Commonwealth Custodial Services Ltd v Valuer-General (NSW)

[2006] NSWLEC 400

Reported Decision: 148 LGERA 38
[2007] NSWCA 181; 154 LGERA 437 (CA)

Land and Environment Court

of New South Wales

CITATION:

Commonwealth Custodial Services Limited as Trustee for the Burwood Trust Fund; Trust Company of Australia Limited v Valuer-General [2006] NSWLEC 400

PARTIES:

31413 of 2004

APPLICANT:
Commonwealth Custodial Services Limited as Trustee for the Burwood Trust Fund
RESPONDENT:
Valuer-General

31438 of 2004

APPLICANT:
Trust Company of Australia Limited
RESPONDENT:
Valuer-General

FILE NUMBER(S):

31413; 31438 of 2004

CORAM:

Biscoe J

KEY ISSUES:

Valuation of Land :- meaning of “improvements” in s 6A(1) of Valuation of Land Act 1916 – determination of highest and best use.

LEGISLATION CITED:

Valuation of Land Act 1916 (NSW) s 4(1), s 6A, s 37, s 40
Valuation of Land Act 1944 (Qld) s 3(1)(b), s 3(2)

CASES CITED:

Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410;
Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575 Brisbane City Council v Valuer-General for the State of Queensland (1978) 140 CLR 41;
Caltex Oil (Aust) Pty Ltd v Chief Executive, Department of Lands (1996-1997) 16 QLCR 435;
Campbell v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 49;
Cedar Rapids Manufacturing and Power Co v Lacoste [1914] AC 569;
Collins v Willoughby Municipal Council (1967) 14 LGRA 257;
Commissioner of Land Tax v Nathan (1913) 16 CLR 654;
Commonwealth v Oldfield (1976) 133 CLR 612;
Department of Natural Resources and Mines v QNI Metals Pty Ltd [2002] QLAC 71;
Fisher v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 242;
Goode v Valuer-General (1979) 22 SASR 247, 61 LGRA 424;
Hegira Ltd v Minister for Natural Resources and Mines [2005] QLC 0051;
Justin John Enterprises Pty Ltd v Valuer-General [1999] NSWLEC 208;
Keogh v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 258;
Kiddle v Deputy Federal Commissioner of Taxation (1919) 27 CLR 316;
Maurici v Chief Commissioner of State Revenue (1999) 105 LGERA 318;
Maurici v Chief Commissioner of State Revenue (2001) 51 NSWLR 673 ;
Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111;
McGeoch v Federal Commissioner of Land Tax (1929) 43 CLR 277;
Michael Realty Pty Ltd v Carr [1975] 2 NSWLR 812;
Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498;
Pancho v Wingecarribee Council (1999) 110 LGERA 352;
Park v Allied Mortgage Corporation Ltd (Hill J, FCA, 5 July 1995, unreported);
Raynbird v Valuer-General (1980) 7 QLCR 106;
Spencer v The Commonwealth (1907) 5 CLR 418;
Spicer v Valuer-General (1963) 10 LGRA 319 ;
Stubberfield v Valuer-General [1991] 1 Qd R 278;
Tandou Ltd v Western Lands Commissioner (Bignold J, NSWLEC, 19 June 1996, unreported);
Tetzner v Colonial Sugar Refining Company Ltd [1958] AC 50;
Thomspon v Council of the Municipality of Randwick (1950) 81 CLR 87;
Tilghman v Valuer-General (1966) 12 LGRA 380;
Toohey’s Limited v Valuer-General [1925] AC 439;
Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160;
Valuer-General v Marano (1978) 5 QLCR 194;
Vanadi Pty Ltd v Valuer-General (Talbot J NSWLEC, 9 November 1995, unreported)

DATES OF HEARING:

02-05/05/2006

 
DATE OF JUDGMENT: 

07/07/2006

LEGAL REPRESENTATIVES:

APPLICANTS:
Mr A Galasso, barrister
SOLCITORS
Mallesons Stephen Jaques

RESPONDENT:
Ms M Carpenter, barrister
SOLICITORS
Crown Solicitor’s Office

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES

BISCOE J

7 July 2006

31413 of 2004

COMMONWEALTH CUSTODIAL SERVICES LIMITED AS TRUSTEE FOR THE BURWOOD TRUST FUND v VALUER-GENERAL

31438 of 2004

TRUST COMPANY OF AUSTRALIA LIMITED v VALUER-GENERAL


JUDGMENT

HIS HONOUR

:

A. INTRODUCTION

1 These are two appeals under s 37 of the Valuation of Land Act 1916 (NSW) (the Act) against disallowance by the Valuer-General of objections to land value assessments as at the base date of 1 July 2003. They have been heard together and raise the same issues. The applicants have the onus of proving their cases: s 40(2).

2 The main issues concern the highest and best use of the lands; the meaning of “improvements” in s 6A(1) of the Act; and whether the cost of demolition of the existing commercial office buildings on the lands, together with the interest expense incurred during demolition, should be deducted in assessing land value if the highest and best use (as the Valuer-General contends) is mixed residential/commercial use (mixed use). “Mixed use” development is sometimes called “shop-top housing”, and takes the form of a multi storey building in which retail shops or commercial offices are normally located on the ground floor with residential units above.

3 The appeal by Commonwealth Custodial Services Limited as trustee for the Burwood Trust Fund (the Burwood applicant) concerns land located at 34-46 George Street, Burwood (the Burwood Land). The Burwood land is developed with a commercial office building comprising a basement carpark with 420 bays, ground floor lobby, four upper levels of commercial office accommodation and a substantial landscaped courtyard. The land area is 7,970 square metres. The potential floor area is 15,940 square metres. The title details are Lot 3 in Deposited Plan 800407. The land value assessment as at 1 July 2003 was $10,900,000. The Burwood applicant submits that this should be reduced to $7,570,000 on the basis that the highest and best use of the land was commercial office use. The Valuer-General submits that it should be increased to $11,900,000 on the basis that the highest and best use was mixed use. Alternatively, the Burwood applicant submits that if mixed use was the highest and best use, then there should be deducted the cost of demolition of the existing building and the interest expense during demolition, which results in a valuation of $7,726,000.

4 The appeal by Trust Company of Australia Limited (the Ashfield applicant) concerns land located at 2-6 Cavill Avenue, Ashfield (the Ashfield Land). The Ashfield land is developed with two freestanding commercial office towers comprising a basement of 285 car bays, ground floor lobbies and four upper levels of office accommodation incorporating terraces and balconies. The land area is 8,367 square metres. The potential floor area is 16,734 square metres. The title details are Lots 1, 2 and 5 in DP 6262, Lots 1 and 2 in DP 556722, Lot 1 in DP 971932, Lot 9 in DP 940918, Lot 17 in DP 168456 and Lot 101 in DP 234926. The land value assessment as at 1 July 2003 was $11,000,000. The Ashfield applicant submits that this should be reduced to $7,530,000 on the basis that the highest and best use was commercial office use. The Valuer-General submits that it should be increased to $12,050,000 on the basis that the highest and best use was mixed use. Alternatively, the Ashfield applicant submits that if mixed use was the highest and best use, then there should be deducted the cost of demolition of the existing building and the interest expense incurred during demolition, which results in a land value of $8,260,000.

