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- Unreported Judgment
Kelly v Chelsea on the Park Pty Ltd QLC 36
LAND COURT OF QUEENSLAND
Kelly v Chelsea on the Park Pty Ltd  QLC 36
Gilbert Errol Kelly
Chelsea on the Park Pty Ltd
ACN 165 795 335
Determination of compensation payable for renewal of mining lease
6 November 2020
7, 8 & 9 October 2020
PG Stilgoe OAM
I determine that Gilbert Errol Kelly must pay Chelsea on the Park Pty Ltd compensation in respect of ML 20175 as follows:
ENERGY AND RESOURCES – MINERALS – MINING FOR MINERALS – COMPENSATION – where the applicant miner applied to renew a mining lease for alluvial gold mining on the respondent landowner’s grazing property – where the parties disagreed on the amount of compensation the applicant was required to pay the respondent under s 281 of the Mineral Resources Act 1989 – where there was disagreement about the area of the property that was affected by the mining lease – whether the respondent would be deprived of possession of the affected land – where the Court was required to calculate the diminution in the value of the affected land – whether the applicant was required to compensate the respondent for the construction of fencing – whether the applicant was required to compensate the respondent for the installation of a cattle grid and monitoring equipment at the entrance to the mining lease – whether the applicant was required to compensate the respondent for having to perform weed inspections – whether the applicant was required to compensate the respondent for the costs of negotiating a compensation agreement
Mineral Resources Act 1989 s 281
Lonergan v Friese  QLAC 3, applied
Wills v Minerva Coal Pty Ltd (No 2) (1998) 19 QLCR 297, considered
S McCarthy (instructed by B & G Law) for the applicant
D Quayle (instructed by Colin Biggers & Paisley) for the respondent
- This case puts an end to the Struber precedents, where the issue of mining compensation was determined by reference to an arbitrary rate totally divorced from the landowner’s actual losses.
- Chelsea on the Park Pty Ltd took possession of Palmerville Station in September 2019. Palmerville is an extensive property in the lower Cape York Peninsula comprising 134,000 ha. It is burdened by 33 exploration permits and 95 mining leases. Alluvial mining for gold has been conducted in the Palmer River area since the 1880s.
- In 2014, Mr Kelly applied for, and was granted, a renewal of the ML for 10 years. The Court determined compensation on the renewal application as $1,830 per annum based solely on the Struber calculation. In 2019, Mr Kelly applied for an extension of the ML term for a further 13 years. He intends to start mining the ML in 2026.
- Mr Kelly has offered Chelsea compensation of $6.26/ha for the entire area of the ML. He based that figure on the Valuer-General’s assessment of the unimproved value of Palmerville.
- Chelsea claims compensation as follows:
Deprivation of surface area
Diminution of use
ML20175 – buffer
11 kms of Cradle Creek (six dams/bore with pipeline to tanks and troughs)
Camp and processing plant – commercial supply of water
Any surface rights of access
All loss or expenses that arises
Reasonable valuation expenses
Reasonable legal expenses
Reasonable environmental consultant expenses
Owner’s time and costs of negotiating
Annual administration expenses
Bio-security inspections (4 per year)
Fencing (16.25 km)
$1,266.10 or $881.90 per inspection
$156,498.50 plus inspections
Aggregate of compensation
$402,048.35 plus inspections
Annual payment (linked to CPI) $38,997 p/a
- I am required to assess compensation by reference to s 281(3)(a) of the Mineral Resources Act 1989 (MRA). I will consider each head of claim in turn.
Deprivation of possession of the surface of the land – s 281(3)(a)(ii)
What area of land is affected?
- Unsurprisingly, being a lease for alluvial gold mining, the ML is an irregular shape, following the creek beds of Jessup and Cradle Creeks. Cradle Creek forms the boundary between Palmerville and the national park. The creek bed along the boundary is unallocated state land and therefore not subject to compensation.
- The valuers disagree about the amount of unallocated state land. Max Dickenson, the valuer engaged by Mr Kelly, calculated the unallocated state land by using the measuring tool on Queensland Globe. He estimated that there is 7.5 km of unallocated state land along Cradle Creek. He thought that it is impossible to accurately determine this area from the Queensland Globe mapping but he estimated it to be 56 ha.
