brown would argue that a yield of in the order of 300 lots could reasonably be expected. In this regard I acknowledge that the 303 lot layout and correspondence referred to above in paragraph 32 occurred after the date of resumption. However, those documents tend to confirm what the appropriately informed purchaser ought to have known at that date,[23] namely that the balance land had the potential to accommodate more than 284 lots. This evidence in my opinion supports the expert opinion of Mr Brown. In this context, in the written submissions filed on behalf of Hamzah, Mr Fynes-Clinton argued:[24]
"When one examines the evidence on this issue properly and carefully, it becomes apparent that the question which the court needs to determine is … whether there is any evidence before the court to support the proposition that a prudent purchaser of the balance land immediately after 22 July 2005 would pay a higher price for the land based upon a belief or expectation that it could or would yield 302 lots as compared to the price which would be paid based upon the certain knowledge that there was a development approval already in place for 284 lots."
In oral argument Mr Cochrane made submissions to a similar effect but, not surprisingly, argued for a more optimistic lot yield.[25]
[22] De Ieso v Commissioner of the Highways (1981) 47 LGRA 412 at 416:
[23] CMB no. 1 Pty Ltd v Cairns City Council (1999) 1 QdR1 at 11.1 per McPherson JA.
[24] at para 43.
[25] T. 279.
On balance I consider that Mr Kehoe's opinion concerning a likely or reasonable lot yield was overly pessimistic. It seemed to me that he tended to overstate the extent of the issues or problems which might affect lot yield. On the other hand, the prudent purchaser would recognise that the matters raised by Mr Kehoe together with the advice that further council approvals would be required do introduce elements of risk.
It would of course be no more than speculation to say exactly where the prudent purchaser would meet on this issue. Doing what I can with the evidence before me I have decided that they would be likely to meet about halfway. On this basis I will adopt 292 lots.
In conclusion on this topic it seems likely that the subdivision Hamzah will in fact carry out might involve less than 292 lots. However, it seems tolerably clear that this is due to the particular philosophy of one of the directors of that company and does not reflect what most developers would seek to achieve.[26]
[26] T. 39 L. 20-45.
The Nature and Extent of the Injurious Affection
The roadworks underlying the resumption will injuriously affect the balance land and any subdivision thereon in two ways. It will introduce a visual intrusion and traffic noise into what would otherwise been a more rural and tranquil environment.
Visibility
As I understand the evidence on this topic in its vacant state many of the lots within the estate will have some outlook over various components or elements of the proposed roadworks. As the landscaping proposed to screen the roadworks matures and houses and landscaping within the estate itself develop the impact will of course lessen. However, the best evidence is that the visibility of the roadworks will continue to have a detrimental impact on the estate.
It is clear from his written report and oral testimony that Mr Thiel always considered the visibility of the roadworks to be a material element of the injurious affection those works cause to the balance land. In my opinion it is far less clear that Mr Horrigan thought so. Under the heading "Valuation Methodology" the only matters that Mr Horrigan expressly refers to when discussing injurious affection are additional road costs and noise.[27] In the context of discussing his rate of discount to take affect of injurious affection Mr Horrigan also tended to limit his explanation to only include noise.[28] It was really only when pressed on the issue did Mr Horrigan say that his discount rate of 10% included an allowance for the visual impact of the highway.[29] I did not find this part of Mr Horrigan's evidence entirely convincing and am left with the distinct impression that if he did in fact take this matter into account when deciding on his 10% discount rate he failed to give it sufficient weight.
[27] Ex. 10 pp. 6-7.
[28] T. 253 L. 5-10.
[29] T. 264 L. 35-45; T. 265 L. 1-15.
Noise
Both sides called highly qualified and experienced experts to give evidence about the impact of traffic noise on the balance land. Mr Thorne, a scientist, gave evidence on behalf of Hamzah and Mr King, an engineer, on behalf of the Chief Executive.
Apart from some minor discrepancies or differences Messrs Thorne and King were generally in agreement about the level and extent of the noise impact to the extent that in their joint statement,[30] under the heading "Points of Disagreement" Messrs Thorne and King recorded "None as such".
[30] Ex. 1, doc 11 also Ex. 13, Attch. 3.
However, where Mr King and Mr Thorne did part company was in respect of the treatment of the impact of the noise, particularly between the hours of midnight at 6 a.m. In this context, in their joint statement under the heading "Points of Variation" they recorded:
"It was agreed that Mr King is presenting an assessment referencing The Code of Practice while Mr Thorne was preparing an impact assessment referencing The Code of Practice and other criteria."