5 The following is common ground, which I accept:

(a) the zoning of both lands permits mixed use with consent of the local council;
(b) if the subject lands were to be developed for mixed use, then the existing multi-storey commercial office buildings thereon could not be converted to that use and would have to be demolished;
(c) if the highest and best use is commercial use, then the value:
(i) of the Burwood Land is $475 per square metre. Multiplied by the potential floor area of 15,940 square metres, the total is rounded to $7,570,000;
(ii) of the Ashfield Land is $450 per square metre. Multiplied by the potential floor area of 16,734 square metres, the total is rounded to $7,530,000.
(d) if the highest and best use is mixed use, then the value:
(i) of the Burwood Land is $700 per square metre. Multiplied by the potential floor area of 15,940 square metres, the total is $11,158,000;
(ii) of the Ashfield Land, as a starting point, is $700 per square metre. The Valuer-General’s valuer contended for that rate. Multiplied by the potential floor area of 16,734 square metres, the total is $11,713,800. The applicant’s valuer, with whom I agree, contended for $650 per square metre on the basis that the Burwood Land is in a superior location to the Ashfield land for mixed use development. Multiplied by the said potential floor area, the total is $10,877,100.

6 The above amounts do not include the value of the existing excavations for the commercial buildings which the Valuer-General contends should be added; nor demolition costs and interest expense during the demolition period which the applicants claim should be deducted if the highest and best use is mixed use. I consider those issues later in this judgment.

7 The Valuer-General’s expert valuer, Mr McGuirk, assessed the values of the excavations and added them to the mixed use figures above to reach his assessment of “land value” under section 6A, as follows:

Burwood Land Ashfield Land

Value @ $700/m2 $11,158,000 $11,713,800

Value of excavation $729,390 $347,329

$11,877,390 $12,061,129 Adopt $11,900,000 $12,050,000

8 The only evidence of quantum of demolition costs and interest expense, which I accept, is from the applicants’ expert valuer, Mr Jackson. On the basis of that evidence, the applicants contend, if the highest and best use is mixed use, as follows:

Burwood Land Ashfield Land

Value @ $700/m2 for Burwood,

$650/m2 for Ashfield $11,158,000 $10,877,100

Less cost of demolition $3,341,213 $2,518,406

Less interest (2 months) $91,196 $97,518

$7,725,591 $8,261,176

Adopt $7,726,000 $8,260,000

9 In summary, therefore, the respective positions for which the parties and their valuers contend are as follows:

Land	Valuer-General’s assessment	Applicants’ Highest & Best Use: Commercial	Respondent’s Highest & Best Use: Mixed	Applicants’ Alternative Highest & Best Use: Mixed
Burwood	$10,900,000	$7,570,000	$11,900,000	$7,726,000
Ashfield	$11,000,000	$7,530,000	$12,050,000	$8,260,000

10 The case turns on the construction and application of s 6A(1) of the Act. Section 6A relevantly provides as follows:

6A Land value

(1) The land 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 improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner’s predecessor in title had not been made.

(2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that:

(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and

(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used,

but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.

(emphasis added)

11 The word “improvements” is not defined in the Act. The phrase “land improvements” is exhaustively defined in s 4(1) as follows:

Land improvements means:

(a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths,

(b) the picking up and removal of stone,

(c) the improvement of soil fertility or the structure of soil,

(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation,

(d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation,

(e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and

(f) underground drains.

(emphasis added)

12 This definition is of improvements effected on and to particular land, not improvements external to the land: Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at 119 [13].

B. HIGHEST AND BEST USE

13 There is some difficulty in construing s 6A, partly because it is an artificial construct and partly because it is elliptical. Although it should be explicit, there are omissions that must be implied, including reference to a bona-fide purchaser. In my opinion, s 6A(1), apart from its improvements assumption and land improvements exception, reflects, partly explicitly and partly implicitly, the ordinary principle of ascertaining the value of land stated in Spencer v The Commonwealth (1907) 5 CLR 418 at 441. That is, the value of land is the price arrived at by a willing but not anxious buyer negotiating with a willing but not anxious seller, both perfectly acquainted with the land and cognizant of all circumstances which might affect its value. In Commissioner of Land Tax v Nathan (1913) 16 CLR 654 at 661 the High Court held, in the context of construing land tax legislation, that the ordinary principle of ascertaining the value of land is as stated in Spencer v The Commonwealth unless a new special rule of law is introduced by a statute which sets up some artificial standard.

14 In my opinion, under s 6A(1) land must be valued on the basis that the hypothetical purchaser is purchasing the land for the purpose of its highest and best use, which may not be its current use. “The law is quite plain that under the Valuation of Land Act the unimproved value of land must be based upon the best or most profitable potential use and if the land was legally capable of being subdivided for residential purposes… it was proper to value it on a subdivisional basis”: Spicer v Valuer-General (1963) 10 LGRA 319 at 320 per Else-Mitchell J. In Stubberfield v Valuer-General [1991] 1 Qd R 278 at 283 Carter J said: “It is also a well recognised principle that land be valued for its highest and best use. What it can best be used for will be reflected in its true market value which takes account of any detriment the land possesses relevant to its use as well as any potential it has for its present or other use. Again the relationship between value and land use is immediately apparent”. In Goode v Valuer-General (1979) 22 SASR 247 at 256, 61 LGRA 424 at 434 Wells J said that: “The sale referred to in the definition of unimproved value is a sale of the land in a market where at least some of the potential buyers are interested in making a use of the land that will realise the highest price”. Similarly in relation to compulsorily acquired land, “It is now settled, and for good reason, that a dispossessed landowner should be compensated for the value of his or her land on the basis of its highest and best use”: Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575 at 649 [271] per Callinan J.

15 There is no statutory definition of “highest and best use”. It has been described in the High Court as “the most advantageous purpose for which [the land] was adapted”: Spencer v The Commonwealth (1907) 5 CLR 418 at 441 per Isaacs J. It “is the present value alone of such advantages that falls to be determined”: Cedar Rapids Manufacturing and Power Co v Lacoste [1914] AC 569 at 576 per Lord Dunedin. In Park v Allied Mortgage Corporation Ltd (FCA, 5 July 1995, unreported) Hill J said at [70] : “As Spencer’s case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land”. In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at 415 (SC/SA) Jacobs J said:

Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says – the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value.

16 The applicants submit that the highest and best use of the Burwood Land and the Ashfield Land as at the relevant date (1 July 2003) was their existing commercial use. The Valuer-General submits that the highest and best use of both was mixed use.

17 In my opinion, as at the relevant date, the highest and best use of the Burwood Land was commercial use, and the highest and best use of the Ashfield Land was mixed use. My reasons are as follows.

