Yu Feng Pty Ltd as Trustee and Yuan Chieh Pty Ltd v Chief Executive, Department of Natural Resources and Mines

Case •

[2007] QLC 42

•

24 May 2007

LAND COURT OF QUEENSLAND

CITATION: Yu Feng Pty Ltd as Trustee and Yuan Chieh Pty Ltd v Chief Executive, Department of Natural Resources and Mines [2007] QLC 0042
PARTIES: Yu Feng Pty Ltd as Trustee and Yuan Chieh Pty Ltd
(appellant/respondent)
v.
Chief Executive, Department of Natural Resources and Mines
(respondent/applicant)
FILE NOS.:

AV2003/0747, AV2004/0105, AV2005/0316,
AV2005/1714
DIVISION: Land Court of Queensland
PROCEEDING: Decision on an application
DELIVERED ON: 24 May 2007
DELIVERED AT: Brisbane
HEARD AT: Brisbane
MEMBER Mrs CAC MacDonald
ORDERS:

In determining the unimproved value of the subject land, the Chief Executive –

i.      is first obliged to determine whether the land was improved land by deciding whether, in the market place as at the date of valuation, the land with the structures (and leases) in place was worth more than it would have been without them, and if so

ii. is required to determine the unimproved value of the land as though the improvements did not exist as at the date of valuation, subject to the operation of s.3(2) of the Valuation of Land Act 1944.
CATCHWORDS: Valuation – unimproved capital value – highest and best use – regional shopping centre on land – alternative unimproved use high-rise residential – highest and best present use one with current improvements in place – but still necessary to notionally remove improvements to determine unimproved value – conflicting precedent.
Statutory Construction – Valuation of Land Act 1944 – whether any reason to construe certain provisions other than in context and with literal meaning.
APPEARANCES: Mr D Fraser QC and Mr T Quinn for the
respondent/applicant
Mr D Jackson QC and Mr G Allan for the
appellant/respondent
SOLICITORS Legal Services, Department of Natural Resources, Mines and Water for the respondent/applicant
Barry and Nilsson for the appellant/respondent

  1. The appellants in these four matters, Yu Feng Pty Ltd and Yuan Chieh Pty Ltd, have appealed against determinations under the Valuation of Land Act 1944 by the respondent, the Chief Executive, Department of Natural Resources and Mines, of the unimproved value of various parcels of land.  Brief details of each valuation are –  

Appeal

Number

 Land
Area 		Date of
Valuation 		Chief Executive's
Valuation 		Appellants'
Estimate

AV 2003/0747

6.6796 ha

1 October 2002

$58,000,000

$26,500,000

AV 2004/0105

 4.866 ha 1 October 2002 $45,000,000 $28,000,000

AV 2005/0316

 4.8461 ha 1 October 2003 $56,000,000 $20,000,000
AV 2005/1714 4.8666 ha 1 October 2004 $58,000,000 $45,000,000

  1. The appellants’ property, known as Australia Fair, is made up of a number of parcels of land situated at Marine Parade and Scarborough and Nerang Streets, Southport.  Substantial structures on the land house a regional shopping centre, 10 screen cinema complex, commercial office building and car park.

  2. On 28 July 2006, I ordered, in response to an application by the respondent and by consent of the parties, that –

    A preliminary hearing take place to determine whether:

    (a)in determining the unimproved value of the land the subject of these appeals ("the land") by applying s.3(1)(b) of the Valuation of Land Act 1944 ("the Act") the Chief Executive:

    (i)    was initially required to determine the highest and best use of the land; and

    (ii)   in making the determination referred to in (i) above, was required to have regard to the existence of the structures on the land used as a shopping centre and/or leases affecting the land or any part thereof;  affecting the land or any part thereof;

    (b)in determining the unimproved value of the land for the purposes of s.3 of the Act the Chief Executive is:

    (i)   first obliged to determine whether the land was improved land by deciding whether, in the marketplace as at the date of valuation, the land with the structures (and leases) in place was worth more than it would have been without them; and if so,

    (ii)     required to determine the unimproved value of the land as though the structures (and leases) had not been made or did not exist as at the date of valuation.

  3. This decision is concerned with those issues only. 

  4. An affidavit sworn by Mr A Gray, the respondent’s valuer, sets out his reasons for making the valuations under appeal in the following way –

    1. Mr Gray decided that the subject land was improved land for the purposes of the Act.

    2. Therefore, he valued the property under s.3(1)(b) of the Act, that is on the assumption that the improvements did not exist.

