Thirty-Fourth Philgram Pty Ltd v The Crown (Brisbane Exposition and South Bank Redevelopment Authority)
[1993] QLC 11
•28 May 1993
|
LAND COURT
BRISBANE.
28th May, 1993.
Re: Claim for Compensation -
Acquisition of Land Act 1967
Thirty-Fourth Philgram Pty Ltd
v.
The Crown
(Brisbane Exposition and South Bank Redevelopment Authority)J U D G M E N T
This is a claim for compensation under the provisions of the Acquisition of Land Act, 1967. The Government Gazette of 19th May, 1984 contained a proclamation taking the land situated at 445 Stanley Street, South Brisbane, described as subdivision B of allotments 1 and 20 of section 29, County of Stanley, Parish of South Brisbane, containing an area of 911 square metres and being the whole of the land contained in Certificate of Title, volume 6516, folio 170. The Proclamation stated that the land was taken by the Brisbane Exposition and South Bank Redevelopment Authority for the presentation of Expo '88 and that the land vested in the Authority from 19th May, 1984. This then becomes the date as at which compensation is to be assessed.
The land is a rectangular inside allotment with a frontage of 20.117 metres to Stanley Street and a depth of 45.263 metres. Prior to the gazettal of the South Bank Development Control Plan on 5th November, 1983, it was zoned Commercial B under the City of Brisbane Town Plan 1978.
The Brisbane Exposition and South Bank Redevelopment Authority (the Authority) was established by the Expo '88 Act 1984, "to acquire, develop, improve and control the site for holding an international exposition at Brisbane in the year 1988 and to promote, operate and manage that exposition and to provide for the functions and powers of the Authority in connexion therewith and for related purposes." (Preamble to the Act). The Authority had power under section 19(b) to acquire such lands as it considered necessary within the Expo Site, which included the subject land.
The Authority ceased to exist under section 3(2) of the South Bank Corporation Act 1989 and section 3(8) of that Act provides that actions such as this claim for compensation may be carried on and prosecuted against the Crown. This is the last of the resumptions of land for the presentation of Expo to be resolved.
As from 19th May, 1984, the interest of the claimant company in the land was converted into a right to claim compensation under the provisions of the Acquisition of Land Act 1967. The proclamation followed a Notice of Intention to Resume dated 2nd March, 1984.
BACKGROUND
It is helpul to an understanding of the claimant's case if I briefly sketch the background to the matter. In mid 1981, Mr John McPhee, a Victorian licensed real estate agent and property developer, who is managing director of the claimant company, was asked by Directories (Aust) Pty Ltd, a national company which had the contract with Telecom for the advertising sections of the telephone book, to locate for it a Queensland headquarters. Mr McPhee spent some time in Brisbane assessing the possibilities, studying the town plan, zonings, allowable plot ratios, etc., and on returning to Melbourne, recommended to Directories a location at South Brisbane.
Towards the end of 1981, options were arranged over the lands comprised in an amalgamated site on the corner of Sidon Street and Grey Street, South Brisbane, which became known as the Yellow Pages site. The site was approved by Directories as suitable for its Queensland headquarters and a rental of $10.00 per square foot per annum was agreed in principle, with a car parking rental of $50.00 per undercover car space. Basic floor plans and layouts were also agreed at the time. On 5th February, 1982, Directories formally accepted the offer to lease space in a building to be erected on the site.
In February, 1982, Mr McPhee arranged for a family company to purchase the corner "key site" in the amalgamation of the proposed development. This 18 perch site effectively "locked in" the owners of the neighbouring allotments on either side to participation in the amalgamated site project. Accordingly, in April 1982, Mr McPhee arranged for contracts to be prepared which ultimately brought those sites into the project, making the Yellow Pages site an amalgamation of three sites having a total area of 1821 square metres and situated on the corner of Grey and Sidon Streets, South Brisbane.
At about this time Mr McPhee engaged the services of Mr Paul Rushworth of the real estate firm Baillieu Sharp Musgrave to analyse the development potential of the amalgamated site and also engaged architects Douglas Daly Bottger to obtain town planning approval for a building to be erected on the site.
One of the parcels of land in the Yellow Pages site was an allotment with an area of 36 perches (911 m2) fronting Sidon Street and owned by Ram Properties Pty Ltd. Ram Properties was also willing to sell another 36 perch property fronting Stanley Street (the subject land) provided it received $850,000 for the two parcels. Mr McPhee realised that if he could acquire this Stanley Street site it would be possible to duplicate the proposed Yellow Pages building fronting Stanley Street, provided he could also acquire the then almost derelict Ship Inn Hotel site on the corner of Sidon and Stanley Streets. However, negotiations for the Ship Inn site were unsuccessful and Mr McPhee decided to purchase the subject land and construct a smaller office building on it. He said that it was his intention to complete the building and hold it as an investment.
Approval was obtained on 24th June, 1982, from the Brisbane City Council for construction of a building on the amalgamated Yellow Pages site. Then on 13th August, 1982, the intended builders, Carnegie Hicks Constructions Pty Ltd, provided Mr McPhee with an estimate for the cost of construction of the Yellow Pages building.
Meanwhile, Mr McPhee negotiated to sell the Yellow Pages Project to Folkestone Australia Limited for $1,250,000 on 29th October 1982. As I understand his evidence the transaction occurred as follows:
-Sidon Properties Pty Ltd (Mr McPhee's company) sold the "key site" it had acquired, for $445,000;
-The contract with Cecilia McCarthy (18 perches fronting Grey Street) arranged in April was executed, transferring the land directly to Folkestone for $180,000;
-The contract with Ram Properties also arranged in April was executed selling the 36 perches of land fronting Sidon Street to Folkestone for $625,000.
-The contract with Ram Properties also arranged in April was executed transferring the 36 perches of land fronting Stanley Street (the subject land) to Thirty-Fourth Philgram Pty Ltd (the claimant) for $225,000.
Mr McPhee explained that he was able to make these transactions eventuate at the prices set out above because of the arrangements he had with Folkestone, with Ram Properties and with Cecilia McCarthy. The arrangement with Folkestone was to provide it with the Yellow Pages site with approvals and pre-leasing to Directories, for $1,250,000. The arrangement with Ram Properties was to obtain a price of $850,000 for the two 36 perch sites. In each case Mr McPhee retained control of how these monies were to be apportioned between the individual parcels of land. The McCarthy land was transferred directly to Folkestone.
These arrangements enabled Mr McPhee to:-arrange for Sidon Properties to sell its land for $445,000 to Folkestone;
-arrange for the purchase of the subject land by the claimant company for $225,000;
-deliver the Yellow Pages site to Folkestone at the agreed price;
-deliver the agreed sum to Ram Properties for its two parcels of land.
The next day, 30th October, 1982, Mr McPhee, on behalf of the claimant company, signed an application to the Brisbane City Council seeking approval for the development of the subject land with an office building of three lower car parking levels and four above ground levels of office space.
On 20th December, 1982, Folkestone on-sold the Yellow Pages site to Hooker Property Trust for $1,250,000, as part of the price paid under a development agreement with Folkestone for $6,219,000, which included the land, building contract and acquisition costs. The project proceeded and in January 1984, Carnegie Hicks completed construction of the Yellow Pages building. In May 1984 the Authority negotiated its purchase for $7.9 million for use as Expo Headquarters.
I have set out in some detail the background to the Yellow Pages project as it figures prominantly in the evidence submitted. It is appropriate that I state here that the transactions involved in the amalgamation of the Yellow Pages site are of no assistance to me as a basis for the valuation of the subject land.
The Planned Development of the Subject Land
On 17th March, 1983, development approval was obtained from the Brisbane City Council and thereafter a bill of quantities was taken out for the proposed building and working drawings commenced so that building approval could be obtained and a building contract executed. On 25th March, 1983, Carnegie Hicks submitted a quotation of $1,617,000 for construction of the building. In subsequent negotiations it was agreed that the price would be fixed and, provided that the contract proceeded promptly, there would be no rise and fall as provided for in the standard contract. On 31st March, 1983 the claimant accepted the Carnegie Hicks quotation and that firm was requested to complete working drawings.
Mr McPhee said that he felt confident that this area of South Brisbane would attract development and that many large companies would relocate to the city fringe areas, not only for cheaper rentals but also for better and easier car parking. In his written statement Mr McPhee said that but for the intervention of Expo, the South Bank area and in particular Grey Street and Stanley Street would have become the St. Kilda Road of Brisbane. However, by default, Coronation Drive, an inferior location in his opinion, has taken up the development.
On 31st May, 1983 it was announced that the Government intended to acquire land on the south bank for a World Expo. Mr McPhee instructed Carnegie Hicks to stop work on the drawings until the future of the area was clarified. Mr McPhee said that despite his best efforts it was not until August 1983 that he was informed that legislation was being drafted to establish a South Bank Authority which would negotiate land acquisitions. On 5th January, 1984 he was informed that the legislation was passed and inspections and valuations were taking place.
Notice of Intention to resume issued on 2nd March, 1984 and the land was resumed on 19th May 1984. During the period from 31st May 1983, when he first heard of the freezing of the Expo land, until 19th May 1984, when it was resumed, Mr McPhee said the claimant company was unable to do anything with the land.