According to Mr King, with the noise amelioration works to be carried out as part of the road construction in place, while various parts of the estate will be affected by traffic noise to varying degrees, at none of the lots will that noise level exceed 60 dB (A) and for the majority of the lots the affects will be insignificant.[31] The Code of Practice of the Chief Executive requires that in the circumstances of this estate the external noise limit for residential development is 60dB(A). Accordingly, the Chief Executives code of practice is satisfied. Mr King acknowledged that the code of practice would involve some compromise on amenity for at least some of the lots within the estate. However, it was his opinion that any adverse affect would not be significant and, in his experience, it was the sort of thing that people came to accept and live with over time.
[31] Ex. 13, p. 11.
As I understand the evidence of Mr Thorne, while he did not dispute that the Chief Executive’s code of practice would be satisfied, he did not consider that meant that the amenity of the estate would not be materially affected by traffic noise. In particular, it was Mr Thorne’s opinion that certain “unique noise events” will occur once the road is completed from “individual trucks”. These noise events, although relatively infrequent, have the potential to cause sleep disruption, particularly between the hours of 4 a.m. and 6 a.m.[32] unless appropriate steps are taken. The nature and extent of these “steps” is discussed below.
[32] T. 56 L. 20; the potential for sleep disturbance between these hours was Mr Thorne’s main concern, T, 82 L. 30.
Mr King, while accepting that unique traffic noise events of the type described by Mr Thorne would occur, did not accept that sleep disturbance necessarily follows. According to Mr King “… the average person is not going to experience sleep disturbance from the Toowoomba bypass inside their house.”[33] This opinion was apparently based more on personal experience and impression than empirical study.
[33] T. 235 L. 15.
The evidence of Mr Thorne and Mr King leads me to the following conclusions:
i.With noise amelioration works in place the code of practice of the Chief Executive will be met throughout the estate.
ii.Even with noise amelioration works in place a number lots will still be adversely affected by traffic noise from the proposed road between 6 a.m. and midnight. These lots will predominantly lie within that part of the balance land described as Lot 3 on RP 22818.[34]
iii.It is not possible to rule out that the residents of some of the lots within the estate (within and beyond Lot 3) might be affected by unique noise events emanating from the proposed road after midnight to the extent that sleep disruption could occur.
[34] See generally Ex. 13 pp 8.8-9.1 and Attch 9; Also Ex. 4 Figs 11 (a) and 11(b).
Mr Smale’s Evidence
According to Mr Thorne:
“A person building a home within the development will face the foreseeable additional dimension of noise mitigation to achieve levels of interior and exterior noise amenity that would exist if the road was not constructed.[35]
[35] Ex. 4, p. 41, para 56.
The levels of noise amenity referred to by Mr Thorne are those prescribed by or under Australian Standards AS3671.[36]
[36] More fully titled “Acoustics – Road Traffic Noise Intrusion Building Siting and Construction”.
The investigations and conclusions of Mr Thorne were passed on to Mr Smale, an experienced building designer. According to Mr Smale, for those sites worst affected by road noise the extra costs of the necessary building works would be approximately $20,000 for a lowset dwelling and $28,000 for a highset dwelling. For the least affected lots the costs would be approximately $7,500 and $10,000 respectively and for the lots between the best and worst case scenarios about $16,000 and $21,500 respectively.[37] The worst affected lots are in the vicinity of 222 on exhibit 19, the least affected in the vicinity of lot 54 and the mid range in the vicinity of lots 153 and 275.
[37] See Ex. 6 – Statement of Mr Smale.
Mr Smale’s costings were then provided to Mr Thiel who took them into account in his first valuation exercise. Mr Thiel initially assessed the after value of the lots by making two adjustments to the before value of the lots within the subdivision. The first was a reduction to reflect the price which could be achieved for noise affected lots in the market place. The second was a further reduction to bring into account the additional building costs identified by Mr Smale.[38]
[38] See Ex. 3 and at T. 162-164.
For various reasons the evidence of Mr Smale was not reliable in a number of areas. It is not however necessary to go into Mr Smale’s evidence in any detail as I consider it to be largely irrelevant to the real issues which have to be decided in this case.
Notwithstanding my misgivings about much of Mr Smale’s evidence, I accept that if the criteria set out by AS 3671 was to be achieved throughout the estate, some of the houses within it would require at least some work of the type identified. However, the costs of those works is not something which will be incurred by Hamzah which is not in the business of building homes or in the business of selling house and land packages. The costs would be borne by those purchasers of the land who chose to build to the standard recommended by Mr Thorne.
In circumstances where Mr Thiel had already discounted the average price of the lots in the before case to arrive at a price which the market would pay for lots injuriously affected by the roadworks, it was not then open for him to further reduce that discounted price to take account of the building costs identified by Mr Smale.
The Before and After Value of the Lots
As already mentioned, the before value of the subject land is agreed at $9,450,000. There is no dispute about the number of lots available for subdivision in the before case (343) or about the area of the land (71.616 ha). On an in-globo basis the average raw lot value is approximately $27,550 per lot and the average rate per hectare is $131,954.
