Grahame Allen & Sons Pty Ltd v Queensland Railways
[1999] QLC 9
•19 February 1999
|
BRISBANE
19 February 1999
Re: Claim for Compensation –
Resumption for railway purposes –
Acquisition of Land Act 1967 and
Transport Infrastructure (Railways) Act 1991.
(A98-08).
Grahame Allen & Sons Pty Ltd
v.
Queensland Railways
(Hearing at Gladstone)
J U D G M E N T
Introduction:
Grahame Allen & Sons Pty Ltd (“the claimant company”) owned land situated in Marrawing Road, Benaraby, about 20 kilometres south of Gladstone, described as Lot 1 on Registered Plan 604118, containing an area of 152.2 hectares (“the subject land”). Under the provisions of section 15 of the Acquisition of Land Act 1967 (“the Act”), the claimant reached agreement with Queensland Railways for the resumption of an area of land for a deviation of the North Coast Railway Line, subject to the payment of compensation.
The subject land was irregular in shape, with the Boyne River on the western boundary, the then North Coast Railway Line on the southern boundary, Marrawing Road on the eastern boundary, and about 320 metres of North Station Creek on the south-eastern boundary. It comprised undulating forest country, with moderate gravelly ridges towards the southern boundary, with easier ridges to the north and lower ridges and broad gullies or depressions to the east. The land had been selectively cleared, but had some gum and wattle regrowth. The timber had been cleared on the southern gravelly ridges for purposes of gravel extraction.
The resumption was in respect of a new rail corridor which departed from the old railway line on the property adjoining and to the south-east of the subject land. It entered the subject land about half way along the North Station Creek boundary, proceeding in a sweeping arc through the southern gravelly ridge area, before rejoining the old railway corridor just to the east of the Boyne River, severing a tapered area of about 12.857 hectares (“the severed area”), with a maximum width of about 170 metres and with the old railway line on its southern boundary.
There was some dispute as to whether the claimant was given the option of having the severed area acquired by Queensland Railways. It seems that the matter was discussed at an early stage when Mr Allen, on behalf of the claimant company, said that he would like to reserve his rights with respect to retaining the severed area, but he was not asked again. It was assumed by at least some of the witnesses that Mr Allen had requested that the severed area be retained by the claimant company.
By Proclamation dated 30 June 1994, and published in the Government Gazette of 1 July 1994, approximately 6.388 hectares was taken from the subject land for railway purposes for the Boyne River deviation and vested in Queensland Railways for an estate in fee simple as from 1 July 1994. A subsequent survey resulted in the resumed land being described as Lot 2 on RP 902548 with an area of 6.487 hectares, while the retained land became Lot 1 on RP 902548, with an area of 145.754 hectares. The severed area remained part of Lot 1 and was not given separate title.
The Claimant Company:
The claimant company was incorporated in 1978 and since that time has been engaged in all manner of general earthmoving and civil engineering activities. In or about September 1986, it purchased the subject land from the Kern Corporation (“Kern”) for $96,000. The land had previously been purchased by Kern from Capricorn Quarries Pty Ltd together with a number of quarries owned and operated by that company. Kern continued to use the name Capricorn Quarries in the operation of those quarries.
Mr Grahame Allen and Mrs Noelene Allen are the directors of the claimant company. Since 1973, Mr Allen had been involved in quarrying operations on adjoining lands to the south-east of the subject land. He was aware of the quality of the ridge gravel material on the subject land and when it was offered for sale he seized the opportunity to purchase it in the name of the claimant company.
Soon after purchase, the claimant company applied to the Calliope Shire Council for consent to conduct extractive industry on the subject land. On 26 May 1987, the claimant company received a permit (notice of consent), permitting development for “Extractive Industry – Gravel”, subject to certain conditions, which will be discussed later. That permit remained in force at the time of hearing of this matter.
In early 1993, Mr and Mrs Allen sold their interests in an earthmoving company, Grahame Allen Earthmoving Pty Ltd, to Caramar Investments Pty Ltd, trading as Cooks Construction (“Cooks”). As part of the agreement for the sale of the company, Mr and Mrs Allen entered into a restrictive covenant prohibiting any activity by them or any related entity in the business of earthmoving, construction, quarrying, or material supplies, for a period of about four years. That restrictive covenant expired in or about February 1997.
Mr Allen also became local manager of Cooks for three years. Cooks operated another quarry to the north of Gladstone at Yarwun known as Dutson Quarry. Therefore, quite apart from the restrictive covenant, Mr Allen considered that there would have been a conflict of interest for the claimant company to continue to operate the quarry on the subject land.
Prior to the sale of Grahame Allen Earthmoving Pty Ltd in 1993, the claimant company had carried out extensive quarrying on the southern gravelly ridge area of the subject land for a period of about five years from 1988. There was no dispute between the parties that approximately 300,000 cubic metres of ridge gravel in situ was removed from the site, which equates to 383,928 cubic metres of loose gravel. Over the five years the quarry was operating, that amounted to an annual absorption rate of 76,785 cubic metres.The quarry material was used by the claimant company and another related company in carrying out Government contracts, including contracts for parts of the Bruce Highway and Dawson Highway, Railway contracts, private contracts, earthworks (including earthworks and roadworks in industrial developments) and in subdivisions (including subdivisions by a related company, Lake Maroona Pty Ltd).
From the time of purchase of the subject land, it had been the intention of the directors of the claimant company to harvest the quarry material until all worthwhile resources were removed, or until the property became viable for rural residential homesite development, or preferably both. They regarded it as part of the company’s land bank. The claimant company had previously been involved in the subdivision, marketing and sale of developed land for Lake Maroona Pty Ltd. According to Mr Allen, it was intended to utilise the company’s expertise to manage both the quarrying and subdivision activities so that the maximum amount of quarry products was harvested prior to commencement of subdivision and so maximise the profit from both ventures.
In late 1993, the engineering firm, Golder Associates Pty Ltd (“Golder”), requested and obtained permission from Mr Allen to enter onto the subject land to carry out surveying and testing in connection with the proposed resumption. Later he was contacted by a valuer acting for the respondent and told that the claimant company would be given separate title for the severed area and that reasonable compensation would be paid for the resumption. On 20 April 1994, the claimant company entered into an agreement with the respondent for the taking of the land subject to the claimant’s right to claim compensation under the Act.
The claimant company respected the restrictive covenant entered into by Mr and Mrs Allen. During that period, the only gravel extracted from the subject land was for the purpose of supplying gravel contracts undertaken by Cooks and for use on subdivisions undertaken by Lake Maroona Pty Ltd. Since the restrictive covenant period ended in February 1997, production of gravel from the subject land has not recommenced because of Mr Allen’s involvement in the company leasing the Dutson Quarry at Yarwun. However, in Mr Allen’s opinion, quarrying operations could be recommended on the subject land in three or four days for an establishment cost of about $2,000.
The Effects of the Resumption:
The resumption affects the short-term and long-term use of the land in that
(i)the resumed area of 6.487 hectares, together with the quarry material on it, is lost;
(ii)the severed area of 12.857 hectares is severed from the balance of the retained land by the new railway corridor;
(iii)a buffer area of 20 metres on each side of the railway corridor, plus a batter area, is lost to quarrying;
(iv)although legal access to the severed area will be available, North Station Creek must be crossed.
It was initially thought that a buffer area (and batter) would have to be left along the old railway corridor, but it emerged during the hearing that no such buffer is required. The matter of legal access to the severed area was also in question until the last day of hearing, when the respondent advised that legal access would be available at some point across North Station Creek.
