CEO LAND INFORMATION NZ V LUKE, MEDLAND, NISBETT AND CLARK HC AK CIV-2007-404-0057

CEO LAND INFORMATION NZ V LUKE, MEDLAND, NISBETT AND CLARK HC AK CIV-2007-404- 0057 11 May 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2007-404-0057IN THE MATTER OF s 40(2) Public Works Act 1981 BETWEEN CHIEF EXECUTIVE OF LAND INFORMATION NEW ZEALAND Appellant AND ETHEL LUKE, MARY JENNIFER MEDLAND, NANCYE MOIR NISBETT AND ALAN RAYMOND CLARK Respondents Hearing: 26 April 2007 Court: Harrison J Peter Young Appearances: Hamish Hancock for Appellant Julian Miles QC and Andrew Wedekind for Respondents Judgment: 11 May 2007JUDGMENT OF THE COURTIn accordance with R540(4) I direct that the Registrar endorse this judgment with the delivery time of 4.30 pm on 11 May 2007_________________________________________________________________________________ SOLICITORS Crown Law Office (Wellington) for Appellant Morgan Coakle (Auckland) for RespondentsIntroduction[1] The Chief Executive of Land Information New Zealand, for and on behalf of the New Zealand Defence Force, appeals against a decision of the Land Valuation Tribunal determining the price to be paid by the respondents, collectively the Luke interests, for an area of land comprising 12.52 hectares. The land is part of the former Hobsonville air base on the north-western side of the Waitemata Harbour about 22 kms from Auckland Central Business District and within the territorial limits of the Waitemata City Council. It is immediately adjacent to a four hectare block used by Sovereign Yachts to construct super yachts and other substantial vessels. [2] The land was originally taken for public work but is now no longer required for that purpose. The Luke interests accepted the Crown's offer to sell made on 3 June 2003. The Tribunal assessed the land's market value at the date of the Luke interests' acceptance of the Crown's offer at $4 million excluding GST. [3] The written synopsis of submissions on appeal by counsel for the Crown, Mr Hamish Hancock, identified numerous errors allegedly committed by the Tribunal giving rise to a miscarriage of justice. However, on analysis, his arguments raised two principal grounds of appeal, namely that the Tribunal failed: (1) to value the land according to its best and highest use; and (2) to take account of relevant valuation evidence being the sale price of the land agreed in July 2005.Land Valuation Tribunal[4] The land was originally owned by the Luke interests or their predecessors. Where the Crown offers land back to the original owner or his descendants because it is no longer required for public work, the offer shall be ' at the current market value of the land as determined by a valuation carried out by a registered valuer ': s 40(2)(c) Public Works Act 1981. If the parties are unable to agree on a price following an offer, they ' may agree that the price be determined by the LandValuation Tribunal': s 40(2)(A). Here, the Crown and the Luke interests valued the land at $6.45 million and $3 million respectively, both exclusive of GST. [5] The Tribunal's decision delivered on 18 December 2006 identified three issues requiring determination: (1) what was the highest and best use of the land at 3 June 2003; (2) what is the likely time period between 3 June 2003 and the land being available for development; and (3) how can the valuation differences be resolved: at [15]. The Tribunal described its task in these terms: at [20]:In this case the Tribunal has to assess how, in June 2003, a prudent and reasonably well informed purchaser and a willing but not over anxious seller would consider the land's highest and best use. To undertake this task, the inquirer (who is referred to as 'the developer' – for that is what he would be) would look at the land itself. Undoubtedly he would conclude, as did the valuer, Mr Iain Gribble, for example, that the land is a wonderful site with great residential potential. However, the process would not stop there. The developer would then consider what constraints existed affecting the land's development. He would consider such matters as the marketplace, legal and political constraints, and community objectives. He would note that the land was zoned Countryside Living and was outside the Metropolitan Urban Limit (MUL) as defined by the Auckland Regional Council (ARC).[6] The Tribunal reviewed the evidence of the town planning expert called by the Crown. She had concluded that the land was suitable for urban development which she considered could include residential, commercial, industrial and marine cluster type uses. In the planner's opinion these uses could be undertaken within three years of June 2003: at [21]-[22]. The Tribunal rejected her evidence as superficial, noting: at [24]: Inquiries of the Waitakere City Council (WCC) would have revealed that, since at least 2001, there had been a strong commitment on the part of the WCC to have the land (and a significant portion of the air base) zoned for a marine cluster type industrial development Nevertheless, in 2001 the WCC had entered into an option to acquire the land should it not be developed as a marine cluster type development.