Aurizon Property Pty Ltd v Chief Executive, Department of Transport and Main Roads [2022] QLC 22

LAND COURT OF QUEENSLAND CITATION: Aurizon Property Pty Ltd v Chief Executive, Department of Transport and Main Roads [2022] QLC 22 PARTIES: Aurizon Property Pty Ltd ACN 145 991 724 (applicant) v Chief Executive, Department of Transport and Main Roads (respondent) FILE NO: AQL054-20 PROCEEDING: Determination of compensation under the Acquisition of Land Act 1967 DELIVERED ON: 9 December 2022 DELIVERED AT: Brisbane HEARD ON: 19, 24, 25 and 28 October 2022 HEARD AT: Brisbane MEMBER: JR McNamara ORDERS: 1. Compensation is determined in the sum of Two Million and Four Hundred and Fifty Thousand Dollars ($2,450,000). 2. The parties will be heard in relation to any application for costs. A request for such a hearing must be made on or before 13 January 2023. CATCHWORDS: REAL PROPERTY – COMPULSORY ACQUISITION OF LAND – COMPENSATION – ASSESSMENT – MARKET VALUE – where the respondent resumed land for highway upgrades – where the applicant applied to the Court to determine their compensation entitlement under the Acquisition of Land Act 1967 – where the parties’ valuers disagreed as to the primary methodology for valuing the land – where the applicant asserted that the hypothetical development method was the primary methodology – where the respondent asserted that the comparable sales method was -- 1 of 39 -- 2 the primary methodology – where the Court had to determine which methodology was more reliable on the facts of the matter REAL PROPERTY – COMPULSORY ACQUISITION OF LAND – COMPENSATION – ASSESSMENT – MARKET VALUE – COMPARABLE SALES – where the Court found that the comparable sales methodology was the appropriate primary method – where there were no directly comparable sales to the subject land – where the applicant’s valuer gave primary weight to geographically distant industrial sales – where the respondent’s valuer gave primary weight to local englobo residential sales – where the Court had to determine what weight, if any, could be given to the sales REAL PROPERTY – COMPULSORY ACQUISITION OF LAND – COMPENSATION – ASSESSMENT – where the Court had to determine discreet civil engineering issues – where the Court had to determine the cost of hydromulch to an area of flood mitigation – where the Court had to determine compensation, if any, for the widening of culverts that affected the subject land Acquisition of Land Act 1967, s 20 Australian Provincial Assurance Association Ltd v Commissioner of Land Tax 1942 ALR 156, cited Boland v Yates Property Corp Pty Ltd (1999) 167 ALR 575, cited Brewarrana Pty Ltd v Commissioner for Highways (No 2) [1973] 6 SASR 541, cited Brewarrana Pty Ltd v Commissioner of Highways (No 1) (1973) 32 LGRA 170, cited Brisbane City Council v Lansbury (1977) 4 QLCR 502, cited CF Stanfield v Commissioner of Main Roads (1969) 36 CLLR 76, distinguished Cienda Pty Ltd v South Australian Urban Land Trust (1988) 66 LGRA 360, cited Coastal Estates v Bass Shire Council (1993) 79 LGERA 188, considered Graham Trilby Pty Ltd v Valuer-General [2008] NSWLEC 217, cited Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1981-83) 50 LGRA 322, cited Minister for the Environment v Florence (1979) 45 LGRA 127, cited The Proprietors’ Seventeen Henry Street' Buildings Units v Chief Executive, Department of Natural Resources and Mines [2001] QLC 127, considered Turner v Minister of Public Instruction 1956 95 CLR 245, cited -- 2 of 39 -- 3 Wagner Investments Pty Ltd v Chief Executive, Department of Main Roads [1998] QLC 78, cited APPEARANCES: D Gore KC, with J Ware (instructed by Corrs Chambers Westgarth) for the applicant R Anderson KC, with J Brien (instructed by Clayton Utz) for the respondent In 2014, the Department of Transport and Main Roads (the respondent) acquired a 30 metre wide strip of land running the 950 metre length of the northern boundary of land owned by Aurizon Property Pty Ltd (the applicant). The area resumed was 2.875 hectares. At the time of the resumption, Aurizon was the registered owner of 174.5 ha of land at Wulguru, approximately 8 kilometres south of Townsville, and within the Townsville State Development Area (TSDA). The land included the Stuart Rail Yard, a buffer area, and a large area of vacant and unused land. The resumption was to assist in flood mitigation as part of upgrade works for the Bruce Highway (Vantassel to Cluden) Project (the Project). An earth levy (bund wall) was subsequently constructed along the full length of the resumed land. The Project altered the hydraulic status of the area and directs additional flows across downstream land, including Aurizon’s remaining land (remaining land) during large rainfall events. It was agreed from a hydrological perspective that the maximum developable area in the pre-resumption scenario was 90.3 ha, and 78.5 ha in the post-resumption scenario.1 The resumption resulted in a reduction in the maximum developable area of 11.8 ha. Aurizon has applied to the Court to decide its compensation entitlement under the Acquisition of Land Act 1967. Issues In assessing compensation, the Court must have regard to the value of the land on the date it was taken; damage caused by severance or injurious affection; and costs 1 Ex 34, para [22]-[24]. -- 3 of 39 -- 4 attributed to disturbance.2 The parties have agreed on disturbance costs of $200,000, inclusive of interest.3 There was substantial agreement between subject matter experts and the parties concerning much of the evidence prepared for the hearing of this matter. This resulted in only the expert civil engineers and expert valuers giving oral evidence. The issues to be determined in the civil engineering evidence are, in the end, quite discrete. They concern the cost to be adopted in the post-resumption scenario for soil erosion and sediment control, and the cost of roadworks at the Flinders Highway (Stuart Bypass) and subject site access road intersection. The compensation claim principally concerns the injurious affection caused to Aurizon’s remaining land, but the “threshold point of difference”4 between the valuers is the appropriate primary methodology for valuation. The applicant says in this matter the primary method of valuation should be the hypothetical development approach, while the respondent considers the primary method of valuation should be the comparable sales approach. Both accept that the other approach can be used as a check method. The credibility of both valuers was to a greater or lesser extent challenged during the hearing. In the end I accept that both valuers were firm in their views, perhaps a little inflexible, but not disingenuous. The provision of supplementary material by the expert valuers, initiated by the valuer engaged by the respondent, after the filing of the Valuers Joint Expert Report (VJER) was disappointing. The VJER was an outcome of the Court Managed Expert Evidence process (CMEE) which is designed to promote an effective, efficient and fair process for expert evidence. Filing of material outside the process is a challenge to the objectives of the CMEE. I do not however find reason to dismiss that material or reduce the weight afforded to it. The application by each valuer of their chosen primary method of valuation produced vastly different results. The check method as applied by each expert valuer broadly 2 Acquisition of Land Act 1967 (Qld) s 20. 3 Ex 34, para [32]. 4 Ex 84, para [49]. -- 4 of 39 -- 5 confirmed the result of each valuers’ primary method, demonstrating the significant difference between the valuers in the application of either methodology.5 The differences in the assessed compensation from the application of both methods is a consequence of the valuer’s treatment of key “inputs”. In the hypothetical development method, the treatment of profit and risk, and the projected selling rate determine the major differences. In the application of the comparable sales method, the analysis of sales is influenced by the differing views of the valuers concerning the comparability of local englobo residential development sites and more distant industrial development sites. Following the resumption, an intermodal facility (intermodal) was established on the remaining land and became operational in November 2016. The intermodal was described in the applicant’s opening submissions as the “combination of the large platform that takes up Lot 1 and the rail line, and it enables intermodal connection between mode-of-transport rail and mode-of-transport road”.6 The intermodal can be seen in the agreed post-resumption layout plan 5479-10 as occupying Lot 1, an area of 12.7 ha.7 Linfox, the transport, logistics and supply chain business, is the occupant of Lot 2. These reasons will address the issues for resolution as agreed by the parties. The issues are: 1. What is the appropriate primary methodology for valuation: (a) the hypothetical development method (b) the comparable sales method (c) conclusions on methodology 2. For the comparable sales method, be it the primary method for valuation, or only a check method, the weight to be given to the 8 sales referred to in the VJER? 3. What cost should be adopted for soil erosion and sediment control (hydromulch) in the post resumption scenario? 4. What cost should be adopted for the construction of the intersection of the internal road and the Stuart Bypass in the post resumption scenario? 5. Have the valuation experts appropriately taken account of the improved access to the site via Jurekey Street in the post resumption scenario? 6. Having regard to the determination of the issues in paragraphs 1 to 5 above, at what amount should compensation be assessed? 5 See, for example, the table at [33] of these reasons. 6 T1-13, lines 31-33. 