BETWEEN : FLOTILLA NOMINEES PTY LTD (ACN 008 880 662)

Resumption or acquisition of land - Compensation - Highest and best use of land - Hypothetical subdivision of rural land into small rural lots - Application of Point Gourde principle - Whether a sale to resuming authority may be used as a comparable sale - Whether resumption of other land has the effect of depressing the value of the subject land

Land Acquisition and Public Works Act 1902, s 49A, s 63

Town Planning and Development Act 1928, s 20, s 24

Plaintiff : Mr C L Zelestis QC & Mr L A Stein & Mr M J Feutrill

Black v Commissioner for Railways (1890) 11 NSWR 160

Federal Commissioner of Land Tax v Duncan [1915] HCA 12; (1915) 19 CLR 551

Highland Bridgetown Pty Ltd v Western Australian Planning Commission (1997) 17 SR (WA) 189

Ingram v Western Australian Planning Commission [2003] WASCA 77

Morrissey v State Planning Commission (1994) 11 SR (WA) 35

Permanent Trustee Australia Ltd v City of Wanneroo (1994) 11 SR (WA) 1

Royal Sydney Golf Club v Federal Commissioner of Taxation [1957] HCA 31; (1957) 97 CLR 379

Sheiner v State Planning Commission (1994) 11 SR (WA) 112

1 PULLIN J: On 28 October 1997, the second defendant resumed 1,226.4378 hectares of farmland from the plaintiff at Oakajee, which is near Geraldton. The plaintiff claims an award of compensation which is to be determined in accordance with s 63 of the Land Acquisition and Public Works Act 1902 ("LAPW Act") and paid by the first defendant.

2 The plaintiff claims that the award should be $4,800,000, based on a valuation of a Mr Logan less the sum of $1,906,300 paid on 31 March 1999 pursuant to s 49A of the LAPW Act as an advance payment in partial satisfaction of the plaintiff's claim to compensation. The parties agree that it is the first defendant which is liable to pay compensation, so I will refer to the first defendant as the defendant. The defendant contends that the compensation should be $1,850,000. This is based on the valuation of a Mr Elliott. The difference between the valuers arises because Mr Logan valued the land using a hypothetical subdivision analysis method, whereas Mr Elliott relied on comparable sales evidence of broad acre farming land. Mr Logan adopts as an alternative the comparable sales method, but he does not consider evidence of the sale of general farming land to be relevant.

3 The plaintiff contends that the whole of the resumed land was ripe for subdivision into small rural farmlet lots of about four to five hectares. Section 20 of the Town Planning and Development Act 1928 prohibits the sale of land other than in lots. The land at the time of resumption was in five lots of more than 200 hectares each, and so if the land had value as a small rural lot development as the plaintiff contends, then approval from what was then called the Western Australian Planning Commission ("WAPC") would have been necessary to permit the subdivision of the land into smaller sized lots. The defendant contends that subdivisional approval would not have been secured from the WAPC.

Description and History of the Subject Land

4 The resumed land is cleared coastal land which has been used for many years for broad acre farming, involving the grazing of sheep and the growing of wheat and lupins. In 1992, the plaintiff, which had an earlier interest in some of the land, became the registered proprietor of the land which has now been resumed and some other land. The land of which the plaintiff became the registered proprietor in 1992, was the subject of the six titles described below. The area of each lot is shown beside each description.

(a) An estate in fee simple in portion of each of Victoria Locations 2656, 3094 and 3522 and being Lot 11 on Plan 18559, as contained in Certificate of Title Volume 1950 Folio 288 (238.9158 hectares) ("Lot 11").

(b) An estate in fee simple in portion of each of Victoria Locations 411, 2656, 3094 and 3522 and being Lot 12 on Plan 18559, as contained in Certificate of Title Volume 1950 Folio 289 (263.0534 hectares) ("Lot 12").

(c) An estate in fee simple in portion of each of Victoria Locations 3094 and 3522 and being Lot 13 on Plan 18559, as contained in Certificate of Title Volume 1950 Folio 290 (217.14 hectares) ("Lot 13").

(d) An estate in fee simple in Victoria Location 1519 and portion of each of Victoria Locations 3094 and 3522 being Lot 14 on Plan 18559, as contained in Certificate of Title Volume 1950 Folio 291 (241.9166 hectares) ("Lot 14").

(e) An estate in fee simple in portion of each of Victoria Locations 3329, 3522 and 5879 and being Lot 15 on Plan 18559, as contained in Certificate of Title Volume 1950 Folio 292 (246.9704 hectares) ("Lot 15").

(f) An estate in fee simple in portion of each of Victoria Locations 3329, 3522 and 5879 and being Lot 16 on Plan 18559, as contained in Certificate of Title Volume 1950 Folio 293 (257.3585 hectares) ("Lot 16").

5 Lot 11 was the southernmost lot and the titles then ran progressively to the north, with Lot 16 being the most northerly of the lots.

6 In January 1993, Lot 11 was sold and transferred to Mr and Mrs Kruize. I will refer to this land either as "Lot 11" or the "Kruize land". The land resumed from the plaintiff was all of the land described above, with the exception of the Kruize land. The Kruize land was also resumed. I will refer to the land resumed from the plaintiff as the "subject land".

7 By 1997, the subject land was serviced by electricity but neither scheme water nor sewerage services had been extended to it. These latter services were provided at Drummonds Cove, six kilometres to the south. The only improvements on the land consisted of rural fencing and four bores on the eastern side of the subject land and used for watering stock.

8 Immediately to the south of the Kruize land was the land of some people called Forth. This land included Victoria Location 2511 (186.27 hectares in size) and Victoria Locations 2, 3 and 1039 (consisting of 48.56 hectares). I will refer to these pieces of land as the "Forth land".

9 The subject land is located about 18 kms to the north of Geraldton and within the Shire of Chapman Valley. The subject land, the Kruize land and the Forth land are located between the Oakajee River to the north and the Buller River to the south. The Forth land runs down to the Buller River.

10 The eastern boundary of the subject land, the Kruize land and the Forth land is on the North West Coastal Highway, and the western boundary of each is on the foreshore of the Indian Ocean. The subject land is north of the residential development of Drummonds Cove. Photographs of the subject land reveal open paddocks with covering pasture. The land rises steeply from the North West Coastal Highway and then falls away in undulating fashion towards the ocean. As a result, from some areas of the subject land and from the Kruize land, there are views of the ocean. In other areas the ocean cannot be seen.

11 In the Government Gazette dated 28 October 1997, a notice appeared which read as follows:

"WESTERN AUSTRALIAN LAND AUTHORITY ACT 1992

LAND ACQUISITION AND PUBLIC WORKS ACT 1902

LAND ACQUISITION

INDUSTRIAL ESTATE AT OAKAJEE AND QUARRIES FOR CONSTRUCTION OF PORT-LANDCORP

Notice is hereby given, and it is hereby declared, that the several pieces or parcels of land described in the Schedule hereto being all in the Victoria District have, ... been compulsorily taken and set apart for the purposes of the following public work, namely-Industrial Estate at Oakajee and Quarries for Construction of Port-LandCorp.

...

And it is hereby directed that the said lands shall vest in Western Australian Land Authority for an estate in fee simple in possession for the public work herein expressed, ...

SCHEDULE

12 For many years before resumption, government authorities had begun planning the establishment of an industrial area and deep-water port near Geraldton. As early as 1976, a Draft Geraldton Region Planning Study - the work of representatives of the State, the Commonwealth and local government -examined requirements for an area of land for general industry to the north of Geraldton, along with the need for a new port in the same area. This was discussed at State government and local government level over the next decade. By 1994, LandCorp, being the government agency responsible for providing land for industrial development, published a Public Environmental Review ("PER") relating to the "Oakajee Industrial Park". The location of this industrial park was shown in the report as located between the Oakajee River and the Buller River and covering a substantial part of the subject land. The PER related the history of the identification of the Oakajee site. It explained that the Oakajee Industrial Park was proposed as the region's heavy industrial site after investigation of a number of options in the Geraldton region, related the fact that in 1992 an "Oakajee Industrial Site Community Liaison Committee" was established to co-ordinate public consultation associated with the Oakajee site assessment, and provided detail about the site layout. It reported that the total area of the proposed industrial core and buffer zone would be about 3,200 hectares, the core comprising 1,000 hectares with the balance being for landscaping and infrastructure. The report also stated that:

"Once final Government approval is received, LandCorp will commence negotiations with existing landholders to secure ownership of the industrial core through direct purchase.

In the case of the buffer zone, some property may be purchased. For the remainder, LandCorp will provide fair compensation to owners for any decline in the value of their land at time of sale if this decline is clearly attributable to the Oakajee project."

13 This scheme for an industrial zone then carried through into the Shire of Chapman Valley local rural strategy, which identified various precincts within its rural areas. A Precinct 8 was created, which covered the subject land and the area of the proposed Oakajee industrial site. The major issues or considerations referred to in Precinct 8 included the "need to maintain planning flexibility for possible industrial land use options, including a port development". The strategy under the heading "Land Management Requirements" read:

"Pending State Government decisions on the siting of an industrial estate and on any development of a port facility for industry, maintain a general presumption against any subdivision."

14 Precinct 6, which was immediately to the south of Precinct 8, stated that preferred land use scenarios allowed for rezoning for small rural lots or hobby farms to the south of White Peak Road, which was located to the east of the North West Coastal Highway. It also contained a note reading "Review the potential for subdivision and development for the area north of White Peak Road following a State Government decision on industrial development at Oakajee (Precinct 8) and a satisfactory rate of development having occurred south of White Peak Road".

15 In 1996, a recommendation had been made to the government in a report by the Geraldton Region Plan Review Task Force recommending that the government should make a decision about whether Oakajee should be reserved for an industrial site and port.

16 As I have already indicated above, on 28 October 1997, the defendant moved to compulsorily acquire the subject land and the Kruize land (and other land) for the purpose of the industrial estate at Oakajee and quarries for construction of the port. I will call this government scheme leading to the resumption, the "Oakajee Industrial Scheme". The restrictive provisions in the Shire of Chapman Valley Rural Strategy amount to restrictions flowing from the Oakajee Industrial Scheme which, if applied, would prevent subdivision taking place. If the highest and best use of the land was for subdivision, then the Oakajee Industrial Scheme adversely affected the value of the land.

17 For the purposes of assessing compensation, these restrictive provisions in the Oakajee Industrial Scheme which adversely affect the value of the subject land must be disregarded because it was the Oakajee Industrial Scheme which led to the resumption. See Pointe Gourde Quarrying & Transport Co Ltd v Sub Intendent of Crown Lands [1947] AC 565; Housing Commission (NSW) v San Sebastian Pty Ltd [1978] HCA 28; (1978) 140 CLR 196; R v Murphy [1990] HCA 42; (1990) 95 ALR 493 at 496; Wilson v Liverpool Corporation [1971] 1 All ER 628 at 634 and 635; Roads & Traffic Authority of New South Wales v Perry [2001] NSWCA 251; (2001) 52 NSWLR 222 at 232; Rees v Minister for Planning & Housing (1991) 76 LGRA 167 at 171. These authorities indicate that in assessing compensation, there must be excluded from consideration those planning restrictions on the land which result from a scheme for the implementation for a public purpose for which the land was acquired. Such a scheme may be an evolving and progressive process, and may involve several statutory authorities. The ultimate question then becomes one of determining the planning status and value of the subject land as if the public purpose for which it was resumed had never been contemplated (RTA v Perry (supra) at 232).

