Theo v Brisbane City Council

[1990] QLC 7

[1990] QLC 7

 

   LAND COURT,

BRISBANE.

28th March, 1990.

Re:                 Determination of Compensation -
  Resumption for road purposes and
  for a purpose incidental thereto
  (A89-35)

A. and T. Theo

and

Solon Theo Family Trust

v.

Brisbane City Council

J U D G M E N T

The respondent Brisbane City Council resumed on 8th August, 1987 Lot 6 on Plan No. 212538 County of Stanley, Parish of North Brisbane, City of Brisbane, containing an area of 92 square metres being part of the land contained in Certificate of Title 459337, volume 2352, folio 77, for road purposes and Lot 3 on Plan No. 212538, County of Stanley, Parish of North Brisbane, City of Brisbane, containing an area of 315 square metres also being part of Certificate of Title 459337, volume 2352, folio 77 for a purpose incidental to road purposes. The resumed property is situated at 76 Breakfast Creek Road, Newstead. It also has legal but no practical access to Dunlop Street at the rear due to the steepness of the terrain. Lot 6 is the area required for the widening of the out bound lanes of Breakfast Creek Road. Lot 3 was resumed for purposes incidental to the road widening (vide Section 13 (2) of the Acquisition of Land Act 1967 - 1986) due to the severance of a dwelling structure erected on the land which was at resumption date occupied by tenants as a residential building. The resumed land was zoned "Commercial" under the provisions of the City of Brisbane Town Planning Scheme which was gazetted shortly before resumption date on 13th June, 1987.
  The dispossessed owners filed in the Land Court Registry on 23rd May, 1989 a claim for compensation dated 13th August, 1987 in the sum of $273,000 together with interest on that sum to be calculated at the rate of 19.5% per annum from the date of resumption.  That claim is particularised as follows:-

Value of land resumed     $ 82,500

Improvements - 2 storey multi-dwelling
  self contained downstairs residence with
  2 one bedroom self contained flats and
  1 two bedroom self contained flat on the
  upper floor  $ 60,000

Severance  $ 10,000

Injurious affection
  (a) liability for capital gains tax on alternative
  investment should such investment be realised in say
  not later than 10 years time  $ 35,000

(b) other   $  3,000

Add enhancement in value - relative to Lot 3 on RP 212538
  which is not being resumed for road purposes - or although
  resumed for road purposes will not be used as such   $ 82,500

