JACK HUGHES and FRANCIS HUGHES and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 293

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 293

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/4792, 4797

GENERAL ADMINISTRATIVE DIVISION		)
Re		JACK HUGHES and FRANCIS HUGHES

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Deputy President P E Hack SC

Date29 April 2009  

PlaceBrisbane

Decision The Tribunal sets aside the decision under review and remits the matter to the respondent with a direction that the entitlements of the applicants to age pension be determined on the basis that the balance of the land at Barrabooka Drive The Gap, over and above the dwelling house and two hectare curtilage, has no value.

..............Signed..............

Deputy President

CATCHWORDS

SOCIAL SECURITY – Age Pension – value of principle home excluded but value of land over two hectares taken into account in determining entitlement to age pension – Act does not specify a certain method for valuing assets – Australian Valuation Office valued the excess curtilage at $114,000 – reasoning not set out in report – reasoning demonstrably flawed – private valuer determined that excess curtilage had only nominal value due to the unusual position of the block of land – worth of the overall parcel is concentrated in the curtilage area and the balance effectively adds nothing to the value of the whole – set aside decision and remit the matter to the Secretary with a direction to determine the entitlement to age pension on the basis that the balance of the land over and above the dwelling house and two hectare curtilage, has no value.

Social Security Act 1991 (Cth) ss 11A, 1118(1)

Benzlaw & Associates P/L v Medi-Aid Centre Foundation Ltd [2007] QSC 233.

Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790

McDonald v Deputy Federal Commissioner of Land Tax (N.S.W.) (1915) 20 CLR 231.

Re Fakhry and Repatriation Commission (1986) 11 ALD 75; 5 AAR 441

Re Reynolds and Secretary, Department of Social Security (1986) 11 ALN N193

REASONS FOR DECISION

29 April 2009	Deputy President P E Hack SC
Introduction

1.The applicants, Mr Jack Hughes and his mother Mrs Frances Hughes, are the owners of a large parcel of land described as Lot 10 on RP 810098 in the Parish of Enoggera, County of Stanley and located at Barrabooka Drive, The Gap on which is constructed a dwelling house. The issue in these proceedings is the value of that part of the land that is outside the curtilage of the house.

Background

2.The background to the matter may be shortly stated. Each of Mr Hughes and Mrs Hughes receives an age pension. Entitlement to age pension, and the amount payable, is dependant upon the value of assets owned. Ordinarily the value of a person’s “principal home” is excluded from the calculation of the value of the person’s assets but there is an exception created where the land area is greater than two hectares. That is done by s 1118(1) of the Social Security Act 1991 (Cth) which exempts a person’s “principal home” from the assets test. Where the principal home is a dwelling-house (as is the case here) a reference in the Act to the principal home includes a reference to the land adjacent to the dwelling-house to the extent that the land is held on the same title as the dwelling-house, the area of the land, including the area of the ground floor of the dwelling-house, is not more than two hectares and the land is used primarily for private or domestic purposes in association with the dwelling-house[1].

[1]          See s 11A, Social Security Act.

3.Lot 10 has an area of 4.197 hectares. On 17 July 2008 Centrelink, with the assistance of a valuation provided by Mr John Telford, a valuer with the Australian Valuation Office, decided that the whole of the property had a value of $1,000,000, that the dwelling-house and two hectare curtilage had a value of $886,000 and that accordingly the balance area, which was not an exempt asset, had a value of $114,000. The entitlement of Mr Hughes and Mrs Hughes to age pension was decided on this basis. That decision was maintained on internal and external review.

4.Mr Hughes and Mrs Hughes accept that the value of Lot 10 at the time in question was $1,000,000. But they contend that the land outside the two hectare curtilage has only a nominal value and thus adds nothing to the value of the curtilage. They have support for that contention from two witnesses, Mr Philip Willington, a valuer, Mr Geoffrey James, a surveyor with post-graduate qualifications in town planning and considerable experience in land development in the area in question, and the opinion of Mr John Porter, a valuer whose opinion Mr Willington adopted. Mr Willington and Mr James are neighbours of Mr Hughes.

