Department of Natural Resources and Department of Mines v QNI Metals Pty Ltd & QNI Resources Pty Ltd [2002] QLAC 71 (2002) 23 QLCR 261

LAND APPEAL COURT OF QUEENSLAND CITATION: Department of Natural Resources and Mines v QNI Metals Pty Ltd and Anor [2002] QLAC 71 PARTIES: Chief Executive, Department of Natural Resources and Department of Mines (applicant) v QNI Metals Pty Ltd & QNI Resources Pty Ltd (respondents) FILE NO: LAC2002/0038 DIVISION: Land Appeal Court of Queensland PROCEEDING: An appeal from the determination of the Land Court of the unimproved valuation under the Valuation of Land Act 1944 ORIGINATING COURT: Land Court DELIVERED ON: 12 September 2002 DELIVERED AT: Townsville HEARD AT: Townsville JUDGE: Cullinane J MEMBERS: Mr RE Wenck and Mrs CAC MacDonald ORDER: The appeal is allowed. The determination of the Land Court is set aside and the unimproved value of the subject land as at 1 October 1999 is determined to be Four Million, Two Hundred and Thirty-Five Thousand Dollars ($4,235,000). CATCHWORDS: Statutory valuation – Valuation of Land Act – unimproved value – improvements – necessary to disregard for determining unimproved value – but not deemed never to have been made – permissible to consider their effect and use in bringing land to present value. -- 1 of 9 -- 2 Statutory valuation – Valuation of Land Act – unimproved value – notional physical state – necessary to consider statutory restrictions (or advantages), whatever their origin. Statutory valuation – Valuation of Land Act – unimproved value – highest and best use – current use indicative but not determinative. Statutory valuation – Valuation of Land Act – unimproved value – improved land – whether land improved depends on whether structures enhance value – question of fact – is land worth more in market with structures in place than without. Statutory valuation – Valuation of Land Act – unimproved value – large industrial site near Townsville – sales of such rare – but site possesses a value for its specific use – Spencer test – not necessary to have willing purchaser on a particular day. Valuation – sales and other evidence – valuations prepared for Corporations Law requirements subpoenaed – prepared for purposes other than unimproved value – authors not called – valuations held not of assistance. COUNSEL: Mr TW Quinn for the applicant Mr R Needham for the respondent SOLICITORS: Mr J O’Rourke, Principal Legal Officer, Department of Natural Resources and Mines, for the applicant Connolly Suthers for the respondent [1] This is an appeal against a determination by the Land Court under the provisions of the Valuation of Land Act 1944 (the Act) that the value of certain land as at 1 October 1999 was $1,225,000. The land is at Yabulu about 25 kilometres north of Townsville and is made up of 12 lots - 11 held under freehold title and the twelfth under a Permit to Occupy issued under the Land Act 1994. The whole area was included in a single valuation by the appellant, the Chief Executive, Department of Natural Resources and Mines, in the sum of $4,235,000. The land is used for industrial purposes and is the site of the Queensland Nickel Refinery which occupies approximately 750 hectares of the total area of 2,215 hectares. In addition, there are two power stations on the site one of which provides power to the refinery, and the other, which is operated by Transfield Townsville Pty Ltd, is a peak load power station. A small part of the site is also leased to Telstra for the purpose of a telecommunications tower. -- 2 of 9 -- 3 [2] A preliminary matter may be dealt with. In the appellant’s outline of submissions, Counsel submitted that if the land were not valued for industrial purposes, then under the provisions of ss. 34 and 35 of the Act, most of the lots should be valued separately with the consequence that “the concept of discount for multiple holdings does not apply”. That submission was subsequently withdrawn. Although there was some concern by members of the Court that the joinder of the valuations may not have been permissible, on further consideration we have accepted the appellant’s subsequent submission that the joint valuation may be regarded as being made pursuant to a direction presumed to have been properly given by the Chief Executive as provided for in s.35(1)(a) and/or s.35(1)(b). [3] The major point of difference between the parties, and their valuers, was as to the highest and best use of the land. Most of the site is zoned Noxious and Hazardous Industry under the Thuringowa City Council Town Planning Scheme. Two of the lots are zoned Public Open Space, and one is zoned Rural 20. The appellant’s valuer, Mr DA Schy, considered that the highest and best use of the land was its current use. He valued the land on that basis by comparison with sales of industrial or proposed industrial sites in the Townsville region. Most of the sales properties had only minimal improvements in place. The respondent’s valuer, Mr C Stack said that the highest and best use of the land was the separate sale of most of the parcels, primarily for rural home site uses. He valued