Allingham v Chief Executive, Department of Natural Resources and Mines [2001] QLC 105

LAND COURT BRISBANE 28 SEPTEMBER 2001 Re: AV00-578 and AV00-579 Appeals against unimproved valuations Valuation of Land Act 1944 Local Government: Dalrymple Adam J Allingham (AV00-578) Adam J, Robert J & Sarah B Allingham (AV00-579) v. Chief Executive, Department of Natural Resources and Mines J U D G M E N T [1] These two appeals are concerned with valuations carried out by the Chief Executive under the provisions of the Valuation of Land Act 1944. By consent of the parties both appeals were heard together. Appeal AV00-579 is with respect to a property known as "Southwick West" which the Chief Executive valued at $630,000 as at a relevant date of 1 October 1999. The appellants contend for a figure of $430,000 which is the value that applied to the "Southwick West" land as at the date of the previous valuation in 1998. Appeal AV00-578 relates to a property known as "Emu Valley" which the Chief Executive valued at $430,000 also as at 1 October 1999, whereas the appellants proposed no change from the previous valuation figure of $295,000. Both properties are used for the breeding and fattening of beef cattle. [2] The appellants submitted their grounds of appeal in narrative form, however, I think I fairly summarise them as being mainly concerned with the proposition that "… the current market value of the properties which have been used as the basis of the revaluation, does not reflect the actual long-term sustainable productive capacity of those properties or 'Southwick West' (and) 'Emu Valley'". [3] Robert Johnston Allingham appeared on both appeals and provided evidence in support of the appeals. Stephen Brooks Gilbert, a registered valuer, provided valuation evidence in support of the Chief Executive's valuation. Mr Gilbert had not been the original valuer responsible for striking the statutory valuations, but following his inspection of the subject properties and consideration of certain sales properties, he agreed with the amounts in the original valuations. [4] "Southwick West" has an area of 21,393.4 ha and is situated about 106 km north-west of Charters Towers over a road which is frequently cut during most wet [2001] QLC 105 -- 1 of 12 -- 2 seasons. About 10% of the property comprises fragmented open black soil basalt and alluvial creek flats and about 90% is good red basalt forest country. It has a carrying capacity of one beast to 10 ha. The property is well positioned in regard to natural water, however, access to Talavera Creek is very steep with the result that the value of that source is limited. In addition, certain springs/soaks can become very boggy and can trap cattle if not fenced out. The property is generally between 400 metre and 440 metres above sea level and frosts commonly occur there during winter, resulting in a reduction in the quality of feed particularly in the protein level of grasses. [5] The presence of various weeds on the property comprises a disability. There is grader grass along all public road frontages, as well as parthenium and rubbervine along Lion and Ironbark Creeks. In addition, there are scattered areas of mimosa and thorn apple. Mr Allingham expressed the view that the Chief Executive had made insufficient allowance for the expense associated with the treatment of these various weeds. I will come to that issue in some detail shortly. [6] "Emu Valley" has an area of 12,670 ha, is situated about 89 km north-west of Charters Towers and suffers the same access disabilities as the "Southwick West" property. About 63% of "Emu Valley" consists of black soil basalt forest country, whilst the balance comprises good red basalt country with some stony ridges. It has a carrying capacity of one beast to 9.5 ha. [7] Permanent water is available in the Basalt River and in springs/soaks around the property, however, these waters suffer the same disadvantages as the waters on "Southwick West". "Emu Valley" has holes in Allingham Creek, which I understand to be accessible. "Emu Valley" suffers a similar frost problem to that of "Southwick West". There is grader grass along all public road frontages and some isolated mimosa infestation. Mr Gilbert reports that he saw no parthenium, though is aware that this noxious weed is to be found upstream and, therefore, the property is at risk of incursion as a matter of course. Mr Gilbert suspects that there would be rubbervine along Allingham Creek and recorded in his valuation that there was scattered isolated thorn apple. Mr Allingham raised a similar concern with respect to weed control as he did in the "Southwick West" appeal - a matter I will deal with below. [8] Before I come to the central issues in these appeals I should refer to Mr Allingham's complaint that there has been a substantial increase in both valuations and therefore increased local government rates and rentals. In my judgment in M Dore v. Chief Executive, Department of Natural Resources