BETWEEN : WESTERN AUSTRALIAN PLANNING COMMISSION

Real property - Compulsory acquisition - Valuation of land - Comparable sales method - Whether sales comparable - Whether comparable sales representative and sufficient in volume - Adequacy of disclosed reasoning of valuers - Discount for magnitude - Whether s 63 of Public Works Act (PWA) compensates for replacement land when no proven intention to purchase - Whether solatium under s 63 of PWA payable before or after deduction under s 37(5)(b) of Metropolitan Region Town Planning Scheme Act - Whether s 63(e) of the PWA applies where rent or profits received by acquiring authority - Jurisdiction to award financing costs

Federal Court of Australia Act 1976 (Cth), s 43

Metropolitan Region Town Planning Scheme Act 1959 (WA), s 30, s 36(3), s 37(1), s 37(5)(b)

Public Works Act 1902 (WA), s 13, s 63

Supreme Court Act 1935 (WA), s 32, s 37, s 142

Town Planning and Development Act 1928 (WA), s 13

Appeal allowed. Judgment set aside. Matter remitted to trial Judge for determination in accordance with reasons

Ground 5 of cross-appeal upheld. Balance of cross-appeal dismissed

Bain v Housing Commission of New South Wales 18 LGR (NSW) 194

Balquhidder Pty Ltd v Minister for Environment & Planning (1986) 40

Bergman v Holroyd Municipal Council (1988) 66 LGRA 68

Boland v Yates Property Corp Pty Ltd [1999] HCA 64; (1999) 167 ALR 575

Commissioner of Highways v Tynan (1982) 53 LGRA 1

Commonwealth v Arklay [1952] HCA 76; (1952) 87 CLR 159

Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157

Crisp & Gunn Co-operative Ltd v Hobart City Corporation [1963] HCA 55; (1963) 110 CLR 538

Crompton v Commissioner of Highways (1973) 5 SASR 301

Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299

E R Bromley v Housing Commission of NSW (1986) 30(2) The Valuer 46

Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258

Gosford City Council v KE Manning & Ors, unreported; CA SCt of NSW;

Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50

Henderson v Shire of Liverpool Plains (1932) The Valuer 179

Kezik Pty Ltd v Valuer-General, unreported; NSW Land and Environment Ct; 24 July 1987

Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48

Macdougall v Western Australian Planning Commission [2003] WASC 138

McCathie v Federal Commissioner of Taxation [1944] HCA 9; (1944) 69 CLR 1

McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190

Minister for the Environment v Florence (1979) 21 SASR 108

Moreton Club v Commonwealth [1948] HCA 21; (1948) 77 CLR 253

Morison v Commonwealth (1971) 34 LGRA 273

Pamalco Pty Ltd v Minister Administering National Parks & Wildlife Act 1974 (No 3) (1991) 71 LGRA 441

R K Morgan Holdings Pty Ltd v Melbourne & Metropolitan Board of Works (1992) 77 LGRA 102

Redeam Pty Ltd v South Australian Land Commission (1977) 17 SASR 508

River Bank Pty Ltd v Commonwealth (1974) 31 LGRA 244

Russell & Sainsbury v Minister of Lands (1898) 17 NZLR 241

Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [1901]

Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418

Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245

Verebes Investments Pty Ltd v Commissioner for Main Roads (1972) 25

Waalt Homes Pty Ltd v Road Construction Authority (1987) 64 LGRA 346

Woods v Woods [2001] NSWSC 1108

Yates Property Corp Pty Ltd v Boland (1997) 145 ALR 169

1 ANDERSON J: I have had the advantage of reading in draft the judgment of McLure J. I agree with it and there is nothing I can usefully add.

2 STEYTLER J: I have had the advantage of reading the judgment of McLure J. I agree with it and with her Honour's conclusions that the appeal should be upheld, that ground 5 of the cross-appeal should be upheld and that the matter should be remitted to the trial Judge for determination in accordance with the reasons of the Court. There is nothing I wish to add.

3 This is an appeal from the decision of Pullin J as to the compensation payable by the Western Australian Planning Commission (appellant) to Arcus Shopfitters Pty Ltd (respondent) under the Public Works Act 1902 (WA) for the compulsory acquisition of the respondent's land in Northbridge ("Arcus land"). The Arcus land was situated on the corner of Aberdeen and Palmerston Streets Northbridge. It comprised two lots in one certificate of title with an area of 4,553 square metres and with improvements described as a "factory warehouse office complex". The Arcus land was compulsorily taken for public works on 27 October 1995 ("valuation date").

4 The respondent claimed compensation in the sum of $6,900,000 for the land and buildings together with inter alia, expenses incurred in purchasing a replacement property, solatium and interest.

5 The appellant called two valuers, Mr Jeffrey Spencer and Mr Geoffrey Elliott. The respondent also called two valuers, Mr Stephen McMahon and Mr Terrence Dix.

6 All valuers agreed that the appropriate method of valuation of the Arcus land was the comparable sales method. Mr Dix valued the land at $6,829,500 and the improvements at $280,000. Mr McMahon valued the land at $6.8 million and the improvements at $100,000. Mr Spencer valued the land at $3,670,000 (which included a rental component) and Mr Elliott valued the land at $3,642,000 and allowed no value in relation to the improvements.

7 The trial Judge accepted Mr Dix's evidence that the most comparable sale was of land at Lot Y104 James Street, Northbridge in

September 1994 and based on that sale found the value of the Arcus land to be $6,570,890. He also concluded that he could give little weight to the opinions of Messrs McMahon, Spencer and Elliott as to the value of the Arcus land.

8 The Judges constituting the quorum in this appeal also sat in an appeal from the judgment of McKechnie J in Duffy v The Minister for Planning [2002] WASC 201. That case concerned the compensation payable to Mr Duffy under the Public Works Act for the compulsory acquisition of his land at Newcastle Street, Northbridge ("Duffy land"). That acquisition also occurred on 27 October 1995. Messrs McMahon, Dix, Spencer and Elliott also gave expert valuation evidence in the Duffy (supra) case. McKechnie J rejected the evidence of Messrs McMahon and Dix. He accepted the evidence of Messrs Spencer and Elliott but preferred that of Mr Spencer to the extent it was in conflict with that of Mr Elliott.

9 In August 1963, the Metropolitan Region Scheme ("MRS") was made and published in the Government Gazette under s 30 of the Metropolitan Region Town Planning Scheme Act 1959 (WA). The MRS applies to all land in the metropolitan region. The Arcus land was in the metropolitan region. Provision was made in the MRS for land to be reserved for public purposes, one of which was for "controlled access highways". Land was reserved for controlled access highways in a strip to the north of the Perth city centre. The reservation is known as the City Northern Bypass Reservation ("CNBR"). For relevant purposes, the CNBR runs in an east west direction and covers the land between Newcastle Street and Aberdeen Street, Northbridge. The Arcus land and the Duffy land were in the CNBR. The location of the CNBR between Newcastle and Aberdeen Streets did not alter from the date of the publication of the MRS in 1963. The Graham Farmer Freeway (also known as the Northbridge Tunnel) now runs within and under the CNBR.

10 Land on the south side of Newcastle Street is in the municipality of the City of Perth. Land on the northern side of Newcastle Street is, and was at the material time, in the municipality of the Town of Vincent. Save for the land the subject of the CNBR, the City of Perth Town Planning Scheme No 1 ("City of Perth Scheme") applied to Northbridge and, in the relevant period, to land in the Town of Vincent.

11 The City of Perth Scheme divides the Scheme area into the Central Area and the Suburban Area. Northbridge is in the Central Area. Land to the north of Newcastle Street is in the Suburban Area. Newcastle Street forms the outer boundary of Northbridge as well as the Central Area.

