Drage and Department of Family and Community Services

DECISION AND REASONS FOR DECISION [2001] AATA 398

ADMINISTRATIVE APPEALS TRIBUNAL )

) No W2000/197; W2000/198

GENERAL ADMINISTRATIVE DIVISION       )
           Re      Geoffrey Allan DRAGE and Marie Lucille DRAGE
  Applicants
           And    Secretary, Department of Family & Community Services
  Respondent

DECISION

Tribunal Mr R D Fayle, Senior Member

Date10 May 2001
PlacePerth

Decision      Pursuant to s43 of the Administrative Appeals Tribunal Act 1975, that part of the decision under review, (being the decision of the Social Security Appeals Tribunal, of 18 May 2000 and dated 29 May 2000), relating to the value of $300,000 attributed to "unencumbered real estate (Isachar blocks)", for the purpose of the section 1064-Module G of the Social Security Act 1991, is affirmed.
  ............(- sgd RD Fayle -)..............
  Senior Member
CATCHWORDS
SOCIAL SECURITY – Asset test – Valuation of rural land – Real estate market appraisals – Sworn valuation.
Social Security Act 1991, Pension Rate Calculator, Module G-Asset Test, s1068-G
Re Woodhouse and Secretary, Department of Social Security 12 ALD 474
Spencer v The Commonwealth of Australia (1907) 5 CLR 418
R v Brown (1867) 2 LRQB 630