and Mines ("Dore") handed down today I said this about the issue of percentage increase in valuations: -- 2 of 12 -- 3 " One of the major concerns in this case and in others that I have heard in the sittings related to the matter of the percentage of increase in value. The sales relied upon by Mr Gilbert had been available for the 1998 revaluation, however, he said that it was the view of his department that there was not a sufficient body of evidence to conclude that there was a rise in values of the order indicated by the available sales. There had been few sales in the early 1990's, however, the volume of sales did increase in the late 1990's leading to a conclusion that there was a clear market trend and that his three sales were representative of that trend. I think it is an unfortunate fact of life particularly in tightly held grazing areas that there will generally be an insufficient volume of sales to provide a valuer with the material upon which he could confidently carry out a valuation. Unfortunately one effect of that circumstance is that landowners can confront large valuation increases rather than a series of incremental valuation increases over shorter timeframes. The effect of such large valuation increases is undoubtedly a matter of concern in managing the business and cash-flow requirements of a grazing property, notwithstanding the obvious argument that property owners might have had the advantage of lower levels of rent or local authority rates during the intervening years. Nevertheless the quantum of valuation increase is not a matter which falls for consideration under the Valuation of Land Act. The Court is concerned in such matters only with the question as to whether the appellant has shown the valuation of the Chief Executive to be wrong." As to Mr Allingham's other point concerning the level of rates and rents that must be paid following an increase in valuation, I refer to what the Land Appeal Court said in Tow v. Valuer General (1978) QLCR 378 at 381: "The Valuer-General and the Court are concerned with finding unimproved value and not with the amount of rates that may be levied as a result. Rates are fixed by Local Authorities and may be varied annually according to the fiscal requirements of the Local Authority concerned. Any such variation may be made at any time during a valuation period and may be entirely independent of a new and increased valuation." [9] In his valuations of both subject properties Mr Gilbert relied on three sales: "Amelia Downs" "Junction Creek" and "Lava Plains". "Amelia Downs" sold for an analysed unimproved price of $667,184 ($32.40 per ha) on 14 January 1998. The Chief Executive determined an unimproved value of that property of $650,000 or $31.56 per ha. The sale property has an area of 20,595 ha and is located 120 km north-west of Charters Towers, via a road of 77 km of bitumen with the balance being formed earth and gravel. The sale property has about 12% open black soil plain with the balance comprising good red basalt forest country intersected by areas of gorge -- 3 of 12 -- 4 along the Basalt River and W Creek. Mr Gilbert estimated the carrying capacity at one beast to 10 ha. The property is used for the breeding and fattening of beef cattle. [10] "Junction Creek" sold for an analysed unimproved price of $753,681 or $31.40 per ha on 1 July 1996. The Chief Executive placed an unimproved value on that property of $640,000 or $26.67 per ha as at 1 October 1999. This sale property is located about 203 km north-west of Charters Towers, via a road which has 57 km of bitumen and the balance of formed earth and gravel. The sale property has an area of 24,000 ha and comprises about 6.5% open to lightly timbered black soil; 74% good open red basalt forest; 9% good to fair ironbark and box forest with the balance 9.5% comprising generally fair to poor forest ridges of box and ironbark on gravelly forest soils. Mr Gilbert estimated the carrying capacity of the sale property at one beast to 10.5 ha. The property is used for the breeding and fattening of beef cattle. [11] "Lava Plains" sold for an analysed unimproved price of $587,278 ($14.32 per ha) on 19 September 1996. The Chief Executive applied an unimproved value of $570,000 or $13.90 per ha to the property as at 1 October 1999. The sale property has an area of 41,000 ha and is located 260 km north of Charters Towers and approximately 90 km south of Mt Garnet. "Lava Plains" comprises approximately 84% open red basalt and red sandy forest country, with the balance unavailable lava flow or areas inaccessible owing to lava flow. Mr Gilbert estimated the carrying capacity on "Lava Plains" at 1 to 14 ha overall or 1 to 11.7 ha on the available country. [12] Mr Allingham did not disagree with Mr Gilbert's description of the two subject properties, nor the description of the three sales, nor their comparison with the subject properties. His concern is a fundamental one to do with the sales. It is based on