GW & KM Gorlick Industries Pty Ltd v Sunwater
[2001] QLC 45
•31 May 2001
|
BRISBANE
31 MAY 2001
Re: Claim for Compensation -
Resumption for Bundaberg Irrigation Project - Acquisition of Land Act 1967 -
Water Resources Act 1989.
(A99-28)
GW & KM Gorlick Industries Pty Ltd
Applicant
v.
Sunwater
Respondent
DECISION ON PRELIMINARY ISSUE
The parties in this matter have sought a ruling of the Court on a preliminary issue arising from a claim for compensation in a resumption by Sunwater.
The appeal concerns a claim for compensation arising from the resumption on 6 October 1995 of 1.121 ha of land comprising part of a formerly 12.721 ha parcel used for growing sugar cane. At the time of resumption, 10.2 ha of the site had the benefit of the assignment to the Fairymead Sugar Mill. The resumed land includes a dam which was used to provide irrigation for the sugar cane crop. Following resumption, that source of water is not available and the land has essentially become a vacant rural residential property.
The claim for compensation is on the basis that the "before value" of the property reflected assigned, cultivated and irrigated sugar cane farming property, whereas the "after value" is based upon the residual land valued as a rural residential block. If, however, both the "before value" and the "after value" were assessed on the basis of a large rural residential block, then the claim for compensation would be much reduced.
In support of the "before value", the claimant proposes to adduce evidence that, at the time of resumption, not only was the land actually being used as irrigated land but that its value would have reflected the reasonable expectation of that continuing. The resuming authority, on the other hand, points to the fact that, at the date of resumption, the owner had no authority or pending application for an authority, under the Water Resources Act 1989, to irrigate the land from the water in the dam. In those circumstances it asserts that the before value must be arrived at by way of excluding any expectation of being able to irrigate the land.
Jurisdiction
Both parties have made detailed submissions (and responses) on the key issue and have agreed that the matter be determined without oral hearing. This course is permissible under Rule 36 of the Land Court Rules 2000. Further, the Court is given power to make an order about a preliminary point that may wholly or substantially decide a significant issue in the proceedings (Rule 19(2)(a)). Such an order is sought here.
The Judicial Registrar may make such an order if directed in writing by the President, provided the order is not for final relief (Rule 27(n)). In the instant case, the President has so directed in writing and the order sought is on a preliminary issue rather than one for final relief.
Agreed Facts
The relevant chronology can be summarised as follows:·in 1978 previous owners of the land obtained a licence (Licence 34847) to erect the dam and a licence (34846) to pump water from the dam to irrigate the farm;
·the licence to pump the water for irrigation purposes expired on 31 December 1981. At that time, the Queensland Water Resources Commission gave the licensees an expiry notice which advised them of their rights to apply for a renewal;
·by that stage the property had changed hands and the then owners advised that they did not wish to renew the licence and, accordingly, the licence was cancelled in 1982;
·in the same year the Commission received advice of the construction of the dam but decided not to inspect it;
·in the following years, the Commission took no action to cause the dam to be demolished or to prevent unlicensed use of the water for irrigation purposes;
·on 20 December 1994 the claimant contracted to purchase the land for $60,000, being broadly consistent with its value as assigned, cultivated and irrigated land. The contract of sale was subject to special conditions which acknowledge "that this sale includes the sugar cane assignment of 5.7 ha and farm peak with the Fairymead Mill of 59 tonnes which attached to the land" and "in addition to the assignment in Clause 2, the parties acknowledge that this sale includes the vendor's entitlement to a further assignment of 4.5 ha which will attach to the land as soon as it is planted up";
·the contract was completed, notwithstanding searches which revealed no subsisting licence;
·the notice of intention to resume was served on the previous owner in February 1995 and on the current owner in May 1995 with gazettal occurring on 6 October 1995.
Issue
The key issue for determination is to what extent the presence of excavation works and a pump on the subject land can be considered in assessing compensation. Given that they are there without lawful authority, can the potential for such works to be legitimised be considered in assessing compensation?
