SOLICITORS:
Henry Davis York (Applicant)
Crown Solicitor's Office (Respondent)
File Number(s): 30750/14, 30751/14, 30752/14
[2]
Judgment
In each of these three valuation appeals the applicant moves for an order that the following question be determined as a separate question pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005:
Having regard to the agreed facts, is the contamination of the Land a matter to be disregarded in the determination of "land value" under the Valuation of Land Act 1916?
The agreed facts (agreed during the hearing of the motions) are that the Land is contaminated and that the source of the contamination is the existing improvements on the land or their operation.
The respondent, Valuer-General (VG), opposes the making of the proposed order and alternatively submits that the motions should be stood over until after the Court of Appeal has delivered judgment in the VG's appeal, listed for hearing on 26 February 2015, against Craig J's decision in Fivex Pty Ltd v Valuer-General [2014] NSWLEC 27.
The applicant, Challenger Listed Investments Ltd, owns the Land, which is located at 6 Foray Street, Yennora. It comprises a manufacturing and distribution facility constructed between the 1960s and the 1980s.
The VG determined the land value of the Land as at the base dates 1 July 2011, 1 July 2012 and 1 July 2013 as, respectively, $7,830,000, $7,490,000 and $7,050,000 under s 6A of the Valuation of Land Act 1916. The VG's determinations disregarded the contamination of the Land. The VG dismissed Challenger's objections to the determinations. Challenger now appeals to the Court. Challenger contends that the Land had no value as at those base dates, very largely because of the cost of remediation of the contamination.
Challenger has obtained expert evidence that the cost of remediating the contamination at each base date was $5,895,600 and that if those remediation costs and holding costs are deducted the land value as at the three base dates were, respectively, $1,660,000, $1,351,000 and $952,000. However, I was informed that Challenger has obtained valuation evidence, still in draft form, which would assess the land value at all three base dates as nil.
Section 6A of the Valuation of Land Act relevantly provides:
6A Land value
(1) The land value of land is 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 the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made.
(2) Notwithstanding anything in subsection (1), in determining the land 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 the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.
At the objection process stage, Land & Property Information wrote to the applicant's representative on 12 August 2014 indicating that under s 6A(1) contamination is to be taken into account resulting in a land value of $2,583,000 but that under s 6A(2) contamination is to be disregarded resulting in a land value of $7,630,200, and adopting the higher value. The letter stated:
As the land is an operating site, it is to be valued on the basis of Section 6A(2). As an existing use the operation of the words "can continue to be used" means that for statutory valuation purposes the site can be used indefinitely and therefore the remediation is considered to be a long term issue that is not to be factored into the valuation.
In this case the valuation will be based on the existing use value of the site and no allowance will be factored in for the detriment of any contamination. Where the highest and best use is determined to be above the existing use then any contamination in the land is to be taken into account. The resultant higher value of the two would then be applied.
The Valuer has ascertained two values to determine the higher value of the two. A valuation under section 6A(1) of $2,583,000 as vacant land and a valuation under section 6A(2) existing use of $7,630,200. The higher value is adopted.
Although this letter appears to suggest acceptance of Challenger's contamination remediation costs estimate of $5,895,600, counsel for the VG clarified that because the VG considers that s 6A(2) is the appropriate way to proceed (notwithstanding the Fivex decision), Challenger's remediation costs estimate has not yet been tested or accepted, as was made clear in the VG's filed Statement of Basic Facts.
After the appeals before me were commenced, the VG abandoned reliance on s 6A(2) but more recently reverted to reliance on (inter alia) s 6A(2).
The VG's current position, as expressed in a letter of 18 December 2014 from the Crown Solicitor to Challenger's solicitors, is that contamination is to be disregarded under s 6A for three reasons:
1. First, on the basis of s 6A(2). The VG accepts that the decision of Craig J in Fivex is to the contrary, although that case was not concerned with contamination. However, as I have mentioned, the VG has appealed that decision and the appeal is to be heard later this month. In Fivex at [25] Craig J cited Trust Company of Australia v Valuer-General [2007] NSWCA 181, (2007) 154 LGERA 437 at [83] where Campbell JA observed that there had been judicial recognition that the purpose of what is now s 6A(2) is "to ensure that if land could not be newly developed for its present use under the relevant planning scheme, but can continue to be used for its present use by virtue of an existing use provision in the planning scheme, it can be valued on the basis of its existing use". Craig J held that as the highest and best use of the land in Fivex at each base date was for purposes that were permissible under the relevant planning instrument, the assumptions identified in s 6A(2) were not engaged: at [31]. In the case before me the highest and best use of the Land is for industrial purposes, which is permissible under the relevant local environmental plan. The VG's published policy, evidenced by written instructions of Land & Property Information for the valuation of contaminated land, has been that under s 6A(2) where the land is an operating site the valuation will be based on the existing use value of the site and no allowance will be factored in for the detriment of any contamination. According to the VG, this is contradicted by Craig J's decision in Fivex and thus the VG'S appeal against that decision has to succeed before the VG can rely on s 6A(2) not only in the present proceedings but generally. Challenger foreshadows a response that even if the Fivex appeal is allowed, Fivex is distinguishable.