[7] The Tribunal also placed weight upon the land's inclusion within the first phase of development of the Northern Strategic Growth Area. The WCC's proposals were generated by a real concern to provide employment opportunities within its boundaries and the north-western sector generally. About 60% of its citizens leave the city to obtain employment, placing a heavy burden on public infrastructure. Also, Council was influenced by the land's proximity to deep water and itsuniqueness within the Auckland area for marine activity, and by pressure from Sovereign to extend the catchment for marine industrial use: at [25]-[29]. [8] The Tribunal held that market value was to be determined from the standpoint of the 'risk averse' developer who 'needed to be aware of these political and planning matters and of the drivers behind the WCC's policies': at [30]. The risk averse developer would have concluded that (1) the MUL would be relocated to include the land within the next three to five years; (2) within the same period the WCC would have initiated a scheme plan change to provide for the rezoning of the land; (3) the scheme change would have envisaged some sort of industrial development with a particular emphasis on marine type activities; and (4) the likely zone would have permitted the subdivision of the land into lots of varying sizes to enable boat construction and associated activities: at [31]. [9] Accordingly, the Tribunal found that the Crown's planner's inclusion of residential uses within her urban development concept was misconceived; and that clearly there would have been 'enormous opposition from all the local authorities to the land being zoned for residential uses within the foreseeable future': at [32]. The reliability of the Crown's valuation evidence was consequently affected because it proceeded on the erroneous premise that a residential use of the land was likely, and could be undertaken within three or four years of the effective date: at [33]. While the land showed that it was 'perfect for a residential subdivision [the Crown's] valuations were inevitably flawed': at [34]. [10] The Tribunal concluded that the risk averse developer in June 2003 would consider a future industrial subdivision with a strong emphasis on the marine industry as the most probable highest and best use of the land. On a 32 lot subdivision, and after making all the appropriate allowances – including the problem of identifying truly comparable sales – the willing vendor and willing purchaser would reach a price on the open market calculated at about $33 per square metre or slightly in excess of $4 million exclusion of GST: at [58]. Alternatively, if the land was ultimately developed as a residential site, on the contingency that the industrial use zoning with emphasis on marine activities proved unsuccessful after eight years, then the Crown's value of $8.74 million deferred for that purpose would give apresent value of $4.721 million. The valuation for the Luke interests would be slightly less: at [59].Issues(1) Highest and Best Use[11] Mr Hancock submits that the Tribunal erred in treating Council's long-held desire and stated policy intention as at June 2003 to zone the area as a marine cluster as equivalent to what he describes as 'a formal promulgated zoning to that effect'. He says that in fact none of WCC's policies had been transformed into legislation or zoning changes in June 2003; and that the intended use was not financially feasible because it 'would be perverse and financially confiscatory ' to impose it on a high quality urban site. He emphasises that the legal process of public notification, objections and hearings was yet to occur in June 2003 and that 'it is fundamental to the rule of law' that local authorities do not rule by decree. [12] In this vein Mr Hancock submits that:The intervention of WCC in this market as a promoter, joint venturer, caveator, purchaser, regulator and Resource Management Act adjudicator (at first instance) has comprehensively skewed and rendered abnormal the conditions in this market. The potential use of the land for marine industry was subject to a contractual relationship between WCC and Sovereign Yachts. It did not necessarily extend to the wider market. The corollary to this absence of normal conditions is that one can no longer have a willing seller. This is because the WCC has intervened in such a way as to blight the land[13] Mr Hancock submits that as a result, in identifying the highest and best use, the Tribunal devalued the land ' to arrive at a point of valuation absurdity ' by accepting the concept of the marine cluster industrial zoning which was 'hopelessly uneconomic', leading to a 'miscarriage of justice' for the Crown. [14] There is force in the submission by Messrs Julian Miles QC and Andrew Wedekind for the Luke interests that Mr Hancock's arguments are emotive and repetitive. They have masked rather than identified an arguable error of law, andhave confused Council's motives and intentions