Perilya Broken Hill Limited v Valuer-General

Land and Environment Court (NSW)|2015-02-05|Before: Biscoe J

SOLICITORS: Sparke Helmore (Applicant) Crown Solicitor's Office (Respondent) File Number(s): 30076/11

Judgment TABLE OF CONTENTS Paragraphs Overview 1-9 The land and the statutory context 10-12 The judgment at first instance 13-14 The Court of Appeal's judgment 15-21 After remitter to this Court 22-28 The VG advances a new methodology 29-37 The motions now before the Court 38-39 Perilya's Notice of motion 22 September 2014 prayer 1 re VG'S new valuation methodology 40-49 Perilya's notice of motion 22 September 2014 prayer 2 50-53 Perilya's notice of motion 22 September 2014 prayer 3 54-55 Perilya's notice of motion 22 September 2014 prayer 4 and 56-68 Valuer General's notice of motion 3 October 2014 Valuer-General's notice of motion 4 March 2014 prayer 1(b) 69-76 Perilya's notice of motion 7 July 2014 prayers 1(a) to (d) 77-79 Whether there should be a separate question 80-83 Orders 84

Overview

There are four motions before the Court for pre-trial evidentiary rulings.
Under s 6A of the Valuation of Land Act 1916 (VL Act) the Valuer-General (VG) valued land at Broken Hill with mining leases as $20.9 million as at 1 July 2007. The VG dismissed the owner's objection. The owner, Perilya Broken Hill Limited, appealed on the merits to this Court, which allowed the appeal and valued the land at $4.9 million on the parties' agreed passive investor methodology and agreed basis that the minerals were to be treated as privately owned. Under the passive investor methodology the price that the fee simple of the land might be expected to realise under s 6A is the present value of the rent (also called royalty) to be paid to the owner by the operator of the mine for the life of the mine. The Court of Appeal allowed an appeal by the VG on a question of law and remitted the proceeding to this Court for rehearing. Consistently with the principles governing a remitter previously approved by the Court of Appeal, I promptly directed that facts found by the primary judge and not disturbed on appeal were not to be reopened without leave of the Court; and I settled the issues arising from the Court of Appeal's judgment. The VG filed a notice of motion for determination of a preliminary issue arising from the Court of Appeal's judgment as to whether the VL Act requires the minerals to be treated as publicly owned or privately owned. The VG contended for the latter, Perilya for the former. The VG served evidence and submitted that this should be determined as a preliminary issue because a determination that the minerals were to be treated as privately owned would avoid very considerable expense and delay in the progress of the proceedings and the trial if the land had to be valued on the basis that the minerals are publicly owned.
Just as the motion was about to be heard, the VG abandoned it and served a draft expert report contending for a totally new owner/operator valuation methodology with vastly increased valuation scenarios. In the final form of that report filed later, the scenarios range between $169 million and $295 million if the VL Act requires the minerals to be treated as publicly owned and between $185 million and $318 million if it requires them to be treated as privately owned. The report included new evidence that an owner/operator scenario was likely in the market: that evidence could have been but was not tendered at the first hearing.
This new owner/operator methodology determines land value by capitalising the future profits of the mining operations. It raises new issues and requires determination of new facts. The passive investor methodology has been adopted for many years in the VG's published instruction manuals, was adopted by the primary judge with the agreement of the parties and their experts, and was not questioned before or disturbed by the Court of Appeal (except for questioning the quantification of the rent). If the VG is permitted to rely on the new owner/operator methodology, the rehearing will likely take up to three weeks rather than about three days otherwise. One of the issues will be whether the Court nevertheless should adhere to the passive investor methodology. The VG does not press, nor in my view is the VG legally entitled to press, for any increase in his original $20.9 million valuation. Thus, the main significance of the new owner/operator methodology relates to valuations in future years.
Prima facie, it is startling that land value could increase so vastly according to whether or not the land is assumed to be leased by the owner. The VG says it is because the owner/operator has the full value of the land. Perilya says it is because the new methodology values the business rather than just the land and, in any case, does not take into account everything that should be taken into account, particularly the high cost of mining information.
Perilya has consistently objected to the new methodology, claiming that it requires the Court's leave. Perilya contends that leave should not be granted because, first, procedurally it offends the principle of finality of litigation on a remitter and, secondly, it is not true to s 6A because it values the business rather than the land. Lest the new methodology be permitted, Perilya has served responsive evidence raising new and large issues requiring new findings of fact and facts inconsistent with those found earlier and not disturbed on appeal. A striking example is its big ticket responsive evidence that a deficiency in the new methodology is that it fails to take into account the cost of mining information necessary for an owner/operator to operate the mine, which Perilya's expert evidence costs at $270 million, and a related blowout of non-productive start up time from two years (found by the primary judge under the passive investor methodology) to ten years. The VG concedes that if I consider that the mining information issue is arguable - which I do - I should grant leave to Perilya to rely on that responsive evidence. Also, by way of response to the new methodology, Perilya seeks leave to reopen a good number of facts found by the primary judge and not disturbed on appeal, which the VG generally opposes. An example is that in order to reflect Perilya's new responsive evidence as to what happens in the real world, Perilya contends that the minerals should be priced on a consensus pricing basis. That was not put to the primary judge who priced them in a different way, which was not challenged or disturbed on appeal. Another example, it is said, is that the discount rate of 25% adopted by the primary judge would be lower under the new methodology, as the parties' experts agree although they disagree as to how much lower.
If the VG is permitted to rely on the new methodology, it is difficult to hold Perilya to the remitter principle that facts found by the primary judge and not disturbed on appeal generally should not be reopened. It is difficult to do so because Perilya's approach to the determination of facts on the VG's previous claim of $21 million may well have been quite different if the VG had then advanced his eye-watering current claim of up to $318 million. If, consequently, Perilya is given complete or greater latitude to reopen facts, then the same should be given to the VG for the parties should be treated equally. The general principle of finality would be much eroded and perhaps negated.
In short, the VG seeks to scuttle the old valuation methodology ship after it has navigated the shoals and reefs of a trial and an appeal with limited damage - which the Court of Appeal required to be repaired on remitter - and to embark on another valuation methodology ship on uncharted seas in a quest for eldorado, whilst generally objecting to the applicant rearranging the deck chairs of facts not disturbed on appeal.
The main issue now before the Court on the motions is whether the VG should be permitted to rely on the new valuation methodology. The other issues are whether leave should be granted to reopen facts found at first instance and not disturbed on appeal or to adduce new evidence, much of which is in response to the new valuation methodology. The question has also been raised as to whether the Court should proceed to determine the preliminary question earlier abandoned by the VG of public or private ownership of the minerals.

The land and the statutory context

The 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 VL Act, the VG determined the land value at $20.9 million. Section 6A(1) 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.
The reference to "land improvements" requires recourse to the definition of that term in s 4: Land improvements means: (a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, (b) the picking up and removal of stone, (c) the improvement of soil fertility or the structure of soil, (d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, (d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land (otherwise than for the purpose of irrigation or conservation) that is associated with: (i) the erection of any building or structure, or (ii) the carrying out of any work, or (iii) the operations of any mine or extractive industry, (e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and (f) underground drains.