the subject on that basis, adopting a value of the amalgamation “in one line”. [4] The learned Member found the highest and best use of the land to be rural home sites and rural pursuits. In coming to that conclusion he rejected the current use of the property as a nickel processing plant as the highest and best use. The reason for this was that the learned Member accepted evidence given by Mr RG Muller, a project manager employed by the respondent, to the effect that, if the land were regarded as vacant land at the relevant date, no company would establish a nickel processing plant there. [5] The learned Member also considered, and rejected for two reasons, the appellant’s submission that an alternative highest and best use of the land would be for some other single use industrial complex such as a power station. The learned Member said that the evidence before him was that the structures on the land could only be used as a nickel processing plant and that therefore those structures would, prima facie, constitute a worsement if the land were sold for any other single industrial purpose. In those circumstances, he held, the Chief Executive, Department of Natural Resources and Mines had not discharged the burden of establishing that the cost of addressing the worsement was such that the suggested alternative highest and best use remained viable. The learned Member also found that in any event, there was no current market for a large area of land -- 3 of 9 -- 4 to be used for a single industrial purpose. Such a use would depend on the emergence of a proposal for such use in the market place, and until such a proposal was identified the land would not have the alternative highest and best use proposed by the appellant. Moreover, the mere potential for such a use was not of itself sufficient to persuade a prudent purchaser to pay more for the land than he or she would pay for such land without that potential. By a process of elimination, therefore, the Member came to the conclusion that the highest and best use of the land was for rural residential or rural pursuits. [6] “Unimproved value” is defined in s.3 of the Act which provides: “3.(1) For the purposes of this Act – ‘unimproved value’ of lands means – (a) in relation to unimproved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require; and (b) in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist. (2) However, the unimproved value shall be in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value at the time as at which the value is required to be ascertained for the purposes of this Act.” [7] Other relevant provisions are sections 4 and 5 which provide: “Meaning of ‘improved value’ 4. For the purposes of this Act - ‘improved value’ means, in relation to land, the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require. Meaning of ‘value of improvements’ 5.(1) The ‘value of improvements’ means, in relation to land, the added value which the improvements give to the land at the time as at which the value is required to be ascertained for the purposes of this Act, irrespective of the cost of the improvements, including in such added value the value of any hotel licence the value of which has been included in the improved value. -- 4 of 9 -- 5 (2) However, the added value shall in no case exceed the amount that should reasonably be involved in effecting, at the time as at which the value is required to be ascertained for the purposes of this Act, improvements of a nature and efficiency equivalent to the existing improvements.” [8] It is not necessary to set out the definition of “improvements” to be found in s.6 of the Act. [9] It is to be observed that s.3 (1) of the Act provides two definitions of unimproved value - for land which is unimproved and land which is improved. The first issue to be determined, therefore, is whether the land was improved or unimproved as at the date of valuation. This will depend on whether the structures on the land constitute improvements. In Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503, Griffith CJ said: “… any operation of man on land which has the effect of enhancing its value comes within the definition of improvement.” [10] Whether these structures are improvements is a question of fact which will be answered by determining whether, in the market place as at the date of valuation, the land with the structures in place was worth more than it would have been without them. If the structures enhance the value of the land, they are improvements and the unimproved value is to be determined as though the structures did not exist. [11] It was accepted by the respondent that if the highest and best use of the site is continued use for a nickel refinery, the structures add value to the land and are improvements as defined above. What is in issue is whether, if the improvements are notionally removed for the purposes of determining the unimproved value under the Act, use as a nickel refinery remains the highest and best use. [12] The highest and best use of land is determined by the market place where factors such as uses permitted under