Roads and Maritime Services v Allandale Blue Metal Pty Ltd

1. [1]

   BASTEN JA: In February 2010, the Roads and Traffic Authority of NSW, the predecessor to Roads and Maritime Services (“RMS”), acquired land for the purpose of constructing a part of the F3 Freeway to Branxton Highway Link, also known as the Hunter Expressway. The Expressway bisected an area of some 631 hectares owned by the respondent, Allandale Blue Metal Pty Ltd (“ABM”). The Expressway crossed the land in a broadly north-east – south-west direction. (Annexed to this judgment is an aerial view depicting the respondent’s land and the Expressway.) Some 54.7 hectares of the land were acquired, leaving a residue of 576 hectares.

2. [2]

   At the time of the acquisition, part of the land was used for grazing, although that use was subsidiary to the use of another part as a quarry. ABM did not carry on the quarrying business itself; rather, it had granted a lease to a related company, Quarry Products (Newcastle) Pty Ltd (“QPN”) for an annual rental of $70,000. The valuable resource was a rock known as andesite, which was located in the south-western portion of the land and now entirely to the south of the Expressway. Although the acquired land did not contain andesite, the construction of the Expressway limited the quarrying operations by the need for a buffer zone extending 300 metres from the Expressway. As a result, the expected life of the quarry was reduced from approximately 12 years to 10.3 years.

3. [3]

   Both ABM and QPN made claims for compensation under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (“Just Terms Act”). A valuer appointed by RMS calculated the financial loss to QPN as a consequence of the acquisition at $765,850. With the addition of legal costs and valuation fees, a total figure of $807,758 was identified as the lessee’s loss. Although QPN commenced proceedings for compensation, those proceedings were discontinued on acceptance of that amount. ABM rejected an offer a little in excess of $1 million and continued with its claim in the Land and Environment Court. On 17 February 2015 Pain J gave judgment, following an 18 day hearing: Allandale Blue Metal Pty Ltd v Roads Maritime Services (No 6) (“ABM”). [1] The lengthy judgment did not result in final orders, but made specific findings of fact and identified the appropriate basis for calculation of the compensation payable. As a result, the parties were able to make the necessary calculations, which resulted in an order for payment to ABM of compensation of $3,387,796; the orders were made on 24 March 2015 and entered on 9 April 2015. The calculation by which this figure was reached was not revealed in this Court.

4. [4]

   RMS appealed from the judgment and orders, though limited to specific parts of the calculation.

Nature and scope of appeal

1. [5]

   Claims for compensation arising from the compulsory acquisition of land are determined in the Class 3 jurisdiction of the Land and Environment Court. [2] An appeal from a judgment in such proceedings is limited to challenging an order or decision of the Court on a question of law. [3]

2. [6]

   The principal challenge, identified in ground 1 in the notice of appeal, was based on the proposition that ABM had recovered expenses and losses for which its lessee, QPN, had already received compensation. The affirmative part of the appellant’s case was articulated in ground 2, which identified the sole bases of compensation to which, it was submitted, ABM was entitled. These included (a) the market value of the land acquired, namely $273,426; (b) the cost of replacing certain cattle yards, namely $39,000; and (c) the net present value of the loss of rent from the quarry for the period by which the life of the quarry was foreshortened, namely 1.7 years. The appropriate compensation identified in the notice of appeal was $505,746, being a little less than half the amount offered at the commencement of the proceedings.

3. [7]

   Those three elements expressly excluded two further items of compensation which had been allowed by the trial judge. Ground 3 challenged an allowance for the replacement of a cottage used by an employee responsible for control of access to the land, including the management of ABM’s cattle. The cost, including noise attenuation costs due to its proximity to the Expressway, was $280,000. As the employee served the purposes of both ABM and QPN, the trial judge allowed half the cost, namely $140,000. According to ground 3, this amount should have been disallowed in its entirety.

4. [8]

   Ground 4 related to an allowance made with respect to a significant area of timbered land to the north of the Expressway, which had been severed from the rest of the land owned by ABM. The area of 145.4 hectares had been valued, prior to the acquisition, at $12,500 per hectare. The judge allowed a reduction in value of 15%, which would have given rise to an award of $272,625. The notice of appeal asserted that access had been provided by way of an underpass and, further, the highest and best (economic) use of the land was for “bio-banking”, in which case access was not necessary.

Background

1. [9]

   The area of some 631 hectares owned by ABM prior to the acquisition may conveniently be seen, for present purposes, as comprising four parts. First, there was the area of some 54.7 hectares which was acquired. No issue arises as to the amount allowed for that land. Secondly, there was the area of 145.4 hectares of timbered land to the north of the Expressway which was the subject matter of ground 4. Thirdly, there was a small area on the western extremity of the land, adjoining Lovedale Road, on which stood the cottage and stockyards. Although little turns on it, this area was not the subject of the lease to QPN. It was the claim for relocation of the cottage and stockyards which was the subject of ground 3.

2. [10]

   Finally, the fourth area constituted the bulk of the remaining lands, following the acquisition. This constituted the whole of the area south of the Expressway. It was this area which contained the andesite resource which was being quarried by QPN. The rest of that parcel was either open grazing country or timbered land. The only aspect relevant for the purposes of the appeal was the diminution of value for quarrying.

3. [11]

   The lease under which QPN operated the quarrying business at the date of acquisition had expired. Granted for a term of five years in 1995, it terminated in July 2000, but expressly provided for QPN to continue in occupancy, subject to the same terms including as to rent, but terminable by either party on one month’s notice. [4]

4. [12]

   The lease covered all the land owned by ABM, except the area of the cottage and stockyards. [5] QPN was entitled to use the leased area for quarrying; ABM was entitled to use for grazing so much of the property as was not actually occupied by QPN for quarrying purposes. [6] QPN paid an annual rental of $70,000; there were no further payments by way of royalties on the andesite extracted and sold. This, it was accepted, was not a commercial relationship. It followed that the hypothetical purchaser of ABM’s interest in the land would terminate, or require ABM to terminate, QPN’s lease, so that the purchaser would be able to carry on the quarrying business itself, or lease the land to an operator on a commercial basis.