The judgment at first instance

In October 2012 Lloyd AJ allowed Perilya's appeal under s 37 of the VL Act and determined that the s 6A land value was $4.9 million: Perilya Broken Hill Ltd v Valuer-General [2012] NSWLEC 235. 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 Crown 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 Crown on publicly owned minerals recovered by the holder under the lease. The statutory Crown royalty on publicly owned lead, zinc or silver is payable at the rate of 4% of the minerals recovered: s 283(1) and cl 44 of the Mining Regulation 2003. The common valuation methodology ignored, and his Honour did not take into account, that seven-eighths of the statutory royalty paid to the Crown had to be refunded to the owner under s 284(2) and (2A). Section 284 relevantly provides: 284 Liability to pay royalty - privately owned minerals (1) The holder of a mining lease is liable to pay royalty to the Crown on privately owned minerals recovered from the mining area as if those minerals were publicly owned. … (2) If royalty (including any interest and penalty tax on royalty) is paid to or recovered by the Chief Commissioner in respect of a privately owned mineral, the Chief Commissioner is to pay to the Minister seven-eighths of the amount so paid or recovered. (2A) The Minister is to pay that amount to the owner of the mineral. …
The agreed valuation methodology on which the parties and their experts proceeded before Lloyd AJ was the passive investor methodology, under which it is assumed that the mine owner leases the mine to an operator. Under this methodology, the price the fee simple of the land might be expected to realise in the hypothetical sale referred to in s 6A is the present value of the cash flow generated by the "royalties" (ie rent) to be paid to the owner of the fee simple by the operator of the mine for the life of the mine. I think it is preferable to call it "rent" rather than "royalty" in part to avoid confusion with the statutory royalty paid to the Crown. The parties and their experts agreed the quantum of the rent as 4% of the profit derived from the mining operations, but disagreed as to whether that was pre-tax profit or post tax profit - Lloyd AJ decided that it was the latter - and how the profit was to be calculated. They agreed that a discounted cash flow computation would be utilised to calculate it. Discounted cash flow involves the impact of many variables, some of which were agreed. The steps in Lloyd AJ's calculations leading to his assessment of $4.9 million were later summarised by Leeming JA in the Court of Appeal at [62] (see below): (a) There was to be expenditure of (i) $195 million in purchasing and commissioning plant and equipment in the first two years, (ii) $10 million in start up costs in the first two years, and (iii) $23,893,742 by way of security to be lodged in the first year (relating to rehabilitation). (b) Production would start at the beginning of year 3 and conclude 5½ years later in year 8. In each of those years, except for the last, there would be production of 76,443 tonnes of zinc, 57,475 tonnes of lead and 45,219kg of silver. (c) The mine was assumed to run at a margin of 38.26%. That margin was calculated by reference to the actual margins achieved at the mine over the three preceding years (of 42.11%, 39.13% and 35.89%), giving a double loading to the (most recent) 2007 figure, and taking an average. (d) The net operating revenues were derived by multiplying the quantities of zinc, lead and silver calculated above by 0.3826 (representing the margin) and by commodity prices of $3,547.74 per tonne for zinc, $2,406.81 per tonne for lead and $434.92 per kg for silver. That produced an annual net operating revenue for each of years 3 to 7 of $164,194,729. (e) It followed that in the first two years of operation (before extraction occurred) there was negative cashflow of some $228 million, and that it was not until year 4 that the revenue from notional sales exceeded those start up costs. (f) In each year (save for the first) a depreciation charge of $26,595,744.68 was applied (on a straight line basis) so that for years 3 to 7 there was derived a taxable income of $137,598,985.28, on which tax was payable (at 30%) yielding an annual after tax income of $96,319,290. (g) The net income after tax was calculated by reference to the net cash flow before tax, less the depreciation charge, less the tax (although tax was only payable upon the cash flow after the depreciation had been subtracted) which resulted in a notional 4% royalty of $4,916,601.38 in the 5th, 6th and 7th years, and a much smaller amount in the 4th year (which was the first year that the mine recovered the initial capital costs). (h) Finally, those royalties commencing in year 4 were discounted at an agreed annual rate of 25% to produce a present value of $4,904,435.66.

The Court of Appeal's judgment

The VG appealed to the Court of Appeal pursuant to s 57 of the Land and Environment Court Act 1979, which limits such appeals to questions of law. On 16 August 2013 the Court of Appeal allowed one of the grounds of appeal 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 passive investor methodology agreed by the parties and adopted by Lloyd AJ was not appealed and the Court of Appeal made no observations doubting it, except to question, without deciding, whether the quantification of the rent payable to the owner constituted an error of law: at [76] (see below).
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 refund of statutory royalties that the land owner 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 common valuation methodology of the parties ignored ss 284(2) and (2A). Alternatively, if the minerals (or some of them) had to be treated as 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 Pt 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 an 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].
The Court of Appeal indicated that s 6A of the VL 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 VG 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].
The error of law perceived by the Court of Appeal was encapsulated in the judgment of Leeming JA at [74]-[75]: [74] Accordingly, if the minerals were privately owned, and the valuation methodology descended to the detail of allowing for the operating expenses constituted by the royalty payments under s 284(1) to the Minister, then in my opinion the cashflow generated to the owner by s 284(2) was required to be brought to account, either quantitatively in the cashflow, or qualitatively by some other reasoning process within the valuer's expertise. It may be that the minerals were not privately owned (or were not all privately owned), and in my opinion it would be wrong, having regard to the history of this litigation, for that to be determined as a result of concession made on a particular basis at first instance. [75] On the other hand, if the minerals (or some of them) were publicly owned, then once again in order to comply with s 6A they needed to be treated differently from privately owned minerals and the land value of the land would need to be valued differently to account for the minerals being publicly and not privately owned. For example, although the landholder would not receive any s 284(2) royalty, the landholder would be entitled to compensation for any compensable loss suffered, or likely to be suffered, as a result of the mining of the publicly owned minerals (under Pt 13 of the Mining Act). This different valuation exercise was not done, and amounts to error of law for the reasons indicated above.
Leeming JA also considered that there was probably a further error of law in the quantification of the rent (royalty) paid by the operator to the passive investor lessor at 4% of profits even though it had been agreed by the parties and their experts, but said it was not necessary for the purposes of resolving the appeal to express a concluded view on the point, at [76]. As I read the judgment of Emmett JA, his Honour did not express any view on this issue. Leeming JA said at [76]: [76] In my opinion, there was probably also a further error of law. As noted above, the Valuer-General proceeded on the basis that a 4% royalty was appropriate, and Perilya's valuer agreed as to the rate, although disagreeing on whether the profit to which it was applied was calculated before or after tax. The primary judge understandably followed that approach. However, the reason that 4% was chosen was, expressly, because that was the rate of the s 282(1) and s 284(1) royalty payable to the Minister on the mineral recovered. That is quite different from a 4% royalty payable to an owner (whether before or after tax) on profit. There was no reasoning articulated to support why 4% was an appropriate proxy for the notional royalty stream used to calculate the land value. In the absence of any such reasoning, the inference may be available that this did not accord with any appropriate valuation methodology. However, it is not necessary for the purposes of resolving this appeal to express a concluded view on the point.
This is more fully understood by reference to Leeming JA's earlier analysis at [37] and [47]-[51]: [37] The essential integers in a discounted cashflow calculation will be the revenue and costs (both capital and operating) over time, and the discount rate. It is easy to see that the calculation could be performed at a level of greater or lesser generality. And it is consistent with the Valuer-General's obligation to value all ratable land in New South Wales annually to do so in a way that is transparent, and relatively straightforward, and broadly applicable. As senior counsel for Perilya put it, "There is nothing in either the Valuation of Land Act or the Mining Act that makes [a valuation based on a 4% royalty upon net operating income] necessarily incorrect or unavailable as a methodology for parties to adopt or for a court to adopt". However, ultimately where there is an objection and a determination on the merits by the Land and Environment Court, the essential question will be to determine a land value which corresponds to what s 6A demands. … [47] The joint experts' report recorded what was said to be agreement as to royalty rate of 4%. That "agreement" was illusory and apt to confuse. It was apt to confuse because it was a mere coincidence that the agreed 4% to be paid to the owner was identical to the statutory royalty to be paid to the Minister, both of which royalties were to be calculated very differently. The statutory royalty was to be calculated on the value of minerals recovered, while both experts agreed that the hypothetical royalty to be paid by the operator was to be calculated on the operator's profit. Further, the agreement was illusory, because Perilya's expert Mr Herdman said it was 4% of the operator's after-tax profits, while the Valuer-General's expert Mr Hopcraft said it was 4% of the operator's pre-tax profits. [48] The experts approached the valuation task as follows. Mr Hopcraft said that he followed the "Rating and Taxing Valuation Procedures Manual Version 6.2.2", a document prepared on behalf of the Valuer-General. He said that he had "utilised royalty rates as indicated by the Department of Industry and Investment" and that he had used "allowable deductions for operational expenses such as treatment expenses, shipping and freight, administration costs, depreciation on mill, depreciation of plant and equipment estimated at 65% of gross production value". He calculated the gross revenue for each of the years of production by multiplying the amount of production by its sale price. To that product he applied a further factor, being the margin of 35%, to obtain the net revenue (after operating costs) and to that he applied a rate of 4% to obtain the royalties. That cashflow was discounted applying a discount rate of 25%. [49] This was consistent with the Rating and Taxing Valuation Procedures Manual on which Mr Hopcraft relied. In particular, the royalty rate of 4% and the discount rate of 25% were taken from the Manual, which also advised that a reasonable operating margin would be between 30% and 40%. [50] The Valuer-General's "Statement of Valuation Methodology" said of the extract from the Manual that: [It] is faithful to the terms of s 6A for the following reasons: (i) An amount equivalent to the applicable Crown royalty rate is adopted by the Valuer General in determining the Land Value of the land. This ensures uniformity of calculation and assessment across a broad range of mining operations. (ii) The Crown Royalty rate is adopted and utilised in the Valuer General's calculations as the notional income stream from royalties flowing from the mine operator to the hypothetical owner. [51] However, why fidelity to s 6A is achieved by applying as the hypothetical licence fee charged by the owner to the hypothetical mine operator the same rate on the mine operator's pre-tax profits as the operator would have to pay to the Minister on the value of production was not explained. Although at the forefront of the Valuer-General's submissions on the appeal was the seven-eighths royalty stream to the owner of privately owned minerals pursuant to s 284 of the Mining Act, neither Mr Hopcraft's report, nor the Manual on which he relied, made provision for that income stream. It was not contended that the 4% on profits somehow reflected the 3.5% royalty on production which the owner of privately owned minerals would derive. Indeed, on the case as ultimately advanced to this court, it is impossible for the cashflow calculated by Mr Hopcraft to be reconciled with the statutory royalty.
The 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]. Thus, that was a matter left to this Court to consider on the remitter in accordance with principles previously endorsed by the Court of Appeal.