5.I had the considerable benefit of inspecting the land, and other parcels referred to in the evidence, with the parties at the outset of the hearing. Additionally, following the hearing and with the concurrence of the parties, I inspected two properties at Dillon Road[2] from the road without the parties being present. These inspections enabled me to more readily understand the valuation evidence which is at the heart of the present case.

[2]        Sale 1 and sale 6.

6.Lot 10 is situated on the northern slopes of Mount Cootha. It has an essentially rectangular shape. The long boundary is some 363 metres and the block has a width, for the main part, of 103 metres. The land slopes up from the northern boundary, where road access is provided, and gains 53 metres in elevation from the front (92 metres) to the rear (145 metres). The residence is constructed adjacent to the western boundary and is, I estimate, about 150 metres from the front boundary. The house has a particularly good aspect over the surrounding areas. Behind the house Lot 10 slopes up much more steeply to an elevated ridge which extends diagonally through the Lot, and then falls to a steep gully located towards the rear of the Lot and then rising steeply to the rear, southern, boundary. The land to the rear of the house is steeply contoured and much is inaccessible due to the steepness of the slope. The tracts of land to the south and east of Lot 10 comprise part of the Brisbane Forest Park.

7.Lot 10 is one of five similar blocks, developed as it happens, by Mr James some years ago. Each of the parcels of land in the estate is of a similar size and collectively the parcels are of the nature of a private enclave. Lot 10 is the highest and furthest from Barrabooka Drive. 

8.Lot 10 is subject to considerable restrictions on the use that may be made of it. It may not be subdivided and there is no foreseeable prospect of subdivision being permitted. Additionally, Lot 10 is subject to Brisbane City Council environmental protection orders that protect all trees in the portion of the land from the house north and all vegetation in the balance area to the south of the house. The two waterways corridors that cross Lot 10 are subject to further restrictions under the Waterways Code which prohibits the use of land within those corridors in order to preserve the environmental integrity of those locations.

The approach to valuation

9.The Social Security Act does not specify any particular method for the valuation of asserts. In Kirkovski v Secretary, Department of Family and Community Services[3] Bennett J  noted:

“The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the `best use' to which the asset could be put”.

[3] [2004] FCA 790 at [17].

Her Honour did not suggest that this approach was open to question in cases involving the valuation of land.

10.In cases such as the present is appears to be customary to follow the course adopted by the Tribunal in Re Reynolds and Secretary, Department of Social Security[4]. At that time s 6AA of the Social Security Act 1947 (Cth) operated to exempt the principal home and associated curtilage of two hectares from the assets test. There, the Tribunal said of the methodology for calculating the value of the residue of a property[5]:

“(20) In summary therefore, in order to assess the value of the real property to be taken into account for the purpose of calculating the rate of the applicant's pension, the Act requires the following process. First, to obtain the market value of the whole of the real property by assessing what amount the applicant as a hypothetical but not unwilling seller could obtain for his property from a hypothetical desirous purchaser. Second, to obtain the market value of the applicant's principal home and curtilage of 2 hectares by assessing what amount the applicant, as a hypothetical and not unwilling seller, could obtain for that property from a hypothetical desirous purchaser, as if that property were capable of subdivision. Third, to disregard the value of the home and curtilage by deducting the market value of home and curtilage from the market value of the whole; the difference is then the value of the property to be taken into account for the purpose of assessing the applicant's rate of pension.”

[4](1986) 11 ALN N193 (Deputy President R A Layton, J A Kiosoglous (Senior Member) and D B Williams (Member)).

[5]        11 ALN N193 at 195.

11.To similar effect is the decision of the Tribunal in Re Fakhry and Repatriation Commission[6]. In that case the Tribunal had been provided with the advice of the Assistant Commissioner (Valuations) in the Australian Taxation Office regarding the “valuation methods employed by Australian Taxation Office valuers in valuing rural land where resubdivision is not permitted”. The method adopted was that used in Reynolds. The Tribunal there said of this method[7]:

“First, it recognises that, where a non-subdivisible block of land is essentially residential and there is planning permission for only one residence on it, once a house has been built on it the remaining land has less value proportionately to the house site than it did before the house was built. Second, it enables account to be taken of the varying nature of land within a block. For instance, a block of land of, say, 20 acres may comprise 3 acres of flat land at the top of a hill commanding magnificent views with the remaining 17 acres being a steep rocky hillside. Because of the magnificent view commanded and the relatively large area of flat land available as a house site, the 20 acres might well have a very high value, the 17 acres of rocky hillside would be worth comparatively little. We are satisfied that it is the appropriate method to use, both in respect of the applicant's land and generally, although we do not rule out the possibility that in exceptional circumstances some other method may be preferable.”

