Hunters Hill Council v Peter Charles Cunningham, Valuer General of New South Wales

[2005] NSWCA 185

CITATION:	Hunters Hill Council v Peter Charles Cunningham, Valuer General of New South Wales & Ors [2005] NSWCA 185
HEARING DATE(S):	15 April 2005
JUDGMENT DATE:	31 May 2005
JUDGMENT OF:	Giles JA at 1; Young CJ in Eq at 42; Stein AJA at 43
DECISION:	Appeal dismissed with costs.

CATCHWORDS:	Compulsory acquisition of part of land - compensation - market value of acquired land - value of acquired and retained land less value of retained land - values to take account of highest and best use - whether valuation of retained land failed to do so - depends on facts. D
CASES CITED:	Brodyn Pty Ltd v Davenport [2004] NSWCA 394; Currey v Sutherland Shire Council (1998) 100 LGERA 365; Franklins Ltd v Penrith City Council [1999] NSWCA 134; Gosford City Council v Cunningham (CA, 29 April 1997, unreported); Gosford City Council v Valuer-General (1996) 90 LGERA 413; Manly Council v Hortis (2001) 113 LGERA 321; Maurici v Chief Commissioner for State Revenue (2003) 212 CLR 111; Melwood Units Pty Ltd v Commissioner of Main Roads (1979) AC 426; The Minister v Matford Nominees Pty Ltd (1973) 2 NSWLR 58; Minister for Immigration and Ethnic Affairs v Wu (1966) 185 CLR 259.
PARTIES:	Hunters Hill Council - Appellant Peter Charles Cunningham, Valuer General of New South Wales - First Respondent Graham William Porter and Meredith Ruth Porter - Second Respondent
FILE NUMBER(S):	CA 40508/04
COUNSEL:	M Craig QC & P Clay - Appellant J B Maston - First Respondent J Griffiths SC & R C Beasley - Second Respondent
SOLICITORS:	Abbott Tout - Appellant IV Knight, Crown Solicitor - First Respondent Minter Ellison - Second Respondent

LOWER COURT JURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	SC 30073/03
LOWER COURT JUDICIAL OFFICER:	Grove J

CA 40508/04
CL 30073/03

GILES JA
YOUNG CJ in EQ
STEIN AJA

Tuesday 31 May 2005

HUNTERS HILL COUNCIL v PETER CHARLES CUNNINGHAM, VALUER GENERAL OF NEW SOUTH WALES & ORS

Judgment

1 GILES JA: The appellant (“the Council”) compulsorily acquired part of the land of the second respondents (“the Porters”). Pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 (“the Act”), the Porters were entitled to compensation as determined by the first respondent (“the Valuer General”). The question in the appeal was whether the Valuer General’s determination was void because it was not made in accordance with valuation principle.

Background

2 The Porters owned land in Vernon Street, Hunters Hill, being lots 1 and 3 in DP 607282. A house, known as “Mornington”, stood on lot 1.

3 The land had a frontage to the Lane Cove River. As a result of zoning adopted by the Council in 1980, the Porters could require that the Council compulsorily acquire their foreshore land. They did so. After litigation, lot 3 was subdivided into lots 31 and 32 in DP 1040602 and the Council acquired lot 31. The acquisition notice was published on 15 November 2002.

4 Lot 31 (“the acquired land”) was 526.9 m2. Lot 32 (“the retained land”) was 443.2 m2. Lot 32 was separated from lot 1 to the south-west, on which “Mornington” stood, by an access handle part of lot 2 in DP 602282, and abutted lot 2 in DP 602282 to the north-west. To its north-east was lot 31, between it and the Lane Cove River. To the south-east of lot 32 was a designated but unconstructed roadway known as Serpentine Road.

5 By s 37 of the Act, the Porters were entitled to be paid compensation in accordance with Part 3 of the Act. On 22 November 2002 they made a claim for compensation (s 39), without stating an amount, a copy of which was given by the Council to the Valuer General on 9 December 2002 (s 41).

