McKenzie v Department of Natural Resources and Mines

[2004] QLC 12

LAND COURT OF QUEENSLAND

CITATION:	McKenzie v Department of Natural Resources and Mines [2004] QLC 0012
PARTIES:	James R and Patricia McKenzie (applicants)
v.
Chief Executive, Department of Natural Resources and Mines (respondent)
FILE NO:	V2003/0643
DIVISION:	Land Court of Queensland
PROCEEDING:	An Appeal against an Unimproved Valuation - Shire of Paroo - Valuation of Land Act 1944
DELIVERED ON:	27 February 2004
DELIVERED AT:	Brisbane
HEARD AT:	St George
MEMBER	Mr RE Wenck
ORDER:	The appeal is allowed and the valuation of the chief executive set aside.  The unimproved value is determined in the amount of Two Hundred and Twenty Thousand Dollars ($220,000) as at 1 October 2001.
CATCHWORDS:	Statutory Valuation - Unimproved value - Valuation of Land Act 1944 - Alteration of valuation - Reclassification of country types Valuation - Sales evidence - Reduced determinations based on same sales evidence - Relativity between valuations
Sales Evidence - Reliability of unimproved analyses of highly improved sales - Sale of improved subject property - Whether sale reflected fair improved market value - Unimproved analysis of sale
APPEARANCES:	Mr JR McKenzie for the applicants
Mr K Fisher (Crown Law) for the respondent

1. This is an appeal against the unimproved valuation of a property known as "Gamarren" which is situated about 100 km by road south-easterly of Cunnamulla, in the Shire of Paroo.

2. The real property description of the land is Lot 2 CS2:GHPL15/1824; Lot 4 CS2:GHPL15/1823, Parish of Cockatara; Lot 6 NO4GHPL15/1825, Parish of Floriana.  The total area of the property is 26,523 ha. 

3. "Gamarren" was purchased by Mr and Mrs McKenzie by contract dated 28 April 2001, for the sum of $800,000 including livestock (sheep).  The chief executive's valuers had analysed the sale to show an unimproved land value of $57,699.  No detailed analysis of the sale was provided to the Court but the sale had been considered by the valuers to be "low", part of the reasoning being that the property had "sold for ill health/retirement reasons".

4. As at 1 October 2001 the chief executive's valuation had initially been in the amount of $247,500.  The owners had objected to that valuation.  The valuation was then "reconsidered as an error and issued again on 25 March 2003" in the reduced amount of $237,500 - "to better reflect relativity with the sales evidence, adjoining properties and an alteration in country class".  An area of 1,281 ha previously included as "gidgee and watercourse" was removed from that classification and included in the "sandhill" classification.

5. The owners had then objected to the new valuation but this objection was disallowed.  The decision on the objection was made on 15 July 2003.  The owners, being dissatisfied with the objection decision, filed a notice of appeal in the Land Court.  Their estimate of the unimproved value of "Gamarren" at the relevant date of valuation was $204,000.  That had been the chief executive's valuation of the land as at 1 October 1998.

6. The grounds of appeal are as follows:

   "We believe the valuation to be excessive as we purchased Gamarren in May 2001 and we paid market value for it at the time.  We were present at the Court hearing for Avondale and feel our objection is similar.  Gamarren's grazing capacity has decreased due to woody weed infestation and this has decreased the value."

7. This Court in 2003 had heard and determined several appeals against unimproved valuations in Paroo Shire, as at the same relevant date, 1 October 2001.  In those matters the respondent chief executive through his valuer, Mr GG Naish, had relied on sales of the properties " Yerinan", "Warambah", "Cleland" and "Randwick Downs".  The decisions on those appeals were delivered subsequent to the date on which the valuation of "Gamarren" now appealed against was issued.

8. One of the appeal properties was "Avondale", which adjoins the western part of "Gamarren" to the south-west.  Mr Schmidt, the owner of "Avondale" had placed some reliance on the sale of "Gamarren" as indicative of the downturn, during the past decade, in the market value of district grazing lands and particularly those which had suffered degradation from woody weed infestation.  Mr Schmidt had called Mr McKenzie to give evidence as to the circumstances surrounding the sale of "Gamarren".

9. Mr McKenzie's evidence was consistent in the "Avondale" appeal and the subject appeal.  "Gamarren" had been well exposed to the market having been offered at auction in February 2001 and passed in after no bid had been received.  The vendor was not in good health and had been living in Cunnamulla and had decided to retire.  The property had been managed by a member of the vendor's family.  It was common ground between the parties that while the vendor was unable to achieve his asking price, the sale was not made under "forced" conditions.  Mr McKenzie thought the price was "fair" and reflective of the woody weed problem and the state of the improvements.

10. An extract from the contract of sale showing the apportionment of the sale price had been tendered through him in the "Avondale" appeal and was again tendered in this matter.  "Land and Timber" had been apportioned at a "cost" of $215,450, sheep and wool at $149,736, the balance of the sale price comprising various improvements.  The vendor's accountant had been involved in apportioning some of the individual values.

