Hollindale v Chief Executive, Department of Lands
[1996] QLC 86
•14 June 1996
|
BRISBANE
14 June 1996
Re: Appeals against valuations
of the Chief Executive, Department of Lands
Gold Coast City Council - Division of Albert
Ian M, Craig W and Nola M Hollindale
v.
Chief Executive, Department of Lands (V95-277)
Susan D, Craig W and Nola M Hollindale
v
Chief Executive, Department of Lands (V95-278)
Brett C and Nola M Hollindale
v.
Chief Executive, Department of Lands (V95-279)
Ian M and Nola M Hollindale
v.
Chief Executive, Department of Lands (V95-280)
(Hearing at Coolangatta)
D E C I S I O N
Introduction
Ian, Craig, Nola, Susan and Brett Hollindale (the "appellants") each owns, together with one or two other appellants, one or more of four parcels of land which together comprise "Pleasant Valley" on Guanaba Road, Guanaba, near the Gold Coast.
Each of the properties was valued by the Chief Executive (the "respondent") as at 30 June 1993. The valuation took effect from 30 June 1994. The appellants objected to each valuation and were successful in having three of the valuations reduced. They do not agree with the extent of that reduction and contend for a substantially lower figure with respect to each property.
Information about each property is summarised as follows:Matter No:V95-277
Valuation Roll No: 20144/50000
Lot:Lot 13 on RP 850786
Area:3.002 ha
Original valuation: $80,000
Valuation after objection: $80,000
Appellants' estimate: $40,000
Matter No:V95-278
Valuation Roll No: 20242
Lot:Lot 12 on RP 850786
Area:52.75 ha
Original valuation: $247,500
Valuation after objection: $200,000
Appellants' estimate: $110,000
Matter No:V95-279
Valuation Roll No: 20243
Lot:Lot 10 on RP 850786
Area:34.77 ha
Original valuation: $135,000
Valuation after objection: $90,000
Appellants' estimate: $40,000
Matter No:V95-280
Valuation Roll No: 20144
Lot:Lot 11 on RP 850786
Area:52.142 ha
Original valuation: $215,000
Valuation after objection: $200,000
Appellants' estimate: $110,000
The issue
The only issue in these cases was whether each parcel of land should be valued in accordance with section 17 of the Valuation of Land Act 1944. Section 17(1) provides that, in making a valuation of the unimproved value of land exclusively used "for purposes of farming", any enhancement in its value because of subdivision or potential use for subdivisional or any other purpose shall be disregarded. "Farming" is defined in section 17(2) to mean:
"(a) the business or industry of grazing, dairying, pig farming, poultry farming, viticulture, orcharding, apiculture, horticulture, aquiculture, vegetable growing, the growing of crops of any kind, forestry; or
(b) any other business or industry involving the cultivation of soils, the gathering in of crops or the rearing of livestock;
if the business or industry represents the dominant use of the land, and -
(c) has a significant and substantial commercial purpose or character; and
(d) is engaged in for the purpose of profit on a continuous or repetitive basis."
Mr Grennan for the respondent said that each parcel of land had been valued on the basis that the land was not "exclusively used ... for purposes of farming". If this Court were to decide, however, that a parcel or parcels were to be valued as land "exclusively used ... for purposes of farming" then, he submitted, the values should be set lower than those for which the appellants contend. Those lower values would maintain uniformity with other farming properties. The basis on which the valuations were made by the respondent and the lower figures which should apply if section 17 applies to the land are as follows:
Lot 13:Rural homesite
Farming purposes valuation: $15,000
Lot 12: Single unit residential use, valued as one parcel despite its subdivisional potential
Farming purposes valuation: $66,000
Lot 10:Vacant rural residential site
Farming purposes valuation: $35,000
Lot 11: Vacant rural homesite comprising two rural residential sites less an allowance for bulk
Farming purposes valuation: $92,000
Mr Grennan noted that the blocks had not been valued on their subdivisional potential but as rural residential homesites.
Neither party called valuation evidence. Depending on whether the land is found to have been exclusively used for farming at the relevant period, the result will be either the lower or the higher figure provided by the respondent namely:Lot 13: $80,000 or $15,000
Lot 12:$200,000 or $66,000
Lot 10:$ 90,000 or $35,000
Lot 11:$200,000 or $92,000
--------------------------------------
Total:$570,000 or $208,000
The evidence
Oral evidence about the use of the subject land was given by Mr Ian M Hollindale (part owner of Lots 11 and 13) and Mr Craig W Hollindale (part owner of Lots 12 and 13). A statutory declaration (Exhibit 3) and copies of correspondence between the Department of Lands and Mr Craig Hollindale (Exhibit 5) were also tendered.
