Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of New South Wales [2006] NSWCA 314 (16 November 2006)

NEW SOUTH WALES COURT OF APPEAL

FILE NUMBER(S):

40756 of 2005

HEARING DATE(S): 11 September 2006

DECISION DATE: 16/11/2006

PARTIES:

Mir Bros Unit Constructions Pty Ltd (Appellant)

Roads and Traffic Authority of New South Wales (Respondent)

JUDGMENT OF: Spigelman CJ Handley JA Tobias JA

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT FILE NUMBER(S): 31535 of 2003

LOWER COURT JUDICIAL OFFICER: McClellan J

COUNSEL:

S Gageler SC, M Wright (Appellant)

B Walker SC, P Tomasetti (Respondent)

SOLICITORS:

Storey & Gough (Appellants)

Corrs Chambers Westgarth (Respondents)

CATCHWORDS:

RESUMPTION AND ACQUISITION OF LAND – Compensation – Before and After Method – Whether consistent with s 55, Land Acquisition (Just Terms Compensation) Act 1991 – Whether valuation failed to have regard to potentiality of land for subdivision – Where owner used land for development and then holding – Where subject land severed – Whether value of residue increased – Disturbance, Special Value and Severance – Whether compensation could be claimed for purchase of additional floor space equivalent to that which could have been built had resumption not occurred – Whether compensation could be claimed for lost economies of scale

LEGISLATION CITED:

Land Acquisition (Just Terms Compensation) Act 1991: Pt 2,Pt 3 Div 4; ss 5, 7, 54, 55(a), 55(c), 55(f), 56, 57, 58, 59(f), 60

Land and Environment Court Act 1979: s 57

Roads Act 1993

DECISION:

Appeal dismissed with costs

JUDGMENT:

– 1 –

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

40756/05

SPIGELMAN CJ

HANDLEY JA

TOBIAS JA

Thursday 16 November 2006

MIR BROS UNIT CONSTRUCTIONS PTY LTD v ROADS & TRAFFIC AUTHORITY OF NEW SOUTH WALES

Judgment

1 SPIGELMAN CJ: This is an appeal from a determination of compensation under Pt 3 of the Land Acquisition (Just Terms Compensation) Act 1991 (the “Act”) for land compulsorily acquired by the Respondent (“the RTA”), exercising powers under the Roads Act 1993, for the purpose of constructing a motorway known as the “M7”.

2 The acquired land formed part of a property owned by the Appellant, situated at 62 Jedda Rd, Prestons. The matter was heard in the Land and Environment Court before the Chief Judge, McClellan J.

3 The matter was determined in three judgments. In a judgment handed down on 2 September 2004 (the “First Judgment”), his Honour determined the compensation payable for the land at $4,900,000: [2004] NSWLEC 612. As the Appellant had not yet secured new land to replace the acquired land, his Honour deferred consideration of disturbance and special value claims until such land was purchased.

4 Nine months after the First Judgment, the Appellant sought leave to reopen the issue of compensation for the land on several bases, including an arithmetical error made by his Honour. In a judgment of 22 July 2005 (the “Second Judgment”), his Honour granted leave in respect of the arithmetical error, but refused leave on all other grounds: [2005] NSWLEC 419.

5 Finally, in a judgment dated 30 August 2005 (the “Third Judgment”), his Honour awarded compensation for disturbance at $299,691.90, and increased the compensation for the land by $45,486 to take into account the arithmetical error made by the Court in the First Judgment: [2005] NSWLEC 467.

6 The Appellant appeals to this Court, challenging the manner in which his Honour determined compensation for the land in the First Judgment. The Appellant also challenges his Honour’s refusal to grant compensation for certain costs in the Third Judgment, described variously as compensation for disturbance, severance and special value.

Determination of Market Value

7 In the First Judgment, his Honour described the subject land in the following terms:

“[2] The land was compulsorily acquired on 10 October 2003. The resumed land has an area of 1.844 hectares and originally formed part of a larger parcel with a total area of 4.097 hectares. The residue, after acquisition, accordingly has an area of 2.253 hectares. The land is zoned General Industrial 4(a) under the Liverpool Local Environmental Plan 1997. The parties are agreed that the highest and best use of the resumed land was for industrial purposes.

[3] The land acquired forms the rear section of a parcel which has a frontage to Jedda Road and is located some hundreds of metres from a point at which access will be able to be gained to the M7 when it is completed. As I understand the situation, the plans provide for a roundabout configuration at that location which will give access in both directions to the motorway.”

8 The parties agreed that the highest and best use of the land was for industrial purposes.

9 The Court received evidence from two valuers: Mr W L Dobrow of Dobrow Valuations for the Appellant, and Mr C R Sorrenson of M J Davis Valuations for the Respondent. Each valuer carried out an assessment and gave evidence. His Honour said:

“[17] Both Mr Dobrow and Mr Sorrenson have considerable experience and knowledge of the relevant markets. Mr Sorrenson, together with his firm, carries out many valuations of land, industrial and other lands, in the course of any year. I formed the view during the course of Mr Sorrenson’s evidence that he had a good and sound knowledge of the market, and in some respects I prefer his opinion as to some elements of the value of the resumed land to that of Mr Dobrow.”

10 Both valuers agreed that the appropriate method for assessing compensation was the “before and after” method. That method involves subtracting the market value of the residue land (i.e. the part of the property that was not acquired and remains the property of the Appellant) from the market value of the entire property prior to acquisition.

11 As Reynolds JA said in Gosford Council v Green (1980) 48 LGRA 201 at 208:

“If the whole parcel is valued at the time of resumption and then the residue is valued, the difference is the ascertained amount of compensation, and severance damage and enhancement of the residue are comprehended without any necessity for specification.”

12 The valuers also agreed that the valuation task was best approached by seeking to determine the value of the land per square metre.

13 The evidence of the valuers placed particular emphasis on the sale of two comparable properties: Lot 16, Whyalla Place, Prestons (the “Whyalla Sale”); and 16 Lyn Parade, Prestons (the “Lyn Sale”).

