Caltex Oil (Australia) Pty Ltd v Chief Executive, Department of Lands [1996] QLAC 48 (1996) 16 QLCR 435

LAND APPEAL COURT BRISBANE AV93-561 BETWEEN: CALTEX OIL (AUSTRALIA) PTY LTD AND CHIEF EXECUTIVE, DEPARTMENT OF LANDS Appellant Respondent REASONS FOR JUDGMENT - FRYBERG J AND MR NEATE Delivered the Twenty-sixth day of April 1996. This case, the appellant submits, raises two issues with respect to the determination of the unimproved value of land under the Valuation of Land Act 1944: 1. Where the highest and best use of land is as potential residential land but the land is used for service station purposes and is registered as a "probable site" under the Contaminated Land Act 1991, must the fact of the registration be taken into account in determining the unimproved value of the land for annual valuation purposes? 2. Where the highest and best use of land is as potential residential land but the land is used for service station purposes and is probably contaminated to a significant extent as a result of that use, must the probability of contamination be taken into account in determining the unimproved value of the land for annual valuation purposes? On the relevant valuation date (31 March 1992), the subject land was owned by the appellant and comprised three adjacent lots (Lot 1 on RP 99186 and Lots 2 and 4 on RP 91704) in the parish of Yeerongpilly. It had an aggregate area of 1793m2 and was situated on the corner of Orange Grove Road and Henson Street, Salisbury, about 13 kilometres south of the Brisbane GPO. Both streets were of full width bitumen construction and had concrete footpaths, kerbing and channelling. The corner block was truncated and had a frontage of about 40 metres to both roads. The intersection was signalised. All relevant services were available to the site. The subject land was zoned Residential "A" under the City of Brisbane Town Plan. [1996] QLAC 48 -- 1 of 26 -- 2 Under that zoning a service station was a consent use. Pursuant to a duly issued consent, the land had been developed for service station purposes. Prior to the relevant valuation date, it had been entered as a "probable site" in the Contaminated Sites Register maintained under section 24 of the Contaminated Land Act 1991 Much of the hearing before the Land Court was concerned with the identification of the highest and best use of the land on the relevant valuation date. The respondent there contended that the highest and best use was as a service station, which was the existing use. The appellant contended that the highest and best use was for potential residential purposes (for up to six units). It called Mr A J Crawford, a valuer. His evidence supported the appellant's contention as to highest and best use; but he also gave evidence that in his opinion the land was worth more with the service station buildings on it than without them. The Land Court accepted the appellant's contention on the issue of highest and best use, but it also held: "the real significance of contamination will only come to the fore when a site (possible or probable) reaches the stage where the actual site is on the verge of moving from a use which necessarily carries with it possibilities or probabilities of contamination to a use which conflicts with the former use - more than likely this will be limited to a residential use." The Court held that any impact which the service station use might have had on the market was reflected in the sales relied on. On this basis, it determined the unimproved value to be $135,000. Before this Court, the parties reached an agreed position on matters that were previously in issue between them. The effect of the agreement is that this Court should proceed on the following basis: (a) the highest and best use of the subject land is as residential land; (b) the figure of $135,000 is the starting point in determining whether the unim- proved value of the subject land should be reduced for the effect (if any) of the Contaminated Land Act 1991 on, or the risk of actual contamination of, the land; (c) the test required under section 3(2) of the Valuation of Land Act 1944 either was not operative or was satisfied. To the extent necessary to give effect to the agreement the parties expressly abandoned Mr Crawford's evidence. That position was not reached without some difficulty. It was not the parties' original position. It was adopted after the Court relisted the matter for further argument. This was done because the members of the Court perceived a possible inconsistency between the -- 2 of 26 -- 3 parties' agreement as to highest and best use and Mr Crawford's evidence (which was the only evidence of value for residential use) that the land was worth more with the service station buildings on it than without them. After considerable argument, the parties adopted the position stated above, but neither conceded that there was in fact any inconsistency. For the reasons discussed below, we are of the view that such an inconsistency does exist. We have decided to accede to the abandonment of the inconsistent part of Mr Crawford's evidence by the parties because it is a matter for them what evidence is put before the Court, because there is in principle no objection to the parties narrowing the issues between them and because we were told the case is a test case. As will appear, the course which the matter has taken has limited the width of our decision. In particular, since we understand that there are a number of service station cases pending in the Land Court, we emphasise that we have made no finding as to the highest and best use of the subject land; and that this decision is not made in a case where the highest and best use of land remained use as a service station. The Risk of Actual Contamination The appellant did not seek to demonstrate the existence of actual contamination in the subject land by direct evidence. Instead, its evidence was directed towards showing that there was a probability, or at least a serious chance, of contamination. It was argued that a prudent purchaser would take such a probability or chance into account in assessing the price for the land. The existence of such a probability, it was submitted, constituted "worsement": Marano v Valuer-General1 and Raynbird v Valuer-General2. The respondent accepted that, if there actually was contamination, the contamination would constitute "worsement", but the respondent did not accept either that a chance of contamination was sufficient to bring the principle into play, or that anything other than a minimal chance existed. It will be necessary later to refer to the evidence on these matters in some detail. For present purposes, it is sufficient to say that the evidence of the two witnesses who referred to the matter, Mr W M Marley and Mr M D Ryan, was not challenged in cross-examination and appears to have been accepted by the Land Court. In the cases referred to, the condition of the land had been detrimentally affected by human activities. It was held that the valuation process must take account of the condition of the land as it actually was, and that the condition of the land was such that a prudent purchaser would pay less, and a vendor would accept less, than would otherwise be the case. In the present case, the evidence about the market for comparable land was scanty. It seems (1978) 5 QLCR 194. (1980) 7 QLCR 106. -- 3 of 26 -- 4 there were no sales of contaminated or possibly contaminated land around the relevant time, so it was not possible by sales analysis to demonstrate any differential value between such land and uncontaminated land. Mr Crawford expressed the view that a prudent purchaser would make an allowance for "remediation work", but in the context it seems clear that he was referring to work required to be performed as a result of the Contaminated Land Act. The question does not seem to have been addressed directly in the evidence until the cross- examination of Mr Cranstoun, the respondent's valuer: "Would you agree that a purchaser would be likely to adjust its price it paid for a site having regard to the need to get a site investigation report?