Phillip Street Properties Pty Ltd v The State of Queensland

[1999] QLC 122

[1999] QLC 122

 

LAND COURT,

BRISBANE

26 November 1999

Re:     Claim for Compensation consequent upon the resumption of land by The State of Queensland for the Preservation of Landscapes Queensland purposes.

Acquisition of Land Act 1967 and the Cultural Record (Landscapes Queensland and Queensland Estate) Act 1987.

(A97-21).

Phillip Street Properties Pty Ltd

(As Assignee of Kynjass Pty Limited)
v.

The State of Queensland

(Hearing at Townsville)

J U D G M E N T

By Proclamation published in the Government Gazette on 22 March 1996, land described as Lot 135 on Plan K124518, Parish of Beor, containing an area of 362.6 hectares (exclusive of 5.666 hectares reserved for pipe track), (the subject land), was taken by the State of Queensland "for the purpose of the Preservation of Landscapes Queensland".

Background:

The subject land is situated about 6 kms south of the City of Townsville, fronting Cleveland Bay.  In its natural state it comprised a number of sand dunes, running roughly parallel to each other and to the foreshore, in generally north-westerly to south-easterly direction, intersected by low, poorly drained, saline coastal mud flats.  The sand dunes were timbered with species including Blue Gum, Moreton Bay Ash, Ti Tree and other coastal varieties.  There are mangroves along the foreshore and along the tidal Sandfly Creek, which adjoins the subject land on its northern and western boundaries, and from which the area takes its name.

For at least 30 years prior to the date of resumption, the subject land and the Sandfly Creek area had been used as a source of fine sand for the local building industry.  In June 1990, CSR Readymix Pty Ltd (CSR) entered into an agreement with the then owners, Apogee Projects Pty Ltd (Apogee), whereby CSR was granted a bare licence to extract and sell sand and loam from the subject land for a period of five years, with an option to extend that term for a further 5 years.  Apogee and CSR agreed to a royalty fee of $2 per cubic metre of fine sand and/or loam for a guaranteed minimum of 4,200 cubic metres per month (50,400 cubic metres per annum).  The parties also agreed that the royalty fee be adjusted annually by CPI indexation.
           On 7 November 1990, Apogee sold the subject land to Kynjass Pty Ltd (Kynjass) for $915,000 and Apogee, Kynjass and CSR entered into a deed of novation, whereby Apogee assigned its rights under the licence agreement with CSR to Kynjass.
           Prior to purchasing the property, Apogee had been provided by the selling agents, Jones Lang Wootton, with information about the property, including:

·A copy of a valuation report as at 3 May 1989 prepared by Herron Todd White, Valuers, for Curtain Bros Group (of which Apogee was a part), valuing the subject land including sand resources, business, goodwill and plant and equipment at $2,150,000; and

·A letter from Jones Lang Wootton dated 29 August 1990 forecasting an annual return of just under $102,000, based on the royalty fee for the agreed minimum extraction by CSR.

Following exchange of contracts, Mr GD Webb, director of Kynjass, engaged Sinclair Knight & Partners, Consulting Engineers of Townsville, to make appropriate town planning enquiries in relation to the subject land as a potential investment for sand mining purposes.  In November 1990, he received a town planning report from Sinclair Knight & Partners, confirming that extractive industry could continue without the need for council consent, together with a report from DJ Douglas & Partners Pty Ltd, Geotechnical Consultants, which had undertaken "a preliminary estimate of in situ sand reserves available for extraction…".  The Douglas report stated that "the assessment comprised an aerial photograph desk study followed by a limited "walk over" inspection, excavation and sampling of 24 test pits, laboratory testing of selected samples and engineering evaluation…".  There was no suggestion in that report that the investigations had discovered the presence of any Aboriginal cultural material.

Completion of the contract took place on or about 21 December 1990 and CSR continued extraction of sand in accordance with the agreement.  The sequence of events which follows was described by Mr Webb in his statement:

"         In 1992, in the course of its quarrying activities, CSR discovered evidence of very old Aboriginal remains on the north-west end of the central dune ("the first discovery").  I was informed of this discovery by CSR and advised that it had reported the discovery to the Queensland Department of Environment and Heritage ("DEH").  For a short period CSR ceased its quarrying activities on that part of the Property but continued quarrying elsewhere.  I was subsequently informed by CSR that after consultation between the DEH and the local Aboriginal community CSR was requested to stabilise and isolate the area immediately surrounding the first discovery and move quarrying activities to another area.  I understand that CSR recommenced quarrying activities to the south-east end of the central dune.

In or about February 1994 I was informed by CSR that it had again exposed ancient Aboriginal remains ("the second discovery") – this time in the south-eastern portion end of the central dune.  I was advised that a Mr Mercer of the DEH had requested quarrying activities to cease.  I subsequently had a number of telephone discussions both with representatives of CSR and with Mr Mercer of the DEH who made it clear to me that, in his view, all quarrying activity should cease.  Whilst I was aware and acknowledge that the discoveries were of cultural significance, I did not agree that the two discoveries in the central dune should sterilise the whole of the Property comprising approximately 362 ha from further quarrying activities."

Following the 1994 discovery, there was correspondence between Kynjass and its solicitors and various Ministers (both State and Federal) and DEH, during the course of which reference was made to the Cultural Record (Landscapes Queensland and Queensland Estate) Act 1987 (the Cultural Record Act). It was suggested that if Kynjass wished to continue mining on the site, the Act required that it facilitate assessment of the site, including statements of significance and management, by a qualified archaeologist. Later DEH conceded that the Act did not require Kynjass to undertake such an assessment, it was simply indicating what had been the "normal policy/procedures relating to mining activities", which had served to resolve many similar situations. In April 1994, DEH recommended that Kynjass undertake a full heritage assessment of the area to enable significant areas to be identified and mining to avoid them.
           It seems that soon thereafter, Kynjass and CSR jointly commissioned Ms Elizabeth Hatte, of Northern Archaeology Consultancies Pty Ltd, to conduct an archaeological assessment of "a site at Sandfly Creek … where Aboriginal cultural material has been exposed during sand mining".  An initial inspection was made on 18 May 1994 and the survey was carried out from 13 to 16 June 1994.  Ms Hatte's report (the Hatte Report) was completed in July 1994.
           However, CSR did not wait for the completion of the Hatte Report.  In a letter dated 24 June 1994, CSR advised Kynjass that it had obtained legal advice to the effect that "the discovery of the Aboriginal artefacts in the Sandfly Creek area, such that further extraction pursuant to the contract is illegal, is an event which 'frustrates' the contract, with the result that it is terminated from the time of the frustrating event, namely 26 February 1994.  CSR Readymix has now paid for all material extracted prior to that date, and accordingly, CSR Readymix's and your obligations under the contract are at an end."  CSR went on to say that if the result of the archaeological survey was such that further excavation of sand was possible, CSR would be happy to enter into an agreement with Kynjass whereby CSR extracted such sand and loam as may be lawfully extracted from the area.  Kynjass denied the right of CSR to arbitrarily terminate the licence agreement prior to its determination due to effluxion of time.  However, CSR has not returned to the subject land and it appears that both parties treated the licence agreement as at an end.
           Following the Hatte Report, more correspondence ensued between Kynjass and DEH, with the latter expressing the opinion that continued sand mining at Sandfly Creek would be extremely difficult to conduct without destroying items of Queensland Estate.  On 9 February 1995, Kynjass' solicitors advised the Minister for Environment and Heritage that Kynjass wished to resume sand mining on its property and proposed to do so within 14 days, employing an archaeologist on a full-time or part-time basis as required, avoiding the areas identified as containing items of the Queensland Estate.  The archaeologist would be retained for the express purpose of protecting and preserving items of the Queensland Estate and if any further burial sites were located, DEH would be advised and sand mining relocated to another area of the property.
           At that stage the Crown Solicitor acting for DEH in a letter dated 9 March 1995, identified the area DEH was most concerned about within the subject land, because of the cultural heritage values of that area.  The area identified encompasses virtually all the central dune, plus a small area on the north of the rear dune.  Subsequently, a meeting was held on 14 March 1995 between representatives of the Queensland Government and Kynjass, where it was agreed that an archaeological survey of the subject land be undertaken at the expense of DEH.  The purpose of the survey was stated to be "to more accurately map and identify the existence (or otherwise) of human skeletal remains, artefacts and other items of Queensland Estate". 
           An archaeological and geophysical assessment of the burial site was carried out by Ms T Bonhomme and Dr JL Craib, of Bonhomme Craib & Associates, in May 1995 and their report (the Bonhomme Craib Report) was dated June 1995.  Geophysical investigative methods including ground penetrating radar were used.  No further evidence of burials was found, but further sub-surface cultural materials were located in the upper 50 centimetres.  The authors could not dismiss the possibility that additional burials still exist in the dune, but the equipment was not able to locate them.  The Bonhomme Craib investigation was confined to the southern area of the central dune where the 1994 discoveries were made, including the undisturbed area from the discovery site to the southern boundary of the subject land.  No investigations were made of the other dunes.
           On 29 September 1995, the Crown Solicitor advised the solicitors for Kynjass that instructions had been received from DEH to commence negotiations to purchase the subject land.  However, Kynjass' solicitors reminded the Crown Solicitor of an earlier undertaking to compulsorily acquire the property.  Further correspondence ensued until on 20 December 1995, the Minister for Environment and Heritage advised that he would arrange for the subject land to be compulsorily acquired.  A notice of intention to resume issued to Kynjass on 18 January 1996 and the land was taken by Proclamation on 22 March 1996.  Kynjass then lodged a claim for compensation dated 10 May 1996 for $13,873,842.  On 19 July 1996, Kynjass' solicitors advised that it had assigned its rights to compensation under the Acquisition of Land Act 1967 to the mortgagee of the property, Phillip Street Properties Pty Ltd, the claimant company.

