Cotton & Co Pty Ltd v Minister for Lands
[1989] TASSC 88
•7 April 1989
Serial No. B10/1989
List “B”
COURT: SUPREME COURT OF TASMANIA
CITATION: Cotton & Co Pty Ltd v Minister for Lands [1989] TASSC 88; B10/1989
PARTIES: COTTON & CO PTY LTD
v
MINISTER FOR LANDS
FILE NO/S: 941/1983
DELIVERED ON: 7 April 1989
JUDGMENT OF: NETTLEFOLD J
Judgment Number: B10/1989
Number of paragraphs: 46
Serial No B19/1989
File No 941/1989
COTTON & CO PTY LTD v THE MINISTER FOR LANDS
REASONS FOR JUDGMENT NETTLEFOLD J
7 April 1989
In this case each party relies in essence on the valuation of one valuer only. It is convenient to turn first to the valuation submitted by Mr R C Ward on behalf of the Minister.
Mr Ward took the view that it was necessary to consider first the use or potential use of the acquired land in the hands of the plaintiff. He accepted that the three parcels acquired are located in areas which would have high market appeal if capable of being offered for sale by the owner on the open market. Each area fronts a beach, enjoys excellent views and is relatively private. However, from an agricultural viewpoint the loss of this land from the property as a whole would be of negligible consequence to its overall viability. Mr Ward felt that the quantum of compensation was, therefore, heavily dependent on the ability of the plaintiff, in the absence of the Crown acquisition, to obtain subdivisional planning approval.
Having formed that view, Mr Ward sought the advice of the Town and Country Planning Commissioner as to whether approval for subdivision, if sought, would be granted. Mr Ward reached the conclusion that the Commissioner was strongly against the granting of subdivisional approval because of the possible threat to the scenic qualities of this stretch of coastline. Having formed that view, Mr Ward assessed compensation as follows:—
1that the Commissioner will not approve the subdivision of any land for residential purposes between the highway and the sea;
2he then considered a "before and after method" of valuation as one approach; and
3he considered a pro rata loss in value as a final step.
Mr Ward reached the conclusion that, in view of the Commissioner's attitude, as he understood it, it was not appropriate to look at these parcels as single allotments because the risk of being refused permission to subdivide 'was so great as to cause them to have very little value.
The "before and after method"
The total area of land owned by the plaintiff before acquisition and situate between the highway and the sea was 155 hectares or thereabouts. A notional disposition of this land before the acquisition was considered and the details are set out in Revised Appendix 1. The notional disposition was in five lots because the plaintiff could have sold those lots and made title to them without any permission from the Town and Country Planning Commissioner or any other authority. The Tasman Highway and the grant boundaries meant that there were these five "severance lots". Revised Appendix 1 shows the reasoning involved in this aspect of the valuation. It reads as follows:—
"REVISED APPENDIX I
VALUE OF LAND BEFORE ACQUISITION
GROSS REALISATION
Lot, south of Troyhelemer Lagoon 43.5 ha
inc. cottage $ 84,000
Lot 5 as per plan at appendix 4–6; 7.249 ha 33,000
Lot 4 as per plan at appendix 4–6; 22.31 ha 46,000
Lot 3 as per plan at appendix 4–6; 7.484 ha 28,000
Balance area between Lot 3 and the
northern property boundary above Webber Point 100, 000
$291,000
Less
Legal on Sale 1,400
Commission on Sale 6,472 7,872
$283,128
Less
Allowance for risk of
realisation 20% 47,188
$235,940
Less
Survey 5,500
Miscellaneous Costs 1,000
Interest 4 months @
10% 7,865 14,365
$221,575
VALUE ADOPTED $222,000"
Mr Ward decided that, after the plaintiff had lost the acquired areas, he could make title to seven lots to the east of the highway. The number of lots is increased because of the severances effected by the boundaries of the acquired parcels. He valued those seven lots as shown in Revised Appendix 1–2 which reads as follows:
"REVISED APPENDIX I – 2
VALUE OF LAND AFTER ACQUISITIONGROSS REALISATION
Lot 6 as per plan 10975 (Appendix 4–5)
36.3 ha $63,500
Cottage severance and cottage (Appendix
