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[2008] WASC 124
Supreme Court of WA
2008-06-30
Jenkins J
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : MERCER -v- WESTERN AUSTRALIAN PLANNING COMMISSION [2008] WASC 124
HEARD : 12 - 23, 29 & 30 NOVEMBER 2007, 3, 12 & 13 DECEMBER 2007, 20 FEBRUARY 2008
MICHELLE JONNINE McALLISTER & CRAIG DOUGLAS McALLISTER as Executors of MABEL JOYCE PALMER
Resumption or acquisition of land - Compensation - Valuation of land - Valuation methodology
Supreme Court Act 1935 (WA), s 142
Compensation awarded in the sum of $2,264,625 plus interest
1 This is an application, pursuant to the Land Administration Act 1997 (WA) (LA Act), s 202 and s 220, for compensation for the plaintiffs' interest in certain land taken under the LA Act, pt 9 on 5 September 2003 (the date of taking).
2 The land which is the subject of this application was comprised of two adjoining parcels of land. The first parcel was lot 7 on deposited plan 26511 and being the whole of the land contained in certificate of title vol 1228 folio 191. The parcel was 395 sqm and a building, known as the Commercial Building, was constructed on it. The Commercial Building was demolished on or about 4 October 2004 in order to progress the public work which was then being undertaken in the area. The parcel had a street address of 507 Wellington Street, Perth.
3 The second parcel was a portion of Perth town lot V19 and being the whole of the land contained in certificate of title vol 1219 folio 913. The parcel was 400 sqm and a building, known as the Saunders Building, was constructed on it. The Saunders Building was demolished at the same time as the Commercial Building. The parcel had a street address of 499 Wellington Street, Perth.
4 Whilst there are two parcels of land the subject of the application, the parties appear to agree that the compensation for their taking is best assessed by considering them together. Throughout these reasons I shall refer to the two parcels as the subject land, and to each parcel by its street address.
5 At the date of taking, the registered proprietors of the subject land were Robert William Mercer, Richard Taunton Saunders (the first plaintiffs) as joint tenants of a one half share in each parcel and Mabel Joyce Palmer as to a one half share in each parcel, as tenants in common. Mabel Joyce Palmer died on 27 September 2004, and Michelle Jonnine McAllister and Craig Douglas McAllister bring this claim in their capacity as the executors of her will (the second plaintiffs).
6 The plaintiffs' claim, as clarified by counsel, is for:
(a) the value of the [subject land] and the improvements constructed thereon at the [date of taking] calculated on the highest and best use of the [subject land] pursuant to s.241(2) of the LAA;
(b) a declaration that the Plaintiffs are entitled to acquisition costs in respect of property which may be purchased or acquired by the Plaintiffs to replace the [subject land] upon production of proof at any time whether before or after the final determination of this matter, that such replacement property has been acquired;
(c) solatium pursuant to s.241(8) of the LAA;
(d) interest on the aggregate of the foregoing amounts inclusive calculated at the rate provided by s.142 of the Supreme Court Act (1935) adjusted in respect of the advance payment already made for a period from the date of receipt of the claim to the date of payment of the compensation pursuant to s.241(10)(b) of the LAA;
(e) any GST determined by the Court to be payable by the Defendant on any of the foregoing amounts;
(f) such further or other relief as the Court considers fit either generally or pursuant to s.241(9) of the LAA.
The parties agree that GST is not payable on an award of compensation. Thus, that part of the claim does not succeed.
7 The defendant admits that the plaintiffs are entitled to adequate compensation 'in the manner contemplated' by the LA Act s 241 but denies that such relief includes the matters pleaded in (b) and (d) above.
8 On 26 July 2004 the defendant, pursuant to the LA Act s 248, paid the plaintiffs $1,796,860.43 as an advance payment pending the final determination of this claim. The parties agree that the payment included an adjustment for rates and taxes.
(1) In determining the amount of compensation (if any) to be offered, paid, or awarded for an interest in land taken under Part 9, regard is to be had solely to the matters referred to in this section.
(2) Regard is to be had to the value of the land with any improvements, or the interest of the claimant in the land, assessed as on -
...
(c) in the case of an interest to which paragraphs (a) and (b) do not apply - the date of the taking,
and discounting any increase or decrease in value attributable to the proposed public work.
...
(6) Regard is to be had to the loss or damage, if any, sustained by the claimant by reason of -
(a) removal expenses;
(b) disruption and reinstatement of a business;
(c) the halting of building works in progress at the date when the interest is taken and the consequential termination of building contracts;
(d) architect's fees or quantity surveyor's fees actually incurred by the claimant in respect of proposed buildings or improvements which cannot be commenced or continued in consequence of the taking of the interest; or
(e) any other facts which the acquiring authority, the court, or the State Administrative Tribunal considers it just to take into account in the circumstances of the case.
...
(8) If the interest in land is taken without agreement, an amount considered by the court or the State Administrative Tribunal or, for the purposes of making an offer, by the acquiring authority, appropriate to compensate for the taking without agreement may be added to the award or offer.
(9) The additional amount under subsection (8) must not be more than 10% of the amount otherwise awarded or offered, unless the court or the State Administrative Tribunal, or, for the purposes of making an offer, the acquiring authority, is satisfied that exceptional circumstances justify a higher amount.
(10) If the interest in land taken produces any rent or profits, then at the option of the acquiring authority, either -
...
(b) interest is to be paid on the amount of compensation for the same period, at the rate of 6% per annum, or such higher rate as the acquiring authority, the court, or the State Administrative Tribunal considers adequate having regard to the circumstances of each case,
but if the interest in land ceases to produce any rent or profits after the taking, interest is to be paid in accordance with paragraph (b).
...
(12) Subject to subsections (10) and (11) -
(a) when any amount representing an advance payment of compensation is paid to a claimant, interest on the total amount of compensation is payable only to the date of the first payment, and interest is payable thereafter only on the balance outstanding from time to time; and
...
(1) The State Administrative Tribunal or the court hearing the action for compensation may award one aggregate amount as compensation for a whole claim, or may divide the claim into several items and award a separate amount for each item.
(2) The State Administrative Tribunal or the court may determine that no compensation is payable in respect of the whole claim or in respect of any item.
(3) The State Administrative Tribunal or the court may attach conditions to the payment of the whole of the compensation or to the payment of the amount awarded for any item.
10 In accordance with the above provisions, the primary issue for determination is the value of the subject land, as at the date of taking. Sub-issues involved in the determination of the primary issue include:
(1) determination of the highest and best use of the subject land; and
(2) determination of the appropriate method by which to value the subject land.
11 There is no evidence before me that the plaintiffs have acquired a replacement property. There remains an issue as to whether the plaintiffs are entitled to the declaration as sought in (b) above.
12 Other issues for determination are whether the plaintiffs are entitled, as a matter of law and/or fact, to:
(2) an award of interest and, if so, the amount thereof; and
(3) any other relief pursuant to the LA Act s 241(9).
Detailed description of the subject land and adjoining land
13 Four hundred and ninety-nine and 507 Wellington Street each had a frontage of 7.564 m to Wellington Street, making a combined frontage of 15.13 m. Five hundred and seven Wellington Street had a truncation of approximately 5 sqm at its south-western corner. Otherwise, the two parcels were each long, narrow and rectangular in shape. They were at grade with Wellington Street. There is little evidence of the local topography. I assume that the lots were relatively level and suitable for development.
14 The parcels ran in a south-westerly direction from Wellington Street. Their remaining boundaries were inside the city block bounded by William Street to the west, Forrest Place to the east and the Murray Street Mall to the south. Five hundred and seven Wellington Street was further west than 499 Wellington Street. Disregarding rights of way and carriageways (ROW), 507 Wellington Street had a north-western boundary with the lot on the corner of Wellington and William Streets. A substantial four-storey heritage building known as the Wellington Buildings was constructed on the corner site. At the relevant time the Wellington Buildings were occupied by retail outlets on the ground floor and a backpacker's hostel on the upper two levels. There was also a basement.
15 Five hundred and seven Wellington Street had a south-western boundary with a lot which also had a frontage to William Street. It had a building on it known as the McLaren Chambers. The McLaren Chambers were occupied by retail outlets.
16 The subject land had rear, southern boundaries with deep lots fronting the Murray Street Mall, which were used for retail shops. Those lots had once been used as the Myers department store and were owned by the same entity, as I shall detail later in these reasons.
17 Four hundred and ninety-nine Wellington Street had an eastern boundary with the Globe Hotel site. This site, known as 495 - 497 Wellington Street, was also a deep lot running contiguously with 499 Wellington Street. It had an area of 888 sqm. A three-storey heritage building which, at the date of taking, was used as a backpacker's hostel was constructed on the site.
18 In the foregoing description of adjoining lots I have ignored a number of ROW which ran between the McLaren Chambers and the Wellington Buildings, between the McLaren Chambers and 507 Wellington Street, from the Murray Street Mall to the subject land and along the southern boundary of the subject land. These ROW gave access from William Street and the Murray Street Mall to the rear of the subject land, as well as to the adjoining lots. There was no ROW from Wellington Street to the rear of the subject land.
19 At the frontage of the subject land, Wellington Street was the major thoroughfare linking the western and eastern ends of the Perth CBD. The Perth railway station was on the northern side of Wellington Street. A major bus terminal was situated on the north west corner of William and Wellington Streets.
20 As at the date of taking, there was no direct pedestrian access from the railway station to the subject land. In order to gain access to the subject land from the railway station, pedestrians had to cross Wellington Street at a traffic light controlled pedestrian crossing to the east of the subject land, walk up a flight of steps to the level of Forrest Place, turn west, walk under the Wellington Street colonnade of Albert Facey House and, at the western end of Albert Facey House, walk down a shallow ramp to the Wellington Street footpath which then passed the subject land. Pedestrians were unable, due to driveways and related obstructions, to cross at the pedestrian crossing outside the railway station and walk immediately west to the subject land along an, at grade, footpath. However, from the northern side of the intersection of Wellington and William Streets, pedestrians could cross Wellington Street at a traffic light controlled pedestrian crossing and then turn east to access the subject land via the, at grade, Wellington Street footpath. Five hundred and seven Wellington Street was approximately 26 m from the south-eastern corner of Wellington and William Streets.
21 William Street was a major one-way street carrying traffic from the north to the south, through the Perth CBD. It provided vehicular access to the rear of the subject land via the ROW I have described previously. It also provided pedestrian access to the subject land along its footpath which intersected with the Wellington Street footpath. North of Wellington Street, William Street crossed the railway line, via the Horseshoe Bridge, and then continued through Northbridge.
22 The Murray Street Mall was a major pedestrian and retail mall which ran in an east-west direction between William Street in the west and Barrack Street in the east. Forrest Place was a public open space which ran between Wellington Street to the north and the Murray Street Mall to the south.
23 At the date of taking, there was also pedestrian access to the subject land via upper level pedestrian walkways. One walkway crossed Wellington Street from the top of the Horseshoe Bridge on William Street to Albert Facey House and the second walkway crossed Forrest Place from the new Myer building to Albert Facey House. Pedestrians who then wished to access the subject land had to descend to the level of Forrest Place and access the subject land via the Albert Facey House colonnade along Wellington Street and the Wellington Street footpath, as I have previously described.
24 To facilitate the reader's understanding of the location of the subject land, its relationship to other lots and the various access routes to the subject land, I have included a locality plan at the end of these reasons (Annexure A). The plan and some of the information on it was attached to Improvement Plan No 32 - William Street Station Precinct (IP32), which I will refer to later in these reasons. I have placed the handwritten annotations on the annexed locality plan.
25 The improvements to 507 Wellington Street comprised the Commercial Building, a two storey building built in the 'Federation Romanesque Style' in about 1899. As at the date of taking, the façade of the Commercial Building had some heritage value but the remainder of the building had no heritage or architectural value. The building had some income producing capacity. The ground floor of the building was used for retail trading and the first floor was part of a backpackers' hostel which was operated from the Globe Hotel.
26 The Commercial Building occupied only about half of the site. The rear of the property was used as a car park and to facilitate access to the rear of the Commercial Building and 499 Wellington Street.
27 The improvements to 499 Wellington Street comprised the Saunders Building, a two storey building. The Saunders Building occupied the whole of 499 Wellington Street. The building had no heritage or architectural value. It had some income producing capacity. As at the date of taking, the ground floor was used as a tourist information centre and the first floor was part of the backpackers' hostel which was operated from the Globe Hotel.
28 The usual services, including electricity, water supply, sewerage and telephone, were connected to the subject land.
29 The Saunders family purchased 499 Wellington Street in 1923 and 507 Wellington Street in 1956. The plaintiffs are members of that family. The business of John R Saunders Pty Limited started in Kalgoorlie in the 1890s as a general store and then became a menswear business. The business traded from the two buildings on the subject land. The upper floors of the two buildings were used as a warehouse for a number of its Perth, suburban stores. A retail shop was located downstairs.
30 At some point, the menswear business was sold to another retailer. The Saunders family retained ownership of the subject land and leased it to the new owner of the business. The buildings were kept in good repair during this time. In 1988, when the lease expired, the new owners vacated the premises. The buildings were then leased to a succession of tenants. It is not altogether clear, but it seems that it was easier to obtain reliable tenants for the ground floor of 507 Wellington Street but more difficult to obtain reliable tenants for the remaining portions of the buildings. Consequently, the properties were not maintained and became dilapidated. Furthermore, there were outstanding rents and some action was taken, unsuccessfully, to recover these debts.
31 On 1 April 1996 the owners of the subject land entered into a lease with Glowtime Pty Ltd to lease the buildings at a rental of $73,500 per annum upon terms that the lessee would carry out all maintenance and repairs and pay for insurance cover for the buildings. The lessors would be liable for paying rates and land tax. The term of the lease was seven years. The lease contained three options for the lessee to renew; each option was for a further four year term. There was provision for biennial rent reviews in accordance with increases in the Consumer Price Index. There was also a redevelopment clause providing the lessors with the option of terminating the lease, upon not less than six months' notice, if the lessors wished to redevelop the subject land.
32 The lessee, Glowtime Pty Ltd, was the trustee for the Globe Backpackers Unit Trust which operated the Globe backpackers' hostel from the Globe Hotel. The lessee used the upper floors of the buildings on the subject land for that business. It subleased the ground floors of the buildings and subleased the car parking spaces at the rear of 507 Wellington Street.
33 The hostel was well located for a backpackers' hostel, being opposite the Perth railway station and bus station. When Glowtime entered into the lease for the subject land, the buildings on it were very rundown and the rental reflected the state of the buildings. Glowtime spent approximately $250,000 on renovations, including re-roofing, installation of bathrooms and installation of kitchens.
34 In May 2000 Glowtime Pty Ltd had administrators appointed. Up to then, the lessee had not been particularly reliable about paying rent due under the lease. This was due to the business practices of one of the business owners rather than the hostel's lack of viability.
35 In November 2000 the lease was assigned to a new lessee, Sanrosa Pty Ltd, which was operated by Mr Santos Ezcaray, a previous owner of Glowtime Pty Ltd. Sanrosa Pty Ltd, it appears, took over the operation of the Globe backpackers' hostel from Glowtime. Mr Ezcaray, who gave evidence in this matter, was not responsible for Glowtime's defaults under the lease.
36 In 2000 Mr Ezcaray expanded the capacity of the Globe backpackers' hostel and by 2001 the hostel was operating at near capacity. Mr Ezcaray had decided to attempt to expand accommodation on the subject land by altering the buildings.
