Sydney, 1978, October 30, 31. 1979, April 5. 5:4:1979

GIBBS J. I have had the advantage of reading the reasons for judgment which I wish to add a few remarks. (at p353)

2. One of the submissions made on behalf of the appellant was that Mr. Cox, in making his valuations, had committed an error of principle, and that the learned primary judge should not have accepted those valuations as part of the basis upon which he founded his award of compensation, at least not without making an appropriate correction to them. It was said that this error lay in reducing the estimated annual maintainable profit from the quarrying business by an amount arrived at by amortizing the original cost of the leasehold rights. In his first valuation of the business, Mr. Cox estimated that the average profit to be expected from the business over a seven year period was $47,000 per annum. He said that by the end of that period the quarry reserves would have had a life of about ten years, that is, they would have lasted until about the time when the lease expired. Mr. Cox then went on, in par. 17 of the valuation which is set out in the judgment of my brother Mason, to say that the whole of the trading profits after tax could be distributed as dividends, after first retaining amounts which in total would equal the original cost of the leashold rights. He regarded the sum of $62,497 as representing the adjusted capital cost of the leashold to a hypothetical buyer at 31st December 1973, and assumed that this cost would be amortized at the rate of $3,500 per annum. He then concluded that an investor would have looked for an average annual return of $43,500, but otherwise would have expected to receive only his capital intact at the expiration of the lease in 1991. In his opinion the hypothetical investor would have required a yield of 20 per cent, and would not have bid more than $215,000 for the quarrying right, plant and stocks of the business. In his second valuation, based on estimated maintainable profits on sales excluding "the transient freeway sales", Mr. Cox made the same deduction for amortization; his valuation on this basis was $171,000. (at p354)

3. In my opinion it was not wrong in principle for Mr. Cox to make a valuation on the basis that a hypothetical purchaser of the business would expect to receive back his capital intact at the end of the lease. No doubt it would have been possible to make a valuation on the assumption that none of the capital would be recovered, but on that assumption the hypothetical purchaser would obviously require a higher yield of income on the capital invested, and to increase the rate of capitalization to take account of that fact would of course tend to reduce the amount of the final valuation. In one way or another allowance had to be made in the valuation for the fact that the business had a limited life - that it was, in effect, a wasting asset. It is not without significance that the valuer called for the appellant, Mr. Adamson, made an allowance of this kind. His method was to capitalize the estimated maintainable annual profit. That gave him a figure of $500,000 from which he deducted $21,650 which he described in his valuation as follows: "Deduct present value of $500,000 in twenty years' time in recognition that quarry may then he worked out and no continuing business at that time. Multiplier .0433." The difference represented the value of the business as a going concern, although it was necessary to make certain adjustments which it is unnecessary to mention. Counsel for the respondent, in argument, placed some reliance on the fact that one of the valuers upon whose opinions the judge based his conclusions, Mr. Burgess, did not make any deduction to represent the amortization of the cost of the business. Nothing appears in the valuation of Mr. Burgess to show that he did take amortization into account, but he was asked in evidence whether he regarded the amortization of the lease as a cost of production, and replied: "I do. It should be written off over a reasonable period or (sic) not greater than the expected life of the quarry." There is nothing in the evidence that supports the view that it is inappropriate for Mr. Cox, in making his valuations, to amortize the cost, to the hypothetical purchaser, of the business which he was acquiring, and in that way to take account, as a prudent purchaser would do, of the fact that the business and the quarry had a limited life. (at p355)

4. Although the method used by Mr. Cox was fundamentally sound, his application of it was not free from error. In one respect - in amortizing a sum representing the adjusted value of the purchase price paid by the appellant, instead of the capital sum that would be outlaid by the hypothetical purchaser - the error was likely to inflate the valuation, because the latter sum considerably exceeded the former. In another respect - in dividing the sum to be amortized by the number of years over which the amortization was to be effected - the error was likely to diminish the valuation, because the process adopted would create too large a sinking fund, and thus result in an excessive deduction. The two errors pulled in different directions, and although they did not completely cancel each other out, the resulting error was likely to be comparatively minor. But in any case these errors made by Mr. Cox did not enter directly into the assessment of the learned primary judge. It is true that the evidence of Mr. Cox provided one of the bases of the assessment, but so did the evidence of Mr. Burgess whose valuation was below the basic figure which the learned judge finally adopted. The evidence was voluminous, and the case was one in which much depended on matters of estimate and opinion. An appellant who seeks to disturb the assessment of compensation made by a court in a case of compulsory acquisition will not succeed merely by showing that one of the valuations on which the assessment was based contained some errors, particularly when it has not been shown either precisely what effect those errors had on the valuation, or that the errors were repeated by the court in making the assessment. The principles to be applied by an appellate court in such a case were discussed by Dixon J. in The Commonwealth v. Reeve [1949] HCA 22; (1949) 78 CLR 410, at p 423 , as follows:

"In Commissioners of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd. [1947] HCA 10; (1947) 74 CLR 358, at p 367 , the following passage occurs in the judgment of Latham C.J., Rich and Williams JJ.: 'It would not be proper for this court on an appeal of this nature to substitute its own opinion for that of the court below unless it were satisfied that the court below acted on some wrong principle of law, or that the value was entirely erroneous.' Their Honours then refer to the statement of Lord Buckmaster in Charan Das v. Amir Khan (1920) LR 47 Ind App 255, at p 264 that the 'Board will not interfere with any question of valuation unless it can be shown that some item has improperly been made the subject of valuation or excluded therefrom, or that there is some fundamental principle affecting the valuation which renders it unsound.'

