McPaul v Chief Executive, Department of Natural Resources

[1996] QLC 138

[1996] QLC 138

 

  LAND COURT

BRISBANE

23 October 1996

Re:     Appeal against annual valuation -
Valuation of Land Act 1944 -
  Shire of Mareeba.
  (AV96-05).

David William McPaul
  v.
  Chief Executive, Department of Natural Resources

(Hearing at Mareeba)

D E C I S I O N

Mr DW McPaul is the owner of land described as Lot 2 on Registered Plan 737779, Parish of Tinaroo, County of Nares, containing an area of 10.49 hectares.  Under the provisions of the Valuation of Land Act 1944, as at 1 January 1995, the respondent determined the unimproved value of that land at $64,000.  An objection by Mr McPaul against that valuation was disallowed and he appealed to the Land Court against the respondent's decision upon his objection, advising that his estimate of the unimproved value was $18,000.
           The grounds of the appeal fall into two categories:

(i)the property is used solely as an agricultural farm and should be valued as land used for purposes of farming and not as a rural residential site;

(ii)in making the valuation the Chief Executive has failed to take into account the following matters:

•the land is situated on top of the jump up, an area which is known for its stony nature which causes costly repairs to machinery;

•half the property is poor yellow clay, one hectare is steep rocky hill and the balance is of poor reddish soil;

•the property cannot be subdivided;

•the guarantee for electricity is $1020, the water allocation is 43 megalitres;

•the previous valuation of the property was $22,000 and even that was excessive.

At the hearing of the appeal Mr DW McPaul appeared and gave evidence, while the respondent was represented by Senior Valuer Mr K Allan and evidence for the respondent was given by Mr WB Bowen, a registered valuer employed by the Department of Natural Resources.
           The subject land is situated fronting the bitumen sealed Kennedy Highway, approximately 2.5 kms north of Walkamin, 11 kms south of Mareeba and 75 kms south-west of Cairns.  Mr McPaul agreed with the description of country contained in Mr Bowen's report, which was as follows:

"Country comprises 10.49 ha of near level to gently sloping volcanic red soil; of which 1 ha is not suitable for agriculture due to excessive stone and slope.  The balance comprises yellow-red-brown clay soils with scoria influence.  These areas have been cultivated and developed for homesite purposes.   "