The Claim for Compensation:
           The claim for compensation dated 10 May 1996 comprised the following:
           Land

(a)       Valuation of loss of sand extraction business

based on a discounted cash flow analysis of
business earnings  $12,873,842

(b)      Residual value of land  $  1,000,000

(c)      Legal and valuation fees to date of claim  $      60,000

$13,933,842

An advance in the sum of $318,741.80 was paid on 13 December 1996 to the claimant company, comprising the sum of $300,000 (residual value of land), plus interest from the date of resumption, 22 March 1996 to 15 December 1996.
           During the hearing, leave was granted to amend the claim, the final form of which was as follows:
           Sand extraction business as at 22 March 1996             $  1,969,686.00
           Less     advance paid (residual land value)  $     300,000.00

$  1,669,686.00

Less     interest from 22 March 1996 until
  15 December 1996 @ 8.5% p.a.  $      18,741.80

$  1,650,944.20

Plus     disturbance (agreed)  $      12,539.00

Plus     interest

(a)on $1,650,944.20 from 22 March 1996;

(b)on $55 for agency fees incurred before 10 May 1996 in respect of the preparation of the claim for compensation and paid Crouch and Lyndon, solicitors of Brisbane, on 14 February 1996;

(c)on $5,100 for valuation fees incurred before 10 May 1996 in respect of the preparation of the claim for compensation and paid to Holden and Bolster, accountants, on 14 March 1996;

(d)on $2,000 for valuation fees incurred before 10 May 1996 in respect of the preparation of the claim for compensation and paid to Herron Todd White on 2 May 1996;

(e)on $1,364 for counsel's fees incurred before 10 May 1996 in respect of the preparation of the claims for compensation and paid to John Haydon on 29 May 1996;

(f)on $4,020 for legal fees incurred before 10 May 1996 in respect of the preparation of the claim for compensation and paid to Robilliard and Robilliard on 22 October 1996;

with interest from the dates of payment up to and including the day immediately preceding the date upon which payment of compensation is made.

The valuation finally relied on by the respondent was in the sum of $375,000.

The Hearing:

The claimant was represented by Mr DR Gore QC and Mr JJ Haydon.  The respondent was represented by Mr GJ Gibson QC and Mr RS Jones.  Negotiations prior to the hearing had resulted in the parties reaching agreement on a number of matters, thus narrowing the issues in dispute.  They also agreed to the tendering of several statements without the need to call the authors for cross-examination and to the reception of certain hearsay evidence.

The Non-Disputed Issues:

Prior to or during the hearing, the parties reached agreement on the following matters:

(a)disturbance items should be assessed at $12,539;

(b)in the absence of any sand extraction potential, the subject land had a value at the date of resumption of $375,000;

(c)in the event that the subject land had sand extraction potential, its present value at the resumption date on the future exhaustion of sand deposits was $350,000;

(d)the valuation of any sand extraction potential should be assessed on the basis that Kynjass would have undertaken the extraction work, rather than on a royalty basis and that assessment should be made on a discounted cash flow basis.

(e)the frontal dune should be excluded from consideration for environmental reasons.

Agreement was also reached on certain technical matters, such as the remaining quantities, conversion factors and product yields.

The Disputed Issues:

The agreement between the parties in relation to the above matters leaves three primary issues to be determined:

(i)whether the discoveries of the Aboriginal burial remains and other cultural material destroyed the sand extraction potential of the subject land (this largely depends upon the archaeological evidence);

(ii)whether the extractive industry use of the site as a lawful fettered use had discontinued at the date of resumption (this largely depends upon the town planning evidence); and

(iii)the value of the potential sand extraction business (if any) at the date of resumption.

The Archaeological Evidence:
The Evidence of Aboriginal Occupation
It was generally accepted that sand has been extracted from the subject land for more than 30 years.  This view was supported by a letter dated 27 May 1975 from the Townsville City Council to Apogee confirming that the use of the subject land for the extraction of sand is a "lawfully established fettered use of the land".  The letter went on to request that should Apogee uncover any Aboriginal relics or remains on the sand ridges, it should notify the Council's town planning department so that the relics may be classified and removed for safe-keeping.  A further reference to the cultural sensibility of the land is made in the Hatte Report.  In referring to the history of sand extraction, the author states that "unconfirmed reports exist of cultural material being mined with the sand … ".
           The first reported finding of archaeological material seems to be by GL Miller in a B.Sc. Honours thesis in 1982.  Ms Hatte quotes Miller as reporting "Aboriginal activity is represented by middens, and by scattered tools such as grind stones, axes and chips which are present on the surface where deflation has stripped away the upper few centimetres of sand".  There seems to be no further recorded finding until the 1992 discovery.
           A file note in DEH records indicates that shell and stone artefacts were observed in March 1992 in addition to the 1992 burial discovery.
           The Geography of the Dunes
It was generally accepted by the witnesses that there are three roughly parallel dune systems on the subject land and the plan in the Douglas Report was accepted as reasonably accurately representing the geography. Douglas had designated the rear dune as Area 1, the frontal dune as Area 7; the central dune system was designated as comprising three areas, Area 2, the south-eastern end where the second or 1994 burials were discovered, Area 4, the north-western end where the 1992 burial was discovered and Area 3, the previous extraction area with a length of approximately 1.8 kilometres, where sand had been almost totally removed. There was some dispute as to whether Areas 5 and 6 were part of the central dune, as they were described as lower dune areas situated to the north-east and south-west of Area 3.
           In addition to the areas designated by Douglas, the central dune extended to the south-east of Area 2 into the adjoining property then owned by Australian Meat Holdings (AMH) and now owned by Korea Zinc Australia.  The area between Area 2 and the AMH boundary is virtually undisturbed.
           Ms Hatte described the state of the dunes at the time of her 1994 report as follows:

"The frontal dune is undisturbed and heavily vegetated while the secondary dune has now been mostly levelled apart from its northern and southern extremities.  Approximately 1.8 kms of this secondary dune have been mined, with 150 metres remaining at the northern end (Figure 1: Location 4) and 400 metres at the southern end, almost half of which has been cleared of topsoil and vegetation (Figure 1: Locations 1 and 2).  The third dune has also been partially mined but the northern remnant is still intact."

Ms Hatte's Figure 1 shows Location 1 as the unexposed part of the central dune, while her Locations 2, 3 and 4 approximate the Douglas Areas 2, 3 and 4.
           The central dune and the rear dune are separated by low-lying swamp or swale for distances in excess of 250 metres but narrowing to almost merge towards the north, such that Ms Hatte said that it was fairly difficult to separate the rear dune from the central dune at the northern end.
           The Hatte Report
           The results of Ms Hatte's survey can be summarised briefly as follows:

·    Location 1 -  still heavily vegetated with topsoil mostly intact apart from a bulldozer track along the summit where sparse artefactural material was found;

·    Location 2 - generally cultural material was located over the entire exposed area, the burials tending to be concentrated in one area on the top of the dune, though indications of other burials located on the sloping seaward side of the dune, a possible total of 12 burials.  A variety of other cultural material found on the surface of the dune and in spoil heaps.

·    Location 3 – cultural material found throughout the spoil associated with the mined section, although considerably sparser towards the northern end; similar to material in Location 2.  Small fragments of human bone found in disturbed area in the base of the mined section throughout the length of the mined area.

·    Location 4 – the burial area had been stabilised and was heavily vegetated with recent regrowth and grasses so visibility was low; similar cultural material (apart from burials) was located.

In respect of the western or inland dune, Ms Hatte reported that a surface survey of the unmined north-westerly dune revealed no surface cultural material, but visibility in the area was very limited due to thick vegetation cover.  Although no archaeological material was recorded, Ms Hatte expressed the view that she thought the situation to be the same as in other locations where material lay below the topsoil cover.  This opinion was the cause of some controversy.

Despite that passage in her report, in her oral evidence Ms Hatte stated that in an area of recent disturbance in the rear dune she found some cultural material, fragments of stone, river cobbles, an anvil and hammer stone and fragments of milky quartz.  However, she seemed uncertain of the exact location and was reluctant to positively identify just where on the northern end of the rear dune the material was found. 

Ms Hatte made it clear that references in her report to "the site" were not confined to the areas of the burials.  She looked at Sandfly Creek as an entity.  She did not consider the dunes to be separated by salt pans; she thought the salt pans  were integrated as part of the area.  Since Aboriginal people commonly buried their dead in soft sand, she was of the opinion that the other dunes may well contain burials.  However, she conceded that was only a reasoned assumption because it was impossible to know unless the whole area was dug up.  She was of the opinion that even if it was proved there were no burials in the rear dune, it could not be mined without destroying the cultural integrity of the whole place.

Ms Hatte was firmly of the opinion that no further mining should take place on the subject land.  Her reasons are apparent in the following passages from her report:

"Archaeological Significance.

The distribution of Aboriginal cultural material over the disturbed and mined dune areas throughout the site indicates a rich archaeological area in the Townsville region.  There are at present 10 and possibly 12 burials visible in the exposed dune.  Given that another has begun to erode in the past few weeks it is possible that more exist beneath the surface.  Since material has been located in all mined dunes it is highly likely that material also exists in as yet unmined areas of the property, below the top soil and vegetation cover.  It is also reasonable to assume that burials and associated cultural material are contained in the southern unexposed dune which extends into the property owned by Australian Meat Holdings, and in other old Holocene dunes in the region.  Thus it would be extremely unwise to consider any further mining in this site and in the continuation of the dunes into the property on the southern boundary.

Significance to Aboriginal People.

At a conference of the Wulgurukaba Corporation held on Magnetic Island from 18-20 June 1994, the Aboriginal significance of the site was discussed and resolutions were passed which are summarised below:

·    'That due to the significance of the Sandfly Creek area to Aboriginal people, all mining at the site should cease immediately and permanently.

·    That urgent protection of the burials remaining in the secondary dune be undertaken.

·    That the human bone remains from the spoil heaps be collected for reburial in the secondary dune, with the other burials.

·    That rescue collections be made of the artefacts in the spoil heaps from mined areas.'  "

Ms Hatte recommended that mining should not continue "at this site", meaning the whole of the property.  She was of the view that it was obvious that the site, even in its disturbed state, is one of great potential archaeological significance in the Townsville region and of significance to the Townsville Aboriginal people.

The Bonhomme and Craib Report

The next archaeological report was that of Bonhomme and Craib, dated June 1995, which concentrated on approximately 400 metres of the south-eastern end of the central dune (Ms Hatte's Locations 1 and 2).  The authors noted that the dune extends beyond the boundary of the subject land into the land then owned by AMH, which was not part of their archaeological assessment.  However, they noted that their recommendations had implications for the future management of that part of the dune extending into the AMH land.

Bonhomme and Craib conducted their investigations in May 1995, using three different geophysical methods, ground-penetrating radar (GPR), acoustic testing and conductivity testing, for the purpose of detecting sub-surface burials on the disturbed and undisturbed areas.   Eleven exposed burials were mapped, extending over an area of 6,800 square metres.  A variety of artefacts and some shell were observed, apparently in association with the burials.  Twenty-one GPR traverses were performed in five different areas and locations selected for excavation.  Acoustic and conductivity tests were made.