REASONS FOR DECISION

10 May 2001 Mr R D Fayle, Senior Member

This is an appeal by Mr Geoffrey Drage and Mrs Marie Drage ("the applicants") from the decision of the Social Security Appeals Tribunal ("SSAT") on 18 May 2000. The SSAT decided that the combined assets value for the purpose of the Social Security Act 1991("the Act"), Pension Rate Calculator, Module G – Asset Test s1064-G, exceeded the asset value limit (Partnered). In that result, no age pension is payable.
It was accepted by consent that the only issue before the Tribunal is the value of Mr Drage's land at Northampton, Western Australia, being Lots 1 & 2 Victoria Locations 2368 on diagram 82182 (certificate of title volume 1926, folio 96) and portion of each of 831 and 2368 on diagram 82182 (certificate of title volume 1926, folio 97), ("Lots 1 & 2").
Neither applicants attended the Tribunal but were represented by Mr Phil Grinter, a Rural Counsellor who also gave evidence. Mr Steve Ellis, an advocate with the Advocacy and Administrative Law Team, Centrelink, represented the respondent. The Tribunal had before it documents filed pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the T documents") and took into evidence the following exhibits:
A1      Opinion of Alan Cripps Real Estate re Lot 2, dated 3 May 1993;
A2      Opinion of Alan Cripps Real Estate re Lot 1, dated 3 May 1993;
A3      Elders Real Estate market appraisal dated 13 September 2000;
A4Letter from Mr Gould, Elders Real Estate to Mr Grinter, dated 22 January 2001;
A5(a) Facsimile from Freedom Tanks, dated 14 September 2000;
A5(b) Facsimile from Midwest Fibreglass, dated 12 September 2000;
A5(c)   Facsimile from Fence-Rite WA, dated 11 September 2000; and
A6      Copy of an article from the Countryman, dated 14 September 2000.
Subsequent to the hearing on 6 March 2001, Mr Grinter provided the Tribunal with a signed declaration by Mr Leyland Gould affirming his unsigned witness statement, which was marked for identification during the hearing. Mr Ellis, for the respondent, acknowledged during the hearing that he did not object to the evidence of Mr Gould being admitted provided it was supported by a statutory declaration. The declaration obtained was not a sworn statutory declaration but merely witnessed. The Tribunal took that evidence into consideration pursuant to s33(c) of the Administrative Appeals Tribunal Act 1975. The Tribunal assigned exhibit number A7 to that statement.
As mentioned, Mr Phil Grinter gave evidence on behalf of the applicants. Mr John Bell, a licensed valuer, with the Australian Valuation Office gave evidence for the respondent.
Lots 1 & 2 comprise approximately 88 hectares and 106 hectares respectively, have a common boundary and each are bordered by the Isachar Back Road, about two kilometres from the town of Northampton, (T19, pp.65, 77 &b 78). Both lots are registered in the name of Mr Drage. The property is described by Mr John Bell, in his valuation as:
"An undulating to hilly developed property of 193.6 hectares consisting of two locations both with good access and frontage to Isachar Back Road. Some 50% of the property is good arable loam over clay country with the balance being unarable stony hill country with scrub outcrops." (T19, p.62)
Mr Bell reported that the fencing was "in poor to fair condition". (T19, p.65). In relation to the water supply, he stated:
"Water appears to be a potential problem on this property. Water is supplied from three mills, two equipped with 6 metre deep wells in poor condition that pump up to 9,000 litres (2,000 gallons) per day and one equipped with a 60 metre bore which pumps 3,600 litres (800 gallons) per day. Small concrete/iron tanks and troughs connected with polypiping in poor condition are attached to each of these water points. Whilst waters are run down and in need of repairs the water quality is good and adequate for the existing operation. (T19, p.65)
Mr Grinter told the Tribunal that the applicants no longer use the property themselves for primary production but have leased it to a neighbour for, he believes, about $9,100 per annum although Mr Drage is responsible for the shire rates.
Mr Bell reported that the average rainfall in the district was 500mm, however Mr Grinter opined that it was only 450mm. Although Mr Grinter did not support his opinion with independently assessed information he did submit that the average rainfall is a critical feature in any rural valuation as it affects the optimal use that can be made of the property.
The Tribunal had before it the following written "valuations":
(a)      Two separate "opinion(s) of market worth" by Mr Alan Cripps of Alan Cripps Real Estate, Northampton, each dated 3 May 1993. The first relates to Lot 1 (ex. A2) and the second to Lot 2 (ex. A1). Mr Cripps stated in relation to these:
"In our opinion the worth of the property [Lot 1] is between $90,000 and $98,000." (A2)
"In our opinion the worth of the property [Lot 2] is between $99,000 and $112,000.
(b)       A market appraisal by Mr Leyland Gould, Elders Real Estate, Geraldton dated 8 December 1999. Mr Gould stated:
"Market Value
In today's slightly depressed market I consider this property to be worth in the vicinity of $1,200/hectare which equates to $231,600." (T7)
(c)       An assessment of the current market worth of the property by Mr John Stott, Wesfarmers Dalgety Real Estate, dated 15 May 2000. Mr Stott stated:
"From a discussion with you and a roadside inspection, the property would suit grazing of stock with a small area of cropping land.
Due to the location of the land very close to Northampton and the size of the lots, I believe the land to be worth in the vicinity of $250,000." (T20)

(d) A market appraisal by Mr Leyland Gould of Elders Real Estate, Geraldton, of both Lot 1 and Lot 2 together, dated 13 September 2000. Mr Gould stated:
"Market Value
In today's slightly depressed market I consider this property if sold in two separate lots to be worth in the vicinity of $1,243/hectare which equates to $240,000." (ex. A3)

(e)      The valuation by Mr Bell of the Australian Valuation Office ("AVO"), referred to above, which stated inter alia:
"Valuation Approach
Based on comparable sales in the locality:
96.5 hectares arable cleared and pastured @ $1,900/haxb   $183,350
97.1 hectares, bush/part cleared, good grazing @ $1,200/haxb                   $166,520
  $299,870
  Adopt $300,000 ($1,550/ha overall)" (T19, p.68)

