BHP Australia Coal Pty Ltd & Ors v Berry & Ors [1997] QMW 99

IN THE WARDENS COURT OF QUEENSLAND HELD AT EMERALD IN THE MATTER OF:DETERMINATION OF COMPENSATION IN RESPECT OF ADDITIONAL SURFACE AREA FOR MINING LEASE 1782 PURSUANT TO SECTION 281 OF THE MINERAL RESOURCES ACT 1989. BEFORE:F W WINDRIDGE MINING WARDEN APPLICANT: MR P AMBROSE instructed by Mr Ross Bannerman for BHP AUSTRALIA COAL PTY LTD AND OTHERS. LANDHOLDER:MR S C JONES Q.C. instructed by Wright Wright and Condie Solicitors for ROBERT BERRY AND LYN THERESE BERRY, KENNETH JOHN PARKINSON AND ROSS BERNARD PARKINSON. DETERMINATION: It is necessary to outline a number of matters which form the background of this determination. For and on behalf of the other partners, BHP Australia Coal Pty Ltd (the applicant miner) is the manager of the joint venture known as Central Queensland Coal Associates (C Q C A). The applicant miner is the holder of Mining Lease 1872 granted under the C Q C A Agreement Act 1968. Pursuant to Clause 6 of Part 3 of the Act dealing with special coal mining leases, the companies have applied to the Minister for further surface area of 842 hectares of land held by the respondent landowners. This additional surface land is described as an extension of the SARAJI mine. Clause 6 of sub-paragraph 3 provides that the miner must comply with the provisions relating to compensation set out in the Mining on Private Lands Act 1909 to 1965. That Act has been repealed and replaced by the Mineral Resources Act 1989 (the Act). Section 281 of that Act [1997] QMW 99 -- 1 of 15 -- 2 applies except where there are inconsistencies and where there are any inconsistencies the covenants, conditions and provisions of the C Q C A Act prevail. This determination is not in respect of a new application but is in respect of the taking of additional surface area where the applicant miner already has the sub-surface rights. The miner currently conducts mining operations on land on the western side of and to the north of the property. However, for the purposes of this determination, there is no need to draw any distinction or treat the determination as other than an acquisition of surface rights. The joint venture holds a number of leases in the immediate area principally to the north and west of the surface area now sought. A visual representation is available as a plan in the valuation document of Mr Todd (Exhibit 4). This shows other current leases, Mining Lease 1782, the surface area now sought, the balance of M L 1782 on Lake Vermont, and the remainder of Lake Vermont. See also document "D" attached to the statement of Martti Hankkunen (Exhibit 3). The hearing commenced at Emerald on 24 February 1997. No inspections were conducted. After the tendering of a number of documents, an adjournment was granted to allow the parties and the Court the opportunity to peruse those documents. On resumption, the Court was informed that there had been a commercial settlement between the parties (t/s 7). The parties had settled on a sum of $615,500 as a base figure of compensation under section 281 of the Act, excluding any amount which might be awarded under section 281(4)(e) of the Act, on the applicant miners submission, and section 281(4)(c) and (e) on the landowners submission (t/s 8). A breakdown of that figure is provided in Exhibit 5 and shows the following allocation to various items: LAND$350,000 -- 2 of 15 -- 3 SEVERANCE 111,000 NEW YARDS 32,000 REDUNDANT FENCING 2,000 RE-ARRANGE - NEW FENCING 32,000 EXTRA TRAVELLING COSTS 2,500 MANAGEMENT TIME 4,000 NEW DAM 15,000 REMOVAL DAM EQUIPMENT 2,000 COSTS REPLACEMENT PROPERTY 15,000 INJURIOUS AFFECTION 50,000 TOTAL $615,500 The parties have also agreed on a sum of $50,000 for disturbance items including the cost of this hearing. Items of disturbance are allowed under section 281(3)(iv) "all other loss or expense that arises" (MLA 70145 MINERVA Wardens Court Brisbane 15/8/97 unreported at p16/17). The breakdown of the "principal" sum into various headings (to which the miner does not consent or agree) shows a number of items which are not normally compensatible and nor are they considered to be items of disturbance. However, the parties may by agreement reach any settlement upon any terms suitable to themselves (Murray & Anor v Q E G B (Land Appeal Court Rockhampton 1984), and it is not my function to examine or approve any agreement apart from being satisfied the requirements of section 279(3) of the Act are satisfied. The only matters remaining outstanding in relation to this determination are: (1) an assessment of any premium under section 281(4) of the Act, and -- 3 of 15 -- 4 (2)a ruling on the application of the landowners for an indemnity with respect to any capital gains tax (CGT) which might be assessed. Prior to submissions the parties informed the court and it is now a matter of record that should the surface area be reduced in size, compensation payable will be reduced accordingly. I now turn to some of the aspects of the evidence. Part of mining lease 1782 is situated on property known as Lake Vermont, described as Lot 4 on Plan CNS293 being Grazing Homestead Freeholding Lease 12/2453 Parish of Vermont. Lake Vermont is operated by