11. In the "Avondale" appeal Mr Schmidt's estimate of the unimproved value shown by the "Gamarren" sale, which had indicated an increase of 6.13% above the previous departmental valuation of $204,000 (as at 1 October 1998), had not been challenged by the chief executive.  However the Court found that the "question of the added value of the improvements is not satisfactorily answered ... by simply accepting the apportionment of values adopted for the purposes of the contract."

12. In this matter as indicated earlier, Mr Naish's report contained the result, but not the details of his adopted analysis of the sale, showing an unimproved land value of only $57,699.  The sale had been rejected by him as evidence of "fair" market value on the basis of the low unimproved value reflected by the adopted analysis.  Part of his evidence was that the vendors had been hoping to achieve a sale price of $13 to $15 per acre bare, but had accepted only $10.31 per acre.

13. A sale of a property subject of a valuation should provide the best evidence of the value of that property, at the date of sale, provided the circumstances surrounding the sale meet the test of fair market value (Inez Investments Pty Ltd v Dodd (1979) 26 The Valuer 501 at 505).  Despite Mr Naish's opinion, the circumstances relevant to the "Gamarren" sale would appear on Mr McKenzie's evidence to meet the test, to which Isaacs J referred in Spencer v The Commonwealth [1907] 5 CLR 418 at 441:

    "To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration.  We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property."

14. One of the difficulties facing the Court is that adoption of the apportionment of the sale price in the contract of sale has previously been rejected as inconclusive and then no detailed analysis of the sale has been provided by Mr Naish for examination.  Clearly the added value of the improvements as adopted by him is called into question if the unimproved valuation appealed against is correct.  Comment was made in the earlier "Avondale" decision of Mr Naish's inability to produce detailed analyses of the sales on which he had relied.  It would have been expected that when the sale of the subject property was pertinent to the grounds of appeal, and no challenge had been made to the appellants' evidence regarding this sale, in the "Avondale" matter, that Mr Naish would have included in his report the detailed analysis on which he had relied to conclude that the sale was out of line with the market.

15. It was explained to the Court by the chief executive's counsel, Mr Fisher, that Mr Naish had been placed in a difficult position with regard to preparation of his defence of the appeal as a result of the timing of the hearing, its location and his recent transfer to another district.

16. Nevertheless, the approach taken by Mr Naish in this matter has indicated what is seen to be disregard for the reasoning for this Court's decisions in the other relevant Paroo Shire appeals.

17. The amended valuation of "Gamarren" subject of this appeal, was made and issued prior to the decisions in other relevant appeals.  The reasons for the valuation having been reduced were said to have been associated with the historical classification of country being wrong, then to better reflect relativity with the sales evidence and the valuations of adjoining properties.

18. In the relevant Land Court decisions, one of the sales (of "Yerinan") upon which the valuation basis had been adopted was found to be unreliable and appeals against the valuations of that particular sale property were allowed and reduced albeit to a limited extent.  Mr Naish persisted in relying on that sale as providing basic evidence of value although on this occasion based on the unimproved value determined by the Court.

19. Further, in the relevant Land Court decisions it had been found that "little margin was allowed for any possible review" of the sales analyses of the properties "Warambah", "Cleland" and "Randwick Downs".   In the reasons for the "Avondale" appeal, a decision to which reference was also made in the grounds of the subject appeal, is found the following comment:

    "I do not accept that the basic sales provide, even on an unchallenged analysis basis, sufficiently strong evidence for a uniform increase of 25% above the previous unimproved valuations of those properties or of 'Avondale'.  The use which the chief executive made of the 'Yerinan' sale and his rejection of the 'Gamarren' sale further support that conclusion."

    Again, in the "Avondale" decision a relatively small reduction (from an overall $13.28/ha to $12.80/ha) before consideration of other matters, was made.  That represented an increase of about 20% rather than 25%, above the previous valuation.

20. Other relevant appeal decisions by the Court involved similar reductions resulting in increases above the previous valuation of about 20%.

21. In this matter Mr Naish made no adjustment to the values applied to those remaining three sale properties and continued to rely on the relativity between those values and the unimproved value of "Gamarren" appealed against.

22. The opportunity was given to him during the hearing to reconsider his valuation approach, in light of the Court's findings relative to the sales evidence.  However after some deliberation, Mr Naish endeavoured to convince the Court that no further alteration was warranted.  He seemed to rely on the fact that when "Gamarren's" valuation was reviewed it then represented an increase of 16% only over the previous (1998) valuation after an initial increase of 21%, and the Court decisions had reduced an initial 25% increase on "Avondale" and other relevant appeal properties to about 20%.  He suggested that even if a more conservative application of, say, 90% of the analysed unimproved value of the sale properties was to be accepted as satisfying the Court's criticism of the full application of 99.8%, 97.4% and 98.1% respectively, the relativity between "Gamarren's" valuation and those reduced applications would remain reasonable.

