Roads & Traffic Authority of NSW v Leichhardt Council

[2007] HCATrans 260

[2007] HCATrans 260

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S16 of 2007

B e t w e e n -

ROADS AND TRAFFIC AUTHORITY OF NEW SOUTH WALES

Applicant

and

LEICHHARDT COUNCIL

Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 25 MAY 2007, AT 11.37 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR A.E. GALASSO, SC, for the applicant.  (instructed by Clayton Utz)

MR T.F. ROBERTSON, SC:   May it please the Court, I appear with my learned friend, MR J.E. LAZARUS, for the respondent.  (instructed by Manager Legal Services, Leichhardt Council)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, this case raises first a question of how there is to be understood and applied, if it has any continued currency, the approach taken by this Court, upheld by the Privy Council, in MacDermott v Corrie, Corrie v MacDermott.  The approach is important because, if we are correct, there has been a departure by the five person Court of Appeal in this case from the consistent application in New South Wales by the Court of Appeal, including most recently in the Hornsby Case by concession of leading counsel, that Corrie v MacDermott governed the following position. 

The position is one which arises under the statutory requirement to pay compensation for resumed or compulsorily acquired land.  It arises when the land in question is, by reason of the statute, required to be compensated by, amongst other things, a price set by reference to market value.  In all the statutes which came before the courts in all the authorities in question market value was at the core of the assessment.  In all of them, that is, the Australian authorities, it is therefore the case that with no exceptions of any materiality it was Spencer’s Case that dictated that part of the valuation exercise.  That requires of course a hypothetical sale, a sale counterfactual because by definition there has not been a sale, there has been a taking. 

The Chief Justice in the Court of Appeal treated the matter as therefore the not unfamiliar but always difficult question of tracing the effect of the notion of a fiction imposed upon the parties in their particular relation by legislation.  The fiction in this case is the sale, hypothesised by this Court in Spencer’s Case, as having the hypothetical participants, vendor and purchaser, so as to produce by reference to the expert evidence the price to be paid by way of compensation.  The particular position, which until this decision was regarded as settled in its outcome, arises when there is a restriction on disposition or, if it be different, a prohibition on alienation on the land in the hands of the person from whom it has been compulsorily acquired.

If I could take your Honours immediately to page 47 of the application book in paragraph 22 of the reasons, your Honours see that at about line 20 the Chief Justice proceeds on the basis that there is a material distinction between what is a called a “restriction on disposition” and what his Honour calls at line 20 “a prohibition on alienation”.

GLEESON CJ:   What page is this?

MR WALKER:   Page 47.  It is in paragraph 22.

GLEESON CJ:   Thank you.  I am looking at the wrong book.

MR WALKER:   Now, your Honours, there is of course a difference between a restriction and a prohibition; the former may permit something but in a limited set of cases, a prohibition denies it absolutely.  The difficulty in applying that distinction for the purposes of the present case is the false assumption or character it gives to the case before the Court which was of the classifying, as it is called under the Local Government Act, of this parkland as community land which brought in its train what is unquestionably a prohibition on alienation, but the classification was not absolute or irrevocable and could, by statutory process, be altered, a statutory process with its own obstacles by reference to the community consultation and other governmental steps that had to be satisfied.  Your Honours will immediately recognise the similarity between that position and zoning, which is equally not absolute, that is, it may be altered after obstacles have been passed including governmental steps.

Until this case, Corrie v MacDermott were seen as the way in which to solve the following paradox.  The valuation provisions of the compulsory acquisition statutes require the hypothesised sale.  The restriction or prohibition, which is a character of the particular land, denies the possibility of sale so long as the restriction or prohibition remains effective.  Did that produce, as counsel had argued in the 19^th century in England, the nil value for the land or did it produce, rather, something to be treated analogously with the blighting effect of a non-lucrative zoning restriction which was to be treated as something in which the potential for its alteration played a part in the valuation of the land subject to that zoning?  As history showed in MacDermott v Corrie and then Corrie v MacDermott, the decision was made to treat such restrictions as something that had to be taken into account in order to reflect what is called value to the owner. 

