Compulsory Acquisition of Open Space Lands: the correct valuation methodology

Willoughby City Council v Roads and Maritime Services [2014] NSWLEC 6

Justice Biscoe has handed down another judgment relating to the compulsory acquisition of open space lands. As mentioned in our blog last week, the decision of Willoughby City Council v Roads and Maritime Services [2014] NSWLEC 6 is the second recent case that touches on open space acquisitions.

The case helpfully provides guidance to acquiring authorities and valuers as to the valuation methodology for acquisitions involving public open space. The case is interesting for three primary reasons:

  1.  it establishes that the compensation for the acquisition of open space does not equate to the residential value of the land. This is in contrast to previous cases where open space was valued based on residential values for those lands
  2. the Court determined that where the land to be acquired is held in trust for the purposes of a “public park, public reserve or public recreation area” as was the case here, it has no bearing on the assessment of compensation payable
  3. it provides some certainty around the issue of “mesne profits”, which are damages due to a lessor from a lessee, where the lessee commits trespass by remaining in occupation following termination of a lease. “Mesne profits” were awarded under section 59(f) of the Land Acquisition (Just Terms Compensation) Act 1991 and is another issue which commonly arises in the complex world of infrastructure projects.

The judgment is more than 144 paragraphs long and cites 40+ different authorities as well as 10 different statues. Biscoe J commences his judgment in the first paragraph remarking on the substantial disparity between each party on compensation: “It is a melancholy truth that in many such cases the parties, supported by their respective valuers, are far apart in their competing assessments. This case provides a striking example. The dispossessed applicant claims over $65 million. The respondent acquiring authority contends that the quantum is somewhere between about $2.1 million and $3.7 million.”

The facts

The brief facts which led to this dispute involved the following: RMS compulsorily acquired public open space lands from Willoughby City Council under the Roads Act 1993. The public purpose was for the road corridor now known as the Gore Hill Freeway, which was constructed between 1988 and 1992 and the Lane Cove Tunnel, which was completed in 2008 . The compulsory acquisitions occurred in 2011 – postdating the carrying out of the public purpose.

The issues

Paragraph 8 of the judgment crystallises the issues in the case as follows:

  1. whether the designation of two of the sites as being held on trust for public charitable purposes was relevant to the determination of compensation payable to the Council
  2. whether the reservation in the Crown grant in relation to one of the sites was relevant to the determination of compensation issued to Council
  3. whether open space sales or residential sales were the most reliable comparables for the purposes of the sales valuation methodology
  4. whether the acquisition caused Council to lose common law causes of action for “mesne profits” or damages for trespass prior to the acquisition, and if so whether the loss was compensable and what was the quantum of compensation available.

Issue 1 – Trusts for public charitable purposes

Despite RMS’ submission that the Council had a “bare legal interest” in the land (being the trustee of a public purpose charitably trust) with limited market value Biscoe J held the Council was entitled to claim compensation for the full market value of the relevant sites.

The decision reinforces again the broad definition of “interest” in the Just Terms Act, such that the fact that land was held on trust by the Council was not something to take into account when determining market value. In this regard, Biscoe reaffirmed earlier decisions of the Court in Sutherland Shire Council v Sydney Water Corporation [2008] NSWLEC 383.

Issue 2 – Reservation in the Crown grant

One of the sites acquired by RMS was held in fee simple by the Council, but critically was held subject to the reservation in a Crown grant for the subject road corridor as a public way. RMS submitted that this meant that the interest had “no or nominal” value. RMS also submitted that only the Crown was entitled to bring proceedings for and be awarded compensation for the interest. Biscoe J did not accept RMS’ submissions and held that such a reservation in the Crown grant should not be taken into account when determining market value as the restriction affected only the person whose land had been acquired.

Issue 3 – Comparable sales for open space acquisition

The parties valuers were experienced valuers in the context of Land and Environment Court compulsory acquisition valuations – Terry Dundas for Council and Peter Dempsey for RMS.

Mr Dundas for the Council relied on residential sales in valuing one of the sites whereas Mr Dempsey relied on open space sales. RMS made the submission that Mr Dundas’ evidence should not be accepted as an independent expert because his evidence was given in a “plainly partisan manner and did not approach the valuation exercise in an open-minded way”. Biscoe J ultimately was not satisfied that this submission had been made out, and commented in obiter that experts “should search their consciences for bias, even unconscious bias, in their evidence, and that if it is detected by the Court they will lose or diminish the Court’s confidence and trust”. Biscoe J distinguished his judgment from comments made by Lloyd J in Penrith City Council v Sydney Water Corporation [2009] NSWLEC 2 at [5] where he stated “it is a notorious fact that expert witnesses are inevitably biased, even if only subconsciously so, in favour of the party by whom they are engaged. This means that the Court must approach the expert evidence with a considerable degree of scepticism”.