The history of the subject land, as recorded in Exhibit 3, shows that some of the land was used and leased by the John Hollindale family in the second half of last century. In 1903 John Hollindale's sons, Will and Walter, purchased the land which is the subject of these appeals and some other land. In subsequent years other land was purchased by family members, and parcels of land were aggregated with the original parcel to form the subject land in these proceedings.
According to the statement, the land has been used since about 1865 for some form of primary production. Timber harvesting, dairying, banana growing, small crops growing and beef grazing have all been carried out on the land. Although the land has been used continuously for primary production purposes, "quite often" income from that use has been supplemented by income from external work.
In 1995 the internal boundaries of the land were realigned to divide the land between the three surviving sons of the late Alan D Hollindale and his widow Nola M Hollindale, namely Ian, Craig and Brett Hollindale. According to the statement, the three families wish to retain the continuous use of the land for primary production. Their intent is evident from the way in which the land has been subdivided, the nature of improvements on the land, and the fact that a road across Lot 12 was closed in about 1991 (see map attached to Exhibit 3). Members of the Hollindale family have continually resided on the property. At the relevant date Craig and Susan Hollindale lived in a home built in 1981 on Lot 12, and a house on Lot 11 was used periodically by family members for residential purposes in connection with the cattle enterprise on Lots 11 and 13.
The family arrangements are such that Lots 11 and 13 are used together for one enterprise and Lots 10 and 12 are used together for another enterprise. Oral evidence about Lots 11 and 13 was given by Mr Ian M Hollindale, and evidence about Lots 10 and 12 was given by Mr Craig W Hollindale.
Lots 11 and 13: The Lots have a combined area of 55.144 hectares. The land is marginal country with light soil, small flats and some steep areas.
The owners graze some 25 Hereford breeding cattle on the land together with their progeny. About 60-70 cattle graze on the land at any time and about 20 of them are sold each year. Natural grasses or kikuyu provide most of the feed, but supplementary feeding, such as hay (especially in winter) and molasses, is sometimes purchased. The land is fertilised annually.
Regrowth timber is cleared and land is ploughed and planted from time to time to expand the area available for grazing. The total grazing area has changed little in recent years and the land is stocked to its capacity.
Improvements on the land related to the cattle grazing enterprise include fencing, sheds and dams. In addition to boundary fencing, internal fencing divides the Lots into four distinct blocks for rotational grazing purposes. The sheds include a tractor and implements shed, a shed with molasses and feeding troughs, a farm machinery shed and a piggery (which is not used at present).
There is some timber on the land that will be cut and sold in the future, but no timber was harvested in 1994. Income from the sale of timber would be derived about every 10 to 15 years as only naturally growing timber is harvested.
A spring and nine dams provide water for stock. Two of the dams are fed by the spring which usually provides a regular supply of water. Sometimes the water is not at the surface of the land and it is necessary to pump artesian water from it.
Work on the land is undertaken primarily by Mr Ian Hollindale and his four adult children. Contract sprayers are engaged for weed control if necessary. The amount of time spent on the land varies throughout the year. At weaning time (twice each year) it is necessary to work there for a few hours every day for a month. Clearing, spraying and fertilizing activities are also labour intensive periods. Otherwise each person might spend about 1 day each month there.
Mr Hollindale estimated that in 1994 the gross income from the cattle enterprise on Lots 11 and 13 would have been about $5,000 to $6,000. 1994 was, however, a drought year and he estimated that the enterprise would ordinarily gross about $10,000. He estimated that about $2,000 was spent on substantial fencing works that year and another $1,000 on spraying and fertilizing. Mr Hollindale does not rely on the land as his primary source of income.
There is a wood and fibro house on Lot 11. No one lives there permanently. It is used in connection with cattle operations for a total of about 3 months each year, say 1 or 2 nights each week and on weekends, but continuously during the weaning period. The house is not let to others.