Now, the way the Chief Justice dealt with that was, with great respect, correctly to concentrate entirely upon the primary task of construing and applying the present statute which of course is different, as your Honours are familiar, from predecessor statutes in this and other jurisdictions.  The present statute, that is the Land Acquisition (Just Terms Compensation) Act 1991, as his Honour himself held, incorporates what might be called value to the owner, that is, that previous judge-made concept, in the matters which are set out in section 55 as being the mandatory considerations in ascertaining the amount of compensation to which a person is entitled.

It is section 55(a), namely, “market value” that is the focus of the inquiry in this case, which is then spelled out in terms which are not materially different from any element of the holding in Spencer’s Case in subsection 56(1).

GLEESON CJ:   Is it section 55(b) that would now catch up the consideration that, for example, you own Blackacre and it adjoins Whiteacre which you also own and on Whiteacre there are some facilities, the use of which makes Blackacre more profitable to you?

MR WALKER:   Probably more likely (c) and in some cases (d).  In other words, there are carve-outs from “special value” in (b) under the headings of “severance” and “disturbance”.

GLEESON CJ:   Are those things that were all previously – I mean prior to this legislation – dealt with under the concept of value to the owner?

MR WALKER:   In many cases, yes, though there are some statutory provisions in a disparate legislation preceding and elsewhere that dealt with that as well.  Your Honours will see those are concepts which are then defined in sections 57, 58 and 59.

GLEESON CJ:   What is there in 55 that reflects the consequence of restrictions on use or on alienation?

MR WALKER:   Nothing.  It is captured by market value because in Spencer’s Case, as in Corrie v MacDermott, which was in all the judgments apart from the dissent, all the judgments treated their reasoning as on all fours with the concepts in forming Spencer’s Case and a vendor and a purchaser may very well themselves be in personally very different positions as to how, for example, one plans to or might be able to use land but ‑ ‑ ‑

GLEESON CJ:   Spencer’s Case was just an elaboration of the idea, or an application of the idea, that in this context value means exchange value.

MR WALKER:   That is right.

GLEESON CJ:   The word “value” can have quite different meanings in different contexts but the references to hypothetical purchasers and the sellers were just there to indicate that what you are talking about is exchange value.

MR WALKER:   Yes, which was seen by the Court as equalling value to the owner as opposed to that shadow which is always present, namely, replacement value, what would be required to replace, whatever that may mean.  Now, your Honours, what there is by way of text as correctly, with respect, focused on by the Court of Appeal but incorrectly, with respect, decided by the Court of Appeal is the word “sold” and the surrounding words indicative of a bargain which one finds in section 56, the statutory hypothesis or the forced fiction, to which the Chief Justice refers.  It is said that that word destroys the relevance for the purposes of the hypothetical vendor and purchaser pondering the worth of the land, destroys the relevance of that restriction on disposition which can be described, at least temporarily, as being a prohibition on alienation. 

If you cannot sell but the statute requires valuation on a hypothesis that it is sold, then, so runs the reasoning, one cannot take into account the fiction drives from the field of consideration of the hypothetical sale the restriction on disposition.  But that is the very argument that was run and failed in MacDermott v Corrie and Corrie v MacDermott, where the alternative choice – and no doubt there are choices which were once available – was made judicially, that when faced with this paradox, the fictitious sale, always counterfactual whether or not there is a restriction on disposition, and as it applies to consideration of value when a restriction happens to be on alienation rather than simply on a lucrative use, how do you deal with it? 

For generations since the High Court and the Privy Council attended to the matter from Queensland in MacDermott v Corrie, it has been applied, including in New South Wales, in an opposite way from the way the five person Court of Appeal dealt with it.

GLEESON CJ:   What is the consequence of this decision for restrictions on use as distinct from prohibitions on alienation?