Seventeen GPR and ten acoustic anomalies were investigated by excavation.  No other burials were discovered, although some cultural material was located and a stone axe was found on the surface of the dune.  However, the authors emphasised that the lack of detection of burials may be due, at least in part, to the possibility that the sub-surface bone was extremely friable and did not produce a clear signal.  Thus they concluded that:

"The results of the testing suggest one of three explanations: (1) that no burials exist at the locations tested; (2) that burials do not exist in the sampled areas but may occur in the unsampled areas of the dune; or (3) that burials do exist in the tested areas but could not be detected by the techniques used due to factors outlined in the technical summaries.  In the light of these results based on the evidence presented in this report we cannot discount the possibility of additional burials existing on the dune."

The authors discussed the potential management arrangements for the site.  Option 1 was what they called the "mining option", but they considered that it was neither economic nor socially responsible.  Option 2 was a "part mining/part conservation option", but they considered that the expense and time involved in such a process would be the same as for the mining option.  Option 3 was the "non-mining option", their recommended option, whereby the scientific and cultural values of the site would be preserved.

The Korea Zinc Report

The next archaeological assessment of significance to the subject land was that conducted by Ms Hatte and Michele Bird of the land immediately to the south, then owned by AMH.  The study was commissioned on behalf of Korea Zinc Australia which was considering the land as the site for a zinc smelter.  Their report (the Korea Zinc Report) was dated July 1995, the month after the previous study of the subject land by Bonhomme and Craib.

The object of the Korea Zinc Report was to determine if any archaeological sites occurred within the proposed development area and to assess the potential impact of the proposed development on identified sites.  Field work was carried out in June 1995.  The authors admit that they relied on information derived from the two earlier reports from studies conducted on the subject land.

The central dune which extends from the subject land into the AMH land is described by the authors thus:

"In this holding the secondary dune of the Sandfly Creek site widens out and spreads round the base of the Muntalunga Range.  The undisturbed and heavily vegetated landward portions of this dune provide an illustration of how the dunes might have looked prior to sand mining… Several smaller and older heavily vegetated beach ridges lie on the coastal side of the main secondary dune."

Previous clearing and sand removal from significant parts of the dune provided the authors with archaeological evidence that it was the continuation of the Sandfly Creek site, but there had been significant disturbance to the cultural material, most of which was found on the sides or bases of what had become small hills between quarried areas.  It was the authors' opinion that it was almost certain that cultural material was uncovered and was no longer in situ.  They went on to say that in the relatively less-disturbed northern 300 metres of the central dune, similar cultural material to that found on the same dune on the subject land was found, including five small fragments of friable degraded bone.  Small isolated clusters of material were also located throughout the dunal area, including two scatters of friable bone material, totalling 15 fragments. 

Other cultural material was identified on the landward dune, but it was noted that the pattern of occurrence was sparser.  The authors thought that could be accounted for by less disturbance to the dune and less visibility.  In her oral evidence Ms Hatte said there was less distinction between the central and rear dune in the area south of the fence.

The authors of the Korea Zinc Report referred to the discussion in the Bonhomme and Craib Report of the significance of the subject land.  They concluded that the comparatively intact state of a larger proportion of the dune area in the AMH land, together with evidence of similar material from the disturbed sections, suggested that the area may be of even more archaeological value.  They also referred to the recommendation in the Bonhomme and Craib Report that test excavations be conducted in the dunes on the AMH land to ascertain whether the same situation applied as on the subject land.  They concluded that sufficient evidence existed from their survey for a continuation of the burials and archaeological material and therefore recommended against further test excavation at that time.  They pointed out that the place is of sacred significance to Aboriginal people who had expressed a wish that it be left alone.  They recommended that the undisturbed sections of the dune system be preserved in their current state and, as they were part of the same land forms as the dune system on the subject land, the Bonhomme and Craib recommendations for protection and a plan of management, applied also to the AMH land.

Since the completion of the Korea Zinc Report, an area was excised from the AMH land and vested in the Crown.

Ms Nightingale's Report

The next archaeological report was by Ms Alison Nightingale, an archaeologist with the firm ERM Mitchell McCotter Pty Ltd.  Her firm had been commissioned on behalf of the claimant to assess the archaeological constraints to sand extraction at Sandfly Creek.  She explained that this was undertaken by an on-site inspection, assessment of the Hatte and Bonhomme and Craib Reports, evaluation of the environmental characteristics of the property and an understanding of other burial places in eastern Australia.

Ms Nightingale's conclusions were based on the work of Colin Pardoe, the acknowledged expert on the subject of Aboriginal burial places.  In an article published in 1998 ("The cemetery as a symbol: the distribution of Aboriginal burial grounds in south eastern Australia"), he distinguished Aboriginal burial places from individual burials by four criteria:

(i)number of burials:  while no absolute number is required, there must be a significant number of burials;

(ii)contiguity:  contiguous burials, a single location where graves are adjacent;

(iii)boundedness of the site:  burials will be bounded either by the nature of the land form or the distribution of the graves;

(iv)exclusivity of use:  sites will be limited in their use to burial places and will not also show evidence of general occupation activities or living areas.

Ms Nightingale also relied heavily on the fact that the only other reported burial ground in coastal Australia was found inland from Broadbeach, but had been destroyed by development of the area.  The Broadbeach burial ground was located in an environment similar to that of the subject land, in one of a series of narrow sand ridges, behind the beach foredune.  The flat top of the ridge was the only part of the dune where burials were found, burials were contained in a small and well defined area, some 140 graves were found including some multiple internments, density was one grave/0.6m², there was no evidence that the site was used for other than burial and attendant ceremonies and burial goods or arrangements were deposited in the burial pit.

Ms Nightingale thought that Ms Hatte had provided no archaeological data or basis for the assertion in her 1994 report that there was likely to be cultural material  in the other dunes on the property.  Ms Nightingale acknowledged that while it was possible that archaeological material may exist on dunes other than the central dune, there had been no testing to determine whether that was so.  Ms Hatte had simply thought that it would be the same as on the central dune.  Ms Nightingale concluded that there was no higher probability that burials or cultural material were present in the other dunes on the property than in any other dunes elsewhere along the east coast of Australia; there may even be less likelihood of burial sites in the other dunes, based on Pardoe's criteria of burial grounds.  While, she conceded that continued extraction of sand was not feasible on the undisturbed part of the central dune or on those areas where burials had been found, she thought that extraction of sand could continue from the balance of the dunes.

Ms Nightingale drew some support for her conclusions from the 1995 Bonhomme and Craib Report.  All cultural material recorded by the GPR was in the top 50 centimetres and the authors stated that below 50 centimetres the ridge could be expected to be culturally sterile.  Their conclusion that the central dune was used as a burial place and their reasons for that conclusion led Ms Nightingale to assert that while the central dune conforms to Pardoe's criteria of a burial place, there was no evidence of this for the remainder of the property. 

Bonhomme and Craib had suggested that the value of the remaining sand resource in the dune was lessened by the need to have a monitor on site during any sand extraction operation.  While Ms Nightingale did not consider that the cost would be significant,  she did concede that an archaeologist should be on site during vegetation clearing, topsoil stripping and for regular monitoring of sand extraction and sieving/screening activities.  She suggested that an appropriate methodology for management and monitoring during sand extraction operations would include establishing a buffer zone around the north-west and south-east site remnants of the central dune and conservation through stabilisation works and regular monitoring for erosion, etc.  It would also include monitoring by an archaeologist and/or an Aboriginal community representative, particularly during vegetation clearing and topsoil stripping.  She thought that stripping could be undertaken using "acceptable archaeological mechanical excavation procedure" with a grader or bulldozer stripping layers of five centimetres at a time to test whether archaeological material was present.

In summary, Ms Nightingale concluded that sand extraction could have continued on the other dunes on the subject land and also on the previously quarried middle section of the central dune, provided that appropriate management practices were adopted.

Mr Border's Report

Archaeological evidence on behalf of the respondent was also given by Mr Andrew Border, Regional Manager, Cultural Heritage Unit, Environmental Protection Agency.  Mr Border traced the history of the discoveries on the subject land, referring to the reports of Hatte and Bonhomme and Craib.  He noted that from information in Departmental files it was estimated that up to five individual burials may have been discovered in 1992.  He added that what was almost certainly other cultural material was found on a smaller vegetated dune seaward of the central dune.

Mr Border stated that interpretation of both the archaeological material and the site context indicates that both economic and social activities took place at Sandfly Creek, revealing a complexity of site use not frequently recorded in a coastal context. He pointed out that under the Cultural Record Act, an item of the Queensland Estate includes objects or structures in or under the land and their surrounds, if removal cannot be effected without damaging the valuable significance of the item. In his opinion, the cultural material and the surrounding sediments are items of the Queensland Estate and therefore subject to protection.

Based on the work of Hatte and Bonhomme and Craib, Mr Border was of the opinion that it was extremely unlikely that further mining on the site could occur without disturbing items of the Queensland Estate.  In his view there was "an extremely high probability" that further burials would be disturbed unless strict conditions were placed on mining, and these were likely to be onerous.  He thought that further mining was likely to progressively degrade the general area to such an extent that the cultural heritage values would be severely impacted upon as a result of the environmental content being significantly altered.  He went on to say that the Aboriginal community found the notion of continued mining on the site unacceptable.  They regarded the site as significant given its unique character and regarded conservation of the remaining area as of primary importance.

Mr Border expressed the opinion that while it is likely that the undisturbed parts of the central dune contain additional burials,  it was only a possibility that the other dunes contained burials.  However, Mr Border regarded Areas 5 and 6 as being part of the central dune. 

Before proceeding further, it is necessary to consider the parties' arguments in relation to the effect of the archaeological evidence.  In this regard the claimant made two submissions:

(i)any restriction on sand extraction from areas other than the two sterilised areas in the central dune which is based on the Cultural Record Act should be ignored by application by the Pointe Gourde principle in reverse; and/or

(ii)with the formulation and implementation of appropriate management procedures, there was no archaeological basis for precluding extraction in the remaining dune areas.

On the other hand, the respondent argued this is not a case where the Pointe Gourde principle applies and that there could be no further extraction of sand on the subject land.

The Pointe Gourde Principle:
           It is well established that any increase or decrease in the value of acquired land which is due to the scheme of which the resumption forms part, is to be disregarded in assessing compensation for compulsory acquisition purposes.  The Privy Council in Melwood Units Pty Ltd v. Commissioner of Main Roads [1979] AC 426 stated the principle thus at 434-435:

"Under the Pointe Gourde principle (see Pointe Gourde Quarrying and Transport Co Ltd v. Sub-Intendent of Crown Lands [1947] AC 565) the landowner cannot claim compensation to the extent to which the value of his land is enhanced by the very scheme of which the resumption forms an integral part: that principle in their Lordships' opinion operates also in reverse."

