Dunsdon v Department of Natural Resources and Mines [2003] QLC 56

LAND COURT OF QUEENSLAND CITATION: Dunsdon v Department of Natural Resources and Mines [2003] QLC 0056 PARTIES: Donald S, Ian G and Walter GC Dunsdon (applicants) v. Chief Executive, Department of Natural Resources and Mines (respondent) FILE NO: AV2002/0203 DIVISION: Land Court of Queensland PROCEEDING: An Appeal against an Unimproved Valuation - Shire of Paroo - Valuation of Land Act 1944 DELIVERED ON: 1 August 2003 DELIVERED AT: Brisbane HEARD AT: Cunnamulla MEMBER Mr RE Wenck ORDER: The appeal is allowed. The chief executive's valuation is set aside and the unimproved value as at 1 October 2001 determined in the amount of One Hundred and One Thousand Dollars ($101,000). CATCHWORDS: Statutory Valuation - Unimproved value - Valuation of Land Act 1944 Valuation - Sales evidence - Land with Waterworks licence - Added value of licence - Water harvesting - Costs of infrastructure Sales evidence - Irrigable land - Premium over grazing value - Application of sales evidence from recognised locations to a remote location - Lack of supporting local evidence Waterworks licence - Moratorium - Developed infrastructure - Added value - Sleeper licences APPEARANCES: Mr IG Dunsdon for the applicants Mr K Fisher, Crown Law, for the respondent -- 1 of 12 -- 2 [1] As at 1 October 2001 the chief executive made an unimproved valuation in the amount of $215,000 (after an objection against the original valuation in the amount of $320,000), for land described as Lot 1 AP2537:PO211793 and Lot 20 SP107687, both Parish of Hariman, containing 4,820 ha. The property is known as "Hortonvale". [2] The owners have appealed against the reduced valuation on 12 wide and general grounds. Their estimate of unimproved value as stated in the notice of appeal is $85,000. [3] Mr IG Dunsdon attended the hearing and conducted the appellants' case. The primary submission was that the chief executive had grossly over valued the waterworks licence which attaches to the land. [4] "Hortonvale" is located about 15 km north-east of Cunnamulla, to the east of the Warrego River, but connected for water harvesting purposes by the land contained in Lot 1 over which a Permit to Occupy is held. Apparently it is the only property upstream of the weir on the Warrego River at Cunnamulla within Paroo Shire which has been granted a waterworks licence. There are however some eight other properties within the Shire downstream of Cunnamulla which also have Warrego River waterworks licences. [5] Mr Dunsdon investigated the relevant date valuation of six of those properties namely "Binya", "Amenda", "Tinnenburra", "Gerah Plains", "Killara" and "Coonberry Plains". He found that each of the valuations of those properties had risen about 25% above the previous valuation as at 1 October 1998. That increase had been consistent with the general increase in the valuation of grazing lands in the Warrego Floodplain Sub-market Area (SMA). However, the valuation of "Hortonvale" had increased 216% above the previous valuation. Most of the other water harvesting licences had not been beneficially used. Mr Dunsdon tendered an original licence for "Killara" which authorised the use of a 200 ML weir for the purpose of irrigation, but, according to evidence from the chief executive, that licence has since been amended with the purpose now being for "water conservation". In September 2000, the Queensland Government imposed a moratorium on new water resource development including the Warrego River until resource management planning was completed. Undeveloped licences ("sleepers") may not be developed in the interim, while developed licences may continue to be operated. [6] As I understood the evidence, the chief executive has taken the approach that, despite the moratorium, those waterworks licences which have been beneficially used for the harvesting of water still add value to the land, but where water storages have not been constructed, only for the potential to flood irrigate pastures. However where the water authorised to be harvested is capable of full usage through the construction of the -- 2 of 12 -- 3 necessary ring tanks, any land suitable for cultivation and capable of being irrigated from those storages is valued on the basis of that potential. [7] The appellants had constructed on "Hortonvale", prior to the moratorium, sufficient ring- tank capacity to store the full permitted annual harvest. The land assessed as capable of being irrigated has been valued accordingly. Mr Dunsdon sees that as penalising an owner who has proceeded to outlay the significant expenditure necessary to harvest and store the water. On that point, however, if the land is capable of being used for regulated irrigation and the development of regulated irrigation is economical, then the chief executive's approach seems theoretically correct. The moratorium had, at the date of valuation, denied the development of regulated irrigation, at least in the period until it is lifted, on those properties with the sleeper licences and any further development on the properties where licences had been used but in the absence of on-farm