Daikyo (North Queensland) Pty Ltd v The Chief Executive, Department of Lands

[1993] QLAC 24

[1993] QLAC 24

 

In the Land Appeal Court of Queensland.

Re:Appeal against a decision of the Land Court-

Determination of unimproved value -
  City of Cairns.  AV91-476
(Valuation of Land Act, 1944)

Daikyo (North Queensland) Pty Ltd

v.

The Chief Executive, Department of Lands

J U D G M E N T

Delivered at Brisbane this thirty-first day of August, 1993.

This is an appeal by Daikyo (North Queensland) Pty Ltd against a decision of the Land Court affirming a valuation of $7.7 million made under the Valuation of Land Act 1944 (the Act) in respect of a parcel of land held by the appellant in Cairns. The relevant land is situated in Wharf Street adjacent to Trinity Inlet. The parcel has an area of 6972 m².  It is held under lease from the Cairns Port Authority.  The site is about 330 metres north-east of the post office and about 290 metres south-east of the Central Business District of Cairns.  It is within a locality containing international hotels and water based facilities.  The lease was granted in 1986 and covered land above and below high water mark.  Lease J on Plan NR 7508, as it is described, is of the land so described "together with the Lessor's wharf apron situate upon portion thereof".  It is agreed that the leased area comprises 5464 m² above high water mark and 1508 m² below high water mark.  The wharf which takes up the full frontage to Trinity Inlet consists of a reinforced concrete slab sitting on reinforced concrete pylons sunk into the bed of the inlet.  That part of it which is included in the lease covers the area of the lease which is below high water mark.  The remainder is in the ownership and control of the lessor.  It is used for cruise ship berthing.  The area was leased for the purposes of constructing thereon "a complex incorporating a cruise liner terminal, port control tower and ancillary facilities, including a tavern, restaurant, offices, transport interchange and tourist retail outlets".  Erected on the site is an "L" shaped colonial style building with a net lettable area of 4685 m² comprising 28 ground level specialty units, common coach terminal area, seven first level speciality shops, restaurant, three eatery areas, a first level tavern and second level office space.  Part of the complex is over the wharf.  The land is zoned "Special Purposes" under the City of Cairns Town Plan. 
           For the purposes of the annual valuation of the area as at 31st March, 1990 the chief executive determined the unimproved value of the land in the sum of $7.7 million.  The lessee (appellant before the Land Court and this Court) contended unsuccessfully before the Land Court for an unimproved value of $5.7 million.  The unimproved value sought to be determined by this Court is $5.9 million.  The difference between the sum contended for by the appellant and that held by the respondent lies essentially in the value of the land below high water mark (wetland).  Mr K F Malone registered valuer who valued the land on behalf of the appellant derived his value in the lower Court by applying this calculation:
           Land Above H.W.M.            5,464m² @ $1,100/m²  $6,010,400
           Land Below H.W.M.             1,508 m² @ $370/m²  $557,960
  $6,568,360
           Less:  Risk factor for obtaining zoning change @ 5%

6,568,360     x    5 

1           105  $312,779

$6,225,581

Less:  Council Rates during rezoning period  $46,795

$6,208,786

Less:  Loss of interest for 9 months @ 12%
  While obtaining change of zoning  $512,652

UNIMPROVED VALUE  $5,696,134
  ======

The valuation written by Mr P F Goodman-Jones registered valuer on behalf of the respondent was derived by applying these values to the relevant areas -

Solid Land

5464 m² @ $1150/m²         =         $6,283,600
           Apron area on Wharf
           1508 m² @ $950/m² =         $1,432,600
  $7,716,200

======

The primary values adopted for the dry land (which in fact formed the basis for valuing the wet land) were based on sales but in applying the sales Mr Malone differentiated on a relativity basis between the subject land and the land contained within leases B and F immediately to the north (the "Great Adventures" terminal site) to which values applied for this annual valuation reflected rates per square metre of $1150 and $1159 respectively on grounds that these comparison sites were superior being smaller in area (2782 m² and 3105 m²), are situated above high water mark and do not have a working wharf adjoining.  He contended before the lower Court and again before this Court that the existing use made of the subject land does not reflect the highest and best use and that an element of accommodation should be included which use is a prohibited use under the existing zoning.  Hence he made an allowance in his calculations for the risk involved in obtaining a change of zoning to either "Main Business and Shopping" or "Special Facilities".  For the purpose of valuing the wet land he had no sales to assist him.  Mr Goodman-Jones was in a similar position.  Mr Malone approached the valuation from two angles:

1)From a study of a number of precedents dealing with the valuation of lands situated below high water mark he found that values applied by the Courts varied between 25% and 50% of the value of dry land.  Mort's Dock and Engineering Co Ltd v. The Valuer-General (1922-24) 6 (N.S.W.) L.G.R. 162; Objections in the Valuation District of Tarro (1941) 7 The Valuer 55:  Mooloolaba Yacht Club v. The Valuer-General (V86-103) 17 October, 1986 (unreported):  Keith Lawrie Nominees Pty Ltd v. The Valuer-General (1986-87) 11 Q.L.C.R. 120: Spinnaker Sound Marina Pty Ltd V. The Valuer-General (AV89-135) 19 March, 1990 (unreported).

