ADELAIDE, 20-23 May 1997 (hearing), 24 July 1997 (decision)

This is a claim by Amadio and Adelaide Mary Theresa Valentini for compensation under the Land Acquisition Act 1969 ("the Act") for the acquisition by the City of Salisbury of the whole of allotment 3 in L.T.R.O. deposited plan No. 43903 being portion of the land comprised in certificate of title register book volume 4227 folio 607, subject however to an easement in Pipelines Authority of South Australia (now Tenneco Gas Operations Pty Ltd). The Moomba-Adelaide natural gas pipeline is buried within the easement.

The acquired land is situated at the junction of Port Wakefield and Burton Roads, Burton. It has a 20 metre frontage to Port Wakefield Road and a frontage to Burton Road of 187 metres. The acquisition took place on 1 August 1995 and was gazetted on the 31 August 1995. The area of the land comprised in the said certificate of title was 6.789 hectares, and the area of the acquired land was 5.254 hectares. The property was purchased by Amadio Valentini approximately 36 years ago, and transferred to the joint names of he and his wife on the 28 June 1984. At the time of the acquisition, portion of the acquired land was let to a Mr and Mrs Gaskin for the growing of flowers. They subsequently accepted $14,500 in settlement of their claim.

On 1 August 1995 the City of Salisbury paid in to the Supreme Court the sum of $280,000 by way of compensation. The offer was rejected by the claimants. They refer to s25(1) of the Act, which sets out the principles for determining the compensation payable under the Act, and (a) thereof reads:

"...the compensation payable to a claimant shall be such as adequately to compensate him for any loss that he has suffered by reason of the acquisition of the land."

Mr Valentini has been devastated by the acquisition. He had planned to hold the land and to divide it and sell off allotments as and when he and his wife needed money in their old age. I have much sympathy for him. They are to be adequately compensated according to law for any losses, but not for "mere subjective affection or emotional involvement", per Wells J in Bronzel v State Planning Authority (1979) 21 SASR 513 at p.525.

Mr. Valentini is aged 69. He came to Australia in 1951 and married in 1956. He has lived at Kidman Park since coming to Australia. He has undertaken some market gardening there. After the purchase of the property at Burton, he carried on market gardening there for a time, but owing to insufficient water and government controls, he decided to lease some of the land to other market gardeners who used glass houses which reduced the amount of water required. About seven or eight years ago he sub-divided off three acres of their property. It now has a separate title. Two workshops/factories have been built on that land, and it is leased to a Mr Peter Cocks.

After Mr Valentini abandoned market gardening at Burton, he drove trucks for Readymix as a sub-contractor for 15 years. He and his wife now live on $3,400 a month they receive for the workshop/factory land and on the rent from three flats that they own. He does not receive the pension. Although he had a plan for the sub-division of his land into thirteen allotments drawn up some years ago, he never reached a decision to proceed with that plan, but he regarded the land as having potential for industrial allotments.

Mr Valentini gave evidence, and called his son Raymond Valentini as a witness. His son is 34 years of age and has his own waste industry businesses, in consequence of which he owns a lot of equipment, including tippers, loaders, tractors, back hoes and excavators. He said he had the equipment and the "know how" to assist his father undertake the sub-division of the land as and when he decided to do so.

The claimants' only other witness was Mr Barry F Maloney, a very experienced valuer. Mr Maloney pointed out the undoubted fact that the acquired land is zoned "industry" by the City of Salisbury. The principles of development control of the zone include:

"Development in the Zone should be primarily for Industry, Warehousing and Storage activities, and may include Service Industries, Service Trade Premises and Petrol Filling Stations in appropriate locations".