MR WALKER:   The consequence is to produce and expose what, in our submission, is a startling anomaly of serious public mischief.  It runs as follows.  Nothing in the Court’s reasoning or decision alters the established law that in establishing market value under section 56 one takes into account the land as it is, including attributes given by law such as zoning restrictions, use restrictions, which will limit the number of willing buyers or affect the price at which they would be willing to buy.  Nothing in the case alters the concomitant principle, as it has sometimes been called, that with the land as it is, is to be assessed its potential for a suitable change – for example, so-called up-zoning, that is the lifting of the restriction on permitted uses – so as to entice would-be purchasers to be more willing or would-be purchasers to increase in number or price because they can see a future of more lucrative use than presently permitted at the time of the valuation, the hypothetical sale, the point of acquisition.    All of that remains undisturbed.

So it means that land held by Council not subject to a prohibition on alienation but which is nonetheless zoned public park in order to dedicate it for the public use of public park will upon acquisition, if that is all that can be said about its dedication for public park, be assessed for compensation by reference to (a) its worth as public park, which will be very low, commercial people will not buy it, and (b) such extra premium so called as may be attributable to the assessment by the market of the prospect of that restrictive zoning, public park, being lifted or enhanced in favour of lucrative development.  So there will be a discount, if you like, from the highest value, highest and best value, for Council land merely zoned for public park but no restriction on alienation, and that will be in accordance with orthodoxy entirely undisturbed by the Court of Appeal.

However, an identical piece of land also proposed politically and socially to be devoted to public park purposes, where that dedication has been achieved by the statutory means of classification as community land with the statutory general prohibition on alienation which could be lifted only by reclassification, that land, according to the Court of Appeal’s reasoning, is to be valued with no discount for the contingencies involved, the uncertainties involved according to the eyes of a would-be purchaser, in that reclassification.  Now, in our submission, your Honours, this is an anomaly which is totally unaddressed by the way in which the Court of Appeal attended to the problem and it is not an anomaly which is required by the words of section 56. 

As I have said in answer to the Chief Justice, there is nothing in section 55, except the notion of market value and the prior decisions of this Court and of the Privy Council in MacDermott v Corrie, there is nothing in section 55 which requires the result the Court of Appeal produced.  The only thing in section 56 is the fiction of a sale, but of course the fiction of a sale applies to all cases, not simply cases of prohibited alienation.

GLEESON CJ:   The building opposite where we are at the moment, as I understand it, has restrictions on its use.  It can only be used as a law school or for something relating to public instruction in law – I do not know the term of the precise restriction.  If the State Government wanted to resume that, for example, to increase the size of a court complex, under this decision how would the land be valued?

MR WALKER:   Under this decision, if, as appears virtually certain, that restriction was regarded as a prohibition on alienation peculiar to the current owner by reason of the trust or other restriction then, according to this Court of Appeal reasoning, the land would be valued on the artificial basis that presumably given its location and its vicinity, that no discount should be allowed for the reality that it presently cannot be used for commercial high‑rise development, for example, and it would be valued, ignoring completely the practical effect which this restriction on its use presently has on the ability (a) to use and (b) therefore to attract bidders for the land.  So that the law school could be resumed only if one were to pretend contrary to the fact that it could be used for something other than a law school. 

That, in our submission, is extraordinary bearing in mind that if there had been, for example, not the restriction imposed on the university as owner but a zoning of that piece of land for a law school, then an entirely different approach would be followed, namely, one would consider what are the prospects of having the law school zoning lifted, which of course would produce a discount unless one found on the facts the extreme end of the spectrum applied, namely, 100 per cent certainty.

In our submission, your Honours, the only reason advanced by the Court of Appeal comes down to this.  There is to be discerned from between the lines of sections 55 and 56 a distinction between the case of a restriction which applies to the current holder and a restriction which runs, as it were, with the land regardless of the current holder.  That is the distinguishing feature which the Chief Justice offers as being the way to pick between a case where there is no need to examine the prospects of a restriction being removed, in other words, pretend the land that cannot be sold may be sold, and the case where you are not to pretend that, you are to asses the actual prospects of land presently dedicated as a public park by zoning of being up‑zoned so as to attract land developers in the market.  In our submission, it is for those reasons that there ought to be a grant of special leave.