14 With respect to the Whyalla Sale, his Honour held that, after adjustments for the rising market, the comparison suggested a value of $350 per square metre. However, both valuers agreed that the Lyn Sale was the most valuable comparator, and it was to the Lyn Sale that his Honour gave the closest consideration. That course is not challenged.

15 With respect to the Lyn Sale, his Honour said:

“[24] The valuers agree, and in my opinion their judgment is appropriate, that the second sale, which is of a property at 16 Lyn Parade, Prestons, is more useful in resolving the value of the resumed land. That property sold in March 2004 for $6,500,000 plus GST. The area of the land sold was 1.898 hectares and it was sold at a rate of $342 per square metre. The land required filling and the best evidence before the Court is that this would have cost in the order of $450,000.

[25] It is unclear whether the purchaser acquired the property allowing that sum for filling but, having regard to the evidence before me, I believe it appropriate to accept that the sale price should be adjusted for filling costing that amount. This would give an adjusted rate for the sale of $365 per square metre.”

16 After considering the changes in the market, his Honour found that this figure ought to be increased by eight per cent. His Honour also accepted Mr Dobrow’s evidence that the subject land was of superior quality to the Lyn Sale, and accepted Mr Dobrow’s assessment that the superiority was in the order of five per cent.

17 Relevantly, the valuers differed about whether the value of the subject land per square metre ought to be discounted because of its size. In respect of the size issue, his Honour said:

“[31] As I have indicated, sale two, 16 Lyn Parade, was of an area of land of 1.898 hectares. The resumed land formed part of a parcel more than twice that size, being 4.097 hectares. Conventional understanding of the market, particularly for industrial land, would reflect a different rate per metre for industrial sites in excess of four hectares compared with one which was less than half that size. This is because of the assumption, borne out by experience over many years, that there would be less buyers in the market for the larger parcel and that anyone acquiring that parcel for development purposes would, by reason of the necessity to acquire a larger holding, accept a greater risk as to the likely profitable development of the land.

[32] Mr Dobrow gave evidence that because larger parcels were apparently in short supply and the applicant has had difficulty finding replacement land, that in his view the conventional approach would not be appropriate in this instance. Mr Sorrenson, however, believed that, having regard to his experience the disparity between the two lots was so significant that a discount would inevitably operate in relation to the larger parcel.

[33] I am satisfied that it would be likely that there would be less buyers for a parcel in excess of four hectares than for the smaller area. This judgment is reinforced by the evidence, such as it is in this case, and in particular by an offer made by CSR to acquire an area of about a quarter the size of the original holding. As recently as May 2004, CSR made a conditional offer for a one hectare portion of the land at a rate of $ 425 per square metre. CSR apparently proposed to develop the land for a concrete batching plant of which there are a number operated by CSR’s competitors in the Prestons area. No doubt, given the development which is occurring in Liverpool, this is a strategically appropriate location for such a plant and accordingly, it would appear that CSR has been keen for some time to acquire the land. However, a concrete batching plant needs only one hectare of land from the four hectare parcel. The history of the negotiation reinforces Mr Sorrenson’s view that although there may be a demand for smaller parcels, there would be less demand and thus a lesser rate would be paid for large parcels such as the original holding.

[34] Mr Sorrenson assesses the adjustment necessary for size to be five per cent and, as I have indicated, Mr Dobrow says there should be no adjustment at all. In this respect I accept Mr Sorrenson’s judgment.”

18 His Honour made further reference to the offer made by CSR referred to in the passage above, and to another offer. No complaint is made about this matter. It was, in my opinion, appropriate for his Honour to have regard to such offers: Goold v The Commonwealth [1993] FCA 157; (1993) 42 FCR 51 at 59-60; MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 at [81]- [102].

19 His Honour said:

“[46] I am satisfied that it is appropriate, having regard to the discussion by Wilcox J in Goold & Rootsey v The Commonwealth of Australia [1993] FCA 157; (1993) 79 LGERA 407, to admit into evidence the fact that the offers were made and details of those offers. Although I have taken this course, I do not believe the offer to be of great significance in the resolution of the problem in this matter.

[47] Evidence in relation to the offer was tendered by the applicant and, in my opinion, to the extent that it is of any value in this case, it tends to confirm the value of the land left to the owner after the acquisition has taken place. It does not, in my opinion, provide any reliable evidence of the value of the whole of the land at the date of resumption.

[48] An offer was made for the development and leasing of the whole of the land. That offer was not accepted and could not have been accepted because of the intention of the Roads and Traffic Authority to acquire almost half of the land. I accept that that offer is evidence that there were persons in the marketplace looking to obtain and utilise large sites but, in my opinion, that offer is not of significance in resolving any of the issues in this case.”

20 Based upon these considerations, his Honour performed a series of calculations that resulted in the figure of $4,900,000. An error in those calculations, referred to in the Second Judgment, was corrected in the Third Judgment, resulting in a final determination of compensation for the loss of the acquired land of $4,945,486.

The Statutory Scheme

21 The process for determining the amount of compensation due is governed by the Land Acquisition (Just Terms Compensation) Act 1991. The Act applies to the acquisition of land by an authority of the State which is authorised to acquire the land (s5). However, the Act does not itself empower any State authority to acquire land (s7).

22 The statutory power whereby the land was acquired is found in the Roads Act 1993. The acquisition was effected by the publication of a declaration of acquisition in the Government Gazette on 10 October 2003.

23 Part 2 of the Lands Acquisition Act sets out the procedure that must be followed when an authority of the State compulsorily acquires land. Part 3 of the Act is entitled “Compensation for acquisition of land”, and sets out the procedures and principles relating to compensation. Division 4 of Pt 3 is entitled “Determination of amount of compensation”. The matters in dispute turn on the operation of this Division.

24 The fundamental principles according to which compensation is to be determined are set out in ss54 and 55. Those sections provide:

“54(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.

…

55 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.”