18 The reference to the purpose for which land may be “used” in s 6A(2) of the Act (which I have set out above) provides a limited exception to the otherwise paramount assumption in s 6A(1) that improvements on the land had not been made. However, s 6A(2) is irrelevant, I think, to the issues in the present case. It permits existing use rights under planning legislation, which typically depend on the presence of improvements on land and which can add appreciably to market value, to be taken into account in determining its unimproved value: Maurici v Chief Commissioner of State Revenue (2001) 51 NSWLR 673 (CA) at 682 [25].

19 The applicants submit that the highest and best use of each of the subject lands is not to be determined merely by identification of any possible permissible land use, but by the likely use of the land as determined by the actual market. In making such a determination, the applicants submit that regard must be had to the circumstances of the land in its environment, including taking account of the fact that a commercial building is currently on the land. The applicants refer to Tetzner v Colonial Sugar Refining CompanyLtd [1958] AC 50 at 57; Maurici v State Revenue (2003) 212 CLR 111 and (in this Court) (1999) 105 LGERA 318; and Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1998) 65 LGRA 410 at 415.

20 The Burwood applicant submits that the Burwood Land is surrounded by commercial property, is in a commercial office precinct, and there is evidence of current commercial redevelopment on adjacent land. As regards the Ashfield Land, the Ashfield applicant highlights the fact that that land fronts Liverpool Road, as do three other existing commercial properties in Ashfield unlike the mixed-use sites identified by the Valuer-General in that area, which all sit behind the first road fronting Liverpool Road. It places particular emphasis on one of the commercial properties in Ashfield fronting Liverpool Road, namely 164-174 Liverpool Road Ashfield. This property was developed by the same group as one of the mixed use sites, was vacant commercial premises, was considered for residential, but then was ultimately renovated and marketed as commercial office premises.

21 The Valuer-General submits that the highest and best use of both lands is mixed use having regard to the zoning which permits that use that a mixed use would produce a substantially higher yield than commercial use; and that the applicants have misinterpreted Tetzner, which is not authority for the proposition that one must have regard to the environs in which land is situated. It refers to Toohey’s Limited v Valuer-General [1925] AC 439 at 443; Spicer v Valuer-General (1963) 10 LGRA 319 at 320; and Park v Allied Mortgage Corporation Ltd (Hill J, FCA, 5 July 1995, unreported).

22 The evidence establishes that yields for mixed use are substantially higher than for commercial use, assuming that mixed use is the highest and best use. However, as indicated in the Adelaide Clinic Holdings case (above), higher yields are not, of themselves, determinative of the highest and best use.

23 In my opinion, s 6A(1) of the Act requires improvements (other than defined “land improvements”) on the subject land to be ignored when determining “land value”, but permits regard to be had to the neighbourhood as it actually exists in the real world, including neighbourhood improvements. In Toohey’s Limited v Valuer-General [1925] AC 439, on appeal from the Supreme Court of NSW, the Privy Council considered a provision which was similar to s 6A(1), except that it did not contain the “land improvements” qualification and referred to “unimproved value” rather than “land value”. The appellant in that case appealed from a determination of the unimproved value of a hotel property which had been arrived at by subtracting the value of the physical improvements, the buildings, from the improved value. That improved value included the additional value which the licence to sell liquor gave to the property and the goodwill of the hotel. This valuation method was upheld by the Supreme Court of NSW, but rejected by the Privy Council. The defect in this method of valuation was that it included the value of the liquor licence and of the goodwill in the unimproved value. The existence of the liquor licence and the goodwill were causally dependent upon the existence of the physical improvements, the hotel premises. The Privy Council held that the statutory assumption that improvements do not exist required not only the physical improvements but also the factors causally dependent upon their existence – in this case the licence and the goodwill – to be excluded from the determination of unimproved value. The land had to be valued as if the improvements “never existed”. In delivering the judgment of the Privy Council, Lord Dunedin said at 443:

Now, what [the valuer] has to consider is what the land would fetch as at the date of the valuation if the improvements had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it the way of improvements; what would it fetch in the market? It will be observed that the value is not what has been sometimes designated by the expression ‘ prairie value ’ . The land must be taken as it exists at the date of the valuation.

24 Lord Dunedin’s dictum in Toohey’s that the valuation process required by the Act “was really quite simple”, proved to be somewhat optimistic. Shortly afterwards, the High Court divided in McGeoch v Federal Commissioner of Land Tax (1929) 43 CLR 277 on the construction of identical legislation and on the effect of dicta in Toohey’s. In McGeoch, the appellant was a grazier who claimed that the prevention of prickly pear infestation was an improvement within the meaning of the Land Tax Assessment Act 1910 (Cth). The majority of the High Court (Knox CJ and Dixon J) upheld the appeal. Their Honours rejected the respondent Commissioner’s submission that the only improvements which were to be excluded from the unimproved value were visible physical improvements. The majority held that all human action on the land which resulted in an increase in its value constituted “improvements”. The unimproved value of land was its value in a virgin state, but determined in the context of its existing surroundings as developed and improved by humans.

25 In my opinion, the actual neighbourhood with its existing improvements may be taken into account in determining the unimproved value of land under s 6A(1) of the Act. In Tetzner v Colonial Sugar Refining CompanyLtd [1958] AC 50 the Privy Council, on appeal from the Supreme Court of Fiji, considered a legislative provision identical to that which it had considered in Toohey’s more than thirty years earlier. The appeal arose out of a valuation for rating purposes of a large amount of land owned by the respondent company in a town in Fiji. The respondent had erected on this land a large sugar mill on which the prosperity of the town largely depended. The appellant, who was the official valuer of Fiji, had assumed in making his valuation that no sugar mill existed, but also that the town was in its actual condition as at the date of valuation. Although his approach was rejected by the Supreme Court of Fiji, he was successful in his appeal to the Privy Council. The respondent contended that as its land had to be valued on the assumption that the sugar mill had never existed, the effect of the mill on land values in the town, which would in turn effect the value of the respondent’s land, should be disregarded. The respondent relied on the passage in the judgment in Toohey’s where Lord Dunedin said: “Words could scarcely be clearer to show that the improvements [were] to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed”. The respondent argued that to value the land on the basis contended for by the appellant would result in it being taxed on values which it had created itself. The Privy Council, in allowing the appeal, distinguished Toohey’s. The judgment of their Lordships was delivered by Lord Keith of Avonholm who held at 57:

What… is required… is that the physical improvements, with any value which they attach to the land on which they are situated, be excluded from the valuer’s computation. The land will then be valued as land void of buildings but situated in the community with the amenities and facilities which have grown up around it. Their Lordships see no objection in the process of valuation to regarding the land as land situated in a sugar town . The valuer need not shut his eyes to the fact that there is a sugar manufacturing industry in existence , though he is not entitled to value the sugar mill and its accessories situated on the subject land. Their Lordships find themselves in agreement with an illustration given by the learned magistrate in his judgment. ` If the undeveloped capital value of a city power house is being assessed one does not assume a city without electricity and all the consequences of the lack of such an amenity’.

