Roads and Traffic Authority (NSW) v Collex Pty Ltd
[2009] NSWCA 101
•7 May 2009
NEW SOUTH WALES COURT OF APPEAL
CITATION:
RTA v Collex Pty Limited [2009] NSWCA 101
FILE NUMBER(S):
40802/06
HEARING DATE(S):
10 April 2008, 11 April 2008
JUDGMENT DATE:
7 May 2009
PARTIES:
Roads and Traffic Authority of New South Wales
Collex Pty Limited
JUDGMENT OF:
Beazley JA Hodgson JA Tobias JA
LOWER COURT JURISDICTION:
Land & Environment Court
LOWER COURT FILE NUMBER(S):
LEC 31775/04
LOWER COURT JUDICIAL OFFICER:
Talbot ACJ
LOWER COURT DATE OF DECISION:
19 September 2006
LOWER COURT MEDIUM NEUTRAL CITATION:
Collex Pty Limited v Roads and Traffic Authority of New South Wales [2006] NSWLEC 579
COUNSEL:
A: J Griffiths SC / R Lancaster
R: J Webster SC / I Hemmings
SOLICITORS:
A: Corrs chambers Westgarth, Sydney
R: Veolia Environmental Services (Australia) Pty Ltd, Pyrmont
CATCHWORDS:
REAL PROPERTY – Compulsory acquisition of land – Compensation – Assessment of particular land and interests – Mines and quarries – Airspace – Whether terms of a Deed giving respondent a right to airspace created by quarrying activities on the acquired land for landfill operations in exchange for an airspace creation payment should have been taken into account for the purposes of assessing compensation – Whether respondent suffered loss of airspace – Whether compensation should be reduced on the basis that respondent was able to recover loss from third party under the Deed – Whether respondent’s obligation under the Deed to make airspace creation payments was relevant to assessment of compensation – Injurious affection of adjoining property – Before and after method of valuation – Whether compensation to respondent ought to have been reduced due to payment made by appellant to third party – Whether third party had a compensable interest in land within the meaning of s 56(2) of the Land Acquisition (Just Terms Compensation) Act 1991 – Comparable sales and discounted cash flow methodologies – Expert evidence should not outweigh commonsense analysis
APPEAL AND NEW TRIAL – Right of Appeal – When appeal lies – Error of law – Failure to give reasons for decision – Whether reasons adequate
LEGISLATION CITED:
Environmental Planning & Assessment Act 1979
Land Acquisition (Just Terms Compensation) Act 1991
Land and Environment Court Act 1979
Roads Act 1993
CASES CITED:
Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430
BP Refinery (Westernport) Pty Ltd v Hastings Shire (1977) 180 CLR 266
Collex Pty Limited v Roads and Traffic Authority of New South Wales [2006] NSWLEC 579
Collex Pty Ltd v Roads and Traffic Authority of New South Wales [2005] NSWLEC 601
Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151
Leichhardt Municipal Council v Roads and Traffic Authority of New South Wales [2006] NSWCA 353; (2006)149 LGERA 439
Roads and Traffic Authority of New South Wales v Muir Properties Pty Ltd [2005] NSWCA 460; (2005) 143 LGERA 192
Roads and Traffic Authority of New South Wales v Damjanovic [2006] NSWCA 166; (2006) 146 LGERA 403
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2008] HCA 5; (2008) 233 CLR 259
TEXTS CITED:
DECISION:
Appeal dismissed with costs
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40802/06
LEC 31175/04BEAZLEY JA
HODGSON JA
TOBIAS JAThursday 7 May 2009
ROADS & TRAFFIC AUTHORITY OF NEW SOUTH WALES V COLLEX PTY LIMITED
Judgment
BEAZLEY & TOBIAS JJA: On 28 May 2004, the Roads & Traffic Authority of New South Wales (the RTA) compulsorily acquired an area of 4.512 ha of land at Wallgrove Road, Horsley Park being Lot 9 in DP 1059698 (Lot 9) owned by Collex Pty Limited (Collex) for the purposes of the Roads Act 1993, specifically for the construction of the M7 West Link. Expressly excluded from the compulsory acquisition of Lot 9 was a profit à prendre of Brickworks Ltd (Brickworks) over that land created by dealing 8769304 (the Brickworks profit à prendre).
The Valuer-General determined the amount of compensation payable to Collex in respect of the compulsory acquisition to be $747,000, comprising $722,000 being the “market value” of Lot 9 pursuant to s 55(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act) and an amount of $25,000 for “disturbance” pursuant to s 55(d) of that Act.
Collex lodged an objection in the Land and Environment Court pursuant to s 66 of the Just Terms Act to the amount of compensation assessed by the Valuer-General. The objection was heard by Talbot J: Collex Pty Limited v Roads and Traffic Authority of New South Wales [2006] NSWLEC 579. His Honour determined (at [114]) that the compensation to which Collex was entitled pursuant to ss 54 and 55(a) and (f) of the Just Terms Act was:
Present [market] value of the land acquired
assuming completion of the landfill: $1,997,798.00
Value of lost airspace: $4,887,000.00
Total: $6,884,798.00together with compensation for disturbance pursuant to ss 55(d) and 59 of the Act as follows:
a. Legal costs (including GST): $27,346.50
b. Valuation Fees: $81,562.10
c. Financial costs: $18,957.00The total compensation thus awarded was $7,012,663.60.
The RTA appeals only against his Honour’s determination of the compensation payable in respect of the value of the lost airspace.
The application in the Land and Environment Court was in Class 3 of the Court’s jurisdiction from which an appeal to this Court lies only on a question of law: see s 57(1) of the Land and Environment Court Act 1979. The principal issue on the appeal was whether the terms of a Deed of Licence and Operation dated 2 July 2001 (the Deed) between Collex and Austral Brick Company Pty Limited (Austral), whereby Austral had the right to carry out quarry operations on a large area of land of which Lot 9 formed part and the obligation to provide Collex with airspace for landfill, should have been taken into account for the purposes of assessing the compensation payable for airspace lost as a result of the compulsory acquisition.
There were a number of other issues raised on the appeal which, in large measure, devolved from the principal issue as to the relevance of the Deed to the assessment of compensation. In summary those issues were: whether Collex had in fact suffered a loss of airspace as a result of the acquisition; whether, having regard to the terms of the Deed, Austral had an “interest” in Lot 9; whether a payment that the RTA had made to Austral for loss of royalties otherwise payable by Collex for the lost airspace should have been taken into account by way of deduction in the assessment of the compensation payable to Collex; and whether his Honour had failed to give reasons for his adoption of the revised contours of Collex’s retained land advanced by Collex rather than those advanced by the RTA.
It is necessary to understand the factual background to the proceedings and the reasons for his Honour’s assessment of compensation in order to place the issues raised on the appeal in their proper context.
Background
At the date of acquisition, Collex was the registered proprietor of Lot 1 DP 1052225 (Lot 1). It had a frontage to Wallgrove Road, Eastern Creek, in the local government area of Fairfield City Council (the Council) and an area of 35.22 ha. As we have said, Lot 9 (which was part of Lot 1) had an area of 4.512 ha. The residue land of 30.71 ha retained by Collex became Lot 8 in DP 1059698 (Lot 8). The whole of Lot 1 at the date of acquisition was zoned Regional Parkland under Sydney Regional Environmental Plan No 31 (SREP 31). Lots 8 and 9 retained that zoning. Prior to that date, Lot 1 was zoned Non Urban 1(a) under the Blacktown City Planning Ordinance.
Collex purchased Lot 1 from Austral by contract dated 6 May 2002 (the Land Sale Agreement). Lot 1 was part of a larger holding of land, originally owned by Brickworks, a company related to Austral. Lot 1 subsequently came into the ownership of Austral. On 23 June 1961, Blacktown City Council granted development consent to Brickworks for brick manufacturing including the extraction of clay and shale from an area of land which included Lot 1 (the 1961 consent). It also included a condition that required any excavation to be set back 30.48 metres from Wallgrove Road. Lot 1 was subsequently included within the area of the Council.
On 8 December 1998, the Council granted development consent (the 1998 consent) to Austral to use a portion of Lot 1 for solid waste landfill for the purpose of remediating the area from which clay and shale had been extracted. The development consent was relevantly subject to the following conditions:
“9.Access to and egress from the landfill shall be via the existing access/egress point to Wallgrove Road. Separate access will require separate consent of Council and the Roads and Traffic Authority.
32.A Final Landfill Environmental Management Plan (LEMP) must be prepared and submitted to Council for concurrence prior to commencement of operation …
33.The landfill shall operate as a Solid Waste Landfill – Class 2.”
The approved LEMP adopted a plan defining the final landform for the site that permitted landfill above the existing ground level up to a level of RL80 Australian Height Datum (AHD). The final landform was designed to accommodate a landscaped open space. However, the Environmental Impact Statement (EIS), with which the LEMP had to comply, permitted fill to a maximum height of RL85AHD.
The 1998 consent specified an annual acceptance rate of landfill of 300,000 tonnes per annum of Class 2 solid waste. Pursuant to s 96 of the Environmental Planning & Assessment Act 1979 (the EPA Act) the consent was modified on 18 December 2003 so as to permit an annual acceptance rate of 430,000 tonnes per annum. The RTA’s planner witness stated that the effect of this modification was not to increase the overall capacity of the facility but to change the rate at which the land could be filled.
Prior to Collex’s purchase of Lot 1, Collex and Austral executed the Deed pursuant to which Austral was entitled to quarry Lot 1. The voids or airspace so created by the quarrying activities were then available to Collex for its landfill operations. Although the Deed was entered into prior to Collex’s purchase of Lot 1, by cl 3.2 the Land Sale Agreement and the Deed were conditional on and interdependent with the operation of each other. The Deed provided in cl 2.8 that the Land Sale Agreement was to be exchanged within three months of the date of the Deed. It appears that there was some delay in entering into the Land Sale Agreement but neither party exercised its right under cl 2.8 to terminate the Deed as a consequence of that delay.
Under cl 7.1 of the Deed, Collex agreed to pay a royalty to Austral for creation of the airspace referred to as the Airspace Creation Payment. Provision was made in the Deed for the adjustment of the Airspace Creation Payment, as well as the adjustment of the purchase price of Lot 1, according to the volume of airspace created by Austral on Lot 1 over the life of the landfill operation.
As at the date of acquisition, Lot 9 was in its natural state. That is, it was vacant land with no improvements and as it had not been quarried, no airspace had been created thereon. All quarrying and landfill operations up until that point had taken place on Lot 8, being the retained or residue land, in accordance with the approved plan of excavation.
On 23 June 2004 the RTA entered into a Contract for the Sale of Land with Austral (the 2004 Contract) to acquire not only Lot 10 in DP 1059698 but also the Brickworks profit à prendre over Lot 9 (which had been excluded from the compulsory acquisition of Lot 9) as well as Austral’s “equitable interest in Lot 9 … by virtue of the Deed … including airspace payment rights” payable under the Deed.