the planning legislation and the demand for the land are relevant. The current use may be indicative of but is not determinative of the highest and best use. [13] In many situations the existence of structures on the land makes no difference to the decision as to its highest and best use. In this case the structures are of such a magnitude that, subject to what is said later in these reasons, it is impossible to ignore that they do in fact exist when the question of highest and best use of the land requires determination. This is particularly so because if a different use from that in place at the date of valuation is proposed as the highest and best use, the evidence was that the existing structures would be rendered useless. A purchaser would be faced with demolition costs of the buildings or, perhaps, might decide not to use that part of the land which is occupied by -- 5 of 9 -- 6 the buildings and tailing dams. For an alternative use to represent a higher and better use, the land would have a value greater than as currently developed for the existing use, together with costs associated with removing the existing structures. There was no evidence to suggest that the two alternative uses canvassed at the hearing, namely to use the site for another single industrial purpose or for rural residential purposes would bring a price higher than the value of the land and the buildings. Indeed the evidence was to the contrary. [14] We consider that there is no difficulty, in principle, in regarding the existing use of the land as its highest and best use. Although the improvements are to be disregarded for the purpose of determining the unimproved value of the land, the Act does not require that the existing use be ignored or that the valuation be made in a vacuum. In The Valuer- General v Queensland Club (1991) 13 QLCR 207 at 216, the Court accepted as a principle of general application the statement by the High Court (made in relation to the Land Tax Assessment Act 1910 (Qld)) in Commissioner of Land Tax v Nathan (1913) 16 CLR 654 at 662: “But past improvements, no matter how much their presence or use has enhanced the price, are not to be deemed never to have been made; their prior existence and the effect of them are not to be ignored. So when the ‘improvements’ as still existing are to be ignored, nothing is said as to erasing the effect they or their use have had in bringing the land up to its present value.” [15] The court in the Queensland Club case held that, although the equivalent of s.3(1)(b) requires that the assumption be made that the improvements do not exist, that language describes the notional physical state of the land as at the relevant date. The valuation should be made on the basis that any statutory restrictions (or advantages) attaching to the use of the land, whatever their origin, which affect the capital sum which the fee simple might bring, are taken into account. In this case, application of this reasoning means that the land should be valued for its current use, but ignoring improvements, unless it is demonstrated that a higher price could be obtained for the land to be used for some other purpose. That has not been established. [16] In our view, therefore, the current use of the property is its highest and best use, the buildings are improvements and the land is improved land within the meaning of s.3(1)(b) of the Act. The question to be decided is the value of the land as zoned and used as at the date of valuation with the improvements notionally removed. [17] There is evidence that, from time to time, there were sales of large industrial sites in the Townsville/Thuringowa region. Thus the subject site was established in the 1960s, the Copper Refinery in the 1970s and the Sun Metal Zinc Refinery in the late 1990s. Such -- 6 of 9 -- 7 sales are, admittedly, rare, and each site may even be unique, but that does not mean that they do not possess value for their specific uses. In Spencer v The Commonwealth (1907) 5 CLR 418 at 431, 432, Griffith CJ said: “Bearing in mind that value implies the existence of a willing buyer as well as a willing seller, some modification of the rule must be made in order to make it applicable to the case of a piece of land which has any unique value. It may be that the land is fit for many purposes, and will in all probability be soon required for some of them, but there may be no one actually willing at the moment to buy it at any price. Still it does not follow that the land has no value. In my judgment the test of value of land is to be determined, not by enquiring what price a man desiring to sell could actually have obtained for it on a given day, ie whether there was in fact on that day a willing buyer, but by enquiring “What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?” It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.” [18] The evidence was that land zoned Hazardous and Noxious Industry is comparatively scarce in the area of the subject land. A proposal to use the land for a purpose comparable with its zoning might not come forward rapidly, but given the general