David v Chief Executive, Department of Lands [1995] QLC 44

LAND COURT BRISBANE 26th May 1995 Re: Appeal against an unimproved valuation for rental purposes - Valuation of Land Act 1944 - Local Government: Broadsound (RV94-203) Peter David v. Chief Executive, Department of Lands (Hearing at Mackay) DECISION As at 31st March, 1992, the unimproved value of land described as Grazing Homestead Perpetual Lease 4102, being Lot 10 on Plan MC 394 Parish of West Hill, containing 1,704 hectares, was assessed by the Department of Lands in the sum of $420,000. This valuation was adopted as the basis for calculation of the annual rent for the lease for the period commencing 1st July, 1993. The lessee, Mr David, appealed against the valuation for that purpose, contending in the Notice of Appeal for a valuation of $200,000. The grounds of appeal were as follows: "• The value applied by the Chief Executive is not supported by the Unimproved Value analysed from the sales of other grazing land in the District. • The value applied by the Chief Executive has no regard to the particular disabilities of this land, including access, the type of country, and soil deficiencies. • The valuation is wrong in law and in fact. • The value applied by the Chief Executive is out of relativity with other properties in the district. • The valuation applied by the Chief Executive does not properly reflect the use of the land. " The matter was brought on for hearing in Mackay on 7th February, 1995, together with the additional matter of the determination of the unimproved value of part of the lease for conversion of tenure purposes, but at the much earlier relevant date of 24th July, 1987. At the request of the parties the matters were heard separately, [1995] QLC 44 -- 1 of 9 -- 2 although there was an overlapping of much of the evidence. Both decisions will be delivered at the one time and, for a full understanding of the evidence, should be read together. The property subject of the valuation is located about six kilometres by road north of Carmila, adjacent mainly on the eastern side, to the North Coast Railway. The railway actually severs a small area from the main body of the holding in the extreme western end. Sarina is about 60 kilometres by road to the north of the property, via at first a gravel road for about two kilometres, then the Bruce Highway. Extending easterly from the railway, the land is separated from the Coral Sea coastline by a National Park. Spider Creek forms the boundary of the small western severance, to which stock access is available, under the railway. Spider Creek continues as a section of the north-western boundary easterly of the railway. The northern boundary is then surveyed southerly of West Hill Creek into which Spider Creek drains. The southern boundary adjoins other land owned by the appellant. Intersecting the eastern section of the holding is a tidal watercourse system including Bone and Blind Creeks, draining to the north-east and north through the northern boundary again to West Hill Creek. Mangrove and saltpan areas fringe Bone and Blind Creeks and along the northern boundary with some mangrove patches adjacent to Spider Creek. Easterly of the main saltpan area near Bone Creek is a strip of marine plain. The majority of the land, being the area generally between the railway and Bone Creek and a further strip adjacent to the eastern boundary comprises near level to very gently sloping coastal ti-tree forest country. Witnesses called by counsel for the lessee in this matter were Mr E.G. Baillie, one of the former lessees and a grazier, cane farmer and clearing contractor; Mr David, the current lessee; Mr J.R. Hughes, an agricultural technologist and Mr J.D. Dodds, a registered valuer. The single witness for the Chief Executive was Mr O.L. Eisenmenger, a registered valuer employed by the Department of Lands. Much of the evidence was devoted to the potential - or lack of it - for use of the land for the growing of sugarcane. Mr Baillie gave evidence as to his clearing activities on the land prior to the sale of the lease in 1987. He felt that there was about 45 hectares of reasonable quality soil "marginally suited" for the growing of sugarcane, but felt that the best use was for development as grazing land. Mr David's evidence related to the negotiations at the time of his purchase and his activities on the land since. He had previously acquired (in 1985) the property known as "Carmila Glen", adjoining to the south, and subsequently a property known as "Marr's land", adjoining to the south-west. The subject land had been acquired as an extension of the Carmila Glen grazing operation and significant development work had -- 2 of 9 -- 3 been carried out in the establishment of improved pastures. Various schedules of development expenditure were provided to the Court. Mr Hughes, through his employer, an agricultural agency, had been actively engaged (since 1991) in the development program on the subject land and had carried out extensive soil testing, leading to the selection and application of suitable fertilisers, pasture seeding, and the monitoring of pasture establishment. He was able to supply the actual costs involved subsequent to the seedbed preparation. His evidence was detailed and unchallenged. Mr Hughes' general experience included the establishment an maintenance of sugarcane plantations. He described the developed land on the subject property as comprising shallow duplex soils "inherently low in fertility with poor drainage and water permeability". The land had required extensive mechanical clearing to provide a suitable seedbed for the pasture development and had been largely affected by the mounding phenomenon colloquially known as "devil-devil". The evidence generally from witnesses for the appellant was that the shallow whitish soils in the devil-devil country lay over an impervious clay layer, were unstable when dry then crusted to a concrete-like surface after