23. It is illogical, in my opinion, to suggest as Mr Naish did, that the subject valuation of $8.95/ha which was considered to be in correct relativity with valuations actually applied to the sale properties would remain in correct relativity if those applied valuations were notionally reduced from $11.73/ha to $10.57/ha ("Warambah"); $9.20/ha (but incorrectly recorded as $8.62/ha) to $8.53/ha ("Cleland") and $11.89/ha to $10.90/ha (Randwick Downs") respectively.

24. The fact that the subject valuation represented an increase of 16% over the previous valuation in comparison with the increases of about 20% found by the Court for the other appeal properties has no relevance.  In reality the valuation appealed against had been seen by Mr Naish to have been in correct relativity when the valuations of those appeal properties had stood, before the Court intervention, as showing a 25% increase.  In any event the percentage increase of 16% is based on a previous valuation which must also have been calculated on a historically incorrect classification of country.

25. Other matters raised by Mr McKenzie related to the woody weed infestation, stock carrying capacity, artificial water and access disabilities.

26. Mr McKenzie had identified the extent of woody weed infestation on a plan of the property.  He estimated that heavy infestation affected between 40% to 50% of the property and such infestation was not restricted to the red sandy country with an understorey of false sandalwood existing in the gidyea country.  The extent and nature of the woody weed infestation had been one of the important considerations when the purchase of the property had been negotiated.  Reference was made to the associated difficulties and impacts on management of stock, the costs of stock handling including the need for aerial mustering and the control of feral animals.

27. In his oral evidence, Mr Naish did not disagree with Mr McKenzie's estimate of the area or nature of the property which was affected by the woody weed infestation.  It is observed however that in the sale report for "Gamarren" his comment was that the woody weed problem existed in "the red sandy country".

28. In his report Mr Naish had accepted a departmental historical assessment of carrying capacity for valuation purposes as being one dry sheep equivalent (DSE) to 2.8 ha totalling 9,473 sheep.  Mr McKenzie's evidence was that there were 6,400 sheep on the property when it was purchased and it had not been possible to maintain those numbers since due to drought conditions.  However he produced a report dated 11 March 1999 produced by the Department of Natural Resources and Mines in connection with a proposal under the South West Regional Adjustment Project.  In that report the "long-term carrying capacity, based on the area grazed at that time, which comprised 26,910 ha, including an enclosed stock route and roads, was 1 DSE to 3.66 ha (7,345 DSE).  Reference had been made in the report to a pre-1989 "Crown" carrying capacity estimate having been 8,338 DSE, reassessed as at 1 January 1990 to 6,955 DSE.  Mr McKenzie believed that while stock numbers would fluctuate with the seasons, a long-term average of 1 DSE to 3.66 ha was realistic.  He agreed that at the date of sale there had been potential for improvement of the actual carrying capacity at that time through clearing of some vegetation.  An application to the Department for a clearing permit had been made accordingly but had not received departmental approval to the date of the hearing.  Mr Naish believed that the application related to the destruction of vegetation which would not have been expected to have been of environmental concern to the Department.

29. Mr Naish said that he had not placed any specific valuation reliance on the historical departmental carrying capacity estimate except that it was a guide for relativity purposes.  The same standards have been used for rating valuation purposes for individual properties and it was his opinion that even if those estimates which were based on full development potential, were found to be optimistic by other departmental standards, associated with lease management, they were at least consistent from one property to another.  Nevertheless it would seem that if the historical classification of country had been found to have been inaccurate and the extent of country with superior potential had been over-estimated, then some adjustment of the historical estimate of carrying capacity potential would also have been required, even for relativity comparisons.

Conclusions

1. The circumstances surrounding the sale of "Gamarren" are not such as to support a conclusion that it should necessarily be regarded as a "low" sale in its improved condition.  However the unimproved value content in the sale price as found in the departmental or indeed the owners' analyses has not been of assistance in determining the unimproved valuation of the property.

2. I have not been persuaded to accept that Mr Naish's valuation is supported, after consideration of the basis of valuation, the application of the sales evidence or his opinions as to correct relativity with other valuations which had been determined by the Court.  Mr Naish should have given much closer consideration to the facts which emerged from the earlier Court hearings and the merits of this appeal, than was revealed by his evidence and inflexible stance.

3. It seems to me that the most comparable sales evidence would have come from the property "Cleland".  Had a more conservative application of the analysis of that sale been adopted, as seems reasonable, a valuation of $8.30/ha for "Gamarren" would have been a realistic result.  It follows that I have been persuaded that the valuation appealed against is excessive and should be reduced to $220,000 or a rounded $8.30/ha.

Order

The appeal is allowed and the valuation of the chief executive set aside.  The unimproved value is determined in the amount of Two Hundred and Twenty Thousand Dollars ($220,000) as at 1 October 2001.

RE WENCK

MEMBER OF THE LAND COURT