Lots 10 and 12: The Lots have a combined area of 87.52 hectares. The land is similar country to Lots 11 and 13, but has a greater proportion of steep and timbered country than the other Lots. It is rocky, very steep in places, and the flat areas have been planted with kikuyu grass and Rhodes grass. The owners graze some 55 cattle on the land. Although Lots 10 and 12 have a larger total area than Lots 11 and 13, fewer cattle can be carried as the land is rougher and there is less cleared land.
In 1995, the owners were clearing regrowth and had cleared some 5 to 10 hectares in the past year or so. About 20 to 25 of the 87 hectares are cleared. There is virtually no clearing of land on Lot 10, which has a small amount of winter feed. Mr Craig Hollindale does not provide supplementary feed for the cattle. He prefers to stock the land to its capacity on a natural basis.
Timber was last harvested about 10 years ago, but Mr Craig Hollindale did not know what income was derived from the sale. The trees are naturally growing hardwood which are slow growing and will take time to replace. The owners are investigating the viability of planting hardwood and softwood trees on the land but have not commenced such an enterprise.
Improvements on the land (other than the residence for Craig and Susan Hollindale on Lot 12) include fencing, sheds (for farm machinery) and dams.
Lot 10 has boundary fencing only. Apart from boundary fencing and fencing along the both sides of the road which divides Lot 12, there is internal fencing which creates four paddocks.
There are 7 dams on Lot 12, and none on Lot 10. They usually provide sufficient water for cattle even in dry times. One of the dams has been used for irrigation to promote feed on flats. A bore was sunk about 3 years ago and water has been drawn in drought times. The flow of water is not sufficient to warrant the expense of installing a pump to use the bore regularly.
Mr Hollindale said that he works on average about 20-30 hours per week on Lots 10 and 12. His wife and children assist him on weekends. The cattle enterprise on the land, however, is not his primary source of income. He estimated that the gross income in 1994 would have been around $2,000 to $2,500, but said that the figure was low because he was restructuring the herd and had restricted breeding as part of that process. About 12-15 cattle had been turned off Lots 10 and 12 that year, but 20 to 25 progeny would be sold in 1995.
According to Mr Hollindale, the land is utilised to its fullest capacity. As will be apparent from the evidence just summarised, relatively little commercial benefit to the enterprise is derived from the use of Lot 10 and Mr Hollindale said that the loss of that Lot would not have very much impact on the operation.
Mr Hollindale pointed to a history of land use which shows continual use of the land for primary production. In addition, he highlighted the closure in about 1991 of a road through part of Lot 12. That closure, at a cost of about $7,000, is indicative of a desire that the land not be used for subdivisional purposes but that it continue to be used for primary production.
Resolving the issue
If land is to be valued under section 17(1) on the basis that the land is "exclusively used ... for purposes of farming", each of the following questions must be answered in the affirmative:
Is the land used for the purposes of:
(a)the business or industry of a type specified (namely, grazing, dairying, pig farming, poultry farming, viticulture, orcharding, apiculture, horticulture, aquiculture, vegetable growing, the growing of crops of any kind, forestry); or
(b)any other business or industry involving an activity of a type specified (namely, the cultivation of soils, the gathering in of crops or the rearing of livestock)?
2. Does the use of the land for the purposes of that business or industry represent the dominant use of the land?
3. Does the use of the land for the purposes of that business or industry have:
(a)a significant and substantial commercial purpose; or
(b)a significant and substantial commercial character?
4. Is the use of the land for the purposes of that business or industry engaged in for the purpose of profit on:
(a)a continuous basis; or
(b)a repetitive basis?
There was no question that the land is used for the purposes of a specified business or industry, nor that the use for those purposes represent the dominant use of the land. There seemed to be no real argument that the land is used for those purposes on a continuous or repetitive basis for the purpose of profit. I assume for present purposes that the answers to questions 1, 2 and 4 are "yes".
The only real issue is whether the use of the land for the purposes of the relevant business or industry has a significant and substantial commercial purpose or character.
Mr Ian Hollindale submitted, on behalf of the appellants, that the history of the properties and ongoing actions (such as the road closure, the aggregation of blocks, and improvements made to the land) demonstrated the continuing use of the land for farming. That is the dominant use of the land, and the use is conducted on a continuous and repetitive basis to make a profit.