Before discussing those appraisal/valuations in context, it is relevant to refer to the disclaimers made by the various authors.
Mr Cripps' two opinions (ex. A1 & A2) each have four separate qualifications, the two most relevant being:
"1. The opinion of the market is not a sworn valuation, nor can it be relied on as such.
2. The opinion of market worth is merely an indication of market value, whereas real market value can only be determined by the amount a willing purchaser (sic) is actually prepared to pay for the property."
Mr Cripps' qualified his report by listing "imponderable and variable facts and matters that can affect the accuracy of the opinion of market worth". It then listed nine factors but made no comment in regard to any as to whether they may be relevant to his opinions of market worth. Mr Cripps further qualified his opinion by making a general disclaimer accepting no responsibility toward any third party.
Mr Gould's two market appraisals of 8 December 1999 (T7) and 13 September 2000 (ex. A3) each bore the following qualification:
"This report is prepared strictly as a market appraisal and not a valuation and is solely for the party to whom it is addressed to provide an estimate of what the property will realise if offered for sale at the date of this report. No liability whatsoever shall be accepted by us if used for any other purpose or by any third party."
Mr Stott's "assessment of current market worth" of 15 May 2000 (T20) contained the following qualification:
"Disclaimer
This is not a full valuation but rather a market appraisal prepared by Wesfarmers Dalgety and is indicative to (sic) the prevailing market at the date hereof. Whilst this appraisal has been formulated from sources we deem to be reliable and is tendered in good faith, no warranty, expressed or implied, is made by Wesfarmers Dalgety as to the accuracy or completeness nor does it accept any responsibility for matters arising therefrom."
Mr Bell's valuation (T19) included the following paragraphs in this respect:
"Proviso
This valuation report is made as at today's date and is not to be used after 6 months and not if there are any material or economic changes meanwhile. In either event it should be referred back to the Australian Valuation Office for review.
Disclaimer
This valuation is for the exclusive use of the client to whom it is addressed and is not to be used by any other party for any purpose.
Neither the whole nor any part of this valuation report or any reference thereto may be included in any published document, circular or statement, nor published in part nor in full in any way without written approval of the Australian Valuation Office of the form and context in which it will appear."
In support of the contention made on behalf of the applicants, that the value of Lots 1 and 2 have been overstated by the respondent in arriving at its value for the purposes of Module G-Asset Test (supra), the Tribunal received into evidence a witness statement by Mr Gould (A7). In it Mr Gould states that he has worked as Northern Area manager of Elders Real Estate for the last 13 years and prior to that he owned a farm in the Northampton area. He expresses his view that the valuation made by the AVO of Lots 1 & 2, of $300,000, given the market climate in November 1999, is "extremely optimistic for this 193.6 hectare property". He states that the rainfall in the area is 18 inches (450mm) and not 500mm as reported by the AVO, but does not support that conclusion. He supports his opinion [that the AVO's valuation is extremely optimistic] by reference to actual sales of properties. The first is a property "of a similar nature" of 279 acres about 8 kilometres north of Northampton which was sold in February 2001 for an average price per hectare of $1,133.
As that last mentioned sale occurred well after the valuation date of November/December 1999 it can be taken as indicative only of what its value may have been around the relevant valuation time.
Mr Gould also refers to a sale in March 1998, of a property "which has some similarities", known as Lot 63 in the Bowes Agricultural area (which the Tribunal understands to be in the vicinity of Northampton). This property sold for an average price per hectare of $1,301.
The next property referred to by Mr Gould in his statement (A7) is one of 170 hectares, 20 kilometres east of Geraldton in Narratarra, the sale of which settled in March 2001. He states that the property has a house and sheds and "its soils are superior, being river loams, a river running through the property and has bitumen road frontage". He expresses the view that this is "a much better value property than the subject property in terms of location, titles and soils". This property sold for an average price of $1,497 hectares. The Tribunal noted that this sale occurred well after the relevant valuation time of November/December 1999 and can be indicative only.
