Micasea Pty Ltd v Department of Natural Resources and Mines

[2004] QLC 80

LAND COURT OF QUEENSLAND

CITATION:	Micasea Pty Ltd v Department of Natural Resources and Mines [2004] QLC 0080
PARTIES:	Micasea Pty Ltd (applicant)
v.
Chief Executive, Department of Natural Resources and Mines (respondent)
FILE NO:	AV2003/0226
DIVISION:	Land Court of Queensland
PROCEEDING:	Appeal against annual valuation under the Valuation of Land Act 1944
DELIVERED ON:	28 September 2004
DELIVERED AT:	Brisbane
HEARD AT:	Rockhampton
MEMBER	Dr NG Divett
ORDER:	The appeal is dismissed, and the unimproved value of Lot 1 on RP 619734 as determined by the Chief Executive in the sum of Four Hundred and Twenty-Five Thousand Dollars ($425,000) is affirmed.
CATCHWORDS:	Valuation – Method of valuation – Classification approach – Use of beast area check Valuation – Statutory valuation – Valuation of Land Act 1944 – Sales evidence – Sales analysis – Applied unimproved value
APPEARANCES:	Mr A Boyd for the appellant Mr K Fisher, Crown Law for the respondent

Background:

1. This matter relates to land known as "Carlisle" located on the Dawson Highway about 29 kilometres west of Moura.  The subject land has an area of 1,849 hectares, and is used for beef cattle grazing, and described as Lot 1 on RP 619734, Parish of Rhydding.  The matter was heard in conjunction with an appeal against a valuation of the subject land at 1 October 2000 (AV2001/0335), which was determined by this Court on 28 September 2004.  The current matter relates to a later valuation at 1 October 2002.  The key issues in this matter relate to the use of a beast area method of classification and the application of the sales evidence.

2. On 26 February 2003 the Chief Executive issued a valuation of the subject land at $425,000.  Following an objection the Chief Executive confirmed that figure on 1 July 2003.  The appellant has now appealed claiming the unimproved value should more properly be $266,070.  At the hearing on 1 June 2004 the agent for the appellant (Mr Boyd) led evidence to an unimproved value of $395,000. 

3. Alister Forrest McClelland Boyd appeared and gave evidence for the appellant.  Mr Boyd’s experience and background was noted in AV2001/0335, and I will not repeat those comments.  Mr K Fisher, Counsel of Crown Law appeared for the respondent, calling evidence from Mark Sydney Craig, a registered valuer now defending the valuation.

4. The history of the valuation, changes in the market in the shire, and nature of the subject land were all agreed, and are detailed in the earlier matter.

Grounds of appeal –

1. The two major grounds of appeal relate to the use of a beast area classification method, and comparisons of comparable sales.  In respect of the relevance of a “beast area classification” method of valuing, I refer to the decision on the process as outlined in AV2001/0335, and I will not repeat those findings.  However I accept that Mr Boyd’s checking of the unimproved values assessed could provide some useful final check on the outcomes achieved by the direct comparison approach with the sales evidence. 

2. In respect of the comparison of sales approach, I note Mr Boyd provides reliance upon the use of a “conservative” application of the analysed values of the sales evidence.

The use of a conservative application –

1. Mr Boyd seeks support in his assumption that a conservative application of around 90% of the analysed value would provide a more useful comparison with the common Sale 1 (Karemba).  He argues that Mr Craig has sought to apply that property at 101% of the analysed value at $600,000, when, in his opinion, a more realistic application of 90% would result in an applied unimproved value for Sale 1 of $521,877.60 or $264.38 per hectare.  The need for such a conservative approach, he argues, has long been the practice of the Chief Executive over many years, and was recently approved by this Court in AJ and JA O’Brien v Department of Natural Resources and Mines (RV2002/0315 & Ors), 9 July 2003, unreported.  Mr Boyd notes that in considering the analyses of sales in that matter the learned Member said at paragraph [30]

   "After hearing Mr Naish's evidence as to the review which had taken place to the original analysis of the "Yerinan" sale, and bearing in mind that valuation is not an exact science, it would be optimistic for the respondent to expect that a closer examination of each component of the analysis of any highly improved sale would not reveal some areas where review could be argued as warranted.  It is for that reason that some caution needs to be exercised in the application of sales evidence.  It is observed that in the sales of "Warambah", "Clelland" and "Randwick Downs" the analysed unimproved values were near fully applied (99.8%, 97.4% and 98.1%) when the added value applied to the improvements were assessed at $1,018,431 (72.35% of the sale price), $781,745 (71.6%) and $562,993 (70.37%) respectively.  Those figures suggest that little margin was allowed for any possible review of the sales analyses."

