Brown v Armstrong & Anor [2005] QLRT 18

LAND AND RESOURCES TRIBUNAL QUEENSLAND CITATION: Brown v Armstrong & Anor [2005] QLRT 18 PARTIES: In the Matter of Mining Lease No. 70297 – Gregory John Brown (Applicant) and Dean Lindsay Armstrong and Lisa Maree Armstrong (Respondents) FILE NO: MLC83/2003 PROCEEDING: Application for determination of compensation DELIVERED ON: 16 February 2005 DELIVERED AT: Brisbane HEARING DATE: 26 November 2004 PRESIDING MEMBER: Kingham DP ORDER/S: 1. Compensation determined at $89,466. (at [39]) 2. Such compensation to be paid by the miner to the landowners within 1 month of the grant of ML 70297. (at [40]) 3. No order as to costs. (at [41]) CATCHWORDS: MINING – COMPENSATION – TERM OF LEASE - PRUDENT PURCHASER – CONSEQUENTIAL LOSS Mineral Resources Act 1989, s. 281 Zimmerebner v Hawkins & Anor (1999) 20 QLCR 17, Salmon v Armstrong [2002] QLRT 54, referred to Moreton Club v Commonwealth (1948) 77 CLR 253, applied R v The Land Court & D.M. White ex parte Kennecott Explorations (Australia) Ltd & Ors (1988-1989) QLCR 17, followed Spencer v The Commonwealth (1907) 5 CLR 418, applied Salmon v Armstrong [2001] QLRT 72, referred to Morrow v Minister for Public Works (1985) 59 LGRA 29, followed Re Junior Mining (Operations) Pty Ltd & Schmidt -- 1 of 9 -- [2004] QLRT 131 at [19], followed Minister for the Army v Pacific Hotel Pty Ltd [1944] St R Qd 112 (HC), applied Sullivan v Oil Company of Australia Ltd (No 2) [2004] 2 QdR 105, applied COUNSEL: Mr A. Barlow, for the Applicant SOLICITORS: N/A AGENT/S: Mr G. Houen, for the Respondents Background [1] The miner applied to the Tribunal for a determination of compensation payable to the landowners in relation to the grant to him of ML70297 over part of a property known as “Fork Lagoon”. Fork Lagoon is a freehold and leasehold grazing property in the Emerald region. The lease is situated within a paddock known as the Top Bullock Paddock. The landowners consider this to be the best paddock on the lease. The lease area is 150ha. When Deputy President Smith of this Tribunal recommended the grant of the lease, he took into account the landowners desire to maximise access to the paddock and he recommended that it be granted subject to a condition that no more than 10ha of land are disturbed at any one time. Awards sought by the parties [2] The landowners sought an award of $192,845 calculated as follows: Diminution in value of land $160,000 Additional management costs $ 11,814 Valuation fees $ 3,500 $175,314 Additional amount of 10% $ 17,531 Total $192,845 The miner sought an award of $38,775 calculated as follows: Diminution in value of land $35,250 Additional amount of 10% $3,525 Total $38,775 Evidence [3] Statements by the miner and by Mr Armstrong were tendered as were reports and supporting material produced by the landowners’ valuer, Mr Compton. Mr Compton also gave oral evidence. No other evidence was called by either party. Mr Compton’s Assessment Methodology [4] Mr Compton assessed compensation on a before and after method. He then -- 2 of 9 -- apportioned that amount on a piecemeal basis. This is appropriate if the items identified on that basis are compensable items pursuant to s.281 of the Act. Mr Compton’s apportionment on a piecemeal basis demonstrates that his after valuation is comprised of 2 broad categories of loss: diminution in value of the area included in the mining lease and diminution in value of the balance lands. His assessment of compensation also includes an amount for consequential losses (additional management costs and recovery of valuation fees). Whether each of these items included in those categories is compensable loss is addressed below. Before Valuation [5] In his valuation report for these proceedings, undertaken in September 2004, Mr Compton assessed the value of the area applied for at $1,086 per ha. In July 2003, Mr Compton undertook a valuation for the Commonwealth Bank for mortgage purposes and assessed the value at $925. He provided a new valuation to the Bank on the same day he delivered the valuation report for these proceedings. Mr Compton justified the increase by reference to a year of strong enquiry for grazing country, particularly improved scrub country capable of finishing cattle, and new high benchmarks having been set for such properties. He supported his valuation by reference to recent sales evidence. [6] Under cross-examination by Mr Barlow, counsel for the miner, Mr Compton rejected the propositions that an adjacent property, Nardoo, was an equivalent property and that a valuation of that property (at about $940 per ha) represented a reasonable value for Fork Lagoon. Mr Barlow did not tender that valuation. No evidence was submitted that challenged Mr Compton’s September 04 assessment. Nor was any question raised about his