Hegira Ltd v Minister for Natural Resources and Mines
[2005] QLC 51
•27 October 2005
LAND COURT OF QUEENSLAND
CITATION: Hegira Ltd v Minister for Natural Resources and Mines [2005] QLC 0051 PARTIES: Hegira Ltd
(appellant)v. Minister for Natural Resources and Mines
(respondent)FILE NO.: LA2004/0075 DIVISION: Land Court of Queensland PROCEEDING: An appeal against the Minister's decision on the amount of the unimproved value of reclaimed land DELIVERED ON: 27 October 2005 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER: Mr JJ Trickett, President ORDERS: 1. The appeal is allowed and the unimproved value decided by the Minister is set aside.
2. The unimproved value for the purpose of s.127 of the Land Act 1994, is determined at Ninety Thousand Dollars ($90,000).
CATCHWORDS: Valuation - Unimproved Value - Purchase price of reclaimed land - Method of valuation - Principles to be applied - Before and after method of assessment - Land Act 1994, ss.127, 434
Unimproved Value - Requirements of transitional planning scheme - Consent approval by Planning and Environment Court.APPEARANCES: Mr S Ure for the appellant
Mr W Isdale, Crown Law, for the respondentSOLICITORS Phillips Fox Lawyers for the appellant
Crown Solicitor, Crown Law, for the respondent
This is an appeal by Hegira Ltd (Hegira), the developer of land at the Pacific Harbour Estate, Bribie Island, against an internal review decision upholding the decision of the Minister for Natural Resources and Mines (the respondent) as to the purchase price of reclaimed land.
Background:
Hegira is the developer of a substantial area of land on the Pumicestone Passage side of Bribie Island, known as the Pacific Harbour Estate and described as Lot 186 on CG839070 (Lot 186), held by Hegira under a Special Lease from the State of Queensland for the purposes of "reclamation and business". That lease provides for the conversion of the land the subject of the lease to freehold title when the land is developed for residential purposes.
The Special Lease was originally granted to Custom Credit Corporation Limited (Custom Credit), a wholly owned subsidiary of the National Bank of Australia Limited (National Bank). As a result of the deregulation of the banking industry, Custom Credit was placed into voluntary liquidation by the National Bank and its assets transferred to Hegira, also a wholly owned subsidiary of the National Bank. The Special Lease was transferred to Hegira.
In its natural state, most of Lot 186 comprised low-lying tidal flats, timbered with mangroves and tea-tree. The development entails the excavation of canals, with the spoil used for filling and pre-loading the reclaimed areas. The canals thus created are dedicated to the State. A change in development intentions for the Dux Creek precinct of the Osprey Island canal development required the reclamation of a triangular area of part of a previously developed and dedicated canal.
The approval to reclaim was granted on 25 July 2001 and an area of 4,499 m², being described as Lot 1 on SP151145 (Lot 1), was reclaimed. An application was then made by Hegira for the issue of a Deed of Grant over this land.
In accordance with the provisions of s.127(6)(b) of the Land Act 1994, (the Land Act), Hegira was advised that the Minister had decided that the purchase price of this land was $295,000. On 17 December 2003, Hegira sought an internal review of the Minister's decision. By letter dated 9 February 2004, Hegira was advised that the internal review had been conducted and it had been determined that the Minister's original decision was upheld.
Hegira appealed against that internal review decision by way of an originating application filed in the Land Court registry on 22 March 2004. The grounds of that appeal were as follows:
1.Having agreed, through his officers, that the consideration for the purchase would be nominal, the Minister could not require a purchase price of $295,000.
In the alternative:
2.The purchase price did not correctly reflect the unimproved value of the land to be reclaimed as at 25 July 2001;
3.It did not properly reflect the state of the land as at 25 July 2001 and the worsement of that land by the dredging that had taken place upon it;
4.It did not properly allow for the costs which would be involved in developing the land for its highest and best use;
5.It did not properly allow for the lack of access to the land;
6.It was not based upon a comparison with truly comparable sales;
7.Its assessment was based upon errors of law and fact.
Hegira contended that in the circumstances of this case, a nominal purchase price would be appropriate. When the matter came before the Court, through its valuer, Mr RL Brett, Hegira originally contended for a purchase price of $30,000. However, later Mr Brett amended his assessment to $45,000.
In his initial report, Mr Brett reasoned that his assessment took into account the particular attributes of the site, including the fact that at the relevant date it needed to be reclaimed and serviced, and had no means of practical access, except through the adjoining land held by Hegira. He concluded that Hegira was the only prospective purchaser of the land.
