Hardiway Enterprises Ltd v Palmerston North City Council
[2013] NZHC 2310
•11 September 2013
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IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2011-454-000351 [2013] NZHC 2310
BETWEEN HARDIWAY ENTERPRISES LIMITED Appellant
ANDPALMERSTON NORTH CITY COUNCIL
Respondent
Hearing: 8 August 2013 (at Wellington) Court: Collins J
J P Larmer, Valuer
Counsel: R J B Fowler QC for Appellant
J W Maassen for Respondent
Judgment: 11 September 2013
JUDGMENT OF THE COURT
Introduction
[1] The question we have to answer is:
How should the Land Valuation Tribunal (the Tribunal) determine the amount of compensation payable to a land owner by a local authority which compulsorily acquires the land to extend a roadway and where the land in question has special value if it is used to extend the roadway?
[2] This question requires us to interpret s 62(1)(d) of the Public Works Act 1981 (the Act). The relevant portions of s 62(1) of the Act state:
(1) The amount of compensation payable under this Act, whether for land taken, land injuriously affected, or otherwise, shall be assessed in accordance with the following provisions:
(a) ... no allowance shall be made on account of the taking of any land being compulsory:
HARDIWAY ENTERPRISES LIMITED v PALMERSTON NORTH CITY COUNCIL [2013] NZHC 2310 [6
September 2013]
(b) the value of land shall, except as otherwise provided, be taken to be that amount which the land if sold in the open market by a willing seller to a willing buyer on the specified date might be expected to realise, unless—
(i) the assessment of compensation relates to any matter which is not directly based on the value of land and in respect of which a right to compensation is conferred under this or any other Act; or
(c) where the value of the land taken for any public work has, on or before the specified date, been increased or reduced by the work or the prospect of the work, the amount of that increase or reduction shall not be taken into account:
(d) the special suitability or adaptability of the land, ... for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only pursuant to statutory powers, or a purpose for which there is no market apart from the special needs of a particular purchaser or the requirements of any Government department or of any local authority:
...
(emphasis added)
[3] In addition to deciding if the Tribunal correctly applied s 62(1)(d) of the Act, we are also required to decide if the Tribunal otherwise erred in a number of respects in its approach to determining the value of the land in question.
Context
[4] The principal question arises in the context of the Council’s cross-appeal from a decision of the Tribunal dated 11 May 2011. The remaining questions arise in relation to the appeal brought by Hardiway Enterprises Ltd (Hardiway) from the same decision.
[5] In its decision the Tribunal determined that a 70 m2 lot of land owned by Hardiway was valued at $36,000. The land in question is Lot 18 DP73932 (Lot 18). Lot 18 is the subject of an acquisition notice issued by the Council under s 18 of the Act.
[6] Lot 18 was formed as part of a subdivision of a rural site into ten rural residential lots at Valley Views Road, Palmerston North. Each lot was approximately two to three hectares. The original developer, Bletchley Developments Ltd, no longer exists. Its name was changed to Colombo Marketing Ltd on 1 August 1996, which was put into liquidation on 17 March 1997 and eventually struck off the Companies Register on 31 May 2001.
[7] Lot 18 is at the end of Valley Views Road and separates Valley Views Road from Lot 51, which is currently used for rural grazing and pasture. The following diagram explains the relationship between Valley Views Road, Lot 18, Lot 51 and Lot 7, which contains proposed Lot 3. Lot 51 and Lot 7 are owned by the same person.
[8] The Council wishes to acquire Lot 18 to extend Valley Views Road to enable further residential development to occur on Lot 51. When Hardiway and the Council could not agree on the value of Lot 18, Hardiway applied for an order for compensation. This application required the Tribunal to apply the provisions of s 62
of the Act, when assessing the amount of compensation the Council should pay
Hardiway for Lot 18.
[9] It is accepted that the “specified date” for the purposes of s 62(1)(b) of the Act was 16 March 2007. This was the date Hardiway made its application to the Tribunal.
[10] This appeal is heard as a rehearing.1 Accordingly, we have approached our task on the basis of the principles explained by the Supreme Court in Austin, Nichols
& Co Inc v Stichting Lodestar.2 If we conclude the Tribunal’s decision is wrong we
are empowered to discharge or vary the Tribunal’s order, or refer the case back to the Tribunal, or make such other order as we think is just and equitable in the circumstances of this case.3
[11] We shall:
(1) explain the Tribunal’s decision; (2) summarise Hardiway’s position; (3) summarise the Council’s position; (4) determine the cross-appeal;
(5) determine the appeal; and
(6) state our conclusion.
