Alec Finlayson Pty Limited v Armidale City Council

[1997] FCA 1517

ALEC FINLAYSON PTY LIMITED v ARMIDALE CITY COUNCIL
No. NG 29 of 1992
FED No. 1517
Number of pages -
Negligence - Damages

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

BURCHETT J

NEGLIGENCE - DAMAGES - damages for pure economic loss - proximity and duty of care - reliance - remoteness - assessment of damages for loss of business opportunty - principles relating to assessment of profits of hypothetical business applicant claimed it would have done but for the breach of duty - estimation not to be approached with too great a nicety - contingencies - disallowance of capital expenditure which would only have been recouped out of profit, on the ground of double compensation, since damages were awarded for loss of the profit - damages in respect of the liability to be required by the NSW Environment Protection Authority to remediate polluted land.

Environmentally Hazardous Chemicals Act 1985 (NSW), s 35

Local Government Act 1993 (NSW), s 124

Local Government (Orders) Regulation 1993 (NSW), reg 19

San Sebastian Proprietary Limited v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 applied

Kantor v Murrindindi Shire Council (Ashley J, unreported, 2 May 1997) referred to

Hill v Van Erp (1997) 142 ALR 687 applied

Bryan v Maloney (1995) 182 CLR 609 applied

Coroneo v Kurri Kurri and South Maitland Amusement Company Limited (1934) 51 CLR 328 applied

Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 applied

Sellars v Adelaide Petroleum N.L. (1994) 179 CLR 332 applied

Poseidon Ltd v Adelaide Petroleum N.L. (1991) 105 ALR 25 applied

Jones v Schiffman (1971) 124 CLR 303 applied

Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 applied

Malec v J C Hutton Proprietary Limited (1990) 169 CLR 638 applied

Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 applied

Davies v Taylor [1974] AC 207 applied

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 referred to

Amann Aviation Pty Limited v Commonwealth of Australia (1990) 22 FCR 527 applied

Ultramares Corporation v Touche (1931) 174 NE 441 applied

SYDNEY, 19, 22, 23, 24, 26 April, 15, 16 May 5 September 14 November 1996 Further written submissions for the applicant 14 February 1997 (hearing), 31 December 1997 (decision)

#DATE 31:12:1997

#ADD 06:01:1998

Appearances

Counsel for the Applicant:	Mr AJL Bannon
Solicitor for the Applicant:	Hunt and Hunt
Counsel for the Respondent:	Mr P Taylor SC
Solicitor for the Respondent:	Phillips Fox until 8 December 1997, thereafter McCabes

Order:

The parties bring in, on a date to be fixed, short minutes of orders in accordance with the reasons for judgment on the issue of damages of the Court.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BURCHETT J

In this matter, following a hearing limited to the question of liability, I found the respondent Armidale City Council liable to the applicant upon a cause of action in negligence. Subsequently, I heard detailed evidence and received lengthy written submissions as to the amount of the damages to be awarded. These reasons deal with that issue, but it is necessary to make some reference to the earlier reasons, which are reported at (1994) 51 FCR 378. In essence, I held that the Council was liable in negligence for breach of a duty of care which it owed to the applicant when it determined certain development applications.

The damages claimed fall into the category of pure economic loss. That being so, it was contended on behalf of the Council that the duty of care did not extend to certain parts of the loss for which the applicant claimed. Therefore, while referring generally to my previous reasons, I set out here a passage (at 401-402) where aspects of the Council's liability are stated, which are relevant to the question whether that liability extends to pure economic loss, as I have already held that it does:

"Putting to one side the re-zoning, the central question is whether the Council, when it came to consider the initial and subsequent development applications, owed a duty of care to the owner of the land, to a known prospective purchaser of parts of the land, or to other persons who might acquire parts of the land or lots into which it was to be subdivided pursuant to the Council's approval of the particular development application. A number of features of the situation must be borne in mind. In the first place, there is the knowledge which I have held the Council had, through its officers, of the potential danger. In the next place, the Council must have appreciated that ordinary persons in the community, who might buy the land or some of it, would not have the same knowledge. The Council had detailed records extending over a lengthy period of years; it had the detailed plans of the impregnation plant which had been submitted to it for approval at the outset of the industrial use of the land; its officers had been intimately concerned with the control of the pollution emanating from the plant; its officers had carried out inspections over the years and had been involved in at least two of the clean up operations after major spillages of contaminants. By contrast, ordinary persons might be expected to have no relevant records, no prior acquaintance with the site, no knowledge that the treatment works had been conducted in such a manner as to contaminate the surrounding area, and possibly no understanding that the activity which had formerly been carried on upon the land carried even a risk of contamination. So far as relevant knowledge was concerned, the Council was in a position of dominating advantage compared with the persons to whom it is alleged to have owed a duty of care. The Council also had a statutory duty under s 90 [of the Environmental Planning and Assessment Act 1979 (NSW)], to which I have referred, to take into consideration 'whether the land to which that development application relates is unsuitable for that development by reason of its being, or being likely to be, subject to ... any other risk'. In considering whether the Council stood in the appropriate relationship of proximity to persons such as the applicant, so as to raise a duty of care, it is relevant to bear in mind that it was the Council upon which that statutory duty was imposed in relation to the development application. Additionally, of course, the requirements of professional practice, of which Mr Hanson gave evidence, lay upon its town planner, for whom it was responsible in negligence: Voli v Inglewood Shire Council (1963) 110 CLR 74 at 100. When Mr Finlayson gave the evidence, which I have accepted, of his reliance upon the Council's approval as indicating that the land was appropriate to be built upon for residential purposes, it seems to me he was justified by the Council's statutory obligation. He could not quote the provision of the statute, any more than many people who justifiably rely upon the performance by others of their legal obligations can formulate those obligations as accurate propositions of law, but I think the basis of his reliance really lay in the practice of councils and those who deal with them, which was itself firmly grounded in legal obligations. Finally, it is an important feature of the situation that the Council took an active part in the creation of the situation from which the applicant's losses came. It was the Council which insisted upon the re-zoning of the land as residential, despite the initial opposition of the State Planning Authority; but if that matter be set to one side, it was still a positive decision of the Council to approve the development application originally submitted by Basia Holdings Pty Limited, and tacitly to approve the proposed further development application foreshadowed in it, which made the subdivision possible, and made the land available to purchasers including the applicant for the purpose of residential construction upon it."