(a) scope of ground 1

1. [13]

   Ground 1 of the notice of appeal was in an expansive form; it identified 10 questions of law in respect of which the trial judge was said to have erred. The substantial point underlying each of the first nine questions was that the quarry was operated by QPN and the loss caused by the sterilisation of part of the andesite resource was a loss for which QPN should be, and had been, compensated. The tenth question of law asserted a failure on the part of the primary judge to have regard to “relevant circumstances”, of which seven were itemised. For this purpose, the term “relevant consideration” adopted the concept articulated by Mason J in Minister for Aboriginal Affairs v Peko-Wallsend Ltd, [7] namely that the judge failed to take into account a factor which she was bound, as a matter of law, to take into account. Such factors, if not expressly stated, may be identified by reference to the subject matter, scope and purpose of the Act. The considerations identified included the fact that ABM was claiming “the same compensation” as had been paid to QPN.

2. [14]

   Both in this Court and in the Court below submissions on behalf of RMS were articulated in colloquial terms as a need to avoid “double dipping”. That language was misleading, in so far as it implied that one person was being paid twice for the same loss. The complaint was rather that two parties were claiming (and obtaining) compensation for the same loss in circumstances where the loss might have been borne by one or other, but not both. In particular, RMS submitted, ABM sought to recover the value of the sterilized part of the andesite resource, for which compensation had been paid to QPN. Further, QPN had obtained compensation necessary to carry out capital works on the land required by the construction of the Expressway which, it was assumed, the hypothetical purchaser of ABM’s fee simple estate would also be required to undertake and for which ABM was being compensated. (These works included wind monitoring and dust suppression measures.)

3. [15]

   ABM responded that the same circumstances might indeed give rise to a loss suffered both by the owner of the land and its tenant. If, in such a situation, the Just Terms Act entitled each to claim compensation, there could be no complaint of double compensation. Alternatively, ABM contended that whatever QPN had received, its (ABM’s) claim was the only one before the Court and was to be assessed, and had been properly assessed, in accordance with the statute.

4. [16]

   The reply by RMS to this latter submission was that QPN, having accepted the offer made to it, had been entitled to discontinue its claim, a course which RMS could not resist. Thus, avoidance of double payment required that the fact of payment to QPN be taken into account in assessing ABM’s loss. The statute should be construed so as to require this approach. It submitted that the judge should have taken into account the unchallenged evidence that “QPN and ABM did not intend to terminate the lease to QPN until the andesite was exhausted and the quarry remediated” and that “QPN and ABM were companies with related controlling interests”.

5. [17]

   According to ABM, if the amounts claimed by ABM were properly payable to ABM, RMS could not complain if it had earlier (even mistakenly) paid the same amount to a third party, namely QPN. Nor was it relevant that ABM and QPN had overlapping directorships and shareholdings.

6. [18]

   As will be explained below, the position adopted by ABM should be accepted, though not entirely for the reasons it put forward. The apparent anomaly identified by RMS, whilst understandable on the basis of current case law, should be seen as an artefact, not the product of the statutory scheme. It is convenient, therefore, to explain first why the trial judge was correct in her assessment of ABM’s claims for the reduction in value of the residual land south of the Expressway.

(b) ABM’s claim for reduction in market value

1. [19]

   The acquired land did not include any area the subject of the quarry, nor was any of the andesite resource located within that land. Loss of access to the resource could therefore diminish the value only of the retained land. As the owner of the affected but retained land, ABM claimed an entitlement to compensation for the reduction in the market value of that land. That involved, it submitted, a simple application of the provisions relating to compensation for the owner of acquired land identified in s 55(f). It is convenient to set out s 55, together with s 56, in full:

2. [20]

   ABM claimed compensation pursuant to s 55(f) with respect to the decrease in value of the land containing the sterilized andesite resource. In making an assessment for the purposes of the subparagraphs in s 55, it is necessary to have regard to the subsequent provisions which identify more precisely the concepts set out in s 55. There is, however, no further development of the language in par (f). Reference to “market value” in s 56 applies to par (a), but the phrase used in par (f) is different, namely “the value” of any other land. It was not disputed, however, that the hypothetical sale concept adopted in the chapeau to s 56(1) was also applicable to the exercise required under par (f). That is because it reflects the method of determining the value of land identified by the High Court more than a century ago in Spencer v The Commonwealth, [8] which finds its current emanation in s 56(1). There was no challenge to the assessment of the decrease in value, which was undertaken by the Court accepting expert evidence and the application of a discounted cash flow methodology in relation to an efficiently run business.

3. [21]

   This approach assumed that, given the ability of ABM to terminate the lease to QPN on one month’s notice, ABM’s interest in the residual land was effectively equivalent to a fee simple estate unencumbered by a leasehold interest. RMS submitted, in effect, that ABM’s interest was to be viewed in a different light because, whatever the fragility of QPN’s interest in legal terms, there was unqualified evidence from the directors of the companies that neither QPN nor ABM intended to terminate the lease during the life of the quarry.

4. [22]

   The trial judge summarised ABM’s submissions in response to that argument in the following terms: [9]

5. [23]

   It is apparent that the judge accepted that submission; however, to reach that conclusion it was necessary to distinguish authority in this Court which appears to have accepted the relevance of the intention of the parties with respect to a continuing relationship, at least for the purpose of valuing the interest of the tenant. Before turning to that authority, it is convenient to note the principle established in The Minister v New South Wales Aerated Water and Confectionary Co Ltd (“Aerated Water”), [12] which also involved a claim for compensation brought by a tenant.