12 Within Northbridge there are different planning zones. They include general commercial (CC) and commercial industrial (CI). The land in the Suburban Area immediately to the north of Newcastle Street is zoned general commercial (suburban) (C3).

13 The trial Judge in his reasons identifies the differences between the CI, CC and C3 zonings. For example, there are no specific requirements in the City of Perth Scheme for setbacks or landscaping for land zoned CC and CI whereas for C3, there is a minimum 4.5 metre setback as well as landscaping requirements. The residential density (ie dwellings per hectare) is R160 in the Central Area and R80 in the Suburban Area.

14 There is no obligation to provide car parking spaces on site in the Central Area other than in residential zones, whereas in C3 there are specific requirements for car parking. The plot ratios (the ratio of the gross lettable floor area to the area of land) are 3:1 east of Lake Street, 2:1 west of Lake Street (with a discretion to increase both by 20 per cent) and 2:1 in C3 (with no provision for any discretionary increase).

15 The trial Judge made a number of findings that are not in contention in the appeal. They are firstly that, in the absence of the CNBR, the Arcus land would have been zoned CI under the City of Perth Scheme and secondly that the use of the land as a factory, warehouse, office complex was not the highest and best use. The highest and best use was as a site for a mixed commercial and residential complex.

16 As other Northbridge compensation actions and appeals are on foot, it is appropriate to set out the grounds of appeal in full. They are as follows:

"1. The learned judge acted on a wrong principle of law and or reached a valuation of the property which was entirely erroneous or otherwise erred in law and on the facts as follows.

2. Contrary to principles of valuation and the evidence of each of the valuers giving evidence, the judge in effect asked and determined which was the most important comparable sale (being as he found Lot Y104 James Street) and based his valuation of the subject land entirely or almost entirely on that sale.

3. In basing his valuation on lot Y104 the judge erred in law and on the facts in that:

(a) The judge overlooked his own findings showing that reliance on such sale was unsafe in that the sale price achieved was wholly inconsistent with the price achieved on the earlier sale of the same property and with the comparable sale of the land known as 'On the Park'.

(b) The judge failed to have regard to the evidence of both the Appellant's valuers and the Respondent's valuer Mr Dix, all of which showed that this sale was at a higher price than the market indicated, such being the best evidence that the price achieved on this sale was an unsafe guide.

(c) Having correctly found that it was right to be suspicious of the sale of lot Y104 because it was a purchase by an adjoining owner, the learned judge then overlooked or failed to give weight to the evidence, including in (a) and (b), which showed that lot Y104 did have special value to the purchaser.

(d) The judge failed to have regard to the expert evidence that lot Y104 was in a superior location to and was more valuable than the subject land because it was on James Street and closer to the centre of Northbridge.

(e) To the extent the judge accepted the Respondent's valuer's (Mr Dix's) evidence said to support the reliability of the sale of lot Y104, namely the sale of the Foodhall land and hypothetical developments on the 2 related lots, such evidence was demonstrably unsafe as Mr Dix elsewhere contended and the judge elsewhere found.

4. In rejecting the evidence of comparable sales introduced by the Appellant's valuers and in preferring the evidence of the Respondent's valuer Mr Dix, the judge erred in that:

(a) The valuation process will not always be capable of being reduced to exact reasoning and articulation, it was unfair to require such from the Appellant's valuers, and the attempt to do so was likely itself to introduce or mask errors as reflected in Mr McMahon's valuation which the judge rejected;

(b) The judge overlooked or failed to give weight to the fact that the Appellant's valuations were consistent with each other and with that of the Respondent's first valuer made at about the time of the required valuation of the land, whereas the report of Mr Dix was given some 3 years later and was consistent with the valuation of the Respondent's primary valuer Mr McMahon whose evidence the judge rejected;

(c) There was no proper foundation for the judge to reject the use of sales in the suburban zone. The judge overlooked the fact that the Respondent's valuer, Mr McMahon had originally included such sales;

(d) There was no evidence supporting the judge's finding, upon which he placed considerable weight, that at the relevant time there was considerable competition amongst developers for large development lots in Northbridge.

5. In rejecting the evidence of the Appellant's valuers as to a discount for magnitude, the judge erred in rejecting the applicability of evidence from East Perth and in the suburban zone, and in his seeking to demonstrate its unreliability by the use of the evidence of 2 only sales within the Northbridge area."

17 The respondent filed a notice of contention and cross-appeal. In its notice of contention, it says the decision of Pullin J should be affirmed on the ground that the trial Judge's finding as to the value of the land was supported by Mr McMahon, and his finding that there was no evidence requiring a discount for magnitude was supported by the evidence of the witness Mr Laurence Goodman as to demand for larger sites in Northbridge. The cross-appeal relates to the trial Judge's findings as to the value of the buildings, the claim for consequential losses and interest.

The Evidence and the Trial Judge's Methodology - Ground 2

18 The first issue is whether the trial Judge asked and determined which was the most important comparable sale and based his valuation on that sale. The second issue is whether he erred in so doing.

19 The trial Judge considered and made findings on the comparability of the sales evidence relied on by the valuers. He started with Mr McMahon. Mr McMahon relied on 12 sales of land in the Central Area in the period 1993 to 1997. The 12 sales relied on by Mr McMahon were:

Adjusted Sale Price per Square Metre as at October 1995

International Food Hall (Parker Street opposite Russell Square)

20 There is a very wide variation in the adjusted sale prices. As in his valuation of the Duffy land, Mr McMahon prepared assessment sheets for each of the sales in which he identified all of the relevant adjustments between the comparison sale and the Arcus land and allocated a percentage figure for the relevant adjustment. There was a significant overlap in his sales evidence for the Arcus land and the Duffy land. The Duffy land was in east Northbridge. For comparison sales in west Northbridge he allocated a positive adjustment of 50 per cent in favour of the Duffy land because of the location differences. The Arcus land was in west Northbridge. In those sales in east Northbridge relied on in the Arcus valuation, he made a downward adjustment of only 30 per cent for the Arcus land. Mr McMahon also made a percentage adjustment in favour of the Arcus land where it was greater in size than the comparison land on the basis that a purchaser would pay a premium for a larger area of land. The trial Judge criticised Mr McMahon's locality and plot ratio adjustments as inconsistent and unreliable and concluded that his size adjustment was not supported by evidence or logic.

21 Mr McMahon identified the most important sales and ranked them in the following order: 1, 2, 3, 4, 7 and 8. He regarded sales 5, 6, 9, 10, 10A and 11 as "not so important".

22 The trial Judge specifically considered each of sales 1, 2, 7, 8, 10, 10A and 11 and concluded in effect that they were not comparable or not sufficiently comparable. He said that he considered Mr McMahon's sale number 3 of Lot Y104 James Street as the most important of the comparable sales identified by the valuers and sale number 4 as being used to verify the value of the Arcus land. The trial Judge did not specifically address his attention to sales 5, 6 and 9, I infer because of Mr McMahon's opinion that they were not so important. It is apparent from the trial Judge's consideration of specific sales in Mr McMahon's list that he examined each in isolation and made a judgment as to its comparability or non-comparability with the Arcus land.