7 Ex 11 -- 5 of 39 -- 6 I have not attempted to address and resolve every point of difference that was raised in evidence, raised by the experts who appeared at the hearing, and/or raised in submissions. I have considered them, and in these reasons I have addressed many of them. 1. What is the appropriate primary methodology for valuation? It is conceded by both parties that neither method of valuation can be applied in this matter without difficulty. The valuers agree that compensation ought to be calculated using the before and after (pre-resumption and post-resumption) method.8 In closing submissions, Aurizon say that where there is a partial taking of land, the assessment of any severance, injurious affection and enhancement may be assessed using the “before and after” method,9 an approach approved by the Land Appeal Court in Brisbane City Council v Lansbury.10 The valuers agree the highest and best use of the land as a whole is an industrial style subdivision consistent with the TSDA Scheme 2013.11 They agree in general terms the overall type and density of development and the predominant uses of individual sites being ‘Freight terminal’, ‘Transport Depot’ and ‘Warehouse’.12 In closing submissions, the applicant says that despite early agreement in the VJER regarding highest and best use, Mr Lyons, the valuer engaged by the respondent, later expressed the view that land banking of the site and the plans of subdivision otherwise discussed in the VJER did not necessarily represent highest and best use of the land.13 When asked during the concurrent evidence session if this was a change in position, Mr Lyons explained that in his view the highest and best use would be achieved if the subdivision was delayed until the proposed intermodal facility was developed, whereas Mr Crawford considered the land was ripe for immediate development. What was agreed in the VJER was that the highest and best use of “each individual site” is heavily influenced by the catalyst for the development being the intermodal facility.14 8 Ex 26, para [17]. 9 Ex 84, para [37]. 10 Brisbane City Council v Lansbury (1977) 4 QLCR 502. 11 Ex 26, para [23]. 12 Ibid, para [17]. 13 Ex 84, [19]. 14 Ex 26, para [26]. -- 6 of 39 -- 7 I do not consider Mr Lyons to have changed his position, but if it was characterised as a change of position, it has no material impact on my consideration of the matter. The valuer engaged by the applicant, Mr Crawford, says the primary method of valuation is the hypothetical development method, supported by direct comparison. Mr Crawford has consistently advanced that compensation should be assessed using the hypothetical development method.15 He says hypothetical development is the best method to quantify the differences between the pre-resumption and post-resumption scenarios. He says the method is objective while other approaches are subjective and unreliable. He also says that the available englobo industrial evidence for the direct comparison method has significant differences to the subject property.16 Mr Lyons says the primary method of valuation is direct comparison with the available sales evidence. He says there are a number of englobo land parcels sold in the Townsville area at, or around, the date of valuation. In proceeding to consider and decide which of the methods of valuation advanced by the parties in this matter is the more reliable, and the application of the method by which valuer should be the basis of determining compensation, I will step through the evidence and the process, issues, and application of each method by the experts. a. The hypothetical development method Hypothetical development is a combination of three approaches17 in the International Valuation Standards 2013.18 As a primary methodology it is said to mathematically quantify the variables necessary to calculate compensation under all heads, other than disturbance and interest, arising from the resumption. While the valuers’ analysis differs, they agree that in the pre and post-resumption scenarios the hypothetical development method involves: an estimate of the gross 15 Ex 56; Ex 57; Ex 58; Ex 59; Ex 63. 16 Ex 26, para [18]. 17 Ex 26, para [111]. 18 The International Valuation Standards contain procedures and guidelines for undertaking valuation assignments using generally recognised concepts and principles. The Standards are prepared by the International Valuation Standards Council, an independent, not-for-profit- private sector organisation. IVS 2013 (effective 1 January 2014) was the last issued before the date of resumption and states, “the highest and best use is the use of an asset that maximises its potential and that is possible, legally permissible and financially feasible”. -- 7 of 39 -- 8 realisation;19 a deduction of the costs of sale to derive net realisation;20 a deduction of allowances for profit and risk;21 a deduction of all other costs and outlays (including construction costs),22 borrowing or opportunity costs, rates and land tax,23 infrastructure charges, interest24 and acquisition costs.25 Due to the number of variables, an asserted shortcoming in the application of the method is that small changes to the variables can have a significant impact on the outcome. This, Mr Crawford asserts, is cured when the before and after method of assessing compensation is adopted and ensuring in the before and after scenarios that there is consistency of input for each scenario.26 In the sensitivity analysis Mr Crawford conducted, he took three critical inputs - profit and risk, construction costs, and gross realisation - to determine the impact that a variation of 2.5%, both positive and negative, would have on the quantum of loss.27 His analysis required the same percentage variation to be applied in both the pre and post-resumption scenarios. He concluded that the variation in compensation from the extremes was in the order of 13.5%. When challenged to apply different percentages to the critical inputs in the pre and post-resumption scenarios Mr Crawford maintained that the inputs had to be consistent. He would only accept that there were ‘minor differences’ between the projects in the pre and post resumption scenario, which did not justify different inputs. The respondent used the data from Mr Crawford’s analysis to suggest losses of between $10.99M and $747,000 (rounded) based on 2.5% variances in the pre and post-resumption scenarios, and to submit that the method is inherently risky and unreliable.28 19 Ex 26, para [17], [219]. 20 Including marketing, agents commission, advertising as a percentage of gross realisation. 21 The risk being determined by market forces at the date of valuation, levels of competition, local economic circumstances, and the timing of the project 22 The valuers agreed to adopt the respondent’s civil engineer’s construction costs as a base scenario. 23 Primarily based on the site value as assessed by the Valuer-General – the valuers assumed 85% of assessed values 24 Agreed at 6.5% calculated monthly 25 Legal costs and stamp duty - agreed as 1% of purchase price. 26 Ex 26, para [112]. 27 Ibid, para [239]. 28 Ex 77; Ex 85, para [151]. -- 8 of 39 -- 9 Application Having found mathematical errors in some commercial software products, Mr Crawford applied the Hypothetical Development method using an Excel spreadsheet to quantify the differences between the pre and post resumption scenarios. Mr Lyons used the Estate Master commercial software program. Estate Master is a program used to prepare a Residual Land Value Assessment to check the value arrived at using the comparable sales method. The results of the application of the hypothetical development method (the primary method for Mr Crawford; a Residual Land Value Assessment check method for Mr Lyons) are as follows: Crawford Lyons Pre-resumption $20,488,785 $7,500,000 Post-resumption $14,633,099 $5,425,000 Adopt $5,900,000 $2,050,000 Mr Lyons says there are “notable differences” with respect to Mr Crawford’s analysis.29 He identifies two major differences to be: “the vastly overly optimistic selling rate for the project”; and the adoption of a straight line percentage profit and risk rather than an ‘Internal Rate of Return’ (IRR) which allows for the time cost of money. There is broad support for the proposition that unless the land is “ripe for subdivision”, rather than land which has the potential for subdivision, the hypothetical development method should not be applied.30 In assessing the reliability of the Hypothetical Development method in this case, the consideration of three issues are key: whether the subject site was ripe for development; the treatment of profit and risk; and the selling rate. 29 Ex 26, para [242]. 30 Cienda Pty Ltd v South Australian Urban Land Trust (1988) 66 LGRA 360, 363. -- 9 of 39 -- 10 Ripe for development? Whether land is “ripe for subdivision” is something more than land which has the potential for subdivision. It is understood to mean land which may be subdivided and sold within a reasonable period of time. As referenced in the discussion concerning the hypothetical development method in The Law Affecting Valuation of Land in Australia (6th Ed),31 Wells J in Brewarrana Pty Ltd v Commissioner of Highways (No 1), after commenting upon submissions that had been made regarding whether it was essential or not that the land be ripe for immediate subdivision as opposed to suitable for subdivision, said: … the question resolves itself into one of degree. Plainly, a calculation based on a hypothetical subdivision will not be vitiated simply because some very slight delay might be expected before realisation could begin, but an inordinate delay of, say, several years could, equally, plainly, render the whole undertaking so speculative that a conclusion as to value would be wholly unreliable. In between those two extremes, the skilled valuer will have to decide at what stage the speculative element looms so large that the method becomes unsafe. His decision will depend on all the circumstances of each particular case.32 The valuers agree that at the date of resumption, 22 August 2014, the industrial market in Townsville was subdued. A pre-lodgement meeting between the applicant and the Office of the Coordinator-General had occurred on 19 May 2014.33 Approval for the intermodal facility was granted in August 2015, and it became operational in November 2016. In consideration of the highest and best use of the land, Mr Crawford says: The land is ripe for immediate development given the catalyst of the intermodal development undertaken by Aurizon consistent with the development envisaged for the Townsville State Development Area.34 Mr Lyons says: The land is considered to have longer term industrial development potential. The industrial land market was very subdued at the time. The intermodal was not approved at the date of valuation and it is my opinion that any prospective 31 Alan Hyam, The Law Affecting Valuation of Land in Australia (Federation Press, 6th ed, 2020). 32 (1973) 32 LGRA 170, 181. 33 Ex 28. 