Hunt v Chief Executive, Department of Natural Resources

[1999] QLC 116

[1999] QLC 116

 

LAND COURT,

BRISBANE

8 November 1999

Re:     An appeal against an unimproved valuation –

Valuation of Land Act 1944 –
  Shire of Warwick.
  (AV99-420).

B.R. and R.L. Hunt

v.

Chief Executive, Department of Natural Resources

(Hearing at Warwick)

D E C I S I O N

As at 1 October 1998, the unimproved value of land described as Lot 2 on Registered Plan 224120, Parish of Warwick, containing 14.2 hectares, was assessed by the Chief Executive in the amount of $55,000.  The valuation took effect from 30 June 1999, the notice of valuation having issued on 22 March 1999.

Mr D.P. Coe, the Senior Valuer in the Warwick office of the Department of Natural Resources, took responsibility for the valuation appealed against and gave evidence in its support.  The basis of the valuation was that the highest and best use of the land was as a rural homesite.  The land is situated about 8 kilometres south-west of Warwick via the bitumen sealed Glen Road.  Electricity, water and telephone are connected.  The land is zoned Rural C and was described in Mr Coe's report as "easy sloping part cleared forest".  The property had been purchased by the appellants by contract dated 30 March 1998, for $87,000.  Mr Coe had analysed that sale to show an unimproved value of $63,146, the improvements at that time consisting of clearing, fencing and a dam.  The sale of the subject land had formed part of Mr Coe's valuation basis.
Mr W.G. Major acted as agent for the appellants and gave evidence on their behalf. The single ground of the appeal, as contained in the notice of appeal, was that not all relevant factors had been taken into consideration. Mr Major offered no challenge to Mr Coe's valuation based on the highest and best use of the land being a rural homesite. The appellants' case was that the land should have been valued in the amount of $20,000, not as a rural homesite, but pursuant to section 17 of the Valuation of Land Act 1944 (the Act), as land exclusively used for purposes of farming.
Section 17 of the Act relevantly provides:

(1)In making a valuation of the unimproved value of land exclusively used for purposes … of farming, 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 irrespective of whether or not, in case of potential use as aforesaid, that potential use is lawful when the valuation is made.

(2)In subsection (1) - …

"farming" means –

(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 Major's oral evidence was that prior to the appellants' purchase, the land had always been used for the grazing of cattle.  Subsequent to their purchase the appellants had developed the land for intensive cattle grazing usage.  That development had included slashing and fertilizing, fencing to provide seven paddocks, establishment of improved pastures and some cultivation for fodder crops, construction of dams, provision of troughing and construction of cattle yards.  Stock had not been run on the property during the development period.  The grazing operation had commenced shortly after the date of valuation.

A house had been erected prior to the date of valuation and Mr Hunt now resides on the property.  Mr Major estimated that Mr Hunt is engaged in farming activities for at least 15 hours per week.  Mr Hunt leases another property which, according to Mr Major, is used for holding steers purchased at the Warwick sale yards, before being moved to the subject land for fattening and resale.  Mr Major's evidence was that the total area used for the grazing operation, including the leased land, was about 30.7 hectares.  He said that it was the intention of the appellants to fatten, in three drafts, 80 head of steers annually, with the assistance of fodder crops and supplementary grain feeding.  It was envisaged that the full potential of the intensive grazing business would be reached within two years after its commencement, when an annual net income of $16,000 was estimated.

Mr Major described Mr Hunt as an experienced farmer and businessman.  The intention was to conduct the subject grazing business as a separate entity, unrelated to the other business interests of the appellants. 

Mr Major had given close consideration to the meaning of the word "farming" pursuant to section 17 of the Act. In his opinion, the subject business as it was intended to be conducted, met the various qualifying tests. The development which had taken place left him in no doubt that the intensive grazing operation represented the dominant use of the land. The dwelling was integral to the management of the business, but in any event, was accommodated on only a small part of the land. If its rental income producing capacity was a relevant consideration, then the dwelling would be seen as subservient to the income producing potential of the grazing business. The appellants had spent, on Mr Major's evidence, $32,775 on machinery, irrigation plant, water facilities, fertiliser and seed. Whilst the development program had not permitted the physical grazing use to commence until shortly after the date of valuation, Mr Major had been informed that "some" income from stock sales had been derived in the period up to the date of the issue of the notice of valuation. He had been informed that a "handsome profit" had been made subsequently on the sale of some of the original stock. Mr Major said that the reason he had not provided the actual trading figures for the grazing business was that all of the trading in cattle had occurred subsequent to the date of valuation.

Mr Coe was able to accept that a grazing business may have been commenced in the period relevant to consideration of the use of the land, i.e. the period between the date of valuation and the date of issue of the valuation (see R.G. McMurray v. Valuer-General (1983) 9 QLCR 35 at pp36,37, Land Appeal Court). However, Mr Coe was of the opinion that there was no evidence to show that the business had a significant and substantial commercial purpose or character or that the business was engaged in for the purpose of profit on a continuous or repetitive basis.