The Claim for Compensation:
A claim for compensation for $800,000 was filed in the Land Court registry on 9 March 1998. During the hearing the claimant sought and obtained leave to amend the claim to $886,875.44, comprising
loss of land, severance and injurious affection $844,500.00
loss of stockpile of gravel removed from severed area $ 19,600.00
agreed disturbance items $ 22,775.44
No advance against compensation has been paid.
The Issues:
The principal issues in this case related to the value of the land and the loss of gravel and other quarry material. Mr John Logan, a registered valuer in practice in Bundaberg, gave evidence for the claimant, while Mr Dennis Cupitt, a registered valuer in practice in Gympie, gave evidence for the respondent. Both valuers assessed the added value of the gravel resource separately to the loss in value of the land. Although they adopted quite different methodologies (Mr Logan relied upon comparison with in globo sales, while Mr Cupitt undertook hypothetical subdivisions before and after the resumption), their assessments in respect of compensation for loss of land and loss in value of the remaining land, were remarkably similar, Mr Logan arriving at a value of $81,122, and Mr Cupitt at $82,000.
Counsel for the parties, Mr Needham for the claimant and Mr Jones for the respondent, agreed that this was no longer an issue. Therefore, I will adopt $82,000 as the compensation for loss of land and loss in value of the retained land.
The remaining issue between the parties was in respect of the added value of the gravel and other quarry material on the land and the effect of the resumption upon them. That depended upon whether or not the gravel resources were exhausted, the quantity and quality of any remaining resources, the limitations of the consent permit and the viability of quarrying the severed area, about which the parties were in dispute.
The Quality and Quantity of the Quarry Material:
The parties disagreed not only as to the quantity of quarry material that is lost as a result of the resumption, but also as to its quality. The extractive industry permit dated 26 May 1987 allows the claimant company to extract “gravel” from the subject land. The respondent argued that the term “gravel” referred only to ridge gravel and did not include the underlying weathered rock. However, on the evidence I am satisfied that the term “gravel” refers to particle size rather than the type of material. Provided the quarry material can be reduced to the appropriate particle size by the process allowed by the permit, that quarry material would be regarded as “gravel”.
The witnesses referred to the quarry materials in different ways. The better quality material was variously referred to as “top course”, “ridge gravel”, and “product”, while the lesser quality material was referred to as “bottom course”, “argillite”, and “weathered rock”. However, it was made clear in the report by Mr William Ouston of the soil testing company, Roadtest, that regardless of where such products originate, the users of roadbase and quarry products require them to conform to particular specifications.
The Roadtest report explained that the predominant markets for quarry products have been created by subdivision and industrial developments, Main Roads Department (“MRD”) and Queensland Railways, with each requiring materials conforming to a particular specification as set out in contract documents. Although particular developments may not always demand material conforming to MRD Standard Specification for Unbound Pavements – MRS 11.05, that specification had been adopted by designers and specifiers.
In an attempt to present a practical summary of the suitability of the material, Mr Ouston prepared a table (Table 5.1), setting out where the ridge gravel and weathered rock meet the specifications of each sub-type when processed and unprocessed. The table shows that in its unprocessed state, neither the ridge gravel nor the weathered rock meets the requirements of sub-types 2.1 to 2.4, for top course, or the better roadbase. However, even unprocessed, they meet the requirements of sub-types 2.5, 3.5 and 4, most of the lower course sub-types. When processed, however, both ridge gravel and weathered rock meet all the requirements for top course and lower course material.
Before the land was resumed, Golder had been engaged to undertake a geotechnical investigation to provide an assessment of what material was likely to be encountered and what could be used in the construction work. The Golder report dated April 1994, did not attempt to assess the quantity of gravel or other material. It provided assessments of expected earthworks conditions and batter stability, and recommendations on bridge foundation design and other relevant design issues. In discussing the layout and general site conditions on the resumed land, Golder commented that the ridge crest was a recently abandoned ridge gravel borrow area with scattered spoil piles. In its interpretation of ground conditions, Golder stated that bore holes at test pits encountered weathered rock (argillite and arenite) from close to the surface, reflecting the removal of most of the overburden by current and previous ridge gravel extraction activities. It reported that medium strong rock was first encountered at depths ranging from 0.9 metres to 4.4 metres.
More relevantly for present purposes, the MRD was requested by the respondent in April 1998 to provide information on the material types within the subject land to a depth of 1.5 to 2 metres and on the quantity and quality of those materials. Investigations were carried out and a report dated May 1998 was prepared by the MRD Regional Geologist. Twelve test pits had been dug to depths of between 0.4 to 2.1 metres, but for some reason not explained, two test pits were dug in existing stockpiles, which raised some questions as to the accuracy of those tests. Selected materials were sampled and tested at the MRD laboratory at Rockhampton.
The MRD report concluded that the subject land was essentially exhausted of ridge gravels, apart from two stockpiles which amounted to about 5,000m³. It referred to the abovementioned comments in the Golder report, which were interpreted to indicate that the ridge gravel deposits were virtually exhausted. It went on to state that residual soils and extremely weathered rock had a high plasticity content and appeared to be suitable only as Type 4 material, while the distinctly weathered rock may be suitable as Sub-type 2.4 material.
The most comprehensive assessment of the quantity and quality of quarry material on the subject land was carried out by the firm Roadtest. Roadtest had been commissioned by the claimant company to assess what materials were on the site, to determine the range and type of products able to be manufactured and to provide information and direction as to the categorising of those materials to form the basis for calculating material volumes from a terrain model. The report dated 20 August 1998 explained that 106 test pits were excavated by a team comprising Mr Allen, Mr Butler, a surveyor and director of consulting surveyors Jones Flint and Pyke Pty Ltd, and Mr Chris Bloxsom of Roadtest. Sixty-seven test pits were excavated by Mr Allen in the severed area, of which 65 were logged, and 39 in the balance area, of which 30 were logged. The logging was carried out by Mr Bloxsom, who is a senior geotechnician and Roadtest’s Manager (Geotechnical and Engineering Services). Bulk samples were recovered and tested in Roadtest’s laboratory at Rockhampton to demonstrate the characteristics of the materials available, to determine what products were able to be manufactured from them.
Apart from “spoil” which has no useful purpose in the production of commercially viable quarry products, Roadtest categorised the material types available on the subject land as “product”, which it described as material which provided the source for the manufacture of commercially saleable quarry products, consisting principally of silty gravel, and “weathered rock”, which was described as extremely to distinctly weathered (XW to DW) argillite underlying the product, the commercial application of which is lower course, lesser quality pavement materials and Queensland Rail Top 600.
The report went on to say that below the weathered rock, the source rock increased in strength and quality and was predicted to provide better quality products than the overlying weathered rock. However, it would seem from the evidence that this underlying rock could be extracted only by drill and blast methods and could not be considered to come within the definition of “gravel”. However, Roadtest reported that the lesser quality weathered rock was near to the specified limits of MRS 11.05 and that the addition of the underlying stronger rock, or rock screened from the ridge gravels on the site, would improve it.
Mr Butler incorporated the depths of the various categories of material logged in each test pit into his terrain model, which was then used to determine the respective volumes of that material.
Volumes of “product” and “weathered rock” were calculated by Mr Butler as follows:
Total Area Product 186,000m³ (loose 238,035m³)
Weathered rock 312,000m³ (loose 399,285m³)
North Area Product 64,000m³ (loose 81,905m³)
Weathered rock 65,000m³ (loose 83,185m³)
Resumed Area Product 37,000m³ (loose 47,351m³)
Weathered rock 76,000m³ (loose 97,262m³)
Buffer Areas Product 25,000m³ (loose 31,994m³)
Weathered rock 51,000m³ (loose 65,268m³)
Severance Area Product 60,000m³ (loose 76,786m³)
Weathered rock 120,000m³ (loose 153,571m³)
The volumes calculated by Mr Butler were solid, in situ volumes. I have adjusted them to show the volumes in loose form in brackets, by applying the unchallenged bulking-up formula adopted by Mr Allen (multiply by 2.15 and divide by 1.68). Mr Butler had made allowance for buffer areas along the full length of the resumed land on both sides, including batters, and also along the old railway corridor. However, as explained previously, the latter buffer and batter should not have been excluded, as no buffer area was required to the old railway alignment.
