Valuer-General v AWF Prop Co 2 Pty Ltd & Ors [2021] VSCA 274

REAL PROPERTY - Fixtures - Tenant's fixtures - Whether wind farm assets belonging to lessee formed part of land - Wind turbines connected to underground foundations - Connection for safety and operational reasons - Turbines and other above ground assets capable of dismantling and removal - Obligation on lessee to remove things erected or installed on land and make good - Lessee entitled to remove turbines and other assets during lease - Lease term 25 years with option to renew - Above ground assets chattels - SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395, considered - Property in assets remaining with lessee during lease by operation of Property Law Act 1958 s 154A - Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue [2004] VSCA 10; (2004) 12 VR 351, Commissioner of State Revenue v Uniqema Pty Ltd [2004] VSCA 82, applied.

1 This appeal concerns the assessment of the fire services levy payable by AFW Prop Co 2 Pty Ltd ('AFW Prop Co') in respect of land occupied by a wind farm operated by a related corporation, Ararat Wind Farm Pty Ltd ('AWFPL'), on rural land in the local government area administered by Ararat Rural City Council. The Ararat Wind Farm ('Wind Farm') is a 75 turbine wind farm that straddles two municipalities, with 70 of the wind turbines and most of the items of associated infrastructure located on land within the municipality of Ararat.

2 The Wind Farm is made up of wind turbines (in which term we include the towers), wind masts, an electricity substation, cabling, roads and associated infrastructure, spread across parcels of land occupied pursuant to 16 leases between AWF Prop Co and the respective registered proprietors of the leased land ('AWF Leases'). There is then a sublease from AWF Prop Co to AWFPL, the operator of the Wind Farm.[1] The registered proprietors of the parcels of land in question are farmers who use their land for agricultural purposes. They receive rents from AWF Prop Co calculated on a per-turbine basis.

3 The fire services levy is payable by the relevant land owner, but the AWF Leases provide for AWF Prop Co to pay the amount of fire levy attributable to its occupancies.

4 The fire services levy is calculated by reference to the capital improved value of land, as defined in the Valuation of Land Act 1960 ('VL Act').[2] The VL Act requires the computation of capital improved value in respect of each separate 'occupancy' on rateable land.[3] Each separately owned parcel of farmed land is an occupancy. The land or lands upon which the Wind Farm has been constructed and operates also comprise occupancies, which are on the same titles as the farmed land.

5 In March 2018, the Council, as the rating authority, issued a rate notice in respect of the parts of the Wind Farm located in the Ararat municipality.[4] The rate notice specified a site value of $14,560,000 for the 'various allotments' of land comprising the Wind Farm, and a capital improved value of $470,400,000. The fire services levy was set at $740,625.60.

6 The rate notice was based on a supplementary valuation of the Ararat portions of the Wind Farm as at 1 January 2016, which was returned on 24 January 2018. The supplementary valuation was undertaken by Mr Paul Newman, a certified practising valuer, who inspected the Wind Farm on 31 August 2016 and 1 November 2017.[5]

7 AWF Prop Co objected to the assessment of the capital improved value of its occupancy on the ground that it was too high. It contended that the capital improved value its occupancy was $14,560,000, which was the same as the land's site value.

9 In September 2018, AWF Prop Co and AWFPL applied to the Victorian Civil and Administrative Tribunal (the 'Tribunal') under s 22 of the VL Act to review Mr Newman's decision. The Valuer-General was joined as a party to the review proceeding. By agreement between the parties, the Tribunal referred the following three questions to the Supreme Court of Victoria:

(a) [Question 1] What is the occupancy, or occupancies, to be valued for the purposes of assessing CIV [capital improved value] having regard to the Valuation of Land Act 1960 and, in particular, sections 2(3), 2(3A), 13DC(6), (7), (7A), (8), (9)?

(b) [Question 2] For the purposes of assessing CIV, how is the relevant occupancy or occupancies to be valued having regard to the principles set out in Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184; (2011) 34 VR 445?

(c) [Question 3] For the purposes of assessing CIV, are the AWF Assets (as defined in the statement of Agreed and Non Agreed Facts at [90]) to be valued as part of the hypothetical fee simple, having regard to:

(i) common law and/or statutory interpretation principles concerning fixtures and chattels, including the decision of this Tribunal in AusNet Electricity Services Pty Ltd v Whittlesea City Council [2014] VCAT 1637; and/or

(ii) the operation of section 154A of the Property Law Act 1958?

10 On 16 December 2020, the primary judge answered the three questions[6] and made consequential orders, including an order reducing the capital improved value of the land occupied by the Wind Farm within the Ararat municipality from $470,400,000 to $14,000,000.

11 The Valuer-General of Victoria has appealed that judgment, seeking to have the higher (assessed) valuation reinstated.

12 The main dispute between the parties is whether the wind turbines and associated infrastructure situated above ground form part of the occupancy or occupancies, the value of which stands to be assessed on a capital improved basis. There are related issues concerning the correct valuation methodology and whether the parcels of land that are the subject of the individual AWF Leases constitute individual occupancies or a single occupancy.

13 For the reasons that follow, leave to appeal will be granted and the appeal will be dismissed.

14 The Fire Services Property Levy Act 2012 ('FSL Act') imposes a fire services property levy on all land in Victoria, unless specifically exempted, to fund Fire Rescue Victoria and the Country Fire Authority. The levy is an annual charge payable by the owner of leviable land.[7]

15 Section 4 of the FSL Act defines 'owner', in relation to land, to mean:

(a) a person entitled to a parcel of land for a freehold estate in possession;

(b) a person entitled to a parcel of land under a lease of Crown land;

(c) a person entitled to a parcel of land under a licence of Crown land if the person has a right, absolute or conditional, of acquiring the fee simple.

16 The levy is generally calculated using the formula in s 17, by reference to the capital improved value of the leviable land. Section 16 of the FSL Act provides:

For the purposes of calculating the capital improved value of leviable land, valuations made under the Valuation of Land Act 1960 in respect of rateable and non-rateable leviable land by a valuation authority must be used.

17 The phrase 'capital improved value' is defined in s 3 of the FSL Act to have the same meaning as it has in s 2(1) of the VL Act:

capital improved value means the sum which land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might be expected to realize at the time of valuation if offered for sale on any reasonable terms and conditions which a genuine seller might in ordinary circumstances be expected to require;

18 'Site value' is also defined in s 2(1) of the VL Act:

site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made;

19 Section 2(3) of the VL Act provides guidance in the determination of capital improved value and site value in certain circumstances:

If it is necessary to determine the capital improved value or site value of any rateable land in respect of which any person is liable to be rated, but which forms part of a larger property, the capital improved value and site value of each part are as nearly as practicable the sum which bears the same proportion to the capital improved value and site value of the whole property as the estimated annual value of the portion bears to the estimated annual value of the whole property.

The land with which this appeal is concerned is rateable land. The expression 'estimated annual value' is defined in s 2(1) in terms not relevant to the appeal.

20 Section 13DC of the VL Act provides for the conduct of valuations generally:

(1) In every valuation for the purposes of the Local Government Act 1989, each separate occupancy on rateable land must -

(a) be computed at its net annual value, its capital improved value and, if required by a rating authority, its site value;

(b) be allocated an [Australian Valuation Property Classification Code] based on the Valuation Best Practice Specifications Guidelines.

(2) A council may use in respect of rateable land within its municipal district valuations in force in respect of that land immediately before the constitution of the council for such period as the latest of the valuations might have been used by the council for which it was made.

...

(5) In a general valuation, regard must be had to every circumstance affecting the land at the date the valuation is returned that, were it to occur or come into existence subsequently, would be a circumstance in which, under section 13DF(2), a supplementary valuation could be made.

(6) If several parcels of land in the same municipal district are occupied by the same person and separated from each other only by a road or railway or other similar area across or around which movement is reasonably possible, the parcels must be regarded as together forming rateable land and valued accordingly.

(7) If any person is liable to be rated in respect of 2 or more unoccupied parcels of land in the same municipal district and the parcels form one continuous area, the parcels must be regarded as together forming rateable land and valued accordingly.

(7A) If a portion of a parcel of land on which a building is erected is occupied separately, or is obviously adapted to being occupied separately, from other land in the parcel, that portion must be regarded as forming a separate rateable property and must be valued accordingly.

(8) If any portion of a parcel or parcels of land forming rateable land for the purposes of a municipal rate or of a rate to be levied by any other rating authority using the valuation is subject -

(a) to a rate levied in respect of that portion only; or

(b) to a differential rate which differs from the rate levied in respect of the remainder of that parcel or those parcels -

the value of the land must be apportioned so as to show separately the value of the portion.

(9) If land comprising one undertaking extends continuously beyond the boundaries of any municipal district the value, for the purposes of any rate, of so much of the land as is within any one municipal district, must be assessed as part of the value of the whole of the land.

21 The circumstances in which a supplementary valuation may be made are set out in s 13DF(2) of the VL Act. Relevantly, these circumstances include:

(j) [where] by reason of the erection or construction of buildings or other improvements on land or by reason of any physical changes of a permanent nature to land or improvements or by the making of roads or any other work of man or by favourable natural causes, the capital improved value, net annual value or site value of that land has been materially increased;

(k) [where] there has been a change in occupancy which affects the net annual value of the land;

22 Section 5A of the VL Act sets out some matters to be taken into account in determining the value of land:

(1) Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.

(2) In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.

(3) Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account -

(a) the use to which such land is being put at the relevant time, 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;

(b) the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;

(c) the shape size topography soil quality situation and aspect of the land;

(d) the situation of the land in respect to natural resources and to transport and other facilities and amenities;

(e) the extent condition and suitability of any improvements on the land; and

(f) the actual and potential capacity of the land to yield a monetary return.

23 Two further statutory provisions are relevant to the resolution of this appeal.

24 Section 38 of the Interpretation of Legislation Act 1984 provides that in all Acts, unless the contrary intention appears:

land includes buildings and other structures permanently affixed to land, land covered with water, and any estate, interest, easement, servitude, privilege or right in or over land;

25 Finally, s 154A(1) of the Property Law Act 1958 ('PL Act') provides:

A tenant who at his or her own cost or expense has installed fixtures on, or renovated, altered or added to, a rented premises owns those fixtures, renovations, alterations or additions and may remove them before the relevant agreement terminates or during any extended period of possession of the premises, but not afterwards.

This section does not apply to the extent that -

26 Apart from the evidence of the valuers, to which we refer below, the Court received lay evidence from Mr Stuart Liddell, the general manager of the Wind Farm, and Mr Ljubisa Petrovic, a structural engineer from GHD engaged by the Valuer-General, to give evidence in the proceedings.

27 Mr Liddell's evidence addressed various aspects of the Wind Farm operation, including the nature of the assets, the process of their installation, the likely future process for decommissioning and retiring the assets, and the contractual and financial arrangements underpinning the Wind Farm.

28 Mr Petrovic also gave evidence on the nature of the assets, addressing in particular the manner in which the wind turbines were fixed to the land and the reasons for doing so.

29 The background facts in the proceeding below were uncontroversial. They were largely derived from the Statement of Agreed Facts filed in the Tribunal and were, relevantly, as follows.