Legal Principles Relating to Valuation of Land

18 My task is to assess compensation by ascertaining the market value of the land on the date of resumption. The test of market value is well known. It is what the hypothetical purchaser desiring to purchase the land would have had to pay for it on the date of resumption to a hypothetical vendor willing to sell it for a fair price but not desirous to sell: Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418.

19 Regard must be had to every element of value which the lands possess. Every such element must be taken into consideration insofar as they increase the value to the owner of the land: Minister of State for Home Affairs v Rostron [1914] HCA 66; (1914) 18 CLR 634 at 637. In short, regard should be had to the highest and best use of the subject land, meaning the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential: Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at 415.

20 The best evidence of market value is that of comparable sales evidence of other land with similar attributes, either before or after the date of acquisition: Commonwealth v Arklay [1952] HCA 76; (1952) 87 CLR 159 at 170.

21 Sales do not always fall, without difficulty, into the categories of comparable or non-comparable sales. The process involves a selection of potentially useful transactions which must then be carefully analysed to determine whether or not the sales are comparable: Crompton v Commissioner of Highways (1973) 5 SASR 301 at 317; Redeam Pty Ltd v South Australian Land Commission (1977) 40 LGRA 151.

22 If comparable sales evidence is not available, then the method used in Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245, and involving a hypothetical subdivisional analysis, may be an acceptable method: Coastal Estates Pty Ltd v Bass Shire Council [1993] VicRp 92; [1993] 2 VR 566.

23 This hypothetical analysis involves ascertaining the value of the land by making an assumption about the subdivision which might be carried out and making an estimate of the price at which the subdivided lots might be sold, making an estimate of the costs involved in the subdivision and the length of time that the sales process would take, making provision for sales expenses and interest, and after allowing a deduction for a profit and risk, thereby arriving at the price which a hypothetical developer would pay to acquire the land in order to carry out the subdivision. That price represents the value of the land. See Closer Settlement Ltd v The Minister (1942) 17 LGR (NSW) 62 at 65; 15 Lorimer Street Pty Ltd v Secretary to the Department of Infrastructure (1997) 97 LGERA 239.

24 If a hypothetical analysis is in relation to land for which there is, at the relevant time, no subdivisional approval in place, then the task of the court is not to decide whether the WAPC would have granted subdivisional approval or not. The task of the court is to decide how a hypothetical purchaser, negotiating to purchase the subject land, would have viewed the prospects of obtaining subdivisional approval (De Ieso v Commissioner of Highways (1981) 27 SASR 248 at 253-254) and to decide whether the hypothetical purchaser would have made the hypothetical analysis contended for by the valuer.

25 In assessing the evidence of the competing valuers, a trial Judge is not obliged to accept one only of the competing valuations. The trial Judge must not, however, allow himself to be cast in the role of the third valuer. The court may make adjustments as are required by the evidence and arrive at a figure between two values offered by valuation witnesses, provided it is not merely an average or a mean. The task of the court is to be satisfied, by the application of proper principles, that the value of the property on the relevant date has been arrived at. If the value happens to be different to the value subscribed to the relevant property by the valuers called in evidence, this in itself does not affect the validity of the trial Judge's finding, providing proper principles have been applied. See Arcus Shopfitters Pty Ltd v Western Australian Planning Commission [2002] WASC 174 at [76].

26 It is not always possible to ask of a valuer his or her exact exposition of reasons for the conclusions arrived at. In all valuations there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reason or to explain to others. However, the valuer should, as far as possible, expose the reasoning in the report or evidence. On the other hand, it is the prime duty of experts in giving expert evidence to furnish the trier of fact with criteria enabling the valuation of the validity of the expert's conclusions. Arcus Shopfitters (supra) at [77].

27 It will be noted that the notice of resumption published on 28 October 1997 effected a resumption of the Kruize land. Following that resumption, Mr and Mrs Kruize employed a valuer to assist in negotiations in relation to compensation, and the defendant likewise employed a valuer. Between them, they agreed compensation to be paid to reflect the value of the Kruize land on 28 October 1997. A question has arisen as to whether that transaction (if the attributes of the Kruize land and the subject land are comparable) can be taken into account if the comparable sales method in relation to each lot is the correct valuation method to be applied in this case. The defendant's valuer, Mr Elliott, completely excluded the transaction. He said that he did this because it was a sale to a resuming authority, and for that reason alone he should disregard it. The question is whether Mr Elliott's approach is correct. This point arose for consideration by the Full Court of the Supreme Court of Queensland in Merivale Motel Investments v Brisbane Expo Authority (1987) 64 LGRA 108. All three Judges considered that such transactions were admissible. Matthews J and Ryan J considered that the question concerning such transactions was only about the weight to be given to such a transaction. Dowsett J, who dissented in the result, agreed with the other two Judges that transactions involving resuming authorities can be taken into account in valuing land. I need not discuss that case further. The authorities are fully discussed in Merivale's case, and I respectfully agree that a sale to a resuming authority can, if scrutinised with care, be taken into account as a comparable sale if the comparable sales method is being applied. See also the obiter of Meagher JA in Koutsouras v State Rail Authority of New South Wales, unreported; NSW Ct of Appeal; 29 November 1991.

28 The defendant contended that because five lots of land had been resumed, then it would be wrong to assess the market value of each lot resumed as though it were the only land resumed. Mr Elliott, the expert called for the defendant, said that in assessing the value of one lot, he would hypothesise that the other four lots would also be offered for sale on the same day and that the offer of the five lots together would depress the value of each of the lots compared with the value which would be determined if the only land offered for sale on the day of resumption was one lot. The defendant submits that it must be assumed that there is only a single purchaser for all of the five lots, and a single purchaser would pay less for five lots than he would for one. It was submitted that this assumption must be made because there was only one notice of acquisition. The defendant relies upon Spencer v The Commonwealth (supra); Nelson v Housing Commission of New South Wales (1962) 8 LGRA 408; Canberra Freeholds Ltd v Queanbeyan Municipal Council (1973) 27 LGRA 134; and Cieslinski v Minister of Works (1978) 39 LGRA 332.

29 I note in Cieslinski's case that the land resumed, while in "three sections", was one "parcel" held under one certificate of title. As a result, Jacobs J said that, although the land was readily subdividable into three titles, because there was only one acquisition of the land in the one title, Spencer v The Commonwealth (supra) required him to postulate one vendor and one purchaser who would arrive at a price on the assumption that the land could be resold as three lots. I see nothing in this case to support the defendant's arguments. Jacobs J noted that both valuers had agreed in the course of giving evidence that the market value of the land "should be ascertained by treating the property as a whole, but with its potential for sale in its present form of subdivision".

30 In Nelson v Housing Commission of New South Wales (supra), Justice Hardie was dealing with a claim for compensation in relation to 23 houses, which I assume were all on separate titles. The plaintiffs contended that they were entitled to the aggregate of the value of their interests in each of the properties, ascertained by "relying upon the broad general submission that in the process of ascertaining market value by the hypothetical sale method, a plurality of purchasers could, and should in appropriate cases - of which this was said to be one - be assumed." His Honour continued at page 411 and said:

"Judicial thinking on this point appears to have undergone some change over the years. The original view appears to have been that the hypothesis assumes the existence of one vendor and one purchaser (Spencer v The Commonwealth; Federal Commissioner of Land Tax v Duncan. See also Closer Settlement Ltd v The Minister and Bain v The Housing Commission of New South Wales. However, the modern view would appear to be that the answer to the question depends upon the facts and circumstances of each particular case and that the notion of a single hypothetical purchaser for the whole property being valued is not in all cases an essential ingredient of the valuation process (Turner v Minister for Public Instruction and Maori Trustee v Ministry of Works)."

31 In my opinion, and with respect, Hardie J seems to have confused the Spencer's case hypothesis, which assumes a single vendor and single purchaser in relation to a piece of land, with the Turner's case hypothesis concerning land which may be ripe for subdivision and which, if subdivided, could hypothetically be sold to many purchasers. In my view, there has never been a change to the requirement of Spencer v The Commonwealth (supra) that in relation to the property being valued, the hypothesis should be that there is one vendor and one purchaser in relation to the property being valued. The issue that the defendant has thrown up in this case is whether it has to be assumed that all of the separate properties are being sold at the one time to one purchaser or whether there is a hypothetical separate transaction in relation to each lot.

32 In the Canberra Freeholds' case, Else-Mitchell J was assessing compensation in relation to 48 separate parcels of land which had been resumed and concluded that there should be no assumption that all lots could be sold on the resumption date. I find the decision difficult to follow because Spencer's case requires an assumption that a sale was made on the day of resumption. I think that Else-Mitchell J must have been meaning to say that hypothetical purchasers buying the land would do so knowing that access to the parcels of land was limited or non-existent, and services limited or non-existent, and that they would pay a price reflecting the need to provide for those things in the future.

"Dixon J pointed out in Nelungaloo v The Commonwealth, you do not assume against each owner that all other lands were resumed and that he is left free to sell his land on an open market. Any market which is to be assumed must embrace all other land available for sale and certainly all other land of a similar character included in the same instrument of resumption."

34 Dixon J in Nelungaloo v The Commonwealth [1947] HCA 58; (1948) 75 CLR 495 at 578 was considering an argument that it was to be assumed that the plaintiff's wheat which had been resumed by the Commonwealth was not compulsorily acquired and that all other wheat in Australia had been compulsorily acquired. The witnesses in that case agreed that, on that hypothesis, the plaintiffs would have great difficulty in disposing of their wheat at higher prices than the Board sold at locally. The hypothesis would make it difficult for the plaintiffs to obtain bags, bulk storage, transportation by railway and handling facilities. Dixon J said at 578:

"In my opinion the argument is fundamentally wrong. You do not assume against each grower in turn that the whole plan embodied in the regulations was carried out except that he was excluded from it, so that he was obliged to dispose of his wheat when all means of doing so had been taken over by the Board and when he stood helpless except for some exercise of their mercy."

35 In my view, Dixon J was there simply eliminating from consideration the depreciative effects of the scheme which resulted in the acquisition of Australia's wheat crop. In other words, although not then generally known as the Pointe Gourde principle, this principle was being applied. (The Pointe Gourde decision had been handed down only four months before the Nelungaloo case was argued. The principle to which the case gave its name had been known from earlier cases referred to in Pointe Gourde.) In my view, if the comparable sales method is applicable, then the correct approach is to ascertain the value of each marketable piece of resumed land, ie each lot, and to disregard the fact that pursuant to the scheme leading to the resumption, the defendant resumed other land on the same day. To allow resumptions for the Oakajee Industrial Scheme on the same day to depress the value of each other piece of land resumed would be to ignore the Pointe Gourde principle.