23 The trial Judge then referred to Mr Dix's evidence. Mr Dix had a list of 12 sales of land in the Central Area. The sales are as follows:

Adjusted for time to October 1995 using 10 per cent per annum

Lot Y158, cnr of Aberdeen and Fitzgerald Streets (Backpackers)

24 Mr Dix's opinion was that the Arcus land was ripe for development, that sales of land with improvements of economic value were not comparable because of the difficulty in ascertaining the value of the improvements, that sales of larger areas of land should not be discounted in comparison with smaller areas of land and that land in the Suburban Area was not comparable because of the different development controls. Having regard to these matters, Mr Dix's focus was on locating sales as close as possible to the relevant date involving vacant land or land with obsolete buildings with no economic value standing upon it and facing, or in very close proximity to, Russell Square. He said the sale that came closest to these parameters was of Lot Y104 James Street in September 1994.

25 Mr Dix increased the rate per square metre for the September 1994 sale of Lot Y104 from $1,312 to $1,500 per square metre. It appears the adjustment was solely for time (between September 1994 and the valuation date in October 1995). The trial Judge concluded that a 14.3 per cent increase adjustment for time was over generous and should be 10 per cent so producing a value as at October 1995 of $1,443 per square metre.

26 The trial Judge confined his consideration of the sales in Mr Dix's list to Lot Y104 James Street, the International Food Hall, a check valuation of "On the Park" and the sale in May 1994 of Lot Y51, 56 Francis Street. In relation to the latter, he accepted Mr Dix's opinion that it was not a comparable sale because of a sewer on the site.

27 I infer the trial Judge confined his consideration to these sales having regard to Mr Dix's evidence that the balance of the sales in his list were not comparable. They were not comparable, according to Mr Dix, because sales 8, 9, 10, 11 and 12 had improvements of some value on the land, sales 4 and 5 (although closer to the Arcus land than sales 1 and 2) were on the west side of Russell Square and sale 6 was below market value and had a different highest and best use.

28 The sale of Lot Y104 James Street in September 1994 was indirectly to a purchaser associated with the owner of adjoining properties, UTS Investments Pty Ltd ("UTS"). The property was first purchased by Andrew Koh Nominees Pty Ltd and it immediately transferred a half interest to UTS. UTS was a company associated with Mr Graham Hardie, an experienced developer. The Hardie group of companies owned all of the other land in the same city block bounded by Roe, Milligan, James and Lake Streets save for two pieces of land, one on the north west and the other on the north east corner. Mr Dix said in evidence that he was not aware of any evidence of the Hardie group being an over anxious purchaser.

29 Mr Elliott's opinion was that this sale should not be taken into account as a comparable sale because it was a sale to an adjoining owner. Mr Elliott said in his report of 9 March 2001 that:

"... [We] note that no reference was made to the fact that the 1994 sale reflected a purchase by the adjoining owner. ...

Similar searches of the adjoining land, and particularly those properties along Roe Street which adjoin the southern boundary of this property, reveal that Mr Graham Hardie is a Director of all of the companies which own land adjoining this site. We consider from this that the adjoining owner may have been prepared to pay a premium for this property, rather than fail to obtain it, in order to provide a James Street frontage and access to the Roe Street properties, pending their future development. As such, we consider this to be an unreliable piece of evidence from which to deduce a value for the Arcus site." (emphasis added)

30 The appellant also relied on an application to the Perth City Council in February 1995 for a proposed development on Lot Y104 of 13 shops with a basement car park with vehicle access from Roe Street over adjacent Hardie sites to Lot Y104 as showing the advantage which the purchaser gained in having ownership of all the sites. The respondent's position was that the inference to be drawn from the use of an intermediary was that the vendor was not aware that Mr Hardie's company was involved in the purchase.

31 The trial Judge concluded that the inferences suggested by the appellant and the respondent were no more than speculation. He continued:

"The point is that if the sale was to be attacked as unreliable, then it was necessary for some evidence to be led from which it could be established that the sale was unreliable. Mr Elliott's speculation does not amount to proof. ... In short, in the absence of any evidence that this sale was a sale between an over-anxious purchaser or an over-anxious vendor, I agree with Mr Dix's conclusion that it should be used as a comparable sale. I agree that it is the most important comparable sale to be used in determining the value of the subject land."

32 The trial Judge also noted that Mr Elliott had included another purchase to an adjoining owner in his basket of sales evidence.

33 Mr Dix checked his valuation of $1,500 per square metre by undertaking a hypothetical development analysis for Lot Y104 to determine whether it would return a satisfactory profit if the developer paid $1,500 per square metre. Mr Dix used information obtained in relation to the construction of a commercial and residential development called "James at Northbridge". The Judge found that the hypothetical development analysis corroborated his adjusted value of $1,443 for Lot Y104 as at October 1995.

34 The second sale Mr Dix considered to be of importance was the sale in March 1997 of the International Food Hall. There were substantial improvements on the property however Mr Dix considered them to be of no economic value. The International Food Hall had sold in July 1991 for $601 per square metre and in March 1997 for $2,430 per square metre an increase of approximately 304 per cent. The Judge said he had regard to this sale "merely to confirm" that the value of $1,500 per square metre for the Arcus land based on Lot Y104 James Street was not too high.

35 Mr Dix's sale number 3 was a sale in August 1993 of "On the Park". Mr Dix regarded this older sale of limited assistance, an assessment with which the trial Judge agreed.

36 Mr Spencer had a basket of 12 sales of land in Northbridge and the Suburban Area in the period between 1990 and 1998 on which he relied to arrive at a value of $770 per square metre for the Arcus land.

37 The trial Judge noted that Mr Spencer did not identify any particular sale as being the most important comparable sale to assist him to arrive at his value. He continued:

"I bear in mind the authorities which say that it is not always possible for a valuer to explain every step in the valuation process, but I am attracted by the detailed justification given by Mr Dix as to the selection of the site that he thought most comparable and the checks on value that he carried out. Mr Spencer did not go through any such exercise."

38 Mr Spencer's list contained four sales in the Suburban Area. The trial Judge accepted Mr Dix's evidence that regard should not be had to such sales. He found that as a result of the restrictions on development, land in the Suburban Area was not comparable to the Arcus land.

39 Three of the remaining eight sales in Mr Spencer's list were of improved land. The trial Judge found that sales of improved land are not reliable comparable sales because of the difficulty in working out what might be the land component in the sale price. However, he said:

"This is not to say that valuers should never use the sales of improved land to ascertain the value of vacant land. There will be times when valuers will be driven to such evidence, but in circumstances where there is evidence of sales of vacant land, or sales of land with buildings of no economic value on them, which can be used as comparable sales, then those sales are likely to provide more reliable evidence of value."

That left five of Mr Spencer's sales. The first was a sale in February 1995 of 93 Aberdeen Street, Northbridge which showed a value of $1,221 per square metre. The trial Judge accepted Mr Dix's evidence that the sale was not comparable because it had no relationship to Russell Square, was located directly opposite the CNBR and was a sale before the resumptions took place for the CNBR.

40 The second was of land in Lake Street in April 1990. The trial Judge found the sale to be too old to be used as a comparable sale. The third was of land at 243 James Street, Northbridge in February 1998. The trial Judge concluded that it was not close enough to Russell Square to be of value as a comparable sale. The fourth sale was of the James Street depot in May 1994. The land area was approximately four times the size of the Arcus land and Mr Spencer said it was only included in his list to provide evidence of discount for magnitude. The trial Judge concluded that it was not a comparable sale because of special circumstances surrounding it. The fifth sale was of land at 245-249 James Street. The property was in west Northbridge opposite a large residential development. The trial Judge found that this sale was not comparable because the sale price would have been affected by a flyover reserve and because it was further from Russell Square. Thus, the trial Judge found that all of the sales relied on by Mr Spencer were not comparable or insufficiently comparable. That left Mr Elliott.