6 The Council was required to give the Porters, within 30 days from publication of the acquisition notice, written notice of “the amount of compensation offered (as determined by the Valuer General)” (s 42(1)), and by the compensation notice to “offer to pay a specified amount of compensation as determined by the Valuer General”. The time could be extended. By s 47, the Valuer General was to “determine the amount of compensation to be offered to a person under this Part.”

7 The Porters could accept the offer (s 44), or could object to the amount of compensation offered whereupon the Land and Environment Court would decide upon compensation (s 66). The Council could not object to the Valuer General’s determination, and had no choice but to take it up in the compensation notice (see Gosford City Council v Valuer-General (1996) 90 LGERA 413).

8 The Valuer General issued his determination (“the determination”) on 12 February 2003. It was received by the Council on 13 February 2003. The determination was $2,515,000. This plainly came as a shock to the Council, and perhaps as a pleasant surprise to the Porters, but neither the amount nor its correspondence with expectations is presently relevant.

9 The Council could not object to the amount of compensation to be offered. It did not give the Porters a compensation notice. On 18 August 2003 it brought proceedings in the Administrative Law List, claiming a declaration that the determination was “void and of no effect” and an order setting it aside. The proceedings were brought against both the Valuer General and the Porters. The Valuer General took an active part.

10 The Porters cross-claimed in the proceedings for an order that the Council give the compensation notice. If the compensation notice was given, they could then accept the offer of compensation of $2,515,000. It became common ground that this relief should be granted if the determination was effective, but denied if the determination was void.

The determination

11 By s 54(1) of the Act, the Porters were entitled to compensation in “such amount as, having regard to all relevant matters under this Part, will justly compensate [them] for the acquisition of the land”.

12 By s 55 -

“55 Relevant matters to be considered in determining amount of compensation

In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division):

(a) the market value of the land on the date of its acquisition,

(b) any special value of the land to the person on the date of its acquisition,

(c) any loss attributable to severance,

(d) any loss attributable to disturbance,

(e) solatium,

(f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired.”

13 Sections 56, 57, 58, 59 and 60 respectively defined “market value”, “special value”, “loss attributable to severance”, “loss attributable to disturbance” and “solatium”. It is not necessary to go to the detail of the definitions.

14 On 24 December 2002 the Valuer General requested Crown Valuation Service Pty Ltd (“CVS”), a contract valuer, to “provide a recommendation of the amount of compensation payable”. The letter of instruction included -

“Your recommendation is to comply with the provisions of the Land Acquisition (Just Terms Compensation) Act 1991 and is to be accompanied by a comprehensive report detailing all relevant information including valuation methodology, the basis of determination and the items of compensation considered in your assessment.”

15 Mr Michael O’Leary, a registered valuer employed by CVS, undertook what he described as a valuation report. He provided a report of 18 pages plus attachments to the Valuer General electronically on 3 February 2003, and in hard copy form shortly thereafter. Mr O’Leary arrived at a before acquisition value of the acquired land and the retained land of $3,000,000 and an after acquisition value of the retained land of $500,000, and deducted the latter from the former to give a “compensatory market value” for the acquired land of $2,500,000. He allowed amounts of $5,000 for legal fees and $10,000 for valuation fees. Hence he said that -

“ … fair and reasonable compensation for the subject acquisition is considered to be,
Section 55(a) Market Value $2,500,000
Section 55(d) Disturbance $ 15,000
TOTAL COMPENSATION $2,515,000”

16 Mr Alan Vincin, a District Valuer in the officer of the Valuer General, prepared a submission dated 10 February 2003. After some formal matters, he proposed that “[t]he recommendation of compensation contained in the contract valuer’s valuation report is recommended for issue”. Mr D Cunningham, Regional Valuer in the office of the Valuer General, endorsed his acceptance of this recommendation and signed the determination on behalf of the Valuer General.

