Conway v Chief Executive, Department of Natural Resources and Mines [2001] QLC 86

LAND COURT BRISBANE 21 AUGUST 2001 Re: Appeal against Annual Valuation Valuation of Land Act 1944 Shire of Taroom (AV00-662) Denis C and Jill M Conway v. Chief Executive, Department of Natural Resources and Mines (Hearing at Taroom) D E C I S I O N This is an appeal by landowners against the unimproved value determined by the Chief Executive of their land as at 1 October 1999, under the provisions of s.45 of the Valuation of Land Act 1944 (the Act). Background Mr and Mrs Conway are the owners of four grazing properties in the southern part of the Taroom Shire, which have been valued together by the respondent under the provisions of s.34(1)(b) of the Act. "Currawong", the homestead property, has an area of 1,618.338 hectares and is situated approximately 29 km by road south of Taroom. "Wongaree", with an area of 518.706 hectares is located about 15 km by road south of "Currawong", which is about 44 km south of Taroom and 35 km north-west of Wandoan. "Spring Creek", with an area of 1,548.226 hectares, is situated about 6 km south-west of "Wongaree", which is about 51 km south of Taroom and 32 km north- west of Wandoan. "Caenby", with an area of 2,905.441 hectares, adjoins "Spring Creek" on its western boundary and is about 50 km south of Taroom and 45 km north-west of Wandoan. The total area of the aggregation is 6,590.711 ha. Access from Taroom is by means of 26 km of bitumen road, then formed gravel and earth roads. There are several alternative access roads from Wandoan, with bitumen sealed roads to within 4 km of "Wongaree" and "Spring Creek" and [2001] QLC 86 -- 1 of 10 -- 2 within 10 km of "Caenby", with formed gravel/earth roads for the remaining distances. As at 1 October 1999, the respondent valued the aggregation at $920,000, or approximately $140 per hectare. Mr and Mrs Conway appealed against that valuation, contending that the unimproved value should be $850,000 or approximately $129 per hectare. The Subject Properties The four properties comprised developed brigalow scrub of varying quality, together with other country types in association. Generally all four properties have been developed for grazing with improved pastures. Along with the majority of scrub blocks in the Taroom Shire, all four properties have been used to some extent in the past for grain growing, but it is common ground between the parties that there is no premium paid for the grain-growing potential of these lands and all properties have been valued as grazing properties. As the description and classification of the country were among the principal issues in this case, I will set out in some detail how the parties described and classified the land. Evidence on behalf of the respondent was given by Mr MC Farrington, a registered valuer employed by the Department of Natural Resources and Mines. Mr Farrington described the four properties in this manner: "The subject property comprises a predominance of easy to moderately undulating mixed brigalow, softwood scrub with a balance of box and ironbark forest watercourse frontages. Approximately 2,800 hectares of the aggregation has been cultivated for commercial grain and forage crop production however much of this area is now revered to permanent pastures. The balance of the property is fully developed for grazing with improved pastures of green panic and buffel established throughout the better classes of country. 'Currawong' has an area of 1,618.338 hectares comprising undulating 2nd class scrub grazing country. Soils are variable ranging from shallow loams originally timbered with vine and bottle tree, to heavier clay loams associated with mixed brigalow, wilga, sandalwood and belah. Interspersed throughout the property are pockets of lesser quality soils - either heavy textured clays or stone affected, most likely associated with an original vegetation community of clumpy brigalow, bauhinia and sandalwood with scattered poplar box trees. -- 2 of 10 -- 3 'Wongaree' has an area of 518.706 hectares comprising mixed 1st and 2nd class scrub grazing land. Central parts of the property contain easy slopes of good quality mixed brigalow, belah, softwood scrub with mainly grey clay loam soils. In the north-east is a minor watercourse fringed by open poplar box, silverleaf ironbark, bauhinia and sandalwood with clayey grey/brown soils; and scattered throughout eastern parts of the south-west corner are areas of lesser quality stony clay soil brigalow, bauhinia and sandalwood scrub. 