On 16 June 2004 the RTA wrote to Austral with respect to compensation for the acquisition of each of those interests. The letter formalised the RTA’s offer in the following terms:
“… the acquisition by the RTA involves three aspects:-
A.The acquisition of the fee simple interest in possession for Lot 10 in Deposited Plan 1059698 from Austral Brick Company Pty Limited;
B.The acquisition of the compensable interest that Brickworks Limited has in Lot 9 Deposited Plan 1059698 by virtue of the Profit à Prendre agreement with Collex Pty Limited being land previously owned by Collex Pty Limited and compulsorily acquired by the RTA on 28 May 2004. The interest under the Profit à Prendre agreement was excluded from the compulsory acquisition. See copy of gazettal notice attached. It is understood that Austral Bricks Pty Limited is authorised to deal on behalf of Brickworks Limited.
C.The acquisition of Austral Brick Company Pty Limited’s equitable interest in Lot 9 in Deposited Plan 1059698, by virtue of the Deed of Licence and Operation Agreement between the Austral Brick Company Pty Limited and Collex Pty Limited, which was partially extinguished by the compulsory acquisition.
It is proposed in this letter to simply state the agreed compensation as one figure, accommodating all three interests which can be broken up later if required for legal documentation.
…
Accordingly, the RTA is prepared to proceed with the acquisition by contract and transfer of all of your company’s compensable interests in Lots 9 and 10 in Deposited Plan 1059698, as identified above, on the following terms and conditions:-
(a)Purchase price of $9,790,000 in full satisfaction of all claims arising from the acquisition.”
The purchase price of $9,790,000 comprised a composite market value of all three interests in the amount of $8.9 million plus GST of $890,000.
On the same day Austral accepted the RTA’s offer in the following terms:
“●The acquisition of the fee simple interest in possession for Lot 10 in DP 1059698
●The acquisition of the compensable interest that Brickworks Limited has in Lot 9 DP 1059698 under the Profit à Prendre
●The acquisition of the Austral Brick Company’s equitable interest in Lot 9 in DP 1059698 by virtue of the Deed of Licence and Operation agreement between Austral and Collex Pty Ltd including airspace payment rights but excluding Austral’s interest in the residual value of Lot 9. The fee simple interest and Austral’s interest in the residual value of Lot 9 do not form part of this agreement with RTA and recovery of the residual interest will be sought from Collex Pty Ltd under the Deed of Licence and Operation.”
The reference to the profit à prendre in the second dot point is to that of Brickworks created by dealing 8769304. The reference in the third dot point to “Austral’s interest in the residual value of Lot 9” is a reference to Austral’s right under cl 14.2 of the Deed to be paid 66 per cent of the net sale proceeds should Collex dispose of Lot 1 or any part thereof. The Court was informed that Collex had paid to Austral 66 per cent of the compensation it had been paid for the market value of Lot 9.
A question arose at a preliminary stage of the proceedings as to whether the Deed should be taken into account in the determination of compensation owing to Collex. That matter was determined as a separate question: Collex Pty Ltd v Roads and Traffic Authority of New South Wales [2005] NSWLEC 601. The primary judge held that the Deed should be taken into account. There has been no appeal by Collex from that determination.
It became necessary during the course of the hearing of the separate question for that question to be reformulated into a series of questions. We will set out those questions shortly. However, as the determination of those questions required a consideration of the effect of the Deed, it is convenient to first go to its relevant provisions.
The relevant provisions of the Deed
Pursuant to the Deed, Austral and Collex agreed to the licensing and development of Lot 1 (referred to in the Deed as “the Land”) as a Landfill. In addition Austral, as the owner of Lot 1, agreed in cl 2.8 to negotiate and exchange a Land Sale Agreement “in accordance with the terms of this Deed” with respect to Lot 1. Recital A of the Deed recited that Austral had agreed to sell the Land to Collex on the terms to be set out in the Land Sale Agreement including payment by Collex to Austral of (1), the sum of $3.6 million “if and when Collex obtain[ed] all approvals for the development, operation of a solid waste landfill on the Land” and, (2), the further sum of $1.15 million “on the Commencement Date” which sum was “attributed by Collex to the value of the existing airspace on the Land”. The volume of the existing airspace so referred to was not disclosed. These two sums totalled $4.75 million. The “Commencement Date” was defined in the Deed in terms not presently relevant.
Notwithstanding the foregoing, Austral and Collex entered into the Land Sale Agreement for Lot 1 on 6 May 2002 for a purchase price of $7.2 million rather than $4.75 million: see [9] above.
Recital B of the Deed recorded the agreement between the parties as to the “licensing and development of [Lot 1] as a Landfill”, including the payment by Collex to Austral of the following:
“(1)payments for making available airspace including a one-off payment of $2.5 million on the Commencement Date and a minimum payment of $1 million Indexed per year; and
(2)66% of the net proceeds of any disposal of the Land in the circumstances provided in clause 14.2.” (Blue 55)
Recital E of the Deed was in the following terms:
“Collex has agreed to grant Austral a licence from the Commencement Date to enter the Land and:
E.1.do all things necessary to comply with its quarrying and other obligations under this Deed; and
E.2.mine for and remove from the Land clay, shale and other brickmaking materials,
on the terms set out in this Deed.” (Blue 56)
“Airspace for Landfilling” was defined to mean “void permitted to be used for Landfill operations in accordance with all applicable Licences”. “Dispose of” in respect of an asset was defined to mean
“… dispose of, or otherwise create or dispose of, or suffer to be created or disposed of any interest in, the whole or any part of the asset whether absolutely, by way of security or in any other way including by release or surrender, but does not include the granting of any security to a bank or financial institution in the ordinary course of business.” (emphasis added) (Blue book 58-59)
“Land” was defined to mean “Lot 1 (being 34.73 hectares)” and “Landfill” was defined to mean “a Solid Waste landfill to be operated in the voids on the Land in accordance with all applicable Licences”.
Clause 2.9 of the Deed provided for an “Airspace Creation Initial Payment” whereby Collex was required to pay to Austral on the Commencement Date a non-refundable payment of $2.45 million “as an advance on account of Airspace for Landfill to be created” under the Deed. It is not clear whether the non-refundable payment of $2.45 million under this clause was in addition to the payment of $2.5 million referred to in Recital B(1) as being a “one-off” payment for “making available airspace”. Only cl 2.9, being an operative provision of the Deed, created an obligation to pay $2.45 million and it may be that that was intended to reflect Recital B(1) with a small reduction in the amount from $2.5 million to $2.45 million as a “one-off” non-refundable advance payment on account of airspace “to be created”. In addition Recital B(1) contemplated a further minimum payment of $1 million per year indexed.
The only additional payment at the Commencement Date was the $1.45 million referred to in Recital A(2) as being attributable to the value of existing, as distinct from future, airspace, that is, airspace which had already been created by quarrying but was unfilled as at that date. This would seem to make sense as according to Recital A the sale price of Lot 1 included (1) $3.6 million if and when Collex obtained all approvals to operate a solid waste landfill on Lot 1; and (2) the $1.15 million referred to at [21] above. It is understandable that the value of the land being sold would include both those elements, particularly as the value of the available but unused airspace would constitute part of the market value of Lot 1 in its then condition.
However, we interpolate that the foregoing analysis is not consistent with the purchase price of $7.2 million provided in the Land Sale Agreement which was apportioned under cl 46 thereof as follows:
”(a) $4,750,000 as to the land;
(b)$2,450,000 as to the airspace already existing on the land created by previous quarrying activity (which amount is identical with the amount of $2,450,000 payable under clause 2.9 of the Deed …”
The inconsistencies appear to be the following. First, Recital A(2) of the Deed refers to only $1.15 million as attributable to the value of existing airspace whereas cl 46(b) of the Land Sale Agreement refers to $2.45 million as attributable to such airspace. Second, whereas cl 46(b) refers to the $2.45 million as being identical with the amount payable under cl 2.9 of the Deed, the latter provision refers to the $2.45 million as an advance on account of airspace for landfill “to be created” under the Deed – not, as does cl 46(b), to airspace “already existing” on the land created by previous quarrying activity.
On the other hand, although Recital A(2) refers to the payment of $1.15 million as attributable to the value of existing airspace, there is no operative provision of the Deed which mandates its payment. It may be that the reason for this is that Recital A is reciting the payments to be made under the Land Sale Agreement and not the Deed. It seems to us that the figures changed between 2 July 2001, being the date of the Deed, and 6 May 2002, being the date of the Land Sale Agreement. The effect of those changes was that the amount of $3.6 million referred to in Recital A(1) of the Deed became the $4.75 million referred to in cl 46(a) of the Land Sale Agreement and the amount of $1.15 million referred to in Recital A(2) of the Deed became the $2.45 million referred to in cl 46(b) of the Land Sale Agreement.
Further, the payment of the $2.45 million referred to in cl 2.9 of the Deed as being an advance on account of airspace “to be created” under the Deed seems to have become, some 10 months later, $2.45 million payable as part of the purchase price of Lot 1 for airspace “already created”. It would not be unreasonable to assume that in that 10 months further airspace had been created by Austral’s (or Brickworks’) quarrying activities which the parties may have valued at $1.3 million being the difference between the $2.45 million referred to in cl 46(b) of the Land Sale Agreement and the $1.15 million referred to in Recital A(2) of the Deed.
However, the above analysis does not account for the $2.5 million referred to in Recital B(1) as a one-off payment on the Commencement Date for making available airspace – meaning thereby, presumably, future airspace. There is no operative provision of the Deed that created an obligation on Collex to pay that amount unless it was intended that it be reflected in cl 2.9 albeit in a slightly reduced amount. However, senior counsel for Collex stated from the Bar table that it had been paid in addition to the purchase price of $7.2 million payable under the Land Sale Agreement.
In summary, therefore, the recitals to the Deed contemplated payments under the Land Sale Agreement of $3.6 million and $1.15 million (on different dates), a total of $4.75 million. That is the same amount as is referred to in cl 46(a) of the Land Sale Agreement. This may be a coincidence. Recital B(1) contemplated a one-off payment of $2.5 million on the Commencement Date. Clause 2.9 of the Deed reduced that, perhaps inadvertently, to $2.45 million. That amount was, according to cl 46(b) of the Land Sale Agreement, part of the purchase price of Lot 1. The total payable for Lot 1 was, therefore, $7.2 million, which included the amount payable under cl 2.9 of the Deed. The only other amount payable under the Deed was the $2.5 million referred to in Recital B(1) but, as we have said, there was no operative provision of the Deed mandating its payment although we were informed, as noted in the preceding paragraph, that it was paid. However, there was no finding to that effect by the primary judge no doubt because it was not relevant to any of the issues which required determination at trial.
If one accepts that the $2.5 million referred to in Recital B(1), assuming it was paid, was a one-off payment “for making available [future] airspace”, then the only amount paid with respect to already existing but unused airspace as at 6 May 2002 (being the date of the Land Sale Agreement) was the $2.45 million referred to in cl 46(b) of that Agreement. However, there was no finding by the primary judge as to the volume of such airspace as at that date and we were not referred to any evidence on the point by counsel.
In our view, therefore, one cannot gain any assistance from the payment of the $2.45 million for unused but existing airspace as at the date of the Land Sale Agreement as some sort of benchmark with respect to the primary judge’s assessment of the value of future airspace lost as a consequence of the acquisition. The same comment applies to the $2.5 million even assuming, as we were told, that it was paid.
