Compensation payable to reserve trusts: The first decision on Section 106A of the Crown Lands Act 1989 (NSW) - Land Law & Agriculture

On 24 December 2013, the NSW Land and Environment Court handed down its decision in Tempe Recreation (D.500215 & D.1000502) Reserve Trust v Sydney Water Corporation [2013] NSWLEC 221.

This judgment is important because it is the first time that the Court has considered the operation of section 106A of the Crown Lands Act 1989 (NSW) (CL Act) since that provision was introduced in 2001. Further, in the absence of an appropriate valuation methodology being put forward to assess the value of the reduction in public benefit arising from the acquisition of easements, then compensation is likely to be assessed as general damages.

FACTS

On 2 December 2011, Sydney Water Corporation (SWC) compulsorily acquired four different types of easements (designated A, B, C and D) over the eastern part of Tempe Reserve (Reserve). Marrickville Council is the reserve trust manager of the Tempe Recreation (D.500215 & D.1000502) Reserve Trust (Trust) pursuant to section 92(6A) of the CL Act. The Crown is taken to be the holder of the fee simple of the Reserve and had already been compensated for the acquisition of its fee simple interest.¹

The easements were acquired for the purpose of the Sydney Water Act 1994 (NSW) (SW Act), in particular, to construct a 1.8m diameter water supply pipeline (Pipeline) from the desalination plant at Kurnell to the Sydney water distribution facility at Erskineville. SWC had since transferred the Pipeline to a third party.

The terms of each easement differed and were set out in Memorandum AG 277407S. Easement A was a "Land in Stratum", "Water Supply Works" below ground easement being 6m wide with an area of 35.2m². Easement B was a "Trenched Works" easement being 8m wide with an area of 2,143m². Easement C was a "Works Mounded" easement being 9m wide with an area of 610m². Easement D was a "Works" easement being 8m wide with an area of 288.7m².

At the date of acquisition:

the land the subject of the acquired easements (Affected Land) was zoned Open Space 6(A) under the Marrickville Local Environmental Plan 2001;
the Reserve was used for active and passive recreation;
the majority of the Pipeline had been constructed entirely below ground; and
the only visible evidence of the Pipeline above ground on the Reserve is a cluster of concrete slabs on or adjacent to Easement B and near the public carpark (Concrete Slabs).

The proceedings were brought by the Trust under section 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (JTC Act) against SWC's rejection of a claim for compensation. It was accepted that a reserve trust has an "interest" in acquired land for the purposes of section 4 of the JTC Act.²

The Trust claimed about $5 million and SWC contended that only $6,000 for disturbance was payable. The interpretation of Easements B and C was contested and critical to the Trust's claim. The Trust submitted that Easements B and C permit SWC (and its successors) to construct above ground along their whole length a large, permanent barrier, such as the Pipeline currently below ground, which would disrupt the use of the Reserve (both physically and visually). On the other hand, SWC contended that it could not construct permanent above ground works and, in the circumstances, only modest compensation was payable.

HEADS OF COMPENSATION

Despite the fact that the easements were acquired under the JTC Act, compensation had to be determined taking into account only those matters set out in section 106A(3) of the CL Act (replacing the matters set out in s 55 of the JTC Act), namely:³

the value to the reserve trust of any improvements (including structures) erected or carried out by the trust on the land being acquired or vested, or over which the easement is vested, on the date the land is acquired;
the amount of any loss attributable to the reduction in public benefit from any loss of public open space that arises from the acquisition or vesting of the land;
the amount of any reduction in the value to the trust, as at the date the land is acquired or vests, or the easement vests, of any other improvements (including structures) erected or carried out by the trust on other land that is caused by the land acquired being severed from other land of the trust;
the cost to the trust of acquiring additional land having environmental benefits that are comparable to the land being acquired or vested; and
any loss attributable to disturbance (within the meaning of section 59 of the JTC Act), other than loss arising from the termination of a lease or licence over the whole or part of the land being acquired. [emphasis added].

In determining the amount of compensation payable for the acquired easements, the Trust relied upon section 106A(3)(a)-(c) of the CL Act.

TOWN PLANNING EVIDENCE

The Trust's town planner was of the opinion that Easements B and C would have significant adverse impacts on the public benefits associated with the existing open space and recreational facilities with the Reserves, including:

a reduction in accessibility;
substantial visual impacts;
the impact on existing recreational facilities would necessitate the relocation, significant down-sizing and loss of such facilities; and
a loss of indirect public benefits associated with open space.

On the other hand, SWC's town planner formed the view that there would be no physical loss of land or apparent restriction on the use of the Affected Land as a result of Easements B and C.

VALUATION EVIDENCE

The Trust's valuer calculated the depreciating effect of Easements B and C on the assumption that the activities permitted by those easements (if exercised by SWC to the fullest extent possible in the future) would wholly frustrate the public benefit facilitated by the Affected Land. Relying on two nearby residential sales, the Trust's valuer adopted a rate of $800/m² reflecting the sterilising effect of Easements B and C on the Affected Land. In adopting this rate, the Trust's valuer assessed compensation for loss of public benefit by analogy with compensation for the market value of the fee simple land. This methodology was used because assessing the value of the public benefit had not been previously undertaken.