The evidence for the respondent in relation to the quantity and quality of the quarry material came from Mr David Kershaw, a geologist and principal of the consulting firm, Kershaw & Co. Mr Kershaw had studied the Golder Report and the MRD report and concluded that the subject land was essentially exhausted of ridge gravel, apart from the remaining stockpiles. He also referred to aerial photographs which showed there had been no further quarrying on the land between June 1994 and August 1996, which re-enforced his conclusion that the gravel reserves had been exhausted.
In commenting on Table 5.1 in the Roadtest report, he expressed doubts about what was included in the unprocessed ridge gravel. He acknowledged that ridge gravel product is principally sourced from silty gravel, but expressed the opinion that there was a limit to which clay and silty materials could be included. He was most doubtful if weathered rock could be included in the Sub-types 2.1/2.3/2.4 category, because the strength and durability of the material was not considered adequate. He thought that the remaining ridge gravel was suitable for processing into roadbases Types 2.2 and 2.3, by selective winning and screening, but a proportion of it would be suitable only for Type 3 and Type 4 material. However, he attributed no value to the underlying weathered rock, because it was less durable and required different methods of quarrying and processing. He thought that heavy ripping dozers or drill and blast methods would need to be employed to retrieve material of poor durability and probably in a blocky form. Size reduction might be required to produce filling material.
Mr Kershaw thus dismissed the suggestion that there was any value in the recoverable weathered rock, which in any case he thought was not included in the extractive industry permit. He remarked that most of the Gladstone area was underlain by similar materials and competition for such low value material would be overwhelming.
Mr Kershaw explained that in order to calculate the quantity of remaining gravel, he first reviewed the results of the test pitting by Roadtest, MRD and Golder, which he then plotted on the Jones Flint and Pyke base plan. Where the thickness of gravelly material exceeded 400 mm, the thickness was plotted and contoured. If the material was of lesser thickness, he plotted it at zero, because he considered that a ridge gravel thickness of 400mm or less was not viable to extract, because allowance must be made for a number of factors, including the material lost in the root zone of trees and shrubs, the topsoil salvaged for rehabilitation, the material required for working hardstands, the physical limitation of extracting material of lesser thickness and the likelihood of contamination from underlying materials.
From his analysis of the data from those reports, Mr Kershaw used a GIS computer model which gridded the area on a 10 metre x 10 metre grid. The computer then calculated the average thickness of each cell based on selecting the six nearest points.
Mr Kershaw calculated the in situ quantity of ridge gravel remaining in the resumed area and in the severed area, after making due allowance for mining losses of 400mm or less in depth, to be as follows:
“Resumed land plus 20metre wide buffers to the north and south 20,000m³
Severance area less 20 metre buffer adjacent to old railway plus
resumed area plus 20 metre buffer north of new railway 32,800m³”
These are in situ volumes and a bulking-up allowance would have to be applied in order to calculate the volumes in loose form.
Mr Kershaw concluded that only a thin veneer of ridge gravel remained and thought that the viability of retrieving such a thin veneer over an extensive area was doubtful.
The quantities assessed by Mr Kershaw are very significantly less than those assessed by Mr Butler. The explanation for this lies in the fact that the claimant’s witnesses disagreed fundamentally with Mr Kershaw’s assumptions. According to Mr Ouston, ridge gravel of depths of 400mm or less were commonly extracted. Mr Allen said that there would be little loss in the root zone, because the quarry had been worked and most of the roots had been removed. Similarly the top soil had already been stockpiled. While he agreed it was necessary to have hardstands, none of the material was lost, it was either re-used as hardstands or dug up and extracted. While Mr Allen conceded that it was probably a little more difficult to work material with thicknesses of 400mm or less in depth, he had done so using front end loaders with specially adapted cutting edges. He dismissed Mr Kershaw’s concern about contamination, saying that what clay was there could be blended with the weathered rock to make the product required. His evidence on this point was supported by that of Mr Ouston, who pointed out that the underlying material was predominantly weathered rock, which would pose no risk of contamination.
There were other reasons why Mr Kershaw’s calculations differed from those of Mr Butler. Under cross-examination, Mr Kershaw admitted to a number of errors in his interpretation of the testpit data, agreeing that in at least four cases he had underestimated the depth of material. He admitted those errors would change the contours, but thought they would not make any significant difference to the final volume, increasing it by only 5% to 10% at most. However, Mr Butler thought that Mr Kershaw’s errors would make a significant difference to the volumes.
In addition, Mr Kershaw’s method of plotting the testpit log data differed from that of Mr Butler, who thought that it would result in a significant underassessment of the volume of material. Mr Kershaw disregarded the underlying weathered rock, as he thought that weathered argillite was suitable only for fill. Mr Ouston disagreed, saying that weathered rock was generally used in quarry production, as long as it met specified requirements. The permit allowed for the extraction of gravel and Mr Ouston was of the opinion that both the ridge gravel and the weathered rock would be classified as gravel, as gravel was simply a description of particle size. He assumed that the limits of the permit would be stated on the permit itself and that the existing extractive industry permit had considerable value. While he agreed with Mr Kershaw that there was a limit to which clay or silty material could be included in a product and remain within specification, he thought that overcoming that difficulty was part of the skill of processing.
Findings in relation to the quantity and quality of quarry material
After considering the evidence, I have come to the conclusion that I should prefer the evidence of Mr Ouston of Roadtest regarding the quality of the material, rather than that of Mr Kershaw. Samples from the testpits had been tested in Roadtest laboratories at Rockhampton for strength and durability and for the specifications that can be met from the material. Roadtest had tested ridge gravel from the subject land for the previous contract for the Dawson Highway Project, and recommended how it should be blended to meet specifications. Mr Ouston explained that the processing of ridge gravel typically involved the removal of a portion of the natural fines material to improve particle size distribution and that further processing could entail the addition of imported sands to correct fines ratio if necessary. Processing of the weathered rock could involve screening of the oversized material and possible crushing, which would normally improve the particle size distribution, while the addition of the natural fines removed from the ridge gravel could improve the particle size distribution and plasticity characteristics.
I found that evidence to be more persuasive than that of Mr Kershaw, who was convinced that the ridge gravel deposits were largely exhausted and that there was no value in the underlying weathered rock. Mr Kershaw placed great emphasis on the fact that there had been little or no quarrying activity on the subject land since 1994. That conclusion was based on the Golder and MRD reports, backed by his site inspections and historical aerial photography, which he thought indicated that the deposit had been essentially worked out.
In my view, Mr Allen has satisfactorily explained why the subject land had not been quarried since 1993. He also satisfactorily explained why the weathered rock had not been quarried on the subject land or the pits to the south; there were plenty of other resources. However, Mr Allen had quarried weathered rock elsewhere to make Top 600 material. In his opinion, the weathered rock on the pits to the south was not the same quality. In any case, he had not known of the weathered rock on the subject land until the railway cuttings had disclosed that it was there. Despite Mr Kershaw’s opinion that the weathered rock has no value, I accept the evidence of Mr Ouston that it is useable material, although certainly less valuable than ridge gravel. It is clear from that evidence that ridge gravel and perhaps even the weathered rock, can be blended with other material to meet the required specifications.