$273,000
  =====

The respondent Brisbane City Council, through Registered Valuer Paul Wayne Kopittke, who is in its employ, assesses compensation for the resumption in the sum of $90,000.
  Mr Sol Theo had the conduct of the claimants' case and elected not to call expert valuation evidence.  This, in my experience with cases of this nature, is most unusual and I should say at the outset that in so doing Mr Theo assumed a burdensome responsibility on behalf of the claimants notwithstanding that he informed the Court during the hearing that he has had some valuation training.  This remark is not to be taken that claimants are obliged to call professional witnesses in compensation cases, or that they are not entitled to appear and conduct cases on their own behalf in this jurisdiction, but the comment is made in view of the onus which rests upon the claimants to support their claim for compensation. 
  Mr Theo informed the Court that the component part of the claim for compensation under the head of enhancement is abandoned - quite properly so since there cannot be a lawful claim for enhancement since all of the land owned by the claimants was resumed. In any event, any consideration in monetary terms for enhancement should be deducted from the claim for the value of land and improvements - not added to the claim.  The claimants, however, feel that an additional claim should be made for the value of furniture in the multi-dwelling which was left in the building at resumption date.  More about that later. 
Now it is obvious in view of Mr Theo's attitude in the conduct of the claimants' case that they are seriously aggrieved by the action of the respondent Council in resuming the whole of their property. It seems that they were prepared for the loss of some land for road widening purposes since a title search before their purchase of the property in 1985 revealed Notice of Realignment No. B850991 which indicated an area or 2.1 perches (53 square metres) was affected by the realignment of Breakfast Creek Road, but they claim it is oppressive for the Council to have resumed the property in totality. Mr Theo repeatedly stressed that the claimants do not want compensation in dollar terms, but want "land for land". Their requests of Council for replacement land of similar value have not produced positive results. I might say now that the jurisdiction of this Court under the provisions of the Acquisition of Land Act 1967 - 1986 is limited to the determination of compensation - vide Section 26 of that Act - and the Court has no power to direct that the Council replace the resumed land with other land of similar value. I do no propose to comment further on this aspect of the claimants' case which, as aforesaid, constantly embraced the same submission.
  No doubt in view of the difficulties faced by the claimants, Mr Theo felt obliged to press at some length voluminous but, unfortunately for them, much irrelevant evidence.  I propose to deal in this judgment only with the evidence I consider relevant to the issue.
At the outset of the case, leave was sought to increase the claim for compensation in the light of fresh information which Mr Theo says, had come to hand. He regards the existing claim to be grossly understated, and obtained the Court's approval to increase it to an unquantified sum but in excess of $3 million plus interest again at the rate of 19.5%. The Court referred Mr Theo to the cost provisions of the Acquisition of Land Act (Section 27) after which the claimants decided to press the amended claim in lieu of that for $273,000 plus interest.
  The amended claim for compensation, as I understand it, is made up of a claim of $1.4 million for the value of the land resumed, the $60,000 for the improvements, the $10,000 for severance and a claim under the head of injurious affection for capital gains tax of 92% of the aforesaid sums.  I calculate the Claim for injurious affection to be $1,352,400, and the amended claim on this basis to be $2,822,400  - a figure with which Mr Theo seems to be in agreement since his words are "alright 3 million dollars minus".  Mr Theo says that the factor of 92% is arithmetically correct, the claimants would be taxed on the highest marginal rate (48%) for capital gains tax on disposal of a replacement investment property in view of the large capital realisation involved.  The real question is, however, whether injurious affection is in itself compensatory.
  The claimants subpoenaed the Lord Mayor of Brisbane and Kevin Francis Price, now a Director of Administration with the Brisbane City Council and who was, at resumption date, employed by the respondent as Project Development Officer.  Mr Price is also a Registered Valuer. A comprehensive list of Council records was also subpoenaed.  After hearing argument from Mr Theo and Counsel for the respondent City Council, the subpoena served upon the Lord Mayor was set aside mainly on the ground of oppression.
  Mr Price was called by the claimants in response to the subpoena.  He indicated that much of the material sought in the subpoena did not exist.  He also informed the Court that his enquiries revealed that at resumption date, the flats on the resumed land were not registered.  Mr Theo disputes this, and placed in evidence Council water rate assessments for the years 1985, 1986 and 1987 which clearly show that water consumption was for a multiple dwelling. 
  Mr Price attempted to negotiate before resumption with the claimants for the purchase by Council of the resumed property.  He has a hazy recollection of events now, but feels he offered about $50,000 as a starting point for negotiations.  He did not make a valuation of it.
  Sol Theo, who is a non-practising accountant, furnished evidence in support of the amended claim.  He told us that the claimants purchased the subject property in April, 1985 for about $47,000.  The sale price was apportioned as between the land ($5,500) and the dwelling house ($41,500).  I note that the value of $5,500 for the land was the then subsisting valuation by the Valuer-General.  Mr Theo says that the then proposed road re-alignment would not seriously affect the property and, that if proceeded with would only have caused the reinstatement of a front stairway to the building.  He confirmed that the ultimate requirement of 92 square metres for road widening meant that the resumption line would have bisected the multi dwelling. 
  Mr Theo tendered Provisional Certificate of Title No. 459337 which shows the area of the resumed land to be 16.2 perches.  This equates to 410 square metres in metric terms.  It is to be noted that the area resumed is 407 square metres and that this involved the whole title.  I accept a submission by Counsel for the respondent that the area of 407 square metres shown in the gazetted Notification of Resumption is correct on the basis  that it is a more recent calculation of the survey area than that on the Provisional Title Deed which issued on 31st July, 1947.
  Mr Theo says that the gross rental income from the resumed property at resumption date was $268 per week.  This rent is marginally at variance with a rent of $260 per week stated in a letter from the claimants to the Lord Mayor of Brisbane bearing date 14th September, 1986 but of course, the resumption date is later in point of time.  In the same letter, the claimants suggest that the gross annual income of $13,520 when capitalized at 10% per annum reflects a capital value of $135,200 for the resumed property.  This is an untenable suggestion since the calculation makes no allowance for outgoings such as for rates, for repairs or for depreciation or for vacancies.  If this exercise is to be undertaken at all, then it is the nett return which is to be capitalised at market rate of interest which both the claimants and the respondent suggests in relation to interest on compensation money to have been considerably in excess of 10%. In any event, it is obviously not a helpful exercise for the claimants since it is for them to justify and support the claim of $1,460,000 for the resumed property.
  Mr Theo claims that interest at the rate of 19.5% on compensation is fair and equitable as it equates the commercial rate of borrowing under mortgage security such as his was from the Commonwealth Bank. 
  Mr Theo believes that the multiple dwelling house on the resumed land was sold for removal by Council after resumption.  He was privy to the valuation of the resumed property by Mr Kopittke prior to this hearing, and notes that little if any value is ascribed to the dwelling house in that document.  Mr Theo does not know the removal price obtained by Council for the building, but claims that if he was free to do so, then he could have sold it for removal for $25,000.
  Mr Theo has calculated the land value at $1,400,000 in the claim for compensation from certain material contained in Mr Kopittke's report.  This is in essence a brochure attached to one of Mr Kopittke's basic sale parcels and which is situated at 137 Breakfast Creek Road, Newstead.  This land sold with Council development approval for a commercial type development.  The approved re-development was for a building comprising a showroom, ground floor space and two upper floors.  The brochure suggests that the showroom and part of the ground floor in the proposed building should command a rent of $200 per square metre per annum, the balance of the ground floor a rent of $180 per square metre per annum, and the two upper floors a rent of $145 per square metre per annum each.
    Now Mr Theo postulates that if the subject land was vacant at resumption date, then based on the sale brochure a 4 level building erected over the whole site of, as he suggests, 410 square metres, would yield the following annual rents:-