(emphasis added)

26 I respectfully agree with the analysis by K R Handley (now Handley JA of the NSW Court of Appeal) in “Unimproved Value of Land” (1960-61) 16 The Valuer 86 at 90, to the following effect. First, Toohey’s established that the statutory assumption concerning improvements requires that all elements of value causally dependent on the presence of improvements be excluded. Secondly, Tetzner established that this causal enquiry is limited to the direct influence of the improvements on the value of the subject land, so that any influence operating indirectly by increasing the value of adjoining land is too remote.

27 Tetzner was cited by the High Court with apparent approval in Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at 121-122 [20] – [21] and was approved by the NSW Court of Appeal in that case: (2001) 51 NSWLR 673 at 682 [29]. In the Court of Appeal Handley JA, with whom Beazley and Giles JJA agreed, said at 682 [28] that the result of s 6A(1) was “that the subject land is to be valued as vacant, but located in the neighbourhood as it exists in the real world”.

28 Consistently with Tetzner, in my opinion, when determining the highest and best use, valuers need not shut their eyes to the fact that a commercial use of the subject lands exists, even though the value of the commercial buildings on the land as physical improvements cannot be taken into account in determining land value. This is consistent with Commissioner of Land Tax v Nathan (1913) 16 CLR 654 at 662 where the High Court indicated, in the context of a not dissimilar provision to s 6A, that the statutory assumption did not preclude regard being had to the use of the land. It has been said in relation to the Queensland Valuation of Land Act 1944 that it “does not require [the] existing use to the ignored”: Department of Natural Resources and Mines v QNI Metals [2002] QLAC 71 at [14].

29 Their Lordships in Tetzner may have been in disagreement with Tooheys insofar as it equated the legislative words “had not been made” with the words “as if they had never existed” because they said at 58 that they were:

…unable to attach any special significance to the words ‘ as if they had never existed ’. The words of the Ordinance are as if they ‘ had not been made’. Nor can they extract from the judgment any principle that would prevent a valuer in assessing the unimproved value of land from resorting for purposes of comparison to the values of surrounding land at the date of valuation even though those values may have been largely built up by the initiative of the owner of the subject land in developing the neighbourhood.

30 The High Court approved Toohey’s in Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160 at 165. It is permissible to use reasonably contemporaneous sales of improved land for comparative purposes by subtracting the added value of improvements thereon from their sales prices to derive unimproved values: Maurici v Chief Commissioner of State Revenue (2002) 212 CLR 111. In that case the High Court held that under s 6A reasonably contemporaneous sales of comparable improved land could be considered in circumstances where sales of unimproved land were scarce. The High Court said at 120 [16] that: “The first step to be taken under s 6A is to identify what is capable of being regarded as improvements, ‘other than land improvements’. The second step is notionally to remove the improvements from the land. It is at the third point that difficulties arise. How is the land in its notionally unimproved state to be valued? The traditional, and usually unexceptionable method is to seek out relatively contemporaneous sales of comparable properties 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”. The High Court said at 121 [19] that: “Improved sales are used daily for the purposes of statutory valuations under provisions similar to s 6A(1) of the Valuation of Land Act, by subtracting the added value of the improvements to them from their sale prices to derive unimproved values”.

`

31 At the request of the parties, I viewed the Burwood Land and the Ashfield Land and their respective neighbourhoods, as well as a number of mixed use properties nominated by the Valuer-General’s valuation expert and commercial office properties nominated by the applicants’ valuation expert. In arriving at a decision as to the highest and best use of each of the subject lands, I have taken into account the result of my observations on the view as well as the evidence given before me, including the evidence of expert valuers. Mr Jackson, the valuer who gave evidence in the applicants’ case, considered that the highest and best use of both lands was commercial. Mr McGuirk, the valuer who gave evidence in the Valuer-General’s case, considered that the highest and best use of both lands was mixed use.

32 The purpose of the view was not to ascertain an appropriate value per square metre of mixed use or commercial use land. Those values were agreed (apart from a minor $50 differential as between the Burwood and Ashfield Lands for mixed use development, to which I have previously referred). Rather, the purpose of the view related to the limited issue of highest and best use. The Valuer-General directed my attention to a number of mixed use developments in various locations in order to demonstrate that there has been a trend towards mixed use development in suburban commercial areas, including in fringe commercially zoned locations. I accept that is so. However, as counsel for the Valuer-General properly conceded, none of these locations were comparable with the location of the Burwood Land. The applicants’ intention in showing me other commercial properties was to indicate that commercial rather than mixed use developments were occurring in other locations said to be comparable with the locations of the subject lands. However, the locations and circumstances of the commercial properties situated outside Burwood and Ashfield did not provide significant assistance on the highest and best use issue. Little, if any, significance was attached to them in the applicants’ final submissions.

33 The Burwood Land appeared to me, on the view, to be in a commercial office precinct. It is substantially surrounded by freestanding multi-storey commercial office buildings, with a railway line on one boundary. I think that Burwood requires a commercial precinct and there is an apparent demand for office space in this location. Significantly, adjacent land with an area of 5,633 square metres is currently being redeveloped as a multi-storey commercial office building. The Valuer-General submits that this is not significant because that adjacent land is owned by the Burwood council which leased it to the developer for 99 years in 1991. It suggests that it would not be financially viable as a mixed use development (which has a mainly residential component) because the 99 year lease deters development of residential units which can be sold, but that this factor may not deter commercial development for the purpose of leasing office space. I think that this argument has insufficient weight. The 99 year lessee is unable to sell developed units to anyone for any purpose, is restricted to developing units for the tenancy market, and is likely to develop the land for the tenancy market which appears to be the most financially viable. The fact that it is being developed for commercial use suggests that its highest and best use is commercial.

34 On one side of the Burwood Land is a railway line. Some significance was attached in the Valuer-General’s submissions to a sliver of land on the other side of that railway line which is currently being developed for residential use. The very narrow width of this sliver makes it inappropriate, I think, for a commercial development and explains its residential development.

35 On the basis of my observations on the view and the evidence before me, I consider that development of the Burwood Land as mixed use would probably not be financially viable in the market. In my opinion, the highest and best use of the Burwood Land is commercial use.

36 The environment of the Ashfield Land is significantly different. It is located on the periphery of the Ashfield retail district and borders a residential district. Unlike the Burwood Land, it is not in a commercial precinct. Its primary frontage is to Cavill Avenue which leads off Liverpool Road, a main thoroughfare characterised by strip retail development. Although it has a frontage to Liverpool Road, no direct access is available from this point. There are three other major commercial office buildings towards the eastern end of Liverpool Road. All mixed use sites identified by the Valuer-General sit behind the first row of development fronting Liverpool Road. The applicants placed particular reliance on one of the other existing commercial office buildings at 164-174 Liverpool Road which has recently been redeveloped by the same group that developed one of the mixed use properties in Ashfield. The applicants emphasised the fact that although consideration was given to converting it to residential use it was ultimately renovated and marketed as a commercial site. I do not think that this establishes that commercial development is preferred in this market, but simply suggests that commercial buildings such as these are not readily convertible to residential or mixed use. I am satisfied that the highest and best use of the Ashfield Land is mixed use.