Tribunal’s decision
[12] The Tribunal’s decision can be distilled to five key points:
(1) Its factual findings in relation to the purpose of Lot 18.
1 Public Works Act 1981, s 95(1); Land Valuation Proceedings Act 1948, s 26(1).
2 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
3 Land Valuation Proceedings Act 1948, s 26(4).
(2) Its factual and legal findings in relation to alternative access to
Lot 51.
(3) Its application of the “Pointe Gourde” principle.4
(4) Its findings concerning the application of s 62(1)(d) of the Act. (5) Its ultimate approach to determining the value of Lot 18.
Purpose of Lot 18
[13] The Tribunal rejected Hardiway’s submission that the value of Lot 18 should be determined according to what Hardiway said was the purpose behind creating Lot 18. Hardiway said that Lot 18 had been created for the purpose of enabling it to recover the additional costs that were incurred at the Council’s insistence when forming Valley Views Road and the subdivision. Hardiway said that those additional costs were between $273,970 and $323,970. The Tribunal was not satisfied there was sufficient evidence to enable it to conclude that the purpose in creating Lot 18 was to enable the developer to recover the additional costs it says were incurred when forming Valley Views Road and the subdivision. This conclusion is unsurprising in view of the fact the subdivision occurred in 1991 and there was no overt documentary evidence to support Hardiway’s understanding of the purpose for creating Lot 18.
Alternative access
[14] The Tribunal considered the cost of alternative access to Lot 51 in assessing the value of Lot 18. This approach involved the Tribunal assessing the merits of:
(1) Hardiway’s argument that there were significant barriers to creating
access to Lot 51 other than through Lot 18.
(2)The Council’s submission that there were viable alternatives to accessing Lot 51, particularly if Lot 7 was subdivided to create Lot 3
4 Pointe Gourde Quarrying & Transport Company Ltd v Sub-Intendent of Crown Lands [1947] AC 565 (PC).
through which access to Lot 51 could be gained from Valley Views
Road.
[15] Hardiway’s submission that there was no feasible access to Lot 51 other than via Lot 18 was in part based on its understanding that restrictive covenants associated with the land, including proposed Lot 3, required the consent of all registered owners of the sections that had been created at the time of the original subdivision. The Tribunal, however, interpreted the restrictive covenant as applying only to the original developer. As the original developer no longer existed the Tribunal believed that the covenant did not create the obstacles submitted by Hardiway. The Tribunal also said that if the consent of the existing subdivision lot owners was required then this requirement of the covenant could be modified or quashed by application to the High Court under s 317 of the Property Law Act 2007.
[16] The Tribunal reasoned there was a viable alternative to Lot 51 through subdividing Lot 7 and creating Lot 3 for the purposes of a roadway. The Tribunal reasoned that as the owner of Lot 51 now owned Lot 7 the creation of proposed Lot
3 would be comparatively feasible.
[17] Thus, the Tribunal concluded Lot 18 was not the only practical way to access
Lot 51 and this was a factor which influenced the value of Lot 18.
Pointe Gourde principle
[18] The Tribunal then reasoned that it needed to have regard to the principle articulated in Pointe Gourde Quarrying & Transport Company Ltd v Sub-Intendent of Crown Lands, where the Privy Council said:5
It is well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.
5 At 572.
[19] In purporting to apply the Pointe Gorde principle the Tribunal held that:6
By the time the specified date had been reached, the premium which Lot 18 might hitherto have attracted as a key to the Lot 51 development no longer existed. Its value on the open market would be significantly reduced. There was no evidence before us that a willing buyer would continue to pay a premium because it was ... the straightest, safest and preferred options (sic). There is in any event no evidence of an increase in value once the “scheme”
... was underway. To the contrary, because of the options and the use of its unique qualities, the value has we find swung in favour of the purchaser.
Special suitability
[20] The Tribunal considered s 62(1)(d) of the Act did not apply because Lot 18 always had its special suitability as an access way to Lot 51 and that its special characteristics predated the taking of Lot 18 by the Council. The Tribunal reasoned that:7
The taking by [the Council] has not added value to [Lot 18’s] potential (its only potential) – it has merely ensured that it is to be used for the only real purpose that it could be used for. Any special suitability, we think, existed before the taking.