The rule thus laid down is almost indispensable to the administration of justice in compensation cases. For the estimation of a money sum is usually so much a result of judgment and sound discretion and so little the product of analytical reasoning, that, were it otherwise, every appeal would mean an assessment of compensation de novo, without any assignment of error in the reasoning or conclusions of the court appealed from." (at p356)

5. I agree with the reasons given by my brother Mason for rejecting the argument that the legislature of South Australia, in using in s. 25 (h) of the Land Acquisition Act, 1969 (S.A.), as amended, the words "the value of the land", rather than "the actual value of the subject land" which appear in s. 25 (b), intended to give a new and restricted application to the established principle reaffirmed in Pointe Gourde Quarrying and Transport Co. Ltd. v. Sub-Intendent of Crown Lands (1947) AC 565 . It was further argued that it was a misapplication of that principle to hold that in making a valuation no account could be taken of the so called "stable freeway sales" - sales that it was thought might have been made on the wider market for the products of the quarrying business that would have come into existence because of the increased development that would have followed the building of the freeway. That argument should also be rejected. The Pointe Gourde principle has been frequently expounded and discussed, but for present purposes it is enough for me to cite two statements of the principle. In Fraser v. City of Fraserville (1917) AC 187, at p 194 :

". . . the value to be ascertained is the value to the seller of the property in its actual condition at the time of expropriation with all its existing advantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for which the property is compulsorily acquired, the question of what is the scheme being a question of fact for the arbitrator in each case."

And in Melwood Units Pty. Ltd. v. Commissioner of Main Roads (1979) AC 426, at p 434 , Lord Russell of Killowen said:

"Under the principle in Pointe Gourde Quarrying and Transport Co. Ltd. v. Sub-Intendent of Crown Lands . . . the landowner cannot claim compensation to the extent to which the value of his land is enhanced by the very scheme of which the resumption forms an integral part: that principle in their Lordships' opinion operates also in reverse." (at p357)

6. The scheme underlying the acquisition in the present case was the building of a freeway. It is clear that any enhancement to the value of the land caused by the building of the freeway should be disregarded. It seems to me to follow that if the building of the freeway had the result that population in the area increased, and that a wider market became available for the products of the quarry, the effect of those circumstances on the value of the business, and thus on the value of the land, must be disregarded. Equally, if the scheme underlying the acquisition had been the establishment of a noxious industry, and its establishment had led to a decline in population, the resulting diminution in value of the subject land would have had to be ignored. It will sometimes be difficult to determine whether a change in value or in circumstances is due only to the scheme underlying the resumption, or to other causes as well. In the present case, a wider market for the products of the quarry might have developed as the result of the expansion of the population in the area for reasons quite unconnected with the building of the freeway. In making a valuation it was proper to consider the actual or probable availability of any such wider market. It was by no means easy to estimate the extent to which the market for the products of the quarry would have increased even if the scheme underlying the acquisition had not been carried out. However, the learned primary judge expressed his awareness of the difficulty of resolving this question of fact. He had previously discussed a similar question in Crompton v. Commissioner of Highways (1973) 5 SASR 301, at pp 304-310 and had concluded (1973) 5 SASR, at p 310 :

". . . given an increase in relevant land values that is attributable partly to the imminence or implementation of the scheme and partly to other causes, the valuer, and hence the court by making proper use of his evidence, must do his and its best to sever that part of the increment that can fairly be attributed to the influence of the scheme, but to give due weight to the remainder of the increment. (The same principle applies, mutatis mutandis, to decreases in relevant land values.)"

In that way the court excludes any increase or decrease in value that is entirely due to the scheme underlying the acquisition, but gives effect to increases or decreases due to other causes. The learned primary judge applied the correct principle to the facts of the present case and it has not been shown that he fell into error in doing so. (at p358)

MASON J. This is an appeal by the claimant in an action for compensation under the Land Acquisition Act, 1969 (S.A.), as amended, in the Supreme Court of South Australia arising out of the resumption by the respondent of land at Mt Barker of which the claimant was the lessee. As the appellant's name suggests, it carried on business as a quarry master. The land in question was the site of a quarry having substantial reserves of stone suitable for road-making. The effect of the resumption was not merely to extinguish the appellant's interest in the land but also to terminate its business as a quarry master, the site being its only source of road-making materials. The appellant sought compensation for the taking of the land and the consequential loss of its business; in addition, it had subsidiary claims for disturbance. The total amount claimed was $1,517,940. Wells J., who heard the action, awarded the appellant compensation in the sum of $147,350, together with interest. In giving judgment his Honour had the advantage of applying answers given by the Full Court of the Supreme Court to certain questions of law which he had referred to the Full Court at an earlier stage of the proceedings. (at p358)

2. Mr. Johnston, for the appellant, submitted that the amount awarded was inadequate on three separate, though related, grounds. An examination of these grounds requires some understanding of the nature and prospects of the appellant's business and the approach which his Honour made to the determination of the claim. (at p358)

