Agreedto Pty Ltd v Chief Executive, Department of Natural Resources and Mines
[2012] QLC 22
•23 May 2012
LAND COURT OF QUEENSLAND
CITATION: Agreedto Pty Ltd v Chief Executive, Department of Natural Resources and Mines [2012] QLC 0022 PARTIES: Agreedto Pty Ltd
(appellant)v. Chief Executive, Department of Natural Resources and Mines
(respondent)FILE NO: LAA951-10 DIVISION: Land Court of Queensland - General Division PROCEEDING: Appeal against review decision regarding the purchase price for conversion of tenure under the Land Act 1994 DELIVERED ON: 23 May 2012 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER: Mr PA Smith ORDER: 1. The appeal is dismissed.
CATCHWORDS: Valuation unimproved value for conversion of tenure improved site subject to registered subleases and easements – method of valuation principles to be applied – “as if it were fee simple”, meaning of – Land Act 1994, ss170, 172, 422-430
APPEARANCES:
SOLICITORS:
CL Hughes SC and S Holland, for the appellant
PJ Flanagan SC and SP Fynes-Clinton, for the respondentHolman Webb, Lawyers for the appellant
Director, Legal Services, Department of Natural Resources and Mines, for the respondent
Background
This matter comes before the Land Court by way of an appeal by the landholder, Agreedto Pty Ltd, against an internal review decision of the Minister for Natural Resources and Mines[1] (the Minister) as to the purchase price of land for conversion of tenure purposes pursuant to the Land Act 1994 (the Act).
[1] The Minister’s title is as at the date of delivery of this decision. At all material times, the Minister is the Minister responsible for the relevant conversion provisions of the Land Act 1994.
The parties have assisted the Court by providing a statement of facts not in contention[2] in the following terms:
[2] Exhibit 21.
“1. On 31 October, 1991, the State issued a ‘Harbour Lease’ to Great Sandy Straits Marina Pty Ltd (‘GSSM’) over land then described as Lots 7 to 10 on Plan 801116 for a term of 75 years.
2.The purpose of that lease was for the construction of a resort and marina at the Urangan boat harbour.
3.Pursuant to that lease, GSSM undertook development of:-
(a) Dredging of the harbour’s northern section and associated facilities
(b) Construction of thirty (30) residential units
4.On 22 January 1998, the Harbour Lease was surrendered by GSSM, and replaced with Perpetual Lease 209524 (‘PPL 209524’) issued 26 January 1998, over land then described as Lots 7 to 10 on SP105258, containing 7.265 ha. The date of effect of the lease was 18 December 1997.
5.The leased land was to be used for commercial business and tourism purposes.
6.All encumbrances, subleases, mortgages and easements, registered on the Harbours Act Lease were carried forward onto PPL 209542.
7.The offer of a perpetual lease was conditional upon the completion of ;-
(a) A new public pontoon landing and associated car parking bays
(b) Two 4 lane public boat ramps
(c) A barge ramp
(d) Car trailer parks and amenities block
(e) Necessary services as required.
(f) Public open space areas access around the boundary
(g) Upgraded roadways.
8.Pursuant to that lease, GSSM undertook the development of:-
(a) 11 blocks of residential units
(b) Air-sea Rescue Tower
(c) Tourist terminal and Retail Centre and Tavern
(d) Resort hotel
(e) Boat and barge ramps
(f) Carparking and landscaping
(g) Upgraded roadways
9.That development was completed, leaving no material part of the leased land undeveloped, by 2003.
10.The developed residential units and commercial premises were ‘sold’ to end user purchasers by way of the grant to those purchasers of long term subleases under PPL 209542, some for a term of 75 years, and most for a term for 999 years.
11.The subleases were granted after construction of the buildings or parts of buildings to which they relate, and each describes the leased premises as ‘part of the building’ identified in the lease document, or as an area an area ‘bounded by’ walls of a building identified in the lease document.
12.Each sublease therefore identifies the leased premises by reference to a plan which depicts a volumetric space bounded by physical elements of a building.
13.Under each such sublease, there is no outgoing rental payable by the sublessee. The sublessee paid a lump sum consideration at the time of the grant of the lease, which was equivalent to the purchase price which would have been paid if the purchasers were acquiring a strata titled freehold unit. In each case, the sub-lessee’s only ongoing obligation under the lease to pay moneys to the sub-lessor in an obligation to pay a proportion of outgoings including cleaning, insurance and repairs, incurred by the sub-lessor, including rent payable to the State under PPL 209524.
14.On 21 December 2006, PPL 209254 was transferred to Agreedto Pty Ltd (‘Agreedto’) for a consideration of $660,000.
15.On 4 February 2008, Agreedto first applied under s 166 of the Land Act 1994 to convert an area of 5.4075 of the land comprised in PPL 209524 to freehold. That application was approved.
16.On 1 April 2010, Agreedto withdrew its first application for freehold and reapplied under s 166 of the Land Act 1994 to convert an area of 5.4075 of the land comprised in PPL 209524 described as part of Lots 8 on SP171735, part of Lot 9 on SP129067, and Lot 13 on SP171735, to freehold.
17.On 11 June 2010, the Minister approved the making of an offer of conversion of that 5.40754 ha at a price of $11,500,000 (excluding GST), based on a date of valuation of 6 April 2010.
18.On the valuation date, the annual rental payable under PPL 209254 was $770,000 (excluding GST).
19.On 21 July 2010, Agreedto requested an internal review of the decision about the purchase price under Chapter 7, Part 3, Division 2 of the Land Act 1994.