2. The unimproved values in that matter were reduced by about 5% to allow for some "meaningful benefit of doubt when the purpose of the valuations is for revenue gathering".  (paragraph [32]).

   To further support his opinion Mr Boyd also refers to the applications applied to the analysed values of the three key sales in that matter at between 97.4% and 99.8%, while the added values of the improvements upon those sales were only analysed and assessed at 70.4% and 72.5%. 

3. Another decision of this Court was also relied upon by Mr Boyd in Various Appellants v Chief Executive, Department of Natural Resources (AV99-1109 & Ors) 16 October 2000, unreported.  In those matters dealing with 11 properties in the Barcaldine, Ilfracombe, Aramac and Longreach Shires, Mr Boyd notes that the Chief Executive’s valuers had applied the analysed 13 sales adopted for those matters at between 82.3% and 94.1%, or at an average applied rate of about 90%.  Mr Boyd argues that such a conservative approach is supported by the general principle that some caution should be applied when dealing with valuations for revenue or rating purposes.  He argues that is supported by the directions of the High Court in Commissioner of Succession Duties (South Australia) v Executor Trustee and Agency Company of South Australia Limited & Ors (1946-47) 74 CLR 358, at 373.

4. Mr Craig accepts that the respondent has consistently sought to apply comparable sales evidence in a conservative manner, where the market is reasonably stable.  However he notes that when the market is rising rapidly, then such a conservative application is not appropriate in order to seek the market level at the relevant date.  Mr Craig advises that at 1 October 2002 market evidence indicated that the current sales applied were not the highest sales available, and in fact several higher sales had achieved levels of $990 per hectare to $700 per hectare, well in excess of the level of value ($230 per hectare) applied to the subject land.  Mr Craig notes that those higher sales were rejected in the current matter, as they reflected market increases of 100% to 200% approximately.  The current applied unimproved value of the subject land has disclosed a market increase of 70%.  Mr Craig further offers comment that over the last five months of 2004, the property sales have subsequently shown massive after-date increases in value, but these are not relevant to the current matter.

5. In respect of Mr Boyd's reliance upon AV99-1190 & Ors (supra), I note that there had been some uncertainty about some of the key sales adopted.  For example, the "Ascot Downs" sale and resale had included a number of stock (sheep) unknown to the respondent during his initially analysis of that sale, (p.9), but later allowed for by the respondent’s valuers, although offset by adjustments to a lower figure for the added value of improvements.  Those sales were then discarded by the respondent as one of his basic sales.  It is also noted that the level of value applied to "Avonlea" is not based upon the sale itself (p.14).  Further in the matter of Crooke –King v Chief Executive, Department of Natural Resources (AV99-1249) 16 October 2000, the Member noted that the report of the respondent’s valuer (Mr Taylor) was "non-speaking" when it comes to the specific application of value (p.42), thus leading to difficulty in any cogent analysis of his valuation.  Those variations lend weight to the use of conservative applications in those matters.

6. If I turn to Mr Boyd's reliance upon the Executor Trustee principle, I note that expressly states per Dixon J at 373:

   "I have had the advantage of reading the judgment prepared by Williams J. and agree in it.  I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases.  In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax.  While this difference cannot change the test of value, it is not without effect upon a court’s attitude in the application of the test.  In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate."

7. Now in making any conservative estimate, it is important to note that the application of the Executor Trustee principle provides both as a rule to ensure adequate compensation is paid when the land is resumed, and secondly to the application of conflicting valuation evidence.  It is noted that the principle does not imply that all doubts must, on the balance of probabilities, be resolved in favour of the appellant in revenue cases.  It should be seen as a principle of limited scope and application, and subject to the Court's determining a fair value of the land.  (Land Acquisition, 4^th edition by D Brown (Butterworths) at 108.  As Dixon J noted it "cannot change the test of value". 