Mr Gould also referred to a sale of a 530 hectare property in two titles for $360,000, which the Tribunal calculates to be approximately $679 per hectare. Mr Gould stated that this is "quality farming country with improvements including a shed". But no mention was made of the location of the property or when the purported sale occurred.
Finally, Mr Gould stated that his "office recently received a verbal offer of $180,000 for Geoff Drage's property".
The Tribunal understands that the applicant wished to call Mr Gould to give evidence but he was unavailable on the day of the hearing, either in person (Northampton is several hundred kilometres from Perth where the hearing was conducted) or by telephone. Mr Grinter requested that the Tribunal adjourn so as to hear Mr Gould's oral evidence at a future time. However, having regard to the fact that the Tribunal had scheduled the hearing some months previously, and its then current program, the request was denied. In his absence Mr Gould's evidence (A7) could not be tested by either the respondent or the Tribunal. The Tribunal cannot therefore accept Mr Gould's witness statement without qualification and takes his evidence in that form to provide the Tribunal with an indication only of what properties (which may or may not be similar) in the Northampton district sold for at various times. It was on that basis that Mr Gould proffered his opinion that "the AVO's estimate of $300,000 is extremely optimistic".
In his submissions for the applicant Mr Grinter summarised the several market appraisals/valuations above for Lots 1 & 2 and compared them by plotting them on a white-board provided for the purpose in the hearing. This plot showed the AVO's valuation (T19) of $300,000 (April 2000) as being the highest, followed in descending order by that of John Stott (T20) of $250,000 (May 2000), Gould (A3) of $240,000 (September 2000) and Gould (T7) December 1999) of $231,600. Mr Grinter also plotted the "verbal offer" of $180,000 referred to in Mr Gould's witness statement, however, the Tribunal simply rejects that evidence as having any relevance or reliability.
In terms of giving relative weight to the evidence of valuation before it, the Tribunal noted that the only valuation providing any detail about Lots 1 and 2 was that of the AVO (T19). It followed a standard valuation report form, encompassing relevant background information about the time of valuation, title description, relevant best use, encumbrances, location, services and amenities, roads and access, topography, vegetation, fencing, water, soils, weeds, vermin, diseases, rainfall and market analysis. Mr Bell told the Tribunal that he began his valuing career with the State Taxation Office in 1970 as a cadet and left there at the level of District Valuer in 1982 to become an investment property manager. He remained in that position until 1990, after which he joined the State Treasury engaged in economic modelling and valuing, finally joining the AVO in 1996 where he has worked since as a rural valuer. He holds university degrees of a B Bus in land valuations (Curtin 1970) and a B Ec (UWA 1982) and is a licensed valuer and a member of the Association of Valuers. Mr Grinter did not challenge Mr Bell's credentials nor question the methodology adopted in his valuation report (T19).
Mr Grinter, in his evidence expressed the view that the AVO valuation overstated the average annual rainfall as previously mentioned. Mr Gould also made that assertion in his witness statement (A7). However, in evidence Mr Bell said that he obtained the rainfall information from the official rainfall records used for this purpose, although he admitted that these are not property specific and indicative of an area only.
Mr Grinter asked Mr Bell whether he stands by his valuation in the light of the other evidence of value opinion to which he was directed (particularly ex. A1, A2 & A3). In reply Mr Bell opined that the Cripps' appraisals (ex A2 and A1) are irrelevant because they were made 1993. Mr Bell proffered the view that a (properly documented) valuation by a licensed valuer is admissible evidence in court proceedings whilst market appraisals are not. This, he suggested is because market appraisals are usually for a limited purpose and do not entail the sort of research necessary for a report of valuation of the kind before the Tribunal (T19).
Mr Ellis directed the Tribunal to this Tribunal's decision in Re Woodhouse and Secretary, Department of Social Security (1987) 12 ALD 474, a decision of Deputy President R A Layton, Mr J A Kiosoglous, Senior Member and Mr B C Lock, Member. In their decision the learned Tribunal adopted the following passages from the High Court judgment in Spencer v The Commonwealth of Australia (1907) 5 CLR 418 where at 432 Griffith CJ applied the following test:
"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, ie, 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?"