After remitter to this Court

The principles governing the conduct of proceedings remitted by the Court of Appeal to this Court for redetermination are that the appeal identifies the limits of the defects in the earlier judgment and that the public interest in the finality of litigation firmly constrains the discretion to admit additional evidence: Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2009] NSWCA 178, (2009) 168 LGERA 1 at [85]-[88] and [118], approving Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] NSWLEC 282 at [24]-[25] (Biscoe J). In Walker, I refused leave to admit further evidence and said at [24]-[25]: [24] An appeal from this Court is limited to a question of law: s 57(1) Land and Environment Court Act 1979. The successful appeals from the judgments of Talbot J established that there were defects in his judgments on certain questions of law. There are no established defects in any other respect. On the pending remitter, the undisturbed findings stand and all that seems to be called for is a determination of the outstanding issues on the existing evidence in accordance with law - subject to the admission of any further evidence and any leave to amend, which lie in my discretion… [25] Where an appeal has succeeded and an issue is remitted to this court for redetermination according to law, in my opinion, there is a discretion whether to admit additional evidence. However, the public interest in the finality of litigation favours firm limits on the calling of additional evidence. There is a book containing the undisturbed findings of the primary judge and the evidence at the earlier hearings. There is no reason why the book should be rewritten or supplemented by additional evidence unless the errors of law found on appeal require it or other circumstances make it appropriate to do so…
On 13 September 2013 the remitted proceedings were before me for directions. After discussion with senior counsel, I made the following orders: 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 are: (1) Does s 6A of the Valuation of Land Act 1916 required 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 that 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 by the Minister to the owner of the minerals under s 284(2)(a) of the Mining Act? (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) 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 landowner 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 [subsequently changed to 11 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. 7 The parties are to confer and endeavour to agree on the issues before the next directions hearing and, if they differ from those set out at 2 above, are to hand to the Court at that directions hearing proposed agreed or competing statements of issues. 8 Liberty to restore on three days' notice.
Order 1 - that the facts determined by Lloyd AJ and not disturbed on appeal were not to be reopened without leave of the Court - is consistent with the principles expressed in Walker. I, and to my understanding the parties, considered that the issues for determination on the remitter listed in order 2 reflected the Court of Appeal's observations regarding the way the land should be valued.
Under order 7 the parties were required to confer as to the issues before the November directions hearing and, if they differed from those set out in the September orders, were to hand to the Court at that directions hearing agreed or competing short minutes as to the issues. No such short minutes were handed to the Court at the next directions hearing, on 14 November 2013. Thus, the issues were settled.
On 24 October 2013 (as foreshadowed at the September directions hearing and provided for in order 5) the VG filed and served a notice of motion seeking determination of a separate question as to whether the VL Act required the land value to be determined on the assumption that the minerals were privately owned or publicly owned. This was the issue identified in order 2(1) above. The VG advocated the private ownership assumption, a proposition that the Court of Appeal thought had force: at [36], [83].
On 13 November 2013 the VG filed a report of Mr Mark Hopcraft valuing the land on the assumption that "the hypothetical owner seized of an estate in fee simple without encumbrances, restrictions or reservations, is entitled to seven eighths of the Crown Royalty" (p 19). To the extent that this report values the land on the assumption that the minerals must be treated as privately owned, it falls within order 2(3) made in September 2013 and addresses the error identified by the Court of Appeal at [74].
At the next directions hearing on 14 November 2013, I noted the agreement of the parties that the question posed in order 2(2) made in September 2013 was "no". That is, the parties agreed that the minerals are, in fact, publicly owned. I made directions for the filing and service of submissions and evidence in respect of the VG's notice of motion for determination of a separate question and listed the motion for hearing on 16 December 2013 before me.