8. In seeking guidance about level of application of sales evidence, I note the findings of the Land Appeal Court in Chief Executive, Department of Natural Resources v Radlett Enterprises Pty Ltd (1997-98) 18 QLCR 397. In that matter the valuer for the Chief Executive had relied upon comparisons with unimproved values applied to several not directly comparable sales, rather than the specific unimproved values shown by the analysis of those sales. The Land Appeal Court found at 403:

   "The sales as selected could hardly have been described as being of land directly comparable with the subject land.  Apparently, however, the sales had been seen to afford the best evidence available relative to land which was limited by the same restrictions as the legislation placed on the subject land, for valuation purposes.  It was not until after the chief executive had analysed and considered the specific sales evidence seen to be comparable, that the question of the values "applied" by him to those lands was focussed upon." 

9. The Land Appeal Court went on to say at 404:

   "The actual sales of those lands did not suggest that the applied values, although conservative, were wrong.  We are therefore unable to agree that the analysed values shown by those sales had, on the evidence, been disregarded by the chief executive, or that the market evidence has been discarded in favour of unsupported valuation opinion.  As Mason J said in Federal Commissioner of Taxation v St Helen's Farm (ACT) Pty Ltd (1980-81) 146 CLR 336 at page 381:

   'Valuation is a matter of estimation, not of precise mathematical calculation.'

   Valuation is intended to be an interpretation of a market, which in itself is imprecise, even when it is created by vendors and purchasers who satisfy the often quoted qualifications necessary to meet the test explained in Spencer v The Commonwealth of Australia (1907) 5 CLR 418."

10. However the Land Appeal Court also warned at 404:

    "It would be a different matter if the overall sales evidence had been disregarded and supplanted by unsupported valuation opinion.  Clearly there must be a limit to the degree of variance between the analysed value of a particular sale property and the value applied to that property, beyond which it could be fairly said that the sale had been disregarded.  There can be no arbitrary limit to such variance:  each case must be decided on its merits.

    We see it as a reasonable and acceptable policy that the chief executive should take a conservative approach to the application of sales evidence in making valuations for revenue gathering purposes:"

11. While Radlett does acknowledge that in appropriate cases the use of a conservative approach to the application of sales is reasonable, it emphasises that each case must be decided on its merits.  If I turn then to the evidence in this matter I note that Mr Craig's sales are provided in a market, where sales evidence indicates an increase in value at the relevant date in 2000.  If I consider the four sales I find:

    SaleDate               Application

    1 (Karemba)May 2001       101%

    2 (unnamed)          July 2001        93%

    3 (Meekathara)     March 2002     97%

    4 (Culbara)May 2002       55%

    Mr Craig agrees that his Sale 4 (Culbara) was purchased by the Driscoll family, who are large property owners in Duaringa Shire.  He has only applied 55% of that sale, and I agree with Mr Boyd that such a low application leads to the conclusion that little reliance is made upon that sale, other than to support the larger increases in value occurring subsequent to October 2002.  I place no reliance upon Sale 4 in this matter.

12. In respect of Sale 2 (93%) and Sale 3 (97%) I note those applications reflect the earlier date of sale in a rising market.  Those applications also tend to fit generally within the broad range of applied values of some of the accepted sales in AV99-1190 (supra).  The main concern of Mr Boyd appears to lie with the key common sale (Karemba) which has been applied above its analysed rate.  But that sale occurred in May 2001, some 17 months before the relevant date in this matter.  As that is Mr Craig’s professional opinion of what would have been the value of Sale 1 at 1 October 2002, I see no error in that logic.

13. In respect of any approach to average the applied rates of the sale in AV99-1190, I note that the process of applying some statistical average in such processes has long been rejected as an appropriate method of determining the value of land.  I note for instance in the matter of Daandine Pastoral Company Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 305, where Williams J said in the High Court of Australia on 26 August 1943: 

    "This method of averaging to my mind is unsound.  The prices obtained at comparable sales should not be aggregated and averaged, especially when the prices obtained on sales of small areas are dealt with in this way in order to obtain the value per acre of a large area.  The only safe course is to compare each sale with the subject land separately."

    That principle has been upheld by lesser courts on many occasions subsequently. 

14. However, the use of averaging was seen as a useful check by Chamberlin J in Robson and Jarvis v The Minister of Education (SA) (1964) 18 The Valuer 486, where he said at 490:

    "I recognise that the unscientific use of averages is a fruitful source of fallacy, but where there are a number of sales at about the same time of more or less identical blocks at somewhat different prices, an average may provide a useful check."

