Seafarm Pty Ltd v Minister for Natural Resources and Water
[2008] QLC 68
•11 April 2008
LAND COURT OF QUEENSLAND
CITATION: Seafarm Pty Ltd v Minister for Natural Resources and Water [2008] QLC 0068 PARTIES: Seafarm Pty Ltd
(appellant)v. Minister for Natural Resources and Water
(respondent)FILE NO: LA2007/0123 DIVISION: Land Court of Queensland PROCEEDING: Appeal against the Minister's review decision under s.422 of the Land Act 1994 in relation to the purchase price of part of Special Lease 9/527324 for conversion to a deed of grant. DELIVERED ON: 11 April 2008 DELIVERED AT: Brisbane HEARD AT: Cairns MEMBER: Mr RP Scott ORDER: 1. The appeal is allowed.
2. The Minister's review decision is set aside.
3. The purchase price for the purpose of conversion of lot 3 on drawing CNS04/141 (having an area of 58 ha) is determined at Two Hundred and Twenty Thousand Dollars ($220,000).
CATCHWORDS: Land Act 1994 – s.434 – unimproved state – notional removal of improvements – highest and best use of land as developed irrelevant.
Valuation – fill required to permit use of land – practical requirement and Spencer applied.APPEARANCES: Mr E J Morzone, (instructed by BK Gillan Solicitor), for the appellant.
Mr T W Quinn, (instructed by Ms L Marshall, Senior Lawyer, Department of Natural Resources and Water), for the respondent.
This is an appeal by Seafarm Pty Ltd (Seafarm) pursuant to s.428 of the Land Act 1994 (the Act) against a review decision of the Minister as to the purchase price for a conversion of tenure from Special Lease to Freehold title of what is described below as the subject land, having an area of 58 ha. The subject land is part only of the Special Lease. The grounds of appeal relevantly say that the Minister’s review decision has not been decided in accordance with the provisions of the Act; that is, it is not "the amount equal to the unimproved value of the land as if it were fee simple" (s.170(3) of the Act). The case resolved down to a question of the highest and best use of the land at the relevant date, the appellant contending to a figure of $116,000 in response to the Minister’s offer of $450,000. The appellant's figure was based on a highest and best use of the subject land for aquaculture, whilst the Minister adopted a highest and best use of rural residential. As the case went on the Minister led evidence to a valuation of $450,000 less an allowance for fill in the amount of $46,000; however, in submissions contended to the higher figure of $450,000.
Seafarm currently holds a Special Lease under the Act over land described as lot 136 on Crown Plan 867066 situated near the North Queensland coast in Douglas Shire. Lot 136 has on its eastern boundary a frontage to Packer's Creek which is a tributary of Dickson's Inlet. To the east of Dickson's Inlet lies the town of Port Douglas which has been intensively developed and is a well known tourist destination. Whilst lot 136 is located only 3 km from the main street of Port Douglas, access to the town is not available in a direct line as Port Douglas is separated from lot 136 by large tracts of low-lying salt intrusion mangrove land and Dickson’s Inlet. Land surrounding lot 136 from the foothills to a line along the western boundary of the lot has been developed for sugar cane. It is quite obvious that the surrounding land is topographically higher than lot 136.
In company with counsel I inspected the subject land and its surrounds together with various sales properties referred to by the valuers called by the parties. Mr Geoffrey William Eales, a registered valuer, was called by the appellant whilst Mr Ian Spencer Quirk-Anderson, a registered valuer and departmental officer was called by the respondent. Some of the sales properties referred to by Mr Eales are located in different localities from the subject land and were not able to be inspected by me. The inspections that I did carry out assisted in my understanding of the evidence.
Mr Eales approached his task on the basis that the highest and best use of the subject land for the purpose of valuation was that of aquaculture. Mr Quirk-Anderson based his valuation on the land having a highest and best use for rural residential purposes.
The Special Lease land has an area of 207.7318 ha of which approximately 149.7 ha is currently undeveloped whilst 58 ha is developed as an aquaculture operation containing 27 artificially formed ponds ranging in area from 3,000 m² to 2 ha; associated canals, bund walls and embankments; and structural improvements including an office, a processing plant workshop, storage sheds, as well as a pump station located over Packer's Creek. Apart from the pump station the structural improvements are located on an area in the north-west of the developed area, on filled land. The filled area totals about 7.6 ha. Originally a Special Lease (the first Special Lease) was granted over an area of about 872 acres (352.886 ha) commencing in March 1969, that lease being acquired by the Mossman Central Mill Co Ltd in 1977. The first Special Lease comprised lot 136 on survey plan Sr. 550. On 23 September 1993 a new Special Lease (the second Special Lease) was issued over lot 136 on CP 851586 commencing on 1 August 1993 for various purposes, including aquaculture. The leasehold area was subsequently corrected to 207.7318 ha. Seafarm acquired the second Special Lease on 30 June 2003.