30 On 22 October 2010, the Minister for Planning granted two planning permits for the Wind Farm under pt 4 of the Planning and Environment Act 1987: Planning Permit 09/004799 was granted under the Ararat Planning Scheme; Planning Permit 5.2009.94.1 was granted under the Northern Grampians Planning Scheme.

31 The two permits are for all intents and purposes identical and allow

[u]se and development of land for a Wind energy facility comprising [70 and five] generators and associated infrastructure including access roads, cabling, permanent anemometers, internal powerlines, substations, excavation of rock material, earthworks, temporary concrete batching plants, maintenance and storage facilities, car parking, removal of native vegetation and alterations to roads and access to roads within a Road Zone Category 1.

32 AWF Prop Co, at its own cost and as tenant under the AWF Leases, installed all of the Wind Farm assets, which it owns. Those assets comprise, relevantly, the wind turbines (including foundations), a substation, a multipurpose management and administration building, a storage shed, a hazardous materials shelter, wind-monitoring masts, access roads and fences, underground electrical and communication cabling, and power and communication lines (collectively, the 'AWF Assets').

33 An Asset Register Report prepared by AECOM Australia Pty Ltd provides a summary of the Wind Farm construction and development costs. The total contract price under the contract for construction of the Wind Farm was $413,097,180, subject to adjustments in accordance with the construction contract. The total cost of developing the Wind Farm was $482,022,545. The construction and development costs were paid by AWF Prop Co. The Asset Register Report provides an allocation of the total development cost of $482,022,545 between the various AWF Assets.[8]

34 To fund construction of the Wind Farm, AWFPL (through its various corporate and trust entities) borrowed $200 million from its financiers.[9] A condition of the bank finance was that the banks were granted security over the AWF Assets. AWFPL and AWF Prop Co entered into several agreements with their banks to facilitate that arrangement, including:

(a) a 'Syndicated Facility Agreement' - which generally governed the relationship between the AWF entities and the banks and, relevantly, restricted the ability of the AWF entities to sell or dispose of the AWF Assets during the life of the agreement;

(b) 'tripartite deeds' between AWF Prop Co, each of the lessors under the AWF Leases, and the banks - which gave the banks the ability to take control of the Wind Farm, including the AWF Assets, in the event that the AWF entities did not comply with their financing obligations; and

(c) mortgages between AWF Prop Co and its banks in respect of each AWF Lease.

35 AWFPL's financiers also registered the securities granted to them on the Personal Properties Securities Register ('PPSR'). The securities are listed on the register as 'All PAP with Exception', standing for 'all present and after-acquired property except for any personal property of the grantor stated in the registration as being exempt'.

36 Each wind turbine is located on land leased by AWF Prop Co and sub-leased by AWFPL and comprises:

(a) a tubular steel tower, approximately 85 metres high;

(b) the nacelle, which houses the gearbox, a 3.2 megawatt wind turbine generator, controller, and other equipment, which is installed on the top of the tower; and

(c) three rotor blades, each 50 metres in length and weighing nine tonnes,[10] which are attached to a rotor hub connected to the nacelle.

37 Each tower is connected to either a rock anchored foundation or a mass gravity foundation. Of the 75 wind turbines, 41 are connected to mass gravity foundations and 34 are connected to rock anchored foundations.

38 The wind turbines are connected to the foundations for safety and operational reasons, including so that the wind turbines do not fall over in strong wind conditions. It would be unsafe to install, use or operate a wind turbine, and it would not be able to be operated for its intended purpose if it were not connected securely to a foundation, including in some cases rock anchors.

39 The components of the wind turbines were manufactured offsite and delivered to each site in a dismantled state. Each nacelle was manufactured and delivered as a single unit, which was bolted to the top of the tower structure onsite. The wind turbines were each assembled and installed on site in a matter of days.

40 The Wind Farm is located on a total area of 77 hectares across the two municipalities. The 77 hectares comprises:

(a) the AWF Leased Land, which is exclusively occupied by AWF Prop Co as tenant under the AWF Leases, and includes the land upon which the wind turbines, the wind monitoring masts, the substation, and various buildings are located;

(b) the AWF Road Land, being land licensed to AWF Prop Co by the land owners on which access roads are located; and

(c) the AWF Cable Land, being the land under which the underground electrical cables and communication cables are located.

41 The terms of the 16 AWF Leases are effectively identical. At trial, the parties agreed the following summary of their key terms:

62. The cover page to each AWF Lease states the 'land' that is leased to AWF Prop Co (i.e. the AWF Leased Land).

63. The cover page to eleven of the AWF Leases describes the 'land' as being:

Part of the land described in Certificate of Title... being the area marked A (Turbine Sites) in the attached plan and defined as the 'Premises' in clause 1.1.

64. The cover page to four of the AWF Leases describes the 'land' as being:

Part of the land described in Certificate of Title... being the area marked A (Turbine Sites) and B (Anemometer Site) in the attached plan and defined as the 'Premises' in clause 1.1.

65. The cover page to one of the AWF Leases describes the 'land' as being:

Part of the land described in Certificates of Title... being those areas also marked A (Turbine Sites), B (Anemometer Site), C (Electricity Sub-Station Site) and G (Operation and Maintenance Building Site) in the attached plan and defined as the 'Premises' in clause 1.1.

66. [In] the AWF Leases, the AWF Leased Land is referred to as the 'Premises'. For the purposes of describing the terms of the AWF Leases in [67]-[72], the term 'Premises' is used in order to be consistent with the terms of the AWF Leases. However, the terms Premises and AWF Leased Land both refer to the area of land leased (as opposed to licensed) to AWF Prop Co.

67. The term of the AWF Leases is generally 25 years. Under the AWF Leases, the lessee generally has an option to renew an AWF Lease for a further 25 year term.

68, Pursuant to the AWF Leases, the lessee agrees to pay any additional rates taxes assessments and outgoings which are, or which shall during the term, be imposed or charged upon the land by reason of the [Wind Farm] or the lessee's occupation of the Premises.

69. Pursuant to the AWF Leases:

(a) the lessee must, upon the expiration or sooner determination of the lease, remove the Turbines and any other apparatus, equipment or works of any nature erected or installed upon the Premises or the Development Area to a depth of 0.5 metres below the level surface of the soil at the cost of the lessee and to make good any damage thereby caused to the reasonable satisfaction of the lessor and leave the Premises in accordance with all statutory and other rules and regulations applicable to the Premises and in force at the expiration of the lease;

(b) the lessee shall not be required to remove the wind turbine foundations and the access roads.

70. Pursuant to the AWF Leases, the lessee must comply with all obligations of the lessor in respect of the Premises or pursuant to any planning obligations imposed by a relevant authority for the development, management, preservation or conservation of the land in connection with the [Wind Farm] and to indemnify the lessor from and against all costs, claims, liability and expenses arising from such obligations.

71. Pursuant to the AWF Leases, the rent is adjusted annually in accordance with the Consumer Price Index (All Groups) of the Commonwealth of Australia for the City of Melbourne in the State of Victoria.

72. Pursuant to the AWF Leases, the lessee can determine the term of an AWF Lease on not less than 6 months' notice in writing.

42 Of note is that AWF Prop Co must, at the end of the Lease and at its own cost, remove the wind turbines and every other thing erected or installed on the AWF Land to a depth of 0.5 metres below the surface and must make good any damage. This requirement does not apply to the turbine foundations or the roads. It is agreed between the parties that the access roads and fences will remain in place at the end of the AWF Leases and that there is no economic incentive to remove the wind turbine foundations.

43 Conditions 21 and 22 of the planning permits also provide for decommissioning the Wind Farm. Condition 21 provides:

The wind energy facility operator must, no later than one month after all wind turbines have permanently ceased to generate electricity, notify the Minister for Planning in writing of the cessation of the use. Within a further six months of this date, the wind energy facility operator, or in the absence of the operator, the owner of the land on which the relevant turbine(s) is/are located, must develop the decommissioning plan to the satisfaction of the Minister for Planning.

The decommissioning plan must provide for the following:

(a) the removal of all above ground operational equipment;

(b) the removal and clean-up of any residual spills or contamination;

(c) the rehabilitation of all storage, construction, access tracks and other areas affected by the project closure or decommissioning, if not otherwise useful to the on‐going management of the subject land;

(d) a decommissioning traffic management plan; and

(e) a post decommissioning revegetation management plan.

The decommissioning plan must be implemented to the satisfaction of the responsible authority within 24 months of approval of the plan or within such other timeframe as may be specified by the responsible authority.

45 Each wind turbine is demountable from the foundation and can be removed individually. In order to remove the wind turbines, the bolts connecting the tower to the wind turbine foundations are unscrewed and the wind turbine is dismantled by reversing the process by which it was installed. It takes approximately two days to remove each wind turbine. This can be done without any substantial damage to either the wind turbine, the foundation, or the land. There is no material impediment to removal of the wind turbines from their foundations or from the land.

46 However, the wind turbine foundations cannot be removed without disturbing the land.

47 The design working life of the wind turbines is between 20 and 25 years, and it is 25 years for all other AWF Assets. The AWF Leases expressly provide that, during the lease term, AWF Prop Co may maintain, remove, and replace the wind turbines, the substation, the wind-monitoring masts and the buildings.

48 Upon removal, some of the AWF Assets, such as the wind turbines, the substation, and the wind-monitoring masts, could be sold to a third party or re-used. There is a developing market in Australia for second hand wind farm assets, and a more mature market for those assets overseas, particularly in Europe. The first respondents have an incentive to sell the AWF Assets that they must remove at the end of the Wind Farm's life, for whatever sum they can recover, to offset the cost of removal.

49 The capital improved value of the land in question was the subject of expert evidence from three valuers:

(a) Geoffrey Brown of Sutherland Farrelly Pty Ltd, who provided valuation reports dated 17 September 2019 and 14 February 2020 at the request of the first respondents;

(b) Paul Newman of PW Newman Pty Ltd, whose disputed supplementary valuation dated 12 January 2018 was the subject matter of the proceeding. Mr Newman provided a further report dated 7 February 2020 at the request of the Valuer-General; and

(c) Peter Molloy of Property Dynamics, who provided valuation reports dated 20 September 2019, 7 February 2020, and 17 July 2020 at the request of the Valuer-General.

50 The valuers' evidence addressed three different valuation scenarios:

(a) Scenario A involved a fee simple sold by a hypothetical vendor with occupancy by a wind farm operator paying market rent, and the AWF Assets being either fixtures or chattels;

(b) Scenario B involved a fee simple sold by a wind farm operator but with AWF Assets being chattels; and

(c) Scenario C involved a fee simple sold by a wind farm operator but with AWF Assets being fixtures.

51 The respondents contended that the capital improved value of the land should be assessed using Scenario A, or alternatively Scenario B. The Valuer-General's position was that Scenario C should be used.

52 The valuations given by each of the valuers for each of the three scenarios are set out in the table below:

53 At the direction of the Tribunal, the three valuers met on 26 February 2020. They produced a joint statement following that meeting, which helpfully set out the matters on which they agreed, and identified the points of disagreement.

54 The primary judge noted that this process eliminated some potential sources of disagreement. In particular:

(a) The valuers agreed that the Wind Farm should be valued as single occupancy, defined by the 16 leases between the land owners and AWF Prop Co.