We return to the provisions of the Deed. Clause 7.1 required Collex to pay Austral a monthly payment including the Airspace Creation Payment “for each tonne of waste material” taken onto the Land (cl 7.1.1). The “Airspace Creation Payment” was defined to mean “the greater of: (a) $4.00 [per tonne of waste] Indexed; and (b) 15% of the Average Revenue”. If the amounts so paid in any calendar year were less than the “Minimum Payment” (defined relevantly as $1 million indexed per calendar year) otherwise than by reason of certain specified events, Collex was required by cl 7.5 to pay the amount of such shortfall.
Austral’s obligations under the Deed in respect of the provision of airspace are to be found in cl 8. Relevantly, those obligations were as follows. Austral was required by cl 8 to “use all reasonable endeavours” to provide not less than 250,000 m3 of airspace for landfilling per calendar year on such part of the Land as the parties agreed, having regard to Austral’s obligations under cl 8.4. If Austral could not provide the airspace so specified, cl 8.2 provided that “it may provide an equivalent amount of reasonably adjacent Airspace for Landfilling at its other quarries located in proximity to the Land”.
If Austral was unable to provide the 250,000 m3 of airspace, either from Lot 1 or other quarries as required by cl 8.1 and cl 8.2, then cl 8.3.1. provided that the Minimum Payment per annum that Collex was required to pay Austral was to be reduced in the same proportion that the amount of unavailable airspace bore to 250,000 m3.
Clause 8.4 provided that Austral “use all reasonable endeavours” to provide up to a maximum of 6.8 million m3 (being the volume of solid waste landfill for which approval had been obtained – in fact the approved maximum volume was 6,946,712 m3) of “Airspace For Landfilling over the life of the Landfill in accordance with the diagram and works plan” annexed to the Deed. If it was unable to do so, then cl 8.5 provided as follows:
“8.5If it becomes apparent to the parties acting reasonably that it will not be possible for Austral to reasonably provide the airspace required under clause 8.4, and the amount of airspace able to be provided is materially less than the required airspace, then within 30 days of the parties either:
8.5.1 agreeing; or
8.5.2 obtaining a binding determination under clause 27.6
that it will not be possible to provide the required airspace, Austral must reimburse to Collex from the Purchase Price paid under the Land Sale Agreement, the amount being $7.2/6.8 multiplied by the number of metres of Airspace not able to be provided. The Purchase Price will be reduced by the amount so reimbursed.”
$7.2 million divided by 6.8 million equals $1.06 per m3.
Clauses 8.8 and 8.9 relevantly provided as follows:
“8.8.Subject to the Land Sale Agreement Austral in conducting Quarrying Operations on the Land shall be a licensee only and shall not acquire any interest in the Land.
8.9 Collex acknowledges and agrees that:
8.9.1 …
8.9.2Austral and its contractors will have a profit à prendre to extract and remove … material from the Land in such quantities as Austral sees fit, without payment to Collex or any other party”. (emphasis added)
Clause 14 of the Deed made provision for the disposal of the Land. Clause 14.1 and 14.1.3 imposed a number of restrictions upon its disposal. First, by cl 14.1.1, cl 14.1.2 and cl 14.1.3 Collex was not entitled to dispose of the Land within five years of the Commencement Date; or at any time to an Austral competitor; or to any person who could not demonstrate to Austral’s reasonable satisfaction that it had the financial resources to discharge Collex’s obligations under the Deed, or who could not provide a reasonably acceptable third party or bank guarantee in respect of Collex’s obligations. By cl 14.1.4 Collex was also unable to dispose of the Land unless it first procured a binding agreement from the intended disponee to be bound by the terms of the Deed, although this constraint did not apply once Collex had paid the “Total Minimum Payments” under the Deed.
Clause 14.2 provided that, subject to cl 14.5 and cl 14.6, if Collex disposed of the Land it was required to pay to Austral 66 per cent of the “Net Sale Proceeds”. Clauses 14.5 and 14.6 are not presently relevant. Pursuant to cl 14.3, Collex was to act with reasonable diligence “to dispose of the whole of the Land following filling of the voids” and to rehabilitate the Land.
The relevant provisions of the Land Sale Agreement
It will be recollected that cl 8.9.2 of the Deed was an acknowledgment and agreement by Collex, at a time when it did not own Lot 1, that Austral and its contractors
“will have a profit à prendre to extract and remove clay, shale [and] other brickmaking materials.”
However, it would appear that the position had at least to some extent changed by the time the Land Sale Agreement was consummated.
Clause 40 of the Land Sale Agreement was headed “Profit à Prendre”. It provided as follows:
“40.1Completion of this contract is conditional upon registration at Land and Property Information of the profit à prendre as set out in the instrument attached to this contract as Annexure “A” (“Profit”).
40.2The vendor will use reasonable endeavours to register the Profit, however the vendor is not required to register the profit until the purchaser has obtained the Approval.”
The “Approval” referred to in cl 40.2 was defined in cl 31 to mean the obtaining by Collex (as purchaser) of all licences necessary to carry out Landfill Operations on Lot 1. Annexure “A” set out the terms of the proposed profit à prendre. Relevantly, it authorised the transferee of the profit to enter onto Lot 1 for the purpose of conducting mining activities and removing soil and minerals therefrom and, for that purpose, included excavating and quarrying.
A document in identical terms to Annexure “A” was duly registered in the name of Brickworks as transferee from Austral as transferor and given dealing No. 8769304.
The correspondence between the RTA and Austral referred to at [17] and [18] above referred to the RTA acquiring, via Austral, Brickworks’ compensable interest under its profit à prendre over Lot 9. This was confirmed in cl 52 of the 2004 Contract. It provided that prior to completion, Austral was to obtain from Brickworks the extinguishment of the profit à prendre created by dealing 879304 insofar as it affected Lots 9 and 10.
The foregoing is relevant to the issue raised by the RTA on the appeal as to whether Austral had an “interest” in Lot 9 that was compensable under the Just Terms Act. Whatever “interest” it had, according to Collex’s submissions, this did not include the profit à prendre contemplated by cl 8.9.2 of the Deed which, by the date of acquisition of Lot 9, had been transferred to Brickworks and which was the subject of the offer and acceptance between the RTA and Austral dated 16 June 2004. We shall return to this submission later in these reasons.
The relevant provisions of the Just Terms Act
It is useful, at this stage, to have regard to the relevant provisions of the Just Terms Act.
“3 Objects of Act
(1) The objects of this Act are:
(a)to guarantee that, when land affected by a proposal for acquisition by an authority of the State is eventually acquired, the amount of compensation will be not less than the market value of the land (unaffected by the proposal) at the date of acquisition, and
(b)to ensure compensation on just terms for the owners of land that is acquired by an authority of the State when the land is not available for public sale, and
(c)to establish new procedures for the compulsory acquisition of land by authorities of the State to simplify and expedite the acquisition process, and
(d)to require an authority of the State to acquire land designated for acquisition for a public purpose where hardship is demonstrated, and
(e)to encourage the acquisition of land by agreement instead of compulsory process.
(2)Nothing in this section gives rise to, or can be taken into account in, any civil cause of action …
4 Definitions
interest in land means:
(a) a legal or equitable estate or interest in the land, or
(b)an easement, right, charge, power or privilege over, or in connection with, the land.
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20 Effect of acquisition notice
(1)On the date of publication in the Gazette of an acquisition notice, the land described in the notice is, by force of this Act:
(a)vested in the authority of the State acquiring the land, and
(b)freed and discharged from all estates, interests, trusts, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land.
(1A)Subsection (1) is subject to any express provision of an Act that authorises the acquisition of land by compulsory process but preserves the operation of any trusts, restrictions, dedications, reservations, declarations, setting apart of or other matters relating to the land concerned.
(2) If:
(a)the acquisition notice excepted an easement from acquisition, and
(b)immediately before the vesting, the benefit of a restriction as to user was annexed to the easement,
then (unless otherwise specified in the acquisition notice) the restriction continues to have effect as if the acquisition had not taken place.
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37 Right to compensation if land compulsorily acquired
An owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation in accordance with this Part by the authority of the State which acquired the land.
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54 Entitlement to just compensation
(1)The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land.
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55Relevant 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.”
[Par (a) and par (f) are the only provisions relevant to the appeal.]
“56 Market value
(1) In this Act:
market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid):
(a)any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and
(b)any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and
(c)any increase in the value of the land caused by its use in a manner or for a purpose contrary to law.
(2)When assessing the market value of land for the purpose of paying compensation to a number of former owners of the land, the sum of the market values of each interest in the land must not (except with the approval of the Minister responsible for the authority of the State) exceed the market value of the land at the date of acquisition.”
The primary judge’s decision on the separate question
Talbot ACJ (as his Honour then was) noted at [7] of his judgment on the separate question (to which we will refer, to distinguish it from his Honour’s principal judgment, as “SQ”) that a question had arisen between the parties as to the relevance of the provisions of the Deed for the purposes of the assessment of the compensation payable to Collex as a result of the compulsory acquisition of Lot 9. At SQ [14] and [15], his Honour considered that the real question was not the proper construction of the Deed so as to determine its legal effect. Rather, it was
“… a question of how the respective theoretical vendor and purchaser properly advised would have regard to the terms of the Deed in the determination of an agreed purchase price for the subject land in the event of an assumed sale at the date of resumption …”
These considerations led to the questions for separate determination being reformulated. The questions as reformulated and his Honour’s determination of those questions were as follows (at SQ [18] and [20]):
“1.In a hypothetical sale of the subject land (Lot 9), would the prudent purchaser and vendor have taken into account all of the provisions of the Deed of Licence and Operation between Collex Pty Ltd and Austral Brick Company Pty Ltd dated 2 July 2001 (the Deed)?
Answer: Yes.
2.Would a prudent hypothetical purchaser have obtained a legal opinion on the operation of the Deed so far as it affects Lot 9?
Answer: Yes.
3.Would the prudent hypothetical purchaser and vendor have been advised that Lot 9 had the potential, at the date of acquisition, for the use of that land for the filling of waste after excavation by Austral Brick Company pursuant to the Deed?
Answer: The prudent hypothetical purchaser and vendor would have been advised that under the terms of the Deed strictly applied (without any consideration to the physical constraints or consequences about which separate advice would be required by persons having appropriate expertise in that regard) Lot 9 had the potential for use for filling of waste.
4.Would the prudent hypothetical purchaser and vendor have been advised that the proper interpretation of the Deed that had been entered into between Collex and Austral requires the following conclusions:
(a)that any sale of Lot 9 was to be in accordance with the terms of the Deed;
(b)that the purchaser would be required to agree to be bound by the terms of the Deed with Austral.
Answer: Yes, subject in particular to the effect of clause 14 according to the circumstances at the date of sale. Pursuant to the definition of ‘disposed of’ in the Deed a sale includes the whole or any part of the land.
(c)that clause 8 of the Deed was applicable to the continued operation of the extraction and filling of Lot 9 and of land retained in the ownership of Collex.
Answer: Yes.
(d)that Austral was not required by Clause 8 to replace any land, or airspace, acquired by a public authority at its (Austral’s) expense (or otherwise compensate the owner of Lot 9) either by Clause 8 of the Deed or otherwise.
Answer: Austral was not required by clause 8 to replace any land or airspace acquired by a public authority but was subject to the effect of clauses 8.2, 8.3, 8.4 and 8.5.