3. The land which the appellant held on lease was an area consisting of 19 1/4 acres known as "the quarrying land" and an additional area of four acres known as "the grazing land". It was on the quarrying land that the appellant conducted its business of extracting quartzite and sandstone, processing them into various grades and types of crushed rock, sand and rubble for sale. The appellant's lease obliged it to pay a fixed rent of $30 per week, together with a royalty of five cents per ton (increasing to six cents per ton after 1st February 1979) in respect of each ton of material quarried and sold by the appellant in excess of 3,500 tons in any one three-monthly period. (at p358)

4. By a Notice of Intention to Acquire Land for a Public Work or Undertaking dated 5th July 1972, the respondent gave notice of its intention to acquire the whole of the land leased by the appellant for the purposes of the South-Eastern Freeway, a major highway leading from Adelaide in the direction of Murray Bridge. Portion of the grazing land was subsequently excluded from the land to be acquired and a further notice dated 3rd April 1973 amending the notice earlier served was served on the parties. A Notice of Acquisition dated 4th September 1973 was published in the Government Gazette of 6th September 1973 by which the respondent acquired an unencumbered estate in fee simple in the whole of the appellant's land, except a small area of the grazing land which had been excluded by the Notice of Alteration. The whole of the quarrying land was included in the Notice of Acquisition. (at p359)

5. The appellant remained in possession of the land acquired until 21st January 1974 by which time substantially all of its plant and equipment had been removed from the land. It is common ground that the crushing plant was dismantled during November 1973. (at p359)

6. The quarrying land contained reserves of quartzite in excess of 2,000,000 tons. These reserves constituted a more than adequate source of supply for the balance of the term of the appellant's lease. (at p359)

7. Mr. Dunow, a valuer called by the respondent, valued the appellant's interest in the land, including the value of the business, on the basis of comparable sales. He relied chiefly on the sale of the land by its previous owners, Mr. and Mrs. R. M. Fiora, to the appellant under an agreement made on 30th November 1971, the consideration for which was expressed to be $250,000 payable as to the sum of $1,000 on the signing of the agreement and thereafter by monthly instalments of $1,000. No interest was payable on any part of the purchase price. Dunow discounted the consideration to a present value of $93,000 at the time of the sale. He also discounted that figure by reason of the increased value he placed upon the quarry at that time because the proposals for the Freeway placed it adjacent to, but not on, the site of the quarry. Dunow then increased his discounted value of the sale price by a combined rate of 10 per cent per annum designed to reflect changes in circumstances between the date of that sale and the date of acquisition. His valuation was subject to the deduction of the value of the plant and equipment retained by the appellant, less the reasonable cost of its removal from the land. By way of a check on his valuation Dunow also relied on a sale of the share capital in Rockfell Quarries Pty. Ltd., a company carrying on quarrying business on sites near Woodside and Lobethal. (at p360)

8. The judge found that he was unable to regard Dunow's final figure, with or without adjustment, as central to the determination of compensation because the sale by the Fioras and the Rockfell sale were not comparable sales. The accuracy of his Honour's finding on this issue is not now in question. However, his Honour went on to say that Dunow's reasoning and his figures should not be wholly discarded. Unfortunately, nowhere did his Honour indicate to what extent and in what manner he was placing reliance on Dunow's evidence, except to the extent that he said that he regarded it as controverting the evidence of Mr. Hannes, a witness called for the appellant. The evidence of Hannes is of no present concern to us because the judge placed no reliance upon it and the appellant now accepts that his Honour was entitled to reject it. It seems that the judge used Dunow's reasoning only for the purpose of confirming in a very general way the respondent's case and as denying the appellant's case. There is no indication that the judge discounted the valuations of the valuers whom he accepted on the ground that Dunow had placed a lower value of $93,000 on the appellant's interest in the land. Accordingly, his Honour's qualified reliance on Dunow was not a vitiating factor. (at p360)

9. The judge also rejected the evidence of Mr. Adamson, a valuer called by the appellant, and substantially accepted the evidence of Mr. Burgess and Mr. Cox, two valuers called by the respondent. The values which Burgess and Cox attributed to the land were based on estimates as to the future profitability of the business prepared by Messrs. Hunt and Gardiner whose evidence was also accepted by the judge. Their estimates are referred to as the Hurll figures because they were initially put forward by Norman J. Hurll & Co. (Australia) Pty. Ltd., an engineering consultant and management company, of which Gardiner was a director. The estimates included, and separately identified, sales which the appellant could be expected to make to the respondent for the construction of the freeway itself ("transient freeway sales"). The estimates also included other sales which could be expected to be made in consequence of development in the region resulting from the construction of the freeway ("stable freeway sales"). Estimated sales falling within the first category ("transient freeway sales") were based on estimates of the progress of the freeway construction because the appellant could supply materials on a competitive basis only when the construction was within competitive transport limits of the quarry. (at p360)

10. Burgess made three valuations. The first was contained in a letter dated 24th October 1974. It was based on the Hurll figures in which potential transient and stable freeway sales were taken into account. He used, correctly as the judge found, "a capitalization of estimated maintenance profits which includes a risk element rather than a cash discounting of future profits which ignores such risks". He accepted the eight-year period chosen for the Hurll figures. Burgess then calculated the value as follows:

"Total net profit for the eight year period in accordance with the profit budget prepared by Norman J. Hurll & Co. (Australia) Pty. Ltd. before income tax $680,000

Maintainable future annual net profit before

income tax (1/8th of total) $ 85,000

Capitalised at 30% $283,000

My valuation of Emerald Quarry Industries Pty.