On 16 November 2004 Seafarm applied to the Minister to convert the second Special Lease to freehold. As the lease stood at that time it was subject to a condition that the lease was not eligible for conversion to freehold tenure; however, the lease was amended to remove that condition, the amendment being registered on 2 February 2005. Accordingly, the application for conversion was agreed by the parties and accepted by me to have been made on that later date. The property was inspected on 18 March 2005 by Mr Quirk-Anderson who prepared a detailed inspection report dated 29 April 2005. In due course the Minister's Department advised Seafarm that it was prepared to offer a conversion to freehold of the area of approximately 58 ha shown as lot 3 on drawing CNS04/141 (comprising the area developed for aquaculture purposes) for a purchase price of $465,000. In these reasons lot 3 is referred to as the subject land. In addition the Department said that it would be prepared to seek approval for the grant of Term Leases for a communication tower site located outside lot 3 to its east and for the pump station site located over Packer's Creek. Seafarm responded by submitting an application for an internal review of the decision in relation to the value of the subject land, the result being that the offer was reduced from $465,000 to $450,000. It is from that review decision that Seafarm has appealed.
Section 170(1) relevantly provides that the Minister is to decide the purchase price for the conversion of a lease to a deed of grant. The right of appeal to this Court arises by virtue of s.423 of the Act and Schedule 2 and by s.170(2) which provides:
"The lessee may appeal against the Minister’s decision on the purchase price."
The powers of the Court in an appeal of this type are as provided for in s.429:
"429 Powers of court on appeal
(1) In deciding an appeal, the court has the same powers as the decision maker.
(2) An appeal is by way of rehearing.
(3) The court may -
(a) confirm the review decision; or
(b)set aside the review decision and substitute another decision; or
(c) set aside the review decision and return the issue to the Minister with directions the court considers appropriate."
Unimproved State Issue
Section 170(3) of the Act provides relevantly that the purchase price is
“(a) the unimproved value of the land being offered, as if it were fee simple”
Section 3 of the Act sets up a dictionary in Schedule 6 which in turn refers to s.434 for the meaning of the term "unimproved value" which appears in s.170(3). Section 434 provides:
"434 Meaning of "unimproved value"
(1)In this Act, the unimproved value of land is the amount an estate in fee simple in the land in an unimproved state would be worth if there were an exchange between a willing buyer and a willing seller in an arms-length transaction after proper marketing, if the parties had acted knowledgably, prudently and without compulsion.
(2)The unimproved value must be decided without regard to the commercial value of the timber.
(3)To remove any doubt, it is declared that the Valuation of Land Act 1944 does not apply to the meaning of unimproved value in this section.
(4)In this section –
paid to the State does not include rent paid to the State.
unimproved state includes, if the value of improvements and development work to the land performed by the State has not been paid to the State, the improvements and development work finished before the lease started or the deed of grant was issued."
No further direct assistance is provided by the Act with respect to the meaning of the term “unimproved state”, the term which is pivotal to the operation of s.434, particularly in circumstances where the relevant land has been developed by the physical works of man upon it. It is that void which underlies part of the debate between the parties as to the highest and best use of the subject land. The issue involves the question as to the manner in which the various physical works, in particular the ponds on the subject land, should be treated for the purpose of identifying the "unimproved state".
As the hearing of evidence proceeded, certain points of relevance to the present issue were identified as common ground:-
· Removal of the physical works on the subject land to yield an acceptable rural residential site would not be an economic proposition. It would cost more than $1,000,000 to remove the ponds whilst the value of the land for the purpose of rural residential would be substantially less than that figure, assuming that it was marketable for that use.
· The value of the land as developed for aquaculture purposes is substantially greater than the value of the land on the assumption that the physical works were not there.
· The physical works, particularly in the form of the ponds, are unattractive and do not add value to the land for a rural residential use. An exception to that would be the filled area of about 7.6 ha which could be turned to such a use; and a 'track' from there to the pump site on Packer's Creek utilising the trafficable top of a section of the pond walls.
Both parties approached the valuation on the basis that to value the land in its "unimproved state" the land should be valued as if any improvements on it did not exist. As I appreciate the submissions, each proceeded on the basis that the notion of what constituted an improvement for the purpose of identifying the unimproved state should be approached according to general valuation principle not constrained by the definition of "improvements" supplied by the Act. That definition does not include "development work" which is defined in Schedule 6 as:
"development work for land means—
(a) if clearing of trees enhances the productivity of the land—the clearing of trees; and
(b) work performed for the rehabilitation and sustainability of the land; and
(c) filling, reclamation or any other works making the land suitable for use or the building or erection of a building or structure on the land."
I accept that approach as being correct. It is consistent with the conclusions of this Court in Re PCL 1035 (1966) 33 CLLR 206 in the context of the legislation there under consideration.