2)Having approached Gutteridge, Haskins and Davey who were the engineers for Trinity Wharf project he was advised that the replacement cost of the wharf at the relevant date was in the order of $2.7 million but that the specifications of the slab were in excess of what would be required to support a structure similar to the existing development.  He was advised that an amount of $2.2 million would adequately reflect a reasonable order of costs to erect a similar structure capable of supporting the existing development. 

He then wrote:

"The wharf is 75 years old and the Trinity Wharf building we are advised was designed with a life expectancy of 50 years.  We believe that the wharf has depreciated by an amount of 50%, and therefore has an "added value" of half replacement cost i.e. $1,100,000 or $730 per square metre.  Deducting this from the assessed value of the land above high water mark leaves a value of $370 per square metre for the land below high water mark or approximately 33% of the value of the 'dry' land which is in line with the previously mentioned Court Decisions."

Mr Goodman-Jones applied to the wet land a dry land value discounted by $200/m² in a process which appeared to have been governed on the one hand by equating the wharf with dry land (it carrying parts of the structures of the project) and on the other by recognising that it is not the same as dry land.  The allowance had some relationship with the cost of filling the area under the wharf but was not taken through to an actual development involving filling walling and so forth because of the upsetting of the balance by the existence of the wharf.  His approach even though partially applied has built into it the equation that the wharf is merged in land for the purpose of ascertaining unimproved value under the Act.  This came about through recognition being given to the provisions of S.12(2)(c) of the Act which in the proviso allows for a merger in land of invisible improvements where the improvements have been made by the Cairns Port Authority and the cost thereof has not been recouped from the lessee.  The complexity in the valuation became evident again in the approach taken by Mr Malone before this Court.  Gutteridge Haskins and Davey provided Mr Malone with an estimate of the additional foundation ground floor cost to develop a 10 storey building located on wet land over a clean marine environment in comparison with the cost to develop a 10 storey building on the adjacent dry land.  Assuming a pile capacity of 65 tonne and a founding level for land based piles of 12 metres below surface and for marine piling 18 metres based on increased skin friction the exercise yielded on a comparative basis the sum of $700,000.  No allowance was made in the exercise for contingencies.  The application of a contingency factor of 20% brought up a sum of $557/m².  The valuation calculation put before this Court by Mr Malone is therefore expressed as follows:

Land Above H.W.M.            5,464 m² @ $1,100/m²  $6,010,400

Land Below H.W.M.             1,508 m² @ $550/m²  $829,400

$6,839,800

Less:  Risk factor for obtaining zoning change @ 5%

6,568,360   x    5 

1            105  $325,705

$6,514,095

Less:   Council Rates during rezoning period  $46,795

$6,467,300

Less:   Loss of interest for 9 months @ 12%
           While obtaining change of zoning  $533,997

UNIMPROVED VALUE  $5,933,303
  ======

For practical real estate purposes, adopt  $5,900,000

This exercise however is inconclusive in that Mr Malone freely admitted that at the relevant date a 10 storey development would not constitute the highest and best use of the site.  The exercise thus does little by way of proof save that an inference may be drawn which seems to have been accepted from the outset that wet land would be dearer than dry land to develop from an unimproved (natural) state.  Mr Goodman-Jones was again called.  He adhered to the valuation he put before the lower Court.
           In the lower Court the learned Member after finding that the value adopted by Mr Goodman-Jones of $1150/m² on an unrestricted freehold solid fill basis and on a main business and shopping zone basis was not proved wrong he went on to consider the question whether the wharf for the purposes of the valuation should be seen as a visible or invisible improvement.  At p. 11 of his decision he said:

"If the improvement is seen not as a "visible" improvement, but one which has merged with the solid land, used in the role of supporting a building for commercial usage, then it, in my opinion, by whatever structural description, equates a site improvement, which in the context and intent of the legislation as I interpret it, could be correctly described as an "invisible" improvement.

The remaining test is whether that is an unreasonable conclusion.  The lessee is not, in my opinion, disadvantaged, whether the site improvement is of solid fill or of a platform-type nature, except to the extend of the degree of efficiency.  The structure relieved the lessee/developer of the cost of providing the necessary foundations."