(e)that the owner of Lot 9 was bound by the obligations in relation to any future disposal of Lot 9 in accordance with Clause 14.1, 14.2 and other applicable provisions of Clause 14 of the Deed?
Answer: Yes.” (emphasis added)
The primary judge’s decision on Collex’s claim for compensation
Present market value of Lot 9
It will be recalled that as at the date of acquisition, Lot 9 was in its natural state. At the hearing before the primary judge, the parties agreed that for the purposes of assessing the compensation payable for Lot 9, it should be assessed in two segments. The southern sector, designated Area A by the parties, comprised an area of 37,120 m2. Area A was available for quarrying and landfill and its underlying zoning was Non Urban 1(a). The northern sector, designated Area B, comprised an area of 8000 m2 and was not available for quarrying and landfill.
His Honour concluded (at [40]) in respect of Area A that the hypothetical purchaser would not have paid any more than its market value, assessed against the potential compensation payable for its acquisition based on a Non Urban 1(a) zoning as the alternative zoning to its Regional Parklands zoning after filling was completed.
In respect of Area B, his Honour considered (at [41]) that that part of Lot 1 would be recognised by the hypothetical purchaser as having a real potential for industrial use, at least during the period that the brickmaking and landfill operations continued on the adjoining land. He therefore assessed the present value of Lot 9, assuming that landfill on Area A would be completed in 18 years and that Area B would be immediately available for industrial use for an indeterminate period, to be:
Area A: Land affected by landfill (37,120m2): $757,798.00
Area B:Land unaffected by landfill (8,000m2 at $155 per m2): $1,240,000.00
Accordingly, the primary judge found (at [43]) that the value of Lot 9 as at the date of acquisition, assuming completion of the landfill, was $1,997,798.00. The RTA does not challenge this element of his Honour’s determination of compensation.
The value of the lost airspace
The primary judge held that the acquisition of Lot 9 would give rise to a loss of airspace approved for solid waste landfill on both Lots 8 and 9 of 1,048,186 m3, the value of which he assessed (at [104]) in the amount of $4,887,000.
His Honour’s reasoning that led to this conclusion may be summarised as follows. It will be recalled that the LEMP required by the 1998 consent adopted a final landform designed to accommodate landscaped open space. The RTA had contended before the primary judge that Collex could offset and accommodate the effects of any loss of airspace consequent upon the acquisition under the terms of the 1998 consent by creating a finished landform to a maximum height of RL85AHD under the recommendations contained in the EIS adopted by condition 2 of that consent: see [11] above. Collex argued on the other hand that there was a requirement for a setback of 30.48 metres from the adjusted western boundary of Lot 8 (due to the acquisition of Lot 9). That could not be implemented or replicated without modification of the existing scheme as approved by the 1998 consent.
His Honour recorded (at [49]) that the planning experts were equivocal as to whether Collex ought to have been advised to make an application to the Council for approval to modify the 1998 consent following the acquisition. The experts acknowledged that some problems could arise with respect to the shape of the ultimate landform, setbacks and landscaped areas, so that legal advice was necessary as to whether a modification of that consent was required. However, regardless of whether a modification was required, the experts agreed that an application for modification of the 1998 consent was likely to have been approved. They further agreed that on the assumption that the consent required modification, the Council would require a 30.48 metre landscaped setback from the boundary of Lot 8, being Collex’s retained land.
It is appropriate to record in full the primary judge’s reasons for accepting Collex’s revised contours which established, on its case, the volume of lost airspace because it is relevant to the RTA’s ground of appeal alleging lack of adequate reasons:
“50The respondent asserts that, as it is open to create a finished landform to a maximum height of RL 85 AHD under the recommendations contained in the EIS adopted by the existing development consent, Collex could offset and accommodate the effects of any loss of airspace as a consequence of the acquisition. ...
51I accept that notwithstanding the compulsory acquisition the consent can still be implemented, albeit after modification to ensure that the environmental and amenity impacts on the M7, in lieu of Wallgrove Road, are reasonable. I agree that in order to satisfy the Council any amended scheme would need to provide at least 30 m setback from the adjusted western boundary of the land. That in my view would involve sufficient change to demand an application for modification of the existing development consent. Otherwise, it might reasonably be expected the Council would take steps to ensure that changes satisfactory to it were made in order to meet the altered circumstances following acquisition.
52Notwithstanding that it may be feasible for the applicant to reconfigure the landfill to ensure that the same amount of space for landfill is provided in the remaining area, I am satisfied, nonetheless, that there is a loss of airspace as a direct consequence of the acquisition. If the replacement of airspace can be achieved by re-design after acquisition then it must be accepted that the same could have been achieved beforehand.
53I find that the deprivation of the opportunity to use the part of the land acquired that could have been made available for landfill is a compensable loss under the Just Terms Act. The use of airspace for the proposed waste disposal is a factor that parties to a hypothetical transaction between a vendor and purchaser would take into account when determining the price to be paid for the land at the date of acquisition. I further find that the applicant is entitled to compensation pursuant to s 55(f) of the Just Terms Act for the decrease in the value of its other land, which adjoins the acquired land by reason of a loss of airspace in that land.
54On the basis of a setback of 30 m and adopting the revised contours developed by Collex rather than the RTA the value of lost airspace has been determined by an agreement between surveyors at 1,048,186 m3. Mr Preston, after deferring what he says is the present value of lost airspace comprising 1,048,186 m3, derives a value for the lost airspace of $3,056,603.00 whereas Mr Large adopts the actual figure of $4.75 per m3 to derive a value of $4,978,884.00. The difference is the discount allowed by Mr Preston for deferring the value to allow for the time before the airspace becomes available.”
His Honour then applied (at [58]) an agreed market rate of $4.75 per m3 (based on comparable sales evidence) of airspace to derive a value for the lost airspace due to the acquisition of $4,978,884. Although Collex had originally based its case with respect to the value of lost airspace on rates per m³ derived from comparable sales, it ultimately contended that its preferred approach to that value was to apply a discounted cash flow (DCF) methodology. It tendered a valuation based on that methodology prepared by a Mr Don Reed and supported by Mr Wayne Lonergan and his associate, Mr Martin Holt. No issue arose as to the expertise of these witnesses to conduct such an exercise.
On the other hand the RTA did not conduct a DCF based valuation exercise. It merely relied on its valuer, Mr Preston, to criticise aspects of Mr Reed’s valuation and, in particular, the discount rate he had adopted. Those criticisms do not give rise to any issue on the appeal.
After reviewing the relevant authorities which had commented on the adoption of the DCF methodology where land had been compulsorily acquired, his Honour observed (at [82]) that
“Although Courts have clearly experienced difficulty from time to time in accepting the DCF method due to the unreliability of the assumptions made for the purpose of the analysis, it is nonetheless a method which can be accepted where the special facts and circumstances pertaining to the subject land make it appropriate to do so.”
The primary judge then determined (at [113]) that it was appropriate to adopt the DCF methodology as the primary basis upon which the lost airspace should be valued, rather than using a comparable sales analysis. In doing so, he considered that the DCF methodology had the advantage of eliminating a number of possible variables and adjustments that were required to be made under the comparable sales method, such as “a betterment factor or possible deferral of the price of the airspace as these matters [were] taken into account by the DCF calculation”. His Honour then used the comparable sales analysis as a check on the ultimate “figures” derived from the DCF calculation. Applying the DCF methodology, Collex’s claim for the lost airspace was assessed (at [104]) in the sum of $4,887,000 based upon the valuation of Mr Reed as recalculated by Mr Lonergan.
The RTA’s valuation expert, Mr Preston had considered that Lot 9 could be readily valued using comparable sales evidence and that the DCF methodology was, at best, a possible check method. Collex’s experts in turn were critical of using the comparable sales methodology, given the difficulty of identifying two directly comparable sites in the quarrying and landfill industries which, they said, were subject to a large number of variables. In response Mr Preston accepted that the DCF method was “one of the best methods to value a business” but, as we have noted above, raised a particular difficulty with respect to the discount rate that should be used. In the end, however, his position was that the best method of assessing the compensation that should be payable to Collex was to use a “before and after method on a discounted cash flow approach combined with a comparable sales approach”.
The RTA has not challenged his Honour’s adoption of the DCF methodology as such. Rather, its challenge is based upon an alleged failure by the primary judge to have regard to the terms of the Deed in assessing whether there was, in fact, any loss of airspace as a result of the acquisition of Lot 9 and, if so, the extent of such loss. The effect of this challenge, if successful, would be to undermine a critical integer in his Honour’s adoption of Collex’s DCF valuation.
The primary judge’s treatment of the relevance of the Deed
The primary judge dealt with the effect of the Deed (insofar as it is relevant to the grounds of appeal) at [59]–[66]. At [59], he referred to the provision made in the Deed to the circumstance that Austral may not be able to deliver the maximum 6.8 million m3 of airspace as specified in cl 8.4, or the annual minimum of 250,000 m3 as specified in cl 8.1. His Honour referred to Austral’s “right” under cl 8.2 to provide alternative airspace if it could not provide the annual minimum airspace of 250,000 m3 on Lot 1. He also referred to the reimbursement from the purchase price of that land that Austral was required to make to Collex under cl 8.5 if the total airspace provided was materially less than the 6.8 million m3 specified in cl 8.4. His Honour also referred (at [60]) to Austral’s right to receive royalties under cl 7.1.1 of the Deed being the Airspace Creation Payment for the amount of airspace provided.
In addition or complementary to the contention referred to at [57] above, the RTA also submitted at trial that, having regard to the provisions of the Deed and cl 8.2 and cl 8.5 in particular, Collex would not in fact suffer any reduction in available airspace as a result of the acquisition. This remained the RTA’s primary submission on the appeal. His Honour recorded (at [61]) the RTA’s submission on this point by reference to the following written submission:
“The implementation of the public purpose (that is, the construction of the M7 Westlink) has the consequence that the land in Lot 9 is not available for excavation and landfilling. However that does not have the necessary consequence of loss to Collex. Clauses 8.2 and 8.5 of the Agreement are matters not connected to or caused by the public purpose for which the land was acquired. It is an aspect of an agreement by which the value of the land is to be privately adjusted in certain circumstances, activated in the present case.”
In response to this contention, Collex submitted that the question for his Honour’s determination was the decrease in market value of those parts of Lots 8 and 9 that otherwise would have been used for the purpose of landfill but for the acquisition. It argued that at the date of acquisition, Lot 9 and the affected part of Lot 8 were available for future excavation and filling. Therefore, any agreement with a third party, such as that with Austral, was not a relevant consideration for the purpose of ascertaining the market value of Lot 9 for which Collex was entitled to be compensated.
His Honour (at [63]) rejected the RTA’s submission set out at [67] above as well as its submission that no loss had been sustained by Collex due to its ability to adjust the final landform of Lot 8 after filling to accommodate, at least in part, the loss of airspace from Lot 9 and the affected part of Lot 8. He therefore accepted (at [64]) Collex’s submission that it was entitled to compensation for the loss of potential airspace. He considered that compensation could be properly assessed against the value of the acquired airspace as reflected in the loss in market value of Lot 9 and Lot 8.