-- A prudent purchaser would certainly take the likelihood of contamination into account. THE PRESIDENT: What for service station purposes?-- If he was buying an ongoing service station. Why would he be concerned about that?-- He'd have to take the likely degree of contamination, I suppose, into consideration. He'd have to investigate whether there'd been any notices or reports issued from the Department of Environment and Heritage, or whether there had been any complaints from neighbours. To carry on operating it as a service station?-- Yes, I think that would affect a prudent purchaser's view of the land if there had been any notices issued from the department. ... MR GYNTHER: Your answer was really that a purchaser, a prudent purchaser would allow for the risk. That was your opinion, wasn't it?-- Well a prudent purchaser would take all risks and benefits into account. You accept on the basis of what Mr Marley said, in your opinion, that that risk is present?-- You couldn't disregard the risk, there would be a risk in an old service station. There would be some sort of risk. It would seem to be that on the experience of two witnesses who are familiar with the market that that risk is actually taken into account by purchasers?-- By prudent purchasers. By prudent purchasers, yes. You agree with that?-- Yes." In the absence of relevant sales evidence, we do not find that evidence provides sufficient support for the appellant's case. One reason why no sales of comparable land could be found was that in 1992, as a matter of policy, oil companies invariably cleaned up service station sites before selling them. -- 4 of 26 -- 5 (Presumably the number of sales by persons other than oil companies was insignificant). Mr Ryan, the National Property Development Manager for the appellant, gave the following evidence: "Well, your evidence a moment ago was that when you do sell off sites, you, as a matter of policy, remediate the land---?-- Mmm. ----where that's required. Could you just explain for me the policy itself? Are you familiar with the terms of the policy?-- Yes, it's a policy developed by myself in my role as manager of this process. It was something that came upon us suddenly in 1989 in Victoria with the EPA there changing its practices in relation to former service station sites. The EPA required that - Victorian EPA required that all sites be remediated by the oil companies and whilst it's theoretically possible to not remediate and theoretically possible to reduce your sale price to take account of the cost of remediation, in practice, it doesn't occur. In practice what would you find?-- In practice, the oil companies themselves and Caltex specifically, remediates the sites at its own expense, under its own management. Prospective purchasers will account for the likely cost of remediation in the most conservative terms. They see site contamination and remediation as quite a mystery and they will account for that mystery conservatively, that is they will assume a much higher cost -that might ultimately be the case." We infer from that passage that prior to 1989 there were sales of contaminated land and that the buyer resistance described by Mr Ryan was not then a problem. We should say that, apart from statute, it does not appear to be self-evident that the mere possibility of leakage of petroleum products into land is necessarily a detriment or "worsement" akin to what was considered in the cases cited, at least where the highest and best use under consideration is multiple unit development. Purchasers might well consider that they will be carrying out some excavation of land anyway, and paving with concrete, and that any problems will be overcome by these measures. For these reasons, we are not prepared to allow the appeal on this basis. We should add that in any event, any reduction in value resulting from the chance of actual contamination could not, on the evidence in this case, either exceed or be cumulative upon any reduction resulting from the operation of the Contaminated Land Act 1991. To that aspect of the matter we now turn. -- 5 of 26 -- 6 The Contaminated Land Act 1991 The long title of the Contaminated Land Act states3 that it is an Act "to facilitate the management of contaminated land and for related purposes". It commenced to operate on 1 January 1992, some three months before the relevant date of valuation. The objects of the Act include: "(a) to define contaminated land; and (b) . . . (c) to identify all contaminated land in Queensland; and (d) to establish a register of contaminated land; and (e) to have information on contaminated land available to the public; and (f) to enable assessment and, if necessary, remediation of contaminated land in Queensland to ensure the land does not present a hazard to human health or the environment; and (g) to provide a mechanism for a site specific solution for each contaminated site based on a scientific assessment of the risk to health and the environment; and (h) to provide, in appropriate cases, for recovery of costs of investigation and remediation of land from those who caused the contamination and from others; and (i) to ensure that any restrictions on future use of contaminated land are maintained; ...."4 The Act applies to all land other than land in certain exempted categories5. It applied to the subject land at the relevant date of valuation. It is an offence to cause land to become "contaminated land"6, that is, land that, "in the opinion of the Director" (then the Director of the Bureau of Emergency Services (the "Director"))7 "is affected by a hazardous substance so that it is, or causes other land, water or References are to the Act as it stood on 31 March 1992. We use the present tense for euphony. Section 3. Section 7. Section 13. The designation of Director was later changed to the Director General of the Department of Environment and Heritage (see Statute Law Miscellaneous Provisions) Act 1992 section 2 Schedule 2) and then to Chief Executive of the Department (see Statute Law (Miscellaneous Provisions Act (No 2) 1992 section 3 Schedule 1. Thus the Chief Executive now has the functions and powers of the Director referred to in its judgment. -- 6 of 26 -- 7 Section 27. air to be, a hazard to human health or the environment"8. An owner or occupier of land who becomes aware that the land is, or is likely to be, contaminated must notify the Director within a specified period. The notification requirement does not apply if the Director already has notification9. The Director may, at any time, classify land as a "probable site" if a "current or past use of, or activity on, the land is for a prescribed use or the sort of use or activity that is known to have caused, or may have caused, land to become contaminated land"10. The respondent conceded that the subject land was classified as a "probable site". Since, as Mr Hiley QC pointed out on behalf of the respondent, there was at the relevant date no "prescribed use" for the purposes of section 23, the classification must have been effected by reference to the nature of the current or past use of the land. The classification of "probable site" can be compared with that of a "confirmed site", where the Director has assessed the site and is of the opinion that the demonstrated level of contamination represents a health or environmental hazard, or a "restricted site", where the level of contamination is, in the opinion of the Director, such that it might permit a limited use or on-site activity of a specified type.11 Relevant particulars of classified land must be recorded in the Contaminated Sites Register, which register is able to be inspected and copied by any person12. The Director must also notify the Registrar of Titles or other relevant person that land has