17 The determination identified the Council as the acquiring authority, the Porters as the claimant, and lot 31 as land acquired on 15 November 2002. It did not specifically refer to Mr O’Leary’s report, and stated only -

“ DETERMINATION OF COMPENSATION : Two Million, Five Hundred and Fifteen Thousand Dollars ($2,515,000)
The above determination comprises:
Market Value Section 55(a) - $2,500,000
Special Value Section 55(b) – Not applicable
Severance Section 55(c) – Not applicable
Disturbance Section 55(d) - $15,000
Solatium Section 55(e) – Not applicable
Increase in the value of other land Section 55(f) – Not applicable
Decrease in the value of other land Section 55(f) – Not applicable”

18 When the determination was sent to the Council on 12 February 2003, the covering letter stated -

“The Determination of Compensation is enclosed. A Valuation Report, which has been prepared by our Contract Valuer, Crown Valuation Services Pty Ltd is also enclosed.”

19 There was no specific evidence of the Regional Valuer’s decision-making either going beyond or not going beyond Mr O’Leary’s report where he signed the determination. Through Mr Vincin, the Valuer-General’s file up to and including 12 February 2003 was tendered and admitted. The material in the file, beyond Mr O’Leary’s report, would have been available to the Regional Valuer, but there was no evidence one way or the other as to the file accompanying Mr Vincin’s memorandum or as to the Regional Valuer referring to it.

The question on appeal

20 The Council’s claim to relief was said by the Council to be by way of judicial review, a description with which the respondents concurred. Jurisdiction to review the Valuer General’s determination of compensation was accepted in Gosford City Council v Cunningham (CA, 29 April 1997, unreported), and no party was concerned with whether the claim to relief was more correctly to a declaration that the determination was void because not made in accordance with the Act: cf Brodyn Pty Ltd v Davenport [2004] NSWCA 394 at [52]. The question on appeal was such that it is not necessary to take this matter further.

21 At least on appeal, it was common ground that the Regional Valuer signed the determination by some form of delegated authority and that it was to be regarded as a determination by the Valuer General. Although the determination did not refer to Mr O’Leary’s report, it was common ground that regard could be had to the report for the Valuer General’s decision-making.

22 Whether regard could also be had to the contents of the Valuer General’s file up to and including 12 February 2003, as material taken into account in making the determination, was disputed. The Council said that, in the absence of evidence, it could not be inferred that the Regional Valuer had considered the contents of the file, referring to Currey v Sutherland Shire Council (1998) 100 LGERA 365, Franklins Ltd v Penrith City Council [1999] NSWCA 134 and Manly Council v Hortis (2001) 113 LGERA 321. The respondents said that it could readily be inferred that an officer in the office of the Valuer General had taken into account the contents of the relevant file, unlike the councillors in the cases on which the Council relied, and that the Council had had the opportunity to ask Mr Vincin about the decision-making but had not done so. I do not think that regard to the contents of the Valuer-General’s file, beyond Mr O’Leary’s report, materially assisted to decision of the question on appeal, and it is not necessary to resolve the dispute.

23 In its summons the Council alleged that the Valuer General erred in law in making the determination, whereby there had not been a determination in accordance with Pt 3 of the Act. The grounds on which it did so were narrowed at the trial, and were narrower again on appeal.

24 The Council’s case at the trial was relevantly founded on evidence from a valuer, Mr Terrence Dundas. Mr Dundas accepted that the “before and after” methodology adopted by Mr O’Leary was appropriate. He said that there were two essential elements in a valuation of land such as the retained land, namely to identify the highest and best use of the land before and after the acquisition and to analyse comparable sales having regard to that highest and best use. He considered that Mr O’Leary had not done this, and suggested that there should have been taken into account the potential use for the retained land in amalgamation with adjoining land and, even though it was less than the minimum size for development, the Council’s attitude to its development.

25 The judge noted in this respect that the Council argued for error in three aspects -

“(a) Ignoring a principle of valuation by failing to identify the highest and best use of the retained land;

(b) Ignoring a principle of valuation by failing to identify and have regard to any truly comparable sales, having regard to the determination of the highest and best use of the retained land; and

(c) Failure to act in accordance with valuation principle in assessing the ‘after’ value of the acquired land by failing to take into account the potential for amalgamation of the retained land with adjoining land.”

26 His Honour considered that Mr O’Leary’s report, read as a whole, showed that he did not fail to consider the requisite principle. Since the Council’s argument was essentially repeated on appeal, it is not necessary further to describe his Honour’s reasoning. He gave judgment for the respondents on the Council’s claim and, on the Porters’ cross-claim, ordered that the Council give them the compensation notice.