the proposition that for the purchasers of these three properties to obtain a suitable return on capital, they would be required to stock the properties at an unsustainable rate which will lead to the degradation of the land on these properties. [13] In Mr Allingham's view the carrying capacity of red basalt country is one beast to 10 ha. Such a stocking rate represents the carrying capacity that this country can carry sustainably; that is, without causing damage to the land or to the vegetation on it. He said that using the Chief Executive's carrying capacities, which he did not challenge, and current sale prices of cattle properties (which I understand includes Mr Gilbert's three sale properties), return on capital can be less than 3% and is often more of the order of 1.5% per annum. He asked rhetorically, "Why would anybody borrow money at 7% to 11% to achieve a return on that money of less than half of that?" -- 4 of 12 -- 5 More importantly for the purpose of his argument, he also asks "And why should their neighbours have their Crown rent and Council rates established on the basis of this activity?" [14] Mr Allingham obtained information from the Chief Executive's department concerning the sale details of 21 properties in Dalrymple Shire. He analysed this information to show that of the eight smallest properties on the list, five revealed the highest price per ha and four of that five, including another from the smallest eight list, showed the highest beast area values. Mr Allingham said that having regard to this information it would be reasonable to conclude that small properties are the most profitable, though he did not reject a suggestion that affordability may have been a consideration. His evidence is that 3,000 head in Dalrymple Shire is considered by the Department of Primary Industries to be a living area, yet not one of those properties showing the highest price per ha or beast area values can support a herd of 3,000 head on an ongoing basis. The properties obviously fall well short of being able to carry 5,000 head, the number that Mr Allingham understands would represent an optimum herd for efficiencies of scale and integrated decision-making. Nevertheless, given that five out of the eight smallest properties were purchased for prices in excess of $1,000,000, it is clear that they were being purchased as productive properties and not merely hobby farms. [15] Mr Allingham's thesis is that by use of the method of valuation employed by the Chief Executive, that is by the use of market sales, the Chief Executive is measuring the capacity of the purchaser to pay a certain price and is not measuring the productive capacity of the property concerned. The Chief Executive did not deny that proposition. Indeed it will often be the case that productive capacity is but one of the considerations in a purchase albeit a matter of significance. Mr Allingham expressed what I took to be a very genuine concern that purchasers are overestimating the carrying capacity of the properties involved in the eight sales to which he referred. [16] "Amelia Downs" was the only property of Mr Gilbert's three sales which were included in the list of eight sales presented by Mr Allingham, however, I think it fair to say that his concerns extended to "Junction Creek" and "Lava Plains". Indeed, the concern raised by Mr Allingham is based on the view that there is an ongoing tension between the finite productive capacities of country to support the grazing of cattle and the prices paid for such lands, coupled with the assumed expectations of the purchasers. -- 5 of 12 -- 6 [17] Evidence as to the sustainable productive capacities of the red basalt country was provided by Mr Allingham and supported by three published scientific papers he tendered in evidence. The CSIRO Cunningham Laboratory has undertaken grazing trials at a property known as "Hillgrove" between 1984 to 1992 under a project or site called "ECOSSAT". "Hillgrove" adjoins "Emu Valley" to the east. The result of that work is that the researchers were able to calculate average annual pasture production in the red basalt country west of Charters Towers as being 2,400 kilograms per ha in an average benchmark season. Of that pasture volume 25% or 500 kilograms is available for grazing on a continuous basis. Allowing for the fact that 50% of seasons will not produce the average season volume of pasture, the utilisation of 600 kilograms per annum ought to leave a reasonable buffer of 500 to 600 kilograms per ha, a volume considered to be the minimum amount required to prevent long-term land degradation. Such long-term degradation occurs where there is greater than 70% to 80% usage of volume of pasture available in any one year, though even a usage of 50% would lead to long-term changes in pasture composition. [18] The degradation, which results from overgrazing, will lead to a change in biodiversity, infestation by weeds, soil erosion leading to soil loss and nutrient