The Subject Land
There is no dispute that the relevant date as at which the purchase price of the land is to be assessed, is 21 July 2001, the date of the approval to reclaim the land. At that time, the subject land, a triangular area of 4,499 m², comprised part of the canal which had been excavated and dedicated to the State during an earlier stage of the Pacific Harbour development. The adjoining Hegira land had been partially reclaimed.
According to Mr GG Naish, the valuer for the respondent, when that area was dedicated to the State as canal, it had been excavated and dredged a further 1.5 metres to be navigable. The adjoining Hegira land on two sides of the triangular area was to be developed as canal frontage allotments. However, in accordance with the approval to reclaim, when inspected by the valuers, the subject land had been reclaimed and developed as part of the overall residential development of the Dux Creek precinct of the Pacific Harbour Estate, with access from Raptor Parade, which actually bisects the reclaimed subject land. The incorporation of the subject land into the development of that precinct of Pacific Harbour Estate has allowed for the creation of five canal front lots and one dry lot on that area.
The issue in this case was the purchase price to be paid by Hegira for the subject land.
The Relevant Legislation
There is no dispute between the parties that the relevant legislation in this case is contained within the Land Act, s.127 of which relevantly provides:
"(1) If a person has reclaimed land under the authority of an Act, the Governor in Council may issue to the person, without competition, a deed of grant or a lease over all or part of the land.
(2) …
(6)If a deed of grant is issued, the purchase price is -
(a)the purchase price stated in the permission to reclaim the land or in the lease; or
(b) if no purchase price is stated - the amount of the unimproved value of the land, on the day the permission to reclaim the land was given, decided by the Minister.
(7)The person may appeal against the Minister's decision on the amount of the unimproved value."
The term "unimproved value" is defined in s.434 of the Land Act which provides:
"(1) In this Act, the 'unimproved value' of land is the amount an estate in fee simple in the land in an unimproved state would be worth if there were an exchange between a willing buyer and a willing seller in an arms-length transaction after proper marketing, if the parties had acted knowledgably, prudently and without compulsion.
(2) The unimproved value must be decided without regard to the commercial value of the timber.
(3) To remove any doubt, it is declared that the Valuation of Land Act 1944 does not apply to the meaning of unimproved value in this section.
(4) In this section -
'paid to the State' does not include rent paid to the State.
'unimproved state' includes, if the value of improvements and development work to the land performed by the State has not been paid to the State, the improvements and development work finished before the lease started or the deed of grant was issued."
In my view, that definition is entirely compatible with the classic test of "market value" applied by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418. In that case the High Court found that the market value of land is determined by the price that a willing but not overanxious buyer would pay to a willing but not overanxious seller, both of whom are aware of all the circumstances which might affect the value of the land, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding facilities, the then present demand for land and the likelihood of a rise or fall in the value of the property (see Griffiths CJ at 432, and Isaacs J at 441).
That is the test that I intend to apply in determining the unimproved value of the subject land.
The legislature has made it clear that in this process the definition of "unimproved value" in the Valuation of Land Act 1944 is not applicable. However, apart from the inclusion of value of improvements in the specified circumstances, there is no restriction on the method of ascertaining the unimproved value. That process has some similarity to the assessment of compensation following the compulsory acquisition of land, when a resuming authority which takes land is required to pay compensation in order to restore the landowner, as far as money can do so, to the equivalent financial situation that he or she enjoyed prior to the resumption.
In the present case, it is the landowner that requires the land and it is the State that is being deprived of it. In other words, it is the landowner that is required to pay "reasonable compensation" for the land. In my view, it would not be unreasonable to apply some of the principles which are relevant to the assessment of compensation for compulsory acquisition to the present case.
In any event, in determining the market value of the land, it is necessary to first consider its highest and best use.
Highest and Best Use
Following the approval by the Environmental Protection Agency on 25 July 2001, Hegira undertook reclamation works and on 7 October 2003, a survey plan of proposed Lot 1 on SP151145 showing the area of 4,499 m2 of reclaimed land, was lodged with the Department of Natural Resources and Mines seeking the issue of a Deed of Grant for that area.
In accordance with the provisions of the Land Act, the Minister was required to determine a purchase price for that land. The Minister's determination of $295,000 was based on the original assessment by registered valuer, Mr JT Houghton, who inspected the land on 30 October 2003, by which time the land was reclaimed and formed part of the development of the Dux Creek precinct of the Pacific Harbour Estate. Mr Houghton's assessment of the market value of $295,000 was based on the mistaken belief that the unimproved value had to be assessed on the assumption that the adjoining land held by Hegira had been developed as it was at the date of his inspection. He further assumed that access to the land would be available and that when filled and developed, there would be a market for the land. On that reasoning he undertook a hypothetical development of the subject land into four lots having canal frontage, while the balance land could be incorporated into a dry lot.
