Dunning v The Commonwealth

Each of the appellants brought an action against the Commonwealth in the Supreme Court of South Australia, pursuant to ss. 36 and 37 of the Lands Acquisition Act 1906-1936 (Cth), for compensation for the compulsory acquisition of lands. The parcels of land acquired from them respectively were contiguous with one another and lay to the west of the present Adelaide Airport. They were acquired for the purposes of the airport. The notification of acquisition was published in the Gazette on 5th December 1946, and as a consequence the value of the land for compensation fell to be assessed as at 1st January 1946: s. 29.

The actions were consolidated, and the consolidated action was tried by Piper J., who valued Dunning's land at £2,970, Charlick's land at £3,000, and the land of the Mile End Trading Company Limited at £5,750. His Honour ordered that judgment be entered for these respective amounts, together with interest at the rate of three per centum per annum (the rate fixed by s. 40) from 5th December 1946 until payment, but with certain allowances for payments which the Commonwealth had made on account. His Honour ordered the Commonwealth to pay the full amount of the plaintiffs' taxed costs, overruling a submission that they should not be allowed any costs after the first day of the trial because on the previous day the Commonwealth had made an offer to each of them to consent to judgment for an amount which turned out to be greater than the compensation determined. From the reasons for judgment it appears that if the offers had expressly included the statutory interest in addition to the sums offered for compensation, his Honour would have upheld the submission. The appellants now appeal against the determinations of compensation, and the Commonwealth cross-appeals both against the inclusion of interest in the judgment and against the order made as to costs.

At the valuation date, 1st January 1946, purchases of land were subject to control under the provisions of the National Security (Economic Organization) Regulations, which in general forbade purchases of land without the consent of the Treasurer of the Commonwealth. A valuation as at a date within the period of control, governed basically as it is by the principles enunciated in Spencer v. The Commonwealth [1] , cannot ignore the effect of controls. The manner in which allowance is to be made for this special circumstance has been considered by this Court in The Commonwealth v. Arklay [1] , where it is explained that what has to be ascertained is the amount upon which a willing seller and a willing buyer would have been likely to agree, on the assumption that the consent of the controller would be forthcoming, and on the footing that the buyer would be subject to the controls if he should desire to resell during the subsistence of the controls. In the present case the task of determining this amount fell to be performed by the trial judge some thirteen years after the valuation date. He, and therefore the witnesses who were called as experts to assist him with their opinions, were required to cast their minds back in the endeavour to recapture, after all that time, the state of facts and anticipations which it might reasonably be supposed would have influenced a hypothetical purchaser in deciding how much it would be prudent for him to give for the land sooner than fail to obtain it. The construction of an airport in the vicinity was too remote a possibility to be of practical concern; the considerable industrial development of South Australia, which has since taken place and which no doubt has affected greatly the values of land in comparable areas, could hardly have been foreseen; the hostilities of the Second World War had ended, but in which direction its aftermath would send the values of such land as the appellants' no one could possibly have been sure; land sales control in South Australia was in fact to end after less than four years, but no one in January 1946 could have predicted with any confidence how long it would last.

1. (1907) 5 C.L.R. 418. 2. (1952) 87 C.L.R. 159.

The task of valuation was therefore one of special difficulty, and it is hardly surprising that the witnesses who gave evidence as experts differed widely from one another in the figures they put forward. The learned judge, after a most thorough examination of the evidence, formed the opinion that the method of valuation which it was right to adopt in the circumstances was one which this Court in Arklay's Case [1] recognized as a possible course, though observing that it might be considered unnecessary in many cases and artificial. That was the course of ascertaining what the land sales controller might have been expected to sanction, and adding an amount, which has been referred to as a retention value, that is to say a sum to compensate the owner for the present value of the enhanced price which the purchaser might expect ultimately to obtain.