There is, we submit, an important matter of stare decisis.  Of course, with great respect, the court below was right to stress that these are matters of construing and applying the particular statute but there is nothing, in our submission, which compels acceptance in the reasons of the Court of Appeal for the proposition that this is a statute that has embarked in an entirely new direction, away from Spencer’s Case – to the contrary, we say see section 56 – or away from value to the owner – to the contrary, see section 55 – as indeed acknowledged by Chief Justice Spigelman. 

That being so, the constant concept for well over a century now in compensation statutes of the fictitious sale contrary to the fact, the fact of compulsory taking, is one which ought not, in any court other than this Court, be the subject of the altered law which this decision presently stands as the law in New South Wales.  It is for this Court to determine whether the reasoning in MacDermott v Corrie, upheld with the material changes in Corrie v MacDermott and the Privy Council, should be departed from in the

way in which such statutes have been interpreted in New South Wales in the past.  May it please the Court.

GLEESON CJ:   Yes, Mr Robertson.

MR ROBERTSON:   If the Court please.  The first difficulty with my learned friend’s submission is that it ignores the fact that these provisions constitute a code in which is excluded all heads of compensation other than those which are set out in section 55.  The word that makes that submission good is the word “only” in section 55, whereby only those heads of compensation are to be considered, and that restriction prevented our client from seeking as a basis for compensation reinstatement value, that is, the cost to which it would be put to replace the land that was taken by the RTA.  The effect of concentrating on the statutory provisions draws one’s attention to section 56(1), where the words of the statute, in our respectful submission, are not ambiguous and, when given their literal reading, support the reasons for judgment in the Court of Appeal.

The first characteristic of the fictional sale, which is the means whereby market value is assessed, is there must be a sale at the time of acquisition.  The second is that it must be a sale by a willing but not anxious seller.  The Council could not sell the land at the date of acquisition and it was a most unwilling seller had anyone approached it at that date and asked to purchase the land.  There are findings of fact by the trial judge concerning the general community opposition to the sale of parks, a fact of which one could almost take judicial notice.  There were also findings as to the scarcity of parkland and the deficiency of open space in the Leichhardt area making open space the subject of demand by potential purchasers, not restricted to Council but including the Minister for Planning, schools and developers who were required to yield open space as the price of obtaining development consent.

So the marketplace is constituted by a number of potential purchasers each of whom would purchase for open space, that is, the restrictions on use which would carry over that my learned friend says results in some inconsistency, you ignore the restrictions on sale but you must at the same time consider the restrictions on use, would not necessarily have depreciated the value of the land because the purchasers would have been content that the land continued to be used for the purpose of open space which was the subject of those restrictions. 

The definition itself takes into account the fact that use is a matter for consideration by the valuer.  Subsection (1)(c) requires the valuer to ignore any increases in the value of land caused by an unlawful use.  The negative corollary of that is of course lawful uses must be taken into account.  There is no suggestion in the finding by the Court of Appeal that use restrictions, constituted by matters of general law such as zoning, are irrelevant in the calculus in assessing market value.  However, the stark fact is that the hypothesis simply could not be worked if the valuer was to take into account the fact that the land could not be sold.  That was simply counterfactual.  That was a matter like the unwillingness of the owner of the land that had to be set aside.

Now, my learned friend’s submissions start and, really, they finish in the pre-existing law where it was a fundamental aspect of valuation law that land was valued according to the value to the owner, in the owner’s hands, the dispossessed owner.  So if the dispossessed owner was subject to restrictions, be they in the constitution of a company, perhaps a restraint on alienation or some pre-emptive rights given to shareholders before the principal asset of the company could be sold, those were restrictions that had to be taken into account. 

Under the new statutory scheme there is a guarantee in the Act of market value and dispossessed owners are provided with a document – referred to by the Court of Appeal in its judgment – making a statement that the government guarantees market value.  So you get what is called pure market value unaffected by restraints on the alienation of the land that might be found in a company’s constitution or that might be found, for example, in an Act of Parliament, perhaps the Opera House is a good example of that.  On my learned friend’s argument the Opera House would have nil market value, or very little market value, because of the unlikelihood that the restriction on its sale would ever be lifted.