    3.   Mr Gray's opinion was that the highest and best use of the notionally vacant land was not its existing use as a shopping centre but was for mixed use development including high rise residential.

    4.   He valued the property on that basis using the comparable sales method.  The three sites he selected for comparison with the subject were redevelopment sites where the existing developments were demolished post sale and replaced by mixed use development incorporating high rise residential accommodation.

  5. There is no dispute between the parties that the subject land was, at the relevant dates, improved land within the meaning of s.3(1)(b) of the Act and that the land should therefore be valued under s.3(1)(b), that is, on the assumption that, at the relevant dates, the improvements did not exist. The parties also agree that as at 1 October 2002 the improved value of the subject land was $168,000,000.

  6. The appellants contended that Mr Gray's valuation methodology was inappropriate because Mr Gray had determined the highest and best use of the subject land on the assumption that the improvements did not exist.  The appellants submitted that the proper approach to the valuations is to determine the highest and best use of the land as it existed at the dates of valuation, that is with the structures in place.  As formulated by Counsel for the appellant, the dispute is whether the assumption required to be made is not only that the improvements did not exist but also that the use to which the land can be put is a use to which no buyer in the market would, in reality, put it because of the existence of the improvements.

  1. The relevant sections of Valuation of Land Act are -

    Section 13 -

    "13 Chief executive to make valuation

    The chief executive must decide the unimproved value of the land to be valued for the Acts under which local authorities are established."

    Section 3 provides -

    "3    Meaning of unimproved value

    (1) For the purposes of this Act—

    unimproved value of land means—

    (a)   in relation to unimproved 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; and

    (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.

    (2)  However, the unimproved value shall in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value at the time as at which the value is required to be ascertained for the purposes of this Act.

    (3)  In addition, the restrictions and limitations in any deed of grant or certificate of title in respect of any racecourse shall be disregarded in ascertaining the unimproved value of the land of the racecourse concerned.

    (4)  Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that –

    (a)   the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates;  and

    (b)   such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used;

    but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) had not been made."

  2. The questions raised in this application require the construction of those sections.  In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, the majority of the High Court said (at 384) –

    "the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have.  Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision.  But not always.  The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning." (Citations omitted)

  3. The Valuation of Land Act is described in the Preamble as "An Act to make better provision for determining the valuation of land for rating and taxing purposes, and for matters incidental thereto or consequent thereon". In valuations such as those under appeal the respondent Chief Executive is to determine the unimproved value of the relevant land (s.13). Section 3 draws a distinction between unimproved and improved land and defines unimproved value in relation to each. There are no definitions in the Act of "unimproved land" or "improved land". However, relevantly, s.6 contains an extended definition of the word "improvements" which need not be set out. While valuations under the Act are made for revenue purposes, I am unable to discern from either s.13, s.3 or the Act as a whole any reason to construe those sections or other relevant provisions of the Act in any way other than in their context within the Act and in accordance with their literal meaning.

  4. It is common ground that the effect of ss13 and 3 is to require the respondent, and thus the Court, to determine the unimproved market value of the subject land as at the relevant dates. In Stubberfield v The Valuer-General [1991] 1 QdR 278, Carter J described market value as follows (at 283) –

    "In Spencer v The Commonwealth [1907] 5 C.L.R. 418 the High Court propounded the proper test for the assessment of land value. It is the price which a willing purchaser would at the date in question have had to pay to a vendor not unwilling, but not anxious to sell. It seems to me that that test finds statutory expression in the Valuation of Land Act. In defining "unimproved value" for the purposes of the Act, it recites that that value is 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. In simple terms it is synonymous with the market value of the land."

  5. There is also no doubt that the subject land is to be valued for its highest and best use.  In Stubberfield Carter J said (at 283-284) –

    "It is also a well recognised principle that land be valued for its highest and best use.  What it can best be used for will be reflected in its true market value which takes account of any detriment the land possesses relevant to its use as well as any potential it has for its present or other use.  Again the relationship between value and land use is immediately apparent.  The hypothetical purchaser and vendor referred to by the High Court in Spencer will therefore take full account of the inherent characteristics of the land as well as the restrictions or otherwise upon its present or future use when deciding what sum of money the one will pay to the other to acquire it."