In reliance upon the development approvals, the applicant proceeded with the subdivision and carried out building work at West Martin Street Armidale, and also purchased the land across the road at East Martin Street with a view to its development. It was only after much of West Martin Street had been built on that the serious contamination of the land at West Martin Street, together with some contamination of the land at East Martin Street, was revealed on 27 February 1990 by a statement made on television by the Mayor of Armidale. The announcement caused a furore. It put a stop to further work at West Martin Street, and development of East Martin Street became out of the question. The applicant, which had just commenced construction of another cottage at West Martin Street under contract, was compelled to accept cancellation of the contract on the basis that it would construct a similar cottage elsewhere, suffering the loss of the value of the work already done. The evidence indicates that so strong was the reaction against the applicant, as the developer of a residential development upon land contaminated with the carcinogenic agents creosote (containing toxic polycyclic aromatic hydrocarbons) and copper chrome arsenate (containing arsenic), that the applicant's residential building business came to an abrupt end. For about four years up to the hearing it had not built a single home. After the disclosure of the contamination, it built some residential units for personal acquaintances of its director Mr Finlayson, but otherwise the work simply fell away. Mr Mortimer, a real estate agent trading as Raine & Horne at Armidale, gave evidence that Mr Finlayson's name was "mud" after the contamination became known, and, although he regarded the applicant as a superior builder which he had previously recommended to his clients, he could no longer do so without risking his own goodwill. No contrary evidence was called on behalf of the Council, and I accept the evidence of Mr Mortimer.

The sudden and complete loss of the applicant's residential building work is the more striking because, despite the very difficult financial situation into which it was plunged, and although it suffered considerable difficulties, the applicant managed to remain Armidale's leading commercial builder. In that, the evidence makes it clear Mr Finlayson's high reputation for efficiency and for superior workmanship was a very important factor.

Prior to the discovery of the contamination, the applicant had been established for more than a decade as a leading commercial builder in Armidale. Mr Finlayson made no bones about it that commercial work was his preference. The applicant had built premises for its bank, the Commonwealth Bank of Australia, and also the Council Chambers of the Armidale City Council. But in the last few years before 1990, the applicant had also become established as the leading residential builder in Armidale. Although the applicant had only developed one subdivision prior to West Martin Street, I am satisfied that Mr Finlayson intended to pursue, and if possible expand, that aspect of the applicant's business. This is evidenced by the spending of some $64,000-00 on an extension of a factory owned by the company, the extension being purpose built for the carrying out of work associated with residential building, and also by the acquisition of areas of land for subdivision.

It is against the background of these facts that the applicant makes a claim, which its expert accountancy evidence quantifies at $977,721-00, for the loss of the profits it says it would have earned from its market share of 14.63% of residential building in the area of the Armidale City Council. The calculation of this sum overlaps other calculations, and must give credit in respect of them, by which claims are put forward for specific subdivisions that it is said the applicant would have developed. Obviously, those subdivisions, if developed, would have gone to make up the applicant's market share. In this situation, it seems to me that the separate calculations, which relate to the balance of the West Martin Street subdivision, and proposed subdivisions at Kennedy and Erskine Streets, and Dangar Street, unnecessarily complicate the assessment of damages. If the applicant is entitled to recover damages in respect of the loss of residential building business generally, those damages will necessarily include the whole of any building profit which might have been earned from specific subdivisions. The loss of land value in respect of lots unsold at West Martin Street and of the land at East Martin Street raises special problems, which should be considered separately.

There are several miscellaneous claims, and there is a claim in respect of the burden imposed on the applicant by its ownership of the unsold lots at West Martin Street and of the land at East Martin Street by reason of the risk that the Environment Protection Authority may require it to carry out remedial work in respect of the contamination. This could involve significant expense which, from a commercial point of view, would simply be thrown away. That is because the land is at present worthless, and the cost of remediation would be likely to exceed by far any value it might have after remediation. Indeed, on the evidence, I think it is unlikely that the land will, in the foreseeable future, have any value, notwithstanding any remedial work that is likely to be done.

At this stage, it is appropriate to refer to some principles of law which have relevance for the present matter. In the first place, I should say something about the doctrine of proximity as it bears on liability in negligence for pure economic loss. In San Sebastian Proprietary Limited v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 355, it is stated in the joint judgment of Gibbs CJ, Mason, Wilson and Dawson JJ:

"The notion of proximity, because it limits the loss that would otherwise be recoverable if foreseeability were used as an exclusive criterion of the duty of care, is of vital importance when the plaintiff's claim is for pure economic loss. When the economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care. But when the economic loss results from a negligent act or omission outside the realm of negligent misstatement, the element of reliance may not be present. It is in this sphere that the absence of reliance as a factor creates an additional difficulty in deciding whether a sufficient relationship of proximity exists to enable a plaintiff to recover economic loss."

In the present case, the comment may be made that, although the case is not one of negligent misstatement, I did in my previous reasons expressly find that the element of reliance was present. This aspect of my reasons was noticed by Ashley J in Kantor v Murrindindi Shire Council (unreported, 2 May 1997) at 45, where he referred to Alec Finlayson Pty Limited v Armidale City Council as a case where "the circumstances [were] such that reliance should be assumed or inferred". In Hill v Van Erp (1997) 142 ALR 687 at 693, Brennan CJ said:

"An action for damages for negligence provides compensation to a plaintiff for loss measured by comparing the plaintiff's actual situation with the hypothetical situation in which the plaintiff would have been but for the negligence of the defendant. If the plaintiff's position is economically worse than it would have been but for the carelessness of the defendant, that is economic loss. Ordinarily, economic loss is recoverable when it is suffered in consequence of physical damage sustained by or manifesting itself in the person or property of the plaintiff or when it is caused by a plaintiff's acting or refraining from acting in reliance on what the defendant has negligently said or done."

It will be noted that here his Honour embraces as compensable the case where there is reliance on what a defendant has negligently done, as well as the case of negligent representation. See also Bryan v Maloney (1995) 182 CLR 609 at 618-619.