The VG advances a new methodology

Unexpectedly, on 16 December 2013 at the commencement of the hearing of the VG's motion for determination of the separate question, the VG told me that he abandoned the motion and handed up a copy of a draft report by an expert, Mr Gemell, which put forward which put forward vastly increased valuations on a number of scenarios depending upon whether the VL Act required an assumption that the minerals were publicly owned or privately owned. Contributing to the unexpectedness of this development was the fact that three weeks earlier the VG had filed written submissions in relation to the motion stating that determination of the preliminary question, if it favoured the private ownership assumption, would avoid considerable expense and time that would be required to prepare evidence on a public ownership assumption - an exercise on which the VG nevertheless proceeded to embark. Perilya was served with a copy of this draft on the last working day before that date and had not had a reasonable opportunity to consider it. I delivered a costs judgment relating to the VG's last minute abandonment of his notice of motion: Perilya Broken Hill Limited v Valuer-General (No 3) [2013] NSWLEC 215. In my judgment at [22] I called the new methodology "a new and unheralded approach" and said at [19]: "Perilya suggests that there is a real question whether the VG should be granted leave to rely on different valuation evidence or re-open facts determined by Lloyd AJ at the first hearing and not disturbed on appeal". I made directions for a timetable as to the filing and service of any further evidence.
On 18 February 2014 the VG filed expert reports from Mr Gemell dated February 2014 (Gemell 2/14) and Mr Hopcraft dated February 2014 (Hopcraft 2/14) propounding the new valuation methodology. Gemell 2/14 refines his draft report to which I have referred. Gemell 2/14 contains a number of different scenarios leading to a massively increased land value of between $169 million and $295 million if the VL Act requires the minerals to be treated as publicly owned (scenarios 1-6), and between $185 million and $318 million if the VL Act requires the minerals to be treated as privately owned (scenarios 7-12). The difference between these publicly owned values and these privately owned values is the addition of a premium to the latter for the refund to the owner of seven-eighths of the statutory Crown royalty under s 284 of the Mining Act 1992 (referred to in the Court of Appeal's judgment at [74], quoted above).
Perilya has consistently objected to the new methodology, maintaining that the VG requires leave to rely on Gemell 2/14 and Hopcraft 2/14. No such leave has been sought.
On 4 March 2014 the VG filed a notice of motion seeking leave to rely on some facts found by Lloyd AJ and not disturbed on appeal which were relevant to the new owner/operator methodology. By consent, on 11 March I stood over that motion to the hearing, gave a timetable for evidence to be received, and listed the proceedings for further directions. I noted on the consent orders document that it was without prejudice as to any objection Perilya may make as to the VG's case on the facts, valuation methodology and law. The motion was resurrected on 15 July 2014 when, by consent I made the order sought in prayer 1. At the VG's request, prayer 2 is now before me for determination.
On 7 July 2014 Perilya filed a notice of motion seeking leave to rely on facts consistent with evidence from its experts Mr Gleeson and Mr Pendergast, which it contended were largely responsive to the VG's new methodology, including facts inconsistent with facts found by Lloyd AJ and not disturbed on appeal. On 15 July 2014 I gave judgment ruling on some parts of Perilya's motion and stood over other parts to the trial: Perilya Broken Hill Ltd v Valuer-General (No 4) [2014] NSWLEC 97. However, at the parties' request, the latter are now before me for determination.
In September 2014 Perilya filed a notice of motion for an order that the VG not be permitted to rely on the evidence of the new owner/operator methodology in Gemell 2/14 and Hopcraft 2/14.
The VG's new methodology delayed the progress of the proceedings whilst Perilya, lest the new methodology was permitted, responded with expert evidence and the VG filed evidence in reply. Perilya's evidence includes the expert reports of Mr Gleeson of 8 October 2012 (Gleeson 10/12), (much of which relates to the new methodology), 19 May 2014 (Gleeson 5/14) and 23 September 2014 (Gleeson 9/14) and Mr Pendergast of 27 June 2014 (Pendergast 6/14) and 24 October 2014 (Pendergast 10/14). The VG's evidence in reply includes reports filed in December 2014 of Mr Gemell, Mr Hopcraft and Dr Ferrier.
Notwithstanding the massive valuation increase under the new methodology, the VG does not press for any increase in the VG's 2007 land value determination of $20.9 million. Indeed, in my opinion, it is not legally open to the VG in an appeal such as this to press for any such increase: Valuer-General v Kogarah Town Centre Pty Limited [2014] NSWLEC 186 at [43]-[44] (Biscoe J). Thus, the main significance of the new methodology concerns the VG's assessment of land value in future years.
If the minerals are required to be treated as publicly owned, expert evidence adduced by Perilya assesses at about $39,000 the compensation referred to in the example in the Court of Appeal's judgment at [75]. The VG's expert evidence assesses the compensation on that example in the approximate range of $40,000 to $180,000.

The motions now before the Court

The four motions now before the Court seeking pre-trial evidentiary rulings are: 1. The VG's notice of motion filed on 4 March 2014 paragraph 1(b); 2. Perilya's notice of motion filed on 7 July 2014 paragraphs 1(a)-(d); 3. Perilya's notice of motion filed on 22 September 2014; 4. The VG's notice of motion filed on 3 October 2014.
The motions were listed for hearing before me in December 2014 when they were adjourned to February 2015 (due to the siege in Martin Place).

Perilya's Notice of motion 22 September 2014 prayer 1 re VG'S new valuation methodology