Ltd. business as a going concern as at the date of

acquisition, September 6, 1974 $283,000" (at

11. Burgess subsequently made a valuation based on Hurll figures from which were excluded the transient Freeway sales. The Hurll figures included stable Freeway sales. This valuation was again based on a capitalization rate of 30 per cent before tax. It produced a valuation of $152,500. (at p361)

12. Cox capitalized the profits over a seven-year period. Taking the Hurll estimate of profits for the years 1974 to 1980 inclusive and applying a taxation rate of 471/2 per cent he arrived at an annual average net profit after tax of $47,000. He then proceeded to make an adjustment to this figure. His reason for doing so is set out in his valuation dated 6th November 1974. Paragraphs 17 and 18 of the valuation state:

"17. It could be presumed that at the end of the lease the quarry would be worked out completely and the plant would have only minor scrap value. Cash to be spent by the purchaser for plant would be recouped mainly from cash flow arising from depreciation charges and it could also be expected that cash injected and retained from time to time for working capital would be fully recouped on the winding up of the business. It follows therefore that the whole of the trading profits after tax could be distributed as dividends over the years after first retaining amounts which in total would equal the original cost of the leashold rights (that is, the sum of $62,497 (see par. 6) would be amortized at the rate of, say, $3,500 per annum as an appropriation of profits).

18. An investor therefore would have looked for an average annual return of $43,500 but otherwise would have expected to receive only his capital intact at the expiration of the lease in 1991. Having regard to the particular circumstances outlined in this valuation and to the investment conditions prevailing in the latter part of 1973, in my opinion an investor would have required a yield of at least 20% per annum on his purchase of the quarrying rights and plant and stocks from Emerald Quarries Pty. Limited and to operate the business as a going concern. On this basis he would not have bid more than $215,000. His assessment of values of assets to be purchased totalled $178,696 (par. 8) and the excess of $36,304 in the purchase price represents goodwill." (at p362)

13. The sum of $62,497 mentioned in par. 17 is the adjusted capital cost of the leasehold quarrying rights as at 31st December 1973 acquired by the appellant under its agreement with the Fioras. (at p362)

14. The judge made this comment on the way in which Cox dealt with the figure of $47,000 annual profit:

"From this figure Mr. Cox considered that a prudent business operator would amortize the original cost of the leasehold rights - referring, as I understand him, to the Fiora debt. He also used Hurll figures that assumed the transient Freeway market to be available, but reduced the initial figures so based by an amount attributable to the opening of the Macclesfield market. For reasons already given, I must reject both those assumptions."

As I read this passage, one assumption to which his Honour refers is the assumption that the transient freeway sales should be taken into account. It is not altogether clear whether the second assumption is the relevance of having regard to the debt to the Fioras in calculating amortization - his Honour had already held it to be irrelevant - or the correctness of making an allowance for competition to be expected from the Macclesfield quarry which opened in 1974. (at p362)

15. Cox produced a second valuation based upon Hurll figures which excluded the transient freeway sales, but not the stable freeway sales. He applied to the profit so calculated a capitalization rate of 12 per cent after tax, the calculation yielding an amount of $171,000. Mr. Cox thought that, with the transient freeway sales excluded, the business was less vulnerable to risk and he accordingly reduced the capitalization rate to 12 per cent, a step with which the judge did not agree. (at p362)

16. Wells J. concluded that a willing but not anxious seller and a willing but not anxious buyer, realizing that the quarry business gave to the subject land a special value to the appellant, would have fixed $165,000 as the basic sum upon which they would have agreed for the sale of the business as a going concern. To this figure the judge added sums of $4,000 and $350 and from it he deducted $22,000 representing the value of plant removed from the site by the appellant, being plant in which the property passed to the respondent by virtue of the acquisition. The correctness of making the two additions and the deduction is not now in question. (at p363)

17. It is apparent that the judge preferred the valuations of Burgess and Cox to the other valuations which were tendered in evidence. The figure which his Honour selected, namely $165,000, was based on an expressed preference for a capitalization based on an eight-year projection of profits to one that was based on a seven-year projection. The judge said that he "should feel safer" using the capitalization based on the longer period. The figure of $165,000 lay between the valuations that Burgess and Cox based on an exclusion of transient freeway sales. It also reflected the application of the Pointe Gourde principle (see Pointe Gourde Quarrying and Transport Co. Ltd. v. Sub-Intendent of Crown Lands (1947) AC 565 ). (at p363)

18. For present purposes this principle is embodied in s. 25 (h) of the Land Acquisition Act. Wells J. acknowledged that the section required the Court to determine the value of the land to the owner and to exclude from that value any increment due to the construction to be undertaken by the resuming authority. However, his Honour interpreted the section as directing him to make no discount or allowance for enhancement in the value of the land to the appellant in so far as it represented the special site on which its business was carried on, in consequence of the freeway scheme. (at p363)