been classified as a "probable site", and that person is to maintain records that the land has been so classified and that particulars of the classification are available from the Contaminated Sites Register13. Before a person disposes of land that is a "probable site" to another person, the person must give written notice to the other person setting out the classification of the land and the particulars of any current or unsatisfied notices given under the Contaminated Land Act in relation to the land14. Section 4. Section 17. Section 23. Ibid. Section 24. Section 25. -- 7 of 26 -- 8 If the Director suspects, on reasonable grounds, that land is or may be contaminated land (whether it was contaminated before or after the commencement of the Contaminated Land Act), the Director may direct a nominated person (the person suspected of causing or permitting the contamination, the owner of the land, or the local authority) to provide a site investigation report to the Director15. Specific provision is made for land classified as a "probable site". If the Director reasonably suspects that contaminated land on a "probable site" has been contaminated after the commencement of the Act, and the land was a "probable site" when it was acquired by the owner or the contamination happened after the acquisition of the land by the owner, the Director may require the owner to provide a site investigation report16 and to take specified remediation measures17. It is an offence to fail to comply with a notice to provide a site investigation report18 or a notice to take specified remediation measures19. The Director may also cause a site investigation report to be prepared in relation to land suspected by the Director of being contaminated20, and may cause remediation of a site to be conducted and direct a nominated person (who may be the owner) to pay the reasonable costs of the State in taking action21. If action has been taken under the Contaminated Land Act to remediate a contaminated site, the owner (or other relevant person or local authority) may (and, in some circumstances, must) provide a validation report to the Director, who must assess it. A site contamination report is to be provided to the relevant person or authority22. Land that was previously classified as a "probable site" may be classified as: (a) a "former site" if (after action to remediate the land and investigation) the Director is satisfied that the land is no longer contaminated land23; or (b) a "released site" if (after investigation) the Director is satisfied that the land is Section 19. Section 19(2)(b). Section 20(2)(b). Section 19(8). Section 20(4). Section 19(4). Section 21. Section 22. Section 23(8). -- 8 of 26 -- 9 Section 13. not contaminated land24. Where land ceases to be classified as a "probable site" (because it is classified as a "former site" or a "released site"), the Registrar of Titles or other relevant person is to be notified, and details of the land are to be removed from the records25. It was not suggested before us that such land would have any different value from otherwise identical land which had never been classified. Re-use or redevelopment of the subject land following the abandonment of its use for service station purposes is subject to such of the provisions of the Town Plan for the City of Brisbane as are relevant to the Residential A zone and to provisions of Planning Policy 19.13 ("Re-use or Redevelopment of a Disused Service Station Site in a Residential Zone"), which was adopted on 10 December 1991. Although Planning Policy 19.13 favoured the re-use or redevelopment of disused service station sites for residential purposes, each proposal was to be assessed on the basis of its individual merits and to be submitted to the Queensland Government's Chemical Hazards and Emergency Management (CHEM) Unit to determine whether the proposed activity was compatible with residue contaminants from the previous use of the site and what (if any) measures were necessary to rehabilitate the land. Among the information to be submitted with a proposal was clearance from the CHEM Unit. It was common ground between the parties that, while the subject land remained classified as a "probable site", development for residential purposes was prohibited26. We now turn to the relevant provisions of the Valuation of Land Act 1944 ("the Valuation of Land Act"). That Act was reprinted in an amended and renumbered form after the relevant date of valuation. Although we must apply the law as it was on 31 March 1992, it is appropriate in this judgment to refer to sections of the Act by the numbers assigned in Reprint No 2. The Valuation of Land Act requires the respondent to decide the unimproved value of the land to be valued for the Acts under which local authorities are established27. "Unimproved value" of land means: Section 23(9). Section 25. The basis of this agreement was not explained to us. We were not referred to any legislation which necessarily produces such a result independently of some intervening administrative decision. -- 9 of 26 -- 10 "(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"28. In Toohey's Limited v The Valuer-General29, Lord Dunedin said of similar legislation: "... What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvement; what would it fetch in the market? It will be observed that the value is not what has been sometimes designated by the expression 'prairie value'. The land must be taken as it exists at the date of valuation." In the present context, the question is whether the fact that the subject land is classified as a "probable site" should be taken into account in determining its unimproved value. The starting point of Caltex's submission was that any legislative or town planning restrictions on the use of the land must be taken into account in arriving at a valuation. Support for that proposition is found in the decision of the High Court in Royal Sydney Golf Club v Federal Commissioner of Taxation30, and in Stubberfield v The Valuer-General31 where Carter J stated that "the relationship between statutory based schemes which control land use and the impact of those schemes on land value can no longer be seriously questioned". The hypothetical purchaser and vendor will take "full account of the inherent characteristics of the land as well as the restrictions or otherwise upon its present or future use when deciding what sum of money the one will pay to the other to acquire it." Caltex submitted that, in arriving at a valuation of land, the Court will not just take into account the relevant zoning of the land. It will also take into account other statutory restrictions affecting the land. Two recent decisions of the Land Appeal Court concerning the Section 3(1). [1925] A.C. 439 at p 443. (1955) 91 CLR 610 at 624-5. [1991] 1 Qd R 278 at p 283; (1989) 12 QLCR 328 at p 331. -- 10 of 26 -- 11 operation of State heritage legislation were cited to support that proposition32. Mr Hiley QC sought to distinguish the zoning and heritage protection cases on the basis that they involved legislatively imposed restrictions about which the land owner could do nothing. By contrast, he submitted, the owner of a "probable site" can take action to rid the land of that classification and have it classified as a "former site" or a "released site". The submission is attractive in general policy terms. It may well be asked why persons who contaminate land should be able to benefit from their action by having the unimproved value of their land (at least for rating purposes) reduced, and so gain a potential benefit from a possible reduction in the amount of rates payable with respect to the land. As a corollary, it may be asked why the general community should bear the increased rate burden occasioned by the lowering of the rate burden on contaminated land. On analysis, however, the submission must fail. No authority was cited in support of the proposed distinction. In many