As to quantities of material, I have come to the conclusion that I must accept the quantities calculated by Mr Butler. I accept the evidence of Mr Allen and Mr Ouston that it is possible to extract material with thickness of less than 400mm. Therefore, if Mr Kershaw’s calculations were adjusted, his estimates of the quantity of material would be significantly greater. In addition, there have been at least four errors conceded in his interpretation of the test pit data and there may well have been others. Whatever the cause of those errors, they cast doubt on Mr Kershaw’s calculations of the volumes of the material. On the whole, I prefer the evidence of Mr Butler. However, while I accept that evidence as to the quantities of ridge gravel and weathered rock, the question remains as to whether that material has any added value. It is to that aspect that I now turn.
The Value of the Lost Quarry Material:
The evidence in relation to the value of the material came from several witnesses, some of them with widely different estimates.
Mr Allen’s Estimate:
Mr Allen accepted the estimate by MRD that approximately 300,000m³ of gravel in situ have been removed from the subject land in the period between 1988, when the claimant company commenced harvesting gravel, and 1993 when it suspended operations. Converted from in situ to loose gravel, this equates to 383,928m³ (300,000 x 2.15 ÷ 1.68). The annual absorption rate over the five years was therefore 76,785m³. Mr Allen believed that to be a conservative estimate and was of the opinion that the annual absorption rate would have continued at that rate at least.
In arriving at his estimate of the value of the top course or ridge gravel material, Mr Allen obtained information from one of his competitors, Blomfield Excavations, which supplied material to MRD for the equivalent of $18.98 per cubic metre. He concluded that the saleable value for the top course material on the subject land was $11.75 per cubic metre and bottom course $10 per cubic metre, for processed product. In his view, the processing involved obtaining the necessary permit, clearing timber and vegetation, removal and stockpiling the top soil, excavating the quarry material, screening and blending the materials to produce specified products.
At the time of resumption, the permit had been obtained, the site cleared and topsoil removed and stored, and access roads developed. Material had been sold from the site and the quarry developed and improved. In Mr Allen’s view, the risk of realisation had been reduced considerably.
Mr Allen contended that the value of the quarry material would be well in excess of royalty rates, which he said were accepted by the industry as $2 per cubic metre for top course and $1.10 per cubic metre for bottom course.
Mr Logan’s Estimate:
In arriving at the loss of the gravel resource as a result of the resumption, Mr Logan adopted a “before” and “after” valuation approach. He reasoned that because of the characteristics of the land after resumption, harvesting of gravel on the severed area was not a viable option. He adopted the quantities of material calculated by Mr Butler for the “Total Area” before resumption and for the “North Area” after resumption. The after resumption calculation excluded the material on the severed area and made allowance for a 20-metre buffer and a batter along the new rail corridor.
Mr Logan accepted Mr Allen’s estimates of saleable values of $11.75 per cubic metre for top course and $10 for bottom course, although he thought they were conservative, compared with the prices provided by MRD of $14 to $22 per cubic metre for top course and $7 to $11 per cubic metre for bottom course. He agreed that the standard of development of the subject land justified values in excess of royalty rates, but as the material was not to a deliverable standard, it did not justify the application of full rates. In order to assess what added value the development had given to the resource over and above royalty rates, he accepted Mr Allen’s apportionment of the components of the development as follows:
Top Course Bottom Course
$/m³ $/m³
Royalties $2.00 $1.10
Costs to clear and rehabilitate $1.20 $1.20
Costs to process $2.50 $3.00
Maintenance of site (drainage, roads, etc.) $1.00 $1.00
Profit on sale $5.05 $3.70
TOTAL $11.75 $10.00
Mr Logan explained that the “cost to clear and rehabilitate” should have read “cost to clear” and “cost of initial establishment, preliminary preparation and of obtaining the permit, etc”. He reasoned that the claimant company had undertaken 50% of that cost, or 60 cents per cubic metre, and 50% of maintenance of the site, or 50 cents per cubic metre, a total of $1.10 per cubic metre; as a proportion of the total costs of producing the final product, those costs represented for top course $1.10 ÷ $4.70, or 23%, and for bottom course $1.10 ÷ $5.20, or 21%.
He concluded that a hypothetical prudent purchaser would regard the value of the resource as being enhanced for top course by 23% of $5.05 (i.e. the percentage of the profit because of the work already undertaken on the site to produce one cubic metre of top course), or $1.16, and for bottom course by 21% of $3.70 (i.e. the percentage of the profit because of the work already undertaken on the site to produce one cubic metre of bottom course), or 78 cents. By adding those figures to the royalty rate for each class of material ($2.00 for top course and $1.10 for bottom course), plus the cost to clear (60 cents) and cost to maintain (50 cents), he arrived at a value for top course of $4.26 per cubic metre and for bottom course of $2.98. However, he reasoned that those values would be realised only on sale of the product and he thought it necessary to apply a discount for risk of realisation.
In assessing that risk, Mr Logan thought that a purchaser would consider whether market demand would continue throughout the life of the quarry, the likelihood of price variations, the impact of competition and the problems that may be encountered in future harvesting operations. Therefore, he calculated the present value of the reserves, discounted by a factor of 15%. Based on the previous history of the quarry, Mr Logan adopted an annual absorption rate of 75,000m³ (35,000m³ of top course and 40,000m³ of bottom course). He calculated the value of quarry materials lost as a result of the resumption as follows:
Value of the Resource Before Resumption
Top Course (35,000 cubic metres per annum x $4.26 = $149,100 per annum)
$149,100 per annum for 6.8 years @ 15% = $149,100 x 4.085 = $609,073
Bottom Course (40,000 cubic metres per annum x $2.98 = $119,200 per annum)
$119,200 per annum for 10 years @ 15%= $119,200 x $5.01877 = $598,237Total Value of Resource Before Resumption $1,207,310
Value of the Resource After Resumption
Top Course
($149,100 per annum for 2.34 years @ 15%),
$149,100 x $1.62795 = $242,727
Bottom Course
($119,200 per annum for 2 years @ 15%),
$119,200 x $1.62571 = $193,784
Total Value of Resource After Resumption $ 436,511
The difference between the value before resumption and the value after resumption and therefore the loss in value of quarry material as a result of the resumption amounts to $770,799.
Mr Kershaw’s Estimate:
In addition to rejecting the quantities of gravel in Mr Logan’s “before” and “after” valuations, Mr Kershaw was critical of Mr Logan’s method of calculation. He contended that costs such as clearing, rehabilitation and maintenance, would not be calculated on a per cubic metre rate, as they were not related to the volume of gravel.
Mr Kershaw stated that the ex-bin selling prices of aggregate and roadbase in the Gladstone area were very low compared with most metropolitan and regional centres. The low prices reflected the ready availability of materials and a competitive market. He quoted typical ex-bin prices for road base at $6 to $9.50 per tonne, concrete aggregate at $9 to $11 per tonne and fill and low quality road base at $2 to $6 per tonne. As an example, he quoted the contract price for the supply of ballast from Dutson Quarries to Queensland Railways at $8.60 per cubic metre, loaded on wagons.
Mr Cupitt’s Estimate:
Mr Cupitt understood from the MRD report and the Kershaw report that the viability of the property as a gravel/borrow pit was nil and limited to existing stockpiles. He concluded that it was not viable for the respondent to construct a suitable crossing over North Station Creek to extract the remaining gravel stockpile of 2000 cubic metres, later measured at 2,450 cubic metres, on the severed area, which he valued at $8.00 per cubic metre, or $19,600 when applied to the measured quantity.