C. IMPROVEMENTS AND WORSEMENTS

37 The next task is to extract from the definition of “land value” in s 6A(1) the basis upon which the existence of an improvement is to be ascertained.

38 Section 6A(1) of the Act requires it to be assumed, when determining land value, that “improvements other than land improvements… had not been made”. The word “improvements” is not defined in the Act but the phrase “land improvements” is defined exhaustively in s 4(1) which I have set out earlier.

39 The Valuer-General’s submission is that all structures on land are improvements. The applicants’ submission is that “improvements” are any human operations on land which have the effect of enhancing its value for its highest and best use. The applicants’ reasoning, and the consequences of that reasoning, may be summarised as follows. If the highest and best use is mixed use then the existing buildings, being commercial, cannot be used for that use and do not add value to the land. A prospective purchaser, seeking to achieve the highest and best use, would demolish the buildings. The buildings therefore subtract from the value of the land and are “worsements”, not improvements. “Land value” in s 6A(1) is to be assessed by subtracting the cost of demolishing the buildings and the interest expense incurred during the demolition period from the land value figure for which the Valuer-General contends in these proceedings.

40 The issue is only relevant to the Ashfield Land because I have found that the highest and best use of the Ashfield Land is mixed use and the commercial buildings on that land cannot be converted to that use. The issue does not arise in relation to the Burwood Land, where I have found that the highest and best use is commercial use, because the Burwood applicant accepts that the existing commercial buildings are improvements within the meaning of s 6A(1) since they enhance the value of the land for the purposes of that highest and best use.

41 I do not accept the submissions of either party as to the meaning of “improvements” in s 6A.

42 In my opinion, “improvements”, within the meaning of s 6A(1) of the Act, are human operations of persons on land which have the effect, as at the date of valuation, of enhancing its value compared with its natural state. A structure on land is not an improvement if it does not enhance the land’s value compared with its natural state. The commercial buildings on the Ashfield Land enhance the land’s value compared with its natural state. They are valuable to a purchaser who has a use for them. I do not accept the applicants’ submission that “improvements” have to add value to land for the purpose of its highest and best potential use. In my view, s 6A(1) should not be construed so as to attribute to the word “improvements” a meaning which changes according to the use of the land. Consequently, there should be no deduction for demolition costs and interest expense during the demolition period. I note that in the circumstances of the present case the same result would be reached if “improvements” in s 6A simply meant any structure on land. However, that meaning, which I have rejected, can lead to different consequences in other circumstances which are considered later in this judgment by reference to the facts in other cases. My reasons are as follows.

43 The very word “improvement” suggests that something has been bettered or enhanced in some way. The Australian Oxford Dictionary (first edition, Oxford University Press, 1999) defines the term as follows: “1 the act or an instance of improving or being improved. 2 a something that improves, esp. an addition or alteration (to a house etc.) that adds to value. b Aust. The bringing of land into agricultural or pastoral use. 3 something that has been improved”. The further dictionary definition of “improve” is in the following terms: “1 a make or become better. b produce something better than. c Aust. Bring (land) into agricultural or pastoral use, so as to make it more productive and valuable…” The dictionary also provides a definition of the term “improved value” (of land) as “the value with the addition of betterments (e.g. a house, fencing, etc).

44 I look next to the Act itself. The meaning that I attribute to “improvements” is, I think, consistent with the statutory definition of “land improvements” in s 4(1) of the Act which I have set out earlier. All of the activities within that definition appear to have as a common element the notion of rendering land in a better state than its natural state. That tends to support the conclusion that the same common element exists in respect of the undefined term “improvements”. It may also be observed that the “land improvements” listed in s 4(1) appear to be destructive or invisible improvements such as clearing of land; as distinct from constructive or visible improvements, such as buildings, which therefore fall to be considered in the context of the undefined term “improvements”.

45 The meaning that I attribute to “improvements” is, I think, in accordance with that which has been settled by the High Court. MorrisonvFederal Commissioner of Land Tax (1914) 17 CLR 498 was a case which turned upon the construction of the Land Tax Assessment Act 1910 (Cth), where a tax was levied upon the “improved value” of land. That was the “the capital sum which the fee simple of the land might be expected to realise…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”. “Value of improvements” was defined to mean “the added value which the improvements give to the land…”. The definition of “unimproved value” in Morrison was identical to the definition of “land value” in s 6A of the Act I am considering, except that the latter contains an exception for defined land improvements. Griffith CJ, with whom the other member of the High Court agreed, said at 503 in a passage which has frequently been cited:

Any operation of man on land which has the effect of enhancing its value comes within the definition of ‘ improvement ’.

46 Griffith CJ indicated that he meant enhancement of value compared with the “primitive” condition of the land, which he illustrated by reference to a jungle [at 503]:

When one considers the nature of land in Australia, and how lately it has passed from its primitive condition, it is obvious that all sorts of operations may tend to enhance its value. Take, for instance, a jungle so dense that it is almost impenetrable by four-footed animals, even the smallest. Compare it with the same land after the lapse of – say – ten years, when it presents the appearance of a meadow clothed with grass and carrying dairy herds. What is the value of the improvements in that case? Surely, the difference between the value of the land as jungle and its value in the condition in which it is when found.

47 In Morrison, it was held that the operations of clearing timber and tussocks were improvements. Griffith CJ said at 504 that such operations “do improve the value of land, and make it saleable at a higher price”.

48 Morrison was followed on the construction of the same Act (as amended) by the High Court in Campbell v Deputy Federal Commissioner of Land Tax(NSW) (1915) 20 CLR 49; Fisher v Deputy Federal Commissioner of Land Tax(NSW) (1915) 20 CLR 242; Keogh v Deputy Federal Commissioner of Land Tax(NSW) (1915) 20 CLR 258; and McGeoch v Federal Commissioner of Land Tax (1929) 43 CLR 277. In McGeoch at 284, the High Court held that the operation of clearing land of prickly pear was an “enhancement of the value of the land” and therefore an improvement within the meaning of that Act.

49 Morrison was also followed by the High Court in Brisbane City Council v Valuer Generalfor the State of Queensland (1978) 140 CLR 41, a case decided under the Queensland Valuation of Land Act 1944 which contained substantially the same definitions of “unimproved value” and “value of improvements” as the Commonwealth Act (set out above), except that the definition of “unimproved value” in the Queensland Act concluded with the words “did not exist” rather than “had not been made”. Gibbs J, with whom the other members of the High Court agreed, said at [51] that: “something done on or appertaining to land which reduces rather than enhances its value is not an improvement for the purposes of the Act, any more than it would be in the ordinary sense of the word”.