- Roger Hill, the valuer engaged by Chelsea, says there is 4.51 ha of unallocated state land. Mr Hill compared Queensland Globe, the Basic Land Information Network (BLIN) map and the survey plan annexed to Mr Kelly’s affidavit, finding the boundaries on all three congruent. He calculated that there was about 8 kms of Cradle Creek and about 1 km each of the Mun Gin and Jessup Creek frontages within the Palmerville sections of the ML. He calculated the cadastral width of this area at 10 m from Queensland Globe.
- I prefer Mr Hill’s assessment, as I consider it is more accurate, and I adopt his figure of 4.51 ha of unallocated state land. Therefore, the total area of Palmerville that is subject to the ML is 155.59 ha.
- Whether 155.59 ha is the area of the land affected is a different question which I will consider next.
Has Chelsea been deprived of possession of the surface of the land?
- It is important to remember that this case involves an amendment to a renewal of an ML, that there is already a compensation agreement in place for the renewed mining lease, and that the only “uncompensated” component of the mining lease is the additional 13 years Mr Kelly has asked for.
- Mr Dickenson thinks that Mr Kelly’s operation will not deprive Chelsea of any possession of the surface of the land. He states that the land within the ML is inaccessible to the livestock being grazed on Palmerville, is not currently being used for grazing, does not form part of Chelsea’s grazing business and will not be part of Chelsea’s grazing business in the future. He maintains that Chelsea will not suffer any loss by reason of the ML.
- Mr Hill states that the ML land is being used for grazing and points out that Chelsea will have the risk and obligations associated with holding the area of the ML.
- Although Mr Kelly has never seen cattle in or around the ML, I am satisfied that the evidence shows cattle activity in and around the ML. They are feral cattle, so not part of Chelsea’s organised grazing program, but the presence of cattle demonstrates that the ML land can support some grazing.
- Darren Pearson, a director of Chelsea, states that by the time Mr Kelly starts mining in 2026, the ML area will be part of an organised grazing program and the herd will be enhanced by the introduction of approximately 5,700 breeder units. Bill Thompson, the agronomist engaged by Chelsea, accepts and adopts Mr Pearson’s evidence, and predicts the stocking rate for Palmerville will be 1 AE/15 ha.
- Counsel for Mr Kelly submits, and Mr Thompson accepts, that there are a number of difficulties in achieving this stocking rate, and that Chelsea has not revealed any detail of its proposal to enhance the grazing capacity in this area of Palmerville, which is in the remote north east of a very large property. Nevertheless, for the purposes of assessing compensation, I am prepared to accept that the ML area will have a stocking rate of 1 AE/15 ha by 2026.
- However, I am not persuaded that Chelsea will be deprived of the surface of the land. The environmental authority (‘EA’) conditions provide that Mr Kelly cannot disturb an area of more than 5 ha of riverine land per year. The evidence shows that rehabilitation post mining will take about two years. Therefore, after three years of operations, there will be about 15 ha that has been disturbed by mining, plus an unknown amount of land for access tracks.
- Mr Kelly will not be mining during the wet season, so his physical presence on the ML will be less than one year. There was some debate about how many months Mr Kelly will be mining – it depends on rain events in a particular season – but I propose to assess compensation on Mr Kelly’s assessment that he will, on average, mine for about eight months per year.
- None of those factors justifies a finding that Chelsea will be deprived of possession of the surface of the land. For most of the time, Chelsea cattle will be able to roam freely within the ML. As mustering in this area is conducted by helicopter, Mr Kelly’s operations should not impede Chelsea’s management of the grazing operation.
- That is not to say, however, that Chelsea is not entitled to compensation. At any time, there will be about 15 ha of disturbed land. The use of this land to Chelsea will be diminished within the meaning of s 281(3)(a)(iii) of the MRA.
What is the measure of the loss?
- Mr Dickenson adopted the Valuer-General’s unimproved value of $830,000, resulting in a rate of $6.20/ha. He asserted that the Valuer-General's rate was “always reliable”.
- With all due respect to the Valuer-General, I find that the actual sale price of Palmerville is a better reflection of its value for the purpose of assessing the value of the land.