(b) Having valued the Wind Farm as a single occupancy, the valuers also agreed that its value should be apportioned between the two municipalities on the basis of estimated annual value. Because Mr Brown was not asked to assess estimated annual value, he apportioned by the number of turbines in each municipality. The valuers agreed that this method produced the same result as using estimated annual value, and that any variation was inconsequential.

(c) The valuers agreed that a difference between the annual rental figures used by Mr Brown and Mr Molloy was immaterial, and that the variation was effectively dealt with in the rounding of their calculations.

(d) The valuers also agreed that the influence of the power purchase agreement in place for the Wind Farm was to be ignored in valuing the land.[12]

55 The primary judge summarised the important points of disagreement between the valuers as follows:

(a) There was a different approach to the estate or interest in land to be valued. The valuers characterised this difference to be that Mr Brown valued the land owner's interest in the land, while Mr Molloy and Mr Newman valued the land on an unencumbered fee simple basis. [In fact, Mr Brown valued the land in the hands of the land owners on the basis that its highest and best use was to be leased to a wind farm operator, whereas Mr Molloy and Mr Newman valued the land as if it were owned by the wind farm operator.]

(b) Mr Brown did not have regard to the AWF Assets in assessing capital improved value, on the basis that the Assets are not owned by the land owners. Mr Newman and Mr Molloy considered them to be fixtures, and part of the land to be valued. This difference significantly affected their respective assessments of capital improved value.

(c) The valuers disagreed on whether the added value of the planning permits was included in the rents being paid under the AWF Leases. Mr Brown considered that it was, while Mr Newman and Mr Molloy took the opposite view. Because of this disagreement, the valuers did not agree on whether the leases were an encumbrance or whether they enhanced the value of the land. Mr Brown considered they were not burdensome, while Mr Newman and Mr Molloy considered them to enhance the value of the land beyond the rental paid under the leases.

(d) The valuers also disagreed on the usefulness of evidence of wind farm sales in assessing capital improved value, in particular, evidence of sales of operational wind farms. They agreed that, with the limited information that was publicly available about these sales, it was difficult to use the evidence to undertake a definitive analysis. They agreed that the goodwill factor was unknown, but disagreed on the extent to which this mattered. Mr Brown believed that this sales evidence was not useful in the valuation, and did not use it at all. Mr Newman made a substantial adjustment for this factor, while Mr Molloy made no adjustment.[13]

56 The primary judge answered the three questions referred to the Court by the Tribunal as follows:

Question 1: The Wind Farm occupancies are to be valued for the purposes of assessing capital improved value as separate occupancies created by the AWF Leases over the land owned by the individual land owners.

Question 2: The Wind Farm occupancies are to be valued by reference to a hypothetical sale of a fee simple interest in the land on the basis that the fee simple interest is not affected by any lease, but that does not require the AWF Leases to be disregarded. They are relevant in assessing the likely future occupation of the land and the market rental for that occupation.

Question 3: The above ground AWF Assets - the wind turbines, the substation, the wind-monitoring masts, and the buildings - are not part of the land to be valued for the purposes of assessing capital improved value. They are chattels, not fixtures, at common law. Even if they were fixtures, the effect of s 154A of the PL Act is to exclude them from the hypothetical fee simple estate to be valued. The remaining AWF Assets - the turbine foundations, the roads, fences and car park and the underground cabling - are part of the land to be valued.

57 As a consequence, the primary judge preferred Mr Brown's initial valuation to both Mr Newman's supplementary valuation and Mr Molloy's initial valuation. Her Honour found Mr Brown's valuation to be preferable because it responded to instructions that reflected the correct legal framework within which to assess the capital improved value of the land occupied by the Wind Farm.[14]

58 The primary judge gave the following reasons for preferring Mr Brown's initial valuation:

(a) Mr Brown correctly identified the occupancies to be valued, being the Wind Farm occupancies on the titles of each of the Land Owners, created by the AWF Leases. Mr Newman and Mr Molloy instead valued the AWF Land as a single occupancy, taking occupancy rather than title as their starting point.

(b) Mr Brown valued the AWF Land in accordance with the principles set out in Challenger, while Mr Newman and Mr Molloy did not.

(c) Mr Brown assessed the capital improved value of the AWF Land on the basis that the above ground AWF Assets did not belong to the Land Owners and were not part of the land to be valued. Both Mr Newman and Mr Molloy proceeded on the incorrect assumption that the AWF Assets were fixtures and were to be taken into account in assessing capital improved value.[15]

59 Furthermore, the primary judge rejected the Valuer-General's argument based on the premise that the wind turbines and associated infrastructure were 'improvements' for the purposes of the VL Act and therefore formed part of the land.

60 The final orders made by the primary judge on 21 January 2021 reduced the capital improved value of the AWF land within the rural city of Ararat as at 1 January 2016 from $470,400,000 to $14 million and noted, in 'other matters', that the reduced capital improved value reflected the cash flow sensitivity analysis undertaken by Mr Brown on the assumptions that AWF Prop Co will exercise its 25 year option to renew the AWF Leases and a discount rate of 5% applies, such analysis being detailed in Mr Brown's valuation report dated 17 September 2019.

61 The primary judge answered the questions referred by the Tribunal in the order in which they were presented. The Valuer-General has put in issue on appeal the answers given by the primary judge to each of the questions. However, it was common ground that the heart of the dispute is whether the AWF Assets form part of the land so as to be included in its capital improved value.

62 Indeed, although the application for leave to appeal and appeal concerns all three questions answered by the primary judge, unless the Valuer-General succeeds on both limbs of Question 3, the appeal must fail. The Valuer-General must persuade the Court that the primary judge erred in determining, first, that the above ground AWF Assets are chattels not fixtures and, secondly, that s 154A of the PL Act has application to the above ground AWF Assets as tenants' fixtures.

63 If the primary judge is correct and the AWF Assets do not form part of the land, it makes little or no difference whether the (rural) lands occupied by AWF Prop Co/AWFPL are valued as a single occupancy or as 16 separate occupancies. Furthermore, it can make little or no difference whether the (rural) land is valued as an estate in fee simple in the hands of the farmer or in the hands of AWF Prop Co/ AWFPL. The highest and best use of the land will be for use as a wind farm and its value will be determined by reference to a hypothetical sale, taking into account all the circumstances of the land, including its potential use as a wind farm.[16] However, it will not be appropriate in that scenario to treat the hypothetical sale as the sale of an operating wind farm.

64 It is therefore necessary to commence by considering the key issue in the appeal, which is whether the land to be valued includes the AWF Assets.

Question 3(i): Do the AWF Assets form part of the land to be valued?

65 The first respondents' position is that the above ground AWF Assets are not part of the land, first, because they are chattels at common law, and, secondly, by reason of the operation of s 154A of the PL Act.

66 In written submissions, the Valuer-General argued that all of the AWF Assets were fixtures and that s 154A of the PL Act did not apply because it was inapplicable to the valuation of land encumbered by a lease.

67 However, in oral submissions the Valuer-General went further to contend that the distinction between chattels and fixtures was irrelevant, as was s 154A of the PL Act, because it was necessary to compute the capital improved value of the AWF Land on the basis that all the AWF Assets were 'improvements' to the land. Mr Newton's valuation was a supplementary valuation, and such valuations may be made under s 13DF of the VL Act if there has been a material increase in the capital improved value of the land 'by reason of the erection or construction of buildings or other improvements on land'.[17]

68 Furthermore, the Valuer-General submits, s 5A(3)(e) of the VL Act requires, where relevant, land to be valued taking into account the extent, condition and suitability of any improvements. He submits that there is no occasion to apply the test of what constitutes fixtures, and that the improvements that must be valued are improvements on and for the benefit of the land. When asked how one determines whether items brought onto the land are improvements without a fixtures test, senior counsel for the Valuer-General referred to the definition in the VL Act of 'improvements' for site value purposes and submitted that it had application to capital improved value as well as site value. In this case, what constitutes 'fixed plant' as defined in cl 2.15 of the AWF Leases makes it clear that the 'work' the subject of the description is work done on and for the benefit of the land to a value of $480 million.

69 We reject the submission that the AWF Assets are simply to be treated as 'improvements' to the land and that whether they are fixtures or chattels is irrelevant. When assessing the capital improved value of land, it is necessary to first determine what is the land that is to be valued. It is trite that 'land' may include buildings, machinery and other items placed on the land. The common law of fixtures is determinative of whether an item placed or installed on land comes to form part of the land. That is confirmed by the definition of 'land' in s 38 of the Interpretation of Legislation Act 1984, which relevantly provides that 'land includes buildings and other structures permanently affixed to land'. In this case, the wind turbines and associated equipment brought onto the land will form part of the land if they satisfy the legal test for fixtures.

70 We also reject the proposition that the VL Act definition of 'improvements' captures the AWF Assets for the purpose of determining the capital improved value of the land. The VL Act definition is expressed to be for site value. It is a lengthy definition that includes a number of specific exceptions that may or may not be relevant to whether something is an improvement for the purposes of computing the capital improved value of land. It is unhelpful (and wrong) to simply assert, as the Valuer-General appears to do, that anything brought onto the land is 'work done for the benefit of the land'. A proper legal analysis is required in order to determine whether the wind turbines and other above ground AWF Assets are fixtures and thereby form part of the land to be valued.

71 The primary judge correctly considered whether the AWF Assets formed part of the land to be valued by applying the law that distinguishes fixtures and chattels.

72 Her Honour recorded that all three valuers accepted that the wind turbine foundations and the access roads were fixtures that would remain in place after the AWF Leases had ended and that they were to be taken into account in assessing the capital improved value of the land. It was likely that the underground cabling would also fall into this category. The disagreement concerned the status of the wind turbines, the substation, and the wind-monitoring masts and buildings, which her Honour referred to as the 'above ground AWF Assets'.

73 The primary judge gave seven reasons for concluding that the above ground AWF Assets were chattels that did not form part of the land to be valued:

I accept that the wind turbines and the other above ground AWF Assets are very firmly attached to their foundations, and that the foundations may be considered to be part of the land. I also accept that they have been securely fixed to the land in order to generate electricity using wind energy, as component parts of an interconnected wind farm. However, the evidence compels the conclusion that these assets were not attached to the land with the objective intention that they become part of it. There are a number of reasons why that is so:

(a) First, the planning permits require the removal of the above ground assets when the Wind Farm is decommissioned. The obligation to decommission the Wind Farm rests primarily with the Wind Farm operator but, in the absence of the operator, it falls to the relevant Land Owner to develop and implement the decommissioning plan. The planning permits were in place before AWF Prop Co entered into the AWF Leases with the Land Owners, and before the Wind Farm was constructed. From the outset, the planning permission that enabled the development of the AWF Land as a Wind Farm required that the turbines and other above ground assets were not to be permanently affixed to the land.

(b) Second, the AWF Leases oblige AWF Prop Co to remove the above ground AWF Assets at the end of the lease. Before the Wind Farm was constructed, each of the Land Owners had agreed with AWF Prop Co that the foundations and access roads would remain, but that everything above ground must be removed when the lease ends.

(c) Third, the AWF Assets were installed by AWF Prop Co at its own cost, in the order of $480,000,000. They appear on its assets register and in its financial statements. They are part of the security provided for the $200,000,000 loaned by AWF's banks to fund the construction of the Wind Farm. There is no suggestion that any of the Land Owners asserts ownership of the above ground AWF Assets on their land. To the contrary, in the AWF Leases, the Land Owners acknowledge the interest of AWF Prop Co's financiers, and agree if requested to enter into a 'Tripartite Deed' to protect the financiers' rights.

