Roads Corporation v Love [2010] VSC 537

Roads Corporation v Love [2010] VSC 537 - VSC 2010 case summary — Zoe

[22]

(iv) Injurious effect on 410 Cooper Street residence ($45,000.00)

Mr Love claims $45,000 as "injurious affect on his home at 410 Cooper Street, Epping".

The Corporation contends that any claim for injurious affection to Mr Love's home falls for consideration as part of compensation for loss of market value in the application of section 41 (3) of the LAC Act. It makes no separate allowance for this item of claim in this case.

(c) Solatium

Under section 44 of the LAC Act, Mr Love claimed solatium of $5,712,000.00. This figure represents 10 percent of the market value of the whole of Mr Love's land "before" acquisition as valued by Mr Love's expert quarry and land valuer, Mr Herdman. Following the adjustment of the claim for loss of market value, Mr Love reduced his claim for solatium to $4,945,000.00.

In support of his claim, Mr Love relies on the longevity of ownership of his family of the land (since 1915), his attachment and that of his family to the land, he having been born and raised on the land and having actively worked it since 1990, and upon the time and stress associated with the acquisition and implementation of the Bypass proposal.

The Corporation contends that the starting point for solatium is to determine an appropriate monetary allowance, taking into account the specific factors in section 44 (2) of the LAC Act as they apply to the case. The second step is to make an award accordingly unless the amount considered appropriate exceeds the applicable ceiling.

The Corporation has offered $98,000 in this case, reserving to itself the right to contend that a lesser award is appropriate. It contends that the applicable "ceiling", for the purpose of an award of solatium, is $185,571. That is, 10 percent of the market value of the 25.62 hectares of land actually acquired.

(d) Total valuation and other professional expenses as at 3 April 2006 of $142,895, a sum which has already been paid by the Corporation.

(e) Under Section 53 of the LAC Act, penalty interest from 11/2/02 to the date of judgement.

[160]

The concept of highest and best use is implicit in the theoretical basis of assessment of market value at a given point in time. Such value is understood to be ascertainable in accordance with the formulation of Isaacs J in Spencer's case:[32]

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.

It is implicit in this formulation that both vendor and purchaser are to be regarded as aware of the potentially most advantageous ongoing use of the land and not simply its current use, when formulating the relevant value. Such potential is a circumstance which necessarily affects the value of the land either advantageously or prejudicially.

Further, in Turner v Minister of Public Instruction[33] Dixon CJ stated:

After all the purpose (of valuation) is to ascertain the full return which may reasonably be expected from the sale of the land, not the most conservative value.

In Commonwealth Custodial Services Ltd v Valuer-General (NSW)[34] Biscoe J elaborated the concept by reference to relevant authority in the following terms:

There is no statutory definition of "highest and best use". It has been described in the High Court as "the most advantageous purpose for which [the land] was adapted": Spencer v The Commonwealth. It "is the present value alone of such advantages that falls to be determined": Cedar Rapids Manufacturing and Power Co v Lacoste. In Park v Allied Mortgage Corporation Ltd Hill J said at [70]: "As Spencer's case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land". In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources Jacobs J said:

Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says - the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value.

In the present case the Tribunal summarised the underlying concept as follows in terms with which, with respect, we agree:

Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value.

It also expressly referred to the notion of most advantageous use articulated by Jacobs J in the passage quoted above from the Adelaide Clinic case. Such a notion takes account of all factors relevant to the land affecting its present and future potential.

Further, as the Tribunal recognised in the course of its judgment, the highest and best use of a particular piece of land is flexible and may, at a particular point in time, be to "bank" the land with a view to future development rather than to use it actively.

By reference to s 5A, [of the VL Act] it can be seen that the Tribunal was required to take into account the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use where it was relevant. In the present case the question of highest and best use was potentially relevant both to the question of valuation generally pursuant to s 5A(1) and more specifically to questions of comparability of sales of other land pursuant to s 5A(2).

The language of the subsections is in our view deliberately flexible and capable of application to a potentially wide variety of circumstances as they may develop over time.

The role and weight to be given to the factor of highest and best use in a valuation exercise must in turn logically depend upon its relationship to other relevant factors disclosed by the evidence and affecting value.