runoff which has the potential to cause downstream problems and offshore biological crises. Apart from that, individual animal production can taper off by as much as 20% to 30% where pasture utilisation exceeds 50% of the average 2,400 kilograms available on an annual basis. [19] The work at "Hillgrove" showed that based on a 25% of annual pasture growth consumption, red basalt country could carry 7.786245 beasts per ha on an ongoing basis. The grazing trials which led to that fine numerical conclusion were carried out using small numbers in small experimental paddocks. The result is that animals are forced to graze a pasture evenly and to therefore fully utilise the available feed. Where paddock sizes are larger as in the case of a grazing property, grazing patterns will depend on soil and pasture types as well as topography, with the result that some areas will be grazed more intensively than others. Depending on the number and placement of water points, an allowance of 25% may be necessary when estimating maximum average sustainable carrying capacities on larger properties when the "Hillgrove" results are used as the basis. Thus the carrying capacity of one beast to 7.786245 ha would be adjusted to 9.732806 ha, which is a figure consistent with the one beast to 10 ha which Mr Allingham said historically would apply to the red basalt country. He acknowledged that some graziers in the basalt area would graze perhaps -- 6 of 12 -- 7 one beast to 5 ha on an ongoing basis, but such graziers, according to him, were those more likely to have to agist cattle off the property on a frequent basis. Mr Allingham tendered photographs which clearly showed the effect of over-grazing. [20] The central submission from Mr Allingham concerning the appeals before me is probably best expressed in the form of the following extract from his statement of evidence: "As primary producers we can no longer live in a vacuum shielded from the perceptions of a wider community. The wider community is going to expect us to farm our properties on a sustainable basis. That is going to mean living within our grass budgets and this is going to mean living within the long-term sustainable productive capacity of our properties regardless of what we may pay for them. The question which I have for the Court is this. I am trying to ensure that our commercial beef operation is within the scientifically verified, long-term sustainable productive capacity of our properties. In the short to medium term there is a considerable cash cost involved in doing this, particularly when one is competing with people carrying significantly larger numbers of cattle at higher rates. Does this Court have within its powers the ability to make allowance for sustainable production regimes? I should point out that since the last increase in Unimproved Capital Value that the combined cost of Crown Rent and Council Rates have gone from being $15,000 to $23,000. this is now nearly the cost of employing one person on a full-time basis. I believe there is an issue at stake here of significant importance for the long-term sustainable future of rural Queensland. If it is a matter of public policy that the Queensland government is going to use non- commercial property values to establish the benchmark for renting and rating purposes then it inescapably follows that the Queensland Government is, as a matter of public policy basing its revenue on unsustainable farming practices." [21] In dealing with the above question which I take to be a submission, I should first of all refer to s.66 of the Valuation of Land Act which describes the powers of the Land Court in an appeal such as those now before me: "66. Upon an appeal under section 55 the Land Court or, upon the rehearing of any such appeal, the Land Appeal Court may - (a) affirm the valuation appealed against; or (b) reduce or increase the amount of that valuation to the extent necessary in its opinion to determine the same correctly under, subject to, and in accordance with this Act; -- 7 of 12 -- 8 and, subject to section 70, make such order as it deems fit with respect to the payment of costs." [22] The next provision to which I might usefully refer is s.3(1) of the Act which provides guidance as to the test of value which is to apply: "Meaning of 'unimproved value' 3.