The land is zoned "Rural A" under the Town Planning Scheme for the Shire of Mareeba, which allows for the development of a single unit dwelling house as well as for agricultural use.
           Apart from the stony area of approximately one hectare which is undeveloped, the balance of the land has been cleared to cultivation stage.  A house, large shed and fowl run are located in the north-western corner of the property, which has a 43 megalitre water allocation supplied from a Water Resources channel on the opposite site of the Kennedy Highway.
           Mr McPaul explained that on an area of approximately two hectares in the north-eastern part of the property he has a plantation of 620 mango trees, of which 200 are at bearing age and another 300 of which he expects to bear lightly this year.  The balance 120 are only seedlings and he expects them to bear lightly in about two years' time.  As at the relevant date, 1 January 1995, he said that approximately 150 to 160 trees should have been bearing fruit, but they did not flower that year and only 42 trees did bear lightly.
           Mr McPaul could not explain why such a small percentage of the trees produced fruit.  He said there was a poor crop right through the Mareeba district that year.  He sold the produce of the 42 trees for in excess of $4,000.  The previous year, 1994, he had grossed less than $3,000 from his mango crop.
           By February 1997, Mr McPaul expects that 500 trees will be bearing fruit which, based on anticipated price of $100 per tree for the 200 larger trees and $20 per tree for the 300 smaller trees, should produce a gross income of approximately $25,000.  However, it was impossible to estimate what the crop would be, because the mangoes did not flower until August/September and could be affected by strong winds, disease, etc.
           Mr McPaul said that in 1994 he grossed about $2,000 from pumpkins which he grew between the mango trees and this year (1996) he had grossed $3,250.  However, he did not grow pumpkins in 1995.
           On the balance seven hectares of the subject land at the date of hearing Mr McPaul was growing cow peas.  However, in January 1995, he was not using those seven hectares but had the area leased to his neighbour to the south to grow corn, for the period from Christmas 1994 to May 1995, at the rate of $100 per acre for 18 acres, a total of $1800. 
           From May 1995 until Christmas 1995, the area was allowed to lie fallow and was then again leased to the neighbour for $1600, this time to grow cow peas.
           Mr McPaul has owned, or jointly owned, the land for approximately eight years.  He said for most of that time it had been leased to his neighbour, who does not pay the rates, but paid for the water and electricity that he uses.
           Mr McPaul said that his background was in the cattle industry, he was not a farmer and had little experience in growing mangoes, although he was learning.  At the expiry of the present lease, he intends to grow pumpkins on approximately 10 to 12 acres of the subject land, which he estimates could produce 15 tons to the acre at, say, $200 per ton, a gross of about $30,000.
           Therefore, he said that if all goes well, by the end of 1997, he hopes to gross approximately $25,000 from mangoes and up to $30,000 from pumpkins, if seasons and prices are favourable.  From this he expects that he could net around $35,000, which he said would be a viable farming enterprise.
           Mr McPaul arrived at his estimate of unimproved value of $18,000 for the subject land by deducting from what he considered to be the improved market value of the land his estimate of the value of improvements, including "the small fortune" that had been spent on removing stones, etc.
           Mr McPaul contends that the dominant use of the land is for agricultural purposes; the house being used in conjunction with the agricultural use; and therefore the land should be valued as farming land and not as a rural residential site.  He conceded that at the relevant date the income produced from the land was less than the expenditure on sprays, water charges, packing, labour and rates, so that the property was running at a loss, as it was too small.  However, he said that all businesses run at a loss at the beginning and the mango enterprise should be viable next year.  However, the income from pumpkins would depend on the price at the time.
           While Mr McPaul was of the opinion that the subject land should not be valued as a rural residential site, he admitted that it was a pleasant place to live and had reasonable rural views.
           For the respondent, Mr Bowen gave evidence that he valued the subject land as a rural residential property.  It was within easy commuting distance of Mareeba and Atherton and within an hour's drive of Cairns.  It had bitumen sealed access, electricity, telephone and water from the irrigation scheme.  He did not believe the property should be valued under the concessional provisions of s.17 of the Act.  While not disputing the gross return obtained by Mr McPaul from his crops, he said that with only 42 bearing trees out of approximately 200, it represented a massive crop failure for the balance 75% of the crop.  When the income was set against the outgoings for water charges, packing costs, self labour, rates, wear and tear on implements, fuel, etc., the income would have fallen well short of expenditure. 
           Mr Bowen did not consider that a mango tree reached full production until it was seven or eight years old.  He thought that a grafted tree of about two years' old should have the flowers picked off to promote further foliage and growth.  Between two and seven years a tree was not achieving its full potential.  He did not consider that it would be worth the intensive labour of going from tree to tree to produce from each perhaps one tray of inferior fruit.  It was clear that he thought Mr McPaul's estimates of future gross returns were somewhat optimistic. 

Mr Bowen was well aware of the quality of the land described by Mr McPaul, its stony nature, its inferior clay soils, etc.  However, he thought that the land had many attributes which made it attractive as a rural residential property.  He said that on such a property an owner could plant tree crops which would not require intensive labour, except for picking periods, and could use the income produced to help pay the rates and outgoings.  In other words, the property would make an attractive hobby farm.
           In support of his valuation of $64,000, Mr Bowen referred to four lightly improved sales in the Mareeba area:

Sale 1, located in Hodzic Road, Biboohra, about 15 kms north of Mareeba, with an area of 12.32 hectares, sold in 1993 for $39,000, and analysed to show an unimproved value of $35,000.  He described that property as an undulating forest block with no potential for cultivation, no water, no power, gravel access within 4 kms of a bitumen road.  It was not as well situated as the subject land and he considered that the subject property was superior to Sale 1.