storage. [8] The Cunnamulla Weir is the location of the Department's gauging station and the measure of river flows are related to that location. With the elapse of time for a flow in the Warrego River at "Hortonvale" to reach the Cunnamulla Weir "Hortonvale" water harvesting is not permitted until after the peak flow has passed and, as Mr Dunsdon pointed out, that could be 24 hours later if there had been a flow event in the previous six months or 60 hours later when there had been no flow within the previous six months. With a relatively small catchment in comparison with other streams serving irrigation areas to the east, and a tendency for short, sharp flow events in the Warrego River, it had been the appellants' experience that they were often pumping from a shallow "tail" with inadequate flow to fill their entitlements under the licence. Water harvesting downstream of Cunnamulla was not similarly delayed, relative to the peak flow passing the water harvesting location, according to Mr Dunsdon. Downstream licensees, if they desired to beneficially use the licence, could effectively pump at the peak of the flow subject to the particular licence conditions. It followed, in Mr Dunsdon's opinion, that the downstream licences had superior access to peak flows. [9] It was Mr Dunsdon's evidence that "Hortonvale" runs sheep and cattle and irrigates crops such as sorghum and cotton "if there is enough water". He said that the initial decision to build an irrigation farm was an attempt to diversify and soften the effect of drought by growing sorghum for stock feed. In his opinion, the property as improved would be seen in the marketplace as a grazing property "with a small area that we irrigate on. The area of cultivation was originally gidyea country, a bit of coolibah, with areas of sandridge running through it". 710 ha had been cleared and stickraked and 520 ha laser levelled "but we've only ever grown 330 ha as an average over the last four years ... that's all we've -- 3 of 12 -- 4 been able to grow". He said that the average rainfall at Cunnamulla was 14 inches (350 mm) per annum as compared to the St George/Dirranbandi area's 16 to 17 inches (400 mm to 425 mm) per annum. [10] Mr Dunsdon tendered an agronomist's report on "day degree comparison" between Cunnamulla and St George. The Cunnamulla temperatures have averaged 225 day degrees above St George per cotton growing season over the last five years. The extra accumulated temperature was made up of 16 more "hot days" (over 35ºC) at Cunnamulla during the annual growing season of 158 days. It was the agronomist's opinion "that the hotter climate at Cunnamulla would be more detrimental to crop development and the yield than those cotton areas further east" (St George to Goondiwindi). [11] One of the difficulties associated with the use of harvested water was the very high evaporation rate in storage, with a 50% annual loss, which was 25% higher than evaporation rates for the nearest established areas to the east, and then the consequent increased water requirement for cropping. [12] Mr Dunsdon was firmly of the opinion that any experienced and prudent person seeking land for the growing of irrigated cotton would not consider the Cunnamulla district when the established areas around St George, Dirranbandi and Goondiwindi were available. In comparison Cunnamulla had none of the support or specialist services, relevant farm machinery or spare parts outlets, or the employment pool which existed in the established areas at least 300 km distant. Production costs were much higher, the cost of specialist advice services near double and crop dusting cost an additional $1,800 "ferry" fee for each spray event which could be required up to 20 times during a growing season. The transport cost for cotton modules to the nearest ginnery was $850 at Cunnamulla, compared to $145 at St George. [13] Mr Dunsdon clearly saw the cotton-growing operation at "Hortonvale" as an isolated, pioneering venture with unproved economic viability. Apart from the significant costs involved in developing the licence and the land for cultivation, the soil quality, whilst good for grazing, was significantly inferior to the flooded alluvial soils in the established irrigation areas. The structure of the cultivation area soils was variable with areas of sand which caused field irrigation difficulties, due to the differing moisture retention rates. [14] Valuation evidence for the chief executive was given by Mr GG Naish, registered valuer. It was established that he had not conducted the original valuation which had been reduced on objection but had inspected the property, conducted his own investigations as they related to the appellants' more specific grounds of appeal and the basis, including the sales evidence, on which the chief executive's valuation relied. -- 4 of 12 -- 5 [15] It was Mr Naish's oral evidence that upon the objection to the original valuation, the relevant chief executive's valuer and delegate had taken notice of some of the technical evidence presented by Mr Dunsdon at that time. For example it had been accepted by the chief executive that, if in the nearest