(d) Fourth, the above ground AWF Assets are all designed and installed in such a way that they can be removed from the AWF Land without damaging either the land or the assets. This was confirmed by Mr Petrovic's report.

(e) Fifth, the design working life of the wind turbines is between 20 and 25 years, and 25 years for all other AWF Assets. This corresponds with the term of the AWF Leases, and is a further indication that it was not intended to permanently affix the assets to the land.

(f) Sixth, the AWF Leases permit AWF Prop Co to 'erect maintain repair renew replace and use or remove' the turbines, the substation, and the wind monitoring masts during the lease term. Mr Liddell's evidence was that, as the AWF Assets reach the end of their design lives, they would increasingly suffer from wear and tear and would require maintenance and, in some cases, replacement. Over time, it would become uneconomical to use the current AWF Assets. He said that exercising the option to extend the AWF Leases for a further 25 years would probably involve rebuilding the whole Wind Farm.

(g) Seventh, the above ground AWF Assets could, if removed, be redeployed at another wind farm site, or sold on the developing market for second-hand wind farm parts. While it is not possible to predict whether their value would exceed the cost of removing them from the AWF Land, I accept that they would have some residual value after removal.[18]

74 The primary judge considered it to be significant that the above ground AWF Assets were installed on land that was leased. The AWF Assets were placed on the land by the lessee, under leases that required their removal on termination. She said:

Every indication is that the parties to the AWF Leases intended that the above ground AWF Assets would remain the property of AWF Prop Co, and would not become part of the land and hence the property of the Land Owners.[19]

75 The primary judge noted that the valuers had agreed that the highest and best use of the land was as a wind farm and that the installation of the AWF Assets achieved that use. However, she identified 'a subtle but important difference' between Mr Brown's articulation of the highest and best use and that of Mr Newman and Mr Molloy: Mr Brown's opinion was that 'the leasing of the Land by the lessee for a wind farm represents the highest and best use of the AWF Land'; whereas Messrs Newman and Molloy took the view that the highest and best use of the land was as a wind farm, each assuming that the operator of the wind farm was the owner of the land. Hence, both Mr Newman and Mr Molloy hypothesised the sale of the AWF Land by a wind farm operator that owned both the land and the AWF Assets.

76 The primary judge identified a number of flaws in the approach taken by Mr Newman and Mr Molloy. She held that in identifying the 'occupancy', it was necessary to begin with the title to the land and to value the land on an unencumbered fee simple basis. None of the wind farm sales upon which Mr Newman and Mr Molloy relied for their direct comparison analysis involved the sale of a fee simple interest in the land on which the wind farms were located. In each case, they involved the sale of leasehold interests. Her Honour concluded that Mr Newman and Mr Molloy had incorrectly valued the aggregate leasehold interest held under the AWF Leases rather than the hypothetical fee simple estate in the AWF Land. She continued:

This was most apparent in the calculations of site value and capital improved value set out in Mr Molloy's first report. In each case he first determined the per megawatt value of the leasehold interest, by reference to comparable wind farm sales. To this he added the value of the 'lessor's interest', which he calculated by capitalising the annual rent payable under the AWF Leases. Mr Molloy considered that the 'unencumbered fee simple' includes both the lessor's interest and the lessee's interest, and that it was necessary to value both interests. That approach is difficult to reconcile with the legal concept of a fee simple estate in land, and with the principles set out in Challenger. It also appeared to me to involve double counting, given that an orthodox method of valuing the unencumbered fee simple estate in a property that is leased is simply to capitalise the market rent for the property. It was notable that Mr Newman did not add any amount for the 'lessor's interest' in undertaking his initial supplementary valuation in January 2018.[20]

77 The primary judge noted that her finding that the above ground AWF Assets did not form part of the land was consistent with two binding rulings issued by the Australian Taxation Office concerning wind farm assets located on leased land.[21] Both rulings were to the effect that the wind farm assets are not 'real property situated in Australia' or taxable real property for the purposes of s 855.20 of the Income Tax Assessment Act 1997 (Cth). In both rulings, it was significant that the lease terms required removal of the wind farm assets at the end of the lease.

78 The Valuer-General's notice of appeal contends that the primary judge erred in holding that the above ground AWF Assets are chattels and not part of the land to be valued as capital improved value for the following reasons:

(a) the primary judge weighed evidence regarding the subjective intention of the parties instead of applying the common law test requiring an objective assessment of the purpose or object of affixation;

(b) the existence of a requirement under the planning permits for the preparation of a decommissioning plan that provides for the removal of the above ground assets was not capable of affecting the underlying status of the AWF Assets as fixtures or chattels;

(c) having found that the turbine foundations, roads, fences, car park and underground cabling were fixtures, the primary judge should have held that the above ground AWF Assets were also fixtures at common law and part of a single integrated facility; and

(d) the primary judge should have held that a 25 year lease term (with an option for a further 25 year term) was sufficiently permanent for an asset to be a fixture.[22]

79 In his written submissions (presumably drafted before he pivoted to asserting that the AWF Assets were improvements rather than fixtures), the Valuer-General submitted that while the primary judge accepted that the wind turbines and other above ground AWF Assets were very firmly attached to their foundations and that the foundations could be considered to be part of the land, she erred in concluding that they were not attached to the land with the objective intention that they become part of the land. Having found that the turbine foundations, roads, fences, car park and underground cabling were fixtures and formed part of the interest in land to be valued, the above ground AWF Assets should also have been held to be fixtures and part of a single integrated facility. There was no basis and no authority was cited for the approach of splitting a single asset into part fixture/part chattel.

80 The Valuer-General further submits that in holding that 'the planning permits require the removal of the above ground assets when the wind farm is decommissioned', the primary judge erred. He submits that the fact that the planning permits require a Decommissioning Plan to be prepared and then implemented to the satisfaction of the Minister for Planning is not capable of affecting the underlying status of the AWF Assets as fixtures or chattels, as the requirement is not enlivened until after the Wind Farm is decommissioned, and there is no evidence that this was planned for at the relevant date of 1 January 2016, save for the fact that the AWF Leases will end and the expected life of the equipment is 25 years.

81 The Valuer-General submits that the primary judge assessed the authorities on fixtures in light of the relevant land tenure, while the test required an assessment of the object of annexation, not the subjective intention of the parties discerned from the clauses of the AWF Leases or other circumstances. Observable facts properly override conclusions based on private beliefs or intentions, especially in the hypothetical assessment. Moreover,

[a]greements between the owner of an item brought onto the land and the owner of the land, about whether the item is to be a chattel or fixture, cannot prejudge the interest of third parties in the land, such as later purchasers or mortgagees, or the claims of fiscal authorities.[23]

82 According to the Valuer-General, a 25 year lease term with an option for another 25 years, plus potential over holdings, is sufficiently permanent for an asset attached to the leased premises to be a fixture.[24] The Valuer-General points to authority in which it was held that items of equipment were fixtures even though they were brought onto land for a limited period, and where there was a lease term of only five years.[25]

83 The Valuer-General now relies, in particular, on the recent decision of the Supreme Court of New South Wales in SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue.[26] In SPIC, Payne JA considered whether plant and equipment installed at the Taralga wind farm were fixtures for the purposes of assessing landholder duty under chapter 4 of the Duties Act 1997 (NSW). The Taralga wind farm operated 51 wind turbines which appear to be the same as or very similar to the AWF wind turbines. The land on which the Taralga turbines were situated comprised freehold properties and leasehold interests arising from leases between the wind farm operator and private land owners and a lease from the State of New South Wales. Each lease was for a term of 30 years.[27] As here, the land was predominantly cleared farm land used for sheep or cattle grazing.

84 Payne JA held that the plant and equipment of the Taralga wind farm, including the wind turbines, were fixtures.

85 SPIC was published shortly after the judgment that is the subject of this appeal and discusses and rejects the reasoning of the primary judge. This Court is urged by the Valuer-General to follow the reasoning in SPIC and reject the primary judge's characterisation of the above ground AWF Assets as chattels.

86 The law of fixtures is relatively well established. In TEC Desert Pty Ltd v Commissioner of State Revenue (WA),[28] the High Court of Australia, when considering whether power generation assets used in mining operations were fixtures forming part of the land, restated the fundamental principle that 'whatever is attached to the soil becomes part of it'[29] and endorsed the statement of Conti J in National Australia Bank v Blacker[30] that

[w]hether an item has become a fixture depends essentially upon the objective intention with which the item was put in place. The two considerations which are commonly regarded as relevant to determining the intention with which an item has been fixed to land are first, the degree of annexation, and secondly, the object of annexation.[31]

87 The key to determining whether the above ground AWF Assets are fixtures or chattels is the objective intention with which they were put on the land, which is to be ascertained by reference to the degree of their annexation to the land and the purpose or object of that annexation.

88 In Blacker, Conti J referred to the 'abundance of authorities generally to the effect that the relevant intention is to be determined objectively from such facts and circumstances that are "patent for all to see", and not by reference to subjective intention'.[32] His Honour went on to say that in determining the purpose or object of annexation, the Court ought as a general rule to have regard to:

(a) whether the attachment of the item was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached;

(b) whether the item was to be in position either permanently or temporarily; and

(c) the function to be served by the annexation of the item.[33]

89 As to the degree of annexation, Conti J identified the following considerations as relevant:

(a) whether removal would cause damage to the land or buildings to which the item is attached;

(c) whether removal would destroy or damage the attached item; and

(d) whether the cost of renewal would exceed the value of the attached item.[34]

90 In Agripower Barraba Pty Ltd v Blomfield,[35] Sackville AJA (with whom Bathurst CJ and Beazley P agreed) referred to more recent adaptions in the law of fixtures, one of which has been to modify the emphasis on the degree of annexation of chattels to the land in favour of 'the more amorphous concept of the purpose or object of annexation'.[36]

91 In this case, having regard to the considerations identified by Conti J, notwithstanding the size and weight of many of the above ground AWF Assets (in particular, the wind turbines), the degree of annexation does not support an objective intention that the AWF Assets form part of the land. The evidence established that removal would not cause damage to the land or the items themselves or any other property on the land, removal would not be a lengthy or difficult task and the cost of renewal would not exceed the value of the AWF Assets. Their value was not necessarily exhausted by their tenure on the land.

92 The main area of dispute in this appeal concerns the primary judge's approach to determining the object or purpose of annexation. It is submitted that the primary judge erred in the way in which she took into account the terms of the AWF Leases and AWF Prop Co's largely unfettered right to remove the AWF Assets from the land at any time, along with its obligation to do so at the end of the AWF Leases.

93 In SPIC, Payne JA concluded that wind farm assets that were relevantly the same as or very similar to the AWF Assets were fixtures. He did so on the basis that the wind turbines and associated plant and equipment were part of an integrated electricity generation facility, that the turbines and their concrete foundations needed to be considered as a whole, and that none of the items had a functional use independent of the wind farm operation conducted on the land. His Honour found that the function served by the annexation of the items on the land was the use of the land as a wind farm and that every item was fixed in place on the land for the better enjoyment of the land as an integrated wind farm operated on the land. The location of the turbines was based on wind assessment and a characteristic of the land, including the airspace above the land, was that the wind blew at a speed conducive to the operation of a wind farm at 80 metres above the land.

