Hinchinbrook Island Pty Ltd v Chief Executive, Department of Lands

[1996] QLC 3

[1996] QLC 3

 

  LAND COURT

BRISBANE

23 January 1996

Re:     Appeal against Valuation
Valuation of Land Act 1944
  Shire of Cardwell.
  (V95-15).

Hinchinbrook Island Pty Ltd
  v.
  Chief Executive, Department of Lands

(Hearing at Ingham)

D E C I S I O N

Hinchinbrook Island Pty Ltd is the lessee of Special Lease No. 41350, Parish of Hecate, County of Cardwell, and is the holder of a Permit to Occupy No. 5850, over adjoining land.  These lands are at the northern end of Hinchinbrook Island National Park.  Special Lease No. 41350 is in respect of the land described as Lot 4 on Plan CWL 2163, with an area of 8.094 hectares.  Permit to Occupy No. 5850 has an area of .0036 hectares, making a total area of the land held by the appellant company of 8.0976 hectares.
As at 30 June 1993, the respondent determined the unimproved value of that land at $840,000. However, following a Land Appeal Court determination in respect of the valuation of the resort land at Brampton Island and subsequent negotiations between the Department of Lands and representatives of Reef Resorts, the valuation should have been $880,000. Therefore, an interim valuation was issued under the provisions of s.13(2)(h) (as it then was) of the Valuation of Land Act 1944, for $880,000.
           The appellant company objected against this valuation and after the objection was disallowed, appealed to the Land Court against the respondent's decision upon its objection, advising that the unimproved value should be $360,000.

The appellant company's grounds of appeal are:

•The Lands Department failed to advise that the lease was to be used by unspecified numbers of other commercial operators without reference to the lessee company.

•The Lands Department failed to take account of recent sales, particularly the land now known as Port Hinchinbrook at Cardwell.

•The Lands Department valuation was made on a freehold basis, yet a Department representative has stated that anyone has the right of entry.

•A sustained marketing campaign over a two year period has failed to attract any offer to purchase the land.

Hinchinbrook Island, of some 40,000 hectares, is situated off the Queensland Coast, from just north of Lucinda to just east of Cardwell.  It is mostly National Park, except for a small area known as the Hinchinbrook Island Resort, which is situated at Cape Richards at the northern tip of the island.  On 11 May 1978, Special Lease No. 41350 was granted for an area of about 8.094 hectares to Hinchinbrook Island Pty Ltd for a term of 75 years from 1 January 1978.
           The conditions of the lease are such as would be expected for a Special Lease over part of a National Park.  They contain provisions designed to ensure the protection of the National Park consistent with the development of a tourist resort on the leased area.  Included in the conditions are the following:

"11.The Lessee shall hold the leased land so that the same may be used without undue interruption or obstruction for the public purpose for which it was declared as national park and in particular and without limiting the generality of this condition so that all the relevant duties and functions of the National Parks and Wildlife Service as laid down in the legislation in force at any particular time may be performed and carried out and so that there shall be no interruption or obstruction to the reasonable public enjoyment of the national park consistent with the rights of the Lessee under this lease.  However, this condition shall not of itself be construed as diminishing the normal rights of the Lessee to exclude any person from authorised improvements on the lease land, or to control the behaviour of any person in accordance with condition 10 anywhere on the leased land, and if appropriate to require them to leave the national park if committing a breach of any statutory regulations pertaining to the national parks. 

12.Any person authorised by the Director of National Parks and Wildlife shall at all times have the free right and privilege of access, including ingress, egress and regress, into, upon, over and out of the leased land for any purposes whatsoever, including access to such buildings and other improvements or such parts there-of as are generally accessible to all resort guests.  "