Tribunal’s ultimate approach
[21] The Tribunal concluded that it should place more weight upon the valuation evidence of the Council’s valuer Mr van Velthooven because Mr Bell, Hardiway’s valuer, had used only one valuation approach and did not consider the possibilities of the hypothetical purchaser negotiating with other property owners to obtain
alternative access to Lot 51. The Tribunal thought:8
Mr Bell’s evidence was weighted very much from the vendor’s point of view
when considering what a willing buyer, willing seller might pay for Lot 18.
[22] The Tribunal decided to:9
... disregard the percentage of net yield for benefitted property approach because of the large variations in the yields, as well as the fact that Lot 18 no longer has been the monopoly or “ransom” value when there is viable alternative access.
6 Hardiway Enterprises Ltd v Palmerston North City Council LVT, 11 May 2011 at [43].
7 At [40].
8 At [53].
9 At [55].
[23] The Tribunal decided that the cost of alternative access to Lot 51 was
$72,000 and that as, in its assessment “the bargaining power of the purchaser was increased at the expense of the vendor”, an appropriate value of Lot l8 was $36,000, based on the respective bargaining positions of the parties.10
Hardiway’s case
[24] Mr Fowler QC very helpfully distilled the grounds of appeal to the following key points:
(1)The Tribunal significantly underestimated the difficulties associated with creating road access to Lot 51 via proposed Lot 3. In particular, the Tribunal:
(a) misunderstood the effect of the restrictive covenants;
(b)incorrectly thought that any difficulties created by the covenant might be modified by an application under s 317 of the Property Law Act 2007; and
(c) misunderstood the effect of the dedication of Valley Views Road through Lot 18.
(2)That while a road access to Lot 51 via proposed Lot 3 was technically possible, it was a difficult proposition and the Tribunal’s underestimation of the difficulties of accessing Lot 51 via proposed Lot 3 misled the Tribunal into underestimating the true value of Lot
18.
(3) The fact that there were large variations in the “net yield to benefit”
assessments should not have caused the Tribunal to abandon the “net yield to benefit” approach.
10 At [56].
(4)That a recalculation based upon 5-15 per cent of gross realisation of the created sites would produce a value of at least $125,000.
[25] Mr Fowler’s submissions in relation to the cross-appeal were:
(1)Section 62(1)(d) of the Act is engaged by something that is “exceptional, very unusual, if not unique” and that creating a road into a proposed subdivision was not exceptional, unusual or unique.
(2)The fact that Lot 18 is only feasible as a link to Lot 51 does not mean there is only one hypothetical purchaser.
(3)The Tribunal was right to consider that s 62(1)(d) of the Act does not apply in the circumstances of this case but that conclusion is reached by a “straight purposive interpretation”.
The Council’s case
[26] In his equally helpful submissions, Mr Maassen explained that Lot 18 is essentially valueless and that the purpose of s 62(1)(d) of the Act is to negate the “ransom effect” that Hardiway relies upon. Mr Maassen urged us to interpret s 62(1)(d) of the Act to mean that any strategic value of Lot 18 arising from its suitability as an access way to Lot 51 was not a factor that could be considered when determining what compensation should be paid to Hardiway.
[27] The Council asks us to accept that the reasons which motivated Parliament to enact s 62(1)(d) of the Act were to ensure land owners such as Hardiway would not receive a windfall at the community’s expense. The Council believes that bodies which acquire land under the Act to facilitate the development of infrastructural works should not be frustrated in pursuing its public goals by irrational overvaluations of land such as Lot 18.
[28] Mr Maassen submitted that Lot 18 should be valued by reference to its core value, which is derived by factoring the market value per hectare of the land and applying that figure proportionately to the area of Lot 18.
[29] Mr Maassen’s response to Hardiway’s appeal is:
(1)The Tribunal was right to discount the value of Lot 18 because of the alternative access way to Lot 51 via proposed Lot 3.
(2)The Tribunal was right to be wary about the massive range in valuations presented to it by the respective valuers.
(3)The Tribunal correctly interpreted the effects of the restrictive covenants.