34 Ex 26, para [18] -- 10 of 39 -- 11 purchaser would have delayed any subdivision until the intermodal facility was in full operation.35 The evidence which is canvassed later in these reasons lead me to favour the view of Mr Lyons in this regard. Profit and risk The expert valuers agree that a prudent developer will expect a return to reflect the effort of undertaking the development and that that return is expressed as a percentage return on the outlays.36 They say that the profit and risk is an assumed input, having regard to market participants’ perceived attitude to risk. The risk associated with a project will be determined by market forces at the date of valuation including market acceptance and demand for the product, levels of competition, local economic circumstances and timing of the project. As one of the “key ingredients” to the application of the hypothetical development method, Gobbo J in Coastal Estates v Bass Shire Council said that the choice of figure for profit and risk was traditionally supported by evidence as to what minimum figure professional subdividers might expect for the kind of development (industrial, residential or other).37 This might be influenced by timelines, either especially long or short. Gobbo J was of the view that unless the figure was determined by analysis there was too much uncertainty and speculation in the method. The parties agree that profit and risk is a value judgment. The applicant says that Mr Crawford’s use of the profit and risk factor is consistent with the authorities, whereas Mr Lyons’ exercise of starting with an IRR in a software program, which itself then creates a profit and risk factor, is not. Mr Crawford adopted a 20% profit and risk in both the pre and post-resumption scenarios. It was Mr Crawford’s opinion that there is no basis for adopting different profit and risk percentages in the pre and post resumption cases as the developments are very similar in nature.38 35 Ibid. 36 Ibid, para [92]. 37 (1993) 79 LGERA 188, 198. 38 Ex 26, para [233]. -- 11 of 39 -- 12 Mr Lyons entered an IRR figure into the Estate Master program and the program produced a Development Margin (Profit/Risk Margin). In this case Mr Lyons projected an IRR of 20.28% into the Estate Master program, which produced a Development Margin (Profit/Risk Margin) of 54.86% in the pre resumption scenario. An IRR figure of 19.74% in the post resumption scenario produced a Profit/Risk Margin of 46.67%. The target IRR rate in both the pre and post resumption scenarios was 20%.39 The respondent says that the decision as to the IRR is an exercise of professional judgment. Mr Lyons says the IRR, like profit and risk, should be adjusted to make allowance for individual factors. In his 11 October 2022 supplementary report40 to the respondent’s instructing solicitors Mr Lyons says: An internal rate of return of 20% is generally accepted within the valuation industry as being a minimum acceptable return on an investment. This would be adjusted in cases where risk is higher or lower.41 In evidence, Mr Lyons said that, given the length of time that is involved in the proposed development, it is his opinion that a straight line profit and risk factor does not properly show or indicate the actual return because it is not necessarily based on the true value of the money over the period of the development. He said that an IRR looks at the return over time as against the “straight line” methodology which: [W]ould be fine to use if your development period was probably less than 18 months, but outside of that period, it isn’t really the true rate of return because it doesn’t account for the cost of money over the time of the development.42 In submissions, the respondent says that the figures (generated in Estate Master based on the IRR) are necessarily high due to the timeframes involved and the size of the lots in the proposed subdivision. Mr Lyons said the basis upon which he determined the IRR should be at 20% was from discussions with a number of developers. He said: They indicated in regional Queensland it would be a minimum of 20 per cent internal rate of return. It may go lower in areas where there were small 39 Ex 27. 40 Ibid. 41 Ibid, page 9. 42 T3-50, lines 42-46. -- 12 of 39 -- 13 developments or in South East Queensland where they saw the risk was considerably less. So I’ve arrived at 20 percent on that advice.43 Mr Crawford was asked if he accepted that an IRR is more appropriate where there is an extended period of time for the development because it properly recognises the value of time and money. He replied: “No, I still do not accept that’s a better method of doing it”.44 Mr Crawford considered that a long-term development is a “quite different product”, however in this case he did not consider it a “different product”. Mr Lyons did not agree that profit and risk must be the same in both the pre and post- resumption scenarios. He said that every product needed to be assessed based on the particular facts. A smaller development in a post resumption scenario is likely to realise fewer parcels and less capital outlays. He said that his calculation using an IRR of 20% in both pre and post-resumption scenarios saw a reduced profit and risk factor (in the post resumption scenario) because of the differences in time.45 In closing submissions, the applicant addressed the competing positions of the valuers in regard to profit and risk versus IRR citing in particular Wells J in Minister for the Environment v Florence46 and in Brewarrana Pty Ltd v Commissioner for Highways (No 2)47 to the effect that regard may be had in a general way to the percentage that a developer might adopt when assessing other prospective developments, and that it would be unsafe to adopt a percentage based on profit in fact achieved analysed from completed and successful subdivisions.48 The applicant says that there is no reference in those cases to an IRR factor and the texts “give no hint that an IRR factor is also involved”. In Gwynvill Properties Pty Ltd v Commissioner for Main Roads,49 Cripps J said at page 326: The hypothetical development method is normally suspect because it depends on a number of assumptions and a number of estimates, e.g. cost of building, estimated growth rentals obtainable, probable outgoings and, most significantly, the rate percentum of return which could be expected and the profit and risk factor expressed in percentage terms. It has been said that because many estimates and assumptions must be made, the hypothetical 43 T3-54, lines 37-40. 44 T3-55, line 1. 45 T3-56, lines 25-32. 46 (1979) 45 LGRA 127. 47 [1973] 6 SASR 541. 48 Ex 84, para [144]-[154]. 49 (1981-83) 50 LGRA 322. -- 13 of 39 -- 14 development method ought not be used where some use can be made of a comparable sale. I do not understand the Residual Land Value Assessment to compound IRR and profit and risk. The profit and risk factor is a product of the IRR factor. The percentages applied by both valuers to profit and risk, and IRR appear somewhat arbitrary. Mr Lyons based his 20% IRR on discussions with developers while Mr Crawford simply said his 20% was a value judgment. I prefer the view that the development is likely to happen over an extended period. In my view they are to that extent “different products”. Therefore, if the hypothetical development method was to be accepted as the more reliable method, I would favour an application of the method which clearly takes account of the time cost of money as explained by Mr Lyons. The selling rate Where land is ripe for sub-division, it is unrealistic to expect that all the available lots could be sold at the same time for the prices assigned to them. An allowance therefore is made for an estimated selling period, as well as deductions for expenses of sale and holding costs. It is a question of fact as to what is the appropriate method, but a long delay before development and sales raises uncertainty about current estimates of sale price and costs. The selling rate will be influenced by many things, including the type of development, the timing of the development, and its attractiveness to the market. The TSDA Development Scheme Section 2.5.13 provides that the minimum subdivision lot area for the subject property is 2 ha. In comments attributed to Mr Crawford in the VJER, he says that the State and Local Governments specifically identified this property for a Transport and Support Services Development, and specifically for sites of 2.0 ha or greater.50 The respondent in closing submissions says there are differences of opinion as to whether the freight facility (intermodal) on the land provides the “catalyst” for an industrial subdivision.51 As noted earlier, approval for the intermodal facility was 50 Ex 26, para [62]. 51 Ex 85, para [97]. -- 14 of 39 -- 15 granted in August 2015, and it became operational in November 2016. The respondent submits that any prospective purchaser would have delayed any subdivision until the intermodal facility was in full operation.52 Neither valuer defines what they mean when they describe the intermodal as a “catalyst”. Mr Lyons in his 11 October 2022 supplementary report to the respondent’s legal advisors said: My investigations have confirmed that an intermodal facility is not a strong catalyst for industrial subdivision around this facility. This is evidenced by the Pacific National Intermodal facility which was constructed in about 2005. This facility is located about 2.5 kilometres south east of the subject land. The facility is operated by Toll. The site area is 54.94 hectares. My searches indicate that there has never been any application to subdivide the site into industrial lots. So, it is evident that the development of the Toll site was not a catalyst for any subdivision despite being in place during the property boom from 2005 to 2008.53 He further said that there is no evidence that the subject land would have been successful as an intermodal facility and a catalyst for further industrial subdivision because there was at the time real potential that an intermodal facility could be developed at the Townsville Port. In his response report of 21 October 202254 addressed to the applicant’s legal advisor, Mr Crawford says in relation to the Pacific National Toll intermodal, that the existing improvements would seemingly preclude an allowable subdivision and that Toll, a freight distribution company, would be unlikely to create a subdivision which would facilitate direct competition to their exclusive rights. In contrast, the applicant’s primary business is rail haulage. In relation to the competition an intermodal facility at the Townsville Port might create, Mr Crawford says that “[p]orts generally service the import export of freight whereas road-rail intermodal (facilities) service intra and inter-state freight movement”. In closing submissions, the applicant says that as a long term owner of the land, and being in the business of rail freight and track access, it (the applicant) does not have the imperative to pursue development of the site in the same timeframe as a developer who hypothetically acquired the site on the date of resumption. 