Mr Maloney has consistently valued the acquired land by use of what he calls the "before and after method of assessment", and has adopted what is commonly called the hypothetical subdivision method to reach a "before" figure. For their hypothetical subdivision calculations, both Mr Maloney and the valuer called by the respondent, Mr Morgan, used the plan originally prepared on behalf of the claimants. It involved a relatively short access road from Burton Road to which 11 allotments generally slightly in excess of 4,000 square metres would have access. Two other allotments would have a Port Wakefield Road frontage. Mr Maloney introduced his approach in his written valuation (P4) in this way:

"This approach involves the assessment of the worth of the property prior to an acquisition having regard to all of its potentials both legal and practical and then subsequently making an assessment of the value of the land that is retained following the acquisition of the land taken by the acquiring authority. The difference between the two figures is a measure of the compensation that should be paid to the claimants.

A further important decision to be made relates to the "highest and best use" of the property in question and I have resolved having regard to the zoning of the property and other physical attributes of the property and the amenity of the adjoining area that the potential was clearly that as a development of a number of industrial allotments."

Very early in the hearing I was advised that the parties had agreed certain figures in the event that I should accept the hypothetical subdivision method of valuation. They agreed the figure of $815,000 for the net realisation from the sale of thirteen lots making up the area of 6.789 hectares. They agreed an "after" acquisition value of $140,000 for 1.535 hectares. They agreed the sum of $235,000 for development costs and interest charges on development costs, and also agreed that that figure would be $30,000 less if the subdivision was undertaken with the cheaper equipment and labour of the claimants' son. Mr Maloney used a margin for developer, or what is sometimes called a profit and risk factor, of 7 1/2 percent which led him to deduct $56,860 from the $815,000. After then deducting $205,000 for development costs and interest charges thereon, he reached a "before"figure of $553,140. After deducting the agreed "after" acquisition figure of $140,000, Mr Maloney's revised figure was $413,140 (P11).

In his written valuation, Mr Maloney made no mention of a claim for "special value", but gave evidence that in the circumstances of this case, it was appropriate only to deduct $205,000 rather than the figure of $235,000, and that that in effect allowed for the "special value" of the acquired land to the claimants. He relied on the facts that Mr Valentini had an intimate knowledge of the land, and that he had the ability, with the help of his son, to subdivide it at a time of his own choosing. Such considerations also partly led him to choose a low margin for developer of 7 1/2 %.

I was referred to many of the leading authorities on the meaning of "special value". The leading case is Turner and Another v The Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245. The leading judgment was that of Kitto J, and at pages 290-292 his Honour said:

"...it seems obvious that no one is going to buy an area of land to sell it in subdivision if he has to pay as much for it as he thinks he can prudently count on getting back. Why should he bother, if he is not going to make a profit? But although this is conceded by everyone, it is said that there is no need to consider such a purchaser; the owner may subdivide the land himself, thereby getting the whole of the net proceeds of sale; and if he does so he will not lose the amount which a purchaser would want by way of a profit. To look at the matter in this way is to desert the established test; but let it be deserted. In a case where land has no special value to any particular person, how is it possible to say in one breath that the land is not worth more than oex to a purchaser who is likely to get oex + y if he resells in subdivision, and to say in the next breath that it is worth the full oex + y to the existing owner on that date? If a purchaser would not pay the oey because that is the profit which he would need to see in the venture before he would put his money into it and go to all the trouble and expense it requires, why should not the existing owner, who is envisaged as considering what the land is worth to him, reflect that he needs a like inducement to leave his money in the land and go to the same trouble and expense?