37 The ground floors of the two buildings continued to be occupied by sublessees. As at the date of taking, the annual rent payable for the whole of the subject land was $93,892.20 per annum. Mr Cameron, one of the plaintiffs' valuers, assessed the net passing rent as being in the order of $65,000 per annum. Mr Dix, the other valuer called by the plaintiffs, assessed the net rental for the subject land as being $70,927.40 including GST.
38 The plaintiffs accepted the modest income for the subject land because Sanrosa was a reliable and long term tenant.
39 In 1988 the Saunders family considered selling the subject land. This was consistent with their sale of other family owned commercial property which had formerly been used in the family clothing business. I accept that some family members had a sentimental attachment to the subject land but that the plaintiffs' primary intention was to hold the subject land until they received an offer to purchase it which in their view reflected the market value of it as a redevelopment site.
40 Mrs Michelle McAllister, who gave evidence for the plaintiffs, suggested that the plaintiffs had considered and had not dismissed the idea of developing the subject land themselves. There is insufficient evidence to support the proposition that the plaintiffs were likely to develop the subject land themselves. I do not accept that they would have adopted such a course of action.
41 In order to understand the plaintiffs' approach to the potential sale of or development of the subject land it is necessary to know something about the ownership of other land in the area.
42 In the late 1980s, Alberni Pty Ltd, a member of the Pacific Group of companies, acquired a number of properties in the block bordered by Wellington Street, William Street, Forrest Place and the Murray Street Mall. Mr Peter George, the State Manager for the Pacific Group of companies in Western Australia and a qualified valuer, gave evidence for the defendant. In the late 1980s Mr George had instructions to attempt to acquire all of the properties in the block with a view to developing the block as one retail project with a major retail anchor tenant. Mr George was a reliable and credible witness.
43 By 1988 the Pacific Group of companies had acquired or were in a position to acquire or control, all of the properties in the block except for 124 William Street, 495 - 497 Wellington Street (the Globe Hotel) and the subject land.
44 In mid-1989 Mr George, on behalf of the Pacific Group of companies, made an offer to purchase the subject land. The offer was not accepted.
45 At this time there was an impediment to the sale of 499 Wellington Street because it was subject to a testamentary trust restraining its sale during the lifetime of the beneficiaries. Some time in 1990 an application was made by the beneficiaries to this court seeking a variation of the terms of the trust. On 25 March 1991 the court made orders varying the trust so as to enable the property to be sold: Palmer v McAllister (1991) 4 WAR 206.
46 In 1994, 1995 and 1998 the Pacific Group of companies made unsuccessful offers to purchase the subject land.
47 Over the same period of time, the Pacific Group of companies also unsuccessfully offered to purchase 124 William Street, Perth. Through a trust company, Patronus Pty Ltd, the Pacific Group of companies purchased the Globe Hotel in January 1995 for $740,000.
48 Mr George testified, and I accept, that the Pacific Group of companies continued to be in the market for properties in the Perth CBD into the late 1990s and early 2000. However, by 2003, the group was no longer planning to develop the whole of the block, including the subject land. I accept Mr George's evidence that the group was no longer willing to pay any figure above market value for the subject land.
49 In mid-2000 Mr Ezcaray expressed an interest in purchasing the subject land. Ms McAllister told him that the plaintiffs' family regarded $3,000,000 as the correct price for it. Mr Ezcaray did not make a formal offer.
50 The formal offers received by the plaintiffs for the subject land in the 10 years prior to the date of taking are summarised in the below table:
Ms McAllister, produced an undated, unsigned draft contract of sale to prove this offer. Mr George did not give evidence in respect to it
An unnamed Nominee on behalf of the Pacific Group of companies
Offer by sublessee of 507 Wellington Street for that property only
51 In the 1980s higher offers were made by entities associated with the Pacific Group of companies. Given the age of these offers, they are not of particular relevance.
52 I view with considerable scepticism the offer of 11 April 2003, made by Mr Tom Webster, the operator of the compact disc library which subleased the ground floor of 507 Wellington Street. By that date the Perth to Mandurah railway project had been announced and realistically no sale could have taken place. I consider that it was an offer tainted by the imminent publication of IP32. Further, the financial capacity of Mr Webster to complete the sale has not been demonstrated. I am not satisfied that it was a genuine offer or, if it was genuine, that the amount of the offer was not attributable to the proposed public work the subject of IP32: LA Act s 241(2). For these reasons, I do not place any weight on it.
53 On 16 July 2001 the Western Australian State Government issued a media statement which, in part, stated that the State Cabinet, that day, had approved a redirection of the proposed rail line between Mandurah and Perth to bring it underground through the Perth CBD to the Perth railway station. The media release said that a 'masterplan' would be developed over the next six months during which time the precise route through the CBD would be determined. It is clear from government planning documents that at least from 2002 it was envisaged that the subject land would be affected by the Perth to Mandurah rail link. The plaintiffs were aware of this possibility as from the release of the media statement on 16 July 2001.
54 In or around late September 2002 the plaintiffs received a circular letter advising them of the 'City Rail Development Project' and that property acquisition for construction of a new station and platforms would occur. The reasonable inference available from the circular was that the railway would be partially constructed underneath the subject land but that the final plans had not been determined. In addition, it was not known whether the properties above the railway would be acquired by the government.
55 In December 2002 the Railway (Jandakot to Perth) Act 2002 (WA) was proclaimed. This Act confirmed the alignment and deviation of the railway line to be constructed under the Perth CBD, from the southerly projection of William Street, along that street in a northerly direction and then in a north westerly direction to a point about 0.9 kms along the Perth to Joondalup railway line.
56 In the subsequent planning for the railway, the government decided to acquire approximately 8,640 sqm of land in order to 'revitalise' the precinct bounded by Murray Street to the south, William Street to the west, Wellington Street to the north and Albert Facey House, the GPO and the Commonwealth Bank building to the east. The Government appreciated that there would be 'a significant shortfall upon the sale of the site following construction of the underground station' being in the region of $10.3 million. As a result, the defendant committed to contribute $10.3 million to the integrated railway and revitalisation project and the Government committed to leasing 22,000 sqm of office space for 15 years within a proposed development in the precinct to ensure early development and revitalisation of it.
57 On 29 April 2003 IP32 was published. IP32 referred to the route of the Perth to Mandurah railway and the fact that it would drop underground northwards of the Narrows Bridge to serve a new underground station beneath the Esplanade and new transfer platforms in William Street between Murray Street and the Horseshoe Bridge, joined to the existing Perth railway station.
The new William Street station platform will be located generally below those properties fronting the eastern boundary of William Street. As construction of this station will be undertaken using the cut and cover method, there is a need to gain control over the area above the proposed station.
59 IP32 stated that the new railway would provide opportunities for redevelopment of the William Street station precinct, comprising the land bounded by Wellington, William and Murray Streets and the Albert Facey House, the Commonwealth Bank buildings and the GPO. The subject land was within this precinct. It spoke of the precinct being 'relatively blighted and in need of redevelopment'. Consequently, it said, 'there is a need to plan for the future long term land uses in the precinct and integration of the station' [10].
To facilitate the acquisition of land within the precinct, the construction of the station and the orderly and proper planning of the precinct and to ensure the integration of redevelopment of the land above and adjacent to the station, it is also proposed to establish an improvement plan, pursuant to the provisions of section 37A of the Metropolitan Region Town Planning Scheme Act 1959, for the precinct.
61 IP32 was that improvement plan. On 7 April 2003 the then Minister for Planning and Infrastructure accepted the recommendation for the creation of IP32. On 15 April 2003 the then Governor of Western Australia similarly accepted the recommendation. Pursuant to the Metropolitan Region Town Planning Scheme Act 1959 (WA) (MRTPS Act) s 37A(2) the defendant could, in default of an agreement with the owner of land the subject of IP32, compulsorily acquire such land.
62 IP32 said that in accordance with the MRTPS Act s 37A a certificate and recommendation was attached to the plan. The status of the certificate is not clear to me. The certificate and recommendation stated as follows:
'Pursuant to section 37A of the Metropolitan Region Town Planning Scheme Act 1959 it is hereby
Certified that for the purpose of advancing the planning, development and use of all that land within the metropolitan region which comprises the area bounded by Wellington, William and Murray streets and the Albert Facey House, General Post Office and Commonwealth Bank buildings ('the Land') should be cleared, rehabilitated, consolidated, replanned, redesigned, developed and resubdivided and provision should be made for it to be used for such purposes as may be appropriate; and
Recommended to the Minister for Planning and Infrastructure and His Excellency the Governor that the land should be so dealt with and used and made the subject of Improvement Plan No 32 as depicted on Department for Planning and Infrastructure Plan numbered 3.1692 annexed hereto.
63 The express words of IP32 and the certificate and recommendation prove that the purpose of IP32, and thus the public work, was to provide for the planning and construction of the Perth to Mandurah railway and to provide for the acquisition, clearing, rehabilitation, consolidation, replanning, redesign, development and re-subdivision of the land included in the William Street precinct, including the subject land. The precinct included land directly affected by the construction of the William Street station as well as land adjacent to the new station. The precinct did not include Raine Square, west of William Street or the Commonwealth Bank buildings on the south western corner of Forrest Place and Murray Street. The subsequent redevelopment of Raine Square was not part of the public work.
64 On 5 September 2003 a Notice of Intention to Take Land required for the purpose of IP32, including the subject land, was registered at the Office of Titles by dealing No I487306, pursuant to the LA Act s 177. The Notice of Intention to Take Interests for a Public Work lodged with the Notice of Intention to Take Land stated that IP32 was the purpose for which the land was proposed to be taken. It further said that the land was required for the construction of a subterranean railway station to service the Perth to Rockingham and Mandurah passenger railway and for works associated with IP32.
65 On the same date a notice to quit the subject land no later than 29 February 2004 was served on the plaintiffs.
66 On 2 March 2004 the plaintiffs lodged their claim for compensation in the amount of $4,840,000, pursuant to the LA Act s 211.
67 On 17 June 2004 the defendant made an offer of compensation in the sum of $1,590,000 together with solatium of $159,000 and interest at the rate of 6% per annum from 2 March 2004. On 12 July 2004 the plaintiffs refused the defendant's offer of compensation but accepted the offer of an advanced payment in the sum of the offer of compensation. On 20 July 2004 a Partial Discharge of Claim was completed by the plaintiffs and the defendant. On 26 July 2004 $1,796,860.43 was paid to the plaintiffs. This sum represented 100% of the offer of advanced payment for compensation, together with interest thereon at the rate of 6% per annum from 2 March 2004 to 26 July 2004, less an adjustment for outstanding rates and taxes.
68 There is an issue as to the extent to which, if IP32 had not been published, heritage considerations would have affected the development potential of the subject land. The determination of this issue reflects in the highest and best use and value of the subject land.
69 The plaintiffs' expert, Mr Ken Adam, expressed the following opinions:
70 Mr Adam's final hypothetical development of the subject land included only two stories at the Wellington Street alignment, 10 stories at 10 m from that frontage and 19 stories at the rear of the subject land.
71 The defendant's heritage expert, Ms Nerida Moredount expressed the following opinions:
72 In support of Mr Adam's position, the plaintiffs point out that prior to the date of taking the Commercial Building was not registered on the Register of Heritage Places maintained by the Heritage Council of Western Australia (HCWA). It was only listed on a non-statutory list of heritage places maintained by the PCC and was not on its heritage register or its draft municipal inventory of heritage places.
73 The plaintiffs also point out that although IP32 refers to the facades of a number of buildings in the William Street precinct being worthy of retention, it does not include the facades of the buildings on the subject land. Furthermore, the whole of the Commercial Building was demolished for the public work, despite a number of buildings in the precinct being retained, even though the railway was built under or near to them. The façade of the Mitchell and Baird Buildings were removed with a view to their later reinstatement.
74 The defendant, in support of Ms Moredount, called Mr Peter Monks, the Director of Planning and Development at the PCC. Mr Monks also has considerable experience on the PCC Design Advisory Committee and, its predecessor, the Bonus Plot Ratio Advisory Panel. Mr Monks has extensive experience in planning polices and procedures at the PCC. He was a reliable and credible witness.
75 Mr Monks gave evidence that the PCC encouraged its officers to negotiate to retain as much of a building's heritage significance, as possible, and not to pursue façadism.
76 He said that if the Commercial Building had sufficient heritage significance to retain part of it, the most likely outcome would have been a requirement to retain the façade and the first structural bay.
77 If an application to develop the subject land had been submitted to the PCC, the location of the subject land next to the State heritage listed Wellington Buildings would have also resulted in the application being referred to the HCWA, under the Heritage of Western Australia Act 1990 (WA) s 11, for an assessment of the impact of the proposed development on the Wellington Buildings.
78 Mr Monks testified that an application for development approval under the City of Perth City Planning Scheme No 1 1985 (CPS1) would have been likely to attract a bonus plot ratio in return for the retention of the heritage façade and one structural bay. However, he said that, it was unlikely that this bonus would have exceeded the range of 6 - 10%.
79 Each party criticises each other's heritage experts. The plaintiffs criticise Ms Moredount on three bases. First, they submit that she speculated about what the HCWA's approach to any application to redevelop the subject land, absent IP32, would have been. Secondly, they submit that her first report was superficial and inadequate. Thirdly, they submit that Ms Moredount's view became fixed when she prepared a conservation plan for the precinct covered by IP32. They submit that Ms Moredount did not have the impartiality required of an independent expert witness.
80 Ms Moredount is a heritage architect with considerable experience in the heritage of Perth and its suburbs. She is a member of the International Council on Monuments and Sites (ICOMOS) which is, I accept, the pre-eminent association for experts in cultural heritage. The Australian chapter of ICOMOS developed the Burra Charter which guides heritage and conservation within Australia. Members of ICOMOS are bound to adhere to its Ethical Commitment Statement and to the articles of the Charter. These require members to perform a thorough information gathering process and assessment of each site about which they provide advice. Members are required to be personally and professionally responsible for the work which they author.
81 Ms Moredount is a member of various panels which provide advice to the Commonwealth, State and local governments on heritage issues. She also advises private land owners and developers on heritage issues.
82 Ms Moredount has had experience in working with the PCC to assess the heritage implications of development applications. The PCC has a standard procedure whereby development applications are referred to the HCWA if they are potentially affected by heritage issues. Ms Moredount is one of the experts to whom development applications are referred to for advice.
83 In respect to the three issues raised by the plaintiffs, I find that it was necessary for Ms Moredount, Mr Adam, Mr Monks and some of the other expert witnesses to speculate when they were asked to give opinions about what would have been the likely outcome of a development application in respect to the subject land. Such speculation does not negate the reliability of their evidence. In the end, I must make a judgment as to which opinion I accept, if any, based on the qualifications, experience and impartiality of the witness.
84 As to the second point, Ms Moredount's first report was brief but this deficiency was rectified in her subsequent report. I do not accept that I should give her opinion less weight because of the brevity of her first report.
85 In respect to the third point, in 2004 Ms Moredount was engaged by LandCorp to prepare a conservation plan for the precinct covered by IP32. I accept that Ms Moredount's view as to the heritage qualities of the subject land became fixed at the time she completed the conservation plan. However, I disagree with the plaintiffs that this reflects adversely on her credibility. As is apparent from the terms of the Burra Charter, Ms Moredount was required to perform a thorough information gathering process and assessment of the precinct when she completed the conservation plan. It is hardly surprising that as a consequence of that work she came to an opinion about the heritage qualities of the subject land that has not changed over time.