zoning situations it would be possible for the land owner to overcome the relevant statutory restrictions by an application for rezoning or an application for a consent use. Moreover, if the foundation for the distinction were sound, one would expect that cases where a restrictive zoning was imposed at the request of the owner (or his predecessor in title) would also be distinguishable; yet this is not suggested. The proposed distinction adds a further layer of complexity to an already complex process. Further, the identity of the owner is not relevant. The restriction applies whether it was the current owner or a previous owner whose use of the land gave rise to the classification. Finally, we can find no support for it in the words of the Valuation of Land Act. That Act directs attention to the value of an estate in fee simple at each date of annual valuation. It does not suggest an inquiry into the reason why land has come to be in a state which may affect that value. Indeed, the present case is, if anything, stronger than the heritage cases. In those cases, it was arguable that the statutory restriction was imposed upon or existed by reason of the existence of a particular type of improvement on the land. In the present case, the statutory restriction derives from a current or past use of or activity on the land, to which any structures are collateral. In our judgment, the proposed distinction is invalid and the principles discussed in the cases referred to apply to the present case. On behalf of the respondent it was submitted that a hypothetical prudent purchaser would not have to consider remediation or reclassification because the appellant would Queensland Club v Valuer-General (1991) 13 QCLR 207 and Ballow Chambers Ltd v Valuer- General (1993) 14 QLCR 422. -- 11 of 26 -- 12 already have done it. In our view, such an approach is incorrect. The valuation process is required to be carried out on the land as it was on the date of valuation, subject to the provisions of section 3 of the Valuation of Land Act. On no view could the existence of the "probable site" classification be regarded as an improvement to be disregarded under that section. Moreover, not all owners would necessarily adopt the appellant's policy of remediation before sale. Acceptance of the respondent's submission would produce the consequence that the land would have a different value depending upon the identity of the owner on the date of valuation. No basis for such a finding exists in the present case. A related submission on behalf of the respondent was that acceptance by the parties of residential as the highest and best use itself implied that the subject land must be considered in a notionally remediated state. That was said to follow because development for the highest and best use was prohibited if the land was unremediated. This submission misconceives the concept of highest and best use. It is axiomatic that the law requires land to be valued for its highest and best use. This is as true in cases decided under the Valuation of Land Act as in other cases. Thus, in Goode v Valuer General, Wells J. said: "In my opinion, therefore, the sale referred to in the definition of unimproved value is a sale of the land in a market where at least some of the potential buyers are interested in making a use of the land that will realise the highest price."33 In Stubberfield v Valuer-General, Carter J. said: "It is also a well recognised principle that land be valued for its highest and best use. What it can best be used for will be reflected in its true market value which takes account of any detriment the land possesses relevant to its use as well as any potential it has for its present or other use."34 There is no statutory definition of what constitutes highest and best use. It was described by Isaacs J. as "the most advantageous purpose for which [the land] was adapted"35. A similar idea has been expressed in this Court in the context of a discussion of the value of land to the owner: (1979) 22 SASR 247 at p 256; see also Spicer v Valuer General (1963) 10 LGRA 319. [1991] Qd R 278 at p 283, (1989) 12 QLCR 328 at p 331. Spencer v The Commonwealth (1907) 5 C.L.R. 418 at p. 441. -- 12 of 26 -- 13 "This is a compensation case, following on compulsory acquisition of the subject land, and we commence with the basic proposition that what has to be determined in such a case is, 'the value of the land to the owner as it existed at the date of the taking, not the value to the taker - and this value to the owner consists in all the advantages which the land possesses, present or future, but it is the present value alone of such advantages that falls to be determined': Cedar Rapids Manufacturing and Power Co. v Lacoste [1914] A.C. 569 per Lord Dunedin at p.576. This principle has been discussed and developed in numerous cases but for our purposes in the subject case, we think Lord Dunedin's statement above sufficient at this stage, with the substitution of the words 'highest and best use' for the words 'all advantages' - again for our purposes in this case, and recognising that in some cases there may be in addition some special value to the owner, not existing in this case. We have substituted the words 'highest and best use' because these words occur frequently in the valuation evidence. We could perhaps also use the words 'potential of the land'. "36 As the Privy Council said in a passage which we have already quoted, "The land must be taken as it exists at the date of valuation."37 Those dicta supply the answer to the respondent's submission that the land must be considered in a notionally remediated state. It is the land as it stood at the relevant valuation date, with no improvements but with all of its disadvantages, which must be considered. Its unremediated condition is one relevant disadvantage. To accept the respondent's submission would not be to value the land as it was on that date. The Contaminated Land Act does not absolutely prohibit the use of the subject land for residential purposes. Its effect is to require at least investigatory work to be performed on the land in order to bring about that use. In our judgment, neither the Valuation of Land Act nor the authorities warrant making the valuation on the assumption that that work has been performed. We referred earlier in these reasons to the difficulty which the agreement between the parties created for the Court. The difficulty flowed from the apparent inconsistency between Mr. Crawford's evidence that the land with the service station structures on it was worth more than the land without such structures on the one hand, and the assumption that the highest and best use was not for service station purposes but was for residential purposes on the Gallagher v Brisbane City Council (1975) 2 Q.L.C.R. 368 at pp.380-381. Tooheys Limited v The Valuer-General [1925] A.C. 439 at p. 443. -- 13 of 26 -- 14 other. If the service station structures add value to the land, then the highest and best use of the land must be something which involves use of those structures, not their demolition. If the highest and best use of the land is for residential purposes, then the service station structures can add nothing to the value of the land as vacant land. If anything, the value of the land with the structures on it should be less than its value as vacant land, since the structures must be demolished and removed in order to develop the land for its highest and best use. For the purposes of residential use, they are a disadvantage. As we have shown above, the valuer must take the land as it is, with all its disadvantages. We have concluded that the inconsisten- cy does require us to disregard Mr Crawford's evidence to the extent that it suggests that the service station structures added value to the land. A number of arguments were put to us against this conclusion. Some were elusive; but as we understand them, they may be paraphrased as