36 I do not accept the defendant's submission that I must assume that there would be only one purchaser for all of the five separate lots resumed and that one purchaser would only purchase all of the lots at a reduced rate. In my opinion, that submission can be answered first by quoting from Maori Trustee v Ministry of Works [1958] 3 All ER 336, where the Privy Council held at 340 that:

"If the area of land taken, for instance, is so large as to be capable of building development in the hands of separate purchasers operating in different sections of the total area more than one hypothetical purchaser could be imagined; but for the purposes of valuation the result would seem to be immaterial. The value of the whole in the open market for building development would seem to be equivalent to the sum of the values of the various parts if sold separately for the same purpose ... A similar situation might exist if there had to be assumed a sale of six houses by a willing owner-seller in the open market. He could hardly be expected to sell them in a single lot to one purchaser for less than he could realise by selling them separately to six purchasers."

37 I agree. It would be a very strange result if the defendant were able to pay a lower rate per hectare to the plaintiff because it had five lots of land resumed, and to pay a higher rate in relation to the Kruize land (if it is comparable) because Mr and Mrs Kruize only had one lot resumed.

38 The defendant's submission can also be disposed of by a reference to Spencer v The Commonwealth (supra). In that case, Griffiths CJ at 432 made it clear that the test of value of land is to be determined "not by inquiring what price a man desiring to sell could actually have obtained for it on a given day"; Barton J at page 435 said "the loss he has sustained is not necessarily to be gauged by what the land would realize if peremptorily brought into the market on a day named"; and Isaacs J at page 442 said "What is to be avoided is the supposition that on the specified date there is to be a forced sale ...". The defendant's submission (and Mr Elliott's evidence) that the value of one lot would be depressed by the fact that the other four lots in the subject land were being hypothetically sold on the same day, ignores the directions given by all three Judges in Spencer v The Commonwealth (supra). Mr Elliott's evidence assumes that there is a forced sale, which is contrary to the requirement of Spencer v The Commonwealth (supra).

39 Finally, the fact that there was only one notice of resumption rather than five is irrelevant. It would be a very strange result if a resuming authority paid less compensation by publishing one notice and more compensation if it published five.

40 In my view, if the correct valuation method is the comparable sales method in relation to each lot, then each lot must be valued by ignoring the effect of the hypothetical sales of the other resumed lots on the same day.

41 The plaintiff's valuer, Mr Logan, made the assumption that the subject land viewed as a whole was ripe for subdivision. He therefore valued the land on the basis that a hypothetical subdivision would produce the highest value, and that this was the value a hypothetical purchaser and vendor would have arrived at on 28 October 1997.

42 I will therefore examine the prospects of gaining subdivisional approval, and I will examine the assumptions made by Mr Logan about the likely return on the hypothetical subdivision.

43 The hypothetical subdivision was designed and explained by Mr Van Den Dries. The hypothesis was that the five lots in the subject land would be amalgamated and then subdivided into 238 rural lots, varying in size from three hectares to ten hectares (an average of approximately 4.5 hectares) as depicted on plan number 3 in Mr Van Den Dries' report. Some of the lots were to accommodate a roadhouse, a pioneer and equestrian museum, a veterinary hospital and recovery yards, an equestrian centre and training track, a caravan park and chalet site, and a motel with Bali style chalets. These were to be accommodated on six lots which in addition to the 238 residential lots made a total of 244 lots. The estate would then offer professional equestrian and general rural style activities "hobby type equestrian folk", hobby agriculturalists and non-equestrian based purchasers who wish to enjoy rural lifestyle and location. The subdivision would also provide access to the beach via a beach reserve. The equestrian aspects of the subdivision would be enhanced by bridle paths running within the land. The proposed foreshore reserve was in excess of the WAPC's normal requirements. There was no scheme water to the subject land, and so Mr Van Den Dries accepted that the proposed development would require purchasers to provide a potable water supply using roof water storage systems at the time houses were constructed, to be augmented by water from bores.

44 Mr Van Den Dries accepted that subdivisional approval would have to be obtained before the hypothetical development could proceed.

45 The process of obtaining approval required an application to the WAPC. Section 24 of the Town Planning and Development Act required the WAPC to refer the details of the application to various authorities for them to make recommendations about the application. Those recommendations then become relevant matters for the State Planning Commission to take into account in deciding whether to approve the application or refuse it. There was no dispute that the WAPC would have taken into account the terms of the local town planning scheme, any rural strategy which had previously been adopted by the Shire, any region plan which had been adopted by the WAPC and the provisions of, in particular, land useage policy adopted by the WAPC.

46 I digress slightly to mention that Mr Logan, in his valuation, proceeded by assuming in his financial calculations, that subdivisional approval had been given on the day of resumption. That assumption cannot be sustained, because the application for subdivisional approval for the subdivision contended for had not even been designed or lodged with the WAPC on the date of resumption. The time involved in the process of seeking approval from the WAPC would involve, according to Mr Van Den Dries (and I find), about one month in the preparation of the application for subdivisional approval and a period of about 14 to 16 weeks from the date of lodgement of the application for subdivisional approval to the time when a decision was made by the WAPC.

47 The WAPC's "Rural Land Use Planning Policy" (DC 3.4) came into existence as a policy document in 1992 after the decision of the Full Court in Falc v State Planning Commission (1991) 5 WAR 522, which I discuss below. It was a policy establishing the State strategy for rural land use planning in Western Australia. It identified the State's objectives and policy framework and guidelines for the preparation of regional and local strategies and the criteria to be applied to subdivision in rural areas. A specific objective of DC 3.4 was to "discourage the removal of prime agricultural land from agricultural production and to prevent adverse effects on the viability of established or potential agricultural industries".

48 "Prime agricultural land" was defined to include land which:

• "Has most utility for agricultural purposes,

• has soils with no physical and chemical limitations for agricultural use,

• has a reliable water supply for irrigation,

• is not subject to extremes of climate,

• has little potential for degradation, or has been/is subject to significant public investment for service facilities such as dams, irrigation schemes, drainage, factories, handling centres, or

• has physical or locational characteristics essential for a specific crop for the domestic or export market or to support a processing industry. In some circumstances land which has prime physical characteristics may have a higher community value for an alternative use and may, therefore be excluded from the prime agricultural land classification."

49 One of the strategies contained in the policy read:

"Where pressure for change and development exists or is emerging, regional and/or local rural strategies should be prepared. Regional rural strategies may be prepared, in the context of regional plans, by the Commission, in collaboration with local authorities and other agencies. Such strategies should focus on issues of State and regional significance."

50 The Shire of Chapman Valley was recognised as a local authority experiencing pressure for change in rural land use.

51 DC 3.4 also stated that the WAPC would approve subdivision for intensive land use if justified within an approved local rural strategy, and that proposals for such uses should be based upon a detailed land capability assessment, and that subdivisional proposals relating to lots between one to two hectares in size should be provided with reticulated water, but that where reticulated water was not available then rainwater tanks should be provided for.

52 With the approval of the WAPC, the Shire of Chapman Valley adopted a local rural strategy ("Rural Strategy") as a policy document in June 1994, as required under DC 3.4. The subject land fell within what was described as Precinct 8. As I have already stated above, in relation to Precinct 8 the Rural Strategy stated that "pending State Government decisions on the siting of an industrial estate and on any development of a port facility for industry, (the Council should) maintain a general presumption against any subdivision". The Oakajee Industrial Scheme provided that this land should be protected from any development incompatible with those new purposes, and that in the future the land would be acquired for those purposes. The "protection" had worked its way into policy documents as provisions seeking to restrict development of subdivision of the land contrary to the interests of the Oakajee Industrial Scheme.

53 Section 63(a) of the LAPW Act expressly states that the positive consequences of a scheme (like the Oakajee Industrial Scheme) must be disregarded. It was conceded by the defendant that the restrictions in the Oakajee Industrial Scheme adversely affecting the value of the subject land must be ignored when assessing compensation. (I should note that many cases dealing with the Pointe Gourde principle are based on legislation which makes express provisions for the negative effect of a scheme to be disregarded. In view of the concession by the defendant that the restrictive provisions of the scheme did affect value and that they should be disregarded for present purposes, I have not looked for authority which makes it clear that at common law, as well as by statute, restrictive provisions of a scheme are to be disregarded.)

54 Although restrictions arising from the Oakajee Industrial Scheme must be ignored, other planning restrictions which are independent of the Oakajee Industrial Scheme do have to be considered and taken into account in assessing compensation. The town planning scheme relevant in this case is the Shire of Chapman Valley Town Planning Scheme No 1 ("TPS No 1"). The subject land falls within the general farming zone as described within TPS No 1. TPS No 1 does not prescribe minimum lot sizes for the general farming zone. The zoning and development table contains a policy statement which reads:

"This zone embraces the broad acre farming areas of the Shire. It is intended to protect the economic viability of those areas generally and to preserve the rural character and appearance of the area. The lot sizes shall be at the discretion of Council based on what is locally accepted as a viable farm unit, or where a non-farming use is proposed on the amount of land required for the purpose."

55 TPS No 1 also provided for special rural zones, and it stated that specific provisions for controlling subdivision and development in each individual special rural zone should be as laid down in Appendix 6 to the scheme.

56 There was a time when applications for subdivision were very much controlled by the zoning in the Town Planning Scheme, so that if an application for subdivision did not comply with requirements of the zoning in the Town Planning Scheme, it was likely to be refused. The Town Planning Scheme zoning was regarded as determinative. The Town Planning Appeal Tribunal, up until 1991, had held that an application to subdivide would not be approved unless the land was zoned appropriately. In 1991, in Falc Pty Ltd v State Planning Commission (supra), the Full Court of this Court decided that zoning should not be "elevated into a determinative matter" (Nicholson J at 530); it should not be an "absolute arbiter" of subdivision approvals (Ipp J at 535). However, the court in Falc made it clear that zoning still remains a most important factor for consideration in relation to a subdivisional application.

57 In considering the hypothetical subdivision application, the WAPC would also have regard to the Geraldton Region Plan, which contains various projections about population growth (which, in my view, cannot be determinative of the application) and which also contains references to the proposal for the industrial site at Oakajee and the new port to the north of Geraldton, which, insofar as they provide a reason for refusing the application for subdivision, must be disregarded for the reasons already mentioned.

58 If an application for subdivisional approval had been made, the WAPC would have become aware that the subject land was being used as general farming land. The WAPC would, in applying DC 3.4, have enquired whether this was prime agricultural land.

59 I find that this was not prime agricultural land. It is true that the soils on the east of the five resumed lots are granitic soils and those soils do make for good agricultural use. They are, in planning terms, of high capability for general farming. However, this is only a small section of the land (about 10 per cent). Most of the soil is yellow sand plain (60 to 70 per cent). This is of only moderate capability for general farming, and it is highly susceptible to wind erosion when used as general farming land or used as planned in the hypothetical subdivision. The remainder of the soils (about 20 per cent) is made of sand dunes (Quindalup dunes) or tamala limestone. This is all unsuitable for agriculture. Mr Kennedy and Mr Kosova, both of whom were in the 1990s employed in Geraldton - Mr Kennedy by the WAPC and Mr Kosova by the Shire - considered this not to be prime agricultural land. This was also the opinion of Mr Johnston, an agricultural consultant. If it had been prime agricultural land, then this would have been an important factor to be considered in the hypothetical subdivisional application. It was not prime agricultural land, and therefore there was not a strong policy reason for refusing subdivisional approval.