The cross-appeal
[30] The most logical approach to the appeal and cross-appeal is to first determine the cross-appeal because the answer to the cross-appeal inevitably impacts on the answers to the questions raised by the appeal.
[31] We shall answer the question posed in para [1] of our judgment by: (1) Explaining the legislative history to s 62(1)(d) of the Act.
(2) Explaining judicial decisions about the meaning of s 62(1)(d) of the
Act.
(3) Explaining what we believe s 62(1)(d) of the Act means.
(4)Explaining why s 62(1)(d) of the Act does not govern the circumstances of this case.
Legislative history of s 62(1)(d) of the Act
[32] The history of compensation for compulsory acquisition of land is fully traversed in Waters v Welsh Development Agency.11 We therefore shall only briefly
summarise the legislative history to s 62(1)(d) of the Act.
11 Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304.
[33] The law governing the compensation for compulsory acquisition of land has its origins in the construction of canals, railways and other works during the industrial revolution. The Land Clauses Consolidation Act 1845 (UK) was an early statute that regulated compensation for land compulsorily acquired for infrastructural projects during the industrial revolution. Compensation under that Act was based upon the “value” of the land in question.
[34] Judicial analysis of the “value” of land under the 1845 Act favoured the land owner because of the compulsory element of the acquisition. This approach was explained by Scott LJ as the “... sympathetic hypothesis of the unwilling seller and the willing buyer ...” 12 which characterised judicial interpretation of the 1845 Act.
[35] Scott LJ had previously chaired the Committee Dealing with the Law and Practice Relating to the Acquisition and Valuation of Land for Public Purposes which led to the Acquisition of Land (Assessment of Compensation) Act 1919 (UK).13 A key purpose of that Act was “to mitigate the evil of excessive compensation which had grown up out of the theory [of the unwilling seller and willing buyer] ...”.14 This “evil” was remedied in the 1919 Act by six rules that were passed to assess compensation. Those rules were set out in s 2 of the Act. Rule 3 in s 2(3) of the
1919 Act provided:
The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the special needs of a particular purchaser or the requirements of any Government Department or any local or public authority.
[36] The language of s 2(3) of the 1919 Act was repeated in s 5(3) of the Land Compensation Act 1961 (UK). The language of s 5(3) was modified by s 70(a) and Part 1 of Schedule 15 of the Planning and Compensation Act 1991 (UK) to remove the reference to the “special needs of particular purchaser”, however that phrase
remains in s 62 of the New Zealand Act.
12 Horn v Sunderland Corporation [1941] 2 KB 26 (CA) at [40].
13 Second Report to the Ministry of Reconstruction of the Committee Dealing with the Law and Practice Relating to the Acquisition and Valuation of Land for Public Purporses (L Scott QC, Chairman) CD 9229 (1918).
14 Horn v Sunderland Corporation, above n 12, at [40].
[37] New Zealand enacted the equivalent of s 2 of the 1919 Act (UK) when
Parliament passed s 29 of the Finance Act (No 3) 1944. Section 29(1)(c) of the 1944
Act was identical to s 2(3) of the 1919 Act (UK) and has since been re-enacted with some minor immaterial changes as s 62(1)(d) of the present Act.
[38] Upon the introduction of the Finance Act (No 3) 1944 the then Minister of Finance the Hon Walter Nash MP stated where the government needs to acquire land for a particular project it has the right to do so “at the value prior to its announcement of the project”. The mischief the legislation was designed to address was illustrated in a Supreme Court decision in favour of land owners at Tawa Flat. Their land had been acquired to extend the Wellington railway, and they were awarded additional compensation for the extra value that the land gained due to the
existence of the new railway.15 Mr Nash said that “we believe that, because the land
appreciated in value owing to the carrying-out of works in the vicinity, the [land
owner] had no right to reap the advantage.”16
Judicial consideration of s 62(1)(d)
[39] The Land Valuation Court considered s 29(1)(c) of the Finance Act (No 3)
1944 in Waitemata County v Hughes.17 In that case land adjoining the foreshore of the Whau River estuary was taken as part of a public works scheme to reclaim the land along the foreshore and develop the surrounding area for a recreation ground. A special feature of the respondent’s land was the large amount of clay and soil it contained which the Council intended to excavate and use to resurface the reclaimed land. The Court applied s 29(1)(c) and the Pointe Gourde principle and found that its special value was attributable entirely to the Council’s scheme, and that was a project which could not have been undertaken by the owner or by any other person acquiring the land. Therefore, the Court disregarded the land’s special value because of its position near the planned recreation ground, and because of its removable soil and clay, because there was “no market apart from the special needs of the
appellant”.18
15 (13 December 1944) 267 NZPD 728.