As he read the Kershaw report, he understood that there had been 20,000 cubic metres of ridge gravel on the resumed land, and 32,800 cubic metres on the severed area. Despite Mr Kershaw’s doubt about whether it would be viable to retrieve that material which he thought to be only a thin veneer, Mr Cupitt felt that to resolve all issues in favour of the claimant company, the Forestry royalty rate of $1.10 per cubic metre should be allowed.
Accordingly, his valuation of the ridge gravel lost because of the resumption was 52,800 cubic metres @ $1.10/m³, or $58,080. However, this would seem to be a misreading of the Kershaw report. The 32,800 cubic metres was not simply the amount of gravel on the severed area, but also included the resumed land and a 20-metre buffer north of the new railway line. Therefore, more correctly Mr Cupitt’s calculation of the ridge gravel lost because of the resumption should be 32,800 cubic metres. That is an in situ quantity which would equate to 41,976m³ of loose gravel. If valued at $1.10 per m³, Mr Cupitt’s valuation would be $46,174.
Findings in relation to the value of the materials on the subject land
The evidence relating to the value of the quarry material on the subject land is far from satisfactory. The only evidence of sales of quarries was produced by Mr Logan. Quarries at Agnes Waters and Childers sold in 1990 for $225,000 and $1,500,000 respectively. Those two properties were again for sale at the date of hearing. However, Mr Logan, quite clearly, did not rely upon those sales. Instead, in the absence of comparable sales, Mr Logan relied on information given to him by Mr Allen, which he attempted to analyse to arrive at values for top course and bottom course material.
Mr Kershaw quoted some ex-bin prices for various material, but did not really address the value of the material on the subject land. In the approach that he adopted, he did not have to, as he thought the gravel reserves were virtually exhausted and questioned the viability of recovering the thin veneer that he thought remained.
Mr Cupitt also obtained information from Mr Allen, but the details contained in his report seem to relate to bottom course materials only. However, Mr Cupitt did not use that information, but was of the opinion there was no more value in the remaining ridge gravel than the Forestry royalty rate of $1.10 per cubic metre.
The royalty rate, as I understand it, is the amount of money that a contractor would pay to the owner of land for the right to extract gravel from that land. The contractor would be responsible for arranging the appropriate extractive industry permit, the construction of access and meeting all the other expense involved in the extraction, processing, transporting and marketing of the finished product. In my view, the royalty would represent the minimum value of the material if the claimant company was to do nothing more than allow some other quarrying company to extract the material from its land. However, here the claimant has an extractive industry permit, has developed the quarry at least to some extent and has successfully extracted 300,000m³ of gravel in situ. Clearly, the material that can be extracted must have a value higher than the mere royalty rate, provided that there is a market for it.The state of the evidence is such that I cannot accept the estimates of either valuer and I must look elsewhere for assistance. The only agreement between the parties as to the value of any material was the value of the stockpile on the severed area, which both agreed to be $8 per cubic metre. That was processed ridge gravel ready to be loaded, transported and sold. Mr Allen provided a list, quoted earlier, of the steps involved in bringing material to that stage. For this purpose, it can be assumed that the necessary permit had been obtained and that clearing of the site and removal and stockpiling of top soil had been at least partially carried out. From Mr Allen’s list, that would leave excavating the quarry material and screening and blending the materials to produce specified products.
Here Mr Logan’s reasoning is of assistance. For the top course material he has attributed $2.50 per cubic metre to the cost of processing. Although the method he adopted for apportioning the costs of clearing and maintenance were questioned, there is no other evidence. Therefore, for purposes of this calculation, I will adopt $1.10 per cubic metre. When those amounts are deducted from the $8 per cubic metre, the remainder is $4.40 per cubic metre. However, there may be additional expense involved, such as in blending to make specification. Mr Allen had to import sand on at least one occasion. Therefore, in my view, a prudent purchaser would come to the conclusion that the remaining ridge gravel could provide a return of $4 per cubic metre, provided that the demand for the ridge gravel continued, the price was maintained and that it was of the quality assessed by Roadtest and the quantity estimated by Mr Butler.
If similar reasoning is adopted for the weathered rock, which the evidence indicates could be processed and blended to produce a similar product to the ridge gravel, it is reasonable to assume that it would also be worth $8 per cubic metre stockpiled to specification. However, the evidence is to the effect that weathered rock costs more to extract and to process than ridge gravel and there is the greater likelihood of more expense in blending. Therefore, I feel that a prudent purchaser would anticipate a return of no more than $2.50 per cubic metre to the weathered rock on the subject land, with the same provisos and reservations as those for the ridge gravel.
However, those anticipated returns cannot be applied directly to the quantities of material. In addition to the provisos mentioned above, there are two important matters that I think that a prudent purchaser would consider in deciding what discounting factors should be applied to those returns that might be expected from the quarry material on the subject land. First, there is the competition from other quarries in the area and second, the extent to which the existing extractive industry permit would allow extraction of the material.
Competition from Other Quarries
Mr Allen and his associated companies have been actively involved in quarrying operations in the Gladstone area for many years. It is not disputed that he extracted ridge gravel from the properties to the south of the subject land from 1973, the gravel from which made roadbase for use on numerous projects. He claimed that he had captured approximately 90% of the Gladstone roadbase market.
Inevitably, this led to competition from other quarries. Frost’s Quarries commenced to operate a large enterprise at Taragoola, near Calliope, but to do so they had to match Mr Allen’s price. That was a hard rock quarry, where the expense of producing roadbase was greater, but that was offset by its large-scale production. According to Mr Kershaw, its annual total production is of the order of 500,000 tonnes and that it has reserves in excess of 20 years.
Blomfield Excavations extract sand and gravel from the Boyne River in the vicinity of the subject land. While much of the material is used as a source for the production of concrete, it seems that other parts of the material would be in direct competition with the material from the subject land.
In 1995, a moderate-sized quarry was developed by Dutson Quarrying Company Pty Ltd (associated with Cooks) adjacent to the North Coast Railway line at Yarwun. This is a hard rock quarry, but produces materials which would be in competition with those from the subject land.
Scott’s Quarry at Yarwun is located adjacent to the Gladstone-Mt Larcom Road and gravel from that site is used in the production of roadbase for local contractors. It also would be in competition with the subject land.
Mr Kershaw expressed the opinion that the market in the Gladstone area was very competitive, with the lowest prices for quarry material on the east coast of Australia. Clearly, any newcomer to the industry would be competing with Frost’s, Dutson and Scott’s Quarries. There have been some failures. Mr Kershaw referred to a major quarry established by the Ferguson family since 1990, which experienced financial difficulties and was taken over by John Hollands. It consistently made losses and eventually closed down. However, it still has hardrock reserves.
Evidence was given by Mr Allen of the annual production from each of those quarries. However, while incomplete, because Mr Allen did not obtain the 1994/95 production figures for Frost’s or Scott’s (Dutson did not commence until 1995), it indicates that Frost’s Quarries dominates the roadbase market in the Gladstone area. In 1995/96 it produced 300,000 tonnes of roadbase; in 1996/97, 135,000 tonnes, in 1997/98, 230,000 tonnes and 38,000 tonnes of Top 600. By way of contrast, in 1995/96 Dutson Quarry produced 18,579m³ of roadbase and 628m³ of Top 600; in 1996/97, 14,134m³ of roadbase, 38,136m³ of Top 600 and 38,960m³ of granular fill; in 1997/98, 2,717m³ of roadbase, 70,435m³ of Top 600. In 1996/97, Scott’s Quarry produced 8,000m³ of roadbase; in 1997/98 32,000m³ of roadbase and Top 600.
