Darra Exploration Pty Ltd & Anor v McInally [1998] QMW 10

1 IN THE WARDENS COURT OF QUEENSLAND HELD AT BRISBANE BEFORE: A J CHILCOTT ACTING MINING WARDEN. IN THE MATTER OF: DETERMINATION OF COMPENSATION IN RESPECT OF MINING LEASES 3631 & 7629 IN THE ROCKHAMPTON MINING DISTRICT. APPLICANT MINER: DARRA EXPLORATION PTY LTD and THE QUEENSLAND CEMENT AND LIME COMPANY LIMITED. RESPONDENT LANDOWNER MARIA MCINALLY DETERMINATION: The Applicant Mining Companies, Darra Exploration Pty.Ltd. and The Queensland Cement and Lime Company Limited have lodged an application under Part 7 of the Act for the renewal of mining leases 3631 and 7629 at the Mining Registrars Office at Rockhampton on 23 December 1996. Both leases expired on 31 July [1998] QMW 10 -- 1 of 11 -- 2 1997. The leases are contiguous and worked together as part of the one project. For convenience, the determinations were considered at one joint hearing. The parties having failed to reach settlement in respect of compensation for each lease, the applicant mining companies sought a determination of compensation for both leases pursuant to the provisions of Section 281 of the Mineral Resources Act 1989 (the Act) as amended. The hearing was conducted at Rockhampton on 25 November 1997; an inspection taking place on 24 November 1997. A valuation prepared by Mr Sheehan, on behalf of the landowner McINALLY was admitted into evidence as Exhibit 2A (t/s p.2). Mr Brown prepared a valuation on behalf of the applicant miners and this valuation was admitted as Exhibit 1. (t/s p.2) At the outset of the proceedings, it was indicated that as a gesture of goodwill by the applicant mining companies, they would accept the quantum of Mr. Sheehan's valuation, although it differed from that of Mr. Brown's valuation. Both valuers adopted the before and after method of valuation. -- 2 of 11 -- 3 Mr. Brown's valuation shows a gross loss of $121000.00 to which must be added disturbance items which are proven and then 10% being the additional premium under Section 281(4)(e) of the Act. As opposed to this, Mr Sheehan's valuation indicates a diminution in value at $143500.00. To this, has to be added two items of disturbance being $1500.00 for owners time and $4300.00 being for valuation expenses. Mr Sheehan then applied 20% as the additional premium component. This amounts to $179160.00 which has been rounded off to $180000.00. A further item of disturbance in the form of legal fees in the sum of $5000 incurred by Mrs. McInally was added bringing the total amount of compensation to $185000.00. The applicant mining companies accept for the purposes of these proceedings the monetary value of the disturbance items that were referred to by Mr. Sheehan. However, at the same time the applicant mining companies do not concede that the owners time is strictly recoverable as a matter of law but accept the figure of $5800.00. The applicant mining companies indicated that they do not concede as a matter of principle that 20% is an appropriate additional premium under Section 281(4)(e) of the Act. It would appear that this leaves only two (2) issues in dispute, those being a claim for capital gains tax indemnity and what additional amount should be awarded under Section 281(4)(e) of -- 3 of 11 -- 4 the Act as a premium. With regard to the additional premium that should be awarded under Section 281(4)(e) of the Act, the applicant mining companies submitted that only a premium of 10% should be awarded whereas the respondent landowner submitted an award of 20% was appropriate. Evidence was called from both Mr. Brown and Mr. Sheehan on this issue. Mr. Brown gave evidence to the effect that there was a benefit to the landowner in not having to be troubled about the objection process and the delays and cost and the stress that they can cause. Mr. Sheehan in evidence-in-chief stated to the effect that in a renewal process there is more compulsion as there is no input into the size of the lease or how much land that the applicant takes and the landowner has no control over it. Mr. Sheehan at page 24 of his report indicated 20% to be attributable due to the circumstance of the existing leases over the land being granted without compensation. Further, Mr. Sheehan goes on to say in his report that the ongoing nature of the interference to ground water supplies and admissions by QCL that increased mining activity associated with the expansion will -- 4 of 11 -- 5 increase the detrimental affect on water are seen as sufficient reason to increase the allowance above the statutory 10%. With regard to the Act, Section 281 sets out certain matters that the Court has to take into account when determining compensation. Section 281(4)(e) sets out the provisions in relation to the compulsory nature of the action taken. -- 5 of 11 -- 6 In this case, the applicant mining companies have asked the Court to adopt the bottom line figure