60 There was also contention put by the defendant that subdivision approval would not have been granted because orderly planning would require development to take place further to the south before approval would be given in relation to developments further out. Mr Kennedy agreed in cross-examination that it is quite possible for subdivisional developments to leapfrog undeveloped areas. The Drummonds Cove residential subdivision is an example. In my opinion, although this is a consideration and although the rural strategy suggests that development should be encouraged to the south of White Peaks Road, which road is to the south-east of the subject land, it is my view that this would not have resulted in a refusal of subdivisional approval.

61 The defendant pointed out that there were available lots elsewhere in the region not yet sold. It is clear on the authorities that commercial demand does not have to be demonstrated in order to gain subdivisional approval. See BP Australia Pty Ltd v City of Perth (1993) 10 SR (WA) 110 at 118-119. This was a location highly suited to more intensive development because of its close proximity to the coast and because it is not prime agricultural land which was being given up.

62 The defendant also contended that lack of water would have been a reason for the WAPC refusing to grant subdivisional approval. It was suggested that small lots of the size planned would not have roof sizes sufficient to fill a 92,000 litre rainwater tank, given the rainfall in the area. The first answer to this point seems to be that on three occasions the Shire amended its Town Planning Scheme to allow the creation of special rural zones, with a condition that landowners must install a 92,000 litre rainwater tank. They are in the same rainfall zone. If the Town Planning Scheme was amended in those terms on those other occasions, it must have been with the approval of the WAPC. The defendant sought to counter this by saying that in two of the other subdivisions the minimum lot sizes were specified at 40 and 45 hectares per lot and that this meant, and the fact was in relation to those subdivisions, that groundwater and dams could supplement the water in the rainwater tank. Two points were then raised by the plaintiff in rejoinder. The first was that in relation to the White Peaks development, where the Shire created a special rural zone, the lot sizes were similar to the lot sizes in the case of the hypothetical subdivision in relation to the subject land and only rainwater tanks were required, and secondly the hypothetical subdivision would have provided groundwater from bores to supplement the water from the rainwater tanks. The hypothetical subdivision assumes that this water would be reticulated around the subdivided lots.

63 There was an issue joined between the parties concerning the potential groundwater supply which could be drawn from bores on the subject land. The plaintiff called a hydrologist, James Reginald Davies, who had carried out work and prepared a report in June 1993 for LandCorp. The purpose of the report was to consider whether or not there might be problems associated with contamination from any industrial operations on the subject land if it became an industrial site. He sank some bores, and although his report was not directed to water quality or water quantities, he was nevertheless called by the plaintiff and was able to provide information about water quality and quantities in relation to the subject land. So far as water quality is concerned, much of the water which could be sourced within the subject land via bores was of a quality fit for human consumption. As for the rest, it was suitable for farm animals. Mr Davies concluded that based upon the useage figures published by the Water Authority in relation to Perth properties, a combination of rainwater and water supplied from underground the subject land via bores would be sufficient to meet the needs of the 244 lots. Mr Passmore, a hydrologist called for the defendant, disagreed. However, Mr Passmore did agree that 60,000 cubic metres of water could be drawn annually from bores. This amounts to 60 million litres which could be supplied to the sites to supplement rainwater supplies. There were issues raised, for example, whether the Perth useage figures were appropriate for the lot sizes in question, but in my view it is not necessary to become bogged down into that kind of detail. The issue is whether or not a hypothetical purchaser would have concluded that the WAPC was likely to have granted subdivisional approval in relation to the hypothetical application. It seems clear that a hypothetical purchaser would have noted that planning legislation for small rural holdings without reticulated water, subject to a condition that residents install a 92,000 litre rainwater tank, would permit such development. In my view, it is likely that if all else favoured subdivisional approval, then in relation to water the only condition which would be imposed in relation to the hypothetical subdivision would be a condition requiring that owners install a 92,000 litre rainwater tank to supplement the reticulated bore water to be supplied by the developers.

64 Taking all of that evidence into account, I consider a hypothetical purchaser would have concluded that scarcity of water would not have led the WAPC to have declined subdivisional approval.

65 There was evidence, however, from Mr Kosova and Mr Kennedy to the effect that if approval was granted by the WAPC, it would be more likely to follow a rezoning of the land by the Shire. This would allow for much greater control of land uses. The plaintiff contended that this could be achieved by memorials placed on the title, but I find that memorials placed on titles are usually for the purpose of warning landowners about some restriction or factor which affects the land. There is a planning bulletin published by the WAPC to this general effect. I find that, notwithstanding the Falc case, an amendment to the Town Planning Scheme to zone the subject land as a special rural zone would have been required, and that this process would take at least nine months to complete. I find that a hypothetical purchaser would have concluded that the Shire would have required rezoning of the land as a special rural zone to provide the controls necessary in relation to land use to reduce the risks of erosion. This is another point which falsifies Mr Logan's assumption that the land should be valued on the basis that work on the subdivision could have begun within six months after the date of the resumption.

66 A hypothetical purchaser would have been encouraged to think that subdivisional approval was likely because in 1996 a subdivisional application had actually been made by the plaintiff. This application was lodged with the WAPC by BSD Consultants, acting on behalf of the plaintiff. The application was similar to the hypothetical subdivision which is contended for in this case. In the 1996 application, the application was to subdivide the subject land into 272 lots of an average size between 3.5 and 3.7 hectares. This compares with the less intensive proposal contained in the hypothetical subdivision application, which relates to 238 lots plus six additional lots for a motel, caravan park, equestrian centre and museum, veterinary hospital and car parks, making a total of 244 lots in all, averaging in size 4.7 hectares.

67 The WAPC referred this 1996 application to the following authorities: Western Power Corporation, Health Department, Fire and Rescue services, LandCorp, Department of Resources Development, Water and Rivers Commission, Bushfires Board of Western Australia, Water Corporation, Telstra, Department of Environmental Protection, Main Roads and the Shire of Chapman Valley. The WAPC acknowledged that it had received the application on 2 September 1996, and advised that the proposal had been referred to the various authorities for their comment and recommendation. The Water and Rivers Commission seems not to have responded, but all of the other authorities consulted (save two) expressed no unqualified objection to the proposed subdivision. The two strong opponents to the application were LandCorp and the Department of Resources Development. LandCorp submitted that the WAPC should refuse the application because it conflicted with the provisions of the Council's rural zone, conflicted with the provisions of the Rural Strategy, and conflicted with the Geraldton region plan, because there was ample availability of the type of lots proposed and because it "conflicts with an advance stage of planning for industrial purposes". The Department of Resources Development recommended that the subdivision approval should not be given. The department's letter read:

"Given the background to Government's investigations of the area for industrial use and the fact that the Oakajee industrial estate is currently undergoing environmental assessment, the subdivision proposal should be refused until the final determination of the Environmental Protection Authority with regard to the site is known. This will allow Government to make strategic planning decisions for the long-term and which will have significant economic benefits for the Region."

68 The quoted reasons given by the Department of Resources Development must be ignored for present purposes because of the Pointe Gourde principle, as explained above. Insofar as LandCorp said that the application should be refused because it conflicted with the planning for industrial purposes, that reason must be ignored for the same reasons. The fact that there was "ample availability" of this type of lot does not, in my opinion, provide any certain reason for refusing the application. LandCorp's argument that the subdivision conflicted with the provisions of the rural strategy cannot, in my view, be borne out once the rural strategy is stripped of provisions opposed to subdivision because of the Oakajee Industrial Scheme. The defendant submitted that the application conflicted with the Council's rural zone, but that submission cannot be borne out. The rural zone does not absolutely prohibit subdivision. In appropriate cases, it recognises there may be subdivision. This is an appropriate case because this was not prime agricultural land.

69 The strongest other response was from Main Roads, objecting to proposals which require direct access to a gazetted highway or main road. Main Roads then concluded that if the subdivision was approved, then the location, design and construction of subdivision roads should be subject to the approval of the Main Roads regional manager.

70 I find that a hypothetical purchaser would have concluded that all relevant objections raised by these authorities could have been dealt with by conditions attached to the subdivisional approval. The Shire of Chapman Valley passed a resolution recommending approval for the proposed subdivision, subject to certain conditions. All of the foregoing would have encouraged a hypothetical purchaser of the subject land to consider that subdivisional approval would have been granted.

71 The hypothetical purchaser of the subject land would have been further encouraged to consider that approval would be given by reason of some correspondence which passed between LandCorp and the WAPC in December 1993 and January 1994. In December 1993, the WAPC received a letter from LandCorp dated 3 December 1993 which was seeking information about the proposed Oakajee industrial area land, and in particular asking what potential the area held for the residential or special rural subdivision during the next 30 years. Mr Bareham, who was working for the WAPC at the time as co-ordinator of the country planning division, responded by letter dated 7 January 1994, in which he said:

"... From the attached map you can see that development trends in Geraldton indicate that development is occurring in a north and south direction generally along the coast. There are still large areas of land where infill development will continue to occur. For example the Drummonds Cove residential area is developing in a north south direction from Drummonds Cove, and similarly the Wandina residential area is developing in a south north direction from Ocean Ridge Estate. The areas in between should create in the vicinity of 4000 residential lots over the short to medium and long term.

Special rural developments to date have been located inland east of the existing urban area. The development of some of these areas is constrained by the Moresby Ranges, whilst other areas will eventually be constrained by the Narngulu Industrial area and the Geraldton airport.

The Shire of Chapman Valley has recently prepared a Local Rural strategy. This Strategy has not as yet been endorsed by the Department however, the Council has worked closely with the Department during it's preparation. The area between Drummonds Cove and north of the Buller River has been identified as having potential for special rural development. Council anticipates that this area will cater for the short to medium term demand for this type of use. The area lends itself to this form of development because it is not considered to be good farming land, much of the land has either ocean outlooks or valley aspects, and it is within close proximity to Geraldton ...

The area to the north of the Buller River to Oakabella River has been recommended in the Local Rural Strategy to remain as rural land for farming purposes. However, the strategy report also indicates that much of this land is marginal farming land and in the long term depending on a decision regarding the industrial area, this land may have potential for special rural development once development of other special rural areas has occurred. ..."

72 This letter read alone provides strong evidence that, putting aside the restrictive effects of the Oakajee Industrial Scheme, the WAPC would have looked favourably on this hypothetical application for subdivisional approval. Mr Bareham, in cross-examination, agreed that these views were expressed on the basis that Mr Bareham had an expectation that special rural developments would progress out from Geraldton and that services could be provided more readily if that happened. This, however, seems at odds with the experience of other subdivisions which have taken place and which have not proceeded out one by one from Geraldton's outskirts. In my opinion, a hypothetical purchaser would have considered it unlikely that the WAPC would refuse an application for subdivision simply because it was not located as close as possible to Geraldton.

73 I find that a hypothetical purchaser would have concluded that subdivisional approval would have been granted subject to conditions which could have been satisfied, and would have concluded that rezoning of the land would also have been required by the Shire. I find that the process of obtaining approval from the WAPC and obtaining a rezoning of the land would have taken about 12 months.