established irrigation areas a cotton farm required 12 ML of water/ha on the average each growing season, the subject "Hortonvale" cultivation would require up to 15 ML due to the higher evaporation rate and the soil structure of the cultivation. It appears that it had not been accepted that the water harvesting potential was less than had been authorised under the licence/s, as is suggested by Mr Dunsdon. Mr Naish had been advised by a departmental hydrologist that the potential existed for 18 days pumping at 475 ML per day "with a 75% of years measure of reliability". That would equate an annual harvest of 8,550 ML per annum at the calculated level of reliability. The ring-tank storage which has been constructed on "Hortonvale" is capable of storing that volume of water. Mr Naish had believed that such level of harvest had actually been achieved, but Mr Dunsdon strongly refuted that suggestion. While I accept that the appellants have not yet achieved the equivalent of 18 days water harvesting at the authorised pumping rate, in any one year, since their operation commenced, it seems that such potential would have been envisaged when the volume of storage capacity was constructed. [16] Mr Naish's report stated that the valuation of $215,000 as now appealed against, equated $44.61 per ha overall. However, it does not appear that in this instance, the basis of valuation was by direct comparison with the sales evidence on an overall rate per ha. If it was, which is unlikely, at least a transparent check was performed using the methodology of classification of values with a separate value ascribed to the assessed area of "irrigable arable" then to the various classifications of country making up the balance grazing area. That classification methodology revealed that an area of 570 ha had been considered to be or had the potential to be "irrigable arable". The valuation which initially issued was based on a potentially irrigable area of 710 ha. The initial assessment assumed a potential annual harvesting capacity of 8,550 ML but a crop requirement of 12 ML per ha per annum. After the objection hearing the crop requirement was increased to 15 ML per ha per annum and the potential irrigable area then reduced to 570 ha. [17] The potential irrigable area was originally valued on the classification methodology at $350 per ha. Mr Naish's oral evidence was that, as a result of the objection conference, consideration was given to Mr Dunsdon's concerns with regard to the individual property problems, the working difficulties and remoteness and factors "relating to his water harvesting allocation, also the distance he has to take the water up to his ring tank, in the -- 5 of 12 -- 6 order of several kilometres and all the separate lifts that are needed to achieve this", the $350 per ha was reduced to $250 per ha. [18] Mr Naish stated in his report that the reduction "was to better facilitate relativity between the subject, and the two basic sales, whose potential irrigable area was valued between $500/ha and $800/ha". In fact, the irrigable component of the two basic sales had been valued at $500 and $550 per ha. A third sale property, the local "Melrose Farm" had its irrigable arable content of 100 ha, with supply from the Cunnamulla Weir, valued at $800 per ha and then 33 ha of irrigable arable based on the water harvesting allocation but with no constructed storage at the date of valuation valued at $100 per ha. "Melrose Farm" had sold for $1,000,000 in April 1999. The sale had been analysed to show $187.45 per ha overall but the applied valuation equated only $95.46 per ha. Mr Naish's written comment was that the sale had been "disregarded by the Department as a high sale. I have included to show the current existing relativity." [19] The two "basic" sales were located at Surat ("Wylarah") and Dirranbandi ("Cavillon"). [20] "Wylarah" comprised 1,552 ha of which 240 ha (15%) was assessed as "irrigable arable". A water harvesting licence had an allocation of 1,720 ML from Bundara Creek but with a reliability of only 5-6 days in 75% of years. It was described in comparison with "Hortonvale" as being located closer to a cotton ginnery and a service centre relating to the needs of an irrigation property ... comprises of superior country, but the percentage of country that is potentially irrigable is similar ... inferior reliability of water supply and size of allocation ... developed for irrigation with on-farm ring-tank storage ..." The property sold for $1,700,000 in March 1999 and the sale had been analysed to show an unimproved value of $352,578. An unimproved valuation of $500 per ha had been applied to the "irrigable arable" area of 240 ha ($120,000) and $220,000 to the balance area which comprised 400 ha of open bauhinia downs, 872 ha of flooded coolibah/box and 40 ha of sandridge. [21] "Cavillon" comprises an area of 7,437 ha of which 172 ha (3%) was assessed as "irrigable arable". A licence had been granted for water harvesting from the Narran River "for 20 days at 86/mgl/day gravity diversion from private weir in 50% of years, 1320 mgl water harvesting allocation". The sale property was described