52 Ibid, para [95]. 53 Ex 27, page 2. 54 Ex 47 – Mr Crawford’s response to the 11 October 2022 supplementary report of Mr Lyons. -- 15 of 39 -- 16 I accept Mr Crawford’s view that the lack of a subdivision at the Pacific National intermodal and the potential for the development of an intermodal at the Townsville Port is not evidence that an industrial subdivision adjacent to an intermodal at the subject site would not succeed. A construction phase of 15 months was agreed between the valuers. Mr Lyons adopted the sale of 2 lots during the construction phase, an area of 9.5 ha, and the balance of the lots over the next 60 months. It seems agreed that 2 lots, the intermodal (Lot 1) and the freight distribution centre (Lot 2) were “ripe for development” at the date of resumption. His total of 75 months for the sale of the entire estate averages 13.74 ha/p.a. Mr Lyons compares this to the absorption rate for the whole of the Townsville market in industrial land sales of 11.6 ha/p.a. He considers his adopted sales rate (13.74 ha/p.a) is generous.55 Mr Lyons performed an analysis of sales and absorption rates of industrial land in the Townsville city area for the period 2010 to 2014.56 There was a total of 77 sales, but only 8 lots with an area greater than 2 ha, indicating an average of 1.6 lots p.a. Mr Crawford modified Mr Lyons’ table for the hearing to show 82 sales (rather than 77) across the same period.57 Mr Lyons was only provided with the modified table at the hearing. Mr Crawford says that there were six sales at Roseneath in 2012, rather than two, involving 11 lots. His table also records the land area sold as 41,144 m2 rather than 14,513 m2. Mr Crawford applied a “selling period” of 4.167 years, rather than 5 years, to determine an annual sales rate of 16.71 ha. Mr Lyons said that after further research, rather than the sale of 2 lots in 2012, he accepts that a sale had been amalgamated with another58 and therefore there were 3 lots sold with a total area of 19,514 m2. The difference in the calculations appears to arise from the number of “pre-sales”. Given the state of the evidence, I am inclined to accept Mr Lyons table, as corrected for the additional sale in 2012. Mr Lyons observed that in the Townsville Distribution Precinct only two sales were for lots greater than 2 ha, with one of those sales being an aggregation of three smaller 55 Ex 26, para [242]. 56 Ibid, para [47]. 57 Ex 71. 58 T3-58, lines 2-5. -- 16 of 39 -- 17 parcels.59 He expresses his opinion that “there is a very small market for industrial parcels greater than 2 hectares in the Townsville area” 60 and at the time “there was an oversupply of existing developed stock of both vacant land and improved properties throughout the Townsville market to satisfy the minimal demand in the area”.61 Mr Crawford adopts a 20% sales rate during the 15 month construction period and allows a further 35 months for the sale of the balance (80%) of the estate.62 This, Mr Lyons says, is a sales rate of 20.6 ha/p.a which he considers to be “far too optimistic”63 based on the history of vacant industrial land sales. Mr Crawford added a further 12 months onto the overall sales time (to 47 months) to demonstrate a relatively small reduction in compensation.64 In closing submissions, the respondent says that Exhibit 60 (with the extended sales period) equates to a sales rate of 3.6 lots in the first 12 months and 14.4 sales over 47 months (pre) and sales of 2.8 lots in the first 12 months and sales of 11.2 lots over 47 months (post). The respondent submits that the sales rate adopted by Mr Crawford “is more than double the annual sales rate for the whole of the Townsville industrial market”.65 As noted earlier, in the VJER Mr Lyons said he considered that the highest and best use at the date of valuation was land banking of the site with short term prospects for a freight distribution centre and intermodal facility. He continued: Subdivision of the site would likely have been contemplated at a later stage subject to market conditions. Further, the Plans of subdivision provided being SK101a, SK201a and 5479-10 don’t necessarily represent highest and best use of the land. It appears the plans have been drawn to develop the maximum area, however, are not drawn mindful of the analysis above which indicates there is a very small market for large lot areas at high entry prices. The sale of lots in excess of 2 hectares is rare and lots ranging from 3 – 7 hectares rarer.66 59 Ex 26, para [41]. 60 Ibid, para [46]. 61 Ibid, para [45]. 62 Ibid, para [221]. 63 Ibid, para [242]. 64 Ex 60; Ex 84, para [142]. 65 Ex 85, para [104]. 66 Ex 26, para [50]. -- 17 of 39 -- 18 The respondent submits that there is no evidence to support the assertion that the supply of new industrial land of lots greater than 2 ha will generate demand. They submit Mr Crawford’s opinion , that despite the subdued state of the market the land was ripe for immediate development given the catalyst of the intermodal facility, is not borne out as to date there is still not an industrial subdivision surrounding the intermodal facility.67 b. The comparable sales method It is agreed that the comparable sales method is a market approach which applies valuation inputs from the analysis of comparable sales expressed in a particular unit of comparison. Accepting that market evidence is not identical, there are sales of similar assets which can be adjusted. Mr Lyons says that the comparable sales, or direct comparison method, is how such a valuation would be done in normal professional practice. It is, he says, how it is done for mortgage security purposes, as required for finance applications. In that regard he refers to the National Australia Bank’s commercial standing instruction. Mr Crawford says that the circumstances of this valuation exercise is entirely different to a mortgage valuation. He says bankers’ requirements do not envisage a ‘before and after’ scenario or calculate the difference in value between two scenarios. The comparable sales approach is, according to Mr Crawford, difficult to use where there are numerous variables, “as distinct from components” such as the impact to land value from flooding and the loss of potential development which can be difficult to reasonably visualise. He says a more mathematical approach is required to take account of the variables. Mr Crawford says that the comparable sales method is appropriate for individual developed lots if a subdivision was complete but is not sufficiently reliable as a primary method “due to insufficient factual or observable inputs that are sufficiently comparable”. Mr Crawford identifies six issues which he says renders the comparable sales method inappropriate in this case:68 1. The comparable sales evidence does not include a subdivision with a ‘catalyst’ intermodal facility; 67 Ex 85, para [96]. 68 Ex 26, para [108]. -- 18 of 39 -- 19 2. The evidence is not comparable to the Townsville State Development Area; 3. The unique nature of the highest and best use is not apparent in the evidence; 4. The development layout of the subject has been worked up from two sets of experts in multiple disciplines; 5. The comparable sales evidence has substantially different issues to those relevant to the subject site; and 6. That those issues significantly impact value is highlighted ‘even with a cursory overview’ of the subject development. There are 8 sales which the respondent places into 3 categories. First, large englobo residential development sites in the Townsville area; second, other sales in the Townsville area developed for industrial uses; and third, sales remote from Townsville in south-east Queensland. The respondent says that primary weight should be given to the first category as they represent sales of land for development purposes in the same geographical market. The respondent sets aside the only Townsville industrial sale at Ridge Street, Roseneath, on the basis it was dated, was sold by a mortgagee in possession, and was purchased for use as a storage yard and not for development. Of the south-east Queensland industrial sales, the sites at Darra and Morningside are considered by both valuers to be far superior to the subject site. The respondent contends that the Yatala and Charlton sites provide only supporting evidence. The applicant says the reliance on the residential sales is contrary to principle and should be rejected, or alternatively given no weight. In relation to the industrial sales, the applicant says, “even Mr Lyons is prepared to accept Charlton and Yatala are supporting evidence”.69 In applying the comparable sales method, Mr Lyons primarily relied on the three residential englobo sales to determine a pre-resumption range of values from $76,667 to $95,200/ha. He adopted a rate of $82,500/ha to a pre-resumption area of 90.51ha. In the post-resumption scenario Mr Lyons reduced the value by a “somewhat subjective” 15% to calculate a rate of $70,000/ha which was applied to a post resumption area of 77.5ha. 69 Ex 84, para [95]. -- 19 of 39 -- 20 In contrast, Mr Crawford summarised his analysed evidence for Charlton, Yatala, Darra and Morningside in a table.70 The table was modified as Schedule 171 to the applicants opening submissions to include corrections to the Darra sale and to include the Roseneath sale. The table was further revised in relation to the Yatala sale lot yield.72 In the pre-resumption scenario, Mr Crawford determined a range of $225,000 to $250,000/ha to an area of 85.9 ha; and a range of $175,000 to $225,000/ha to an area of 73.95 ha in the post resumption scenario. The explanation for the difference in pre and post-resumption areas appears to be that Mr Lyons’ calculations are based on the developable area (which may include the area of internal road) while Mr Crawford’s calculations are based on the cumulative area of the 18 lots in the pre-resumption scenario and the 14 lots in the post- resumption scenario. The result of the application of the comparable sales method (primary for Mr Lyons; check method for Mr Crawford) is as follows: Crawford Lyons Pre-resumption $20,400,000 $7,467,075 Post-resumption $14,800,000 $5,425,000 Adopt $5,600,000 $2,050,000 To properly form a view about the reliability of the comparable sales method in this matter, I need to consider the sales and how they were analysed. The englobo residential development sales The sales are: Harris Crossing Estate (Bohle Plains); Greater Ascot Estate (Shaw); and Eden Park Estate (Jensen). Mr Crawford did not analyse these sales and did not seek to apply them. Mr Lyons said that had there been, for the purposes of comparison, industrial englobo sales in Townsville, Mackay, Cairns, Rockhampton or anywhere else that had similar 70 Ex 26, para [209]. 