analysis of recent sales. For the purposes of determining compensation in this case, I have accepted Mr Compton’s assessment of the value of Lot 8 at $1,086 per ha, assuming the lot is unencumbered by mining leases. Diminution of the value of lands the subject of the mining lease [7] Such loss is compensable pursuant to s.281(3)(a)(ii) of the Act. Mr Compton assessed this loss at $108,589 by applying a discount factor of 66.66% to his “before” value (150ha @ $1086/ha x 66.66% = $108,589). The discount figure used in Mr Compton’s assessment is double the figure he adopted in a valuation prepared for the Commonwealth Bank for mortgage purposes in July 2003. At that time, he estimated the loss in value as a result of the grant of this lease and another lease (the Miles lease) at $109,348 (355ha @ $925/ha x 33.33%). Assuming that loss can be attributed between this lease and the Miles lease on a per ha basis, the loss attributed to this lease was then estimated at $46,245.38 (150ha @ $925/ha x 33.33% = $46,245.38). [8] On 10 September 2004, the same day that he prepared the report used for these proceedings, Mr Compton produced another Bank valuation. In that valuation, he assessed the diminution in value arising from the grant of this lease at $160,000, which is consistent with his report for these proceedings. The basis for that figure was not made explicit, nor was any explanation given in the Bank valuation for the considerable increase in his assessment of the loss. [9] How Mr Compton arrived at the discount figure of 66.66% used in his report for -- 3 of 9 -- these proceedings is not clear either from the report or from his oral evidence. In both, he referred to numerous factors as relevant to his assessment of the diminution of the value of the land. Those factors are: the term of the lease; opening up public access to the property; whether a mining lease condition that restricts the area that can be disturbed is enforceable; and whether a prudent purchaser would take into account various matters. Each of those factors is addressed below. [10] Whilst I have addressed them in the context of the diminution of the value of the land subject to the mining lease, it is clear that they also affected Mr Compton’s assessment of the value of the balance lands of the owner. That assessment is considered separately in this judgment. However, my observations in relation to those factors are relevant to the diminution in value of both the lease area and the balance lands. The term of the mining lease [11] Mr Compton justified a discount factor of 66.66% by reference to the discount factor applied in other determinations. On the property “Keilembete”, Land Court President Trickett, on appeal from the Mining Warden’s determination, applied a discount factor of 25% for the renewed 5 year term of a number of leases (the Zimmerebner leases).1 On Fork Lagoon, I applied a discount factor of 33.3% for the initial 5 year term of 2 leases (the Salmon leases).2 [12] The reference, at page 7 of the report, to these decisions and to the terms of the various leases, whilst not explicit, suggests that Mr Compton has doubled the discount from the Salmon determination because the term of this lease is double that of the Salmon and Zimmerebner leases. [13] If this is what Mr Compton has done, I do not consider it a proper basis for assessing compensation. Each case must be assessed on its merit having regard to the particular circumstances of the property and of the mining lease conditions. I accept that, as a general proposition, a mining lease with a longer term will have a greater impact as the interference occurs over a longer period. However, the mechanical application of a formula, without regard to those peculiarities of the specific case, is not appropriate.3 Public access to the property [14] Mr Compton said the mine access, through an adjoining property, would open up an access route to the public that was not formerly available. It appears that the road through the adjoining property already exists as it provides access to a mining lease on that property. It appears, however, that access through that property to this one is not readily available to the public at the moment. The landowner did not call any evidence to establish either the existing or the projected use of the access. Whilst, as a matter of common sense, I accept that the existence of an access road can increase the risk of unauthorised access, there is no evidence to suggest that the grant of this lease will cause a significant increase in public access. 1 Zimmerebner v Hawkins & Anor (1999) 20 QLCR 17. 2 Salmon v Armstrong [2002] QLRT 54. 