In my opinion, it was foreseeable, when the Council issued the relevant development approvals, that they would be acted upon, as the applicant did act upon them. It was also foreseeable that if a developer, such as the applicant, developed the land and erected residential housing on it in its polluted state, that developer's reputation in Armidale might well suffer. It is not, of course, necessary that the Council should have been able to foresee the precise train of events, so long as the type of damage was foreseeable, as I hold it was. Does the doctrine of proximity limit the recoverability of damages of this kind, which are plainly not remote in the ordinary sense (cf. Coroneo v Kurri Kurri and South Maitland Amusement Company Limited (1934) 51 CLR 328 at 343-344)? For the reasons already given in my earlier judgment, and particularly because of the Council's statutory obligation to deal with this very problem of unsuitability of the land resulting from a particular risk (the risk of pollution), because of the applicant's reliance on the Council which was in a dominant position to determine whether there was a risk and what should be done about it, and because of the Council's active role in the creation of the situation, I find that a relationship of proximity between the applicant and the Council imposed on the Council a duty of care which required it to have the applicant's economic interests in mind when it considered granting development approvals.

In this case, the nature of important parts of the damages claimed raises a further problem. When, for instance, the applicant seeks damages in respect of the loss of the residential building side of its business, the assessment of its claim requires the Court to value what it has lost. That can only be done on the basis of conjecturing what, had the Council not been negligent, would have happened, and what profits the applicant would have earned from the business opportunity represented by its position in the residential building market at Armidale. See Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 13. A Court should not approach such a problem by making firm findings, on the balance of the probabilities, as to what would have happened in certain events. Rather, except in the case where what would have happened is virtually certain, the Court should make an estimate which takes account of the possibilities either way. The process cannot be exact, since the complexities of what might have been are beyond precise ascertainment. The principle was stated in the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ in Sellars v Adelaide Petroleum N.L. (1994) 179 CLR 332 at 355:

"[W]e consider that acceptance of the principle enunciated in Malec [Malec v J.C. Hutton Proprietary Limited (1990) 169 CLR 638] requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind."

When the same case was before the Full Court of this Court (as Poseidon Ltd v Adelaide Petroleum N.L. (1991) 105 ALR 25), in my judgment (with which Sheppard J expressed general agreement), I said (at 40):

"In my opinion, it would be quite inconsistent with statements of high authority to deny that his Honour was entitled, for the purpose of the assessment of the damages, to make the best estimate he could of the possibility that the contingency might not be fulfilled."

(The damages depended on the value to the applicant of a contract that was subject to contingencies.) I went on to refer to the statement of Menzies J in Jones v Schiffman (1971) 124 CLR 303 at 308 (see also Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183) that "[t]he assessment of damages, whether by a judge or a jury, does sometimes, of necessity, involve what is guess work rather than estimation"; and to an unreported judgment of Mahoney JA where he said he did "not think that foreseeability or the assessment of the likelihood of particular outcomes of a breach of contract should be approached with too great a nicety". Particular outcomes of a breach of a duty of care should likewise not be approached with too great a nicety.

In Malec v J C Hutton Proprietary Limited at 642-643, in the joint judgment of Deane, Gaudron and McHugh JJ, it is stated:

"When liability has been established and a common law court has to assess damages, its approach to events that allegedly would have occurred, but cannot now occur, or that allegedly might occur, is different from its approach to events which allegedly have occurred. A common law court determines on the balance of probabilities whether an event has occurred. If the probability of the event having occurred is greater than it not having occurred, the occurrence of the event is treated as certain; if the probability of it having occurred is less than it not having occurred, it is treated as not having occurred. Hence, in respect of events which have or have not occurred, damages are assessed on an all or nothing approach. But in the case of an event which it is alleged would or would not have occurred, or might or might not yet occur, the approach of the court is different. The future may be predicted and the hypothetical may be conjectured. But questions as to the future or hypothetical effect of physical injury or degeneration are not commonly susceptible of scientific demonstration or proof. If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability."

The same view prevails in England: Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 at 1609-1611, 1620-1621. The point was put tersely by Lord Reid in Davies v Taylor [1974] AC 207 at 213:

"You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All that you can do is evaluate the chance. Sometimes it is virtually 100 per cent.: sometimes virtually nil. But often it is somewhere in between."

In the present case, the first question is what compensation should be allowed in respect of the profits which the applicant would have earned from its residential building business had the Council's negligence not destroyed its opportunity to earn in that way. Plainly, what would have happened cannot now be measured with any certainty. I have found that the applicant intended to pursue its residential business prospects, but there may have been a change of mind, or of circumstances. The tide of opportunity may have receded. On the other hand, the applicant might have succeeded beyond its expectations. The uncertainties are not limited to the amount of business that might have been done; they go also to the terms of trade, and whether competition would have squeezed the applicant's margins, or on the other hand have proved easy to meet and permitted an expanding level of profit.

The applicant's expert, Mr G J Harris of Pannell Kerr Forster Chartered Accountants, made a calculation of the value of the loss of profit suffered by the applicant in respect of its residential building work, based upon a number of assumptions. The first assumption was that the loss was continuing, and would continue until the year 2000 when Mr Alec Finlayson would be sixty-five years of age, and might retire in any event. The fact is the applicant has not recovered its residential building work in the years since the pollution was discovered, and nothing emerged at the hearing which would lead me to find there was any other reason for this than the effect upon the applicant's goodwill and reputation of the disclosure that it had promoted, sold and built upon contaminated land. As at 30 June 1990, the applicant employed a staff of twenty-two including experienced employees whom it would be difficult to replace, but by 30 June 1991 its situation had deteriorated to the point where more than half its staff had been retrenched. Although he demurred at the hearing, the Council's accountancy expert, Mr C Gower of Deloitte Touche Tohmatsu, was initially prepared to accept ten years as a reasonable time to allow. On the evidence which I believe, there was very strong feeling in the Armidale area evoked by the pollution problems at West Martin Street and East Martin Street, so as to be likely to take a long time to subside. Inevitably, and as was certainly foreseeable, many blamed Mr Finlayson, some vociferously. Over a period of years, the matter was kept alive in the public mind by the continued publicity it received in the local media. It was of "the loud report" of ill fame that Virgil wrote in the Aeneid (Book IV, as translated by Dryden):

"Millions of opening mouths to fame belong, And every mouth is furnished with a tongue, And round with listening ears the flying plague is hung."