86 The evidence establishes that the decision to demolish the façade of the Commercial Building was made by the government authorities in the context of the logistical and financial requirements of the public work involved in IP32 and not on the basis of its lack of heritage value. That decision was made in a very different context to that the PCC would have faced if it had dealt with a development application in respect to the subject land, absent IP32. Whilst the ultimate decision to demolish the whole of the Commercial Building was a relevant matter for Ms Moredount to consider in preparing her reports and giving her evidence, the fact that it did not affect her view of the heritage values of the façade of the Commercial Building or what the likely decision of the PCC would have been does not mean that her opinion should not be given any weight.
87 I am satisfied that Ms Moredount has the expertise, experience and impartiality which is required to give expert heritage evidence. I find her to be a credible and reliable witness.
88 Mr Adam is a registered architect and is the sole principal of his planning and architectural practice. He is the chairman of CityVision, an independent group of professionals and others with extensive experience in dealing with and knowledge of, architectural and planning issues within the Perth CBD.
89 Mr Adam has many years experience in respect to planning issues affecting Perth. His advice in respect to such planning issues has been sought by the State Government, government agencies and private land owners. He was a consultant to the HCWA for a study to establish methodology and policy for heritage precincts in 1997. Mr Adam has been involved in some architectural projects which involved heritage issues and has done heritage studies in respect to some developments.
90 Mr Adam testified that he did not work as a heritage architect but that he had extensive experience in 'the heritage field', in heritage precincts and in the relationship of heritage buildings to their surroundings. He said that he was a heritage planner.
91 The defendant submits that Mr Adam does not have the expertise in heritage matters for his opinion to carry any weight.
92 I disagree with this submission because, in my opinion, Mr Adam has considerable experience in heritage issues. The fact that he does not practice as a heritage architect does not entitle me to disregard his views on heritage issues.
93 Nevertheless, it is clear to me that the opinion of Ms Moredount as a very well qualified and experienced heritage architect is of significant value in respect to heritage issues and, on balance, carries more weight than that of Mr Adam on such issues.
94 I accept that, if at the date of taking and absent IP32, a development application had been made in respect to the subject land, the application would have been referred to the PCC Heritage Advisory Panel comprised of heritage architects and the HCWA. The recommendations of these bodies would very likely have been to require the retention of the façade of the Commercial Building and one structural bay for heritage reasons. The PCC's officers would have negotiated with the developer, if necessary, to obtain an agreement whereby the façade was retained in exchange for some bonus plot ratio. That was very likely to have been the outcome of the negotiations.
95 The combined weight of the evidence of Ms Moredount and Mr Monks causes me to conclude that retention of the façade and one structural bay of the Commercial Building was by itself not likely to result in a 20% bonus plot ratio for the whole of the subject land under either CPS 1 or the City of Perth Planning Scheme No 2 2004 (CPS2). Despite this, the history of the PCC's development application approvals, in evidence, leads me to conclude that the PCC may have granted such a bonus for the retention of the façade combined with the provision of other facilities such as public art and public open space; although a purchaser of the subject land could not have assumed that this would have been the likely outcome as is evidenced by the fact that the PCC recently removed the ability to grant bonus plot ratio for installing public art as part of a development.
96 The subject land was within the area subject to CPS2. CPS1 was in force and applied to the subject land until 9 January 2004. CPS2 was in force thereafter.
97 There is an issue between the parties as to which town planning scheme a prospective purchaser, as at the date of taking, would have considered applicable to a future development of the subject land. The importance of the issue is probably not proportionate to the time that the issue occupied at trial, but it is that CPS1 would have permitted more intense development of the land than CPS2, in terms of both plot ratio and height of development. Thus, the plaintiffs submit that if the development approval could have been obtained under CPS1, the value of the subject land may be greater.
98 Mr Adam contended that development approval could have been obtained before CPS2 came into effect. Mr Monks contended that that was unlikely. The plaintiffs tendered some PCC development approvals which supported their claim. Upon consideration of them, I am satisfied that they related to either straightforward applications which did not, for example, involve the analysis of heritage issues or that they were renewals of previously approved developments. The length of time taken for their determination was less than could be expected for an application to develop the subject land.
99 In any event, as I detail later in these reasons, I am satisfied that the highest and best use of the subject land was for redevelopment of it some five years or more after the date of taking. This means that it is highly unlikely that a hypothetical purchaser of the subject land would have sought approval of a development application prior to the commencement of CPS2 in January 2004 or placed any value on an ability to have obtained approval under CPS1.
100 Although CPS2 was not in force at the date of taking, a vendor and purchaser as at that date would have been aware of its terms and that it was the town planning scheme that was going to control the future development of the subject land. It was a 'seriously entertained planning proposal' as at the date of taking and the PCC was at that time considering its terms in respect to development applications made under CPS1. Accordingly, I will not detail the provisions of CPS1 which applied to the subject land.
101 Under CPS2, the subject land was within the Citiplace Precinct bounded by Roe Street to the north, the Mitchell Freeway to the west, the southern boundaries of properties on the south side of Hay Street to the south and Pier Street to the east. It included Perth's main retail area centred on the Hay and Murray Street Malls between William and Barrack Streets. The subject land was on the northern edge of the main retail area.
102 The Citiplace Precinct Use Group Table in CPS2 provided that preferred uses for the subject land were business services, dining, entertainment and retail. Contemplated uses included a wide range of other uses, including residential. There were no prohibited uses for the subject land.
103 As Mr Adam said, it is notable that the table did not mention uses such as hostels, hotels or serviced apartments, even though the subject land and the land in its immediate vicinity was being used for these purposes. The location of the Perth railway station on the northern side of Wellington Street encouraged such uses in the area.
104 CPS2 defined plot ratio to mean 'the ratio of the floor area of a building to the area of land within the boundaries of the lots on which that building is located'.
105 The subject land was in the 5:1 plot ratio area. Clause 28(2) of CPS2 empowered the PCC to permit an increase in plot ratio of up to 20% (bonus plot ratio). Consequently, if the full bonus plot ratio was granted the plot ratio for the subject land became 6:1. The 5:1 plot ratio permitted on the subject land, together with the possibility of obtaining bonus plot ratio, increased the development potential of the subject land.
106 Building height limits were more restricted under CPS2 than CPS1. There was much time taken at trial about the meaning of the building height provisions in CPS2 as they would have applied to a potential development on the subject land. I have decided that it is unnecessary for me to make detailed findings in respect to the issues between the parties about the building height provisions in CPS2.
107 It is sufficient for me to say that under CPS2 there was the potential to develop on the subject land a multistorey building, the upper storeys of which could have been used for office accommodation, hotel accommodation, hostel accommodation, serviced apartments or residential apartments.
108 Mr Adam identified three options for more detailed consideration. First, a budget hotel development, secondly, a serviced apartment development and, thirdly, an office building. All three options involved conservation of the Commercial Building's heritage façade. All options would have involved the joint development of the two parcels of land as one, because of what Mr Adam described as the natural advantages that accrued from the wider frontage and large site area. All options included a retail or café/restaurant/bar option at the Wellington Street frontage, and all allowed for future connection through from Wellington Street to the Murray Street Mall.
(i) a semi-basement car parking area, with 12 car bays, accessed from the rear laneway;
(ii) a ground floor comprising: public café/restaurant behind the retained façade of the Commercial Building; an entry forecourt serving also as an al-fresco seating area for the café/restaurant; a hotel foyer and lift lobby; an atrium area; function rooms and other facilities for guests, and provision for future connection to Murray Street via the rear land; and
(iii) two blocks of hotel units above the ground floor, one of 19 floors, the other of 10 floors, each comprising lift lobby, service rooms, hotel rooms and bathrooms, with balconies to some, and totalling up to 203 double rooms.
110 Mr Adam's original plot ratio calculations for the budget hotel were in the order of plot ratio 5.9:1, calculated in accordance with CPS1 and a gross building area of the order of 8,400 sqm. The defendant disputes this plot ratio calculation and says that Mr Adam's development had a plot ratio in excess of 6:1. The defendant called an expert planner, Mr Stephen Allerding, who disputed Mr Adam's plot ratio calculations. After hearing from both experts, I remain in doubt as to whether Mr Adam's development was within a plot ration of 6:1.
111 The serviced apartments' option had precisely the same building envelope as the budget hotel option and a similar circulation layout. Mr Adam said that because of the inherent flexibility of internal layout many different combinations would have been possible, including:
- three serviced apartments on each level of each block, making a total of 87 serviced apartments (29 of them two bedroom); or
- three serviced apartments, as above, on each floor in the north block and on levels 12 to 20 of the south block and hotel rooms on the remaining south block floors. This would yield 57 apartments (19 of them two bedroom) and 70 hotel rooms; or
- a variation on either of these, with a large penthouse apartment with extensive balcony areas on the uppermost floor of each block.
112 The third option was an office development comprising:
(i) semi-basement, as for the budget hotel option, with 12 car bays;
(ii) ground floor comprising: public café/restaurant and entry forecourt (as for the budget hotel option); foyer and lift lobby; and sheltered courtyard area; and
113 Mr Adam's view was that, like the first two options, the third option would conceivably have achieved the full 20% bonus plot ratio, for conserving and integrating the Commercial Building façade and part of its internal space into the development. He said that 'retention of the Commercial Building façade, with a plot ratio bonus, would have very significantly enhanced the development potential of the property'.
114 A fourth option of a retail development involving removal of the Commercial Building and construction of a retail dominated development, covering virtually the whole site on two or more levels was not fully explored in evidence.
115 The defendant disputes that a building the size and height of that proposed by Mr Adam could have been built on the subject land and at the same time complied with CPS2, even allowing for a full bonus plot ratio. Apart from the 20% limit on bonus plot ratio, there were no limits on the PCC's ability to relax other controls in CPS2.
116 In my view Mr Adam's indicative designs for a development on the subject land were, at the very least, at the upper boundary of what could have been permitted under CPS2 and probably exceeded what would have been permitted by the PCC. I find this even though the PCC was a pro-development council and I accept that it would have been keen to facilitate the development of the subject land in an area of the city that had been moribund for some time.
117 The Citiplace Precinct statement of intent in CPS2 states that:
New development will be generally low rise, reflecting the traditional height and scale of adjacent buildings.
118 The tallest building in the area of the subject land was Albert Facey House which was eight storeys in height. I accept that the PCC would have been likely to require any development of the subject land to have a building height that was sympathetic to the adjacent heritage buildings, which were no taller than three storeys in height. Even if the PCC took into account the height of Albert Facey House, it is unlikely that the PCC would have regarded Mr Adam's proposed development as meeting the statement of intent. I accept that the PCC would have permitted a taller building height towards the rear of the subject land. These findings, when combined, mean that I am not satisfied that the PCC was likely to have approved a building of the height proposed by Mr Adam.
119 The provision of onsite car parking bays was restricted by CPS2 and this may have restricted development to 12 - 16 onsite car parking bays. In any development of the site, these probably would have been provided in a basement car park.
120 CPS2 imposes no side or rear setback control. Whether the PCC would have imposed setbacks on any proposed development would have been likely to depend upon the intended use of the subject land and the design of the development. The PCC would have ensured adequate light, ventilation and noise control in respect to both the construction on the subject land and adjoining uses.
121 In order to arrive at the value of the subject land as at the date of taking it is necessary to consider the price which the plaintiffs would have fixed upon with a purchaser, presuming the parties to be aware of all 'circumstances which might affect its value': Spencer v The Commonwealth of Australia [1907] HCA 82; (1907) 5 CLR 418, 441 (Isaacs J).
122 These circumstances include a knowledge of matters then known as being likely to affect the value of the subject land, including the development potential of the land.
123 The prospective uses and development potential of a piece of land are known as its highest and best use. The highest and best use of a piece of land is to be determined by what the parties knew and believed about the land, the market and the economy as at the date of taking; not any earlier or later date. This is because what is ultimately to be determined is the value of the subject land at the date of taking, taking into account the future prospects of the land: Kenny & Good v MGICA [1999] HCA 25; (1999) 199 CLR 413 [51] (McHugh J).
124 Development potential is not the only circumstance which will affect the highest and best use of the land and the value of the land, either advantageously or prejudicially. Other matters which might affect its value include, as Isaacs J said in Spencer (441):
... its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reasons soever in the amount which one would otherwise be willing to fix as the value of the property.
125 With these matters in mind, I turn to consider the highest and best use of the land.
126 The starting point must be the use of the land as at the date of taking. The ground floors were used for retail and related services and the upper floors were used for hostel accommodation. There was no immediate intention to change these uses. These uses, especially the hostel, were profitable for the lessee, although they resulted in a low yield for the plaintiffs. I consider that if there was a higher and better use of the subject land at the date of taking the plaintiffs would have been engaging in it or, at the very least, considering an imminent change to it; but they were not.
127 Also relevant is that privately held land in the immediate vicinity was being used for similar purposes. There is no evidence before me that these uses, absent the public work, were going to alter in the short to medium term.
128 The Pacific Group of companies were seeking a major retailer to become an anchor tenant in a redevelopment of property adjacent to and, perhaps, including the subject land. It had been unsuccessful in locating such a tenant because the two large department stores, Myers and David Jones, had established city sites by 2003. Whilst there was always a chance that the Pacific Group of companies would be able to secure another large retailer, there was no indication this was likely to occur in the short to medium term.
129 The plaintiffs contend that the evidence supports a finding that the subject land was 'ripe for development within a medium timeframe'. They say that there was potential for different types of development on the subject land that may have appealed to a potential purchaser including hotel, serviced apartments, office, retail or a combination of these.
130 In Mr Adam's written report he said that the subject land was ripe for redevelopment in the short term. In evidence, Mr Adam said that the subject land would have been ripe for development 'at about that time or in the very near future'. I take 'that time' to mean the date of taking. He said that it was a 'bit hard to predict' how quickly the market would have responded to, what he saw as, the opportunity to develop the subject land. It seems that in submitting that the land would have been ripe for development in the medium term, the plaintiffs recognise the weakness of Mr Adam's view.
131 Mr Dix, one of the plaintiffs' valuers, in his written report said that a 'prudent purchaser would be uncertain as to when the site would be economically developed but that the evidence was suggesting that it could be within three years of the resumption date'. Later, he said that the land would have been ripe for development in 2009 as office accommodation or a budget hotel. The plaintiffs other valuer, Mr Cameron, said that the land would be ripe for development in the medium term being in excess of five years from the date of taking.
132 Mr Kennedy, one of the defendant's valuers, gave evidence that he thought that a purchaser would have bought the property in 2003 for medium to long term development by which he meant in excess of five years. In evidence, he said that he thought that the 'more favoured' use of the subject land in 2003 would have been residential but that he did not believe that purchasers necessarily acquired development property in the CBD for a single purpose.
133 Mr Wilson, the defendant's other valuer, was asked about future retail development on the site. His view was that unless the Pacific Group of companies and a major retailer was involved there was no chance of a large retail development on the subject land and that the Pacific Group of companies had not been interested for a considerable period of time prior to the date of taking. Mr Wilson's valuation report of 6 October 2005 identified likely uses as retail or the like at street level, with other commercial or residential uses above ground level. In his responsive report he said that no multistorey development of the subject land 'other than perhaps residential units would have been viable'. Mr Wilson said that the number of alternative development sites in the CBD suggested to him that there was 'little or no pressure' for redevelopment of the subject land. Later, in his responsive report, he said that as the government seemed to be the only tenant prepared to take up leases of office area in the peripheral city locations and this suggested to him that the subject land was not ripe for redevelopment in 2003.