27 The Council’s submissions on appeal were directed to its grounds of appeal 1, 2 and 3 -

“1. The Trial Judge erred by applying the wrong principle of valuation in that the Trial Judge held that the decision maker was required only to give consideration to the question of highest and best use whereas the principle of valuation required a determination of the highest and best use.

2. The Trial Judge erred by failing to find whether or not the decision maker had determined the highest and best use of the retained land.

3. The Trial Judge erred in failing to find that the First Respondent had not determined the highest and best use of the retained land.”

28 The grounds of appeal were not entirely appropriate to the Council’s submissions. Reading his reasons as a whole, the judge found that Mr O’Leary addressed the highest and best use of the retained land and applied the principle of valuation. The Council accepted that the question in the appeal was not whether he was correct in his determination of highest and best use. The question in the appeal was whether the Valuer General had failed to act in accordance with valuation principle in that, in arriving at the market value of the acquired land, he did not take account of the highest and best use of the retained land.

29 There were other grounds of appeal concerned with regard to comparable sales. They went in part to whether the judge had erred in having regard to certain evidence of Mr O’Leary which had not been known to the Valuer General when he made the determination, but their thrust was that the sales to which regard was had were not truly comparable sales because they had been selected without requisite regard to the highest and best use of the retained land. In the course of the appeal the Council acknowledged that they did not separately assist it if the submissions concerning highest and best use were not accepted.

Consideration

30 The respondents accepted that valuation principle called for inquiry as to the highest and best use of the retained land (see The Minister v Matford Nominees Pty Ltd (1973) 2 NSWLR 58 at 59), and that failure to adhere to valuation principle vitiated the valuation (Melwood Units Pty Ltd v Commissioner of Main Roads (1979) AC 426 at 432; Maurici v Chief Commissioner for State Revenue (2003) 212 CLR 111 at 121). In the manner the appeal was conducted, this need not be explored.

31 The Council’s submissions focused on the section of Mr O’Leary’s report under the heading “Valuation Methodology”.

32 Mr O’Leary began this section by stating that it was a case where only part of the Porter’s land had been acquired, and that “compensation must have regard to the potential of the claimant’s land immediately before and after acquisition”. After referring to s 55 of the Act and some zoning considerations, he said -

“The valuation has regard to the potential & nature of the claimant’s land, surrounding development and market activity. Regard has been had to the sales of comparable residential property.”

33 Mr O’Leary then referred to some planning matters, including the 900 m2 minimum lot size for residential development and provisions concerning conservation of views and impact of new development on existing development, and said -

“Prior to the date of acquisition the council have classified the subject land “Operational”, as per Section 31 of the Local Government Act 1993. Council has also initiated a process that seeks to rezone the subject land to Residential 2 (a2). It is understood that the Council may seek to amalgamate the subject site with the adjoining unformed road reserve to form a residential development site. Some uncertainty exists as to whether, this proposal will be supported by local residents or Council’s Conservation Advisory Panel.”

34 He then compared before and after aspects of the boatshed and waterfront access, in a manner which the Council said it did not criticise. He gave a history of the Porters’ purchase of the land and referred to an earlier offer by the Council to rezone the acquired land residential.

35 Mr O’Leary’s report continued -

“ Basis of Market Value Determination – This is an acquisition where only part of the claimant’s land has been acquired. Determination of compensation must have regard to the market potential of the land immediately before and after acquisition.
“ Before” acquisition potential of the claimant’s land is that of a vacant residential home site, elevated above a northern & north-eastern aspect of the Lane Cove River. Access to Vernon Street is available via easements of “Right of Way” over lots 1 & 2 DP 607282.
The building platform may be restricted to the residential land section of the site, as this is behind the Foreshore Building Line. Amongst other considerations, the height and scale of the development would be subject to issues concerning the conservation of views to and from the River. A development’s height & scale is also to consider its impact upon existing developments. It is understood the houses on lots 2 & 3 DP 607282 are both listed with Council as “items of environmental heritage”.
“After” acquisition potential of residue site – An access handle to lot 2 DP 607282 physically separates the claimant’s residue land from the lot occupied by the claimant’s house, ie: lot 1 DP 607282. This prevents the possibility of amalgamation and subdivision into 2 developable home sites.