94 Payne JA did not regard the terms of the leases as determinative of the objective question of the purpose of annexation, although he considered that the lease terms provided SPIC with its strongest argument that the items of plant and equipment remained chattels. He found that the obligations contemplating that equipment would be affixed to the leased land and that most, but not all, of the items would be removed at the conclusion of the leases were consistent with the objective intention of the annexation that the items would only be removed when they had exhausted their useful life. Payne JA was not persuaded that, no matter how firmly relevant plant and equipment was affixed to the land and regardless of the objective purpose of the annexation, a requirement for remediation at the conclusion of commercial and industrial undertakings meant the items were not fixtures.[37]

95 The importance attributed to the lease arrangements and the extent to which they shed light on the objective intention of the parties as to the permanence or otherwise of the affixation is the principal reason for the difference in outcome between SPIC and the decision below.

96 Payne JA considered that, while the terms of the development consent (the permits) and the leases were relevant factors in addressing the object of annexation, they should not be given determinative weight 'as was apparently the case' in AWF Prop Co.[38] The fact that a lessee owns the plant and equipment which it attaches to the leased land was also 'relevant but not determinative'[39] and, likewise, the intention of the party making the improvement ultimately to remove it from the premises was not 'a controlling fact'.[40] Payne JA was of the view that the fact that the design working life of the AWF wind turbines was between 20 and 25 years, and was 25 years for all the other AWF Assets, supported the conclusion that the plant and equipment were fixtures. They were affixed to the land with the intention that they remain in position for at least a 'substantial' period of time rather than for 'some temporary purpose'.[41]

97 We consider that Payne JA has overstated the primary judge's reliance on the lease arrangements. The AWF Leases and the planning permits were neither alone nor together 'determinative' of whether the AWF Assets were fixtures or chattels. They were, however, correctly identified by the primary judge to be important considerations in ascertaining the object or purpose of annexation. The fact that the land owners and AWF Prop Co have agreed that the AWF Assets (or at least the above ground AWF Assets) can be disassembled and removed from the land at any time is part of the framework in which the objective intention of the parties as to whether the AWF Assets are to form part of the realty is to be assessed.[42]

98 Authority of this Court supports the potential importance of lease arrangements in this context.

99 In Commissioner of State Revenue v Uniqema Pty Ltd,[43] the issue was whether power-generating plant and equipment were fixtures, so as to determine whether their value should be reflected in the stamp duty payable upon the sale of the land. The land contained a chemical manufacturing business, but the relevant plant and equipment were used for generating power and were located on a portion of the land which had been leased to a power generator for that purpose. The power generated was used by the chemical manufacturing business, but the lessee could (and did) also sell power to other electricity suppliers. The plant and equipment were substantial and complex, and had been bolted to a concrete slab to prevent them from being taken. The lease provided that the lessee owned all improvements and fixtures, and gave the lessee the right to remove them during the term of the lease and for one month after its expiry.

100 The Court held that the plant and equipment were not fixtures. Ormiston JA (with whom Phillips and Callaway JJA agreed) emphasised that it was not the degree of annexation, substantial as it was, that distinguished that case. Rather, it was the object of annexing the plant and equipment. His Honour considered the lease to be significant to determining the object of annexation in several ways:

First, although the original term is extensive in duration, any renewal depends upon agreement between the parties - it is not simply a commercial choice for the tenant. Secondly, the terms of the lease ... were such as to make it abundantly clear that not only did the tenant have the right to remove the plant and equipment at the end of their commercial arrangement, but that it was under an obligation to do so. In terms of intended permanence, or the contrary, there could be no more emphatic statement of the parties' objects in allowing the plant and equipment to be brought onto the land than their mutual desire to see it removed at the end of that relationship. Thirdly, the landlord agreed that all improvements and fixtures remained property of the tenant, regardless of the degree of annexation. Fourthly, the object of annexation was not related to any enjoyment of the land for the tenant's own purposes: rather the plant and equipment was brought on solely to produce power for the landlord.[44]

101 It will be seen that, of the four considerations, the second was expressed in particularly forceful language. The lease was significant in determining whether the assets were fixtures or chattels because it shed light on the permanence or otherwise of the affixation. By analogy, in terms of intended permanence, there could be 'no more emphatic statement' of the land owners' and AWF Prop Co's objects in allowing the AWF Assets onto the land than their mutual desire to see the AWF Assets removed at the end of the relationship. Indeed, the AWF Leases contemplated their removal even during the term of the Leases.

102 In SPIC, Payne JA dealt with but downplayed the significance of these considerations and focused on the remarks that followed, namely, that 'nevertheless, ... in the very special circumstances of this case, the Co-Gen plant and equipment were not fixtures...' to conclude that Uniqema was of no assistance to him. According to Payne JA, the critical feature of Uniqema, so far as the object of annexation was concerned, was that the 'land was leased for the purpose largely unrelated to the tenant's own business and its needs'.[45] His Honour also concluded that the tenant's right to remove the electricity generating assets during the currency of the lease and the obligation to do so at the conclusion of the lease were quite different from the rights and obligations before him.

103 Payne JA highlighted the fourth of Ormiston JA's considerations, that the land was leased for a purpose largely unrelated to the tenant's own business and its needs, in circumstances where his Honour's language emphasised the second consideration, namely, the terms of the lease, which conferred both the right and the obligation to remove the equipment.

104 Although not on all fours with the present case, Uniqema has many similarities and, at the very least, points to the relevance for the chattels/fixtures inquiry of the removal right and, more generally, the legal arrangements between the land owner and the owner of the plant and equipment.

105 The complex balance between the expressed intentions of the parties and their objective intention determined by reference to 'what is patent for all to see' was explored by Mahoney JA in N H Dunn Pty Ltd v L M Ericsson Pty Ltd.[46] Having carried out a comprehensive review of the law of fixtures and chattels, his Honour said:

The actual or subjective intention of the parties and, a fortiori, of one of them, is, no doubt, not conclusive as to the status of the chattel. But I do not think that the intention of the owner of the chattel is irrelevant.[47]

106 After quoting passages in the judgments of O'Connor J in Reid v Smith[48] and Walsh J in Anthony v The Commonwealth,[49] Mahoney JA continued:

There are, in my opinion, distinctions which must be made. Whatever be the correct formulation of the fact to be proved in such disputes, it is not whether the owner of the chattel or any other person subjectively intended that it should or should not become part of the realty. Therefore a statement of the intention as to that particular matter is not a statement tending, as such, to prove the fact to be proved. But that intention, as such, is not necessarily irrelevant. Whether the question of whether chattels have become part of the realty is a question of fact ... or a conclusion of law, various matters have been seen as of assistance in the final determination of it. The period of time for which the chattel was to be in position, the degree of its annexation to the land, what was to be done with it, and the function to be served by its annexation, are all matters which have been seen to be relevant for this purpose. In particular circumstances, statements made by the owner of the chattel or of the realty as to his intention that the chattel shall or shall not be part of the realty may, if appropriately proved and evidenced, be relevant as facts probative of such matters.[50]

107 In Blacker, after stating that the relevant intention is to be determined objectively from such facts and circumstances that are 'patent for all to see' and not by reference to subjective intention, Conti J said:

Despite this, there are some modern authorities which would leave room for recourse to actual and hence subjective intention. This may be more accurately limited to the extent that it would assist the Court to determine the level of permanence or temporariness for which the item is intended to remain in position and the purpose to be served by its affixation or annexation ... Indeed Professor Butt in his article '"Near enough is not good enough" or "We know what you mean"' (1997) 71 ALJ 816 at 821 has commented that:

While private agreements concerning the intended status of an item as chattel or fixture are not permitted to prejudice the interests of third parties, it is difficult to see why the courts should discount the parties' actual intentions where no third parties are involved.[51]

108 In this case, the relevant third parties (aside from the public authorities concerned with rating, land tax and stamp duties) are AWFPL's financiers, who have an interest in the AWF Assets remaining the property of AWF Prop Co and have entered into arrangements with the land owners to ensure that this remains the case.

109 Pegasus Gold (Australia) Ltd v Metso Minerals[52] was another case involving the status of heavy plant and equipment bolted onto concrete slabs, where there was both a contractual and statutory obligation to remove the plant and equipment at the end of the lease. The Court of Appeal of the Northern Territory found that all of the plant could be removed without causing any damage to the land and that it was an economic proposition to sell and relocate that equipment, as was common mining industry practice. Further, the function to be served by annexing the plant to the soil was to stabilise it so that the equipment could be used as equipment with the consequence that the purpose or object of the annexation was not for the better enjoyment of the mineral lease. The Court concluded that the plant and equipment were not fixtures.

110 Mildren J commented that although it was sometimes appropriate to take into account the subjective intention of a party fixing a chattel to land, usually the relevant test was to be determined objectively from such facts and circumstances that are apparent for all to see. His Honour accepted that as between, for example, a landlord and tenant, the actual intentions of the parties might well be critical if there was a common intention. However, in the case before him, there were no findings as to what were the actual intentions of either party and therefore the appropriate test as to the intention was to be ascertained from the objective facts and circumstances.[53]

111 More recently, in Power Rental Op Co Australia LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs appointed),[54] the New South Wales Court of Appeal considered whether four mobile gas turbine generators leased from one company to another for the purposes of a power station had, once installed, become fixtures. The turbines were designed to be demobilised and moved to another site easily and in a short time. They were mounted on trailers that retained their wheels. The turbines were only intended to be in position on the site, which was a temporary power station, for a rental term of two years.

112 In considering the degree of annexation, Ward JA (with whom Bathurst CJ and Beazley P agreed) identified the two aspects of physical affixation that were most relevant in that case: the electrical/fuel connections; and the connection that was a function of the seismic and wind kits. Her Honour concluded that the connection by means of the seismic and wind kits was one that was for better enjoyment or use of the turbines themselves in order to stabilise them in the event of a cyclone. As for the electrical/fuel connections, the connection through which electricity generated by the turbines was delivered to the power station grid was 'for the purpose of the use of the land as a power station'. However, in ultimately concluding that the turbines were chattels, Ward JA regarded as highly relevant the fact that the electrical/fuel connections were designed to be reversible or detachable, much like a plug in an electric socket.[55]

113 As to the object or purpose of the annexation, Ward JA emphasised that the lease was intended to be operative for a relatively short and finite period. While she rejected the proposition that the temporary nature of the affixation was itself determinative, she held that the permanence or otherwise of the affixation was a relevant matter to be taken into account.[56]

114 Ward JA considered the submission that statements made by the owner of the chattel or the owner of the realty as to the intention that the chattel should or should not be part of the realty could, if appropriately proved and evidenced, be relevant in the determination of the ultimate fact to be proved.[57] It had been submitted that where the intention of the parties who brought or consented to the bringing of the chattel onto the land is reflected in an agreement governing their rights and obligation to deal with the chattel, that statement of intention may be of significant weight. Her Honour ultimately accepted that the common intention of the parties, objectively ascertained, was capable - if appropriately proved - of shedding light on the purpose of the annexation of the chattel in question.[58]

115 Accordingly, we consider that the primary judge was correct to have regard to the terms of the AWF Leases and the right and obligation to remove the above ground AWF Assets as relevant to her finding that they are chattels. It is not correct, as submitted on behalf the Valuer-General, that the primary judge weighed evidence regarding the subjective intention of the parties instead of applying the common law test requiring an objective assessment of the purpose or object of affixation.