71 Ex 54. 72 Ex 61. -- 20 of 39 -- 21 demographics to Townsville, he would have used them. He said that there was a lack of comparability with the industrial sales in southern Queensland. He acknowledges the different characteristics between the subject and the residential development sites. However, it was his view that any developer looking to purchase the subject land would be a developer of “some substance”, given its size and the expense involved in its development. Those developers, he said, would not necessarily restrict themselves to industrial land subdivisions or residential subdivisions. Rather, they may embark upon commercial subdivisions or build retail warehouses. Mr Lyons identified a number of developers who operate in that way and are active in the Townsville market. In that context Mr Lyons says these sales become relevant “given the lack of any other evidence”. Harris Crossing The sale on 9 June 2015 comprised three separate but adjoining infill sites, 3 km west of Thuringowa Central. The total area is 142.18 ha. It is zoned ‘Emerging Community’. The sale price comprised $7 M together with a $140,000 commission. Mr Lyons analysed the sale $60,590/ha overall, or $95,200/ha for the developable area of 75 ha. The east side of the parcel is significantly affected by flooding; there are a number of drainage easements; and 50% of the area is below the Q100 flood level. Approximately 50% of the site or 75 ha is capable of development. There are 353 traditional housing lots. Since the purchase, approval was gained for reconfiguration based on a new flood study. The revised layout provided for a higher lot yield comprising 740 lots ranging from 350 m2 to 1100 m2. Significant earthworks (using materials mostly sourced on-site) were required to maximise the developable area. Development was progressive. There is no evidence of a change in the market. The date of sale is 10 months after the date of resumption. Mr Lyons was of the view that, although a residential development, it is comparable because a developer large enough to undertake a project on the subject property would look at all potential development sites in the area. Any investment decision is based on profit margins of the individual site, rather than the use of the site upon development. A residential subdivision is generally seen as lower risk due to more stable sales rates. -- 21 of 39 -- 22 Mr Crawford observed that the development might include lots for uses other than residential. He notes that services including a childcare centre have been recently approved. He noted that the ability to increase the number of lots was offset by the (approximately) 500,000 m3 earthworks. He was of the view that the 50% of site area adopted by Mr Lyons is a very general approximation, not sufficiently accurate to derive the pro rata value to be applied to the subject property. Both Mr Lyons and Mr Crawford had (separately) held discussions with the Development Manager of the developer company. From those discussions, Mr Lyons understood the development costs to be $76,897 but that some of the earthworks costs could be higher and “the costs might get up to $85,000 per lot, in his (the Development Manager’s) words”. This is the amount adopted by Mr Lyons in his 11 October 2022 supplementary report to the respondent’s instructing solicitors.73 Mr Crawford considered that Mr Lyon’s analysis failed to account for the cost of 10 in-house staff to manage matters relevant to the sale of the estate. He assumed that that number of staff was required “for the 10 years of the project”. He based this number on the Development Manager saying, “25 percent of my staff (of 40) are dedicated to Harris Crossing”. Mr Crawford expressed the view that the number of in-house staff needed for an industrial subdivision would be minimal in comparison to a residential estate, noting that in the pre-resumption scenario there were only 18 lots. Mr Lyons accepted there might be a need for site staff, but did not accept that 10 full time staff would be necessary. He observed that sales and administrative staff would be working across a range of projects, not just Harris Crossing and/or Eden Park (another of this developer’s estates). He was of the view that these costs would be the same as an industrial subdivision. Greater Ascot The sale, approximately 13 km west of the Townsville CBD was completed on 11 April 2014. The sale price was $14.1 M and the area 304.558 ha (including 3.138 ha in 61 developed lots). The master planned residential estate was approved on 4 September 2009. Mr Lyons analysed the sale $46,297/ha overall or $87,138/ha of developable land. The area is described as a developing residential locality. The aggregation is affected by a high voltage power line easement to the north but not 73 Ex 27. -- 22 of 39 -- 23 within the developable area. 151.42 ha is flood affected; the terms of sale were staggered, with final payment due 30 June 2018. The sale was considered by Mr Lyons to be “at arms length”. Mr Lyons discussed the sale with the valuer who had negotiated the sale between the parties. Mr Lyons says that the sale is comparable as the subject land is hypothetically in the wider market as a development site. Mr Crawford says that the purchaser advised him that between 45% and 50% of the site is developable, noting that 45% equates to 135.64 ha in which case the pro rata analysis increases to $96,363/ha. He said that Mr Lyons did not take into account, in a quantifiable manner, the substantial earthworks. Mr Crawford questions whether the sale did in fact occur at arm’s length, noting a Joint Venture Agreement which he asserts effectively made it a ‘forced sale’. He also suggested that the analysis did not account for adjustments which would need to be made concerning the developed lots, including rates. Eden Park This sale, of 60.42 ha of land zoned Park Residential in a rural residential locality, approximately 20 km west of the Townsville CBD was completed on 25 March 2014 for $3.45 M. The area is well serviced by Deeragun. The site is bisected by a stormwater drainage easement. There was approval to reconfigure the area into 98 rural residential lots of mostly 4000 m2 each pursuant to a 28 April 2014 plan. The area is not affected by flooding, but considerable areas need to be set aside for drainage. The developable area is approximately 45 ha. Mr Lyons analysed the sale $57,100/ha overall, and $76,667/ha of developable land. Mr Crawford says that Mr Lyons’ statement that the property had approval to reconfigure the lot into 98 rural residential lots is wrong as the approval was only for 82 rural residential lots, being lots 17 and 18. Other industrial sales in the Townsville area - 1 Ridge Street, Roseneath. The respondent says that this sale can be set aside. They say that Mr Lyons discarded the sale on the basis that it was sold four years prior to the date of valuation, the sale -- 23 of 39 -- 24 was subject of a mortgagee exercising the power of sale and therefore may be unreliable, and it was purchased as a storage yard with no intention to develop. The property is zoned rural with a development application for 45 lots. There is a useable area of about 10 ha. Mr Lyons allowed $200,000 for improvements and analysed the sale to be $100,000/ha of usable area. He says the market has deteriorated since the sale and for the purposes of comparison analysed the sale at the relevant date to $90,000/ha. Mr Crawford considers the sale so far inferior, being too small and constrained so as not to provide any reasonable comparison to the subject. Mr Crawford says, however, that the sale is compelling evidence that the values applied to the subject property by Mr Lyons are far too low. Mr Crawford notes that Mr Lyons’ valuation of the subject site of $82,500/ha is significantly lower than his analysis of this inferior site. Sales remote from Townsville The sales are located at: Charlton; Peachey Rd, Yatala; Darra; and Lytton Rd, Morningside. Charlton This 32.56 ha property is on the corner of O’Mara Rd and the Warrego Highway at Charlton. It was sold in late 2014 for $4.5 M with a 17 March 2009 approval for a 12 lot subdivision, later amended to use some of the land for an unmanned truck stop. The lot yield was agreed to be 26.07 ha. It is a tiered, industrial, site with a significant slope. Mr Lyons says Charlton (and Yatala) provide only supporting evidence due to the location of the sales in south-east Queensland and “some unknown variables”. Mr Crawford says that Mr Lyons originally said the sale provided good evidence for industrial englobo site around the resumption date. The applicant notes that Charlton was analysed by Mr Crawford at $170,694/ha and Mr Lyons at $172,612/ha. However, Mr Crawford ‘uplifts’ the value for the subject in the order of 35% to 40% in the pre-resumption case to $225,000/ha to $250,000/ha. Mr Lyons discounts the value by approximately 50% to $82,500/ha. As noted in the applicants closing submissions one difference between the experts appears to be the value attributed to the 3.3 ha Roadhouse site fronting the Warrego -- 24 of 39 -- 25 Highway which was known at the date of sale. Mr Crawford says Mr Lyons originally applied $400,000/ha to this area which reduced the pro rata value of the balance to $80,775/ha. Mr Crawford said however that Mr Lyons did not make any allowance for the added value