Director-General, Department of Transport v Hibiscus Holdings Pty Ltd [1997] QLAC 122 (1997-1998) 18 QLCR 105

IN THE LAND APPEAL COURT BRISBANE No. A92-5 BETWEEN: AND: DIRECTOR-GENERAL, DEPARTMENT OF TRANSPORT HIBISCUS HOLDINGS PTY LTD Appellant Respondent REASONS FOR JUDGMENT - FRYBERG J. Delivered the 15th day of August, 1997 The principles to be applied by this Court in determining an appeal by way of rehearing on the record are set out in the cases cited in the reasons for judgment of Mr Wenck, which I have had the benefit of reading. So are the relevant facts. I need not repeat either. In my judgment, the decision of the Land Court was affected by two errors warranting interference with it. First, this was not a case where a piecemeal approach to valuation of the subject land was justified. Second, the evidence did not permit a conclusion that the decrease in the occupancy of the caravan park after the completion of the roadworks was wholly due to the new works. At the relevant date, most of the land from which the land resumed was excised was used for the purposes of a caravan park. In the appeal before us, this was accepted by both sides as its highest and best use. It was also accepted that the land (including the unused portion of it) had potential for redevelopment for industrial use. The unused portion was not contained in a separate subdivision. It was differentiated from the used portion only by its current use and by the fact that part of it was traversed by a high-tension power line and its associated easement. Until the time for redevelopment arrived, this potential for industrial use represented a factor which a prudent purchaser would take into account in assessing the price which he would pay for land purchased for immediate use as a caravan park. The works for which the land was resumed did not facilitate the use of the land as a caravan park; but they did improve the access to the land, particularly to the unused portion of it, thereby rendering the potential use of the land more attractive. As the Land Court found, it was [1997] QLAC 122 -- 1 of 4 -- 2 necessary to take this into account as enhancing the value of the retained land. I do not think the impact of the enhancement was limited to the unused land, nor do I think it is feasible to attempt to assess the value of the enhancement on a sliding scale over different parts of the retained land. While I do not intend to lay down any rule of general application, I do think that in a case such as the present, the correct approach is to apply the enhancement to the whole of the retained land. In this Court, the Director-General accepted that this was an appropriate case for the use of a "before and after" valuation based on capitalised returns from the use of the land as a caravan park. On this basis, the enhancement of the retained land should be taken into account by a reduction in the capitalisation rate applied in the "after" valuation. As to the question of causation, I agree with Mr Wenck that the evidence did not go far enough to permit a conclusion that the downturn in occupancy rates was wholly caused by the roadworks. This was a case where there were other potential causes of such a downturn. Traffic on the existing Pacific Highway increased for reasons unconnected with the works on the resumed land. Rentals in the caravan park were increased at a crucial time. The fall was progressive; it did not occur within a short period. There was an evidentiary onus on the claimant to deal with these matters if it sought to attribute the whole of the downturn to the works. It did not adequately do so. For these reasons, this Court must make its own assessment of the proper amount to be paid for compensation. In making that assessment I do not think it is appropriate to include the amount of $7,000.00 allowed below for the cost of replacing trees and the amount of $5,000.00 allowed below for the cost of landscaping. Compensation for those matters is reflected in the amount determined by the "before and after valuation"; although, were we not reassessing compensation, I would not count these appealable errors. Before us, neither side challenged the "before" element in the assessment of the Land Court. That element was calculated to be $937,347.35, applying a capitalisation rate of 19%. That rate was toward the upper end of the range disclosed by the sales evidence (16%-20%), which is perhaps surprising, having regard to the potential of the land for industrial development, a factor not present in all of the comparable sales. It is also true, as Mr Wenck points out in his reasons, that it is not clear whether allowance was made for the additional area of unused land. Both of these factors tend to increase the price which a prudent purchaser would have paid, thereby reducing the capitalisation rate, which a sale would reflect. However, as the cases show, the selection of an appropriate capitalisation rate is very much a matter of judgment. The -- 2 of 4 -- 3 claimant rightly emphasised this in its submissions and supported the finding below. Of course, the Director-General had no interest in arguing that 19% was too high, and he did not do so. In these circumstances, we should not in my view go behind the rate adopted in the Land Court. The "before" value calculated below, rounded to $937,300.00, should be adopted. In assessing the "after" value, the problem is to assess the appropriate estimated net return and the appropriate capitalisation rate. The court below accepted that the occupancy rate fell from an estimated 85% to about 70% over the period of a year and a half to two years after construction work was completed. It held that this was caused by an increase in noise and fumes (or at least, a perception on the part of customers of the caravan park of such an increase) as a result of the works on the resumed land. The Director-General criticised these findings; but in my judgment, they were findings which were open on the evidence. Indeed, it would be surprising if residents of the caravan park had not felt that the use of the works caused such increases. I do not think it is necessary to repeat the analysis of the evidence carried out in the court below. I am satisfied on the balance of probabilities that residents' perceptions of noise and smell led to increased vacancies after use of the ramp commenced; but that while these were the primary factors causing that increase, they were not the only factors. Having regard to the difficulties involved in excluding a negative, it is appropriate to attribute two-thirds of the drop in occupancy to the works. In other words, the works caused the occupancy rate to fall from 85% to 75%. The Director-General disclaimed any argument that a prudent purchaser would not have foreseen this fall as at the date of valuation. Assessing the appropriate capitalisation rate is more difficult. It must be assessed having regard to the rates implicit in the comparable sales placed into evidence, and it must be lower than the 19% adopted for the "before" valuation, to reflect the enhancement from the works. It remains however very much an exercise in judgment. Neither valuer in the Land Court directly addressed this question. Mr Verebes did not use a lower rate, for he saw no enhancement. Mr Slater impliedly thought the rate should be reduced by 1%, although he adopted a somewhat different approach. He also gave evidence that the existence of the works would save an expenditure of some $300,000.00 in the course of redevelopment for industrial use, though the provenance of that figure is unclear. Neither gave any evidence which would justify a reduction of 2%, a figure for which the Director-General contended more in hope than in belief. Having regard to this evidence and also with the benefit of the analyses set out in the reasons for judgment of Mr Wenck, I have come to the conclusion that a rate of 18% is appropriate. I would therefore assess compensation as follows: -- 3 of 4 -- 4 Value before resumption $937,300.00 Value after resumption 110 sites @ $3,325.83 per annum @ 75% $274,381.00 Less outgoings $118,982.00 Net profit $155,399.00 Value capitalised at 18% $863,300.00 Loss of land $74,000.00 Add agreed loss of rental for signage (rounded) $1,300.00 $75,300.00 This figure is close to that of $78,300.00, the compensation assessed by Mr Wenck by a slightly different route. Traditionally, this Court resolves doubts in such cases in favour of a more liberal estimate1. Having regard to the views of the other members of the Court, I adopt the figure of $78,300.00. The appeal should be allowed. The order of the Land Court should be set aside and in lieu thereof it should be ordered that compensation be determined in the amount of $78,300.00. The respondent should be ordered to pay the claimant interest on that amount at 9.5% per annum for the period from 1st April, 1989 until the day immediately preceding the date upon which the compensation is paid. 1 Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd. (1947) 74 C.L.R. 358 at p.374 per Dixon J. -- 4 of 4 --