3 Moreton Club v Commonwealth (1948) 77 CLR 253 at 259 per Dixon J. -- 4 of 9 -- Whether the condition limiting the area that can be disturbed at any one time is enforceable [15] The Tribunal Member who heard the application for this lease, Smith DP, recommended that the lease be granted subject to a condition that the area that can be disturbed at any one time is limited to 10ha. Whilst there is some area restraint imposed through the environmental authority, the imposition of such a condition through the mining lease exposes the lease holder to consequences under the Mineral Resources Act 1989, if the condition is breached. [16] It appears that Mr Compton’s approach to the valuation was influenced by the argument advanced by the landowners’ representative, Mr Houen, that this condition was “illegal”. The legality of the condition was not argued by the landowners when they appealed Smith DP’s recommendation to the President of the Tribunal. Accordingly, although the landowners did seek to raise this issue during the subsequent appeal to the Court of Appeal, they were not able to do so. [17] A compensation determination is not the appropriate forum for determining the legality of recommended conditions. This determination must proceed on the basis that the conditions are valid and will be imposed on the mining lease as recommended by the Tribunal. 4 Subsequently, should that prove not to be the case, there are procedures in the Act for compensation to be reviewed. Accordingly, although submissions were made about the validity of the condition, I consider it inappropriate to address them in the course of this determination. Whether a prudent purchaser would take into account various matters [18] During Mr Compton’s evidence he made a number of statements about what matters a prudent purchaser would or would not take into account when arriving at a value for the property. The significance of these statements is that, in setting the “after” value, Mr Compton has sought to view the value of the property through the eyes of a potential purchaser. This is consistent with the principles stated in Spencer v The Commonwealth5 that the market value assumes a voluntary bargain between a vendor and a purchaser both willing to trade but neither of them so anxious to do so that he or she would overlook any ordinary business consideration. [19] The propositions Mr Compton stated in relation to the attitude of a potential purchaser are that a prudent purchaser:  would not take into account that, because the property was within Restricted Area 1, there was a prospect of gem mining on the property;  would consider this lease an “extension” of the gem field, thus opening the property up to further mining;  would not take into account the area limitation recommended to be imposed by the mining lease. For the reasons that follow, I do not agree with the assumptions Mr Compton has made about the attitudes of a hypothetical prudent purchaser. 4 R v The Land Court & D.M. White ex parte Kennecott Explorations (Australia) Ltd & Ors (1988-1989) QLCR 17. 5 Spencer v The Commonwealth (1907) 5 CLR 418 at 441 per Isaacs. -- 5 of 9 -- Would a prudent purchaser take into account that, because the property was within Restricted Area 1, there was a prospect of gem mining on the property? [20] The area applied for is within an area known as Restricted Area 1 (RA1). It is an area declared under the Mineral Resources Regulation 1990. The relevance of RA1 has previously been considered in other Tribunal decisions. The apparent purpose of the declaration of RA1 is to restrict large scale mining in the area, making it more accessible for smaller miners. The location of a property in RA1 has been taken into account by the Tribunal as evidence that it is generally considered to be prospective for gem mining.6 Mr Compton stated that a prudent purchaser would have disregarded the fact that this property is within RA1. He did not explain why he thought a prudent purchaser would disregard information about the potential mining status of a property. I do not accept that a prudent purchaser, properly informed, would do so. Would a prudent purchaser consider the grant of this lease was an extension of the gem field? [21] Mr Compton asserted the grant of the lease was, in effect, an extension of the gem field and that a prudent purchaser would take this into account. I do not accept that it is an extension of the gem field or that a properly informed prudent purchaser would so regard it. I accept that this lease extends the area within RA1 that is actively mined. However, given its location within RA1, I do not consider that a prudent purchaser, properly informed, would consider it to be an extension. [22] It is significant, that this is not the first lease on the property. During cross- examination, Mr Compton agreed that, when he valued the impact of the Salmon leases on this property, he argued, and I accepted in that case, that the