74 I therefore find that a hypothetical purchaser looking to purchase the land on the day the subject land was resumed would have considered that there was a reasonably good prospect that subdivisional approval would be obtained from the WAPC, subject to conditions and subject to the land being rezoned, which process would take about 12 months.

Would the Hypothetical Purchaser have concluded that the Subdivision Would be Profitable at the Land Price suggested by Mr Logan?

75 Having decided that a hypothetical purchaser would have concluded that subdivisional approval could have been secured, it is then necessary to decide whether or not a hypothetical purchaser would have considered that the hypothetical subdivision into small rural lots would have been profitable enough to justify paying the price contended for by Mr Logan. This first depends upon whether there would have been demand at the right price for the 244 lots in the hypothetical subdivision.

76 The plaintiff called Mr Anthony Edward Shrapnell, a town planner and urban planning consultant, to give evidence on this subject. He set out first to demonstrate that there was demand, that is economic demand, for special rural lots in the area. Economic demand is the "desire to purchase and possess, coupled with the power of purchasing" (Macquarie Dictionary). It is the relationship between price and the quantity of a product sold, and requires the presence of willing and capable buyers in the market place.

77 Mr Shrapnell very quickly concluded that there was economic demand for small rural lots in the area, which meant that it could not be said that the only use for the land was for general farming. I find that there was economic demand. Sales in the nearby Park Falls development supports this.

78 However, the extent of the demand is a matter of contention. While information reveals that four lots were sold in the Park Falls estate at prices between $88,000 and $95,000 per lot over a period of about one year, Mr Shrapnell expressed the opinion that there would be a higher demand for small rural lots in the subject land, and arrived at a conclusion that there would be sales of between 25 to 40 lots per annum if the price was between $88,000 and $95,000. He expressed the view that this was so because the subject land had closer approximity to the ocean, the lots were of a larger size, and because he considered that there could be more successful marketing of the subject land compared with the marketing of the Park Falls land. He held this view notwithstanding that the Park Falls land had a reticulated water supply, was closer to Geraldton than the subject land (albeit not on the coast) and had a similar equestrian theme. In my opinion, Mr Shrapnell's views amount to an assertion or opinion without any factual foundation. There was nothing in Mr Shrapnell's evidence which convinced me that there was any reasonable foundation for his opinion that there would be sales of 25 to 40 lots at the price range mentioned.

79 Mr Logan, the valuer called by the plaintiff, agreed that the assessment about the rate at which the subdivided lots would sell was not easily measured. He nevertheless expressed the opinion that 40 lots would have sold per annum. He called on evidence about the rate of sale of a subdivision called "Sovereign Hill", which is a development at the Moore River, 85 kms to the north of Perth. That development was selling 40 lots per year. From this he concluded that lots on the subject land would sell at the rate of 40 per year. Mr Logan readily conceded that the Sovereign Hill development drew on the Perth market. That means that the population pool is very much greater than the population pool of Geraldton (which has a population of less than 40,000), and for that reason I find that the Sovereign Hill development is not at all comparable and affords no evidence about the rate at which sales might be achieved in the hypothetical development of the subject land.

80 The development of Drummonds Cove, which is to the south of the subject land, was referred to by Mr Logan, but the sales evidence from that development I find not to be comparable at all. It is a residential subdivision of much smaller lots and much closer to Geraldton. Mr Logan said, and I find, that Drummonds Cove was a superior location. However, even the Drummonds Cove development did not reveal a sales rate of 40 lots per annum. After eight years, only 100 hectares of the 317 hectare site had been sold. This provides no support for the assumption which underlies Mr Logan's opinion, which is that all of the lots in the hypothetical development would have been sold within six to six-and-a-half years. All of the other residential rural developments in the area (save one) sold at the rate of no more than 5 lots per year. The one exception was the West Bank development, which was 17 kms to the south of Geraldton and which was also located on the coast. It only sold 11 lots in a year. I find that even with superior marketing and with the greater natural advantages that the subject land had, that lots could not be sold at 40 per year. This finding is supported by evidence led by the defendant. Mr Elliott extracted information from the Valuer General's office for comparable small lot sales in the Geraldton, Greenough and Chapman Valley local authorities. He identified five zoning classifications, being "special rural", "general farming" (less than five hectares in area), "rural residential", "low density R2/R5" and "special use - restricted use dune preservation coastal living". Mr Elliott then identified all lot sales in those zones of a size between 5,000 square metres and five hectares. This information was gathered for a five-year period from 1995 to 1999 and revealed a total of 153 sales in all of these zones within the boundaries of all three local authorities referred to above. From this information it was shown that there was an average of 30.6 lots sold per annum over the five-year period. Mr Elliott then assumed that the hypothetical development on the subject land could attract a reasonable proportion of market share, and adopted a sales rate of 13 lots per annum representing just over 40 per cent of all of the annual sales made through the period mentioned in the three areas mentioned. I accept Mr Elliott's opinion, and find, that this is the highest rate at which the lots would sell in the hypothetical subdivision.

81 Mr Elliott then proceeded to apply all of Mr Logan's data and inputs into his hypothetical analysis and varied only the rate of sale, reducing it from 40 to 13. That produced a land value well below what both valuers considered to be the value which would be arrived at by employing the comparable sales method of valuation. Mr Logan agreed that if the sales rate fell to only 20 per annum, the value based on a hypothetical subdivision would be less than the value arrived at by other valuation methods. In short, once the rate of sales falls to less than 20 per annum, then subdivision of the land is not the highest and best use. I find that to be the conclusion a hypothetical purchaser would have reached.

82 I have already referred to the valuation approach of the two valuers, but I will summarise it again under this heading. Mr Logan valued the land using three methods. He first analysed the hypothetical subdivision by hypothetical static analysis and a discounted cash flow dynamic analysis. He considered that both forms of analysis were applicable in this case. His evidence was that the static analysis was more reliable for small subdivisions or where there is unlikely to be a change in what he called the "dynamics" over time. His evidence was that the discounted cash flow analysis was often used by developers and was particularly relevant when incorporating a mixed range of factors, including a variety of lot pricing and the impact of timing on development costs. For that reason, the discounted cash flow analysis was his preferred method. He began by determining what he considered to be an appropriate achievable sale price per lot based upon the experience in relation to sales at other small rural developments. He considered that the sales would occur in stages - 10 in all - over a period of 77 or 78 months, ie six-and-a-half years, and that the average sales price per lot would range between just over $80,000 to just over $103,000. The parties agreed what the engineering or development costs would have been. By applying the revenue figures and the engineering and development costs and using an internal rate of return of 25 per cent, Mr Logan, using his discounted cash flow analysis, arrived at a land value of $4,380,000. In his static analysis, and using the same ten stages, the same development costs and the same revenue figures, and employing a profit and risk allowance of 30 per cent, he arrived at a value of $4,081,798.

83 The figure of $4,380,000 represents a value per hectare for the resumed land of $3,571.31. The figure of $4,081,798 represents a value per hectare of $3,328.16. Mr Logan also carried out an alternative analysis which assumed, not that the whole land would be subdivided, but that instead three of the lots, namely Lots 14, 15 and 16, would be sold as lifestyle properties and that two of the lots, namely Lots 12 and 13, would be the subject of a subdivisional application which would be successful and which would then be sold at the rate of 20 lots per annum. This generated a total value of $5,248,422. This was not at all convincing to me because the subdivisional proposal worked up by Mr Van Den Dries had an integrated plan for all of the five lots. There was no re-design prepared by Mr Logan in relation to the proposed subdivision of only two lots. In any event, I have found that only 13 lots, and not 20 lots, per annum could be sold from a subdivision on the subject land, and Mr Logan agreed that on that basis subdivision is not the highest and best use.

84 After Mr Logan had prepared all of his written reports, the parties agreed that the engineering costs would be at a level greater than the costs used by Mr Logan in his analyses. He was asked whether the extra engineering costs had caused him to revise his opinion as to value. His answer was:

"Yes, I believe it is relevant to have regard for the extra costs and factor that into my reasoning. The reasoning before in the report mentions 4.6 million as being approximately the cash flow calculation. The 5.2 million is shown on one of the schedules of the analysis comparing Park Falls Estate, and I guess my opinion then led me to believe that 5,000,000 for different reasons, as stated in the report, was a reasonable valuation. I guess now I'm left with an analysis that goes from 4.38 million to 5.2 and I believe in looking at that that I would probably adopt the middle ground which would be 4.8, which is a reduction of $200,000."

85 I find that his opinion that the land was worth $4,800,000, based as it is upon the cash flow analyses carried out by Mr Logan, can not be supported because his assumed annual rate of sale of the subdivided lots could not have been achieved.

86 Mr Logan's third and alternative valuation method was the comparable sales method. In that regard, he looked for the sale of properties which might have had similar attributes to the subject land. He considered, when preparing his written reports before trial, that the most comparable property and the most comparable sale was that relating to the Parks Fall land. This was about 4 kms to the south of the subject land. Park Falls lies not on the coast but on the eastern side of the North West Coastal Highway. The land area of Park Falls consisted of 528.697 hectares, which was purchased for $1.2 million in June 1997. The property was sold on the basis that it had potential for special rural subdivision. However, subdivisional approval had not been granted and was not granted until the middle of 1999, when approval was granted for approximately 220 lots. The subdivisional approval was for lots of approximately two hectares in size, with an equestrian centre and with an eight-hectare special site for tourist accommodation. The sale of $1.2 million represents a per hectare value of $2,270. He did not apply the rate of $2,270 per hectare, however, because he considered that part of the Park Falls land consisting of breakaway country was not comparable with the subject land. He then made a calculation by excluding the breakaway land and arriving at 330 hectares of the Park Falls land, to which he attributed part of the June 1997 sale price and attributed a figure for the 330 hectares at $2,690 per hectare. He then used this figure of $2,690 per hectare and further adjusted it for the subject land, to arrive at a comparable sales value of $3,506,154 as set out in table 5 of his valuation report of 5 December 2001.

87 In relation to comparable sales, there were developments on this issue during the trial. When the trial started, the battle lines were drawn, with Mr Elliott for the defendant holding the view that the correct method of valuation was by reference to comparable sales and that comparable sales evidence should be drawn from the sale of general farmland property. As I have already said, Mr Logan carried out his hypothetical subdivisional analysis and produced a much higher figure than did Mr Elliott. However, to cover the possibility that his higher figure might not be accepted, Mr Logan also carried out an assessment of the value of each lot based upon sales which he considered were comparable.

88 Part the way into the defendant's case, counsel for the defendant announced that he intended to ask Mr Elliott to take into account as a comparable sale, the transaction relating to the Kruize land on 28 October 1997 ("Kruize Sale") as one of the comparables. As a result, I was told Mr Elliott would then say that the land was worth $1,850,000 rather than $1,475,000 (he had arrived at the latter figure by taking into account what he considered to be comparable sales, but not including the Kruize Sale). The plaintiff objected to this on the basis that it was late disclosure of expert evidence. However, because it was clear that Mr Logan himself had noted the Kruize Sale in one of his written reports, and because the effect of Mr Elliott taking into account the Kruize Sale was that he conceded that his earlier valuation was too low, I ruled that he should be able to give the evidence, subject to further discovery being given and subject to the plaintiff having leave to recall Mr Logan to alleviate any prejudice that might be suffered. The result was that Mr Elliott gave evidence that by taking into account the Kruize Sale, he would arrive at $1,850,000 as the value of the land. He maintained, however, that he took it into account only because he was asked to do so. He still held to the view that no account should be taken of the Kruize Sale because it was a sale to a resuming authority. I have held above that such a transaction may be taken into account if sufficient is known about it to indicate that it has reliability as an arm's length sale.