By reference to exhibit 38, Mr Thiel’s average selling price per lot is approximately $119,000 in the before resumption case and $100,000 per lot in the after case. A reduction of about 16%. On an in-globo basis, Mr Thiel’s before value of the land ($9,702,324 – see exhibit 34) reflects an average lot value of approximately $28,287. Also, by reference to exhibit 38 Mr Thiel’s after value based on 302 lots and 284 lots ($5,998,500 and $5,620,754) reflects an average in-globo lot value of approximately $19,863 and $19,791 respectively. A reduction of in the order of 30%.[39]
[39]Note: These calculations exclude those lots adjacent to Gowrie Road which remained at a constant price of $100,000 per lot in the before and after case.
Mr Horrigan’s before value is based on an average value of $26,829 per lot. In assessing the after value of the land Mr Horrigan first reduces the in-globo lot value by 10% to take account of injurious affection and then makes a further reduction of $110,000 for the additional roadworks caused by the resumption and associated works.
The agreement reached about the before value of the land does not materially affect the levels of discount in percentage terms referred to in paragraph 56. The discount rate of 10% adopted by Mr Horrigan is not affected by the agreement.
The lower level of compensation contended for on behalf of Hamzah in the amount of $3,850,000, is based on Mr Thiel’s calculation adopting the 284 lot subdivision in the after case less an adjustment to take account of the agreement on the before value of the land. That is, the sum of $4,082,000 as calculated in exhibit 38 less $250,000 ($3,832,000) rounded to $3,850,000.
In paragraph 136 of the written submissions filed on behalf of Hamzah it is contended that in the circumstances of this case compensation exceeding $4,750,000 would be justified. This submission is based on a mathematical exercise which requires, as I understand it, a further amount of in the order of $900,000 to be added to the sum of $3,850,000. The amount of around $900,000 dollars is the result of an allowance of $3,500 for each of the lots in the after case save for those lots adjacent to Gowrie Road. Those lots would be affected by traffic noise from that road regardless of the proposed roadworks.
The allowance of $3,500 per lot is loosely based on the additional building costs a purchaser of the land would incur to achieve the after road construction noise levels advocated for by Mr Thorne.[40] It is candidly conceded by Mr Fynes-Clinton that this allowance is a “fairly arbitrary” one and is not one that directly reflects the views of either valuer or any other witness.[41]
[40] Hamzah’s written submissions, para 136.
[41] Ibid para 136(c).
In respect of these submissions I can only repeat what I have said in paragraphs 53 and 54 above. In circumstances where Mr Thiel and, for that matter, Mr Horrigan have reduced the price of the lots in their after valuation exercise to reflect what the market would pay for them with the proposed road and associated works in place there is, in my opinion, no basis for any further allowance of the type contended for on behalf of Hamzah.
In deciding on his level of value for the lots in the after case Mr Thiel had regard to the prices being achieved in a subdivision located at Westbrook proximate to the Gore Highway. In his primary report[42] Mr Thiel identified that elevated lots with rural views not affected by the Gore Highway showed a price range between $109,000 and $120,000 per lot whereas the “highway exposed” lots reflected a range of $90,000 to $105,000 per lot. These sales reflected, according to Mr Thiel, a “price differential” of $15,000 to $20,000 per lot.[43] In his valuation of the balance land Mr Thiel reduced his average before price per lot by some $19,000 to bring into account the visibility of the proposed roadworks and Mr Thorne’s evidence concerning traffic noise. The evidence is that when completed the proposed road will carry more traffic and, in particular, more heavy traffic than the Gore Highway past the Westbrook subdivision.
[42] Ex. 2 p. 68.
[43] See also T. 128 and T.131 L. 40-50 to T.132 L.1-12.
Mr Horrigan was critical of Mr Thiel’s approach in that, according to him, it failed to properly bring into account all of the matters which might have affected the price being paid for lots within that subdivision. In Mr Horrigan’s opinion the lower prices being paid for the lots closer to the Gore Highway could to a large extent be explained by other physical characteristics, particularly elevation. The net affect of Mr Horrigan’s evidence about this is that up to $10,000 worth of the difference could be explained away because of the superior elevation and “other attributes” of the higher priced lots.[44]
[44] T. 247. L. 36-42.
On balance, while I accept Mr Thiel’s evidence that proximity to the Gore Highway would negatively impact on lot prices, I also accept Mr Horrigan’s evidence to the effect that other physical characteristics of the lots relied on by Mr Thiel in his analysis would also have had an influence on price. It is my opinion that not all of the differences in the prices paid for the lots relied on by Mr Thiel can be attributed solely to proximity to the Gore Highway.