first mining lease on a property has a greater impact on its value than do subsequent mining leases. Nevertheless, in valuing the impact of this lease, he proceeded on the basis that this lease would have a higher impact on the property’s value than did the two Salmon leases. Mr Compton gave no persuasive reason for this change of position. Would a prudent purchaser take into account the area limitation recommended to be imposed on the mining lease? [23] In Mr Compton’s experience, graziers are suspicious about their ability to use land subject to a mining lease. I accept it is reasonable for Mr Compton to draw on his experience and to take into account the genuine concerns he has encountered about the impact of mining on a property. It should be noted that mining and grazing do already co-exist on other properties in the area and that a properly informed prudent purchaser would draw conclusions from his or her observations of other operations. Further, the Tribunal’s recommendation is to impose a significant restraint on mining under this lease. That recommendation is directly relevant to the fear a potential purchaser might have about their ability to use any of the land subject to the lease. I do not accept Mr Compton’s assumption that a prudent purchaser would pay no regard to the recommendation. Rather, reasonable enquiries by a responsible prudent purchaser would allay that fear so as to reduce its consequence for the value of the 6 Salmon v Armstrong [2001] QLRT 72 at [14]. -- 6 of 9 -- property.7 [24] Mr Barlow, Counsel for the miner, argued that a prudent purchaser would consider this lease to be only a 10ha mining lease because of the disturbance area limitation. I do not accept that either. In his statement, the miner stated he expected to disturb 100 ha over the 10 year period of the lease and that, as sapphire mining is patchy, he anticipates only disturbing areas where the wash is reasonably close to the surface. A prudent purchaser would draw a distinction between a mine that was confined to a discrete and well defined area and one which was limited in the area that could be disturbed but where the particular areas of disturbance are not predetermined. Impact on the “after” valuation for the land the subject of the lease [25] It appears that Mr Compton has drawn on each of the factors considered above in arriving at a discount figure of 66.66%. I have explained my reasons for:  rejecting the mechanical application of a formula based on the term of the lease;  proceeding on the basis that the recommended area limitation condition is valid and enforceable; and  not accepting the propositions put by both parties about what a prudent purchaser would or would not take into account. [26] In determining compensation, I have taken into account the term of the lease; that there is some risk of increased public access to the property; that there is a significant restriction on the area that can be disturbed; that the property is within RA1 and that this is not the first mining lease on the property. In the absence of other evidence upon which to base my assessment, I have adopted the discount factor of 33.33% that Mr Compton applied in his first bank valuation, as producing a more reasonable assessment of the diminution in value of the area the subject of the lease. That equates to the sum of $54,294.57 (150 ha @ $1086ha x 33.33% = $54,294.57). After Valuation – diminution of value of balance lands of the owner [27] In his valuation report, Mr Compton referred to his after valuation for the balance of lands of the owner as “severance and injurious affection”. During evidence, he confirmed that there was no severance component in his assessment and that it was more properly considered to be injurious affection. [28] He identified two components to that loss: an award for blot on title and an amount representing diminution in value of the land. At first blush that appears to be doubling up and to be inconsistent with a recent decision by the President of the Tribunal that blot on title should form part of the after valuation.8 A closer analysis of Mr Compton’s report reveals that he did not assess compensation twice for the same impact. He provided an overall assessment of the after value of the entire property encumbered by this lease ($160,000) and then justified that assessment by separately attributing amounts to categories of loss that are compensable under the Act. This is a proper approach to take. [29] In determining the impact on the value of the balance lands of the owner ($51,411), 7 Morrow v Minister for Public Works (1985) 59 LGRA 29. 