wet conditions. While Mr Hughes did not suggest that the land would not be capable of growing sugarcane, he was not confident that such use would be viable in the absence of irrigation, except under ideal seasonal conditions. Even then there was the need for the provision of suitable drainage infrastructure not only to successfully grow the cane but also to harvest the crop. It seems to be common ground that no adequate irrigation water is available on this property for the growing of sugarcane. There was no dispute that sugarcane is grown in the Carmila locality. Mr Dodds' evidence was that cane was being grown to the west of the property but on generally superior soil types near Carmila Creek and where some irrigation was available. He said that the locality had historically suffered problems through the necessity for sugarcane to be transported to the mill by rail. There had been no knowledge in the period relevant to the date of valuation of the subsequent planning for extension of a tramline. Mr Dodds referred to the probability of salinity problems on the subject land, its poor quality soils and the need for irrigation for viable sugarcane production. He considered that at best none of the subject land should be regarded as other than marginal cane land. With large areas of superior quality land available, he did not regard potential for growing sugarcane as having any influence on the unimproved value of the property, as at the relevant date. Mr Eisenmenger on the other hand had been influenced by a Department of Primary Industries (as it was then) report which identified part of the subject land as -- 3 of 9 -- 4 containing Class 3 land - "suitable for growing sugarcane with moderate limitations". He considered an area of "about 300 hectares has a superior quality soil" and being "suitable for agriculture, preferably for the growing of sugarcane". Mr Eisenmenger did not however have regard to the identification in the DPI report of a probable salinity problem in the locality of the subject land. I should say here that the DPI report by its very nature indicates to me a broad brush approach in terms of identification of suitable land, rather than specific site investigation. I accept Mr Dodds' approach in recognising that long-term potential may exist, but that the suitability of the land should be regarded as unproved and at the relevant date subservient to grazing use. Inherent in Mr Eisenmenger's valuation but unidentified in terms of quantum is a potentiality having the effect of enhancing market value. Under cross-examination Mr Eisenmenger's evidence was that he valued the land with a highest and best use for grazing but with an inherent long-term potential - "something that someone would look at and think....maybe 15 years or something down the track". It seems to me that the probability of any agricultural potential being realised was so remote at the relevant date as to not have any identifiable positive effect on market value. Other than identification by Mr Eisenmenger of the 300 hectares of land with perceived arable potential, there is no real dispute between the valuers as to the nature of the land overall. With minor adjustment I observe that both have found about 1,300 hectares of near-level coastal forest with predominantly original timber cover of ti-tree, and with extensive areas of devil-devil influence; about 100 hectares of marine plain and about 300 hectares of mangrove and saltpan areas. The evidence is that about 920 hectares of the coastal forest land has been developed to improved pasture by pushing and burning of the original timber cover, blade ploughing, raking, disc harrowing, fertilising and seed spreading. Mr Dodds estimated the total cost of development including the cost of seeding and fertilising, at $895 per hectare as at the date of valuation. These costs were suggested as being conservative based on Mr David's schedule of actual and estimated costs. Mr Dodds felt that if the total area of coastal forest was available to be cleared, the carrying capacity of the property would be 1,150 head of adult mixed cattle. He had however agreed with Mr David's interpretation of a tree clearing permit which issued in 1991, restricting clearing on 20 per cent of the area subject of application, together with buffer strips, as suggesting that 25 per cent of the total coastal forest land was unavailable for improvement. On that basis he estimated the safe carrying capacity as being 930 head. Mr Eisenmenger did not agree that the tree clearing permit conditions should have been interpreted as applying to other than the actual area -- 4 of 9 -- 5 for which a permit had been sought. He would not be drawn into providing an estimate of carrying capacity for the subject property in a notional fully developed state. The valuation history of the subject land was well-known to Mr Dodds. He had appeared in both Land Court and Land Appeal Court hearings in relation to a 1983 application for conversion of tenure. Here, Mr Dodds had been incorrectly instructed as to the relevant date of valuation for the rental matter being the 1st of July 1993. Additionally he had incorrectly assumed that the valuation was required under the "Land Act 1962-1989", from which legislation he had quoted the definition of unimproved value. He had assessed the unimproved value at $90 per hectare, totalling $153,360. The basis of his valuation was the evidence which he extrapolated from the sale of a property "Marklands" as at 21st August 1992. In his opinion, and there is no evidence to the contrary, there had been no circumstances which had materially affected the level of unimproved value in the period from March 1992 to July 1993. He held the opinion that the Marklands sale was the best evidence of value at either date. Counsel for the Chief Executive levelled some criticism at his use of an "after date" sale and the "incorrect" definition of unimproved value. As it happens, nothing