Even if his damaging notoriety has lessened by now, Mr Finlayson would be faced with all the problems of starting from scratch against established competition in the market of which seven or eight years ago he was the leader. Against the possibility that the applicant could re-establish its position in less than ten years, must be set the possibility that it would be unsuccessful and lose money if it tried, and the possibility that ten years is actually not long enough.

During the two and a half years ending 30 June 1990 (it will be remembered the contamination was announced on 27 February 1990), the applicant averaged a market share of 14.63% of all building applications for houses and home units lodged with the Armidale City Council. Late in the period the applicant's share dipped, but in my view the average over the whole of it is a reasonable figure to take as the starting point for estimates. Fluctuations were to be expected. As I have said, after the announcement the applicant's share plunged. At a time earlier than the period of two and a half years, the applicant had only been involved in one subdivision and was principally a commercial builder.

On the assumption of a constant market share of 14.63%, Mr Harris calculated the present value of the profits the applicant had lost. In doing so, he utilized a gross trading profit figure of 9.17%, which I accept as accurately reflecting the average gross trading profit achieved over a past period by the applicant. From that, he deducted direct expenses estimated at 2.9% and overhead expenses 1.3%, to derive a net profit of 4.97%. After making adjustments, including the application of a discount factor of 14% in order to determine the present value (at an arbitrarily selected date, 30 June 1995) of the lost profits, Mr Harris calculated a figure of $977,721-00.

There was much debate about this calculation at the hearing, and particularly as to whether the deductions for direct expenses and overhead expenses were appropriate. Mr Gower contended that 4.8% should be deducted for direct expenses and 3.8% for overhead, leaving a net profit of .5%. The differences between the accountants as to these deductions reflect both the taking of different periods in the applicant's past accounts to calculate deduction percentages as averages, and also the adoption of different accounting views in respect of the attribution of particular items to a head of deduction. If it were necessary for me to do so, I think that on some of these issues I should favour the view of the one accountant and on other issues the view of the other. But to derive a postulated percentage of profit by a minute examination of the details of past accounting records seems to me to be incongruously at odds with the process of estimating a measure of the results of hypothetical events upon which I must engage. In the nature of things, and on the basis of the authoritative pronouncements of the law to which I have referred, there is and can be nothing exact about the figure at which I am to arrive. It must take account of many uncertainties. Prominent among those uncertainties are both the amount of residential building work that the applicant would have done, and also how profitable that work would have been. The company's experience over a period in which it had developed two subdivisions, having otherwise substantially concentrated on commercial building, may not necessarily tell the full story. Mr Harris, an experienced and expert accountant, gave evidence that a net profit of 5% on building work was conservative, and that the profit "should be more in the order of 7.5 - 8.5%, not 5%." The respondent's accounting expert, also very well qualified, Mr Gower, conceded in cross-examination that 5% net profit on a building contract would "not [be] an extravagant profit level". His own gross profit percentage of 9.1% was almost identical to that calculated by Mr Harris. He pointed out that this average concealed considerable variations in outcomes, some past contracts having shown losses and others higher profits. Profitability in relation to house and land packages might, of course, have improved with more experience in the carrying out of subdivisions involving contracts of this kind. The applicant's survival during the difficult period following the announcement about the pollution at Martin Street suggests it had firm and sound management, and that too much should not be made of the modest profit level achieved over a period when its experience with residential subdivisions had been quite limited, particularly as it is well known that the fortunes of different such projects do vary.

As I have emphasized, the exercise is not exact. It looks at the hypothetical future that the applicant would have had. In doing so, Mr Harris postulates as a constant the market share achieved on average over a period in the past. The respondent emphasizes that that share would be lower if averaged over a shorter period to February 1990. On the other hand, the applicant had demonstrated an intention to promote its residential building business by expending a significant sum of money on an extension to its factory specifically designed to service expanding activity in residential building. Of course, building applications may not be an exact mirror of actual building work. But if they had not provided a fair representation of it, the Council was in a particularly good position to put the facts before the Court. It may well be that any contracts aborted would actually have been outweighed by the additional sums received in respect of other contracts as extras.

There was debate about the financial ability of the applicant to sustain the required level of operations. However, I accept evidence of a retired bank officer of the Commonwealth Bank of Australia as showing that, but for problems that arose out of the discovery of the pollution, the applicant would have been very well received as a candidate for finance. Its reputation stood high with the Bank, as with others. Assistance well beyond the average would have been made available to it, if required. I also accept the honesty of Mr Finlayson, and, generally, the reliability of his recollection. At the same time, there would inevitably have been limitations upon his capacity to manage a number of large operations simultaneously. On occasion, residential building work would have been delayed or deferred because Mr Finlayson would have been engrossed with commercial building activities.

There was also debate about the effect on the applicant's profitability of a tight land supply situation in Armidale. This, of course, would not have stayed the same. It would probably have fluctuated. But, as the applicant became more experienced in handling subdivisions, there is no reason to think it would not have coped with the problem of such fluctuations. Indeed, the next tightening of land supply might well have been to its benefit in a special way, since it held substantial areas of land available for subdivision, including land the subdivision of which was more likely to prove viable after a rise in the prices of building lots.

From his calculated figure of $977,721-00, Mr Harris deducted sums of $24,984-00, $193,486-00 and $88,169-00 as building profits which he considered would have been earned in respect of the balance of the West Martin Street subdivision and in respect of hypothetical subdivisions at Kennedy and Erskine Streets and 68 Dangar Street Armidale. The deductions were made in order to avoid double compensation, because the amounts had been included in calculations of sums separately claimed. The justification for making those separate claims is that each of them relates to land actually held by the applicant for the purpose of development for residential building. So far as concerns the land at Kennedy and Erskine Streets, the prospect that this land would have been subdivided and built upon by the applicant would have to be discounted significantly because the applicant confronted considerable difficulties in the way of subdivision upon favourable conditions. But in any case, it seems to me that a process of separate calculations of particular hypothetical profits, which, upon calculation, would have to be treated as part of the already calculated sum of $977,721-00, would unnecessarily complicate the task of assessment of damages. In principle, it is better to make the one assessment of the whole of the lost profits, taking account as best the Court may of the various contingencies and uncertainties. The Court should also bear in mind that the applicant would have had to expend time and effort to realize the value of its business opportunities. By the same token, it would have had the possibility of improving its market share and its level of profit. Taking all these matters into account, I have come to the conclusion that the applicant's loss of the opportunity to earn profit by the residential building side of its business would be fairly represented by an award of the sum of $500,000-00.