6. [24]

   The legal interest of a tenant is not increased by the mere fact that there is a family relationship between the owners and directors of each company, from which one might readily infer that, although terminable at will, the lease will not in fact be terminated. The irrelevance of actual intentions was explained by the High Court in Aerated Water. Although concerned with the assessment of the value of an interest in land held by a lessee pursuant to s 117 of the Public Works Act 1900 (NSW), its reasoning would have application to the determination of the market value of land under s 55(a) and (f), the case being determined after Spencer. So much was recognized in principle by this Court in Leichhardt Council v Roads & Traffic Authority (NSW), [13] where Spigelman CJ stated: [14]

7. [25]

   Aerated Water involved an individual lessor who held 90% of the capital of the lessee. The lessee held the land under a lease having a term of seven years and three months, with two years to run at the date of the resumption. Although the secretary of the company asserted that it considered it had a “perpetual tenancy” and would suffer very serious loss if moved on at end of the lease, the Minister submitted that the contingency of a renewal of the lease was irrelevant and inadmissible. The High Court agreed with the Minister. Griffith CJ stated: [15]

8. [26]

   Further, in the language of Isaacs J, “[t]he ‘interest’ of which the Company was deprived and which passed to the Crown, and for which therefore the Crown has to pay, was a leasehold interest for two years. Nothing more, and nothing less.” [17] Isaacs J continued: [18]

9. [27]

   Taking actual intention into account in valuing an interest in land would be directly contrary to the reasoning of the High Court in Aerated Water. This proposition was expressly adopted by ABM in its written submissions: [20]

10. [28]

    Both in the Land and Environment Court and on the appeal, reference was made to the reasoning of this Court in Health Administration Corporation v George D Angus Pty Ltd. [22] That case, like Aerated Water, involved a claim for compensation by a tenant. The tenant was a company providing medical services through its sole director, Dr George Angus. The company leased the premises from the registered owner, being a company whose sole director and shareholder was Dr Angus’ wife. As in this case, the tenancy was determinable at will by either party on one month’s notice. The tenant’s interest in land had no market value and none was claimed. However, the resumption of the land resulted in destruction of part of the business, Dr Angus being of the view that after relocation he could no longer continue his obstetric practice in premises more remote from the local hospitals. Compensation was claimed as a “loss attributable to disturbance”, under s 55(d) and s 59(f).

11. [29]

    This Court in George D Angus relied on the primary judge’s finding of fact that, subject to the tenant paying the rent, it had been given “exclusive possession of the [property acquired] on which to conduct its medical practice for an indefinite period” and, had there been no acquisition “there was no reason to believe that the tenancy would not have continued for at least the following two years.” [23] The reasoning in Aerated Water would have rejected reliance on the intentions of the family members controlling the two companies. However, it was held by this Court that: [24]

12. [30]

    The first point of distinction, namely that between a periodic tenancy which had not expired and one that had, has no bearing on the principle relating to the value of the interest in land. The second, (“no reason to assume” future conduct) does not reflect the reasoning in Aerated Water set out at [25]-[26] above. The third ground of distinction, namely that Aerated Water was concerned with “the market value of the interest as opposed to post-acquisition disturbance losses” was not applicable to a claim under s 55(f) (rather than s 55(d)), but is also unpersuasive. First, it assumed the conclusion that such losses can only be dealt with as “post-acquisition disturbance” and, secondly, it assumed that the legislative changes created by the identification of separate heads of loss have not merely significantly expanded the bases of recovery (potentially permitting two parties to recover the same loss) but have also rendered the subjective intentions of the parties relevant.

13. [31]

    It is accepted that a claim can be made for loss of profits by a business where it has an interest in the acquired land, even if that interest has no compensable value. What is puzzling is why, under the Just Terms Act, the business is valued as if it had a secure tenancy, whereas its legal interest was entirely insecure. That requires reference to a curious approach adopted with respect to the operation of s 55 and its defining provisions.

14. [32]

    In George D Angus, the tenant received the value of the loss of part of its business as compensation for “loss attributable to disturbance”, pursuant to s 55(d). That term is defined in s 59:

15. [33]

    Paragraphs (a)-(e) are in similar terms; par (f) is differently expressed, one difference being the absence of identification of the person by whom the costs are or might be incurred. More importantly, it would be surprising if it expanded the carefully delimited costs recoverable as financial costs, in the previous five paragraphs, by allowing losses of other kinds. Yet in George D Angus the Court held: [25]

16. [34]

    The reasons continued, saying that “special value to the owner cannot be assessed by capitalising the savings and additional profits which the business would probably have earned but for its destruction by the acquisition of the land”.

17. [35]

    The loss of profits of the obstetric practice being operated by the tenant arose from the fact that the acquired land, close to the local hospitals, had allowed Dr Angus to carry on his that part of his practice without the possible delay incurred by having to travel from another part of the rural city. Thus the acquired land had “special value” to its owner. Why the loss could not be treated as special value under the Just Terms Act must have depended upon some limitation imposed by s 57 (which defined “special value”) not explained in the reasons, except by the reference to El Boustani.