41 Mr Elliott conducted his first valuation in May 1995 and assumed the Arcus land would be zoned Suburban Area industrial. He had a basket of 16 sales, 11 of which were in the Suburban Area and five in Northbridge. Mr Elliott included Lot Y104 James Street in his May 1995 list. Mr Elliott did a further valuation of the land as at 27 October 1995. He deleted Lot Y104 from his second list and did not allow for any increase in value for the six month period.

42 Mr Elliott declined to say in cross-examination what he considered the percentage increase in values to be between 1993 and 1996, what the discount for magnitude should be and whether it was cancelled out by offsetting factors such as the fact that the subject land was a corner site. Mr Elliott applied a discount for size when comparing the Arcus land with smaller land areas and did not rely on any particular sale in the basket of comparable sales to arrive at his valuation of $800 per square metre.

43 Of the five sales in Northbridge in Mr Elliott's list, three were in east Northbridge (which all valuers agreed was a more valuable area of Northbridge but less conducive to residential development) and two were in west Northbridge. The first in west Northbridge was the Fitzgerald Hotel which the trial Judge found not to be comparable because of a heritage agreement affecting the building. The second was a sale in September 1995 of 245-249 James Street for $643 per square metre which he also found not to be comparable. The trial Judge concluded:

"I find that I cannot rely on Mr Elliott's opinion as to the value of the subject land. Mr Elliott has listed 16 sales which he considered to be comparable. Having done so, he then expressed his opinion that the subject land should be valued at $800 per square metre. He did not in his report, and he declined in cross-examination to, explain to what extent he had adjusted the comparable sales figures. Adjustments had to be made for time, for different geographic location, and for the fact that some of the sales involved land with improvements. He did not explain in his report, or in oral evidence, what adjustments he made in relation to discount for magnitude. He did not explain in his report, and he declined in oral evidence to say, which were the most important of his comparable sales. The 16 comparable sales he has relied upon range in value from $358 per square metre to $1,307 per square metre. ... His opinion that the value of the subject land is $800 cannot be tested in any way."

44 The trial Judge also concluded that he could not give much weight to the opinions as to value of Messrs McMahon and Spencer. The trial Judge encapsulates his position as to what is required of an expert valuer as follows:

"It is not satisfactory, in my opinion, for a valuer who values land using the comparable sales method, to list a number of comparable sales, each one suggesting a different value for the subject land and each of which requires some adjustment, and then simply to state an opinion about the value of the subject land. Such an opinion will only have any value if the valuer explains which is the most important of the comparable sales, why that is so, and what adjustments have been made to reach a conclusion about the value of the subject land."

45 It is clear from this statement of principle and the trial Judge's approach to the expert valuers' evidence that he asked and determined which was the most important comparable sale and based his valuation of the Arcus land on that sale albeit "confirmed" by other evidence.

46 It is also apparent from the trial Judge's consideration of the sales evidence that he examined each sale in isolation and made a judgment as to its comparability or non-comparability with the Arcus land until he was in effect left with only one comparable sale and one "check" sale. The appellant says the trial Judge's methodology is flawed. Before addressing that matter it is necessary to explain the principles and processes of the comparable sales method. Unlike the Duffy (supra) case, there was very little expert evidence as to the processes involved. In the absence of evidence, I am confined to the legal principles identified in the cases.

47 The High Court in Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 195 ALR 236 at 241 [16] described the comparable sales method in the following terms:

"The traditional, and usually unexceptional method [of valuing land] is to seek out relatively contemporaneous sales of comparable properties between parties at arm's length, unaffected by special circumstances, such as, for example, a strong desire by a purchaser to buy an adjoining property, and to use those sales as a yardstick for the valuation of the relevant land."

48 The appellant in that case was the owner of improved land in a Sydney suburb. The respondent was required to make an assessment of land tax on the basis of the unimproved value of the land. The respondent used the comparable sales method in valuing the land and the only sales relied on were of vacant land. However, vacant land in the relevant suburb was scarce and as a result it was, or may have been, inflated by a premium on account of its scarcity. The High Court held that the respondent was unreasonably selective in ultimately confining himself to two sales of scarce vacant land for the purposes of comparison. The Court said of the comparable sales method that the sales evidence must be both relevant and sufficient in volume and concluded that the valuer in that case had not proceeded rationally because he was unreasonably selective.

49 A helpful description of what the comparable sales method involves was given by Wells J in Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170. He said (at 179-180):

"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."

50 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 a sale. Where the line is to be drawn is a matter for the expert valuer to determine: Brewarrana (supra) per Wells J at 180.

51 Each of the valuers in this case differed in varying degrees in their approach and methodology. There is significant scope for legitimate variations in approach and method and it is inappropriate to formulate rigid rules as to what is required. However, a core requirement of the comparable sales method is that the comparable sales be sufficient in volume to justify a deduction or inference as to value. What is sufficient in volume will vary from case to case. Generally, it will require multiple (more than two) sales. In those circumstances it is necessary to consider the comparable sales evidence as a whole in order to assess whether any of the sale prices are out of line with the main body of the sales evidence or whether there are any other conflicts in the evidence. As Wells J noted in Brewarrana (supra), the sale price is not necessarily the same thing as market value. There may be some unknown factor affecting the price paid or a sale may, after collective analysis, legitimately be regarded as a market aberration. To consider each sale relied on by the experts in isolation and rule as to its comparability with the subject land in the way the trial Judge did is to assume firstly, that the sale price reflects market value and secondly, that there will be a single most comparable sale on which to determine value. Those matters should not be assumed. They must be tested.

52 Thus, the approach taken by the trial Judge mirrors that of Mr Dix and is related to the goal of identifying the most important comparable sale. That was done in this case by adjudging that all of the sales except one were not comparable or insufficiently comparable. Mr Dix and the trial Judge were left with the smallest possible sample. In my view, there is no requirement that a valuer identify the most important comparable sale. There is a requirement that a sufficient sample of comparable sales be collected and analysed collectively and individually. Having performed the analysis, a valuer in the course of the process is likely to attach different weights to individual sales and if so will be able to identify the sale or sales to which he can appropriately accord the greatest weight. On this approach comparable sales are weighted but the sample remains representative and sufficient in volume.

53 For these reasons, I am satisfied that the trial Judge's comparable sales methodology was flawed. However, whether the error affected or may have affected the outcome depends upon whether the trial Judge was wrong to primarily rely on the September 1994 sale of Lot Y104. That matter is raised in ground of appeal 3.

54 The appellant relies on a number of grounds in support of its claim that the trial Judge erred in relying on the sale of Lot Y104 in September 1994. The primary ground is that the land (or more correctly a half interest in the land) was sold to an adjoining owner.

55 It is apparent from the extracts from Maurici v Chief Commissioner of State Revenue (supra) and Brewarrana Pty Ltd v Commissioner of Highways (supra) set out earlier in these reasons that a sale to an adjoining owner must be viewed with caution. There is other authority to the same effect: Barber v Valuer-General (1969) 17 LGRA 409; Hieronymus v Minister for Education, unreported; NSW Land and Environment Ct (Hemmings J); 29 June 1989 at 12 and Minister of Environment v Petroccia (1982) 30 SASR 333 at 345. The preponderance of authority is that although such a sale need not be excluded from consideration as a comparable sale, it needs to be carefully analysed.

56 Hardie J in Hurdis v Minister (1957) 2 LGRA 132 seems to go further. He said (at 140-141):

"Where, as here, there are no other sales available to support a party's contention that the sale to an adjoining owner reflects something more than market value it is incumbent on that party to point to some circumstances associated with the sale or with the property itself ... to justify the inference that the selling price was an excessive one."