[6](1986) 11 ALD 75; 5 AAR 441 (Deputy President I R Thompson, B G Gibbs and T R Russell (Members)).

[7] At [12].

The valuation evidence

12.Mr Hughes relied upon valuations undertaken by Mr John Porter, a valuer in private practice and Mr Philip Willington, a valuer and director of Knight Frank Queensland, as well as the evidence of Mr Geoffrey James, a surveyor and town planner. Mr Porter did not give evidence however Mr Willington expressly adopted his approach and his conclusions, hence it will be necessary to consider Mr Porter’s report.

13.Mr Porter has been a valuer for over thirty years. He accepted that Lot

10 had a value of $1,000,000. He did not seek to undertake a valuation of the house and 2 hectare curtilage. Instead, he expressed the opinion that in the circumstances of this land the excess of land over and above the 2 hectare curtilage had only a nominal value as it added nothing to the 2 hectare curtilage. He put the matter in this way:

“In essence, it appears that the inclusion of the Vegetation Protection Orders in respect of all vegetation on the rear portion of the land and the addition of waterways corridors which comprise additional environmental protection matters result in the limited utility of the aggregate area of Lot 10. Furthermore, the Mount Cootha Development Control Plan limits the general use of this lot to an area of approximately 1,500 m² for a building envelope and additional areas which can be maintained for fire management or other purposes provided these areas were previously maintained prior to the introduction of the Vegetation Protection Orders in 1994. Based on these restrictions on the use of the land these ‘bush blocks’ appear to provide general amenity for the occupant but provide extremely limited utilisation. Furthermore there appears to be no potential for short, medium or long term subdivision due to the existence of the various protection orders and the minimum lot size within the Environmental Protection Area of 10 hectares in accordance with Council planning requirements.

The area which is utilised for residential dwelling and ancillary purposes, including a freestanding shed, access driveways, gardens and general ‘curtilage’ appears to be in the order of approximately 5,000m² with the balance of this lot providing privacy and general amenity. In this regard, this privacy and amenity could be achieved on an area of less than 2 hectares with the balance of the property (an additional 2 hectares approx) providing little, if any additional amenity in this regard. It is noted that the land adjoining the southern boundary of this lot comprises part of the Brisbane Forest Park and that the subject property enjoys significant private amenity from the adjoining undeveloped bushland without requiring this amenity to be provided by an additional area of 2 hectares within the boundary of the Lot.

Large ‘rural residential’ homesites (of approximately 4 hectares) could enjoy the benefit of additional value compared to smaller rural residential homesites (generally 2 hectares) if they enjoyed one of the following attributes:

·Reasonable utility of the additional land area for agricultural, recreational or other general purposes; or

·Short, medium or long term subdivision potential.

The existence of Vegetation Protection Orders in respect of all vegetation, large scale waterway corridors and extremely steep terrain result in the majority of the subject lot having little or no utility or potential for rural, agricultural, recreational or other uses. It is unlikely that there is any added value attributable to the subject property due to its area of approximately 4 hectares compared to a smaller identical lot of this nature of only 2 hectares particularly given its location adjoining the undeveloped Brisbane Forest Park adjacent to the southern boundary.

Furthermore, the topography, vegetation protection and existence of waterway corridors together with the existing Zoning Designation of Environmental Protection which is subject to a minimum lot size of 10 hectares suggests that the medium to long term subdivision potential of the subject property is most unlikely. Under these circumstances, market evidence indicates that the subject property, comprising a ‘single house site’, has no added value due to its total area in excess of 2 hectares since there is virtually no potential for future subdivision.