However, Mr Houghton's assumption was wrong, which he later recognised in an internal Departmental memorandum dated 25 March 2004. In reviewing his valuation, he sought to maintain his original approach to the hypothetical development of the land, by making greater allowance for holding costs and profit and risk, until such time as the surrounding estate would be developed. After making those adjustments to his hypothetical development exercise, Mr Houghton arrived at a revised market value of $180,000.
However, that revised valuation was not accepted by the respondent, because of the errors in Mr Houghton's approach. Valuation evidence in this case was given on behalf of the respondent by Mr Naish, with additional evidence from his senior valuer, Mr DP Jones, who had provided assistance and guidance to Mr Naish. They recognised that at the relevant date, not only was the subject land part of a canal, but that the adjoining land was largely undeveloped. However, they were aware that the Hegira land was to be developed in accordance with a master plan forming part of a preliminary consent development approval granted by the Planning and Environment Court on 14 July 2000.
The valuers for the parties have agreed that the highest and best use of the land at the relevant date relates to its potential for incorporation into the development of part of Osprey Island. Having regard to the way in which that part of the estate has subsequently been developed, they agreed that instead of assessing the value which the subject land would add to the whole estate, they should confine their considerations to part of Precinct 8 of that development, comprising the development of 25 allotments (the designated area). They also agreed that the value of the subject land would be the difference between the value of that designated area, including Lot 1 and the value of the designated area excluding Lot 1.
Mr Naish referred to his method of assessment as the "before" (excluding Lot 1) and the "after" (including Lot 1) method. However, instead of adopting the terms "before" and "after", Mr Brett referred to the method as assessing the value of the designated area "with Lot 1" and the valuation of that area "without Lot 1".
The before and after method of assessment is used principally to assess compensation where part of a landowner's land has been compulsorily acquired by a resuming authority. The reasoning behind the method requires the land to be valued at the date of resumption, as it was immediately before the resumption and then at the same date, as it was immediately after the resumption. The difference between those two valuations represents the amount of compensation payable to the dispossessed landowner. That method assesses not only the value of the land taken, but also damage caused by severance and/or injurious affection to the landowner's remaining lands, offset by any enhancement to those remaining lands as a result of the resumption.
Although the method is used principally for the assessment of compensation for compulsory acquisition of land, I can see no reason why the method cannot be used to assess the value of the subject land in this case. Although the circumstances are different, the principles are the same. Here it is the State, represented by the Minister, who holds the land. Hegira requires the land to optimise its development of that particular stage of its estate. In that sense, it is similar to a resumption, but with the roles reversed and without the element of compulsion. However, that is not to say that the Minister can set an unreasonable price, or hold Hegira to ransom. The definition of "unimproved value" contained in s.434 of the Land Act, together with the principles of Spencer's case, assumes that both parties behave reasonably, the willing buyer/willing seller concept. In any case, the valuers for the parties have agreed that the "before" and "after", or as I will refer to it, the "without Lot 1" and the "with Lot 1" approach, is the appropriate method of assessment.
Before examining those approaches adopted by the valuers, I will first consider what would have been the requirements for subdivision and development of the subject land at the relevant date.
The Planning Requirements
The Town Planning scheme for the Shire of Caboolture came into force and effect in March 1988 and the subject land was included in a Special Rural zone. That planning scheme became a "transitional planning scheme" under the Integrated Planning Act 1997 (the IPA). Then on 14 July 2000, the Planning and Environment Court granted a Preliminary Approval, by way of a consent order, for a development approval for a material change of use for that part of the Pacific Harbour development known as Dux Creek, which includes the subject land.
Pursuant to s.3.1.6 of the IPA, the Preliminary Approval overrides the transitional planning scheme by:
(i)providing a table of development assessment for each of the eight precincts into which the land the subject of the Preliminary Approval is divided, and;
(ii)setting out development codes for various forms of development within the Preliminary Approval area.