As noted earlier, the land is marginal country and has never been high quality agricultural land. Although the land has been stocked at or about its capacity, the degree of profitability has varied considerably. According to the written statement by Ian and Craig Hollindale, it "has often, if not always, required some supplementary income" (Exhibit 3). In Mr Ian Hollindale's submission, the valuation of the land should be based on the continuing use for farming. Income from that farming activity should not be the sole or determining factor. Regard must also be had to the capacity of the land. It is not possible to do more with the subject land than the current activities involve.
Mr Grennan for the respondent argued that the appellants' use of the land cannot meet the criteria in paragraph (c) of the definition of "farming". In other words, the answer to question 3 is "no". He referred to three decisions of the Land Appeal Court dated 3 March 1995 concerning the meaning and operation of section 17 (Whackett v Chief Executive, Department of Lands, AV93-163 and AV93-164, Thomason v Chief Executive, Department of Lands AV93-103, and Higby v Chief Executive, Department of Lands, AV93-374), an earlier decision of the Land Court in Taylor v Chief Executive, Department of Lands (1993) 14 QLCR 477, and the decision of the Land Appeal Court in Crawford v The Valuer-General (1990-91) 13 QLCR 138. The last-mentioned case concerned the operation of section 11(1)(vii) of the Valuation of Land Act, a differently worded and subsequently repealed section which preceded section 17.
In Mr Grennan's submission, an understanding of the legislative history of section 17 leads to the conclusion that the grazing activities on the subject land do not come within what the Parliament intended in enacting section 17. The reasons for decision of the majority of the Land Appeal Court in Whackett and of the Land Court in Taylor, show that the appellants are carrying on a family heritage but not a substantial business of the type contemplated by section 17 of the Act. These cases, he submitted, come within the scope of the decision in Whackett.
It is appropriate to resolve the issue in these cases by looking first at the history of section 17, then at court decisions interpreting that section, and then by applying the law to the facts.
Legislative history
Section 17 is similar to but not the same as, section 11(i)(vii) which it replaced. The law relating to the operation of section 11(1)(vii) was developed in a series of decisions of the Land Court and the Land Appeal Court.
To assist in ascertaining the meaning and operation of section 17, it is useful to consider its legislative antecedents. The following discussion of the history of the section draws on the judgment of the Land Appeal Court in Whackett v Chief Executive, Department of Lands which drew on a series of earlier decisions of the Land Court and the Land Appeal Court.
Before 1971, there was no protection for land used for a primary production enterprise and such land was required to be valued on the basis of its highest and best use. If that land had a potential for a higher use, then it was valued on the basis of that potential and its existing use was ignored.
In the 1971 amendments to the Act, section 11(1)(vii) was inserted. The relevant provisions were:"In making, pursuant to this subsection, the valuation of the unimproved value of land exclusively used ... for purposes of the business of primary production, any enhancement in that value for that the land has been subdivided by survey or has a potential use for industrial, subdivisional or any other purposes shall be disregarded ...
In this paragraph -
....
`the business of primary production' means the business of agriculture, pasturage, horticulture, viticulture, apiculture, forestry (including the planting or tending in a plantation or forest of trees intended for felling), poultry farming, dairy farming or any other business consisting of the cultivation of soils, the gathering in of crops or the rearing of livestock."
As the Land Appeal Court has noted previously:
"The provisions of section 11(1)(vii) are concessionary - they constitute an exception to one of the cardinal principles of valuation, namely, that potential forms part of the unimproved value. In terms of the section, if a parcel of land is being exclusively used for the business of primary production any enhancement in the value thereof because of a higher potential use is to be disregarded." (WH Bowden v The Valuer-General (1980) 7 QLCR 138, at 148)
The purpose of section 11(1)(vii) can be gleaned from a statement by the Honourable WAR Rae (then the Minister for Local Government and Electricity) to the Legislative Assembly on 1 December 1971 when moving that a Bill be introduced to amend the Valuation of Land Act 1944-1970. The Minister stated:
"The Bill also provides that land used exclusively for primary production in a potentially higher-use area is to be valued without regard to the potential. ... The provision regarding primary production has been inserted to ensure that a primary producer caught up in urban development is not valued on the potential until he ceases using the land for primary production. This will enable a primary producer to carry on economically for as long as possible, and is parallel to the single-unit residential owner in a higher use zone." (Parliamentary Debates, Legislative Assembly, 1 December 1971 at 2401-2.)