18. [36]

    El Boustani v The Minister administering the Environmental Planning and Assessment Act 1979 [26] did not concern any distinction between the interests of landlord and tenant, but involved a claim by the owners of resumed land. The statements of principle dealt with matters involved in the assessment of the market value of land, pursuant to s 61 of the Just Terms Act, and were not directly concerned with other elements of s 55. However, the reasoning appeared to reject, as no longer relevant, statements in cases involving earlier legislation recognising claims for disturbance and special value, including a passage from the judgment of Mahoney JA in Housing Commission of New South Wales v Falconer. [27] The reasoning also required that prior authorities, including those referring to “value to the owner”, a term not used in the Just Terms Act, must be “treated with care.” [28] Caution may be appropriate, but the Just Terms Act adopts (and defines) terms which have an established provenance in this area of the law. Further, the fact that s 55 (and accompanying provisions in Pt 3 Div 4) are to be the only matters to be addressed does not imply that each is independent of the other and self-sufficient. The conclusion that loss of profits of a business cannot be accommodated in market value of the land or special value to the owner, but must be a loss attributable to disturbance, is an overly prescriptive position. [29]

19. [37]

    There is a second difficulty in seeking to shoehorn the recovery of lost profits into s 59(f). The ordinary meaning of the term “loss” would undoubtedly include costs, but costs would generally be considered a subset of loss, rather than as having the same meaning. [30] The reasons for taking a contrary view appear to have been threefold. The first was textual, apparently based on the use in s 61(b) of the phrase “any financial loss that would necessarily have been incurred in realising” the potential use of the land other than its current use. However, the relevance of s 61(b) is obscure; it is concerned with the assessment of “the market value of land”, not with any other head of compensation. There is no reason to read “other financial costs reasonably incurred”, in s 59(f) as meaning “other losses suffered”; indeed there is every reason not to. Apart from the matters noted, the word “other” becomes inapt.

20. [38]

    The second justification appears to have been based on the fact that contrary to earlier statutory provisions, where losses would have been understood as part of the “value to the owner”, the Just Terms Act provides different concepts encompassing “market value”, “special value”, and “disturbance”. It followed that aspects of loss attributable to disturbance, which might formerly have been included as a kind of special value, must now be dealt with elsewhere. [31]

21. [39]

    Putting to one side the scope of the definition of “special value”, which does not seem to require this conclusion, the rest of the reasoning is based on the separate elements of compensation available under the Just Terms Act and appears to have a strong element of circularity: that is, loss of future profits must be assessed under s 59(f) as “other financial costs” because it cannot be assessed elsewhere. If, as a matter of construction, it does not readily fall within s 59(f), and is not recoverable by the tenant with no security of tenure, it may (as this case demonstrates) be recoverable by the owner of the land.

22. [40]

    The primary judge relied upon George D Angus as support for the view that although the interest held by QPN, as a tenant at will, “had no relevant market value”, it was, nevertheless, entitled to make a claim for compensation “limited to losses attributable to disturbance.” [32] However, if the tenancy was, as a matter of law, terminable on one month’s notice, it could not become a lease for an indefinite period because of the intentions of the parties, without departure from Aerated Water. If it was not a right of exclusive possession for an indefinite period, but only for one month, it is difficult to understand how it could justify a substantial sum for disturbance.

23. [41]

    George D Angus became relevant in these proceedings only indirectly. As RMS explained, it had relied upon George D Angus before the primary judge as the first step in its double dipping claim. In its submission, a disturbance claim could only arise from “actual use” of the land which, in accordance with George D Angus, was a claim properly made by QPN as a tenant in exclusive possession, reflecting the subjective intentions of the parties. If it had such a continuing interest, that interest was exclusive of ABM and should have precluded the latter’s claim.

24. [42]

    It is difficult to see how the result in the present case can stand with the reasoning in George D Angus. It is difficult to avoid the conclusion that it is anomalous to assess compensation to the owner on the basis that the tenancy may be terminated immediately, for the purpose of the hypothetical sale, but to assess compensation to the tenant on the basis that the current use of the land will continue indefinitely.

25. [43]

    However, it is the latter proposition that is untenable because it depends not on legal interests and entitlements but speculation as to the future conduct of the parties. Those considerations are to be disregarded, in accordance with the reasoning in Aerated Water. ABM’s claim was properly assessed on the basis that QPN had a terminable interest.

26. [44]

    That conclusion is not sufficient to dispose entirely of RMS’s first ground of appeal. RMS, having identified the anomaly, contended that ABM could not recover for “the same loss” for which QPN had received compensation.

27. [45]

    There are two responses to that proposition. First, it is not “the same loss” if it is suffered by two separate entities. Secondly, to the extent that each entity suffers a loss arising from the same circumstance, there is nothing in the Just Terms Act to preclude each recovering its separate loss. Although s 56(2) prevents, in general, former owners of land receiving a sum for the market values of each interest which, together, will exceed the market value of the land, QPN received no amount on account of the market value of the land. No other provision of the statute achieved such a result in the circumstances of the present case. Nor is there any basis for reading such a term into the Act. To the extent the result is anomalous, the anomaly arises from the way in which QPN’s claim was assessed.

28. [46]

    Accordingly, grounds 1 and 2 of the appeal should be rejected. ABM is entitled to the market value of the land which has been acquired and the diminution in value of the residual land, pursuant to s 55(a) and (c) respectively. For the reasons explained, it is arguable that the statute gives rise to no anomaly. Nevertheless, to the extent that the latter conclusion involves departure from earlier authority of this Court, which was not sought to be challenged by either party, that reasoning, being only indirectly supportive of the rejection of grounds 1 and 2, need not be pursued further.

Replacement of caretaker’s house – ground 3

1. [47]

   Ground 3 challenged the award of $140,000 being half the value of a new cottage, with acoustic protection. Access to ABM’s land was obtained from Lovedale Road, which (prior to the acquisition) crossed the narrow north-western tip of the land. This area comprised a title identified as lot 201 on DP 1099068. The Expressway bisected this lot, with a flyover at Lovedale Road and feeder lanes, ending in roundabouts, providing an exit from and entry to the Expressway at the junction with Lovedale Road.