In summary, the subject property appears to comprise ‘a single house site’ with a substantial surrounding area of bushland which provides privacy to the occupants and general amenity. It is unlikely, due to the existence of environmental protection, vegetation protection and topography matters that prospective purchasers would pay any higher amount to acquire the subject property with a lot size of over 4 hectares compared to the purchase price if the subject dwelling was on an allotment of 2 hectares. Similarly, with a minimum lot size within this Environment Protection classification there would appear to be no medium or long term potential for subdivision which would result in current purchasers paying a premium to acquire the subject dwelling on a land area of 4 hectares compared to an identical dwelling on a 2 hectare lot.

In conclusion, I consider that the additional value of the balance land area of approximately 2 hectares in excess of a basis curtilage including the existing dwelling is the nominal sum of $1 (One Dollar) as at 12 May 2008.”

14.Mr Willington is also a valuer with over 30 years experience. As it happens he is a neighbour of Mr Hughes and lives on another allotment within the enclave at Barrabooka Drive. He agreed with Mr Porter’s approach and findings and considered that the valuation of the balance land at Lot 10 was only a nominal sum.   

15.Mr James is not a valuer, he is a surveyor and town planner by training, however he has had considerable experience in land development, particularly within The Gap, and was the State Land Manager of the company that developed the land at Barrabooka Drive at the time of the development. He resides on another allotment within the enclave. Mr James assisted Mr Hughes in preparing and presenting his case. For similar reasons to those of Mr Porter he concludes that the additional land in Lot 10, over and above two hectares, adds only a nominal value to the overall value of the land.

16.I must say that I was much assisted by the evidence and material provided by Mr Willington and Mr James.

17.The Secretary relied upon the valuation undertaken by Mr John Telford, a valuer employer in the Australian Valuation Office since 1987 and with previous valuation experience.

18.Mr Telford prepared three reports, the first dated 20 June 2008 and setting out his original valuation of Lot 10 as at 20 May 2008, the second, dated 17 February 2009, responding to the reports of Mr Willington and Mr James and the third dated 17 March 2009 and produced for the resumed hearing.

19.The first report commences by detailing the features of Lot 10, its real property description, site area, zoning and the like before providing a description of the land and its improvements, including the areas of the house. Then, under the heading “Valuation Considerations”, Mr Telford considers, and rejects, the conclusion of Mr Porter that the additional value of the balance area, that is, the land in excess of the two hectare curtilage, is the nominal sum of $1.00. That conclusion was rejected on the basis that Mr Porter’s valuation advice goes into great detail in describing the topography of the land but did not:

“attempt to compare the results and analysis of sales of similar nearby properties with the subject in order to assess the required whole value and home and curtilage value of the subject property.” [8]

[8]        Exhibit 1, page 102.

Mr Telford then goes on to describe how he used the direct comparison method of valuation, using similar nearby properties known to have been sold or “currently in the market for sale at asking process that appear likely to be closely achieved.” The report proper concludes with Mr Telford’s opinion that the whole value of Lot 10 was assessed at $1,000,000 and the home and curtilage on a maximum of 2.0 hectares was assessed at $886,000. 

20.What is immediately apparent, and is of particular importance in the present case, is that nowhere in the body of the report does Mr Telford set out the process of reasoning by which he assessed the value of the home and curtilage at $886,000. In the course of the second day of the hearing Mr Flintoff, who appeared for the Secretary, described the reasoning as being the product of Mr Telford’s judgment upon the analysis conducted by him of the comparable sales but Mr Telford, who was in the hearing room at the time, was not recalled to give that evidence despite my expressed concern that that appeared quite contrary to the form of the report.

21.That aside, the report continues with some matters of formality before Mr Telford sets out the sales evidence. That comprises two parts – sales 1 to 5 comprising improved parcels of two hectares or more and sales A to E comprising unimproved land parcels. For the sales of improved property Mr Telford undertook an analysis that determined the value of the unimproved land by deducting the value of improvements. The overall method is clear. Mr Telford undertook an analysis of the improvements on the property, deducted the value of improvements from the sale price to yield a “deduced value” of the land before apportioning that land value between the 2 hectare home site and the balance. From the “balance” value Mr Telford determined a value per hectare of the balance land.