57 He suggests the onus is on the party making the contention that the sale reflects something more than a fair market value to prove special value to the adjoining owner. I am unsure whether his statement as to onus applies if the other sales evidence does not support the contention or in the absence of other sales evidence. If the latter, it is difficult to reconcile with the proposition that the burden of proving that a sale is comparable lies with the party seeking to establish the similarity between the properties (see Jacobs M S, "The Law of Resumption and Compensation in Australia" LBC Information Services, Sydney, 1998 at 261-262).

58 I am not persuaded that Hardie J's statement is correct. In my view, it is appropriate that a valuer who seeks to rely on a sale to an adjoining owner to justify an inference as to the value be required to satisfy himself or herself that the sale does not reflect any element of special value to the adjoining owner. That may be done in a number of ways. One way would be to consider, as part of the collective analysis, whether the sale was out of line with the basket of sales.

59 If such a sale was included in a basket of sales it could be given appropriate weight having regard to the inferences that may be drawn from other comparable sales as to whether the sale price reflected market value. If that exercise is carried out using the 12 sales relied on by Mr Dix it can be seen that Mr Dix's value of $1,500 per square metre for Lot Y104 as at October 1995 is higher than his sales in the more valuable east Northbridge area adjusted for time (based on a time adjustment of 10 per cent per annum) and treating all of the improvements at no value (sales 6, 7 and 12). It is also significantly higher than the adjusted comparable sales closer to the Arcus land (sales numbered 3, 4 and 5) and sales closer in time (sales 6, 9, 10, 11 and 12).

60 Another indicator that the sale price in September 1994 of Lot Y104 may be out of line is the difference in purchase price between the sales in June 1992 and September 1994. There was an increase in value of 70 per cent in the relevant period which equated to an annual increase of about 34 per cent per annum. The trial Judge found that the average annual increase in the relevant period was 10 per cent per annum. This finding is not challenged. At a 10 per cent increase between June 1992 and September 1994 the adjusted figure at September 1994 for Lot Y104 would be $934 per square metre.

61 If these sales in Mr Dix's list are comparable, the question of whether the sale was out of line was not addressed. Such an analysis may have resulted in less weight being given to the sale of Lot Y104. If none of the sales evidence were comparable, it would be unsafe to rely on the sale of Lot Y104 as the most important, indeed the only, comparable sale from which the value of the Arcus land was derived at least in the absence of positive evidence that the sale price was unaffected by the purchaser's position as an adjoining owner. In substance, the methodological error is the failure to use, or properly use a representative and sufficient sample of comparable sales.

62 Another matter relied on by the appellant is that the trial Judge failed to have regard to the evidence that Lot Y104 was in a superior location to the Arcus land. There was evidence, including from Mr Dix, that as a general rule land closer to core Northbridge was more valuable than land further away. Lot Y104 James Street was closer to core Northbridge than the Arcus land. However, I am not satisfied that the trial Judge failed to consider that matter simply because it may not be expressly referred to in his reasons. In any event, it is wrong to isolate one variable impacting on value without reference to others such as the fact that the Arcus land was on a corner block with two frontages.

63 It is also necessary to consider whether the confirmatory evidence is sufficient to prevent an error or the possibility of error in the result. The trial Judge concluded that the 1997 sale of the International Food Hall confirmed that the value of $1,500 per square metre for the Arcus land based on the sale of Lot Y104 was not too high. Mr Dix's use of the International Food Hall was controversial. Firstly, there was a 304 per cent increase in the sale price between the sale in July 1991 and that in March 1997. There was evidence that the sale of the International Food Hall in March 1997 was an off market sale between overseas parties and that the improvements on the property added significantly to its value. On any view, the October 1995 value of the 1997 purchase price was significantly higher than $1,500 per square metre. Rather than confirm the value of Lot Y104, it should have indicated that something may be amiss with this sale. Further, there is merit in the appellant's submission that the evidence established that Mr Dix did not derive any support for his figure of $1,500 per square metre for Lot Y104 from the sale of the International Food Hall but rather he used his opinion as to the adjusted sale price of Lot Y104 James Street to arrive at the 1995 value of the International Food Hall.

64 In my view, the errors made by the trial Judge in his methodology and treatment of Lot Y104 undermine the basis for his central factual finding that it was the most important comparable sale from which the value of the Arcus land was determined. His conclusion that the 1997 sale of the International Food Hall merely confirmed the adjusted sale price of Lot Y104 does not provide an independent and adequate foundation for his findings in relation to Lot Y104.

65 The same applies to the support based on Mr Dix's hypothetical development analysis of Lot Y104. It is generally accepted that in the event there are relevant comparable sales it is preferable to rely on the comparable sales method for valuation purposes. The hypothetical development analysis is a less reliable valuation method because of the number and nature of the assumptions that have to be made. The trial Judge did not regard Mr Dix's hypothetical sales analysis as an independent ground for deducing the value of Lot Y104 James Street as at October 1995. It was used, as the trial Judge observed, simply as a check on the comparable sales method. It does not otherwise justify the trial Judge's finding that Lot Y104 is the most important of the comparable sales and from which his conclusion as to value was reached.

66 It may be the case that, approached correctly, significant weight could be accorded to the sale of Lot Y104. However, that is a matter to be assessed by the application of correct principles of valuation. For these reasons I would uphold grounds of appeal 2 and 3.

Valuers' Disclosed Reasoning and Consistency - Grounds 4(a) and (b)

67 These grounds of appeal concern the trial Judge's rejection of the evidence of comparable sales given by Messrs Spencer and Elliott. Firstly, it is said the trial Judge erred in requiring exact reasoning and articulation of the valuation process.

68 I start with the facts and will return to the trial Judge's statements of principle. The trial Judge's primary criticism of the evidence of Messrs McMahon, Spencer and Elliott and the reason for giving it little weight is the same. Although Mr McMahon made detailed adjustments to each of his comparable sales he produced a range of adjusted values between $4.9 million ($1,076 per square metre) and $14.3 million ($3,140 per square metre) and he was unable to satisfactorily explain why he chose the rate of $1,493 per square metre for the Arcus land. The same criticism was made of Mr Spencer. His range of comparable sales values was from $236 per square metre to $1,934 per square metre. The trial Judge concluded that he did not satisfactorily explain why he struck a rate of $770 based on that evidence. The sales relied on by Mr Elliott had a range in value of $358 per square metre to $1,307 per square metre and Mr Elliott did not satisfactorily explain why he chose $800 per square metre as distinct from any other figure. It is not suggested that there is no factual foundation for the criticism. Rather it is said that the trial Judge was too demanding in his requirements. In my view, on the evidence adduced in this case, the criticism of the three valuers is entirely justified as is the consequential decision to give their valuations little weight.

69 Mr Spencer provided a consolidated report, a schedule of sales with a commentary on each sale and he was cross-examined. Having regard to the information from all sources I am unable to discern Mr Spencer's reasons for adopting a rate of $770 per square metre. This is to be contrasted with his detailed explanations and clarification given in cross-examination in the Duffy (supra) case. It appears the cross-examiner in this case avoided eliciting information to fill the gaps in his evidence-in-chief.

70 The same applies to Mr Elliott's evidence. He goes little further than simply identifying the comparable sales on which he relied and stating his opinion as to his chosen rate and the value of the Arcus land. He does not disclose the weight he attributed to particular sales or the inferences he drew as to relativities from his basket of sales evidence. If the collective analysis produces a narrow range of values or if qualitative allowances or adjustments are made these are matters for disclosure. In his cross-examination in the Duffy (supra) case Mr Elliott explained his methodology and it emerged that he had identified a particular sale as being the closest comparison to the Duffy land and he explained why. That is not so in this case.