2. [48]

   There was a cottage and stockyards on lot 201 which, after the acquisition, were located on the residue of the lot to the north of the Expressway. The main access to the quarry and the bulk of the grazing land was to the south of the Expressway. RMS accepted that an amount should be paid for construction of new stockyards to the south of the Expressway, but rejected a claim for the replacement of the cottage with a building to the south, adjacent to the road used for access to the land. Ground 3 in the notice of appeal merely alleged an error of law in awarding compensation with respect to the cottage. The ground did not identify the nature of the legal error. RMS’s submissions identified two grounds, namely that particular material findings were made without evidence and that the judge “asked herself and answered the wrong question.”

3. [49]

   The reasoning of the trial judge was set out in the following passages:

4. [50]

   The approach taken by the primary judge to a claim under s 59(f) is consistent with that identified by this Court in Roads & Traffic Authority of New South Wales v Peak, [33] an authority relied upon by RMS. To say that there was no evidence to support the findings of the trial judge was simply to record a disagreement with the finding made. The submission stated that even before the construction of the Expressway, “the cattle were spread widely across ABM’s land and the cattle could not necessarily be observed from the cottage when grazing.” That may have been true, but the finding favouring a cottage on the larger portion of the residue and next to the entrance reflected an assessment of the reasonableness of the evidence proffered by the respondent.

5. [51]

   Mr Frost, a director and shareholder of ABM, gave evidence that, following the construction of the Expressway, “it will be no longer practical for the resident of the existing cottage to keep a close eye on the activities that are taking place on the land, particularly people entering or attempting to enter the property through the Lovedale Road frontage.” In the course of cross-examination, Mr Frost gave evidence that “cattle can break out of – if there’s a fence down, especially if someone’s broken into the place, they can stray onto the road and they can be hit by vehicles and the owner of the cattle is responsible.” [34]

6. [52]

   While Mr Frost accepted that a person living in the present house could go out and tend the cattle, the weight to be given to various aspects of the evidence was a matter for the trial judge. The judge accepted that the cottage, located to the north of the Expressway, could not reasonably serve its prior purpose, when the entrance from Lovedale Road, and most of the cattle, would be on the south side of the Expressway. She assessed the use of the cottage as half in the interests of ABM and half in the interests of QPN. Accordingly, she allowed ABM to recover half of the cost of the new cottage. There is no substance in the challenge to this finding. It was not true that there was no evidence to support it; nor could it be said that the finding was not reasonably open on the evidence, that being the only available question of law.

Severance of timbered land – ground 4

1. [53]

   The Expressway severed two parts of the residue land from the main area on which the quarrying and grazing took place. Apart from the small area on which the cottage and stockyards were located, there was a significantly larger area of timbered land, known as lot 76.

2. [54]

   The area of timbered land to the north of the Expressway was isolated from all other parts of the residue land, being land not acquired by RMS. It was surrounded by private property in the hands of others. The only means of access was by way of an underpass constructed as part of the Expressway. The trial judge allowed compensation for what was described as “injurious affection”, assessed at 15% of the value of the severed land.

3. [55]

   As noted in Tolson v Roads and Maritime Services, [35] “injurious affection” is a concept developed under the law preceding the Just Terms Act and not reflected in that Act. Compensation may be awarded with respect to residue land either for any loss “attributable to severance”, [36] or which involves a “decrease in the value of any other land … severed from the acquired land”. [37] The term “loss attributable to severance” is defined in s 58 to mean “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.”

4. [56]

   There are two differences between the language adopted in s 55(c) and that in s 55(f). Thus, loss attributable to severance under s 55(c) requires that there be two portions of the residue (unacquired) land, where one portion is severed from another. By contrast, s 55(f) deals (relevantly) with a decrease in the value of other land which either adjoins or is severed from the acquired land. (There are other differences in the terminology which are not presently relevant.) Although it is possible to construct a claim based on a decrease in the value of lot 76 because it is land which adjoins and is severed from the acquired land, pursuant to par (f), the more natural approach is to treat the claim as arising from one portion of the land being severed from another unacquired portion and thus as one for loss attributable to severance, under par (c).

5. [57]

   It was not submitted that the reference to a “decrease in the value of any other land”, in par (f), was different in effect from the reference to “any reduction in the market value of any other land” in s 58, for the purposes of par (c). Although the term “market value” is defined in s 56(1), for the purposes of the whole Act, the definition does not apply to s 55(f), because s 56(1) requires that which is identified as a basis for compensation under par (f) to be disregarded. [38] That is no doubt a reason why the term “market value” is not used in par (f). On the other hand, the term “market value” is used in s 58, giving rise to inconsistency if the definition were to be applied, requiring that the Court disregard any decrease in the value of the land resulting from the carrying out of the public purpose.

6. [58]

   The parties did not engage with the issue of statutory construction, but it may have been relevant to one aspect of the reasoning of the trial judge. Thus the definition of market value includes the following language, namely “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”. [39]

7. [59]

   In stating the issue to be addressed, the trial judge said: [40]

8. [60]

   RMS contended that this statement in the judgment derived from a misreading of s 55(f). The temporal element in that provision should be understood to refer to the ownership of the other land by the person seeking compensation. The increase or decrease in value of the land must occur by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired. This variation in value may occur before the land is acquired (for example, when a proposal is announced), or even by the carrying out of the public purpose, which may occur before the date of acquisition. Alternatively, if the change in value is caused by the carrying out of the public purpose, that may not occur until after the date of acquisition. The assessment required under s 55(f) cannot be restricted to the date of acquisition. Nor is there any temporal element incorporated into s 55(c) by s 58.

9. [61]

   Although it may have been wrong for the trial judge to confine her consideration to that specific point in time, the critical question is whether it affected her assessment of the change in value of the severed land.