2. Secondly, the VG contends that the contamination in this case is to be disregarded under s 6A(1) on the basis of the decision of Parker AC in Leppington Pastoral Company Pty Ltd v Valuer-General [2010] NSWLEC 1023 that where the source of contamination is improvements on the land, then since under s 6A(1) the improvements are assumed not to have been made, the consequential assumption is that the contamination from the improvements is assumed not to have been made: at [24] and [27]. This decision favours the VG. However, Challenger contends that the decision was erroneous.
3. Thirdly, the VG contends cryptically that contamination is to be disregarded under s 6A because "the hypothetical vendor is not to be regarded as the actual owner". The reasoning is unclear. I gather from what I was told from the bar table that it has to do with a contention that under the Contaminated Land Management Act 1997 the hypothetical vendor is not the polluter who is responsible for remediating contamination.
If an order were to be made for determination of the proposed separate question, then the second and third of the VG's reasons would fall for consideration. The VG acknowledges that its first reason would not arise for consideration under the proposed separate question unless the Fivex decision is overturned on appeal.
The VG submits that it is inappropriate to make the proposed separate question order for the following reasons:
1. it will not bring the proceedings to an end no matter which way it is answered because valuation evidence will still need to be prepared;
2. there are complex intertwined issues of fact and law;
3. there can be no agreed statement of facts without a thorough factual determination including the effect of the contaminants on the land and the source. This reason seems to have evaporated during the hearing of the motion when the facts were agreed: see above at [2].
4. the argument on whether contamination is to be taken into account will not extend the hearing beyond a day, but determination of the separate question may delay the proceedings if either party seeks and obtains leave to appeal against it.
Strong reasons, such as an anticipated significant saving in time and expense in relation to the final hearing, need to be shown to justify departure from the usual rule that all issues in the proceedings are to be determined at the one time. Among the recognised circumstances where separate determination of an issue may be appropriate are the following three circumstances, which in my opinion are present in this case: where resolution of the issue will substantially narrow the field of litigious controversy; where resolution carries with it the strong prospect that the parties will thereby be able to resolve their dispute without further litigation; and where there is a clear demarcation between that issue and all other issues in the case: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7] (Einstein J); 820 Cawdor Road Pty Ltd v Wollondilly Shire Council [2013] NSWLEC 8, (2013) 195 LGERA 170 at [10] (Biscoe J); Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103, (2013) 195 LGERA 182 at [88], [102]; Boensch v Parramatta City Council [2013] NSWLEC 94 at [8]-[10] (Biscoe J); Jenkins v Clarence Valley Council [2013] NSWLEC 161 at [14]-21] (Pepper J); Hrsto v Canterbury City Council [2013] NSWLEC 195 at [4]-[6] (Biscoe J).
Determination of the proposed separate question favourably to the VG - that is, a determination that contamination is irrelevant under s 6A - would obviously substantially narrow the field of litigious controversy since that is the main issue in the case, and would avoid substantial expense and time in adducing and hearing expert evidence as to matters such as the extent and effect of the contamination and the remediation costs. Conversely, if the determination is that contamination is relevant, then the further expense and time involved in addressing land value on the basis that it is irrelevant would be avoided. The present position is that Challenger has obtained expert evidence on the assumption that the land is contaminated and the VG appears to have obtained expert evidence on the basis that the Land is not contaminated. The parties agree and I accept that the hearing of the proposed separate question would take less than a day. The saving in expense and time relate, at least, to the obtaining of expert reports, joint conferencing of experts, preparation time of lawyers and hearing time in relation to the main issue in the case. In addition, I consider that resolution of that issue carries with it a strong prospect that the parties will be able to resolve their dispute without further litigation. It is difficult to see how they would be able to do so otherwise since the VG's policy referred to above at [11(a)], which it maintains is correct, is to disregard contamination in cases such as this. I acknowledge that there is a risk that proceedings may be delayed by an appeal by leave against determination of the separate question: that is always of concern to me when considering whether to make a separate question order.
Weighing up all the considerations, I conclude that it is appropriate to order determination of the proposed separate question.
I disagree with the VG's alternative submission that the motions for a separate question order should be stood over until after the Court of Appeal delivers judgment in Fivex. The appeal only relates to the VG's first reason. The answer to the separate question will determine the VG's second and third reasons.
The order of the Court in each proceeding is that the following question be determined separately and before any other question in the proceeding:
Having regard to the agreed facts that the Land is contaminated and that the source of the contamination are the improvements on the Land or their operation, is the contamination of the Land a matter to be disregarded in the determination of "land value" under the Valuation of Land Act 1916?
The exhibits may be returned. I make the following consequential procedural directions:
1. The parties are to proceed forthwith to the Registry to obtain a hearing date of one day for the determination of the separate question.
2. The parties are to file and exchange submissions as to the separate question seven days before the hearing.
[3]
Amendments
04 February 2015 - amended hearing date
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Decision last updated: 04 February 2015