In the way that I have approached the matter, it is unnecessary to resolve a number of issues which were hotly debated at the hearing. The separate claim in respect of a postulated development at Dangar Street is a case in point. Any building profit earned in respect of that property would simply duplicate part of the general loss of building profits awarded. But in case anything should hereafter turn on it, I note that I reject the attack which was made on the evidence of Mr Knight concerning the values involved. Had it been necessary to decide the Dangar Street claim as a separate issue, I would have acted upon Mr Knight's opinions in preference to the valuation evidence called on behalf of the Council. Also, I accept his evidence about the market trends in Armidale generally, which did not just follow national trends.

The postulated development at Kennedy and Erskine Streets is in a somewhat different position. The applicant claimed substantially more in respect of this postulated development than the sum of $193,486-00 for which it gave credit against the calculated sum of $977,721-00. The total claim for Kennedy and Erskine Streets was $474,671-00, but this claim did not accurately reflect Mr Knight's valuations and, quite apart from other issues raised in argument, should be reduced, as Mr Gower's evidence made clear, by $107,227-00 to $367,444-00. That still leaves a substantial amount over and above the building profit as calculated. There is, of course, no reason why the applicant should not have compensation in respect of any valuable opportunity to earn profits additional to building profits which it has lost. Frequently, perhaps generally, it would be expected that a developer and builder would earn profits from the sale of subdivided lots, as well as from building work carried out on them. But in the case of Kennedy and Erskine Streets, I do not think the applicant has shown that there was any real prospect that profits of that kind would have been earned. Mr Finlayson quite freely conceded in evidence that one of the reasons why his proposed subdivision did not go ahead was that it "was not viable in terms and conditions and costs as against adjacent subdivisions". It would have proceeded nevertheless, had the consequences of the respondent's negligence not interfered, "because we just simply did not have the land and for the company to proceed I think it would have been cheaper for us to have developed the land, rather than go and buy land elsewhere." It is clear, on the evidence, that Mr Finlayson, as a builder, was prepared to sell land at cost, if necessary, in a land and building package from which his company could earn a profit out of the building work. At Kennedy and Erskine Streets, the applicant owned land suitable for that kind of package. It did not present a prospect of profit as land because of the high cost of subdivision imposed by its features and the Council's requirements, and the practical impossibility of selling lots at a significantly higher price than that sought on behalf of nearby competitors holding land that could be subdivided much more cheaply.

When the polluted state of the Martin Street land became known, the applicant lost all possibility of selling seven lots at West Martin Street which remained unsold. It seems to me that the position of these lots must be considered in the light of the fact that their subdivision had already been effected before the applicant became aware of the pollution. Had that expenditure been incurred in relation to some other area of land suitable for subdivision, all the lots could have been sold. In my opinion, the applicant's loss here includes the loss which it suffered, when the truth became known, by its inability to turn to profitable account these already subdivided lots.

The value of the land is the correct measure to take. I accept the evidence of Mr Knight which shows that the seven lots were worth a total of $180,000-00. The respondent says that this amount should be reduced to $157,000-00 because the applicant, prior to the discovery of the pollution, was prepared to sell the lots at prices less than their value. But this is merely an example of the applicant's willingness to reduce the price of a lot in order to win the opportunity to make a profit out of a building contract, and, in the longer term, out of its reputation as a residential builder. I accept that when the applicant did that, in particular cases, it did so because of a reasonable calculation that it would in fact obtain value. The manner in which it might have done so in the hypothetical event of a sale unaffected by the pollution is irrelevant to the true value of the land. The true value of the land so unaffected remains the measure of the applicant's loss, whatever the use one considers it might, under different circumstances, have made of its property. Accordingly, the correct figure for this part of the claim, which should not be discounted, is the sum of $180,000-00 less the accepted 3% selling costs, ie $174,600-00. To that sum should be added an amount of $22,459-00 holding costs, which was not disputed.

I referred earlier to the fact that, at the time the contamination was discovered, the applicant was engaged in constructing a house for a client on one of the lots at West Martin Street. This was Lot 7. The applicant agreed to cancel the contract, having regard to the pollution, and to construct a similar cottage on a lot elsewhere. This arrangement cost the applicant $6,734-00 in work thrown away on construction at Lot 7. That amount should be included in the damages.

Certain accountancy charges (in the sum of $14,138-00) and bank charges (in the sum of $1,645-00) claimed by the applicant are not in dispute. Their total ($15,783-00) should also be included in the damages.

The applicant further claims the sum of $64,733-00, being money expended on the extensions to its factory effected specifically for the purpose of its residential housing business. The argument is that this expenditure was thrown away when that side of the applicant's business collapsed following the discovery of the pollution. The respondent, however, pointed out that the applicant still had the extensions to its factory, representing an investment of capital. It referred to McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 416, where Dixon and Fullagar JJ rejected a claim in respect of equipment purchased for a salvage venture which had been deprived, by a breach of contract, of any chance it might have had of returning a profit. Their Honours said:

"But in any case this was all capital expenditure represented by acquired assets, and it is out of the question to claim it as damages."

However, I do not think McRae v Commonwealth Disposals Commission lays down a rule that is without exceptions. If a plaintiff constructs a capital item suitable only for use in the performance of a particular contract, which is rendered valueless by the defendant's breach of contract, it is difficult to see why the plaintiff should not recover. Here, there is no challenge to the evidence that the extensions to the factory were purpose built for the business activity which was destroyed by the Council's negligence, and that the applicant was unable to recover the cost of the extensions by selling the factory. The respondent argues that this last point merely means the loss flows from a discrepancy between the value of the factory and the expenditure, rather than from its conduct. In a practical and business sense, that is not so, since the value would have been recovered through increased profit earned by the residential building contracts for the fulfilment of which the extensions were built. In my opinion, some small part of the expenditure must be regarded as having been recouped through the residential building work done during the short period before the discovery of the pollution, and some very small accretion in the value of the building could be attributed to the expenditure, but, on the evidence, the bulk of the expenditure has in fact been thrown away. The applicant has not been able to use the extensions, nor has it been able to recoup the money expended by sale of the factory.