10. [62]

    There is also an issue as to whether it was incorrect to assess the loss under s 55(f), rather than s 55(c). Although there may be overlap between the circumstances which can be assessed under either provision, the primary purpose of par (f) is to consider the change in value of the residual land owned by the person from whom other land has been acquired. Where land is acquired for road works, the typical effect is a diminution in the value of adjoining residential land which will be affected by the increased noise and pollution from the greater traffic flow. That is a result of the carrying out of the public purpose, not of the severing of the land from other land. By contrast, a loss attributable to “severance” arises because a parcel of land has been divided by the acquisition of a strip from within the parcel. Where the land is farming land, severance may make it expensive for a farmer to move animals or equipment from one part of the residual land to the other. That is this case.

11. [63]

    RMS first submitted that there was no reduction in value resulting from the severance, because access was not required in order to allow the land to be used for its most valuable use, namely bio-banking.

12. [64]

    That submission should not be accepted. Even land which is to be reserved from active use requires access by the landowner, who will have responsibilities which may include steps to minimise the risk of fire and the removal of invasive species.

13. [65]

    The next question was whether adequate access had been provided. The trial judge recognised that the conditions of approval for the construction of the Expressway, imposed as part of the consent given by the Minister under s 115B of the Environmental Planning and Assessment Act 1979 (NSW), required that RMS provide access for ABM to lot 76, north of the Expressway. The judge referred to the conditions as imposing a “legal responsibility” on RMS. The judge also said that this is “not ironclad, enforceable legal access but it is fairly close.” She further concluded that legal certainty would be provided in the near future, accepting evidence given by an officer of RMS (Mr Gant) that it “will consent to ABM and its successors in title using the underpass in perpetuity for a purpose that is consistent with the authorised use of the land and will facilitate registration of this consent on the title to the residue of the relevant ABM land (being lot 76) by lodging a s 88E instrument, [41] executed by RMS and ABM recording the terms of restriction of access to and from the [Expressway] and the terms of consent to access and use [of] the underpass.” [42] The judge noted [43] that this arrangement was “not in place at the date of acquisition”, but stated: [44]

14. [66]

    Allowance was made for a 15% reduction in the value of the severed land to the north of the Expressway.

15. [67]

    There would appear to be a degree of artificiality about this exercise, in two respects. First, at any point in time, access to lot 76, could only be achieved by an owner of adjoining land or a person who enjoyed an easement providing access over adjoining land: the severed portion of lot 76 is isolated from public roads. In a practical sense, the opportunity to obtain such an easement would appear to be a far greater concern for the hypothetical purchaser than access through the underpass.

16. [68]

    Secondly and more importantly, it appears that the reason why the grant of a legally enforceable entitlement to use the underpass had not yet eventuated was the fact that as at the date of the trial, the Expressway was still to be dedicated as a public road pursuant to s 10 of the Roads Act 1993 (NSW), declared a main road pursuant to s 46 of the Roads Act and declared a controlled access road pursuant to s 49 of the Roads Act. There was no evidence that RMS might depart from its intention to register the necessary instrument. According to the evidence, a significant sum ($2.14 million [45] ) had been expended on construction of the underpass in order to give effect to the condition of consent requiring provision of access to the northern part of lot 76. The unchallenged evidence was, further, that although there was a gate controlling access to the underpass, ABM had a key to the gate. In practical terms, it already had unrestricted access. In legal terms, that arrangement would be secured shortly.

17. [69]

    The question, for present purposes, is whether the judge was correct to make an assessment of the possible diminution in the value of the severed land at the date of acquisition, when the carrying out of the public purpose was not complete, particularly in so far as the legal steps necessary to complete the purpose had not been executed.

18. [70]

    Although the respondent contended that the trial judge did not impose “an unduly narrow temporal requirement” in determining this issue, it also noted that neither at the date of acquisition nor at the date of trial had an enforceable property right been conferred on ABM to use the underpass to obtain access to lot 76. However, there being no challenge to the propositions put forward on behalf of RMS that it not only would, but was legally obliged by the conditions of consent, to provide such access in perpetuity, the judge should have found that ABM had failed to establish a reduction in the value of lot 76. Ground 4 should be upheld.

Conclusions

1. [71]

   RMS has thus been successful in respect of one element of the award of compensation, amounting to $272,625. The determination of compensation should be reduced by that amount, leaving a balance payable of $3,115,171, assuming that the figure provided in order 1 (the makeup of which is not known to the Court) did not contain interest.

2. [72]

   RMS has thus succeeded only in a minor respect. The compensation payable pursuant to the judgment in the Land and Environment Court was approximately $3.4 million. The notice of appeal sought that that amount be reduced to $505,000, the difference being some $2.88 million. Accordingly, the reduction achieved by RMS is approximately 10% of the amount in dispute on the appeal. In that event, it is appropriate to award ABM 80% of its costs of the appeal.

3. [73]

   RMS sought an order that the respondent pay its costs in the Land and Environment Court. The orders of the Land and Environment Court entered on 9 March 2015 did not include an order with respect to costs. Accordingly, this Court is not aware as to whether there is such an order; if there is, should it be varied and in what way as a result of the outcome of the appeal? Absent this information, the application by RMS that the respondent pay its costs in the Land and Environment Court must be rejected. Any outstanding issues as to the costs in the Land and Environment Court should be determined by that Court.

4. [74]

   On this basis, the Court should make the following orders:

   1. (1)

      Allow the appeal in part and set aside order (1) made by Pain J on 24 March 2015.

   2. (2)

      In place thereof, determine that the compensation payable by Roads and Maritime Services to Allandale Blue Metal Pty Ltd pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 be the sum of $3,115,171.

   3. (3)

      Order that the appellant pay 80% of the respondent’s costs of the proceedings in this Court.

5. [75]

   WARD JA: For the reasons given by Basten JA, I agree that the appeal should be allowed in part and I agree with the orders that his Honour has proposed.