The plan of the Special Lease shows an area roughly semi-circular in shape extending from the western headland of Cape Richards to the eastern headland, fronted on the seaward side by an esplanade 100 metres wide, except in the actual headland areas where the esplanade is wider.  On the seaward side of the esplanade between the two headlands is a good sandy beach about 500 metres long, known as Orchid Beach.  The south-eastern and south-western boundaries of the Special Lease adjoin the National Park.  A road reserve connects the western esplanade to the Orchid Beach esplanade.
           It emerged in evidence that Permit to Occupy No. 26/5850 is in respect of land on the road reserve area which is occupied by a boat shed.
           Mr QH Birt, the managing director of Hinchinbrook Island Pty Ltd, appeared and gave evidence on behalf of the company.  Mr Birt explained that in the late 1970s, a group of mainly Townsville people applied for the Special Lease in order to develop a tourist resort.  Mr Birt acquired his interest in the property in 1986, at which stage development had been completed and the resort was operating but, as he put it, "not operating all that well".  In 1990-91 the company redeveloped the property by adding 15 new units (the tree house units) and a new central complex building.  An old central building had been demolished, but the old units had been left and new units erected on the hillside.  Of the old units, six were presently being used for the accommodation of guests, with at least some of the remaining nine being used for staff.
           Mr Birt said that the resort had been developed on a strong natural theme, in keeping with the character of the National Park.  The development blended with the environment rather than destroying it.  It is a small nature-orientated resort catering for limited numbers of guests.  Mr Birt described it in this way, " ... we are a low-use, peace and quiet, splendid isolation and are the only small resort that caters for children.  We won four tourism awards for eco-tourism-type development."
           Some time after the granting of the Special Lease, a jetty was constructed on the western side of the western headland (referred to in some documents as Steele Bay), adjacent to the road reserve area.  Although the jetty has recently been reconstructed, it appears that no permit was ever granted for its construction.  However, according to Mr Birt, the company submitted an application for a new jetty structure on 17 December 1990.  Despite this, it seems that the relevant Departments and authorities are well aware of the existence of the jetty and action is in train to regularise its use as it virtually provides the only access to the northern part of the Island for resort guests and members of the public.
           Mr Birt explained that the Department of Environment and Heritage has interpreted condition 11 of the lease as meaning that the lessee company must allow the public to have access to the National Park through the leased area.  Condition 12, which he interprets as meaning Government employees, has been used in what he describes as "an inappropriate way", to grant commercial activity permits to two other commercial operators to have access through the lease to walking tracks in the national park.
           It appears that two commercial operators of tourist vessels, Hinchinbrook Travel and Hinchinbrook Adventures, have been granted permits to land limited numbers of day-trippers onto the Island and that in doing so, they make use of the jetty.  Although the evidence did not make this perfectly clear, it appears that each one of the commercial operators can land up to 15 persons per day at Cape Richards (the resort area) and gain access through the leased area to a walking track to a point on the Island called Macushla.  Alternatively, each operator may land a similar number of persons at Macushla to traverse the walking track at the northern end of which they pass through the leased area to gain access to the jetty. 
           Therefore, it seems that a maximum number of 30 persons per day could, at various times, be using the walking track, gaining access to the leased area at the beginning or the end of their journey.  Mr Birt claims that this intrusion by day trippers destroys the "back to nature, splendid isolation" philosophy of the resort.  He has strongly objected to the Department of Environment and Heritage as he was not consulted before the Commercial Activity Permits were granted.
           Mr Birt contends that he has no objection to members of the public gaining access through the special lease to the national park walking track, but the day- trippers from the commercial operations of the two tourist vessel operators has adversely affected the value of the land.
           While the conditions of the special lease entitle the lessee company to exclude the day-trippers from the improvements on the lease, they cannot be prevented from traversing the lease to gain entry to the jetty and to the walking track.  Mr Birt said that it was also impossible to prevent day-trippers from using the toilet facilities on the lease, although they are not permitted to use the restaurant facilities or to buy drinks from the restaurant, as that would be in breach of the lessee company's liquor licence.
           One of the tourist operators has also promoted the use of Orchid Beach by its day-trippers.  While such activity does not directly intrude on the leased area, it does nothing to enhance the "splendid isolation" theme of the resort.
           Evidence was given of the efforts by the Department of Environment and Heritage to resolve the situation.  A draft management plan for Hinchinbrook Island has been prepared and a Departmental policy paper on day visitor access to Cape Richards and discussions and negotiations between the parties have emphasised the need to limit numbers of day-trippers and to minimise their impact on the resort.
           Mr Birt gave evidence about the cost of development and the viability of the resort.  He pointed out that the water supply dam, storage tanks and sewerage plant were all located either off, or partially off, the leased area.  He said that the capacity of the 15 newly developed units is 42 people, while 12 more can be accommodated in the older cabins, making a total capacity for the resort of 54 persons. 
           In an effort to arrive at a basis for his estimate of unimproved value, Mr Birt had searched the records of the Lands Department to ascertain if there were any comparable sales.  However, most of these were sales of rural land which he realised were by no means comparable.  The only sale that he felt was at all relevant was the sale of land variously known as Port Hinchinbrook or Oyster Point, the development of which has been the subject of considerable controversy.  This property of 132.4 hectares sold to Cardwell Properties Pty Ltd (Mr Keith Williams' company) in July 1993 for $600,000, or $4,532 per hectare.  Mr Birt considered this property to be superior in every way to the subject land.
As further support for his opinion, Mr Birt also included a valuation of the resort made by a private valuer for finance purposes in March 1992, where the value of the leasehold land was included at $350,000. However, it is clear that the land was valued as leasehold, whereas for the present purposes, the Valuation of Land Act requires that the unimproved value of the subject land be determined as if it was held in fee simple. Therefore, the valuation by the private valuer is of no assistance in this matter.
           Valuation evidence on behalf of the respondent was given by Mr PF Goodman-Jones, a senior valuer employed by the Department of Lands.  Mr Goodman-Jones explained how he had valued this parcel of land, held from the Crown under leasehold tenure, situated on Hinchinbrook Island, approximately 22 kms east-north-east of the town of Cardwell.  He described the land as being generally moderate to steeply sloping scrubby forest strewn with large granite boulders.  The eastern and western ends comprise rocky headlands which protect a good sandy beach about 500 metres long.  The land has very good views primarily to the north. 
           His report goes on to say that the land is zoned "Island Resort" under the Cardwell Shire Town Planning Scheme and the land is developed as a tourist resort comprising 15 tree houses, 15 cabins and associated resort infrastructure.
           Mr Goodman-Jones valued the land as a resort site at $880,000.  He explained that there were no comparable sales on which to base the valuation.  It had been determined by increasing the existing previous valuation of $840,000 made as at 31 March 1992, by 5%.  This percentage rate was applied to all island resorts along the coast and followed the Brampton Island Land Appeal Court decision and subsequent negotiations settling all outstanding appeals on Reef resort islands.