with the Tribunal's discrete function of finding a proper and reliable basis for determining the highest and best use of the land. In reality, for reasons which we will shortly explain, the Crown is mounting an unsustainable challenge to findings of fact. [15] The misplaced premise of the Crown's attack is Mr Hancock's assertion that the Tribunal treated Council's intended zoning change as if it was implemented and lawful. This is not correct. The Tribunal followed the orthodox approach of placing itself in the position of the hypothetical prudent and reasonably well informed purchaser, in this case a property developer. Mr Hancock's detailed submissions do not suggest the Tribunal erred in this respect or was wrong in law in identifying the relevant constraints on development as constituting 'the marketplace, legal and political restraints, and community objectives'. [16] Central to the Tribunal's decision was its finding of fact that Council had had a 'strong commitment' since at least 2001 to zone the land for marine cluster type industrial development. Whether or not the Crown disagrees with the financial, legal or environmental basis for this commitment, or whether the land would yield a higher price if zoned for residential development, is beside the point. The existence of Council's commitment was undeniable on the evidence before the Tribunal and would be directly if not decisively relevant to the price because the hypothetical risk averse developer would, as the Tribunal found as a matter of fact, be aware of it. [17] Mr Hancock attempts to challenge the Tribunal's finding by submitting that: a developer, or his valuer, each trusting his own experience as to the physical possibilities of the land, what sort of development was appropriately justified for it, its current legally permissible zoning (Countrywide Living) and what is financially feasible does not have to be and would not be intimidated by WCC's decreed intended use in June 2003. If the preponderance of the other available information suggested that Council's intentions were financially infeasible, unreasonable and impracticable then the developer/valuer would exercise an independent judgment. His or her own intuitive judgment and brain programmed by experience and relying on evidence of current market sales transactions of comparable properties would come into play. In evaluating the information the developer/valuer would also be supported by confidence that the relevant legal processes would provide the citizen with adequate safeguards against the unreasonable, impracticable or oppressive.[18] With respect, this submission is at direct odds with the Tribunal's factual finding, which we respectfully endorse. The Tribunal, drawing upon its collective knowledge and expertise, was satisfied that the risk averse developer, recognising Council's strong commitment to rezoning the land for marine cluster industrial development, would have taken direct account of and been influenced by the likelihood of WCC initiating a scheme plan change for this purpose within three to five years. The Tribunal had an ample evidential foundation for finding there would have been 'enormous opposition from all the local authorities to the land being zoned for residential uses within the foreseeable future'. [19] In these circumstances the prudent, well informed and risk averse developer would hardly be likely to speculate on a favourable result through exercising his statutory rights of challenge to Council's commitment by agreeing to pay a higher price fixed according to residential use. Prudence and familiarity with the legal process would inform the hypothetical developer that he would be buying years of litigation, with the associated costs and loss of opportunity on capital, without a probable or real prospect of success. The right of challenge is one thing; an informed commercial assessment of its value is very different, and would be decisive here. [20] In our judgment the Tribunal applied the correct legal principles in identifying the highest and best use of the land, and the factual foundation for its conclusion is unchallengeable.(2) Subsequent Sales Evidence[21] Alternatively, Mr Hancock submits that the Tribunal erred when fixing fair market value for the land at $4 million, approximating $33 per square metre, by failing to take account of a sale of the same 12.15 hectares together with an additional three hectares by companies associated with the Sovereign interests to WCC on 22 June 2005 for a total of $15.5 million or $121 per square metre (this assessment is arithmetically incorrect; the averaged price per square metre is $102.31). Mr Hancock says that, putting aside all benefits of hindsight, an increase in value approaching 400% in only two years is a strong indication that the valuationfigure is 'patently inadequate and irrational', 'extremely unjust' and could only have occurred 'through a failure properly to apply correct valuation principles'. [22] There is a short answer to Mr Hancock's overstated submission. The parties fixed the price of $15.5 