In his evidence before us Mr Goodman-Jones said that the reason the lease extended over the wharf was because the wharf was there;  that it has been utilised to support the existing development and that if it was not there the Cairns City Council - Port Authority Master Plan would require a promenade along the frontage.  On that reasoning advantages are apparent but this does not in our opinion solve the problem.
           We may recapitulate briefly what is required to be considered under the Act.  The relevant area is held under lease from the Cairns Port Authority.  The leased area consists of land above high water mark and land below high water mark.  On the land below high water mark there is a wharf.  The wharf has been utilised as a foundation for the building upon the land.  For the purposes of the valuation it must be assumed that the land is held on an unrestricted freehold basis (see Queensland Turf Club v. The Valuer-General (1979) 6 Q.L.C.R. 180 and cases cited therein). S. 11 of the Act requires a valuation of the unimproved value of the land. S.12(1) says that for the purpose "unimproved value" means (insofar as is relevant to this case) -

"(b)In relation to improved land, 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, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist:"

S. 12(2)(c) provides the definition of "improvements" .  The paragraph provides -

"(c)'Improvements' means, in relation to land, improvements thereon or appertaining thereto, whether visible or invisible, and made or acquired by the owner or his predecessor in title, and includes all such destruction of suckers and seedlings as is incidental to the destruction of timber, and also includes the destruction of other vegetable growths and of animal pests on the land to the extent to which such destruction retains it utility, but does not include the destruction by any person of any such growths or pests which are allowed to establish themselves on the land during his ownership, except to the extent (if at all) to which it restores wholly or partly so much of the utility of a previous improvement in the nature of the destruction of such growths or pests as is, by the subsequent provisions of this definition, deemed to have been lost, and any improvement consisting of the destruction of such growths or pests, by whomsoever the same may be effected, shall be deemed to have lost it utility to the extent to which, after it has been made, other growths or pests (as the case may be) are allowed to establish themselves on the land:

Provided that in the determination of the unimproved value of the land the term does not include invisible improvements, other than timber treatment, where such invisible improvements have been made by the Crown whether in right of a State or in right of the Commonwealth (including a statutory body representing the Crown), a Local Authority or a Harbour Broad except to the extent, in the case of a purchaser or lessee from the Crown, statutory body, Local Authority or Harbour Board, to which the Crown, statutory body, Local Authority or Harbour Board has been recouped in respect of expenditure on such invisible improvements by such purchaser or lessee otherwise than by payment of rent, rates or taxes."

Historically legal precedent and text book writers have not been concerned with improvements readily apparent and understood as improvements - buildings, yards, fences etc, but rather with the operations of man which have the effect of enhancing the value of land but which may not be readily apparent - see Morrison and Ors v. Federal Commissioner of Land Tax (1913 - 14) 17 C.L.R. 498 per Griffith CJ. S. 12(2)(c) appears to recognise the dilemma that may exist between improvements which are visible and invisible. The bulk of the paragraph appears to be taken up with qualifying that which may not be readily apparent (invisible improvements). Then there is the proviso which was inserted by the Valuation of Land Act Amendment Act 1974 (No. 41) and amended by the Valuation of Land Act Amendment Act 1984 (No 43) by including the words "whether in right of a State or in right of the Commonwealth". The effect of the proviso is that the relevant improvement merges in land and therefore the physical state and condition of the land as so improved is for the purpose of the valuation to be taken as its unimproved state. It took but a few years from the insertion of the proviso for the matter to be tested in Court. This occurred in Amoco Australia Pty Limited v. The Valuer-General (1977) 4 Q.L.C.R. 427. The case involved the valuation of land on Bulwer Island. It was accepted that the general level of the land was lifted by fill at the expense of the Crown which had not been recouped by the Crown from the company other than by the payment of rents, rates and taxes. The case was heard by the then President Mr Smith. His decision provides a learned examination of the terms "visible" and "invisible". He concluded after a review of case law, text book writers and various reports of Committees of Inquiry that filling was an "invisible" improvement. He rejected a strict application of the ordinary everyday meaning of the words - whether or not the improvements are perceptible to the eye - as the relevant test. At page 443 he said -

"It appears to me that those who professionally practice valuation and/or are versed in its principles, generally accept that filling is an invisible improvement and that an "invisible improvement" is one which merges (i.e. loses its character or identity) with the land, is an improvement of or to land and generally changes and enhances or maintains the quality of the land in that it enables it to be put, or continue to be put, to a higher and more beneficial use than in its natural state.