116 There are several matters of factual significance relating to the degree and the object or purpose of annexation in this case. The evidence before the primary judge established the following.

117 The wind turbines were manufactured offsite, delivered in a dismantled state and assembled and installed onsite in a matter of days. The nacelles were likewise manufactured offsite, delivered and then bolted onto the towers onsite.

118 The towers and turbines, blades and nacelles are bolted onto the stands so as to be demountable and ready for removal in due course. That removal can take place in about two days per tower, without damage to any of the equipment or to the foundations on the land.

119 Under the AWF Leases, AWF Prop Co is required to remove the above ground AWF Assets at the end of the Leases and to make the land good, having effectuated the removal. AWF Prop Co is entitled to end the AWF Leases at any time on six months' notice.

120 During the term of the AWF Leases, AWF Prop Co is entitled to remove any or all of the AWF Assets at any time. The removal term is expressed not just in the language of removal, but it refers explicitly to 'replace', 'repair', 'alter' and 'remove'. Accordingly, if the market changed and the items could be deployed more efficiently elsewhere (where, for example, there was more demand for power or more suitable wind), they could be moved, both physically and legally. The objective circumstances, including the parties' agreements and the planning permissions, facilitate and provide for such deployment.

121 The requirement to remove the AWF Assets at the end of the AWF Leases is consistent with cls 21 and 22 of the planning permits. The Decommissioning Plan, among other things, must provide for the removal of all equipment and the rehabilitation and revegetation of the land. The existence of that requirement in the planning permits is not determinative of the underlying status of the above ground AWF Assets as fixtures or chattels and was not treated as such by the primary judge.

122 The evidence before the primary judge was that the wind turbines (and the various parts thereof), the substation and masts had the potential to be sold to a third party or re-used. The evidence of Mr Dalton, referred to by the primary judge, was that the secondary market for wind farm equipment is developing.

123 Accordingly, while there might be an expectation of the long-term use of the AWF Assets on the Wind Farm site, it is also evident that that may change if there is technological change, or a change in the market. The individual items may be replaced with more efficient machinery or simply moved elsewhere due to changing commercial circumstances or the availability of a better location.

124 Unsurprisingly, there was no suggestion in the evidence that any of the land owners asserted ownership rights in respect of any of the above ground AWF Assets. The AWF Assets are recorded in AWF Prop Co's books and records as its assets and they are held by it subject to securities granted to the financiers, which are in turn registered on the PPSR. No party interested in the arrangements for the installation of the above ground AWF Assets on the land has expressed any expectation that ownership of the AWF Assets would be transferred to the land owners by becoming part of the land. Pursuant to the tripartite deeds, the land owners acknowledge that the ownership of the AWF Assets remains with AWF Prop Co as the lessee, such that the financiers have rights with respect to the AWF Assets in the event of default on the loan agreements.

125 We consider that it was well open to the primary judge to find that when the AWF Assets were installed on the land, there was no objective intention that they become part of the realty. They were installed on the basis that they would be removed from the land at the end of the Leases or earlier, depending on AWF Prop Co's requirements. They were installed so as to facilitate their removal without damage to them or the land. Moreover, it was the first respondents' evidence that the cost to remove the turbines and other items would not be greater than their value, given their capacity for future use elsewhere.

126 These factors, and the leasehold context more generally, serve to distinguish this case from many of the authorities relied upon by the Valuer-General and referred to by Payne JA in SPIC. The circumstance that the items came onto the land in the context of a leasehold arrangement is absent in a number of those cases. National Dairies WA Ltd v Commissioner of State Revenue[59] and Commissioner of State Revenue v Snowy Hydro Ltd[60] did not involve leased land. The entity that installed the items on the land in those cases did not do so as a tenant who was entitled to remove them at any time or was compelled to remove them at the end of the arrangement with the land owner. In our view, to describe these authorities as supportive of the broad proposition that plant and equipment are fixtures if affixed to land as part of the long-term use of the site for commercial or industrial purposes obscures the important leasehold context and the specific terms of the AWF Leases that are part of the objective circumstances in this case.

127 As to whether the above ground AWF Assets were affixed to the land for the better use of the land or for the better use of the items themselves,[61] the evidence establishes that the reason the wind turbines are bolted onto the foundations is to prevent them from falling over. Affixation is physically necessary for them to operate. It is open to infer that if they could be operated safely and efficaciously without being bolted to the land, they would be free-standing. The parties agreed that the wind turbines are connected to the foundations for safety and operational reasons, including to ensure that the wind turbines do not fall over in strong wind conditions. It would be unsafe to install, use or operate a wind turbine, and a wind turbine would not be able to be operated for its intended purpose, unless it was connected securely to a foundation.

128 The position is analogous to that in Downing v WIN Television (NSW) Pty Ltd,[62] where a radio tower was found not to have been installed on land with the intention of improving the land. The tower was affixed to the land in order to stabilise the tower. While the wind turbines benefit from the position and elevation of the land on which they are situated, they are affixed to the land so that they can effectively operate as wind turbines and generate electricity. The fact that the land on which the Wind Farm is located is suitable for a wind farm is no more relevant to the question of whether the turbines are fixtures or chattels than is the fact that the top of a mountain might be a good place on which to install a wind monitor.

129 As to the integration of the AWF Assets, we reject as untenable the submission that if a foundation is a fixture, then anything attached to that foundation must also be a fixture. There are many examples to the contrary. Heavy plant and equipment is often secured on a concrete slab. We were not referred to any authority for the proposition that where the slab is a fixture, the item that is bolted onto it is also a fixture. To the contrary, this would render otiose the enquiry concerning the purpose and object of the annexation.

130 The above ground AWF Assets form part of a single power generating facility. They were installed on the land for that specific purpose. However, they are not homogenous and the degree of integration of the individual items is limited. There is a connection by cable and by road between the substations, the buildings and the wind turbines. However, each wind turbine functions as an asset in its own right and does not rely on the other turbines in order to function. As the wind turbines are not interdependent, any one or more of them can be shut down while others remain in operation. AWF Prop Co can at any point remove turbines - whether for replacement, repair, refurbishment or simply to reduce the number of turbines. Clearly the substations, buildings and cabling have no purpose without operational turbines, but they are not dependent on there being a particular number of turbines.

131 In our view, the extent of integration does not speak to the AWF Assets being fixtures. This is particularly so having regard to the fact that the operator can come onto the land pursuant to its leasehold rights and, in a matter of just a few days, take out important items - one or more of the wind turbines - without impact on the other items. This facility distinguishes this case from National Dairies and Snowy Hydro, as well as two further authorities referred to by Payne JA in SPIC, Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd[63] and Metal Manufactures Ltd v Commissioner of Taxation.[64]

132 Payne JA considered Vopak (FCA) to be an authority of some importance in considering whether the wind turbines and associated plant and equipment were fixtures.

133 In Vopak (FCA), the Federal Court of Australia considered whether items comprising a biodiesel plant had become fixtures. The items included interconnected pipe work, above and below ground tanks, cooling towers, steel bridges and various buildings, including an electrical switch room and boiler house. They were installed by a sublessee, pursuant to a sublease which provided that, before termination of the sublease, it had to remove its 'property (including but not limited to all facilities associated with the installation of the biodiesel plant)' from the land.

134 Lindgren J held that the relevant items were tenant's fixtures and therefore formed part of the land.[65] The items were affixed by steel and concrete, the degree of affixation was general and extensive, and the items were closely interconnected. Detachment would be a difficult, lengthy and expensive process. The object of the affixation was the use of the premises as a whole as a biodiesel manufacturing plant on a long term basis. Lindgren J held that it was not to the point that the relevant lease agreements were for a finite period, or that the sublessee had a right to remove the items, or that the items were physically capable of being removed - these features being common to many tenant's fixtures. Being tenant's fixtures, the sublessee had the right to remove them; however, that right was governed by the sublease itself, and so had expired on the termination date specified in the sublease.

135 In this case, the object of affixing the above ground AWF Assets to the land is to enable them to be used in a wind farm, and the number and type of turbines may be varied, as the tenant has the right to remove and/or replace them at any time during the term of the AWF Leases. Significantly, the degree of affixation is neither general nor extensive and de-installation and removal is not a difficult, lengthy or expensive process.

136 The position of the AWF Assets is also to be contrasted with the plant and equipment in Metal Manufactures, where the degree of annexation meant that the removal of the items would require jack hammering concrete footings, damage the floor and necessitate dismantling part of the buildings to enable access to the various items.[66] It would also involve some scrapping of components and would take a considerable period of time - in the order of several months - to complete. Emmett J considered that such a high degree of attachment pointed to the conclusion that the intention, objectively ascertained, in placing the plant and equipment on the land was that they would become part of the land. Moreover, it was clear that, properly maintained, the items could last indefinitely, which led to the conclusion that they were installed with the intention that they would remain in place permanently or indefinitely.

137 Payne JA expressed the view that the fact that the design working life of the AWF wind turbines was between 20 and 25 years supported the conclusion that the AWF Assets became fixtures when installed on the land. They were affixed to the land with the intention that they remain in position for at least a 'substantial' period of time rather than for 'some temporary purpose'.[67]

138 The words in quotation marks used by Payne JA come from the dictum of Sir Frederick Jordan in Australian Provincial Assurance Co Ltd v Coroneo:

The test of whether a chattel which has been to some extent fixed to land is a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period, or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose.[68]

139 We accept that the design life of the wind turbines and the term of each AWF Lease is a significant period of time. That period might well be described as 'substantial'. However, this factor is not on its own determinative. The individual items may or may not remain affixed to the land for that substantial period. At the risk of repetition, the AWF Assets are easily detached and removed from the land, and the legal arrangements are in place enabling that to occur without disadvantage to AWF Prop Co. The leasehold arrangements express the parties' intentions as to the permanence or otherwise of the installation and contemplate removal before the effluxion of a 'substantial' period of time.

140 In the circumstances, balancing the relevant considerations, we consider that the primary judge was correct to identify the above ground AWF Assets as chattels.

141 If we are wrong in our analysis and the above ground AWF Assets are fixtures, for the reasons that follow, s 154A of the PL Act operates to ensure that they remain the property of AWF Prop Co and that ownership does not pass to the land owners by reason of their status as fixtures.

142 Section 154A(1) of the PL Act relevantly provides that a tenant who at his or her own cost or expense has installed fixtures on a rented premises owns those fixtures and may remove them before the relevant lease agreement terminates or during any extended period of possession of the premises, but not afterwards. Section 154A(3) provides that the provision does not apply to the extent that the lease otherwise provides or the landlord and tenant otherwise agree.[69]

143 Section 154A of the PL Act displaces the common law of fixtures insofar as it concerns tenant's fixtures, such that those fixtures do not become part of the landlord's realty at common law, but remain the property of the tenant, at least for the period identified.