Paragraph 1 of Perilya's notice of motion of 22 September 2014 seeks: An order that the Valuer General not be permitted to rely on: (a) the statement of evidence prepared by Mr Stephen Gemell dated February 2014; and (b) the statement of evidence of Mr Mark Hopcraft dated February 2014; or, in the alternative, if such statements are sought to be tendered or read in evidence, a ruling that those statements not be admitted into evidence.
Gemell 2/14 and Hopcraft 2/14 comprise the VG's evidence in chief of the new owner/operator valuation methodology, resulting in a massive increase in land value referred to above at [3] and [30].
Perilya submits that they should be excluded because, first, the lateness of the new methodology offends the principle of finality of litigation, is not required to address the errors identified by the Court of Appeal and does not address the post appeal issues settled in this Court 2013; and, secondly, it does not value the land in accordance with s 6A of the VL Act but values the business conducted on the land.
The VG submits that: 1. The Court granted leave for evidence as to its new methodology in December 2013 when the Court directed the VG to file its further evidence by a certain time. I reject the submission. In December 2013, on the occasion that I delivered the costs judgment referred to above at [29], the VG referred to a draft of Mr Gemell's evidence, a copy of which it had provided to the applicant only on the last working day before that hearing. Perilya did not have adequate time to absorb its contents. It was in that context that I gave directions for the filing of any further evidence by a specified time. There was no consideration of, nor any ruling that, evidence of the new methodology would be permitted. 2. Perilya's delay in formally opposing the evidence as to the new owner/operator methodology filed in February 2014 should count against exclusion of that methodology, otherwise a year's evidence gathering would be wasted. I take that into account. It was not until September 2014 that Perilya filed the notice of motion (with which I am now dealing) formally seeking an order that the VG should not be permitted to rely on the evidence concerning the new methodology. However, Perilya has consistently objected to the VG's evidence of the new methodology as requiring leave of the Court, the new methodology raises issues well outside these settled in 2013, the VG has not sought to amend those issues, and leads to the parties, particularly Perilya, seeking leave to rely on facts found by Lloyd AJ and not disturbed on appeal.
The VG submits that he should be permitted to advance the new methodology, based on an owner/operator assumption, because: 1. It includes a valuation of the minerals if they are required to be treated as publicly owned, an issue that the Court of Appeal contemplated would be visited on the remitter: at [45] of its judgment. 2. There is expert evidence in Gemell 2/14 at [47] and [54] that he has not found a transaction in a list of similar operating mines in eastern Australia where one of the mines was sold to a passive owner, and that in his opinion an owner/operator is the kind of purchaser most likely to acquire such a mine. And there is evidence in response for Perilya in Gleeson 5/14 at [37]-[39] that the purchase of the Perilya land by an owner intending to employ contractors would be more likely than any other model of ownership because of the short duration of the remaining mine life, and that passive ownership is unlikely.
I take those matters into account; but it is somewhat ironic that the first matter is irrelevant if, as the VG contends, the VL Act requires the minerals to be treated as privately owned, an issue that I was set to determine in December 2013 before the VG abandoned his motion for it to be determined as a preliminary issue. However, in my opinion, having regard to the general remitter principles referred to above at [22] and the following considerations (some of which have been touched upon above at [3], [6] and [23]-[28], the VG should not be permitted to rely on evidence of the new owner/operator valuation methodology: 1. If the VG is permitted to rely on the new owner/operator valuation methodology with its vastly increased valuation scenarios, the proceedings before Lloyd AJ, in the Court of Appeal, and for a substantial time thereafter in this Court on the remitter, were little more than a warm-up for the main event (on the remitter), which will be very different and more costly than otherwise. The issues settled in 2013 will radically change and there will likely be a far lengthier and costlier hearing in the order of up to three weeks than the three days that would otherwise likely be the case, as well as the associated preparation costs. The remitter principle that facts found and not disturbed on appeal should generally not be permitted to be reopened would likely be much eroded if not negated. Because of the sheer magnitude of the valuations under the new methodology compared with the old methodology, it becomes difficult to refuse leave to Perilya to reopen facts found by Lloyd AJ and not disturbed on appeal. Once that happens, it will be difficult not to treat the VG equally in that respect. 2. The principle of finality of litigation is offended by the advancement of the new owner/operator methodology on the remitter. The instruction manuals applied by the VG for many years, Lloyd AJ, the Court of Appeal and this Court for months thereafter on the remitter, proceeded on the basis of the parties' agreed passive investor methodology. The owner/operator methodology could have been advanced before Lloyd AJ but was not. 3. The VG seeks to start again when there has been no appeal or evidence that the passive investor methodology is wrong or incapable of deriving the land value. Even if the new methodology is an available alternative methodology, on a remitter after an appeal one should not throw out what has not been shown to be impermissible in order for the VG to pursue a new case. Even the proposed new evidence that a purchaser in the market would likely be an owner/operator is contentious. Perilya says it has evidence of passive investors purchasing mines. At trial the Court would have to decide whether to adhere to the passive investor methodology or reject it in favour of the owner/operator methodology. 4. The Court of Appeal expressed no concern with the passive investor methodology as such. Leeming JA's only concern, although he expressed no concluded view, was with the quantification of one input into that methodology, namely, whether the quantification of the rent (royalty) at 4% of profits was the appropriate quantification: at [76]. This does not require, nor do the errors of law found by the Court of Appeal at [74]-[75] necessitate the new owner/operator methodology. In the absence of any additional evidence suggesting any other quantification (there appears to be none), it is difficult to see why the 4% quantum agreed by well advised parties before Lloyd AJ, adopted by his Honour and not overturned on appeal should not stand for the purposes of this case. Leeming JA approved the submission of senior counsel for Perilya that there is nothing in the VL Act or the Mining Act that makes that quantification necessarily incorrect or unavailable for the parties or the Court of Appeal to adopt: at [37]. 5. These proceedings are in Class 3 of the Court's jurisdiction which are required to be conducted "with as much expedition, as the requirements of this Act and of every other relevant enactment and as the proper administration of the matters before the Court permit": s 38(1) Land and Environment Court Act 1979. Further, the Court is bound to seek to give effect to the facilitation of the just, quick and cheap resolution of the real issues in dispute when it exercises any power given to it by the Civil Procedure Act 2005 and the rules of Court: s 56(2) Civil Procedure Act. These principles are hostile to permitting reliance on the new methodology with all its consequential additional expense and time. 6. The relatively huge valuations under the new owner/operator methodology are put forward in a context where the VG does not, and in my opinion cannot, contend for a land value of more than the $20.9 million the subject of these proceedings. The VG hitherto based that assessment on the old methodology. Therefore, the main significance of the new methodology relates to post 2007 years. However, the VG is free to rely on the new methodology when assessing land value for those years because the bar to doing so in this case is a procedural bar arising from the VG's conduct of the proceedings. 7. In the context of the passive investor methodology, both parties have adduced evidence as to the compensation payable if the minerals are required to be treated as publicly owned, on the example given in the Court of Appeal's judgment at [75]. 8. It is insufficient reason to permit the new methodology that Perilya is free to apply for a special costs order to displace the ordinary rule that no costs are ordered in valuation appeals: r 3.7 Land and Environment Court Rules 2007.
Having decided that the VG should not be permitted to rely on Gemell 2/14 and Hopcraft 2/14, it follows logically that all other evidence relating only to the new owner/operator methodology will likewise be excluded. My decision does not bar the VG from endeavouring to rely on the new methodology for land value assessments in future years.
For completeness, I will also address Perilya's further submission that the VG's methodology should not be permitted because it offends s 6A of the VL Act by valuing the business and not the land. Perilya relies primarily on the following statement at [36] of Gemell 2/14. In my opinion, discounted cash flow methodology provides a total project value. Because cost components of the project, such as the construction of a processing plant, can be included in the inputs to a cash flow model, the resultant net present value is the sum value of those project components that have not been included in the inputs. In the models under consideration, this includes land, mine data, and entrepreneurial or managerial reward. By increasing the discount rate, the modelled value of the sum of these three items is being reduced. At a high discount rate which accommodates all of the required return for entrepreneurship and management, and assuming that the mine data is already accessible to the potential buyer, the remaining value is that of the land.
It is not clear to me at this stage that Mr Gemell is valuing the business, such that I should summarily exclude the new owner/operator methodology for that reason alone. The quoted statement from Gemell 2/14 was made in a section of that report titled "Distinguishing between value of the land and the value of the business", which may suggest that he was conscious that the task under s 6A of the VL Act concerns the former and not the latter. His assumption that the mine data is already accessible to the potential buyer - and thus that it does not have to be purchased - may be predicated on his instructions drawing attention to authority that the market for a property is assumed to be an "efficient market in which buyers and sellers have access to all currently available information that affects the property": Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25, (1999) 199 CLR 413 at [50]. Similarly, in Spencer v Commonwealth [1907] HCA 82, (1907) 5 CLR 418 at 44 Isaacs J said that we must suppose the parties to the hypothetical sale to be "cognizant of all circumstances which might affect its value". Whether the mine data in this case was in fact or in law "currently available" information within the meaning of this principle is in issue. Perilya's evidence is that the mine information would cost about $270 million, which may suggest that it should not be assumed to be otherwise "available".
Perilya also submits that the legal assumption that the hypothetical purchaser has access to all currently available information does not involve an assumption of ownership of such information that is necessary to run a business from the land, such as the mine information in this case, or that it does not have to be paid for. That is an arguable point but, even if it is correct, there appears to be a contestable question as to how much (if anything) would be paid for the mine data and how that might affect the land value. These would be matters for trial if permission were given to the VG to rely on the new methodology. The relevance of "entrepreneurial and managerial reward", according to Mr Gemell's report, seems to be to explain the high discount rate. It appears to be a description of the risk. That leaves only the land. Although it may be so, it is not sufficiently clear to me at the moment that Mr Gemell has valued the business rather than the land such that the new methodology should be summarily excluded on that basis alone. It is a matter for trial.