in comparison with "Hortonvale" as being "located closer to a cotton ginnery and a service centre relating to needs of an irrigation property ... comprises of superior country but the percentage of country that is potentially irrigable is inferior ... inferior reliability of water supply and size of allocation ... developed for irrigation with on-farm ring-tank storage ..." The property sold for $1,433,860 in May 1999 and the sale had been analysed to show an unimproved value of -- 6 of 12 -- 7 $484,515. An unimproved valuation of $550 per ha had been applied to the irrigable arable area of 172 ha ($94,600) and $335,400 to the balance area which comprised 1,170 ha of flooded coolibah/box, 2,421 ha flooded coolibah, 260 ha sandy box/pine, 450 ha red box/ironbark, 2,964 ha red stony ridges. [22] As I understood it Mr Naish had not carried out the sales analyses but said he had inspected both properties and checked the details of water reliability with a departmental hydrologist. The reliability of water had been one of the comparison criteria which he considered relevant. His inquiry of one of the purchasers of "Cavillon" revealed that ring tanks had been constructed since the purchase in 1999 but no flow had been since available to harvest. He accepted that the location of the sale properties, in terms of cotton growing, was superior to that of "Hortonvale". He felt that the $250 per ha now applied to the assessed irrigable area on "Hortonvale" was reasonable in comparison with the values ascribed to the irrigable areas on the two basic sale properties, after consideration of the overall superiority of those properties. He also believed, from a relativity perspective that in comparison with the valuation of $800 per ha which had been applied to the main irrigable area on the Warrego River "Melrose Farm", $250/ha was reasonable for the subject land, the main difference being that "Melrose Farm" had more reliable access to the Weir water, while "Hortonvale" "has only opportune water harvesting" potential. He also believed that, in comparison with the $100 per ha ascribed to land with potential only for unregulated flood irrigation at least until the moratorium on the construction of storage was lifted, the $250/ha applied to the "Hortonvale" irrigable area with ring-tank storage constructed, was reasonable. [23] Under cross-examination, Mr Naish said that in considering the area potentially capable of being irrigated on "Hortonvale", based on the extraction rates and ring-tank volumes authorised and constructed, he did not believe the calculation was "too simplistic". Although he continually referred, in his oral evidence, to the need for 14 ML/ha being the basis for calculation of the irrigable area on "Hortonvale", due to evaporation rates and soil structure, the calculation in the report was based on 15 ML/ha. However, he said that no allowance had been made for any evaporation which would result from the water being stored for periods between harvesting of the water and the planting and growing seasons. On that same aspect he said that he had not taken into account any additional cost involved in constructing the extra wall height ring tanks which Mr Dunsdon said was necessary in an attempt to mitigate the effects of the greater evaporation rate at Cunnamulla in comparison with the more easterly irrigation farm ring storage tanks. -- 7 of 12 -- 8 [24] Mr Dunsdon could not accept that a valuation basis for "Hortonvale" could be found from sales in recognised irrigation cropping areas at Dirranbandi and Surat, first because they were so far distant with, at least in the case of the Balonne River system, a far greater catchment area and extraction availability, full infrastructure and services to support the irrigation farms, including cotton ginneries and then the superior quality arable lands available. Mr Dunsdon had no direct knowledge of the Surat property but had sufficient knowledge of the Dirranbandi property and the sale transaction to have Mr Naish confirm that one of the purchasers was the owner of an adjoining upstream irrigation farm and the other was the farm manager of that adjoining property. Mr Naish was also able to confirm that at the time of purchase the sale property had the potential for diversion of additional overland flow and that feature had been a consideration of the purchasers. Nevertheless, Mr Naish said that while the Department had adopted the sale as providing basic evidence, the sale price had been considered to be at the lower level shown by the overall sales evidence in that locality and there had not been perceived to have been any premium paid for the partial adjoining owner factor or any other benefit to the purchasers. [25] In Mr Dunsdon's opinion, a comparison between the Warrego and Balonne River systems was like "chalk and cheese". He believed that access enjoyed by the local "Melrose Farm" to the Cunnamulla Weir storage for its primary irrigation supply was a benefit of real significance, in terms of economic development potential and cropping diversity and noted that production of cotton on that property had been discontinued in favour of grapes. He