4–5) 8300m2 34,000
Lot 5 as per plan 10976 (Appendix 4–6)
7.249 ha 33,000
Lot 4 as per plan 10976 (Appendix 4–6)
22.31 ha 46,000
Lot 3 as per plan 10976 (Appendix 4–6)
7.484 ha 28,000
Lot 2 as per plan 10977 (Appendix 4–7)
34.13 ha 49,500
Lot 1 as per plan 1095 (Appendix 4–8)
29.9 ha 60,000
$314,000
Less
Legal on Sale 1,750
Commission on Sale 7,775 9,525
$304,475
Less
Allowance for risk of
realisation 22½% 55,924
$248,551
Less
Survey 6,000
Miscellaneous Costs 1,000
Interest 4 months @
10% 8,285 15,285
$233,266
VALUE ADOPTED $233,000
SUMMARY
Value before acquisition as 5 potential lots = $222,000
Value after acquisition as 7 potential lots = $233,000
– $ 11,000
Therefore Compensation Nominal"
From these analyses Mr Ward concluded that the Crown acquisitions have in fact had a beneficial effect on the potential saleability of the land between the highway and the sea. The final conclusion was that, on that basis, compensation was nominal.
Having reached that result he treated the other method of valuation as his preferred method. That valuation appears in Appendix 2 to his valuation which reads as follows:—
"APPENDIX 2
Assessment of Compensation as at 7 March 1980
based on pro rata loss in value to the property
'Kelvedon' as a whole.
Total area of land acquired = 16.73ha.
Subject area has limited agricultural value. Overall value
of $500 per hectare has been adopted.
.. . 16.73ha. @ $500 per ha. = 8,365
Add 1 loss of exclusive use to southern
part of Kelvedon Beach, Cressy
Beach and Spikey Beach
3 @ $5,000 $ 15,000
2 loss of waterhole located at the
southern end of Kelvedon Beach $ 1,000
3 cost of supplying water to Webber
Point Paddock $ 4,624
$ 28,989
Value adopted = $29,000"
In defence of this valuation Mr Ward said that the property had its water frontage and still has its water frontage, albeit that the Crown has taken the beaches. But he claims that the beaches are still there, they still provide the aesthetic appeal to Kelvedon, the coastline is still an beautiful as ever, the only difference is the public now has access to the beaches. He did not think that the environmental amenity of the homestead had been diminished as a result of the acquisition. The beaches get very little use. The car park is about 300 metres around a bend from the entrance to the Kelvedon homestead and the homestead is another 300 metres west of the highway.
During cross–examination Mr Ward said "having got to the conclusion that there was no compensation on the before and after method to some extent I abandoned it and said let's look at something else".
He accepted that the figure of $500 per hectare in Appendix 2 "is just a general value that you might expect for middle class agricultural grazing property, nothing more. And that's the reason I've added in an additional $15,000 for the fact that we are taking beach areas". He added that he took it that it would be fair, as the figure of $8,365 was so low, to make an allowance for loss of exclusive use. As beach areas were being taken there had to be some added value over and above pure agricultural value and he allowed $5,000 per beach. The total of the two figures, $8,365 and $15,000, is $23,365 and that figure constitutes "the loss in value to the Kelvedon property as a whole".
An important exchange during the cross–examination of Mr Ward was the following:—
"QDid you consider the point that if separate saleable lots already existed because of the grant boundaries ...... and that those lots could be sold off and developed as of right then a proposal plan altering those boundaries to something more rational might be a public benefit?
AI didn't give it serious consideration, no . . . but I would make the point that in the before valuation you have five site values and, irrespective of how you adjust the grant boundaries you still have five sites—it is the site values that give the areas their value".
Later in re–examination he said that by "site value" he meant the value that is inherent in the site itself. In other words, the location, the views, everything that attracts someone to a particular location. The actual size of the land is to some extent immaterial. The site itself is the basic value, the additional amounts are "add ons".