'Spring Creek' has an area of 1,548.226 hectares comprising about 1,200 hectares (78%) mixed 1st and 2nd class scrub grazing land and 348.226 hectares (22%) 2nd class forest grazing. Scrub soils are predominantly grey and brown clay loams originally timbered with brigalow, belah, wilga and sandalwood. Occurring on lower slopes is a lesser quality open brigalow, bauhinia, sandalwood scrub with pebbly or stony clay soils. Spring Creek in the east and two other minor watercourses in northern parts of the property are fringed by broken, sandy clay soil flats and low gravelly rises of mixed box, sandalwood and silverleaf ironbark forest. 'Caenby' with an area of 2,905.441 hectares, comprises about 1,500 hectares (52%) mainly 2nd class grazing scrub with a mixture of better quality dark clay loam brigalow soils on higher slopes through western parts of the property to shallow, broken and stone affected soils originally timbered with clumpy brigalow, bauhinia and sandalwood occurring on lower slopes; and 1,405.441 hectares (48%) 2nd class forest grazing comprising broken creek flats and adjacent low gravelly rises originally timbered poplar box, ironbark and some pine." Mr DC Conway appeared and gave evidence on behalf of the appellants. Mr Conway saw the country somewhat differently. As the owner of the properties who works them constantly, there is no doubt that he knows them far more intimately than anyone else, a point that Mr Farrington readily conceded. Because of that intimate knowledge, Mr Conway was able to distinguish between the different classes of scrub and has isolated all the areas of inferior country on all four properties. In respect of each of the properties he made the following comments: "Currawong" has areas totalling approximately 200 hectares of box and sandalwood country with lesser soil types and a balance of average scrub soils. The box, ironbark and sandalwood country totals approximately 200 hectares; "Currawong" has shallow vine scrub soils and the undulations cause fragile farming and is expensive to contour. "Wongaree" has areas totalling approximately 180 hectares of box, ironbark and sandalwood soil types, with the balance being good scrub soils. It should be classified as 180 hectares (34.7%) box, broadleaf ironbark, sandalwood etc, scattered bauhinia and brigalow, with areas of -- 3 of 10 -- 4 pebbly and rocky outcrops which make it difficult to farm in average seasons. "Spring Creek" has areas of approximately 220 hectares of box and ironbark creek flats, approximately 500 hectares of box, ironbark and sandalwood soil types and the balance average scrub soils. It should be classified as 220 hectares (14.2%) box, ironbark flats, black wattle and sandalwood; that country will not sustain improved pastures and it is the first to frost. 500 hectares (32.3%) box, ironbark, sandalwood, scattered bauhinia and clumpy brigalow, with areas of pebbly and water-wash stones which make it difficult to farm and improve and is hard on machinery. "Caenby" has extensive areas of box, ironbark, sandalwood and pine country with inferior soil types. It should be classified as 1,500 hectares (51.6%) second-class grazing scrub, 1,305.4 hectares (45%) second-class forest, consisting of box, ironbark, sandalwood, pine, etc, which will not sustain improved pastures or legumes and 100 hectares (3.4%) of inferior country, including claypan and 20 hectares of pure sand. Mr Conway's Assessment of Unimproved Value Having classified the properties into the various areas as set out above, Mr Conway then applied unimproved values to the various types of country attributing to them the unimproved values applied to neighbouring properties with similar country types. In respect of "Currawong", Mr Conway attributed an unimproved value of $174 per hectare to the 1,416 hectares of average scrub soil, by comparison with the value applied to the neighbouring property owned by Perrett, arriving at a value of $246,384 for that area. Next he attributed a value of $120 per hectare to the 202.4 hectares of box, ironbark, etc country by comparison with the neighbouring property owned by Mayes, to arrive at the value of $24,288 for that classification. His total value for "Currawong" was $270,672, or $167 per hectare. By a similar process, Mr Conway arrived at a valuation for "Wongaree" by attributing a value of $182 per hectare to the 338.7 hectares of good scrub, and $120 per hectare to the 180 hectares of inferior country, to arrive at a value of $83,243, or $160.50 per hectare. Similarly, he arrived at a value for "Spring Creek" by attributing a value of $150 per hectare to the 828.2 hectares of average scrub, $120 per hectare to the 500 hectares of box, ironbark and sandalwood country and $90 per hectare to the 220 hectares of inferior country, to arrive at a value of $204,030, or $131.80 per hectare. -- 4 of 10 -- 5 For "Caenby", Mr Conway attributed a value of $150 per hectare to the 1,500 hectares of second-class