Improvements in the general sense and consistent with valuation principle were described thus by Griffiths CJ:
"Any operation of man on land which has the effect of enhancing its value comes within the definition of 'improvement'". (Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503)
Whilst the parties appear to accept the application of such a definition to the present case, it was the manner of its application which separated them. For its part, Seafarm introduced a requirement that the relevant operations of man could not qualify as improvements unless they enhanced the value of the land for its use, as developed. That is, since the various ponds, in particular, did not enhance the value of the land treated as having a rural residential highest and best use, they were not improvements that should be notionally removed to ascertain the "unimproved state" for that use. In order that the land might be used as a rural residential site, the operations of man would need to be remediated, according to Seafarm. They are operations of man that, because of their cost of remediation, were not improvements but comprised a "worsement". (Marano v The Valuer-General (1978) 5 QLCR 194 at 200). They were, however, improvements to the land for aquaculture purposes, it was submitted, so should be notionally discarded for the purpose of valuing the land as having that highest and best use in its "unimproved state".
The language of s.434(1) is such that it requires the valuation to be carried out having regard to the "unimproved state". That is, the first step to be undertaken is the identification of the "unimproved state". The valuation is then carried out. The obverse of unimproved state would be improved state. As is clear from the application of what Griffiths CJ said in Morrison, an improved state would be one where the operations of man have enhanced the value of the land. In such circumstances the operations of man are therefore improvements, simpliciter. The Act does not refer to "the unimproved state for a particular purpose." Now it is not the contention of Seafarm that the operations of man on the subject land are not improvements: it is that they can only be treated as improvements if the highest and best use for the purpose of valuing the land is for aquaculture, not for rural residential purposes. Such an approach adds a dimension to the process of identifying the unimproved state that is not required in my view. The process of valuation involves the ascertainment of the highest and best use of the land, however the valuation process is undertaken only following the identification of the unimproved state.
In Chief Executive, Department of Natural Resources and Department of Mines v QNI Metals Pty Ltd and Anor [2002] QLAC 71 the Court said in dealing with a similar question under the provisions of the Valuation of Land Act 1944:
"[10] Whether these structures are improvements is a question of fact which will be answered by determining whether, in the market place as at the date of valuation, the land with the structures in place was worth more than it would have been without them. If the structures enhance the value of the land, they are improvements …"
It is correct to say that the operations of man on the subject land are improvements only because they enhance the value of land for aquaculture purposes rather than rural residential purposes. Nevertheless, that does not lead to the conclusion that for the purpose of striking a value under s.434, the highest and best use of the land as improved must be the same as the highest and best use of the land in its unimproved state. There is nothing in the statute to which I was referred which compels that outcome. The process described by the Land Appeal Court in QNI Metals is designed to apply what Griffiths CJ said in Morrison in order to ascertain whether the relevant operations of man are improvements. If they are, the land should not be valued as developed for that would be to value the land in an improved state. The improvements must therefore be assumed to not exist; that assumption leading to an identification of the unimproved state of the land.
It was submitted for the Minister that a somewhat different approach from the one that I have given preference to above should apply. That suggested approach was referred to as the “snap shot” approach in debate. It did not require the identification of improvements in the manner described in QNI Metals, but in effect involved the valuation of the land in its "natural state". It was submitted that s.434(1) of the Act required a quite simple process of identifying the unimproved state quite different from the process involved in s.3(1)(b) of the Valuation of Land Act:
"3 Meaning of unimproved value
(1) For the purposes of this Act—
unimproved value of land means—
(a) …
(b) in relation to improved land—the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist."
Whilst different language is employed in s.3(1)(b) in comparison to s.434(1) of the Land Act I do not understand that difference to be fundamental to the mental process involved in identifying whether the land is improved under either statute. Both require the question of whether the operations of man on the land are improvements being dealt with before the valuation process is undertaken. The use of the term "unimproved state" in s.434(1) rather than "natural state" indicates that consideration of improvements on the land, if any, needs to be undertaken. That view is reinforced by the language of s.434(4) which requires that certain improvements, in the general sense, be treated as part of the unimproved state rather than be assumed to not exist. My approach to this issue does not disregard s.434(3).[1]
[1]See Surfers Paradise Resort Hotel Pty Ltd v Department of Natural Resources and Water [2007] QLAC 0127 as to s.3(1)(b).
In the present case it is quite clear that at the relevant date the subject land was in an improved state. Accordingly, the operations of man upon it need to be disregarded for the purpose of identifying the "unimproved state", then the valuation carried out, on the basis of its highest and best use in that state. It is important that I make clear that in the valuation phase of this matter I proceed as if the aquaculture improvements in their totality do not exist. The ponds will not therefore be assumed to fall into decay (Seafarm submission) or are they a sort of fill (from the Minister). The land is viewed in its unimproved state.
Highest and Best Use
Disposal of Seafarm’s proposition that the operations of man on the subject land are not improvements if one were to adopt rural residential as the highest and best use does not dispose of the highest and best use issue. It was also contended for Seafarm that, viewed in an unimproved state as I have understood that term, the land is not marketable as a rural residential site because its amenity for that use is poor. To appreciate that viewpoint evidence as to the nature of the subject land in its unimproved state needs to be considered.