89 The plaintiff contended that it would not be safe to accept this transaction as a comparable sale because it was negotiated very quickly after the resumption. The price had been agreed between the resuming authority and Kruize in December 1997. I do not see that as being an unduly hasty agreement. Both parties were represented by valuers, and the mere fact that the price was agreed with the assistance of valuers in December after an October resumption, does not lead to any inference that the price was hastily agreed or at too low a price. A good deal is known about the Kruize land, which is right next door to the subject land, and in temporal terms the sale was a sale concluded by valuers determining the price on the same day as the resumption of the subject land.

90 I find that sufficient was known about the Kruize Sale to make it reliable sales evidence which was safe to be used in valuing the subject land. Both Kruize and the defendant were represented by valuers. The resuming authority was the defendant. The parties to this litigation were able to agree that in relation to the price negotiated between the defendant and Kruize in December 1997, that part of the price represented solatium and that part represented the value of improvements and should be excluded. The parties to this litigation agreed that the bare land price in relation to the Kruize Sale was $2,690 per hectare.

91 Out of all the land referred to by the valuers, the attributes of the Kruize land were the most comparable to the subject land. Mr Logan said this, and I accept his evidence.

92 The reason why Mr Logan did not take into account the Kruize Sale was because his opinion was that the price was too low, but this was entirely based upon his attribution of a value for the subject land (without any appropriate foundation) and then comparing the Kruize transaction with this attributed value. The correct approach when using the comparable sales method is to identify the most comparable sale or sales and then, with or without adjustment, apply the rates generated by those sales to the subject land to arrive at a value. It is not correct for a valuer to assume, without any evidence, a value for the subject land and then decide whether or not comparable sales evidence measures up to his arbitrary view about the value of the subject land.

93 When Mr Logan returned to the witness box, he expressed the view that the most comparable sale was now not the Park Falls transaction but the transactions relating to the Forth land, which was the land immediately to the south of the Kruize land. He excluded the Kruize Sale for the reasons discussed above. The Forth land had been purchased in 1998 by the defendant. Mr Logan's evidence was, however, that if he looked only at the attributes of the land he would, in fact, rank the Kruize land as having attributes most similar to the subject land, and indeed if he thought that the transaction between the defendant and Kruize had produced a price that he was happy with, he would have considered that it should be treated as the most comparable sale because of the attributes of the land. He said that the Kruize land was only marginally different in its attributes, resulting in the need for a very minor adjustment of no more than five per cent downward when applying the rate from the Kruize Sale to the subject land.

94 I have found above that the Kruize Sale had nothing about it which would make it unsafe to rely upon. I accept Mr Logan's evidence that it does have qualities which make it most comparable in terms of its attributes, and I find that the Kruize Sale was the most comparable of all those referred to by all of the valuers. I find that there is no reason to exclude the rate per hectare which was arrived at between Kruize and the defendant, which therefore represented the value of the land right next door to the subject land and on exactly the same day as the subject land was resumed.

95 I should record the fact that Mr Logan's evidence was that the Forth sale was the most comparable only because of his conclusion that the Kruize transaction was too low based upon his arbitrary opinion about the value of the subject land. I find that the Forth transaction was not comparable for a variety of reasons. The Forth transaction was a transaction involving the sale of three lots. Two of the lots were small lots, and their rate per hectare was accordingly higher. Both valuers said, and I find, that small lots of land attract a higher rate per hectare. The Forth land is closer to Geraldton, and if treated as a whole is more attractive than the subject land. Indeed, Mr Logan concedes this by recognising that he has to make much greater adjustments if he applies the Forth rate per hectare to the subject land than he would make if he were to apply the Kruize Sale rate. All of these factors lead me firmly to the view that the Kruize Sale is far and away the most comparable sale and, in my opinion, the rate per hectare in relation to the Kruize Sale should be applied with the minor adjustment suggested by Mr Logan to arrive at the value of the subject land.

96 I should also record my finding rejecting Mr Elliott's opinion about the value of the land. Mr Elliott selected, and referred only to, evidence of sales of general farmland. In my opinion, he selected sales which were of land not comparable by reason of their distance or by reason of their different size. Some of the sales related to areas of land of more than 500 and more than 700 hectares. Some were a considerable distance from the subject land. In addition, the rates per hectare derived from the sales which he claimed to be comparable, ranged from $2,220 per hectare down to $554 per hectare. Mr Elliott denied that he had merely taken the average of these rates per hectare and applied if to the subject land. I note, however, that the average of these sales is very close to the rate that he has struck. Mr Elliott also denied that he had merely taken the average of all the sales once he had added in the Kruize Sale. However, once again, the rate that he derived after adding in the Kruize Sale is very close to the average of the rates per hectare for the sales he chose including the Kruize transaction. If he did not take the average of all the comparables, then I am left with no explanation about how he arrived at a rate per hectare. In my opinion, it is not enough for a valuer to select a basket of sales said to be comparable, showing a large range of prices, and then settle on a figure within the range, without explaining how it is derived from the basket of sales information relied upon.

Summary of Conclusions in Relation to Valuation Evidence

97 In summary, I have concluded that the highest and best use of the land would not have been as a subdividable site in the manner proposed by Mr Van Den Dries. This is because I have found that the annual rate of sale of the hypothetically subdivided lots would have meant that the highest and best use of the land was not for the purposes of subdivision.

98 I have found, based on Mr Logan's evidence, that the Kruize land had attributes most comparable to the subject land.

99 I have found that there is no reason why the Kruize Sale, negotiated as it was between the defendant and the Kruizes with the assistance of valuers, should not be safely regarded as by far the most appropriate comparable sale.

100 I have found that the Forth land was not comparable to the subject land for the reasons mentioned above, and therefore the Forth sale rate per hectare should not be applied to determine the value of the subject land. The Park Falls sale I find not to be a satisfactory comparable sale.

101 I have found that Mr Elliott's valuation figure should not be accepted.

102 Applying the rate per hectare arising out of the Kruize Sale, namely $2,690 per hectare, generates a value for the subject land of $3,299,117, which I would adjust downward by two-and-a-half per cent to take account of Mr Logan's view that the Kruize land was marginally better than the subject land. This adjustment produces a value of $3,216,640.

103 I would also award solatium at the rate of 10 per cent. The defendant did not dispute that solatium should be awarded in these circumstances. In addition, interest at the Supreme Court rate should be allowed. The plaintiff will have to calculate the amount of interest, take into account the advance payment of principal and interest already made, and then bring in a minute of proposed judgment.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : FLOTILLA NOMINEES PTY LTD -v- WESTERN AUSTRALIAN LAND AUTHORITY & ANOR [2003] WASC 122 (S)

BETWEEN : FLOTILLA NOMINEES PTY LTD (ACN 008 880 662)

Procedure - Costs - Indemnity costs - Special costs orders

J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) [1993] FCA 42; (1993) 46 IR 301

Stobbart v Mocnaj [1999] WASC 252

Verdell Pty Ltd v F & G Nominees Pty Ltd [2002] WASC 58(S2)

1 PULLIN J: The plaintiff has made an application for an indemnity costs order, or alternatively a special costs order under O 66 r 12(1). The first defendant ("defendant") objects to those orders and seeks an order that the plaintiff's costs be reduced by one-quarter.

2 The plaintiff submits that the defendant's defence in this case was founded on three premises which, properly regarded, were without any realistic prospect of success.

3 The first premise was said to be that the plaintiff's land had no potential for subdivision because of restrictions contained in various planning instruments. Accordingly, it is submitted that on well-established principles the effect of those restrictions ought to have been disregarded when considering the highest and best use of the subject land and therefore the value of the land ("Pointe Gourde issue"). The plaintiff points to the fact that the defendant's expert witnesses were instructed, for the purpose of preparing the reports which the defendant was to rely on, to take into consideration the restrictions contained in the planning instrument. It is submitted that it was unreasonable for the defendant not to have conceded the Pointe Gourde issue. It is submitted that the failure to do so meant that the "entire case" was founded upon an untenable proposition.

4 The second premise was said to be that the defendant contended that some land which was referred to in the case as the "Kruize land" ought not to be considered as a comparable sale. One of the defendant's experts considered that he ought not rely on the price paid by the defendant for the resumption of the Kruize land. The plaintiff says that an inference should be drawn that the defendant deliberately chose to ignore the acquisition of the Kruize land because it would have led to a higher valuation of the plaintiff's land. The plaintiff says the defendant did this because the Kruize transaction, if taken into account, would have led to a higher valuation of the plaintiff's land and caused the defendant to abandon its counterclaim. The counterclaim was formulated on the premise that the amount of compensation which had been paid by the defendant, as resuming authority, was more than the value of the land and that the difference between the true value of the land and the amount of compensation earlier paid by way of advance, should be repaid.

5 The plaintiff submits that the defendant's conduct in pleading the counterclaim was unreasonable, first because the Kruize land was disregarded as a comparable sale, and secondly because the decision of the defendant to pay the plaintiff an advance of $1.9 million plus interest could never have been regarded as a mistake of fact or law. It is submitted that this was based upon an opinion or prediction as to the value of the land, and was a voluntary payment made pursuant to the provisions of the legislation.

6 The third premise advanced was that when valuing the plaintiff's land, it had to be valued as if each title were sold on the same day, and that this would have had a depressive effect on the value of the plaintiff's land. I rejected that argument, and the plaintiff now argues that this was not a meritorious point and never had any realistic prospect of success.

7 For those reasons, the plaintiff seeks an order that in relation to all of the plaintiff's costs, they be paid on an indemnity basis. Alternatively, an order is sought on an indemnity basis in relation to the costs of preparing to meet the Pointe Gourde issue and the defendant's counterclaim.

The Principles Applying to Indemnity Costs Orders

8 The usual costs order is one for party and party costs. An order for indemnity costs will only be made if there is some special or unusual feature in the case to justify a departure from the ordinary practice. In effect, the court has jurisdiction to make an indemnity costs order whenever justice requires such an order. Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190 at 191; Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233. When the justice of the case does require such an order, then the court will have a discretion as to whether the order should be made.

9 Many examples can be found where an indemnity costs order has been made. Suffice it to say that most of these involve some element of improper, or at least unreasonable, conduct on the part of the parties or their legal advisors in relation to the case. See the examples given by Sheppard J in Colgate-Palmolive v Cussons (supra) at page 233 and the circumstances referred to in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397 and in Unioil's case. Thus, the making of allegations of fraud knowing them to be false, or the commencement of proceedings for some ulterior motive, or in wilful disregard of known facts or the established law, or the making of allegations which ought never to have been made, or the undue prolongation of a case on groundless contentions, and even an unreasonable refusal to accept an offer of compromise, may lead to indemnity costs orders. See Colgate-Palmolive v Cussons (supra) at 233. The creation of false issues by tactical denials or failures to admit the facts may, in the circumstances of particular cases, lead to such an order: Unioil's case. An action commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, may lead to such an order because such action might be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law. See Fountain Selected Meats (supra).