Perilya's notice of motion 22 September 2014 prayer 2

Prayer 2 of Perilya's notice of motion filed on 22 September 2014 seeks: To the extent necessary, an order that the Applicant be granted leave pursuant to paragraph 1 of the directions made on 20 September 2013, to rely on the evidence in the document entitled "Perilya Broken Hill Limited Resource & Reserve Estimate 30th June 2007" admitted before Lloyd AJ in Exhibit A, tab 6 (reproduced on appeal in Blue Appeal Book at 261-350) as evidence relevant to proof of the following facts as at 1 July 2007 (including, as the circumstances required, in respect of the knowledge or understanding of reasonable and fully informed parties to a hypothetical sale transaction as at 1 July 2007): (a) the long term metal prices relied on to determine the Ore Reserve as at 30 June 2007 were US$1,500/t for lead, US$2,500/t for zinc and US$2.06/oz for silver at an AUD/US exchange rate of 0.75 (see Blue Appeal Book at 270N and 329K), namely (when converted to AUD): $2,000/t for lead, $3,333/t for zinc and $97/kg for silver; and (b) a reasonable and prudent party to a hypothetical sale transaction as at 1 July 2007 would have adopted forecast metal prices of AUD$2,000/t for lead, AUD$3,333/t for zinc and AUD$97/kg for silver.
The VG does not oppose the grant of leave if I consider - as I do - that the subject evidence is responsive to consent order 1(1) made by me on 15 July 2014 that the VG be granted leave to rely upon the evidence referred to in paragraph 1(a) of the VG's notice of motion filed 4 March 2014, which was in the following terms: 1. To the extent necessary, the respondent have leave pursuant to paragraph 1 of the directions made 20 September 2013: (a) to rely upon the total figures for the proved and probable reserves of zinc, lead and silver published by the applicant in its document entitled "Perilya Broken Hill Limited. Resource & Reserves Estimate 30th June 2007" being a part of Exhibit A admitted when this matter was heard before Lloyd AJ (see Blue Appeal Book page 269S) namely: Zinc 6.7% of 11,198,0000 tonnes; Lead 4.9% of 11,198,00 tonnes; Silver being 49.5 grams per tonne of 11,198,000 tonnes
Under that consent order 1(1) of 15 July 2014, the VG may rely upon evidence of proved and probable resources published in the document referred to in both notices of motion, which are larger than the resources found by Lloyd AJ (I gather that the parties agree that there was an error in his Honour's finding). The argument is that those proved and probable resources were based on the metal prices to be found in the same document (at p 297), on which Perilya now seeks to rely.
Accordingly, I propose to grant the leave sought in prayer 2 of Perilya's notice of motion filed on 22 September 2014.

Perilya's notice of motion 22 September 2014 prayer 3

Prayer 3 of Perilya's notice of motion filed 22 September 2014 seeks: Further or in the alternative to order 2, an order that, for the purpose only of the Applicant's case in response to the valuation methodology for which the Valuer General contends (if and to the extent that the statements of Mr Gemell and Mr Hopcraft are admitted into evidence), the Applicant be granted leave pursuant to paragraph 1 of the directions made on 20 September 2013, to rely on evidence relevant to proof of the following facts as at 1 July 2007 (including, as the circumstances require, in respect of the knowledge or understanding of reasonable and fully informed parties to a hypothetical sale transaction as at 1 July 2007): (a) a reasonable and prudent party to a hypothetical sale transaction as at 1 July 2007 would have adopted forecast metal prices for future years, determined in accordance with a consensus estimate methodology, as follows: FY2008 FY2009 FY2010 FY2011 Long Term Zinc A$/t 4,100 3,410 2,900 2,470 1,970 Lead A$/t 2,010 1,600 1,220 1,160 1,100 Silver A$/kg 570 580 580 460 500

This motion lapses because it is only responsive to the VG's new owner/operator valuation methodology and I have declined to grant the VG leave to rely on that methodology.

Perilya's notice of motion 22 September 2014 prayer 4 and Valuer General's notice of motion 3 October 2014