The underlying principle relied on by the claimant may be stated simply:  a resuming authority cannot by means of imposing restrictions force down the value of land and then resume that land at a depressed value.
           In the present case, the claimant argues that the principle applies where there is a direct relationship between the restriction and the scheme of which the resumption is part and extends to cases where there is merely an indirect relationship, provided that the restriction can properly be regarded as a step in the process of acquisition: Housing Commissioner of New South Wales v. San Sebastian Pty Ltd (1978) 140 CLR 196 at 206-207; The Crown v. Murphy (1990) 64 ALJR 593 at 595.
The restriction in the present case is said to arise from the provisions of the Cultural Record Act, the object of which is stated in the long title to be "… to provide for the preservation and management of all components of Landscapes Queensland and the Queensland Estate …". In section 5 "Landscapes Queensland" is defined as "… areas or features within Queensland that –

a)have been or are being used, altered or affected in some way by humans; and

b)are of significance to humans for any anthropological, cultural, historic, pre-historic or societal reasons;

and includes any item of the Queensland Estate found therein."

"Queensland Estate" means "evidence of human occupation … at any time that is at least 30 years in the past and does not include anything … that is not of pre-historic or historic significance."
           Provision is made in the Act for the declaration of landscape areas (section 17), with the consent of the owner if it is private land (section 18).  However, an area may be declared a temporary designated landscape area, until it is either declared a designated landscape area, or is acquired by the State, or after 3 months (section 19).  Section 26 provides for the acquisition by purchase of private land. 
           All parts of the Queensland Estate that constitute evidence of occupation of any part of Queensland by indigenous persons, or in respect of which there is no identifiable legal owner are deemed to have always been the property of the State (section 33(1)).  Particular provision is made in respect of indigenous burial remains and if the Minister is satisfied that there exists familial or traditional links between the remains and a traditional group of indigenous people, the remains are the property of those people, otherwise they are the property of the State (section 34).  Any person who uncovers any indigenous burial remains must forthwith notify the Minister or a protector of the occurrence (section 35(2)), and a person who has in his or her control Queensland Estate which consists of indigenous burial remains must submit them to the Minister or as the Minister directs for examination and classification (section 35(1)). 
A person must not "take, destroy, damage, deface, excavate, expose, conceal or interfere with an item of the Queensland Estate" unless done under the authority of the Cultural Record Act, or with the authority of the owner (section 56(2)). It is a defence to a change of an offence under that provision to prove that at the time of the alleged offence the defendant did not suspect and could not be reasonably expected to suspect that the thing to which the charge relates was an item of the Queensland Estate (section 56(4)).
           An "item of the Queensland Estate" is defined to include "in relation to any structure or object in, on or under land, the surrounds of the structure or object from which it cannot be separated without destroying or diminishing its value or significance" (section 5).
           If the Minister is satisfied, in relation to a particular area that consists of private land, that Landscapes Queensland or an item of the Queensland Estate cannot be properly preserved or managed by the maintenance of the area as a designated landscape area, the Minister may issue a certificate to that effect, and the State is then authorised to take or acquire that land for the purposes of the preservation of Landscapes Queensland or, as the case may be, the Queensland Estate (section 26).

The subject property was resumed for the purpose of the preservation of Landscapes Queensland. The resuming authority acted on the basis that a designated landscape area would not be possible, as Kynjass would not consent. While the evidence does not disclose whether a Minister's certificate was issued, that is presently immaterial. The Cultural Record Act also provides that the preservation of Landscapes Queensland shall be deemed to be a purpose for which land may be taken under and subject to the Acquisition of Land Act (section 47).
           The claimant argues that in this case "the scheme" in the Pointe Gourde sense is provided for in the Cultural Record Act, the preservation of Landscapes Queensland, which ultimately led to the resumption. Therefore, the restrictions imposed by that Act which affect the value of the subject land must be ignored. However, the claimant recognises that even where the Pointe Gourde principle applies, it does not deny the taking into account of an intrinsic characteristic or attribute of the property, notwithstanding that a step in the process of resumption was dependant upon or directed to that characteristic or attribute:  The Crown v. Murphy.
           The respondent also relies heavily on the Murphy case, contending that it is an illustration of the operation of the Pointe Gourde principle to facts which are "materially indistinguishable" from those of the present case.  In the Murphy case, an area of 12.83 hectares of land at Mon Repos Beach near Bundaberg, zoned "Rural" under the Woongarra Shire Council Town Planning Scheme, was resumed for environmental park purposes.   Mon Repos Beach is the site of a world-renowned turtle rookery.  Prior to the date of resumption, an application to have the land re-zoned to "Residential A", met with a number of objections and was refused by the Council on grounds largely concerned with the detrimental effect which the proposed development would have on the turtle rookery.  Prominent among the objectors was the National Parks and Wildlife Services (NP&WS).
           Some time later, the Council wrote to the NP&WS seeking assistance in resisting an appeal against the refusal of the rezoning application as the Council considered that it was protecting the interests of State Government departments in the case.  However, the land was resumed prior to the hearing of any appeal against the Council's decision.  In determining compensation, the Land Court had regard to the developmental potential of the land.  On appeal, the Land Appeal Court found that compensation should be determined on the basis of the land's "Rural" zoning and held that a prudent purchaser would not pay any more than the land's homesite value in the expectation of a more liberal approach to rezoning and subdivision in the future.  On further appeal, the majority of the Full Court of the Supreme Court of Queensland found that the Land Appeal Court had erred in considering the pressures of the NP&WS on the Council and the possible impact on the turtle rookery which might follow the rezoning.
           Eventually, the High Court found that while the restrictions on land use maintained as a result of consultation by the NP&WS with the Council were to be ignored, the question for determination was whether, quite apart from the representations of the NP&WS, the application for rezoning would have been refused.  The High Court also found that the question of the chance of rezoning was properly determined by the Land Appeal Court which found that the probabilities against rezoning added nothing to the development potential of the land, because of the possible impact of subdivision on the turtle population which might follow upon the rezoning.  The High Court found that no errors had been demonstrated on behalf of the Land Appeal Court.
           In the present case, the respondent relied particularly on the decision of the Land Appeal Court in the Murphy case by analogy with the circumstances of this case. In the course of its judgment reported at (1986-87) 11 QLCR 34, the Land Appeal Court said at 39:

"We think the correct approach is to put aside the fact of the resumption and to view the subject land in the circumstances and surroundings (its environment) which existed on the day of resumption." 

It went on to say that the turtles and the delicately sensitive environment existed at that date and could not be ignored, otherwise it would lead to a value inflated by the assumption of a naturally false environment, i.e. one without turtles and the need for protective measures.
           The Land Appeal Court found that although there was a nexus between the resumption of the land and a scheme for the preservation of the turtle rookery, that did not mean that if the scheme had not been introduced there was not a situation which would have militated against the rezoning of the land.  The Court found that the circumstances themselves as a natural phenomenon, an existing part of the environment, included a factor which affected the value of the land by preventing its rezoning, irrespective of any resumption.  The turtle rookery was a natural phenomenon that always constituted an impediment to rezoning, even if all schemes were disregarded.  The Land Appeal Court went on to say at p41:

"As we see our task, we have to approach the assessment of compensation of the subject land on the basis that it was already zoned Rural and is situated adjacent to an environmental park fronting Mon Repos Beach, a renowned turtle rookery to protect and maintain which there is a great deal of official, scientific and public concern.  That is the environment in which the subject land was situated at the date of resumption.  The question may be fairly put – what would the hypothetical prudent purchaser of the Spencer case be prepared to pay for the resumed land at date of resumption in the marketplace given its resumption date zoning and the natural environment in which it was situated?  No factor affecting value emanating from the act of resumption should be taken into consideration nor any factor emanating from the scheme for the protection of turtles which the resumption superimposes, as it were, on the circumstantial environment in which the land was situated at date of resumption."

(The Spencer case referred to by the Land Appeal Court was Spencer v. The Commonwealth (1907) 5 CLR 418.)

In the present case, the respondent argued that just as the turtle rookery in the Murphy case existed on the land before and independently of the resumption, so did the burials and the cultural material on the subject land.

On the other hand, the claimant argued that such an approach ignores the true rationale of the Pointe Gourde principle, which is designed to ensure that a Government decision relating to the use of land which underlies a compulsory acquisition should not lead to any increase or decrease in the compensation awarded. Here the relevant Government decision is the preservation of Landscapes Queensland, reflected in the provisions of the Cultural Record Act. It is that Act which imposes restrictions such that the possibility of there being further burials in the remaining dunes presents an obstacle to an operator and must therefore be ignored.

It seems to me that the Land Appeal Court did not deny the application of the Pointe Gourde principle.  It expressly excluded from consideration the scheme in the Murphy case.  However, there the application of Pointe Gourde was affected by the Court finding in that case, that the land was to be considered in the "circumstantial environment" in which it was situated.  The authorities make it clear that the extent of the scheme is a matter of fact in every case: Fraser v. City of Fraserville [1917] AC 187; Wilson and Others v. Liverpool Corporation [1971] 1 WLR 302. The facts of the present case demonstrate that there was a scheme for the preservation of Landscapes Queensland and the Queensland Estate, culminating in this case in the resumption of the subject land. In my opinion, in accordance with the Pointe Gourde principle, to the extent that the scheme reduces the value of the subject land, it must be ignored.

But this does not mean that the fact of the burials discovered in the central dune, or the discovery of other cultural material, can be ignored.  Like the turtle rookery in the Murphy case, those discoveries are part of the environment of the land for the purposes of the test posed by the Land Appeal Court: "what would the hypothetical prudent purchaser of the Spencer case be prepared to pay for the resumed land at the date of resumption given its resumption date zoning and the environment in which it is situated?"

(There is of course another dimension to that test in this case and that is in relation to whether the existing use rights have been terminated.  However, putting that part of the test aside for the moment, I will deal here only with that part of the test that relates to the presence of burials and cultural material.)

The claimant argued that the Pointe Gourde principle has implications for the Hatte Report, the Bonhomme and Craib Report, and the Border Report, as they were all obtained against the background of the Cultural Record Act; therefore the extent to which the Act influenced their conclusions that the whole of the resumed land was culturally significant and worthy of preservation, should be ignored. However, apart from Mr Border's evidence linking his recommendations to the preservation of items of the Queensland Estate and Landscapes Queensland, the extent to which the authors of the other reports were influenced by the Act is not readily apparent. However, it can reasonably be assumed that they were aware of the provisions of the Act and that may have influenced their reports.

What then was the environment of the subject land in the Murphy case sense at the date of resumption, ignoring the effects of the scheme?  Burials and cultural material had been found throughout the central dune with the high probability of further burials in the undisturbed south-western section of that dune.  Some cultural material, but no burials, had been found on the rear dune towards the northern end.  Some cultural material, but no burials, had been found by Miller on the frontal dune. 