His Honour further found (at [65]) that the Airspace Creation Payment (see cl 7.1.1 of the Deed), whereby Collex paid Austral for the progressive creation of a void on the land, was not relevant to the assessment of compensation for the purposes of the Just Terms Act. He also found that any payment by the RTA to Austral under the agreement between them effected on 16 June 2004 (see [18] above) and based on the Airspace Creation Payment referable to Lot 9 was not relevant to the question of the compensation payable to Collex, because Austral was a mere licensee under the Deed and did not have a relevant interest in Lot 1 and, therefore, in Lot 9. His Honour, therefore, rejected the RTA’s submission that the payment it had made to Austral, to the extent that it reflected a loss to Austral of the Airspace Creation Payment, should be deducted from the compensation payable to Collex. Rather, he considered that any adjustment between Austral and Collex was a matter of private agreement.
His Honour explained (at [66]) that the reason why the payment the RTA had made to Austral was irrelevant to the assessment of market value for the purposes of the compensation payable to Collex was because the cost to Collex of Austral providing airspace was a fee for service and any payment by the RTA to Austral was a matter between them and had no bearing on the compensation payable to Collex. However, he did acknowledge that if the DCF method was adopted the “so-called royalty payment” (being the Airspace Creation Payment) would be incorporated into the calculations. It was common ground that they were.
Summary of errors of law
Before dealing with the specific grounds of appeal, it is convenient to set out the precise errors of law upon which the RTA ultimately relied on the appeal. Six of those errors are set out at par 29 of the RTA’s written submissions to this Court, of which the last two were abandoned. We set out the remaining four verbatim:
“(a)His Honour erred in law in concluding that the Deed and payments and other conduct under the Deed were not relevant considerations for the purpose of ascertaining the market value of the land acquired and for which the applicant is entitled to be compensated [Ground 1 in the Amended Notice of Appeal];
(b)His Honour erred in law in concluding that the applicant suffered a loss of (potential) airspace as a direct consequence of the acquisition [Ground 2 in the Amended Notice of Appeal];
(c)His Honour erred in the particular respects set out in the third ground of the Notice of Appeal … which involve various findings of the trial judge that were either wholly unsupported by the evidence before him or affected by the errors referred to above in relation to grounds (a) and (b) [Ground 3 in the Amended Notice of Appeal];
(d)The trial judge erred in failing to give any reasons for his decision to adopt ‘the revised contours developed by Collex rather than the RTA’ and so to conclude that the volume of lost airspace was 1,048,186 m3 (at [54]) [Ground 4 in the Amended Notice of Appeal].”
Ground 3 of the Amended Notice of Appeal (see par (c) above) was in the following terms:
“3Further and in particular, the errors identified in grounds 1 and 2 involved the following errors of law:
(a)that clauses 8.2 and 8.5 of the Deed were not relevant to the determination of compensation (at [61]-[65]). The trial judge should have found that the terms and effect of the Deed, in particular clauses 8.2 and 8.5, had the consequence that the applicant did not or was not likely to suffer any loss in respect of the reduction in available airspace consequent upon the compulsory acquisition of the land;
(b)that the ability of the applicant to approach the Council to vary the final landform of the landfill and the fact that such an approach was likely to succeed (see at [49]) (and thereby achieve the full volume of fill provided for in the Deed) was not relevant to the determination of compensation (at [63]).
(c) [this particular was abandoned]
(d)that the Airspace Creation Payment under the Deed was not relevant to the determination of compensation (at [65]);
(e)that the interest of The Austral Brick Company Pty Ltd under the Deed was not a relevant interest in the land for the purposes of the determination of compensation to the applicant (at [65]); and
(f)that the question of any payment by the respondent to The Austral Brick Company Pty Ltd in respect of the loss of the Airspace Creation Payment under the Deed was irrelevant to the determination of compensation to the applicant (at [65]).”
In essence the appeal raised four issues. First, given the adoption by the primary judge of Mr Reed’s valuation based on the DCF methodology (which determined the value of the lost airspace on a “before” and “after” basis, being the difference between the value of the available airspace on Lot 1 pre-acquisition and the value of the available airspace on Lot 8 post-acquisition), did his Honour err in failing to take into account in the “after” DCF valuation the compensatory provisions of cl 8.2, cl 8.3 and cl 8.5 of the Deed?
This first issue is related to the RTA’s submission that Collex had sustained no loss of airspace due to the acquisition because the fact that it was potentially deprived of airspace by the acquisition of Lot 9 and the required setback of any excavation on Lot 8 would be fully compensated by Austral providing the shortfall (from the required 6.8 million m³) from its other quarries pursuant to cl 8.2. Alternatively, Collex would receive $1.06 for each cubic metre of any shortfall pursuant to cl 8.5 of the Deed, which, it was submitted, was required to be deducted from the determined value of the lost airspace.
Second, did the primary judge err in finding that Austral did not have a compensable interest in Lot 9 under the Just Terms Act and, if he did, in failing to deduct from the compensation payable to Collex the amount the RTA paid to Austral for its lost royalty income being the Airspace Creation Payment due to the lost airspace caused by the acquisition of Lot 9? It might be noted that this issue would not arise if the first issue is answered in favour of the RTA.
Third, did the primary judge err in holding that the obligation of Collex under cl 7.1.1 of the Deed to pay Austral the Airspace Creation Payment was irrelevant to the amount of compensation to which Collex was entitled and, therefore, did not need to be taken into account in its assessment?
Fourth, did his Honour err in failing to provide any or any adequate reasons for adopting (at [54]) Collex’s revised contours and rejecting those of the RTA in arriving at his conclusion that the volume of lost airspace was 1,048,186 m³?
The Third Issue
The third issue can be disposed of at once. It was common ground that in both his “before” and “after” DCFs Mr Reed had deducted as an administrative cost the Airspace Creation Payment payable under cl 7.1.1 of the Deed at the rate of $4 per tonne of waste indexed: see B7/1679 for the “before” calculation and B7/1681 for the “after” calculation.
In his report dated 12 May 2006 (being Exhibit AA in the trial) Messrs Reed and Holt, in response to a report of Mr Preston dated February 2006 alleging “double dipping” on the issue of lost royalties, stated (at B7/1701):
“●Preston argues that DRA [Mr Reed] has claimed a value for royalty payments already compensated by the RTA, that is, that Collex are making a claim for something for which Austral has already been compensated. Preston has prima facie failed to understand the separate claims. Austral has claimed (amongst other factors) for the royalty payments from Collex it will no longer receive. Collex has claimed for the lost (net) cash flows from the reduced airspace available, which have been adjusted (reduced) to reflect the savings to Collex from the royalty payments which will no longer be made.
●This allowance by Collex is inherent in the before and after case approach adopted by DRA. DRA’s After Case DCF model does include royalty payments as costs. However, the DRA after case model covers years 1 to 13, whilst Austral’s claim should have been for royalties lost from year 13 to year 17. Thus DRA has adjusted his analysis in the after case to allow for saved royalties (as well as other costs no longer incurred). That is the whole premise of the before and after analysis. …”
In the joint report (Exhibit T) dated 23 June 2006 of Messrs Reed, Holt and Preston, the latter accepted “Reed’s explanation” set out in the preceding paragraph.
So much was also recognised by the primary judge at [66] where he remarked that
“[i]f the DCF method is adopted the so-called royalty payment will be incorporated in the calculations.”
It was also conceded by senior counsel for the RTA (at Appeal Transcript 34).
The primary judge had held (at [65]) that the Airspace Creation Payment was not relevant to the assessment of compensation for the purpose of the Just Terms Act. Such a proposition was, in our view, too broad. It was relevant to the assessment based on the DCF methodology and it was taken into account in that exercise.
During oral argument on the appeal there was a deal of confused argument as to whether the obligation of Collex to make that payment had been taken into account by the expert valuers on both sides when they agreed a rate per m³ for lost airspace of $4.75 per m³ based on comparable sales. But whether it was or not became irrelevant once the primary judge adopted the DCF methodology which did take the obligation into account. Grounds 3(d) and (f) of the Amended Grounds of Appeal (see [73] above) thus became non-issues. We therefore turn to the other three issues.
The First Issue: Did his Honour err in law in failing to take into account the terms of the Deed and in concluding that Collex suffered a loss of airspace? (Grounds 1, 2, 3(a) and (b) of the Amended Notice of Appeal)
As we have observed, the RTA did not challenge his Honour’s adoption of the DCF methodology as the primary basis for the assessment of the compensation payable. Indeed, that challenge would have been unavailable to it, as its own expert agreed that the DCF methodology was the preferable approach to the assessment of compensation. It asserted, however, that the DCF methodology was flawed, having regard to the premises upon which it was based. The particular challenge was to the underlying calculation used to assess the discounted cash flow in the “after” situation. That calculation took into account a 15 per cent reduction (approximately 1 million m3) in landfill capacity as a result of the acquisition.
The 15 per cent reduction in landfill capacity, on Mr Reed’s calculation, resulted in a 1.02 million m3 loss of airspace otherwise approved for solid waste landfill. Mr Reed then calculated the projected loss in earnings, based on that reduction, by calculating the variation in the net present value of discounted cash flows prepared for “the before and after case”. It was submitted that in undertaking this calculation, Mr Reed took no account of Austral’s right under cl 8.2 of the Deed to provide alternative airspace to make up for that shortfall. Nor did he take account of the operation of cl 8.3 should the airspace provided by Austral be less than 250,000 m3 per annum and which would result in a reduction (at the rate of $4 indexed per m³) of the annual Minimum Payment. Further, Mr Reed’s underlying methodology also failed, so it was submitted, to take into account the operation of cl 8.5 of the Deed.
Mr Reed’s approach in reducing the landfill capacity by 15 per cent was in one sense reflected in his Honour’s findings (at [65]–[66]) that the Airspace Creation Payment was not relevant to the assessment of compensation for the purposes of the Just Terms Act, and that any adjustment of payments made by Collex to Austral was a matter of private agreement between them and thus was an irrelevant consideration. In other words, his Honour regarded the terms of the Deed as irrelevant to the assessment of compensation and this would have included the relevant provisions of cl 8.
The RTA made two complaints about these findings. First, it submitted that the implicit finding that the terms of the Deed were irrelevant was inconsistent with the primary judge’s determination of the separate question and in particular, was inconsistent with the determination of SQ 4(c) and SQ 4(d). His Honour’s determination of these questions is set out at [51] above. In general terms, he determined that the prudent hypothetical purchaser and vendor would have been advised that the proper interpretation of the Deed required the conclusion that cl 8 would be applicable to the continued operation of the extraction and filling of Lots 8 and 9. It was common ground between the parties that the hypothetical purchaser of Lot 9 would be a person who was reasonably financial and who would take over Collex’s landfill operations and other obligations under the Deed insofar as those obligations were applicable to Lot 9.
Collex submitted that having regard to his Honour’s determination in his answer to SQ 4(d) that Austral was not required by cl 8 to replace any land or airspace compulsorily acquired by a public authority, this argument was not open to the RTA. His Honour’s finding was that, although Austral was not required to provide alternative airspace, it remained subject to cl 8.2 to cl 8.5. In our opinion, the significance of the question his Honour answered lies in the word “required”. In other words, was Austral “required” to replace airspace? His Honour answered that question correctly: cl 8.2 provided that, if Austral could not provide airspace in accordance with cl 8.1, “it may provide an equivalent amount of reasonably adjacent Airspace”. It was not obliged to do so. But his Honour also held that that provision as well as cl 8.3, cl 8.4 and cl 8.5 continued to operate.