It is clear that Mr Ward formed the view that it would be quite a "tragedy" to permit residential subdivision on that foreshore from the very nature and character of the foreshore. It would be an undesirable ribbon development.
The valuation submitted on behalf of the plaintiff was by Mr L. M. Jones.
When describing the basis of his valuation Mr Jones said:—
"The value of each of the three parcels of acquired land has been assessed on the basis that, at the relevant date, each parcel was separately saleable for it is considered that in the case of these acquisitions that is the correct basis."
The compensation payable has been assessed by Mr Jones as follows:—
"'Kelvedon Beach'
Land acquired 6.4 ha at $5,436 = $34,760
Add
Severance 3,476
Injurious affection to homestead
and surrounds 10,000
$48,236
Say $48,000
'Spikey Beach'
Land acquired 4.968 ha at $6,177 $30,690
Add for severance 3, 069
$33,759
Say $34,000
'Webber Beach'
Land acquired 5.3734 ha at $6,177 $33,194
Add for severance including loss of
water 3,320
$36,514
Say $36,500
Total Compensation $118,500"
Mr Jones relied on previous sales in arriving at the result—the sale of Mayfield Beach in September 1978 for $25, 000, the area being 1.39 hectares and the former jetty site at Lisdillon, sold in October 1978 for $20,000, the area being 1.42 hectares.
Certain relevant factors are specifically mentioned in Mr Jones' report. They are:—
"(i)The property as a whole has been deprived of its three most attractive and valuable beach areas.
(ii)The homestead block has been deprived of that part of 'Kelvedon Beach' which relates most directly to the homestead and improvements.
(iii)The residential and environmental amenity of the homestead has been diminished by the proximity of the car park and public reserve on 'Kelvedon Beach'.
(iv)The strip of land between the Highway and the Bay has been fragmented, management made more difficult and management costs increased.
(v)The parcel of land to the north of 'Webber Beach' has been left with inadequate stock water.
(vi)The future use and operation of the airstrip to the south of 'Kelvedon Beach' has been placed in jeopardy."
Mr Jones then states the following reasons in his report:—
"Assuming a willing but not anxious purchaser and seller, the price to be determined for each of the three acquired parcels is the price to be agreed between the parties and it is difficult to conceive of any rational ground on which the compensation payable under compulsory acquisition would be less than the price that would be agreed between the purchaser and the owner assuming both were willing and able to negotiate.
The Crown, which could have purchased the land without resorting to compulsory acquisition, demonstrated its willingness to pay market value for beach reserves, such as those compulsorily acquired, when it purchased Mayfield Beach at public auction on 25 September, 1978 for $25,000.
Because each parcel was capable of sale it is considered that the 'before' and 'after' method of valuation as discussed in the Proof of Evidence of Robin Charles Ward is inappropriate in this case.
Also, because there is direct evidence of value for the three acquired beach areas, the assessment of compensation based on the pro rata loss in value to the property as a whole is not preferred."
Mr Jones said in evidence that the beaches along the Kelvedon seaside are the most attractive anywhere in Tasmania, possibly the world. There are marvellous views across to the Freycinet Peninsula and across Oyster Bay and, on a sunny day, the view is "absolutely spectacular".
Mr Jones took the view that the two sales on which he relied are particularly relevant because they are in the same type of country and nearer the relevant date. Mr Jones adjusted the Mayfield Beach price to $27,500, the relevant date for our purpose being approximately 18 months later. Mr Jones pointed out that a purchaser will pay a certain amount for a lot of a particular size and, as the area expands, the rate per unit area falls off quite dramatically.
Mr Jones agreed that he relied very heavily on the Mayfield Beach sale and the Lisdillon Jetty sale. Those sales indicated $25,000–$27,000 for that type of parcel.
Mr Jones did not have regard to the fact that, as a result of the severance, the number of lots separately saleable without the submission of a proposal plan might be increased. He thought the appropriate method was to assess the value as individual lots.