71 The appellant complains that the trial Judge required exact reasoning and articulation of the valuation process. That may be putting the position too highly. However, it is certainly the case that the trial Judge required the valuers to explain the most important of the comparable sales, why that was so, and what adjustments had been made to reach a conclusion about the value of the land. The trial Judge was particularly critical of Mr Elliott's refusal to quantify his adjustments for time, size and other matters. As I said in Duffy v The Minister for Planning [2003] WASCA 294, the formation of an opinion on value has been likened, correctly in my view, to the exercise of judicial discretion. Rules affecting weight must be sufficiently generalised to allow for different methodologies and circumstances. For the reasons already given, it is not a requirement that a valuer identify the most important comparable sale. There may be no such sale.

72 Further, there can be no requirement that a valuer quantify adjustments affecting value. Mr Elliott properly declined to quantify particular adjustments where he had not done so as part of his analysis because of the lack of sales or empirical evidence to support a specific figure. As I understand his methodology, he considers and mentally processes all of the variables affecting value and makes a judgment as to the relativities of the comparison sales in his basket with the subject land and may after the collective analysis make a judgment based adjustment to arrive at an opinion on value. However, as a matter of principle a valuer using the conventional approach should explain the steps in his reasoning and analysis from his basket of sales evidence to his opinion as to value. The correct principle is, in my view, that the valuer must reveal as far as possible the process of reasoning actually employed so as to enable the Court to evaluate the evidence and the expert's conclusions: Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at 729-745. Messrs Spencer, Elliott and McMahon did not do so in this case.

73 The appellant also says the trial Judge erred in overlooking or failing to give weight to the consistency between valuations. What is actually meant is the consistency of the conclusion as to value not the reasoning or evidence to support the conclusion. In my view this ground is without merit. The trial Judge correctly focussed on the disclosed reasoning of the experts rather than any coincidence in their conclusions as to value.

74 The appellant claims that the trial Judge erred in rejecting the use of sales in the Suburban Area. Both Mr Spencer and Mr Elliott had such sales in their list of comparable sales.

75 The trial Judge found that sales of land in Suburban Area were not sufficiently comparable to afford evidence of value of the Arcus land because of the zoning differences affecting development potential between Northbridge and the Suburban Area.

76 Whether sales in the Suburban Area are comparable is a question of fact to be determined on the expert evidence. In Duffy v The Minister for Planning (supra) an issue arose as to the relative weight to be accorded to zoning and market demand. The Duffy land was on the periphery of Northbridge immediately adjacent to the Suburban Area on what, but for the CNBR, would have been a very busy traffic artery that had similarities to other such arteries outside Northbridge including William Street and Beaufort Street. There was expert evidence, accepted by the trial Judge and upheld on appeal, that market demand in effect lowered the highest and best use of the Duffy land to below its maximum development potential. On those facts, the trial Judge concluded that it was appropriate to have regard to comparable sales outside Northbridge.

77 In this case no finding was made or sought by the appellant that zoning related development differences would not impact on the value of the Arcus land. Further, recent transactions involving physically similar properties nearby are generally the starting point for the search for comparable sales: Rowland P, "The Use of Comparable Sales for Market Valuations", The Valuer, February 1991, 332. There is no suggestion that the sales evidence in the CI zone and the wider Northbridge area was not relevant and sufficient in volume for the purposes of the comparable sales method.

78 In summary, the facts and evidence in this case are materially different from that in Duffy (supra). There was nothing in the location of the Arcus land or the finding as to its highest and best use that justified or required the experts to look outside Northbridge.

79 In these circumstances it was open to the trial Judge to find that sales in the Suburban Area were not sufficiently comparable.

Discount for Magnitude - Grounds 4(d) and 5

80 There was a difference of expert opinion as to whether there should be a discount for magnitude for the Arcus land when considering the sales evidence of smaller comparable parcels of land. Messrs Elliott and Spencer were of the opinion that such an adjustment was appropriate. Mr Spencer said his view was supported by sales evidence in East Perth and in the Suburban Area. Mr McMahon and Mr Dix were of a contrary view. There should be no discount for magnitude because, according to Mr Dix, developers were vying for land on which to carry out large developments in Northbridge. There was also evidence from Mr Goodman of interest among developers for large development lots in Northbridge .

81 There is no merit in ground of appeal 4(d). The trial Judge did not make a finding that there was considerable competition amongst developers for large development lots in Northbridge. However, it is the case that the trial Judge concluded that the evidence from East Perth and the Suburban Area did not support a discount for magnitude for the Arcus land because this area in Northbridge had come "under the closer scrutiny of developers who, in 1995, were looking at this land under the influence of the [Perth City Council's ("PCC")] encouraging attitude to mixed residential and commercial development within the Northbridge area". Both Mr Dix and Mr Goodman gave evidence of the fact and effect of the PCC's pro development stance in the Russell Square area. The trial Judge's finding was open on the evidence.

82 The trial Judge also considered the comparable Northbridge sales in Mr Spencer's list to determine whether they supported a discount for magnitude. He excluded comparisons with the sale of the PCC depot site to the Fini Group as a point of reference because he concluded that the sale was not arrived at by a willing purchaser and willing vendor, a finding that is not challenged in this appeal. The PCC was anxious to establish the first mixed use commercial and residential development to alter the atmosphere in this part of Northbridge. Mr Spencer referred to two other comparison sets from his list of sales in Northbridge in which the rate per square metre for the larger lot was less than the rate per square metre for the smaller lot. However, as the trial Judge notes in his reasons there were another two comparison sets of sales in Northbridge in Mr Spencer's list that showed a higher rate per square metre for the larger piece of land. These comparisons are of little assistance. There are a number of variables that affect value and unless all of the other variables are equal it is unreasonable to infer that the difference in rate per square metre can be solely attributed to size. I am satisfied that it was open on the evidence for the trial Judge to find that there should be no discount for the size of the Arcus land.

83 For the reasons given I would uphold grounds of appeal 2 and 3 and dismiss grounds 4 and 5. In those circumstances the judgment should be set aside. The appellant has not contended that the trial Judge should have accepted the evidence of Mr Spencer or Mr Elliott in lieu of that of Mr Dix. In the circumstances, the appropriate order is that the matter be remitted to the trial Judge.

84 The respondent contends that the decision of the trial Judge should be affirmed on the ground that his finding as to the value of land was supported by Mr McMahon. I do not accept that contention. The trial Judge was critical of aspects of Mr McMahon's approach to adjustments describing the location adjustment as inconsistent and unreliable and the upward adjustment for size as not supported by evidence or logic. However, most importantly he concluded, correctly in my view, that Mr McMahon's evidence should be accorded little weight because he had not satisfactorily explained why he struck the rate of $1,493 per square metre when his range of adjusted sale prices varied between $1,076 per square metre to $3,140 per square metre. Further, I have already concluded that it is not proper to place weight on a valuer's opinion simply because two valuers reached a similar conclusion as to value. I dealt earlier with the second ground of contention which relates to Mr Goodman's evidence.

85 The cross-appeal concerns the respondent's claims for consequential losses relating to the purchase of a replacement property, the value of the buildings on the Arcus land, the correct approach to the deduction of compensation for injurious affection paid under the Metropolitan Region Town Planning Scheme Act 1959 (WA) ("MRTPS Act") and its claim for interest.

Consequential Losses for Purchase of Replacement Property

86 The trial Judge rejected the respondent's claim for $345,000 being the stamp duty, conveyancing and related fees in respect of the purchase of a replacement property. The trial Judge held that an award of such costs depended upon finding an actual intention to purchase replacement land and no such intention had been proved.