Mr Coe also had doubts as to whether the grazing use was the dominant use of the land within the relevant period.  The appellants had been using a large farm shed on the land for a manufacturing operation in conjunction with another business.  Apparently the premises from which that business was originally conducted in Warwick, had been destroyed by fire.  There was no suggestion that Mr Coe's understanding as to the use of this shed was incorrect, although it appears that such use was never intended to be other than temporary, until the original premises were rebuilt.  In any event, the evidence suggests to me that the dominant use of the land was for the grazing business.

It was Mr Major's contention that, as a business needs to start at some point in time and will normally need a subsequent period to reach full potential, it is the intention of the operators at the time of the commencement of the business and thereafter which is the relevant consideration until a trading history is established.  In the subject matter, Mr Hunt was an experienced farmer, who has successfully conducted grazing operations in the locality, and Mr Major accepted that the intention of the appellants was to fatten 80 head of cattle annually with an estimated net profit of $16,000.  Mr Major saw those intentions together with the significant development expenditure as indicating that the business had a "significant and substantial commercial purpose".  He made reference to the findings of the Land Appeal Court in Thomason v. Chief Executive, Department of Lands (1994-95) 15 QLCR 286 at p305:

"          The relevant 'purpose' is the 'object to be attained, thing intended' (Australian Concise Oxford Dictionary) or, in other words 'the object for which anything … is done, … an intended or desired result; end or aim' (Macquarie Dictionary).  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 to be engaged in the enterprise for recreational or some other purpose."

In Mr Major's submission, it should be seen as quite clear that the appellants were not engaged in the grazing enterprise for recreational or any purpose other than commercial.

I am able to accept that if the subject property was used as an integral part of an aggregated holding even of about 30 hectares, for an intensive grazing enterprise capable of producing a net profit of $16,000 per annum, and that use was the dominant use of the land, then it should be valued pursuant to section 17 as being used for purposes of "farming".

However, the appellants' case relied entirely on the oral evidence of Mr Major, who, as I understand it, has no formal accountancy or valuation qualifications.  His lack of such qualifications is not fatal to the appellants' case, but, if the Court was to rely on the intentions of the appellants as stated by Mr Major, as a substitute for trading results, there would need to be cogent evidence to show that those intentions were realistic and capable of support.  It is clear from the evidence that the estimated annual turn-off of 80 fat cattle could not be achieved from the subject land, even in conjunction with the unidentified leased land, unless crop assistance and supplementary feeding was provided, as proposed.  However, Mr Major did not attempt any profit and loss accountancy exercise which might have shown how the business goals might have been achieved.  The Land Appeal Court recognised the problems associated with new businesses, when, in C.H. and M.C. Peck v. Chief Executive, Department of Natural Resources at pp7,8 of the unreported judgment delivered 1 August 1997, it said:

"          The third condition concerns one purely objective matter, the commercial character of the business or industry.  The commercial purpose of the business or industry is a matter which requires consideration of a subjective matter, again the genuineness of the purpose, but the use of the adjectives 'significant' and 'substantial' to qualify the expression 'commercial purpose' in our view calls for consideration of objective criteria when assessing that purpose.  The use of both adjectives leads us to that conclusion, but, of the two, 'significant' is the more important in leading to that result.

So whereas paragraph (d) makes the genuineness of the purpose alone a condition and so concerns an exclusively subject matter, paragraph (c) requires assessment of that purpose by reference to objective facts to determine if it can properly be described as significant and substantial.  In making such an assessment it is permissible – and necessary in our view in a case like this in which a business has been established for some time – for consideration to be given to the results achieved by the business after a reasonable interval has elapsed following its establishment.  Full allowance must, of course, be made for such things as the uncertainties of the weather, the vagaries of markets, and fluctuations in exchange rates.  Having given those factors proper weight, one may conclude that an owner, though genuinely pursuing profits, is engaged in such an unpromising enterprise that it could not be said, in accordance with any ordinary or reasonable standard, to have a significant and substantial commercial purpose. ... Where a business or industry is in the process of being established objective criteria other than results, such as a credible business plan, will of course be appropriate." (Emphasis added). 

A credible business plan would be one where the "intention or desire … to pursue commercial goals", as referred to in Thomason (supra) is supported by objective criteria capable of analytic consideration. I agree with Mr Coe, that on the case presented in this matter, there was no, or insufficient, evidence to demonstrate that the business of grazing which was being operated by the appellants, at least in the period relevant to the valuation under appeal, was one which, as was submitted, had a significant and substantial commercial purpose or character. It follows therefore that it could not be held that the land was being used, during the relevant period, for "purposes of farming" and should not have been so valued pursuant to section 17 of the Act.
           The appeal is therefore dismissed and the chief executive's unimproved valuation of $55,000 as at 1 October 1998, is affirmed.

(RE Wenck)

Member of the Land Court