Mr Jones felt that the "before" and "after" approach was not appropriate. In particular, he took issue with the profit and risk factor. He felt that you would not do a normal subdivision type exercise because the land can be readily subdivided off the road, there is very little in the way of development costs and very little risk. The lots would probably sell in the one day at auction because of the limited supply of allotments along the beach and the ready access to the highway. He felt the "before and after method" was fraught with problems because of the subjectivity of the method.
Mr Jones' felt that the highest and best use of the land was as foreshore land for recreational pursuits. He includes in this the building of country homes to provide a base from which these activities can be pursued. Most of the smaller areas have been bought for holiday houses and shacks.
Mr Jones said he "broadly agreed" with the prices stated in Mr Ward's before and after exercise.
In his valuation of Kelvedon Beach because of the time factor previously mentioned he added ten per cent to $25,000 to produce $27,500. For the balance of the area of Kelvedon Beach he added $500 per acre giving $34,760.
The "severance" figures in the valuation represent a 10 per cent loading on to the market value to arrive at this value to the owner as distinct from loss of amenities. The acquisition "takes the eyes out of the property".
During cross–examination Mr Jones agreed that none of the acquired areas was saleable on the open market at the date of acquisition. They were not separate allotments with titles. But they were all saleable to the Crown under s20(1)(a) of the Act. There could be a purchase by the Crown by agreement. The Crown was in the market as a buyer as was demonstrated by the purchase of Mayfield Beach. He agreed that, to achieve the sale of the acquired portions at the relevant date the owner would have to sell them as part of larger areas of his property.
Mr Jones' view is that the land is unique and becoming increasingly an asset. The property as a whole has a long family association and it had future potential. $118,000 is the sort of sum of money the plaintiff ought to pay to retain that land rather than lose it. You would not give up the acquired area for just simply market value because of the other intangible benefits to Kelvedon as a whole.
With great respect to all concerned, I am embarrassed by the fact that I have formed the opinion that each of the valuations is open to serious criticism.
With great respect, I incline to the view, as at present advised, that Mr Jones is nearer the mark than Mr Ward. But, unfortunately, the view I have formed is that Mr Jones' proof has been prepared after erroneous legal advice. The error can be isolated in the following passages in the argument for the plaintiff (I relate the passages in substance and not necessarily verbatim):—
The Crown says that, if these acquired areas had separate titles on the relevant date, they would have sold for figures which appear in the evidence of both Mr Jones and Mr Ward. Therefore, there was a market at those sorts of figures if the titles were available. "The dispute is whether the fact that new subdivision could be prevented, unless there was approval (ie to subdivision by the Town and Country Planning Commissioner) should be taken into account in assessing the value of what the Crown chose to take. We say the restrictions you should have regard to are the restrictions that would apply to a hypothetical purchaser and there are none" (the underlining is mine). There is no doubt that learned counsel intend to assert that restrictions preventing or hindering the hypothetical seller subdividing on the relevant date are to be ignored. "... You assume that there has been an acquisition on that date. It is no use saying the sale is prohibited. You can't proceed to square one if you say the sale is prohibited. You have got to assume the sale and say what are these parcels worth".
If I were to accept that submission — for this purpose I ignore detail altogether — Mr Jones' valuation would be accepted. And I believe that, in substance, the Minister would agree that that is so. But, as at present advised, I regard the submission as contrary to principle and not supported by the cases cited. As at present advised, I take the legal position to be settled. It is as follows:—
"The value which has to be assessed is the value to the old owner who parts with his property, not the value to the new owner who takes it over. If, therefore, the old owner holds the property subject to restrictions, it is a necessary point of inquiry how far these restrictions affect the value . . . although . . . restrictions must be kept in view, the chance of such restrictions being discharged must also be kept in view."
(Corrie v MacDermott [1914] AC 1056 at 1062 and 1063–4 and the cases there cited; Royal Sydney Golf Club v Federal Commissioner of Taxation 97 CLR 379 at 391 per Kitto J; Sydney Sailors' Home v Sydney Cove Redevelopment Authority 36 LGRA 106 at pp116 (statement of issue), 117, 118 and 120; Land Acquisition, 2nd ed, D Brown, p122; Fricke: Compulsory Acquisition of Land in Australia, 2nd ed pp331–334).