22.Thus, of sale 1 completed on 28 June 2007 at $1,200,000 Mr Telford determined a deduced value of $908,000 for the total parcel of land of 6.5 hectares and valued the home site of two hectares at $683,600 thus determining the value of the remainder of 4.5 hectares at $225,000 or $50,000 per hectare. Similarly, the sale 2, completed on 9 July 2007 at $1,375,000, was analysed to deduce a land value of $942,200 for the 4 hectare parcel, apportioned between the two hectare home site ($822,200) and the remainder ($120,000) to produce a value for the remainder of $60,000 per hectare. The third sale, one of 2.72 hectares was analysed in a similar way to yield a value of $55,555 per hectare for the balance area above two hectares.

23.But what is absent in each of these examples is any detail of the process of reasoning by which Mr Telford determined the value of the two hectare parcel of land which varied from $683,600 for a property at The Gap (sale 1), $822,200 for a property at Brookfield (sale 2) and $662,400 for a property at Kenmore Hills (sale 3). These figures may be compared with sale 4, a sale in March 2008 of a 1.965 hectare parcel at Kenmore Hills, where Mr Telford calculated the deduced land value at $810,750. The process of determining the value of that parcel of land is evident as it is in the case of sale 5, a parcel of 1.315 hectares, but there is simply no explanation that I can discern, nor did Mr Telford offer one during his evidence, for the assessment of the two hectare land value of sales 1, 2 and 3.

24.I have even greater difficulty with Mr Telford’s treatment of sales A to E. Sale A, a parcel of 4.08 hectares at The Gap, was not, in fact, a sale. Mr Telford was unable to ascertain the sale price at the time of his report so his analysis commenced with a figure of $950,000 which was the price at which the land had been listed for sale. It is now established that the land sold at $530,000. Sale B, 4.05 hectares at The Gap, is also not a sale but the list price as at June 2008, of land that remains unsold, suggesting, I would have thought, that the list price was unrealistic and did not reflect market value. Sales C and D were sales of two parcels of land at The Gap of 0.8442 hectares and 1.28 hectares at $450,000 and $475,000 respectively. Sale E, which Mr Telford described as the “best indication” of value was a sale of one hectare of vacant land at The Gap for $740,000.

25.The orthodox valuation approach for many years has been to disregard offers to purchase as evidence of market value[9]. There seems to be all the more reason to disregard offers to sell, particularly when the prices sought were not achieved over a considerable period of time. Nonetheless Mr Telford applied an adjusted list price of these two properties in ascertaining the value of the home and curtilage. To understand how he did so it is necessary to set out an extract from his report. He said:

[9]See McDonald v Deputy Federal Commissioner of Land Tax (N.S.W.) (1915) 20 CLR 231.Cf Benzlaw & Associates P/L v Medi-Aid Centre Foundation Ltd [2007] QSC 233.

“Sales A to B are of vacant lots of similar size to the subject property and close by in The Gap. Both lots are steeply sloping as can be seen from the large variations in their levels by comparison with the subject land. However the asking prices for both properties are only indicative of the prices that would be acceptable to the vendors.

Sales C to E are of vacant lots of under 2 hectares at The Gap, which vary in price from $450,000 up to $740,000. Sale E provides the best indication as it is more recent and of a single lot with steep variations in levels.

The most reliable method to determine the additional amount that a purchaser is likely to pay for a lot in excess of the statutory limit of 2.00 hectares for home and curtilage is to consider the difference in the recent prices paid or likely to be achieved for vacant sites over and below the 2 hectare size limit. This avoids the problems created by the structural improvements that are subsequently added to the land by purchasers and which usually vary substantially and cause difficulties and errors in the sales analysis.

Applying this method to the Sales A to F inclusive, the selling agents, Ray White have still to reveal the price achieved for Sale A, although we know that the asking price before the auction was $950,000. Sale B is the other large block over 2.00 hectares, which is still on the market with a reduced asking price of $950,000. This indicates that sales are likely to be achieved for such lots at about $900,000.