The purpose of the provision was more fully explained by the then President of the Land Court in TR Groom v The Valuer-General, an explanation that was quoted with approval by the Land Appeal Court in Walker v The Valuer-General (1978) 5 QLCR 347 as follows:
"One of the objects of the Valuation of Land Act is to achieve relativity in the incidence of rates. It does this by assuming that all land in Queensland is held as fee simple and for purposes of valuation is regarded as if it remained in its unimproved or natural state. The normal principle of valuation requiring that land must be valued for its highest and best use has been judicially held to be generally applicable. Section 11(1)(vii) was introduced as an exception to the general application of this principle. As far as primary producing land is concerned its aim appears to be to give a rating concession to those lands exclusively used for the business of primary production which are in localities where lands in the course of progress have come to have a potential for some other use. The most common example is, perhaps, that of lands in actual use for substantial cultivation or dairying on the outskirts of developing towns. By virtue of their situation these lands would command a market as accommodation or subdivisional land. The section patently protects such lands from the incidence of the higher rate burden which would apply to accommodation or subdivisional land." (at p.353)
The application of the provisions of section 11(1)(vii) to a particular case was not a mechanical one. An assessment of the facts in some cases indicated that there was room for argument about whether the concession applies. The passage from the Walkers' case just quoted continued:
"The difficulty is how far the Legislature intended this concession to extend. Like many statutory concepts, the concept in itself and its purpose are easily appreciated but the application of the concept to the facts of particular cases causes problems and difficulties" (p.353).
In the Walkers' case, the Land Appeal Court pointed out that not all activities of a primary producing nature constitute a "business", and set out the requirements in the following terms:
"Profit or lack of profit is not in itself the deciding criterion ... There must, in my opinion, be continuity, diligence and repetition of actions constituting the activities and, moreover, the operations must have some significant commercial purpose or character - a degree of substantiality or viability although not necessarily always profitable. Alternatively, the actions or operations in train at the relevant date of valuation must be such that given favourable seasons and conditions they are of such magnitude that they will, in the fullness of time, by maturity or further activity reasonably be expected to develop into a viable venture. In short, I cannot accept that the scale of operations or activities are not a significant factor in determining whether or not they are to be classed as a business." (at p.354).
Thereafter this passage became the test of whether a primary production activity qualified as a "business" and has been applied by the Land Court and the Land Appeal Court on numerous occasions. For example, in Tobin v The Valuer-General (1986-87) 11 QLCR 29, the Land Appeal Court applied the test in respect of about 30 hectares of land in the Gympie area which ran 20 to 25 head of cattle, with annual gross returns of up to $4,500, while profits were of the order of $1,000 to $1,200 per annum. There was evidence that a fully developed carrying capacity would be up to 40 head.
After discussing the Walkers' case, the Land Appeal Court said:"Viewing the totality of the evidence concerning the nature of the primary production activities carried out on the subject lands, we cannot find that they conform to the test of Walker's case. Although they possess some of the necessary elements of a business, they lack a significance of commercial purpose or character, a degree of substantiality or viability." (at p.32).
In Crawford v The Valuer-General (1990-91) 13 QLCR 138, the Land Appeal Court again considered the provisions of section 11(1)(vii), this time in relation to the valuation of 4 hectares of land in the Brisbane suburb of Chandler. This land had been used for the growing of small crops, mainly strawberries and tomatoes, for about 30 years. The land owner had extensive plant and equipment which were used in the small-crop enterprise. His income from the sale of crops for the three years prior to the hearing, was $5,184, $4,667 and $10,247. However, his expenditure in production for those three years was $3,686, $10,963 and $9,050, resulting in a profit of $1,498 for the tax year 1986, a loss of $6,296 for the tax year 1987 and a profit of $1,197 for the tax year 1988.
In the Land Court it had been acknowledged that the activity carried out by the appellant possessed all the ingredients of continuity, diligence and repetition of actions constituting the activity, but it was considered that it did not possess the degree of substantiality or viability necessary to bring the activity within the requirements of the Walker test as a "business" of primary production.