19. The judge found that as the construction of the freeway approached the appellant's quarry and came and remained within competitive transport limits, it would offer to the quarry an assured market for its products. This demand would have been transient for it would have lasted for three to four years only during the period when the construction remained within competitive transport limits. Furthermore, the extension of the freeway would have resulted in the development of the country areas which it was designed to serve. That development would have stimulated demand for the products of the quarry. In the opinion of the judge, s. 25 (h) required the exclusion from consideration of these two potential markets, the transient and stable freeway sales. The transient, but not the stable freeway sales, were in fact excluded in the second valuations made by Burgess and Cox and it is this circumstance that accounts for the reduction in their valuations. But the judge also found that, on the hypothesis that the appellant would not have secured any part of these markets, it would have competed strongly in the general market and that its efforts would have achieved some measure of success. This, his Honour thought, required a moderate allowance to be made in favour of the appellant, an allowance which increased the values assigned by Burgess and Cox in their second valuations. His Honour also made an unquantified allowance adversely to the appellant in respect of the stable freeway sales on which the Burgess and Cox valuations were based. It is not possible to demonstrate mathematically how the judge arrived at his figure of $165,000. Nor is it possible to ascertain precisely the relationship which this figure bears to the second Burgess and Cox valuations. (at p364)

20. The appellant's major submission was that Wells J. erred in his interpretation and application of s. 25 (h). It is convenient to refer to pars. (a) and (b) as well as par. (h) of s. 25. So far as it is material, the section provides:

"The compensation payable under this Act in respect of the acquisition of land shall be determined according to the following principles: -

(a) 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;

(b) in assessing the amount referred to in paragraph (a) of this section consideration may be given to -

(i) the actual value of the subject land;

and

(ii) the loss occasioned by reason of severance, disturbance or injurious

. . .

(h) no allowance shall be made for any enhancement or diminution in the

(a) the passing of the special Act;

(b) the acquisition under this Act of any other land;

or

(c) any proposal to execute the authorized undertaking, or any expectation

As we have seen, Wells J. concluded that the expression "the value of the land" in par. (h) means something more than "the actual value of the subject land" in par. (b). According to the appellant, par. (h) refers back to "the actual value of the subject land" that is mentioned in par. (b) (i). The appellant then argued that the cessation of the business brought about by the resumption was an aspect of "disturbance" which is dealt with in par. (b) (ii) and is not affected by par. (h). The argument was based principally on the circumstance that s. 25 (b) specifically drew a distinction between the actual value of the land and disturbance and the other factors mentioned in par. (b) (ii), whereas the same distinction was not specifically drawn in the earlier South Australian legislation, s. 12 of the Compulsory Acquisition of Land Act, 1925, as amended. True it is that s. 12 (1) of the 1925 Act provided that in assessing compensation regard should be had to the value of the land taken, to the damage occasioned by severance of that land from other land of the person entitled to compensation and to the damage occasioned to other land adjoining the land taken or severed therefrom by the execution of works or the carrying on or use of works by the promoters on the land taken. It made no mention of disturbance. However, the section clearly recognized that a person entitled to compensation could in an appropriate case recover compensation for disturbance in addition to compensation directly based on the value of the land. Section 12 (9) explicitly provided that "The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of the land". (at p365)

21. There is therefore nothing in the suggestion that the present statute is the first to draw a distinction between the value of the land and disturbance, although the present statute differentiates precisely between "the actual value of the subject land" and the factors mentioned in par. (b) (ii). It has long been recognized that the law of compensation does not limit a dispossessed owner to the recovery of the value to a purchaser of the land which has been taken from him; he is entitled to recover the value which the land has to him for the precise use to which he was putting it at the date of acquisition. Dixon C.J. and Kitto J. in The Commonwealth v. Milledge [1953] HCA 6; (1953) 90 CLR 157, at p 164 explained the matter thus:

"Though it was considered convenient in this case, as it often is, to deal with this topic as a separate matter, it must always be remembered that disturbance 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 the 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 with a business such as the owner's already established on the land, would find it worth his while to pay sooner than fail to obtain the land. But a prudent purchaser in the position of the owner would not increase his price on account of the special advantage he would get by not having to move his business, unless the amount he would have been prepared to pay apart from that special advantage was the value of the land considered as a site for that kind of business. Disturbance, in other words, is relevant only to the assessment of the difference between, on the one hand, the value of the land to a hypothetical purchaser for the kind of use to which the owner was putting it at the date of resumption and, on the other hand, the value of the land to the actual owner himself for the precise use to which he was putting it at that date."

According to their Honours, compensation for disturbance is therefore additional to the price which the prudent purchaser would give for the land as such, for the latter excludes the special value which the land has to the owner because it is the site of the business which he carries on. (at p366)

22. Now it may well be that "disturbance" in s. 25 (b) (ii) is used in a more restricted sense than in the passage from the Milledge Case [1953] HCA 6; (1953) 90 CLR 157 which I have quoted. It is possible that in s. 25 (h) it denotes costs of removal of the business and loss of goodwill. If so, the special value which the land has to the owner forms part of "the actual value of the subject land" in par. (b) (i). In this event it is obvious that s. 25 (h) applies to the assessment of the special value which the land has for the owner. (at p366)

23. But even if par. (b) (ii) takes up the special value which the land has for the owner, s. 25 (h) must apply to it because it remains an element to be taken into account in assessing the value of the land. Here the basic claim made by the appellant and determined by the judge, the claim which is under consideration in this appeal, was a claim for compensation for "the value of the subject land". It comprehended a claim for "the actual value of the subject land" within par. (b) (i) and the special value which the land had to the owner, viz. "disturbance" under par. (b) (ii), on the assumption now being made. In other circumstances it was a claim which would have been assessed by reference to the market value of the land established by comparable sales to which would be added the special value to the owner. But, as it happened, there were no comparable sales. The valuers who were accepted by the judge valued the land by capitalizing the profits to be derived from using it, a well-recognized method of land valuation, and one which is particularly appropriate to a business which is extinguished by the resumption (see Eastaway v. The Commonwealth [1951] HCA 80; (1951) 84 CLR 328 ), more particularly when the business involves the exploitation of a resource situated on the land taken. The exercise in which they were engaged was that of assessing "the actual value of the subject land", together with the special value which it had for the appellant because it conducted its business on the site. On this view, the "actual value" and the special value to the owner together constituted "the value of the land" and s. 25 (h) in terms applied to the assessment of that value. (at p367)