Prayer 4 of Perilya's notice of motion filed on 22 September 2014 (as amended orally before me) seeks leave to rely on Gleeson 5/14 and 9/14 and Pendergast 6/14 and 10/14: An order: (a) for the purpose of the Applicant's case generally; or (b) in the alternative, for the purpose only of the Applicant's case in response to the valuation methodology for which the Valuer General contends (if and to the extent that the statements of Mr Gemell and Mr Hopcraft are admitted into evidence); The Applicant be granted leave pursuant to paragraph 1 of the directions made on 20 September 2013 to rely on the following statements and reports as evidence in the proceedings: statements of evidence of Edward Gleeson dated 19 May 2014 and 22 September 2014; statements of evidence of Ken Pendergast dated 27 June 2014 and 24 October 2014.
Insofar as leave is sought under (b) above to adduce this evidence in response to Perilya's new methodology, it does not arise for determination because of my earlier ruling refusing permission to the VG to rely on the new methodology.
Otherwise, it overlaps with part of the VG's notice of motion of 3 October 2014, which seeks that Perilya be refused leave to rely on Gleeson 9/14 and 10/12: 1. An order or, if need be, a direction, that: (a) the applicant is refused leave to rely on Mr Edward Gleeson's statement of evidence dated 23 September 2014; or (b) in the alternative, that this statement may not be admitted into evidence on the grounds that it: (c) seeks to re-agitate matters that were fully argued before, and decided by, Acting Justice Lloyd; and (d) is outside the leave granted by this Court in order 2(2) on 15 July 2014. 2. an order or, if need be, a direction, that: (a) the applicant is refused leave to rely on the Supplementary Statement of Evidence of Edward Gleeson, Mining Engineer, dated 8 October 2012; or (b) in the alternative, that this statement may not be admitted into evidence on the grounds that it: (c) is contrary to the assumptions required by ss 4 and 6A(1) of the Valuation of Land Act 1916; (d) seeks to re-agitate matters that were fully argued before, and decided by, Acting Justice Lloyd; and (e) is contrary to the assumptions that the author of the statement has now been instructed to make.
The should be considered against the background that Lloyd AJ found, based on the Court's experience and without evidence, that the cost of pre-production development would be about $10 million during a start up period of two years before any production could commence: judgment at [13]-[16]. His Honour described those pre-production costs as comprising: "employing staff to plan and design the required plant, machinery and building; to call and assess tenders for the provision of plant, machinery and building; to supervise the installing and commissioning plant, machinery and building; and to engage and employ about 350 staff required to operate the mine": at [13].
Gleeson 10/12 is a single page statement that was intended to supplement his main report for the hearing before Lloyd AJ. Gleeson 10/12 was tendered at the hearing before Lloyd AJ but precluded because it was tendered late. Gleeson 10/12 estimates: (a) the time to install and commission the plant equipment and infrastructure at the mine site would be two years; and (b) the cost of preparatory work would be $60 million, comprising 12,000 metres of pre-production excavation to facilitate productive use of the plant and equipment at $5,000 per metre. Gleeson 10/12 explains that the 12,000 metres consists of new excavations to enable access to future mining areas and rehabilitation for existing development "which is routinely required to maintain a safe working environment". In my July 2014 judgment, Perilya (No 4) at [14], I noted that the applicant wished to tender Gleeson 10/12 (with more detailed explanation) as evidence of the cost referred to at [13] of Lloyd AJ's judgment where his Honour adopted, in the absence of evidence and based on the Court's experience, a pre-production cost of re-establishing the mine of $10 million. And I said that as the VG was no longer prejudiced by the late tender, I would give leave to tender Gleeson 10/12. Consequently, in order 2(2) in my July 2014 judgment I granted: Leave to the applicant to rely on the statement of Edward Gleeson dated 8 October 2012, together with evidence in further explanation of that opinion and noting that the amount of those costs is no more than $60 million.
The VG now wishes me to revoke that leave because, the VG contends, Gleeson 10/12 was abandoned in Gleeson 9/14 at [3]-[5]. Perilya disputes the contention. It is not clear to me at this stage that Gleeson 9/14 abandons Gleeson 10/12 (see my analysis of Gleeson 9/14 below): it is a matter for trial. I therefore decline to make the order sought in prayer 2 of the VG's notice of motion filed on 3 October 2014 (that Perilya be refused leave to rely on Gleeson 10/12).
Gleeson 5/14 deals with a different subject matter from Gleeson 10/12, namely, Perilya's mining information "defence" to the VG's new methodology. In that context, it estimates a 10 year start up period at a cost of $266 million, which includes work apparently of a different character than that contemplated by Lloyd AJ or Gleeson 10/12. Gleeson 5/14 says that if the start up period was two years instead of 10 years, then the pro rata cost would be $53.2 million. Since I have declined to permit the VG to rely on the new methodology, this evidence in relation to the mining information "defence" must also be excluded. Nor would I otherwise allow the pro-rata costing of preparatory work for two years in that context in Gleeson 5/14 to be admitted into the proceedings. I therefore would not grant Perilya leave to rely on Gleeson 5/14.
I turn to Gleeson 9/14. The VG argues that Gleeson 9/14 is outside the terms of the leave granted by me in order 2(2) in July 2014 (quoted above) because it is not "in further explanation of the opinion in" Gleeson 10/12. Rather, the VG contends, Gleeson 9/14 is in further explanation of Gleeson 5/14 and that together they introduce a completely new item, which Gleeson 5/14 describes as care and maintenance cost going to the need to properly ventilate the mine, to pump out water to prevent it from flooding and to stop its underground structures from collapsing. Perilya denies that Gleeson 5/14 and 9/14 introduce a completely new item.
Gleeson 9/14 deals discretely with, first, Gleeson 10/12 and, secondly, Gleeson 5/14. Insofar as Gleeson 9/14 deals with Gleeson 5/14, which I have just excluded, I do not propose to permit Perilya to rely upon it.
Insofar as Gleeson 9/14 deals with Gleeson 10/12 (as it does at [1]-[21]), it makes an assumption that is different to Gleeson 10/12, namely, "that all shafts and drives (including pre-production excavation) already exists": at [4]. This appears to be consistent with the finding of Lloyd AJ that there would be no cost in extending shafts and drives as they are assumed to already exist at the valuation date: judgment at [14]. On that basis, Gleeson 9/14 then states that "preparatory work during the two year start up period would therefore consist of any works necessary to rehabilitate and maintain those existing shafts and drives. Only that component of my earlier estimate relating to rehabilitation of existing development therefore needs to be examined". There follows a quite lengthy analysis resulting in a two year total cost estimate for preparatory work of $39 million: at [20]. If (as it appears to be) this is intended to be in lieu of the $60 million estimate in Gleeson 9/12 and to be consistent with Lloyd AJ's decision, then to that extent its quantum is significantly more favourable to the VG than the quantum of Gleeson 9/12. I am therefore prepared to permit Perilya to rely on Gleeson 9/14 at [1]-[21] (being the paragraphs that relate to Gleeson 10/12) but because I am not altogether clear as to whether objectionable features lurk within those paragraphs, I will allow the question of that leave to be revisited at the hearing when things may be clearer.
I turn to Pendergast 6/14 and Pendergast 10/14. The latter at [64]-[69] adjusts Lloyd AJ's methodology to address the error identified by the Court of Appeal to account for the seven-eighths refund of the statutory Crown royalty that the land owner would receive if the minerals must be treated as privately owned. He also performs the same exercise on the assumption that 31.4% of the minerals are privately owned, on the basis that that is a percentage of the minerals that are in the land that Perilya owns freeholds at [97], Appendix D. Perilya is entitled to rely on Pendergast 6/14 to the extent that it addresses that error identified by the Court of Appeal.
The remainder of Pendergast 6/14 is proposed to be relied on by Perilya only by way of response to the VG's new valuation methodology. It includes a new consensus pricing basis for minerals which departs from that adopted by Lloyd AJ. In my July 2014 judgment [18] I declined to permit Perilya to rely on such new pricing evidence. However, Perilya revived its application to rely on it, arguing that if the VG is permitted to rely on the new valuation methodology resulting in a vastly increased valuation allegedly reflecting the real world, then Perilya should likewise be given latitude to invoke a different pricing basis also allegedly reflecting the real world. As I have not permitted the VG to rely on the new methodology, Perilya's evidence in response falls away and I will not permit Perilya to rely that response in the balance of Pendergast 6/14.
Pendergast 10/14 takes into account my July 2014 refusal of leave to rely on the consensus mineral prices used in Pendergast 6/14. Pendergast 10/14 reviews the calculation from Pendergast 6/14 to use the mineral prices adopted by Lloyd AJ, and alternatively the mineral prices in Perilya's Resource and Reserve Estimate. He also addresses other matters. They include the 4% royalty (rent) rate used by Lloyd AJ and questioned by the Court of Appeal in its judgment at [76]: he concludes by saying that he is unable to consent on its appropriateness. I do not understand the VG to object to Perilya relying on Pendergast 10/14. I will permit it to do so.

Valuer-General's notice of motion 4 March 2014 prayer 1(b)

Prayer 1(b) of the VG's notice of motion of 14 March 2014 asks that the VG have leave: If it becomes necessary to adopt any after tax cash-flow analysis, to calculate depreciation in accordance with s 40.60 of the Income Tax Assessment Act 1997 (Cth).
This motion was earlier stood over to trial but has been resurrected for determination now.
Lloyd AJ addressed depreciation in his judgment at [26]-[27]: [26] The Valuer-General submits that allowing for depreciation amounts to double counting the cost of the plant and machinery. [27] However, an examination of the calculations adopted by Mr Herdman in his spreadsheets tendered in evidence show that the only function of including depreciation as a cost is to calculate tax. That is, the cumulative cash flow which he adopted is a pre-depreciation cash flow and the amount of depreciation is not reflected in the discounting process other than to calculate tax. There is no double counting of the $195 million cost of the plant and equipment. I thus do not accept the Valuer-General's submissions.
His Honour then set out the amount of depreciation year by year from the outset in the discounted cash flow spreadsheet annexed to his judgment, on a straight line basis.
Section 40.60 of the Income Tax Assessment Act 1997 (Cth) provides: When a depreciating asset starts to decline in value (1) A depreciating asset you hold starts to decline in value from when its start time occurs. (2) The start time of a depreciating asset is when you first use it, or have it installed ready for use, for any purpose. Note: Previous use by a transition entity is ignored: see section 58-70. (3) However, there is another start time for a depreciating asset you hold if a balancing adjustment event referred to in paragraph 40-295(1)(b) occurs for the asset and you start to use the asset again. Its second start time is when you start using it again.
The VG submits that under this provision depreciation is only allowable once the business starts to operate; and that therefore Lloyd AJ was in error in allowing depreciation from the outset including in the two year start up period before the business started to operate.
Perilya opposes leave being granted not on the basis that the statutory provision is inapplicable but rather on the basis that it should have been contended for before Lloyd AJ.
Favouring refusal of leave is the principle of finality of litigation for the point was not raised before Lloyd AJ or the Court of Appeal and the issue of depreciation was determined by Lloyd AJ without being disturbed by the court of Appeal. However, a requirement of the Income Tax Assessment Act distinguishes this issue from all others and it involves only an arithmetical adjustment. Its effect, if any, on the final result was not argued before me. I propose to grant the leave sought.