In deciding that this was the course most likely to give reliable results in the circumstances of the case, his Honour rejected views which had been expressed in evidence by the two valuers who were called by the appellants. They were a Mr. MacCormick and a Mr. Catt, who proffered valuations based mainly on a capitalization of what they considered to be the rental values of the land. There were cogent reasons for declining to accept their values. They proceeded on the more than doubtful assumption that because small parts of the subject lands were let at the relevant date, parts which had special features favourable to their use for market gardening, the whole might have been let for that purpose; and Mr. MacCormick at least did not make any deductions from the saleable area for drains and entry roads. The evidence did not establish that there was such a heavy demand for market gardening land as there must have been if the whole area had been lettable. Moreover, neither of the witnesses made any allowance in their figures, either for the restrictions arising from land sales control or for the considerable expenditure that would admittedly have been necessary for drainage and reclamation. Mr. MacCormick said that he had paid some regard to a resale in 1951 of some land in the vicinity, which the vendor had bought in 1945. What this person had bought for £44 an acre he sold on a free market for £250 an acre. But by the time of the sale too much time had gone by and too great changes had occurred for this sale to be useful. It has no relevant tendency except to confirm what everyone in 1946 would have assumed: that if and when controls should be removed, prices would probably go up. The actual figures are more likely to mislead than to assist in the consideration of the present case. Neither Mr. MacCormick nor Mr. Catt put forward comparable sales as affording any substantial assistance in the task of valuation, and it is right to say that although on the appeal attention has been drawn to a number of proved sales of land in the vicinity, particularly sales of industrial sites nearer to Port Adelaide, there was good reason, in differences of suitability and differences of date, for putting these sales on one side as unhelpful. It should be emphasized that neither Mr. MacCormick nor Mr. Catt considered that any of the subject land was suitable in 1946 for development as industrial or building land. It was low-lying, swampy land, mainly sand dunes and samphire country, and although only five miles from the centre of the city it was not at all likely, as things stood in 1946, to be in any demand for industrial or housing purposes.

The Commonwealth called as witnesses two valuers, a Mr. Richards and a Mr. Bowen. Of the latter little need be said. The learned judge did not greatly rely on his evidence, because his consideration of the land was at a time when he was inexperienced, and at the trial he was not in a position to do much more than express his agreement with opinions which had been formed by another valuer, since deceased, whom he had been assisting. On Mr. Richards' evidence, however, his Honour largely founded his conclusions. Mr. Richards had been, until retirement, a valuer in the Land Tax Department, and while land sales were controlled under Commonwealth legislation he had acted as one of a panel of valuers assisting the delegate of the Treasurer. He had known for many years the area in which the appellants' lands were situate, though his first inspection for the purposes of valuation was in 1958. The way in which he arrived at his valuations was to make up his mind, in respect of each parcel, at what figure a sale at the relevant date would have been consented to by the land sales controller (allowing in that for improvements and for disturbance, and apparently working from the prices at which the appellants themselves had bought the lands), add thirty-three and one-third per centum as being in his opinion the difference between that figure and the price that would have been obtainable if the market had been completely free, and subtract fifteen to twenty per centum for compulsory retention. The selection of the thirty-three and one-third per centum as sufficient to produce the free market value was of course open to attack, and it was heavily attacked in cross-examination. The only defence of it which Mr. Richards offered was that his long experience had led him to adopt it, and to adopt it as a maximum. He had not based it on any specific facts, or on any process of reasoning. He was aware of a number of sales of land in the general locality, some under controls and some after controls had been lifted, but he regarded them as affording him no assistance. He also treated as unhelpful the facts as to the use that was being made and might possibly have been made of parts of the land, and the rentals that were being obtained from the few portions that were let. On the appeal it has been strongly contended that his evidence was vitiated by two errors, and that because of them the learned trial judge was wrong in placing any reliance on his figures. The suggested errors consisted in his adoption of the thirty-three and one-third per centum and his failure to use the available material which has been mentioned. As to the latter, it is enough to say that the material was not by any means cogent, and his Honour was well justified in accepting expert opinion that it provided no worthwhile guidance. As to the thirty-three and one-third per centum, all that can be said is that, while it rested upon nothing more than the general notions which Mr. Richards' experience as a valuer had bred in him, the fact that it did represent the judgment of an experienced valuer clearly qualified it for acceptance by the tribunal of fact. In many cases such evidence, because it is unsupported by reasoning which can be tested as to its factual bases and its logical soundness, may well fail to satisfy the judicial mind, particularly where there is countervailing evidence of opinions formed upon examinable grounds. But here the judge was confronted with an almost complete absence of the kind of material on which valuations are most commonly founded, and with no expert evidence, once Mr. MacCormick and Mr. Catt had been put aside, which competed with that of Mr. Richards.

The appellants contend that, even so, the trial judge was not justified in placing any reliance on Mr. Richards' figures, and that the case should be sent back for a new trial on the ground that the evidence adduced at the first trial did not enable the compensation to be determined. We would not be justified in acceding to this submission. It is true that on paper Mr. Richards' evidence seems to provide but slender ground for a conclusion; but the learned judge had the difficult task of doing the best he could with exiguous material, and it is impossible to deny that Mr. Richards' evidence, though it may be thought to call for critical and even sceptical consideration, gave his Honour, if he were satisfied to accept it, something on which he might work. Whether it should be accepted was for him to decide. The question depended very much upon the impression which Mr. Richards made upon the judge's mind as a witness and as a valuer. Evidently his Honour felt that Mr. Richards' experience and judgment afforded a sufficient guarantee of the reasonableness of the thirty-three and one-third per centum for him to be content to proceed on that basis. Clearly he was acting within his province in doing so.