(1) For the purposes of this Act - 'Unimproved value' of land means - (a) in relation to unimproved land - the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require; and (b) in relation to improved land - the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist." [23] For present purposes reference may be made to Caltex Oil (Australia) Pty Ltd v. Chief Executive, Department of Lands (1996-97) 16 QLCR 435 where the Land Appeal Court majority said at 458: "The Valuation of Land Act is not a code of valuation methodology. It assumes the existence of the valuation process and requires its application in the cases and with the modifications prescribed by the Act. … The fact that land is being valued having regard to the 'special provisions' of the Valuation of Land Act does not justify a departure from the basic principles of Spencer v The Commonwealth, which are as applicable to valuations under the Act as to any other valuations." [24] The High Court case of Spencer v. The Commonwealth (1907) 5 CLR 418 provides classic guidance as to the concept of "value". I take the following quotation from the judgment of Griffith CJ at 432: "In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e. whether there was in fact on that day a willing buyer, but by inquiring 'What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?' It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land -- 8 of 12 -- 9 to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together." [25] The principles are sufficiently clear - the next question is one of methodology. Mr Gilbert's method involved the use of comparable sales. Generally in carrying out valuations the use of comparable sales has been recognised as the accepted method of determining the value of land: Redeam Pty Ltd v. South Australian Land Commission (1977) 40 LGRA 151 at 156; River Bank Pty Ltd v. Commonwealth (1974) 48 ALJR 483 at 484 (Stephen J);Cienda Pty Ltd v. South Australian Urban Land Trust (1988) 66 LGRA 360; 34th Philgram Pty Ltd v. The Crown 14 QLCR 13 at 26. [26] It seems to me to be quite clear that the applicable law requires the Chief Executive to find the market value of lands to be valued (subject to statutory requirements concerning the notional removal of improvements) and that a value based on sales that are comparable and which reflect the test of value supplied by Spencer would be appropriate. To go beyond those sales and to introduce an element based on sustainability and rational economics is to, in effect, reject the best evidence of market value. There is no warrant in the law that I can find or to which I was referred by the appellants which requires or endorses this. The words of s.3(1)(b) in particular are quite clear. Apart from that, I have the difficulty that the appellants have not submitted to me a rational method as to how I should take into account the sustainability argument that Mr Allingham has so eloquently advanced. [27] Mr Allingham suggested that just as allowances are made for disabilities, past problems and so on perhaps some allowance could be made for good management practices; that is, not over-grazing land. That suggestion misconceives the nature of such "allowances". They are not unilateral in nature but comprise a reflection of how sale prices ought to be applied. Thus, for example, a property without natural water will, all other things being equal, be worth less than one that is well watered. An adjustment is made in the marketplace for such factors and a valuing authority will attempt to replicate what occurs in the marketplace. I infer that Mr Allingham may also have had in mind the utilisation of a valuation method that adopted a sustainable carrying capacity of 1 to 10 ha then extrapolates or calculates a capital sum which would be the maximum that one would invest in order to receive a suitable return on the level of productivity assessed. If I am right in drawing that inference then the difficulty the appellants encounter is that they have provided no evidence upon which I could consider such a valuation. I confess however that even if the evidence was -- 9 of 12 -- 10 provided, the appellants would still be faced with two substantial hurdles. First, why should such a hypothetical valuation be preferred to sales evidence? Second, the High Court has held that it would be unwise to attribute value by the use of precise mathematical calculations (Moreton Club v. The Commonwealth (1948) 77 CLR 253 at 259). [28] The appellants submit that there are important public policy considerations in this matter. This submission is based on the proposition that if the current system leads to the adoption of values that invite the employment of unsustainable land use practices, then the State effectively endorses these practices. I do not understand the jurisdiction that I am presently exercising requires me to draw a conclusion on this submission. That jurisdiction is confined to the law that I have set out above. It follows from what I have said above that I am bound to follow the law and to not embark on a project of attempting to create public policy. Apart from that, I do not think that the appellants have made out a case that land management choices are solely or principally attributable to the level of statutory land values. [29] In addition to the broad submission which I have already discussed, Mr Allingham submitted that the sales employed by Mr Gilbert ought not be relied on. He said in evidence-in-chief that properties in the Charters Towers basalt area which change hands are, with the exception of a property named "Wandovale", not being purchased by experienced