6. [76]

   SACKVILLE AJA: I gratefully adopt Basten JA’s account of the facts and the relevant legislation.

7. [77]

   I agree with the orders proposed by Basten JA. I also agree with his Honour’s reasons in relation to Grounds 3 and 4 of the appeal (concerning the caretaker’s house and severance of the timbered land). However I wish to state my own reasons for rejecting Grounds 1 and 2 of the appeal. These grounds concern the award of compensation for the decrease in the value of the land retained by the respondent (ABM) on which andesite quarrying operations took place or, but for the acquisition, would have taken place (Retained Land).

The Issues

1. [78]

   The compensation awarded to ABM, by the primary Judge included a component for the decrease in the value of its interest in the Retained Land pursuant to s 55(f) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act). [46] It is convenient to reproduce s 55, which reads as follows:

2. [79]

   The primary Judge did not assess the amount of compensation to be awarded in respect of the Retained Land in the Primary Judgment itself. Her Honour left the calculations to the parties in the light of her findings as to the valuation methodology to be adopted.

3. [80]

   Her Honour considered that compensation to ABM under s 55(f) of the Just Terms Act should be assessed on a “before and after” approach, using a discounted cash flow (DCF) model. This required a comparison to be made between the value of the andesite resource exploited by the quarry (including the reserves that could be exploited with likely planning approval [47] ) unaffected by the proposed acquisition of ABM’s land, and the value of the resource after the acquisition. The key variable in the comparison was that the acquisition of the land required for the Hunter Expressway reduced the expected productive life of the quarry by 1.7 years.

4. [81]

   The parties apparently agreed on the basis of the primary Judge’s findings that ABM should be awarded a total of $3,387,796 as compensation for its interest in the acquired land. The order made by her Honour does not break down this sum by reference to its components. However, correspondence between the parties after delivery of the Primary Judgment suggests that the parties attributed $2,633,000 to the “quarry-related component” of ABM’s compensation claim.

5. [82]

   The challenge by the appellant (RMS) to the award of compensation for the decrease in the value of ABM’s interest in the Retained Land relied essentially on two arguments.

6. [83]

   First, RMS submitted that the primary Judge should not have awarded compensation to ABM for the decrease in the value of the andesite resource without regard to the successful claim by Quarry Products (Newcastle) Pty Ltd (QPN) to be compensated for what RMS said was precisely the same loss. Mr Tomasetti SC, who appeared with Mr Eastman for RMS, contended that the Just Terms Act, properly construed, precluded an award of compensation to ABM for the decrease in value of the andesite resource on the Retained Land. This was because QPN had already claimed and received compensation for the decrease in its interest in the Retained Land assessed by the same methodology – that is, by reference to the net present value of the foregone income stream from quarrying operations on the Retained Land. Mr Tomasetti submitted that having regard to the compensation awarded to QPN for its lost profits, ABM had in truth suffered no loss. Therefore to award compensation to ABM would depart from the injunction in s 54(1) of the Just Terms Act that compensation should:

7. [84]

   Secondly, RMS submitted that the primary Judge should not have held that compensation for the diminished value of the andesite resource should be assessed on the basis that a hypothetical purchaser of the Retained Land would terminate QPN’s monthly lease in order to maximise returns from the quarry. Her Honour’s approach was said to be inconsistent with evidence given by the directors of ABM and QPN in support of the companies’ respective claims for compensation. Each stated that neither company proposed to terminate QPN’s lease of the Retained Land or to alter the rental payable to ABM, despite the rental of $70,000 per annum payable by QPN to ABM being less than market value.

The First Argument: Double Counting

1. [85]

   Mr Tomasetti correctly pointed out that the assessment of compensation under the Just Terms Act is determined by the terms of the legislation, not by an “abstract body of ‘valuation principles’”. [48] In my view, however, the primary Judge’s approach does not depend on abstract valuation principles, but is supported by the language of the Just Terms Act.

2. [86]

   The right to compensation is created by s 37 of the Just Terms Act. It provides that:

3. [87]

   Division 4 of Part 3 is headed “Determination of amount of compensation”. The key provision is s 54(1), upon which Mr Tomasetti relied. It is important, however, to appreciate its precise terms. Section 54(1) is as follows:

4. [88]

   Under the statutory scheme each owner of an interest in land which is divested by an acquisition notice is entitled to be paid compensation in accordance with Part 3 of the Just Terms Act. The amount of compensation payable to each such person is such amount as, having regard to all relevant matters under Part 3, will justly compensate the person for the acquisition of the land (that is, the person’s interest in land acquired [49] ). Section 55 requires compensation to be assessed having regard to the six matters specified in that section and only to those matters. Thus the statutory formulation of the relevant matters to be taken into account is “expressed to be exhaustive”. [50] It follows that the concept of just compensation referred to in s 54(1) is a statutory construct, the meaning of which in a particular case will depend solely on the interpretation and application of the six matters identified in s 55 (as elaborated in the succeeding provisions of the Just Terms Act).

5. [89]

   QPN’s interest in the in the acquired land was distinct from ABM’s interest in that land. Similarly, QPN’s interest in the Retained Land was (and is) distinct from that of ABM. Nothing in the language of s 55 suggests that compensation payable to ABM in respect of the acquisition of its interest in the acquired land should be assessed having regard to the compensation paid or payable to QPN in respect of the acquisition of its interest in that land. In particular, none of the matters identified in s 55 refer, explicitly or implicitly, to compensation paid or payable to a person other than the person seeking compensation for the acquisition of its interest in land. This is the case regardless of whether the other person happens to be a corporation or individual related to the claimant.

6. [90]

   When the Just Terms Act seeks to limit the overall amount that can be claimed by individual claimants it does so expressly. Section 56(2) provides that in assessing the market value of land for the purpose of paying compensation to a number of former owners of the land, the sum of the market values of each interest must not exceed the market value of the land at the date of the acquisition. [51] Section 56(2) does not apply to the present case because it is concerned with the market value of land formerly owned by more than one person, as distinct from the value of land retained by the same “owners”.

