Perilya Broken Hill Limited v Valuer-General

EX TEMPORE Judgment 1In this valuation appeal brought by Perilya Broken Hill Limited, the respondent Valuer-General moved under r 28.2 of the Uniform Civil Procedure Rules 2005 for separate decision of the following question of law: If there are minerals as defined by the Mining Act 1992 in the land the land value of which is to be valued in accordance with s 6A(1) of the Valuation of Land Act 1916, is the land to be determined on the assumption that the minerals are: (a) privately owned minerals; or (b) publicly owned minerals, under the Mining Act 1992 2Perilya opposed the motion and, in the event that the Court was minded to order a separate question, submitted that the question should be truncated. 3Upon the motion being called on for hearing this morning, I was informed by the Valuer-General that he consented to the motion being dismissed with costs. Perilya applies for costs on an indemnity basis, which the Valuer-General resists. 4In order to address Perilya's application for indemnity costs, I need to say something about the lengthy history of this matter and the issues. 5The subject of the litigation is some 3,033 hectares of land owned by Perilya at Broken Hill, known as the North, South and Potosi Mines whose actual use, and highest and best use, as at the valuation date of 1 July 2007, was as a mine for production of zinc, lead and silver. Those minerals have been mined on the land under mining leases taken to have been granted under the Mining Act 1992. Pursuant to s 6A of the Valuation of Land Act 1916, the Valuer-General determined the land value at $20.9 million. Under s 6A(1) it is not the land owner's interest in the land that has to be valued. The land value is the capital sum which "the fee simple of the land might be expected to realise". 6Perilya appealed to this Court under s 37 of the Valuation of Land Act. In October 2012 the Court allowed Perilya's appeal and determined the land value as $4.9 million: Perilya Broken Hill Ltd v Valuer-General [2012] NSWLEC 235 per Lloyd AJ. The proceedings before Lloyd AJ were conducted on the parties' agreed basis that the minerals in the land were privately owned within the meaning of s 284 of the Mining Act. His Honour's valuation reflected the payment of a royalty stream to the Minister under s 284(1), which provides that the holder of a mining lease is liable to pay a royalty to the Minister on privately owned minerals recovered from the mining area as if those minerals were publicly owned. Under s 282(1) the holder of a mining lease is liable to pay a royalty to the Minister on publicly owned minerals recovered by the holder under the lease. Royalty on publicly owned lead, zinc or silver is payable at the rate of 4 per cent of the minerals recovered: s 283(1) and cl 44 of the Mining Regulations 2003. 7The Valuer-General appealed to the Court of Appeal pursuant to s 57 of the Land and Environment Court 1979. The Court of Appeal allowed the appeal for error of law and remitted the matter to this Court for redetermination in accordance with its decision: Valuer-General v Perilya Broken Hill Ltd [2013] NSWCA 265, (2013) 195 LGERA 416. Leeming JA delivered the principal judgment, with Emmett JA substantially agreeing and Preston CJ of LEC agreeing. The Court of Appeal held that if s 6A required the valuation to proceed on the basis that the minerals were privately owned, then Lloyd AJ erred in law by not having regard to the receipt of royalties that the owner of the fee simple would enjoy under s 284(2), which would amount to millions of dollars in each year of production: at [13], [74], [83]. That error arose because the valuation methodology of the parties ignored s 284(2). Under s 284(2) if royalty is paid to or recovered by the Minister in respect of a privately owned mineral, the Minister is pay seven-eighths to the "owner of the mineral". Alternatively, if the minerals (or some of them) are publicly owned - which was not contended before Lloyd AJ - then in order to comply with s 6A they are to be treated differently from privately owned minerals and the land would need to be valued differently; for example, the landholder would be entitled to compensation under Part 13 of the Mining Act: at [75]. If s 6A does not require the valuation to proceed on the basis that the minerals are privately owned, and in fact the minerals or some of them are publicly owned, then again the decision disclosed error of law because there has not been a finding as to the ownership of the minerals nor a valuation on the basis that they are publicly owned: at [83]. 8The Court of Appeal indicated that s 6A of the Valuation of Land Act may require the owner of the fee simple to be treated as the owner of the minerals, holding that: "there is force in the proposition advanced by the Valuer-General that the land is treated as a fee simple without any mineral reservation, so that the minerals are privately owned": at [36]. The Court of Appeal left this point open, for it later said: "On one view, s 6A requires the valuation to proceed on the basis that the minerals are privately owned, but this Court has been asked not to determine this and I do not do so": at [83]. 9The Court of Appeal noted that nothing in its reasons confined the way in which the parties may advance their positions at the rehearing (including that nothing confined Perilya to proceed on the basis that the minerals are privately owned): at [104]. The Court of Appeal declined to restrict the Valuer-General from adducing further evidence at the re-hearing: at [105]. 10Shortly after the Court of Appeal's decision, at a directions hearing in September 2013, I made the following directions, including settling the questions for determination at the rehearing, which I (and I believe the parties) considered reflected the Court of Appeal's observations regarding the way the land should be valued: 1 Facts determined by Lloyd J at the first hearing and not disturbed on appeal are not to be reopened without leave of the Court. 