A claim for compensation for $2.4 million was lodged on 14th December, 1984. On 21st December, 1984 a first advance of $405,742 was paid and on 31st January, 1991 a second advance of $394,258.42 brought the total advance paid to the claimant at the date hearing to $800,000.42.
Mr McPhee said that he had instructed Carnegie Hicks to produce a building of 22,000 square feet (2043 square metres) of lettable space. However, about two weeks before the hearing he was informed that the plans submitted with the development application, and which were approved by the Council, showed a net lettable area of only 1960 square metres. Mr McPhee discussed this with Mr Carnegie, the intended builder, and sought advice from Mr Barry Alexander, a town planner, who suggested that this deficiency in area could be overcome by making alterations to the plans to provide for additional space on each floor and to relocate the plant room in the proposed building from the basement car park to the roof, thus generating an additional three car parking spaces. Mr Alexander said that in his opinion there would be no problem with the Brisbane City Council in altering the plans to gain the additional space, even though the gross floor area would slightly exceed the allowable plot ratio of 1:2.5.
THE CLAIM FOR COMPENSATION
The original claim for compensation dated 14th December, 1984 for $2,400,000 was made up of -
Land$2,000,000
Disturbance$ 400,000
During the hearing leave was granted for the claimant to amend the claim to $1,237,982. At the closing stages of the hearing the claimant sought leave to again amend the claim to $1,220,250. Leave was granted subject to the respondent being given the right to argue this issue in relation to the award of costs should that arise.
The amended claim is as follows -1. Land $1,150,000
2. Disturbance
(a) Legal and valuation fees in preparation
of claim(i) Legal Fees $ 5,657
(ii) Valuation Fees $ 3,000
(b) Expenses of Dispossessed owner in organising
claim(i) Airfares and accommodation for Mr
McPhee in organising claim $ 3,200
(c) Legal Fees, stamp duty and owner's expenses
in purchasing a replacement property(i) Legal Fees $ 5,403
(ii) Stamp Duty $ 40,350
(iii) Owner's expenses $ 10,000
(iv) Mortgagee costs $ 2,640
TOTAL CLAIM $1,220,250
COURT DETERMINATIONS AND SETTLEMENTS ON THE EXPO SITE
Prior to this hearing three landowners whose land was resumed for Expo had compensation determined by the Court. The first of these, Merivale Motel Investments Pty Ltd v. Brisbane Exposition and South Bank Redevelopment Authority (1984-85) 10 Q.L.C.R. 175 (Land Court); 10 Q.L.C.R. 268 (Land Appeal Court); and (1991) 1 Qd.R.1 (Full Court of the Supreme Court), involved three parcels of land with a combined area of 1365 square metres, situated at 224-228 Grey Street, South Brisbane, in close proximity to the subject land. Council consent had been obtained to a development application to erect a mixed complex comprising a motel, shops, gymnasium, restaurant and public dining room, subject to certain conditions. Plans were prepared for submission to the Council to obtain the necessary building approvals, however no further action was taken because of the passing of the Expo Act 1984.
At first instance before the learned Member (now President) of the Land Court, the valuer for Merivale contended for an amount of $2,322,000 as the value of the land assessed in accordance with the plans already approved and which involved, together with other calculations, capitalisation of net profits from the proposed motel.
The valuer for the Authority concluded that the development as approved was not viable, as the total development costs far exceeded the value of the project on completion. He therefore undertook a valuation based on redevelopment of the site for an office complex. This valuation involved the capitalisation of the estimated future net income to ascertain the capital value, deducting from that figure the cost of all the works and the expenses necessary to develop the site, making allowance for the developer's profit and risk.
Mr Barry rejected the method of valuation adopted by the claimant's valuer as he found that it conflicted with the judgement of the Privy Council in Pastoral Finance Association Ltd v. The Minister (1914) A.C.1083. He was also critical of the method adopted by the valuer for the Authority, saying at page 192:
"This method, in which a number of different factors are employed, is dependent on the judgment of the individual valuer and can involve a wide margin of error. I am told in evidence that this is a method adopted by developers when they are considering the purchase of redevelopment sites. Courts have generally avoided the use of this method of valuation if some simpler method is available. The method has many uncertain elements and changes in any of the variables will bring a startling difference in the answer.
The direct comparison with comparable sales is still the best method of arriving at the value of land and the residual analysis method can best be seen as a check on the value determined by such direct comparison. It is evident that no developer would pay for a parcel of land a rate per square metre derived from his hypothetical exercise if he is aware of comparable parcels selling for a much lower figure."
In addition to his primary method of valuation, the claimant's valuer had also carried out a valuation based on a notional development of the site for an office complex. This was a similar method to that used by the Authority's valuer, but its component parts varied considerably.
Therefore, despite his concern about the method of valuation, as neither valuer had regard to direct comparison with comparable sales, Mr Barry said that in the circumstances he had no alternative but to follow the valuers.
At page 198, after discussing the problems of arriving at an appropriate rental, Mr Barry comments -
"This highlights once more the problems facing a valuer when he must rely on his expertise to decide on any of the variables in such exercises. It highlights the desirability of direct comparison with comparable sales as the best method of arriving at a value of a parcel of land".
Later on the same page he said -
"I am left in the unhappy position where neither valuer offers a direct comparison block to block with other lands in the vicinity and really only have the hypothetical exercise which both valuers agree is a method adopted by developers looking at land for redevelopment."
In the event Mr Barry made what he considered to be appropriate adjustments to the valuation exercise of the valuer for the Authority and determined the value of the land at $682,545, or $500 per square metre.
On appeal, the Land Appeal Court agreed with the finding by the Land Court that office development represents the highest and best use of the resumed land, but made adjustments on the basis of a more appropriate exercise undertaken by the Authority's valuer for the purpose of the appeal. However, in relation to the method of valuation, the Land Appeal Court said at page 270 -
"In no small measure the length of the record may be attributed to the reliance by the valuers on the residual valuation method involving the notional development of the subject site with an office building. The "construction" of the "building" necessitated each sides' calling appropriate experts - architects, quantity surveyors, geotechnical engineers and valuers. Expert disagreed with expert - sometimes in minor particulars of design and cost structure. Question and counter-question were put - often repetitively - in minute detail and claim and counter-claim meticulously explored."
At page 281 the Land Appeal Court continued -
"Residual value (notional development) exercises of the type undertaken by the valuers in this case are well recognised as being fraught with difficulty. The end result (land value) is subject to wide variation depending upon the accuracy of the statistics provided."
The Court went on to quote from Fricke on "Compulsory Acquisition of Land in Australia" (2nd edition) at pp.350-51, where the learned author discussed the residual analysis method of valuation, quoting the following passage from his concluding discussion, which the Court said epitomised its concern:-
"Used with care, the residual method provides a guide to value but the many variables involved in the process throw doubt on its reliability for Court hearings. In the words of R.C. Walmsley, Member of the (English) Lands Tribunal in Clinker and Ash Ltd v. Southern Gas Board (1967) 203 E.G. 735 - 'Each (valuer) produced a valuation and both valuations were prepared on the residual method. Now the Tribunal has frequently rejected such valuations as having too many uncertain elements, and has almost invariably done so when some simpler method such as the use of comparables is available.' Although the residual method depends heavily on assumptions and estimates, it is commonly used for valuation of development sites, and also serves as a check on value determined by direct comparison."
The Land Appeal Court continued at page 281:
"No doubt the method is used in feasibility studies by real estate consultants, developers and others as a means of determining the amount at which a property may be economically purchased for a particular venture. The difficulties from an evidentiary point of view of establishing in judicial proceedings the correctness of each step are obvious. The desirability of testing the residual value against comparable sale data achieved in the market place is likewise obvious. In the absence of such test there can be no certainty that the residual value approximates market value. The forces in the market place, the effect of peculiarities inherent in a particular site may or may not be adequately reflected in the residual feasibility exercise."
At page 282, the Land Appeal Court expresses regret that the valuers did not make more use of the available sales evidence, stating that the members of the Court found themselves in the same position as the Court below, where the strongest evidence emanates from the residual value exercises undertaken by both valuers. However, it seems the Court had grave reservations, as these exercises "... amply and effectively demonstrate the variety of answers as to the value of the subject land that varying data can generate under that method. The answer emerges as a matter of mathematical progression."
In determining compensation the Land Appeal Court applied the test of special value to the owner adopted by the Privy Council in Pastoral Finance Association Limited v. The Minister. It found that a hypothetical purchaser of the land "standing in the shoes of the claimant" would be prepared to pay $760,000, or $555 per square metre, rather than fail to obtain it, on the basis of its highest and best use for office development. The Court pointed out that this value was reasonably consistent with the weight of sales evidence.
An appeal to the Full Court of the Supreme Court on the ground that the Land Appeal Court had erred in law in not having regard to an analysis of the settlement of the Yellow Pages land, was dismissed. It did not deal with the method of valuation.
The other two cases which proceeded to Court were heard together as they concerned two adjoining allotments situated at 277 and 279 Grey Street, which had areas of 744 m2 and 708 m2 respectively. In his judgement in this case, Neray Holdings Pty Ltd and Norman Bruce Blocksidge and Robert Malcolm Badgery v. Brisbane Exposition and South Bank Redevelopment Authority, delivered on 13th May, 1988, (not reported) the learned President of the Land Court, Mr W.F.G. Smith, was concerned with whether compensation should be assessed in respect of each parcel individually, or as a combined parcel with the resulting value apportioned. In finding that the latter approach should be adopted because of the relationship of some of the claimants and the circumstances involved, Mr Smith also faced the problem of the method of valuation to be applied.