However, I think there is an insuperable obstacle to the applicant's recovery of any part of the sum of $64,733-00. This is that its recovery would involve double compensation, since I have already awarded compensation for the loss of the profits to earn which the extensions were carried out. The applicant cannot have both the profits it would have earned and the expenditure which was outlaid in order to procure them. It is not a case where the damages must cover an amount of unrecouped expenditure which, had it not been for the actions of a defendant, would have been recouped out of gross receipts before the ascertainment of a net profit. Here the capital expenditure would only have been recouped out of net profit, and therefore an award of damages in respect of net profit must return to the applicant everything to which it is entitled. The situation is to be contrasted with that which I discussed in Amann Aviation Pty Limited v Commonwealth of Australia (1990) 22 FCR 527 at 571.

The next claim to be considered relates to East Martin Street. To understand the matters upon which the validity of this claim depends, it is necessary to recount some of the history of the matter. The original purchase by the applicant of land at West Martin Street was pursuant to a contract dated 23 October 1985 that was conditional on the registration of a plan of subdivision within a period of six months. An appropriate development application was approved on 29 November 1985, and the plan of subdivision was registered on 9 December 1985. Settlement of the purchase took place on 3 February 1986, and subdivisional works were completed by 15 April 1987, although subsequently some lots were resubdivided. The purchase of five further lots which had been hived off by an earlier subdivision, the sale of lots, and the construction of homes continued until the Mayor's announcement of the discovery of the pollution on 27 February 1990. What it is now important to note is that the development and resubdivision approvals involved all related to the area of land at West Martin Street which was identified in my reasons for judgment on liability. However, across Martin Street, there was a separate area, also identified in those reasons for judgment, which has been referred to as East Martin Street. East Martin Street was not originally the site of any of the operations which contaminated West Martin Street. Nevertheless, it may well have received some contamination from escapes of creosote or arsenic from West Martin Street, and it probably received deposits of contaminants from treated poles which, over a significant period, were stacked on the land across the road after treatment and while still dripping. On 22 October 1987, the applicant contracted to purchase the land at East Martin Street for a price of $48,000-00. Settlement took place on 26 June 1988. The purpose of this purchase was development by way of residential subdivision, with a view to the sale of developed lots.

The problem can now be stated. East Martin Street presents a real contrast with West Martin Street. Each of the purchases of West Martin Street land was a foreseeable consequence of approvals given by the Council, which related to the West Martin Street land, and, in my opinion, could not be regarded as too remote from those approvals to result in liability. I have already held that the applicant, as the purchaser of the land, and developer of much of it, came within the relevant relationship of proximity to the Council for the purposes of the law of negligence. But the East Martin Street land was not the subject of any relevant development approval or approval to a plan of subdivision. The applicant claims that, nevertheless, its purchase of that land was a consequence of the first purchase by it of land at West Martin Street, and of the same negligence of the Council which attracted its liability in relation to that purchase. The applicant says it was induced by the view that West Martin Street would proceed to be successfully built up with homes, and that residential subdivision of East Martin Street would logically follow.

The question is whether the Council owed a duty of care, for the breach of which the applicant can recover damages, when it gave the various approvals affecting West Martin Street, not only to a purchaser of land within the area originally contemplated at the time the first approval was sought, but also to a purchaser some two years later of land across the road, who might be misled by the thought that a viable residential area would be established at West Martin Street, thereby making East Martin Street more valuable. In my opinion, the law cannot go so far. There are at least two reasons for this. In the first place, allowance of the applicant's claim would require the allowance of any similar claim by a purchaser of land in the vicinity, and would introduce an almost limitless liability, contrary to the often cited rejection by Cardozo CJ in Ultramares Corporation v Touche (1931) 174 NE 441 at 444 of liability "in an indeterminate amount for an indeterminate time to an indeterminate class". In the second place, on a proper analysis, I do not think the applicant relied on the Council's negligent approval of the West Martin Street development application when it purchased East Martin Street: it relied on its own view that a successful residential area would eventuate. Each of these points is taken up in a passage in the judgment of Mason CJ, Deane and Gaudron JJ in Bryan v Maloney (supra) at 618-619:

"One policy consideration which may militate against recognition of a relationship of proximity in a category of case involving mere economic loss is the law's concern to avoid the imposition of liability 'in an indeterminate amount for an indeterminate time to an indeterminate class' (Ultramares Corporation v. Touche (1931), 174 N.E. 441, at p. 444, per Chief Judge Cardozo; Caltex Oil (Australia) Pty. Ltd. v. The Dredge 'Willemstad' (1976), 136 C.L.R., at pp. 568, 591; Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C., at p. 537; and see also Sutherland Shire Council v. Heyman (1985), 157 C.L.R., at p. 465). Another consideration is the perception that, in a competitive world where one person's economic gain is commonly another's loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another's person or property, may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage (Jaensch v. Coffey (1984), 155 C.L.R., at p. 578; Sutherland Shire Council v Heyman (1985), 157 C.L.R., at p. 503). The combined effect of those two distinct policy considerations is that the categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two. (See, generally, Sutherland Shire Council v. Heyman (1985), 157 C.L.R., at pp. 466-468, 501-502; Hawkins v. Clayton (1988), 164 C.L.R. 539, at pp. 545, 576, 593.)"

Although the reference in this passage to competition is not applicable to the relationship between a Council and an individual or body corporate concerned in an approval given by the Council, the passage is very much in point in highlighting the need for a definition of the limits of liability and the role of reliance or the assumption of responsibility. The Council did assume responsibility in relation to the land at West Martin Street when it gave the approvals which it gave, and the applicant placed reasonable reliance upon it in the actions taken in connection with that land. The relationship between the parties created a proximity with which "an indeterminate class" may justly be contrasted. But all this falls away when one turns to East Martin Street. There, the applicant claims in the same right which might be asserted by any of Armidale's developers who had turned an acquisitive eye on land in the vicinity of an apparently approved and hopeful subdivision. In this situation, the applicant's claims in respect of East Martin Street must fail.

A question arises as to whether any further sum should be allowed in respect of interest, either under s 51A of the Federal Court of Australia Act 1976 or otherwise, and included in the sum for which judgment is given. I think this question is best left until the time when short minutes of orders are brought in after publication of these reasons.