25 Subsequent sections give further definition to the various formulations contained in s55, including market value (s56), special value (s57), loss attributable to severance (s58), loss attributable to disturbance (s59), and solatium (s60). The relevant provisions are:

“56(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.

…

57 In this Act

‘special value’ of land means the financial value of any advantage, in addition to market value, to the person entitled to compensation which is incidental to the person’s use of the land.

58 In this Act:

‘loss attributable to severance’ of land means the amount of any reduction in the market value of any other land of the person entitled to compensation which is caused by that other land being severed from other land of that person.

59 In this Act:

‘loss attributable to disturbance’ of land means any of the following:

(a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land,

(b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land,

(c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs),

(d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired),

(e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage),

(f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.”

The Size Issue

26 The Appellant submitted that his Honour erred by reducing the compensation on the basis that a larger portion of land is worth less per square metre than a smaller portion. In the “before” and “after” method of valuation adopted by both experts and applied by his Honour the effect of his Honour’s approach was said to have two effects. In the “before” calculation his Honour applied a discount of 5 per cent to the whole of the property by reason of its greater size. In the “after” calculation the residue was valued without any such discount.

27 The jurisdiction of this Court is limited to an appeal on a question of law by s57 of the Land and Environment Court Act 1979. (See most recently, Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111.) It is important to note that the jurisdiction is not confined to an error of law. It is not suggested that his Honour committed any error. The size issue was not put before his Honour in the manner in which it is put now.

28 With respect to the “before” calculation the basic thrust of the Appellant’s submissions was that the effect of discounting the land was to ignore the inherent potentiality for subdivision of the land. The proposition was characterised in different ways: as a failure to have regard to a relevant consideration and as a failure in determining market value to take into account the potentiality of the land for subdivision. The need to take into account all the potentialities of the land, when determining market value, by application by the s56(1) test, is of course, well established. The potentiality for subdivision of land, subject to relevant planning restrictions which are not pertinent in the present case, is so well established that it is difficult to accept that either valuer or his Honour failed to have regard to such potentiality. (See e.g. Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245 at 269 and 288; Maori Trustee v Minister of Works [1959] AC 1 at 10.)

29 In order to characterise the issue thus raised as a question of law Mr S Gageler SC, who appeared for the Appellant, drew on the terminology applicable in an administrative law context of a failure to take into account relevant considerations. In the particular context of valuation law it is, in my opinion, more appropriate to characterise the issue, as Tobias JA did in the course of argument, as a failure to take into account a potentiality of the land, which is a well established element of market value as defined in the Act. If it is appropriate to characterise the issue in this way then it may be that a question of law can be said to have arisen. I have come to the conclusion that that is not the appropriate characterisation of the appellant’s challenge to the size issue.

30 I should note that, in his Honour’s Second Judgment, he indicated that he refused to give leave to reopen the First Judgment because the matter could be tested on appeal. It does not appear to have been submitted that this may not be the case on the basis that the grounds for reopening may not involve a question of law. As the joint judgment said in Maurici supra at [8]:

“Questions of law, fact and opinion do not always readily and neatly divide themselves into discrete matters in valuation cases and practice.”

31 In my opinion, the decision made by his Honour was a decision on a factual matter. McClellan J chose to accept the evidence of one expert who said a discount was appropriate and refuse that of another who said it was not. His Honour articulated reasons for doing so in his par [31] set out above which are clear and rational. This reasoning involves a factual conclusion which does not involve a question of law. Subdivisibility may suggest that there is no discount for size. However, the risks to which his Honour referred, suggests that there is. His Honour was entitled to find, as a fact, that on balance a discount was appropriate.

32 The end result is that the residue land, considered as a component part of the whole in the “before” valuation, was valued at 5 per cent less per square metre than it came to be valued in the after valuation, when it was considered as a separate lot. However, the before and after method subsumes a number of steps that could be conducted separately. It focuses on market value and, by doing so, in my opinion, subsumes matters of potentiality such as subdivisibility.

33 What his Honour determined, in the face of conflicting expert evidence, was whether the comparable sales used for the purposes of determining the market value should or should not be subject to an adjustment, before being applied to the land to be valued, on account of the size of the subject lot prior to the resumption of the land acquired. Such adjustments have to be made, in the course of the consideration of the comparable sales, for the purpose of bringing the sale value of a comparable sale into a state of identity with the land to be valued.

34 It is of significance that one of the comparable sales – the offer by CSR – to which regard was had involved only part of the land. This strongly suggests, as one would expect, that the expert valuers and the judicial valuer acted on the basis of subdivisibility.

35 Furthermore, Mr Walker submitted that, had the matter been raised at the trial, the Respondent could have led to further evidence. Accordingly, it cannot be raised for the first time on appeal. (See Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418.) Mr Walker submitted that, if it was to be contended that the market valuation process undertaken ignored subdivisibility, relevantly by reason of the application of a discount for size, that could have been the subject of evidence. If either valuer had omitted the potentiality for subdivision, that could, at least, have been pursued in cross-examination. It was not. I agree with this submission.

36 During the course of the examination of the Respondent’s valuer it was not suggested that the discount he proposed was in any way inconsistent with the assumption that the land was subdividable. Nor, on the other hand, in the examination of the Appellant’s valuer, was it suggested that his refusal to give a discount was in some way inconsistent with the before and after method of valuation. The issue was simply not posed below in the terms in which it is now posed. The question of discount or no discount was put in terms of the exercise of a judgment in the course of making adjustments of the character I have identified.

37 For this reason alone the appeal on this point should be rejected. I will, however, consider other arguments.

38 As Mr Walker submitted the notional market exchange at each of the “before” and “after” stages must be taken to have included purchasers and vendors who were fully aware of the subdivisibility of the land. In my opinion, this analysis should be accepted. The judicial valuer did not fail to consider this element when assessing market value.

39 Furthermore, the relevant issue for the valuation process was a determination of appropriate adjustments of the sales said to be comparable. It is not, in my opinion, appropriate to take one aspect of that comparison and to consider its separate significance, on the assumption that such separate consideration would have no implications for the broader process of comparison.