In its unimproved state the subject land is low-lying, fringed with mangroves and interspersed with salt pan areas. The evidence (Exhibit 9) was that the maximum high-tide calculated in 1969 would have been at RL 6.0 feet.[2] The only part of lot 3 that would not have been inundated by that tide would have been a small grassed area near the western boundary and to the east of the site identified by Mr Quirk-Anderson as the home site for a rural residential use. That grassed area would have been a maximum of 0.31 feet (3.72 inches, or about 9.4 cm) above the tide level. Nevertheless the mean high-tide mark is outside and below the level of lot 3. Were it otherwise the land would not have been available for freeholding. The maximum flood level over portion 136 was recorded in Exhibit 18 at RL 7.0 feet.
[2] It should be noted that on Ex 9 measurements were recorded using the Imperial not the Decimal system.
That evidence was supplemented and reinforced by the evidence of Colin John Price who, as an employee of Mossman Sugar Mill, oversaw the development of the area of lot 3 for aquaculture. He had been a cadet engineering surveyor prior to starting with the mill in the late 1970’s. He worked on the subject land from 1985 to 2002 and could be taken to have known it intimately. As part of that work his land surveying expertise was well utilised.
When Mr Price first began working on the land in 1985 only a bund wall erected by a previous owner and a drain along the western boundary existed on lot 136. The bund wall is outside the area of lot 3. Prior to 1985 the site had been used by the Mossman Sugar Mill as a storage and dumping area for rail lines, sleepers for rail line construction and waste spoil. There was a stockpile of spoil where the structural improvements and plant are now found and that was levelled in or about 1985. The location and extent of this raised and levelled area is consistent with an area of 7.6 ha erroneously identified by Mr Quirk-Anderson as being a part of lot 3 elevated in the land's unimproved state. The balance of the 58 ha of the subject lot 3 remained unimproved other than by the construction of the aquaculture improvements.
As part of his employment with the Mossman Sugar Mill, Mr Price prepared a plan in August 2000 (Exhibit 17) which showed that the highest astronomical tide was at 1.780 AHD which was 450 mm above the natural surface at a point indicated on the plan as being RL 1.350 AHD. There is also support for the description of the overall low-lying and swampy nature of lot 136 land found in the form of a letter from a surveyor (Exhibit 8); Department of Natural Resources, Mines and Water Parish Maps and a Department of Natural Resources, Mines and Water Topography Map which shows a large area of lot 136 to be described as "intermittent lake or water course" with the balance of the site being described as “mangrove swamp; area subject to inundation”.
The subject land is not designated as Good Quality Aquacultural Land. It is unsuitable for sugar production. During inspection of the subject land and its surrounds one could easily observe that the growth of sugar cane on adjoining lands to the west and north was limited by ground conditions near the subject land.
The evidence was that for the subject land in its unimproved state to be put to a rural residential use, the site would need to be filled to provide a house site and curtilage as well as vehicular access. Mr Quirk-Anderson proposed filling an area of 875 m² in total in that part of lot 3 close to the access road. I discuss below the appellant's suggestion that not only was 875 m² too small an area for a rural residential use, but that Mr Quirk-Anderson's depth of fill was inadequate.
The area to be filled according to Mr Quirk-Anderson had a hatchet shape with the handle being the access driveway and the head comprising the house and curtilage. Such a rural residential site as part of an otherwise large low-lying area of about 58 ha did not represent what one might call a normal rural residential property in the area. Indeed, none of the sales evidence relied upon by Mr Quirk-Anderson was similar in topography or visual amenity.
It was Seafarm’s contention that the subject land did not have a highest and best use as a rural residential home site because of the low-lying nature of the subject land and the need to fill an area to provide a home site and access. Tidal waters would inundate the subject land during the highest astronomical tide and surround the filled 875 m² to create an "island". There would be mosquitoes, sandflies, crocodiles, odour and humidity it was suggested, though the evidence on those issues was faint and the fact that nearby Port Douglas was developed in spite of such issues needs to be taken into account.
It was also submitted with Seafarm that a rural residential use was precluded in favour of an aquaculture use for a number of reasons of which I will deal with briefly:
· "the possibility of acid sulphate disturbance if soils are moved". Apart from the fact that residential use does not trigger the acid sulphate code, there was no evidence that the soil would need to be disturbed for a rural residential use but not for an aquaculture use.
· "the existing use of the site for that (aquaculture) rather than some other purpose". The existing use is not only one required by the Special Lease conditions but is an historical one commenced many years prior to the relevant date for valuation.
· "the unsuitability and non-past use of the site for sugar cane purposes". The use of the land for rural residential purposes does not need to include its use for the growth of sugar cane.
· "the rehabilitation costs likely should the aquaculture activity cease". I have already dealt with this issue in my conclusions as to the "unimproved state" of the land.
· "the cost and poor amenity outcome of, and planning restrictions imposed upon, the proposal by Mr Quirk-Anderson to fill 875 m² of this site for the purposes of a house". I have dealt with this in my consideration of the sales evidence.