    And in Department of Natural Resources and Mines v QN1 Metals Pty Ltd (2002) 23 QLCR 261, the Land Appeal Court said (at 264) –

    "The highest and best use of land is determined by the market place where factors such as uses permitted under the planning legislation and the demand for the land are relevant.  The current use may be indicative of but is not determinative of the highest and best use."

  6. The issue here is whether, in determining the unimproved value of improved land under s.3(1)(b), the highest and best use of the land is to be ascertained at the start of the valuation process, that is on the basis that the existing improvements are in place or whether, having made the assumption required by s.3(1)(b) that the improvements did not exist, the highest and best use of the land is to be determined on the basis that the land is unimproved.

  7. The appellants relied principally on two decisions of the Land Appeal Court in support of their submission that the highest and best use of the land is to be ascertained as the first step in the statutory valuation process.

  8. In Caltex Oil (Australia) Pty Ltd v Chief Executive, Department of Lands (1996) 16 QLCR 435, the majority said (at 458) -

    "The Valuation of Land Act is not a code of valuation methodology. It assumes the existence of the valuation process and requires its application in the cases and with the modifications prescribed by the Act. The starting point of that process is the determination of the highest and best use of the land being valued (Adelaide Clinic Holdings Pty Ltd v Minister for Public Resources (1988) 65 LGRA 410 at p.415 per Jacobs J). Only when that is done can it be seen whether the land is to be valued as improved or unimproved land. If, but only if, it is to be valued as improved land, the statutory assumption must be made. The highest and best use of the land is not to be determined on the assumption that the structures do not exist because whether the Act requires that assumption to be made ultimately depends on what is the highest and best use of the land. The Act does not refer to highest and best use and does not require the separate determination of such a use for land as unimproved land. The fact that land is being valued having regard to the ‘special provisions' of the Valuation of Land Act does not justify departure from the basic principles of Spencer v The Commonwealth, which are as applicable to valuations under the Act as to any other valuations (Stubberfield v Valuer-General [1991] QdR 278 at pp. 283, 291, (1989) QLCR 328 at pp. 330, 340, per Carter J)."

  9. And in Department of Natural Resources and Mines v QNI Metals Pty Ltd the Land Appeal Court said (at 264, 265) that –

    "In many situations the existence of structures on the land makes no difference to the decision as to its highest and best use.  In this case the structures are of such a magnitude that, subject to what is said later in these reasons, it is impossible to ignore that they do in fact exist when the question of highest and best use of the land requires determination.  This is particularly so because if a different use from that in place at the date of valuation is proposed as the highest and best use, the evidence was that the existing structures would be rendered useless.  A purchaser would be faced with demolition costs of the buildings or, perhaps, might decide not to use that part of the land which is occupied by the buildings and tailing dams.  For an alternative use to represent a higher and better use, the land would have a value greater than as currently developed for the existing use, together with costs associated with removing the existing structures.  There was no evidence to suggest that the two alternative uses canvassed at the hearing, namely to use the site for another single industrial purpose or for rural residential purposes would bring a price higher than the value of the land and the buildings.  Indeed the evidence was to the contrary."

  10. The appellants submitted that the effect of the statements in both cases was that in statutory valuations such as those before the Court it is necessary to determine, as a preliminary matter, the highest and best use of the site as it stood at the dates of valuation.  On the valuation evidence before the Court, the appellants submitted, the highest and best use of the subject land was not the use adopted by Mr Gray because the improved value of the shopping centre ($168 million) clearly exceeded the sale price of $54.5 million paid for the Sundale Shopping Centre redevelopment site of 5.7 hectares (the principal sale relied on by Mr Gray in his valuation of the subject for an alternative highest and best use).

  11. Underlying the questions posed in this application is a tacit acknowledgement that the subject land may have differing highest and best uses depending on whether the highest and best use is to be decided with the improvements in place or on the assumption that the improvements did not exist.  That there may be such differing highest and best uses was recognised in QN1 where the Land Appeal Court said (at 264) –

    "It was accepted by the respondent that if the highest and best use of the site is continued use for a nickel refinery, the structures add value to the land and are improvements as defined above. What is in issue is whether, if the improvements are notionally removed for the purposes of determining the unimproved value under the Act, use as a nickel refinery remains the highest and best use."