20.On 28 October 2010, the Minister, after considering the outcomes of the internal review, approved the offer of a revised purchase price of $10,000,000 (excluding GST).
21.On 8 December 2010, Agreedto appealed to this Court against the decision on the purchase price under s 427 of the Land Act 1994.”
Pursuant to its appeal, Agreedto contends for a purchase price of $Nil.
The relevant legislation
Under s.170 of the Act, the Chief Executive initially decides the purchase price for the conversion of a lease to a deed of grant following application for conversion by the landholder. The purchase price is to be the unimproved value of the land being offered as if it were in fee simple.
The meaning of “unimproved value” is contained in s.434 of the Act as follows:
“(1) In this Act, the unimproved value of land is the amount an estate in fee simple in the land in an unimproved state would be worth if there were an exchange between a willing buyer and a willing seller in an arms-length transaction after proper marketing, if the parties had acted knowledgably, prudently and without compulsion.
(2) The unimproved value must be decided without regard to the commercial value of the timber.
(3) To remove any doubt, it is declared that the Land Valuation Act does not apply to the meaning of unimproved value in this section.
(4) In this section—
paid to the State does not include rent paid to the State.
unimproved state includes, if the value of improvements and development work to the land performed by the State has not been paid to the State, the improvements and development work finished before the lease started or the deed of grant was issued.”As can be seen, there is a right of appeal against the Chief Executive’s decision as to the purchase price.[3] In the first instance, an appeal against a decision is by way of an application for internal review.[4] The Minister then reviews the original decision and must make a further decision, known as the review decision. The review decision must be to either confirm the original decision; amend the original decision; or substitute a new decision.[5] A person who is not satisfied with the review decision may appeal to the Land Court against the decision.[6] On hearing the appeal against the review decision, the Court has the same powers as the decision maker.[7] The appeal is by way of a rehearing.[8] In deciding the appeal, the Court may either confirm the review decision; set aside the review decision and substitute another decision; or set aside the review decision and return the issue to the Minister with such directions that the Court considers appropriate.[9]
[3] See s.170(2).
[4] See s.422.
[5] See s.426(1).
[6] See s.427.
[7] See s.429(1).
[8] See s.429(2)
[9] See s.429(3).
The hearing
Both the appellant and the respondent relied on expert valuation evidence at the hearing. The appellant relied on the expert valuation evidence of Mr Michael Slater, while the respondent relied on the expert evidence of Mr Anthony Hoffmann.
Issues in the appeal
The heart of the dispute between the parties has been succinctly summarised by Counsel for the appellant in their written submission as follows:[10]
“The principal issue in dispute is whether or not the burden of the easements and sub-leases to which the Perpetual Lease 209524 is presently subject, and to which the proposed new freehold tenure will be subject, are to be taken into account in assessing the unimproved value of the leasehold land at the date of valuation.”
[10] Paragraph 1.20 of appellant’s written submissions.
There is also dispute between the parties as to how the respective valuation evidence should be dealt with. As Counsel for the respondent put it “the respective valuation reports pass like ships in the night, and there is almost nothing upon which the expert valuers directly engage”.[11]
[11] See respondent’s submissions paragraph 91.
The appellant contends that, in the event that the valuation evidence of $Nil is not accepted, the Court should make findings of serious shortcomings as regards the valuation evidence of Mr Hoffmann.
Contentions of the appellant
A fundamental aspect of the appellant’s case is that the Act must be construed as a whole. Specifically, the appellant asserts that it is not possible to properly construe the provisions of s.170 of the Act without reference to s.172(5) of the Act. As Counsel for the appellant put it, “section 170 provides the mechanism for determination of the purchase price to be paid. Section 172, including s172(5), describes what is to be purchased”.[12]
[12] See appellant’s submissions paragraph 1.31.
Due to the importance that the appellant places on sections 170 and 172 of the Act, it is appropriate to set out those provisions in full. Section 170 of the Act provides as follows:
“170 Purchase price if deed of grant offered
(1)Unless a price or formula has already been stated in the lease to be converted, the chief executive decides the purchase price for the conversion of a lease to a deed of grant.
(2)The lessee may appeal against the chief executive’s decision on the purchase price.
(3)The purchase price is an amount equal to the total of—
(a) the unimproved value of the land being offered, as if it were fee simple; and
(b) the market value of any commercial timber that is the property of the State on the land.
(4)The unimproved value of the land is calculated at the day the chief executive receives the conversion application.
(5)The market value of the commercial timber is calculated at—
(a) if the value is not appealed—the day the conversion application was received; or
(b) if the value is appealed—the day the appeal is decided.”
Section 172 of the Act is in the following terms:
“172 Issuing of new tenure
(1)On acceptance of the offer a tenure (the new tenure) may be issued by—
(a) if the new tenure is a deed of grant or freeholding lease—the Governor in Council; or
(b) if the new tenure is a term or perpetual lease—the Minister.
Note—
See also section 153 (Lease must state its purpose).
(2)The new tenure must be issued in accordance with the terms of the accepted offer.
(3)Additional unallocated State land may be included in the new lease, if chapter 4, part 1, division 2 is complied with.
Editor’s note—
Chapter 4, part 1, division 2 is about interests available in land without competition.
(4)If the new tenure is a lease, it must be issued for the same purpose as the lease (the old lease) the subject of the conversion application.
(5)The new tenure is issued subject to all relevant registered interests to which the old lease was subject, and in the same priorities.
(6)On the registration of the new tenure, the old lease is taken to have been wholly surrendered.
(7)The surrender must be registered.”