134 The defendant also called Mr Alan Boys, consultant to the tourism and hospitality industry. It is part of Mr Boys' job to advise potential investors of the market and economic feasibility of proposed hotel and leisure developments. Mr Boys has a Bachelor of Commerce degree and is an Associate of the Institute of Chartered Accountants.
135 Mr Boys has considerable experience in the subject area of his evidence. I find Mr Boys to be an independent, competent and credible witness.
136 Mr Boys was of the view that if he had been asked in September 2003 by a client for his advice he would have advised that a development of a budget hotel, serviced apartments or both on the subject land, like Mr Adam planned, would be unlikely to be viable even if the land was obtained for nil value either at that time or in the medium term (three years).
137 The plaintiffs criticise Mr Boys' opinion for being based on the costs of a higher standard of hotel than that proposed by Mr Adam and for being too conservative, rather than being the view of an entrepreneurial developer.
138 As to the first point, Mr Boys' opinion was given in respect to a 'budget hotel' development and the development costs which he estimated would be expected of such a hotel. To the extent that those costs depended upon estimates provided by another witness, Mr Silver, I will deal with this criticism of Mr Boys' evidence when I consider the reliability of Mr Silver's evidence.
139 Mr Boys mentioned, at the behest of the plaintiffs' counsel, feasibility studies he had carried out in respect to projects at the higher end of the market; but nothing in his evidence leads me to conclude that a budget hotel was outside his field of expertise or that he had not considered the 'budget' nature of the proposed development of the subject land when forming his opinion.
140 As to the second point, the relevant test I must apply requires me to consider what the level of knowledge and belief of a 'prudent purchaser' would be. I am not to consider what a proposed purchaser who was so anxious that 'he would overlook any ordinary business consideration' would pay for the land: Spencer 441 (Isaacs J). The plaintiffs submit that I should take into account the views of 'an exuberant' developer. To do so does not appear to me to be consistent with the approach required by law.
141 I consider that a prudent purchaser would have been likely to instruct an expert, like Mr Boys, to carry out a feasibility study into a proposed hotel development on the subject land and would have taken account of the study and the author's opinion before purchasing the subject land. Furthermore, Mr Boys said that financiers tend to be conservative in the financing of hotel developments. A purchaser would have been likely to have been forced to take account of a feasibility study, such as that conducted by Mr Boys, because of the inability to obtain finance unless the project was supported by the feasibility study.
142 The plaintiffs' final submission in respect to Mr Boys' evidence is that 'nothing in his evidence unearths any fundamental reason as to why a hotel or serviced apartment development would not succeed. All that is required is the right design'.
143 If I exclude economic viability as a fundamental reason why a hotel or serviced apartment development would not succeed, the plaintiffs' submission is correct. There were no town planning, geological, topographical, environmental or similar reasons why a hotel or serviced apartment development on the subject land would not succeed. Despite the absence of those types of restrictions, it is trite to say that economic feasibility is a determinant of the viability of a development. To suggest, as the plaintiffs do, that economic feasibility could be attained by simply changing the design of the building is far too simplistic.
144 Mr Boys' evidence was that there was a considerable amount of tolerance in the exercise he undertook. Yet, even using the lowest value of the subject land as assessed by the defendant's valuers, in his opinion a budget hotel on the subject land would yield only 4.2%, which would not support such a development. Mr Boys' opinion was that if asked at the date of taking his view would have been that the required yield would be in the range of 9 - 12%. In order to produce such a yield based on Mr Boys' projected stabilised cash flow and the defendant's value of the subject land, the cost of the development would have to have been reduced by half of what he estimated it would be. There is no evidence before me to persuade me that this could be achieved by tweaking the design of the development.
145 The plaintiffs challenge Mr Boys' evidence on the basis that it in turn is based on the indicative costs provided by Mr Ian Silver, a quantity surveyor, who was called to give evidence on behalf of the defendant. Mr Silver has approximately 40 years' experience as a quantity surveyor. Generally speaking, Mr Silver struck me as an honest witness who is very experienced and competent in his field of expertise.
146 The plaintiffs criticised Mr Silver's use of costs that may have been more applicable to a 3 - 4 star construction rather than a budget or 2 - 3 star construction. That criticism has some merit but not enough, in my view, to significantly discredit Mr Silver's evidence.
147 Mr Silver was also cross-examined on two letters and documents apparently prepared for and supplied to the plaintiffs by Mr Terry Merefeld, quantity surveyor. Mr Merefeld was not called to give evidence. The letters were dated close to the date of the hearing. The defendant objected to the tender and use of these documents in the cross-examination of Mr Silver. The documents purported to give a summary of actual costs of the construction of apartments on Barrack Street in about 2006. The costs, if reliable, showed that the price per square metre of the construction was much lower than the indicative costs estimated by Mr Silver for a development of the subject land. I permitted the tender and use of the documents as a tool in the cross-examination of Mr Silver but not as evidence of the proof of their contents.
148 After cross-examination on the documents, Mr Silver said that until the figures were worked through in detail, and by 'figures' I believe he meant the figures apparently supplied by Mr Merefeld, it was dangerous to make any conclusion or assumptions about them. Mr Silver said that he stood by his view that his figures were indicative of the costs of the project proposed by Mr Adam, within a tolerance of plus or minus 15%. I accept Mr Silver's evidence.
149 I conclude that the highest and best use of the subject land as at the date of taking, was its use as at the date of taking with it becoming ripe for development at least five years after the date of taking. The likely redevelopment would have been mixed commercial development. That is, there would probably have been some kind of retail development on the ground floor with a budget hotel, office accommodation, serviced apartments or residential development on upper floors. Such development would have been likely to be multi-storeyed with a height at the Wellington Street frontage that was sympathetic to the scale of nearby heritage buildings and with a greater height was the rear of the subject land. It would have been unlikely to have been as large as that proposed by Mr Adam.
150 I have already found that the Pacific Group of companies would not have been likely to pay a premium for the subject land, as at the date of taking. Nevertheless, as the Pacific Group of companies was waiting for the right time to redevelop those properties or to sell them to another developer, it was a possibility that at some time in the future the subject land would have had a premium on its value due to its position close to the properties owned by the Pacific Group of companies. A well informed purchaser would have known this but would also have known that the area surrounding the subject land was unlikely to have been redeveloped in a manner that would have promoted the development of, or increased the value of the subject land unless or until the Pacific Group of companies found an anchor tenant for a large development or the adjacent land was sold to another redeveloper. Until then, the area adjacent to the subject land and, thus, the subject land itself was likely to have remained blighted, as it was described in IP32. On balance I find that whilst as at the date of taking, the Pacific Group of companies would not have been prepared to pay a premium for the subject land, it may have been that another prudent purchaser would have been prepared to pay some small amount over what would otherwise have been the market value of the land because of its position close to the Pacific Group's land.
151 Another note of caution has to be sounded about the size of this premium in that I agree with Mr Wilson's comment that:
Mr Cameron observed the highest and best use can change with time, depending on the prevailing market conditions and demand for a particular land use type. I would agree, but must recognise the peripheral location of the [subject land] and one could not envisage changing market conditions in the medium-long term.
A higher value based on maximum development potential of the property would have given an unrealistic low return on passing or expecting rents for a very long time, which in my opinion would have been unacceptable to investors in the property. Such approach also has no regard to actual sales evidence within the CBD, which must provide the best evidence of value.
152 The parties each called two valuers. The plaintiffs called Mr Terrence Dix and Mr Duncan Cameron. The defendant called Mr Keith Wilson and Mr Graham Kennedy.
153 The range of valuations and their components were as follows:
$3,500,000 (inc improved land value rounded up to $3,200,000)
154 There is a difference of $1,750 per sqm of unimproved land between the valuation of Mr Cameron and the valuation of Mr Wilson and a difference of $6,615 per sqm of improved land between the valuation of Mr Dix and the valuation of Mr Kennedy. These differences highlight the difficulty for the court in assessing the value of the subject land. At face value it is difficult to see how such experienced valuers could arrive at such vastly different valuations.
155 Helpfully, the parties provided me with a table of comparable sales used by the four valuers. I have annexed the table to these reasons and incorporate it into them (Annexure B). In order to assist the reader to identify each property or the details of each property and its sale I have added some comments of my own to the table. Otherwise, the table is self-explanatory. As the reader is able to refer to the details in the table, I will not repeat much of the information in it in narrative form.
156 There were a total of 36 properties used by the valuers as comparable sales. The sales took place over a period of six years. There is not one comparable sale that all four valuers relied upon.
157 Mr Dix used a novel method of valuation in which he compared the potential lettable or leasable area of the subject land with the actual or potential lettable area of other land in the Perth CBD. It is appropriate that I recount my findings in respect to this approach before I consider the evidence of the remaining valuers. In his written report Mr Dix referred to net lettable area but in evidence and in closing submissions it was more often referred to as gross lettable area. For consistency, I will use the latter term, gross lettable area (GLA).
158 Mr Dix is the principal of T R Dix and Associates, licensed land valuers and compensation consultants. Mr Dix was admitted as an Associate of the Australian Property Institute (API) in 1983 having previously worked in the construction industry. After he qualified as a valuer, Mr Dix decided to specialise in valuations for compensation purposes, such as this case. Mr Dix has substantial experience in the valuation of property for compensation claims, he has given evidence in numerous compensation claims and has presented papers on the topic.
159 Mr Dix stated that the Perth office and retail market had softened during 2001 and 2002. After considering a number of CBD developments, he concluded that at the date of taking the Perth CBD property market was strengthening for both offices and retail uses. Mr Dix then considered six sales which he considered 'to some extent' to be comparable to the subject land.
160 The six sales considered by Mr Dix were of 124 William Street, 39 Barrack Street, 30 Beaufort Street, 166 Murray Street, Raine Square (September 2004) and 111 Wellington Street.
161 Mr Dix then considered a number of properties which were being offered for sale when he wrote his report in November 2004. These properties were 20 and 26 Queen Street, the corner of Murray Street and Milligan Street (not included in the annexed table) and 56 William Street. It is not clear to me why Mr Dix included an analysis of these properties, especially as he later opined that the owners of some of these properties appeared to be testing the market rather than genuinely offering the properties for sale.
162 Mr Dix decided that the subject land would be 'a pivotal site' in any redevelopment of the precinct because it abutted the rear ROW. He was also of the view that a prudent purchaser, after having taken planning and architectural (surprisingly, not financial) advice would be aware of the greater development potential of the subject land as compared to other properties and that this would be reflected in the value of the land.
163 Mr Dix analysed the sale of 124 William Street based on the advice of Mr Adam that the optimum development potential of the site was a development with a GLA of 1,680 sqm. He was of the view that this sale could be regarded as the most conservative basis for forming a view of the value of the subject land.
164 He assumed that the price of 124 William Street included a solatium of 10%. He considered that the improvements did not reflect the optimum development potential of 124 William Street and that the sale price reflected what a prudent purchaser would have paid for the land to hold it pending redevelopment.
165 Mr Dix applied the net land value of $2,181,818 to the 1,680 sqm of GLA available following redevelopment of the site. It is unclear how Mr Dix calculated the net land value as the sale price less 10% (solatium) would be $2,160,000. In any event, Mr Dix's analysis disclosed a rate of $1,298.70 per sqm of GLA which he rounded up to $1,300 per sqm of GLA.
166 Mr Dix then analysed the sale of 39 Barrack Street. He adopted a development potential of 600 sqm of GLA, based on advice from Mr Adam. The analysis of the sale price disclosed a rate of $2,200 per sqm of potential GLA. In Mr Dix's supplementary report he adjusted this figure to $2,809 per sqm of potential GLA. When Mr Dix applied the purchase price of $1,320,000 to the land area a rate of $7,811 per sqm was disclosed.
167 Mr Dix thought it likely that the market value of the subject land was somewhere between $1,300 per sqm of GLA and $2,200 per sqm of GLA. It was his view that no discount for magnitude was disclosed in his analysis of the sales of 124 William Street and 39 Barrack Street despite the differing size of the two sites. Mr Dix said that larger areas for both retail and office space were often sought by the market. It was also his view that no discount applied to the significant difference in size of the potential GLA. Somewhat curiously, given his valuation methodology, Mr Dix said that he considered the fundamental principle in the valuation of income producing property was a capitalisation of net income.
168 Mr Dix then adopted the lower figure of $1,300 per sqm of GLA and applied it to the 4,770 sqm of GLA potentially available for the subject land, according to Mr Adam. This disclosed a land value of $6,201,000, which he considered represented the value of the subject land as at the date of taking. Applied to the subject land's area of 795 sqm it disclosed a value of $7,800 per sqm, which he believed equated with the $7,811 per sqm paid for 39 Barrack Street.
169 Due to the adjusted figures Mr Dix derived in his supplementary report and due to Mr Adam's revised view of the potential GLA being $4,793 per sqm for the subject land, Mr Dix revised this value to $6,849,000. Thus, Mr Dix's final value for the subject land was based on a rate of $1,429 per sqm of GLA.
170 Mr Dix does not usually use the comparison of GLA to value properties. He acknowledged that he is unaware of any other valuer who has used this approach, in the manner he used it. Mr Dix has used the same methodology at least once before to value property which was the subject of an application before the State Administrative Tribunal. In Clifford v Shire of Busselton [2007] WASAT 89 the President, Barker J, described the approach as 'impermissible', at least in that case. His Honour said that in many respects to value the land involved in that case on the basis of a comparison of GLA was to perform a hypothetical development exercise, yet the approach failed to take into account matters such as the costs, rents, gross income, net income, building costs, development costs and risks that would normally be considered in a hypothetical development exercise.
171 In summary, Mr Dix decided to value the subject land on the basis of a comparison of potential GLA because, he said, the comparable sales approach was not appropriate. This was because, in his view, the many adjustments which had to be made to the comparable sales rendered that approach unreliable.
172 Mr Dix was of the view that it was possible to determine the value of the subject land by looking at the sale price of another piece of land that was being used for or could be used for office accommodation (Mr Dix's view of the highest and best use of the subject land), ascertaining its GLA or potential GLA, ascertaining the price paid for that land per metre of GLA or potential GLA and by then applying the same dollar rate to the GLA of the hypothetical development on the subject land proposed by Mr Adam. Where the property being used for comparison was not developed to its full potential at the date of its sale, Mr Dix's method required him to determine the GLA of the land as if it had been fully developed. Mr Adam supplied this information from indicative designs he prepared for the comparison properties.
173 None of the other valuers approved of this method of valuation. Mr Wilson said that Mr Dix's emphasis on maximum redevelopment potential disregarded the economic viability of a redevelopment and the actual transactions in the CBD by knowledgeable purchasers who bought land on the basis of its highest and best use. This he said, was mostly determined by cash flow and recognised that the ground floor was the most valuable part of CBD property. As I have already noted, Mr Wilson also thought that purchasers were unwilling to purchase CBD land for high prices based on maximum development potential which could only be realised many years into the future.