10 In this case, the plaintiff submits that there was unreasonable conduct in the running of the defendant's case.

11 Even if there has been such conduct, an indemnity costs order will not be made if the costs would be covered by an order for party and party costs (see Unioil's case at 193) or by a special costs order.

12 The increasing number of indemnity costs orders was remarked upon by Sheppard J in Colgate-Palmolive v Cussons (supra), and on page 227 of that report his Honour said:

"It seems not unlikely that the growing number of these applications is being triggered by a perception that the disparity between costs incurred and costs recovered is widening."

13 His Honour referred to another decision which referred to the "yawning gap" between costs recovered by a successful party on a party and party taxation of costs and the costs payable by the successful party to its own solicitors. That situation should not arise in Western Australia under the present scale because the cost regime in force in this State means that an order for indemnity costs has less significance than in those jurisdictions where the amounts allowed for party and party costs are materially lower than those allowed for solicitor and client costs. See Unioil's case at 191. The fees allowed under the Supreme Court scale of costs apply both as between party and party and solicitor and client, and for that reason there should not often be any discrepancy between party and party costs and solicitor and client costs in cases where there is no agreement concerning costs under s 59 of the Legal Practitioners Act. This is particularly so under the scales which have applied since 1996. This determination introduced new principles for the calculation of costs. Before that date, the foundation for the scale of costs which applied, and which had applied since 1953, was explained in Cruickshank v Producers Markets Co-Operative Ltd [1960] WAR 184. It was said:

"... the 1953 amendments to the costs rules ... have introduced a novel basis for the fixing of costs, as a result of which, broadly speaking, the remuneration allowable to the profession in litigious works is to be based not on work done but on the value of the subject matter of the lis - a value to be fixed by the court where the claim is not for a liquidated sum ..."

14 The 1996 Legal Practitioners (Supreme Court) (Contentious Business) Determination 1996 made by the Legal Costs Committee under s 58W of the Legal Practitioners Act explained the foundation for the new scale:

"It is the view of the Committee that it is no longer possible to support a scale based on an ad valorem charge for the main item of getting up case for trial. The scale of litigation and the way it is conducted has changed immeasurably since 1953. A survey of costs charged, time spent, and the amount in issue shows that the scale does not reflect the basis on which many solicitors actually charge for the provision of legal services. This has the consequence that solicitors may enter into agreements under section 59 of the Act in order to avoid the constraints of the scale. ...

The new scale of costs set out in the Schedule reflects the fact that the costs of legal services provided in relation to Supreme Court and District Court actions are in the main calculated by reference to the time reasonably spent in the provision of those services and by applying to that time a reasonable hourly rate, that rate varying according to the seniority and experience of the practitioner and the complexity of the work."

15 The scale of costs created by that determination describes the various stages of work involved in litigation, then states the number of hours for the performance of that work and applies an hourly rate of an appropriately qualified practitioner to that number of hours, to arrive at a dollar figure. The determination explains the items in the scale by way of example. It states:

"(3) Thus, for example, item 6(a) of the Schedule which relates to the drawing and settling of a statement of claim, provides for a maximum of 10 hours for the preparation of this document to be performed by a senior practitioner charging at a rate of $270 per hour. In fact, in a particular matter, the time reasonably spent in drawing and settling a statement of claim may be only 2 hours and it may be performed by a practitioner who is relatively junior. By reason of the lack of complexity of the case, it may be that such practitioner should only reasonably charge at the rate of $180 per hour. If that be the case, then $360 would be a reasonable charge. Alternatively, if the statement of claim were drawn in complex litigation and 30 hours were reasonably spent on the task by a senior practitioner who might reasonably charge $280 per hour, then it would be appropriate for that party, if it were successful in the litigation to ask for a special costs order to be made by the Court to increase the maximum amount in item 6(a). ..."

"(5) It will be noted from items 13 and 14 of the Schedule that if more than 100 hours must reasonably be spent on getting up the case for trial and if more than 3 days must reasonably be spent by counsel in mastering the brief and preparing for the trial, then the Committee considers that to be a basis to seek a special order for costs under O 66, r 22 of the Rules of the Supreme Court."

17 The investigations which were carried out by the Legal Costs Committee before settling upon the descriptive item for the work, the number of hours and the hourly rate applicable, was also explained in the determination. The Committee said in the determination:

"5(1) Before making this determination the Committee took the following steps -

(a) obtained information from the Supreme Court and District Court about the number of solicitors conducting Supreme Court and District Court litigation;

(b) reviewed all submissions received following notice given under Section 58Y of the Act;

(c) conducted oral hearings with interested parties;

(d) prepared and circulated to relevant parties drafts of the scales with descriptive items covering the work performed by solicitors in the conduct of litigation in the Supreme Court and District Court;

(e) obtained information as a result of a survey of solicitors about the amount of time which had been spent and the charges which had been made for the last Supreme Court case conducted in the respondent's office;

(f) conducted a survey of solicitors to ascertain hourly rates charged by them for work performed by senior practitioners, junior practitioners and paralegals and clerks, and

(g) conducted a survey of members of the Western Australian Bar Association (Inc) to ascertain the hourly and daily rates charged by members of that Association.

(2) The information obtained satisfied the Committee that the existence of competition for the supply of services to parties involved in litigation made it safe to adopt the rates charged by practitioners as a guide to the rates to be used in this determination."

18 Since the 1996 determination, the Legal Costs Committee has carried out further surveys to adjust the hourly rates to reflect the rates being charged by practitioners within the profession.

19 The result is that where there is no costs agreement under s 59, there should not often be any need for an indemnity costs order. If costs are likely to exceed the allowances in the scale, the successful party will usually be advised to apply for a special costs order under O 66 r 12(1) by showing that the case involved unusual complexity or importance, or by reason of the amount of work involved in conducting the case.

20 If a special costs order is made, care should be taken in formulating the orders which are sought. An order may be sought in relation to three aspects of the scale.

21 First, the items describing the work performed might not cover an area of work in conducting the litigation and which has resulted in the incurring of costs. In such a case, the special order sought would be to describe the area of work and to state the hourly rates which should be applied to that area of work. There should not be many areas of work not covered by the existing scale, but there will be some. Counsel's opinion is an example mentioned in Collins v Westralian Sands Ltd (1993) 9 WAR 56 at 64. Item 13A of the Supreme Court scale now allows for recovery of such an item in a solicitor and client bill but does not allow the recovery of work of that kind from the other party unless an indemnity costs order is made, or unless the court otherwise orders pursuant to O 66 r 12(1). It is likely to be rare that any order has to be made about areas of work not described because of the generality of the description in the existing costs scale.

22 Secondly, a special costs order might be made in relation to the hourly rates provided for an item in the scale. An hourly rate might be thought to be too low for some reason. A special costs order will not be necessary if the amount to be claimed is no more than the maximum dollar amount specified for that item. So, for example, item 8(b), which relates to the giving of particulars of a pleading, provides for a maximum dollar amount based on the assumption that a junior practitioner will carry out the work and take up to five hours to complete such work. It is quite proper on taxation under that item to show that a senior practitioner did the work, but in that case the senior practitioner in the ordinary case would have to complete the work in less than five hours to stay within the dollar limit specified in the scale for that item. If a successful party considers that much more than five hours had to be spent on the task and believes that it can be demonstrated that this was reasonably necessary on a taxation, and also wishes to demonstrate that all of the work was performed by a senior practitioner and that the remuneration should be at the senior practitioner's rate, then a special costs order should be sought. The order that might be sought might be that the "costs in relation to item 8(b) be taxed without regard to the limit in the scale and that the costs be taxed at the senior practitioner's rate" (or "at the rate of $x per hour"). The need for an order of this sort would be necessary if a costs agreement under s 59 of the Legal Practitioners Act has been entered into by the successful party, the hourly rates in the agreement are higher than in the scale, and the party wishes costs to be taxed at that rate. However, the details of the agreement, and in particular the hourly rate which the party applying for a special costs order wants to apply, should be disclosed when the application is made. In my opinion, it is not correct for a party to seek an order lifting limits in the scale without disclosing to the Judge the details of the agreement or the hourly rate which the applicant wants to use on taxation (and only later inform the taxing officer of the rate). I should also add that there should be no expectation that, as a matter of course, rates in the costs agreement which are above scale will be ordered to be the rates to apply in taxation as between party and party. There would have to be evidence justifying the higher rate. The whole point of the existing scale is that the rates are struck by reference to what is being charged within the profession. It is true that the hourly rates can only be an average or mean of the upper rates determined in the survey, and there will be some cases where the unusual complexity or importance of the case warrants the special expertise of the practitioner involved and warrants an increase in the hourly rate. In some cases not involving unusual complexity or importance, the higher rates paid will not be recoverable. A party is always entitled to the luxury of retaining the highest paid practitioners in the conduct of their case, but they cannot always expect to recover these costs from the other party. If the hourly rates in the scale are thought by parties or practitioners to be too low for work which is not of unusual complexity or importance, then submissions should be made to the Legal Costs Committee to increase the rates in the scale.

23 Thirdly, the successful party might contend that the time allowed for performance of the work is inadequate. Say, for example, the time allowed for giving particulars of the pleading in item 8(b) is said to be five hours. If this is considered to be inadequate and there is no wish to seek an increase in relation to the hourly rate, then the appropriate order is to ask that the amount be lifted or taxed without regard to the limit. If that is the only order made, then, in my opinion, the taxing officer should tax on the assumption that above the maximum amount allowed by the scale, the hourly rate will be that fixed by the scale.

24 The consequence is that if a properly formulated special costs order is made, there should be little need for an indemnity costs order to try and recover costs incurred above the scale.

25 Having said all of that, however, there is still a place for indemnity costs orders. It will be appropriate in cases where there has been improper or unreasonable conduct on the part of a party or his legal advisors. An order for an indemnity costs order is a mark of disapproval on the part of the court about the improper or unreasonable conduct of litigation, even though there should not be much difference in the costs recovered under such an order compared with recovery under a properly formulated special costs order. If the conditions warrant an indemnity costs order, it is likely that the Judge making the order will be more inclined to allow an increase in the hourly rates or an increase in the limits. An order detailing those increases should, in my opinion, be made even where indemnity costs orders are made.

26 A solicitor should not, in my view, resort to an application for an indemnity costs order merely to secure the recovery which could be achieved by a properly formulated special costs order, unless the unsuccessful party's conduct is genuinely to be impugned by the successful party.

27 There was one other argument advanced by the plaintiff to support the claim that there should be an indemnity costs order rather than a special costs order. The plaintiff pointed to Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd, unreported; Fed Ct of Aust, 3 May 1991, in which an order was sought for an indemnity costs order in terms that:

"The applicant do pay the respondent's costs of the action, including reserved costs, and such costs are to include all costs except in so far as they are of an unreasonable amount or have been unreasonably incurred so that, subject to the above exceptions, the respondent will be completely indemnified by the applicant for its costs and the amount of such costs be taxed."