Relying on the High Court decision of Project Blue Sky v Australian Broadcasting Authority,[13] the appellant contends that the proper construction of the above legislative provisions involves seeking out their purpose. The appellant then contends that the purpose of s.170 as part of chapter 4 division 3 of the Act is “to facilitate creation of freehold tenure in respect of Crown leasehold land and, as part of that exercise, to determine a fair consideration (ie the “purchase price”) to support the creation and transfer of the fee simple”.[14]
[13] (1998) 194 CLR 355 at 381-382,
[14] See appellant’s submissions paragraph 1.32.
The appellant then goes on to contend that it is “illogical, if not absurd, to set about the valuation exercise in determining the unimproved value “as if it were fee simple” without considering that this unimproved value will become the purchase price in respect of which a successful applicant will take a deed of grant, in circumstances where such fee simple will be subject to the numerous registered interests to which the Perpetual Lease is presently subject”.[15]
[15] See appellant’s submissions paragraph 1.33.
The appellant then goes on to specifically consider the definition of unimproved value as set out in s.434 of the Act. Relying on the body of common law with respect to market value starting with Spencer’s case,[16] the appellant contends that it is necessary to understand the concept of “unimproved value” in the Act as requiring practical considerations, such as that the property be properly marketed and that there be a willing buyer and seller who act at arms length, knowledgeably, prudently, and without compulsion.
[16] Spencer v The Commonwealth of Australia [1908] 5 CLR 418.
Counsel for the appellant then goes on to assert as follows:[17]
“1.36 Reference to such specific matters, particularly the knowledge and prudence of a prospective vendor and purchaser, makes it absurd to ignore the fact that by virtue of s 172(5) the estate in fee simple purchased (for a price determined by this legislation) will come subject to all of the existing registered interests on the Perpetual Lease which, in this case, includes hundreds of registered sub-leases and numerous easements.
1.37 It is illogical, if not absurd, to set about the valuation exercise in determining the unimproved value ‘as if it were fee simple’ without considering that the amount of this unimproved value will become the purchase price for which a successful applicant will take ‘fee simple’ by a deed of grant, in circumstances where such ‘fee simple’ will be subject to the numerous registered interests to which the Perpetual lease is presently subject.”
[17] At paragraphs 1.36 and 1.37 of their submissions.
As regards the statutory concept of “unimproved value” in the Act, the appellant notes in particular that, pursuant to s.434(3) of the Act, the Land Valuation Act “does not apply to the meaning of unimproved value in this section”. In particular, Counsel for the appellant assert as follows:[18]
“1.43 With respect to the provisions presently under consideration in the Land Act, while valuation of the land is required ‘in an unimproved state’, there is no express requirement in any such exercise to ignore the existence of improvements. Rather, what is ultimately required is that the value of such improvements be ignored.
1.44 The distinction may be subtle, but it is real. While, obviously, the exercise does not involve valuing any improvements, it is not necessary to assume that ‘the improvements did not exist’. The fact is, while the physical improvements may well facilitate the existence of the sub-leases, it is the value of those physical improvements or buildings, and not the existence of the sub-leases relevant to them, that is to be ignored.
1.45 As state above, s 434(3) of the Land Act expressly excludes any reliance on the Land Valuation Act for the purpose of determining the ‘unimproved value’ of the subject land. Accordingly, the ‘unimproved value’ (and thus the purchase price for the conversion application) may only be determined in accordance with the provisions of the Land Act. The definition in the Land Act does not require an assumption to be made that improvements on the land ‘had not been made’.
1.46 In light of the clear differences between the definitions of the ‘unimproved value’ for the purpose of each act, together with the proscription within s 434(3) of the Land Act, there is simply no basis for excluding the impact on the value of the subject land of the numerous registered interests (including registered subleases and easements) from the determination of the ‘unimproved value’ of the subject land.”
[18] At paragraphs 1.43-1.46 of their submissions
The respondent’s response
The respondent submits that the Court should take an essentially conservative approach to the construction of the relevant provisions of the Act. In proposing such approach, the respondent has relied upon a number of Court precedents. The respondent also makes the important point that what is sought to be converted by the appellant is currently of considerable value to the respondent. Specifically, I note that the yearly rental payable as at the valuation date under PL209245 was $770,000 (excluding GST).
As I am largely in agreement with the submissions of Counsel for the respondent, I will leave the discussion of the relevant authorities relied upon by the respondent to my conclusions as to the appropriate interpretation of the relevant provisions of the Act.
Findings as to the proper construction of the Act
A key aspect of the appellant’s case is that s.170 of the Act needs to be read in conjunction with s.172 of the Act. In my view, the link between ss 170 and 172 does not exist in the manner contended for by the appellant.
When one reads chapter 4, part 3, division 3 of the Act as a whole, one can easily be lead into error in thinking that the decision of the Chief Executive, which includes, pursuant to s.168(2), reference to conditions, is all subject to a review decision undertaken by the Minister and, if an appellant is dissatisfied with the review decision, determined by way of appeal to this Court. However, s.423 of the Act provides that “a person who has a right to appeal against a decision mentioned in schedule 2 may apply to the Minister for a review of the decision”. Specifically, schedule 2 makes specific reference to s.170(3) of the Act, but crucially does not make reference to s.168(2) or s.172 of the Act.[19] Importantly, this means that a review decision is available with respect to a decision “about the unimproved value or the timber value for the conversion to a deed of grant”. Had the legislature intended that a review decision, and consequently an appeal to this Court, be about the unimproved value of the land and the conditions of an offer to the appellant, it could have very easily legislated same.
[19] See schedule 2.