Fill
At the relevant date for valuation the land was predominantly zoned "Rural (Agriculture)" under the Town Plan for the Shire of Douglas gazetted on 20 November 1996. The zoning permitted the use of the land as an aquaculture site as a consent development and enabled a dwelling house to be located on the site as a permitted development. A house has been constructed on the land as part of the aquaculture development. On 4 September 2006 the current town plan came into affect. Under that plan the subject land is designated as being in the "Rural" planning area. The use of the land for a dwelling house is self-assessable under that plan provided the land meets the self-assessable requirements of the House Code, in particular, the level of filling proscribed by Acceptable Solution AS16.1 which relevantly requires that the height of cut and fill whether retained or not does not exceed 2m. If it does exceed that height then the use of the land as a dwelling site becomes code assessable.
The current town plan was well advanced at the relevant date and was therefore adopted by the parties as being relevant and applicable to any application made at the relevant date. An important issue therefore arises as to whether fill greater than 2m in height would be needed to facilitate a rural residential use. An aquaculture use is an impact assessable development under the 2006 Town Plan.
It was submitted for the Minister that since the construction of a house was approved as part of the aquaculture development there is no issue of risk that such an approval would be granted at the relevant date because the benefits of the approval run with the land. That does not, I think, dispose of the issue as the site must be viewed in its "unimproved state". The issue of the approval for a dwelling is therefore connected with a need to fill the land and the level of fill that is appropriate for a residential use at the relevant date. The fact that a building approval issued for a house to be constructed as part of a quite different use does not address the issue of fill, in my view.
In the valuation report first provided in the evidence of Mr Quirk-Anderson the valuation proceeded on the basis that about 7.6 ha of the subject land comprised an elevated portion of the site. That is the area previously used as a dump site by the Mossman Sugar Mill. On the basis of that assumption Mr Quirk-Anderson settled on a valuation of the land in the amount of $450,000. In due course when the evidence from Mr Price and that in Exhibit 9 made it clear that there was no elevated area of 7.6 ha on the subject land viewed in its unimproved state, Mr Quirk-Anderson provided further valuation evidence in which he proposed the filling of about 800 m² of the subject land as a house site and 75 m² as an access driveway. He proposed fill to a depth of 1.5m with a total volume of 1,312 m³. If fill was sourced from within the subject land it would have cost $12/m³ ($15,750 in total) in Mr Quirk-Anderson's estimation or $35/m³ if the fill was imported ($46,000 in total).
The adequacy of fill to a 1.5 m depth was justified by the Minister on a number of bases. Dwelling approval drawings indicated that the difference between a level designated "NGL" (understood as Natural Ground Level) and "FGL" (Finished Ground Level) comprised 1.5 m of "imported fill". That document was drawn in 1986, some years after the Mossman Sugar Mill had used the relevant area as a dump site. Nevertheless the document was prepared for the mill whose staff presumably would have known where the natural ground level lay. It was signed off by a registered engineer also implying that the indication of the natural ground level on the plan would have been thought accurate at the time. A bund wall had been constructed around lot 136 in 1969; that is, prior to the preparation of the 1986 plan, so the presence of that wall may have been a consideration in the level of the finished land adopted. That bund wall lies outside the boundaries of the subject land so is not an improvement to the land that needs to be disregarded in considering the land in its "unimproved state".
Exhibit 9 shows contours and spot levels on lot 136 including the subject land. The depth of fill proposed by Mr Quirk-Anderson would have the effect of providing a house site of about RL 8.0 feet that is well above the spring high-tide level and above the highest astronomical tide of RL 1.78 m according to Exhibit 17 (about 5.84 feet) and above the flood level of RL 7.0 feet.
It was submitted for Seafarm that greater than 1.5 m of fill would be required over a larger area than 875 m². The objective evidence referred to in the preceding paragraph does not indicate that greater than 1.5 m of fill is needed. I am comforted in my conclusion that 1.5 m of fill would be adequate by a suggestion from Mr Eales at one stage that, on his reading of Exhibit 9, fill of 3 m would be needed. When Mr Eales gave that evidence he did not appreciate that Exhibit 9 used imperial not metric measurements. It follows that his evidence was that 3 feet, or less than 1.5 m of fill, would be adequate. Putting that aside, the correct approach to an issue such as this is to ask what a hypothetical prudent purchaser would consider to be adequate fill (Spencer v The Commonwealth (1907) 5 CLR 418).
Unquestionably, the higher the site above potential inundation the more attractive it would be to a prudent purchaser, but it is difficult to demonstrate that the additional cost of fill above a depth of 1.5 m would reflect a commensurate gain in value. In any event a prudent vendor or purchaser who would not be likely to add fill exceeding 2 m in depth given the effect of AS 16.1 referred to in [31] above unless that was necessary.
I would expect that a purchaser would contemplate providing a building pad and perhaps building a high-set house. This would have the effect of providing a further protection against inundation of a dwelling constructed on the land.
It seems to me that any person willing to purchase a site such as the subject land with its obvious topographic defects would not be expected to contemplate the addition of fill to a level beyond that provided by Mr Quirk-Anderson for an intended rural residential use. It is a level that permits safe, utilitarian residential use of the land.