50 The High Court has given the same meaning to “improvements” outside the statutory valuation context. In Commonwealth v Oldfield (1976) 133 CLR 612, an issue was the meaning of the word “improvements” in a lease which did not define that word. Jacobs J, in giving the majority judgment and after referring to Morrison and the High Court cases which followed it, said at 619-620:

It appears to me that the considerations which led the Court in these cases to give the word ‘improvements’ a meaning which would include what is done in improvement of quality of the soil and thereby the usefulness of the land apply as much to the words of this lease as to the words of that statute… We are concerned with the value at the relevant date of the physical consequences which enure to the land of the acts whereby the land attained a quality and usefulness additional to that which it had in its virgin state.

51 Similarly, in the income tax case of Dampier Mining Co Ltd v Commissioner of Taxation (1981) 147 CLR 408, the joint judgment of Mason and Wilson JJ at 429 treated as an improvement something done on land which “enhances its value”. Gibbs CJ said at 413: “An improvement on land is an operation done on land which has the effect of enhancing its value: Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503; Brisbane City Council v Valuer-General (Q) (1978) 140 CLR 41 at 51”. Gibbs CJ added “No doubt the question whether something done effects an improvement upon land… must be answered from a practical point of view and having regard to the use of the land made or intended by the tax payer”. The last sentence is explicable in the context of the income tax legislation there under consideration. Only Stephen J was prepared not to confine “improvement” to that which enhances the value of land. He said at 419: “I would not confine the notion of improvements [in the taxation legislation] to that which enhances the market value of land; some improvements, not made in the course of putting land to its best economic use but, rather, so as to meet the particular requirements of its occupier, may, I suppose, have the effect of actually depreciating its market value”.

52 In Thompson v Council of the Municipality of Randwick (1950) 81 CLR 87 the High Court considered s 321(d) of the Local Government Act 1919 which provided that “Subject to the provisions of this Act, the council may control and regulate and may undertake the improvement and embellishment of the area”. The High Court, in a joint judgment, held at 104: “We consider that in the collocation of words this sub-section contains, improvement is used rather to denote utilitarian betterments and embellishment to denote beautification of the area”. This notion of “utilitarian betterments” is, I think, in harmony with the High Court’s notion of improvements in the cases to which I have earlier referred. “Utilitarian betterments” may be viewed as the antithesis of “worsements” which I consider later.

53 In Tandou Ltd v Western Lands Commissioner (NSWLEC, 19 June 1996, unreported) Bignold J held that: “In Australia, the meaning of ‘improvements’ has been taken to have been authoritatively declared by the judgment of Griffith CJ in Morrison v The Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503 where it is stated: ‘Any operation of man on land which has the effect of enhancing its value comes within the definition of “‘improvement’’”. The concept of determining whether something is an improvement by reference to whether it enhanced the value of the land in its “virgin” condition was applied in Tilghman v Valuer-General (1966) 12 LGRA 380 at 382-383 by Else-Mitchell J. There the question was whether the clearing of timber added value to land as compared to its virgin condition.

54 Goode v Valuer-General (1979) 22 SASR 247 and 61 LGRA 424 was a case decided under the South Australian Valuation of Land Act 1971. A definition of “unimproved value” therein required it to be assumed that “any improvements thereon… the benefit of which is unexhausted at the time of valuation, had not been made”. “Improvements” were defined as “houses and buildings, fixtures and other buildings of any kind whatsoever, fences bridges, roads” etc., but did not say that they had to add value to that land. Wells J held at 258 (SASR) and 435-6 (LGRA) that “improvements” were things which, having regard to the market in which value is to be assessed, “actually improve the land”.

55 The Ashfield applicant submits that if the highest and best use of the Ashfield Land is mixed use, then the value of the buildings thereon is exhausted and they are no longer improvements. In principle, it may be accepted that if the benefit of what was once an improvement has been exhausted, then it is no longer an improvement: Goode v Valuer-General (above). Although in Goode the conclusion was assisted by the statutory reference to the benefit of an improvement being “unexhausted”, I think it is of general application. However, the answer to the question whether an improvement is “exhausted” depends upon whether one attributes to the word “improvements” in s 6A(1) the meaning of no longer adding value to land in its natural state, or the meaning of no longer adding value to land for a use other than its existing use. The former meaning is correct, in my view. Therefore the value of the commercial buildings on the Ashfield Land is not exhausted.

56 In two decisions of this Court it has been held in the context of s 6A(1) that structures on land are improvements and that it does not matter if they do not add value to the land or detract from its value: Vanadi Pty Ltd v Valuer-General (Talbot J NSWLEC, 9 November 1995, unreported) and Justin John Enterprises Pty Ltd v Valuer-General [1999] NSWLEC 208 at [12] – [13] (Cowdroy J). These decisions provide the strongest support for the Valuer-General in the present case (notwithstanding that they were not referred to by the parties). In Vanadi it was held that heritage buildings which did not enhance the land’s value, because the cost of restoring them for a permissible use exceeded their demolition and replacement cost, were improvements within the meaning of s 6A and had to be ignored. In Justin John Enterprises it was held that fire damaged structures which did not enhance the land’s value, were “improvements” within s 6A which had to be ignored.

57 Vanadi and Justin John Enterprises have the attraction of simplicity. They say in effect that, in your imagination, you look at land with structures on it, blink, open your eyes and see the same land without structures on it and that is “land value” under s 6A(1). The flaw in this approach, I respectfully suggest, is that it assumes that what you no longer see after you have blinked are “improvements”. That begs the antecedent question whether the structures are improvements merely because they are structures or whether they are only improvements if they add value to the land, as at the valuation date, compared with its natural condition. I have indicated that I think the great weight of higher authority supports the latter meaning.

58 I respectfully disagree with these decisions insofar as they held that improvements were structures whether or not they added value to the land. The learned judges distinguished the High Court cases of Morrison and Brisbane City Council on the basis that there the judicial description of “improvement” was aided by the statutory definition of the term “value of improvements” in the statutes under consideration. That is true. In Vanadi it also seems to have been suggested that there was an aiding statutory definition in the High Court case of Dampier (above), but that does not appear to be so. However, in Brisbane City Council at 51, in the passage that I have quoted earlier, the High Court equated their description of an “improvement” with “the ordinary sense of the word”; in Commonwealth v Oldfield the High Court applied that same description of an “improvement” in the non-statutory context of a lease; in Dampier, the High Court applied the same description of “improvements” in the context of income tax legislation; and in Thompson the High Court spoke of an improvement as a “utilitarian benefit”.

59 In Justin John Enterprises at [10] the learned judge considered that Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50 at 56 confirmed that it was irrelevant to consider whether the improvements on the land resulted in an increase in the value of the land. The High Court in the cases to which I have referred has not read Tetzner in this way and, in any case, has reached a contrary conclusion.