Mr Goodman-Jones went on to say that the percentage rate was determined on the basis of the "Reef Islands Resorts Lodging Index", which was a statistical formula, the basis for which was an agreement between representatives of the Reef island owners and the Department of Lands during a period when there was no sales activity of island sites with resort potential.
           To demonstrate that his valuation of $880,000 was not excessive, Mr Goodman-Jones compared it with the valuations applied by the respondent to two similar resort properties on Hook Island and Orpheus Island.
The Hook Island resort, containing an area of 9.31 hectares, was valued by the respondent under the Valuation of Land Act at $1 million. It is located approximately 30 kilometres north-north-east of Shute Harbour and is held under Special Lease No. 50050, for a term of 30 years commencing 1 July 1988. The lease area comprises moderate to steep slopes and is generally moderately sloping overall. It has a small beach about 150 to 200 metres in length.
           The leased area is part of the National Park on the island similar to that on Hinchinbrook.  Water is available from the National Park and the island is serviced daily by cruise boats operating out of Shute Harbour.  Both properties have similar aspects.
           Mr Goodman-Jones considered the Hook Island land to be slightly superior to the subject land because of its location in the Whitsundays, even though he considered the lease conditions to be more restrictive than those of the subject land.  However, it emerged in evidence that the Hook Island resort caters for a different type of clientele to Hinchinbrook Island.  The improvements on the land comprise two large dormitories, two cabins, a kiosk and camping area, catering for backpackers and school excursions as well as day-trippers.  In that respect it is very different to Hinchinbrook Island.
           Mr Birt rejected any comparison between Hook Island and Hinchinbrook Island, because Hook Island was located in the Whitsundays, which he considered to be a much superior location.
           Mr Goodman-Jones' second comparison, the Orpheus Island resort, is in respect of an area of 10.65 hectares held under NCL and Special Lease tenure.  It was valued by the respondent as at 30 June 1993, at $1,102,500.
           Orpheus Island is located approximately 80 kilometres north-east of Townsville and about 35 kilometres east of Ingham.  Mr Goodman-Jones said the NCL had a level sandy area adjacent to the beach that rose moderately to the rear to include the Special Lease area.  The land had a westerly aspect towards the mainland.  Water was available from an earth dam, bores and a small desalination unit.  Access to the site was by means of boat or sea-plane, but not on a regular basis.
           Mr Goodman-Jones regarded the Orpheus Island land as superior to the subject because it is slightly larger, has better topography and access to the resort is by means of a dredged channel through the Reef to the jetty.
           Mr Birt knew the Orpheus Island land but rejected any comparison.  He said that Orpheus Island catered for an up-market clientele and was quite different to Hinchinbrook Island.
           Mr Goodman-Jones was well aware of the difficulty of arriving at an unimproved value on a fee simple basis for the subject land.  As an indication of the value of fee simple land on the islands, he included the details of sale of a 1221 square metre Group Title site on Bedarra Island, which occurred in March 1993 for $250,000.  He said this property is located about 30 kilometres north-north-east of Cardwell and is elevated and moderately sloping.  The site has good ocean views and is used as a house site.  Water supply is by means of a spring within the group title area.  He reasoned that it was evidence of what people would pay for a small parcel of freehold land on an island with no potential other than use as a homesite.
           Apart from that sale, Mr Goodman-Jones could advance no comparable sales.  He did not accept that the sale of the Oyster Point land was useful as a basis of valuation for several reasons.  First, he said, it was sold by the mortgagee in possession; second, 32.42 hectares of the 132.4 hectares was leasehold tenure; third, the terms of that lease were such that it could be freeholded at a predetermined purchase price; and fourth, the development of the project was something of a gamble. 