The area of fill is, however, another matter. A house site of 800 m² is really nothing more than a suburban sized allotment, albeit perhaps larger than average. I doubt that a purchaser could be found who would be willing to fill an area large enough to permit large livestock to be accommodated on the land, but I would expect that a purchaser would expect a large enough area to permit active, safe use of the land by children, house pets and perhaps some livestock such as poultry. Apart from that, the general amenity of an 800 m² site perched in a swamp-like surround and attached to its access via a "causeway" would be attractive to few purchasers. I accept Seafarm's suggestion that a larger filled area would be appropriate. It was suggested than an area of 2,000 m² ought to be filled. Whilst the adoption of a particular area is a somewhat arbitrary process I accept the suggested 2,000 m², including access, as being an area that some purchasers might think appropriate. The total filled volume on that basis would be 3,000 m³.
Mr Quirk-Anderson’s estimate of the cost of fill if obtained on the subject land was not disputed. He did not, however, adopt that as the preferred method, choosing the importation of fill method in his supplementary valuation. Counsel for the Minister submitted that sufficient fill would have been readily available on the 58 ha of lot 3. In my view, filling the house site by accessing material on site was not sufficiently dealt with in evidence to afford me any confidence that the method was one that a prudent purchaser would adopt. It was not the method employed by the Mossman Sugar Mill when it developed the aquaculture ponds on the subject land. The fill for the pond walls was all imported. The fill quality may be questionable. There may be detrimental impacts on the ecology of the area.
I also put aside a suggestion raised by Seafarm in submissions that as waste water and sewage disposal from a residence on the subject land was not addressed in the Minister's fill proposal. That proposal may be unsuitable. Those issues were not raised in cross-examination. Apart from that, there is a house already erected on the subject land and it is serviced by at least one toilet.
The appellant accepted Mr Quirk-Anderson's estimate of the cost of imported fill at $35/m³. On the basis of the total fill being 3,000 m³ the cost of filling would be $105,000. I accept the submission for Seafarm that a hypothetical prudent purchaser would factor in the incidental costs of having to fill the land such as the obtaining of an engineer's advice, as well as the inconvenience and time involved in making arrangements to fill the land.
In his first valuation of the subject land Mr Quirk-Anderson had adopted a valuation based on the land having a highest and best use for aquaculture. Following discussion with senior valuation staff in his office he was convinced to adopt a highest and best use of rural residential. In valuing the land for that purpose Mr Quirk-Anderson, as I have said, proceeded on the erroneous assumption that there was 7.6 ha of elevated land towards the north-western part of lot 3 which formed part of the land in its unimproved state. His valuation of $450,000 on that assumption was only reduced by fill costs of $46,000 in his supplementary valuation, even though the elevated area would then be only 875 m².
Whilst Mr Quirk-Anderson did not express unbridled enthusiasm for the marketability of the subject land for rural residential purposes neither did Mr Eales say that the land would not be saleable for a rural residential use. He said that it would be saleable for that purpose for a price lower than the general rural home site market. That viewpoint invites a consideration of the sales evidence included in Mr Quirk-Anderson’s valuation. Mr Quirk-Anderson included six sales in his valuation, however I can set the first of these aside at this stage, as it was more directly relevant to a valuation for aquaculture purposes. The sales evidence which I discuss below needs to be considered in the context of unchallenged evidence from Mr Quirk-Anderson that since 2002 there has been a significant increase in the property market in Port Douglas and its environs with values rising significantly from 2002 to 2004 followed by a steadier increase from 2004 to the relevant date of 2 February 2005.
Sale 2 involved the sale of 24.04 ha on the Captain Cook Highway for $450,000 in 2004. The sale property was improved with clearing for sugar cane development and was analysed to an unimproved figure of $400,000 by Mr Quirk-Anderson. He considered the sale property to have a highest and best use of rural residential in conjunction with cane growing. In oral evidence he said that the property was purchased as a land banking investment and was leased to a cane farmer. He agreed in cross-examination that the potential of the sale land was for a higher value use than rural residential. He considered the sale property to be marginally superior to the subject in spite of the smaller overall area of the sale. The sale property has better access, a more regular shape and superior topography. I notice that the sale was transacted approximately 12 months prior to the relevant valuation date in what Mr Quirk-Anderson described as a rising market. Mr Quirk-Anderson said that farmers were not buying land for cane farming, with uses such as rural residential and investment predominating. I accept Mr Quirk-Anderson's analysed value as reflecting the potential use of the sale land for uses other than cane farming. I think that on a block to block comparison this sale property is more superior to the subject property than considered to be the case by Mr Quirk-Anderson when one takes into account a house site of 2,000 m² or less on the subject, the larger area of the subject, and the other advantages of the sale property.