2 Subject to any reformulation by the Court at the next directions hearing, the issues for determination on the remitter from the Court of Appeal are as follows: (1) Does s 6A of the Valuation of land Act 1916 require the valuation to proceed on the basis that the minerals are privately owned? It is noted that the Valuer General contends that the answer is yes, and that Perilya contends it is no. (2) In fact, are the minerals, or any of them, privately owned? (3) If yes to (1) or (2): (a) What is the quantum of the royalty payable to the Minister under s 284(1) of the Mining Act 1992? (b) What is the quantum of the seven-eighths of that royalty payable by the Minister to the owner of the minerals under s 284(2)(a) of the Mining Act? (c) Having regard to the answers to (a) and (b), what is the land value under s 6A of the Valuation of Land Act? (4) If the answer to (1) above is no and the answer to (2) above is yes (that is, the minerals, or some of them, are publicly owned), then: (a) What is the compensation under Part 13 of the Mining Act to which the landholder would be entitled for any compensable loss suffered, or likely to be suffered, as a result of mining the publicly owned minerals? (b) Having regard to the answer to (a), what is the land value under s 6A of the Valuation of Land Act? 3 The Valuer-General is to file and serve a statement of land value for which it contends and its evidence relating to sub-paragraphs 2 (2) and (3) above by 28 October 2013. 4 The proceedings are listed for directions, if possible before Biscoe J, on 8 November 2013. 5 Any notice of motion for separate determination of any issues together with supporting evidence and outline of submissions is to be filed and served by 4 October 2013 and be returnable on 8 November 2013, if possible before Biscoe J. 6 The respondent to any such notice of motion is to file and serve its evidence and outline of submissions by 6 November 2013. ... 11On 24 October 2013 the Valuer-General filed a notice of motion seeking separate determination of question 2(1) above, albeit cast in the language set out above at [1]. 12At a further directions hearing on 14 November 2013, I noted the parties' agreement that question 2(2) above be answered "No". That is, in fact the minerals are publicly owned. 13The Valuer-General's evidence in support of the notice of motion included evidence to the following effect. If the land had to be valued on the basis that the minerals were publicly owned, an entirely new approach to determining valuation would need to be adopted which would involve very considerable expense and delay. The matter would be unlikely to be ready for hearing in much less than eight months, a hearing time of two weeks would not be improbable, and the lawyers would require about the same time for preparation. By contrast, valuing the land on the assumption that the minerals are privately owned would prove to be relatively straightforward. Much of the exercise would be merely arithmetical. A lot of the data would be already in evidence, the hearing would be likely to take about two days, the same amount of time would be required for preparation by the lawyers, and the matter may be ready for hearing in either February or March 2014. 14The Valuer-General's written submissions in support of the notice of motion included argument going to the heart of the case, namely whether an assumption that minerals are privately owned flows from the words of s 6A(1) that land value is the capital sum which "the fee simple of the land might be expected to realise". Reliance was placed on unimpeachable statements of principle that the fee simple to be valued is "a fee simple unencumbered and subject to no conditions" and is "an absolute or pure title such as constitutes full ownership in the eyes of the law": Gollan v Randwick Municipal Council [1961] AC 82, at 100 - 101, (1960) 6 LGRA 275 at 282 (PC). Reference was made to similar statements of principle in Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610 at 623, and Valuer-General v New South Wales Golf Club [2012] NSWCA 355, (2012) 192 LGERA 105 at [34]. 15Perilya's competing written submissions on this point were to the following effect. Section 6A does not require land value be determined on the assumption that the minerals therein are privately owned for two reasons. The first reason concerns the legal nature of a mineral reservation. Minerals are an exception to a Crown grant, treated in law as not physically part of the land otherwise granted: Wade v New South Wales Rutile Mining Co Pty Ltd, (1969) 121 CLR 177 at 194 per Windeyer J, approved in Wik Peoples v Queensland [1996] HCA 40, (1996) 187 CLR 1 at 200 - 201 per Gummow J; Minister for Mineral Resources v Brantag Pty Ltd [1997] NSWCA 206, (1997) 8 BPR 51,822 per Mason P; and Attorney-General v Brown (1847) 2 SCR (NSW) 30, (1847) 1 Legge 312 at 322 -323 per Stephen CJ. The second reason is that "the fact that the fee simple is a hypothetical fee simple unencumbered and subject to no conditions restricting enjoyment or use, does not mean, however, that public laws which affect the value of the land are not to be taken into consideration": Valuer-General v NSW Golf Club [2012] NSWCA 355, (2012) 192 LGERA 105 at [36] citing Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610 at 624; Sydney City Council v Valuer-General (1956) 1 LGRA 229 at 230. In NSW, silver, lead and zinc are reserved to the Crown by the operation of the Crown Lands Act 1989 and its predecessors, which are public laws affecting the value of land. A valuation pursuant to s 6A must take into account the reservation of minerals pursuant to those Acts and therefore that value cannot be determined on the assumption that minerals are privately owned. 