After the judgement of the Full Court in the Merivale Case, Mr Smith ordered the Neray/Blockside & Badgery case to be reopened, as he considered that if any of the Land Appeal Court's findings were relevant to the case before him, he must apply them. His expectation was that the parties would place valuations before him based on a direct comparison with the Merivale determination. However, instead, as he comments at page 10 of his judgement:-
"My hopes that I would thus obtain direct evidence of comparison on a block to block (raw land to raw land) basis - $555/m2 to x/m2 - proved vain. In lieu, both valuers submitted reworked and revamped notional development exercises purporting to adopt the views of the Land Appeal Court as to the rent/m2, capitalisation rate, risk of realisation rate, % contingency allowance, selling charges on completed building, etc."
At page 11, he comments that he thus had before him a multiplicity of values dependent on the particular philosophy of the notional development method involving different designs of buildings, capitalisation rates, tenants, plot ratios, site coverage, etc. in a confusion of excessive detail, repetitious evidence and too many and too varied estimates of value. He said:
"Once a valuer becomes locked into a particular philosophy of notional development the end result appears to be inevitably controlled by mathematical progression rather then the exercise of his professional expertise, discretion and ability. The notional development method of valuation may be of great assistance to investors and developers in planning developments by indicating a level of anticipated expenditure and achievable profits but as a vehicle of proof in legal proceedings concerning the value of land it is, in my opinion, subjective rather than objective.... The method can be useful in ascertaining a final figure representing the maximum amount that may be paid for the land content of a project given an achievable rent/m2, an appropriate capitalisation rate, an appropriate or maximum building cost and holding etc. charges. However, the end result, the so called land value, may vary according to the philosophy of the development and the level of expenditure. The result may equally relate to a hypothetical parcel of land as to an actual and particular parcel. It represents the maximum amount which the preceding computations indicate may be expended on the land content of a project. This end figure cannot really be said to be market value until the figure is tested by comparison with sales that have occurred in the market place. There is little flexibility in the system enabling the special advantages or disadvantages of a particular parcel of land, such as, its locality, situation, access, etc. to be reflected in the final figure.
The Land Appeal Court in the Merivale case was adversely critical of the notional development method vide pp.281/2."
Mr Smith then went on to say that while he could not entirely ignore the evidence of the valuations placed before him, he considered the Land Appeal Court's determination in Merivale at $555 per square metre, the sales referred to in that judgement for support and the evidence of the valuers during the reconvened sittings to be the most cogent evidence of comparative value.
Again, in looking at the value of the two parcels of land as a combined site, Mr Smith said at page 22 of his judgement that a most authoritive guide to value is to be found in the Land Appeal Court's determination of the Merivale land at $555 per square metre.
After discussing the evidence of the valuers, Mr Smith said at page 31 that after making certain adjustments he found the notional development exercise of the valuer for the Authority to constitute the most reliable relativity between the parcels. He went on:
"However, in view of the doubts I hold as to the capacity of the notional development method to achieve a finely tuned relativity and as this case involves a compensation matter where the principle of resolving doubts in the claimant's favour applies, I find myself hesitant to accept that the relativity so established, sufficiently or appropriately reflects a true comparison with the Merivale parcel."
At page 32, Mr Smith made comparisons by placing himself in the position of a hypothetical prudent purchaser with full knowledge of the facts, and found that in comparison with the Merivale judgement, $590 per square metre was fair and reasonable for the combined parcels, saying -
"This figure in my view, is consistent with the sales mentioned in the Merivale judgment as being consistent with the figure or rate adopted by that Court for the Merivale parcel."
An appeal to the Land Appeal Court by the Authority against the determination of the Land Court in the Neray case, with cross appeals against the determinations in both cases by the claimants, on the basis that the Land Court had erred in the method of valuing the two parcels as a single site and in relation to other matters peculiar to the two sites, were allowed only in respect of a discount of 10% which had been applied by Mr Smith for the element of uncertainty in achieving a joint development.
However, in respect of Mr Smith's use of the Merivale determination, the Land Appeal Court said at page 4 of its judgment delivered on 26th April, 1989 (not reported):
"We might comment here, in the sense of endorsement, that we agree with the remark of the learned President that it would be perverse if compensation for the subject parcels did not take into consideration the determination of the Land Appeal Court of compensation ($555 per square metre) for what is known as the Merivale lands on the basis of their highest and best use being for commercial office development..."
Again at page 7 the Court said -
"We are also convinced that the best basis for the assessment of compensation is the determination of compensation by this Court for the Merivale land..."
The Court found no fault with the determination of $590 per square metre for the sites when looked at in the light of the Merivale judgment for the reasons outlined by the President. This, to my mind, would include his criticisms of the notional development method of valuation.
Appeals to the Full Court were dismissed, leaving the reasoning of Mr Smith, as endorsed by the Land Appeal Court, intact.
I have analysed the judgments in the Merivale and Neray/Blocksidge and Badgery cases in some detail to demonstrate the attitude of the Land Court and the Land Appeal Court to the notional development method of valuation. On the authority of those cases I consider that the hypothetical or notional development method of valuation (sometimes referred to as the residual value method) is inappropriate as a primary method of valuation, although it may be useful as a check upon the valuation ascertained by a direct comparison with sales and/or, in appropriate circumstances, previous determinations by the Courts. It is essentially a method used by property developers to enable them to ascertain the highest price they can pay for a parcel of land in a development project, having regard to the circumstances of that project. Those circumstances, however, are too diverse and subjective to accurately reflect the market value of land.
Components in the process, such as capitalisation rates, profit and risk factors, comparable rentals for developments not yet built, construction and other development costs for projects not yet approved, plot ratios, interest rates, holding and letting up periods and so forth, must be taken account of by the prudent developer. However, when these are introduced into a valuation exercise, uncertainty is added to uncertainty, small errors or miscalculations are carried through and magnified in a mathematical progression, which leaves the resulting land "value", or "residue", as a figure in which one could have little confidence. The whole process is inwardly focused and may bear little relation to an objective assessment of what similar lands are selling for in the market place. Market value is best assessed by reference to sales of comparable land.
MR. BRETT'S VALUATION
After the criticism of the notional development method by the Land Court and the Land Appeal Court, it is surprising in the instant case to find Mr Brett, valuer for the claimant, relying entirely on this method of valuation. Mr Brett says that, in his opinion, there were no comparable sales upon which he could rely. He did not consider that the Court determinations in the Merivale and Neray/Blocksidge and Badgery cases could be applied in this case, as they were decided on their own facts and circumstances, which differ from those of the subject land.
Mr Brett rejects the term "hypothetical development" being applied to his valuation. He said that there was nothing hypothetical in the exercise that he has undertaken, as the claimant had development approval from the Brisbane City Council, had a building designed, plans drawn and a firm quote from the builder who built the Yellow Pages building on the adjoining land. In such circumstances he sees the notional development exercise as providing a better objective assessment of the value of the land than any comparisons with the sales that are available, comparisons which he sees as involving too many subjective judgements on the part of the valuer.
I do not accept Mr Brett's reasoning. I think that his exercise can rightly be described as a "hypothetical development". At every step of the process he is making assumptions about things that have not happened and will not happen. At each step he is faced with a choice as to rentals, capitalisation rates, profit and risk allowances, interest rates, and so on. On each occasion he makes what are essentially subjective judgments.
Although Mr Brett rejects the use of the Court determinations in the cases abovementioned, he does adopt or adapt elements of the judgements. For example, in both his capitalisation rate and his profit and risk percentage he draws support from the decision in Merivale.
In my view, this notional development exercise does not lead to an assessment of the market value of the subject land, or to its value to the owner, as defined in Pastoral Finance Association Limited v. The Minister. It is directed to finding the highest price that the claimant could pay for the land in order to make its project viable. This, is not related to the value of the land for compensation purposes. It is an extension of the feasibility studies carried out by Mr McPhee, first to convince lending authorities that the project was sound (Exhibit 14) and secondly in his attempt to persuade Lensworth Finance to enter a form of partnership arrangement (Exhibit 46).
Mr Brett submitted two valuations, one dated 20th July, 1992, and the other dated 7th September, 1992. The later valuation was varied somewhat from the earlier one on the basis of information which became available to Mr Brett just before the hearing. His notional development exercises consist basically of capitalisation of anticipated rental income for the proposed building, less the various costs that would have been incurred in developing the site. Mr Brett's second valuation proceeds as follows:
"Value on Completion -
Net Income -
2044 m2 @ $130 per m2 $ 265,720
48 cars @ $60 p.c.m. $ 34,560
Signage @ $10,000 p.a. $ 10,000
$ 310,280
Capitalise at 8.25% $3,760,970
Less -
Vacancy during let up - 2.5 month's gross rent $ 75,288
$3,685,682
In practical terms -
Value on completion $3,685,000
Less -
Commission on sale $46,287
Conveyancing on sale $ 6,800 $ 53,087
Nett Proceeds from Sale $3,631,913
Less -
Risk & Profit @ 15% $ 473,728
$3,158,185
Less -
Construction costs$1,690,728
Rates & Taxes$ 10,000
Interest on costs$ 86,100
Promotion$ 15,000
Leasing Commission$ 24,822
$1,826,650
Interest on land$ 134,700 $1,961,350
Land Value (including acquisition costs):- $1,196,835
Less - Acquisition costs
Conveyancing$ 5,500
Stamp duty$ 40,500 $ 46,000
Land Value $1,150,835
In practical terms $1,150,000"
MR COONAN'S VALUATION
Mr Coonan, the valuer for the Authority, has arrived at a valuation of $615,000 on the basis of direct comparison with the Land Appeal Court determinations in the Merivale and Neray/Blocksidge & Badgery cases and the sales of land zoned Commercial B in Fish Lane, at 71-73 Grey Street and at 7-9 Stanley Street. He also had regard to settlements reached in respect of land held by the ANZ Bank, Listo and Redgrave.