in Mr Sheehan's valuation and the extra item of disturbance for legal expenses, making a total award of $185000.00. In effect, a commercial settlement in this matter has been reached between the parties for various reasons including convenience and as an act of goodwill on behalf of the applicant mining companies. With regard to the argument as to whether a 10% or 20% premium should be awarded under the provisions of section 281(4)(e), I am of the view that it is neither necessary nor appropriate that I make a finding due to the fact that the final figure has been adopted by the applicant mining companies. Both parties urged that I assess the total amount of compensation as being $185000.00. In the event that I were to make an assessment contrary to the 20% component submitted on behalf of the landowner, and I adopt the bottom line figure of $185000.00, then any assessment that I may make would be contradictory to that which I have been asked to adopt by both parties. -- 6 of 11 -- 7 However, I am of the opinion that the argument over the additional amount to be awarded under Section 281(4)(e) is academic. I consider that is not necessary for me to make such a finding in view of the fact that the bottom line figure, which is the whole of the sum that I have been urged to adopt and that I propose to adopt, will be the award in total. In the circumstances, I decline to make a finding on the component to be awarded under Section 281(4)(e) of the Act. The remaining issue in dispute was that of CAPITAL GAINS TAX (CGT). As part of the claim for compensation, the landowner seeks an indemnity for any capital gains tax that may be assessed. A post CGT asset on its sale or disposition is prima facie liable to capital gains tax. Mr. Newby in his report stated that in the case of Mrs. McInally, it is likely that any compensation awarded under the Mineral Resources Act would be eligible for the concessional treatment available under ruling TR95/35. He further states that the only exception to this would be the additional amount awarded under Section 284(4)(e) of the Act. -- 7 of 11 -- 8 With regard to the indemnity provision for CGT, the applicant mining companies rely upon the previous decisions of this Court and in addition, made submissions resisting such claim for indemnity. It was submitted that the claim for a sum to cover CGT or the claim for an indemnity wrongly assumes that the Mineral Resources Act intends the additional amount to be net after tax and thus there can never be any liability in the compensating party to make provision for CGT. It was further submitted that there is no authority for the proposition that an award of compensation payable on a resumption should be adjusted or altered so as to take into account the liability of the claimants for income tax. See Chong v Fairfield Council (1968) 16 LGRA 407 also Theo v BCC (1990) 13 QLCR 160. In this case, there has been no change to the underlying title as the grant of a lease does not create an estate or interest in land (S.10 Mineral Resources Act 1989). Ownership is not passing to any person. The grant of a mining lease entitles the holder of the lease to do a limited act for a limited time. At the conclusion of the term the lease expires. -- 8 of 11 -- 9 It is clear that compensation is only assessable under Section 281(3) and that subsection (4) provides for extra factors which must be taken into account when assessing compensation under subsection (3). I am of the view that any award of compensation will not attract a capital gains assessment as the underlying asset is not being sold or disposed of by the owner. Further, I am of the view that liability to CGT cannot be included in an award of compensation under the Mineral Resources Act, when looking at the matters which must be considered under Section 281 in assessing compensation. Accordingly, and in view of the submissions and the authorities referred to, I decline to make any order consisting of an indemnity condition for capital gains tax liability. Submissions have been made in relation to the terms and conditions of payment pursuant to Section 281(5) of the Act. After consideration of all the oral evidence, documentary evidence and submissions, my orders are as follows: 1. The applicant mining companies DARRA EXPLORATION PTY -- 9 of 11 -- 10 LIMITED and THE QUEENSLAND CEMENT AND LIME COMPANY LIMITED pay to the respondent landowner MARIA McINALLY the sum of $185000.00 as compensation for the term of the renewal of Mining Leases 3631 and 7629. 2. The sum of $185000.00 is to be paid in full within 45 days of notification of assessment of the Governor-in-Council of the renewal of Mining Leases 3631 and 7629. -- 10 of 11 -- 11 3. The application for an indemnity for any capital gains tax liability be refused. Dated at Brisbane this 30th day of January 1998. A J CHILCOTT ACTING MINING WARDEN -- 11 of 11 --