40 One can begin with the assumption that the land, part of which was to be acquired, was itself subdivisible into two lots broadly similar in size to the lots used as comparable sales. If, however, the process of comparison had occurred by adding the value of two lots after a hypothetical subdivision, which no one propounded, it is not necessarily the case that no other adjustment would be appropriate.

41 The land which was the subject of the comparable sales could itself have been further subdivided which, at least theoretically, could require some other process of adjustment. Similarly, it cannot be assumed that the highest and best use of the Appellant’s land was a division into two lots, one of which is of similar size to the comparable sale. The hypothetical market exchange had to take into account the full range of permissible considerations. The evidence was not directed to any particular option, because of the adoption of the before and after method.

42 These are the kinds of issues which are, conveniently, subsumed by the adoption of the before and after methodology. Where that methodology has been adopted no question of law arises because separate attention is not given a matter to which distinct consideration would have been given if a different methodology had been adopted.

43 The second manner in which the Appellant sought to challenge his Honour’s computation of value by reason of the discount for size focused on the “after” part of the “before and after” method of computation. Mr Gageler characterised the effect of what his Honour had done as increasing the value of residual land by reason of its valuation on the basis of its reduced size. That is to say in this respect the comparable sales, after adjustment for other matters which do not arise in this appeal, had yielded a particular dollar value per square metre which was applied to the residual lands. However, when that same area of land had been valued as a component part of the entire lot, the rate per square metre was lower. It is in that sense that it could be said that the value of the residual land had been “increased”.

44 The issue of law which the Appellant propounded in this respect was an alleged inconsistency of this approach with the terms of s55. The Appellant accepted that the before and after method of valuation was well established but submitted that it cannot be applied in a manner which has regard to matters not included in s55, which exhaustively prescribes the matters to which regard may be had, or which is inconsistent with the matters there set out.

45 Section 55 does not constitute a mathematical formula. Section 55 is a list of considerations, albeit an exhaustive list, to which regard must be had for the purposes of determining the actual matter which is before the Court, that is the determination of “the amount of compensation that will justly compensate [the land owner] for the acquisition for the land”, within s54(1).

46 As I have noted above it is a feature of the before and after approach of valuation that it does not separately address each of the matters in s55. It does, by its nature, make allowance for more than one of those matters. The before and after method, albeit in this rolled up way, can be understood to achieve ‘just compensation’ because its application, insofar as money can do so, places a person in the same position as that person would have been in if the acquisition had not occurred. This approach to compensation is, of course, equivalent to the measure of damages in tort. I do not wish to suggest that this is the criterion, because it bears a close analogy with a reinstatement basis for valuation to which ss54 and 55 are not directed. Nevertheless, in an appropriate case, the before and after method can be used to determine “just compensation”. Both valuers believed that such an approach was appropriate in the present case.

47 If, in a particular case, the application of the approach leads to the judicial valuer taking into account a consideration which is not within the terms of s55, or failing to take into account a consideration which, in the circumstances, ought to have been taken into account, it may be that the application of the before and after approach is inconsistent with the Act. The issue before this Court is whether that has occurred in the present case.

48 Mr Gageler submitted that s55(c) constitutes an express and particular provision limiting consideration for a judicial valuer that arises from severance of land to severance resulting in “loss”. In the present case that severance resulted in a “gain” and, accordingly, was inconsistent with s55(c). I can see no such inconsistency. Nor, in my opinion, is there any “gain” or, to use the terminology of s55(f) an “increase in value”. Nor, was there “severance” as defined in s55(c) because the resumption did not divide the owner’s remaining land into separate parcels.

49 In adopting the before and after approach, what is characterised as an “increase” in the value of the residual land is of course only notionally an increase. It is determined by the contrast between the rates per square metre attributed to the whole of the lot, when valued on a “before” basis and the residue land when valued on an “after” basis.

50 The Respondent relied on s55(f) as justifying the approach taken. One of the matters that is to be taken into account is “any increase … in the value of any other land … which … is severed by reason of the carrying out of … the public purpose for which the land was acquired”.

51 The before and after method of valuation does not involve a before and after valuation of the residue land or of the acquired land. His Honour did not determine that the value of the residue land had “increased” because it was smaller. His Honour determined that the market value of the residue land was more per square metre than the same area was worth when it was part of a larger lot.

52 That did not, in my opinion, involve a determination that there was an “increase” in the value of “ … land … which is severed from the acquired land”. Any such effect was subsumed in the before and after method of valuation. That method does have regard to increases in value of land severed from the acquired land, albeit indirectly.

53 In any event, the Appellant’s reliance on s55(c) to create a negative implication should be rejected.

54 There is a well-established line of authority concerning the proper construction of statutory provisions that contain potentially overlapping provisions, one of which is subject to a condition or limitation and the other of which is not. The proper interpretation of a particular statute will sometimes lead to the result that the unqualified provision is read down so that the conditions or restrictions, which Parliament has determined should apply, are not overridden by another provision expressed in general terms. (See, for example, R v Wallis; Ex parte Employers Association of Woolselling Brokers [1949] HCA 30; (1949) 78 CLR 529 at 550; Anthony Hordern & Sons Limited v Amalgamated Clothing & Allied Trade Union of Australia [1932] HCA 9; (1932) 47 CLR 1 and 7, and other cases set out in Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2000) 48 NSWLR 661 at [69]- [73].)

55 I would not approach the interpretation of s55 on the assumption that each of the component parts and specifically s55(c), was intended to operate to the exclusion of each other. Section 55 is a list of relevant matters to which regard must be had. The principle of statutory interpretation upon which the Appellant relied is not, in my opinion, likely to be applicable to a provision of this character. Such a provision does not have the directly operative effect that gives rise to the application of the principal statutory construction involved in this line of case law.