8 Re Junior Mining (Operations) Pty Ltd v Schmidt [2004] QLRT 131 at [19]. -- 7 of 9 -- Mr Compton further differentiated between:  the impact of the lease on the value of the property as a whole (“blot on title” at $30,564); and  the impact of the lease on the value of the paddock in which the lease is situated, (“diminution in value of balance lands in Top Bullock Paddock” at $20,841). [30] In assessing the “blot on title” component, he excluded the area of this lease and the Salmon leases. In assessing the “diminution in value of balance lands in Top Bullock Paddock”, he has taken into account the blot on title reduction. Accordingly, whilst Mr Compton’s report is expressed in a way to suggest doubling up, I am satisfied that he has not done so. [31] With respect to “blot on title”, Mr Compton’s adopted the 66.66% discount figure that I have previously rejected. In determining compensation I have adopted the same discount figure of 33.33% that I have applied to the land subject to the lease, for the reasons already given. That equates to $15,224.19 (2804ha @ $1086ha @ 1.5% x 33.33% = $15,224.19). [32] With respect to the “diminution in value of balance lands in the Top Bullock Paddock”, I accept there is the potential for one part of a property to suffer a greater impact from a mining lease than another. Nevertheless, in this case, there has only been an assertion that this is the case, without evidence to establish that this is so. Mr Compton proposed an award of 2.336% of the value (reduced for “blot on title”) without demonstrating how he arrived at that figure or why he considered it to be reasonable. His alternative methodology (p 12 of the report) comprises two items: construction and maintenance of firebreaks and disruption to property plans and loss of productivity. [33] As to the former, there is no evidence to enable me to assess whether the extent or cost attributed to the firebreaks is reasonable, nor was there any evidence to persuade me that they would be required. As to the latter, Mr Compton has again proposed a percentage figure without demonstrating how he arrived at it or why he considers it to be reasonable. [34] The only evidence about the impact on the Top Bullock Paddock is from one of the landowners, Mr Armstrong. Annexure B to his statement is entitled “Economic Loss Due to Inability to Subdivide Top Bullock Paddock”. During the hearing, Mr Houen confirmed that no claim for loss of potential earnings was being made. [35] I accept that the landowners’ ability to develop the Top Bullock Paddock is adversely affected by the grant of this lease. I have not been persuaded that the impact has not been adequately compensated for by the award for diminution in value of the property as a whole. Accordingly I have included no additional amount for a further reduced value in the balance of lands in the Top Bullock Paddock. Consequential Losses [36] Mr Compton’s report identifies two items of consequential losses: additional management costs and professional fees incurred in the preparation of the claim. These are recoverable pursuant to s. 281(3)(b)(iii) if they are losses or expenses that -- 8 of 9 -- arise as a consequence of the grant of the mining lease. [37] As to the management costs, I accept that the number, duration and costs of the visits arising from the operation of the mine in the Top Bullock Paddock are reasonable. I do not accept Mr Barlow’s submission that this loss is adequately compensated in a general award for diminution of value. [38] As to Mr Compton’s valuation fee, it is not recoverable because it is part of the costs of preparing the claim and is not a loss or expense that arises as a consequence of the grant of the mining lease.9 Determination of compensation [39] On the basis set out above, I determine the compensation payable in relation to ML 70297 at $89,466.00 calculated as follows: (a) s. 281(3)(a)(ii) Diminution in the value of the land within ML70297: 150 ha @ $1086ha x 33.33% = $54,294.57 (b) s. 281(3)(a)(ii) Diminution in the value of the balance lands of Lot 8: 2804ha @ $1086ha @ 1.5% x 33.33% = $15,224.19 (c) s.281(3)(b)(iii) Additional management costs = 2 visits/month x .5 days x $250/day x 5.75% = $11,814.00 $81,332.76 (d) s. 281(4)(e) Amount reflecting compulsory nature of grant: $81,332.76 x 10% = $ 8,133.27 Total (rounded down from $89,466.03) $89,466.00 [40] The figures adopted for diminution in value represent a crystallised loss upon the grant of the lease. The figure adopted for additional management costs represents the present value of the inspections over the term of the lease. Accordingly, I order that the determined compensation of $89,466 be paid by the miner to the landowners within 1 month of the grant of ML70297. [41] No submissions were made regarding costs and none are awarded. 9 Minister for the Army v Pacific Hotel Pty Ltd [1944] St R Qd 112 (HC), 122, 123, 129; Sullivan v Oil Company of Australia Ltd (No 2) [2004] 2 QdR 105, 116 (CA). -- 9 of 9 --