16 At 744.
17 Waitemata County v Hughes [1967] NZLR 344 (LVT).
18 At 347.
[40] Although the Court decided this under s 29(1)(c) it could easily have considered the case under s 29(1)(d) which relates to increases in value due to the existence or prospect of a comprehensive public work or scheme of development.
[41] No other New Zealand court has had to interpret s 62(1)(d) of the Act. We have, however, been greatly assisted by a number of authoritative United Kingdom judgments on the equivalent of s 62(1)(d) of the Act.
[42] In a judgment that preceded the 1919 Act (UK), Fletcher Moulton LJ said that he did:19
... not think that the single possible purchaser that has obtained parliamentary powers can be made to pay a price based on special suitability merely by reason of the fact that it was easy to foresee that the situation of the land would lead to compulsory powers being some day obtained to purchase it.
This approach was reflected in s 2(3) of the 1919 Act (UK).20
[43] Hertfordshire County Council v Ozanne concerned issues similar to those we are required to resolve.21 The claimants in that case owned a 1.605 hectare block of land adjacent to Thorley Lane, Bishop’s Stortford, Hertfordshire which was compulsorily acquired to allow the Thorley development area to proceed. The proposed extension of the road was not over the claimants’ land but it was necessary to acquire it to allow the realignment of Thorley Lane. The Hertfordshire County Council argued that the enhanced value of the land because of its special suitability for the purpose of providing realignment of Thorley Lane should be disregarded in
assessing the compensation which should be set at the agricultural value of the land.
[44] The House of Lords held that enhanced value due to special suitability of the land for any purpose could only be disregarded if:22
that purpose is a purpose to which it could be applied only in pursuance of statutory powers ... the statutory powers must be necessary to enable such person to use the land for that purpose.
19 Re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16 at [35].
20 Waters v Welsh Development Agency, above n 11, at [28].
21 Hertfordshire County Council v Ozanne [1991] 1 WLR 105 (HL).
22 At 111.
[45] In Waters v Welsh Development Agency, Scott LJ explained the meaning of “special suitability” as that term is used in s 62(1)(d) of the Act in the following passage:23
While I would accept that “most suitable” may not be an apt synonym for “specially suitable” it is not necessary, in my opinion, for the land in question to have a unique suitability ... Either the special suitability must be for a purpose that can only be achieved with statutory powers or the purpose must be a purpose which only an authority with compulsory purchase powers would want to acquire the land. In the case of the compulsorily acquired plot, it seems to me that neither alternative would have been satisfied. The suitability of the plot to provide access to unlock the residential development could have been exploited by a private developer; and a private developer might well have been in the market to require the plot for that purpose. If an over strict and narrow meaning is attributed to “special suitability”, [s 162(d)] will be excluded in many cases in which one or other of the second criterion alternatives is satisfied and in which the “special suitability” of the acquired land is a suitability not available for exploitation by anyone other than the acquiring authority. ... [Section
62(1)(d)] is not, in my opinion, looking for a unique suitability that is not shared with other land; looking for a particular suitability that only the acquiring authority, or an authority with statutory powers, is able to exploit.
What does s 62(1)(d) mean?
[46] In our assessment, there are two aspects to s 62(1)(d) of the Act relevant to the present proceeding. Those aspects are:
(1)An assessment of compensation shall not take into account the special suitability or adaptability of land for a particular purpose if that purpose only exists because of the existence of statutory powers; or
(2)An assessment of compensation shall not take into account the special suitability or adaptability of land if there is no market for that land apart from the special needs of a particular purchaser or the requirements of a local authority.
The existence of the disjunctive “or” in s 62(1)(d) of the Act means these two factors
are alternative factors that must be disregarded when assessing the compensatable value of land that is compulsorily acquired.
23 Waters v Welsh Development Agency, above n 11, at 112.
[47] The rationale for s 62(1)(d) of the Act is to overcome factors which might inflate compensation beyond a level which is considered reasonable in the public interest.24 Land owners should not receive a windfall at the expense of the community.