follows. The Valuation of Land Act requires the determination of the unimproved value of the land; this must be determined in relation to improved land by assuming that the improvements did not exist at the relevant valuation date38; the subject land was improved land because it had improvements, viz. the service station structures, on it on the relevant date; therefore the subject land must be valued on the assumption that those structures did not then exist; the highest and best use must be determined on this assumption; and on this assumption the inconsistency referred to above does not exist. It may be accepted that the Valuation of Land Act requires the determination of the unimproved value of the land39, and it is clear that unimproved value must be determined on the assumption that any improvements did not exist on the relevant valuation date40. However the subject land was not necessarily improved land because the service station structures did not necessarily constitute improvements. There is a lengthy definition of "improvements" in s.6 of the Act. It is unnecessary to set it out here. It was considered by Gibbs J. in Brisbane City Council v Valuer-General41. His Honour said: See the definition of "unimproved value" in section 3 of the Act, quoted above. Note however that section 37, which imposes the relevant duty to value, does not explicitly so provide; see, however, section 13. There is in the Act a definition of the term (used in section 37) "annual valuation": see section 2. According to the definition, the term means "a valuation of all lands in an area made pursuant to Part 4". This is scarcely more helpful than the definition of "valuation" ("means valuation under this Act") which Barwick CJ once said "adds nothing to knowledge or understanding .... One could not hope for less enlightenment": Kilcoy Shire Council v Brisbane City Council (1971) 124 C.L.R. 60 at p.67. Section 3(1)(b). (1978) 140 C.L.R. 41. -- 14 of 26 -- 15 "These provisions make it necessary to determine for valuation purposes, whether the land in question is improved or unimproved. They also indicate what tests should be applied in deciding what is an improvement for the purposes of the valuation. ... Secondly, something done on or appertaining to land which reduces rather than enhances its value is not an improvement for the purposes of the Act, any more than it would be in the ordinary sense of the word. In Morrison v. Federal Commissioner of Land Tax (1914) 17 C.L.R. 498, at p. 503, Griffith C.J. said, in a passage which has frequently been cited: 'Any operation of man on land which has the effect of enhancing its value comes within the definition of "improvement" '."42 The definitions of "improvements" (section 6), "value of improvements" (section 5) and "improved value" (section 4) demonstrate that, in this statutory context, an improvement is something which adds value to the land. It follows that a structure on land which adds no value to the land as vacant land is not an improvement within the meaning of the Act. If it detracts from the value of the land as vacant land it may amount to what has been called "worsement". It cannot be said whether a structure on or other quality of land amounts to an improvement in this sense until it is known whether the structure or quality enhances the value of the land. Any enhancement in turn will usually depend upon whether the structure or quality advances or inhibits a particular use. Thus, whether the structure or quality constitutes an improvement cannot ordinarily be known until the highest and best use of the land is determined. In our view, to approach the valuation process in the manner contended for in the argument before us is to assume the conclusion. The Act does not require or permit such an approach. The Valuation of Land Act is not a code of valuation methodology. It assumes the existence of the valuation process and requires its application in the cases and with the modifications prescribed by the Act. The starting point of that process is the determination of the highest and best use of the land being valued43. Only when that is done can it be seen whether the land is to be valued as improved or unimproved land. If, but only if, it is to be valued as improved land, the statutory assumption must be made. The highest and best use of the land is not to be determined on the assumption that the structures do not exist because whether the Act requires that assumption to be made ultimately depends on what is the At p.51. Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at p 415 per Jacobs J. -- 15 of 26 -- 16 highest and best use of the land. The Act does not refer to highest and best use and does not require the separate determination of such a use for land as unimproved land. The fact that land is being valued having regard to the "special provisions" of the Valuation of Land Act does not justify a departure from the basic principles of Spencer v The Commonwealth, which are as applicable to valuations under the Act as to any other valuations44. We would add that we see nothing inconsistent between the views which we have expressed and the decision of the High Court in Valuer-General v Fenton Nominees Pty Ltd45. In that case the High Court appears to have used the word "improvements" interchangeably with "structures". However the Court was not concerned with the matter currently before us, nor was it concerned with the definition of " improvement". Since the structures in question were on land the subject of comparable sales, not on the subject land, no question of applying the assumption referred to above arose. We have therefore assumed that the highest and best use of the subject land was residential and have disregarded Mr Crawford's evidence to the extent that it is inconsistent with that assumption46. The validity of the assumption should not be assumed in other cases. It will be necessary to consider in each case what is the highest and best use of the land involved, taking into account the cost of remediation and demolition if those steps are required for the use being considered. Value for Residential Purposes We have already referred to the statutory provisions pursuant to which the subject land may be reclassified as a "former site" or a "released site". The parties agreed that such a reclassification is essential if the subject land is to be put to its highest and best use. Those steps necessarily involve an investigation by the Director and may involve remediation of the land. In the latter case, a validation report may be required47. Stubberfield v Valuer-General [1991] Qd R 278 at pp 283, 291, (1989) QLCR 328 at pp 330, 340, per Carter J. (1982) 150 C.L.R. 160, especially at p.166. We have also proceeded on the basis of the parties' agreement that section 3(2) of the Valuation of Land Act was not operative, not on the basis of their alternative agreement that the section was satisfied. The latter situation in our view is, like Mr Crawford's evidence, inconsistent with the assumption as to highest and best use: the section cannot be satisfied unless there are improvements of value on the land. Section 22. -- 16 of 26 -- 17 There was no evidence to suggest that the land owner must bear any part of the cost of the Director's investigation, but there was considerable evidence relating to the cost of remediation. Not surprisingly, the cost of remediation depends upon the nature and extent of contamination encountered. A report (the "CMPS & F report) was prepared by Mr Marley of CMPS & F Pty Ltd, engineers and project managers, following a preliminary inspection of the subject land on 23 May 1994. The CMPS & F report noted that some 80% of the site was covered by the service building or by concrete. Old bitumen surface sealing at the rear of the property was in poor condition and was being replaced by grass. Early plans of the site indicated that there was a rubble absorption trench at the rear of the