The parties have agreed that the frontal dune should be excluded from consideration. That leaves as possible areas of further sand extraction what remains in the previously mined area of the central dune (i.e. Area 3), the rear dune and Areas 5 and 6. The archaeological evidence established that there were unlikely to be further burials in Area 3, as what had been there had been disturbed and removed, but the possibility could not be dismissed. Opinions on the prospect of further burials existing in the rear dune varied from probability (Ms Hatte), to possibility (Mr Border), to no more likely than in any other dune on the east coast of Australia (Ms Nightingale). Both Ms Hatte and Mr Border agreed that the whole of the subject land is culturally significant and worthy of preservation. However, as the claimant points out, their opinions were expressed against the background of the Cultural Record Act. Ms Hatte was of the opinion that there should be no further mining in any of the dunes, while Mr Border was of the opinion that it was extremely unlikely that further excavation could occur without disturbing items of the Queensland Estate, as defined by the Cultural Record Act.

That does not mean that if the Cultural Record Act is excluded from consideration, then Area 3, the rear dune and Areas 5 and 6 could have been available for sand extraction without restriction. In my view, any potential purchaser of the subject land would have been well aware of at least the possibility of further burials being discovered in the remaining dunes. If that happened then I have no doubt that sand extraction would have to cease, at least in the immediate area of the discovery. If common human decency alone did not ensure that there was no interference with burials, commercial reality would do so. As Mr Kershaw put it most graphically, no reputable company would want it suggested that there were bones in its concrete.

In respect of the claimant's second submission concerning appropriate management procedures, any potential prudent purchaser of the subject land in 1996 would be well aware of the cultural sensitivities of the time. Even in the absence of the Cultural Record Act, those sensitivities may well have ensured that the extraction of sand from the available dunes was undertaken under some degree of supervision from an archaeologist and/or representatives of the Aboriginal community. Ms Hatte and Mr Border thought that the management procedures proposed by Ms Nightingale were entirely inappropriate and it may well be that more expensive procedures would be required if sand extraction was to be resumed. In addition, the risks of possible delays or complete closure and of the increased costs associated therewith, must be considerations in the forefront of the mind of any person contemplating sand extraction from the dunes on the subject land. In my opinion, such matters would affect the price which a potential purchaser would pay for the subject land in 1996.

I will deal later with how I think that a prudent purchaser would make allowance for the risk of further discoveries.

The Second Issue:  The Existing Use Right
           The second principal issue was whether or not the existing right to use the subject land for extractive industry purposes had ceased because the lawful fettered use had been discontinued for more than 12 months prior to the date of resumption?  There had been no sand extraction from the subject land for almost two years prior to the date of resumption, but that was through no fault of the landowner which lost royalties during that period and hoped to recommence sand extraction as operator.  The question is, do the provisions of the planning scheme allow for such circumstances?

The Town Planning Evidence:
           The Council's third planning scheme was gazetted on 16 September 1994 and continued to have effect at the date of resumption and subsequently.  In 1996 the subject land was zoned "Non-Urban" and the use continued to be a lawful fettered use.  The statement of intent for the "Non-Urban" zone states that the zone includes land used for sand extraction, but goes on to say that applicants for any permissible development will be required to demonstrate that there will not be any significant adverse effects on existing or likely future land uses, nor on any environmentally significant areas. 

Section 26.1 of the scheme relates to existing lawful fettered uses and provides that "upon the discontinuance of such existing lawful fettered use for a period of 12 months from any cause whatsoever, the right to continue such existing lawful fettered use shall cease unless the Council otherwise determines".  (Emphasis added). 

Mr PAG Dance, a town planner and managing-director of Phil Dance Planning Pty Ltd, gave evidence for the respondent.  He had previously been the Townsville City Council Director of Planning and Development. Mr Dance had been requested to report on the town planning issues relating to the subject land, particularly the use rights at the time of resumption and also the potential for future use.

Mr Dance expressed the view that the use of the subject land for extractive industry purposes was lawfully established and would continue to be so, subject to restrictions imposed by planning schemes.  The 1982 scheme provided fettered uses could continue only if there was no increase or change of use.  The 1994 Scheme contains a similar provision.  Mr Dance believed that while progressive extraction along the central dune would not upset the existing use rights, any extensions of the activity into a totally new area, particularly one of different environmental character and requiring different extraction methods, would fall within section 26 of the planning scheme.

Mr Dance summarised his conclusions thus:

"All of my investigations indicate that the use of part of the land for extractive industry occurred prior to the adoption by the Townsville City Council of any land use controls.  If this is the case, then the use was lawfully established and that status was conditionally preserved by the IDB and the first and subsequent planning schemes.  Each successive scheme tightened control over lawful fettered uses, to the point where the 1994 Scheme caused use rights to lapse upon the discontinuance of the use for a period of twelve (12) months or more.  While the Council did have the power to allow a discontinued use to recommence, I do not believe it would have done so under the relevant provision.

The lawful fettered use provisions also prevented substantial change to such a use.  While ongoing extraction such as had historically occurred, would most likely have been seen as permitted, any significant change to the operational area or techniques employed would, in my opinion, call up the Section 26 provisions of the Scheme.

I believe there was only very limited alternative use potential for the land.  The planning scheme provisions were squarely against any use other than agricultural or animal husbandry type uses.  While it would always have been possible to seek rezoning of the land, any such application would have called for considerable environmental evaluation and the involvement of the Department of Environment and Heritage, and other interested departments and agencies.  I do not believe that, at the time of resumption, there was any real prospect of higher order use other than those mentioned above.  "

The 1994 scheme includes a strategic plan in which the subject land is in the Open Space Preferred Development Land Use (PDLU) category.  Mr Dance was of the opinion that extractive industry would be in conflict with the Open Space PDLU.

Mr Dance said that he had discussed these issues with Mr Peter Gopal, Manager Planning Services, Townsville City Council, and that Mr Gopal agreed with his conclusions.

The Arguments of the Parties
Mr Gibson, on behalf of the respondent, submitted that commercial sand extraction on the subject land ceased in March 1994, approximately two years prior to the date of resumption and therefore in terms of section 26.1.2(b) of the planning scheme, there had been "discontinuance" of the existing lawful fettered use for extractive industry purposes.  The right to continue sand extraction on the land had ceased, unless the Council determined otherwise. 
           The respondent relied heavily on the evidence of Mr Dance (with whose opinions Mr Gopal agreed) that the 12 month limitation in section 26.1.2(b) applied regardless of the reason for cessation; that the Council would have been most unlikely to allow reinstatement of use and would have required an application for town planning consent.  Such an application for consent to use the subject land for "extractive industry" purposes would, in Mr Dance's opinion, be almost certain to result in the Chief Executive of DEH requiring an environmental impact statement (EIS) which would be likely to involve numerous Government departments and agencies. 
           The respondent went on to argue that under the then relevant legislation, section 4.13(5A) of the Local Government (Planning and Environment) Act 1990 (the P&E Act), the Council must refuse a consent application if the application conflicts with the strategic plan and there are not sufficient planning grounds to justify approving the application. Mr Dance (with whom Mr Gopal agreed) was of the opinion that at the date of resumption, an application for consent to use the subject land for the purposes of extractive industry would conflict with the strategic plan and was unaware of any planning grounds which would justify approving such an application.
           On the other hand, the claimant called no town planning evidence to refute the opinions of Mr Dance and Mr Gopal.  Its contention was that there was no discontinuance of use, arguing that Mr Dance's opinion that a cessation of activity irrespective of the circumstances, constituted a discontinuance, was legally unsound.  Mr Gore submitted on behalf of the claimant that there may be a continuance of use even though on-site activity has been interrupted:  Rosenblum v. BCC (1957) 98 CLR 35 at 45; Woollahra MC v. Banool Developments Pty Ltd (1973) 129 CLR 138 at 144: Whether an interruption to an activity puts an end to a use must always be a question of fact and the circumstances in each case must be considered as a whole: Rosenblum p.46. Subjective intention is a relevant consideration: Banool Developments at p.150; Hudak v. Waverley MC (1989) 18 NSWLR 709 at 716-717.

The claimant relied on the decision of Skoien SJDC in McNaught and Keating v. Kingaroy Shire Council (1996) QPELR 215, where it was held that land associated with a bacon factory which had been licensed to others for 14 years did not constitute a discontinuance of use of that land for the purposes of a bacon factory. The Court there was influenced by the intention of the bacon factory operator to use the licensed areas as needed.

Mr Gore's submission proceeded as follows: in the present case, Kynjass clearly intended to continue the  sand extraction business, but was prevented from doing so by DEH.  Prior to the resumption, there was never any discontinuance of use; it had been suspended pending resolution of a variety of issues raised by the discovery of the burials.  It was not, as in the Hudak case, the unilateral decision of the landowner not to consider the use until his own circumstances improved.  That should dispose of the issue.  However, Mr Dance's views were legally uninformed in thinking that extending the sand extraction activity to a different part of the site using different extraction methods would call into operation section 26 of the planning scheme.  In Norman v. Gosford SC (1975) 132 CLR 83, the High Court held that a considerable increase in the scale of operations in a quarry, with different methods of operation, was the same use and was entitled to the benefit of existing use provisions. In various Queensland authorities, the rule has been applied that an increase in intensity of non-conforming use does not constitute a change of use, and it has been accepted that changes in the method of operation do not constitute a change of use: Meacham and Leyland Pty Ltd v. BCC (1981) 3 QPLR 114; Bright v. BCC (1983) QPLR 251.

Had the Lawful Fettered Use Been Discontinued?

There is no doubt that the use of the land at the date CSR had ceased operations was a lawful fettered use.  Through no fault of its own, Kynjass was unable to recommence sand extraction prior to the date of resumption.  I am satisfied on the evidence that it was always the wish and intention of Kynjass to recommence sand extraction in its own right.  It is also reasonable to assume that it was the assertion by Kynjass that it intended to recommence extraction activities that precipitated the chain of events which led to the resumption.  If the submissions of the claimant are correct, then there never was a discontinuance of the lawful fettered use.
           It is therefore necessary to examine the authorities relied on for that proposition.
           In Rosenblum v. BCC (1957) 98 CLR 35, the High Court held that whether an interruption of activity puts an end to the user must always be a question of fact and in resolving the question the circumstances of each case must be considered as a whole. In Woollahra MC v. Banool Developments Pty Ltd (1973) 129 CLR 138 at 144, Mason J (as he then was), interpreted the expression "the continuance of the use" to mean "the continued use". He continued: "So understood the expression connotes neither a use which is commenced afresh after prior termination or abandonment, nor a continuity of use which is necessarily uninterrupted or unbroken. Rather does it suggest a use which is still continuing, notwithstanding that it may be marked by some interruptions or breaks which are not of such a kind to bring about a termination or abandonment of the use".
           At page 149-150, Mason J held that in determining whether there had been a termination or abandonment of the use, the subjective intention of the owner (or user) is a relevant consideration.
           A similar approach was adopted by Hope AJA in Hudak v. Waverley MC (1990) 18 NSWLR 709 at 716/717.