Turning then to Mr Horrigan’s discount rate of 10%, in paragraph 40 I expressed the view that in arriving at this rate Mr Horrigan failed to have sufficient regard to the visibility of the proposed roadworks. For this reason alone I consider that his rate of 10% needs to be increased. However, in this context I note that overall the evidence strongly suggests that even Mr Thiel considered that traffic noise would be the major component of the overall injurious affection to the balance land. In cross-examination Mr Horrigan candidly conceded that his discount rate of 10% was a global figure based on his professional opinion as an experienced valuer rather than the product of any empirical research or investigation.
On the evidence before me I have concluded that overall Mr Horrigan has underestimated the extent of the impact of traffic noise on the balance land and failed to have sufficient regard to the visual impact of the proposed road and associated works on that land. However, I am also of the view that Mr Thiel has materially overstated the extent and impact of the injurious affection over the whole of the balance land in the after-case.
While I do not accept Mr Horrigan’s evidence that the injurious affection resulting from traffic noise would effectively be limited to those lots located on Lot 3 on RP 22818,[45] the evidence leads me to conclude that the detrimental effect of the roadworks on lot prices will tend to reduce over distance from those works. This is particularly so insofar as traffic noise is concerned. It is also tolerably clear from the most likely lot layout in the after case that, notwithstanding the topography of the balance land, a significant number of the lots will be or can be orientated in such a way as to place the roadworks either entirely or largely out of view. There is, in my opinion, no probative evidence to support Mr Thiel’s conclusion that throughout the entire estate (excluding those lots adjacent to Gowrie Road) the average market value of the lots will have to be reduced by in the order of 16 per cent.
[45] T. 254 L.30-45; Ex. 10 pp. 7.8-8.2.
Based on the uncontested evidence and my findings as expressed above, adopting Mr Thiel's primary valuation method, a number of adjustments would have to be made to his discounted cash flow inputs. First, the average sale price of the lots in the before case would have to be marginally reduced to take into account the agreed before value of the land. Second, the number of lots in the after case would have to be increased to 292. Third, the applied rate of discount would have to be significantly reduced.
I do not consider it appropriate or desirable for me to attempt to replicate Mr Thiel's methodology with those new inputs. Notwithstanding this, it is clear to me that if they were changed to the extent referred to above Mr Thiel's assessment of compensation in the sum of $4,082,000 would be materially reduced.
In the circumstances of this case I have reached the conclusion that the most appropriate method of determining compensation is to adopt Mr Horrigan's primary valuation methodology making those adjustments necessary to accord with my findings on the factual issues in dispute. In this context the evidence leads me to conclude that Mr Horrigan’s discount rate of 10% should be increased to 17½ per cent to bring into account my findings concerning his underestimation of the impact of the visibility of the proposed roadworks and of the nature and extent of the injurious affection caused by traffic noise.
Where agreement has been reached on the before value of the land and there is no dispute about the number of lots available for subdivision in the before case, the average value of the lots on an "in globo" basis ought not involve controversy. Adopting Mr Horrigan's primary valuation methodology and my findings as expressed above, the following inputs are relevant:
· Number of lots – 292
· Average in-globo lot value before resumption – $27,550 per lot
· Discount rate for injurious affection (adopt) 17.5%
· Average in globo lot value after resumption (adopt) $22,730
On this basis, the after value of the land is $6,637,160. Compensation for the land taken and injurious affection to the balance land would therefore be ($9,450,000 - $6,637,160) $2,812,840. However, unlike Mr Thiel’s later discounted cash flow exercises which bring into account the cost of the additional roadworks identified by Mr Horrigan and referred to above in paragraph 57, in Mr Horrigan’s valuation approach those costs are treated separately as an additional entitlement to compensation.[46] It seems to me therefore that in adopting Mr Horrigan’s methodology it is necessary for me to bring those roadwork costs into account.
[46] Ex. 10, pp. 10-11.
Accordingly, compensation is determined in the amount of $2,946,000 made up as follows:
· Compensation for the value of land taken and injurious
affection to balance land - $2,812,840
· Additional Link Road Costs $110,000
Adopt $2,923,000
· Disturbance (as agreed) $23,000
In the circumstances of this case I also consider it appropriate to order that the Chief Executive pay Hamzah interest at the rate of 6% per annum on the sum of $2,923,000 from the date of resumption (22 July 2005) to the date the Chief Executive paid to Hamzah his advance on compensation.
Orders
1.Compensation is determined in the amount of Two Million, Nine Hundred and Forty-six Thousand Dollars ($2,946,000).
2.The Chief Executive, Department of Main Roads is to pay to Hamzah Pty Ltd interest at the rate of 6% per annum on the sum of $2,923,000 from 22 July 2005 to the date the Chief Executive paid to Hamzah Pty Ltd his advance on compensation.
RS JONES
MEMBER OF THE LAND COURT
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