On 14 July 2001, the Council adopted a consequential amendment to the transitional planning scheme to reflect the Preliminary Approval by excluding the land from the Special Rural zone and including it in the Special Facilities (Mixed Residential development being Dwelling Houses, Duplexes, Multiple Dwellings, Marina and ancillary Retail Land Commercial Development) zone. Therefore, at the relevant date of 25 July 2001, the subject land was included in that Special Facilities zone. However, even if the Council had not undertaken a consequential amendment to its transitional planning scheme, the Preliminary Approval would have been the document that guided the manner in which the subject land was developed. At no time had the subject land been included in a Residential zone, which is defined in the Council's subdivision of land By-law, as follows:
"'Residential Zone' - Includes all land in that part of the Shire declared to be a Residential A Zone, Residential B Zone, Residential C Zone and Residential D Zone under the town planning scheme in force for the Shire;"
The transitional planning scheme provided for basic subdivisional requirements for residential land: By-law 18. The respondent's valuers concluded that the hypothetical subdivision relied upon by Mr Brett to assess the value of the designated area "without Lot 1", did not comply with those residential subdivisional requirements, nor did it comply with the Preliminary Approval of the Planning and Environment Court. They contended that the proposal would have to be referred back to the Planning and Environment Court for approval of those amendments, with consequent delays and costs.
Evidence on behalf of Hegira was given by town planning consultant, Mr RJ Ryter, who had been Shire Planner for the Caboolture Shire Council from 1988 to 1992. He had been consultant to Hegira for the Pacific Harbour development from 1992. Mr Ryter explained that the Preliminary Approval by the Planning and Environment Court of 14 July 2000, was the closest mechanism under the IPA to the rezoning of land. It provided for land use entitlements and dictated the way in which the land was developed.
Mr Ryter explained that even if the Council had not undertaken a consequential amendment of its transitional planning scheme, the Preliminary Approval would have been the document that guided the manner in which the subject land was developed. It overrides the Council's transitional planning scheme. He described it as analogous to a rezoning approval under the previous legislation, setting up a range of use entitlements in various precincts and also setting up the codes against which certain aspects of the development would be assessed.
The respondent's valuers had expressed doubt that three parcels of land shown on Mr Brett's "without Lot 1" plan complied with the residential codes in the transitional planning scheme. However, Mr Ryter had no doubt that with very minor variations, the plan could be brought into conformity with the codes contained in the Preliminary Approval which, he said, was the relevant code and would not need referral back to the Planning and Environment Court. The Preliminary Approval required that development of the area be generally in accordance with that approval, which included a precinct plan.
Mr Ryter explained that the area subject of the Preliminary Approval was planned to accommodate approximately 1,000 lots and occupied about 130 hectares of land. It was simply not feasible that each such application be taken back to the Planning and Environment Court; any application would be tested against the code in the Preliminary Approval. If it complied, it was approved; if it did not, the Council could approve it, but impose a condition that the approval was subject to full compliance. According to Mr Ryter, it would be necessary to make an application to the Planning and Environment Court only in respect of individual reconfiguration applications that were genuinely not in accordance with the overall Preliminary Approval.
However, it seems that this issue has been partly resolved. In a letter dated 10 May 2005, the respondent conceded that Mr Brett's plan for the "without Lot 1" scenario would be assessed as being generally in accordance with the master plan. However, that letter went on to say that "… it would require an application to modify the configuration …" and that the application fee and the changed design preparation costs should be allowed for in the hypothetical development exercise (paragraph 5 of Exhibit 12).
The respondent's valuers had taken the view that where the Preliminary Approval was silent as to certain requirements, then those requirements would be assessed in accordance with the transitional planning scheme basic requirements for subdivision. The respondent's valuers contended that this was particularly relevant with regard to the "quay" line requirements for residential canal allotments in By-law 18(1)(b)(v)(C)(i). In Mr Brett's "without Lot 1" plan, two lots (proposed Lots 654 and 812) did not meet the minimum 10 metre full length quay line requirements for residential navigable canal frontage blocks. However, the valuers expressed the view that dedicating additional areas as park land may address the compliance issue.
On the other hand, Mr Ryter dismissed those provisions of the transitional planning scheme as of no relevance, because the Preliminary Approval overrides the planning scheme, even where it is silent as to the requirement for quay lines. He went on to say that those requirements were prescribed for residential zones and the subject land was not, and never had been, included in a residential zone. If the Council was dissatisfied with the quay lines provided for any allotment, a condition could be imposed precluding the development of pontoons or jetties for those lots.
The respondent's valuers also expressed the view that Mr Brett's "without Lot 1" design would have interfered with what plans show as Raptor Parade, by "breaking" that thoroughfare from a through-road into two cul-de-sacs, which would mean renaming at least part of it, which would result in further costs. However, Mr Ryter pointed out that as at July 2001, no road had been approved or named. In his view, the proposal in the "without Lot 1" plan was generally in accordance with the Preliminary Approval, so there was simply nothing to amend.