Considering the land sales below the 2.00 hectare limit, the prices realised vary from the apportioned amounts of $450,000 and $475,000 for Sales C & D up to $740,000, which was achieved in the case of Sale E. Using this evidence to determine the additional value for areas in excess of 2.00 hectares produces the following result:

For Sale A at 30/5/08 4.08 ha $900,000. For Sale B at 18/6/098 4.05 ha $900,000

Sale E at 20/10/07    1.00 ha  $740,000. Sale E at    20/10/07 1.00 ha $740,000

Differences              3.08 ha   $160,000   3.05ha $160,000

Excess rates per hectare       $51,948  $52,459

Considering the improved properties, the physically closest is Sale 1 at $1,200,000 … which is considered overall to be marginally superior to the subject property as it has a larger area. However allowing for this factor, it is considered to provide the best evidence of the whole value and to confirm the originally assessed whole value of $1,000,000.

The subject property has an area 4.1297 hectares as shown on RP810098, resulting in an excess of 2.197 hectares. Applying a rate of $52,000 to this excess on which there are no structures results in an excess value of $114,244, say $114,000. The home and curtilage value, by deduction, is therefore $886,000.”  

26.It is inescapable that Mr Telford has determined the value of the excess land at Lot 10 by using “sales” A and B to determine a price per hectare of $52,000 and has calculated the value of the house and curtilage by deducting the value of the excess from the overall value. Where it has been demonstrated that Sale A was at $530,000 and that Sale B remains on the market, Mr Telford’s adoption of $900,000 is plainly erroneous and thus falsifies his entire methodology for determining the value of house and curtilage. Indeed, using Mr Telford’s methodology and the sale price of $530,000 supports the contention by Mr Hughes that the excess land in Lot 10 adds no value to that of the house and curtilage.

27.Mr Flintoff was driven to describe this exercise as being one conducted to check the figure obtained by Mr Telford’s analysis of sales 1 to 5. However even if this were true (and it flies in the face of what appears in the report) no evidence was led by the Secretary that deals with the consequences to the “check” if one of its major premises were shown to be untrue and, perhaps more importantly, the consequences to the opinion being checked.

28.Mr Telford became aware of the fact of the sale at $530,000 prior to the first day of hearing and it is referred to in his second report. Having done so he noted that he had reconsidered his earlier report and remained of the same opinion as originally expressed. Thereafter his report deals with matters referred to in the material from Mr Willington and Mr James. But nowhere did Mr Telford deal with any consequence to his earlier opinion from the fact of the sale having been completed at $530,000. Mr Telford concluded by referring to his approach which was that when considering larger residential lots over 2 hectares:

“the market is motivated by the following factors, which result in higher prices being paid:

1.The status and prestige of owning a larger block of land.

2.The security and maintenance of views over the larger land area.

3. The security of privacy and general amenity provided by the larger area (as stated by Mr Porter).

4.The larger area can provide flexibility in the choice of a home site.

5.Many prospective purchasers are attracted to larger lots, all other factors being equal, and are usually prepared to pay more.”     

29.When Mr Telford was asked during his evidence on the first day what he made of the fact that sale A had been completed at $530,000 he insisted that that must have been a forced sale despite being told that the evidence before the Tribunal to that point was quite to the contrary. He doggedly maintained the stance that sale A must have been a forced sale and refused to reconsider his calculation on the footing that it was not.

30.Ultimately the hearing was adjourned to enable the Secretary to obtain evidence to support Mr Telford’s conviction that sale A was a forced sale. When the matter resumed I was informed that the Secretary now accepted that sale A at $530,000 was a normal, arms’ length sale that had no element of financial pressure to it.

31.But in the meantime Mr Telford had produced his third report dated 17 March 2009. In it Mr Telford started by considering a further relevant sale at Dillon Road, The Gap (sale 6) which had been completed on 10 July 2008 at $1,260,000. He then undertook a summation valuation of 62 Barrabooka Drive by reference to the value of improvements and the land values yielded by an analysis of sales 1 and 6. This exercise led Mr Telford to conclude that the value of Lot 10 was $1,016,870 (rounded down to $1,000,000) and that the value of the house and two hectare curtilage, rounded down in the same proportion, was $892,000. On that basis the excess was valued at $108,000. After some initial confusion Mr Flintoff confirmed, during the second day of hearing, that Mr Telford had not undertaken the valuation evidenced by his original report using the summation method.