station for receipt of sewage and sullage water from the service station. Wastes from the garage and car servicing area were also discharged via a grease trap to the rubble absorption trench . A plan dated May 1991 showed five underground tanks on the site, although it appears that a 33,500 litre tank was abandoned and sand filled after a new 42,000 litre tank was installed in 1991. The 33,500 litre tank was apparently abandoned following evidence of leakage as evidenced by water in the tank. The CMPS & F report suggested that the possible leakage from the former tank represented a potential source of contamination as did the absorption trenches, and leakages from other underground tanks, the bowsers and the distribution pipes. Cracking and settlement of concrete slabs could also provide places for infiltration of contaminating products such as spilt petrol or could be evidence of leakage and settlement beneath the concrete. The CMPS & F report concluded, however, that the "extent of migration of contamination (if any) and any seepage from the rubble absorption trenches or spillage on the property is not known". Mr Ryan gave evidence to the Land Court that, as the national property manager for the appellant, he is involved in all stages of the divestment of sites, including the demolition of service station improvements, site remediation, and sales. In the five years before the hearing Caltex had sold between 250 and 300 service station sites nationally as part of a rationalisation of assets. None of the sites which he had sold had gone to another oil company, mainly because the sites were not viable for continued use in that form. As a matter of policy, Caltex remediates each site requiring remediation before sale. He said that, of the 100 to 150 sites where he had managed the remediation in the previous three to four years, he knew of only one site that did not require remediation. He said, "I remember it, because it was quite a surprise to us that the environmental consultants went over the site to do their initial assessment before demolition and found that there was no cause for remediation". In his experience all the other sites required expenditure on remediation. The CMPS & F report provided some guidance on estimating the likelihood that the -- 17 of 26 -- 18 subject land is contaminated and the possible extent of contamination. Investigators with extensive experience in assessing sites for the petroleum industry have found that there is an increasing probability of leakage and contamination in older service stations. Older tanks are likely to be corroded. Leak detection practices in the 1960s and 1970s were not as thorough or reliable as more recent practices. On the basis of an initial inspection of the subject land, information provided to the consultants, and experience of other sites of the same age, the CMPS & F report stated: (a) "we would anticipate that [sic] the probability of nil or minor contamination to be 70%"; and (b) "the probability of a significant contamination is estimated at 30%". Those estimates were confirmed by Mr Marley in his oral evidence. He used the term "minor contamination" to mean that there is a small amount (less than 20 cubic metres) of contaminated soil and the soil can be remediated on site in less than one month. The term "significant contamination" was used to mean that the volume of contaminated soil exceeds 20 cubic metres and/or the remediation would require either off-site disposal of soil or ground water or more than three months of on-site remediation work. The respondent submitted that there was no real risk (or a minimal risk) of contamination of the subject land and that a hypothetical purchaser of the land would not be induced to spend money for remediation of the land. Alternatively, there was a 70% probability of nil or minor contamination. On that basis the Court should find on the balance of probabilities that the land was not contaminated. Mr Hiley QC argued that, if the site were contaminated, some evidence of contamination would or should have been found when the old tank was replaced in the year before the valuation date. Because there is, he submitted, no evidence that any contamination was found, the land is not "contaminated land" as defined in the Contaminated Land Act. The subject land can be contrasted with land classified as a "confirmed site" or a "restricted site" or land in respect of which some notice has been given under section 19 or section 20, or action taken under section 19(5) or section 21. Consequently, it was submitted, there can be no requirement to remediate, either under section 20(1) or (2) or for the purpose of upgrading the classification of the land.48 Rather, the land could be re-classified as "released" under section 23(9). This would not require remediation, or a site investigation report. In the respondent's submission, there was no likelihood of the owner being required to obtain and provide a site investigation report. In our judgment, that change is unlikely to occur with respect to the subject land for so long as the land continues to be used for service station purposes. The Contaminated Land Section 23(8) and (9). -- 18 of 26 -- 19 Act effectively classifies the land as a "probable site" merely because of its use for service station purposes. It would be surprising if the administration of the Act would allow for land to be declared a "former site" or a "released site" and yet continue to be used for the very purpose which attracted the "probable site" classification. That conclusion is supported by section 23(5) which provides that land may be classified as a "probable site" if a current or past use of, or activity on, the land is a prescribed use or the sort of activity that is known to have caused, or may have caused, land to become contaminated land. Also, in our judgment, the evidence establishes that some degree of contamination of the subject land was likely. It follows that, as at the date of valuation, some remediation would probably have been necessary before the land could be reclassified and applied to its highest and best use. On the evidence of Mr Ryan quoted earlier, that probability is something which purchasers would take into account, and in our view they would be prudent to do so. However we are not prepared on the evidence before us to accept Mr Ryan's view that unremediated land is unsaleable. That outcome is theoretically possible; but the evidence in the present case does not prove that the subject land answered that description. The valuation to be applied Various figures have been suggested as the unimproved value of the subject land at the relevant date of valuation. The determination of the Chief Executive which led to these proceedings was $187,000. In the notice of appeal to the Land Court, Caltex stated an unimproved value of $120,000. At the hearing before the Land Court, however, evidence was led to support other values. The Court determined the unimproved value of the land to be $135,000 on the basis that its highest and best use was for (potential) residential purposes with no separate allowance being made for the effect of contamination the statutory classification. Before us, both parties accepted that amount as correct if it was right to disregard that classification, and, if not, that some lesser figure was correct. We have concluded that the classification of the subject land as a "probable site" would affect the value of that land if the land was being sold in its unimproved state for residential use. We accept that prudent vendors and purchasers of land will "inevitably and necessarily" examine the impact of statutory controls on land use before deciding what a particular block of land is worth in the market place, and that the effect (if any) of a particular control is a question of fact.49 See Stubberfield v The Valuer General [1991] 1 Qd R 278 at p 283, (1989) 12 QLCR 328 at p 331 per Carter J; see also per