In addition, Mr Coonan undertook what he called a "Check Feasibility Analysis", the purpose of which was to check upon the conclusion arrived at by means of direct comparison. In undertaking this feasibility analysis, Mr Coonan said that he started with the findings of the Courts in the cases mentioned above in respect of the various inputs of the notional development exercise and made adjustments to reflect the subject land's more advanced progress towards development.
Mr Coonan's feasibility analysis proceeds as follows:
"Net Income -
1960 m2 @ $127.50/m2 $ 249,900
45 cars @ $60 p.c.m. $ 32,400
TOTAL: $ 282,300
Capitalise at 8.75%
$282,300 X 100
8.75$3,226,286
Market Value say $3,226,000
Net Proceeds
Deduct
Commission on sale$ 80,000
Legals on sale$ 5,000 $ 85,000
Net Realisation: $3,141,000
Profit and Risk
Allow 15% on Realisation
$3,141,000 X 15
$ 409,696
$2,731,304
Letting Period
Assume project is 25% let at completion
with the balance progressively let over a
six month period, i.e. three months gross
rental loss on 75% of building -
Gross Rental $331,300 $ 62,119
Project Cost: $2,669,185
Development Costs
Construction
As per estimate prepared by
Rider Hunt Brisbane Pty Ltd$1,738,000
Professional Fees
6% on construction$104,280
LESS fee paid$ 29,000$ 75,280
Rates and Land Tax$ 5,000
Interest on Construction
$1,738,000 X 45% x 8months X 16%$ 83,424
Interest on Fees
$75,280 X 50% x 9months x 16%$ 4,517
Interest on Rates & Land Tax
$5,000 X 50% x 9months x 16%$ 300
Contingencies
3% on construction cost$ 52,140
Promotion and Marketing
Allow for brochures etc.$ 15,000
Commission on Leasing
8% of Net Annual Rent of $282,300$ 22,584 $1,996,245
$ 672,940
Land
Deduct
Interest at 16% for 9 months
$672,940 X 12
$ 72,101
$ 600,839
Purchase Costs
Legals
Stamp Dutyallow 4% $ 24,034
$ 576,805
LAND VALUE say $ 577,000
or $633/m2"
In my opinion, all the criticisms by the previous Courts, of the notional development method of valuation have proved to be well founded when two competent and experienced valuers can arrive at such startlingly different results. A great deal of the hearing was taken up with exploring the reason for such differences. Again, as in the earlier cases, expert challenged expert, detailed and lengthy evidence was given not only by the two valuers, but also by other witnesses who were expert in their particular fields. Most of this was directed to proving the component parts of one or other of the notional development exercises.
I have come to the conclusion that I can place no reliance on any result produced from the notional development method of valuation. I can therefore sympathise with the positions in which Mr Barry and Mr Smith found themselves in the Merivale and Neray/Blocksidge & Badgery cases when they had no evidence before them other then that based on notional development exercises. However, the Land Appeal Court has found that the valuations so determined were supported by the sales that are available and, to a lesser extent, by the settlements. In this case I am fortunate that Mr Coonan has used as his primary method of valuation direct comparison with the Court determinations and the sales.
Counsel for the claimant argued in support of Mr Brett's method of valuation that the determination in Merivale was arrived at by the notional development method and the result in Neray/Blocksidge & Badgery by a comparison with the Merivale figure. It was submitted that compensation in both cases arose from the notional development method.
I am not persuaded by this argument and prefer the method of direct comparison with the Court determinations and sales adopted by Mr Coonan for the following reasons: First, the Court in Neray/Blocksidge & Badgery derived the compensation principally by direct comparison with that determined in Merivale; Second, the Land Appeal Court in Merivale considered the sales used by Mr Coonan, or at least two of them, to be comparable to the lands being determined, and the Land Appeal Court in Neray/Blocksidge & Badgery, stated that the best basis for the assessment of compensation was the determination in Merivale; Third, the criticisms of the notional development method and the findings by the Courts that such method should not be resorted to when an alternative, more acceptable method, is available.
Having arrived at this conclusion, it is not necessary to review the evidence directed towards proving the respective notional development exercises. I will, however, discuss the claim that the proposed building on the subject land could gain additional income from selling advertising rights to the roof of the building.
Evidence was given by Mr George Savage, an expert in outdoor advertising signs, that because of its prominence and exposure to the traffic using the Captain Cook Bridge, the roof of the proposed building on the subject land could have been leased out for a large advertising sign. Mr Savage said that in 1984 he could have leased the area for $10,000 to $15,000 per annum. This is the reason that Mr Brett included the amount of $10,000 per annum for signage.
During Mr Savage's evidence, reference was made to the revolving Expo sign that was attached to the roof of the Yellow Pages building when it became Expo House after acquisition by the Authority. This sign has since been supplanted by the South Bank sign with its accompanying Coca Cola advertisement. However, the Expo sign was unique and no other evidence was produced of signs on top of buildings, apart from those associated with the head tenants of buildings to which they have obtained naming rights. It is therefore more likely than not that the proposed building on the subject land would have attracted a head tenant which would have naming rights. It would be quite incompatible with naming rights for some product unrelated to the head tenant to be advertised on the roof of the same building. I do not accept that the claimant could have gained additional income from this source.
Direct Comparison Method
Mr Coonan comments that his valuation of the subject land by direct comparison provides the most conclusive evidence. As his check feasibility analysis reveals a lower level of value, he considers that the higher value should be adopted because it is the more reliably based. I agree with this reasoning.
In comparing the subject land with the Land Appeal Court determinations in the Merivale and Neray/Blocksidge & Badgery cases, Mr Coonan says that he regards the subject land as comparable with both properties, notwithstanding that they are larger and more regularly shaped, as they are zoned Commercial B and capable of somewhat similar commercial office development. However, he considers that it is superior to the Merivale site, as it has superior river and city views and is better located near the river frontage. He also indicates that the Merivale site requires substantial shoring before development can take place, while the subject land does not appear to suffer any special site problems.
The Neray/Blocksidge & Badgery site is more elevated than the subject site so that the views from the upper floors of any building constructed on the land would be unobstructed. However, Mr Coonan considers that the subject land has superior location being situated closer to the river front, with views across the council park to the city.
Mr Coonan also had regard to three sales of land zoned Commercial B, situated at the other end of the Expo site, near the Cultural Centre. While conceding that each of these sales is inferior to the subject land, they are not so inferior as to be not comparable. They have the advantage of being situated in a small commercial precinct closer to the centre of the city than the subject land, although this area was subject to flooding in 1974.
The first of those sales is situated at 71-73 Grey Street and has an area of 811 square metres. It sold on 7th August 1983 for $308,000, or $380 per square metre. It is a near level allotment with virtually no views as it is situated behind the Cultural Centre. It had development approval for commercial office redevelopment, with a plot ratio of 1 to 2.5.
The second sale is situated at the corner of Fish Lane and Grey Street and has an area of 1,050 square metres. It sold on 23rd July, 1984 for $560,000, or $533 per square metre. It is also a near level site which Mr Coonan states may have foundation problems. Being situated on a corner it has good exposure but has only limited city and river views.
The third sale is situated at 7-9 Stanley Street, with an area of 911 square metres. It sold on 17th September, 1984 for $575,000, or $631 per square metre, with development approval for commercial office development with a plot ratio of 1 to 2.5. It has good city and river views, offset to some extent by the inferior environment. It also suffers from foundation problems which require piling.
Mr Coonan explained that he placed greatest weight on the two Court determinations as they are the most comparable to the subject land. He also relied on the sales, but they are not as comparable and further away. However, they are the best evidence of the market. He goes on to explain how he placed less reliance on the negotiated settlements of properties owned by the ANZ Bank, Listo and Redgrave. He feels that he would have arrived at the same conclusion without them. In the circumstances I can see no point in discussing these settlements.
Therefore, by comparison with the three sales, but principally by comparison with the Land Appeal Court's determinations of $555 per square metre for Merivale and $590 per square metre for Neray/Blocksidge & Badgery, Mr Coonan arrived at a valuation for the subject land of $675 per square metre, or $615,000.
In the course of his evidence Mr Coonan was asked to make comparisons with the Yellow Pages site and building, and whether or not the subject land and proposed building were superior or inferior. I did not find these comparisons helpful, particularly in view of my rejection of the hypothetical development method of valuation. However, I accept that the subject land is superior in terms of its views across the river to the city, which cannot be built out.