Mr Kershaw contended that the demand in the area for these quarry products is directly related to economic activity, particularly building and construction; demand tended to be cyclic and reflect the cyclic nature of building and construction activities; the market demand in Gladstone was particularly cyclic due to the relatively low population and economic base; the Gladstone market is isolated by distance from other major markets to the south and to the north, with relatively minor interchange of quarry product. He estimated that average annual demand for quarry product would be in the order of 400,000 tonnes, of which 30% to 40% may be roadbase and fill. There was no suggestion by any of the witnesses that the quarry materials from the subject land would be transported for sale outside the general Gladstone area.
It would seem, then, that while historically there has been substantial demand for roadbase and other material in the Gladstone area, with the competition which could be expected from Frost’s Quarries and other quarries in the area, the market demand and price may not have been sustained. These are certainly matters that a prudent purchaser would take into account in considering the discount that should be applied to the expected returns from the quarry materials on the subject land. The extent of the competition from Frost’s and Scott’s Quarries (and the potential competition from Dutson) would influence not only the amount of quarry products that a potential purchaser could sell, but also the price. There would be considerable reservations about whether the annual rate of sale of quarry products estimated by Mr Logan could be maintained.
The Extractive Industry Consent Permit
One of the major issues between the parties was whether or not the existing extractive industry consent permit would allow for the extraction of weathered rock, or whether it was confined to the extraction of ridge gravel. It is therefore necessary to consider the permit itself and the application lodged by Mr Allen.
The Calliope Shire Council consented to the development of the subject land for “Extractive Industry – Gravel” on 26 May 1987, subject to certain conditions, including:
“2. Extraction of gravel from the subject land shall be undertaken in accordance with the provisions of the town planning scheme currently in force … .
5.The method of extraction and rehabilitation shall be as follows:-
– no more than 2 hectares … shall be left unrehabilitated while the permitted use continues and the land shall then be progressively rehabilitated;
– top soil and spoil heaps shall be stockpiled;
– the site shall be deep-ripped to control any run-off and topsoil and spoil heaps levelled over the site;
– the area shall be seeded and fertilised as stated by the applicant.
7. The applicant shall not extract any material … within 20 metres of the rail line fence … . ”
The application for the permit was dated 14 April 1987. An annexure to that application stated that the company had recently been successful in being awarded a MRD contract on the Dawson Highway and wished to extract gravel from the subject land for pavement works on that contract and for future works. It also stated that materials would be won to a depth of approximately 750mm over an area of approximately 15 hectares. The equipment to be used on the site included a front end loader and a dozer for part of the time, a power screen and a grizzley screen.
When the application went before the appropriate committee of the Calliope Shire Council, it was accompanied by a report by Mr Russell Schuler, then planning officer for the Council. After outlining the proposed operation on the subject land, Mr Schuler recommended that subject to receipt and consideration of any objections, Council approve the application as submitted and issue a permit, subject to certain conditions. The permit was issued and the eight conditions recommended by Mr Schuler were included in the permit. However, there was no mention on the face of the permit that materials would be won to a depth of approximately 750mm over an area of approximately 15 hectares.
The question arises as to whether those limitations should be read into the permit.
Mr Schuler, who now holds the position of director of planning for the Calliope Shire Council, gave evidence of his opinion that it is the permit itself that determines what is allowed and what is not allowed. There was nothing on the face of the permit to prevent the claimant company from extracting material from a depth greater than 750mm, or over an area greater than 15 hectares, as long as the material was “gravel”.
However, Mr Schuler felt that there should be an inter-relationship between the application and the permit. He explained that more recently the standard practice had been for a permit to issue subject to compliance with the application itself. Sometimes the permit would incorporate part or all of the application.
Mr Schuler thought that the word “gravel” referred to material that was of a certain size. He thought of roadbase as gravel. He expressed the view that the permit would not allow the extraction of material other than gravel, but on the face of the permit, gravel could be extracted to a depth below 750mm.
Mr Schuler explained that as at the date of resumption, if the weathered rock was not regarded as “gravel”, the claimant company could have made application for modification of the condition under section 4.15 of the Local Government (Planning and Environment) Act 1990 (“the P&E Act”). Sub-section (2) of that section prohibits a local authority from approving an application to modify where,
“(a) in its opinion the modification is not of a minor nature;
(b) in its opinion the modification would adversely affect any person to a degree which would, if the circumstances allowed, cause that person to make an objection; … ”
Mr Schuler was of the opinion that if the only modification sought was with regard to depth, it would be minor, provided there was no crushing and no extra traffic. If there was some crushing, there was more doubt, but it may be regarded as minor. It was a question of degree. Mr Schuler agreed that Mr Allen had been a good corporate citizen and that none of his actions in extracting gravel from the subject land, or from the pits to the south, had caused any person to object.
Mr Schuler explained that the P & E Act limited the power of the Council to modify approvals. A new application may have been required. The Council would consider such matters as what equipment would be on site, noise, traffic, blasting and the effect on drainage. It was really a question of whether the modification sought could reasonably be interpreted as within the scope of what was permitted.The extractive industry permit was issued in 1987 under the provisions of s.33 of the Local Government Act 1936. If an application was made in 1994, the provisions of the P & E Act would have applied. Mr Schuler explained that this could have resulted in delay and expense before any quarrying could take place. (Further details of the requirements of the P & E Act were contained in a letter from Jones, Flint & Pike, dated 28 August 1998.) For example, a new application would probably have required an environmental impact statement.
The advertising requirements under the Local Government Act were similar to those under the P & E Act. Therefore, both Mr Needham and Mr Jones agreed that the principles as stated by the Court of Appeal in Baraket Properties Ltd v. Pine Rivers Shire Council (1994) 85 LGERA 99 (applied in Eremenco v. Rutherford and Calliope Shire Council (1996) QPLR 153) are applicable in this case.
As relevant, when those principles are applied to the facts here, the effect is that the Council could not approve modification of the existing permit if that would result in a materially different proposal.
However, Mr Needham submitted that it is more relevant to look at Court decisions up to the time of issue of the consent permit in 1987. In Matus v. Cairns City Council (1980) QPLR 106 at 108, Row DCJ reviewed various authorities before concluding that it is not necessary to lodge a fresh application to the Council for town planning consent or to re-advertise the amended proposal when the variation or amendment contains “immaterial variations”, or is not a “markedly different concept”, or is not a “development different or substantially different” from that proposed.
In Begley v. Pine Rivers Shire Council (1995) QPLR 77 at 79, Skoein SDCJ referred to those authorities as providing the correct approach when considering s.4.15 of the P & E Act.
However, although agreeing on the principles to be considered, the parties disagreed about their application. The claimant contended that the granting of the permit to extract gravel without limiting it to the depth or to “ridge gravel” as set out in the application, were variations within the power of the Council, because such variations were not of a material nature and were not of such a nature to be likely to cause a person to object who would not have objected to the application as lodged.
On the other hand, the respondent contended that the facts and circumstances of this case are such that it was far from certain that the nature of those proposed variations or modifications could be categorised as minor and/or not likely to cause objections.I have come to the conclusion that it is probable that the claimant company would be able to extract the ridge gravel under the existing permit. The permit allows the extraction of gravel, without reference to the depth or the area. If, however, any modification of the existing permit was required to allow extraction of ridge gravel to the depths calculated by Mr Butler, it is likely that such modification would be regarded as minor.
However, I am less confident that the same reasoning would apply to the weathered rock, in respect of which there must be greater uncertainty. As stated previously, I am satisfied that the weathered rock can come within the definition of “gravel” and that much of it could be reduced to the appropriate particle size by processes and by the machinery allowed under the present permit. There is evidence that it can be reduced to sufficient size by a tracked vehicle, such as the bulldozer, but there is also evidence that a proportion would be larger than gravel and may require some crushing, to an extent that may not be allowed under the permit. On the other hand, the larger rocks could be excluded by screening, but that would reduce the amount of gravel produced.