174 Mr Wilson used Mr Dix's price per square metre of GLA and applied it to the development potential of other properties in his basket of sales. Mr Wilson showed that the values thereby arrived at were 'vastly inflated' compared to the prices at which the properties actually sold in arms length transactions. Mr Wilson said that the method was wrong and resulted in Mr Dix 'grossly overstating the value' of the subject land.
175 Mr Kennedy also criticised Mr Dix's approach. He applied Mr Dix's methodology to two properties which he regarded as significantly superior to that of the subject land. He did the reverse calculation to that done by Mr Wilson. He divided the sale price of those properties by their GLA or potential GLA and determined that the dollar value per square metre of GLA thereby obtained was substantially less than Mr Dix used to assess the value of the subject land.
176 Mr Cameron did not use Mr Dix's methodology and he assessed the value of the subject land at $3,500 per sqm, whereas Mr Dix arrived at a value of $7,800 per sqm. The difference in value and the valuation method is a clear indication that Mr Cameron did not support Mr Dix's methodology and/or the manner in which Mr Dix used the methodology to value the subject land.
177 Mr Dix attempted to support his methodology by reference to Reed, RG (ed) The Valuation of Real Estate (12th ed, 2007) 350 - 351. The portion of the text relied upon by Mr Dix stated that a valuer should select a unit of comparison which will be the same for each property considered in a comparative sales approach. The text goes on to state that a typical unit of comparison for offices is price per square metre of net lettable area (NLA) or price per square metre of gross floor area (GFA). Mr Dix apparently failed to note that the suggested units of comparison were for offices and there is nothing in the text to indicate that GLA, NLA or GFA are suitable units of comparison for land which is not being used for offices, is unlikely, in the short to medium term, to be used for offices and is not developed for use as offices.
178 Furthermore, Mr Dix failed to take into account the subsequent pages of the text which detailed the elements of comparison that the text says are 'the characteristics of properties and transactions that help explain the variance of prices paid for real estate'. The text says that there are 10 elements that should be considered including each property's physical condition and its economic characteristics. Mr Dix has effectively ignored such elements. Neither did he take into account the adjustment that the common law says have to be made when valuing properties: Brewarrana Pty Ltd v Commissioner of Highways (1973) 6 SASR 541, 550 - 551 (Wells J).
179 The only adjustment that Mr Dix made was for the amount of actual or potential GLA for each property. Mr Dix ignored other characteristics of the properties he used for the purposes of comparison which had affected their value. For example, as Mr Wilson mentioned, Mr Dix ignored the fact that the properties he used, in the main, had buildings on them which were used to maximise their income producing ability and that it was these uses at the time of sale which determined their sale price.
180 Later in these reasons, I will go into greater detail about the sale of 124 William Street. It is sufficient for me to say at this point that initially Mr Dix incorrectly described a number of the features of 124 William Street. He said that prior to 2003 it had been leased by the Salvation Army when it had previously been leased to the Australian Army. Mr Dix said that the building on it was occupied by short term tenants and he assumed it to be sold with vacant possession. In reality, it was fully tenanted by three tenants paying an assessed net income in the order of $150,000 - $160,000 per annum, as at the date of its valuation. Mr Dix said that the building was in poor to average condition when, in fact, the ground floor, the building's main income producing area, had been modernised and refurbished.
181 Mr Dix's analysis ignores facts such as that 124 William Street was in a much superior position to the subject land, that its net income per annum was some two and half times that of the subject land, that there is no evidence that, absent IP32, either the use of 124 William Street would have changed or it would have been redeveloped in the short to medium term as offices and that it was valued for the purpose of its sale by capitalising its net income.
182 Thirty-nine Barrack Street is a small property (169 sqm) which at the time of its sale in August 2004 was completely developed with a four level heritage building which contained office accommodation in the upper levels and a retail newsagency on the ground floor. There is no evidence before me to prove that the development potential of the site was a factor in its sale. It seems unlikely that it was given that the purchaser of the property conducted the retail business on the ground floor of the property. Further development of the property would have been difficult given its heritage features. Thirty-nine Barrack Street, as I later explain, is a far superior location to that of the subject land. I also note that its sale took place 11 months after the date of taking. Mr Dix said that there is no evidence to show any significant increase in land values since the date of taking. An opinion no other valuer agreed with.
183 Each of the above criticisms of Mr Dix's methodology and of the sales he relied on is valid. Mr Dix has valued the subject land, being a relatively modest piece of land in a moribund area of the city, at significantly more per square metre than any improved or unimproved property in the Perth CBD, relied upon by any of the four valuers, sold in the four or so years preceding the date of taking. Such a value is unwarranted and I reject Mr Dix's valuation.
184 Wells J in Bronzel v State Planning Authority (1979) 21 SASR 513, 516 said:
I am not disposed to reject any method of valuation adopted by either valuer on the ground that it is not worth considering; it seems to me that if Spencers case is to keep its practical worth in this jurisdiction, this Court should be slow to reject any method that, in expert hands, is capable of yielding a result within bounds that are not unreasonable. The limitations of every method must, of course, always be kept clearly in mind. I am of the opinion that the approach likely to result in the most direct and reliable resolution of the outstanding differences between the valuations is to consider the particular features of each valuation that are capable of yielding to adverse criticism.
185 The plaintiffs submit that I should not reject Mr Dix's valuation simply because it is based on a novel method of valuation. I stress that I have not been quick to reject Mr Dix's approach using GLA as a unit of comparison. It may be an acceptable unit of comparison when it is used to compare and assess the value of office buildings or land to be developed as offices in the short term, as long as the appropriate adjustments are made for differences between the properties and the other variables referred to by Barker J in Clifford.
186 The remaining valuers used the comparable sales method and dollar value per metre squared to value the subject land. Mr Dix's criticism of this method has some merit. It does require significant adjustments to be made to each sale used as a comparison in an attempt to make each of the comparable sale properties comparable to the subject land. In Duffy v The Minister for Planning [2003] WASCA 294 McLure J said:
There is no hard and fast rule by which a valuer can draw the line that clearly separates sales that are comparable from those that are not. It is a matter of degree. Some adjustment is always necessary but too much adjustment may render it unsafe to use as a sale. Where the line is to be drawn is a matter for the expert valuer to determine. Further, just because a sale is excluded from use in the comparable sales reasoning process does not necessarily mean that it is irrelevant; Brewarrana supra per Wells J at 180 [25].
187 In this case three expert valuers have considered that the comparable sales method is the best method by which to value the subject land. Mr Cameron noted that the limited availability of directly comparable sales evidence and the characteristics and attributes of the individual properties rendered his opinion of value of the subject land as a fairly arbitrary and subjective judgment. Be that as it may, the three remaining valuers considered the comparable sales method the best and most reliable method of valuing the subject land. Despite Mr Dix's reservations, I accept the view of the remaining three valuers.
188 In his responsive report, Mr Cameron also applied a 'static hypothetical redevelopment approach' to the subject land in order to ascertain the likely residual land value, based on the redevelopment's required yield. Mr Cameron used Mr Adam's conceptual development of the subject land as serviced apartments as the basis of his hypothetical redevelopment.
189 Mr Cameron concluded that a residual land value of $3,000,000 was derived, inclusive of GST. Mr Cameron concluded that this analysis supported his valuation of the subject land obtained by using the comparable sales method.
190 Mr Cameron acknowledged that in the absence of detailed architectural concept plans, detailed specifications and an estimate of construction costs supplied by a quantity surveyor, his conclusion should only be regarded as indicative of land value and 'potentially prone to some variation'.
191 The defendant submits that in addition to the issues raised by Mr Cameron there are other issues which rendered the static hypothetical redevelopment approach unreliable. These included that the approach was based on Mr Adam's indicative development and if it overestimated the size of the development which could be erected on the subject land then Mr Cameron's static hypothetical redevelopment analysis would also be flawed. During cross-examination Mr Cameron was unable to explain why it appeared that the hypothetical redevelopment exceeded the available plot ratio.
192 Particularly, the defendant submits that Mr Cameron's analysis depends on a number of unsubstantiated assumptions. Consequently, it says, the criticisms of hypothetical development analyses made by the courts apply to Mr Cameron's analysis, even though his approach did not include a discounted cash flow analysis.
193 In order to determine the strength of this submission it is necessary for me to explain why Mr Cameron's approach did not include a discounted cash flow analysis and why Mr Cameron believed that his approach was acceptable.
194 Mr Cameron noted that courts had expressed a definite rejection of valuations based on a discounted cash flow analysis of a hypothetical redevelopment. He said that his understanding was that this was primarily due to the discounted cash flow approach being dependent upon making significant assumptions on a number of parameters including future projections or predictions concerning escalation rates in costs and land values.
195 Mr Cameron said that a 'static' (ie unescalated) hypothetical redevelopment approach to yield a residual land value was, by his understanding, an acceptable methodology as it did not rely on making predictions as to future escalation rates, but simply treated all variables in 'current day dollar terms'.
196 First, there is a fundamental inconsistency in Mr Cameron's approach. He expressed the opinion that the subject land would not be developed for at least five years, yet his static hypothetical redevelopment approach assumed it would be redeveloped in 2003/2004 and, in essence, found that such a development would be viable at a land value of $3,000,000. Both these views cannot be correct.
197 Secondly, the removal of the need to apply a discounted cash flow analysis only partially eliminates the reason why judges have warned against a reliance on the hypothetical redevelopment approach. The approach still employs a number of subjective variables, mostly outside of Mr Cameron's expertise, which render the comparable sales approach a preferable method for valuing the subject land: Mt Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149; (2004) 29 WAR 273 [213] - [215]; Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295 [65] per McLure J.
The approach to the remaining valuation evidence
198 I have already referred to some of the relevant principles applicable to my consideration of the valuation evidence. The leading authority in Australia is Spencer v The Commonwealth of Australia where Griffiths CJ at 432 said:
The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.
199 In The Commonwealth of Australia v Arklay [1952] HCA 76; (1952) 87 CLR 159, 169 - 170, the court said:
It is established that 'value' in such a context means the value of land to the owner. Where the amount for which a vendor may sell and a purchaser buy is not controlled the Court poses a hypothetical problem, the answer to which supplies this value. It is a familiar rule which in Australia was authoritatively formulated in Spencer's case. Shortly stated what is required is 'an estimate of the price which would have been agreed upon in a voluntary bargain between a vendor and purchaser each willing to trade but neither of whom was anxious to do so that he would overlook any ordinary business consideration: Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd [1947] HCA 10; (1947) 74 CLR 358 at 367. It is simply an analysis of what in all the relevant circumstances would be the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the land.
A helpful description of what the comparable sales method involves was given by Wells J in Brewarrana Pty Ltd v Commissioner of Highways (1973) 5 SASR 541. He said (at 550 - 551):
'It is general valuation practice for sales characterized as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances ... appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v The Commonwealth of Australia ... to warrant a court's reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land. Adjustments must, of course, be made every time reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape ... land use (actual and potential), scope for, and difficulties of, development, ...; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected.'
201 In this case, as in the Duffy case, criticisms are made of the lack of detail in some of the valuer's reports. In particular, the plaintiffs criticise Mr Kennedy and Mr Wilson for failing to provide the detail they say was necessary to substantiate their respective opinions. In this regard I can do no better than to refer to what her Honour McLure J said in the Duffy appeal at [134] - [138]. Her Honour made the point that where a valuer is relying solely on judgment and making qualitative assessments, it is not possible to require the valuer to give quantitative assessments of individual adjustments to comparative sales. Her Honour said that whilst it is clearly preferable for expert valuers to disclose their reasoning on such matters as the nature of the adjustments which they have made, the failure to do so is not fatal to a party's case. It may be that the opinion of the valuer is not based on such quantitative adjustments, as I have already indicated. Alternatively, it may be that there is no contrary view expressed by another credible valuer which the decision maker finds to be of greater weight than the opinion of the valuer under review. It is necessary, therefore, to evaluate the opinion of each of the valuers to determine the weight which should be attached to each of them. I now proceed to that evaluation.
202 Mr Duncan Cameron is a director of Christie Whyte Moore, licensed valuers and property consultants. He has a Bachelor of Business (valuation and land economy) from Curtin University. Mr Cameron is a licensed valuer and in 1988 was admitted as a fellow of the API. He is a member of the Institute's board of examiners and of its rental determination and arbitration panel. Mr Cameron has over 23 years experience in property valuation. He does not specialise in the valuation of Perth CBD property but has had experience in valuing such property as well as commercial property in non-CBD areas. Mr Cameron has the qualifications and experience necessary to provide evidence in this matter.
203 Mr Cameron was instructed by the plaintiffs' solicitors in late December 2005. By then the buildings on the subject land had been demolished so he did not have the opportunity to inspect them. Neither did he have the opportunity to inspect other properties which were demolished as part of IP32, or the area surrounding the subject land as it was at the date of taking.
204 Mr Cameron assumed the veracity of Mr Adam's view in respect to heritage issues. Therefore, he proceeded on the basis that heritage issues did not impact on the value of the subject land except to the extent that a purchaser may have seen the opportunity to obtain a 20% bonus plot ratio for retention of the heritage façade.
205 Mr Cameron also relied on Mr Adam's view of the redevelopment potential of the subject land. To the extent that I have not endorsed Mr Adam's most optimistic view of that potential or his assessment of heritage issues affecting the subject land it is necessary to modify Mr Cameron's valuation.
206 In his general comments, Mr Cameron said that the precinct in which the subject land was situated was severely underdeveloped and largely characterised by buildings that were generating a holding income in the short to medium term ahead of the prospect of redevelopment in the medium to longer term. He said that notwithstanding the subject land's situation within the prime retail precinct of the CBD, its location on its north western periphery could only largely be described as a secondary location relative to the Murray Street Mall frontage and William Street. I agree with Mr Cameron's assessments in these respects.
207 Mr Cameron acknowledged that pedestrian traffic flow, being one of the primary drivers of retail rental values, was moderate in proximity to the subject land. I disagree with Mr Cameron that it could be described as moderate if the comparison is with the pedestrian flow through the Murray and Hay Street Malls and along William and Barrack Streets, between St Georges Terrace and the Murray Street Mall. Given the physical restrictions on access to the pavement at the northern boundary of the subject land, such pedestrian flow should properly be described as low in comparison to other areas in the prime retail precinct. Mr Cameron may have more accurately articulated this fact when he said, later in his report, that the location of the subject land was of 'low significance' relative to other CBD locations.
208 Mr Cameron also commented that, by reference to the Perth pedestrian surveys of May 2001 and 2003 conducted by the Real Estate Institute of Western Australia (REIWA's Pedestrian Surveys), pedestrian flow dropped off markedly as one moved outside the prime Barrack Street - Murray Street - Hay Street - William Street precinct. As Mr Cameron and the other valuers acknowledged, high pedestrian traffic flow, was reflected in higher values of the CBD properties in the high pedestrian flow areas.
209 Mr Cameron analysed 14 sales. For good reasons he omitted two of them from the table of key sales on which he ultimately relied. Mr Cameron's 12 key sales were:
210 The defendant criticises Mr Cameron's use of seven of these sales because they post date the date of taking. One such sale was the payment of compensation in respect to 124 William Street. That sale occurred some six months after the date of taking and can be regarded as a sale at about the date of taking. The other six sales took place between 1 March 2004 (145 - 151 Barrack Street) and 17 December 2004 (20 Queen Street), some 15 months after the date of taking.