The Land Appeal Court found that "an artificial and unwarranted gloss had developed in the determination of eligibility for the benefit of Section 11(1)(vii)" and considered it desirable that the cases be re-examined. It found that a tendency had developed to include the element of "scale of operations" in the Walker test as an end in itself in determining whether or not an activity is a "business" of primary production, to give it a greater level of importance than was intended. The Court went on to discuss the judgments of members of the High Court in Hope v Council of the City of Bathurst (1979-80) 144 CLR 1, where it was explained that the requirement for the use of land to have "a significant commercial purpose or character" arose from "an unwarranted interpretation of the statement by Walsh J in Thomas v FCT (1972) ATC 4094, 4100 in which His Honour used that phrase."
The Land Appeal Court said:"The remarks by Mason J at pp.9-10 are destructive of the notion that an enterprise may qualify as a business according to notions whether the activities are `significant', `real', `important', `genuine' or `weighty'." (at p.145)
After referring to the facts relied on by Mason J in concluding that the appellant's activities in that case amounted to a business, the Land Appeal Court said:
"His Honour's remarks do not suggest any magnitude or size of the activities as being necessary to constitute a business, and indeed they underline the fact that a business may be small and that concentration upon the size or significance of the business is prone to lead to error." (at p.147)
The Land Appeal Court went on to consider Ferguson v FCT (1979) 79 ATC 4261, Fennell v Wyong Shire Council 31 LGRA 64 and FCT v Walker (1985) 16 ATR 331, before concluding:
"In the light of the above analysis the passage in Walker v The Valuer-General (at p.354) which has earlier been set out should not be read as placing emphasis upon scale or size as a significant factor in the ultimate determination. In particular, the final sentence in that passage - (`In short, I cannot accept that the scale of the operations or activities are not a significant factor in determining whether or not they are to be classed as a business') seems to have been used as the justification by means of which small genuine activities designed to make a profit had been denied the status of a business.
In truth it is impossible to pose a simple test which will give the correct answer to the great variety of personal enterprises undertaken from place to place. It is true that the volume of operations needs to be understood and that it is relevant to an understanding of the enterprise as a whole. Its smallness may in the end help in leading to a conclusion that it is not a bona fide commercial exercise, just as its largeness may help to place it clearly beyond characterisation as a hobby and assist in the conclusion that it is a business. Alternatively, its size when considered with other factors may show that it could never be reasonably capable of commercial viability, in which case it will fail the test. But there must be no preconceptions against little enterprises. Familiarity with the tests recognised in the above cases and in particular those applied in Thomas, Hope, Ferguson and F.C.T. v Walker, and the above passage in Fennell v Wyong Shire Council, subject to the comment we have made in relation to it, should provide the relevant guidance. Our intent in reviewing the authorities has been to remove any undue emphasis that might otherwise be given to the words we have underlined at p.6 in the short statement of the Walker test.
Where then does the present case stand? It is an example of a reasonably substantial production but of small profit and occasional loss at least according to taxation accounting. Even so it is an activity that has been ongoing for nearly 30 years and involves significant work, continuous application, diligence and repetition. It from time to time makes a profit, and it has inherent in it the less obvious but nonetheless real benefits to the appellant to which we have earlier adverted. The appellant is plainly bona fide engaged in primary production, and this much is common ground between the parties. The activity is such that it would be absurd to characterise it as a hobby. He competes in a market and his relevant activities bear a commercial character. Had the appropriate tests been applied the only reasonable conclusion was that he was using his land exclusively for the purposes of the business of primary production. It is we think a clear case of a bona fide small business." (at 149-50)
The provisions of section 11(1)(vii) were amended by the Lands Legislation Amendment Act 1991, which recast the terms of the exception in subsections (9) and (10) of section 11 of the Act. Those subsections have since been reprinted as section 17(1) and (2) of the Act, quoted earlier in these reasons for decision.
The definition of "farming" in section 17(2) of the Act contains a number of similarities to the Walker test, although expressed somewhat differently. Although the Land Appeal Court in Crawford's case was at pains to remove any emphasis upon the scale of operations or its significance, the Legislature has now included in the definition requirements of "significant and substantial commercial purpose or character", possibly to overcome the decision in Crawford's case.
Significant and substantial commercial purpose or character
To be characterised as farming, the relevant business or industry must have a "significant and substantial commercial purpose or character". Having regard to the legislative history of section 17(2), it would appear that the reference to "a significant commercial purpose or character" derives from the judgment of Walsh J in Thomas v Commissioner of Taxation (1972) 46 ALJR 397 at 401, which has been described as "the well known test used in this area of law" to determine whether activities constitute a business (Hope v Bathurst City Council [1979] 2 NSWLR 471 at 474 per Reynolds JA, see also 476-7 per Samuels JA).
