Dangerfield v Town of St Peters [1972] HCA 15; (1972) 129 CLR 586 (28 February 1972)

HIGH COURT OF AUSTRALIA

DANGERFIELD v. TOWN OF ST. PETERS. [1972] HCA 15; (1972) 129 CLR 586

Resumption

High Court of Australia.
Barwick C.J.(1), McTiernan(2) and Windeyer(3) JJ.

CATCHWORDS

Resumption - Land - Compensation - Assessment - Land used and usable for rubbish disposal - Calculation of loss of profits - Deduction of company tax - Compulsory Acquisition of Land Act 1925-1966 (S.A.), s. 12.

HEARING

Adelaide, 1971, September 28-30;
Melbourne, 1972, February 28. 28:2:1972
APPEAL from the Supreme Court of South Australia.

DECISION

1972, February 28.
The following written judgments were delivered:-
BARWICK C.J. On 11th July 1967, the appellants Henry Lancelot Dangerfield appellant Rodgers and Brewster Pty. Ltd. the lessee (the lessee appellant) of certain land which lies in a loop of the River Torrens at Walkerville, a suburb of Adelaide. The land is mainly bounded by that river. Its boundary goes to the centre of the bed of the river. In all the area of the land is some eleven acres. But it is agreed that an area of 3.6 acres which lies between the bank of the river and the centre of the stream is subject to occasional flooding and is of no significant value. An area of approximately 1.4 acres is solid ground and no dispute exists before this Court as to the value assigned to it by the Supreme Court in this litigation. The balance of land comprises an area of approximately six acres and its value for the purposes of compensation is in dispute in this appeal. I shall hereafter refer to this area as "the subject land" or "the land". (at p588)

2. The respondent council by notice to treat given on 11th July 1967, acquired for the purpose of recreation the whole of the said eleven acres and other lands owned by the owner appellants. The validity of the acquisition was challenged before the Supreme Court of South Australia: but that challenge was not upheld. (at p588)

3. The question raised by this appeal is whether the amounts awarded by the Supreme Court of South Australia to the respective appellants for compensation for the land and the interests therein taken by the respondent council were adequate. The Supreme Court assessed the compensation payable to the owners of the land at $38,000 and to the lessee of the land at $8,095. The appellants seek by their appeal to have these amounts increased to $64,500 and to $45,000 respectively; or in the alternative an order for the reassessment of the compensation due to them. (at p588)

4. The Supreme Court accepted that the subject land was "an area of excavated land which is at present being used for tipping of non-combustible rubbish and burning of combustible material... This land is irregular in contour and contains some banks of soil almost to the natural level and other areas in which quite deep holes remain for dumping. The volume available for filling in this area has been agreed at 165,000 cubic yards." (at p588)

5. The Court found that the land could not be regarded in its present state as being "suitable for building purposes". If levelled out, whilst not suitable for ordinary domestic construction, it could be turned into playing fields or open areas of some sort and would also be physically capable of use for the erection thereon of light industrial buildings. However, being in a residential zone it could not be used for industrial buildings while that zoning is maintained. (at p588)

6. The lessee appellant was and for many years had been carrying on the business of garbage contractors removing rubbish from the city area of Adelaide for disposal. Part of the material removed had for many years been tipped or burned on the subject land. Some statutory impediments to the continued use of the land for such a purpose were suggested by the respondent but there is no need for me to examine the relevant statutory provisions. The Supreme Court found that this activity of the lessee appellant was lawful and not in breach of any law. The Court also found that the activity could be carried on without necessarily committing any nuisance. (at p589)

7. According to the evidence in the case, it appeared that if the lessee appellant was not disabled from burning on the subject land the combustible material removed in the garbage from the city, the land had a physical capacity to receive what that appellant would wish to deposit on or in it for the space of another thirty-five to forty years. However, although there were no statutory provisions in force at the time of the acquisition or for that matter at the date of the hearing of the claim for compensation which would make the burning on the land of combustible material unlawful, the Supreme Court thought that any person purchasing the land would need to have in mind that clean air regulations or the like were a possibility and that there was a distinct possibility that burning of rubbish at this location would become unlawful. The Court thought that this factor would have its influence on the value of the land. In fact clean air regulations were made some three and a half years after the date as of which the valuation of the land was required to be made, but they were not operative as at the date of the hearing of the claim for compensation. There was evidence however before the Supreme Court which his Honour seemed to accept that the lessee appellant could have continued to use the land for some fifteen or twenty years without infringing such a law as the clean air regulations by following a method called "the sanitary fill method" into the details of which I need not go. (at p589)

8. The land was situated some one and a quarter miles from the centre of the city of Adelaide and the Supreme Court found that there was no other land to which the lessee appellant might reasonably be excepted to transfer its activities in disposing of rubbish which were denied to it by the acquisition of the subject land. The Supreme Court therefore found that the taking of the land destroyed the business of the lessee appellant. (at p589)