7. [91]

   Nor is RMS’s submission consistent with the language of s 55(f) of the Just Terms Act. That provision directs attention to “any … decrease in the value of [the Retained Land] of [ABM] … by reason of the carrying out of … the public purpose for which the [Expressway Land] was acquired”. This language requires ABM’s interest in the Retained Land to be valued so that the relevant comparison “before and after” can be made. The value of ABM’s interest in the Retained Land was not affected by the amount of compensation paid or payable to QPN for the decrease in the value of its distinct interest in the Relevant Land. The value of ABM’s interest in the Retained Land is to be determined in accordance with well-established principles, requiring consideration of the price a willing but not anxious purchaser would be prepared to pay for the interest.

8. [92]

   Of course there is a threshold question which must be answered before ABM’s interest in the Retained Land can be valued, namely the nature and extent of ABM’s interest. The nature and extent of QPN’s interest in the Retained Land, to which ABM’s fee simple estate is subject, obviously must affect both the precise nature and the value of ABM’s interest. But once the threshold question is answered (in this case by the primary Judge finding that ABM’s fee simple estate was subject only to QPN’s lease terminable on one month’s notice), the value of ABM’s interest in the Retained Land is to be assessed independently of the compensation offered to and accepted by QPN.

9. [93]

   There is no issue in this appeal as to whether the compensation offered to and accepted by QPN was correctly assessed by the Valuer-General. There is therefore no need to consider whether the compensation was assessed in conformity with the statutory criteria applicable to QPN’s claim. I note nonetheless that QPN’s claim for compensation for the decrease in the value of its interest in the Retained Land rested on a different statutory basis than the claim made by ABM.

10. [94]

    The claim lodged by ABM under s 39 of the Just Terms Act incorrectly invoked s 55(a) of the Just Terms Act (which concerns the market value of land actually acquired). The Valuer-General’s report characterised QPN’s “sterilisation” claim as a disturbance claim made pursuant to ss 55(d) and 59(f) of the Just Terms Act. As Basten JA pointed out in Tolson v Roads and Maritime Services: [52]

11. [95]

    It is true that the Valuer-General happens to have valued QPN’s disturbance loss by employing a similar (although not necessarily identical) methodology to that adopted by the primary Judge in assessing ABM’s claim under s 55(f). It may also be the case that QPN could have invoked s 55(f) in support of its claim, since it had an interest in both the Expressway Land and the Retained Land. Even so, the compensation offered to QPN and accepted by it was assessed under ss 55(d) and 59(f) of the Just Terms Act and not under s 55(f). Thus the compensation offered to and accepted by QPN was assessed by reference to different statutory criteria than the compensation ultimately awarded to ABM.

12. [96]

    For these reasons I reject RMS’s first argument.

The Second Argument: The Parties’ Subjective Intentions

1. [97]

   Section 55(f) of the Just Terms Act relevantly requires a comparison to be made between the value of ABM’s interest in the Retained Land at the time of acquisition and its value having regard to the carrying out of the public purpose for which the Expressway Land was acquired. At all material times, as I have explained, ABM held a fee simple estate in the Retained Land subject to QPN’s tenancy terminable on one month’s notice.

2. [98]

   No submission was made to the primary Judge or to this Court that the directors’ evidence justified a finding that ABM’s entitlement to terminate the lease was constrained as a matter of law by the dealings between the two related corporations. Such a finding may have been made if, for example, ABM and QPN had made an enforceable oral agreement entitling QPN to remain in possession as lessee for a fixed term. A similar finding might have been made if the principles of proprietary estoppel enhanced QPN’s interest in the Retained Land and correspondingly diminished ABM’s interest. But in the absence of any such submission, the primary Judge correctly sought to value ABM’s interest as a fee simple estate, subject only to QPN’s lease terminable on one month’s notice.

3. [99]

   For the reasons I have given, s 55(f) required the value of ABM’s interest in the Retained Land to be assessed in accordance with well-established principles. Thus the value had to be assessed without regard to what the High Court in the Aerated Water Case [53] referred to as the “personal views or wishes of the individuals” who also have an interest in the Retained Land. The value of ABM’s interest was therefore to be determined by the amount a prudent purchaser would be willing to pay for that interest, having regard to the best and highest use of the Retained Land.

4. [100]

   Plainly one of the factors that a prudent purchaser would take into account is that ABM’s fee simple reversion could be converted into an unencumbered fee simple estate simply by giving one month’s notice to the tenant. The prudent purchaser would not be affected by the subjective intentions of ABM and QPN if these had no bearing on the nature and extent of ABM’s interest in the Retained Land or on its ability to terminate QPN’s lease. Nor would the prudent purchaser be constrained in assessing the value of ABM’s interest by the uneconomic rent to which it had previously agreed.

5. [101]

   In reaching this conclusion, I do not think it is necessary to form a view as to the correctness of the decision of this Court in Health Administration Corporation v George D Angus Pty Ltd. [54] That case involved a claim by a tenant for a large amount of compensation as disturbance under ss 55(d) and 59(f) of the Just Terms Act. The tenant succeeded notwithstanding that his lease was terminable on a month’s notice.

6. [102]

   The Court in George D Angus distinguished Aerated Waters on a number of grounds. One distinction was that Aerated Water was concerned with assessing the market value of acquired land while George D Angus involved a claim for

7. [103]

   In my view, George D Angus concerned issues different from those presented by a compensation claim under s 55(f) of the Just Terms Act such as the claim made by ABM. I do not think that there is any inconsistency between the reasoning in George D Angus and the conclusion I have reached in the present case.