Ground Floor Showroom -410 sq. metres at $200       $ 82,000
  First Floor - 410 sq. metres at $200  $ 82,000
  Second Floor - 410 sq. metres at $145  $ 59,450
  Third Floor - 410 sq. metres at $145  $ 59,450
  Roof Top Parking (access from Dunlop St
  at the rear) - 410 sq. metre at $65   $ 26,520

$309,420
  =====

Mr Theo then capitalises this rent at 10% per annum to arrive at a property value of $3,094,200 if it was developed over the whole site with a building of the style indicated in the brochure.  He then estimates the building cost of the hypothetical building at the rate of $500 per square metre for the showroom, at the rate of $1,000 per square metre for the first and second floors, and at the rate of $205 per square metre for the roof top carpark resulting in the total construction cost of $1,640,000.  By simple deduction of this cost from the capitalised value, Mr Theo arrives at a land value of $1,454,200 for the resumed land. 
  Mr Theo recognises that no part of compensation money the claimants receive from the resumption is liable for capital gains tax since they purchased the property prior to the introduction in September, 1985 of the relevant capital gains tax legislation.  He does however strenuously claim that there is an entitlement for compensation for capital gains tax upon the realisation of any replacement capital investment property but naturally is unable to inform the Court if and/or when this realisation is likely to occur.
  Athina Theo furnished brief evidence as to the value of the furniture the claimants left in the resumed multi dwelling house so the tenants could continue occupancy of it until possession of the building was taken by Council.  She values the downstairs furniture item by item at $940, No 2 flat furniture at $640, No 3 flat furniture at $570 and No 4 flat furniture at $630.  Included in each case was a value of $90 for a stove which in reality is a fixture, and should be as such regarded as part of the dwelling house improvement.  I adjust Mrs Theo's total furniture value of $2,780 by the value of the 4 stoves for $360.  It follows that her valuation of the furniture which passed with the property as a direct consequence of the resumption is $2,420.  No challenge was mounted by the respondent to this valuation and indeed it would be difficult to so do since the furniture was not valued by Mr Kopittke.
  No component part of the claim for compensation was for furniture, and no leave was sought by the claimant to amend it in that respect.  While I have some doubt that a claim for the value of the furniture is supportable in law, I feel it equitable and just that an award of $2,420 be incorporated within this Judgment for the claimants' consequential loss. 
  The respondent Brisbane City Council called evidence from 5 witnesses.  Four are employees.  They are one Ralph Edward Hickling, a health surveyor, one Robert William Smith, a rates billing clerk, one Brian Edward Collins, a licence clerk, and one Ernest James William, a senior meter reader artificer.  The evidence of these witnesses need not be canvassed here.  Suffice it to say that, notwithstanding the indication on the tendered water rate notices that the Council Health Department records show the resumed building to be a multiple dwelling, Council has no records to indicate that the building was ever registered as a multi dwelling.  In any event it is immaterial whether the premises were registered as such or not.  This will be seen as the Judgment proceeds. 
  The principle witness called by the respondent Brisbane City Council was, of course, its valuer Mr Kopittke.  He describes the nature of the resumed land as rising moderately from street level to the rear then rising steeply to the Dunlop Street frontage.  Mr Kopittke confirms that, due to the steep cliff embankment, the frontage to Dunlop Street does not offer any practical access to the site for the then existing improvements. 
  Mr Kopittke considers the exposure of the site, being on busy Breakfast Creek Road to be excellent.  He points out however, that the width of the road and the large traffic volume it carries creates major access problems with access to and egress from many of the allotments in the area including the subject property.  It is due to this problem that the traffic planning department of the Council has indicated that any proposal for redevelopment of sites on Breakfast Creek Road, including the subject land, would include access provision from an alternative street frontage. 
  Mr Kopittke describes the improvements on the resumed land at resumption date as comprising a highset weatherboard dwelling with approximately 100 square metres floor area with corrugated galvanised iron roof, brick front base, and with double hung and louvre windows.  He says the building was generally in poor condition.  The structure has been converted to 4 flats including one on the ground floor which he claims is of a debatable standard of construction owing to probable contravention of Council building requirements particularly in relation to ceiling heights.  Fencing on the site was poor except for the southern boundary along which was a 2 metre chainwire fence with 3 barbed strands on top.  Mr Kopittke was advised that at relevant date the rental received by the claimants for the property was $240 per week.  His enquiries also indicated that the building was not registered as a multiple dwelling, and describes its use as such as being illegal.  In any event, he suggests that the property is not desirable for residential occupation or development due to the traffic and access problems in Breakfast Creek Road.
  Mr Kopittke considers the highest and best use of the resumed property at resumption date to have been as a commercial redevelopment proposition in conjunction with adjoining land.  This use is consistent with its zoning.  The Dunlop Street frontage could be used for access with possible provision for roof top carparking in any proposed redevelopment.  After taking into consideration certain relevant sales evidence, Mr Kopittke arrives at his valuation of the resumed property at $90,000 at the rate of $220 per square metre.  On its value as a redevelopment site, he sees the improvements on the property as not adding significantly to the land value.  In the event, Council were under severe pressure to remove the dwelling house after possession due to urgent road works for the widening of Breakfast Creek Road.  It paid $1,200 to contractor H & H Demolitions for the demolition and removal of the house in late 1987.  Mr Kopittke believes that if more time was available to Council, then in his experience it would not be unrealistic for it to have obtained $3,000 to $4,000 in the market place for the dwelling house for removal.
  The sales evidence relied upon by Mr Kopittke as a basis for his valuation assessment is incorporated within his tendered valuation document and is in the hands of the parties for reference (vide page 7).  Suffice it for me here to say that all five sales are located in Breakfast Creek Road, Newstead.  The sale sites range in size from 417 square metres to 3073 square metres and in sale prices from $192 per square metre to $227 per square metre.  One site is vacant and reflects $225 per square metre for a 1066 square metre parcel.  Each of the other sale lots carried structural improvements.  Mr Kopittke says that the structural improvements on each of the four improved sale lots were of considerably greater value either in situ or for removal and/or demolition than those on the subject land.  It is for this reason, and I think justifiably so, that Mr Kopittke ascribed no dollar value to the structural improvements on the resumed land as he did not deduct a value from the sale prices for the structural improvements on the sale lands.  In another way, the reflected sale prices per square metre include the added value of the structural improvements on the sale lots. 