technical turns on the quoted definition as it applies to this particular case. With regard to the date of sale, the following comments of Williams J. in Daandine Pastoral Company Proprietary Ltd -v- Commissioner of Land Tax of the Commonwealth of Australia ("The Valuer", October 1943, Vol 7 Folio 299) are worth repeating: "Values must be calculated in the light of circumstances which existed on the material date...but subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances. Subsequent sales are just as admissible in evidence as prior sales provided that in all the circumstances they are comparable..." There is no reason in my opinion, for the date of the Marklands sale in the market circumstances said to have been existing, to in any way detract from its evidentiary worth, if indeed comparisons between Marklands and the subject land were of assistance. According to Mr Dodds the Marklands sale showed an "unimproved value" of $694 per hectare for the classified grazing land (excluding 80 hectares of cane land). I am unable to accept however that Mr Dodds' "unimproved value" analysis follows acceptable valuation principles. To overcome the different timber treatment costs, as I understand his evidence, he has notionally altered the status of Marklands in its true unimproved state. However, his actual method of comparison was on a beast area value - "bare grazing" - basis. His analysis of the sale of Marklands indicated to him a "bare grazing" value (ex structures, fencing, water and cane land) of the equivalent of -- 5 of 9 -- 6 $1,128 per beast (based on a carrying capacity of 1,900 head adult mixed cattle). When he applied that directly to the subject land he arrived at the following assessment of unimproved value: 930 head @ $1,128 = $1,049,040 Less cost of pasture development: 920 hectares @ $895/hectare plus interest 895,400 Unimproved value of subject property $ 153,640 Calculates to a value for the total property of $90.16/hectare In the circumstances, I have no criticism of his considerations (although it seems he found a "gross" rather than "net" unimproved value), for it theoretically identified a basis on which a cogent "like with like" comparison was possible. Critical to the veracity of the approach though is first, the correct estimate of relative carrying capacities (his estimates being subjected to at least serious challenge, if not shown to be wrong). Second, and just as important, is the assessment of the added value of, in this case, the pasture development. An analysis of Mr Dodds' estimates casts doubt on whether the added value of the pasture development equates the cost involved. He suggested that, had there been no clearing restrictions, full development of the ti-tree coastal forest, over and above the 920 hectares actually improved, would increase the carrying capacity by 220 head. If it was accepted that another 380 hectares (1,300 hectares-920 hectares) of further pasture development would have been possible, the cost of that development, on his estimate (including interest) would have been about $370,000. However, the "bare grazing" value of the property would have increased only by about $250,000. (220 head @ $1,128 per beast) While Mr Eisenmenger had some knowledge of the 1992 Marklands sale, and had inspected the property subsequent to that sale, it had not been recorded until well after the contract date and consequently had not been included in the basis of the 1992 annual valuation. Although he had not personally analysed the sale, Mr Eisenmenger believed that it had shown such a high level of unimproved value that it had not been adopted by the Department's valuers as reflecting the fair market value. This of course may have been influenced by his evidence that the carrying capacity potential of Marklands had been seen by the Department to be much lower than that stated by Mr Dodds. It should be mentioned here that an earlier (1985) sale of Marklands had formed the primary basis of both Mr Dodds' valuation and that of Mr Penny, the Department of Lands valuer involved in the 1987 conversion of tenure matter. A significant increase in value had been recorded since the earlier sale. Mr Dodds had suggested that the grazing industry recognition of the value of ponded pasture land had increased over that -- 6 of 9 -- 7 period. Marklands had large areas suited to such development and that in itself may have further widened its superiority over the subject land. Mr Eisenmenger was the valuer responsible not only for the valuation appealed against but the relevant date annual valuation of at least the grazing lands in Broadsound Shire. It was his evidence that all recorded sales throughout that area in the period relevant to the valuation had been considered as part of the annual valuation process. When it came to providing a specific basis to support the subject valuation, the best of the available evidence had been considered to be two sales in the Parish of Long Hill and a third in the Parish of West Hill. His valuation of the subject land was $246 per hectare. The first sale was of 442.2 hectares about 53 kilometres south of Sarina and about 20 kilometres by gravel and earth roads westerly of the Bruce Highway. The land sold in November 1991 for $246,450. The sale had been analysed to show an unimproved value of $179.26 per hectare for land described as comprising "350 hectares of undulating to moderately sloping forest of ironbark, bloodwood, poplar gum and blue gum on creeks. 