The last substantial question of which the damages award must take account is the question of remediation of the seven lots at West Martin Street that remain on the applicant's hands. Because the cost of a full investigation would be so substantial, no-one has ascertained the precise extent of the contamination of the land at West Martin Street, whether still held by the applicant, acquired by the Commonwealth under special arrangements made for the benefit of persons who had bought homes built on the contaminated land, or owned by the New South Wales State Rail Authority. It has been accepted on all sides that the West Martin Street land "will never be used again for residential purposes", as senior counsel for the Armidale City Council put it during the course of the hearing. His approach was that capping and surfacing of the land was "the only feasible future remediation option". For its part, the applicant claims that the Environment Protection Authority of New South Wales will require remediation to be carried out, and that the form of remediation is likely to be more thorough and expensive than the mere provision of a cap. Extensive evidence was given by experts on both sides, and a contractor was called on behalf of the Council to give evidence of the cost of compliance with some of the requirements laid down by the experts.

One obvious difficulty in assessing the situation lies in the fact that the land remains zoned for residential purposes. The suggestion that it might be capped for industrial uses cannot really be entertained if the Council is not prepared to change the zoning. The location perhaps explains the Council's attitude. On one side of the land is the main northern railway, with a golf course beyond it. On the other side is Martin Street and, across the street, the East Martin Street land sloping down to Martin's gully, in the bottom of which there is a creek. On the far side of Martin's gully there is some industrial land. But otherwise all the land around the Martin Street land is residential. In this situation, if the land can be capped so as to be safe for an open park or playing area, that might be the most appropriate use. But the greater proportion of the land is now held by the Commonwealth, and it would be logical to conclude that its decision about the use to which its land will be put is likely to prove decisive. If a level of remediation is chosen for the Commonwealth land, it would hardly seem reasonable to impose a higher level upon the applicant.

One of the problems confronting remediation is that the development activities carried out on the land would have involved some disturbance and spreading of material hidden beneath the surface. Consequently, it is impossible to be certain that there are not more areas of concentrated contaminants at untested points in the land, in addition to those that have been identified.

Counsel for the applicant referred to s 124 of the Local Government Act 1993 (NSW), suggesting that the Council itself might, after this case is over, require the applicant to take some action on the basis that "[t]he land or premises are [sic] not in a safe or healthy condition". But, for the Council, it was pointed out that regulation 19 of the Local Government (Orders) Regulation 1993 excludes from this provision a "circumstance in which the condition of land or premises in respect of health or safety is capable of being regulated by the Environmental [sic] Protection Authority". Accordingly, it would seem that the power the exercise of which might affect the applicant is the power of the Environment Protection Authority contained in s 35 of the Environmentally Hazardous Chemicals Act 1985 (NSW):

"(1) Where the Authority has reasonable grounds to believe that any premises used for or in connection with the carrying on of any prescribed activity in relation to a chemical or any chemical waste are becoming or have become contaminated by reason of the carrying on of that activity, the Authority may, by notice served on the occupier of the premises and describing the chemical or chemical waste and the nature of the contamination, direct the occupier to take such prescribed remedial action: (a) as is reasonable in the circumstances; and (b) as may be specified in the notice."

The submission presented on behalf of the Council accepted that this provision was applicable in the circumstances of this case.

The Council also made a formal admission, for the purposes of the proceedings, that the seven lots owned by the applicant are "not presently suitable for residential use" and "will not be suitable for residential use until ... either remediated and/or ... appropriately tested and approved for residential use"; and that four of the lots are "not presently suitable for non-residential occupation which would otherwise be permitted by current zoning, open space, commercial or industrial use" and "will not be suitable for [any such use] until ... either remediated and/or ... appropriately tested and approved for any such use".

The applicant called evidence from Dr Ian Swane who is the manager of the Site Remediation Group of Dames & Moore Pty Ltd, an expert having experience in the management of remediation projects in Australia with a total value in excess of sixty million dollars. Dr Swane answered a question about the prospect of the applicant not being required by the Environment Protection Authority to remediate its West Martin Street lots as follows:

"I would say the EPA would be requiring all properties in West Martin Street to be remediated."

Dr Swane is highly qualified in the area. No evidence was called from any officer of the Environment Protection Authority itself, but the Council called Dr Garry Smith who is employed as Principal Environmental Scientist by Sutherland Shire Council. He is highly qualified in the assessment of risks posed by contamination, but not in the engineering problems of remediation. Dr Smith, in a report dated 29 March 1996, stated:

"[I]t is recommended that remediation of those Finlayson lots with results indicating higher levels of contaminants, i.e. lots 7, 30 and 31 should be undertaken by soil removal to a depth of 0.5m and appropriate isolation in secure landfill in order to preclude potential future exposures beyond the immediate future land use. As an added precaution, the Martin Street Subdivision lots targeted for future non-residential development, despite the current low health risks associated with those land uses, might be subjected to soil disturbance and dispersal ('vertical mixing'), thereby diluting occasional elevated contaminant levels further."

In a subsequent report, dated 17 April 1996, Dr Smith referred to "both elevated arsenic and PAH in some tests" of lot 13 and concluded:

"I would suggest that, consistent with a conservative approach and on the basis of the intergenerational equity issue, lot 13 be subjected to soil replacement in a similar manner to lots 7, 30 and 31."

The comment may, I think, be made that intergenerational equity considerations would have to be taken into account by the Environment Protection Authority in any decision whether to require remedial steps to be taken. The Authority would be likely to see its duty as requiring it to have regard to the interests of future generations.

In answer to further questions submitted by the Council's solicitors, Dr Smith furnished a third report, dated 14 May 1996, in which he referred to his earlier suggestion that four lots be remediated. This, he made clear, was on the footing that the whole of the land would be utilized only for non-residential purposes. He made the comment:

"Given that the health risks for non-residential use are acceptable, and provided that the off-site contamination potential of the final site is non existent or acceptable, it follows that the NSW EPA would consider the remediation strategy acceptable. ... Based on my risk estimates ... I am of the opinion that, were the existing site to be used for non-residential purposes, whereby the site is covered in industrial/commercial use or capped for open space, the site would not represent a demonstrable risk."