Sale 2, situated in Chewko Road, about 10 kms south-east of Mareeba, with an area of 10.84 hectares, sold in July 1993 for $50,000, and analysed to show an unimproved value of $47,500.  He described that property as level to low lying forest, with track access, but within 300 metres of a bitumen road, with Water Resources water available.  The purchaser of that property advised him that he purchased the property with the specific intention of developing it to produce grapes.  Mr Bowen considered the subject land to be superior to Sale 2.

Sale 3, situated in Ray Road, about 3 kms south of Mareeba, with an area of 2.003 ha, sold in July 1994 for $50,000, and analysed to show an unimproved value of $49,000.  Mr Bowen described that property as a level forest block, with access to a water allocation, with bitumen access.  That property was purchased predominantly for residential purposes with some rural production for domestic use.  He considered the subject property to be superior to Sale 3.

Sale 4, situated in Martin Road, Chewko, about 7 kms south-east of Mareeba, with an area of 8.828 ha, sold in October 1994 for $57,000, and analysed to show an unimproved value of $54,500.  Mr Bowen described that property as level to sloping forest, with access to a water allocation, on a gravel road but within 500 metres of a bitumen road.  That land had potential either for tree crops or for rural residential use, but while the water on the subject land was obtained by gravity flow, the water on Sale 4 had to be pumped and was not as cost effective.  He considered the subject land to be superior to Sale 4.

Mr Bowen emphasised that the purchaser of Sale 2 had bought the land with the intention of using it for farming.  However, it had sold for a price which was consistent with the prices for the other properties which were to be used for rural residential purposes.  He said that a genuine farmer, wishing to purchase land for farming purposes, would have to meet the market for such land in the Mareeba area, a market which would include rural residential purchasers.  Therefore, he came to the conclusion that there was no difference in the market for small rural properties, whether or not they were to be used for farming or for rural residential purposes.  He felt that the provisions of s.17 of the Act were irrelevant in these circumstances.
           Before proceeding further, it is necessary to consider the provisions of s.17 of the Act.  Section 17(1), so far as is relevant for this case, provides that where land is exclusively used for purposes of "farming", then any enhancement in the value of that land for any other purpose must be disregarded.  Sub-section (2) of s.17 defines "farming" 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.  "

That section and its predecessor, (s.11(1)(vii)), have been the subject of intensive litigation for many years.  The leading authorities on s.17, as it is presently expressed, are Whackett v. Chief Executive, Department of Lands, Thomason v. Chief Executive, Department of Lands and Chief Executive, Department of Lands v. Higbie, as yet unreported decisions of the Land Appeal Court delivered on 3 March 1995.  Those cases have established the following propositions:

•The definition of "farming" may be satisfied where the subject land is used by someone other than the appellant;      

•However, each of the requirements of the definition must be satisfied;

•The expression "dominant use" implies that some other use may be made of at least part of the land and it does not necessarily follow that the other use must be incidental or ancillary to the dominant use;

•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 appear to require a trading or business activity of important or considerable size (Taylor v. Chief Executive, Department of Lands (1993) 14 QLCR 477);

•Each case must be considered on its own merits and it is not possible to set numerical or financial requirements which would be applicable in every case.