24. The principle which underlies s. 25 (h) is one of long standing. It denies to the dispossessed owner the benefit of an enhancement in value and the disadvantage of a diminution in value which would flow from the execution of the undertaking. It was a rule of the common law which did not depend upon statute: Fraser v. City of Fraserville (1917) AC 187 . As Lord MacDermott said in the Pointe Gourde Case (1947) AC, at p 572 : "It is well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition." (at p367)

25. On the appellant's argument the statutory provision, s. 25 (h), is narrower in its operation than the common law rule and the earlier statutory provision contained in s. 12 of the 1925 Act. If so, the statute has achieved this result in a singularly oblique and devious fashion. For the appellant's case is, that the present statute altered the policy, not by relevantly restating the principle in s. 25 (h) but impliedly as a consequence of the distinction which is drawn in par. (b). No rational explanation for the suggested alteration was offered in argument, nor does one readily present itself. If enhancement in value attributable to the execution of the undertaking is not to be taken into account in assessing the actual value of the land, it is inconceivable that it is to be taken into account in determining the special value which the land has to the owner. The concept of special value to the owner is very much of a subsidiary consideration, an additional element in the valuation which reflects the desire of the owner to conduct his business where it is, in preference to re-locating his business elsewhere. (at p367)

26. In my opinion the judge in applying s. 25 (h) correctly excluded from consideration both the transient and the stable freeway sales. The stable freeway sales, as well as the transient freeway sales, would result from the execution of the undertaking. (at p367)

27. The judgment was not attacked on the ground that the judge failed to take account of sales which would have been made for the repair and improvement of the existing road system, had the freeway undertaking not proceeded. Although I am by no means satisfied that the valuers took these potential sales into account, the point was not argued before this Court and it may well be that it was not taken at first instance. Consequently I put it to one side. (at p367)

28. As I have already observed, his Honour did make a moderate allowance in favour of the appellant for the more energetic efforts it would make in the general market by reason of the circumstance that sales attributable to and resulting from the freeway undertaking had to be excluded. The correctness of making this allowance is perhaps open to question, but as the respondent has not cross-appealed it is an issue which may also be put aside. (at p368)

29. The appellant's second submission was that the learned judge was in error in placing reliance on the Cox valuation to the extent to which that valuation proceeded on the footing that the average annual profit of $47,000 should be discounted by an amount allowed for amortization. However, the expert evidence from the valuers supports the view that it was necessary to allow for amortization as a cost of production. Cox certainly proceeded on this footing, as his valuation makes clear. Moreover, in his oral evidence he stated that amortization was a charge which ought to be written off over the term of the lease and that it should be taken into account in calculating the profits. Burgess in evidence stated that he regarded the amortization of the lease as a cost of production, saying that it "should be written off over a reasonable period of not greater than the expected life of the quarry". It would indeed have been surprising had the valuers expressed the view that amortization was not a proper charge. The business was one with a limited life for it was conducted on land which was leased for a term and it involved the exploitation of a resource which was a wasting asset. Consequently, any calculation of profit which ignored the fact that the capital asset was wasting away was unrealistic. To reflect the depreciating value of the capital asset it was necessary to amortize the cost or value of the asset over the duration of the business under the unexpired term of the lease in calculating the profit which it was estimated to earn. Perhaps a similar result could be achieved by other means, as for example, by making some appropriate adjustment to the rate of capitalization. In this case the experts thought it appropriate to deal with it by amortization and I see no reason to differ from them. Eastaway v. The Commonwealth [1951] HCA 80; (1951) 84 CLR 328 , upon which the appellant relied in support of the proposition that no allowance is to be made for amortization when an asset is valued by capitalizing profits, is not in point. There the asset was not a wasting asset and the appellant held a freehold estate in the land. (at p368)

30. The next question is whether Cox erred by taking amortization into account twice. As we have seen, Cox deducted for the purpose of amortization $3,500 from the estimated average annual profit of $47,000. It was eventually conceded by the appellant that the estimated production costs upon which Cox based his valuation, the figures prepared by Hunt and Gardiner, did not include any deduction for amortization though they did include a deduction for depreciation of plant. The appellant's counsel none the less persisted in his submission that Cox had in effect amortized twice by applying a capitalization rate that was too high. This in essence is a different argument for it is in substance a repetition of the submission, to be considered later, that the capitalization rate applied by Cox was too high. (at p369)

31. In passing it should be noted that it does not explicitly appear that the Burgess valuation contained any allowance for amortization. He made no specific reference in his evidence to the making of such an allowance. Nor is there any reference in his Honour's reasons for judgment to the inclusion of such an allowance in the Burgess valuation. (at p369)