Mr Goodman-Jones was of the opinion that the "splendid isolation" theme of the subject land was not necessarily its highest and best use.  He considered that the resort could well cater for day-trippers and, in that way, become a more viable proposition than it presently was.  
           Mr Goodman-Jones was of the opinion that the valuation of $880,000 was in correct relativity with the valuations of other resorts. 
           Mr Goodman-Jones referred me to the Land Appeal Court decision in Brampton Island Pty Ltd v. The Valuer-General (not reported) judgment delivered 4 June 1993.  This, I was told, was the basis upon which all island resort valuations had been adjusted following the Land Appeal Court judgment.  It is clear from the judgment how difficult it is to value these island resorts when there are no sales of comparable freehold land available.  It had been argued that the resort should be valued on the basis of its optimum guest room potential, but the Land Appeal Court rejected this method.
           At page 21 of its judgment, the Land Appeal Court said:

"We agree that the most satisfactory method of valuation of these island resorts is on the basis of a direct site-to-site comparison, taking cognisance of all matters, including area, which affect development potential, and as a consequence, market value.  We have not been provided with suitable criteria, and indeed see it as unlikely that suitable criteria is capable of being provided, for adoption of a basis of 'optimum guest room potential' for any particular island resort.  Even if such criteria was available, we see any associated unit of value criterion being, of necessity, allied to a 'like with like' development comparison.  The argument by the lessee company that the valuation of Brampton Island is too high on a 'guest room' relativity basis in comparison with other resorts, is not accepted as we are not convinced that the necessary optimum potential, or a proper 'like with like' basis of comparison, has been adopted.  "

Mr Goodman-Jones has said that the valuation was arrived at on the basis of the "Reef Islands Resorts' Lodging Index", the statistical formula was arrived at by agreement between the Reef island owners and the Department.  However, I was provided with no information about this method of valuation and, in any case, Mr Goodman-Jones agreed that Mr Birt was not bound by that agreement.  It appears that he had not been represented at the negotiations.

           I can sympathise with Mr Birt's concern about what he feels is a breach of an understanding, if not an agreement, with the relevant Government Departments, which allowed the intrusion of day-trippers onto the resort area and the destruction, at least in part, of the "splendid isolation" theme of the resort.  However, condition 11 clearly provides that the lessee company could not deny access to members of the public through the lease area to the national park.  The developers would have, or should have, been well aware of this when creating the "splendid isolation" theme for their resort.          
           Although I have little evidence of the manner in which the valuation of $880,000 was arrived at, Mr Birt's evidence has not persuaded me that the valuation is excessive for an 8 hectare parcel of freehold land on Hinchinbrook Island, even if members of the public have access through it.  The only sale that he relied on was that of the Port Hinchinbrook/Oyster Point land.  However, the circumstances of that sale are such that I do not think that it could be relied on as a basis for the valuation of the subject land. 
           Mr Birt seemed to be under the impression that the valuation should be made on a leasehold rather than a freehold basis.  However, the provisions of section 11 of the Act (as it then was) are quite clear and the valuation must be made as if it was held in fee simple.
           After considering the whole of the evidence I have come to the conclusion that there is no basis for altering Mr Goodman-Jones' valuation of $880,000.  Accordingly, the appeal is dismissed and the valuation of the Chief Executive is affirmed at $880,000.

(JJ Trickett)        
  Member of the Land Court