of the tenancies “which in the opinion of the purchaser” comprised 60% of the sale price. Mr Lyons, in his 11 October 2022 supplementary report to the respondent’s instructing solicitor, revisited his analysis.74 He says an agreement to design and construct a roadhouse was in hand at the time of purchase. He says a site of 1.94 ha adjoining the Roadhouse was sold on 27 August 2014 for $1,200,000 or $61.86/m2. He accordingly adopted a rate of $60/m2 for analysis purposes and estimated $100,000 for subdivision costs associated with the sale. He says that analysed this way the true englobo industrial subdivision land value is revealed, exclusive of the Roadhouse site which was the principal motivating factor in purchasing the property. He says the site is far smaller than the subject which would indicate a lower value should apply to the subject. He analysed the remaining developable area of 24.2 ha at $108,264/ha, saying that an allowance of 20% is made for size and external infrastructure costs. The sale is analysed to $86,611/ha, which is consistent with the rate per hectare Mr Lyons adopted for the subject site. The applicant says that little weight should be given to the 11 October 2022 supplementary report of Mr Lyons. They say that the analysis is flawed for the reasons outlined in Mr Crawford’s response correspondence of 21 October 2022,75 including the fact that the purchaser owned the land to the east and west and was therefore an adjoining owner consolidating its holdings – which would require further investigation. Mr Crawford considers the subject site significantly superior due to: the remote subdivision (Charlton) does not have a “catalyst” other than a service station; Charlton’s location more than 12 km from Wellcamp airport, noting that the Port of Townsville is a far stronger benefit to a logistics site; at the relevant date the second Range Crossing was only in preliminary design; the high cost of tiering the site; and, that the majority of the site development was considered by Mr Lyons to be a long term project. 74 Ex 27. 75 Ex 47. -- 25 of 39 -- 26 Yatala The Yatala site is in the Yatala Enterprise Area, with long term industrial development potential at the date of sale. It is in a fast-developing area about 3.5 km off the M1 Motorway. Mr Crawford and Mr Lyons agree that the site analyses to $177,425/ha on a per ha gross basis. On a lot yield basis Mr Crawford analyses the figure to $217,211, however in evidence Mr Crawford said the “preferable figure” is $230,162/ha “because that excludes the area of the batter … retaining wall that’s in three different tiers … [y]ou lose quite a lot of the lot area – or 1.36 of the lot area”.76 Mr Lyons said the site was considered to have longer term industrial development potential. At the date of sale land sales in the area ranged from $200 to $300/m2. Absorption rates in Yatala around the time of the sale were far superior to Stuart (Townsville). In comparison, Yatala is heavily populated and is in a fast growing transport and logistics area. Mr Lyons considered that there would be twice as much profit in the sale at Yatala. It was observed by Mr Crawford that the sale has extensive cut along the eastern boundary and fill on the southern and western boundaries with tiered retaining walls, and that the subdivision required construction of two signalised intersections to the south and west. In the VJER, it was agreed that the Charlton and Yatala sales were suitable for the application of the direct comparison approach, although Mr Lyons considers them to be supplementary evidence only.77 Mr Crawford says that Mr Lyons originally analysed the sale on the basis of a 25% discount to “an indicated value of $133,069 per hectare” but subsequently applied a 54% discount “seemingly based on sales of englobo residential land”.78 In closing submissions, the respondent says that neither valuer afforded much weight to this sale. 76 T2-54, lines 32-46 and T2-55, lines 1-7. 77 Ex 26, para [17]. 78 Ibid, para [146]. -- 26 of 39 -- 27 Darra and Morningside The applicant in closing submissions says that Darra and Morningside are considered substantially superior by Mr Crawford, and Mr Lyons does not rely on them. The applicant says that in oral evidence, Mr Lyons stated that that he has no particular reliance on the Darra sale, and the Morningside sale is not considered comparable by either valuer. Accordingly, both sales can be set aside. c. Conclusions on methodology As noted earlier, the applicant says in closing submissions that the threshold point of difference between the valuers is the preferred method of valuation. The respondent in closing submissions says that in the present case neither method is without difficulty. The question is therefore which is more reliable. In closing submissions, the applicant accepts that this Court has indicated that the hypothetical development method should not be used as a primary method of valuation but may be a useful check to the comparable sales method.79 They note decisions of the High Court which accept that it is an available method of valuation,80 and that it was clearly accepted in Boland v Yates Property Corp Pty Ltd.81 As referenced in The Proprietors’ Seventeen Henry Street' Buildings Units v Chief Executive, Department of Natural Resources and Mines,82 the hypothetical development method was adopted by the Land and Environment Court of NSW in Gwynvill Properties Pty Ltd v Commissioner for Main Roads “because every ingredient was known about the land, including its highest and best use, gross rents, gross outgoing, and allowance for profit and risk”.83 I also note that in Gwynvill, the comparable sales method was rejected because of a paucity of sales; the resumed area was 70 m2; and it was agreed that there was no market for 70 m2 as a separate parcel. 79 Ex 84, para [71]. 80 Australian Provincial Assurance Association Ltd v Commissioner of Land Tax 1942 ALR 156, 158; Turner v Minister of Public Instruction 1956 95 CLR 245. 81 (1999) 167 ALR 575 [286]. 82 [2001] QLC 127 [57]. 83 (1981-83) 50 LGRA 322, 326. -- 27 of 39 -- 28 This Court in The Proprietors’ referred to other consideration given to the hypothetical sales method at [59] – [61]: The use of a hypothetical subdivisional process was also adopted where comparable sales evidence was hard to find in Crouch v Minister of Works (1976-78) 36 LGRA 254, where Wells J said at page 264: “Consequent upon the foregoing analysis of the planning prospects, I am satisfied – and I find – that the hypothetical subdivisions proposed by both valuers ought to be treated with caution, and upon a decidedly conservative basis.” In that matter the Court adopted the hypothetical development approach, and then used the comparable sales as a check upon the former approach, where Wells J went on to say at page 281: “In the circumstances of this case, the centre of gravity of the valuation process is, in my judgment, to be found in the hypothetical subdivisional calculation, and I shall base my assessment of compensation upon it.” However problems with the hypothetical development approach were clearly identified in Myer Realty Limited v. Commissioner for Railways (1980-81) 7 QLCR 87, where the Learned Member (later President) said at page 92: “Once again, it is brought home to me, the problems which continue to arise when the hypothetical subdivisional method of valuation is relied upon as the basis presented to the Court as acceptable to determine an award of compensation. I have grave doubts as to its practical utility in other than the most simple of cases. The result should always be compared, if possible, with some sales.” That view was also followed in Para Vale Estates Pty Ltd v The Minister of Works (1966) 12 LGRA 19, per Napier CJ who said at page 23: “As I see it, this method of estimating the market value can be used as a check upon the values suggested by the sales of comparable properties, but I think that it introduces an additional element of speculation and uncertainty, namely, what profit would the subdivider look for and expect. This must necessarily vary, according to the circumstances and the risks inherent in the particular case. In the result the method is, at best, no more than an indirect way of reaching a conclusion, which can, in the ordinary course of things, be reached more directly and satisfactorily by a consideration of comparable sales.” (See per Dixon CJ in Turner & Anor v Minister for Public Instruction (1955) 95 CLR 245, at 267 and 268. I also note that in CF Stanfield v Commissioner of Main Roads,84 as referred to in Wagner Investments Pty Ltd v Chief Executive, Department of Main Roads,85 the Land Appeal Court adopted the hypothetical development method. However, that matter involved a determination of severance. Severance is not relevant to the matter before me. 84 (1969) 36 CLLR 76. 