32. It is convenient now to examine the suggestion that the Cox allowance for amortization was too large. What the witness did was to take the figure of $93,000 said by Dunow to be the then present value of the purchase price payable by the appellant to the Fioras. Cox then apportioned the amount between plant and equipment and the leasehold quarrying rights, assigning to the latter $66,773. He then adjusted this figure to take account of such subsequent purchases and depreciation and arrived at $62,497 as the adjusted capital cost of the leasehold quarrying rights as at 31st December 1973. He then divided this amount by eighteen - the unexpired term of the leasehold was eighteen years as at 31st December 1973 - and reached $3,500 as the annual deduction for amortization. The appellant critized this approach in several respects. First, the purchase price payable to the Fioras was said to be an irrelevant consideration. Indeed, Cox stated in cross-examination that the amount paid by the appellant to the Fioras had no bearing on his valuation. With this statement the judge expressed his agreement. It seems that the witness overlooked the use that he had made of the price payable for the purpose of calculating amortization. However, the error of using the amount payable to the Fioras as a basis of calculating the amount to be amortized over the unexpired term of the lease does not advance the appellant's case. Once it is accepted that there should be a deduction from annual profit for amortization, the deduction should be related to the estimated cost or value of the business and that, according to Cox, was substantially higher than the figure of $62,497 which Cox derived from Dunow's figure of $93,000 which was in turn derived from the purchase price payable by the appellant to the Fioras. If one were to take the figure of $152,000, the lowest of the Cox valuations, the annual deduction of $3,500 is seen to be an extremely conservative figure. (at p370)

33. The same comment may be made by way of answer to the second criticism made by the appellant. This was put on the assumption that it was proper to treat the sum of $62,497 as the amount to be amortized over the unexpired period of the lease. It was then submitted that to divide this figure by eighteen would result in an annual allowance that was too high because the purchaser of the business would have the use of the funds in the earlier years and that, as a result of investing these funds, the accumulation would exceed the amount to be amortized at the expiration of the term. The appellant's argument is, I think, correct, though it is a point that appears not to have been taken at the trial. It was not brought to Cox's attention or to that of the judge. However, it is a point which loses its significance once it is appreciated that Cox was basing his calculation on the figure of $62,497 and that the true figure was substantially in excess of that amount. (at p370)

34. Finally there is the issue as to the capitalization rate. Burgess used the rate of 30 per cent before tax, whereas Cox applied the rate of 38 per cent before tax, reducing this figure to 12 per cent after tax (23 per cent approximately before tax) in his second valuation from which the transient freeway market had been excluded. He justified this reduction in the rate on the ground that the business was less vulnerable to risk once these sales were taken out. The judge referred to this as the only part of Cox's evidence which he thought was unconvincing. Earlier, his Honour had observed that there was little to choose on matters of principle between Burgess and Cox and had gone on to say:

"It seems to me that, conformably with the views expressed by both Mr. Cox and Mr. Burgess, the hazardous and wasting asset presented by a single quarry business in the hills area, circumscribed as it was by severe market limits, and by a fluctuating demand, represents a substantial risk to the prospective purchaser which can be introduced into a capitalization calculation only by fixing a capitalization rate at the sort of level selected by Mr. Burgess." (at p370)

35. I infer that his Honour accepted the reasons given by Burgess for the adoption of a capitalization rate of 30 per cent. Burgess stated in his valuation of 24th October 1974:

"I have adopted a capitalisation rate of 30% in order that: -

(1) after the payment of income tax, and

(2) the retention of sufficient profits to provide additional working

capital for the continuity of the business on this scale

a return of some 10%-12% would be available to the shareholders, a return considered necessary to cover the risk factor of engaging in this class of business.

The valuation submitted by Norman J. Hurll (Australia) Pty. Ltd., if calculated by my method of valuation would represent a capitalisation rate of 23% which, in my opinion, is too low because of the risk factor involved." (at p371)

36. Evidently the judge was unimpressed by Cox's view expressed in his valuation of 6th November that "cash to be spent by the purchaser for plant would be recouped mainly from cash flow arising from depreciation charges and it could also be expected that cash injected and retained from time to time for working capital would be fully recouped on the winding up of the business". His Honour again did not refer to this part of Cox's valuation or explain why it was that he preferred Burgess on the point. It is possible that his Honour overlooked the divergence between Burgess and Cox on this issue because he referred to Cox's 12 per cent capitalization rate as the only aspect of his evidence that was unconvincing. However, it is more probable that the judge considered that Cox's refusal to allow for the retention of part of the profits to provide working capital was balanced by his initial adoption of a higher capitalization rate than that adopted by Burgess, that is, 38 per cent against 30 per cent. Certainly the judge considered that his later reduction to 23 per cent was not justified on the ground that the inherent risks of the business remained substantially undiminished. (at p371)

37. The reasons given by Cox for refusing to allow some reduction of profits to provide working capital and for reducing the capitalization rate once freeway transient sales are excluded is not without some attraction. But I am not persuaded that the judge was in error in preferring the approach taken by Burgess. As his Honour observed, the business was circumscribed by severe market limits and it was therefore fraught with a high degree of risk. The capitalization rate selected was not inappropriate to an undertaking involving that degree of risk. Little attention seems to have been directed to the question at the trial, no doubt because the appellant's counsel directed his energies to the larger conflicts arising between the appellant's experts and those called by the respondent, and because the difference in the Burgess and Cox valuations was relatively minor. Certainly no persuasive reason appears for thinking that the judge erred in accepting the view of Burgess that a potential purchaser would require in his hands a net annual return out of maintainable profits of 10 per cent to 12 per cent. Cox thought that a purchaser would require a return of at least 12 per cent. (at p371)