Mr Brett emphasised the enhancing effect of these views, but under cross-examination admitted that at the date of resumption they were somewhat adversely affected by the presence of the rather unsightly Moreton Tug and Barge establishment and the old buildings associated with the Maritime Museum. There was also doubt as to the extent of the views from the proposed building because of its narrow frontage, the set-back requirements and the possibility of the future development on the site to the north-west obscuring views from much of that side.
However, both valuers agreed that the site is superior to any of the determinations or sales and on the whole of the evidence I am satisfied that a prudent purchaser would pay more per square metre for the subject land than for either the Merivale or the Neray/Blocksidge & Badgery sites. I also have regard to the more advanced progress towards development of the subject land which required only building approval to commence. This contrasts with the two determinations, as the development approved for the Merivale site has been found to be not viable and redevelopment of the Neray and Blocksidge & Badgery sites was not planned for the immediate future, with major development as envisaged by Mr Blocksidge perhaps 5 to 10 years away. I accept Mr McPhee's evidence that had it not been for Expo, the building approved by the Council, or one very like it, of the same standard of construction as the Yellow Pages building, would have been constructed by mid 1984.
Market Value and Special Value to the Owner
In delivering his judgement in the Merivale case, Mr Barry considered in some detail the landmark decision of the Privy Council in Pastoral Finance Association Ltd v. The Minister. He pointed out at page 186 of 10 Q.L.C.R., that it is settled that the dispossessed owner is entitled to receive the market value of the resumed land or its value to the owner, whichever is the greater. At page 188 he quoted from the Privy Council judgement the test of special value:
"Probably the most practical form in which the matter can be put is that he was entitled to that which a prudent man in his position would have been willing to give for the land sooner than fail to obtain it." (Per Lord Moulton at page 1088)
The statutory requirements for the assessment of compensation in the present case are contained in section 20 of the Acquisition of Land Act 1967, which states :
"(1)In assessing the compensation to be paid, regard shall in every case be had not only to the value of the land taken but also to the damage, if any, caused by either or both of the following, namely -
(a) the severing of the land taken from other land of the claimant;
(b) the exercise of any statutory powers by the constructing authority otherwise injuriously affecting such other land.
(2)Compensation shall be assessed according to the value of the estate or interest of the claimant in the land taken on the date when it was taken."
The other subsection is not relevant here.
The quoted section makes it clear that compensation must be assessed according to the value of the estate or interest of the claimant in the land taken at the date of resumption. However, the value of that estate or interest must be given the extended meaning of special value to the owner as defined in the Pastoral Finance Case.
In Arkaba Holdings Ltd v. Commissioner of Highways (1969) 19 L.G.R.A. 398 at 404, Bray C.J. of the South Australian Supreme Court said:
"It is, of course, well established that it is the value to the owner which must be paid, even if that value exceeds the market value (Pastoral Finance Association Ltd v. The Minister [1914] A.C. 1083; Minister for Public Works v. Thistlethwayte [1954] A.C. 475). The additional element is commonly called 'special value to the owner', e.g. Thistlethwayte's case [1954] A.C., at p.491. But this special value must, in my view, arise from some attribute of the land, some use made or to be made of it or advantage derived or to be derived from it, which is peculiar to the claimant and would not exist in the case of the abstract hypothetical purchaser. Would a prudent man in the position of the claimant have been willing to give more for this land than the market value rather than fail to obtain it or to regain it if he had been momentarily deprived of it? (Pastoral Finance case at p. 1087; per Kitto J. in Turner v. Minister of Public Instruction (1956) 95 C.L.R. 245 at p.292.)"
In Commissioner of Highways v. Tynan (1982) 53 L.G.R.A. 1, Wells J. of the Supreme Court of South Australia considered the principles to be applied in order to determine special value and whether they were essentially different from those used to determine market value. At page 9 he said:
"It seems to me that the principles to be applied where special value is in issue are virtually the same as those laid down in Spencer's case, though extended and qualified slightly, to accord with the changed inquiry. What the court is being asked to determine is the price at which a person in exactly the same position as the claimant would "come together" with a hypothetical person on the point of dispossessing him, in circumstances in which the claimant would, in order to retain the land under threat, pay a sum representing the market value of the land, together with the value of all its special advantages to him, but would not, in addition to the market value, pay more than the provable commercial value to him of those special advantages."
After considering what is expected of a valuer in such circumstances, His Honour continued at page 10:
"As in the case of simple market value, so in the case of special value to the claimant, the court, in the final analysis, must, by its own judicial act, founded on all relevant information placed before it, apply the principles enunciated in Spencer's case, but qualified by the need to render them applicable to questions of special value."
In Yates Property Corporation Pty Ltd v. Darling Harbour Authority (1991) 73 L.G.R.A. 47 at 52, Kirby P. of the New South Wales Court of Appeal said:
"However, within the authorities which elaborate the statutory entitlement to compensation applicable in this case, it is clear that compensation for special value is available, at least to the extent that the owner, at the moment of resumption, enjoyed additional economic advantages directly attributable to its ownership or occupation of the land which would not be reflected in the market value: see Pastoral Finance Association Ltd v. The Minister [1914] AC 1083 at 1087 and Kennedy Street Pty Ltd v. The Minister (1962) 8 L.G.R.A. 221."
In assessing compensation in the present case at $615,000, or $675 per square metre, by comparison with the previous Court determinations and the sales, Mr Coonan has quite correctly had regard to the already acquired consent approval, the $29,000 paid to Carnegie Hicks for its work in connection with that application and for further work on the more detailed plans to be submitted for building approval. Mr Coonan also estimated that 3 months had thus been saved in the overall development process. He said that these attributes were part of the market value of the land, as they were things that the market place recognised, and not part of special value to the owner. (Transcript page 325)
I agree with Mr Coonan that these are not attributes of special value but of market value, as they are not attributes which are "peculiar to the claimant", and would be acquired with the land along with all its other attributes by any hypothetical prudent purchaser. They would thus have increased the market value of the land. However, having regard to these advantages and to the fact that development of both the Merivale site and Neray/Blocksidge and Badgery sites were further removed in time than development of the subject land, I think Mr Coonan has been somewhat conservative in his assessment of market value.
Apart from market value, the question arises to whether all the possible advantages which may have attached to the proposed development, particularly those attributable to Mr McPhee personally, are to be taken into account as special value to the owner.
However, the scope of those additional economic advantages directly attributable to the ownership or occupation of the land and which are peculiar to the owner is not unlimited. Mahoney J.A. of the N.S.W. Court of Appeal pointed out in Housing Commission of New South Wales v. Falconer (1981) 50 L.G.R.A. 334 at 359:
"But there are limits to the circumstances in which and the extent to which special value may be attributed in this way and it is necessary to determine whether, notwithstanding the width of the application of 'value to the owner' principle as appearing in the cases, it extends to the present case. It has, for example, been held that a purely collateral contractual benefit, under a contract of employment, is not so related to the land as to constitute special value for this purpose: Elliott v. Commissioner for Main Roads [1971] 1 NSWLR 350..."
Mahoney J.A. also referred to the judgment of Else-Mitchell J. in Chong v. Fairfield Municipal Council (1968) 16 L.G.R.A. 407 where at 410 he said:
"What is involved,...in the concept of value to the owner seems to me to be the value to a person in the position of the owner as distinct from value to the acquiring authority: see Cripps on Compensation, 8th ed at 174-177; 11th ed at 4.025-4.038. This is no more than a shorthand manner of saying that the owner's use of the land can be taken as illustrating its potentialities; cf Re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16; Cedars Rapids Manufacturing and Power Co v. Lacoste [1914] AC 569; Vyricherla's case [1939] AC 302. It follows, I think, that, apart from questions of injurious affection, severance, and disturbance, the concept of special value to an owner is not something personal to the owner, but a quality of the land itself, which is special only in the sense that it is a potentiality demonstrated by the use to which it has been put by the owner: cf Cripps, 11th ed, chs 22, 23." (Emphasis added)
In Arkaba Holdings Ltd v. Commissioner of Highways Bray C.J., in obiter remarks at page 404, said that he thought Else-Mitchell J. may have stated the law too widely in the passage emphasised above. However, Pearlman J. recently followed Chong's Case in Russellan Pty Ltd v. Roads and Traffic Authority of New South Wales (1992) 75 L.G.R.A. 263. At page 272 Her Honour pointed out that Chong's Case was applied in L.R. Beilharz Investments Pty Ltd v. Darling Harbour Authority (an unreported decision of Bignold J. of the Land and Environment Court of New South Wales, 23rd April, 1991) and had been cited with apparent approval by Clarke J.A. in Minister Administering the Heritage Act 1977 v. Haddard (1988) 67 L.G.R.A. 438 at 447 as well as by Mahoney J.A. in Falconer's Case.
I therefore feel it is sufficiently established that the scope of special value to the owner is so limited to exclude those advantages and attributes which are personal to the owner.
In the proposed development of the subject land the claimant enjoyed economic advantages directly attributable to Mr McPhee's long experience in the real estate development industry, his association with the area and the site, his experience with the development of the Yellow Pages building, his advantageous arrangements with the builder, real estate agent and bank and his skill in negotiating tenancies. These all indicate that the planned development would probably have proceeded on schedule to a successful conclusion. But these are not qualities in the land itself but are advantages which are personal to Mr McPhee and which, on the authorities reviewed above, are not part of the special value to the owner.