- I prefer Mr Hill’s assessment. He visited Palmerville more than once. He viewed the improvements and assessed them at nil. Given Palmerville has been unoccupied for a number of years, that seems to me a realistic assessment of the value of the improvements. Mr Hill deducted the advertised number of cattle on the property at sale whereas Mr Dickenson deducted the actual number of cattle. Chelsea’s decision to offer $4,070,000 must have been influenced by the advertised number of cattle because it had no way of knowing the actual number of cattle.
- Mr Dickenson agrees that the ML land is better than most of Palmerville but he suggests that the real value in the property is in the south west and that the ML area is a “distant” second best.
- Mr Hill also suggests that the land prices have increased since the Palmerville sale and, therefore, the per hectare rate should be increased to reflect the market movement. He referred to a Herron Todd White (HTW) market analysis for the Charters Towers district and a set of comparable sales to support his view. Taking into account the better quality of land in the ML and the movement in the market, Mr Hill suggests that the true value of the ML land is $100/ha.
- Mr Dickenson pointed out, and Mr Hill accepted, that the HTW analysis was for Charters Towers properties, and that there has not been any discernible improvement in the lower peninsula market of which Palmerville is part. Mr Dickenson also pointed out, and Mr Hill accepted, that the comparable sales were skewed by one outlier, the sale of Lake Carlo.
- Mr Hill conceded that it was dangerous to rely on the HTW analysis, which suggested an increase by a factor of three, as it produced an unfair result for Mr Kelly.
- I accept that $25/ha does not reflect the actual value of the ML land but I do not accept Mr Hill’s suggested rate of $100/ha. It is unlikely that the real value of the ML land would be four times the price Chelsea paid for the land as a whole.
- Mr Dickenson’s analysis of the Valuer-General’s valuations assists me in fixing a rate for the ML land. The Valuer-General assessed the current stocking rate of Palmerville at 1 AE/35 ha. I have accepted that the stocking rate by the time Mr Kelly starts mining will be 1AE/15 ha. The Valuer-General assessed Hurricane, a neighbouring property, at 1 AE/17 ha, and fixed a value of $21.50/ha. The Hurricane valuation is higher than the Palmerville valuation by a factor of 3.47. If I apply that factor to the base rate of $25/ha, the adjusted figure per hectare for the ML is $86.70. That figure may be slightly less than the true figure if I applied a strict adult equivalent per hectare analysis, but I am content to adopt it given the risk that Palmerville may not reach that stocking rate by 2026.
- Mr Hill suggested that Mr Kelly’s operation would diminish the value of the ML by 20%. Although Mr Dickenson didn’t think there was any diminution of the land, when pressed, he conceded that the mining disturbance plus the presence of tracks in the ML might diminish the value of the land by 10-20%. I accept, therefore, that Mr Kelly’s mining operation will diminish Chelsea’s use of the land by 20%.
- Mr Hill suggests that Chelsea should be compensated annually for the diminution in value, presumably relying on previous cases in this Court. I disagree with his approach. Compensation for the diminution in the use of the land, across the whole of the mining lease, is a one-off assessment. My calculation is:
155.59 ha x $86.70/ha x 20% = $2,697.93.
- It is important to remember, too, that this is a claim for compensation relating to the renewal, rather than the full term of the ML.
Loss or expense – s 281(3)(a)(vi)
- Chelsea is entitled to be compensated for all loss or expense that arises as a consequence of the renewal of the ML.
- In Wills v Minerva Coal Pty Ltd (No 2), Member Scott held that any claim for costs under s 281(3)(a)(vi) must be reasonable, by linking the costs in that section to a reference to “reasonable costs” in s 281(4). Respectfully, I disagree with that proposition. Section 281(4) is a separate head of compensation for replacement land; any costs arising out of the acquisition of replacement land must be reasonable. By contrast, s 281(3)(a)(vi) is not so limited; a landowner is entitled to recover all loss and expense arising as a consequence of the renewal of the ML.
- The question for me then, is not whether the claim for costs is reasonable. Technically, none of these expenses arise as a consequence of the renewal of the ML, because the mining will have already commenced under the existing ML and most of the claimed expenses will have been incurred. However, I have taken the view that these expenses could have been claimed in the earlier compensation decision if the landowner had been actively involved.
- Mr Thompson considers that Chelsea’s cattle should be protected from drinking contaminated water and that they should have access to existing waterholes. Because he doesn’t have details of Mr Kelly’s proposed mining activity, Mr Thompson proposes a conservative approach to the issue of water quality/availability by fencing the whole ML. That proposal requires approximately 16.25 km of fencing.