144 The primary judge held that if the above ground AWF Assets are fixtures, the effect of s 154A of the PL Act is to exclude them from the hypothetical fee simple estate to be valued.[70]

145 The Valuer-General submits that the primary judge should have held that each AWF Lease was an encumbrance on the land that had to be disregarded in the assessment of capital improved value, as required by the VL Act. He submits that, as a consequence, the primary judge should have held that s 154A did not apply having regard to the identification of the interest to be valued (the unencumbered fee simple), as it only related to a tenant's interests, not the hypothetical unencumbered fee simple which is to be valued for the purposes of assessing capital improved value.

146 In the alternative, the Valuer-General submits that the primary judge should have held that the parties have 'otherwise agreed' and, by operation of s 154A(3)(b), s 154A(1) does not apply because the 'make good' provisions in the AWF Leases are materially different to the provisions in the PL Act, particularly in relation to the wind turbine foundations and roads.

147 The immediate predecessor provision to s 154A of the PL Act, s 28(2) of the Landlord and Tenant Act 1958, was considered by this Court in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue[71] and again, shortly afterwards, in Uniqema. Section 28(2) relevantly provided:

If any tenant holding lands by virtue of any lease or agreement ... at his own cost and expense erects any building either detached or otherwise or erects or puts in any building fence engine machinery or fixtures for any purpose whatever (which are not erected or put in in pursuance of some obligation in that behalf) then, unless there is a provision to the contrary in the lease or agreement constituting the tenancy, all such buildings fences engines machinery or fixtures shall be the property of the tenant and shall be removable by him during his tenancy or during such further period of possession by him as he holds the premises but not afterwards; notwithstanding the same consist of separate buildings or that the same or any part thereof may be built in or permanently fixed to the soil ...

148 In Vopak (VSCA), Ormiston JA (with whom Warren CJ and Buchanan JA agreed) concluded that by enacting s 28(2), Parliament wished to alter the legal consequence of the initial affixation of chattels by tenants, notwithstanding that that was a significant inroad into accepted principles relating to fixtures and the law of property.[72] Ormiston JA held that the plain meaning of s 28(2) was that, while the tenant remained in possession, the affixed chattels continued to be the tenant's property and removable by the tenant during the tenancy, or during such further period of possession by the tenant holding the premises, and not afterwards.[73]

149 In Uniqema, Ormiston JA confirmed that by operation of s 28(2), tenant's fixtures did not become the property of the landlord and thus part of the realty, but remained chattels capable of removal at any time by the tenant and incapable of being dealt with by the landlord as part of the land, until the tenant had departed.[74]

150 The primary judge correctly considered those decisions to be binding authority in relation to the effect of s 154A of the PL Act and that no basis could be identified on which the decisions, or the language of s 154A, could be distinguished in this case.

151 As to whether the AWF Leases 'otherwise provide', there is an express entitlement to remove all of the AWF Assets, including the roads and foundations, during the term of the Leases. In that context, even if the 'make good' provisions in the AWF Leases provide in terms different to the 'make good' provisions in s 154A (which are found in sub-s (2)), the terms of the AWF Leases are otherwise consistent with s 154A. Section 154A(3)(b) only provides that the section does not apply 'to the extent' that the parties otherwise agree. That is enough to preclude the application of sub-s (3) on the basis contended for by the Valuer-General.

152 Insofar as the Valuer-General contends that s 154A is stripped of any operation because the VL Act defines 'capital improved value' by reference to an unencumbered fee simple estate, that submission in entirely misconceived. The definition of 'capital improved value' in the VL Act cannot travel to prevent the application of s 154A, the reason for which is to produce a particular ownership outcome for tenant's fixtures. The definition of 'capital improved value' in the VL Act, directed to establishing the capital improved value of land, requires the valuer to hypothesise an estate in fee simple unencumbered by any lease. That is an instructed assumption as to the nature of the estate that is to be used to produce a land value under the VL Act. There is nothing about the instructed assumption that alters what constitutes land, including, where relevant, fixtures forming part of the land to be valued. The requirement to value the notional estate does not preclude the existence of a lease in the real world, or the application of an entirely independent statutory regime modifying the common law of fixtures.

153 In applying the definition of capital improved value, it is necessary first to identify the land in question, which involves identifying the metes and bounds of the relevant parcel (i.e. determining what the actual geographic area is) and what is included in the land, which brings it within the fixtures/chattels doctrine and s 154A. Only once the land has been identified is the valuer asked to assess its value as a hypothetical unencumbered fee simple estate. To work backwards from the assumed estate to determine what the land is comprised of is to invert the proper order of the enquiry.

154 AWF Prop Co is a tenant who at its own cost and expense installed the above ground AWF Assets on the land. It follows that it continues to 'own' those assets once installed on the land. Even if they were fixtures at general law, the above ground AWF Assets would, by the operation of s 154A, remain the property of AWF Prop Co and would not form part of the land.

155 We see no error in the reasoning of the primary judge in relation to the application of s 154A of the PL Act.

156 As a further argument, which does not appear to have been made below, the Valuer-General submits that if s 154A of the PL Act does apply, to the extent that the AWF Assets are tenant's fixtures and AWF Prop Co has the right to sever and remove them until it gives up possession of the land, it has a legal or equitable interest in the land which is required to be valued as part of the capital improved value. The AWF Assets were in situ at the relevant date and the undisputed evidence of all valuers was that the hypothetical purchaser would purchase the AWF occupancy with the intention of keeping the affixed above ground AWF Assets as part of the integrated Wind Farm for the foreseeable future.

157 Again, this argument is misconceived. It is apparently based on an argument advanced in SPIC, when the judge, having held that the wind farm assets were tenant's fixtures, had to set about valuing the land inclusive of them. The argument that the tenant had an equitable interest in the land resulting from its interest in the wind farm assets could be advanced in SPIC because in New South Wales there is no equivalent to s 154A of the PL Act. Where that section applies, the assets are not included in the land for capital improved value purposes, and there is no basis upon which to posit an equitable interest in the land arising from the ownership of the assets. Moreover, to the extent there was such an interest, it would actually detract from the capital improved value of the land because it would be a right that belonged to the tenant.

158 Moreover, the applicant has never advanced any evidence as to the value of this interest. Even if the point was good in law (which it is not), there is no evidence to support any alternative valuation.

159 The primary judge did not answer Question 3 incorrectly for any of the reasons given by the Valuer-General. Her Honour correctly held that the above ground AWF Assets were not part of the land to be valued.

160 Having regard to her finding that the above ground AWF Assets do not form part of the land, the primary judge was correct to reject the argument that the valuation task assumed the hypothetical sale of the land as an operating wind farm. The grounds that are based on the answers given by the primary judge to Questions 1 and 2 (that focus on whether the land is to be valued as a single occupancy or as 16 separate occupancies, and whether the holder of the hypothetical fee simple to be valued is a farmer who leases the land to a wind farm operator or is the wind farm operator itself) cannot result in any significant change to the capital improved value of the land.

161 Accordingly, we will briefly consider the remaining grounds compendiously.

162 Ground 1 concerns whether the land is required to be valued as a single occupancy or as several occupancies based on the title of the land owner.

163 The Valuer-General submits that the primary judge erred in holding that the occupancies to be valued were the separate occupancies created by the AWF Leases over the land owned by the individual land owners. He contends that the task is to value the Wind Farm as a single, separate occupancy and to collectively value the 16 separate farm properties, and then apportion that value based on the estimated annual value formula in s 2(3) of the VL Act.[75]

164 The first respondents submit that whether occupancies are valued individually or collectively, and whether title or occupancy is the correct starting point for the valuation, does not affect the valuation outcome in this case. They submit that there is nothing in the Valuer-General's written submissions to the contrary and that, although the Valuer-General replied to submissions on behalf of the first respondents, no issue was taken with that proposition.

165 We accept the submission that, in circumstances where the AWF Assets do not belong to the land and the occupancies are valued as rural land, the highest and best use for which is to provide the location for a wind farm, it will make no difference to the capital improved value of the land whether it is valued as a single occupancy or as a number of occupancies.

166 In the joint statement of valuers, the valuers agreed that the land should be valued as a single occupancy, defined by the 16 leases between the land owners and AWF Prop Co. Having valued the wind farm as a single occupancy, they agreed that the value should be apportioned between the two municipalities - Ararat with 70 turbines, and Northern Grampians with five turbines - on the basis of estimated annual value. However, it was the evidence of Mr Brown that while he assessed all of the occupancies together, if he had valued the occupancies individually, the result would have been no different.

167 Moreover, valuing the individual occupancies is consistent with the fact that the obligation to pay the levy is imposed on the title holder of the land under the FSL Act. Furthermore, in Port of Melbourne Corporation v Melbourne City Council,[76] Emerton J held that title was the starting point when valuing the Port of Melbourne occupancies for rating purposes and the Valuer-General did not contend that that holding was wrong.

168 The Valuer-General has not established that the primary judge erred in determining that the occupancies should be valued individually.

169 This ground broadly alleges that the primary judged erred in determining how the occupancies were to be valued. Once again, the particulars (or sub-grounds) are confusing. The central complaint seems to be that the primary judge erred because she did not value the occupancies, as required, on the basis of a hypothetical sale of a fee simple interest in land that was not encumbered. As a corollary, the Valuer-General submits that the primary judge should not have limited her finding as to the highest and best use of the land to a particular form of land tenure (i.e. leasehold) and should have found that the highest and best land use is as an operating wind farm, without reference to tenure.

170 This last proposition is untenable in light of our conclusion that the above ground AWF Assets do not form part of the land to be valued.

171 As to the correctness of valuing the occupancies based on their potential to be leased by the land owner to a wind farm operator, the Valuer-General submits that the primary judge should have followed the decision in Shell Co of Australia Ltd v City of Melbourne,[77] rather than the later decision in Challenger Property Asset Management Pty Ltd v Stonnington City Council.[78] According to the Valuer-General, the correct approach is that of Batt J in Shell:

the words 'unencumbered by' mean 'unaffected by' in the sense of 'not subject to' or 'without', rather than 'not burdened by' in the sense of 'not hampered by' or 'not depreciated by'.[79]

172 In Shell, the valuer assumed that the premises were vacant and to let, being unaffected by any lease, with the result that it was appropriate in the valuation analysis to allow a 'vacant to let' deduction. In Challenger, Croft J accepted the Valuer-General's contention before him that what must be considered is whether the lease is a burden in a practical sense on the value of the land. If not, the lease is not required to be disregarded when valuing the land.[80]

173 In his written case, the Valuer-General submitted that the calculation of capital improved value did not require an assessment of whether the AWF Leases enhanced the value of the land beyond the rent paid or whether they were unusually burdensome in a practical (commercial) sense. There is, in any event, no suggestion that the rents payable to the farmers under the AWF Leases were other than market rents.

174 However, it is not clear from the Valuer-General's written or oral submissions how the approach adopted by Batt J in Shell would have made a difference to the valuation outcome in this case.