In this case then, in my opinion, there is no special value to the owner which would warrant any addition to the market value. To put it another way, if the test proposed by the Pastoral Finance Association Case is applied, the result is that a prudent person in the position of the owner would have to pay no more than the market value in order to retain the land.
However, such market value includes all the qualities discussed earlier in this judgment. Mr Coonan said that compared with the determinations and sales this amounts to $675 per square metre. While Mr Brett may have placed too much emphasis on the situation and views from the subject land, I have the impression that Mr Coonan may have underestimated them.
There is no doubt that at the date of resumption the general environment was not attractive, but it was improving. The gradual acquisition and beautification of the riverfront lands by the Brisbane City Council meant that at some time in the future the unsightly Moreton Tug and Barge establishment and the other old buildings would be removed. This would give the allotments facing Stanley Street unrestricted outlook over the river to the city which could not be built out. The same is true of their exposure from the city side of the river and from the Captain Cook Bridge. In addition, the construction of Yellow Pages House with its long term institutional tenant already arranged, had proven the development potential of that area. I accept that allotments zoned Commercial B in Stanley Street would have been more attractive for early development than those in Grey Street.
While there are no sales or other evidence which allows me with confidence to calculate the extent of these advantages, I have concluded that a prudent purchaser would certainly take them into account, in addition to the advanced stage towards development of the subject land.
In the circumstances, keeping in mind the well known judicial pronouncements that the assessment of compensation is to be approached in a generous rather than a niggardly spirit (Roper J. in Latimer v. North Coast National Agricultural and Industrial Society 14 L.G.R. (N.S.W.) 30 at 32) and that in a compensation case, doubts are resolved in favour of a more liberal estimate (Dixon J. in Commissioner of Succession Duties (South Australia) v. Executor Trustee and Agency Company of South Australia Ltd (1947) 74 C.L.R. 358 at 374), I feel that an appropriate value for this land is $750 per square metre, or $683,250.
DISTURBANCE
The amended claim for compensation for disturbance is made up of three items:
(a)An amount of $8,657 for legal and valuation fees incurred in the preparation of the claim for compensation, comprising $5,657 for legal fees, (including $2170 for counsels' advice on the claim) and $3,000 for valuation fees;
(b)An amount of $3,200 for expenses of the dispossessed owner in organising the claim consisting of airfares and accommodation for Mr McPhee;
(c)An amount of $58,393 for cost of purchasing a replacement property, comprising legal fees $5,403, stamp duty $40,350, owner's expenses $10,000 and mortgagee costs $2,640.
Counsel for the respondent Authority opposes any award for disturbance on the basis that there is no statutory authority for such an award, submitting that the right to claim compensation is limited to the value of the estate or interest in the land, plus severance and injurious affection. He argues that disturbance is not recognised as a separate head of compensation: Commonwealth v. Milledge (1953) 90 C.L.R. 157 at 164, applied by the Land Appeal Court in Murray v. Queensland Electricity Generating Board (1984) 10 Q.L.C.R. 69 at 79, where the Court said:
"As a strict matter of law we cannot hold that the appellants would be entitled to any amount under the heading of disturbance.
This Court is bound by the principles enunciated by the High Court in the cases above cited. The principles in turn are explanatory of statutory provisions similar to those of the Acquisition of Land Act by which we are also bound. These latter provisions are the fundamental basis of our jurisdiction. Disturbance is not a separate head of compensation authorised by statute."
In Murray's Case the resumed land at the date of resumption was being used for grazing purposes. The Land Appeal Court recognised as a matter of law that where compensation is assessed on the basis of a more profitable use, in that case its suitability for subdivision, there can be no award of disturbance on the basis of its actual use.
At page 72 the Land Appeal Court said:
"It was common ground below that the highest and best use of the resumed property was for subdivision into and sale as three rural sites. Having found the in globo value of the resumed land and improvements on a site basis, the Court below discussed the concept of disturbance, reciting the well established and binding principles enunciated by Courts of the highest authority in Horn v. Sunderland Corporation (1941) - Court of Appeal - 1 All E.R. 480; The Commonwealth v. Milledge (1953-1954) - High Court of Australia - 90 C.L.R. 157 at p. 164 and Crisp and Gunn Co-operative Ltd v. Hobart Corporation (1963) - High Court of Australia - 110 C.L.R. 538 at p.546.
Reference was also made to the test laid down in Harvey v. Crawley Development Corporation (1957) 1 All E.R. 504 at p. 507 namely that any loss sustained by dispossessed owners which flows from a compulsory acquisition may properly be regarded as the subject of compensation for disturbance provided, firstly, that it is not too remote and, secondly, that it is the natural and reasonable consequence of the dispossession of the owner."
Then at page 78 the Court continued:
"Disturbance, although it is often separately assessed by Courts, is not a separate subject of compensation. Its relevance to the assessment of the amount which will compensate the former owner for the loss of his land lies in the fact that compensation must include not only the amount which any prudent purchaser would find it worth his while to give for the land, but also any additional amount which a prudent purchaser in the position of the owner, that is to say for the business such as the owner has already established on the land, would find it worth his while to pay sooner than fail to obtain the land. It follows that if in the first instance, the land is valued on the basis of its suitability for some more profitable form of use, there can be no justification for making an addition to the value so ascertained because of disturbance - vide Milledge's and Crisp and Gunn Co-Operative Limited cases (supra)."
Although the Acquisition of Land Act 1967 makes no provision for a head of claim for disturbance, as the Land Appeal Court recognised in the last quoted passage, it is part of the special value to the owner and often separately assessed. The authorities appear to be divided, however, as to whether disturbance should be dealt with as part of the value of the land to the owner or whether it is more conveniently to be dealt with as a separate head of compensation. As Stein J. said in Polegato v. Griffith City Council (1988) 64 L.G.R.A. 265 at 270:
"Of course part of the difficulty not infrequently faced by the courts is the almost interchangeable use of the terms 'special value' and 'disturbance'. A reading of the authorities confirms this blurring of terminology...."
It has been concluded that it probably does not matter whether it is included as part of the special value or as disturbance as long as this aspect of compensation is not duplicated: Arkaba Holdings Ltd v. Commissioner of Highways at page 405.
This Court has long recognised that disturbance can be awarded in appropriate cases in accordance with the principles established in Harvey v. Crawley Development Corporation but where the loss or costs are not too remote and are the natural and reasonable consequences of the resumption: e.g. R.A. Wall v. Commissioner of Irrigation and Water Supply (1970) 37 C.L.L.R. 65 and R.W. Barber v. Landsborough/Maroochy Water Supply Board, decision 11th December, 1986 (not reported). However, the claimant must prove that the various items of claim come within that criteria.
(a)Legal and Valuation Fees
Counsel for the respondent has made a strong submission that the practice of the Land Court and Land Appeal Court in allowing legal and valuation fees reasonably and necessarily involved in the preparation of a claim for compensation, is not supported by statute and is against binding authority. In support of his argument he relies on the decision of the High Court in The Minister of State for the Army v. Pacific Hotel Pty Ltd (1944) St.R.Qd 112, which was followed by the Supreme Court of Victoria in Duncan v. Minister for Education (1969) V.R. 362.
Counsel submits that this Court must follow the decision of the High Court in the Pacific Hotel's case that valuation fees incurred for the purpose of making a claim for compensation are not part of the damage suffered by the claimant as a result of the resumption, and if awarded at all can only be awarded as costs.
The decision of the High Court was distinguished in Howard v. The Commissioner for Railways (1967) 34 C.L.L.R. 140. In that case Mr Dodds, Member of the Land Court, considered whether a claim for valuation and legal fees incurred for the purpose of lodging a claim for compensation should be allowed.
At page 151 the learned Member referred to the test of special value to the owner applied by the Privy Council in the Pastoral Finance Case. He also referred to the judgment of the High Court in The Minister v. N.S.W. Aerated Water 22 C.L.R. 56, where at page 82, Isaccs J. explained that the prudent purchaser in the position of the owner would be entitled to include in the price that he would give for the land sooner than fail to obtain it, every item of personal loss which results to him as owner of the land and flowing directly and not remotely from the resumption. Mr Dodds then adopted the findings of the Court of Appeal in Harvey v. Crawley Development Corporation, namely that any loss to the dispossessed owner may properly be regarded as subject of compensation for disturbance provided that it is not too remote and is the natural and reasonable consequence of the resumption.
At page 168, Mr Dodds returns to the valuation and legal fees claimed as an item of disturbance and on that page and the one following he said:
"In my opinion on the principles of compensation for disturbance which I have set out above the claimants should be allowed such costs. I have already referred to Harvey v. Crawley Development Corporation, and Horn v. Sunderland Corporation (supra) and I now refer also to London County Council v. Tobin (1959) 1 All E.R. 649 where legal advice and accountancy fees incurred in connection with the preparation of a claim after receipt of notice to treat were allowed."
In Howard's Case the lands were resumed under the Railways Acts 1914-1965. Referring to that legislation, Mr Dodds said at page 169:
"Thereafter the machinery of the Acts requires a claim in writing to be served on the Commissioner (Section 57). This is a condition precedent to the receipt of any compensation. The section sets out what the claim shall state, and the matters required to be set out themselves suggest that in many, if not in the majority of cases, a claimant would be foolish indeed not to seek expert advice and help."