So if the Federal Government were to adopt the former Prime Minister’s suggestion of shifting the location of the Federal Parliament to Sydney and the Opera House was selected as the destination for the new Federal Parliament and the land on which the Opera House stands was resumed, because that land was subject to a restraint on alienation, on Mr Walker’s argument the market value of that land would be what it would be valued at absent those restrictions but depressed by the value of the likelihood of those restrictions being lifted which, in the case of the Opera House would be nil.  That is the approach adopted by the judge below. 

The judge below at first instance found this land was worth over $1,000 a square metre.  That was its market value, and then he depressed that value by 80 per cent to take into account restrictions on sale.  So the result was an act of injustice, looking at just terms as a freestanding right, because had my client purchased the land the day before at market value it would have paid $1,000 per square metre for it on the judge’s assessment, but if it was resumed the following day by the RTA for a road it would have been paid compensation of $200 per square metre.  Indeed, the RTA initially valued it at $50 per square metre.

So the result of applying the process of construction that Mr Walker urges, which is to resurrect the pre-existing authorities and to disregard the words of the statute, would be to cause, at least in the case of councils and others, perhaps private owners who had restrictions on their right to sell the land, to receive in compensation much less than would restore them to the position they were in immediately before the resumption.  Yet on any view of the law, that is the purpose of compensation law, a restoration to the position the party was in before it was dispossessed of its land.

GLEESON CJ:   How does this issue affect charities and land that is being used and can only be used for charitable purposes, like hospitals?

MR ROBERTSON:   Yes, a hospital with a restraint on alienation would receive compensation ignoring that restraint, but if the land was zoned for special uses, the question that the valuer would have to address is the likelihood of the land being rezoned, that is, the likelihood of the restriction on use being lifted, at the date of resumption.  There would be a similar process as took place in the Sydney Harbour Foreshores Corporation Case of investigating the underlying zoning.

GLEESON CJ:   Is that difference logical?

MR ROBERTSON:   Yes, because the guarantee of market value does not affix to any right personal to the owner of the land.  The guarantee of market value is purely an objective test based upon what a willing but not anxious purchaser was likely to pay for the land, having in its actual state – that is, having regard to the restrictions on its use – and having regard to the deficiencies or prospects that flow from its locality and position and its inherent qualities at the date of resumption, yet the illogicality in the distinction that Mr Walker seeks to draw is that if there was some private restraint upon the owner of the land and the restraint might be an option to purchase in the company’s constitution which would prevent the company selling the land without first offering it at less than market value to a corporator, in that case ‑ ‑ ‑

GLEESON CJ:   Or in trusts for public purposes that were imposed upon a gift of the land.

MR ROBERTSON:   Yes, exactly.  In any of those cases, the dispossessed owner would receive less than the land was in fact worth in the marketplace  by dint of taking into account those restrictions which would defeat the purpose of restoration of the dispossessed owner to the position the owner was in before the resumption.  If the Royal Blind Society, for example, had its land at Burwood resumed for an expressway, no doubt that land is affixed with a trust to be used for the purposes of the Blind Society and

cannot be sold or leased for other purposes.  If that were the case, the argument Mr Walker would be pressing is that those restrictions must necessarily devalue the land.  So if the Blind Society, having been ousted from its premises, sought to re-enter the marketplace to restore itself, it could not do so, not with the sort of compensation that the RTA would pay, with discounts in the authorities of up to 80 per cent. 

There are a number of cases where the discount has been a rule of thumb of 50 per cent.  In this case his Honour the trial judge discounted the value to 80 per cent.  Of course it may not have been a piece of parkland.  It may have been a heritage house or some other piece of land of significant value to my client.  It was compelled to pay in a resumption recently almost $10 million for land on the waterfront at Balmain.  That land adjoins the State Transit Authority’s land where it wishes to construct a large turning circle.  If, for example, the State Transit Authority decided to resume the land that the Council had just purchased for about $10 million, then it would be arguing that that land, because it was community land, would be worth 80 per cent less, perhaps 90 per cent less, whatever the evaluation was, of the likelihood of the restriction on the community land being lifted. 