The Sale 3 property has an area of about 5.7 ha, is located on the eastern side of the Captain Cook Highway and sold for $366,000 in February 2005. Mr Quirk-Anderson analysed the sale to an unimproved figure of $350,000. He considers the sale property to have superior access, a more regular shape and better topography than the subject property, though the subject is much larger in size and better located in closer proximity to Port Douglas. In his original valuation report (Exhibit 3) he expressed the view that the sale property was inferior to the subject on the assumption that the subject had 7.6 ha of elevated land, however in cross-examination Mr Quirk-Anderson accepted that the sale is superior to the subject land on the basis that the property requires filling. In an earlier report (Exhibit 22 folio 24) Mr Quirk-Anderson expressed the view that the sale property was "near comparable" to the subject land on the basis of there being 7.6 ha of elevated country.
Sale 4 comprised an area of 7.784 ha on the Captain Cook Highway at Craiglea which sold for $475,000 in December 2004. After deduction of land clearing Mr Quirk-Anderson settled on an analysed figure of $460,000. In his valuation report he said that the sale land is marginally superior to the subject given its superior access, location and topography but markedly smaller area. That was on the basis of the subject land having a 7.6 ha elevated area. In an earlier Standard Inspection Report (Exhibit 22 folio24) Mr Quirk-Anderson said that the property was "purchased by a developer for residential and possible future higher use as a caravan park", though the vendor was apparently not alive to that potential.
Sale 5 is a rural residential allotment of 2,194 m², in the Mowbray locality about 6.5 or 7.5 km south-west of the subject land. The subject land is considerably larger than the sale property and is closer to Port Douglas. Mr Quirk-Anderson said that the sale property indicates a minimum level of value for home sites within the Port Douglas precinct. It sold for $210,000 in mid-2004 and was analysed to $203,000. Sale 5 has a superior amenity to the subject property overall though does not have a sufficiently large area to provide the level of separation from neighbours available on the subject land.
In cross-examination Mr Quirk-Anderson agreed that the Sale 5 land is superior to the 875 m² of filled site notionally erected on the subject property in his supplementary valuation. He says that the subject is superior because of its greater area and proximity to Port Douglas. It seems that it is these two features that he says add $247,000 in value to the subject land compared with Sale 5. The subject land has also access to Packer's Creek though an uncertain cost of construction of access needs to be taken in account. This is a difficult valuation but the evidence does not convince me that the hypothetical prudent purchaser would pay greater than double the price of Sale 5 for the benefits identified by Mr Quirk-Anderson. The valuation must also recognise that those benefits must be offset to some extent by the poor quality of the additional land on the subject and its questionable practicable use, the poor visual amenity it affords and the fact that it is subject to inundation.
Counsel for the Minister made frequent mention in submissions of the potential of the subject land given its size and proximity to Port Douglas. Whilst the size of the land is clearly a relevant consideration and its proximity to Port Douglas a positive feature, there was no evidence that the land had a particular development potential apart, I suppose, from its historical use for aquaculture. Clearly it would be expensive to develop the subject: a disadvantage not apparent with other large areas of undeveloped land in the general area.
Sale 6 is a rural residential allotment in the Wonga locality removed from the impact of the Port Douglas market influence. The sale land has an area of 1 ha and has an analysed unimproved value of $110,500 according to Mr Quirk-Anderson's analysis of the sale. The sale land is located within a rural residential subdivision and does not require filling. On the basis of location and size the sale land is inferior to the subject property though superior in not requiring filling. If one compares Sales 5 and 6, the locational value demonstrated by Sale 5 which is closer to Port Douglas, can be more easily identified.
A particular difficulty in the evidence is that Mr Quirk-Anderson has provided detailed comparisons between his sales and the subject land on the basis that there is 7.6 ha of elevated land on the subject property yet he maintains those comparisons on the assumption that there was a filled area of 875 m². He then deducts the cost of fill required to achieve 875 m² of house site and access. I do not accept that the subject viewed as having an elevated area of 7.6 ha would have the same value as if the filled area was only 875 m², nor, for that matter, 2,000 m² or thereabouts.
None of these sales is directly comparable with the subject land, but no better evidence was provided to strike a value on that basis. I do not accept the submission for Seafarm that only Sales 5 and 6 can be compared. The whole basket of sales may be employed to point to the value of the subject property. Sale 5 appears to me to be a useful sale in considering what a filled site on the subject land might fetch assuming an area larger than 875 m² and up to 2,000 m². I hesitate to use a summation method as the subject land should, as Mr Quirk-Anderson said, be valued as a site; however, I formed the view that a suitably filled site on the subject land would have a value somewhat lower than Sale 5.
I have already indicated that Sale 2 is superior to the subject on the basis set out in [48]. It follows that the value of the subject land on that basis is less than $400,000. That is supported by what I have said above about Sale 5 and my comments about the qualified benefit that the larger area on the subject land provides.
Mr Quirk-Anderson's comparison between Sale 3 and the subject land in his supplementary valuation was said to be on the basis that the subject land requires filling. I have formed the view that the sale land is superior if one views the subject land in the manner so far discussed. I am assisted in that view by Mr Quirk-Anderson's expression of opinion that the sale land and the subject property were 'near comparable" if the subject was viewed as having a 7.6 ha elevated site. Such a large filled area is markedly superior to a smaller site of up to 2,000 m² in my opinion. If Sale 3 alone were used, the value of the subject land with a filled site of up to 2,000 m² would therefore be less than $350,000.