  Mr Kopittke tendered in evidence a series of photographs of the structural improvements on the resumed land.  They show, inter alia, the nature and type of the building internally and externally, and have been of assistance to me in my appreciation of his evidence as to the general condition and style of construction of the subject multi-dwelling. 
  Now it transpires that the basis for Mr Theo's amended assessment of compensation for the value of the land resumed is very tenuous indeed since the purchaser of the approved redevelopment commercial site (Turner Developments Pty Ltd in Mr Kopittke's sale B) did not proceed with the approved development, and Mr Kopittke says that the project was not viable.  This may well have been due to foundation problems on the site, but I cannot accept a submission by Mr Theo that it may well have been viable on another site without those problems.  It is self evident that little weight can be attached to the material contained within the sale promotion brochure.
  Mr Kopittke carried out a valuation of the resumed property using the capitalization of nett returns.  Unlike Mr Theo, his calculation resulted in a valuation on this basis of between $82,000 and $85,000.  It is obvious that the highest and best use of the resumed land at resumption date was a redevelopment site in conjunction with other lands.  For this reason, in order for a dispossessed owner at resumption date to obtain the highest and best use land value, little if any value can be attributed to the structural improvements since for redevelopment, they would either be demolished or sold for removal.  We have direct evidence from Mr Kopittke that the dwelling house was demolished, and not sold for removal, albeit at the behest of the respondent in view of its anxiety to obtain vacant possession for the urgently pending roadworks.  I am not satisfied that the dispossessed owners, if given the opportunity, would have been able to sell the building for removal for $25,000.  Mr Kopittke is certainly of that opinion.  In the absence of the evidence from the claimants of sale prices of dwelling houses sold for removal at or near the relevant date for sums even approaching that figure, I must find this aspect of their submission unproven.  I say submission deliberately as the valuation of the dwelling house for removal formed no part of their amended claim for compensation. 
  I am not in any way influenced by Mr Theo's estimate of compensation based on the hypothetical development of the subject site.  Firstly, he postulates a style of development which was not proceeded with on another site, and on the evidence before me probably on the grounds of non-viability.  Secondly, his proposed  development postulates 100% site coverage, with no allowance for plot ratios or building set-backs, and this is no doubt clearly in contravention of the Council Building By-laws within the "Commercial" zone.  Again there is no evidence to support his suggested building costs for the proposed development.  In addition, valuation using the method of hypothetical development (sometimes called the notional development method) has been long recognised in principle as a method not to be preferred to the use of comparable sales evidence if such evidence is available.  in Re: Claim for compensation - resumption for the presentation of Expo 88 - Merivale Motel Investments Pty Ltd v. The Brisbane Exposition and South Bank Redevelopment Authority (1984-5) 10 Q.L.C.R. 268 (P281) the Land Appeal Court said:-