Connolly J at Qd R p 280 ,12 QLCR pp 343,344; per Moynihan J at Qd R pp 292, 293, 12 QCLR pp 345,346. -- 19 of 26 -- 20 The effect of the classification on value is a matter to be determined on a case by case basis. In the present case, we have already set out some of the evidence of Mr Ryan. He also stated that the cost of remediation is not always recovered by the vendor. As he put it, the cost of remediation "is something that has no respect for the end value of the real estate". Sometimes the cost of demolition and remediation works exceeds the sale value. Indeed Mr Hanger QC submitted that the value of land that was significantly contaminated could be sterilised by the operation of the Contaminated Land Act. However that is not the position in the present case, where the nature and extent of contamination, and hence the cost of changing the classification, are unknown. This Court must determine the unimproved value of the land with its current classification of "probable site", that is in an unremediated condition. We assume, in the absence of any evidence to the contrary, that (other things being equal) there is no difference in value between land which has been remediated and land which has never been contaminated. However, even if the cost of remediation were precisely known, it would not necessarily be correct to determine that value simply by subtracting that cost from the agreed value of the land as uncontaminated land; nor do we think such an approach is supported by the evidence in the present case, although cost is no doubt a relevant consideration. Evidence of the cost of remediation was given by Mr Marley. He estimated that, if the subject site were to be decommissioned and disposed of, the costs of the necessary processes would be in the following range: Contaminated Level Preliminary Site Investigation Nil or Minor 6,000 Significant 6,000 Site Investigation and Decommissioning CMPS & F Fees 6,000- 7,000 6,000-7,000 Contractor and Charges 10,000-20,000 20,000-100,000 Remediation CMPS & F Fees 3,000-5,000 Site Validation 4,000-8,000 4,000-8,000 Total 20,000-35,000 33,000-120,000 -- 20 of 26 -- 21 The appellant relied on the evidence of Mr Crawford and Mr Marley that $60,000 is a reasonable figure to be allowed. It was not suggested to either Mr Marley or to Mr Crawford that the figure of $60,000 was not appropriate as being an allowance for remediation and we were not referred to any evidence to the contrary. However, as Mr Hanger QC conceded in argument, it is not clear how Mr Crawford used the figures to reach this result, although it seems to have been based (arbitrarily) on cost. The respondent contended that, if a deduction is to be made because the land is classified as a "probable site", the valuer would have to have regard to: (a) the likelihood of the hypothetical purchaser not having to pay anything because: (i) the hypothetical vendor had already done the work and paid for it; or (ii) there is in fact no contamination and the land is re-classified as a "released site" without need for expenses associated with site investiga- tion reports or remediation; or (iii) the purchaser either does not develop the site or continues its present use; (b) the nature and extent (if any) of contamination, and therefore the likely cost of remediation; and (c) the prospect of the purchaser being able to recover contribution from whoever contaminated the land (presumably, in this case, the present owner); and (d) the likely time when such expense might be incurred. The matters referred to in (a) have been dealt with earlier in these reasons. The other matters are relevant to determining by how much a hypothetical purchaser and vendor would discount the value because of the classification. It is unfortunate that Mr Crawford was not cross-examined in relation to them. In this Court, however, we are entitled to exercise our own judgment on matters of valuation. We are not bound to adopt a figure propounded by an expert, even if it is unchallenged (subject to the rules of natural justice), particularly when no rational basis appears for the figure. In our judgment, it is appropriate to approach the matter conservatively. Not only does the onus of proof lie upon the appellant, but also it was within the appellant's power to have adduced more satisfactory evidence: a preliminary site investigation could have been carried out for $6,000. Also, the figures given by Mr Marley included costs of decommissioning which, Mr Hanger QC conceded, would have been incurred quite independently of the classification. Removal of tanks alone was estimated at $10,000-$20,000. Further, the chances were (70%) that the cost of removal lay in the range $20,000-$35,000, and the expense was not to be -- 21 of 26 -- 22 incurred for some six years, until the existing lease expired. In all the circumstances we assess the unimproved value of the land on 31 March 1992 at $115,000. We were told that the parties considered this case to be a test case. We do not speculate about the possible application of this decision in other circumstances. It may assist the parties, however, if we make three observations about the decision. First, where land which is being used as a service station has a higher and better use, and it would be necessary for the land to be classified as a "former site" or a "released site" before it could be put to that use, the extent of the reduction (if any) in the unimproved value of the land must be determined by reference to evidence of the actual or probable cost of remediation. Where there is insufficient evidence to establish that the land is, or is highly likely to be, significantly contaminated, the allowance made for the effect of the contamination should be small. Second, this case does not raise for decision the question whether any reduction in the unimproved value should be made in those instances where service station land is classified as a probable site and the highest and best use of the land is as a service station. Third, this case does not raise for decision whether a different valuation should apply to land which was once used for service station purposes but has been remediated and is classified as a "former site" at a later date of valuation. Order The appeal is allowed, the determination of the Land Court is set aside and the unimproved value of the subject land as at 31 March 1992 is determined to be one hundred and fifteen thousand dollars ($115,000). IN THE LAND APPEAL COURT BRISBANE AN APPEAL AGAINST A DETERMINATION OF UNIMPROVED VALUE BY THE LAND COURT -- 22 of 26 -- 2233 VALUATION OF LAND ACT 1944 AV 93-561 CALTEX OIL (AUSTRALIA) PTY LTD AND CHIEF EXECUTIVE, DEPARTMENT OF LANDS JUDGMENT - R.E. WENCK, MEMBER, LAND COURT Delivered the Twenty-sixth day of April 1996 I have had the benefit of reading the judgment in this matter of Fryberg J. and Mr Neate and agree with the outline of facts in that judgment. I agree in principle with the conclusion that a site classification under the Contaminated Land Act 1991 (the "CLA") is a matter to be considered in the unimproved valuation of land pursuant to the Valuation of Land Act 1944 (the "VLA"). If the land had been, at the relevant date, unimproved, in terms of s.3(1)(a) of the VLA, then I would agree that the "probable site" classification under the CLA, would cause deleterious effect on unimproved value - to the extent capable of proof. While this matter was considered by the parties to represent a test case and certain agreed positions were reached, it remained to be decided on the facts as they relate to the specific site. Those facts are: (a) the land was being used for an existing service station; (b) use as service station is a "prescribed purpose" under the CLA, and the site accordingly is classified as a "probable site"; (c) the land, if it was vacant, or unimproved, would have had market value, in the absence of the "probable site" classification, of $135,000; (d) the unimproved