87 It was not in dispute that s 63 of the Public Works Act governs the determination of the amount of compensation payable to the respondent. Section 63 sets out all of the matters to which regard must and can only be had. Those matters include the value of the land with any improvements (par (a)) and the loss or damage if any, sustained by the claimant by reason of, inter alia, disruption and re-instatement of a business (par (aa)).

88 The respondent's contention is that a fundamental principle applicable to the award of compensation under s 63 of the Public Works Act is that the owner is entitled to be restored, so nearly as money can achieve, to the position it was in before the compulsory taking. It is said that the respondent should, by money, be given a capacity to be the owner of valuable and appreciating land which should not depend upon proof of an intention to purchase land of like value.

89 The claim is inconsistent with s 63 of the Public Works Act. It is not within any of the sub-paragraphs of s 63 to which regard must solely be had in determining the compensation payable. In the absence of proof of an intention to purchase, no relevant loss or damage will be sustained by the claimant so as to justify a claim under s 63(aa). If it is not intended to use the money to purchase a replacement property, the money will be an appreciating asset in the hands of the claimant. I would dismiss this ground of the cross-appeal.

90 In addition to the market value of the land the respondent claimed an amount of $100,000 for the present value of the short term rental potential of the buildings on the Arcus land. Mr McMahon and Mr Dix gave evidence in support of the claim. Mr McMahon added an amount of $100,000 for the present value of a rental income stream which he said a hypothetical purchaser would be prepared to pay in relation to short term rental for the existing buildings between the time of acquisition of the site and the time when demolition of the buildings took place and redevelopment occurred.

91 Mr Dix put the claim differently. He said that the buildings were obsolete but that the short term rental stream represented value to the dispossessed owner (the respondent). Counsel for the respondent submitted that Mr Dix's reasoning should be accepted although Mr McMahon's quantum was claimed. Mr Elliott's evidence was that the improvements did not have any value over and above the market value of the land based on its highest and best use. He was then cross-examined on the basis that this aspect of the claim related to value to the owner over and above the market value of the Arcus land based on an alternative use development. The trial Judge rejected a claim based on value to the dispossessed owner. As I understand it, that conclusion is not challenged.

92 The trial Judge rejected the claim on other grounds. He said that a claim that the buildings have some rental value contradicts the assumption made by the valuers who considered that the buildings were obsolete and the land had a highest and best use greater than the existing use. However, I am unable to reconcile this position with the subsequent acknowledgement that short term rental potential may impact on market value. In particular, the trial Judge concluded that if a hypothetical purchaser were looking at acquiring the land in order to develop it to its agreed highest and best use, the hypothetical purchaser would have regard to any short term income it might receive from the obsolete buildings pending the commencement of the redevelopment and any short term income would be taken into account in arriving at the purchase price of the land.

93 The trial Judge's analysis is not in conflict with Mr McMahon's rationale and approach. Mr McMahon's assessment was that a hypothetical purchaser would pay an additional amount for the short term income stream and in his valuation he separated out the "bare" land value and the income stream component. Mr Spencer also agreed and it impacted on his determination of the market value of the land. Mr McMahon's approach was the same as that of Mr Spencer save that Mr McMahon separated out the two components which together were intended to reflect the market value of the land.

94 Mr Elliott concluded that any short term rental potential would make no difference to the market value of the land and the trial Judge accepted Mr Elliott's opinion. He was entitled to do so. In any event, the trial Judge accepted Mr Dix's evidence of the value of the land (including the obsolete buildings) to a hypothetical purchaser. Mr Dix's rationale for the additional sum was unrelated to the market value of the land. In those circumstances, it cannot be said that the trial Judge erred in making no allowance for improvements.

Deduction for Payment under MRTPS Act

95 According to the trial Judge, the Arcus land was taken under s 13 of the Town Planning and Development Act 1928 (WA), s 13 of the Public Works Act and s 37(1) of the MRTPS Act.

96 By s 36(3) of the MRTPS Act, where any land was reserved for a public purpose under the MRS, compensation was not payable for injurious affection until, inter alia, the land was sold. In March 1982 the Arcus land was sold to the respondent and that triggered the payment of compensation for injurious affection to the vendor.

97 Section 37(5)(b) of the MRTPS Act relevantly provides:

"Where compensation has been paid, ... in respect of land pursuant to section 36, then, subject to the succeeding provisions of this subsection, there shall be deducted from the compensation assessed pursuant to paragraph (a) an amount that bears the same ratio to the compensation so assessed as the compensation paid ... pursuant to that section bears to the unaffected value of the land, as determined under this Act."

98 The parties agreed that the ratio was 1:4 so the deduction would be 25 per cent of the compensation. The trial Judge found that the deduction was to be made from the compensation for land and improvements. He reached that conclusion because the deduction is to be from compensation "assessed pursuant to paragraph (a)" and s 37(5)(a) refers to the assessment of compensation for "land and improvements". He approached the calculations as followings:

(1) firstly, determine the value of the land and improvements;

(2) secondly, make the deduction required under s 37(5)(b) of the MRTPS Act;

(3) thirdly, add amounts payable under the other relevant paragraphs of s 63 of the Public Works Act;

(4) fourthly, total the amounts of compensation in accordance with steps one to three; and

(5) fifthly, add an amount for solatium (a percentage) under s 63(c)(ii) of the Public Works Act.

99 The respondent says the correct approach to a deduction required under s 37(5)(b) is to:

(1) assess the entirety of the compensation payable under s 63 of the Public Works Act, including solatium, without any regard to a deduction;

(2) apply the relevant ratio under s 37(5)(b) of the MRTPS Act to so much of the assessed compensation as comprises the unaffected value of the land and buildings;

(3) deduct from the total compensation first assessed the amount calculated under (2).

100 Under the respondent's approach, solatium is payable on the full value of the land and improvements before any deduction under s 37(5)(b).

101 An award of solatium under s 63(c)(ii) of the Public Works Act is discretionary. The section materially provides:

"(c) Where the land is taken or resumed compulsorily -

(i) ...

(ii) if a Court is determining the amount of compensation, the Court may include in the award such amount, not exceeding 10% of the amount of compensation determined under this section, as the Court deems proper, for compulsory taking; ..."

102 Thus, the Court has a discretion to award solatium up to a maximum of 10 per cent of the amount of compensation determined under s 63, which includes the value of the land and improvements under s 63(a). The Court was not referred to any provision in the MRTPS Act or the Public Works Act that deals with the inter relationship of concurrent claims for compensation under the two Acts. However, it is accepted by the parties that the relevant ratio under the MRTPS Act is to be deducted from the amount derived under s 63(a) of the Public Works Act. In those circumstances, I see no error in the trial Judge's approach. In any event, it is consistent with the scheme for compensation. Payment of compensation for injurious affection under s 36 of the MRTPS Act was paid to the former owner of the land to compensate for the injurious affection. The new owner (the respondent) purchased the Arcus land at a price which reflects the injurious affection. Solatium is calculated by reference to the amount of compensation to which the claimant is entitled. That being so, I am not persuaded that the new owner should receive an award of solatium on the full amount of the value of the land and improvements. I would dismiss this ground of the cross-appeal.

Interest under s 63(e) of the Public Works Act

103 The respondent claimed interest at 8 per cent per annum pursuant to s 63(e) of the Public Works Act on the ground that the land taken did not produce any rents or profits. The trial Judge held that the land did not produce any rent but held that "profits" meant revenue and that the Arcus land, when held by the respondent, produced revenue. In this case the land was used by the respondent to produce revenue (profits) from the date of taking on 27 October 1995 to 21 December 1995. The respondent retained the revenue. It was not claimed or received by the appellant.