"Now we turn to consider the value of the land to the claimant company for the purpose of commercial development consistent with zoning. 

Residual value (notional development) exercises of the type undertaken by the valuers in this case are well recognised as being fraught with difficulty.  The end result (land value) is subject to wide variation depending upon the accuracy of the statistics provided.

.................................................................

No doubt the method is used in feasibility studies  by real estate consultants, developers and others as a means of determining the amount at which a property may be economically purchased for a particular venture.  The difficulties from an evidentiary point of view of establishing in judicial proceedings the correctness of each step are obvious.  The desirability of testing the residual value against comparable sale data achieved in the market place is likewise obvious.  In the absence of such test there can be no certainty that the residual value approximates market value.  The forces in the market place, the affect of peculiarities inherent in a particular site may or may not be adequately reflected in the residual feasibility exercise."

In this case it is clear that there is comparable sales evidence, and that evidence is to be preferred to the use of a Notional Development method.
  I come now to consider the component of the claim for compensation for capital gains tax.  I shall be brief on the matter and find myself in agreement with my learned colleague Mr White and with his finding in Re: Pejama Pty Ltd v. the Commissioner of Main Roads (decision handed down on 9th June, 1989 and not yet reported) wherein he says at P.15 of his Judgment in respect of a claim for compensation for a Resumption for Road Purposes:-

"The item following - capital gains tax - is somewhat novel and in my opinion is not compensable.  It appears to me that the liability is merely an incident of ownership which runs with the land.  In assessing compensation, it is the value to the owner; that is, what he could achieve in the market place and not the value of the land in his hands that is the criterion (Maori Trustee v. Ministry of Works (1959) A.C. p.1 (P.C.)

I turn now to the claim for interest on unpaid compensation monies at the rate of 19.5%. It is not sustainable to claim interest at a rate equating the commercial rate for borrowing. The rate to be used is that obtainable by investors in gilt edged securities at the relevant time. This Court publishes recommended interest rates at periodic intervals. These are calculated in relation to the Commonwealth Bond rates. I note that if interest is to be awarded in this matter, then the recommended rate for outstanding compensation as between the resumption date and the date of this judgment is 12.75%. I note, however, that Mr Kopittke has informed us in his valuation document that an advance against compensation in the amount of $81,940 plus interest at the rate of 13.5% per cent per annum was made on 5th January, 1988. In view of this, and bearing in mind that in resumption cases owners should receive the benefit of liberal assessments (vide Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of S.A. Ltd (1947) 74 C.L.R. 358) I propose in my finding in respect of interest allowance, to use the rate of 13.5% already used by Council.
  Having regard to whole of the evidence in the matter, I have no hesitation in finding that the claim for compensation in the sum of about $3 million is utterly

unsustainable.  I find, on the basis of the only valuation evidence before the Court which, in general terms remains uncontradicted, that compensation for the resumption be determined at follows:-

(a)      Value of land and improvements resumed
  (as per Mr Kopittke's valuation)  $90,000

(b)     Value of furniture  $ 2,420

$92,420
  ====

Section 28 of the Acquisition of Land Act provides that the Court may order that interest be paid upon the amount of compensation determined by it. The Section also provides that interest shall not be payable in respect of any amount of compensation advanced under the provisions of Section 23 of the Act. As aforementioned, an amount of $81,940 together with interest was advanced on 5th January, 1988. In addition to compensation payable, I order that interest at the rate of 13.5% per annum be paid on the sum of $10,480 for the period commencing on the date of resumption (8th August, 1987) and ending on the date immediately proceeding the day upon which final payment of compensation is made.

(Signed) C.H. Carter.
  Member of the Land Court.