Mere disagreement over a valuation not enough to overturn Land Courts compensation award

Key Insights

• The Land Appeal Court has affirmed a compensation determination decision of the Land Court in Hail Creek Coal Holding Pty Limited & Ors v Michelmore [2021] QLC 194, including the primary member's adoption of the "direct comparison method" as a valuation methodology for the assessment of compensation for a mining lease.
• This decision highlights the different approaches to valuation methodologies and the Court's entitlement to accept its preferred evidence. 
• Where an applicant for a mining lease in Queensland cannot agree on compensation with a landholder, it should be aware that the Land Court's preferred compensation valuation methodology may be the direct comparison method, although other methodologies may be suitable in the circumstances.
• While proponents and landholders are free to agree on any sum as to compensation, the parties should factor the preferred method into their negotiation strategies in case the parties are unable to reach agreement.

Appeal against compensation determination related to mining lease for existing Hail Creek accommodation camp

This case concerns an appeal against the Land Court's compensation determination in Hail Creek Coal Holding Pty Limited v Michelmore [2021] QLC 19.

For more information about:

• the primary decision – see our Energy & Resources Alert "'Extortionate' – Queensland Land Court rejects over the odds compensation claim for Hail Creek mining lease", 31 May 2021; and
• the mining lease objection matter relating to this mining lease – see our Energy & Resources Alert "Queensland Land Court strikes out frivolous objection to Hail Creek mining lease application", 4 May 2020.

At first instance, as the parties had not been able to agree on compensation, the Land Court was required to settle the amount of compensation which the landholder was entitled to for grant of the mining lease to the Miners.  The mining lease concerned an accommodation camp that had already been in use by mine workers from the Hail Creek Mine for more than 15 years.

Ultimately the Court at first instance adopted the "direct comparison method" of valuation proposed by the Miners' valuer, which resulted in a determination of a total compensation amount of $530,530. This was in stark contrast to the $7,000,000 sum put forward by the landholder's valuer as a result of using the "net present value" method. 

Landholder's grounds of appeal

The Land Appeal Court granted the appellant an extension of time to appeal against the Land Court's compensation determination, despite recognising the poor prospects of success of the appeal.

The appellant raised eight grounds of appeal against the compensation determination, all of which were dismissed.  The appellant's additional appeal against the costs decision was described by the Court as a "bare assertion of error… without any explanation" and was subsequently dismissed.

Incorrect application of principles to assess compensation

The appellant's first two grounds of appeal asserted that Member Stilgoe had misapplied the principle in Raja Vyricheria Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 (Raja).  He claimed that the primary member's findings "missed the critical point that he was making about the Raja principle", namely that the respondent would have almost certainly renegotiated an extension on the existing lease it held over the accommodation village if it had not been granted the mining lease.  The primary member's discounting of the market value for the risk that there would be little demand for the camp, other than by Hail Creek, was also claimed to be a failure to apply the Raja principle.

The respondent disputed the appellant's claims that the primary member had misapplied the Raja principle.  The Court agreed that Raja relates to the potentialities of land when assessing market value, which did not have application in the present case as the parties had agreed that the "highest and best use of the subject land [was] as an accommodation village".

Indeed, the respondent's valuer had applied a multiple of 2.5 to the pastoral value of the land to account for the land's value as an accommodation village, which the primary member and the Appeal Court found was a generous application.

The third ground of appeal was related to the first two – involving a claim by the appellant that the primary member failed to apply the test for valuing a commercial opportunity in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. The Appeal Court rejected this argument as having no direct application to the subject land, with the market value to be determined by applying the test in Spencer v The Commonwealth (1907) 5 CLR 418.

Acceptance of the incorrect valuation method

The Court placed considerable focus on the next three grounds of appeal, relating to the appellant's claim that the primary member erred in applying the direct comparison method rather than the net present value method advanced by the appellant's valuer.

The Court found no error in the primary member's decision to favour the direct comparison method, noting that:

• the primary member was entitled to accept the evidence of the respondent's valuer over the evidence of the appellant's valuer;
• there was no other approach that the primary member "could rationally have adopted" after rejecting the entirety of the evidence of the appellant's valuer; and
• the respondent's valuer had accounted for the competing valuer's criticism by adopting the maximum premium of 250% where the comparable sales reflected a premium of between 100% and 250%.

The Court found that there was "no merit" in the appellant's argument that the direct comparison method was not a form of comparable sales approach, and noted that the appellant's valuer indeed agreed that the comparable sales approach was the "preferred method of valuation".  The appellant's "mere disagreement" with the primary member's "logical, rational and evidence-based" reasons was not sufficient to establish error.

Failure to reject expert evidence of respondent's valuer

The basis of the seventh ground of appeal was that the evidence of the respondent's valuer "failed to disclose the basis or reasoning for his expert opinion" and should have been found to be inadmissible by the primary member.  The Court found no merit in this ground of appeal and noted that the appellant had the opportunity to make that submission to the primary member and did not.

Failure to resolve doubts in favour of a more liberal estimate

Finally, the appellant contended that the primary member failed to apply the principle that "doubts are resolved in favour of a more liberal estimate" when assessing compensation payable (Commissioner of Succession Duties (SA) v Executor Trustee and Agency Company of South Australia Ltd (1947) 74 CLR 358).  The Court found that there was no evidence that the primary member failed to apply this principle and that "it did not demand that the primary member apply a valuation method that she found to be inappropriate in the circumstances".

Authors: Connor Davies, Senior Associate and Finley Harding, Graduate.