Further, I see nothing which links s.172 to the task of the Chief Executive in valuing the unimproved value of the land pursuant to s.170. The purpose of s.172 is clearly set out in its heading “Issuing of new tenure”. The section then goes on to set out the procedure which applies once an offer is accepted. Put simply, the nexus between s.172 and s.170 as contended for by the appellant does not exist.
As the respondent contends,[20] three concepts require consideration in order to properly determine the correct construction of the Act: “unimproved state”; “as if” and “estate in fee simple”.[21]
[20] See submission of respondent, paragraph 31.
[21] I am indebted to Counsel for the respondent for their analysis of the relevant case law, which I have heavily relied upon in the following observations.
Unimproved state
In Seafarm Pty Ltd v Minister for Natural Resources and Water,[22] Member Scott considered the relationship between statutory unimproved value under the Valuation of Land Act 1944 (“VLA”) and “unimproved value” in the Act. Seafarm, like this case, concerned a review decision as to the purchase price for conversion of a lease. Member Scott had this to say:
“[12] Both parties approached the valuation on the basis that to value the land in its ‘unimproved state’ the land should be valued as if any improvements on it did not exist. As I appreciate the submissions, each proceeded on the basis that the notion of what constituted an improvement for the purpose of identifying the unimproved state should be approached according to general valuation principle not constrained by the definition of ‘improvements’ supplied by the Act....
[13] I accept that approach as being correct. It is consistent with the conclusions of this Court in Re PCL 1035 (1966) 33 CLLR 206 in the context of the legislation there under consideration.
...
[20] Whilst different language is employed in s.3(1)(b) in comparison to s.434(1) of the Land Act I do not understand that difference to be fundamental to the mental process involved in identifying whether the land is improved under either statute. Both require the question of whether the operations of man on the land are improvements being dealt with before the valuation process is undertaken. The use of the term ‘unimproved state’ in s.434(1) rather than ‘natural state’ indicates that consideration of improvements on the land, if any, needs to be undertaken. That view is reinforced by the language of s.434(4) which requires that certain improvements, in the general sense, be treated as part of the unimproved state rather than be assumed to not exist. My approach to this issue does not disregard s.434(3).
[21] In the present case it is quite clear that at the relevant date the subject land was in an improved state. Accordingly, the operations of man upon it need to be disregarded for the purpose of identifying the ‘unimproved state’, then the valuation carried out, on the basis of its highest and best use in that state. It is important that I make clear that in the valuation phase of this matter I proceed as if the aquaculture improvements in their totality do not exist. The ponds will not therefore be assumed to fall into decay (Seafarm submission) or are they a sort of fill (from the Minister). The land is viewed in its unimproved state.”
[22] [2008] QLC 0068.
Member Scott’s observations are consistent with earlier decisions of the Court, such as Jewells (Properties) Pty Ltd v Minister for Natural Resources and Minister for Mines,[23] and the cases cited therein.
[23] [2002] QLC 69 at [12] and [13].
It follows that, although the subject land has extensive “operations of man” constructed on it, all of those buildings, structures and works should be taken to not exist, and the land must then be valued on the basis of its highest and best use in that undeveloped state.
As if
I agree with the respondent’s contention that the expression “as if” is language of deeming which conveys a legislative direction to proceed on a premise of fact or law which may be one quite different from any facts which actually exist, or the law which would otherwise apply. The land to be valued is, as at the date of valuation, State land subject to a Perpetual Lease and a range of subleases and other registered interests which derive from the Perpetual Lease.
What is to be valued is land based on a statutory assumption that it is what in fact it is not. This Court is required to adopt the directed statutory fiction, and start the valuation process from that point. This is hardly a novel exercise, as all valuations of improved land under the VLA or Land Valuation Act 2010 start with the fiction that some or all of the improvements do not exist. In this case, there is a similar assumption for the improvements, but there is also the additional assumption that the land is to be valued on the assumption or assumed starting fact that it is land which has been granted in fee simple, not State land which is not so granted.
The actual tenure of the land, and any interests derived from or affecting that non-fee simple tenure, are irrelevant to the required statutory exercise. I note with approval what Member Scott said in Moar v Minister for Natural Resources and Minister for Mines and Energy,[24] when identifying the approach to be taken under s.170(3), and rejecting the contention that potential native title interests which might affect the existing leasehold were a relevant issue for the valuation. As Member Scott put it:[25]
“I need to make it clear that the task which I need to undertake pursuant to the provisions of the Land Act is to ascertain the value of the subject land as if it were freehold not leasehold.”
[24] [2004] QLC 0067.
[25] At [27].
“Fee simple”
Much assistance in determining the meaning of “fee simple”, is obtained by considering the decision of Debelle J in Perpetual Trustee Co Ltd v Valuer-General (No 2).[26] In that case, Justice Debelle was considering South Australian valuation legislation, which required the ascertainment of “capital” value on certain statutory assumptions, most of which are not relevant in this matter. However, as part of that analysis, His Honour was required to consider the meaning of “fee simple”, and did so by reference to a series of authorities dealing with the meaning of that term in different, but broadly comparable, statutory valuation contexts.
[26] [2007] SASC 340.
The first case considered by Debelle J was Royal Sydney Golf Club v Federal Commissioner of Taxation.[27] In that case, the High Court had to determine whether zoning restrictions were a factor to which regard should be had when valuing unimproved land. In the course of its reasoning, the Court examined what was meant by the expression “fee simple” when used in the definition of “unimproved value” in s 3 of the Land Tax Assessment Act 1910 (Cth). That definition was in these terms:
“ ‘Unimproved value’, in relation to land, means the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements (if any) thereon or appertaining thereto and made or acquired by the owner or his predecessor in title had not been made.”
[27] (1955) 91 CLR 610.