the Parkinson and Berry families as an aggregation with two other properties namely "Wynette" and "Tiny Downs". The location of these properties, relative to each other and Lake Vermont, is shown in Exhibit 7. The operation of the aggregation is described by Mr Todd as a breeding and fattening operation (t/s 42/43). Evidence on behalf of the owners was given by Mr Ross Bernard Parkinson. He described the operation of the aggregation (t/s 86/95). The main property Lake Vermont is divided into a number of paddocks with three sets of yards and connecting laneways. The cattle are dispersed around the paddocks according to their classification and growth. The loss of part of the cultivated surface area will affect the number of culled heifers that are normally put into that particular fattening paddock. Mr Parkinson rejected suggestions that other areas could be cultivated or that the throughput could be scaled down. The purchase of two nearby small properties that were available on the market was considered but rejected for a number of reasons, although an offer to purchase was made for one property. Mr Parkinson contends that the operation is running smoothly at the moment "being cost effective and paying dividends". The principal concern of the owners appears to be the loss of capacity to turn off a certain number of cattle every year due to -- 4 of 15 -- 5 the loss of surface area, particularly some cultivation land that is an essential part of the fattening operation on Lake Vermont. Part of the surface area that will be lost is regarded as the "hub" of the property for management purposes. With the loss of surface area, it will be necessary to move the "hub" of management operations further to the east. As part of an award for compensation, the owners seek an indemnity from the miner in relation to any assessment of CGT. Lake Vermont was acquired in 1978. Wynette was purchased in 1991. The family already owned Tiny Downs. There were two changes in ownership of interests between family members, and those changes bring the property into the capital gains tax regime. Mr Parkinson states there is no intention to sell the property. The miner resists the application for indemnity on a number of grounds. The miner submits that CGT is too remote and not provided for in section 281 of the Act. The miner relies on LR Beilharz Investments Pty Ltd v The Darling Harbour Authority (Land and Environment Court of N S W, Bignold J, 23 April 1991). It was submitted that any question of income tax (whether liability or immunity) of the applicant has no relevance to the assessment of its claim to compensation under section 124 of the Public Works Act 1912 in respect of the resumption of the subject land. (Chong v Fairfield Council (1968) 16 L G R A 407). His Honour found " It is clear, beyond argument, that capital gains tax is an income tax - s160ZO - and is personal to the applicant as a taxpayer under the Income Tax Assessment Act 1936. That being so, there is no reason for not applying Chong in the present case by holding that no compensation is payable under section 124 of the Public Works Act 1912 in respect to the applicants claim to special value based upon an estimate of financial loss referable to capital gains tax implications, suffered by the applicant by virtue of its land being vested in the Respondent". See also Pejama Pty Ltd v The Commissioner of Main Roads - Land Court Brisbane White 1989 - "It appears to me that the liability is merely an incident of ownership which runs with the land." In this instance, there is no change to the underlying title as the grant of a lease does not create an -- 5 of 15 -- 6 estate or interest in land (section 10 Mineral Resources Act 1989). There is no endorsement of the title document as with an easement. Ownership does not pass to any other person. The grant of a mining lease by the Governor in Council entitles the holder of the lease to do a limited act for a limited time. At the conclusion of the term, the lease expires. The "tax" affairs of the individuals involved are not a consideration in compensation matters. There is the right of the owners to issue proceedings under section 363 of the Mineral Resources Act 1989 if any assessment issued is attributable to any award of compensation. Until that occurs, any award for CGT or the granting of an indemnity against any assessment of CGT must be refused. The remaining matter for determination relates to the premium if any to be awarded under section 281(4) of the Act. Section 281(4)(c) states: (c)if the owner of land proves that the status and use currently being made (prior to the application for the grant of the mining lease) of certain land is such that a premium should be applied - an appropriate amount of compensation may be determined. Section 281(4)(e) provides: (e) an additional amount shall be determined to reflect the compulsory nature of action taken under this part which amount together with any amount determined pursuant to paragraph (c) shall not be less than 10% of the aggregate amount determined under subsection (3). The submission of the applicant miner is basically that no award should be made under section 281(4)(c) and only the