85 [1998] QLC 78, 18. -- 28 of 39 -- 29 The matter before me is certainly not a simple case. Hypothetical development method conclusions Given the fact that the land exists within the TSDA and there were existing rail yards and rail infrastructure at the site at the time of resumption, it is reasonable to conclude that the prospect of establishing the intermodal was high. I accept in that context, and to that extent, a developer would have reasonable confidence to proceed with a subdivision. In that sense, the land was “ripe for subdivision”. Realistically however, that would not occur for a minimum of two years, and possibly longer. In the event, the subdivision has not happened, 8 years later. I accept that the industrial market was subdued at the time of resumption and that a prospective purchaser would have delayed any subdivision until the intermodal facility was operational. I accept that the intermodal facility would influence the development as a whole, and that the highest and best use of each individual site within the development is influenced by that. However, the mere existence of the intermodal is not evidence that there is demand for the individual sites, or that the anticipated demand would convert to sales within a reasonable time. The existence of an intermodal may attract both the industrial land user in need of larger lot sizes, as well as an industrial land user with similar use of the intermodal to Linfox, the current occupant of Lot 2. The intermodal is a point of difference from other industrial subdivisions. It gives the subdivision particular appeal to the market of industrial land users who do, or may wish to conduct, a road/rail transport, logistics and supply chain type business from this region. It would reduce the cost of supply chain management. The size of that market is not clear. The valuers do not define what they mean when they describe the intermodal as a “catalyst”. Without the intermodal, the subject site would be another industrial subdivision, perhaps not unlike the Townsville Distribution Precinct, but with much larger lots sizes. Without the intermodal, a decision to proceed to develop the land would be determined by an assessment of demand, taking into account the availability of other industrial land. -- 29 of 39 -- 30 As noted at [64] of these reasons, Mr Crawford in the VJER says that the State and Local Governments specifically identified the applicant’s land for a Transport and Support Services Development, and specifically for sites of 2.0 ha or greater.86 While that is a fact, it does not establish that there is a market and demand for areas greater than 2 ha adjacent to this intermodal facility. The business case for establishing the TSDA, and for determining the minimum lot size, was not referred to in the hearing, and I was not directed to it in the evidence. The case for the co-location of industries or particular land users can be made for any number of reasons. However, there was no evidence presented that it was or was not demand driven. There is no evidence of the analysis, if any, done prior to the inclusion of the subject site in the TSDA and the proposal to develop the intermodal facility. In closing submissions, the respondent said: Effectively, a build it and they will come type approach. Well, the freight facility was approved in 2015 and constructed in 2016. It took until 2020 for the development of the industrial estate to be – to reach its approved stage, and still nothing has happened. We are eight years down the track. It was built and no one came.87 In my view, Mr Crawford’s sales rate is overly optimistic. I accept the submission that there is no evidence to support the assertion that the supply of new industrial land of lots greater than 2 ha will generate demand. The evidence of Mr Lyons, who has 27 years of valuation experience in the Townsville area, was that there was limited demand for lots of greater than 2 ha, and that that limited demand has to date been met by amalgamating parcels in other industrial subdivisions. I accept the respondent’s analysis of absorption rates that in the 5 years prior to the resumption date there only 8 lots greater than 2 ha taken up in the Townsville area. It would appear that comparing Mr Crawford’s 20% profit and risk to Mr Lyon’s Estate Master Profit/Risk of 54.86% in the pre-resumption scenario is not a “like for like” exercise. The same applies in respect of the post-resumption figures. 86 Ex 26, para [62]. 87 T4-7, lines 44-46 and T4-8, lines 1-2. -- 30 of 39 -- 31 While the profit and risk percentages produced by Estate Master appear to be outside the range that might be expected in a straight line methodology, they are produced from a program which, based on enquiries, analysis and experience, takes account of the time value of money. I accept the proposition that in developments that extend over a period of time, the time value of money might not be sufficiently reflected in a straight line methodology. I accept that in the application of the Estate Master program by Mr Lyons, appropriate account was taken of the sales rate and the general risk of the overall exercise, particularly the type of development, that the project involved a subdivision with very large lot sizes, which would be distinct from another property, which might be more market acceptable or less market acceptable. I accept that the IRR should be adjusted to make allowance for those individual factors, including a realistic selling rate. The applicant acknowledges that the claim for compensation based on the application of the hypothetical development method by Mr Crawford was initially $16.55 M, subsequently $10.65 M, and, in the 19 October 2022 amended claim for compensation, $6.5 M. They say this was a downward trend in favour of the respondent made with the ongoing benefit of updated information from other experts. The respondent says the vast range of outcomes, from around $16.5 M to $6.5 M, serve to illustrate the significant difficulties associated with reliance on such a method. All of these matters are relevant to the utility of the hypothetical development method and all weigh against its adoption in this matter. That is, unless the alternative method is considered less reliable. Comparable sales method conclusions Mr Lyons does not frame the issue about the most appropriate methodology as a case of residential sales versus industrial sales. Rather, he says that Mr Crawford, in his consideration of this method, uses sales which are 1,375 km away from the subject site, where market circumstances are different, and where there are different cost characteristics, risk factors, gross realisation and selling periods. He says that the only factors in common between the Charlton and Yatala sites and the subject site is the permitted end use. -- 31 of 39 -- 32 Mr Crawford says Mr Lyons initially considered the Charlton site comparable, but abandoned it in favour of the three residential englobo sites in the Townsville region. He says that in his experience this is the first time it has been suggested that the sale of englobo residential or rural residential land has been presented as primary evidence for englobo industrial land. He says they offer no reasonable comparison and that they present no correlation in market cycles. He considered that the lot yield ratio of residential land is far lower, and the cost per ha far higher. I acknowledge the issues identified by Mr Crawford, which the applicant submits renders the comparable sales method as applied by Mr Lyons less reliable than the hypothetical development method. Although the comparable sales evidence does not include a subdivision with something akin to an intermodal facility, I have made some observations about the use and meaning of the term “catalyst”.88 The applicant in closing submissions says that Mr Lyons’ overall assessment of compensation is incapable of being accepted when looking at the increased cost of developing the area in the post resumption scenario.89 The calculations are based on estimates made by the applicant’s civil engineer. In evidence, Mr Lyons said that although the costs of developing the area increased on a per m2 basis, the actual cost of developing the estate in the post-resumption scenario is less.90 The applicant also referred to other alternative analyses of Mr Lyons’ sales, and alternative calculations by, for example, adjusting the 15% post resumption reduction proposed by Mr Lyons to 20%, and incorporating additional development costs. The purpose was to demonstrate why Mr Crawford’s evidence should be preferred. Both parties engaged in this form of attack on the methodology and application of each valuer. For that reason, I don’t consider the arguments determinative. The claim by the applicant that the application of the comparable sales method does not take account of the “unique nature of the highest and best use” is I believe a reference to the predominant uses of individual sites for Freight Terminal, Transport 88 See [66] and [139] of these reasons. 89 Ex 84, para [46]-[47]. 90 T3-100, lines 24-29. -- 32 of 39 -- 33 depot and Warehouse. This raises an issue of interpretation. ‘Unique’ could be beneficial or it could be detrimental to the development and disposal of sites. Although not advanced as a primary comparable site, and as discussed at [116] above, in his 11 October 2022 supplementary report Mr Lyons revisited his analysis of the Charlton site to take into account the adjoining roadhouse to reveal “the true englobo industrial subdivision land value” and to confirm his conclusion regarding the subject site, and the residential development sites. In Graham Trilby Pty Ltd v Valuer- General,91 Jagot J, then a Judge of the NSW Land and Environment Court, said that the adjustment process should work forwards from the comparable sales to derive an opinion of value, rather than work backwards to justify an opinion of value previously formed. I accept that Charlton is, at best, supporting evidence only. I note the issues raised by Mr Crawford concerning Mr Lyons analysis of englobo residential sales and that some of those issues may be valid, however my decision goes to the reliability of the method in this case and the application of the method I consider the more reliable. There is no question that the residential sites are different to the subject site. In the circumstances however, despite the shortcomings, I am of the view that the comparable sales approach is the more reliable methodology. In applying the comparable sale methodology, the valuers reached quite different conclusions. 2. For the comparable sales method, what weight should be given to the 8 sales referred to in the Joint Expert Report of the valuers? In closing submissions, the respondent says that the Charlton and Yatala sales “are suitable to apply the direct comparison approach”. This was agreed in the VJER,92 although the respondent considers them supplementary evidence only. The respondent says that Mr Lyons considers the sales at Charlton and Yatala provide only supporting evidence due to their south-east Queensland location and some unknown variables.93 They note the only factor the subject site has in common with 91 [2008] NSWLEC 217 [25]. 92 Ex 26, para [17]. 