60 The question remains whether, as a single judge, I should nevertheless follow these decisions of other single judges of this Court. Such a question was addressed by Holland J in Michael Realty Pty Ltd v Carr [1975] 2 NSWLR 812 at 820 in the following passage (omitting citations) which was followed in this Court by Talbot J in Pancho v Wingecarribee Council (1999) 110 LGERA 352 at 369 – 370 [128]:

I do not think that I am relieved… of my duty to bring my own judgment to bear on the point in question. There is no rule of law which binds a judge to abide by the decision of another judge of co-ordinate jurisdiction, but a judge of first instance will, as a matter of judicial comity, usually follow the decision of another judge of first instance in the same jurisdiction, unless convinced that the judgment was wrong.

61 In the present case, and with respect, I am convinced that Vanadi and Justin John Enterprises are erroneous because, in my view, the High Court authorities to which I have referred lead to a contrary conclusion, one which was accepted by another single judge of this Court in Tandou (above). I do not see anything in this particular legislation which requires those authorities to be distinguished.

62 On a different point, I note that my view that s 6A(1) should not be construed so as to attribute to the word “improvements” a meaning which changes according to the use of the land, accords with a view expressed by Talbot J in Vanadi at 6.

63 The Valuer-General cites as supporting authority Collins v Willoughby Municipal Council (1967) 14 LGRA 257 at 259 – 260 where Else-Mitchell J said that the common understanding of “improvement” in the Valuation of Land Act 1916 (and other legislation) is “anything which is done to land by human endeavour extending from clearing virgin timber to the construction of buildings”. Although his Honour’s use of the word “anything” in the above comment may, prima facie, appear to lend support to the Valuer-General’s contention that the term “improvement” includes any structure or work on land, a closer analysis suggests otherwise. His Honour’s remark is to be viewed in light of his earlier reference to the notion of an improvement as a “utilitarian betterment”, a phrase his Honour adopts from the judgment of Williams, Webb and Kitto JJ in Thompson v Randwick Municipal Council (1950) 81 CLR 87 at 104 (to which I have earlier referred). His Honour also comments at 260 that: “The qualification that the improvement must be ‘of the area’… would appear to me to do no more than confine a council to the resumption of land in cases where a benefit to its local government area will ensue”. His Honour then goes on to list the ways in which the proposed development would benefit the local government area in question. His Honour’s comments, therefore, far from supporting the Valuer-General’s contention, tend to suggest that an “improvement” in this statutory context is, indeed, something which adds value to the land when compared with its natural state.

64 The Valuer-General submits that the operation of s 6A(1), leaving aside the land improvements qualification, is summarised in a 1960 NSW Parliamentary Committee of Inquiry report on certain matters arising under the Valuation of Land Act 1916 at paragraph 104, where it was said: “The present definition of unimproved value assumes that the land to be valued is in its primeval state or as it was when Australia was discovered, but that it has the advantages attributed to extrinsic circumstances, such as roads, railways, settlement in the neighbourhood, public services and amenities brought within reach, potential usage, and other factors not resulting from the operations on the land of successive occupiers”. This statement by a non-curial body was made in relation to a definition of “unimproved value” which has since been replaced by s 6A(1) which refers instead to “land value”, and it does not specifically address the meaning of “improvements”.

65 Consistently with the trend of the High Court cases to which I have referred, in Department of Natural Resources and Mines v QNI Metals Pty Ltd [2002] QLAC 71 at [10], the Land Appeal Court of Queensland held, after citing the dictum of Morrison set out above, that:

Whether the structures are improvements is a question of fact which will be answered by determining whether, in the market place as at the date of valuation, the land with the structures in place was worth more than it would have been without them. If the structures enhanced the value of the land, they are improvements and the unimproved value is to be determined as though the structures did not exist.

66 The Ashfield applicant suggests that other dicta in this case provide a measure of support for its position. It was said in this case at [13] that if a different use from that in place at the date of valuation was proposed as the highest and best use, then the existing structures would be rendered useless and a purchaser would be faced with demolition costs of the buildings. However, the discussion which ensued was inconclusive as to the valuation consequence. It was also obiter because in fact it was decided at [16] that the current use of the property was its highest and best use and the buildings thereon were improvements which therefore had to be notionally removed when valuing the land.

67 The Ashfield applicant seeks to outflank s 6A(1) by submitting that the building on the Ashfield Land is not an improvement but a “worsement” and, therefore, that there is no statutory assumption that it “had not been made”. The word “worsement” is not to be found in the Macquarie Dictionary (3rd ed), the Shorter Oxford English Dictionary, the Australian Oxford Dictionary and Butterworths Australian Legal Dictionary. The word “worsement” is employed in Rost and Collins Land Valuation and Compensation in Australia (3rd ed 1984) at 65:

It has been shown that in ascertaining the unimproved value of land, the land must be considered as being in its original undeveloped condition but possessing all the advantages of its present environment. In some cases, however, land has suffered a ‘ worsement ’ and compares unfavourably with its original condition . That is, its present physical condition, as a result of operations upon it, may render it of less value than if such operations had not been undertaken.

[emphasis added]

68 So understood, a “worsement” is the antithesis of an “improvement”. It is that to which Gibbs J referred in Brisbane City Council v Valuer-General for the State of Queensland (1978) 140 CLR 41 at 51 when he said “something done on or appertaining to land which reduces rather than enhances its value is not an improvement for the purposes of the Act, any more than it would be in the ordinary sense of the word.”

69 I am content to use the word “worsement” as the antithesis of “improvement”, to describe the effect of human operations on land which (as at the valuation date) decreases the value of the land compared with its natural or virgin state. Section 6A of the Act is silent about worsements. It contains no statutory assumption that worsements had not been made. That is because worsements are not “improvements” and s 6A(1) only requires such an assumption to be made in respect of improvements. I accept that a worsement, as I have defined it, should be taken into account under s 6A(1).

70 This is consistent, I think with Kiddle v Deputy Federal Commissioner of Taxation (1919) 27 CLR 316 which Rost and Collins Land Valuation and Compensation in Australia (3rd ed 1984) at 65 treat as a worsement case. There, a pastoral property consisted partly of land which had been improved to its full capacity, and partly of land which was practically useless because, having once been partially improved by ring-barking, the process of destruction had not been continued. The cost of improving it by destroying the timber would have been at least equal to the value of the land when so improved. Knox CJ, sitting alone, held that in assessing the unimproved value for the purposes of the Land Tax Assessment Act 1910 (the same Act later considered in Morrison), the useless area should be taken into account and not disregarded. The useless area in Kiddle may be called a “worsement” according to the definition adopted by Rost and Collins and myself.

71 However, I do not accept the Ashfield applicant’s submission that the building on the Ashfield Land are not improvements but worsements. That is because they add value to the Ashfield Land, as at the valuation date, compared with its value in its natural state which, in my view, is the meaning of “improvements” in s 6A(1).

72 In a number of Queensland valuation cases, it has been held that where the condition of land has been detrimentally affected by human activities, that detriment may be described as a “worsement” which may be taken into account in the valuation process. Those cases include Valuer-General v Marano (1978) 5 QLCR 194 to which the parties in the present case referred. Other cases include Raynbird v Valuer-General (1980) 7 QLCR 106, Caltex Oil (Aust) Pty Ltd v Chief Executive Department of Lands (1996) 16 QLCR 435 and Hegira Ltd v Minister for Natural Resources and Mines [2005] QLC 0051.