15. The possible use of aggregating in appropriate circumstances was also accepted in Fenton Nominees Pty Ltd v The Valuer-General (1981-82) 47 LGRA 71, where Wells J said at 80:

    "There is no doubt that an average was struck, but, on the evidence before me, I am satisfied that that averaging was proper;  Mr Quintrell was dealing, not with a number of purchases, that were, in all respects, separate transactions, but with a series of purchases, each of which was viewed and treated by the purchaser as an integral part of the one operation of assembling a commercial site."

16. The principle of aggregating prices was rejected on appeal in that matter to the Full Court (1981-82) 47 LGRA 83, per King CJ at 87. However, that was reversed by the High Court in 47 LGRA 95, where the Full Court said at 99:

    "“We do not accept the argument that the manner in which the sites were 'assembled' by purchases of separate parcels so as to make up the totality of the relevant commercial sites led to the developers paying a special price. The primary judge was right in rejecting this argument. In this respect it is of paramount importance that the evidence assists in establishing what commercial developers were prepared to pay for the vacant land comprised in the overall sites which they assembled." (See also (1981-82) 150 CLR 160 at 167).

17. However, Fenton Nominees Pty Ltd v The Valuer-General can be distinguished in the current matter as the averaging of rates of application of the sales for purposes of determining an appropriate rate for the subject land involves separate disparate parcels with differing attributes and features.  That distinction was also apparent in Robson and Jarvis (supra).  On balance I believe the option of an average rate of application of the sales evidence has no sound basis.

Comparison of Sales –

1. I turn then to the sales comparisons, and note that Mr Boyd accepts Mr Craig's Sale 1 (Karemba), but rejects Sale 2 (unnamed) and Sale 3 (Meekathara) as being in a different geographic locality to the subject land.  Mr Boyd bases that opinion upon guidance that greater reliance is placed upon sales close to the subject lands rather than to sales more distant, provided that they are otherwise comparable.  Mr Boyd notes that Sale 3 (Meekathara) is located about 150 kilometres removed from the subject land, in the northern part of the Duaringa Shire north of the Duaringa to Blackwater Highway.  As noted by Mr Craig in AV2001/0335, paragraph [11], that area of grazing land is seen as inferior grazing lands compared to the Bauhinia Downs lands of the subject land.  Because of their different geographical location, Mr Boyd had not visited Sales 2 or 3. 

2. However Mr Boyd notes that Sale 3 (Meekathara) is seen as having a greater percentage of scrub country, 85% compared to 65% on the subject land, yet is seen as having similar carrying capacity of 1 beast to 4.1 hectares.  He notes also that Mr Craig's analysis of Sale 3 reveals the presence of crops and stools suggesting some farming potential.  Mr Boyd also notes that Sale 2 (unnamed) comprises 70% forest country, compared to the 35% forest on the subject land, and he argues those are differences which reduce the comparability of that sale.  However Mr Boyd agrees that Sale 1 (Karemba) is a very comparable property, with good downs and scrub country (95%), a higher carrying capacity of 1 beast to 3.1 hectares, and is therefore clearly superior to the subject land.  The only difference with Mr Craig is the application of that sale in the comparison to the subject land.

3. Mr Craig provides the following sales which are all adequately watered:

   ·    Sale 1 – (Karemba – Lot 2 on SP 101354).  This is a 1,974 hectare property located to the west of the subject land.  The sale has superior country, but inferior access and location to the subject land.  The sale comprises 46% good scrub, 36% fair scrub, 13% downs and 5% good forest country, and is seen overall as superior to the subject land.  The sale sold in May 2001 for $1,130,000, and after allowing for improvements including timber treatment and interest ($455,280), was analysed at $579,864, and applied at $600,000 (101%).  The sale shows $294 per hectare.  The sale carries 1 beast to 3.18 hectares.

4. ·    Sale 2 – (unnamed – Lot 36 on K 406 Reserve 19 (SL 35/51625) and Lot 6 on K 4018 and Lot 3 on K 406 and Lot 2158 on LHDT 40326).  The sale has an area of 1,156 hectares, and is located to the north of the subject land and south-west of Duaringa.  The sale has inferior country, superior location, and similar access to the subject land.  The sale comprises 9% downs, 22% good scrub, 47% good forest, 17% fair forest and 6% poorer forest country, and is seen overall as inferior to the subject land.  The sale sold in July 2001 for $415,000, and after allowing for improvements including timber treatment and interest ($61,898) was analysed at $251,145, and applied at $232,500 (93%).  The sale shows $217 per hectare.  The sale carries 1 beast to 5.12 hectares.