211 Mr Cameron acknowledged the subsequent dates of those sales and said that they were included as they provided a retrospective guide to the market's direction at the date of valuation and 'value thresholds post the date of resumption'. If these were the only purposes for which the later sales were taken into account then their inclusion is not of concern. However, Mr Cameron's subsequent analysis of two of the later sales indicates that he may have given the sales a relevance that was not justified given their distance from the date of taking.
212 Mr Cameron commented that 39 Barrack Street was in a 'slightly superior location' to that of the subject land. I agree entirely with Mr Kennedy's and Mr Wilson's view that the portion of the western side of Barrack Street between St George's Terrace and Hay Street, in which 39 Barrack Street was located, was a far superior location to that of the subject land due to its greater pedestrian flow and close proximity to both the prominent office precinct in St Georges Terrace and the prominent retail precinct in the Hay Street Mall. These distinctions make 39 Hay Street a poor comparison to the subject land but there is another substantial problem with it, being that at the date of its sale it was wholly developed with a heritage building. That building was fully utilised at the time of its sale and in particular its ground floor was used by the purchaser as a newsagency. It is an entirely different and superior site to that of the subject land.
213 Mr Cameron acknowledged that the value of the subject land was lower than that of 26 Queen Street. However, he said that the Queen Street location was considered inferior to that of the subject land. He analysed the underlying land value of that property at $2,500 per sqm. There is a major difficulty in utilising this sale as a comparative sale. It occurred 15 months after the date of taking which means that it was also after the public work associated with IP32 and the sale and probable redevelopment of Raine Square had been announced. The property had the potential to benefit from its proximity to both these developments. Mr Cameron does not appear to have taken into account the inflationary effect of these matters on the sale price of 26 Queen Street.
214 Each of the three valuers agreed that there had been a substantial increase in the value of CBD property since the date of taking. The issues in dispute between them were the extent to which this would have been foreseen by the plaintiffs and possible purchasers as at the date of taking, the extent to which the increase was positively influenced by IP32, the extent to which it was positively influenced by the sale for redevelopment of Raine Square, which was announced after the date of taking, and the amount of the increase in values at the date of the later sales. As these are matters over which the expert valuers disagree and given that it is unnecessary to take post date of taking sales into account, in my view it is best to limit the relevance of the post date of taking sales to showing the trend of the market as at the date of taking and to providing a boundary above which the value of the subject land cannot go.
215 Mr Cameron said that his analysis of recent (as in close to the date of taking) land and underdeveloped property sales in the eastern Wellington Street and Barrack Street areas indicated a prevailing land value in the range of $2,250 - $2,750 per sqm. On my perusal of his key sales there were two pre-date of taking sales of vacant land which were within this range, being 130 Barrack Street ($2,429 per sqm) and 405 Wellington Street ($2,748 per sqm). These were the only two vacant land sales relied upon by Mr Cameron. There were two improved land sales which took place in May 2004, to the same purchaser, which were within this range, being 131 and 133 Barrack Street ($2,605 and $2,562 per sqm respectively).
216 Mr Cameron regarded these properties as inferior to the subject land due to the 'seedier nature' of the Barrack Street area, the retail transition to the west of William Street and the opportunity for the subject land to benefit from its proximity to the Pacific Group's land and Raine Square, in time.
217 By contrast, Mr Wilson's view was that these properties were in a superior position to the subject land. He highlighted the exclusion of the area of the subject land from the REIWA Pedestrian Surveys and the inclusion of Barrack Street in the surveys as an indication of the lack of retail significance of the location of the subject land.
218 Mr Kennedy's view was that Barrack Street values were higher than Wellington Street values. He pointed out that Barrack Street between Wellington and Hay Streets had strip shopping running its length, on both sides of the road, whereas the area of Wellington Street, close to the subject land, did not. Four hundred and five Wellington Street was only one lot from the corner of that strip shopping. Mr Kennedy said he regarded Wellington Street between William and Barrack Street to be the northern boundary of the retail hub of the CBD but also to be 'undoubtedly one of the weakest precincts ... for retailing or other property development'.
219 In evidence, Mr Kennedy said that he believed that the movement of the focus of the CBD westward along Hay Street and Murray Street had been apparent for many years but disagreed that it had depressed values in Barrack Street.
220 Mr Dix was of the view that the area of Wellington Street in which the subject land was situated was superior to both Barrack Street and eastern Wellington Street. I attempted to ascertain why he thought this was, given that he acknowledged that the pedestrian flow past the subject land was low. Mr Dix's response was that he thought that the natural movement of pedestrian traffic was through Forrest Place or William Street rather than Barrack Street. I can see no persuasive reason for the view that William Street had greater natural pedestrian flow in 2003 than Barrack Street.
221 Mr Dix also said that a development of the subject land would create its own pedestrian traffic flow. It is commonsense that a development, unless it is a total failure, will attract some pedestrian flow but this does not explain a difference in value between these locations as the same would be true for a development at any of them.
222 The development of 166 - 170 Murray Street (the Woolworths site which also has a frontage to Wellington Street), east of Myer and west of the corner of Barrack and Wellington Streets, in the early 2000s, without much more than a service entry onto Wellington Street, indicates to me that the Wellington Street frontage was not highly valued by the owners/developers. I see no reason why it would be of lesser value than the frontage of the subject land onto Wellington Street. Properties, immediately to the east of Forrest Place on Wellington Street suffered from access difficulties similar to those for the subject land.
223 Into this mix of views, I should add the results of the REIWA Pedestrian Survey in 2003. I accept that the survey is not 100% reliable and must be used with caution. The 2003 survey indicated that pedestrian flow on Barrack Street between Wellington and Murray Streets was 2,341 in total on 6 May 2003 between 12.30 pm and 2.00 pm whereas the pedestrian flow on William Street between Wellington and Murray Streets was 1,904, a difference of approximately 20% in favour of Barrack Street. Given that all the valuers would agree that there was greater pedestrian flow on either Barrack or William Street compared to Wellington Street, this result would tend to indicate that the Barrack Street properties used by Mr Cameron were in a superior retail location to the subject land. The survey also suggests that there was a greater potential catchment of pedestrians for 405 Wellington Street than for the subject land.
224 Taking all of these matters into account, I am of the opinion that Mr Cameron was wrong to categorise the eastern end of Wellington Street and Barrack Street, between Wellington Street and the Murray Street Mall, as inferior to the subject site. I accept Mr Kennedy's and Mr Wilson's views that Barrack Street was a superior site.
225 The valuers expressed some notes of caution in relying upon both the 405 Wellington Street sale and the 130 Barrack Street sale.
226 Four hundred and five Wellington Street was a mortgagee sale as were the sales of 131, 133 and 145 - 151 Barrack Streets. Traditionally, mortgagee sales can depress sale prices because the vendor is regarded as being overanxious to sell. Other than Mr Cameron who noted that 405 Wellington Street had been offered for sale for quite a long time, none of the valuers expressed the opinion that the sales were so affected. It appears to me that the sales can be regarded as reflecting the market value of the sites.
227 The sale of 130 Barrack Street was between related parties. Mr Kennedy, for example, expressed the view that it was difficult to determine in such circumstances if the sale was negotiated at arms length and if there were factors other than market factors affecting the sale price. None of the valuers gave evidence that there were such factors in operation.
228 Another issue that existed between the valuers in respect to the comparability of 405 Wellington Street with the subject land was the differential in size. At 172 sqm in area, 405 Wellington Street was only 21% of the size of the subject land. It had a ROW giving access to its rear from Barrack Street and the Murray Street Mall.
229 Mr Kennedy expressed the view that 405 Wellington Street may have had a premium for size in that the prospective purchaser may not have been reluctant to pay slightly above market value when the purchase price was relatively modest. For example, a 10% increase in the value of that parcel of land would be only $42,000 whereas a 10% increase in the value of the subject land, if valued at the same rate per square metre, would be around $200,000.
230 Mr Dix said that there was no adjustment that would apply either way for the size differential between the two properties. He referred to the market preferring large sites for office space; a factor which favoured the subject land.
231 Mr Wilson considered the larger size of the subject land to be a disadvantage. He adjusted the sale price of 405 Wellington Street by 10% to reflect this view. He also considered the fact that 405 Wellington Street was a vacant site (no demolition costs or heritage issues) and in a better location to be advantages over the subject land. Mr Wilson adjusted the sale price by a further 15% to reflect this view.
232 Mr Cameron observed that given its small size, redevelopment of 405 Wellington Street would not be easy. However, amalgamation of it with the adjoining lot, which was later purchased by the same entity, would ease these problems.
233 All these views appear to have merit in that the weight that a purchaser would give to the size of the property would depend upon the intentions of that purchaser. A new entrant into the CBD property market who wished to secure a property for a relatively modest sum may be prepared to pay a premium for a site like 405 Wellington Street over the subject land. On the other hand, an experienced developer may well be much more likely to pay a premium for the subject land because of its greater development potential.
234 Taking these matters into account, I accept Mr Cameron's use of the sale of 405 Wellington Street, without any adjustment up or down for size, as one comparable sale in his basket of sales.
235 It is not clear what significance Mr Cameron placed on the sale of 145 - 151 Barrack Street, known as the Stockade building. One hundred and forty-five - 151 Barrack Street was purchased by the owner of 405 Wellington Street, which adjoined it. Mr Cameron analysed the yield for that property at 6.59% which was high compared to the subject land, even on a conservative land value. Mr Cameron did not analyse an underlying land value for 145 - 151 Barrack Street.
236 Mr Cameron then considered the sale of 352 Murray Street. Mr Cameron discarded it as being a superior property due to its improvements and location. This view is unremarkable.
237 Next, Mr Cameron said that 856 Hay Street provided a strong guide to the value of the subject land. Eight hundred and fifty-six Hay Street is situated about halfway along the block between King and Milligan Streets, on the north side of Hay Street. It is therefore a considerable distance from the subject land. Mr Cameron said:
Whilst the location is somewhat removed from the prime retail precinct, the location is considered commensurate given the westwards transition of retailing along Hay Street towards QV1. The property lies next to a City of Perth car park and also fairly close to King Street. The property is also favourably situated between His Majesty's Theatre and Cloisters Arcade. The land area at 367 square metres is similar to the individual title areas of the subject land holdings and also the building is moderately sized without any apparent heritage constraints. A right of way is situated at the rear, providing ease of access, similar to the subject. Analysis of the sale price suggests a land value in the vicinity of $3,500/square metre which bears relativity to the above described inferior evidence of Barrack Street ($2,250 - $2,750/square metre) and superior evidence of 39 Barrack Street (circa $4,750/square metre).
Mr Cameron analysed this sale so as to value the improvements at $215,500.
238 Mr Kennedy and Mr Wilson criticised Mr Cameron's use of the sale of 856 Hay Street primarily because they were of the opinion that this area of Hay Street was a far superior retail location to that of the subject land. As evidence of this superiority they cited the fact that the property was leased to a national retailer, Tandy Electronics; whereas there were no properties in the vicinity of the subject land which had attracted such a retailer. The history of the subject land proves that it was incapable of attracting a high quality retail tenant for the ground floors.
239 In cross-examination, Mr Cameron acknowledged that 856 Hay Street was in a 'sound retail area'. He appeared reluctant to concede that it was a better retail area than the subject land. Nevertheless, I find that it is.
240 Mr Kennedy and Mr Wilson also cited the significant pedestrian flow past 856 Hay Street, due to its proximity to a number of the buildings mentioned above by Mr Cameron as adding to the value of the site. Mr Wilson said that by failing to take these matters into account Mr Cameron had overvalued the land and undervalued the improvements.
241 The 2003 REIWA Pedestrian Survey stated that during the surveyed period on 6 May there were 2,826 pedestrians who passed the southern corner of Hay and King Street, 2,581 pedestrian who used the Cloisters Arcade, which ran between St Georges Terrace and Hay Street in the same block, and 1,150 pedestrians who passed the southern corner of Hay and Milligan Streets to the west of 856 Hay Street. On the eastern side of William Street between Wellington and Murray Streets there were only 754 pedestrians. Some of these pedestrians may have passed the subject land but I think that the majority of them would not. These figures suggest that the defendant's valuers are correct in their assessment that, in 2003, 856 Hay Street was a far superior retail location to that of the subject land.
242 Under cross-examination, Mr Cameron appeared to concede as much but said that the value of the subject land lay in its 'potential for retail growth over time' and its potential for redevelopment with adjoining land.
243 These are different views from the justification Mr Cameron gave in his written valuation report for regarding 856 Hay Street as being commensurate with the subject land. Given that Mr Cameron was of the view that in 2003 redevelopment of the subject land was over five years away and that he also allowed a 10% premium on his assessed value of the subject land to take into account the interest of the adjoining landowner in acquiring the subject land as part of a large development site, I am of the view that Mr Cameron was in error in taking the sale of 856 Hay Street into account as providing a 'strong guide' to the value of the subject land. In my opinion, this sale indicates that in valuing the subject land at the same dollar rate per square metre as 856 Hay Street (both unimproved), Mr Cameron has overvalued the subject land.
244 Finally, Mr Cameron took into account the compensation paid by the State to the land owners for the taking of 124 William Street as further evidence of the value of the subject land. Mr Cameron said:
The agreed price of $2.4 million reflects an all up land and building rate of $5,854/square metre. The building was deriving a higher level of net income ($160,000 pa against $65,000 pa) and is considered to have a superior location relative to the Murray Street mall, in comparison to the subject land. Our analysis of the sale subjectively yields a land value in the order of $4,200/square metre after allowance for the added value of the improvements/income stream and assumption that the negotiated purchase price contained an element of additional value, reflecting the likelihood Alberni would have paid a premium to secure this site an adjoining land owner if not for the IP32 resumption occurring.
245 Mr Cameron valued the improvements, income stream and premium for the adjoining land owner of 124 William Street at $678,000. The basis on which Mr Cameron calculated this figure is not clear to me. However, if he allowed a 10% premium in value for the adjoining landowner, as he did in respect to the subject land, he valued the improvements/income at approximately $460,000. I note that Mr Wilson valued this property at the date of taking and calculated a floor area of 1,468 sqm; 443 sqm more than Mr Cameron.
246 One hundred and twenty four William Street was about 25 m to the north of the north eastern corner of William and Murray Streets. It was tenanted and the compensation paid revealed a yield of 6.67%.
247 Mr Wilson criticised Mr Cameron's use of this property as a comparable sale on the basis that it was in a superior location to the subject land, the building was refurbished and the building represented optimal development potential of the site for the foreseeable future. Further, he said that the fact that the property was sold by capitalisation at about 7% of passing net rents indicated that the income stream from its then uses represented the highest and best use of the property.
248 Mr Wilson concluded that Mr Cameron had undervalued the added value of the improvements and overstated the value of the land. By then directly equating the value of the land with the value of the subject land, being in an inferior location, Mr Wilson said that Mr Cameron had overstated the value of the subject land. In fact, Mr Cameron analysed the unimproved value of 124 William Street as $4,200 per sqm but valued the subject land at $3,500 per sqm.
249 Mr Kennedy disagreed that 124 William Street was a good comparison with the subject land as in his view it was an investment property. I understand that by this comment he regarded it as having been purchased primarily for its income stream and its return on investment. Mr Kennedy said that in his view it was located in a far superior position to the subject property.
250 In 2003 Mr Kennedy valued 124 William Street on both a capitalisation of net income basis and a dollar rate per square metre based on comparable sales. The former method provided a significantly higher value for the property.