prescribed minimum 10% should be awarded under 281(4)(e). The valuer for the miner states he could not identify any unquantifiable loss that had not been reflected in his assessment, and therefore the minimum 10% should apply. -- 6 of 15 -- 7 The miner submits that the landholder has been fully compensated for status and use because of the settlement which takes into account the value of the land and the use made of it. The miner disputes that any status and use can attach to the "hub" as the landowners received compensation in 1986 for this factor but took no steps to develop any other section of the property as a “hub”. The miner claims that to give any weight to that claim now is to allow double compensation to occur. The miner further submits the owner should not be able to claim for the loss of the land and the loss of production from that land, because that is being awarded compensation twice for the same loss. The landowner submits that the fact that some injurious affection was allowed in 1986 for the use of the homestead and yards does not count against the way in which this subject land is being used at the time of this application. Clause 10 (c) of the 1986 agreement states: (c)The Graziers acknowledge that the total of the amount included in the compensation and the costs to be incurred by the Companies as hereinbefore provided in this clause is in full settlement and satisfaction of all claims for Injurious Affection arising out of the re-location of the Buildings and Improvements, and the provision of access thereto, in connection with the acquisition by the Companies of the mining land or in connection with the acquisition by the Companies of any additional land within the Holding". The landowner submits that any premium allowed will compensate for the interruption of the income stream and the re-establishment of infrastructure on other parts of the property. This is all brought about by the loss of this part of the property, and the status and use of the property that is lost in this surface area application warrants the award of a premium. -- 7 of 15 -- 8 In relation to premium under section 281(4)(e), the owner submits that the Court should look to "a review of Mr Todds sales schedules in relation to that and my reading of it shows that there is a premium range between 32.5% and 127% but the majority of them in range between 50% and 100%" (t/s 112 Mr Jones). The miner submits that of those limited number of determinations that have been considered on appeal by the Land Court, no award of premium has been disturbed, that is, they all remained at 10 per centum. The miner further submitted that reliance on sales or settlements between the mining industry and landowners was not appropriate for any number of reasons. In these proceedings, there has been no determination by the Court of any award under "subsection (3) of section 281", as referred to in section 281(4)(e). However, it may be taken that the sum of $615,000 plus disturbance of $50,000, making a total of $665.000, is by agreement the sum of compensation which settles any claim or determination under section 281(3)(a) of the Mineral Resources Act 1989. The term "status and use" has not been defined in any other decisions or rulings, as pointed out by Mr Jones. It appears that this particular term is used only in the Mineral Resources Act 1989, as against the term "special value" used in other legislation and case reports. It appears from my reading of a number of those case reports that the terms may be interchangeable in that "special value" to the owner arises from the "status and use" that the owner receives or derives from his land. The purpose of compensation is to put the owner back as far as a monetary order can to as near to his original position as is possible. It is not the intention of the Court and nor is it in the spirit of the Act to provide windfall profits to any party. Compensation is to be determined under section 281(3) if there is no agreement. However, the legislation recognises certain unusual circumstances may exist in some individual cases, and the Court must give consideration to those -- 8 of 15 -- 9 circumstances as set forth in subsection (4) of s281. In this instance I have the evidence of the landowner, and to a lesser extent his valuer Mr Todd whose evidence on this point was no doubt derived from information given by the owner, of the management practices adopted on this property to make it a viable concern. I found that Mr Parkinson gave a fair account of the property and its operations and did not attempt to put any gloss on any point. It is apparent that the property is well managed as a viable concern and survived recent deficient rainfall years in good condition without the need for supplemental feeding. I consider that there are two factors that might be said to add special value to the land of the owners resulting from its status and use. The first is the current "hub" which is an essential part of the management process. The relocation of the "hub" will involve extra infrastructure requirements and a higher management effort. There will be loss of production which will be the result of the loss of part of the cultivated land, assessed by the landowner at 200 head per year. The other factor is the method of breeding and fattening adopted over the three properties in the aggregation. According to the evidence, the breeding conducted on Tiny downs and Wynette feeds young cattle into Lake Vermont for fattening and this procedure allows the landowner to turn off cattle in numbers. In mitigation against any award for status and use are a number of matters such as: 1.The mining lease was in existence at the time Lake Vermont was purchased. Therefore the operations conducted by the landowner have developed with the mine in operation. 