Justice Biscoe stated the best evidence of the market value of compulsorily acquired open space land is comparable sales, with no compulsion to purchase, of other open space lands in the locality requiring very few adjustments. His Honour conceded that open space valuations often involved comparing sales of residentially zoned or used land and residential sales maybe relevant where there are no reliable comparable sales of open space land.

His Honour also referred to Lloyd J in Leichhardt Council v Roads and Traffic Authority of NSW (No3) NSWLEC and Biscoe as well as his Honour in Marrickville Council v Sydney Water Corporation [2013] NSWLEC 222 to state that where a dispossessed Council has been active in buying residential land at residential values for open space purposes due to a shortage of open space within a locality, then there should be no discount from comparable residential sale due to the acquired land being open space. In the end, the Court agreed with Mr Dempsey’s approach valuing the open space based on comparable residential sales where the land was acquired for open space in particular the sale of a site within North Willoughby.

The Court also considered the market value of some of the acquired easements referring to the well-established principle in Besmaw Pty Ltd v Sydney Water Corporation (2001) 113 LGERA 246, namely that: “It is not what the dominant owner actually takes, but what the dominant owner is allowed by the terms of the instrument…

The rights taken away from the landowner must be measured, not by what the acquiring authority at any given time might plan to do, or what its policies are, or what assurances or understandings may be given or communicated about the way its rights may be exercised, but by what its enabling instrument allows it to do.” Justice Biscoe awarded $80,000 and $33,355 in compensation for the two easements acquired by RMS.

artarmon%20viaduct-1993Injurious affection

The case also involved an injurious affection claim under section 55(f) on the basis that the value of the residue sites which remained in Council’s ownership had decreased. Council submitted that this decrease in value was due to the noise and loss of amenity by reason of the carrying out of the public purpose. RMS submitted that, given the passive open space use of the residue sites, there had been no decrease in value caused by the construction of the roadways.

His Honour accepted that the carrying out of the public purpose had decreased the value of the residual land and awarded compensation accordingly.

Mesne profits

Mesne profits was one of the more fascinating aspects of the case. This claim related to the fact that RMS had occupied the lands since 1988 when the construction of the Gore Hill Freeway commenced, but did not acquire the lands until 2011. RMS had not paid occupation fees to Council within this period, although between 2003 and 2008, RMS had compulsorily acquired leases of the acquired lands under the Just Terms Act. This issue caused a major discrepancy between the Council and RMS in respect of the compensation claimed with Council claiming almost $33 million in compensation for RMS’ occupation of the acquired lands from between 1988 to 2003 and between 2008 and 2011. The basis of this claim was the acquisition deprived Council of a cause of action against RMS for mesne profits during those periods.

Interestingly, Justice Biscoe found Council had impliedly consented to RMS’ occupation between 1988 and 2003, and in any case the cause of action was actually barred in 2009 as the cause of action accrues at the time of the conduct alleged to constitute the trespass.

However, the second period between 2008 and 2011 was distinguished and his Honour held that Council was entitled to compensation for the loss of its ability to recover mesne profits during that period. In this regard the Court calculated the amount of compensation payable to be $469,115.00 rather than the $33 million claimed by Council.

Key learning

This decision will have particular application to acquisitions involving open space in the context of infrastructure projects as follows:

  1. acquiring authorities need to continue to heed the Courts broad interpretation of the word “interest” and note the Courts reluctance to reduce compensation where the relevant interest involves a trust in land
  2. valuers valuing open space need to be aware of local open space sales similar to the land acquired and in close proximity to the date of acquisition as best evidence of market value
  3. where issues of trespass emerge, the party subjected to the trespass should not provide implied consent, and if a claim is to be made for trespass and mesne profits, it is also important that the statute of limitations be born in mind
  4. experts such as Town Planners and Valuers need to be conscious of their bias and unconscious bias so as to not diminish the Courts trust in the expert evidence provided.

*Photo courtesy of http://www.ozroads.com.au/NSW/Freeways/GoreHillFreeway/gorehillfwy.htm.

3 thoughts on “Compulsory Acquisition of Open Space Lands: the correct valuation methodology

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