In the case of desired land, or desirable land, where there is a lot of community support for its acquisition and for its use as a public facility, the likelihood of the restriction being lifted is remote, as Justice Lloyd made that finding of fact in this case.  May it please the Court, it is not an appropriate case for special leave.

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, the fact is that under this statute, as under all other statutes in similar form, restrictions do devalue land, that is, they are considered restrictions because prospective purchasers look at the land and see that there are higher and better uses than those which are permitted under the current regime, and then evaluate the prospect of it being lifted.  Restrictions do devalue land.  Indeed, in this very case an alternative argument was put, unsuccessfully, that it was because of zoning that a parallel justification could be sought for the 80 per cent discount. That is recorded at the beginning of that argument at application book 59.

Your Honours, in essence, the question raised is, first, one which this Court has previously determined and from which the Privy Council dismissed an appeal.  Second, it is to displace the general valuation principle which is still contained in sections 55 and 56 of the current Act in return for a process by which somebody in the Council’s position can receive value for an attribute of the land which it did not have.

GLEESON CJ:   Mr Robertson says that if a resuming authority resumes St Vincent’s Hospital, the Sisters of Charity would not get enough money to enable them to buy another hospital.

MR WALKER:   That, your Honour, is no doubt a very important political question because it highlights the fact that there has been a political choice against replacement value for well over 100 years in these statutes.  Now, we know in section 55 there are other so-called special values.  There is what is now called special value, there is also severance and disturbance and they are defined in ways that may or may not ameliorate the lot of the Sisters.  But, in our submission, that cannot and does not produce any textual reason to justify the outcome in this case which is an outcome that says there is a distinction to be drawn with radical governmental and fiscal consequence between a restriction for the purpose of dedicating to public purpose which is zoning in kind and a restriction for the purpose of dedicating to public purpose which looks to alienability.

GLEESON CJ:   Mr Walker, would the decision in this case translate directly into issues of just terms in relation to the application of the Constitution?

MR WALKER:   Yes, your Honour.  However, as the Chief Justice pointed out, just terms do not inhibit the New South Wales Parliament and other State Parliaments in the statutes they enact.

GLEESON CJ:   No, I was thinking of the precedential value of this decision.

MR WALKER:   Yes, it would unquestionably translate to that because of the relevance of market value and the ever present important question, the value to owner as opposed to replacement value, yes, and I should add the third possibility, value to acquirer, which has of course never been considered to be the appropriate test.  Your Honours, it is of course correct that we have to construe the statute but, as the Chief Justice pointed out in his reasons at pages 48 and 49 of the application book, particularly in paragraphs 27 and 29, nonetheless it is proper to characterise what the preceding case law which he held must be treated with care – see paragraph 29 – addressed and, relevantly, one sees at the beginning of paragraph 27 that his Honour, with respect, correctly said that:

In general terms, it might be appropriate to characterise the whole of s55(a)-(e) as collectively answering the description “value to the owner”.

Indeed, that is why the Australian Law Reform Commission Report, noted in paragraph 28, proposed such lists in order to spell out what was

understood to be meant by the then traditional phrase “value to the owner”.  It is for those reasons, particularly when one sees that the principal item is market value defined as in section 56 in Spencer’s Case terms, one sees that all the old law remained current and was intended to provide a foundation of understanding about a matter in which there are social and political choices to be made in which the judges played their part, but the Court of Appeal has said that the part played by the judges in MacDermott v Corrie and Corrie v MacDermott may now be discarded.  In our submission, that calls for intervention by this Court.

GLEESON CJ:   This is an application for special leave to appeal against the decision of a specially constituted Court of Appeal of the Supreme Court of New South Wales concerning the Land Acquisition (Just Terms Compensation) Act 1991.

In construing that New South Wales legislation, the Court of Appeal considered that the decision of this Court and of the Privy Council in Corrie v MacDermott (1914) 18 CLR 511 was distinguishable. The issue was one of statutory construction. We are of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave to appeal and the application is dismissed with costs.

AT 12.21 PM THE MATTER WAS CONCLUDED