The Claimant's Submission
The claimant argues that the task of the Court is to determine what the hypothetical purchaser would expect in terms of the potential use of the property. Where a current (unlawful) use has been the subject of prosecution and has little chance of being legitimised, the hypothetical purchaser would ordinarily place little or no weight upon it in arriving at the value of the land. If, on the other hand, there is a higher degree of probability of being able to continue and/or legitimise the use, then the purchaser would be prepared to pay more for the property in line with that expectation. Reasonable expectations are not matters which can be left out of account when it comes to the process of valuation.
The claimant wishes to demonstrate that the reasonable expectation in relation to continued use of the water from the dam having regard to, amongst other things, the previous licensing of that activity, the fact that the licence lapsed (rather than being revoked for any positive reason), that the authority took no action to have the dam removed or subsequent usage of the water stopped, that the initial reason for the granting of the licence (the need to irrigate sugar cane crops for which there was a subsisting allocation) persisted and that the expectation was reflected in the sale to the current owner shortly before resumption. If the preliminary point is determined in the claimant's favour, then further evidence will be adduced.
The Respondent's Submission
The respondent's submissions may be outlined as follows:
·that the existing dam and pump on the resumed land were unlawful since:
(a) the dam was not constructed in accordance with the earlier licence; and
(b) the licences had expired.
·the illegality persisted notwithstanding the Chief Executive's failure to exercise a statutory discretion to require removal or modification of the works;
·that unlawful use must, as a matter of law, be disregarded;
·the only exception to the principles of disregarding unlawful use is in breach of zoning laws that may be regularised;
·in any event, an application to legitimise the works would have been unsuccessful;
·a hypothetical purchaser would not, in fact, have paid anything for the "potential" since approval for the works was too remote and speculative;
·that the restriction on use was not related to the scheme for resumption (the San Sebastian principle);
The claimant does not contest the final dot point above.
The Law
The general legal principles on the taking of potential into account in resumption valuations are considered in some detail in Jacobs The Law of Land Resumption and Compensation in Australia (1998) Chapter 23. Key principles include:
·The resumed property is to be valued with all its potential; this is consistent with the highest and best use notion.
·All logical and foreseeable future advantages are to be taken into account.
·It is the present value alone of such advantages that is to be determined.
·The issue is not whether the potential will be achieved, but how the hypothetical prospective purchaser or developer would have viewed such potential in the light of all the information available to him.
·Account must be had of the possibility of the removal of restrictions. Alternative approaches to this are:
"At the one end of the scale there are those restrictions where the possibility of relaxation is remote. In such cases a reliable starting point for the valuer is the land in its restricted state. The valuer can then make adjustments to allow for the chances of relaxation. At the other end of the scale, there are temporary restrictions which may soon be relaxed in whole or in part. In such a case as held by Kitto J in Royal Sydney Golf Club (1957) 97 CLR 379 at 391, "[A] permissible starting point may be to determine the value of the land in its unrestricted state … fix upon a deduction to be made from that value in order to reflect the depressive effect of the restrictions." (Jacobs 451)
·The burden of proof of showing that the restrictions may be lifted rests on the person asserting such a possibility or probability.
More specifically in relation to a waterworks licence, it is well established that the potentiality of the land obtaining water from an external source is an element in determining the value of the (unimproved) land: McDonald v. Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231. This issue was also considered in Chief Executive, Department of Lands v. Webster, (1994-95) 15 QLCR 394, where the Court considered the land in question had such potential; the issue it was concerned with was the additional enhancement of converting the potential into a reality by obtaining a waterworks licence.
Two Queensland Land Court authorities cited by the claimant are also most relevant on the issue of potential, particularly as they relate to an expectancy not specifically related to town planning (zoning) issues.
In Hudsons & Sons Pty Ltd v. Commissioner of Main Roads (1982) 8 QLCR 150, the Court was concerned with the resumption of land which contained significant quantities of high quality clay. The parties agreed that the clay was the property of the Crown. The resuming authority argued that, as the clay belonged to the Crown, it had not been resumed and there were no rights which the claimant had lost by reason of the resumption in this respect. The claimant, on the other hand, contended that, but for the scheme of the resumption, it would have obtained the necessary approvals to mine the clay and hence was entitled to compensation. In finding for the claimant, the Court said at p.157:"In all cases of compulsory acquisition the real question to be determined by the Court is what was the value of the land resumed to the claimant at the date of resumption? What was the value to him of his estate and interest in the resumed land?