The High Court held that the expression “fee simple” meant an unencumbered estate in fee simple. It said:[28]
“By s 3 ‘unimproved value’ is defined in relation to improved land to mean the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming at the time as at which the value is required to be ascertained for the purposes of the Act, the improvements did not exist. There is a long definition of ‘improvements’ which it is unnecessary to consider. ‘Unimproved value’ in relation to unimproved land is defined to mean the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require.
It seems clear enough that the fee simple here means an unencumbered fee simple. Encumbrances upon land or estates in reversion appear to have been regarded as giving to reversioners or encumbrancers beneficial interests to be enjoyed by them. But the owner of the first estate of freehold was selected as the taxpayer who was to represent all persons beneficially entitled to the land. The value upon which he was to be taxed was the unimproved value of the fee simple, that is to say the capital sum which the fee simple might be expected to realize. It seems evident that the fee simple mentioned must be taken as free from encumbrances which, if they impaired the value of his estate, nevertheless operated to confer upon some other person or persons an estate or interest in the land. Were it otherwise the taxable value of the land would be diminished but the correlative estate or interest would not come into tax, unless by some chance it were an interest falling under some specific provision imposing liability…The expression “the fee simple of the land” naturally means the fee simple as the highest estate unencumbered and subject to no conditions. Doubtless estates in fee simple may be granted by the Crown subject to conditions or reservations which operate only in the public interest. The corresponding advantages which ensue may be enjoyed only as of public right: they are not an interest in land enjoyed by a specific person or persons. But the Act does not draw any distinction based upon this possibility. The general policy was reflected in a general rule. The interpretation of the Act which seems best to accord with the policy appearing from its provisions and also to flow from its language is that in assessing the unimproved value an estate in fee simple must be taken as the hypothesis unencumbered and subject to no condition restricting the use or enjoyment of the land. (underlining added).”
[28] At 622 to 623.
Debelle J also referred to the case of AG Robertson Ltd v Valuer-General.[29] In that case Sugerman J had to consider the meaning of the expression “fee simple of the land” when used in the definitions of “improved value” and “unimproved value” in ss 5 and 6 of the Valuation of Land Act 1916 (NSW). In that case, one question was how to determine the improved value of land subject to leases. The leases were an encumbrance in that they were subject to restrictions under the Landlord and Tenant (Amendment) Act 1948 (NSW) which diminished value.
[29] (1952) 18 LGR (NSW) 261.
In particular, Sugerman J said:[30]
“First, I should indicate that I am in agreement with Mr Hooke’s submissions with respect to the definitions of “the improved value of land” and “the unimproved value of land” in ss 5 and 6 of the Act. The “fee simple of the land” referred to in those sections is, in my opinion, the fee simple in possession. It is not the fee simple in reversion or remainder expectant upon the determination of some prior estate. No more is it the fee simple subject to the rights or immunities conferred upon a tenant or tenant holding over by the legislation already referred to, whether by way of prolonging the contractual tenancy or by way of creating some new estate or interest in the land.”
[30] At 263.
Debelle J next made reference to Gollan v Randwick Municipal Council,[31] in which Royal Sydney Golf Club was approved and applied by the Privy Council. That decision concerned the proper means by which to value land held in fee simple, the grant of which was subject to a condition or other restriction requiring the land to be used for a public purpose such as park lands, a racecourse, or for some other recreational or public purpose. In the course of deciding that question in the negative, the Privy Council held that “the fee simple of the land” as used in s 6 of the Valuation of Land Act 1916 (NSW) which relevantly provided that “the unimproved value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvement, if any, thereon or appertaining thereto, and made or acquired by the owner or his predecessor in title had not been made”, does not refer to the actual title vested in the owner at the relevant date but to an absolute or pure title such as constitutes full ownership in the eyes of the law. It was held that restrictions requiring the land to be held for a public purpose were to be ignored when valuing the land. In the result, the value is the value of the absolute estate in fee simple. After referring to the definition in s 6, their Lordships said:
“It is not in dispute that a formula of this kind requires the making of certain hypotheses. A sale of the fee simple has to be assumed whether or not the land in question can legally be sold, and the fact that there is some lawful impediment to sale- cannot be allowed to enter into the assessment of value. Similarly, it is irrelevant that the land may be so settled or encumbered that there is no single person or even combination of persons who can at the relevant date effectively transfer the fee simple. All this follows from the fact that a sale of such an estate has to be assumed. Again. the valuer must not merely treat any improvements as not being there, he must proceed on the basis that they have never been there at all (see Tooheys v. Valuer General 1925 AC 439).
These considerations do not however go far enough to supply the answer to the question upon which this appeal turns and which can be expressed as follows :- 1s the fee simple assumed to be sold a .. pure” estate in the land without reference to the actual title under which it is held or is it that actual title, with the consequence that there enters into the valuation notice of any restrictions on user and enjoyment by which the title is affected? Either construction would be consistent with the mere words ‘fee simple’ in the statutory formula, for grantees holding title under a conditional grant subject to forfeiture or under restrictive covenants or conditions or, a fortiori, under trusts that limit their powers are none the less owners in fee simple. It does not follow from this that a sale of such a fee simple would be a sale of ‘the’ fee simple of the land within the meaning of the formula: but even if the use of the definite article in this connection has any pregnant significance it is better to defer dealing with that until it has been possible to give a rather fuller account of the scope and purpose of the Valuation of Land Act.
.....