There were four parcels of land to be valued, one owned by Dunning, one by Charlick and two by the Mile End Trading Company Limited. His Honour took Dunning's land first. It was an area of forty-two acres, and Dunning had bought it in 1943 for £17 4s. 0d. an acre. The value per acre for which Dunning contended in his claim as at 1946 was £345. Mr. MacCormick valued it at £250 an acre and Mr. Catt at £190 an acre. In this instance as in the others, the appellants' case in support of a figure far above the price which had been paid was, in substance, that in the interval Charlick had made a discovery. The discovery was that land which seemed almost useless, and had been sold for "give-away" prices, could be made to grow vegetables on a commercial scale by damming and using for irrigation the water in creeks or channels which crossed the subject land. Some of this water was effluent from industrial premises some distance away, but its chemical content was found suitable for vegetable-growing. Counsel who appeared at the trial for the appellants suggested that the discovery of the irrigation possibilities should be allowed an effect upon values comparable with the effect of the discovery of a coal deposit. His Honour was unimpressed. Without going into the topic in detail it will suffice to say, after consideration of the relevant evidence and of his Honour's observations upon it, that it was, to say the least, well open to his Honour to conclude that the creeks had nothing like the potential utility which Charlick had supposed. They were really in the nature of drains, carrying down towards the sea waste and storm waters some of which came from a considerable distance; and no purchaser would be justified in assuming either that the volume of water would always be sufficient or that he would have a free hand in damming it for use in irrigation.

The method of valuation which his Honour adopted was similar to Mr. Richards'. He thought that Mr. Richards' figure of £3,269 for the value on a free market was about right, considering the matter on a productivity basis, and he adopted the round figure of £3,300. He thought Mr. Richards' deduction of fifteen to twenty per centum for retention was too high, and preferred ten per centum. This produced the final figure of £2,970, nearly £45 an acre above what Dunning had paid three years before.

Charlick's land, some 93 acres in all, had been bought in 1946, a few days after the valuation date, for £2,300. Piper J. valued it at £3,000, accepting Mr. Richards' estimates of £2,341 as the probable price on a sale under controls, and £3,216 as the free market value. This allowed for a retention deduction of nearly fifteen per centum. Again his Honour considered the value on the basis of productivity, rightly putting aside any idea that the land was suitable for industrial or building development.

The Mile End Trading Company's land consisted of a western block of 100 acres and an eastern block of 67 acres. The former had been bought for £1,700 late in 1944, and the latter for £1,400 in April 1945. Piper J., on the same basis as he used for the other lands, valued them at £3,750 and £2,000 respectively, relying in each case on Mr. Richards' figures.

The conclusions thus reached were, in our opinion, open to the learned judge on the evidence. His reasons for judgment reflect a patient attention to detail and a close study of the whole case. In dealing with the Mile End Trading Company's Western block, after saying that Mr. Richards had been in that instance rather generous, his Honour remarked significantly: "but I rely upon him in the absence of some better guide". It may perhaps be a matter for regret, but it is the fact, that no better guidance was available to his Honour than that which Mr. Richards' evidence afforded; and Mr. Bright's thorough examination of the case before this Court has not succeeded in establishing any ground upon which a court of appeal would be justified in interfering with the conclusions which resulted from a use of Mr. Richards' figures with the modifications his Honour thought to be required.

That being so, the appeal, in our opinion, should fail. We turn to the cross-appeal, dealing first with the question whether the judgment was erroneous in including a provision for interest. Piper J. said that if the matter had been res integra he would have been inclined to hold that all the Court is concerned to do in an action under ss. 36 and 37 is to determine the compensation payable, leaving questions of payments on account, set-off (other than set-off for enhancement, under s. 37 (9) (c)), counterclaims, and interest to be determined in some other manner. But his Honour referred to a number of cases in which judgments had gone beyond the determination of compensation and had given relief as in an action of debt or damages; and, coming to the conclusion that there was a settled practice to this effect, he ordered judgment to be entered to the effect that has been mentioned.