had not investigated the sale fully when he became aware that it had not been relied upon by the chief executive. [26] More relevant, in his opinion, was the sale of the downstream property "Amenda", about 120 km closer to the centre of Bourke than is "Hortonvale". Although there was a water harvesting licence attaching to "Amenda" and its existence was well exposed prior to the sale, the purchasers were graziers with no interest in developing the licence as indicated by its consequent surrender. There had been no apportionment of value for the licence included in the sale contract and the purchaser's opinion had been that no premium above grazing value had been paid for the existence of the licence. A letter to Mr Dunsdon from the agent who had been involved in the sale was tendered as confirmation that the purchasers had no following interest in the licence and that the sale had taken place prior to and unaffected by the moratorium. [27] Mr Naish's evidence was that he had personally analysed the "Amenda" sale "but we disregarded it because it was a high sale so it didn't form any part of my basis. I do recall having discussions with the purchaser in regard to the water harvesting licence but that -- 8 of 12 -- 9 was my impression that it was restricted to stock and domestic purposes only." Earlier in his evidence he said - "I didn't realise that it was able to be used for irrigation purposes." Mr Dunsdon's evidence was that the water harvesting licence on "Amenda" had allowed extraction by two pumps at the rate of 120 ML/day at a flow of 1890 ML/day and 87 ML/day at a flow of 1190 Ml. Findings [28] To the casual observer the irrigation infrastructure and cultivation fields which the appellants have developed on "Hortonvale" would no doubt be seen as a development of major local significance. It would also be expected that in the marketplace the market value of the property as improved would be dominated by the irrigation and cultivation infrastructure. However, other than for considerations associated with the added value of the infrastructure, it is not the improved value of the "irrigable arable" component but the unimproved value of that area including the added value of the waterworks licence which is required to be determined. As Carter J observed in Stubberfield v Valuer-General (FC) 1988-89 12 QLCR 328 at pp.330-331: "In Spencer v. The Commonwealth [1907] 5 CLR the High Court propounded the proper test for the assessment of land value. It is the price which a willing purchaser would at the date in question have had to pay to a vendor not unwilling, but not anxious to sell. It seems to me that that test finds statutory expression in the Valuation of Land Act ... In simple terms it is synonymous with the market value of the land." [29] The difficulty facing all parties in this matter is the state of the market evidence. Grazing land with a waterworks licence authorising water harvesting from the Warrego River in an arguably superior location for irrigation development, to that of the subject, has sold with no identified premium having been paid for any potentiality associated with the licence. The Warrego River has attracted limited irrigation development and the locality is clearly disadvantaged by its remoteness from service centres and associated costs, low rainfall, high temperature and evaporation rates and in the case of "Hortonvale", non- alluvial soils. [30] Despite the location disabilities, one developed irrigation property "Melrose Farm" has sold within the valuation period with a significant premium having been identified by the chief executive as attaching to its irrigation licence. However that property may be distinguished from the usual water harvesting licensed properties as a result of its access to an off-farm public water storage. For example, Mr Dunsdon said that the cost of construction of a 5,000 ML ring tank in recognition of local conditions, equated about $184/ML ($918,000). -- 9 of 12 -- 10 [31] Market evidence from distant, well-established irrigation areas has been considered by the chief executive's valuers in the considered absence of reliable Warrego River sales evidence for properties with water harvesting licences. Professional judgment has been exercised in concluding that, all things considered, the land which has the potential to be irrigated from the estimated water harvest yield available in 75% of years is worth half of the level of value achieved for the better located sale properties with superior quality arable land, but less water harvesting reliability. [32] There are circumstances surrounding the sale of "Cavillon" which it was necessary for Mr Dunsdon to expose and which place some doubt on the suitability of the use of that sale as basic evidence for valuation purposes. [33] In the absence of any professional evidence as to its relevance, it is observed that the premium in unimproved value applied to the irrigable component of the sale properties in comparison to the valuation applied to the grazing area component of those properties, is significantly less than the premium applied by the chief executive in the valuation appealed