The respondent's valuers had contended that an application to the Council to modify what had been approved in accordance with Mr Brett's "without Lot 1" design, would cost in the order of $50,000. It was further suggested that when marketing and other costs were added, there might be some $200,000 required. However, Mr Ryter again pointed out that at the relevant date there was no approval to modify. Council fees, he said, for an application for reconfiguration would be based on the number of allotments. As there were three fewer allotments in the "without Lot 1" plan than in the "with Lot 1" plan, at $441 per lot, Council fees would be about $1,300 less. He rejected the contention that costs in the order of $200,000, at least $50,000 of which would be planning application fees, would be incurred.
Mr Ryter went on to explain that the differences between the subdivision of land By-laws and the Preliminary Approval were intentional and were carefully considered by the Council prior to approval being granted. The Council had recognised the benefit of the master planning approach adopted by the developer and was prepared to relax the requirements that might otherwise have applied in a residential zone, which allowed for greater flexibility of land use and design of subdivisions.
The opinions formed by the valuers for the respondent were based on information provided to them by town planning staff of the Caboolture Shire Council. However, none of the town planning staff was called to give evidence. Those opinions were challenged by Mr Ryter, whose experience as Shire Planner and later as planning consultant for Hegira, gave his evidence more credibility than that of the valuers who were relying on the opinions of others. In the circumstances, I accept the evidence given by Mr Ryter in relation to the town planning issues which remain relevant in this case.
The Valuation Evidence
I do not propose to discuss the detail of the various valuation reports tendered in this case. It is sufficient to say that Mr Brett, the valuer for Hegira and Mr Naish, the valuer for the respondent, refined their respective approaches until they were able to agree on a number of issues. However, there were other issues which remained unresolved.
In a joint statement (Exhibit 19), the valuers agreed on the appropriate method for assessing the value of the subject land, that is, by the "before" and "after" method, or as described in these reasons, the "with Lot 1" and "without Lot 1" approach. While they agreed on the layout and general approach to the hypothetical development for the "with Lot 1" exercise, they disagreed about the "without Lot 1" approach. There was some agreement as to selling costs, profit and risk, development costs, interest and acquisition costs, for the "with Lot 1" exercise. They agreed that in arriving at the gross realisation for the hypothetical development exercise, individual allotment values should be based on the sales in Cosmos Avenue and Seafarer Place. However, they did not agree on some of the allotment values.
The most fundamental disagreement was with regard to the "without Lot 1" subdivision layout. Mr Brett had attempted to design a subdivision layout for the designated area that would provide the developer with the best economic return in those circumstances, without regard to the manner in which that part of the area was ultimately developed, i.e. the "with Lot 1" layout. Mr Brett's design maximised the number of canal lots along the sides of the canal frontage triangle, resulting in 19 canal lots and three dry lots for the designated area, a total of 22 lots.
However, Mr Naish did not agree with Mr Brett's subdivision layout for the "without Lot 1" scenario. He did not design a separate subdivision layout, because he considered that it was necessary to notionally remove the triangular subject land from the layout plan of the way in which the designated area was subsequently developed, i.e. the "with Lot 1" scenario. That resulted in the loss of two allotments and parts of five other allotments, resulting in what he considered to be a total of 20.5 effective allotments.
It seems to me that the approach taken by the respondent's valuer results from the ongoing confusion that he was somehow bound to continue to have regard to the "with Lot 1" plan, because that was the way in which the land had been developed. But as was pointed out by Mr Ryter, at the relevant date there were no detailed plans approved. His view was that Mr Brett's "without Lot 1" plan substantially complied with the Preliminary Approval and the attached master plan. He had suggested that where it did not fully comply, the Council would approve it, but subject to appropriate conditions for full compliance. It was clear from the evidence that compliance with those conditions would not be costly. Based on Mr Ryter's evidence, I accept that Mr Brett's modified "without Lot 1" plan is more appropriate than the plan relied on by the respondent's valuer.
I see no point in setting out the competing hypothetical development exercises undertaken by Mr Brett and Mr Naish. I am satisfied that Mr Brett's exercises for both the "with Lot 1" and "without Lot 1" scenarios are more technically correct than those undertaken by Mr Naish. Also, Mr Naish in his oral evidence made several corrections to figures in his report, some of which I have been unable to reconcile. Furthermore, after carefully examining the evidence, I am satisfied that the valuations applied to the individual allotments by Mr Brett are more convincing than those applied by Mr Naish.
Mr Brett initially assessed the market value of the subject land at $30,000. However, he refined his approach as a result of pre-trial discussions with the respondent's valuers and in response to matters raised in their reports. He altered his assessment to $40,000 and finally to $45,000, because of design changes to the "without Lot 1" plan and consequent alterations to some lot values.