  12. Although supported by the majority in Caltex, the appellants' submission that the first step in the valuation process is to determine the highest and best use of the land as it existed at the date of valuation appears to be at odds with the Land Appeal Court’s statement in QN1 (at 264) that -

    "It is to be observed that s.3 (1) of the Act provides two definitions of unimproved value - for land which is unimproved and land which is improved. The first issue to be determined, therefore, is whether the land was improved or unimproved as at the date of valuation. This will depend on whether the structures on the land constitute improvements.  In Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503, Griffith CJ said:

    '… any operation of man on land which has the effect of enhancing its value comes within the definition of improvement'." (Emphasis added)

  13. On further analysis, however, I do not consider that the two judgements are inconsistent in relation to this issue. Section 13 of the Act requires the Chief Executive to determine the unimproved value of the land, as defined in s.3. I respectfully agree with the Land Appeal Court in QN1 that the first step in the statutory valuation is, therefore, to determine whether the land is improved or unimproved within the meaning of s.3. However, implicitly, as the Land Appeal Court in Caltex pointed out (at 458), the decision as to whether land is improved or unimproved usually requires a consideration of the highest and best use of the land as it stands, that is with the structures in place –

    "It cannot be said whether a structure on or other quality of land amounts to an improvement in this sense until it is known whether the structure or quality enhances the value of the land.  Any enhancement in turn will usually depend upon whether the structure or quality advances or inhibits a particular use.  Thus, whether the structure or quality constitutes an improvement cannot ordinarily be known until the highest and best use of the land is determined."

  14. I consider, therefore, that although there is no requirement in s.3(1) that the value of the improved land or its highest and best use be determined, part of the process of deciding whether land is improved or unimproved involves, at least impliedly, a recognition of the highest and best use of the land as it stands, with the structures in place. This was recognised by the Land Appeal Court in QN1 in the passage quoted at [16] above where the Court was discussing the highest and best use of the land as it stood at the date of valuation.

  1. In this matter there is no dispute that the shopping centre structures add value to the subject land, and therefore, that they are improvements.  It follows that the highest and best use of the improved land appears to be some use which involves the use of the existing structures, although it is not necessary or appropriate that I make any finding as to that issue.

  2. That is not to say, however, that if the improvements are notionally removed, the current use would remain the highest and best use of the land.  As discussed above, the highest and best use of a property may vary depending on whether the land is considered with the structures in place or in a notionally unimproved state. 

  3. Senior Counsel for the appellant relied on Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160 to submit that the actual use of the property is to be taken into account in making a statutory valuation. Further, it was submitted, if the valuation is made on the basis of a change of use then the costs of changing the use, including the costs of demolition must be taken into account. The High Court said in Fenton at (166) –

    "The importance of these sales is that they tended to establish the price which a developer would be prepared to pay for vacant land suitable for the appropriate development.  Although the developers acquired parcels of improved land in assembling their sites they were acquiring improved land in order to convert it into unimproved land as part of a consolidated site which they could then develop.  The improvements existing on the land which they acquired had no value to them.  Consequently no part of the purchase price reflected a value placed by them on those improvements.

    In these circumstances the price which the respondent paid was one element, indeed the largest element, in the cost of acquiring a site consisting of vacant land suitable for development.  The other elements were the costs of demolition and of earthworks.  It is only by adding these costs that one can establish the price that the developers were prepared to pay for a suitable site with no improvements upon it."

  4. I do not consider that the passage cited supports this aspect of the appellants' submissions. The Court was discussing the application of the sales evidence where what was described as "improved properties" had been purchased and the improvements demolished to enable redevelopment of the sites. With respect, the Court's description of the structures on the land as "improvements" appears to be problematical in the circumstances, because the so called improvements did not add value to the land. Leaving that aside however, the passage does not deal with the issue under discussion here namely whether, in a determination of the unimproved value of land under the Act, the land is to be valued for its highest and best use in its improved or notionally unimproved state.

  5. In my opinion, because s.13 requires a determination of the unimproved value of the land, the subject land must be valued for its highest and best use in its unimproved state, that is on the assumption that the improvements did not exist at the dates of valuation. As was pointed out in Adelaide Clinic (at 415) the first task of the valuer is to determine the highest and best use of land and then to value the land on that basis.  That case concerned a determination of compensation for compulsory acquisition and required a valuation of the land as it stood at the date of acquisition.  That is to be contrasted with the valuation required under the Valuation of Land Act where the unimproved value of the land is to be determined, that is, in a case such as this, the value of the land on the assumption that the improvements did not exist at the dates of valuation.  This was the approach taken in Fenton where the Court said (at 165) –