As at present advised, the following passage from Brown (supra) appears helpful:—
"In determining the highest and best use of the land, that is to say, where it is claimed that the land has a greater value if it were used for a different purpose from its existing purpose, the claimant needs to establish:
(a)the use must be legal — it must come within the planning and building regulations;
(b)the use must be within the realm of probability — it must be likely, not speculative or conjectural; and
(c)the use must be of a kind to come within the imagination of a prudent purchaser.
The concept of highest and best use refers to the market value of the land."
Mr Jones' valuation ignores propositions (a) and (b) in the above passage from Brown and the whole principle in Corrie v MacDermott. I should add that, on the evidence in this case, the Town and Country Planning Commissioner was using his power to approve or reject subdivision plans as a type of de facto planning power.
I cannot find anything in the cases cited by learned counsel for the plaintiff indicating an intention to reject the principle in Corrie v MacDermott. Indeed there is nothing in those cases which affects in any way the classic statement of the position by Dixon CJ in Turner v Minister of Public Instruction (1955–56) 95 CLR 245 at 268–269:—
"There is however one matter comprised within the questions submitted in the case stated which does involve the legal basis for valuing the land. Whatever else may be true as to the process of valuation employed, it is the entire land which must be valued as at the date of resumption. It is, of course, to be valued in cases of compensation with a view to ensuring that the actual value contained in the land is replaced in the hands of the owner by an equivalent amount of money. The value must therefore be the value to the owner which the land possessed to him in its condition at the date of resumption. That value was necessarily affected by all the advantages which the land possessed and these might be a matter of future or even contingent enjoyment. Future advantages or potentialities must not be excluded. At the same time the value of these things must be assessed according to the condition of the land as it stood at the time of resumption: 'it is the present value alone of such advantages that falls to be determined': Cedars Rapids Manufacturing & Power Co v Lacoste [1914] AC 569, at p576. You must not notionally bring what is only potential into actual being and value it as if it existed.
In the case of the land in question no steps had been taken for sub–division. It was necessary to survey it, to prepare plans for sub–division, to obtain the consent of the local authority, to make streets or roads and then to place it upon the market. As the land stood it was incapable of sale in sub–division and it was necessary to make improvements or alterations in its physical condition before the sub–divisional prices could be obtained. In those circumstances it could not be sold in sub–division at the time of resumption. It was not therefore possible to ascribe to the owner possession of the present value of its sub–divisional potentialities on the footing that all you should do is to estimate what he would gain if he sub–divided the land at a future date and reduced the result to its then present value. This means too that the conclusion is clearly right which the learned judges of the Supreme Court expressed in the passage already quoted from their judgment, viz.: '... the only sale that could be considered is a sale of the land as it was at the date of resumption, that is un–subdivided, but having the clear potentiality that it was fit for subdivision' (1955) 55 SR (NSW ); at p322, 72 WM, p203."
That passage applies to this case. It is wrong to assume, contrary to the facts, that at the relevant date the acquired parcels had their own titles and, hence, were available for trade. They were not and may never have been. What Spencer's case contemplates is a hypothetical sale at the relevant date. It does not require you to pay exclusive attention to what the land was worth to a hypothetical purchaser. It requires you to consider, among other things, the value of the land in the hands of the hypothetical seller with all its advantages and disadvantages. One disadvantage is that there is no separate title and, therefore, it could not be traded separately at the time.
For these reasons as at present advised I must reject the submission that "it can never be relevant to the valuation whether the vendor–owner could or could not have severed himself. . . . . It is not relevant whether the severance could have been affected privately apart from the acquisition." And, as at present advised, I cannot accept the submission "the mistake is to look at these planning–zoning restrictions from the point of view of the vendor. You must look at them from the point of view of the purchaser . . . in all these zoning cases you look at the effect on the purchaser".