Does s 62(1)(d) of the Act apply in the circumstances of this case?
[48] We have concluded that the English authorities to which we have referred are persuasive even though s 62(1)(d) would disregard special suitability from the special needs of a particular purchaser for which there is no market apart from the special needs of that purchaser.25
[49] We find the reasoning in Hertfordshire County Council and Waters is compelling. In our assessment the special suitability of Lot 18 as a means of road access to Lot 51 could be realised other than through the exercise of statutory powers by the Council in extending Valley Views Road. Its use for road extension is not a purpose that can only be achieved through the exercise of statutory powers by the Council. The owner of Lot 51 for example, could equally see value in Lot 18 as a means of access to developing Lot 51. Furthermore, its use as a road extension is not a purpose for which there was no market except for the special needs of a particular purchaser, for instance the current owner of Lot 51. It would retain its value as an access way or road extension to any prospective purchaser who appreciated the strategic value of Lot 18.
[50] For these reasons we disagree with the Council’s interpretation and
application of s 62(1)(d) of the Act to the circumstances of this case.
The appeal
[51] We were concerned by the Tribunal’s approaches to the method that should be used to value Lot 18. In saying this we appreciate the Tribunal’s task was
24 Jacobsen Holdings Ltd v Drexel [1986] 1 NZLR 324 (CA) at 333.
25 Rule 3 of s 5 of the Land Compensation Act 1961 disregards “the special suitability ... of the land for any purpose ... if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the requirements of any authority possessing compulsory purchase powers”.
challenging and unusual and the difficulties it faced were compounded by the quality of the valuation evidence presented to the Tribunal.
[52] We were concerned that the Tribunal:
(1)Rejected Mr van Velthooven’s core value assessment without explanation. That assessment produced a valuation of $85,000, which Mr van Velthooven reached before the Council’s views on the meaning of s 62(1)(d) were explained to him which led to him reviewing his valuation to one of $2,000.
(2)Reasoned that Lot 18 no longer had a “monopoly or ransom value when there is a viable alternative access”. That assessment was founded on the understanding that the owner of Lot 51 had also acquired Lot 7 from which proposed Lot 3 would be created, thereby enabling access to Lot 51 through proposed Lot 3. However, this approach allowed for a subjective consideration to enter the Tribunal’s thinking. That subjective consideration was the unique fact that the same person now owns both Lots 7 and 51.
(3) Found it necessary to try and give effect to the Pointe Gourde
principle.
(4)Having apparently settled on the “alternative access” approach to valuing Lot 18 the Tribunal at para [57], then reverted back to the “bargaining position of the parties” and halved the figure it had reached based on the alternative access methodology.
What is the correct approach to valuing Lot 18?
General principles
[53] We start from the following four basic propositions:
(1) That s 62(1)(a) precludes any consideration being given to the fact
Lot 18 is compulsorily acquired by the Council.
(2) That s 62(1)(b) of the Act requires Lot 18 to be valued as at 16 March
2007 based upon the estimated amount that a willing buyer and a willing seller would agree to after proper marketing of the land and where both parties acted knowledgeably, prudently and without compulsion.
(3)That s 62(1)(c) of the Act excludes from the valuation exercise any increase or reduction in the value of Lot 18 that might arise from the construction of a road through Lot 18.
(4) Section 62(1)(d) of the Act is not relevant to this case.
[54] Thus, the correct approach to valuing Lot 18 must ensure that Hardiway is paid neither more nor less than its loss through the Council’s acquisition of its land reached objectively by applying the market value test. However, if there are genuine doubts about the correct value those doubts should be resolved in favour of the dispossessed owner.26
Specific approach to Lot 18
[55] Like the Tribunal we believe the value of Lot 18 is best assessed by weighing the cost of alternative access to Lot 51. We are driven to this conclusion because the valuation evidence before the Tribunal was generally speculative and of limited
value in assisting in reaching a valuation based on an alternative methodology.
26 Tawharanui Farm Ltd v Auckland Regional Authority [1976] 2 NZLR 230 (SC).
[56] The value of Lot 18 must be determined by reference to its best use and highest value. In this case the best use of Lot 18 is as a “blocking strip”. Lot 18 is the best and most practical means of access to Lot 51. In assessing its value it is therefore appropriate to assess alternative access to Lot 51. In this respect we agree with Mr Fowler’s submission that proposed Lot 3 was the only alternative access way to Lot 51 worthy of consideration. Thus, the ease with which access to Lot 51 could be achieved via proposed Lot 3 directly affects the value of Lot 18. It is therefore necessary to consider the effect of the restrictive covenants and the ease with which they could be modified.