Mr Brett's final revised layout plan for the "without Lot 1" scenario was undertaken to comply with the subdivision requirements for residential subdivisions in the transitional planning schemes. The resulting alteration to the values of some lots and his revised development costs are set out in his further rejoinder report (Exhibit 10). He had also made some minor amendments for the cost of any reconfiguration application to his "with Lot 1" hypothetical development calculation. Despite being challenged by the respondent, in my view, Mr Brett's reasoning remained substantially intact. His revised figures result in a land value for the "with Lot 1" hypothetical development of $1,450,000 and a land value for the "without Lot 1" hypothetical development of $1,360,000. The difference between those two figures is $90,000, which represent the value which in his opinion the subject land adds to the designated area of the Osprey Island development.
However, Mr Brett did not adopt $90,000 as the market value of the land. He reasoned that the vendor would know that unless the subject land could be sold to Hegira, it had no value, while Hegira would know that the vendor could not sell it to anyone else. Therefore, he contended, it was likely that the parties would split the difference and arrive at a market value of $45,000. I will consider that aspect of Mr Brett's reasoning later.
Mr Brett did not undertake any check valuation, which was the subject of some criticism by the respondent. However, he did revise and refine his valuation. On the other hand, Mr Naish undertook what purported to be three separate check valuations which, he contended, supported his valuation.
The Issues
Initially, there were many issues between the parties. However, as the evidence emerged, the issues in dispute were narrowed considerably.
Mr Brett adopted a single method of valuation: the hypothetical development of the designated area "without Lot 1" and the hypothetical development of the designated area "with Lot 1", the difference being the value which the subject land adds to that part of the canal development of a designated area of 25 allotments.
Mr Naish, on the other hand, adopted a similar approach with regard to the hypothetical development of the same area of land including Lot 1 (his "after" scenario), but he took a very different approach to the hypothetical development of that area of land excluding Lot 1 (his "before" scenario). He considered that he was bound by the plan of development which was ultimately adopted, because that plan was consistent with the master plan in the Preliminary Approval.
However, Mr Naish later conceded that with some adjustments, Mr Brett's "without Lot 1" plan would be appropriate and he undertook a hypothetical development exercise based on a somewhat similar plan, which resulted in his alternative "before", or "without Lot 1", value of $870,000. Although he did not abandon his primary method of assessment, in my view it is not realistic and Mr Naish's alternative assessment is more appropriate.
Before discussing the remaining issues between Mr Brett and Mr Naish in their respective hypothetical development exercises, I will consider the contention that Mr Naish's valuation was supported by three check valuation methods.
The first of these methods was direct comparison with in globo sales. By reference to four sales of developed in globo land in the general area, Mr Naish concluded that the designated area of 29,132 m², would have a value of $163 per m², or $4,750,000. He concluded that this valuation supported the gross realisation which he adopted for the hypothetical development "with Lot 1", of $4,759,000.
However, in my view this exercise has no validity. It does not compare like with like. First, the sales are not comparable with the designated area and second, the comparison was made on a per m² basis, whereas the gross realisation in Mr Naish's hypothetical development was the sum of the value of each of the 25 lots. In my view, this supposed check method of valuation provides no assistance whatsoever.
The second limb of that check method involved a direct comparison of the designated area "with Lot 1" with four large area in globo sales of undeveloped land. The net land value which Mr Naish arrived at was $1,180,000, a rate of $40.50 per m² for the designated area of 29,132 m². Mr Naish contended that the rate of $40.50 per m² "sits in line with the sales evidence" on a rate per m² basis.
In my view, not one of the four sales relied upon by Mr Naish for this exercise is in any way comparable to the designated area. Therefore, the exercise has no validity.
Mr Naish's second check method was what he called the "deprival" value. He reasoned that as the subject land at the relevant date was inundated land with no access, which adjoined dry land, a "rough test" would be to apply a percentage of the value of the adjoining dry land. He relied on what he considered to be precedents for such an approach in Keith Lawrie Nominees Pty Ltd v Valuer-General (1986) 11 QLCR 120, where the Land Court found that in the absence of market evidence, as a "rough test", or "rule of thumb", the value of wet land was 50% of the rate per m² of the adjoining dry land. The resulting rate per m² was reduced by a further 50% for lack of access. That reasoning had been followed in ANZ Executors and Trustee Co Ltd v Valuer-General (AV90-347) 17 December 1992.
Having regard to three of the sales of developed in globo land previously referred to, Mr Naish reasoned that once it was developed, the subject land would have a value of $170 per m², for the 4,499 m² or $765,000. He concluded that as inundated land, the subject land should have a value of 25% of that figure, or $42.50 per m², which equals $191,207. The rate of $42.50 per m² was, he contended, supported by the other larger-area sales of undeveloped in globo land.