As at present advised, then, I see myself deprived of Mr Jones' advice on the real point in the case. For that reason there is indeed, to adopt the apt words of learned counsel for the plaintiff "a vacuum" t they deny the "vacuum" but my present view is that that is the position). At best I have only indirect indications of Mr Jones' view on the real point.
As at present advised I am not inclined to accept Mr Ward's valuation. I accept the criticism of learned counsel for the plaintiff and Mr Jones to the effect that the necessary creation of additional severance lots by the extraction process of vesting title to the acquired lands in the Crown cannot be treated as an enhancement in value of other adjoining land by reason of the carrying out of the purpose for which the acquired land was acquired within the meaning of those words in s31(1)(c). For present purposes, the purpose for which the land was acquired is sufficiently stated in the notices to treat, namely, "public recreation, amusement and land conservation". The necessary act of taking title is not a carrying out of that purpose. In saying that I do not overlook the principle in Re Mott's Hill Resumption (1918) 7 CLR 145 referred to in Collins: Valuation Compensation and Land Tax, 3rd ed, p209.
Unfortunately I am left to guess at what final use, if any, Mr Ward would have made of the figure of $222,000 in Revised Appendix 1 if he had accepted, as he was bound to do, the point just made. Putting that point another way, I am left to guess what he would have regarded as the highest and best use of the acquired lands at the relevant date if he had accepted that point. If he had accepted that point, would he still take the view that the highest and best use was the existing use of grazing or would he then take the view that the highest and best use was sale in severance lots, or as the Town and Country Planning Commissioner might otherwise allow, to purchasers who would erect residences on the lots? As at present advised I am inclined to the view that there might be a residential component in the value because the latter view as to the highest and best use is the correct one. But, as I see it, in the end, the correct answer to that problem depends on a hypothetical subdivision exercise which has not been adequately examined. To be specific, would expenses on and for sale, interest and allowance for risk of realisation mean that the figure of $222,000 or some comparable figure is so eaten away by these factors that no residential component of value remains? Having regard to the fact that it is common ground that blocks available for sale in that area would sell very readily I incline to the view, as at present advised, that the answer is no and there was a residential component in the value at the relevant date. If that is so, a grazing price valuation with an almost arbitrary addition of $5,000 per beach fails to reflect or disclose true market value.
I incline to the view that Mr Ward took far too rigid a view about the likely course which would have been taken by the Town and Country Planning Commissioner if a subdivision including the acquired lands had been submitted to him. It is indeed true that the Commissioner was against ribbon residential development along the coast and, of course, for very sound reasons. But I incline to the view that there is a good deal in the case put to the former Commissioner in cross–examination. In effect, that case was that, seeing that he could not stop the sale of severance lots as the legislation stood at the time, he might well approve a subdivision plan on the simple basis that a reasonable man faced with a choice between two evils chooses the lesser of those evils. In this necessarily hypothetical situation the Commissioner may well have allowed subdivision in return for the provision of adequate foreshore reserves and other concessions. The supply of those reserves by the owner would then have left lots for which legal title could be made and which had an obvious ready market indicated best by the Mayfield Beach, Lisdillon Jetty site and Boltons Beach sales. As at present advised I doubt whether the Coswell Beach sale should be used in the absence of further evidence (see Beard v Director of Housing [1961] Tas SR 141; Dixon v Glenorchy City Council, 63/68, Chambers J, p10 and Fricke (supra) p260).
There is no doubt that the law is that if there is doubt as to the amount properly payable by way of compensation the doubt should be resolved in favour of a more liberal estimate (Commissioner of Succession Duties (SA) v Executors Trustee and Agency Co of SA Ltd (1947) 74 CLR 358 at 374 and Brown (supra) at p123).
For these reasons, as at present advised, I incline to the view that the true figure for compensation is greater than the Crown figure and less than Mr Jones' figure. I could have a rough stab at it applying the above reasons in the process. But I have decided to publish these reasons to the parties at this stage and give them a chance to consider the position further in the light of these reasons. If a further hearing proves to be necessary the case will be given priority.
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