The term "invisible" is thus one of professional or technical meaning and significance. It is generally understood within the valuing profession as having a different meaning to its ordinary common every day usage. In these circumstances and as the Valuation of Land Act deals with a technical subject - the valuation of land - it is, in my opinion, the professional and technical meaning which should be adopted in interpreting the terms of the Act."

We take particular note of the words used in the first paragraph and we can understand why a valuer (and the layman) could accept works such as filling as being merged in land.  Such interpretation does not appear to us to be repugnant with the view that visible improvements are those such as structures which may readily be apparent and understood for what they are and invisible improvements such as filling drainage, reclamation etc as being merged in land and unrecognisable except, generally speaking, by the professional and possibly only with the aid of enquiry and research.  This is but in our considerations a broad classification and is not meant to be conclusive.  It merely serves to illustrate that in our opinion it would be difficult to hold that the structure on the subject land was an invisible improvement in the sense in which those terms have been discussed and applied in the Amoco case.  Indeed everything about the case points towards the opposite conclusion.  Counsel for the respondent in an endeavour to overcome the result which follows bravely submitted that the Court should regard the wharf as performing the function of solid fill and therefore merged in land.  To do so in our opinion would be contrary to the findings of the Land Appeal Court in O'Brien Nominee Pty Ltd v. The Valuer-General (1979) 6 Q.L.C.R. 280 which Court held that the section requires that the actual improvement on the land be considered and not some hypothetical improvement and 2) the Act which clearly requires that for the purpose of this case a distinction be drawn between visible and invisible improvements. In order to emphasise the ambiguity which may arise were the improvement on the subject land deemed to be land we may ask what the position would be were there a level above the wharf platform which like the platform was incorporated in the development. In this sense it may be said of the subject lease that what is leased is land and building though the building be only a foundation. We accordingly hold that the wharf structure is a visible improvement within the meaning of the Act and that for the purposes of the valuation it is to be assumed not to exist. We are then left with a parcel of land consisting of both dry and wet land in the one title and with frontage to a cruise liner wharf. In that context we have no difficulty in contemplating a development of the subject area akin to that which is on the land linking with and borrowing from the wharf which is external to the boundary. In this light we see no reason to distinguish between the subject lease and leases B and F which have direct water access. Neither valuer would regard the existing development as the highest and best use of the site but neither could be positive as to what would constitute the highest and best use at the relevant date. Mr Malone leaned towards the view that a similar (mixed use) development with some accommodation may be the highest and best use. Mr Goodman-Jones considered that office accommodation may be preferable but neither dispensed with the existing mixture of uses as not being a mixture which could be incorporated in any development. In fact the opinion of Mr Malone to include accommodation was influenced by the mixture of uses covering transport terminals at Townsville and Brisbane. The mixture (including the actual use) has a close affinity with uses which are permitted in the "Main Business and Shopping" zone. In the circumstances and not being in a position to form an opinion with confidence on the matter of highest and best use we are not persuaded by Mr Malone that we should make a specific allowance for the risk factor in obtaining a rezoning of the subject land to a "Main Business and Shopping Zone", nor for Council rates and loss of interest during the rezoning period. Rather, we follow the approach made by Mr Goodman-Jones and the Court below and determine the unimproved value of the land on the basis of its existing "Special Purposes" Zoning. We are also in agreement with the finding of the learned Member that no differentiation should be made in the valuation for size more particularly between this site and leases B and F adjoining. We are therefore of the opinion that the site as dry land could reasonably be valued at the rate of $1,150 per m² for the purposes of this valuation.  Of the methods put forward by Mr Malone in ascertaining a value for the area of wet land we find that a comparison of likely development costs between wet and dry land is the most useful for the purposes of this case.  Although we are not convinced that the result of the exercise he performed could be held to be correct in view of his own evidence qualifying highest and best use we are satisfied that the wet land would be substantially

dearer to develop than dry land.  An application of one-half the value applied to the dry land would in our opinion be sufficient recognition of the inferiority of one to the other.  This may accord with the cases cited in support of an application of 50% of dry land value (Mort's Dock etc supra) but this is coincidental as different circumstances and methods apply (principally because in this case the land is held in one title and not under separate titles).  It follows on our findings that a value of the subject land may be ascertained as follows: 

5464m² x $1150      =         $6,283,600
           1508 m² x $575        =         $  867,100
  $7,150,700
In the circumstances we adopt an unimproved value of the subject land at the relevant date in the sum of Seven Million, One hundred and fifty thousand dollars ($7,150,000).  The appeal is allowed the decision of the Land Court is set aside and the unimproved value of the subject land is determined in the sum of Seven Million, One hundred and fifty thousand dollars ($7,150,000).

Justice of the Supreme Court.

President of the Land Court.

Member of the Land Court.