However, there was a second part to the deprival value exercise. Mr Naish reasoned that the subject land was a State asset, dedicated as "canal" since 1991. However, it had been dredged and deepened a further 1.5 metres to make the canal fully navigable. This dredging work, he concluded, was an improvement to the subject land, which would cost $134,970 (4,499 m² x 1.5 metres at $20 per m³).
Mr Naish was of the opinion that as the State was to be deprived of its asset, the cost of those improvements foregone should be added to the unimproved value of the subject land, so that its deprival value comprised:
$191,200 (added value) plus $134,970 (dredging cost foregone) = $326,170.
He adopted a deprival value of $326,000, or $72.50 per m².
In my view, this so-called "deprival value" check method has no validity. In the first place, the circumstances of the two cases relied upon by Mr Naish for his "rough test", were quite different to the present matter. Neither of those cases is authority for the proposition that the unimproved value of wet or submerged land should be a percentage of the value of adjoining dry land, with which it is used in conjunction. Furthermore, even as a "rough test", such a method would depend on the accuracy of the assessment of the value of the adjoining dry land, which was far from established. Secondly, they were revenue valuation cases, where the unimproved values of those lands were determined under the provisions of the Valuation of Land Act 1944. In the present case, the statutory definition of "unimproved value" in the Land Act expressly excludes the provisions of the Valuation of Land Act. The present matter is not analogous to a revenue valuation case. The principles which might be acceptable in such cases where there is a lack of market evidence would not seem to me to be relevant here.
Putting that to one side, even if Mr Naish had arrived at the correct unimproved value of the subject land, the question arises as to whether he should then add the value of the additional dredging as an improvement. The definition of "unimproved value" in s.434 of the Land Act, includes the value of improvements where development work had been performed by the State, the State had not been paid for the work, and the development work had been finished before the lease started or the deed of grant was issued. There is evidence here that such work was undertaken by the predecessor in title to Hegira, Custom Credit.
Be that as it may, I cannot conclude that the extra dredging work to deepen the canal should be regarded as an improvement. It was agreed that the highest and best use of the subject land is as filled and developed land in conjunction with the development of the designated area. In such circumstances, it would seem to me that the extra dredging, far from being an improvement, was a "worsement" to the land. In any case, both Mr Naish and Mr Brett in their respective hypothetical development exercises for the designated area "with Lot 1", agreed that the cost of filling the subject land was $236,250.
In my view, the "deprival value" method is of no assistance as a check method of valuation in determining the market value of the subject land. It was contended by Mr Jones that the deprival method had to be considered, because the subject land was a State asset and was required to be valued at the cost of its replacement. However, from the material tendered, it is clear that the method is applied for financial reporting purposes and would play no part where the unimproved value is to be determined under s.434 of the Land Act.
Mr Naish's third check method was his "alternative before and after" method. He reasoned that the Council may approve deviating from the original development plan for a 20-lot configuration similar to that proposed by Mr Brett in his 22-lot "without Lot 1" scenario, except that in Mr Naish's proposed configuration, two lots near the apex of the triangle are proposed to be dedicated as park. In the circumstances, Mr Naish considered that such a configuration, would create inferior quality canal allotments that would have an aesthetically detrimental effect on the entire subdivision.
Each of these lots, he reasoned, would not only have a reduced quay line and quality of outlook, but may also suffer detrimental effects acoustically, because of their close proximity to each other. He reasoned that an area of park would be the highest and best use of 2,023 m², instead of two allotments, to create a buffer "to soften the angular nature of the overall design". There would, he reasoned, also be additional planning and redesign costs of $50,000, as well as development and maintenance costs associated with the park land of $70,000.
Mr Naish undertook an alternative "before and after" hypothetical development. Without going through the details of his calculations, he arrived at an alternative "before" (or "without Lot 1") valuation of $870,000. When deducted from his "after" (or "with Lot 1") valuation of $1,118,000, the difference of $310,000, was the added value of the subject land.
Conclusion
There are relatively few issues remaining to be resolved in this case. The valuers have agreed that Mr Naish's alternative "before and after" method of valuation is appropriate and this is similar to Mr Brett's "with and without" method.
However, there are differences. First, the values assigned to some of the individual allotments to arrive at their gross realisations for the "with Lot 1" and "without Lot 1" hypothetical development exercises, are different. I have had regard to the valuers' reasoning in each case and, although there is not a lot between them, I prefer the values applied by Mr Brett to the individual allotments. In my view, his explanation of the process of comparison with sales was more convincing, particularly the emphasis on the overall amenity of the canal frontage lots, in addition to the other considerations, such as aspect, area, etc.