Perilya's notice of motion 7 July 2014 prayers 1(a) to (d)

Prayer 1 of Perilya's notice of motion filed on 7 July 2014 seeks the following orders but only in response to the VG's new methodology: To the extent necessary, the Applicant have leave pursuant to paragraph 1 of the directions made on 20 September 2013, to rely on evidence relevant to proof of the following facts as at 1 July 2007 (including, as the circumstances require, in respect of the knowledge or understanding of reasonable and fully informed parties to a hypothetical sale transaction as at 1 July 2007): (a) The estimated cost to obtain / reconstruct mining information (that is, information that is not in the public domain that is necessary or appropriate for the operation of a mine at Perilya Broken Hill) to an adequate level of confidence that would allow responsible operation of the Perilya Broken Hill mine is $270,691,000. (b) The estimated time to obtain / reconstruct mining information to an adequate level of confidence that would allow responsible operation of the Perilya Broken Hill mine is 7.8 years. (c) The estimated time required to assess mining information and seek approval to purchase infrastructure and other equipment necessary for the operation of the Perilya Broken Hill Mine is 0.2 years. (d) The estimated cost of care and maintenance of the Perilya Broken Hill Mine for a period of ten years is $266 million. (e) The estimated costs of care and maintenance of the Perilya Broken Hill Mine for a period of two years is $53.2 million. (f) The forecast rate of production for the Perilya Broken Hill Mine from 1 July 2007 is 1.88 million tonnes per annum, indicating a mine life of 5.96 years. (g) The forecast mineral prices, determined in accordance with the consensus estimate methodology are: FY2008 FY2009 FY2010 FY2011 Long Term Zinc A$/t 4,100 3,410 2,900 2,470 1,970 Lead A$/t 2,010 1,600 1,220 1,160 1,100 Silver a$/KG 570 580 580 460 500

(h) The discount rate applied in the valuation is to be in the range of 18% to 20% after tax.

In my July 2014 judgment, Perilya (No 4), order 2 was as follows: 2. In respect of the applicant's notice of motion filed 7 July 2014, the Court makes the following orders: (1) Stand over paragraphs 1(a)-(d) to the final hearing; (2) Refuse the leave sought in paragraph 1(e), but grant leave to the applicant to rely upon the statement of Edward Gleeson dated 8 October 2012, together with evidence in further explanation of that opinion, and noting that the amount of those costs is no more than $60 million; (3) Refuse the leave sought in paragraphs 1(f) and 1(g); (4) Grant the leave sought in paragraph 1(h). (5) Further to order 2(2) above, in the event that the Court at the final hearing determines that the evidence referred to in paragraphs 1(a)-(d) is not responsive to the Valuer-General's case (as it appears from the Valuer-General's served evidence), the applicant is to pay the Valuer-General's costs of replying to that evidence, as assessed or agreed, and the evidence is not, without further order, to be admitted.
Although I stood over prayers 1(a)-(d) of Perilya's July 2014 notice of motion to the trial, Perilya now seeks that I determine them in advance of the trial if the VG's new methodology is permitted. They contain Perilya's big ticket contentions (to which I have earlier referred) that a major deficiency in the VGs new methodology is that it fails to take account of the cost of obtaining mining information, costed for Perilya at $270 million, and fails to allow for a related blowout in the start up period of the mine from two to 10 years. If I had permitted the VG to rely on the new methodology, I would have given leave to Perilya to respond in terms of 1(a)-(d) of its 7 July 2014 notice of motion. As I have refused the VG such permission, I do not propose to grant the leave sought.

Whether there should be a separate question

The parties responded with submissions to my inquiry as to whether it is now appropriate to order separate determination of the question whether in determining land value under s 6A(1) of the VL Act the minerals in the land are assumed to be privately owned or publicly owned pursuant to the Mining Act 1992. The principles to be applied to determine whether a separate question should be ordered pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 are not controversial. Strong reasons are required such as where it may achieve significant savings in time and expense or obviate the necessity of a trial on all issues: Allandale Blue Metal v Roads and Maritime Services [2013] NSWCA 103, (2013) 195 LGERA 182 at [10], [92]; Hrsto v Canterbury City Council [2013] NSWLEC 195 at [4]-[6] (Biscoe J); Challenger Listed Investments Limited v Valuer-General [2015] NSWLEC 7 at [14] (Biscoe J).
The VG had previously, in October 2013, filed a notice of motion seeking such an order, which was dismissed by consent as recorded in my December 2013 judgment only because the VG had just advanced the new owner/operator methodology. As reliance on that methodology has now been rejected, the VG's previous reasons for supporting determination of the separate question - saving of considerable time and expense in addressing an irrelevant issue of public ownership of the minerals if the question were answered in one way - seem to me to be revived. Perilya now supports determination of the separate question, although in 2013 it did not.
The answer to the separate question would be the last major step in determining before trial what evidence is relevant, the parties and the Court having devoted much energy to that task as this judgment attests. If, as the VG contends, the answer is that the minerals are assumed to be privately owned - which was the agreed basis on which the parties proceeded before Lloyd AJ - then the public ownership possibility raised by the Court of Appeal at [76] of its judgment can be put to rest. Of course, there is the spectre of delay that is always present whenever determination of a separate question is ordered, of leave to appeal against the determination being granted before trial and, if a stay of the trial is also ordered, of further delay. I take that into account. However, that is not determinative. Further, it cannot be assumed that leave or a stay would be ordered given that the trial would be unlikely to take more than three days if the Court upholds the VG's private ownership contention. Both parties filed written submissions in relation to the answer to the separate question in 2013, which I summarised in my December 2013 judgment. If the parties wish to supplement them with oral submissions, oral submissions should only take a few hours and I am available to hear them later this week.
I conclude that an order should be made for determination of the separate question.

Orders

The orders of the Court are as follows: 1. The Valuer-General is refused leave to rely on the statements of Stephen Gemell and Mark Hopcraft both dated February 2014. 2. The applicant is granted leave to rely on the evidence in the document entitled "Perilya Broken Hill Limited Resource & Reserve Estimate 30th June 2007" admitted before Lloyd AJ in Exhibit A, tab 6 (reproduced on appeal in Blue Appeal Book at 261-350) as evidence relevant to proof of the following facts as at 1 July 2007 (including, as the circumstances required, in respect of the knowledge or understanding of reasonable and fully informed parties to a hypothetical sale transaction as at 1 July 2007): 1. the long term metal prices relied on to determine the Ore Reserve as at 30 June 2007 were US$1,500/t for lead, US$2,500/t for zinc and US$2.06/oz for silver at an AUD/US exchange rate of 0.75 (see Blue Appeal Book at 270N and 329K), namely (when converted to AUD): $2,000/t for lead, $3,333/t for zinc and $97/kg for silver; and 2. a reasonable and prudent party to a hypothetical sale transaction as at 1 July 2007 would have adopted forecast metal prices of AUD$2,000/t for lead, AUD$3,333/t for zinc and AUD$97/kg for silver. 1. The applicant is refused leave to rely on the statement of evidence of Edward Gleeson dated 19 May 2014. 2. The applicant is granted leave to rely on the statement of evidence of Edward Gleeson dated 23 September 2014 paragraphs 1 to 21 and is refused leave to rely on the balance of that statement. 3. The applicant is granted leave to rely on the evidence of Ken Pendergast dated 27 June 2014 except to the extent that it responds to the evidence referred to in Order 1. 4. The applicant is granted leave to rely on the statement of evidence of Ken Pendergast dated 24 October 2014. 5. The Valuer-General is granted leave, if it becomes necessary to adopt any after cash flow analysis, to calculate depreciation in accordance with s 40.60 of the Income Tax Assessment Act 1997. 6. The applicant is refused the leave sought in prayer 1(a) to (d) of its notice of motion filed on 7 July 2014. 7. Order that there be a separate decision of the following question: 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 1. The matter will be mentioned before Biscoe J at 9.30am at 18 February 2015 to fix one day for the hearing of the separate question, if the parties wish to be heard orally in addition to the written submissions that have already been filed. 2. Liberty to apply.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 February 2015

(2013) 195 LGERA 182

(2013) 195 LGERA 416

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