16It is inappropriate for me to adjudicate at this time on these competing arguments beyond saying that there is a serious question to be tried. 17As noted earlier, when the Valuer-General's motion was called on for hearing this morning (Monday), the Valuer-General informed me that he consented to the notice of motion being dismissed with costs, and Perilya sought indemnity costs. I was handed a copy of a letter of 13 December 2013 (last Friday) from the Valuer-General's solicitors to Perilya's solicitors, which states that the Valuer-General had devoted further thought to the basis upon which the land would be valued on the assumption that the minerals were publicly owned, and that this led to the adoption of a methodology which has a common element for the valuation of the minerals being privately owned and publicly owned. As a consequence, the letter states, the Valuer-General no longer sees the need for a separate determination and agrees to the motion being dismissed. The letter enclosed a draft statement of evidence of Mr Gemell, the Valuer-General's mining valuation consultant. Mr Gemell addresses six scenarios. Scenarios 1 to 3 are on the basis of public ownership of the minerals. Scenarios 4 to 6 are on the basis of private ownership of the minerals. 18Regrettably, the Valuer-General's change of position communicated to Perilya on Friday was not communicated to the Court until the motion was called on for hearing this morning. In a case of this complexity, I feel that the parties should have anticipated that the Court might well spend, as I did, substantial time over the weekend preparing for the hearing by getting on top of the issues, the parties' written submissions and the Court of Appeal's judgment, thereby also enhancing the possibility of delivering judgment immediately following the hearing so that the proceedings could progress without further delay. The time unnecessarily expended by the Court over the weekend could have been directed to other proceedings calling for the Court's attention. 19In support of its application for indemnity costs, Perilya points out that that the Valuer-General abandoned at the very last moment a position that it had adopted for months of seeking to have the separate question determined. Perilya says that the draft report of Mr Gemell advances a methodology that Perilya has only had the weekend to consider and upon which it needs to get expert advice, and that it is a very different methodology to anything advanced previously. Perilya suggests that there is a real question whether the Valuer-General should be granted leave to rely upon different valuation evidence or to re-open facts determined by Lloyd AJ at the first hearing and not disturbed on appeal. The latter point is referable to the direction I made in September that the facts determined by his Honour at the first hearing and not disturbed on appeal are not to be re-opened without the leave of the Court. Perilya points out that in Mr Gemell's public ownership scenarios, no consideration is given to the question of compensation under the Mining Act. In reply, the Valuer-General explains that omission on the basis that if the minerals are to be treated as publicly owned, then he will contend that no such compensation is payable. 20The discretion to depart from the usual ordinary basis for costs requires some evidence of unreasonable conduct, which need not rise as high as vexation or ethical or moral delinquency. This is because ordinary costs remain the norm, although it is common knowledge that they provide an inadequate indemnity: Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 per Mason P (Clarke AJA agreeing). 21In the limited time that I have had to absorb it, the way forward proposed in the Valuer-General's letter of 13 December 2013 appears to be a well intentioned attempt to refine and shorten what lies ahead. I say that subject to the reservation that Perilya has not yet had a fair opportunity to fully absorb the contents of the letter and obtain expert advice on it. 22If costs of an abandoned motion are awarded, it is usually on the ordinary basis. The Court should generally be cautious about discouraging, by an indemnity costs order, abandonment of a motion where a party perceives a better course. The Valuer-General's conduct has been neither vexatious nor delinquent in any way when viewed in the context of its good intentions referred to above at [21]. Nevertheless, on balance, when the history of the proceedings is taken into account I think that the conduct has an element of unreasonableness such that it would be unfair for Perilya to be out of pocket, as it would be if costs were ordered on the ordinary basis. Against the background of litigation which has been on foot since 2011 and has travelled to the Court of Appeal and back, there has been further delay of months since the remittal in order to accommodate the Valuer-General's wish to pursue a motion for a separate question. The motion was supported by evidence as well as written submissions to which Perilya had to respond. It was then abandoned almost at the last moment in favour of a new and unheralded approach. In the particular circumstances, I think it fair to order indemnity costs, which, consistently with my reasons, should be understood as serving a compensatory and not a punitive purpose in this case. In reaching this conclusion, the avoidable inconvenience to the Court referred to above at [18] is irrelevant and I have not taken it into account. 23The Valuer-General proposes that there also be directions for the filing and service of his valuation evidence by 31 January 2014 and that the matter be listed for directions on 7 February 2014. Those directions are not contested and, given the approaching vacation season, are acceptable.