9. The owner appellants had leased the land to the lessee appellant under a lease which as at the date of the acquisition of land had approximately twenty-three years to run. The Supreme Court found that the rental chargeable under the lease was in substance an economic rental for the subject land. (at p589)

10. Section 12 (2) of the Compulsory Acquisition of Land Act, 1925-1966 (S.A.) as applied to the circumstances of this case required the value of the land to be taken to be its value at 11th June 1966. The basis of assessing compensation for the taking of land which has a special use, as undoubtedly the land had, has long been settled. Lord Moulton said, speaking for their Lordships of the Privy Council in Pastoral Finance Association Ltd. v. The Minister (1914) AC 1083, at p 1088 :

"Probably the most practical form in which the matter can
be put is that they" (the dispossessed owners) "were entitled
to that which a prudent man in their position would have been
willing to give for the land sooner than fail to obtain it."

That is to say, one supposes that the owner of the land, with his knowledge of it and its suitability for the special purposes to which he has been putting it, was considering buying that land for that purpose from a willing seller. The sum he would pay to secure that land for those purposes rather than lose it will be the value of the land to him. The knowledge and experience he had of the particular use to which it could successfully and lawfully be put must be reflected in that sum. Here the owners were familiar with the business of the cartage of city garbage and aware of the potential of this land for the disposal of it. They knew that there was no other land available for that purpose. They knew that the land might lawfully be put to the proposed use for a very considerable time. That time, even if clean air regulations or the like were to prevent the burning on the land of combustible material, was apparently of the order of fifteen or twenty years. But no such regulations were in existence and as things then stood the land may well have been usable for rubbish disposal for up to some thirty or forty years. (at p590)

11. But of course, having regard to its location and the times, it must be borne in mind that it was possible that it may not remain lawful so to use the land for the full time that it could physically be used for the purpose of receiving and disposing of rubbish. But, bearing in mind the indispensable nature to the community of the appellant's activities and the possibilities of readjusting the method of disposal of rubbish on the land, it may well be that the effect of that possibility on the sum which the owner would give for the land would in all the circumstances be slight. On the other hand, the owner would know, as the Supreme Court found, that when the land was no longer physically capable of use as a place for the disposal of rubbish, it would at least be capable of use, and command a value, as a recreation area. I say at least, because the possibility of changes during the period of that user in residential construction perhaps could not be entirely ignored. (at p591)

12. Suppose the owner appellants to be desirous of obtaining land in that situation for that purpose, what would they prudently give for it rather than lose it? It is pointed out in the Pastoral Finance Case (1914) AC, at p 1088 that one does not arrive at that sum by capitalizing the profits which such a person might expect to make by the use of the land in the business concerned: but in my opinion the profitability of that use must be a factor in the assessment of the price which it is found that the owners would give. (at p591)

13. The land was thus akin in relation to its use to what is called in the evidence "pughole" land. It was in a proclaimed residential district, but because of the nature of its use at the time the area was zoned residential, it could continue to be used by the appellants as land on which to deposit and dispose of rubbish. That being both the use being made and desired to be made of the land by the appellants, it was as such land that it ought to have been valued. (at p591)

14. I turn now to the terms in which the Supreme Court expressed itself in determining the basis of its assessment of compensation. The Supreme Court recognized that the value to be the basis of compensation for the taking of the land should be the value to the owner. However, his Honour who constituted the Supreme Court said:

"It seems to be accepted that there is not much profit in
merely receiving hard rubbish brought to the site by other
contractors. The value of a dumping ground lies in the
opportunity to use it in conjunction with a business of picking
up and disposing of rubbish. A purchaser of the horseshoe
land would have to decide whether he could make sufficient
profit from receipt of hard fill to give him an adequate return
on his investment as well as meeting the costs of the equipment
needed to handle the hard rubbish on the site plus any incidental
expenses. He would have to look forward to ending up owning
land which was only useful for recreational purposes. I am
not satisfied that he would be likely to value the prospective
return from the use of the land as a dumping ground as being
so great as to justify payment of a capital price for the land in
excess of the price representing the value of the land for
recreational purposes in its final form. I realize that this
observation is a highly speculative one and I put my finding
in this form.
I am not satisfied that the land, other than the solid ground,
is worth more than its ultimate value for recreational purposes
because in the interim before it has been brought to some
level contour it is available for a business of receiving hard
rubbish. In reaching this conclusion I have taken into account
the difficulties which a purchaser ought to contemplate in
carrying on the business for any length of time, and the uncertainties
as to the return that he would make from carrying it
on. I have also kept in mind that if, for any reason, dumping
had to cease on the land, considerable expense would be
required in order to reduce the surface of the land to a sufficiently
level form to make it suitable for use as a recreational
area. Any purchaser who had in mind only the use of the
land for purposes of recreation would obviously have to incur
very considerable expenses in a large earth-moving project."