56 In any event, a number of the paragraphs of s55 overlap with each other. Indeed, in the second part of its appeal, the Appellant relied on the proposition that “special value” and “disturbance” consideration did overlap. The terminology of s55 does not suggest a parliamentary intention that one of its paragraphs should operate to the entire exclusion of another. More relevantly, there is nothing to suggest that s55(c) with its reference to “loss” was intended to operate as an exclusive provision on the subject of “severance”. Notably, the same word, albeit differently defined appears in s55(f).

57 Section 55, in my opinion, does not prevent two or more of the matters therein contained being taken into account in a combined way. I can see nothing which indicates an inconsistency between any of the provisions in s55, and the before and after method in the present case.

58 By its nature the method encompasses a number of the matters expressly listed in s55 including market value, loss attributable to severance and the increase or decrease due to the carrying out or proposal to carry out the public purpose. The before and after method is particularly useful in circumstances where the acquired land is difficult to value directly by reason, for example, that it is a non-marketable parcel. It may be preferable, where acquired land can be directly valued, as appears to have been the case in the present proceedings, to do so rather than to adopt the before and after method. Nevertheless, that was not the approach adopted in the present proceedings by either party. It is not appropriate for this Court to reject a methodology that may or may not have been chosen deliberately because of some synergy amongst the different heads of compensation in s55.

59 I choose as an example of the effects of the interconnection, the very proposition upon which the Appellant placed great emphasis, namely, the subdivisibility of the land, being residual land which had a street frontage but which could be subdivided in different ways. If it was subdivided vertically then each of the lots had a direct access to the street but they would each be narrow and long. If the subdivision were to occur horizontally then one of the blocks would require other choices as to matters which could have impinged upon a number of the matters identified in s55 including market value, loss from severance and increased value of severed lots. These are matters involving computation which were not necessary to be explored because of the adoption of the before and after method.

60 It may seem somewhat counter intuitive to value the same area of land in a different way when a component of a larger area of land and when considered separately. Nevertheless, that is what the before and after method involves. It produces an amount of compensation that is rational and fair. It cannot be objected to, in the context of an appeal limited to questions of law, on the basis that some other approach, not adopted by the parties, and not urged upon the judicial valuer, may have produced a result that was more “fair”.

Compensation for Disturbance and/or Special Value

61 As outlined above, his Honour deferred consideration of compensation for disturbance and special value until the Appellant had purchased new land. Those matters were considered in the Third Judgment.

62 The parties agreed to disturbance costs entailing claims for stamp duty on, and legal costs incurred for, the purchase of new land. Two further sums were relevantly claimed:

• A sum of $508,412, claimed as compensation for disturbance, severance or special value, associated with the purchase of an extra 1444 square metres of land to enable the appellant to build an industrial development with a gross floor area equal to that which could have been built on it’s land had no resumption occurred (the “Additional Land Claim”);

• A sum of $826, 360 (reduced during oral argument to $703, 960 – see transcript at T 56.55), claimed as compensation for disturbance or special value for costs arising from the loss of the economies of scale which the appellant had prior to the acquisition by virtue of the nature of its business and by having one parcel of land to develop instead of two smaller parcels (the “Economies of Scale Claim”).

63 His Honour rejected each of these claims.

64 Special value and disturbance are defined in the Act in s57 and 58, set out above.

65 In respect of the special value claims, the Appellant asserts that, as a consequence of the business it conducts, described as the business of developing land and then holding it, the losses claimed are losses special to it, and are losses in addition to the market value of the land. The Appellant also asserts a special loss due to its unique potential to use the acquired land in conjunction with the adjoining residue land.

66 His Honour rejected both claims on the basis that the “before and after method” employed in the first judgment included compensation for losses of the character claimed. His Honour said:

“[15] In the present case I found that the market value of the original parcel of land was $12.9 million. This represents the price at which a vendor and purchaser would meet if negotiating the sale of the vacant site with all of its advantages together with its disadvantages. Those advantages include of course, any economies of scale which come with the development of a large site, either with one large building, or, with two or more buildings. The benefit from the size of a single project or the flexibility of multiple projects on the one site is clearly a potential advantage. However, there are also disadvantages with a large site, of which the most readily identifiable is the greater risk attaching to its development. Larger amounts of capital may be locked up before a return can be achieved.

[16] Whatever may have been the extent of these advantages and disadvantages they are all reflected in the market value of the land.

[17] The $8 million sum which I determined to be the market value of the residue is a sum which reflects the advantages and disadvantages of that smaller parcel. Obviously because the site is smaller the economies of scale which may have been available from the development of the larger original holding have been lost – they are not available to the residue. However, because the site is smaller and is worth less, the risk in its development is less than the risk involved in developing the larger site. Quantifying these individual elements would be difficult but because they are inherent in the market value of the land this is not necessary.

[18] Once the before value – $12.9 million and the after value – $8 million have been identified the difference is the value of the acquired land to the original owner. The advantages which the dispossessed owner had in owning the original parcel will be captured by this method of assessing compensation.

67 His Honour set out an extract from Gosford Shire Council v Green, part of which I have quoted above. I note that Reynolds JA said the method encompassed both “severance and enhancement of the value of the residue” as well as market value. McClellan J continued:

“[20] The fact that the “before and after” method captures compensation for severance and any special value to the owner has been explained in many cases (see Morrison v Commonwealth (1971) 34 LGRA 273; Commissioner of Highways v Tynan (1982) 53 LGRA 1. It has been found to be particularly useful to avoid double counting in relation to matters of enhancement or severance, see the discussion by Hemmings J in Carson v Minister for Environment and Planning (1990) 70 LGRA 215 and Realty Corp Ltd v Commissioner for Main Roads (1940) 14 LGR(NSW) 204. The method has been applied under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW): see Corcoran v Minister for Public Works (unreported, NSWLEC, 27 October 1993).

[21] In my earlier judgment I indicated that the valuers ‘are agreed that the before and after method is an appropriate method to arrive at the compensation payable in this case’ [13]. The parties were, of course, agreed that compensation for disturbance could not be considered at that time as an alternate investment property had not yet been identified. I had in mind and had assumed that the parties had in mind, that the purchase of an alternate property would enable the accurate quantification of the cost of stamp duty, legal costs and conveyancing and the like.