lack of availability of land for these purposes, it seems to us unlikely that a potential purchaser of the land, in its unimproved state, would not be influenced by its industrial use potentialities, in settling on a purchase price for the land. Moreover the subject land has road and rail access, telephone and electricity connected, and access to a considerable quantity of underground water. It may be that the hypothetical purchaser who wished to acquire a site for an industrial use of this type and magnitude would, in the absence of suitably zoned land, need to purchase land at rural residential levels of value (when much of the industrial infrastructure would add little if any value), then engage in the process (and probable difficulties) of gaining approval for a noxious and hazardous industry use, after which the extensive infrastructure would add full value. It therefore seems to us that the value of the land must be greater than its worth as rural residential land. [19] Evidence was given in the court below by Mr Schy as to the value of the site on the basis that the highest and best use is its current use. Mr Schy valued the subject property at $2,000 per hectare giving a total value of $4,235,000. Mr Schy relied on the sale of five properties to support his valuation. His principal sale was 1689 hectares of land located -- 7 of 9 -- 8 at Julago. The land comprises 912 hectares of freehold land and 777 hectares leasehold. The property was sold on 14 June 1996 to Sun Metals Corporation for $2,000,000 or $1,185 per hectare and was purchased for the establishment of a zinc refinery. At the time of the sale, the property was zoned Non-Urban. It had no power, water, telephone or rail connections. Access was via a rough gravel road. Because of the topography, only about 400 hectares (or 23%) of the site was suitable for development. The average price of $1,185 per hectare included both the freehold and leasehold land. In Mr Schy’s opinion, the leasehold land (Pastoral Holding) was less valuable than the freehold component, as the lease conditions prevented development of the refinery on that part of the land. The leasehold land could be used only for buffer purposes. Having compared the two sites in some detail, Mr Schy came to the conclusion that the subject site was superior to the sale because the subject is freehold (except for the Permit to Occupy) and is an approved site for noxious and hazardous industry, with road, rail, telephone and electricity available. It is a larger property than the sale and has a greater proportion of area available for industrial use. In addition, the subject has access to 8,638 megalitres of underground water per annum. [20] The other sales relied on by Mr Schy are of less assistance. Sale Nos. 2 and 3 concern much smaller areas of land. The land the subject of Sale 4 was purchased for rural pursuits. Sale 5, which was 242 hectares, contained only 8 hectares zoned General Industry, with the balance a mixture of Future Urban and Non Urban areas. [21] Although the respondent’s counsel challenged Mr Schy’s evidence as to aspects of the comparability between the subject site and the Sun Metal site, Mr Schy’s analysis of that sale and the application of it in support of his valuation of the subject was the only relevant evidence establishing the value of the subject site as currently used. That sale also demonstrates that there was, from time to time, a demand for large industrial sites in the general region. We have therefore accepted Mr Schy’s valuation of the subject site at $4,235,000 or $2,000 per hectare. [22] One other matter should be mentioned. The appellant sought to rely on two valuations of various properties, including the subject, prepared for the respondent in accordance with Accounting Standard AASB1010 and S294(4) of the Corporations Law, in support of its (the appellant’s) submissions as to the unimproved value of the subject land. The valuations, which were made as at 19 May 1995 and 30 June 1998 assessed the “market value for existing use” of the land and buildings. It appears that the term “market value for existing use” is used to describe the value of an asset to a business, on the basis that the business is viable and continuing with its current activities as at the date of valuation. -- 8 of 9 -- 9 Because of the approach we have taken in deciding this appeal, we do not consider these valuations to be relevant. In any event, even if they might have been relevant, we consider that valuations of this nature will rarely be any assistance to the Court in determining the unimproved value of land pursuant to the Valuation of Land Act, unless the valuers who wrote the reports are called to give evidence in support of the valuations. Order [23] The appeal is allowed. The determination of the Land Court is set aside and the unimproved value of the subject land as at 1 October 1999 is determined to be Four Million, Two Hundred and Thirty-Five Thousand Dollars ($4,235,000). CULLINANE J JUSTICE OF THE SUPREME COURT RE WENCK MEMBER OF THE LAND COURT CAC MACDONALD MEMBER OF THE LAND COURT -- 9 of 9 --