251 For the reasons given earlier in these reasons, Mr Dix's analysis of the sale does not support Mr Cameron's reliance on it.
252 Another matter to take into account is that 124 William Street was compulsorily taken as a consequence of IP32. Compulsory acquisitions are usually regarded as being poor indicators of market value because they are not the result of an arm's length market negotiation. However, in this case there are a number of factors which reduce the need for such caution. First, the then owners obtained a valuation of the property as at 30 June 2003 in the sum of $2,550,000. Secondly, Mr Kennedy valued the property as at 1 August 2003 at $2,280,000. Thirdly, Mr Wilson valued it as at 12 June 2003 at $2,225,000. Lastly, Mr Cameron, the plaintiffs' valuer was content to rely upon the ultimate 'sale' price of $2,400,000 as reflecting the property's market value.
253 In conclusion, the value of 124 William Street was determined by capitalising its net income. This was a very different basis than that proposed for the valuation of the subject land, by any of the valuers. If that method was used to value the subject land then it would result in a value even lower than that assessed by either of the defendant's valuers.
254 I also agree with the defendant's valuers that Mr Cameron inadequately reflected the superior location of 124 William Street and its vastly superior income stream in analysing this sale. On Mr Cameron's figures a purchaser who paid $2.4 million for 124 William Street would receive a yield of 7% or approximately $160,000 per annum net income on the investment. Whereas a purchaser who paid $3,500,000 for the subject land (Mr Cameron's valuation based in part on the value of 124 William Street) would receive a yield of only about 2% based on its net passing income in 2003. Even accepting that the subject land had greater development potential, at least five years away, this discrepancy appears to belie Mr Cameron's assessment that the sale of 124 William Street provides 'further evidence of the value of the subject property'.
255 Mr Cameron then valued the subject land at $4,000 per sqm improved, reflecting an unimproved land value of $3,500 per sqm and a value for the improvements of $500 per sqm (based on a land area of 794 sqm). He rounded the improved land value up to $3,200,000. It is necessary that I consider the basis for the valuation of Mr Kennedy and Mr Wilson before I draw any final conclusions as to whether I should rely upon Mr Cameron's valuation.
256 Additionally, Mr Cameron assessed the subject land as having a premium value of 10% to an adjoining land owner, lessee or another independent party. For the reasons given earlier I do not consider that the subject land had such value to the Pacific Group of companies, the then adjoining land owner. Neither, is there credible evidence that any lessee was in a position to purchase the subject land. I have determined that an independent purchaser may have been prepared to pay a small premium for the subject land in the hope that at some future date either an adjoining land owner would place a greater premium on the value of the subject land or that the subject land would benefit from the redevelopment of the adjoining land. This premium would be modest given that until the adjoining land was developed there was some blight in the area, to which the subject land was exposed.
257 Mr Graham Kennedy is responsible for the Australian operations of the valuation and consultancy practice of Jones Lang Lasalle (JLL). He is a Regional Director in the Investment Advisory Services Division of JLL.
258 Mr Kennedy has an Associate Diploma of Valuations from Curtin University. He is a licensed valuer and real estate agent. He is a Fellow of the API and an examiner for that Institute.
259 Mr Kennedy has over 30 years valuation experience. He has extensive experience in valuing Perth CBD properties including offices, shops, hotels and department stores for both private clients and public authorities. Of the four valuers who gave evidence in this matter, Mr Kennedy had the most experience in valuing Perth CBD properties. He undoubtedly has the expertise necessary to provide valuation evidence in this matter.
260 The plaintiffs criticise Mr Kennedy's independence for a number of reasons. First, they say that he was appointed as a consultant to a government agency to undertake work related to the redevelopment of the precinct covered by IP32, such as to advise on what form of development may occur in the precinct, the costs of acquiring all the land in the precinct and whether all or some of the precinct should be acquired by the defendant. Secondly, they suggest that his independence was comprised by JLL being instructed to market the properties comprising 140 William Street when LandCorp, as project manager for the defendant, sold them as part of IP32.
261 It may or may not have been prudent for Mr Kennedy and/or JLL to take on a number of roles in respect to the public work as well as to accept instructions to give an independent expert valuation for the purpose of these proceedings. This would depend upon the timing of the acceptance and completion of the other roles and the terms on which they were accepted. Yet, these important variables were not canvassed in evidence. Thus, there is insufficient evidence before me to enable me to conclude that any of the other work compromised Mr Kennedy's independence or gave rise to a conflict of interest.
262 Mr Kennedy was instructed by the defendant's solicitors in July 2003 to prepare a valuation of the two parcels of land comprising the subject land. He had the advantage of being able to inspect the subject land and the surrounding properties prior to the demolition of any buildings and the commencement of the construction of the public work. At the same time, Mr Kennedy was instructed to value other properties in the precinct covered by IP32.
263 Mr Kennedy prepared a written valuation as at August 2003. He assessed 499 and 507 Wellington Street as each having a value of between $1,750 and $2,000 per sqm on an improved basis. He elected to adopt the higher range, giving valuations of $800,000 for 499 Wellington Street and $790,000 for 507 Wellington Street.
264 Later, for these proceedings, Mr Kennedy prepared a single written valuation report for the subject land. He concluded that, as at the date of taking the subject land had a value of $2,000 per sqm on an improved basis.
265 Mr Kennedy's assessment of the subject land and its precinct was not markedly different to that of Mr Cameron. From his inspection, he concluded that the buildings were generally in poor condition. He did not regard them as significantly adding to the value of the subject land. He generally used vacant land sales as comparable sales.
266 Mr Kennedy concluded that on the limited information he had available, heritage issues would not prevent a 'reasonable extent of development' of the properties. In his written report, he did not give an opinion as to the highest and best use of the subject land. In his evidence, Mr Kennedy said that the 'most favoured' use of the subject land in 2003 would have been residential use.
267 Mr Kennedy considered 14 sales. The following table provides a summary of each of them:
268 He selected six of these sales as being most relevant. Three of the six sales were 442 Murray Street, 418 Murray Street and 374 - 394 Murray Street. These three properties were all on the north side of the road and in the block between King and Milligan Streets. Mr Kennedy also selected 553 Wellington Street, which is on the south eastern corner of Wellington and Queen Streets, 146 - 152 Barrack Street, which is on the south eastern corner of Barrack and Wellington Streets and 403 - 405 Wellington Street.
269 The plaintiffs criticise the selection of these sales, other than 374 - 394 Murray Street which sold in November 2003 and 403 - 405 Wellington Street which sold in September 2003, because each of the sales predated the date of taking. In particular, one was over four years prior to the date of taking (146 - 152 Barrack Street), two were 20 months prior to the date of taking (418 Murray Street and 553 Wellington Street), and one was 14 months prior to the date of taking (442 Murray Street).
270 In evidence, I understood Mr Kennedy to say that in his view the market for vacant or redevelopment sites in this part of the city did not change much between 2000 and 2003 so he did not think there was a lot of adjustment for time to be made. This is the judgment of a very experienced city valuer. Nevertheless, the age of some of the sales relied upon by Mr Kennedy and the lack of an adjustment for time, despite the fact that other valuers expressed the view that the CBD market in 2003, especially late 2003 was strengthening, is of concern.
271 The use of sales which occurred prior to the date of taking is not as problematical as the use of post dated sales. The risk in using post dated sales is that the valuer will assume that the market was aware, as at the date of taking, that there was the price movement as revealed in the later sales. This problem does not occur in the case of earlier sales because the market did have knowledge of them, as at the date of taking. The only risk with the use of earlier sales is that the valuer will not adjust the sale price for any movement in the market which occurred between the date of the prior sale and the date of valuation.
272 Mr Kennedy acknowledged that the sale of 146 Barrack Street in 1999 was too early to be directly comparable with the subject land as at the date of taking. He said that it provided a bench mark from which to move forward.
273 It revealed a price per square metre of $2,093. This was in fact more than the value Mr Kennedy placed on the subject land.
274 Mr Kennedy acknowledged that between the date of sale of the Raine Square site in December 1998 and its subsequent sale in September 2004 there had been an increase in value of some 18%. He said that he considered that some of the increase in value would have occurred in the 12 months since the date of taking. I accept this latter view as the valuers, other than Mr Dix, are in agreement that values continued to rise after the date of taking. The amount of the increase may also have been positively influenced by the proximity of Raine Square to the land the subject of IP32.
275 On the other hand, Mr Kennedy gave evidence that other sales and resales, for example the AXA Building at 111 St Georges Tce, had not shown any increase in value over time. Further, he said that other market conditions, such as the surplus of office accommodation in the Perth CBD in 2003 indicated that it was inappropriate to increase his comparative sales for time.
276 I accept the opposing view that there was an increase in the value of property in the vicinity of the subject land leading up to the date of taking which Mr Kennedy should have taken into account in the valuation of it. If, for example, only 10% was added to the dollar rate per square metre of the sale of 146 Barrack Street, this would result in an adjusted valuation of $2,302 per sqm, which is within Mr Cameron's range of values for that part of the CBD in 2003.
277 The plaintiffs also criticise Mr Kennedy for allowing what he said was 'virtually nothing' for the improvements to the subject land. This was in contrast to Mr Cameron and Mr Wilson who each made some assessment of the value of the improvements. Mr Cameron assessed their value at $397,000 and Mr Wilson valued them at $200,000, albeit with the lowest land value of any of the valuers.
278 The evidence establishes that the improvements were providing a modest holding income to the plaintiffs and that they would have probably continued to do so until the subject land became ripe for development. Mr Ezcaray gave evidence that Sanrosa had spent some $250,000 on altering and improving the standard of the buildings. The buildings were providing Sanrosa with a good income and would have probably continued to do so had it not been for the compulsory acquisition of the subject land.
279 Mr Kennedy, who analysed sales of vacant or near vacant sites as comparable sales, thought that against the holding income of the improvements, he had to take into account the demolition costs at the point in time when redevelopment occurred. Eventually, he acknowledged that it was logical that the landowners would use even a modest income from a property to offset the holding costs associated with the subject land.
280 I conclude that Mr Kennedy was in error in allowing 'virtually nothing' for the improvements.
281 Mr Cameron criticised Mr Kennedy's use of Murray Street properties, west of King Street, on the basis that these were in a 'far inferior' location to that of the subject land. He mentioned that they had less redevelopment potential than the subject land because, under CPS2, the plot ratio which applied to them was 4:1 rather than 5:1 for the subject land.
282 There is some justification for this view given that those properties do not have the benefit of the major transport terminals immediately opposite them or the hub of the CBD retail core only one block away. There is also the disadvantage of the reduced development potential. On the other hand in 2003 these properties were close to a well developed secondary office and retail area in the CBD which was not run down like the area near the subject land.
283 In any event, it seems that Mr Kennedy must have taken into account some of Mr Cameron's criticisms as he valued the subject land at 40 - 60% more than the Murray Street properties.
284 Mr Kennedy considered the sale of 403 - 405 Wellington Street as being comparable but said that he regarded it as including a premium for size. I have already stated why I am not persuaded of this view.
285 Finally, Mr Kennedy stated that the compulsory acquisition of the Globe Hotel site at 495 - 497 Wellington Street for $1,982 per sqm corroborated his valuation of the subject land at $2,000 per sqm, on an improved basis, or $1,590,000 in total.
286 The plaintiffs criticise Mr Kennedy's reliance on the sale of the Globe Hotel. They point out that although size, date of sale, location and use were comparable to that of the subject land, it did not have the development potential of the subject land because the improvements on it comprised a heritage building and it was unlikely that approval would ever be given to demolish it.
287 Mr Adam said that the Globe Hotel presented a very different case to that of the subject land because the heritage building covered the whole of the site's frontage, the main building covered 40% of the site and it appeared highly probable that retention of the whole of that building would be required in any redevelopment of the site.
288 Mr Kennedy valued the Globe Hotel in 2003 on a land and improvements basis, given that a capitalisation of the net income gave a very low value. He noted the possible heritage values of the improvements but did not elaborate on how they might effect the value of the property. In evidence he said that although it was a compulsory acquisition he was aware that the owner had sought advice from valuers prior to accepting compensation for it. Two such valuation reports are in evidence, although one is described as a draft report. Both valuations were below the value for which the property ultimately 'sold'. The draft valuation dealt with heritage issues much as Mr Kennedy did. The other expressly assumed that the improvements could be demolished for a future development. Thus, it does not seem that the value of the site was negatively affected by what Mr Adam saw as its heritage values. In Mr Kennedy's view the compensation paid amounted to, at least, the market value of the land. This seems to be a reasonable view.
289 Thus, the plaintiffs' criticism of the use of the Globe Hotel has some, but not substantial, validity. The compensation paid for that site has considerable relevance except that, in the medium to long term, the property may not have supported the same intensity of development as the subject land and development of it may have been hampered by the heritage value of its improvements. Against this is the view that not all developers wish to put as large a building as possible on a site or view a heritage building as a negative characteristic of a parcel of land. There are two further reasons why the subject land and the Globe Hotel may not have been developed to their full capacity, having regard only to the applicable plot ratio. First, there is no evidence that such developments were economically viable in that area of the city and, secondly, the terms of CPS2 required that any development be sympathetic to the surrounding heritage buildings, in particular the Wellington Buildings.
290 I will draw my final conclusions on Mr Kennedy's valuation after I have commented on the final valuation, that of Mr Wilson.
291 Mr Wilson is a director and senior valuer with Pember Wilson Eftos, property consultants. Mr Wilson has over 30 years experience in the real estate industry and is a Fellow of the API. He has valued Perth CBD office blocks, Perth CBD and suburban retail shopping sites and other properties in Perth for both government and private clients. Mr Wilson has the necessary experience to give expert valuation evidence in this matter.
292 Mr Wilson was instructed by the defendant's solicitors to prepare a valuation report in respect to the subject land. Mr Wilson, as with Mr Kennedy, was first instructed in 2003 to value the subject land. He also had the advantage of inspecting the buildings on it and the surrounding area prior to the commencement of the public work.
293 The plaintiffs challenge Mr Wilson's independence for similar reasons to those they use to challenge Mr Kennedy's independence. I repeat the comments and findings I made in respect to the allegations against Mr Kennedy. In essence I find Mr Kennedy and Mr Wilson, like Mr Cameron, to be very experienced, professional and independent valuers. I do not have any impression that their evidence was tailored to please the defendant.
294 The plaintiffs further criticise Mr Wilson's 2005 valuation report on the basis of his 2003 reports. First, they say that he failed to refer his earlier reports in either his latter report or his witness statement. Secondly, they say that in his earlier reports he used different comparable sales but came to the same value of the subject land. Thirdly, they say that some of the sales in the earlier reports were, he acknowledged, irrelevant to the value of the subject land.
295 The failure to disclose the earlier reports appears to me to be an issue for the defendant rather than Mr Wilson. I do not accept that I should be critical of Mr Wilson's valuation because of this omission.