The majority of the Land Appeal Court in Whackett v The Chief Executive, Department of Lands turned to dictionaries and noted that among the ordinary English meanings of "commercial" are "of, engaged in, bearing on, commerce; interested in financial return rather than artistry" and "capable of returning a profit; ... preoccupied with profits or immediate gains". "Commerce" includes the interchange of goods or commodities or services, especially on a large scale, and trade or business.
The relevant "purpose" is the "object to be attained, thing intended" or, in other words "the object for which anything ... is done, ... an intended or desired result; end or aim". In this context (and by contrast with "character") the word "purpose" seems to be subjective in nature or at least have a subjective component. So for the business or industry to have a commercial purpose there must be some intention or desire on behalf of those engaged in the business or industry to pursue commercial goals rather than merely to be engaged in the enterprise for recreational or some other purpose.
The majority thought that the word "character" has a more objective connotation, being "the aggregate of qualities that distinguish one person or thing from others". The commercial character of a business or industry could be ascertained by reference to a range of criteria, quite independently of the intention or desire of those engaged in the business or industry or their goals.
The commercial purpose or character must be both "significant" and "substantial". Each word is imprecise.
The dictionary definitions of "significant" include "noteworthy, of considerable amount or effect or importance" and "important; of consequence". In Hope v Bathurst City Council [1979] 2 NSWLR 471 at 477, Samuels JA suggested that, although the word "significant" as used in the expression "significant commercial purpose" is "perhaps inadequate for the work here required of it", it is intended to mean "important", or "real", or "genuine', or "weighty" (see also Hope v Bathurst City Council (1980) 144 CLR 1 at 9 per Mason J).
The word "substantial" has been judicially described as "not a word of fixed meaning in all contexts" (Terry's Motors Ltd v Rinder [1948] SASR 167 at 180 per Mayo J) and as a word that "is not only susceptible of ambiguity" but that is "calculated to conceal a lack of precision" (Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331 at 348 per Deane J). In the present context, it would seem to connote something of real importance, worth or value and of considerable amount which pertains to the essence of the purpose or character.
The majority in Whackett concluded:"It is difficult, and unnecessary, to state a precise and compendious meaning of the expression "significant and substantial commercial purpose" and "significant and substantial commercial character". Bearing in mind the various connotations of the words "significant" and "substantial" it is perhaps sufficient for present purposes to say that for section 17(1) of the Act to apply to the subject land there must be evidence that:
(a) the business or industry is being carried on with a genuine and sizeable intention or desire that there will be reward, if not profit and is not being engaged in merely for recreational or some other purpose; or
(b) the qualities or distinguishing features of the business or industry demonstrate that it is being carried on in a way which (ordinarily, at least) will generate reward, if not profit."
Mr Grennan placed some reliance on a decision of the Land Court in Taylor v Chief Executive, Department of Lands ((1993) 14 QLCR 477) in which the Court concluded that "the purpose of the amendment would seem to be to avoid the effect of the Land Appeal Court in Crawford's case by making more stringent the requirements for land to qualify for valuation under the protective provisions as being used for purposes of farming". In the Taylor decision it was said that each of the words used in the phrase "significant and substantial commercial purpose or character" are capable of a number of meanings but in combination they appeared to require a trading or business activity of important or considerable size. "If the purpose of the amendment is to avoid the consequences of the Crawford case, then that interpretation makes sense and indicates that the intention of the Legislature is to provide protection only to those enterprises which come within the definition."
Importantly it was also stated that "it will still be necessary to consider each case on its own merits and it is still not possible to pose a simple test in this regard ... Each enterprise is different and it is not possible to set numerical or financial requirements which would be applicable for all or any of them." The majority of the Land Appeal Court in Whackett expressly agreed with that observation, and with the statement that there can be no artificial base for determining the scale of any particular activity which will satisfy the criterion in paragraph (c) of the definition. Justice Ambrose also took that approach.