This said, it was common ground between the parties that the proper ascertainment of the highest and best use of the subject land in the present case was a necessary preliminary step to its valuation. As Jacobs J stated in the Adelaide Clinic case in the passage already cited:

The first task of the valuer is to determine what that [highest and best] use is and then to value the land on that basis. [References in part omitted]

[248]

The discounted cash flow method values the land by valuing the business conducted on the land. It is, in truth, the value of the land and the profits derived from conducting a business on the land. That is demonstrated by Mr Smithson's evidence as to the manner in which he made his valuation. He calculated the revenue and expenditure over the known life of the Wingfield dump based on the revenue and expenditure of the WWMC. He then discounted those calculations back to a present value, the discount rate reflecting the risks inherent in the cash flows, in particular, revenue. His assessment allowed for the cost of the land itself and for the costs of closing the site, rehabilitation costs and other costs to be incurred after the site had closed. That realised what he believed to be the price an owner-operator would pay for the land. Significantly, the valuation assumes, as Mr Smithson acknowledged, that the purchaser would obtain a licence for the land. In that sense, it is a valuation of the price which would be paid for the land and the business with a licence to carry on that business. It is not, therefore, an assessment only of the price to be paid for the land.

The discounted cash flow method is useful for valuing shares and other assets. It is also useful when valuing land to be used either as a quarry or as land to be used for waste disposal and, in particular, the latter. As already mentioned, land used for waste disposal usually has little intrinsic value, particularly if already used for that purpose. As the value of the land lies in the ability to earn income from the land, the price of the land is essentially determined not by any intrinsic value of the land but by the use to which the land can be put and the income derived by the owner of the land from that use, be that income royalties or, in the case of the owner-operator, profit.

As mentioned earlier, the income to be derived from the land is, of course, often a factor affecting value. It has a particular significance in a case such as this where little capital expenditure is required to operate the business. In this case, both valuers ignored the relatively insignificant improvements on the land. In addition, the evidence shows that the necessary equipment can be hired. In other words, land used for this purpose is able to generate revenue without significant costs in addition to the purchase price. If purchased by the owner-operator, the discounted cash flow method has a particular utility. It is, however, generally recognised that care should be taken when using the discounted cash flow method and the resulting valuation should be checked against other methods of land valuation. A judgment must be made as to value and the result checked against other available evidence of value. In this case, notwithstanding that he primarily relied on the discounted cash flow method, Mr Smithson used the sales of comparable land in Victoria as a check. Ms Carolan also used those Victorian sales as a check.

The discounted cash flow method is useful in cases such as this where there is a finite life of the business and the income and expenditure are known. It is also useful when valuing a business such as this which is a going concern. It is less useful when other assets or capital expenditure are involved. But the evidence is that little, if any, capital expenditure is required to operate the business. The method is also useful because the quantity of fill which can be dumped on the site is known. The purchaser is not simply buying the land. He is buying the land with the capacity, subject to obtaining a licence, to run a like business earning like profits. The utility of the discounted cash flow method is emphasised by the fact that the land has a relatively low value of itself.

[300]

It is general valuation practice for sales characterized as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances (using that word in its broadest sense) appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 and in later cases to warrant a court's reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land. Adjustments must, of course, be made every time reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape, slope, view, land use (actual and potential), scope for, and difficulties of, development, services and amenities; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected. I do not for a moment pretend that I have been exhaustive. What I am concerned to emphasize is that, as I understand the evidence, and according to the inferences that I feel I can safely draw from it, there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not. It is, in my view, all a matter of degree: some adjustment is always necessary; too much adjustment will render it unsafe to use a sale, subject to such a degree of adjustment, for the purpose of the reasoning process in the comparable sales method. Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill. The valuer must use his skill to winnow out the element of comparability if it is there, and use it with discretion. It is perhaps worthwhile adding that just because a sale is excluded from use in the comparable sales process of reasoning, it does not necessarily follow that it must be discarded from all consideration. The evidence in this case suggests strongly to my mind that, at the initial stages, a valuer will almost certainly look at all known sales in potentially relevant areas, if for no other reason than to discern patterns of prices and changes in price levels over important periods. He will, while doing so, also be culling possibly comparable sales for further consideration. The process, seen as a whole, is not unlike that of using items of circumstantial evidence that possess varying degrees of cogency and weight.