In their Lordships’ opinion, the considerations that led the High Court in the Royal Sydney Golf Club case to treat unimproved value under s. 3 of the Land Tax Assessment Act as involving the hypothesis of .. a fee simple unencumbered and subject to no conditions” can be applied to unimproved value under s. 6 of the Valuation of Land Act. and they agree with the conclusion to which those considerations led them. Prima facie, it appears to their Lordships ... the fee simple of the land” as used in s. 6 does not refer to the actual title vested in the owner at the relevant date but to an absolute or pure title such as constitutes full ownership in the eyes of the law.”
[31] [1961] AC 82.
Debelle J’s decision was appealed to the Full Court of the Supreme Court of South Australia,[32] which dismissed the appeal. In discussing the general concept of “fee simple” Bleby J, who gave the leading judgment,[33] said:[34]
[32] Trust Company of Australia Ltd v Valuer-General (SA) 160 LGERA 314.
[33] Duggan and Anderson JJ concurring.
[34] At 323-324, citations omitted.
“There can be no doubt that an estate of fee simple in land is the highest and most comprehensive estate in land recognised by the law. In Commonwealth v New South Wales Isaacs J quoted with approval a passage from Challis’s Law of Real Property as follows:
A fee simple is the most extensive in quantum, and the most absolute in respect to the rights which it confers, of all estates known to the law. It confers, and since the beginning of legal history it always has conferred, the lawful right to exercise over, upon, and in respect to, the land, every act of ownership which can enter into the imagination, including the right to commit unlimited waste; and, for all practical purposes of ownership, it differs from the absolute dominion of a chattel, in nothing except the physical indestructibility of its subject. Besides these rights of ownership, a fee simple at the present day confers an absolute right, both of alienation inter vivos and of devise by will.
In similar vein, Deane, Dawson and Gaudron JJ observed in Nullagine Investments Pty Ltd v Western Australian Club Inc:
While the theory of our land law is that the radical title of the Crown lies between the physical land and a freehold estate in it, the ownership of the freehold estate has long been, for almost all practical purposes, the equivalent of full ownership of the land. As a result, the freehold estate is, as a matter of legal and popular language, commonly treated as the land itself.
In the context of the Valuation of Land Act I respectfully adopt what Wells J said on this topic in Harry v Valuer-General:
One starts with this: that what is to be valued is not the inanimate, tangible thing, land, but rights in land. The Act directs the Valuer-General to value an estate in fee simple in the land, but the purpose of a direction in that esoteric form is, in my view, to ensure that what the Valuer-General values is a congeries of the most ample proprietary rights recognized by law “projected along the plane of time” (Pollock and Maitland, History of English Law (2nd ed.) vol. 2, p. 10); one must still ask, “What is the full range of proprietary rights in land, and what makes them valuable?” Traditionally, the amplitude of rights vested in the tenant in fee simple has been equated with the fullest ultimate rights, subject to any restrictions imposed ab extra, of use, enjoyment, destruction and alienation known to the common law. (Compare the dominium of the civilians – see Buckland, Textbook of Roman Law, p. 187).
Putting aside, then, the niceties of the theory of estates, what the Valuer-General is to value (to use Pollock’s definition of “ownership” – see Jurisprudence and Legal Essays, p. 97) is the entirety of powers, allowed by law, of the use and disposal of a given parcel of land.
What is presented to the Valuer-General in the first place, therefore, is a parcel of land, and certain given rights over it of use and disposal. What yields a value under the Act is the value in the market place of those rights of use and disposal.
It is to be noted that Bleby J identified that the statutory provision considered by the High Court in Royal Sydney Golf Club referred to “the fee simple of the land” whereas the statutory provision being considered in Perpetual Trustee Co Limited referred to an “unencumbered estate of fee simple in the land”. His Honour expressed the view that the use of the word “unencumbered” made little difference:
“Apart from the use of the word ‘unencumbered’ in the definition of ‘capital value’ in the Act, those definitions bear a striking similarity to the definition of ‘capital value’ with which we are concerned. However, in the light of the observations of the court, the emission in the Land Tax Assessment Act definitions of any reference to an unencumbered estate would appear to make little difference.”[35]
[35] Trust Company of Australia Ltd v Valuer-General (SA) 160 LGERA 314 at 325.
After considering the above authorities, Counsel for the respondent then had this to say:[36]
“52. The consistent thread in these decisions is that a reference to ‘fee simple’ is, in the absence of clear statutory text or context indicating a different meaning, to be read as a reference to a fee simple in respect of which the full rights of ownership comprehended by the notion of an estate in fee simple may be exercised. It is not to be read as a fee simple qualified and diminished by the rights of tenants or others.
53. It is acknowledged that these conclusions were reached in the context of valuations made for rating purposes, and at least partly reflected a consideration that valuations forming part of a scheme for general taxation should not be construed as being required to be based on the idiosyncratic circumstances of individual properties, in the absence of statutory language clearly indicating such an intent. The valuation to be made for the purposes of s 170 of the Land Act is being made for a specific purpose affecting only the State and the prospective purchaser.
54. However, what is being valued under s 170 and 434 is not an actual fee simple which may or may not be subject to encumbrances or restrictions. It is land which is not in fact fee simple, but is to be taken to be fee simple for the purpose of the valuation.
55. Moreover, the fact that it is required to be valued unimproved is an indication that what is required to be valued is something which is abstracted from things potentially affecting its value otherwise which have been done (or not done) by a particular owner or occupier of the leasehold. Although s 170 valuations are only done for the purpose of a specific transaction, they are nevertheless to be done on a common and ‘de-personalised’ basis, under a single set of rules applying to all applicants, so that no individual applicant gets an advantage or suffers a disadvantage based on the particular way in which it has exploited the economic value of the land prior to the conversion occurring.