Regarding the Pacific Hotel's Case, Mr Dodds said at page 170:
"However, in my view this case is clearly distinguishable on two counts. First of all it was a claim under special legislation where the heads under which compensation could be awarded were explicitly set out by Ministerial Orders. Second, the foundation of the Court's decision on this point was that it was regarded as an item of costs in the cause. At page 119 Latham C.J. says, 'The Court has power to allow costs to the claimant and has allowed costs. So much of this sum as is found to be a reasonable expenditure should be allowed as part of the Company's costs'. In the subject cases, however, there is no unlimited power in the Land Court to award costs. The Land Court in these matters has a limited discretion only. Costs do not, as they once did, follow the event, but the Court has a discretion to award costs to the claimant only if the amount assessed as compensation is nearer the amount claimed by the claimant than the amount offered by the Commissioner. Moreover the Commissioner can delay making his offer right up to the last moment before the decision is announced....I propose to allow these where claimed..."
I have set out the learned Member's reasoning in some detail in order to indicate that he gave the matter close consideration before distinguishing the Pacific Hotel's case.
The respondent argues that in Howard's Case the learned Member referred in support of his reasoning to the decision in Harvey v. Crawley Development Corporation, whereas the Court of Appeal in Minister of Transport v. Lee [1965] 2 All E.R. 986 held that valuation fees cannot be characterised as items of disturbance. However, it is clear in that case that the Court of Appeal confirmed that, as Lord Denning put it at page 988:
"In an ordinary case of compulsory acquisition, it has been the practice for many years for the owner to receive as compensation, not only the value of the land, but also the fees which he has to pay his surveyor to prepare the claim: and this practice has been recognised by the courts."
However, as His Lordship went on to point out, that case was not an ordinary case of compulsory acquisition, but came under the "blight" provisions of the Town and Country Planning Act 1962. This Act expressly excluded from compensation "any amount attributable to disturbance". The Minister argued that since such fees are attributable to "disturbance" they must be excluded. At that time the statutory rules on which compensation was to be assessed for compulsory acquisition included three heads of compensation (i) the value of the land; (ii) compensation for disturbance; (iii) compensation "for any other matter not directly based on the value of land". His Lordship said that the words used by the Court in Harvey v. Crawley Development Corporation must be read in their context and the Court was not concerned there to define "disturbance" precisely, but had included many items of loss under the generic term "disturbance" and hence such fees could properly be allowed as compensation. The other members of the Court of Appeal delivered judgments to similar effect.
Similarly, in Queensland, although for convenience many items of loss are included under "disturbance", there is no such separate statutory head of compensation as the Land Appeal Court held in Murray's Case. It is merely a convenient way of expressing what is in effect part of the special value to the owner.
Therefore, the respondent can gain no comfort from Lee's Case, especially as Barber J. said in Duncan v. The Minister for Education that the English practice has been to allow professional expenses incurred in the preparation of the claim for compensation. He goes on to say, apparently unaware of the position in Queensland, that the English practice differs from the Australian practice.
Barber J. does admit that in cases where the claimant prepares a claim for compensation, the often substantial cost of preparing the claim should "in fairness" be allowed to the claimant.
By following the High Court in the Pacific Hotel's Case he was continuing what had been the long established practice in Victoria. However, the position in Queensland has, at least since 1968, been in line with the English practice on the basis of the reasoning in Harvey v. Crawley Development Corporation.
Continuing his argument in the present case, counsel for the respondent refers to the decision of the then Acting President of the Land Court, Mr W.F.G. Smith, in Szirtes v. Pine Rivers Shire Council (1969) 36 C.L.L.R. 97. In that case the learned Acting President agreed with the decision of Mr Dodds in Howard's Case that the Pacific Hotel's Case may be distinguished for the reasons which he set out in that judgement. Mr Smith also considered a number of English cases, including Harvey v. Crawley Development Corporation and Minister of Transport v. Lee, and concluded that in England there is a long established practice of including in the value of the land taken, costs necessarily and reasonably incurred preparatory to lodging a claim. He continued that this principle seems to be founded on an application of the principle of finding the value of the land to the dispossessed owner. Mr Smith agreed that the granting of such costs incurred preparatory to filing a claim is a logical extension of ascertaining the value of land to the owner, notwithstanding the decision of the Court of Appeal in Minister of Transport v. Lee.
In Brisbane City Council v. Lamont (1980) 7 Q.L.C.R. 120, the Land Appeal Court said at page 127:
"This Court and the Land Court have held that valuation fees and legal fees incurred by a dispossessed owner up to the date of lodgement of the claim in the Court are properly allowable as items of disturbance. In the absence of agreement between the parties it is incumbent on the claimants to prove such heads of claim. No evidence has been led to support the claim in this matter and no award is made."
The respondent contends that in that case the Court merely referred to the practice of allowing valuation and legal fees, without deciding the point itself. Therefore, it submits, that it is no authority for that proposition, as it was unnecessary for the Court to express a view on the matter.
In the Merivale and Neray/Blocksidge & Badgery cases the respondent points out that there was no argument that costs of preparation of claim were not recoverable as a matter of principle, although in Merivale there was argument as to quantum of legal costs. However, in that case at page 204 the President refers in some detail to what he calls "this particular item of disturbance", noting that in general the relevant Australian statutes do not contain express provisions requiring resuming authorities to pay valuation and legal costs of preparation and lodgement of a claim and that such costs are not allowed by Courts as an item of disturbance. However, the President refers to the decision of Mr Dodds on this point in Howard's Case and the approval of it by the then Acting President in Szirte's Case, commenting at page 205:-
"The practice of this Court in allowing such legal and valuation fees as an item of disturbance has been established since that time. Indeed, I have found that, in many cases, agreement on an appropriate figure is reached by the parties and the agreed amount is incorporated in the final award of compensation."
The President then refers to the case of Wall v. The Commissioner of Irrigation and Water Supply (1970) 37 C.L.L.R. 65, where a challenge to the allowance was made, but following argument on the Szirte's Case, Mr Smith allowed the claim. The President goes on to say at page 206 that he was unable to find any case where there was a challenge in the Land Appeal Court to a decision of the Land Court allowing such a claim, but refers to the above quoted passage from the judgment of the Land Appeal Court in Brisbane City Council v. Lamont. He concluded at page 206:
"I am satisfied that a claim for legal and valuation expenses up to the date of the lodgement of the claim in the Court are compensable providing they meet the rule expressed by Romer L.J. in Harvey v. Crawley Development Corporation ... '...provided first, that it is not too remote and, secondly that it is a natural and reasonable consequence of the dispossession of the owner.'"
As previously mentioned, the claimant in Merivale appealed to the Land Appeal Court against the decision of the Land Court. In delivering its judgment the Land Appeal Court said at pages 287-88:
"We confirm the judgment in respect of its award for legal and valuation fees involved in the preparation and lodgement of the claim for compensation ... We adopt the reasonings and conclusions of the learned Member below .... Our charge as judicially interpreted is to compensate for items which are the reasonable and not too remote consequence of the resumption (Harvey v. Crawley Development Corporation (supra)). Dispossessed owners are entitled to seek professional advice and assistance in order to comply with the requirements of the Acquisition of Land Act insofar as lodging claims for compensation are concerned. Providing the valuation advice is not frivolous or lacking in bona fides, a fee based on a claimant's valuation should be reimbursed. To refuse this would be lacking in fairness and generosity to the claimant and too restrictive of its personal right of choice irrespective of whether or not the claim is successful."
More recently the Land Appeal Court has referred to its attitude and that of the Land Court to claims for items of disturbance on the resumption of land. In Council of the City of Townsville v. M.V.O. Investments Pty Ltd, judgement delivered 30th September 1992, (not reported) the items of valuation and legal fees involved in compiling and lodging the claim for compensation had been agreed. At page 22 of its judgment the Land Appeal Court said:
"The question of claims for valuation and legal fees was discussed at length in Merivale Motel Investments Pty Ltd v. Brisbane Exposition and South Bank Redevelopment Authority (1984-85) 10 Q.L.C.R. 175 (L.C.) at p. 202 and again on appeal from that judgment by the Land Appeal Court at p. 268 of the same volume where, at p. 287, the Land Appeal Court confirmed that judgment in respect of the award for legal and valuation fees and the relevant period over which such fees could properly be claimed."
I am bound by decisions of the Land Appeal Court unless I am convinced that they are wrongly decided. After analysing the decisions referred to I am far from being so convinced. Despite the practice in other states, the practice in Queensland is now well established and, in my opinion, soundly based. I therefore propose to allow the cost of legal and valuation fees reasonably incurred in preparation and lodgement of the claim for compensation. It remains now to consider the quantum of the claim.
The original claim for compensation was lodged on 14th December 1984 by solicitors who are no longer representing the claimant. They were acting on valuation advice received from valuers who were not called to give evidence. The original claim contains no details of the amount of valuation and legal fees for preparation of the claim. However, the claim as finally amended is in respect of legal fees of $5,657 and valuation fees of $3,000.
Mr Thomas Nulty, solicitor and partner in the firm Phillips Fox, gave evidence that he has perused the account for a total of $4,737.30 rendered by the claimant's previous solicitors for the relevant period and dated 9th December, 1985. It is obvious from the itemised details that this account covers professional costs arising before and after the preparation of the claim for compensation. Mr Nulty said that after studying the account he concluded that at least 75% of the solicitor's costs were incurred prior to the claim for compensation, with the remaining 25% relating to services performed after the claim had been filed with the Court.