The covenants
[57] The restrictive covenants were created on 24 April 1992 when the ten rural residential lots were created. The covenants provide that each of those lots “shall henceforth always have both the benefit and the burden of the said restrictive covenants”.
[58] The covenants were created by the original owner and developer of the subdivision (Bletchley Developments Ltd) covenanting with itself as registered proprietor of the land.
[59] The relevant covenant provided:
ii. That there shall not at any time hereafter be commenced nor permitted to be commenced on any lot as aforesaid the erection of any dwelling or other works without having first submitted the plans, site plans and specifications therefore ... to the registered proprietor and having obtained from the registered proprietor written approval of the same. (emphasis added)
[60] Two issues arise:
(1) Does the covenant apply to extending Valley Views Road through
Lot 18 to Lot 51? If so,
(2) Does the covenant continue to apply even though the covenantor
(Bletchley Developments Ltd) no longer exists?
[61] The natural and ordinary meaning of the words “other works” includes road works and is not confined to dwellings or buildings. Had the covenantor wished to limit the covenant to dwellings and buildings it could easily have said so. Rather than limit the covenant to dwellings and buildings the covenantor chose to use the broad phrase “other works” which would ordinarily encompass road construction.
[62] We are also satisfied that the covenants pass with the land to the current owners of the ten residential lots created in 1992. This is the clear effect of ss 63 and
64A of the Property Law Act 1952. This is a significant departure from the common law rule that the burden of a covenant could not bind successors in title of the covenantor. However, equity recognises that the burden of a restrictive covenant could run with the land where the purchaser had notice of the covenant, and conscience would prevent him from using the land in a manner inconsistent with the contract entered into by his vendor.27
[63] Having concluded that the covenants preclude the suggested extension of Valley Views Road through the proposed Lot 3 it becomes necessary to consider how easily the effects of the covenant could be eased by application to the High Court.
[64] In our assessment the Tribunal erred when it reasoned that application could be made under s 317 of the Property Law Act 2007 to the High Court to modify the effects of the covenant. Both parties agreed that the Property Law Act 2007 did not apply and that s 126G of the Property Law Act 1952 governed the circumstances of this case. It is also clear that obtaining relief under s 126G of the Property Law Act
1952 is more challenging than obtaining relief under s 317 of the Property Law Act
2007, particularly because there is no jurisdiction for a Court to award compensation under s 126G of the Property Law Act 1952.28
27 Tulk v Moxhay (1848) 41 ER 1143.
28 Harnden v Collins [2010] 2 NZLR 273 (HC).
[65] We accordingly conclude that the Tribunal underestimated the challenges associated with gaining road access to Lot 51 via proposed Lot 3 and that as a consequence the Tribunal underestimated the true value of Lot 18.
Pointe Gourde principle
[66] The Pointe Gourde principle means that any decrease or increase in value of the land because of a scheme of acquisition is not taken into account in valuing the land.29 The value must be assessed as “the state of affairs which would have existed,
if there had been no scheme of acquisitions”.30 While the boundaries of the principle
are not well defined, it has been accurately described as a principle of statutory interpretation to explain and amplify the expression “value” of certain land acquired by a public authority for a particular purpose.31
[67] The example given in the UK Law Commission Report, Towards a Compulsory Purchase Code: (1) Compensation is of a railway scheme, which may reduce land values while it is being planned and constructed, however, the prospect of its use once completed will increase land value in the area, for instance near stations.32 The Pointe Gourde principle says that land acquired by the authority for the scheme should be purchased at values which reflect neither the increase nor the decrease in the land’s value that are attributable to the scheme of acquisition.
[68] The question becomes, then, what constitutes a scheme of acquisiton? In the context of public works, it has been described as “the project on the part of the authority concerned to acquire the land ... for some purpose for which it was authorised to acquire it”.33 This is the version of the rule that the UK Law Commission approved, which in its view “direct[s] attention to a particular, future development on a single, identifiable site, of which the acquired land will form an
integral part”.34
29 Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands, above n 4, at
572.