2. Additional surface area was acquired and compensation was received for loss of land -- 9 of 15 -- 10 and disturbance in 1986. (1986 Agreement - Document G of statement - Exhibit 3) 3.It was known in 1986 that the miner would require land further to the east of current mining operations. (1986 Agreement - Document G of statement - Exhibit 3) 4.There will in all probability be a "lease back" arrangement between the parties in the form of an agistment licence. (t/s p5, p110) 5.Any "status and use" or "special value" to the owners is already reflected in the agreed settlement. 6.Any loss of profit from reduced turn off is taken into account by the settlement under section 281(3). "Status and use" might be said to apply to many instances where there is good management. However, I consider the wording of subsection (4) paragraph (c) "status and use currently being made (prior to the application for the grant of a mining lease) of certain land is such that a premium should be paid" imply a higher than normal use. The operative words are "is such that a premium should be paid". It demands a higher standard than normal "good management". It must in my opinion be a special feature or a unique circumstance that rises above the ordinary. Although in many cases "value to the owner" is no more than the market value which the land will yield, there are some cases in which there is a special value to the owner which takes compensation above market value. Bronzel v State Planning Authority of SA (1979) 21 SASR 513 at 524. Kirby P in Yates Property Corp Pty Ltd v Darling Harbour Authority (1991) 73 LGRA 47 at 52 said: -- 10 of 15 -- 11 "However, within the authorities which elaborate the statutory entitlement to compensation applicable in this case, it is clear that compensation for special value is available, at least to the extent that the owner, at the moment of resumption, enjoyed additional economical advantages directly attributable to its ownership or occupation of the land which would not be reflected in the market value: see Pastoral Finance Association Ltd v The Minister (1914) AC 1083 at 1087 and Kennedy Street Pty Ltd v The Minister (1962) 8 LGRA 221. (HYAM - Valuation of Land in Australia - p 194). see also Arkarba Holdings Ltd v Commissioner of Highways (SA) (1969) 19 LGRA 398 where Bray CJ said at 404: Special value must, in my view, arise from some attribute of the land, some use made of it or to be made of it or advantage derived or to be derived from it, which is peculiar to the claimant and would not exist in the abstract hypothetical purchaser. Would a prudent man in the position of the claimant have been willing to give more for this land than the market value rather than fail to obtain or regain it if he had been momentarily deprived of it". In this instance I do not consider that the "hub" adds anything to the "status and use". The "hub" can be shifted and new infrastructure constructed. However, I am satisfied that there will be a loss of production for a number of years due to a loss of surface land. Even with a lease back arrangement, there will at some stage be loss of production. The best estimate is that production will be affected for a period of four years, even if suitable replacement land is found in the near future. It is likely that it might take a number of years to bring this land up to the standard required by the owners so that infrastructure and cultivation meet their particular management requirements. The difficulty facing Courts in these circumstances is how to arrive at a objective result when the majority of the evidence is subjective opinion. There is no evidence of what the value of 200 head of cattle per annum might be. I consider any loss of profit is accommodated under the settlement reached under section 281(3). I consider it is more appropriate in this instance if the owner is placed in the position of an adjoining owner who -- 11 of 15 -- 12 is desirous of obtaining the land on the open market. How much above normal market price would the owners be prepared to pay to acquire the property? Bearing in mind the apparent success of the current operation conducted by the owners, and their reluctance to reduce production and the higher management effort needed to bring other land up to the same production level, I consider a range of between 20 percent and 40 percent is not unreasonable, that is the owners would be prepared to pay at least 20 percent more than market value to acquire the property, but would probably not be prepared to pay 40 percent above market price. While the total settlement is $665,500 (without premium), the sum of $350,000 is allocated to "land" by the owner, and therefore I consider the sum of $350.000 should be taken as the sale price of the land, i.e. a market value in this instance established by the agreed settlement. The other items of the settlement cannot be included in the assessment of any premium as the subsection refers to "use currently being made ....of certain land. Any monetary allocation to other items is immaterial as far as subsection (4) (c) is concerned. The use of the word "premium" does not equate to "percentage", and I decline to assess on a percentage basis. However, bearing in mind the particular type of operation conducted by the landowners and the past and current history of the mining lease, I consider it would not be unreasonable to find that a willing and prudent purchaser who had adjoining property would outlay extra funds up to $100,000 above market value in order to acquire the property. In relation to any premium under subsection (4)(e), I do not accept that the Court should place any weight on "mining sales", that is, sales or settlements involving mining companies. See Murray & Anor v Q E G B (1984) Land Appeal Court Rockhampton where the Court held at p69: (b)there is no principle in law which requires the rejection of settlements but they should be used with considerable caution, bearing in mind the impending threat of resumption. -- 12 of 15 -- 13 The circumstances surrounding such settlements differ from the normal test to be applied. Even in the absence of other evidence, such settlements should be treated with caution. Subsection (4)(b) states: (b)no allowance shall be made for any minerals that are or may be on or under the surface of the land concerned; Some settlements quoted to the Court on this and other occasions indicate that the "premium" is beginning to take on the appearance of a "defacto allowance" for the value of the mineral. I do not consider that mining sales are a reliable guide to the "market value" in the ordinary sense of those words for the purchase of property. There could be an anxious purchaser on one hand and an unwilling vendor on the other hand. It is open to find that a number of these settlements had influencing factors such as the avoidance of delay, the avoidance of litigation, better rights of access, lack of restriction because of prohibited or restricted areas, i.e. category 1 and category 2 land. In this instance there is the real likelihood of a lease back arrangement through the agistment licence referred to in evidence. The background facts and circumstances surrounding such settlements are many and varied, but primarily those settlements do not meet the standard test. Compensation must be based on the assessment of the property as a rural property not a property containing mineral which is the suggestion behind "mining industry sales". Subsection (4)(e) only requires that any solatium be not less than 10 % of the aggregate amount determined under subsection (3). The solatium under subsection (4)(e) could be one dollar, as long as the combination of any award under subsection (4)(c) and (4)(e) brings the total to at least 10 % of the aggregate amount determined, or in this case, agreed under subsection (3). The award for status and use under subsection (4)(c) already exceeds the minimum award of 10% under subsection (4)(e). In that instance then, the landowner could be awarded the sum of $1.00 to -- 13 of 15 -- 14 reflect the compulsory nature of the action taken under this part. However, I do not consider that an award of $1.00 for solatium was the intention of the legislature. I consider that notwithstanding that an award in the sum of $100.000 has been made under the provisions of subsection (4)(c) as recognition of status and use, an additional amount in the sum of $50,000 should be allowed to reflect the compulsory nature of the action taken because effectively 842 hectares of surface area of the property will be taken and included in the lease for the balance of the term of the lease. After consideration of all the oral evidence, documentary evidence and submissions, my orders are as follows: (1)If the surface area taken by the miner is reduced, compensation to the landowners is to be reduced accordingly. (2)The applicant miner BHP AUSTRALIA COAL PTY LTD AND OTHERS shall pay to the landowners ROBERT BERRY, LYN THERESE BERRY, KENNETH JOHN PARKINSON AND ROSS BERNARD PARKINSON the sum of $150.000 being an award under the provisions of section 281(4) of the Mineral Resources Act 1989 in addition to the agreed settlement of $665,500. (3)The application for indemnity against capital gains tax be refused. (4)The parties give due consideration to entering into the agistment licence offered by the miner. No submission was made by either party in relation to section 281(5) of the Mineral Resources Act. The parties are directed to appear before the Wardens Court at 10.00 am on 16 December 1997 at Emerald to make submissions in relation to terms, conditions and times when payment is to be made. -- 14 of 15 -- 15 Dated at Emerald this 16th day of December 1997. F W WINDRIDGE MINING WARDEN © Copyright Wardens Court 1997 -- 15 of 15 --