92.2 hectares steep rough mountain." Mr Eisenmenger's sale schedule contained the following comments - "The sale is inferior to the subject. Access and services are far inferior than those on the subject. There is a significant percentage of rough, unproductive country on the sale, whereas the subject does not have that type of country. The subject has an area of better quality country suitable for agriculture which is not available to the sale." Adjoining to the south-west of the first sale, the second sale comprised an area of 1,677 hectares (of which a special lease comprised the majority of the area). The property sold for $215,000 in March 1991, and the sale was analysed to show an unimproved overall value of $92.40 per hectare, including the leasehold land. Mr Eisenmenger described the land as comprising "about 260 hectares undulating to moderately sloping forest with flats along creeks. Balance steeply sloping forest and scrub patches." His comparison was as follows: "The sale is much inferior to the subject. A major proportion of the sale property is rough range country contained in a Special Lease. The access and services to the sale area inferior than those on the subject. The overall quality of country on the sale is far inferior than the country on the subject." The third sale was the purchase by the appellant, Mr David, of 284 hectares adjoining the extreme south-eastern part of the subject land (being the "Marr's land" referred to earlier). The sale was effected in March 1991 and the sale price of $180,000 had been analysed to show an unimproved value of $424.40 per hectare. Sugarcane had previously been grown on part of the land. There was no natural water. Mr Eisenmenger described the land as being "generally all undulating coastal -- 7 of 9 -- 8 forest of tea-tree, bloodwood, ironbark, messmate and some blue gum". In comparison with the subject land were the comments "The sale is considered superior to the subject by virtue of the better quality country and the superior soils on the sale. The sale is adjacent to the subject and access and services are similar. The sale is much smaller in area than the subject." Mr David had given evidence as to the reasons for the purchase of this adjoining land. I am left in no doubt that there were factors which could well have made the property more valuable to the purchaser as the adjoining owner. The sale would not be seen as a reliable basis of valuation, even for land of comparable quality and size, but certainly is of no assistance in this matter. In fact, the evidence which Mr Eisenmenger found it necessary to use as a basis of valuation is indicative of the difficulties which no doubt both valuers faced. The nature of the land in the first two sales is hardly comparable in type or location relative to the coast. The nearest comparability is probably that both sale properties were used for grazing purposes in an area of similar rainfall. Mr Eisenmenger highlighted the superiority of the subject land in terms of its agricultural potential and I have already made comment on that particular aspect of the valuation. He made reference to the significant percentage of rough unproductive country on the first sale property, yet it would have been also fair to note that the subject property was intersected and affected by equally significant areas of unproductive salt pan and mangrove influence. The second sale property included a large area of special lease, with little, if any, development potential. The comfort which Mr Eisenmenger took from that sale was that it showed a base level of value for a large aggregation with tenure overall less than freehold. However, it is clear that the overall level of value is distorted unless the two components involved are separately identified - the small freehold part being far more valuable than the large leasehold area, on a unit of area analysis. The overall valuation evidence places the Court in a difficult position. I am not persuaded that the market value of the subject land was enhanced at the date of valuation by any long-term potential for the growing of sugarcane. I also have some real doubt that the development as has been effected in the establishment of improved pastures has yet been proved economically viable - nor will it be so proved in the short term. The same parties in another matter wish to rely on the evidence of a sale of Marklands at an earlier date (1985). The 1992 resale of Marklands indicated a significantly increased level of value in terms of the land content. However, the appellant seeks to rely on the later sale as supporting an unimproved valuation which, when all things are considered, is more in line with the earlier sale. The respondent suggests that the resale is so excessive in terms of an analysed unimproved value that it can be of no further assistance. The evidence suggests to me that the superior potentialities of Marklands, in -- 8 of 9 -- 9 comparison with the subject land, may well have been better recognised by the market by 1992. I am unable to accept that Mr Dodds' methodology in the application of the 1992 sale, and his total reliance on that sale, is a sound basis for his valuation. I find the sale of no real assistance, except to indicate that the value of Marklands, at least, had risen considerably since 1985. On the other hand the valuation appealed against has been successfully challenged. Although the Department's valuation is said to be based on its grazing potential and that the long-term potential for arable use has had little effect on the valuation, I am not so convinced. I am also not convinced that the Department has fully recognised the cost of development of such inferior coastal forest land if, as it has been said, the basis of valuation is that the highest and best use of the land at the relevant date was for grazing purposes. In the end result I have decided to adopt an unimproved value as at 31st March, 1992 based on a level of value of $175 per hectare overall. When all things are considered, it seems to me that Mr Eisenmenger's first two sales support such a valuation more so than they do the valuation which he applied. The appeal is therefore allowed, the valuation of the Chief Executive set aside and the unimproved value as at 31st March, 1992 for rental assessment for the period commencing 1st July, 1993 determined in the rounded amount of $300,000. RE Wenck Member of the Land Court -- 9 of 9 --