These are matters which must be considered by a hypothetical prudent purchaser.
Finally, there is the question of whether or not it would be viable to extract the quarry material on the severed area after resumption, or whether it should be regarded as lost. This largely depends on providing an appropriate crossing of North Station Creek.
The Crossing of North Station Creek
Mr Allen thought that any creek crossing was required to be located on the old railway alignment. Although the old railway bridge had been removed, he was concerned about potential contamination, as the bridge structure and sleepers would have been treated with dieldren and/or other chemicals. However, on the last day of hearing it was made clear that the claimant company would be allowed to cross North Station Creek at some other appropriate location. This solved the problem of legal access, but the problem of practical access remained.
Mr Allen was of the opinion that the construction of a suitable crossing to gain access to the severed area would be of the order of $100,000 and that a similar amount would have to be provided at the claimant company’s expense for the upgrading of the Marrawing Road at-grade crossing of North Station Creek. He contended that lower level crossings would be flooded so frequently as to make extraction of materials from the severed area not viable.
Mr Kershaw was of the opinion that an at-grade crossing of North Station Creek would cost less than $5,000. He said it would be roughly similar to the present at-grade crossing on Marrawing Road, but better constructed. However, he had not made a detailed investigation.
In a report admitted in evidence by consent, by Mr McAnany, an engineer, stated that after resumption it would be possible to subdivide the retained area into 13 ten hectare lots, with the severed area forming one additional lot. He proposed that access to that lot be provided across North Station Creek by a concrete causeway crossing which he estimated would cost approximately $18,000.
Mr Allen strenuously disagreed that an appropriate crossing could be built for between $5,000 and $20,000. Such a crossing would be too low in the creek and would be cut every time it rained. With such a crossing it would be impossible to undertake MRD contracts because no guarantee could be given of getting quality assured material out when it was required. He agreed it would be possible to work the severed area for some jobs, but not for large MRD contracts. It would be a matter of assessing the risk of getting the materials from the severed area.
Reasoning and Conclusions
The claimant’s case is that in addition to the quarry material lost on the resumed land, after the resumption it would be no longer viable to quarry the material on the severed area and that material also is lost. The major reason is the uncertainty of access. While it is now clear that legal access will be available, access would have to be obtained over North Station Creek and the creek crossing on Marrawing Road may also have to be upgraded. Mr Needham submitted that the claimant company had no opportunity to make engineering or hydraulic investigations because of the uncertainty of legal access up until the last day of hearing. The estimates vary from $5,000 for an at-grade crossing (Mr Kershaw) to $100,000 for a higher level crossing (Mr Allen). However, neither of the estimates could be put any higher than intuitive guesses and may be quite inaccurate. What is clear is that anything less than a higher level crossing would flood at least two or three times per year, perhaps more. In such circumstances, the claimant contends that the material from the severed area would be limited to smaller contracts that do not require higher specification and could be sold only at a lower price. If blending and stockpiling of that material was to be carried out on the balance land, there would be extra handling and cartage costs, which would reduce competitiveness. There is also the risk that after quarrying, the severed land may be so affected, even if rehabilitated, to be of little value. Those matters would certainly have to be taken into account by a prudent purchaser.
After considering that evidence, I am of the opinion that a hypothetical prudent purchaser of the subject land after resumption, would regard the prospect of the viability of extracting quarry material from the severed land as simply too uncertain to pay any additional amount for the material that is there. Any quarrying may also endanger the prospects of the subdivisional value.The claimant company relies upon the valuation of Mr Logan, which in turn, depends upon the volumes of material calculated by Mr Butler and the details of costs provided by Mr Allen. I have already found that I prefer the evidence of Mr Butler to that of Mr Kershaw regarding the volumes of material. I have adopted $8 per cubic metre for the stockpiled material, upon which the parties have agreed, rather than the values advanced by the various witnesses.
The respondent’s case, based primarily upon the evidence of Mr Kershaw, was that there was no valuable quarry material left on the subject land at the date of resumption, because the only valuable ridge gravel (300,000 cubic metres in situ) had been removed. However, for reasons explained earlier, I do not accept that contention.
Anticipating that I may reject the argument there was no valuable resource left on the subject land, Mr Jones made a number of alternative submissions. His first alternative was that compensation should be limited to the material on the resumed land. He argued that there were no physical limitations to extracting material on the severed area, and that this was illustrated by the photographs taken by Mr Allen in Exhibit 20. The matter of legal access to the severed area having been resolved, Mr Jones contended that it was simply a matter of making provision for a suitable crossing at a cost of between $5,000 (Mr Kershaw) and say, $20,000 (Mr McAnany). While he conceded that access would be cut two or three times a year, the management of the quarrying operation, particularly in stockpiling and processing, could be such as to meet all but the strictest contract requirements and the material on the severed area would not be lost forever.
The validity of that submission depends on whether a hypothetical prudent purchaser would consider that working the deposits on the severed area was economically feasible. As discussed earlier, in my opinion, there are simply too many uncertainties for a prudent purchaser to consider that any resource on the severed area could be economically extracted.
Mr Jones’ second alternative submission was that all doubts could be resolved in the claimant’s favour by adopting Mr Cuppitt’s assessment of $58,080. However, as found earlier, I do not accept the estimate of Mr Kershaw on which Mr Cupitt’s calculations purported to be based. Furthermore, as I have indicated, I think Mr Cupitt has misread Mr Kershaw’s report and that his calculation is therefore incorrect. In any case, I prefer Mr Butler’s calculations of the volumes of material to those of Mr Kershaw.
Mr Jones’ final submission was that if I should reject the other alternatives, then I could not find that the value of quarry material exceeded $155,720. That was a figure arrived at by Mr Cupitt using Mr Logan’s calculations and reasoning for the “before” and “after” valuation for the top course material, but discounted by 35%, not 15%, to more properly allow for what Mr Cupitt considered to be the risk. The submission was on the basis that there could be no value for bottom course, or weathered rock, as it was not gravel, except perhaps in its processed form. In any case, it was argued, the permit did not cover it and weathered rock is so abundant in the Gladstone district that it had no commercial value, because in its unprocessed state it would not have met other than the lowest MRD or Queensland Railway’s specifications, the market for which has been captured by others.
Although he was not asked specifically, I can infer that if I was to find that there was valuable quarry material on the subject land, then Mr Cupitt would agree with Mr Logan about the method of valuation that should be adopted.As stated earlier, the valuation evidence in this matter is far from satisfactory. In the absence of reliable sales of land containing quarry material, I have had to look elsewhere, as did the valuers and I will adopt their method of valuation. I have endeavoured to start with the value for material upon which both parties agreed and proceed from there. Doing the best I could with the evidence before me, I formed the opinion that a hypothetical prudent purchaser of the subject land at the date of resumption would conclude that if all circumstances were favourable, the ridge gravel might return $4 per cubic metre, while the weathered rock might return $2.50 per cubic metre. However, such a hypothetical prudent purchaser must be assumed to be aware of all the difficulties and uncertainties associated with such an enterprise that have been discussed in the evidence and would take them into account in deciding on a purchase price.
First, there would be some uncertainty as to whether the volumes calculated by Mr Butler were actually there. Second, there is some uncertainty as to whether the material was of the quality assessed by Roadtest. Third, even if contracts could be obtained to sell 35,000 cubic metres of ridge gravel and 40,000 cubic metres of weathered rock per annum (which I have assumed), can that market share be maintained in the face of growing competition? Can the price be maintained, particularly for the weathered rock?