Discussion

32.As is apparent, there is much that I find most unsatisfactory in the evidence and approach of Mr Telford. If it were the case that his original valuation of $886,000 for the house and curtilage was undertaken on the basis of the direct comparison method, then he has failed to explain his process of comparison, that is, how the particular properties compared with the subject property. The only hint of comparison appears in reference to sale 1 which is described as “subject inferior to evidence” and later in the report as “marginally superior to the subject property as it has a larger area”. But on the face of Mr Telford’s report the figure of $886,000 is the product of the exercise set out in paragraph [25] above.

33.One of the underlying premises of that exercise, the assumed sale price of sale A, has been shown to be quite wrong. The other, the assumed sale price of sale B, seems to be overly optimistic given that the property remains unsold. If the achieved sale price of sale A is used in the exercise the result produced seems to demonstrate the proposition advanced on Mr Hughes’ side, that is, that the additional land adds nothing to the overall worth of Lot 10. No attempt has been made by the Secretary to deal with the consequences of the sale at $530,000 beyond Mr Telford’s assertion that he had reconsidered his valuation and remained of the same opinion. That is hardly satisfactory given the use earlier made of the assumed sale price of $900,000.

34.Neither was Mr Telford’s repeated refusal to deal with my questions to him about the effect of the price of $530,000 on his conclusions. His insistence that the sale must have been a forced sale despite being told that the evidence, in the form of an e-mail from the selling agent, was to the contrary was not what the Tribunal is entitled to expect from an expert witness, a fortiori one employed by the Commonwealth.

35.Equally unsatisfactory, for the same reason, was Mr Telford’s advocacy of Centrelink’s case. There is undoubtedly a role for an expert witness to report on factual or logical errors in the evidence of other experts. That is a necessary and a perfectly proper task. But the thrust of much of Mr Telford’s criticism, in his oral evidence and in his third report, is that the other witnesses have not followed “the statutory method”. The statute does not prescribe a method of valuation. The statute requires a determination of the value of excess land and cases in the Tribunal have established a mechanism, commonly followed, by which that may be determined.

36.But ultimately the issue is one of valuation. The opinion of Mr Porter and Mr Willington is that, in the unusual circumstances of this case, the surplus land within Lot 10 adds nothing to the value of the dwelling and the two hectare curtilage. To say that they have failed to use the “statutory method” seems to me to misunderstand the thrust of their opinions which Mr Telford seems never to come to grips with.

37.I am left in the position where, insofar as Mr Telford concludes that the value of the dwelling and two hectare curtilage is $886,000, I am unable to accept that opinion because I am unable to ascertain the process of reasoning or because the process of reasoning is demonstrably flawed. I according reject Mr Telford’s assessment of $886,000 as the value of the house and curtilage of Lot 10.

38.It then becomes necessary to consider Mr Telford’s alternative formulation of the valuation contained in the third report dated 17 March 2009. By the summation method Mr Telford concluded that the dwelling and curtilage had a value of $892,000. That conclusion was drawn from an analysis of sales 1 and 6 which Mr Telford describes as “slightly superior home sites to the subject’s home site.” But the difficulty I have with Mr Telford’s analysis of the land value of sale 1 is repeated in the case of his analysis of sale 6. In each case, having determined in a conventional manner the value of improvements and the total land value, Mr Telford apportioned the value between the two hectares homesite and the remainder in a manner that does not demonstrate how the value of the homesite was ascertained. In each case the value is given using the term “say” – “say, $683,200” in the case of sale 1 and “say, $720,000” in the case of sale 6.

39.I cannot see how those figures are reconcilable with the sale price of $740,000 achieved for sale E, the sale of one hectare of vacant land at Yarrabee Road, The Gap in October 2007 which Mr Telford described as “the best indication” of vacant land prices.

40.That difficulty aside, using the same method Mr Telford concluded that the value of the two hectare homesite on Lot 10 was “say, $600,000”. The difference between the values ascribed to the homesites in sale 1 and sale 6 and that in Lot 10 is justified on the footing that they are “slightly superior home sites” to Lot 10. Having had the benefit of inspecting all three blocks (sale1 and sale 6 were inspected from the road) and having viewed the considerable detail available in the evidence regarding the properties I cannot see how Mr Telford could reach that conclusion.