The second complaint was the substantive challenge to his Honour’s finding that the terms of the Deed (including cl 8) were irrelevant to his determination of compensation. The RTA contended that the assumption of a loss of landfill capacity, upon which Mr Reed calculated the discounted cash flow in the “after situation”, was erroneous because it failed to take into account cl 8 of the Deed which required Austral to provide a specified minimum volume of airspace per annum either from Lot 1 or other of its quarries. It followed on the RTA’s argument that the hypothetical purchaser of Lot 9 would have to pay to Austral a portion of the Minimum Payment of $1 million Indexed payable each year. Otherwise, there was to be a proportionate adjustment of the yearly minimum Airspace Creation Payment: see cl 8.3.1. Likewise, there was a requirement to provide a proportion of the specified volume of airspace over the life of the Deed: otherwise there was to be an adjustment to the original purchase price of Lot 1: cl 8.4 and cl 8.5.
Mr Reed’s approach was to have regard only to the volume of airspace that was to be provided under the terms of the Deed and to the reduction in that volume caused by the acquisition. The RTA contended that if the market value of Lot 9 was assessed having regard to the volume of airspace actually delivered, then the compensatory provisions in cl 8.3 and cl 8.5, and Austral’s right under cl 8.2 to provide alternative airspace elsewhere, should also have been taken into account in the “after” valuation.
Collex’s argument in response to the RTA’s challenge to the primary judge’s determination that cl 8 of the Deed was irrelevant, can be reduced to two propositions. First, the assessment of compensation was made on the basis that the hypothetical purchaser of Lot 9 was bound by and would have the benefit of the terms of the Deed. Second, there would be a loss of airspace due to the acquisition of Lot 9 and the effect this would have on Lot 8. However, there was nothing in the Deed that dealt with the consequence of a compulsory acquisition by a public authority of any part of the land to which it applied. Accordingly, as Lot 9 was compulsorily acquired through no fault of Austral, the latter could not be required to make any reimbursement for that consequential loss of airspace to Collex pursuant to cl 8.3. Nor was Austral required to consider whether to make up that lack of airspace pursuant to cl 8.2. In other words, the provisions of cl 8 were, as his Honour held, irrelevant.
During the course of the argument on the appeal, a suggested reformulation of this submission was that, acknowledging that neither Collex nor Austral contended that the Deed had been frustrated by the acquisition of Lot 9, there was an implied term that Austral would have available to it the whole of Lot 1 to provide the specified airspace of 6.8 million m3. On this argument, rather than having a continuing obligation to provide 6.8 million m3 of airspace from the reduced area of Lot 1, that is, from Lot 8 alone, a proportionate share only would be required to be made available by Austral to Collex on that lot. In that circumstance, cl 8 did not arise for consideration. The only relevant loss of airspace in respect of Lot 8 would be the extent to which the proportionate volume of airspace would be reduced by the fact that there had to be a 30.48 metre setback from its western boundary.
The implication of such a term would follow from the terms of the Deed for the following reasons. The Deed contemplated that there could be a disposal of part of Lot 1: see definition of “Dispose of” at [25] above. Although there were restrictions on the sale of Lot 1 (see cl 14), the Just Terms Act required that any such prohibition on sale be ignored insofar as it applied to Lot 9: see Leichhardt Municipal Council v Roads and Traffic Authority of New South Wales [2006] NSWCA 353; (2006) 149 LGERA 439. In other words, the compulsory acquisition of Lot 9 occurred in a sale between a hypothetical vendor and purchaser. Although there was a temporary prohibition on the sale of any part of Lot 1 within five years from the Commencement Date, that would have to be ignored for the purposes of the hypothetical sale of Lot 9. The Deed would, however, be otherwise operative for the purpose of that sale.
It would follow that if there was an assessed entitlement to dispose of Lot 9 and the terms of the Deed otherwise applied, it would be necessary to imply a term that the hypothetical purchaser of Lot 9 as well as Austral would be bound by the terms of the Deed in proportion to the airspace available on that land: see BP Refinery (Westernport) Pty Ltd v Hastings Shire (1977) 180 CLR 266 at 283. That proportion would have been ascertainable because the Plan annexed to the Deed delineated the area on Lot 9 that was to be used for excavation with the consequent creation of airspace. Collex adopted this as an alternative way to approach its case.
Whilst we are of the opinion that there would be such an implied term, for reasons we explain below, we do not consider that Collex’s approach needs to be categorised as involving an implied term of the Deed. Nor do we consider that the implication of such a term completely answers the question of whether Collex is entitled to compensation for the approximately 300,000 m3 of lost airspace from Lot 9 due to the acquisition.
In the “before situation”, the market value of Lot 1 would be assessed having regard to the terms of the Deed. In the “after situation”, two steps were required. First, the market value of the airspace on Lot 8 had to be determined on the assumption that it had been sold in accordance with the terms of the Deed: that is, landfill operations could continue to be carried out on that land: see Leichhardt Municipal Council. However, compared to the “before situation” there would be a loss of airspace from Lot 9 of approximately 300,000 m3 and there would be some further loss because two separate excavations would be required, whereas previously when the land was one lot, there would be a single excavation at the point where Lots 8 and 9 abutted.
Second, there has to be compensation for any decrease in the value of Lot 8 by reason of the proposal to carry out the public purpose for which Lot 9 was acquired. In this regard, there was a loss of approximately 700,000 m3 of airspace on Lot 8 due to the 30.48 metre setback requirement and the reconfiguration of contours required as a result. This amounted to a total loss of airspace of approximately 1 million m3, the exact figure claimed being 1,048,186 m3.
On this approach, as Lot 9 had been hypothetically sold in accordance with the terms of the Deed, there was no further room for the operation of cl 8.2 to cl 8.5, as their effects had already been taken into account in the “before” and “after” exercise. Collex contended that this was the reasoning behind his Honour’s conclusion at [65], namely, that the question of any adjustment of payments made by Collex to Austral was a matter for private agreement and did not fall for consideration in the proceedings. In other words, it was not for his Honour to determine what, if anything, Collex and Austral would have agreed to as between themselves, now that there was approximately 1 million m3 less airspace available on Lots 8 and 9 due to the acquisition of Lot 9. Further, it was submitted that there was no obligation on a person whose land had been compulsorily acquired to ‘mitigate’ their loss by taking measures such as the RTA suggested: that is, reconfiguring Lot 8 in such a way as to eliminate or minimise any such loss of airspace.
In approaching the DCF on the basis that there was a total loss of approximately 1 million m3 of airspace, Collex’s experts treated Lots 8 and 9 as a single unit for the purposes of valuing the lost airspace in the “before” valuation and Lot 8 as a single unit in the “after” valuation. Collex submitted that this was an accepted valuation approach, notwithstanding that the “valuation” was being undertaken under the different provisions of the Just Terms Act, namely, s 55(a) in the case of Lot 9 and s 55(f) in the case of Lot 8: see Roads and Traffic Authority of New South Wales v Muir Properties Pty Ltd [2005] NSWCA 460; (2005) 143 LGERA 192.
In Muir Properties, Tobias JA observed (at 212 [103]) that a “before” and “after” valuation of the whole of the land was often undertaken where part only of land was compulsorily acquired. His Honour explained:
“In other words, the market value of the land before acquisition is determined (including the acquired land) as is its value after acquisition (excluding the acquired land). In this way the difference between the two values determines not only the market value of the acquired land but also captures any injurious affection to the retained land by reason of the acquisition for the public purpose. This approach will also, in an appropriate case, capture any loss due to the severance of the dispossessed owner’s land by that acquisition.”
Tobias JA further stated (at 212–213 [104]):
“In proceeding according to that approach, there has never been any doubt that the Pointe Gourde principle is applied in the ‘before’ valuation exercise. In other words, the ‘before’ value is determined on the basis of disregarding any decrease in the value of the land arising out of the purpose of the compulsory acquisition and any steps in the scheme leading to that acquisition. It is only in the ‘after’ value that any decrease by reason of the proposed implementation of the public purpose for which the resumed land was compulsorily acquired is taken into account.”
This paragraph must now be read as if the reference to the Point Gourde principle was read as a reference to s 56(1) of the Just Terms Act: see Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2008] HCA 5; (2008) 233 CLR 259. See also Leichhardt Municipal Council.
In Roads and Traffic Authority of New South Wales v Damjanovic [2006] NSWCA 166; (2006) 146 LGERA 403, Tobias JA confirmed the appropriateness of the “before” and “after” approach to the market value of the acquired land pursuant to s 55(a) of the Just Terms Act and any injurious affection to the retained land pursuant to s 55(f). Damjanovic provides some assistance in understanding the present case.
The respondents in Damjanovic owned 10.33 ha of land with a frontage to Wallgrove Road. The land was used for poultry egg production. The RTA compulsorily acquired a portion of the land, comprising a band of variable width ranging between 50 and 75 metres fronting Wallgrove Road, for the purposes of the M7. It was common ground between the valuers that a “before” and “after” approach should be adopted for the purposes of assessing the market value of the acquired land and any injurious affection to the retained land. The parties’ expert valuers had valued the land in the “before” situation on the basis of its use for industrial purposes. They differed, however, as to the basis upon which the land should be valued in the “after” situation.
The effect of the compulsory acquisition of the land fronting Wallgrove Road was to eliminate the direct road access between the retained land and the M7, with the consequence that the retained land was left without any usable road frontage. The RTA had provided a temporary access to the retained land during the construction of the M7, and it was accepted by the parties that this temporary access would become the only continuing road access to that land. The alternative road access was sufficient for the purposes of the respondents’ egg poultry business, but was not sufficient to carry any additional traffic, should the land be used for any “higher use” and, in particular, for industrial use.
The dispossessed owner’s valuer considered that the restricted access arrangements significantly diminished the value of the retained land in the “after” situation and he therefore “valued” the land on the basis of its existing use. The RTA’s valuer considered that in the “after” situation, the land should be valued on the same basis as in the “before” situation, namely, as land available for industrial use.
The primary judge held that the effect of the M7 on the retained land was to decrease its value, essentially because of the loss of its usable street frontage which had provided direct access to the land, compared to the situation before the date of compulsory acquisition, when the land had a substantial street frontage with three separate driveways directly connecting the land to Wallgrove Road. The access the property had before acquisition made the land suitable for industrial purposes. Once that access was lost, the retained land was no longer suitable for industrial use. The primary judge had concluded that just as the road frontage of the respondents’ land was conducive to its potential for industrial development, the absence of such frontage (after acquisition of a portion of the land) was destructive of that potentiality.
The contract purported to attribute $4.75 million to the land and $2.45 million to airspace already existing; but the provision for a reduction of the purchase price in the Deed proceeded on the basis that $7.2 million had been paid for an entitlement to be provided with 6.8 million cubic metres of airspace, in return for the ACPs, giving rise to a proportionate reduction of the price if less than 6.8 million cubic metres was provided. This suggests it would be reasonable to regard the contract between Collex and Austral as having been negotiated on the basis of about $1.06 for each cubic metre to be provided by Collex in return for the ACPs.
