Finlayson v Chief Executive, Department of Natural Resources and Mines [2001] QLC 77

LAND COURT BRISBANE 19 JULY 2001 Re: Appeal AV00-39 An Appeal against an Unimproved Valuation - Valuation of Land Act 1944 Local Government: Johnstone Shire J and L Finlayson v. Chief Executive, Department of Natural Resources and Mines D E C I S I O N Mr and Mrs Finlayson are the owners of two near adjoining parcels of land described as Lot 179 on Crown Plan NR5234 and Lot 281 on Crown Plan NR5235, Parish of Hull, containing a total area of 110.1 hectares. The "Rural" zoned land is situated on the western frontage of the Bruce Highway, about 500 metres south-east of the Silkwood Railway Station and 26 km south of Innisfail. Electricity and telephone services are available and have been connected by the owners, at their expense, to a dwelling on Lot 281. As at 1 October 1997, the chief executive had valued the land in the amount of $160,000. The owners had objected to that valuation and it was reduced to $135,000. Remaining dissatisfied, the owners appealed against that reduced valuation, to this Court. Their estimate of value as contained in the Notice of Appeal was $90,000. The grounds of appeal included reference to a sale of Department of Primary Industries Research Station land at Utchee Creek, 152.1 hectares of which was used for cattle breeding and fattening, and carried an unimproved valuation equivalent to $637.73 per hectare. It was suggested by the appellants that the sale price of $850,000, for a total area of 270 hectares did not support the total unimproved valuation of $296,000 which had existed at the date of sale. It was the owners' contention that because the subject land was used for grazing purposes it was wrong for it to be valued on the basis that it possessed any cane-growing potential. The valuation appealed against ($135,000) had represented an 80% increase above the previously existing valuation, altering relativity with adjoining and nearby lands, the valuations of which had been increased by 20% at the relevant date. [2001] QLC 77 -- 1 of 7 -- 2 Prior to the hearing of the appeal, the owners had been provided with a copy of a valuation report prepared by Mr ML Donnelly, a registered valuer employed by the chief executive. In that report the land was described as follows: "Lot 179 on Plan NR5234 is predominantly low lying and broken tropical scrub country fronting North Maria Creek. The soils on this section are good clay loams however this country is not considered to be arable in nature due to the extensive flooding it experiences and its broken nature. Lot 281 on Plan NR5235 is a large hatchet shaped block with extensive frontage to the Bruce Highway. This property in its natural state comprises generally level to easy undulating coastal forest country being slightly broken in nature. Approximately 75 hectares is considered to possess arable potential being classified as second to third class cane land, with the remaining 17.5 hectares of this property forming gully lines and false banks that intersect the property." Later in the report Mr Donnelly stated that: "The land is currently utilised as a grazing concern however the highest and best use of the land is considered to be sugar cane growing in accordance with the land's inherent arable potential and the adjoining land uses." For confirmation of his opinion as to the potential for cane farming, Mr Donnelly included within his report soils classification mapping which indicated that the actual soils on the subject property ranged from the highest suitability (Tully Soil type - classification 1) on Lot 179 to classification 2 (Bulgan Soil type) and classification 3 (Feluga Soil type) on Lot 281. Clearly the soil type mapping is but one criterion for arable suitability as Mr Donnelly accepted that Lot 179 was largely a flood channel and unsuitable for arable development. On Lot 281 he found that part of its area should be classified as unsuitable for arable development being "gully lines and false banks that intersect the property". Mr Finlayson conceded that part of Lot 281 was physically capable of arable development, but argued that the area was limited to 60 hectares (as opposed to Mr Donnelly's assessment of 75 hectares). Even so, it was his opinion that the soils were of such inferior quality that the economics of cane growing would be at best, marginal. The evidence was that adjoining land to the south and north and generally in the locality was developed for cane farming. Mr Finlayson conceded that the adjoining land to the south was of generally comparable nature to the subject Lot 281 -- 2 of 7 -- 3 except for a specific flood problem on the subject land which had been created by the damming effect and inadequate drainage of the Bruce Highway earthworks construction. He said that it had been proved that the otherwise comparable natural flooding disability on the adjoining land to the south had been capable of causing significant economic loss. He saw it as relevant that he had never been approached by a cane farmer seeking to acquire the subject property. His evidence was, however, that he had once applied for one of two cane assignments which had become available to the Mourilyan Mill but that application had not been successful. The thrust of the appellants' case was that, despite any arable development potential which might be considered to attach to the subject Lot 281, the property had been continually used for the business of grazing and should be valued on that usage potential. Mr Finlayson objected to evidence of value for the subject land being established from sales of cane farms, rather than grazing properties. He said that he had been informed that many years ago a Court had upheld an appeal against grazing land being valued as having cane-growing potential in a case relating to land in the Mackay/Sarina district, but was unable to provide any details of that case. He could not understand why the Utchee Creek sale had not formed the basis of the valuation of the subject land. Mr Donnelly was able to inform the Court that in an appeal against an unimproved value in the Pioneer Shire, by Kielbach & Others (V79-866), the Land Court had, contrary to the understanding of Mr Finlayson, found that grazing land with potential for cane farming should be valued on the basis of its highest and best use. With regard to the Utchee Creek sale, Mr Donnelly's investigations and analysis of that sale indicated that, despite the auction process involved in the sale of the property, the sale price was demonstrably below market value. Furthermore that part of the sale property to which Mr Finlayson had specifically referred for comparison purposes, had also been valued as having some arable potential. Unimproved Value Considerations The meaning of "unimproved value" is provided in s.3(1) of the Valuation of Land Act 1944 as follows: "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 -- 3 of 7 -- 4 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." Pursuant to s.17 of the Act land with