The difficulties facing Mr Nulty in endeavouring to assess reasonable costs in this case were compounded as the file had passed from the original solicitors through another firm, before being delivered to Phillips Fox. I note also that in his affidavit Mr Nulty said:
"I am of the opinion that at least 75% of the solicitor's costs were incurred prior to completion by Hopgood and Ganim, Solicitors, of the claim for compensation with the remaining 25% relating to services performed after the claim for compensation had been filed with the court."(Emphasis added)
However, it is quite clear that it is only those legal and valuation fees reasonably and necessarily incurred in preparing and lodging a claim for compensation that can be recovered as disturbance. It has also been established that it is only in respect of costs incurred between the date of receipt of the Notice of Intention to Resume and the date of lodgment of the claim: Merivale Case at page 207.
Included in the account is an item "attending to payment of Counsel's fees" which other evidence indicates amounted to $2,170. It emerged that Queen's Counsel and junior counsel had been briefed to settle the claim for compensation and to provide advice as to the methodology to be adopted. Mr Nulty said that he did not usually brief counsel to settle a claim for compensation, but he would do so if there was some point of law which was of complexity in a claim of some two million dollars.
I am of the view that in a case of complexity it may be necessary for a claimant to seek the advice of counsel in the preparation of a claim for compensation. In this regard each case must be considered on its own merits. In the present case in view of the judicial criticism of the hypothetical development method of valuation and the difficulty of the concept of special value to the owner, a prudent solicitor may well have considered it necessary to seek counsel's advice before lodging a claim. In Craft and Others v. The Co-ordinator General (1986-87) 11 Q.L.C.R. 9, the then President allowed counsel's fees for drawing and advising on the claim. I propose to allow $2,170 for counsel's fees.
However, with respect to the rest of the solicitor's account, it is obvious that there are many items which relate to work done before receipt of the Notice of Intention to Resume (most of those on page 1) and others which can only have occurred after the claim was lodged (e.g. "perusing letter from Land Court", "attending callover of Land Court", "perusing judgment in Merivale Motel case", etc.) In addition, the account contains many items which are not connected with the preparation of the claim.
While readily admitting that I do not have the expertise to make a proper dissection of these costs, and using a similar broad-brush approach to that wielded by my learned colleague, Mr White, in Shann v. The Commissioner of Water Resources (1987) 11 Q.L.C.R. 194 at 228, I think that, apart from counsel's fees, an apportionment of 50% of the solicitor's account would be more appropriate. I propose to allow a total of $3,500 for legal fees.
Apart from the challenge to the award of any disturbance, the respondent did not raise any argument to the $3,000 paid to the valuer in respect of valuation fees and that amount seems reasonable in the circumstances. Therefore, under this head of claim for disturbance I propose to allow $6,500.
(b) Expenses of Dispossessed Owner in Organising Claim
An amount of $3,200 is claimed in this regard as air fares and accommodation for Mr McPhee who, as managing director of the claimant company, was required to attend in Brisbane on many occasions to confer with his professional advisers and to prepare and organise the claim for compensation. The claimant argues that these expenses were a necessary part of preparing the claim and fall into the same category as legal and valuation fees.
In Shann v. The Commissioner of Water Resources, there was a claim for $3,000 for loss of the owner's time, travelling expenses and accommodation incurred in consulting legal advisers and in conferences with the resuming authority. After reviewing previous decisions on the matter, the learned Member, at page 225, concluded that there was sufficient authority to say that the claim is not compensable. Shann's Case has more recently been applied in Pejama Pty Ltd v. The Commissioner of Main Roads (1989) 12 Q.L.C.R. 278 at 291 and in Hill v. Director-General, Department of Transport (not yet reported) decision delivered 23rd October, 1992, at page 20 of the judgment.
I feel that it is well established that such costs are not compensable and I do not propose to allow the claim.
(c) Costs of Purchasing a Replacement Property
The amended claim under this head amounts to $58,393, comprising legal fees $5,403, stamp duty $40,350, owner's expenses $10,000 and mortgagee costs $2,640. The claimant relies on a decision of the then President of the Land Court in Ohlsson v. The Commissioner for Railways (1966) 33 C.L.L.R. 34, which involved the resumption of a residential property not occupied by the owner but rented by him for investment. The then President held that an owner dispossessed of a property used for investment purposes is entitled to compensation for the loss of his investment and for the expense to which he will be put on acquiring an investment property, including legal costs and outlays.
Counsel for the claimant concedes that the decision of the Land Court in George v. The Crown (1979) 6 Q.L.C.R. 89 is contrary to his submissions. In that case the learned Member did not follow Ohlsson's Case, preferring to follow the decision of Mr Barry in Bennett v. The Crown (decision delivered 24th April, 1978, not reported). In Bennett's case Mr Barry referred to the decision of the Court of Appeal in Harvey v. Crawley Development Corporation, where in the case of a house compulsorily acquired, the owner-occupier was allowed compensation for expenditure reasonably incurred in getting another house, including travelling expenses, surveyor's fees and legal costs. However, in that case Lord Denning warned against taking this too far. His obiter remarks are reported (1957) 1 All E.R. at 507:
"Supposing a man did not occupy a house himself but simply owned it as an investment. His compensation would be the value of the house. If he chose to put money into stocks and shares, he could not claim the brokerage as compensation. That would be much too remote. It would not be the consequence of the compulsory acquisition but the result of his choice in putting the money into stocks and shares instead of putting it on deposit at the bank. If he chose to buy another house as an investment, he could not get the solicitors' costs on the purchase. Those costs would be the result of his own choice of investment and not the result of the compulsory acquisition."
His Lordship then gave another example not relevant in the present case and continued:
"These illustrations show that the owner only recovers costs of the present kind in a case where a house is occupied by an owner, living there, who is forced out and reasonably finds a house elsewhere in which to live."
Counsel for the claimant submits that the comments of Lord Denning are illogical, as there should be no difference between a home-owner put out of his house having to purchase another home and an investment company put out of its investment having to replace that investment.
However, not only has the reasoning of Lord Denning been followed by this Court in Bennett's Case and George's Case, but also in Geyl v. The Crown (1981-82) 8 Q.L.C.R. 118 at 127 and in Pejama Pty Ltd v. The Commissioner of Main Roads at page 291. More recently, the same reasoning with regard to investment properties was applied by Mr Barry in Merivale at page 201 and by Mr Smith in Neray/Blocksidge & Badgery at page 33.
Therefore, I am of the opinion that it is now well established that in the case of the resumption of an investment property the costs of acquiring a replacement are not compensable. I do not propose to allow this claim.
INTEREST
Counsel for the claimant seeks interest for the entire period from the date of resumption on 19th May, 1984, alleging that it would be unjust and improper to penalise the claimant for the delay in bringing this matter to Court. Despite the submissions to the contrary by the Authority, I intend to follow the Court's usual practice and award interest for the appropriate period. The claimant also submits that it should be awarded compound interest, as simple interest would not be adequate compensation for being "out of its money". It refers me to cases where the High Court has awarded compound interest in damages awards.
The respondent argues that section 28 of the Acquisition of Land Act 1967 provides that interest be paid "upon the amount of compensation determined", whereas the award of compound interest would require jurisdiction to award interest upon interest, rather than interest upon compensation.
In South Australian Land Commission v. Perry (1977) 37 L.G.R.A. 25, Jacobs J. of the South Australian Supreme Court held that a claim for interest to be awarded on a compound basis under Section 33 of the Land Acquisition Act 1969, was misconceived. He dismissed the application and awarded simple interest. The decision in that case has recently been followed by the Land Court in Shepherds Properties (N.Q.) Pty Ltd v. The Cairns Port Authority (1990-91) 13 Q.L.C.R. 234, where the claimant had argued that compound interest should be awarded.
I intend to follow the practice of this Court and award interest on compensation determined on the basis of simple, rather than compound, interest.
The recent decision of the Land Appeal Court in Townsville City Council v. M.V.O. Investments Pty Ltd affirmed the decision of the learned President of this Court in Varitimos v. Queensland Electricity Commission (1990-91) 13 Q.L.C.R. 1, that interest on professional valuation and legal fees incurred in the preparation of the claim is payable only from the date of actual payment of those fees by the dispossessed owner. In the present case, I am informed by counsel for the claimant that legal fees were paid in December 1985 and valuation fees in December 1984.
I determine compensation payable by the respondent to the claimant under all heads of claim at $689,750, being made up as follows:
Value of the land taken $683,250
Valuation and legal fees incurred in
preparation & lodgment of claim for compensation $ 6,500
TOTAL $689,750
I order the respondent to pay to the claimant interest at the rate of 13 per cent per annum on the sum of $683,250 from the date of resumption, 19th May 1984, to 21st December 1984, when the first advance was paid, and on the sum of $277,508 from that date up to 31st January, 1991 when the second advance was paid.
I further order the respondent to pay to the claimant interest at the rate of 13 per cent per annum on valuation fees of $3,000 from 14th December 1984 and on legal fees of $3,500 from 13th December 1985 up to 31st January 1991 when the second advance was paid.
J J TRICKETT
MEMBER OF THE LAND COURT
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