The facts in the Whackett's case were similar to the facts in the present cases. The appellants owned two parcels of land having areas respectively of 54.8 hectares and 51.03 hectares. Each lot was described as consisting of "moderate to steep sloping forest/scrub country" which was used for grazing beef cattle. The first parcel was purchased by Mr Whackett specifically for grazing use. He fenced the land and did some clearing and ran cattle on it soon after purchase. The contiguous 51.03 hectare lot, was purchased subsequently, extending that grazing operation. Until some time after the relevant date of valuation, there was no dwelling on either lot. The appellants lived on a property nearby. The aggregation was boundary fenced and cattle moved freely between the two parcels of the subject land. The land was divided internally into paddocks and was serviced by a substantial set of yards, loading ramps, sheds and a molasses dump for feeding cattle in dry weather. The land had always been used solely for the breeding and grazing of cattle for sale, and the carrying capacity of the total area was about 70 head of mixed cattle.
Mr Whackett gave evidence about the development of the land, its exclusive use for grazing, but its poor quality and relatively low carrying capacity. About 70 mixed head of cattle were carried on a year-to-year basis. In the three years 1990 to 1992 he sold approximately 25 head of cattle each year, the varying sales depending on the breeding programme and the seasons. He estimated the average recent gross return to have been in the order of $5,000 per annum, although the income depended on the numbers sold, the state of the market and the seasons. Mr Whackett worked the cattle, and most of the income from the sale of cattle was spent on machinery and other expenses connected with the enterprise.
It was apparent that, despite the genuine efforts made over a long period in grazing cattle on difficult country, the evidence pointed to only a limited financial return being possible, even in reasonable seasons. On the appellants' own evidence, the land was stocked to capacity and would never make a profit.
The majority of the Land Appeal Court held in Whackett that neither the objective character nor the subjective purpose of the grazing enterprise can be said to be significantly and substantially commercial. They emphasised, however, that they arrived at this conclusion on the facts presented in the case. There was insufficient evidence to find in favour of the owners. The majority were of the opinion that an enterprise which can run 70 head of cattle may be shown to have a significant or substantial commercial purpose or character. However, that had not been demonstrated to their satisfaction in this case.
It was on the meaning of the expression "a significant and substantial commercial purpose or character" that Justice Ambrose differed from the majority of the Land Appeal Court in the Whackett case. Like the majority members, he noted judgments which find that "substantial" is an imprecise word, the meaning of which is influenced by the context in which it is used. In his opinion, the net and/or gross income and/or profit derived from a business are factors in determining whether the business has a significant and substantial commercial purpose or character. Other relevant factors are the area of and improvements to be found on the land in question, the number of cattle run on it and the number normally turned off periodically for sale. The "significant and substantial commercial purpose or character" referred to in section 17(2) does not denote any relativity between the amount of income generated by the business and a standard (if any) to be gleaned from the terms of the legislation. In his opinion, the object of section 17(1) is to benefit owners of land used for a real and bona fide business of farming. He contrasted that with a use which has a token, nominal, illusory, or insubstantial commercial character. Any ambiguity in the expression should be construed in favour of the ratepayer. On the facts in Whackett he held that use of the land came within the scope of section 17(1).
It is not possible to say with certainty what he may have held with respect to the subject blocks, either individually or in combination. In any case, his was the minority view and cannot be binding on a single member of the Land Court.
Conclusion
The history of section 17, together with the decisions of courts in cases which preceded the section and those which have interpreted it, lead to the conclusion that these appeals must fail. There is no question that at the relevant date each parcel of land was used, to a greater or lesser extent, for or in connection with primary production. The history of the subject land demonstrates continuity of use for generations and indicates a desire by the present owners to keep using the land in that way. The enterprise is more than a hobby and can properly be characterised as a "business", as all members of the Land Appeal Court in Whackett understood the use of that word.
Although the use of the land has remained constant for many years, the relevant law has changed. Different criteria have been enacted for determining whether the land is to be valued on a concessional basis. In one significant respect the test has been made more difficult to satisfy. The business or industry must have a "significant and substantial commercial purpose or character". The enterprise undertaken by family members on the subject land lacks that purpose or character. Drought seasons aside, the land is marginal country with limited carrying capacity. The subject parcels do not have a demonstrated record as, or realisable potential for, a cattle business of the type necessary to meet the criteria in section 17.
Order
The appeals are dismissed and the determinations of the Chief Executive are affirmed in the following amounts:
V95-277 $80,000
V95-278 $200,000
V95-279 $90,000
V95-280 $200,000.
GJ NEATE
MEMBER OF THE LAND COURT
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