30 Fletcher Estates v Secretary of State [2000] 2 AC 307 at 315.
31 Transport for London v Spirerose Ltd [2009] UKHL 44 at [128] per Lord Collins.
32 Consultation Paper No. 165, 24 June 2002.
33 Birmingham DC v Morris & Jacombs [1977] 33 P&CR 27 at 33-34.
34 Consultation Paper No. 165, above n 32, at 6.28.
[69] Section 62(1)(c) reflects the Pointe Gourde principle, and the Parliamentary debates preceding the Bill definitely focused on the purpose of value exclusion clauses in relation to immediate future projects.35 Therefore, assuming that s 62(1)(c) and s 62(1)(d) were intended to cover different kinds of situations, and s 62(1)(c) encapsulates the Pointe Gourde principle, or value attributed to a public works project or scheme, what is the “special suitability” factor in s 62(1)(d) designed to cover?
[70] Closer analysis shows that there is some overlap between the Pointe Gourde principle and the special suitability principle. Section 62(1)(d) envisages “special suitability” of three kinds:
(1)suitability for a purpose which could only be achieved through exercise of statutory powers;
(2) suitability for the needs of a particular purchaser;
(3)suitability for the particular requirements of any government department or local authority.
[71] It is conceivable that paras [70](1) and [70](3) are an expression of the Pointe Gourde principle, in that the land at issue could have special suitability because it has been chosen as the site for a public works scheme that could only be pursued through the exercise of statutory powers, or which has no general suitability outside the requirements of the public authority pursuing that scheme.
[72] But there are equally likely to be situations where paras [70](1) and [70](3) apply which are not covered by the Pointe Gourde principle. For instance, statutory powers might be required to acquire land for a particular purpose, but that purpose is not associated with a scheme of land acquisition. Paragraphs [70](1) and [70](3) recognise that there are other reasons why government might require certain land which is not for a project, but where those needs are specific to the government
department or local authority acquiring the land.
35 See above discussion at [37].
[73] Additionally, the situation recognised in para [70](2) does not require a scheme of any kind. The Pointe Gourde principle would have no application in situations where a private purchaser regarded the land as particularly suitable for a project or development that he or she wanted to pursue, but that purpose was not generally recognised and thus the suitability only had value to that purchaser.
[74] The Tribunal recognised “special suitability” and the Pointe Gourde principle are two separate concepts. After recognising that s 62(1)(d) did not apply, it said “we are still left with the Pointe Gourde principle”. It concluded that the principle would not have made any difference in this case, because the feasibility of alternative access meant that Lot 18 could no longer command a premium. Therefore would have been no increase in its value once the “scheme” of extending Valley Views Road had commenced.
[75] It was unnecessary for the Tribunal to consider the Pointe Gourde principle in the context of this case. The purpose for which Lot 18 is being acquired is to build a road to access the private residential development on Lot 51. That is not part of a “scheme of acquisition” in that it is not an immediate public works project, but simply an act to facilitate a private development.
The parties’ respective bargaining positions
[76] We were very concerned that the Tribunal reasoned that it was appropriate to halve the value that it determined Lot 18 was worth in order to reflect the bargaining position of the respective parties. Such an approach is inappropriate as it introduces a subjective element into what ought to be an objective assessment based upon the true cost of alternative access.
The correct value of Lot 18
[77] We have done our best to see if it is possible to determine the correct value of Lot 18 on the basis of the valuation evidence presented to the Tribunal. We had wanted to avoid sending this matter back to the Tribunal because we are very concerned about the delays that have occurred in relation to this case.
[78] However, when we have tried to apply the principles we have articulated to the valuation evidence we were left in the unsatisfactory position of not being able to attribute a value to Lot 18 based on the cost of alternative access that could be supported by the evidence.
[79] Accordingly we are obliged to remit this case back to the Tribunal for further consideration and to obtain further evidence so as to enable the Tribunal to apply the principles we have set out in this judgment to evidence that is directed towards the principles we have stated.
Result
[80] The appeal is allowed.
[81] Counsel should file submissions on costs if costs are unable to be resolved within ten working days of the date of this judgment.
D B Collins J
J P Larmer
Solicitors:
Fitzherbert Rowe, Palmerston North for Appellant
Cooper Rapley, Palmerston North for Respondent
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