landholders in the area. Under cross-examination, however, he said that he was aware that in the case of the "Junction Creek" sale the purchasers previously had property in the area and had family there. He agreed that there would be other sales to locals but said that some properties tend to continually change hands following short periods of ownership by "outsiders". This indicates in his view, both that experienced landholders in the locality consider the prices of these properties to be unrealistic, and that those "outsiders" who purchase these properties soon find that the production possible does not live up to their expectations, so they move on. Mr Allingham did not submit that the sales relied upon by Mr Gilbert are not proper market transactions. Indeed he agreed that if he were selling one of his own properties he would seek to achieve the best price that he could, notwithstanding the prospect that such a price may in due course lead to overstocking and degradation of that property. [30] It may be that by the provision of detailed and comprehensive evidence a case can be made out that a number of purchases do not meet the Spencer test, however, in the absence of such cogent evidence, I must accept the prima facie evidence that a -- 10 of 12 -- 11 sale is a market transaction. Commonly, a consistency in the level of price paid will show that sales are "at market". A sale will either be a "high" or "low" sale if its price is not consistent with the market. There is no evidence that the sales relied upon by Mr Gilbert are other than consistent in price and therefore are "at market". The unpreparedness of many people in the basalt area to pay asking prices for properties is not evidence of value or lack of value, for that matter, for it is not the case that there is a reverse test of the Spencer test provided by Griffith CJ to that effect. [31] The "Wandovale" transaction was not dealt with in detail in the evidence in these appeals. It did, however, arise as a matter of dispute between the parties in Dore, a matter heard in Charters Towers during the same week as the present appeals were heard. In my reasons handed down in the Dore matter today, I concluded that the sale of "Wandovale" was in a different market from the property under appeal. That reasoning would apply in the present appeals. [32] Having expressed my views on the central submission in the appellants' case, I will now turn to two other matters raised by Mr Allingham. In the first of these he said that weed control is a very expensive exercise and is not sufficiently taken into account in the Chief Executive's valuations. I think that this submission suffers a similar disability to the central submission in that the statutory valuation regime which presently applies requires not that the Chief Executive nor this Court have regard to the extent of expenditure that might be involved in controlling weeds on a particular property, but that the disability associated with the presence of weeds on the property to be valued be taken into account in the process of comparison with the sales evidence. Mr Gilbert has expressly done this in his comparisons and I have no reason to be critical of his methodology or his conclusions in this regard. [33] A further submission from Mr Allingham was concerned with influences which, as he put it, "skew" the market one way or the other. He said that in the present political climate banks and other lending institutions are unwilling to force sales in the case of non-viable operations. Sales of such properties take place only when selling conditions are suitable. He said, additionally, that successive State Governments provide resources through the Rural Adjustment Scheme. This indicates, in his submission that individual enterprises have probably significantly outlived their independent commercial viability. [34] I accept that these factors influence the timing of sales of grazing properties and would suggest in addition that a variety of other influences play a part in decisions taken by vendors as to when to sell property and by purchasers as to the -- 11 of 12 -- 12 timing of an acquisition; and by both parties with respect to the question of price. These influences are, however, part and parcel of the modern marketplace. It may be that the net effect of such influences is to increase prices above that which would apply in an unconstrained market environment, however, that is an issue that cannot be validly taken into account in striking market value, nor would it be correct in principle to attempt to find the value which assumed the absence of all such influences. I understand Mr Allingham to have recognised this. [35] The result is that I find that the appellants have not proved that, given the present law, the Chief Executive's valuations in these appeals were carried out in error. Each appeal is dismissed and the valuations of the Chief Executive are affirmed. RP SCOTT MEMBER OF THE LAND COURT -- 12 of 12 --