scrub, $90 per hectare to the 1,305.4 hectares of second-class forest, and $20 per hectare to the 100 hectares of inferior country, to arrive at a total value of $344,486, or $118.60 per hectare. The total valuations for all four properties as estimated by Mr Conway amounted to $902,431. However, he reasoned that the valuation should be discounted by about 6% to $850,000 for working difficulties and transport of stock for the aggregation of all four properties, three of which do not adjoin. Mr Farrington's Assessment of Value Mr Farrington was aware of the location of the various types of country on the properties. He had been accompanied by Mr Conway while inspecting them. He had even cooperated in having the areas measured after Mr Conway had marked them on orthophotos. However, he did not attempt to classify them in the detail that Mr Conway had for several reasons. First, he did not think it was possible to do so unless he knew the properties as well as Mr Conway and had actually worked them. Second, he did not think that a hypothetical prudent purchaser would view the properties in that way. Third, although he had broadly classified the sales, he had not done so in that detail and had not attributed a value to each type of country. Instead he had adopted a broader approach and had made direct comparisons between the sales and the subject lands. Mr Farrington valued the appellants' aggregation as follows: "Currawong" 1,618.338 hectares @ $170 per hectare $275,128 "Wongaree" 518.706 hectares @ $180 per hectare $ 93, 367 "Spring Creek" 1,548.226 hectares @ $160 per hectare $247,716 "Caenby" 2,905.441 hectares @ $130 per hectare $377,707 $993,918 Less Physical Separation Allowance 7.5% $ 74,544 Total $919,344 Rounded to $920,000 Mr Farrington's Sales In making the valuation on behalf of the respondent as at 1 October 1999, Mr Farrington had regard to some 30 sales of rural properties in the Shire of Taroom. He -- 5 of 10 -- 6 explained that those sales indicated that over the 10 years prior to the valuation the smaller scrub areas had shifted from farming to grazing. The smaller blocks had been valued for grain growing so that as at 1 October 1999 the percentage increases in unimproved values for those properties were not as great as for the larger areas, such as the subject lands. The sales evidence indicated that the larger properties now had much the same value per hectare as the smaller properties. Mr Farrington explained that most of the sales of both smaller and larger properties had been purchases of additional areas by local graziers, creating a fairly strong demand for grazing properties regardless of size. Grain had been grown on all of them at some stage in the past to some extent, but they were not purchased for growing grain. Mr Farrington relied on the sales of three properties in the general vicinity of the subject lands to support his valuations. Sale 1 was a property known as "Annamaroo", of 2,966.75 hectares, which sold in November 1997 for $1,759,400, or $593 per hectare. Mr Farrington analysed the sale to show an unimproved value of $603,235. As at 1 October 1999, the respondent had applied an unimproved value of $550,000, or $185 per hectare to that property. With a carrying capacity of one beast to 3 hectares, that equates to a beast area value of $555 per beast. "Annamaroo" is situated about 19 km south-east of Taroom via the bitumen sealed Leichhardt Highway, with 3 km of formed gravel/earth road. The country is generally 1st and 2nd class scrub grazing with a small area (6%) of 2nd class forest. It is better situated and the country is generally superior to the subject aggregation, and Mr Farrington considered the sale to be superior to it. Sale 2 is a property known as "Brookfield", of 2,787.98 hectares, which sold in April 1999 for $1,500,000, or $538 per hectare. Mr Farrington analysed that sale to show an unimproved value of $380,646 and as at 1 October 1999, the respondent had applied an unimproved value of $365,000, or $131 per ha to that property. With a carrying capacity of one beast to 4 hectares, that equates to a beast area value of $524 per beast. "Brookfield" is situated about 56 km south-west of Taroom, on the Taroom/Roma Road, with 22 km of bitumen sealed road and 34 km of gravel/earth road. The country consists of 23% 2nd class scrub grazing, 50% 1st class forest grazing flats and channels and 27% of 2nd class forest grazing slopes and ridges. -- 6 of 10 -- 7 Because of its situation and as the country is generally inferior in quality to that of the subject lands, Mr Farrington considered the sale to be inferior to the aggregation. His Sale 3 is a property known as "Warrawoona", of 2,065.921 hectares, which sold in May 1999 for $1,250,000, or $593 