Isaacs J (at 441) also stated:
"To arrive at the value of the land at that date, we have … to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and the purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value …."
The Tribunal, in Re Woodhouse adopted the quoted passages in Spencer and passages from the judgment in R v Brown (1867) 2 LRQB 630 in which Cockburn CJ said at 631, in relation to what is referred to as the "highest and best use test" approach to valuing land:
"A jury, whether the dispute be as to the value of land required to be taken by the company, or as to the compensation for damages by severance, in assessing the amount to which the landowner in entitled, have to consider the real value of the land, and may take into account not only the present purpose to which the land is applied, but also any other more beneficial purpose to which in the course of events at no remote period it may be applied, just as an owner might do if he were bargaining with a purchaser in the market. That is the mode in which the land would be valued"
In his valuation report (T19), Mr Bell noted the "highest and best use" of Lots 1 & 2 to be rural activities, a factor clearly taken into consideration in arriving at his valuation.
Mr Grinter submitted that any valuation of property is at best an estimate and therefore it would be appropriate to accept the evidence of the real estate agents experienced in the local market as a relevant guide to the value. The difficulty which the Tribunal has in adopting such an approach is that neither Mr Gould nor Mr Stott (or Mr Cripps either) presented to be examined by the respondent or the Tribunal. Their market appraisals/opinions of market worth in evidence (T7, T20, A1, A2 and A3) lack specifics as to the methodology adopted to arrive at the amounts attributed. Also, each is heavily qualified as being for a limited purpose only, which purpose is not explicitly stated. In the opinion of the Tribunal, despite an earnest attempt by Mr Grinter to persuade the Tribunal to prefer those valuations (or at lease an average of them) as against that of the AVO (T19), it cannot. Mr Grinter challenged the integrity of Mr Bell's valuation on the grounds that his first "desk" valuation (not in evidence) was $400,000 (see T9, p.41 & T13). That value he said, was reduced on reconsideration (by the same person) to $300,000 and which valuation was subsequently supported by that same person's Valuation Report (T19). The latter report resulted from two site visits to the property and relevant research. However, in the opinion of the Tribunal, as coincidental as it may be, that the second "desk" valuation of $300,000 equates to the final valuation reported in detail (T19), that latter valuation is the only reliable valuation in evidence. The Tribunal acknowledges that the first value of $300,000 arrived at by Mr Bell was based, as the Tribunal understands it, on recent sales in the vicinity (see T9, pp.35-36), a factor included in the later detailed and documented valuation (T19) which entailed two site visits. There is no evidence that the latter valuation was contrived although it is clearly not the result of an independent review. Mr Grinter challenged the valuation approach of the AVO, in having the same person carry out the "desk" valuation and the subsequent "site visit" valuation. He submitted that as the system did not provide an independent approach or review then no reliance should be placed on it in terms of generating a reliable valuation. The Tribunal has some sympathy with this view, that it does not give an appearance of an objective approach. Nevertheless, as mentioned, the AVO's valuation was the only detailed and documented valuation before the Tribunal and whilst challenged in relation to the rainfall factor, was not displaced on other grounds as unreliable, unprofessional or improper.
Decision

For the above reasons and pursuant to s43 of the Administrative Appeals Tribunal Act 1975, that part of the decision under review of the Social Security Appeals Tribunal, of 18 May 2000 and dated 29 May 2000, relating to the value of $300,000 attributed to "unencumbered real estate (Isachar blocks)", for the purpose of the section 1064-Module G of the Social Security Act 1991, is affirmed.
I certify that the preceding 32 paragraphs are a true copy of the reasons for the decision herein of Mr RD Fayle, Senior Member.
Signed:         ................( - sgd W Treasure - )...................
  Associate
Date of Hearing  6 March 2001
Date of Decision  10 May 2001
Representative for the Applicants           Mr Phil Grinter
Representative for the Respondent        Mr Steve Ellis

[2001] AATA 398

10 May 2001

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Administrative Law

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Judicial Review

Statutory Interpretation

Evidence Law

Admissibility of Evidence