It all comes back to the one point: at the date of resumption the land was simply incapable of immediate sale in subdivision, and it would necessarily remain incapable of sale in subdivision until time, trouble and expense had been laid out upon it; and no one, present owner or incoming owner, is likely to be so completely unbusinesslike as to make these outlays unless he believes that he can reasonably count on getting from the subdivision sales an amount which will exceed the present value of the land by such a sum as will make it all worth his while. The deduction is therefore not condemned by calling it the profit which a purchaser would require. It would have to be allowed for even by an existing owner, in working out what was the money equivalent of the land to him at the date of resumption, as distinguished from the money which it could be made to produce in nine or ten months' time provided that he set about dealing with it in the right way. There simply cannot be a difference between the price which would be agreed upon between a businesslike purchaser and a businesslike vendor and the amount which a businesslike owner would treat himself as leaving invested in the land in the event of his deciding to retain it. It is said that for compensation purposes it is not the value of the land simply, but its value to the expropriated owner that must be given, and that the value to the expropriated owner in this case must include what he would have got by selling in subdivision. I must reiterate, however, that this is not a case where there is a difference between the value of the land in general and its value to the expropriated owner in particular. The suitability of the land for subdivision was one of its inherent characteristics; it was available to be exploited by the owner whoever he might be; the land had no special value for the appellants. But I cannot forbear to add that if the test of value which has been approved for cases where there is special value to the owner be applied here, the question must be asked in the familiar words of Lord Moulton in Pastoral Finance Association Ltd. v. The Minister (1914) A.C. at p.1088: what would a prudent man in the position of the appellants have been willing to give for the land sooner than fail to obtain it? And the answer must be: precisely what any other prudent purchaser would have been willing to give for it."

Having regard to the argument of Mr Lunn, counsel for the claimants, about the wording of s.25(1)(a) of the Act, I note that Dixon CJ said at p.264:

"The ultimate purpose of the inquiry is to find a figure which represents adequate compensation to the landowner for the loss of his land."

"...the land at the relevant time was worth no more in the hands of the appellant than it would have been in the hands of some other owner who had acquired it with a view to subdivision."

Dicta of Kitto and Taylor JJ in Turner's case were quoted with approval by the Privy Council in Maori v Ministry of Works [1958] 3 ALL ER 336, and Lord Keith of Avonholm said at p.343:

"If the owner be regarded as a hypothetical purchaser of the land to be valued wishing to buy it for subdivision he would not be expected to pay more for it than any other purchaser buying for the same purpose."

Next, I refer to Arkaba Holdings v Commissioner of Highways [1970] SASR 94. At p.100 Bray CJ 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] UKPC 77; [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 regain it if he had been momentarily deprived of it? (Pastoral Finance Case supra at p.1087; per Kitto J. in Turner v. Minister of Public Instruction [1956] HCA 7; (1956) 95 C.L.R. 245, at p.292). A typical case of special value is where the land is peculiarly adapted to a particular kind of use made or intended to be made of it by the claimant, e.g. a doctor's consulting rooms (Griffiths v. Municipal Tramways Trust [1924] SAStRp 39; [1924] S.A.S.R. 270), or agricultural land worked in conjunction with a neighbouring residence or farm buildings (Minister of Works v. Robinson Unreported. Supreme Court (Napier C.J.) 18th August, 1965)."

Next, I refer to Bronzel v State Planning Authority, supra. Wells J said at pp.524-525:

"It is axiomatic that, although in many cases the value of the land to the owner is no more than the market will yield, there are some cases in which there is a special value to the owner that takes compensation above market value. In a court, market value is obtained by applying Spencer's case (1907) C.L.R. 418, but value to the owner is obtained by applying a line of authority commencing with Pastoral Finance Association Ltd. v. The Minister [1914] UKPC 77; [1914] A.C. 1083 and including In re Wilson and State Electricity Commission [1921] ArgusLawRp 78; [1921] V.L.R. 459, per Cussen J. at page 464; Woollams v. The Minister (1958) 75 W.N. (N.S.W.) 103, per Hardie J. at p. 106, and Arkaba Holdings Ltd. v. Commissioner of Highways [1970] S.A.S.R. 94, especially per Bray C.J. at p.100. There is no exhaustive definition of what special value is. If it exists, its value must be assessed at what it is worth to the owner at the date of valuation, and not at what it may be worth to him in the future or after due development. It must be something objectively ascertainable derived from the land or some attribute or property of it and cannot be recognized if it rests in mere subjective affection or emotional involvement. For the rest, whether it is present and capable of being evaluated depends on all the circumstances of the case.