The second difference between the valuers was the question of the dedication for park in Mr Naish's "without Lot 1" hypothetical development valuation. Mr Brett was of the opinion that no such allowance need be made at the sacrifice of two lots and with a development and maintenance cost of $70,000. He simply adjusted his valuations of the lots which were adversely affected in the "without Lot 1" hypothetical development exercise.
As to the requirement for parkland, I accept the evidence of Mr DM Young, Operations Manager for the Pacific Harbour Estate, that providing for park, rather than two lots, is not necessary and is an inefficient use of the land. In his opinion, if any of the lots was adversely affected by the shape, the developer could ensure the amenity of those lots and of the area, by building appropriate houses and marketing them as attractive house and land packages. In any case, Mr Brett adjusted the valuations of those lots which he considered to be affected. In the circumstances, I accept that there is no need for the park dedication in Mr Naish's exercise.
Third, Mr Naish had allowed a figure of $50,000 in his alternative "without Lot 1" exercise, for the cost of amendment of what he thought to be the approved plan. However, I have accepted the evidence of Mr Ryter that Mr Brett's revised layout plan in Exhibit 10 complies in all respects with the Preliminary Approval. As it is similar, Mr Naish's "alternative before" plan would also comply with the Preliminary Approval and the master plan. Although he conceded that, Mr Naish remained of the opinion that the allowance of $50,000 should be made as a contingency. However, I accept that there is nothing to amend and therefore no requirement for the additional allowance of $50,000.
After considering the whole of the evidence, I propose to adopt the reasoning of Mr Brett and accept his conclusion that the difference between his "without Lot 1" and his "with Lot 1" hypothetical exercises amounts to an added value of the land of $90,000.
However, Mr Brett went further. To ascertain the "market value" of the subject land, he reasoned that unless the State could sell the subject land to Hegira, it would not be able to sell it to another purchaser. The land had no road access and, he contended, little or no market value. He expressed the opinion that the principles applied by Pike J, of the NSW Land and Valuation Court, in Mort's Dockand Engineering Co. Ltd v The Valuer-General (1924) 6 LGR (NSW) 162, should be applied. In that case, the Court was considering the unimproved value of land below high water-mark. That land adjoined land above high water-mark and both could be used in conjunction. His Honour held that as there was no other possible purchaser of the wet land, a prudent vendor and purchaser would "split the difference" between them. In the present case, Mr Brett contended that the difference would be between nil and $90,000. He adopted $45,000 as the market value of the subject land.
I cannot accept that reasoning. Mort's Dock involved the determination of the unimproved value of land below high water mark under the provisions of the New South Wales Valuation of Land Act 1916. As stated earlier, in my view, cases such as the present are in some ways more analogous to compensation cases than to revenue valuation cases. Since that case was decided, the Privy Council in Raja Vyricherla Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam (1939) AC 302, considered the compensation that should be payable following the compulsory acquisition of land where there could be no purchaser of the land's potentiality other than the acquiring authority. Among other principles, the Privy Council established that in such circumstances, compensation must be ascertained at the price that would be paid by a willing purchaser to a willing vendor of the land with that potentially, even though that potentiality could be exploited only by the acquiring authority, in the same manner that it would be ascertained where there were other possible purchasers. There was no suggestion in that case of some compromise or "splitting the difference".
Mr Ure submitted that the Raja case has no application to the present matter, because the principles relating to the determination of compensation following the compulsory acquisition of land are different. However, while I agree that not all the principles should be applied, there is sufficient similarity for some principles to apply. In the present case, the State is to be assumed to be a willing but not over-anxious vendor and Hegira a willing but not over-anxious purchaser. Although I have rejected the accounting "deprival" method adopted by Mr Naish as a check valuation, the State is entitled to obtain the best possible purchase price for the land, consistent with the "market value" definition in the Land Act.
In the circumstances, I have come to the conclusion that the State, as a prudent vendor, would require Hegira to pay the "unimproved value" of the land and not half that value. The exercises which have been carried out by Mr Brett, demonstrate the value which the subject land adds to the development of the designated area of Osprey Island. In those exercises, Mr Brett has allowed for an appropriate profit and risk factor which a prudent developer would take into account in determining the price that he or she would pay for the land. In my view, no further discounting is necessary.
Although nothing more need be added, it seems to me that the present case is one for a more liberal estimate, rather than a conservative one. As Dixon J said in Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd(1947) 74 CLR 358 at 373-374:
"I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate."
Orders
The appeal is allowed and the unimproved value decided by the Minister is set aside.
The unimproved value for the purpose of s.127 of the Land Act 1994, is determined at Ninety Thousand Dollars ($90,000).
JJ TRICKETT
PRESIDENT OF THE LAND COURT
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