[309]

In one important matter the approach of the Full Federal Court is to be preferred to that of the Court of Appeal of New South Wales, although recourse to North American authority (The City of Halifax v S Cunard & Co Ltd [1975] 1 SCR 458; Municipality of Metropolitan Toronto v Loblaw Groceterias Co Ltd [1972] SCR 600), if relevant, was not necessary to make good that approach, as local experience is to a similar effect. The approach of the Court of Appeal would seem to exclude altogether the possibility of a sound valuation based upon, or having regard to the profits that the property if developed might yield. There is no legal principle that purports to, or could close for all times the categories of methods of valuation which might be acceptable in a particular case. ... the fact that valuations were usually required only for the purpose of levying taxation, meant that early valuations were simple and relatively unsophisticated exercises. Valuation practice is, however, like legal practice an evolving discipline.
As time has passed different types of businesses, different uses to which property may be put, changing financial markets, and more sophisticated and different methods of obtaining financial information and applying financial criteria call for flexibility, resourcefulness and different methods of making valuations. Two typical examples should suffice. Large "drive-in" shopping malls containing discount department stores, speciality shops, municipal libraries, restaurants, cafés, department stores, large supermarkets and numerous picture theatres were unknown when Spencer's case was decided. To value one, either when fully developed or in prospect, requires that the closest consideration be given to the income stream that such an establishment could be expected to generate and for how long it might do so. Similarly sophisticated techniques may be involved in the valuation of large city buildings or sites approved for their erection taking account of incentives offered to tenants and the incidence of tax payable by both parties. Often the owner of land which has been approved for a development will not undertake the development but will sell it to an investor or developer. The point is that the land with the approval attached to it becomes the prize and it would be unthinkable that the price for the prize would not be fixed in such a way as to reflect the return that the development when completed would yield. There is no reason to suppose that the price for the site of an approved but as yet undeveloped market should be very differently calculated.
It is not as if the valuation of a notional capital asset by reference to its expected income generating capacity is by any means a novel concept in the courts. Daily, courts in this country and elsewhere value what has been described as something in the nature of a capital asset, a person's capacity to earn income, by reference to his or her likely earnings over a period in the future taking account, subject to discount for contingencies, of that person's as yet unrealised but realisable prospects in life (Parker v The Commonwealth [1965] HCA 12; (1965) 112 CLR 295 at 308 to 311 per Windeyer J; Husher v Husher [1999] HCA 47; (1999) 73 ALJR 1414; 165 ALR 384).
Wells J recognised the availability of different methods of valuation in Bronzel v State Planning Authority ((1979) 44 LGRA 34 at 38):

[554]

(a) the SPPF supported the use of the site for extractive industry, provided:

(i) the activity could be well managed so as not to create any unreasonable environmental impacts; and

(ii) the use would not unreasonably restrict the available supply of land in the region for urban industrial purposes;

(b) there is nothing in the local planning policies that would suggest that the appropriate planning outcome would be to refuse an application for extractive industry on the site:

(i) clause 21.04 of the LPPF advocates the management of urban growth in a manner that maximises beneficial relationships between compatible land uses. Co-location with other quarries and landfill sites makes it a suitable candidate site for a similar use;

(ii) clause 21.06 of the LPPF encourages employment generating industries in the Cooper Street precinct (acknowledging that industrial development would provide more employment);

(iii) encroachment of residential and other sensitive non-industrial uses into the area is discouraged (LPPF clause 21.06-4), therefore, continued separation of incompatible uses in this area can be expected;

(iv) the site is not in an area designated in the planning scheme as having high quality landscape or other rural attributes or features of significance that would militate against its use and development for extractive industry;

(v) the community plan at clause 21.04 of the LPPF encourages sustainable development. Extraction of the basalt resource, or a substantial part, before the land is used for another purpose is consistent with this;

(vi) the reservation about new extractive industry in clause 21.06-8 of the LPPF was in the context of uncertainty about the route of the freeway and the extent of the land to be zoned for residential purposes in Epping North. The western extent of the residential area was known by the relevant date. If the freeway had not been routed through the subject land, there would have been no reason to refuse extractive industry on these grounds;

(vii) the Cooper Street precinct strategy indicated new areas of extraction were appropriate provided they were well managed, did not impact on the visual amenity of Cooper Street and could be commenced promptly to allow completion within 20 to 30 years. Extractive industry on the site could meet these conditions; and

(viii) the use is expressly contemplated by the "Special Use 4 Zone". The rural zone purposes include promotion of economic development compatible with rural activities.