104 The respondent claims the trial Judge misconstrued s 63(d) and (e) of the Public Works Act. Those paragraphs materially provide:

"(d) Where the land taken or resumed produces any rent or profits -

(i) either the amount of the rent or profits received by the [acquiring authority], less the reasonable cost of collection for the period from the day the land was taken or resumed to the date of the payment of compensation or the date of the award, whichever first occurs, shall be added to the compensation payable; or

(ii) at the option of the [acquiring authority], interest shall 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] or the Court considers adequate having regard to the circumstances of each case; and

(iii) where after such taking or resumption the land ceases to produce any rent or profits, interest shall be paid as though the [acquiring authority] had exercised the option provided in subparagraph (ii).

(e) Where the land taken or resumed does not produce any rents or profits, interest shall be paid at the rate payable in respect of judgment debts as determined pursuant to section 142 of the Supreme Court Act 1935 ruling -

(i) either as at the date of the taking or resumption; or

(ii) where the date of entry for construction or carrying out of the work is earlier than the date of the gazetting of the notice of the taking or resumption, then at that date of entry ..."

105 The respondent was awarded interest under s 63(d)(iii) of the Public Works Act on the compensation awarded by the trial Judge from 21 December 1995 but, with the agreement of the appellant, in accordance with the rates prescribed under s 142 of the Supreme Court Act 1935 (WA) applying from time to time. By this ground of appeal the respondent seeks interest under s 63(e) of the Public Works Act at a rate of interest fixed as at the date of the taking.

106 The respondent contends that the rents or profits referred to in s 63(d) of the Public Works Act are rents or profits of such a nature as to be capable of being received by the acquiring authority and which are or were so received. It is then said that s 63(e) is the opposite and deals only with the position where the land, in the hands of the acquiring authority, does not produce rents or profits so described.

107 On the respondent's construction, it could (and did) remain in possession and carry on business from the Arcus land producing revenue from the date of the taking and yet still be entitled to interest for the same period. It may be thought that result cannot have been intended. However, a similarly unexpected result arises if s 63(d) and (e) are construed as covering the field by reference to whether or not the resumed land produces any rent or profits and not by reference to the recipient of the receipts. Consider the position of the land producing rents and profits for a third party. In these circumstances it is to be expected that the acquiring authority would have to pay interest under sub-paragraph (d)(ii). If that is so, the result would have to be the same if the rents or profits were (as here) received by the respondent. In my view, the scheme of s 63(d) and (e) is based on the unstated assumption that the acquiring authority as owner will be the only entity to receive rents or profits generated on the land. I accept that s 63(e) is intended to be the opposite of s 63(d) that is, s 63(e) applies when the acquiring authority does not receive rents or profits. The finding in this case is that the appellant did not receive rents or profits and accordingly s 63(e) applies.

108 The appellant contended that s 63(e) should be given a purposive construction to read the rate of interest should be that "ruling as at the date of taking and as adjusted from time to time". I see no support for that contention. A fixed rate of interest under s 63(e) is consistent with the approach in s 63(d)(ii). I would uphold this ground of the cross-appeal.

Interest on Pre-judgment Costs and Disbursements

109 The respondent claimed interest on pre-judgment costs and disbursements incurred by it in the proper pursuit of its claim for compensation. The trial Judge, following Flower & Hart v White Industries (Qld) Pty Ltd [2001] FCA 370; (2001) 109 FCR 280, concluded that ss 32 and 37 of the Supreme Court Act do not authorise the Court to award interest on costs and that it had no inherent jurisdiction to do so. The trial Judge also concluded that even if he had the power to make such an award, he would not have exercised the discretion to do so because the progress of the case to trial was largely a matter within the respondent's control.

110 The respondent claims in the appeal that s 63 of the Public Works Act and s 37 of the Supreme Court Act empower the Court to award interest on pre-judgment costs and disbursements properly incurred.

111 The respondent says that the costs are compensable under s 63(aa)(v) and s 63(c). Section 63(aa)(v) requires the Court to have regard to "[t]he loss or damage, if any, sustained by the claimant by reason of ... any other facts which the ... Court considers it just to take into account having regard to the circumstance of each case". Section 63(c) relates to solatium and gives the Court the power, where it is of the opinion that the application of the provisions of the Public Works Act would not result in the assessment of compensation adequate to meet the special circumstances of the case, to determine such compensation as it considers adequate for compulsory taking.

112 Under s 63 of the Public Works Act compensation is payable "for land taken or resumed". That statutory formulation is not wide enough to cover expenses incurred in connection with the determination of the amount of compensation payable pursuant to s 63 of the Public Works Act.

113 Section 37(1) of the Supreme Court Act materially provides:

"(1) Subject to the provisions of this Act and to the Rules of Court ... the costs of and incidental to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge, and the Court or Judge shall have full power to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid."

114 The first question is what is meant by costs. On any view it covers moneys paid or liabilities incurred: Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403. On its natural and ordinary meaning the word costs is wide enough to include financing costs (ie interest). Whether the word should have a narrower meaning as a result of historical context and developments (see Cachia v Hanes (supra)) goes well beyond the generally perfunctory attention given to this ground of cross-appeal by the parties.

115 The second question is, if interest is incurred, whether it is "incidental" to proceedings in the Supreme Court. Section 37 of the Supreme Court Act is wider than s 43 of the Federal Court of Australia Act 1976 (Cth) considered by the Full Federal Court in Flower & Hart v White Industries (supra). Section 43(1) of the Federal Court of Australia Act gives the Court the jurisdiction to "award costs in all proceedings before the Court ...". Viewed in isolation it is arguable that financing costs incurred for the purpose of funding the conduct of a Supreme Court action are costs "incidental" to proceedings in the Supreme Court. The last question is whether s 37 should be read down because of s 32 of the Supreme Court Act. Section 32 expressly empowers the Court to make awards of pre-judgment interest. It does not apply to costs. The issue is whether a construction of s 37 that would enable the award of financing costs should prevail in light of s 32 which makes express provision for the circumstances in which the Court may order pre-judgment interest. My preliminary view is that, in the absence of a conflict between ss 37 and 32, there is no reason to read down s 37. However, it is unnecessary to decide these questions.

116 Even if the Court has the jurisdiction to award interest on costs incurred in conducting the action I am not persuaded that the trial Judge erred in the exercise of his discretion. It is currently the case that, absent misconduct by a party, a successful litigant is not compensated for all costs directly incurred in the conduct of the proceedings. There are sound policy reasons for this approach relating to the dynamics of securing an early settlement of proceedings. There is even less justification for compensating a litigant for indirect costs in connection with proceedings such as financing costs. There is nothing in the circumstances of this litigation that would justify the respondent receiving all of its direct costs much less its financing costs. I would also dismiss this ground of the cross-appeal.

117 I would uphold grounds of appeal 2 and 3, set aside the judgment and remit the matter back to the trial Judge for determination in accordance with these reasons. I would dismiss the notice of contention. I would uphold ground 5 but dismiss the balance of the cross-appeal.

• Introduction
• Background
• Grounds of Appeal
• The Evidence and the Trial Judge's Methodology - Ground 2
• The Comparable Sales Method
• Whether Methodology Flawed
• Lot Y104 - Ground 3
• Valuers' Disclosed Reasoning and Consistency - Grounds 4(a) and (b)
• Suburban Area - Ground 4(c)
• Discount for Magnitude - Grounds 4(d) and 5
• Conclusion
• Notice of Contention
• Cross-Appeal
• Consequential Losses for Purchase of Replacement Property
• Value of Improvements
• Deduction for Payment under MRTPS Act
• Interest under s 63(e) of the Public Works Act
• Interest on Pre-judgment Costs and Disbursements
• Conclusion