value was determined on the basis that, if unimproved, the highest and best use of the land was for development for residential purposes; (e) there is no dispute that for the land to be so developed, any "probable site" classification would need to be removed or amended; (f) for the classification to be removed or amended a site investigation would be the first requirement. Ordinarily, whether the land is unimproved land or improved land, as defined in the VLA, is not relevant to the question of highest and best use of the land as unimproved. Put simply, the value to be found is the unimproved market value, and market value is directly related to the highest and best use of the land. The VLA provides exceptions to that principle of valuation. The question of the highest and best use of the subject land, as improved land, was raised - by the Court - for the purpose of considering the effect of the classification on the unimproved value of land under the provisions of the VLA. There can be no doubt that, if the value of the property, as developed, exceeds the value of the land unimproved, the land is improved land. There can also be no doubt that the highest and best use of the improved land is the use which maximises market value. In -- 23 of 26 -- 2244 the subject case, it is clear that if the land, as developed with service station structures, would fetch more in the market place at the relevant date, than $135,000, for use as the existing service station, then its highest and best use, as improved land is for service station. It is my opinion that in this, or similar matters, where a "probable site" classification exists under the CLA and while the "prescribed use" continues or, until such time as it can be proved that the existing prescribed use and/or structures add no value to the unimproved value of the land, deleterious effect, if any, caused by the classification under the CLA, is restricted to the "improved" market value. The relevant provisions of the VLA are as follows: " Section 3(1) - For the purposes of this Act - 'unimproved value' of land 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 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. .... (4) Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that - (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used; but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) had not been made. Meaning of 'improved value' 4. For the purposes of this Act - -- 24 of 26 -- 2255 '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, ................. (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. " It is the agreed position between the parties that the test required under s.3(2) above, either was not operative or was satisfied. For the test not to be operative, the land would fall to be considered as unimproved land (s.3(1)(a)), when its unimproved value, unfettered by the classification, would be $135,000. While it may have been convenient for the parties and particularly the appellant, to abandon the valuation evidence of Mr Crawford - to the effect that the land was worth more (and significantly so) for the existing service use than as unimproved land - that was done because the parties apparently saw no inconsistency between the agreed position and Mr Crawford's evidence. In my opinion, it would be a technical impossibility for the test under s.3(2) to be satisfied, unless the land fell to be considered under s.3(1)(b). For the land to be "improved land", the improved value must have been greater than $135,000. The added value of the improvements is simply the difference between the improved value, which is capable of valuation proof, and the value of the land, which in this case is known based on its highest and best use, "if the improvements did not exist". Section 5 of the VLA does not permit the test to be satisfied by substituting for "added value" of improvements, some artificial value based on depreciated replacement cost, which was Mr Crawford's approach to the test in the Land Court. The effect of probable contamination is a matter which could well be a contributing factor in reducing improved value, particularly in a case such as this where the economic life of the improvements appears to be limited. It is not the task of the chief executive, in determining unimproved value, to first give consideration to improved value. Unimproved value is the statutory base for the gathering of revenue, including local authority rates. It would be seen as illogical if the intent of the VLA was to allow owners of "improved" land, with structures or "improvements" designed and used for the specific purpose which causes the probable contaminated site classification, to then, for that reason, escape equitable distribution of the local authority rating burden. If there is a challenge to an unimproved valuation on the ground of the effect of a classification under the CLA, the burden of proof of that ground lies with the appellant (s.45(4) of the VLA). For an -- 25 of 26 -- 2266 appeal to be successful, for the reasons I have given, it would be necessary, in my opinion, for the appellant to first prove that the structures on the land (allowing the use which causes the classification), do not add value to the land for its highest and best use, regardless of what that use might be. The abandonment of Mr Crawford's evidence, or the lack of any proof as to the improved value of the service station would, in my opinion, be sufficient reason for the appeal to fail. Had the land not been improved land (with existing development adding no value) then, in deciding the effect of the classification on unimproved value, I would have been guided by the cost of the investigation required to determine the extent of contamination and then the estimated cost of remediation based on that investigation. Until specific site investigation has taken place, it is clear from the evidence that the effect of a classification on value is purely speculative and in this case certainly not proved. It would seem that in the absence of a conditional contract of sale - a consideration which cannot be assumed in establishing value under the VLA - neither a vendor nor a purchaser would be seen as prudent to negotiate a sale price until a site investigation report had been obtained. Although no evidence was presented to the effect that the owner must bear any part of the Director's investigation, there was also no evidence to the contrary. It would be regarded as a reasonable market expectation that the owner would be required to bear the cost of investigation necessary (as the initial step) in the process of having a "probable site" classification removed or amended. If it was correct for this appeal to have been allowed, I would find the effect on unimproved value limited to the cost of the necessary preliminary investigation. Had the investigation been carried out and contamination proved, the estimated cost of remediation would then become a further valuation consideration. The cost of investigation in this matter is accepted as having been $6,000 at the relevant date, and that amount, in my opinion, represents the extent of proved deleterious effect. To make some unproved allowance for possible or probable remediation, in the absence of the investigation, would not, in my opinion, bear the necessary relationship with market expectations - quite apart from placing the chief executive in an even more difficult and artificial valuation position, and with the real probability of the result disadvantaging the appellant if major remediation was necessary. Summary of Judgment I would disallow the appeal. However, had it been proved that the service station development did not add value to the unimproved value of the land, and in the absence of proof as to the extent of contamination, I would allow the appeal to the extent of the cost of the necessary investigation report. RE WENCK MEMBER OF THE LAND COURT -- 26 of 26 --