In Woollahra MC v. TAJJ Investments Pty Ltd (1982) 49 LGRA 123 at 125, Hutley JA expressed the view that where existing use rights are not being exploited, intention is vital to the question of whether existing use rights are lost.

In a recent Queensland case, McNaught and Keating and Others v. Kingaroy Shire Council (1996) QPELR 215, Skoien SJDC held that an existing lawful non-conforming use of land for "bacon factory" purposes was not discontinued by the licensing of various parts of the land to people who farmed on a profit-sharing basis. In holding that the use for purposes of a bacon factory extended over the whole of the land continuously, Skoien SJDC was influenced by the fact that the operator of the bacon factory never altered its intention to use the licensed areas as needed, or that the fencing off of the licensed areas did not evidence any change of intention of the operator in relation to the areas.

Not surprisingly, the respondent adopted the opposite approach, relying on the wording of the planning scheme.  In relation to the discontinuance issue, Mr Gibson submitted that the cessation of any physical sand extraction activities on the site, together with removal of all equipment, machinery, etc., for a period of two years prior to the date of resumption, satisfies the requirements of the phrase "discontinuance of such existing lawful fettered use for a period of 12 months from any cause whatsoever".  Mr Gibson referred to the Shorter Oxford English Dictionary definition of "discontinuance" as including "the action of discontinuing, interruption of continuance, cessation, intermission," etc.  He acknowledged that the cases accept that the element of intention is a relevant consideration.  However, in his submission, it was ultimately a question of fact as to whether the use had been discontinued and he submitted further that the facts of the present case do not fall within the category of cases where sporadic or temporary interruptions were accompanied by a subjective intention to resume the activity..
           In relation to the Banool Developments case, Mr Gibson submitted that Mason J construed the phrase "the continuance of the use" as equivalent to "the continued use".  It was, therefore, different wording to the phrase in the planning scheme in the present case.  It was not a use which was marked with some interruptions or breaks which are not of such a kind to bring about a termination or abandonment of the use.  He submitted that the present case was not such a case, but one in which there had been no more nor less than a termination, whatever the subjective intention might have been held.
           In respect of the McNaught and Keating case, Mr Gibson submitted that the case turns on very particular facts, none of which apply to the present case.  The land in question comprised a number of smaller lots, but the operators of the bacon factory never treated the various areas contained in those lots as separate entities.  They granted licences for share-farming purposes in respect of a number of the smaller lots on a rotating and other basis.  Previous cases had established that the fact that a particular part of the entire land is not actively used for a purpose, does not prevent that part from being regarded as devoted to that use.  That was adopted by the Court in the McNaught and Keating case and was critical to the outcome.  In the end, the Court was able to conclude that notwithstanding that parts of the land were the subject of share-farming agreements, the licensing of the share-farming agreements was subsidiary to the intention which the owner retained to use part or all of the land as a bacon factory throughout the entirety of the 14 year period.  Mr Gibson submitted that the particular fact situation in that case had nothing to do with the facts of the present case and suggested that this case can be resolved on a much simpler basis.
           Mr Gibson accepted that the subjective intention of the landowner is a relevant consideration, but submitted that the claimant is going much further in contending that it is the only consideration, or the predominant or primary consideration, as to whether there had been discontinuance of the sand extraction activity notwithstanding the physical cessation of that activity for a period of two years.

I have found that the evidence in the present case clearly establishes that it was always the intention of Kynjass to recommence sand extraction operations.  Certainly the authorities indicate that the intention of the owner or operator will be a relevant consideration in determining whether or not there had been discontinuance of use, but none of those authorities goes to the point in contention in the present case.  Therefore, any hypothetical prudent purchaser could not be certain that there had not been "discontinuance" of the existing lawful fettered use. 
           If the matter had been referred to the Council for determination, then, in Mr Dance's opinion, the Council would have been most unlikely to allow a reinstatement of the use "bearing in mind all the circumstances including environmental awareness and general practice of the Council over the years".  He felt that the Council would have required the applicant to seek town planning consent prior to recommencement of the sand extraction activity, rather than exercising its power under section 26 of the planning scheme.  As explained earlier, such a process would have been lengthy and expensive.  It had been estimated by one witness ( Mr Kershaw) that the cost of an application and an EIS would have been between $70,000 and $120,000.  If the matter had proceeded on appeal to the Planning and Environment Court, the costs would have been greater.
           If the question of the continuance of the existing use rights had to be determined  by the Council, there are two other matters which the Council would have had to consider.  First, there was the provision in the planning scheme that fettered uses could continue only if there was no increase or change of use.  Mr Dance believed that progressive extraction along the central dune would not upset the existing use rights, but that any extension of activity into a totally new area, such as the rear dune, or the use of different extraction methods could fall within section 26 of the planning scheme and therefore require council approval. 

On the basis of Norman v. Gosford Shire Council (1975) 132 CLR 83, the claimant submitted that Mr Dance's opinion was unsound. In Norman's case the owner of land within the Shire of Gosford used it between 1952 and 1972 in a very small way for the removal of top soil and filling.  The material was won by hand and shovelled onto trucks, with only between three and five transactions of sale per year.  From 1972 production greatly expanded, income increased considerably and the land took on the appearance of a quarry with more than one face, and bulldozers and trucks were employed in the operation.  The council took action to restrain the use of the land for this purpose, on the ground that its consent to the use of the land for an extractive industry had not been obtained.  The Supreme Court of New South Wales found that the use was an "existing use" on the date that the Shire's Planning Scheme Ordinance came into operation, but that in 1972 there had been a change in the nature of the use.  On appeal to the High Court it was held that both before and after 1972 the use to which the land was put was the removal of top soil and filling and the nature of the use had not been altered by an expansion in production or a change in the method of production or because excavations brought about a change in the appearance of the land.  Accordingly, the land was being used for the "existing use" to which it was put on the day the Ordinance came into operation and the consent of the council was not required.

Similar reasoning was adopted in the Meacham and Leyland case and in Bright's case.

The other matter which the Council would be required to consider was whether there would be any conflict with the strategic plan.  The P & E Act provided that a council must refuse to approve a consent application if the application conflicts with any relevant strategic plan and there are not sufficient planning grounds to justify approving the application despite the conflict.  Mr Dance was of the opinion that at the date of resumption an application for  consent to use the subject land for the purpose of extractive industry would conflict with the strategic plan.  He was unaware of any planning grounds which would justify approving such a consent application despite that conflict.  Mr Gopal had informed Mr Dance that he was of the same opinion.
           Mr Gore submits that the provisions are not relevant.  The claimant could establish that it had existing use rights at the time and therefore it would not have had to make an application for consent use of the subject land for the purposes of extractive industry.  On the other hand, Mr Gibson submits that at the date of resumption a hypothetical prudent purchaser would be so concerned at the likelihood of having to obtain council consent that such a purchaser would be unwilling to pay a premium over and above the intrinsic value of the land itself, to reflect any prospect of being able to lawfully extract sand on a commercial basis. 

However, I do not accept that the situation is as clear as that.

There is no doubt that sand extraction activity had been carried out on the subject land since at least 1960.  There is also no doubt that the activity was an existing lawful fettered use under the town planning provisions up to the date in 1994 when CSR ceased operations.  I have found on the evidence that Kynjass always intended to recommence sand extraction operations in its own right.  It was prevented from doing so by the DEH.  As a result of not being able to recommence sand extraction, Kynjass suffered severe financial loss.
           Against that background it does seem inequitable if Kynjass lost the existing use rights because there had been a discontinuance of that use for a period of over 12 months.  If intention to recommence sand extraction was the sole criterion, then Kynjass would not be caught by the provisions of section 26.1.2(b) of the planning scheme.  However, the authorities seem to indicate that while intention is an important criterion, it is only one of a number of aspects that must be considered.  The planning scheme provides that existing use rights will be lost on discontinuance for a period of 12 months from any cause whatsoever.  But the claimant argued that the High Court has recognised that statutory provision designed to protect and preserve existing use rights should be as liberally construed as the language in the context allows: Dorrestijn v. South Australian Planning Commission (1985) 59 ALJR 105 at 108.

It has been pointed out that there are no Queensland decisions directly on the point, so reliance must be placed on decisions in other jurisdictions.  Doubt has been expressed about their direct relevance in Queensland, as such issues involve matters of fact and degree and the provisions of the legislation may differ:  Fogg A; "Land Development Law in Queensland", 1987; p.686.

Therefore, the matter is not free from doubt.  It is possible that the existing lawful fettered use has ceased, "unless the Council otherwise determines".  If the Council had to consider the matter then, as discussed above, there was a possibility  that an EIS would be required.  If there had been  a challenge to the P & E Court, then that would add to the expense and delay.

Mr Reed determined the value of the resource as the net present value (NPV) of the probable case cash flow that would have been generated by a small quarry operator.  In describing his cash flow analysis, Mr Reed explained that:

"The 'Probable Case' cash flow for Sandfly Creek has been prepared for the eight year period from March 1996 through to 2004.  The probable case model assumes:

·    annual sales of 70,000 tonnes fine sand and 15,000 tonnes top soil during years 1 to 6, then 60,000 tonnes plus 15,000 tonnes in year 7, and 15,000 tonnes top soil only in year 8;

·average ex-bin selling prices of $11 and $6.25 per tonne for fine sand and soil respectively, escalated at 2.5% per annum over the life of the quarry;

·operational costs have been calculated (and are presented) on a line-by-line basis at $2.46 per tonne in year 1, and have been escalated at 2.5% per annum thereafter;

·fixed costs including depreciation (which is added back into the calculation after tax) and have been calculated at $0.59 per tonne in year one.  Fixed costs other than depreciation have been escalated at 2.5% per annum;

·tax has been deducted at 36%; and

·capital expenditure of $140,000* has been taken up in year one. "

*  This was later corrected to $150,000.

Mr Reed  produced a spreadsheet-based cash flow in his report which he summarised at Table 9 as the net cash flow for probable case revenue and cost model:  i.e. revenue for each year, less total costs (excluding depreciation), less tax at 36%, with capital expenditure deducted in the first year.