I note however that this calculation would attribute no value to the “land” element in the purchase, to thirty-four per cent of which Collex was to be entitled. Thus, for example, if one reduced the rate giving entitlement to provision of airspace to $1 per cubic metre, that would leave $400,000 of the $7.2 million which could then be attributed to the land element. If one then added the sixty-six per cent which was effectively to remain with Austral, one would get a figure of $1.2 million representing the total value of the land element. This calculation may or may not be realistic: I include it merely to show that in order to treat the land element as making any appreciable contribution to the purchase price, it is necessary to reduce the rate for the airspace entitlement from the figure of $1.06 per cubic metre. The greater the value attributed to the land, the greater the reduction from the figure of $1.06 per cubic metre.
If then the bargain struck between Collex and Austral, two apparently successful companies with substantial experience in the relevant areas of business, is taken as a guide to the value of what was acquired by RTA, it would suggest a rate of about $1.06 per cubic metre of airspace to which there would be entitlement in return for the ACPs, if nothing is allowed for land value. This would be the figure as at May 2002, the date of the contract; and it could reasonably be considered as justifying a larger figure of (say) around $1.20 per cubic metre as at May 2004, the date of the acquisition. Applying this to 1,048,186 cubic metres of lost entitlement to airspace in return for the ACPs, one gets $1,257,823, about one quarter of the amount awarded for this by the primary judge.
This is the result reached if no part of the purchase price is attributed to the land value element. The greater the amount attributed to the land value element, the less would be attributed to the airspace element. However one does the calculation, one does not arrive at a figure greatly in excess of the figure mentioned in the previous paragraph. I will not set out here any detailed calculations; but a broad brush commonsense approach suggests that a combined figure for land value and airspace in excess of about $1.5 million is unlikely. Yet, as we have seen, what was awarded was nearly $7 million.
How did this conflict with commonsense occur?
There seems to be a severe conflict with the commonsense approach in each of the elements of value under consideration. The figure of $1,997,798 for the land value or surface value of thirteen per cent of the land purchased two years earlier for $7.2 million, given that a substantial part of the $7.2 million was attributable to airspace rather than to land value, seems excessive, to say the least. That figure for thirteen per cent would extrapolate to $15.4 million for the whole, for land value alone.
However, one factor entering into this aspect of the calculation is an agreement between Collex, RTA and Austral for the purpose of these proceedings that Collex should be treated as entitled to all of the proceeds of the ultimate sale of the land, and should pay on to Austral whatever Austral is entitled to pursuant to its entitlement to sixty-six per cent of sale proceeds. Accordingly, it would seem, of the figure of $1,997,798, only thirty-four per cent or $679,251 represents land value purchased by Collex. If we were to treat $679,251 as at May 2004 as equivalent to (say) about $600,000 in May 2002, this would not so obviously be an unreasonable figure, even allowing for the fact that that amount is being attributed to only thirteen per cent of the area purchased. However, it is to be noted, as before, that the greater amount that is attributed to land value, the less the amount of the purchase price available to be attributed to airspace. In any event, if then one adds an amount for airspace to the figure of $1,997,798 for land value, at best one could get to a little over $3 million, out of which sixty-six per cent of $1,997,798 (that is, $1,318,547) would be paid on to Austral, leaving about $1.7 million for Collex. Although that is a high figure compared with my commonsense calculation, it is not so different as to cause any real concern.
The real cause for concern is the figure of $4,887,000 for lost airspace, which is about four times the highest amount that could be supported on a commonsense basis.
In my opinion, part of the explanation to this extraordinary figure lies in a gross error made in determining the loss of airspace element of Collex’s claim, on the basis of comparable sales. While compensation was ultimately awarded on a different basis, namely a discounted cash-flow basis, the gross error in the calculation on the basis of comparable sales must, in my opinion, have had substantial influence on the experts and/or the primary judge in arriving at the discounted cash-flow figure.
As regards determination of the loss of airspace element of the claim on the basis of comparable sales, it will be recalled that this was done on the basis of a rate of $4.75 per cubic metre. This equates to a total of about $32.3 million for the 6.8 million cubic metres that was to be provided to Collex, pursuant to its purchase of the land for $7.2 million (that is, about four and half times what Collex paid for the land, leaving nothing for land value).
The most comparable sale on which the expert valuers based the figure of $4.75 per cubic metre was the sale of the subject property by Austral to Collex. The experts arrived at the figure of $4.75 per cubic metre by adding to the $7.2 million the present value, as at the date of the Collex purchase, of all the ACPs to be made by Collex over the presumed life of the excavation/waste disposal project, and then making an upward adjustment to account for the increase in value between the date of the Collex purchase and the date of the RTA acquisition. (This method appears at 7 Blue 1590-91, the final result at 8 Blue 1872, and there is some confirmation of the method at 3 Black 419.)
As a calculation of the value of the airspace as at the date of acquisition, this is a reasonable result. But as at that date, Collex was not entitled to the airspace: it was entitled merely to be progressively provided with the airspace in return for progressive payment of ACPs. Of the $4.75 per cubic metre, a maximum of about $1.20 per cubic metre was the value of this entitlement as bargained for in the sale from Austral to Collex, and the remainder of about $3.55 per cubic metre represented the present value of the ACPs that were to be made in the future to Austral (and thus to be a measure of Austral’s interest in the land and/or its contract with Collex in respect of the airspace). Collex was not entitled to be compensated for the present value of the ACPs which it had yet to make; and the inclusion of this element in the figure of $4.75 per cubic metre is a major reason why the value of lost airspace arrived at on the basis of comparable sales was about four times too high.
It is not possible to say whether this gross error was due to a mistake of the valuers, mistake of the lawyers, misunderstandings in communications between them, or misunderstandings as to the true effect of the Deed and contract. For present purposes, it does not matter. It will be necessary in due course to determine whether there was an error of law in the judgment.
There is no such obvious error in the calculation of the value of the lost entitlement to airspace on the discounted cash-flow basis: those calculations did take into account that the ACPs (or royalties) were payable. However, there were many doubtful and contentious elements of these calculations, including assumptions about revenue, expenses, risk factors and capitalisation rates. In my opinion, it is inconceivable that, if the valuers (and the primary judge) had been aware that the correct valuation of the lost entitlement to airspace, on the basis of the recent bargain concerning this actual property between two experienced parties, was of the order of $1.2 million, they would have adopted a discounted cash-flow valuation of about $5 million.
Issues on appeal
It is necessary now to consider the issues raised by this appeal, with a view to determining whether they disclose any error of law made by the primary judge.
One problem is that the points I have been discussing were not clearly raised below, and indeed not clearly raised in the appeal. This of course suggests the possibility that I am simply mistaken in the points I have made, and I acknowledge that possibility. However, I raised these points as clearly as I could during oral argument in this case, and was given no reason to think I was mistaken. Of course, this Court can intervene only if it finds a relevant error of law by the primary judge, within the actual issues raised on the appeal, which materially affected the result and reliance on which is not precluded by Suttor v Gundowda considerations (Suttor v Gundowda (1950) 81 CLR 418).
The issues raised in this appeal are whether the primary judge erred in law in one or more of the following respects:
(1)In not finding that, by reason of certain provisions in the Deed, Collex did not or was not likely to suffer any loss of airspace (appeal ground 3(a)).
(2)In not taking into account the ACPs which had yet to be made for the creation of the airspace (appeal ground 3(d)).
(3)In not finding that Austral had an interest in the land which reduced the value of Collex’s interest (appeal ground 3(e)).
(4)In not giving reasons justifying the adoption of 1,048,186 cubic metres for the loss of airspace rather than the figure of about 700,000 cubic metres supported by RTA’s witnesses (appeal ground 4).
Within the third issue, RTA contended that the primary judge should have taken account of compensation paid to Austral pursuant to an arrangement reached between RTA and Austral. I would say at once that, in my opinion, this arrangement is irrelevant, except to the extent that it draws attention to the need to consider carefully the extent of Collex’s interest in the land for which compensation is to be given. In particular, such an arrangement between RTA and another party cannot engage at all with the provisions of s 56(2) of the Just Terms Act, which only applies where the court is able to act on what it finds to be the true market value of various interests in the land.
Having regard to that comment, I will be considering issues (3) and (4) together, because they substantially overlap. I will consider each of the other issues individually.
No loss of airspace?
On this issue, RTA relied on three provisions of the Deed: a provision requiring Austral to use all reasonable endeavours to provide 250,000 cubic metres of airspace each year, a provision entitling Austral to provide “reasonably adjacent airspace” on other land if it could not do so, and a provision that Austral use its best endeavours to provide in all 6.8 million cubic metres of airspace, failing which there was to be the price reduction referred to earlier.
Accordingly, RTA submitted that, even if RTA’s acquisition of Lot 9 removed 300,000 cubic metres of potential airspace and reduced by 700,000 cubic metres the potential airspace on Lot 8, nevertheless Austral was obliged to use its best endeavours to provide the agreed airspace, was entitled to provide it on other land, and was given price incentives to do so. Accordingly, either there was no loss of airspace or probably no loss or little loss; and insofar as there was loss, Collex would be compensated for it.
This argument requires consideration as to how the Deed would operate following the acquisition of Lot 9, when part of the land to which the Deed applied was no longer available.
It was submitted for Collex that this should be considered on the basis that there had been a consensual sale of Lot 9, rather than the compulsory “sale” involved in RTA’s acquisition of it, such a consensual sale requiring agreement by Austral, which presumably would only be given if Austral was relieved of its obligation to provide 6.8 million cubic metres of airspace. However, I see no basis for the contention that the position must be considered on the untrue assumption that there had been a consensual sale. Although Leichhardt Council v RTA [2006] NSWCA 353; (2006) 149 LGERA 439, established that the s 55(a) and s 56(1) value of Lot 9 must be determined on the basis of a hypothetical sale of Lot 9, it does not establish that the diminution in value of Lot 8 must be determined on the untrue assumption that Lot 9 was consensually sold: on the contrary, s 55(f) refers to decrease in value by reason of the carrying out of the public purpose, not by reason of a presumed consensual sale.
Plainly, the Deed was intended to apply to the whole of Lot 1, and some of its provisions are inapt to apply to part only of Lot 1 after a substantial part of it had been compulsorily acquired. Neither party contended that the Deed was frustrated; and in my opinion, the Deed should be considered as continuing to apply, as best it can, to the changed situation.
One aspect of that changed situation is that Collex is to be compensated in full for the value of its interest in the compulsorily acquired land, and for any diminution in value of the retained land, thus removing any rationale for a reduction in purchase price of the land by reason of any deficiency in its value resulting from the compulsory acquisition. Having regard to that consideration, in my opinion the only reasonable way that the Deed could continue to apply to part only of Lot 1 would be to treat Austral’s obligation to provide airspace subject to a qualification “except to the extent that any shortfall is caused by the compulsory acquisition of Lot 9”. I am not sure if it is necessary actually to imply a term to that effect: this is merely expressing the only reasonable application the Deed could have in the changed circumstances. However, if it is necessary to imply a term, then in my opinion the requirements for implication of a term would be satisfied.
On that approach, there was no obligation on Austral to make up the one million cubic metres shortfall caused by the compulsory acquisition of Lot 9. Nor, in my opinion, was there a financial incentive for Austral to do so. Any airspace that Austral provided from other land would be provided to Collex for the ACP of $4 indexed per tonne; whereas pursuant to the Deed and contract, my earlier analysis shows that Austral received in return for the airspace, in addition to the ACP, a price of the order of $1.06 per cubic metre. Thus each cubic metre of shortfall made up by Austral from other land would thus cost Austral something of the order of $1.06, or possibly more.