per hectare. Mr Farrington analysed that sale to show $335,840 and as at 1 October 1999 the respondent had applied an unimproved value of $310,000, or $150 per hectare to that property. With a carrying capacity of one beast to 3.6 hectares, that equates to a beast area value of $540 per beast. "Warrawoona" is situated about 50 km south of Taroom, with 26 km of bitumen and 24 km of gravel/earth road; and about 32 km north-west of Wandoan, with 28 km of bitumen and 4 km of gravel road. It comprises about 62% of 2nd class scrub grazing and 38% of 2nd class forest grazing flats and low gravelly rises. Having regard to the aggregation as a whole, Mr Farrington regarded the sale as similar, but because of its fragmented nature and associated working difficulties, he came to the conclusion that the aggregation should be valued at something less per hectare than the sale. Mr Farrington also referred to two other sales. He made it clear that he did not rely on those sales to support the value applied, but said they were included as evidence of the substantial increases in unimproved values demonstrated by the sales of larger properties, compared with those of the sales of smaller properties. Sale 4 is a property known as "Shiro", of 3,436.886 hectares, which sold in April 1998 for $2,100,000, or $611 per hectare. Mr Farrington analysed the sale to show $908,924 and as at 1 October 1999, the respondent had applied an unimproved value of $550,000, or $160 per hectare to that property. With a carrying capacity of one beast to 3.4 hectares, that equates to a beast area value of $544 per beast. "Shiro" is situated about 60 km south-west of Taroom, with 26 km of bitumen and 24 km of gravel/earth roads; and 55 km west of Wandoan. It comprises 2nd class scrub grazing. Because of the superiority of the country to that of the aggregation, Mr Farrington regarded it as superior to the subject land. Sale 5 is a property known as "Woodlands", of 3,337.488 hectares, which sold in August 1998 for $829,000, or $248 per hectare. Mr Farrington analysed that sale to show $254,615 and as at 1 October 1999, the respondent had applied an unimproved value of $195,000, or $58 per hectare to that property. With a carrying capacity of one beast to 9 hectares, that equates to a beast area value of $522 per beast. -- 7 of 10 -- 8 "Woodlands" is situated about 45 km south of Wandoan by 35 km of bitumen and 10 km of gravel/earth roads. It comprises 31% of undulating to steep 2nd and 3rd class scrub grazing, 12% 2nd class forest grazing and 57% inferior forest range country. Because of the country type, Mr Farrington regarded the sale as inferior to the subject aggregation. The Appellants' Case Mr Conway's challenge to the valuation of the subject lands was essentially based on the proposition that Mr Farrington did not separately value each type of country that made up the aggregation. He argued that the land should be classified into various categories and each category assigned a particular value. To prove his argument, he assigned various values to the various categories of land, by using the values applied by the respondent to similar lands in the vicinity. This process resulted in a lower value than applied by Mr Farrington. Mr Conway was able to classify the land because he knows it intimately and was able to separate out even small areas of inferior land on the better scrub land. His argument had added force as it seems that a departmental valuer on a previous occasion had valued the land by this classification method. Mr Conway was concerned that Mr Farrington's broad-brush approach to the description of the country could not possibly account for the various types of land which were comprised in the aggregation. Although Mr Conway was critical of the broad approach to the description of country and the direct comparison method adopted by Mr Farrington rather than a detailed classification method of valuation, in my view, it was open to Mr Farrington to adopt that direct comparison method. There are difficulties with either method; the classification method is appropriate where there are sales of each type of country and where each class of country on the subject lands can be identified and valued separately. However, where as here, the sales are of essentially mixed country, then there would be a great deal of conjecture on the part of the valuer in attempting to attribute different values to each class of country. The problem with the direct comparison approach is that it requires considerable skill and experience to make the sometimes fine adjustments between the sales and the subject properties. When adopting such a method of valuation it is prudent for a valuer to check the end result by some other method. -- 8 of 10 -- 