In the present case, in my view, it is not necessary to consider other than the requirements contained in the paragraphs (c) and (d).  It could not be seriously suggested that the activities conducted on the subject land as at the relevant date had a significant and substantial commercial purpose or character, as the business activity was not what could be described as of important or considerable size.  As at that date, the activity was a modest one, the type of mango orchard which would be an adjunct to rural residential use. 
           Nor could it be said that the activity was engaged in for the purpose of profit on a continuous or repetitive basis.  On Mr McPaul's own admission, the enterprise had not made a profit because it was simply too small.  The modest income produced from the activities did not cover the expenditure involved in producing it.
           However, it was argued by Mr McPaul that all businesses make a loss in the early years.  He gave evidence of the future profits that he hoped would be made from the mango plantation and from his intended activities on the balance of the land.
           In my opinion, little weight can be given to the anticipated returns from the mango plantation.  The last year proved disastrous, as only 42 out of a possible 200 trees bore fruit. 
           It is well established (Walker v. Valuer-General (1978) 5 QLCR 347 at 349), that in considering the use to which the subject land was put, the jurisdiction of this Court is confined to the period between the date of valuation the date of issue of the valuation. In this case the date of valuation was 1 January 1995 and the date of issue was prior to 30 June 1995.
           Furthermore, it matters not what use the owner intends to put the land in the future or the returns that he hopes will be realised.  Mr McPaul's intentions and hopes for future use are irrelevant.  In MacAdam v. Valuer-General, an unreported decision delivered 18 September 1981, the Land Appeal Court said:

"We stress that intentions, hopes and aspirations, however sincere, are not sufficient to constitute a business of primary production.  They must be supported and affirmed by substantial and positive actions of a type and magnitude which are approaching or may be reasonably certain to reach commercial viability.  "

On the whole of the evidence before me, I cannot find that the activities conducted on the subject land during the relevant period constituted exclusive use of the land for purposes of "farming" as defined by s.17 of the Act.  Therefore, that ground of appeal must fail.
           The other grounds of appeal relate to matters which Mr McPaul contended were not taken sufficiently into account by the Chief Executive in arriving at the unimproved value of the subject land.  However, the evidence given by Mr Bowen has convinced me that all the attributes of the land, both positive and negative, have been taken into account by him in arriving at the valuation of $64,000.  In addition, Mr Bowen has applied the correct principles of valuation by directly comparing the subject land with sales of comparable land in the area (see Grahn v. Valuer-General (1992) 14 QLCR 327).
           In the circumstances, I have no alternative other than to find that Mr McPaul has not discharged the statutory burden of proving his grounds of appeal.  Therefore, the appeal must fail.
           In view of my finding, it is not necessary to consider the correctness of the conclusion arrived at by Mr Bowen, that there was no difference in the unimproved value which should be determined for small rural properties, whether or not they were used for farming or for rural residential purposes.  As discussed above, he concluded that it did not matter whether land was purchased for either of those uses, as the purchasers had to compete on the same market.
           Although it is not necessary to decide this matter, for the future guidance of the Chief Executive and his officers, I feel that it is necessary to say that if such an approach is taken, it would be necessary to prove on the balance of probabilities, that there was no enhancement in the market value of farming properties because of a potential use for rural residential purposes.  This could be demonstrated only by producing sales of both types of property and showing that the demand for rural residential properties had not forced up the price of farming properties.  In closely settled areas, this could be difficult.
           This matter was discussed in detail in respect of s.11(1)(vii) of the Act (the predecessor to s.17), by the learned former President of this Court, Mr WFG Smith, in APM Forests Pty Ltd v. Valuer-General (1975) 2 QLCR 30, at pp.38-40.
           In the present case, the valuations made by the Chief Executive indicate that a distinction was made between "farming" properties and those used for rural residential purposes.  Mr Bowen gave evidence that the unimproved value applied to the 40 hectare farming property to the south of the subject land was $53,000.  That property, some four times the size of the subject land and comprising somewhat similar land, had an unimproved value which was less than that applied to the subject land.  That evidence would seem to be contrary to Mr Bowen's contention that there was no difference in the market for "farming" and for rural residential properties.
           However, as stated earlier, that matter does not fall for determination before me on this occasion, because I have found that the subject land does not qualify for the concessional valuation under the provisions of s.17 of the Act.
           Accordingly, the appeal is dismissed and the unimproved value of the subject land as at 1 January 1995, as determined by the respondent, in the sum of $64,000 is affirmed.

(JJ Trickett)         
  President of the Land Court