Accordingly, in my opinion, there was no error by the primary judge in holding that the terms of the Deed relied on by RTA did not eliminate or make less likely the loss of airspace.
The ACPs and Austral’s interest in the land
The primary judge’s judgment on the issue of compensation for loss of airspace noted (at [44]) the agreement of the valuers that the rate for the purchase of land-fill airspace was $4.75 per cubic metre, and also noted (at [45]) that the only issue between the valuers was whether this rate should be applied directly to the total volume of lost airspace or applied as a deferred value according to the time at which the airspace was likely to be created. He resolved this issue at [58]:
[58]Although under the arrangement made with Austral the airspace is to be made available to Collex progressively, the price paid by Collex including an initial payment and subsequent progressive payments reflects the availability of airspace for the purposes of landfill by Collex as and when required over the years. In those circumstances the consideration paid by Collex is for the provision of airspace for the purpose of its business progressively over time. Collex will be in no different position to a purchaser of land, which already contains a void suitable for progressive landfill over a similar period of years. There is no evidence to support a deferral of the value of the airspace based upon present market value. The adopted comparable sales take account of the fact that the whole of the void will not be utilised immediately. I therefore propose to adopt the value of $4,978,884.00 based on comparable sales evidence as the value of the lost airspace calculated at the rate $4.75 per m3 in respect of 1,048,186 m3.
The primary judge dealt with the question of the ACPs and the possibility of Austral having an interest in the land as follows:
[64]I agree with the applicant that it is entitled to be compensated for the loss of potential airspace. The compensation can be properly assessed against the value of the airspace as it is reflected in the loss in the market value of the land, including the residue land.
[65]I find that the Airspace Creation Payment is not relevant to the assessment of compensation for the purposes of the Just Terms Act. The additional fact that the RTA paid an amount to Austral in respect of the loss of the Airspace Creation Payment is equally irrelevant to the assessment of compensation payable to Collex. Austral is a mere licensee under the Deed and as between it and Collex it has no relevant interest in the land for current purposes. Whatever the consequence may be, as between Collex and Austral, under the terms of the Deed Collex is not precluded from a claim to compensation following the acquisition of part of the land it purchased from Austral. The question of any adjustment of payments made by Collex to Austral is a matter of private agreement and does not fall for determination in these proceedings. The payment of compensation may have consequences inter parties under the Deed but any potential payments trigged by the operation of the Deed do not affect the amount of compensation gauged against the value of the land acquired and the detrimental effect on the value of the residue land.
[66]Either way a cost of providing airspace is irrelevant in the assessment of market value. It is a fee for service. If the DCF method is adopted the so-called royalty payment will be incorporated in the calculations. Irrespective of the context it is an irrelevant consideration. Any alleged payment by the RTA to Austral as compensation based on the loss of income for the payment, however it is characterised, is a matter between the authority and Austral and has no bearing on the determination of compensation to which Collex is entitled. No evidentiary basis for finding that Austral had a relevant interest in the land has been established in these proceedings.
In my opinion these paragraphs do disclose errors of law.
In the first place, in my opinion, it is clear that Austral did have an interest in the land. There is an assertion in the Deed that Austral “shall not acquire any interest in the Land” (cl 8.8, 1 Blue 79); but this cannot displace the legal effect of the agreement in the Deed that “Austral and its contractors will have a profit à prendre to extract and remove clay, shale, other brick-making materials and potentially marketable material from the Land” (clause 8.9.1, 1 Blue 79). Nor, in my opinion, can that assertion overcome the necessary implication in the Deed, arising from Austral’s obligation to provide airspace on the land, that Austral must be able to go onto the land and to do whatever is necessary by way of removal of material to create that airspace.
For Collex, it was submitted that it was Brickworks, not Austral, that had the profit à prendre. In my opinion there is no substance to this submission.
I understand it is common ground that Brickworks and Austral are associated companies. In any event, it can readily be inferred that Collex accepted the term in the land contract obliging it to receive the land subject to the profit à prendre in favour of Brickworks only because it was in any event subject to the obligation to grant a profit à prendre to Austral and its contractors; and also that, insofar as Brickworks in fact exercises rights under the profit à prendre, what it does constitutes the compliance by Austral with Austral’s obligation under the Deed to provide Collex with airspace. If Brickworks went into liquidation, plainly Austral would still be entitled under the Deed to perform this obligation itself and to exercise a profit à prendre itself. Austral’s right to a profit à prendre amounted to an interest in the land at general law, and a fortiori it amounted to an interest within the extended definition in s 37 of the Just Terms Act.
Collex’s interest in the land is qualified by an interest or interests constituted by Brickworks’ registered profit à prendre and Austral’s right to a profit à prendre to enable it and/or its contractors to enter and extract material so as to provide airspace to Collex. Having regard to the symbiotic nature of the interests of Brickworks and of Collex, it would be unrealistic to treat them as separate and independent interests.
The value to Austral of its interest in the land is that it entitles Austral to receive the ACPs; and the ACPs were treated by the valuers as having a present value, as at the date of acquisition, such as to produce a figure of $4.75 per cubic metre as the value of airspace. In the light of my earlier discussion, this must put the present value of the ACPs to Collex at something in the order of $3.55 per cubic metre (see par [192] above). This value would presumably take into account any expense Collex would incur in providing the airspace; but even if it did not, Brickworks or whoever else was excavating material was getting the benefit of material suitable for brick-making; and so it seems highly unlikely that Collex would be incurring significant expense in providing the airspace.
The Court was referred to Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151 in support of the submission that Collex did not have an interest in the land. In my opinion, that case gives no support to that submission, dealing as it did with the generalised rights of a Council in respect of parks within its local area.
Thus, in my opinion, the primary judge made an error of law in holding that Austral had no interest in the land; and also made an associated error of law in holding that the ACPs were not relevant to the amount of compensation. Just as Austral had an interest in the land that could reasonably be valued at the present value of future ACPs, Collex’s interest in the land, with respect to airspace, was subject to its obligations to make the future ACPs to Austral. This obligation was accordingly relevant to the valuation of Collex’s interest.
As the earlier discussion shows, there is a question whether this error of law was material, since ultimately compensation for loss of airspace was based on discounted cash-flows, which did take into account Collex’s obligation to make the future ACPs.
However, in my opinion, but for the error of law, it would have been apparent to the primary judge that the figure of $4,978,884 for lost airspace, based on comparable sales evidence, was grossly excessive, because it left altogether out of account that Collex still had to pay substantial amounts for the airspace, while Austral had a corresponding interest in the land commensurate with its entitlement to receive those payments. Whether or not my earlier calculations are correct, it is obvious that these considerations would greatly reduce the figure of nearly $5 million.
It will be recalled that my calculation gave something like $1.2 million; but even if some other calculation were to give a figure greater than that amount, the contrast between the comparable sales valuation and the discounted cash-flow valuation of nearly $5 million would, in my opinion, have precluded adoption of the $5 million figure.
My own view is that a valuation soundly based on a bargain recently made in respect of this very property, by two companies experienced in the relevant areas of business, is a sounder indicator of market value within s 56(1) of the Just Terms Act than cash-flow calculations, depending on doubtful assumptions about revenue, expenses, risk factors and capitalisation rates, extending up to about seventeen years into the future. I do not think responsible valuers would be prepared to maintain a valuation of $5 million on a discounted cash-flow basis against a soundly based comparable sales valuation of the order of $1.2 million, or even double that amount; and if they attempted to do so, I do not think a judge would accept their evidence, at least unless it was extraordinarily well reasoned.
These comments are not of course directed to showing there was an error of fact in this case, but rather to support my view that the error of law I have identified was a material error of law. Having regard to that view, it follows that the appeal should be allowed on this basis.
Since writing the above, I have read a copy of the joint judgment of Beazley JA and Tobias JA. In the interests of clarity, I should identify where I disagree with them on this point. I believe their reason for rejecting grounds 3(d) and 3(e) of the appeal (my issues (2) and (3)) is set out in par [130] of their judgment; namely, that the ACPs (and thus presumably Austral’s interest in the land) was taken into account in the discounted cashflow method which the primary judge adopted.
In my opinion, that is no answer to these grounds of appeal. The primary judge made the finding, which in my opinion was plainly erroneous in law, that the figure of $4.75 per cubic metre was to be applied to the lost airspace of 1,048,146 cubic metres to give a value of lost airspace of $4,978,884 on the basis of comparable sales (judgment [58]), this error arising and/or being maintained because of errors of law in holding that the ACPs were not relevant to assessing compensation and that Austral had no relevant interest in the land (judgment [65]).
These errors of law having been identified, the next question is whether they were material. In my opinion, plainly they were. The fact that the primary judge took the trouble in paragraphs [44]-[45], [54]-[58] and [64]-[66] to make these findings suggests that he considered them material. The primary judge did not explicitly say that he considered that the discounted cashflow value was supported by the comparable sales value, but in my opinion this is plainly implicit in the judgment. Furthermore, had the primary judge not made these errors, it would have been apparent to him that the true value of the airspace on a comparable sales basis was something of the order of $1.2 million; and it is inconceivable to me that in those circumstances he would have accepted evidence that the value on a discounted cashflow basis was about $4.9 million. The errors of law were thus highly material.
Lack of reasons
In my opinion, ground 4 of the appeal is also made out.
In my opinion, the reasons of the primary judge at paragraphs [50]-[54] of his judgment go only to the question whether there could be revised contours such that there would be no loss of airspace.
The issues raised as between Collex and the RTA as to whether, given that there was a loss of airspace, this should be assessed at 689,966 cubic metres or 1,048,186 cubic metres, were not touched upon at all in these paragraphs. The issues raised in Blue 720-723, and illustrated by the contour plans at Blue 751, 754 and 762, concern contours within the same height limits (up to a maximum of RL 80); with the RTA contending for a boomerang shape, similar to that adopted originally by Collex (see Blue 751, 762), and Collex apparently contending for a more cigar-like shape that made less use than its original boomerang shape of the upper contour levels.
In my opinion, there was a complete lack of reasons on the actual issue engaged between the parties, and I would allow the appeal on that basis also.
ORDERS
In my opinion, the costs of the appeal have been significantly extended because of lack of focus and clarity in the RTA’s submissions, and I would allow the RTA one-half of the costs of the appeal. I propose the following orders:
(1)Appeal allowed.
(2)Set aside the determination of the primary judge as to the amount of compensation payable to the respondent in respect of loss of airspace;
(3)Remit matter to the Land and Environment Court for re-determination of the compensation payable to the respondent in respect of loss of airspace in accordance with these reasons;
(4)Order that the respondent pay one-half of the appellant’s costs of the appeal.
(5)Set aside the costs order at first instance and order that the costs of the hearing at first instance be within the determination of the trial judge on the remitted hearing.
I would comment finally that this case shows that it is sometimes wrong for lawyers and the court to defer uncritically to the opinions of experts, particularly where those opinions are about matters affected by somewhat complex factual and legal issues. It is generally desirable, where possible, to engage in commonsense reality checks on what the experts are saying, if only to ensure that their views are not distorted by mutual misunderstandings in a complex legal and factual situation.
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LAST UPDATED:
8 May 2009
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