With the cash flow completed, Mr Reed explained that the key issue to calculating the net present value (NPV) is to determine what discount rate (or range of rates) should be applied.  He stated that "This needs to be determined after consideration of return on investment (for property acquisition) and the degree of risk attached to generating projected cash flows… it is important to ensure that both the discount factor selected, and the resultant bottom line, reflect commercial reality at  time of resumption."

In determining the appropriate discount factor (capitalisation rate), he gave consideration to the rates of return available in March 1996, the degree of risk attached to the acquisition, and the return on funds available to both the purchaser of the subject land and/or the quarry operator.

Mr Reed's after-tax discount rate was calculated assuming that the weighted average cost of capital (WACC) used for land acquisition had been geared at 50% debt, 50% equity.  He determined the cost of capital (debt) at 9.7% before tax (being the 180 day bank bill rate plus 2% bank charge) or 6.2% after tax.  He calculated the cost of equity at the time of resumption using the Capital Asset Pricing Model  (CAPM) formula.

Mr Reed saw the principal risk at the time of resumption as relating to archaeological factors, and the secondary risk as the attainment of sales tonnes.  He believed it was valid to conservatively adopt the then upper risk parameter of 8% in the CAPM formula.  He reasoned that at a gearing of 50% debt, 50% equity, the weighted average cost of capital was calculated to approximately 12%.

Mr Reed calculated a range of NPVs  by adopting discount factors ranging from 10% to 16% after tax, but he believed that 12% should be adopted, assuming that the purchaser funded the purchase with 50% borrowings and 50% equity.

Mr Reed's NPVs were derived from the probable case cash flow model and are summarised as follows:

Discount Factors

After Tax  Before Tax

NPV

10%  Approximately 15%

$ 2,224,530

12%  Approximately 19%

$ 2,065,750

14%  Approximately 22%

$ 1,923,600

16%  Approximately 25%

                  $ 1,795,950

Mr Reed carried out a sensitivity analysis of cash flow based valuations for the best case (at 100,000 tonnes per annum) and the worst case (at 70,000 tonnes per annum) sales volumes, as well as for the probable case (at 85,000 tonnes per annum) which showed values ranging from $1,563,846 to $2,464,947.

In each of his exercises he had added the residual value of land to the final years cash flow before discounting to arrive at the NPV. 

He concluded that an experienced quarry valuer would have arrived at a value between $1.9 million and $2.1 million, say $2 million.

Mr Cooper's Approach:
           Mr KB Cooper, partner of the firm Pannell Kerr Forster, Chartered Accountants, had been instructed by the respondent to value the property and the sand extraction business on the basis that the claimant would undertake the extraction work, sales and administration.  Like Mr Reed, Mr Cooper also adopted a discounted cash flow method of valuation.  However, Mr Cooper's approach was somewhat different.
           He had been instructed that the quantity of resource available to be extracted comprised 120,000 tonnes of topsoil and 480,000 tonnes of fine sand, but as sand extraction had ceased for a period of more than 12 months, the right to extract sand had lapsed and new approvals would be required.
           He was also instructed that the amount of  combined top soil and fine sand extracted in the first year would have been 57,142 cubic metres (or 64,000 tonnes), with an increase of 3% per annum thereafter, which meant the resource would have been  extracted by 17 November 2004, assuming the business would commence on 1 July 1996.  He was instructed to use an average sale price of $6.25 per tonne for top soil and $10 per tonne for fine sand and assumed that those prices would have increased by 2½% per annum.
           As for operating costs, Mr Cooper was asked to assume the correctness of figures which seemed to be the subject of agreement between the parties.  These he categorised into fixed and variable expenses, the latter likely to vary roughly in proportion to the number of tonnes extracted and sold.  He increased all costs by 2½% for the second and subsequent years, and the variable costs by an additional 3% in accordance with the assumed annual production volume increase.
           Mr Cooper deducted the total costs from the revenue to establish "earnings before interest and in tax" and deducted income tax at 36% to establish the "profit after tax".  (Having deducted depreciation to establish the correct income tax calculation, he then added back depreciation.)  He converted the net cash flow for each year to monthly figures prior to discounting them to the date of resumption, 22 March 1996.  He used a discount rate of 18% after tax (equivalent to a before tax rate of 28.12%), which he considered to be the appropriate risk rate of return.
           Mr Cooper arrived at a figure of $1,143,733 as the present value of the operating net cash flows (after tax).  From that he deducted $200,000 as the present value of capital equipment required to operate the sand and top soil extraction business, to arrive at $943,733.
           To that Mr Cooper added the residual value of the land after all the resource had been extracted at 17 November 2004, by discounting $375,000 (which he had been instructed was the residual value of the land) at the rate of 5% to derive a present value of $243,498.
           He arrived at a value for the business and residual land of $1,187,231.
           Mr Cooper went on to say that if it was necessary to make application to the Council before sand extraction could be recommended, he had been told an environmental impact study would have been necessary in June 1996 and he would adjust his valuation by $100,000 to allow for the cost of the application and the EIS.  In that case the valuation would be $1,087,231.
           During the hearing Mr Cooper adjusted his DCF valuation to commence with Mr Kershaw's 1996/97 production figure (approximately 67,900 tonnes) and the agreed residual value of the land at $350,000.  His adjusted figure was $1,228,407.

Mr Kershaw's Evidence:
           Most of Mr Cooper's assumptions were based on the advice given to the respondent by Mr DR Kershaw, geologist and principal of the firm, Kershaw & Co, who had been requested to advise the respondent in relation to a number of matters relating to the valuation of the claimant's potential sand mining business.  In carrying out his task, Mr Kershaw researched the availability and demand for sand resources in the Townsville District and held discussions with representatives of CSR, Boral and Southside Sand. 
           Mr Kershaw noted that the 1994 CSR ex-bin sale prices for fine sand from the subject land ranged from $9.82 per tonne to $11.61 per tonne.  His investigations showed that by 1998, ex-bin prices had fallen to between $7.14 and $8.75 per tonne, while cartage prices had remained competitive.  He thought that the historic sale prices obtained by CSR could not be relied upon, because they showed that CSR sold sand to its own organisation for the highest price per tonne, which was indicative of internal pricing arrangements. 
           Mr Kershaw conceded that the Sandfly Creek sand and loam operation had been the most significant source of fine sand for the Townsville District and had dominated the market.  When it closed, CSR, Boral and the Barro Group sourced fine sand from elsewhere.  In 1996, Southside Sand commenced a sand operation near Cungulla and comparative cartage rates resulted in landed prices marginally higher than previous prices from Sandfly Creek.  It soon dominated the fine sand market.  Boral and CSR closed their fine sand operations as they could purchase from Southside Sand for less than their production costs. Since then, Townsville Fine Sands established another sand operation at Cungulla and had captured a relatively small market share by discounting. 
           In the light of those circumstances, Mr Kershaw disagreed with Mr Reed's estimate of $11.00 per tonne.  He thought that $10 per tonne should be adopted, although he considered it to be generous in 1996 when the market was not buoyant and there were pressures on prices.   Mr Kershaw went on to say that the commercial viability of re-establishing Sandfly Creek in 1996 would depend on the experience, market knowledge and pricing policies of the operator, as well as external factors such as economic activity and competition.  Building and construction activity was in decline from the mid-1980s, and there was additional competition from other sources of fine sand.  It would have been critical to win major users like Pioneer and CSR, but he thought that they would expect bulk purchase discounts and a price less than CSR had previously charged itself would have to be expected. 
           Mr Kershaw also provided opinions on the capital costs, the costs of an application to the Council and an EIS.  He estimated the annual production based on the annualised historical production figures from the subject land (which he thought would have been optimistic) projecting production to increase by 3% per annum, approximating the population growth of the region at that time. 

The Differences between Mr Reed and Mr Cooper:
           There are several significant differences in the figures used by Mr Reed and Mr Cooper in their respective discounted cash flow exercises. 

(a)         Quantities of materials sold each year – Mr Reed estimated regional demand at 120,000 tonnes per annum of fine sand in 1996 and thought that Kynjass could regain two-thirds of that market.  He reasoned that there would be sufficient margin for Kynjass as operator to market topsoil and he estimated that between 10,000 and 20,000 tonnes per annum could be sold.  Accordingly, his probable case cash flows were calculated on the assumption that 15,000 tonnes of topsoil and 70,000 tonnes of fine sand were sold each year for seven years, with 15,000 tonnes of topsoil alone sold in year 8.

On the other hand, Mr Cooper worked on Mr Kershaw's figures, who had simply worked on the average annualised production figures of CSR between 1991 and 1994, increased by 3% each year.  He assumed that 20% of that would be topsoil.  In an adjusted DCF exercise (Exhibit 19C) Mr Cooper adopted Mr Kershaw's 1996/97 figure of 67,900 tonnes, apportioning 20% or 13,580 tonnes, as top soil.  He assumed an increase in production of 3% per annum. 

This is but one example of how opinions on such an important variable can differ.  Mr Reed thought Mr Kershaw's figures were too conservative as he contended that they were based on average sales during the recession period 1991/92 to 1993/94.  On the other hand, Mr Kershaw had doubts about the starting figure of 62,135 tonnes which he regarded as optimistic.

In my view, the quantities adopted by Mr Cooper in Exhibit 19C seem reasonable.  They were confirmed in a general way by the sales figures of the Cungulla operation of Townsville Sand and Gravel.
(b)       Selling Prices for Fine Sand – Mr Reed based his estimate on the historical sales record of CSR from 1991 to 1994.  Mr Kershaw criticised that approach as the highest price was paid by CSR itself, which he said could be explained by internal corporate arrangements, such as transfer pricing.  Mr Reed felt transfer pricing had lost its significance with bonus management. 

Mr Kershaw's estimate of the price of fine sand in 1996 was $10 per tonne based largely on the fact that prices had fallen between 1994 and 1998.  He did not quote prices at the date of resumption, but it would be reasonable to assume they would be lower than in 1994, as the building and construction industry was not buoyant in 1996.  In addition, Kynjass would have been trying to re-establish market share in the face of some competition in 1996.  I feel that $10 per tonne for fine sand in 1996 is a reasonable starting point.