56. Therefore, the authorities cited are submitted to provide strong support for the view that what one must hypothecate under s 170 is what the section says, a ‘fee simple’ (simpliciter), not a fee simple assumed to be encumbered by restrictions or lesser interests created by a particular manner of use or development of the leasehold, which do not in fact exist as fee simple interests.
57. That approach to construction of s 434(1) is one reason why the Appellant’s contention that the land ought to be valued free of its physical improvements, but nevertheless encumbered by the multitude of subleases which no longer generate any ongoing economic return, should be rejected. The land is to be valued not as it actually is (an encumbered leasehold), but rather ‘as if’ it were fee simple meaning, for the reasons given, on the assumption that it is a grant in fee simple undiminished by interests carved out of it for the benefit of others.”
[36] See respondent’s submissions paragraphs 52-57.
I agree with the respondent’s contentions.
Treatment of Sub-Leases when improvement notionally removed.
I accept the contentions of the appellant that, consistent with the specific statutory requirements of the Act, the definitions applicable under the LVA and the VLA are not applicable. However, it does not follow that all decisions that relate purely to the VLA or LVA must necessarily be disregarded. In my view, this proposition is particularly relevant when one considers the recent Court of Appeal decision in Chief Executive, Department of Natural Resources and Mines v Kent Street Pty Ltd.[37] As Counsel for the respondent put it:[38]
“The Court of Appeal’s approach was one concerning general concepts and principles as to the relationship between improvements and leases of those improvements, rather than one by which the particular outcome depended on any specific wording in the VOLA about the treatment of leases (of which there was none). The proposition that removal of improvement carries with it removal of subleases which depend for their existence and utility on the existence of those improvements, and are created solely to permit a particular form of use and enjoyment of those improvements, is hardly surprising or illogical.”
[37] [2009] 171 LGERA 365.
[38] At paragraph 64 of their submissions.
It is appropriate to consider precisely what the Court of Appeal had to say regarding the notional removal of leases in Kent Street. At paragraph 115 of the decision, Justice P Lyons (with whom McMurdo P and Keane JA agreed) had this to say:
“Leases of tenancies of a shopping centre are not simply leases of defined volumes of space. They are leases of parts of a building. Without the building itself, it is extremely difficult to conceive of leases of shopping centre tenancies. The right of exclusive possession of a volume of space, absent a building, is virtually meaningless. Shopping centre leases commonly regulate the use to be made of the leased space, which are nonsensical in the absence of a building. The whole purpose of the lease is to provide a right of occupation in a structure, related to other parts of the structure including carparking, malls and access ways, stairwells and lifts, and, significantly, other occupied parts of the building. Even in the hypothetical context created by s 3(1)(b) and the balance of s 3, it would be extremely artificial to associate leases of tenancies in a shopping centre with land where the improvements do not exist.”
I agree with the submissions by Counsel for the respondent that the Court of Appeal’s reasoning set out in the preceding paragraph is a general statement of law equally applicable to the VLA or the Act.
Valuation Evidence
As already indicated, expert valuation evidence was provided to the Court by two registered valuers, Mr Slater and Mr Hoffmann.
This matter is somewhat unusual due to the completely different methodologies adopted by the two valuers.
As is obvious from my preceding findings regarding the correct statutory interpretation of the Act, in my view Mr Slater’s valuation is founded on an incorrect understanding of the relevant provisions of the Act. It follows that Mr Slater’s valuation evidence is of little assistance in this matter. That then leaves the evidence of Mr Hoffmann, which was tested on a number of fronts by Mr Hughes SC during cross-examination.
In his valuation report,[39] Mr Hoffmann used the following calculations to arrive at his figure of $10,000,000:
[39] Exhibit 6.
“21. Valuation Calculation: The valuation has been calculated as follows:
SITE VALUE
53,120m² (H/D Res zoned areas – Pt Lot 8 + Lot 13) @ $300/m² = $15,935,000
1,555m² (Commercial terminal site – Pt Lot 9) @ $450/m² = $ 700,000
54,675m² = $16,635,000 ($304/m²)
LESSRock Wall including Wave Walls (adopt 1,000m @ $6,080/m) including:
Imported Rock 1,000m @ $5,000/m = $ 5,000,000
Rates & Contingency Fees calculated @ 20% = $ 1,000,000
Interest calculated @ 8.45% for 3 months = $ 127,000
$ 6,127,000
Lessee component is 50% = $ 3,063,500
Assume 50% Share with Perp. Lease Component = $ 1,532,000 $ 1,532,000
LESSEarthworks done by Lessee (adopt 100,000/m³ of fill @ $43/m³) including:
Imported Fill 100,000/m³ @ $25/m³ = $ 2,500,000
Compact/Drainage 100,000/m³ @ $10/m³ = $ 1,000,000
Rates & Contingency Fees calculated 20% = $ 700,000
Interest calculated @ 8.45% for 3 months = $ 89,000 $ 4,289,000
TOTAL $10,814,000 ($198/m²)
LESSRates/Charges calc @ 3% for 6 months = $ 162,000
Interest on Land @ 8.45% for 6 months = $ 457,000 $ 619,000
UNIMPROVED VALUE $10,195,000 ($186/m²)
ADOPT $10,000,000 ($183/m²)”
In his report, Mr Hoffmann made reference to four sales. I have summarised extracts of Mr Hoffmann’s sales as follows:
SALE NO Street, Road or Parish Property Area, Zoning Date of Sale Sale Price Improvements Analysed Site Value Sale No 1 7-19 Hillyard Street, Pialba 9,972 square metres
High Density Residential20/11/2009 $3,300,000
($3,000,000 or $300/m² ex GST)Added Value of existing basic improvements $100,000 $2,900,000
($291/m²)Overall Comparison: Mortgagee in Possession sale of the old Pialba hotel site. Sold prior to date of valuation. Site is located west of subject along northern fringe of Pialba commercial precinct. Elevated but not located on Esplanade though potential for good ocean views. Sold with approvals for mixed use development though used as holding proposition at present due to the state of the market. Inferior location and size. Similar potential for a mixed use development. Inferior overall to subject.