potential for uses higher than for purposes of "farming" (ie the meaning of which includes, inter alia, grazing and the growing of crops) may be valued with any enhancement in value for that higher use disregarded. However, once land qualifies to be valued as being exclusively used for purposes of "farming" as defined in s.17, there is no further distinction as to whether the actual use is, for example, grazing or the growing of crops. It is the potential of the land for its highest and best "farming" use which is to be considered. The appellants say that, in any event, the arable use potential of the subject land is quite limited both in terms of available area after consideration of the drainage and levelling work which would be necessary to bring the land into arable use, the environmental risks associated with further clearing and then the poor intrinsic qualities of the soils. Mr Donnelly's opinion was that in comparison with the overall evidence provided by sales of seven cane farms; relativity with values applied to comparably inferior quality cane lands, and particularly those adjoining to the south; the negative features of the subject land; its reasonable valuation should be calculated as follows: "75 hectares Arable @ $1900 per hectare $142,500 (An allowance for workability and drainage is inherent in the above arable rate) 35.1 hectares gully lines, depressions and flooded balance lands @ $450 per hectare $15,795 $158,295 Apply $157,500 (or $1430 per hectare overall)" His suggested valuation is in excess of the valuation appealed against and close to the original valuation of $160,000 which had been reduced on objection to $135,000. Mr Finlayson was astounded by the approach of Mr Donnelly and the respondent, in leading evidence to a higher figure after having considered the question of value in the objection process. Mr Fisher, Barrister, who appeared on behalf of the -- 4 of 7 -- 5 respondent, invited the Court to increase the valuation appealed against pursuant to s.66 of the Valuation of Land Act which relevantly provides: "Upon an appeal under section 55 the Land 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; … " The reasons given by Mr Donnelly in his oral evidence for increasing the valuation was that, despite the decision on objection, in his preparation for the hearing of the appeal he had carried out an inspection of the land, considered the soil mapping produced by the Department of Primary Industries and had come to the conclusion that a valuation of $157,500 was more reasonable. During the course of his oral evidence he also referred to having made an allowance of 10% for potential working and drainage disabilities, including the specific flooding disability created by the elevated construction of the Bruce Highway. He had given consideration to the "flow" of country, into Lot 281 from the neighbouring property to the south. A drainage disability allowance of 5% was said to have been made on that larger adjoining cane farm. There was no evidence before the Court as to the valuation applied to other lands as at the relevant date except the cane farms subject of the five sales which had formed the original basis of valuation. The further two sales were mentioned in Mr Donnelly's report as supporting the increased valuation. I do not propose to discuss the sales evidence in detail. However, it is observed that the unimproved value applied to Sale 2 (Zaini to Anich) was calculated as 51.6 hectares of predominantly easy to moderately sloping ex-red volcanic scrub country being broken in nature and affected by stone, at $2,375 per hectare and 4 hectares of creeks and gullies at $450 per hectare, the total valuation of $124,000 "representing an 89% application" of the analysed unimproved value shown by the sale. However, with regard to Sales 1, 3, 4 and 5 the applied values represented 55%; 59%; 57% and 60% of the analysed unimproved values shown by those respective sales. Although it seems reasonable to conclude that those latter sales have been disregarded as basic evidence of unimproved value, Mr Donnelly's contention was that the sales supported the applied valuations which were seen as being "conservative". However, in the circumstances, if the unimproved values applied to -- 5 of 7 -- 6 the sale lands are to be accepted as being soundly based, then the question of correct relativity between valuations becomes a relevant issue in this matter. The fact that the valuation of the appellants' land has risen out of relativity with the previously existing valuations of other lands, is irrelevant, because it was not until this date of valuation that the arable potential of the subject land became an identified component of the assessed unimproved value. It is accepted that part of the subject land has arable potential. Consequently, relativity between valuations applied to lands with comparable arable potential is an important issue. Mr Donnelly's evidence was that his Sale 1, which has an applied valuation of $3,050 per hectare for 29 hectares of level to easy sloping predominantly sandy coastal forest country, and $450 per hectare for 3.28 hectares of balance area creeks and gullies, is the most comparable sale land "due to its proximity". If that is the best relativity evidence for a valuation of $1,900 per hectare for the arable component of the subject land, after an allowance of 10% for working and drainage disabilities, then clearly the comparison process was a difficult one. In terms of applied values, the comparison between Sale 2 and the subject land is closer but that seems to be somewhat coincidental when like with like comparisons are attempted on the basis of country, soil types and situation. Conclusions Mr Donnelly's approach in valuing the subject land for its highest and best "farming" use is correct in principle. However, the overall evidence influences me to conclude that this is a case where a cautious valuation approach is warranted, at least until the productive potential and extent of the arable land remains unproved. Furthermore, I am not convinced that sufficient allowance has been made by Mr Donnelly for the potential working disabilities, drainage and specific flooding problems which relate to the subject land, particularly when compared with the allowance made on the adjoining property to the south. Finally, I have concluded that when consideration is given to the severance, extent and nature of the "balance" areas on the subject property, that land component has been overvalued in comparison with the values applied to the "balance" area components on most of the sale lands. It seems to me that the decision on the objection to the original valuation brought about an equitably conservative result. I therefore decline the respondent's invitation to now increase the valuation appealed against. -- 6 of 7 -- 7 Orders (1) The appeal is dismissed. (2) The valuation appealed against in the amount of One Hundred and thirty- five Thousand Dollars ($135,000) is affirmed. RE WENCK MEMBER OF THE LAND COURT -- 7 of 7 --