    "It follows from the terms of this definition that the unimproved value of the respondent's land on 11 June 1979 was to be ascertained by reference to the capital amount that an unencumbered estate in fee might reasonably be expected to realize upon sale, on the assumption that the improvements then existing on the land … had not been made.  It is well settled that in establishing what that capital amount might be it is necessary to inquire what the hypothetical purchaser would pay for the land in a notional condition shorn of its improvements …

    According to the evidence of the expert witnesses the highest and best use which the land in its notional state would have had to a potential purchaser on 11 June 1979 was as vacant land, suitable for commercial development…"

    Because it is assumed that the improvements do not exist, the costs of changing the use including the costs of demolition, are not to be taken into account in making the valuation of the notionally unimproved land.

  6. It is noted that the Court in Fenton was discussing the effect of s.5 of the Valuation of Land Act 1971 (SA) which defined unimproved value in terms which required an assumption that "any improvements … had not been made" whereas s.3(1)(b) of the Queensland Act requires an assumption that "the improvements did not exist". However, as Senior Counsel for the appellants acknowledged, any distinction arising from the difference in terminology is not of consequence to this application.

  7. It is acknowledged that my conclusion that the land is to be valued for its highest and best use on the assumption that the improvements did not exist appears to differ from that of the Land Appeal Court in Caltex where the majority said (at 458) that the Act does not require the separate determination of the highest and best use for land as unimproved land. However, as explained in my decision in Surfers Paradise Resort Hotel Pty Limited v Department of Natural Resources and Water [2007] QLC 41 at [33], I do not consider that those observations formed part of the ratio of that case. Moreover, my conclusion is consistent with that of the Land Appeal Court in QN1 where the Court said (at 264) that what was in issue was the highest and best use of the land if the improvements were notionally removed. In so far as there is a difference in the reasoning of the Land Appeal Court in the two decisions, I prefer the reasoning in QNI, the later decision. 

  8. My decision is also consistent with the decisions of the Land Court in PT Limited v Department of Natural Resources and Mines [2006] QLC 0068 at [115], Multiplex 240 Queen Street Landowner Pty Ltd v Department of Natural Resources, Mines and Water [2007] QLC 010 at [57] and Kent Street Pty Ltd v Department of Natural Resources and Mines [2006] QLC 011 at [48], decisions handed down after the hearing in this matter.

  9. I note that in Commonwealth Custodial Services Ltd v Valuer-General [2006] NSWLEC 400 Biscoe J, who was considering appeals under the Valuation of Land Act 1916 (NSW), interpreted the reasoning in Caltex to mean that if structures are to come within the definition of improvements it is necessary that they add value to land for the purpose of its highest and best potential use (at [74], [75]). The learned judge disagreed saying that if structures on land enhance the land's value as compared with its natural state, they are improvements (at [42]).

  10. I am doubtful whether Caltex supports the contention that improvements must add value to land for its highest and best potential use.  However, it is not necessary to decide that issue because, as Biscoe J said, any difference between his conclusions and what was said in Caltex may be attributable to differences in the legislation in each jurisdiction.  Similarly, it is not necessary to explore these differences here because as explained above I consider that I should adopt the reasoning of the Land Appeal Court in QN1 with which I respectfully agree.

  11. The appellants submitted that because of the existence of the improvements on the subject land no purchaser would redevelop the land for mixed use purposes incorporating high rise residential accommodation.  To value the land on that basis, therefore, made no sense commercially or in valuation terms.

  12. It is true that such evidence as there is before me indicates that the site was not ripe for redevelopment. However, in the case of improved land the Act requires the valuation to be made on a hypothetical basis, that is on the assumption that the improvements did not exist as at the relevant dates. It is on that basis that the unimproved value of the land, including its highest and best use, is to be determined.

  13. These conclusions mean that it is not necessary to consider the respondent’s submissions as to the effect of ss.3 (4) and 17 of the Act although I would say that I do not consider that there is anything in either section which would point to a contrary result.

Orders

  1. For the reasons set out above I consider that, in determining the unimproved value of the subject land, the Chief Executive –

    i.     is first obliged to determine whether the land was improved land by deciding whether, in the market place as at the date of valuation, the land with the structures (and leases) in place was worth more than it would have been without them,  and if so

    ii. is required to determine the unimproved value of the land as though the improvements did not exist as at the date of valuation., subject to the operation of s.3(2) of the Valuation of Land Act 1944.

CAC MacDONALD

MEMBER OF THE LAND COURT

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