If the Court accepted that the terms of Easements B and C did not permit above ground improvements, the Trust's valuer conceded that the easements would be a "blot on title" and, therefore, only $100,000 would be payable to the Trust.

In addition, the Trust's valuer regarded the land outside the Affected Land (Adjoining Land) as being injuriously affected in terms of public benefit. The Trust's valuer adopted a reduced rate of $600/m² reflecting the fact that the Adjoining Land was not sterilised and retained some public benefit. Finally, the Trust claimed compensation for improvements varying between $422,877 - $1,061,276.

SWC's valuer concluded that the market value of the Trust's interest was identical in the before and after scenarios and, consequently, no compensation was payable to the Trust (excepting $6,000 for disturbance).

DECISION

Terms of the acquired easements

The Court observed that a registered easement is to be construed by reference to its registered terms and not by reference to extrinsic material, except for the physical characteristics of the dominant and servient tenements at the time of creation of the easements.⁴ In undertaking the construction inquiry as to the terms of an easement, consideration is to be given to what the dominant owner could possibly do in the exercise of its rights.⁵

In interpreting the terms of Easements B and C, Biscoe J rejected SWC's evidence of its actions, intentions and expectations before and after the acquisition as irrelevant to the construction issue. However, his Honour held that the terms of Easements B and C did not permit SWC to carry out above ground works as opposed to the terms of Easement D which expressly permitted SWC to carry out above ground works. As a consequence, the Trust's claim, for the most part, failed.

Loss of public open space

The Trust's residual claim was limited to its loss of open space due to the existing Concrete Slabs and future potential temporary disruption while works are constructed or repairs are carried out under section 106A(3)(b) of the CL Act. SWC submitted that section 106A(3)(b) does not apply to an easement because it does not expressly refer to an easement (as section 106A(3)(a) and (c) do).

Due to the importance of the right to compensation, his Honour determined that section 106A(3) is to be construed with all the generality that its words permit.⁶ For the purpose of determining the quantum of "loss" under section 106A(3)(b), the Court held that evidence of SWC's actions, intentions and expectations before and after the acquisition may be considered in respect of the remoteness of the risk of future potentialities. However, SWC's evidence only related to the existing Pipeline and not future works.

Ultimately, the Court held that there was or would potentially be a "realistic" reduction in pubic benefit as a consequence of the works permitted by the terms of the acquired easements. However, his Honour determined that the assessment of the extent of the reduction in public benefit was "incapable of mathematical precision". In the circumstances, Biscoe J assessed the Trust's loss at $100,000, drawing an analogy with general damages. Despite the fact that the Court determined compensation in the same amount suggested by the Trust's valuer for a "blot on title", his Honour indicated that it was inappropriate to describe the acquired easements as a "blot on title" because the Crown owned the Affected Land.

Finally, Biscoe J rejected SWC's submission in respect of the application of section 106A(3)(b) on the basis that the general words at the end of that provision (i.e. "that arises from the acquisition ... of the land") are intended to include an easement. In reaching this conclusion, his Honour held that the definition of the term "interest in land" set out in section 4 of the JTC Act includes an easement and that the JTC Act applied generally except for the substitution of section 55 with section 106A of the CL Act.

IMPLICATIONS

This decision is important because it confirms that, in determining the amount of compensation payable for "reserves" to which section 106A of the CL Act applies, the Court will substitute those matters contained in section 106A(3) for those contained in section 55 of the JTC Act. However, as neither party put forward a suggested approach for assessing the extent of the reduction in public benefit or attributable loss arising from the acquired easements and bearing in mind that the easements are in perpetuity, his Honour drew an analogy with general damages in other areas of law and determined compensation on this basis. Consequently, the case provides little guidance to valuers as to the appropriate methodology to be adopted for these types of acquisitions, but suggests that valuers must do the best they can to put forward a sound approach or the principles applicable to general damages may apply.

Footnotes

¹CL Act, s 106A(4)(a).

²See Prince Alfred Park Reserve Trust as Trustee of the Prince Alfred Park v State Rail Authority of New South Wales (1997) 96 LGERA 75 at 81; Ashfield Municipal Council v Roads and Traffic Authority of New South Wales (2001) 117 LGERA 203 at [90].

³CL Act, s 106A(3).

⁴Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528 at [5], [37]-[41]; Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 at [15]-[16]; Hare v Van Brugge [2013] NSWCA 74 at [15]-[18]; Queensland Premier Mines v French Pty Ltd (2007) 235 CLR 81 at [14]; Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd (2013) 247 CLR 149 at [20].

⁵Besmaw Pty Ltd v Sydney Water Corporation (2001) 113 LGERA 246 at [22], [56]-[57], [65]-[67], [77]-[78].

⁶Marshall v Director-General Department of Transport (2001) 205 CLR 603 at [38]; Roads and Traffic Authority of New South Wales v Heywood (2002) 54 NSWLR 289 at [20]-[21]; George D Angus Pty Ltd v Health Administration Corporation [2013] NSWLEC 212 at [100].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


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Australia: Compensation payable to reserve trusts: The first decision on Section 106A of the Crown Lands Act 1989 (NSW)