Sale 4 is a sale that I would wary of relying on except as indicating a value for property with a more obvious potential than the subject has.
In addition to the reasoning applied in [51] to [59], a hypothetical prudent purchaser would need to factor in the cost of fill with incidental costs amounting to over $105,000 in total and the inconvenience of having to fill the land. I conclude then that a hypothetical prudent purchaser would be prepared to pay no more than $220,000 for the subject land in its unimproved state for rural residential purposes.
It was not contended for the Minister that Mr Eales' valuation of the subject land as aquaculture land ought to be higher than his valuation figure of $116,000, that is $2,000/ha. The submission was that the valuation contained so many flaws as to render it unreliable. Neither was it submitted by the Minister that Mr Quirk-Anderson's analysis of the one common sale referred to by the valuers (Wonga Beach) being Sale 1 in each valuation, ought to be preferred to Mr Eales' analysis of that sale so as to indicate a higher aquaculture value than suggested by Mr Eales. Although some submissions were made in favour of Mr Quirk-Anderson's analysis in comparison with that of Mr Eales, it was submitted that "as aquaculture is not Mr Quirk-Anderson's highest and best use, the sale was largely dispensable so far as his valuation conclusion is concerned". It was further submitted, and appropriately so in my view, that a further weakness of Mr Eales' valuation was that he relied upon heavily improved sales to determine unimproved value. The Wonga Beach sale was certainly highly improved. Indeed, the analysis of that sale for the purpose of Mr Eales' valuation was the subject of substantial challenge by the Minister. Mr Eales analysed the sale to a rate of $644/ha whilst Mr Quirk-Anderson produced an estimate of $6,247/ha. To say that there was scope for debate between the parties on this issue is merely to confirm the unreliability of the analyses of highly improved sales.
A further difficulty with the application of Mr Eales' analysis of the Wonga Beach sale is that whilst he analysed this sale to $644/ha as I have said, he applied a value of $2,000/ha to the subject property though saying that this was his main sale.
The analysis of the Wonga Beach sale was further complicated by the fact that whilst only 5.7 ha was developed for active aquaculture use, a large part of the low lying swampy part of the land was used passively for the purpose of settlement of outflow sediment from the ponds. It was therefore an integral part of the aquaculture use of the sale property though whether that land should attract the same value as the high and dry land was a matter in issue that was not adequately addressed in evidence, in my opinion.
It was submitted for the Minister that Mr Eales' land value of $32,000 for the Wonga Beach sale after the deduction of the value of improvements was obviously low compared to Mr Quirk-Anderson's Sale 6 which sold for $110,500 and was nearby. The suggestion was that there was at least one home site on the sale land; a suggestion that Mr Eales agreed to. However the value of such a home site near aquaculture ponds and processing plant as well as the cost of producing such a home site were not addressed. It was also suggested for the Minister that a number of home sites could be produced on the sale land in that part of the land on which the first six aquaculture ponds fronting Vixies Road are constructed. That submission appears to disregard the existing ponds and structures. If that land were to be put to a rural residential use the existence of the improvements would need to be catered for and would have been an issue for a purchaser at the date of sale. A sale analysis is carried out to ascertain its unimproved value: it does not evaporate the improvements. Those improvements were in situ when the sale took place and were relevant to the land's highest and best use in the mind of the purchaser.
In identifying the Wonga Beach sale as his main basis, Mr Eales did not press the use of any of his remaining three sales. He had not fully investigated his Sale No. 2 and considered that it had limited suitability for comparison, given its location and age. In his valuation report it does not feature as a sale that he employed in striking his value range. Similarly, he said that his Sale 3 was of little assistance and referred to his Sale 4, a Special Lease sale, as anecdotal evidence only. Seafarm sought support for a valuation of the subject land for aquaculture purposes of $2,000/ha from various statutory valuations and from parts of early valuations carried out by Mr Quirk-Anderson. Given the different statutory foundations and valuation purposes of those various valuations, they did not provide the support sought. Even if they did support a figure of $2,000/ha that would not alter the outcome of this decision.
No valuation of the subject land for aquaculture purposes in its unimproved state as revealed by the evidence was provided by the Minister. The state of the evidence is such that I cannot confidently draw a conclusion that the valuation of the land for that purpose would be greater than $220,000. In the circumstances I find that the highest and best use of the subject land for the purpose of conversion to freehold, is that of rural residential and that its value for that purpose is $220,000.
Order
1. The appeal is allowed.
2. The Minister's review decision is set aside.
3.The purchase price for the purpose of conversion of lot 3 on drawing CNS04/141 (having an area of 58 ha) is determined at Two Hundred and Twenty Thousand Dollars ($220,000).
RP SCOTT
MEMBER OF THE LAND COURT
0
2
1