The acquisition has denied the claimant’s legal access to the river frontage and boat shed. Regard to this consideration is included in the application of comparable sales to the subject determination. However, it is noted that other homes adjoining “Mornington Reserve” do enjoy similar practical access to the river frontage and boat sheds.
During negotiations with the claimants, council suggested a number of proposals to motivate the claimants to withdraw their “ notice to acquire ”. These proposals included rezoining the subject land residential and a land swap of the subject land with the unformed Serpentine Road reserve. In this regard, it is considered Council has displayed a flexible approach.
“After” acquisition potential of residue site – (Cont )
Hunters Hill planning controls indicate that the acquisition has sterilised the residue sites [sic] potential to be developed as a serviced home site. Council does have a discretionary provision under State Environmental Planning Policy No 1 to approve non complying applications. However, it is considered approval to solely develop the residue land as a home site is not likely. Issues that limit development of the residue site include:

· The area of the residue site is significantly lower than that required by LEP No 1 for residential 2 (a2) land.

· Council planning controls also require a portion of the site be reserved for open space and garden use.

· Protection of views between the Lane Cover River and the items of environmental heritage, ie “Mornington” and the house to the western side.

· Consideration of the proposal by Council’s Conservation Advisory Panel.

· Maintenance of the immediate localities [sic] development density, especially if council obtains a residential rezoning and amalgamation of the subject land and the unformed road reserve.”

36 The Council submitted that, although he identified the before acquisition potential of the acquired and retained land as a residential home site, Mr O’Leary did not identify the use to which the retained land could be put as its highest and best use. Asked what potential should have been identified, its counsel suggested potential as a residential home site or as an amalgamation with other land.

37 In my opinion, the departure from valuation principle has not been made out. Mr O’Leary did not use the words “highest and best” use as to either before acquisition potential or after acquisition potential, but he plainly inquired into and took account of highest and best use at both stages of his methodology.

38 Mr O’Leary considered use of the retained land by way of residential development. He said that approval to develop it as a house site was not likely, and gave five reasons for that opinion. The retained land was less than half the minimum permitted area, and his assessment was understandable; whether it was correct is not presently to the point. The Council suggested that he had not done so “in the context” of the recent history of the land, as I understand it referring to a 1999 approval of subdivision of lot 1 in DP 607282 into two lots and development of the smaller lot as a house site. The approval was conditional and if it had come into force would have lapsed. It was open to Mr O’Leary, in considering the use of the retained land, to come to the view that he did.

39 Mr O’Leary also considered use of the retained land by way of amalgamation with adjoining land. He said that the access handle to lot 2 in DP 607282 prevented amalgamation with the land on which “Mornington” stood and subdivision into two developable home sites. He had earlier referred to amalgamation with the Serpentine Road land, albeit in a different context, and had clearly enough doubted its feasibility; he did not specifically refer to amalgamation with lot 2 in DP 607282 and subdivision into two developable home sites. Both these courses were within his general observation that the Council’s planning controls had “sterilized” the retained land’s potential to be developed as a serviced home site. Indeed, when later giving details of a comparable sale Mr O’Leary noted that “Unlike the claimant’s residue land, this sale could have been potentially amalgamated with 5 of the adjoining lots”. Spelling out unlikelihood of amalgamation to produce a home site was not essential, and again whether it was correct is not presently to the point; examination of Mr O’Leary’s expression of his valuation should not be over-zealously critical, whether or not the Council’s claim to relief was by way of judicial review (cf Minister for Immigration and Ethnic Affairs v Wu (1996) 185 CLR 259 at 272).

40 In the end the Council submitted that, while Mr O’Leary had approached his task as one involving regard to the market potential of the land immediately before and after acquisition, it had to be demonstrated that he had done so. More correctly, it was for the Council to demonstrate that he had not done so. The judge was not satisfied that he had not done so, nor am I.

Orders

41 The appeal should be dismissed with costs.

42 YOUNG CJ in EQ: I agree with Giles JA,

43 STEIN AJA: I agree with Giles JA.

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