73 In Valuer-General v Marano (above) a “worsement” was held to exist. There, sugar cane land was affected by the presence of stone naturally occurring upon it which “was washed down with continuing erosion arising in consequence of development work undertaken by the owners” at [199]. Therefore it was a consequence of human activity on the land. The Court said at [200]: “We consider that the ‘worsement’ arising because of the presence of this stone on the assigned area, irrespective of its source, is a matter which must be taken into account in determining the unimproved value at the date of valuation… The judgment of the Privy Council, delivered by Lord Dunedin in Toohey’s Limited v Valuer-General [1925] AC 439 is authority that in the event of a worsement resulting from prior operations on land, that land must, in ascertaining its unimproved value, be valued ‘as it exists’”. If the Court in Marano meant that human activity on the land had the effect of diminishing its value compared with its natural condition, then I do not disagree with the decision.

74 However, a Queensland case supporting the applicants’ contention that “improvements” have to add value to land for the purpose of its highest and best potential use is Caltex Oil (Aust) Pty Ltd v Department of Lands (above). There the parties agreed that the highest and best use of land was as residential use. The land’s existing use was as a service station. It was probably contaminated to a significant extent as a result of that use. A majority of the Land Appeal Court held that the fact that the land was classified as a “probable site” under the Contaminated Land Act 1991 (Qld) should be taken into account in determining its unimproved value under the Valuation of Land Act 1944 (Qld). The majority also said:

If the service station structures add value to the land, then the highest and best use of the land must be something which involves use of those structures, not their demolition. If the highest and best use of the land is for residential purposes, then the service station structures can add nothing to the value of the land as vacant land. If anything, the value of the land with the structures on it should be less than its value as vacant land, since the structures must be demolished and removed in order to develop the land for its highest and best use. For the purposes of residential use, they are a disadvantage. As we have shown above, the valuer must take the land as it is, with all its disadvantages...

It may be accepted that the Valuation of Land Act requires the determination of the unimproved value of the land, and it is clear that unimproved value must be determined on the assumption that any improvements did not exist on the relevant valuation date. However the subject land was not necessarily improved land because the service station structures did not necessarily constitute improvements…

It cannot be said whether a structure on or other quality of land amounts to an improvement in this sense until it is known whether the structural quality enhances the value of the land. Any enhancement in turn will usually depend upon whether the structure or quality advances or inhibits a particular use. Thus, whether the structure or quality constitutes an improvement cannot ordinarily be known until the highest and best use of the land is determined…

The Valuation of Land Act is not a code of valuation methodology. It assumes the existence of the valuation process and requires its application in the cases and with the modifications prescribed by the Act. The starting point of that process is the determination of the highest and best use of the land being valued.

75 I respectfully disagree with this view for reasons which I have expressed earlier, unless it can be explained as attributable to differences in the Queensland legislation there under consideration compared with s 6A of the NSW Act. The Valuer-General submitted that the Queensland cases may be distinguished because of differences between NSW and Queensland valuation legislation, in particular:

(a) the definition of ” unimproved value ” in s 3(1)(b) of the Valuation of Land Act 1944 (Qld) requires an assumption that the improvements “ did not exist ” as at the relevant time, whereas s 6A(1) of the NSW Valuation of Land Act requires an assumption that the improvements “ had not been made ”. The NSW provision, according to Toohey’s Ltd v Valuer-General [1925] AC 439 at 443, means that improvements “ are to be taken, not only as non-existent, but as if they never existed ”;

(b) there is no provision in the NSW Act equivalent to s 3(2) of the Queensland Act which provides that the “ unimproved value ” shall in no case be less than the sum obtained by deducting the value of improvements from improved value. Thus, the Queensland Act requires the exercise of deducting the value of improvements from the improved value. The Valuer-General submitted that it is wrong under s 6A(1) of the NSW Act to value land by determining its improved value and then subtracting the value of improvements: Toohey’s Ltd at 443.

76 It is unnecessary for me to decide whether legislative differences in Queensland warrant a different approach than in NSW, but I am not sure that they do. In Valuer-General v Marano, from which I have quoted above, the Queensland Court relied not on any special aspect of the Queensland legislation but on Toohey’s, which was concerned with NSW legislation, as authority that in the event of a worsement resulting from prior operations on land, that land must, in ascertaining its unimproved value, be valued “as it exists”. The more controversial proposition in a Queensland case is that quoted above in Caltex.

77 For these reasons, I do not accept the Ashfield applicant’s submission that the buildings on the Ashfield Land are worsements and that demolition costs and interest expenses during the demolition period should be deducted when determining land value under s 6A(1).

D. ALLOWANCE OF VALUE OF EXCAVATION

78 The Valuer-General’s expert valuer Mr McGuirk, included in the land value of the Ashfield land the additional value of the existing excavation for the commercial office buildings. The Ashfield applicant submits that this is erroneous because the existing excavation would not provide a benefit to the land according to its highest and best use (ie mixed use).

79 I do not accept the submission. Under s 6A(1) of the Act, land improvements, as defined, have to be taken into account. Section 4(1)(d1) relevantly defines land improvements to include “any excavation… for the purpose of the erection of a building, structure or work…”. In my opinion, this definition of land improvements, read with s 6A(1), requires the additional value due to the excavation to be included in the land value of the Ashfield Land. See Maurici v Chief Commissioner of State Revenue (2001) 51 NSWLR 673 (CA) at 679 [12].

80 Mr McGuirk valued the Ashfield Land excavation at $347,329 which I accept. No other valuation was proffered for the excavation.

E. CONCLUSION

81 For these reasons, in my opinion land value under 6A of the Act should be quantified as follows (see paragraphs 5 and 6 above):

Burwood Land	Ashfield Land
$475 / m2 for Burwood, $650 / m2 for Ashfield	$7,570,000	$10,877,100
plus excavation value	$ 729,390 $8,299,390	$ 347,329 $11,224,429

82 Consequently, I propose to make the following orders pursuant to s 40 of the Act, subject to giving the parties the opportunity to address me as to the form and quantum of the orders:

(a) in proceedings 31413 of 2004, in respect of the Burwood Land:
(i) appeal allowed;
(ii) order that the decision of the Valuer-General to which the appeal relates is revoked;

(iii) declaration that the land value of the Burwood Land as at 1 July 2003 was $8,299,390.

(b) in proceedings 31438 of 2004, in respect of the Ashfield Land:
(i) appeal dismissed;
(ii) order that the decision of the Valuer-General to which the appeal relates is revoked;
(iii) declaration that the land value of the Ashfield Land as at 1 July 2003 was $11,224,429.

83 I direct the parties on or before 12 July 2006 to arrange with the Registry for this matter to be listed before me in the week commencing 17 July 2006 for the purpose of settling the form and quantum of the final orders.