Consequently his Honour accepted the valuation of a valuer who, as I read his evidence, did not regard the land as lawfully useful for the disposal of rubbish and who did not treat "pughole" land as comparable when seeking examples of the sale of comparable lands. Indeed that valuer conceded that if the land were regarded as "pughole" land, he would have valued it differently. (at p592)

15. In the result, the Supreme Court assigned to the land only the sum which a purchaser wanting it for recreational purposes would give for it. This, in my opinion, was an erroneous basis and denied to the owner the value of the land to him. Consequently, in my opinion for the reasons above, the assessment of compensation to the owner appellants for the taking of the land made by the Supreme Court cannot stand. Other criticisms were made of the valuation accepted by the Supreme Court, for example, that the value was taken as at the year 1961 rather than the year 1966. But with these I need not deal. (at p592)

16. The valuations placed before the Supreme Court by several expert and competent valuers have been subjected to detailed criticism by counsel for the parties. I have already dealt with the fundamental criticism so far as concerns the value of the land to the owners. There is no need for me to go through the detail of the valuations: indeed, at this stage, there is little profit in doing so. The fundamental cleavage is apparent. The remaining question is whether this Court should accept that valuation which was made most nearly on what the Court thinks was the proper basis, or send the matter for rehearing, bearing in mind that the expert witnesses were accepted as both expert and honest. After much consideration, I have come to the conclusion that the better course is to accept such a valuation and to fix the amount of compensation accordingly. (at p592)

17. Having studied Mr. Fenwick's valuation and his evidence, including his cross-examination, I am satisfied that the value he assigns is the least amount which should be awarded as compensation to the owner appellants for the taking of the land. If anything, I am inclined to think he made too much allowance for some of the possibilities of restraint in the future on the desired use of the land. His valuation was $64,500. (at p593)

18. I turn now to the award of compensation made for the taking of the lessee's interest and the disturbance of its business. Having regard to the Compulsory Acquisition of Land Act, 1925-1966, s. 12 (9), the compensation for such disturbance will be assessed as at the date of the hearing of the claim for compensation. See W.T. Flint & Son Ltd. v. Adelaide Corporation (1951) 52 SASR 107 . (at p593)

19. The Supreme Court found that the taking of the land and of the lessee's interest therein destroyed the business theretofore conducted by the lessee appellant. The Supreme Court had a valuation by a competent valuer of the goodwill of that business who was and whose principles of valuation were accepted by that Court. However, the valuer had adjusted the accounts of the company by varying upwards the amounts paid to certain of the employees of the company and debited against the gross profit of the company. The Supreme Court was not satisfied for reasons which it gave that any such adjustment should be made. Further there had been a considerable increase in the profits of the lessee appellant during the year 1970, due it was said to a long overdue increase in the prices charged by the lessee appellant for the garbage removal services performed by it. The Supreme Court found that it was probable that the rate of gross profit thus disclosed could have been maintained by the lessee appellant. If the adjustment of salaries and wages made by this valuer is reversed and a rate of gross profit is accepted which appropriately reflects the increase in profits in 1970 and from which no deduction for company tax under the Commonwealth Income Tax Assessment Act 1936-1970 is made, a sum for the annual net profit of the business is reached which by using the rate of capitalization employed by that valuer, would yield a valuation of the goodwill in the order of $45,000. Having regard to the finding of the Supreme Court as to the capacity of the business to maintain the rate of gross profit which resulted from the raising of the prices charged by the lessee appellant, I can see no reason for reducing that rate of gross profit by averaging it with the gross profits of a period before such prices were raised. Further there is no reason to deduct company tax from that gross profit. See Eastaway v. The Commonwealth [1951] HCA 80; (1951) 84 CLR 328, at p 341 . Another valuer, Mr. Fenwick, arrived at a similar figure for the goodwill of the lessee appellant's business by a somewhat different approach. I have reached the conclusion that the proper amount to be awarded for disturbance of the lessee appellant's business, which amounted to destruction of its goodwill, was the sum of $45,000. (at p594)

20. Accordingly, I would allow the appeal and increase the amount of $38,000 awarded by the Supreme Court to the owner appellants to the sum of $64,500 and the amount of $8,095 awarded to the lessee appellant to the sum of $45,000. (at p594)

McTIERNAN J. In my opinion the appeal should be allowed for the reasons given by the Chief Justice. I agree that the order proposed by the Chief Justice should be made. (at p594)

WINDEYER J. I have had the advantage of reading the judgment of the Chief Justice. I agree with his reasons for thinking that the assessments that the learned trial judge made were erroneous. I think that on the whole it is better that this Court make what seems to it to be a proper assessment than to send the matter back for a reconsideration. What the end, expressed in terms of money, that would be reached following the path that I consider should be followed may be debatable; but I am content to accept that which the Chief Justice has reached. I therefore agree in the order he proposes. (at p594)

ORDER

Appeal allowed with costs. Order of the Supreme Court varied by increasing the amounts awarded to the appellants from the sum of $38,000 to the sum of $64,500 and from the sum of $8,095 to the sum of $45,000.