Consideration of the point must begin with s. 17, by which the estate and interest of every person entitled to land specified in a notification of acquisition is to be taken, on publication of the notification, to have been converted into a claim for compensation. Where the claim is disputed, it may be determined by "an action for compensation by the claimant against the Commonwealth": s. 36 (b). Subject to certain provisions which do not bear on the question, "an action for compensation" is to be heard and determined in the same manner as ordinary actions: s. 37 (1). The Court is thus empowered to give judgment for the compensation, and to do so in accordance with the practice of the Court in ordinary actions. It is true that by s. 37 (9) it is provided that on the trial of the action the Court shall determine (a) the total amount of compensation which would be payable by the Commonwealth to the plaintiff if no enhancement in value of other lands were to be set off, (b) the amount (if any) attributable to each item in the prescribed form of claim, (c) the amount of enhancement in value of other lands to be set off under s. 28 (2), and (d) where two or more persons are entitled to share in the compensation, the amount payable to each and the manner in which it is to be paid. But the prescription of these matters as matters to be determined does not alter the fact that the action is for compensation and is to be determined by a judgment conforming to the practice obtaining in ordinary actions. No doubt a defence of cross-action, set-off or counterclaim, or a defence of payment or payment into court, if it would have been available to the Commonwealth had the action been an ordinary action in the court, may be set up in an action for compensation under the Act. And no doubt if the appellants' claim for interest had been based upon a power residing in the Court, under some statutory provision or some general principle of law or equity, to make any award of interest by way of incidental relief, the compensation and the interest might properly be dealt with in the one judgment. But the subject of interest on compensation moneys under the Lands Acquisition Act is covered by s. 40 of the Act, and that section plainly intends to deal with the topic exhaustively. It provides that compensation shall bear interest at the rate of three per centum per annum from the date of the acquisition, or the time when the right to compensation arose, until payment thereof is made to the claimant or deposited in the Treasury. (There is a proviso, but there is no need to consider it in this case, because Piper J. held it to be inapplicable on the facts and there is no appeal against that part of his decision.) The right to interest is thus separately conferred by the statute, and when interest becomes payable the cause of action is separate from the cause of action for compensation. If the action for compensation were brought after the amount of the compensation had been determined, e.g. by agreement under s. 34, there could be no objection under the Act to the joinder of the two causes of action in the one proceeding. But where, as here, the purpose of the action is to have the amount of compensation determined, it is premature to consider the question of interest in that action. In the present case interest was not even mentioned in the statement of claim, and in our opinion it should not have been dealt with in the judgment. The objection to its being there dealt with is not, as was suggested during the argument, that State legislation providing for interest on judgment debts would cause interest to become payable on the interest itself: this result could not ensue, for s. 40 prescribes what the Commonwealth's liability for interest shall be, and any State legislation on the topic would be precluded by s. 109 of the Constitution from applying to the case. The objection is that the Commonwealth's statutory liability for interest was not in issue in the action, and therefore was not a subject for adjudication.

The Commonwealth's only reason for appealing against the decision of Piper J. as to the inclusion of interest is to be found in the part which interest played in his Honour's determination of the question of costs. When his Honour had announced his findings as to the respective amounts of compensation, he was informed of the offers to consent to judgment which the Commonwealth had made on the day before the hearing; and as the amount offered to each of the appellants had been higher than the amount of compensation determined, his Honour was invited by the Commonwealth to make a special order as to costs. This, as we have mentioned, he would have been prepared to do, but for the fact that the offers contained no mention of interest. He considered that for that reason they failed to offer the appellants all they were entitled to. His Honour approached the question as if it were to be decided by applying the provisions of O. 22, r. 4A, of the Supreme Court Rules (S.A.). This is hardly to be wondered at, since the offers had been expressed as made pursuant to that rule, and the parties had dealt with the matter on the footing that the position as to costs depended upon whether the rule applied. This was, in our opinion, a mistake. The law on the subject of costs in an action for compensation is to be found in s. 37 (1) (d) of the Lands Acquisition Act, by which the Court deciding the action is given an unfettered discretion. The real question was simply how this discretion ought to be exercised in all the circumstances of the case. Amongst the circumstances was the fact that the offers had been made. It was, in our opinion, immaterial that the offers contained nothing as to interest. It would have been immaterial even under O. 22, r. 4A, because the appellants were not entitled to have interest included in the judgment. In any case they could not have been in the least doubt that the Commonwealth was offering to consent to judgments for the respective amounts of compensation mentioned, leaving the right to interest untouched and therefore to be governed by the statute. Under s. 37 (1) (d) the omission of all mention of interest was still more clearly immaterial. In continuing the action after the making of the offers the appellants were not seeking the resolution of any dispute about interest: their sole purpose was to obtain a higher award of compensation than the Commonwealth had offered them. In the event, each of them was awarded less than he had been offered. In these circumstances, something might be said for giving the appellants their costs up to the first day of the trial but giving the Commonwealth its costs thereafter. It seems right, however, to make the order which his Honour intimated that he would have made if he had thought that the Commonwealth had offered the appellants as much as they were entitled to receive.

In the result, we are of opinion that the appeal should be dismissed with costs, that the cross-appeal should be allowed with costs and that the judgment of the Supreme Court should be so varied as to delete the provisions as to interest and to limit the costs of the consolidated action which the appellants are to recover from the respondent to their costs up to and including 19th November 1958.