175 In order for the difference in approach between Batt J in Shell and Croft J in Challenger to have been relevant to the valuation exercise, it would have been necessary to show that the rent paid under the leases between the related wind farm operating companies, AWF Prop Co 2 Pty and AWFPL, which reflected a return on assets of $480 million, should be considered when determining capital improved value. However, the primary judge correctly identified rent calculated on the $480 million spent by AWF Prop Co as rent referable to the value of the AWF Assets and not referable to the value of the land.[81] Moreover, it would only be correct to have regard to the rent payable under the lease between AWF Prop Co and AWFPL when determining capital improved value if the assets the subject of that agreement were fixtures and, if fixtures, were not to be excluded when determining capital improved value by the operation of s 154A of the PL Act. Whatever the distinction sought to be relied upon by the Valuer-General between the decision in Shell and the decision in Challenger, that issue does not arise for consideration unless the Valuer-General is successful in respect of Questions 3(i) and (ii) concerning fixtures and s 154A of the PL Act.

176 In these circumstances, it is difficult to see how valuing the occupancies as unencumbered fee simple estates, with the highest and best use of land involving a lease to a wind farm operator, is problematic. The primary judge made no error in this regard.

177 One of the particulars under Ground 2 also raises the treatment of roads and foundations when determining capital improved value:

2(d) The trial judge erred in failing to consider the assessment of CIV under the contractors or summation method as an alternative method of valuation to the primary method of Mr Brown, particularly as a check on the assessed CIV of the foundations and roads which the trial judge had found to be fixtures and part of the land.

178 This particular complaint appears to be centred on the value of the roads and foundations, which were identified by the primary judge as fixtures. The complaint seems to be that the value of these fixtures was not accounted for in the judge's determination of the capital improved value of the Wind Farm occupancies. We observe that the judge made no finding as to whether these fixtures, as tenant's fixtures, were excluded from the land to be valued by reason of s 154A of the PL Act. This omission is unsurprising, as none of the parties at trial submitted that the roads, foundations and other 'below ground' AWF Assets should receive any separate consideration.

179 The valuation which gave rise to this dispute was a supplementary valuation returned on 24 January 2018 following construction of the Wind Farm and the Wind Farm becoming fully operational. It was undertaken because the land was no longer simply used for agricultural purposes and significant plant and equipment comprising the Wind Farm had been installed. The primary judge found that the wind turbines, substation, the wind monitoring masts and the buildings were not part of the land to be valued for the purposes of assessing capital improved value, but that

[t]he remaining AWF assets - the turbine foundations, the roads, fences and car-park, and the underground cabling - are part of the land to be valued.[82]

180 At trial, the Valuer-General did not advance an alternative argument that if the whole of the wind farm assets did not form part of the land to be valued, the land should nonetheless be valued at a specified level taking into account the items agreed to be fixtures, including the roads and the foundations. To the contrary, as part of his closing submissions below, the Valuer-General contended:

If it is accepted that the foundations and roads are undisputed fixtures, the CIV valuation exercise which focuses on occupancy (exclusive and joint) includes both these assets in the single CIV valuation of the entire AWF undertaking or occupancy.

181 The Valuer-General's closing submissions at trial noted that all of the valuers had agreed that the summation method was appropriate either as a primary method or as a check method and that, adopting Mr Molloy and Mr Newman's instructions, Mr Brown used the summation method to derive a site value of $16.2 million. In relation to the roads and foundations, the Valuer-General submitted that Mr Molloy correctly assessed the added value of those improvements at $23.2 million for the roads and $15.6 million for the foundations by using cost as a proxy for value, given the assets were newly constructed at the relevant date. However, the Valuer-General did not advance an alternative case that contended for a value of the land including roads, foundations and other agreed fixtures.

182 On appeal, this Court was not addressed in relation to the capital improved value which the Valuer-General contends should have been found by the primary judge had she considered the assessment of capital improved value under the contractors or summation method and had she expressly allowed, applying those methods, for the value of the foundations and roads.[83] The sole reference to this topic in the Valuer-General's written submission simply reproduced the particulars of the grounds of appeal set out above.

184 In our view, none of the arguments advanced as part of Ground 2 is capable of supporting a different valuation from the one arrived at by the primary judge.

185 Leave to appeal will be granted, but the appeal will be dismissed.

[1] On 23 June 2015, AWF Prop Co entered into an Agreement to Sublease with AWFPL by which AWF Prop Co agreed to grant AWFPL subleases of the land, and a lease of 'Affixed Plant' (defined to include all wind turbines and electrical distribution and conditioning equipment).

[2] Fire Services Property Levy Act 2012 s 16.

[4] The notice was addressed to 'Windlab', which was a reference to Windlab Asset Management Pty Ltd, a company that provides asset management services to AWFPL for the Ararat Wind Farm.

[5] By the time of his second inspection, the construction of the Wind Farm had been completed and it was fully operational.

[6] AWF Prop Co 2 Pty Ltd v Ararat Rural City Council [2020] VSC 853 ('Reasons').

[8] The development cost was made up as follows: wind turbines, including foundations, hardstands, and underground cables - $416,236,107.79; substation - $36,185,432.45; storage shed, shelter and operation and maintenance building site - $1,687,078.91; administration building, including furniture and fittings - $968,865.31; wind-monitoring masts - $771,236.08; access roads and fences - $23,175,643.96; SCADA control system and communications equipment - $2,795,730.76; spare parts - $202,449.47.

[9] The remainder of the funds required to construct the Wind Farm ($250 million) were obtained from AWF's equity investors over the life of the project.

[10] The rotor diameter is approximately 103 metres and the tip height of the rotor blades is approximately 135 metres high.

[11] Mr Molloy prepared an alternate valuation for Scenario A based on several different assumptions, set out at [142]-[147] of the primary judge's Reasons.

[16] Spencer v Commonwealth (1907) 5 CLR 418, 432 (Griffith CJ).

[20] Reasons [195] (footnotes omitted).

[21] Private Binding Ruling 1012811534095, undated but issued in 2015 and cited in Private Binding Ruling 1051377156530, 28 May 2018 [48]; Private Binding Ruling 1012939775381, 24 February 2016.

[22] In addition, the Valuer-General raised the following grounds that do not appear to relate to the judge's holding that the relevant assets were chattels:

(e) the trial judge erred in holding that the test whether the AWF Leases were an encumbrance on the land required an assessment of whether they enhanced the value of the land beyond the rent paid or whether they were unusually burdensome;

(f) the trial judge erred in giving weight to the conclusion of the valuers that the AWF Leases were not unduly burdensome on the question of whether the Leases were encumbrances as a matter of law; and

(g) the trial judge should have found that the AWF Leases and the Sublease created legal or equitable interests enforceable in the land which had to be taken into account in assessing the amount for which the land might be sold.

[23] Quoting Brendan Edgeworth (ed), Butt's Land Law (Lawbook Co, 7th ed, 2017) 78.

[24] Referring to SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395, [119].

[25] Referring to Commissioner of Taxation v Metal Manufactures Ltd [2001] FCA 365; (2001) 108 FCR 150, 157 [32].

[26] [2021] NSWSC 395 ('SPIC').

[27] The lease from the State of New South Wales having an option to extend for a further 30 years.

[28] (2010) 241 CLR 576; [2010] HCA 49.

[29] Ibid 585 [23] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).

[30] (2000) 104 FCR 288; [2000] FCA 1458 ('Blacker').

[32] Ibid 294 [11] (citations omitted).

[35] [2015] NSWCA 30 ('Agripower').

[37] SPIC [2021] NSWSC 395, [120]-[121].

[40] Ibid, referring to O'Connor J in Reid v Smith [1905] HCA 54; (1905) 3 CLR 656, 680-1; [1905] HCA 54.

[41] Ibid, referring to the dictum of Sir Frederick Jordan in Australian Provincial Assurance Co Ltd v Coroneo [1938] NSWStRp 35; (1938) 38 SR (NSW) 700, 712.

[42] See Power Rental Op Co Australia LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs appointed) [2017] NSWCA 8; (2017) 93 NSWLR 765, 800 [154] (Ward JA); [2017] NSWCA 8, discussed at paragraphs [111]-[114] below.

[43] [2004] VSCA 82 ('Uniqema').

[48] [1905] HCA 54; (1905) 3 CLR 656, 680-1, where his Honour said: 'The intention of the party making the approval ultimately to remove it from the premises, will not, by any means, be a controlling factor. One may erect a brick or a stone house with the intention, after a brief occupancy, to tear it down and build another on the same spot, but that intention would not make the building a chattel. A destination which gives a moveable an immoveable character, results from facts and circumstances determined by the law itself and could never be established or taken away by the simple declaration of the proprietor, whether oral or written.'

[49] (1973) 47 ALJR 83, 89, where his Honour said: 'If the question to be considered was whether an actual intention could be inferred that the poles and the line should become the property of the landowner, it seems plain in the circumstances that that question would be answered "no". But, in my opinion, the question is not one of ascertaining the actual intention, but one of determining from the circumstances of the case, and in particular from the degree of annexation and the object of the annexation, what is the intention that ought to be imputed or presumed.'

[50] N H Dunn (1979) 2 BPR 9241, 9244-5.

[51] [2000] FCA 1458; (2000) 104 FCR 288, 294 [12]; [2000] FCA 1458.

[52] [2003] 16 NTLR 54; [2003] NTCA 3.

[53] Ibid 61 [21] (Martin CJ agreeing at [1], Thomas J agreeing at [34]).

[54] (2017) 93 NSWLR 765; [2017] NSWCA 8 ('Forge').

[57] Ibid 792-3 [122], that submission referring to: N H Dunn (1979) 2 BPR 9241, 9244 (Mahoney JA); Permanent Trustee Australia Ltd v Esanda Corporation Ltd (1991) 6 BPR 13,420, 13,423 (Rolfe J); and PricewaterhouseCoopers Legal v Perpetual Trustees Victoria Ltd [2007] NSWCA 271, [57]-[60], [76], [83]-[90] (Ipp JA, Giles JA and McClellan CJ at CL agreeing at [15] and [188]).

[58] Forge [2017] NSWCA 8; (2017) 93 NSWLR 765, 800 [154].

[59] (2001) 24 WAR 70; [2001] WASCA 112 ('National Dairies').

[60] (2012) 43 VR 109; [2012] VSCA 145 ('Snowy Hydro').

[61] Reid v Smith [1905] HCA 54; (1905) 3 CLR 656.

[62] [2010] NSWSC 1132, [59]-[61] ('Downing').

[63] [2009] FCA 742 ('Vopak (FCA)').

[64] [1999] FCA 1712 ('Metal Manufactures').

[65] Vopak (FCA) [2009] FCA 742, [60], [63].

[66] [1999] FCA 1712, [181].

[67] SPIC [2021] NSWSC 395, [105].

[68] Australian Provincial Assurance Co Ltd v Coroneo [1938] NSWStRp 35; (1938) 38 SR (NSW) 700, 712.

[69] The text of s 154A(1) is relevantly set out at [25] above.

[71] (2004) 12 VR 351; [2004] VSCA 10 ('Vopak (VSCA)').

[75] The notice of appeal contains a number of particulars under Question 1, a number of which do not appear to be related to the question of the occupancy to be valued and/or overlap with particulars of the other grounds.

[76] [2015] VSC 714.

[77] [1997] 2 VR 615 ('Shell').

[78] (2011) 34 VR 445; [2011] VSC 184 ('Challenger').

[79] [1997] 2 VR 615, 668.

[80] Challenger [2011] VSC 184; (2011) 34 VR 445, 487-8 [79]; [2011] VSC 184.

[83] And, in addition, fences and car park, and the underground cabling.