Add to these the uncertainty as to whether the extractive industry permit would allow the extraction of the material, particularly the weathered rock, from depths greater than 750mm; if not, would any modification be regarded as minor, or would a further application have to be made with its attendant costs and risks?
I have consulted a number of cases dealing with the valuation of various types of quarry material and in each case the assessment has been made on the basis of the present value of the material, discounted for risk. That risk takes account of such factors as I have just enumerated. It is clear that it must be substantially more than the 15% allowed by Mr Logan. On the other hand, I feel that Mr Cupitt in his alternative valuation of the top course or ridge gravel material is closer to the mark, but has somewhat overemphasised the risk at 35%.
In situations such as in this case, this Court has taken the approach of finding the present value of the possible net return per annum from the material, discounted by a percentage which allows for, among other things, the risk associated with the receipt of that return over the period of years. It does not seem to have adopted the approach of discounting the annual return by some appropriate percentage and then finding the present value per annum of the resulting figure at the long term bond rate. (For example, see Bestmann v. The Council of the Shire of Caboolture (1960-61) 28 CLLR 493, Kenman v. Brisbane City Council (1974) 1 QLCR 85, and particularly Hudsons and Sons Pty Ltd v. The Commissioner of Main Roads (1981-82) 8 QLCR 150.)
Apart from the respondent’s primary assessment of the value of quarry products (nil remaining) and the first and second alternatives, none of which could be called methods of valuation, there was no suggestion that the present value of annual returns was not a proper approach. What was in issue was the appropriate discount rate. In this regard I was assisted by the reasoning adopted in Emerald Quarry Industries Pty Ltd v. Commissioner of Highways (1979-81) 43 LGRA 273 (Wells J of the Supreme Court of South Australia) and 316 (High Court).
For present purposes I will refer to two passages from the judgment of Wells J which might well have been written in respect of the present case. In commenting on the expectations of the claimant’s managing director in respect of compensation, his Honour said at page 281:
“What he has lost is, no doubt, an opportunity to make a profit, but he has not lost the profit itself; he is to be fairly compensated, not by paying him an amount equivalent to estimated profits, but rather, if I may risk the charge of oversimplification, what the ordinary commercial man would pay for the same opportunity. ”
In commenting on the method of valuation adopted by one of the valuers in that case, his Honour said at page 285:
“I have deliberated at length as to whether I should treat Mr Dunow’s final figure, with or without adjustment, as central to the determination of compensation. With hesitation, and some reluctance – for, like all judges, I hope for certainty where it can be found – I have come to the conclusion that I should not so treat it. At the same time, I by no means am of the opinion that his reasoning and figures should be wholly discarded. Nor would I wish it to be supposed that the method he invoked could never be safely used for valuing businesses. But what troubles me about the circumstances in this case is this. We are here dealing with an industry and a business that – as I find – carries a degree of hazard that places it in the upper levels of the gamut of commercial risk. It is a business highly sensitive to the character, methods, and attitudes, of management, and to the initiative, experience, and skill, of everyone from the managing director down to the quarry operators on site. Its markets are particularly susceptible to variations in the nation’s economy, and they are severely limited by costs of transport. ”
As Mr Smith pointed out in Hudsons case at page 163, compensation is assessed according to the value of the estate of the claimant in the land taken, on the date when it was taken. That value is assessed by assuming a sale between prudent but not overanxious parties. Compensation is not paid for loss of future profits as such. While the quantum of those profits would be a factor that a prudent purchaser would consider in arriving at the purchase price, it is not simply a matter of adding the present value of such profits to the value of the land. A substantial allowance would be made by a prudent purchaser for the doubts and uncertainties previously discussed. In other words, the discount factor applied to those possible future profits would depend on such a prudent purchaser’s assessment of risk.
Based on the evidence and on the findings that I have made, I feel that a hypothetical prudent purchaser would adopt the reasoning set out below.
Before Resumption
Mr Butler has calculated that there were 186,000 cubic metres of material in situ, or 238,035m³ loose, which he called “product”, but which is likely to be ridge gravel. If the demand for gravel continues and the subject quarry is able to maintain its market share, it should be able to sell 35,000 cubic metres per annum. If the price for better quality gravel is maintained, a return of $4.00 per cubic metre could be achieved, which would equate to an annual return of $140,000 for say 7 years. However, because of the uncertainties, some of which have been mentioned, there is a significant risk that the projected return may not be achieved. The long term bond rate in 1994 was 9%, so even if there was no risk, the present value of the return would be discounted to that extent. When the risk is taken into account, the discount rate must be of the order of 30%.
If the quantity of weathered rock calculated by Mr Butler is able to be recovered, then there were 312,000 cubic metres of material in situ, or 399,285 cubic metres loose. If the present permit allows for the extraction of the weathered rock, and if it is able to be extracted by means which do not involve drill and blast or extensive crushing, and if there is not too much wastage of oversize blockey material, and if the demand for this type of material continues, and if the subject quarry is able to maintain its market share, it may be possible to sell 40,000 cubic metres of weathered rock per annum. If the price for such material is maintained, it may be possible to make a return of $2.50 per cubic metre, which would equate to a net return of $100,000 for say 10 years. However, there are considerably more uncertainties associated with the extraction and sale of weathered rock than with ridge gravel, therefore the discount rate for the present value of such a return must be significant, in the order of 50%.
Adopting that reasoning the following calculations can be made:
Value of Quarry Material Before Resumption
Total Ridge Gravel 238,035m³
Assume it is sold at 35,000m³ for say 7 years at $4.00 per m³, or $140,000 per annum.
Present Value of $140,000 for 7 years at 30%,
$140,000 x 2.8 = $392,000
Total Weathered Rock 399,285m³
Assume it is sold at 40,000m³ for say 10 years at $2.50 per m³, or $100,000 per annum.
Present Value of $100,000 for 10 years at 50%,
$100,000 x 1.965 = $196,500
Value of quarry material on subject
land before resumption $588,500 $588,500
Value of Quarry Material After Resumption
Remaining Ridge Gravel on balance area 81,905m³
Assume it is sold at 35,000m³ for 2.5 years at $4.00 per m³
Present value of $140,000 for 2.5 years at 30%
$140,000 x 1.603 = $224,420
Remaining Weathered Rock on balance area 83,185m³
Assume it is sold at 40,000m³ for 2 years at $2.50 per m³
Present value of $100,000 for 2 years at 50%
$100,000 x 1.11 = $111,000
$335,420 $335,420
Difference between value “before” and value “after” $253,080
Orders:
Therefore compensation payable as a result of the resumption is determined at $377,500, made up as follows:
Loss of land, severance and injurious affection $ 82,000.00
(excluding quarry material)
Loss in value of quarry material $253,080.00
Loss of stockpile of gravel (agreed) $ 19,600.00
Disturbance (agreed) $ 22,775.44
$377,455.44
Rounded to $377,500.00
I was advised that no advance has been paid to the claimant company. Therefore, the respondent is also ordered to pay to the claimant company interest at the rate of 7.75 per cent per annum on the sum of $370,000 from the date of resumption up to and including the day immediately preceding the date upon which payment of compensation is made.
The respondent is further ordered to pay to the claimant interest at the rate of 7 per cent per annum on survey fees of $2850 from 11 October 1996 and on other professional fees and costs of $4650 from 26 April 1997 up to and including the day immediately preceding the date upon which payment of compensation is made.
I give the parties liberty to apply on five days’ notice to the other in respect of any of the compensation and interest calculations.
(JJ Trickett)
President of the Land Court
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