In this case, I find that there is an element of special value. I am satisfied that, if the acquiring authority had not intervened, the claimant would have reinstated the main subject building to use as a restaurant, which he could have operated given sufficient hands to help. It had that potentiality. It seems to me that, as the designer, the architect, and (largely) the builder, of the complex, he was in a special position with respect to the methods and the limits of the use to which the building and plant could be put. The advantage of the builder-operator over the mere operator is a phenomenon to be recognized over a wide range of human activity, whether the object under discussion is a racing car, a sailing boat, a factory, a complicated piece of electronic equipment, or a collection of notes embodying the results of a piece of esoteric research. I guard myself against the temptation to give too free a rein to my imagination, but, in my opinion, if the claimant had worked or supervised work in the restaurant and the kitchens, and had used, or supervised the use of, the equipment and facilities that formed part of the realty, he would have had a distinct objective commercial advantage over another person in similar circumstances. The place had, in my opinion, a special value to him."

Mr Roder also referred me to Robson v Minister of Education (1964) 12 LGRA 27. The owners there were also long standing owners of the land - approximately twenty five years - and gave evidence that they intended to do the development themselves. The suggested distinction between an owner/developer and a commercial developer was rejected by Chamberlain J at pages 29-30:

"The contention that it had special value to the owners because they contemplated selling it in allotments themselves involves the fallacy so clearly exposed by Kitto J in Turner v. Minister of Public Instruction [1956] HCA 7; (1956) 95 C.L.R. 245, at p.291. How could it be worth more as a subdivisional project to the existing owners than it would be to another prospective subdivider alive to all the business implications?"

Mr Morgan's original valuation was dated 31 May 1996 (P12). He adopted two methods of valuation. By the "direct comparison" approach he reached a figure of $458,325 for the total area of 6.789 hectares. His valuation per hectare was $67,500. He annexed to his valuation a sales schedule listing nine comparable sales. By the so-called hypothetical subdivision method he originally reached a figure of $461,500 for the same area, using a margin for developer of 20%. He originally valued the land remaining after the acquisition, namely 1.535 hectares, at $130,475.

Mr Maloney did not in his valuation report, or in his evidence, refer to the "direct comparison" method, and nowhere in his evidence did he challenge the valuation of Mr Morgan in adopting that approach, or query his selection of comparable sales. Moreover, Mr Morgan was not cross examined on those sales. In his actual evidence before me, Mr Morgan finally indicated a preference for the "direct comparison" approach, and rejected the hypothetical subdivision method. After the respondent closed its case, I asked Mr Lunn whether he wished to recall Mr Maloney in all the rather unusual circumstances, but he declined the offer.

I have reached the conclusion that Mr Maloney's approach was erroneous. I am not persuaded that the acquired land was ripe for subdivision, and the hypothetical subdivision method of valuation is inappropriate where the land is not immediately ripe for subdivision, see Crouch v Minister of Works (1976) 13 SASR 553 at p557 and Brewarrana No.2 (1973) 6 SASR 541 at pages 552-554, 568, 574 and 576, and Chaney v City of Salisbury, Unreported Judgment S3437 delivered on 29 May 1992. Moreover, I do not accept Mr Maloney's choice of 7 1/2 % as the appropriate "margin for developer". I accept what Mr Morgan said in his valuation dated 29 April 1997 (D4). He said:

" ... my research and enquiries reveal that with the low demand for vacant industrial sites, there have been very few industrial subdivisons created post 1990 within the greater metropolitan Adelaide area.

Of these, some were developed by State Government authorities apparently in an attempt to support and encourage the local market and the economy. I have been unable to adequately analyse any of these divisions so as to determine a "Developer's Margin" with any level of reliability.

The bad experience of the better located 'Greater Levels' industrial estate which had failed just prior to this acquisition in my opinion would have been a significant dampener on any developer's willingness to take the risk of entering into the subdivision of the subject property.

Enquiries with various developers and selling agents has confirmed my own understanding and appreciation that in the very low demand market that existed for vacant industrial properties at the time of acquisition (and still exists) any developer would have required as an absolute minimum, a margin of 25%, but more likely in the range of 30% - 35% for the profit and risk of developing the subject land.