41.Lot 10 is an elevated block with commanding views over the valley to the north. In that position it would benefit from northerly and easterly breezes but be protected from westerly winds. It is set in a private enclave. Sale 1, on the other hand, is located in a gully and lies below the road level on what is a relatively busy road which connects The Gap with Kenmore, Brookfield and surrounding suburbs. It has a vastly inferior aspect to Lot 10. I would have thought that its amenity and position would be significantly inferior to that of Lot 10 rather than the other way round.

42.Mr Telford’s opinion is that the value of the sale 6 homesite is necessarily 20% greater than that of the Lot 10 homesite. Sale 6 has a similar aspect, although seemingly surrounded by more trees, and a similar elevation, to Lot 10 but I would not have regarded the sale 6 homesite to be markedly superior to that on Lot 10. It is not possible to observe the house from the road however there is considerable evidence by way of photographs, including aerial photographs, and contour maps from which one can obtain a good impression of the nature and amenity of the sale 6 land. By reference to that material, and my impressions of Lot 10 from the inspection of it, I would have thought that Lot 10 and sale 6 were, at the very least, reasonably comparable.

43.For these reasons, together with my generally unfavourable view of Mr Telford’s evidence, I am unable to accept his reasoning that produces the conclusion that the Lot 10 dwelling and two hectare curtilage had a valuation of $892,000.

44.It remains to consider the case advanced by Mr Hughes that the balance area of Lot 10 added only a nominal amount to the overall value of the lot. I must say that I found Mr Porter’s reasoning, which was adopted by Mr Willington, to be most persuasive. Lot 10 is in a most unusual position. As Mr Porter noted the balance land has no utility. Any prospective purchaser would be aware that the restrictions on its use prevent any meaningful use being made of the additional land. There is no realistic prospect of any future subdivision such that a prospective purchaser might pay a premium to acquire the balance land. The existing public land on two sides of Lot 10 provides ample privacy and amenity for any owner.

45.In his report Mr Telford listed the factors that motivated purchasers of land over two hectares. The specific factors that he mentions – status and prestige, views, privacy and general amenity – are present in Lot 10 if it were limited to the two hectare curtilage. There appears to no greater presence of those factors from the balance land. The additional land does not offer any realistic choice of home site. The gradient of the land to the south of the existing dwelling is such that I would have thought it to be unrealistic to regard that land as offering any additional choice of home site. Mr Telford may well be correct to say that prospective purchasers are attracted to larger lots, all other factors being equal and are usually prepared to pay more but where, as here, that additional land offers no additional tangible or intangible benefit I accept the views of Mr Porter and Mr Willington that that additional land has no additional worth over and above the value of the two hectare homesite.

46.This case presents an extreme example of the type referred to in Fakhry where the worth of the overall parcel is concentrated in the curtilage area and the balance effectively adds nothing to the value of the whole. By reference to Reynolds it may be said that the value of the dwelling and the two hectare curtilage is for all practical purposes the same as the value of the whole.

47.There is some corroboration of this view in Mr Telford’s analysis of sale 6. It is not for me to undertake an exercise in valuation since I am not qualified to do so. But if my impression of the relative merits of Lot 10 and sale 6 is correct, Mr Telford’s assessment of the value of the two hectare homesite would confirm that the remainder land has no value. 

48.The result is that the value of the excess land is of no practical value and, in my view, no amount ought be brought into account for the balance area when calculating the rate of pension to which Mr and Mrs Hughes are entitled. I would then set aside the decision under review and remit the matter to the Secretary with a direction to determine the entitlement of Mr Hughes and Mrs Hughes to age pension on the basis that the balance of the land at Lot 10 over and above the dwelling house and two hectare curtilage, has no value.

I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC

Signed:         .................Signed.................................................
  Melissa Hamblin, Associate

Dates of Hearing  18 February 2009 & 15 April 2009

Date of Decision  29 April 2009
For the Applicant  In person
For the Respondent                  Mr P Flintoff, Centrelink Legal Services