(c)          Operating Costs – Mr Reed and Mr Cooper were largely in agreement as to operating costs, Mr Cooper relying on Mr Kershaw's advice that they seemed reasonable.  Where they differed, I would be inclined to accept the lower figures, but the differences would not seem to make a great deal of difference to the end result.  Both allowed $25,000 in the first year for archaeological costs, increasing that figure each year by 2½%.  Mr Gibson submitted that $25,000 is a gross under-estimation of the cost that should be budgeted for archaeological and Aboriginal monitors and suggested that an annual figure in excess of $100,000 would be more appropriate. However, I am of the opinion that a prudent purchaser would be so concerned about the possibility of further discoveries and the associated costs that such a person would reflect that concern in another manner.  I will deal with that later.
(d)        Capital Costs – The differences between Mr Reed and Mr Cooper would make no significant difference to the end result, but I can see no reason not to accept the lower estimate of Mr Reed. 
(e)        Residual Value of Land – It was explained by Mr Gore in his opening that the parties "agreed that the site on current values had a value of $350,000 on exhaustion of sand deposits".  In the claimant's written submissions it was stated that in the event that it was found that there was sand extraction potential, "its present value at the resumption date on (the future) exhaustion of sand deposits was $350,000".  That agreement seems to have been reached between their valuers, Mr Brett for the claimant and Mr Schy for the respondent.  However, the valuers were not called and their reports were not tendered.  Therefore, I have no evidence of what was agreed to or what was meant by the phrase "present value at the resumption date". 

It seems from the way that the evidence unfolded that it was agreed that if there was no value for sand extraction potential, the value of the land at the date of resumption was $375,000.  If it was found by the Court that there was some value for the sand extraction potential, then the value of the land would be less, perhaps because the contour would be changed by sand extraction.  The agreement seems to have been that at the date of resumption that would have been $350,000, but that value would only be realised at the completion of sand extraction.  In other words, the present value of the land can be determined by estimating what its value would be at the completion of sand extraction and deferring that value for that period.  Mr Reed estimated that the value of the land would increase by 2.5% per annum to amount to $426,441 at the completion of sand extraction.  He added that figure to the final year's cash flow before discounting.  On the other hand, Mr Cooper assumed that the value of the land would not increase and simply found the present value of $350,000 deferred for the period of sand extraction at 5%.  He then added that residual value of $243,498 to the NPV of his cash flows.

In my opinion, it would be reasonable to assume there would be some increase in value over that eight year period and in the absence of any other evidence, I will adopt Mr Reed's opinion of 2.5% per annum.  However, Mr Cooper was correct to find that the residual value should be deferred for 8 years and that figure added to the DCF result.  Accordingly, $350,000 amounts to $426,440 in 8 years.  The present value of $426,440 in 8 years at 5% is $288,632.

(f)         The Discount Factor – Crucial to the accuracy of the DCF exercise is the selection of the appropriate discount factor, but this was the most significant disagreement between Mr Reed and Mr Cooper.  Mr Cooper was critical of many aspects of Mr Reed's reasoning in arriving at his discount factor of 12%.  In particular, he criticised the use of the CAPM method, the adoption of a beta derived from major national companies which hardly compared like with like, his assumption of funding at 50% debt, 50% equity and so on.  He carried out an exercise to demonstrate how a more appropriate use of the CAPM with a beta derived from smaller companies, tended to support his own discount factor of 18%.  However, he stressed that he placed no reliance upon that exercise, as he thought the CAPM method inappropriate to value the small sand extraction business that was envisaged on the subject land.

Mr Gibson submitted that Mr Cooper is better qualified and experienced in this accountancy method of valuing businesses, while Mr Reed is not. Mr Reed is a geologist, but he is quite obviously well experienced with extractive industry businesses.  However, Mr Reed was not comfortable with some of the finer details of the CAPM method.  Under cross-examination, he quite frankly admitted that he would need to seek advice.  Mr Cooper, a highly qualified accountant, was more comfortable with those finer points and on the whole I  prefer his assessment of risk.

In particular, I am of the opinion that Mr Reed underestimated the risks associated with what he called "development consent" and "environmental" factors in his risk analysis, as "minimal" and "marginal" respectively.  As discussed previously, a prudent purchaser would be concerned that the consent use may have been lost and the matter may have to be considered by the Council, with the possibility of a further application and a possible EIS, involving additional cost, delay and uncertainty.

Mr Cooper did not have regard to the risk of loss of the existing use right in arriving at his discount factor of 18%.  However, he said that based on Mr Kershaw's advice if an application to the council and an EIS were required, he would simply deduct $100,000 from the NPV.  Mr Cooper explained that he adopted the discount rate of 18% because of the volatility of the building industry and the reliance of the business upon a small number of customers.  He felt that the rate reflected the return that would be required by a prudent investor to compensate for the risk.

What then should be the appropriate discount rate?  Mr Reed's discount factor of 12% is clearly too low.  It does not adequately allow for the risk of both the existing use right not continuing and the possibility of further discoveries in the dunes.  Mr Cooper's discount factor of 18% was his estimate of what a prudent purchaser would expect in excess of the risk free rate of return.  Apart from the attempts to compare with the betas of other companies, the exercise was not market related.

Having regard to the evidence relating to the risks confronting the business, I have come to the conclusion that Mr Cooper's rate of 18% is appropriate and is sufficient to include the risk of the loss of the existing use right.  However, in my opinion, it is not sufficient to take into account the risk associated with possible further discoveries of burials.  That risk is so substantial that I think that a prudent purchaser would make appropriate allowances after the DCF exercise has been completed.

I do not consider that it is either necessary or appropriate to attempt to tinker with the various components of the DCF exercises by substituting what I think would be correct.  I think that such interference would be unwarranted and unwise.  During the hearing both Mr Reed and Mr Cooper amended their own DCF exercises which brought their approaches closer to one another.  It is from that evidence that I think the value should be found.

The Various DCFs:
Mr Reed's original probable case DCF analysis resulted in a valuation of $2.065 million, at his preferred after-tax discount rate of 12%.  When corrected for errors, it became $2.081 million.  Although he did not concede that such adjustments were appropriate, when his probable case DCF was adjusted for quantities, selling price of $10 per tonne, and annual price increases, his valuation became $1.791 million at 12% discount rate.  At 18% discount rate, the valuation was $1,433,863.
           However, each of those exercises involved adding the residual value of land into the final year's cash flow and discounting it.  As discussed previously, that is  incorrect.  The residual value of land must be added to the NPV of the business, not discounted for risk.  Using his DCF model at 18%,  Mr Cooper calculated that Mr Reed's exercise reduced the residual value of land to $97,294.  If that is deducted from his adjusted figure, Mr Reed's NPV becomes $1,336,569.
           Mr Cooper's original DCF analysis resulted in a valuation of $1.187 million, or $943,733, if the residual value of land which he calculated at $243,498 is excluded.  Corrected for errors and with more appropriate sales volumes, his valuation became $1.228 million, or $1,001,143 if the residual value of land is excluded.
           Mr Cooper's method of adding with the residual value of land at the end of the exercise is correct, but I have found that the residual value should be $288,632.  It can simply be added to the NPV of the potential sand extraction business at the end of the exercise.
           The claimant did not concede that Mr Reed's adjusted valuation was correct.  It was included to indicate the result if those adjustments were made.  However, although there were still differences, the two approaches were more compatible and should be used as the basis for comparison.  Therefore, if the discount rate of 18% is adopted, the valuations of the potential sand extraction business are Mr Reed $1,336,569 and Mr Cooper $1,001,143.
           In my opinion, if a hypothetical prudent purchaser was provided with those figures as the possible values of the sand resource resulting from the DCF exercises, such a person would take the view that Mr Reed's valuation was an optimistic assessment, while Mr Cooper's was more pessimistic.  Having regard to the various areas of disagreement between them and realising the DCF approach in such circumstances is, at best, an indication of what could be paid, I think that such a person would conclude that if there was no risk of discovery of further burials, the value of the potential sand extraction business would be somewhere near the mid-point between the two, say $1,170,000.
           However, a prudent purchaser must be assumed to be aware of the risk of discovery of further burials in the remaining dunes. Therefore, such a purchaser would not be prepared to pay the full amount for the business.  Mr Gibson suggested to Mr Cooper that a prudent purchaser may assess that there was only a 50/50 chance of receiving the annual income and reduce the figure accordingly.  While I appreciate that this was not Mr Cooper's evidence and the risk factor had been suggested simply as an example by Mr Gibson, Mr Cooper did not register any disagreement with that assessment of risk.  However, he thought on that hypothesis that it may be necessary to adjust some of the variable costs for the possibility of not achieving the cash flow each year.  He felt that the answer would be less than half the NPV but admitted that he had not made the calculations and would need to give it further consideration.
           In my view, there is some support for a 50% adjustment for risk.  Based on the reasoning explained earlier, the weight of archaeological opinion regards the risk of discovery of further burials as a possibility, i.e. less than 50% risk, rather than a probability, i.e. more than 50% risk.  Therefore, having regard to the various archaeological opinions, a prudent purchaser would adopt a conservative approach and assess that there would be a 50% risk of the operation being disrupted by further discoveries.  It would not seem necessary, in my opinion, to adjust the variable costs in such an exercise.  It is not an adjustment of the quantities.  It is simply an assessment of the risk of receiving the projected cash flows. 
           Because of the imprecise nature of the DCF method of valuation, without the support of an assessment by a market related method, one can have some concern in any final result.  It is at best an informed estimate to the value of an asset, depending on the accuracy of the inputs and the skill and experience of the person undertaking the exercise.  In the unusual circumstances of this case, I feel justified in adopting what is essentially a broad brush approach to this matter.

56.

If that broad brush approach is taken, then the risk of the loss of 50% of the cash flow each year results in 50% of the total value of the business, or on my finding above, $585,000.  To this must be added the present value of the land following the extraction of the sand, $288,632, and the agreed disturbance items of $12,539.
           On this basis compensation is assessed as follows:
           Net present value of the sand extraction business          $   585,000
           Present value of land  $   288,632
           Agreed disturbance items  $     12,539
  TOTAL COMPENSATION            $  886,171
Interest:
Section 28 of the Acquisition of Land Act 1967 provides that the Land Court may order that interest be paid on the amount of compensation determined by it, excluding the amount of compensation advanced under section 23. I can see no reason to depart from the Court's usual practice to award interest.
           However, it is well established that interest on legal and valuation fees incurred in the preparation of the claim for compensation is payable only from the date of payment of those fees by the dispossessed owner:  Townsville City Council v. MVO Investments Pty Ltd.
           In the present case I was advised that an advance of $318,741.80 was paid by the respondent to the claimant on 13 December 1996.  I was also advised that various legal and valuation fees incurred by the claimant in the preparation of the claim for compensation were paid on various dates.  These total $12,539, the amount of the agreed disturbance items.
Orders:
           I determine compensation payable by the respondent to the claimant at $886,171.
           I order the respondent to pay the claimant interest at the rate of 6.5% per annum on the sum of $873,632 from 22 March 1996, and on the legal and valuation fees incurred in the preparation of the claim for compensation from the dates such payments were made, up to and including the day immediately preceding the date on which payment of compensation is made.

President of the Land Court