296 In 2003 Mr Wilson was instructed by LandCorp to value all the properties to be compulsorily acquired in pursuance of IP32. He did that by accumulating a basket of sales which he used to value all the properties but not necessarily to value each of them. In each report he completed he included the whole of the basket of sales, whether or not he had used a particular sale to value the property the subject of the report. Mr Wilson testified that it was only when he was instructed to prepare the valuation report for the subject land for the purpose of these proceedings that he excluded references to sales which had little or no relevance to the value of the subject land, other than that they were sales of Perth CBD properties. Whilst Mr Wilson's methodology used to prepare the 2003 reports may have been simplistic, I see nothing incompetent or sinister about the preparation of the reports in that manner. The 2003 reports were prepared for a client which was aware that Mr Wilson was valuing a number of properties with different characteristics. Thus, different comparable sales would be applicable to each of them. Quite rightly, when he was instructed to prepare a valuation report for these proceedings he became more focussed and limited his report to those sales which were strictly comparable and relevant, in his opinion, to the valuation of the subject land. The question for me is whether I am satisfied that those comparable sales support his valuation. I do not believe that it is very useful to look at the 2003 report to determine that issue.
297 Mr Wilson prepared his valuation on the premise that Ms Moredount was correct in respect to the heritage issues affecting the subject land. Consequently, he assumed that the demolition of 507 William Street would not be approved, in its entirety, and that the scale of any development on the subject land would have to be sympathetic to the scale of the Wellington buildings. To the extent that he therefore underestimated the potential to develop a multistorey building which stepped back from the façade of 507 William Street and the Wellington buildings, his valuation should be approached with caution.
298 Mr Wilson assessed the improvements on the subject land to be in average condition and structurally sound.
299 Mr Wilson identified 18 sales of Perth CBD properties to which he had regard. He identified 12 of these sales which he said supported his valuations. These 12 sales are detailed in the following table:
300 All, but two, of the above sales predate the date of taking. Two of the earlier sales occurred in 1999, two in 2000, two in 2001 and four in 2002. Of the two that post dated the date of taking one took place in November 2003, which is not so much after the date of taking to be of concern. The other sale of 145 - 151 Barrack Street took place some eight months after the date of taking.
301 In respect to this latter sale, Mr Wilson adjusted the price by 10% to take account of the increase in value over that period. This is a substantial increase in eight months, especially as the property is nowhere near the IP32 precinct which may have been the subject of a greater increase in value due to the announcement of the public work.
302 The plaintiffs criticise the method by which Mr Wilson quantified the increase in value in the Perth CBD property market from December 2000 to December 2002 and then from December 2002 to December 2003. Mr Wilson said that in the absence of a reasonable cross-section of sales and resales of CBD properties over these periods, he looked at near city residential suburbs to gain an appreciation of that increase. Mr Wilson provided figures for four such suburbs. He averaged the increases for the four suburbs and determined that the average increase between December 2000 and December 2002 was 12.27% per annum and between December 2002 and December 2003 it was 14.92%. He acknowledged that the rates of escalation for residential property may not reflect the rates of escalation applicable to CBD properties but he said that the information supported his contention that values increased over that time. Based on this information he felt confident that the rates adopted in his report, being increases of 10% per annum until 2002 and 15% per annum for 2003 were appropriate.
303 The plaintiffs make the point that this method of assessing the increase in value in the Perth CBD is unorthodox and is not supported by any of the other valuers. That may well be the case but it may be that an unorthodox methodology has to be adopted if there is no direct evidence available to establish the rate of increase. Mr Kennedy did not support Mr Wilson's approach but neither did he support Mr Wilson's view that there were substantial increases in value over this period of time.
304 Mr Cameron was of the view that given the absence of reliable market evidence of the rate of increase in value of Perth CBD properties between 1999 and 2003, the best market evidence of the value of the subject land were those transactions which took place as close as possible to the date of valuation. There is obvious sense in that approach. Even so, Mr Cameron's reliance on post date of taking sales in the Barrack Street area and his application of his own subjective view of the market movement, without any sales evidence in support of his views, is hardly reassuring or preferable to the approach of Mr Wilson.
305 There is a clear danger in determining the movement of the property market in an inner city office and retail area by reference to the movement of the property market in suburban residential areas. However, the question is whether the amount of the adjustment is correct no matter what method Mr Wilson used to arrive at it. In this respect, Mr Wilson's view is a lot more favourable to the plaintiffs than Mr Kennedy's opinion on the same issue.
306 Furthermore, Mr Wilson's view, as opposed to his method in arriving at it, is not directly contradicted by the plaintiffs' valuers. Mr Dix and Mr Cameron do not appear to have attempted to quantify the movement in the Perth CBD market over a similar period of time even though Mr Cameron used two sales which were 18 months prior to the date of taking and seven which were after it.
307 Thus, I do not reject Mr Wilson's assessment entirely. It appears to be the most reliable quantification of the rate of increase in property values over time that is in evidence. Despite that conclusion, I am of the opinion that I should be very cautious about relying upon Mr Wilson's valuation to the extent that it is based on comparable sales that occurred over 18 months prior to the date of taking.
308 The plaintiffs also say that in using the sales of substantially improved properties as comparable sales and then deducting the value of the improvements from the sale price, Mr Wilson has added another subjective element that has a significant capacity to adversely affect the reliability of his valuation. The plaintiffs say that if the value of the improvements has been overvalued then the underlying land value will have been undervalued.
309 There is much to be said for the plaintiffs' criticism. Only three of Mr Wilson's 12 most comparable sales were of vacant land. Of the remaining nine sales, most of them had substantial income producing improvements. Of the three vacant land sales, one was the Woolworths site, at 166 - 170 Murray Street, which had frontages to Wellington Street and the Murray Street Mall. The different values to be ascribed to the different frontages of such a large through site make it less than an ideal comparable sale. It was also an old (1999) sale.
310 Another vacant land sale relied upon by Mr Wilson occurred at 418 - 428 Murray Street in January 2002. It sold for $1,354 per sqm or, according to Mr Wilson, $1,715 per sqm when adjusted for time. I note that this lot was 1,846 sqm, that is, over twice the size of the subject land. This brings into question the issue as to what discount if any, should be allowed for magnitude. This is another subjective variable.
311 The third vacant land sale relied upon by Mr Wilson of 374 - 378 Murray Street sold in November 2003 for $1,410 per sqm. This was a very large site at 3,724 sqm. Unless there was a significant discount for magnitude, it is hard to explain why that site would have been less valuable per square metre than the property at 418 - 428 Murray Street which was only a few lots away on the same side of the road.
312 The plaintiffs further say that Mr Wilson's adoption of $1,750 per sqm for the subject land comes close to the average of the value of the 12 properties which he said supported his valuation of the subject land at that price per square metre. The plaintiffs say an averaging methodology is not acceptable. I agree with the plaintiffs' second point but I do not accept the first. The average of the 12 sales Mr Wilson relied upon is about $1,704 per sqm. This is not Mr Wilson's valuation of the subject land. I do not believe that it is fair to Mr Wilson to draw any adverse conclusion about the reliability of his valuation simply because it is about $45 per sqm above the average of those 12 sales.
313 Lastly, Mr Wilson added $200,000 for the value of the improvements to the subject land. Hence, he valued the subject land at a total of $1,600,000 as at the date of taking being comprised of $1,750 per sqm for 795 sqm and $200,000 for the improvements.
Conclusions as to value of the subject land
314 For the reasons I have given I do not place any weight on Mr Dix's valuation of the subject land.
315 I am of the opinion that Mr Cameron, by relying heavily on the comparable sales that occurred after the date of taking, has overvalued the subject land. Mr Cameron's comment that 'recent land and underdeveloped property sales in eastern Wellington Street and Barrack Street indicated a prevailing land value in the range of $2,250 - $2,750' was accurate. Having regard to my finding that Barrack Street was a superior area to that of the subject land, the underlying land value of the subject land should not be more than the lower end of the range given by Mr Cameron. The value of the improvements would then have to be added.
316 I find Mr Kennedy to be the most experienced and reliable valuer of Perth CBD property. I find that this method of using mostly vacant land sales as comparable sales to be preferable to using improved land sales because it removes the need to allow for both the value of improvements on the subject land as well as the improvements on each comparable sale. However, I am of the view that Mr Kennedy, by adding 'virtually nothing' for the value of the improvements to the subject land, has undervalued the improvements. Furthermore, I am of the view that this undervaluation is exacerbated by Mr Kennedy's failure to adjust older sales for time.
317 Lastly, I have concerns about the reliability of Mr Wilson's valuation because of his substantial reliance on older sales of improved land when there is no objective evidence to substantiate the value he placed on the improvements on those properties or CBD sales evidence to support his adjustments for time.
318 I conclude that I should rely substantially upon the valuation of Mr Kennedy but increase it to $2,250 per sqm to take into account my criticisms of it. This increase also takes into account a small amount of added value for the proximity of the subject land to a large development site.
319 I note that this valuation of the subject land brings the value within Mr Wilson's range of values for vacant land and underdeveloped land in eastern Wellington Street and northern Barrack Street. Given my rejection of his view of these areas being inferior to the site of the subject land, this seems to me to be appropriate.
320 As to the value of the improvements, I have already stated that I accept the view of Mr Cameron and Mr Wilson, as opposed to that of Mr Kennedy, that the improvements had some value to the owner as income producing assets in the medium term until the subject land was redeveloped. I am of the view that a hypothetical purchaser would also have given the improvements some value when negotiating the price for the subject land.
321 Mr Cameron valued the improvements at approximately $400,000 and Mr Wilson valued them at $200,000. Neither valuer satisfactorily explained the basis of this part of their valuation.
322 After considering all the evidence, I value the improvements at $270,000. I do so on the basis that generally speaking the plaintiffs were critical of Mr Wilson for overvaluing improvements and thereby undervaluing land. On this reasoning, Mr Wilson's valuation of the improvements would be at the liberal end of the range of values. I also take into account that Mr Cameron valued the improvements on 124 William Street at $460,000. Those improvements derived a significantly higher level of net income than the improvements on the subject land ($160,000 per annum against $65,000 per annum for the subject land). Consequently, it is difficult to understand how the improvements on the subject land could be valued at over 85% of the value of the improvements on 124 William Street, given that I accept that the value of the improvements in both cases lay in their income producing capacity in the medium term. This is so even though the improvements on the subject land were of slightly greater magnitude (1,140 sqm compared to 1,125 sqm). It would appear to me to be appropriate to value the improvements on the subject land at $270,000, which equates to 56% of the value of the improvements on 124 William Street, as valued by Mr Cameron.
323 When $270,000 is added for the value of the improvements to the unimproved land value, the value of the subject land, as at the date of taking, is assessed at $2,058,750.
324 I note that the resulting value of the subject land is considerably more than the compensation paid for the Globe Hotel, as at the same date. That is of some concern and causes me to reflect on the accuracy of my findings as to value. Having said that, the value of the subject land must not be based on one sale but on an evaluation of all the evidence. Taking into account all the evidence, including that the Globe Hotel had more limitations on its development potential than the subject land and that this may account for some of the difference in value, the sale price of the Globe Hotel does not make me change my findings.
325 There are a number of sales which support a greater value for the subject land than the price paid for the Globe Hotel. In respect to sales of vacant land there is the sale of 130 Barrack Street, some 18 months prior to the date of taking. Although that property sold for a slightly greater amount, it was in a superior position. Another vacant land sale is that of 146 - 152 Barrack Street which occurred three years and nine months prior to the date of taking. That property again is in a superior location on Barrack Street and on a corner. There is also the sale of vacant land at 403 - 405 Wellington Street, which occurred at approximately the same time as the date of taking.
326 In respect to sales of improved land, which I view with some caution, I refer specifically to the sale of 145 - 151 Barrack Street which is on the south west corner of the intersection of Barrack and Wellington Streets. That sale occurred some eight months after the date of taking. The sale price reveals a positive adjustment for both its superior location and improvements. Another sale of an improved property is that of 856 Hay Street to which I have already referred. This is also a superior property due to its location, improvements and rental stream.
327 For the reasons given earlier, I do not add any premium for the value of the land to the adjoining landowners.
328 I have considered whether the value I have accepted is tainted by any increase or decrease in value attributable to the public work proposed in IP32. Given that the vast majority of the sales of properties that I have regarded as being comparable occurred prior to the publication of IP32 and prior to any official announcement of the public work, I consider that the valuation is not so tainted.
Acquisition costs in respect of a replacement property
329 The plaintiffs submit that although they have not purchased a replacement property they are entitled to a declaration that they are entitled to compensation for the acquisition costs in respect of a replacement property should they choose to purchase one in the future.
330 It appears that this part of the plaintiffs' claim is based on the LA Act s 241(6) which provides that in assessing compensation regard is to be had to removal expenses and disruption and reinstatement of a business.
331 I do not allow this part of the plaintiffs' claim. First, the plaintiffs were not carrying on a business on the subject land, except to the extent they leased the premises to others who did so. Secondly, after the subject land was taken they incurred no removal expenses or expenses related to the disruption and reinstatement of a business.
332 Pullin J, considered a claim of this nature in Arcus Shopfitters Pty Ltd v Western Australian Planning Commission [2002] WASC 174 [240] - [246]. He declined to award compensation under this head of claim. Although the facts of this case are different to those in Arcus I agree with his Honour's comments about the nature of this sort of claim.
333 The LA Act s 241(6)(e) says that the court may also take into account in assessing compensation any other facts which I consider it just to take into account. The facts, as disclosed by the evidence, are that the plaintiffs have not purchased a replacement property in over four years since the date of taking. Neither is there evidence that the plaintiffs have any intention to do so. Taking these facts into account it would not be just to make the declaration as sought by the plaintiffs.
334 The plaintiffs' counsel relied on evidence which was given by Mr Hillyard, the defendant's representative, during the trial. Mr Hillyard was asked about the agreed compensation that was paid to the owners of 124 William Street when that property was compulsorily acquired. Mr Hillyard gave evidence that although the owners had not purchased a replacement property, it was part of the settlement agreement that they should be allowed the costs of doing so within a period following settlement or determination of the claim. Mr Hillyard said that he knew of no reason why the plaintiffs could not be similarly compensated.
335 In the case of 124 William Street that term was a condition of the negotiated settlement agreement between the parties. It does not follow that the landowners had a right at law to that compensation. Neither does it follow that the facts, which may have justified such an allowance in the compensation payable for 124 William Street, are the same as the facts in this case. In my view, the facts of this case do not disclose such a right.
336 Lastly, there is an interest in the finality of proceedings between the parties. The declaration sought by the plaintiffs would leave the financial rights and obligations of the parties in a state of uncertainty for some time into the future which would be contrary to such an interest.
337 Under the LA Act s 241(8) and (9) the court is granted a discretion to compensate the plaintiffs for the taking without agreement of the subject land. Such amount must not exceed 10% of the amount otherwise awarded unless I am of the opinion that exceptional circumstances justify a higher amount.
338 No exceptional circumstances have been asserted by the plaintiffs. I am of the view that solatium at 10% of $2,058,750, being $205,875 should be awarded.
339 Under the LA Act s 241(10) and (12) the court has a discretion to award interest on the award of compensation. The provisions of s 241(12)(a) state that interest on the total amount of compensation is only payable to the date of the payment of the advance payment by the defendant and thereafter only on the balance outstanding from time to time. Interest is payable at the rate of 6% per annum. I will hear the parties as to the appropriate award of interest.
340 I award the plaintiffs compensation in the sum of $2,264,625 plus interest as calculated above. The amount of the advance payment must now be taken into account. I will hear the parties in respect to final orders.
(1991) 4 WAR 206
(1907) 5 CLR 418
(1999) 199 CLR 413
(1973) 6 SASR 541
(1979) 21 SASR 513
(2004) 29 WAR 273
(1952) 87 CLR 159
(1947) 74 CLR 358
(1973) 5 SASR 541