- Mr Pearson adopts and relies on Mr Thompson’s assessment. He has costed the amount of fencing required at $119,275.
- Mr Thompson’s concerns about water quality were framed as “possibilities”. It is possible that the mining operation will release heavy metals into the creek system and it is possible that the water will be too silty for cattle to drink. I am not satisfied that fencing the entire ML is a necessary consequence of these possibilities. Instead, being alerted to these possibilities, Mr Kelly bears the responsibility of monitoring the condition of the water and taking appropriate measures if there is a risk. Note 33 to the EA conditions requires Mr Kelly to provide safe access to water for livestock by providing hard surfaces around water storage areas and fencing off any soft areas. Note 34 requires Mr Kelly to install and maintain adequate warning devices to exclude livestock from dams containing hazardous contaminants.
- Similarly, I am not satisfied that fencing the entire ML is a necessary consequence of the risk that Mr Kelly will interfere with existing waterholes. Note 62 of the EA conditions states that waterholes and in-stream storages used by the landowner should not be disturbed without the agreement of the landowner. That means that Mr Kelly must leave existing waterholes undisturbed unless Chelsea otherwise agrees.
- Mr Kelly told the Court that he does not intend to fence the ML but he also told the Court that he intends to comply with the EA conditions (as he must). I interpret that evidence to mean that Mr Kelly will fence areas of the ML as required to comply with the EA conditions.
- Chelsea is not entitled to any compensation for fencing.
Monitoring of the access point
- Chelsea is a registered bio-security operator and it has adopted a standard bio-security plan for livestock. That plan requires Chelsea to mitigate or manage the bio-security risks posed by the entry of any person onto Palmerville.
- Chelsea has addressed this risk by installing a series of satellite points which allow for Wi-Fi connection throughout that property. That technology allows Chelsea to install surveillance cameras to monitor, among other things, access to Palmerville. Mr Pearson says that Chelsea will install surveillance equipment and a cattle grid on the access track when Mr Kelly commences work on his ML. The total cost of this work, at today’s prices, is $18,029.50.
- Mr Kelly argues that he should not have to bear the full cost of monitoring access in an area where there are numerous unlawful incursions into Palmerville from the national park. He says he should not have to bear the cost of Palmerville’s compliance with its bio-security plan.
- Mr Pearson acknowledges that the area around the ML is currently difficult to secure and/or monitor. Counsel for Mr Pearson aptly described the area as the “wild north east”. However, Mr Pearson also told the Court that Chelsea is already taking active steps to “tame” the area. Chelsea has installed some fencing and some monitoring points. It has prosecuted some trespassers and implemented a system of licencing for others, thereby regularising and monitoring their activities.
- By the time Mr Kelly starts mining, the evidence suggests that Chelsea will have fenced the boundary with the national park and Mr Kelly’s track will be the only access from the national park into Palmerville.
- As I have already identified, Chelsea is entitled to be paid for all expense that arises as a consequence of the renewal of the ML. But for Mr Kelly’ mining operation, and the access track he will need, Chelsea would not need to install either the grid or the monitoring equipment. I am satisfied that Mr Kelly should pay for these items.
- However, Mr Kelly should not be required to pay for these items unless and until they are installed and only if the boundary with the national park is, by that time, fully fenced. Therefore, Mr Kelly should pay the cost of installing those items within 30 days of presentation of an invoice if, and only if, the boundary with the national park is fully fenced. If the boundary is not fully fenced, then the price Mr Kelly should pay must be reduced to reflect the risk of a bio-security plan breach posed by the potential for unauthorised entry by others.
- Mr Pearson has calculated the cost of each inspection at $888.91. While that seems expensive, an inspection involves the use of a helicopter and two Chelsea personnel, an authorised person and an offsider, to walk the ML.
- Mr Pearson provided a detailed calculation of the $92.97/hour labour cost for the authorised person as follows:
Annual wage pursuant to employment contract
Living away from home allowance
Vehicle (as per employment contract)
Equaling the following rates:
- It is possible, with time, that relations between Mr Kelly and Chelsea will improve and Chelsea will learn to trust Mr Kelly’s compliance with the bio-security plan so an annual inspection is sufficient. However, until that rapport is established, I find that, once Mr Kelly starts mining the ML, Chelsea will be required to conduct regular weed inspections as a consequence of Mr Kelly’s mining operations and, therefore, Mr Kelly should pay for them.