These last comments were made in reply to a question whether the Environment Protection Authority would require all of the land to be remediated in the manner he had recommended for four of the lots. However, in a later part of the report, he suggested that a soil cap a metre thick, including a sub-layer of half a metre of clay "above lots known to have contaminants in the High to Medium range", would avoid the need to remove soil "from a health risk perspective". Whether this was intended to embrace also ecological risks was not made clear. Dr Smith did make some comments about the problem of off-site contamination by water transport. But he is not an engineer, and his knowledge of the site was less than complete. In cross-examination, it emerged that he knew only in general terms of the escape of contaminants from the site which I chronicled in my earlier judgment. Nor did he know about the existence in the former timber treatment plant of a drainage system running under the road along which contaminants certainly flowed to the creek below. Shown a document emanating from the Environment Protection Authority, he acknowledged that it appeared to involve a proposed removal and encapsulation of "hot spots" in addition to capping. He acknowledged that the risk to children playing in the creek from the migration of arsenic and PAH "would obviously have to be taken into account"; but he added that he had concluded the possibility of migration was very low, a comment to which, against the opinion of Dr Swane, I cannot attach much weight in view of the level of Dr Smith's knowledge of the site, his lack of engineering expertise and his ignorance of the migration that actually had occurred over a long period during the operation of the plant. He was also unaware of the demonstrated phytotoxicity affecting parts of the site, a matter plainly material to the question of ecosystem effects. Having regard to these matters and the nature of Dr Smith's qualifications and experience, it seems to me that I should look rather to the evidence of Dr Swane in determining what engineering remedies the Environment Protection Authority is likely to insist upon in respect of this land. Faced with the question "You have never been involved in any remediation work yourself, have you?" Dr Smith conceded, after some hesitation, "If you mean hands on remediation engineering, for example, yes, that is correct, I am a risk assessment adviser." As a risk assessment adviser, he was qualified to make the comment which he made about the sensitivity involved where there is a potential for contaminants to migrate into an ecosystem such as a river or a creek, but I did not find his evidence convincing when he spoke of the engineering remedies that might be applied.

Dr Swane considered that allowance would have to be made for "a very high risk of unknown very high levels of contamination being present at this site". That risk, he thought, had been created by the manner in which the contamination had occurred, by spills and dumping. The way dumping of pollutants at various spots was a regular feature of the operation of the timber impregnation plant is described in my earlier judgment.

Dr Swane also drew attention to the fact that the Environment Protection Authority, some years after the original investigation of the pollution at Martin Street, and quite recently, had reduced the acceptable levels for PAH by a substantial margin. He considered that the preferred approach would be "to remove ... localized areas of very high contamination that pose the greatest risk to long term environmental impact", even if otherwise the remedy of clay and soil capping were adopted. He thought too that migration of contaminants through ground water was a real problem, and that regard would have to be had to the drainage into Martin's gully and thence into the main stream of Armidale, Dumaresq Creek, "[b]ecause of the environmental and health sensitivity of the water [in the creek] into which surface or ground water that go[es] over this property" drains. In consequence of these considerations, he took the view that the remedy of capping would need to be supplemented by the use of vertical barriers to migration of pollutants off the site under the surface of the ground. Monitoring of the effectiveness of the measures taken would also be required.

Dr Swane originally estimated the cost of remediation at over $900,000-00, but in that estimate he was including some remediation of a part of East Martin Street. As I understood his evidence, his original high estimate was influenced by the residential zoning of the land, and looked to its residential use in the future. But all parties accepted at the hearing that this land will not, despite its zoning, be used for residential purposes. Its most likely use, as I have concluded, is open space or park land, or some sporting use. On that basis, Dr Swane accepted the alternative of clay and soil capping, provided the concentrations of pollutants were removed and vertical barriers were placed in position in the soil. His evidence was that such barriers are provided "in most capping systems that are installed at contaminated sites".

On this basis, Dr Swane estimated that the remediation of the applicant's seven lots at West Martin Street by the method of capping would cost in excess of $600,000-00. In assessing this figure, he relied on his experience of supervising other projects, including projects in the country. He had also had his office make specific enquiry into costs at Armidale.

For the Council, evidence was called from a contractor based in Armidale, Mr Michael Blanch, who estimated the cost of remediation of the seven lots by clay capping at $246,873-95. Mr Blanch is a director of the major general earth moving contractor in the Armidale area. But there are some problems with his estimate. In the first place, he made no allowance for supervision of the remediation work by an engineer experienced in site remediation. Dr Swane considered that necessary. Nor did Mr Blanch allow for the excavation of any concentrations of contaminants, or for disposal of the material containing them. In my opinion, on the evidence, it is probable that there are, at least, several much higher concentrations of contaminants localized in particular parts of the land. Mr Blanch suggested his contingency allowance would provide for this problem, but I do not think the proper function of a contingency allowance is to provide for problems that are known to be likely. Particularly in the light of Dr Swane's evidence, which I accept, that it is very difficult to know what might be encountered at this site, a contingency allowance should cover the genuinely unknown or unexpected.

To the extent that some removal of contaminated soil is likely to be necessary, Mr Blanch's estimate assumes that this will be readily received at the Council's tip. But the evidence leaves that position quite uncertain. It appears that the Council is currently seeking a new tip site, and whether it will in the foreseeable future have appropriate facilities to receive, and will be willing to receive, the contaminated soil the disposal of which is likely to be necessary, are matters that were left up in the air. No evidence from any responsible officer of the Council was given to clarify the cost of disposal.

Having regard to the evidence of Dr Swane, and bearing in mind the ecosystem sensitivity of a situation where polluted land drains towards a creek running into the main stream of Armidale, I accept that some form of vertical barrier would need to be added if a clay capping were provided to the land at West Martin Street. In addition, the areas where, during the operation of the plant, substantial dumping of contaminants occurred, or to which contaminants drained, would require special treatment involving removal of some significant quantity of contaminated soil. On the evidence, I think it is very probable that the Environment Protection Authority will require all of these measures to be taken, but that some way will be found to have the work carried out in conjunction with remedial measures in relation to the land now owned by the Commonwealth. It is necessary, however, to allow for the possibilities that, on the one hand, less stringent measures will be required, or on the other hand, higher costs than presently anticipated will be involved (it being accepted that the results of site testing so far have not conclusively defined the full extent of the environmental threat posed by it). Bearing all these matters in mind, I think the proper sum to allow in respect of this head of damage is $400,000-00.

The only order that I make at this stage is that the applicant bring in, on a date to be fixed, short minutes of orders in accordance with these reasons.