Under the circumstances I have adopted a Developer's Margin of 30% for the purpose of this compensation assessment."

Mr Maloney was cross examined about that evidence, and I quote therefrom:

"Q. What do you say about the latter part of that paragraph, 'The developer will acquire more like 30% to 35% for the property as a developer of the subject land.'

A. I think Mr Morgan is speaking generally about an industrial market, but then you will read it and make it specific to this property, but in the range of whether you be at Lonsdale or at Salisbury or Elizabeth, and a good sized development, I would have no quarrel with that range of figures.

Q. By what process do you reach the figure of 7 and a half per cent.

A. The process was that it wasn't going to the market. It wasn't being sold to a developer. It was a process where the Valentinis remained the owners of the property, decided, as they had previously done with the land, to cut some of it up

• they had gone through that process - to continue that process. As I have said to Mr Roder, I could have allowed a 10 or even 20% contingent to the figures one adds up, that is the cost of the roads and the drains, but, for the exercise I have done, I inserted a 7 and a half per cent1/2 factor, which is an entirely different test. And it is not to be compared with figures that developers pay, or expect, when they go out and develop land, which they have yet to purchase."

I am bound to say that I found Mr Maloney's evidence generally unconvincing in this case, and I reject it.

It is convenient here to mention that the claimants' sought to rely on an offer made just before the hearing of this claim of $300,000 made by Mr Peter Cocks for Lot 4 in DP 43903. However, such an offer can not be relied upon (see McDonald v Deputy Federal Commissioner of Land Tax (NSW) [1915] HCA 54; (1915) 20 CLR 231 at pp.239-240), and I note that even Mr Maloney did not rely upon it.

Coming to the question of disturbance, both valuers would allow a sum of money to the claimants for time wasted and out of pocket expenses in dealing with the respondent over the period from 1991 to 1995. The only evidence given by Mr Valentini was that he had "had some discussions with the Council between 1991 and 1995". Mr Maloney would allow $14,800 which was calculated on the basis of 80 hours a year for each of the claimants for four years at $20 an hour. Mr Morgan on the other hand would only allow a total of 265 hours for the claimants at the rate of $15 an hour. Having regard to the dearth of evidence, I am only prepared to allow $4,000 for this item of disturbance.

A claim was made for $1,000 for accounting expenses, but no evidence was given in support of that claim, and I disallow it.

The final item under the heading of disturbance is a claim for loss of rental income. A Vietnamese market gardener, Mr Tran, approached the claimants in early 1994, and offered to lease portion of the total area for five years. He ultimately agreed to lease it for one year with a right of renewal for another year at $7,000 per year. I allow the claimants the sum of $10,500 on the basis of a rental of $7,000 per year for 1.5 years. I also allow the sum of $625 paid by the claimants to Mr Tran for working up the land before the respondent gave notice of its intention to acquire it. The total amount therefore under the heading of disturbance is $15,125 ($4,000 + $625 + $10,500).

I have rejected Mr Maloney's evidence in this case, and I am bound to say that to some extent I have also felt some anxiety about Mr Morgan's evidence, not least in consequence of his vacillation on some aspects of his valuation.. However, I do accept his evidence that the direct comparison method is the most reliable and appropriate method in all the circumstances of this case. As I understand the claimants' counsel, he accepts Mr Morgan's opinion that the acquired land was worth $60,000-$75,000 per hectare

• if the direct comparison method is to be adopted. Mr Morgan initially valued it at $67,500 per hectare. I did not find convincing his reasons for lowering that value to $60,000 as he did in his last valuation. "In a compensation case doubts are resolved in favour of a more liberal estimate", (per Dixon J, as he then was, in Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd [1947] HCA 10; (1947) 74 CLR 358 at p374), and I fix $67,500 per hectare as the "before" value, making a pre-acquisition value for 6.79 hectares of $458,325. Deducting $140,000 for the "after" value, as agreed, a figure of $318,325 is reached. To this sum I add $15,125 for disturbance, making an award of $333,450.