against. [34] Considering the nature of the subject cultivation land, its location and the significant development costs involved together with the unproved economics of such development and the lack of any major development of any other water harvesting licence on the Warrego, any prudent person contemplating the purchase of the subject land in its unimproved state would be expected to take an extremely cautious approach. Indeed, a similar approach would be expected from such a person considering purchasing the land in its fully developed condition. [35] The one benefit which the appellants have achieved albeit at their own cost and with many apparent frustrations experienced at local government level in gaining necessary development approvals, is that the subject land was capable of being regarded as approved for irrigation farm development to its full potential as permitted by the waterworks licence as at the date of valuation. [36] However I have been persuaded that the appellants have carried the burden of proving the grounds of appeal to the extent that there is no sound basis for the valuation appealed against. The fact that the land has been developed as an irrigation farm is irrelevant unless it can be shown that such development was economically viable. There has been no disclosed analysis of the sale of the developed "Melrose Farm", with which a development cost comparison could be made. Then there is the evidence of the sale of "Amenda" and the apparently widely held perception that its licence attracted no premium in value above grazing value. -- 10 of 12 -- 11 [37] However I do not accept that the fact that the purchasers of "Amenda" had no interest in that water harvesting licence and subsequently surrendered it, or that no apportionment of value for the licence was shown in the contract, is proof that no added value existed at the date of sale. There is no evidence as to the vendor's opinion as to the value of the licence, but promotion of its existence is indicative that it was considered a positive rather than a worthless feature. The facts are that a sale of "Amenda" occurred and the vendor and purchaser agreed on a price for the property which included the licence. Mr Naish analysed the sale and considered it to show a "high" level of value no doubt for pure grazing land. At the time of his investigations he was not apparently fully aware of the use to which the potentially harvestable water could be placed, other than for stock and domestic purposes. Apparently no consideration was given to the possibility that the value was "high" because, in addition to its grazing potential, the purchaser regardless of his assessment of potentiality, was required to meet a competitive market for a property with such a licence. There is no assistance provided as to how "high" Mr Naish considered the unimproved analysis of the sale to be, at a date relevant to the date of valuation. [38] Despite the purchaser of "Amenda" surrendering the licence it is seen as unlikely that prior to the moratorium, the marketplace would not recognise these licences as a positive rather than a worthless feature regardless of concerns as to the viability of their development potential. Even Mr Dunsdon was prepared to concede that the subject licence on "Hortonvale" might have added some small premium in value over and above grazing value. [39] In the end result I have decided to accept the chief executive's opinion that the valuation of the subject property should include recognition that potential did exist at the relevant date for use of up to 570 ha for irrigable cultivation. It is seen as unlikely, regardless of the self-suggestion of inexperience, in arable development, that the appellants would have developed the gidyea land if more suitable land had been available. Mr Naish's report suggests that he had apportioned an unimproved value of $9.25 to the gidyea land. Regardless of a figure of $100 per ha which appears to me to be an arbitrary one in the circumstances of the available evidence, having been applied to those licences where restricted use remains subsequent to the moratorium, it seems to me that in the subject case until a better identifiable local market emerges, a valuation of $50 per ha is reasonable. That decision has been taken bearing in mind the quality of the land, the relatively large area of potential cultivation in an unproved location and the level of premium which might be shown on analysis to have been applied to the irrigable -- 11 of 12 -- 12 component of the sale properties, over and above the level of value paid for the equivalent but non-irrigable land classification on those properties. [40] The determination is made as follows: 570 ha gidyea land with irrigable arable potential associated with water harvesting licence @ $50/ha $28,500 Balance land including Permit to Occupy: 4250 ha @ $17/ha overall $72,250 $100,750 Adopt $101,000 Order The appeal is allowed, the chief executive's valuation is set aside and the unimproved value as at 1 October 2001 determined in the amount of One Hundred and One Thousand Dollars ($101,000). RE WENCK MEMBER OF THE LAND COURT -- 12 of 12 --