38. The respondent pointed to other features of the judgment with a view to demonstrating that the amount awarded was overgenerous to the appellant. The respondent did so, not by way of seeking a smaller award, but by way of answer should the appellant make good one or more of its grounds of appeal. As I have rejected the grounds of appeal, I find it unnecessary to examine the additional issues raised by the respondent. (at p372)

JACOBS J. I agree with the conclusion of Mason J. and with his reasons. (at p372)

MURPHY J. I agree with Mason J. The appeal should be dismissed. (at p372)

AICKIN J. I have had the advantage of reading the reasons for judgment prepared by my brother Mason where the relevant facts are set out. I shall not repeat them here. I agree with the ultimate conclusion and with the observations contained in the judgment prepared by my brother Gibbs, but there are some observations which I wish to add. (at p372)

2. There were, in my opinion, serious errors in the approach adopted by the valuer, Mr. Cox, but the evidence does not permit them to be quantified, nor does it appear whether or not in the relevant respects the trial judge relied on this part of Mr. Cox's evidence. That evidence involved ascertaining the value of the property acquired by capitalizing at a selected rate the maintainable income from the investment. With that method no one could quarrel, but problems arise in the ascertainment of "maintainable revenue". Mr. Cox made various deductions from his estimate of gross maintainable income, including an amount for "amortization" of the wasting asset comprised by the balance of the term of the lease (about eighteen years) and of the reserves of stone in the quarry. The evidence established that the reserves of stone would last for not less than the balance of the term at the expected production rate. No one would question that a proper allowance should be made for the amortization of a wasting asset, but the mode adopted is open to serious doubt. (at p372)

3. Mr. Cox arrived at a figure of $62,497 as the value of the balance of the term, a figure which he derived from the present value of the amount which the appellant had agreed to pay to his vendor by instalments and deducting therefrom the depreciated value of the plant. This figure was then used as being the value of that wasting asset to the hypothetical willing but not anxious purchaser. He then divided that figure by eighteen, being the number of years of the unexpired term of the lease, and thus arrived at a figure of approximately $3,500 which he then deducted from his estimate of the maintainable annual income, describing it as "amortization". This appears to me to involve two errors. First the assumption that the amount paid by the appellant for the lease, by way of notional premium, represents its true value on compulsory acquisition, i.e. as on subsequent hypothetical sale. That appears to me to be a circular mode of reasoning. The second is that the process mistakes the proper means for dealing with a wasting asset. The correct means is either to take this factor into account in arriving at a capitalization rate, or by means of a sinking fund calculation which treats the annual allowances for amortization as earning compound interest during the period and thus restoring in the end the original capital investment. Both are recognized as correct bases in many of the well-known works on valuation; see e.g. Rost and Collins on Land Valuation and Compensation in Australia, pp. 218-223; Murray on Principles and Practice of Valuation, pp. 198-201, and the item by Lawrence Rees and Button in Modern Methods of Valuation, pp. 54-64. There is little judicial authority on this subject, but in Marcus Clark & Co. Ltd. v. Commissioner for Railways (1950) 29 LVR 98, at pp 119-120 (NSW) Sugerman J. in dealing with a suggested provision for depreciation in the case of the compulsory acquisition of a building said that in the light of the evidence and the approach of the valuers that he did not propose to take depreciation into account separately, but to take the absence of any allowance for it into account in ascertaining the appropriate capitalization rate. The sinking fund method was used by McTiernan J. in Grace Bros. Ltd. v. The Commonwealth (Unreported; High Court of Australia 1953). where evidence from qualified witnesses was given as to rates of interest and other matters relevant to the calculation of a sinking fund. (at p373)

4. In the present case no evidence was given as to appropriate rates of interest for sinking fund purposes and there was no material on which the trial judge could have made a calculation for sinking fund purposes. That, however, provides no basis for accepting as correct the annual figure of $3,500. The proper course in such circumstances is for that aspect to be taken into account in ascertaining the appropriate capitalization rate, as was done by Mr. Adamson, a valuer called by the appellant. Mr. Burgess, another valuer, said in evidence that provision should be made for amortizing the lease, but he does not appear to have made any express provision for that, and it does not appear whether or not he took it into account in arriving at his capitalization rate, though he adopted a higher rate than Mr. Cox. The trial judge's reasons do not advert to the question of amortization, but suggest that he did not significantly rely on Mr. Cox's evidence. (at p374)

5. The other major criticism of the view adopted by the trial judge was that he did not take proper account of the expansion of the market which would have occurred with the movement into the area of people moving eastward from Adelaide to reside in the "Hills area" quite apart from the construction of the freeway. To distinguish between the movement generated by the freeway, and that which was occurring and would have continued without the freeway, and perhaps in part induced the construction of the freeway, is an extremely difficult task. We were not referred to any statistical analysis of trends in building permits or like statistics which might have enabled some quantative estimate to be made. The trial judge did refer to this aspect and appears to have taken it into account, along with other relevant matters, in arriving at his conclusion. (at p374)

6. My brother Gibbs has quoted the well-known passage from the judgment of Dixon J. in The Commonwealth v. Reeve [1949] HCA 22; (1949) 78 CLR 410, at p 423 which sets out the proper role of an appellate court in valuation cases. I agree with what he has said about the application of those principles in the present case. (at p374)

7. I agree that the appeal should be dismissed. (at p374)