[28]

·    Sale 3 – (Meekathara – Lot 9 on HT 313, GHFL 9652).  This is a 2,002 hectare property located in the northern part of Duaringa Shire, north of the Duaringa to Blackwater Highway.  The sale has similar country and slightly inferior access and location to the subject land, and overall is seen as similar to the subject land.  The sale comprises 20% good scrub, 65% fair scrub and 15% good forest.  The sale sold in March 2002 for $1,550,000, and after allowing for some crops and stools ($3,500), and improvements including timber treatment and interest ($731,782), was analysed at $443,977, and applied at $430,000 (97%).  The sale shows $222 per hectare.  The sale carries 1 beast to 4.15 hectares. 

[29]

·    Sale 4 – (Culbara – Lot 7 on KM 271).  This is a 3,701 hectare property located to the north of the subject land, about as far removed as Sale 1 (Karemba).  The sale is slightly inferior country, has inferior access and overall is seen as slightly inferior to the subject land.  The sale comprises 63% good scrub, 26% good forest and 11% poor forest.  The sale sold in May 2002 for $2,750,000, and after allowing for improvements including timber treatment and interest ($864,422), was analysed at $1,247,353, and applied at $680,000 (55%).  The sale shows $337.03 per hectare, and carries 1 beast to 4.4 hectares.  For the reasons noted in paragraph [17], I place no reliance on that sale.

1. If I then summarise the three relevant sales, I find the following broad comparisons:

   SaleArea               Analysed Rate  Comparison

   1 (Karemba)1,974 ha          $294 per hectare  Superior

   2 (unnamed)          1,156 ha          $217 per hectare  Inferior

   3 (Meekathara)     2,002 ha          $222 per hectare  Similar

   Subject land          1,849 ha          $230 per hectare  -

   Now, if I accept Mr Boyd's opinion that Sales 2 and 3 are too far removed from the subject land to provide much assistance, I could be left with only Sale 1 (Karemba) which is agreed is superior in value.  However, in relying on the use of comparable sales, the experienced valuer needs to ensure that he does not rely entirely upon only limited sales, where an error of judgment in applying the comparable sales could lead to an error in the final valuation.  I note for example in Waalt Homes v Road Construction Authority (1987) 64 LGRA 346, where Gobbo J said at 354:

   "It is well-established that the use of comparable sales is to be preferred as the primary method of valuation, and it is obvious that the hypothetical development analysis method offers many opportunities for error in its various assumptions and calculations.  But this argument can be given too much weight, for one error of judgment in applying a comparable sale can readily lead to a significant error in the final valuation.  Particularly is this so if there are few sales and no obviously discernible trend."

2. I turn then to Sale 2 (unnamed) and note that it comprises a much larger percentage of forest country, and has a lower beast area classification level.  It is also located in the area to the north of the better Bauhinia Downs country located near the subject land.  The major advantage of Sale 2 is its better location nearer to Duaringa.  On those comparisons, I agree with Mr Craig that overall Sale 2 is inferior to the subject land.

3. If I turn then to Sale 3 (Meekathara), I find that while it does lie in the northern part of the Shire, which overall is inferior grazing lands, the actual land type is 85% scrub and 15% good forest. I agree that better country type would tend to balance any inferior location and access to that sale. I believe the presence of crops and stools ($3,500) was more likely to reflect a short term nature of the economic returns available as part of a structured timber clearing strategy as advised by Mr Craig in AV2001/0335 at paragraph [15].

Summary –

1. In summarizing this matter I believe Mr Craig's comparisons are reasonable, and Mr Boyd has not adequately demonstrated any error or use of a wrong principle.  As s.33 of the Act directs that, unless proof to the contrary, then the valuation of the Chief Executive must be accepted as correct.  The evidence does not demonstrate any error by Mr Craig.  The higher subsequent sales, though not relied upon, support a rising market at the relevant date.

Conclusion:

1. Having considered the whole of the evidence, I am not persuaded that the appellant has proved his case.  The appeal is dismissed, and the unimproved value of Lot 1 on RP 619734 as determined by the Chief Executive in the sum of Four Hundred and Twenty-Five Thousand Dollars ($425,000) is affirmed.

NG DIVETT

MEMBER OF THE LAND COURT