[832]

The Planning and Environment Act 1987 does not, in terms, allow a claim for financial loss to be calculated by reference to an attribute of the land, as a constituent of highest and best use for valuation purposes, which may have been able to have been attained at an earlier point of time but not at the relevant date. It requires, in my view, that the land be considered with all its attributes, existing and potential, at the relevant moment for assessment of value, namely just prior to refusal. It is not open to the claimant, or for that matter the authority, to reach back in time to select an attribute albeit expressed as its then highest and best use, and then seek to apply this at the relevant date regardless of the highest and best use at that date. This principle is inherent in the series of decisions of this Court where, though this argument was not addressed, it was clear that the date of refusal was the relevant date. See Cape Developments Pty Ltd v City of South Barwon [1982] VicRp 102; [1982] VR 1011; City of Nunawading v Day [1992] VicRp 13; [1992] 1 VR 211; Mario Piraino Pty Ltd v Roads Corporation [No 2] [1993] VicRp 9; [1993] 1 VR 130; Studley Developments Pty Ltd v Department for Planning and Urban Growth [1993] VicRp 3; [1993] 1 VR 15.

It was sought to accommodate this principle by arguing that the Court was obliged to exclude the effect of the scheme of acquisition, or by analogy here, the public purpose proposal, in ascertaining highest and best use. This was a legitimate principle recognised and adopted by this Court in the above decisions. See especially the Studley Developments case, at 20, where the "before" and "after" method of assessment of loss is described.

But this principle does not permit a claimant to go back in time and select a potential which the land may then have had, regardless of later events. Even though, as a matter of chronology, a public purpose proposal is then advanced, this does not mean that the proposal has caused other loss of an attribute. To take a mundane example, a land owner may seek to explain the poor condition of his land by reference to the fact that it was not worth his while improving his land when it was about to be acquired, but he cannot sustain an argument that his land would otherwise have been considerably improved if there had not been any acquisition proposal and that his land should be so valued for purposes of assessment of compensation.[143]

[Emphasis added]

[984]

(a) Mr Natoli was not an independent and impartial expert witness whose evidence could be accepted by the Court at face value generally and without caution. At least in many instances, where there is conflict between his evidence and that of Dr Gray, Mr McLellan, Mr Newman, Mr Ellsmore, Mr Kerr or others, their evidence is to be preferred to his;

(b) the upper flow at WA 658 is of reasonable quality, the same as the upper flow being extracted at WA 149, and would produce the same mixture of higher and lower class materials as Mr Kerr produces at WA 149;

(c) however, being only some 4 million tonnes in total, and only 2 million of which would be extracted in the first 26 years of operation on Mr Natoli's quarry design, the upper flow is of little significance in evaluation of the resource;

(d) the lower flow is of varied and generally poor quality and would at best produce commercial products;

(e) weathered material and material with high smectite levels are present to a great extent in the lower flow, in the percentages and degrees estimated by Dr Gray in his report and by Mr McLellan in his report;

(f) potential purchasers of the resource would attach significant and negative weight to the extensive presence of weathered basalt, it being essentially waste and would be likely to give rise to operational, production and cost issues;

(g) potential purchasers of the resource would attach significant and negative weight to the extensive presence of stone material with high smectite levels, because such material is regarded with suspicion in its performance characteristics, is ill-received in the market, is of low value, and is potentially unsuitable for even commercial sales to persons applying the Australian Standards concerning concrete;

(h) the weathered and smectite-affected material in the lower flows is not economic to extract in itself, and sterilises a material part of the remainder of the lower flow, with the overall result that a potential purchaser would be advised against extracting the lower flow and would attach no or virtually no value to it;

(i) as the lower flow is over 90 percent of the resource, the conclusion set out in (h) is of fundamental significance;

(j) overall, the resource, although quite well located and of a moderate tonnage, is of little value and, even subject to planning and works approval issues, would at the most be exploited for quarry use only as to its upper flow by an independent operator such as Mr Kerr;

(k) by no possible analysis could the resource credibly be said to warrant more than a fraction of the value attributed to it by Mr Herdman, and the land is less valuable for quarry use than for future industrial use.

At a glance

Court

Decision date

Before

Source

Judgment (1405 paragraphs)

Parties

Legislation Cited (15)

Cases Cited (38)