[22] … [T]he sum of … $4,945,486, represents both the market value of the land to the applicant and because the ‘before and after’ method has been used, includes any amount for severance or special value by reason of the applicant’s original ownership of the larger parcel. It also includes any amount for disturbance said to arise from the fact that the applicant will now have to develop two parcels of land rather than a single parcel.

[23] It must follow that both of the substantive claims which have been pressed whether described as disturbance, severance or special value fail. The sum of any compensation due to the applicant for these items has been captured in the amount which I have already assessed.”

68 The Appellant submitted that his Honour erred in holding that the “before and after” method properly took into account questions of special value and disturbance. His Honour did say at [20], to repeat:

“The fact that the ‘before and after’ method captures compensation for severance and any special value to the owner has been explained in many cases.”

69 However, this sentence should be understood in the sense identified by his Honour at [22], that the before and after method:

“… includes any amount for … special value by reason of the applicant’s original ownership of the larger parcel.”

This is a specific form of “special value”.

70 His Honour also referred at [22] to the proposition that the method also included any amount for disturbance said to arise from the fact that the application will have to develop two parcels of land rather than one. Again, this is a specific form of “disturbance”.

71 Special value under s57 relates to an “advantage” to the owner “in addition to market value”. This is not a value that is necessarily captured in the “before and after” method. Similarly, the “before and after” test does not necessarily take into account all disturbance costs as defined in s59.

72 However, a particular claim said to represent “special value” or a form of “disturbance” may have been considered in the before and after method. His Honour held that this occurred on the facts and that the claims had not been made out on the evidence.

73 With respect to the Additional Land Claim, his Honour said:

“[28] … I am not persuaded that the applicant could sustain the claim in any event. Although it is possible that less floor area will be achieved in the two developments, particularly if one building had proved to be viable on the original site, the accepted position would be that a larger building would be likely to achieve less rent per sq metre than would two buildings of smaller area. If this was to occur the applicant may not be disadvantaged. Ultimately, any analysis never rises above speculation which could not be sufficient for the applicant to sustain a claim see Roads & Traffic Authority (NSW) v Perry & Anor [2001] NSWCA 251; (2001) 116 LGERA 244 at 257.”

74 With respect to the Economies of Scale claim his Honour said:

“[35] I do not believe the applicant has made out this aspect of its claim to the relevant standard. It is possible to carry out the arithmetical exercise which has been undertaken but the form, including the size of any ultimate development or developments, is presently unknown. Any conclusion that the ultimate cost of the appropriate development of two parcels will be greater than the development of the original parcel of land would be purely speculative.”

75 The Appellant submitted that his Honour erred in describing the Appellant’s claim as “speculative” in each of his pars [28] and [35], on the basis that it constituted an assessment that it was unknown precisely what development the Appellant might undertake in the future in substitution for development that would have occurred if the land had not been acquired (T 3 lines 8-17). I do not believe his Honour’s analysis can be so characterised.

76 With respect to both claims his Honour’s finding in [28] set out at above, that a larger building would achieve a lower rent per square metre than two smaller buildings, meant that any allowance for additional land or economies of scale, which operated on the outgoings side, had to be offset by a reduction on the revenue side. There was, his Honour indicated, no basis on which he could determine that there was any net disadvantage to the Appellant. This is sufficient to dispose of both these aspects of the appeal. There are, however, additional reasons.

77 With respect to the Additional Land Claim, his Honour held that any loss, in addition to market value, had not been established to the relevant standard. The Appellant bore the burden of proving that it had suffered the relevant loss. The Appellant relied upon a report by Morris Bray Architects Pty Ltd outlining possible configurations for building on the residue land. This evidence never rose above the level of possibility. His Honour’s finding that “the analysis never rises above speculation” was one that was open to him. It constitutes a finding that the Appellant had not discharged its onus of proving the loss. It is a finding of fact that cannot be assailed in this Court.

78 Similarly, it was, in my opinion, open to His Honour to find that the evidence of loss with respect to the Economies of Scale Claim, tendered by the Appellant did not reach the appropriate standard. Before his Honour was a report of David Lunney, a certified practising valuer, which stated, in respect of the Economies of Scale Claim, that:

“The Applicant’s claim does not consider any of the advantages of developing two smaller sites and focuses only on perceived disadvantages. If the fact were that developing a larger site is advantageous and cheaper than developing two sites, the market would factor in these factors and pay a premium for a larger site compared with two smaller sites. However, there is no evidence in the market place to support such a situation and in fact all of the market evidence is to the contrary.” (Blue 420. See Black 213 ff for discussion thereof)

79 It was open to his Honour to accept Mr Lunney’s evidence. That was a finding of fact.

80 This is enough to dispose of this aspect of the appeal. However, I will consider the other submissions in this regard.

81 With respect to the Additional Land Claim, the Appellant submitted that his Honour ought to have held that the loss suffered was peculiar to it, as opposed to the hypothetical purchaser, as the Appellant was in the peculiar position of owning land adjoining the acquired land. The before and after test, it was submitted, failed to take into account this peculiar loss to the Appellant. The Appellant also submitted that his Honour failed to take into account the decrease in value of the residue site said to arise from its irregular shape caused by the acquired land being severed from it.

82 The Respondent submitted that, when read as a whole, it was clear that his Honour made a finding that no value peculiar to the Appellant had been lost. Moreover, his Honour made specific findings that the shape of the residue land would not hinder its capacity for development.

83 I accept the Appellant’s submission that the “before and after” test will not always compensate loss of the character claimed, i.e. lost capacity to use the adjoining land in conjunction with the acquired land. Such a loss may be special to the owner of the adjoining land and could be a loss sustained in addition to the market value of the adjoining land. The “before and after” test, which operates by reference to market value only, will not necessarily compensate such a loss.