9 Mr Farrington is an experienced valuer who has worked in this area for 20 years. It was evident that he has a good understanding of the country and the market. In my view, his assessment of the unimproved value of each property by direct comparison with his sales cannot be lightly dismissed. Furthermore, he has checked his assessment by means of the beast area method of valuation. That showed a beast area value for the whole aggregation of about $535 for a carrying capacity of 1,860 head, or $995,000, adjusted for his applied discount of 7.5% for working and stock movement problems, the result of this check being $920,000 or $495 per beast. That result seems quite reasonable when compared with the beast area values disclosed by the sales. In my view, Mr Farrington has successfully demonstrated that he was well aware of the quality of the country in each of the properties in the aggregation. He adopted a broad-brush approach to his comparison with comparable sales as he readily admitted that he could not classify the land in same detail as the owner who had a much more intimate knowledge of the land. In my opinion, a hypothetical prudent purchaser as envisaged by the High Court in Spencer v. The Commonwealth (1907) 5 CLR 418, would adopt such a broad-brush approach and would not base the price he would pay for the land on a detailed classification method. The prudent purchaser would not attempt to classify each and every hectare of different country in the aggregation. Mr Conway also argued that the valuations of the lands in the southern part of the Taroom Shire had been valued out of relativity with the better scrub lands in the northern part of the shire. He relied on the recent sale of "Illuka" as proof of this. However, "Illuka" sold well after the date of valuation and is not relevant in this case. Mr Conway referred to the valuations of several properties which he considered to be out of relativity with the valuation of the subject lands. Essentially, however, the challenge in this case amounts to which of the competing methods of valuation should be adopted. Mr Conway argues that the classification approach should have been adopted. However, Mr Farrington was convinced that the direct comparison with sales was the more appropriate method. Both methods have their uses. The classification method is appropriate if sufficient sales are available for a valuer to be able to confidently attribute a separate value to each particular class of land. However, in the case of mixed country that seldom occurs and the valuer is forced into the position of making a direct comparison with sales of mixed country, making the adjustments as best he can for the various -- 9 of 10 -- 10 proportions of better and inferior country. That is the approach that Mr Farrington has adopted in this case. I am satisfied that he is well aware of the quality of the country in each of the properties in the aggregation. He made adjustment to the valuation on objection because of the larger proportions of forest country on "Spring Creek" and "Caenby". I am also satisfied that he has made proper comparison between the sales and the subject lands. He then adjusted the overall valuation by a discount of 7.5% for the difficulties and extra expense involved in working an aggregation where three of the four properties are separated by some distance from one another. Mr Conway agreed that the 7.5% discount for those difficulties was appropriate. Mr Farrington went on to check his valuation by the beast area method of valuation. That method confirmed that his valuation by direct comparison of sales and subject lands was soundly applied. In such circumstances, it could be misleading to resort to a detailed classification method of valuation, because sufficient sales of each type of country were simply not available. Such a method would depend on more assumptions and conjecture than the direct comparison and beast area methods. I conclude that Mr Farrington's valuation is soundly based and supported by the sales evidence. Mr Conway's suggested method of valuation is essentially a valuation by means of comparing the relativity of values applied to other lands. While the maintaining of correct relativity is of considerable importance in the valuation of lands for revenue purposes, an exercise such as that conducted by Mr Conway can never supplant valuations made by direct comparison with comparable sales: Grahn v. The Valuer-General (1992) 14 QLCR 327 and the cases cited therein. Therefore, in my view the appeal must fail. Order The appeal is dismissed and the respondent's unimproved value of Nine Hundred and Twenty Thousand Dollars ($920,000) as at 1 October 1999 is affirmed. JJ TRICKETT PRESIDENT OF THE LAND COURT -- 10 of 10 --