The word 'interest' in this context (and in s.12(5)) is, in my opinion, not a technical word but one which should be widely interpreted so as to include any rights, privileges, benefits or powers which have a marketable value in the sense that they would add value of the land in the eyes of a hypothetical prudent purchaser for its highest and best use and their extinction by resumption caused loss to an owner …"
And further at pp.158-159:
"In the subject case, Dixon J's hypothesis might be put thus: what, but for the resumption, would the claimant company at date of resumption have had to sell? The answer must surely be a parcel of land … which it had held since 1931 for long-term clay mining, over which it had held a mining lease now expired, from which prior to expiry of lease, and after its expiry, it had won/sold clay, in respect of which town planning provisions would favourably view the continuation of extractive industry, in respect of which it had applied for another mining lease and in respect of which, as a preliminary to resumption, it had after negotiation with the respondent Commissioner agreed to exclude from the mining lease application the area to be resumed. In the event, after resumption, a mining lease was granted in a company's favour over the balance land …
In the special circumstances of the subject case as outlined above I am of the opinion that the claimant company at date of resumption had every reason to expect that, but for the resumption, its application for a mining lease … would have been approved and that it would have been able to continue to win/sell clay from its land at New Chum as it had historically done. This expectancy or potentiality as a matter of commercial practice, had not the resumption intervened, would have had a market value in the eyes of a prudent clay miner purchaser at date of resumption and it would have been an expectancy for which the claimant company as a prudent seller would have reasonably required value over and above the site value of its land. Such expectancy is, therefore, compensable."
In Astway Pty Ltd v. Albert Shire Council (1996) 16 QLCR 558, the Court was concerned with the resumption of a quarry which was nearing the end of its economic life. Although technically unlawful, a sand and soil business had operated from the site for a relatively long period with the knowledge of the Council. As at the date of resumption, there was no pending application to legitimise that use. Nevertheless the Court said as follows at p.564:
"While it cannot be said with certainty, I have formed the opinion on the overall town planning evidence, that the subject site had the potential to be included within the 'special facilities' zone, for a particular development which would have incorporated the further preparation of the site for landfill by quarrying activities and the contemporaneous development for that primary use as a commercial landfill in conjunction with the stockpiling of soil, sand and associated materials for recycling and processing for sale."
At page 589, in discussing disturbance:
"It is the Respondent's submission that as the use of the site for a sand and soil business was unlawful, the constructing authority should not be expected to pay any compensation for disturbance under the heading of relocation. As addressed under the town planning issues, I have accepted that successful application for suitable rezoning of the land would have been a reasonable expectation. The evidence indicates that even though technically unlawful, the sand and soil business had operated for a relatively long period within the knowledge of the respondent Council. If for any reason the use had been ordered to cease, I am satisfied that closure would have been of a temporary nature for a period sufficient for the town planning issues to be resolved."
Conclusion
From the above, it seems clear that the potential of the parent parcel (the "before" land) to obtain water licences should be considered in any valuation approach. It does not matter that, at the date of resumption, no subsisting authority to use water from the dam for irrigation purposes or to locate the pump on the property existed or that no application was pending. Further, it is probably of little relevance either way to the current issue that the works are actually constructed as at the date of resumption.
The value (if any) of such potential over and above the residential value of the parent parcel can be assessed only after relevant evidence is considered. Such evidence would include the history of the earlier licences, the fact that the authority did not insist that the unauthorised work ceased and the 1970 Report and recommendations and adopted policy by the Commission.
Order
It is ordered that the preliminary question be answered as follows:
1.That in determining the matter of compensation, the Court will have regard to expectations concerning the potential use the resumed part of the land for irrigation purposes notwithstanding that there were no current licences authorising that use as at the date of resumption.
2.That the further hearing of the appeal be adjourned for mention to a date to be fixed.
BR O'CONNOR
JUDICIAL REGISTRAR
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