84 However, it is clear from his Honour’s reasons that he concluded that no such special value existed in this case. The land was vacant industrial land. The allegedly special position related only to the size of the land. Size is a matter that does affect the market value of the land. Where there is no difference between the value of the land in general, and its value to the owner, there is no special value: Turner v Minister for Public Construction [1956] HCA 7; (1956) 95 CLR 245. That principle is now enshrined in the statutory definition of “special value” which requires such value to be “in addition to market value”.

85 In Service Design Pty Ltd v Commissioner of Highways (No 2) (1986) 59 LGRA 176, Matheson J held that the potential of land for subdivision is not a matter capable of attracting special value in the hands of the resumed owner, as the potential for subdivision is one of the inherent characteristics of the land. Similarly, in my opinion, the potential for development, or the potential for development of the then holding (which is said to be the special business of the Appellant), is an inherent characteristic of the land. The value created by that potential is included within the market value. The Appellant is not the only developer/investor in the fictional market exchange under s56(i).

86 It appears from his Honour’s reasons that his Honour found that the loss alleged in the Additional Land Claim was not a loss in addition to market value. I have set out his Honour’s reasons at [15]–[18], in which he held that the “advantages and disadvantages” of the size of the land included the risk attaching to the development of a larger site. His Honour later noted at [28] the likelihood that a larger site would be likely to achieve less rent per square metre. In the computation of the “before” amount, the notional market exchange would have included developers who could take advantage of the larger allotment.

87 In my opinion, it was open to his Honour to find that the “before and after” method accurately captured the entirety of any loss of floor space. It was open to his Honour to hold that no additional loss had been sustained “in addition to market value”. This was a finding of fact.

88 Similarly, his Honour was entitled to hold that the sum claimed could not be awarded as disturbance costs. Disturbance costs may only be awarded under s59(f) for costs “relating to the actual use” of the acquired land. In Blacktown City Council v Fitzpatrick Investments Pty Ltd [2001] NSWCA 259, Stein JA held that “something which is only a potential future use would fall short of ‘actual use’” (at [5]). To similar effect, Brownie AJA, with whom Ipp AJA (as his Honour then was) agreed, accepted a submission that the word “actual” was used to distinguish such use from a potential use (at [26]–[27]). In my view, it follows that the Additional Land Claim, was not a loss capable of compensation under s59(f).

89 The Appellant’s claim that the skewed boundary of the residue land decreased its value ignores his Honour’s finding that the angle “is not a significant impediment to the development of the land” (at [26]). In any event, this loss, properly characterised as a decrease in value due to the acquired land being severed from the residue land, was also a matter taken into account by the “before and after” calculation. The potential of the residue land for development is a matter that affects its market value, and only its market value.

90 The Appellant submitted that his Honour was wrong to hold that future loss of the kind contemplated by the Economies of Scale Claim could not be compensated pursuant to s59(f) and that, in any event, the loss was not a future loss, but rather should be characterised as the loss of an attribute of the land of peculiar value to the Appellant. Secondly, the Appellant submitted that his Honour erred by holding that the loss was captured by the “before and after” method. Finally, the Appellant submitted that his Honour erred by finding that the evidence of loss was speculative. The Appellant submitted that this finding ignored the fact that disturbance compensation could be awarded for future loss. The Appellant submitted that, as it had lead unchallenged evidence as to the loss suffered, his Honour ought to have accepted that evidence.

91 The Respondent submitted that his Honour had correctly found, as a matter of fact, that any loss of economies of scale was correctly accounted for in the “before and after” calculation. The Respondent also submitted that the basis upon which his Honour held that the loss could not be recovered was not because it was a future loss, but because it was an “actual loss relating to the land”. Finally, the Respondent submitted that his Honour’s finding was simply a finding of fact that, on the evidence, the loss had not been established.

92 In my opinion, as with the Additional Land Claim, developers who could take advantage of the economies of scale relied on would have been considered in the notional exchange on which market value was calculated.

93 Furthermore, as with the Additional Land Claim, the loss asserted proceeds upon the basis of hypothetical use of the acquired land, rather than on the Appellant’s “actual” use of that land.

Conclusion

94 I propose the following order:

Appeal dismissed with costs.

94 HANDLEY JA: I agree with Spigelman CJ.

95 TOBIAS JA: I have had the benefit of reading in draft the judgment of the Chief Justice. I agree with the orders he proposes and generally with his reasons. However, I wish to add some further observations with respect to what his Honour refers to the as “The Size Issue”.

96 As the Chief Justice points out in [27] of his judgment, the jurisdiction of the Land and Environment Court is not confined to an error of law in the strict sense. It includes, for instance, a failure to have regard to a principle of valuation law or practice in the assessment of compensation for the compulsory acquisition of land. So much was established by the Privy Council in Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426 at 432 in a passage cited with approval by the High Court in Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111 at 116 [8].

97 It is in this context that the size issue arises. The appellant submitted that in the “before” exercise adopted by the parties’ respective valuers and endorsed by the primary judge, the 5% size discount applied to the value of the whole of the appellant’s land as adopted by the respondent’s valuer and accepted by his Honour in [31]-[34] of the First Judgment, involved an error of valuation principle insofar as both the respondent’s valuer and the primary judge failed to consider the inherent potential of the land for subdivision into 2 x 2 hectare or 4 x 1 hectare allotments. If that potential had been taken into account (and it was not disputed that the land had that potential), then there would have been no discount for size.

98 In the Third Judgment the primary judge reiterated the bases upon which he had determined the market value of the appellant’s land utilising the “before” and “after” approach. He said:

“15 In the present case I found that the market value of the original parcel of land was $12.9 million. This represents the price at which a vendor and purchaser would meet if negotiating the sale of the vacant site with all of its advantages together with its disadvantages. Those advantages include of course, any economies of scale which come with the development of a large site, either with one large building, or, with two or more buildings. The benefit from the size of a single project or the flexibility of multiple projects on the one site is clearly a potential advantage. However, there are also disadvantages with a large site, of which the most readily identifiable is the greater risk attaching to its development. Larger amounts of capital may be locked up before a return can be achieved.