million in accordance with a valuation report from Bristow Barbour & Walker to WCC dated 20 May 2005. (The same firm had valued the subject 12.15 hectares for Council on 22 July 2003 at $4.25 million or around $35 per square metre.) Bristow Barbour's report noted, among other things, two critical factors. One was that Proposed Plan Change 13, rezoning the air base from Countryside Living into four special areas including this land in a marine industrial special area, was recently notified. The other was that ' the most recent sales transactions reflect significantly stronger prices than was evident only as far back as 2003, the major gains being made from late 2003 and during 2004'. While noting recent sales of other land in the air base for residential and educational purposes, Bristow Barbour focused on recent sales of large areas of land for mixed industrial and commercial use elsewhere in Auckland. The firm expressly recorded that pre- 2004 sales of comparably zoned land 'would now require varying upward adjustment of between 50% and 100%'. [23] Bristow Barbour broke down the total land area of 14.9 hectares into industrial land of 13.2 hectares at $110 per square metre and mixed use land of 1.7 hectares at $450 per square metre. The evidence established that the subject land falls into the industrial category. However, taking into account contributions towards off-site infrastructural work and deferment, Bristow Barbour's net value for the industrial land was $90.20 per square metre. On our assessment this is an increase of 173%, not 400%, over the two year period, and much closer to the parameters of the market movement identified in the report than is the increase calculated by Mr Hancock. [24] We shall also record briefly our reasons for concluding that the Tribunal did not err in any event in not giving weight to this sale. Evidence of transactions entered into after the date of offer may be 'relevant or of assistance to a greater or lesser degree': Melwood Units Pty Ltd v Commission of Main Roads [1979] AC 426 (PC) at 436D-E. The decision whether or not to take such evidence into account isof an intensely actual or circumstantial nature. In Melwood the Privy Council held that a transaction entered into within six months may have been material. [25] In this case the Tribunal noted that sales of possibly comparable land after June 2003 were 'only helpful to confirm a continued upward trend': at [55]. It does not refer to the June 2005 sale at all. That is because, as Mr Miles submits, the later transaction was a side issue at the hearing. The transcript of evidence confirms his point. The later sale received only passing mention there; in answer to a question by the Tribunal's chairman, Mr Hancock described its relevance as 'indicat[ing] a trend' and advised the Crown was not relying on it as 'the primary way to arrive at a valuation'. Otherwise the sale did not feature in evidence or submissions. [26] As Mr Miles explained, the Crown disclaimed reliance on the July 2005 transaction because the Bristow Barbour valuation was undertaken on the premise of a marine precinct zoning for 31 sites, excluding the 85 mixed used sites. This premise undermined the essence of the Crown case that the highest and best use of the land was residential. Accordingly, it did not call Bristow Barbour and the Crown's valuer, Mr Brett Smithies, did not rely on the transaction. [27] We agree with Mr Miles that the Tribunal would have erred if it had taken express account of the July 2005 transaction. There is no precedent for using a sale entered into two years after the offer as reliable evidence of market value. Any sale outside a matter of months from the transaction would likely be influenced by extraneous conditions. Bristow Barbour's report exemplifies the dynamic nature of the market following mid 2003 with its extraordinary consequential increase in values. [28] Mr Hancock also submits that the Tribunal failed to take proper account of two other sales of Hobsonville air base land. In April 2003 the Crown sold 30.4912 hectares to Housing Corporation of New Zealand at $22 million or $72 per square metre; and in October 2003 it sold a further 8.8 hectares to the Ministry of Education for $2.96 million or $45 per square metre. But these transactions were of no evidential value. The land in both was sold for different purposes – the first for residential and the second for educational.[29] This ground of appeal must also fail.Result[30] For the reasons given we dismiss the Crown's appeal against the Land Valuation Tribunal's decision. [31] The Luke interests are entitled to costs. Normally we would fix them in accordance with the scale at category 2B. However, Mr Miles advises that the Luke interests may seek increased costs. We reserve leave to that party to file a memorandum in support of an application within 21 days of this decision, and for the Crown to file a memorandum in answer within a further 14 days. The memoranda are not to exceed five pages including schedules. ______________________________________ Rhys Harrison J