93 Ibid, para [153]. -- 33 of 39 -- 34 the Charlton and Yatala sites is the sale of englobo parcels with the same permitted end use.94 Of the two, the respondent says that Mr Lyons considers the Charlton sale provides the most assistance. In response to the criticism of Mr Lyons’ use of sales for residential development, the respondent says they are used reluctantly because there is no more comparable sales evidence. They say Mr Lyons considers sales from the same geographical market, namely the Townsville area, and are therefore far more reliable than englobo industrial sales evidence in south-east Queensland. The applicant says that despite this, Mr Lyons considers that Yatala is supporting evidence and originally thought Charlton in south-east Queensland was good evidence. Mr Crawford says the differences are so great between the sales for residential development and the subject site that no reasonable comparison can, or should, be made. The respondent says the other sales are not afforded much weight by either valuer. I accept that the englobo residential developments the respondent has advanced are quite different in nature and purpose from the subject site. They were, however, sales which occurred in a similar timeframe and in the same regional market. In my view, sufficient account was taken of the circumstances including the location, size, shape and difficulties with development. The residential englobo sales have sufficient points of similarity to enable them to serve as comparable sales in this matter. I consider Harris Crossing and Eden Park provide the better comparability and that Greater Ascot less so due to the issue raised by Mr Crawford concerning the Joint Venture agreement. If that sale was to be discarded, sitting as it does towards the middle of the analysed values, it would appear that there would be little impact on Mr Lyons overall analysis. I accept the evidence of Mr Lyons that developers, when considering investment decisions, do not only look at one sector of the market. Investment decisions are based on potential profit and, in that context, Mr Lyons says the englobo residential sales are relevant. I also accept that Mr Lyons has extensive familiarity and professional experience in the Townsville property market. 94 Ibid, para [155]. -- 34 of 39 -- 35 On the evidence, I prefer Mr Lyons’ application of the comparable sales method and the primary weight given to the large englobo residential development sites in the Townsville area as analysed by Mr Lyons. Issues arising from the Civil Engineering evidence Only two issues arising from the Supplementary Joint Expert Report of the Civil Engineers (SJER) require resolution: the cost of hydromulch to an area of flood mitigation, and the need for the widening of culverts to the east of the site along the Flinders Highway approach. The differences in opinion are taken up by the valuers. Regarding the hydromulch issue, in the VJER the valuers say that Mr Gould, the civil engineer engaged by the applicant, is of the opinion that the additional cost of hydromulch in the post resumption scenario increases by approximately $300,000 over the estimates of Mr McAnany, civil engineer for the respondent. In relation to the issue concerning the intersection, Mr McAnany believes the cost is reduced by approximately $300,000, whereas Mr Gould believes it would be same in the before and after scenarios. 3. What cost should be adopted for soil erosion and sediment control (hydromulch) in the post resumption scenario? Hydromulching is the spraying of mulch containing various seed mixes over exposed soil to achieve erosion protection.95 A Development Cost Report by Northern Civil Engineering (NCE) contained a design and the pre and post resumption estimates for the proposed development. The expert civil engineers provided cost estimates for the scenarios depicted in the development plan. NCE applied rates for “[h]ydromuch, seed and irrigation to fully revegetate drainage corridors and flood mitigation areas” of $4.00 per m2 and “[h]ydromulch, seed and temporary irrigation to establish grass cover to allotments” of $2.50 per m2 in both 95 Ex 25, para [3.35]. -- 35 of 39 -- 36 their ‘Pre and Post Estimate of Costs’. These unit rates were adopted by Mr Gould and Mr McAnany. In the SJER, Mr McAnany says that in the post-Highway upgrade scenario there is a 20 ha almost flat, flood mitigation area in the north-eastern corner of the development site, which did not exist when NCE were preparing their opinion on costs. This is a large, grassed area which Mr McAnany says is divorced from the creek. Mr McAnany subdivided the creek and drainage areas and applied a lower rate of $2.50 per m2 to the drain areas and maintained a rate of $4.00 per m2 to the creek areas. Mr McAnany says that even though this area is a flood mitigation area, the hydromulch treatment and access will be equivalent to the lot and verge areas and a rate of $2.50 per m2 should apply. Mr Gould says that the appropriate treatment for remediation of the drainage corridors and flood mitigation areas should be the same, from an engineering costing perspective, and as such the rate of $4.00 per m2 should be maintained for the total area. He says that hydromulching in the north-eastern corner should be treated in the same way as the remainder of the flood mitigation areas. While in the SJER the difference in the rate appears to be mostly due to the different seed mix, it is the cost of irrigation that seems to be the main cause of the increased cost per m2. The flood mitigation areas would require an irrigation system in place to establish grass cover, whereas the lot and verge areas only require watering during the establishment period to ensure germination of the seed. Irrigation would also provide faster establishment whereas the erosion protection could be lost if there was a flood shortly after construction. The area concerned is not in a waterway – it is better described as a flood plain. Access on areas where there is no irrigation system was also raised as an issue. However, it was argued that watering could occur on the 20 ha lot using water carts. A concern about the use of water carts on the flood plain was that the carts would adversely impact new growth. Although the area concerned is not in a waterway, rather a flood plain, I am of the view that the $4/m2 hydromulch seed mix and irrigation system on the 20 ha flood -- 36 of 39 -- 37 plain is necessary to deliver the required erosion protection. I accept the position advanced by Mr Gould on this issue. In the Summary of Opinions in the VJER it appears that, in using Mr Gould’s estimate for hydromulch, Mr Lyons calculates the difference from the base case assessment as $200,000 whereas Mr Crawford calculates $300,000. Mr Crawford applied the figure directly. Mr Lyons assessment however is based on his subjective assessment in the post- resumption case, which resulted in a reduction of the after case rate per hectare from $70,000 per ha to $67,500 per ha for each individual issue.96 Although based on an approximate $300,000 increase in the post-resumption scenario, it resulted in a $200,000 increase in Mr Lyons’ valuation. This is the figure I accept. 4. What cost should be adopted for the construction of the intersection of the internal road and the Stuart Bypass in the post resumption scenario? As noted previously, the valuers do not offer an opinion as to whether Mr Gould or Mr McAnany’s opinion should be adopted. They merely quantify the differences. Mr Gould adopts the same $3,800,000 construction cost of the intersection in the before and after scenario. Mr McAnany believes the cost reduces by $300,000 in the after to $3,500,000 as the widening of stormwater culverts and the shortening of the Flinders Highway approach and departure lanes is unnecessary. Mr Gould disagrees. He points to the actual intersection and its proximity to the culverts as demonstrating the widening was unavoidable. The applicant challenges Mr McAnany’s reliance on the notation of the respondent’s traffic engineer on the pre and post resumption intersection upgrade plans (prepared by the applicant’s traffic engineer).97 They say that the notations describe “goals” for the lanes approaching from the east be shortened in the pre-resumption case to avoid hitting the bridge, but in the post-resumption scenario it be shortened to avoid hitting both the bridge and the culverts. The applicant submits that Mr McAnany concluded from the notation that because the culverts must be widened in the pre-resumption case, the cost can be avoided in the post-resumption case. 96 Ex 26, para [259]. 97 Ex 84, para [165]. -- 37 of 39 -- 38 The applicant argues that Mr McAnany’s approach should be rejected because the respondent’s traffic engineering expert’s notation is not supported by coherent reasoning or drawings, the expert did not give evidence, and he might be wrong. Further, it was Mr Gould’s view that if the culverts did not require widening in the post-resumption scenario, they would not need to be widened in the pre-resumption scenario.98 This is the argument I find most compelling. I accept Mr Gould’s conclusion that the construction costs of the intersection do not reduce in the post- resumption scenario. For the same reasons as explained at [186], where I preferred Mr Gould’s opinion in relation to the intersection, Mr Lyons assesses additional compensation in the amount of $200,000. This is the figure I accept. 5. Have the valuation experts appropriately taken account of the improved access to the site via Jurekey Street in the post resumption scenario? The applicant says the answer is “yes”, the benefit is very minor, and is of little or no weight in the post-resumption scenario. The respondent says that, although not a massive boost, Mr Lyons considered access to the site superior post resumption as a result of the upgraded Bruce Highway intersection at Jurekey Street which provides unrestricted access. While this provides more options for the development of the site generally, the approval of the intermodal facility was granted on the basis that all traffic would use the Flinders Bypass for its access. The valuation experts have appropriately taken account of the improved access to the site via Jurekey Street in the post resumption scenario. 6. At what amount should compensation be assessed? Compensation for the land taken and any injurious affection caused to the Balance Land, is assessed at $2,450,000 on the before and after comparable sales method in accordance with Mr Lyons’ base case scenario. This amount includes the estimates of Mr Gould in relation to hydromulch and the construction costs of the intersection with the Stuart Bypass. As noted at [6], the parties have agreed on disturbance costs of $200,000 inclusive of interest. 98 T2-42, lines 38-44. -- 38 of 39 -- 39 Orders 1. Compensation is determined in the sum of Two Million and Four Hundred and Fifty Thousand Dollars ($2,450,000). 2. The parties will be heard in relation to any application for costs. A request for such a hearing must be made on or before 13 January 2023. -- 39 of 39 --