Sale No 2 513 Esplanade, Urangan 2,124 square metres
Medium Density Residential16/01/2009 $975,000
($460/m² ex GST)Clearing $5,000 $975,000
($459/m²)Overall Comparison: Sold well prior to date of valuation but sale price considered indicative of values as at date. Located west of the subject on the Esplanade. Inferior in size, locality and surrounding amenity. Potential for multiple unit development or residential dwellings. Inferior overall to subject.
Sale No 3 14 Liuzzi Street, Pialba 1,250 square metres
Business04/09/2009 $682,000
($620,000 or $496/m² ex GST)Clearing
Filling$5,000
$50,000$620,000
($496/m²)Overall Comparison: Located within fringe commercial and industrial area of Pialba. Sold prior to date of valuation but considered indicative of values as at date of valuation. Now developed into medical precinct incorporating group titled office suites. Situated within lakefront development and has been extensively filled. Inferior location to subject. Commercial potential only. Inferior overall to subject.
Sale No 4 552 Esplanade, Urangan 736 square metres
Medium Density Residential12/02/2010 $742,500
($675,000 or $917/m² ex GST)Cleaning + Ancillaries $5,000 $675,000
($917/m²)Overall Comparison: Small corner level site located along the Esplanade at Urangan. Originally proposed for mixed use retail and multiple unit development over 3 levels. Indicative of market for smaller lots along the Esplanade as at date of valuation. Good corner position and views over Hervey Bay. Inferior size. Inferior overall to subject.
It is noteworthy that Mr Hoffmann did not attempt to gild the lily with respect to his sales. He freely admitted the difficulties that arose as a result of these sales being significantly smaller than the subject land. Such is evident from his evidence while under cross-examination by Mr Hughes, SC[40]
“The reality is, you couldn't find a comparable sale of any large allotment. The allotments you looked at were tiny, 10 percent of the size of this land; correct?‑‑ Yes. I mean what - what you've got to remember though, this is a very large property by comparable standards of other similar type use properties in the area, it's - it's the prime site.
Mmm?‑‑ It's - it's the best site in Hervey Bay.
Mmm?‑‑ And as such, there are very few sites that compare in area or potential.
Mmm?‑‑ So as such, you're always going to - even in peak times, you're always going to struggle to have some directly comparable sales of that nature in that size in that - in that market. …
You accepted there were no comparable sales at the time?‑‑ Mmm-hmm.
Correct?‑‑ Yes, yes.
And indeed, you said so much in your report. You'd also accept that the sales that you were forced to look at, those non-comparable sales, but once you were forced to look at, were much smaller in size, weren't they?‑‑ Sale 1 was about one hectare from memory, and the balance of the sales were said inevitably smaller, yes.”
[40] See T. 2-29 and 30.
It is often said that expert valuation evidence ‘is not an exact science’. I can but agree. This case well illustrates the point. The value to be applied to the subject property in accordance with the provisions of the Act is a statutory fiction. It is the expert valuers task to put meat and bones onto that statutory fiction. The task is not an easy one. Mr Hoffmann has conceded that his sales are small in area when compared to the subject; that the subject is a unique lot; and that the property market in Hervey Bay was distressed as a result of the impacts of the global financial crisis. However, it is not the case that Mr Hoffmann failed to take these points into account with respect to his valuation. Indeed, in my view, his answers during cross-examination generally confirm that he was not only aware of these difficulties, but he used his valuation expertise to take them into account in arriving at a value for the subject land. I have little doubt that another valuer, adopting the same methodology as Mr Hoffmann, may have indeed arrived at a different figure. However, I can only decide this matter on the evidence put before me at the hearing.
As Mr Flanagan SC strongly put it during oral submissions:[41]
“The difficulty, as I've said, in Mr Slater not doing his own report on the different legal assumption, is that the only evidence your Honour has before you of whether the - of the true value of the fee simple is Mr Hoffman's evidence of $10 million. My learned friend, as is his right, sought to cross-examine Mr Hoffman to cast doubt on that valuation.
He is, however, stuck with the answers given by Mr Hoffman. So to the extent that Mr Hoffman did not agree with any of his propositions, he is stuck with that answer, and that constitutes the best evidence before your Honour in relation to valuation evidence based on our legal assumption. …
It follows that there was nothing, we say, flowing from the cross-examination, nor anything flowing from the evidence of Mr Slater, nor from Exhibit 20 that would cause this Court to look again at the valuation of $10 million. It's really an all or nothing situation. And the parties have really conducted it as an all or nothing situation.
If our interpretation of the Act is correct then it's $10 million. If my learned friend's correct - estimation of the Act is correct then they say it's nil.”
[41] See T. 2-66, 67.
I agree with Mr Flanagan’s submissions. Despite the best endeavours of Mr Hughes SC, Mr Hoffmann’s expert evidence is the only evidence before the Court which undertakes a proper valuation exercise in accordance with the correct interpretation of the Act.
Disposition of Appeal
In light of my various findings and conclusions set out above, I am left with no option but to dismiss the appellant’s appeal.
Order
1. The appeal is dismissed.
PA SMITH
MEMBER OF THE LAND COURT
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