16 Whatever may have been the extent of these advantages and disadvantages they are all reflected in the market value of the land.

17 The $8 million sum which I determined to be the market value of the residue is a sum which reflects the advantages and disadvantages of that smaller parcel. Obviously because the site is smaller the economies of scale which may have been available from the development of the larger original holding have been lost – they are not available to the residue. However, because the site is smaller and is worth less, the risk in its development is less than the risk involved in developing the larger site. Quantifying these individual elements would be difficult but because they are inherent in the market value of the land this is not necessary.

18 Once the before value – $12.9 million and the after value – $8 million have been identified the difference is the value of the acquired land to the original owner. The advantages which the dispossessed owner had in owning the original parcel will be captured by this method of assessing compensation.”

99 In the first of those passages, the primary judge quite properly refers to the advantages or potential advantages of the appellant’s land pre-acquisition which included “the flexibility of multiple projects on the one site”. Generally speaking, the potential advantage so identified by his Honour would involve the subdivision of the land into a number of lots with an industrial building to be erected on each. Although his Honour has not used the word “subdivision” or “subdivisibility”, it seems to me that it is inherent in the particular potential advantage of the land which he identified.

100 In this context it would follow, as his Honour points out in the same passage, that the most readily identifiable disadvantage of a large site is the greater risk attaching to its development. In other words, if a valuation of the potential of the land to be subdivided into two or more lots was to be undertaken, then given that the land must be valued as an en globo parcel, it would be necessary to take into account at arriving at that value not only the costs of subdivision and the provision of services including any internal road but also the profit and risk factor which a hypothetical developer would require to be factored into any hypothetical subdivision valuation exercise.

101 Although it is true that the primary judge did not undertake a hypothetical subdivision exercise in valuing the land in the “before” calculation, neither did either valuer. If such an exercise had been undertaken, then as the Chief Justice points out in [40] and [41] of his judgment, appropriate adjustments would need to have been made. There is nothing to say that had such an exercise been carried out, the en globo value of the land in the “before” calculation would have been any different to the figure adopted by the primary judge, including the 5% discount for size.

102 However, the primary reason why the appellant’s submission must fail, as pointed out by the Chief Justice, is because neither valuer purported to carry out a hypothetical subdivision valuation of the land for the purpose of the “before” approach in order to determine its en globo value. Both were content to apply the Lyn Parade sale of 1.898 hectares as being the most comparable sale in determining the value of the appellant’s land subject to the making of appropriate adjustments of which one was a discount for size.

103 It was a matter for his Honour whether he accepted the evidence of the respondent’s valuer that there should be such a discount or whether he accepted that of the appellant’s valuer that there should not. His acceptance of the former did not, of course, give rise to any question of law. Nor did it give rise to any failure on the part of the primary judge to consider any relevant valuation principle including the potential of the land before acquisition for subdivision into two or more lots. If the valuers declined to approach the “before” valuation by carrying out a hypothetical subdivision valuation exercise with respect to the total parcel, then there can be no criticism of the primary judge in also failing to do so.

104 Nevertheless, for the reasons to which I have referred in [99] above, it seems to me that his Honour was well aware of the land’s potential for subdivision before acquisition and took that into account by applying the discount for size as reflecting the risks associated with any such form of development. The failure of the valuers to undertake a hypothetical subdivision valuation which would more directly relate to capturing the potential of the land before acquisition to be subdivided into two or more lots and the consequent failure to lead evidence with respect to the working out of that potential, debars the appellant from now asserting a failure on the part of the primary judge to have regard to a relevant valuation principle for the reasons identified by the Chief Justice in [35] and [36] of his judgment.

105 The only other issue I wish to briefly address is the appellant’s submission that it was not open to the primary judge to value the residue land in the “after” calculation in a manner which increased its value due to its smaller size resulting from the acquisition by the respondent of the land required for the relevant public purpose, namely, the M7. The Chief Justice has articulated the appellant’s submission in this regard in [48] of his judgment. In essence, it was submitted that any such increase in the value of the residue land as a consequence of its severance from the whole parcel by the compulsory acquisition of the acquired land could only be considered by the primary judge insofar as it resulted in a “loss” rather than a “gain”.

106 In my opinion, this submission was misconceived. As the Chief Justice points out in [48], there was no “severance” within the meaning of s.55(c) because the resumption did not divide the owner’s remaining land into separate parcels.

107 In other words, the definition in s.58 of the Act of the expression “loss attributable to severance” in s.55(c), of is concerned with the reduction in the market value of other land retained by the dispossessed owner where the effect of the compulsory acquisition is that that land is severed, in the sense of separated from, other land also retained by that owner. The usual example of severance in this sense is where land is compulsorily acquired for a road through the middle of a larger parcel in the one ownership thus effecting a reduction in the market value of that part of the parcel retained on either side of the acquired land due to their separation or severance from each other as a consequence of the acquisition.

108 The other sense in which the term severance is used in the Act is in s.55(f). Here, the term is used in the sense of the effect of the carrying out, or the proposal to carry out, the public purpose for which the land is acquired caused by the process of compulsory acquiring of the acquired land which is thus “severed” from other land of the dispossessed owner (the residue land). The provision contemplates that the effect of that severance for the public purpose may be to decrease or increase the value of the residue land.

109 In the present case, the primary judge increased the value of the residue land due to the carrying out of the relevant public purpose, namely, the construction of the M7. There was no challenge suggesting that his Honour erred in so doing.

110 What is clear, however, is that the alleged increase in the value of the residue land due to its smaller size due to the compulsory acquisition was unrelated to both ss.55(c) and (f). It was simply the result of applying the adjusted rate per square metre from the relevant comparable sale to the residue land without any discount for size as the sale land and the residue land were of comparable size. No question of law, let alone any error in valuation principle, arises out of the primary judge’s determination of the value of the residue land by his reliance upon what was agreed by the valuers to be the most comparable sale.

111 For the foregoing additional reasons, I agree with the orders proposed by the Chief Justice.

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