- The cost of the inspections will change, and it is not appropriate either to capitalise the cost into an “upfront” payment or impose an arbitrary increase such as CPI. Mr Kelly should pay the cost of the inspections as and when they occur at the current cost to Chelsea. Therefore, he should pay within 30 days of receipt of an invoice. Until Mr Kelly commences mining, inspections shall be limited to one inspection per year; thereafter, Mr Kelly should pay for two inspection per year.
Costs incurred in negotiation
- Chelsea claims $3,194 legal costs to prepare and negotiate a mining lease compensation agreement, $1,500 plus GST for Mr Hill’s desk top assessment, and $4,500 plus GST for Mr Pearson’s costs of negotiating with Mr Kelly.
- The cost of compensation negotiations, whether by a lawyer or a landowner, does not fall within the ambit of s 281(3)(a)(vi) of the MRA because it is not a cost that arises as a consequence of the renewal of the ML.
- Chelsea is not entitled to any compensation for the costs of negotiating the compensation agreement.
Additional amount to reflect compulsory acquisition
- Pursuant to s 281(4)(e), Chelsea is entitled to an additional amount to reflect the compulsory nature of action taken, which shall be not less than 10% of the aggregate amount determined under s 281(3). Because I have determined that Chelsea’s expenses should be paid on invoice, and at the rates prevailing at the time, I have determined that the uplift should apply only to the compensation payable for the diminution in the value of the land.
I determine that Gilbert Errol Kelly must pay Chelsea on the Park Pty Ltd compensation in respect of ML 20175 as follows:
- Two Thousand, Nine Hundred and Sixty-Seven Dollars and Seventy-Two Cents ($2,967.72), representing the diminution of the value of the land plus 10% for the compulsory nature of the lease;
- Prior to the commencement of mining operations – the cost of one weed inspection per year, to be paid within 30 days of receipt of an invoice;
- After the commencement of mining operations – the cost of two weed inspections per year, to be paid within 30 days of receipt of an invoice; and
- If, and only if, the boundary between Palmerville and the national park is fully fenced – the cost of installing surveillance equipment and a cattle grid on the boundary of ML 20175, to be paid within 30 days of receipt of an invoice.
See, eg, Gosper & Ors v Struber & Anor  QLC 11; Markert v Struber & Anor  QLC 7; Fitzgerald v Struber & Anor  QLC 6; Wellington Mining & Exploration Pty Ltd v Struber & Anor  QLC 50; Markert v Struber  QLC 44; Plethora Pty Ltd v Struber  QLC 26; Pavey & Anor v Struber & Anor  QLC 24; International Parts & Equipment Pty Ltd v Struber & Anor  QLC 23; Aurum Vale Pty Ltd v Struber & Anor  QLC 19; Fitzgerald v Struber & Anor  QLC 18; Wellington v Struber & Anor  QLC 64; Pavey & Anor v Struber & Anor  QLC 63; Markert v Struber & Anor  QLC 62; Brown v Struber  QLC 34.
Ex 1, page 255.
Kelly v Struber & Anor  QLC 7.
Ex 1, pages 37-38.
Ibid 53, modified to reflect the claim presented at trial.
Ibid 452 [10.15].
Ibid 451 [10.9].
Ibid 448 [7.9].
Ibid 449 [7.11].
Ibid 256 -; 260 .
Ibid lines 35-36.
Ibid lines 29-30.
Ibid 470 [16.30].
Ibid 474 [16.85].
Ibid 470 [16.30].
Ibid 471 [16.31].
Ibid 467 [16.14].
Ibid 471 [16.31].
Ibid 473 [16.79].
Ibid 474 [16.86].
Ibid 468 [16.23].
Ibid 463 [14.25].
(1998) 19 QLCR 297.
Ex 1, page 402, lines 344-45.
Ibid 273 .
Ibid 276 .
Ibid 277 .
Lonergan v Friese  QLAC 3 .
- Published Case Name:
Kelly v Chelsea on the Park Pty Ltd
- Shortened Case Name:
Kelly v Chelsea on the Park Pty Ltd
 QLC 36
Member PG Stilgoe OAM
06 Nov 2020