28 An indemnity costs order was not made in that case, but the plaintiff said that if the order had been made, it would have been in the form sought and that the only overriding control on the recoverability of costs would be that those costs not be "unreasonably incurred" or not be of an "unreasonable amount". I agree that an indemnity costs order, if made, would be made in those terms. I pause to mention that this means that even under an indemnity costs order, costs will not be automatically taxed on the basis of the hourly rates provided for in a costs agreement under s 59 of the Legal Practitioners Act. The test of reasonableness will apply even where there is a costs agreement. Unreasonable costs, or costs unreasonably incurred, will not be recovered under an indemnity costs order. Nor will they be recovered under a special costs order. Having referred to the proposed order in Tetijo's case, counsel for the plaintiff then took me to the case of Esther Investments Pty Ltd v Markalinga Pty Ltd (1992) 8 WAR 400, which was a case in which Malcolm CJ would have made a special costs order but for delay in making the application. In his reasons for decision, the Chief Justice said:

"The making of such an order would in no way limit the decision of the Taxing Master to determine whether any particular item of work, the subject of the defendant's bill of costs for taxation, was reasonably necessary for the purposes of the case, or whether any particular item of costs or disbursements was necessarily or reasonably incurred in connection with the litigation."

29 From this the plaintiff submitted that in relation to the special costs order, not only was the test of reasonableness applied but, in addition, the costs were scrutinised to determine whether they were "necessarily" incurred in connection with the litigation. I do not interpret the Chief Justice's judgment as introducing some additional test in relation to the taxation of costs under an order pursuant to O 66 r 12(1). In my view, work which has been performed which was not "necessarily incurred" in connection with the litigation would be costs not "reasonably incurred".

30 As I have already said, it is my opinion that if a party wishes to seek a special costs order or an indemnity costs order to allow costs to be taxed on the rates stated in a cost agreement, then the terms of the costs agreement should be disclosed to the Judge who is being asked to make the order. This should not be left to emerge as an issue before the taxing officer.

31 I turn first to the issue about whether the Pointe Gourde issue was not taken into account by the defendant's expert witnesses because of the instructions given to them. The defendant denies that its "entire case" was based on the proposition that the Pointe Gourde issue did not apply. It says that this was made clear in its outline of submissions.

32 In my opinion, it is unnecessary to further consider the dispute on this point. The plaintiff was unable to identify any costs incurred in relation to the issue which would not be covered by an order for party and party costs under a special costs order. In those circumstances, an order for indemnity costs is not warranted. See Unioil's case at 193.

33 In any event, it has to be borne in mind that the Pointe Gourde issue arose as a sub-issue in relation to one of the major issues in the case, namely whether or not the value of the land should be determined by reference to a hypothetical subdivision, as was proposed by the plaintiff. In the end result, I found that value should not be determined on the basis of the hypothetical subdivision and that the hypothetical subdivision was not the highest and best use of the land. It would therefore be an odd result to allow the plaintiff indemnity costs in relation to a sub-issue of a major issue on which the plaintiff was wholly unsuccessful.

34 The second ground advanced in support of an indemnity costs order is that the defendant's expert considered that the Kruize land sale price ought not to be taken into account in valuing the subject land. As to that, I should observe that both parties paid little attention to the Kruize land transaction until towards the end of the trial. I can see no basis for criticism of the defendant's approach on this point. In addition, I again consider that an indemnity costs order is not warranted, because the plaintiff was unable to indicate that there were any costs which would not be covered by a special costs order.

35 The third submission was that the defendant acted unreasonably in counterclaiming for repayment of monies which had been paid by the defendant resuming authority and which exceeded the value that the defendant then argued for at the trial. While I agree that the defendant's prospects of success on this counterclaim were slight, I do not consider that the existence of the counterclaim warrants the censure of an indemnity costs order. It also seems clear that the costs in relation to that issue would be covered by a special costs order.

36 The result is that I dismiss the application for an indemnity costs order.

37 Order 66 r 12(1) confers a discretion on the Court to make a special order as to costs by reason of the unusual complexity or importance of the case, or for any other good or sufficient reason, and the court may then order that any particular allowance in any relevant scale be raised or a limit removed, and in giving any such direction the court may fix a limit within which the taxing officer may allow such costs.

38 In this case, the plaintiff seeks an order that items 1(a), 6(a), 6(d), 8(b), 9(b), 9(c), 13, 14(a), 14(b), 14(c), 14(d), 14(e) and 14(f) be taxed without regard to the limits in the scale. It is clear that the extent of work involved in preparation may constitute a good and sufficient reason to increase the allowance provided under the scale. See Schmidt v Gilmour [1988] WAR 219 and Esther Investments Pty Ltd v Markalinga Pty Ltd (supra).

39 I would need very little persuasion on very slight evidence that this was a case where the time spent exceeded the time provided for in the scale of costs in relation to many items. Resumption cases often involve the parties putting up alternative methods of valuation. If the comparable sales method is involved, the parties often refer to many sales. Each sale can involve the mastery of many facts. In the case where the highest and best use of land is said to be for subdivision, engineers are called in to say what engineering works would be involved and what they would cost. Real estate agents are called to give evidence about what price the subdivided blocks might sell at, and at what rate per annum, both of which points can (and did in this case) produce a multitude of issues between the parties.

40 The plaintiff has filed an affidavit which reveals that a large amount of work was done in the conduct of this case, and based on that affidavit I am satisfied that a special costs order should be made lifting the limit on some, but not all, of the items which the plaintiff refers to.

41 The plaintiff's affidavit concentrates on describing the hours of work performed by those involved in the case. There is a reference to the existence of a costs agreement under s 59 of the Legal Practitioners Act, but it has not been produced, and there has been no evidence put before me about the hourly rates which have been charged for the work. In the absence of any evidence on that subject, there is no basis for increasing hourly rates above those provided for in the scale.

42 Further, there is no suggestion that the work performed in the case was not work which is not covered in descriptive terms by the items in the scale.

43 I am required to draw on my own experience, to act on impressions gained during the litigation, and to take into account the issues which have been involved. See Esther Investments Pty Ltd v Markalinga Pty Ltd (supra) at 404. I am very conscious of the need not to fall into the trap of making an estimate of the time which I consider would have been spent on the tasks, when I do not have all information before me to make the judgment. Nevertheless, in relation to item 6(d), the 51.1 hours said to have been spent in relation to the preparation of the reply and defence to counterclaim strikes me as very high. The work involved could not have taken that long if regard were only had to the original reply and defence to counterclaim, which consisted of either admissions, non-admissions or denials. However, as counsel for the plaintiff pointed out, there was an amended reply which raised issues about the plaintiff's change of position to meet the counterclaim, and this involved more work than simply admitting, denying or not admitting paragraphs in the counterclaim. However, whether the drawing of the amended reply to introduce the new paragraph dealing with change of position warranted over 50 hours, which would be five days' work at 10 hours per day or seven full days' work at seven hours chargeable work per day, will be a matter for the taxing officer and so I will make the order sought in relation to item 6(d).

44 I note that the affidavit filed on behalf of the plaintiff suggests that over 1,500 hours were spent on "getting up" the case for trial. That amounts to 214 days' work for a practitioner working seven chargeable hours a day. Once again, whether that is reasonable or not, will be a matter for the taxing officer. There were clearly very many issues in this case and a large number of documents were discovered.

45 As the defendant correctly points out, there was no evidence to support the lifting of the limits in relation to items 14(c) and 14(d) (these being daily rates for junior and senior counsel).

46 As to items 14(e) and 14(f), I do not know who was attending or why the rates allowed in the scale would be inadequate. In the absence of any evidence at all on the subject, I do not consider that those items should be lifted by any special costs order.

47 I do not consider that item 1(a) should be lifted. This item is intended to cover the issue of the writ, and if there was work done before the trial which was, in effect, part of getting up case for trial, then Item 13 specifically allows for the recovery of costs necessarily undertaken prior to the commencement of proceedings.

48 Similarly, I do not consider that there should be any uplift in relation to item 6(a), which relates to the statement of claim. There was no particular complexity in that document.

49 I do, however, consider that in relation to items 8(b), 9(b), 9(c), 13, 14(a) and 14(b), costs should be taxed without regard to the limits in the scale. Whether the work was done, and questions of reasonableness (including necessity), are matters for the taxing officer.

The Defendant's Submission that Costs should be Reduced

50 The defendant refers to the fact that I concluded that the comparable sales method was the correct method of valuation and that the Kruize transaction was the most comparable of all the transactions. The defendant points to the fact that the plaintiff's case was overwhelmingly based on the proposition that the highest and best use of the land was for subdivision into 238 rural residential lots. On that basis, the plaintiff argued that the land was worth $5,000,000. A substantial part of the time at trial was taken up in relation to this issue. By all appearances, it would also have involved a lot of work pre-trial. The plaintiff failed on this issue because I concluded that the subdivided lots could not be sold at the rate of 40 per year. No evidence was led by the plaintiff about sales in the Geraldton region which would support the plaintiff's valuers' opinion that these lots would sell at the rate of 40 per year. It was critical to the plaintiff's claim that this sales rate could be achieved, because when the sales rate fell to a certain level per year, the hypothetical subdivision became unprofitable due to holding costs. The only evidence which was led to support the rate of 40 sales per year was based upon sales at Sovereign Hill, which was a location close to Perth. It is true, therefore, that the plaintiff wholly failed on this issue.

51 Generally speaking, a successful party is entitled to recover the whole of its costs. If the court is of the opinion that the conduct of a party, either before or after the commencement of the litigation, or that a claim by a party for an unreasonably excessive amount, has resulted in costs being unnecessarily or unreasonably incurred, it may deprive that party of costs, wholly or in part. See O 66 r 1(2). The court also has the discretion where a party, though generally successful in the action, has by introduction of some issue or issues on which he has failed and has thereby increased costs, to order such party to pay the costs of such issue or issues.

52 I bear in mind the sentiments expressed by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16, where he sounded a note of cautious disapproval of applications which he saw being made with increased frequency to apportion costs according only to the success or failure of one party or the other on the various issues of law or fact which arose in the course of the trial. However, such orders are made from time to time. So in Westgold Resources NL v St George Bank Ltd, unreported; SCt of WA; 9 December 1998, Anderson J ordered the defendants to pay three-quarters of the plaintiff's costs of the action to be taxed because there were issues which took a lot of time and which his Honour considered were either not arguable or not understandable. In this case, it is not fair to say that the plaintiff's case based on a hypothetical subdivision was not arguable or not understandable. The plaintiff's case had no element of the hopelessness which led Anderson J to make the decision that he did in the Westgold case. Nevertheless, this was such a major issue that the defendant submits that the plaintiff should not recover its costs in relation to it. I consider, however, that no such adjustment should be made. The way for a defendant to protect itself in relation to costs is to make a payment into court or an offer of compromise of an appropriate amount and at an early time. No such step was taken in this case, and the plaintiff was therefore left to advance its case as best it could. The fact that the plaintiff failed in the approach it took is no more remarkable than the fact that the defendant failed in its approach.